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Principles of Marketing

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Principles of Marketing Global Edition

Philip Kotler Northwestern University

Gary Armstrong University of North Carolina

Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

15e

Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within the text.

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© Pearson Education Limited 2014, 2012

The rights of Philip Kotler and Gary Armstrong to be identified as authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Authorised adaptation from the United States edition, entitled Principles of Marketing, 15th Edition, ISBN 978-0-13-325541-6 by Philip Kotler and Gary Armstrong, published by Pearson Education © 2014.

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Dedication

To Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben; Nancy, Amy, Melissa, and Jessica

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About The Authors

Philip Kotler is S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Manage- ment, Northwestern Univer- sity. He received his master’s degree from the University of Chicago and his PhD from M.I.T., both in economics. Dr. Kotler is author of Marketing Management (Pearson Prentice Hall), now in its fourteenth edition and the most widely used marketing textbook in

graduate schools of business worldwide. He has authored doz- ens of other successful books and has written more than 100 articles in leading journals. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article in the Journal of Marketing.

Professor Kotler was named the first recipient of two ma- jor awards: the Distinguished Marketing Educator of the Year Award given by the American Marketing Association and the Philip Kotler Award for Excellence in Health Care Marketing pre- sented by the Academy for Health Care Services Marketing. His numerous other major honors include the Sales and Marketing Executives International Marketing Educator of the Year Award; the European Association of Marketing Consultants and Trainers Marketing Excellence Award; the Charles Coolidge Parlin Mar- keting Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor “outstanding contributions to science in marketing.” A recent Forbes survey ranks Professor Kotler in the top 10 of the world’s most influen- tial business thinkers. In a recent Financial Times poll of 1,000 se- nior executives across the world, Professor Kotler was ranked as the fourth “most influential business writer/guru” of the twenty-first century. And he recently topped BusinessEducators .com’s “Management A-List of Academics,” based on outstand- ing achievements as well as Google global Web search interest.

Dr. Kotler has served as chairman of the College on Mar- keting of the Institute of Management Sciences, a director of the American Marketing Association, and a trustee of the Marketing Science Institute. He has consulted with many major U.S. and international companies in the areas of marketing strategy and planning, marketing organization, and international marketing. He has traveled and lectured extensively throughout Europe, Asia, and South America, advising companies and governments about global marketing practices and opportunities.

Gary Armstrong is Crist W. Blackwell Distinguished Profes- sor Emeritus of Undergraduate Education in the Kenan-Flagler Business School at the Uni- versity of North Carolina at Chapel Hill. He holds under- graduate and master’s degrees in business from Wayne State University in Detroit, and he received his PhD in marketing from Northwestern Univer- sity. Dr.  Armstrong has con- tributed numerous articles to

leading business journals. As a consultant and researcher, he has worked with many companies on marketing research, sales management, and marketing strategy.

But Professor Armstrong’s first love has always been teaching. His long-held Blackwell Distinguished Professor- ship is the only permanently endowed professorship for dis- tinguished undergraduate teaching at the University of North Carolina (UNC) at Chapel Hill. He has been very active in the teaching and administration of Kenan-Flagler’s undergradu- ate program. His administrative posts have included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director of the Business Honors Program, and many others. Through the years, he has worked closely with business student groups and has received several UNC campus-wide and Business School teaching awards. He is the only repeat recipient of the school’s highly regarded Award for Excellence in Undergraduate Teaching, which he received three times. Most recently, Professor Armstrong received the UNC Board of Governors Award for Excellence in Teaching, the highest teach- ing honor bestowed by the 16-campus University of North Carolina system.

7

As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing

an introductory marketing text. Professor Kotler is

one of the world’s leading authorities on marketing.

Professor Armstrong is an award-winning teacher

of undergraduate business students. Together they

make the complex world of marketing practical,

approachable, and enjoyable.

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9

Preface 16

Part 1 Defining Marketing and the Marketing Process 24 1 Marketing: Creating and Capturing Customer Value 24 2 Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Part 2 Understanding the Marketplace and Consumers 90 3 Analyzing the Marketing Environment 90 4 Managing Marketing Information to Gain Customer Insights 122 5 Consumer Markets and Consumer Buyer Behavior 156 6 Business Markets and Business Buyer Behavior 188

Part 3 Designing a Customer-Driven Strategy and Mix 212 7 Customer-Driven Marketing Strategy: Creating Value for Target Customers 212 8 Products, Services, and Brands: Building Customer Value 246 9 New-Product Development and Product Life-Cycle Strategies 282 10 Pricing: Understanding and Capturing Customer Value 310 11 Pricing Strategies: Additional Considerations 334 12 Marketing Channels: Delivering Customer Value 360 13 Retailing and Wholesaling 394 14 Communicating Customer Value: Integrated Marketing Communications Strategy 426 15 Advertising and Public Relations 454 16 Personal Selling and Sales Promotion 482 17 Direct and Online Marketing: Building Direct Customer Relationships 514

Part 4 Extending Marketing 546 18 Creating Competitive Advantage 546 19 The Global Marketplace 572 20 Sustainable Marketing: Social Responsibility and Ethics 602

Appendix 1 Marketing Plan 633 Appendix 2 Marketing by the Numbers 643 Appendix 3 Marketing Careers 661

Glossary 673 Index 683

Brief Contents

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Preface 16

Part 1: Defining Marketing and the Marketing Process 24

Marketing: Creating and Capturing Customer Value 24

What Is Marketing? 26 Marketing Defined 27 | The Marketing Process 27

Understanding the Marketplace and Customer Needs 28 Customer Needs, Wants, and Demands 28 | Market

Offerings—Products, Services, and Experiences 28 |

Customer Value and Satisfaction 29 | Exchanges and

Relationships 29 | Markets 29

Designing a Customer-Driven Marketing Strategy 30 Selecting Customers to Serve 31 | Choosing a Value

Proposition 31 | Marketing Management Orientations 31

Preparing an Integrated Marketing Plan and Program 34 Building Customer Relationships 34

Customer Relationship Management 34 | The Changing

Nature of Customer Relationships 38 | Partner Relationship

Management 41

Capturing Value from Customers 41 Creating Customer Loyalty and Retention 42 | Growing Share

of Customer 42 | Building Customer Equity 43

The Changing Marketing Landscape 44 The Changing Economic Environment 44 | The Digital

Age 45 | The Growth of Not-for-Profit Marketing 48 | Rapid

Globalization 48 | Sustainable Marketing—The Call for More

Social Responsibility 49

So, What Is Marketing? Pulling It All Together 50

Reviewing Objectives and Key Terms 51 | Objectives Review 51 |

Key Terms 53 | Discussion and Critical Thinking 53 |

Discussion Questions 53 | Critical Thinking Exercises 53 |

Applications and Cases 54 | Marketing Technology 54 |

Marketing Ethics 54 | Marketing by the Numbers 54 | Video Case:

Zappos 55 | Company Case: Abou Shakra Restaurant 55

1

Contents

Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Company-Wide Strategic Planning: Defining Marketing’s Role 63

Defining a Market-Oriented Mission 63 | Setting Company

Objectives and Goals 64 | Designing the Business Portfolio 65

Planning Marketing: Partnering to Build Customer Relationships 70

Partnering with Other Company Departments 71 | Partnering

with Others in the Marketing System 72

Marketing Strategy and the Marketing Mix 72 Customer-Driven Marketing Strategy 73 | Developing an

Integrated Marketing Mix 76

Managing the Marketing Effort 77 Marketing Analysis 77 | Marketing Planning 78 | Marketing

Implementation 79 | Marketing Department Organization 80 |

Marketing Control 81

Measuring and Managing Return on Marketing Investment 81

Reviewing Objectives and Key Terms 61 | Objectives Review

83 | Key Terms 62 | Discussion and Critical Thinking 62 |

Discussion Questions 84 | Critical Thinking Exercises 63 |

Applications and Cases 63 | Marketing Technology 85 |

Marketing Ethics 63 | Marketing by the Numbers 85 |

Video Case: OXO 64 | Company Case: Trap-Ease America 86

Part 2: Understanding the Marketplace and Consumers 90

Analyzing the Marketing Environment 90

The Microenvironment 93 The Company 93 | Suppliers 93 | Marketing Intermediaries 94 |

Competitors 94 | Publics 95 | Customers 95

The Macroenvironment 96 The Demographic Environment 96 | The Economic

Environment 103 | The Natural Environment 104 |

2

3

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

11

2

12 Contents

The Technological Environment 106 | The Political and Social

Environment 107 | The Cultural Environment 110

Responding to the Marketing Environment 113

Reviewing Objectives and Key Terms 93 | Objectives Review

115 | Key Terms 94 | Discussion and Critical Thinking 94 |

Discussion Questions 116 | Critical Thinking Exercises 95 |

Applications and Cases 95 | Marketing Technology 117 |

Marketing Ethics 95 | Marketing by the Numbers 96 |

Video Case: Ecoist 96 | Company Case: Xerox 118

Managing Marketing Information to Gain Customer Insights 122

Marketing Information and Customer Insights 124 Assessing Marketing Information Needs 125 Developing Marketing Information 126

Internal Data 126 | Competitive Marketing Intelligence 127

Marketing Research 128 Defining the Problem and Research Objectives 129 |

Developing the Research Plan 129 | Gathering Secondary

Data 130 | Primary Data Collection 131 | Implementing the

Research Plan 140 | Interpreting and Reporting the Findings 141

Analyzing and Using Marketing Information 141 Customer Relationship Management 141 | Distributing and

Using Marketing Information 142

Other Marketing Information Considerations 144 Marketing Research in Small Businesses and Nonprofit

Organizations 145 | International Marketing Research 146 |

Public Policy and Ethics in Marketing Research 147

Reviewing Objectives and Key Terms 126 | Objectives Review

148 | Key Terms 149 | Discussion and Critical Thinking 128 |

Discussion Questions 128 | Critical Thinking Exercises 128 |

Applications and Cases 128 | Marketing Technology 150 |

Marketing Ethics 129 | Marketing by the Numbers 129 | Video

Case: Domino’s 151 | Company Case: Meredith 152

Consumer Markets and Consumer Buyer Behavior 156

Model of Consumer Behavior 158 Characteristics Affecting Consumer Behavior 159

Cultural Factors 159 | Social Factors 162 | Personal

Factors 167 | Psychological Factors 171

Types of Buying Decision Behavior 174 Complex Buying Behavior 174 | Dissonance-Reducing Buying

Behavior 175 | Habitual Buying Behavior 175 | Variety-Seeking

Buying Behavior 175

The Buyer Decision Process 176 Need Recognition 176 | Information Search 176 | Evaluation

of Alternatives 177 | Purchase Decision 177 | Postpurchase

Behavior 178

4

5

The Buyer Decision Process for New Products 178 Stages in the Adoption Process 179 | Individual Differences in

Innovativeness 179 | Influence of Product Characteristics on

Rate of Adoption 180

Reviewing Objectives and Key Terms 159 | Objectives Review

181 | Key Terms 160 | Discussion and Critical Thinking 160 |

Discussion Questions 160 | Critical Thinking Exercises 182 |

Applications and Cases 161 | Marketing Technology 161 |

Marketing Ethics 161 | Marketing by the Numbers 183 | Video

Case: Goodwill Industries 162 | Company Case: Porsche 184

Business Markets and Business Buyer Behavior 188

Business Markets 190 Market Structure and Demand 191 | Nature of the Buying Unit 191

Business Buyer Behavior 193 Major Types of Buying Situations 193 | Participants in

the Business Buying Process 194 | Major Influences on

Business Buyers 194 | The Business Buying Process 197 |

E-Procurement: Buying on the Internet 199

Institutional and Government Markets 200 Institutional Markets 202 | Government Markets 203

Reviewing Objectives and Key Terms 183 | Objectives

Review 205 | Key Terms 184 | Discussion and Critical Thinking

184 | Discussion Questions 206 | Critical Thinking Exercises

185 | Applications and Cases 185 | Marketing Technology 185 |

Marketing Ethics 207 | Marketing by the Numbers 186 | Video

Case: Eaton 186 | Company Case: Cisco Systems 208

Part 3: Designing a Customer-Driven Strategy and Mix 212

Customer-Driven Marketing Strategy: Creating Value for Target Customers 212

Market Segmentation 215 Segmenting Consumer Markets 215 | Segmenting Business

Markets 222 | Segmenting International Markets 223 |

Requirements for Effective Segmentation 224

Market Targeting 224 Evaluating Market Segments 224 | Selecting Target Market

Segments 225

Differentiation and Positioning 232 Positioning Maps 232 | Choosing a Differentiation and

Positioning Strategy 233 | Communicating and Delivering the

Chosen Position 238

Reviewing Objectives and Key Terms 217 | Objectives Review

217 | Key Terms 240 | Discussion and Critical Thinking 218 |

Discussion Questions 218 | Critical Thinking Exercises 240 |

Applications and Cases 219 | Marketing Technology 219 |

Marketing Ethics 241 | Marketing by the Numbers 219 | Video

Case: Boston Harbor Cruises 241 | Company Case: Bentley

Motors 242

6

7

Contents 13

Products, Services, and Brands: Building Customer Value 246

What Is a Product? 248 Products, Services, and Experiences 249 | Levels of

Product and Services 249 | Product and Service

Classifications 250

Product and Service Decisions 253 Individual Product and Service Decisions 253 | Product Line

Decisions 258 | Product Mix Decisions 258

Services Marketing 259 The Nature and Characteristics of a Service 260 | Marketing

Strategies for Service Firms 261

Branding Strategy: Building Strong Brands 266 Brand Equity 266

Building Strong Brands 267 | Managing Brands 274

Reviewing Objectives and Key Terms 253 | Objectives Review

275 | Key Terms 254 | Discussion and Critical Thinking 254 |

Discussion Questions 254 | Critical Thinking Exercise 276 |

Applications and Cases 255 | Marketing Technology 255 |

Marketing Ethics 255 | Marketing by the Numbers 255 | Video

Case: Life Is Good 277 | Company Case: Mavi Jeans 278

New-Product Development and Product Life-Cycle Strategies 282

New-Product Development Strategy 284 The New-Product Development Process 285

Idea Generation 285 | Idea Screening 287 | Concept

Development and Testing 289 | Marketing Strategy

Development 290 | Business Analysis 291 | Product

Development 291 | Test Marketing 292 |

Commercialization 293

Managing New-Product Development 293 Customer-Centered New-Product Development 293 | Team-

Based New-Product Development 294 | Systematic New-

Product Development 294 | New-Product Development in

Turbulent Times 295

Product Life-Cycle Strategies 295 Introduction Stage 297 | Growth Stage 298 | Maturity Stage

298 | Decline Stage 299

Additional Product and Service Considerations 301 Product Decisions and Social Responsibility 301 |

International Product and Services Marketing 303

Reviewing Objectives and Key Terms 282 | Objectives Review

282 | Key Terms 283 | Discussion and Critical Thinking 283 |

Discussion Questions 283 | Critical Thinking Exercises 305 |

Applications and Cases 284 | Marketing Technology 284 |

Marketing Ethics 284 | Marketing by the Numbers 306 | Video

Case: Subaru 285 | Company Case: Google 307

8

9

Pricing: Understanding and Capturing Customer Value 310

What Is a Price? 312 Major Pricing Strategies 313

Customer Value-Based Pricing 313 | Cost-Based Pricing 317 |

Competition-Based Pricing 321

Other Internal and External Considerations Affecting Price Decisions 321

Overall Marketing Strategy, Objectives, and Mix 321 |

Organizational Considerations 324 | The Market and

Demand 324 | The Economy 327 | Other External Factors 327

Reviewing Objectives and Key Terms 306 | Objectives

Review 328 | Key Terms 307 | Discussion and Critical

Thinking 307 | Discussion Questions 307 | Critical Thinking

Exercises 329 | Applications and Cases 308 | Marketing

Technology 308 | Marketing Ethics 308 | Marketing by the

Numbers 330 | Video Case: Smashburger 309 | Company Case:

Cath Kidston 331

Pricing Strategies: Additional Considerations 334

New-Product Pricing Strategies 336 Market-Skimming Pricing 336 | Market-Penetration

Pricing 337

Product Mix Pricing Strategies 337 Product Line Pricing 338 | Optional Product Pricing 338 |

Captive Product Pricing 338 | By-Product Pricing 339 |

Product Bundle Pricing 339

Price Adjustment Strategies 339 Discount and Allowance Pricing 340 | Segmented Pricing 340 |

Psychological Pricing 341 | Promotional Pricing 343 |

Geographical Pricing 344 | Dynamic and Internet Pricing 345 |

International Pricing 346

Price Changes 347 Initiating Price Changes 347 | Responding to Price

Changes 350

Public Policy and Pricing 351 Pricing within Channel Levels 352 | Pricing across Channel

Levels 352

Reviewing Objectives and Key Terms 331 | Objectives

Review 353 | Key Terms 332 | Discussion and Critical

Thinking 333 | Discussion Questions 333 | Critical Thinking

Exercises 333 | Applications and Cases 333 | Marketing

Technology 355 | Marketing Ethics 334 | Marketing by the

Numbers 334 | Video Case: Hammerpress 356 | Company Case:

Amazon vs. Walmart 357

10

11

14 Contents

Marketing Channels: Delivering Customer Value 360

Supply Chains and the Value Delivery Network 362 The Nature and Importance of Marketing Channels 363

How Channel Members Add Value 364 | Number of Channel

Levels 365

Channel Behavior and Organization 366 Channel Behavior 366 | Vertical Marketing Systems 367 |

Horizontal Marketing Systems 369 | Multichannel Distribution

Systems 370 | Changing Channel Organization 370

Channel Design Decisions 371 Analyzing Consumer Needs 372 | Setting Channel Objectives 372

Identifying Major Alternatives 373 | Evaluating the Major

Alternatives 374 | Designing International Distribution Channels 374

Channel Management Decisions 375 Selecting Channel Members 375 | Managing and Motivating

Channel Members 376 | Evaluating Channel Members 376

Public Policy and Distribution Decisions 376 Marketing Logistics and Supply Chain Management 379

Nature and Importance of Marketing Logistics 379 | Goals of

the Logistics System 380 | Major Logistics Functions 381 |

Integrated Logistics Management 383

Reviewing Objectives and Key Terms 365 | Objectives Review

387 | Key Terms 366 | Discussion and Critical Thinking 367 |

Discussion Questions 367 | Critical Thinking Exercises 367 |

Applications and Cases 367 | Marketing Technology 389 |

Marketing Ethics 368 | Marketing by the Numbers 368 | Video

Case: Gaviña Gourmet Coffee 368 | Company Case: Pandora 390

Retailing and Wholesaling 394 

Retailing 374 Types of Retailers 397 | Retailer Marketing Decisions 402 |

Retailing Trends and Developments 408

Wholesaling 414 Types of Wholesalers 415 | Wholesaler Marketing

Decisions 415 | Trends in Wholesaling 418

Reviewing Objectives and Key Terms 397 | Objectives

Review 419 | Key Terms 398 | Discussion and Critical

Thinking 398 | Discussion Questions 420 | Critical Thinking

Exercises 399 | Applications and Cases 399 | Marketing

Technology 399 | Marketing Ethics 421 | Marketing by the

Numbers 400 | Video Case: Home Shopping Network 400 |

Company Case: Leader Price 422

Communicating Customer Value: Integrated Marketing Communications Strategy 426

The Promotion Mix 428 Integrated Marketing Communications 429

12

13

14

The New Marketing Communications Model 429 | The Need

for Integrated Marketing Communications 431

A View of the Communication Process 434 Steps in Developing Effective Marketing Communication 435

Identifying the Target Audience 436 | Determining the

Communication Objectives 436 | Designing a Message 437 |

Choosing Media 438 | Selecting the Message Source 439 |

Collecting Feedback 440

Setting the Total Promotion Budget and Mix 440 Setting the Total Promotion Budget 440 | Shaping the Overall

Promotion Mix 443 | Integrating the Promotion Mix 445

Socially Responsible Marketing Communication 446 Advertising and Sales Promotion 446 | Personal Selling 446

Reviewing Objectives and Key Terms 425 | Objectives Review

447 | Key Terms 426 | Discussion and Critical Thinking 426 |

Discussion Questions 448 | Critical Thinking Exercises 427 |

Applications and Cases 427 | Marketing Technology 427 |

Marketing Ethics 449 | Marketing by the Numbers 428 | Video

Case: OXO 428 | Company Case: Red Bull 450

Advertising and Public Relations 454

Advertising 456 Setting Advertising Objectives 457 | Setting the Advertising

Budget 459 | Developing Advertising Strategy 459 | Evaluating

Advertising Effectiveness and the Return on Advertising

Investment 469 | Other Advertising Considerations 470

Public Relations 472 The Role and Impact of PR 472 | Major Public Relations

Tools 473

Reviewing Objectives and Key Terms 453 | Objectives Review 475 |

Key Terms 454 | Discussion and Critical Thinking 454 | Discussion

Questions 476 | Critical Thinking Exercise 455 | Applications and

Cases 455 | Marketing Technology 455 | Marketing Ethics 477 | Marketing by the Numbers 456 | Video Case: E*trade 456 | Company

Case: The Super Bowl 478

Personal Selling and Sales Promotion 482

Personal Selling 484 The Nature of Personal Selling 484 | The Role of the Sales

Force 485

Managing the Sales Force 486 Designing the Sales Force Strategy and Structure 487 |

Recruiting and Selecting Salespeople 490 | Training

Salespeople 491 | Compensating Salespeople 492 |

Supervising and Motivating Salespeople 492 |

Evaluating Salespeople and Sales Force Performance 496

The Personal Selling Process 497 Steps in the Selling Process 497 | Personal Selling

and Managing Customer Relationships 499

15

16

Contents 15

Sales Promotion 501 The Rapid Growth of Sales Promotion 502 | Sales Promotion

Objectives 502 | Major Sales Promotion Tools 503 |

Developing the Sales Promotion Program 506

Reviewing Objectives and Key Terms 485 | Objectives Review

507 | Key Terms 486 | Discussion and Critical Thinking 486 |

Discussion Questions 486 | Critical Thinking Exercise 508 |

Applications and Cases 487 | Marketing Technology 487 |

Marketing Ethics 487 | Marketing by the Numbers 509 | Video

Case: MedTronic 488 | Company Case: Salesforce.com 510

Direct and Online Marketing: Building Direct Customer Relationships 514

The New Direct Marketing Model 516 Growth and Benefits of Direct Marketing 517

Benefits to Buyers 517 | Benefits to Sellers 518

Customer Databases and Direct Marketing 518 Forms of Direct Marketing 521

Direct-Mail Marketing 521 | Catalog Marketing 522 |

Telemarketing 523 | Direct-Response Television Marketing 523 |

Kiosk Marketing 524

Online Marketing 525 Marketing and the Internet 525 | Online Marketing Domains

526 | Setting Up an Online Marketing Presence 528

Public Policy Issues in Direct Marketing 536 Irritation, Unfairness, Deception, and Fraud 536 | Consumer

Privacy 537 | A Need for Action 537

Reviewing Objectives and Key Terms 517 | Objectives Review

539 | Key Terms 518 | Discussion and Critical Thinking 518 |

Discussion Questions 518 | Critical Thinking Exercises 540 |

Applications and Cases 519 | Marketing Technology 519 |

Marketing Ethics 519 | Marketing by the Numbers 541 | Video

Case: Home Shopping Network 520 | Company Case: EBay 542

Part 4: Extending Marketing 546

Creating Competitive Advantage 546

Competitor Analysis 548 Identifying Competitors 549 | Assessing Competitors 551 |

Selecting Competitors to Attack and Avoid 553 | Designing a

Competitive Intelligence System 555

Competitive Strategies 555 Approaches to Marketing Strategy 555 | Basic Competitive

Strategies 557 | Competitive Positions 558 | Market Leader

Strategies 560 | Market Challenger Strategies 563 | Market

Follower Strategies 564 | Market Nicher Strategies 564

Balancing Customer and Competitor Orientations 565

Reviewing Objectives and Key Terms 544 | Objectives Review 566 |

Key Terms 545 | Discussion and Critical Thinking 545 | Discussing

the Concepts 545 | Critical Thinking Exercises 567 | Applications

17

18

and Cases 546 | Marketing Technology 546 | Marketing Ethics 546 |

Marketing by the Numbers 546 | Video Case: Umpqua Bank 568 |

Company Case: Ford 569

The Global Marketplace 572

Global Marketing Today 574 Looking at the Global Marketing Environment 576

The International Trade System 576 | Economic Environment 578 |

Political-Legal Environment 580 | Cultural Environment 581

Deciding Whether to Go Global 583 Deciding Which Markets to Enter 584 Deciding How to Enter the Market 585

Exporting 585 | Joint Venturing 586 | Direct Investment 587

Deciding on the Global Marketing Program 588 Product 590 | Promotion 592 | Price 593 | Distribution

Channels 593

Deciding on the Global Marketing Organization 594

Reviewing Objectives and Key Terms 573 | Objectives Review

595 | Key Terms 574 | Discussion and Critical Thinking 574 |

Discussion Questions 596 | Critical Thinking Exercises 575 |

Applications and Cases 575 | Marketing Technology 575 |

Marketing Ethics 575 | Marketing by the Numbers 597 | Video

Case: The U.S. Film Industry 576 | Company Case: Buick 598

Sustainable Marketing: Social Responsibility and Ethics 602

Sustainable Marketing 604 Social Criticisms of Marketing 606

Marketing’s Impact on Individual Consumers 606 | Marketing’s

Impact on Society as a Whole 610 | Marketing’s Impact on

Other Businesses 612

Consumer Actions to Promote Sustainable Marketing 613 Consumerism 613 | Environmentalism 614 | Public Actions to

Regulate Marketing 618

Business Actions Toward Sustainable Marketing 618 Sustainable Marketing Principles 619 | Marketing Ethics 623 |

The Sustainable Company 625

Reviewing Objectives and Key Terms 604 | Objectives Review

626 | Key Terms 605 | Discussion and Critical Thinking 605 |

Discussion Questions 605 | Critical Thinking Exercises 605 |

Applications and Cases 605 | Marketing Technology 627 |

Marketing Ethics 606 | Marketing by the Numbers 606 | Video

Case: Life Is Good 606 | Company Case: International Paper 628

Appendix 1: Marketing Plan 633 Appendix 2: Marketing by the Numbers 643 Appendix 3: Marketing Careers 661

Glossary 673

Index 683

19

20

The Fifteenth Edition of Principles of Marketing

Students across six continents, more than 40 countries, and 24 languages rely on Kotler/ Armstrong’s Principles of Marketing

Principles of Marketing remains the

and Relationships

Principles of Marketing

Creating value for customers in order to capture value from customers in return. Today’s creating customer value and managing customer relationships

creates customer captures

Preface

16

Preface 17

deep focus on brands, anchored by the Chapter 30 section “Branding Strategy: Building Strong Brands.”

3. Harnessing new marketing technologies. New digital and other high-tech marketing de- velopments are dramatically changing how consumers and marketers relate to one another. No other force is having more impact than technology on marketing strategy and practice. The fifteenth edition thoroughly explores the new technologies impacting marketing, from digital relationship-building tools in Chapter 1 to new digital market- ing and online technologies in Chapters 15 and 17 to the exploding use of online social networks and consumer-generated marketing in Chapters 1, 5, 14, 15, 17—and just about everywhere else in the text.

4. Measuring and managing return on marketing. Especially in uncertain economic times, marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. But all that has changed rapidly. “Marketing accountability”—measuring and managing return on marketing investments—has now become an important part of strategic marketing decision making. This emphasis on marketing accountability is addressed throughout the fifteenth edition.

5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be skilled at marketing their brands globally and in sustainable ways. New material throughout the fifteenth edition emphasizes the concepts of global marketing and sustainable marketing— meeting the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. The fifteenth edition integrates global marketing and sustainability topics throughout the text. It then pro- vides focused coverage of each topic in Chapters 41 and 42, respectively.

New in the Fifteenth Edition We’ve thoroughly revised the fifteenth edition of Principles of Marketing to reflect the major trends and forces impacting marketing in this high-tech era of customer value and relation- ships. Here are just some of the major and continuing changes you’ll find in this edition:

now affecting the ways in which marketers and customers learn about and relate to each other. In recent years, nothing has had greater impact than technology on consum- ers and the marketers who serve them. Every chapter of the fifteenth edition features new, revised, and expanded discussions of the explosive impact of the exciting new marketing technologies shaping marketing strategy and practice—from online social networks and brand communities discussed in Chapters 1, 5, 14, 15, and 17; to “online listening” and Webnology research tools in Chapter 4, neuromarketing in Chapter 5,

Create value for customers and build customer relationships

Capture value from customers in return

Capture value from customers to create profits and customer equity

Build profitable relationships and create customer

delight

Construct an integrated

marketing program that delivers

superior value

Design a customer-driven

marketing strategy

Understand the marketplace and customer needs

and wants

Marketing: Creating and Capturing Customer Value

FIGURE | 1.1 A Simple Model of the Marketing Process

18 Preface

and location-based marketing in Chapter 7; to the use of social networks in business-to- business marketing and sales in Chapters 6 and 16; to Internet and mobile marketing and other new communications technologies in Chapters 1, 14, 15, 17, and throughout. The fifteenth edition is packed with new stories and examples illustrating how com- panies employ technology to gain competitive advantage—from traditional marketing all-stars such as P&G, McDonald’s, and Nike to new-age digital competitors such as Apple, Google, Amazon.com, and Facebook.

customer-value framework from previous editions. The customer-value model presented in the first chapter is fully integrated throughout the remainder of the book. No other marketing text presents such a clear and compelling customer-value approach.

changing nature of customer relationships with companies and brands. Today’s marketers are creating deep consumer involvement and a sense of customer community surrounding their brands—making brands a meaningful part of consumers’ conversations and lives. Today’s new relationship-building tools include everything from Web sites, blogs, in- person events, and video sharing to online communities and social networks such as Facebook, YouTube, Pinterest, Twitter, or a company’s own social networking sites. For just a few examples, see Chapter 1 (the section “The Changing Nature of Customer Re- lationships”); Chapter 4 (qualitative approaches to gaining deeper customer insights); Chapter 5 (managing online influence and marketing through social networks); Chap- ter 9 (customer-driven new-product development and co-creation); Chapters 14 and 15 (the shift toward more personalized, interactive communications); and Chapter 39 (online social networks, customer communities, and direct digital media).

– ward two-way interactions between customers and brands, including such topics as customer-managed relationships, consumer empowerment, crowdsourcing, customer co-creation, and consumer-generated marketing. Today’s more empowered customers are giving as much as they get in the form of two-way relationships (Chapter 1), a more active role in providing customer insights (Chapter 4), crowdsourcing and co-creating new products (Chapter 8), consumer-generated marketing content (Chapters 1 and 15), devel- oping or passing along brand messages (Chapters 1, 5, 8, 14, and 15), interacting in cus- tomer communities (Chapters 5, 15, and 17), and other developments.

– sumers are dealing with marketing in an uncertain economy in the lingering after- math of the recent Great Recession. Starting with a section and feature in Chapter 1 and continuing with new sections, discussions, and examples integrated throughout the text, the fifteenth edition shows how now, even as the economy recovers, marketers must focus on creating customer value and sharpening their value propositions in this era of more sensible consumption.

sustainable marketing. The discussion begins in Chapter 1 and ends in Chapter 20, which pulls marketing concepts together under a sustainable marketing framework. In between, frequent discussions and examples show how sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and the future needs of customers, companies, and society as a whole.

global mar- keting. As the world becomes a smaller, more competitive place, markets face new global marketing challenges and opportunities, especially in fast-growing emerging markets such as China, India, Brazil, Africa, and others. You’ll find much new coverage of global marketing throughout the text, starting in Chapter 1 and discussed fully in Chapter 19.

in the fast-changing areas of integrated marketing communications and direct and online marketing. It tells how marketers are blending the new digital and direct technologies—everything from Internet and mobile marketing to blogs, viral videos, and online social networks—with traditional media to create more targeted, personal, and interactive customer relationships. Marketers are no longer simply creating inte- grated promotion programs, they are practicing marketing content management in paid, owned, earned, and shared media. No other text provides more current or encompass- ing coverage of these exciting developments.

Preface 19

measuring and managing return on marketing, including many new end-of-chapter financial and quantitative marketing exercises that let students apply analytical thinking to relevant concepts in each chap- ter and link chapter concepts to the text’s innovative and comprehensive Appendix 2: Marketing by the Numbers.

innovative learning design. The text’s active and integrative presentation includes learning enhancements such as annotated chapter-opening stories, a chapter-opening objective outline, and ex- planatory author comments on major chapter figures. The chapter-opening layout helps to preview and position the chapter and its key concepts. Figures annotated with author comments help students to simplify and organize chapter material. End-of-chapter features help to summarize important chapter concepts and high- light important themes, such as marketing technology, ethics, and financial market- ing analysis. This innovative learning design facilitates student understanding and eases learning.

which students can apply what they learn to actual company situations. The fifteenth edition also features many new video cases, with brief end-of-chapter summaries and discussion questions. A newly revised Appendix 1: Marketing Plan presents a brand new marketing plan by which students can apply text concepts to a hypothetical brand and situation. Finally, all of the chapter-opening stories and Real Marketing highlights in the fifteenth edition are either new or revised for currency.

An Emphasis on Real Marketing Principles of Marketing, fifteenth edition, takes a practical marketing-management approach, providing countless in-depth, real-life examples and stories that show concepts in action and reveal the drama of modern marketing. In the fifteenth edition, every chapter-opening vignette and Real Marketing highlight is new or revised, providing fresh insights into real marketing practices. Learn how:

made it the world’s leading online retailer.

and profitable online marketers—but it’s just getting started.

even a dominant marketing leader—fails to adapt to its changing environment.

listening to customers and using the insights gained to develop better products and marketing.

that has produced stunning sales and profit results.

showrooms to scope out merchandise. –

pany as “socially responsible”—doing good is ingrained in everything the company does.

– chant, are fighting it out online on price.

expressive lifestyle brand befitting current times.

some honey.” –

ers asking: “Who needs face-to-face selling anymore?”

same time reducing its impact on the planet.

20 Preface

Beyond these features, each chapter is packed with countless real, relevant, and timely examples that reinforce key concepts. No other text brings marketing to life like the fifteenth edition of Principles of Marketing.

Learning Aids That Create More Value for You A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help you to learn, link, and apply major concepts:

Integrated chapter-opening preview sections. The active and integrative chapter-opening spread in each chapter starts with a Chapter Preview, which briefly previews chapter concepts, links them with previous chapter concepts, and introduces the chapter- opening story. This leads to a chapter-opening vignette—an engaging, deeply devel- oped, illustrated, and annotated marketing story that introduces the chapter material and sparks your interest. Finally, an Objective Outline provides a helpful preview of chapter contents and learning objectives, complete with page numbers. Real Marketing highlights. Each chapter contains two carefully developed highlight features that provide an in-depth look at real marketing practices of large and small companies. Author figure annotations. Each figure contains author comments that aid your under- standing and help organize major text sections. Reviewing Objectives and Key Terms. A summary at the end of each chapter reviews ma- jor chapter concepts, chapter objectives, and key terms. Discussion and Critical Thinking Questions and Exercises. Sections at the end of each chap- ter help you to keep track of and apply what you’ve learned in the chapter. Applications and Cases. Brief Marketing Technology, Marketing Ethics, and Marketing by the Numbers sections at the end of each chapter provide short application cases that facilitate discussion of current issues and company situations in areas such as market- ing technology, ethics, and financial marketing analysis. A Video Case section contains short vignettes with discussion questions to be used with a set of mostly new four- to seven-minute videos that accompany the fifteenth edition. End-of-chapter Company Case sections provide all-new or revised company cases that help you to apply major marketing concepts to real company and brand situations. Marketing Plan appendix. Appendix 1 contains a brand new sample marketing plan that helps you to apply important marketing planning concepts. Marketing by the Numbers appendix. An innovative Appendix 2 provides you with a comprehensive introduction to the marketing financial analysis that helps to guide, assess, and support marketing decisions. An exercise at the end of each chapter lets you apply analytical and financial thinking to relevant chapter concepts and links the chapter to the Marketing by the Numbers appendix.

More than ever before, the fifteenth edition of Principles of Marketing creates value for you— it gives you all you need to know about marketing in an effective and enjoyable total learn- ing package!

Supplements for Instructors The following supplements are available to adopting instructors at the Pearson Instructor Resource Center, http://www.pearsonglobaleditions.com/kotler.

Instructor’s Manual: provides the following for every chapter in the book: overview, outline, end-of-chapter solutions, additional projects, and examples and Web resources. Test Bank: includes 3,000 questions, consisting of multiple-choice, true/false, short- answer, and essay questions. Image Library: access many of the images, ads, and illustrations from the text. PowerPoint slides: includes basic chapter outlines, key points from each chapter, ad- vertisements and art from the text, and discussion questions.

No book is the work only of its authors. We greatly appreciate the valuable contributions of several people who helped make this new edition possible. As always, we owe very special thanks to Keri Jean Miksza for her dedicated and valuable help in all phases of the project, and to her husband Pete and little daughters Lucy and Mary for all the support they pro- vide Keri during this often-hectic project.

We owe substantial thanks to Andy Norman of Drake University, for his valuable revi- sion advice and skillful contributions in developing chapter vignettes and highlights, com- pany and video cases, the Marketing Plan appendix, and selected marketing stories. This edition has benefited greatly from Andy’s assistance. We also thank Laurie Babin of the Uni- versity of Louisiana at Monroe for her dedicated efforts in preparing end-of-chapter materi- als and keeping our Marketing by the Numbers appendix fresh. Additional thanks also go to Dr. Andrew Lingwall of the Clarion University of Pennsylvania for revising the Instruc- tor’s Manual, to Mary Albrecht of Maryville University for revising the PowerPoint sets, and to the team at ANSR Source Group for revising the Test Bank for the fifteenth edition.

Many reviewers at other colleges and universities provided valuable comments and suggestions for this and previous editions. We are indebted to the following colleagues for their thoughtful input:

Acknowledgments

Fifteenth Edition Reviewers Greg Black, Metropolitan State University of Denver Rod Carveth, Naugatuck Valley Community College Linda Morable, Richland College Randy Moser, Elon University

David Murphy, Madisonville Community College Donna Waldron, Manchester Community College Douglas Witt, Brigham Young University

Fourteenth Edition Reviewers Rod Carveth, Naugatuck Valley Community College Anindja Chatterjee, Slippery Rock University of Pennsylvania Mary Conran, Temple University Eloise Coupey, Virginia Tech Alan Dick, University of Buffalo Karen Gore, Ivy Tech Community College, Evansville Campus Charles Lee, Chestnut Hill College Samuel McNeely, Murray State University Chip Miller, Drake University David Murphy, Madisonville Community College

Esther Page-Wood, Western Michigan University Tim Reisenwitz, Valdosta State University Mary Ellen Rosetti, Hudson Valley Community College William Ryan, University of Connecticut Roberta Schultz, Western Michigan University J. Alexander Smith, Oklahoma City University Deb Utter, Boston University Donna Waldron, Manchester Community College Wendel Weaver, Oklahoma Wesleyan University

21

22 Acknowledgments

We also owe a great deal to the people at Pearson who helped develop this book. Se- nior Acquisitions Editor Erin Gardner provided fresh ideas and support throughout the revision. Project Manager Meeta Pendharkar provided valuable assistance in managing the many facets of this complex revision project. Senior Art Director Janet Slowik devel- oped the fifteenth edition’s exciting design, and Senior Production Project Manager Karalyn Holland helped guide the book through the complex production process. We’d also like to thank Stephanie Wall, Anne Fahlgren, Judy Leale, and Jacob Garber for their contributions. We are proud to be associated with the fine professionals at Pearson Education. We also owe a mighty debt of gratitude to Project Editor Roxanne Klaas and the fine team at S4Carlisle Publishing Services.

Finally, we owe many thanks to our families for all of their support and encouragement—Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family. To them, we dedicate this book.

Gary Armstrong Philip Kotler

Global Edition Reviewers

Global Edition Contributors

Dr. Moh’d A Al-hawari, Business College, University of Sharjah, UAE.

Assoc. Prof. Dr. Serap Atakan, Department of Business Administration, Istanbul Bilgi University, Turkey.

Professor Alan Au, Associate Dean, Lee Shau Kee School of Business and Administration, The Open University of Hong Kong, Hong Kong.

Nadia Azzam, Department of Marketing, Lebanese American University, Beirut, Lebanon.

Dr. Jeanne Sørensen Bentzen, Department of Business and Management, Aalborg University, Denmark.

Prof. Erinc Boge, Faculty of Economics and Administrative Sciences, Baskent University Ankara, Turkey.

Dina Ashmawy, School of Business, The American University in Cairo, Egypt

Rania Deeb, Business Consultant, United Arab Emirates. Randa Fadly, School of Business, The American University in

Cairo, Egypt. Dr. ‘Tunji Gbadamosi, Royal Docks Business School,

University of East London, UK. Ali El Hallak, Digital Marketing Strategist. Dr. Hamed M. Shamma, School of Business, The American

University in Cairo, Egypt.

Tanja Dmitrović, Faculty of Economics, University of Ljubljana, Slovenia.

Prof. Dr. Michael A. Grund, Head Center for Marketing, HWZ University of Applied Sciences in Business Administration Zurich, Switzerland.

Li Sean Lum, Wawasan Open University, Malaysia. Daisy Lee Suet Mui, Department of Marketing, City

University of Hong Kong. Caroline Rosie Jeffrey Nasah, Labuan School of International

Business and Finance, Universiti Malaysia Sabah, Malaysia. Andrew Ng, Faculty of Engineering, National University of

Singapore. Dr. Frederick Yim, Hong Kong Baptist University.

Dr. Ronan de Kervenoael, School of Management, Sabanci University, Turkey, and Aston Business School, UK.

Jie Liu, Department of Business and Management Studies, Manchester Metropolitan University, UK.

Lora Saleh, School of Business, The American University in Cairo, Egypt.

Serdar Sayman, Business Administration Department, Koç University, Istanbul, Turkey

Sophie Yang, Department of Strategy & Applied Management, Coventry Business School, Coventry University.

Principles of Marketing

Amazon.com’s deep-down passion for

creating customer value and relationships has made it the world’s leading online retailer. Amazon has become the model

for companies that are obsessively and successfully focused on delivering customer value.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Bezos puts it in three simple words: “Obsess over customers.” To its core, the company is relentlessly customer driven. “The thing that drives everything is creating genuine value for cus- tomers,” says Bezos. Amazon believes that if it does what’s good for customers, profits will follow. So the company starts with the customer and works backward. Rather than asking what it can do with its current capabilities, Amazon first asks Who are our customers? What do they need? Then, it develops whatever capabilities are required to meet those customer needs.

At Amazon, such words are more than just “customer- speak.” Every decision is made with an eye toward improving the Amazon.com customer experience. In fact, at many Amazon meetings, the most influential figure in the room is “the empty

W hen you think of shopping online, chances are good that you think first of Amazon. The online pioneer first opened its virtual doors in 1995, selling books out of founder Jeff Bezos’s garage

in suburban Seattle. Amazon still sells books—lots and lots of books. But it now sells just about everything else as well, from music, electronics, tools, housewares, apparel, and groceries to loose diamonds and Maine lobsters.

From the start, Amazon has grown explosively. Its annual sales have rocketed from a modest $150 million in 1997 to more than $48 billion today. During the past two years alone, despite a shaky economy, Amazon’s revenues and profits both nearly doubled, growing by 40 percent annually. This past holiday sea- son, at one point, Amazon.com’s more than 173 million active customers worldwide were purchasing 110 items per second. Analysts predict that by 2015, Amazon will become the youngest company in history to hit $100  bil- lion in revenues (it took Walmart 34 years). That would make it the na- tion’s second largest retailer, trailing only Walmart.

What has made Amazon such an amazing success story? Founder and CEO

Amazon.com: Obsessed with Creating Customer Value and Relationships

Understanding these basic concepts and forming your own ideas about what they really mean to you will provide a solid foundation for all that follows.

Let’s start with a good story about marketing in action at Amazon.com, by far the world’s leading online marketer. The se- cret to Amazon’s success? It’s really no secret at all. Amazon is flat-out customer obsessed. It has a deep-down passion for creat- ing customer value and relationships. In return, customers reward Amazon with their buying dollars and loyalty. You’ll see this theme of creating customer value in order to capture value in return re- peated throughout this chapter and the remainder of the text.

Chapter Preview This chapter introduces you to the basic concepts of market- ing. We start with the question: What is marketing? Simply put, marketing is managing profitable customer relationships. The aim of marketing is to create value for customers in order to capture value from customers in return. Next we discuss the five steps in the marketing process—from understanding customer needs, to designing customer-driven marketing strategies and integrated marketing programs, to building customer relationships and cap- turing value for the firm. Finally, we discuss the major trends and forces affecting marketing in this age of customer relationships.

Marketing Creating and Capturing Customer Value1

Chapter 1 | Marketing: Creating and Capturing Customer Value 25 chair”—literally an empty chair at the table that represents the

important customer. At times, the empty chair isn’t empty, but is occupied by a “Customer Experience Bar Raiser,” an em ployee who is specially trained to represent customers’ interests. To give the empty chair a loud, clear voice, Amazon relentlessly

related goals. Amazon’s obsession with serving the needs of its custom

ers drives the company to take risks and innovate in ways that

ever original product. The Kindle took more than four years and

the company’s number one selling product, and Amazon.com

bined. What’s more, the company’s new Kindle Fire tablet now

started as an effort to improve the customer experience now gives Amazon a powerful presence in the burgeoning world of

music, videos, and apps sold by Amazon, it makes interacting with the online giant easier than ever.

Perhaps more important than what Amazon sells is how it sells. Amazon wants to deliver a special experience to every cus tomer. Most Amazon.com regulars feel a surprisingly strong rela tionship with the company, especially given the almost complete lack of actual human interaction. Amazon obsesses over making each customer’s experience uniquely personal. For example, the Amazon.com site greets customers with their very own person alized home pages, and its “Recommendations for You” feature offers personalized product recommendations. Amazon was the

sifts through each customer’s past purchases and the purchas

personalized site content. Amazon wants to personalize the shop ping experience for each individual customer. If it has 173 million customers, it reasons, it should have 173 million stores.

huge selection, good value, low prices, and convenience. But it’s the “discovery” factor that makes the buying experience really special. Once on the Amazon.com site, you’re compelled to stay for a while—looking, learning, and discovering. Amazon .com has become a kind of online community in which customers can browse for products, research purchase alternatives, share opinions and reviews with other visitors, and chat online with authors and experts. In this way, Amazon does much more than just sell goods online. It creates direct, personalized customer relationships and satisfying online experiences. Year after year, Amazon places at or near the top of almost every customer sat isfaction ranking, regardless of industry.

To create even greater selection and discovery for custom ers, Amazon long ago began allowing competing retailers—

stores—to offer their products on Amazon.com, creating a vir tual shopping mall of incredible proportions. It even encourages customers to sell used items on the site. And with the recent

business and industrial customers with products ranging from

Amazon.com does much more than just sell goods online. It creates satisfying online customer experiences. “The thing that drives everything is creating genuine value for customers,” says Amazon founder and CEO Bezos, shown above.

Contour by Getty Images

tors and industrial cutting tools. The broader selection attracts more

“We are becoming increasingly im portant in the lives of our custom ers,” says an Amazon marketing executive.

Based on its powerful growth, many analysts have speculated that Amazon.com will become the Walmart of the Web. In fact, some argue, it already is. Although Walmart’s total sales of $444 bil lion dwarf Amazon’s $48 billion in sales, Amazon’s Internet

chasing Amazon on the Web. Put another way, Walmart wants to become the Amazon.com of the Web, not the other way around. However, despite its mammoth proportions, to catch Amazon online, Walmart will have to match the superb Ama zon customer experience, and that won’t be easy.

Whatever the eventual outcome, Amazon has become the poster child for companies that are obsessively and successfully focused on delivering customer value. Jeff Bezos has known from the very start that if Amazon creates superior value for customers, it will earn their business in return, and if it earns their business,

1

26 Part 1 | Defining Marketing and the Marketing Process

Objective Outline

Objective 1 Define marketing and outline the steps in the marketing process.

What Is Marketing? (pp 26–28)

Objective 2 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts.

Understanding the Marketplace and Customer Needs (pp 28–30)

Objective 3 management orientations that guide marketing strategy.

(pp 30–33) Preparing an Integrated Marketing Plan and Program (p 34)

Objective 4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return.

Building Customer Relationships (pp 34–41) Capturing Value from Customers (pp 41–44)

Objective 5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships.

The Changing Marketing Landscape (pp 44–51)

Today’s successful Amazon, they are strongly customer focused and heavily committed to marketing. These companies

markets. They motivate everyone in the organization to help build lasting customer rela tionships based on creating value.

Customer relationships and value are especially important today. Facing dramatic techno logical changes and deep economic, social, and environmental challenges, today’s customers are spending more carefully and reassessing their relationships with brands. In turn, it’s more important than ever to build strong customer relationships based on real and enduring value.

What Is Marketing? Marketing, more than any other business function, deals with customers. Although we will

Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current cus tomers by delivering satisfaction.

Objective 1 Define marketing and outline the steps in the marketing process.

Chapter 1 | Marketing: Creating and Capturing Customer Value 27

favorite place and way to eat” the world over, giving it nearly as much market share as its nearest four competitors combined. Walmart has become the world’s largest retailer—and

2

and even churches. You already know a lot about marketing—it’s all around you. Marketing comes to

stuff your mailbox. But in recent years, marketers have assembled a host of new marketing approaches, everything from imaginative Web sites and smartphone apps to online social networks and blogs. These new approaches do more than just blast out messages to the masses. They reach you directly and personally. Today’s marketers want to become a part of your life and enrich your experiences with their brands—to help you live their brands.

At home, at school, where you work, and where you play, you see marketing in almost everything you do. Yet, there is much more to marketing than meets the consumer’s casual eye. Behind it all is a massive network of people and activities competing for your attention and pur chases. This book will give you a complete introduction to the basic concepts and practices of

Marketing Defined What is marketing? Many people think of marketing as only selling and advertising. We

However, selling and advertising are only the tip of the marketing iceberg. Today, marketing must be understood not in the old sense of making a sale—“telling

and selling”—but in the new sense of satisfying customer needs. If the marketer understands consumer needs; develops products that provide superior customer value; and prices, dis tributes, and promotes them effectively, these products will sell easily. In fact, according to management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3

marketing mix—a set of marketing tools that work together to satisfy customer needs and build customer relationships.

and organizations obtain what they need and want through creating and exchanging value

marketing as the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.4

The Marketing Process Figure 1.1

steps, companies work to understand consumers, create customer value, and build strong

customer value. By creating value for consumers, they in turn capture value from consumers

In this chapter and the next, we will examine the steps of this simple model of mar keting. In this chapter, we review each step but focus more on the customer relationship

Marketing The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

for customers from customers

This important figure shows marketing in

mers, marketers capture value from

process forms the marketing framework for the rest of the chapter and the remainder of the text.

FIGURE | 1.1 A Simple Model of the Marketing Process

28 Part 1 | Defining Marketing and the Marketing Process steps—understanding customers, building customer relationships, and capturing value from customers. In Chapter 2, we look more deeply into the second and third steps— designing marketing strategies and constructing marketing programs.

Understanding the Marketplace and Customer Needs

(1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

Customer Needs, Wants, and Demands The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual expression. Marketers did not create these needs; they are a basic part of the human makeup.

Wants are the form human needs take as they are shaped by culture and individual personality. An American needs food but wants a Big Mac, french fries, and a soft drink. A person in Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants are shaped by one’s society and are described in terms of objects that will satisfy those needs. When backed by buying power, wants become demands. Given their wants and resources,

Outstanding marketing companies go to great lengths to learn about and under stand their customers’ needs, wants, and demands. They conduct consumer research and analyze mountains of customer data. Their people at all levels—including top management—stay close to customers. For example, Kroger chairman and CEO David Dillon regularly dons blue jeans and roams the aisles of local Kroger supermarkets, blending in with and talking to other shoppers. He wants to see his stores through cus

to customers, successful Ford CEO Alan Mulally has been known to spend time selling cars at Ford dealerships.5

Market Offerings—

and Experiences

through market offerings—some com bination of products, services, informa tion, or experiences offered to a market to satisfy a need or a want. Market offer ings are not limited to physical products. They also include services— activities

sentially intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, retailing, and home repair services.

More broadly, market offerings also include other entities, such as persons, places, organizations, information, and ideas.

For example, the “Pure Michigan” campaign markets the state of Michigan as a tourism destination that “lets unspoiled nature and authentic character revive

lic service campaign, jointly sponsored by

Needs States of felt deprivation.

Wants The form human needs take as they are shaped by culture and individual personality.

Demands Human wants that are backed by buying power.

Market offerings Some combination of products, services, information, or experiences offered to a market to satisfy a need or want.

Marketing offerings are not limited to physical products. The Pure Michigan campaign markets the idea of Michigan as a tourism destination that “lets unspoiled nature and authentic character revive your spirits.” The Michigan Economic Development Corporation

Objective 2 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts.

Chapter 1 | Marketing: Creating and Capturing Customer Value 29 the U.S. Department of Agriculture and the U.S. Department of Health & Human Services, markets the idea of reducing childhood obesity by urging kids and their families to make healthier food choices and increase their physical activity. One ad promotes “Family Fun Fri- day: Dance. Play. Go for a walk in the park. Make every Friday the day you and your family get moving.”6

Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. These sellers suffer from marketing myopia. They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs.7 They forget that a product is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may think that the customer needs a drill bit. But what the customer really needs is a quarter- inch hole. These sellers will have trouble if a new product comes along that serves the customer’s need better or less expensively. The customer will have the same need but will want the new product.

Smart marketers look beyond the attributes of the products and services they sell. By orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your family in a world of wonder, a world where dreams come true and things still work the way they should. You’re “in the heart of the magic!” says Disney.

Even a seemingly functional product becomes an experience. HP recognizes that a per- sonal computer is much more than just a cold collection of wires and electrical components. It’s an intensely personal user experience. As noted in one HP ad, “There is hardly anything that you own that is more personal. Your personal computer is your backup brain. It’s your life. . . . It’s your astonishing strategy, staggering proposal, dazzling calculation.” It’s your connection to the world around you. HP’s ads don’t talk much about technical specifica- tions. Instead, they celebrate how HP’s technologies help create seamless connections in today’s “instant-on world.”8

Customer Value and Satisfaction Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many market offerings? Customers form expecta- tions about the value and satisfaction that various market offerings will deliver and buy accordingly. Satisfied customers buy again and tell others about their good experiences. Dissatisfied customers often switch to competitors and disparage the product to others.

Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. If they set expec- tations too high, buyers will be disappointed. Customer value and customer satisfaction are key building blocks for developing and managing customer relationships. We will revisit these core concepts later in the chapter.

Exchanges and Relationships Marketing occurs when people decide to satisfy their needs and wants through exchange relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. In the broadest sense, the marketer tries to bring about a response to some market offering. The response may be more than simply buying or trading products and services. A political candidate, for instance, wants votes; a church wants membership; an orchestra wants an audience; and a social action group wants idea acceptance.

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