Marketing (Baines, Paul, Fi)

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To Ning, for taking us to new places
Paul Baines
To Karen, my loving companion in life

Chris Fill
To Olof, Alma, and Moa—my own dream team

Sara Rosengren
To Ermanno and Giuliana, for their example and support

Paolo Antonetti
Brief Contents
Detailed Contents ix
Case Insights xvi
Market Insights xviii
Author Profiles xx
Acknowledgements xxi
Preface xxvi
How to Use this Book xxx
How to Use the Online Resources xxxii
Dashboard xxxv
Part 1: Principles of Marketing 1

1 Marketing Principles and Practice 3
2 Consumer Buying Behaviour 43
3 Marketing Research and Customer Insight 85
Part 2: Marketing Management and Strategy 123

4 The Marketing Environment 125
5 Marketing Strategy 166
6 Market Segmentation and Positioning 211
7 International Market Development 259
Part 3: Managing Marketing Programmes 303

8 New Proposition Development and Innovation 305
9 Price and Customer Value Decisions 344
10 Principles of Marketing Communications 383
11 Configuring the Marketing Communications Mix 421
12 Digital and Social Media Marketing 456
13 Branding Decisions 491
Part 4: Principles of Customer Management 529

14 Channels, Supply Chains, and Retailing 531
15 Services and Relationship Marketing 569
16 Business-to-Business Marketing 610
Part 5: The Social Impacts of Marketing 651

17 Not-for-Profit and Social Marketing 653
18 Marketing, Society, Sustainability, and Ethics 686
Index 729
Detailed Contents
Case Insights xvi
Market Insights xviii
Author Profiles xx
Acknowledgements xxi
Preface xxvi
How to Use this Book xxx
How to Use the Online Resources xxxii
Dashboard xxxv
Part 1: Principles of Marketing 1

1 Marketing Principles and Practice 3
Case Insight 1.1: Aldoraq Water Bottling Plant 4
Introduction 5
What Is Marketing? 5
Marketing’s Principal Principles 13
The Extended Marketing Mix 19
Marketing in Context 24
Marketing’s Impact on Society 29
Chapter Summary 36
Review Questions 36
Discussion Questions 37
Glossary 37
References 39
2 Consumer Buying Behaviour 43

Case Insight 2.1: Holdz®
44
Introduction 45
Consumer Behaviour: Rational or Emotional? 45
Proposition Acquisition 47
Perceptions, Learning, and Memory 56
Personality 63
Motivation 65
The Importance of Social Contexts 69
Chapter Summary 78
Review Questions 79
Glossary 80
References 82
x Detailed Contents
3 Marketing Research and Customer Insight 85

Case Insight 3.1: Ipsos MORI 86
Introduction 87
Definitions of Marketing Research and Customer Insight 87
The Customer Insight Process 89
Commissioning Market Research 92
The Marketing Research Process 93
Market and Advertisement Testing 109
Big Data and Marketing Analytics 111
Marketing Research and Ethics 113
International Marketing Research 114
Chapter Summary 117
Review Questions 118
Glossary 119
References 121
Part 2: Marketing Management and Strategy 123

4 The Marketing Environment 125
Case Insight 4.1: P. Rigas Packaging Material SA 126
Introduction 127
Understanding the External Environment 127
Understanding the Performance Environment 144
Understanding the Internal Environment 153
Marketing Audit 157
Chapter Summary 159
Glossary 161
References 162
5 Marketing Strategy 166

Case Insight 5.1: 3scale 167
Introduction 168
Strategic Marketing Planning: Activities 175
Implementation 191
Managing and Controlling Marketing Programmes 202
Marketing Planning 203
Chapter Summary 205
Glossary 207
References 208
6 Market Segmentation and Positioning 211

Case Insight 6.1: Soberana 212
Introduction 213
The STP Process 213
The Concept of Market Segmentation 215
The Process of Market Segmentation 218
Detailed Contents xi
Market Segmentation in Consumer Markets 219

Segmentation in Business Markets 234
Target Markets 238
Segmentation Limitations 243
Positioning 244
Chapter Summary 253
Glossary 255
References 256
7 International Market Development 259

Case Insight 7.1: Lanson International 260
Introduction 261
The Drivers of International Market Development 261
International Marketing Environment 265
International Market Selection 273
Market Entry Selection Criteria 276
International Market Development 282
International Market Development as a Growth Strategy 287
Types of International Organization 288
International Competitive Strategy 290
Chapter Summary 296
Glossary 297
References 299
Part 3: Managing Marketing Programmes 303

8 New Proposition Development and Innovation 305
Case Insight 8.1: Cheil UK 306
Introduction 307
The Three Levels of a Proposition 308
Classifying Physical Propositions 314
Product Range, Line, and Mix 318
Product Life Cycles 319
Developing New Propositions 324
Service Development 332
The Process of Adoption 335
Diffusion Theory 336
Chapter Summary 337
Glossary 339
References 341
9 Price and Customer Value Decisions 344

Case Insight 9.1: Simply Business 345
Introduction 346
The Price Elasticity of Demand 347
The Concept of Pricing and Cost 348
xii Detailed Contents
The Relationship between Pricing and Proposition Costs 350

Pricing Management 372
Chapter Summary 377
Glossary 379
References 380
10 Principles of Marketing Communications 383

Case Insight 10.1: Åkestam Holst 384
Introduction 385
Defining Marketing Communications 385
The Scope of Marketing Communications 386
How Marketing Communications Works 388
The Role of Marketing Communications in Marketing 404
Cultural Aspects of Marketing Communications 413
Chapter Summary 416
Glossary 418
References 419
11 Configuring the Marketing Communications Mix 421

Case Insight 11.1: Adnams 422
Introduction 423
The Role of the Marketing Communications Mix 423
Selecting the Right Tools 427
Marketing Communications Messages 430
The Media 434
Other Promotional Methods and Approaches 442
The Changing Marketing Communications Landscape 445
Integrated Marketing Communications 447
Chapter Summary 451
Glossary 453
References 454
12 Digital and Social Media Marketing 456

Case Insight 12.1: Spotify 457
Introduction 458
Digital Marketing 459
Social Media Marketing 461
How Digitalization Is Transforming Marketing 464
Digital Marketing Communications 465
Crowdsourcing 483
Legal and Ethical Considerations 484
Chapter Summary 486
Glossary 488
References 488
Detailed Contents xiii
13 Branding Decisions 491

Case Insight 13.1: Aston Martin 492
Introduction 493
What Is a Brand? 493
How Brands Work: Associations and Personalities 497
Brand Names 501
Types of Brand 502
Branding Strategies 504
How to Build Brands 505
Branding Perspectives 506
Brand Co-creation 511
Brand Preference or Relevance 513
Sector Branding 514
Brand Equity 521
Chapter Summary 522
Glossary 524
References 525
Part 4: Principles of Customer Management 529

14 Channels, Supply Chains, and Retailing 531
Case Insight 14.1: Åhléns 532
Introduction 533
Channel Management 534
Types of Intermediary 537
Managing Marketing Channels 540
Channel Intensity 546
Managing Relationships in the Channel 549
Grey Marketing 550
Supply Chain Management 550
Retailing 556
Chapter Summary 564
Glossary 566
References 567
15 Services and Relationship Marketing 569

Case Insight 15.1: Withers Worldwide 570
Introduction 571
The Unique Characteristics of Services 571
Service Processes 575
Key Dimensions of Services Marketing 579
Measuring Service Quality and Performance 580
The Principles of Relationship Marketing 583
The Customer Relationship Life Cycle 585
Loyalty, Retention, and Customer Satisfaction 588
xiv Detailed Contents
Chapter Summary 604

Glossary 606
References 607
16 Business-to-Business Marketing 610

Case Insight 16.1: Grant Thornton UK LLP 611
Introduction 612
What Is Business-to-Business Marketing? 613
The Characteristics of Business Markets 614
Types of Organizational Customer 618
Type of Business Goods and Service 620
Organizational Buying Behaviour 620
Decision-Making Units 622
Professional Services Marketing 634
Corporate Social Responsibility 637
Key Account Management (KAM) 639
Chapter Summary 644
Glossary 645
References 646
Part 5: The Social Impacts of Marketing 651

17 Not-for-Profit and Social Marketing 653
Case Insight 17.1: City of London Police 654
Introduction 655
The Key Characteristics of Not-for-Profit Organizations 658
Types of Not-for-Profit Organization 663
Chapter Summary 680
Glossary 682
References 683
18 Marketing, Society, Sustainability, and Ethics 686

Case Insight 18.1: One Bag Habit 687
Introduction 688
Unsustainable Marketing: The Critical ‘Turn’ 689
Sustainable Marketing 693
Corporate Social Responsibility and Stakeholder Marketing 696
Ethics and Marketing 698
The Ethical Decision-Making Process 705
Distribution Management and Ethics 707
Detailed Contents xv
Promotion and Ethics 707

Products and Ethics 711
Pricing and Ethics 714
Universalism or Cultural Relativism in Marketing Ethics 716
Bribery 717
Chapter Summary 719
Glossary 721
References 723
Index 729
Case Insights
Chapter 1: Aldoraq Water Bottling Plant Chapter 6: Soberana
Established in 1994 by its founder and owner When an international beer brand took 10 per
Khaled A. Almaimani, Aldoraq Water Bottling cent of the Panamanian beer market, it was
Plant was one of the first water-bottling time for local brand Soberana to re-evaluate
factories in Madinah, Saudi Arabia. We speak its approach. We talk to Fermin Paus, brand
to Abdurahman Almaimani, general manager, to franchise manager, to find out how Soberana
find out more about how the company seeks to responded.
compete with well-known international brands.
Chapter 7: Lanson International
Chapter 2: Holdz® Founded in 1760, Champagne Lanson is one of
Founded in 2000, Holdz® is an online climbing the oldest existing champagne houses in France,
holds and accessories firm. We speak to its making some of the world’s finest champagnes.
managing director, Steve Goodair, to find out We speak to Paul Beavis, managing director,
more about how the firm meets its customers’ Lanson International, to find out more about
needs. how the company looks to further develop its
presence in international markets, including the
Chapter 3: Ipsos MORI UK.
When Unilever wanted to develop its medium-
term innovation pipeline for four of its household Chapter 8: Cheil UK
cleaning brands, it turned to global market Cheil is a full-service, data-driven agency
research firm, Ipsos. We speak to Ipsos’s network, rooted firmly in digital innovation. Cheil
Billie Ing, innovation engagement lead; Leora UK is part of the Cheil Worldwide Network,
Unsdorfer, qualitative research manager; and made up of more than 6,000 people in 53 offices
Alex Gilby, quantitative associate director, to find across five continents. We speak to Manish
out more. Bhan, head of retail transformation, to find out
how Cheil UK helped client Samsung to develop
Chapter 4: P. Rigas Packaging Material SA its retail offering.
P. Rigas Packaging Material SA is one of the
leading wholesale companies in the Greek Chapter 9: Simply Business
agricultural, livestock, and industrial packaging Founded in 2005, Simply Business is an online
industry, with more than 25 years of experience. insurance broker. We speak to Philip Williams,
We speak to Achilleas Rigas, chief executive director of strategy and pricing, to find out more
officer (CEO) and chair of the board of directors, about how the company has developed its
to find out how the company conducts its pricing strategy.
market scanning, aiming to survive in the very
difficult Greek economic environment. Chapter 10: Åkestam Holst
How can marketing communications stay
Chapter 5: 3scale relevant for consumers increasingly avoiding
Through its staff and offices in Barcelona and marketing messages? We speak to Petronella
San Francisco, 3scale helps organizations Panérus, chief executive officer (CEO) at the
to open, manage, and use application advertising agency Åkestam Holst, to find out
programming interfaces (APIs). We speak how the agency works with clients to ensure
to Manfred Bortenschlager, API market that the advertising they create is relevant to
development director, to find out how the consumers’ everyday life.
company competes in its marketplace.
Case Insights xvii
Chapter 11: Adnams Forbes Rich List. We speak to Laura Boyle, head
The Adnams brand, founded in 1872, in of EU marketing and business development,
Southwold, Suffolk, England, is synonymous to explore how Withers works to improve the
with beer and, since 2010, now gin, vodka, quality of its client relationships.
and whisky too. The company also owns and
manages a number of pubs, inns, and retail Chapter 16: Grant Thornton UK LLP
stores. We speak to Emma Hibbert, marketing Grant Thornton UK LLP is part of Grant Thornton
director, to find out how the beer at the heart International Limited (GTIL), one of the world’s
of the brand has been, and continues to be, leading independent advisory, tax, and audit
promoted. firms. In the UK, Grant Thornton traces its
origins to Thornton and Thornton in Oxford
Chapter 12: Spotify in 1904. It grew through many mergers and,
What role do social media play and how should by 1980, had formed an alliance with US firm
organizations incorporate them into their Alexander Grant & Co. One year later, a new
communication campaigns? We talk to Chug international organization, GTIL, was set up.
Abramowitz, vice president of global customer We speak to Anne Blackie, head of bids and
service and social media at Spotify, to find out strategic accounts at Grant Thornton UK, to find
more. out how the firm manages its client relationships.
Chapter 13: Aston Martin Chapter 17: City of London Police

The Aston Martin brand, founded in 1913, Founded in 1839, the City of London Police
is synonymous with hand-crafted luxury, (CoLP) police London’s ‘Square Mile’ financial
peerless beauty, incredible performance, and district, with a national responsibility for fraud
international motorsport glory. We speak to and economic crime. Because they also police
Simon Sproule, director of global marketing and many high-profile public events, they also focus
communications, to find out how the brand is on the prevention of terrorism and crime. We
promoted in China. speak to Superintendent Helen Isaac to find out
how the CoLP uses social marketing to support
Chapter 14: Åhléns law enforcement.
As shopper behaviour turns increasingly digital,
established retailers have to adapt their channel Chapter 18: One Bag Habit
strategies. We talk to Lotta Bjurhult, business Many sustainability initiatives require new
developer retail operations at Åhléns, Sweden’s thinking and new partners. Sometimes, they
largest department store chain, to find out what require collaboration with your competitors.
it takes to add an online channel to an existing We talk to Anna-Karin Dahlberg (Corporate
network of department stores. Sustainability Manager, Lindex), Felicia
Reuterswärd (Sustainability Manager, H&M
Chapter 15: Withers Worldwide Sweden), and Fredrika Klarén (Sustainability
Founded in London in 1896, Withers Worldwide Manager, KappAhl) to understand the challenges
has global revenues of over US$200 million, involved in working on initiatives targeted at
163 partners, more than 1,000 employees, and stimulating more sustainable consumption
clients in more than 80 countries, and has acted behaviours together with your closest
for 42 per cent of the top 100 Sunday Times competitors.
Rich List and 20 per cent of the top 100 of the
BriefMarket
Contents
Insights
1.1 V&D Goes Bust!
1.2 Servitization at Rolls-Royce
1.3 Harrods: Time for (Thai) Tea
1.4 Google: World-Changing Innovations
1.5 Where Now, Autonomous Car?
2.1 The Threat of Showrooming for Brick-and-Mortar Retailers
2.2 Helping Consumers to Turn Electric
2.3 Jameson: A Cut above the Rest
2.4 On Yer Bike!
2.5 The Iftar Market
3.1 Using Marketing Metrics in a State Monopoly
3.2 Circularity Customer Insight: The Brief
3.3 Circularity Customer Insight: The Proposal
3.4 Research Biases: Don’t Kid Yourself
3.5 Why Ask?
4.1 Changing Politics; Changing Borders: What Should Companies Do?
4.2 Health Issues Slim Down Product Sales
4.3 L’Oréal Advances Beauty through Technology
4.4 Tuenti: To Be or Not to Be?
5.1 Making a (Values) Statement
5.2 KBC Bank: ‘The Bank of You’
5.3 Targeting the Bottom of the Pyramid
5.4 Airlines: Fight and Flight
5.5 A Tale of Two Tech Companies
6.1 Differentiating Medical Devices
6.2 Microtargeting Controversy during the US Presidential Election
6.3 Logistical Nightmare: Regaining Defectors
6.4 Positioning Premium Beer
6.5 Exploring C–D Maps for Strategic Positioning
7.1 LEGO®: To Translate or Localize?
7.2 Dolce & Gabbana’s Luxury Hijab Collection
7.3 Go West! Chinese Car Manufacturers Internationalize
7.4 Primark Extends Its Growth by Entering the US Market
7.5 Ad-Apt in São Paulo?
8.1 Chanel No.5: Iconic on So Many Levels
8.2 Battle of the Superjumbos
8.3 Fast Fashion: Tailoring the Life Cycle
8.4 Minecraft: The Gamer’s Proposition
8.5 Streaming Wars: Apple versus Spotify
9.1 Sugar Tax: Paying Sweetly?
9.2 Price Discount Illusions
Market Insights xix
9.3 Masstige Pricing at MED

9.4 Electrical Price Promises
9.5 Stripe: Revolutionizing Online Payments
10.1 On the Watch for a New Kind of Watch
10.2 Becoming a YouTube Superstar
10.3 Celebrity Endorsements Gone Wrong
10.4 Advertising ‘Like a Girl’
10.5 Advertising, Arabic Style
11.1 Variable Mixes
11.2 What’s in a Name?
11.3 Damart Modernizes Its Welcome Programme
11.4 EY Uses Art to Distinguish Itself
11.5 Super Bowl Advertising: More than Meets the Eye
12.1 Who’s in Charge?
12.2 Play It Forward
12.3 What’s in a Click?
12.4 Searching the Amazon
12.5 The World in Your Pocket
13.1 Restitching a Heritage Brand
13.2 Owning the Brand
13.3 Musicians Dying for Success
13.4 The Mashing of Peppa Pig
13.5 Sintex Is the Name
14.1 Channelling Motorbikes
14.2 Packaged Goods Companies Look Online
14.3 Fashioning a Circular Supply Chain
14.4 Enhancing Channel Experiences
14.5 Retail App-reciation
15.1 Contactless: Speedy and Efficient Service Encounters
15.2 Alliances in the Sky
15.3 Co-creating the Zoo Experience
15.4 Mercadona: Loyalty without the Card
15.5 Doing Customer Engagement: Experiences from Start-ups and Market Leaders
16.1 Translating the World: TRSB Style
16.2 Marketing the Big League
16.3 KPMG Engages through Social Media
16.4 Groupon: KAM Gone Wrong
17.1 Red Nose Day: Coming to America
17.2 Whetting Appetites for Welsh Water
17.3 Shell Develops Room to Breathe
17.4 Midwife or Marketer?
17.5 No Means No! Get It!
18.1 Collaborative Consumption Surely Glitters . . . But Is It Gold?
18.2 Surviving a Food Scandal
18.3 Volkswagen: Up in Smoke?
18.4 Forex Fixing
18.5 Drug Money in China
Author Profiles
Paul Baines is Professor of Political Marketing and Associate Dean (External
Relations) at the University of Leicester, and Visiting Professor at Cranfield
University. For more than two decades, Paul’s research has particularly focused
on political marketing, public opinion, and propaganda. He is a Fellow of the
Market Research Society (MRS) and the Institute of Directors. Paul’s work has
been published, among other places, in the Journal of the American Statistical
Association, Psychology & Marketing, European Journal of Marketing, and Journal of Business
Research. Paul’s consultancy work includes experience working with government departments
on strategic communication research projects, as well as with many small, medium, and large
private enterprises, including Glassolutions Saint-Gobain, IBM, 3M, and many more. Paul is
director of Baines Associates Limited, a strategic marketing/research consultancy.
Chris Fill is director of Fillassociates, which develops and delivers learning mate-
rials related to marketing and corporate communications (see https://www.chr-
isfill.com). Formerly principal lecturer at the University of Portsmouth, Chris now
works with a variety of private and not-for-profit organizations, including several
publishers. He is a Fellow of the Chartered Institute of Marketing (CIM), where
he was the senior examiner responsible for the marketing communications modules and, more
recently, the Professional Postgraduate Diploma module ‘Managing Corporate Reputation’. In
addition to numerous papers published in a range of academic journals, Chris has written or
contributed to more than 40 books, including his market-leading and internationally recognized
textbook, Marketing Communications, now in its seventh edition.
Sara Rosengren is Professor of Marketing and Retailing at Stockholm School

of Economics, where she is also Head of the Centre for Retailing. Sara is a board
member of the European Advertising Academy (EAA). Her research on creative
marketing communications has been published in leading academic journals such
as the Journal of Advertising, Journal of Advertising Research, and Journal of Brand
Management. She is especially renowned for her work on advertising equity. Sara
is passionate about bridging the gap between marketing academy and practice. She is frequently
invited to speak at academic institutions, industry seminars, and company get-togethers, and regu-
larly comments on marketing- and retail-related phenomena in the Swedish media.
Paolo Antonetti is Associate Professor of Marketing at Neoma Business School,

Rouen Campus (France). He is also Visiting Professor at the School of Business and
Management, Queen Mary University of London. His research focuses on the role of
consumer emotions in a range of marketing and business contexts, with a specific focus on how emo-
tions influence consumers’ reactions to corporate social responsibility. Paolo’s articles have appeared
in several leading international publications and examine a wide range of marketing, business ethics,
and general management topics. Research results have been disseminated in the British Journal
of Management, Journal of Service Research, Journal of Business Research, Journal of Business
Ethics, and the European Journal of Marketing, among others. Paolo is on the editorial board of the
European Journal of Marketing, International Journal of Market Research, and Frontiers Psychology.
Acknowledgements
Course textbooks constitute major writing and research projects, resulting from the combined
efforts of many people, not only in the design, development, and production phases, but also in
the sales, marketing, and distribution phases of a ‘book’ writing project. I say ‘book’, because
our endeavour really encompasses an entire learning system, with both physical and electronic
elements, including the substantial online resources that accompany the (e-)book. Producing
the textbook is therefore one small component of the entire endeavour.
This fifth edition builds on the work undertaken by many people who have contributed to the
development of previous editions. Many more people, and some of our previous contributors,
also contributed to this fifth edition and its online resources. As ever, most of those people are
acknowledged below, but there are many others whose contributions deserve to be acknowl-
edged anonymously. We thank them for their selfless help in evaluating and contributing to the
development of this project.
We would like to thank our colleagues and former colleagues at our various respective uni-
versities over the years for their support and discussions, all of which have in some way made
their way into the book in some form. We would also like to thank Yanjun Gao, a PhD student at
Cranfield University, for her contribution to the online resources for the fifth edition.
As with any large textbook project, this work is the result of a co-production between the aca-
demic authors and Oxford University Press editors and staff. For the fifth edition, we would like to
thank Nicola Hartley, our commissioning editor, for making the commissioning and development
processes run so smoothly and for her constant positivity. Thanks are also due to Kate Gilks,
our publishing editor, for her help in incorporating the comments of the very many reviewers,
managing the development process (including the video production) so efficiently, and for her
considerable help in polishing the final manuscript. Her steady guidance and wisdom have been
invaluable in producing this revised edition to what has been a very challenging production cycle.
We would like to thank Joe Matthews, senior production editor, for his role in shaping the final
design of the book and bringing it out on schedule with the help of designers Anna Scully and
Claire Dickinson. The media team at Oxford Digital Media—particularly, James Tomalin, Nikisha
McIntosh, Matt Greetham, and Jose Silver—have, as ever, improved our online resources prop-
osition with great video production work.
Unless our customers, students, and lecturers want to use this book, there’s little point in writ-
ing and producing it. It’s due to the efforts of the marketing team—Marianne Lightowler, head of
marketing, and Jen Crawley, marketing manager—that the book hits the shops, gets clicked on,
and appears in your hands. Their openness to the authors’ (sometimes mad) marketing ideas is
refreshing and we know, as marketers, that we cannot be the easiest people to work with (that
is, too many chefs spoil the broth!).
The original ideas for the template for the book—right back to the first edition—derived from
six anonymous university lecturer participants in a focus group, who kindly met with us at OUP’s
offices to discuss what a new marketing textbook, in an already crowded market, needed to look
like. Since then, the book has become the best-selling book in the field. Our success remains
attributable to the comments they made about what they really wanted in a textbook and we’ve
tried to stay true to that formula ever since. For this edition, we have replaced many of the market
insights and, as ever, we have included contributions from students, practitioners, and market-
ing academics.
xxii Acknowledgements
The authors and publishers would like to thank the following people for their comments and
reviews throughout the process of developing the text and the online resources over the last five
editions:
David Alcock, Birmingham City University, UK

Liz Algar, University of Essex, UK
Dr Seamus Allison, Nottingham Trent University, UK
Malcolm Ash, Staffordshire University, UK
Graham Bailey, University of Chichester, UK
Dr Nina Belei, Radboud University, The Netherlands
Riccardo Benzo, Birkbeck, University of London, UK
De Laura Bradley, University of Ulster, UK
Jenny Bratherton, Regent’s University London, UK
Jane Burns, University College London, UK
Dr Rahul Chawdhary, Kingston University, UK
Dr Geraldine Cohen, Brunel University, UK
Professor Joseph Coughlan, Maynooth University, Ireland
Denise Daniels, Newcastle University, UK
Dr Katherine Duffy, University of Glasgow, UK
Dr Susanne Durst, University of Skövde, Sweden
Professor John Egan, Regent’s University London, UK
Dr Fiona Ellis-Chadwick, Open University Business School, UK
Dr Margaret Fletcher, University of Glasgow, UK
Mike Flynn, University of Gloucestershire, UK
Dr Mikael Gidhagen, Uppsala University, Sweden
Malcolm Goodman, Durham University, UK
Dr Charles Graham, London South Bank University, UK
Dr Catherine Groves, University of Swansea, UK
Anne Hampton, University of Buckingham, UK
Dr Michael Harker, University of Strathclyde, UK
Graham Harrison, University of Sussex, UK
David Harvey, (formerly) University of Huddersfield, UK
Jocelyn Hayes, University of York, UK
Mick Hayes, University of Portsmouth, UK
Clive Helm, University of Westminster, UK
Dr Auke Hunneman, BI Norwegian Business School, Norway
Dr Elizabeth Jackson, Curtin Business School, Australia
Nigel Jones, Sheffield Hallam University, UK
Dr Aidan Kelly, University of East London, UK
Jaya Kypuram, University of East London, UK
Dr Sotiris Lalaounis, University of Exeter, UK
Dr Margaret-Anne Lawlor, Dublin Institute of Technology, Ireland
Robert Leonardi, Södertörn University, Sweden
Joe Liddiatt, University of West England, UK
Dr Heléne Lundberg, Mid Sweden University, Sweden
Fares Lutfi, NHL Stenden University of Applied Sciences, The Netherlands
Dr Nnamdi Madichie, University of Sharjah, United Arab Emirates
Acknowledgements xxiii
Alice Maltby, University of the West of England, UK

George Masikunas, Kingston University, UK
Dawn McCartie, Newcastle University, UK
Dr Patrick McCole, Queen’s University Belfast, Northern Ireland
Tony McGuinness, Aberystwyth University, Wales, UK
Richard Meek, Lancaster University, UK
Dr Nina Michaelidou, Loughborough University, UK
Dr Caroline Miller, Keele University, UK
Dr Janice Moorhouse, University of Roehampton, UK
William Mott, University of Wolverhampton, UK
Connie Nolan, Canterbury Christ Church University, UK
Pfavai Nyajeka, University of Hertfordshire, UK
Dr Winfred Onyas, University of Leicester, UK
Dr Anastasios Pagiaslis, University of Nottingham, UK
Wybe Popma, University of Brighton, UK
Nicholas Pronger, Birbeck, University of London, UK
Professor Andrea Prothero, University College Dublin, Ireland
Chris Richardson, Aston University, UK
Neil Richardson, Leeds Beckett University, UK
Professor Deborah Roberts, University of Nottingham, UK
Vicky Roberts, University of Staffordshire, UK
Chris Rock, University of Greenwich, UK
Irene Roozen, Katholieke Universiteit Leuven, Belgium
Professor Michael Saren, University of Leicester, UK
Dr Declan Scully, University of Roehampton, UK
Peter Simcock, Liverpool John Moores University, UK
Bert Smit, NHTV Breda University of Applied Sciences, The Netherlands
Dr Lorna Stevens, University of Ulster, UK
Dr Frauke Mattison Thompson, Universiteit van Amsterdam, UK
Dr Ann Torres, National University of Ireland, Galway, Ireland
Professor Paul Trott, University of Portsmouth, UK
Dr Prakash Vel, University of Wollongong, Dubai, UAE
Dr Lucia Walsh, Dublin Institute of Technology, Ireland
Dr Fatima Wang, King’s Business School, UK
Peter Waterhouse, University of Bedfordshire, UK
Jennie White, University of Chichester, UK
Dr Kevan Williams, University of East Anglia, UK
Peter Williams, Leeds Beckett University, UK
Matthew Wood, University of Brighton, UK
Professor Helen Woodruffe-Burton, Edge Hill University, UK
We would particularly like to thank the following lecturers, students, and practitioners who con-
tributed market insights to the fifth edition:
Professor Carmen Abril, IE Business School, Spain

Carl-Philip Ahlbom, PhD candidate, Stockholm School of Economics, Sweden
Claire Allison, Sherwood Forest Hospitals NHS Foundation Trust, UK
xxiv Acknowledgements
Dr Seamus Allison, Nottingham Trent University, UK

Professor Ilaria Baghi, Modena and Reggio Emilia University, Italy
Dr Ning Baines, De Montfort University, UK
Dr Isabel Carrero, Comillas University, Spain
Dr Ethel Claffey, Waterford Institute of Technology, Ireland
Dr Jonas Colliander, Stockholm School of Economics, Sweden
Professor Victoria Labajo González, Universidad Pontificia Comillas, Spain
Chris Liassides, University of Sheffield, International Faculty, CITY College, UK
Joe Liddiatt, University of the West of England, UK
Dr Karina T. Liljedal, Stockholm School of Economics, Sweden
Rachael Millard, PhD candidate, Queen Mary University of London, UK
Dr Erik Modig, Stockholm School of Economics, Sweden
Dr Paul Morrissey, Waterford Institute of Technology, Ireland
Marie O’Dwyer, Waterford Institute of Technology, Ireland
Dr Robert P. Ormrod, Aarhus University, Denmark
Dr Eleni Papaoikonomou, Rovira and Virgili University, Spain
Professor Anthony Patterson, University of Liverpool, UK
Dr Norman Peng, University of Westminster, UK
Naomi Ramage, former student, Buckinghamshire New University, UK
Dr Ian Richardson, Stockholm University, Sweden
Sofie Sagfossen, PhD candidate, Stockholm School of Economics, Sweden
Leon Savidis, Business Analyst, Damart
Tina Sendlhofer, PhD candidate, Stockholm School of Economics, Sweden
Bert Smit, NHTV University of Applied Sciences, Netherlands
Martin Söndergaard, PhD candidate, Stockholm School of Economics, Sweden
Julius Stephan, Aston University, UK
Dr Frauke Mattison Thompson, Universiteit van Amsterdam, The Netherlands
Dr Sarah Turnbull, University of Portsmouth, UK
Dr Carmen Valor, Universidad Pontificia Comillas, Spain
Dr Lucia Walsh, Dublin Institute of Technology, Ireland
As ever, we have also incorporated a series of practitioner marketing ‘problems’ within the text.
This requires a considerable commitment from practitioners in developing the marketing ‘prob-
lem’ with the authors and in filming the ‘solution’. Thus we would like to thank the following prac-
titioners who contributed to the new edition for their time, effort, and commitment to this project.
Chug Abramowitz, vice president global customer service and social media, Spotify, Sweden/
United States
Abdurahman Almaimani, general manager, Aldoraq Water Bottling Plant, Saudi Arabia
Paul Beavis, managing director, Champagne Lanson UK/International Markets, UK
Manish Bhan, head of retail transformation, Cheil UK, UK
Lotta Bjurhult, business developer retail operations, Åhléns, Sweden
Anne Blackie, head of bids and strategic accounts, Grant Thornton UK LLP, UK
Manfred Bortenschlager, API market development director, 3scale.net, Spain
Laura Boyle, head of EU marketing and business development, Withers Worldwide, UK
Alex Gilby, quantitative associate director, Ipsos MORI, UK
Acknowledgements xxv
Steve Goodair, managing director, Holdz®, UK

Emma Hibbert, marketing director, Adnams, UK
Billie Ing, innovation engagement lead, Ipsos MORI, UK
Superintendent Helen Isaac, Community Policing—Uniformed Policing Directorate, City of
London Police, UK
Petronella Panérus, chief executive officer, Åkestam Holst, Sweden
Fermin Paus, brand manager, Soberana, Panama
Achilleas Rigas, chief executive officer and chair of the board of directors, P. Rigas Packaging
Material SA, Greece
Simon Spoule, director of marketing and communications, Aston Martin Lagonda, UK
Leora Unsdorfer, qualitative research manager, Ipsos MORI, UK
Philip Williams, director of strategy and pricing, Simply Business, UK
Other reviewers have chosen to remain anonymous, but contributed considerably to the final
proposition. We would like to thank them for taking time out of their busy schedules to evaluate
the various draft chapters of the book. The publishers would be pleased to clear permission with
any copyright holders whom we have inadvertently failed, or been unable, to contact.
Preface
Welcome to the fifth edition of Marketing. You might be wondering, ‘Why should I buy this mar-
keting textbook?’ The answer is that your marketing lecturers told us you need a new one! Our
first edition was the first truly integrated print and electronic learning package for introductory
marketing modules. For this fifth edition, we’ve gone even further. Before we started writing,
we consulted marketing lecturers, building on our research for the previous editions, to identify
how we might tailor the book and online resources to meet your learning needs better. Our aim
with this edition’s book and online resources is to provide an innovative learning experience and
to pique readers’ curiosity to inspire the next generation of marketers to excel in this amazing,
exciting, and fast-moving discipline.
In our research for the book, we discovered that you needed:
■ more consideration of how marketing theory links to marketing practice;
■ more consideration of ethics, sustainability, and marketing’s impact on society;
■ updated market insights, and an updated digital and social media marketing chapter to keep
pace with the changes in the marketplace;
■ an increased digital presence throughout the book;
■ for the book to contain even more enticing advertising images;
■ for the book to contain even more student-friendly case studies; and
■ for the book to contain more variety in the format of the case insight videos.
As with the first, second, third, and fourth editions, we sought to bring contemporary market-
ing perspectives to life for students new to the concept of marketing. We want the book to be
motivational, creative, applied, and highly relevant to you.
Marketing starts with the fundamentals of marketing from classical marketing perspectives,
then contrasts these with newer views from the services and societal schools of marketing,
helping you to develop your knowledge and understanding of marketing. In the fifth edition,
there remains extensive coverage of the societal implications of marketing and we continue to
emphasize how marketing theory operates in practice. This important link element means that
we have worked harder to relate our market insights to the theoretical frameworks, models, and
concepts outlined in each chapter, to aid your learning.
In the online resources, we also provide you with web-based research activities, abstracts
from seminal papers, study guidelines, multiple-choice questions, and a flashcard glossary to
help you to broaden and reinforce your own learning.
We aim to provide powerful learning insights into marketing theory and practice through a
series of ‘insight’ features—case, market, and research insights. Marketing is for life, purchased
for use on first- and second-year undergraduate marketing programmes, or as reference read-
ing on professional and postgraduate marketing courses, but to be retained and referred to
throughout the course of your marketing or business degree. We sincerely hope you enjoy
learning more about marketing, and that this book and its online resources pique your curiosity!
If you have any comments about any of the content in this book, please tweet them to:
@DrPaulBaines and add the hashtag, #BainesetalMarketing5e. The more you tweet, the more
we learn about what you want from a marketing text.
Preface xxvii
Who Should Use This Book?

The main audiences for this book are as follows:
■ Undergraduate students in universities and colleges of higher and further education, who
are taught in English, around the world, will find this text of use. The case material and the
examples within the text are deliberately global and international in scale, so that international
students can benefit from the text.
■ Postgraduate students on MBA and MSc/MA courses with a strong marketing component will
find this text useful for pre-course and background reading, particularly because of the real-
life case problems presented at the beginning of each chapter, accompanied by audiovisual
material presenting the solution available in the online resources.
■ Professional students studying for marketing qualifications through the Chartered Institute of
Marketing, the Direct Marketing Association, and other professional training organizations and
trade bodies should find that the extensive use of examples of marketing practice from around
the world make this text relevant for those working in a marketing or commercial environment.
New to This Edition

■ New and updated market insights incorporate a broader range of more international, digital,
and ethics-focused examples.
■ More images and adverts are included, illustrating real-life campaigns, offerings, and events.
■ There is new coverage of the latest phenomena in marketing seldom covered in other text-
books, including showrooming, co-creation, and demarketing.
■ Brand new case insights and accompanying video interviews feature well-known companies,
including Ipsos MORI, Adnams, Grant Thornton, and Åkestam Holst.
■ Additional videos include top marketers talking about their routes into the industry, and offering
careers advice on how to stand out at interviews and assessment days.
How to Use This Textbook

This text seeks to enhance your learning as part of an undergraduate or introductory course in
marketing, or as pre-reading for your postgraduate or professional course. It can, however, also
act as a ‘book for life’, operating as a reference book for you on all matters marketing, particularly
during the initial part of your career in marketing and business.
Generally, we learn only what is meaningful to us. Dr Edward de Bono, who coined the term
‘lateral thinking’, talks of the human mind as a self-organizing pattern recognition system. This
means that we incorporate new information by considering how that information is related to
existing information already stored in our minds. In this book, we have tried to make your learn-
ing fun and meaningful by including a multitude of real-life cases. We also try to stimulate your
thinking in each chapter by asking you questions at the beginning of the chapter to stir your own
reflections on marketing phenomena based on your own lived experience. But it’s not enough
xxviii Preface
simply to rely on your own (admittedly vast) experience of consumer marketing and reflections;
you also need to be ready to read beyond the book. Consequently, we recommend readings in
research insight sections throughout the book. Try to get hold of the seminal articles and books
highlighted in these research insights through your university’s electronic library system and
skim-read them. Again, if possible reflect on your own experience around the concepts you are
studying. But remember that you are not on your own in your learning: you have your tutor, your
classmates, this book, and the online resources to help you to learn more about marketing.
This textbook includes not only explanatory material and examples on the nature of marketing
concepts, but also a holistic learning system designed to aid you, as part of your university or
professional course, to develop your understanding by means of reading the text and working
with the materials available in the online resources. Work through the examples in the text and
the review questions; read the seminal articles that have defined a particular sub-discipline in
marketing; use the learning material on the website. This textbook aims to be reader-focused,
designed to help you to learn marketing for yourself.
As students, we tend to operate either a surface or a deep approach to learning. With the sur-
face approach, we tend to memorize lists of information, whereas with a deep approach, we are
actively assimilating, theorizing about, and understanding the information. With a surface learning
approach, we run into trouble when example problems learnt are presented in different contexts.
We may have simply memorized the procedure without understanding the actual problem. Deep
approaches to learning are related to better-quality educational outcomes and better grades, and
the process is more enjoyable. To help you to pursue a deep approach to learning, we strongly
suggest that you complete the exercises, visit the web links, and conduct the Internet activities
referred to throughout and at the end of each chapter, as well as the other activities available in
the online resources, to improve your understanding and your course performance.
When it comes to revising for your exams, listen to the authors’ chapter podcasts for an
overview of the concepts in each chapter. Tackle the multiple-choice questions to identify what
you do and don’t know, so that you can focus your scarce time on those concepts you need to
know more about. When revising, skim-read chapters to save time, but slow down your reading
when you encounter material and concepts you don’t properly understand. Don’t be afraid to
read through sentences several times if it’s not sinking in. Turn off any negative ‘voices’ in your
own mind that chastise you for not understanding and develop instead a positive, sympathetic
‘voice’ that supports you as you learn. In other words, be your own best friend when it comes to
learning. For your assignments, use the research insights in the various chapters to identify semi-
nal articles or books to cite. Look at the references at the back of each chapter when a particular
concept is discussed and consult those original sources, and even the references within these
sources, afterwards. By ‘snowballing’ through references in this way, you can develop a much
stronger understanding of a concept, which will in turn demonstrate to your tutors and markers
that you have read widely and understood the concept.
Honey and Mumford’s Learning-Style

Questionnaire
Honey and Mumford (1986) developed a learning-style questionnaire that divides learners into four
categories based on the aspect of Kolb’s learning process at which they perform best. Completion
of the 40-item questionnaire, available at a reasonable price at https://www.peterhoney.com,
Preface xxix
provides you with scores on each of the following four categories to allow you to determine your
dominant learning style:
1 Activists—Where this style is dominant, you learn better through involvement in new
experiences through concrete experience. You learn better by doing.
2 Reflectors—Where this style is dominant, you are more likely to consider experiences with
hindsight and from a variety of perspectives, and then to rationalize these experiences. You
learn better by reflecting.
3 Theorists—Where this style is dominant, you develop understanding of situations and
information by building an abstract theoretical framework for understanding. You learn
better by theorizing.
4 Pragmatists—Where this style is dominant, you learn best by understanding what works
best in what circumstances in practice. You learn through practice.
Analysis of your learning style will allow you to determine how you learn best at the moment and
give you pointers as to what other approaches to learning you might adopt to balance how you
develop. You may already have completed a learning-style questionnaire at the beginning of your
course and so know which learning styles you need to develop.
We believe most other textbooks are designed to particularly develop the theorist learning
style. Review-type questions also enhance the reflector learning style. However, in this text,
we also aim to develop the pragmatist component of your learning style by providing you with
case insights that highlight decisions made by real-life marketers. Finally, we ask end-of-chapter
discussion questions, which require you to work in teams and on your own, as well as provide
Internet activities to complete and web links to visit, to develop your activist learning style.
We aim to enhance your learning by providing an integrated marketing learning system,
incorporating the key components that you need to understand core marketing principles. As a
result, we hope not only that this text and its associated website will facilitate and enhance your
learning, making it fun along the way, but also that you will find it useful to use this text, and refer
back to it, throughout your student and life experiences of marketing.
Learning a discipline as exciting as marketing should be both fun and challenging. We
hope that this textbook and its associated resources bring the discipline alive for you, piquing
your curiosity about how the marketing world works. Good luck with your learning and in your
career!
How to Use this Book
How to Use this Book
This book comes equipped with a range of carefully designed learning features to help you get
to grips with marketing and develop the essential knowledge and skills you’ll need for your future
career.
IDENTIFY & REVIEW through Learning Outcomes

Learning Outcomes After reading this chapter, you will be able to:
Introducing you to every chapter, Learning Define the concept of marketing
Outcomes outline the main concepts and themes
Explain how marketing has developed over the
that will be covered to clearly identify what you twentieth century and into the twenty-first century
can expect to learn. These bullet-pointed lists Understand the concepts of exchange in marketing
can also be used to review your learning and and the marketing mix
effectively plan your revision. Describe the three major contexts of marketing
application—that is, consumer goods, business-to-
b i d i k ti
LEARN & EVALUATE through Case

Insights Case Insight 1.1
Learn from the professionals with real-life case Aldoraq Water Bottling Plant
studies from leading marketers. Discover what
their businesses aim to do, what their jobs Established in 1994 by its founde
involve, and what kind of challenges they face, Almaimani, Aldoraq Water Bottlin
before evaluating your own response to tackling first water-bottling factories in M
speak to Abdurahman Almaiman
their marketing problem. In the online resources
out more about how the compan
you can find bespoke video interviews with all
well-known international brands.
these professionals, and gain an insight into
how they ultimately resolved their marketing
dilemmas.
ANALYSE & APPLY through Market

Insights Market Insight 1.1
Contemporary and varied examples from the V&D Goes Bust!
business world illustrate the concepts discussed
in the chapter and prompt you to analyse On New Year’s Eve 2015, Dutch department store from its financial d
Vroom & Dreesman (V&D), owned by US private of up to 70 candid
the marketing practices of a huge range of
equity firm Sun Capital, declared itself insolvent after administrators inv
companies. Theory into Practice boxes will suffering poor sales, a loss of €49 million on sales of
Sources: Anon. (2015
then help you apply the marketing theory to €604 million in 2014, and a year of conflict with unions
and landlords. The company was finding it difficult to
these practical examples, with accompanying compete with new competitors and the shift to online
questions reinforcing your learning.
How to Use this Book xxxi
RESEARCH & PROGRESS through

Research Insight 1.1 Research Insights
Take your learning further with the key books
and journal articles highlighted in Research
To take your learning further, you might wish to read Insights, to aid your research and progress your
Borden, N.H. (1964). The concept of the marketing mix. J understanding of key topics.
Research, 4, 2–7.
This early, easy-to-read article explains how marketing managers act as

developing marketing programmes. The marketing mix, popularized as t
RECAP & CONSOLIDATE through

Chapter Summary Chapter Summaries
Recap the core themes and ideas of the chapter
To consolidate your learning, the key points from this chapter are summ
to consolidate and review your learning in these
■ Define the concept of marketing.
handy chapter summaries.
Marketing is the process by which organizations anticipate and satis
parties’ benefit. It involves mutual exchange. Over the last 25 years,
recognize the importance of long-term customer relationships to org
of marketing recognize the importance of marketing’s impacts on so
where they are negative.
REVIEW & REVISE through Review

Review Questions Questions
Stimulating questions at the end of every
1 What is the process consumers go through when buying offerin
2 What is cognitive dissonance and how does it relate to consum
chapter will review your knowledge and highlight
3 How are the psychological concepts of perception, learning, an any areas that need further revision ahead of the
understanding consumer choice? exam.
4 How are concepts of personality relevant to understanding con
5 How are concepts of motivation relevant to understanding cons
6 What is the theory of planned behaviour?
CHALLENGE & REFLECT through

Discussion Questions Discussion Questions
1 Having read Case Insight 1.1 at the beginning of this chapter, how w
Develop your analytical and reasoning skills
differentiate itself when competing against local and international br by challenging the theory and reflecting on
2 Read the section on the marketing mix within the chapter, and draw key issues with these stimulating Discussion
following organizations and their target customers: Questions designed to create lively debate.
A Streaming video company Netflix and its audiences
B A wealth management company and its clientele
C Pharmacies (for example Boots UK Ltd, Sweden’s Apoteket AB, Ho
consumers
LOOK UP & CHECK through Key

Glossary Terms and Glossaries
Key Terms are highlighted in blue when they first
advertising a form of non-personal American Mar
communication, by an identified sponsor, that is membership appear and are collated into glossaries at the
transmitted through the use of paid-for media. and marketin end of each chapter, designed for you to look up
aggregated demand demand calculated at the States, opera
population level rather than at the individual level. and Canada. terms and check your understanding of essential
definitions.
How to Use the Online Resources
How to Use the Online

Resources
www.oup.com/uk/baines5e/
There are signposts to the

online resources throughout
each chapter, and the following
specialized resources are
available:
Student Resources – Free and open-access material available for users of the book.
Case Insight Videos

Watch the authors in discussion with the
leading marketing practitioners featured in the
chapter-opening Case Insights as they expand
on the marketing challenges they face and what
strategies they used to tackle them. Transcripts
of each video are also available.
Career Insight Videos

Top practitioners offer valuable career advice
for those looking to work in marketing or related
fields.
Library of Video Links

A bank of links to marketing videos designed
to demonstrate key principles and themes in
practice.
How to Use the Online Resources xxxiii
Author Audio Podcasts

Short audio summaries of each chapter from
the authors, to listen to on the go and help you
revise.
Multiple-Choice Questions
Test your knowledge of the chapter and receive
instant results with these interactive questions.
References to page numbers in the book
accompany every question to help you navigate
to the topics that need further study.
Flashcard Glossary
Learning the jargon associated with the range of
topics in marketing can be a challenge, so this
online glossary has been designed to help you
understand and memorize the key terms in the
book.
Internet Activities
Arranged by chapter, these Internet Activities
help you develop your knowledge and improve
your understanding of the topic through online
research.
Research Insights
Follow the links to access the seminal
academic papers suggested in the book’s
Research Insights.
Web Links
Annotated links allow you easy access to up-to-
date and reliable marketing-related sites.
xxxiv How to Use the Online Resources
Lecturer Resources – For all registered adopters of the book.
VLE Content
To make your teaching more efficient and
learning more effective, import all the material
available on the Online Resources into
your VLE.
PowerPoint Slides
A suite of fully customizable PowerPoint slides
for use in lecture presentations accompanies
each chapter.
Test Bank
A ready-made interactive testing resource, fully
customizable for your teaching and featuring
built-in feedback for students, to save you time
when creating assessments.
Essay Questions
Provided for each chapter, these stimulating
essay questions are accompanied by clear and
detailed answer guidance.
Tutorial Activities
Designed for use in seminars and tutorials, and
to reinforce practical marketing skills, these
activities are directly related to concepts and
companies in the book. They offer a range of
suggested ideas for easily integrating the book
and its resource with your teaching.
Discussion Question Pointers

Possible points for inclusion when answering the
discussion questions at the end of each chapter
of the textbook.
Figures and Tables from the Book

Available for downloading into presentation
software or for use in assignments and exam
material.
Dashboard
Dashboard
Simple. Informative. Mobile. Student Resources
Dashboard offers all the features of the online
Dashboard is a cloud-based online assessment resources, but comes with additional questions
and revision tool. It comes pre-loaded with test to take your learning further.
questions for students, a homework course if
your module leader has adopted Dashboard, Lecturer Resources
and additional resources as listed below. If your A pre-loaded homework course structured
lecturer has adopted Dashboard and you have around the book is available, supported by a
purchased the Dashboard Edition of the book, test bank containing additional multiple-choice
your standalone access code should be included questions. Your students can follow the pre-
and will provide instructions on how to sign up loaded course, or you can customize it, allowing
for the platform. If you have not purchased the you to add questions from the test bank or from
Dashboard Edition or if you have purchased a your existing materials to meet your specific
second-hand copy, you can purchase standalone teaching needs. Dashboard’s Gradebook will
access online—visit https://www.oxfordtextbooks. automatically grade the homework assignments
co.uk/dashboard for more information. that you set for your students. The Gradebook
SIMPLE: With a highly intuitive design, it will also provides heat maps for you to view your
take you less than 15 minutes to learn and students’ progress, which helps you to quickly
master the system. identify areas of the course in which your
students may need more practice, as well as
MOBILE: You can access Dashboard from every the areas in which they are most confident. This
major platform and device connected to the feature helps you to focus your teaching time on
Internet, whether that’s a computer, tablet, or the areas that matter.
smartphone. The Gradebook also allows you to administer
INFORMATIVE: Your assignment and grading schemes, manage checklists,
assessment results are automatically graded, and administer learning objectives and
giving your instructor a clear view of the class’s competencies.
understanding of the course content.
> 1
Part 1
Principles of Marketing
Part 1
Part 2
Marketing Management and
Strategy
Part 3 Part 1
Managing Marketing Principles of Marketing
Programmes 1 Marketing Principles and Practice
2 Consumer Buying Behaviour
Part 4
Principles of Customer 3 Marketing Research and Customer Insight
Management
Part 5
The Social Impacts of
Marketing
Chapter 1
Marketing Principles and
Practice
Learning Outcomes Case Insight 1.1

Aldoraq Water Bottling Plant
After reading this chapter, you will be able to:
Market Insight 1.1
Define the concept of marketing
V&D Goes Bust!
Explain how marketing has developed over the
twentieth century and into the twenty-first century Market Insight 1.2
Servitization at Rolls-Royce
Understand the concepts of exchange in marketing
and the marketing mix Market Insight 1.3
Harrods: Time for (Thai) Tea
Describe the three major contexts of marketing
application—that is, consumer goods, business-to- Market Insight 1.4
business, and services marketing Google: World-Changing
Innovations
Understand the positive contribution marketing
makes to society Market Insight 1.5
Where Now, Autonomous
Car?
44 Part 1 > Principles
Marketing of
Fundamentals
Marketing
Case Insight 1.1

Aldoraq Water Bottling Plant
Established in 1994 by its founder and owner Khaled A.

Almaimani, Aldoraq Water Bottling Plant was one of the
first water-bottling factories in Madinah, Saudi Arabia. We
speak to Abdurahman Almaimani, general manager, to find
out more about how the company seeks to compete with
well-known international brands.
Aldoraq, headquartered in Madinah, Saudi Arabia, customers’ volume requirements, terms of deals, and
distributes its natural mineral water products consignments, including beneficial payment terms. Of
throughout the Kingdom, and particularly in Madinah, particular importance to customers is the ability to buy
Makkah, and Yanbu. It is one of the biggest factories in all the products they need from one location. Because
the Middle East and a member of one of the oldest and there are more than 30 water distributors in Madinah,
largest family-owned businesses in Saudi Arabia. The many customers base their decision on the price they
company produces purified drinking water in different pay.
bottle sizes and capacities (from 250 ml bottles to 5
To promote awareness of its brand, Aldoraq
gallon containers), and was the first water company
recommends that its customers display its product
in Saudi Arabia to join the International Bottled Water
prominently in their stores, in potential consumers’
Association (IBWA). The water produced by Aldoraq
line of sight, and offers volume discounts to its largest
contains a good percentage of fluoride, is derived from
distributors accordingly. In addition, Aldoraq supports
natural water bore-wells, and is purified by ozone. In
its community by giving free water to charities and
2015, sales of the company’s 250 ml, 375 ml, and
discounted water to the mosque, as well as other
600 ml products had increased strongly on 2014 sales,
religious places. Nevertheless, more recently, some
but fallen slightly in the 2 litre, 1 gallon, 5 litre, and 5
large hotels and stores have started to purchase only
gallon bottle categories. The 5 gallon refill category,
premium water from companies selling international
however, had seen a slight gain.
brands, such as Evian, Nestlé, and Aquafina, making
Fast forward to the current year and the future looks it hard for Aldoraq to compete. These big brands
bright for bottled water in the Kingdom, with population are trying to dominate the supply chain system. For
size expected to reach 39.1 million by 2030 (a 24.1 example, Aquafina, owned by Pepsico, is pushing its
per cent increase on 2015, according to Euromonitor), water product alongside other products such as Pepsi-
growing retail infrastructure, and an increasing number Cola. When Aquafina first entered the market, it gave
of baqalah (small independent stores). Aldoraq’s away free samples of water with its Pepsi-Cola product
customers are mostly hypermarkets, supermarkets, and then pushed customers to buy its Aquafina water
and medium and small stores that distribute or sell brand at the same time. Coca-Cola also competed in
bottled water to consumers (restaurants, fast food this way with its water product Arwa.
stores, canteens, hospitals, households, etc.). Other
How should Aldoraq seek to differentiate itself
customers include catering companies, hotels,
and thereby compete against both local and
airport retail outlets, and corporate offices. Often,
international brands?
such customers are looking for price discounts,
longer terms of payment, and even coolers to store
Visit the online resources to watch a
the water. Distributors decide to buy bottled drinking
video interview with Khaled A. Almaimani,
water from Aldoraq’s factory based on which products
where he explains what Aldoraq did.
are available in time and can steadily be supplied to
Chapter11 >> Marketing
Chapter MarketingPrinciples
Principlesand
andPractice
Society 55
Introduction
How have companies marketed their offerings to you previously? Consider the last smartphone
you bought, the sports teams you follow, the music you stream, and the airlines you’ve flown
on. Why did you purchase these offerings? Each one has been promoted to you to cater for a
particular need. Consider how the offering was distributed. What physical and service-based
components is it made of? What societal contributions, positive or negative, do these offerings
make, if any? Are substitute offerings available that meet your needs and the needs of society
better? These are some of the questions that marketers should ask themselves when designing,
developing, and delivering customer offerings.
In this chapter, we develop our understanding of marketing principles and marketing’s posi-
tive impact upon society by defining marketing, comparing and contrasting American, British,
and French definitions. (We consider marketing’s negative impacts upon society in Chapter 18.)
We consider the origins and development of marketing throughout the twentieth and into the
twenty-first centuries. We explore how marketing differs in the consumer or business-to-con-
sumer (B2C), business-to-business (B2B), and services marketing sectors. The core principles
of marketing, incorporating the marketing mix, the principle of marketing exchange, market
orientation, relationship marketing, and service-dominant logic (SDL), are all consid-
ered. This chapter seeks to provide a thorough grounding in the principles of marketing. (Many
of these concepts are considered again in detail in later chapters.)
What Is Marketing?
Consider your own vast experience of being marketed to throughout your life. You will have been
subjected to millions of marketing communications messages, bought many thousands of offer-
ings, been involved in very many customer service calls, and visited tens of thousands of shops,
supermarkets, and retail outlets (on- and off-line). You’re already an experienced customer. In
this text, our role is to explain how professionals seek to persuade you to buy their offering,
rather than a competitor’s. Most customers are just like you and will be as discriminating in their
buying habits.
To explain how we market offerings to customers, we first describe what marketing is. There
are numerous definitions, but three are presented for easy reference in Table 1.1.
Visit the online resources and follow the web links to the CIM and AMA websites to read more
about their views on ‘What is Marketing?’
The Chartered Institute of Marketing (CIM) and American Marketing Association
(AMA) definitions recognize marketing as a ‘management process’ and an ‘activity’, although
many firms organize marketing as a discrete department rather than as a service across depart-
ments (Sheth and Sisodia, 2005). Nike uses a regional matrix organizational structure, enabling
marketing to operate within and across departments, for example in apparel, footwear (Brenner,
2013). The CIM and AMA definitions stress the importance of determining the customer’s
requirements and ‘delivering value’. Conversely, our French definition refers to developing an
offer of superior value. The AMA and French definitions refer to an ‘offer’ and ‘offering’, recogniz-
ing that marketing can be applied equally to the marketing of goods, services, and ideas, and
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Table 1.1 Definitions of marketing
Defining institution/author Definition
The Chartered Institute of ‘The management process responsible for identifying, anticipating,
Marketing (CIM) and satisfying customer requirements profitably’ (CIM, 2015)
The American Marketing ‘Marketing is the activity, set of institutions, and processes for
Association (AMA) creating communicating, delivering, and exchanging offerings that
have value for customers, clients, partners, and society at large’
(AMA, 2013)
A French perspective ‘Stratégie d’adaptation des organisations à des marchés

concurrentiels, pour influencer en leur faveur le comportement
des publics dont elles dépendent, par une offre dont la valeur
perçue est durablement supérieure à celle des concurrents. Dans
le secteur marchand, le rôle du marketing est de créer de la valeur
économique pour l’entreprise en créant de la valeur perçue par les
clients.’ (de Baynast, Lendrevie, and Lévy, 2017)
[Broadly translating as: ‘[A] strategy of adaptation of organizations
to competitive markets in order for them to influence the behaviour
of the publics on which they depend, through an offering whose
perceived value is durably superior to that of competitors. In the
commercial sector, the role of marketing is to create economic value
for the company by creating value as perceived by customers.’]
in the not-for-profit sector. From here on in, except where marketing theory is developed only
around products or services, we use the term ‘offering’ or ‘proposition’ to refer to the formula-
tion of benefits a company designs to meet customers’ needs, whether these are in service or
product form, or a combination of the two.
The CIM definition discusses anticipating or identifying needs and the AMA discusses ‘creat-
ing . . . offerings that have value for customers’. Both definitions recognize that marketers should
engage in marketing research (see Chapter 3) and in environmental scanning (see Chapter
4) to satisfy customers and, in the long term, to anticipate customers’ needs.
The French definition discusses influencing the behaviour of ‘publics’, rather than customers,
recognizing the wider remit of marketing in society. The challenge, according to the French defi-
nition, is to develop an offering that is ‘durably superior’ to that of the competition. This definition
recognizes explicitly the importance of the concepts of market segmentation and positioning
(see Chapter 6).
The CIM definition presupposes that marketing has a profit motive, although it does not state
what kind of profit this is, for example gain in society, gain in financial terms. The AMA defini-
tion is clearer, arguing that marketing is a process undertaken to benefit ‘clients, partners, and
society at large’.
What all these definitions display is how the concept of marketing is changing, from transac-
tional concepts such as pricing, promotion, and distribution, to relationship concepts such as
the importance of customer trust, risk, commitment, and co-creation.
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In addition, the nature of the relationships between an organization and its customers, in its
offerings and its mission, are different in not-for-profit and for-profit organizations (see Chapter
17). Nevertheless, the broad principles of how marketing is used remain the same.
Visit the online resources and complete Internet Activity 1.1 to learn more about the professional
marketing associations around the world.
What’s the Difference between Customers

and Consumers?
What is a customer? And what is the difference between a customer and a consumer? The
difference is subtle, but real. A customer is a buyer, a purchaser, a patron, a client, or a shop-
per—someone who buys from a shop, a website, a business or, in the sharing economy, another
customer (for example Airbnb or Uber).
The difference between customer and consumer is that a customer purchases or obtains an
offering, but a consumer uses it (or eats it, in the case of food).
To illustrate, consider the marketing course you are enrolled on, assuming that you are using
this book as an aid to learning on the course. Did you pay your course fees yourself? Or did
someone else pay them? If you paid your own fees, you are the customer. If someone else paid,
they are the customer—although you make use of, and study for, the course, which makes you
the consumer.
Mondelez International’s Dairylea Dunkers is a dairy food designed to be a good source of
calcium, with each pack contributing at least 26 per cent of the daily reference intake of calcium.
When purchasing this offering, the customer is typically the chief shopper (that is, the parent
or guardian) and the consumer is a child. Sometimes, the customer and consumer can be the
same, for example a woman buying cinema tickets for herself and her partner online.
Dairylea Dunkers, the moo-vellous snack for children

Source: Reproduced with kind permission of Mondelez International.
Market Orientation
The concept of market orientation (Kohli and Jaworski, 1990) is the beating heart of marketing.
Developing a market orientation is said to make organizations more profitable in both the long
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and short runs (Kumar et al., 2011), especially when there are limited competition, unchanging
customer wants and needs, fast-paced technological change, and strong economies in opera-
tion. In a meta-analysis of market orientation studies, Kirca, Jayachandran, and Bearden
(2005) conclude that market orientation is likely to be fundamental for survival in service firms
and the source of competitive advantage in manufacturing firms.
Developing a market orientation is not the same as developing a marketing orientation. So,
what’s the difference? A company with a marketing orientation would be a company that recog-
nizes the importance of marketing within the organization, for example by appointing a market-
ing person as chief executive officer (CEO), or as chair of its board of directors (or trustees, in the
case of a charity), or to the executive team in a limited company or partnership.
Developing a market orientation refers to ‘the organization-wide generation of market intel-
ligence pertaining to current and future customer needs, dissemination of the intelligence across
the departments, and organization-wide responsiveness to it’ (Kohli and Jaworski, 1990: 6). So
a market orientation not only involves the marketing function, but also involves everyone gather-
ing and responding to market intelligence (that is, customers’ verbalized needs and preferences,
customer and employee survey data, sales data, and information gleaned from discussions with
customers and trade partners, from websites, and from social media). Developing a market
orientation means developing:
■ customer orientation—concerned with creating superior value by continuously developing
and redeveloping offerings to meet customer needs—which means that we must measure
customer satisfaction on a continuous basis and train front-line service staff;
■ competitor orientation—which requires an organization to develop an understanding of its
competitors’ short-term strengths and weaknesses, and its own long-term capabilities and
strategies (Slater and Narver, 1994); and
■ interfunctional coordination—which requires all functions of an organization to work together
for long-term profit growth (as illustrated in Figure 1.1).
Achieving a market orientation so that an organization is internally responsive to changes in
the marketplace may take organizations four years or more to develop and requires senior
Customer orientation
Long-term
profit focus
Figure 1.1
The three components
of market orientation Competitor Interfunctional
Source: Narver and Slater (1990). Reprinted orientation coordination
with permission from The Journal of
Marketing, published by the American
Marketing Association, Narver, J.C. and Slater,
S.F. (1990), October, 20–35.
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management support, the development of teams to gather the necessary market intelligence
data and design appropriate market-based reward systems, and management to implement the
recommendations made as a result (Kohli and Jaworski, 1990).
Developing a market orientation within a company is a capability—something that not
all companies are able to do. Organizations that develop a market orientation are better at
market sensing—that is, understanding the strategic implications of the market—and acting
on the information collected through environmental scanning exercises. (This topic is covered
in Chapter 4.) Surprisingly, until 2000, General Electric (GE)—the American capital, expertise,
and infrastructure company—had no substantial marketing organization; instead, it had been
technology-driven. To orient itself towards the market, GE organized its marketing function into
two basic activities: go to market (for example segmentation) and commercial essentials (for
example branding, communications). Then it organized its marketing teams across the com-
pany to ensure that they contained a mix of people with different skills, including instigators (who
challenge the status quo), innovators (who develop new offerings and processes), integrators
(who build bridges across organizational functions and in the marketplace), and implementers
(who execute the new ideas). All this was backed with a process custom-designed to evaluate
the success of the new approach (Comstock, Gulati, and Liguori, 2010).
Marketing’s Intellectual Roots

Marketing typically evolves over time in organizations, just as it has throughout history. Some
marketing historians regard marketing as an invention of the twentieth century (Keith, 1960),
while others regard it as a process that evolved over a much longer period of time, without any
production era ever having existed at all. Soap firms, for example, were advertising in the late
nineteenth century in the UK, the United States, and Germany (Fullerton, 1988). The notion
that marketing developed first in the 1950s is probably wrong, considering that self-service
supermarkets operated in America from the 1930s and products were increasingly developed
based on the process of ‘consumer engineering’, within which products were designed and
redesigned, using research, to meet customer needs (Fullerton, 1988).
Marketing as a discipline has developed as a result of the influence of its practitioners, but
also developments in several related disciplines, including the areas of industrial economics,
psychology, sociology, and anthropology, as follows:
■ Industrial economics influences—Our knowledge of the matching of supply and demand
within industries owes much to the development of microeconomics. The economic con-
cepts of perfect competition and the matching of supply to demand underlie the marketing
concept, particularly in relation to the price at which offerings are sold and the quantity dis-
tributed (see Chapter 9) and the nature of business-to-business marketing (see Chapter 16).
Theories of income distribution, scale of operation, monopoly, competition, and finance all
come from economics (Bartels, 1951), although the influence of economics on marketing has
declined (Howard et al., 1991).
■ Psychological influences—Our understanding of consumer behaviour derives principally from
psychology—especially from motivation research (see Chapter 3) in relation to consumer atti-
tudes, perceptions, motivations, and information processing (Holden and Holden, 1998), and our
understanding of persuasion, consumer personality, and customer satisfaction (Bartels, 1951).
Understanding buyer psychology is fundamental to the marketing function. Because marketing is
about understanding customers’ needs, empathy with customers is a prerequisite.
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■ Sociological influences—Our knowledge of how groups of people behave derives from so-
ciology, with insights into how people from similar gender and age groups behave (demo-
graphics), how people in different social positions within society behave (class), why we do
things in the way that we do (motivation), general ways in which groups behave (customs),
and culture (Bartels, 1951, 1959). What society thinks as a whole (that is, public opinion) and
how communications pass through opinion leaders (Katz, 1957), as well as how we influence
the way people think, for example propaganda research (Lee, 1945; Doob, 1948), have all
informed marketing practice.
■ Anthropological influences—Our debt to social anthropology is increasing as we use qual-
itative approaches such as ethnography, netnography, and observation in researching
consumer behaviour (see Chapter 3)—particularly the behaviour of subgroups and cultures
(for example tweenagers, haul girls).
■ Computer science influences—Marketing’s debt to advances in computer science is sub-
stantial in the digital age, but is set to be greater still in the next few decades. For example,
this has influenced the algorithms that are used to make recommendations in the entertain-
ment choices you make (such as Netflix) and to determine a supermarket group’s retail site
location decisions. Advances in our understanding of human–computer interaction have al-
lowed the development of better (that is, easier to navigate) website pages and the use of
artificially intelligent customer service chatbots. For example, Spotify’s Facebook Messenger
app bot allows customers to search for, listen to, and share music.
Differences between Sales and Marketing

When someone is new to marketing, they might ask themselves: how do sales and market-
ing differ? A comprehensive answer is that sales emphasizes the process of ‘product push’
by creating distribution incentives for both salespeople and customers to make exchanges,
whereas marketing focuses on creating ‘product pull’, by stoking demand among custom-
ers and consumers. In marketing, the offering is designed and redesigned through customer
insight and co-creation to meet customers’ long-term needs. However, the differences are
blurring as companies employ key account management approaches (see Chapter 16),
which interface between sales and marketing functions. Marketing activity is geared around
understanding and communicating with the customer to help in the design, development,
delivery, and determination of the value inherent in the offering, whereas sales is organized
principally around enhancing the distribution and solicitation of the companies’ offerings once
those offerings have already been designed. Sales departments are particularly concerned
with the delivery part of the value creation process. However, sales as a function does and
should have inputs into the design phase (through information from sales representatives),
the development phase (particularly in test marketing—see Chapter 3), and the determina-
tion phase, in which salespeople’s informal knowledge of customers’ needs is critical to the
marketing process.
Whereas marketing activities are designed to estimate and stimulate demand, sales activ-
ities are designed to promote customer purchase of an offering (AMA, 2015). However, the
two functions should be integrated to coexist in an organization, rather than clash, since
both are important in achieving a market orientation and concomitant improvement in busi-
ness performance (Le Meunier-Fitzhugh and Piercy, 2011). Table 1.2 provides a summary of
the basic differences.
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11
Table 1.2 Differences between marketing and sales
Marketing Sales
Tends towards long-term satisfaction of Tends towards short-term satisfaction of customer

customer needs; part of the design and needs; part of the value delivery process
development of customer value processes
Tends towards greater customer input into Tends towards lesser customer input into design
design of offering (co-creation) of offering
Tends towards high focus on stimulation of Tends towards low focus on stimulation of demand;
demand more focused on meeting existing demand
What Do Marketers Do?

To answer the question ‘What do marketers do?’, the UK’s Chartered Institute of Marketing
(CIM) developed a framework of marketing abilities to guide the skills and behaviours of profes-
sional marketers at different levels of proficiency and seniority (CIM, 2016). The proficiency levels
vary as follows:
1 aware;
2 active learner;
3 able;
4 accomplished; and
5 authoritative.
The core competencies of the marketer are to generate customer insights (see Chapter 3),
champion the customer and hence customer focus (covered further later in this chapter), and
develop marketing strategy (see Chapter 5). Technical competencies include:
■ risk and reputation management (see Chapter 11);
■ brand (see Chapter 12);
■ integrated marketing communications (see Chapter 11);
■ digital integration (see Chapter 12);
■ product management (see Chapter 8);
■ monitoring and measuring effectiveness (see Chapter 5);
■ customer experience (see Chapter 15); and
■ partnership marketing including managing channel partners (see Chapter 14).
The CIM also defines a set of behavioural competencies. These include influencing (other
employees, customers, stakeholders), being collaborative (for example with channel partners),
being responsible (for one’s actions and acting ethically), and being financially literate, inspiring,
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Influencing
e
tiv Co
rea lla
C bo
ra
ti
ve
Risk and
Partnerhsip
Reputation
e
Marketing
ar Management
Aw
ally
Res
erci
pon
Customer
Comm
Brand
Experience
sible
Insights
Championing
the Customer
Strategy
Monitoring and Integrated
Entrep
te
Measuring Marketing
itera
Effectiveness Comms
ren
lly L
eur
cia
ial
an
Product Digital
Fin
Management Integration
Ch
all
en
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g pir Core
Ins
I nn ova t i ve Technical
© CIM 2016
Behaviour
Figure 1.2
A functional map for professional marketing competencies
Source: © The Chartered Institute of Marketing 2018. Reproduced with the kind permission.
innovative, challenging, entrepreneurial, commercially aware, and creative. The framework is

illustrated in Figure 1.2.
Visit the online resources and follow the web link to the CIM’s Professional Marketing Standards
Framework to learn more about occupational standards for marketing in the UK.
Because society constantly changes, so too does the marketing profession. Marketing’s place
within the business profession—and within society more generally—is often criticized. Whereas
doctors, teachers, and judges are generally held in high esteem (Worcester et al., 2011: 136),
marketing practitioners can sometimes be held in low regard (Kotler, 2006). Sheth and Sisodia
(2015) have recommended that marketers might reform their reputation by:
■ showing more integrity, gratitude, recognition, and humility towards, and building real trust
with, customers;
■ building a true dialogue with customers and respecting their privacy;
■ striving for authenticity by really personalizing customer offerings rather than only appearing
to do so;
■ asking for forgiveness in the occasional instance in which their judgement lapses and they
treat customers badly;
Principlesand
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13
■ having the courage to stop over-promising and under-delivering; and
■ showing respect for customers, competitors, and suppliers.
Marketing has some way to go in terms of developing its relations with customers and in terms
of the power it wields inside companies. However, there are signs that major public companies
are beginning to bring sales-and-marketing experience to their boards. In 2015, 21 per cent of
FTSE 100 CEOs came from a sales-and-marketing background (Hobbs, 2015). Marketing func-
tions can, however, be divorced from a strategic role in some companies. This is likely to change
only if marketers demonstrate the value of marketing to their organizations. (For a more detailed
consideration of how companies structure the marketing function, see Chapter 5.)
This lack of strategic input may arise because marketers do not control all elements of the
marketing mix. For example, marketers do not always control pricing, distribution, product
development, and even promotion, given that this is often outsourced to agencies (O’Malley
and Patterson, 1998), although marketers usually exercise some influence over all these activi-
ties. Marketing is not always organized as a separate department, but the ethos and influence
of marketing philosophy should nonetheless be apparent and impact upon an organization’s
decision-making (Harris and Ogbonna, 2003). Marketing is present in all aspects of an orga-
nization, since all departments have some role to play with respect to creating, delivering, and
satisfying customers. Employees in the research and development (R&D) department, designing
new products to meet existing customer needs, are performing a marketing role. Similarly, mem-
bers of the procurement department buying components for a new offering must purchase
those components at a specific quality and cost that will meet customer needs. In fact, we can
go through all departments of a company and discover that, in each department, there is a
marketing role to be played to some extent. In other words, marketing is distributed throughout
the organization and all employees can be considered part-time marketers (Gummesson, 1990).
Marketing’s Principal Principles

Despite having been studied for nearly 100 years, there are few truly scientific principles in
marketing (Bartels, 1944). By ‘scientific principles’, we mean natural rules of law around which
a theory can be developed to explain observations (and to predict future observations), which
cannot be subsequently disproved. Relatively early on in marketing’s history, however, Bartels
(1951) modified two well-known economic ‘laws’ to argue that only the following marketing
generalizations exist.
1 Engels’ Law—As a consumer’s income increases, the percentage of income spent for food
decreases; for rent, fuel, and light remains the same; for clothing remains the same; and for
miscellaneous items increases.
2 Reilly’s Law of Retail Gravitation—Two cities attract retail trade from an intermediary city or
town in the vicinity of the breaking point (the 50 per cent point) approximately in direct propor-
tion to the populations of the two cities and in inverse proportion to the square of the distance
from these two cities to the intermediate town.
Clearly, things have changed since statistician Ernst Engels produced his law in 1857, especially
since populations are more mobile than they were in the nineteenth century and food is less
expensive than it was 70–80 years ago, so it is debatable as to whether or not Engels’ Law still
applies.
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The impact of Reilly’s Law, first posited in 1931, is that site location specialists for a major
supermarket should locate stores near the larger of two major population centres. Again, this
might sound self-evident as a general principle, but Reilly’s Law allows retailers to determine
with some degree of precision exactly where that location might be. Nowadays, multiple retail
grocers, such as Carrefour in France, Sainsbury’s in the UK, Coop in Denmark, Albert Hejn in
the Netherlands, and Tesco Lotus in Thailand, use complex mathematical formulae (for exam-
ple algorithms) to determine site location decisions, purchasing land and developing suitable
properties, in addition to converting existing business premises, in suitable locations as a result.
Despite the fact that there are no clear ‘laws of marketing’, several prominent academics
have argued for the need to develop a ‘general theory of marketing’ (Bartels, 1968; Hunt, 1971,
1983). This search continues to the present day, but we are no closer to defining such a thing
(Hunt, 2013). To move towards such a general theory, we would need to understand the phe-
nomenon of marketing more completely in terms of:
■ the behaviour of buyers—that is, why which buyers purchase what they do, where they do,
when they do, and in the way that they do;
■ the behaviour of sellers—that is, why which sellers price, promote, and distribute what they
do, where they do, when they do, and in the way that they do;
■ the institutional framework (for example government, society, and so on) around selling and
buying—that is, why which kinds of institutions develop to engage in what kinds of functions
or activities to consummate and/or facilitate exchanges, when these institutions will develop,
where they will develop, and how they will develop; and
■ the consequences for society of buying and selling—that is, why which kinds of buyers, buy-
er behaviour, seller behaviour, and institutions have what kinds of consequences on society,
when, where, and how (Hunt, 1983).
The listing indicates how marketing involves a series of highly complex interactions between
individuals, organizations, society, and government. We have only a limited understanding of
how marketing works in theory and practice. However, although we have no ‘laws’ of marketing
with which to construct a general theory, we can make some law-like generalizations. They may
not hold all of the time, but they do hold much of the time.
According to Leone and Shultz (1980), these law-like generalizations are as follows:
■ Generalization 1—Advertising has a direct and positive influence on total industry (market)
sales—that is, all advertising done at industry level serves to increase sales within that industry.
■ Generalization 2—Selective advertising has a direct and positive influence on individual com-
pany (brand) sales—that is, advertising undertaken by a company tends to increase the sales
of the particular brand for which it was spent.
■ Generalization 3—The elasticity of selective advertising on company (brand) sales is low
(inelastic)—that is, for frequently purchased goods, advertising has only a very limited effect
in raising sales.
■ Generalization 4—Increasing store shelf space (display) has a positive impact on sales of non-
staple grocery items, such as products bought on impulse (for example ice cream, chocolate
bars) rather than those that are planned purchases, which are less important, but perhaps
more luxurious types of good (for example gravy mixes, cooking sauces). For instance, for
impulse goods, the more shelf space you give an item, the more likely you are to sell it.
Principlesand
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15
Research Insight 1.1
To take your learning further, you might wish to read this influential paper:
Borden, N.H. (1964). The concept of the marketing mix. Journal of Advertising
Research, 4, 2–7.
This early, easy-to-read article explains how marketing managers act as ‘mixers of ingredients’ when
developing marketing programmes. The marketing mix, popularized as the 4Ps, remains popular today,
although the advent of relationship marketing has challenged the impersonal notion of marketers as
manipulators of marketing policies and focused more on the need to develop long-term interpersonal
relationships with customers.
Visit the online resources to read the abstract and access the full paper.
■ Generalization 5—Distribution, defined by the number of outlets, has a positive influence on

company sales (market share)—that is, setting up more retail locations has a positive influ-
ence on sales.
(For a more detailed consideration of law-like generalizations, see Hanssens, 2009.)
As we can see, marketing techniques are still developing in a scientific sense, but in the age
of social media and ‘big data’ analytics, companies are more able to describe—and predict—the
behaviour of their consumers, customers, and producers according to some predefined formu-
lae. Nevertheless, marketers still have to make use of trial and error, and experimentation and
readjustment processes. Gordon and Perrey (2015) argue that we are entering a golden age in
marketing—that advances in data analysis and statistical modelling are increasingly allowing us
to measure the returns made on marketing investments, and to assess and predict customer
behaviour more accurately than ever.
Marketing practice is, however, informed by managerial concepts and frameworks, as well as
by general theoretical principles. Important concepts include the notion of exchange in market-
ing, the marketing mix for products (the 4Ps—see Research Insight 1.1) and services (the 7Ps),
market orientation, and relationship marketing and service-dominant logic for marketing.
Marketing as Exchange
Marketing is a two-way exchange process. It’s not solely about the marketing organization doing
the work; the customer also inputs—sometimes extensively. Customers specify how we might
satisfy their needs, because marketers cannot read their minds. Customers must then pay for
the offering. In the mid-1970s, there was an increasing belief that marketing centred on the
exchange process between buyers and sellers and associated supply chain intermediaries.
Exchange relationships were seen to be economic (for example a consumer buying groceries)
and social (for example the service provided by the police on behalf of society paid for by gov-
ernment) (Bagozzi, 1975). This recognition of the underlying exchange relationship within mar-
keting led to the ‘broadening’ of marketing and the relationship marketing school of marketing.
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Offering, credit facilities, return facilities,

distribution arrangements, other services
a) Manufacturer Retailer
Money, wholesale price for goods
Offering, return facilities, (online) distribution
arrangements, customer service
b) Retailer Customer
Money, retail price for goods
Offering, credit facilities, return facilities,
distribution arrangements, other service
c) Manufacturer Customer
Money, price for goods
Keeping public order including protection
from crime and terrorism
d) The police Customer
Public funds, suspicious activity reporting,
cooperation
Provision of services to those in need, typically
third parties
e) Charity Donors
Donations and volunteering
Higher education, career and continuing
professional development services
f) University Student
Public funds, donations, philanthropy,
course fees, research grants
Figure 1.3
Examples of marketing exchange processes
(see Chapter 15). There are numerous types of buyer–seller exchange in marketing. Figure 1.3
illustrates some examples of two-way (dyadic) exchanges, as follows:
1 In the first exchange type, we have a manufacturer and a retailer. Here, the retailer (for exam-
ple Harvey Nichols) purchases goods from the manufacturer (for example Burberry) through
a credit facility (for example payment in 30 days), expects any damaged goods to be return-
able, and wants the goods delivered in a certain way within a particular time limit. In return,
the retailer undertakes to pay a wholesale (that is, trade-discounted) price.
2 In the second exchange type, we have a retailer and a customer, perhaps entering a shop (for
example Jumbo—the Dutch supermarket retailer) to purchase groceries and paying for these
with cash or by credit or debit card (see Chapter 14).
3 In the third type of exchange, we have a manufacturer dealing directly with its customers. An
example here would be Dell, the computer manufacturer, selling directly from its website and
via the telephone.
4 In the fourth exchange type, the exchange takes place between the police, who are tasked
with protecting the general public from crime and terrorism, and public disorder more gener-
ally, and the public who support them, perhaps by signing petitions to keep police stations in
service in a particular locale, and especially through their national and local taxes, depend-
ing on the country concerned. (See Chapter 17 for a more detailed discussion of the use of
marketing by the City of London Police.)
Principlesand
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17
5 In the fifth exchange type, the exchange takes place between a charity and its donors,
whereby the donors provide funds (by legacy or by regular or one-off donation) and the
charity makes products and services available to third parties. An example is Barnens Regn-
skog (meaning ‘Children’s Rainforest’), a Swedish not-for-profit organization that supports
the preservation of rainforests in Thailand, Guatemala, Belize, Costa Rica, and Ecuador.
6 In the sixth type of exchange, we see a university, which may be a public or private organiza-
tion, or some mixture of two, providing a range of educational services designed to educate
its audiences and to advance their careers in return for payment.
Few marketing exchanges are really this simple. They might involve other individual transactions
and multiple combinations. For example, the first and second types of exchange can be com-
bined to indicate a simple supply chain for, say, an insurance company providing underwriting
services to insurance companies selling home insurance policies directly to the general public.
Other mechanisms also exist in this market: banks and brokers also sell home insurance policies
directly to the general public. By understanding how exchanges take place between members of
the supply chain, we can determine where to add value to the customer experience.
The Marketing Mix and the 4Ps

Neil Borden originally developed the concept of the marketing mix in his teaching at Harvard
University in the 1950s. His idea was that marketing managers were ‘mixers of ingredients’—
chefs who concoct a unique marketing recipe to fit customers’ needs at any particular time.
The emphasis was on the creative fashioning of a mix of marketing procedures and policies to
produce the profitable enterprise.
Borden (1964) composed a 12-item list of elements (with sub-items, not reproduced here),
which the manufacturer should consider when developing marketing mix policies and procedures:
1 product planning;
2 pricing;
3 branding;
4 channels of distribution;
5 personal selling;
6 advertising;
7 promotions;
8 packaging;
9 display;
10 servicing;
11 physical handling; and
12 fact finding and analysis.
This list was simplified and amended by Eugene McCarthy (1960) to become the more memo-
rable, but rigid, 4Ps:
1 product—that is, the offering and how it meets the customer’s need, its packaging, and its
labelling (see Chapter 8);
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2 place (distribution channels)—that is, the way in which the offering is delivered to the
customer (see Chapter 14);
3 price—that is, the cost to the customer and the cost plus profit to the seller (see Chapter 9); and
4 promotion—that is, how the offering’s benefits and features are communicated to the
potential buyer (see Chapters 10 and 11).
The intention was to create a simpler framework for managers to develop their planning. Although
there was recognition that all of these elements might be interlinked (for example promotion based
on the price paid by the consumer), such interplay between these mix components was not taken
Market Insight 1.1

V&D Goes Bust!
On New Year’s Eve 2015, Dutch department store from its financial difficulties. However, after suggestions
Vroom & Dreesman (V&D), owned by US private of up to 70 candidate buyers for the business, the
equity firm Sun Capital, declared itself insolvent after administrators invited 10 candidates to submit bids.
suffering poor sales, a loss of €49 million on sales of
€604 million in 2014, and a year of conflict with unions Sources: Anon. (2015a, 2015b); Pieters (2015).
and landlords. The company was finding it difficult to

compete with new competitors and the shift to online
purchasing. The company, first established in 1887,
had more than 10,000 staff and 62 stores across the
Netherlands, selling items such as designer clothing
and shoes, jewellery, home electric appliances,
furniture, china, stationery, books and CDs, and much
more. It also owned the La Place restaurant chain in
250 locations. In early 2016, bankruptcy administrators
began trying to find a buyer for parts of the business.
The V&D works council (that is, the employees) wrote

to the bankruptcy administrators, Kees van de Meent
and Hanneke de Coninck-Smolders, to request that Iconic Dutch department store V&D shuts its
the owners Sun Capital not be allowed involvement in doors after 128 years of service
the future activities of the company, should it emerge Source: iStock.com/Poulssen.
Theory into Practice
This market insight describes how a Dutch department previously successful model for more than 100 years.
store retailer, aimed firmly at middle-class customers, The case underlines the importance of staying in touch
failed after a spell of annual losses that its US owner with customers’ needs if a company is to survive in the
was no longer prepared to bear. As a result, the long term. It also provides an opportunity to understand
company called in the bankruptcy administrators. The how marketing strategy might be redesigned using
market insight demonstrates that not all businesses the 4Ps, particularly in relation to multichannel
succeed—even those that have been running with a marketing (see Chapter 14).
Principlesand
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19
Market Insight 1.1

continued
Related Topics
retail marketing; marketing mix; market orientation; multichannel management; distribution
1 If you were a senior executive at a company that 2 Why do you think V&D has found it so difficult to
acquired the V&D business from bankruptcy alter its business model?
specialists Kees van de Meent and Hanneke
3 What other companies can you think of that
de Coninck-Smolders, how would you seek to
need to revive their marketing mixes?
use the 4Ps to revive the company’s marketing
to appeal to more consumers? Why might its
marketing mix strategy have failed?
into account in McCarthy’s framework. (See Market Insight 1.1 for an example of why the V&D
department store offering in Holland and the marketing mix more generally needs redeveloping.)
Some commentators have argued that the 4Ps framework is of limited use; however, we include
it here because managers continue to use it extensively when devising their marketing plans.
The Extended Marketing Mix

It might be that exchanges in a service context (for example when purchasing a holiday) are dif-
ferent from those in a goods context (for example when buying a car). By the end of the 1970s,
it was recognized that the traditional 4Ps approach to marketing planning (see Chapter 5 for a
detailed discussion) based on physical products (for example salt, houses, alcoholic drinks) was
not particularly useful for either a physical product offering with a strong service component (for
example tablet computers with an extended warranty) or services with little or no physical com-
ponent (for example spa and massage, hairdressing, sports spectatorship) (see Chapter 15).
Two American scholars, Booms and Bitner (1981), incorporated a further three Ps into the
marketing mix to reflect the need to market services differently:
5 Physical evidence—This emphasizes that the tangible components of services are strategi-
cally important. For example, potential university students might assess whether or not they
want to attend a university and a particular course by requesting a copy of brochures or by
visiting the campus to assess the servicescape for themselves.
6 Process—This emphasizes the importance of the service delivery. When processes are
standardized, it is easier to manage customer expectations. For example, DHL International
GmbH, the German international express, transport, and air freight company, is a master at
producing a standardized menu of service options, such as track-and-trace delivery services,
which are remarkably consistent around the world.
7 People—This emphasizes the importance of customer service personnel, who are sometimes
experts and often professionals, interacting with the customer. How they interact with customers,
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and how satisfied customers are as a result of their experiences, is of strategic importance. For
example, McKinsey & Company (2017) prides itself on the quality of its more than 12,000 consul-
tants and its 2,000 research and information specialists as an integral part of its offering.
Consider how the extended marketing mix is used in the airline industry. For instance, the pro-
cess component of the services marketing mix has been revolutionized through digital technolo-
gies, for example web check-in and app ticketing services. Previous intermediaries, such as
travel agencies, have had to radically alter their customer proposition now that the major national
carriers (for example Air France, KLM, British Airways) are offering their services directly through
digital channels to compete with low-cost airlines, who are also offering their services through
digital channels often at substantially lower prices. Consequently, travel agencies (such as TUI
and Thomas Cook) have also put their own services online, customizing holiday offerings to dif-
ferentiate themselves from the airlines and to add value for the customer, offering better deals on
insurance, identifying the best flight connections, providing advice on the best airlines, and offer-
ing affiliate hotel deals (Saren, 2006). Two of the top three travel agents are online-only firms—
that is, Expedia (including Trivago, hotels.com, Hotwire) and Priceline (including booking.com).
The people, process, and physical evidence components of the airline service marketing mix
are fundamental in positioning the offering. Airlines do not offer everyone exactly the same level
of service and sometimes service levels fall well below customer expectations. Consider the
incident in 2017 when United Airlines dragged a passenger off an airplane for failing to give up
his seat to an affiliate airline employee after United Airlines overbooked the flight. This resulted in
widespread condemnation, reduced bookings, and the payment of an undisclosed, but prob-
ably large, sum in damages to the affected passenger (Associated Press, 2017).
Most airlines offer an economy service, an economy plus service (with slightly more seating
space), a business class service (with even more seating space, a better meal, a personalized
cabin crew service, fast-track service through passport control, and often a limousine service to
and from the airport), and a first-class service (with personalized menus, luxury transport to and
from the airport, and luxurious in-flight seating). From 2017, Norwegian decided to offer low-cost
long-haul services between Norway and the United States and Asia (Anon., 2017a). Table 1.3
summarizes the marketing mix for the airline industry.
Relationship Marketing, Service-Dominant Logic,

and Co-creation
The extended marketing mix was developed after recognition that the 4Ps were inadequate
to describe how the marketing of services should be undertaken. But the extended market-
ing mix also came to be seen as overly transactional and product-focused, even for services.
The question arose that if marketing was about exchange, shouldn’t marketing also be con-
cerned with relationships between those parties that are exchanging value and not only what
was exchanged? This was the principal idea behind the development of relationship marketing
in the 1990s. The relationship marketing concept spawned the further evolution of marketing’s
conceptual foundations. There was a shift from the need to engage in transactions towards the
need to develop long-term customer relationships, including relationships with other stakehold-
ers (Christopher, Payne, and Ballantyne, 2002; see Chapter 15), including:
■ suppliers;
■ potential employees;
■ recruiters;
Principlesand
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21
Table 1.3 The marketing mix: the airline industry
Marketing aspect Airline industry
Basic customer need Safe long- and short-haul transportation; domestic and international
Target market Mass consumer market (economy class); the discerning traveller (economy
plus); businesspeople (business class); high-net-worth individuals (first class)
Offering Typically, differentiated based on class of passenger, with seat size increasing,
check-in and boarding times reducing, quality of food increasing, and levels
of ancillary services (e.g. limousine service) increasing as we move from
economy through business to first class
Some carriers focus on ‘no-frills’ basic services (e.g. EasyJet, Ryanair, Air Asia)
Some carriers offer low-cost long-haul services (e.g. Norwegian)
Price Substantial difference depending on class of service, type of carrier, and

purchasing approach (e.g. cheaper via Internet)
Principal promotional (1) Banner ads, paid search, search engine optimization; (2) press and
tools magazine advertising; (3) billboards
Distribution Increasingly purchased via mobile apps and the Internet, including third-party
brokerages such as Expedia, as well as (to a lesser degree in many countries)
through physical travel agents
Process Self-service via smartphone or Internet, or aided by travel agent in retail location
Travel options increasingly customized to customer’s needs, including size of
baggage allowance, class of travel, and increasing availability of alternative
and multicentre locations
Customer and organization use of social media to air and resolve problems
now very important
Physical evidence Airline loyalty cards and souvenirs, in-flight magazines, in-flight entertainment
services, food and snack meals, grooming and toiletry products provided
On some flights, depending on class purchased, suites, bars, and shower
facilities offered
People Combination of check-in staff, customer service personnel, baggage

handlers, and cabin crew/pilot teams, all of whom interface with customer or
their belongings at different points in the experience
■ referral markets—where they exist, for example retail banks partly relying on professional
services organizations, including estate agents, for mortgage referrals;
■ influence markets—for example regulatory authorities, politicians, and civil servants (see also
Viney and Baines, 2012); and
■ internal markets—for example existing employees.
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Hult and colleagues (2011) added shareholders and the local community to this list. For them,
the definition of marketing provided by the AMA (see Table 1.1) is inadequate because it fails
to consider a sufficiently wide set of stakeholders. The concept of relationship marketing was
concerned with integrating customer service, quality assurance, and marketing activity (Payne,
1993). Companies employing a relationship marketing approach stressed customer retention
over customer acquisition. Customer retention is an important activity in marketing, because
research has demonstrated that when a company retains loyal customers, it is more likely to be
profitable compared with competitors who do not, because loyal customers:
■ will increase their purchases over time;
■ are cheaper to promote to;
■ who are happy with their relationship with a company refer it to others; and
■ are prepared to pay a (small) price premium if they are loyal (Reichheld and Sasser, 1990).
The idea of developing stronger relationships with existing customers is particularly important in
mature industries in which markets are saturated, such as utilities and telecommunications, the
travel industry, and retail banking, as well as in service-based industries, such as banking and
corporate legal services. Retention programmes are developed to focus marketing activity on
enhancing customer service satisfaction and rewarding loyalty, building customer relationship
management (CRM) systems, and undertaking sales promotion activities. Companies have
previously been urged to develop long-term interactive relationships (Gummesson, 1987).
However, relationship marketing moved the concept away from simply adopting the 4Ps towards
adopting an interactive marketing approach, paying more attention to the customer base
rather than being preoccupied with building market share (Grönroos, 1994).
In the 2000s, there was a realization that marketing needed to shift beyond a goods-based
paradigm towards a service-dominant logic (Vargo and Lusch, 2004). This relatively new market-
ing paradigm sees service as the fundamental basis of exchange (see Research Insight 1.2). In
that sense, for physical goods offerings, the good is simply the distribution mechanism.
Vargo, S.L., and Lusch, R.F. (2008). Service-dominant logic: continuing the evolution.
Journal of the Academy of Marketing Science, 36(1), 1–10.
This article builds on, and updates, the authors’ original ground-breaking article (Vargo and Lusch, 2004),
which redefined how marketers should think about offerings, arguing that it was necessary to move beyond
the idea of tangible versus intangible goods, embedded value and transactions, and other outmoded
concepts derived from economics towards the notion of intangible resources and the co-creation of value
and relationships. The article asserts that service is the fundamental basis of all exchanges in marketing and
that value is always determined by the beneficiary.
Principlesand
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23
To understand this concept better, consider the difference between purchasing a book from a
shop (for example Waterstones) versus reading an e-book purchased from Amazon. The knowl-
edge and technologies that the company embeds in the offering to meet the customer’s needs
are the source of competitive advantage. Because offerings are inherently service-based, cus-
tomers become co-creators of the service experience; hence the value-in-use of the offering is
specified by the customer, often after the sale has taken place. (See Market Insight 1.2 for an
example of how Rolls Royce has transformed its product–service offering through servitization.)
Market Insight 1.2

Servitization at Rolls-Royce
Rolls-Royce is a global provider of integrated power

systems and services to the civil and defence
aerospace, marine, nuclear, and power systems
markets. However, Rolls-Royce plc (which no longer
owns the Rolls-Royce motor car brand) has completely
redefined itself since the early 1970s, when it was
nationalized by the then Conservative government
after running into financial problems. In 2016, it had
underlying revenues of £13.8 billion, up 3.2 per cent
on 2015, with an order book of £79.8 billion. Product–
service revenue ratios in 2016 were 48:52 per cent in
civil aerospace, 40:60 per cent in defence aerospace,
57:43 per cent in the marine sector, 68:32 per cent Rolls Royce wins contract to supply IAG with
in power systems, and 46:54 per cent in the nuclear Trent XWB engines and long-term TotalCare®
service support
business. By comparison, after-market sales, as they
Source: © Airbus S.A.S 2011—photo by exm company/H. Goussé.
were then known, were only 20 per cent of the civil
aerospace division’s revenues in 1981. TotalCare was first introduced in the 1990s and
charges airline customers based on the total number
Since then, Rolls-Royce has transformed its business
of hours flown. By collecting data from aircraft engines
model from selling engines and aftercare (to ensure
in flight worldwide on a continuous basis, Rolls-Royce
that the engines work properly and are maintained) to
can maintain those engines better, predict engine
selling its customers ‘power by the hour’, recognizing
failures, optimize engine maintenance programmes,
that it is not in the engine-manufacturing business, but
and improve future engine design. Service looks set to
in the power-generation integrated solutions business.
become more important than ever with Rolls-Royce’s
In the civil aerospace sector, Rolls-Royce sells its
product market opportunities likely to be worth around
engines with TotalCare®. With TotalCare, a customer
£1.79 trillion and the services market opportunities
enters an overall agreement with Rolls-Royce that
worth £1.38 trillion between 2012 and 2032.
provides visibility of cost and a guarantee of product
reliability. Sources: Ryals and Rackham (2012); Rolls-Royce (2016).
This market insight describes how a major UK is, by offering its product as a service either by selling
manufacturer enhanced its customer offering by shifting engines with service contracts or by leasing thrust
from a conventional engineering product to a product– capacity rather than purely selling an engine.
service mix that includes a servitized offering—that
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Market Insight 1.2

continued
Related Topics
product–service mix; servitization; customer needs; customer value
1 Why do you think Rolls-Royce has been so in their civil aerospace divisions compare with
successful in selling the service concept? those of Rolls-Royce?
2 Check out the websites of competitors Pratt & 3 Do you think that all manufacturers’ products
Whitney and GE. How do their service offerings can be servitized?
Organizations should use co-creation to differentiate their offerings, given that value is tied
up inside the customer’s experience with the organization (Prahalad and Ramaswamy, 2004a,
2004b). The co-creation experience is about the joint creation of value, in which customers take
part in an active dialogue and co-construct personalized experiences. Organizations wishing to
enhance customer input to co-creation should map supplier and customer processes to identify
how to design their services accordingly (Payne, Storbacka, and Frow, 2008). The process of
co-creation potentially shifts value creation from value-in-exchange, at the point of purchase, to
value-in-use, after purchase (Grönroos and Voima, 2013). For example, airplane manufacturer
Boeing incorporated feedback from both airline companies and passengers into its Dreamliner
plane design before final production (see Chapter 8).
Marketing in Context
Does marketing practice change if we are marketing goods compared with services and to con-
sumers compared with businesses? To some degree, the answer is ‘yes’. We’ve known since
the 1960s, for example, that services were making important contributions to the US economy
(Regan, 1963). Although the product has previously been the focus of marketing practice and
theory, it shouldn’t continue to be. Figure 1.4 shows how important services are to a wide
variety of economies around the world, including those in the developed world (for example
Sweden, Netherlands, the UK), the developing world (for example Thailand, Brazil), and the less-
developed countries (for example Namibia, Nigeria). Even in China and the United Arab Emirates
(UAE), services make up more than 40 per cent of the economy.
Marketing techniques need to be adapted to the specific sector in which they are used
(Blois, 1974). The context—whether it is industrial (for example business-to-business), con-
sumer-based (for example retail), or services-based (for example business-to-business services
such as accountancy or business-to-business products such as component manufacturers),
and profit or not-for-profit—has an impact on the marketing tools and techniques that we use.
Sometimes, these differences are overplayed because marketing activities in these areas share
more similarities than differences (Fern and Brown, 1984; Cova and Salle, 2007). Nevertheless,
Principlesand
andPractice
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25
Services Industry Agriculture
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mexico
New Zealand
Spain
Australia
Belgium
Brazil
Canada
China
Egypt
France
Germany
Indonesia
Nigeria
Poland
Saudi Arabia
Singapore
Sweden
Thailand
Turkey
UAE
UK
USA
Figure 1.4
Estimated GDP composition by sector for selected countries (%, 2016)
Note: GDP = gross domestic product. All data are estimated for 2016.
Source: Data taken from CIA World Factbook (http://www.cia.gov). Reproduced with kind permission of CIA World Factbook.
whether products are business-to-business or business-to-consumer, they may be either prod-

uct or service, and all offerings combine some elements of the two. (We discuss the intangible
nature of services further in Chapter 15 and we discuss not-for-profit marketing in Chapter 17.)
Having identified three unique contexts of marketing—consumer goods, industrial (business-
to-business), and services—we now briefly discuss how each of these contexts affects how we
might undertake marketing activities. You might consider digital marketing as a separate con-
text, but our view is that digital marketing is present in all three key environments and relates to all
aspects of the 4Ps marketing mix (that is, product, place, price, promotion). We consider digital
marketing in detail in Chapter 13 and throughout the book in individual chapters.
The Consumer Goods Perspective

Consumer goods are convenience goods (purchased frequently, with minimum effort), shopping
goods (purchased selectively), or speciality goods (purchased highly selectively) (Bucklin, 1963).
Examples of consumer goods industries include the retail car market, the luxury goods market,
and multiple retail groceries. Companies operating in these industries include German car manu-
facturer Audi, French fashion house Louis Vuitton Moët Hennessey (LVMH), and Unilever, the
Anglo-Dutch fast-moving consumer goods company.
The consumer goods perspective has dominated marketing’s history. This perspective gave
birth to ideas such as ‘marketing mix’ and the 4Ps. The consumer goods perspective, borrow-
ing heavily from neoclassical economics, assumes that there are comparatively few suppliers
within a particular industry and that all are rivals for aggregated demand (that is, demand
totalled at population rather than individual level). In fast-moving consumer goods (FMCG)
26
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markets, the price at which a good is sold is clearly defined. The offering exchanged is tangible
(that is, has physical form), and is exchanged between buyer and seller through retail distribu-
tion outlets. Consumption takes place later, with demand stimulated through the promotional
mix—that is, advertising, personal selling, digital and direct marketing, and public relations (PR)
(see Chapters 11 and 12).
The focus of marketing in this context is on how to facilitate the rapid exchange of goods, the
effectiveness of marketing in matching supplier offering to customer demand (for example, see
Market Insight 1.3 on how a British retail institution was slightly adapted for the Thai market),
and efficiency in managing the distribution of the product through the supply chain. Of particular
importance in this context are the principles and practice of multichannel marketing and retailing
(see Chapter 14).
Because of the need to stimulate demand from consumers, focus is placed on the use of
advertising (see Chapter 10) to stimulate demand, and market research (see Chapter 3) to deter-
mine how to develop appropriate consumer products and to determine how they are received
once launched into the marketplace. Most buying decisions are made by individual customers,
but occasionally they are made by several people (for example a household including children for
a new car, or a friendship group choosing a particular friend’s outfit). Digital marketing techniques
have greatly increased the amount of information that customers receive, and online procure-
ment approaches now dictate how retailers reorder goods and services from suppliers. (See
Chapter 12 for more on digital and social media marketing.)
The Services Perspective

The services marketing perspective was developed in the late 1970s and early 1980s to rec-
ognize that the goods-centric marketing approach was ill-suited to the marketing of services.
Services marketing thinkers suggested that the intangible performance-dependent nature of ser-
vices substantially affected how they should be marketed (Shostack, 1977). There was a focus
on the quality of service offered (Grönroos, 1984), as well as a focus on the difference between
customer perceptions of service quality and their expectations of service quality (Parasuraman,
Berry, and Zeithaml, 1985).
Some commentators have questioned the use of the product analogy altogether in services
marketing (Grönroos, 1998; Vargo and Lusch, 2004). In relation to the debate about whether
product and services marketing is different, it is worth noting that services:
■ cannot be protected by patent (although services can be protected by copyright and
trademarks);
■ do not make use of physical packaging;
■ lack a physical display; and
■ cannot be demonstrated in the same way as can products (although ‘taster’ experiences are
sometimes offered).
Others have argued that there are major similarities (Judd, 1968), including the need to:
■ work at full capacity;
■ develop trademarks and service marks;
■ use promotional media (including digital and social media);
Principlesand
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27
Market Insight 1.3

Harrods: Time for (Thai) Tea
How do companies develop their offerings to meet local Mitsubishi Corporation Japan. The idea gained further
consumers’ needs in emerging markets? Many global ground in his mind after he found out that Thais formed
brands sell their offerings using their internationally one of Harrod’s top five overseas customer groups.
renowned images without changing their positioning
too significantly when internationalizing. But just how do Since setting up Harrods’ Tea Rooms (with Japan’s
they pull off this delicate balancing act and still achieve Mitsubishi Corporation as a partner), Boonchai has
sales success? This was the task facing Boonchai worked hard to ensure that the Harrods Tea Rooms
Kongpakpaisarn, president and CEO of LME, a Thai concept in Thailand remains true to the English parent,
fashion marketing firm, who brought quintessential partly by sending his staff to be trained in the UK
English retail brand Harrods to Thailand in late 2013. (rather than getting trainers over from the UK) and by
offering English dishes, including the ‘Chelsea Set’ of
Harrods, owner of one of the world’s most famous tea, scones, and clotted cream, the ‘London Metro’
department stores, has been the epitome of English fish and chips, and even roast beef and Yorkshire
luxury and fashion since its inception in 1849, serving pudding. But there is also an adaptation to cater for
15 million customers per year. In addition to its Thai preferences, with dishes containing foie gras
department store interests, it owns Harrods Bank, and truffles, including eggs Benedict foie gras, truffle
Harrods Estates, Harrods Aviation, and Air Harrods. omelette, and truffle cappuccino soup. Cleverly, the
The business, employing more than 4,000 people and Harrods Tea Rooms are located in or near major
owned by Qatar Holdings, is probably best known for shopping destinations, including in the Siam Paragon
its distinctive green shopping bags, its expansive luxury and opposite the Central department store in Bangkok.
goods range, and its food hall and tea rooms. Given its apparent popularity, other stores have been
planned.
It was, in fact, Harrods’ afternoon tea concept that
Boonchai considered bringing to Thailand after visiting Sources: Anon. (2010); Narataruksa (2014); Pholdhampalit
the Harrods Tea Rooms in Ginza, Japan, owned by (2014); Ruddick (2014).
This market insight describes how a Thai entrepreneur international brand can be adapted slightly to cater
has brought a world-renowned retail brand to the for local tastes without falling away from the original
Thai market. It illustrates how a famous foreign parent concept.
Related Topics
market entry method; marketing channels; culture; international marketing; standardization–adaptation; marketing
implementation
1 How important is it that the Harrods Tea Rooms 3 Is the Harrods Tea Rooms retail offer purely a
sells a Thai-oriented food range? consumer good? Why do you say this?
2 Would you define the Harrods Tea Rooms food

offering in Thailand as a convenience, shopping,
or specialty good?
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■ use personal selling techniques; and

■ use an approach to pricing based on cost and value.
We consider services marketing in more detail in Chapter 14.
The Business-to-Business Perspective

Many marketing textbooks overemphasize consumer goods marketing, paying inadequate
attention to industrial/organizational/business-to-business (B2B) marketing. Business-to-
business marketing is different from consumer marketing because the customer focus is a pro-
fessional buyer within a business rather than an individual. It requires that marketers deal with
more sophisticated customers buying in volume and often as part of a decision-making unit
(alongside other buyers and technicians), who are trained to buy (or ‘procure’) professionally and
who are rewarded for buying the right propositions at the right price (see Chapter 16).
Much B2B marketing activity revolves around the need to develop strong prospects for a
company’s offerings, to ensure effective supply chain management operations to develop
the market for a B2B offering, and to ensure that it is delivered appropriately. Because buyers
purchase large volumes of products or complex ‘bundles’ of services (for example custom-
ized IT software solutions sold by German company SAP), tight specifications are produced
with which suppliers must comply. Buyers try to ensure that they obtain the best supplier
possible by offering suppliers a contract to supply for a set period of time and encouraging a
bidding process.
In public sector markets, the procurement process is bound by strict legal guidelines for con-
tracts valued over a set financial amount. This process creates substantial rivalry, with firms often
submitting bids they cannot fulfil, either because they’ve under-priced themselves, or because
they’ve over-promised what they can deliver—a phenomenon known as the winner’s curse
because the winning company ends up servicing an unprofitable contract (Thaler, 2012).
The emphasis in B2B markets is strongly focused on the development and building of mutu-
ally satisfying relationships based on commitment and trust (Morgan and Hunt, 1994), both to
win the contract in the first instance and to deliver it to the customer’s specifications. Whether
or not a firm meets these specifications is in part linked to the logistics function (that is, ware-
housing, inventory management, delivery) of the firm. Consequently, B2B marketers can create
a competitive advantage if they develop a strong linkage between the marketing and logistics
functions, developing a strong customer service proposition by means of:
■ reductions of order cycle times;
■ accurate invoicing procedures;
■ reliable delivery;
■ effective claims procedures;
■ readily available inventory;
■ goods delivered in good condition or effective service delivery;
■ few order size constraints or the limited customization of services;
■ effective and planned visits from a salesperson;
■ convenient ordering systems and the provision of order status information;
Principlesand
andPractice
Society 29
29
■ flexible delivery times; and
■ strong aftersales support (Christopher, 1986).
Marketing’s Impact on Society

So far, we’ve considered how marketing can be characterized as operating in the consumer, busi-
ness-to-business, or services domains. What is common to all contexts is that the marketer works
to satisfy customers. However, more recently, there has been a realization that marketing impacts
both positively and negatively on society. The study of the effect that marketing processes, activi-
ties, and institutions have on the economy and society of a nation is known as macromarketing.
Let’s consider first how much the marketing industry contributes positively to society. (We
consider the negative societal impacts and sustainable marketing considerations in Chapter 18.)
For example, Wilkie and Moore (1999) describe the complexities of what they call the ‘aggregate
marketing system’. We can use the example of how marketing brings together the ingredients of
an average European ‘continental’ breakfast. Consider the individual ingredients—for example
coffee or tea, together with Danish pastries, cold cuts of meat, salad and cheese, muesli and
cereals, various fruits, the cups/plates and glasses, the oven to cook the pastries, etc. The dis-
tributive capacity of the aggregate marketing system is amazing when we consider that there
were around 516 million people in the European Union in 2017, each of whom selects their own
unique mixture of breakfast offerings each morning (CIA, 2017). Broadly, the aggregate market-
ing system in most countries works well, but there are parts of the world in which these systems
have weaknesses. Some countries experience imperfections in supply and demand because of
political circumstances (such as war, dictatorship) or environmental circumstances (for example
drought, famine). Therefore marketing plays an important role in developing and transforming
society (see Research Insight 1.3 and Market Insight 1.4). Melinda Gates, co-chair of the Bill and
Melinda Gates Foundation, has argued that not-for-profits such as charities have much to learn
from for-profit companies such as Coca Cola (Gates, 2010).
Wilkie, W.L., and Moore, E.S. (2011). Expanding our understanding of marketing in
society. Journal of the Academy of Marketing Science, 40(1), 53–73.
This article, building on a previous ground-breaking article (Wilkie and Moore, 1999), charts 100 years of
marketing thought and the extent to which marketing in society was a key consideration in scholarship during
that time. It continues to expand the idea of the ‘aggregate marketing system’ within society, and it maps the
field of marketing in society by outlining extant research groups and a research agenda.
30
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Marketing
Market Insight 1.4

Google: World-Changing Innovations
In 1996, Google began life as a research project Since its inception in 2010, Google[x] has been home to
developing what became its acclaimed search many avant-garde innovations, including the self-driving
engine and PageRank algorithm. Since those heady car initiative and Internet-connected spectacles, known
early days, Google has completely transformed as Google Glass, among other incredible projects.
society—by changing the way in which we acquire Apart from the Google[x] lab located in its Googleplex
information. Many of Google’s other innovations headquarters in Mountain View, Santa Clara, California,
have become part of peoples’ daily lives—for Google has also based its innovation labs in other
example Google Books, which has digitized millions locations, such as New York and Sydney.
of books so that people can preview a snippet of
their contents prior to making purchase decisions, In 2014, Google funded a science, technology,
or Google Maps, which allows people to plan and engineering, and maths (STEM) laboratory in an
pursue their travel routes on foot, or by car, bicycle, educational venture in Ras Al Khaimah, UAE. The aim
or public transport, wherever they have a mobile of the facility is to give students and teachers training
Internet connection. in cutting-edge technologies, including robotics, 3D
printing, drone building, and software coding, in areas
So what is the company’s secret to achieving in which resources are relatively scarce. In 2015,
innovation success? Part of the answer is that Belfast, Northern Ireland, was selected as the European
Google has been renowned for its policy of allowing location for a new innovation lab facility for Google. This
its engineers and developers to spend 20 per cent facility is designed for collaboration with firms across
of their time on independent projects; ‘20 per cent the UK and Europe based on digital technology. It will
time’ projects have included Gmail, Google News, generate more than 1,300 jobs for Belfast. Google
and AdSense. Its corporate principle for innovation prides itself on not being a conventional company. In
is referred to as the ‘8 Pillars of Innovation’. These August 2015, Google created a new parent holding
highlight important ideas for building innovation company, Alphabet, ostensibly to separate ‘moon shot’
capacity, such as having a mission, thinking big, but projects from its day-to-day business.
starting small, striving for continual innovation, and
being willing to fail. But Google’s innovation success Sources: Bort (2014); D’Onfro (2015); George (2015); McDonnell
does not derive only from corporate policy; it is (2015); Scott (2015); Tait (2015).
generated from an understanding of what customers
and users are thinking. Google champions and
capitalizes on ideas gained from customer insight.
Customers or users are deemed as an open source for
creativity and inspiration on the basis of which Google
can create something novel.
Google[x], a semi-secret R&D facility, manifests

Google’s innovation practices. The facility follows in
the footsteps of such classic research labs as the
Manhattan Project (the US site of the development
of the A-bomb during the Second World War) or
Bletchley Park (the British code-breaking facility
where Nazi Germany’s U-boat codes were cracked).
Google[x]’s mandate is to invent new technologies The origin of world-changing innovations: the
or ways of fixing anything that presents a significant quirky Googleplex in California
problem for mankind. Source: © Asif Islam/Shutterstock.com.
Principlesand
andPractice
Society 31
31
Market Insight 1.4

continued
This market insight describes how one of the from the case is how Google has sought to ‘derisk’ the
world’s most innovative companies approaches the day-to-day business of Google from its inspirational
development of new offerings and how those new and aspirational world-changing projects by developing
offerings impact upon society. A secondary insight a new parent holding company, Alphabet.
Related Topics
innovation; marketing in society; new product development; marketing organization
1 Why are the innovations created by companies 3 What other companies are you aware of that
such as Google so important to local have had a big impact on society? With what
communities and society in general? offerings?
2 Do futuristic innovations, such as Google Glass This market insight was kindly contributed by Dr Ning Baines,
De Montfort University, UK.
or the self-driving car, really help society or do
they simply generate profit for the developers?
Another element of marketing’s positive contribution to society is the role it plays in bringing
innovations to the marketplace (see Chapter 8). For instance, some of the world’s most impor-
tant inventions have come to us through the aggregate marketing system.
Consider how some of the offerings outlined in Table 1.4 have affected your own life. What
would we do without these inventions today? Imagine if the Internet, social media, or mobile
phones did not exist. We enjoy them because innovative individuals and companies brought us
these. The cardboard carton for storing milk is ubiquitous, but was invented in 1951 in Sweden.
And could you imagine ketchup not existing? It was brought to us by Heinz, based on an ancient
Chinese recipe for a fish sauce called ketsiap.
In each case, the invention outlined has been an extraordinary success. But the aggre-
gate marketing system not only serves to bring consumers those offerings that truly meet their
needs; it also stops failures from getting through (see Chapter 8). For example, Coca-Cola
withdrew its mid-calorie Coca-Cola Life variant from UK shelves in 2017, having first introduced
it in 2014 (Anon., 2017b). Electric cars will become the dominant form of car as opposed to
petrol or diesel engine cars, particularly as countries have started banning diesel engines. The
diffusion of these innovations depends on the aggregate marketing system and the marketers
that exist within it, as well as on government regulation (see Market Insight 1.5 on autonomous
vehicles). The system impedes offerings that don’t meet consumer needs. (For more on the
32
Marketing of
Fundamentals
Marketing
Table 1.4 Some modern consumer products and the dates of their invention
Consumer Product attribute Consumer need Inventor(s)/ Year of

product pioneer(s) a invention
Chocolate Cocoa-based food Allows chocolate to be J.S. Fry & Sons, UK 1847
bar eaten, as opposed to
drunk, as had traditionally
been the case
Ketchup A food condiment, Can enhance the F. & J. Heinz Co., 1876
(from Chinese derived from the consumer’s enjoyment of United States
ketsiap) Chinese fish-based their food by modifying
sauce ketsiap, but the taste and reducing
adapted to Western the dryness of some
tastes, to use foodstuffs
tomatoes instead
Television Transmits moving Delivers information, Baird Television 1929; 1932

images entertainment, and Development Co., UK;
education Telefunken, Germany
Tampons Feminine hygiene Allows girls and women Tampax, United States 1936
(with product to maintain more active
applicator) lifestyles
Carton Cardboard liquid Allows liquid foodstuffs TetraPak, Sweden 1951

storage device to be stored, packaged,
and distributed in an
environmentally friendly
way
Artificial Xylitol, as the Sweetens food products Cultor, Finland 1969

sweeteners sweetener is known, without damaging our
is used to sweeten teeth
food products
such as sugar-free
chewing gum and
toothpastes
Bar code Automatic Speeds up the pricing Monarch Marking, 1970

scanners identification and and checkout process at United States; Plessey
classification of retailers Telecommunications,
products UK
Personal Allows users to play Simplifies complex IBM, United States 1980
computer electronic games, to writing/arithmetic tasks
perform calculations, and offers recreational
and to process possibilities, i.e. gaming
documents, as well
as other applications
Principlesand
andPractice
Society 33
33
Table 1.4 (Continued)
Consumer Product attribute Consumer need Inventor(s)/ Year of

product pioneer(s) a invention
Mobile phone Handheld device for Allows users to stay in NTT, Japan 1979
making telephone telephone contact with
calls whilst in motion others regardless of
location
World Wide System for linking Allows users with access Tim Berners-Lee, 1990
Web/web hypertext documents to the Internet to read UK; Robert Cailliau,
server (i.e. documents and share information Belgium; CERN,b EU
linked to other across large distances
documents) via the
Internet; by using a
web browser, users
can read web pages
Bluetooth A wireless technology Allows low-power wire- Ericsson, Sweden 1994

standard allowing free communications for
data exchange over radios, telephone, and
ultra-high frequency industrial applications
radio waves
Social Website designed for Provides easy and Facebook Inc., United 2004
networking personal interaction instantaneous States
between friends and communication between
acquaintances two or more people in
multiple locations around
the world
App-based- Transportation Allows users to obtain Uber Technologies, 2009

transportation system linking transportation quickly, Inc., United States
and food own-account drivers on demand, and to pay
delivery and riders via a automatically via an app
services smartphone app, on their smartphones
using a dynamic
pricing model
a
The named companies are not always the inventors per se; they often acquired the patents from the inventor, and were
licensed to produce and distribute the invention.
b
Conseil Européen pour la Recherche Nucléaire.
Sources: Various, including https://www.thoughtco.com/inventions-4133303 and manufacturers’ websites.
new proposition development process, see Chapter 8.) It also provides a number of benefits to
society, including:
■ the promotion and delivery of desired offerings;
■ the provision of a forum for market learning (we can see what does and what doesn’t get
through the system);
34
Marketing of
Fundamentals
Marketing
■ the stimulation of market demand;

■ the provision of a wide scope of choice of offerings by providing a close or customized fit with
consumer needs;
■ the facilitation of purchases (or acquisitions generally, for example if no payment is made
directly, as in the case of public services);
■ time savings and the promotion of efficiency in customer requirement matching;
■ the bringing of new offerings, and improvements, to market to meet latent and unserved
needs; and
■ the seeking of customer satisfaction for repeat purchases (Wilkie and Moore, 1999).
Market Insight 1.5

Where Now, Autonomous Car?
Over the past few years, a number of car

manufacturers have announced innovative plans
to develop autonomous cars, for example Tesla’s
development of an autopilot system and Audi’s
‘Level 3’ autonomy technology. By using various
technologies, including radar, lasers, geographical
positioning systems (GPS), and computer vision, an
autonomous vehicle (also known as the driverless car,
self-driving car, or robotic car) has the ability to sense
and navigate its surroundings without the need for
human control. Even though autonomous vehicles
haven’t fully made an appearance on public roads, test The Tesla Model 3—Tesla’s first mass-market
programmes have been scheduled in many countries electric vehicle—in autopilot mode
worldwide. For example, as part of the pilot scheme Source: © TierneyMJ/Shutterstock.com.
in the UK, small autonomous vehicles have moved
people around the city centre of Milton Keynes. In the basis of the quality of the features of the mobility
Sweden, Volvo has launched its autonomous driving service, rather than the traditional selling of the
trial programme in Gothenburg, with a plan to expand it benefits of vehicle ownership.
to London in early 2018.
However, several questions in relation to implementing
Autonomous vehicles could introduce an the concept successfully in wider society remain
improvement to transportation and society, including unanswered. How will autonomous cars make ethical
a reduction in car accidents, more effective decisions? How will such a care safely navigate,
transportation, and an increase in road capacity. especially when driving alongside normal cars
With autonomous vehicles, customers may come to controlled by humans? How will cities, streets, and
see it as a service rather than a product they must parking need to change to accommodate autonomous
own, because customers will be able to call for a vehicles? What will happen to car insurance and car tax
car via a click on their mobile app, just as they do as courts grapple with who is to blame in the event of
with Uber now, but without a driver. In the future, the an accident? What will happen to the millions of people
desire to own a car could become passé; hence this who make a living from driving—that is, taxi, bus, or
development would influence the marketing of cars truck drivers? How will society as a whole adjust to
generally. It would mean appealing to consumers on the loss of service jobs resulting from autonomous
Principlesand
andPractice
Society 35
35
Market Insight 1.5

continued
vehicles? Are there any new roles that would fill these executives, governments, and administrators to
employment gaps? How should policymakers ease think ahead in a bid to stay on top of the coming
the transition from human controlled vehicles to transportation transformation.
autonomous vehicles? Since autonomous vehicles
are no longer the stuff of science fiction films such Sources: Navigant Research (2013); Beckwith (2016); Khanna
as I, Robot, such questions have forced business and Barrett (2017); Mercer (2017); Somaseger and Li (2017).
This market insight describes the innovative technology that marketing strategies have on the economy and
used in autonomous vehicle development, and the society—by reflecting on the likely impact of innovation
obvious improvements it will bring to transportation, developments on individual macro-environmental
customer convenience, and road accident reduction. elements (that is, from ethical, legal, business, and
On the flip side, this new innovation will have an impact policy perspectives) and how the national marketing
on society as a whole. This market insight therefore system is shaped as a consequence.
considers macromarketing issues—that is, the effect
Related Topics
consumer buying behaviour; marketing environment; macromarketing; innovation adoption
1 What difficulties might manufacturers have 3 Who will be the biggest sellers of autonomous
when marketing autonomous vehicles to new vehicles in your view? Will it be existing
customers? car manufacturers, consumer electronics
companies, or Internet technology companies?
2 Are we most likely to own our own
autonomous vehicle or will we simply hire This market insight was kindly contributed by Dr Ning Baines,
one in the future? De Montfort University, UK.
Visit the online resources and complete Internet Activity 1.2 to learn more about how marketing
innovation impacts upon society.
However, the aggregate marketing system, or marketing more generally, does not always serve
the common good. Marketing is frequently criticized for the opposite—for being unethical in
nature, manipulative, and creating wants or needs where none previously existed (Packard,
1960). Whilst this chapter has focused on the principles and practice of marketing, as well as the
positive power of marketing in society, there is also a negative impact of marketing on society.
This occurs both as a result of unethical marketing practice and because of structural inequali-
ties in the aggregate marketing system. (For a detailed critique of the marketing concept, see
Chapter 18.)
36 Part 1 > Principles of Marketing
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ Define the concept of marketing.

Marketing is the process by which organizations anticipate and satisfy their customers’ needs to both
parties’ benefit. It involves mutual exchange. Over the last 25 years, the marketing concept has changed to
recognize the importance of long-term customer relationships to organizations. In addition, most definitions
of marketing recognize the importance of marketing’s impacts on society and the need to curtail these
where they are negative.
■ Explain how marketing has developed over the twentieth century and into the twenty-first century.
Whereas some writers have suggested a simple timeline from production era, through sales era, to
marketing era over the twentieth century, others recognize that marketing has existed in different forms in
different countries at different times. Nevertheless, there is increasing recognition that marketing is a more
systematic organizational activity, as a result of market research and sophisticated promotional activity, than
before. There is also a move to recognize the need for companies and organizations to behave responsibly
in relation to society.
■ Understand the concepts of exchange in marketing and marketing mix.

The concept of exchange is important and has been considered by some to be the key to uncovering
the elusive ‘general theory of marketing’. Empathizing with customers to understand what they want and
determining how sellers seek to provide what buyers want is a central concept in marketing. The means by
which organizations deploy their marketing programmes is via the marketing mix, which comprises product
(the offering), place (the distribution mechanism), price (the value placed on the offering), and promotion
(how the company communicates that value). For services marketing, because of the intangible nature of
the service, marketers consider an extra 3Ps, including physical evidence (how cues are developed for
customers to recognize quality), process (how the experience is designed to meet customers’ needs), and
people (the training and development of those delivering the customer experience).
■ Describe the three major contexts of marketing application—that is, consumer goods, business-to-
business, and services marketing.
Marketing activity divides into three types, recognizing that marketing activities are designed based on
the context in which an organization operates. The consumer goods marketing approach has been
dominant, stressing the 4Ps and the marketing mix. Business-to-business marketing focuses on the
principles of relationship marketing—particularly those required in coordinating supply chain members.
Services marketing stresses the intangible nature of an offering, including the need to manage customer
expectations levels of service quality and customer experience.
■ Understand the positive contribution that marketing makes to society.

The aggregate marketing system delivers to us a wide array of offerings, either directly or indirectly, through
business markets, to serve our wants and needs. There is much that is positive about the aggregate
marketing system and it has served to improve the standard of living for many people around the world.
Review Questions
1 How do we define the concept of marketing?
2 How do the AMA’s and the CIM’s definitions of marketing differ?
Chapter 1 > Marketing Principles and Practice 37
3 How has marketing developed historically?

4 What is the difference between sales and marketing?
5 What is a marketing exchange?
6 What is the marketing mix?
7 What is the services marketing mix?
8 What are the three major contexts of marketing application?
9 What is the winner’s curse?
10 What positive contributions does marketing make to society?
Discussion Questions
1 Having read Case Insight 1.1 at the beginning of this chapter, how would you advise Aldoraq Water to
differentiate itself when competing against local and international brands?
2 Read the section on the marketing mix within the chapter, and draw up marketing mixes for the
following organizations and their target customers:
A Streaming video company Netflix and its audiences
B A wealth management company and its clientele
C Pharmacies (for example Boots UK Ltd, Sweden’s Apoteket AB, Holland’s Etos BV) and their
consumers
D A company supplying lifts to construction companies
3 What are the attributes of the offer, and customer needs associated with those attributes, for the
following?
A Bank business accounts (for example those offered by Britain’s Lloyds Bank plc)
B A university (for example Aarhus University in Denmark) offering places to students on Masters
programmes
C Jimmy Choo Romy 100 mm glitter pumps
D A company such as Withers Worldwide, selling legal services to businesses
E Watching a football match live on MUTV from Old Trafford, Manchester, England in Shanghai, China
Visit the online resources and complete the Multiple-Choice Questions to

assess your knowledge of Chapter 1.
Glossary
advertising a form of non-personal American Marketing Association (AMA) a
communication, by an identified sponsor, that is membership body for marketing professionals
transmitted through the use of paid-for media. and marketing educators based in the United
aggregated demand demand calculated at the States, operating principally in the United States
population level rather than at the individual level. and Canada.
brand a name, symbol or design developed to through which a marketer and a customer (or
position and differentiate an offering, particularly stakeholders) interact, usually in real time.
through promotions means and customer key account management a systematic
experience, so that the offering appeals to approach to managing the relationships between
customers and other stakeholders. an organization and a selected group of its most
Chartered Institute of Marketing (CIM) a important customers to maximize value for both
membership body for marketing professionals parties.
based in the UK, with study centres and logistics the process of transporting the initial
members around the world. components of goods, services, and other forms
consumer the user of a product, service, or other of offering, and their finished products, from the
form of offering. producer to the customer and then on to the
copyright the legal, exclusive right granted to consumer.
a creator to exploit the use and distribution macromarketing refers to the impact that
of literary, musical and artistic work; usually marketing has, when its effects are aggregated,
denoted by the symbol ©. on economic and societal systems.
customer the person who purchases and pays market orientation refers to the development of a
for (or initially requests and specifies, in the case whole-organization approach to the generation,
of a non-financial transaction) a product, service collection, and dissemination of market
or other form of offering from a company or intelligence across different departments and the
organization. organization’s responsiveness to that intelligence.
customer relationship management (CRM) market sensing an organization’s ability to
systems software systems that provide all staff gather, interpret, and act on strategic information
with a complete view of the history and status of from customers and competitors.
each customer. marketing mix the list of items a marketing
dyadic essentially means two-way; a dyadic manager should consider when devising plans
commercial relationship is an exchange between for marketing products, including product
two people—typically, a buyer and a seller. decisions, place (distribution) decisions, pricing
elasticity an economic concept associated with decisions, and promotion decisions; later
the extent to which changes in one variable are extended to include physical evidence, process,
related to changes in another; if a price increase and people decisions to account for the lack of
in a good causes a decline in volume of sales of physical nature in service products.
that good, we say the good is price elastic and meta-analysis a research method whereby the
specify by how much; if it causes no change or results of multiple studies are examined and
very little change, we say it is inelastic. combined to identify trends more precisely.
environmental scanning the management multichannel marketing the use of multiple,
process internal to an organization designed usually synchronized, platforms through which
to identify the external issues, situations, and to interact with customers to communicate with
threats that may impinge on an organization’s them and distribute an offering.
future and its strategic decision-making. netnography the branch of ethnography that
ethnography a sub-discipline derived from seeks to analyse Internet users’ behaviour.
cultural anthropology as an approach to non-staple in the grocery context, grocery
research that emphasizes the collection of data products that are not a main or important food.
through participant observation of members of a observation a research method that requires a
specific subcultural grouping and observation of researcher to watch and record how consumers
participation of members of a specific subcultural or employees behave—typically, in relation to
grouping. either purchasing or selling activities.
haul girls women who shop for clothes or beauty place (distribution) essentially about how to
products and then make a YouTube video place the optimum amount of goods and/
showing viewers what they have bought, item by or services before the maximum number of
item. members of a target market, at times and
interactive marketing more accurately locations that optimize the marketing outcome—
described as creating a situation or mechanism that is, sales.
positioning the way in which an audience of servicescape the physical environment in which a
consumers or buyers perceives a product or service takes place, for example a stadium for a
service, particularly as a result of the marketing football game.
communications process aimed at a target social anthropology the scientific discipline
audience. of observing and recording the way in which
price the amount the customer has to pay to humans behave within their different social
receive a good or service. groupings.
procurement the purchasing (buying) process supply chain management the management
within a firm or organization. and coordination of supply-side activities
product anything that is capable of satisfying (including planning, sourcing, making, and
customer needs. delivering), from production to consumption, to
promotion the use of communications to enhance customer value.
persuade individuals, groups, or organizations to trademark A distinctive symbol, design (for
purchase products and services. example the McDonald’s ‘Golden Arches’) or
promotional mix the combination of five word(s) that uniquely identifies a company,
key communication tools: advertising, sales or its offerings; usually denoted by the symbol ™.
promotions, public relations, direct marketing, tweenagers pre-adolescent children, typically
and personal selling. taken to be between the ages of 9 and 12,
relationship marketing the development and who are hence about to enter their teenage
management of long-term relationships with years.
customers, influencers, referrers, suppliers, value the regard that something is held to be
recruiters, and employees. worth—typically, although not always, in financial
service-dominant logic (SDL) asserts that terms.
organizations, markets, and society are winner’s curse terminology associated with the
concerned fundamentally with exchange of bidding process in commercial markets where a
service, based on the application of knowledge company ends up submitting a bid at a price that
and skills; rejects the notion of dualism between is unprofitable or not very profitable simply to win
goods and services marketing, arguing that all the contract.
offerings provide a service.
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Biteback.
Chapter 2
Consumer Buying Behaviour

Holdz®
Market Insight 2.1
Explain the consumer product acquisition process
The Threat of Showrooming
Explain the processes involved in human for Brick-and-Mortar
perception, learning, and memory in relation to Retailers
consumer choice
Market Insight 2.2
Understand the importance of personality and Helping Consumers to Turn
motivation in consumer behaviour Electric
Describe opinions, attitudes, and values, and how Market Insight 2.3
they relate to consumer behaviour Jameson: A Cut above the
Rest
Explain how reference groups and cultural
differences influence consumer behaviour Market Insight 2.4
On Yer Bike!
Market Insight 2.5

The Iftar Market
44
Marketing of
Fundamentals
Marketing
Case Insight 2.1

Holdz®
Founded in 2000, Holdz® is an online climbing holds and

accessories firm. We speak to its managing director, Steve
Goodair, to find out more about how the firm meets its
customers’ needs.
Holdz® is a small-to-medium-sized enterprise confidence in its quality that we offer a five-year quality
specializing in making the polyurethane resin holds that guarantee. Overall, we cater for serious climbers, keen
screw onto climbing walls to allow climbers to practise on the high product quality that we provide. We have a
indoors in a safe, but natural-looking, environment. lot of repeat customers, especially with home walls, and
Our holds are expertly crafted in all shapes and sizes we work hard to look after them. We know they that find
to resemble real rock features, from cracks to crimpz holds quite expensive, so we put one or two free holds
and sloperz to smoothies. We also produce bouldering in with their order as a surprise. Lots of our customers
mats, chalk bags, and clothing. share images of their purchases on social media—a
great way of spreading positive word of mouth for us.
Typical customers include climbing centres (which
simulate climbing on rock faces), bouldering centres To raise awareness of the Holdz® brand, we have in the
(which simulate climbing on large boulders), and past sponsored climbing and bouldering competitions,
serious individual climbers who have built climbing walls including the International Federation of Sport Climbing
in their own houses to allow them to train even harder. World Cup. Whenever they hold a competition, they
Where climbing walls are owned by local councils, they brand the wall and competitors’ vests with sponsors’
tend to try to buy in volume because they are interested logos. We engage with our customers mainly by social
less in the shape of hold they are getting and more in media and face to face when we’re on the road selling
obtaining a volume discount. I sometimes have to point to climbing centres or installing our holds. But we also
out to them that I can make holds for low prices, but engage with customers in another unique way: all our
the holds would be so small that they’d be useless! So, products display our logo, and climbers subconsciously
we sometimes have to educate our customers about remember the Holdz® name and the hold’s product
product and typical industry prices. Top route-setters type name when they’re hanging onto it for dear life! So
(the people who put the holds on the wall) buy based they recall these details when they are looking for the
on the shapes of the holds. This is so that they can same type of hold when setting their own routes.
make specific climbing route ‘problems’ requiring
In 2006, there were no bouldering centres anywhere
climbers to ascend a route in a certain way to different
in the world. There were only climbing centres with
degrees of difficulty, from ‘easy’ through to ‘hard’ and
a small bouldering wall. A friend opened the world’s
‘very severe’ through to 11 grades of ‘extremely severe’
first bouldering-only centre in Sheffield and asked us
(grades 1–11). Home wall users tend to buy a pack of
to provide the crash mats. No one knew how many
holds to get them started, but they also tend to return
visitors it would receive per day or if a bouldering-only
for more after a few months, for variety and because
venue would take off, but it did. For our crash mats,
they have mastered those holds and got stronger.
we used foam and PVC (polyvinyl chloride), but the
sheer amount of traffic this centre was receiving was
Because climbers sometimes fall when they ascend
phenomenal and it became very popular.
difficult routes, we produce heavy duty matting, which
allows climbers to fall more safely and with less likelihood If 150 climbers were doing an average of 30
of injury. We have manufactured our matting for 15 years climbing ‘problems’ a session, the mats were being
and it has become an industry bestseller. We have such hammered 4,500 times per day. Multiply that by a
Chapter
Chapter > Consumer
1 > 2Marketing Buyingand
Principles Behaviour
Society 45
45
Case Insight 2.1

continued
year and that’s 1.64 million feet-first landings onto The problem Holdz® faced was: how could it
the matting. Over time, our customers noticed that develop a matting solution for its customers that
this force was damaging the matting as the seams was both durable and affordable, but still allowed
and materials became stressed from the landings, the company to generate a reasonable profit?
requiring its constant replacement. Our customers
did not want to continually have to replace the crash Visit the online resources to watch a
matting because this was expensive in materials video interview with Steve Goodair, where
and labour. he explains what Holdz® did.
Introduction
What process did you go through when deciding which university course to study? How do
you decide which restaurants to go to or which lipstick to buy? After reading this chapter, you
will understand why consumers think and behave as they do. World-class marketers have a
profound understanding of customers’ needs/wants and behaviour. In this chapter, we explore
consumer behaviour (for business-to-business buying behaviour, see Chapter 16). We consider
cognitions (thoughts), perceptions (how we see things), and learning (how we memorize
techniques and knowledge). These are processes that are fundamental in explaining how con-
sumers think and learn about offerings. As consumers, we constantly perceive and learn new
things. Learning about offerings is no different from learning about concepts in general. Consider
how we find out about the launch of a new offering, for example the iPhone 8 or the Samsung
Galaxy Note 8. Knowledge about these products will come from a range of sources, and will
allow us to compare their benefits and prices with a range of alternatives.
We discuss personality and motivation to illustrate how these psychological concepts affect
how we buy. These are important, because offerings are often designed to appeal to particular
types of person. Banks target us for personal accounts and investment products based on our
personalities and motivations, for example how financially risk-averse we might be or our attitudes
to taking out credit. We also discuss opinions, attitudes, and values to give an understanding
of how we are persuaded by reference groups—that is, groups that have an influence over
our decision-making. Fast-moving consumer goods (FMCG) companies constantly bombard us
with images of celebrity endorsers, who act as our reference groups for a wide variety of offer-
ings. Because marketing comes alive when it is interlinked into the fabric of our social lives, we
consider how social class, life cycles, lifestyles, and culture influence consumer behaviour.
Consumer Behaviour: Rational or Emotional?

Consumption rose particularly after the 1950s, as citizens in the Western world began to prosper
in relative peace after the Second World War, and industrial companies turned their attention from
producing military equipment and supplies to producing consumer and industrial goods. The
growth in consumption led to the emergence of consumer research (see Research Insight 2.1).
46
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Fundamentals
Marketing
Simonson, I., Carmon, Z., Dhar, R., Drolet, A., and Nowlis, S. M. (2001). Consumer
research: in search of identity. Annual Review of Psychology, 52, 249–75.
The study of how consumers behave as individuals and groups in the marketplace has been a dominant
component of marketing research. This influential review paper, written by leading researchers in the field,
summarizes important controversies in the field and explains the main streams of thought. It is a useful tool
with which to navigate the intricate set of theories, frameworks, and models that comprise modern research
about consumers. It sheds light on the importance of basic disciplines such as philosophy, psychology,
economics, sociology, and ethnography to our understanding of consumer behaviour. It summarizes
important unresolved challenges that characterize current research debates.
Initially, consumers were generally thought to act rationally, according to neoclassical eco-
nomics theory, individually maximizing their satisfaction (what economists call utility) based on
a cost–benefit analysis of price and product scarcity (or availability). The consumer was thought
to measure whether or not the functional benefits of an offering outweighed its costs. Such
rational purchasing decisions are considered to be based on the offering’s physical performance
(Udell, 1964).
However, consider an example from the Soviet Union (that is, Russia before 1990). In such
a strictly regulated planned economy, offerings were designed to meet basic functional needs.
Nevertheless, consumers sought out televisions produced in certain factories in certain regions
or countries because they thought that they were more reliable and produced better pictures.
So, even when a country’s government attempts to squeeze out human desires, the desire to
possess the best of what is available remains.
Nowadays, people—at least those living in advanced economies—are more likely to indulge
socio-psychological buying or emotional buying motives. This focus on consumption experi-
ences that go beyond the satisfaction of material needs is explored further in Research Insight
2.2. Purchase motivation can thus be seen to stem from a buyer’s social and psychological
interpretation of the offering and its performance. One of the most popular songs of 2017 was
‘Despacito’, by Luis Fonsi and Daddy Yankee (featuring Justin Bieber). The song was the most
streamed on Spotify, reaching an astonishing 786 million streams in July alone (Aswad, 2017).
Consider now the motivations of those who might have streamed the track. In all likelihood, they
were primarily interested in how the music made them feel (for example excited, elated, happy,
amused). Certainly, they did not stream the track because it was useful to them or because it
performed some kind of functional purpose.
Visit the online resources and follow the web link to the Psychology Matters website to learn
more about the application and value of psychology in our everyday lives.
Chapter
Chapter > Consumer
Society 47
47
Carù, A., and Cova, B. (2003). Revisiting consumption experience: a more humble but
complete view of the concept. Marketing Theory, 3(2), 267–86.
This highly cited article builds upon, and moves forward, the idea developed originally by Holbrook and
Hirschman (1982) that marketing is based upon consumption experiences. The idea advises marketers to
distinguish between consumer experience (experience of the process of consumption) and consumption
experience (experience of the usage of the proposition), and between ordinary and extraordinary experiences,
and in so doing recognize that not all marketing experiences need to be perpetually extraordinary.
The article will help you to become familiar with the concept of consumer experience, which is fundamental in
current marketing practice and which will be discussed further in Chapter 15.
Proposition Acquisition
What are consumers thinking when they decide whether or not to buy a particular offer-
ing? To answer this question, we need to know how offerings move from organizations to
consumers. For example, consider the electric car Tesla Model 3. Delivery of the new model
started in the summer of 2017 and the company expected to deliver 20,000 cars per month
by December 2017. The most affordable Tesla to date, it offers a 220-mile range (about 355
kilometres) at a starting price of US$35,000 (Anon., 2017). The car is assembled at the Tesla
factory in Fremont, California. However, the batteries are manufactured at a separate facility
in the state of Nevada. Furthermore, other components come from a range of supply-chain
partners, some located outside the United States. Once the car is assembled, it will be dis-
tributed in different ways. Partly, Tesla sells directly to its customers through its network of
showrooms (Valdes-Dapena, 2013). In some locations, however, this is legally not possible
and the cars will be sold to car dealers, which manage the retailing to the final consumers
(see Chapter 14).
In this process, there are transactions between various buyers and sellers as raw materi-
als are transformed into a car, and this car is then moved forward in the supply chain—what
Alderson and Martin (1965) called transvections. Understanding transactions and transvec-
tions is important because they chart how propositions are developed and move from suppli-
ers, through companies, to their end users. Next, we consider the end-user component of the
buyer–seller relationship—that is, the perspective of the consumer. (We consider the buyer–
seller relationship again in Chapters 15 and 16.)
The consumer proposition acquisition process consists of six distinct stages (see Figure
2.1). The process model is useful because it highlights the importance and distinctiveness of
48
Marketing of
Fundamentals
Marketing
Motive development
Information gathering
Proposition evaluation
Proposition selection
Acquisition/purchase
Re-evaluation
Figure 2.1
The consumer proposition acquisition process
proposition selection and re-evaluation phases in the process. In Figure 2.1, the buying pro-
cess is iterative—that is, each stage can lead back to previous stages or move forward to the
next stage.
Motive Development
The process begins when we decide that we wish to obtain an offering. This involves the initial
recognition that we need to solve a problem—and if we are to recognize the need to solve the
problem, we must first become aware of it. For example, imagine the decision a couple makes
before booking a summer holiday. The decision to go on holiday might be a routine activity (per-
haps they go on holiday in August every year), or might be dictated by a unique event such as
a promotion or the celebration of a special occasion. They might also decide to go on holiday
after an especially stressful period in their personal lives or at work. Becoming aware of the need
to buy a holiday starts the acquisition process—although, of course, the specific motive driving
that need will also influence the nature of this process.
Information Gathering
In the next stage, we seek alternative ways of solving our problems. Our couple planning to go
on holiday might decide to start by brainstorming different alternatives, by reading travel maga-
zines such as Traveler and Afar, or by talking with friends about their recent holiday experiences
(in person or online). Online travel blogs or travel websites, such as Expedia or Booking.com,
are additional sources of information that might be useful for the couple. Our search for a solu-
tion may be active—that is, an overt search—or passive. In other words, we are open to ways
of solving our problem, but we are not actively looking for information to help us (Howard and
Sheth, 1969). The search for information may be internal—that is, we might consider what we
already know about the problem and the offerings we might buy to solve our problem, as in the
case of the couple brainstorming holiday ideas. Alternatively, it might be external—that is, we
realize that we don’t know enough about our problem and so we seek advice or supplementary
information. At this stage, we build our awareness by increasing our knowledge of both an offer-
ing and the competitors making that offering available.
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Customers may consult popular travel blogs such as One Mile at a Time before making a purchase
Source: © One Mile at a Time.
Proposition Evaluation
Once we have all the information necessary to make a decision, we evaluate alternative proposi-
tions—but, first, we must determine the criteria used to rank the various offerings. These might
be rational (for example based on cost) or irrational (for example based on desire or intuition).
For example, the couple might choose the destination that meets their holiday budget—or they
might opt for the destination that is more exciting or perceived as socially desirable. A consumer
is said to have an evoked set of products in mind when they come to evaluate which particular
product, brand, or service they want to solve a particular problem. In the case of a holiday, an
evoked set could be the range of destinations (whether these are countries or specific locali-
ties) that come to mind when considering a holiday. A couple interested in a short break in a
European capital might include Rome, Barcelona, and Paris in their evoked set. When consid-
ering a Caribbean holiday, The Bahamas, Jamaica, and St. Lucia might be in the evoked set.
This stage might also be termed the ‘consideration’ stage.
Proposition Selection
Typically, the offering we eventually select is the one we evaluate as fitting our needs most
closely. However, we might select a particular offering away from where we actually buy or
acquire it. For example, a consumer buying an electronic device might go to a shop to see
the item and gather information, but they might ultimately buy it online (potentially an example
of showrooming—a phenomenon described in more detail in Market Insight 2.1). Therefore
proposition selection is a separate stage in the proposition acquisition process, distinct from
proposition evaluation, because there are times when we must re-evaluate what we buy or
acquire because what we want is not available, for example buying a cinema ticket for one film
because the seats for another are sold out. In the case of complex experiences like a holiday,
consumers do not choose only one item, but they might select different items. For example,
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they might book a hotel separately from the purchase of their flight tickets. There is, of course,
the possibility of purchasing an entire bundle in the form of a holiday package in which all these
elements of the service experience have been selected and arranged together by a different
service provider.
Market Insight 2.1

The Threat of Showrooming for Brick-and-Mortar Retailers
In the current technological environment, most What can retailers do to counteract showrooming? A
companies adopt multichannel marketing strategies theory of planned behaviour approach would suggest
(see Chapter 14) in which information about the changing consumers’ attitudes towards showrooming.
products and the possibility to purchase them Retailers have been acting on this dimension mostly
is available in both online and physical stores. by improving the in-store customer experience
This leaves traditional retailers, with an extensive and also by offering online incentives to reduce the
and costly network of physical stores, at risk of intention to showroom. For example, while checking
‘showrooming’. This word describes a specific type for the same product on the Internet, you might be
of consumer behaviour: people will go to a physical provided with a voucher that incentivizes you to actually
store to familiarize themselves with the product and to shop in-store. The theory of planned behaviour also
gather direct information, but then will complete the suggests that retailer could try to make the behaviour
purchase online, often in search of a cheaper price. socially unacceptable by changing perceived social
Showrooming can also happen while in the store norms. However, showrooming is obviously not
as customers browse the relevant online shopping illegal and retailers have not attempted this strategy.
site of competitors to check whether there are price It is also possible to influence perceived behavioural
differences. There is no doubt that showrooming has control—that is, consumers’ perceived ability to carry
been costly for retailers, with one report estimating out the behaviour. Recently, Amazon has obtained a
more than US$200 billion in lost sales, with almost patent that would allow retailers to know whether you
50 per cent of consumers in the United States are showrooming online using the Wi-Fi offered by the
admitting to be showrooming regularly. Showrooming shop. It is unclear how Amazon plans to use this tool,
also devalues the role of the salesperson because but potentially this type of technology could be used to
it diminishes the importance of in-store customer send messages to users telling them that showrooming
service. won’t help them because, for example, all prices have
been matched with those of online competitors. This
could potentially affect customers’ perceived ability to
showroom successfully.
There is evidence that many retailers are responding

effectively to the challenge of showrooming by
providing customers with superior value in their
physical stores. This has led to the development and
prevalence of an opposite phenomenon: webrooming.
More than 60 per cent of customers now admit to be
regularly searching for information online while already
knowing that they will make a final evaluation and
purchase in the physical store.
How can retailers counteract showrooming?
Source: © gpointstudio/Shutterstock.com. Sources: Rapp et al. (2015); Khan (2016); Dawson (2017).
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Market Insight 2.1

continued
This market insight describes the phenomenon of that companies need to confront by improving their
showrooming and some of the tactics employed by offering and better integrating their online and offline
retailers to deal with this issue. Showrooming simply communications.
represents a change in customers’ preferences
Related Topics
marketing communications; distribution; retailing; consumer behaviour
1 What kind of retailers are best suited to face addressed the motivation for showrooming in
showrooming successfully? Can you think of your case.
categories or products for which showrooming
3 What kind of retailers are most likely to be
should be less of a concern?
negatively affected by showrooming?
2 Have you ever showroomed? Think about your
own experience and how the retailer might have
Acquisition/Purchase
Once selection has taken place, different approaches to purchasing might exist. For example,
the couple from our example might go regularly on holiday to the same seaside resort. Because
they go there regularly, this can be considered a routine purchase. When a purchase is regular,
we don’t get too involved in the decision-making process; we simply buy the offering again that
we bought previously, unless new circumstances have arisen. Alternatively, the purchase may be
specialized, conducted on a one-off or infrequent basis, for example a gown for a formal event.
In this case, we may become much more involved in the decision-making process to ensure that
we understand what we are buying and that we are happy that it will satisfy our needs (relaxing
by the beach for a couple of weeks). For routine purchases, we might use cash, or even pay-
ment apps such as Apple Pay, whereas for infrequent purchases, we might use a credit or store
card. With infrequent purchases, the marketer might ease the pain of payment by offering credit
or generous warranties. The couple might decide to travel to an exotic location for a long period
of time. If they plan several legs for their journey, with different hotels and several flights, the cost
and complexity of the purchase increases. As part of their holiday package, the marketer might
offer a travel insurance to help them to deal with the anxiety of such a significant investment.
Cancellation policies might also be more generous to entice the couple to book a certain hotel.
Acquisition also differs by channel and the prevalence of any promotional offers. Over recent
years, the publishing industry has been transformed by the advent of e-books and e-book read-
ers such as Kindle. Consumers do not need to buy and read through physical books anymore.
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Despite this technological innovation, sales of physical units in the UK actually grew by 5.7 per cent
in the period 2012–16, reaching 202.3 million units (Statista, 2017). Over the same period, e-book
sales in the UK decreased by 7.3 per cent (Statista, 2017); suggesting that consumers enjoy
reading books on different devices. The resurgence of print books also means that consumers in
the UK still buy through bookshops: over the last three years, the share of revenues from different
channels has remained stable, with bookshops controlling about 45 per cent of the market and
Internet retailers, such as Amazon, capturing about 35 per cent of sales (Statista, 2017). Because
the consumer acquires the offering at this stage, it might also be termed the ‘conversion’ stage.
Re-evaluation
The theory of cognitive dissonance (Festinger, 1957) suggests that we are motivated to re-
evaluate our beliefs, attitudes, opinions, or values if the position we hold on them at one time
is not the same as the position we held at an earlier period owing to some intervening event,
circumstance, or action. This difference in evaluations, termed cognitive dissonance, is psycho-
logically uncomfortable (that is, it causes anxiety). For example, we may feel foolish or regretful
about a purchasing decision (perhaps we spent too much on a night out or on a meal at a slightly
too fancy restaurant). Thus we are motivated to reduce our anxiety by redefining our beliefs,
attitudes, opinions, or values to make them consistent with our circumstances (perhaps by not
going to that particular bar as often or to that particular restaurant again). We will also actively
avoid situations that might increase our feeling of dissonance. In Market Insight 2.2, we consider
how marketers are helping to reduce the anxiety and potential for cognitive dissonance in the
purchase of electric vehicles.
To reduce dissonance, we might try to neutralize it by:
■ selectively forgetting information;
■ minimizing the importance of an issue, decision, or act;
■ selectively exposing ourselves only to new information that is consonant with our existing
view (rather than information that isn’t); and/or
■ reversing a purchase decision, for example by taking an offering back or selling it for what it
was worth.
The holidaying couple in our example might be disappointed by the destination that they chose
or by the hotel, which might be less comfortable than anticipated. Nonetheless, to reduce cogni-
tive dissonance, they might decide to ignore their dissatisfaction with the hotel and to focus on
the more pleasurable elements of the holiday experience.
The concept of cognitive dissonance has significant application in marketing. Industrial or
consumer purchasers are likely to feel cognitive dissonance if their expectations of proposition
performance are not met in practice. This feeling of dissonance may be particularly acute in a
high-involvement purchase, for example of a car, a house, a holiday, a high-value investment
product. We are also likely to search out information to reinforce our choice of offering.
However, if we are happy with our purchase, we might decide to repurchase it, thereby dis-
playing some degree of behavioural loyalty to a particular brand. This stage is termed the loyalty
stage. One popular model developed by Dick and Basu (1994) differentiates between behav-
ioural loyalty demonstrated by repeat purchase and loyalty in terms of relative attitude, which is
a preference for the product or brand above other relevant competitors. This differentiation is
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Market Insight 2.2

Helping Consumers to Turn Electric
Most car manufacturers have been investing heavily in certain energy providers with special cash discounts.
electric vehicles (EVs). The main advantages of EVs are Campaigns running in the summer of 2017 in several
a reduction in air and noise pollution, savings in terms US states promised cash savings of US$10,000
of running costs because of the cheaper cost of fuel, on the selling price (not including additional savings
and the lower maintenance requirements of electric available through government schemes). Considering
engines. However, the technology is new and cars are that the Nissan Leaf starting price in the United States
still relatively expensive (although costs are decreasing is $29,990, this is a very heavy promotion and should
over time). Many motorists might be anxious about certainly reduce consumers’ anxiety.
changing the type of vehicle they drive. Main concerns
are the range of miles for which the cars can last, the
availability of recharging points, and the potential risks
of battery replacement. These concerns could cause
cognitive dissonance after the purchase. In reality, the
industry is improving constantly on all these issues and
new models tend to have a range of more than 200
miles, while batteries last up to ten years.
Nonetheless, car manufacturers need to develop

strategies to quell consumers’ concerns and to make
EVs more affordable and appealing. A mix of different
promotional strategies has been deployed to this end.
Since EVs are better from a social perspective, because The ground-breaking Nissan Leaf
Source: © 2018 Nissan. Nissan, Nissan model names and the
they would help to deal with the harm caused by air
Nissan logo are registered trademarks of Nissan.
pollution in urban areas, governments have introduced
grants to support motorists who are considering Another common promotion used by manufacturers
buying electric cars. Depending on the model, at the of EVs consists of offering a number of years of free
time of writing, drivers in UK can qualify for a grant of charging at designated charging points. The most
up to £4,500. Several US states have also introduced expensive Tesla models, the Model S and the Model X,
incentives to promote the most efficient cars. offer customers complimentary use of Tesla’s network
of charging points. Nissan Leaf is now also promising
Manufacturers themselves have introduced a range
two years of free charging through its campaign ‘No
of schemes. Nissan has invested heavily in electric
Charge to Charge’, launched to promote the vehicle in
models and the Nissan Leaf is one of the most popular
several US states.
models in the category. Nissan has heavily promoted
the Leaf by targeting employees and customers of Sources: Gibbs (2014); Lelinwalla (2016); Lambert (2017).
This market insight described initiatives by car techniques described are specific to the car industry,
manufacturers and governments aiming to reduce similar considerations apply to all cases of radical
consumers’ anxiety when adopting a new technology product innovation adoption.
in relation to a high-involvement purchase. Although the
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Market Insight 2.2

continued
Related Topics
pricing; sales promotion; post-purchase anxiety; consumer behaviour; product innovation
1. What else could Nissan do to reduce the anxiety 3. Why do you think did Nissan decide to target
its customers feel when considering whether or energy companies’ employees and customers
not to switch to purchasing an EV as opposed to as part of its promotional effort? What is the
a petrol- or diesel-powered car? rationale behind this choice?
2. What factors could cause cognitive dissonance

after purchasing an EV?
important because even consumers disappointed with a brand might continue to purchase it if
they have no choice, for example because there are no alternatives available or no alternatives
that they can afford. The goal of marketers is to build loyalty on the basis of both repeat purchase
and superior relative attitude.
If we really like our purchase, we might also encourage others to buy the brand—the so-
called advocacy stage. Such advocacy is common in the user-generated content (UGC) devel-
oped online by consumers in relation to everything from films they’ve watched, through houses
they’ve stayed in (for example through Airbnb), to the holidays they’ve bought (for example
through Expedia). Evaluating UGC is an important element of contemporary marketing research
(Campbell et al., 2011), sometimes referred to as social media listening. Consumers who
engage in positive word of mouth are a great asset to a firm. We discuss this phenomenon in
more depth later in the chapter, when we consider the role of group influences on consumer
behaviour.
Online reviews are one example of the advocacy stage

Source: © Airbnb, Inc. All rights reserved.
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In Figure 2.1, the buying process is iterative (that is, it occurs in steps)—particularly at the
re-evaluation phase of the acquisition process. This is because the re-evaluation of the offering
leads us back to any or all of the previous phases in the proposition acquisition process as a
result of our experiencing cognitive dissonance. For example, we may have bought a games
console (an Xbox One), but not be completely happy with it (for example thinking that it has poor
picture or sound). If it is covered under warranty, this might lead us to the acquisition phase,
whereby the retailer should provide a new perfect product. If the product was delivered in perfect
working order, but we simply didn’t enjoy using it, we might go back to the original alternatives
we selected (for example PS4, Wii U) and pick another purchase from among them (for example
one that might offer a larger variety of games). If we are really not sure about which games con-
sole to buy after this initial purchase, we might re-evaluate the alternatives we originally selected
and then decide. If we really dislike our original purchase and this has shaken our faith in what is
important in selecting a games console, we might go back to the information-gathering phase
to get more of an idea about the offerings available. Finally, if we are extremely disappointed, we
might decide that our original motive—the need to play, to relax, and to have fun—can best be
solved by purchasing something other than a games console that will still meet the same need
(for example participation in sport).
Research by marketing agency Razorfish identified three categories of influencer at different
stages of the proposition acquisition process:
■ key influencers (with their own blogs and huge numbers of Twitter followers, but who are
unlikely to know the consumer personally);
■ social influencers (people within the consumer’s social network, whom they might know per-
sonally, commenting in Twitter feeds and on blogs/forums); and
■ known peer influencers (for example family members or part of the consumer’s ‘inner circle’).
Of all three types, known peer influencers were the most persuasive (see ‘Group Influence’
later in this chapter), but the three groups were differentially important at different points in the
proposition acquisition process. For example, close family and friends exert the most influ-
ence at the motive development and information-gathering phases (the ‘awareness’ phase),
YouTube and anonymous peer reviewers exert most influence at the proposition evaluation
and selection phases (the ‘consideration’ phase), and close family and friends exert the most
influence in the proposition selection and acquisition phases (the ‘action’ phase) (Sheldrake,
2011). For example, think about the process you went through when choosing your under-
graduate degree: who were the key influencers, the social influencers, and the peer influencers
in your case?
Our purchase decisions also depend on the specific cognitive system that is dominant at
the time of choice. Researchers differentiate between two main cognitive processes: System
1 thinking leads to fast, instantaneous, and intuitive reactions; System 2 thinking is respon-
sible for deliberate thought processes and analytical thinking (Kahneman, 2011). System 1 will
ensure that you react appropriately to instant danger, but it also causes impulse purchases
that sometimes might prove unnecessary or—as in the case of a chocolate treat—unhealthy.
System 2 will help you to solve a maths problem or decide which car model you want to
buy. Importantly, the two models demand the same mental energy to work appropriately. This
means that when our attention is occupied or when we are tired, System 1 tends to kick in
to save energy and System 2 is less engaged (Kahneman, 2011). This is one of the reasons
why it is very difficult to control our diet when we are stressed or tired: self-control requires the
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ability of System 2 to monitor our behaviour, but this is not possible if we don’t have the ‘mental
space’ to do so. Research on the different cognitive systems has a key consequence for the
model of proposition acquisition reviewed here: the different stages imply that the choice is
being driven by the analytical System 2. However, if System 1 is in charge instead, the process
will be shorter, and minimal cognitive attention will be devoted to information gathering and
proposition evaluation.
Perceptions, Learning, and Memory

Often, consumers do not understand the messages marketers convey because they have not
received, comprehended, or remembered those messages, or because the messages were
unclear. Consumer understanding depends on how effectively the message is transmitted and
perceived. In this section, we discuss how messages are perceived and remembered. (We con-
sider how messages are communicated in Chapters 6 and Chapters 10–12.)
In any one day, consumers receive thousands of messages. Consider, for example, a typi-
cal working woman in Paris, France, who might well be awoken by her clock radio, blaring
out adverts for Galeries Lafayette. While eating her breakfast, she checks her smartphone and
encounters advertisements on Facebook or on some other websites she visits. She could also
pick up visual advertisements in the Paris Match magazine to which she subscribes and when
she opens her post, which includes direct mail from charities (for example Médecins Sans
Frontières) and financial service organizations (for example BNP Paribas). On her way to the
Métro station, she might encounter billboards advertising, among other things, L’Oréal. On the
Métro, she will probably encounter more visual adverts. When she arrives at work, and after
being further bombarded with online ads and sponsored Internet search ads, she has been
subjected to hundreds of auditory, visual, and audiovisual advertising messages demanding
her attention. By the time she retires to bed, this could have extended to thousands. If we also
consider that consumers are recipients of social and interpersonal messages as well—through
word of mouth and social media (for example Facebook and Twitter)—we begin to realize how
sophisticated human perception, learning, and memory processes must be to attend to, filter,
and store so many messages.
Perceptions
The American Marketing Association (AMA, 2016) defines perceptions as follows:
. . . based on prior attitudes, beliefs, needs, stimulus factors, and situational determinants,
individuals perceive objects, events, or people in the world about them. Perception is
the cognitive impression that is formed of ‘reality’ which in turn influences the individual’s
actions and behaviour toward that object.
If we were to pay attention to all the messages we receive, rather than filter out all those we don’t
find meaningful, we would probably become overloaded—just like a computer when it crashes.
The process of distinguishing meaningful from non-meaningful information is known as selec-
tive exposure (Dubois, 2000).
As consumers, we are interested in certain types of offering that are relevant to us when we
receive marketing messages. So teetotallers would not usually be interested in adverts about
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champagne—unless they were to want to buy a bottle as a gift to celebrate a special occasion.
Equally, young people are not usually interested in advertising messages for pensions. If you
were looking to book a flight, you would become interested in messages from airline companies
and travel agents, especially if these include sales promotions. Even washing machine adverts
become interesting if your washing machine has broken down! The messages we choose to
ignore and forget are removed from our perception, enabling us to process those messages
that we wish to consider more effectively. So we avoid exposure to certain messages and
actively seek out others. We may also expose ourselves selectively to particular messages
through the media we choose to read (for example certain newspapers, magazines, e-zines,
Facebook pages, Twitter feeds) or watch (for example certain terrestrial, cable, satellite, or
Internet television channels). Many people do not read a daily newspaper and therefore will not
see press advertisements, although they may see sponsored search ads on websites, or read,
respond, and interact with Twitter posts or companies’ Facebook pages. Some people do not
listen to the radio often or at all. It is therefore important to determine which media channels
customers use.
Advertisers label this concept of the personal importance a person attaches to a given
communication message as involvement. This is important because it explains a person’s
receptivity to communications, and people can therefore be segmented into high-, medium-,
and low-involvement groups (Michaelidou and Dibb, 2008). We are interested in consumers’
receptivity because we are interested in changing or altering their perceptions of particular
offerings. We know, from earlier in the chapter, that offerings can be characterized on the
basis of whether consumers use rational or emotional thinking to evaluate their relative appeal.
Figure 2.2 illustrates a variety of common products and how they are generally perceived by
US consumers.
We should note that the position for a particular offering is an average of all consumers and
may not represent a particular individual’s decision-making well. So, for example, the purchase
of life insurance is regarded as being in the high-involvement/thinking quadrant, as illustrated in
Figure 2.2. The positioning of this type of offering indicates the need for more informative adver-
tising/promotion. An expensive watch, positioned in the high-involvement/feeling quadrant, sug-
gests a need for emotional advertising. Offerings in the low-involvement/thinking quadrant (for
example liquid bleach) indicate the use of advertising/promotion to create and reinforce habitual
buying. Finally, offerings in the low-involvement/feeling quadrant (for example magazines) should
be promoted on the basis of personal satisfaction (Ratchford, 1987).
Another way of displaying how people think about particular offerings is perceptual map-
ping, a technique that has been in use since at least the early 1960s (Mindak, 1961). People
view champagne brands differently in the UK, using (brand) personality keywords such as ‘zesty’
or ‘mellow’ and ‘fresh fruit’ or ‘baked fruit’. Lanson is associated with zesty and fresh fruit, whilst
Moët et Chandon is associated with mellow and baked fruit. (We consider brand differentiation
in more detail in Chapters 6 and 13.) Organizations deliberately seek to position themselves in
the minds of specific target audience groups. To do this properly, they must understand the
nature of the group’s subculture. However, organizations risk causing offence if they position
a brand on the basis of particular dimensions that are misperceived or perceived correctly, but
negatively. For example, Heinz was forced to withdraw an advert in the UK market after con-
sumers complained that it promoted unsafe practices (Anon., 2016). The ads showed consum-
ers using an empty can of beans as a drum to play a tune (Heinz used the catchline ‘Learn the
#CanSong’), with the objective of presenting the product as upbeat and friendly. There was even
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High
Life insurance
Contact Economy car

lens Sports car
Auto insurance
Family car
Expensive watch
35mm camera
Washer/dryer Eye glasses
Wallpaper
Car battery Portable TV
Hair colouring
Exterior house paint
Battery razor Perfume
Instamatic camera
Credit card Wine for

dinner
Complexion/ party
Involvement facial soap
Ground
Motor oil Family/steak restaurant
Headache remedy coffee Wine for
Jeans
Dry bleach Suntan lotion Chicken self
Insecticide Inexpensive watch Greetings
Salad Low-tar cigarette card
oil Pizza
Deodorant Peanut butter
Insect repellant
Fast food restaurant
Frozen
Fruit baked
Imported beer
Woman’s foodRegular cigarette
Liquid bleach Non-disposable magazine
Diet soft drink
razor Light beer
BBQ sauce
Regular beer
Regular soft drinks
Disposable razor Liquid
hand soap Salty snack
Paper towels
Low
Think Think–Feel Feel
Figure 2.2
Involvement/think–feel dimension plot for common products
Source: Ratchford, B.T. (1987), ‘New insights about the FCB grid’, Journal of Advertising Research, 27(4), 24–38.
an online tutorial on how to prepare the cans for best effect. However, using cans in this way
can be dangerous, especially for children, so the entire campaign was banned. The attempt at
revitalizing the brand clashed with some obvious product expectations in terms of safety.
Brands can thrive or die based on how their customers perceive them. Sometimes, com-
panies fail to position their offerings appropriately. In 2016, Thai company Seoul Secret was
forced to pull an advert and apologize for its content. The campaign, promoting a skin-lightening
product, used the tagline ‘You just need to be white to win’, and presented a woman who, to her
evident dismay, suddenly becomes dark-skinned (Nudd, 2016). The issue of associating white-
ness with social status is very controversial in Thailand and the company apologized through a
Facebook post that denied discriminatory intent behind the campaign (Nudd, 2016).
Companies sometimes also need to change how their brands are perceived because they
have developed negative associations (see Market Insight 2.3). Barilla, one of the world’s larg-
est pasta manufacturers, faced consumer backlash after its chairman, Guido Barilla, said in a
radio show that the company would never feature an advert with same-sex couples because the
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Market Insight 2.3

Jameson: A Cut above the Rest
Jameson Irish Whiskey is among the most popular

Irish whiskeys in the world, selling almost 7 million litres
globally in 2017. Produced at the Jameson Distillery
in Middleton, County Cork, it is the flagship whisky of
Irish Distillers. Today, it is distributed in 122 countries
worldwide and accounts for the largest share of
the global Irish whiskey market. It is also the fastest
growing international whiskey brand.
The Jameson brand originates from 1780 and, as such,

has a strong brand heritage. It is a high-end premium
whiskey brand and is triple-distilled, contributing to its
smooth and distinctive taste. The green bottle helps
to distinguish it from the competition and reinforces its Jameson, the most popular Irish whiskey in the
Irish heritage. The brand’s motto ‘Sine Metu’ (meaning world
Source: Image courtesy of Irish Distillers Limited.
‘without fear, confident, and independent’) is clearly
indicated on the bottle’s label and encapsulates the
brand’s fearless personality. Jameson Whiskey is Adrien Brody, Uma Thurman, Willem Dafoe, and
viewed as ‘a serious whiskey that doesn’t take itself Maggie Gyllenhaal.
too seriously’ and knows how to have fun. It has been
described as a brand that is serious in the making, but Finally, ‘The Jameson Empire Done in 60 Seconds’
not in the drinking. competition has also raised the profile of the Jameson
brand internationally. It challenges up-and-coming
Jameson is currently trying to break the age-old film-makers worldwide to write and shoot their own
notion that whiskey is only for old men by targeting 60-second remake of a classic movie.
younger people, including women, aged 25–35. This
is reflected in its use of advertising and social media to These three sponsorship opportunities have helped to
connect with this coveted age cohort. Jameson has promote the Jameson brand’s deep heritage within film
been heavily involved in sponsorship of film, through its and allowed it to connect with its target audience in a
association with the ‘Jameson Dublin International Film meaningful way.
Festival’, ‘Jameson First Shot’, and ‘Jameson Empire
The whiskey’s popularity among celebrities is well
Done in 60 Seconds’. Since 2003, Jameson has been
noted, with Lady Gaga and Rihanna among those
title sponsor of the Dublin International Film Festival,
extolling its virtues. Lady Gaga has described Jameson
which has fast become Ireland’s premier feature
as her ‘long-term boyfriend’, while Rihanna even
film festival, playing host to a plethora of Irish and
mentions the brand in her song ‘Cheers (Drink to That)’.
Hollywood stars, from Colin Farrell to Danny DeVito and
Such promotion by two of the world’s hottest pop stars
Richard Dreyfuss. Each year, 130 films are presented
is an incredible boost for the Jameson brand, which
over the 11-day festival, many of them Irish premieres
continues to grow in popularity.
of films originating all over the globe.
‘Jameson First Shot’ is an international competition Sources: Anon. (2012a); Russell (2012); Flanagan (2014);
that offers film-makers the chance to direct their own Statista (2018); http://www.jamesonfirstshot.com; http://www.
script, with a Hollywood actor mentoring and acting in thewhiskyexchange.com; https://www.empireonline.com/movies/
the lead role. In the past, these actors have included news/done-60-seconds/
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Market Insight 2.3

continued
This market insight describes how an Irish whiskey including women, using Hollywood celebrities, an
distiller has sought to reposition itself from a brand association with cinema, and sponsorship.
drunk by old men to one drunk by younger people,
Related Topics
celebrity endorsement; repositioning; sponsorship
1 Describe the personality traits of the Jameson 3 Lady Gaga and Rihanna are only two of the
Whiskey brand. How have these personality many well-known celebrities who have publicly
traits been established? expressed their love for the Jameson Whiskey
brand. How do these celebrities exert group
2 How has the brand’s association with film
influence and contribute to social learning?
impacted on the public’s perception of the
brand? What is the brand’s main motivation for This market insight was kindly contributed by Marie O’Dwyer,
Waterford Institute of Technology, Republic of Ireland.
engaging in arts/film sponsorship?
brand supports a ‘classic family’ (Anon., 2013). Gay rights activists promoted a boycott in the
United States, one of Barilla’s key markets, which led to serious repercussions. The company
has since changed its stance in an effort to restore its image and has introduced very advanced
diversity policies for its staff members (Somashekhar, 2014). Conversely, organizations some-
times position their offerings well, as did Toyota when developing the Lexus brand for the pre-
mium car market.
Learning and Memory

Consumers continually learn about new offerings, their relative performance, and new trends
through a process by which we acquire new knowledge and skills, attitudes, and values by
studying, experiencing, or modelling others’ behaviour. Theories of human learning include
classical conditioning, operant conditioning, and social learning:
■ Classical conditioning—Russian Nobel Laureate Ivan Pavlov investigated the digestive and
nervous system of dogs by measuring the amount of saliva produced in response to food
under certain conditions. He realized that his dog salivated before food was served and set
out to ascertain why. By carrying out a series of experiments and manipulating stimuli before
the food was presented, he realized that if, for example, he were to ring a bell before serving
food, the dogs would associate the sound of the bell (the conditioned stimulus) with the pre-
sentation of food (the unconditioned stimulus) and begin salivating. So classical conditioning
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occurs when the unconditioned stimulus becomes associated with the conditioned stimulus.
In other words, we learn by associating one thing with another—in this case, the sound of
the bell with the arrival of food. This approach to learning is frequently used in marketing, for
example in jingles in advertising, such as Danone’s ‘mmm, Danone’ sonic logo to indicate the
lip-smacking ‘goodness’ of its offerings, or when supermarkets include bakery sections to
cause consumers to buy more because they associate the smell of warm bread with eating
it, and when perfume and aftershave manufacturers (such as L’Oréal) place free samples of
products in sachets in magazines, so that when readers see an advert for a particular brand
of perfume or aftershave, they associate the image they see with the smell and so may be
more likely to purchase the product when they see its image in the future.
■ Operant conditioning—B.F. Skinner (1954) was one of the pioneers of the behaviourist school
of learning. He argued that learning was the result of operant conditioning whereby subjects
would act on a stimulus from the environment. The resulting behaviour was more likely to oc-
cur if this behaviour was reinforced. In other words, operant conditioning is learning through
behavioural reinforcement. Skinner termed this ‘reinforcement’ because the behaviour would
occur more readily in connection with a particular stimulus if the required resulting behaviour
had been reinforced through punishment or reward. In marketing, we might look to the typical
in-store sales promotion as an example—perhaps a new yoghurt brand offered in a super-
market. If we don’t normally eat this brand and we’re curious, we might taste it because there
are no costs to us in terms of time, effort, or money. The sales promotion provides the stimu-
lus, the trial behaviour occurs, and if the consumer likes the yoghurt and is rewarded with a
money-off coupon, the behaviour of purchasing that particular yoghurt brand is reinforced.
(For more on sales promotion, see Chapter 11.) Supermarkets reinforce our loyalty by provid-
ing reward cards and points for purchasing particular items (for example the Nectar card in
the UK or the stamps system used by retailer 7-Eleven in its convenience stores worldwide).
■ Social learning—This theory was proposed by psychologist Albert Bandura (1977), who sug-
gested that humans are less animalistic than Skinner suggests. Bandura argued that we can
delay gratification and dispense our own rewards or punishment. As a result, we have more
choice over how to react to stimuli than proposed by Skinner, who felt that we blindly followed
our instinctual drives. Bandura suggests instead that we can reflect on our own actions and
change our future behaviour. This led to the idea that we learn not only from how we respond
to situations, but also from how others respond to situations. Bandura called this modelling.
In social learning, we learn by observing others’ behaviour. The implications for marketers are
profound. For adolescents, role models include parents, athletes, and entertainers, of whom
parents are the most influential (Martin and Bush, 2000). Parents socialize their children into
purchasing and consuming the same brands that they buy, actively teaching them consumer
skills—materialistic values and consumption attitudes—in their teenage years. Interaction
with peers also makes adolescents more aware of different offerings (Moschis and Churchill,
1978). Companies have long recognized the power of peers—particularly in the social me-
dia world, encouraging purchasers to leave reviews of products that they have previously
bought, to ‘like’ their Facebook pages, and to retweet their messages. Research indicates
that those who read reviews are twice as likely to select a product compared with those who
do not (Senecal and Nantal, 2004).
But what happens once consumers have learned information? How do they retain it in their
memories and what stops them from forgetting it? Consumers do not necessarily have the
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same experience, and therefore knowledge, of particular offerings. Knowledge develops with
familiarity, repetition of marketing messages, and a consumer’s acquisition of product/service
information. Marketing messages need to be repeated often because people forget them over
time—particularly the specific arguments or message presented. The general substance or
conclusion of the message is marginally more likely to be remembered (Bettinghaus and Cody,
1994: 67).
We enhance memorization through the use of symbols, such as corporate identity logos,
badges, and signs. Shapes, creatures, and people carry significant meanings, as seen in
badges, trademarks, and logos. Airlines around the world have adopted symbols, for example
the kangaroo of Australian airline Qantas. Well-recognized symbols worldwide include the KFC
‘Colonel’ symbol, Intel’s symbol, Apple’s ‘bitten apple’ logo, Coca-Cola’s ubiquitous script logo,
and Google’s multicoloured script symbol.
Five of the world’s most iconic logos

Sources: © 2018 YouTube; © 2018 Coca-Cola; © 2018 Google; © 2018 McDonald’s; © 2018 Twitter, Inc.
Our memories, as a system for storing perceptions, experience, and knowledge, are highly
complex (Bettman, 1979). A variety of memorization processes affect consumer choice, including
the following:
■ Factors affecting recognition and recall—Less frequently used words in advertising are
recognized more and recalled less. The information-processing task in transferring data from
short-term to long-term memory differs for recognition (2–5 seconds) and recall (5–10 sec-
onds). Under high states of arousal, for example where the consumer is subject to time pres-
sure, recognition speeds are increased, whereas recall speeds are hindered. In practical terms,
the more unique a campaign’s message, the better it is recognized, but the worse it is recalled.
■ The importance of context—Memorization is strongly associated with the context of the
stimulus, so information available in memory will be inaccessible in the wrong context. For
example, vacuum cleaner manufacturers advertising in sports magazines are unlikely to be
remembered.
■ Form of object coding and storage—We store information in the form it is presented to us,
either by object (brand) or dimension (offering attribute), but there is no evidence that one
form is organized into memory more quickly or more accurately than the other (Johnson and
Russo, 1978).
■ Load-processing effects—We find it more difficult to process information into our short- and
long-term memories when we are presented with a great deal of information at once.
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■ Input mode effects—Short-term recall of sound input is stronger than short-term recall of
visual input where the two compete for attention, for example in television and YouTube
advertising.
■ Repetition effects—Recall and recognition of marketing messages/information increase the
more a consumer is exposed to them, although later exposures add less and less to memory
performance.
Evidence suggests that where consumers have little experience or knowledge of an offering,
provision of in-store point-of-purchase information is more successful than general advertising
(Bettman, 1979). This is why brand manufacturers frequently conduct product trials in-store,
offering consumers the opportunity to try the offering without expending time, money, and effort
in purchasing it. (See Chapter 11 for more on sales promotion.) This approach places the brand in
the consumer’s evoked set, and helps them to contextualize the particular product and remem-
ber it when they shop next time. Consumer knowledge of offerings can be incomplete and/or
inaccurate, because consumers frequently think that they know something about an offering
that is not in fact true, but they nonetheless believe this strongly (Alba and Hutchinson, 2000).
Personality
How and what we buy is also based on our personalities. Personality is that aspect of our psyche
which determines how we respond to our environment in a relatively stable way over time.
The theory of personality originates from Sigmund Freud’s ground-breaking work on motivation.
Freud believed that subconscious drives can explain much of our behaviour and his views were
influential in the origins of marketing research. Modern theories of personality, however, have
moved beyond Freud’s view and have developed ways of assessing the different components of
individual personality and their impact on behaviour.
Here, we consider two main approaches to the study of personality: trait theory, which
stresses the classification of personality types; and the self-concept approach, which concerns
how we perceive ourselves as consumers.
The Trait Approach

The trait approach to personality categorizes people into different personality types or so-called
traits (pronounced ‘trays’). Researchers characterize personalities using bipolar scales, including
the following traits:
■ sociable–timid;
■ action-oriented–reflection-oriented;
■ stable–nervous;
■ serious–frivolous;
■ tolerant–suspicious;
■ dominant–submissive;
■ friendly–hostile;
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■ hard–sensitive;
■ quick–slow; and
■ masculine–feminine.
Researchers frequently talk about the ‘big five’ personality dimensions:
■ extraversion (sociable, fun-loving, affectionate, friendly, talkative);
■ openness (original, imaginative, creative, daring);
■ conscientiousness (careful, reliable, well-organized, hard-working);
■ neuroticism (worrying, nervous, highly strung, self-conscious, vulnerable); and
■ agreeableness (soft-hearted, sympathetic, forgiving, acquiescent) (McRae and Costa, 1987).
Certain types of personality prefer certain brands. For example, ‘conscientious’ people prefer
‘trusted’ brands, while ‘extroverts’ prefer ‘sociable’ brands. Gender differences have also been
observed: ‘neurotic’ males and ‘conscientious’ females prefer ‘trusted brands’ (Mulyanegara,
Tsarenko, and Anderson, 2009). An understanding of personality types therefore helps market-
ers to segment customer groups using personality dimensions (see Chapter 6). This is possible
because psychologists have developed questions that reliably assess to what extent an indi-
vidual’s personality matches the different traits described above.
Various companies use personality as a segmentation criterion, for example car manufac-
turers, which link personality to particular car attributes such as safety features, aesthetics,
and handling. Makers of running shoes and mobile phones are interested in two personality
traits in particular, extraversion and openness to experience, because these traits link to atti-
tudinal and purchase loyalty displayed towards those brands (Matzler, Bidmon, and Grabner-
Kräuter, 2006).
Visit the online resources and complete Internet Activity 2.1, an online quiz, to learn more
about your own personality across a number of key personality traits.
Self-Concept Approach
People also buy offerings because of what the brand represents to them and its relation to the
buyers’ perception of their own self-concept or personality. This relates not only to the proposi-
tion itself, but also to values, socially responsible behaviour, and opportunities for networking
(Bhattacharya and Sen, 2003), both online and offline. So we buy brands that resemble how we
perceive ourselves, but marketers can also shape customer behaviour by reinforcing particular
identities and redefining what it means to have that identity or creating new, highly desirable
identities (Champniss, Wilson, and Macdonald, 2015).
In the luxury goods market, buyers typically divide into one of two categories:
■ those who made their purchases based on product quality, aesthetic design, and excellence
of service, who are motivated by the desire to impress others, their ability to pay high prices,
and the ostentatious display of their wealth; and
■ those who bought luxury goods based on what they symbolize—that is, purchasing luxu-
ry goods represented an extreme form of the expression of their own values (Dubois and
Duquesne, 1993).
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Consumers buy products based on self-concept through self-giving behaviour (Mick and DeMoss,
1990). Gift-giving is a common phenomenon, particularly among family, friends, and work col-
leagues. It is highly symbolic, connoting love (for example Valentine’s and anniversary gifts), con-
gratulations (for example wedding presents), regret (for example a card saying ‘sorry’ to a loved
one), and dominance (for example clothes bought to ‘improve’ a partner’s style). Self-giving arises
from different motivations, for example to reward ourselves, to be nice to ourselves, to cheer our-
selves up, to fulfil a need, and to celebrate. There is a link between the purchase of clothing as a
self-gift—that is, a special purchase rather than a typical purchase—and a consumer’s self-con-
cept. An extreme example of when people purchase products to build their self-concept (although
it tends to work in the short term and damages longer-term self-concept perceptions) occurs in
compulsive consumer behaviour (for example gambling, excessive drinking). Compulsive shop-
pers are motivated in part to change their mood and improve their self-esteem (Furnham, 2014).
Visit the online resources and complete Internet Activity 2.2 to take a test on compulsive
shopping and to learn more about the disorder.
Motivation
Abraham Maslow (1943) suggested a hierarchical order of human needs, as outlined in Figure
2.3. According to Maslow, we satisfy lower-order physiological needs first, then move on to
safety needs, belongingness needs, and esteem needs, and finally the need for self-actualiza-
tion. There is little research evidence to confirm Maslow’s hierarchy, but the concept possesses
logical simplicity, making it a useful tool for understanding how we prioritize our own needs and
therefore why we might buy what we buy. In contemporary societies, offerings focus on solving
consumer needs in the esteem and self-actualization categories, because needs in other cate-
gories are already provided for. However, in the poorer parts of sub-Saharan Africa, for example,
offerings operate for some citizens at the level of solving safety and belongingness needs. The
implications for marketers are that offerings aimed at the mass market in sub-Saharan Africa
Self-actualization needs
Psycho-transformative: the need to fulfil our potential
Esteem needs
Socio-psychological: valued and respected by self and others
Belongingness needs
Socio-cultural: affection, attachment, friendship
Safety needs
Physical and psychological: a predictable non-threatening
environment
Physiological needs
Primitive and biological: food, water, oxygen, sex, and shelter
from the elements
Figure 2.3
Maslow’s hierarchy of needs
Source: Adapted from Maslow (1943). This content is in the public domain.
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in the self-actualization category (for example higher education, long-haul travel) are likely to
fail. This does not mean that there are no market segments with this need. There are groups of
people in sub-Saharan Africa whose income allows them to enjoy such offerings.
There is still debate about whether consumers are motivated by rational—as outlined by
Howard and Sheth (1969)—or irrational motives. Holbrook, Lehmann, and O’Shaughnessy
(1986) started to consider irrational motives when they suggested that our wants might be latent,
passive, or active, and are related to both intrinsic and extrinsic reasons:
■ latent needs are hidden—that is, our subject is unaware of their need;
■ passive needs are such that the costs of acquisition exceed, for the moment, the expected
satisfaction derived from acquisition; and
■ active needs are such that the subject is both aware of their needs and expects the perceived
benefits to exceed the likely costs of acquisition.
According to Holbrook and colleagues (1986), when our needs are active, they can arise either
through habit or through the brand selection process, which the authors call picking. Picking
is the deliberative selection of an offering from among a repertoire of acceptable alternatives,
even though the consumer believes the alternatives to be essentially identical in terms of ability
to satisfy their needs. It can be motivated by intrinsic or extrinsic evaluations, or both. Intrinsic
evaluation occurs because a consumer likes a product—perhaps because of anticipated plea-
sure from using it—while an extrinsic evaluation might occur because a friend mentioned that it
was a great product. Extrinsic evaluations can also entail explicit cost–benefit analyses.
Extrinsic reasons for purchase can be subdivided into five categories:
■ Economic—This is concerned with expenditure of money, time, and effort in purchasing and
consuming an offering. Economists refer to the concept of price elasticity of demand to
explain how demand is affected when price is increased or decreased.
■ Technical—This is concerned with the offering’s perceived quality of performance in the an-
ticipated usage situation.
■ Social—This is concerned with the extent to which a purchase will enhance a person’s feel-
ings of self-esteem or personal worth in relation to others (see Maslow’s hierarchy), as well as
general adherence to group norms and effects (see ‘Theory of Planned Behaviour’ below).
■ Legalistic—This is concerned with what are perceived to be the legitimate demands of others
(for example buying on behalf of a company, or for a child or spouse).
■ Adaptive—A form of social learning, this is concerned with imitating others, seeking expert
advice (for example from blogs, social networking sites, or industry and consumer maga-
zines), or relying on the reputation of a particular company or brand in the event of uncertain
or limited purchasing information.
Theory of Planned Behaviour

Theories of motivation in marketing help us to understand why people behave as they do. The
theory of planned behaviour explains that behaviour is brought about by our intention to act in
a certain way (see Research Insight 2.3). This intention to act is affected by the attitude a subject
has towards a particular behaviour, encompassing the degree to which a person has favourable or
unfavourable evaluations or appraisals of the behaviour in question. Intention to act is also affected
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Azjen, I. (1991). The theory of planned behaviour. Organisational Behaviour and

Human Decision Processes, 50(2), 179–211.
In this seminal article, the author outlines how behaviour and behavioural intention to act in a certain way are
affected by the attitude the subject has towards a particular behaviour, the subjective norm, and perceived
behavioural control. The author developed our understanding of the fact that how humans intend to act
may not be how they end up acting in a given situation. Intention, perception of behavioural control, attitude
toward the behaviour, and subjective norm all reveal different aspects of the target behaviour and serve as
possible directions for attack in attempts to alter particular behaviours, making this a powerful motivational
theory in marketing. Read the paper to understand how the theory can be applied in practice to understand
and predict individual behaviour in different circumstances.
by the subjective norm, which is perceived social pressure to perform or not perform a particular
behaviour (see ‘Group Influence’ later in the chapter). Finally, intention to act is affected by perceived
behavioural control, referring to the perceived ease or difficulty of performing the behaviour, based
on a reflection on past experience and future obstacles. Figure 2.4 provides a graphical illustration.
Attitude
towards the
behaviour
Subjective Intention Behaviour

norm
Perceived
behavioural
control
Figure 2.4
Theory of planned behaviour
Source: Azjen (1991).
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For example, if we consider cigarette use, we might have different attitudes towards smoking
based on our geographical location, for example whether we live in France or China versus the
UK or New Zealand. We might think we can’t give up smoking because we need a cigarette to
calm our nerves (perhaps we have a stressful job). Equally, we may also consider the opinions
that significant others have towards smoking cigarettes (for example our spouses, children, or
friends). If we place ourselves in the minds of government (de)marketers, the key elements of
the theory of planned behaviour (that is, attitudes, subjective norms, and perceived behavioural
control) can help us to understand how to discourage smoking. For example, we could try to
(a) alter subjects’ attitudes towards smoking, (b) change their views on how others see them
as smokers, or (c) change their perceptions of how they perceive their own ability to give up.
(See Chapter 17 for a wider discussion of social marketing.) Public Health England’s advertis-
ing campaign entitled ‘Smokefree’, which ran in late 2015, actively discouraged smoking by
showing ‘disgusting’ images of ‘rotting’ entrails in roll-up cigarettes. The idea was to make
people realize that smoking roll-ups is just as dangerous as smoking manufactured cigarettes
(Siciliano, 2014).
Public Health England uses a ‘disgust’ appeal to discourage ‘roll-up’ smoking

Source: Image courtesy of DARE and Public Health England. Photography by Nick Georghiou.
Despite its popularity, the theory of planned behaviour has been also criticized for some
of its inherent limitations. First, the theory assumes that we always have formed attitudes
about a certain behaviour. Often, however, our attitudes are developed only when we are
required to have an opinion or view on a certain action (that is, we don’t always hold atti-
tudes towards all relevant behaviours) (Schwarz, 2007). Second, the link between intentions
and behaviour is not always very strong because there are many reasons why we might not
be able to carry out our plans and this limits the applicability of the theory in some contexts.
For example, while many consumers claim that they would want to buy environmentally
friendly products to protect the environment, only a very small minority do so because of
the higher price, reduced availability, and concerns in terms of product quality (Carrington,
Neville, and Whitwell, 2010).
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The Importance of Social Contexts

Although our own personality and other characteristics impact on how we consider and con-
sume offerings, the opinions, attitudes, and values of others also affect how we consume, as
we discovered with the theory of planned behaviour. Our internal perspective is determined
not only by our own thoughts and personality structures, but also by the input of others.
Other people have an effect on our opinions, attitudes, and values, as considered further in
the next section.
Opinions, Attitudes, and Values

Opinions are quick responses given to opinion poll questions about current issues or instant
responses to questions from friends. They are held with limited conviction because we have
often not yet formed or fully developed an underlying attitude on an issue. An opinion might be
what we think of the latest advertising campaign for a high-profile brand. Attitudes, by compari-
son, are held with a greater degree of conviction, over a longer duration, and are more likely to
influence behaviour. Values are held even more strongly than attitudes, underpinning our attitudi-
nal and behavioural systems. Values are linked to our conscience, developed through the familial
socialization process, through cultures and subcultures, and through our religious influences,
and are frequently formed in early childhood.
Opinions are cognitive—that is, based on thoughts. Attitudes are what psychologists term
affective—that is, linked to our emotional states. Values are conative—that is, they are linked
to our motivations and behaviour. Although we may have a specific attitude towards something,
we do not always follow it in terms of our behaviour. In other words, we may want to be more
fashionable in our dress sense, but we don’t bother trying new styles! VALs™ (derived from
‘values and lifestyles’) is a psychographic framework that is used to segment consumers into
differing types based on their opinions, attitudes, values, and behaviours. (See Chapter 6 for
more on psychographic segmentation.)
Visit the online resources and follow the web link to the VALs™ online survey to see which
VALS type you identify as.
Group Influence
Consumers learn through imitation—that is, social learning. We’ve learned, for instance, by
observing and copying our parents and friends. As consumers, we may compare our opinions,
attitudes, values, and behaviour patterns with those of specific reference groups. A reference
group is:
. . . one that the individual tends to use as an anchor point for evaluating his/her own beliefs
and attitudes. One may or may not be a member and may or may not aspire to member-
ship in a reference group. It can have great influence on one’s values, opinions, attitudes,
and behaviour patterns.
(AMA, 2016)
Group membership can exert a positive effect with the group—that is, one’s individual patterns
of behaviour are congruent with the group. For example, die-hard fans of the Twilight franchise
have had themselves fitted with fang-like teeth (Roderick, 2015). Group membership can also
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exert a negative effect. A church, political party, or trade union, for example, can be the focus of
both positive (congruent) and negative (incongruous) behaviour for its members. If a consumer
feels that their freedom to choose is being threatened, they may react against this intervention.
A consumer whose decision alternative is blocked, partially or wholly, can become increasingly
motivated to go against that specific decision alternative by demonstrating rebellious behav-
iour (Clee and Wicklund, 1980). Such rebellious behaviour might include the creation of spoof
adverts, poking fun at and caricaturing a brand. Such parodies can seriously damage a brand
if they are credible (Sabri and Michel, 2014), and when there is a gap between the image the
firm is trying to project and the reality of the firm’s actions, as experienced by the public (Berthon
and Pitt, 2012).
Children who are told that they cannot have particular offerings desire them more as a result
(Rummell et al., 2000). For example, the ‘tweenage’ daughter (aged between 10 and 12) told by
her parent not to wear make-up may do so, while the rebellious teenage son may drink too much
alcohol despite his parents’ advice otherwise. This form of negative group influence occurs
because of psychological reactance.
Consumers’ assumptions about an individual’s behaviour, based on identifying group
membership, become automated if they are frequently and consistently made (Bargh and
Chartrand, 1999). This represents a form of social learning. For instance, a Swedish male
consumer might purchase Abba-branded herring because this was the brand his parents ate
at the breakfast table, whereas a French female beverage consumer might drink Orangina
almost exclusively because that is what her parents provided for her as a child. The link
between a consumer and a particular reference group depends on how closely the consumer
associates with a particular reference group. Where we do associate closely, the attachment
to the brand is often assumed. For example, consumers identifying with the ‘biker’ genre
might ride Harley-Davidson motorcycles because bikers who buy big cruisers generally buy
Harley-Davidson bikes.
Message receipt is also affected by peer group pressure, delivered by word of mouth,
online and offline, and whether intended or not. Members of groups tend to conform to a
group norm, enhancing the self-image of the recipient and increasing their feeling of group
identity and belongingness. Therefore consumers may have their own cultures and sub-cul-
tures that impact on how a particular marketing message may be received. Some marketing
messages might incorporate celebrity endorsement appeals, for example by enlisting the
endorsement of popular role models who have influence over the target consumer group.
H&M, the Swedish fashion retailer, has made use of renowned pop artists over the years,
including American singer Katy Perry, as well as British sports personality David Beckham,
to advertise its brands, particularly to young people. (See Market Insight 2.4 on the power of
celebrity endorsement for a sports participation campaign in Ireland.) Marketing campaigns
frequently leverage the persuasive power of reference group membership through word-of-
mouth campaigns, for example when consumers discuss their experiences on Twitter and
Facebook. Increasingly brands are hosting brand communities of users (see Chapter 13) in
which consumers can share useful information and help each other to improve their con-
sumption experience (Fournier and Lee, 2009). Software company EA Sports has developed
a community for its bestselling football video game FIFA, which has garnered almost 10 million
posts from users (Anon., 2010). The website is integrated with Facebook, Twitter, and other
networking sites, and allows fans to share tips on how to play the game and to get access to
updates and trailers.
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Word-of-mouth communication is powerful because we trust the opinions of our friends and
colleagues. For example, in the beauty and personal care market (Mintel, 2011, 2012), different
influences include (in order of importance): the opinions of family and friends; the company/prod-
uct website; shop assistants; passively reading articles in magazines or newspapers; proactively
looking up reviews online or in magazines; actively researching using forums and chatrooms; or
reading about a company/product on Twitter. Men are more likely to gain product updates in a
news format and women are more likely to visit online stores. Mums are particularly likely to share
beauty content. Of those who said something positive about a product online, 45 per cent bought
the product based on the recommendation of a vlogger (wvideo blogger) (Mintel, 2015).
In the next section, we consider how consumer behaviour is affected by social class, lifestyle,
and life cycle.
Market Insight 2.4

On Yer Bike!
In the 1980s, Irishman Sean Kelly was one of the Post saw the opportunity to complement and replicate
most feared cyclists in the world. He was the first the success of the Kelly Tour by rolling out a series
rider to be assigned World Number 1 status when of four other similar events around Ireland. This ‘An
rankings were introduced in 1984 and he held this Post Cycle Series’ commenced in 2009 and has also
position for a record six years. An astonishing career seen considerable incremental year-on-year growth in
saw Kelly record 193 professional victories—most participation rates.
notably, in the 1988 Vuelta De España. In recent
times, the legendary cyclist has become involved in an These events have proved to be a significant catalyst
annual initiative in his home region that has helped to in the growth of cycling as an exercise activity. In
revolutionize cycling participation rates in Ireland. The 2007, there were 5,600 cyclists affiliated to 174
inaugural Sean Kelly Tour of Waterford was held on clubs in Ireland. This figure has grown dramatically
19 August 2007, with the principal aim of stimulating in the intervening years, with Cycling Ireland
interest in cycling as an exercise activity amongst a reporting a membership in excess of 23,000 people
wide cross-section of society. Kelly himself was one across 398 clubs in 2014, of whom 64 per cent are
of the 600 enthusiastic participants who took to the categorized as leisure/non-competitive cyclists,
scenic roads of County Waterford. The branding of while the proportion of female membership has
the event, utilizing the name of such a renowned and grown from 8 per cent to 18 per cent in this time
popular athlete, has been critical in the growth of the period. These figures do not include the growing
Kelly Tour. Innovative public relations (PR), online, and numbers of recreational cyclists who are not affiliated
social media campaigns have also inspired growth to a club—a trend that is quite apparent on a daily
in participation rates to 6,500 for the 2015 version basis on Irish roads. Government-led initiatives,
of the Tour. The event showcases the benefits of such as the increased provision of cycle lanes and
cross-agency cooperation in social marketing drives. tax breaks for people purchasing bikes as a means
Waterford Sports Partnership and Waterford County of commuting to work, have complemented the
Council operate seamlessly, in tandem with the local success of the organized mass-participation events
cycling community, to provide a varied offering that in raising the popularity of cycling to levels not seen
caters for the serious cyclist, casual participants, and in generations.
families alike. Support from the central government
Irish Sports Council and commercial sponsor An Post Sources: Ipsos MRBI/Irish Sports Council (2013); Cycling Ireland
has also been essential in growing the Tour. Indeed, An (2014); Kelly (2015).
72
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Marketing
Market Insight 2.4

continued
This market insight indicates how two civic Council) that a cycling event would generate. To
organizations worked in partnership to promote (a) generate the kind of mass participation needed for
the cycling participation (particularly to the benefit an event of this kind, they engaged a credible sports
of Waterford Sports Partnership) and (b) the tourism personality: an Irish champion cyclist.
(particularly to the benefit of Waterford County
Related Topics
social marketing; sports sponsorship; reference groups; celebrity endorsement
1 What are the factors that you deem essential to 3 Discuss examples of how the ‘brand name’
translate the success of a mass-participation of iconic sports personalities could be used
event into increased ongoing exercise to support initiatives/interventions that
participation? stimulate regular exercise engagement in
your country.
2 How can non-profit-making events such as this
maximize their exposure through the suite of This market insight was kindly contributed by Dr Paul
marketing communications channels available Morrissey, Waterford Institute of Technology, Republic of
Ireland.
to them?
Social Grade
In marketing, the term social grade refers to a system of classification of consumers based
on their socio-economic grouping. Social grade was originally developed for the IPA National
Readership Survey (NRS) in the 1950s and was subsequently adopted by the Joint Industry
Committee for National Readership Surveys (JICNARS) on its formation in 1968. Social grade
is a means of classifying the population by the type of work they do based on the occupation
of the chief income earner—that is, the member of the household with the largest income.
NRS Ltd (the successor to JICNARS) provides social grade population estimates not only
for the National Readership Survey, but also for a number of other major industry surveys.
These population estimates are obtained from the Survey’s interviews with a representative
sample of some 36,000 adults every year (see Table 2.1). There is a widely held belief that
consumers make purchases based on their socio-economic position within society and that
different social classes have different self-images, social horizons, and consumption goals
(Coleman, 1983). Such variations in attitudes, motivations, and value orientations reflect dif-
ferences in occupational opportunities and demands, childhood socialization patterns, and
educational influences, leading consumers to vary in their purchase behaviours across social
classes (Williams, 2002).
Chapter
Chapter > Consumer
Society 73
73
Table 2.1 Social grading scale
Social Social status Occupational status Population estimate,

grade Great Britain, age 15+
(Jan 2016–Dec 2016) (%)
A Upper middle Higher managerial, administrative, and 4

class professional
B Middle class Intermediate managerial, administrative, 23

and professional
C1 Lower middle Supervisory, clerical, and junior managerial, 28

class administrative, and professional
C2 Skilled working Skilled manual workers 20

class
D Working class Semi- and unskilled manual workers 15
E Those at State pensioners, casual and lowest grade 10

lowest levels of workers, unemployed with state benefits
subsistence only
Source: National Readership Survey. Reproduced with the kind permission of the National Readership Survey.
Lifestyle
Marketers increasingly target consumers on the basis of their lifestyles (see also Chapter 6).
The AMA (2016) defines lifestyle as ‘the manner in which the individual copes and deals with
[their] psychological and physical environment on a day-to-day basis’, ‘as a phrase describing
the values, attitudes, opinions, and behaviour patterns of the consumer’, and ‘the manner in
which people conduct their lives, including their activities, interests, and opinions’. For example,
a segmentation of the South Australian wine market reveals the following lifestyle types (Bruwer
and Li, 2007):
■ Conservative, knowledgeable wine drinkers—Comprising 19.2 per cent of the population
and more likely to be male (57 per cent), well educated, and well remunerated, this segment
drinks wine frequently (particularly red), displaying connoisseur qualities when buying wine.
■ Enjoyment-oriented social wine drinkers—Comprising 16.2 per cent of the population, and
more likely to be female and younger, this segment likes white and sparkling wine, and has
an eye for value for money.
■ Basic wine drinkers—Comprising 23.5 per cent of the population, this is a predominantly
male segment, as happy drinking beer as wine, depending on what’s available.
■ Mature time-rich wine drinkers—Comprising 18.2 per cent of the population, this older, male
segment displays connoisseur tendencies and is interested in the provenance of the wine.
74
Marketing of
Fundamentals
Marketing
■ Young professional wine drinkers—Comprising 22.9 per cent of the population, and predomi-
nantly female and employed in the professions, this segment tends to drink red wine, mainly
at business functions.
To generate clusters of consumers according to different lifestyle types, marketers typically ask
consumers questions around their activities, interests, and opinions (AIO). If marketers fit around
a consumer’s lifestyle, consumers are more likely to benefit from, and appreciate, the proposition
offered. (We cover lifestyle segmentation further in Chapter 6.)
Life stage
Marketers frequently hypothesize that people at certain stages of life purchase and consume
similar kinds of offerings. In research undertaken in the United States in the 1960s, Wells and
Gubar (1966) determined that there were nine stages in a consumer’s life, from leaving home
to living as a solitary survivor without a spouse. In contemporary society, the life-stage concept
needs a degree of readjustment to take into account that fewer people get married and that
those who do are doing so at a later age than they were in the 1960s, that there are more singles
with children, and that increasingly couples are cohabiting. (See Chapter 6 for more on current
life-stage segmentation approaches.)
Visit the online resources and complete Internet Activity 2.3 to learn more about how
Volkswagen uses the family life cycle to communicate its brand values to its target audience.
Most market research agencies routinely measure attitudes and purchasing patterns based
on life stage to determine differences among groups. Table 2.2 indicates that there is a differ-
ence in the types of offering purchased as a result, with solitary survivors far more likely to pur-
chase funeral plans, nursing home care, and cruise holidays, and singles more likely to spend
their income on package and long-haul holidays and educational service products, for instance.
Diesel, the Italian denim brand, has become the first mainstream clothing retailer to advertise,
controversially, on a pornographic website Pornhub (one of the world’s top 100 most visited
websites), as well as on dating apps Grindr and Tinder, to project a young, sexy image (Croft,
2016). Tour operators, such as Saga, also target particular demographic groups—specifically,
the older traveller—typically with more sedate appeals.
Culture and Ethnic Groups

In a globalized society, marketers are increasingly attuned to recognizing cultural differences
between and within societies. Culture can be defined as the overall set of beliefs, values, and
norms that are inherited or learned by members of a group and which regulate behaviour. An
example of the importance of culture is how marketers are increasingly interested in marketing
offerings to ethnic groups within particular populations. Such groups can be large, with their
own specific customs. They can represent an opportunity either to build a niche market or to
consolidate an existing market—that is, by appealing to a new set of consumers in addition to
the old. For example, in the United States, the Hispanic, Latino, and Black American populations
together represent a sizeable proportion of the total population. European countries also have
sizeable ethnic populations. In France, for example, there is a large Black African population; in
Germany, a large Turkish community. France and the UK both have large Muslim populations. In
Sweden, there are large groups of Finns, former Yugoslavs, Iraqis, and Iranians. These groups
within a country represent a potential opportunity for the marketer, if they are sizeable enough
Table 2.2 The life stages
Stage Bachelor Newly Full nest I: Full nest II: Full nest III: Empty nest I: older Empty nest II: Solitary Solitary
stage: married or youngest youngest older married married couples, older married survivor, survivor,
young single long-term children children couples with no children living at couples, no in work retired
people not cohabiting: aged <6 aged 6 or dependent home, chief income children living
living with young, no over children earner or both in work at home, chief
parents/ children income earner
guardians or both retired
Characteristics Few financial Better off Home Financial Financial position Home ownership at peak Drastic cut Medical Same
burdens financially purchasing position better still Most satisfied with in household needs will medical
Fashion because of at peak better Both parents savings and financial income depend on needs as
opinion dual wages Low level Both more likely to be position More likely to age other retired
leaders High of savings parents may in work stay at home group
Interested in travel,
Recreation- purchase be in work Some children will recreation, self-education Drastic cut
oriented rate of have part-time in income
Chapter
More likely to give gifts
consumer jobs and make charitable
durables
Chapter
High average contributions
purchase of
1 > 2Marketing
Less interested in new
consumer products
durables
> Consumer
Likely Buy: basic Buy: cars; Buy: Buy: Buy: better Buy: luxurious holidays; Buy: medical Buy: Buy:
Principles
purchases kitchen refrigerators; washer- larger-sized homeware eating out; home appliances and financial; household
equipment; package dryer; family food and furniture improvements private health healthcare staples;
Buyingand
basic holidays television; packages; products; care; sleep and and cruise
furniture; baby food cleaning magazines; non- digestion aids retirement holidays;
cars; package and related materials; essential home plans; nursing
Behaviour
and long-haul products; pianos; appliances meals for home
Society
holidays; vitamins; childminding one services;
education toys services funeral plans
Source: Adapted from Wells and Gubar (1966). Published by the American Marketing Association.
75
75
76
Marketing of
Fundamentals
Marketing
to be profitable and demonstrate similar needs across the group that are different from those
the rest of the population. For example, multicultural consumers spent some US$3.4 trillion in
the United States in 2015 and, importantly, ethnic groups behave differently (Gil and Rosenberg,
2015). For example, in the United States, Asian Americans purchase organic foods at an above-
average rate and social causes are particularly important to Hispanic Americans. Cui (1997)
proposes that, in any country, where there are ethnic marketing opportunities, a company has
four main strategic options, as follows:
■ Total standardization—Use the existing marketing mix (see Chapter 1) without modifying it to
the ethnic market. This is very difficult to do. Even Coca-Cola, well known for its ardent ap-
proach to standardization, adapts its cola around the world (for example by adding pineapple
in Indonesia to cater for local tastes).
■ Product adaptation—Use the existing marketing mix, but adapt the product to the ethnic
market in question, for example Nestlé’s selling of green-tea-flavoured KitKats in Thailand.
■ Advertising adaptation—Use the current marketing mix, but adapt the advertising—particularly
the use of foreign languages—to the target ethnic market by promoting the product using
different associations that are more resonant with ethnic audiences. For example, stores in
some parts of Finland advertise in Swedish and Finnish to cater for the minority Swedish popu-
lation, and stores in the United States commonly advertise in Spanish.
■ Ethnic marketing—Use a totally new marketing mix, for example Bollywood films aimed at
audiences in the Indian subcontinent and in the Indian diaspora around the world, using
strong love and ethical themes, and a musical format
Have a break, have a green tea KitKat!

Source: © Paul Baines.
Which of these four approaches marketers should adopt will also depend on how new commu-
nities interact with existing cultures. For example, Mexican immigrants living in the United States
can react to the new consumer culture by (a) assimilating entirely to the new culture, (b) maintain-
ing aspects of both cultures at the same time, (c) privileging Mexican heritage and resisting US
culture, or (d) segregating the two cultures to specific areas of their lives that fulfil specific needs
(Peñaloza, 1994). (See also Market Insight 2.5.)
Chapter
Chapter > Consumer
Society 77
77
Market Insight 2.5

The Iftar Market
Each year, around the world, many of the 1.6 and Waitrose all offering enhanced kosher ranges at
billion-strong Ummah (‘worldwide community of these times of the year.
Muslims’) come together to observe the holy month
of Ramadan. Ramadan is the celebration of the first In 2015, the UK’s supermarkets enjoyed a Ramadan
revelation of the Qu’ran to the Prophet Muhammad sales uplift of around £100 million. Tesco, Sainsbury’s,
(pbuh), by fasting (no food, drink, sex, or cigarettes) Asda Walmart, and Morrisons all ran Ramadan
from sunrise to sunset, by giving to charity, and doing promotions and reaped the benefits. Morrisons
good deeds for others. Only children, the elderly, expected to sell 2 million tons of rice and 80,000 boxes
travellers, the sick, and breastfeeding or pregnant of dates, and Tesco expected to turn over £30 million
women are exempt from the daytime fasting. Come from its Ramadan product range.
sunset, the fast is broken with the communal iftar
There are difficulties, however: both Morrisons and
meal for Sunnis (Shi‘a pray first before any food is
Tesco found themselves in hot water after selling
consumed). The typical iftar might first comprise
pork products (or, in Tesco’s case, Smokey Bacon
dates with water or a yoghurt drink and then, after the
Pringles) under Ramadan promotional signage, causing
Mahgrib prayer at sunset, soup, salad, appetizers,
outrage in some quarters. Overeating after sundown
and main dishes (with halal meat, rice, and fruit being
also poses health risks, prompting the UK’s National
the staples). Before sunrise, suhoor can be eaten, a
Health Service (NHS) to warn against breaking the
typically lighter meal, washed down with a couple of
fast with a feast, with dedicated content on the NHS
glasses of water.
Choices website. In Dubai, in the United Arab Emirates
There were around 2.8 million Muslims in the UK (UAE), government officials have also warned against
in 2011, according to the 2011 Census. Given this overbuying and wastage (hinting that Ramadan is
relatively large number (about 5 per cent of the supposed to be about ascetic observance) and
population), Ramadan is now the third most important have provided information screens in retail outlets
religious event for supermarkets in sales terms, on good shopping practice habits during Ramadan.
preceded only by Christmas and Easter. Other festivals Supermarkets have also responded by offering food
that supermarkets cater for include Diwali (celebrated baskets containing essential items at affordable prices
by Sikhs, Hindus, and Jains), and Rosh Hashanah and in the period leading up to Ramadan.
Passover (the Jewish New Year and Jewish Spring Sources: Bingham (2015); Botros (2015); Burman (2015); Duell
liberation festival, respectively), with Tesco, Sainsbury’s, (2015); Gani (2015); MCB (2015).
This market insight indicates the significant market different cultural mores. It also indicates some of
opportunities that can exist in developing offerings the difficulties inherent in targeting a niche market—
for particular ethnic groups who demonstrate particularly in getting the offering right for the targeted
unique consumption behaviour based around their ethnic group without offending them.
Related Topics
reference group; multicultural marketing; segmentation; targeting; positioning; international marketing
Market Insight 2.5

continued
1 How would supermarkets decide which stores 3 Is it appropriate for supermarkets to be

will offer their Ramadan product ranges? targeting Muslim customers at Ramadan with
food and drink offers? Why do you say this?
2 Besides the type of food eaten and the timing
of when the food is eaten, how else might the
shopping behaviour of Muslims differ from that
of non-Muslims?
Chapter Summary
■ Explain the consumer product acquisition process.

Consumer buying behaviour has rational and irrational components, although rational theories tend to
dominate the marketing literature. There are a variety of models of consumer buying behaviour, but the
consumer product acquisition model is perhaps the simplest to understand, stressing that the consumer
goes through six key stages in the product acquisition process, including motive development, information
gathering, product evaluation, product selection, acquisition, and re-evaluation.
■ Explain the processes involved in human perception, learning, and memory in relation to consumer
choice.
The human perception, learning, and memory processes involved in consumer decision-making are
complex. When designing advertising, developing distribution strategies, designing new offerings, and
implementing other marketing tactics, marketers should (repeatedly) explain the information associated
with these actions to consumers. Such an approach is necessary to encourage consumers to engage with,
remember, and learn about different offerings, which in turn influences consumers’ buying decisions.
■ Understand the importance of personality and motivation in consumer behaviour.

Consumers are motivated differently in their purchasing behaviour depending on their personalities and
social identities, and, to some extent, how they feel that their personality or social identity fits with particular
offerings. Maslow’s (1943) seminal work on human needs helps us to understand how we are motivated to
satisfy five key human desires. From the theory of planned behaviour (Azjen, 1991), we know that how we
intend to behave is not always how we actually behave, because this is affected by our attitudes towards
the behaviour in question, subjective norms (how we think others perceive that behaviour), and our own
perceptions of how we can control our behaviour.
■ Describe opinions, attitudes, and values, and how they relate to consumer behaviour.
Opinions are relatively unstable positions that people take in relation to an issue or assessment of
something. Attitudes are more strongly held and are more likely to be linked to our behaviour. Values are
more strongly held still and are linked to our conscience. Marketers are interested in all three because they
Chapter 2 > Consumer Buying Behaviour 79
help us to understand consumers better and to develop marketing approaches, particularly when it comes
to positioning and repositioning an offering.
■ Explain how reference groups influence consumer behaviour.

Reference groups, including such role models as parents, entertainers, and athletes, have an important
socializing influence on consumption behaviour, particularly, but not solely, in our adolescence. However,
where we live, what social class we come from, what lifestyle we lead, what stage of the life cycle we
are at, and our culture, learned as part of specific social groups, also has an impact on our behaviour as
consumers. Celebrity endorsers are powerful influencers in this regard, particularly when they project a
particular lifestyle that others seek to emulate.
Review Questions
1 What is the process consumers go through when buying offerings?
2 What is cognitive dissonance and how does it relate to consumer behaviour?
3 How are the psychological concepts of perception, learning, and memory relevant to
understanding consumer choice?
4 How are concepts of personality relevant to understanding consumer behaviour?
5 How are concepts of motivation relevant to understanding consumer behaviour?
6 What is the theory of planned behaviour?
7 What are opinions, attitudes, and values, and how do they relate to consumer behaviour?
8 How do reference groups influence how we behave?
9 What is celebrity endorsement?
10 How does lifestyle and ethnicity influence how we buy?
1 Having read Case Insight 2.1 at the beginning of this chapter, how do you think Holdz® should develop
its matting solution for its bouldering-centre corporate customers to take account of the considerable
volumes of feet-first falls from climbers, but still allow Holdz to generate a reasonable profit?
2 Describe the purchasing process you might use to purchase the following using the consumer product
acquisition model shown in Figure 2.1:
A A chocolate bar (for example Snickers or Cadbury’s Dairy Milk in the UK, Plopp in Sweden, or Droste in
the Netherlands)
B An electric car
C A tablet computer to help you to write essays and in group work for your marketing course
D A dishwasher
3 Use the theory of planned behaviour to explain consumer motivations to pursue the following
behaviours:
A The purchase of a room at Raffles Hotel, Singapore
B A visit to the Abba Museum in Stockholm, Sweden
C Voting during an election in France
4 What kinds of celebrity endorsers have you noticed companies using in their advertising to persuade
you to adopt the following?
A Make-up (for example L’Oréal, Lancôme)
B Beer (for example Heineken)
C Beverages (for example Coca-Cola or Pepsi)

Glossary
affective a psychological term referring to our does not concur with the position held at an
emotional state of mind; values are affective earlier period owing to some intervening event,
because they are linked to our feelings about things. circumstance, or action.
ascetic someone or something that practises or conative a psychological term relating to
promotes self-discipline, self-denial, and abstention our motivations to do something; attitudes
from sensual pleasure for religious reasons. are conative because they are linked to our
attitudes mental states that underlie the motivations to do things.
structuring of perceptions and guide behavioural cultural mores the customs and manners of a
response. social group.
celebrity endorsement usually famous or evoked set a group of goods, brands, or services
respected members of the public, used by for a specific item brought up in a person’s mind
advertisers to market specific goods and in a particular purchasing situation and from
services because they are perceived to be which they make a decision as to which product,
expert or knowledgeable or because of their brand, or service to buy.
ability to display particular attractive qualities. habit a repetitive form of behaviour, often
classical conditioning a theory of learning performed without conscious rational thought in
propounded by Russian physiologist Ivan a routine way.
Pavlov, who carried out a series of experiments intention in the consumer context, this is linked
with his dogs when he realized that if he to whether or not we intend or are motivated to
were to ring a bell before serving food, the purchase a good or service.
dogs would automatically associate the involvement the greater the personal importance
sound of the bell (conditioned stimulus) with a person attaches to a given communication
the presentation of the food (unconditioned message, the more involvement they are said to
stimulus), and begin salivating; occurs have with that communication.
when the unconditioned stimulus becomes media (plural of medium) facilities used by
associated with the conditioned stimulus. companies to convey or deliver messages to
cognitions mental structures that an individual target audiences.
forms about something. neoclassical economics a meta-theory of
cognitive a psychological term relating to the economics predicated on delineating supply and
action of thinking about something; opinions are demand based on rational individuals or agents,
cognitive. each seeking to maximize their individual utility by
cognitive dissonance a psychological theory making choices with a given amount of information.
proposed by Leon Festinger in 1957, which operant conditioning a learning theory
states that we are motivated to re-evaluate developed by B.F. Skinner which suggests that
our beliefs, attitudes, opinions, or values if the when a subject acts on a stimulus from the
position we hold on them at one point in time environment (antecedents), this is more likely to
result in a particular behaviour (behaviour) if that reference groups groups that an individual
behaviour is reinforced (consequence) through uses to form their own beliefs and attitudes;
reward or punishment. can be positive, whereby we align our opinions,
opinions observable verbal responses given by attitudes, values, or behaviour with theirs, or
individuals to an issue or question; easily affected negative, whereby we are repelled by their
by current affairs and discussions with significant behaviour and seek to dissociate our opinions,
others. attitudes, values, and behaviour from theirs.
overt search the point in the buying process at selective exposure the process associated with
which a consumer seeks further information in how consumers screen out information that is
relation to a product or buying situation, according not considered meaningful or interesting.
to the Howard–Sheth model of buyer behaviour. social class a system of classification of
perceptions mental pictures based on existing consumers or citizens, based on the socio-
attitudes, beliefs, needs, stimulus factors, and economic status of the chief income earner in a
factors specific to our situation, which govern household, typically into various subgroupings of
the way we view objects, events, or people in middle- and working-class categories.
the world about us; govern our attitudes and social grade a system of classification of
behaviour towards whatever we perceive. people based on their socio-economic group,
perceptual mapping a technique used to present usually based on the household’s chief income
visually the relative perception, in comparison earner.
to its competitors, of different marketing stimuli social learning a learning theory, advocated
such as products, product lines, and brands. by Albert Bandura (1977), that suggests that
personality that aspect of our psyche which we can learn from observing the experiences
determines the way in which we respond to our of others and that, in contrast with operant
environment in a relatively stable way over time. conditioning, we can delay gratification and even
picking in the context of consumer behaviour, the administer our own rewards or punishment.
process of deliberative selection of a product or social media listening the process of obtaining
service from among a repertoire of acceptable and evaluating what is being said about a
alternatives, even though the consumer believes company, its offerings, or individual employees
the alternatives to be essentially identical in on social networking sites such as Facebook,
terms of ability to satisfy their need. Instagram, and Twitter.
price elasticity the percentage change in volume spoof adverts negative advertising—often, but
demanded as a proportion of the percentage not always, generated by amateurs—parodying
change in price, usually expressed as a negative an original campaign using humour, caricature,
number; a score close to 0 indicates that a and ridicule appeals.
product or service price change has little impact System 1 thinking a decision-making cognitive
on quantity demanded, whereas a score of –1 function that is fast, automatic, frequent,
indicates that a product or service price change emotional, stereotypic, and subconscious
effects an equal percentage quantity change; (Kahneman, 2011); cf. System 2 thinking
a value above –1 indicates a disproportionately System 2 thinking decision-making cognitive
high change in quantity demanded as a result of function that is slow, effortful, infrequent, logical,
a percentage price change. calculating, and conscious (Kahneman, 2011);
psychological reactance when a consumer cf. System 1 thinking
perceives their freedom to pursue a particular transvections a term proposed by Alderson
decision alternative to be blocked, wholly or and Martin (1965) to denote the relationships
partially, they become more motivated to pursue (transactions) that occur in the development
that decision alternative. of a product or service that crosses between
recall a measure of advertising effectiveness company (that is, product/service) ownership
based on what an individual is able to remember boundaries to produce a finished product or
about an ad. service; now considered, from the perspective
recognition when new images and words of supply chain management, to be vertical
presented are compared with existing images integration or cooperation.
and words in memory and a match is found. Ummah the worldwide community of Muslims.
utility a measure of satisfaction or happiness values deeply held beliefs about principles and
obtained from the consumption of a specific norms of behaviour that are considered very
good or a service in economic thought; typically important in life.
measured as an aggregate.
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Chapter 3
Marketing Research and
Customer Insight

Ipsos MORI
Market Insight 3.1
Define the terms ‘market research’, ‘marketing
Using Marketing Metrics in a
research’, and ‘customer insight’
State Monopoly
Describe the customer insight process and the role
Market Insight 3.2
of marketing research within it
Circularity Customer Insight:
Explain the role of marketing research and list the The Brief
range of possible research approaches
Market Insight 3.3
Define the term ‘big data’ and describe its role in Circularity Customer Insight:
marketing The Proposal
Discuss the importance of ethics and of the Market Insight 3.4
adoption of a code of conduct in marketing Research Biases: Don’t Kid
research Yourself
Market Insight 3.5

Why Ask?
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Case Insight 3.1

Ipsos MORI
When Unilever wanted to develop its medium-term

innovation pipeline for four of its household cleaning
brands, it turned to global market research firm, Ipsos. We
speak to Ipsos’s Billie Ing, innovation engagement lead,
Leora Unsdorfer, qualitative research manager, and Alex
Gilby, quantitative associate director, to find out more.
Unilever’s household cleaning business had a need traditional survey-style and self-completion research
to inject more innovation into its pipeline. With approaches. We also wanted to help Unilever to
gaps in the innovation funnel, Unilever’s challenge develop a process for developing and testing new
was to create global product and communications proposition ideas, so they could move straight into
propositions for four global brands. To do so, Unilever commercialization development phases shortly after
knew they had to get back to the needs of the people our project.
they serve. This is when Unilever hired us at Ipsos to
At Ipsos, we believe the best proposition development
help them tackle the challenge.
ideas result from strong innovation principles:
Unilever wanted to create robust innovation ideas bringing in diverse perspectives, leveraging collective
that would test well, so it was essential to connect intelligence of teams, and delivering stimuli via a range
with the daily needs of consumers in six of its key of media to engage all five senses. But, often, the
markets (India, Brazil, Italy, UK, Turkey, and Russia). creative innovation process can become so removed
Dawn Farren, Global Consumer Market Insight from the insight itself that ideas lose their original
Director at Unilever, encapsulated the innovation meaning. To avoid this pitfall, Unilever wanted us to
challenge: ‘Sometimes we are so stuck in tweaking quantitatively test the new ideas against innovation
concepts, testing and retesting; we have to stop metrics, among a sample of consumers in each of the
and get back down to basics and remind our teams six markets, and to obtain immediate feedback on the
what it is like for real people tackling their cleaning potential success of the ideas.
challenge.’
The question for Ipsos was: how was it to
But just understanding consumers and their cleaning design a research programme that would
requirements wasn’t going to be enough. Unilever provide insights into cultural cleaning rituals and
wanted cross-disciplinary teams across the global practices in a diverse set of countries, embed
business to learn more about the cleaning rituals of that knowledge inside Unilever, and help Unilever
families around the world and to empathize with their to develop and test innovation ideas based on
circumstances so they could create better product and those insights?
communication propositions.
At Ipsos, we determined that the research brief had
video interview with Billie Ing, Leora
a specific challenge. We hypothesized that culture
Unsdorfer, and Alex Gilby in which they
would play a large role in cleaning rituals, but that
explain what Ipsos did.
the habitual and automatic nature of housework
would lead to poor participant recall, ruling out
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Introduction
Most of us take it for granted that great companies make great offerings. But how do compa-
nies develop successful offerings? More often than not, companies develop propositions using
research programmes designed to identify customers’ changing needs. They are based on the
knowledge that market research and customer insight can bring. Along with marketing commu-
nications, marketing research is a key sub-discipline of marketing practice and a fundamen-
tal component of the marketing philosophy.
Contemporary marketing research is very much affected by technology. Digitalization has
led to a proliferation of information and data available to marketers. This shift in data availability,
often referred to as big data, is currently transforming the market research industry. Traditional
market research companies, such as Gallup and A.C. Nielsen, are under pressure from large
tech firms (for example IBM and Adobe), as well as fast-growing analytic companies (for example
BrainJuicer and Qualtrics) offering a wide range of tools to track customer behaviours in real time
(ESOMAR, 2015).
We begin this chapter by defining the difference between ‘marketing research’ and ‘market
research’. Whereas market research is conducted to understand markets—customers, com-
petitors, and industries—marketing research also investigates the impact of marketing strate-
gies and tactics. Marketing research thus subsumes market research. ‘Customer insight’ refers
to actionable knowledge about customers gained through research. We then introduce the
different steps that marketers need to go through when conducting research. We also introduce
big data and marketing analytics, which are increasingly being used to generate insights that
lead to strategic marketing decisions. Finally, we consider the challenges of conducting interna-
tional marketing research.
Definitions of Marketing Research and

Customer Insight
Marketing research generates information to provide management with sufficient insight to
make informed decisions. It follows the philosophical marketing premise that organizations must
understand the motivations, desires, and behaviours of their customers and consumers if they
are to survive and thrive. We speak of marketing research, market research, and customer
insight, but these terms are not interchangeable, although they are related. In addition, ‘market-
ing analytics’ is often used to denote the analytical procedures used to analyse information col-
lected from a range of different sources, often referred to as big data. We outline the definitions
of these concepts in Table 3.1.
Market research is work undertaken to determine the structural characteristics of the industry
of concern (for example demand, market share, market volumes, customer characteristics, and
segmentation), whereas marketing research is work undertaken to understand how to make
specific marketing strategy decisions (for example for pricing, sales forecasting, proposition test-
ing, and promotion research). Marketing research is further characterized by being systematic,
meaning that the procedures followed in each step of the research process are methodologically
sound, well documented, and (as far as possible) planned in advance (Malhotra, 2010).
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Table 3.1 Definitions in marketing research
Term Originator Definition
Big data Original, adapted from The systematic gathering and interpretation of
various definitions, e.g. high-volume, high-velocity, and/or high-variety
McAfee and Brynjolfsson information using cost-effective innovative forms of
(2012); Press (2014) information processing to enable enhanced insight,
decision-making, and process automation
Customer insight Said et al. (2015: 1159) ‘Knowledge about the customer that is valuable
for the firm’
Market research European Society for Opinion ‘Market research, which includes social and
and Market Research opinion research, is the systematic gathering and
(ESOMAR, 2016: 5) interpretation of information about individuals or
organisations using the statistical and analytical
methods and techniques of the applied social
sciences to gain insight or support decision making.’
Marketing analytics American Marketing ‘Marketing analytics involves the discovery and
Association (AMA, 2016) communication of meaningful patterns in data
from metrics like traffic, leads, sales, advertising,
promotions, web activity, social media, and any
other relevant marketing activity or financial data.
Marketing analytics can be defined by their use
of mathematical distributions, statistical sources,
or analytical techniques (e.g., regression) for their
construction’
Marketing research American Marketing ‘Marketing research is the function that links the
Association (AMA, 2015) consumer, customer, and public to the marketer
through information—information used to identify
and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions;
monitor marketing performance; and improve
understanding of marketing as a process.
Marketing research specifies the information
required to address these issues, designs the
method for collecting information, manages and
implements the data collection process, analyses
the results, and communicates the findings and
their implications.’
In contrast, customer insights are generated based on the knowledge gained by differ-
ent research activities. Information requires transformation to generate insight. Customer
insights are thus distinct from customer information because they encompass a deeper
understanding of what drives customers’ behaviours. Marketing analytics refers to the
mathematical and statistical analytical procedures used to distil insights out of high-volume,
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high-velocity, and/or high-variety information, typically denoted as big data. We will dis-
cuss this further in the section on big data, but before that we will look at different steps in
the insight-generation and market-research processes, respectively. According to the 2018
Chief Marketing Officer (CMO) survey, marketers are looking to increase the share of mar-
keting budgets spent on marketing analytics from around 6 per cent in 2017 to 17 per cent
in 2020 (Moorman, 2018).
Visit the online resources and follow the web links to the Market Research Society (MRS) and
the European Society for Opinion and Market Research (ESOMAR) to learn more about these
professional marketing research associations.
The Customer Insight Process

Understanding customers is at the core of the marketing concept and the basic idea is
that timely, continuous marketing information should be used to support decision-making.
Research is thus a foundational element of marketing practice, but some companies and
sectors value it more than others. In the 2018 CMO survey, 42 per cent of the surveyed
CMOs used marketing analytics in their decision-making and the proportion was higher
in business-to-consumer (B2C) companies than in business-to-business (B2B) companies
(Moorman, 2018).
Customer insight is typically derived by fusing knowledge generated from a range of sources,
including industry reports, sales force data, competitive intelligence, customer relation-
ship management (CRM) systems data, employee feedback, social media analysis data, and
managerial intuition. (See also ‘Big Data and Marketing Analytics’ later in chapter.) Barwise and
Meehan (2011) distinguish between the high-tech and low-tech sources that can be used to
generate insights. High-tech sources include quantitative marketing research, customer data-
base analysis, and big data, while low-tech sources include qualitative market research, but also
casual observations, mystery shoppers, and employee feedback. Typically, both high- and low-
tech sources are used to generate insights.
Visit the online resources and follow the web links to learn more about how Procter & Gamble
combines high- and low-tech sources in its market research.
A customer insight can be said to be of value if it is rare, difficult to imitate, and of potential use
to formulate management decisions (Said et al., 2015). Cowan (2008) suggests that if organiza-
tions are to genuinely make use of insights, chief executive officers (CEOs) and CMOs, research-
ers, and insight managers need to do the following:
■ Chief executive officers and CMOs should recognize the importance of supporting the in-
sight process, ask ‘helicopter’ (that is, wide-scoping) questions, not try to guess the an-
swers to strategic problems, demand evidence-based answers, and provide the necessary
resources.
■ Researchers should view themselves as problem-solvers, not reporters, and should focus
on trying to gain a causal understanding, not on describing attitudes, and on changing the
marketing situation.
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■ Insight managers should challenge strategic assumptions that the organization is making,
challenge the ‘obvious’ solution since it is often wrong, analyse and combine all existing rel-
evant data, and devote greater resources to extracting insight.
The information obtained through marketing research, competitive intelligence, and internal
sources is typically integrated into a marketing information system (MIS). Such systems provide
a formalized set of procedures for generating, analysing, sorting, and distributing information to
decision-makers on an ongoing basis (Malhotra, 2010).
The kind of information marketers need includes:
■ aggregated marketing information in quarterly annual summaries;
■ aggregated marketing information around offerings or markets (for example sales data);
■ analytical information for decision models (for example SWOT, segmentation analyses);
■ internally focused marketing information (for example sales, costs, marketing performance
indicators);
■ externally focused marketing information (for example macro and industry trends);
■ historical information (for example sales, profitability, market trends);
■ future-oriented marketing information (for example horizon scanning information);
■ quantitative marketing information (for example costs, profit, market share, customer satis-
faction, net promoter score); and
■ qualitative marketing information (for example buyer behaviour, competitor strategy informa-
tion) (Ashill and Jobber, 2001).
This information could be provided on a continuous and/or ad hoc basis. Continuous indus-
try trend information is gleaned from industry reports and secondary data sources, whereas
ad hoc research typically involves some kind of primary data collection (that is, data
that is collected specifically for that purpose). The main difficulty for the marketing man-
ager is to obtain and customize the MIS to fit the company’s specific need, and to ensure
that the data are input on a timely and continuous basis. (For an illustration, see Market
Insight 3.1.)
Recently, companies have been starting to invest in specific insight teams to ensure that they
have the innovative organizational capabilities that help to build customer insights. According
to Van Den Driest, Sthanunathan, and Weed (2016), an independent insights and analytics
function should be set up to participate fully in business planning and strategy (see Research
Insight 3.1). Such an insights function should be responsible for synthesizing data from different
sources within and outside the organization. The team should be in charge of integrating, inter-
preting, and disseminating the large sets of both structured and unstructured data (for exam-
ple product sales figures, advertising spending, customer service records, and social media
monitoring) that are typically owned by different teams within the organization. The insights
team should work independently from different functions (such as marketing) and support the
top management team directly. Whereas a traditional marketing research function would pro-
vide insights based on research needs, the insight team will take on a role that emphasizes
shared goals and partnership. It should be forward-looking with an affinity for action, meaning
that the insight team will be proactive and help to drive implementation and action within the
organization.
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Market Insight 3.1

Using Marketing Metrics in a State Monopoly
Systembolaget was the world’s first alcohol monopoly Systembolaget also measures the work satisfaction and
and remains the only retailer of alcohol in Sweden. In motivation of its employees. Since the service staff are an
the past decade, it has become a leader in customer important driver of customer satisfaction, the staff receive
satisfaction in the retail industry. training to be able to answer questions related to all
products for sale. They are also trained to communicate
The Swedish government has given Systembolaget the in a responsible manner with regard to the products.
task of selling alcohol in a responsible manner, thereby
contributing to reducing the harmful effects of alcohol To track public support, Systembolaget measures support
in society. In other words, and in contrast with most for the existence of a monopoly among the general public.
privately owned companies, the goal is not to make a This tracking includes both customers and non-customers
profit or to sell as much as possible, but rather to reduce of Systembolaget. The tracking shows a high level of
the harmful effects of the products it sells. In addition, to support from the general public: four out of five say
be able to keep the monopoly, Systembolaget needs to they would vote to keep the monopoly, if there were a
ensure that the general public supports the monopoly. referendum today. The level of customer satisfaction also
contributes to this support. As long as customers are
Marketing research is an important tool for ensuring that satisfied, they will support the existence of the monopoly.
Systembolaget stays true to its task.
Systembolaget cannot use sales to evaluate the
Systembolaget continuously measures customer appropriateness of its strategy. Therefore the insights
satisfaction across all of its more than 400 stores. These gained from customer, employee, and the general public
studies allow the company to see what kind of shops surveys are very important. In fact, guided by market
provide customers with most satisfaction. It can also research, some major changes have taken place over
identify the key drivers of satisfaction, which it turns out the past decade, such as the change of all stores from
are the service staff and social responsibility (that is, over-the-counter to self-service and the introduction of
reducing the harmful effects of alcohol). home deliveries.
Marketing research generates information to provide allows decision-makers to compare key metrics over
management with sufficient insight to make informed time, as well as before and after certain changes. For
decisions. This information can be used to devise new Systembolaget, continuously measuring customer and
offers, but also to evaluate what is currently being employee satisfaction, as well as public support for the
done. To use marketing research to assess what monopoly, provides direct feedback on how well it is
is being done, continuity is important because this fulfilling the task given to it by the Swedish government.
Related Topics
customer satisfaction; employee satisfaction; customer service; service encounters; retailing
1 What functions of a company should be 3 How can a company keep up to date even if
measured? there is no competition?
2 Data collection can be expensive. Is it This market insight was kindly contributed by Sofie
Sagfossen, PhD candidate at Stockholm School of
necessary to measure customers’, employees’, Economics, Sweden.
and general opinions?
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To take your learning further, you might wish to read this influential article:
Van Den Driest, F., Sthanunathan, S., and Weed, K. (2016). Building an insights engine.
Harvard Business Review, 94(9), 64–74.
In this article, the authors discuss the capabilities that distinguish high-performing, customer-centric
companies. More specifically, they argue that an independent insights and analytics function that participates
in business planning and strategy is a key characteristic of such firms. Using Unilever’s Consumer and
Market Insights (CMI) group as a case study, the authors argue that expertise in synthesizing data, close
collaboration with other functions, and innovative use of new technologies are vital if an insight team is to
succeed. Furthermore, they point out the skill sets needed by team members in terms of a ‘whole brain’
mindset that balances creative and analytical thinking.
Commissioning Market Research

Much market research is not conducted in-house by marketers. When commissioning research,
a client determines whether or not it wants to commission an agency, a consultant, a field and
tabulation (tab) agency, or a data preparation and analysis agency. Typically, a consultant might
do a job that does not require extensive fieldwork; a field and tab agency is used when the orga-
nization can design its own research, but not undertake the data collection; a data preparation
and analysis agency, when the organization can both design and collect the data, but does not
have the expertise to analyse it; and a full-service agency when the organization does not
have the expertise to design the research and collect or analyse the data.
Agencies are shortlisted according to some criteria and asked to make a presentation of their
services. Visits are made to their premises to check the quality of their staff and facilities, and
previous reports are considered to assess the quality of their work. Permission to interview or
obtain references from their clients is usually requested. Each agency is evaluated on its ability
to undertake work of an acceptable quality at an appropriate price. The criteria used to evaluate
an agency’s suitability (after proposal submission) includes:
■ the agency’s reputation;
■ the agency’s perceived expertise;
■ whether the study offers value for money;
■ the time taken to complete the study; and
■ the likelihood that the research design will provide insights into the management problem.
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Shortlisted agencies are given a preliminary outline of the client’s needs in a research brief and
asked to provide proposals on research methodology, timing, and costs. After this, an agency
is selected to undertake the work required. In the long term, clients are most satisfied with flex-
ible agencies that avoid rigid research solutions and demonstrate professional knowledge of
the industry, have an ability to focus on the management problem and to provide solutions, and
consistent service quality (Cater and Zabkar, 2009).
The Marketing Research Brief

The marketing research brief is a formal document prepared by a marketer (client) and submitted
to the marketing research agency. When marketing research is conducted in-house, the man-
ager requiring the research prepares a brief for the market research manager. The brief outlines
a management problem to be investigated (see Market Insight 3.2 for an example). The typical
contents of a research brief include the following:
■ A background summary provides a brief introduction and details about the company and its
offerings.
■ The management problem is a clear statement of why the research is needed and what busi-
ness decisions depend upon its outcome.
■ The marketing research questions comprise a detailed list of the information necessary to
make the decisions outlined.
■ The intended scope of the research outlines the areas to be covered, which industries,
type of customer, etc. The brief should give an indication of when the information is required
and why that date is important (for example pricing research required for a sales forecast
meeting).
■ The client organization should also outline how agencies will be selected—that is, its
tendering procedures. Specific information may be required, such as CVs from agency
personnel involved in the study and reference contact addresses. The number of cop-
ies of the report required, and preferences with regard to layout and format, are also
outlined.
The Marketing Research Process

There are numerous basic stages that guide a marketing research project (see Figure 3.1). The
first, and most crucial, stage involves problem definition and establishing the information needs
of the decision-makers. The client organization explains the basis of the problem(s) it faces to
the market researcher. This might be the need to understand market volumes in a potential new
market or the reason for an unexpected sudden increase in uptake of an offering. Indeed, prob-
lem definition does not always imply that the organization faces a threat. The initial stage allows
the organization to assess its current position, to define its information needs, and to make
informed decisions about its future.
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Market Insight 3.2

Circularity Customer Insight: The Brief
Mika Laurin is the director of Circularity, a start-up Mika invites proposals from four market research
looking to help restaurants to reduce waste and increase agencies and provides them with the following
profits. Circularity offers a digital platform that matches information concerning Circularity research objectives:
unsold food and unreserved tables with consumers
1 Indicate how (a) restaurants and (b) students
looking for deals. The company has recently received
perceive this offering and its expected performance.
venture capital funding from an investor to allow it to
take the next steps in launching the platform nationally. 2 Compare the Circularity prototype with existing
alternative offerings available in each market to
Mika decides that the company should invest some of determine which offerings customers perceive to
these funds in concept testing research to determine be best.
the market potential for the offering, and to help to
determine a launch plan to give the venture capital 3 Determine what decision factors will be at play for
company and other potential investors the confidence (a) restaurants and (b) students when it comes to
to invest further in the full commercialization of the signing up for such a platform.
platform. Mika and her backers expect that the market 4 Evaluate the market potential of different university
for matching platforms will grow very quickly. Her cities and provide an indication of the existing
competitive intelligence indicates that several other competition.
similar projects are being undertaken by rival start-ups
by established actors such as Karma and Book a Table. Mika spends two hours meeting with each of four
She predicts that such actors will take the lion’s share bidding organizations, briefing them on the background
of the mass market. Accordingly, Mika has decided to to the company and outlining why she wants to conduct
focus on students as the target consumers. Now, she the research requested. Of the four companies who
(and her financial backers) would like to know whether each submit a proposal, Mika is most impressed with
the concept is acceptable to restaurants and students the proposal submitted by Insights International. She
in university cities around the country, what the likely decides to meet its research director to discuss the
market potential is for this offering, and what features agency’s proposal.
are important to the two target groups.
A market research brief typically includes a summary of of the information necessary and the intended scope
the company and its offerings, a statement of why the of the research, as well as information about important
research is needed, and what management decisions deadlines and tendering procedures.
the research will inform. It also includes a detailed list
Related Topics
new product development; innovation; marketing environment; B2C/B2B
1 Do you think that this brief has clear research 3 What other types of research might be
objectives? Why, or why not? conducted to tackle the given research
objectives?
2 Does the research brief indicate or imply that
a specific methodology should be used? If so,
which method does it imply?
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Stage 1
Define the problem
Stage 2
Decide the research plan
Stage 3
Undertake the data collection
Stage 4
Undertake the data analysis/interpretation
Stage 5
Write the report and deliver the presentation
Figure 3.1
Marketing research process
Source: Baines and Chansarkar (2002). © John Wiley & Sons. Reproduced with permission.
Stage 1 Problem Definition

The first step in a market research project is defining the management problem and writing the
research brief. Often, the problem is described in vague terms, because organizations are not
always sure what information they require. An example might be Carrefour, the supermarket
chain, explaining that sales are not as strong as expected in its Romanian stores and wondering
whether or not this is a result of the emergence of a competitor supermarket (see Figure 3.2).
The problem description provides the researcher with relatively little depth of understanding
of the situation in which the supermarket finds itself, so the researcher needs to discuss the
problem with the staff commissioning the study to investigate further. This allows the researcher
to translate the management problem into a marketing research question. Typically, this ques-
tion may include a number of sub-questions for further exploration. An example of a marketing
research question, as well as a number of more specific sub-questions, is shown in Figure 3.3.
Management problem
Sales at the new store have not met management
expectations, possibly due to the emergence
of a new competitor
Figure 3.2
Example of a management problem
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MARKETING RESEARCH QUESTION

Why are sales levels not meeting management expectations?
1. Sub-question: Has customer disposable income in the area declined over the
last six months?
2. Sub-question: Is a new competitor, Tesco, taking away customers?
3. Sub-question: Are customers tired/bored of the current product range in the
existing supermarket?
4. Sub-question: Are customers conducting more of their shopping online?
5. Sub-question: Were management expectations set too high and/or market
potential overestimated?
Figure 3.3
Example of a marketing research question
French supermarket chain Carrefour operates globally

Source: © PhotoStock10/Shutterstock.com.
The marketing research question transforms the management problem into a question while
trying to remove any assumptions made by the organization’s management. Sometimes, the
management problem is clear: the organization needs a customer profile, an industry profile,
an understanding of buyer behaviour, or to test advertising concepts for its next campaign. The
more clearly the commissioning organization defines the management problem, the easier it is
to design the research to solve that problem.
Once the agency discusses the brief with the client, the agency provides a detailed out-
line of how it will investigate the problem. This document is called the research proposal.
Table 3.2 briefly outlines a typical marketing research proposal and Market Insight 3.3 provides
an example.
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Table 3.2 Outline of a marketing research proposal
Element Description of content
Executive summary A brief summary of the research project, including the major outcomes and
findings; rarely more than one page in length; allows the reader to obtain a
summary of the main points of the project without having to read the full report.
Background An outline of the problem or situation and the issues surrounding this problem;
demonstrates the researcher’s understanding of the management problem
Objectives An outline of the objectives of the research project, including the data to be
generated and how this will be used to address the management problem
Design A clear, non-technical description of the research type adopted and the specific
techniques to be used to gather the required information; includes details of
data-collection instruments, sampling procedures, and analytical techniques.
Personnel The details of the people involved in the collection and analysis of the data,
specification providing a named liaison person and outlining the company’s credibility in
undertaking the work.
Schedule An outline of the time requirements, with dates for the various stages to
completion and presentation of results.
Costs A detailed analysis of the costs involved in the project for large projects or
simply a total cost for the project.
References Typically, three references are outlined, so that a client can be sure that an
agency has the requisite capability to do the job in hand.
Stage 2 Decide the Research Plan

Once the marketing research question(s) have been decided, it is time to develop a research plan.
At this stage, the framework for conducting the project is developed. In developing this framework,
marketing researchers need to consider what type of research is needed. The market research
need can be specified based on objective (exploratory research, descriptive research,
causal research), as well as source (primary versus secondary data) and methodology (qualita-
tive versus quantitative). The research need will have implications for the design of the research plan.
Type of Marketing Research: Objectives

Generally speaking, we define three types of research objective: exploratory; descriptive; and
causal. These categories specify the type of management problem that the research should solve:
■ Exploratory research is used when little is known about a particular management problem
and it needs to be explored further. Exploratory designs enable the development of hypoth-
eses or new concepts.
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Market Insight 3.3

Circularity Customer Insight: The Proposal
Client’s Information Needs out before the quantitative stage to provide a stronger
understanding of how (a) restaurants and (b) students
The client Circularity, a start-up company, is looking to perceive this new offering and the decision-making
launch a new platform that helps restaurants to reduce processes they go through to use it. This will provide
waste and increase profits by matching unsold dishes a stronger understanding of how the samples should
and available seating with consumers looking for cheap be determined in the quantitative research. Finally,
meals. The offering is to be specialized for students, quantitative research will be used to provide a stronger
and sets out to provide tasty, cheap, and sustainable understanding of the market potential for the offering
meals to people living on a relatively limited budget. and a representative overview of how (a) restaurants
Circularity wishes to commission concept testing and and (b) students rate the prototype and those of its
market potential research to understand whether or not competitors on various dimensions.
it is acceptable to both restaurant owners and student
consumers, how the platform compares with existing Desk Research Phase
systems available in the marketplace, and the market
A desk research phase will involve the systematic search
potential in different university towns around the country.
of market intelligence databases, industry reports,
Research Objectives and census data on the different university towns. The
intention of this research is to pull together a market map
The research will answer the following questions.
of the towns, assessing the potential market on both
1 What is the size of the marketplace for the platform sides of the platform (that is, restaurants and students).
for (a) restaurants and (b) students in key university Therefore the analysis aims to provide answers to the
towns? research questions 1 and 2.
2 What existing competitors (if any) are currently Qualitative Research Phase
serving university towns and what are those
competitors’ relative market shares?
Sampling
3 What criteria (if any) do (a) restaurants and (b) students Given the need to cover both restaurant and student
use to evaluate the perceived value of such platforms? markets, we recommend conducting a series of 15
in-depth interviews across a variety of restaurants
4 How do (a) restaurants and (b) students rate
(identified in the desk research phase) and a total of 10
Circularity’s prototype platform and those of its
discussion groups with students in different university
competitors in relation to the attributes listed in
towns (towns selected based on desk research results).
research question 3? (Attributes are likely to include
The groups will incorporate a mix of gender/gender identity,
assortment, price, service, etc.)
as well as a mix of previous experience of using a similar
5 What is the decision-making process used by (a) platform. The in-depth interviews with potential restaurants
restaurants and (b) students when selecting from will be conducted in person on-site using an interview of
among different platforms? approximately 45 minutes’ duration. The discussion groups
will last between 60 and 90 minutes, and will be held at a
Research Programme Proposed central location within each of the towns listed.
Initially, a three-stage research programme is Data Analysis

recommended, involving desk research, qualitative
research, and quantitative research. We recommend that The qualitative data will be fully transcribed before
desk research is carried out initially, to map the structure analysis. All verbatim quotes obtained from in-depth
of this market offering for the ten largest university interviews and discussion groups for the first set
towns in the country. Qualitative research will be carried of interviews will be reviewed to ensure that our
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Market Insight 3.3

continued
interviewers are questioning correctly before they Data Analysis

proceed further. The analysis will use a thematic
analytic approach based on research questions 3–5. On finalization of the fieldwork, collected data will
be processed and tabulated. Data will be tested for
Quantitative Research Phase statistical significance (at the 95 per cent confidence
level). Cluster analysis will be employed to determine
For this stage, we propose using a computer-
whether or not any segments emerge from either
assisted web-interviewing (CAWI) methodology for
the residential or the industrial samples. Multiple
both the restaurants and students, which will allow us
regressions will be undertaken to determine the key
to use complex question routing and skip patterns, and
drivers of both the residential and industrial customers’
to undertake more efficient sample management. We
perceptions of the prototype offering. An Insights
aim to interview approximately 200 restaurants using a
International executive will talk through the results
judgemental sampling method, identifying appropriate
and answer any questions. Topline survey results are
companies and respondents in conjunction with
checked regularly and a response analysis is produced.
Circularity. For the student customer research, we would
This regular check allows us to identify errors as quickly
aim to purchase six questions on a standard omnibus
as possible. The analysis aims to answer research
survey through a subcontracted research agency.
questions 1, 3, and 4.
Sampling Reporting
In the restaurant survey, respondents will be screened We will work in partnership with Circularity to ensure
to ensure that they are the appropriate person. To that the results from the research are actionable. The
determine the correct number of interviews to conduct report will be produced in PowerPoint and structured in
in a given research study, we need to consider several line with the research objectives to include all aspects
factors, including the overall objective, requirements of the methodology and sampling. The report will be
for subset analysis, and, in this case, the overall size of designed to include charts and tables to best depict
the target universe. We recommend using an overall the main findings, together with clear and concise
sample size of 200 interviews. Using standard industrial commentary. In addition to digital copies, two hard
classification (SIC) codes and company size, we will copies of the report, with accompanying tables, will be
draw the sample proportionally to Circularity’s key delivered to Circularity.
intended target markets using a judgemental sampling
methodology. To facilitate the selection of the sample, Costing and Schedule
we will purchase lists of client companies from Dun &
Bradstreet and/or other reputable list providers. Desk research £5,000
Qualitative in-depth interviews £8,000
In the student survey, we will use a subcontracted Discussion group interviews £20,000
omnibus survey provider specializing in youth/student CAWI set-up, sample incentives,
panels. Respondents will be screened to ensure that and project management £8,000
they are in the target audience. The subcontracted Omnibus survey £4,000
agency typically uses a sample size of c.1,000 Quantitative data analysis £5,000
respondents and aims to ensure that the sample is Qualitative analysis, data interpretation
representative of the population by questioning panels and reporting £9,000
constructed using a combination of gender/gender Total £59,000
identity, location, and ethnicity. The survey uses a
We suggest that the study is undertaken in the period
random sampling methodology and weighting to
from November 2019 until the end of May 2020.
ensure a representative sample within this target group.
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Market Insight 3.3

continued
After receiving a brief, the research company (or problem very precisely. Having specified the objectives
in-house research team) transforms the management of the research, the company then moves on to
problem into a research question, while trying to plan how it will get the information needed. The plan
remove any assumptions made by the organization’s provides a detailed outline of how it will approach the
management. Sometimes, this requires a lot of thought research problem, which is typically referred to as a
because management might have formulated the research proposal.
Related Topics
new product development; innovation; marketing environment; B2C/B2B
1 How does the proposal compare with the brief 3 Do you think the research objectives are
in Market Insight 3.2? feasible, given the budget requirements? Why,
or why not?
2 Do you think that a face-to-face survey might be
a more appropriate way of reaching restaurants?
What other approaches might you select?
■ Descriptive research focuses on accurately describing the variables being considered, such
as market characteristics or spending patterns, in key customer groups. Examples of de-
scriptive research are consumer profile studies, usage studies, price surveys, attitude sur-
veys, sales analyses, and media research.
■ Causal research is used to determine whether one variable causes an effect in another vari-
able. To determine causality, experimental or longitudinal studies are needed. Experiments
are characterized by the marketing researchers manipulating a specific variable (cause)
thought to influence important outcomes (effect), thereby allowing them to carefully test
causation. By contrast, longitudinal studies track the effect of a certain variable (cause) over
time. Examples of causal research are studies of customer satisfaction and advertising ef-
fectiveness, which typically set out to understand what factors of an offer or an ad impacts
on consumer evaluations.
Type of Marketing Research: Source

When conducting research we can either use what is already known or devise research that cre-
ates new knowledge. Primary research is research conducted for the first time, involving the
collection of data for the purpose of a particular project. Secondary data is second-hand data,
collected for someone else’s purposes. Desk research (also known as secondary research)
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involves gaining access to the results of previous research projects. This method can be a
cheaper and more efficient process of data collection.
We can do a large amount of secondary research for free by visiting a business library or
searching the Internet. Other sources of secondary data include:
■ government sources, including export databases, government statistical offices, social trend
databases, and other resources;
■ the Internet, including sources identified using search engines, blogs and microblogs, and
discussion groups;
■ company internal records, including information housed in a marketing information or CRM
system (see Chapter 14) or published reports (where no formal marketing information system
exists, we would identify sales reports, marketing plans, and research reports commissioned
previously);
■ professional bodies and trade associations, which frequently have databases available online
for research purposes, and which may include industry magazine articles and research re-
ports; and
■ market research companies, for example Mintel, Euromonitor, ICC Keynote, and Google,
which frequently undertake research into industry sectors or specific product groups and can
be highly specialized.
We would usually undertake secondary research initially to see whether someone has under-
taken similar research previously. For example, if an entertainment company had recently bought
a new cinema property and wanted to know who lived in the local area, it could consult second-
ary data sources to ascertain the characteristics of people living in the area (for example gender,
age, population size). However, if it were to want to know what film genres customers prefer, it
might survey a sample of the population.
Visit the online resources and follow the web links to learn more about these market research
organizations.
In practice, most research projects involve both secondary and primary research, with desk
research occurring initially to ensure that the company doesn’t waste money. Primary research
is undertaken to cover the gaps in the company’s knowledge once all available secondary data
has been evaluated. Once this initial insight is gleaned, we determine whether or not to commis-
sion a primary data study. Assuming that primary research needs to be undertaken, research-
ers usually design their research by considering what type of research to employ. Marketing
directors should understand what types of study can be conducted because this impacts on
the type of information collected and hence the data they receive to help them to solve their
management problem.
Type of Marketing Research: Methodology

At the outset of a research project, we might consider whether to use qualitative research
or quantitative research, or a combination of the two. Qualitative research denotes research
methodologies relying on small samples, using open and probing questions that set out to
uncover underlying motives and feelings. The data gathered is then interpreted focusing on
meanings and is usually quite hard to replicate. Typically, qualitative research is intended to
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provide insights and understanding of the problem setting, and thus it is frequently used in
exploratory market research. The main methods for collecting qualitative data are individual
interviews, focus groups, and observations.
Quantitative research methods are used to elicit responses to predetermined standard-
ized questions from many respondents. This involves collecting information, quantifying
the responses as frequencies or percentages, and analysing them statistically. Quantitative
research is thus commonly used in descriptive and causal marketing research, and replication
is a highly desirable property of the outcome of such research. Thus quantitative data collec-
tion methods are much more structured than qualitative data collection methods. Common
methods include different types of survey (online, offline), face-to-face or telephone interview,
and longitudinal study.
Table 3.3 summarizes the key differences between qualitative and quantitative research meth-
ods. Although qualitative research methods are typically characterized as being exploratory and
quantitative methods as being descriptive or causal, methods are not intrinsically associated
with one kind of research purpose or another. The key concern is not which methods are used
to generate data, but how they are used and for what purpose. There are also several ways
of combining qualitative and quantitative research. What’s more, many methods can be used
qualitatively or quantitatively depending on purpose. For example, open and participative obser-
vations (for example ethnography) are typically used in qualitative research, whereas structured
observations (for example mystery shopping) are used in quantitative research. Another example
is content or sentiment analysis, which often starts out by qualitatively assessing different exem-
plars (for example ads, or comments on social media) and then gradually builds a vast amount
of such observations, which are analysed quantitatively. For example, user-generated content
(UGC) in social media can be mined for meaning to better understand consumer quality percep-
tions for different brands without having to ask questions (Tirunillai and Tellis, 2014).
Table 3.3 Qualitative and quantitative research methods compared
Characteristic Qualitative Quantitative
Purpose Oriented towards discovery and Oriented towards cause and effect
exploration
Procedure Emerging design; merges data Predetermined design; separates data

collection and analysis collection and analysis
Emphasis Meaning and interpretation What can be measured
Role of researcher Involved; used as a ‘research Detached; uses standardized research

instrument’ instruments
Unit of analysis A holistic system Specific variables
Size of sample Involves a small number of Involves a large number of

respondents, typically <30 respondents, >30
Sampling approach Uses purposively selected samples Uses probability sampling techniques
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The client (or in-house research client) may also have specific budget constraints or know which
particular approach it intends to adopt. However, the choice primarily depends on the circumstances
of the research project and its objectives. If much is known about the management problem based
on past research or experience, it may be appropriate to use quantitative research to understand the
problem further. If there is little pre-understanding of the management problem, it would be better to
explore the problem using qualitative research to gather insights. Globally, 73 per cent of marketing
research investment is spent on quantitative research (ESOMAR, 2015). Industry surveys also indi-
cate that marketers increasingly combine both qualitative and quantitative methods, but that quan-
titative approaches tend to be used in 59 per cent of research projects and qualitative approaches
in 35 per cent, with the remaining 6 per cent belonging to other forms of research (Murphy, 2018).
Designing the Research Project

Once we know what type of research to conduct, we should consider:
■ who to question and how (the sampling plan and procedures to be used);
■ what methods to use (for example discussion groups or an experiment);
■ which types of question are required (whether open questions for qualitative research or
closed questions for a survey); and
■ how the data should be analysed and interpreted (what approach to data analysis should be
undertaken).
Research methods describe the techniques and procedures that will be used to obtain the neces-
sary information. We could use a survey or a series of in-depth interviews. We might use observation
(that is, mystery shopping) to see how consumers purchase goods online or how employees greet
consumers when they enter a particular shop. We could use consumer panels in which respondents
record their weekly purchases or their television viewing habits over a specified time period. Nielsen
Homescan is a service whereby consumers use specially developed barcode readers to record
their supermarket purchases in return for points, which are redeemed for household goods. Table
3.4 summarizes the most commonly used qualitative and quantitative methods used by marketers
in 2015. As can be seen, companies increasingly use online methods (see Research Insight 3.2).
Table 3.4 Top five qualitative and quantitative data collection methods, 2017
Rank Qualitative Quantitative
1 Focus groups (in person) Online surveys
2 In-depth interviews (in person) Mobile surveys
3 In-depth interview (telephone) Face-to-face surveys
4 Discussions using online communities Computer-assisted telephone interviews (CATI)
5 Mobile (diaries, image collection, etc . . . ) Computer-assisted personal interviews (CAPI)
Source: Murphy (2018).

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Steward, D.W., and Shamdasani, P. (2017). Online focus groups. Journal of

Advertising, 46(1), 48–60.
Focus groups are the most common qualitative data collection method in marketing research practice.
Typically, focus groups are conducted in person, but the authors of this article discuss different types of online
focus group (asynchronous, synchronous, and virtual worlds) and their pros and cons. The authors conclude
that online focus-group research and face-to-face focus-group research are complementary.
Figure 3.4 indicates the key considerations when designing qualitative and quantitative
research projects. The design of marketing research projects involves determining how each of
the following components interrelates with the others:
■ research objectives;
■ sampling method;
■ the interviewing method to be used;
■ research type and methods undertaken;
■ question and questionnaire design; and
■ data analysis.
Data Sampling
analysis methods
Research Interviewing
objectives methods
Question(naire) Research type

design and methods
Figure 3.4
The major components of research design
Source: Baines and Chansarkar (2002). © John Wiley & Sons Limited. Reproduced with permission.
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When designing research projects, we must first determine the type of approach to use for a
given management problem (for example exploratory, descriptive, or causal). Then we determine
which techniques are most capable of producing the desired data at the least cost and in the
minimum time period.
To determine whether or not we’ve got the ‘right’ data, we must determine its validity (do the
data correctly describe the phenomenon they measure?) and reliability (would the data be rep-
licated in a future repeat study of the same type?). Generally, certain types of research use certain
methods or techniques. For instance, exploratory research studies use qualitative research meth-
ods, non-probability sampling methods, and non-statistical data analysis methods. Descriptive
research projects often adopt survey interviews using quota or random sampling methods, and
statistical analysis techniques. Causal researchers employ experimental research designs using
convenience or probability sampling methods and statistical data analysis procedures.
Stage 3 Data Collection and Sampling

This stage involves the conduct of fieldwork and the collection of data. At this stage, we send out
questionnaires, or run online focus group sessions, or conduct a netnographic study, depend-
ing on the decisions taken in the first design stage of the fieldwork. The procedures undertaken
when conducting the fieldwork might relate to how to ask the questions of the respondents—
whether using the telephone, mail, or in person—and how to select an appropriate sample, as
well as how to pre-code the answers to a questionnaire (quantitative research) or how to code
the answers arising out of open-ended questions (particularly with qualitative research).
The research manager might be concerned about whether or not to conduct the research in-
house or to commission a field and tab agency. Other issues concern how to ensure high data
quality. When market research companies undertake shopping mall intercept interviews, they
usually re-contact a proportion of the respondents to check their answers to ensure that the
interviews have been conducted properly.
In qualitative research, samples are often selected on a convenience or judgemental basis.
In quantitative research, we might use either probability or non-probability methods, including:
■ simple random sampling, where the population elements are accorded a number and a
sample is selected by generating random numbers that correspond to the individual popula-
tion elements;
■ systematic random sampling, where population elements are known and the first sample unit
is selected using random number generation, but after that each of the succeeding sample
units is selected systematically on the basis of an nth number, where n is determined by divid-
ing the population size by the sample size; and
■ stratified random sampling, where a specific characteristic(s) is used (for example gender,
age) to design homogeneous subgroups from which a representative sample is drawn.
Non-random methods include:
■ quota sampling, where criteria such as gender, ethnicity, or some other customer character-
istic are used to restrict the sample, but the selection of the sample unit is left to the judge-
ment of the researcher;
■ convenience sampling, where no such restrictions are placed on the selection of the respon-
dents and anybody can be selected; and
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■ snowball sampling, where respondents are selected from rare populations (for example high-
performance car buyers), perhaps initially from among responses to newspaper adverts and
then later using referrals from the initial respondents, thereby ‘snowballing’ the sample.
With the growth of online market research, the reliance on Internet panels has become increas-
ingly common. Two types of panel are used in online research (Miles, 2004). Access panels,
which provide samples for survey-style information, are made up of targets especially invited by
email to take part, with a link to a web survey. Proprietary panels, set up or commissioned by a
client firm, are usually made up of that company’s customers. To encourage survey participation,
the researchers use incentives (for example a prize draw). However, there are pros and cons
associated with undertaking online research (see Table 3.5).
Visit the online resources and complete Internet Activity 3.1 to learn more about the Market
Research Portal, a useful source of online research resources.
Stage 4 Data Analysis and Interpretation

This stage comprises data input, analysis, and interpretation. At this stage, it is important to be
aware of and to counter different biases that might affect the conclusions drawn (see Market
Insight 3.4). How the data are input depends on the type of data collected. Qualitative data—
usually alphanumeric (that is, words and numbers)—is often entered into computer software
applications (for example NVivo) as word-processed documents, or as video or sound files, for
content analysis. Quantitative data analysis uses statistical analysis packages (for example IBM
SPSS). In these cases, data are numeric and entered into spreadsheet packages (for example
Microsoft Excel) or directly into the statistical computer application. Online questionnaires are
Table 3.5 Advantages and disadvantages of online research
Pros of online research Cons of online research
1 Clients and analysts can see results compiled 1 Demographic profile of online panels can differ
in real time from that of the general population
2 Online surveys save time and money compared 2 If questionnaires take longer than 20 minutes
with face-to-face interviews to fill in, quality can suffer and they may be
3 Consumers welcome surveys that they can uncompleted
fill in when they want to and often need no 3 Poor recruitment and badly managed panels
incentive to do so can damage the data
4 A more relaxed environment leads to better 4 Technical problems, such as browser
quality, honest, and reasoned responses incompatibility, can mean that panellists fail to
5 Panellist background data allows immediate complete the survey
access to key target audiences unrestricted by 5 Programming costs are higher than for offline
geography questionnaires
6 Programming facilitates question order; 6 Survey questionnaires can sometimes be
allowing skipping and randomization of perceived as junk mail
questions more easily
Sources: Miles (2004: 40); Evans and Mathur (2005).

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useful because the data are automatically entered into a database, saving time and ensur-
ing a higher level of data quality. If computer-assisted personal interviewing (CAPI) or
computer-assisted telephone interviewing (CATI) methods are used, analysis can occur
Market Insight 3.4

Research Biases: Don’t Kid Yourself
Marketing research should be a way of gaining new Another common pitfall is the ‘sunk-cost’ fallacy. The
insights into important business decisions. Sometimes, sunk-cost fallacy is a tendency to continue to invest
however, marketers tend to miss out on this opportunity. money in a project because of decisions made in the
The reason usually has to do with faults made in setting past, even if its future prospects are not as promising
up the research design, including sampling errors or as initially thought. The idea is that you’ve already spent
problems with leading questions—but missing out on money on a project and that this money spent should
insights can also be a consequence of cognitive biases not be wasted by disinvesting in the project. This fallacy
leading the researcher or decision-maker astray. can also lead people to dismiss or ignore new insights
from marketing research if they happen to go against
Consider, for example, confirmation bias. Confirmation or undermine a decision that has already been made.
bias is a tendency to interpret information in light of Once the decision has been made and a product has
previous assumptions rather than to let the data speak been launched, research that highlights problems with
for itself. It has its roots in the fact that people tend the offering might be challenged or dismissed.
to deliberately search for confirming evidence that
corresponds with their own preconceptions, even To get the most out of marketing research, it is
when the data says the opposite. When interviewing important to be aware of, and actively work against,
consumers about a new offering, a researcher might cognitive biases, such as confirmation bias and the
interpret their comments in a positive light, because this sunk-cost fallacy. Without objective and accurate
kind of interpretation fits better with the researcher’s own analyses, any investments in marketing research may
positive view of the offering. Likewise, a manager might be wasted.
believe that a newly developed offering has a large market
potential despite the research showing the opposite. Sources: Kahneman (2011); DeMers (2015).
When setting up a research project, great care is taken process and ensuring that that each of these steps
to ensure that the results are unbiased. This is why it is methodologically sound, well documented, and
is important to be systematic. By clearly specifying the planned in advance, the risk of confirmation bias and
procedures to be followed in each step of the research sunk-cost fallacy can be reduced.
Related Topics
consumer buying behaviour; information processing, strategic decision-making
1 Come up with three specific recommendations 3 What other cognitive biases do you know of?
on how confirmation bias can be avoided.
2 Come up with three specific recommendations

on how sunk-cost fallacy can be avoided.
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instantaneously as the interviews are undertaken. Computer-assisted web interviewing (CAWI)

techniques allow the researcher to read the questions from a computer screen and to directly
enter the responses of the respondents. These techniques are also commonly applied using the
Internet, allowing the playback of video and audio files.
Because market research methods are aids to managerial decision-making, the information
obtained needs to be valid and reliable, because company resources will be deployed on the
basis of that information. Validity and reliability are important concepts in quantitative market
research. They help researchers to understand the extent to which the data obtained from the
study represent reality, or ‘truth’. Quantitative research methods rely on the degree to which
the data elicited might be reproduced in a later study (that is, reliability) and the extent to which
the data generated are free from bias (that is, valid). Validity can be defined as ‘a criterion for
evaluating measurement scales; it represents the extent to which a scale is a true reflection of
the underlying variable or construct it is attempting to measure’ (Parasuraman, 1991: 441).
One way of measuring validity is simply the researcher exercising their subjective judgement to
ascertain whether or not an instrument is measuring what it is supposed to measure (content
validity). For example, a question asked about job satisfaction does not necessarily infer loyalty
to the organization.
Reliability can be defined as ‘a criterion for evaluating measurement scales; it represents how
consistent or stable the ratings generated by a scale are’ (Parasuraman, 1991: 443). Reliability
is affected by concepts of time, analytical bias, and questioning error. We can also distinguish
between two types of reliability: internal and external reliability (Bryman, 1989). To determine
how reliable the data are, we conduct a study again over two or more time periods to evaluate
the consistency of the data. This is known as the test–retest method and it measures external
reliability. Another method used involves dividing the responses into two random sets and test-
ing both sets independently using t-tests or z-tests. This would illustrate internal reliability.
The two different sets of results are then correlated. This method is known as split-half reliability
testing. These methods are more suited to testing the reliability of rating scales than that of data
generated from qualitative research procedures.
The results of a quantitative marketing research project are reliable if we conduct a similar
research project within a short time period and the same or similar results are obtained in
the second study. For example, if the marketing department of a travel agency chain were
to interview 500 of its customers and discover that 25 per cent were in favour of a particular
resort (for example a particular Greek island), and then to repeat the study the following year
and discover that only 10 per cent of the sample were interested in the same resort, the
results of the first study could be said to be unreliable in comparison and the procurement
department should not base its purchase of package holidays purely on the previous year’s
finding.
In qualitative research, concepts of validity and reliability are generally less important,
because the data are not used to imply representativeness; rather, qualitative data are more
about the generation of ideas and the formulation of hypotheses. Validity can be assured
by sending out transcripts to respondents and/or clients for checking, to ensure that what
they have said in in-depth interviews or focus groups was properly reproduced for analysis.
When the analyst reads the data from a critical perspective to determine whether or not this
fits with their expectations, this constitutes what is termed a face validity test. Reliability is
often achieved by checking that similar statements are made by the range of respondents,
across and within the interview transcripts. Interviewees’ transcripts are checked to assess
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whether or not the same respondent, or other respondents, have made the discussion point.
Such detailed content analysis tends to be conducted using computer applications (for exam-
ple NVivo).
Stage 5 Report Preparation and Presentation

The final stage of a research project involves reporting the results and the presentation of the
findings of the study to the external or in-house client. The results should be presented free from
bias. Marketing research data are of little use unless translated into a format that is meaningful
to the manager or client who initially demanded the data. Senior people within the commis-
sioning organization who may or may not have been involved in commissioning the work often
attend presentations. Usually, agencies and consultants prepare their reports using a basic
pro-forma template.
Market and Advertisement Testing

Marketing research reveals attitudes to a campaign, brand, or some other aspect of the
exchange process, whereas market testing, by comparison, measures actual behaviour.
There is a difference, because attitudes do not always determine action (see Chapter 2). For
example, a consumer may respond very positively to the launch of a new television set in sur-
veys, but family circumstances or lack of funds may mean that they never purchase it. Market
testing studies use test markets to carry out controlled experiments in specific country
regions, showing specific adverts, before exposing the ‘new feature’ (offering, campaign, dis-
tribution, etc.) to a full national, or even international, launch. Another region or the rest of the
market may act as the control group against which results can be measured. For example,
films are often test-screened before release because of the substantial costs of producing the
film in the first place.
Marketing research is used to test advertisements (see Market Insight 3.5), whether these
are in print, online, or broadcast via radio or television. Research company Kantar Millward
Brown International is renowned for this type of research. A variety of methods can be used to
test adverts. Typically, quantitative research is undertaken to test customer attitudes before and
after exposure to see whether or not the advert has had a positive impact. In addition, research
occurring after exposure to the ad tests the extent to which audiences can recognize a particular
advert (for example by showing customers a still taken from a television advert, a print advert,
or a photo online) or recall an advert without being shown a picture (that is, unaided recall).
Qualitative research identifies and tests specific themes that might be used in the adverts, and
may also test storyboards and cuts of adverts (before they are properly produced). More
recently, advances in technology allow us to evaluate visual imagery more objectively, with-
out relying on respondents’ opinions. For example, technology company 3M offers a ‘Visual
Attention Service’ (3M VAS), which allows users to test communications material to see if spe-
cific sections of the communication will be noticed and in what order, using algorithms based
on sophisticated eye-tracking technology. Another approach to proposition and marketing com-
munication testing uses facial coding analysis.
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Market Insight 3.5

Why Ask?
Over time, many methods have been developed to test (for example how long it takes to pair brands with
ads, ranging from self-reported assessment of recall, positive and negative words);
liking, and purchase intent, to sophisticated statistical
■ eye-tracking—to measure participants’ attention
approaches, referred to as market mix modelling,
when viewing ads (for example which information, in
to evaluate ex post advertising effects. One research
what order, for how long);
company that has been specializing in this area for
around 40 years is Kantar Millward Brown, which boasts ■ biometrics—to measure the physiological or
the industry’s largest advertising database to provide automatic responses to an external stimulus (for
contextual comparisons for advertising performance. example heart rate, breathing, skin conductance);
The past decade has experienced an explosion of ■ EEG—to measure variations in electrical signals
research in neuroscience and the use of multiple of cortical brain regions when viewing ads and
neurophysiological methods to study advertising. This brands; and
growth is the result of a combination of technological ■ fMRI—to directly measure exogenous attention
advances making functional magnetic resonance and endogenous attention based on tracking
imaging (fMRI), electroencephalography (EEG), localized changes in blood oxygenation during
eye-tracking, and other neurophysiological tools cognitive tasks.
more accessible and less costly. Hollywood studios
have long been using neuromarketing techniques via The findings show that traditional self-reported
companies such as Sands Research to test trailers to advertising measures explain the most variance
help to market their films. in advertising elasticities. Thus they support more
than 50 years of advertising research demonstrating
A recent study by a group of American researchers that asking questions regarding measures such
developed an experimental protocol to compare how as purchase intent are indeed good predictors of
well six commonly used methods predict real-world advertising success. But the findings also show
advertising success in terms of advertising elasticity. that fMRI measures can help to explain advertising
The methods used were as follows: elasticities beyond these baseline traditional measures.
■ traditional self-reports—to capture conscious For practitioners, this research proves that current
reactions, typically by asking direct questions methods are reliable, but that measuring biological
related to the ad and brand (for example ad liking, reactions, rather than relying on asking questions, can
brand attitude, purchase intention); give some additional insights.
■ implicit measures—to capture the unconscious Sources: Randall (2011); Stipp (2015); Venkatraman et al. (2015).
reaction, typically by using response latencies
Traditional market research focuses on asking questions. to questions, but rather on their actual biological
There is often, however, a discrepancy between what reactions. Traditional advertising measures based on
consumers say and what they do. This, in turn, has led asking questions about consumer reactions to ads are
the marketing research industry to adapt new innovative often valid, but you can learn even more about what
methodologies that do not rely on consumers’ answers advertising works by adding techniques such as fMRI.
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Market Insight 3.5

continued
Related Topics
advertising effectiveness; marketing communications; consumer reactions; neuromarketing
1 How are implicit measures, eye-tracking, research on proposition and marketing

biometrics, EEG, and fMRI different from communication testing?
traditional advertising tracking methods?
3 Can you think of other circumstances in which
2 Why could it be important to collect implicit measures, eye-tracking, biometrics, EEG,
participants’ unconscious responses in and fMRI analysis would be useful for marketers?
Big Data and Marketing Analytics

Big data is the systematic gathering and interpretation of high-volume, high-velocity, and/or
high-variety information using cost-effective innovative forms of information processing to enable
enhanced insight, decision-making, and process automation. It thus refers to a more comprehen-
sive set of data than that traditionally used to provide marketing information and customer insights.
The notion of ‘big’ refers primarily to the volume, velocity, and variety of data used (McAfee
and Brynjolfsson, 2012; Wedel and Kannan, 2016). ‘Volume’ denotes the sheer amount of infor-
mation used. ‘Velocity’ refers to the fact that data is recorded in real time. For example, using
location data from smartphones, Google is able to offer up-to-date information about travelling
times adjusted for traffic. ‘Variety’ denotes that big data analytics combines data from several
different sources. For example, combining customer databases with social media and mobile
data can give a more comprehensive understanding of shopper behaviours than that which was
possible before.
With increasing digitization of the everyday life of business and consumers, the availability of
data is growing rapidly (see Research Insight 3.3). The different sources employed in big data
analysis can be divided into five categories: public data; private data; data exhaust; community
data; and self-quantification data (George, Haas, and Pentland, 2014):
■ Public data refers to the information held by governments or local communities (for example
with regard to incomes, transportation, or energy use) that is accessed under certain restric-
tions to guard individual privacy.
■ Private data refers to the data held by private organizations or individuals and which cannot
readily be imputed from public sources. Examples are customer database information or
browsing behaviours online.
■ Data exhaust refers to data that is passively collected—that is, non-core data with limited
or zero value to the original data-collection partner. When individuals adopt and use new
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technologies (for example smartphones), they generate ambient data as by-products of

their everyday activities. These data can be recombined with other data sources to create
new insights. Another source of data exhaust is information-seeking behaviour, such as
online searches and call centre calls, which can be used to infer people’s needs, desires,
or intentions.
■ Community data refers to distilled unstructured data, for example consumer reviews on prod-
ucts or liking in social media, which is combined into dynamic networks that capture social
trends.
■ Self-quantification data is revealed when individuals use technology to quantify their personal
actions and behaviours, for example through wristbands that monitor exercise and movement.
Wedel, M., and Kannan, P.K. (2016). Marketing analytics for data-rich environments.
This article introduces a theoretical framework for when and how big data can lead to sustainable competitive
advantage. More specifically, it discusses how three resources—physical, human, and organizational capital—
moderate the processes of (a) collecting and storing evidence of consumer activity as big data, (2) extracting
consumer insight from big data, and (c) utilizing consumer insight to enhance dynamic or adaptive capabilities.
How many steps you’ve done might mean as much to marketers as it does to you
Source: © Dedi Grigoroiu/Shutterstock.com.
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Marketing Research and Ethics

Marketing research should be carried out in an objective, unobtrusive, and honest manner.
Researchers are also concerned about the public’s increasing unwillingness to participate in
marketing research and the problem of recruiting suitable interviewers. The apathy among inter-
viewees is probably associated with the growing amount of research conducted, particularly
through intrusive telephone interviewing, which is on the rise, and door-to-door survey inter-
viewing, which is in decline. Marketing research is increasingly conducted online, creating its
own set of ethical concerns. For example, how can we verify that someone online is who they
say they are? Is it acceptable to observe and analyse customer blogs and social networking
site conversations? In social media research, ethical problems include the need to be open and
transparent when conducting research within communities and anonymizing and paraphrasing
comments (since verbatim comments can often be tracked back to a particular user in online
research). However, the ethics of conducting social media research are still in development.
Consequently, key organizations such as ESOMAR and the MRS are still devising clear policies
on the topic.
Marketing research neither attempts to induce sales nor attempts to influence customer atti-
tudes, intentions, or behaviours. The key principles in the MRS code of conduct are as follows
(MRS, 2014: 3):
1. Researchers shall ensure that participation in their activities is based on voluntary informed
consent.
2. Researchers shall be straightforward and honest in all their professional and business rela-
tionships.
3. Researchers shall be transparent as to the subject and purpose of data collection.
4. Researchers shall respect the confidentiality of information collected in their professional
activities.
5. Researchers shall respect the rights and well-being of all individuals.
6. Researchers shall ensure that participants are not harmed or adversely affected by their
professional activities.
7. Researchers shall balance the needs of individuals, clients, and their professional activities.
8. Researchers shall exercise independent professional judgement in the design, conduct and
reporting of their professional activities.
9. Researchers shall ensure that their professional activities are conducted by persons with
appropriate training, qualifications and experience.
10. Researchers shall protect the reputation and integrity of the profession.
Research dealing with personal data in European countries is also subject to the EU General
Data Protection Regulation (GDPR). Under the GDPR, ‘personal data’ is defined as information
relating to an identified or identifiable natural person. The aim of the GDPR is to protect consum-
ers from breaches of their privacy by giving them control over their personal data. An essential
principle under the GDPR is ‘data protection by design and by default’ (European Commission,
2015)—that is, it sets out to incentivize companies to protect personal data to innovate and
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develop new ideas, methods, and technologies for security and protection of personal data. This
regulation applies to all companies processing the personal data of data subjects residing within
the European Union, meaning that large corporations such as Facebook or Google must follow
the Regulation when offering goods or services to EU citizens regardless of whether their actual
data processing takes place within the EU or not. The GDPR also includes a set of sanctions for
organizations that do not follow the rules, ranging from a warning to fines of up to €20 million or
4 per cent of the business’s annual worldwide turnover.
Visit the online resources to find out more about what market researchers must do to comply
with the GDPR.
International Marketing Research

Marketing researchers find it challenging to understand how culture operates in international
markets and how it affects research design. Complexity in the international business environ-
ment makes international marketing research more difficult because it affects the research
process and design. Key decisions include whether to customize the research to each of the
separate countries in a study using differing scales, sampling methods, and sizes, or to try to use
a single method for all countries, adopting an international sampling frame. In many ways, this
debate mirrors the standardization–customization dilemma common in international marketing
generally (see Chapter 7).
International researchers try to ensure that comparable data are collected despite differ-
ences in sampling frames, technological developments, availability of interviewers, and the
acceptability of public questioning. Western approaches to marketing research, data collec-
tion, and culture might be inappropriate in some research environments because of variations
in economic development and consumption patterns. How comparable are the data related
to the consumption of Burger King’s offerings collected through personal interviews in the
United Arab Emirates (UAE), telephone interviews in France, and shopping mall intercept ques-
tionnaires in Sweden? Might an online panel across all countries be used instead? Ensuring
comparability of data in research studies of multiple markets is not simple: concepts could be
regarded differently; the same offerings could have different functions; language may be used
differently, even within a country; offerings might be measured differently; the sample frames
might be different; and the data collection methods adopted might differ because of variations
in infrastructure.
Table 3.6 outlines three types of equivalence: conceptual equivalence; functional
equivalence; and translation equivalence. All three types of equivalence impact on
the semantics (that is, meaning) of words used in different countries, for example in devel-
oping the wording for questionnaires or in focus groups. Getting the language right is
important because it affects how respondents perceive the questions and structure their
answers.
When designing international research programmes, we need to consider how the meaning
of common words may be different and how the data should be collected. Different cultures
have different ways of measuring concepts. Populations also live their lives differently, meaning
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that it may be necessary to collect the same or similar data in a different way. Table 3.7 out-
lines how measurement, sampling, and data collection equivalence impacts on international
research.
Table 3.6 Types of semantic equivalence in international marketing research
Type of equivalence Explanation Example
Conceptual equivalence Exists when Conceptual equivalence should be

interpretation of considered when defining the research
behaviour, or objects, is problem, in wording the questionnaire, and
similar across countries determining the sample unit. For example,
there would be less need to investigate
‘brand loyalty’ in a country in which
competition is restricted and product choice
is limited.
Functional equivalence Relates to whether a Using a bicycle in India, where it might

concept has a similar be used for transport to and from work,
function in different or France, where it might be used for
countries shopping, is a different concept from
purchasing a bike in Norway, where it might
be used for mountain biking. Functional
differences can be determined using focus
groups before finalizing the research design
by ensuring that the constructs used in the
research measure what they are supposed
to measure.
Translation equivalence An important aspect The meaning associated with different words
of the international is important in questionnaire design because
research process, words can connote a different meaning from
because words in some that intended when directly translated into
languages have no real another language. To avoid translation errors
equivalents in others of these kinds, the researcher can adopt one
of the following two methods:
■ back translation—whereby a translator
fluent in the language in which the
questionnaire is to be translated is used
and then another translator, whose native
language is the original language, is used
to translate back again—identifying and
resolving differences in wording; or
■ parallel translation—a questionnaire is
translated by two or more translators,
fluent in both the languages into and
from which the questionnaire is to be
translated, until they agree upon a
final version.
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Table 3.7 Types of measurement and data collection equivalence
Type of Explanation Example

equivalence
Measurement The extent to which Surveys conducted in the United States

equivalence measurement scales may use imperial systems of measurement,
are comparable across while those conducted in Europe will use the
countries metric system.
Clothing sizes adopt different measurement
systems in Europe, North America, and
Southeast Asia.
Multi-item scales present challenges for
international researchers because dissatisfaction
might not be expressed in the same way in two or
more countries. (Some cultures are more open in
expressing opinions or describing their behaviour
than others.)
Sampling equivalence The extent to which The respondent profile for the same survey
sampling criteria are could vary from country to country. For example,
comparable across different classification systems are in existence for
countries censorship of films shown in the cinema in France
compared with the UK.
Data collection The extent to which Typically, data collection methods include: email or
equivalence data collection methods mail; by telephone or computer-assisted telephone
are comparable across interviewing (CATI); and personally or computer-
countries assisted personal interviewing (CAPI).
■ Mail or email—Used more where literacy or
Internet access is high and where the mail or
email system operates efficiently. Sampling
frames are compiled from electoral registers,
although it is now illegal in some countries to
use these lists. European survey respondents
can be targeted efficiently and accurately
because international sampling frames do exist.
■ Telephone/CATI—In many countries, telephone
penetration may be limited and CATI software,
using random digit dialling, may be more
limited still.
■ Personal interviews/CAPI—Used most widely in
European countries favouring the door-to-door
and shopping mall intercept variants. Shopping
mall intercept interviews are not appropriate
in Arab countries, where women must not be
approached in the street. Here, comparability
is achieved using door-to-door interviews. In
countries in which it is rude to openly disagree
with someone (e.g., China), it is best to use in-
depth interviews.
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As we can see in Table 3.7, achieving comparability of data when conducting international
surveys is difficult. Usually, the more countries included in an international study, the more likely
it is that errors will be introduced, and that the results and findings will be inaccurate and liable
to misinterpretation. International research requires local and international input. Therefore the
extent to which one can internationalize certain operations of the research process depends on
the objectives of the research.
With international projects, the key decision is to determine how much to centralize and how
much to delegate work to local agencies. There is, throughout this process, ample opportunity
for misunderstanding, errors, and lack of cultural sensitivity. To proceed effectively, the central
agency should identify a number of trusted local market research providers on a variety of con-
tinents. Typically, an international agency will have a network of trusted affiliates who are moni-
tored on a continual basis.
Chapter Summary
■ Define the terms ‘market research’, ‘marketing research’, and ‘customer insight’.
Market research is research undertaken about markets (for example customers, channels, and
competitors), whilst marketing research is research undertaken to understand the efficacy of marketing
activities (for example pricing, supply chain management policies). Customer insight derives from
knowledge about customers, which can be turned into an organizational strength.
■ Describe the customer insight process and the role of marketing research within it.
Understanding customers is at the core of the marketing. Customer insight is typically derived from fusing
knowledge generated from a range of sources, including industry reports, sales force data, competitive
intelligence, CRM data, employee feedback, social media analysis data, and managerial intuition. A
customer insight is of value if it is rare, difficult to imitate, and of potential use in formulating management
decisions.
■ Explain the role of marketing research and list the range of possible research approaches.
Marketing research plays an important role in the decision-making process and contributes through
ad hoc studies, as well as continuous data collection, through industry reports, and from secondary
data sources, as well as through competitive intelligence either commissioned through agencies or
conducted internally, with data gathered informally through sales forces, customers, and suppliers.
What methodology is used depends on the type of research problem (exploratory, descriptive, causal);
the availability of data (primary or secondary sources); and the type of insight sought (qualitative or
quantitative).
■ Define the term ‘big data’ and describe its role in marketing.
Big data can be defined as the systematic gathering and interpretation of high-volume, high-velocity,
and/or high-variety information using cost-effective innovative forms of information processing
to enable enhanced insight, decision-making, and process automation. Big data thus refers to a
more comprehensive set of data than that traditionally used to provide marketing information and
customer insights.
■ Discuss the importance of ethics and of the adoption of a code of conduct in marketing research.
Ethics is an important consideration in marketing research because consumers and customers either
provide personal information about themselves or personal information is collected from them. Their privacy
needs to be protected through observance of a professional code of ethics and the relevant laws in the
country in which the research is conducted.
Review Questions
1 How do we define ‘market research’?
2 How do we define ‘marketing research’?
3 How do we define ‘customer insight’?
4 What is ‘big data’?
5 What are the different types of marketing research that can be conducted?
6 Why is a marketing research code of conduct important?
7 What is a marketing information system and how is it used in the customer insight process?
8 What is the concept of equivalence in relation to obtaining comparable data from different
countries?
9 How are the different aspects of the research process affected by differences in equivalence
between countries?
1 Having read Case Insight 3.1, how would you advise Ipsos MORI to design a research programme
for Unilever that will provide insights into cultural cleaning rituals and practices in a diverse set of
countries, embed that knowledge inside the firm, and help the firm to develop and test innovation
ideas based on those insights?
2 Telefónica, the telecommunications company, wants to conduct a market research study aimed
particularly at discovering what market segments exist across Europe, and how customers and
potential customers view its brand. Advise Telefónica as follows:
A Write a market research question and a number of sub-questions for the study.
B How would you go about selecting the particular countries in which to conduct the fieldwork?
C What process would you use when conducting the fieldwork for this multicountry study?
3 What type of research (that is, causal, descriptive, or exploratory) should be commissioned in the
following contexts? Explain your answers.
A The management of UAE airline Etihad wants to measure passenger satisfaction with the flight
experience.
B Nintendo wants new ideas for online games for a youth audience.
C Spanish fashion retailer Zara wants to know what levels of customer service are offered at its flagship
stores.
D Procter & Gamble, maker of Ariel detergent, wants to test a new packaging design for six months to
see if it is more effective than the existing version. Fifty supermarkets have been selected from one key
P&G account. In 25 of them, the new design is to be used; in the other 25, the existing version.
Chapter 3 > Marketing Research and Customer Insight 119
4 You’ve recently won the research contract to evaluate customer satisfaction for Pret A Manger, the
food retail chain specializing in sandwiches, soups, and coffee. Your key account manager wants to
increase customer satisfaction further using the knowledge gained from the study to identify potential
new food offerings. Suggest a suitable research design to accomplish the following. (Hint: You can
advise more than one type of study.)
A To collect information about levels of customer satisfaction
B To decide what new food offerings customers might like to see
In addition, your account manager asks you to outline what secondary data you can find in the
area, detailing market shares, market structure, and other industry information, identifying specific
secondary data sources and reports.

Glossary
big data the systematic gathering and computer-assisted web interviewing
interpretation of high-volume, high-velocity, and/ (CAWI) an approach to online interviewing in
or high-variety information using cost-effective which the respondent uses a laptop or desktop
innovative forms of information processing to computer to access questions in a set location
enable enhanced insight, decision-making, and to which the respondent must go; questions
process automation. are generated automatically based on the
causal research a technique used to investigate respondent’s answers.
the relational link between two or more conceptual equivalence the degree to which
variables by manipulating the independent interpretation of behaviour, or objects, is similar
variable(s) to see the effect on the dependent across countries.
variable(s) and then comparing effects with a control group a sample group used in causal
control group for which no such manipulation research that is not subjected to manipulation of
takes place. some sort. See causal research
competitive intelligence the organized, cuts initial productions of ads in cartoon
professional, systematic collection of information, format, complete with dialogue, prepared
typically through informal mechanisms, used before the full ads are produced, filmed,
for the achievement of strategic and tactical and edited.
organizational goals. descriptive research a research technique used
computer-assisted personal interviewing to test and confirm hypotheses developed from a
(CAPI) an approach to personal interviewing management problem.
using a handheld computer or laptop to desk research (also known as secondary
display questions and record the respondents’ research) a technique used to collect data that
answers. has previously been collected for a purpose other
computer-assisted telephone interviewing than the current research situation.
(CATI) an approach to telephone interviewing exploratory research a research technique used
using a laptop or desktop computer to display to generate ideas to develop hypotheses based
the questions to the interviewer, who reads around a management problem.
them out and records the respondent’s face validity the use of the researcher’s or
answers. expert’s subjective judgement to determine
whether an instrument is measuring what it is including in-depth interviews, focus groups, and
designed to measure. projective techniques.
full-service agency an advertising agency that quantitative research research designed
provides its clients with a full range of services, to provide responses to predetermined
including strategy and planning, designing the standardized questions from a large number of
advertisements, and buying the media. respondents and involving the statistical analysis
functional equivalence relates to whether or of the responses.
not a concept has the same function in different reliability the degree to which the data elicited in
countries. a study are replicated in a repeat study.
IBM SPSS (standing for Statistical Package for research brief a formal document prepared
the Social Sciences) a software package used by the client organization and submitted to
for statistical analysis marketed by SPSS, a either an external market research provider
company owned by IBM. (for example a market research agency or
management problem a statement that consultant) or an internal research provider (for
outlines a situation an organization faces that example a marketing research department)
requires further investigation and subsequent outlining a statement of the management
organizational action. problem and the perceived research needs of
market mix modelling a research process the organization.
that uses multiple regression analysis based research proposal a formal document prepared
on customer survey data to ascertain the by an agency, consultant, or in-house marketing
relative contributions of different promotional research manager and submitted to the client to
techniques on a customer-based dependent outline what procedures will be used to collect
variable (for example awareness, intention the necessary information, including timescales
to buy). and costs.
marketing research the design, collection, sampling frame a list of population members
analysis, and interpretation of data collected from among whom a sample is generated,
for the purpose of aiding marketing decision- for example telephone directories,
making. membership lists.
net promoter score a system for measuring the secondary research See desk research
loyalty of customer relationships by determining storyboard outline of the story that an ad will
the extent to which customers are prepared to follow, showing key themes, characters, and
advocate for an organization. messages, prepared before the ad is made.
pre-code in surveys, to speed up data test markets regions within a country used to
processing, answers to questions that are test the effects of the launch of a new product
assigned a unique code (for example male = 1, or service, typically with regional advertising
female = 2, non-binary = 3, prefer not to say = 4) to promote the service, as well as pre- and
so that they can easily be analysed. post-advertising market research to measure
primary research a technique used to collect promotional effectiveness.
data for the first time specifically tailored to the translation equivalence the degree to which
current research problem. the meaning of one language is represented in
probability sampling a sampling method in another after translation.
which the probability of selection of the sample t-test a statistical test of difference used for small
elements from the population is known, typical randomly selected samples with a size of less
examples including simple random sampling, than 30.
stratified random sampling, and cluster sampling. validity the ability of a measurement instrument to
qualitative research a type of exploratory measure exactly the construct it is attempting to
research using small samples and unstructured measure.
data collection procedures, designed to z-test a statistical test of difference used for large
identify hypotheses, possibly for later testing randomly selected samples with a size of 30
in quantitative research, popular examples or more.
Chapter 3 > Marketing Research and Customer Insight 121
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Part 2
Marketing Management
and Strategy
Part 1
Part 2
Strategy
Part 3
Managing Marketing
Programmes
Part 4 Part 2
Principles of Customer Marketing Management and Strategy
Management 4 The Marketing Environment
5 Marketing Strategy
Part 5
The Social Impacts of 6 Market Segmentation and Positioning
Marketing 7 International Market Development
Chapter 4
The Marketing Environment

P. Rigas Packaging
After reading this chapter, you will be able to: Material SA
Identify and define the three core areas of the
Market Insight 4.1
marketing environment
Changing Politics; Changing
Describe the key characteristics associated with the Borders: What Should
marketing environment Companies Do?
Explain PESTLE analysis and show how it is used Market Insight 4.2
to understand the external environment Health Issues Slim Down
Product Sales
Explain the environmental scanning process
Analyse the performance environment using the Market Insight 4.3
L’Oréal Advances Beauty
Porter’s Five Forces industry analysis model
through Technology
Analyse an organization’s product/service portfolio
to aid resource planning Market Insight 4.4
Tuenti: To Be or Not to Be?
126 1 > Marketing Management
Part 2 Fundamentalsand Strategy
Case Insight 4.1

P. Rigas Packaging Material SA
P. Rigas Packaging Material SA is one of the leading wholesale

companies in the Greek agricultural, livestock, and industrial
packaging industry, with more than 25 years of experience.
We speak to Achilleas Rigas, chief executive officer (CEO) and
chair of the board of directors, to find out how the company
conducts its market scanning, aiming to survive in the very
difficult Greek economic environment.
P. Rigas imports its products from a large network of no longer see Greek firms as trustworthy partners.
suppliers in Europe, Asia, and Africa, and provides its European Union (EU) legislation on agricultural
products to a national network of more than 4,000 support has changed considerably and our end
customers, ranging from the most northern point of customers have been affected. As a result of
Greece to the smallest island in the south. The Greek taxation changes and capital controls, the Greek
sovereign debt crisis, which began in 2009, has resulted construction industry has contracted, which has in
in increased unemployment and a significant decline in turn reduced our business with this sector. Because
household disposable income. Businesses have been of legal changes, such as capital controls and the
hit in a number of ways, including by increased taxation, EU’s General Data Protection Directive (GDPR), our
increased liquidity needs, increases in non-value-adding working processes have had to change and this has
procedures (that is, increased bureaucracy as a result of raised our administration costs. In the ecological
compliance and bank capital controls), and unavailability environment, an increase in campaigning against the
of corporate bank loans. Consequently, insecurity has use of plastic packaging materials has affected us.
increased and trust in relationships between corporate There has been a lot of political instability and the
partners is unstable, largely because of fears of credit threat of Greek exit from the euro. During this period,
defaults, insolvency, and non-payment of invoices. some of our customers went out of business. The
current management team were put in place in 2013,
In this environment, information from the external
after the sad and sudden loss of our founder and
environment is imperative. P. Rigas generates market
CEO, Panagiotis Rigas.
insight from word-of-mouth information via our
nationwide team of salespeople, who visit our clients To keep abreast of the many changes that were
on a regular basis. We also have a network of partners hitting us, we developed a yearly strategic plan and
in external credit, accounting, legal and transportation worst-case scenario strategic planning processes.
services, and our suppliers, who feed us information These are useful up to a point. However, the
on the marketplace and our clients. Information from business environment that we work within is so
the local and national electronic and printed press dynamic that such planning is often quickly obsolete.
supplements this, particularly to trigger ideas for our So, at times, we have to react to market changes
research programmes. We participate in at least one and discard our strategic planning! Also, quite
national/international fair in Greece itself and five or six often, the changes in the environment that affect
international fairs outside Greece each year, which all the business are so unpredictable that we were not
provide us with valuable market intelligence. able to imagine them and incorporate them into our
planning. Hence we redefine the strategy formally in
There have been a number of important external
a mid-year review and we audit the implementation
changes in the marketplace. For instance, our
of our strategy via key performance indicators
international suppliers are demanding faster
(KPIs) on a monthly basis.
payment over shorter credit periods, because they
Chapter
Chapter 4 > The Marketing
1 > Marketing PrinciplesEnvironment
and Society 127
127
Case Insight 4.1

continued
The question for P. Rigas was: how could it grow Visit the online resources to watch a
its sales and profits, reduce its bank loans, and video interview with Achilleas Rigas in
still increase the size of its customer base in such which he explains what P. Rigas did.
a difficult trading environment?
Introduction
Have you ever wondered how organizations adapt to the changing business environment? How
do companies keep up with the many changes that occur in politics, markets, and economics?
What processes do they use to try to anticipate changes in technologies? We consider these
and other questions in this chapter.
The operating environment for all organizations—whether that be commercial, charitable,
governmental, or public sector more generally—is never static and seldom entirely predictable,
and can therefore profoundly affect a company’s course of action. We examine the nature of the
marketing environment, determine environment-related issues, and provide a context for devel-
oping marketing strategies that are explored in Chapter 5.
Now, consider the degree to which an organization can influence the various environmental
forces acting on it. The external environment, for example, consists of political, social, and techno-
logical influences, and organizations often have very limited influence on these. The performance
environment consists of competitors, suppliers, and indirect service providers who shape the
way and extent to which organizations achieve their objectives. Here, organizations have a much
stronger level of influence. The internal environment concerns the resources, processes, and
policies with which an organization manages to achieve its goals. An organization can influence
these elements directly. Each of these three marketing environments is discussed in this chapter.
By understanding the nature and trends of the elements that make up these three interlocking
environments, an organization can assert varying degrees of control, allocate scarce resources
more efficiently, and move closer to achieving its goals and overall performance outcomes, in
both the short term and the longer term.
Understanding the External Environment

The external environment can pose serious challenges to an organization for two reasons. First,
some elements of the external environment, while not having an immediate impact on the per-
formance of an organization, can radically change market conditions in the longer term (see
Research Insight 4.1 for further discussion of this point). Second, even when managers are clear
that the factors in the external environment are important, it is often not possible to control them
in any way (see Market Insight 4.1 for recent examples of political events that increase environ-
mental risks). This suggests that companies need to monitor the external environment to assess
the level of risk associated with their business activities.
Levitt, T. (1960). Marketing myopia. Harvard Business Review, 38(4), 45–56.
This is perhaps the most famous and celebrated article ever written on marketing. It won the
author the McKinsey Award. It has twice been reprinted in the Harvard Business Review. The central
thesis of the article—as true today as it was in 1960—is that companies must monitor change in the
external environment and keep abreast of their customers’ needs or else risk decline. Levitt asks
fundamental questions about the strategic orientation of a business and stresses the importance of
always understanding what business a company is really in (see also Market Insight 4.4, later in the
chapter, for an example of a firm’s failure to appreciate this insight). For example, many oil companies
today consider themselves to be energy companies—yet they still invest most of their resources in
oil. This is very risky because it opens them to new competitors focusing specifically on alternative
energies. Companies always need to monitor the environment to understand what market they
are competing in.
To make sense of the external environment, we use the well-known acronym PESTLE. This
is the easiest and one of the most popular frameworks for examining the external environment,
standing for the political, economic, socio-cultural, technological, legal, and ecological environ-
ments, as shown in Figure 4.1.
Political Economic
Marketing
Ecological Socio-cultural
environment
Legal Technological
Figure 4.1
The external marketing environment
Chapter
and Society 129
129
Market Insight 4.1

Changing Politics; Changing Borders: What Should
Companies Do?
In the past few years, Europeans have witnessed an decision was up to the British people. Unilever warned
increase in the number of referendums. Crucial votes its employees that Brexit could have a negative
have been held for different reasons in Greece, Italy, economic impact in the form of new import duties and
Spain, and the UK. In June 2016, the referendum price increases for customers. Then, in the aftermath
on Britain’s exit from the EU—commonly known as of the referendum, Tesco and Unilever entered in
Brexit—saw 51.9 per cent of voters (on a 72 per a dispute because Unilever suspended supply of
cent turnout) decide that leaving the EU was the products such as Marmite and the Ben & Jerry’s
right solution for the country. In October 2017, the ice cream, demanding a price rise given increasing
Catalan government offered a referendum on whether costs and the falling value of the pound. Although
Catalonia should become independent. Voters the dispute was ultimately settled, it led to negative
overwhelmingly supported Catalonia’s independence media coverage for Unilever that was depicted in
(albeit on a turnout of about 40 per cent). The vote, some newspapers as the company taking advantage
however, was considered illegal by the Spanish of the situation for its own profit and failing to show
government because it was inadmissible according to support for the democratic decision taken by the
the Spanish Constitution. This created a major political British electorate. Tesco, by contrast, was depicted as
and social crisis in the region. protecting consumers by avoiding price increases. In
addition, the government tried to pressure companies
to support its stance in the ongoing negotiations
with the EU, in an attempt to increase its chances of
getting a good deal.
In the case of Catalonia, the situation has been even

more tense because of the challenge to the legality
of the vote. Early on, the Barcelona football club
(FC) positioned itself in favour of the independence
referendum. This did not come as a surprise given
that being a culé (a fan of FC Barcelona) is almost a
given for Catalan separatists and pro-independence
chants have been often heard in the Camp Nou
Remain supporters march to Parliament stadium. However, such positioning creates friction
Square, London, to show their support for the and consumer blogs can be found that incite
EU in the wake of Brexit consumers to buy from or boycott companies
Source: © Daniel Leal-Olivas/AP/Shutterstock.com. depending on which side they have picked.
Within days after the referendum was held and in
The binary nature of these consultations led to expectation of a possible unilateral independence
profound divisions in both Spain and the UK. There declaration from the Catalan government, companies
are two sides who campaign to frame the vote. In such as La Caixa and Banc Sabadell, two of the
such contexts, what should companies do? Some biggest Spanish banks, moved their corporate
of them pick a side; others do not. For example, headquarters outside of Catalonia.
EasyJet and Shell signed a letter supporting the
motion that the UK should stay in the EU because Sources: Papadimas and Maltezou (2015); Butler and
jobs would otherwise be threatened and investment Kollewe (2016); Glanfield (2016); Sheffield (2016); Anon. (2017);
would be deterred. Tesco, Sainsbury’s, and Barclays Mason (2017).
refused to sign that same letter, claiming that the

Market Insight 4.1

continued
This market insight described recent examples of Furthermore, it is important to consider the potential
changing political and social environments and impact of such positioning on different stakeholders,
companies’ respective positioning and reaction. including employees, customers, the local community,
Companies are social agents and their corporate political parties, competitors, and financial and
reputation depends on various factors, including media publics.
how they position themselves in such situations.
Related Topics
external environment; consumer behaviour; stakeholder management; corporate reputation
1 Should companies remain ‘neutral’ in changing 3 How do you think consumers react to
political environments, such as those described companies’ taking a stance on political
above, or should they clearly position matters? Does it affect companies in the short
themselves? Why, or why not? and long terms?
2 How should companies manage their This market insight was kindly contributed by Dr
Eleni Papaoikonomou, Rovira and Virgili University,
stakeholders in a highly polarized political and Tarragona, Spain.
social environment?
The Political Environment

The political environment relates to the interaction between business, society, and govern-
ment. The legal environment, examined in more detail below, is often also linked to the political
environment because political institutions such as parliaments and governments are typically
responsible for debating and establishing the laws and regulations associated with consum-
ers and business practices. An understanding of the political environment therefore helps us
to evaluate the conditions that lead to the development of laws and their enactment. Political
environmental analysis is important because companies can detect signals concerning potential
legal and regulatory changes in their industries and thus have a chance to impede, influence,
and alter that legislation.
Although the political environment is uncontrollable in many ways, there are circumstances
in which an organization—or, more likely, an industry coalition—can affect legislation in its own
favour. There is increasingly an understanding that business–government relations, properly
undertaken, can be a source of sustainable competitive advantage (see also Chapter 5).
In other words, organizations can outperform other organizations over time if they can man-
age their relationships with government and regulatory bodies better than do their competitors
Chapter
and Society 131
131
(Hillman, Keim, and Schuler, 2004; Lawton and Rajwani, 2011). Any understanding of the politi-
cal environment and the actions taken by constituent firms should also be considered through a
legal framework and with an ethical lens.
A good example of the complex interactions between a company and its political environ-
ment can be seen in recent controversies on the role of Facebook in democratic elections
(see also Chapter 6). In 2017, Facebook came under pressure from politicians and intelligence
agencies in the United States and other parts of the world. Concerns were raised about the
fact that hostile actors can use the platform to manipulate public opinion and influence demo-
cratic elections. It is now widely believed that Russian intelligence used Facebook to influence
several elections in the West (Levin, 2017; Pullen, 2017a), to obtain outcomes that are per-
ceived as more favourable to the Kremlin. So how should Facebook manage this situation?
On one hand, it is unclear to what extent these activities are illegitimate within Facebook’s
current community standards (Wong, 2017). On the other hand, a failure to act might create
very strong political pressure as governments try to protect the democratic process from out-
side interference in many countries in Europe and North America. Mark Zuckerberg, CEO of
Facebook, has recognized the importance of this challenge and stepped up efforts to address
these concerns. He released a video in September 2017 in which he outlined all the steps
the company is taking to improve its ability to detect suspicious actors on the platform. The
changes include a raft of initiatives, from increasing the number of staff dedicated to evaluat-
ing political ads and their backers, through an increase in transparency and the information
provided to users on who is buying and running these ads, to closer coordination with elec-
toral commissions in countries that are deemed to be potential targets of interference (Pullen,
2017b). For example, as a consequence of this new commitment, the company shut down
thousands of ‘fake’ or ‘suspicious’ accounts during the last week of the German parliamentary
elections in autumn 2017.
Companies often respond to political pressure because of a concern that otherwise legislation
could be introduced to regulate their activities, at least in part. As a consequence, monitoring
the political process is important if a company is to foresee and potentially anticipate regulatory
changes that can significantly impact its day-to-day running.
Because legislation is such a technical area, few firms have the capability to understand and
influence legislation without employing specialists. In such circumstances, special industry lob-
byists are hired to represent clients before government decision-makers and regulators, and to
provide advice to clients on how to design their strategic communication campaigns. Small and
medium-sized firms, however, can be at a disadvantage because they lack the resources to
influence regulators individually. In the UK, the Federation of Small Businesses is a not-for-profit
organization that tries to address this imbalance by offering support to its members. One of the
areas of this organization’s activity is influencing government policy by representing the voices of
hundreds of thousands of small businesses across the country.
Generally, there are several ways in which marketers might conduct business–government
relations in various countries, including the following:
■ Lobbyist firms, with key industry knowledge, can be engaged either permanently or as
needed.
■ Public relations (PR) consultancies (for example Weber Shandwick) can be commis-
sioned for their political services, with members of Parliament (MPs) or others with a high
degree of political influence often serving as directors and/or advisers in jurisdictions in which
this is legal.
■ A politician may be paid a fee to give political advice on matters of importance to an organiza-
tion, where this is legal within that particular jurisdiction and where that politician is not serving
directly within the government in question on the same portfolio as that on which they are
advising.
■ An in-house PR manager might handle government relations directly.
■ An industry association might be contacted to lobby on behalf of members (for example, in
the European financial services industry, the European Banking Federation).
■ A politician may be invited to join the board of directors, board of trustees, or board of advis-
ers of an organization to help the company to develop its business–government relations,
where this is legal.
Organizations often collaborate to influence governments. This can be achieved through indus-
try or trade bodies, or by working with other large companies in their industry. For example,
EuropaBio is made up of three main segments of the European biotechnology industry: health
care (Red Biotech); industrial (White Biotech); and agri-food (Green Biotech). Experts from mem-
ber companies actively participate in working groups and taskforces that cover a wide range of
issues and concerns particular to their industry in an attempt to influence key stakeholders,
including national governments and the European legislature.
The Economic Environment

Companies and organizations must develop an understanding of the economic environment
because a country’s economic circumstances have an impact on what economists term factor
prices within a particular industry, for a particular organization. These factors could include raw
materials, labour, building and other capital costs, or any other input to a business. The eco-
nomic environment of a firm is affected by the following:
■ Wage inflation—Annual wage increases in a particular sector will depend on the supply of
labour in that sector. Where there is scarcity of supply, wages usually increase (for example
doctors).
■ Price inflation—How much consumers pay for goods and services depends on the rate of
supply of those goods and services. If supply is scarce, there is usually an increase in the
price of that consumer good or service (for example petrol).
■ Gross domestic product (GDP) per capita—The combined output of goods and servic-
es in a particular nation is a useful measure for determining relative wealth between countries
when comparisons are calculated per member of the population—that is, GDP per capita at
purchasing power parity (PPP), at which we look shortly.
■ Income, sales, and corporation taxes—These taxes, typically operating in all countries around
the world, usually at different levels, substantially affect how we market different offerings.
■ Exchange rates—The relative value of a currency vis-à-vis another currency is an important
calculation for those businesses operating in foreign markets or holding financial reserves in
other currencies.
■ Export quota controls and duties—Restrictions are often placed on the amounts (quotas) of
goods and services that any particular firm or industry can import into a country, depending
on which trading bloc or country a company or firm is exporting to. In addition, countries
Chapter
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sometimes also charge a form of tax on particular items to discourage or encourage imports
and to protect their own economies.
When operating in other countries, we should understand how exchange rates and living stan-
dards might affect those operations. We might also need to understand how prices or labour
costs might change if we are importing our goods and services, or components of them, from
another country—that is, our factor prices. This is known as the rate of price or wage inflation.
Difficulties arise when comparing prices across different countries. Rather than compare costs
for individual products by means of the prevailing exchange rate, economists prefer to calculate
prices for a particular basket of goods—a fixed list of common items—and compare the cost of
that basket in one country with its cost in another. This is known as the purchasing power par-
ity (PPP) exchange rate and it allows us to compare the relative costs between two countries.
Organizations usually have little impact on the wider economic environment because they
have little control over macroeconomic variables. For example, firms have no control over oil
prices, which might affect their business in different ways. The challenge when examining the
macroeconomic environment is to foresee changes in the environment and how they might affect
the firm’s activities. If a computer company in Sweden imports silicon chips from Japan and pays
for them in Swedish kronor, but the exchange rate for the yen is rising against the Swedish kro-
nor (in other words, you get more yen per kronor, perhaps because of strong Japanese export
sales to Europe), then the company might decide to source its silicon chips from another country
to ensure that its own prices are unaffected.
Similarly, if inflation drives consumer prices higher in a particular country, the price of goods
might become more expensive, triggering a fall in sales. Typically, during a recession, consum-
ers tend to purchase fewer goods and increase their savings, and prices fall further as produc-
ers try to stimulate demand. However, prices can increase during a recession. It is therefore
important to understand the wider general economic trends in a firm’s marketplace. Inflation can
be affected by political factors as well: after the 2016 referendum in the UK (see Market Insight
4.1), the pound lost about 12 per cent of its value and this has affected the rate of inflation in
the British economy (Elliott, 2017). Surveys of consumer expectations of inflation, forecasts of
foreign exchange rates, wage forecasts, and other financial information are frequently avail-
able from government central banks. Financial institutions also conduct surveys of managers to
investigate underlying trends in the economy, with the objective of forecasting future trends in
economic growth.
Visit the online resources and complete Internet Activity 4.1 to learn more about how the
contribution of service industries to the UK’s national economy has changed over the last ten years.
The Socio-cultural Environment

Lifestyles are constantly changing and, over time, consumers shift their preferences. Companies
that fail to recognize changes in the socio-cultural environment and to adapt or change their
offerings often fail. In the UK (and some other European countries), immigration from Poland
after EU enlargement increased the UK’s Polish population, with some supermarkets specifically
targeting that segment using adverts in Polish and by stocking products such as borscht, meat-
balls, pickled vegetables, and sauerkraut soup (Anon., 2006). In the United States, there is an
important segment of Hispanic millennials, numbering about 19 million consumers, who repre-
sent a specific group within the broader Hispanic community (Mizrahi, 2017). These consumers
have stronger connections with Hispanic culture and tend to spend more on products such as
clothing, accessories, and grooming products. (See also Market Insight 4.2 for an analysis of
how companies cope with the socio-cultural trend toward healthier products.)
When considering the socio-cultural environment, firms need to consider the changing nature
of households, demographics, lifestyles, and family structures, and changing values in society.
Demographics and Lifestyles

Changes in population proportions impact on an organization’s marketing activity. For example,
there will be significant market changes as a result of the ageing of most Western societies and
significant rises in life expectancy. In many developed countries, for the first time, the percentage
Market Insight 4.2

Health Issues Slim Down Product Sales
Sales of bread have been falling steadily in the last A key ethical issue arises if you are the CEO of a major
few years. The UK’s three biggest bread brands, food manufacturer: should you seek to circumvent
Warburtons, Hovis, and Kingsmill, which account the obesity issue by reducing the fat content in your
for 60 per cent of packaged bread sales in the UK, offerings (and educating consumers to buy lower
have collectively lost hundreds of millions in revenues. calorie options), or ignore the obesity issue, therefore
According to a recent survey, since 1975 sales of bread selling the same offering (and perhaps lobbying
have fallen by 75 per cent and only a quarter of young government not to introduce the tax), or pursue some
people aged 18–24 eat white bread regularly. mixture of these approaches?
The reasons for this downward shift include increasing

awareness of the need for healthy eating, a consumer shift
towards higher protein products and lower carbohydrates,
and a renewed interest in fresh artisan variants. Television
programmes, such as The Great British Bake Off, have
spurred interest in home baking to the extent that sales
of baking trays at Waitrose soared by 881 per cent and
those of bakeware increased by 55 per cent, all during a
single week before the 2015 series started. At the same
time, sales of biscuits and cakes have fallen, in part, it is
claimed, because of the influence of the show.
Food and beverage companies, like their fast food

The UK government introduced a sugar levy
counterparts, have faced increasing pressure from
in April 2018
governments as obesity rates have increased around Source: © tornadoflight/Shutterstock.com.
the world. National governments have begun to
scrutinize their public health policies. Several countries, As part of its ten-point plan against obesity, Tesco
such as Denmark, Finland, Hungary, and France, have decided that it would no longer sell high-sugar drinks
introduced a ‘fat tax’, added to products with high fat targeted at children in the juice category. As a result,
content, such as confectionery (including chocolate), high-sugar drinks such as Ribena, Capri-Sun, and
dairy products, and sugary foods and drinks, in a bid Rubicon fruit juice cartons were delisted, and are not
to reduce public consumption of high-fat foods, the available from its stores.
obesity epidemic, and the consequent impact on public
Sources: Green (2000); Davidson (2015); Ward (2015); Young
health and public healthcare budgets.
(2015); Barrie (2016).
Chapter
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Market Insight 4.2

continued
There are a wide range of theories that could be used Lewin (1935) developed a three-stage theory of change,
to interpret the actions of both brand managers and which can be used to understand the behavioural
consumers within this scenario. Clearly, society has change that consumers experience as a result of
attempted to make consumers aware of the need to processing messages—in this case, societal messages
eat healthy foods. This can be interpreted through about the dangers of obesity. Lewin argues that change
explanatory theory, which holds that the nature of a occurs by means of a three-part process—that is,
problem needs to be communicated and a range of unfreezing (understanding and searching for new
variables then identified that can be used to influence healthier food and so stopping the current behaviour)—
audiences. change (to new healthier foods)—refreezing (establishing
the new behaviour foods as the standard diet).
Related Topics
political environment; socio-cultural environment; economic environment; competitive advantage; industry analysis
1 What are the advantages and disadvantages 3 Why do you think Tesco decided to delist high-
to food manufacturers of producing new lower sugar drinks, yet still sell other high-sugar and
calorie or healthier versions of their existing high-calorie products such as Mars bars?
products?
2 To what extent will the UK government’s ‘sugar

tax’ impact the sales of high-sugar drinks such
as Ribena? Explain your reasoning.
of the population that is aged 65 or over is already larger than that of consumers aged 15 or
under. These trends will imply a significant growth in some industries—typically, medical and
financial services. Other industries, however, will be negatively affected. Research predicts, for
example, that manufacturers of cars will be negatively affected because older people are less
likely to buy vehicles. The same applies to hospitality and education—two industries that tend to
target younger customers. On the contrary, some countries and regions, such as many African
and Middle Eastern countries, have a comparatively high proportion of younger citizens. These
differences in the age structure in different countries give rise to different-sized markets for brand
propositions.
What should companies do? The most sensible strategy is to plan ahead and aim for the best
diversification strategy to minimize any potential disruption caused by these external trends.
However, people’s lifestyles are also changing. In Europe, there is a trend towards marrying
later in life and an increased tendency to divorce than was apparent among previous genera-
tions. The average age at which people first marry is now around 30 or even higher, such as in
Sweden, where the average age is 34 (Misachi, 2017). In some countries, there is an increas-
ing trend towards single-person households, and where states have legalized same-sex mar-
riage and civil partnerships, there has been an evident increase in such unions (for example in
Argentina, Scandinavia, Iceland, the Netherlands, South Africa, and France). Yet, overall, mar-
riages are less common in today’s society and many argue that this in itself has important social
consequences.
The Technological Environment

The emergence of new technologies has affected most businesses. Examples include technolo-
gies that impact productivity and business efficiency, such as changes in energy, transportation,
and information and communication technologies (ICT). New technology also changes the way
in which companies go to market. For example, companies are now compelled to use a variety
of channels. These include smartphone apps, as well as traditional websites and physical stores.
For example, one unusual app enables shoppers to test whether a melon is ripe. The shopper
rests the microphone on a melon, presses a button, and taps the melon, and the app uses an
algorithm to determine whether the melon is ready to eat.
‘Watermelon Ripeness’ is one of several such apps available

Source: By permission of Deviken.
Chapter
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Changes in technology particularly affect high-tech industries, in which firms must decide
whether they wish to dominate that market by pushing their own particular technology stan-
dards—especially where new technology renders existing standards obsolete. For example,
cloud computing and digital music files have taken over from the cassette tape and vinyl record
manufacturing industries. Customers are increasingly happy to work with companies and orga-
nizations to solve problems. Howe (2006) refers to this phenomenon as crowdsourcing (see
also Chapter 12). Whitla (2009) suggests that the role and process of crowdsourcing is to iden-
tify a task or group of tasks currently conducted in-house and then to release the task(s) to a
‘crowd’ of outsiders, who are invited to perform the task(s) on behalf of the company (for a fee
or prize). One of the most popular crowdsourcing platforms is Amazon Mechanical Turk (MTurk),
whereby hundreds of thousands of ‘workers’ (as they are called by Amazon) complete small
tasks in exchange for a small fee. MTurk is used by many companies and for different purposes,
including conducting surveys, categorizing images, and writing short blog posts. Often, the
crowdsourced work on MTurk is used to inform machine learning software. Despite its popu-
larity, MTurk has been criticized because the average hourly rate is low (about US$8) and it is
therefore seen as exploitative (Katz, 2017).
Crowdsourcing for content

Source: © 2018 Amazon Mechanical Turk, Inc. or its affiliates. All rights reserved.
When scanning the technological environment, attention has to be given to research and
development (R&D) trends and the R&D efforts of competitors. Strategies to ascertain these
involve regular searches of patent registration, trademarks, and copyright assignations, as well
as maintaining a general interest in technological and scientific advances. For example, in the
pharmaceutical and chemical industries, companies develop new compounds by modifying
the compounds registered for patents by their competitors—a process referred to as reverse
engineering.
The reverse-engineering principle can also be observed in other industries in which new prop-
ositions are based on competitor offerings, based on ‘me too’, or imitation marketing, strategies.
This is often the result of a firm’s inability to turn its own technological advances into a sustain-
able competitive advantage (Rao, 2005). As soon as a new offering is introduced, it is quickly
copied. To overcome this, firms attempt to introduce a consistent stream of new propositions
Market Insight 4.3

L’Oréal Advances Beauty through Technology
The world of beauty and cosmetics has traditionally L’Oréal plans to integrate the Makeup Genius
been based on people physically visiting a store technology into bathroom mirrors, giving users
and smelling a perfume, or trying a lipstick, prior access to everyday coaching and advice from beauty
to purchase. Advances in technology are seen by professionals in their own homes. In addition, there will
companies such as L’Oréal, the largest in the beauty be improved sensors that will measure lifestyle habits,
sector, as an opportunity to advance their market skin tone, sleeping patterns, stress, activity, pollution,
leadership and, with it, to change consumer behaviour. and sun exposure, and combine all this data to offer
customers personalized beauty advice.
L’Oréal was an early adopter of using data and analytics
to help it to identify beauty trends. For example, Vichy and La Roche Posay are L’Oréal brands that
‘dip-dyed hair’ emerged as a search term on Google focus on products designed for sensitive or problematic
Trends long before it came to the fore in popular culture. skin. These use live chat to guide consumers on the
As the figures rose, L’Oréal spotted an opportunity and best products for their skin concerns. These brands
created a full dip-dye product called Préférence Les also offer online skincare diagnostics and customers
Ombrés. Recognizing and realizing the potential of this can consult dermatologists on their particular concerns.
emerging trend resulted in sales of €50 million in the
first two years following the product’s launch. L’Oréal has also been experimenting with everything that
links to Instant Messaging and is very interested in video
L’Oréal also launched a beauty app called Makeup apps, such as Periscope and Twicer. The company has
Genius. This works by transforming the front-facing also investigated the use of flexible wearable electronics,
camera of an iPhone or iPad into a virtual mirror, enabling designed to collect and transmit data from the body, and
users to ‘try on’ products virtually. The app uses has partnered with a bio-printing start-up company called
advanced facial mapping technology that has previously Organovo to look into the potential of using 3D printed
only been used in Hollywood and the gaming industry skin production to test products for toxicity and efficacy.
to overlay products, such as lipstick and eyeliner, onto
the user’s face. The company is now hoping to bring out Sources: Shayon (2014); Curtis (2015); Westcott (2015); http://
versions for hair colour, hair styling, and skincare. www.loreal.com
This market insight demonstrates the importance of the success of an innovation. Imitability concerns the
technology monitoring as an element of environmental ease with which competitors can copy or duplicate
scanning. At a macro level, Schumpeter (1934) the technology or process underpinning an innovation.
identified that innovation can be seen as a sequence Protection, in terms of intellectual property rights,
of waves that serve to restructure a market, to the procedures, and tacit knowledge, can serve to act as
advantage of those who grasp discontinuities faster. a barrier. Complementary assets, such as marketing
He termed this ‘creative disruption’. L’Oréal’s focus channels, brand name, reputation, and positioning,
on technology monitoring is therefore an attempt to gravitate around and support the core innovation. The
generate sustainable competitive advantage for itself. interchange between these factors shapes the success
of the innovation. So if L’Oréal’s imitability is high (that is,
From a competitive response perspective, Teece if the technology can be accessed by competitors) and
(1986) suggested that imitability and complementary its complementary assets are strong, then the success
assets represent two important factors that determine of its innovations is likely to be high and profitable.
Chapter
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Market Insight 4.3

continued
Related Topics
technological environment; socio-cultural environment; competitive advantage; industry analysis; strategic analysis;
portfolio analysis
1 Is a firm’s external environment really 3 If the number of consumers who adopt these
uncontrollable, as theory dictates? If so, why interactive technologies is relatively small, why
should a firm devote resources to monitoring it? should L’Oréal continue with this strategy?
2 To what extent might L’Oréal’s use of advanced

technology represent a sustainable competitive
advantage over its competitors?
and to stay as close to the consumer as possible. (See Market Insight 4.3 to see how L’Oréal
uses technology and technology monitoring to help to maintain its dominant position in the
beauty market.)
For most firms, the risk of investing in radical or cutting-edge technologies is high because
the potential benefits are unsubstantiated. Fear of obsolescence is usually a strong incentive to
invest in new technologies (Chandy, Prabhu, and Antia, 2003). Therefore companies have every
reason to be concerned about the impact of technological changes on their product and ser-
vice life cycles. However, innovation becomes a necessary condition in the strategic marketing
decision-making of high-tech firms. For less technology-intensive firms, innovation (whether it is
process- or product/service-focused), or at least rapid adoption of new offering variants based
on competitors’ offerings, is still necessary to stay ahead of the competition.
The Legal Environment

The legal environment covers every aspect of an organization’s business. Laws and regulation
on the transparency of pricing, the prevention of restrictive trade practices, product safety, good
practice in packaging and labelling, the abuse of a dominant market position, and codes of prac-
tice in advertising, to take just a small selection, are enacted in most countries.
Product Safety, Packaging, and Labelling

In the European Union (EU), product safety is covered under the General Product Safety Directive
(Directive 2001/95/EC), which aims to protect consumer health and safety both for EU member
states and for importers from third-party countries to the Union or their EU agent representa-
tives. Where products pose serious risks to consumer health, the European Commission can
take action, imposing fines and criminal sentences for those contravening the Directive. The
General Product Safety Directive does not, however, cover food safety; this is subject to the
General Food Safety Regulation (Regulation (EC) No. 178/2002), which established a European
Food Safety Authority and a set of procedures covering food safety. Companies operating in
these sectors need to keep up with changes in this and other legislation, because failure to do
so might jeopardize their business.
In the pharmaceutical industry, regulations govern testing, approval, manufacturing, labelling,
and the marketing of drugs. Most countries also place restrictions on the prices that pharmaceuti-
cal companies can charge for drugs. In Japan, price regulations are stipulated for individual prod-
ucts. Up until 2014, in the UK, strict controls were placed on the overall profitability of products
supplied by a specific company to the National Health Service (NHS) under the Pharmaceutical
Price Regulation Scheme. Since 2014, the Scheme has instead used a value-based pricing
mechanism (DH/ABPI, 2012). (For more on value-based pricing approaches, see Chapter 9.)
Companies that develop cosmetics and fragrances are required to comply with legislative
measures designed to protect users. This means that there is a need to ensure that products
remain cosmetics and are not reclassified under different regulations, such as those related to
medicines, which makes innovation within the cosmetic industry more difficult (Gower, 2005).
Product labelling regulation in the EU tends to relate to the recycling of packaging and waste
to ensure that it complies with environmental regulations. In the United States packaging and
labelling regulations are more concerned with fair practice and ensuring that packaging does not
contain misleading advertising statements. Different countries around the world have different
regulations, so importers and exporters should be aware of these rules from the outset.
Codes of Practice in Advertising

Advertising standards differ around the world. In the UK, advertising is self-regulated—that is, it
is regulated by the advertising industry itself. In other countries, advertising is restricted by leg-
islation. In the UK, advertising is regulated by the Advertising Standards Authority (ASA), which
has a mission to apply codes of practice in advertising and to uphold advertising standards for
consumers, business, and the general public. Such self-regulatory agencies operate in other
countries, for example the Bureau de Vérification de la Publicité in France and the Advertising
Standards Council in India. In the EU, the European Advertising Standards Alliance (EASA)
oversees both statutory and self-regulatory provision in most European countries, and even in
some non-European countries, including Russia, Canada, the United States, New Zealand, and
Turkey. (See Chapters 10 and 11 for a more general discussion of advertising.)
Restrictions on the advertising of alcohol products exist in most parts of the world. In the
UK, for broadcast advertising communications, codes of practice exist for both radio and televi-
sion—typically, with specific regulations for alcohol advertising mandating that claims cannot be
made in relation to sexual prowess, fitness or health, courage or strength. In Thailand, alcoholic
products cannot be advertised before 10 p.m. In France, the manufacturers of alcoholic bever-
ages are obliged to show a government health warning on all advertisements. In the UK, brew-
eries and distillers have voluntarily placed the message ‘drink responsibly’ in the copy of their
adverts for many years.
Government health warnings also apply to tobacco products and tobacco advertising is now
virtually banned in all forms around the world. In most countries (such as Sweden, Ireland, and
the UK, as well as India and Bahrain, among others), consumers are dissuaded from smoking
not only by means of high taxes placed on tobacco to reduce consumption and public restric-
tions on where people can smoke, but also by means of legislation banning and restricting
advertising and requiring the placing of government health warnings on packages. In some
countries, including Canada and Australia, government health warnings provide stark information
Chapter
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141
and graphic pictures. In Canada, the size of the health warning was increased to cover 75 per
cent of the pack (Anon., 2012), whilst Australia was the first country to introduce plain packaging
for all tobacco brands in late 2012.
Tobacco packaging using shock-based images to deter users

Source: © Newspix/REX/Shutterstock.com.
The Ecological Environment

The concept of marketing sustainability is now well established, with increasing numbers of
consumers expressing concern about the impact that companies are having on ecological envi-
ronments. For example, there is increased demand for ‘organic’ food, incorporating principles of
better welfare for the animals consumed as food products and less interference with the natural
processes of growing fruit and vegetables, in the form of pesticides and chemical fertilizers.
Sustainability issues embrace the sourcing of products from countries with poor and coercive
labour policies. Both Nike and Apple have actively changed parts of their supply chain following
investigations. Consumers are also keen to ensure that companies and their products are not
damaging the environment or causing harm to consumers. This has been accompanied by a rise
in the popularity of Fairtrade products.
An important question for marketers concerns the way in which an organization should
embrace and incorporate the changing trend in sustainability. Orsato (2006) suggests that a
company can adopt one of the following four different green marketing strategies:
■ Eco-efficiency—It might lower costs by means of improved organizational processes, such as
the promotion of resource productivity (for example energy efficiency) and better utilization of
by-products. This approach should be adopted by those firms that need to focus on reducing
the costs and environmental impact of their organizational processes. Supermarket chains
in Norway and other Scandinavian countries have encouraged recycling for a long time.
■ Beyond compliance leadership—This involves the adoption of a differentiation strategy

through organizational processes such as certified schemes to demonstrate the compa-
ny’s ecological credentials or its environmental excellence, for example by adopting the UN
Global Compact principles, or other environmental management system (EMS) schemes and
codes. This approach should be adopted by firms that supply industrial markets, such as car
manufacturers.
■ Eco-branding—The firm might differentiate its products or services to promote environmental
responsibility. Examples include Duchy Originals (the Prince of Wales’ food brand), the late
Thai King Bhumipol’s Golden Place brand, or the Toyota Prius.
■ Environmental cost leadership—This involves offerings that provide greater environmental
benefits at a lower price. This strategy particularly suits firms operating in price-sensitive and
ecologically sensitive markets, such as the packaging and chemical industries.
Whatever the company and industry, ecological trends in marketing look set to stay and further
develop as the sustainability debate rages on and as companies use it to develop their own
competitive strategies. It is important to assess how this movement towards greener and more
sustainable marketing is affecting a particular industry to ensure that a company within that
industry not only is not adversely affected by these changes (for example by non-compliance
with regulatory changes in areas such as packaging), but also can take advantage of the oppor-
tunities (for example a haulage company using hybrid engine lorries to reduce energy costs).
Information about each of these sub-environments is gathered so that an organization
can assess their potential impact. Organizations need to monitor all PESTLE elements, but
some are more important than others. For example, pharmaceutical organizations such as
GlaxoSmithKline monitor legal and regulatory developments (for example labelling, patents, test-
ing); the Environment Agency monitors political and ecological changes (for example flood plains
for housing developments); road haulage companies should watch for changes that impact on
transport development (for example congestion charging, diesel duty, toll roads); and music
distributors should monitor changes in technology and associated social and cultural develop-
ments (for example downloading trends and cloud computing).
Environmental Scanning
To understand how external environments change, organizations need to put in place methods
and processes to inform them of developments. The process of gathering information about a
company’s external events and relationships to help top management in making decisions and
developing a course of action is referred to as environmental scanning (Aguilar, 1967). It is
the internal communication of external information about issues that may potentially influence an
organization’s decision-making process, focusing on the identification of emerging issues, situ-
ations, and potential threats in the external environment (Albright, 2004). Environmental scan-
ning is an important component of the strategic marketing planning process that we consider
in Chapter 5.
We can gather information in environmental scanning exercises using company reports,
newspapers, industry reports and magazines, government reports, and marketing intelligence
reports (such as those published by Datamonitor, Euromonitor, and Mintel).
Visit the online resources and follow the web links to learn more about the information and
services provided by Datamonitor, Euromonitor, and Mintel.
Chapter
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‘Soft’ personal sources of information obtained through networking, such as contacts at
trade fairs, are also important—particularly for competitive, legal, and regulatory information (see
Case Insight 4.1). Such verbal personal sources of information can be crucial in fast-changing
environments (May, Stewart, and Sweo, 2000), when reports from government, industry, or spe-
cific businesses have yet to be written and disseminated.
Visit the online resources and complete Internet Activity 4.2 to learn more about several
sources that can be useful when conducting a scan of the external environment.
The process by means of which companies scan the external environment typically involves
three stages (see Figure 4.2):
1 In Stage 1, the focus is principally, but not exclusively, on data gathering.
2 In Stage 2, the focus is principally, but not exclusively, on interpreting the data gathered in a
process of environmental interpretation or analysis.
3 In the final stage, the focus is principally, but not exclusively, on strategy formulation.
100
Strategy
Formulation
% Effort expended
Environmental
Interpretation/
Analysis
Data Gathering
Stage 1 Stage 2 Stage 3

0
Time
Figure 4.2
The environmental scanning process
Source: Adapted from O’Connell and Zimmerman (1979). Reproduced with the kind permission of California Management Review.
During each of the key scanning stages, there is also some activity in each of the other two
areas, so that each of the three processes dominates at any one time, but is also ongoing in the
background during the others. Although the process seems relatively straightforward and simply
a matter of collecting the ‘right’ information, barriers to effective environmental scanning exist
because it is difficult to determine what is the ‘right’ information. In addition, data gathering can
be time-consuming. In such cases, the information gathered ceases to provide a useful input to
strategic marketing decision-making. In addition, multinational corporations may see opportuni-
ties and desire organizational change, and they may collect the right data to take advantage of
those opportunities, but fail actually to do so because of switching costs and organizational
inertia related to production, sourcing, and other business operations.
Some companies, however, have developed a proactive approach by considering poten-
tial scenarios that their company may face in the future. Historically, companies focused on
developing scenarios based on their probability and then developed different courses of action
depending on the changes in the environment. For example, in its analysis of the world energy
market to 2050, multinational energy company Shell identified two possible future energy sce-
narios based on how governments and companies might respond to the energy production and
sustainability challenge. The different scenarios are based on assumptions about energy prices
and environmental regulations that would impact on Shell’s operations (Royal Dutch Shell, 2018).
Recent perspectives on scenario planning stress the importance of:
■ dedicating specific resources to scenario planning and to the constant updating of the sce-
narios developed;
■ engaging a broad range of internal and external stakeholders in the development of sce-
narios; and
■ challenging the assumptions in the scenario to spot potential flaws (Ramirez et al., 2017).
In this respect, it is particularly important to identify weak signals early on—that is, potential
changes in the operating environment that are currently receiving only limited attention because
they are not consistent with the dominant culture or ‘way of thinking’. For example, rather than
assuming a constant trend towards globalization, an international firm should ask itself what
trends might instead reverse the process and increase the importance of local factors (Ramirez
et al., 2017).
Scanning and understanding the external environment within the PESTLE framework will
reveal different influences and trends within different industries and sectors. It is therefore impor-
tant to realize that particular industries will focus on different issues and elements within the
framework.
Understanding the Performance Environment

The performance environment, sometimes called the microenvironment, consists of those
organizations that either directly or indirectly influence an organization’s operational perfor-
mance. The performance environment therefore encompasses not only competitors, but also
suppliers and other organizations, such as distributors, who all contribute to an industry’s value
chain. There are three main types:
■ those companies that compete against the organization in the pursuit of its objectives.
■ those companies that supply raw materials, goods, and services, and those that operate
as distributors, dealers, and retailers further down the marketing channel, all of which have
the potential to directly influence the performance of the organization by adding value in the
production, assembly, and distribution of products prior to their reaching the end user; and
■ those companies that have the potential to indirectly influence the performance of the orga-
nization in the pursuit of its objectives, which organizations often supply services, such as
consultancy or financial services, or are marketing research or communication agencies.
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Analysis of the performance environment is undertaken so that organizations can adopt better
positions in relation to their stakeholders and those of their competitors. These adjustments are
made in recognition of emerging trends, as circumstances develop, and/or in anticipation of
evolving environmental and performance conditions.
Knowledge about the performance arena allows organizations to choose how and where
to operate and compete, given limited resources. Knowledge allows adaptation and develop-
ment in complex and increasingly turbulent markets. Conditions vary from industry to industry.
Some are full of potential and growth opportunities, such as cruise holidays, Fairtrade food, and
the online travel and gaming industries, whereas others are in decline or stagnating at best, for
example high-street music stores and camera retailers.
Analysing Industries
An industry is composed of various organizations that market similar offerings. According to Porter
(1979), we should review the ‘competitive’ environment within an industry to identify the major
competitive forces, because this helps us to assess their impact on an organization’s present and
future competitive positions. Numerous variables help us to determine how attractive an industry
is and shape the longer-term profitability for the different companies that make up the industry.
Think of industries such as shipbuilding, cars, coal, and steel, in which levels of profitability
have been weak and unattractive to prospective new entrants. Now think of industries such as
technology, fashion, airlines, and banking, in which levels of profitability have been high. Analysing
an industry, however, is not important only because it helps us to determine its attractiveness; a
company can also use its analysis to determine its relative competitive positioning. The competi-
tive pressures across different markets vary quite considerably, but there are enough similarities
to establish an analytical framework to gauge the nature and intensity of competition.
Porter (1979) suggests that competition in an industry is a composite of five main competitive
forces: the level of threat that new competitors will enter the market; the threat posed by substi-
tute products; the bargaining power of buyers; and the bargaining power of suppliers. These, in
turn, affect the fifth force: the intensity of rivalry between the current competitors. Porter called
these variables the ‘Five Forces’ of competitive industry analysis (see Figure 4.3).
As a general rule, the more intense the rivalry between industry players, the lower their overall
performance. However, the lower the rivalry, the greater will be the performance of the industry
players. Porter’s model is useful because it exposes the competitive forces in operation in an
industry and can lead to an assessment of their relative strengths. The collective impact deter-
mines what competition is like in the market. As a general rule, the stronger the competitive
forces, the lower the profitability in a market. An organization needs to determine a competitive
approach that allows it to influence the industry’s competitive rules, protects it from competitive
forces as much as possible, and gives it a strong position from which to compete.
New Entrants
Industries are seldom static: companies and brands enter and exit industries all the time. The
entrance of a new company could be a potential threat because the new entrant might occupy
a similar space in the market to the existing company. Consider the UK beverage industry,
which witnessed the entrance of energy drink manufacturer, Red Bull, around 1987. Ever since
then, Red Bull has been competing head-on with industry stalwarts Pepsico (which distributes
Rockstar), Coca-Cola (which part-owns Monster), and GlaxoSmithKline’s Lucozade, the original
market-leading energy drink in the UK beverage market.
New entrants
' Economies of scale

' Government policy
' Capital requirements
' Proprietary products/services/
technologies
Threat of
new entrants
Buyers
Suppliers
Competitors ' Price/total
' Differentiation of Bargaining Bargaining purchases
inputs power of ' Market volumes/ power of
suppliers shares buyers ' Buyer concentration
' Supplier versus firm
concentration ' Market sectors/ concentration
product/service type
' Threat of forward ' Ability to backward
integration ' Market responses integrate
' Switching costs ' Price-sensitivity

Threat of
substitutes
Substitutes
' Switching costs and propensity
to substitute
' Relative price performance

of substitutes
Figure 4.3
Industry analysis: Porter’s Five Forces
Source: Adapted from Porter (1979). Reproduced with the kind permission of Harvard Business School Publishing.
When examining an industry, we should consider whether economies of scale are required
for successful performance within it. For instance, motor manufacturing in the UK requires
significant investment in plant and machinery. Unfortunately, because British labour costs are
high and foreign direct investment incentives (for example government development grants) are
not as lucrative as they once were, many British-based motor manufacturers have moved to
Eastern Europe and the Far East. New entrants may be restricted as a consequence of gov-
ernment and regulatory policy, or they may be frozen out of an industry because of the capital
requirement necessary to set up business. For example, in the oil and gas industry, huge sums
of capital are required not only to fund exploration activities, but also to fund the extraction and
refining operations.
Companies may be locked out because companies within a market are using proprietary
offerings or technologies. A good example of this is the pharmaceutical industry, in which costs of
developing a new drug are often prohibitive for new entrants. A recent report by the Association
of the British Pharmaceutical Industry (ABPI) puts the cost of developing a single new prescrip-
tion drug at £1.15 billion (Thomas, 2016). This is sufficient to ensure high concentration in the
industry and to ensure that new entrants will find it extremely hard to challenge existing players.
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Substitutes
In any industry, there are usually substitute offerings that perform the same function or meet simi-
lar customer needs. Substitutes are thus a threat because they could, in the long run, replace
current offerings. Levitt (1960) warned that many companies fail to recognize the competitive
threat from newly developing offerings. He cites the refusal of the American railroad industry
to recognize the competitive threat arising from the development of the automobile and airline
industries in the transport sector.
Consider the telecommunications sector in the UK. As telecommunications markets continue
to converge with the development of broadband Internet services, we see a variety of different
companies operating in the same competitive marketspace, for example EE, BT, Virgin Media,
and many others. With the long-standing development of voice over Internet Protocol (VOIP)—
the Internet telecommunication voice transmission standard—fixed-line telecommunications has
become a commodity and firms operating in the area now look to develop value-added services,
such as video-on-demand, streaming, interactive gaming, and web-conferencing services.
Most countries’ fixed-line operators have found it difficult to hold on to their original subscrib-
ers, partly because cheaper alternatives are appearing in the market (for example cable, Internet,
and fusion plans incorporating both mobile and fixed lines and television packages). It takes time
for consumers to become aware of new offerings and to obtain the necessary information to
allow them to make a decision over whether or not to switch. Consumers consider the switching
costs associated with such a decision, which, in turn, affect their propensity to substitute the
offering for another. They consider the relative price performance of one offering over another.
For example, if we were to wish to travel from Amsterdam to Paris, we could fly from Amsterdam
Airport Schiphol to Charles de Gaulle Airport, take the train, or drive. We would consider the rela-
tive price differences (the flight is likely to be the most expensive, but not always), and we would
also factor into this decision how comfortable and convenient these different journeys are likely
to be before we finally make our choice. In analysing our place within an industry, we should con-
sider what alternative offerings exist in the marketplace that also, to a greater or lesser extent,
meet our customers’ needs.
Buyers
Companies should ask themselves what percentage of their sales a single buyer represents.
This is an important question because if one buying company purchases a large volume of offer-
ings from the supplying company, as car manufacturers do from steel suppliers, it is likely to be
able to demand price concessions when there are a lot of competing suppliers in the market-
place relative to the proportion of buyers (that is, supplier concentration versus buyer concen-
tration). Buyers may also decide to increase their bargaining power through what is known as
backward integration. For example, a company is said to have integrated backwards when
it moves into manufacturing the offerings it previously bought from its suppliers. Amazon offers
an example of backward integration, shifting from being a bookseller at the time of its launch in
1994 to announcing it would move into other business areas beyond books in 1998 (Hansell,
1998). Since then, it has become a behemoth: the world’s largest online retailer and a key player
in the global cloud computing market through Amazon Web Services (AWS) (Gensler, 2017).
Tesco plc—the British multiple retail grocer, operating in 11 markets outside the UK in 2018—
also sells financial services, including debit and credit services, which it previously would have
purchased from Visa and MasterCard merchant operators. Because, for many years, custom-
ers have tended to pay using credit or debit cards rather than cash, Tesco has lowered its
transaction costs by setting up its own credit/debit services. Nevertheless, for the other suppli-
ers in a market, this means a new entrant into the market and hence a new competitor.
Another factor impacting on a buyer’s bargaining power is how price-sensitive a particular
company is. Depending on their trading circumstances, some companies might be more price-
sensitive than other buyers. If such companies are more price-sensitive and yet there are a lot
of competing suppliers for their business, they are likely to switch supplier rather than be loyal
to one. Most companies try to enhance other factors associated with an offering, for example
aftersales service or product/service customization, to try to reduce a client company’s price-
sensitivity. When analysing an industry, we should understand the bargaining power that buy-
ers have over their suppliers because this can impact on the price charged and the volumes sold
or total revenue earned.
Suppliers
Any industry analysis should determine how suppliers operate and the extent of their bargain-
ing power. For example, the aircraft manufacturing market consists of a small number of major
suppliers, such as Boeing and Airbus, and a large number of customers—namely, national air-
lines and low-cost airline companies. The suppliers have the stronger bargaining advantage.
Conversely, in the computer gaming industry, there are a large number of suppliers, such as
game production companies and game console component manufacturers. The few custom-
ers—Sony, Nintendo, and Microsoft—hold the bargaining advantage. We should also consider
whether or not the suppliers are providing unique components, products, or services that may
enhance their bargaining situation.
In some industries, suppliers increase their market dominance by forward integration. For
example, a toy manufacturer could set up a retail outlet or e-commerce facility to sell its own
products direct to end users. Forward integration allows companies not only to better control
their own supply chains, but also to sell at lower prices, thereby increasing sales and profit from
increased retail sales. Equally, if companies face high switching, economic, resource, and time
costs associated with using another supplier, the supplier has stronger bargaining power with
that particular company.
Competitors
To analyse an industry, we must also understand how the companies within that particular mar-
ket operate. For example, in the UK cosmetics sector, the market-leading cosmetic manufac-
turers are Avon European Holdings Ltd, Estée Lauder Cosmetics Ltd, L’Oréal (UK) Ltd, Procter
& Gamble Ltd, the Unilever Group, and large retailers such as Boots UK Ltd, The Body Shop
International Ltd, and Superdrug Stores plc. In undertaking a competitor analysis, we should
outline each company’s structure (for example details of the main holding company, the indi-
vidual business unit, any changes in ownership); current and future developments (often gleaned
from reading company prospectuses, websites, and industry reports); and the company’s lat-
est financial results. We would be interested in calculating the market volumes and shares for
each competitor, because market share is a key indicator of company profitability and return on
investment (Buzzell, Gale, and Sultan, 1975).
The importance of understanding competitors cannot be overstated. Noble, Sinha, and
Kumar (2002) found that those organizations which pay particular attention to their competitors
generally perform better than those which do not. To undertake an analysis of our firm’s competi-
tors, we must answer five key questions, as follows:
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1 Who are our competitors?
2 What are their strengths and weaknesses?
3 What are their strategic goals?
4 Which strategies are they following?
5 How are they likely to respond?
Who Are Our Competitors?

Competitors are those firms providing offerings that attempt to meet the same market need
as do our own offerings. There are several ways in which a need might be met, but essentially
two approaches can be identified: firms need to be aware of their direct competitors and their
indirect competitors. Direct competitors provide similar offerings to the same target market,
for example EasyJet, Flybe, and Ryanair. Direct competitors also offer a product in the same
category, but target different segments. For example, in addition to major global manufacturers
Unilever and Nestlé, emerging niche brands such as Jude’s (UK), Ciao Bella (United States), R&R
Ice Cream (Europe), and Mengniu Dairy (China) all offer a range of ice creams for different target
markets (Hughes Neghaiwi and Geller, 2015). Indirect competitors are those which address
the same target market, but provide a different offering to satisfy the market need, for example
Spotify, Sony, and Apple’s iPod.
By understanding who the main competitors are, it becomes possible to make judgements
about the nature and intensity of the competition. This also provides a view about how a firm’s
marketing strategy should evolve. For example, the strategy of a market leader, which identi-
fies little competition, will be different from that of a small firm trying to establish a small market
share. The former may try to dominate the whole market, whereas the latter may attack the
leader or find a small underserviced segment, called a niche market, and make that market
its own.
What Are Their Strengths and Weaknesses?

It is important to gather information about each competitor’s range of offerings and their sales
volumes and values, the competitor’s profitability, prices, and discount structures, the nature of
its relationships with suppliers and distributors, and its communications campaigns and special
offers. In some circumstances, getting information about new offerings that are either in develop-
ment or about to be launched can be critical.
In addition to these marketing elements, however, it is important to obtain information about
a whole range of other factors, not only the competitor’s marketing activities. These factors
include its production and manufacturing capabilities, its technical, management, and financial
resources, and its processes, distribution channels, and relative success in meeting customer
and market needs.
As this information accumulates and is updated over time, we use the information to under-
stand two main issues: what a competitor’s strengths and weaknesses might be; and how we
might avoid the areas in which the competitor is strong or exploit its weaknesses. The overall
task is to determine what competitive advantage a competitor might have and whether this
advantage can be sustained, imitated, or undermined. (See Chapter 5 for more information
about competitive advantage, and how to analyse an organization’s strengths and weaknesses,
and opportunities and threats.)
What Are Their Strategic Goals?

Contrary to popular opinion, profit is not the single overriding strategic goal for most orga-
nizations. Firms develop a range of goals, encompassing ambitions such as achieving a
certain market share, market leadership, industry recognition for technological prowess or
high-quality performance, or market reputation for innovation, environmental concern, or
ethical trading.
Developing a full understanding of a competitor’s strategic goals is not easy and can usually
be inferred only from a competitor’s actions. Some firms try to recruit senior executives from
competitors to get real insight into those competitors’ strategic intentions. Although this hap-
pens quite frequently, it is not an ethical way of operating, and organizations can impose severe
legal and financial constraints on employees in terms of who they can work for if they leave,
including a period during which they are not legally allowed to work within the industry (known
as garden leave or gardening leave).
Which Strategies Are They Following?

Once a competitor’s goals are understood, it becomes easier to predict what its marketing
strategies are likely to be. These strategies can be considered by means of two main factors:
competitive scope and positioning.
Competitive scope refers to the breadth of the market addressed. Is the competitor attempt-
ing to service the whole of a market, particular segments, or a single niche segment? If it is
servicing a niche market, one of the key questions to be asked is whether it will want to stay
and dominate the niche, or is simply using that niche as a trial before springboarding into other
market segments.
Brands can be positioned in markets according to the particular attributes or benefits a brand
offers. Cameras might be positioned according to their technical features, whereas cosmetics
are often positioned on the basis of style and fashion, frequently with campaigns led by brand
ambassadors who are considered to personify the brand values. Once this is understood, the
marketing mix elements are aligned to support the positioning strategy. Some brands are posi-
tioned based on price and a low-cost strategy. This approach requires a focus on reducing
costs and expenses rather than investing heavily in marketing communications and/or R&D. We
consider low-cost strategies later in this chapter.
Visit the online resources and complete Internet Activity 4.3 to learn more about the importance
of analysing a competitor’s strategic activities.
How Are They Likely to Respond?

Understanding the strategies of competitors helps to alert us to whether they are intent on out-
right attack or defence and how they might react to particular strategies initiated by others (see
Market Insight 4.4 for an example). For example, a price cut might be met with a similar reduc-
tion, a larger reduction, or none at all. Changes in the levels of investment in advertising might
produce a similar range of responses.
Some market leaders believe that an aggressive response to a challenger’s actions is
important, otherwise their own leadership position might be undermined. There are a range of
responses that firms may use, reflecting organizational objectives, leadership styles, industry
norms, and new strategies born of new owners.
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Market Insight 4.4

Tuenti: To Be or Not to Be?
Tuenti was founded in 2006 as a start-up run by five niche (young users) and get the social network
young friends, and it quickly became the most popular customers to sign up to a new mobile operator,
social network in Spain among young consumers. which it named Tuenti. Telefónica already had its own
Between 2009 and 2012, with more than 13 million successful mobile brand, Movistar, but perceived
active users, its mission was to offer the most secure, acquiring Tuenti as a perfect opportunity to target
private, and highest quality social communication young consumers with a more tailored offer.
platform possible for users. For instance, unlike the
common social networks that use banner advertising, The move was largely unsuccessful. Tuenti users
Tuenti always used alternative and less invasive responded by switching to other social networks,
advertising, aiming to respect the privacy of the users such as Twitter, Instagram, or Facebook, which had
and the usability of the website. The name ‘Tuenti’ continued to invest in and innovate their services.
was chosen to target users aged between 20 and 25 Despite several rebranding attempts, the new
and because of its similarity to the phrase tu enti (‘your telephone operator remained a niche player, and
identity’). Indeed, the slogan of the company was there was no evidence of a positive synergy between
‘What happens on Tuenti stays on Tuenti’, emphasizing the original social network platform and the new
the idea of privacy as a key differentiator from other mobile phone provider. The Tuenti acquisition proved
social networks. highly unsatisfactory for Telefónica because it failed
to leverage the Tuenti brand and increase its youth
The company’s initial success caught the eye of larger customer base. Finally, in February 2017, Tuenti
Spanish companies. In 2010, Telefónica, one of the announced the complete closure of the social network.
largest telephone operators and mobile network In itself, this was a complex task, because it required
providers in the world, acquired 90 per cent of Tuenti. managing all customers’ information and giving
A few months later, the company announced the users the opportunity to retain some of the materials
launch of Tuenti as a mobile operator. At the same time, (for example photos, messages, etc.) that they had
investments in the social network were reduced and previously posted on the website.
some of its functionalities disappeared. Telefónica’s
intention was to take advantage of Tuenti’s market Sources: Berengueras (2013); Dans (2016); Otto (2016).
This market insight shows how important it is for the reason why these customers were loyal: Tuenti
marketers to understand the nature of the industry users were driven by particular needs that the mobile
in which they operate—especially how competitors network did not satisfy. Tuenti was positioned as an
are likely to respond. Companies have to see their online place to hang out with friends without worrying
business in terms of the customers’ needs, not in about privacy and that is what the user was looking
terms of the products or brands sold. When Telefónica for. These two mistakes meant that only a very few
changed Tuenti’s social network strategy and launched customers migrated to the new Tuenti mobile operator.
a mobile network operator, it made two key mistakes. At the same time, the social network side of the
First, Telefónica thought that Tuenti customers would business was overlooked and lost ground against its
automatically be loyal to the brand and this was an competitors. Perhaps Telefónica could have built its
unreasonable expectation: for the young public, Tuenti own brand and saved itself the money spent on the
had credibility as a social network, but not as a mobile acquisition of Tuenti.
platform. Second, Telefónica failed to understand
Market Insight 4.4

continued
Related Topics
Branding; customer needs; industry definition; PESTLE analysis
1 What are the similarities and differences in 3 Compare Telefónica’s acquisition of Tuenti
how the macroenvironment impacts on the with the acquisition of Instagram by Facebook.
mobile operator industry and the social network What are the main differences between the two
industry? (Hint: Use PESTLE.) strategies?
2 How might Telefónica have leveraged the This market insight was kindly contributed by Dr Isabel
Carrero, Comillas University, Madrid, Spain.
strength of the brand Tuenti more successfully?
Suppliers and Distributors

So far, analysis of the performance environment has concentrated on the nature and characteris-
tics of a firm’s competitive behaviour. This is important, but Porter also realized that suppliers can
influence competition and he built this into his Five Forces model. However, since he published
his work, there have been several significant supply-side developments—notably, the develop-
ment of outsourcing. Outsourcing concerns the transfer of non-core activities to an external
organization that specializes in the activity or operation. For example, transport and delivery
services are not core activities for most companies, although they constitute an important part
of the value they offer their customers. In Japan, companies outsource the transportation of their
goods to the Hitachi Transport System, a third-party logistics (3PL) service provider. Many
suppliers have therefore become an integral part of a firm’s capabilities and hence, rather than
act aggressively, they are more likely to be cooperative and work in support of the firm that has
outsourced the work to them.
Similar changes have occurred downstream in terms of a manufacturer’s marketing channel.
It is now commonplace to find high levels of integration between a manufacturer and its distribu-
tors, dealers, and retailers. Account needs to be taken of the strength of these relationships and
consideration given to how market performance might be strengthened or weakened by the
capabilities of the channel intermediary. Suppliers and distributors have become central to how
firms can develop specific competitive advantages. Analysis of the performance environment
should incorporate a review of key suppliers and distributors to the firm under analysis.
Challenging an Industry
While analysing your industry is important, sometimes the best option is to look for ways of rede-
fining an industry—especially in the case of industries that are languishing and do not meet the
customers’ needs. Kim and Mauborgne (2004) define the latter as ‘red oceans’—that is, hostile
marketplaces with little prospect for growth (see Research Insight 4.2). The authors argue that
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companies should avoid these industries altogether and aim for a radical reconfiguration that
allows them to create an entirely new market space: a ‘blue ocean’. In these new market spaces
companies can find plentiful opportunities for growth and the revival of a struggling sector. In an
example of blue ocean strategy, in the 1990s Dell introduced new built-to-order computers
and, in doing so, changed the rules of the industry without any new technological innovation.
The secret was creating additional value by reconfiguring the purchase and delivery experi-
ence. This move created a blue ocean for the company and it avoided competing in an already
crowded marketplace.
Kim, W.C., and Mauborgne, R. (2004). Blue ocean strategy. Harvard Business Review,
82(10), 76–84.
In this article, the authors stress the importance of challenging the rules in an industry by presenting the
cases of a number of companies that have done just that. The authors suggest that new entrants can identify
the opportunity to create a blue ocean and change the rules of the game, especially when the industry is
currently unattractive based on existing business models. They use the example of Cirque du Soleil, which
combines theatre and circus, and hence has developed an entirely new genre. The authors argue that, in an
uncontested market space, companies can also offer higher value at a lower price (what they call ‘breaking
the value/cost trade-off’).
Companies are constantly trying to innovate to push back against the constraints of their
industry. A recent trend has been for companies to seek to reformulate the rules of the indus-
try by co-creating value with their customers (see Chapter 15). For example, the logistics firm
DHL is testing the use of drones, called ‘Parcelcopters’, and has developed augmented reality
glasses with one of its clients (Japanese electronics firm Ricoh) to make inventory manage-
ment up to 25 per cent more efficient (Crandell, 2016). Appliance manufacturer Electrolux,
meanwhile, has sought to revolutionize its industry by means of an online design competition
(the Electrolux Design Lab), open to undergraduate and postgraduate students in industrial
design (Bhalla, 2015).
Understanding the Internal Environment

An analysis of the internal environment of an organization is concerned with understanding
and evaluating the capabilities and potential of the products, systems, human, marketing, and
financial resources. An analysis of an organization’s resources should not focus only on the
relative strength and weakness of a particular resource; it is also important to consider how
the resources compare to those of competitors, and how a company is able to manage and
develop such resources going forward. Attention here is given to two main elements, products
and finance, within portfolio analysis.
Portfolio Analysis
When managing a collection or portfolio of offerings, we should appreciate that understand-
ing the performance of an individual offering can often fail to give appropriate insight; what
is really important is an understanding of the relative performance of the offerings. By creat-
ing a balance of old, mature, established, growing, and very new offerings, there is a better
chance of delivering profits now and at some point in the future, when the current offerings
cease to be attractive and profitable. One of the popular methods for assessing the variety
of businesses/offerings that an organization has involves the creation of a two-dimensional
graphical picture of the comparative strategic positions. This technique is referred to as a
portfolio matrix.
The Boston Consulting Group (BCG) developed the original idea and its matrix—the Boston
Box, shown in Figure 4.4—is based on two key variables: market growth and relative market
share (that is, market share as a percentage of the share of the product’s largest competitor,
expressed as a fraction). Thus a relative share of 0.8 means that the product achieves 80 per
cent of the sales of the market leader’s sales volume (or value, depending on which measure
is used). This is not the strongest competitive position, but neither is it a weak position. A
relative market share of 1 means that the company equally shares market leadership with a
competitor. A relative market share of 2 means that the company has twice the market share
of its nearest competitor. (Research Insight 4.3 offers more information on the history of the
Boston Box.)
Stars Question marks

Rate of market growth high — low
Cash cows Dogs
Relative market share high — low
Figure 4.4
The Boston Box
Source: Reprinted from B. Hedley, ‘Strategy and the business portfolio’, Long Range Planning, 10, 1, 12. © 1977, with permission
from Elsevier.
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Morrison, A., and Wensley, R. (1991). Boxing up or boxing in: a short history of the
Boston Consulting Group share/growth matrix. Journal of Marketing Management,
7(2), 105–29.
This highly readable and critical article outlines the history of the development of the Boston Box portfolio
analysis concept from academic and practitioner perspectives. The authors conclude that the concept is
useful in strategic planning, but that those using it should be aware of its limitations—namely, around the scope
of the technique, the assumptions it makes, how it defines and classifies markets in terms of share and growth,
its failure to consider the political dimensions of strategy development, that there are strategic implementation
difficulties in real firms, and that it explains what strategy to undertake, but not how to undertake it.
See also:
Kang, W., and Montoya, M. (2014). The impact of product portfolio strategy on
financial performance: the roles of product development and market entry decisions.
Journal of Product Innovation Management, 31(3), 516–34.
Visit the online resources to read the abstracts and access the papers in full.
In Figure 4.5, the vertical axis refers to the rate of market growth and the horizontal axis
refers to an offering’s market strength, as measured by relative market share. The size of the
circles represents the sales revenue generated by the product. Relative market share is generally
regarded as high when you are the market leader—that is, when the relative market share is 1
or more. Determining whether or not market growth rate is high or low is more problematic and
depends on the type of industry. In some industries, a market growth rate of 5 per cent might be
regarded as high, whereas in others the benchmark might be 10 per cent. The range between
high and low is often taken to be 10 per cent. This lack of clarity on what is to be regarded defini-
tively as ‘high’ and ‘low’ rates of market growth is a key criticism of the model.
The BCG typology is as follows:

■ Question marks (also known as ‘problem children’) are offerings that exist in growing mar-
kets, but have low market share. As a result, there is negative cash flow and they are unprofit-
able.
■ Stars are most probably market leaders, but their growth has to be financed through fairly
heavy levels of investment.
■ Cash cows, meanwhile, exist in fairly stable, low-growth markets and require little ongo-
ing investment. Their high market share draws both positive cash flows and high levels of
profitability.
Stars Question marks
Rate of market growth
Cash cows Dogs
Relative market share

Figure 4.5
Present and future positions in the BCG matrix
Source: Reprinted from B. Hedley, ‘Strategy and the business portfolio’, Long Range Planning, 10, 1, 12. © 1977, with
permission from Elsevier.
■ Dogs experience low growth and low market share, and generate negative cash flows. These
indicators suggest that many of them are operating in declining markets and they have no
real long-term future.
Divestment, however, need not occur only because of low share. For example, when phar-
maceutical firm Merck sold Sirna Therapeutics to Alnylam Pharmaceuticals, the sale of
the drug delivery subsidiary was announced as enabling Merck to remain consistent with
its strategy of reducing its emphasis on platform technologies. Merck’s policy is to assess
whether particular assets are core to its strategy, whether they provide competitive advan-
tage, and whether they might generate greater value as part of Merck or outside Merck
(Zhu, 2014).
From a reverse perspective, in 2009, Coca-Cola bought a minority 18 per cent stake in
innocent drinks, in an attempt to give Coca-Cola access to the smoothie market, which had
grown rapidly over the previous ten years and in which it had no presence whatsoever. Coca-
Cola later increased its stake in innocent, by 40 per cent to 56 per cent in 2010, and then to
90 per cent in 2013. Coca-Cola thereby effectively bypassed the set-up costs of developing
its own ‘question mark’ smoothie product, gaining a market presence at a relatively mod-
est cost (Neate, 2013). Similarly, in 2012, Facebook controversially spent US$1 billion to
acquire Instagram, which at the time had no real revenue and a relatively small (but rapidly
growing) user base. However, the strategy was to increase Facebook’s social networking on
mobile devices and Instagram would offer new capabilities in this direction. The company
now accounts for 10 per cent of the group’s revenue and it is reputed to be worth $25–35
billion (Heisler, 2016).
Portfolio analysis is an important analytical tool because it draws attention to the cash
flow and investment characteristics of each of a firm’s offerings, and it indicates how
financial resources can be manoeuvred to attain optimal strategic performance over the
long term. Essentially, excess cash generated by cash cows should be utilized to develop
question marks and stars, which are unable to support themselves. This enables stars to
Chapter
and Society 157
157
become cash cows and self-supporting. Dogs should be retained only for as long as they
contribute to positive cash flow and do not restrict the use of assets and resources else-
where in the business. Once they start to do so, they should be divested or ejected from
the portfolio.
By plotting all of a company’s offerings onto the Boston Box, it becomes visually easy to
appreciate just how well balanced the portfolio is. An unbalanced portfolio would be one that
has too many offerings clustered in one or two quadrants. Where offerings are distributed
equally, or at least are not clustered in any one area, and where market shares and cash flows
equate with their market position, the portfolio is financially healthy and well balanced. By
analysing the portfolio in this way, it becomes possible to project possible strategies and
their outcomes.
Portfolio Issues
Portfolio analysis is an important guide to strategic development, if only because it forces
answers to questions such as the following:
■ How fast will the market grow?
■ What will be our market share?
■ What investment will be required?
■ How can we create a balanced portfolio from this point?
The questions posed and the answers generated through use of the Boston Box, however, do
not themselves generate marketing strategies. As with all analytical tools and methodologies,
the matrix provides strategic indicators, not solutions; it is management’s task to consider infor-
mation from a variety of sources and then make its own judgement of the best solution. The
Boston Box has, however, been criticized for providing rigid solutions to product portfolio evalu-
ation when exceptions to the rule might exist, for example proposing that ‘cash cow’ products
should not be invested in, when a company may rely solely on its ‘cash cow’ products to provide
profits and not necessarily have new offerings in the pipeline to replace them. Equally, the Boston
Box proposes that ‘dog’ offerings should be divested when, in fact, they may actually be return-
ing a profit to the company.
Finding the necessary and objective data to plot the positions of products or strategic busi-
ness units (SBUs) on the two axes of relative market share and market growth rate can also be
problematic. Reliable industry data may not always be available.
Finally, it is not always easy to determine what market we are concerned with. For example, if
we consider the smoothie market, does this include fruit-based milkshakes, or even fruit juices
more generally?
Marketing Audit
As part of the process for developing a marketing strategy, it is necessary to make sense of
all the information that has been collected. This phase—referred to as the strategic market
analysis part of the marketing strategy process—requires a marketing audit to be undertaken.
Just as a financial audit considers the financial health of an organization, so the marketing
audit considers its marketing health. In particular, it brings together views about the three
environments. First, it considers the external opportunities and threats, over which man-
agement has little or no control. Second, it considers the nature, characteristics, and any
changes occurring within the performance environment, over which management has par-
tial influence. Third, it reviews the quality and potential of the organization’s products, mar-
keting systems, resources, and capabilities as part of the internal environment, over which
the company has full control. The different components of a marketing audit are shown in
Figure 4.6.
The audit covers the external environment, an organization’s objectives and strategies, and its
marketing programmes and performance, plus the organization itself and the relevant marketing
systems and procedures. We undertake marketing audits because they bring together critical
information, identify weaknesses so that they can be corrected, and provide a platform on which
to build marketing strategy.
The marketing audit can be undertaken either by an internal team, led by a senior manager,
or—if a more objective interpretation is desired—an outside consultant. Whoever conducts the
audit, it should be undertaken on a regular annual basis and be regarded as a positive activity
that can feed into marketing strategy. Marketing audits should not be instigated in response to
a crisis.
Environmental audit—external and performance environments
Marketing strategy audit—mission, goals, strategy
Marketing organization audit—structure, personnel
Marketing systems audit—information, planning, and control systems
Marketing function audits—products, services, prices, distribution, promotion
Figure 4.6
Dimensions of a marketing audit
Chapter 4 > The Marketing Environment 159
Chapter Summary
■ Identify and define the three core areas of the marketing environment.
The marketing environment incorporates the external environment, the performance environment, and
the internal environment. The external environment incorporates macroenvironmental factors, which are
largely uncontrollable and which organizations generally cannot influence. The performance environment
incorporates key factors within an industry that impact on strategic decision-making. The internal
environment is controllable and is the principal means by which an organization influences its strategy,
through its resource base.
■ Describe the key characteristics associated with the marketing environment.

The external environment consists of the political, social, and technological influences, and organizations
have limited influence over these. The performance environment consists of the competitors, suppliers, and
indirect service providers, shaping the way in which organizations achieve their objectives. Organizations
have more influence over these. The internal environment concerns the resources, processes, and policies
with which organizations manage to achieve their goals.
■ Explain PESTLE analysis and show how it is used to understand the external environment.
We considered the various components of the external marketing environment that may impact on any
particular organization using the PESTLE acronym, which assesses the political, economic, socio-cultural,
technological, legal, and ecological factors. Some of these factors are more important than others in any
particular industry.
■ Explain the environmental scanning process.

The environmental scanning process consists of the data-gathering phase, the environmental interpretation/
analysis phase, and the strategy formulation phase. The three processes are interlinked, but over time more
attention is focused on each one more than the others, so that, at the end of the process, greater effort
is expended on using knowledge gleaned from the external and competitive environments to formulate
strategy based on changes occurring and identified in the company’s environment.
■ Analyse the performance environment using the Porter’s Five Forces industry analysis model.
The most common technique used to analyse the performance environment is Porter’s Five Forces
model of competitive analysis. Porter (1980) concludes that the more intense the rivalry between the
industry players, the lower will be their overall performance. Conversely, the lower the rivalry, the greater
will be the performance of the industry players. Porter’s Five Forces comprise: supplier bargaining
power; buyer bargaining power; the threat of new entrants; rivalry among competitors; and the threat
of substitutes.
■ Analyse an organization’s product/service portfolio to aid resource planning.

An organization’s principal resources relate to the portfolio of offerings that it carries and the financial
resources at its disposal. We use portfolio analysis—specifically, the Boston Box—to determine whether
different SBUs or product/service formulations are stars, dogs, question marks, or cash cows. Each of
these categories suggest differing levels of cash flow and require different resources if they are to develop. It
is important to undertake a marketing audit as a preliminary measure on the basis of which we can properly
develop our marketing strategy.
160 Part 2 > Marketing Management and Strategy
Review Questions
1 Identify the three main marketing environments.
2 How might changes in the political environment affect marketing strategy?
3 How might changes in the economic environment affect marketing strategy?
4 How might changes in the socio-cultural environment affect marketing strategy?
5 How might changes in the technological environment affect marketing strategy?
6 How might changes in the legal environment affect marketing strategy?
7 How might changes in the ecological environment affect marketing strategy?
8 What are the three stages of the environmental scanning process?
9 What are Porter’s Five Forces?
10 What is product portfolio analysis and why is it useful?
1 Read through Case Insight 4.1. How do you think P. Rigas should grow its sales and profits,
reduce its bank loans, and still increase the size of its customer base in such a difficult trading
environment? (Hint: To help you answer the question, research—that is, scan—the current Greek
macroenvironment.)
2 Read Market Insight 4.2. Search the Internet for further information on the ‘healthy eating’ debate on
obesity and ‘fat taxes’, and then answer the following questions:
A What changes have taken place in the external environment to bring about the introduction of ‘fat
taxes’ in different countries?
B How should firms such as Warburton’s ensure that they keep up to date with trends in consumer
lifestyles, government legislation, and competitors’ development of new propositions?
C What strategies, in relation to proposition development and promotion, might Ribena adopt to ensure
that it does not get delisted by supermarkets other than Tesco?
3 Undertake an environmental analysis using PESTLE, by searching the Internet for appropriate
information and by using available market research reports, for each of the following markets:
A The automotive market (for example VW, Renault, BMW, Ford, or Toyota)
B The global multiple retail grocery market (for example Walmart, Carrefour, or Tesco)
C The beer industry (for example InBev, Carlsberg, Heineken, Miller Brands, or Budweiser Budvar)
4 Using the data in Table 4.1, identify the relative market shares of several leading manufacturer
brands in the UK laundry care market. These brands are often in direct competition with each
other. Use the market growth rate figure as the difference in total sales between 2011 and 2016,
then draw up a Boston Box to illustrate the product portfolio for each of the key companies and
its brands.
Table 4.1 UK laundry care market
2011 2012 2013 2014 2015 2016
Persil (Unilever) 12.1% 12% 13.1% 13.5% 13.5% 13.6%
Ariel (Procter & Gamble) 11.6% 12% 12.1% 11.6% 10.4% 9.9%
Surf (Unilever Group) 6.9% 7.3% 7.3% 7.5% 7.4% 7.3%
Bold (Procter & Gamble) 8.7% 8.6% 7.7% 7.2% 7% 7%
Vanish (Reckitt Benckiser) 4.5% 4.7% 4.7% 5.4% 6.3% 6.9%
Fairy (Procter & Gamble) 6.4% 6.5% 6.6% 6.5% 6.3% 6.3%
Note: The percentages represent the share of the retail value within the laundry care market for each brand for the relevant
year. The figures total about half of the value because minor brands and private labels are excluded from the analysis.
Source: Euromonitor International (2018).

Glossary
backward integration when a company takes competitive scope the breadth of an
over one or more of its suppliers; cf. forward organization’s focus, as measured either
integration. horizontally (by the range of its target
blue ocean strategy a strategic approach that industries, market segments, or geographical
focuses on the importance of reconfiguring regions) or vertically (by the extent to which it is
a market space to identify uncontested integrated).
new spaces that offer high potential (that is, crowdsourcing when an organization outsources
‘blue oceans’), while avoiding those in which a function originally undertaken by its employees
the company must compete on the same to a group (‘crowd’) of people, either as an open
terms as most other organizations (that is, call or in a more restricted way.
‘red oceans’). environmental scanning the management
Boston Box a popular portfolio matrix developed process internal to an organization designed to
by the Boston Consulting Group (BCG) and identify those external issues, situations, and
hence also sometimes known as the BCG threats that may impinge on its future and its
matrix. strategic decision-making.
competitive advantage achieved when an forward integration when a company takes over
organization has an edge over its competitors in one or more of its distributors; cf. backward
terms of factors that are important to customers. integration.
gross domestic product (GDP) a measure of the build trust, goodwill, interest, and ultimately
output of a nation and the size of its economy; relationships with a range of stakeholders.
calculated as the market value of all finished purchasing power parity (PPP) an economic
goods and services produced in a country during tool that seeks to demonstrate the relative value
a specified period—typically, annually or quarterly. of currencies between countries, so that there is
inflation the economic condition of rising prices. an equivalence of purchasing power.
key performance indicators (KPIs) metrics purchasing power parity (PPP) exchange rate a
developed to measure whether or not a company measure used to determine the relative wealth of
is achieving its corporate goals (for example on the population based on the cost of an identified
profit margins, total revenues, market share, etc.). basket of goods, which allows us to compare the
niche market a small part of a market segment wealth of one population with another.
that has specific and specialized characteristics, recession a fall in a country’s gross domestic
which make it uneconomic for the leading product (GDP) for two or more successive
competitors to enter this segment. quarters in any one year.
performance environment organizations that reverse engineering the process of developing a
directly or indirectly influence an organization’s (competitor’s) product from the finished version
ability to achieve its strategic and operational goals. (for example from a competitor’s prototype)
PESTLE an acronym used to identify a framework by taking it back to its constituent parts rather
that examines the external environment in than the usual approach of developing a (new)
terms of political, economic, socio-cultural, product by combining component parts into a
technological, legal, and ecological factors. finished product.
political environment that part of the scenarios constructs of potential future events
macroenvironment which is concerned with explored to assess how different outcomes may
impending and potential legislation and how it result from different strategic decisions.
may affect a particular firm. stakeholders people with an interest (stake) in
portfolio analysis an assessment of a company’s the levels of profit an organization achieves, its
mix of products, services, investments, and environmental impact, and its ethical conduct in
other assets performed to optimize the use of society.
resources and to assess the portfolio’s suitability, sustainable competitive advantage achieved
level of risk, and expected financial return. when an organization is able to offer a superior
positioning the way in which an audience of product to competitors, which is not easily
consumers or buyers perceives a product or imitated and which enjoys significant market
service, particularly as a result of the marketing share as a result.
communications process aimed at a target switching costs the psychological, economic,
audience. time, and effort-related costs associated with
price-sensitivity the extent to which a company substituting one product or service for another,
or consumer increases or lowers its purchase or changing a supplier from one to another.
volumes in relation to changes in price; a third-party logistics (3PL) a firm that provides
customer is price-insensitive when unit volumes part or all of the supply chain management
drop proportionately less than increases in prices. functions for another company—especially
public relations (PR) a non-personal form operational services, such as warehousing and
of communication used by companies to transportation.
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biggest-companies-in-the-uk-didnt-sign-the-pro-eu- 13 October 2018).
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culture/tvandradio/great-british-bake-off/11839482/ telegraph.co.uk/news/health/news/11770042/A-fat-
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Chapter 5
Marketing Strategy

3scale
Market Insight 5.1
Describe the strategic planning process and explain
Making a (Values) Statement
the key influences that shape marketing strategy
Analyse current conditions and formulate marketing Market Insight 5.2
KBC Bank: ‘The Bank of You’
strategies
Explain the different types of strategic marketing Market Insight 5.3
goal and associated growth strategies Targeting the Bottom of
the Pyramid
Describe the concepts associated with strategic
market action Market Insight 5.4
Airlines: Fight and Flight
Appreciate the main issues associated with
strategy implementation, including the principles of Market Insight 5.5
marketing metrics A Tale of Two Tech
Companies
Explain the key elements of a marketing plan
> Marketing
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Chapter 1 > Marketing andStrategy
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Case Insight 5.1

3scale
Through its staff and offices in Barcelona and San

Francisco, 3scale helps organizations to open, manage,
and use application programming interfaces (APIs). We
speak to Manfred Bortenschlager, API market development
director, to find out how the company competes in its
marketplace.
Steven Willmott and Martin Tantow founded 3scale The most important customer requirements from the
in 2007, convinced that the world would become developer’s perspective are, first, the value of the data
web-enabled with APIs as a critical digital infrastructure or service that the API provides access to (the more
requirement. The initial 3scale product focused on an API unique, the higher the value) and, second, simplicity
marketplace, providing a matchmaking service between of access to the API. The most important customer
API providers and API consumers. The company quickly requirement from an end consumer’s perspective
shifted to a more powerful business model—providing is added value to an application via additional
management capabilities for API providers. Now, 3scale functionality. This is often achieved via so-called API
sells an API management product based on monthly mashups, whereby a developer combines the APIs
subscriptions with different price plans, starting with of various API providers to create something new
a free plan in its basic form, freemium, also known as for the end consumer. Another requirement is ‘user
the Software-as-a-Service (SaaS) model. This model is experience’, which includes ease of use, clarity,
successful because it perfectly serves customers’ needs consistency, and speed.
for flexibility and scale. Today, 3scale powers the APIs for
3scale operates in a very fast-moving industry. To
close to 700 organizations.
be successful, customer focus is essential. We need
Application programming interfaces are a software to constantly adapt our offering in terms of product
technology that provide organizations with a novel features and the pricing model. To achieve that, we
and effective way of distributing and leveraging digital need to integrate engineering, marketing, and sales
assets. They represent gateways to an organization’s processes, and be able to react to change quicker
data or services (that is, digital assets), which can be than our competitors. We differentiate between
programmed and accessed by software, increasing ‘self-service’ and ‘enterprise’ customers. Self-service
automation, scalability, and efficiency. As an analogy, customers adopt the 3scale offer almost without
APIs can be seen as an automatic door to a building any human interaction, whereas customers on
with a security mechanism (such as a pass code or a enterprise plans get 24/7 phone support and/or higher
chip card). Digital transformation and digital strategies guaranteed product reliability. 3scale has three main
are based on APIs. The 3scale API management competitive differentiators:
product provides the essential security, visibility, and
1 The 3scale product is modular and uses cloud
control that allows organizations to define and measure
technologies in a unique way. Based on the
their strategies when using APIs. In terms of value
customer’s requirements, they can choose to host
chain and customer requirements, our service uses
some of the product modules in ‘the cloud’ and
a business-to-business-to-customer (B2B2C) model
some on their own IT infrastructure. This gives
as follows: API provider (owning and providing digital
unmatched availability, scalability, and flexibility.
assets) serves a developer (developing and distributing
web or mobile apps), who serves the end user (the final 2 3scale offers the shortest time to value in the
consumer of the apps and APIs). market, achieved via a comprehensive self-service
Case Insight 5.1

continued
model and detailed documentation. Customers can by many observers in the API management market
adopt 3scale very quickly and leverage the benefits to be a potential threat. With its size and financial
of APIs instantly. resources, the expectation was that it could have a
substantial impact on existing players in the market.
3 The freemium subscription model is fair and
transparent with very competitive pricing.
The question was: what strategy should 3scale
Customers appreciate the low barrier of entry and
develop to circumvent this competitive threat
the subscription model is easy to understand, with
from Amazon?
no surprises.
One complex problem was that Amazon Web Services Visit the online resources to watch a video
(AWS)—based around cloud technologies—launched interview with Manfred Bortenschlager in
the Amazon API Gateway product. This was perceived which he explains what 3scale developed.
Introduction
Have you ever thought about how organizations coordinate themselves so that they can make sales,
achieve profits, and keep their stakeholders satisfied? This does not happen accidentally. A great
deal of thought, discussion, planning, and action needs to occur, which involves seeking answers to
questions such as which markets the organization should be operating in, what resources are nec-
essary to be successful in these markets, who the key competitors are and what strategies they are
using, how we can develop and sustain a competitive advantage, and what is happening in the
world that might affect our organization? Indeed, these are some of the key questions facing 3scale
in Case Insight 5.1. You might notice that they refer to issues that represent the strategic context in
which organizations operate. These contextual issues can be considered in terms of four main ele-
ments: the organization (and its resources, skills, and capabilities); the target customers; the firm’s
competitors; and the wider external environment. These are set out in Figure 5.1.
Resources
and Competitors
capabilities
The strategic
context
The
Target
external
customers
environment
Figure 5.1
The four elements of the strategic context
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For example, Samsung’s strategic context is shaped by its communications expertise and
leading-edge technology skills, customers who expect a stream of added-value communication-
related products, and its main competitor, Apple. In addition, the wider environment is becoming
politically more sensitive to climate-change issues, terrorism, social change, the repercussions
of the economic crisis, and surges in technological development. By understanding and man-
aging these four elements, we can develop a coherent strategic marketing plan through which
offerings have a greater chance of success than if no analysis or planning is undertaken. For
marketing strategy to be developed successfully, it is necessary to understand an organization’s
strategic context and to formulate and fit the strategy to complement the strategic context.
Many organizations articulate their strategic context and their intended performance in the mar-
kets they target in terms of a framework that defines their vision, mission, values, organiza-
tional goals, and organizational strategy.
The vision statement sets out an organization’s future. It is a statement about what an
organization wants to become, giving shape and direction to its future. A vision should stretch
an organization in terms of its current position and performance, yet also help employees to feel
involved and motivated to want to be part of the organization’s future. According to its website,
Samsung Electronics’ vision for the current decade is to ‘Inspire the World, Create the Future’.
As part of this vision, Samsung plans to create a better world full of richer digital experiences,
through innovative technology and products.
The mission statement (often labelled ‘purpose’ in strategy documents) represents what
the organization wishes to achieve in the long term. It should be a broad statement of intention,
setting out an organization’s purpose and direction, oriented towards particular markets and
customers. A mission applies to all parts of an organization, binding its many elements together.
Above all else, however, the mission should aid managers and employees in making investment
and development decisions concerning which opportunities to pursue and which to ignore.
Table 5.1 gives examples of different mission statements.
Visit the online resources and complete Internet Activity 5.1 to learn more about the use of
mission and vision statements by different organizations and their implications for marketing
activities.
Mission statements are sometimes so generic that they fail to provide sufficient guidelines or
inspiration. Some stretch possibility to such an extent that they simply set a company up to fail.
For example, to expect an airport such as Adelaide or Hong Kong to become the largest airport
in the world would be unrealistic. Good mission statements are market-, not product-, oriented.
For example, a product-oriented approach such as ‘we make and sell lorries and trucks’ is too
general, and runs the risk of becoming outdated and redundant. By focusing on customers’
needs, the mission can be more realistic and durable. So ‘we transport your products quickly
and safely to your customers’, or ‘logistical solutions for your company’, provides a market
approach to the mission statement. Amazon.com does not simply sell books, Kindles, and
DVDs (product approach); it is much better to say that Amazon.com ‘strives to be Earth’s most
customer-centric company where people can find and discover virtually everything they want to
buy online’ (Amazonjobs, n.d.).
An organization’s values must coincide with its vision and mission, because they define how
people should behave towards each other within the organization and help to shape how goals
are achieved. Organizational values define the acceptable interpersonal and operating stan-
dards of behaviour. They govern and guide the behaviour of individuals within the organization.
Table 5.1 A selection of mission statements
Organization Mission (Purpose) statement

(country of origin)
Tesco UK ‘Serving customers a little better every day’
Coca-Cola (US) ■ ‘To refresh the world in mind, body and spirit
■ To inspire moments of optimism and happiness through our brands
and actions
■ To create value and make a difference’
Maserati (Italy) ‘. . . to build ultimate luxury cars exuding timeless Italian style which have
exotic interiors’
Oxfam (UK) ‘. . . to help create lasting solutions to the injustice of poverty. We are part of
a global movement for change, empowering people to create a future that is
secure, just, and free from poverty.’
Electrolux (Sweden) ‘We reinvent taste, care and wellbeing experiences for more enjoyable and
sustainable living around the world.
To create these experiences we focus our innovation on three areas:
We help people make great tasting, healthy food for friends and family. . . .
We help consumers care for their clothes by making them stay new and great
looking for longer. . . .
. . . Electrolux helps consumers get a better home environment through floor
care, air care and water care.’
JCB (UK) ‘Our mission is to grow our company by providing innovative, strong, high-
performance products and solutions to meet our global customers’ needs.
We will support our world-class products by providing superior customer care.
Our care extends to the environment and the community. We want to help
build a better future for our children, where hard work and dedication are given
their just reward.’
Sources: https://www.tescoplc.com/about-us/core-purpose-and-values/; https://www.coca-cola.co.uk/about-us/mission-

vision-and-values; https://successstory.com/companies/maserati; https://www.oxfam.org/en/our-purpose-and-beliefs; https://
www.electroluxgroup.com/en/electrolux-purpose-18919/; https://www.jcb.com/en-gb/about/careers/why-work-at-jcb
Organizations that identify and develop a clear, concise, and shared meaning of values and
beliefs shape the organizational culture and provide strategic direction.
Organizational values are important because they can help to guide and constrain employee
behaviour, as well as recruitment and selection decisions. Without them, individuals tend to
pursue behaviours that are in line with their own individual value systems, which may be inap-
propriate and may lead to a failure to achieve corporate goals. However, values do not drive
a business as such; rather, they can be used to motivate the employees within the business.
For values to be useful and have meaning, they must be internalized by the organization (see
Market Insight 5.1).
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Market Insight 5.1

Making a (Values) Statement
IKEA, the world’s largest furniture dealer, claims that Trusting each other, being positive and forward-looking
its values affect its ways of working (WOWs). Its inspire everyone to contribute to development.
values statement is based on Ingvar Kamprad’s The
Testament of a Furniture Dealer, a guidebook written Lead by example
for his co-workers in the 1970s, and, for the UK We see leadership as an action, not a position. We look
division, is worded as follows. for people’s values before competence and experience.
People who ‘walk the talk’ and lead by example. It is
Togetherness about being our best self and bringing out the best in
Togetherness is at the heart of the IKEA culture. We each other.
are strong when we trust each other, pull in the same
direction and have fun together. In an open statement, Samuel J. Palmisano, former
chair, president, and chief executive officer (CEO) of
Caring for people and planet tech company IBM, recalled the way in which IBM’s
We want to be a force for positive change. We have the current values originated. He referred to the time
possibility to make a significant and lasting impact— spent thinking, debating, and determining IBM’s
today and for the generations to come. fundamentals. He felt that, in a time of great change,
IBM needed to affirm reasons for being, for setting
Cost-consciousness out how the company is different to others, and what
As many people as possible should be able to afford a should drive individual employee behaviour:
beautiful and functional home. We constantly challenge
Importantly, we needed to find a way to engage
ourselves and others to make more from less without
everyone in the company and get them to speak
compromising on quality.
up on these important issues. Given the realities of
Simplicity a smart, global, independent-minded, 21st-century
workforce like ours, I don’t believe something as vital
A simple, straightforward and down-to-earth way of
and personal as values could be dictated from the top.
being is part of our Småland heritage. It is about being
ourselves and staying close to reality. We are informal,
pragmatic and see bureaucracy as our biggest enemy.
Renew and improve

We are constantly looking for new and better ways
forward. Whatever we are doing today, we can do
better tomorrow. Finding solutions to almost impossible
challenges is part of our success and a source of
inspiration to move on to the next challenge.
Different with a meaning

IKEA is not like other companies and we don’t want
to be. We like to question existing solutions, think in
unconventional ways, experiment and dare to make
mistakes—always for a good reason.
Samuel J. Palmisano, IBM’s former chair,
Give and take responsibility president and chief executive officer, worked
openly to develop an inclusive culture based
We believe in empowering people. Giving and taking on agreed values
responsibility are ways to grow and develop as individuals. Source: Gage Skidmore/Wikimedia Commons/CC-BY-SA-3.0.
Market Insight 5.1

continued
So, for a three-day period in 2003, for the first time in interdependent, it is simply essential that we work
100 years, the then 319,000 IBMers worldwide were for each other’s success. If we’re going to solve the
invited to engage in an open ‘ValuesJam’ on the global biggest, thorniest and most widespread problems
intranet. Following much open debate, honesty, and in business and society, we have to innovate in
involvement, the following values emerged: ways that truly matter. And we have to do all this
by taking personal responsibility for all of our
■ ‘Dedication to every client’s success’;
relationships—with clients, colleagues, partners,
■ ‘Innovation that matters—for our company and investors and the public at large. This is IBM’s
for the world’; and mission as an enterprise, and a goal toward which
we hope to work with many others, in our industry
■ ‘Trust and personal responsibility in all relationships’.
and beyond.
Palmisano’s statement concludes thus:
Sources: https://www.ikea.com/gb/en/this-is-ikea/working-
To me, it’s also just common sense. In today’s at-the-ikea-group/who-we-are/; https://www.ibm.com/ibm/
world, where everyone is so interconnected and values/us/
Whilst both values statements stress ways of working, values statements is important, because it determines
the IBM example also supports the generally accepted the extent to which employees buy into them and
idea that an organization’s values should be about follow them. By defining how all employees should
what an organization wants to become, by giving behave and the importance of relationships within the
shape and direction to its future. The process by organization, both IBM and IKEA seek to shape how
which organizations develop the wording of their their goals can be accomplished.
Related Topics
mission statements; corporate strategy; SWOT
1 How do IKEA’s and IBM’s sets of values differ? 3 Find another values statement, this time from
a not-for-profit organization, and compare this
2 What might be the impact on employees of seven
with those of IKEA or IBM.
(IKEA), rather than three (IBM), sets of values?
Visit the online resources and follow the web link to read Ingvar Kamprad’s The Testament of
a Furniture Dealer.
Organizational goals at the strategic level represent what should be achieved—that is, the
outcomes of the organization’s various activities. These may be articulated in terms of profit,
market share, share value, return on investment, or numbers of customers served. In some
cases, the long term may not be a viable period of focus and a focus short term is absolutely
essential. For example, should an organization’s financial position become precarious, it may be
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necessary to focus on short-term cash strategies to remain solvent and so remove any threat
arising from a takeover or administrators being called in prior to bankruptcy.
Organizational strategy, or corporate strategy, is the means by which organizational
resources are matched with the needs of the organization’s operations environment. Corporate
strategy involves bringing together human resources, logistics, production, operations, mar-
keting, information technology (IT), and the financial parts of an organization into a coherent
strategic plan that supports, reinforces, and accomplishes the organization’s goals in the most
effective and efficient way. In this chapter, we are concerned with the development of marketing
strategy, and how it should support and reinforce corporate strategy.
In some very large organizations, the planning process is complicated by the fact that the orga-
nization operates in significantly different markets. In these cases, the organization creates strate-
gic business units (SBUs). Each SBU assumes the role of a separate company and creates its
own strategies and plans to achieve its corporate goals. So Indian company Tata operates through
seven SBUs—namely, Information Technology and Communications, Engineering, Materials,
Services, Energy, Consumer Products, and Chemicals. Each of these Tata companies operates
independently. Royal Philips Electronics uses four SBUs: Domestic Appliances and Personal Care;
Lighting; Medical Systems; and Consumer Electronics. All of these represent significantly different
markets, each with its own characteristics, customer needs, and competitors.
According to McDonald (2002: 37), a global guru of marketing planning, the strategic mar-
keting planning process consists of a series of logical steps to be worked through to arrive at a
marketing plan. These steps can be aggregated into four phases. The first phase is concerned
with setting the right mission and corporate goals (that is, setting the strategic context). The
second involves reviewing the current situation or context in which the organization is operat-
ing. The third phase is used to formulate strategy, and the final phase considers the allocation of
resources necessary to implement and monitor the plan.
At the broad level, the strategic marketing planning process is focused around the following
ten stages:
1 The organization sets out its overall vision, mission, and values at the corporate level.
2 Measurable corporate goals are established that apply to the whole organization.
3 A marketing audit is undertaken to explore the external situation in which the organization
intends to operate and the resources available to be used.
4 A SWOT analysis is undertaken to explore the organization’s competitive position and how
external factors are impacting on the organization.
5 A set of key assumptions is drawn up to help planners to understand the basis on which the
plan will be developed (for example whether inflation will continue at 2.5 per cent, whether
the UK will have some form of European free trade agreement post-Brexit).
6 Marketing objectives and strategies are formulated (see Research Insight 5.1 for an over-
view of what strategy is).
7 The marketplace outcomes likely as a result of implementing the plan are estimated.
8 A set of alternative marketing mixes is developed (see Chapter 1) to allow planners to opti-
mize the likely results of implementing the marketing plan.
9 Depending on the size of the organization, the range of SBUs and/or offerings is determined,
and a marketing budget and other resources are allocated to help and support each one.
10 Each business and/or offering then develops detailed functional and competitive strategies
and plans, such as a one-year implementation plan, the plan is implemented, and the results
are measured and used to feed into the next planning cycle (McDonald, 2002).
Mintzberg, H. (1987). The strategy concept: five Ps for strategy. California

Management Review, 30(1), 11–26.
Mintzberg’s seminal paper made an important contribution to how we understand the concept of strategy
because it argued that strategy should not simply be regarded as a linear sequential planning process. He
explained that strategy can also be interpreted as a plan (what the organization intends to do); a ploy (how
an organization seeks to wrong-foot its competitors); pattern (how it responds to market, environment, and
competitor stimuli); perspective (how the organization sees itself and how it wants customers to see it); and
position (how the organization manages its resources to appeal to its customers vis-à-vis the competition).
Marketing strategy and planning should therefore support and contribute to the overall corpo-
rate strategy (see Figure 5.2). However, note that marketing strategy and marketing plans can
be written for the business, product/service, or market levels.
Specification of mission, values, and goals

Decision on portfolio of activities
Allocation of resources
Corporate strategy
Reports Reports
Frames Directs
Informs Informs
Shapes Guides
Achieves Achieves
Marketing strategy
Selection of target markets and segments

Figure 5.2
Determination of how to compete
The relationship between Selection of marketing mix
corporate and marketing Implementation and evaluation
strategies
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Strategic market Strategic marketing Strategic market

analysis goals action Figure 5.3
Three key activities
of marketing strategy
development
Strategic Marketing Planning: Activities

The development of a strategic marketing plan is a complex and involved process. It does not
occur in linear logical steps, as implied earlier, but certain key aspects can be identified. These
aspects concern three broad activities that are necessary when considering the development of
marketing strategy and will form the framework within which we examine this topic (see Figure 5.3).
Figure 5.3 shows that it is necessary to first develop knowledge and understanding of the
marketplace, referred to here as strategic market analysis. Second, it is necessary to deter-
mine what the marketing strategy should achieve—that is, what are the strategic marketing
goals that need to be accomplished? The third decision area concerns how the goals are to be
achieved. This relates directly to strategic market action—that is, how the strategies should be
developed as plans and how these plans should be implemented. These three activities form the
basis of this chapter and are considered next.
Strategic Market Analysis

The starting point of the marketing strategy process is the development of knowledge and
understanding about the target market(s) identified as part of the corporate strategy. Different
people in the organization have varying levels of market knowledge and expertise, some of it
accurate and up to date, but some of it outdated and inaccurate. It is therefore crucial that all
people involved in the strategy process maintain accurate, pertinent, and up-to-date information.
In Chapter 4, we saw how PESTLE and environmental scanning processes can be used to
understand and make sense of the external environment. We considered Porter’s (1985) ‘Five
Forces’ model to understand industry dynamics and how firms should compete strategically if
they are to be successful in the performance environment. We also learned about the key ele-
ments necessary to appreciate our competitors’ actions and intentions. In addition, we gained
insight into the importance of understanding the internal environment and how a firm’s resources
need to complement the external and performance environments. The task now is to assimilate
this information—to bring it together in a form that can be easily understood.
SWOT Analysis
Perhaps the most commonly used strategic analysis tool is SWOT analysis—that is, the analy-
sis of strengths, weaknesses, opportunities, and threats. It is a series of checklists deriving from
the marketing audit and PESTLE analysis, and is presented as internal strengths and weak-
nesses (that is, relative to the competition), and external opportunities or threats. Strengths and
weaknesses relate to the internal resources and capabilities of the organization, as perceived by
customers (Piercy, 2002):
■ A strength is therefore something an organization is good at doing, or something that gives it

particular credibility and market advantage.
■ A weakness is something an organization lacks or performs in an inferior way in comparison
with others.
Opportunities and threats are externally oriented issues that can potentially influence the per-
formance of an organization or offering. Information about these elements is generated through
PESTLE analysis:
■ An opportunity is the potential to advance the organization by developing and satisfying an
unfulfilled market need.
■ A threat is something that, at some time in the future, may destabilize and/or reduce the
potential performance of the organization.
SWOT analysis is used to determine an organization’s strategic position and is therefore an
input to the strategy option formulation process. It highlights the need for a strategy to produce
a strong fit between the internal capability (strengths and weaknesses) and the external situa-
tion (opportunities and threats). SWOT helps us to sort through the information generated in the
audit and to identify the key issues, and it prompts thought about converting weaknesses into
strengths and threats into opportunities—that is, generating conversion strategies. For example,
some companies have developed and run call centres for their own internal use, but saw oppor-
tunities to leverage that strength and run call centres for other companies.
In inexperienced hands, SWOT often leads to long lists of items. Although the SWOT pro-
cess may lead to the generation of these lists, the analyst should be attempting to identify the
key strengths and weaknesses (which should link to the competitor analysis and Porter’s Five
Forces) and the key opportunities and threats (which should link to the PESTLE analysis). The
individual SWOT elements should be developed because they impact on strategy; if they don’t,
they should not be included within the analysis. A ‘strength’ is not a strength if it has no strategic
implications and if it not something that helps the company to compete in the marketplace.
Once the three or four elements of each part of the SWOT matrix have been derived, then a
number of pertinent questions need to be asked, as follows:
1 Does the organization do something far better than its rivals? If it does, this is known as a
competitive advantage (or distinctive competence, or differential advantage), and can lead to
a competitive edge.
2 Which of the organization’s weaknesses does the strategy need to correct and is it competi-
tively vulnerable?
3 Which opportunities can be pursued, and are there the necessary resources and capabilities
to exploit them?
4 Which strategies are necessary to defend against the key threats?
Figure 5.4 depicts a SWOT grid for a small digital media agency. The outcome of a successful
SWOT analysis is a series of decisions that help the company to develop and formulate strategy
and goals. Note that there are no more than four items in any one category, rather than a list of
ten or so items. It is important to prioritize and make a judgement about what is really key. The
actions that follow the identification of key issues should be based around matching opportuni-
ties with strengths, and weaknesses with threats. In this example, it may be possible to diversify
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Strengths Weaknesses
Quick to respond to changes in the Too much work from a few clients and
marketing environment at non-premium rates
Flat management encourages fast Few project management skills

decision-making
High office and finance costs
Use of contractors enables flexibility—
lowers employment costs/finance and Low customer base
improves customers’ perception of
expertise
Opportunities Threats
Emerging markets such as professional Larger media houses buying business

services (e.g. dentists, lawyers, surveyors)
Speed of technological advances
New distribution channels
Contractors have low levels of loyalty
Tax incentives to encourage
e-commerce
Figure 5.4
A SWOT analysis for a small digital media agency
into professional services, a niche market (an opportunity), using particular contractors who
have knowledge and relevant expertise (a strength).
Weaknesses need to be addressed, not avoided. Some can be converted into strengths; oth-
ers, into opportunities. In this example, entering the professional services market would probably
increase the number of customers and enable premium rates to be earned. Threats, meanwhile,
need to be nullified. For example, by building relationships with key contractors (suppliers) and
selected larger media houses, the agency in Figure 5.4 might dissipate its threats—or even
develop them into strengths. Prahalad and Hamel (1990) popularized the idea that organizations
should stick to developing what they are good at—that is, focus on developing their core com-
petences. Consequently, many companies started to divest themselves of businesses that were
not profitable or which were tangential to their main purpose (see Market Insight 5.2).
SWOT analysis.
Strategic Marketing Goals

The purpose of strategic market analysis is to help managers to understand the nature of an
industry, the way in which firms behave competitively within the industry, and how competition
is generally undertaken. From this information, it becomes easier to determine exactly what
the marketing strategy should actually achieve—that is, what the strategic marketing goals
should be.
Prahalad, C.K., and Hamel, G. (1990). The core competence of the organisation.
This article was ground-breaking because it provided a first important insight into core competencies as
a critical means of developing superior business performance. The article led a revolution in management
thinking, which moved away from aiming to develop conglomerates comprising disparate and unrelated
SBUs towards aiming to develop companies with SBUs that were aligned with each other based on a
common set of organizational resources and capabilities.
There are several types of strategic objective, but four main ones are considered briefly
here: niche; hold; harvest; and divest. However, the section that follows considers a further
objective—namely, growth (see Figure 5.5).
Niche objectives are often the most suitable when firms operate in a market dominated by a
major competitor and financial resources are limited. A niche can be a small segment or even a
small part of a segment. Niche markets arise because it is not economic for the leading competi-
tors to enter this segment given that these customers have special needs and the leading firm
does not want to devote resources to them. To be successful in niche markets, it is important
to have a strongly differentiated product offering, supported by a high level of service. (See
Market Insight 5.2 for an example of an Irish bank adopting a niche position in its marketplace.)
The Australian government, for example, identified several niche markets when exploring the
development of its tourism business. It identified sports, cycling seniors, culture and the arts,
backpackers, health, people with disabilities, caravanning and camping, food, wine, and agri-
tourism as potential niche markets.
Strategic
marketing
goals
Hold Niche
Harvest Growth Divest
Figure 5.5
Five types of strategic
marketing goal
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Market Insight 5.2

KBC Bank: ‘The Bank of You’
Irish retail banking was traditionally dominated by only technology companies: Apple Pay; Google Pay;
a few established competitors. KBC Bank Ireland, FitBit Pay; and Garmin Pay. Co-designed with
originally set up as an Irish intercontinental bank, consumers, the launch of a new instant on-boarding
entered domestic personal banking as a challenger mobile app in 2017 was the first of its kind in the
brand in 2013 with a current account product. Since market, coming in response to growing customer
then, it has expanded into credit cards, personal loans, demand for digital solutions that combine faster
overdrafts, and other product areas. With a staff of credit decision times with a seamless application
more than 1,000, and making a commitment in 2017 and approval process. The app allows customers to
to expand and grow with its ‘Digital First’ focus, KBC open a current account and start banking in only 5
Group’s €1.5 billion investment saw the establishment minutes. In 2018, KBC enhanced its positioning by
of an Innovation Hub in Dublin—aiming to transform offering overdraft and consumer finance, by lending
the bank’s digital capabilities Europe-wide. Adopting a up to €20,000 via the app, and by allowing new and
niche strategy, KBC focused on targeting millennials, existing customers to get approval and funds in no
who tend to be early adopters on the cusp of making more than 60 minutes.
big financial decisions and who are digitally savvy.
Although KBC is a ‘Digital First’ challenger bank,
KBC Bank positions itself as ‘The Bank of You’. As a it has 16 non-traditional hubs around the country,
‘Digital First’ challenger bank, it differentiates itself from recognizing that customers occasionally want personal
its competitors by providing a consumer-focused brand meetings with advisers. Comfortable seats and
experience. Its brand manifesto exclaims: booths, with free Wi-Fi and barista coffee, replace
We believe banking is something you should do, the traditional banking experience. With large digital
not just a place you visit. A bank that fits into your screens, an open-plan layout, and greetings from a
life as well as your pocket. That’s on your terms digital ambassador, KBC has broken away from the
and on your time. Our opening hours are your traditional banking mould—and it’s paying off. KBC has
opening hours. We see people as people but treat grown its customer base and the average number of
them as customers. Whether it’s web chat, phone products that customers hold is increasing. The bank
chat or a face-to-face chat. At our hub or at yours. has been awarded Gold for the ‘Best Technology/
So let’s start experiencing . . . the bank of you. Innovation Campaign’ for its instant account-opening
app (‘five steps in five minutes’) in the 2018 Smart
To live ‘Digital First’ requires a strong digital offering, Marketing Awards. KBC customers are highly
so when Google launched Android Pay in December engaged, with mobile transactions increasing by 58 per
2016, it was available to KBC’s customers on the cent year on year.
day of launch. KBC is the only bank in Ireland to
offer digital wallets from four of the world’s leading Sources: KBC (2018a, 2018b, 2018c, n.d.); Nugent (2018).
This market insight illustrates how a challenger bank customer strategy. Millennials in particular were drawn
launched a new proposition in a new market by to the brand and its offerings as KBC Bank introduced
positioning its offering mainly around millennials. Given innovative digital products with immediate access and
limited financial resources and the market advantage quick decision-making, along with quirky advertising
of incumbent banks, it developed a strongly campaigns that look and feel different from those of
differentiated offering by focusing on a digital-led other banks.
Market Insight 5.2

continued
Related Topics
digital marketing; segmentation; positioning; niche marketing
1 Why do you think KBC Bank Ireland was keen to 3 What other brands can you think of that adopt a
target millennials? niche marketing strategy?
2 Will KBC Bank be able to continue to dominate This market insight was kindly contributed by Dr Lucia Walsh,
Dublin Institute of Technology, Ireland.
this niche market? Why, or why not?
Hold objectives are concerned with defence. They are designed to prevent and fend off attack
from aggressive competitors. Market leaders are the most likely to adopt a holding strategy
because they are prone to attack from new entrants and their closest rivals as they strive for the
most market share. Apple, with around 44 per cent of the global handset market, was pursuing
this strategy when it launched the iPhone X in late 2017 with new features such as an edge-to-
edge organic light-emitting diode (OLED) screen, wireless charging, facial recognition technol-
ogy, and a dual-lens camera—all in the hopes of fending off arch-rival Samsung, which holds
22 per cent of the global market, and which launched the Galaxy Note 8 with similar product
attributes the same week (Anon., 2017a). Market leadership is important because it generally
drives positive cash flows, confers privileges such as strong bargaining positions with suppliers,
and enhances image and reputation. Hold strategies can take a number of forms, varying from
‘doing nothing’ to maintain market equilibrium, through implementing a counter-offensive, to
withdrawing from a market completely.
Harvest objectives are often employed in mature markets as firms/offerings enter a decline
phase. The goal is to maximize short-term profits and stimulate a positive cash flow. By strip-
ping out marketing communications and research and development (R&D), it becomes possible
to generate cash for use elsewhere. These funds generate new offerings, support Boston Box
‘stars’, or turn ‘question marks’ into ‘dogs’ (see Chapter 4).
Divest objectives are necessary when offerings continue to incur losses and generate nega-
tive cash flows. Divestment can follow on naturally from a harvesting strategy. Typically, low
share offerings in declining markets are prime candidates to be divested. Divestment can make
companies much more profitable if they reinvest the returns in new profitable ventures (Mankins,
Harding, and Weddigen, 2008). In a study by Bain & Company, companies focused on divest-
ment significantly outperform those that are not by about 15 per cent over a ten-year period,
based on total shareholder return (Wininger and Rujana, 2017). Divestment may be actioned
by selling off the offering should a suitable buyer be available, or by simply withdrawing from the
market. For example, Procter & Gamble (P&G) divested the Sunny Delight orange drink brand,
General Motors sold off Saab to sports car manufacturer Spyker, and Ford sold off Jaguar to
Indian company Tata. In 2014, Johnson & Johnson divested its Ortho Clinical Diagnostics unit,
which makes blood-screening equipment and laboratory blood tests, to the Carlyle Group.
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Growth
The vast majority of organizations consider growth to be a primary objective. However, there are
different forms of growth and care needs to be taken to ensure that the right growth goals are
selected. Growth can be intensive, integrated, or diversified:
■ Intensive growth refers to concentrating activities on markets and/or offerings that are
familiar. By increasing market share or introducing new offerings to an established market,
growth is achieved by intensifying activities. For example, Volkswagen, the world’s biggest
carmaker in 2017, has said it will launch 30 new electric vehicles (EVs) by 2025, predicting
that they will account for up to 25 per cent of its sales (Anon., 2017b).
■ Integrative growth occurs where an organization continues to work with the same offer-
ings and the same markets, but starts to perform some of the activities in the value chain that
were previously undertaken by others. For example, Benetton moved from designing and
manufacturing its clothing products into retailing them as well.
■ Growth through diversification refers to developments outside the current chain of value-
adding activities. This type of growth brings new value chain activities because the firm is op-
erating with new offerings and in new markets. For example, Mars bought VCA, a veterinary
services company, for US$9.1 billion, building its profile in the pet care business, alongside its
manufacture of pet food products such as Whiskas, Sheba, and Pedigree (Nicolaou, 2017).
The idea that growth is allied to product–market relationships is important and Ansoff (1957)
proposed that organizations should first consider whether new or established products are to
be delivered in new or established markets. His product–market matrix (Figure 5.6), otherwise
known as Ansoff’s matrix, is an important first step in deciding what the marketing strategy
should be. (The product–market matrix is examined further in Chapter 7.)
One strategy that several large corporations employ is to target new or adapted products
at extremely poor people in underdeveloped countries. Referred to as ‘bottom of the pyramid’
(BoP) strategies (Prahalad, 2004), the approach requires firms to offer products at extremely low
prices to the poorest individuals. By maintaining an extremely low cost base, they can generate
low margins. Respectable profits can be achieved, however, because of the huge sales vol-
umes. For example, Bangladesh is regarded as an attractive market because it has a population
of more than 163 million. Unilever sold its Wheel brand detergent to low-income consumers in
India using this strategy (Payaud, 2014).
Genuine BoP marketing strategies are considered to involve three main criteria:
■ they are directed at the very poor, and feature both affordability and availability;
■ they have a consumer orientation featuring adaptability and consumer education; and
■ they are considered to be both fair and inclusive, so that local communities are able to par-
ticipate in all stages of the value chain.
Market Insight 5.3 offers some examples.
Present products New products
Present markets Market penetration Product development Figure 5.6

New markets Market development Diversification Ansoff’s matrix
Source: Adapted from Ansoff (1957).
Market Insight 5.3

Targeting the Bottom of the Pyramid
Nestlé’s strategy involves developing a wide range of the villages are used to inform consumers about the
popularly positioned products (PPPs) for low-income product benefits and how they should be used.
consumers around the world. These include culinary
products, beverages, and dairy and confectionery P&G’s Children’s Safe Drinking Water Program (CSDW)
products sold under a number of major global brands, has provided water purification packets on a not-for-
including Maggi, Nido, and Nescafé. One such PPP, profit basis since 2004. With a range of partners, the
developed in 2009, comprises high-quality food programme supplies more than 9 billion litres of purified
products that provide nutritional value to lower-income drinking water to more than 75 countries. P&G’s goal is
consumers. These products are sold at an affordable to be providing 15 billion litres of clean drinking water by
price and in appropriate formats to address the needs 2020. P&G’s overall marketing strategy, however, involves
of some 3 billion lower-income consumers worldwide. distributing its international brands to BoP markets, with
The products may be fortified with micronutrients that pack sizes adapted to complement local purchasing
help to address the mineral and vitamin deficiencies that power. This indicates that—unlike Danone, which is
are most prevalent among lower-income consumers involved with food products—P&G is not so concerned
(for example iron, zinc, iodine, and vitamin A). To with the environment or the inclusion of local communities
help address iodine deficiency, for example, Nestlé in procurement, production, or distribution processes.
developed its iodine-enriched Maggi products (that is,
Sources: Payaud (2014); https://csdw.org/about-us; https://
bouillons, seasonings, and noodles) using iodized salt.
www.nestlenido.com/#aboutnido
Popularly positioned products are manufactured in

single-serve packs that meet the needs of consumers
for both affordability and convenience. Single-serves
are adapted for on-the-go consumption and are very
popular.
In Cameroon, consumers prefer to buy Nido, a

powdered milk, in 26-gram single-serves because
the quantity corresponds exactly to what is needed
for a glass of milk. This avoids overconsumption and
waste. Single-serves are also convenient because
they avoid problems linked to conservation such as
humidity, pests, and a lack of refrigeration. Products are P&G’s Children’s Safe Drinking Water Program
manufactured locally using local perishable agricultural provides water purification packets on a not-
raw materials produced through Nestlé-trained local for-profit basis.
subcontractors. Cooking caravans travelling through Source: Photo courtesy of Procter & Gamble.
The PPPs can be considered through the lens of the three or educate consumers. Evidence that the third element
main elements that are said to constitute BoP strategies. is present—that they are considered to be both fair and
First, it is clear that PPPs are directed at the very poor inclusive, so that local communities are able to participate
(affordability and availability) and that they are consumer- in all stages of the value chain—is not entirely clear
oriented, because they are adaptable and help to inform because this element is not always fully implemented.
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Market Insight 5.3

continued
Related Topics
mission and values; strategic analysis; strategic goals; competitive advantage; generic strategies
1 By means of what three criteria can BoP 2 Why do you believe P&G and Nestlé are involved
strategies be considered genuine? Does the with BoP strategies?
P&G’s CSDW Program satisfy these three
3 Find another example of a BoP strategy.
criteria and can it therefore be considered a
genuine BoP strategy?
Strategic Market Action

The final set of marketing strategy activities concerns the identification of the most appropriate
way of achieving the goals and putting the plan into action: the implementation phase.
There is no proven formula or toolkit that managers can use because of the wide range of
internal and external environmental factors; rather, managers tend to draw upon their own expe-
rience to know which strategies are more likely to be successful than others. We can, however,
consider ideas about competitive advantage, generic strategies, competitive positioning, strate-
gic intent, and marketing planning and implementation (see Figure 5.7).
Competitive Advantage
According to Hoffman (2000: 6), competitive advantage is ‘the prolonged benefit of implement-
ing some unique value-creating strategy not simultaneously being implemented by any current
or potential competitors along with the inability to duplicate the benefits of this strategy’. In other
words, sustainable competitive advantage is achieved when an organization has a significant
Strategic
market
action
Generic Competitive
strategies advantage
Marketing
Competitive Strategic
plans
positioning intent
Figure 5.7
Strategic market action
and sustainable edge over its competitors in terms of attracting buyers. Advantage can also be
secured by coping with the competitive forces better than its rivals. Advantage can be devel-
oped in many different ways. Some organizations have an advantage simply because they are
the best-known organization or brand in the market. Some achieve it by producing the best-
quality offering or by having attributes that other offerings do not have. For example, some
pharmaceutical brands have an advantage while patent protection exists; as soon as the patent
expires and competitors can produce generic versions of the drug, the advantage is lost. Some
organizations have the lowest price, whereas others provide the best support and service in the
industry. Whatever the advantage, the superiority has to be sustainable across time.
According to Porter (1985), the conditions necessary for the achievement of sustainable com-
petitive advantage are as follows:
1 The customer consistently perceives a positive difference between the offerings provided by
a company and its competitors.
2 The perceived difference results from the company’s relatively greater capability.
3 The perceived difference persists for a reasonable period of time—that is, sustainable com-
petitive advantage is durable only as long as it is not easily imitated.
Generic Strategies
If the importance of achieving a competitive advantage is accepted as a crucial aspect of a suc-
cessful marketing strategy, then it is necessary to understand how strategies can lead to the
development of sustainable competitive advantages. Porter (1985) proposed that there are two
essential routes to achieving above-average performance: to become the lowest cost producer;
or to differentiate the offering until it is of superior value to the customer. These strategies can
be implemented in either broad (mass) or narrow (focused) markets. Porter suggested that this
gives rise to three generic strategies: overall cost leadership; differentiation; and focus.
Cost leadership does not mean a lower price, although lower prices are often used to attract
customers. By having the lowest cost structure, an organization can offer standard offerings
at acceptable levels of quality, yet still generate above-average profit margins. If attacked by a
competitor using lower prices, the low-cost leader has a far bigger cushion than its competitors.
Charging a lower price than rivals is not the critical point; the competitive advantage is derived
from how the organization exploits its cost/price ratio. By reinvesting the profit, for example by
improving product quality, investing more in product development, or building extra capacity, it is
more likely to achieve long-run superiority. One example is Chinese low-cost retailer and variety
store Miniso, which has stores around the world, including in North Korea (Anon., 2017c), and
offers most of its products at $2.99 in its Canadian stores (about £1.75, or €1.97, at time of
writing). Another example would be the Beko brand from Turkish white goods supplier Arcelik.
A differentiation strategy requires that all value chain activities are geared towards the creation
of offerings that are valued by, and which satisfy the needs of, particular broad segments. By
identifying particular customer groups, each of which has a discrete set of needs, a product can
be differentiated from its competitors. Fashion brand Zara differentiated itself by reformulating its
value chain so that it became the fastest high-street brand to design, produce, distribute, and
make fashion clothing available in its shops.
Customers are sometimes prepared to pay a higher price—that is, a price premium—for
offerings that deliver superior or extra value. For example, the Starbucks coffee brand is strongly
differentiated and valued, and consumers are willing to pay higher prices to enjoy the Starbucks
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Miniso store in Sydney, Australia, advertising its $2.99 deals

Source: © Wpcpey/Wikimedia Commons (CC BY-SA 4.0).
experience. However, differentiation can be achieved by low prices, as evidenced through the
success of low-cost airlines, such as the UK’s easyJet and Ireland’s Ryanair.
Offerings can be differentiated using a variety of criteria. Indeed, each element of the market-
ing mix is capable of providing the means for successful long-term differentiation. Differentiation
can lead to greater levels of brand loyalty. For example, in contrast to low-cost ASDA, Waitrose
provides a strongly differentiated supermarket service.
Organizations use focus strategies to seek gaps in broad market segments or to find gaps in
competitors’ ranges. In other words, focus strategies help to seek out unfulfilled market needs.
The focused operator then concentrates all value chain activities on a narrow range of offerings.
Focus strategies can be oriented towards being the lowest cost producer for the particular
segment (for example Aldi, in the supermarket sector) or offering a differentiated offering for
which the narrow target segment is willing to pay a higher price (for example Vans, in the trainer
market). This means that there are two options for a company wishing to follow a focus strat-
egy—one is low cost and the other is differentiation—but both occur within a particular narrow
segment. The difference between a broad differentiator and a focused differentiator is that the
former bases its strategy on attributes valued across a number of markets, whereas the latter
seeks to meet the needs of particular segments within a market.
Porter (1985) argues that, to achieve competitive advantage, organizations must pursue one
of these three generic strategies. He argues that a failure to be strategically explicit results in
organizations being ‘stuck in the middle’—that is, achieving below-average returns and hav-
ing no competitive advantage. It has been observed, however, that some organizations have
been able to pursue both low-cost and differentiated strategies simultaneously. For example, an
organization that develops a large market share by means of differentiation and by creating very
strong brands or through technological innovation may well also become the cost leader.
Competitive Positioning
Having collected industry information, analysed competitors, and considered our resources, per-
haps the single most important aspect of developing marketing strategy is deciding how to compete
in selected target markets. A key decision that arises is: what position do we want in the market?
The position that a product adopts in a market is a general reflection of its market share.
Four positions can be identified—market leader, market challenger, market follower, and market
nicher—and each has particular characteristics, as set out in Table 5.2.
There are two main reasons why we try to understand the competitive positions adopted by
companies. The first is that, by establishing how various firms are positioned in the market, the
company can understand where it is currently positioned itself and decide where it wants to be
positioned. This shapes the nature and quantity of the resources required and the strategies to
be pursued, some of which are set out in Table 5.2.
Table 5.2 Types of market position
Type Characteristics Prime strategies
Market The market leader has the single largest share Attack the market: create new uses
leader of the market. Market leadership is important and/or users; increase frequency of
because it is these offerings and brands that can use
shape the nature of competition in the market, Defend the position: regular
and set out standards relating to price, quality, innovation; larger ranges; price cutting
speed of innovation, and communications, as and discounts; increased promotion
well as influence the key distribution channels.
An example is Nike in the sports shoe market.
Market Products that aspire to the leadership position Attack the market leader: pricing; new
challenger are referred to as market challengers. These product attributes; sharp increase in
may be positioned as numbers two, three, or advertising spend
even four in the market. They actively seek Attack rivals: special offers and
market share and use aggressive strategies to limited editions; superior competitive
take share from all of their rivals. An example is advantages
car-rental company Hertz.
Maintain status quo
Market Market followers have low market shares Avoid hostile attacks on rivals
follower and do not have the resources to be serious Copy the market leader and provide
competitors. They pose no threat to the market good-quality products that are well
leader or challengers and often adopt ‘me too’ differentiated
strategies when the market leader takes an
Focus on differentiation and profits,
initiative. An example is Morrisons in the UK
not market share
supermarket sector.
Market Market nichers are specialists. They select Provide high level of specialization:
nicher small segments within target markets that geography; proposition; service;
larger companies fail to exploit. They develop customer group
specialized marketing mixes designed to meet Provide tight fit between market needs
the needs of their customers. An example is and the organization’s resources
Maserati in the automotive sector.
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Visit the online resources and access Internet Activity 5.3 to learn more about business
planning in the airline market.
Networks, Cooperation, and Relationships

Ideas about strategy have developed from those based on competition through attack and
defence strategies, considered in Market Insight 5.4. An alternative perspective is to consider
ways in which customer value can be increased by means of cooperation. By working coop-
eratively with other companies and their brands, relationships can evolve. These in turn provide
strong opportunities to add value by means of the differentiation of brands and the development
of sustainable competitive advantage.
Market Insight 5.4

Airlines: Fight and Flight
Lower fuel prices and an improving economic

environment were partly responsible for the near 6.3
per cent growth in airline traffic by revenue passenger
kilometres in 2016 and for the predictions of continued
growth in the period up to 2020. The Middle East and
Asia Pacific experienced the greatest growth, followed
by Europe, Africa, Latin America, and North America.
Growth in the air travel market means that airlines

have to make strategic decisions about how to grow
their businesses. Airlines tend to grow by adding
more frequent flights and nonstop markets to their
networks, but this can lead to a fragmentation of their
existing networks. The other approach is to increase
Norwegian is the third-largest low-cost airline
airplane capacity and/or size. The evidence indicates in Europe, with a strategy that includes
that most of the air travel growth has been met by an introducing new aircraft on a regular basis
increase in new non-stop markets (airport pairs) and Source: © DyziO/Shutterstock.com.
by growth of frequency.
a single type of aircraft to increase utilization rates.
Airlines need to make decisions about the type of For example, Southwest’s entire fleet consists of
aircraft that they wish to use and this decision reflects Boeing 737 aircraft. Low-cost carriers rely on direct
the business model the airline decides to pursue. marketing, offer a single class product, do not include
Low-cost carriers (LCCs) represent a fast-growing in-flight meals in the cost of the ticket, and do not
business segment. Norwegian, Southwest, easyJet, offer frequent-flyer programmes, all of which helps to
Ryanair, and Jetstar are typical low-cost carriers. keep costs low.
They have evolved through strategies that provide
customers with low seat prices, but charge fees Norwegian is the third-largest low-cost airline in
for other services such as baggage, set seats, and Europe and introduces new aircraft to its fleet on a
food. This model has been referred to as ‘pay for regular basis. This is because new aircraft consume
everything extra but a seat’ model. These carriers less fuel and require less maintenance, which enables
generally operate from secondary airports and use Norwegian to offer low fares. New aircraft offer
Market Insight 5.4

continued
improved environmental credentials and are more have been uncomfortable with the growth of LCCs,
comfortable than their predecessors. and both Delta and British Airways have introduced
a new type of fare that applies only to routes that
Low-cost carriers compete with mainstream, or legacy, compete with LCCs. Referred to as a ‘budget’, or
airlines, which offer a tiered range of seating products, ‘basic economy’ fare, these tickets offer no refunds,
in-flight meals and entertainment, airport lounges, and upgrades, or complimentary pre-boarding, and there
frequent-flyer programmes, all at varying premium fares is a much-reduced range of perks that a frequent flyer
dependent on seat location. might experience.
What might have been a clear separation between the

offerings of these two types of carrier has, however, Sources: Uszynski (2013); Martin (2015); IATA (2017); https://
started to become more obscure. Legacy carriers www.norwegian.com
Many early ideas about competitive marketing strategies The growth of LCCs such as Ryanair and easyJet
have developed from the military and are based on has been based upon flanking attacks on legacy
approaches to warfare. Two main approaches can be carriers, such as British Airways and Delta. BA has,
identified, based on two classical works on military in the past, served broad markets with a highly
strategy, Sun Tzu’s The Art of War and Clausewitz’s On differentiated service and ignored the low-cost no-frills
War. Fundamentally, these are attack strategies and niche segment, but now it is seeking to compete with
defence strategies. Within each, there are variations, the LCCs on certain routes. Ryanair and other LCCs
such as flanking, pre-emptive, bypass, and contraction spotted the flanking opportunity early, and established
strategies (Macdonald and Neupert, 2005). themselves quickly in the market.
Related Topics
strategic analysis; strategic goals; competitive advantage; generic strategies
1 Is the emergence of ‘basic economy’ fares by 3 Which types of growth strategy might legacy
certain legacy carriers an example of an attack carriers pursue?
or a defence strategy? Justify your answer.
2 If you were the marketing director at Norwegian,

how would you seek to establish a competitive
advantage?
To develop collaborative inter-organizational relationships, it is necessary to consider an orga-

nization’s whole system, or network, of stakeholder relationships. This is because networks hold
together partly through ‘an elaborate pattern of interdependence and reciprocity’ (Achrol, 1997:
61). Indeed, it is the network of relationships that provides the context within which exchange
behaviours occur.
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Cooperative relationships within these networks benefit participants through shared knowl-
edge about offerings, markets, and competitors, can lead to improvements in product and
brand performance, and help to develop stronger market positions, enabling the more efficient
use of resources (Harbison and Pekar, 1998). This all adds up to a unique form of differentiation
that can be of significant value to customers. For example, Cisco have a Strategic Ecosystem
Group, which is responsible for collaborating with partner firms such as Ericsson, Inspur (China),
and Apple. The common goal is to collaborate and build next-generation offerings together,
before taking them to market through Cisco’s channels (Dix, 2016).
At the corporate level, cooperative relationships—sometimes referred to as alliances—can
be considered a spectrum. At one end, cooperation is based around simple transactions; at
the other end, cooperation can be formally established by means of a stand-alone organization
within which both parties share ownership.
Outsourcing and renewable purchasing agreements are relatively short-term cooperative
arrangements. Information sharing can be seen in agreements to distribute offerings; licensing
and technological collaboration represents resource and asset sharing; cooperation based on
share ownership is normally seen in mergers and acquisition (M&A) activity, which has a long-term
perspective. In late 2016, UK supermarket group Sainsbury’s bought Home Retail Group (owner
of Argos, a catalogue retailer) to improve its multichannel and delivery capability and to diversify its
business further into non-food items. The resulting company combined the skills and resources
of both parent organizations—particularly in multichannel retailing, logistics, and procurement.
The detail concerning these various arrangements is not the focus of the strategy. What lies
behind the concept of cooperation is the competitive advantage that can be developed. In par-
ticular, competitors are usually unable to determine how performance is achieved through these
alliances and, even if they can, it is exceedingly difficult to replicate because they do not have the
necessary or complementary resources nor do they have the same history of investments. All orga-
nizations in a cooperative arrangement—sometimes called a network alliance—have an advantage
over their rival organizations outside an alliance. However, not all alliances and mergers are suc-
cessful; indeed, a large number of them fail. For example, the merger between Sony and Ericsson
in 2001 had begun to hit trouble by 2011 when its market share in the global mobile phone market
had dropped to 2 per cent and 11th place, from a height of 9 per cent in 2007 and 4th place. In
2011, Sony eventually agreed to buy Ericsson’s share of the joint venture and go it alone (Singh,
2011). At a marketing level, alliances can be developed with key distributors and retailers to control
the distribution channel. Relationships with prominent or geographically important dealers provide
opportunities for exclusive distribution to reach target markets. Relationships can also be devel-
oped with strategically important customers. These customers are referred to as key accounts,
and significant resources are often channelled into developing and supporting these accounts (see
Chapter 15). In many markets, there is little difference between offerings, so organizations try to dif-
ferentiate themselves based on the services they provide to their customers both before and after
a purchase has been made. Relationships between customer and supplier can be strengthened
through the provision of services, because the service is perceived to offer added value.
Relationships can also be developed with consumers. Marketing strategies designed to retain
customers often use loyalty schemes and customer retention programmes. These are supported
by database management and marketing facilities. Relationships can also develop through
branding. Some consumers develop a strong affinity with a brand to the extent that they want to
share their relationship with others and talk openly about their positive brand experiences (word
of mouth). Relationships with suppliers are important simply because competitive advantages
can be developed through cost reduction, speed to market, and product differentiation.
Marketing strategy should be founded on developing customer value, and this can be achieved
through a strategy based on building cooperative relationships with a network of suppliers, cus-
tomers, distributors, and other strategically relevant stakeholders. The centrality of cooperation
and relationships within marketing has become an important concept for both organizations
and marketing academics. Marketing has evolved from ideas that are based solely around the
4Ps (see Chapter 1); now, marketers think and act in terms of the different types of relationship
that an organization has and try to find ways of improving the right relationships with the right
customers. This is referred to as relationship marketing (see Chapters 1 and 15).
Platform Strategies
The network approach not only supports the idea of collaboration and relationship development,
but also its principles underpin the basis on which contemporary competitive activity is begin-
ning to be undertaken.
Ideas about conventional strategy have been based around a linear value chain approach,
which considers successive supplier/distributor participants to add value as a product moves
along a chain to be consumed by end users. Van Alstyne, Parker, and Choudary (2016) refer to
this as a pipeline effect.
Today, firms such as Apple combine the pipeline approach with a new platform strategy.
For example, the iPhone and its operating system enable two sets of participants to be con-
nected, creating a two-sided market. So app developers and app users both generate value
through the iPhone platform. The value generated increases as the number of developers and
users increases. This is referred to as network effects and is a central tenet of platform strategy
(van Alstyne et al., 2016).
Uber, the world’s largest taxi company, was worth around $70 billion in 2018
Source: © MikeDotta/Shutterstock.com.
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van Alstyne, M.W., Parker, G.G., and Choudary, S.P. (2016). Pipelines, platforms, and
the new rules of strategy. Harvard Business Review, April.
These authors consider the way in which platform strategies (for example run by the likes of Airbnb,
Uber, Alibaba, Netflix) work and compare them with pipeline (that is, classic linear value chain) models
of strategy (for example those operated by Walmart). The authors argue that platform strategies change
the nature of corporate strategy—and therefore, by extension, marketing strategy—in relation to the
customer base and the competitive set, as well as the boundaries separating suppliers, customers, and
competitors.
Companies such as Airbnb, Uber, and Alibaba all operate through platforms, and a key char-
acteristic is their lack of ownership of any physical assets. Their use of information technology
and vast amounts of data has meant that their platforms have been built quickly and rela-
tively inexpensively. They have also disrupted the competitive landscape within their respective
industries.
Platform businesses bring together producers and consumers to drive high-value exchanges.
Their source of value and their competitive advantage is rooted in both information and data and
the interactions that the platform generates. As the number of Uber platform participants has
increased, so has the value that Uber has delivered to both sides of their market. It becomes
easier for drivers to find fares and for consumers to get rides. (For more information about pipe-
line and platform strategies, see Research Insight 5.3.)
Implementation
For ease of explanation, the marketing planning process has been depicted as a linear sequential
series of management activities. This certainly helps to simplify understanding about how strat-
egy can be developed and it also serves to show how various activities link together. However,
strategy development and planning, whether at a corporate, business, or functional level, is not
linear, does not evolve in pre-set ways, and is not always subject to a regular predetermined pat-
tern of evolution. Indeed, politics, finance, and interpersonal conflicts all shape the nature of an
organization’s marketing strategy. As Browne and Cuddihy (2011) point out, many have argued
that there is a need for innovation, flexibility, and creativity for effective marketing planning and
strategy making, particularly in the current turbulent times.
Organizational
culture
Structure and
type of
organization
Available
financial
resources
Marketing
metrics
Figure 5.8
Major elements that can impact the strategy implementation process
Marketing implementation is a fundamental process in marketing because it is the action

phase of the strategic marketing process. Whereas many of the concepts in this text help us to
design marketing programmes, the implementation phase is about actually doing it. In reality,
then, it is the most exciting part of marketing because it is the least predictable.
The implementation of any marketing plan, however, is far from straightforward owing in part
to the large number of variables. Four elements that impact on the implementation of most stra-
tegic marketing plans can be identified, as depicted in Figure 5.8.
The Structure and Type of Marketing Function

The structure and type of marketing function used by an organization can influence the degree
to which the implementation process is successful. How we organize ourselves to undertake the
task of marketing has an impact on how effective we are.
A marketing department can be structured in many ways, but the internal alignment with the
sales department, how brands are managed, and how the reporting lines involve the SBU and
corporate headquarters, accompanied with varying levels of bureaucracy, can be influential.
A major problem concerns the increasing complexity associated with contemporary brand
management. Mitchell (2012) refers to globalization, the growing importance of customer expe-
rience, the significance of retailer power, the role of category management, and the recent
surge in the use and influence of social media as factors that have redefined the nature of a
brand manager’s job. Managing increasing amounts of information, projects, and content have
added layers of complexity and responsibility.
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Organizational Culture
The structural issue needs to be considered alongside the degree to which a marketing orien-
tation prevails across an organization. Marketing is present in all aspects of an organization,
because all departments have some role to play with respect to creating, delivering, and satis-
fying customers. For example, employees in the R&D department designing new offerings for
poorly met existing customer needs are performing a marketing role. Similarly, members of the
procurement department buying components for a new offering must purchase components of
specific quality and at a certain cost that will meet customer needs. In fact, we can go through
all the departments of a company and find that there is a marketing role to be played in each.
In other words, marketing should be distributed throughout an organization and all employees
should be considered to be part-time marketers (Gummesson, 1990). Marketing is not some-
thing that only people in the marketing department undertake.
Apart from the need to have a customer orientation, the extent to which the prevailing orga-
nizational culture is innovative is also important (Menon and Varadarajan, 1992). An atmosphere
that promotes creativity, innovative behaviour, and a willingness to take risks can have a positive
impact on employee commitment (see Market Insight 5.5).
Market Insight 5.5

A Tale of Two Tech Companies
Microsoft has a new spring in its step. The firm’s

share price has been on a steady trajectory upwards
since 2010, reaching US$87.82 in January 2018,
compared to $19.55 in May 2010. Since 2014,
when Satya Nadella took over as CEO, the firm has
firmly repositioned itself in cloud computing with
Azure and downgraded its Windows product into a
supporting role. This allowed the new CEO to change
the company’s culture. Remarking on the age-old
strategy conundrum of whether the right culture
creates the right strategy or the right strategy creates
the right culture, Mr Nadella has remarked that ‘culture
eats strategy for breakfast’. As part of the culture The Tencent booth at the 2017 Global Mobile
change, employees are no longer assessed on a Internet Conference
Source: © testing/Shutterstock.com.
performance curve, with low performers punished
with no bonus or promotion. One major change in hardware (including 3D printers, but also Xbox), and
employee engagement policy was to invite CEOs of artificial intelligence. For Mr Nadella, it seems the only
those companies that Microsoft had recently acquired way is up for Microsoft and its share price.
to its prestigious annual strategy retreat—usually the
preserve of the company’s top 150 personnel. Another Another large tech firm doing well is Tencent, the
change was to encourage staff to learn from failure. Chinese Internet company. It owns the WeChat and
Microsoft’s mission is ‘empowering every person in QQ apps, boasted more than 938 million active
every organization on the planet to achieve more’ and monthly users in mid-2017, and generated $23 billion
its bet on the future is focused on cloud computing, in revenues in 2016. The apps offer social networking,
Market Insight 5.5

continued
payment systems, music streaming, gaming, and Afterwards, Mr Ma established internal competition,
web searching. Tencent also holds annual retreats, famously setting up two teams without telling
typically in comfortable hotels in Japan or Silicon them about each other, and they went on to create
Valley, but in autumn 2016 CEO Pony Ma elected WeChat. The company also empowers its external
instead to take his team on a two-day trek through developers to build their own apps and services on
the Gobi desert. Employees, numbering around its open platform without charging them rental fees.
40,000, talk of an encouraging teamwork culture, in After acquiring Finnish mobile game maker Supercell
which high performers are placed on a pedestal and Oy, maker of mega-game Clash Royale, the company
rewarded accordingly, but in which criticism is also is spreading its wings globally. With financial interests
welcomed. In 2011, the company’s president, Martin in everything from Tesla, through China Music
Lau, and CEO Pony Ma invited 72 industry experts Corporation, to an all-electric premium car venture,
to a series of ten closed meetings (nicknamed ‘the the world may not be enough.
conference of the gods’) in which invitees were
asked to offer blunt feedback. One issue identified Sources: Anon. (2017d); Lucas (2017); Stone and Chen (2017);
was that the company needed to innovate in its own Weinberger (2017); https://www.macrotrends.net/stocks/charts/
way rather than copy other companies’ products. MSFT/prices/microsoft-corp-stock-price-history
Both the Microsoft and Tencent examples demonstrate involvement, plus well-known theories such as the
the role and strategic importance of actively involving psychological contract and even Maslow’s hierarchy of
employees in strategy development. There are needs.
numerous theories regarding employee engagement,
most based on Kahn’s (1990) affirmation that when These examples demonstrate the importance of
individuals are engaged, they bring their cognitive, organizational culture and the need for a customer
emotional, and physical elements to the performance orientation throughout the organization—in particular,
of their work role. In addition, there are theories about the role of an innovative atmosphere within which to
job satisfaction, organizational commitment, and job participate in the strategy process.
Related Topics
mission; values; corporate culture; strategic goals; strategy process
1 Do you agree with Satya Nadella, Microsoft’s 3 How do you think the strategy development
CEO, that corporate culture is more important process might differ for tech firms compared
than strategy in achieving corporate success? with conventional companies?
Why, or why not?
2 How does Microsoft’s strategy development

approach compare and contrast with that of
Tencent?
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The manner and involvement of top management in supporting the implementation process
is also significant. Research shows that it is critically important that the process of marketing
strategy planning occurs within a suitably positive culture. By engaging key decision-makers,
such as marketing managers and in some cases all employees, in the various phases of the mar-
keting planning process, the viability of the chosen strategy options is considerably enhanced
(Ramaseshan, Ishak, and Kingshott, 2013) and, as a result, senior management is more likely to
achieve above-average performance outcomes.
A final element concerns the level of freedom, or autonomy, that managers have to make
meaningful decisions and to independently adjust behaviours. Managers without suitable auton-
omy may waste critical managerial resources or fail to respond to competitors’ actions. Because
the level of perceived job autonomy is positively associated with the level of perceived organiza-
tional commitment (Moon, 2000), the implementation of a marketing plan may be jeopardized if
managers do not feel empowered to make changes independently of senior management.
The Available Financial Resources

The amount of financial support allocated to brands can often be contentious and can
lead to considerable internal political strife. This reflects constituency-based theory, which
emphasizes that internal functions, such as marketing and others, are always striving for
the resources that they feel are necessary to satisfy their goals (Anderson, 1982). Once
the aggregate amount is determined, however, managers should devise a marketing budget
indicating how much is to be spent on marketing activities and when. Yet there are no hard-
and-fast rules on how much should be allocated to marketing spend. One perspective is that
many companies lack a formal and appropriate budgeting process. When marketing budgets
are properly determined, they are based on pre-set tasks, numerical and timed goals, and,
of course, sales forecasts. These should be produced in association with support from the
finance department of an organization.
A marketing budget may be between 1 per cent and 10 per cent of sales revenues (excluding
salaries), but exactly how much is spent on marketing activities is dependent on the particular
industry, each firm, and the overall economic climate. Kehrer (2015) claims that companies that
maintain or even increase their marketing spend during an economic downturn are very likely to
recover more quickly than their competitors when the economy recovers. However, empirical
work by Srinivasan, Lilien, and Sridhar (2011) suggests that investment in both R&D and adver-
tising during a recession should be based on the actual conditions facing the firm.
Marketing Metrics
The implementation of any marketing plan is incomplete without methods to control and evalu-
ate its performance. It is vitally important to monitor the results of the programme as it unfolds,
not only when it is completed. Therefore measures need to be stated in the plan about how the
results of the plan will be recorded and disseminated throughout the team. Recording the per-
formance of the marketing plan against targets enables managers to make adjustments if it does
not perform as expected, perhaps because of unforeseen market events.
The marketing budgeting process is a political process whereby scarce resources are allo-
cated within a company. Clearly, where a department can demonstrate the effectiveness of
the resources it has previously used, it is far more likely to receive an increase in the budget for
the next year. Over the last 15 years or so, we have seen the rise in importance of measuring
marketing effectiveness. The controls used to measure the effectiveness of the implementation
process are referred to as marketing metrics.
There is increased recognition of the need to determine efficiency and effectiveness in organi-
zational marketing efforts. In the past, marketing control has been achieved through the annual
marketing plan, through analysis of company profitability, through some measure of efficiency
(for example number of employees as a proportion of revenue or, in retailing, net profit per
square metre of retail space), or in terms of market share or some other strategic measure. But,
in the past, these measures have been focused on financial or human resource measures. More
recently, there has been a considerable shift in thinking towards the need for customer-based
measurements (Kaplan and Norton, 1992). There has been a move towards setting key per-
formance indicators (KPIs), against which companies measure their progress to determine
whether or not they have improved or maintained it over a given period of time.
Research indicates that British companies are now using a variety of strategic marketing
metrics as KPIs in marketing. The selection and use of KPIs depends on their relevance to what
is being measured; however, KPIs should be selected in the context of strategic plans and asso-
ciated higher-level goals (Lamont, 2012). ScottishPower uses software that enables it to keep
track of the factors that underpin its main objective, which is customer retention. These factors
include the proficiency with which customer issues are resolved and the provision of alternative
interaction channels.
An organization’s strategic goals should always be used to guide the way in which metrics
are interpreted. For example, Lamont (2012) refers to ScottishPower, which asked its call cen-
tre agents to offer additional services, such as boiler care. As a result, call times increased by
8–10 per cent—a metric that had to be seen in terms of its retention plan rather than as a drop
in the agents’ productivity.
We now discuss the benefits and limitations of ten key marketing performance metrics (see
Figure 5.9).
Sales
Profit/
(value/
profitability
volume)
Distribution/ Gross
availability margin
Customer Marketing
Awareness
advocacy metrics
Consumer Market
satisfaction share
No. of
Relative
Figure 5.9 price
new
products
Key marketing performance
metrics
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Profit/Profitability
Unsurprisingly, profit and profitability is the main key performance measure, whereby profit is
defined broadly how much cash there is left in the business when expenses are subtracted from
revenues generated. This approach indicates the ‘bottom line’. It represents what is left over
either for distribution to the (private or public) shareholders of the business or for reinvestment
in the business.
However, the problem with profit/profitability is that its link with marketing activity is not always
clear. The process required to determine the link requires considerable input from the finance
department to measure the contributions individual offerings make towards the overall profit
levels of a business. Therefore it can be difficult to determine whether the marketing activity
itself has led to improved levels of profitability or some other factor was responsible, such as
the collapse of a competitor. Finally, we might have a very profitable business operating in the
short term, for example with customers buying more of a low-value overpriced offering, but in
the long term customers will defect and leave the business once they realize that they can either
get better value elsewhere or they perceive manipulative intent on the part of the company from
which they are buying.
Sales
Sales value or volume is a key performance measure, whereby sales value is determined by
measuring how many units of an offering are sold, then multiplying this by the average unit price,
and sales volume is calculated simply by determining how many units of an offering have been
sold. The benefit of using this metric is that sales values and volumes can be measured directly
against individual offerings. Sales values and volumes are easier to determine and require limited
input from the finance department, unlike the determination of profit/profitability. Sales values
and volumes may be linked to geographical sales territories, and so, when sales fall in a par-
ticular territory and efforts have been made to increase sales, it is relatively easy to determine
whether or not those efforts have been successful.
The use of sales volumes as a marketing metric is more problematic because with high-vol-
ume turnover products—particularly in brokerages, which sell other companies’ offerings—the
profit may actually be disproportionately low. In such a situation, it would be wiser to measure
profit/profitability, where the data are available. However, sales values may also hide the fact
that an offering is being sold at unprofitable levels. Rewarding a sales force for selling large
quantities of an offering at an unprofitable level is a recipe for disaster—the long-term decline
of a company.
Operating Margin
Frequently, companies measure their performance based on the operating profit margins they
can achieve in a particular industry. This metric is determined by dividing operating income
by net sales. This metric is also known as return on sales. For example, the gross operating
margin for supermarkets in the UK was around 1–5 per cent (Anon., 2016a), whereas in the
United States operating profit margins are around 2–4 per cent (Damodaran, 2017), although
they have historically been lower than those in the UK. However, supermarkets generally
operate on very high-volume sales and hence they can afford to operate on low operating
profit margins.
The problem with using operating margins as a marketing metric is that they do not always
provide an indication of how much the customer is actually willing to pay. For example, smoothie
manufacturers (such as innocent) generally operate higher operating margins (because they
charge higher prices) than manufacturers in the fruit juice category (such as Del Monte, Minute
Maid). However, if the smoothie manufacturers had set their initial prices based on typical fruit
juice margins, they would never have been as successful as they have—especially when we
consider that innocent, now 90 per cent owned by Coca-Cola, achieved sales revenue of around
£100 million in its first ten years (1998–2008).
Awareness
Brand awareness is another important marketing metric—but while a customer may be aware
of a brand, it does not mean they will buy that brand. As consumers we can become aware of
a brand, but not particularly like it and therefore not buy it; hence building awareness may not
necessarily build sales. Brands can be marketed heavily, but not achieve success, for example
Strand cigarettes, Ford Edsel, and Tesco Fresh and Easy in the United States. Awareness does
not necessarily lead to purchase.
Brand awareness is, however, a very useful metric for determining whether marketing com-
munications activity is having the required impact on customer recognition. While it is true that it
may take time for any increased awareness to lead to increases in sales, if it does so at all and
particularly in the short term, it is generally also true that the more a target market recognizes a
brand, the more likely they are to become purchasers of it.
Market Share
One of the principal measures of market performance, market share, is enshrined in many mar-
keting strategy models, including Boston Consulting Group’s growth share matrix, or Boston
Box (see Chapter 4). Measuring market share is useful for determining a company’s performance
within the marketplace, particularly when measured relative to the market leader, because it
gives an indication of how competitive a company is. Cadbury’s, the confectionery company,
use this metric in conjunction with other marketing metrics such as brand awareness and adver-
tising spend (Ambler, 2000).
A company’s market share is determined by measuring that company’s sales revenues, incor-
porating the sales of all companies within the industry including itself, as a proportion of total
industry sales revenues, as follows:
sales revenue (company A, £ )

market share (company A, %) = × 100
total industry sales revenue (£)
Relative market share is determined by measuring the company’s market share against the
market share of the market leader, or its nearest competitor (if the company is itself the market
leader), as follows:
market share (company A, %)
relative market share (company A, %) =
market share ( market leader, %)
If the company is itself market leader, relative market share is a value greater than one unit.
Nevertheless, a company’s market share, as determined by the value of the sales, is not
necessarily indicative of a profitable company. Many a company has started a price war (see
Chapter 9) to try to steal market share from a competitor, only to find prices fall generally in the
industry, which inevitably leads to a decline in its own profitability.
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Number of New Products
Most companies pride themselves on their capacity to innovate. In many industries, innovating
new offerings is vital for the prosperity of the industry. For example, pharmaceutical companies
manage a pipeline of new drug compounds at various stages in the process of new proposi-
tion development. When they do finally develop a drug, they quickly patent it to protect their
multibillion-dollar investments and to ensure that they can reap the financial rewards from the
drug’s development.
In 2006, pipeline problems occurred for global pharmaceutical manufacturers AstraZeneca
and GlaxoSmithKline when various high-profile compounds failed at the clinical trial stage, send-
ing their share prices lower as a result (Griffiths, 2006). 3M—the company behind the Post-it
note, among other innovations—uses the proportion of sales attributable to new products (also
known as the vitality index) as one of its marketing metrics (Ambler, 2000).
Nevertheless, simply developing new offerings without measuring or predicting their impact
on the sales of existing offerings can be problematic, because the new offering can cannibalize
the existing sales without adding any new business. In addition, this strategy may cause cus-
tomer confusion as customers try to determine what they want from a variety of offers.
Mobile telephone companies quickly learned in the late 1990s and early 2000s that many
consumers wanted a monthly charge service offering a limited range of telephone call packages,
which included text message bundles and set levels of call time, or a pay-as-you-go plan with
more limited options. What they didn’t want was lots of different-priced telephone handset offers
with many different call packages, offering different call charges for different times. Consumers
wanted price transparency.
Relative Price
The price of a company’s offerings can be indicative of how much it is valued in the marketplace.
Relative price is determined by measuring the price of the company’s offering against that of
the offering of the market leading company, or the nearest competitor (if the company is itself the
market leader), as follows:
price (company A’s offering, £ )

relative price (company A’s offering, unit) =
price ( market leader’s offering/nearest competitor, £ )
If the company is itself the market leader, relative price is a value greater than one unit.
There is increasing recognition that a company that can charge a price premium vis-à-vis
its competitors if it has a competitive advantage over them. One approach to measuring brand
equity actually uses relative price premiums (Ailawadi, Lehmann, and Neslin, 2003).
The problem with measuring marketing effectiveness using relative price only is that a com-
pany may obtain only a proportion of the total revenue possible in a marketplace if the price it
charges is too high. In other words, a higher relative price may lead to a smaller market share if
customers do not value the company’s offering more than those of its competitors.
Customer Satisfaction
Many companies operate on the principle of satisfying their customers. Companies in the travel
and leisure industry (for example Hilton Hotels, TUI, and Singapore Airlines) work hard to satisfy
their customers and to ensure an enjoyable experience. In the past, this meant measuring levels
of service quality (see Chapter 15) to determine whether companies were providing the level of
quality of service that customers expected. In some industries, customer satisfaction is notoriously
low, but customers perceive the costs of switching their business to other providers to be too high.
Retail banking services are a good example here because customers are reluctant to switch banks
even when they are dissatisfied (Keaveney, 1995). Energy companies such as ScottishPower
measure the proportion of their customers who leave and switch supplier. This is referred to as
churn rate in the industry. Churn rate is a measure of disaffected customers as a proportion of new
customers. Ironically, customer service is relatively poor at npower and ScottishPower—two of the
UK’s largest energy companies, which had 652.8 and 558.3 complaints per 100,000 customers in
the first quarter of 2016 according to figures from Citizen’s Advice (Anon., 2016b).
Some companies attempt to go beyond simply satisfying customers, aiming to empower
their employees to provide a high level of individual and personal help for customers. For exam-
ple, staff members at the Ritz-Carlton hotels are famously authorized to spend up to $2,000 to
resolve a customer’s problem without having to refer to a manager (Hanselman, 2012).
Nevertheless, businesses may spend too much time and effort serving customers who are
neither profitable nor offer the most profit potential in the future. Generating high levels of cus-
tomer satisfaction or delight may ultimately reduce shareholder value because the costs involved
produce lower levels of profitability. In other words, the incremental costs of improving customer
satisfaction from 95 per cent to 99.5 per cent of customers are unlikely to be worth it.
Customer Advocacy
According to Reichheld (2003), successful firms create exceptional growth by nurturing loyal
customers. They invest huge amounts of time and effort in measuring customer satisfaction.
However, most of the indices they have previously employed are complex, produce unclear
results, and do not connect to profits or growth. The net promoter score (NPS) was developed
based on measuring how likely it is that a customer would recommend a firm to a friend or a col-
league. The more promoters a company can gain, the bigger its growth—that is, the inclination
to promote relates to a strong degree of loyalty and growth (Reichheld, 2003).
The NPS is calculated based on the ratio of promoters to detractors. According to their
responses on a 0–10 rating scale, customers are then categorized into the following groups:
1 promoters—those who are rated extremely likely to recommend (9–10 rating);
2 passively satisfied—those who are rated likely to recommend (7–8 rating); and
3 detractors—those who are extremely unlikely to recommend (0–6 rating).
The percentage of detractors is subtracted from the percentage of promoters to produce the
NPS. Companies that earn an NPS greater than 75 per cent enjoy very strong customer loyalty.
By plotting a firm’s NPS against the company’s revenue growth rate, Reichheld (2003) found
that, in industries such as airlines or car rentals, there was a strong relationship between NPS
and a company’s revenue growth rate.
The advantages claimed for the NPS are said to be that:
■ having the highest NPS in a business sector gives rise to growth rates, on average, 2.5 times
higher than those of competitors;
■ each 12-point escalation in NPS relates to a doubling of the growth rate of a firm; and
■ using other metrics together with NPS provides no further predictive advantage—in other
words, Reichheld claims that NPS is the only metric needed!
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However, the NPS approach has drawn some criticisms. Keiningham and colleagues (2008)
claimed that the results of the original study yielded different and contrasting results, and that a
single-metric approach does not outperform dual- or multi-metric models.
Distribution/Availability
The extent to which an offering is distributed within the marketplace can be an important market-
ing metric. For example, a Hollywood blockbuster film studio will want to ensure maximum take-
up of its motion pictures through many cinemas, because the more cinemas the film is shown
in, the higher the box office takings will be. In other businesses, the quantity of locations within
which a product is sold matter less than the quality of those locations. For example, premium
fashion brands such as Burberry are sold through specialist retail outlets only, such as Selfridges
in London, Siam Paragon in Bangkok, La Rinascente Womenswear in Milan, large airports (such
as Heathrow, Rome, Shanghai), and its own branded shops in many other countries worldwide.
Cosmetics companies (for example French cosmetics giant L’Oréal) distribute their new offerings
initially through speciality cosmetics outlets and prestigious department stores, before stocking
the products in supermarkets and other department stores later in the campaign.
In a wide range of diverse industry sectors, distribution is critical so that customers can readily
purchase a company’s offerings. For this reason, companies set up sophisticated systems to link
their customers’ purchasing needs with their own purchasing and distribution needs. Airline yield
management systems, for example, reconcile customer pricing information with live seat availability,
taking into account customers’ price elasticities (see Chapter 9), to maximize total sales revenues.
Measures of distribution and offering availability are critical in this and many other industries.
The use of KPIs varies considerably, but research indicates that a manager’s use of KPIs is
driven by a group of variables that describe the context in which the manager operates (see also
Research Insight 5.4). These variables refer to ‘firm strategy, metric orientation, type of marketing
mix decision, firm and environmental characteristics’ (Mintz and Currim, 2013: 32). Mintz and
Currim (2013) also find that use of metrics is positively associated with marketing mix perfor-
mance. In particular, that there is positive association between the use of marketing metrics and
the performance of the marketing mix.
Mintz, O., and Currim, I.S. (2013). What drives managerial use of marketing and
financial metrics and does metric use affect performance of marketing-mix
activities? Journal of Marketing, 77(2), 17–40.
This useful article, based on an analysis of 1,287 marketing mix activities reported by 439 US firms, explains
how the use of marketing metrics is positively associated with marketing mix performance. The article
explains how managers can use fewer metrics, but still improve their marketing mix performance.
Managing and Controlling Marketing

Programmes
There is increasing debate about how we measure the performance of marketing programmes
to control them better. Traditionally, companies have tried to maximize marketing effective-
ness—that is, they have measured market share growth, revenue growth, market position,
and marketing efficiency. The last of these is a measure of sales and marketing expenses as
a proportion of gross revenue. There is some evidence that companies that succeed on one
dimension—that is, either marketing efficiency or effectiveness—are less successful on the
other (Vorhies and Morgan, 2003). This makes sense because, to be effective at marketing, we
have to spend more on marketing activity, which makes marketing inefficient! Firms that man-
age to be both marketing-effective and marketing-efficient probably do so by changing the
‘rules of the game’: they do not spend on high-cost activities such as advertising to achieve
effectiveness; instead, they consider new and innovative approaches that make customers
pay more attention.
One problem is that whilst marketers often consider strategy formulation to be problem-
atic, they do not see strategy implementation as an issue. Managers frequently assume that
implementation follows strategy as a sequential process. In fact, the two processes are often
interlinked and run in parallel (Piercy, 1998). In other words, marketing strategy may be, and is,
formulated on the basis of implementation considerations in the same way as implementation
decisions are based on strategy formulation decisions.
In Figure 5.10, we can measure how effective and efficient our strategy has been by using
the metrics for efficiency and effectiveness outlined earlier. Where we consider that marketing
implementation has been efficient, but marketing strategy has not been effective, KPIs have
not been met and we should reformulate strategy; otherwise, we are likely to reduce share-
holder value in the longer term. This situation means that we have spent marketing resources
well in achieving what we set out as our strategy, but that we employed the wrong strategy
for what we wanted to do. The control imperative is to intervene quickly to reformulate the
marketing strategy.
Marketing strategy
Ineffective Effective
Efficient
Revise strategy Prosper
Marketing implementation
KPIs met; KPIs met;

shareholder value shareholder value
decreases slowly increases slowly
Ruin Revise
Figure 5.10 implementation
The marketing strategy– KPIs not met; KPIs not met;
implementation matrix shareholder value shareholder value
Note: KPIs = key performance indicators decreases quickly increases slowly
Sources: Adapted from Bonoma (1984) and Inefficient
McDonald (1985).
> Marketing
Society 203
203
The dream situation is that we operate an efficient implementation plan and an effective
marketing strategy. In this situation, we will prosper. There is no control imperative except to
maintain a watching brief to see how competition might react, because this may force us to
rethink our strategy.
Where implementation of an ineffective marketing strategy plan is inefficient, we are likely to
face rapid ruin: we are spending scarce resources badly on doing the wrong things. The control
imperative requires a fundamental rethink of what we are doing and how we are doing it.
Finally, where we are operating an effective marketing strategy, but implementing it inefficiently,
the control imperative is to reconsider how we implement marketing programmes. Although this
situation may not be disastrous in the short term, where competition is adopting a more efficient
approach, it could lead to mergers, sales, or takeovers in highly competitive industry sectors.
Marketing Planning
We have considered the key activities associated with the strategic marketing planning pro-
cess—essentially one of analysis, goals, and action. For organizations to be able to develop,
implement, and control these activities at the offering and brand levels, marketing plans are
derived. This final section considers the characteristics of the marketing planning process, iden-
tifies the key activities, and considers some of the issues associated with the process.
Marketing planning is a sequential process involving a series of activities leading to the set-
ting of marketing objectives and the formulation of plans for achieving them (McDonald, 2002:
27). A marketing plan is the key output from the overall strategic marketing planning process. It
details a company’s, or brand’s, intended marketing activity. Marketing plans can be developed
for periods of a year, 2–5 years, or anything up to 25 years. Too many organizations, however,
regard marketing plans as a development of the annual round of setting sales targets, which
are then extrapolated into quasi-marketing plans. This is an incorrect approach because it fails
to account for the marketplace, customer needs, and resources. The strategic appraisal and
evaluation phase of the planning process should be undertaken first. This covers a 3–5-year
period and provides a strategic insight into the markets, the competitors, and the organization’s
resources that shapes the direction and nature of the way in which the firm has decided to com-
pete. Once agreed, this should be updated on an annual basis and modified to meet changing
internal and external conditions. Only once the strategic marketing plan has been developed
should detailed operational or functional marketing plans, covering a one-year period, be devel-
oped (McDonald, 2002). This makes marketing planning a continuous process, not something
undertaken once a year or, worse, when a product is launched.
A marketing plan designed to support a particular offering consists of a series of activities that
should be undertaken sequentially. These are presented in Table 5.3.
Many of the corporate-level goals and strategies, and internal and external environmental
analyses that are established within the strategic marketing planning process, can be replicated
within each of the marketing plans written for individual products, product lines, markets, or
even SBUs. As a general rule, only detail concerning offerings, competitors, and related support
resources need change prior to the formulation of individual marketing mixes and their imple-
mentation within functional-level marketing plans.
Table 5.3 Key activities within a marketing plan
Activity Explanation
Executive summary A brief one-page summary of key points and outcomes
Overall objectives Should make reference to the organization’s overall mission and corporate
goals—the elements that underpin the strategy
Product/market A short summary of the product and/or market to clarify understanding about
background target markets, sales history, market trends, main competitors, and the
organization’s own product portfolio
Marketing analysis Provides insight into the market, the customers, and the competition
Should consider segment needs, current strategies, and key financial data
Supported by the marketing audit and SWOT analysis
Marketing strategies Should state the market(s) to be targeted, the basis on which the firm will
compete, the competitive advantages to be used, and the way in which the
product is to be positioned in the market
Marketing goals Should express the desired outcomes of the strategy in terms of the volume
of expected sales, the value of sales and market share gains, levels of product
awareness, availability, profitability, and customer satisfaction
Marketing Should develop a marketing mix for each target market segment, along with a
programmes specification of who is responsible for the various activities and actions, as well
as the resources that are to be made available
Implementation Should set out:

■ the way in which the marketing plan is to be controlled and evaluated;
■ the financial scope of the plan; and
■ the operational implications in terms of human resources, R&D, and system
and process needs
Supporting Any material too bulky to be included in the plan itself, but necessary for
documentation reference and detail, e.g. the full PESTLE and SWOT analyses, marketing
research data, and other market reports and information
The strategic marketing planning process starts with a consideration of the organization’s
goals and resources, and an analysis of the market and environmental context in which the
organization seeks to achieve its goals. It culminates in a detailed plan that, when implemented,
is measured to determine how well the organization performs against the marketing plan.
Visit the online resources and access Internet Activity 5.4 to read more about writing marketing
plans.
Chapter 5 > Marketing Strategy 205
Chapter Summary
■ Describe the strategic planning process and explain the key influences that shape marketing strategy.
The strategic planning process commences at the corporate level, where the organization sets out its
overall mission, purpose, and values. These are then converted into measurable goals that apply to the
whole organization. Then, depending upon the size of the organization, the range of strategic business units
(SBUs) and/or offerings is determined and resources are allocated to support each one. Each SBU and/
or offering has detailed functional and competitive strategies and plans, such as a marketing strategy and
plan, developed around it.
There are three key influences on marketing strategy: strategic market analysis, which is concerned with
developing knowledge and understanding about the marketplace; strategic marketing goals, which are
about what the strategy is intended to achieve; and strategic market action, which is about how the
strategies are to be implemented.
■ Analyse current conditions and formulate marketing strategies.

SWOT analysis is used to determine an overall view of the strategic position and highlights the need for a
strategy to produce a strong fit between the internal capability (strengths and weaknesses) and the external
situation (opportunities and threats). SWOT analysis serves to identify the key issues, and prompts thought
about converting weaknesses into strengths and threats into opportunities.
■ Explain the different types of strategic marketing goal and associated growth strategies.
There are several types of strategic marketing goal, but the four main ones are niche, hold, harvest, and
divest. However, the vast majority of organizations consider growth to be a primary objective. Although
there are different ways of classifying growth, intensive, integrated, or diversified are generally accepted as
the main forms.
■ Describe the concepts associated with strategic market action.

Strategic market action is concerned with ways of implementing marketing strategies. Various concepts
and frameworks have been proposed, and, of these, we considered ideas about competitive advantage,
generic strategies, and competitive positioning.
■ Appreciate the main issues associated with strategy implementation, including the principles of
marketing metrics.
The implementation of most strategic marketing plans involves four main issues: the structure and type of
marketing function; organizational culture; financial resources; and marketing metrics, or the controls used
to measure the effectiveness of the implementation process.
Many companies now use various marketing metrics to monitor performance. These include metrics in
the areas of: profit/profitability; sales value and volume; gross margin; (brand) awareness; market share;
number of new products; relative price; number of customer complaints; consumer satisfaction; customer
advocacy; distribution/availability; total number of customers; marketing spend; perceived quality/esteem;
loyalty/retention; and relative perceived quality.
■ Explain the key elements of a marketing plan.

The key elements associated with the structure of a marketing plan are: the overall objectives; product/
market background; market analysis; marketing strategy and goals; marketing programmes; implementation,
evaluation, and control. Although depicted as a linear process, many organizations do not follow this
process, or do not include all these elements, or undertake many of these elements simultaneously.
Review Questions
1 What is the difference between vision and mission statements?
2 Identify the four elements that make up the strategic context.
3 What are the key elements of the strategic planning process?
4 How might understanding a firm’s competitors help the firm to develop its marketing strategy?
5 Identify the key characteristics of SWOT analysis. What actions should be taken once the SWOT
grid is prepared?
6 What is the difference between intensive and diversified growth?
7 In what two ways does Porter (1985) argue that firms can differentiate themselves? How does
each way work?
8 Name four elements that might influence strategy implementation.
9 Name the principal marketing metrics considered in this chapter.
10 List the core parts of a marketing plan.
1 Having read Case Insight 5.1, how would you advise 3scale to develop a strategy to circumvent the
competitive threat from Amazon?
2 ‘If the external environment is uncontrollable, and markets are changing shape increasingly quickly,
there seems little point in developing a strategic marketing plan.’ Discuss.
3 Explain which marketing metric(s) might be used in the following circumstances:

A A newly themed Irish pub, with a marketing objective to give customers the best pub experience in the
immediate area in the first year of its operation
B A large health-and-fitness organization wanting to expand its chain of gymnasiums to other countries
across Europe within a five-year timescale
C The manufacturer of a designer cosmetic, such as Gucci Pour Homme II, wishing to determine how
well distributed its product is
D A pharmaceutical company wishing to find out whether its new asthma product will be better received
in the marketplace in the next 12 months compared with competing brands and whether it can hold its
price premium

Glossary
attack strategies derived from military origins, the value chain that were previously undertaken
these strategies seek to achieve growth by others.
objectives. intensive growth growth that requires an
category management the management of organization to concentrate its activities on
a discrete group of similar or related products markets or products that are familiar.
whereby each category is run as a mini-business key performance indicators (KPIs) a set of
within a retailing or purchasing context. quantifiable measures used to determine and
competitive advantage achieved when an compare an organization’s achievements in
organization has an edge over its competitors on terms of meeting its strategic and operational
factors that are important to customers. goals.
corporate strategy the means by which the marketing metrics a set of measures that senior
resources of the organization are matched marketers use to assess the performance of their
with the needs of the environment in which the marketing strategies and programmes.
organization decides to operate. mission statement a statement that sets out an
cost leadership a strategy involving the organization’s long-term intentions, describing its
production of goods and services for a broad purpose and direction.
market segment, at a cost lower than that of all niche a strategic objective based on identifying a
other competitors. niche market.
defence strategies derived from military origins, niche market a small part of a market segment
these strategies need to be deployed quickly that has specific and specialized characteristics
and save time when faced with frontal or flanking that make it uneconomic for the leading
attacks. competitors to enter this segment.
differentiation a strategy through which an organizational culture the set of systems,
organization offers products and services to values, and beliefs that employees and other
broad particular customer groups, who perceive stakeholders share across an organization that
the offering to be significantly different from, and govern how it operates, as well as the decisions
superior to, those of its competitors. that it takes and implements.
diversification a strategy that requires organizational goals the outcomes of the
organizations to grow outside their current range organization’s various activities, often expressed
of activities; brings new value chain activities as market share, share value, return on
because the firm is operating with new products investment, or numbers of customers served.
and in new markets. pipeline a linear approach to value creation
divest a strategic objective that involves selling or through a chain of interrelated organizations.
killing off a product when products continue to platform strategy an approach that enables
incur losses and generate negative cash flows. organizations to connect their businesses with
focus (strategy) a strategy based on developing hosts on top of which to build products and
gaps in broad market segments or gaps in services, and hence co-create value; sometimes
competitors’ product ranges. referred to as plug and play, platforms are
harvest a strategic objective based on maximizing developing through digital environments.
short-term profits and stimulating positive cash relative price denotes the price of a company’s
flow; often used in mature markets as firms or product/service as a proportion of the price of
products enter a decline phase. a comparable product/service of typically the
hold a strategic objective based on defending market leading company, or its nearest competitor
against attacks from aggressive competitors. (where the company is itself the market leader).
integrative growth growth based on working strategic business unit (SBU) an organizational
with the same products and the same markets, unit that, for planning purposes, is sufficiently
but starting to perform some of the activities in large to exercise control over the principal
strategic factors affecting its performance; position by assessing the organization’s

might incorporate an entire brand and/or its strengths, weaknesses, opportunities, and
subcomponents, or a country region, or some threats.
other discrete unit of an organization. total shareholder return the return on a
strategic market analysis the starting point company’s stock to an investor based on capital
of the marketing strategy process, involving gain plus dividends.
analysis of three main types of environment: values the standards of behaviour expected of an
the external environment; the performance organization’s employees.
environment; and the internal environment. vision statement a statement that sets out how
SWOT analysis a methodology used by an organization sees its future and what it wants
organizations to understand their strategic to become.
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Chapter 6
Market Segmentation and
Positioning

Soberana
Market Insight 6.1
Describe the principles of market segmentation and
Differentiating Medical
the STP process
Devices
List the characteristics and differences between
Market Insight 6.2
market segmentation and product differentiation
Microtargeting Controversy
Explain consumer and business-to-business market during the US Presidential
segmentation Election
Describe different targeting strategies Market Insight 6.3
Discuss the concept of positioning Logistical Nightmare:
Regaining Defectors
Consider how the use of perceptual maps can
assist in the positioning process Market Insight 6.4
Positioning Premium Beer
Market Insight 6.5

Exploring C–D Maps for
Strategic Positioning
Case Insight 6.1

Soberana
When an international beer brand took 10 per cent of

the Panamanian beer market, it was time for local brand
Soberana to re-evaluate its approach. We talk to Fermin
Paus, brand franchise manager, to find out how Soberana
responded.
Beer is an integral part of the Panamanian culture,

mainly because of the country’s tropical location
and weather. Panama is almost surrounded by
the Caribbean Sea and Pacific Ocean, and the
temperature is above 25°C every day, all year. Not
surprisingly, then, it has the highest beer consumption
in Latin America and, in 2013, it had the highest
consumption per capita, with 71 litres, ranking it 22nd
in the world’s beer consumption index.
Historically, the market has had two main players that

compete with national and international brands, and
which account for more than 90 per cent of the total
volume: Cerveceria Nacional (part of the ABI/SabMiller
group); and us, Cervecerias Baru Panama (part of the
Heineken group). The rest of the market is dominated
by international brands managed by trading companies.
Because of its high per capita intake, market expansion
opportunities in Panama are limited and slow. This means
that the main growth strategies for beer players are about
gaining market share at the expense of their competitors. Soberana is a soft lager sold in the
Panamanian market
In 2010, Cerveceria Nacional introduced Miller Lite, Source: Reproduced with kind permission of Soberana.
after becoming the only operation outside the United
States to produce and sell the brand locally. The
The intrinsic product attributes and the pricing
entrance of this brand accelerated a latent consumer
strategy, together with an American legacy, which
trend. Consumers had been shifting their flavour
is an important aspirational consumption driver for
preferences from traditional lager beers towards
Panamanians, transformed Miller Lite into one of the
soft/light options and Miller Lite matched those new
most important players in the market. The brand grew
preferences perfectly. Consumers were changing their
strongly and achieved more than 10 per cent market
behaviours and looking for beers that enabled them to
share. This new segment of soft/light beers now
extend their drinking time (more beers in more time),
accounts for more than 70 per cent of the Panamanian
yet not make themselves ill or inebriated. Beers with
beer market.
both low alcohol and bitterness, and those with a
softer taste, matched this requirement. Miller Lite was At the time of Miller’s growth, we had two local brands
positioned as an upper mainstream option and priced in the market, PANAMA and Soberana. The former
a few cents above local brands. was the company’s main national focus, while the
Chapter 6 > Market
Chapter Segmentation
1 > Marketing and and
Principles Positioning
Society 213
213
Case Insight 6.1

continued
latter was mainly distributed in the central region of the adults over the age of 45. This had a negative effect
country and was generally neglected, in that it lacked on the brand equity indicators and image perception.
a marketing strategy or supporting resources. These By 2011, Soberana had the lowest equity indicators
brands have different flavour profiles: PANAMA is a in the market and a strong negative image perception.
regular lager, while Soberana is a soft lager. Accordingly, Soberana was not differentiated in
any particular way and was not perceived to be an
Soberana was launched in 1969 and its name, which
aspirational brand.
means ‘sovereign’ in English, refers to a historic
Panamanian moment. In the 1960s, Panama started By the end of 2011, Miller Lite was sourcing volume
claiming its sovereignty over territories that were in the from all the national brands and was the only brand in
hands of the United States, which had entered the the market capitalizing on this new consumer trend.
country at the beginning of the twentieth century to
Soberana’s problem was: how could it respond
finish construction of the Panama Canal.
to the changing market needs and challenge
Because Soberana was distributed mainly in the Miller Lite’s increasingly dominant market leader
central region, its market was limited to just 25 per position?
cent of the population. Its price strategy (a few cents
below mainstream brands) and promotional/functional Visit the online resources to watch a
messages in the brand communications supported a video interview with Fermin Paus in which
value positioning. The brand was mostly consumed by he explains what Soberana did.
Introduction
Have you ever wondered how we decide to target certain market customer groups with par-
ticular marketing activities? Think about fashion retailers for a moment: how do they identify
the groups of people with whom they want to communicate about new ranges? Do they base
it on where those people live, their age, their gender (or gender identity), their personality, or
something else? In this chapter, we consider how organizations decide on which segments of a
market to concentrate their efforts. This process is known as market segmentation and is an
integral part of marketing strategy (see Chapter 5). After first defining market segmentation, we
explore the differences between market segmentation and product differentiation to clarify
the underlying principles of segmentation. We consider consumer and business-to-business
(B2B) market segmentation in detail.
The STP Process

The method by which whole markets are subdivided into different segments is referred to as the
segmentation, targeting, and positioning process, or STP process (see Figure 6.1).
Market Marketing
Market Target Brand/product
information decisions
segmentation market positioning
(S) (T) (P)
Market Identifying Creating a Marketing

Identifying
information similar concept to decisions
which groups of
groups appeal to
customers
of the target
to aim for
customers market
e.g.,
male/female e.g.,
Market
consumers of e.g., position
research Creative
skincare female skincare
products, aged consumers products as
18–25, 26–35, 18–25 essential for
36–45, 46–65, self-respect
65+
Figure 6.1
The STP process
Marketers use the STP process to identify on whom, out of all their potential customers,
they should focus—that is, the most attractive and accessible groups of customers or seg-
ments. Marketers also use the STP process to identify new products and service opportuni-
ties, to develop suitable positioning and communication strategies, and to allocate scarce
resources to support key marketing goals.
Organizations commission segmentation research to revise their marketing strategy, inves-
tigate a declining brand, launch a new offering, or restructure their pricing policies. When
operating in highly dynamic environments, segmentation research should be conducted at
regular intervals to identify changes in the marketplace. The key benefits of the STP process
include:
■ enhancing a company’s competitive position, providing direction and focus for marketing
strategies, including targeted advertising, new proposition development, and brand differ-
entiation, such as when Coca-Cola identified that Diet Coke was perceived as ‘feminine’ by
male consumers and hence developed Coke Zero, targeted at the health-conscious male
segment of the soft drinks market;
■ examining and identifying market growth opportunities in terms of new customers, growth
segments, or proposition uses, such as fashion brand Burberry, once perceived as gangwear
(DeMers, 2016), becoming chic and in demand around the world; and
■ the effective and efficient matching of company resources to targeted market segments,
promising greater return on marketing investment (ROMI), for example supermarkets such as
Asda and Carrefour using data-informed segmentation strategies to target direct marketing
messages (online and offline) and rewards to customers.
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The Concept of Market Segmentation

Market segmentation is the division of a mass market into distinct and identifiable groups, or
segments, each of which is defined by common characteristics and needs, and displays similar
responses to marketing actions. For example, Lee (2013) identifies four main segments in the
consumer photography market:
■ The slow photography segment consists of consumers who share the pleasure associated
with the creation and capture of an image as much as the photo itself. They like photography
and the capture of a high-quality image is integral to the activity.
■ The fast photography segment involves the speedy creation and consumption of images.
Most of the images are used for immediate communication, very often shared with friends
and family through social media. Mobile devices are a key device for this segment.
■ The casual photography segment uses occasional photos to capture memories. These
people rarely take photos and can be categorized as snapshot photographers.
■ The intelligent photography segment is characterized by people who wish to blend the cap-
ture of a high-quality image with social and memory-keeping purposes. They enjoy using
innovative techniques and new devices.
A selfie is an example of Lee’s fast photography segment

Source: © Vladimir Gjorgiev/Shutterstock.com.
Market segmentation was first defined as ‘a condition of growth when core markets have already
been developed on a generalized basis to the point where additional promotional expenditures
are yielding diminishing returns’ (Smith, 1956: 7). It forms an important foundation for successful
marketing strategies and activities (Wind, 1978).
The purpose of market segmentation is to ensure that elements of the marketing mix—
namely, price, distribution, products, and promotion (and people, process, and physical evi-
dence for service offerings)—meet the needs of different customer groups. Because companies
have finite resources, it is not feasible to produce all the required offerings for all the people all
the time: we can’t be all things to all people. The best we can do is provide selected offerings for
selected groups of people most of the time. This enables the most effective use of an organiza-
tion’s scarce resources.
Market segmentation is related to product differentiation as follows:
■ A product differentiation strategy involves highlighting a product’s attributes and features to
emphasize the differences between it and—hence distinguishing it from—those of competi-
tors or other product offerings.
■ A market segmentation strategy requires a focus on particular segments or groups of cus-
tomers who share similar needs or characteristics.
In fashion retailing, for example, if a traditionalist clothing firm decides to adapt its range so
that its skirts are more colourful, use lightweight fabrics, and have very short hemlines, it might
expect this styling to appeal more to younger women. This is product differentiation because
the firm focuses first on the product offering and then sees which part of the market responds,
basing its decisions on intuition. Alternatively, if the firm decides to target older women spe-
cifically as a market segment and conducts appropriate research that reveals that it ought
to use darker, heavier fabrics for its skirts, with longer hemlines, this is market segmentation
because the firm has focused first on researching the needs and wants of a specific market
segment, and then developed the product to meet those needs (see Market Insight 6.1 and
Research Insight 6.1).
Market Insight 6.1

Differentiating Medical Devices
The medical device market is segmented in many ways, ■ Value These products and services are designed
but products are differentiated to meet broad customer to meet ‘good enough’ standards for product
needs. Four categories of product and service can be quality, efficacy, safety, and service standards.
distinguished: These customers are happy to trade innovation,
quality, and service for a price that can be 20–40
■ Premium differentiated Innovative products and
per cent lower than that of premium products.
services, which drive premium prices, are usually
differentiated by efficacy, outcomes, or care delivery. ■ Basic These rudimentary products and services
These are often supported by heavy selling and compete purely on price and are often used where
servicing models. providers wish to supply only a basic service. This
is a large, yet competitive, sector in which margins
■ Premium undifferentiated These products and
and opportunities are limited.
services are not clinically distinguishable from
competitors’ offerings. They are offered by many Source: Llewellyn, Podpolny, and Zerbi (2015).
premium companies, whose success is based on
established customer relationships or strong branding.
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Market Insight 6.1

continued
Theoretically, product differentiation is primarily In contrast, the same firm might choose to segment
concerned with managing supply, whereas the market’s customers based on a range of factors
segmentation is primarily concerned with managing and then develop medical devices to suit the needs of
demand. Where product differentiation is successful, particular segment(s). This is market segmentation and
monopolistic competition occurs. is rooted in the idea of managing demand to influence
supply.
Firms that develop a portfolio of products and distinguish
them by means of key attributes are effectively practising A theoretical issue that arises from this is: does product
product differentiation. They are influencing supply differentiation lead to segmentation? In this market
to manage demand. Therefore a manufacturer in the insight, the value category might lead a firm to identify
medical devices market might develop a range of a group of customers who prefer value products and
products based on functionality that is different from services, and this in turn might lead to segmenting this
(superior to) that of its competitors. group based on a range of needs or benefits.
Related Topics
economic theories of competition (monopolistic, oligopolistic, perfect, and imperfect); value; competitive advantage
1 Should product differentiation be regarded as an 3 Under what circumstances should market

alternative to market segmentation strategies? segmentation be used rather than product
differentiation?
2 What process should companies follow in
the medical device market to adopt a market
segmentation approach?
Market segmentation was proposed as an alternative development strategy in markets

in which few competitors were selling an identical product—that is, imperfectly competitive
markets. Where there are many competitors selling identical products, market segmentation
and product differentiation can produce similar results, because competitors imitate each
other’s strategic approaches more quickly and product differentiation approaches meet mar-
ket segment needs more closely. Because consumers exhibit a wider range of tastes and
have greater disposable income, marketers increasingly design offerings around consumer
demand—that is, market segments—rather than around their own production needs—that
is, product differentiation (see Figure 6.2).Thus, globally, computer manufacturer Dell has
previously structured the company around four segments, comprising consumer, big busi-
ness customers, government customers, and small and medium-sized business customers
(Shankland, 2009).
Smith, W.R. (1956). Product differentiation and market segmentation as alternative

marketing strategies. Journal of Marketing, 21(1), 3–8.
This seminal article explained the idea that neither supply nor demand was homogeneous (that is, different
groups wanted to produce and consume different things). A product differentiation approach concerns itself
with bending demand to the will of supply, but the reverse approach—bending supply to the will of demand—
also exists. This alternative marketing strategy, articulated in detail in this article for the first time, was termed
market segmentation.
Visit the online resources read the abstract and access the full paper.
Promotion
New
Offering Place New segment
offering
Price
A product differentiation approach
Promotion
New
Offering Place New segment
offering
Price
A market segmentation approach
Figure 6.2
The difference between market segmentation and product differentiation
The Process of Market Segmentation

There are two main approaches to market segmentation. The first, known as the build-up
method, approaches the task from the perspective of identifying markets that consist of cus-
tomers who are similar; the second, known as the breakdown method, identifies those groups
that share particular differences (Griffith and Pol, 1994).
While the breakdown method is the most established approach to segmenting consumer
markets, the build-up approach seeks to move beyond the individual level, at which all cus-
tomers are indeed different, to a more general level of analysis based on identifying similarities
(Freytag and Clarke, 2001). In other words, the build-up method is customer-oriented, seeking
Chapter 6 > Market
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Figure 6.3
Segment heterogeneity and member homogeneity
to determine common customer needs. The aim of both methods is to identify market segments
between which identifiable differences exist—segment heterogeneity—but within which similari-
ties exist between members—member homogeneity (see Figure 6.3).
In business markets, segmentation should reflect the relationship needs of the organi-
zations involved. However, problems remain concerning the practical application and imple-
mentation of business-to-business (B2B) segmentation. Managers frequently report that the
analytical processes are reasonably clear, but it is unclear how they should choose and evalu-
ate the various market segments in the first instance (Naudé and Cheng, 2003). Segmentation
theory has developed in an era in which a transactional goods-centric approach to marketing
has dominated rather than the service-dominant logic that exists today. Under the transac-
tional approach, resources are allocated to achieve designated marketing mix goals. However,
customers within various segments have changing needs and therefore those customers may
change their segment membership (Freytag and Clarke, 2001). Consequently, market segmen-
tation programmes should always use up-to-date customer data.
Market Segmentation in Consumer Markets

To segment consumer markets, we use market information based around key customer-, prod-
uct-, or situation-related criteria. These are classified as segmentation bases and include profile
criteria (for example who are my market and where are they?); behavioural criteria (for example
where, when, and how does my market behave?); and psychological criteria (for example why
does my market behave that way?) (see Figure 6.4). A fourth segmentation criterion is con-
tact data—that is, a customer’s name and full contact details beyond only their postcode (for
example to include their postal and email addresses, and their mobile and home telephone
numbers). Contact data are useful for tactical-level marketing activities, for example direct and
Consumer criteria
Behavioural Psychological Profile
Purchase/transaction Lifestyle Demographic
Consumption/usage Personality Socio-economic
Media usage Perceptions Geographic
Technology usage Attitudes WHO & WHERE
WHO, HOW, WHERE, & WHEN Motives
Benefits sought
WHY & WHO
Figure 6.4
Segmentation criteria for consumer markets
digital marketing (see Chapters 11 and 12). Often, companies combine data from a variety of
sources to develop a segmentation scheme. For example, in 2008 Experian segmented all
adults in the UK into 19 different markets for its client, the Post Office, by fusing data from the
Post Office customer insight survey, the edited electoral roll, census data, Experian lifestyle data
(MOSAIC), and responses to a financial survey conducted by MORI (another market research
firm) (Experian, 2008).
Table 6.1 illustrates the key characteristics associated with each of the main approaches to
consumer market segmentation.
When selecting different segmentation bases, the trade-off between data acquisition
costs and the ability of the data to predict customer choice behaviour should be considered.
Demographic and geo-demographic data are relatively easy to measure and obtain; how-
ever, these bases suffer from low levels of accuracy in predicting consumer behaviour (see
Figure 6.5). In contrast, behavioural data (for example product usage, purchase history, and
media usage), although more costly to acquire, provide a more accurate means of predicting
future behaviour: the brand of toothpaste you purchased previously is more likely to be the brand
of toothpaste you purchase in future, for example. However, customer choices are also influ-
enced by susceptibility to marketing communications. (See Research Insight 6.2 for a review of
the main bases of market segmentation.)
Profile Criteria
One way of segmenting consumer markets is to use profile criteria to determine who consum-
ers are and where they are located. To do this, we use demographic methods (for example
age, gender/gender identity, race); socio-economics (for example determined by social class
or income levels); and geographic location (for example using postcodes). For example, a util-
ity company might segment households by geographical area to assess regional brand pen-
etration, or an insurance company might segment the market by age, employment, income,
Chapter 6 > Market
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Table 6.1 Segmentation criteria
Base type Segmentation criteria Explanation
Profile Demographic Key variables concern age, sex/gender or gender

identity, occupation, level of education, religion,
social class, and income characteristics.
Life stage Based on the principle that people need different

offerings at different stages in their lives (e.g.
childhood, adulthood, young couples, retired).
Geographic The needs of potential customers in one geographic

area are often different from those in another area, as
a result of climate, custom, or tradition.
Geodemographic There is a relationship between the type of

housing and location in which people live and their
purchasing behaviours.
Psychological Psychographic By analysing consumers’ activities, interests, and

(lifestyles) opinions, we can understand individual lifestyles
and patterns of behaviour affecting their buying
behaviour and decision-making processes. We can
also identify similar offering and/or media usage
patterns.
Benefits sought The motivations customers derive from their

purchases provide an insight into the benefits they
seek from the use of an offering.
Behavioural Purchase/transaction Data about customer purchases and transactions

provide scope for analysing who buys what, when,
and how often, how much they spend, and through
what transactional channel they purchase.
Product usage Segments can be derived on the basis of customer

usage of the offering, brand, or product category.
This may be in the form of usage frequency, time of
usage, or usage situations.
Media usage What media channels are used, by whom, when,

where, and for how long provides useful insights
into the reach potential for certain market segments
through differing media channels, as well as insight
into the target’s media lifestyle.
Difficult
& High
Behavioural
Ease & cost of measurement

Psychological
Geodemographic
Demographic
Easy &
Low
Low High
Predictability of consumer choice behaviour
Figure 6.5
Considerations for segmentation criteria accessibility and use
Source: From Shimp. Integrated Marketing Communications in Advertising and Promotion®, International Edition, 7e. © 2007 South-
Western, a part of Cengage Learning, Inc. Reproduced with permission.
Beane, T.P., and Ennis, D.M. (1987). Market segmentation: a review. European Journal
of Marketing, 32(5), 20–42.
This article provides a useful insight into the main bases of market segmentation, as well as the strengths and
weaknesses of the key statistical methods used to analyse customer data to develop segmentation models.
The authors suggest that there are many ways of segmenting a market and that it is important to exercise
creativity when doing so.
and asset net worth to identify attractive market segments for a new investment portfolio.
Boston Consulting Group (BCG) in Thailand has identified that more than half of Thai con-
sumers now belong to the middle class and affluent consumers (MAC) group, presenting
a specific opportunity in categories including consumer products, trade-up options, luxury
goods, and experiences (Kittikachorn, 2018). These are all examples of segmentation based
on profile criteria.
Chapter 6 > Market
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Demographic
Demographic variables relate to age; gender/gender identity; family size and life cycle; genera-
tion (for example baby boomers, Generation X, or millennials); income; occupation; education;
ethnicity; nationality; religion; and social class. They indicate the profile of a consumer and are
useful in media planning (see Chapter 11). For example, the post-millennial generation—known
as Generation Z, and referring to those born between 1996 and 2010—comprise more than
27 per cent of the global population, spending US$44 billion in the United States alone. They
connect with brands that express priorities of community, sustainability, and diversity (Black,
Asadorian, and Dunnett, 2017), such as Vodafone and its youth sub-brand, Voxi, in the mobile
category, or Converse and Vans in the trainer category.
Converse’s ‘Made by You’ campaign celebrates the individual experiences and self-expression
embodied in a pair of Chucks
Source: © Converse Inc.
Age is a common way of segmenting consumer markets (for example children are targeted
for confectionery and toys because their needs and tastes are different from those of older peo-
ple). For example, Harley-Davidson is placing renewed emphasis on targeting younger riders—
since the average age of a Harley owner in the United States has increased from 32 to 47 since
1990—and it has done so by setting up a ‘Riding Academy’; by using younger spokespersons
such as Jessica Haggett of ‘The Litas’, an international all-women motorcycle club; on social
media; and by focusing advertising on sports such as the X Games and the Ultimate Fighting
Championships (Moreno, 2017). Japanese telecoms company NTT DoComo, meanwhile, has
produced a phone with larger keys and a larger display screen aiming to cater for the needs of
older people (sometimes called the ‘grey market’) (Anon., 2016a).
Segmenting by gender has also traditionally spawned a raft of offerings targeted uniquely at
women, including beauty and fragrance offerings (for example Clinique, Chanel); magazines (for
example Cosmopolitan, Amelia in Sweden); hair care (for example Pantene, Clairol); and clothes
(for example Monsoon, New Look). Offerings uniquely targeted at men include magazines (for
example GQ), deodorants (for example Lynx/Axe), and beverages (for example Carlsberg,
Coke Zero). Some brands develop offerings targeted at both men and women, with fragrances
(for example Versace), designer clothing (for example H&M, Next), and watches (for example
Cartier). Some companies and categories are taking advantage of the trend towards a more
gender-fluid world by also developing unisex offerings in their ranges, such as in kids clothing (for
example Abercrombie & Fitch), perfume (for example Calvin Klein’s CK2), and beauty products
(for example Walmart’s unisex shaving cream).
Research by Ipsos in the Middle East and North Africa (MENA) region identified that women
are the chief shoppers in many households, ranging from around 94 per cent in Egypt to
46 per cent in Iraq, yet only a minority of women in the region earn their own income, with
most dependent on an allowance—which has a significant impact on their purchase behaviour
(Minawi, 2017).
Designer clothing targeting men and women

Source: © Richard Levine/Getty.
Income, or socio-economic status, is an important demographic variable because it deter-

mines whether or not a consumer can afford an offering (see Chapter 2). Socio-economic status
comprises information about a consumer’s personal income, household income, employment
status, disposable income, and asset net worth. Many companies, for example those market-
ing luxury goods (such as Aston Martin, NetJets), target high net worth individuals (HNWIs)
with high-end exclusive offerings. However, targeting low-income earners can also be profit-
able. German discount supermarkets (for example Aldi, Lidl) make a good profit by targeting
low-income segments. Major supermarket groups such as Carrefour and Tesco use an under-
standing of customer socio-economics to develop their own-label offerings. For example, Tesco
Finest is developed for market segments with high disposable income, in contrast with Tesco
Value, which is marketed to the price-conscious, low-income segment.
Chapter 6 > Market
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Life Cycle
Life-stage analysis posits that people have varying amounts of disposable income and dif-
ferent needs at different times in their lives. For example, adolescents need different offerings
from those required by single 26-year-olds, who need different offerings compared with 26-year-
old married people with young children. Major supermarkets, such as Sainsbury’s (UK), ICA
Supermarket (Sweden), and Mercadona (Spain), have all invested in the development of offer-
ings targeted at singles with high disposable incomes and busy lifestyles by offering ready meals
for one, which compare with ‘family value’ and ‘multipacks’ targeted at families. As families grow
and children leave home, the needs of parents change and their disposable income increases.
Certain types of holiday (for example TUI’s package holidays) and cars (for example people car-
riers) become more attractive to people in the life stage during which they have children. One
modern lifecycle classification—that is, Target Group Index (TGI) from Kantar Media—classifies
12 or 13 life-stage groups based on age, marital status, household composition, and children,
for example whether a person has children and the age(s) of the child(ren) (see Table 6.2). (See
also Chapter 2 for a historical example of life-stage segmentation.)
Visit the online resources and follow the web link to Kantar Media to learn more about the TGI.
Table 6.2 TGI life-stage segmentation groups
Group Demographic description
Fledglings 15–34, not married and have no son or daughter; living with own parents
Flown the nest 15–34, not married, do not live with relations
Nest builders 15–34, married, do not live with son/daughter
Mid-life independents 35–54, not married, do not live with relations
Unconstrained couples 35–54, married, do not live with son/daughter
Playschool parents Live with son/daughter and youngest child 0–4
Primary school parents Live with son/daughter and youngest child 5–9
Secondary school parents Live with son/daughter and youngest child 10–15
Hotel parents Live with son/daughter and have no child 0–15
Senior sole decision-makers 55, not married and live alone
Empty nesters 55, married, and do not live with son/daughter
Non-standard families Not married, live with relations, do not live with son/daughter, and do not
live with parents if 15–34
Unclassified Not in any group

Source: Reproduced with the kind permission of Kantar Media.
Geographics
A geographical approach is useful when there are clear locational differences in tastes, con-
sumption, and preferences. For example, whereas the British celebrate Christmas with turkey
dishes, Swedes often eat fish, and many Dutch opt for venison (and Kerstbrood or ‘Christmas
bread’). These consumption patterns provide an indication of preferences according to differ-
ing geographical regions. Markets can be considered by country or region, size of city or town,
postcode, or population density such as urban, suburban, or rural. It is often said that American
beer drinkers prefer lighter beers compared with their UK counterparts, whereas German beer
drinkers prefer a much stronger drink than either. In contrast, Australians prefer colder, more
carbonated, beer than drinkers in the UK or the United States.
In addition to proposition selection and consumption, geographical segmentation is important
for retail location, advertising and media selection, and recruitment. For example, recruitment to
the armed forces draws people with similar demographic attributes from a variety of geographic
areas. Low-cost formats might be used for retail outlets in low-income regions. Direct sales
operations (for example catalogue sales) can use census information to develop better customer
segmentation and predictive models.
Geo-demographics
Geo-demographics is a natural outcome when combining demographic and geographic vari-
ables. The marriage of geographics and demographics has become an indispensable market
analysis tool, because it can lead to a rich mixture of who lives where. Two of the best-known UK
geo-demographic systems are A Classification of Residential Neighbourhoods (ACORN) from
CACI Ltd and Experian’s Mosaic.
Visit the online resources and complete Internet Activity 6.1 to learn more about how we use
databases populated with geo-demographic data to profile market segments effectively.
ACORN breaks people into groups based on the postcodes within which they live, based on the
following six categories (broken down further into 18 groups and 62 types):
1 Affluent Achievers
2 Rising Prosperity
3 Comfortable Communities
4 Financially Stretched
5 Urban Adversity
6 Not Private Households
ACORN is a geo-demographic tool used to identify the UK population and its demand for a
variety of offerings to help marketers to determine where to locate operations, field sales forces,
retail outlets, and so on. ACORN can also be used to determine where to plan marketing com-
munications and social media marketing campaigns.
Visit the online resources and follow the web link to CACI Ltd to learn more about the
ACORN system.
Mosaic is a similar geo-demographic segmentation system, developed by Experian and mar-
keted globally. The system is based on a customer classification using more than 850 million
Chapter 6 > Market
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source records and more than 450 input variables for clustering and interpretation to aggregate
people into 15 groups (for example ‘suburban stability’, ‘prestige positions’) and 66 types (for
example ‘empty nest adventure’, ‘fledgling free’) to create a three-tier classification that can be
used at the individual, household, and postcode levels.
Visit the online resources and follow the web link to Experian to learn more about the
Mosaic system.
Psychological Criteria
Psychological criteria used for segmenting consumer markets include the types of benefit sought
by customers from brands in their consumption choices, attitudes, and perceptions (for example
feelings about fast cars) and psychographic criteria, or the lifestyles of customers (for example
‘extrovert’, ‘fashion conscious’, ‘high achiever’).
Benefits Sought
The benefits sought approach is based on the principle that we should provide customers
with exactly what they want, based on the benefits they derive from using a particular proposi-
tion (Haley, 1968). This might sound obvious, but consider the real benefits, both rational and
irrational (see Chapter 2), for the different offerings that people buy (for example mobile phones
and sunglasses). Major airlines often segment on the basis of the benefits passengers seek from
transport by differentiating between the first-class passenger (given extra luxury benefits in their
travel experience), the business-class passenger (who gets some of the luxury of the first-class
passenger), and the economy-class passenger (who gets none of the luxury of the experience,
but enjoys the same flight). Morrissey and Baines (2011) segmented the youth sports participa-
tion market in Ireland based on the benefits that young people seek in sport participation, creat-
ing the following four segments:
1 The enthusiast is a member who exercises principally for enjoyment and fitness (strength/
endurance and nimbleness) and who tends to do so regularly.
2 The social competitor is a member who tends to exercise regularly, be male and relatively
young, and who exercises principally for interpersonal and affiliation motives. Interpersonal
motives reflect individuals driven by the competitive and challenging aspects of exercise, in
addition to peer recognition. Affiliation motives indicate a desire for social interaction and
building of friendship through exercise.
3 The healthy looker is a member who exercises principally for aesthetic and health motives,
and tends to be female and to exercise occasionally.
4 The reluctant exerciser is a member who tends to be female and to exercise occasionally, to
exhibit below-average motivation for all motivational constructs, and for whom interpersonal
and enjoyment motives are substantially below average.
Psychographics
Psychographic approaches rely on the analysis of consumers’ activities, interests, and opinions
to understand consumers’ individual lifestyles and behaviour patterns. Psychographic segmen-
tation includes understanding the values that are important to different customer types. A tra-
ditional form of lifestyle segmentation is based on customers’ activities, interests, and opinions
(AIO). Taylor Nelson Sofres (TNS) developed a UK Lifestyle Typology comprising the categories
‘belonger’, ‘survivor’, ‘experimentalist’, ‘conspicuous consumer’, ‘social resistor’, ‘self-explorer’,
and ‘aimless’.
International Harvester undertook value-based segmentation to discover why farmers con-
sistently rated the equipment of John Deere, its arch competitor, as ‘more reliable’ than its own.
International Harvester had invested heavily to minimize breakdowns, but John Deere continued
to lead in the reliability rankings. Surveys about repair problems revealed it was the downtime
caused by breakdowns that most affected farmers because of the days of lost productivity wait-
ing for repairs. John Deere’s customers perceived reliability to be much less of a problem because
of John Deere’s extensive service-oriented dealer network, which stocked spare parts and offered
temporary tractors, allowing a farmer to get back to work quickly. John Deere was serving a dif-
ferent segment of farmers: those driven by the value of a total service solution (Anon., 2013).
Behavioural Criteria
Product-related methods of segmenting consumer markets include using behavioural methods
(for example product usage, purchase, and ownership) as bases for segmentation (see Market
Insight 6.2). Observing consumers as they use offerings or consume services can be an impor-
tant source of ideas for new uses or proposition design and development. Furthermore, new
markets for existing offerings can be signalled, as well as appropriate communication themes for
promotion. Purchase, ownership, and usage are three very different behavioural constructs that
can be used to aid consumer market segmentation.
Market Insight 6.2

Microtargeting Controversy during the US Presidential
Election
Facebook’s segmentation of the US presidential Transitionals (3.4 million)—average age 26;

election in 2016 used multiple data sources, including 49/51 per cent male/female; generation of
attitudinal data (whether people support particular newly engaged and single; interested in sports,
political issues), behavioural data (on which parties hip hop; politics centring on cannabis reform,
people donate to or support), and demographic data (Barack) Obama, Jimmy Morales
(for example gender) and K-Means cluster analysis,
Political Engaged City Dwellers (15 million)—
to segment and profile the US electorate based on
average age 46; 47/53 per cent male/female;
their Facebook use. This allowed them to derive five
college educated and Protestant; interested
voter types based along partisanship lines, each with
in film festivals and opera; politics centring on
between one and four segments, as follows (including
women’s interests, Madam President, Bernie
number of people within each segment):
(Sanders)
■ Very Liberal
■ Liberal
Youthful Urbanites (10.2 million)—average age
Political Engaged Adults (10.2 million)—average
29; 40/60 per cent male/female; 1.6 million
age 50; 44/56 per cent male/female; generation
from generation AA (18 years old in 2017) and
of mothers and multicultural; interested in yoga,
561,000 Hispanic Americans; interested in
organic food; politics centring on Help Elect
comedy television and boxing; politics centring
Women, Bernie (Sanders), Hillary (Clinton)
on women’s issues, (Barack) Obama
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229
Market Insight 6.2

continued
Multicultural Millennials (20.1 million)—average military; interested in hunting, shooting, paintball,

age 28; 45/55 per cent male/female; generation cheerleading; politics centring on no affinity for
of 2.3 million Hispanic Americans, 540,000 Black politicians
American, 511,000 Asian Americans; interested
■ Very Conservative
in football, vegan cuisine, Kardashians; politics
centring on cannabis reform, Voters for Equality, Post Grad Nest Builder (11.3 million)—average
Narendra Modi age 47; 50/50 per cent male/female; generation
of parents, religious donors; interested in fishing,
Mainstream Millennials (9.3 million)—average
landscaping; politics centring on Tea Party
age 33; 57/43 per cent male/female; generation
(strictly conservative anti-establishment activists),
of high school or less education; Catholic; no
National Republican Senate Committee (NRSC),
children; interested in gaming, video chat, college
Donald Trump, Ted Cruz
sports; politics centring on Voters for Equality,
cannabis reform, Bernie (Sanders), (Joe) Biden, Family Values (4.2 million)—average age 56;
(Barack) Obama 38/62 per cent male/female; generation of
parents, Christians; politics centring on pro-life,
■ Moderate
Heritage Action Committee for America, Rick
Moderate (44.1 million)—average age 33; 43/57 Perry, Michelle Bachman, Mike Huckabee
per cent male/female; generation of mothers
The Great Outdoors (7.3 million)—average age
and Catholic; interested in football, gaming,
41; 48/52 per cent male/female; generation of
charity, camping, boating; politics centring on
parents, donate to conservative causes; politics
Mitt Romney, Bernie (Sanders), (Barack) Obama,
centring on National Rifle Association (NRA), Tea
Hillary (Clinton), Chris Christie
Party, Stop Obamacare
■ Conservative
The idea behind this segmentation was for Facebook
Diverse Parents (18.4 million)—average age
sales teams to sell the segmentation to political (and
42; 40/60 per cent male/female; generation of
any other) advertisers using the Facebook self-serve
multiculturals; interested in auctions, boating;
platform during the US presidential election. The
politics centring on libertarianism, American
segmentation is, however, no longer available.
Unity Fund
The Trump campaign’s Facebook operation is
Travelling Baby Boomers (6.8 million)—average said to have targeted the ‘Conservative’ and ‘Very
age 55; 42/58 per cent male/female; generation Conservative’ segments. One concern becoming
of parents away from families; interested in home increasingly apparent, however, is the way in which
improvement, Duck Dynasty (a US reality show), third-party organizations are using Facebook data
Paula Dean (US celebrity chef); politics centring for microtargeting voters, citizens, and consumers
on pro-life, Christianity alike.
Small Town America (5.7 million)—average age
Facebook has faced questions in Congress over the
39; 45/55 per cent male/female; generation
purchase of US$100,000 of Facebook ads by Russian
of family householders, suburban mothers,
entities (for example the Internet Research Agency),
sports utility vehicle (SUV) owners; interested in
aiming to sow discord before, during, and after the US
hunting, shooting, fishing; politics centring on
presidential election, apparently reaching 126 million
anti-Obama, Donald Trump, Mitt Romney
Americans with their messages.
Millennial Country Culture (484,000)—average
age 24; 27/73 per cent male/female; majority If the Russian use of Facebook targeting to sow
Western European; large proportion of jobs in election discord wasn’t enough, in 2018 the CEO of
Market Insight 6.2

continued
Facebook, Mark Zuckerberg, was forced to apologize

after Channel 4 News and Observer investigation
teams revealed that a Cambridge University
psychology academic had harvested personal data
from 50 million Facebook profiles via a ‘personality
questionnaire’ and passed these data to Cambridge
Analytica (a UK-based political consulting firm
unrelated to Cambridge University) working on Donald
Trump’s 2016 presidential campaign. Both the US
Federal Election Commission and the UK Digital,
Culture, Media and Sport Select Committee are
investigating. Governments around the world, including
Facebook’s Mark Zuckerberg testifying before those in Israel and Australia, have demanded to know
a Senate Judiciary and Commerce Committee from Facebook whether their citizens’ data have been
hearing after it was reported that Facebook harvested in the same way.
users had their personal information harvested
by Cambridge Analytica Sources: Kantrowitz (2017); Reynolds (2017); Ritson (2017);
Source: © Newscom/Alamy Stock Photo. Harris (2018); Ram (2018).
The market insight illustrates the difficult line that the charge that it is not taking the privacy of its users
Facebook treads in harvesting data from users and sufficiently seriously, since it did not supervise third-
selling that data for segmentation and microtargeting party app developer organizations sufficiently when
purposes. The company derives much of its income harvesting its data—a charge that looks particularly
from selling advertising and, more importantly, apposite since it also failed to pick up, or manage to
effective advertising to companies. Although the stop, Russian Facebook advertising during the 2016
scandal has particularly focused on Cambridge US presidential campaign designed to sow discord
Analytica’s use of Facebook data, Facebook is facing amongst the electorate.
Related Topics
segmentation; privacy; stereotyping; advertising effectiveness
1 What organizations do you think might have 3 When might a segmentation scheme lead to a
made use of Facebook’s 2016 US presidential breach of customer privacy?
election segments?
2 Why do you think Facebook stopped making

the segments outlined available on its self-serve
platform?
Chapter 6 > Market
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231
Usage
A company may segment a market based on how often a customer uses its offerings, categoriz-
ing these into high, medium, and low users. This allows the development of service specifica-
tions or marketing mixes for each user group. For example, a bus company might target heavy
users of public transport differently from heavy users of private vehicles.
Consumer usage of offerings can be investigated from three perspectives:
1 The social interaction perspective examines the symbolic aspects of usage and the so-
cial meanings attached to the consumption of socially conspicuous offerings, such as
a car or house (Belk, Bahn, and Mayer, 1982; Solomon, 1983). For example, American
animal rights organization People for the Ethical Treatment of Animals (PETA) regularly
runs advertising campaigns highlighting how wearing fur products perpetuates cruelty to
animals.
PETA targeting fur-wearing consumers

Source: © Getty Images/Handout.
2 The experiential consumption perspective examines the emotional and sensory experi-
ences that result from usage—especially emotions such as satisfaction, fantasy, feel-
ings, and fun (Holbrook and Hirschman, 1982). For example, Marmite (owned by Unile-
ver and strangely banned in Denmark) has developed a television ad campaign around a
scientific research study that found that people really are born ‘lovers’ or ‘haters’ of the
yeast extract food product (and for £89.99 consumers can actually get their own DNA
testing kit!).
Are you a lover or a hater? It may be in your DNA!

Source: © Selwyn/Alamy Stock Photo.
3 The functional utilization perspective assesses the functional usage of products and their
attributes in different situations (Srivastava, Shocker, and Day, 1978; McAlister and Pesse-
mier, 1982). For example, we might examine how and when bicycles are used (for example
for leisure, commuting, exercise, sport), how often, and in what contexts.
Service providers often segment markets based on their customers’ purchase behaviour. This
might involve segmentation by loyalty to the service provider, or length of relationship, or some
other mechanism.
Transaction and Purchase

The development of electronic technologies, such as electronic point of sale (EPOS) systems,
standardized product codes, radio frequency identification (RFID) systems, quick response (QR)
codes, and integrated purchasing systems (such as web, in-store, telephone, by app), has facili-
tated a rapid growth in the collection of consumer purchase and transactional data. For exam-
ple, browsing and purchase data allow Amazon to make recommendations of offerings that are
more likely to appeal to consumers, while EPOS systems allow retailers to track who buys what,
when, for how much, in what quantities, and with what incentives (for example sales promotions).
Companies have the ability to monitor purchase patterns in various geographical regions, at dif-
ferent times or seasons of the year, for various offerings and, increasingly, for differing market
segments. Social media can also be analysed to track what people are saying once they have
purchased and used particular offerings. For example, film studios track audience interest in new
cinema releases via social media and use initial audience interest to allocate marketing budgets.
Transactional and purchase information is very useful for marketers to assess who are their
most profitable customers. By analysing the recency, frequency, and monetary (RFM) value
Chapter 6 > Market
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233
of purchases, marketers can identify their most profitable market segments. Customers who
purchase most recently and frequently, and who spend the most—that is, customers with the
highest RFM value—would be classified as profitable customers. Transactional data are records
of behaviours and provide some insight into purchasing trends. Online, we can track from where
someone is accessing our website. For example, if someone is coming to us from a price
comparison website, they are probably price-sensitive, but if they arrive from a product review
website, they have probably already decided what they want and so are less price-sensitive
(Stiving, 2012).
The executional segmentation category focuses on how individual customers are treated.
One approach is through ‘triggers’, such as commercially significant occurrences on a cus-
tomer’s account. In financial services, a late payment fee might indicate that a customer’s needs
have changed, or a customer who has just taken out cash via a credit card might need credit and
be a target for a loan. Such trigger information typically needs to be combined with an assess-
ment of the customer’s credit status to ascertain whether a loan would be an appropriate offer
to a customer who has just been charged a late payment fee or an overdraft extension. On the
B2B side, Cisco uses the trigger information of a firm moving offices to contact those firms with
offers for networking equipment (Bailey et al., 2009).
Media Usage
The logic of segmenting markets by frequency of readership, viewership, or patronage of media
vehicles is well established. For example, heavy and light magazine readers might respond
differently to ads with different creative appeals (Urban, 1976). Segmenting users by media
usage frequency can provide insights into whether or not a publisher, or social networking site
(for example Snapchat or Instagram), attracts and retains consumers who are more or less
responsive to an advertiser’s communication. This information provides input when evaluating
the efficiency and effectiveness of media. Furthermore, differences in frequency may lead to dif-
ferences in response to repeated passive ad exposures, competing ads of other sponsors, and
prior ad exposure. For example, a study of television viewership in Mexico identified the following
behavioural segments:
■ noveleros (10 per cent of population) are family-oriented, need to watch with others and en-
joy company;
■ hogareños (26 per cent) need emotional company from the television and spend a lot of time
at home;
■ rutinarios (25 per cent) are those for whom television represents a comfort zone and an es-
cape from a busy life;
■ pop-lovers (15 per cent) need to be updated on the latest content, which their friends con-
sume too; and
■ connectors (24 per cent) are early adopters and trendsetters—the connoisseurs of television
(Sanchez, 2018).
Frequency of media usage has been the predominant measure of media usage experience.
However, Olney, Holbrook, and Batra (1991), and Holbrook and Gardner (1993), have identified
viewing time as an important dependent variable in a model of advertising effects. On media
websites, users might be segmented either by their visit frequency or by their dwell time (that is,
how long they spend on a website), among other variables.
Segmentation in Business Markets

Business-to-business (B2B) market segmentation is the identification of ‘a group of present or
potential customers with some common characteristic which is relevant in explaining (and pre-
dicting) their response to a supplier’s marketing stimuli’ (Wind and Cardozo, 1974: 155). There
are two main groups of interrelated variables used to segment B2B markets (see Table 6.3). The
first involves organizational characteristics, such as organizational size and location, some-
times referred to as firmographics. Those seeking to segment business markets might start
with these variables. The second group is based on the characteristics surrounding the decision-
making process. Those organizations seeking to establish and develop customer relationships
would normally expect to start with these variables.
Organizational Characteristics
Organizational characteristics concern the buying organizations that make up a business mar-
ket. There are a number of criteria that can be used to cluster organizations, including size,
geography, market served, value, location, industry type, usage rate, and purchase situation.
We discuss the main three categories (see Figure 6.6).
Table 6.3 Segmentation bases used in business markets
Base type Segmentation base Explanation
Organizational Organizational size Grouping organizations by relative size (MNCs,

characteristics international, large, SMEs) enables the identification of
design, delivery, usage rates or order size, and other
purchasing characteristics.
Geographic location Often, the needs of potential customers in one

geographic area are different from those of potential
customers in another.
Industry type Standard industrial classification (SIC) codes are used to

(SIC codes) identify and categorize industries and businesses.
Customer Decision-making unit Attitudes, policies, and purchasing strategies allow

characteristics (DMU) structure organizations to be clustered.
Choice criteria The types of offering bought and the specifications

companies use when selecting and ordering offerings
form the basis for clustering customers and segmenting
business markets.
Purchase situation Buyers may be segmented by how a company

structures its purchasing procedures, the type of buying
situation, and whether buyers are included in an early or
late stage in the purchase decision process.
Note: MNC = multinational corporation; SME = small and medium-sized enterprise

Chapter 6 > Market
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Organizational criteria
Firmographic Economic Geographic
Size Revenue/turnover Local

(Micro, SME, large)
Age/Life cycle Profit National
(Start-up, 1–3 years, 10 years)
Industry (SIC codes) Budget Multinational
(Health, education, ICT)
Type/Role Global
(Charity, for-profit, supplier)
Figure 6.6
Segmentation by organizational characteristics
Organizational Size
By segmenting organizations by size, we can identify particular buying requirements. Large
organizations (for example food manufacturers) may have particular delivery or design needs
based on volume demand. Accordingly, supermarkets such as Denmark’s Netto and Germany’s
Aldi would have very specific requirements of manufacturers because they pride themselves
on purchasing goods in sufficiently large quantities to enable them to market their offerings at
a cheaper price. A computer manufacturer such as RM Education in the UK, which specializes
in providing information technology (IT) products and services to schools, colleges, universities,
government departments, and educational agencies, will differ considerably in size from, say, a
small local village school (with 200 pupils) or even a large civic university (with 40,000 students),
and each will have considerably different IT needs.
Geographical Location
Geo-targeting is one of the more common methods used to segment B2B markets and is
often used by new or small organizations attempting to establish themselves. This approach is
useful because it allows sales territories to be drawn around particular locations that sales staff
can service easily (for example Scotland, Scandinavia, Western Europe, the Mediterranean).
Alternatively, sales territories may be based on specific regions within a country, for example,
in Eastern Europe, based on individual nations (that is, Poland, Czech Republic, Romania, and
Hungary). However, this approach is becoming less useful because the Internet cuts across
geographic distribution channels (see Chapters 11, 13, and 14).
SIC Codes
Standard Industrial Classification (SIC) codes are used to designate different indus-
trial markets. They are easily accessible and standardized across most Western countries (for
example the UK, Europe, and the United States). However, some marketers have argued that
SIC codes contain categories that are too broad to be useful. Consequently, SIC codes have
received limited application, although they do provide ‘some preliminary indication of the indus-
trial segments in [a] market’ (Naudé and Cheng, 2003). More commonly, companies segment
B2B markets using industry types (so-called verticals). For example, a law firm might segment its
customers into financial services, utilities, transport, and retailing, among others.
Visit the online resources and complete Internet Activity 6.2 to learn more about how we use
SIC codes to segment business markets.
Customer Characteristics
Customer characteristics concern the buyers within the organizations that make up a busi-
ness market. Numerous criteria could be used to cluster organizations, including by decision-
making unit, by purchasing strategies, by relationship type, attitude to risk, choice criteria,
and purchase situation.
Decision-Making Unit
An organization’s decision-making unit may have specific requirements that influence purchase
decisions in a particular market, for example policy factors, purchasing strategies, the level of
importance attached to these types of purchase, or attitudes towards vendors and risk. These
characteristics can be used to segregate groups of organizations for particular marketing pro-
grammes. Segmentation might be based on the closeness and level of interdependence exist-
ing between organizations. Organizational attitudes towards risk and the degree to which an
organization is willing to experiment through the acquisition of new industrial offerings varies.
The starting point of any B2B segmentation is a good database or customer relationship man-
agement (CRM) system. It should contain customer addresses, contact details, and detailed
purchase and transactional history. Ideally, it will also include the details of those buyers present
in the customer company’s decision-making unit structure. However, as Market Insight 6.3
illustrates, segmentation can also be undertaken of non-buyers (or defectors).
Market Insight 6.3

Logistical Nightmare: Regaining Defectors
Customer churn for firms such as FedEx, UPS, and segmentation to find new customers. One of the
XPO in the logistics industry can reach 20–25 per cent. reasons for this is that ‘lost customers’ leave a portfolio
Customers switch suppliers for a variety of reasons, of transactions that the sales force can use to leverage
but some of the more common ones concern core a customer’s return.
service failures, dissatisfactory service encounters,
price, inconvenience in terms of time, location, or Research suggests that five distinct segments of lost
delays, poor response to service failure, competition, customers can be identified and actioned, as follows:
ethical problems, and involuntary switching. It is ■ Bought-away customers—Often very price-oriented,
therefore important for all firms to understand these these customers are attracted by competitive prices.
switch/defection behaviours to reduce their incidence, A decision to regain this segment needs to take into
to retrieve lost customers, and hence to lower their account how easy and profitable it will be to retain
long-run costs. them in the light of their price vulnerability.
Segmenting B2B markets based on customers ■ Pulled-away customers—This segment is

who have been lost is not necessarily the same as characterized by buyers seeking better overall value,
Chapter 6 > Market
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237
Market Insight 6.3

continued
who will collaborate with suppliers to achieve higher different markets that the selling company cannot
benefits and/or lower costs. The solution to winning serve. Although lost for good, a positive ending to
back these ‘lost customers’ is to co-develop value the relationship is regarded as important to secure
propositions that are unique and sustainable. referrals and helpful word of mouth.
■ Unintentionally pushed-away customers—These ■ Intentionally pushed-away customers—These

customers leave because they perceive that they problematic or unprofitable customers are
have been mistreated or neglected. An apology deliberately let go, perhaps as part of a deliberate
is required, but where there have been service/ customer portfolio management strategy (see
product failures, service recovery and reacquisition Chapter 16), because the selling company no longer
may include compensation, reimbursement, and wants the customer’s business, perhaps because
discounts. In severe cases—often when mistakes they are unprofitable accounts or because they are
have been repeated—customers can be retrieved overly demanding and expensive to serve. Allowing
only after personnel changes have been made in them to build relationships with competitors should
either or both the buying and sales centres. be matched by a positive dissolution to help to
maintain the company’s own strong reputation and
■ Moved-away customers—This segment is
brand image.
characterized by customers who no longer need
or value the product/service offerings. They might Source: Keaveney (1995); Lopes, Alves, and Brito (2001); Liu,
have moved geographically or have moved into Leach, and Chugh (2015).
The process of segmenting customers who leave Relationship management theory is therefore a
their suppliers is an important part of the relationship key approach underpinning our understanding this
management process, of which sales management aspect of segmentation analysis. Relational factors
is an integral part. Segmentation within a relationship are important antecedents to positive outcomes, and
context requires identification of the characteristics this indicates that trust, commitment, satisfaction,
of lost customers, which enables categorization and other dimensions are essential elements for the
of defection patterns. Sales staff are in a stronger development of long-run quality relationships between
position to understand customers’ reasons for leaving, buyers and sellers (see Chapters 15 and 16).
to reduce the level of customer churn, and thereby to
retrieve ‘lost customers’.
Related Topics
customer life cycle; loyalty; collaboration; customer lifetime value
1 Discuss the view that if retrieving lost 2 To what extent is a high churn rate a function of
customers is costly and then keeping them is poor customer management?
problematic, there is little point in segmenting
3 Using a different industry, try to determine how
and actively trying to get them back.
companies seek to retain customers.
Choice Criteria
Business markets can be segmented based on the specifications of offerings they choose. For
example, an accountancy practice could segment its clients by those that seek compliance-type
accounting offerings, such as audits and tax submission work, companies that require manage-
ment accounting services, and companies that require a complex mix of both. A computer man-
ufacturer might segment the business market for computers by those requiring computers with
strong graphical capabilities (for example educational establishments, publishing houses) and
those requiring computers with strong processing capabilities (for example scientific establish-
ments). Companies do not necessarily need to target multiple segments, however; they might
successfully target a single segment, as has IT technological solutions provider RM in the UK
education market.
Purchase Situation
Companies sometimes seek to segment on the basis of how organizations make purchases.
Thus three questions associated with segmentation by purchase situation should be consid-
ered, as follows:
1 What is the structure of the buying organization’s purchasing procedures: centralized, decen-
tralized, flexible, or inflexible?
2 What type of buying situation is present: new task (that is, buying for the first time); modified
rebuy (that is, not buying for the first time, but buying something with different specifications
from previously); or straight rebuy (that is, buying the same thing again)?
3 What stage in the purchase decision process have target organizations reached? Are they
buyers in early or late stages, and are they experienced or new?
For example, a large global consulting and IT services company such as Infosys in India might
segment the market for IT project management services into public and private sectors. The
focus might then be on fulfilling large government contracts that are put out to tender, whereby
a group of selected buyers are offered the opportunity to bid for an exclusive franchise to deliver
agreed services for a defined period of time.
Typically, in segmenting business markets, a service provider can use a mix of macro- and
micro-industrial market segmentation approaches by defining the customers whom a company
wants to target using a macro approach, such as SIC or geographic region, and then further
segmenting using the choice criteria by which those customers select a provider. In other words,
multistage market segmentation approaches are often adopted.
Target Markets
The second important part of the STP process is to determine which of the segments uncovered
should be targeted and made the focus of a comprehensive marketing programme. Ultimately,
managerial discretion and judgement determines which markets are selected and exploited.
For market segmentation to be effective, the mnemonic DAMP can be applied (Kotler, 1984),
comprising the following four criteria:
Chapter 6 > Market
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239
■ Distinct—Is each segment clearly different from other segments? If so, different marketing
mixes will be necessary.
■ Accessible—Can buyers be reached through appropriate promotional programmes and dis-
tribution channels?
■ Measurable—Is the segment easy to identify and measure?
■ Profitable—Is the segment sufficiently large to provide a stream of constant future revenues
and profits?
Another approach to evaluating market segments uses a rating approach for different segment
attractiveness factors, such as market growth, segment profitability, segment size, competitive
intensity within the segment, and the cyclical nature of the industry (for example whether or not
the business is seasonal, such as retailing). Each of these segment attractiveness factors is
rated on a scale of 0–10 and loosely categorized in the high, medium, or low columns, based
on either set criteria or subjective criteria, depending on the availability of market and customer
data and the approach adopted by the managers undertaking the segmentation programme
(see Table 6.4).
Other examples of segment attractiveness factors might include segment stability (that is,
stability of the segment’s needs over time) and mission fit (that is, the extent to which dealing
with a particular segment fits the company’s mission). Once the attractiveness factors have been
determined, the importance of each factor can be weighted and each segment rated on each
factor. This generates a segment attractiveness evaluation matrix (see Table 6.5).
Decisions need to be made about whether a single offering is made available to a range
of segments, or a range of offerings to multiple segments or a single segment, or whether
one offering should be presented to a single segment. Whatever the decision, a marketing mix
strategy should be developed to meet segment needs, which should reflect the organization’s
Table 6.4 Examples of segment attractiveness factors
Segment Rating
attractiveness
factors High (10–7) Medium (6–4) Low (3–0)
Growth >2.5% 2.5–2.0% <2.0%
Profitability >15% 10–15% <10%
Size >£5m £1m–£5m <£1m
Competitive intensity Low Medium High
Cyclicality Low Medium High
Source: McDonald and Dunbar (2004). Reproduced with permission.

Table 6.5 Example of a segment attractiveness evaluation matrix
Segment Weight Segment 1 Segment 2 Segment 3

attractiveness
factors Score Total Score Total Score Total
Growth 25 6 1.5 5 1.25 10 2.5
Profitability 25 9 2.25 4 1.0 8 2.0
Size 15 6 0.9 5 0.75 7 1.05
Competitive intensity 15 5 0.75 6 0.9 6 0.9
Cyclicality 20 2.5 0.5 8 1.6 5 1
Total 100 5.9 5.50 7.45
Source: McDonald and Dunbar (2004). Reproduced with permission.
capabilities and competitive strengths. Key questions around the development of the marketing
mix include the following:
■ How can the segment(s) be reached with appropriate communications?
■ What is the media consumption pattern of the target audience?
■ Where can they gain access to our offerings to purchase them?
■ Does the offering need to be adapted for different segments and should it be priced the same
or differently for all segments?
Targeting Approaches
Once segments are identified, an organization selects its preferred approach to targeting. Four
differing approaches can be used (see Figure 6.7):
■ The undifferentiated approach is used where there is no delineation between market
segments and the market is viewed as one mass market with one marketing strategy for the
entire market. Although expensive, this approach is used for markets in which there is limited
or no segment differentiation (for example markets for petrol, housing offered by local authori-
ties, ice cubes).
Chapter 6 > Market
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241
Undifferentiated
marketing
Customized Target Differentiated

marketing market marketing
Focused/
concentrated
marketing
Figure 6.7
Target marketing approaches
■ The differentiated targeting approach is used where there are several market seg-
ments to target, each being attractive to the marketing organization. To exploit them, a
marketing strategy is developed for each segment. For example, HP has developed its
product range and marketing strategy to target the following user segments of computing
equipment: home office users; small and medium-sized businesses; large businesses; and
health, education, and government departments. A disadvantage of this approach is the
loss of economies of scale because of the resources required to meet the needs of multiple
market segments.
■ A concentrated marketing strategy (or niche marketing strategy) is used where
there are only a few market segments. This approach is adopted by firms with limited re-
sources to fund their marketing strategy or who prefer a very exclusive strategy towards
the market. For example, Lush targets consumers interested in handmade cosmetics with
ethical and pure credentials. This approach is used frequently by micro-sized and small to
medium-sized organizations with limited resources (for example an electrician may focus on
local residences).
One of Lush’s more controversial campaigns, aiming to draw attention to the ongoing undercover
policing, or ‘spy cops’, scandal
Source: © Mark Kerrison/Alamy Stock Photo.
Chapter 6 > Market
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■ A customized targeting strategy involves developing marketing strategy for each cus-
tomer, rather than each segment. This approach predominates in B2B markets (for example
marketing research or advertising services) or consumer markets with high value and/or
highly customized products (for example custom-made cars). For example, a manufacturer
of industrial electronics for assembly lines might target and customize its offering differently
for Nissan, Unilever, and SCA, given the differing requirements in assembly-line processes
for the manufacture of cars, foodstuffs, and hygiene products (for example hand dryers). In
another example, Bentley Motors made a special bullet- and bomb-proof limousine for the
UK’s HM Queen Elizabeth II to use for special public occasions.
Perhaps Bentley’s most customized product: the Bentley State Limousine

Source: © Sebaso/Wikimedia Commons (CC0).
Segmentation Limitations
Whilst market segmentation is a useful process for organizations to divide customers into dis-
tinct groups for resource allocation purposes, it has been criticized for the following reasons:
■ The process approximates offerings to the needs of customer groups, rather than individuals.
Therefore there is a chance that customers’ needs are not fully met. However, customer
relationship marketing (CRM) processes and software allow companies to develop cus-
tomized approaches for individual customers after a segmentation has been undertaken.
Integrating CRM processes (see Chapter 15) and segmentation schemes, and key account
management and segmentation schemes (see Chapter 16), requires extra planning.
■ There is insufficient consideration of how market segmentation is linked to competitive ad-
vantage (Hunt and Arnett, 2004). The product differentiation concept is linked to the need
to develop competing offerings, but market segmentation does not stress the need to seg-
ment on the basis of differentiating the offering from competitors. However, there’s nothing
stopping marketing managers from incorporating a competitive angle into their segmenta-
tion schemes if the scheme is to be more effective. This can occur at any phase of the STP
process, for example when determining the segments based on criteria on which a company
has a competitive advantage, or when evaluating which segments to choose in the targeting
process, or when determining the positioning dimensions for the offering.
■ It is not clear how valuable segmentation is to managers. Suitable processes or models for
measuring the effectiveness of market segmentation should be offered whenever segmen-
tation research exercises are undertaken (or sold by agencies or consultancies), but they
seldom are, despite the fact that Weinstein (2014) has found that competitive advantage
explains 22 per cent of market segment performance. Clayton Christensen of Harvard Busi-
ness School has argued that 95 per cent of new product launches fail because inadequate
attention is paid to market segmentation (Nobel, 2011). Market segmentation can be re-
garded as an organizational capability (Poenaru and Baines, 2011) or a performance factor
(Venter, Wright, and Dibb, 2015), because some organizations are better at it than others.
Consequently, segmentation plans can frequently fail because businesses fail to overcome
segmentation implementation barriers (Dibb et al., 2001), including the following:
Infrastructure barriers include culture, structure, and the availability of resources, which
may prevent the segmentation process from ever starting. For example, there may be a
lack of financial resource or political will to collect the market data necessary for a segmen-
tation programme.
Process issues include lack of experience, guidance, and expertise, which can hamper
how segmentation is undertaken and managed. Typically, market research agencies and
in-house market research teams use market and customer insight data and statistical soft-
ware packages to undertake this task. However, because the different statistical methods
provide different results, care must be taken in determining which method to use and how
to interpret these results when they are produced.
Implementation barriers include questions such as, if a new segmentation model is devel-
oped, how do organizations shift to using that new segmentation model? This may require
a move away from a business model based on offerings (for example engine sizes for fleet
buyers) towards one based on customer needs. To ensure that its segmentation scheme
worked in the server market, Dell used market research firm Chadwick Martin Bailey to
organize the process, bringing in people from engineering, environmental design, product
development, and marketing and advertising to ensure the widest input into the segmen-
tation and its widest possible implementation once it was complete (Neal, 2010).
Positioning
Having segmented the market, determined the size and potential of market segments, and selected
specific target markets, the final stage of the STP process is to position a brand within the target
market(s). Positioning is the means by which offerings are differentiated from one another to give
customers a reason to buy and it encompasses two fundamental elements. The first concerns the
Chapter 6 > Market
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attributes, the functionality, and the capability that a brand offers (for example a car’s engine speci-
fication, design, and carbon emissions); the second positioning element concerns the way in which
a brand is communicated and how customers perceive the brand relative to competing brands.
This element of communication is important because it is not what you do to an offering that is
important, but ‘what the advertising does for the product in the prospect’s mind’ (Ries and Trout,
1972: 38) that determines how a brand obtains its market positioning (see Market Insight 6.4).
Market Insight 6.4

Positioning Premium Beer
The history of Belgian beer brand Leffe can be traced In Italy, Peroni is priced below the average for mass-
back to 1240. Its current success, however, can market brands. Nastro Azzuro is Peroni’s upmarket
be credited to its positioning and association with brand offering; it is premium priced and does not
contemporary food and lifestyles, rather than its taste carry the Peroni name. When owner SABMiller
and historic values associated with traditional brewing launched Peroni in the UK, it recoupled the names
and ingredients. and positioned Peroni Nastro Azzuro in terms of its
Italian origins. Research identified the target audience
Despite its super-premium price, the brand has as confident, socially mobile, 25–34-year-old status
experienced strong growth in France, nearly doubling its seekers, who were optimistic about the future and
market share between 2008 and 2013. This growth has their ability to control it. They were referred to as
been achieved by associating the brand as an ‘aperitif’— ‘modern sophisticates’. Using conventional media,
an alcoholic drink consumed during a social period the brand was associated with ‘the Golden Age
before a meal, intended to stimulate the appetite and of Italy’. Television advertising used stereotypical
more normally wine. Leffe was positioned as the ideal first images of Italy, 1960s nostalgia, and premium brand
drink of the evening—particularly when accompanied by cues such as flying boats, a carefree lifestyle, and
traditional foods such as dry-cured ham and cheese. powerboats. But the campaign fared less well on
social media: the Peroni Nastro Azzurro Facebook
The bottle uses foil wrapping around the neck, similar
page achieved almost 500,000 likes, but nevertheless
to champagne, reinforcing its premium positioning.
failed to achieve high engagement, unlike its Italian
Rather than use conventional media, Leffe uses an online
counterpart, Birra Peroni, which—despite being
newsletter called Leffervescense. In addition to featuring
updated in Italian—had fewer followers, but much
its own products, the newsletter introduces readers to
higher levels of engagement.
celebrity chefs and artisanal food producers. Heineken in
the United States have now followed this path by aligning
themselves with handcrafted products that ‘embody Source: Hollis (2014a, 2014b); Anon. (2016b); http://www.
Heineken’s aspirational and metropolitan essence’. brandunion.com
The way in which individuals perceive, organize, and and shape. Sometimes, as with the beer market, no
interpret stimuli is a reflection of their past experiences difference can be distinguished, so the consumer has
and the classifications that they have learned to use to make a judgement on factors other than the physical
to understand the different situations they encounter characteristics of the product, which means paying
every day. Consumers attempt to evaluate a product’s attention to branding and the means by which branding
attributes using the physical cues of taste, smell, size, is achieved—that is, positioning.
Market Insight 6.4

continued
Positioning concerns the presentation of an offering upmarket and different aperitif, Leffe sought ways of
through a particular mental frame. There are several reinforcing this perception. This was accomplished
levels or frames within which a brand can be positioned, through the choice of packaging, messaging, media,
one of which is premium branding. For the UK market, and association with artisanal foods and chefs. The
Peroni chose to position itself within the frame of a space in people’s minds that Leffe created, and then
romanticized Italian lifestyle. Leffe’s frame was a particular filled, enabled the brand to be positioned with a degree
consumption scenario—one that is credible and relevant. of competitive advantage, because other brands
would find it difficult to position against Leffe using the
We know that successful positioning requires that all same criteria. This is because competitors attempting
elements associated with a brand complement and to invade this perceptual space would not be seen as
reinforce one another. By associating the brand as an credible or relevant: Leffe already owned that frame.
Related Topics
branding; perception; audience information processing; competitive strategy; communication theory
1 Identify two other ways in which these two beer 3 Consider the fashion market. How are any
brands could be positioned. three brands of your choice in that market
positioned? Are they successful?
2 Why do you think Peroni might have been
positioned differently in Italy than in the UK?
Positioning concerns an offering’s attributes and design—that is, how the offering is com-
municated and the way in which these elements are fused together in customers’ minds. It is
not only the offering (physical or otherwise) that is important for positioning nor the communi-
cation that leads to successful positioning. For example, claims (through communication) that
a shampoo will remove dandruff will be rejected if the offering fails to live up to the rhetoric.
Positioning is about how customers judge an offering’s value relative to its competitors, its abil-
ity to deliver against the promises made, and what value customers derive from the offering. To
develop a sustainable position, we must understand the market in which the offering is com-
peting. For example, Italian fashion brand Versace initially suffered a significant drop in income
from more than US$1 billion to $400 million between 1997 and 2007, after the murder of Gianni
Versace, but recovered after sister Donatella Versace rebranded to express the ‘rococo sexiness
of Gianni’s aesthetic in a fresh way’ (Leitch, 2018: 68).
At a simple level, the positioning process begins during the selection of the target market(s).
Key to this process is identifying those attributes considered to be important by consumers. For
a car manufacturer, these attributes may be tangible (for example the gearbox, transmission
system, seating, and interior design) and intangible (for example the reputation, prestige, and
allure that a brand generates). By understanding what customers consider to be the ideal stan-
dard that each attribute needs to attain and how they rate the attributes of each brand in relation
to the ideal level, and each brand against the other, it becomes possible to see how a brand’s
attributes can be adapted and communicated to become more competitive.
Chapter 6 > Market
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Perceptual Mapping
Understanding the complexity associated with the different attributes and brands can be
made easier by developing a visual representation of each market. This is known as percep-
tual mapping. These ‘maps’ are then used to determine how various brands are perceived
according to the key attributes that customers value. This is important because positioning is a
two-way process by means of which organizations seek to impose attribute perceptions onto
customers and customers assimilate those perceptions, modify them, or reject them entirely.
Perceptual mapping therefore allows a geometric comparison of how competing products are
perceived (Sinclair and Stalling, 1990). Typically, the closer offerings or brands are clustered on
a perceptual map, the greater the degree of competition. The farther apart the positions, the
greater the opportunity for new brands to enter the market. For example, in the non-vintage
champagne market, there are numerous brands competing with each other across differing
attributes. Figure 6.8 shows the positioning of key champagne brands in the non-vintage mar-
ket. Here, the positions are based on attributes relating to the type of fruit used and the taste.
CHAMPAGNE FLAV
TAGE OUR
N-VIN MA
NO FRESH FRUIT
P
Bollinger
Special Cuvée Brut Laurent-Perrier
Brut
Veuve Clicquot
Ponsardin Brut
MELLOW
ZESTY
Louis Roederer
Brut Premier
Taittinger
Brut Réserve
G.H. Mumm
Cordon Rouge
Piper-Heidsieck Perrier-Jouët
Brut Grand Brut
Moët & Chandan

Brut Impérial
BAKED FRUIT
Figure 6.8
Perceptual map for non-vintage champagne
Source: Reproduced with kind permission of Lanson International UK Ltd.
It can be seen that leading brands Lanson, Bollinger, and Moët et Chandon occupy distinct
positions in their ‘own’ quadrants. (See Case Insight 7.1 for more information about Lanson
International, a leading champagne house.)
Perceptual mapping data reveal strengths and weaknesses that can help management to
make strategic decisions about how to differentiate based on the attributes that matter the most
to customers.
C–D Maps
One of the issues associated with these conventional approaches to positioning is that brand
performance cannot be incorporated and is measured separately to positioning in most orga-
nizations. In response to this challenge, Dawar and Bagga (2015) developed the centrality–
distinctiveness (C–D) map, which incorporates performance dimensions:
■ Centrality is concerned with the extent to which a brand, such as Coca-Cola in soft drinks
and McDonald’s in fast food, are most representative of their type or category. Such brands
serve as reference points by which others in the category are compared and evaluated.
■ Distinctiveness refers to a brand’s individuality and the extent to which it is positioned away from
the direct competition of popular central brands. The authors refer to Tesla in the car category
and Corona in the beer category as examples of brands with strong distinctiveness scores.
Figure 6.9 depicts the four quadrants that a C–D map represents:
■ Aspirational brands are highly differentiated and have wide appeal. Examples of cars include
Mercedes and BMW, and for beer, Guinness and Heineken. It is quite common for highly
distinctive brands to command higher prices than brands that score low on this dimension.
■ Mainstream brands tend to be the first ones that come to mind when consumers think of the
category. Their wide appeal and popularity is countered by their low distinctiveness, which in
turn tends to reduce their capacity to command a premium price. Good examples are Ford
or Vauxhall for cars and Miller for beer.
■ Unconventional brands have unique distinctive characteristics that separate them from tradi-
tional products in the category. Cars such as Tesla, Mini, and the Smart car, and airlines such
as Virgin and Norwegian, can be considered to be unconventional.
The Centrality-Distinctiveness Map HOW TO READ CENTRALITY

The C-D map links consumers’ perceptions THE MAP How representative brands are
about brands with their business
performance. Brands are positioned in
quadrants according to how customers score DISTINCTIVENESS Unconventional Aspirational
them on two universal dimensions: centrality The degree
and distinctiveness. Each quadrant carries to which brands
strategic implications for sales, pricing, stand out
risk, and profitability. The distribution from others
of brands across the map offers insights Peripheral Mainstream
about competitive opportunities and threats.
Circles are sized according to brands’
performance on a financial metric
Figure 6.9
A C–D map
Source: Used with the kind permission of HBR.
Chapter 6 > Market
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■ Peripheral brands are seldom recalled by consumers as a first choice and have little to dis-
tinguish them. Examples include Kia and Mitsubishi for cars and Aldi in the supermarket
category. To compete, they have to carry low prices, but they can still be highly successful.
See Market Insight 6.5 for an example of how C–D maps can be used.
Market Insight 6.5

Exploring C–D Maps for Strategic Positioning
When considering the C–D maps for the US beer and as competition intensifies. In direct contrast, research
car markets, research shows quite clearly that the indicates that the higher a brand’s distinctiveness, the
higher a brand scores on centrality, the greater is its lower will be its sales volume, for both cars and beer.
sales volume. This indicates that improving a brand’s However, these brands can charge a higher price, as
centrality should be a key strategic goal for many demonstrated by Porsche and Guinness.
brands. Cars such as Toyota and beer brands such
as Budweiser were considered to be the most central The C–D maps shown in Figure 6.10 depict brands in
brands, with the largest sales volumes. In terms of price, the US car and beer markets. Their positions across
however, increased centrality leads to a fall in prices the four quadrants indicate the strategies followed
CARS SALES VOLUME CARS PRICE

Unconventional Porsche Aspirational
Porsche BMW
Jaguar BMW Jaguar
Mercedes Mercedes
Lexus Tesla Lexus
Tesla Audi Mini Audii
Mini
Volvo Cadillac Volvoo Cadillac
Smart Toyota Smart Fiat
Fiat Infiniti VW Infiniti VW Toyota
Acura Chevy Acura Chevy
Lincoln Honda Lincoln Honda
Scion Subaru Ford Scion Subaru Ford
Nissan Nissan
Mazda Mazda
Dodge Dodge
Mitsubishi Chrysler Mitsubishi Chrysler
Buick Buick
Kia Hyundai Kia Hyundai
Peripheral Mainstream
Notes: Brands are at the parent level. Cars are passenger only.
BEER SALES VOLUME BEER PRICE

Guinness Guinness
Samuel Adams Samuel Adams Heineken
Heineken
Budweiser Blue Moon Budweiser

Blue Moon Corona Dos Equis
Dos Equis Corona
Stella Stella Michelob
Michelob Yuengling
Yuengling Coors Coors
Newcastle Sierra Newcastle Rolling
Rolling Miller Rock
Tecate Nevada Rock Tecate Miller
Sierra Nevada
Modelo
o Natural Busch Modelo Natural
Busch
Pabst Pabst
Icehouse
Icehouse
Old Milwaukee Milwaukee’s Best Milwaukee’s Best
Old Milwaukee
Source: Dawar and Bagga (2015)
© HBR.ORG
Figure 6.10
C–D maps for cars and beer
Source: Used with the kind permission of HBR.
Market Insight 6.5

continued
and possible directions in the future, based upon both car brands and 23 beer brands, asking them to rank the
positioning and performance. brands, on a 0–10 scale, on centrality and distinctiveness.
Sales volume tends to increase with centrality and prices
The underlying strategic imperative is that sales tend to fall. The more distinctive a brand is, the lower
volumes tend to increase, and prices fall, as a brand the sales volume and higher the price. Many brands
becomes increasingly central. In contrast, sales succeed by being both central and distinctive (BMW and
volumes tend to fall as distinctiveness increases, yet Guinness, for example), while others compete by being
these brands can also increase prices. neither (Kia and Old Milwaukee).
C–D Maps for Cars and Beer Firms can also use a C–D map to identify positioning
opportunities and unexpected threats.
To create C–D maps, the researchers surveyed adults
across the United States about their perceptions of 30 Source: Dawar and Bagga (2015).
Positioning maps, sometimes referred to as perceptual, to move and occupy a different, seemingly stronger,
brand, or spatial maps, are important techniques for competitive position. Indeed, these maps have been an
measuring and evaluating consumer perceptions important tool for marketers not only because of their
of a range of offerings in a market. These maps diagnostic capabilities, but also because of their ability
are developed according to consumers’ views to visually portray the competitive marketplace.
(perceptions) for ranking a variety of similar offerings
based on specific attributes and features. Having C–D maps represent a development of positioning maps,
determined the positions of competing brands on a because they incorporate performance criteria (see also
perceptual map, individual firms can develop strategies Research Insight 6.3).
Related Topics
competitive strategy; consumer perception
1 To what extent do C–D maps represent a major 3 Consider brands in markets other than cars
advance in techniques regarding how we might and beer. How central and distinctive are these
position brands? brands?
2 If C–D maps encompass brand performance,

what role might perceptual maps play in
strategy development?
Positioning and Repositioning

Understanding brand positioning helps marketers to improve a brand’s performance by modi-
fying the marketing communications used to support a brand. Through marketing commu-
nications, especially advertising, information can be conveyed about each attribute to adjust
Chapter 6 > Market
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Dawar, N., and Bagga, C.K. (2015). A better way to map brand strategy. Harvard
Business Review, June.
Business performance metrics such as pricing and sales are excluded from conventional perceptual mapping
tools. In this article, a new type of map is presented—one that links a brand’s position to competitors
according to its perceived ‘centrality’ (how representative it is of the company) and ‘distinctiveness’ (how
much it stands out from other brands), with its business performance along a given metric.
Visit the online resources to read the paper and watch a video to learn more about C–D maps.
customers’ brand perceptions. Marketing communications can be used to position brands

either functionally or expressively (symbolically) (see Table 6.6). Functionally positioned brands
emphasize features and benefits, whereas expressive brands emphasize the ego, social, and
hedonic satisfactions a brand brings (see Chapter 2). Both approaches make a promise: for
example, for hair care, the promise is to deliver cleaner, shinier, and healthier hair (functional), or
hair with which we feel confident because we want to be admired, or because it is important that
we feel more self-assured (expressive). Different positioning approaches are likely to be more
successful than others for particular offerings. For example, in the compact car market, Fuchs
and Diamantopoulos (2010) found that direct benefit positioning (based on functional aspects)
is likely to be more effective than indirect benefit positioning (based on experiential or symbolic
dimensions) and that expressive positioning is more effective than functional approaches. User
positioning can also provide a sound alternative to benefit positioning.
Technology, customer tastes, and competitors’ new offerings are reasons why markets might
change. For example, Disney acquired Lucasfilm in 2012 to launch the seventh Star Wars film
in 2015 (Star Wars: The Force Awakens) and others in 2017 (Star Wars: The Last Jedi), 2018
(Solo: A Star Wars Story), and 2019 (Star Wars: Episode IX) (McCluskey, 2018). To be success-
ful, however, Disney needed to reposition and target the new films at the generation that grew
up with the Clone Wars cartoon and LEGO® Star Wars™ characters rather than those who
watched the original trilogy in the late 1970s and 1980s (Garrahan, 2012). If the brand posi-
tioning adopted is strong, if the brand was the first to claim the position, and if the position is
continually reinforced with clear simple messages, there may be little need to alter the position
originally adopted. Marketers should be alert and prepared to reposition their brands because
the relative positions occupied by brands in the minds of customers will be challenged on a
frequent basis—especially by competing offerings. Repositioning is often difficult to accomplish
because of the entrenched perceptions and attitudes held by customers towards brands and
the cost of the vast (media) resources required to make these changes.
Repositioning revolves around an offering and the way in which it is communicated. It should
be noted, however, that repositioning carries risks, including those of alienating the current
Table 6.6 Proposition positioning strategies
Position Strategy Explanation
Functional Product Brand positioned on the basis of attributes, features, or benefits relative
features to the competition, e.g. Volvos are safe or Red Bull provides energy.
Price Price can be a strong communicator of quality. John Lewis Partnership

quality (the UK department store) uses the tagline ‘never knowingly undersold’
to indicate how it will match competitors’ prices on the same items to
ensure its customers always get good value.
Use By informing when or how an offering can be used, we create a mental

position in buyers’ minds, e.g. Kellogg’s reposition its offerings (e.g.
Special K) to be consumed throughout the day, not only at breakfast.
Expressive User By identifying the target user, messages can be communicated clearly
to the right audience. Flora margarine was initially for men and then it
became ‘for all the family’. Some hotels position themselves as places
for weekend breaks, leisure centres, conference centres, or all three.
Benefit Positions can be established by proclaiming the benefits that usage

confers on consumers. The benefit of using Sensodyne toothpaste is
that it alleviates the pain associated with sensitive teeth.
Heritage Heritage and tradition are sometimes used to symbolize quality,

experience, and knowledge. Kronenbourg 1664, ‘Established since
1803’, and the use of coats of arms by many universities are designed
to convey heritage to build long-term trust.
customer base, of inaccurate forecasting and the new audience rejecting the repositioning, and
of competitors closing opportunities or seizing the position vacated. Repositioning also incurs
substantial costs, both internally as a result of planning and managerial time, and externally in
terms of communications with both distributors and customers to inform them about the new
position.
The following four methods outline ways of approaching repositioning, depending on the
individual situation facing a brand. In some cases, a brand might need to be adapted before
relaunch.
1. Change the tangible attributes and then communicate the new proposition to the
same market. UBS, the financial services firm whose reputation was shattered following
an estimated US$2 billion loss as a result of insider trading, spent four years transforming
itself internally before relaunching and repositioning as a wealth management company
(Rooney, 2015).
2. Change the way in which a proposition is communicated to the original market. Nor-
wegian oil-and-gas company Statoil Hydro was repositioned globally as Statoil by commu-
nications agency Hill & Knowlton Strategies, raising its profile in key markets across Europe,
including the UK.
Chapter 6 > Market Segmentation and Positioning 253
3. Change the target market and deliver the same proposition. On some occasions, re-
positioning can be achieved through marketing communications alone, but targeted at a new
market. For example, soft drink Orangina repositioned as a premium adult drink, targeting
those who remember it from childhood French holidays.
4. Change both the proposition (attributes) and the target market. Xerox has reposi-
tioned itself from a document company to a diversified business services company, running
call centres and processing insurance claims and even toll payments (Carone, 2013).
Chapter Summary
■ Describe the principles of market segmentation and the STP process.

Whole markets are subdivided into different segments by means of the STP process. The abbreviation
STP refers to the three activities—segmentation, targeting, and positioning—that should be undertaken
sequentially if segmentation is to be successful. Segmenting a market means dividing it into different
groups of customers with distinctly similar needs and requirements of offerings. The second part of the STP
process determines which segments should be targeted with a comprehensive marketing mix programme.
The third part of the STP process is to position a brand within the target market(s).
■ List the characteristics and differences between market segmentation and product differentiation.
Market segmentation is related to product differentiation. Given an increasing proliferation of tastes,
marketers have sought to design offerings around consumer demand (market segmentation) more than
around their own production needs (product differentiation).
■ Explain consumer and business-to-business market segmentation.

Data, based on differing consumer, user, organizational, and market characteristics, are used to segment
a market. These characteristics differ for consumer and business-to-business (B2B) contexts. To segment
consumer goods and service markets, market information based on certain key customer-, product-, or
situation-related criteria (variables) is used. These are classified as segmentation bases and include profile,
behavioural, and psychological criteria. To segment business markets, two main groups of interrelated
variables are used: organizational characteristics and buyer characteristics.
■ Describe different targeting strategies.

Once identified, the organization selects its target marketing approach. Four different approaches exist:
undifferentiated; differentiated; concentrated, or niche; and customized target marketing.
■ Discuss the concept of positioning.

Positioning provides the means by which offerings can be differentiated from one another and gives
customers reasons to buy. It encompasses physical attributes, the way in which a brand is communicated,
and how customers perceive the brand relative to competing brands.
■ Consider how the use of perceptual maps can assist in the positioning process.
Perceptual maps are used in the positioning process to illustrate differing attributes of a selection of brands.
They also illustrate existing levels of differentiation between brands, how our brand and competing brands
are perceived in the marketplace, how a market operates, and the strengths and weaknesses that can
help management to make strategic decisions about how to differentiate the attributes that matter to
customers and hence to compete more effectively in the market. C–D maps enable brand performance to
be incorporated into the strategy positioning process.
Review Questions
1 Define ‘market segmentation’ and explain the STP process.
2 What is the difference between market segmentation and product differentiation?
3 Identify four different ways in which markets can be segmented.
4 How do market segmentation bases differ in consumer and B2B markets?
5 How can market segmentation bases be evaluated when target marketing?
6 What are the different approaches to selecting target markets?
7 Describe the principle of positioning and why it should be undertaken.
8 What are perceptual maps and what can they reveal?
9 Explain three ways in which brands can be positioned.
10 Make a list of four reasons why organizations need to reposition brands.
1 Having read Case Insight 6.1, how would you advise Soberana to respond to changing consumer
tastes and to the challenge of Miller Lite in Panama?
2 Consider your answers to the following questions (in groups, where appropriate):
A Using the information supplied in Table 6.7 on the champagne market and a suitable calculator,
determine which segments have the greatest potential profit.
B What other data do we need to determine the size of the market (that is, its market potential)?
Table 6.7 The champagne and sparkling wine market, by segment
Social class Enthusiasts (%) Sparkling sceptics (%) Price-driven (%) Uneducated (%)
AP = £20 AP = £10, AP = £8.50, AP = £12
F = 8/yr F = 3/yr F = 3/yr F = 2/yr
AB (n = 8m) 25 31 30 14
C1 (n = 14m) 23 23 32 21
C2 (n = 8m) 27 26 33 14
DE (n = 10m) 20 26 40 14
Note: All data hypothetical; AP = average price, n = population size; F = number of bottles purchased per year; % segment
sizes per socio-economic group and segment descriptions.
3 Discuss which market segmentation bases might be most applicable to the following:
A A fashion retailer segmenting the market for childrenswear
B A commercial radio station specializing in dance music and celebrity news or gossip
C A Swiss chocolate manufacturer supplying multiple retail grocers and confectionery shops across
Europe (for example Godiva)
D Rakbank in Dubai, United Arab Emirates, when segmenting the market for its credit card
E The Tunisian tourist board when targeting holidaymakers in Germany
4 Write a one-sentence description of the attributes and benefits that are attractive to target consumers
for an offering with which you are particularly familiar (for example Apple in the computer category, or
Samsung in the mobile phone category), and in which you explain how these attributes and benefits
are different from those of competitors. Your positioning statement might be as follows:
[Product A] provides [target consumers] with [one or two salient product attributes]. This distinguishes it
from [one or two groups of competing product offerings] that offer [attributes/benefits of the competing
products].
A Briefly describe the target market segment. This should summarize the defining characteristics of the
segment (for example demographic, psychographic, geographic, or behavioural).
B Briefly explain your reasons for believing that the attributes or benefits of your positioning statement are
important for your target segment.
C Draw a perceptual map that summarizes your understanding of the market and shows the relative
positions of the most important competing products.

Glossary
benefits sought by understanding the concentrated marketing strategy (or niche
motivations that customers derive from their marketing strategy) a strategy that recognizes
purchases, it is possible to have an insight into that there are segments in the market and which
the benefits they seek from product use. focuses on only one, two, or a few of those
breakdown method the view that the market market segments.
is considered to consist of customers who are customer relationship marketing (CRM) all
essentially the same, so the task is to identify marketing activities and strategies used to retain
groups that share particular differences. customers by providing them with relationship-
build-up method considers a market to consist enhancing products and/or services that are
of customers who are all different, so the task is perceived to be of value and superior to those
to find similarities. offered by a competitor.
business markets characterized by organizations customized targeting strategy a marketing
that consume products and services for use strategy that is developed for each customer, as
within the manufacture or production of other opposed to each market segment.
products, or for use in their daily operations. decision-making unit structure the attitudes,
business-to-business (B2B) activities undertaken policies, and purchasing strategies on the basis
by one company that are directed at another. of which organizations make their decisions, and
choice criteria the principal dimensions on the which can be a way of clustering organizations
basis of which we select a particular product or into segments.
service, such as price, location, range of services, demographic data concerning age, sex/
level of expertise, friendliness of staff, and so on. gender (or gender identity), occupation, level
communication the sharing of meaning created of education, religion, and social class, many
through the transmission of information.
of which determine a potential buyer’s ability to the differences in perceptions that customers,
purchase a product or service. consumers, or the general public have of different
differentiated targeting approach an approach products or services, or brands in general.
to targeting that recognizes that each of several positioning the way in which an audience of
market segments may be attractive to the consumers or buyers perceives a product or
marketing organization and hence a marketing service, particularly as a result of the marketing
strategy is developed for each. communications process aimed at a target
firmographics an approach to segmentation of audience.
B2B markets using criteria such as company product differentiation a strategy by means
size, geography, standard industrial classification of which companies produce offerings that are
(SIC) codes, and other company-oriented different from those of competing firms.
classification data. product usage a segmentation characteristic
geo-demographic an approach to segmentation based on consumers’ use of a product offering,
that presumes there is a relationship between the brand, or product category in terms of frequency,
location in which people live and their purchasing timing, and situation.
behaviours. psychographic the characteristics of consumers’
life-stage analysis analysis based on the principle activities, interests, and opinions (AIO), which
that people need different products and services allow us to understand their individual lifestyles
at different stages in their lives (for example and patterns of behaviour, which in turn affect
childhood, adulthood, young couples, retired, etc.). their buying behaviour and decision-making
market segmentation the division of customer processes, on the basis of which we can identify
markets into groups of customers with distinctly similar product and/or media usage patterns.
similar needs. purchase situation an approach to segmentation
media vehicles the individual media used to carry on the basis of the way in which a buying
advertising messages. company structures its purchasing procedures,
microtargeting the use of data to identify the the type of buying situation, and whether buyers
interests and actions of specific individuals are in an early or late stage in the purchase
to develop predictive analytical segmentation decision process.
schemes, and hence to influence their thoughts Standard Industrial Classification (SIC)
and/or actions. codes a typography of industries that allows for
organizational size a characteristic by means their grouping.
of which organizations can be grouped (for STP process the method by which whole
example multinational, international, large, small markets are subdivided into different segments
or medium-sized), which enables the marketer for targeting and positioning.
to identify their design, delivery, usage rates, or undifferentiated approach an approach
order size and other purchasing characteristics. whereby there is no delineation between market
perceptual mapping a diagram, typically two- segments; rather, the market is viewed as one
dimensional, of ‘image space’ derived from mass market, with one marketing strategy
attitudinal market research data, which displays applied to the entire market.
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Chapter 7
International Market
Development

Lanson International
Market Insight 7.1
Identify the key drivers for international market
LEGO®: To Translate or
development
Localize?
Discuss how environmental factors influence the
Market Insight 7.2
choice of international marketing strategy decisions
Dolce & Gabbana’s Luxury
Describe the criteria used to identify and select Hijab Collection
international markets
Market Insight 7.3
Explore various international market entry methods Go West! Chinese
Define international market development as a Car Manufacturers
Internationalize
market growth strategy
List the different forms of international marketing Market Insight 7.4
strategy Primark Extends Its Growth
by Entering the US Market
Market Insight 7.5

Ad-Apt in São Paulo?
Case Insight 7.1

Lanson International
Founded in 1760, Champagne Lanson is one of the oldest

existing champagne houses in France, making some of
the world’s finest champagnes. We speak to Paul Beavis,
managing director, Lanson International, to find out more
about how the company looks to further develop its
presence in international markets, including the UK.
Lanson currently works in more than 30 countries terms of our market positioning—whether we use a
around the world and this has been developed over subsidiary brand model or a distributor/agency
a number of years, driven by the increase in demand model and considering the financial implications of
for champagne in the UK, which started over 15 years each of these.
ago. Generally, we believe a company should look
Part of the problem in the UK is that, as categories
at international markets when its appetite for growth
become more mature, as the UK is now, there is a real
exceeds the current in-market capacity. Obviously,
need to be able to explain why your brand is essential
general economic market conditions apply and these
in the marketplace. The hardest question any business
need to be considered before we enter any new
should ask itself is: what is my true competitive
markets. For us, a key success factor for successfully
advantage?
entering a new market is having data, data, and more
data! Having the absolute facts about your markets is In the UK market, champagne (with sales of £340
essential—it’s a case of examination (of the market); million in 2016/17) has generally seen strong
diagnosis (of the entry method, what channels to use, competition from sparkling wine brands, particularly
and how to promote our brand); and prescription (of Prosecco (with a total market increase of 4.7 per cent
the operational approach). expected over the period 2017–22) and especially in
the off-licence trade, but Lanson enjoys the position of
Before we enter a market, we look at the current
being the No. 1 rosé brand and the No. 2 non-vintage
shape and size of the markets today, but also (and
champagne brand. Meanwhile, Spanish Cava has
this is seldom easy) we try to forecast how the
seen a decline in sales.
category will be shaped in the next three to five
years. One key trend that we can see in the global Lanson was therefore faced with a couple of key
economy today is a concentration of spending power questions in relation to its international market
across and within certain markets. To tap into those development strategy:
segments, internationalization has to be a core
■ How should a French brand like Lanson seek
part of our strategy for the future. So we evaluate a
to differentiate itself in a category that is
potential market’s economic conditions, searching
dominated, in the UK, by a competitor focus
for market data not only about current volumes,
on ‘advertising’ and the colour of the label?
but also about consumer trends, the knowledge
gap (what we know versus what we don’t know ■ Once Lanson has achieved success in the UK,
about their attitudes and behaviour), other drinks how might it replicate this success in other
categories such as spirits, and growth in wine international markets?
consumption generally.
All of this insight primarily helps us to plan our route- Visit the online resources to watch a
to-market strategy. This also involves ascertaining video interview with Paul Beavis in which
more generally what strategy we should deploy in he explains what Lanson did.
Chapter7 1> >International
Chapter Market Development
Marketing Principles and Society 261
261
Introduction
Have you ever considered where the products you purchase and consume are produced or
manufactured? Have a look at the food products in your kitchen or the clothes in your wardrobe:
are they from the UK, Scandinavia, China, or Asia? We now consume more products, read more
information, and travel to more overseas countries than ever before.
In light of the increasing internationalization of world markets, increased foreign trade,
changes in technology, and the economic impact of foreign markets, international market-
ing is essential for the survival of many organizations. Even organizations that compete only in
domestic markets are affected, because they increasingly compete with foreign organizations.
An understanding of international business, marketing, and globalization is essential for mar-
keting in the twenty-first century.
This chapter explores the issues that marketers should consider when developing effective
international marketing strategies and policies. This includes the drivers that often lead to inter-
nationalization, analysis of the international marketing environment, the criteria and the method
used for entry in international markets, and the strategies that companies implement when
managing international marketing operations. As we will see, a key strategic consideration that
companies face is the choice between trying to use a common standard approach across dif-
ferent markets or modifying their offering to suit the local market. Marketers need to learn about
dominant trends in international markets to strike the right balance.
The Drivers of International Market

Development
Although international marketing is now ubiquitous, it is worth considering how it became so.
The key drivers for globalization are set out in Figure 7.1. The most common are the following:
■ Historical accident—Unplanned events can trigger international market development. In
1941, during the Second World War, Coca-Cola leader Robert Woodruff wanted to distribute
a bottle of Coke to anyone in uniform anywhere in the world for 5 cents. To do so, he set
up a special group of ‘technical observers’ to manage 64 bottling plants, producing 5 billion
bottles of Coke for those in service around the world (Mooney, 2008). As a result, a wider
range of people tasted the drink and an opportunity arose for Coca-Cola to build the brand
through a new distribution strategy. This is said to be one of the main reasons behind the
growth of Coca-Cola’s international marketing operations.
■ Excess stock—Excess stock can build up as a consequence of overproduction or insuf-
ficient sales. With limited opportunities for sales in domestic markets, organizations seek out
international sales opportunities to remove excess stock. When the product is sold at a lower
price in the foreign market than is charged in the domestic market, this is called dumping.
Such an approach does not constitute a long-term entry strategy.
■ Limited growth in domestic markets—One way of avoiding domestic competition when
growth is limited in home markets is to enter international markets. For example, given the
strong competition in the home markets of the United States and Europe, in 2015 AB InBev
announced a merger after shareholders accepted its offer of US$104 billion for SAB-Miller.
The strategic rationale was that the deal would give AB InBev brands access to growing
markets in Africa and Latin America (where it was not strong), and that the combined entity
would control a third of the world beer market (Colley, 2015).
■ Comparative advantage—Some regions or countries develop core competencies and
reputations for producing certain offerings, raw resources, or work skills. This presents an
opportunity to develop comparative advantage. For example, champagne is produced by
15,800 wine growers and 320 champagne houses in the Champagne region of France, ex-
porting about 295 million bottles in 2017 (Comité Champagne, 2017). Certain countries offer
differential labour costs and specialized skills, for example China and manufacturing, or India
and service process outsourcing (such as call centres). This presents an advantage not only
in labour and operating costs, but also, for some industries, savings in transport and manu-
facturing costs.
■ Economies of scale—For some offerings, the cost of development and production can
be high. To achieve an effective return on investment, high-volume production runs are nec-
essary and this requires large world markets. Examples include smartphones and aircraft
manufacture. A high degree of standardization is evident in the manufacture of aircraft, such
as the frame wings and engines, with superficial changes such as seating spacing and ar-
rangements tailored for local markets. This enables aircraft manufacturers to achieve global
economies of scale.
■ Trade liberalization—With the creation of regional trade blocs, such as the European Union
(EU), the North American Free Trade Agreement (NAFTA), and the Association of Southeast
Asian Nations (ASEAN) free trade area (FTA), and the reduction of barriers to trade worldwide,
many organizations engage in global competition with international firms in domestic markets
and domestic organizations are increasingly moving abroad to compete overseas.
■ International product life cycle—An opportunity for internationalization presents itself when
an offering reaches different stages of its life cycle in different countries (see Chapter 8). For
example, British motorcycle producer Royal Enfield ceased production in the UK in 1970, but
continued production in India (where it granted a local partner a licence in 1955). The com-
pany now seeks to become the global leader in mid-sized motorcycles after investing Rs 500
crore (US$80 million) in a new factory and technology centre (Agence France-Presse, 2015).
■ Technological changes—Advances in electronic communications (for example the Internet)
have enabled international trade. Online channels are increasingly being used to sell into new
markets because of open access and low costs. Changes in the technological infrastructure
have provided small and medium-sized enterprises (SMEs) with a way of increasing exports
with low entry costs.
■ Customer relationships—As organizations move abroad, international marketing activities
affect the whole supply chain, from end users, through intermediaries, to producers and raw
material suppliers. For example, as Toyota enters new foreign markets, its product compo-
nents also change, and suppliers will need to match the requirements of its new manufac-
turing and assembly production process. This is particularly true of service-based indus-
tries. Since services are co-produced by the interaction of customers and service providers
(see Chapter 15), internationalization almost always requires transferring the service deliv-
ery abroad. For example, many universities in the UK (for example Nottingham, Liverpool,
263
Manchester) have opened campuses or centres in China to attract local students interested
in obtaining a degree from a well-regarded British higher education institution.
■ Transnational market segments—The growth in groups of people with similar needs, but
who inhabit different countries, called transnational market segments, occurs because of
migration, such as Chinese working in Singapore, similarities in demographics (for example
Generation Y), or similarities in lifestyles (for example vegetarians). From a conceptual per-
spective, a truly global organization should segment markets based on similar characteristics
even across national borders, because country of residence and/or birth is becoming ever
less relevant as a consequence of increasing migration.
■ Organizational sustainability—The broader the range of markets served, the less likely it is
that failure in one market will result in overall organizational decline. Different markets are
always at different stages of development and competitive intensity. An international market
portfolio provides an organization with an increased chance of organizational sustainability.
For example, McDonald’s, the fast-food restaurant operator, has not suffered a strong decline
in its overall reputation worldwide, despite food scandals in China and Japan (Martin and
Fujikawa, 2015).
Historical
accident
Organizational Excess
sustainability stock
Limited
Traditional growth
market in domestic
segments market
Motives for
international
market
Customer development Comparative
relationships advantage
Technological Economies
changes of scale
International Trade
PLC liberalization
Figure 7.1
Motives for international market development
Market Insight 7.1

LEGO®: To Translate or Localize?
English; what’s more, the young consumers do not

necessarily share LEGO’s European cultural origins.
Therefore the marketing challenge for LEGO is to
make sure that the company website is translated
and localized in a way that respects these cultural
differences. Translation of product descriptions is
straightforward, but there are constraints on the
ability of LEGO to localize its website: the global
standardization of the physical product—the
LEGO sets—places limits on the content that can
be provided. So how can LEGO provide localized
content for a globally standardized product?
LEGO is known around the world Surprisingly, apart from the translated product
Source: © 3d_kot / Shutterstock.com descriptions, much of the content on the LEGO
website is not actually localized. Content is
LEGO®, the Danish manufacturer of plastic building
developed from the outset to be seen by young
bricks, is a global toy company, with revenues of
consumers around the world and is structured
DKr28.6 billion (€3.8 billion). The company’s website
around videos of the LEGO products with sound
provides product-related content targeted at the
effects, rather than language. These videos
company’s core consumer segment: 5–12-year old
showcase each of the products in an appropriate
builders, and their grandparents and parents, who
setting, so that LEGO’s global audience can see the
typically make the purchases. The company has also
different functions of the products, such as opening
expanded into emerging markets, opening offices in
doors, working propellers, and so on. Other content
Malaysia, Turkey, and China. The physical product,
that does not need translating are games based on
the plastic brick, is identical around the world; the
LEGO products, with pictorial instructions and short
20+ languages that are used on the LEGO website
animated sequences.
are not. So how does LEGO deal with being present
in a global range of markets? Does LEGO translate Where localization is apparent is in country-specific
the content into the local language, is the content marketing campaigns. Here, translation is not
localized, or both? necessarily a factor, because there are even
differences between the two largest English-
The global reach of the Internet has led LEGO to
speaking markets, the United States and the UK.
develop language-specific websites for each of its
The two markets use the same language, so no
major markets. However, the challenge for marketers
translation is necessary, but consumer preferences
is to take both translation and localization into
for different product themes and unique holiday
consideration, because these issues are not the same.
traditions make localization a key marketing
Translating text on LEGO’s website is straightforward;
consideration. The marketing challenge that LEGO
localizing the website for each of the major markets
faces is to identify which elements of its online
is a completely different story because it demands
marketing need to be translated and which elements
an in-depth knowledge of consumer attitudes and
need to be localized. Translation is not the same as
preferences in the individual country, together with an
localization.
appreciation of cultural differences.
Sources: Anderson (2014); Anon. (2015d); https://www.lego.
Many of LEGO’s target consumers live outside the
com/en-gb/
UK and United States, and cannot understand
265
Market Insight 7.1

continued
This market insight illustrates that, to adapt to cultural international organizations tend to have a diverse
differences, organizations use three internal processes representation of nationalities in their senior
(Mughan, 1993). The first is empathy—that is, they management teams. The insight also illustrates the
try to recognize a situation from the customer’s difficulties inherent in determining the extent to which
perspective and adapt their behaviour accordingly. a company should standardize or adapt its offerings
The second is to provide cultural training, particularly into new markets. This task is made particularly difficult
for employees working directly with distributors or when, like LEGO, the company operates in a large
customers. The third is to recruit direct from the number of countries.
local labour market—the quickest route. Successful
Related Topics
standardization–adaptation; culture; language; marketing communications; digital marketing
1 Go to the LEGO® website and change the 2 Now find the ‘products’ page and change the
country by clicking on the flag icon. Choose country to the Chinese LEGO® website. What do
a country with a different language from your you see?
own. Which content is translated and which
3 Now compare the UK and the US websites.
is localized? Why do you think that this is
What happens to the content that you see?
the case?
This market insight was kindly contributed by Dr Robert P.
Ormrod, Aarhus University, Denmark.
However, whatever the motivation for international market development, a planned approach
considerably increases the chances for success. Once international market entry has been
decided as an organizational growth strategy, certain decisions have to be made to increase
the chances of success. These include determining which foreign markets to pursue, which
methods are the most suitable for entering new markets, and which strategy to adopt to appeal
to the desired needs of foreign markets. (See Market Insight 7.1 for an example of a company
deciding how to internationalize.)
International Marketing Environment

Before making investment decisions in the direction of internationalization, it is important that
marketers understand the foreign marketing environment if they are to assess and select for-
eign markets properly. Frequently, however, firms looking to go to market internationally pay
insufficient attention to aspects of the global marketing environment, including socio-cultural,

economic, legal/institutional, and political developments (Young, 2001).
Social Factors
Differences in society, values, and demography can all affect the acceptability, and therefore
uptake, of an offering in international markets. In some countries, such as the UK, Sweden, and
Canada, there are increasing numbers of new parents returning to work, placing more reliance
on grandparents, nannies, and childminders for childcare responsibilities. This contrasts with
the composition of other markets and the greater level of cross-generational households, as
found in China and Japan, where grandparents are a central part of the family unit and reside in
the family household. Interestingly, because of house price increases in the UK, there is also an
increasing trend towards multigenerational living (Davidson, 2013). Migration and the associated
movement of social values can also influence social factors. In Canada, for example, immigration
accounts for around 66 per cent of population growth (Martel, 2015). An awareness of these
changes and transient social structures and values is imperative.
Cultural Factors
Culture is important in international market development strategy because it concerns the
beliefs, norms, and values that guide the behaviour of groups of potential customers and other
stakeholders. It comprises language, education, religion, lifestyle, taboos, and norms. Culture
affects how people define their wants and needs through consumption and how they interact
with each other (see, for example, Market Insight 7.2). For example, Unilever controls 27 per
cent of global ice cream sales, but markets differently to different countries according to cultural
norms. For example, portion sizes are different and there is more distribution through scoop
shops in some countries compared with others (Askew, 2015). In Italy, Unilever acquired GROM
to gain a foothold in the premium gelato market in addition to selling its usual brands, Carte
d’Or, Algida (sold as Walls in other countries), Cucciolone, Cornetto, and Max (Watrous, 2015).
Nevertheless, there are sometimes cultural behaviour changes. In France, for example, although
French shoppers have tended to buy their bread as baguettes on a daily basis, they are now
increasingly buying sliced bread, such as that sold by Barilla, an Italian food group (Anon., 2015c).
British–Dutch company Unilever

markets its deodorant as Lynx in UK,
Ireland, Australia, New Zealand, and
China, but as Axe elsewhere
267
Market Insight 7.2

Dolce & Gabbana’s Luxury Hijab Collection
Muslim consumers are a valuable market for the

fashion industry
Source: © Tanya Rex/arabianEye/Getty
While growth in luxury sales in established markets such respectful of Muslim shoppers’ needs while staying true
as the United States and Europe is increasingly dependent to the brand’s Sicily-inspired aesthetic. The garments
on tourism, high-end fashion is booming in the Middle were to be available in Dolce & Gabbana’s 13 boutiques
East. Studies show that the global spend of Muslim in the United Arab Emirates (UAE) and in other locations
consumers on only clothing and footwear is more than across Bahrain, Kuwait, Qatar, and Saudi Arabia.
the total fashion spending of Japan and Italy combined.
While other brands such as DKNY, Oscar de la Renta,
The same report said that spending was expected to
Tommy Hilfiger, and Mango had produced one-off
reach US$484 billion by 2019. Sales of personal luxury
collections featuring flowing gowns and wide-leg
goods in the Middle East are worth around $9 billion.
trousers, often sold around Ramadan, Dolce &
In an effort to tap into this wealthy market for luxury Gabbana was the first Western luxury label to create
items, in 2016 Dolce & Gabbana launched Abaya, its a collection specifically adapted to meet the needs
first line of clothing specifically dedicated to Muslim of Muslim women, and including items such as the
women. The headline items of the collection were the abaya and the shayla headscarf. Women from Muslim
hijab, the veil to cover women’s heads, and the abaya, countries have long expressed their flair for fashion
worn by women as a sign of modesty, usually black in with expensive handbags and shoes, visible even when
colour and covering the whole body, except the face, worn with an abaya and hijab. Many are also already
feet, and hands. consumers of designer apparel, dressing in luxury
brands from head to toe underneath their modest
The collection was presented on Style.com/Arabia,
abayas, revealed only in the privacy of their own homes
the most important fashion and lifestyle website in the
or when among other women. Dolce & Gabbana’s
Middle East. Stefano Gabbana, co-founder of the luxury
intention was to engage a young and expanding
fashion house, announced the launch of the collection
Muslim market eager for luxury goods.
on his Instagram account using the hashtag #dgabaya.
The clothes presented in the first Abaya collection If Dolce & Gabbana hijabs and abayas continue to be
were made of lightweight fabrics and neutral, beige, a hit, we can expect to see more fashion labels follow
and black colours, but featured the typical elements the brand’s example and more retailers tailoring their
of the Italian fashion house: precious stones, lace, operations to meet the needs of the Muslim consumer.
floral decorations, embroidery, and prints of lemons
and daisies that chimed with the wider spring 2016 Sources: D’Arpizio et al. (2016); Haris (2016); Thomson Reuters
collection. Dolce & Gabbana’s new line managed to be (2016); Muslimin (2017).
Market Insight 7.2

continued
The market insight described how a luxury house different marketplace. By comparing the features that
adapted a product line to meet the specific need of customers consider important with the current product
an international (multi-country) consumer market. specification, companies can identify gaps and hence
An adaptation strategy is particularly important opportunities to improve the product’s appeal to satisfy
for global companies because it ensures that the unmet needs and target growing opportunities.
product meets local cultural and consumer needs in a
Related Topics
product adaptation in international markets; product adaptation vs product standardization; cross-cultural
segmentation; intercultural marketing; consumer behaviour
1 Can you think of other markets for which Dolce 3 What are the market or cultural conditions
& Gabbana could develop a dedicated product that make product adaptation necessary and
line? Why do you think these markets require a unavoidable?
specific line?
This market insight was kindly contributed by Professor Ilaria
Baghi, Modena and Reggio Emilia University, Italy.
2 Which other marketing mix elements should be
adapted to the Middle East market by Dolce &
Gabbana? Why?
Culture influences the way in which we interact with each other and it affects many basic
aspects of business life. Clearly, for organizations serious about international marketing, cultural
sensitivity is paramount. Business conduct differs throughout the world based around:
■ time, including attitudes towards punctuality, the sanctity (or otherwise) of deadlines, the time
it takes to make someone’s acquaintance, and the appropriate length of discussions;
■ business cards, including when and how to offer them, whether to translate them or not, who
gives them first, and how they should be received—for example, in China, the card should
be proffered with both hands, while in India, you should use only your right hand to give and
receive business cards;
■ business gifts, including whether or not they are acceptable, what value of gift is reasonable,
and whether or not they should be opened in the view of the giver;
■ dress codes, including what should be worn for what business occasions and the relative
degree of formality—for example, whether or not to wear a suit and tie to a meeting differs by
country, being less common in Scandinavia than in the UK;
269
■ entertainment for business purposes, including what type and formality of occasion are ac-
ceptable, table manners and etiquette, what type of cuisine should be served, where the
event should be held, and what cultural/religious codes should be observed or are taboo—
for example, in Japan, seating for business entertaining is likely to be arranged by rank; and
■ body language, including greetings, for example whether to shake hands, kiss, bow or
wai (a slight bow with palms pressed together); facial and hand gestures and their mean-
ing; and the acceptability of physical proximity, touching, and different forms of posture
(Mead, 1990).
Language is particularly important when considering entering into a foreign market because sell-
ers will often need to use a customer’s own language. However, English is increasingly becom-
ing the lingua franca (that is, a common language between non-native speakers). Language
issues also arise for the way in which brand names, slogans and taglines, and product packag-
ing might be used. In French-speaking Quebec in Canada, a region that is hypersensitive to the
use of French language in place of English, fried chicken brand KFC is known as PFK (Poulet
Frit Kentucky). This is despite the fact that, in France, it is known as KFC. Similarly, in several
Spanish-speaking areas of the United States, KFC is known as PFK (Pollo Frito Kentucky). The
implication is that all forms of marketing communications should be translated to ensure correct
interpretation and meaning. If communication is to be in Arabic, there needs to be consideration
of whether or not to use local dialects such as Maghreb or Gulf Arabic. We should also consider
the target audience. If the audience is business personnel, the vocabulary, grammar, and punc-
tuation ought to reflect this; if the audience is informal or young, then a relaxed language style
might be used. Getting the language style right for the target audience is important, because
failures can be devastating (see Table 7.1).
Social psychologist Geert Hofstede (1983) has conducted very influential research aimed at
identifying the most important dimensions that affect cultural differences globally. Four dimen-
sions emerged as stable traits that characterize societies, and these have been used to explore
cultural differences and consider their marketing implications:
■ Collectivism versus individualism—In countries in which individualism is very high (for ex-
ample the United States, the UK), there is a higher level of concern for individual freedom
and the pursuit of wealth at the personal level. On the contrary, collectivist societies (such as
China) value the well-being of the group and people see themselves much more as members
of a clearly defined social group.
■ Power distance—In countries with high power distance (for example China), there is a larger
acceptance of inequality and autocratic styles of leadership are more common. People are
less likely to challenge the leadership and authority figures are respected. Western countries
tend to show lower acceptance of power distance; as a consequence, there is less obsequi-
ousness and people prefer more horizontal leadership styles.
■ Uncertainty avoidance—Societies vary in terms of their acceptance of risk. For example,
Brazil has a much stronger tendency of uncertainty avoidance than the UK. This means that,
overall, people in Brazil are more averse to taking risks and betting on the future. On the con-
trary, people in the UK have a higher acceptance of avoidance and feel more comfortable in
investing resources now to achieve uncertain outcomes in the future.
■ Masculinity versus femininity—Societies such as the UK, which scores highly on what Hofst-
ede (1983) refers to as ‘masculinity’, place strong emphasis on achievement, success, and
assertiveness as personal values. Sweden, however, is an example of a country scoring high

on ‘femininity’, which indicates a higher preference for cooperation, care for the weak, and a
focus on quality of life.
■ Long-term orientation versus short-term orientation—Some countries, such as Japan and
China, tend to have a strong respect for tradition, seeing ancient rules and institutions as still
important in modern life. Other societies, such as the United States or Australia, tend to be
less attached to history, and more pragmatic and open to social and cultural innovations.
Table 7.1 Examples of international brand blunders
Brand/ Brand launch Misinterpretation

Company location
American Dairy Mexico and other Launched its ‘Got milk?’ campaign into Spanish-speaking
Association Spanish-speaking countries, which translated as ‘Are you lactating?’
countries
Colgate France Introduced a toothpaste branded ‘Cue’, which is the name of a

French pornographic magazine
Ford Pinto Brazil In Brazilian Portuguese, pinto means ‘tiny male genitals’
Honda Sweden Was originally going to launch its Honda Fit brand, strong in Asia,
into European markets as Fitta, but realized this word connoted
female genitalia in Swedish and quickly changed the name
to Jazz despite having already printed its brochures with the
erroneous term
Mercedes China Entered the market with the brand ‘Bensi’, which means ‘rush to
Benz die’ in Chinese
Nike United States Had to recall 38,000 pairs of basketball trainers after a logo
(and globally) meant to look like fire was instead interpreted as the Arabic
script for ‘Allah’
Panos Russia Decided to promote its range of sandwiches using the brand
name ‘Panos’, not realizing that this translated as ‘diarrhoea’ in
Russian
Umbro UK Called a new brand of its trainers ‘Zyklon’, but received large
numbers of complaints because this was the name of the gas
used to kill millions of people in Nazi concentration camps in
World War II
Vicks Germany German translation of the brand name, ‘Ficks’, connotes sexual
penetration
Sources: Anon. (2007); Fromowitz (2013); James (2014).

271
■ Indulgence versus restraint—Another axis that helps when differentiating cultures is the extent
to which the gratification of basic human drives is accepted, or even promoted. Western Euro-
pean countries and the United States tend to be score highly on ‘indulgence’ because, in these
societies, practices aimed at enjoying life and having fun are culturally accepted. In countries in
the Middle East such as Iran and Saudi Arabia, however, there is in general more ‘restraint’.
The dimensions outlined in Hofstede’s ground-breaking research have complex, but fundamen-
tal, effects on economic behaviour. Marketers in global organizations need to consider these
differences carefully and think about how to adjust their policies to fit with the specific culture of
a national market.
Consumption Attitudes
Customer perceptions of a product or a company’s country of origin can influence the way in
which customers react. To reduce the risk of such adverse perceptions, organizations some-
times enter markets with consumption attitudes similar to those in the domestic market (that
is, where the psychic distance is lower). Examples include organizations exporting from Spain
to Mexico, Ireland to the UK, New Zealand to Australia, and Sweden to Norway. Entering such
markets lowers the risk, because organizations can learn and develop knowledge before enter-
ing the market, and can research consumption attitudes more easily.
Technological Factors
The technological capability and rate of development in a country can have significant implica-
tions for how marketers communicate, for new proposition development, and for the overall suc-
cess of a market entry strategy. In many international markets, new technology can change the
way in which an organization goes to market (Sclater, 2005), for example through e-commerce
or m-commerce. Nevertheless, in some developing markets, lower-level technologies such as
radio remain the principal channel for marketing communications, because television diffusion
is limited. In other countries (for example Nigeria), smartphone usage exceeds fixed-line Internet
penetration. Therefore it is important to profile the penetration levels of different communication
technologies and the supporting infrastructure when entering foreign markets.
Many customer needs and wants are constrained by the prevailing technological infrastruc-
ture. For example, whether gas or electricity is used for cooking depends on that country’s
energy mix and infrastructure. The type of telephone used depends on the telecommunication
and economic infrastructure. Wireless telephony penetration frequently exceeds wireline (land-
line) penetration in developing countries. However, the needs and usage of mobile phones in
developing markets differ considerably from the needs of and usage in mature markets. The
Nokia phone brand, marketed by Finnish company HMD Global, has become Africa’s leading
phone brand by selling feature phones (that is, devices that lie between a basic phone and a
smartphone in terms of offering), which are often entry-level phones offered at an inexpensive
price (Anon., 2018). Nokia learned that, in hot countries, where many roads are unpaved, fea-
tures such as dustproof keypads are important and of value to customers.
Economic Factors
Market potential can be affected by many different local and international economic factors.
Factors that should be considered when entering a new market include basic information about
per capita disposable income, consumption patterns, and unemployment trends. Typical eco-
nomic measures to help a firm to assess a particular country’s market potential include:
■ measures of per capita income;
■ ownership rates of durables (for example smartphone penetration);
■ consumer price indices (CPIs);
■ unemployment rates;
■ gross national product (GNP);
■ market and population sizes; and
■ currency exchange rates.
When assessing a market’s attractiveness, these and other measures can usually be acquired
from a number of sources, including business libraries, the online resource centres of profes-
sional bodies, and market intelligence or research databases.
Political and Legal Factors

Political and legal factors might also hinder or enable international marketing opportunities. For
example, governments often offer subsidies and other forms of assistance to particular organi-
zations when entering foreign markets by, for example, setting up and covering the cost of over-
seas trips. The UK government, in a bid to stimulate export, developed an advertising campaign
around how it supports businesses looking to export.
The British government helped Supreme

Creations—the world’s largest ethical
manufacturer of reusable bags, eco-
packaging, and giveaways—to export its
wares
Source: Courtesy of BIS/UKTi.
273
Some governments hinder exporters by placing taxes and tariffs on certain companies and
goods to deter prospective importers and to protect domestic industries. Measures invoked by
governments to protect their domestic industries include:
■ quotas, which are used to limit the amount of goods allowed into a country;
■ duties—that is, special taxes on imports—which seek to disadvantage the importer’s pricing
strategy; and
■ non-tariff barriers, which include legislation designed so that importers have to adapt their
offerings, which is often expensive, before the item is legally saleable in the host country.
Governments also try to alleviate unemployment and stimulate economic activity. As such, many
countries encourage foreign investment by providing tax concessions and support of various
kinds to persuade international organizations to set up their manufacturing units, or service
units, in depressed areas. For example, both China (the Shanghai Free Trade Zone) and the UAE
(Dubai Gold and Diamond Park) have set up trade zones within their territories with favourable
tax incentives to attract foreign direct investment.
Political issues can cause difficulties for international marketers, sometimes leading to their
withdrawal from a market, such as Google’s experience in China when it withdrew to Hong Kong
after the Chinese insisted on the application of mandatory censorship filters to Google’s search
engine product. In some countries, a government regime change may have little effect on com-
mercial life, but in others the change can be profound, as in Romania after the execution of for-
mer dictator Nicolai Ceausescu in 1989 and the fall of Communism. Sometimes, governments
restrict foreign investment and ownership by setting up strict market entry conditions. This might
involve working with a local organization as the majority shareholder and/or owner. Other restric-
tions include employment laws, health and safety regulations, financial laws, patent protection
regulation, data protection requirements, and electronic transactions legislation.
international strategies of firms such as Starbucks, Apple, Google, and Primark stand up to
pressures on taxation, supply, and ethics.
International Market Selection

The selection of international markets should be based on a consideration of a potential market’s
overall attractiveness, which can be established by examining a number of factors, some of the
most important of which are as follows:
■ Market size and growth rate—Market size refers to the number of current and potential cus-
tomers. Market size can also be measured in terms of the sales value that these customers
represent. Using these figures alone can be misleading, however, because some regions in-
crease in attractiveness and others decline. Whilst the three major world markets were once
what Ohmae (1985) called the Triad—Europe, the United States, and Japan—rapid growth
is increasingly observed in the Pacific Rim countries (China, Singapore, South Korea, and
Taiwan), the BRIC group (Brazil, Russia, India, and China), and the MINT countries (Malaysia,
Indonesia, Nigeria, and Turkey), whilst growth in Western markets is anaemic. Although dis-
posable income in these countries is unevenly distributed, the overall increasing prosperity of
their populations has created demand for Western luxury brands to signal individual success
and increasing personal wealth. Brands such as Burberry, Hershey, Apple, and IKEA have
experienced considerable growth in recent years, whilst brands such as Prada, Nestlé, and
Rolls-Royce have fared less well (Doland, 2015).
■ Market access—Access refers to the extent to which customers can be contacted with
marketing communications and can obtain an offering through distribution and sales
outlets. Media availability, industry infrastructure, channel networks, and local cultural
norms all potentially limit or hinder market access. For example, in many countries, for-
mer state telecommunications still maintain widespread (monopoly) market control. This
results in few openings for foreign brands to enter these markets, despite there being
few legal issues or import difficulties. Some countries also impose high tariffs to protect
local industry.
■ Geographical proximity—The physical distance between a potential market and the domes-
tic market can have a direct impact on resource requirements. For example, trade between
Brazil and the UK requires more resourcing than trade between Sweden and Norway.
■ Psychological proximity—This refers to the perceived cultural and societal similarities be-
tween countries. Later in the chapter, we will look at psychic difference—that is, the
difference between perceptions of an offering in a domestic market and perceptions of
that same offering in a foreign market. Psychological proximity and psychic distance can
be seen as existing at opposite ends of a perceptual similarity–difference spectrum. For
example, some see greater cultural similarity between the UK and Australia than between
the UK and the Netherlands. (See Market Insight 7.1, earlier in the chapter, for more on
this topic.)
■ Established competitors—When competition is intense, foreign market entrants will be
received less favourably. For example, this might potentially result in price competition
or in entrants finding it difficult to obtain distribution agreements with supply-chain
partners.
■ Entry costs—These can vary greatly between markets and strategies. For example, physi-
cal distribution costs can be extremely high in a country such as the United States or India,
where the distances between production plants and consumers can be immense. In other
countries, distances might be comparably short, but marketing channels and supply chains
may be long and complex, or lack the infrastructure to support them. For example, the
healthcare infrastructure in various countries in sub-Saharan Africa differs greatly from that in
European countries such as the UK and Sweden.
■ Profit potential—This refers to the number of potential customers and the profit margin that
the group can generate in that market. Even though per unit profit margins might be small, a
country with a large potential market might still be attractive because of the overall profit gen-
erated. For example, Indonesia and Pakistan might each offer large potential profits. Powerful
buying groups, low per capita income, and strong competition are all factors that can reduce
profit margins.
International market selection requires good market intelligence about the market environment
and marketing opportunities. The examination of the competitive environment, discussed in
Chapter 4, should therefore be developed on an international scale. At the same time, it is
275
important to realize that market screening can be random, driven by customer enquiries or by
market demand for an offering or knowledge gained through media or social networks. Visits to
the potential markets are also required to gather further insights and first-hand market knowl-
edge, and to aid the development of networks and relationships.
Questions that are useful for international market screening are detailed in Table 7.2.
Table 7.2 International market screening questions
Factor Questions to consider
Market ■ What is the level of market growth/decline?

■ What is the market potential?
■ What distribution channels exist, if any?
Proposition fit ■ Is there a market opportunity for this offering?

■ Is there demand or interest in an offering of this type?
■ Will the offering require adaptation to fit into the market?
Competition ■ Are the existing competitors in this market, if any, national and international in nature?
■ How aggressive is the competition?
■ What degree of power do existing competitors exercise in this market?
■ What barriers to entry currently exist?
■ How might the competition respond to our market entry?
Market entry ■ What entry methods are most attractive for us to enter this market?
■ What will market entry cost us?
■ How might local partners support us in entering the market?
■ How similar are the foreign culture, values, and attitudes when compared with our
domestic market?
Resources ■ How much do we need to invest to enter this market?

■ What will the mix of local and expatriate staff be in entering this market?
■ What development do we need to undertake to allow us to enter this market? (Examples
might include acculturation, language training, and export development skills.)
■ Can we rely on existing marketing channels for market entry or do we need to develop
new ones?
Trade barriers ■ What legal or regulatory factors could influence our market entry or operational
approach?
■ Will import tariffs or quotas be imposed on us?
■ Can we repatriate any profits generated out of the country or are there restrictions on this?
■ Are there any constraints on foreign organizations operating in this market, e.g. in
terms of allowing foreign majority ownership structures of local firms?
■ Will different product/manufacturing standards apply in this market?
Market Entry Selection Criteria

There are several ways in which organizations can enter foreign markets. This decision is com-
plex and depends on the company’s objectives, its type of offering, and factors associated with
the target country. Six criteria to consider when selecting the market entry method are presented
in Figure 7.2 (Paliwoda, 1993). The importance of each depends on the organization’s interna-
tional marketing objectives:
■ Speed and timing—Some foreign market entry methods take months, whereas others can
be executed immediately; hence the organization should ascertain how quickly it wishes to
enter a target market.
■ Costs—Different methods require different levels of investment; consequently, the firm should
carefully consider the costs and benefits of each method.
■ Flexibility—Some methods provide organizations with different levels of flexibility over their
activities in a new market and future development opportunities. For example, some meth-
ods (such as direct investment) might require long-term contractual agreements or finan-
cial commitments.
■ Risk and uncertainty—Numerous risk factors are involved with entry into new and for-
eign markets. Some entry methods allow for a reduction of risk and uncertainty. These
include joint ventures and direct investment. The latter might ease political pressure,
for example reducing barriers to entry, including tariffs and import quotas. However, these
methods also require a larger degree of financial investment than indirect exporting or
licensing.
■ Return on investment (ROI)—The ROI needs to be considered alongside speed and timing,
and costs. Some organizations look to achieve a rapid ROI through their market entry strate-
gies, and thus the speed and timing of market entry is crucial. For example, it may take years
to build a factory in a foreign market; it may be more suitable to develop a partnership with
an existing local manufacturer who can provide this resource, thereby increasing the speed
of ROI.
■ Long-term objectives—An organization needs to review what it wants to achieve in the long
term from its entry into a new foreign market, because some market entry methods will pro-
vide more flexibility and leverage for long-term opportunities than others.
Market Entry Methods

There are several approaches that an organization can adopt when entering international
markets. Each offers a level of risk commensurate with the potential rewards on offer
(see Figure 7.3). The higher the risk, the higher the possible rate of return. An organiza-
tion’s willingness and ability to commit the appropriate managerial, financial, and opera-
tional resources is crucial to realizing the potential rewards. (See Market Insight 7.3 for
an analysis of the choices made by Chinese car manufacturers when entering foreign
markets.)
277
Costs
Speed
Flexibility
and time
Market entry
method
selection
criteria
Long-term Risk and

objectives uncertainty
Return on
investment
(ROI)
Figure 7.2
Criteria when selecting market entry methods
High
Direct
investment
Joint
ventures
Direct
Risk exporting
Licensing,
franchising, and
contracting
Indirect
exporting
Low
Low Rewards High
Figure 7.3
The level of potential risk and expected rewards of various market entry methods
Market Insight 7.3

Go West! Chinese Car Manufacturers Internationalize
Major exhibitions in the car industry, such as the The company has about 10 per cent of the car market
Frankfurt Motor Show, have demonstrated the growing in Egypt, where it sells approximately 20,000 Geely
ambitions of Chinese brands. China’s manufacturers, vehicles a year. Moreover, the company is targeting the
after years of steady expansion in the domestic Russian market, where it aims to increase its current
market, are now targeting international expansion sales, which are of only 1,700 units. Through a joint
as a growth opportunity. Specifically, the growth of venture with a local firm, Geely is building a new factory
Chinese car manufacturers in international markets in Belarus, which will be able to increase production to
is seen as an important aspect of the ‘One Belt, One a maximum of 60,000 vehicles each year. These plans
Road’ initiative—an ambitious programme of foreign are not without risks: previous attempts to break into
investment in infrastructure supported by the Chinese the Russian market by Ford and Skoda were mostly
government. unsuccessful.
Geely’s strategy, however, is to continue growing

primarily through acquisitions in foreign markets. In
2017, the firm acquired a 49.9 per cent stake in the
Maylaysian car maker Proton. Analysts think that
Proton will offer a good opportunity to sell Geely’s own
models in Malaysia. The idea is that cars manufactured
in China will be slightly adapted and sold under the
new brand.
At the same time, the company is also investing

in new models that may be appealing to European
and US consumers, primarily by leveraging
Geely means ‘auspicious’ or ‘lucky’ in Volvo engineering know-how. Lynk & Co. is a new
Mandarin Chinese brand that has launched the 01 model in China
Source: © Volha-Hanna Kanashyts/Shutterstock.com.
in 2017. The car, based on the Volvo XC40, is
positioned on the idea of ‘connectivity’. The goal
is to make Lync & Co. models available in Europe
Chinese brands are especially targeting other
by 2020.
developing countries that either have significant growth
potential or can offer a gateway towards established Geely is not unique in this respect. Chery Automobile
markets. The China Association of Automobile and Great Wall Motor, two leading Chinese brands,
Manufacturers claims that 190,000 cars were exported presented new models at the 2017 Frankfurt Motor
in the first quarter of 2017—a 30.7 per cent growth Show that will be sold in Europe by 2021. Both firms
year on year. are planning to invest in research and manufacturing
facilities in Europe to support their westward
Car giant Geely is at the forefront of this trend. The
expansion.
company, headquartered in Zhejiang Province, first
became known to Western observers because of Sources: Chen (2017); Du (2017); Li (2017); Makhovsky and
its high-profile acquisition of Swedish brand Volvo in Stolyarov (2017); Savov (2017).
2010—but Geely is internationalizing in other ways too.
279
Market Insight 7.3

continued
This market insight describes how Chinese car firms are especially keen to acquire foreign firms or to
manufacturers are internationalizing by means of a build joint ventures, as demonstrated by Geely’s story.
mixture of exporting and direct investment. Given the It remains to be seen whether these companies will be
complexity of the market and the significant resources able to challenge established European and US firms.
required to attempt internationalization in this industry, The low-growth, saturated European market might
it is reasonable to use a variety of methods. Chinese prove particularly challenging to conquer.
Related Topics
market entry method; joint venture; acquisition; internationalization; international strategy
1 Why do you think Geely decided to acquire 3 How do cultural factors influence the car
Swedish car maker Volvo? industry? What cultural elements might affect
the internationalization of Chinese car makers?
2 What might prove the most challenging aspect
of the European car market for Chinese
manufacturers?
Some organizations use a mixture of methods, depending upon the importance of each inter-
national project. Nissan changed from indirect exporting to direct investment when it established
a UK manufacturing base in the 1980s. Despite a relatively small share of the UK market at the
time, the development of the European Single Market offered the potential of huge ongoing
rewards. Case Insight 7.1 highlighted how Lanson uses different market entry methods in differ-
ent markets, sometimes using distributors and at other times developing an overseas office (for
example North America).
The entry method selected should fit the type of offering and the nature of the competition.
For example, some offerings, such as fast-food restaurants and coffee houses, lend themselves
to franchising; others, including textiles and car components, lend themselves to offshore
manufacturing. Regional products, such as wine, cheese, chocolate, and luxury food items, are
typically exported directly, or indirectly via distributors/agents.
Indirect Exporting
Indirect exporting refers to the situation in which production and manufacture occur in the
domestic market, but an intermediary is employed to sell the offering into the foreign market.
For example, New Cambridge and Hands-On are two agencies in Thailand that act on behalf of
numerous British universities.
In this model, an exporting manufacturer seeks to benefit from an intermediary’s knowledge,

its contacts and business networks, and its experience in the target market. This reduces the
producer’s risk, but the size of the producer’s potential rewards is reduced to compensate the
intermediary. This approach is a good way for SMEs with limited resources to test a target
market.
Licensing, Franchising, and Contracting

When making the decision to manufacture abroad, firms may consider entry approaches includ-
ing licensing, franchising, and/or contracting. Licensing occurs when an organization (the
licensor) grants another (the licensee) the right to manufacture goods, use patents or particular
processes, or exploit trademarks in a particular market. For example, ARM Holdings licenses
its microprocessor technology to original equipment manufacturer (OEM) companies
worldwide, with regional sales teams based in the United States, Europe, China, Japan, Korea,
Taiwan, and India. Licensing is relatively low risk and inexpensive, and can generate income from
foreign markets by avoiding high import tariffs and the high costs of direct investment. However,
this method offers limited control of the brand, and possible risks include the licensee damaging
the licensor’s reputation and image as a result of poor product quality and ineffective marketing.
It might also create a problem in that once the licensee has obtained the necessary expertise
and knowledge for manufacture of the offering, if there is insufficient legal protection in place it
may be able to develop its own offering and replace the licensor. Coca-Cola and Pilkington Glass
are both famous examples of companies that have used licensing to develop a global presence.
Franchising is used when the brand owner (the franchisor) authorizes another organization
(the franchisee) to produce or market an offering according to certain criteria laid down by the
franchisor in return for fees and/or royalties. Franchising is a way in which a company can
both leverage income from its brand (because licensees pay franchise fees and royalties) and
extend the brand’s market coverage. The most successful franchise operations are household
names, including KFC, SUBWAY®, McDonald’s, and Inter IKEA systems (the owner of the IKEA
trademarks).
The main benefits of franchising are managerial and financial. Financially, a firm can achieve
rapid growth in market coverage, with the franchisee bearing the most risk through their invest-
ment in capital assets, such as equipment and premises, working capital, and other operating
costs. However, the effectiveness of this form of market entry method relies on the strength of
the franchisor–franchisee relationship, the commitment of the franchisee, the resources and
support provided by the franchisor, and market interest in the franchise brand. Burger King,
owned by Restaurant Brands International, had 16,767 franchises by the end of 2017, generat-
ing around US$20.1 billion of revenues (RBI, 2018). The brand has established itself in more than
100 countries, including restaurants in Brazil, Turkey, Russia, and China (RBI, 2018).
Contracting refers to situations in which a manufacturer contracts an organization in a for-
eign market to manufacture or assemble a product in that market. This approach avoids the
costs involved in the physical distribution and supply chain issues associated with producing
the offering in the home market and selling it overseas. Unlike licensing, contractors have
control over all marketing activities. This method is also flexible because it avoids problems of
currency fluctuations, import barriers, and the high costs and knowledge required for interna-
tional distribution.
Visit the online resources and complete Internet Activity 7.2 to learn more about how Yum!
brands uses franchising to develop its Pizza Hut, KFC, and Taco Bell brands.
281
M&S franchises M&S Lingerie and Beauty stores, like this one in Jeddah in Saudi Arabia,
through Alhokair Fashion Retail
Direct Exporting
Direct exporting requires the manufacturing organization itself to distribute the offering directly
to customers in foreign markets. Here, the organization treats its international customers in the
same way as its domestic market customers. It takes responsibility for finding and selecting
customers, agents, and distributors, and directly supporting their efforts. The direct exporting
approach can be time-consuming and expensive. However, it gives manufacturers more control
and generates higher profits than are possible when using intermediaries. Further advantages
include direct access to market intelligence and the building of a clear presence in the market.
For example, Spain is the world’s largest exporter of wine by volume—particularly to France,
where it is frequently resold as French wine (Burgen, 2015). Bulldog, a British brand of male
grooming products, launches into overseas markets (for example Sweden, South Korea) by
developing relationships with key retailers (Hurley, 2015).
Joint Ventures
When a foreign organization and a domestic organization join forces, either by buying into each
other or by establishing a separate jointly owned enterprise, a joint venture is created. By work-
ing together, the participant organizations have enough resources to develop or enter a foreign
market. For example, one partner might have the finance; the other, the know-how. Sometimes,
a joint venture is the only way in which an organization can enter into or gain a foothold in a
foreign market, for example because of legislation. Joint ventures tend to have a limited lifespan
because the needs of each party alter and develop over time. They work best in sectors in which
there is a high degree of local adaptation to the market.
Factors that contribute to a successful joint venture partnership include:
■ ensuring an appropriate balance of power;
■ developing strong communication channels between the partners at several points of con-
tact and levels;
■ developing a mechanism for conflict resolution (for example before an issue goes to court);
■ clarity of agreed inputs and divisions of benefits;
■ jointly defined goals and parameters;
■ compatibility in how the two partners operate and their strategic visions;
■ equal commitment from both partners; and
■ complementary skills for mutual benefit.
Direct Investment
Direct investment or foreign manufacture involves some form of manufacturing or production in
the target country. Advantages include a commitment to the local market, fast availability of parts,
and market detection of changes in the local environment. The extent of direct investment can
range from the assembly of parts through to innovation led by research and development (R&D).
Another means of market entry through direct investment is the acquisition or takeover of an
organization in the foreign market. Nevertheless, it is very important to monitor how effective an
overseas investment is over time. Sometimes, it is necessary to exit from an investment. Tesco’s
exit from its US supermarket business Fresh & Easy in late 2012 was painful because it had made
no profit. By 2015, Tesco was also seeking a buyer for its South Korean business Homeplus to
partially pay off its debt mountain of £21.7 billion (Jung-A, Mundy, and Sender, 2015).
International Market Development

Entering international markets has been a feature of civilizations for thousands of years, ever
since the first ‘money’—based on metal objects—changed hands in commercial transactions
around 5000BC (Bellis, 2018). However, in the last two centuries, international trade has grown
enormously in scale and complexity. With this growth, different approaches to international mar-
ket development have developed.
Some firms take an ad hoc approach to international marketing, responding to customer
export requests only on a reactive basis. Others, such as H&M and BMW, develop an inter-
national marketing strategy proactively, to complement their domestic strategy. In the UK, for
example, the Royal Mint is the world’s leading exporter of circulating coin-based currency,
with 15 per cent of the available market (Anon., 2015a). However, for some, international
market development is their only marketing strategy and their domestic operations are con-
sidered of minor importance. Standard Chartered, a company formed as a result of the
283
merger of two banks founded in London in the 1850s, has more than 90,000 staff in 71 coun-
tries. Much of its business comes from international markets; only 6.7 per cent of its business
now comes from Europe (Standard Chartered, 2014). Regardless, the approach selected
should depend on the resources available, the industry, and the type of offering. For example,
some offerings, such as smartphones, airplane manufacture, and tourism, are international
by nature. The high degree of investment in R&D in these industries necessitates a move into
international markets because domestic markets may not provide sufficient sales and profit.
A seminal study by Johanson and Vahlne (1977) determined that companies tend to build up
their commitment to international operations as they gain more knowledge about that market
and gain increased confidence in their operations as their activities in that country are increased.
Previously, researchers at Uppsala University in Sweden (Johanson and Wiedersheim-Paul,
1975) had identified that most firms followed a four-stage process of internationalization, start-
ing with serving the domestic market, then penetrating foreign markets by exporting, then devel-
oping sales offices in the foreign market, and then developing foreign production facilities. This
model, often referred to as the ‘Uppsala Model’, is based on the idea that internationalization is a
slow, effortful process that happens over time as a firm acquires more knowledge about the new
market in which it operates. As knowledge of the new country increases, managers feel more
comfortable committing resources specifically to the new market. At this stage, managers will
evaluate carefully both the specificity and amount of resources required. Very specific resources
are investments that are tied very closely to a specific market. For example, a manufacturer might
decide to adopt a production standard that matches the regulations of one specific country. The
amount of resources relates to the size of the financial investment required to access a new
market. Since knowledge of the market is critical, internationalization choices under this model
Chetty, S., and Campbell-Hunt, C. (2004). A strategic approach to internationalization:

a traditional versus a ‘born-global’ approach. Journal of International Marketing,
12(1), 57–81.
Based on research undertaken amongst New Zealand firms, this article critiques the notion that there is a
standard approach to internationalizing a brand and suggests that some brands, rather than launching from
domestic markets, have to target international marketing from their very inception. The article illustrates the
complex choices faced by firms that internationalize and examines how internationalizing, as a process,
can in itself change an organization. The analysis of the case studies shows that most organizations do not
exactly fit either the ‘born global’ or ‘traditional’ views. The authors argue that the ‘born global’ perspective,
rather than describing a new type of company, refers to different market conditions in which rapid
internationalization and global innovations force companies to internationalize faster than might have been
expected in the past.
tend to be influenced by managers’ perception of ‘psychic distance’ between countries. This

term refers to managers’ perception of difference between the characteristics of two countries.
Typically, managers start internationalizing in countries with low psychic distance first.
Although the Uppsala model is often useful to understand the early stages of internation-
alization of firms, especially in the case of manufacturers, firms increasingly develop an inter-
national business orientation from their inception (known as born global firms). For example,
Chetty and Campbell-Hunt (2004) found a cluster of New Zealand firms that display this ten-
dency, principally because they cannot survive in the relatively small market that New Zealand
represents (see Research Insight 7.1). They identified significant differences in how born global
firms operate compared with those that internationalize traditionally, as outlined in Table 7.3.
Table 7.3 Key differences between traditional and born global approaches to
internationalization
Internationalization Traditional
attributes internationalization view Born global view
Home market Domestic market developed Domestic market irrelevant because

first often too small
Previous internationalization None expected Founder likely to have extensive

experience experience in relevant international
markets
Extent of internationalization Foreign markets developed Many foreign markets developed

sequentially simultaneously
Psychic distance Markets entered in order of Psychic distance irrelevant

psychic distance
Learning to internationalize Markets entered at a pace of Learning occurs rapidly because of

learning about new markets superior internationalization knowledge
Firm strategy Not central to motivation to Realization of competition requires

internationalize rapid internationalization
Use of information and Not central to Enabler of global market reach (e.g.
communication technologies internationalization the Internet, social media) and learning
Networks of business Used in early stages and Rapid development of global reach
partners replaced as internal resources requires comprehensive network of
developed partners
Time to internationalize Not crucial to firm Crucial to firm success; rapid

success; slow
Source: Adapted from Chetty and Campbell-Hunt (2004).

285
Perlmutter’s (1969) EPRG classification specifies four strategic orientations towards interna-
tional market development: ethnocentric, polycentric, regional, and geocentric (see Figure 7.4).
The first two of these assume a localized approach:
■ An ethnocentric approach views the domestic market (home market) as the most impor-
tant, with foreign markets not perceived as a serious threat.
■ With a polycentric approach, each overseas market is seen as a separate domestic
market and the organization seeks to position itself as local to that country. In some in-
stances, each market has its own manufacturing and marketing operations, with only a
limited overlap.
The last two approaches adopt a standardized approach:
■ A regional approach groups countries together, usually on a geographical basis, for ex-
ample Europe or Europe, Middle East, and Asia (EMEA), and provides for the specific needs
of consumers within those countries. In this instance, national boundaries are respected, but
do not have the same importance as cultural differences.
■ A geocentric approach assumes that the world is a single global market, with the organi-
zation targeting global segments, for example high net worth individuals (HNWIs), and global
opportunities to rationalize communications, production, and product development.
Lynch (1994) categorizes a company’s strategic nature based on the size of its geographic
operations using five categories, as follows.
■ Local scale—These are organizations operating within national and local boundaries with
little opportunity or desire to trade internationally (for example the local hair salon or the body
repair garage working mainly for insurance companies).
Ethnocentric approach Polycentric approach
International market
Domestic International
Domestic market market
market
Regional approach Geocentric approach
Market
A
Global
market
Market Market
B C
Figure 7.4
EPRG strategic orientations for international marketing
Market Insight 7.4

Primark Extends Its Growth by Entering the US Market
Primark is a fast-growing Irish retailer, operating 345 hard to maintain its low-cost leadership by means
stores in 11 countries. It is owned by Associated of lean supply chain management practices, limited
British Foods, proprietor of such well-known brands marketing spend, and high-volume procurement.
as Allinson’s, Twinings, Ovaltine, Patak’s, Jordan, Analysts reckoned that the company was worth up to
and Ryvita, among many others. Primark started life £24 billion in 2017.
as Penneys in Dublin in 1969 (and now has 36 stores
in Ireland), but has quickly grown from its domestic Whilst the European launches seemed an obvious
base by launching stores around the world. The next step, the US launch seemed risky. Such a move
company relatively quickly set up in the UK in 1973, pitted the company directly against strong brands
Spain in 2006, the Netherlands in 2008, Portugal, such as Ross, TJ Maxx, Marshalls, Old Navy, Forever
Germany, and Belgium in 2009, Austria in 2012, 21, Gap, and H&M. Nonetheless, early signals
France in 2013, and the United States in 2015. In seemed positive and, in 2016, the company decided
2016, the company opened its first store in Italy, in to open nine more stores to add to its initial two
Arese Milan. locations in Boston and Philadelphia—and this at a
time when Gap was having a tough time, announcing
significant store closures in North America. Naysayers
might also cite Tesco’s failure in the US market after
it launched Fresh & Easy in California, costing it £1.2
billion. According to a Barclay’s survey, more than
half of British retailers think the United States is the
hardest market to enter, beating China in second
place, despite sharing the same language. One reason
cited for retail market entry failure in the United States
is considering the market to be homogeneous, rather
than a patchwork quilt of different states, each of
which is characterized by different customer attitudes
Primark’s irresistible growth: will the United and behaviours. Typically, on the first day of a new
States prove a step too far? store opening, customers mob the store, grabbing
Source: © Lou Jones www.fotojones.com. everything they can find. The question is: will the
Americans feel the same ‘Primania’ as their European
Primark has enjoyed rapid growth over the last counterparts?
decade, with sales rising by 140 per cent. Its strategy
Sources: Morris (2013); Shawcross (2014); Anon. (2015b);
of selling good-quality clothing at very cheap prices
ABF (n.d.).
seems to be a hit everywhere. The company works
This market insight describes how a retailer is and particularly the UK). However, the US market is
developing its international markets. Primark appears often regarded as a very different market from the
to be following the traditional internationalization UK, because customer practice and the culture are
approach whereby it develops an international position significantly different.
once it has developed its own domestic market (Ireland
287
Market Insight 7.4

continued
Related Topics
market selection; market entry method; psychic distance; psychological proximity; foreign direct investment; culture
1 Using Perlmutter’s (1969) strategic orientation 3 What does Primark need to do to succeed in the
classification (EPRG), how would you classify US market where other European retailers have
the scale of Primark’s operations? failed?
2 Why do you think Primark has decided on

entering the US market? (Hint: Consider what
market selection criteria it used.)
■ National scale—This refers to those organizations that focus on the domestic market, but
which find opportunities from foreign markets based on ad hoc customer enquiries.
■ Regional scale—These are organizations focusing on specific regions within a regional trading
bloc (for example the European Union or Mercosur), as opposed to operating throughout
that trading bloc (for example all five full members of Mercosur, rather than only, say, Para-
guay), and gain experience of operating abroad on a smaller scale. For example, Norwegian
and Swedish organizations have a long tradition of trade relations with other Scandinavian
countries as a first experience of cross-national trade.
■ European scale—With increasing changes in the European Union and the rise in the
number of member states, many organizations have turned their attention to marketing
throughout Europe. Some argue that Europe is, in fact, one geographic market with a
number of segments that transcend national boundaries, especially as some of the risks
of international trade have been reduced or eliminated (for example currency, with the
introduction of the euro). However, some differences will remain forever (for example lan-
guage, culture, infrastructure), requiring differing investment in communications, product,
and channel development.
■ World scale—These organizations have a strong European base, but now operate in a range
of different world markets through direct investment or joint venture, or on an exporting basis.
For example, P&G, Shell, AstraZeneca, and Danone derive a significant portion of sales from
outside Europe. One example is Primark, a leading Irish clothing retailer striving for world-scale
operations through its market expansions into the United States (see Market Insight 7.4).
International Market Development as a

Growth Strategy
Marketing strategy is about matching market opportunities to an organization’s resources (what it
can do) and its objectives (what management wants it to achieve). Successful strategies begin with
the identification of attractive market opportunities using Ansoff’s matrix (see Figure 7.5). This matrix is
also referred to as the product–market matrix. It provides a useful way of considering the relationship
between strategic direction and market opportunities (see Chapter 5 for a detailed consideration).
This matrix provides four broad strategic options available to organizations, depending on whether
the product and/or the market are considered to be new to, or existing within, an organization.
The matrix illustrates, implicitly, that risk increases the further the strategy moves away from
known positions—an existing product and/or an existing market. Product development (a new
proposition) and market development (a new market) typically involve greater risk than market
penetration (existing offering and existing market). Diversification, a new offering in a new market,
carries the greatest risk of all. Although four types of opportunity are presented, some organiza-
tions pursue more than one type simultaneously. Here, we pay specific attention to the strategy
of market development, from an international perspective.
A market development strategy involves increasing sales by selling existing offerings in new
markets, either by gaining new customers domestically or by entering new markets internation-
ally. The goal is to sell more of the same things to different people. We might target different
geographical markets at home and/or abroad, or target different segments—perhaps demon-
strating a different behavioural profile from that of our existing customers. For example, Ryanair’s
airline offering was first marketed at those seeking low-cost travel, but has recently been aimed,
with some service enhancements (such as priority boarding, seat choice), at business travellers.
Another example is the use of military equipment repurposed for consumer purposes, such as
the American Motor Corporation’s Hummer, which was originally based on the high mobility
multipurpose wheeled vehicle (HMMWV), or Humvee, built for the US military. We have also seen
chains such as Gregg’s, a British baker, expanding into new geographical locations domestically
by targeting new audiences through differing retail outlets in motorway service stations, and
Dixons, the British electrical group, set up Dixons Travel, an airport retail chain. These are all
examples of developing new markets domestically for an existing offering.
Entering a new international market with an existing offering represents a high-risk strategy.
To build brand awareness and minimize risk, organizations often rely on the reputation of their
brands in domestic markets. For example, Aston Martin’s foray into the Chinese market is a
good example of international market development (see Case Insight 13.1).
Types of International Organization

Based on their international marketing strategies, it is possible to identify different types of orga-
nization that operate in international markets. There are several typologies that can be derived,
particularly from the work of Keegan (1989), Bartlett and Ghoshal (1991), and de Mooij (1994).
Present products New products
Present markets Market penetration Product development
New markets Market development Diversification
Figure 7.5
Ansoff’s matrix
Source: Adapted from Ansoff (1957).
289
Their view is that organizations can be regarded as national, international, multinational, global,
or transnational (see Table 7.4), each of which has different strategic orientations towards cus-
tomers and markets.
Organizations operate domestically using a marketing mix designed to meet the needs of the
home market. This usually means offering a standardized proposition. Some domestic organiza-
tions evolve into international organizations as they win ‘overseas’ business. The first step is to
use their domestically oriented marketing mix and then, at a later stage, to adapt it to the needs
of the new ‘overseas’ market.
This adaptation phase signals the emergence of a multinational strategy and corresponding
type of organization. These organizations regard the world in which they operate as comprising
discrete regions, with each requiring its own marketing mix. Each country or area reports to an
international head office and performance is geared to meet financial targets.
As growth occurs and more regions are brought into an organization’s scope, so it transforms
into a global enterprise. Global organizations are characterized by strategies founded on an
understanding that the similarities across country or area markets, not the differences between
Table 7.4 Types of international organization
Type of organization Explanation
National organizations These organizations operate within domestic borders. The marketing
policy is to serve customers with a single marketing mix. In multiple
retail grocery, examples include Jumbo (the Netherlands), Morrisons
(UK), and Axfood AB (Sweden), which owns the Willys and Hemköp
retail outlets.
International organizations These organizations see their overseas operations as attachments

to a central domestic organization. The marketing policy is to serve
customers domestically and offer these same marketing mixes in
other countries (e.g. Burger King).
Multinational organizations These organizations see their overseas activities as a portfolio of

independent businesses. The policy is to serve customers with
customized country-specific marketing mixes (e.g. Royal Dutch Shell).
Global organizations These organizations regard their overseas activities as feeders or

delivery tubes for a unified global market. The policy is to serve the
global market with a standardized marketing mix (e.g. Nike).
Transnational organizations These organizations regard their overseas activities as a complex

process of coordination and cooperation. Decision-making is shared.
The policy is to serve global business environments using flexible
global resources to formulate different global marketing mixes. For
example, ArcelorMittal, Vodafone, and Nestlé all hold over 90 per cent
of their assets abroad.
Sources: Adapted from Bartlett and Ghoshal (1991) and de Mooij (1994); Anon. (2012)
them, are important. Customers are seen as part of a single global picture; therefore a standard-
ized marketing mix is preferred. All decision-making is centralized.
Transnational organizations develop out of global enterprises. These are relatively sophisti-
cated companies that establish operations in many countries around the world based on wholly
or partially owned subsidiaries. The headquarters is the hub of the operations, based in one
country, but managing the operations across all other countries. Transnational companies seek
to serve global customers by developing efficient operations. These are based on utilizing tech-
nologies to generate synergies through the ‘creation, accumulation, transferring and sharing of
knowledge that exists in different locations’ (de Pablos, 2006: 556).
Organizations need to be flexible and adapt to changing market conditions. As domestic
markets stagnate, and technology and communication opportunities develop, opportunities
come and go. In addition, organizations seek efficiency and flexibility with regard to their use of
materials and resources. The use of strategic alliances and outsourcing arrangements comple-
ments this goal, and network-based organizations spanning the globe emerge. Li & Fung,
based out of Hong Kong, is a case example of a multinational consumer goods design, devel-
opment, sourcing, and logistics company, providing a global supply chain capability to many
high-street brands.
Understanding these different types of international organization is important not only from a
structural perspective, but also for the formulation and implementation of business and market-
ing strategies. Next, we explore ways in which organizations develop their operations, the deci-
sions they make, and the factors and issues influencing their decision-making.
International Competitive Strategy

When entering international markets, the key competitive decision to make is to what extent
the firm should standardize or adapt its marketing strategy. According to Zou and Cavusgil
(2002), a firm should adapt its promotional efforts only when it needs to, to respond to customer
needs, media usage, or advertising regulation. In an analysis of the rise of global competition,
Hout, Porter, and Rudden (1982) suggest that, strategically, an organization can adopt different
degrees of adaptation to markets based on a local or global, and a multidomestic or a global
competitive approach to their international marketing strategy (see Figure 7.6). Research Insight
7.2 looks in more detail at standardization as an international marketing decision.
Multi-Domestic Competitive Strategy

With a multi-domestic competitive strategy, organizations pursue separate marketing
strategies in each foreign market and consider how to compete on the basis of each market. This
can also be referred to as an adaptive orientation because organizations adapt their operations,
GLOBAL MULTI DOMESTIC LOCAL
Standardization Adaptation
Figure 7.6
The spectrum of competitive strategies
291
Katsikeas, C.S., Samiee, S., and Theodosiu, M. (2006). Strategy fit and performance
consequences of international marketing standardization. Strategic Management
Journal, 27(9), 867–90.
This article examines under what conditions companies are more likely to opt for a standardized international
strategy and explores the performance implications of standardization. The analysis is based on the study
of the UK subsidiaries of German, US, and Japanese multinationals. The authors show that companies
are more likely to standardize when their home market is similar to the foreign market both in relation to
macroeconomic factors (for example regulatory environment, technological intensity, traditions), as well as
microeconomic factors (for example customer characteristics and competitive intensity). Standardization
yields superior performance under conditions of high fit between the environmental context and the choice
of strategy. The article has important implications because it suggests to practitioners under what conditions
strategic standardization is more likely to be successful.
procurement, and market research or insight generation to a particular country, and develop a
strategy for that specific market (see also Chapter 4). Consequently, cultural, legal, language,
communication, and geographical differences in each market are accounted for. For example,
Malaysian casino and resorts group Gentings has adapted its London Chinatown offering to
include baccarat to appeal to wealthy Chinese tourists (Blitz, 2014). Fashion is an industry with
significant differences in style—particularly street style—between countries such as the United
States, France, Italy, the UK, and China. There are also differences in terms of who are perceived
to be influential bloggers and fashion designers in the different countries.
In any company, a central headquarters might coordinate financial controls, R&D activities,
and marketing policies worldwide, but strategy and operations are often decentralized. Each
subsidiary is considered to be a profit centre, and is expected to contribute earnings and growth
consistent with market opportunity, with competition on a market-by-market basis (Hout et al.,
1982). (See also Market Insight 7.5 for an understanding of how advertising might need to be
adapted when operating in different regions.)
Global Competitive Strategy

Globalization refers to the process by which all that we experience in life is becoming standard-
ized worldwide through the free flow of goods and services, people, capital, and information
(Sirgy et al., 2007). Globalization is accompanied by the increasing consolidation of organiza-
tions within various industries, including pharmaceuticals, financial services, and airlines.
The importance and significance of global trade was first identified by Levitt (1983: 92–3), who
stated that ‘the global cooperation operates with resolute constancy—at low relative cost—as
if the entire world (or major regions of it) were a single entity; it sells the same things in the same
Market Insight 7.5

Ad-Apt in São Paulo?
When companies internationalize, they face many

strategic questions, such as: where shall we go?
How shall we internationalize? Which parts of our
marketing strategy should we adapt to the local
market and which can we standardize across all of
our markets? Whilst many of these decisions are not
directly visible to the consumer, one aspect most
consumers will be in direct contact with is advertising.
Almost all companies, from Coca-Cola to Google,
and industries, from fashion to food, adapt their
advertising strategies to the local markets in which
they operate. Consider Snickers, for example. The São Paulo consumers breathe easily after the
world’s biggest chocolate bar produced a truly global advertising ban, but advertisers choke!
brand idea with the slogan, ‘You’re not you when Source: © Bloomberg/Getty.
you’re hungry’, but then adapted its advertisements
to feature local celebrities and symbolism to make the Clearly, not everyone was in full support. The new
advertisement relevant to the target market in which law raised great concern among local and global
the individual ad was shown. Similarly, IKEA sells an businesses: how would they convey their advertising
almost identical lifestyle across the globe, but adapts messages to their customers? They argued that the
its advertising to local markets. Photos of its famous advertising ban would entail a revenue loss of US$133
catalogue are adjusted to reflect the cultural values of million at 2007 prices. Consumers even argued that
the local target audience. the loss of advertising billboards would take away from
São Paulo’s identity and that the city would lose the
But what does a firm do when it has identified a great appeal of a world metropolis. Imagine London without
new potential market and it finds out that the market Piccadilly Circus’s neon billboards, or Times Square in
forbids advertising?! New York without its neon billboards!
In 2007, São Paulo, the world’s seventh largest and Yet, despite the initial uproar, the ad ban has been a
Brazil’s most important city, became the first city in success, yielding approval rates of more than 70 per
the world to put into effect a radical near-complete cent among the city’s residents. And it seems that the
ban on outdoor advertising. São Paulo introduced movement to ban ads in cities is catching on: in 2009,
Lei Cidade Limpa (the Clean City Law). Asserting that Chennai in India banned billboards, as did several US
the city needed to combat various forms of pollution, states, followed by Grenoble in 2014 (which banned
the then mayor said: ‘We decided that we should all street advertising). The difficulty, though, is that
start combating pollution with the most conspicuous cities earn significant revenues from their partnerships
sector—visual pollution.’ The law bans the use of with advertising companies. Even São Paolo has seen
all outdoor advertisements, including billboards, some of its advertising return, albeit in a much more
transit, and front-of-store advertisements. Even organized fashion. Nevertheless, the question remains:
pamphleteering in public spaces was made illegal. how do you advertise if the city pulls your ambient
Imagine a city of 11 million inhabitants stripped of all its advertising space and what do you lose by shifting to
advertising! alternative advertising forms?
Sources: Douglas and Wind (1987); Mahdawi (2015).

293
Market Insight 7.5

continued
This market insight describes how companies entering shows that companies should never take for granted
the Brazilian market—specifically, the city of São Paolo how they can best communicate with their customers.
(and, by extension, other cities in which advertising is It also shows that firms need to assess the regulatory
restricted or banned)—need to identify new ways of and marketing environments before selecting a market
communicating with their customers. The example and developing the entry method.
Related Topics
standardization–adaptation; market entry; culture; regulatory environment; marketing environment; marketing
communications; advertising
1 As a result of the ban, do you think São 3 Would you advise these companies to use
Paulo has become an unattractive market for adapted or standardized advertising campaigns
international and global brands? in this particular market?
2 What kind of creative new advertising strategies This market insight was kindly contributed by Dr Frauke
Mattison Thompson, Universiteit van Amsterdam, The
might these companies use to overcome their Netherlands.
inability to engage in outdoor advertising?
Which advertising channels become more
important?
way everywhere’. However, there have also been detractors from this argument, who assert
that whilst it was appropriate to operate a globally competitive approach to business, the key
to success is to customize the offering, adapting it to local needs (Quelch and Hoff, 1986). This
debate is still ongoing.
A global competitive strategy represents a standardized approach. This requires that orga-
nizations see the world as one large (global) market and that they sell the same proposi-
tions in the same way throughout the world, ignoring local, regional, and national differences.
Standardization assumes that global cultures are converging and that any cultural differences
are superficial (Wind and Perlmutter, 1973; Levitt, 1983; Douglas and Wind, 1987). The attrac-
tions of the standardization approach include improved operational efficiencies, enhanced cus-
tomer preference, increased competitive leverage, and, importantly, substantial cost reductions
(Herbig and Day, 1993). Objectors to this approach argue that cultural, legal, and national dif-
ferences inhibit trade, especially when an organization assumes that differences are superficial.
They argue that there might be genuine psychic difference—a difference between the people of
the two countries (domestic and foreign markets) in how they perceive or use a particular offering
(Evans, 2010). For example, when Carlsberg launched Somersby Cider into the Swiss market, it
used a novel approach even though the brand was already on sale in 35 countries. It recruited an
online consumer panel to co-create a brand awareness campaign, and then sent each member
a crate of 24 bottles, as well as 2,000 bottles to friends of the panel members, and asked them
all to have a party, and take pictures and post them online. This approach raised awareness of
the brand from 6 per cent to 20 per cent the day before the formal product launch took place
(Anon., 2015b). Communication is one of the biggest barriers to effective international marketing
and is heightened when the standardization approach is used. One outcome is that advertising
messages can be badly phrased or misinterpreted (see Table 7.1).
One way of evaluating the extent of psychic distance between home and target markets is
to formally analyse them using the mnemonic CAGE (Ghemawat, 2001), which requires that the
marketer consider a possible target market against a home market based on the dimensions of:
■ culture—for example languages, religion, social norms;
■ administration—for example, government policies, colonial ties;
■ geography—for example physical remoteness, size of country, climate differences; and
■ the economy—for example, differences in consumer incomes, cost of labour.
An effective global competitive strategy comprises two elements. The first is selective con-
testability—that is, the ability to contest successfully in any international market in which an
organization chooses to compete. It is based on the core marketing principles of segmentation,
targeting, and positioning—that is, the STP process (see Chapter 6). This requires that generic
markets are divided into meaningful sub-markets, or segments, that the most attractive of these
Somersby Cider was launched into the Swiss market

with an innovative brand awareness campaign
Source: © tofino/Alamy Stock Photo.
295
are then selected, and that the offering is consequently positioned appropriately. This process
lies at the very heart of any competitive strategy, irrespective of whether or not the organization
is competing in a regional, national, or global market.
The second element is global capability. This concerns an organization’s ability to bring its
entire worldwide resources to bear on any competitive situation, irrespective of location. A global
brand goes far beyond an organization’s physical presence in differing national markets, reflect-
ing the existence of a global image. This universal recognition distinguishes an organization pur-
suing a focused strategy in numerous national markets. Examples include global players such
as Apple (consumer electronics), Microsoft (software), Intercontinental Hotel Group (hotels), and
Spar (convenience stores).
It is worth pointing out that not everyone believes globalization to be a good thing. As a
consequence, an anti-globalization movement has developed to compete directly with the legiti-
macy and power of multinational corporations. In particular, anti-globalization protesters argue
that multinationals abuse labour, particularly in developing countries, fail to pay sufficient taxes,
sandblast out cultural differences with standardized products, and trample on individual liberty.
(We discuss some of these issues further in Chapter 18.) Sometimes, protests can be focused
on specific countries for political reasons and this can have negative implications for international
brands from the targeted nation. Research Insight 7.3 discusses in more detail this phenomenon
of consumer animosity towards a foreign country.
Visit the online resources and complete Internet Activity 7.3 to learn more about how companies
such as KFC use a ‘glocal’ approach by acting globally, but adapting to local differences.
Riefler, P., and Diamantopoulos, A. (2007). Consumer animosity: a literature review
and a reconsideration of its measurement. International Marketing Review, 27(1),
87–119.
This article offers a systematic review of an important stream of research on the determinants of foreign
purchase behaviour. Scholars have noticed how international crises between countries stemming from
political, economic, or military causes can lead to feelings of animosity against a target nation. These feelings of
animosity can affect products originating from the target country, with consumers rejecting the foreign offerings
associated with the disliked nation. For example, some Chinese consumers feel resentful towards Japan,
because of past military conflicts between the two countries, and tend to avoid purchasing Japanese brands.
Country animosity poses difficult challenges for marketers who need to decide how to handle this negative
bias. One solution would be to avoid positioning the offering on any associations related to its country of origin.
In cases in which this is not possible, firms need to consider communication campaigns and local investment
to improve the perception of the company irrespective of any negative country-of-origin association.
Chapter Summary
■ Identify the key drivers for international market development.

Many factors motivate an organization to develop markets in international markets. These include historical
accident, the need to move excess stock, limited growth in domestic markets, comparative advantages,
economies of scale, trade liberalization, technological changes, customer relationships, the development of
transnational market segments through immigration, and organizational sustainability.
■ Discuss how environmental factors influence the choice of international marketing strategy decisions.
The analysis of environmental forces can help to identify which countries or regions should be given priority
and which market entry strategy would be best suited to that country or region. Factors to consider include
social, cultural, and consumption attitudes, and technological, economic, political, and legal factors.
■ Describe the criteria used to identify and select international markets.

Assessing market attractiveness is very important because different markets have varying levels of
attractiveness. Markets may be chosen according to various criteria, including market accessibility, market
and population size, geographic proximity, psychological proximity or psychic distance, the level and quality
of competition already in the market, the costs of entering the market, and the market’s profit potential.
■ Explore various international market entry methods.

The decision regarding which method to use to enter a foreign market is based on six main factors: speed
and timing; costs and the required levels of investment; flexibility; risk and uncertainty; expected return
on investment (ROI); and the long-term objectives. Once reviewed, organizations use one or more of the
following methods of entry: indirect exporting; licensing; franchising; contracting; direct exporting; joint
ventures; and direct investment.
■ Define international market development as a market growth strategy.

Given the increasing internationalization of world markets, increased foreign trade, and international travel,
international marketing is frequently a core activity for many organizations. A market development strategy
involves increasing sales by selling existing offerings in new markets, either by targeting new audiences
domestically or entering new markets internationally. International market development is growing in
importance because of changes in the economic, social, and political landscape. The main considerations
are the degree of risk and adjustment an organization is willing to undertake and the identification of
potential opportunities within foreign markets.
■ List the different forms of international marketing strategy.

When entering international markets, a key competitive decision is whether the approach should be to
standardize or adapt the marketing strategy. Organizations can adopt a local or global, or multi-domestic
or global competitive international marketing strategy. The decision is based on the type of offering, the
attitudes of the organization, and the resources available for market entry.
Review Questions
1 What factors influence international market development strategies?
2 Identify the key differences between multi-domestic and global competitive strategies.
3 What criteria should an organization use to assess the attractiveness of a foreign market?
Chapter 7 > International Market Development 297
4 Outline the main cultural differences that can affect international marketing.
5 What methods can an organization use to enter a foreign market?
6 What criteria should be considered when selecting an entry method to an international market?
7 When would an organization standardize, rather than adapt, its offering or promotional
approach?
8 What are the key differences between indirect and direct exporting?
9 Identify the benefits of using franchises in international marketing.
10 What key success factors are associated with international joint ventures?
1 Having read Case Insight 7.1, how would you advise Lanson International to further differentiate itself
in its category in the UK market? How would you also advise Lanson to develop its international
markets?
2 Which of the following factors would have the greatest impact on a fashion retailer’s assessment of the
attractiveness of a foreign market: political; legal; socio-cultural; or technological? Why?
3 How do cultural factors influence a company’s decision on how to enter a foreign market?
4 Marketed heavily on the basis of their country-of-origin brand image, what impact do you think joint
ventures with domestic vineyards or direct investment would have on the perception of wine brands in
a foreign market?

Glossary
born global refers to those firms that develop contracting where a manufacturer contracts an
an international orientation to their business organization in a foreign market to manufacture
immediately without developing an offering within or assemble the product in that foreign market.
their domestic market first. culture the values, beliefs, ideas, customs,
comparative advantage the ability to produce actions, and symbols that are learned and
goods and/or services at a lower opportunity shared by people within particular societies.
cost than other firms or individuals. direct exporting where the manufacturing firm
consumer price indices (CPIs) a measure itself distributes its product offering directly to
of the current prices of a basket of goods customers in foreign markets.
in a particular country, usually expressed in direct investment also known as foreign
US dollars in purchasing power parity terms manufacture, some form of manufacture or
(that is, allowing for comparisons between production in the foreign or host country, which is
currencies). sometimes necessary.
economies of scale the reduction in cost of lingua franca a bridge, or third language—that
each additional unit as production increases and is, a language shared by two communicators
operational efficiencies are realized. of different nationalities who speak two other
ethnocentric approach an approach whereby languages.
the domestic market (home market) is seen to Mercosur derived from the full name, Mercado
be the most important and overseas markets Común del Sur, a regional Latin American
as inferior, with foreign imports not seen as trading bloc designed to promote free trade,
representing a serious threat. and the movement of people and currency;
franchising a contractual vertical its full members are Argentina, Bolivia, Brazil,
marketing system in which a franchisor Paraguay, Uruguay, and Venezuela; its associate
licenses a franchisee to produce or market members are Chile, Peru, Colombia, and
goods or services to a certain standard laid Ecuador.
down by the franchisor in return for fees and/ multi-domestic competitive strategy where
or royalties. an organization pursues a separate marketing
Generation Y people born in the 1980s and strategy in each of its foreign markets while
1990s, regarded as being familiar with digital viewing the competitive challenge independently
technologies. from market to market.
geocentric approach an approach that sees original equipment manufacturer (OEM) a
the world as a single market—global—in which manufacturer that sells another company’s
the organization looks for global segments product, service, or technology, often as a
(for example ageing customers) and global component of an integrated offering, under its
opportunities to rationalize communications, own name and brand.
production, and product development. polycentric approach an approach whereby
global capability the willingness and capability to each overseas market is seen as a separate
operate anywhere in the world, the direct result domestic market and each country is seen as a
of which is global brand recognition. separate entity, and the firm seeks to be seen as
globalization refers to increasing global a local firm within that country.
connectivity, integration, and interdependence psychic difference the difference that exists
in the economic, social, technological, cultural, between how people in a home market view
political, and ecological spheres. an offering versus the perception of those in a
gross national product (GNP) total domestic foreign market, based around culture, language,
and foreign added value claimed by residents of religion, politics, economics, and other country
a state. distinctions.
indirect exporting where the production and regional approach an approach that groups
manufacture of the product offering occurs in countries together, usually on a geographical
the domestic market and involves the services basis (for example Europe), and provides for
of other companies (intermediaries) to sell the the specific needs of consumers within those
product in the foreign market. countries.
international marketing marketing activity that selective contestability the ability to
crosses national boundaries. disaggregate generic markets into meaningful
joint venture where two organizations submarkets or segments, select those most
come together to create a jointly owned attractive, and position the product offering
third company; an example of cooperative, appropriately.
as opposed to competitive, operations in standardized approach an approach whereby
international marketing. a firm operates as if the world were one large
licensing a commercial process whereby the market (global market), ignoring regional and
trademark of an established brand is used by national differences, and simply selling the
another organization over a defined period of same products and services in the same way
time in a defined area, in return for a fee, to throughout the world.
develop another brand.
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Part 3
Managing Marketing
Programmes
Part 1
Part 2
Strategy
Part 3
Managing Marketing
Programmes
Part 4
Principles of Customer
Management
Part 5 Part 3
The Social Impacts of Managing Marketing Programmes
Marketing
8 New Proposition Development and
Innovation
9 Price and Customer Value Decisions
10 Principles of Marketing Communications
11 Configuring the Marketing
Communications Mix
12 Digital and Social Media Marketing
13 Branding Decisions
Chapter 8
New Proposition
Development and Innovation

Cheil UK
Market Insight 8.1
Explain the different levels of a proposition
Chanel No.5: Iconic on So
Identify and describe the various types of physical Many Levels
proposition and explain particular concepts relating
Market Insight 8.2
to the management of products, including the
Battle of the Superjumbos
product life cycle
Explain the relationship between product and Market Insight 8.3
Fast Fashion: Tailoring the
service offerings, and describe the product–service
Life Cycle
spectrum
Explore the processes and issues associated with Market Insight 8.4
Minecraft: The Gamer’s
innovating new propositions
Proposition
Describe how new propositions are adopted by
markets Market Insight 8.5
Streaming Wars: Apple
versus Spotify
306 1 > Managing
Part 3 Marketing Marketing
Fundamentals
Programmes
Case Insight 8.1

Cheil UK
Cheil is a full-service, data-driven agency network, rooted

firmly in digital innovation. Cheil UK is part of the Cheil
Worldwide Network, made up of more than 6,000 people
in 53 offices across five continents. We speak to Manish
Bhan, head of retail transformation, to find out how Cheil
UK helped client Samsung to develop its retail offering.
Cheil was born in South Korea, a country now these innovations, with the smartphone becoming
established as one of the world’s largest economies a key conduit to providing information, browsing,
and a leader in technological innovation. Consequently, comparison, sales, payment, and accessing brand
we have been at the cutting edge of technology for communities, as well as a way of engaging one-to-
over 40 years, bringing technology and creativity one with shoppers. Many retail innovations have
together to drive engagement, participation, and developed in the last few years and have utilized,
talkability for our clients. We redefine the way in which and will in the future utilize, mobile as a part of the
people connect with brands by using technology and retail journey. Major innovations in retail over the
data as a canvas for creativity, by offering brands a last ten years include: the development of pure-
genuine 360-degree service, including the following play (purely online) offerings; mobile commerce
elements: strategy; data and insights; retail innovation (m-commerce); on-demand delivery, retail design
and commerce; events and experiential; social media thinking/cognitive retail (that is, redesigning
and content marketing; and personalization through processes to focus on empathizing, and adapting
digital platforms. to, the customer experience); social commerce (from
rating and reviews to crowdsourcing); big data (to
We are a ‘briefless’ agency, meaning that we seek to
allow greater personalization, customer profiling
understand the business challenges of our clients,
etc.); digital and interactive screens in-store;
customer barriers, and industry trends to develop
self-service checkouts; frictionless payment via
a solution that overcomes barriers and enhances
contactless payment systems; geo-locational
customer experiences. To solve a client problem, we
targeting via beacons and near-field communication
adopt a ‘rollercoaster process’ whereby teams from
(NFC) in-store (which allows communication with a
various business functions (for example digital, social,
smartphone when a customer passes near to a retail
retail, experiential, data, strategy, technology) all
store, particularly for advertising); and subscription
come together to tackle the challenge and determine
services (which facilitate auto-replenishment, for
how we can overcome it across all marketing
example Dollar Shave Club, Netflix).
channels.
When our client Samsung wanted to develop a
The last ten years in retail have seen more change
new digital solution to grow its retail customer base
than the previous fifty and the next ten years are
and deepen its relationships in an increasingly
likely to be even more exciting. The growth of
competitive environment, we had to consider how
online retail and digitization has turned retail into
it would adapt to these environmental changes
a hothouse of innovation. New technologies, new
to better compete. But Samsung also wanted to
channels, and the development of strong social media
provide a seamless experience across online and
communities have transformed how shoppers make
offline channels. Non-digital channel solutions (for
purchase decisions and the way in which brands
example physical retail outlets) can increase time
and retailers do business. Retail is at the centre of
Chapter 8 > New Proposition
Chapter Development
1 > Marketing andand
Principles Innovation
Society 307
307
Case Insight 8.1

continued
to market for new propositions, tend to have high The question for Cheil UK was: what omni-channel
operating costs and low customer engagement offering did it need to develop for its client that
rates, and lead to fewer customer conversions. With would bring together Samsung’s online and offline
the existing channel solution, content was silo-ed, channels to improve its customers’ experiences?
there was no way of ensuring omni-channel delivery
fulfilment, and measuring and optimizing customer Visit the online resources to watch a
experiences was difficult. Consequently, there was video interview with Manish Bhan in which
limited cross-channel customer engagement. he explains what Cheil UK did.
Introduction
An Apple smartphone, a train journey from London to Venice on the Venice Simplon-Orient-
Express, a cappuccino at Starbucks in Copenhagen, the South China Morning Post newspaper
in Hong Kong, a copy of the French magazine 20 Ans, a haircut in Pakistan, and a manicure
in Saudi Arabia are all commercial propositions, or offerings. But do they completely meet
their customers’ needs? Offerings can only ever be approximate solutions to customers’ needs.
No one can ever design a proposition to meet the needs of all people all of the time. The term
‘proposition’ includes an offering’s tangible and intangible attributes related not only to physical
goods, but also to services, ideas, people, places, experiences, and even a mix of these various
elements. We use the terms ‘offering’ and ‘proposition’ to mean both physical goods and non-
physical services. A proposition or offering is anything that can be offered for use and consump-
tion in exchange for money or some other form of value. We use the terms ‘product’ or ‘good’
only when we refer to a physical offering. We use the term ‘service’ when we are referring to a
non-physical offering.
A bottle of Adnams beer, a L’Oréal eyeliner pencil, or an Otis lift are all tangible proposi-
tions—that is, products. Tangibility therefore refers to the ability to touch an item and whether
it can be stored. By comparison, a trip to the Titanic museum in Belfast, Northern Ireland, or
a visit to a Zeba hair salon in Ireland cannot be touched and are incapable of being stored.
These are intangible propositions—that is, services. However, there has also been an increas-
ing shift, particularly in the business-to-business world, towards servitizing physical goods (that
is, making products into services). We discuss this intriguing marketing phenomenon in more
detail later. In this chapter, we also consider the nature of propositions, before exploring issues
associated with their innovation and development. We start with a consideration of the principal
characteristics associated with offerings and then discuss the notion of how all offerings are
essentially services—that is, we discuss service-dominant logic (SDL) (see Chapter 1). The
second part of the chapter examines ideas and processes related to the development of new
propositions generally.
308 1 > Managing
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Financial services Computer hardware

Health care 3D televisions
Theme parks Fast food retailers
Education Toiletries
Entertainment Frozen foods
Hairdressing Fruit
Figure 8.1
The product–service spectrum
The (Non-)Physical Nature of Propositions

Fruit is a purely tangible good, whereas a cinema ticket is a pure service (although you can add
goods such as popcorn and a drink, of course). These propositions lie at opposite ends of a spec-
trum (see Figure 8.1). Inbetween the pure good and the pure service lie a host of goods–services
combinations. Many offerings have intangible components. For example, fridges and houses are
sold with warranties, and cars may be purchased with finance deals at 0 per cent interest. These
intangible aspects are sometimes referred to as product intangibles. Many vendors develop the
intangible service element of their offering to differentiate themselves in the marketplace.
This product–service spectrum and the combinations of products and services that it rep-
resents incorporate strategies designed to increase the value offered to customers through
improved services. However, developing the service element to provide a point of differentiation
is not always successful, because it can create price competition. As prices drop, offerings
become commoditized and customers may find it difficult to see the value offered by competing
firms. To avoid this, some vendors develop a third approach based around improving customer
experience. The customer experience strategy is not based on either the tangible or intangible
attributes of brands, but refers to the memories and fantasies that individuals retain or imag-
ine as a result of their interaction with an offering (Tynan and McKechnie, 2009). Memories of
experiences related to product usage, events, visits, or activities are internalized, unlike prod-
ucts and services, which are generally external to each person. Indeed, the idea that people
consume emotions is recognized as an important and influential aspect of the marketing disci-
pline (Holbrook and Hirschman, 1982). The memories and fantasies concept is best illustrated
through the activities of theme and leisure parks. (For more information on managing customer
experiences, see Chapter 15.)
The Three Levels of a Proposition

When people buy propositions, they are not only buying the simple functional aspect that a
proposition offers; there are also other factors involved in the purchase. For example, the taste
of the pralines is an important benefit arising from, say, the purchase of a box of chocolates.
However, in addition to this core benefit, people are also attracted to the packaging, the price,
Chapter Development
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309
Augmented
proposition
Embodied
proposition
Core
proposition
Figure 8.2
The three elements of a proposition
the flavours of the chocolate, and some of the psychosocial associations that we have learned
about a brand. For example, boutique British luxury chocolatier Hotel Chocolat seeks to make
chocolate exciting again and hence to provide customers with a level of psychosocial satisfac-
tion. To understand the different elements and benefits that make up a total proposition, we refer
to three different proposition components: the core proposition; the embodied proposition; and
the augmented proposition (see Figure 8.2):
■ The core proposition consists of the core benefit or service. This may be a functional benefit
in terms of what the offering will enable you to do, or it may be an emotional benefit in terms
of how the product or service will make you feel. Cars provide transportation and a means of
self-expression. Cameras make memories by recording a scene, person, or object.
■ The embodied proposition consists of the physical good or delivered service that provides
the expected benefit. It consists of many factors, for example the features and capabilities,
the durability, the design, the packaging, and the brand name. Cars are supplied with differ-
ent styles, engines, seats, colours, and boot space; digital cameras are offered with a variety
of picture qualities, screen sizes, pixels, zoom and telephoto features, editing, and relay facili-
ties.
■ The augmented proposition consists of the embodied offering plus all those other factors
that are necessary to support the purchase and any post-purchase activities, such as credit
and finance, training, delivery, installation, guarantees, and the overall perception of customer
service.
When these levels are brought together, it is hoped that they will provide customers with a
reason to buy and keep buying. Each individual combination or bundle of benefits constitutes
added value and serves to differentiate, for example, one sports car from another sports car,
or one disposable camera from another. Marketing strategies should be designed around the
actual and augmented propositions, because it is through these that competition occurs and
people are able to understand how one disposable camera differs from another.
Understanding what a brand is to its customers and how they experience the brand is vitally
important. Pepsi’s battle with Coca-Cola during the 1960s and 1970s saw it gradually reduce
Coke’s dominant market share. Famously, the battle culminated in 1985 when Coke abandoned
its original recipe and introduced New Coke, a sweeter formulation designed to attract Pepsi’s
young market. Coke’s customers boycotted New Coke, there was public outrage, and Pepsi
310 1 > Managing
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temporarily became market leader. New Coke was soon dropped, and the original was brought
back and relaunched as Classic Cola, re-establishing its credentials and retrieving the market-
leading spot. The problem was that Coke had not appreciated the value that the proposition as
a whole represented to its primary customers. Customers were consuming more than only the
drink itself; rather, the sum of the core, embodied, and augmented propositions, encapsulated
as the brand Coca-Cola, drew passion from its customers and market researchers had over-
looked this when searching for a means to stop Pepsi’s progress. (See Market Insight 8.1 for a
discussion of the three proposition elements in relation to French perfume brand Chanel.)
Market Insight 8.1

Chanel No.5: Iconic on So Many Levels
Chanel No.5 is perhaps the most iconic fragrance of Catherine Deneuve in the 1970s and Carole Bouquet
all time. Launched in 1921, the ‘woman’s perfume in the 1980s, Australian Oscar winner Nicole Kidman
with a woman’s scent’, invented by Gabrielle ‘Coco’ in 2004, and Brazilian supermodel Gisele Bündchen
Chanel, has notes of jasmine, rose, sandalwood, in 2014. The Kidman ad—which was really more of
and vanilla. With No.5, Chanel pioneered the use of a mini-film, at 4 minutes in length—was the world’s
combining multiple scents into one fragrance. Coco most expensive advertising campaign, costing a
Chanel popularized the brand by holding dinners reputed US$18 million to make, of which Kidman
in Parisian restaurants, inviting her high-society was paid $2 million. Some 95 years after No.5 was
friends and spraying them all with it (she called them launched, Chanel launched No.5 L’Eau in autumn
‘tastemakers’). As curious passers-by asked what the 2016, just in time for Christmas. This time the
smell was, a brand was born. campaign was fronted by Lily-Rose Depp, daughter
of French singer and actor Vanessa Paradis, who
A key success factor for a fragrance is how customers had starred in a Chanel ad in 1990. The fragrance,
feel about the experience of wearing it. Consumers aimed at extending the No.5 brand to young women,
want a scent that is compelling, lingers on their helped to increase sales of the No.5 range by around
skin, and makes them feel special. Charles Revson, 20 per cent.
founder of cosmetics firm Revlon, sums it up in his
oft-quoted words: ‘In the factory we make cosmetics, Sources: Anon. (2011); Edmond-Sargeant (2014); Anon. (2015a);
in the drugstore we sell hope.’ Clearly, Revson Connell (2016); Ljubisavljevic (2016); Johnston (2017).
understood the importance of improving the wearer’s
self-concept as critical to making the sale. According
to psychologists, fragrances create this sense of
feeling special by inspiring the imagination and evoking
emotions, either by transporting the wearer into a past
pleasant memory or by prompting a vision of the future
for the wearer.
Another way of making the wearer feel special is via

celebrity endorsement. The No.5 brand has long
been associated with some of the world’s most
glamorous women. Marilyn Monroe gave the brand
a massive unsolicited boost in 1955 when she
famously responded, in an interview, that she wore Lily-Rose Depp, daughter of Vanessa Paradis,
only Chanel No.5 to bed. Since then, notable names fronts the Chanel No.5 campaign in 2016
advertising the brand have included French actors Source: Image courtesy of The Advertising Archives.
Chapter Development
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311
Market Insight 8.1

continued
This market insight describes how an offering was packaging, the user’s association with the brand
developed and came to be perceived as one of name, and the design of the bottle. The augmented
the world’s finest fragrances. We can consider the proposition relates to the process of obtaining the No.5
core proposition to be the benefits derived from brand, the ad campaign, the celebrity with whom it is
wearing a scent, including the feeling of being special associated, and its availability, often through exclusive
or improving one’s self-concept. The embodied retail outlets such as airport duty-free shops and
proposition consists of the liquid itself, its colour, its department stores, as well as specialist perfumeries.
Related Topics
proposition levels; branding; word of mouth; opinion leaders; celebrity endorsement
1 How have the offering’s origins affected what extent did the extension from the No.5
consumer perceptions of the No.5 brand? brand help or hinder this success?
2 Why do you think the Chanel No.5 L’Eau brand 3 How might the Chanel No.5 offering be further
was so successful with young women and to developed?
The development of the Internet, social media, and other digital technologies have impacted
on the nature of the offering and the benefits accruing from using it. This has opened up oppor-
tunities for organizations to redefine their core and actual propositions, often by supplementing
them with ‘information’ about the offering, such as white papers designed to engage website
visitors with the brand. Another approach has been to transform current offerings into digital
offerings, for example Netflix and video streaming, as opposed to DVDs or Blu-ray discs. In the
software industry, the Internet has opened up the possibility of companies paying a subscription
to buy centrally hosted software services—known as software as a service (SaaS)—rather than
buying the software itself and hosting it on their own systems.
There are a number of ways in which digital value can help to augment the proposition
(Chaffey et al., 2009). This can be done by coordinating activities to engage the customer through
an increasingly digital purchase journey, harnessing content to empower the consumer to build
their own identity, recognizing the need to think like a multimedia publisher, and plotting how to
gather and use the increasing amount of digital data available (Edelman, 2010). For example,
many companies provide evidence of the awards they have won, whereas others parade testi-
monials, case studies, white papers, endorsements, and customer comments, all as part of a
content marketing strategy. These are designed to provide credibility, reduce risk, and enable
people to engage with or purchase a brand. It is important at this stage to point out that most
of the costs associated with the development of a new proposition are the result of the design
of the proposition. In other words, getting the design of a proposition wrong at the beginning of
312 1 > Managing
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the new proposition development process can be very costly. Joint working between marketing
and research and development (R&D) is therefore important (Hise et al., 1990) (see Research
Insight 8.1). There is also increasing recognition of the need for customer input into the design
and development of new products (see Market Insight 8.2), sometimes referred to as co-pro-
duction, or co-creation.
Visit the online resources and complete Internet Activity 8.1 to learn more about how HSBC
approaches new product development.
Market Insight 8.2

Battle of the Superjumbos
In the global aerospace industry for large, wide- Boeing had cumulative orders for 1,294 of the planes,
bodied passenger planes, two companies battle it of which it had delivered 636.
out in a perpetual duopoly war for customers. But
they have completely different visions of what their In contrast, the cost to Airbus of developing the
customers want. Boeing predicted that people would A380, over ten years, was reputedly around $25
want to fly directly to a wide and growing range of billion—somewhat cheaper than Boeing—and Airbus
destinations and developed the 787 Dreamliner, whilst delivered the first plane to Singapore Airlines in 2007,
Airbus predicted that people would want to fly from only two years late. It used four teams of designers,
one major hub airport to another (for example London one from each of its partners: France’s Aérospatiale;
Heathrow to Singapore or Dubai) and developed the Deutsche Aerospace; British Aerospace; and Spain’s
A380. Accordingly, the two companies developed CASA. Each plane sells at $414 million and uses a
completely different planes. The largest Airbus A380 double-decker design. Airbus has forecast that the
could seat up to 840 passengers and had a range market for very large planes between 2017 and 2036
of 15,000 km, whilst the Dreamliner had an initial will be around 1,184; By late 2017, it had cumulative
seat capacity of 250 (now up to 323) and a range orders for 539 of its A380s, of which 222 had been
of 15,200 km. Importantly, though, the Dreamliner delivered.
has lower fuel costs, with a higher fuel efficiency
In the battle for the world’s most popular superjumbo,
(0.05–0.12 km/litre).
Boeing is winning, given the size of the order book (by
Boeing spent around eight years developing the 787 volume and total revenue). Its bet on the popularity of
Dreamliner at a reputed cost of US$32 billion. It finally point-to-point routes appears to have been correct.
entered service in 2010, but analysts believe that Although the A380 order book had been slow since
it will not recoup its investment until 2019 or after 2015, an order by Emirates for six A380s per year
the first 1,000 planes have been sold. Each plane for between nine and ten years in 2018 indicates the
sells at around $225 million (for the 787–8 version). market for very large aircraft (with more than 450 seats)
Customers were involved at various levels of the will continue. With the world’s major airports becoming
development process. Major airlines (for example increasingly congested, Airbus continue to hope that
All Nippon Airways) were involved in the design and airlines will shift to buying the bigger A380s rather than
specification, major suppliers from around the world buying more 787s.
had input into plane design and production (for
Sources: Ausick (2014, 2015); Armitage (2015); Hepher (2018);
example Rolls-Royce, Saab, Mitsubishi, KAL-ASD),
https://www.airbus.com/aircraft/market/orders-deliveries.html;
and even passengers could input their views through
http://investors.boeing.com/investors/financial-reports/default.
a dedicated website. When the first Dreamliner 787
aspx; https://www.airbus.com/aircraft/market/global-market-
was delivered, it was three years late. By late 2017,
forecast.html
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Market Insight 8.2

continued
This market insight describes rival proposition product using input from suppliers, airlines, and even
development for the two major companies operating passengers. Airbus initially consulted with airlines
in the duopolistic global aerospace market. It and developed its product from its supplier-partner
highlights how the two companies developed owners. The case highlights the difficulties of, and
opposing ambitious visions of the future of the risks associated with, managing large aerospace
aerospace market and developed their products, development projects, especially given that both
the A380 (Airbus) and the Dreamliner 787 (Boeing), companies’ products were delivered late (and billions
accordingly. Boeing co-created the design of its of dollars over budget).
Related Topics
new product development; co-creation; product design; time to market
1 Why do you think it took so long for both 3 What might the next generation of plane look
companies to develop their rival propositions? like in 2036?
2 What customer needs did they incorporate into

the design of their propositions?
Hise, R.T., O’Neal, L., Parasuraman, A., and McNeal, J.U. (1990). Marketing/R&D
interaction in new product development: implications for new product success rates.
Journal of Product Innovation Management, 7(2), 142–55.
This article explains the importance of the interaction between marketing and R&D in new product
development. The authors report results of their analysis of the new product development procedures of 252
large manufacturing companies, concluding that joint working between marketing and R&D during the design
stage of new products is a key factor in explaining success.
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Classifying Physical Propositions

There are two main ways of classifying physical offerings: as consumer offerings; and as busi-
ness-to-business (B2B) offerings. Consumers buy offerings that satisfy personal and family
needs; customers buy industrial and business offerings either as a part of the business opera-
tions or to make other goods for resale. Some offerings, such as light bulbs and toilet tissue, are
bought by both consumers and businesses.
Consumer Goods
The first way of classifying consumer goods is to consider them in terms of their durability.
Durable goods, such as bicycles, music players, and refrigerators, can be used repeatedly
and provide benefits each time they are used. Non-durable goods, such as yoghurt and
newspapers, have a limited duration (that is, they are perishable) and are often used only once.
Services are intangible propositions that cannot be stored (see Chapter 15).
Durable goods often require the purchaser to have high levels of involvement in the purchase
decision. There is a high perceived risk in these decisions, and so consumers often spend time,
care, and energy searching, formulating, and making the ‘right’ decision (see Chapter 2). As
a result, marketers should seek to understand these patterns of behaviour, provide and make
accessible sufficient amounts of appropriate information, and ensure that there is the right type
of service and support necessary to meet the needs of the target market.
Non-durable goods—typically, food and grocery items—reflect low levels of involvement and
buyers are seldom concerned what product they buy. Risk is seen to be low and so there is little
need to shop around for the best possible price. Buyers may buy on the basis of availability,
price, habit, or brand experience.
A deeper and more meaningful way of classifying consumer goods is to consider how and
where consumers buy them. In Chapter 2, we considered how consumers make purchases.
In particular, we looked at extensive problem-solving, limited problem-solving, and
routinized response behaviour. Classifying products according to the behaviour consum-
ers demonstrate when buying them enables marketing managers to develop more appropriate
marketing strategies. Four main behavioural categories have been established: convenience
products; shopping products; speciality products; and unsought products.
Convenience products are non-durable and are bought because the consumer does not
want to put very much effort, if any, into the buying decision. Routinized response behaviour cor-
responds most closely to convenience products because they are bought frequently and are inex-
pensive. Most decisions in this category are made habitually, and if the usual brand is unavailable, an
alternative brand is selected—or none at all if it is seen to be too inconvenient to visit another store.
Convenience products can be subdivided into three further categories: staples; impulse; and
emergency products (see Table 8.1). All of these types of convenience product indicate that
different marketing strategies might be required to make each work. However, one element
common to all is distribution. If the product is not available when an emergency arises, or when
a consumer is waiting to pay or walking around the supermarket, then a sale cannot be made.
Pricing is also important, because customers know the expected price of convenience items
and may well switch brands if price exceeds that of the competition.
Shopping products are not bought as frequently as convenience products. Consequently,
consumers do not always have sufficient up-to-date information to make buying decisions. The
Chapter Development
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Table 8.1 Categories of convenience product
Type of convenience Explanation

product
Staple products Staples are available almost everywhere. They include groceries (e.g.
bread, milk, soft drinks, breakfast cereals) and petrol. They are bought
frequently and habitually. For example, rice is a staple in the Far East,
wheat in Europe, and corn in Latin America.
Impulse products These are offerings that consumers may not plan to buy, but are
persuaded to pick up—particularly when they see point-of-sale advertising
materials for them. Typically, these items are located close to tills in
supermarkets, so that customers waiting to be served are attracted to
them. Chewing gum, chocolate bars, and magazines are typical impulse
purchases.
Emergency products Bought when necessary, these products represent a solution to buyers,
who are hence less intent on obtaining the right quality or image-related
offering. Examples might be buying a bandage when someone is cut or
injured, finding a locksmith when your house key stops working, or (in a
business-to-business context) purchasing new plant and machinery when
the old machinery suddenly stops working.
purchase of shopping products such as furniture, electrical appliances, jewellery, and mobile
phones requires some search for information, if only to explore the latest features. Consumers
give time and effort to planning these purchases, because the level of risk is more substantial
than that associated with convenience products. They will visit several stores, and use online
and word-of-mouth communications for price comparisons, product information, and product
reviews. Not surprisingly, levels of brand loyalty are quite low, because consumers switch brands
to get the level of functionality and overall value they need.
The marketing strategies followed by manufacturers—and, to some extent, retailers—need to
accommodate the characteristics of limited problem solving. Shopping products do not require
the mass distribution strategies associated with convenience products. Here, a selective dis-
tribution strategy is required because, although the volume of purchases is lower and margins
are higher, consumers frequently want the specialist advice offered by knowledgeable expert
retailers.
Speciality products represent high-risk purchases, are very expensive, are bought infre-
quently (often only once), and correspond to extended problem-solving. People plan these pur-
chases carefully, search intensively for information on the offering, and are often concerned only
with a particular brand and in finding a way of gaining access to an outlet that can supply it. It is
possible to find speciality products in many areas, for example limited-edition sports equipment
(Nedstar the Dream hockey sticks), rare paintings and artwork at auction (Da Vinci, Chagall),
watches (Raymond Weil), pens (Montblanc), haute couture (Chanel), Michelin-starred restaurants
(Manoir Restaurant Inter Scaldes in Holland), and multi-destination holidays (TUI). All have unique
characteristics—which, for buyers, means that there are few, if any, substitute offerings worth
considering. Marketing strategies to support speciality products focus on a limited number of
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distribution outlets. Advertising seeks to establish the brand name and values. The few retailers
appointed to carry the item require detailed training and support so that the buyer experiences
high levels of customer service and associated prestige throughout the purchase process.
Raymond Weil watches, a speciality product

Source: © Danuta Hyniewska/age footstock.
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Unsought products refer to offerings that people do not normally anticipate buying nor indeed
want to buy. Very often, consumers have little knowledge or awareness of the brands in the mar-
ketplace and are motivated to find out about them only when a specific need arises. Examples
include repair services for cracked car windscreens (Autoglass®) and funeral services (Cooperative
Funeral Care). In a similar way, life insurance was once sold through heavily pressurized door-to-
door selling because people did not see the need to buy it. That has changed with legislation, but
double-glazing, home-cleaning services, and timeshare holidays are still commonly sold in this way.
Business Products
Unlike some consumer products, bought for personal and psychological rewards, business
propositions are generally bought on a rational basis to meet organizational goals. These are
either used to enable the organization to function smoothly or they form an integral part of
the products, processes, and services supplied by the organization for resale. Like consumer
goods, business propositions can also be classified according to how (organizational) custom-
ers use them. The six main categories are as follows:
■ Equipment goods cover two main areas concerning the everyday operations of the organiza-
tion: capital equipment goods and accessory equipment goods:
■ Capital equipment goods are buildings, heavy plant, and factory equipment required
to build or assemble products. They also include major government schemes to build pris-
ons, highways, and bridges. Whatever their nature, they require substantial investment,
are subject to long planning processes, are often one-off long-term purchases, and require
the involvement of many different people and groups in the procurement process.
■ Accessory equipment goods should support the key operational processes and activities
of the organization. Typically, they include photocopiers, computers, stationery, and office fur-
niture. These items cost less than capital equipment goods, are not expected to last as long
as capital equipment goods, and are often portable, rather than fixed. Whereas a poor capital
equipment purchase may put the entire organization at risk, a poor accessory purchase frus-
trates and slows down activities, but is unlikely to threaten the existence of the organization.
■ Raw materials are the basic materials used to produce finished goods. Minerals, chemi-
cals, timber, and food staples, such as grain, vegetables, fruit, meat, and fish, are extracted,
grown, or farmed as necessary and transported to organizations that process them into fin-
ished or semi-finished products. They are bought in large quantities and buyers often negoti-
ate heavily on price. However, these buying decisions can also be influenced by non-product
factors, such as length of relationship, speed of delivery, service quality, and credit facilities.
■ Semi-finished goods are raw materials that have been converted into a temporary state. For
example, iron ore is converted into metal sheets that can be used by car and aircraft manu-
facturers, washing machines, and building contractors.
■ Maintenance, repair, and operating (MRO) goods are those products, other than raw
materials, that are necessary to ensure that the organization continues to function. Mainte-
nance and repair goods, such as nuts and bolts, light bulbs, and cleaning supplies are used
to maintain the capital and accessory equipment goods. Operating supplies are not directly
involved in the production of finished goods nor are they a constituent part, but oil for lubri-
cating machinery and office stationery (including USB drives and paperclips) are all necessary
to keep the organization functioning.
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■ Component parts are finished complete parts, bought from other organizations, which com-
ponents are then incorporated directly into the finished product. So, for example, Ford will
buy in finished headlight assemblies and mount them directly into its Mustang, Vignale, or
Transit models, as appropriate.
■ Business services are intangible services used to enhance the operational aspects of organiza-
tions. Most commonly, these include management consultancy, finance, and accounting, includ-
ing auditing, legal, marketing research, information systems, and marketing communications.
Product Range, Line, and Mix

To meet the needs of a number of different target markets, most organizations offer a variety of
products and services. Although some offer an assortment based on an individual core product, it is
rare that an organization offers a single product—although there are examples, including Crocs Inc.
(footwear), Bogdahn International GmbH (flexi dog leashes), and the WD-40 Company Inc. (lubri-
cant). Consumer organizations, such as Gillette, offer a range of shaving products; industrial orga-
nizations, such as Oliver Valves, offer a range of valves for the offshore and onshore petrochemical,
gas, and power-generation industries. To make sense of, and understand, the relationships that
one set of products have with another, a variety of terms have emerged. Table 8.2 sets out these
different terms using South Korean conglomerate Samsung Electronics Co. Ltd as an example.
Visit the online resources and complete Internet Activity 8.2 to learn more about the terminology
relating to a product range.
Table 8.2 Product terms in relation to Samsung
Product term Explanation
Product item A distinct single product within a product line, e.g. Samsung’s Galaxy S8 +
Product line A group of closely related products—related through technical, marketing, or user
considerations, e.g. all three Galaxy S8 phones
Product mix The total number of product lines offered by an organization. At Samsung, this
would mean all the mobile devices, televisions, print solutions, domestic appliances,
cameras, and accessories that the company offers, as well as business-to-business
products, including microchips, semiconductors, and memory and hard-drive devices.
Product line The number of products available in a product line, e.g. the three products available
length within the Samsung Galaxy S8 range (S8+, S8 + dual SIM)
Product line The number of variations available within a product line, e.g. in the UK, the five
depth trim colours (midnight black orchid grey, coral blue, arctic silver, rose pink) of the
Samsung Galaxy S8 +
Product mix width The number of product lines within a product mix
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Product Life Cycles

Underpinning the concept of the product life cycle is the belief that offerings move through
a sequential, predetermined pattern of development similar to the biological path that life forms
follow. This pathway, known as the product life cycle, consists of five distinct stages—namely,
development, introduction, growth, maturity, and decline. Sales and profits rise and fall across
the various life stages of the product, as shown in Figure 8.3.
Products move through an overall cycle that consists of different stages. Speed of movement
through the stages varies, but each product has a limited lifespan. Although the life of a product
can be extended, for example by introducing new ways of using the product, finding new users,
and developing new attributes, the majority of products have a finite period during which man-
agement can maximize the returns on the investment made. In Sweden, mobile phones have an
overall lifespan of 9–12 months, so it is important to extend the sales period, especially through
maturity. Apple and others do this through ‘appstores’. The firm offers existing iPhone custom-
ers the possibility of purchasing additional applications and games (Leistén and Nilsson, 2009).
There is some evidence (from Germany) that electronic goods manufacturers are deliberately
shortening product life cycles, thereby adding built-in obsolescence (Ala-Kurikka, 2015).
The average lifespan of an Android smartphone is about 21 months, because the battery dete-
riorates (Jones, 2017).
Just as the nature and expectations of customer groups differ by stage, so do the competi-
tive conditions. This means that different marketing strategies, relating to the offering and its
distribution, pricing, and promotion, need to be deployed at particular times so as to maximize
financial returns.
Sales
Sales and profits
Profits
0
Time
Development Introduction Growth Maturity Decline
Figure 8.3
The product life cycle
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The product life cycle concept does not apply to all offerings in the same way. For example,
some offerings reach the end of the introduction stage and then die as it becomes clear that
there is no market to sustain them. Moore (2014) termed this ‘crossing the chasm’. Some
products follow the path into decline and then hang around, sustained by heavy advertis-
ing and sales promotions, or they are recycled back into the growth stage by repositioning
activities. Some products grow very quickly and then fade away rapidly. Examples of such fad
products include the Rubik’s Cube in the 1980s, the Furby furry toy in the 1990s, and low-rise
jeans in the 2000s.
The brands of many fast-moving consumer goods (FMCGs) are sustained through a super-
market listing. Terminating a listed brand and losing the shelf space to a competitor is difficult to
accept simply because getting the listing in the first place is so hard and because of the need to
recoup the substantial investment put into the brand since its conception. Supermarkets often
delist an underperforming brand unless the brand owner presents a suitable variant capable of
replacing the ailing brand (Clark, 2009).
When discussing the product life cycle, care should be taken to clarify exactly what is being
described. The concept can apply to a product class (computers), a product form (a tablet), or
a brand (Lenovo). The shape of the curve varies, with product classes having the longest cycle
because the mature stage is often extended. Product forms tend to comply most closely with
the traditional cycle shape, whereas brand cycles tend to be the shortest. This is because they
are subject to competitive forces and sudden change. So, whereas mid-sized coupés (prod-
uct form) enjoyed a long period of success, brands such as the Alfa Brera had shorter cycles
(2005–10), and have been replaced by cars that have more contemporary designs and features.
For example, Alfa replaced the Brera with a derivative of the Alfa Romeo Giulia, launched in 2018
(Vellequette, 2017).
Is the Concept of the Product Life Cycle Useful?

The product life cycle is a well-known and popular concept, and is a useful means of explain-
ing the broad path a product or brand has taken. It also clearly sets out that no product,
service, or brand lasts forever. In principle, the concept allows marketing managers to adapt
strategies and tactics to meet the needs of evolving conditions and circumstances. In this
sense, it is clear, simple, and predictable. However, in practice, the concept is of limited use.
For example, one problem is identifying which stage an offering has reached in the cycle.
Some brands do not follow the classical S-shaped curve (see Figure 8.4), but rise steeply
and then fall away immediately after sales reach a crest. These shapes reflect a consumer fad
when rapid obsolescence occurs, or there is a craze for a particular piece of merchandise,
typified by fashion clothing, skateboards, and toys. Another possible form is when demand
for a brand is rejuvenated. One example is Ford’s redevelopment of the Ford Mustang, now
on sale in Europe, as well as in the United States. Another is the surprise resurgence of vinyl
records in the UK and United States. GZ Media, a Czech firm, produced 24 million vinyl discs
in 2017—about 60 per cent of global demand and nearly double what it produced in 1987
(Anon., 2017). So great care should be taken when applying the concept of the product life
cycle, because while it is helpful as a general way of explaining how brands develop, its role
in commerce and when developing strategy is weak (see Market Insight 8.3). Historical sales
data do not help managers to identify when an offering moves from one stage to another,
which means that it is difficult to forecast sales and hence determine the future shape of the
lifecycle curve.
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Sales and profiles
Lifecycle stage Lifecycle stage

Revival Rapid obsolescence
Figure 8.4
Types of product life cycle
Market Insight 8.3

Fast Fashion: Tailoring the Life Cycle
An unusual aspect of the fashion business—at

least from a marketing perspective—is that, often,
consumers do not stop buying items because clothes
are no longer usable, but because they are no longer
chic. Such artificial obsolescence drives the industry
to continuously (re)create new fashions and styles.
A key success factor in the fashion industry is to
get a new product from the concept stage to sale
more quickly than the competition—known as fast
fashion. Spanish clothing retailer Zara, with more
than 2,200 stores present in 94 countries, pioneered
fast fashion. Whereas fashion lines had previously
been based around spring/summer, autumn/winter Zara’s homepage: the start of the fashion life
collections, Zara developed new styles every five cycle
Source: © Casimiro PT/Shutterstock.com.
weeks, based on the latest fashions displayed on the
world’s runways. This is far ahead of, for example,
H&M’s six-month turnaround. But online stores such of each item’s sales period, to manage the stocking
as ASOS, boohoo, and Missguided are now stealing requirements, and to plan for the introduction of new
a march, taking products from concept to sale in as ranges. For example, in the world of fashion, the
little as a week. following cycle might be evident:
■ Introduction—A new dress is presented online,

All these companies have thousands of product items
on their websites and introduce hundreds of new items given lots of visibility, and is linked directly
each week. ASOS and Missguided offer free shipping through newsletters and social media sites, and
(for orders over £20 and £30, respectively) and free also from the homepage. Some fashion leaders
returns. Zara offers free delivery for orders over £50 adopt the new dress, while digital influencers
and free returns. (such as fashion bloggers) who have been alerted
previously to the launch are given access to
Understanding the principles underpinning the product more detailed information and, in some cases,
life cycle can help these firms to forecast the length samples.
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Market Insight 8.3

continued
■ Growth—Offline articles, online placements, Each of these specific stages of development has
and word of mouth help sales to grow. Stock different characteristics, requiring different business
management is critical to ensure customers are not and marketing approaches. This, in turn, has led to the
disappointed by stock-outs. development of software systems and applications that
are geared to manage the individual characteristics of
■ Maturity—Competition becomes intense and it is
each stage. Importantly, ASOS also operates in the
necessary to remind audiences about the offering
southern hemisphere where seasons are opposite
online. More stock may be required to ensure
to those in the UK, allowing the company to sell its
continuity of supply. For example, a dress from the
products continuously. Product lifecycle management
previous collection may still be selling well. During
(PLM) systems are used to deal with the process of
this stage, the firm may cut the price to clear any
managing the life cycle of a product from its inception
remaining stock or sell the dresses as job lots
through design and manufacture, to service, delivery,
through wholesalers, outlet malls, or auctioneers.
and returns, providing marketing managers with an
Selling the excess stock in this way provides an
item’s sales history and facilities to integrate order
opportunity to make space in the warehouse for
tracking, invoicing, and operations activities. It looks
new (more profitable) offerings.
like fast fashion is getting even faster!
■ Decline—The dress ceases to be fashionable and is
Sources: Briggs (2014); https://www.inditex.com/about-us/
replaced with a new design.
our-brands/zara
This market insight describes how the concept of the also illustrates how important the supply chain is in
product life cycle operates in fashion retailing, with getting products to market quickly and how this critical
specific reference to both online and offline firms that success factor is linked to the product’s life cycle more
dominate the European market today. The insight generally.
Related Topics
fashion retailing; multichannel marketing; supply chain management
1 How might, for example, ASOS’s marketing another country of your choice. What do all
activities change as it moves into the mature these companies have in common?
stage?
3 How might customers’ needs change over the
2 Use a search engine to find the leading online next five years?
fashion companies in Australia, Canada, and
The product life cycle works reasonably well as a model when the environment is relatively
stable and not subject to dynamic swings or short-lived customer preferences. However, con-
temporary marketing managers are not concerned where their brand is within the product life
cycle; there are many other more meaningful ways and metrics with which they can understand
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the competitive strength and development of a brand (for example competitive benchmarking,
brand health studies). The concept of the product life cycle has also been criticized for giving
managers tunnel vision, because they assume that a brand will follow a pre-ordained advance
along the curve when, in fact, a product can fail at any stage (Moon, 2005).
Service-Dominant Logic
Some researchers believe that products alone are not capable of meeting all of a customer’s
needs (Grönroos, 2009), particularly in B2B markets. For business customers to derive value
from a product, they need to use it, and that often requires a level of integration or coordination
with a supplier’s processes and systems. This requirement, it is argued, suggests the need for a
proposition with characteristics more like those of a service than a core product offering. There
is growing recognition that satisfying a customers’ needs is inherently a service—that is, sell-
ing bottled water as a physical product is really the offering of a thirst-quenching service. Since
marketing is a customer management process, this entails not only proposing how an offering
might be of value to customers, but also enabling and supporting customers to create the value
they require through their use of the product.
This notion that all propositions really embody a service is referred to as the service-
dominant logic (SDL) approach, and was first proposed by Vargo and Lusch (2004) (see
Chapter 1). The traditional marketing management approach can be considered product-
dominant logic. So if products alone are insufficient to meet customer needs, it is better to
consider services as a more realistic means of understanding how marketing works (see
In more recent work, Vargo and Lusch (2016: 8) have updated their original thinking to develop
11 foundational premises (FPs) about the essentially service-based nature of marketing:
■ FP1—Service is the fundamental basis of exchange.
■ FP2—Indirect exchange masks the fundamental basis of exchange.
■ FP3—Goods are distribution mechanisms for service provision.
Vargo, S.L., and Lusch, R.F. (2004). Evolving to a new dominant logic for marketing.
This article introduces the ideas concerning service-dominant logic. It sets out the conceptual underpinning
of the approach by tracking back and considering previous major marketing approaches, outlining eight
foundational premises concerning how the proposition in marketing is inherently a service and affirming that
this requires a reconsideration of how marketing should be undertaken.
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■ FP4—Operant resources [that is, knowledge and skills] are the fundamental source of strate-
gic benefit.
■ FP5—All economies are service economies.
■ FP6—Value is cocreated by multiple actors [for example organizations], always including the
beneficiary.
■ FP7—Actors [that is, organizations] cannot deliver value but can participate in the creation
and offering of value propositions.
■ FP8—A service-centered view is inherently beneficiary oriented and relational.
■ FP9—All social and economic actors [for example organizations] are resource integrators.
■ FP10—Value is always uniquely and phenomenologically determined by the beneficiary.
■ FP11—Value cocreation is coordinated through actor-generated [for example organization-
generated] institutions and institutional arrangements.
The SDL concept has been criticized for being of little practical use to marketers (O’Shaughnessy
and O’Shaughnessy, 2009), but it has generated important discussions about how organiza-
tions and their customers work together to co-create new propositions and that, regardless of
the physical embodiment of those propositions, they are inherently a service offering. We turn to
how new propositions are developed in the next section.
Developing New Propositions

In this section, we examine the principles and approaches used to innovate and develop new
propositions for both physical (goods) and non-physical (services) propositions.
Developing New Physical Propositions

One of the key points that the concept of the product life cycle tells us is that products do not
last forever; their usefulness diminishes at some point, and eventually nearly all come to an
end and die. There are many reasons for this cycle: technology changes quickly, so products
are developed and adopted faster; life cycles are shortening (see Market Insight 8.3, earlier in
the chapter), and so new products are required faster than before. In addition to this, global
competition means that if an organization is to compete successfully and survive, it needs to
continually offer superior value to its customers. Consequently, a key management task is to
maintain control of the organization’s range or portfolio of products, and to anticipate when
one product has become tired and new ones are necessary to sustain the organization and
help it to grow.
The term ‘new products’ can be misleading. This is because there is a spectrum of newness,
relevant to both the organization and to customers. Some new products might be totally new to
both the organization and the market. For example, the Apple iPod revolutionized the portable
media player market, which had previously been dominated by the Sony Walkman. However,
some new products might be only minor adaptations that have no real impact on a market other
than offering an interesting new feature (for example new colours, flavours, and pack sizes).
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Unfortunately, ‘new’ propositions do not appear at the click of a marketer’s fingers; rather,
they have to be considered, planned, developed, and carefully introduced to the market. To
ensure a stream of new propositions, organizations have three main options:
■ buy in finished products from other suppliers, perhaps from other parts of the world, or li-
cense the use of other products for specific periods of time (for example Samsung’s licensing
of its processor technology);
■ develop products through collaboration with suppliers or even competitors, for example as
Sony tried to do, but failed, with Ericsson in the mobile phone business (Parnell, 2012); or
■ develop new products internally, often through R&D departments or by adapting current
products with minor design and engineering changes (for example as Dyson did with its dual-
cyclone vacuum cleaner).
Whatever the preferred route, each necessitates a procedure or development pattern through
which the new product can be brought to the market. There is no uniform process to new
product development (Ozer, 2003); many approaches exist and the procedures an organization
adopts reflect its attitude to risk, its culture, its strategy, the proposition, and the market, as well
as—above all else—its approach to the development of customer relationships.
The success rate of new products is consistently poor. About 95 per cent of new products
fail, according to Harvard Business School’s Clay Christensen, often because firms are using
inadequate segmentation approaches (Nobel, 2011). According to Drucker (1985), there are
three main reasons for this:
1 No market exists for the product. For example the Sinclair C5 (a one-person electric car)
famously launched in 1985 in the UK and was swiftly withdrawn nine months later when the
company folded (Roberts, 2015).
2 There is a market need, but the product fails to meet customer requirements, for example
Frito-Lay’s WOW! fat-free crisps, made with olestra, launched in the United States in 1998,
but caused gastrointestinal problems in consumers and were quietly withdrawn in 2004
(Glass, 2012).
3 The product’s ability to meet the market need, although satisfactory, is not adequately com-
municated to the target market, for example Buckler, a very low alcohol beer in the Dutch
market in the 1980s (Anon., n.d.). Ironically, low- and no-alcohol beer sales have now taken
off, a record 18.2 million litres of it selling in the UK in 2017 (Woolfson, 2017).
Successful new propositions are developed on the basis of understanding customers’ needs and
competitors’ product successes and future intentions, and partly by developing the technology
to meet those identified needs. For example, when an Asian entrant to the US market for medical
devices and capital equipment quickly established itself, it was thought that its lower prices were
the main reason for its success. However, when a major manufacturer reviewed its own proposi-
tion, it also analysed customer needs and the nature of the competition. The results showed that
the US manufacturer’s products were perceived to lag slightly behind those of its competitor on
several critical attributes that mattered more to customers than had previously been thought. The
competitor’s product also cost less to manufacture and the competitor had considerable room to
lower its costs further. The US manufacturer’s response was to close the cost gap by generating
ideas that bridged 80 per cent of the cost disadvantage. This was all achieved without compro-
mising those features that users valued (Narayanan, Padhi, and Williams, 2012).
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Idea generation
Screening
Business plans and

market analysis
Product
development
and selection
Test marketing
Commercialization
Figure 8.5
Stages within the new product development process
The development of new propositions is a complex and high-risk task, so organizations usu-
ally adopt a procedural approach. The procedure consists of several phases (stages and gates)
that enable progress to be monitored, test trials to be conducted, and the results analysed
before there is any commitment to the market. The most common new product development
process (NPDP) is set out in Figure 8.5.
The NPDP presented in Figure 8.5 should be considered a generalization. In practice, actions
can overlap, or even occur out of sequence, depending on the speed, complexity, and number
of people or organizations involved in the NPDP. Apart from some minor issues, the process is
the same when developing new propositions for both consumer and business markets. The
process is generally perceived to be linear (but is not required to be such) in that new proposition
development occurs only after managers are satisfied with progress of the development project
at each stage. Therefore there is a go–no-go decision at each stage (that is, a gate). This process
is often referred to as the stage–gate model.
Visit the online resources and follow the web link to the Product Development and Management
Association (PDMA) to learn more about the professional development, information, collaboration,
and promotion of new product development and management.
Idea Generation
Ideas can be generated through customers, competitors (through website and sales litera-
ture analysis), market research data (such as reports), social media analyses, R&D, cus-
tomer service employees, the sales force, project development teams, and secondary data
sources such as sales records. What this means is that organizations should foster a cor-
porate culture that encourages creativity and supports people when they bring forward new
ideas for product enhancements and other improvements. 3M famously allows its engineers
and scientists to spend 15 per cent of their time pursuing projects of their own choice, and
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30 per cent of a division’s revenue must come from products developed within the previous
four years. Over the years, the company has introduced such pioneering products as the
Post-it® note, Scotch™ tape, and the first electronic stethoscope with Bluetooth technol-
ogy. To encourage resourcefulness in the company, 3M allows employees to bid for seed
capital to form their own venture teams, and allows engineers and scientists to obtain the
same level of prestige and compensation as corporate management (Govindarajan and
Srinivas, 2013).
Visit the online resources and complete Internet Activity 8.3 to learn more about how two
leading FMCG companies approach the NPDP.
Screening
All ideas need to be assessed so that only those that meet predetermined criteria are advanced.
Key criteria include the fit between the proposed new idea and the overall corporate strategy
and objectives. Another consideration involves the views of customers, which can be deter-
mined using concept testing. Other approaches consider how the market will react to the idea
and what effort the organization will need to make if the offering is to be brought to market
successfully. Whatever approaches are used, screening must be a separate activity to the idea-
generation stage. If it is not, creativity might be impaired.
Business Planning and Market Analysis

The development of a business plan is crucial, simply because it will indicate the potential and
relative profitability of the product. To prepare the plan, important information about the size,
shape, and dynamics of the market should be determined. The resultant profitability forecasts
will be significant in determining how and when the product will be developed, if at all.
Product Development and Selection

In many organizations, several product ideas are considered simultaneously. It is management’s
task to select those that have commercial potential and are in the best interests of the organiza-
tion and its longer-term strategy, goals, and use of resources. There is a trade-off between the
need to test and reduce risk, and the need to go to market and drive income to get a return on
the investment committed to the new proposition. This phase is expensive, so only a limited
number of projects are allowed to proceed into development. Prototypes and test versions are
developed for those projects that are selected for further development. These are then subjected
to functional performance tests, design revisions, manufacturing requirements analysis, distribu-
tion analysis, and a multitude of other testing procedures.
Test Marketing
Before committing a new product to a market, most organizations decide to test market the
finished product (see also Chapter 3). By piloting and testing the product under controlled real-
market conditions, many of the genuine issues as perceived by customers can be raised and
resolved, while minimizing any damage or risk to the organization and the brand. Test market-
ing can be undertaken using a particular geographical region or specific number of customer
locations. For example, Nestlé was the first company in the world to commercialize new ‘ruby’
chocolate (a naturally pink chocolate) in its KitKat bars, launching the product first in Japan for
Valentine’s Day (Rodionova, 2018).
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The intention of test marketing is to evaluate the product and the whole marketing programme
under real working conditions. Test marketing (including field trials) enables the product and
marketing plan to be refined or adapted in the light of market reaction, but before release to the
whole market. Clydesdale and Yorkshire Banking Group (CYBG) have developed what it calls the
‘Studio B’ concept—essentially, a ‘customer lab’ resembling a high-spec retail store, complete
with facial recognition and robot technology. In this way, CYBG hopes to use customer interac-
tion with these technologies to develop the next generation of banking services (Page, 2018).
It is vital for organizations to set up a system to measure the success or failure of new product
development. Criteria for measuring success and failure include (but are not limited to) measures
based on customer acceptance, financial performance, and product- and firm-level consider-
ations (Griffin and Page, 1993).
■ Customer acceptance measures include:
■ customer acceptance;
■ customer satisfaction;
■ net revenue goals;
■ net market share goals; and
■ net unit sales goals.
■ Financial performance measures include:
■ break-even period;
■ margin goals;
■ profitability goals; and
■ internal rate of return (IRR) or return on investment (ROI).
■ Product-level measures include:
■ development cost;
■ launched on time;
■ product performance level;
■ net quality guidelines; and
■ speed to market.
■ Firm-level measurements include the percentage of sales attained as a proportion of new
products/services.
Commercialization
To commercialize a new product, a launch plan is required. This considers the needs of distribu-
tors, end users, marketing communication agencies, and other relevant stakeholders. The objec-
tive is to schedule all those activities that are required to make the launch successful. These include
communications (to inform audiences of the product’s capabilities, and to position and persuade
potential customers), training, and product support for all customer-facing employees.
Any perceived rigidity in this formal process should be disregarded. Many new offerings come
to market via rather different routes, at different speeds, and at different levels of preparation.
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Developing New Service Propositions

So far, the focus has been on the processes associated with developing new products, without
reference to services. This is mainly because researchers have paid much more attention in the
marketing literature to the development issues associated with products. This has altered in
recent years because many Western economies have become heavily service-oriented.
Möller, Rajala, and Westerlund (2008) have developed ideas based on the logic that value
creation is key to the development of innovative service offerings and concepts. (See Market
Insight 8.4 for an example of how this was done in the gaming sector.) They distinguish three
service innovation strategies:
■ established services within competitive markets;
■ incremental service innovation targeting value-added propositions; and
■ radical service innovation, which aims to produce completely novel offerings.
Market Insight 8.4

Minecraft: The Gamer’s Proposition
The name ‘Minecraft’, broken into its two component Yet such innovative gameplay and freedom is not
syllables, itself embodies the notion of destruction without its disadvantages: players who wish to disturb
for creation. This popular title, based upon games the gameplay experience of other users can do so
such as Dwarf Fortress and Dungeon Keeper, was freely. The destruction of structures built by others with
the brain child of Markus ‘Notch’ Persson. Created explosives, throwing their items into lava, or killing them
using the Java programming language, this sandbox is quite commonplace. YouTube has become a popular
game (in which gamers are free to roam and create place to upload videos of players trolling or disrupting
their own virtual worlds) allows the community not others to the point that they quit the server. Such a
only to create avatars to express themselves within display can put off potential customers and attract
the world, but also to make modifications that impact those who wish to replicate the acts that have been
upon the gameplay itself. Popular mod packs, such displayed—something that in turn will also drive away
as FeedTheBeast, have provided users with a whole current users.
host of free and additional content that ranges from
magic and fantastical lands to technology-based In response to this, the game itself has been
systems. augmented by the community in a post-purchase
fashion. New modifications allow server owners to
The core proposition provides users with entertainment install plug-ins on their worlds, designed to protect user
and emotional stimulation. On top of this, the embodied possessions and minimize the amount of disruption
proposition provides users with a randomly generated that can be caused. These do help to guarantee
world to explore and the ability to interact with other players some element of safety, but also reduce their
players who join, as well as various denizens such as freedom to interact with the world—something that
snowmen, pigs, sheep, cows, and squids. The entire impacts upon the embodied proposition put forward
world is fully destructible and this allows players to and advertised by the developers.
build houses, cities, or anything that their hearts desire.
Such fortifications are necessary for when the sun goes Yet, despite these setbacks, the game continues
down, when enemies such as skeletons and zombies to grow in popularity (surpassing 100 million
appear to wreak havoc. registered accounts in 2014). Microsoft purchased
330 1 > Managing
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Market Insight 8.4

continued
the company for US$2.5 billion in 2014; by with the community to enhance their original vision
February 2017, the game had 55 million active and improve their games without needing to retain
players—up from 40 million in June 2016. In addition, full control.
merchandise, mobile, and console versions have also
appeared within the product line. Such a success Sources: Plé and Chumpitaz Cáceres (2010); Etherington (2014);
story demonstrates that games developers can work Maiberg (2014); Makuch (2014); Anon. (2018); Statista (2018).
This market insight demonstrates how a newly market insight illustrates the importance of focusing
launched proposition can have clear core, embodied, on value co-creation and building good relationships
and augmenting propositions at the outset, and how with users. The company’s approach to innovation
these can change over time. This change may be corresponds with the radical service innovation
driven by the developer by means of software updates, category of Möller and colleagues (2008), which aims
but it can also be undertaken by the consumers. Such at producing completely novel offerings. Co-creation,
a notion is exciting and a win–win for the provider, as an approach to new proposition development,
but can come at the cost of undermining their artistic is becoming commonplace for many businesses,
vision and marketing campaigns if the proposition no but is particularly evident in the video gaming and
longer exists as advertised—an intriguing problem. This entertainment sector.
Related Topics
value; value co-creation; value co-destruction; new product development; product forms
1 Plot the Minecraft game onto the three 3 Has Minecraft’s owner, Mojang, experienced
proposition components model. Is the game a its success because of a lack of direct
product or a service? competitors? Explain your answer.
2 Do you think other games developers will attempt This market insight was kindly contributed by Joe Liddiatt, at
the University of the West of England, UK.
to imitate this open-ended sandbox gameplay?
Established services with a relatively stable value creation process are often generated
under intense competition to improve operational efficiency. Dell is cited as a manufactur-
ing business based on a simple concept, specifically selling computer systems directly to
customers (rather than through retailers or other intermediaries). Dell’s market leadership
is the result of a constant focus on delivering positive product and service experiences to
its customers.
Incremental service innovation describes a value creation strategy in which services are
developed to provide extra value. Working together, the service provider and the client can
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331
produce more effective solutions. The prime example is Google, which, in addition to providing
web search services for individual consumers, provides search services for corporate clients,
including advertisers, content publishers, and site managers. Google continually develops new
service applications based on its back-end technology and the use of linked PCs that respond
immediately to each query. Google’s innovation has resulted in faster response times, greater
scalability, and lower costs. But Google also has a vast constellation of innovation projects,
including spin-off companies investigating extending the human lifespan (Calico), Google’s
driverless car, drones (Project Wing), Google Fiber, Replicant (robotics projects), and many
more (see Chapter 1).
Radical service innovation is concerned with value creation generated through novel or
unusual service concepts. This requires new technologies, offerings, or business concepts,
and involves radical system-wide changes in existing value systems. MySQL, the world’s lead-
ing open-source software (OSS) database producer, uses this approach. Because the source
code of the software is freely available to everybody, the software is available to everyone to
use and/or modify. However, all derivative works must be made available to the original devel-
opers. As a result, MySQL has been able to increase the number of users and developers,
and subsequently offer its clients improved levels of service—and this has led to increased
financial performance.
Enhancing Physical Propositions through Service

Development
It is helpful to view proposition innovation in the light of the product–service spectrum introduced
at the start of this chapter. Services do not always need to be seen purely as an extension or
add-on to a product offering; they can also be a way of creating value opportunities for clients.
Shelton (2009) considers service innovation in the context of four stages of solution manage-
ment maturity. The early stages of innovation maturity are characterized by a goods focus, with
relatively few services used only to augment and complement those goods. The mature stages
are characterized by much higher levels of service, some integrated with the products to provide
solutions for customer problems:
■ Stage 1—In this stage, services are used as aftersales support for goods (for example parts
and repair services). Service innovation is framed around maintaining the good and ensuring
that customers are satisfied with their purchase. As a result, customers typically view the
service and goods business as distinct entities.
■ Stage 2—This stage is characterized by aftersales services designed to complement the
core element of the proposition. Here, services should improve customer satisfaction with ex-
isting goods, should increase loyalty, and may generate additional purchases. Shelton (2009)
refers to Hewlett Packard’s ‘PC Tune-Up’, which, for a fee, provides a set of diagnostics with
which to assess and manage customers.
■ Stage 3—At this stage, the portfolio includes a full line of services and goods designed to
provide a clearly differentiated offering aimed at solving clients’ lifecycle problems. Shelton
(2009) refers to Motorola’s ‘Total Network Care’ (TNC), which provides end-to-end support
services for wireless networks. Although the service organization is often consolidated into
one identifiable business, goods are still core to the company. End users see no major per-
ceived boundaries between goods and services.
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■ Stage 4—At this stage, the highest end of innovation maturity, firms seek to integrate the
services dimension as part of their total offer. Known as servitization, this involves the
provision of an integrated bundle of goods–service solutions for the entire life cycle of their
customers, ‘from cradle to grave’. These solutions are developed collaboratively with clients
and therefore require a deep understanding of the customer’s overall business. These firms,
often market leaders, generate innovative solutions through buyer–seller collaborative pro-
cesses. Solutions are developed that are of mutual value.
Servitization strategies have been used to create value in a number of different industries.
Robinson, Clarke-Hill, and Clarkson (2002) report their use in the chemical industry, where price-
led strategies tend to dominate in a commodity context. What is noticeable is that where com-
modity chemical firms have implemented servitization, one of the more prominent uses has been
to help to build relationships and reduce both the attitudinal and physical distance between
partner organizations.
Visit the online resources and complete Internet Activity 8.4 to learn more about how two
leading service-based organizations approach the service development process.
Service Development
As the distinctions between what is a product and what is a service blur, the traditional distinc-
tion between product development and service development is becoming increasingly artifi-
cial (Papastathopoulou and Hultink, 2012). Managers responsible for new service development
should establish a system that incorporates a formal procedure for generating and evaluating
new service ideas, a drawing-board approach for identifying and designing the necessary ser-
vice elements and processes, and testing of new services with customers and with frontline staff
to eliminate potential failure points, and a documented launch plan to ensure the proper market-
ing of new services (de Brentani, 1991). This process is not dissimilar to the stage–gate model
outlined in Figure 8.5.
An organization developing services should have processes that become more formal as
the project progresses over time, should have well-established idea-screening processes in
place to determine which new ideas will be given the go-ahead by senior management, and
should have a system in place to ensure that the staff are well trained and committed to sell-
ing the new service (Edgett, 1994). Services should be designed to ensure that it is easy for
customers to be involved in the development of the new service and to actively contribute
to the service design process. This customer involvement is often a critical success factor
in the development of successful new services, perhaps even more so than in new product
development projects, because of the enhanced nature of the customer–producer interaction
(see Research Insight 8.3). (See also Chapter 15 for more on the simultaneous production and
consumption of services and their marketing implications.)
Some services undergo beta testing, whereby a version of the service is made available
to customers, and any imperfections are identified and removed before the final version of the
service is launched. Software developers have made use of this approach extensively, as have
music-streaming companies such as Google, with Google Music Key and even, allegedly, Apple
with Apple Music for Android (Chenze, 2015) (see Market Insight 8.5).
Chapter Development
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333
Edvardsson, B., Kristensson, P., Magnusson, P., and Sundström, E. (2012). Customer
integration within service development: a review of methods and an analysis of in situ
and ex situ contributions. Technovation, 32(7), 419–29.
This interesting article outlines how customer feedback can be integrated into new service development.
It develops a framework for categorizing customer integration methods based on whether the data are
obtained in situ or ex situ and in context or ex context, creating four types of customer informant:
■ the correspondent (in situ/in context, reporting live from the situation);
■ the reflective practitioner (ex situ/in context, reporting from ‘the armchair’);
■ the tester (in situ, ex context, reporting from ‘virtual heaven’); and
■ the dreamer (ex situ/ex context, the creative generating wild and imaginative ideas).
The article explains how it is neither sufficient to follow customer requirements in new service development
nor should companies try to lead customers; rather, they should work with them to co-create new service
propositions.
Market Insight 8.5

Streaming Wars: Apple versus Spotify
In June 2015, Apple revealed that it would offer a in the desktop and smartphone distribution channels.
‘revolutionary’ new music-streaming service based Spotify was the music-streaming market leader in
on the music-streaming service it had acquired after 2017, with more than 60 million paying subscribers
purchasing Beats, with a target of acquiring 100 and 140 million active users (Reuters, 2017), although
million paying subscribers. Obtaining such a user the company is not (yet) profitable, having lost US$581
base would be achievable if 20 per cent of Apple’s million in 2016.
500 million or so iTunes users worldwide were to
connect to the subscription service. But whilst Despite these losses for Spotify, the music-streaming
Apple’s music download service iTunes and its music market continues to be attractive, with 97 million
storage and play device, the iPod, were innovative subscriber accounts worldwide and revenues growing
in 2001, another company had beaten Apple to the by 60.4 per cent on the previous year. The question
streaming market. Spotify, a Swedish company using arises: what new features will Apple bring to the
a freemium business model, already had 20 million music-streaming party? Apple has stated that it will
paying subscribers and 55 million users on its free differentiate its service by generating playlists chosen
ad-supported service, and has largely displaced iTunes by people rather than algorithms, offer a superior music
334 1 > Managing
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Market Insight 8.5

continued
search process, and provide a 24-hour radio station Access. This is clearly a hard market to crack, not least
(Beats One), but it will not offer a free ad-supported because, until recently, music customers were happier
service. to download music illegally and risk criminal prosecution
than to pay for it. What is clear is that now that
Apple are therefore seeking to cream off Spotify’s customers are shifting back to paying for their music,
most lucrative customers: the quarter of Spotify users the battle for market leadership will continue to intensify.
who pay to subscribe represent three-quarters of the
company’s revenues. And Apple’s approach might Sources: Anon. (2015b); Sexton (2015); Witt (2015); Christman
just work, because artists such as Taylor Swift (who (2017); (IFPI, 2017).
removed herself from Spotify) are fed up with the
pittance (around $0.007 per stream) that they receive
when their tracks are played over the free ad-supported
service (although they receive considerably more from
the subscription service).
Taking the potential challenge from the world’s largest

brand seriously, Spotify raised $500 million, presumably
to help it to further develop its own music-streaming
service. But Apple are not its only competition; Google
has been beta testing its Music Key service, which
will shift YouTube to a freemium business model like
Spotify’s. And Apple has tried to enter the market
before, when it unsuccessfully launched its Beats Music Apple’s 24-hour radio station is one of the
service in 2014. Google had also previously launched ways it tries to differentiate its service
a service in 2011 that failed—Google Play Music All Source: © Hadrian / Shutterstock.com.
This market insight describes how music distributors digital downloading). The case also illustrates the
are competing to offer music-streaming services. It difficulties inherent in designing and offering a new
illustrates how Spotify stole a march on Apple’s iTunes service when technological standards and business
service by developing a technologically superior models are still in flux.
approach to music distribution (streaming versus
Related Topics
service design; technological generations; diffusion of innovation; customer value; beta testing
1 Why do you think Apple has come so late to the 3 How do you think music distribution
music-streaming market? might develop in the future? What service
developments might take place?
2 What does Spotify need to do to retain its
market leadership?
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If organizations are to improve the effectiveness of their service development processes, ser-
vice development researchers point towards the need for them to:
■ leverage their employees’ skills, resources, and experiences in the new service development
process;
■ develop more customer-oriented services; and
■ undertake an interdisciplinary approach to service development, bringing together marketing,
operations, and innovation staff (Papastathopoulou and Hultink, 2012).
The Process of Adoption

The process by which individuals accept and use new propositions is referred to as adoption
(Rogers, 1983). The different stages in the process of adoption are sequential and are char-
acterized by the different factors that are involved at each stage (for example the media used by
each individual). The process starts with people gaining awareness of a proposition as it moves
through various stages of adoption before a purchase is eventually made. Figure 8.6 sets out the
various stages in the process of adoption.
In the knowledge stage, consumers become aware of the new proposition. They have little
information and have yet to develop any particular attitudes towards the product. Indeed, at this
stage, consumers are not interested in finding out any more information.
The persuasion stage is characterized by consumers becoming aware that the innovation
may be of use in solving a potential problem. Consumers become sufficiently motivated to find
out more about the proposition’s characteristics, including its features, price, and availability.
In the decision stage, individuals develop an attitude toward the proposition and reach a deci-
sion about whether the innovation will meet their needs. If this is positive, they will experiment
with the innovation.
During the implementation stage, users try the innovation for the first time. Sales promotions
often offer samples to allow individuals to test the product without any undue risk. Individuals
accept or reject an innovation on the basis of their experience of the trial. Consider, for example,
Communication channels
Prior conditions
1. Previous practice
2. Felt needs/problems
3. Innovativeness Knowledge Persuasion Decision Implementation Confirmation
4. Norms of the
social systems
Characteristics of the Perceived
decision-making unit characteristics 1. Adoption Continued adoption
1. Socio-economic of the innovation
characteristics 1. Relative Later adoption
2. Personality advantage
variables 2. Compatibility Discontinuance
3. Communication 3. Complexity
behaviour 4. Trialability
5. Observability 2. Rejection Continued rejection
Figure 8.6
Stages in the innovation decision process of adoption
Source: Reprinted from Rogers (1983) with the permission of the Free Press, © 1962, 1971, 1983 by the Free Press.
336 1 > Managing
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the way in which manufacturers work with supermarkets or duty-free airport retailers to encour-
age people to sample their food and drink products.
The final confirmation stage is signalled when an individual successfully purchases the propo-
sition on a regular basis without the help of the sales promotion or other incentives.
The model in Figure 8.6 assumes that the adoption stages occur in a predictable sequence,
but this is not always the case. Rejection of the innovation can occur at any point—even dur-
ing implementation and the very early phases of the confirmation stage. Generally, mass com-
munications are more effective in the earlier phases of the adoption process for propositions
that buyers are actively interested in and more interpersonal forms are more appropriate in later
stages—especially implementation and confirmation.
Diffusion Theory
Consumers may have both functional and emotional motives when purchasing, but customers
adopt new propositions differently. Their different attitudes to risk, and their levels of education,
experience, and needs, mean that different groups of customers adopt new propositions at
varying speeds. The rate at which a market adopts an innovation is referred to as the process
of diffusion (Rogers, 1962). According to Rogers (1962), there are five categories of adopter,
as shown in Figure 8.7:
■ Innovators—This group, which constitutes 2.5 per cent of the buying population, is impor-
tant because it kick-starts the adoption process. These people like new ideas, and are often
well educated, young, confident, and financially strong. They are more likely to take risks
associated with new propositions. However, being an innovator in one category, such as buy-
ing a new model smartphone, does not mean that a person will be an innovator in another
category, such as buying an electric car. Innovative attitudes and behaviour can be specific
to only one or two areas of interest.
100
laggards
% of Adopters (cumulative)
75
early majority
late majority
50
early adopters
25
innovators
0
T 12 Time
Figure 8.7
The process of diffusion
Source: Rogers (1962): fig. 5.1 © 1955, 2003 by Everett M. Rogers © 1962, 1971, 1983 by the Free Press.
Chapter 8 > New Proposition Development and Innovation 337
■ Early adopters—This group, comprising 13.5 per cent of the market, is characterized by a
high percentage of opinion leaders. These people are very important for speeding up the adop-
tion process. Consequently, marketing communications need to be targeted at these people,
who, in turn, will stimulate word-of-mouth communications to spread information. Although early
adopters prefer to let innovators take all the risks, they enjoy being at the leading edge of innova-
tion, tend to be younger than any other group, and are above average in education. Other than
innovators, this group reads more publications and consults more salespeople than all others.
■ Early majority—This group, which forms 34 per cent of the market, is more risk-averse
than the previous two groups. Individuals require reassurance that the offering works and
has been proved in the market. They are above average in terms of age, education, social
status, and income. Unlike the early adopters, they tend to wait for prices to fall, prefer more
informal sources of information, and are often prompted into purchase by other people who
have already purchased.
■ Late majority—A similar size to the previous group (34 per cent), the late majority are scepti-
cal of new ideas and adopt new offerings only because of social or economic factors. They
read few publications and are below average in terms of education, social status, and income.
■ Laggards—This group of people, comprising 16 per cent of the buying population, are
suspicious of all new ideas and their opinions are very hard to change. Laggards have the
lowest income, social status, and education of all the groups, and take a long time to adopt
an innovation, if they ever adopt it at all.
According to Gatignon and Robertson (1985), the rate of diffusion is a function of the speed
at which sales occur, the pattern of diffusion (as expressed in the shape of the curve), and the
size of the market. This means that diffusion does not occur at a constant or predictable speed;
rather, it may be fast or slow. One of the tasks of marketing communications is to speed up the
process, so that the return on the investment necessary to develop the innovation is achieved as
quickly and as efficiently as possible.
Marketing managers need to ensure that they consider diffusion groups when attempting
to understand and predict the diffusion process for innovations. It is likely that a promotional
campaign targeted at innovators and the early majority, and geared towards stimulating word-
of-mouth communications, will be more successful as a result.
Chapter Summary
■ Explain the different levels of a proposition.

A proposition encompasses all the tangible and intangible attributes related not only to physical goods, but
also to services, ideas, people, places, experiences, and even a mix of these various elements. Anything that
can be offered for use and consumption in exchange for money or some other form of value is referred to
as a proposition. Unlike products, services are considered to be processes. Propositions encompass three
levels: the core proposition, consisting of the real core benefit or service (for example bottled water is thirst-
quenching); the embodied proposition, consisting of the physical good or delivered service that provides the
338 Part 3 > Managing Marketing Programmes
expected benefit (for example the packaging); and the augmented proposition, consisting of the embodied
offering plus all those other factors that are necessary to support the purchase and any post-purchase
activities (for example the exclusivity associated with Voss bottled water and its Norwegian heritage).
■ Identify and describe the various types of physical proposition and explain particular concepts
relating to the management of products, including the product life cycle.
Consumer and business products are classified in different ways, but both classifications are related to the
way in which customers use them. Consumer products are bought to satisfy personal and family needs,
and industrial and business products are bought either as a part of the business’s operations or to make
other products for resale. To meet the needs of different target markets, most organizations offer a range
of products and services, which are grouped together in terms of product lines and product mix. Products
are thought to move through a sequential pattern of development, referred to as the product life cycle. It
consists of five distinct stages: development; birth; growth; maturity; and decline. Each stage of the cycle
represents a different set of market circumstances and customer expectations that need to be met with
different strategies.
■ Explain the relationship between product and service offerings, and describe the product–service
spectrum.
A service is any act or performance offered by one party to another that is essentially intangible.
Consumption of the service does not result in any transfer of ownership, even though the service process
may be attached to a physical product. There is a spectrum of product–service combinations. At one
extreme, there are pure products with no services, such as grocery products. At the other end of the
spectrum are pure services, for which there is no tangible product support, such as education and
dentistry. In between, there is a mixture of product–service arrangements. The product–service spectrum
recognizes that many products combine physical goods with a service element.
■ Explore the processes and issues associated with innovating new propositions.
The development of new propositions is complex and high risk, so organizations usually adopt a procedural
approach. The procedure consists of several phases that enable progress to be monitored, test trials to
be conducted, and the results analysed before there is any commitment to the market. The development
of new services follows a similar staged process, whereby additional services are added to a core product
until a point is reached at which the service and the core product are integrated into a bundled offering.
This is known as servitization.
■ Describe how new propositions are adopted by markets.

The processes of adoption and diffusion explain the way in which individuals adopt new propositions and
the rate at which a market adopts an innovation. The process by which individuals accept and use new
propositions is referred to as adoption. The different stages in the adoption process are sequential and are
characterized by the different factors that are involved at each stage. The rate at which a market adopts
an innovation differs according to an individual’s propensity for risk and is referred to as the process of
diffusion.
Review Questions
1 Draw the spectrum of product–service combinations and briefly explain its main characteristics.
2 Identify the three levels that make up a proposition.
3 Describe the three types of convenience good and find examples to illustrate each one.
4 What are the six types of business product?
5 What is the product life cycle and what key characteristics make up each of its stages?
6 How do the essential characteristics of services affect the marketing of services?

7 What are the main stages associated with the development of new physical propositions?
8 What is servitization?
9 Name four companies that have used the servitization approach and explain how.
10 Why is knowledge about the process of adoption useful to marketers?
1 Having read Case Insight 8.1, how should Cheil UK develop its client Samsung’s omni-channel offering
to bring together Samsung’s customers’ experiences both online and offline?
2 Describe the three elements of a proposition for the following:

A A live football match at the stadium of Spanish football club Real Madrid
B A can of Diet Coke purchased from a vending machine in a train station
C A watercooler system from Aquaid for use in offices
3 Prepare a brief report in which you explain the nature of the product life cycle for a grocery brand of
your choice. Consider how it might be used to improve your brand’s marketing activities and, from
this, highlight any difficulties that might arise when using the product life cycle to develop strategies.
4 Consider three offerings that you bought recently. For each of them, determine what kind of adopter
you were and how you were influenced to purchase the offering that you bought. (Hint: Use Roger’s
theory of diffusion.)

Glossary
accessory equipment goods goods that co-creation the process of developing a
support the key operational processes and proposition of value to a customer by incorporating
activities of the organization. their input and that of other stakeholders into its
beta testing the stage at which software is design, development and/or delivery.
made available on a website to allow users to content marketing the marketing process for the
test its functionality after it has gone through a creation and dissemination of narrative (non-
development phase and to allow any necessary product) content to attract and engage a specific
modification before full commercialization. target audience to encourage a particular
built-in obsolescence when a manufacturer marketing action (for example sales).
develops a product so that it deliberately requires convenience products non-durable goods or
replacement, aiming to enhance sales and/or services, often bought with little pre-purchase
profitability. thought or consideration.
capital equipment goods those goods, such as co-production the process of involving customers
buildings, heavy plant, and factory equipment, and stakeholders in the development and
that are necessary to build or assemble products. delivery of the proposition; differs slightly from co-
creation in that customers and stakeholders are products; comprises different sequential stages
involved earlier, at the design stage. characterized by different factors.
digital value the means by which digital process of diffusion the rate at which a market
processes and systems can be used to provide adopts an innovation (Rogers, 1962), within
customers with enhanced product and service which there are five categories of adopters:
value. innovators; early adopters; early majority; late
distributors organizations that buy goods majority; and laggards.
and services, often from a limited range of product anything that is capable of satisfying
manufacturers, and normally sell them to retailers customer needs.
or resellers. product life cycle the pathway a product
durable goods goods bought infrequently, which assumes over its lifetime, in which there are
are used repeatedly and involve a reasonably said to be five main stages: development; birth;
high level of consumer risk. growth; maturity; and decline.
early adopters a group of people in the process proposition a product or service that represents a
of diffusion who enjoy being at the leading edge promise made to customers and stakeholders.
of innovation and who buy into new products at pure-play a company that focuses exclusively on
an early stage. one offering or operates only on the Internet.
early majority a group of people in the process of routinized response behaviour a form
diffusion who require reassurance that a product of purchase behaviour that occurs when
works and has been proven in the market before consumers have suitable product and purchase
they are prepared to buy it. experience and they perceive low risk.
extensive problem-solving occurs when service any act or performance offered by one
consumers give a great deal of attention and care party to another that is essentially intangible and
to a purchase decision of which they have no consumption of which does not result in any
previous or similar product purchase experience. transfer of ownership.
freemium a business model incorporating the service-dominant logic (SDL) an approach
offer of a free basic service, together with a paid- that asserts that organizations, markets, and
for enhanced service. society are concerned fundamentally with the
innovators a group of people in the process of exchange of services based on the application
diffusion who like new ideas and who are most of knowledge and skills; rejects the notion of
likely to take risks associated with new products. dualism between goods and services marketing,
laggards a group of people in the process of arguing that all offerings provide a service.
diffusion who are suspicious of all new ideas and servitization the practice of integrating bundles of
whose opinions are very hard to change. products and services in which the services are
late majority a group of people in the process of an integral part of the core product.
diffusion who are sceptical of new ideas and who shopping product a type of consumer product
adopt new products only because of social or that is bought relatively infrequently and requires
economic factors. consumers to update their knowledge prior to
limited problem-solving occurs when consumers purchase.
have some product and purchase familiarity. speciality product the type of consumer
maintenance, repair, and operating (MRO) product that is bought very infrequently, is very
goods those goods, other than raw expensive, and represents very high risk.
materials, that are necessary to ensure that the stock-outs occasions on which an organization no
organization is able to continue functioning; often longer has a particular offering in its inventory and
referred to as consumables. that item is no available for customers to purchase,
non-durable goods low-priced products that are thus losing the organization potential revenue.
bought frequently, used only once, and incur low tangibility possessing the characteristics of
levels of purchase risk. something that is physical—that is, it can be
offerings things produced for sale. touched and it has form or physical presence.
process of adoption the process through test marketing a stage in the new product
which individuals accept and use new development process, undertaken with a sample
of customers or in a specified geographical area, unaware of it or have no desire to purchase it,

to judge customers’ reactions prior to a national but under certain circumstances (usually fear
launch. or danger) they are required to purchase it, for
unsought product a good that a customer would example funeral services, insurance, and first aid
not normally purchase, either because they are kits.
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13 October 2018). 13 October 2018).
Chapter 9
Price and Customer Value
Decisions

Simply Business
Market Insight 9.1
Explain the concept of price elasticity of demand
Sugar Tax: Paying Sweetly?
Define price, and understand its relationship with
costs, quality, and value Market Insight 9.2
Price Discount Illusions
Describe how customers perceive price
Market Insight 9.3
Understand pricing strategies and how to price new
Masstige Pricing at MED
offerings
Market Insight 9.4
Explain cost-, competitor-, demand-, and value-
Electrical Price Promises
oriented approaches to pricing
Explain how pricing operates in the business-to- Market Insight 9.5
Stripe: Revolutionizing Online
business setting
Payments
Chapter 9 >1Price
Chapter and Customer
> Marketing Value
Principles Decisions
and Society 345
345
Case Insight 9.1

Simply Business
Founded in 2005, Simply Business is an online insurance

broker. We speak to Philip Williams, director of strategy
and pricing, to find out more about how the company has
developed its pricing strategy.
Simply Business has grown from a team of six, Since a management buyout in 2013, we have
gathered in a room near Tower Bridge in London, to continued to grow revenues by around 25 per
become one of the UK’s largest insurance providers cent year on year. We have won numerous awards
to small and medium-sized enterprises (SMEs). It including, in 2015 and 2016, the number one spot
provides cover for about 360,000 small businesses in in the ‘Sunday Times Best Company to Work for’
the UK for liability insurance lines (employers’ liability, awards. To develop our unique proposition, we felt
professional indemnity, public/products liability) in that we needed to extend our control over the value
addition to specialty landlord insurance. Its simple and chain. Therefore not only do we provide a platform for
fast online quote process allows customers to receive customers to compare business insurance rates, but
quotes and buy from a range of different insurance also we have obtained delegated authority from our
companies simultaneously, providing an instantly panel of around 20 insurance providers to bind policies
comparable, and ordered, panel of prices. on their behalf. So we handle all customer interactions,
including payment, and have agreement to handle all
We are proud of our technological capability, seeing
but the largest claims without the need for the insurers
ourselves as a tech business, first and foremost, which
to become involved.
happens to operate as an insurance brokerage. Our main
competitors in the online SME insurance market include The traditional approach to setting prices in the
Hiscox, Direct Line for Business, AXA, and Towergate, but business insurance market has been to use the cost-
our market is constantly developing. The online market plus method. Insurers set a risk rate for each customer
has grown by about 20 per cent year on year. Of the 5.8 based on the details provided by the customer within
million businesses in the UK, 5.1 million are classified as a proposal form (for example postcode, turnover,
SMEs, but these businesses usually buy their insurance number of staff). A base cost is determined using
through local high-street brokers. This is changing, these details, before adding additional loads for
especially at the microbusiness end, as customers get expenses, reinsurance, and broker commission.
used to comparing and buying their personal insurance Broker commission is typically negotiated between
online. Four large price-comparison websites have grown each broker and insurer on a broker-by-broker basis.
in the UK to dominate personal insurance (Compare Those brokers able to provide higher volumes of
the Market, Money Supermarket, GoCompare, and business, or those who can provide superior quality
Confused.com). Whilst price comparison for home and clients (through unique selection processes or route
motor insurance is now well established, the comparison to market), are best able to negotiate higher levels of
sites have not ventured into the less homogeneous and commission.
smaller SME insurance market. Simply Business moved
Whilst this strategy and business model is
into this vacuum and formed strategic partnerships with
straightforward, for us at Simply Business it was
two of the large aggregators (Money Supermarket and
based on two negatives as far as customer value was
GoCompare) to develop a white-labelled product
concerned. A price comparison using the standard
price-comparison portal.
methodology would show customers an unfair
346 1 > Managing
Fundamentals
Programmes
Case Insight 9.1

continued
picture, with business insurance prices with lower transparent approach reflects our brand, which focuses
costs before commission appearing below prices on honesty and simplicity.
with higher costs (as a result of a higher negotiated
One extra difficulty is that all prices quoted for
commission level). From a customer viewpoint, we
customers are generated specifically for that individual
knew it would be difficult to justify to our customers
or business and tailored to their requirements and
why the commission we received from different
different customers have different price-sensitivities. We
insurers should be different.
wanted to respond to some customers’ requirements
Second, control of customer volumes is difficult to for price discounts, but it would be too onerous to
manage because any commission change must be negotiate with each of our suppliers for each quotation.
negotiated with a supplier. This is easily manageable We also knew that we could not afford to discount all
in an offline environment, but more difficult in an our customers’ policies across the board.
online world with significantly increased volumes and
The question that arose was: how could Simply
increased customer price-sensitivity driven by ease
Business develop a system that offered tailored
and access to competition. So we used our scale
policies, including discounts, to those customers
to negotiate a flexible commission structure with our
who were more price-sensitive?
insurance providers. This has allowed Simply Business
to move towards a demand-oriented pricing approach
Visit the online resources to watch a video
and to standardize commissions on quotes, presenting
interview with Philip Williams in which he
a fair comparison to customers with no incentive for
explains what Simply Business did.
Simply Business to sell one product over another. This
Introduction
When did you last buy something you thought was really expensive? Was it worth the price you
paid? Did you wonder if others would consider it expensive too? When is a price expensive and
when is it not? How do companies set prices? What procedures do they use? Since price wars
are self-defeating, why do companies start them or respond to them in the first place? These are
just some of the questions we set out to consider in this chapter.
Our understanding of pricing and costing has developed from accounting practice. Economics
has also contributed to our understanding of pricing through models of supply and demand,
operating at an aggregate level (that is, across all customers in an industry). Psychology con-
tributes greatly to our understanding of customers’ perceptions of prices. Marketing, as a field,
integrates all of these components to provide a better understanding of how the firm sets price
to achieve higher profits and maintain satisfied customers. Pricing is the most difficult aspect of
the marketing mix to comprehend because an offering’s price is linked to the cost of the many
different components that make up a particular proposition. The marketing manager rarely
controls the costs and prices of a particular offering, and usually refers to the accounting and
finance department, or the marketing/financial controller, to set prices.
In this chapter, we provide insight into how customers respond to price changes—what econ-
omists call the price elasticity of demand, which is an indication of the value they perceive in
Chapter 9 >1Price
> Marketing Value
and Society 347
347
a particular price. We define price, quality, costs, and value, and outline the relationship between
them. We provide insights into how customers perceive and learn about prices—a necessary
step prior to evaluating them and their fairness, which impacts on customers’ willingness to pay.
We describe the four main approaches to pricing, based on evaluating costs and adding a mar-
gin, copying competitors’ prices, basing prices on demand, and pricing according to perceived
customer value. We also consider the two principal means by which to price a new proposition,
based on skim pricing and market penetration pricing. Finally, we consider what pricing tactics
are used in the business-to-business (B2B) setting.
The Price Elasticity of Demand

The concept of the price elasticity of demand was first developed in the field of economics, but
it is a very useful concept in marketing. It provides us with an understanding of how demand
shifts with changes in price. Such information is useful, but the data needed to determine price
elasticities requires detailed research of price and quantity changes over time. Price elasticity is
affected by both brand and category characteristics, as well as by general economic conditions,
including such factors as time, product category, brand (manufacturer versus own-label), stage
of product life cycle, country, household disposable income, and inflation rates (Bijmolt, van
Heerde, and Pieters, 2005).
In some categories, for example cigarettes as opposed to washing powder, changes in price
(whether positive or negative) lead to smaller changes in demand. For instance, a 10 per cent
increase in cigarette prices might lead to only a 2 per cent decrease in quantity sold; conversely,
a 10 per cent increase in washing powder prices might lead to a 20 per cent decrease in sales.
In this case, we say that washing powder is the more price-elastic offering.
We define price elasticity as the percentage change in quantity demanded as a proportion of
the percentage change in price. We can express this as:
Price elasticity of demand =

Percentage change in quantity demanded
η (pronounced eta ) =
Percentage change in price
When the price of an offering rises or falls, the quantity demanded falls or rises. When
the percentage change in price is positive (negative), the percentage change in quantity
demanded is negative (positive). Consequently, the price elasticity of demand is always
negative. The price elasticity of demand for most marketed goods is somewhere between
–9 and –1. In a meta-analysis of a set of 1,851 price elasticities, based on 81 studies,
the average price elasticity was found to be –2.62 (Bijmolt et al., 2005). In other words, for
these goods (including consumer durables and other types of product), a 10 per cent
increase in price would produce an average 26.2 per cent decrease in quantity demanded.
This is an average across offerings. Individual products and services can vary greatly from
this average.
Generally, we can refer to three main extremes of price elasticity, as follows.
■ In the case of unit price elasticity of demand (η = –1), a 10 per cent increase (decrease) in
price produces a 10 per cent decrease (increase) in quantity demanded.
348 1 > Managing
Fundamentals
Programmes
■ In a situation of zero price elasticity of demand (η = 0), demand is perfectly inelastic and so
demand does not change in any way when the price changes. Such a situation is highly un-
likely ever to occur.
■ In the event of infinite price elasticity of demand (η = ∞), consumers will buy as much of a
good as they possibly can at a particular price, but at a higher price the quantity demanded
falls to zero and at a lower price the quantity demanded rises without limits (Pindych and
Rubinfeld, 2005). This situation is also highly unlikely to occur.
Governments use price elasticity data to determine which offerings to tax (see Market Insight 9.1).
For example, petrol and tobacco have tended to be taxed because increases in prices resulting
from tax increases have a lesser impact on quantity supplied compared with other offerings.
According to research conducted in the United States, typical price elasticities range from –1 to
–5 for grocery products, from –1.5 to –3.0 for consumer durables, from 0.2 to 0.7 for innovative
pharmaceutical products, from –2.0 to –100.0 for standard industrial products, from –0.3 to –2.0
for specialty industrial products, from –0.7 to –1.5 for luxury cars and from –1.5 to –3.0 for nor-
mal cars, from –1.0 to –5.0 for airline services, from –0.7 to –1.0 for rail services, and from –0.3
to –1.0 for standard telecommunication services (Dolan and Simon, 1997). Customer practices
such as showrooming (that is, visiting shops to view an offering, then buying it cheaper online)
and webrooming (researching products online then buying them in-store) have also increased
price sensitivity, because those customers who may not previously have compared prices do so,
having fallen into the habit of doing so easily online (Kannan, 2014). Marketing managers should
therefore seek to understand whether their offerings are price elastic or inelastic, because this
allows them to predict how price changes will affect the total quantity supplied in the market.
The Concept of Pricing and Cost

Pricing
Pricing is a complex component of the marketing mix. The term price has come to mean:
the amount of money expected, required, or given in payment for something; an unwel-
come experience or action undergone or done as a condition of achieving an objective;
decide the amount required as payment for something offered for sale; and discover or
establish the price of something for sale.
(Oxford Dictionaries, 2016a)
In marketing terms, we consider price to be the amount the customer has to pay or exchange to
receive an offering. For example, when purchasing a Burger King cheeseburger meal for children
(incorporating the burger, small apple fries, Tropicana drink, and a toy), the price exchanged for
the meal might be, say, US$3.59 in the United States or £3.99 in the UK. The kid’s cheeseburger
combo in Pakistan comprises the burger, fries, and a drink, for 345 rupees. The £3.99 element
is the price—the assigned numerical monetary worth of the child’s cheeseburger meal in the UK.
However, the notion of pricing an offering is often confused with a number of other key marketing
concepts—particularly cost and value.
Visit the online resources and follow the web link to the Professional Pricing Society (PPS) to
learn more about pricing and the pricing profession.
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Market Insight 9.1

Sugar Tax: Paying Sweetly?
In the March 2016 Budget, former UK Chancellor of per cent increase in advertising expenditures, there
the Exchequer George Osborne introduced a sugar would have been a 0.2 per cent increase in demand.
tax on fizzy drinks, which came into force in April However, the government is far more worried about the
2018. The idea was to introduce the tax to reduce impact of end-of-aisle display and price discounting on
the consumption of sugar—thought to be a leading the consumption of sugary drinks than about broadcast
cause of obesity and related diseases (for example advertising, since the former have a higher influence than
heart disease, diabetes). Obesity is thought to cost the the imposition of a tax, increasing consumption by up to
National Health Service (NHS) up to £27 billion per year. 50 per cent and 22 per cent, respectively.
The British government believes that the tax will raise
£520 million in its first year of introduction, much of When Mexico, the country with the highest obesity rate in
which is ring-fenced for spending on sport in schools. the world, introduced a sugar tax in 2014, the 10 per cent
The government plans two tax rates: tax reduced sales of fizzy drinks by 12 per cent (a price
elasticity of demand of –1.2). Norway, Finland, Hungary,
■ drinks with high sugar content, for example the 330 and France have all also imposed sugar taxes and seen
ml Coke, with a price of around 68p in supermarkets reductions in sugar consumption as a result. However,
in 2016, attracted 8p extra tax in 2018; and in 2013, Denmark abandoned its plan for a sugar tax
■ drinks with lower sugar content, for example after a similar tax on fat was unsuccessful. The drinks
the 330 ml Coca-Cola Life, also around 68p in industry has also fought back, impeding sugar taxes in
supermarkets in 2016, was taxed at 6p in 2018. some American states and in Slovenia. When France
imposed a sugar tax in 2012, the evidence indicated that
The government’s intention, taking account of inflation, retailers passed on nearly all of the tax to consumers.
appeared to be to add about 10 per cent to the price Manufacturers might decide to swallow the tax and
of high-sugar drinks and about 7.5 per cent to the maintain their prices at existing levels. If they were to do
low-sugar versions. so, they would lower their profit margins, but consumption
would be unlikely to be affected. If they could reduce their
A previous study of the price elasticity of demand in the cost structures at the same time, they might even be able
United States between 1938 and 2007 has indicated to completely mitigate the effects of the tax. An alternative
that a 10 per cent increase in the price of soft drinks strategy would be to develop new lower-sugar offerings,
should reduce consumption by 8–10 per cent. A study in attracting less tax, whilst not compromising on taste. Either
the UK in the early 1990s indicated that soft drinks had way, given the difficult market for soft drink manufacturers
a price elasticity of demand of –0.935 and an associated in the UK, neither option hits the sweet spot.
advertising elasticity of 0.015. This indicates that
if there had been a 10 per cent increase in price in the Sources: Duffy (1999); Andreyeva, Long, and Brownell (2010);
UK in the 1990s, there would have been a 9.4 per cent Lavin and Timpson (2013); Anon. (2015); Colchero et al. (2015);
decrease in demand, and that if there had been a 10 PHE (2015); Anon. (2016a); Donnelly (2016).
This market insight illustrates the scenario that faced tax and allow their profit margins to be reduced? The
drinks manufacturers when the UK introduced a sugar answer partly lies in an understanding of how British
tax in 2018. The insight focuses on the major decision consumers respond to potential price changes (that is,
that these companies are making: should they pass their price elasticity of demand).
on the tax to consumers, or should they absorb the
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Market Insight 9.1

continued
Related Topics
pricing; cost-plus pricing; price elasticity of demand; advertising elasticity of demand; price perception
1 What decision would you make if you were the 3 To offset the likely drop in demand when the tax
chief executive officer (CEO) of Coca-Cola in is imposed, do you think it would make sense to
the UK? advertise more? Why do you say this?
2 What other data might help you to make a
decision? Why do you say this?
Proposition Costs
To price properly, we need to know what the offering costs us to make, produce, or buy. Cost
represents the total money, time, and resources sacrificed to produce or acquire an offering. For
example, the costs incurred to produce the Burger King child’s cheeseburger meal includes the
costs of heat and light in the restaurant, of advertising and sales promotion costs, of rent or of
the mortgage interest accrued from owning the restaurant, of management and staffing, and of
the franchise fees paid to Burger King’s central headquarters to cover training, management,
and marketing. There are costs associated with the distribution of the product components to
and from farms and other catering suppliers to the restaurants. There are the costs of acquiring
and maintaining computer and purchasing systems, and the costs of the packaging, bags, and
any extras, such as the BK® crown, and other gifts and toys.
Typically, a firm determines what its fixed costs are and what its variable costs are for each
proposition. These items vary for individual industries. Table 9.1 provides a general indication
of what is included. Fixed costs do not vary according to the number of units of goods made
or services sold and are independent of sales volume. In a Burger King restaurant, fixed costs
are the cost of heating and lighting, rent, and staffing costs. In contrast, variable costs depend
on the number of units of goods made or services sold. For example, with the production of
Burger King cheeseburger meals, when sales and demand decrease, fewer raw goods such as
cheeseburger ingredients, product packaging, and novelty items such as toys are required, so
less spending on raw materials is necessary. Conversely, when sales increase, more raw materi-
als are used and spending rises.
The Relationship between Pricing and

Proposition Costs
The relationship between price and costs is important because costs should be substantially less
than the price assigned to a proposition; otherwise the firm will not sell sufficient units to obtain
sufficient revenues to cover costs and make long-term profits. Total revenue can be calculated as:
Total revenue = Volume sold × Unit price
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Table 9.1 Examples of fixed and variable costs
Fixed costs Variable costs
Manufacturing plant and equipment Equipment servicing costs
Office buildings Energy costs
Cars and other vehicles Mileage allowances
Salaries Overtime and bonus payments
Professional service fees (e.g. legal, Professional services fees (e.g. legal) in a business with a
architectural) strong regulatory regime (e.g. pharmaceuticals)
Profit can be expressed as:
Profit = Total revenue – Total costs
The price at which a proposition is set is important because increases in price have a dispro-
portionately positive effect on profits and decreases in price have a disproportionately negative
effect on profits. For example, in one study, it was identified that:
■ a 1 per cent improvement in price achieves an 8.7 per cent improvement in operating profit;
■ a 1 per cent improvement in variable costs achieves only a 5.9 per cent improvement in op-
erating profit;
■ a 1 per cent improvement in volume sales achieves a 2.8 per cent improvement in operating
profit; and
■ a 1 per cent improvement in fixed costs achieves only a 1.8 per cent improvement in operat-
ing profits (Baker, Marn, and Zawada, 2010: 5).
Until recently, organizations have had fairly rudimentary methods of assessing the effectiveness
of their pricing decisions, but changes in computing power and the availability of data now
allows companies to simulate thousands of ‘what if’ pricing scenarios to predict likely demand
and profit levels (Michard, 2016). Whenever possible, then, we should aim to increase prices.
However, deciding how to price a proposition is complex and customers seldom want to pay
more. Consider Burger King again. A firm like Burger King might well have 100 products on any
one restaurant menu in any one country (including meals, individual burgers, ice creams, drinks,
salads, secret menus, etc.). If we bear in mind that different countries have different menus
to incorporate local tastes (for example the 480¥ Premium Kuro Burger® in Japan, where the
product is served in a black bun, and the Fish Royale® available in Turkey for 25 and available
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throughout much of the Middle East as Hammour Royale®), we can envisage that, worldwide,
Burger King must have an enormous menu of products, despite the appearance of standard-
ization. But how do we cost and price each individual product? The first step is to determine
costs, but, in any one restaurant, how do we allocate fixed costs such as heat and light, rent and
tax, to each of the individual offerings sold? Once we’ve allocated the fixed costs, we need to
determine variable costs for each offering. Once we’ve allocated fixed costs and determined the
variable costs associated with an offering, we set its initial price. But costs of components, such
as heat and light, and other costs change constantly. How do we determine whether we need
to change our prices on an item after we’ve set them because of changes in component costs?
After all, we can’t keep changing prices every time a component cost changes. So at what point
do we change a product offering’s price?
To increase the accuracy of the cost data, we need to spend more time collecting and
analysing it. Determining costs is an exercise in which we trade off accuracy against the ben-
efits and costs of data collection, storage, and processing (Babad and Balachandran, 1993).
Determining costs and prices is more difficult when organizations are split into separate
profit centres selling on to other divisions within the same company—especially when these
adopt inefficient transfer pricing mechanisms (Ward, 1993). For example, Airbus, the
airline company owned by the European Aeronautic Defence and Space Company (EADS),
assembles its planes using parts made in several European countries. When these parts are
made by the respective divisions, they are sold on, using a transfer pricing process, to the
main holding company, which assembles the plane from its component parts. But it’s not
only costs that matter; we might also observe changes in demand for our offerings as cus-
tomers’ desires change. In setting pricing levels, we should also consider customers’ price
perceptions.
Customer Perceptions of Price, Quality, and Value

Marketers are concerned with how individuals react to the way in which offerings are priced,
questioning how consumers perceive prices and why they perceive them as they do. Here, we
consider individual perceptions of proposition quality and value, and their relationship to cus-
tomer response to prices.
Proposition Quality
Quality is important in setting proposition pricing levels. Quality can be defined as ‘the stan-
dard of something as measured against other things of a similar kind; the degree of excellence
of something; a distinctive attribute or characteristic possessed by someone or something’
(Oxford Dictionaries, 2016b). In this context, the quality of goods and services relates to
standards to which that offering satisfies needs. For example, a very high-quality car (such
as the Aston Martin DB11 or the Porsche Panamera) will satisfy both an aesthetic need for
aerodynamic beauty and an ego-driven and/or functional need for high-performance road-
handling, speed, and power. But quality is not a single standard in an offering; rather, it
encompasses many standards because there are many levels at which our needs might or
might not be satisfied.
Quality is multifaceted (that is, comprising different functional and non-functional needs) and
multilayered (that is, comprising degrees of satisfaction). Because each person has their own
definition of quality, we prefer to talk of perceived quality. For example, some might be very
dissatisfied and others highly satisfied with even the same offering.
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The Relationship between Quality and Pricing Levels
There is an assumption that as price increases, so does quality, and that, in general, price reflects
quality (see Research Insight 9.1). However, research has demonstrated that there is only a weak
relationship between price and perceived quality, although this is category-dependent (Gerstner,
1985). For example, ‘snob’ consumers in the fashion clothing and fragrance sectors assume
that higher prices reflect higher-quality garments and fragrances (Amaldoss and Jain, 2005;
Yeoman and McMahon-Beattie, 2006). The idea that price indicates quality (perceived quality)
is based on an assumption that prices are objectively determined by market forces. In truth,
people within firms set prices, often dispassionately, to try to obtain the maximum profit possible.
Various studies to determine whether or not price bears a relation to quality found that a gen-
eral relationship between price and perceived quality does not exist (Gerstner, 1985; Zeithaml,
1988), except for in the case of wine and fragrance (Zeithaml, 1988). Völckner and Hofmann
(2007) conducted a meta-analysis of studies investigating the price–perceived quality relation-
ship published between 1989 and 2006, and found that the price effect on perceived quality had
decreased. Interestingly, they also found that the price–perceived quality relationship is stronger
in studies that investigate higher-priced products and use samples from European countries,
but is weaker for services, durable goods, and respondents who are familiar with the offering.
However, a study designed to understand the relationship between price and quality when
price information is available online (Boyle and Lathrop, 2009) found that US consumers believe
that higher prices correspond to higher quality for consumer durables (for example cars, televi-
sions), but are less likely to perceive this with non-durables (for example foodstuffs).
The Relationship between Perceived Value, Product Quality, and Pricing Levels
Value is defined as:
the regard that something is held to deserve; importance, worth, or usefulness of some-
thing; principles or standards of behaviour; one’s judgement of what is important in life; the
numerical amount denoted by an algebraic term; a magnitude, quantity, or number.
(Oxford Dictionaries, 2016c)
Völckner, F., and Hofmann, J. (2007). The price–perceived quality relationship: a meta-
analytic review and assessment of its determinants. Marketing Letters, 18(3), 181–96.
This article uses a meta-analytic approach to evaluate various studies performed between 1989 and 2006 to
provide evidence that there is an increasingly weakening relationship between price and perceived quality.
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There are differing views on how it should be calculated. In marketing terms, value refers to the
quality of what we get for what we pay. It is often expressed as:
quality
Value = = quality rating per unit of currency
price
A related version of this equation replaces quality with ‘benefits’—that is, those benefits obtained
from buying an offering—and price with ‘costs’. This approach to quantifying value indicates that
to increase a customer’s perception of the value of an offering, we must either lower the price or
increase the quality (and this can be hard to measure).
Note that, mathematically, the equation works only when we pay something—that is, more
than 0p (otherwise we divide by 0, which is mathematically undefined). So this equation could not
be used to determine the value we place on an item we are given (even though this item might
have some residual value and could potentially be resold on eBay or Amazon Exchange). This
example also illustrates the difference between inherent value (what you could get for it if it were
resold) and value in exchange (what you are prepared to pay for it). Therefore, in some ways,
the intuitive definition in the equation is a simplistic conception of value. It also suffers because
quality is not always well defined: is it a rating, or is quality the customer’s perceived reference
price for the offering given its benefits? If this is the case, then any calculated figure for ‘value’
greater than 1 indicates a good deal, less than 1, a bad deal, and equal to 1, a satisfactory deal.
This brings us to the following equation suggested by Leszinski and Marn (1997), consultants
at McKinsey, to calculate the value to the customer:
Value = Perceived benefits – Perceived price
In this equation, the customer perceives positive value if the perceived benefits (a proxy for
quality) outweigh the price paid for those benefits. Usefully, if the price paid is 0 (that is, an item
is given away), the value to the customer is the value of the perceived benefits (which makes
sense), and if there are no benefits, the value is the negative value of the price paid. When the
benefits of an offering are reduced, the value is also seen to be reduced if customers notice
the difference in offerings. An example of this occurred when Cadbury reduced the number of
chocolate fingers in its traditional pack from 24, weighing 125 g, to 22, weighing 114 g, with an
increase in price from around £1.19 in 2014 to around £1.43 in 2015 (Hayward, 2015), changing
the cost of each chocolate finger from 4.96p to 6.5p (for a marginally lighter chocolate finger at
5.18 g compared with 5.21 g). In our view, then, this last equation is the best way of expressing
the relationship between price and value.
Influences on Customer Price Perceptions

A Framework for Price Perception Formation
How we perceive prices as customers can be summarized in a theoretical framework (see
Figure 9.1). Here, price perceptions are based on a variety of antecedents. Once we see a
price, we make a judgement. This judgement is a newly formed price perception, which affects
our willingness to pay, which in turn affects our purchase behaviour. Price perceptions are
affected by prior beliefs, prior knowledge of reference prices, prior experiences with the offer-
ing or brand under consideration, price consciousness (that is, how aware we are of prices),
our own price sensitivities (how much extra we are prepared to pay for something), customer
characteristics, and cultural factors. We compare the price we see with internal reference prices
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Antecedents Price perception Willingness to pay Purchase behaviour
● Prior beliefs Influenced by: Influenced by: Influenced by:

● Prior reference ● Reference prices ● Perception of price ● Purchase intention
prices ● Quality perception fairness ● Contextual factors
● Prior experiences ● Brand awareness ● Latitude of price ● Consumer
● Price consciousness ● Brand loyalty acceptance promotions

● Price sensitivity ● Product familiarity ● Magnitude of purchase ● Perceptions of
● Cultural factors ● Asymmetries of ● Frequency of purchase store quality

● Consumer’s information ● Price presentation ● Online versus offline
characteristics ● Advertising stores
A cyclical process
Figure 9.1
A framework for price perception formation
Source: Mendoza and Baines (2012).
(price knowledge gained from experience) and external reference prices (what others tell us
prices should be, perhaps through price comparison websites). Reference prices are price
bands against which customers judge the purchase price of offerings. Reference prices can
be viewed as predictive price expectations based on prior experience with those offerings or
gained through word of mouth.
Price perception formation is influenced by exposure to reference prices (internal and exter-
nal), quality perceptions, brand awareness, brand loyalty, product familiarity, memory of prices
(paid previously and seen previously), and asymmetries of information (the extent to which the
customer does not know various factors about the offerings). Price perceptions affect custom-
ers’ willingness to pay. Willingness to pay is influenced by perceptions of the fairness of prices
set, latitude of price acceptance (customers appear willing to accept a price within a range of
prices, suggesting a ‘price zone of tolerance’), magnitude (absolute price) and frequency of pur-
chase, price presentation (how prices are presented might produce different levels of willingness
to pay), and advertising.
Actual purchase behaviour is influenced by purchase intention, contextual factors (for example
store format, location, timing, and stock-out situations), promotions (for example in-store and
external promotions), perceptions of store quality, and whether or not the customer is online or
in-store, partly because it is much easier to comparison shop online than it is in-store. However,
price perception formation is a dynamic process. In other words, the framework indicates that
once the purchase behaviour occurs, there is a recalibration of the customer’s price perception
because new purchase experiences and new information provide the stimulus for that recalibra-
tion. Therefore the process is cyclical. Next, we consider key elements within the price percep-
tion process—that is, willingness to pay, price consciousness, and pricing cues.
Willingness to Pay
In an online consumer survey of price perceptions in the United States (Sheth, Sisodia, and
Barbulescu, 2006), around half of the respondents (53 per cent) had strongly negative per-
ceptions of the price of replacement razor cartridges and prescription drugs, and a quarter of
respondents (27 per cent) regarded airline pricing negatively. This indicates that we memorize
certain prices for some items, and when companies deviate from those prices, we perceive them
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as unfair. A key question is: why do some consumers see one proposition’s price as fair and
others don’t? If we are to price an offering according to customer needs, we should understand
which customers think a particular price is a fair price to pay, or what they expect to pay, or what
they think others would pay. For example, Superdrug in the UK was forced to review its ‘sexist’
pricing after an investigation by The Times revealed that women were being charged more than
men on certain offerings such as razors. In some retailers, the gender price surplus that women
were expected to pay for similar products was 37 per cent (Hipwell and Ellson, 2016).
Price Consciousness
In addition to deciding whether a price is fair or what customers expect to pay, we also need
to know whether customers are conscious of prices in a particular category. Most people do
not have a good knowledge of prices. Think of your parents or a friend significantly older than
you: do they know the monthly subscription price for streaming music tracks? Do you know the
price of a good-quality dining table or £200,000 worth of life insurance cover? As an industrial
buyer, how much should you pay for the installation and servicing of a new human resources
(HR) system, perhaps Oracle’s PeopleSoft application, designed to keep records for 5,000 staff?
These examples indicate that our price experience contributes to what we know about reference
prices. Our experience is limited to previous actual or considered purchases. There are certain
groups of grocery items that supermarket shoppers are more likely to know and it is these items
that supermarkets frequently discount, and advertise, to attract shoppers, rather than other
lesser known items, the prices of which may be raised. Items including bread, milk, and baked
beans are discounted because shoppers assume that if these items are discounted, other items
must be discounted. So if people do not know the reference prices of particular offerings, how
can they determine their fairness? In the world of contactless payment cards, consumers are
increasingly less likely to remember prices as they ‘swipe and go’, meaning that they are also
likely to spend more (Poulter, 2018). In the UK, supermarkets have come under pressure to pay
farmers more for their produce because it has emerged that many supermarket chains have
been paying the farmers less than the cost of production, meaning that many farmers have been
forced to sell at a loss, and the public have seen this as unfair (Neville, 2015).
Pricing Cues
Estimating reference prices is subject to seasonality for some items, including flowers, fruit, and
vegetables (particularly exotic varieties such as orchids from Thailand or tulips from Holland); for
others, quality and size of items are not universal across companies’ offerings, product designs
vary over time, and customers might not purchase some offerings frequently (Anderson and
Simester, 2003).
When customers assess prices, they estimate value using pricing cues because they do not
always know the true cost and price of the item that they are purchasing. Pricing cues include
things such as sale signs, odd-number pricing, the purchase context, and price bundling and
rebates:
■ Sale signs act as cues, indicating the availability of a bargain. This seduces the customer to
buy, suggesting that an item is desirable and may not be available if it’s not bought quickly
enough. The sale sign uses scarcity as a persuasive device because the scarcer we perceive
an offering to be, the more we want it (Cialdini, 1993)—sometimes, regardless of whether we
need it.
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■ Another pricing cue is the use of odd-number pricing—that is, prices that end in the figure 9.
Have you ever wondered why the Nintendo Wii U you bought was, say, US$299, or £229, or
SEK2,999? Why not simply round it up to $300, £230, or SEK3,000? According to Anderson
and Simester (2003), raising the price of a woman’s dress in a national mail-order catalogue
from $34 to $39 increased demand by 33 per cent, but demand remained unchanged when
the price was raised to $44! The question is why did the increase in demand take place when
there was a higher price? It is unlikely that demand would have increased if the item were
priced at $38. The reason is that we perceive the first price as relative to a reference price
of £30 (which is £34 rounded down to the nearest unit of 10) and more expensive, whereas
the second price of $39 we perceive as cheaper than a reference price of $40 (that is, $39
rounded up to the nearest 10). (See Market Insight 9.2.)
■ Purchase context is another key factor. Our perception of risk is greater if we are continually
reminded of it than if we consider it only at the point of purchase. For example, gyms use the
technique of charging a monthly fee, even though they often demand an annual membership
agreement, for precisely this reason. In fact, a monthly price (instead of an annual, semi-
annual, or quarterly charge) drives a higher level of gym attendance because customers are
more regularly reminded of their purchase. So the way you set your price not only influences
demand, but also drives consumption (Gourville and Soman, 2002). Research on price an-
choring shows that if we are exposed to higher-priced items first, our reference prices are
anchored at the higher level, whereas if we are exposed to lower prices, they are anchored
at the lower level (Smith and Nagle, 1995). Therefore it makes sense to redesign catalogues
to include more expensive items in the earlier pages (Nunes and Boatwright, 2001) or, in an
online store, to show the most expensive items on a page first by default (even though the
customer should be able to sort them afterwards as desired). Location also has an impact on
price perceptions. For example, we will pay more for a can of Coca-Cola from a hotel mini-
bar than from the hotel bar or a supermarket, indicating the context-specific nature of price
perception.
Visit the online resources and complete Internet Activity 9.1 to learn more about the impact
that the purchase context (for example time of day, week, online versus telephone booking, etc.)
has on the pricing of budget airline services.
Price Bundling and Rebates

Marketers highlight their prices to customers by bundling other products and services into
an offering to make the price look more reasonable. For example, magazines frequently
bundle gifts in with the magazine to make it appear more attractive—a practice known as
pure price bundling. Sunday newspapers (in the UK, France, Thailand, Sweden) often
contain numerous supplements (for example fashion, entertainment, property) to make the
newspaper appear to be better value for money. New cars are sold with three years’ war-
ranty on parts so that customers know they won’t have to pay for any repairs within the
warranty period. Fast food restaurants have meal deal offers whereby you can buy a burger,
fries, and a drink at a cheaper price than buying all the items individually (so-called mixed
price bundling).
Price bundling does not always mean that the company needs to give the customer
other items; rather, we might simply be offered a rebate—that is, given money back.
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Market Insight 9.2

Price Discount Illusions
Consider a situation in which you are in an airport duty- discounted once by 40 per cent? Make your choice
free environment. Let’s assume that the several outlets now before reading on.
are all selling high-quality Belgian chocolates. In two
different stores, you are offered different promotional If we revisit the Godiva chocolate offer, the 25 per
offers. In both outlets, the original price of, say, the cent extra free means we get 206 g for £15.99,
Godiva Gold collection box of 14 chocolates is £15.99 which is equivalent to 7.75p per gram. The 25 per
for 165 g. Your choice of promotional offers is 25 per cent discount means that we get 165 g for £11.99,
cent extra free in one shop versus 25 per cent off the which is equivalent to 7.27p per gram. So the better
price in another. Which shop is selling the better offer deal is the price discount and price discounting by
or is this simply the same offer? Make your choice now 25 per cent is not the same as offering 25 per cent
before reading on. extra free.
Now consider that you are browsing the website of On the jacket offer, given that the original price was
British online fashion and beauty store ASOS. You are £285, a 20 per cent first discount followed by a further
looking to buy a particular branded jacket. Let’s say 25 per cent discount would mean a final price of £171.
it’s a Parka London jacket. Its original price was £285. A one-off discount of 40 per cent would mean a final
However, you remember that it has been discounted price of £171. In other words, the two discounts are
twice, first by 20 per cent and then by a further 25 exactly the same.
per cent. Let’s assume that, for some reason, you
Sources: Chen et al. (2012); https://www.godivachocolates.
can’t see the final price. Would you prefer to take this
co.uk/gifts; https://www.asos.com
double-discount deal or the one where the jacket was
This market insight describes how difficult it is to different offers can be the same. Marketers frequently
perceive the value in different prices, and how use the psychology of consumer price perception when
apparently similar offers can be different and apparently setting prices.
Related Topics
perception; sales promotion; consumer behaviour; reference pricing; willingness to pay
1 Did you get both answers correct? If you did, 2 When was the last time you bought a discounted
your arithmetic is excellent and you need not offering? What did you buy and why?
worry about misreading prices. If not, how will
3 What offerings are most frequently discounted
this knowledge affect your shopping behaviour?
and what offerings are seldom discounted?
Credit card companies offer cashback schemes on money spent on their credit cards
as a proportion of the total amount spent. For example, Amex Platinum offers 5 per cent
introductory cashback and then 1.25 per cent cashback on purchases thereafter, with an
annual fee.
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Pricing Approaches
Price setting depends on various factors, including how price affects demand, how sales revenue
is linked to price, how cost is linked to price, and how investment costs are linked to price (Doyle,
2000). Price setting also depends on how sales revenue relates to price. Raising prices tends to
increase revenue up to a point, but then further increases in unit price produce declining increases
in revenue. The relationship between price and sales revenue follows a bell curve (see Figure 9.2).
Sales revenue
Price
Figure 9.2
How price relates to sales revenue
Costs vary with price in a linear fashion because higher prices reduce volume sales, produc-
ing lower total costs (see Figure 9.3). Investment costs, including both working capital and
fixed capital (cost of plant and machinery etc.), also affect prices, with lower prices tend-
ing to require higher sales volume targets, with correspondingly higher levels of investment.
Investments are made at fixed intervals (for example on a six-monthly basis), with investment
costs dropping compared with price increases (and sales volumes decreases). The relationship
between investment and price looks like a downward staircase (see Figure 9.4).
Total costs
Price
Figure 9.3
How price relates to total costs
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Investment costs
Price
Figure 9.4
How price relates to investment costs
Broadly, there are four types of underlying pricing approach:

■ the cost-oriented approach (that is, prices set based on costs);
■ the demand-oriented approach (that is, prices set based on price sensitivity and demand);
■ the competitor-oriented approach (that is, prices set based on competitors’ prices); and
■ the value-oriented approach (that is, prices based on what customers believe to offer value).
When setting prices, an organization might use a combination of these. For example, identifying
the costs and trying to work out potential demand before setting a price is a common approach.
We consider each of these pricing approaches in more detail next.
The Cost-Oriented Approach

The cost-oriented approach advances the idea that the most important element of pricing is the
cost of the component resources that constitute the offering. It can be used for services, in a
business-to-business (B2B) context, or in a product context. The marketer sells output at the
highest price possible, regardless of the buyer’s preferences or costs. If that price is high enough
compared with the seller’s costs, the firm earns a profit and survives. If not, either the seller finds
a way of increasing the price or lowering costs or both, or it doesn’t survive (Lockley, 1949). The
cost-oriented approach considers the total costs of a proposition in the pricing equation, but
does not take into account non-cost factors, such as brand image, degree of prestige in owner-
ship, or effort expended.
One approach to determining price is mark-up pricing, often used in the retail sector. This
method operates on the basis of a set percentage mark-up. When used, the cost-oriented
method leads to the use of list prices, with single prices set for all customers. We simply add to
the cost a mark-up of X per cent and the total constitutes the price. In British supermarket retail-
ing, the mark-up is around 6–8 per cent, but in American supermarket retailing, it is often around
4 per cent or less. Mark-ups on wine served in restaurants are typically between 200 per cent
and 300 per cent. The cost-oriented approach requires us first to determine the price we set that
just covers our costs. This is known as breakeven pricing. It represents the point at which our
total costs and our total revenues are exactly equal.
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To exemplify the concept of mark-up pricing further, we might use the example of a com-
puter company selling high-quality laptop computers costing £1,000 per unit to manufacture.
Suppose that the computer company uses the mark-up pricing method, adding 66.7 per cent.
The final price set can be calculated as:
Sales price ( £ ) = (mark-up * × cost ) + cost = ( 0.67 × 1,000 ) + 1,000 = £1,670
(Note that mark-up is expressed as a decimal between 0 and 1—that is, we divide mark-up
percentage by 100 to get a mark-up figure.)
It is important to note that the gross profit margin (that is, that proportion of the revenue which
is profit) is not the same as the mark-up percentage (which is a proportion of cost). The gross
profit margin in the preceding example can be calculated as:
Gross margin (%) = (mark-up/sales price ) × 100 = ( 670/1,670 ) × 100 = 40.11%
If we consider that, in a supply chain, there is typically more than one customer interaction, as
we move along the supply chain each partner takes their share, adding to the costs and the final
selling price. A toy (for example a teddy bear) bought by a UK importer from a Chinese toy manu-
facturer based in Hong Kong, typically ‘free on board’ (which means that all costs after shipping
are borne by the importer), brought to the UK, warehoused, stored, financed, and eventually
sold at £5.90 (in cases of 12), may well have cost around £4.50 to that importer. The eventual
retail price would probably be around the £10 retail price point—that is, £9.99. The mark-up
(MU) here for the retailer can be calculated as:
MU (%) = [( sales price/cost ) − 1] × 100 = [(£9.99/£5.90) − 1] × 100 = 69%
The mark-up for the importer is much lower, at 31 per cent—that is, (£5.90/£4.50) − 1] × 100.
However, the importer may well buy a container of the teddy bears, comprising, say, 4,800
individual bears (400 boxes, each containing 12 units), and sell these over the three months
between September and November for the Christmas retail season. The retailer, by contrast,
may sell only six boxes of 12 during the period October–December, so the retailer has to
make a higher profit on a smaller volume with a wider range of items to give the customer
some choice.
The cost-oriented approach does mean that we have to use a mark-up pricing approach.
In some industries, prices are based on fixed formulae, set with a supplier’s costs in mind.
For example, in the ethical prescription pharmaceutical industry in France, Italy, and Spain,
government-fixed formulae have tended to dictate prices, with limited scope for pharma-
ceutical manufacturers to negotiate, whereas in the UK and Germany, the tradition has
been for the country’s national health authorities not to fix individual product prices, but to
set an overall level of profitability with which the pharmaceutical manufacturer must agree,
based on a submission of its costs (Attridge, 2003). In the UK, however, there is increas-
ing recognition that the current pharmaceutical pricing system, the Pharmaceutical Price
Regulation Scheme (PPRS), is inadequate for containing costs and incentivizing innovation
(Latif, 2013).
The Demand-Oriented Approach

With the demand-oriented approach to pricing, the firm sets prices according to how much cus-
tomers will pay. This approach is prevalent in marketing services, but again could be used in B2B or
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consumer marketing contexts (see Market Insight 9.3). Airline companies use this approach, with
customers paying different amounts for seats with varying levels of service attached. Most airline
companies offer three types of cabin service, for example first class, business class, and economy
class, with varying benefits according to the price paid based on the seat pitch (and availability as
a bed), the entertainment package, the quality of the meal options, the availability and quality of air-
port lounges, transportation to and from the airport, the in-flight service offered, and the experience
through immigration and security. Other benefits are available through membership and loyalty
schemes, including premier access through immigration lanes, instant seat upgrades, and priority
seats. Low-cost carriers in Europe, such as Ryanair, Norwegian, easyJet, and Germanwings, oper-
ate fairly sophisticated yield management approaches via online booking systems. These set prices
to ensure that planes operate at full capacity by charging increasing amounts as the purchase date
gets closer to the travel date, flying on particular days of the week, and managing the price at which
different service classes are sold. Tickets are usually priced cheaply initially to increase demand
(and generally priced substantially less than the legacy airline carriers such as British Airways, SAS,
or Air France). There is a general perception among passengers that Asian airlines offer the best
service for the price charged, with European airlines perceived as not particularly satisfying and
US airlines as very unsatisfying, as illustrated in Figure 9.5 (Anon., 2016b). In another consump-
tion setting, a pub in Stockton in the northeast of England, offered a pint of beer at the beginning
of the New Year starting at £1.55 from 9 a.m., with the cost of the drink increasing by the hour in
the morning, alongside the advert, ‘The earlier you are in, the cheaper the drink!’ Unsurprisingly,
the promotion drew the ire of campaign groups seeking to reduce alcohol drinking (Jeeves, 2018).
Companies operating a demand pricing policy should be wary of overcharging their cus-
tomers, particularly where customers’ requests are urgent. Examples include emergency pur-
chases, such as funeral services. When companies do set charges that are perceived to be
250
INTERNATIONAL AIRLINES PRICE V SERVICE
125
TOTAL FLIGHTS, 50 AVERAGE CUSTOMER
NORTH AMERICAN EUROPEAN ASIAN Q4 2015, ‘000 5 RATING (OUT OF 5)
4.5
EXPENSIVE, Singapore Airlines ANA CHEAP,

SATISFYING SATISFYING
4.0
Cathay Pacific
KLM Emirates
Japan Airlines
3.5
Lufthansa
Turkish British Airways Air France
Airlines Virgin Atlantic Delta
3.0
Air Canada China Eastern
Air China Air India
American 2.5
Airlines
EXPENSIVE, CHEAP,
UNSATISFYING United UNSATISFYING
Airlines 2.0
115 110 105 100 95 90 85
PRICE RELATIVE TO GROUP AVERAGE Sources: FlightStats.com;
Skytrax; Google Flights; airlines
Figure 9.5
International airlines: price versus service
Source: From 1843 Magazine © 2016 The Economist Newspaper Limited. All rights reserved.
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Market Insight 9.3

Masstige Pricing at MED
head designer of the company proceeded to create

a less expensive underwear line (selling at prices
30–40 per cent less than those of its competitors).
This action boosted sales and revenues by 14
per cent in just two months after the new product
launch.
The company exploited two new markets: by opening

a store in Cannes, France, taking advantage of the
tourists that visit all year round (with prices set twice as
high as in Greece); and by establishing a new store in a
mall selling exclusive brands in Istanbul in Turkey, with
prices set 30 per cent higher than in Greece. These
initiatives further increased revenues, but the strategic
decision that really helped the company to thrive was
its implementation of a differentiated pricing strategy.
The MED stores on islands in the Aegean, such as
the cosmopolitan island of Mykonos, have created a
MED priced its lingerie and swimwear higher buying trend in underwear and the swimwear product
internationally than domestically, with great lines, and have increased brand awareness both
success
domestically and internationally. The retail prices here
Source: Photo courtesy of Chris Liassides.
were set almost 30 per cent higher than elsewhere,
MED is a luxurious swimwear, underwear, and enabling the company to be perceived as a luxury
eyewear label that has been serving the Greek brand. The brand received a further boost when it was
market for more than 25 years. It is a successful worn by international celebrities including television
masstige (that is, mass–prestige) brand following a and films stars, such as Eva Longoria, who purchased
fully vertically integrated business model. Like many the products while holidaying on the island (effectively
Greek firms, it has been affected by the country’s granting the company unpaid celebrity endorsement).
sovereign debt crisis, which has seen the country’s This was the best promotion the company could have
economic output contract by 26 per cent. MED received.
produces its masstige swimwear and eyewear
MED had dared to implement differentiated pricing,
in-house, although the production of its eyewear
acted quickly, and smartly took the market by storm.
lines is fully outsourced. Primarily operating in
The company enjoyed growth of 8 per cent in 2017
Greece, MED employs more than 300 people and
(with estimated growth at 12 per cent in 2018),
has 30 retail stores, but also distributes its product
despite the adverse conditions of the economy
lines through some other 150 stores in Greece and
and the market, establishing itself as a leader
abroad (primarily in Germany and Cyprus) through
in the underwear and swimwear category, while
wholesalers.
obtaining market shares in companies that were less
Seeing the sales of the company plunging, chief fortunate.
executive officer (CEO) Efthimis Hatzivasileiou had
Sources: Kolitsopoulou (2017); Smith (2017); https://shop.med.
to revise the company’s strategy. He changed
com.gr/en-gb/about
the marketing strategy by expansion abroad and
primarily by introducing differentiated pricing. The
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Market Insight 9.3

continued
The market insight illustrates that companies can yield well as an indication that customers are willing to pay
very positive and promising results when choosing the the prices set before implementation. A secondary
most appropriate pricing strategy. Differentiated pricing, insight from the case is that small and medium-sized
as used in this case, is the strategy of selling the same enterprises (SMEs) can adopt any pricing strategy
product to different customers at different prices. It first considered appropriate for larger companies by
requires a full analysis of the business environment, as adapting it to their own needs and capabilities.
Related Topics
marketing strategy; international expansion; differential pricing
1 Why do you think it was possible for MED to sell 3 Can you think of an example of a company that
its products at higher prices in Cannes? uses a differential pricing strategy? How does
its strategy compare with that used by MED?
2 Do you think buyers in Cannes would be
concerned that the product they bought was This market insight was kindly contributed by Chris
Liassides, University of Sheffield, International Faculty, CITY
much cheaper in Greece? Why do you say this? College.
unfair, they are liable to claims of price gouging. For example, in 2015 and under former CEO
Martin Shkreli, Turing Pharmaceuticals raised the price of anti-infection drug Daraprim by 5,555
per cent, from US$13.50 to $750 (Crow, 2015)—although it later reduced the price for hospitals
by 50 per cent after a media backlash (Constantinides and Rahman, 2015).
The Competitor-Oriented Approach

Companies can also set prices based on competitors’ prices, also known as the going rate,
or ‘me too’ pricing. This approach is used in B2B, services, and consumer marketing con-
texts. The advantage of this approach is that when your prices are lower than those of the
competition, customers are more likely to purchase from you, provided that they know your
prices are lower.
Price guarantee schemes such as that outlined in Market Insight 9.4 seek to provide custom-
ers with the peace of mind of knowing that the price paid is competitive. In reality, such schemes
are expensive to operate, requiring continuous monitoring of the full range of competitors’ prices
and a strong focus on cost control. However, it is worth considering that adopting a competitor-
oriented pricing strategy can lead to price wars (see Research Insight 9.2).
Visit the online resources and complete Internet Activity 9.2 to learn more about how John
Lewis brings the ‘Never Knowingly Undersold’ promise to life in its advertising.
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Market Insight 9.4

Electrical Price Promises
Online-only retailer of electrical goods AO seeks to be AO seeks to differentiate itself based on the quality of
the leading retailer in Europe, and currently operates in its service—especially its in-house logistics capability.
the UK, Germany, and the Netherlands. With around Delivery of items is also an important consideration for
2,500 employees, AO saw gross sales of just over consumers when buying bulky products like fridges
£700 million in 2017. What is unique about AO is that it and cookers.
cares not only about selling existing products, but also
about recycling old products. AO’s approach is to offer AO’s competitor, Curry’s, also offers a price promise
an everyday low price and a price promise, rather than scheme, matching against AO.com, Argos, Asda,
to offer discounts, because it believes this is a better John Lewis, Tesco, and even Amazon. Curry’s offers
alternative than price discounting with which to build to match any price the competitors offer on the sale
consumer trust and perceptions of value. of the particular item under consideration and they
make it particularly easy to compare competitors prices
AO’s price-match promise stipulates that if a customer by means of an app available on Google Play called
finds a cheaper product from any other UK retailer ‘Compare prices Curry’s PC World’.
(online or instore), it will match that price and refund
the difference. The price-match promise is valid on the Sources: Chahal (2015); AO (2017); https://www.currys.
day on which the customer orders a product and up co.uk/gbuk/price-promise-1023-theme.html; https://ao.com/
to seven days afterwards. Given that other retailers are help-and-advice/help-with-my-order/price-match-promise
also offering competitive prices and price matching,
This market insight outlines how two highly popular competitors’ prices and then claim the refund, but
electrical retailers seek to compete against each other that’s not really the point; for most companies, the point
and other competitors by running a price guarantee is to build trust with the consumer by offering the price
scheme—that is, each guarantees that its prices match—which is available if they want to use it—to
cannot be beaten by anyone else. There is a question make the purchase decision an easier one to make.
of how many consumers actually bother to check
Related Topics
price guarantee; price promise; price promotions; retailing
1 What data does AO need to determine whether have to do for its app, is justified for its price
or not to pay out on a customer’s claim under promotion commercially? Why do you say that?
the price promise scheme?
3 What other companies are you aware of that
2 Do you think the cost of collecting the offer price promise schemes? How are they
competitor pricing data, as Curry’s would similar to or different from those outlined above?
Price wars occur when competitors’ pricing policies are overly focused on competi-
tors, rather than customers, when price is pushed downwards, and when pricing results in
interactions between competitors that lead to unsustainable prices. For example, in 2003,
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Reinemoeller, P. (2014). How to win a price war. Sloan Management Review, 55(3),
15–17.
This article, based on a study of Albert Hejn in the Netherlands, explains that companies can win price wars
by leveraging five strategic capabilities—that is, the ability to:
■ affirm the need for a price war;
■ carefully select an appropriate battlefield using advanced analytics capabilities;
■ pick a single target competitor;
■ stay under the radar (by targeting former customers rather than explicitly poaching new customers); and
■ align revenues with reformed cost structures.
when Dutch supermarket retailer Albert Hejn slashed its prices in response to competition
from Aldi and Lidl, the resulting battle saw an 8.2 per cent reduction in food prices, costing
Dutch supermarkets €900 million (£700 million) and 30,000 jobs in a single year (van Heerde,
Gijsbrechts, and Pauwels, 2008; Blackhurst, 2014)—although, by 2005, after the price war
had ended, Albert Hejn managed to regain lost market share to become market leader again
(Reinemoeller, 2014). In 2017, Amazon set the stage for a price war with Walmart in the United
States when it dropped prices at its newly acquired grocery retailer, Whole Foods Market
(Helmore, 2017).
In a review of more than 1,000 examples, researchers found that price wars could be
averted if companies responded to market-based, firm-based, product-based, and con-
sumer-based early warning signals (van Heerde et al., 2008). So, some firms, under certain
circumstances and within certain industries, are more susceptible to price wars than others
(see Table 9.2).
Calculating and anticipating competitor response is important when setting prices and
responding to competitors’ price cuts. We should analyse consumer responses when a com-
petitor starts to cut prices, but if purchase behaviour changes only modestly or temporarily, other
marketing mix elements (for example promotion, distribution, or product differentiation) may be
more likely to win back customers (van Heerde et al., 2008).
We do not always have to respond to a price war with a price cut. Instead, we might promote
increased service quality (Rust, Danaher, and Varki, 2000) or customer value improvements
more generally.
The Value-Oriented Approach

Even in the consumer durables category (for example furniture, white goods, carpets), in
which we might expect customers to be less price-sensitive, firms have long practised pricing
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Table 9.2 Circumstances under which price wars are more or less likely to occur
Circumstances under which price wars are more likely to occur
■ As market entry occurs and an entrant gains, or is expected to gain, a sizeable market position
■ When an industry possesses excess production capacity—which stimulates the intensity of the
price war
■ When markets have marginal or negative growth prospects
■ Where market power within an industry is highly concentrated
■ Where barriers to exit are greater (meaning that it’s difficult to leave an industry, e.g. because of
high investment costs)
■ Where financial conditions of at least one firm in the industry worsen or as a firm approaches
bankruptcy
■ Where the offering concerned is of strategic importance to the company
■ When an offering is more like a commodity and so does not command a price premium
■ When firms introduce very similar offerings to one another
■ When there is little brand loyalty in evidence from customers
■ When customers are more highly price-sensitive—which also increases the intensity of the price war
Circumstances under which price wars are less likely to occur
■ Where one or more firms have established a reputation for strong and tough responses to past
price wars
■ Where markets have intermediate levels of market power concentration (so neither suppliers nor
buyers are dominant in a market)
approaches with customers’ considerations in mind (Foxall, 1972). We term this the value-ori-
ented approach to pricing, because prices are set on the basis of buyers’ perceptions of specific
product or service attribute values rather than on the basis of costs or competitors’ prices. This
approach can be used in B2B, services, and consumer contexts.
We no longer live in an era in which offerings are priced at what people can afford, because
people are generally much wealthier now than they were 30 or more years ago. Resources are
more plentiful and consumers have much of what they need. So they are more interested in
obtaining value from the offerings they buy. With value-based pricing, the pricing process begins
with the customer, determining what value they derive from the offering and then determining
price, rather than the opposite approach used in cost-oriented pricing, whereby costs are deter-
mined first and then the price is set.
In value-based pricing, deciding what is of value to the customer is determined using cus-
tomer research. The result may be that the company does not necessarily offer a cheaper price.
In fact, it could mean a higher-priced offering. If that offering is to represent true value to the
customer, they must feel that it has more benefits than equivalent offerings. A recent study of 1,
812 pricing professionals demonstrated that a value-based pricing strategy is positively linked
to firm performance, whereas a cost-based approach is not (Liozu and Hinterhuber, 2013). A
good example of a brand using this approach is L’Oréal, which has advertised its products using
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spokesmodels for a long time, for example South Korean model Soo-Joo Park, British pop sen-
sation and television personality Cheryl, Chinese model Xiao Wen Ju, Dutch model Lara Stone,
Australian actor Naomi Watts, and Hungarian model Barbara Palvin, among many others, on the
basis that we should use their products ‘because we’re worth it’.
Xiao Wen Ju, Lara Stone, and Luma Grothe for L’Oréal: because they’re worth it
Source: Courtesy of The Advertising Archives.
Research indicates that brands that generate revenues over and above those obtained by an
own-label or generic version of the offering also generate revenue premiums, which acts as a
useful measure of brand equity (Ailawadi, Lehmann, and Neslin, 2003). Brand equity is impor-
tant, because it contributes to company valuations when they are sold, acquired, or merged.
Companies increasingly focus on generating price premiums. Nevertheless, a price premium is
useless if it’s perceived to be unfair. When setting value-based prices, it is important to consider
the following questions (Anderson, Wouters, and van Rossum, 2010):
1 What is the market strategy for the segment? What does the supplier want to accomplish?
2 What is the differential value that customers are likely to perceive—that is, the value between
this offering and the next best alternative, assuming that the differential value can be verified
with the customer’s own data?
3 What is the price of the next-best alternative?
4 What is the cost of the supplier’s offering?
5 What pricing tactics will be used initially (for example price discounting)?
6 What is the customer’s expectation of a ‘fair’ price? (Refer back to Market Insight 9.2.)
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Pricing Strategies and Objectives

Whilst companies might use a variety of pricing approaches to set their prices over the
long term, they also need to understand how they might set their prices in the shorter term.
Companies tend to establish their pricing strategy based around what their pricing objectives
are. The four main pricing strategies are as follows:
■ Premium pricing focuses on pricing an offering to indicate its distinctiveness in the mar-
ketplace. For example, Aston Martin prices the DB11 in this way, at around £150,000 (see
Chapter 13).
■ Penetration pricing refers to setting the price low relative to the competition to gain market
share. Amazon has adopted this approach to build its now substantial customer base. This
strategy is frequently used for new proposition launches.
■ Economy pricing involves setting the prices at a bare minimum to attract price-sensitive cus-
tomers. Supermarkets often use this approach with their everyday low pricing approach (for
example Walmart in the United States, Aldi all over Europe, and Jumbo in the Netherlands).
■ Price skimming occurs when the price is initially set high and then lowered in sequential
steps. Apple iPhone adopted this strategy, for example. This strategy is frequently used for
the launch of new offerings.
Companies’ pricing objectives may relate to other objectives, for example to maximize profit, or
to achieve a satisfactory level of profits or sales, or achieve a particular return on investment.
Companies may price to generate cash flow, offering discounts for quick payment. A firm’s
pricing objectives could be marketing-based, for example pricing to achieve a particular mar-
ket share (so-called market penetration pricing) or to position the brand so that it is perceived
to be of a certain quality. Sometimes, companies price their propositions simply to survive, for
example pricing to discourage new competitors from entering the market by lowering prices to
maintain sales volumes whenever competitors lower their prices. Alternatively, a company might
price to avoid price wars, maintaining prices at levels similar to its competitors—so-called com-
petitor-oriented pricing. Finally, a company may price to achieve certain social goals (for example
a pharmaceutical company pricing a drug to ensure maximum reach in a highly disease-afflicted
country). The important consideration is whether or not the pricing objective is reasonable and
measurable. Often, companies pursue different pricing objectives simultaneously and some pric-
ing objectives may be incompatible with each other. For example, pricing to increase cash flow
by offering quick payment discounts is not compatible with maximizing profitability. However, it
is compatible with obtaining a satisfactory profitability, as long as the discounts offered are not
greater than the cost of the offerings sold.
Launch Pricing
When launching new offerings, organizations tend to adopt one of two classic pricing strategies.
In the first approach, they charge a lower price in the hope of generating a large volume of sales
and recouping their research and development (R&D) investment that way (hence penetration
pricing). With the second approach, they charge an initially high price and reduce the price over
time, recouping the cost of the R&D investment from sales to the group of customers who are
prepared to pay the higher price (hence price skimming the market).
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Figure 9.6 shows both market penetration and market skimming price strategies, as well
as their hypothetical impact on quantity demanded (Q1 and Q2, respectively). For any given
demand curve, the market skimming price offers a higher unit price than the market penetra-
tion price. The actual amount sold at each of these unit prices depends on the price elasticity of
demand and a more inelastic demand curve would give greater revenue from a market skimming
price than a market penetration price, because the quantity sold would not be very different
between the two prices. On average, the market skimming price is likely to yield a lower quantity
of offerings sold than the market penetration price.
Skim pricing is a fairly standard approach for high-tech offerings or those offerings that require
substantial R&D investment initially (such as games consoles and prescription pharmaceuticals).
For example, Microsoft dropped the price for its Xbox One machine, bringing the official base
price to US$299 in 2016, having opened with a launch price of $500 (Thier, 2016). The skim
pricing approach is particularly appropriate:
■ when companies need to recover their R&D investment quickly;
■ when demand is likely to be price inelastic;
■ where there is an unknown elasticity of demand, since it is safer to offer a higher price and
then lower it than to offer a lower price and try to increase it;
■ where there are high barriers to entry within the market;
■ where there are few economies of scale or experience; and
■ where product life cycles are expected to be short (Dean, 1950; Doyle, 2000).
The market penetration pricing approach is used for fast-moving consumer goods (FMCGs)
and consumer durables, where the new offering introduced is not demonstrably different
Unit
price
Market
skimming
Demand curve
price
Market
penetration
price
0 Q1 Q2
Total quantity demanded
Figure 9.6
Launch pricing strategies
Source: Adapted from Burnett (2002). Reproduced with the kind permission of the author, John Burnett.
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from existing formulations. So, if a car manufacturer introduces a new coupé, relatively
similar to its previous model, which has no new features and is not significantly better than
competing models, it might use the market penetration pricing strategy. Items aimed at cap-
turing price-sensitive customers might use this approach. Nissan stated that it would use
this pricing approach with the launch of the Datsun Redi GO model in India in 2016, which
was to be priced at between ₹2.5 lakh and ₹4 lakh (Vijayraghvan, 2015). In a recessionary
environment, customers are particularly sensitive to the value they receive when purchasing
consumer or B2B offerings (see Research Insight 9.3). The penetration approach is more
effective where:
■ there is a strong threat of competition;
■ the offering is likely to exhibit a high price elasticity of demand in the short term;
■ there are substantial savings to be made from volume production;
■ there are low barriers to entry;
■ product life cycles are expected to be long; and
■ there are economies of scale and experience to take advantage of (Dean, 1950; Doyle, 2000).
Van Heerde, H.J., Gijsenberg, M.J., Dekimpe, M.G., and Steenkamp, J.-B.E.M. (2013).
Price and advertising effectiveness over the business cycle. Journal of Marketing
Research, 50(2), 177–93.
This article considers whether or not marketing activity (specifically, pricing and advertising) is affected by the
economic cycle (for example an expanding economy versus contracting economy). The authors estimate
short- and long-term advertising and price elasticities for 150 brands across 36 consumer packaged goods
categories, using 18 years of monthly UK data from 1993 to 2010. They conclude that, during economic
contractions, consumers are less responsive to advertising and react more strongly to price reductions.
Generally, the authors suggest reallocation of marketing expenditure from advertising to price discounting,
but only if the firm’s objective is to maintain sales (as opposed to profit maximization). There are differential
effects for categories, and even brands within categories, for example advertising elasticity is high (that
is, more advertising creates more sales) during a contraction for food brands, but not for beverages. For
premium mass brands, advertising during a recession can lead to greater willingness to pay and reductions
in price sensitivity (that is, people will pay more). Interestingly, the authors also find that consumer packaged
goods firms tend to do less well in an expanding economy because consumers shift spending to out-of-
home spending, but return to in-home spending during a contraction.
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Pricing Management
In the information era, marketing information systems (MkIS), database artificial intelligence, and
Internet-enabled technologies have all changed how companies make pricing decisions. Pricing
strategies such as ‘real-time’ or ‘dynamic’ pricing have increasingly been developed in both
consumer and B2B markets, sometimes through online price-comparison sites, online auctions,
and companies’ own websites, because prices can be changed easily. For example, Amazon
updates its price list every 10 minutes based on constant data analysis (Anon., 2016c). Dynamic
pricing even allows changes at the customer level (Grewal et al., 2011). In the UK in 2018, Tesco,
Sainsbury’s, and Morrisons were all working on ‘surge pricing’—a process that allows them to
raise or cut the price of groceries depending on demand, and to reflect these changed prices on
electronic price tags (Ellson, 2018).
Visit the online resources and follow the web links to visit Kelkoo, Price Runner, Touslesprix.
com, Beslist.nl, and Preis Suchmaschine—all examples of online price-comparison decision
aids in different European countries.
Comparison sites have developed large customer databases covering all types of offering,
including complex services, such as gas and electricity supply, insurance, mobile phone pack-
ages, and travel, as well as standard offerings, such as cars and breakdown cover. Marketers
are working in an increasingly price-transparent environment and they should recognize that
pricing is a capability at which some companies are better than others. Those companies that
are excellent at pricing manage their costs and price complexity well, and offer sustainability and
innovation in pricing approaches (Hinterhuber and Liozu, 2012). Online retailers are recognizing
that it’s not only the price that matters, but also how easy it is to pay online, because a more
efficient payment process can lead to more time shopping (see Market Insight 9.5).
Pricing Tactics
In reality, when setting prices, an organization trades off the different approaches by considering
all the following factors:
■ Competition—How much are competitors charging for similar offerings?
■ Cost—How much do the individual components that make up our offering cost?
■ Demand—How much of this product or service will we sell at what price?
■ Value—What components of the offering does the customer value and how much are they
prepared to pay for them?
Although we outlined that four main pricing approaches can be used to determine prices earlier
(that is, cost-, demand-, competitor- and value-oriented, or some combination of these), and
four main pricing strategies in the long term (premium, penetration, economy, price skimming), in
fact there are also many different possible pricing tactics within these approaches and strategies
in the short term that could be used, including the following:
■ List pricing occurs when a single price is set for an offering, for example hotels charging what
they call ‘rack rates’ for hotel conferencing facilities, combining residential accommodation
for a set number of delegates with daytime accommodation for a conference room, refresh-
ments, and lunch.
Chapter 9 >1Price
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373
■ Loss-leader pricing involves setting the price at a level lower than the actual cost incurred
to produce it. This approach is often used in supermarkets on popular price-sensitive items
(for example best-selling novels) to entice customers into store. The loss incurred is made up
by increasing the prices of other less price-sensitive items or it is absorbed as a short-term
promotional cost.
Market Insight 9.5

Stripe: Revolutionizing Online Payments
Fintech (that is, financial technology), start-ups, and a payment. As a result, this encourages customer
scaling companies are identified as key drivers in the retention.
international financial services sector. One example
of this is a start-up called Stripe, recently valued at Recently, Stripe has revised its service to facilitate
US$5 billion. Stripe was founded in 2011 by two Irish payments in more than 130 currencies, thereby
brothers, Patrick and John Collison, to simplify the massively extending its market reach. In addition,
online payments process. Until recently, the payment Stripe’s latest service, ‘Stripe Connect’, allows
sector for the credit card and banking industry had merchants to change their business models (such
been based on 1980s business models in which the as their pricing strategy or their target market) at
costs of inefficiencies were passed on to merchants any time—a key requirement for today’s fluid, rapidly
and small businesses. changing business environment. For example,
transportation companies are often required to
quickly pivot to address regulatory changes in the
markets in which they operate, or companies might
want to quickly grow a market share in a new sector,
after which they can adapt their business model once
their position as a leading provider is established.
The Stripe payment model is similar to that of its

competitors, such as PayPal, but Stripe charges a
Simple logo; pain-free payment transactions flat rate in each country of operation. For example,
Source: Courtesy of Stripe. in Europe, for every successful charge on a
credit card, it costs 1.4% + 25c; for cards from
Stripe, frequently considered a rival to PayPal, provides non-European countries, it costs 2.9% + 25c. This
processing services for online and mobile transactions. amount decreases based on volume. In addition,
Essentially, the company provides a suite of application although PayPal follows the same basic fee structure
programming interfaces (APIs) that allow businesses to and boasts of providing payment for transactions
integrate payment-processing technologies into mobile faster than Stripe (that is, within one business day),
apps and services, thereby facilitating credit card its pricing includes a number of service fees on top
payments, bank transfers, and bitcoin transactions. of its flat rate. Stripe presents another competitive
One of Stripe’s unique selling points is that it makes the advantage in terms of data portability, meaning that,
digital payment process via smartphones and websites unlike its competitors, Stripe facilitates the migration
‘so pain-free it’s practically invisible’, without the of customer credit card data in a secure and payment
need for integration with third-party payment service card industry (PCI) compliant manner.
providers such as PayPal. This seamless experience
Sources: Newenham (2014); IFS Ireland (2015); Perez (2015);
entices customers to stay longer on a merchant’s
https://stripe.com/ie/pricing
website, while also reducing the time taken to make
374 1 > Managing
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Market Insight 9.5

continued
This market insight shows how an Irish company charges only a modest exchange rate). Paypal, Stripe’s
achieved exponential growth by revolutionizing the major rival, has since acquired Braintree, a payment
online payments process. By offering a flat rate per processing company that uses a similar business
credit card transaction, as opposed to monthly model to Stripe. The market insight therefore illustrates
fees, Stripe made it easy—particularly for small both the importance of having a clear pricing strategy
businesses—to develop an online payments facility and and how an easy payment process can generate
process payments from many countries (since Stripe greater amounts of business for an organization.
Related Topics
pricing; online retailing
1 If a company is considering Stripe versus PayPal, 3 As a consumer, if you are making a payment
what might drive its final decision? (Hint: Search online, what pricing tactics, if any, influence
both companies’ payment approaches online.) your decision to stay longer on a merchant’s
website?
2 What approach to pricing is Stripe using at
present? In your answer, describe how Stripe This market insight was kindly contributed by Dr Ethel
uses marketing cues to persuade customers Claffey, Waterford Institute of Technology, Ireland.
that its rates are good value compared with
those of its competitors.
■ Promotional pricing sees companies temporarily reduce their prices below the standard price
to raise brand awareness and to encourage trial. Such approaches incorporate the use of
loss leaders, sales discounts, cash rebates, low-interest financing (for example car manufac-
turers offering 0 per cent interest-free financing deals), and other price-based promotional
incentives. For example, in late 2015, French hypermarket chain Leclerc advertised and of-
fered Epson printers at a price of €44.99—down from €54.99—for a fixed ten-day period,
with the tagline ‘Chez E. Leclerc, vous savez que vous achetez moins cher’ (‘At E. Leclerc,
you know you are buying cheaper’).
■ Segmentation pricing involves setting prices for different groups of customers. For
example, Unilever’s ice cream is offered as various different ice-cream products at
differing levels of quality and price, ranging from super-premium (for example Ben &
Jerry’s ice cream, available in cinemas) to economy offerings (for example standard
vanilla ice cream available in supermarkets). Economists call this approach price
discrimination.
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375
■ Customer-centric pricing, as suggested by Cross and Dixit (2005), involves companies taking
advantage of customer segments by measuring their value perceptions, measuring the value
created, and designing a unique bundle of products and services to cater to the value require-
ments of each segment, then continually assessing the impact this has on company profitabil-
ity, taking advantage of up-selling (that is, offering a customer a more expensive offering in the
same category) and cross-selling (that is, selling other different offerings to the same customer).
■ The pay-what-you-want approach to pricing, used by street music artists, allows custom-
ers to pay whatever they want. It has also occasionally been used in publishing, for example
music publishing, when Radiohead released their album In Rainbows in 2007 (Anon., 2012),
and in book/game publishing by Humble Bundle, which allows customers to also donate
part of the fee to a charity (Baddeley, 2015). Under certain circumstances, customers may
pay more using this scheme than if companies had set the price (Kim, Natter, and Spann,
2009), although others have argued that it works only for promotions and is, in the long run,
a ‘dangerous pricing technique’ (Leatherdale, 2015), offering ‘slim pickings’ (Harford, 2013).
It tends to work best where an offering has a low marginal cost, when there is a fair-minded
consumer, where an offering could be sold at a wide range of prices, in a competitive mar-
ketplace, and where there is a strong relationship between buyer and seller (Shan, 2015).
Business-to-Business Pricing
Business-to-business markets sell offerings to other businesses. They differ from consumer
markets because buyers are professionally trained procurement executives, often with quali-
fications from professional institutes, such as the UK’s Chartered Institute of Purchasing and
Supply (CIPS), the Australian Association of Procurement and Contract Management (AAPCM),
or Silf, the Swedish Purchasing and Logistic Association. Their function is often highly technical,
even for apparently simple offerings. For example, to produce a pen, a manufacturer might buy
the pens in Italy, packaging and printing from China, refills from Germany, and the final product
assembly in Bulgaria.
In the B2B context, the discussion of price takes place between the buyer and the seller in
an atmosphere in which both are trying to make the best commercial decision for their organiza-
tions. The seller wants to maximize profit (by getting a high price), and the buyer wants to pro-
cure at a low price to lower costs and maximize their profits. Their task is to resolve their mutual
needs in a win–win situation. From the seller’s perspective, there are numerous pricing tactics
that can be adopted, including the following:
■ Geographical pricing sees prices based on customer location (for example pharmaceutical
companies selling their prescription drugs at different prices in different countries). This might
include free on board (FOB) factory prices whereby the price represents the cost of the goods
and the buyer must pay for all transport costs incurred. Free on board destination pricing
refers to the situation in which the manufacturer agrees to cover the cost of shipping to the
destination, but not transport costs incurred on arrival at the port (air or sea).
■ Negotiated pricing sees prices set according to specific agreements between a company
and its clients or customers (for example in professional services, such as architectural or
structural engineering). This approach occurs where a sale is complex and consultative, al-
though sales representatives should not concede on price too quickly before properly under-
standing a client’s needs (Rackham, 2001).
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■ Discount pricing sees companies reducing the price on the basis that a customer commits to
buying a large volume of that offering now or in the future, or is prepared to pay for it quickly.
Large retailers work on the discount principle when buying for their stores. Their mighty pro-
curement budgets and long experience ensure that they can buy at cheaper prices from their
suppliers and so lower their costs. Note that, when price is discounted, we disproportionately
reduce the operating profit (Baker et al., 2010).
■ Value-in-use pricing focuses attention on customer perceptions of the attributes of offerings
and away from cost-oriented approaches. It prices offerings based on what the customer
is prepared to pay for the individual benefits received from that proposition, so the com-
pany must first ascertain what benefit components the customer perceives to be important,
quantify those benefit values, determine the price equivalence of value, rate competitive and
alternative products to provide a benchmark for price determination, quantify the value in
use (that is, the value in using its product vis-à-vis its competitors’ products), and only then
is the price actually fixed (Christopher, 1982). This approach is particularly used for industrial
propositions.
■ Relationship pricing seeks to understand customers’ needs before pricing the offering around
those needs to generate a long-term relationship. This means offering excellent financial
terms, credit or more lenient time periods for payment, or discounts based on future sales
revenue or the risk involved in the purchase.
■ Pay-what-you-want (PWYW) pricing allows customers to pay whatever they want for an
offering. For example, legal services firm CMS Cameron McKenna has offered PWYW
pricing to its corporate clients (Hollander, 2010). However, one new restaurant offering
PWYW pricing in Guiyang, China, lost 100,000 RMB (about US$15,000 at that time) in
one week despite positive customer evaluations of the food and service. This type of
pricing works best for last-minute sales to fill empty capacity, where the customer has a
previous relationship with the business, or when the earnings are given to charity (Dhola-
kia, 2017).
■ Transfer pricing occurs in large organizations where considerable internal dealing between
different company divisions occurs, often across national boundaries. Prices may be set at
commercial rates, on the basis of negotiated prices between divisions, or using a cost-based
approach, depending on whether the division is a cost or profit centre. Internal dealings can
sometimes mean that the final offering is overpriced for a given customer. Airbus Industries,
the European aircraft manufacturer owned by the European Aeronautic Defence and Space
Company (EADS), adopts this approach when constructing its planes built from components
made in different countries.
■ With economic value to the customer (EVC) pricing, a company prices an offering accord-
ing to its perceived value by the purchasing organization (that is, total profit generated less
the costs paid), typically by means of comparison with a reference or market-leading offer-
ing, taking into consideration not only the actual purchase price of the offering, but also the
start-up and post-purchase costs, to give an overall indication of how much better its pricing
structure is compared with that of a competitor. The final price is then set based on a nego-
tiation between the buyer and seller over the difference in value and how likely this value is to
be achieved. This kind of pricing approach might be used by a large consultancy solutions
company, such as IBM, when it sells its system solutions.
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■ With tendering and bid pricing, organizations invite other organizations to bid for the right
to deliver a particular job or task (a tender) and to name their own price. This approach is
used heavily within the public sector. The difficulty arises in that organizations do not always
provide a budgetary range to allow bidders an idea of what price would be accepted. The
manager should know the profitability of their bid when determining the price, and should aim
to discover the winning bidder’s name and price on lost jobs where possible (Walker, 1967).
Where the winning bidder sets their bid price so low that they win an unprofitable contract
that they are nonetheless duty-bound to deliver, this is known as the winner’s curse.
Chapter Summary
■ Explain the concept of price elasticity of demand.

Price elasticity of demand allows us to determine how the quantity of an offering relates to the price at
which it is offered. Inelastic propositions are defined as such because increases or decreases in price
produce relatively smaller decreases or increases in sales volumes, whereas elastic offerings have larger
similar effects. Understanding price elasticity helps us to devise demand-oriented pricing mechanisms.
■ Define price, and understand its relationship with costs, quality, and value.
Price, costs, quality, and value are all interrelated. Price is what an offering is sold for and cost is what it is
bought for. When value is added to a proposition, the price that can be obtained exceeds the cost. Price
and cost are often confused, and are assumed erroneously to be the same thing. They are not. Quality is a
measure of how well an offering satisfies the need for which it is designed to cater. Value is best described
either as a function of the quality of an offering as a proportion of the price paid or the perceived benefits
less the perceived price.
■ Describe how customers perceive price.

Understanding how customers and consumers perceive pricing helps when setting prices. Customers have
an idea of reference prices based on what they ought to pay for an offering, what others would pay, or what
they would like to pay. Their knowledge of actual prices is limited to well-known and frequently bought and
advertised offerings. Consequently, customers tend to rely on price cues such as odd-number pricing, sale
signs, the purchase context, and price bundles when deciding whether or not value exists in a particular
proposition.
■ Understand pricing strategies and how to price new offerings.

There are four main pricing strategies, comprising premium pricing (pricing an offering to indicate its
distinctiveness in the marketplace), penetration pricing (pricing low relative to the competition to gain
market share), economy pricing (pricing at the bare minimum to attract price-sensitive customers), and
price skimming (setting the price high initially and then lowering it in sequential steps). The two classic
approaches to pricing new offerings are market skimming and market penetration pricing. The former
is favoured when a company needs to recover its R&D investment quickly, when customers are price-
insensitive or of unknown price sensitivity, when product life cycles are short (see Chapter 8), and when
barriers to entry to competitors are high. The latter is favoured otherwise.
■ Explain cost-, competitor-, demand-, and value-oriented approaches to pricing.

There are a variety of different pricing policies that can be used, depending on whether we are pricing a
consumer, service, or B2B offering. They tend to be cost-oriented (based on what we paid for it and what
mark-up we intend to add), competitor-oriented (the so-called going rate, or based on the price at which
competitors sell an offering), demand-oriented (based on how much of an offering can be sold at what
price), or value-oriented (what attributes of the offering are of benefit to the customer and what will they pay
for them).
■ Explain how pricing operates in the business-to-business setting.

A variety of pricing tactics are used in the B2B setting, including geographical, negotiated, discount,
value-in-use, relationship, pay-what-you-want, transfer, economic value to the customer, and bid pricing.
Business-to-business pricing differs in that buyers are frequently expert in purchasing for their organizations.
They are likely to pay particular attention to the value that they derive from the offering.
Review Questions
1 Define price, cost, quality, and value, and how they relate to each other.
2 Explain the concept of price elasticity of demand, giving examples of offerings that are both
price-elastic and price-inelastic.
3 What are pricing cues?
4 How does odd-number pricing work?
5 What are the four main pricing strategies?
6 When might you use price skimming as a pricing approach?
7 When might you use penetration pricing?
8 Name four B2B pricing tactics.
9 Under what circumstances does the pay-what-you-want pricing approach work best?
10 How does pricing operate in tender and bidding processes?
1 Having read Case Insight 9.1, how would you advise Simply Business to develop a pricing
system that offers tailored policies, including discounts, to those customers who are more price-
sensitive?
2 What pricing policy would you advise in each of the following scenarios when setting the price? (State
the assumptions under which you are working when you decide on each.)
A The senior manager at Northrop Grumman, a US defence manufacturer, wants to set the price for a
medium-range integrated air and defence missile programme he’s selling to Poland, so it can defend
itself against perceived external threats and aggression and maintain its national security.
B The product manager at American car maker Ford wants to set the price range for the updated Ford
Mustang GT in the UK, launched in 2018.
C The manager at Bird & Bird, a well-known large legal services firm in Denmark, has been commissioned
by a medium-sized import–export company, with turnover of €20 million, to complete some work in
relation to a recent company acquisition. What further information would the manager require to price
such work and what pricing approaches could you offer?
Chapter 9 > Price and Customer Value Decisions 379
3 How would you go about determining the price sensitivity of your customers in the following
scenarios?
A You are a hotel marketing manager and you want your hotels to operate at full capacity throughout the
week, including weekends and weekdays.
B You are the pricing manager for a corporate legal services firm and you want to utilize all your
lawyers up to 80 per cent of capacity (leaving the other 20 per cent for business development and
administration).
C You are the financial director for an airline company and you want your planes to operate at 80 per cent
capacity during the off-peak season.

Glossary
advertising elasticity a measure of how perceived quality a relative subjective measure;
responsive the demand for offerings is in relation a term used because there is no truly objective
to changes in advertising expenditure (that is, absolute measure of product or service quality.
how effective an advertising campaign is in price the amount that the customer has to pay to
generating new sales). receive a good or service.
brand equity the revenues generated from price anchoring a cognitive bias whereby we
consumers’ perception of the brand rather than have a tendency to rely heavily on information
from the product itself. first offered to us rather than that collected later.
components part of something larger (for price discrimination occurs where the price
example an engine as part of a car, or the casing, of a good or service is set differently for certain
ink, and packaging as parts of a pen). groups of people.
consumer durables manufactured consumer price elasticity the percentage change in volume
products that are relatively long-lasting (for demanded as a proportion of the percentage
example cars or computers), as opposed to non- change in price, usually expressed as a negative
durables (for example foodstuffs). number; a score close to 0 indicates that a
differential pricing the process of maximizing product or service price change has little impact
profit by selling different groups of customers the on quantity demanded, whereas a score of –1
same product at different prices. indicates that a product or service price change
fixed capital the cost of plant, equipment, and effects an equal percentage quantity change and
machinery owned by a business. a value above –1 indicates a disproportionately
meta-analysis where the results of multiple similar higher change in quantity demanded as a result
studies are combined and analysed statistically of a percentage price change.
to draw more valid and reliable conclusions about price gouging occurs when a seller sets the price
particular relationships within the larger dataset. of a good or service at a level far higher than is
mixed price bundling when a product or considered reasonable.
service is offered together with another typically pricing cues proxy measures used by customers
complementary product or service, which is also to estimate the reference price of a product or
available separately, to make the original product or service, such as quality, styling, packaging, sale
service seem more attractive (for example a mobile signs, and odd-number endings.
phone package sold with text messages and pure price bundling when a product or
international call packages included in the price). service is offered together with another
typically complementary product or service, value the regard that something is held to be worth,
which is not available separately, to make typically, although not always, in financial terms.
the original product or service seem more webrooming researching a product online, but
attractive (for example a CD attached to a then buying it in-store.
music magazine). white goods large electrical goods used in
reference price the price band against which residences, typically, but not necessarily, white
customers make a judgement about the in colour (for example refrigerators, washing
purchase price of goods and services. machines).
secret menus many fast-food outlets have white-labelled product an offering developed
menus that are not displayed, but which can be by one organization that other organizations
requested, for example Burger King’s mustard rebrand and market as if it were their own.
Whopper® and Frings (fries with onion rings), winner’s curse situation in the bidding process in
among numerous other items. commercial markets whereby a company ends
showrooming visiting a shop to see an offering, up submitting a bid at a price that is unprofitable
then buying it cheaper online. or not very profitable simply to win the contract.
transfer pricing typically occurs in large working capital in accounting terms, a
organizations and represents the pricing company’s short-term financial efficiency and is
approach used when one unit of a company sells the difference between its current assets (what it
to another unit within the same company. owns) and its current liabilities (what it owes).
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Journal of Marketing, 13(3), 364–7. image of marketing. In: J.N. Sheth and R.S. Sisodia
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evidence. Journal of Marketing, 52(3), 2–22.
Chapter 10
Communications

Åkestam Holst
Market Insight 10.1
Define and describe the nature, purpose, and
On the Watch for a New Kind
scope of marketing communications
of Watch
Explain three models of communication and
Market Insight 10.2
describe how personal influences can enhance the
Becoming a YouTube
effectiveness of marketing communication activities
Superstar
Understand the models used to explain how
Market Insight 10.3
marketing communications and advertising work
Celebrity Endorsements
Understand the role of marketing communications Gone Wrong
in marketing
Market Insight 10.4
Describe the different steps in the strategic Advertising ‘Like a Girl’
marketing communications planning process
Market Insight 10.5
Describe what culture is and explain how it can Advertising, Arabic Style
impact on the use of marketing communications
384 1 > Managing
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Case Insight 10.1

Åkestam Holst
How can marketing communications stay relevant for

consumers increasingly avoiding marketing messages? We
speak to Petronella Panérus, chief executive officer (CEO)
at the advertising agency Åkestam Holst, to find out how
the agency works with clients to ensure that the advertising
they create is relevant to consumers’ everyday life.
In 2017, Swedish advertising agency Åkestam Holst The importance of understanding different realities is
was named International Agency of the Year by US highlighted in our work for IKEA. Under the concept
industry magazine Ad Week. The same year, the ‘Where Life Happens’, the campaign highlights
agency received numerous awards for its creative everyday situations in a matter-of-fact tone. In one
work, including a Grand Prix in the Innovation category campaign, a newly divorced dad decorates his
in the Cannes Lions—quite an achievement for a son’s bedroom to be identical to the room he has
Swedish advertising agency with only 70 employees. in his mother’s house. In another, a single mom
The strength of the agency lies in its innovative work, struggles with a house full of messy teens. In a digital
relationships with clients, and the internal culture, says campaign, we also renamed several IKEA products
CEO Petronella Panérus. after frequently Googled problems that those products
solve. Under the headline ‘Retail Therapy’, this
Åkestam Holst was founded in 1998 with the intention
campaign received attention around the world. In all
of being a different type of advertising agency. Our core
these examples, we have used real-life situations to
product is offering clients creative solutions that help to
connect IKEA with its customers.
ensure that their brands and products become known,
liked, and bought, but it was clear from the start that In 2018 and onwards, we will continue to evolve our
this agency should balance employee satisfaction and long-standing experiment with producing world-class
well-being with such creative success. This means advertising from within an agency culture that values
that we have always put an emphasis on promoting a respect, diversity, and equality. We are determined to
welcoming and supportive office culture. contribute to doing good in the communications that
we create. Hard work, talent, customer focus, and
Today, we have a strong track record of promoting
a great agency culture is, and has always been, the
diversity and equality in our workforce. This culture has
foundation. In the future, we will put a special focus on
been the foundation for our success. If we are to make
pushing ourselves to think more long term, to create
ads for many different target groups, we have to make
ideas that last and create value over time, and to take
sure that several different perspectives are represented
responsibility for how our work impacts society.
in the work groups of our agency.
What competences will an advertising agency
The foundation for all our work is deep business
such as Åkestam Holst need to develop to make
understanding and research-based communication
advertising that is fit for everyday life in the
insights. We complement our business insights with a
future?
profound interest in, and ability to understand, human
driving forces and behaviours. On top, we add creative
Visit the online resources to watch a video
talent and an extreme willingness to make things different,
interview with Petronella Panérus in which
better, more interesting. For the people and for the world.
she explains what Åkestam Holst did.
We never stand still and always embrace change.
Chapter 10 > Principles
Chapter of Marketing
1 > Marketing Communications
Principles and Society 385
385
Introduction
Have you ever wondered how organizations such as IKEA manage to communicate effectively
with so many different people and organizations? Well, this is the first of two chapters that
explain how this can be accomplished through the use of marketing communications. This
chapter introduces and explains what marketing communications is and how it can be planned.
The following chapter considers the configuration of the marketing communications mix.
Marketing communications is about developing messages that target audiences can under-
stand and act on. The purpose of this chapter is to introduce some of the fundamental ideas
and concepts associated with such communications. To achieve this, the chapter commences
with a definition of marketing communications. We then proceed by discussing the scope and
functions of marketing communications, which includes a consideration of communications
theory. This is important because it provides a basis on which to appreciate the different ways
in which marketing communications are used. Communications theory specifies the scope of
the subject and provides a framework within which to appreciate the various communications
activities undertaken by organizations. We then present the principles by which marketing
messages are communicated and consider how marketing communications might work. The
chapter concludes with an overview of what culture is and how it can impact on marketing
communications.
This chapter is intended to help you understand some of the fundamental ideas associated
with planned marketing communications. It sets out the broad scope of marketing communica-
tions and enables you to appreciate the diversity of this fascinating subject. The tools and media
used by marketing communications are an important aspect of this topic, and Chapter 11 is
devoted to a fuller examination of each of them.
Defining Marketing Communications

Marketing communications can be defined as a management process by means of which an
organization attempts to engage with its various audiences. By conveying messages that are
of significant value, the organization encourages audiences to offer attitudinal and behavioural
responses (Fill, 2013).
There are three main aspects associated with this definition, as follows:
■ Engagement—What are the audience’s communications needs and is it possible to engage
with them on their terms, using one-way, two-way, or dialogic communications?
■ Audiences—Which specific audience(s) do we need to communicate with, and what are their
various behaviour and information-processing needs?
■ Responses—What are the desired outcomes of the communication process? Are they based
on changes in perception, values, and beliefs, or are changes in behaviour required?
Engagement deals with the way in which communication influences its audiences (see ‘How
Marketing Communications Works’). What to expect in terms of engagement is largely depen-
dent on the decisions made with regard to the target audience and target responses for different
marketing communication activities (see ‘Planning Marketing Communications’).
386 1 > Managing
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The Scope of Marketing Communications

As discussed in Chapter 1, promotion is one of the 4Ps of the marketing mix and focuses on
the communication of a proposition to its target market. Marketing communications is a more
contemporary term for promotion. It is used to communicate the elements of an organization’s
offerings to target audiences. The offer might refer to a product, a service, or the organization
itself as it tries to build its reputation.
Marketing communications can be considered from a number of perspectives. Although it is
an activity used by organizations with varying degrees of sophistication, it is mainly concerned
with the way in which audiences are encouraged to perceive an organization and/or its offerings.
Therefore it should be regarded as an audience-centred activity. Fundamentally, marketing com-
munications comprises three elements—that is, a set of tools, media, and messages. The five
common tools are advertising, sales promotion, personal selling, direct marketing, and public
relations (PR). In addition, a range of media, such as television, radio, press, and the Internet, are
used to convey different messages to target audiences (covered in more detail in Chapter 11).
Still, these tools, media, and messages are not the only sources of information for consumers;
there is also implicit and important communication through the other elements of the market-
ing mix (for example a high price symbolizing high quality), as well as unplanned or unintended
experiences (for example empty stock shelves or accidents leading to negative perceptions) in
relation to the offer.
Figure 10.1 highlights the breadth and complexity of managing marketing communications.
Our focus in this chapter will be on planned marketing communications (Duncan and Moriarty,
1998). This component is really important because it has the potential not only to present offers
in the best possible way, but also to influence people’s expectations about both product and
service experiences. (See Market Insight 10.1 for an example of marketing communications,
which draws on a range of media.)
Visit the online resources and follow the web link to the European Association of Communication
Agencies (EACA) to learn more about advertising, media, and sales promotion activities across
Europe.
Service-
Planned marketing
experience-based
communications
communications
Audience
experience
Product- Unplanned
experience-based marketing
communications communications
Figure 10.1
The scope of marketing communications
Source: Hughes and Fill (2007). Adapted with the kind permission of Emerald Group Publishing
Limited and Westburn Publishers.
387
Market Insight 10.1

On the Watch for a New Kind of Watch
In September 2014, Apple CEO Tim Cook announced Throughout this period, Apple shared information
the company’s first original product since the about the product and its design on its website, as
introduction of the iPad in 2010: the Apple Watch. well as in different interactions with the press. For
With this product, Apple stepped into a new territory example, it was highlighted that the watch would
for the company. In the words of Cook: ‘We’ve never come in three different forms: the Apple Watch Sport,
sold anything as a company that people could try in polished or black stainless steel; the standard
on before.’ Apple Watch, in grey or silver anodized aluminium;
and the luxury Watch Edition, available in rose or
yellow. Consumers were told that prices would start at
US$349, with luxury watches priced around $10,000.
Information about pre-orders and availability at Apple
stores (to which initial sales were restricted) was
shared both online and offline.
To conquer the marketplace, Apple also launched its

advertising campaign for the release with a 12-page
insert in the March issue of Vogue. This outlet was
selected based on the insight that, to succeed, the
Apple Watch must have an appeal not only as a
Marketing communications played a large role gadget, but also as a fashion statement.
in the launch of the Apple Watch
Source: © Anna Hoychuk/Shutterstock.com. Apple does not share data about sales for specific
products, but stated that 2015 sales of the Apple Watch
The watch had been much awaited and news of its were up against the company’s internal forecasts.
arrival spread quickly. The announcement was followed According to estimates, the Apple Watch accounted for
by a long period of anticipation, because the watch at least 50 per cent of all smartwatch sales in 2015.
did not become available to consumers until late
April 2015. Sources: Williams (2014); Moynihan (2015); Pierce (2015).
Although the 4Ps of marketing all convey important price, and place of the coming launch was shared, and
information about a product or service on offer, the advertising campaign used to support the launch
marketing communications typically refers to planned are examples of marketing communications.
communication (that is, promotion).
The type of media used in marketing communication
Marketing communications played a large role in the can be categorized as paid-for, owned, and earned
launch of the Apple Watch. The design (product), the media (POEM) (see Chapter 11). The event could be
pricing (price), and the distribution (place) all conveyed considered part of a strategy to gain earned media, the
information about the intended positioning of the new sharing of information was mainly through Apple’s own
product, but Cook’s public announcement of the media, and the advertising campaign an example of
watch, the way in which information about the product, bought media.
388 1 > Managing
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Market Insight 10.1

continued
Related Topics
new product development; pricing; distribution; advertising
1 How successful would you say that the launch 3 Why did Apple choose Vogue as an important
was? What role in that success would you media vehicle for the launch?
attribute to marketing communications?
2 In what way do design, pricing, and distribution

influence perceptions of the Apple Watch?
How Marketing Communications Works

Ideas about how advertising, then promotion, and now marketing communications works have
been a constant source of investigation, endeavour, and conceptual speculation. To suggest
that a firm conclusion has been reached would be untrue. However, particular ideas have stood
out and have played a more influential role in shaping our ideas about this fascinating topic.
Some of these are presented here. Before considering the specific theories about how market-
ing communication works, however, we will take a closer look at communication theory. This is
important because it provides a foundation on which to base our understanding of marketing
communications.
Communication Theory
Communication theory is important because it helps to explain how and why certain marketing
communication activities take place. Communication is the process by which individuals share
meaning. Thus it is necessary for participants to be able to interpret the meanings embedded in
the messages they receive and then, as far as the sender is concerned, to be able to respond
coherently. The act of responding is important, because it completes an episode in the commu-
nication process. Communication that travels only from the sender to the receiver is essentially a
one-way process and the full communication process remains incomplete. This linear model
of communication is shown in Figure 10.2.
When Marabou displays its chocolate bars on a poster in the Stockholm Metro, the person
standing on the platform can read that poster and understand it, and may even be entertained
by it. However, the person does not have any immediate opportunity to respond to the ad in
such a way that Marabou can hear, understand, and act on their comments and feelings. When
that same ad is presented on a website, or a sales promotion representative offers that same
person a chunk of Marabou milk chocolate in a supermarket, there are opportunities for the
company to hear, record, and even respond to the comments that the person makes. This form
389
Realms of Realms of
understanding understanding
Source Encoding Decoding Receiver
Message
Noise Noise
Feedback
Figure 10.2
A linear model of communications
Source: Based on Schramm (1955); Shannon and Weaver (1962).
of communication travels from a sender (Marabou’s representative) to a receiver (the person in

the supermarket) and back again. It is referred to as a two-way communication and represents
a complete communication episode.
Visit the online resources and follow the web link to the International Association of Business
Communicators (IABC), a business network that aims to improve the effectiveness of marketing
communications among communication professionals.
These basic models form the basis of this introduction to communication theory. It is impor-
tant that those involved in managing and delivering marketing communications understand
these processes and the associated complexities. By understanding the communication pro-
cess, they are more likely to achieve their objective of sharing meaning with each member of their
target audience. This not only helps to create opportunities to interact with their audiences, but
also encourages some people to develop a dialogue—the richest and most meaningful form
of communication.
Understanding the way in which communication works provides a framework within which
we can better understand not only the way in which marketing communications works, but
also how it can be used effectively by organizations. Three main models or interpretations of
how communication works are considered here: the linear model; the two-step model; and the
interaction model.
The Linear Model of Communication

The linear model of communication, first developed by Wilbur Schramm (1955), is regarded as
the basic model of mass communications. The key components of this model are set out in
Figure 10.2.
390 1 > Managing
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The model can be broken down into a number of phases, each of which has distinct charac-
teristics. The linear model emphasizes that each phase occurs in a particular sequence—a linear
progression—in which information, ideas, attitudes, or emotion are transmitted from one person
or group to another by means of symbols (Theodorson and Theodorson, 1969). The model and
its components are straightforward, but it is the quality of the linkages between the various ele-
ments in the process that determines whether the communication will be successful.
The source is an individual or organization, which identifies a problem requiring transmission
of a message. The source of a message is an important factor in the communication process:
first, the source must identify the right problem; and second, a receiver who perceives a source
to lack conviction, authority, trust, or expertise is not likely to believe the messages sent by
that source.
Encoding is the process by which the source selects a combination of appropriate words,
pictures, symbols, and music to represent the message to be transmitted. The various bits are
‘packed’ in such a way that they can be unpacked and understood. The goal is to create a mes-
sage that is capable of being easily comprehended by the receiver.
Once encoded, the message must be put into a form that is capable of transmission. It may
be oral or written, verbal or non-verbal, in a symbolic form or a sign. The channel is the means
by which the message is transmitted from the source to the receiver. These channels may be
personal or non-personal. The former involves face-to-face contact and word-of-mouth com-
munications, which can be extremely influential. Non-personal channels are characterized by
mass-media advertising, which can reach large audiences. Ads placed in newspapers are typi-
cal of this approach. Whatever the format chosen, the source must be sure that what is being
put into the message is what they want to be decoded by the receiver.
Once the receiver—an individual or organization—has seen, heard, smelt, or read the
message, they decode it. In effect, they are ‘unpacking’ the various components of the mes-
sage—that is, starting to make sense of it and give it meaning. The more clearly the message is
encoded, the easier it is to unpack and comprehend what the source intended to convey when
it constructed the message. Thus decoding is that part of the communication process in which
receivers give meaning to a message.
Once the message is understood, receivers provide a set of reactions, referred to as a
response. These reactions may vary from an emotional response, based on a set of feelings and
thoughts about the message, to a behavioural or action response.
Feedback is another part of the response process. It is important to know not only that the
message has been received, but also that it has been correctly decoded and the right mean-
ing attributed. However, while feedback is an essential aspect of a successful communication
event, feedback through mass media channels is generally difficult to obtain, mainly because of
the inherent time delay involved in the feedback process. However, feedback through personal
selling can be instantaneous, through explicit means such as questioning, raising objections, or
signing an order form. For the mass-media advertiser, the process can be vague and prone to
misinterpretation. If a suitable feedback system is not in place, the source will be unaware that
the communication has been unsuccessful and is liable to continue wasting resources. This
represents inefficient and ineffective marketing communications.
Noise is concerned with those influences that distort information and, in turn, make it difficult
for the receiver to correctly decode and interpret the message as intended by the source. So if
a telephone rings, or someone rustles sweet papers during a sensitive part of a film screened in
a cinema, the receiver is distracted from the message.
391
The final component in the linear model concerns the ‘realm of understanding’. This is an
important element in the communication process because it recognizes that successful com-
munications are more likely to be achieved if the source and the receiver understand each other.
This understanding concerns attitudes, perceptions, behaviour, and experience—the values that
both parties bring to the communication process. Effective communication is more likely when
there is some common ground—that is, a realm of understanding between the source and
receiver. (To learn more about ‘realms of understanding’ in the context of marketing communica-
tions, please see Research Insight 10.1.)
One of the problems associated with the linear model of communication is that it ignores the
impact that other people can have on the communication process. People are not passive; they
actively use information—and the views and actions of other people can impact on the way in
which information is sent, received, processed, and given meaning. One of the other difficulties
with the linear model is that it is based on communication through mass media.
This model was developed at a time when first radio, and then television, with only a few
channels, were the only media available. Today, there are hundreds of television channels,
and audiences use the Internet, mobile phones, and an increasing array of digital equipment
to manage their work, leisure, and entertainment. Increasing numbers of people engage with
interactive-based communications and, in circumstances such as online gaming, organizations
and individuals can be involved in real dialogue. Therefore the linear model is no longer entirely
appropriate.
The Two-Step Model of Communication

One interpretation of the linear model is that it is a one-step explanation. Information is directed
and shot at prospective audiences, rather like a bullet being propelled from a gun. However,
we know that people can have a significant impact on the communication process and hence
the two-step model, sometimes referred to as the influencer model, goes some way towards
reflecting their influence (see Figure 10.3).
Friestad, M., and Wright, P. (1994). The persuasion knowledge model: how people
cope with persuasion attempts. Journal of Consumer Research, 21(1), 1–31.
This article provides a useful framework for the ‘realms of understanding’ surrounding marketing
communications. More specifically, it discusses how consumer understanding of what marketers are trying
to achieve (‘persuasion knowledge’) influences reactions to different types of marketing communication. The
insights that the authors offer have proved very useful in understanding reactions to new forms of marketing
communications, such as social media sponsorships and branded content.
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T1
T2
Mass media
T3
Message prevented T5
from reaching T5 and T4
T6 (e.g. noise) T6
Opinion leader
Figure 10.3
The two-step model of communications
Source: Marketing Communications (6th edn) Fill, C. (2013). Reproduced with the kind permission of Pearson Education Limited.
© Pearson Education Limited 2013.
The two-step model compensates for the linear, or one-step, model because it recognizes
the importance of personal influences when informing and persuading audiences to think or
behave in particular ways. This model depicts information flowing via various media channels
to particular types of person to whom other members of the audience refer for information and
guidance. There are two main types of influencer: one is referred to as an opinion leader; the
other, as an opinion former. The first is simply an ordinary person who has a heightened inter-
est in a particular topic; the second is involved professionally in the topic of interest. These are
discussed in more detail later in this chapter, but they both have enormous potential to influence
audiences. This may be because messages from personal influencers provide reinforcement
and message credibility, or because this is the only way of reaching the end-user audience.
The Interaction Model of Communications

The interaction model of communication is similar to the two-step model, with one important
difference: in this model, the parties are seen to interact among themselves and communication
flows among all the members in what is regarded as a communication network (see Figure 10.4).
Mass media are therefore not the only source of communication.
Unlike the linear model, in which messages flow from the source to the receiver through
a channel, the interaction model recognizes that messages can flow through various chan-
nels, and that people can influence the direction and impact of a message. It is not necessarily
one-way, but interactive communication that typifies much of contemporary communications.
Often, marketing communication campaigns set out to create audience participation, for exam-
ple through engagement, such as liking or sharing in social media. The interaction that such
campaigns create among people, sometimes referring to the sender only indirectly, is a good
demonstration of the interaction model in practice.
393
Electronic T3
sources
T2 Opinion
leaders
Personal
sources
T4
Mass
media
Opinion
formers
T1
Figure 10.4
An interaction model
Interaction is an integral part of the communication process. Think of a conversation with

a friend: the face-to-face, oral-based, and visual-based communication enables both of you
to consider what the other is saying and to react in whatever way is appropriate. Mass com-
munication does not facilitate this interactional element and therefore the linear model might be
regarded as an incomplete form of the pure communication process.
Interaction is about actions that lead to a response and much attention is now given to the
interaction that occurs between people. However, care needs to be taken because the content
associated with an interactional event might be based on an argument, a statement of opinion,
or a mere casual social encounter. What is important here is interaction that leads to mutual
understanding. This type of interaction concerns ‘relationship specific knowledge’ (Ballantyne,
2004)—that is, the interaction is about information that is relevant to both parties. Once this is
established, increased levels of trust develop between the participants, so that, eventually, a
dialogue emerges between communication partners. Therefore interactivity is a prelude to dia-
logue—the highest or purest form of communication.
Dialogue occurs through reasoning, which requires both listening and adaptation skills.
Dialogue is concerned with the development of knowledge that is specific to the parties involved
and can be referred to as ‘learning together’ (Ballantyne, 2004: 119). The development of digi-
tal technologies has been instrumental in enabling organizations to provide increased interac-
tion opportunities with their customers and other audiences. For example, think of the number
of times when watching Sky television that you are prompted to press the red button to get
more information. Many news programmes now encourage viewers to tweet, phone, or email
comments, opinions, and pictures about particular issues, in an attempt to get audiences to
express their views about a subject and, in doing so, promote access to, and interaction with,
the programme. Whereas, at one time, interaction occurred only really through personal selling,
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it is now possible to interact, and so build mutual understanding, with consumers through the
Internet and other digital technologies. Indeed, Hoffman and Novak (1996) claim that interactiv-
ity between people is now supplemented by interactivity between machines. This means that
the interaction—or indeed dialogue—that previously occurred through machines can now occur
with the equipment facilitating the communication.
Personal Influencers
As mentioned earlier, two main types of personal influencer can be recognized: opinion lead-
ers and opinion formers. In addition, social media has led to word of mouth among regular
consumers becoming even more influential. These different types of personal influencer are now
discussed in turn (see also Market Insight 10.2).
Market Insight 10.2

Becoming a YouTube Superstar
their questions in the YouTube comments section, and

forming a community of ‘bros’.
In 2011, Kjellberg dropped out of university to devote

more time to his YouTube channel; in 2012, it had
more than 1 million subscribers. Since then, Kjellberg
has broken numerous records on YouTube. For
example, his PewDiePie channel grew from 12 million
subscribers in August 2013 to more than 20 million in
January 2014. In September 2015, PewDiePie was
the world’s largest independent YouTube channel,
with 10.1 billion total views and 39.3 million total
Felix Kjelberg, better known by his online alias subscribers. By January 2016, the channel had
‘PewDiePie’, is an online influencer more than 11 billion views and close to 42 million
Source: Wikimedia Commons. subscribers.
In April 2010, Felix Kjellberg—then a 21-year-old
In 2017, however, Kjellberg lost the spot as the
Swedish engineering student—created a new
leading influencer on YouTube. His earnings dropped
account on YouTube. For some time, he had been
from US$15 million in 2016 to $11.5 million in 2017,
posting videos of himself playing video games on
largely as a result of criticism prompted by videos
YouTube, but, having forgotten the password to the
including racist language and anti-Semitic imagery.
initial account, he was forced to set up a new one:
These videos led many marketers to blacklist
PewDiePie. Little did he know that this account was
Kjellberg, and YouTube removed him from its
going to change his life.
preferred programme and cancelled his show Scare
Kjellberg’s videos turned out to be very popular. In PewDiePie.
fact, Kjellberg’s foul-mouthed videos have dominated
Sources: Rosengren (2012); Tamburro (2014); Kosoff and Jacobs
YouTube over the past years. Many attribute his
(2015); Berg (2017).
success to the attention he pays to his fans. Kjellberg
spends a lot of time talking about them, answering
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Market Insight 10.2

continued
The two-step model of communications recognizes former is involved professionally in the topic of interest.
the importance of personal influences when informing Many YouTubers start out small. After a while, as
and persuading audiences to think or behave in their following increases, they become important
particular ways. There are two main types of influencer: opinion leaders. Those who become really big, such
an opinion leader is an ordinary person who has a as Kjellsson aka PewDiePie, then move on to become
heightened interest in a particular topic; an opinion opinion formers.
Related Topics
social media; digital marketing; user-generated content
1 At what stage would you say that Kjellberg 3 Even though Kjellberg has built his career on
moved from opinion leader to opinion former? foul-mouthed videos, in 2017 his remarks led
Or do you think it’s impossible to say? several marketers and media platforms to end
collaborations with him. Why?
2 Visit the PewDiePie YouTube channel. To what
extent is Kjellberg’s communication with his
followers based on interaction and dialogue?
Opinion Leaders
Studies of American voting and purchase behaviour conducted by Katz and Lazarsfeld (1955)
led them to conclude that some individuals were more predisposed than others towards receiv-
ing information and then reprocessing it to influence others. They found that these individu-
als had the capacity to be more persuasive than information received directly from the mass
media. They called these people opinion leaders and one of the defining characteristics that the
researchers identified is that these people belong to the same peer group as the people whom
they influence—that is, they are not distant or removed.
It has been reported in subsequent research that opinion leaders have a greater exposure
to relevant media and, as a result, have more knowledge of, or familiarity and involvement with,
a certain category of offering than others. Non-leaders, or opinion followers, turn to opinion
leaders for advice and information about offerings they are interested in. Opinion leaders are
also more gregarious and self-confident than non-leaders, and are more confident of their role
as influencers (Chan and Misra, 1990). Therefore it is not surprising that many marketing com-
munication strategies are targeted at influencing opinion leaders, because they will, in turn, influ-
ence others. For example, watch manufacturer Daniel Wellington has built its business around
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Insaf Bennis, fashion blogger from Sparkles in Paris, showcases her Daniel Wellington watch
Source: © Edward Berthelot/Getty.
collaborations with social media influencers, such as successfully sending free watches to
selected influencers, so that they can showcase them to their followers.
This approach has also been used to convey specific information and help to educate large
target audiences through television and radio programmes. For example, in the UK, television
programmes such as Coronation Street, Eastenders, and Emmerdale, and radio programmes
such as The Archers, have been used as opinion-leadership vehicles to bring to attention to, and
open up debates about, many controversial social issues, such as contraception, abortion, drug
use and abuse, and serious illness and mental health concerns.
Opinion Formers
The other main type of independent personal influencer is the opinion former. They are not
part of the same peer group as the people they influence; rather, their defining characteristic
is that they exert personal influence because their profession, authority, education, or sta-
tus is associated with the object of the communication process. They provide information
and advice as part of the formal expertise they are perceived to hold. For example, shop
assistants in music equipment shops are often experienced musicians in their own right. An
aspiring musician seeking to buy their first proper guitar will often consult these perceived
‘experts’ about guitar brands, styles, models, and associated equipment, such as amplifiers.
In the same way, doctors carry such conviction that they can influence the rate at which
medicines are consumed. Drug manufacturers, such as GlaxoSmithKline and Pfizer, often
launch new drugs by enlisting the support of eminent professors, consultants, or doctors
who are recognized by others in the profession as experts. These opinion formers are invited
to lead symposia and associated events, and in so doing build credibility and activity around
the new proposition.
397
Organizations target their marketing communications at opinion leaders and formers to pen-
etrate the market more quickly than relying on communicating directly with the target audience.
However, in addition to these forms of influence, reference needs to be made to spokespersons.
There are some potential problems that advertisers need to be aware of when considering the
use of celebrities. First, does the celebrity fit the image of the brand, and will the celebrity be
acceptable to the target audience both now and in the long run? If the lifestyle of the celebrity
changes, what impact will the changes have on the target audience and their attitude towards
the brand? For example, well-publicized allegations about the behaviours of supermodel Kate
Moss led her to lose several sponsorship and brand endorsement contracts (such as H&M and
Burberry)—although it is alleged that her overall income actually increased as a result of the
negative publicity and sales of her Topshop brand soared.
Market Insight 10.3

Celebrity Endorsements Gone Wrong
Using celebrities in marketing is a strategy that dates was released in which Jenner offers a Pepsi to a police
back more than 200 years. The first known celebrity officer in the middle of a street protest. The commercial
might have been Josiah Wedgwood, who styled himself was immediately critiqued for trying to capitalize on
‘Potter to Her Majesty’ Queen Charlotte (wife of King the protests against police use of force against Black
George III, at the turn of the nineteenth century), and Americans. In less than 24 hours, critical posts on social
who named part of his product range ‘Queen’s Ware’. media led Pepsi to withdraw the commercial and end the
With the rise of social media, the use of celebrities in campaign. It also issued an apology, stating:
marketing communications has proliferated. Celebrities
such as Katy Perry, Justin Bieber, and Beyoncé have Pepsi was trying to project a global message
more social media followers than many countries have of unity, peace and understanding. Clearly we
inhabitants. In addition, a new breed of celebrity, such missed the mark, and we apologize. We did not
as Chiara Ferragni, Lilly Singh, and Brian Kelly, has intend to make light of any serious issue. We
entered the marketing world. Often referred to as social are removing the content and halting any further
media influencers, these celebrities have a devoted rollout. We also apologize for putting Kendall
following who consider them to be close friends, and Jenner in this position.
who rely on their advice and recommendations on
However, this was not the first time Pepsi had
anything from beauty and fashion, to eating and interior
experienced turmoil based on its collaborations with
design, to gaming and tech advice (to name a few).
celebrities. The brand has a long history of celebrity
Although celebrity endorsements have great potential endorsements and attached controversies. For
in terms of adding visibility, credibility, and interest example, in 1989, the company withdrew a commercial
to a brand, there are several pitfalls in working with featuring Madonna as a consequence of her video for
celebrities and influencers. These have to do with both ‘Like a Prayer’, in which she was depicted kissing a
the way in which the collaboration is conducted and the black saint, which was widely criticized at the time—and
types of association the celebrity or influencer evokes, even declared a blasphemy by the Vatican. Although the
based on past or future behaviours. A brand that has specific scene was not part of the Pepsi commercial,
experienced this first hand is Pepsi. the controversy around Madonna was deemed too
unfavourable for the brand to continue airing its ad.
In 2017, Pepsi launched a new campaign based on
a collaboration with model Kendall Jenner. In an effort Sources: Colliander and Dahlén (2011); Anon. (2015); Escalas
to connect with contemporary culture, a commercial and Bettman (2017); Kaufman (2017); Turner and Kaplan (2018).
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Market Insight 10.3

continued
The value of celebrity endorsement in marketing show that the value of celebrities lies in their role as
has traditionally been explained by theories of cultural resources to which consumers can refer when
source credibility. More specifically, celebrities have constructing their own identities. For social media
been found to increase attention to advertising and influencers, the level of para-social interaction has
enhance persuasion as a result of their attractiveness, also been found to explain the positive effects of using
credibility, and/or likeability. More recent studies also celebrities as senders of a marketing message.
Related Topics
celebrity endorsements; social media; source effects
1 Look up the Kendall Jenner Pepsi commercial caused controversy; would it would be seen as
on YouTube. What changes would you suggest controversial today?
to make it more in tune with contemporary
3 What can marketers do to avoid the potential
society?
pitfalls when working with celebrities and
2 Look up the Madonna ‘Like a Prayer’ video on influencers?
YouTube. Almost 30 years have passed since it
The second problem concerns the impact that the celebrity has relative to the brand: there
is a danger that the receiver will remember the celebrity, but not the message or the brand. The
celebrity becomes the proposition, rather than the product being advertised. (To learn more
about celebrity endorsements, please see Market Insight 10.3.)
All of the models of communication discussed have a role to play in marketing communica-
tions. Mass-media communication, in the form of broadcast television and radio, is still used by
organizations to reach large audiences. Two-step and interaction forms of communication are
used to reach smaller, specific target audiences and to enable a range of people to contribute to
the process. Interaction and dialogue are higher levels of communication, and are increasingly
used to generate personal communication with individual customers. The skill that marketing
practitioners must acquire is knowing when to move from linear, to two-step, to interaction, and
then dialogue-based marketing communications.
Word of Mouth
Word-of-mouth communication does not involve any payment for media, because communi-
cation is freely given through conversation. Word-of-mouth communication can be defined as
‘interpersonal communication regarding products or services where the receiver regards the
communicator as impartial’ (Stokes and Lomax, 2002: 350).
399
Personal influence within the communication process is important. This is because custom-
ers perceive word-of-mouth recommendations as objective and unbiased. In comparison with
advertising messages, word-of-mouth communications are more robust (Berkman and Gilson,
1986). Word-of-mouth messages are used either as information inputs prior to purchase or as a
support and reinforcement of a consumer’s own purchasing decisions.
People like to talk about their product (service) experiences. The main stimulus for behaviour
is that the offering in question gave them either particular pleasure or particular displeasure.
These motivations to discuss experiences vary between individuals and with the intensity of the
motivation at any one particular moment. Consider, for example, the first of your friends to buy
the newest version of iPhone: they will undoubtedly be happy to share their point of view on
what the model has to offer in comparison to previous ones. These points of view can be both
positive and negative. Today, organizations actively manage word-of-mouth communications
to generate positive comments and as a way of differentiating themselves in the market. Viral
marketing and social media mentions are electronic versions of the spoken endorsement of
an offering. Often using humorous messages, games, video clips, and screensavers, informa-
tion can be targeted at key individuals, who then voluntarily pass the message to friends and
colleagues, and in so doing endorse and bestow much valued credibility upon the message.
Both online and offline word of mouth is becoming increasingly important if marketing com-
munications is to have its desired impact (Keller and Fay, 2012; Baxendale, MacDonald, and
Wilson, 2015).
For many organizations, it is important to direct messages at individuals who are predisposed
to discussing its content, because it is likely that they will propel word-of-mouth recommenda-
tions. Therefore the target of certain campaigns is not necessarily the target market, but opinion
leaders within target markets—that is, those individuals who are most likely to volunteer their
positive opinions about the offering and who, potentially, have some influence over people in
their peer group (see Research Insight 10.2).
Visit the online resources and complete Internet Activity 10.1 to learn more about the
importance of word of mouth in contemporary advertising.
Baxendale, S., MacDonald, E.K., and Wilson, H.N. (2015). The impact of different
touchpoints on brand consideration. Journal of Retailing, 91(2), 235–53.
This is an interesting article that uses a novel methodology to track the impact of marketing communications
and other brand touchpoints on brand consideration. By investigating the impact of marketing
communications, word of mouth, and ‘earned’ touchpoints simultaneously, the authors are able to pinpoint
their relative value.
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Marketing Communication Theory

As mentioned earlier, there is no coherent theory or model explaining how marketing communi-
cations or advertising works. The first important idea about how advertising works was based on
how the personal selling process works. Developed by Strong (1925), the AIDA model—refer-
ring to the need first to create awareness, then to generate interest and to drive desire, from
which action (a sale) emerges—has become extremely well known and is used by many practi-
tioners. As a broad interpretation of the sales process, the model is generally correct, but it fails
to provide insight into the depths of how advertising works.
Thirty-six years later, Lavidge and Steiner (1961) presented a model based on what is
referred to as the hierarchy of effects (HoE) approach. Similar in nature to AIDA, it assumes
that a prospect must pass through a series of steps before a purchase will be made. It is
assumed—correctly—that advertising cannot generate an immediate sale because there are
a series of thought processes that need to be fulfilled prior to action. These steps are repre-
sented in Figure 10.5.
These models have become known as hierarchy of effects (HoE) models, simply because the
effects (on audiences) are thought to occur in a top-down sequence. Some of the attractions
of these HoE models and frameworks are that they are straightforward, simple, easy to under-
stand, and (if creating advertising materials) provide a helpful broad template for the develop-
ment and evaluation of campaigns.
However, although attractive, this sequential approach has several drawbacks. People do not
always process information nor do they always purchase offerings following a series of sequen-
tial steps. This logical progression is not reflected in reality when, for example, an impulse pur-
chase is followed by an emotional feeling towards a brand. There are also questions about what
actually constitutes adequate levels of awareness, comprehension, and conviction. How can it
be known which stage the majority of the target audience has reached at any one point in time
and is this purchase sequence applicable to all consumers for all purchases?
Awareness
Knowledge
Liking
Preference
Conviction
Purchase
Figure 10.5
Stages in the hierarchy of effects model
401
The Strong and Weak Theories of Advertising

So if advertising cannot be assumed to work in only one particular way, what other explana-
tions exist? Of the various models put forward, two stand out: the strong theory of advertising
(Jones, 1991); and the weak theory of advertising (Ehrenberg, 1974).
The Strong Theory of Advertising

According to Jones (1991), advertising has a strong effect because it can persuade people
to buy an offering that they have not previously purchased. Advertising can also generate
long-run purchase behaviour. The strong theory proposes that advertising is capable of
increasing sales for a brand and for the product class. These upward shifts are achieved
through the use of manipulative and psychological techniques, which are deployed against
largely passive consumers who—perhaps because of apathy—are either generally inca-
pable of processing information intelligently, or have little or no motivation to become
involved.
This interpretation is a persuasion view and corresponds very well to the HoE models
referred to earlier. Persuasion occurs by moving buyers towards a purchase by easing them
through a series of steps, prompted by timely and suitable promotional messages. It seems
that this approach correlates closely with new offerings for which new buying behaviours
are required.
The strong theory has close affiliation with an advertising style that is proposition-oriented, in
which features and benefits are outlined clearly for audiences, and pack shots are considered
important.
The Weak Theory of Advertising

Contrary to the strong perspective, the weak theory proposes that a consumer’s brand choices
are driven by purchasing habit rather than by exposure to promotional messages. One of the
more prominent researchers in this area was Ehrenberg (1974), who believed that advertising
represents a weak force. He believed that advertising has little impact on persuading consumers
to buy offerings, mainly because consumers process information actively, not passively.
Ehrenberg proposed that the awareness–trial–reinforcement (ATR) framework is a more
appropriate interpretation of how advertising works. Both Jones and Ehrenberg agree that
awareness is required before any purchase can be made, although the elapsed time between
awareness and action may be very short or very long. Out of the mass of people exposed to a
message, a few will be sufficiently intrigued to want to try an offering—that is, to trial it (the next
phase). Reinforcement follows, to maintain awareness and provide reassurance to help custom-
ers to repeat the pattern of thinking and behaviour. Advertising’s role is to breed brand familiarity
and identification (Ehrenberg, 1997).
According to the weak theory, advertising is employed as a defence, to retain customers
and to increase brand usage. Advertising is used to reinforce existing attitudes, not necessarily
to drastically change them. This means that when people say that they ‘are not influenced by
advertising’, they are, in the main, correct.
Both the strong and weak theories of advertising are important because they are equally right
and equally wrong. The answer to the question ‘How does advertising work?’ lies somewhere
between the two and is dependent on the context. For advertising to work, involvement is likely
to be high and so here the strong theory is the most applicable. However, the vast majority of
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product-purchase decisions generate low involvement and so decision-making is likely to be

driven by habit. Here, advertising’s role is to maintain a brand’s awareness with the purchase
cycle, so the weak theory is most applicable.
Visit the online resources and complete Internet Activity 10.2 to learn more about the strong
and weak theories of advertising.
A Composite Approach
Most of the frameworks presented so far have their roots in advertising. If we are to estab-
lish a model that explains how marketing communications works, a different perspective is
required—one that draws on the key parts of all the models. This is possible because the three
key components of the attitude construct lie within these different models. Attitudes have been
regarded as an important aspect of marketing communications activities and advertising is
thought to be capable of influencing the development of positive attitudes towards brands (see
also Chapter 2).
The three stages of attitude formation are that we learn something (the cognitive or learning
component), feel something (an affective or emotional component), and then do something
based on our attitudes (a behavioural or conative component). So, in many situations, we learn
something, feel something towards a brand, and then proceed to buy or not to buy. These
stages are set out in Figure 10.6.
The HoE models and the strong theory contain this sequential approach of learn–feel–do.
However, we do not always pass through this particular sequence, and the weak theory places
greater emphasis on familiarity and reminding (awareness) than on the other components. So,
if we look at Figure 10.7, we can see that these components have been worked into a circular
format. This means that, when using marketing communications, it is not necessary to follow
each component sequentially; rather, the focus can be on what the audience requires—whether
that is the learning, feeling, or acting components, as determined by the audience. In other
words, for marketing communications to be audience-centred, we should develop campaigns
based on the overriding need of the audience at any one time—that is, their need to learn, feel,
or behave in particular ways.
Knowledge
Feelings
Behaviour
Figure 10.6
Attitude construct: linear
403
Possible
starting point
Knowledge Behaviour
Possible
starting point
Feelings
Possible
starting point
Figure 10.7
Attitude construct: circular
Learn
Where learning is the priority, the overall goal should be to inform or educate the target audience. If
the offering is new, it will be important to make the target audience aware of the offering’s existence
and to inform them of the brand’s key attributes and benefits. This is a common use for advertising
because it has the capacity to reach both large and targeted audiences. Other than making them
aware of the offering’s existence, additional tasks include showing the target audience the ways
in which a brand is superior to competitive offerings—perhaps demonstrating how an offering
works, and educating the audience about when and in what circumstances they should use it.
Feel
Once the audience is aware of a brand and knows something about how it might be useful
to them, it is important that they develop a positive attitude towards the brand. This can be
achieved by imbuing the brand with a set of emotional values that it is thought will appeal and be
of interest to the audience. These values need to be repeated in subsequent communications to
reinforce the brand attitudes.
Marketing communications should be used to involve and immerse people in a brand. So, for
example, advertising or brand placement within films and music videos will help to show how it
fits in with a desirable set of values and lifestyles. Use of suitable music, characters that reflect
the values of either the current target audience or an aspirational group, a tone of voice, colours,
and images all help to create a particular emotional disposition and understanding about what
the brand represents or stands for. Indeed, for some people, advertising works only at this emo-
tional level and the cognitive approach is irrelevant.
Do
Most organizations find that, to be successful, they need to use a much broader set of tools and
that the goal is to change the behaviour of the target audience. This behavioural change may
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be about getting people to buy the brand, but it may often be about motivating them to visit a
website, call for a brochure, fill in an application form, or simply visit a shop and sample the brand
free of cost and other risk. This behavioural change is also referred to as a call to action.
When the accent is on using marketing communications to drive behaviour and action,
direct-response advertising can be effective. Often, television ads have a telephone number
or website address to enable such responses. However, sales promotion, direct marketing, and
personal selling are particularly effective at influencing behaviour and calling the audience to act.
The Role of Marketing Communications

in Marketing
Marketing communications are used to achieve one of two principal goals. The first concerns the
development of brand values (that is, feelings, emotions, and beliefs about a brand or organiza-
tion). Brand communication seeks to make us think positively about a brand, and helps us to
remember and develop positive brand attitudes in the hope that, when we are ready to buy that
type of offering again, we will buy brand X because we feel positively about it.
The alternative and more contemporary goal is to use communications to make us behave in
particular ways. Rather than spend lots of money developing worthy and positive attitudes towards
brands, the view of many today is that we should use this money to encourage people to behave
differently. This might be through buying the offering, or driving people to visit a website, request
a brochure, or make a telephone call. This is called behaviour change and is driven by using mes-
sages that provide audiences with a reason to act—what is referred to as a call to action.
So communications can be used, on the one hand, to develop brand feelings and, on the
other, to change or manage the behaviour of the target audience. These are not mutually
exclusive. For example, many television advertisements are referred to as direct-response ads
because they not only attempt to create brand values, but also carry a website address, tele-
phone number, or details of a special offer (sales promotion). In other words, the two goals are
mixed in a hybrid approach.
The success of marketing communication depends on the extent to which messages engage
their audiences. These audiences can be seen to fall into three main groups, as follows:
■ Customers—These may be consumers or end-user organizations.
■ Channel members—Each organization is part of a network of other organizations, such as
suppliers, retailers, wholesalers, value-added resellers, distributors, and other retailers, who
join together, often freely, to make the offering available to end users.
■ General stakeholders—This refers to organizations and people who either influence or are
influenced by the organization. These may be shareholders, the financial community, trade
unions, employees, the local community, or others.
Therefore marketing communications involves not only customers, but also a range of other
stakeholders. It can be used to reach consumers as well as business audiences (see Research
Insight 10.3 for more about the role of marketing communications in building relationships).
Market Insight 10.4 illustrates a marketing communications campaign aiming to engage stake-
holders by connecting with the feminist movement.
405
Duncan, T., and Moriarty, S. (1998). A communication-based marketing model for

managing relationships. Journal of Marketing, 62(2), 1–13.
This is one of the most important academic articles in the field of marketing communications. It was pivotal
because it drove the transition from a functional perspective of integrated marketing communications to a
perspective that emphasized its role within relationship marketing.
Market Insight 10.4

Advertising ‘Like a Girl’
Ever heard of ‘femvertising’? The term initially gained to proclaim that ‘gender sells’ and that marketers can
traction in 2014, when a US-based lifestyle site called now ‘cash in on feminism’. Interestingly, however, many
SheKnows, in collaboration with industry newspaper of the marketers behind these campaigns also highlight
Advertising Week, hosted a panel discussing portrayals how they have not necessarily focused on brands
of women and girls in advertising. Although female and sales objectives, but rather have regarded the
empowerment has been part of advertising executions campaigns as a part of the brand’s sustainability efforts,
dating back to the 1960s, if not longer, the panel was a with objectives related to fostering a more balanced view
sign of a renewed interest in the topic. of female ideals in society.
Starting with Dove’s campaign ‘Evolution’ in 2006, Sources: Dahlén and Rosengren (2016); Åkestam (2017);
the panel was a response to a renewed interest in Åkestam, Rosengren, and Dahlén (2017).
a different type of portrayal of women and girls that
challenges (female) gender stereotypes and empowers
women. Since then, femvertising (that is, advertising that
challenges traditional female advertising stereotypes) has
gained traction. In January 2018, the term generated
49,900 hits on Google, including major media outlets
such as CNN, The Guardian, and Huffington Post. By
then, several campaigns using femvertising appeals had
become highly successful. Well-known examples include
P&G/Always and its ‘Like a Girl’ campaign (initially for the
US market, but later launched globally), P&G’s ‘Touch
the Pickle’ (India), Pantene’s ‘Labels against Women’
(the Philippines), Under Armour’s ‘I Will What I Want’ (the Procter & Gamble’s Always feminine hygiene
United States), and Sport England’s ‘This Girl Can’ (the brand uses a femvertising approach to
UK). Many of these campaigns have also gone viral and empower women
demonstrated impressive results, leading industry media Source: Image courtesy of The Advertising Archives.
406 1 > Managing
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Market Insight 10.4

continued
The femvertising movement focuses on promoting Many marketers, however, talk about femvertising in
non-stereotypical portrayals of women and girls in terms of the effects it might have on societal ideals and
advertising. As highlighted in this market insight, self-perceptions of female consumers. These effects
industry press has tended to focus on the effects are often referred to as the extended or social effects
on brands and sales when discussing these efforts. of advertising and are related more to the sustainability
This means that they focus on the marketing efforts of brands.
communication tasks captured by the DRIP framework.
Related Topics
advertising appeals; female consumers; corporate social responsibility (CSR)
1 Look up the ‘Like a Girl’ campaign on YouTube. example, in terms of portrayals of age, sexuality,
How does it differ from other commercials and race. What examples of non-traditional
you have seen for products targeting female advertising stereotypes have you seen?
consumers?
3 What would you say are the marketer’s
2 Female advertising stereotypes are not the only responsibilities when it comes to the portrayals
stereotypes that are currently being challenged of women and girls that they choose to use in
in advertising; a similar trend can be seen, for their advertising?
Marketing Communications Tasks

Digitalization has had a large impact on marketing communications. Over the past decade,
there have been some sizeable changes to the way in which the marketing communications
industry is structured. One of the most important of these has been the emergence of a number
of powerful and dominant industry groups, such as WPP and News Corporation, whose busi-
ness interests span cross-media ownership, content development, and delivery on a global
scale. The changing industry structure is a response to several variables—particularly, develop-
ments in technology, the configuration of the communications mix and media used by organiza-
tions, and the way in which client-side managers are expected to operate. These changes mean
that marketing communication in general, and advertising in particular, is in constant flux (see
Chapters 11 and 12).
Despite these constant changes, the task of marketing communications has remained the
same. Fundamentally, marketing communications can be used to engage audiences by under-
taking one of four main tasks, referred to by Fill (2002) as the DRIP model, that is (and in no
407
particular order) communications can be used to differentiate brands and organizations; to rein-
force brand memories and expectations; to inform (that is, to make aware or educate audi-
ences); and finally to persuade them to do things or to behave in particular ways. See Table 10.1
for an explanation of each.
Visit the online resources and complete Internet Activity 10.3 to learn more about the way in
which fashion house Burberry uses marketing communications.
These tasks are not mutually exclusive; indeed, campaigns might be designed to target two
or three of them. For example, the launch of a new brand will require that audiences be informed,
made aware of its existence, and enabled to understand how it is different from competitor
brands. A brand that is well established might try to reach lapsed customers by reminding them
of its key features and benefits, and offering them an incentive (persuasion) to buy again. For
example, M&S’s website Style and Living is a digital magazine designed to showcase what is
new in Marks & Spencer’s stores, and to give fashion and style advice. However, it features only
offerings available at M&S. The website is an integral part of the company’s communication mix
and is used, among many other activities, to engage customers with the brand and drive readers
into the store to shop.
Table 10.1 The DRIP tasks for marketing communications
Marketing Explanation
communication task
Differentiate In many markets, there is little to separate brands (e.g. mineral water,
coffee, printers). In these cases, it is the images created by marketing
communications that help to differentiate one brand from another and
position them so that consumers develop positive attitudes and make
purchasing decisions.
Reinforce Communications may be used to remind people of a need they might

have or of the benefits of past transactions, with a view to convincing them
that they should enter into a similar exchange. In addition, it is possible to
provide reassurance or comfort either immediately prior to an exchange or,
more commonly, post purchase. This is important because it helps to retain
current customers and improve profitability. This approach to business is
much more cost-effective than constantly striving to lure new customers.
Inform One of the most common uses of marketing communications is to inform,

i.e. to make potential customers aware of the features and benefits of an
organization’s offering. In addition, marketing communications can be used
to educate audiences—to show them how to use an offering or what to do
in particular situations.
Persuade Communication may attempt to persuade current and potential customers

of the desirability of entering into an exchange relationship.
Source: Fill (2002).

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Planning Marketing Communications

Management’s task is to formulate and implement a communications strategy that blends
the right mix of tools and media to deliver the right messages, in the right place, at the
right time, for the right audience. Strategically, the main decisions have to do with defining
the appropriate target audience and setting the right objectives. To accomplish this, there
are inevitably a series of issues that need to be addressed before decisions can be made.
These issues embrace a range of activities, such as developing strategy in the light of both
audience and brand characteristics, agreeing communication objectives, and then for-
mulating, implementing, and evaluating marketing communications strategies and plans,
many of which need to be integrated—an important topic itself in contemporary marketing
communications. Developing the right message and the configuration of the right
mix of tools and media are more tactical decisions, and will be covered in greater detail in
Chapter 11.
To understand what a marketing communications plan should achieve, it is helpful to appreci-
ate the principal tasks facing marketing communications managers, as follows:
■ Who should receive the messages?
■ What should the messages say?
■ What image of the organization or brand are receivers expected to retain?
■ How much is to be spent establishing this new image?
■ How are the messages to be delivered?
■ What actions should the receivers take?
■ How do we control the whole process once implemented?
■ What was achieved?
For many reasons, planning is an essential management activity, and if planned marketing com-
munications are to be developed in an orderly and efficient way, the use of a suitable frame-
work is necessary. A framework for integrated marketing communications plans is presented
in Figure 10.8.
The marketing communications planning framework (MCPF) provides a visual guide to what
needs to be achieved and brings together the various elements in a logical sequence of activi-
ties. As with all hierarchical planning models, each level of decision-making is built on informa-
tion generated at a previous level in the model. Another advantage of using the MCPF is that it
provides a checklist of activities that need to be considered. The MCPF represents a sequence
of decisions that marketing managers undertake when preparing, implementing, and evaluating
communication strategies and plans. This framework reflects a deliberate, or planned, approach
to strategic marketing communications.
In practice, marketing communications planning is not always developed as a linear process,
as depicted in this framework. Indeed, many marketing communications decisions are made
outside any recognizable framework, because some organizations approach the process as an
integrative—sometimes spontaneous—activity. However, the MCPF approach presented here is
intended to highlight the tasks to be achieved, the way in which they relate to one another, and
the order in which they should be accomplished.
409
Context analysis
Promotional
Marketing
research
goals and Corporate goals
positioning
Marketing goals
3Ps of promotional Communication goals
Pull
strategy
Push
Coordinated
communications Profile
Agencies
mix
Scheduling Resources
Implementation, control,
and evaluation
Figure 10.8
The marketing communications planning framework
Source: Marketing Communications (6th edn) Fill, C. (2013). Reproduced with the kind permission of Pearson
Education Limited. © Pearson Education Limited 2013.
The Elements of the Marketing Communications Planning

Framework
A marketing communications plan should be developed for each level of communications activ-
ity, from strategy to individual tactical aspects of a campaign. The difference between them is
the level of detail that is included.
Context Analysis
The marketing plan is the bedrock of context analysis. This will already have been prepared and
contains important information about the target segments, business and marketing goals, com-
petitors, and timescales in which the goals are to be achieved. The context analysis needs to
elaborate and build on this information to provide the detail, so that the plan can be developed
and justified.
The first and vital step is to analyse the context in which marketing communications activities
are to occur. Unlike a situation analysis used in general planning models, context analysis should
be communications-oriented and should use the marketing plan as a foundation. There are four
main components of the communications context analysis: customer; business; internal; and
external contexts.
Understanding the customer context requires information and market research data about
the target audiences specified in the marketing plan. Here, detailed information is necessary
about their needs, perceptions, motivation, attitudes, and decision-making characteristics rela-
tive to the proposition category (or issue). In addition, information about the media and the
people they use for information about the category needs to be determined.
Understanding the business context in general, and the marketing communications environ-
ment in particular, is also important, because these influence what has to be achieved. If the
marketing strategy specifies growth through market penetration, then not only will messages
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need to reflect this goal, but also it will also be important to understand how competitors are
communicating with the target audience and which media they are using to do this.
Analysis of the internal context is undertaken to determine the resource capability with respect
to supporting marketing communications. Three principal areas need to be reviewed:
■ human resources (are people, including agencies, with suitable marketing communications
skills available?);
■ financial resources (how much is available to invest in marketing communications?); and
■ technological resources (are the right systems and processes available to support marketing
communications?).
The final area to be reviewed is the wider external context. Similar to the areas considered dur-
ing the strategic analysis, emphasis is placed on the political, economic, societal, technological,
legal, and ecological (PESTLE) conditions. However, the impact on marketing communications
needs to be emphasized. For example, if economic conditions become tough, people will have
lower levels of disposable income; hence sales promotions, promotional offers, and extended
credit terms become more attractive in this context.
Context analysis provides the rationale for the rest of the plan. It is from this analysis that the
marketing objectives (from the marketing plan) and the marketing communications objectives
are derived. The type, form, and style of the message are rooted in the characteristics of the
target audience, and the media selected to convey messages should be based on the nature of
the tasks, the media preferences and habits of the audience, and the resources available.
Marketing Communications Objectives

Having performed a context analysis, the next step is to define marketing communication objec-
tives. Many organizations assume that their marketing communications goals are the same as
their sales targets—but they are wrong. There are so many elements contributing to sales, such
as competitor pricing, product attributes, and distributor policies, that making marketing com-
munications solely responsible for sales is naive and unrealistic. Ideally, marketing communica-
tions objectives should consist of three main elements, as follows:
■ Corporate objectives are derived from the business or marketing plan. They refer to the mis-
sion and the business area that the organization believes it should be in.
■ Marketing objectives are derived from the marketing plan and are sales-oriented. These might
be market share, sales revenues, volumes, return on investment (ROI), and other profitability
indicators.
■ Communications objectives are derived from the context analysis and refer to levels of
awareness, perception, comprehension/knowledge, attitudes, and overall degree of prefer-
ence for a brand. The choice of communications goal depends on the tasks that need to be
accomplished.
These three elements constitute the overall set of marketing communications objectives.
They should be set out in SMART terminology—that is, each should be specific, measurable,
achievable, realistic, and timed. Thus, at this point in the planning process, the brand’s position-
ing intentions are developed and these should be related to the market, the customers, or a
product dimension (see also Chapter 6). The justification for this will have been identified in the
context analysis.
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Marketing Communications Strategy
The marketing communications strategy is derived from the objectives and context analysis.
There are three types of strategy: pull, for the end-user markets; push, for the trade and channel
intermediaries; and profile, designed to reach all significant stakeholders. The DRIP framework
can be used to elaborate the relevant strategy to be pursued. For example, if a new brand is
being launched, the first task will be to inform and differentiate the brand for members of the
trade, before using a pull strategy to inform and differentiate the brand for the target end-user
customers. For example, UK retailer John Lewis has developed a reputation for a series of highly
emotional and well-executed campaigns in the lead-up to Christmas. In its 2015 campaign, the
television ads used little-known Norwegian artist Aurora’s cover of Oasis’s ‘Half the World Away’
to such effect that the song subsequently made its way onto the official UK charts.
An organization wishing to signal a change of strategy and/or a change of name following
a merger or acquisition may choose to use a profile strategy, the primary task of which will be
to inform about the name change. An organization experiencing declining sales may choose to
remind customers of a need or it may choose to improve sales through persuasion.
Traditionally, pull strategies in the grocery sector have been based on delivering mass-media
advertising supported by below-the-line communications—most notably, sales promotions
delivered in-store and through direct mail and email to registered customers (for example Tesco
Clubcard customers). The decision to use a pull strategy should be supported by a core mes-
sage that will try to differentiate (position), remind or reassure, inform, or persuade the audience
to think, feel, or behave in a particular way. This approach can be interpreted as a pull/remind or
pull/position communication strategy, because this describes the audience and direction of the
strategy and also clarifies what the strategy seeks to achieve.
A push strategy should be treated in a similar way. The need to consider the core message
is paramount because it conveys information about the essence of the strategy. Push/inform,
push/position, or push/key accounts/discount might be examples of possible terminology.
Although these three strategies are represented here as individual entities, they are often used
as a ‘cluster’. For example, the launch of a new toothpaste brand will involve a push strategy to
get the product on the shelves of the key supermarkets and independent retailers. The strategy
will focus on building retailer acceptance of the new brand and positioning it for them as profit-
able. The goal is to get the toothpaste on the retailers’ shelves. To achieve this, personal selling,
supported by trade sales promotions, will be the main marketing communications tools. Hence
a push strategy alone would be insufficient to persuade a retailer to stock a new brand; the
promise of an accompanying pull strategy, aimed at creating brand awareness and customer
excitement, needs to be made, accompanied by appropriate PR activities and any initial sales
promotions necessary to motivate consumers to change their brand preference. The next step is
to create particular brand associations and thereby position the brand in the minds of the target
consumer audience. Messages may be primarily informational or emotional, but will endeavour
to convey a brand promise. This may be accompanied or followed by the use of incentives to
encourage consumers to trial the product. To support the brand, customer care lines and a web-
site, as well as a buyer reference point, will need to be put in place to provide credibility.
Communications Method
The communications method part of the plan includes a number of activities. A creative message
needs to be developed for each specified target audience in the strategy. This should be based
on the positioning requirements and will often be developed by an outside communications
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agency. Simultaneously, it is necessary to formulate the right mix of communication tools to

reach each particular audience. The right media mix needs to be determined, both online and
offline, and again media experts will most probably undertake this task. Here, integration is
regarded as an important feature of the communication mix. This is covered more in detail in
Chapter 11.
The Schedule
The next step is to schedule the way in which the campaign is to be delivered. Events and activi-
ties should be scheduled according to the goals and the strategic thrust. So, if it is necessary to
communicate with the trade prior to a public launch, those activities tied into the push strategy
should be scheduled prior to those calculated to support the pull strategy. Similarly, if awareness
is a goal, then (funds permitting) it may be best first to use television and poster ads offline, plus
banners and search engine ads online, before using sales promotions (unless sampling is used),
direct marketing, point of purchase, and personal selling.
Resources
The resources necessary to support the plan need to be determined. These refer not only to the
financial resources, but also to the quality of available marketing expertise. This means that the
right sort of marketing knowledge may not be present internally and may have to be recruited.
For example, if a customer relationship management (CRM) initiative is being launched, it will be
important to have people with knowledge and skills related to running CRM programmes. With
regard to external skills, it is necessary that the current communications agencies are capable of
delivering the creative and media plan. This is an important part of the plan that is often avoided
or simply forgotten. Software project planning tools, simple spreadsheets, or Gantt charts can
be used not only to schedule the campaign, but also to chart the resources relating to the actual
and budgeted costs of using the selected tools and media.
Control and Evaluation

Once launched, campaigns should be monitored. This is to ensure that if there is any major
deviation from the plan, opportunities exist to get back on track as soon as possible. In addi-
tion, all marketing communications plans should be evaluated. There are numerous methods of
evaluating the individual performance of the tools and the media used, but perhaps the most
important measures concern the achievement of the communication objectives.
Feedback
The marketing communications planning process is completed when feedback is provided. Not
only information regarding the overall outcome of a campaign should be considered, but also
individual aspects of the activity. For example, the performance of the individual tools used within
the campaign, whether sufficient resources were invested, the appropriateness of the strategy in
the first place, whether any problems were encountered during implementation, and the relative
ease with which the objectives were accomplished are aspects that need to be fed back to all
internal and external parties associated with the planning process.
This feedback is vitally important because it provides information for the context analysis that
anchors the next campaign. Information fed back in a formal and systematic manner constitutes
an opportunity for organizations to learn from their previous campaign activities—a point often
overlooked and neglected.
413
Cultural Aspects of Marketing Communications

Marketing communications has the potential to influence more than only customers. Indeed, a
wide range of other stakeholders, such as suppliers, employees, religious and faith groups, trade
unions, and local communities, can be targeted.
The tools, media, and messages used by organizations influence, and are influenced by,
the culture and environment in which they operate. Culture and related belief systems are sig-
nificant factors in the way in which organizations choose to communicate in the different areas
and regions in which they operate. For example, communications based on the strong theory
of advertising are observed more frequently in North America, whereas examples of the weak
theory are quite prevalent in Europe.
In this final part of the chapter, consideration is given to some of the cultural issues associated
with marketing communications (see Market Insight 10.5 for an example).
Culture
Culture refers to the values, beliefs, ideas, customs, actions, and symbols that are learnt by
members of particular societies. Marketing communications should be an audience-centred
activity, whether those audiences are located domestically or anywhere around the globe.
Because there are so many international, regional, and local communities, each with cultural
variances, the development of marketing communications for these audiences must be based
on a sound understanding of their culture.
Culture is important because it provides individuals within a society with a sense of identity
and an understanding of what is deemed to be acceptable behaviour. According to Hollensen
(2007), it is commonly agreed that culture has three key characteristics—that is, it is learned,
interrelated, and shared. See Table 10.2 for a fuller account of these variables.
Table 10.2 Characteristics of culture
Cultural characteristic Explanation
Learned Culture is not innate or instinctual; otherwise, everyone would behave in

the same way. Human beings across the world do not behave uniformly
or predictably, and they learn values and behaviours that are shared with
common groups. Thus different cultures exist and there are boundaries
within cultures, framing behaviours and lifestyles.
Interrelated There are deep connections between different elements within a culture.
Thus family, religion, business/work, and social status are interlinked.
Shared Cultural values are passed through family, religion, education, and
the media. This progression of values enables culture to be passed
from generation to generation. This is important because it provides
consistency, stability, and direction for social behaviour and beliefs.
Source: Hollensen (2007).

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Market Insight 10.5

Advertising, Arabic Style
Cultural values are an important consideration for Family plays a central role in Middle Eastern culture
brands in the Middle East, especially when advertising and the family is often a focus of advertising. In
to Muslim consumers. While each country has its own 2014, PepsiCo ran a campaign in the Middle East
guidelines to regulate advertising messages and to called ‘Ramadan Reunions’, which was based on
prevent offensive products and services from being getting families together for the month of Ramadan.
promoted, brands need to take cultural values into Because Ramadan is traditionally seen as a month
consideration when developing advertising for Muslim of gatherings, this emotional campaign sought to
consumers across the region. draw on the importance of family bonds among
Muslim consumers. Similarly, in 2014, Johnson’s
In many Middle Eastern countries, advertising alcohol Baby developed a campaign called ‘Grandparents’
or gambling is forbidden, and there are other cultural Frame’, which distributed digital picture frames to
taboos of which brands need to be aware. In Saudi grandparents in the Middle East, allowing them to
Arabia, for example, for women, the custom is to receive images of their grandchildren living abroad. The
wear black if they leave the house and showing dogs campaign demonstrates the importance of family in
in the house or pigs in any advertising is not allowed. the Middle East and highlights how powerful marketing
Serving food with the left hand is also considered a communications can be when it taps into the cultural
cultural taboo and so advertising must be sensitive values of the consumer.
to this.
Sources: Otterman (2007); Traboulsi and Guidère (2009); Impact
Culture dictates that any form of marketing BBDO (2014a, 2014b).
communications should be respectful of the Islamic
faith and show respect for women and the elderly.
Advertising messages should be fair and truthful, and
hence avoid being critical of competitive brands.
Heritage is also seen to be an important part of

Middle Eastern culture. Many brands choose to reflect
cultural aspects in their advertising campaigns and
draw heavily on the cultural heritage of the country
in their communications strategy. It is not unusual
for advertising in the Gulf States to include images
of traditional sailing vessels (dhows) or camels to Bridging the gap between grandparents and
represent their trading heritage. Arabic language and their grandchildren in the Middle East
calligraphy are other devices used by brands to show Source: © Johnson & Johnson.
an appreciation of cultural heritage.
Given that marketing communications is an audience- scale, marketers must bear in mind how both legal and
centred activity, it is important to keep in mind that cultural requirements may differ. As highlighted in this
audiences are part of a cultural context, which will market insight, both PepsiCo and Johnson & Johnson
influence how they interpret the messages used. When have adjusted their advertising in the Middle East to
working with marketing communications on a global align with these requirements.
415
Market Insight 10.5

continued
Related Topics
consumer decision-making; international marketing; culture; advertising
1 What cultural values are most important for 3 What role do older people typically play in
marketers to consider in your own country? advertising in your own country?
2 What would be the key holidays for advertisers This market insight was kindly contributed by Dr Sarah
Turnbull, University of Portsmouth, UK.
to consider in your own country?
These boundaries between cultures are not fixed or rigid, which would suggest that
cultures are static; rather, they evolve and change as members of a society adjust to new
technologies, government policies, changing values, and demographic changes, to men-
tion but a few dynamic variables. Unsurprisingly, therefore, brands and symbols used to
represent brands have different meanings as they are interpreted in the light of the prevail-
ing culture.
Culture consists of various layers. Hollensen (2010) refers to a nest of cultures, with one inside
another—a structure similar to a ‘Russian doll’ (see Figure 10.9). Here, it can be imagined that a
buyer in one country and a seller in another will be faced with several layers of culture, all inter-
related and all influencing an individual’s behaviour.
■ National culture sets out the cultural concepts and the legislative framework governing the
way in which business is undertaken.
■ Industry/business culture refers to the fact that particular business sectors adopt a way of
doing business within a competitive framework. The shipping business, for example, will
have its own way of conducting itself based on its own heritage. As a result, all participants
know what is expected and understand the rules of the game.
■ Organizational culture refers not only to the overall culture within an organization, but also the
various subcultures that can emerge, each of which will also have a system of shared values,
beliefs, meanings, and behaviours.
■ Individual culture arises because each individual is affected by, and learns from, the various
cultural levels.
Marketing communications, at both formal and informal levels, need to assimilate these different
cultural considerations to ensure that they understand and respond to an individual’s behaviour,
and the ways in which culture will impact on that individual’s (or organization’s, in a business-to-
business context) decision-making processes and procedures. In many markets (for example
mineral water, coffee, printers), there is little to separate brands. In these cases, it is the images
created by marketing communications that help to differentiate one brand from another and
416 1 > Managing
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re
ltu
Bu
cu
sin
l
na
es
s/
io
In
at
du
N
str
yc
ul
tu
re
Individual
behaviour
re
ltu
cul
na
tio
za
ni
a
rg
O
Figure 10.9
Layers of culture
Source: Global Marketing: A Decision-Oriented Approach (5th edn), Hollensen, S. (2010). Pearson Education Limited.
position them so that consumers develop positive attitudes and make purchasing decisions.
The way in which different societies perceive these same brands is a reflection of the cultural
drivers that frame people’s perceptions.
Chapter Summary
■ Describe the nature, purpose, and scope of marketing communications.

Marketing communications is a management process by means of which an organization attempts to engage
with its various audiences. Marketing communications—or promotion, as it was originally called—is one of
the 4Ps of the marketing mix. It is used to communicate an organization’s offer relating to products, services,
or the overall organization. In broad terms, this management activity consists of several components: the
communications experienced by audiences relating to their use of products and the consumption of services; the
communications arising from unplanned or unintended experiences; and planned marketing communications.
■ Explain the three models of communication and describe how personal influences can enhance the
effectiveness of marketing communication activities.
The linear, or one-way, model of communication is the traditional mass-media interpretation of how
communication works. The two-step model incorporates the influence of other people into the
communication process, whereas the interaction model explains how communication flows not only
between sender and receiver, but also throughout a network of people. Interaction is about actions that
Chapter 10 > Principles of Marketing Communications 417
lead to a response and—most importantly, in an age of interactive communication—interactivity is a prelude

to dialogue, which is the highest or purest form of communication.
■ Understand the models used to explain how marketing communications and advertising work.
Marketing communication models have evolved from sequential communication models such as AIDA
and the HoE models. A circular model of the attitude construct supports our understanding of the tasks
of marketing communication—namely, to inform audiences, to create feelings and a value associated with
offerings, and to drive behaviour.
■ Understand the role of marketing communications in marketing.

The role of marketing communications is to engage audiences and there are four main tasks that it can be
used to complete. These tasks are summarized in the mnemonic DRIP—that is, to differentiate a brand, to
reinforce a perception or behaviour, to inform audiences, and to persuade audiences to behave in particular
ways. Several of these tasks can be undertaken simultaneously within a campaign.
■ Describe the different steps in the strategic marketing communications planning process.
Management’s task is to formulate and implement a communications strategy that blends the right mix of
tools and media to deliver the right messages, in the right place, at the right time, for the right audience.
The marketing communications planning framework (MCPF) identifies the following key steps in this
process: context analysis; marketing communications objectives; marketing communications strategy;
communications method; scheduling; resources; control and evaluation; and feedback.
■ Describe what culture is and explain how it can impact on the use of marketing communications.
Culture refers to the values, beliefs, ideas, customs, actions, and symbols that members of particular
societies learn. Culture is important because it provides individuals within a society with a sense of identity
and an understanding of what is deemed to be acceptable behaviour. Culture is learnt, the elements are
interrelated, and culture is shared among members of a society or group. Organizations that practise
marketing communications in international environments have to be fully aware of the cultural dimensions
associated with each of their markets. In addition, they need to consider whether it is better to adopt
a standardized approach and use the same unmodified campaigns across all markets, or to adapt
campaigns to meet the needs of local markets.
Review Questions
1 What role does marketing communication (formerly, promotion) play in the marketing mix?
2 What is the linear model of communication and what are each of its main elements?
3 Make brief notes outlining the meaning of interaction and how dialogue can develop.
4 What are the main differences between opinion leaders and opinion formers?
5 What is a hierarchy of effects (HoE) model?
6 What are the strong and weak theories of advertising?
7 Why is the circular interpretation of the attitude construct better than the linear form?
8 Explain the key role of marketing communications and find examples to illustrate the meaning of
each element within the DRIP framework.
9 What is the relation between corporate objectives, marketing objectives, and communications
objectives?
10 Hollensen (2010) argues that culture is made up of three elements and four layers. Name them.
1 Having read Case Insight 10.1, why do you think Åkestam Holst sees both its focus on business and
consumer insights and its internal culture as key success factors in creating advertising?
2 Consider the key market exchange characteristics that will favour the use of linear, or one-way,
communication and then repeat the exercise with respect to interaction communication. Discuss the
differences and find examples to illustrate these conditions.
3 Day Birger et Mikkelsen is a leading Danish fashion retailer, providing a range of fashion clothing for
young people aged 18–35. As a marketing assistant, you have just returned from a conference at
which the role of personal influencers was highlighted. You now wish to convey your new knowledge
to your manager. Prepare a brief report in which you explain the nature of opinion leaders and opinion
formers, as well as consumer word of mouth in general, and discuss how Day Birger et Mikkelsen
might use them to improve its marketing communications. Using at least three examples, make it clear
who you think might be good opinion formers for Day Birger et Mikkelsen.
4 To what extent should organizations operating an advertising standardization policy consider the
culture of the countries in which they are operating?

Glossary
AIDA deriving from awareness, interest, desire, number, website address, email or postal
and action (that is, a sale), a hierarchy of effects address, designed to encourage viewers to
(HoE), or sequential, model used to explain how respond immediately to the ad; most commonly
advertising works. used on television.
ATR deriving from awareness–trial–reinforcement, DRIP deriving from differentiate, reinforce,
a framework developed by Ehrenberg (1974) to inform, and persuade, a mnemonic with
explain how advertising works. which to remember the four primary tasks that
call to action a part of a marketing marketing communications can be expected to
communication message that explicitly requests accomplish.
that the receiver act in a particular way. encoding that part of the communication process
decoding that part of the communication in which the sender selects a combination of
process in which receivers unpack the various appropriate words, pictures, symbols, and music
components of the message, and begin to make to represent a message to be transmitted.
sense of the message and give it meaning. feedback that part of the communication process
dialogue the development of knowledge that in which receivers offer responses.
occurs when all parties to a communication hierarchy of effects (HoE) general sequential
event listen, adapt, and reason with one another models used to explain how advertising works;
about a specific topic. popular in the 1960s–80s, these models provided
direct-response advertising advertising that a template that encouraged the development and
contains a mechanism, such as a telephone use of communication objectives.
Chapter 10 > Principles of Marketing Communications 419
interaction model a model in which the flow personal selling the use of interpersonal
of communication messages leads to mutual communications with the aim of encouraging
understanding about a specific topic. people to purchase particular products and
linear model (also known as one-way services, for personal gain and reward.
communications) a communication model product class a broad category referring to
in which communication travels only from various types of related product, for example cat
the sender to the receiver and the full food, shampoo, or cars.
communication process remains incomplete. receivers individuals or organizations who have
noise those influences that distort information in seen, heard, smelt, or read a message.
the communication process and, in turn, make it SMART deriving from specific, measurable,
difficult for the receiver to decode and interpret a achievable, realistic, and timed, an approach
message correctly. used to write effective objectives.
opinion followers those people who turn to strong theory a persuasion-based theory of
opinion leaders and formers for advice and advertising aiming to explain how it works.
information about products and services they are two-step model (also known as two-way
interested in purchasing or using. communications) a communication model that
opinion formers those people who exert reflects a receiver’s response to a message.
personal influence because their profession, weak theory a theory of advertising that suggests
authority, education, or status associates them it is a weak force and works only by reminding
with the object of the communication process; people of preferred brands.
not part of the same peer group as the people word of mouth a form of communication
whom they influence. founded on interpersonal messages
opinion leaders those people who are regarding products or services sought or
predisposed to receiving information and then consumed in which the receiver regards the
reprocessing it to influence others; belong to the communicator as impartial and credible,
same peer group as—that is, are not distant or because they are not attempting to sell
removed from—the people whom they influence. products or services.
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Apple-Watch.html (accessed 13 October 2018).
Chapter 11
Configuring the Marketing
Communications Mix

Adnams
Market Insight 11.1
Describe the role and configuration of the marketing
Variable Mixes
communications mix
Explain the characteristics of each of the primary Market Insight 11.2
What’s in a Name?
tools, messages, and media
Set out the criteria that should be used to select the Market Insight 11.3
right communications mix Damart Modernizes Its
Welcome Programme
Discuss the changing marketing communications
landscape Market Insight 11.4
EY Uses Art to Distinguish
Consider the principles and issues associated with Itself
integrated marketing communications
Market Insight 11.5
Super Bowl Advertising:
More than Meets the Eye
422 1 > Managing
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Case Insight 11.1

Adnams
The Adnams brand, founded in 1872, in Southwold, Suffolk,

England, is synonymous with beer and, since 2010, now
gin, vodka, and whisky too. The company also owns and
manages a number of pubs, inns, and retail stores. We
speak to Emma Hibbert, marketing director, to find out how
the beer at the heart of the brand has been, and continues
to be, promoted.
In a traditional market such as the brewing industry, 5 advertising;

Adnams’ ‘Beer from the Coast’ campaign in 2003
6 direct marketing (excluding digital); and
disrupted the advertising model. At the time, all
advertising for beer products included (usually) a man 7 personal selling.
and always a photograph of a pint. Adnams worked
More recently, we were successful with our
with advertising agency Campbell Doyle Dye (which,
#showmetheghostship campaign, which ran across our
before it closed, was known for its flair in digital and
digital channels. We even projected a 2-minute film onto
below-the-line campaigns) to create its campaign
the walls of the brewery, supporting this by showing the
using book illustrator Chris Wormell’s linocut images
film on YouTube (see https://www.youtube.com/watch
to showcase beer in an engaging and subtler way.
?v=CcGfIliD7ws&feature=youtu.be or type in ‘the return
For example, along a row of beach groynes (that is, a
of the ghost ship’ and select Adnams Southwold). We
series of man-made barriers to stop coastal erosion),
also hosted Twitter competitions and developed a host
one of the barnacles would be an Adnams bottle top.
of other online content. The idea was to shift our ‘Ghost
The campaign won awards, and was even made into
Ship’ beer product from its position as a seasonal
artwork and sold to fans. It can still often be found on
Halloween beer to year-round bestseller—and it
walls and coffee mugs 15 years later.
worked. Adnams Ghost Ship continued to grow well in
Our communication campaigns have definitely our heartland. However, our ambitions rose as we next
changed in format since then and over the years. Ten saw an opportunity to grow volumes both nationally
years ago, we made a strategic shift from above-the- and specifically in London. To do this, we decided to
line campaigns (for example television, radio, print partner in two major national events by sponsoring
advertising) to experiential marketing (which focuses them. We decided we would develop integrated
on helping consumers to experience the brand campaigns to exploit the sponsorships and to increase
directly), usually with a heavy link to digital marketing. our brand awareness, to improve rate of sale, and to
We have tended to use sponsorship and events to recruit Adnams fans. The campaign was to be run in
get our ‘brand in hand’, to generate content for social pubs, on packs, in our shops, and online. The events
media, and to develop more meaningful conversations would add the experiential element by allowing us to
with Adnams’ fans. In order of importance, our get ‘brand in hand’.
communications would tend to look something like:
The question for Adnams was: how could it run an
1 digital marketing; integrated marketing communications campaign?
2 experiential marketing;
3 public relations (PR); video interview with Emma Hibbert in
which she explains what Adnams did.
4 sales promotion;
Chapter 11 > Configuring
Chapter 1 the MarketingPrinciples
> Marketing Communications Mix
and Society 423
423
Introduction
What ‘touchpoints’ do you have with your mobile phone provider? These might be email, tele-
phone, text messaging (SMS), Twitter, direct mail items and/or personal correspondence? What
about television ads, web pages, articles and ads in magazines, posters, and perhaps news
items that generate general brand awareness? Organizations use a variety of tools, media, and
messages to engage their audiences. Collectively, these are referred to as the marketing com-
munications mix—a set of five tools, as well as a variety of media and messages, all of which
can be used in various combinations and with different degrees of intensity to communicate
successfully with target audiences.
The five principal marketing communications tools are advertising, sales promotion,
public relations (PR), direct marketing, and personal selling. In addition, ‘the media’ are
used primarily, but not exclusively, to deliver advertising messages to target audiences. Although
the word ‘medium’ (plural, media) refers in the marketing context to any mechanism or device
that can carry a message, we typically use the phrase ‘the media’ to refer to paid-for media,
processes, and systems that are owned by third parties, such as the News Corporation (which
owns The Sun and The Sunday Times newspapers, as well as the BSkyB TV platform), Condé
Nast (which owns Tatler, Vanity Fair, and Vogue magazines, among others), Singapore Press
Holdings (which owns the Business Times in Singapore), and Time Warner Inc. (a leading media
and entertainment company, whose business interests span interactive services, cable systems,
television and film entertainment, television networks, and publishing). These organizations rent
out time and space to client organizations so that they can send their messages and make
content available to engage various audiences. The list of available paid-for media is expanding,
but it is possible to identify six key classes: broadcast; print; outdoor; in-store; digital; and other
(which includes both cinema and ambient media). All of these are explored in this chapter.
On completing this chapter, you should understand the main characteristics associated with
the principal tools, messages, and media that make up the marketing communications mix.
Readers should also appreciate that, by reconfiguring the mix, it is possible to achieve different
goals. Finally, you will come to recognize that a more efficient and effective outcome can be
accomplished through an integrated approach to marketing communications.
The Role of the Marketing Communications Mix

The marketing communications mix consists of five main tools, four forms of messages or con-
tent, and three types of media. These are depicted in Figure 11.1 and each is explored later in
this chapter.
Traditionally, organizations were able to use a fairly predictable and stable range of tools and
media. Advertising was used to build awareness and brand values, sales promotions were used
to stimulate demand, PR conveyed goodwill messages about organizations, and personal sell-
ing was seen as a means of getting orders, particularly in the business-to-business (B2B) mar-
ket. However, there have been some major changes in the environment and in the way in which
organizations communicate with their target audiences. Digital technology has given rise to a
raft of different media and opportunities for advertisers to reach their audiences. We now have
access to hundreds of commercial television and radio channels; cinemas show multiple films at
424 1 > Managing
Fundamentals
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Advertising Broadcast
Public relations Print
Sales promotion Outdoor
Direct marketing 5 6 Digital
Personal selling In-store
Communication Types of media Other
tools
Marketing
communications
mix
Informational messages
4 Emotional message
Core types of Branded content
message User-generated content
Figure 11.1
The elements of the marketing communications mix
multiplex sites; and the Internet has transformed the way in which we communicate, educate,
inform, and entertain ourselves.
This expansion of the media is referred to as media fragmentation. At the same time,
people have developed a whole host of new ways of spending their leisure time; they are no
longer restricted to a few media. This expansion of an audiences’ choice of media is referred to
as audience fragmentation. So although the range and type of media has expanded, the
size of audiences that each medium commands has generally shrunk. In addition, the recent rise
in the use of ad-blocking software by consumers has further complicated the task of managing
the marketing communications mix.
The Internet enables opportunities to engage consumers at different points in their day and at
different stages in their purchase decision-making journeys. Many organizations have found that
the principles through which particular tools work offline do not necessarily apply in an interac-
tive environment.
For organizations, one of the key challenges is to find the right mix of tools, messages, and
media that enable them to reach and engage with their target audiences effectively and eco-
nomically. To do this, they have had to revise and redevelop their marketing communications
mixes (see Market Insight 11.1). For example, in the 1990s, there was a dramatic rise in the use
of direct-response media as direct marketing emerged as a new and powerful tool. Since
then, the use of the Internet and digital technologies has enabled an increasing variety of interac-
tive forms of communication in which the receiver has far greater responsibility for their part in
the communication process and is encouraged to interact with the sender. As a result of these
changes, many organizations are redistributing their investments in favour of digital or interactive
media (see Chapter 12).
Visit the online resources and complete Internet Activity 11.1 to learn more about how Toyota
uses an interactive website to inform its target audience about a complex proposition, the Hybrid
Synergy Drive.
This has shifted the role of the media. Previously, the emphasis of a mix was to enable
and persuade customers to buy products and services in the short term. Today, although a
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425
Market Insight 11.1

Variable Mixes
Benadryl from the film and The LEGO Movie logo. The break
ended with a 40-second trailer for the film. The
Hayfever suffers can be affected by different types of entire break was also simultaneously released in
grass and tree pollen at virtually any time of the year. full on YouTube to ensure that those who missed
The unpredictability of pollen counts led market-leading it could see it and catch up with the social media
brand Benadryl to raise its brand profile within the conversation. The ads were never shown again
allergy market by means of the BENADRYL® Social on television, but were used in cinemas before
Pollen Count, which involved Benadryl’s own interactive screenings of The Lego Movie.
map and the sponsorship of part of the Met Office
site. The goal was to help sufferers to fight hay fever. Volvo Trucks
Using daily updates of official Met Office data and
encouraging hayfever sufferers to report local pollen To change driver perceptions and raise awareness of
levels, Benadryl was able to show other sufferers the launch of a new range of heavy-duty Volvo trucks,
across the UK what the pollen count was in different a viral marketing campaign was produced, featuring
areas. It was also able to direct people to nearby a series of live test videos. Each video showcased
stockists of the BENADRYL® product range. different new technical aspects, such as the trucks’
stability (with a tightrope walker), and the reliability and
strength of the front towing hooks (hoisting a truck
20 metres above the water in Gothenburg harbour,
with the president of Volvo Trucks standing on the
front panel). Others included a video demonstrating
the trucks’ ground clearance (by driving ‘over’ one of
Volvo’s technicians buried up to his neck in sand) and
a truck manoeuvring through tight streets in Pamplona
in Spain, chased by furious bulls, to demonstrate agility
and speed.
Benadryl engaged in a communications
One video featured actor Jean-Claude Van Damme
campaign aimed at building a map of the levels of
performing spectacular splits, balanced on the
pollen: very valuable information for its customers
Source: Courtesy of Johnson and Johnson wing mirrors of two reversing Volvo FM trucks. This
showcased the precision of the dynamic steering,
which enabled the truck drivers to maintain exactly
The LEGO Movie
the distance between them and the same speed while
To celebrate the release of The LEGO Movie, an entire travelling in reverse.
television ad break made of LEGO® was broadcast The videos were posted on YouTube and Facebook
on Sunday 9 February 2014 during Dancing on Ice. channels, whilst the use of PR and tailored press
Four recent UK television ads—for the British Heart information made sure that they were distributed
Foundation, Confused.com, BT, and Premier Inn—were online to the news media and bloggers to amplify
re-created, frame by frame and brick by brick, in LEGO. the story.
People were helped to connect to The LEGO Movie
Sources: Carter (2014); Ridley (2014); Anon (2015a); https://
(not only LEGO) because the ads were separated by
www.benadryl.co.uk/social-pollen-count; https://www.metoffice.
five different 2-second ‘stings’ featuring characters
gov.uk/health/public/pollen-forecast
426 1 > Managing
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Market Insight 11.1

continued
These three campaigns demonstrate different ways The Volvo Trucks campaign is also unusual because it
of configuring the marketing communications mix. is convention in B2B marketing to use significant print
The Benadryl campaign shows how an established advertising, heavy media relations, and, in some cases,
consumer brand used sponsorship and interactive sponsorship. The use of viral marketing represented
media. This campaign actively involved people and, recognition that decision-making in this market now
through participation, was able to associate itself with involves a variety of stakeholders, including several
an authoritative and trusted body (the Met Office). influencers such as drivers, families, and friends. The
campaign conveys factual information about product
The LEGO® Ad Break campaign used television, attributes by engaging emotional executions. The
cinema, and social media, with PR providing support success of the viral content and its amplification across
and credible information for use by news organizations. the Internet is also partly the result of good use of PR,
This is a more traditional approach, although the single as well as social media.
use of one large ad break is unusual.
Related Topics
corporate advertising; creativity; word of mouth; opinion leaders; opinion formers
1 Describe the key elements of the message in 3 Which of these three campaigns impresses you
each of the three campaigns. most? Why?
2 How do the media used for these campaigns

enable their messages to reach target
audiences?
short-term focus still prevails for many firms, goals such as developing understanding and pref-
erence, reminding and reassuring customers, and building brand value have become accepted
as important aspects of marketing communications. Binet and Field (2013) have shown that this
longer-term brand-building perspective is a more profitable approach than a short-term direct-
response focus on sales.
It is now expected that marketing communications, and the mix of tools, messages, and
media used, needs to become an integral part of an organization’s overall communications and
relationship management strategy. Above all else, the marketing communications mix should be
an audience-centred activity. An increasing number of organizations are trying to use the mix
more efficiently, to coordinate what they say and when they say it, and to develop relationships
not only with key customers, but also with key suppliers and other important stakeholders.
Today, therefore, an increasing number of organizations are reformulating and integrating the mix
to encourage customer retention, not only acquisition.
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Selecting the Right Tools

One of the challenges facing marketing communications managers is how to select the right mix
of tools for each communication task. Although the tools can be seen as independent entities,
each with its own skills and attributes, a truly effective communication mix occurs when tools
complement each other and work as an interactive unit. Only by appreciating their characteris-
tics is it really possible to achieve an optimal mix.
Advertising
The role of advertising has always been based on the notion of clients renting media time or
space to place product or brand messages to engage and influence audiences. Unfortunately,
many forms of marketing communications are invariably seen by the public as advertising—
a confusion that embraces PR and publicity, sponsorship, brand placement, and wider
media-based activities.
Advertising was once formally understood to be a non-personal form of communication, in
which a clearly identifiable sponsor pays for a message to be transmitted through media. There
are several issues associated with this definition, however, and in an attempt to update the defi-
nition, Richards and Curran (2002: 74) suggested that advertising might be said to be ‘a paid,
mediated form of communication from an identifiable source, designed to persuade the receiver
to take some action, now or in the future’. Since then, the nature of advertising and the different
forms of engagement have, of course, evolved with changing technology, economic develop-
ment, and shifting societal and cultural values. Dahlén and Rosengren (2016) have identified
three particular dynamics that they believe need to be incorporated within any contemporary
definition of advertising: (new) media and formats; (new) ‘consumer’ behaviours related to adver-
tising; and the extended effects of advertising (see Research Insight 11.1).
Today, it can be argued that advertising is not only about paid media, that it does not
always seek only to persuade audiences, and that the source need be neither identifiable nor
non-personal.
Dahlén, M., and Rosengren, S. (2016). If advertising won’t die, what will it be? Towards
a new definition of advertising. Journal of Advertising, 45(3), 334–45.
This article provides a timely and interesting consideration of the way in which advertising has been and
should be defined, within an academic context. Taking into account a range of issues and developments, the
authors propose a new definition that they believe is a better fit for purpose.
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Sales Promotion
Sales promotions offer a direct inducement or an incentive to encourage customers to buy an
offering. These inducements can be targeted at consumers, distributors, agents, and members
of the sales force. Sales promotions are concerned with offering customers additional value to
induce an immediate sale. These sales might well have taken place without the presence of an
incentive; it is simply that the inducement brings the time of the sale forward. The key forms of
sales promotion are sampling, coupons, deals, premiums, contests and sweepstakes, and, in
the trade, various forms of allowance.
Public Relations
Public relations is used to influence the way in which an organization is perceived by various groups
of stakeholders, such as employees, the public, supplying organizations, and the media. Public
relations does not require the purchase of airtime or space in media vehicles, such as television
magazines or online. These types of message are low cost and are perceived to be extremely cred-
ible. Public relations attempts to integrate its own policies with the interests of stakeholders, and it
formulates and executes a programme of action to develop mutual goodwill and understanding.
Different types of PR can be identified, but the main approach is referred to as ‘media rela-
tions’ and consists of press releases, conferences, and events. Other forms of PR include lobby-
ing, investor relations, and corporate advertising. Two further activities, sponsorship and crisis
communications, are discussed later in this chapter. Through the use of PR, relationships can
be developed that, in the long run, are considered to be in the interests of all parties.
Direct Marketing
The primary role of direct marketing is to drive a response and shape the behaviour of the target
audience with regard to a brand. This is achieved by sending personalized and customized mes-
sages, often requesting a ‘call to action’, designed to provoke a change in the audience’s behaviour.
Direct marketing is used to create and sustain a personal and intermediary-free communica-
tion with customers, potential customers, and other significant stakeholders. In most cases, this
is a media-based activity and offers great scope for the collection and utilization of pertinent and
measurable data. Some of the principal techniques are direct mail, telemarketing, email, and,
increasingly, Internet-based communications such as ‘Search’. One of the key benefits of direct
marketing is that there is limited communication wastage. The precision associated with target
marketing means that messages are sent to, received by, processed by, and responded to by
members of the target audience and no others. This is unlike advertising, whereby messages
often reach some people who are not targets and are unlikely to be involved with the brand.
Visit the online resources and follow the web links to the Federation of European Direct and
Interactive Marketing Association (FEDMA) and the Institute of Promotional Marketing (IPM) to
learn more about the communication tools of direct marketing and sales promotions.
Personal Selling
Personal selling involves interpersonal communication through which information is provided,
positive feelings developed, and behaviour stimulated. Personal selling is an activity undertaken
by an individual representing an organization, or collectively in the form of a sales force. It is a
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highly potent form of communication simply because messages can be adapted to meet the
requirements of both parties. Objections can be overcome, information can be provided in the
context of the buyer’s environment, and the conviction and power of demonstration can be
brought to the buyer when requested.
An overview of each of the tools highlights a number of characteristics that they share—that
is, the degree to which a tool and the message conveyed are controllable, the credibility of the
message conveyed, the associated costs, the degree to which a target audience is dispersed,
and the DRIP tasks that marketing communications are required to accomplish (see Chapter
10). These five elements can serve as a starting point when selecting the right marketing com-
munications mix and each is considered in turn.
Table 11.1 provides a summary of the relative strengths of each of the tools of the communi-
cations mix against these criteria. However, although depicted individually, the elements of the
mix should be regarded as a set of complementary instruments, each potentially stronger when
it draws on the potential of the others. The tools are, to a limited extent, partially interchange-
able and different tools should be used in different circumstances to meet different objectives.
For example, in a business context, personal selling will be the predominant tool, whereas in a
consumer market context, advertising has traditionally reigned supreme.
What is clear is that the nature, configuration, and use of what was once called the promo-
tional mix have changed. No longer can the traditional groupings of tools be assumed to be
the most effective forms of communication; the role of the media in the communication pro-
cess is now much more significant than it was previously. The arrival and development of digi-
tal media expands opportunities for people and organizations to converse globally, personally,
more speedily, and factually. Word-of-mouth communication also plays a more significant part
in contemporary communications, especially because communications-literate consumers are
increasingly sceptical of the messages conveyed by many organizations.
Table 11.1 The relative strength of the tools of the marketing communication mix
Advertising Sales Public Direct Personal

promotion relations (PR) marketing selling
Level of control Medium High Low High Medium
Level of cost High Medium Low Medium High
Level of credibility Low Medium High Medium Medium
Level of dispersion Low Medium High High Medium

(consumer)
Level of dispersion Medium High High Medium High

(B2B)
Primary DRIP tasks Differentiating; Persuading Differentiating; Persuading; Persuading

informing informing reinforcing
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Marketing Communications Messages

Our consideration of communication theory in Chapter 10 confirms the importance of communi-
cating the right message that can be understood and responded to in context. From a receiver’s
perspective, the process of decoding and giving meaning to messages is affected by the vol-
ume and quality of information received, and the judgement they make about the methods and
how well the message is communicated. We also know that, if messages are to be processed
successfully, they should reflect a balance between the need for information and the need for
pleasure or enjoyment in consuming the message. We can identify four main forms of message
content that are not independent entities: informational messages; emotional messages; user-
generated content (UGC); and branded content.
Informational Messages
Messages can be categorized as either proposition-oriented and rational or customer-oriented
and based on feelings and emotions. As a general, but not universal, guideline, when audiences
experience high involvement (see Chapter 2), the emphasis of a message should be on the infor-
mation content, with the key attributes and the associated benefits emphasized. For example,
ad campaigns for charities (such as Greenpeace, Oxfam) or financial services (Allianz, Banco
do Brasil, Aviva), and government campaigns for health, tax, and other state services, normally
make a statement about the product ingredients and deliver a rational reason why the target
should behave in a particular way. Informational messages are also more common for products
that fulfil functional needs (such as toothpaste or insurance).
Emotional Messages
When audiences experience low involvement, messages should attempt to gain an emotional
response. For example, ads for fashion, cosmetics, fast food, and soft drinks often engage audi-
ences through the use of fear, humour, animation, and storytelling. The use of celebrity endors-
ers and peer-to-peer word of mouth can also amplify these messages. Emotional messages are
also more common for products that fulfil hedonic needs (such as lipstick or holidays).
There are, of course, many situations in which buyers need both rational and emotional mes-
sages to make purchasing decisions. These include cars, smartphones, dentistry, energy sup-
pliers, and apps, to name a few.
The presentation of messages should reflect the degree to which factual information or emo-
tional content is required for a message to engage an audience—namely, to command attention
and then be processed. There are numerous presentational or executional techniques and Table
11.2 outlines some of the more commonly used appeals.
Visit the online resources and complete Internet Activity 11.2 to learn more about how Bacardi
uses product demonstration and a digital media format (.mp3) to inform target audiences how
to make a Bacardi Mojito.
User-Generated Content
The development of social media has enabled individuals to communicate with organizations,
communities, friends, and family. The content of the message can be about brands, experiences,
or events, and is developed and shared by individuals. This is referred to as user-generated
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Table 11.2 Information and emotional appeals
Information-based messages
Factual Messages provide rational logical information and are presented in a

straightforward, ‘no frills’ manner.
Slice of life Uses people who are similar to the target audience presented in scenes that the
target audience can readily associate with and understand. For example, washing
powder brands are often presented by stereotypical ‘housewives’, who are seen
discussing the brand in a kitchen.
Demonstration Brands are presented in a problem-solving context. So people with headaches are
seen to be in pain, but then take brand X, which resolves the problem.
Comparative In this approach, brand X is compared favourably, in terms of two or three main
attributes, with a leading competitor.
Emotion-based messages
Fear Products are shown either to relieve danger or ill-health through usage (e.g.
toothpaste), or to dispel the fear of social rejection (e.g. anti-dandruff shampoos) or
to discourage behaviour (anti-smoking ads).
Humour The use of humour can draw attention, stimulate interest, and place audiences in a
positive mood.
Animation Used to reach children and as a way of communicating potentially boring and
uninteresting offerings (gas/electricity, insurance) to adults.
Sex Excellent for getting the attention of the target audience, but unless the offering is
related (e.g. perfume, clothing), these ads generally do not work.
Music Good for getting attention and differentiating between brands.
Fantasy and Used increasingly to provide a point of differentiation and brand intrigue (e.g.
surrealism Cadbury’s chocolate, Coca-Cola).
content (UGC) and can be seen in action at, for example, YouTube, Snapchat, Flickr, and Twitter.
Kaplan and Haenlein (2010) consider UGC to refer to all of the ways in which people make use
of social media—that is, the various forms of media content that are publicly available and cre-
ated by end users.
There are three main elements that characterize UGC:
■ the content is freely accessible to the public—that is, it should be published either on an open
website or on a social networking site accessible to a selected group of people;
■ the material demonstrates creativity; and
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■ the material should be amateur in nature, in the sense that it has not been created by an
agency or professional organization.
Although there have been instances of commercial involvement in UGC, the very nature of this
type of content takes the communication initiative away from organizations. As a result, market-
ers are listening to and observing consumers through UGC. As a consequence, many are finding
out the different meanings consumers attribute to brands, which helps the marketers with brand
development and helps them to reposition brands.
Some companies also invite consumers to offer content (ads), thereby utilizing crowdsourcing
(see Chapter 12 and Market Insight 11.2) as a way of engaging with their audiences.
Market Insight 11.2

What’s in a Name?
Companies and other organizations have sought to name is instead used for the submersibles aboard the
engage their customers and the general public by vessel. Following mixed reactions among the general
inviting them to crowdsource a broad range of aspects. public to the decision to overrule the result of the
One type of crowdsourcing involves open calls for vote, members of the House of Commons Science
naming an object, or even an animal. and Technology Committee opened up a debate on
whether the process was a success or failure (as the
One of the most famous examples is Greenpeace’s
committee chair described it, a ‘triumph of public
attempt to name a specific humpback whale that was
engagement or a PR disaster’).
being tracked by satellite as part of the organization’s
Great Whale Trail Expedition in 2007. The aim was to
raise awareness about the Japanese Fisheries Agency’s
hunting of humpback whales. The unusual name
‘Mister Splashy Pants’ gained the attention of several
online communities, who subsequently campaigned to
increase the number of votes for this particular name.
Greenpeace was initially taken aback because neither
the name nor the way in which the online communities
were backing it represented what Greenpeace had
envisioned. It did, however, embrace the result and the
whale was indeed named Mister Splashy Pants. This The boat that had a lucky escape
unusual name helped Greenpeace to gather enough Source: © Rolls-Royce. By Permission of the Natural
Environment Research Council.
public attention and impact to convince the Japanese
government to abandon the hunt.
Regardless, the Boaty McBoatface debacle came to
An unexpected name that goes against the initial such international awareness that it has spawned a
wishes of the hosting organization may therefore sequence of imitators: a racehorse named Horsey
turn out to be a blessing. Rather less popular might McHorseface; a Megabus interdeck coach in the
be ignoring the winning name of a crowdsourcing UK now called Mega McMegaface; and an MTR
campaign. A recent example of this is the attempt to Express train in Sweden now bearing the name Trainy
name a £200 million polar research ship in the UK. McTrainface. All of these crowdsourcing campaigns
Despite the huge popularity of the winning submission owe their public interest and attention to Boaty
‘Boaty McBoatface’, the ship was instead named RRS McBoatface.
Sir David Attenborough—an option that came fourth in
the public vote. A concession was made: the winning Sources: Fuchs, Prandelli, and Schreier (2010); Liljedal (2016)
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Market Insight 11.2

continued
Crowdsourcing is a way of engaging consumers line with the wishes of the participants. Similarly,
and citizens in a brand or cause by inviting them to non-participating consumers’ or citizens’ views
participate in previously closed processes. In the of the hosting organization are also affected by
examples in the market insight, the act of suggesting crowdsourcing. Here too the results are generally
and selecting a name is enough to create a sense positive—especially for tasks deemed simple, such as
of ownership of the result, for as long as it is in naming an object.
Related Topics
public relations; digital marketing; social media marketing; co-creation; content marketing
1 What motivations do people have to engage in 3 In the future, how should companies and
crowdsourcing alternatives? other organizations go about crowdsourcing
campaigns to minimize the risks of failure?
2 Imagine you were to evaluate the naming
campaign of RRS Sir David Attenborough. This market insight was kindly contributed by Dr Karina
T. Liljedal, Stockholm School of Economics, Sweden.
Would you consider it a ‘triumph of public
engagement or a PR disaster’? On which
factors would you base your evaluation?
Branded Content
Branded content refers to the use of entertainment material that features a single company or
brand. The recent growth in the use of branded content rests with a drive to realize the poten-
tial that ‘owned’ media offers. Branded content can enable conversations, particularly in social
media, and this serves to raise a brand’s profile and its credibility.
One of the earliest forms of branded content is customer publishing. Under this model, orga-
nizations develop magazines with articles and content considered to be of interest to their cus-
tomers. The magazine includes references to, even articles and stories about, the sponsoring
brand. The development and distribution of these magazines to the brand’s customer base is a
paid media operation.
Today, consumers use a variety of platforms and devices, so there is a need to develop
content for use across the web, mobile, email, video, social media, and apps. This provides an
opportunity to integrate material and allows customers to form a coherent or interconnected
experience with a brand. Native advertising—a term which refers to any paid advertising that
takes the specific form and appearance of editorial content from the publisher or context in
which it is conveyed (Wojdynski and Evans, 2016)—is one way of achieving such integration.
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Examples of native advertising include fashion and beauty ads in Glamour and Vanity Fair, and
ads from sports equipment manufacturers within related magazines and websites, but also ‘in-
stream’ ads and those used in Twitter, LinkedIn Sponsored Updates, Facebook News Feed,
and Buzzfeed.
Branded content is sometimes created as part of a company’s content marketing operations,
which focuses on the creation and dissemination of content around a brand that does not overtly
attempt to sell products and services. The goal is to provide audiences with valuable information
that enhances understanding and knowledge. Content marketing is examined in more detail in
Chapter 12.
The Media
Once a client has decided to use a particular message, decisions need to be made about
how and when it is conveyed to engage target audiences. There is a huge and expanding
range of media available, and making sure that the right mix of media channels is selected
is becoming increasingly challenging. Table 11.3 gives a general list of media in the UK, set
out by classification, type, and vehicle. Some media are owned by a client organization,
for example its website or the signage outside a building. However, these media do not
enable messages to reach a very large or targeted audience nor do they allow for specific
proposition-oriented messages to be conveyed to particular target audiences. In most cir-
cumstances, therefore, client organizations need to use media owned by others and to pay a
fee for renting the space and time to convey their messages. In the next section, we consider
the terminology and the role of the media; we then examine digital media and, finally, the
principles of direct response media.
The development of digital media has had a profound impact on the way in which client orga-
nizations communicate with their audiences. Generally, the trend has been to reduce the amount
of traditional media used and increase the amount of digital online and mobile media. For exam-
ple, major fast-moving consumer goods (FMCG) companies Procter & Gamble and Unilever
have reduced the amount they spend on television and increased their digital investments. The
main impact of this has been to improve the effectiveness of their campaigns, because the com-
bination of television and digital media drives superior performance compared with using the two
media independently (Whitehouse, 2014).
Visit the online resources and complete Internet Activity 11.3 to learn more about the differing
media that was used for Ray-Ban’s ‘Neverhide’ campaign.
An Overview of Each Class of Media

Using the classification presented in Table 11.3, the following section provides a brief description
of each class of media.
Broadcast
Advertisers use broadcast media (television and radio) because they can reach mass audi-
ences with their messages at a relatively low cost per target reached. Broadcast media
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Table 11.3 Summary classification of the main forms of UK media
Class Type Vehicles
Broadcast TV Coronation Street, X Factor
Radio Classic FM, Capital Radio
Print Newspapers Sunday Times, Mirror, Daily Telegraph
Magazines:
Consumer Cosmopolitan, Woman
Business The Grocer, Plumbing News
Out-of-home Billboards 96-, 48-, and 6-sheet
Street furniture Adshel
Transit Underground stations, airport buildings, taxis, hot-air

balloons
Digital media Internet, social media, Websites, email, Facebook, Instagram, Twitter, eBay,
auctions, billboards, apps Clear Channel, Google Play
In-store Point of purchase Bins, signs and displays, gondolas, slatwalls
Packaging Coca-Cola contour bottle
Other Cinema Pearl & Dean
Exhibitions and events Ideal Home, Motor Show
Product placement Films, TV, books
Ambient Litter bins, golf tees, petrol pumps, washrooms
Guerilla Flyposting
Source: Marketing Communications (6th edn) Fill, C. (2013). Reproduced with the kind permission of Pearson Education
Limited. © Pearson Education Limited 2013.
allow advertisers to add visual and/or sound dimensions to their messages. This helps them
to demonstrate the benefits of using a particular offering, and can bring life and energy to
an advertiser’s message. Television uses sight, sound, and movement, whereas radio can
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use only its audio capacity to convey meaning. Both media have the potential to tell stories
and to appeal to people’s emotions when transmitting a message. These are dimensions
that the print media find difficult to achieve effectively within an advertiser’s time and cost
parameters.
Print
Newspapers and magazines are the two main media in the print media class; others include
custom magazines and directories. Print is very effective at delivering messages to target
audiences because it allows explanation in a way that is not possible with most other media.
This may be in the form of either a picture or a photograph demonstrating how an offering
should be used. Alternatively, the written word can be used to argue why an offering should
be chosen, and to detail the advantages and benefits that consumption will provide for
the user.
Out-of-Home
Out-of-home (OOH), or outdoor, media consist of three main formats: street furniture (such as
bus shelters); billboards (which consist primarily of 96-, 48-, and 6-sheet poster sites); and tran-
sit (which includes buses, taxis, and the London Underground). The key characteristic associ-
ated with OOH media is that they are observed by their target audiences at locations away from
home and they are normally used to support messages that are transmitted through primary
media—namely, broadcast and print. Outdoor media can therefore be seen as secondary, but
important, support media for a complementary and effective media mix.
Digital
Generally, most traditional media provide one-way communications, whereby information
passes from a source to a receiver, but there is little opportunity for feedback, let alone interac-
tion. Digital media enable two-way interactive communication, with information flowing back
to the source and again to the receiver, as each participant adapts their message to meet the
requirements of their audience. For example, banner ads can provoke a click, which takes the
receiver to a new website, where the source presents new information and the receiver makes
choices and responds to questions (for example registers at the site), and the source again pro-
vides fresh information. Indeed, the identity of the source and receiver becomes blurred in this
type of communication.
These interactions are conducted at high speed and low cost, and usually with great clarity.
People drive these interactions at a speed that is convenient to them; they are not driven by
others. Space (or time) within traditional media is limited, so costs rise as demand for the limited
space or time increases. Conversely, because space is unlimited on the Internet, costs per con-
tact fall as more visitors are received.
In-Store
There are two main forms of in-store media: point-of-purchase (POP) displays; and packaging.
Retailers control the former and manufacturers, the latter. The primary objective of using in-store
media is to get the attention of shoppers and to stimulate them to make purchases. The content
of messages can be controlled easily by both retailers and manufacturers. In addition, the tim-
ing and the exact placement of in-store messages can be equally well controlled. There are a
number of POP techniques, but the most frequently used are window displays, floor and wall
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racks used to display merchandise, posters, and information cards, plus counter and checkout
displays. Packaging has to protect and preserve products, but it also has a significant commu-
nication role and is a means of influencing brand choice decisions.
Other
Two main media can be identified: cinema and ambient. Cinema advertising has all the advan-
tages of television-based messages, such as high-quality audio and visual dimensions, which
combine to provide high impact. However, the vast majority of cinema visitors are people aged
18–35, so if an advertiser wishes to reach different age segments, or perhaps a national audi-
ence, not only will cinema be inappropriate, but also the costs will be much higher than those
for television. Ambient media are regarded as OOH media that fail to fit any of the established
outdoor categories.
Ambient media can be classified according to a variety of factors. These include posters
(typically found in washrooms); distribution (for example ads on tickets and carrier bags); digital
media (in the form of video and LCD screens); sponsorships (as in golf holes and petrol pump
nozzles); and aerials (in the form of balloons, blimps, and towed banners).
The Changing Role of the Media

The continuing proliferation of the media has led to an increasingly complex media landscape.
This makes decisions about which combination of media channels should be used more chal-
lenging. It should be recognized, however, that digital media has enabled more accurate, more
realistic, and faster campaign measurement.
The idea that ‘digital’ defines a particular media format is redundant because digital technolo-
gies can be applied to most classes of media that we identified earlier. For example, digital OOH
technology has become so technologically advanced that digital billboards can be altered in
seconds to generate trending messages. In addition, automated (programmatic) media buying
enables the display of contextual ads that display only those messages that reflect surrounding
conditions, such as the temperature or location. Out-of-home can also send push messages
directly to the phones of people in the vicinity (Lepitak, 2015).
To reflect these changes, practitioners use a media classification known as POEM—that is,
paid-for, owned, and earned media (see Table 11.4). The classification reflects the increasing
scope of contemporary media and the range of media opportunities to engage audiences. It
assumes that media is not only about paid-for media and embraces all items that can be used
to convey brand-oriented messages, regardless of whether a payment is necessary (see Market
Insight 11.3 and Research Insight 11.2).
Using Media for Brand Building or Direct Response

For a long time, commercial media have been used to convey messages designed to develop
consumers’ attitudes and feelings towards brands. This is referred to as an attitudinal response
and concerns building a brand over the longer term. Today, many messages are designed to
provoke audiences into responding, either physically, cognitively, or emotionally. This is referred
to as a behavioural (direct) response, which concerns activation and is essentially a short-term
activity. It therefore follows that attitude and behaviourally oriented communications require
different media.
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Table 11.4 POEM: a classification of the media by source
Type of media Explanation
P Paid-for Advertising traditionally requires that media time and space are rented from a media
owner in order to convey messages and reach target audiences. The selection of
the media mix is planned, predetermined, and measured in terms of probable size of
audience, costs, and scheduling.
O Owned Organizations have a range of assets that they can use to convey messages
to audiences, and through which they can develop conversations. Ownership
means that there are no rental costs, as with paid-for media. For example, a
brand name or product display on a building, a telephone number or URL on
a vehicle, or the use of the company website and its links to other sites do not
incur usage fees.
E Earned Earned media refers to comments and conversations, both offline and online,
in social media, in the news, or through face-to-face communications, about a
brand or organization. These comments can be negative or positive, but the media
carrying them are diverse and can be referred to as ‘unplanned’, although many
campaigns seek to stimulate strong word-of-mouth communications through
earned media.
Source: Marketing Communications (7th edn). Fill, C. and Turnbull, S. (2016). Pearson Education Limited. © Pearson
Education Limited 2016.
Rosario, A.B., Sotgiu, F., De Valck, K., and Bijmolt, T.H.A (2016). The effect of
electronic word of mouth on sales: a meta-analytic review of platform, product, and
metric factors. Journal of Marketing Research, 53(3), 297–318.
In this article, the authors conduct a meta-analysis of previous research on the effects of electronic word of
mouth (eWOM) on sales. Based on 96 studies covering 40 platforms and 26 product categories, they find
that, on average, eWOM is positively correlated with sales (0.091), but also that its effectiveness differs across
platform, product, and metric factors.
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Direct-response media are characterized by the provision of a contact mechanism, such as
a telephone number or web address, and increasingly through search activities on the Internet.
These mechanisms enable receivers to respond to messages. Direct mail, search, telemarket-
ing, and door-to-door activities are the main direct-response media, because they allow more
personal, direct, and evaluative means of reaching precisely targeted customers. However, in
reality, any type of media can be used simply by attaching a telephone number, website address,
mailing address, or response card.
Market Insight 11.3

Damart Modernizes Its Welcome Programme
Damart, a French clothing company, operates in the requested to be removed from the company’s
UK, Belgium, Luxembourg, Switzerland, and the United marketing programmes.
States, and also through partnerships in Australia,
It was clear that this method was not appropriate and
Cyprus, and Spain, distributing its products to more
a new communications approach was needed. Rather
than 10 million customers worldwide.
than focus on direct-response campaigns based solely
on transactions, a new mix was developed to build
relationships over the longer term and hence to realize
higher lifetime customer value.
Any fresh approach required a more informed

understanding of the new customers, which could
then be used to reconfigure the communications mix
to influence their subsequent orders. For example, if a
customer’s first order was placed on the web, Damart
wanted to know the source of their order: was it an
online ad, from a media insert, or an off-the-page
magazine ad? Where a new customer could be
identified as ‘pure web and email’, subsequent customer
Damart supports its future through strategic communications could then be channelled through the
marketing
web via improved personalization in marketing emails.
Source: © ricochet64/Shutterstock.com.
If a new customer had responded to a heavily discounted
Damart UK started to update its direct response
offer, analysis could reveal whether a full-price order
campaigns targeted at new customers because of a
might be obtained from a main catalogue or this
desire to modernize its welcome programme to reflect
customer will simply have an overall lower lifetime value.
the changes in recruited customers’ preferences.
If the latter were the case, then Damart could reduce its
Previously, first-time ordering customers were entered
initial investment in marketing communications.
into an intensive welcome campaign. This involved
sending them a catalogue every two weeks for a By driving new customers to order online, Damart
26-week period. After this, they entered a more was able to reduce the operational costs associated
traditionally modelled customer mailing plan. with processing offline orders and expose forms of
cross-selling not available via mail order. It also meant
This approach generated a high level of second orders
that the company could invest more in web activities,
from customers. Unfortunately, it also brought a high
including search.
level of customer attrition as newly recruited customers
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Market Insight 11.3

continued
At one level, Damart’s move represents a significant At another level, the change in the configuration of
strategic marketing shift. The previous approach was the communication mix at Damart signalled a move
largely sales-driven and was geared to moving stock. away from a purely response-based behavioural goal
This is an inside–out view, whereby sales represent the towards building brand value over time. This links
dominant perspective. The shift to a more complex with the work of Binet and Field (2013), who found
multichannel approach was in part a recognition of the need that the optimal balance of a communication mix was
to put customers first—a marketing orientation. The new 60:40—that is, 60 per cent of the mix designed to
communication mix represented an outside–in perspective, build a brand and 40 per cent geared to driving an
which is more likely to bring long-term success. immediate response.
Related Topics
message appeals; budgeting; communications strategy
1 To what extent does the shift in the balance 3 Visit the site of another fashion retailer and
of the mix represent a brand nearing maturity decide whether its mix is configured to drive
rather than any other factor? What role might brand response or to build brand associations.
social media play in developing this brand? Give your reasons.
2 Should organizations such as Damart be This market insight was kindly contributed by Leon Savidis,
business analyst, Damart.
concerned about upsetting or irritating a few
customers when a campaign successfully
drives sales?
Table 11.5 sets out the main media used within direct-response marketing. Direct-response
media also allow clients the opportunity to measure the volume, frequency, and value of
audience responses. This enables them to determine which direct-response media work
best and so helps them become more efficient, as well as more effective. Direct-response
television (DRTV) is attractive to service providers such as those in financial services, chari-
ties, and tourism, but grocery brands are increasingly using this format. The growth in video
advertising reflects the involvement of people in their online and mobile activities.
In addition, television, mobile, and online media are complementary. Consumers often
research an offering online only after watching a television ad.
Visit the online resources and follow the web link to the Radio Advertising Bureau (RAB) to
learn more about the role and importance of radio in today’s fragmented media landscape.
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Table 11.5 Direct-response (DR) media formats
Types of DR media Explanation
Digital media The use of the Internet, email, viral marketing, blogging, and social
networking sites now represents the major form of interactive and direct-
marketing opportunities. In particular, ‘search’ enables brands to be reached
by audiences who can then be converted into customers.
Telemarketing The telephone provides interaction, flexibility, immediate feedback, and the
opportunity to overcome objections, all within the same communication
event. Telemarketing also allows organizations to undertake separate
marketing research, which is both highly measurable and accountable in
that the effectiveness can be verified continuously, while call rates, contacts
reached, and the number and quality of positive and negative responses are
easily recorded and monitored.
Carelines Carelines and contact centres enable customers to complain about a product
performance and related experiences, to seek product-related advice, to
make suggestions regarding product or packaging development, and to
comment about an action or development concerning the brand as a whole.
Radio and TV Television has much greater potential than radio as a direct-response
mechanism because it can provide a visual dimension. Nearly half of all TV
ads carry a response mechanism.
Print There are two main forms of direct-response advertising through the printed
media: catalogues; and magazines and newspapers. Consumer direct
print ads sometimes offer an incentive and are designed explicitly to drive
customers to a website, where transactions can be completed without
reference to retailers, dealers, or other intermediaries.
Door-to-door Although the content and quality can be controlled in the same way, door-
to-door response rates are lower than direct mail because of the lack of a
personal address mechanism. Door-to-door can be much cheaper than
direct mail because there are no postage charges to be accounted for.
One aspect that is crucial to the success of a direct-response campaign is not the number of
responses, but the conversion of leads into sales. This means that the infrastructure to support
these activities must be thought through and implemented; otherwise, the work and resources
invested at the visible level will be wasted if customers cannot get the information they require
when they respond.
To conclude this section, we ask an important question: how much of a firm’s media budget
should be directed towards brand-building activities and how much should be generating short-
term responses? The answer rests with an understanding of the campaign goals and media
characteristics. Those media with a broad reach, such as television, radio, OOH, and other
traditional display media, as well as online display, are best for brand building. Those channels
that enable tight targeting, such as search, telemarketing, email, and classified media, are more
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appropriate for short-term selling to narrow audiences. Extensive research by Binet and Field
(2013) shows that, on average, a 60:40 brand building–response split appears to maximize
efficiency and effectiveness.
Other Promotional Methods and Approaches

In addition to the primary elements mentioned earlier, there are numerous other instruments that
organizations can use to reach their audiences. These can be regarded as secondary tools that
are used to support the primary mix, although they can be used in their own right as stand-alone
methods of communications. Some of these other instruments are briefly considered here.
Sponsorship is normally associated with PR, but it has strong associations with advertis-
ing. Now considered an important discipline in its own right, sponsorship can be defined as ‘a
commercial activity whereby one party permits another an opportunity to exploit an associa-
tion with a target audience in return for funds, services, or resources’ (Fill, 2009: 599). Sports,
arts, and programme sponsorship are the principal types, designed to generate awareness and
brand associations, and to cut through the clutter of commercial messages. Some sponsorship
arrangements are being used to actively demonstrate a firm’s business credentials (see Market
Insight 11.4). For example, logistics company DHL sponsors the Red Bull Air Race. In addition
to the normal exposure and associations, DHL also provides transportation services. So, by
moving planes, fuel, and broadcast equipment, the brand is able to demonstrate its functional
expertise and tell stories about these activities (Anon., 2015b).
Sponsorship gets your brand noticed

Source: © Grekov/123RF.com.
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Market Insight 11.4

EY Uses Art to Distinguish Itself
In an attempt to distinguish itself in a crowded B2B employees have complimentary access to the galleries,
marketplace, professional services firm EY (formerly members’ rooms, and internal arts competitions, and
known as Ernst & Young) has been sponsoring art for there are discounts on events and access to private views.
over 20 years. It claims that this strategy helps to single
EY have also sponsored several leading sports events,
it out as both different and interesting.
including the Rugby World Cup, the Ryder Cup, and
One of its high-profile sponsorships is the EY Tate Arts the Commonwealth Games.
Partnership, a six-year partnership extending from 2013
to 2019, which so far has resulted in EY sponsoring Sources: McGreal (2015); https://www.ey.com
four exhibitions at Tate Modern, Tate Britain, and many

of the Plus Tate partners around the country (with three
more to come by 2019). EY’s corporate memberships
at the British Museum, the National Gallery, the Royal
Academy, Tate Liverpool, Tate St Ives, and the V&A
extend the reach of the firm’s involvement in art.
EY ensures that its target audience is fully aware of

the partnership by means of a series of multichannel
marketing activities. This includes holding many private
client events at the galleries, such as early-morning
tours, receptions, dinners, family art workshops, and
evening viewings. The EY name and logo also appear
on all materials for the exhibitions, giving the brand
huge exposure.
Art is an integral element of the company culture. Apart

from its own art collection of more than 350 pieces,
the firm’s arts club, which has nearly 2,500 members,
organizes social events and trips to places of significant
Art is an integral element of the company
interest. Employees receive art guide training, which culture at EY
can entitle them to act as guides at client events. All Source: Courtesy of EY.
Sponsorship involves two main parties: a sponsor similar associations. In much the same way, Tate seeks
and a sponsored organization. The success of any to benefit from being seen to be associated with EY.
sponsorship can be considered in terms of the degree
of fit between these two parties. This level of fitness in Sponsorship represents a form of collaborative
turn helps to determine the relative effectiveness of the communication, in the sense that two (or more) parties
relationship and hence the success of the sponsorship. work together so that one is able to reach the other’s
audience. These associations are considered to offer
Sponsorship can be considered in terms of the use of mutual value to the parties concerned. Sponsorship can
association. By being seen to be associated with an be considered in terms of a network of actors (media
established, credible, and knowledgeable entity such agencies, different audiences, event organizers) rather than
as Tate, EY can expect to inherit and be seen to share only the sponsor and sponsored. This expands the realm
of interaction and introduces a wider range of issues.
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Market Insight 11.4

continued
Related Topics
relationship marketing; network analysis; corporate advertising; emotional intensity
1 Why might EY focus its sponsorship and its 3 How might EY’s sponsorship lead to a crisis?
culture on art?
2 What might be the key associations that EY

wants to make through its involvement with
prestigious sports events?
Brand placement is another form of sponsorship and represents a relationship between film/
television producers and managers of brands. Through this arrangement and for a fee, brand
managers are able to present their brands ‘naturally’ within a film or entertainment event. Such
placement is designed to increase brand awareness, to develop positive brand attitudes, and to
(potentially) lead to purchase activity. Similarly, collaborations with social media influencers can
also be seen as a form of brand placement.
Packaging provides an important form of communication that is critical at the point of sale.
Packaging can be an integral part of a brand’s story. For example, Heinz’s ‘Get Well Soup’ cam-
paign enabled people to give a can of soup to someone not feeling well and hence reinforced
the brand’s nurturing position. Greater customization and personalization of packaging has been
enabled through digital printing.
‘Get Well Soup’: Heinz and some clever packaging

Source: © urbanbuzz/Shutterstock.com.
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Field marketing is about providing support for the sales force and merchandising person-
nel. One of the tasks is concerned with getting free samples of a product into the hands of
potential customers; another is to create an interaction between the brand and a new customer;
yet another is to create a personal and memorable brand experience for potential customers.
Exhibitions are held for both consumer and B2B markets. Organizations benefit from meet-
ing their current and potential customers, developing relationships, demonstrating products,
building industry-wide credibility, placing and taking orders, generating leads, and gathering
market information. For customers, exhibitions enable them to meet new or potential suppliers,
to find out about new offerings and leading-edge brands, and to bring themselves up to date
with market developments. In B2B markets, exhibitions and trade shows can be an integral ele-
ment of the marketing communications mix. Meeting friends, customers, suppliers, competitors,
and prospective customers is an important sociological and ritualistic event in the communica-
tions calendar for many companies.
Viral marketing is based on the credibility and reach associated with word-of-mouth
communications. Porter and Golan (2006: 33) refer to viral marketing in terms of how
information is communicated and suggest that it commonly involves the ‘unpaid peer-to-
peer communication of provocative content originating from an identified sponsor using
the Internet to persuade or influence an audience to pass along the content to others’.
Numerous definitions have been proposed, but, according to van der Lans and colleagues
(2010), viral marketing concerns the mutual sharing and spread of marketing-relevant infor-
mation, initially distributed deliberately by marketers to stimulate and capitalize on word-of-
mouth behaviours.
Crisis communications have become increasingly necessary as the incidence of crises has
increased. This appears to be as a result of an increasing number of simple managerial mistakes,
incorrect decision-making, technology failures, and uncontrollable events in the external environ-
ment. For example, both TalkTalk and AshleyMadison.com have had to communicate with their
stakeholders to try to restore customer and media confidence following the loss of customer
data to computer hackers.
Organizations are encouraged to plan for crisis events so that they can respond quickly using
planned communications. Using websites, social media, and mobile technologies, managers of
an afflicted organization can post up-to-date information quickly, and through video and news
media it can attempt to reassure communities by explaining events honestly, demonstrating
concern, and sympathizing with any affected groups, before explaining what is being done to
rectify the situation.
There are many other, largely digital media, methods of communicating with target audiences,
including mobile communications, text messaging (that is, short message service, or SMS),
blogging, and podcasting, to name a few. These are all considered in Chapter 12.
The Changing Marketing Communications

Landscape
Lately, there have been some major changes to the way in which the marketing communica-
tions industry is structured. One of the most important of these has been the emergence of a
number of powerful and dominant industry groups, such as WPP and the News Corporation,
446 1 > Managing
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whose business interests span cross-media ownership, content development, and delivery. The
changing industry structure is a response to several variables—particularly, developments in
technology, the reconfiguration of the communications mix, and, in particular, the media used
by organizations and the way in which client-side managers are expected to operate—that is, to
drive short-term sales results.
There can be no doubt that technology has had a dramatic impact on the communications
industry. As a result, the way in which organizations configure the communications mix has
changed considerably. The sales force was the dominant tool of the mix used by organizations
operating in B2B markets. Many organizations in B2B markets have slashed the size of their
sales forces, partly to cut costs, but also to use technology more efficiently and to allow the sales
force to focus on their main activity—namely, to build and maintain viable customer relation-
ships. However, their use of digital marketing communications has yet to reach its full potential
(Karjaluoto, Mustonen, and Ulkuniemi, 2015).
Today, the use of sponsorship, direct and event marketing, and online, mobile, and digitally
driven interactive media is growing at the expense of offline mass media advertising and sales
promotions in consumer markets. In addition, there are multichannel digital opportunities to
reach audiences. As a result, one strategy has been to build content that can be deployed
across different channels. For example, The Guardian newspaper’s advertising strategies are
structured around the distribution of rich content through different channels throughout a work-
ing day. In the morning, brief content is moved through mobile channels as commuters use
smartphones during their commute to work. At lunchtime, content is switched to desktops,
when social media is updated, and in the evening, when audiences relax, there is a change to
the use of tablets so that they can digest richer content.
A key area of change within the media concerns the use of content. Traditionally, con-
tent is provided by a client organization, which uses the media to interrupt and transfer its
message to its target audience—usually, a mass audience. Advancements in digital media
and changes in consumer behaviour now enable audiences not only to generate their own
content, but also to discuss and consider the opinions and attitudes of others. This means
that advertisers no longer have control over what is said about their brands, who says it, and
when. The rise of online communities and social networking sites, blogging, wikis, and Rich
Site Summary (RSS) feeds enable users to create content and to become more involved with
a brand.
Recently, there have been substantial changes in the digital media landscape. These include
the development of automated ad buying, convergence, and increasing levels of ad avoidance
and use of ad-blockers.
Automation
The automation of the media planning, buying, and selling process is referred to as program-
matic. The conventional media planning approach to buying ad space and time involves media
planners purchasing television and radio programmes or space (magazines, newspapers, and
billboards) on behalf of their clients, whose messages then interrupt the target audiences’ read-
ing and viewing activities.
Programmatic is about systems that automatically buy audiences, wherever they appear,
according to particular predetermined parameters. A subsection of programmatic is real-time
bidding (RTB), an auction dimension. This approach allows advertisers to automatically present
ads to specific online or mobile audiences that reflect their browsing behaviour.
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Convergence
Convergence means a ‘bringing together’—in this case, of media and various technologies.
This can be seen in marketing communications in various ways, including content served over
a number of devices used by consumers, different technologies packaged as one entity (for
example Sky selling broadband), and new platforms such as television through games consoles.
This movement represents a threat to traditional media owners. For example, newspaper
publishers experience declining readership as people get their news at different times of the day
from a variety of digital news platforms through various devices. In turn, this can be seen as an
opportunity by reformatting content and distributing it across different digital platforms, and so
attracting different advertisers.
Digital media owners such as Google, Apple, Facebook, Amazon, and Netflix are all seeking
cut-through, some creating new platforms such as Amazon Prime. Others see collaboration
as a viable strategy, as demonstrated by the BBC, C4, Five, and BT working together to cre-
ate YouView—a mini set-top box that allows viewers to watch the UK’s Freeview channels and
catch-up television from the BBC, ITV, and other major channels.
Ad Avoidance
Finally, the changes in the way in which ads are presented through the media, and the rise of
digital media in particular, has led to an increased use of ad-blockers. This software screens out
and prevents the presentation of ads. This raises questions about the longer-term effectiveness
of online and mobile advertising, about the role of content in apps, and about privacy, as well
as the ethics and morality of advertising to audiences who are largely disinclined to engage with
advertising. When Apple released iOS 9, the operating system enabled ad-blocking and deep
linking in apps. Part of the motivation was to enable iPhone users to have a cleaner and faster
web experience (Ghosh, 2015). One of the questions raised by this development, however, is
that if mobile advertising becomes ineffective, how will content be paid for in the future?
Integrated Marketing Communications

So far in this chapter we have looked briefly at the five main tools of marketing communications,
ideas about how messages should be developed, and how the media landscape is evolving. For
these to work most effectively and most efficiently, however, it makes sense to integrate them
so that they work as a unit. In so doing, they will have a greater overall impact. This bringing
together is referred to as integrated marketing communications (IMC).
Integrated marketing communications has become a popular approach with both clients
and communications agencies. Ideas about IMC originated in the early 1990s. At first, it was
regarded as a means of orchestrating the tools of the marketing communications mix, so that
audiences perceive a single consistent unified message whenever they have contact with a
brand. Duncan and Everett (1993) referred to this new, largely media-oriented, approach as
‘orchestration’, ‘whole egg’, and ‘seamless’ communication.
Integrated marketing communications can be considered from both a tactical and strategic
perspective. The former is well understood and practised, but the latter is less well developed
(Kerr and Patti, 2015).
448 1 > Managing
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The tactical perspective can be observed in the following levels of integration, identified by the
Institute of Practitioners in Advertising (IPA):
■ Advertising-led campaigns are united by ‘look and feel’. Referred to as the ‘matching lug-
gage’ concept, unification is often achieved visually through an icon (a celebrity, logo, or
brand identifier) deployed across all tools and media.
■ Brand-led orchestration campaigns are built on the tangible brand concept associated with
a specific need-state, occasion, tightly defined target audience, or a specific ‘point of market
entry’ upon which to focus the activity and the channel orchestration.
■ Participation-led integration campaigns are based on the use of digital media designed to in-
tegrate brands into people’s lives through conversation, and brand and audience interaction
(Cox, 2011).
At a strategic level, Luxton, Reid, and Mavondo (2015) consider IMC to be part of a firm’s
overall capability, which contributes to brand performance. This is achieved by enabling the
development and implementation of IMC campaigns that result in positive brand-related market
performance and improved financial outcomes. Kerr and Patti (2015) developed a measure of
strategic integration that evaluates organizational proficiency and diagnoses the integration of
IMC campaigns. This has yet to be operationalized.
For a period soon after IMC was first considered, numerous definitions emerged as the con-
cept was explored. Since then, Duncan (2002), Grönroos (2004), Kitchen and colleagues (2004),
and Kliatchko (2008) have provided various definitions and valuable insights into IMC. Although
there have been fewer definitions advanced in recent years, there is still little agreement about
what constitutes and defines IMC (Reinold and Tropp, 2012).
Given this vagueness, in this book IMC is used to denote both a strategic and tactical
approach to the planned management of an organization’s communications. Integrated
marketing communications require that organizations coordinate their various strategies,
resources, and messages to enable meaningful engagement with audiences. The main
purposes are to develop a clear positioning and to encourage stakeholder relationships that
are of mutual value (Fill and Turnbull, 2016). Embedded within this definition are links with
both business-level and marketing strategies, as well as confirmation of the importance of
the coherent use of resources and messages. What should also be evident is that IMC can
be used to support the development and maintenance of effective relationships—a point
made first by Duncan and Moriarty (1998), and then by both Grönroos (2004) and Ballantyne
(2004).
One quite common use of an integrated approach can be seen in the use of the tools:
rather than using advertising, PR, sales promotions, personal selling, and direct marketing
separately, it is better to use them in a coordinated manner (see Market Insight 11.5). So
organizations often use advertising or sales promotion to create awareness, then involve PR
to provoke media comment, and then reinforce these messages through direct marketing or
personal selling. The Internet can also be incorporated to encourage comment, interest, and
involvement in a brand, yet still convey the same message in a consistent way. Mobile com-
munications are used to reach audiences to reinforce messages and to persuade targets to
behave in particular ways, wherever they are. The evolution of digital media poses problems
for IMC and for planning marketing communications activities. Some of these issues concern
campaign metrics and measurement, budgeting, brand control, and content development
(Winer, 2009).
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Market Insight 11.5

Super Bowl Advertising: More than Meets the Eye
On the first Sunday of February every year, more than which people actually want to see advertising: several
110 million Americans (and many others worldwide) studies have shown that a large proportion of viewers
gather in front of their televisions to watch the Super are more interested in the commercials than the actual
Bowl—the final game in the American National Football game.
League (NFL). However, viewers’ excitement is not
The discussion also fails to recognize that the
only about the game; the Super Bowl experience also
30-second spot during the Super Bowl is often
includes a spectacular halftime show—and lots of
partnered with other types of activity—both before
advertising.
and after the actual event. Commercials are
In 2018, marketers wanting to advertise during the pre-launched on YouTube, discussed in media, and
Super Bowl paid around US$5 million for 30 seconds— followed up by public votes for best commercial
that is, $166,667 per second. after the actual event. What’s more, many Super
Bowl advertisers combine the events with different
The price tag of Super Bowl commercials is often
types of point-of-purchase display and packaging
widely discussed in industry and, every year, voices
activities.
are raised about the soundness of putting so much
money into buying a spot. Often, this discussion fails to Sources: Rosengren and Dahlén (2015); Rosengren (2017)
consider the fact that the Super Bowl offers a context in
The commercials run during the Super Bowl are There is no unifying IMC theory, but it is clear that most
examples of advertising, but they are typically part of Super Bowl advertisers plan and manage their activities
an IMC campaign relying on several marketing tools, with an integrated approach. They clearly attempt
including PR (pre-announcements and exclusive to bring the various elements of the mix together so
accounts of what will happen targeted at news and that one reinforces the other and, ultimately, brand
social media) and advertising in social media (paid resonance is improved.
placements of the actual commercials and/or related
content), as well as different types of in-store promotion.
Related Topics
Advertising; mass media; public relations (PR); social media; sports
1 Look up the most recent Super Bowl it was part. What other communication tools
commercials online and watch between three and media were used?
and five of them. What kind of messages are
3 What were the integrating elements for this
used? Why do you think that is?
campaign?
2 Pick one of the commercials and search for
more information about the campaign of which
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Integrated marketing communications has emerged for many reasons, but the two main
ones concern customers and costs. First, organizations began to realize that their customers
were more likely to understand a single message, delivered through various sources, than to try
to appreciate a series of different messages transmitted through different tools and a variety of
media. Therefore IMC is concerned with harmonizing the messages conveyed so that audiences
perceive a consistent set of meanings within the messages they receive, through all touchpoints.
The second reason concerns costs: as organizations seek to lower their costs, it is becom-
ing clear that it is far more cost-effective to send a single message, using a limited number of
agencies and other resources, than to develop several messages through a number of different
agencies.
At first glance, IMC might appear to be a practical and logical development that should benefit
all concerned with an organization’s marketing communications. However, there are issues con-
cerning the concept, including what should be integrated, over and above the tools, media, and
messages. For example, what about the impact of employees on a brand, and other elements
of the marketing mix, as well as the structure, systems, processes, and procedures necessary
to deliver IMC consistently through time? There is some debate about the nature and contribu-
tion IMC can make to an organization, if only because there is no main theory to underpin the
concept (Cornelissen, 2003) (see Research Insight 11.3).
Ots, M., and Nyilasy, G. (2015). Integrated marketing communications (IMC): why does
it fail? Journal of Advertising Research, 55(2), 132–45.
This article provides an interesting view of IMC’s implementation as a reason for its failure. The authors
identify four aspects of IMC implementation dysfunction: miscommunication; compartmentalization; loss of
trust; and decontextualization.
Although IMC has yet to become an established marketing theory, the original ideas inherent
in the overall approach are intuitively appealing and appear to be of value. However, what is inte-
gration to one person may simply be coordination and good practice to another, and, until there
is a theoretical base on which to build IMC, the term will continue to be misused, misunderstood,
and interpreted in a variety of ways.
Chapter 11 > Configuring the Marketing Communications Mix 451
Chapter Summary
■ Describe the role and configuration of the marketing communications mix.

Organizations use the marketing communications mix to convey messages and to engage their various
audiences. The mix consists of five tools, four main forms of messages or content, and three forms of
media. These elements are mixed and adapted to meet the needs of the target audience and the context
in which marketing communications operate. Tools and media are not the same: the former are methods
or techniques; the latter are the channels through which the messages are conveyed to the target
audience.
■ Explain the characteristics of each of the primary tools, messages, and media.
Each of the tools—that is, advertising, sales promotion, public relations (PR), direct marketing, and
personal selling—communicates messages in different ways and achieves different outcomes. Media
can be classified according to whether they are paid, owned, or earned. Each medium has a set of
characteristics that enable it to convey messages in particular ways to and with target audiences.
Messages are a balance of informational and emotional content. Some content can be branded, whilst
some can be generated by users.
■ Set out the criteria that should be used to select the right communications mix.
Using a set of criteria can help to simplify the complex and difficult process of selecting the right
marketing communications mix. There are five key criteria—namely, the degree of control over
a message, the credibility of the message conveyed, the costs of using a tool, the degree to
which a target audience is dispersed, and the task that marketing communications is required
to accomplish.
■ Discuss the changing marketing communications landscape.

Advancements in digital media and changes in consumer behaviour now enable audiences not only to
generate their own content but also to discuss and consider the opinions and attitudes of others. This
means that advertisers no longer have control over what is said about their brands, who says it, and when.
The rise of online communities and social networking sites, blogging, wikis, and RSS feeds enables users
to create content and become more involved with a brand. Recently, there have been substantial changes
in the digital media landscape. These include the development of automated ad buying, convergence, and
increasing levels of ad avoidance and the use of ad-blockers.
■ Consider the principles and issues associated with integrated marketing communications.
Rather than use advertising, PR, sales promotions, personal selling, and direct marketing separately,
integrated marketing communications (IMC) is concerned with working with these tools (and media) as a
coordinated whole. So organizations often use advertising to create awareness, then involve PR to provoke
media comment and sales promotion to create trial, and then reinforce these messages by means of direct
marketing or personal selling to persuade audiences. The Internet can also be incorporated to encourage
comment, interest, and involvement in a brand, yet still convey the same message. Mobile communications
are used to reach audiences to reinforce messages and to persuade audiences to behave in particular
ways, wherever they are.
Review Questions
1 Make brief notes about the nature and role of the marketing communications mix and explain
how the configuration has changed.
2 Write a definition for advertising, PR, and one other tool from the mix. Identify the key
differences.
3 Why do organizations like to use direct-response media?
4 How does media fragmentation affect audiences?
5 What five criteria can be used to select the right mix of communication tools?
6 Make a list of the four main message formats and find an example to illustrate each one.
7 Write brief notes explaining the differences between informational and emotional messages.
8 Write a list that categorizes the media. Identify a media vehicle that represents each type
of medium.
9 To what extent are online, mobile, and digital media likely to replace the use of traditional media?
10 What are the principles of integrated marketing communications?
1 Having read Case Insight 11.1, how could you advise Adnams to run an IMC campaign? (Hint:
Consider on-pack and in-pub promotions targeted at the trade and consumers, PR, social media and
experiential marketing, and event sponsorship in your mix.)
2 Select an organization you are familiar with or for which you would like to work. Visit its website and try
to determine its use of the marketing communications tools, messages, and media. How could its mix
be improved?
3 Select an organization in the consumer technology industry or one for which you would like to work.
Visit its website and look at its ad archive and read the press releases. Determine its approach to
marketing communications. Now visit the website for its main competitor and determine its marketing
communications. Discuss the similarities and differences.
4 Zylog is based in Denmark and manufactures and distributes a range of consumer electronic
equipment. Ennike Christensen, Zylog’s new marketing manager, has indicated that she wants to
introduce an integrated approach to the firm’s marketing communications. However, Zylog does not
have any experience of IMC and the company’s current communications agency, Red Spider, has
started to become concerned that it may lose the Zylog account. Discuss the situation facing Zylog
and suggest ways in which it might acquire the expertise it needs—then discuss ways in which Red
Spider might acquire an IMC capability.

Glossary
advertising a form of non-personal a consistent marketing communications
communication, by an identified sponsor, message(s) with a target audience.
transmitted through the use of paid-for media. marketing communications mix a set of five
audience fragmentation the disintegration tools, a variety of media, and messages that
of large media audiences into many smaller can be used in various combinations, and with
audiences, caused by the development of different degrees of intensity, to communicate
alternative forms of entertainment that people with specific audiences.
can experience, which means that, to reach large media (plural of medium) facilities used by
numbers of people in a target market, companies companies to convey or deliver messages to
need to use a variety of media, not rely on only a target audiences.
few mass-media channels. media fragmentation the splintering of a few
brand placement the planned and deliberate mainstream media channels into a multitude of
use of brands within films, television, and other media and channel formats.
entertainment vehicles, with a view to developing packaging protects contents and communicates
awareness and brand values. key rational and emotional information about
branded content entertainment material, a brand.
delivered through paid-for or owned media, personal selling the use of interpersonal
which features a single company or product/ communications aimed at encouraging
service brand. people to make a purchase for personal gain
crisis communications a part of PR, used and reward.
to protect and defend a brand (individual or public relations (PR) a non-personal form
organization) when its reputation is damaged or of communication used by companies to
threatened. build trust, goodwill, interest, and ultimately
direct marketing a marketing communications relationships with a range of stakeholders.
tool that uses non-personal media to create sales promotion a communications tool that
and sustain a personal and intermediary-free adds value to a product or service, with the goal
communication with customers, potential of encouraging people to buy now rather than at
customers, and other significant stakeholders; in some point in the future.
most cases, a media-based activity. sponsorship a marketing communications
direct-response media media that carry activity whereby one party permits another an
advertising messages enabling audiences to opportunity to exploit an association with a
respond immediately; most commonly used target audience in return for funds, services, or
in print, banner ads, and on television (known resources.
as DRTV). user-generated content (UGC) content
exhibitions events at which groups of sellers meet made publicly available over the Internet
collectively with the key purpose of attracting that reflects a certain amount of creative
buyers. effort and which is created by users, not
field marketing a marketing communications professionals.
activity concerned with providing support for the viral marketing the unpaid peer-to-peer
sales force and merchandising personnel. communication of often provocative content,
integrated marketing communications originating from an identified sponsor, using the
(IMC) an approach associated with the Internet to persuade or influence an audience to
coordinated development and delivery of pass along the content to others.
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Chapter 12
Digital and Social Media
Marketing

Spotify
Market Insight 12.1
Define digital marketing and social media marketing
Who’s in Charge?
Explain how digitalization is transforming marketing
practice Market Insight 12.2
Play It Forward
Discuss key techniques in digital marketing and
social media marketing Market Insight 12.3
What’s in a Click?
Review how practitioners measure the effectiveness
of social media marketing Market Insight 12.4
Searching the Amazon
Discuss crowdsourcing and explain how it can be
harnessed for marketing Market Insight 12.5
The World in Your Pocket
Chapter 12 1> >Digital
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457
Case Insight 12.1

Spotify
What role do social media play and how should

organizations incorporate it into their communication
campaigns? We talk to Chug Abramowitz, vice president
of global customer service and social media at Spotify, to
find out more.
Spotify’s dream is to make all of the world’s music We call these RAKs, which stands for Random Acts
available instantly to everyone. of Kindness. This is our way of doing something
special for our customers that highlights music
Our streaming service launched in Sweden in 2008
and our product in a very Spotify way. Our internal
and, as of 2017, we were available in 61 markets, with
support advisers came up with RAKs, which is why I
more than 159 million active users. Of these, more
think they nail our tone of voice so well.
than 70 million are paid users. Today, Spotify brings
you the right music for every moment—on computers, My focus now is to devise a strategy that
mobiles, tablets, home entertainment systems, cars, incorporates the spot-on tone our social media
gaming consoles, and more. support team has in our marketing campaigns. Most
likely, campaigns will continue to be agency-created,
Social media has been an important part of Spotify’s
but they will have to be filtered through the lens of
growth in two ways. The marketing team has worked
our in-house social media crew. We also need to be
with agencies to create social media campaigns that
better at using what we already have internally, in
engage customers and attract them to the Spotify
terms of both our content and our people. At Spotify,
brand, while the customer support team has monitored
we create tons of content and we’re not maximizing
social media channels and used them as tools to help
its value. Why have an agency make content when
dissatisfied customers.
internal teams are developing materials that espouse
We’ve noticed that the customer support social media Spotify’s brand at its core? On top of that, Spotify’s
team is more effective than our agencies at customer employees love music and go to gigs every week.
engagement. The agencies are typically less in tune We’re missing an engagement opportunity with
with what Spotify actually stands for and our tone. And tremendous potential to show who we are and our
while customer service is primarily about reacting to entire company’s love of music.
customers’ concerns and praise, our reactions help to
It’s clear that social media offers so many
build the Spotify brand.
possibilities, especially to a brand like Spotify that’s
For example, after solving someone’s issues, our centred on music, an integral part of most people’s
customer support social team regularly replies by lives. Social media offers the potential to show a
drafting a message in a playlist. Jelena Woehr, a company’s passion for what it does and nobody is
satisfied customer, shared her experience online of a fully taking advantage of that yet. There are many
playlist in which the titles of the songs spelled out a brands out there doing interesting things here and
message ‘Jelena/You Are Awesome/Thanks a Lot/For there, but no one has been able to put it all together
These Words/It Helps Me/Impress/The Management’. on a consistent basis. We’re going to be the ones
The list quickly went viral. who do it.
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Case Insight 12.1

continued
Another example of Spotify’s use of playlists as Random Acts of Kindness (RAK)

Source: Courtesy of Spotify.
To move forward, the company says that the Visit the online resources to watch a
first thing it needs to figure out is: how can video interview with Chug Abramowitz in
Spotify combine its customer support’s great which he explains what Spotify did.
engagement, evident in interactions such as its
RAKs, with the type of advance planning and
scale needed for marketing campaigns?
Introduction
Consider, for a moment, your own personal use of digital technology and social media. How
often do you go online? What device do you use? And what do you use it for? Now consider, for
a moment, how you used digital technology and social media five years ago. How often did you
go online? Using what devices? Doing what?
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It is most likely that you will notice that your behaviours have changed rather dramatically in the
past five years. Devices such as the iPhone and the iPad, now an integral part of many people’s
everyday lives, were first introduced to the market as recently as 2007 and 2010, respectively.
The same is true for many of the services and apps we use. Airbnb (founded in 2008), Spotify
(founded in 2006), and Uber (founded in 2009), which have used digital technology to transform
how we travel, listen to music, and move around cities, all began their international expansions
in the 2010s. Similarly, Instagram was launched in 2010, Snapchat in 2011, and Tinder in 2012.
Today, many of the social interactions and information exchanges in which we engage are facili-
tated by digital and social media technologies enabled by Internet technology. By December 2017,
Internet penetration stood at 35.2 per cent in Africa, 48.1 per cent in Asia, 85.2 per cent in Europe,
64.5 per cent in the Middle East, 95 per cent in North America, 67 per cent in Latin America/
Caribbean, and 68.9 per cent in Oceania/Australia (Internet World Stats, 2017). With increasing
broadband penetration (increasingly via mobile devices), the adoption of digital and social media
marketing techniques is vital. Apps, blogs, microblogs, social networking sites, wikis, and other
multimedia sharing services have become commonplace. The technological development is rap-
idly changing the way in which consumers behave and marketers need to adapt accordingly.
This has led to a ‘digital transformation of marketing’ over the past 15–20 years (Lamberton and
Stephen, 2016). As people change how they communicate, the marketing profession has turned
to digital and social media marketing to complement, and sometimes replace, traditional market-
ing channels and activities. However, digitalization is not only altering consumer expectations of
their interaction with organizations online; it is also changing marketing in all forms.
Digitalization enables a shift in consumer behaviours that transforms expectations and inter-
actions between consumers and marketers beyond the digital touchpoints being used. Digital
and social media affect the very core of marketing, because they can be used to both anticipate
and satisfy needs through mutually beneficial exchanges. Whereas digital marketing has typi-
cally focused on using digital and social media platforms to communicate (for example through
search engine marketing and corporate websites) and satisfy needs (for example online retail-
ing and digital products), companies are also increasingly turning to them as a tool for market
insights (for example big data and social media monitoring), meaning that they are also used for
understanding and anticipating needs.
Throughout the rest of this chapter, we will focus on digital marketing and social media mar-
keting as tools with which we can communicate and interact with consumers. First, we define
digital and social media marketing, and we track their evolution. We will then move on to discuss
key areas of digital marketing communications: Internet advertising, search marketing, email
marketing, social media marketing, content marketing, and mobile marketing. We then define
crowdsourcing and explain how it is used in marketing. Finally, we review some wider consider-
ations in the development of digital marketing strategy.
Digital Marketing
Digital marketing is the management and execution of marketing using digital electronic tech-
nologies and channels (for example Internet, email, digital television, wireless media) and digital
data about user/customer characteristics and behaviour. It is an established, and increasingly
important, subfield of marketing brought about by advancements in digital media technologies
460 1 > Managing
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and digital media environments. Digital marketing extends beyond Internet marketing, which is
one form of digital marketing specific to the use of Internet-only technologies (for example email,
intranet, extranets), in that it makes use of a range of different electronic technologies and chan-
nels, such as mobile telephony, digital display advertising, and the Internet of Things.
A variety of terms related to digital marketing are used, including e-marketing, Internet mar-
keting, direct marketing, interactive marketing, mobile marketing, and social media marketing,
among many others. Although these terms are sometimes incorrectly used interchangeably, each
has its own specific meaning (see Table 12.1). Increasingly, ‘digital marketing’ is being used as
an umbrella term, whereas the others are used to describe specific subsets of digital marketing
activities, such as Internet (‘Internet marketing’), social media (‘social media marketing’), or mobile
(‘mobile marketing’), or types of direct (‘direct marketing’) or interactive (‘interactive marketing’)
communication with consumers. Sometimes, social marketing is used as a synonym for social
media marketing. This is incorrect, because social marketing is an established term referring to
the use of marketing to influence the behaviour of a target audience in which the benefits of the
Table 12.1 Defining digital marketing terms
Term Definition
Digital Management and execution of marketing using digital electronic technologies and
marketing channels (e.g. web, email, digital TV, wireless media) and digital data about user/
customer characteristics and behaviour.
Direct ‘A specific form of marketing that attempts to send its communications direct to
marketing consumers using addressable media such as post, Internet, email, and telephone and
text messaging’ (Harris, 2009: 70).
Interactive Marketing that moves away from a transaction-based effort to a conversation (i.e.
marketing two-way dialogue) and can be described as a situation or mechanism through which
marketers and customers (e.g. stakeholders) interact, usually in real time. Not all
interactive marketing is electronic (e.g. face-to-face sales).
e-marketing Process of marketing accomplished or facilitated through the use of electronic devices,
applications, tools, technologies, platforms, and/or systems. It is not limited to one
specific type or category of electronic technology (e.g. Internet, TV), but includes both
older analogue and developing digital electronic technologies.
Internet Process of marketing accomplished or facilitated via the use of Internet technologies
marketing (e.g. web, email, intranet, extranet).
Mobile ‘A set of practices that enable organizations to communicate and engage with their
marketing audience in an interactive and relevant manner through and with any mobile device or
network’ (MMA, 2009).
Social ‘[Marketing] designed to influence the behaviour of a target audience in which the
marketing benefits of the behaviour are intended by the marketer to accrue primarily to the
audience or to the society in general and not to the marketer’ (AMA, 2015).
Social media A form of digital marketing that describes the use of the social web and social media
marketing (e.g. social networks, online communities, blogs, wikis) or any online collaborative
technology for marketing activities.
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behaviour are intended by the marketer to accrue primarily to the audience or to society in general
and not to the marketer. Social media marketing is increasingly being used by, for example, non-
profit and public organizations to achieve such social benefits. Thus the terms are not synonyms.
Visit the online resources and follow the web link to the eMarketer website for a comprehensive
source of information on marketing in a digital world.
An important feature of digital marketing is that it is continuously changing. Initially, the Internet
played a key role in the digitalization of marketing. Over the past couple of years, social media
and mobile have driven its development, and we are now seeing how artificial intelligence, auto-
mation, and voice search are increasingly impacting on digital marketing (DeMers, 2017).
Social Media Marketing

The term ‘social media’ refers to a group of Internet-based applications that allow the creation
and exchange of content between people. This includes a wide range of online word-of-mouth
forums, including blogs, company-sponsored discussion boards, and chat rooms, as well as
consumer-to-consumer messaging services, consumer product or service rating websites
and forums, Internet discussion boards and forums, moblogs (sites containing digital audio,
images, movies, or photographs), and social networking websites (Mangold and Faulds, 2009).
Table 12.2 lists the most used social media networks.
Table 12.2 Top 10 social media networks in 2018 (based on active users)
Social network Users (million)
Facebook 2,167
YouTube 1,500
WhatsApp 1,300
Facebook Messenger 1,300
WeChat 980
QQ 843
Instagram 800
Tumblr 794
QXone 568
Sina Weibo 376
Source: Statista (2018a).

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Social media has had a major impact on marketing. In fact, many argue that it has turned
marketing practice upside down. This argument is primarily based on two main changes. The first
change has to do with power. Social media enables users to generate, share, and comment on
content at their own discretion (van den Bulte and Wuyts, 2007). Content in social media is co-
created by consumers rather than (as in traditional offline media) primarily created by media com-
panies and marketers. The proliferation of user-generated content (UGC)—that is, content
made available over the Internet that reflects creative effort and is created outside professional
routine and practices (Wunsch-Vincent and Vickery, 2007), such as review sites (for example
Epinions.com, Tripadvisor.com, and reviews on Amazon.com) and widely shared first-hand feed-
back about consumer experiences (for example through a picture and comment on Instagram)—
means that consumers have become increasingly influential. Social media allow consumers to
share their experiences with each other at their own discretion, making service and product qual-
ity assessments widely available, and thereby shifting power from marketers to consumers.
The second shift has to do with control. Whereas marketers have traditionally been in charge
of the messages they communicate, this is no longer the case. In a social media environment,
consumers not only are able to create and modify content to pertain to their needs, and to share
this content with consumers, companies, or third parties, but also have a voice in reacting to
product offers and marketing that they do or do not like. As an example, the choice of (very thin
or objectified) models used by fashion retailers in their advertisements is frequently debated and
questioned in social media (examples include H&M and American Apparel), forcing the retailers
to rethink the way in which they cast models in all their marketing communications. With social
media come higher transparency and less control for marketers in terms of how their communi-
cations are received and passed on.
The changing power and control over communication clearly shows how social media
marketing is not about mass marketing, but about facilitating conversations around the orga-
nization, the brand, or an individual. Engaging in these digital conversations requires trust
and transparency, and involves authentic engagement in a real two-way dialogue (see Market
Insight 12.1).
Market Insight 12.1

Who’s in Charge?
In the past 15 years or so, social media has evolved conversations makes such failings available to
from a debating ground for the initiated few to everyone for a very long time.
become a conversational arena for the masses.
Nowhere is this more evident than when it comes One example is the case of US retailer Target and Mike
to discussions about purchases, companies, and Melgaard. Mr Melgaard, upon surfing Facebook one
brands. Customers taking their negative experiences night, discovered that Target had removed gender-
online cause headaches for many marketing based labels on its toys. Anticipating outraged reactions
executives. Social media conversations, even in a from his more conservative American compatriots (with
company’s own social media channels, are difficult whom he does not agree on this issue), he quickly set
to control, and if they are handled poorly, they can up a fake Facebook account called ‘Ask for Help’, and
spin out of control and become issues in their own included a profile picture similar to that of Target’s own
right. Moreover, the public nature of social media bullseye logo. Mr Melgaard then began commenting
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continued
on the many negative posts that were soon piling up service for everyone and that Mr Melgaard clearly did
on Target’s Facebook page as if he were an actual not represent the company. A few days later, however,
Target customer service representative. Over the Target quietly endorsed Mr Melgaard’s actions by
course of 16 hours, Mr Melgaard gave humorous and posting a picture of two toy trolls on its Facebook
slightly obnoxious replies to almost 50 posts before his page, captioned, ‘Remember when trolls were the
fake account was shut down. One of Mr Melgaard’s kings of the world? Woo hoo! They’re back and only at
comments included a response to a negative post, Target stores.’ The photo generated more than 30,000
which began ‘I know this means little to Target, but I am likes. Mr Melgaard, under his own name this time,
tired of all this political correctness . . .’ Mr Melgaard commented on the photo, saying: ‘Target. Seriously
replied: ‘Actually Gary, it means NOTHING to us that You are AWESOME.’ That comment alone generated
you feel this way. Have a great day!’ more than 2,500 likes.
Target, when queried about the incident, offered a

Sources: Colliander and Wien (2013); Nudd (2015a, 2015b).
neutral statement that it is committed to customer
As we have seen, social media has fundamentally whose main purpose is not to control, but to facilitate
changed marketing, the two key changes being shifts in conversations around the brand, regardless of whether
power and control. The shift in power occurs because what is being said is good or bad.
social media enables consumers to generate, share,
and comment on content at their own discretion. What’s In Target’s case, the shift in power and control is
more, such consumer-generated content is easily and evident in the behaviours and comments of both
widely shared, thereby shifting power from marketers Mr Melgaard and the consumers opposing the
to consumers. In terms of control, social media enables gender-neutral toy assortment. Target reacts to the
consumers to voice any concerns that they have with conversation as a host, clarifying the different roles
regard to a brand, its offering, and its marketing. This of consumers taking part. After discussion has gone
leaves little room for error. Taken together, this means silent, it also finds a way of rejuvenating it by subtly
that marketers have to adapt to a role as a ‘host’, commenting on what happened.
Related Topics
digital marketing; social media marketing; co-creation; content marketing; customer service
1 Visit Target’s website. In your opinion, what 3 How do you think Target’s decision to quietly
segment does Target consider its main target endorse Mr Melgaard’s actions affected this
audience? Among that audience, do you think incident and its core business?
Target benefited from Mr Melgaard’s actions?
This market insight was kindly contributed by Dr Jonas
Colliander, Stockholm School of Economics, Sweden.
2 What do you make of Target’s strategy to cope
with the situation? Could it or should it have
done something differently?
464 1 > Managing
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Thus the development of social media marketing is not only impacting on where managers
spend their budgets, but also challenging how they communicate, share information, interact,
and create (or produce) an offering. When anybody on the Internet can create, comment on, or
share information about what companies, brands, organizations, or people do, what they repre-
sent, and how they work, those companies, brands, organizations, and people no longer have
power or control over how they are perceived in the marketplace. Marketers increasingly have
to find strategies to share such control, be it through the use of hashtags that help to co-create
meaning around brands and campaigns, or by means of viral campaigns that consumers pass
on and share with each other. Marketing activities related to social media are discussed further
later in the chapter (see ‘Social Media Marketing Communications’ and ‘Crowdsourcing’).
Visit the online resources and complete Internet Activity 12.1 to learn more about how EY
(formerly Ernst & Young) uses Twitter to maintain an ongoing real dialogue with its followers.
How Digitalization Is Transforming Marketing

The changing nature of the socio-technical environment means that many marketing execu-
tives must reconsider how brand management and marketing activities more generally need
to change to suit the digital environment. Not only do digital channels operate differently from
traditional ones, but also the consumer behaviours that they shape will affect behaviours in
traditional media.
It is also important to remember that digital marketing does not exist in a silo, independent
of other marketing principles (for example pricing, distribution, or customer service). Integrating
digital marketing into marketing research (see Chapter 3), marketing communications plans (see
Chapter 11), and channel distribution plans (see Chapter 12) requires detailed consideration if it
is to be effective, not least because the digital environment is not simply another channel, but a
channel in which consumers often behave differently. Therefore digital marketing should be con-
sidered more widely because digital media allows consumers to interact with other consumers,
quite often outside the control of the organization around which they might be interacting.
Thus digital technology has the potential to transform marketing at its core. In fact, it is trans-
forming business. According to a study by McKinsey & Co., companies that are integrating
digital technology into their business perform significantly better financially than those that are
not (Alldredge, Newaskar, and Ungerman, 2015). The same study identifies the following key
characteristics for such digitally advanced companies:
■ Strategy—Ninety per cent of online leaders have digital initiatives fully integrated into their
strategic planning process, not added as a bolt-on. They avoid getting bogged down in over-
planning and instead focus on testing the viability of a market, product, or segment in near
real time—through limited releases, small campaigns to compare markets, and prototyping
with early adopters.
■ Culture—While 84 per cent of companies indicate that their culture is risk-averse, companies
such as Amazon and Google embrace a different mentality. Instead of waiting for perfection,
digital leaders adopt a fail–fast-forward mindset. They push a simple product into the market,
gauge interest, collect customer feedback, and iterate. There is an emphasis on failing often
and succeeding early.
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Lamberton, C., and Stephen, A.T. (2016). A thematic exploration of digital, social
media, and mobile marketing: research evolution from 2000 to 2015 and an agenda
for future inquiry. Journal of Marketing, 80(6), 146–72.
This article provides an overview of the evolution of academic research on digital, social, and mobile
marketing. More specifically, it tracks the changes in academic research perspectives over time and
provides future research directions for the field.
■ Organization—Leading companies use non-traditional organizational structures, digital talent

acquisition, and management to execute their digital vision. Sixty-five per cent of digital lead-
ers have an aggregated digital budget and sufficient budget allocation to scale their digital
initiatives.
■ Capabilities—Digital leaders make decisions based on data and build capabilities that
connect people, processes, and technology across all channels that engage with con-
sumers. Eighty per cent of digital leaders effectively invest in their digital information tech-
nology (IT) infrastructure to support growth. That means moving beyond model building to
implementing processes that can mobilize relevant internal and external resources to take
action quickly.
It is thus clear that mastering digital marketing is becoming vital to succeed in the contempo-
rary marketplace, and that such mastery means integrating digital technology and media into
all corporate activities. For clarity, we will continue this chapter by discussing digital marketing
communications. However, it should be noted that, in practice, marketing activities related to
understanding consumers (see Chapters 2 and 3) and satisfying their needs (see Chapter 14)
are increasingly interrelated and, to fully reap the benefits of digital and social media marketing,
they should be managed such that they reinforce each other. (See Research Insight 12.1 to learn
more about the developments in research on digital, social media, and mobile marketing.)
Digital Marketing Communications

Investments in digital marketing communications are growing rapidly. Focus is primarily on com-
munication using Internet-only technologies (for example web, email, intranet, extranet), which
are accessed using desktops, laptops, mobile devices, and/or tablets, but different types of digi-
tal display and tracking device are also increasingly being used to market products and brands.
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Not all digital marketing communications fit with a traditional definition of advertising as paid
placements. Because consumers are actively searching for and sharing information on the
Internet, marketers need to make sure that information is easily accessed and shared, meaning
that the brand’s own online channels and the potential of its content to be passed on is becom-
ing increasingly important. Whereas traditional media are easily divided into formats based on
the underlying logic, this is not the case for digital marketing communications. The borders
between paid-for (‘advertising’) media, earned media (‘publicity’ and ‘word of mouth’), and own
media (for example websites, profiles on social media, emails) are blurry and hard to establish.
For example, the IKEA films described in Market Insight 12.2 reached consumers in several
ways: they were used in paid-for placements (for example display ads on newspaper websites),
made shareable for newspapers, bloggers, and consumers to pass on to their readers or friends
(for example on social media), and published on IKEA’s own channels (for example website,
YouTube channel). Typically, the different aspects of a digital marketing communication cam-
paign are tightly linked and hard to disentangle.
Market Insight 12.2

Play It Forward
In November 2015, IKEA launched a new play collection

named Lattjo, which includes a variety of games, musical
instruments, and toys featuring new characters inspired
by insects, roots, animals, and vegetation. The mission
of the Lattjo collection is to encourage people, both
young and old, to play more.
‘We know that the world wants and needs more play.
In our research we’ve seen that 50 per cent of all adults
want to find their inner child, and that both children and
parents want to play more together’, says Maria Thörn,
range manager at Children’s IKEA.
This insight is based on thorough research. Overall, IKEA’s Lattjo collection sets out to inspire
young and old to play together
IKEA has conducted interviews with nearly 30,000
Source: Used with the permission of Inter IKEA Systems B.V.
parents and children from 12 countries. The results
clearly show that parents want to spend quality time
with their children, but find it difficult to carve out together when apart’ app. Through the app, children
playtime. Over half of the parents surveyed also said and adults can enjoy social play even if they are not
that play can include the use of smartphones, tablets, physically in the same place. All the games depend on
game consoles, and computers. Based on these collaboration and togetherness: the more people play
concerns, the Lattjo collection was designed to remove together, the more togetherness points they get.
barriers to play and to connect online and offline play.
The launch of the Lattjo collection was built around
With a long tradition of offering playful experiences more than 25 animated short films, created by
for children in their stores, the Lattjo collection is the DreamWorks Studios. These animated stories
first effort to make Children’s IKEA digital. In addition celebrate and expand the imaginative worlds of
to the physical product, the collection includes a ‘play the Lattjo characters in playful 2D and stop-motion
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Market Insight 12.2

continued
animation. The video series utilizes DreamWorks hope surprises and delights viewers as they meet these
Animation’s storytelling expertise to bring the characters in the coming months’, said Brian Robinson,
collection to life. global head of creative design and development at
DreamWorks Animation.
‘Working with our world-class storytellers, this content
series is a celebration of imagination and play that we Sources: Budds (2015); Madov (2015); Miller (2015).
The growth of digital technologies is changing not enable new relationships (and thereby insights) both
only consumer behaviour, but also business itself. with and between consumers.
Successful marketing in a digital world requires digital
marketing to be integrated into marketing research, as The launch of Lattjo shows that IKEA has embraced
well as marketing communications and channels for digitization. The physical products are complemented
distribution plans. However, digital marketing should by digital games that encourage social play around
be considered and adapted more widely than as only them (the app). A digital campaign built around carefully
a new communication or distribution channel; rather, created films complements the in-store launch and all
it can help to create new business opportunities and aspects of the launch are social.
Related Topics
digital marketing; social media marketing; content marketing; new product development
Visit IKEA’s website and look for the Lattjo collection. 2 How has IKEA adapted its offering to an
Then visit IKEA’s YouTube channel and watch the increasingly social environment?
Lattjo films.
3 What key learning do you think IKEA will take
1 How has IKEA adapted its offering to an away from the Lattjo launch? How might it
increasingly digital environment? use this in developing other parts of the IKEA
offering in the future?
We will now discuss some of the most frequently used digital marketing communications
activities in more detail.
Internet Advertising Communications

Internet advertising refers to a form of marketing communication that uses the Internet for the
purpose of advertising, regardless of what device is being used to access it. Typically, it involves
marketers paying media owners to carry the marketers’ messages on the owners’ websites.
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Payment is impression-based (for example cost-per-thousand, or CPM, pricing), performance-

based (for example cost per click, sale, lead, acquisition, or application), or straight revenue
share (for example percentage commission paid upon sale). The aim of Internet advertising is to
increase website traffic and/or encourage product trial, purchase, and repeat purchase activity
(Cheng et al., 2009), and ad format and payment should be adapted accordingly.
A list of different Internet ad formats and their definitions is given in Table 12.3.
Table 12.3 Types of Internet advertising format
Ad format Description
Banner Advertiser pays an online company for space on one or more of the online
advertising company’s pages to display a static or linked banner or logo.
Sponsorship Advertiser pays for custom content and/or experiences, which may or may not
include ad elements such as display advertising, brand logos, advertorial, or pre-
roll video.
Search Advertisers pay fees to online companies to list and/or link their company
site domain name to a specific search word or phrase (includes paid search
revenues). Search categories include paid listings, contextual search, paid
inclusion, and site optimization.
Lead generation Advertisers pay fees to online companies that refer qualified potential customers
(e.g. auto dealers that pay a fee in exchange for receiving a qualified purchase
inquiry online) or provide consumer information (demographic, contact,
behavioural) where the consumer opts in to being contacted by a marketer (email,
post, telephone, fax). These processes are priced on a performance basis (e.g.
cost per action, lead, or enquiry), and can include user applications (e.g. for a
credit card), surveys, contests (e.g. sweepstakes), or registrations.
Classifieds and Advertisers pay fees to online companies to list specific products or services (e.g.
auctions online job boards and employment listings, real estate listings, automotive listings,
auction-based listings, Yellow Pages).
Rich media Display-related ads that integrate some component of streaming interactivity.
Rich media ads often include Flash or Java script, but not content, and can allow
users to view and interact with products or services (e.g. scrolling or clicking
within the ad opens a multimedia product description, expansion, animation,
video, or ‘virtual test-drive’ within the ad).
Digital video Advertising that appears before, during, or after digital video content in a video
advertising player (i.e. pre-roll, mid-roll, or post-roll video ads). Digital video ads include TV
commercials online and can appear in streaming content or in downloadable
video. Display-related ads on a page (not in a player) that contains video are
categorized as rich media ads.
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Table 12.3 continued
Ad format Description
Mobile advertising Advertising tailored to and delivered through wireless mobile devices such as
smartphones, feature phones (e.g. lower-end mobile phones capable of accessing
mobile content), and media tablets. Typically taking the form of static or rich media
display ads, text messaging ads, search ads, or audio/video spots, such advertising
generally appears within mobile websites (e.g. websites optimized for viewing on
mobile devices); mobile apps; text messaging services (i.e. SMS, MMS); or mobile
search results (i.e. 411 listings, directories, mobile-optimized search engines).
Mobile advertising formats include search; display (banner ads, digital video, digital
audio, sponsorships, and rich media); and other advertising served to mobile devices.
Digital audio Refers to partially or entirely advertising supported audio programming available
to consumers on a streaming basis, delivered via the wired and mobile Internet.
Social media Advertising delivered on social platforms, including social networking and social
advertising gaming websites and apps, across all device types, including desktop, laptop,
smartphone, and tablet.
Email Banner ads, links, or advertiser sponsorships that appear in email newsletters,
email marketing campaigns, and other commercial email communications. This
includes both ads within an email or the entire email itself.
Source: IAB/PwC (2017).
Major considerations when using Internet advertising include the following:

■ Cost—Internet adverts are still relatively cheap compared with traditional advertising.
■ Timeliness—Internet adverts can be updated at any time with minimal cost.
■ Format—Internet adverts are richer, using text, audio, graphics, and animation. In addition,
games, entertainment, and promotions can be incorporated.
■ Personalization—Internet adverts can be interactive and targeted to specific interest groups
and/or individuals.
■ Location-based—By using wireless technology and geo-location technology (such as the
Global Positioning System, or GPS), Internet advertising can be targeted to consumers
wherever they are (for example near a restaurant or theatre).
■ Intrusive—Some Internet advertising formats (for example pop-ups) are seen as intrusive and
suffer more consumer complaints than other formats.
Recent developments in Internet advertising focus on programmatic buying, in which advertising
is planned, analysed, and optimized via demand-side software interfaces and algorithms.
Recently, there has also been a lot of controversy with regard to online advertising. First,
reports of exposure to online advertising have been found to have been inflated. This is as a
result of the automated systems used to account for exposure not being able to distinguish
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actual viewers from automated viewers (‘bot traffic’). It is estimated that advertisers will have
lost the equivalent of over US$50 million per day in 2018 and that this figure will continue to rise
(Greiner, 2017). Second, the use of ad-blocking software (that is, software that blocks advertis-
ing content from appearing on websites) is growing rapidly. In 2017, estimates were that 30.1
per cent of the US Internet users were equipped with ad-blockers (Anon., 2017). (See Market
Insight 12.3 to learn more about the challenges of measuring online advertising.)
Market Insight 12.3

What’s in a Click?
Marketing departments are increasingly using the many online. In fact, by 2003, research had already shown
opportunities of digital media to measure marketing that clicks were a bad measure of the effectiveness
impact—but the fact that something can be measured of a banner because of difficulties in attribution—that
does not mean that it is a relevant figure that can tell is, knowing what exposure has led to what outcome.
us something useful. An example of one such metric is Often, there is a long time delay between exposure
click-through rate (CTR), which is the ratio of number of and actual behaviour. The connection between the
clicks per visitor. classic brand equity measurements and CTR has
actually been shown to be very low—sometimes even
In the early days of the Internet, the CTR was quite negative. Thus, many times, these digital metrics must
high on average, because consumers were curious be complemented with a survey if a marketer is to see
about digital ads. Measuring CTR gained ground the full result of the exposure.
as a result of the fact that it is a universal measure
with a clear standard that can easily be measured, Even when only behavioural variables can be collected,
communicated, and understood, as well as being a for example when no survey can be distributed, there
measure closely linked to purchase. At the same time, are better metrics to focus on than CTR. For example,
many companies, such as Google, profited from the industry data shows that the correlation between
CTR metric and hence promoted it even more. CTR and actual conversion is 0.01 (an extremely
low correlation, since the scale stretches from 0 to
Unfortunately, the CTR does not measure the average 1), whereas the correlation between mouse-over
effect on the target audience resulting from ad and actual conversion is 0.49 (a much higher level of
exposure. It has also been shown that many clicks are, correlation).
in fact, mistakes. Findings also show that who clicks on
the ad is not proportionate across all visitors of the site: When only including directly behavioural measures,
visitors who click tend in general to be younger and the brand runs the risk of focusing too much on
have below-average incomes. actions that are very close to a purchase, forgetting the
importance of long-term branding.
In contrast to what many people believe, it will still be
necessary to collect the classic brand-equity metrics, Sources: Drèze and Hussherr (2003); Modig and Söndergaard
even in a time in which we can measure behaviour (2018).
A key facet of digital platforms is measurability. However, campaign. Accurate measures that match marketing
it is important to keep in mind that the measures being objectives are key to an accurate understanding of what
used are connected to the objectives of the marketing the effects of a campaign actually are.
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Market Insight 12.3

continued
Related Topics
digital marketing; search marketing; consumer information search
1 Consider the different marketing 3 Why do you think CTR is typically higher
communication objectives discussed in Chapter for search advertising compared to display
10. Which objectives would you say could be advertising?
accurately assessed in terms of CTR?
4 CTR varies somewhat between industries. How
2 Google provides benchmarks for CTR in and why do you think this is?
different industries. Search to find the latest
This market insight was kindly contributed by Dr Erik Modig
benchmarks for CTR in display and search and Martin Söndergaard, Stockholm School of Economics,
advertising. Sweden.
Visit the online resources and follow the web link to the Interactive Advertising Bureau (IAB) to
learn more about developments and standards for Internet advertising activities (including those
relating to programmatic buying, bot traffic, and ad blocking).
Search Marketing Communications

The growth in digital content available through the Internet has given rise to a number of interac-
tive decision aids used to help users to locate data, information, and/or an organization’s digital
objects (for example pictures, videos). The main two types of decision aid are a search direc-
tory (that is, a web directory) and a search engine, but increasingly voice services such as
Apple’s Siri or Amazon’s Alexa are moving into this field (DeMers, 2017).
A search directory is a human-edited database of information. It lists websites by category
and subcategory, with categorization usually based on the whole website, rather than one page
or a set of keywords. Search directories often allow site owners to submit their site directly for
inclusion and editors review submissions for fitness. Given its large scope, Amazon could also
be considered to offer a search directory for shopping.
In contrast, a search engine operates algorithmically, or uses a mixture of algorithmic and
human input, to collect, index, store, and retrieve information on the web (for example, web
pages, images, information, and other types of files), making this information available to users
in a manageable and meaningful way in response to a search query. Information is retrieved by
a web crawler (also known as a spider), which is an automated web browser that follows every
link on the site, analysing how it should be indexed using words extracted from page and file
titles, headings, or special fields called meta tags. The indexed data are then stored in an index
database for use in later queries. When a user enters a query into a search engine (typically
using keywords), the engine examines its index and provides a listing of the best-matching web
pages, according to its criteria, on search engine result pages (SERPs). There are only a few
dominant search engines in the market, Google leading the global market share rankings with
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87.1 per cent, followed by Bing (5.8 per cent), Yahoo! (3.0 per cent), and Chinese Baidu (0.9 per
cent) (Statista, 2017).
Search engines have evolved significantly over the years. Whereas searches in the early years
of the Internet focused on keywords, today’s semantic analysis ensures that they also take into
account previous search behaviour and knowledge about the context in which the search is being
made (for example when, where, how, and who). An example of contextual adaption is local
searches, whereby search results are adapted to the location in which the search is undertaken.
Given its central role in consumer online behaviour, it is not surprising that search is central to
most digital marketing strategies. In 2016, 48 per cent of all Internet advertising investments were
in search, with about half of the investments going to desktop and half to mobile search (IAB/
PwC, 2017). Search—often referred to as search engine marketing (SEM)—is one of the main
forms of Internet advertising. Its aim is to promote websites by increasing their visibility in SERPs.
Methods include paid listings, contextual search, paid inclusion, and search optimization:
■ Paid listings, or pay per click (PPC), refers to payments made for clicks on text links that
appear at the top or side of search results for specific keywords. The more a marketer pays,
the higher the position it gets. Marketers pay only when a user clicks on the text link. Paid
listings typically mean that the advertisers bid on keywords or phrases relevant to their target
market in return for sponsored or paid search engine listings to drive traffic to a website. The
search engine ranks ads on the basis of a competitive auction and other related criteria (for
example popularity, quality). Google AdWords, Yahoo! Search Marketing, and Bing Ads are
the three largest ad-network operators, with all three operating under a bid-based model.
■ Contextual search is a form of targeted advertising, with advertisements (for example ban-
ners, pop-ups) appearing on websites. The advertisements themselves are selected and
served by automated systems based on the content displayed to the user. A contextual
advertising system scans the text of a website for keywords and returns advertisements to
the web page based on what the user is viewing. Google AdSense was the first major con-
textual advertising program. Payments are typically made for only clicks on text links that ap-
pear in an article based on the context of the content rather than a user-submitted keyword.
■ Paid inclusion occurs when a search engine company charges fees related to inclusion of
websites in its search index. Some organizations mix paid inclusion with organic listings (for
example Yahoo!), whereas others do not allow paid inclusion to be listed within organic lists
(for example Google and Ask.com). Payments are made to guarantee that a marketer’s URL
is indexed by a search engine (that is, it is not paid only for clicks, as in paid listings).
■ Site optimization occurs when a website’s structure and content is improved to maximize
its listing in organic search engine results pages using relevant keywords or search phrases.
Payments are made to optimize a site to improve the site’s ranking in SERPs. Increasingly,
there is recognition that search engine optimization (SEO) and social media are interlinked.
By gaining a massive amount of social shares, you’re not only boosting your SEO signals and
your site visibility, but also creating content with value for your customer base.
All of these search marketing methods allow marketers to match users with content according
to their interests. Search engines and directories take a different approach, but one thing unites
them: search marketing is one of the most cost-effective methods of digital marketing. However,
although search is still by far the largest online ad format, it is declining slightly in importance
as digital marketers look increasingly to shift budget into mobile and social channels. (To learn
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more about Amazon’s investment in becoming a leading search engine for online shopping, see
Market Insight 12.4.)
Market Insight 12.4

Searching the Amazon
Search is a key behaviour online and Google is the bricks-and-mortar bookstore in Seattle, Washington.
go-to place for search—or is it? In 2015, 44 per cent Seattle was chosen as the company’s first physical
of US consumers stated that they head directly to bookstore because it is close to Amazon’s headquarters
Amazon when searching for products, up from 30 per and because Seattle is a top market for readers.
cent in 2012. In comparison, 34 per cent go straight to
a search engine such as Google, Yahoo, and Bing.
Whereas Google has done its part in making product

discovery and search intuitive, convenient, and seamless,
Amazon now seems ready to step in and take over.
Almost half of US consumers bypass search engines and
other websites in favour of Amazon when on a shopping
mission. This means that the search bar is increasingly
becoming a key asset in Amazon’s user experience.
Enabling search not only allows consumers to find

the products they are looking for, but also enables
Amazon to collect valuable data on consumer searches
The assortment in Amazon’s physical store has
and relate that data to actual sales. On-site search been selected using data on online shopping
queries are clear expressions of user intent. Coupled patterns
with reviews from the millions of Amazon customers Source: © SEA STOCK/Shutterstock.com
who have left appraisals on the website, the data is
invaluable, and Amazon continually leverages it to In opening a bookstore, Amazon is betting that the vast
intelligently promote products across its website. store of data it generates from shopping patterns on its
website will give it advantages in its retail location that
Amazon’s advanced algorithmic recommendation other bookstores cannot match and that using this data
capability accurately predicts intent and suggests to pick titles that will most appeal to Seattle shoppers will
products better than any other website. Now, Amazon is allow Amazon to succeed where others have not.
using its shopping pattern data to get advantages offline
as well. In November 2015, Amazon opened its first Sources: Greene (2015); Leggatt (2015); B. Johnson (2015).
The vast amount of digital content available through analysis whereby they take into account contextual
the Internet has given rise to a number of interactive factors (for example who is searching, for what, at what
decision aids used to help web users to find what they time, and using what device) to come up with relevant
are looking for. The main two decision aids are search results. Alongside search giant Google, retailers such
directories (web directories) and search engines. as Amazon are also working hard to facilitate search
Increasingly, search results are adapting semantic and to monetize the data that it generates.
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Market Insight 12.4

continued
Related Topics
digital marketing; search marketing; retailing; marketing channels
Visit Amazon’s website and search for a 2 What type of contextual information does
product you are interested in. Amazon seem to use to guide the results that
are presented?
1 What options for finding the product do you
have? How useful is the directory? How useful is 3 How do the search results you get on Amazon
the search engine? differ from what you would get using Google,
Bing, or Yahoo!?
Email Marketing Communications

Email is one of the most frequently used digital marketing tools. Given that companies them-
selves run many email marketing activities, based on customer relationship management (CRM)
systems and mailing lists, the lead-generation category listed in Table 12.3 covers only parts of
all email marketing activities.
Email, when used properly, goes beyond simply sending a sales message; it also helps to cre-
ate trust, retain customers, build customer referrals, and generate revenues. What’s more, email
marketing tends to be appreciated by consumers. For example, 63 per cent of UK office work-
ers reported that they preferred to receive brand communications this way compared with 6 per
cent preferring to be reached by social media and 5 per cent, by a mobile app (Anon., 2015).
Importantly, with email marketing, the communicator sends the message only to those who
have agreed to receive messages. Such permission-based email marketing is a highly cost-
effective form of digital marketing (Cheng et al., 2009). As a marketing tool, it is easy to use and
costs little to send. However, costs can be higher when personalizing messages and where
a database must be developed or purchased. Nevertheless, email can reach millions of will-
ing prospects within minutes. Unsolicited emails, which clog email servers and use up much-
needed Internet bandwidth, are referred to as spam.
In designing a successful email campaign, marketers need to think carefully about the target
audience and their willingness to receive emails. Under European legislation, list members must
have clearly opted in to receiving such emails and they must be offered the opportunity to opt
out (that is, unsubscribe) each time they receive an email. It will be good practice to allow list
members to choose what type of email offerings they are interested in receiving (for example
newsletters, discount offers, and specific updates), and, as far as possible, emails should be
personalized. Using an email system that allows tracking and reporting on all elements of the
campaign (including opens, clicks, pass along, unsubscribe, and bounce-backs) allows market-
ers to closely test and monitor different email marketing strategies in terms of when and how
often to send them, as well as what to offer, what to write, and what to highlight. The insights
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gained from such data-mining exercises can be invaluable. For example, a large-scale study
of more than 1 billion emails over a two-year period showed that people are 38 per cent more
likely to click and 47 per cent more likely to convert when they are presented with an offer of a
percentage discount rather than a cash discount (O’Brien, 2015). According to the same study,
short subject lines (of 6–10 words), visual and personalized messages, and clear calls to action
are key to a successful email marketing communication.
Social Media Marketing Communications

Social media marketing describes the use of the social web and social media (for example social
networks, online communities, blogs, wikis) or any online collaborative technology for marketing
activities (for example sales, public relations, research, distribution, customer service). Social
media marketing includes both the creation and curation of corporate or brand profiles and
content on social media and advertising. Social media advertising (SMA) refers to advertising
delivered on social platforms, including social networking and social gaming websites and apps,
across all device types.
Marketers are increasingly investing in social networks (for example Facebook, LinkedIn, QQ
in China); video-sharing sites (for example YouTube); image-sharing sites (Flickr, Pinterest); blog-
ging platforms (WordPress); and microblogs (Twitter) for marketing purposes. According to the
2018 Chief Marketing Officer (CMO) survey, 12.1 per cent of marketing budgets are invested in
social media and this share is expected to grow to 20.5 per cent in the next five years (Moorman,
2018). The same survey also shows that the top reasons for using social media is to raise brand
awareness and brand building (45 per cent), followed by customer acquisition (33 per cent).
It is important to keep in mind that social media come in many different variations and that
social media marketing strategies need to be adjusted to the type of consumer engagement
taking place on the specific platform being used (Voorveld et al., 2018). The social web does
not make conversations happen; it simply supports them. By understanding how social media
supports conversations, businesses can open up interactions with individuals and communities.
For example, companies respond to customer care queries and concerns using Twitter and
Facebook, share brand-related behind-the-scenes imagery on Instagram and Pinterest, and
promote time-limited offers on Snapchat (see Research Insight 12.2). Mangold and Faulds (2009)
outlined some examples of marketing activities that can stimulate conversations, including:
■ networking platforms, such as Sephora’s Beauty Insiders, Nike +;
■ blogs and social media tools to engage customers—because customers like to give feed-
back on a broad range of issues (see ‘Content Marketing Communications’);
■ using both Internet and traditional promotional tools to engage customers;
■ supplying information on, for example, correct or alternative product usage;
■ offering exclusivity—because people like to feel special;
■ designing offerings from the perspective of consumers’ desired self-images and with talking
points to make advocacy easier, for example US budget airline JetBlue’s offer of leather seats
and televisions to its customers;
■ demonstrating support for causes that people value; and
■ creating memorable stories.
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Voorveld, H., van Noor, G., Muntiga, D.G., and Bronner, F. (2018). Engagement with
social media and social media advertising: the differentiating role of platform type.
Journal of Advertising, 47(1), 38–54.
This article examines how consumers’ engagement with social media platforms drives engagement with
advertising embedded in these platforms. The findings show that engagement is highly context-specific,
suggesting that social media advertising will have to be adapted to the specifics of the platform being used.
In fact, the authors argue that there is no such thing as ‘social media’ advertising.
One example of the last—creating memorable stories—is UK food and beverage company inno-
cent, which outlines the story of the foundation of the firm on its website. The story has it that
three friends set up a stall to sell smoothies at a London music festival. A sign above the stall
read, ‘Should we give up our jobs to make these smoothies?’, and people were asked to throw
their empties into one of two bins marked either ‘Yes’ or ‘No’. Needless to say, ‘Yes’ won.
Paid media placements online and offline have been found to be important for getting con-
versations going (Niederhoffer et al., 2007; Keller and Fay, 2012). The UK is estimated to be the
largest market in Europe for social media advertising, with total investments reaching approxi-
mately US$1.7 billion in 2016; with $475 million and $427 million, respectively, Germany and
France rank second and third (Statista, 2018b).
The options available for social media advertising differ between different social media plat-
forms. They are also constantly changing.
Visit the online resources and undertake Internet Activity 12.2 around advertising options on
different social media platforms.
Evaluating Social Media Marketing Communications

Although marketers agree that social media marketing is a key to success in the contemporary
marketplace, many marketers are still struggling in terms of how to evaluate these activities.
Estimates show that only around 20–25 per cent of CMOs feel that they are able to prove the
impact of social media investments quantitatively and as many as 30–40 per cent are still unable
show the impact of their investments (Moorman, 2018). This clearly shows that engaging in
social communities provides several opportunities for marketers, but it can also be a challenge.
Because social media is increasingly used as part of the marketing manager’s planning (for
both communications and research), there is an increasing need to understand whether what
marketers are doing in social media is working or not. Web activity is amazingly measurable,
because web users leave traces of their presence and activity on the various sites they visit.
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However, the process of measuring social media effectiveness requires a systematic approach.
Based on interviews with experiences social media marketers, Keegan and Rowley (2017) sug-
gest the following framework for evaluating social media:
1 Start out by setting campaign objectives. This means identifying specific and clear evaluation
objectives that are aligned with marketing objectives and overall business goals.
2 Identify key performance indicators (KPIs) that fit with the objectives set. This step involves
identifying the most appropriate performance indicators that fit with the overall campaign
objectives set in step 1.
3 Identify metrics to be used to assess the selected KPIs. Table 12.4 lists commonly used so-
cial media measures that are typically easily available to marketers and which can be used to
assess the success of the campaign. Which one(s) you should use depends on the conclu-
sions you drew in steps 1 and 2.
Table 12.4 Common social media measures used by marketers
Measure
Hits/visits/page views
Number of followers and friends
Repeat visits
Conversion rates (from visitor to buyer)
Buzz indicators (mentions, shares)
Sales levels
Online products/service ratings
Customer acquisition costs
Net promoter score
Revenue per customer
Text analysis ratings
Customer retention costs
Abandoned shopping carts
Profits per customer
Source: Moorman (2014).

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4 Collect and monitor the previously identified metrics and KPIs from relevant social media
channels. Here, there is typically room to monitor and make adjustments in the execution of
the campaign in real time.
5 Report results. This step includes compilation of the KPIs and metrics into a presentable for-
mat in which the overall campaign performance is assessed. Often, benchmarks are needed,
in terms of previous performance or industry standards in terms of KPIs, to allow the mar-
keter to draw conclusions.
6 Make a decision based on the insights gained. Based on the report, the performance of the
campaign can be assessed and conclusions for future iterations or campaigns can be drawn.
This also makes it possible to ascertain what changes are necessary to meet the benchmark
targets or if benchmarks should be updated.
This framework can be applied either to social media campaigns run for limited time or to more
continuous social media efforts (such as a Facebook page, Instagram account, or YouTube
channel) and evaluations can be made on daily, weekly, monthly, and/or quarterly basis.
Content Marketing Communications

Content marketing is an approach to marketing communication in which brands create and dis-
seminate content to consumers with the intention that the content will generate interest, engage
consumers, and influence behaviour (Stephen, Sciandra, and Inman, 2015). Although branded
content has been around for more than 100 years (with one of the pioneering examples being
the Guide Michelin, which included restaurant recommendations to get French car owners to
drive more and thus increase their need for Michelin tyres), this marketing activity has acceler-
ated in the digital space.
Most of the digital marketing communication activities discussed so far rely on consumers
actively deciding to take part in marketing. For example, search marketing requires consum-
ers to actively click on a link and social media marketing relies on consumers actively engag-
ing (liking, sharing, co-creating) content created by brands. This means that brands are under
increasing pressure to create online content that consumers value; hence marketers are
paying increasing attention to creating online content that can benefit their target audiences,
and they are doing so by adapting traditional journalism and publishing techniques. These
activities are often referred to as content marketing. Although the appropriate definition of
content marketing is debated (Neff, 2015), there is little doubt that these practices are impor-
tant for marketers. Global content marketing investments reached US$212.2 billion in 2016
(PQ Media, 2017). In addition, strategies to direct the target audience towards the content
need to be in place—most commonly, via search marketing, promotions, and advertising.
Whereas content marketing investments have traditionally been more common in business-
to-business (B2B) marketing, growth rates in consumer marketing are expected to be higher
than in B2B, making the share of investments between the two perfectly balanced by 2019
(PQ Media, 2017).
The intention of content marketing is to create content that has value for the receiver (for
example by being useful, educational, or entertaining in and of itself), thereby pulling the con-
sumer toward the brand (see Research Insight 12.3). There are numerous ways of creating
such value. Whereas consumer content marketing typically has focused on entertainment and
information, and B2B on knowledge and competence (for an overview of the most commonly
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Rosengren, S., and Dahlén, M. (2015). Exploring advertising equity: how a brand’s
past advertising may affect consumer willingness to approach its future ads. Journal
of Advertising, 44(1), 1–13.
This article investigates what drives consumer’s willingness to pay attention to advertising. Based on
empirical studies of more than 1,700 consumers and 100 brands across more than 12 different product
categories, it shows how adding value in advertising is vital to succeeding in digital environments in which
consumers are increasingly in charge of their own media consumption.
Table 12.5 Top B2B content marketing tactics 2015
Rank Tactic Use
1 Social media post 95%
2 Case studies 77%
3 Videos 72%
4 E-books/White Papers 71%
5 Infographics 65%
Source: Murton Beets and Handley (2018).
used content marketing tactics among B2B firms, see Table 12.5), these borders are blurring.
For example, Volvo Trucks, which offers heavy-duty trucks to a professional audience, has been
very successful in a content-centred campaign focusing on entertaining and spectacular online
videos (see Market Insight 11.1 in Chapter 11), while Red Bull has transformed its content
operations into a fully fledged media house (Red Bull Media House) specializing in high-quality
coverage of extreme sports. Thus there is plenty of opportunity to provide value—sometimes
referred to as ‘advertising equity’ (Rosengren and Dahlén, 2015)—in a way that can be mutually
beneficial for the brand and the receiver.
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Successful content marketing depends on a marketer being able to balance the needs of the
brand and the needs of the receiver. Typically, this requires taking contextual aspects, such as
the timing and the place (for example social media or paid platform), of the communication into
account. For example, research shows that, for social media branded content to be influential in
persuading consumers to engage in desirable ways (for example by clicking a link or spreading
word of mouth), marketers must design content that is not highly persuasion-oriented. What’s
more, the social media content needs to be adapted to consumer behaviour on the platform
being used. For example, on Facebook, the most successful content is relevant to the brand,
but does not have an ad-like tone or a clear message; hence this content should not use ‘hard
sell’, or even ‘soft sell’, but rather open space up in which consumers can make sense of the
content themselves. This is particularly important when the audience comprises mostly core
consumers, since they are somewhat less forgiving of, and more sensitive to, pushy messages
(Stephen et al., 2015).
Mobile Marketing Communications

Mobile marketing refers the set of practices that enables organizations to communicate and
engage interactively with their audiences by means of any mobile device or network (MMA,
2009). With the added benefits of store-and-send technology giving the option of message
storage, mobile marketing is quick and inexpensive, and reaches markets wherever they are,
despite limitations in message content.
In 2016, mobile marketing accounted for more than half of all Internet advertising revenues
in the United States (IAB/PwC, 2017). According to the 2018 CMO survey, marketers invested
7 per cent of their marketing budgets in media in 2017 and expected this share to grow to
13.5 per cent in the following three years (Moorman, 2018). Investments in mobile are through
both paid-for media (mobile advertising) and the development of own media, such as apps.
Mobile is the fastest growing digital medium. In 2011–16, the compound average growth rate
for mobile advertising in the United States has been 16 per cent (IAB/PwC, 2017). Similar
growth rates can be found in Europe.
Just as with traditional online advertising, mobile advertising relies on several different ad
formats, with display and search advertising being the largest (see Table 12.6). The growth
of mobile marketing is driven by consumer adaption of smartphones. Increasingly, we can
access digital technologies, share information, socialize online, and play games on the move.
The number of mobile Internet users has grown exponentially as the wireless infrastructure
and mobile devices required to support the mobile Internet have evolved. As an illustration,
Swedish smartphone penetration has grown from 27 per cent in 2011 to 85 per cent in 2017
(Statista, 2018c).
Current changes in behaviours clearly show that mobile is taking over more and more of con-
sumer online searches, and that marketers need to consider how to stay relevant and accessible
at different stages in the consumer decision process. Increasingly, the use of smartphone apps
is becoming the default mechanism for such searches. These apps use a combination of bar-
code scanning and location-based services to provide relevant information, for example show-
ing only stores near the consumer when they are carrying out a price comparison. Thus these
apps are suited to delivering context-specific, and hence more relevant, information to consum-
ers. Mobile search also enables the convergence of online and offline, for example by enabling
barcode scanning. From a consumer perspective, app usability depends on five factors—that
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Table 12.6 Types of mobile advertising format
Ad format Description Share of mobile

ad investments*
Display Banner ads, digital video, digital audio, sponsorships, and rich 38%
media advertising served to mobile devices
Search Advertisers pay fees to online companies to list and/or link 47%
their company site domain name to a specific search word or
phrase (includes paid search revenues)
Search categories include: paid listings; contextual search;
paid inclusion; site optimization
Video N/A 11%
Other formats N/A 4%
* Based on US ad spend in 2016.

Source: IAB/PwC (2017).
is, user-friendliness, personalization, speed, fun, and omnipresence (the ability to be used any-
where) (Baek and Yoo, 2018).
Depending on factors such as context, product category, user experience, and availability of
(other) information, consumers’ mobile search behaviours focus on different types of informa-
tion. Daurer and colleagues (2015) investigated consumer searches via an app that enables
product searches based on barcodes. The results show that access to more types of informa-
tion—especially product-related information—reduces search on price information. This sug-
gests that availability of information content can lower price-sensitivity in mobile search. They
also found that mobile search does not necessarily occur at the point of purchase; consumers
carry out mobile search in many situations other than shopping (for example while consuming
the product), suggesting that companies need to adapt their marketing beyond the point of pur-
chase. In addition, geographic travel (mobility); the availability of specific types of product infor-
mation; and contextual factors (for example economic surroundings, competition, and weather)
influence search intensity.
Location-based marketing has long been expected to be the next big thing in mobile advertis-
ing. However, adaptation has been slow and location-based marketing still makes up just a small
part of total mobile investments. In part, this may be explained by technological problems that
result in location-based assessments having low accuracy. Thus location-based marketing is
expected to pick up pace in the next few years as the accuracy of mobile technologies improves
(L. Johnson, 2015) (see Market Insight 12.5).
Consumers are increasingly searching for information about products through various digital
platforms and devices—but is this the case for all products?
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Market Insight 12.5

The World in Your Pocket
Smartphones have dramatically changed the way in However, there might be room for caution. Forrester,
which people interact with each other and marketers. a leading research and advisory firm specializing in
Mobile devices provide consumers with entertainment business and technology, reports that marketers need
and functionality anywhere at any time. For marketers, to first master the basics of mobile before homing in on
these devices offer vast opportunities to interact, but new technologies. They conclude that marketers often
technology sometimes tends to lead us astray. In 2018, (wrongly) think that, having developed mobile apps
hot topics for mobile marketers included the Internet and responsive websites, they can move on to exciting
of Things (IoT), chatbots, intelligent agents (IAs), and new technologies. In a study, Forrester found that 53
artificial intelligence (AI), all of which are expected to per cent of the surveyed marketers are still not using
take mobile to the next level. Top mobile marketers mobile to transform their overall customer experience
include the British Broadcasting Corporation (BBC), and hence are not getting the full potential of mobile.
for its Dr Who campaign, and Gordon’s Gin, which To change this, Forrester recommends that marketers
used location tagging and a National Rail application involve top management in crafting a mobile strategy.
programming interface (API) to offer delayed rail
passengers a gin and tonic. Sources: Kurzer (2018); Digital Marketing Institute (n.d.).
Mobile marketing is rapidly becoming core in digital experience between channels. Still, technologies
marketing. The smartphone enables links between and possibilities need to be aligned with consumers’
digital and physical environments and, as such, it behaviours and needs if they are to fulfil this potential.
has great potential as a tool to integrate customer
Related Topics
digital marketing; consumer behaviours, customer experience, technology adaptation
1 What innovative technologies used by 3 How does your use of smartphone vary
marketers have you encountered on your depending on whether you are considering
smartphone? purchasing groceries, fashion, or insurance?
2 To what extent do you use your smartphone in

making purchase decisions?
Visit the online resources and undertake Internet Activity 12.3 to find out more about online
and offline search.
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Crowdsourcing
The previous discussion has concerned social media, technologies, and marketing, and how
marketing is increasingly being co-created with consumers; we will now consider how market-
ers make use of social media to interact and co-create with communities through the tech-
nique of crowdsourcing. Crowdsourcing is used increasingly in marketing and can be defined
as follows:
Crowdsourcing represents the act of a company or institution taking a function once per-
formed by employees and outsourcing it to an undefined (and generally large) network of
people in the form of an open call. This can take the form of peer-production (when the job
is performed collaboratively), but is also often undertaken by sole individuals. The crucial
prerequisite is the use of the open call format and the large network of potential labourers.
(Howe, 2006: 5)
Crowdsourcing can be used in marketing in different ways, with different requirements for the
role of the crowd, the end goal, how the crowd is remunerated, and the size and diversity of
the crowd necessary for the task. However, it is probably most helpful to think of it as used in
four main categories: for routine activities; for content; for creative activities; and for funding
(see Table 12.7).
Table 12.7 Forms of crowdsourcing (CS)
Consideration CS of routine CS of content CS of creative CS of funds

activities activities
Role of the Provision of time; Provision of Provision of Provision of

crowd ability to process content (especially solutions, ideas, monetary
information information) and knowledge resources
Goal Division of labour Division of labour Winner takes all Raise money
(integrative) (integrative) (selective)
Remuneration Micropayments Micropayments or Micro- to high Equity/loan/

volunteer payments reward
Size of the Very important Very important Of little Very important

crowd importance
Diversity of Not important Very important Very important Not important

the crowd
Commercial reCAPTCHA iStockphoto; InnoCentive; FundedByMe

examples openstreetmap Wilogo
Source: Adapted from Burger-Helmchen and Pénin (2011).

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One example of the crowdsourcing of routine activities was in the development of reCAPT-
CHA—CAPTCHA derived from ‘Completely Automated Public Turing test to tell Computers
and Humans Apart’. The initiative for this was to digitize books by supplying websites with
CAPTCHA protection from bots attempting to access restricted sites. The CAPTCHA test
requires users to retype images of words not recognized by optical character recognition
(OCR) machines and, in so doing, it helps to digitize books scanned into the Internet archive
and the archives of the New York Times.
iStockphoto and openstreetmap are good examples of companies that crowdsourced
content.
Companies that have used crowdsourcing for creative activities include InnoCentive and
Wilogo, which use crowdsourcing mechanisms for research and development (R&D) projects
and to produce logo designs, respectively.
When it comes to crowdsourced funding—that is, crowdfunding—there are several dif-
ferent websites offering this opportunity. According to a recent report from one of them, the
success of crowdfunding campaigns is highly contingent on social media sharing, as well as
the accuracy and reliability of market assessments and financial forecasts (Lundquist and
Gromek, 2015).
Crowdsourcing is becoming increasingly ubiquitous in marketing as organizations seek to
use it to reduce their marketing costs, reduce the time required to undertake a particular task,
find and use resources (skills, labour, money) that do not exist in-house, obtain information and
market intelligence, design new products and services, and design promotional material. One
of the key considerations when setting up a crowdsourcing task is how to motivate the crowd
to take part. One common rule of thumb suggests that 90 per cent of visitors to the site will
consume the content (see the task); 9 per cent will partially engage (read the task, consider
taking part or request further information); and 1 per cent will fully engage (for example provide
a submission). Table 12.8 cites some examples of early users of crowdsourcing in marketing.
Legal and Ethical Considerations

The rise in digital resources, and their increasing use for marketing activities, is accompanied by
complications and changes to legislation and regulated business practices. The legal, ethical,
and regulatory issues that marketers need to consider include the following:
■ Jurisdiction—Where does digital marketing activity take place? Commercial law is based on
transactions within national boundaries, but digital marketing exposes both individual orga-
nizations and the community to information, transactions, and social activity outside these
boundaries.
■ Ownership—Who owns the content we create and share? Copyright law is a national issue
and copyright law (what can and cannot be used without the originator’s permission) differs
from one country to another. Some countries do not have copyright or intellectual property
protection, and so ideas, designs, etc. sent to those countries can be taken and used with-
out the agreement of the copyright holder. The value of copyright is also being questioned
with the increase in user-generated and co-created content, as well as the rise of the
Creative Commons (CC) free licence system.
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Table 12.8 Pioneer and early users of crowdsourcing
Organization Date of Details

first use
Threadless 2000 Began selling T-shirts with designs developed and rated by its user
community, instead of expensive designers, in an ongoing competition
process. Winning designers received US$2,000 prize money and a
$500 voucher to spend at Threadless. Submitters of winning slogans
received $500 prize money.
iStockphoto 2000 Sells royalty-free stock images, media, and design elements using
material sourced online from a crowd of largely amateur artists,
designers, and photographers. Contributors receive a percentage
of the purchase price when their images are downloaded. A
smaller group of contributors screen new applicants and maintain
the image database, earning a higher percentage from work
downloaded.
InnoCentive 2001 Began life as a spin-off company from US pharmaceutical giant Eli
Lilly. InnoCentive works by posting online research and development
(R&D) and scientific challenges for its crowd of users to solve. Winning
contributors are paid a large financial incentive and InnoCentive takes a
fee for hosting the challenge.
LEGO® 2012 Developed its product innovation platform LEGO® Cuusoo, released
initially in beta version, to invite users to submit LEGO product ideas
and get them rated by other users. Any idea that receives 10,000 votes
is considered by the LEGO product review board for production. If a
user’s LEGO idea is chosen, the submitting user receives a 1 per cent
royalty on total net sales of that product. Initial ideas receiving more
than 10,000 votes have included the Exo Suit and the Back to the
Future™ Time Machine (Kronsberg, 2012).
Flippin’ Burgers 2012 This gourmet hamburger restaurant in Stockholm, Sweden, has
not only been ranked the greatest burger restaurant outside
America (Santana, 2014), but also has crowdfunding to thank for
its existence. Before it opened, Flippin’ Burgers was launched on
the crowdfunding site fundedbyme.se to test demand and to gather
capital. In two months, 178 people donated a combined total of
SEK36,000 based on a promise that they would, at some time in
the future, be able to try a hamburger that didn’t yet exist from a
restaurant that didn’t yet exist.
Volvo Cars 2015 Instead of buying expensive ad time during the US Superbowl, Volvo
decided to hijack the car brands that did. To this end, consumers were
given the opportunity to nominate someone they deemed deserving
of a Volvo XC60 every time any car spot aired during the live event.
All they had to do was tweet using the hashtag #VolvoContest. In four
hours, Volvo received 50,000 tweets with the programme hashtag (the
most of any automotive brand) (Buss, 2015).
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■ Permissions—Do we have the right permissions to upload and share content? Privacy legis-
lation is also national or regional, and the right of an individual or organization to use informa-
tion is subject to this legislation.
■ Security—How secure are the data and information we share? Information and transaction
security and protection from fraud and identity theft is another area of increasing change.
Legislation varies from country to country and region to region, with further differences evi-
dent in the laws that govern and protect consumer and business interests, such as distance
selling regulations and consumer protection (e-commerce) regulations.
■ Accessibility—Does everyone who wants access have access? Disability and discrimination
legislation also requires consideration. As more services and marketing information is being
shared digitally, the right to access and usability for all becomes an important agenda item
for the dissemination of information and services.
Since May 2018, digital resources dealing with personal data have been regulated under the
European Union’s General Data Protection Regulation (GDPR). To deal with the issue of jurisdic-
tion, the GDPR applies to all companies processing the personal data of data subjects residing
in the Union, regardless of the company’s location. The GDPR also regulates the ownership,
permissions, security, and accessibility of such data. For more information about the GDPR, see
Chapter 3.
Visit the online resources and complete Internet Activity 12.4 to learn more about consumer
privacy concerns.
Chapter Summary
■ Define digital marketing and social media marketing.

Digital marketing is the management and execution of marketing using digital technologies and channels
(for example email, digital television, Internet) to reach markets in a timely, relevant, personal, interactive,
and cost-efficient manner. It is related to, but distinct from, e-marketing, direct marketing, and interactive
marketing. Social media marketing is a form of digital marketing that uses social networking sites to
produce content that users will share and which will in turn create exposure of the brand to customers and
thereby increase or reinforce its customer base.
■ Explain how digitalization is transforming marketing practice.

The growth of digital technologies is not only changing consumer behaviours, but also changing business
itself. Successful marketing in a digital world requires digital marketing to be integrated into marketing
research, products, and services, as well as marketing communication and channel distribution plans. Thus
digital marketing should be considered and adapted more widely than simply as a new communication or
distribution channel. It can help to create new business opportunities and enable new relationships (and
thereby insights) with and between consumers.
Chapter 12 > Digital and Social Media Marketing 487
■ Discuss key techniques in digital marketing and social media marketing.

Key techniques in digital marketing include Internet advertising, search marketing, email marketing, social
media marketing, content marketing, and mobile marketing. Characteristic of digital marketing, especially that
through social media, is that marketers need to give up some control and power to consumers. Marketers
must share control over their brands with their online users; users will co-create content and generate their
own content; customers will develop their own communities to which marketers should seek to contribute
rather than usurp. It is about dialogue, conversation, and listening, rather than monologue and transmitting.
■ Review how practitioners measure the effectiveness of social media marketing.

To measure the effectiveness of a social media campaign, marketers should follow a seven-step process:
identify a set of appropriate social media metrics; review the social media campaign objectives; map the
campaign by highlighting links to brand-generated content, consumer-generated content, consumer-
fortified content, and exposure to content(ed) consumers; choose the criteria and tools of measurement;
establish a benchmark; undertake the campaign; and measure it frequently.
■ Discuss crowdsourcing and explain how it can be harnessed for marketing.

Crowdsourcing is the process of outsourcing a task or group of tasks to a generally large ‘crowd’ of
people. It can be used in marketing to outsource routine activities, to obtain content (for example Volvo’s
Twitter campaign), or to obtain creative input (for example LEGO® and new product development). It can
also be used as a way of gaining access to financial resources (for example Flippin’ Burger and its funding
of a restaurant).
Review Questions
1 Define how digital marketing differs from interactive and Internet marketing.
2 How is digitalization transforming marketing practice?
3 What is social media marketing and why do marketers use it?
4 How can you measure the effectiveness of social media marketing?
5 What is content marketing and why do marketers use it?
6 How is the growth of mobile devices (for example smartphones) impacting on marketing?
7 What marketing activities can crowdsourcing support?
1 Having read Case Insight 12.1 at the beginning of this chapter, how could Spotify use social media to
support its service and build customer loyalty?
2 Do you think that digital resources are redefining marketing?
3 Why are many marketers having difficulties adapting to a situation in which they have to share control
and power over a brand with consumers?
4 Privacy and ownership of digital information is increasingly challenged. When participating on

Facebook, I think I control my own data and information—but do I? Discuss.

Glossary
co-created content content resulting from the pay per click (PPC) method of advertising that uses
interaction of two or more parties to create sponsored search engine listings to drive traffic to
content or applications. a website whereby the advertiser bids for search
contextual advertising a form of targeted terms and the search engine ranks ads based on
advertising on websites whereby advertisements a competitive auction, as well as other factors.
are selected and served by automated systems review site a website on which reviews can be
based on the content displayed to the user. posted about people, businesses, products, or
cookies pieces of data or records transmitted by services, such as Epinions.com, Tripadvisor.com,
a webserver to a client computer—that is, small and reviews on Amazon.com.
text files found on your hard drive that allow search directory a database of information
information about your web activity patterns to maintained by human editors, which lists
be stored in your browser. websites by category and subcategory, usually
digital marketing the process of marketing based on the whole website rather than one
accomplished or facilitated through the page or a set of keywords.
application of electronic devices, appliances, search engine operates algorithmically, or using a
tools, techniques, technologies, and/or systems. mixture of algorithmic and human input, to collect,
mobile marketing the set of practices that enable index, store, and retrieve information on the web
organizations to communicate and engage with and make it available to users in a manageable
their audience in an interactive and relevant and meaningful way in response to a search query.
manner through any mobile device or network. spam unsolicited email—the junk mail of the
mouse-over an event—such as a pop-up window twenty-first century—which clogs email servers
or description box—triggered as a result of a and uses up much-needed bandwidth on the
cursor, controlled by a mouse, being hovered Internet.
over a particular location on a graphical user user-generated content (UGC) content made
interface. publicly available over the Internet that reflects a
paid inclusion method of ensuring that a website certain amount of creative effort and is created
is included in a search engine’s natural listings. by amateur users, not professionals.
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(accessed 13 October 2018). for IKEA’s new line of toys. AdAge, 21 October. Retrieve
Harris, P. (2009). Penguin Dictionary of Marketing. London: from: https://adage.com/creativity/work/ikea-welcome-
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1 June. Retrieve from: https://www.wired.com/wired/ Mangold, W.G., and Faulds, D.J. (2009). Social media:
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to bring Lattjo games to life. Brandchannel, advertising equity: how a brand’s past advertising may
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(accessed 13 October 2018). Santana, F. (2014). The 10 greatest burger places outside
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Modig, E., and Söndergaard, M. (2018). Managing digital Statista (2017). Worldwide market share of leading search
media investments. In: P. Anderson, S. Movin, M. engines from January 2010 to October 2017. Retrieve
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and Insights. Retrieve from: https://cmosurvey.org/ worldwide as of January 2018, ranked by number of
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Insights-Aug-2014.pdf (accessed 13 October 2018). statista.com/statistics/272014/global-social-networks-
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wp-content/uploads/sites/15/2018/02/The_CMO_ selected countries in Europe in 2018 (in million US
Survey-Highights_and_Insights_Report-Feb-2018.pdf dollars). Retrieve from: https://www.statista.com/
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Marketing: 2018 Benchmarks, Budgets, and Trends. 13 October 2018).
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(accessed 13 October 2018). effects of content characteristics on consumer engage-
Niederhoffer, K., Mooth, R., Wiesenfeld, D., and Gordon, ment with branded social media content on Facebook.
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buzz: emerging trends and implications. Journal of Retrieve from: http://msi.org/reports/the-effects-of-con-
Advertising Research, 47(4), 420–6. tent-characteristics-on-consumer-engagement-with-
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replies. Adweek, 13 August. Retrieve from: https:// strikes, gasoline prices. Investors’ Business Daily,
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replies-166364 (accessed 13 October 2018). and Marketing. Boston, MA: Marketing Science
Nudd, T. (2015b). Target loved the guy who trolled its Institute.
haters, judging by this genius Facebook post. Adweek, Voorveld, H., van Noor, G., Muntiga, D.G., and Bronner, F.
14 August. Retrieve from: https://www.adweek.com/ (2018). Engagement with social media and social media
adfreak/target-loved-guy-who-trolled-its-haters-judging- advertising: the differentiating role of platform type.
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2018). Wunsch-Vincent, S., and Vickery, G. (2007). Participative
O’Brien, M. (2015). How to construct the perfect Web: User-Created Content—Report of the Working
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13 October 2018). oecd.org/internet/interneteconomy/38393115.pdf
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product/global-content-marketing-forecast-2017/
Chapter 13
Branding Decisions

Aston Martin
Market Insight 13.1
Explain the characteristics and principal types of
Restitching a Heritage Brand
brand and branding
Discuss ways in which brands work through Market Insight 13.2
Owning the Brand
associations and personalities
Examine how branding has evolved, utilizing Market Insight 13.3
relational and co-creation perspectives Musicians Dying for Success
Explain how brands can be built Market Insight 13.4

The Mashing of Peppa Pig
Describe the principal issues associated with
branding in services, business-to-business, internal, Market Insight 13.5
and global contexts Sintex Is the Name
Explore the issues and activities associated with
brand equity, and demonstrate why branding is
important to marketing managers
492 1 > Managing
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Case Insight 13.1

Aston Martin
The Aston Martin brand, founded in 1913, is synonymous

with hand-crafted luxury, peerless beauty, incredible
performance, and international motorsport glory. We
speak to Simon Sproule, director of global marketing and
communications, to find out how the brand is promoted
in China.
Aston Martin’s brand projects: Power. Beauty. Soul. We is an important motivator for our customers buying
see this as more than a tagline. It’s about the mission an Aston Martin. The simplest way of describing this
for the company. Naturally, these words describe is to imagine being stuck in heavy traffic at a busy
the attributes of our cars, but we bring more than a intersection: our customers tell us that they always
beautiful car to our customers. As with all products in get let out of a junction . . . which, in the most basic
the luxury market, they are a discretionary purchase way, speaks to the respect and affection people have
and are bought for a variety of reasons. The common for our cars. So our brand strategy is to balance the
denominator, however, is the emotional connection our aspirational nature of the company and its products,
cars have with customers, and the physical product and but at the same time be friendly and accessible to all.
values of the company/brand. With an Aston Martin,
To implement our branding strategy, we combine high
you join an exclusive club with only just over 80,000
technology—we are in the process of implementing
members. This is the total number of cars produced
Salesforce to run our customer engagement—and
in our history. By contrast, our large mainstream
a very personal touch. Buying an Aston Martin is not
competitors will produce that many cars in three days!
only about the cars, but also about becoming part of
The Aston Martin brand also stands for beautiful hand- a family in which you feel welcomed and valued. Like
crafted cars, evident in every aspect of the product the majority of auto makers, we operate a franchise
and, for our customers, when they visit the factory business, with dealers handling the majority of the sales
in Gaydon, Warwickshire, and see the cars being and service interface. That said, our customers also seek
made. Iconic Hollywood British spy character James a direct relationship with the ‘factory’, and we encourage
Bond has become a brand attribute for Aston Martin and embrace those relationships. I spend time with
through the 50-year association that started with the customers every week! To convey the brand values to
DB5 in Goldfinger. However, for our customers in new target customers, we are moving towards storytelling
and emerging markets such as China, James Bond driven by content and experiences. We invest relatively
may not have the same cultural resonance as it does little in conventional advertising, preferring to engage our
in the UK. For those new customers to Aston Martin, customer and fans with interesting and cool content. We
we stand for the best of British style and elegance, want to encourage customers to spend time with us, visit
combined with the power of our V8 and V12 engines. the factory, and attend events and motor races. The most
In essence, we are the quintessential British GT car convincing way to sell an Aston Martin is a test drive.
and more. We describe our branding approach as the
The question for Aston Martin was: how should
‘Goldilocks strategy’—getting the balance between
it go about raising brand awareness and brand
exclusivity and accessibility ‘just right’. Although we
familiarity in China, an important emerging market?
are selling a luxury product to 1 per cent of the world’s
population, we have a massive popular following:
6.5 million Facebook fans and more than 1 million
video interview with Simon Sproule in
fans on Instagram. We need to be constantly mindful
which he explains what Aston Martin did.
that the respect granted to our brand from our fans
Chapter 1 > Chapter > Branding
13 Principles
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493
Introduction
Our world is full of brands, from soap powders and soft drinks, to airlines and financial ser-
vices—even musicians, sports and film stars, buildings, cities and destinations, and social net-
works. Brands are configured in all shapes, sizes, and entities. So there are a huge variety of
branding opportunities and, as Case Insight 13.1 notes, people form associations with brands—
but what exactly is a brand? How are brands developed? Who really creates them? What exactly
is the nature of these relationships? Why are they significant? These are the key questions we
explore in this chapter.
Branding is a process by which manufacturers and retailers help customers to differentiate
between various offerings. Brand names provide information about content, taste, durability,
quality, price, and performance, without requiring the buyer to undertake time-consuming com-
parison tests with similar offerings or other risk-reduction approaches to purchase decisions. We
saw in Chapter 6 that a comprehensive segmentation strategy involves targeting and position-
ing. Positioning is concerned with the processes associated with creating and altering the per-
ceptions consumers have about a firm’s products or brands (Crawford, 1985). In other words,
brand positioning is not about a brand’s physicality; rather, it is about the place the brand
occupies in a consumer’s mind (Ries and Trout, 1972). Brand positioning is a strategic activity
used to differentiate and distinguish a brand, so that a consumer not only remembers the brand,
but also understands it. Branding and positioning are interrelated (Tudor and Negricea, 2012). A
credible position cannot be sustained without a strong brand and a brand cannot be developed
or preserved without an audience that perceives its justifiable position in terms of performance.
In addition to the largely transactional positioning strategies set out in Chapter 6, some brands
attempt to position themselves as relational brands. The aim is to attract relationship-oriented
buyers—that is, people who, as Crosby (2012: 10) indicates, appreciate and seek ‘recognition,
appreciation, personalization, customization, exceptional customer service, fairness, reciproc-
ity, information sharing, honesty/trustworthiness, cooperative problem solving and harmoni-
ous interactions’ with their chosen brands. Successful brands such as Aston Martin, Apple,
and Airbnb represent customer promises and shape their expectations. When expectations
and experiences of the brand in use match the promise, brand performance is accomplished.
Successful brands tend to be innovators and deliver consistently on their promises. This serves
to reinforce the positioning and credibility of the promise.
Successful brands can therefore be said to capture three core brand elements: promises,
positioning, and performance. These are depicted at Figure 13.1 as the three brand Ps (3BPs).
At the core of this concept is communication, which enables a promise to be known (brand
awareness), positions the brand correctly (brand attitude), and delivers brand performance
(brand response). And increasingly consumers are actively participating in the branding process
by co-creating meaning, for example through social media.
What Is a Brand?
A brand can be distinguished from its proposition or unbranded commodity counterparts by the
perceptions and feelings that consumers have about its attributes and performance. Bottled
water, for example, is essentially a commodity, but brands such as Highland Spring, Aqua Falls,
494 1 > Managing
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Brand
promise
Communication
Brand Brand
positioning performance
Figure 13.1
The triangulation of the 3BPs
Source: Marketing Communications (7th edn) Fill, C. and Turnball, S. (2016). Reproduced with the kind permission of Pearson
Education Limited. © Pearson Education Limited 2016.
and Crystal Clear have all developed their offerings with imagery that serves to enhance cus-
tomer feelings and emotions about the actual water in the packaging. Ultimately, a brand resides
in the mind of the consumer (Achenbaum, 1993).
Brands are products and services that have added value. This value has been deliberately
designed and presented to augment a product with associations that are recognized by, and are
meaningful to, their customers. Although marketing managers have to create, sustain, protect,
and develop the identity of the brands for which they are responsible, it is customer perception,
the use of the various senses that help to fashion images of these brands, and the meaning and
value that customers give to the brand that are important. Thus both managers and customers
are involved in the branding process.
Although brands are generally considered important, there is a lack of common definition of
the term. De Chernatony and dall’Olmo Riley (1998), for example, identified 12 types of brand
definition. One of the more common is that a brand is a name, symbol, words, or mark that
identifies and distinguishes a proposition or company from its competitors. However, this defini-
tion focuses only on the identification of products through a brand; in practice, brands consist
of much more than these identification elements. As Aaker (2014: 1) remarks, ‘far more than
a name or a logo it is an organization’s promise to a customer to deliver what a brand stands
for . . . in terms of functional benefits but also emotional, self-expressive and social benefits’.
Brands make promises to customers in a way that differentiates the offered products or services
from competing alternatives. From this, then, it can be concluded that a brand comprises both
brand awareness (identification) and brand attitude or brand knowledge (differentiation) as defin-
ing elements (Keller, 1998; Rossiter, 2014). The latter is also often referred to in terms of brand
associations.
Brands have characters—personalities, even—that set them apart from the competition in
the minds of consumers. To develop character, it is important to understand that brands are
constructed of two main types of attribute: intrinsic and extrinsic:
■ Intrinsic attributes are the functional characteristics of a proposition, such as its shape,
performance, and physical capacity. If any of these intrinsic attributes were to be changed,
this would directly alter the proposition.
13 Principles
Marketing Decisions
and Society 495
495
■ Extrinsic attributes refer to those elements that, if changed, do not alter the material func-
tioning and performance of the proposition itself. These include devices such as the brand
name, marketing communications, packaging, price, and mechanisms that enable consum-
ers to form associations that give meaning to the brand.
Buyers often use the extrinsic attributes to help them to distinguish one brand from another,
because, in certain categories, it is difficult for them to make decisions based on the intrinsic
attributes alone. For example, many financial companies develop brands because their proposi-
tions are very complex, and many consumers are reluctant or unable to take the time and effort
necessary to understand them. By developing a single brand, firms such as Prudential and
Zurich have tried to establish high levels of trust and reliance in their insurance brands, which can
help to reduce customers’ perceived risk and speed up the decision-making process.
Why Brand?
Brands represent opportunities for both consumers and organizations (manufacturers and retail-
ers) to buy and sell products and services easily, more efficiently, and relatively quickly. We will
now consider the benefits from each perspective.
Consumers like brands because they:
■ help people to identify their preferred offerings;
■ reduce levels of perceived risk and, in doing so, improve the quality of the shopping experi-
ence;
■ help people to gauge the quality of the product, service, or experience;
■ reduce the amount of time that must be spent making proposition-based decisions and
hence decrease the time that must be spent shopping around;
■ provide psychological reassurance or reward, especially for offerings bought on an occa-
sional basis; and
■ inform consumers about the source of an offering (country or company).
Brands helps customers to identify the offerings they prefer to use to satisfy their needs and
wants. Equally, brands help them to avoid the offerings that they dislike, either as a result of pre-
vious use, or because of other image associations or other psychological reasoning.
Consumers experience a range of perceived risks when buying different offerings. These
include financial risks (‘Can I afford this?’), social risks (‘What will other people think about me
going to this bar?’), or functional risks (‘Will this smartphone work?’). Branding helps to reduce
these risks, so that buyers can proceed with a purchase without fear or uncertainty. Strong
brands encapsulate a range of values that communicate safety and purchase security.
In markets unknown to a buyer or in which there is technical complexity (for example com-
puting, financial services), consumers use brands to make judgements about the quality of an
offering. This, in turn, helps consumers to save shopping time and, again, helps to reduce the
amount of risk they experience.
Perhaps above all other factors, brands help consumers to develop relationships based on
respect and trust, as exemplified by Aston Martin in Case Insight 13.1. Strong brands are normally
well trusted; annual surveys often announce that Apple, British Airways, and Kellogg’s are among the
most trusted brands. Such surveys also declare those brands that are least trusted by consumers
496 1 > Managing
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and these announcements often trigger, or at least coincide with, falling sales and reducing market
share. Creating trust is important, because it enables consumers to buy with confidence.
Visit the online resources and follow the web link to the branding articles on the website of the
American Marketing Association (AMA).
Manufacturers and retailers use brands because they:
■ can increase the financial valuation of companies;
■ enable premium pricing;
■ help to differentiate one proposition from competitive offerings;
■ can deter competitors from entering the market;
■ encourage cross-selling to other brands owned by the manufacturer;
■ help to develop customer trust, loyalty/retention, and repeat-purchase buyer behaviour;
■ help in the development and use of integrated marketing communications;
■ contribute to corporate identity programmes; and
■ provide some legal protection.
Branding is an important way in which manufacturers can differentiate their brands in crowded
marketplaces. This enables buyers to recognize the brand quickly and make fast, unhindered
purchase decisions. One of the brand owner’s goals is to create strong brand loyalty to the
extent that customers always seek out that brand, and are primed to accept cross-product
promotions and brand extensions.
With its shaped glasses and sophisticated packaging, Stella Artois positions itself as a
premium brand
Source: © Denis Michaliov/123RF.com.
13 Principles
Marketing Decisions
and Society 497
497
Perhaps one of the strongest motivations for branding is that it can allow manufacturers
to set premium prices. Brands such as Andrex, Stella Artois, and L’Oréal charge a premium
price, often around 25–35 per cent higher than the average price in their respective product
categories. Premium prices allow brand managers to reinvest in brand development and, in
some markets, this is important if the brand is to remain competitive. However, it should not be
assumed that the establishment of a brand will lead automatically to success; many brands fail,
sometimes because a firm does not invest in a brand at the level required, or because manage-
ment has not recognized or accepted the need to change, adapt, or reposition its brands when
market preferences have moved on. (See Market Insight 13.1 for an example of a how a luxury
brand repositioned itself after losing its lustre.)
The greater the number of product-based brands, the greater an organization’s motivation
to develop a corporate brand. Organizations such as Aviva and Johnson & Johnson use an
umbrella branding approach. This requires that they need to invest heavily in only one brand,
rather than in each and every product-based brand. This approach is not applicable to all
sectors, although in business-to-business (B2B) markets, in which there is product complex-
ity, corporate branding is an effective way of communicating and focusing on a few core
brand values.
Visit the online resources and complete Internet Activity 13.1 to learn more about how major
organizations perceive the importance of branding and their brands.
How Brands Work: Associations and

Personalities
The development of successful brands requires customers to be able to make appropriate
brand-related associations. Normally, these should be based on utilitarian functional issues, as
well as on emotions and feelings towards a brand.
Clayton and Heo (2011) refer to brand image, perceived quality, and brand attitude as
the main dimensions of brand associations, citing work by Aaker (1991), Keller (1993), and
Low and Lamb (2000) in this area. Keller (1993) believes that brand associations themselves
are made up of the physical and non-physical attributes and benefits aligned with attitudes
to create a brand image in the mind of the consumer. In fact, many brands are deliberately
imbued with human characteristics, to the point at which they are identified as having brand
personalities. For example, Timberland is ‘rugged’, Victoria’s Secret is ‘glamorous’, Virgin
is associated with ‘youthfulness’ and ‘rebelliousness’, and management consultancies such
as PricewaterhouseCoopers (PwC) seek to be seen as ‘successful’, ‘accomplished’, and
‘influential’.
Marketing communications play an important role in communicating the essence of a brand’s
personality. By developing positive emotional links with a brand, consumers can find reassurance
within their brand purchases. The development of brand personalities means that marketing
managers can position their brands using emotional attributes and hence develop stronger con-
sumer–brand relationships (Ahmad and Thyagaraj, 2014). These associations and images may
sometimes enable consumers to construe a psychosocial meaning associated with a particular
brand. The idea that consumers might search for brands with a personality that complements
498 1 > Managing
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their self-concept is not new (McCracken, 1986). Belk (1988) suggested that brands offer a
means of self-expression, whether this is in terms of who they want to be (their desired self),
who they strive to be (their ideal self), or who they think they should be (their ought self). Brands
therefore provide a way in which individuals can indicate to others their preferred personality, as
they relate to these ‘self’ concepts.
Market Insight 13.1

Restitching a Heritage Brand
What is the one thing that Jude Law, Jay Z, Winston entrepreneurial designers, Richard James, Ozwald
Churchill, and Prince Charles all have in common? Boateng, and Timothy Everest, who took innovative
steps to connect with those consumers more used to
They have all had suits made on Savile Row. reasonable-quality, mass-produced suits. For example,
some tailors placed more emphasis on made-to-
Savile Row tailors have been making suits for the smart
measure suits, at price points between £1,500 and
set since the late eighteenth century. Consequently,
£2,000. When buying made-to-measure suits, such
Savile Row tailors are some of the best in the world.
consumers will typically have the traditional personal
The term ‘Savile Row’ has long been synonymous with
consultation sessions with Savile Row tailors; however,
high-quality bespoke suits and shirts.
to reduce costs, they will usually be offered fewer types
Although Savile Row tailors continue to provide suits to of cloth and pattern to choose from, or the production
their customers, they seem to have lost their relevance will be outsourced to foreign factories.
and connection with consumers—especially middle-
This new generation of tailors are more marketing-
class and younger consumers. Several establishments
savvy. Other than dignitaries, who are still an important
that had a rich history and boasted famous clients
source of endorsement, they connect with consumers
closed as a result of poor financial performance during
through non-traditional elites, such as film stars, sports
the middle of the twentieth century. Indeed, one famous
personalities, and artists or musicians. In addition, they
Italian designer described Savile Row as a ‘comedy, a
promote themselves in targeted publications, including
melodrama lost in the past’.
GQ and Vanity Fair.
Some Savile Row tailors can be offputting to

consumers not used to this type of atmosphere and
ambience. Creating a more relaxed environment and
experience has become another priority for store
managers. Some tailors have made their environments
more consumer-friendly by modernizing their storefront
displays, redesigning interior spaces, and creating a
more contemporary feel. Known as the New Bespoke
Movement, in this way Savile Row tailors have
reconnected with modern consumers from home and
aboard, regained their influence in the global fashion
industry, and contributed to expanding the UK’s
Savile Row, Mayfair, central London, UK
economy and image.
Source: © Alan Kean/Shutterstock.com.
Sources: Sheth, Newman, and Gross, (1991); Sweeney and

Establishments on Savile Row started the process
Soutar (2001); Jacobs (2012); Armstrong (2015); Peng and
of modernization during the 1960s, but significant
Chen (2017).
steps were made during the early 1990s by three
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continued
Consumption value has been the focus of marketers’ (that is, price or value for money); and functional
attention since the late 1980s. It is a key influencer of value (that is, performance and/or quality). Because
consumers’ purchase decisions because it considers luxury products tend to have a premium quality, a
the benefits that consumers receive from an offering recognizable style, and high hedonism, in addition to
and the sacrifices they make to obtain it (Sheth et an increased cost, Peng and Chen (2017) suggest that
al., 1991; Sweeney and Soutar, 2001). According marketers need to promote these offerings based on
to Sweeney and Soutar (2001), consumption value their functional value, financial value, hedonic value,
includes emotional value; social value; financial value and symbolic or expressive value.
Related Topics
experiential marketing; luxury consumption; segmentation and targeting; customization; international marketing
1 What are the advantages and disadvantages 3 If you were a Savile Row tailor, how would you
of using spokespeople from a diverse range of emphasize your offering’s value better? (Hint:
professions as endorsers? Think about functional value, financial value,
emotional value, and symbolic value.)
2 What other British industries have a rich
heritage and the potential for brand revival? This market insight was kindly contributed by Dr Norman
Peng, University of Westminster, UK.
This emotional and symbolic approach is intended to provide consumers with additional rea-
sons to engage with a brand beyond the normal functional characteristics a brand offers, which
are often easily copied by competitors (Keller, 1998). To be able to measure brand personality,
Aaker (1997) developed the Brand Personality Scale, which consists of five main dimensions
of psychosocial meaning and 42 personality traits. The dimensions are:
■ sincerity (wholesome, honest, down-to-earth);
■ excitement (exciting, imaginative, daring);
■ competence (intelligent, confident);
■ sophistication (charming, glamorous, smooth); and
■ ruggedness (strong, masculine).
These are depicted in Figure 13.2.
These psychosocial dimensions have subsequently become enshrined as dimensions of
brand personality. Aaker (1997) developed a five-point framework around these dimensions,
which has been used frequently and cited many times by academics and marketing practitioners.
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Down-to-earth
Honest
Wholesome
Cheerful
Sincerity
Daring
Outdoors Spirited
Tough Imaginative
Up to date
Ruggedness Excitement
Brand
personality
Sophistication Competence
Reliable
Upper class
Intelligent
Charming
Successful
Figure 13.2
Five dimensions of psychosocial meaning
Source: Reprinted with permission from J. Aaker (1997) ‘Dimensions of brand personality’, Journal of Marketing Research 34 (August),
347–56, published by the American Marketing Association.
For example, various studies have found that consumers choose brands that reflect their own
personality (Linville and Carlston, 1994; Phau and Lau, 2001). They prefer brands that project a
personality that is consistent with their self-concepts. As Arora and Stoner (2009: 273) indicate,
‘brand personality provides a form of identity for consumers that expresses symbolic meaning
for themselves and for others’. Brand personality can therefore be construed as a means of
creating and maintaining consumer loyalty, if only because this aspect is difficult for competitors
to copy.
Customers assign a level of trust to the brands they encounter. Preferred brands signify a high
level of trust and indicate that the brand promise is delivered; hence marketing managers need
to ensure that they do not harm or reduce the perceived levels of trust in their brands. Indeed,
action should be taken to enhance trust. One way of achieving this is to use labels and logos
to represent a brand’s values, associations, and source. For example, many brands use the
‘footprint’ symbol to refer to the amount of carbon dioxide associated within a brand’s supply
chain, while all Apple products are signified, and identified, by the fruit with a bite removed and
UK meat products carry a red tractor symbol. According to the National Farmers’ Union (NFU),
the red tractor logo indicates that the meat was produced to exacting standards of food safety,
kindness to animals, and environmental protection. Thus the brand is intended to reassure cus-
tomers about the origin and quality of the meat.
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Brand Names
Choosing a name for a brand is a critical foundation stone, because it should ideally allow the
brand to be:
■ easily recalled, spelled, and spoken;
■ strategically consistent with the organization’s branding policies;
■ indicative of the offering’s major benefits and characteristics;
■ distinctive;
■ meaningful to the customer; and
■ capable of registration and protection.
Sometimes, social pressure, or even a crisis, can stimulate a change of name. For example,
Philip Morris changed the overall company name to Altria Group following sustained attacks
about its cigarette and tobacco products. Although changing the name alone does not stop
the cause of the crisis, it can trigger a change in culture, values, and approach. Name changes
can also be a consequence of new business models being explored, such as Google and luxury
handbag manufacturer Coach changing their corporate brand names to Alphabet and Tapestry,
respectively. Both of these examples were driven by the company wanting to explore new busi-
ness opportunities (Danzinger, 2017), while letting the more well-known name remain a brand
name connected to a specific offering.
Brand names need to transfer easily across markets, and if they are to do this successfully,
it helps if customers can not only pronounce the name, but also recall it unaided. Short names,
such as LEGO®, Mars, Sony, Flash, or Shell, have this strength. One of the reasons why high-
profile grocery brands are advertised so frequently is to create brand name awareness, so that
when a UK customer thinks of pet food, they think of Felix or Winalot. Customers are unlikely to
accept names that are difficult to spell or are difficult to pronounce. Problems can also arise as
a result of interpretation issues. For example, the launch of Puffs tissues in Germany might have
been easier if management had known that Puff means ‘brothel’ in German.
Brand names should have some internal strategic consistency and be compatible with the
organization’s overall positioning. Ford Transit, Virgin Atlantic, and Cadbury Dairy Milk are names
that reflect a policy that the company name always prefixes the product brand names. Some
brand names incorporate a combination of words, numbers, or initials. The portable ‘sat nav’
TomTom GO 510/610 and Canon’s EOS 700D DSLR digital camera, for example, use names
that do not inform about the functionality, but use a combination of words and numbers to reflect
the parent company, product line to which they belong, and a hint of their technological content.
A brand’s functional benefit can also be incorporated within a name, because this helps to con-
vey its distinctive qualities. Deodorant brands such as Sure and Right Guard use this approach,
although Lynx has relied on imagery plus fragrance and dryness.
Most brands do not have sufficient financial resources to be advertised on television or in
mainstream media; hence it is not possible to convey brand values through imagery and brand
advertising. For these brands, it is important that the name of the brand reflects the functionality
of the offering itself, for example No More Nails super-adhesive and Snap-on interchangeable
tools. For these brands, packaging and merchandising is important to communicate with cus-
tomers in-store.
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Increasingly, brands are being developed through the use of social media. This is essentially
about people talking, either spontaneously to one another, through blogs, or through formal
or informal communities, about brands that they have experienced in some way (see ‘Brand
Co-creation’).
Visit the online resources and complete Internet Activity 13.2 to learn more about generating
brand names.
Types of Brand
There are three main types of brand—that is, manufacturer, distributor, and generic.
Manufacturer Brands
In many markets and especially the fast-moving consumer goods (FMCG) sector, retailers
influence the way in which a product is displayed and presented to customers. As a result,
manufacturers try to create brand recognition and name recall by means of their market-
ing communications activities with end users. The goal is to help customers to identify
the producer of a particular brand at the point of purchase. For example, Persil, Heinz,
Cadbury, and Coca-Cola are strong manufacturer brands; they are promoted heavily,
and customers develop preferences based on performance, experience, communications,
and availability. So, when customers are shopping, they use the images they have of vari-
ous manufacturers, combined with their own experience, to seek out their preferred brands.
Retailers who choose not to stock certain major manufacturer brands run the risk of losing
customers.
Distributor (or Private Label) Brands

The various organizations that make up the marketing channel often choose to create a distinct
identity for themselves. The term distributor brand, or ‘private label brand’, refers to the
identities and images developed by the wholesalers, distributors, dealers, and retailers who
make up the marketing channel. Wholesalers, such as Nurdin & Peacock, and retailers, such as
Argos, Gap, Sainsbury’s, and Amazon, have all created strong brands of their own (see Market
Insight 13.2).
The private label strategy potentially offers advantages to the manufacturer, which can use
excess capacity to manufacture such brands, as well as to retailers, who can earn a higher
margin than they can with manufacturers’ branded goods and, at the same time, develop
strong store images. Retailers have the additional cost of promotional initiatives, necessary in
the absence of a manufacturer’s support. Some manufacturers, such as Kellogg’s, refuse to
make products for distributors to brand, although others (Cereal Partners) are happy to supply
a variety of competitors.
Occasionally, conflict emerges, especially when a distributor brand displays characteristics
that are very similar to the manufacturer’s market-leader brand. Coca-Cola defended its brand
when it was alleged that the packaging of Sainsbury’s new cola drink was too similar to Coca-
Cola’s own established design.
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Generic Brands
Generic brands are sold without any promotional materials or any means of identifying the
company, with the packaging displaying only information required by law. The only form of iden-
tification is the relevant product category, for example plain flour. Because it is not necessary
Market Insight 13.2

Owning the Brand
Over the last few decades, distributor brands have logic for choosing a specific item is changing. Online
become an important element of the retail business. In searches rarely start with the brand; rather, they tend to
2016, the market share of distributor brands reached focus on the product needed. When consumers search
an all-time high in Germany, Italy, the Netherlands, generic product categories online, the hits typically show
Belgium, Poland, Austria, Sweden, Norway, and pictures of different alternatives levelling the playing field
Denmark. In many European markets, the share of between manufacturer and distributor brands. However,
distributor brands reaches 30–40 per cent. In the UK the argument against distributor brands taking over
and Germany, distributor brands’ market share is, on considers that consumers still want to try on fashion
average, a staggering 45 per cent. apparel before buying, as well as the fact that buying
fashion offerings is (often) as much about experience
One sector in which the shift to distributor branding is and identity as finding a good deal.
moving quickly is apparel. Although fast-fashion retailers
such as H&M and Zara have long relied on their own Sources: Boyle (2017); Nielsen/PLMA (2017).
brands, the fashion apparel industry is largely dominated
by manufacturer brands such as luxury fashion houses
Dior and Gucci, sportswear giants Nike and Adidas, or
lifestyle brands Burberry and Ralph Lauren.
Until now, that is. In the United States, Amazon,

Walmart, and Target are investing heavily in their own
fashion brands. In Europe, the same can be said for
Asos, Zalando, and even low-price supermarket chain
Lidl, which launched its own 40-piece collection in
collaboration with supermodel Heidi Klum in 2017.
Arguments favouring distributor brands typically focus

on millennial consumers being less interested in brands Supermodel Heidi Klum—not your typical model
and the trend towards apparel shopping moving online. for a distributor brand, until now
As consumers increasingly shop apparel online, the Source: © Shakeyjon/Alamy Stock Photo.
Distributor brands provide retailers with higher margins offering products that customers like under their own
than manufacturer brands and hence have a positive brands, retailers offer something unique that potentially
effect on retailer profitability. In addition, distributor helps build loyalty among their customers. Given these
brands offer retailers an opportunity to differentiate advantages, it is not surprising that both online and
their selections from those of their competitors. When offline retailers invest in private-label branding.
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Market Insight 13.2

continued
Related Topics
branding; consumer behaviour; fashion; retailing
1 Visit Amazon’s website and check out the assortment. How easy is it to determine
distributor brands offered in its fashion whether a product is a manufacturer, distributor,
assortment. How easy is it to determine or generic brand?
whether a product is a manufacturer, distributor,
3 What differences do you see between the
or generic brand?
distributor brands offered by Amazon and
2 Visit Zalando’s website and check out the Zalando? How does this relate to their
distributor brands offered in its fashion respective strategies?
to pay for promotional support, these brands are sold at prices that are substantially below
the price of normal brands. However, although they were briefly successful in the 1990s, their
popularity has declined, and manufacturers now see no reason to produce these ‘white carton’
products. Only firms in the pharmaceutical sector use this type of brand.
Branding Strategies
An overall branding strategy can provide direction, consistency, and brand integrity within an
organization’s portfolio of brands. This provides the basis of the brand architecture. There are
three core brand strategies—that is, individual, family, and corporate.
Individual Branding
Once referred to as a multibrand policy, individual branding requires each product offered by an
organization to be branded independently of all the others. Grocery brands offered by Unilever
(for example Knorr, Cif, and Dove) and Procter & Gamble (for example Fairy, Crest, and Head &
Shoulders) typify this approach.
One of the advantages of this approach is that it is easy to target specific segments and to
enter new markets with separate names. If a brand fails or becomes subject to negative media
attention, the other brands are not likely to be damaged. However, there is a high financial cost
because each brand needs to have its own promotional programme and associated support.
Family Branding
Once referred to as a multiproduct brand policy, family branding requires that all the prod-
ucts use the organization’s name, either entirely or in part. Microsoft, Heinz, and Kellogg’s all
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incorporate the company name, because they hope that customer trust will develop across
all brands.
For these types of brand, promotional investment need not be as high. This is because there
will always be a halo effect across all the brands when one is communicated and brand experi-
ence will stimulate word of mouth following usage. A prime example of this is Google, which has
pursued a family brand strategy with Google Adwords, Google Maps, and Google Scholar, to
name but a few. What’s more impressive is that Google’s shattering achievements have been
accomplished in just ten years and with minimal advertising spend.
Line family branding is a derivative policy whereby a family branding policy is followed for
all products within a single line. Bosch is a technology company operating in the automotive,
industry, and home markets. Many of its products are branded Bosch, but it uses line family
branding for its Blaupunkt and Qualcast brands in its car entertainment and garden products
divisions.
Corporate Branding
Many retail brands adopt a single umbrella brand, based on the name of the organization. This
name is then used at all locations, and is a way of identifying the brand and providing a form
of consistent differentiation and a form of recognition, whether on the high street or online.
Major supermarkets such as Tesco in the UK, Carrefour in France, and ASDA Walmart use this
branding strategy to attract and help to retain customers.
Corporate branding strategies are also used extensively in business markets, such as IBM,
Cisco, and Caterpillar, and in consumer markets in which there is technical complexity, such
as financial services. Companies such as HSBC and Prudential adopt a single-name strat-
egy. One of the advantages of this approach is that promotional investments are limited to one
brand. However, the risk is similar to that of family branding, in that damage to one offering or
operational area can cause problems across the organization. For example, when the British
Broadcasting Corporation (BBC) experienced editorial problems with its Newsnight programme,
which resulted in extensive and persistent negative media coverage, not only did the director-
general decide to resign, but also questions were asked about declining trust in and reputation
of the BBC as a whole.
Visit the online resources and follow the web link to learn more about IBM’s corporate brand.
How to Build Brands

The development of successful brands is critical to an organization’s success. This requires
marketers to achieve three essential branding activities: to enable identification and differentia-
tion; to maintain consistency; and to communicate the existence and attributes to customers
and other marketing channel audiences (Pennington and Ball, 2009).
According to Keller (2016), successful brand building is best accomplished by considering
the brand-building process as a sequence of steps:
1 Enable customers to identify with the brand and help them to make associations with a spe-
cific product class or customer need.
2 Establish what the brand means by linking various tangible and intangible brand associations.
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3 Encourage customer responses based around brand-related judgement and feelings.

4 Foster an active relationship between customers and the brand.
Figure 13.3 depicts the rational steps on the left-hand side, with the emotional counterpart shown
on the right-hand side. In the centre are six blocks that make up a pyramid, echoing these rational
and emotional steps. To achieve a successful brand, or brand resonance, Keller (2016) argues
that a foundation is necessary and that these building blocks need to be developed systematically.
To further understand the terminology, we can apply this brand pyramid to a shampoo brand
as an example:
■ Brand salience—How easily and often do customers think of the shampoo brand when
thinking about hair care brands or when shopping?
■ Brand performance—How well do customers believe the shampoo brand cleans and condi-
tions their hair?
■ Brand imagery—This describes the extrinsic properties of the shampoo (its colour, packag-
ing, product consistency, associations) and the level to which these satisfy customers’ psy-
chological or social needs.
■ Brand judgements—These focus on customers’ own personal opinions and evaluations
about the shampoo.
■ Brand feelings—This refers to customers’ emotional responses and reactions with respect to
the shampoo brand when prompted by communications, by friends, or when washing their hair.
■ Brand resonance—This speaks of the nature of the relationship that customers have with the
shampoo brand and the extent to which they feel loyal to the brand.
Brand resonance is most likely to result when marketers create proper salience, as well as
breadth and depth of awareness. From this position, ‘points of parity’ and ‘points of difference’
need to be established, so that positive judgements and feelings can be made that appeal to
both the head and the heart, respectively. (To learn more about branding as an academic topic,
see Research Insight 13.1.)
Visit the online resources and follow the web link to learn more about Keller’s brand equity
model.
Branding Perspectives
So far, we have assumed a largely managerial perspective with regard to the concept of brand.
However, there are other approaches to understanding brands and what they represent.
These draw on sociological, psychological, and socio-cultural interpretations about brands
and their consumption. We consider two important perspectives. The first considers relational
issues, and how people are believed to interact with brands and develop relationships through
repeated consumption; the second reflects contemporary issues about co-creation and cus-
tomer branding, which reverses the managerially driven view that brands are only a product
of marketers.
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Stages of brand Building Blocks Branding objective at

development each stage
4. RELATIONSHIPS = INTENSE,
What about you & me? ACTIVE LOYALTY
RESONANCE
3. RESPONSE = POSITIVE, ACCESSIBLE

What about you? JUDGEMENTS FEELINGS REACTIONS
2. MEANING = POINTS-OF-PARITY
PERFORMANCE IMAGERY
What are you? & DIFFERENCE
1. IDENTITY = DEEP, BROAD

SALIENCE
Who are you? BRAND AWARENESS
Figure 13.3
Brand pyramid: building blocks
Source: Keller, K.L., ‘Building strong brands in a modern marketing communications environment’, Journal of Marketing
Communications, July 2009, Taylor & Francis. Reprinted by permission of the publisher (Taylor & Francis Ltd, https://www.tandf.
co.uk/journals).
Keller, K.L. (2016). Reflections on customer-based brand equity: perspectives,

progress, and priorities. AMS Review, 6(1–2), 1–16.
In 1993, Kevin Lane Keller published an article on brand equity in the Journal of Marketing that had a major
impact on the development of branding research and practice, and which informed much of his later thinking
on brand building. In this 2016 article, Keller looks back at the development of branding as an academic field
in the 25 years that have followed publication of his 1993 paper and outlines those areas that remain in need
of additional research.
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Brand Relationships
Although branding has its roots in identification and differentiation, this perspective considers
that a ‘brand-mark is a relational asset whose value to the firm is contingent on past, present and
future interactions with various firm stakeholders’ (Ballantyne and Aitken, 2007: 366). Fournier
(1998) was one of the first researchers to introduce and utilize relationship theory to understand
the roles that brands play in the lives of consumers.
Originally, relationship marketing was considered to be most relevant in inter-organizational
relationships. Here, the management of relationships between buying and selling organizations
is considered valid and appropriate—more so than in the relationship between an organization
and a consumer. Fournier changed this when she explored ideas about consumers who think
about brands as if they were human characters—that is, the personification of brands. She also
found that consumers accept attempts by marketers to personalize brands (for example through
advertising), which suggests the potential for interaction and relationships. She identified six fac-
ets that characterize the quality of brand relationship: love and passion; a connection between
the brand and self; a high degree of interdependence; a high level of commitment; intimacy; and
a positive evaluation of brand quality.
Fournier believes that it is important to understand consumer–brand relationships and that,
by understanding how consumers interact with brands and the meaning that brands represent
to people through consumption, marketing theory and practice can be advanced. She argues
that it is necessary to consider the broad context of consumers’ lives to understand the role
and relationship that brands play in them. In addition, meaningful consumer–brand relationships
can be observed when the brand represents the key dimension ‘perceived ego significance’.
Fournier stresses the importance of understanding what consumers do with brands that adds
meaning to their lives (see Market Insight 13.3). (To learn more about brand relationships, see
Research Insight 13.2.)
Perhaps the most important finding of Fournier’s research concerns the meaning that con-
sumers attribute to brands and how it differs from meanings intended by brand managers. This
contribution has been developed in many areas, including in B2B markets in which it is now
Fournier, S. (1998). Consumers and their brands: developing relationship theory in

consumer research. Journal of Consumer Research, 24(4), 343–73.
This seminal article has been characterized as a modern classic as a result of its significant contribution
to our understanding of marketing and consumer research. The author discusses the need to
incorporate relationship marketing theory with branding and explores the types of relationship that
people form with brands.
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Market Insight 13.3

Musicians Dying for Success
Michael Jackson, Whitney Houston, Bob Marley, the next of kin, who, if they act sufficiently quickly, can
and Amy Winehouse are all highly regarded music turn the late artist into a posthumous iconic brand. Bob
icons whose personal brands have thrived since their Marley’s family was quick to exploit his musical stature
deaths. Although their reputations probably would not with T-shirts, mugs, and lighters—even naming a strain
have been prolonged if fans were not so emotionally of cannabis after the Rastafarian icon.
affected by news of their deaths, posthumous branding
activities have significantly contributed to their longevity.
New memorabilia, merchandise, and re-releases by
marketers and estate holders, as well as releases of
previously unknown material, have become a regular
way of keeping the interest in deceased musicians alive.
The importance of emotional impact on consumption

is well understood. We can see how emotion impacts
buying decisions when a music artist dies. For example,
the news about Michael Jackson’s death in June 2009
spread rapidly—and was rapidly followed by a huge
surge in sales of his back catalogue, as well as his
Greatest Hits album topping the charts that same month. The grief felt by Amy Winehouse’s fans
following her death was accompanied by a
The success of musicians who have passed away surge of interest in her music
is not restricted to the time of death. For example, Source: © Dutourdumonde Photography/Shutterstock.
in December 2017, a Whitney Houston compilation
called ‘I Wish You Love: More from The Bodyguard’ Similarly, Amy Winehouse’s download sales increased
entered the Billboard R&B Album chart, five years after to 1.15 million in the United States in the year following
her death in 2012. This compilation was part of a set her death in 2011, compared with 170,000 downloads
of activities marking the 25th anniversary of Houston’s earlier that year. Four years later, a documentary
acting debut in the film The Bodyguard. commemorating her life and a book written by her
father were released, making US$1.5 million for the Amy
In fact, once they are dead, the value of a musician’s Winehouse Charity Foundation.
portfolio often rises. Generally, the artist can release no
more new material, making what already exists even Sources: Anon. (2009); Caulfield (2012); Adebayo (2014);
more valuable. Often, copyright ownership passes onto Anderson (2017).
Just as brands can be imbued with human-like relationship across time. It is the emotional and symbolic
characteristics, humans can become brands. These value that is transferred, rather than the functional value
brands have the potential to live on long after the person of the music. The successful propagation of music and
themselves has passed away. The potential value memorabilia after a musician’s death can be attributed
of brand relationships is clearly visible in this market to an understanding of the unique relationship values
insight. The rush to purchase music when a musician that the musician represented and the meanings they
dies can be considered a way of extending that brand (continue to) provide to fans.
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Market Insight 13.3

continued
Related Topics
brand personality; brand meanings; relationships
1 How might the deaths of David Bowie and 3 Make a list of other brand-related situations in
Prince be reflected not only in music sales, but which the termination of the brand has led to
also in other areas of culture and society? increased or delayed sales.
2 What do you consider the main differences This market insight was kindly contributed by Naomi
Ramage, former student, Buckinghamshire New University.
between a human as a brand and a brand as
a human?
recognized that both sellers (suppliers) and buyers (their customers) and other stakeholders co-
create brand meanings. As Ballantyne and Aitken (2007) state, this indicates that brand mean-
ings are socially constructed.
The increasing use of user-generated content (UGC) in the form of blogs, tweets, wikis, and
social networks now enables consumers to assume a greater role in defining what a brand
means to them—something that they now share with their friends, family, and contacts, rather
than with the organization itself. This means that both managers and customers are involved in
the branding process. The control of brands used to reside with brand owners; today, this influ-
ence has shifted to consumers as they redefine what brands mean to them, how they differenti-
ate among similar offerings, and the way in which they associate certain attributes or feelings
and emotions with particular brands.
However, as Bengtsson (2003) argues, there is doubt about whether consumers really want
a relationship with brands—or even whether they do have a relationship with them. His doubt
concerns whether relationship theory is appropriate when examining the way in which consum-
ers interact with brands.
Another relational perspective on brands is offered by de Lencastre and Côrte-Real (2010),
who believe a brand to be a sign and use semiotics (that is, the science of signs) to cre-
ate a model that considers the different components of the relationships among them. They
attempt to integrate the multiple facets of the brand concept and, in doing so, define three
main brand dimensions: the identity sign itself; the marketing object to which the sign refers;
and the market response to the sign. One of the points they make is that brands today are
largely regarded as socio-cultural concepts in which relational and community issues replace
the former power-based managerial perspective whereby brand managers assumed control
over a brand.
Visit the online resources and follow web links to learn more about brand semiotics.
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Brand Co-creation
The managerial perspective assumes that marketers develop and manage brands, while indi-
vidual consumers are passive and can influence only their own brand meaning or perception of
a brand.
In recent years, this perspective and process has been challenged by increasing evidence
that customers can create brands. In customer branding, the customer attaches a name, term,
or other feature that enables them to identify one seller’s good or service as distinct from those
of other sellers (AMA, 2012). This is commonly referred to as co-creation (see Chapter 12).
Although many indicate that this is not a recent phenomenon, France, Merrilees, and Miller
(2015: 6) point out that there is still no exact understanding of the co-creation construct and that
there is ‘some confusion in the literature, especially in the area of brand co-creation and brand
engagement’.
Pennington and Ball (2009: 455) define customer branding as ‘a process in which a customer,
or customers, define, label, and seek to purchase a subset of an otherwise undifferentiated or
unbranded product. The customer can be anywhere along the value chain, including intermedi-
ate and end-user customers.’
In conventional branding processes, a business is able to influence external stakeholders
and customers through promises of value creation, and internally as means of employee brand-
ing and organizational identity. Where there is customer branding, the organization surrenders
control of the brand’s ability to convey these and other messages to customers and employees
(Pennington and Ball, 2009).
In conventional branding activities, communication about a brand flows from the marketer to
the consumer. In co-creation contexts, it is the customer who knows what they want, badges
it, and requests it by means of the badge they have provided or by means of some other char-
acteristic that others will recognize. In other words, in customer branding, the flow is reversed.
Pennington and Ball (2009) identify three key conditions that need to be met for customer
branding to occur:
1 there must be a variety of offerings in the market;
2 the delivery and quality of offerings must be acceptable; and
3 customers must be able to obtain a reliable and satisfactory alternative from within the mar-
keting channel.
For them, ‘for the customer to expend the effort to take over branding activities that the
marketer is not performing, the customer must show certain needs, perceptions and abilities’
(Pennington and Ball, 2009: 459).
In addition to customer branding, customers can co-create in different ways, most of which
are rooted in brand value. France and colleagues (2015) refer to co-creation in the context
of exchanges with and experiences of a brand, influencing customer perception of a brand,
customer-generated advertising, new product development, social media, and word of mouth
(see Market Insight 13.4).
Ideas about brand co-creation are not confined to product or service offerings. For example,
Juntunen (2012) found that a range of stakeholders, not only customers, is involved in corporate
brand co-creation. These stakeholders include employees, relatives, friends, university research-
ers, students, employees and managers of other companies, advertising agencies, financiers,
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Market Insight 13.4

The Mashing of Peppa Pig
Peppa Pig is a popular character in a British-made jockey. On another level, she can be seen listening
children’s cartoon—the star of a television series to explicit voiceovers of various episodes, as well as
targeted at preschool children, aged between 2 and killing herself and others (‘Peppa Pig dies . . . haha’).
6. Peppa is a sweet, but cheeky, anthropomorphic The bizarre scenarios made available for viewing are
female pig who lives with her little brother George, and seemingly endless.
her parents, Mummy Pig and Daddy Pig. The gentle
narrative revolves around family life and everyday
experiences.
More than 200 episodes have been aired and the

show is distributed in 180 countries. Significantly,
Peppa Pig has more than 73 licences and endorses
a number of products, such as cake mixes, ice lollies,
and porridge.
The show has spurred the production of character

merchandise, including toys and plush collectables,
books, DVDs, apps, and clothing. Significantly, in
2010, the show made £200 million from merchandising Peppa Pig is a popular cartoon character,
in the UK alone. What’s more, in 2012, the brand yet is subject to mash-ups and parody in
expanded to major territories including the United numerous bizarre scenarios
Source: © tanuha2001/Shutterstock.
States, Australia, Spain, Russia, and the Benelux
countries (that is, Belgium, the Netherlands, and
Although these YouTube mash-ups represent a threat,
Luxembourg), and Peppa Pig is set for continued
research indicates that they have not tarnished the
international expansion into Asia and Latin America.
brand. There is strong disdain for their creators, and
Peppa Pig also has an enviable presence on Facebook
most are condemned for exploiting what is widely
and Twitter, and in the wider blogosphere, boasting
regarded as an innocent and upstanding brand. The
many unofficial fan pages, in addition to the official
brand is considered a victim—one that has fallen prey
company ones. The animation company hosts live
to ‘pathetic’ and ‘sad’ creators.
stage productions in which the public can meet Peppa
and her posse of family and friends. There is even Interviews with the mash-up creators revealed
a theme park in Hampshire, which is becoming a that there was no definitive motive behind their
popular family destination. It is clear that ‘Peppa Pig’ creation of these controversial videos. Although
can be considered a household name and a brand in motivations were varied, three broad categories
its own right. were identified:
Peppa Pig has attracted the attention of a range of ■ creativity (‘I love making these videos for my own
other content-creating animators. However, these pleasure; it is strangely entertaining, it is fun’);
concentrate on making absurd disingenuous mash-
■ social capital (a genuine sense of gratification out of
ups—that is, combinations of disparate bits of digital
pleasing others); and
video, audio, text, and graphics, refashioned into
something new, and then uploaded to YouTube. Peppa ■ aversion (a deep-seated hatred of the brand or
Pig has been mashed up and parodied in a variety of pigs).
ways, including dancing ‘Gangnam Style’, doing the
Source: Wilkinson and Patterson (2013).
Harlem Shake, or trying her hand as a nightclub disc
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Market Insight 13.4

continued
The Internet has generated an ‘architecture of through to clear intentions to criticize a brand. They
participation’ that has led to consumer empowerment represent brand co-creation. Mash-up makers
on a level previously unimaginable. These co-creators construct new narratives around brands so that their
appear to consider themselves to be brand co-owners, own existence can be acknowledged. YouTube, as the
rather than passive recipients of company-created name suggests, says much more about the content
brand messages. Mash-ups are amateur productions creator than about the actual content of any videos that
that present parodies ranging from playful imitations mash-up makers upload.
Related Topics
branding; differentiation; positioning; participation
1 Which other brands have you seen similar 3 What other examples of brand co-creation can
mash-ups for? you think of?
2 What similarities and/or differences can you see This market insight was kindly contributed by Professor
Anthony Patterson, University of Liverpool.
between the brands you identified in those other
brands and Peppa Pig?
lawyers, and graphic designers, as well as customers. She revealed that stakeholders engage
in various sub-processes of corporate brand co-creation even before a company is formed
(Kollmann and Suckow, 2007). These include inventing the corporate name before a company is
established, developing a new corporate name, updating the logo and communications mate-
rial, and developing the proposition and the business after establishment of the company.
Visit the online resources and complete Internet Activity 13.3 to learn more about the Peppa
Pig brand.
Brand Preference or Relevance

Conventional brand strategies are based on competition for brand preference. According to
Aaker (2012: 44), this is about ‘my brand being better than yours’, and requires making sure that
customers prefer your brand of fruit juice rather than your competitors’ brands. This is achieved
by innovations that lead to claims based on ‘faster, cheaper, better’, resulting in a more attrac-
tive, reliable, or less costly brand promise. Inevitably, however, competitors respond very quickly,
nullifying any short-term gains.
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Unfortunately, preference strategies have little impact, because the evidence shows there is
little or no shift in sales or market share. This is mainly as a result of brand and market inertia.
Brand preference competition works if the goal is customer retention, but, as Aaker (2012: 44)
states, ‘it can lead to price and margin erosion and a decline into irrelevance’.
An alternative—although rarely used—strategy is to compete on the basis of being the most
relevant brand. The key is to create offerings that have particular characteristics that are so attrac-
tive to a segment that any competitive offering that does not have the desirable characteristic will
be rejected. These defining characteristics can be considered ‘must haves’, and may comprise
benefits related to personality, organizational values, social programs, self-expressive benefits,
or community benefits (Aaker, 2012). Aaker (2012) refers to innovations such as SalesForce.
com, which advocated for cloud computing; Cirque du Soleil, which reinvented the circus; and
Kevlar, the branded ingredient that created a new subcategory in the body armour market.
Competing through brand relevance can generate real growth and is far more effective
than the ‘faster, cheaper, better’ strategies. It requires innovations that lead to the creation of
new categories or subcategories, all of which reflect changes in the market and involve substan-
tial risk and new business models.
Sector Branding
Brands work in different ways according to the prevailing environment. Here, we consider brand-
ing within services, B2B, internal, and global contexts.
Service Brands
The development of brand strategies for services is important simply because the intangible
nature of services (see Chapter 15) requires that customers be helped to understand the value
associated with a service offering. Essentially, a brand provides a snapshot of the value and
position offered by a service. Brands convey information about the standard of service and, in
doing so, seek to achieve two main goals. First, brands seek to reduce the uncertainty associ-
ated with the purchase of services—especially when there are no tangible elements on which
to base purchase decisions. Consider the complexity and risk associated with buying financial
services, such as insurance, pensions, and savings products. Developing strong brands enables
these risks to be rolled up into a single identity that is familiar and trusted. For example, Virgin
Money is a relative newcomer to the financial services market, but is already well established and
growing quickly. The use of sampling and free trials is another popular approach to reducing risk
in service-based purchases.
The second goal is to reduce the amount of time people spend searching for a particular
service, especially when they are unfamiliar with a particular market or category. When trav-
elling, many visitors to a city will stay at hotels such as Marriott, Travelodge, Holiday Inn, or
Hilton because the brands say something about the standard of service that they can expect.
Branding shapes customer expectations and can provide a quick answer to a purchase deci-
sion. Advertising can also be used to help to make the benefits of a service tangible, rather than
the features, which can be limited or boring, or both. Credit cards often promote the feature of a
0 per cent balance transfer, but they also demonstrate the benefits by showing holidays, electri-
cal goods, or fashion items bought as a result of using the credit card.
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Good services branding involves the use of logos and symbols, as well as straplines and slo-
gans. These can also help to make the intangible more tangible by relating to some of the core
benefits a brand offers. Many service providers use their physical facilities to shape the environ-
ment so that customers feel at ease and are attracted into the service process. Booms and
Bitner (1981) termed this the servicescape, and refer to the need to consider customer expec-
tations and their emotional states. Branding the environment using signs, colours, clothing, and
other physical items can provide recall of previous use of the service provider and also influence
customer expectations. Consider the environment and overall design of fast-food restaurants
such as McDonald’s and Burger King. These servicescapes are designed and replicated in high
streets across the globe, are easily recognized, and convey information about the type of food
offered and the standard of service. Empirical research by Harris and Ezeh (2008) reinforces the
view that restaurant managers should actively manage their servicescapes (see Chapter 15).
The emotional dimension of service brands has grown in significance as it becomes increasingly
difficult to establish and maintain functional differentiation. By means of marketing communica-
tions, brands seek to develop trust and a positive attachment and identification with a brand’s
values. This can lead to an emotional preference for a brand and so establish a form of competitive
advantage that is difficult to copy. Just as the ownership of prestige brands, such as designer fash-
ion brands, trainers, cars, and watches, can be used to convey status, so ownership (and display)
of many prestige service brands can convey similar status and position. Examples of this include
travelling first class, using platinum credit cards, and being a member of certain clubs or societies.
Finally, not all services are able to develop strong brands; they simply do not have the
resources, or the inclination. However, communications should still be an important part of those
services’ marketing. Those delivering services in which the credence properties are dominant
and customers are unable to distinguish the quality of service can emphasize their professional-
ism by displaying certificates and diplomas, by having a long list of professional qualifications
on their business cards, and by referring in their sales literature and websites to the number and
types of client with which they have worked.
To conclude this section, we present a comment made by services marketing practitioners
responding to a research survey undertaken by Marquardt, Golicic, and Davis (2011: 54)—that
is, that ‘the most effective means of building brand meaning for business-to-business services
is to promote superior, deeper, and richer customer experiences’. The significance of brand
meaning and its link to customer experience is important. We consider customer experience
marketing in Chapter 15.
Branding in Business-to-Business Markets

The benefits that can accrue from branding in B2B marketing are no different from those that
accrue in consumer markets. Some argue that branding in business markets is not appropriate
or necessary, but this view is no longer widely held (Kuhn, Alpert, and Pope, 2008). However,
there are some specific B2B context branding issues that can be distilled into four main dimen-
sions: functional and product use benefits; emotional benefits; self-expressive benefits; and
relational benefits. These are set out in Table 13.1.
Many people assert that business markets have been slow to develop brands and that B2B
product-based branding is a relatively underdeveloped area (Mudambi, 2002). In support of this
view, Roper and Davies (2010) remark on the scarcity of true business brands. However, many
believe that branding in a B2B context is very often corporate, rather than product, branding
and, more importantly, that branding can influence business purchasing decisions.
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Table 13.1 Benefits derived from branding
Brand benefit B2B example
Functional Product performance and high quality associations

Superior service and support associations
Specific application and/or location advantages
Emotional Improved confidence and trust resulting from a reduction in uncertainty
Self-expressive Buyer-related personal and professional satisfaction
Relational Larger and stronger networks and collaboration opportunities
There could be many reasons for this underdeveloped use of branding, one of which may
be the nature of organizational decision-making processes and associated group activities.
Mudambi (2002) concludes that branding is not of equal significance to all organizational buyers
nor is it important in all B2B buying situations. Bendixen, Bukasa, and Abratt (2004) and Zablah,
Brown, and Donthu (2010) find that delivery, price, and the services offered are consistently more
important to buyers than a brand name.
As a counter-argument, both Michell, King, and Reast (2001) and Lennartz and colleagues
(2015) suggest that branding is widely used by B2B organizations. This is primarily because
product and corporate branding can be important contributors to successful performance, and
is, in part, a reflection of the increasing awareness of the importance of relationships within
business markets. For example, a partnership might develop whereby the brand provides reas-
surance, among other things, for a buyer, who in turn supports the brand, on a regular or even
frequent basis, and pays the brand’s price premium. As a result, business brands not only pro-
vide solutions on a continuous basis for certain customers, but also may become integral to a
long-term relationship. The launch of Celanese Corporation’s ‘The chemistry inside innovation’
was intended to unify the Celanese portfolio, including its associated brands, and was designed
to convey its capabilities and diverse products (Claye, Myer, and Timelin, 2014).
Lindgreen, Beverland, and Farrelly (2010) observe that organizational buyers make decisions
using emotional benefits and self-expressive benefits (such as personal and professional satis-
faction) in addition to the functional elements. Indeed, work by Roper and Davies (2010: 584)
provides timely empirical evidence that B2B brands can have a demonstrable personality, and
that ‘industrial brands can benefit from the concept of brand image and personality’. (For an
illustration of B2B branding, see Market Insight 13.5.)
Visit the online resources and follow the web links to read Sarin (2014) and to learn more about
the Structura brand, as well as about Sintex.
To develop business brands, three core elements need to be managed: symbolic devices;
communication; and behaviour. Together, these might be considered to be the branding mix.
In corporate reputation management, these elements are referred to as the identity mix (Birkigt
and Stadler, 1986). All organizations use symbolism to signal who they are and what they stand
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Market Insight 13.5

Sintex Is the Name
Sintex Industries is an Indian-based holding company involvement in trade fairs and exhibitions accounts for 7
engaged in the manufacture of plastic products and per cent, outdoor only 3 per cent, and dealers’ meetings
textile manufacturing. The early growth of the company and other promotional activities account for the remaining
was marked by a series of product failures based 20 per cent. The Sintex website provides company details
around a plastic moulding unit designed to manufacture and information about its various products. The website is
plastic cans to carry cotton slivers in the textile industry. perceived to be a strong brand-building tool. Overall, Sintex
These were not marketed and further experiments also spends less than 1.5 per cent of sales on communications.
ended in failure. This forced the owners to consider
other possible end uses that might have substantial Part of the brand’s success has been attributed
market potential. This led to the development of black to the emphasis placed on innovation. Sintex has
plastic water tanks in the late 1970s. developed solutions for the housing sanitation, power,
and education sectors, and wishes to be known as
At the time, there were other very small and a ‘thinking company’—that is, one that produces
geographically fragmented manufacturers of water innovative products designed to save the environment,
containers, but it was a commodity market. The owners rather than one that merely produces plastic products.
decided to name their water tanks Sintex, using sin
from the plastic sintering process and tex from the From a simple beginning, Sintex has become the
word ‘textiles’. Most water tanks sit on residential surrogate brand for all plastic water tanks in India, has
and commercial property roofs in India, and the visual seized approximately 45 per cent of the market, and now
prominence of the word Sintex provides a constant free operates in nine other countries across four continents.
brand reminder to the community. In addition, Sintex
Source: Sarin (2014); https://www.superbrandsindia.com/; https://
spends 70 per cent of its communication budget on
in.reuters.com/finance/
mass media—mainly press and popular magazines. Its
Sintex capitalized on a market opportunity within that drove both consumer and dealer demand for
a commodity market. Its subsequent growth and Sintex.
success can be explained in terms of the added
value that its simple branding activities brought Although the market insight does not tell us, it is highly
to the different B2B markets in which it chose probable that Sintex was able to charge a premium price
to operate. However, simply developing a brand and hence derive a better margin than its competitors.
does not bring long-term success, and it was its This resource was invested in innovation of new
development of brand values through innovation products and continued the growth of the company.
Related Topics
brand names; relationships; B2B branding
1 To what extent should Sintex’s success be 3 How might Sintex’s communications evolve as
attributed to its being the first to brand in a it becomes increasingly regarded as a ‘thinking
commodity market? company’?
2 How vulnerable might Sintex be to a global water

container brand entering the Indian market?
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for. Logos, company names, straplines, colours, architecture, design, workwear, and delivery
vehicles are all symbols. Communication can be considered in terms of management communi-
cation (internal and external), organization communication (public relations, or PR), and market-
ing communication. These need to be integrated around a central theme or strategic platform.
The behaviour of employees and managers—not only with one another, but also with external
stakeholders—is often overlooked in the branding and reputation management process. One of
the key tasks is to align employees’ values with the organization’s values, and this requires train-
ing, communication, and attention by management. Some of the issues associated with internal
branding are discussed later in this chapter.
Lennartz and colleagues (2015) found that, to build B2B brands, above all else core brand
strength is driven through brand associations, with ‘sustainability and corporate governance’,
as well as ‘innovation and expertise’, across all countries and industries. In addition, perceptions
of product and distribution performance are major factors when building and sustaining B2B
brands.
Of importance in B2B markets, but not as critical as in consumer markets, are commu-
nications, according to Lennartz and colleagues (2015). Organizations must develop mod-
ern integrated communications programmes targeted at all of their key stakeholder groups.
Stakeholders demand transparency, accountability, and instant—often online—access to news,
developments, research, and networks. This means that inconsistent or misleading information
must be avoided. In addition, the leading contributors to the strength of a corporate brand are
seen to be their products and services, followed by a strong management team, internal com-
munications, PR, social accountability, change management, and the personal reputation of the
chief executive officer (CEO).
Mudambi (2002) suggests that there are three types, or clusters, of B2B customer based
upon the way in which they each perceive the importance of branding in the organizational pur-
chase decision process. These are set out in Table 13.2.
Communications for the low-interest cluster need to stimulate interest in the offering and
associated purchase decision, perhaps by using testimonials and mini-cases highlighting the
experiences of customers in similar purchase situations.
Table 13.2 B2B customer clusters
Cluster name Characteristics
Highly tangible Require messages that stress quantifiable and objective benefits of the product
and company
Brand-receptive Require messages that emphasize the support of a well-established and highly
reputable manufacturer; should stress the emotional and self-expressive benefits
Low-interest More likely to respond to brand-based communications that highlight the

importance of the purchase decision, and which are supported with processes
and procedures that assist the ordering systems
Source: Adapted from Mudambi (2002).

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Internal Branding
Employees are an integral part of a brand, if only because they interact with customers and other
stakeholders. Lennartz and colleagues (2015: 133) reinforce this when they say that the contact
between employees and customers is crucial for driving brand strength, which means that a
firm’s brand success depends ‘significantly on the interactions between firms and customers
throughout the selling process’. Employees deliver the functional aspects of an organization’s
offering and they also deliver the emotional dimensions, particularly in service environments.
Through interaction with these two elements, long-term relationships between sellers and buy-
ers can develop. Both scholars and practitioners rightly emphasize the need to integrate internal
audiences in brand development (Rosengren and Bondesson, 2017).
This process whereby employees are encouraged to communicate with stakeholders so that
organizations ensure that customers realize what is promised is referred to as ‘living the brand’.
Welch and Jackson (2007) considered some of the issues associated with internal communica-
tion. They suggest that internal corporate communication refers to communication between an
organization’s strategic managers and its internal stakeholders, with the purpose of promoting
commitment to the organization, a sense of belonging (to the organization), awareness of its
changing environment, and understanding of its evolving goals.
The success of many corporate and service brands is founded on the strength of the inter-
nal dimension. The greater the degree to which staff believe and uphold the values, mission,
and vision of an organization, the more likely it is that reputation and performance goals will be
achieved. Slowly, more energy is being put into the internal aspect of B2B marketing activities.
Global Branding
Brands can be considered in terms of the markets they operate in—sometimes referred to as
brand scope. Brand scope can involve operating in local and domestic markets, in selected
foreign markets, and across a range of international markets. Townsend, Cavusgil, and Baba
(2010) provided a useful typology of brands (see Table 13.3).
The scope or reach of a brand is a result of decisions to enter different geographical regions
to achieve particular goals. As organizations extend their scope, so their branding and marketing
strategies must adapt to influence local cultures and customer needs. However, global brand-
ing is characterized by a consistency of marketing strategies—a transfer of the same strategy
across all markets, as practised by IBM, AT&T, and China Mobile.
One of the most influential advocates of global branding was Theodore Levitt, whose work on
globalization we considered in Chapter 7. Levitt (1983) argued that a global market for uniform
products and services requires transnational organizations to standardize their products, pack-
aging, and communications to achieve a common positioning that would be effective across
cultures. Growth was to be achieved by selling standardized products all over the world (Holt,
Quelch, and Taylor, 2004). However, there are few pure examples of this practice, because even
‘global’ brands such as McDonald’s and Coca-Cola adjust their propositions to suit some local
market needs.
The way in which an organization manages its brands and associated products with respect
to one another is known as a brand portfolio. According to Townsend and colleagues (2010),
citing Douglas, Craig, and Nijssen (2001), it seems as though global branding has become
more significant, based on observations that organizations are focusing on core brands and
implementing brand portfolio structures to encourage brand consistency across international
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Table 13.3 A hierarchy of brand scope
Brand scope Criteria and characteristics Examples
Domestic A brand with a presence only in the home market and White Stuff
managed locally Timothy Taylor
Thornton’s
William Hill
International Sold across a few country markets and managed largely by the Eddie Stobart
home market, often using local agents in international markets Ideal Standard
Positioning, identity, image, and distinguishing characteristics
(including attributes, associations, and identifiers of the brand)
virtually identical to the home market
Multidomestic Sold across multiple country markets and managed through Ferrero
decentralized management, with local control Samsung
Positioning, identity, image, and distinguishing characteristics Philips
(including attributes, associations, and identifiers of the brand)
Diageo
vary across markets
GM
Caterpillar
Global Sold across multiple country markets, with distribution located Coca-Cola
in three major developed continents; centralized brand McDonald’s
management coordinates local execution
IBM
Core essence of the brand remains unchanged; positioning,
Apple
identity, image, and distinguishing characteristics (including
attributes, associations, and identifiers) maintain high degree of Google
consistency across worldwide markets
Source: Adapted from Townsend et al. (2010).
markets. However, because different brands within a portfolio are targeted at different market
segments, including different geographical markets, it is not unusual for global companies such
as Samsung and Toyota to carry international brands within the portfolio.
In addition to the economics of globalization, there are prestige and status advantages
associated with global brands, which also manifest themselves in terms of improving brand
equity (Johansson and Ronkainen, 2005), higher quality, prestige, and intention to purchase
(Steenkamp, Batra, and Alden, 2003).
Whatever its merits, the purity of the global brand concept has not been entirely realized
because issues of adaptation to local market needs, including social and cultural issues,
have led to a need to achieve a balance between these two extremes. For example, Coca-
Cola adapts the taste to meet the needs of local markets, even across Europe. So, because
the consumption of different offerings naturally varies across countries (for example choc-
olate, milk, coffee, cars), it is not surprising that we find manufacturers and producers
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varying their marketing strategies. What this means is that marketers need to determine
which elements can be standardized (for example products, name, packaging, service) and
which need to be adapted (typically language, communications, and voiceovers) to meet
local needs.
Brand Equity
The importance of brands, and thus their value, varies across countries and product catego-
ries (see Research Insight 13.3). Brand equity is a measure of the value and strength of a
brand. It is an assessment of a brand’s wealth, sometimes referred to as goodwill. Financially,
brands consist of their physical assets plus a sum that represents their reputation or good-
will, with the latter far exceeding the former. When Michel Kors paid US$2.12 billion for Italian
fashion brand Gianni Versace in 2018, the price was high in relation to the current financials
of the company, indicating that Michel Kors was willing to pay a premium for the brand
(Danzinger, 2018).
Brand equity is considered important because of the increasing interest in measuring the
return on marketing investments and pressure by various stakeholders to value brands for bal-
ance-sheet purposes. A brand with strong equity is more likely to be able to preserve its cus-
tomer loyalty and to fend off competitor attacks.
There are two main views about how brand equity should be valued—that is, the financial
perspective and the marketing perspective (Lasser, Mittal, and Sharma, 1995). The financial
perspective is founded on consideration of a brand’s asset value, which is based on the net
value of all the cash the brand is expected to generate over its lifetime. The marketing perspec-
tive is based on the images, beliefs, and core associations that consumers have about and
with particular brands, and the degree of loyalty or retention a brand is able to sustain. Market
Fischer, M., Völckner, F., and Sattler, H. (2010). How important are brands? A cross-
category, cross-country study. Journal of Marketing Research, 47(5), 823–39.
This article investigates the importance of brands across different product categories and countries. The
results show that the importance of brands is higher in the United States than in Asia and Europe. In terms
of product categories, the importance of brands is found to differ between countries. The importance of
brands in different contexts is likely to vary over time. The article offers a framework for assessing brand
importance at a given point in time, and thus can be used to guide brand investments across products and
geographical markets.
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awareness, penetration, involvement, attitudes, and purchase intervals (frequency) are typical
measures in this regard. However, Feldwick (1996) suggests that there are three aspects of
brand equity:
■ brand value, based on a financial and accounting base;
■ brand strength, measuring the strength of a consumer’s attachment to a brand; and
■ brand description, represented by the specific attitudes customers have towards a brand.
Brand equity is strongly related to marketing and brand strategy because this type of mea-
surement can help to focus management on brand development. However, there is little
agreement about what should be measured or how and when it should be measured. Ambler
and Vakratsas (1998) argue that organizations should not seek a single set of measures
simply because of the varying circumstances and contextual factors that impinge on brand
performance. In reality, however, the measures used by most firms share many common
elements.
Stahl and colleagues (2012) researched the relationship between brand equity and customer
lifetime value (CLV), which is composed of customer acquisition, retention, and profitability. They
found that brand equity has a ‘predictable and meaningful impact on CLV’ (Stahl et al., 2012:
59). They conclude that brand equity is a multidimensional concept, because the components
of brand equity exert different effects on acquisition, retention, and profit. Most interestingly, they
suggest that brand management and customer management should be integrated so that they
work together in organizations and are not siloed.
Chapter Summary
■ Explain the characteristics and principal types of brand and branding.

Brands are products and services that have added value. Brands help customers to identify and
differentiate between the various offerings. There are three main types of brand—that is, manufacturer,
distributor, and generic.
■ Discuss ways in which brands work through associations and personalities.

Brands are capable of triggering associations in the minds of consumers. These associations may
sometimes enable consumers to construe a psychosocial meaning associated with a particular brand.
This psychosocial element can be measured in terms of the associations consumers make across five key
dimensions: sincerity; excitement; competence; sophistication; and ruggedness. Brand personality provides
a form of identity for consumers that expresses symbolic meaning for themselves and for others.
■ Examine how branding has evolved, utilizing relational and co-creation perspectives.
Definitions and types of brand have evolved and emerged as potentially powerful socio-cultural concepts
in which relational and community issues replace the former managerial perspective involving senders and
receivers, and the control of one party over another. A co-created brand or customer branding can be seen
when a customer attaches a name, term, or other feature that enables them to identify one seller’s goods or
service as distinct from those of other sellers.
Chapter 13 > Branding Decisions 523
■ Explain how brands can be built.

Keller’s brand pyramid consists of several building blocks and brands are built through a series of steps.
The first enables customers to identify with the brand and helps them to make associations with a specific
product, class, or customer need. The second step establishes what the brand means by linking various
tangible and intangible brand associations. The third step encourages customer responses based around
brand-related judgements and feelings. The final step is about fostering an active relationship between
customers and the brand.
■ Describe the principal issues associated with branding in services, business-to-business, internal,
and global contexts.
Branding is important in various sectors. These include services, because the intangibility of services
requires that customers be helped to understand the value associated with a service offering. In business
markets, branding is increasingly regarded as important because research shows that buyers make
decisions based on emotional benefits and self-expressive benefits, not only on utilitarian elements.
Employees are an integral part of a customer’s brand experience and the management of global brands
requires there to be brand consistency across all markets.
■ Explore the issues and activities associated with brand equity, and demonstrate why branding is
important to marketing managers.
Brand equity is a measure of the value of a brand. It is an assessment of a brand’s wealth, sometimes
referred to as goodwill. Financially, brands consist of their physical assets plus a sum that represents their
reputation or goodwill, with the latter far exceeding the former. There are two main views about how brand
equity should be valued—namely, the financial and marketing perspectives.
Review Questions
1 What is the difference between intrinsic and extrinsic attributes?
2 Why is branding important to consumers and to organizations?
3 What are the main types of brand?
4 Why is it necessary to consider the broad context of consumers’ lives to understand the role and
relationship that brands play in them?
5 What are Aaker’s five dimensions of brand personality?
6 When Ballantyne and Aitken (2007) argue that brand meanings are socially constructed, what do
they mean?
7 Draw Keller’s brand pyramid and name the individual building blocks.
8 What is the difference between preference and relevance brand strategies?
9 Write brief notes explaining the two main perspectives on brand equity.
1 Having read Case Insight 13.1 at the beginning of this chapter, how would you advise Aston Martin to
develop brand awareness and brand familiarity in the Chinese market?
2 When Ingrid Stevenson was appointed brand manager for a range of well-established fruit juices, one
of her first tasks was to understand the market and how consumers related to the brand. How might
an understanding of Aaker’s Brand Personality Scale help her in this task?
3 To what extent are ideas about co-creation and socially constructed meaning relevant to B2B brands?
4 British celebrity chef Jamie Oliver owns and runs a series of high-profile restaurants. He is opening
restaurants worldwide, stars in his own ground-breaking chef/food-based television programmes,
and has a number of books and other business interests. Discuss the view that celebrities cannot be
brands because they do not meet the common brand criteria.

Glossary
brand a multidimensional and emotional any competitive brand without the desirable
construct, with many definitions; typically refers characteristic is rejected.
to the added value a product or service is brand scope the range of international markets in
granted in consumers’ minds when identified as which a brand operates.
different from other products. customer branding the name, term, or other
brand associations the physical and non- feature devised by customers that enables
physical product attributes and benefits aligned them to identify otherwise undifferentiated or
with attitudes that consumers use to create an unbranded products.
image of a brand. distributor brand a brand developed by a
brand equity a measure of the value and wholesaler, distributor, dealer, or retailer within
strength of a brand; an assessment of a the distribution channel; sometimes referred to
brand’s wealth, sometimes referred to as as a private label brand.
goodwill. extrinsic attributes those elements that, if
brand extension the use of an established brand changed, do not alter the material functioning
name to lever entry into a new market or when and performance of the product itself.
launching a new product. generic brands brands sold without any
brand personalities the associations and promotional materials or any means of identifying
images that enable consumers to construe the company.
a psychosocial meaning associated with a intrinsic attributes the functional characteristics
particular brand. of a product, such as its shape, performance,
Brand Personality Scale a set of dimensions and physical capacity.
used to measure brand personality, developed manufacturer brand a brand created and
by Aacker (1997). sustained by a producer to encourage consumer
brand positioning a strategic activity aiming to awareness, recognition, and purchase.
differentiate and distinguish a brand. semiotics the science of signs.
brand preference a customer’s tendency to servicescape the set of stimuli that impact
choose one brand over that of a competitor. upon customers in a service environment,
brand relevance the extent to which a brand similar to the atmospherics present in a retail
has characteristics that are so attractive that environment.
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Part 4
Management
Part 1
Part 2
Strategy
Part 3
Managing Marketing
Programmes
Part 4
Management
Part 5
Marketing
Part 4
Principles of Customer Management
14 Channels, Supply Chains, and Retailing
15 Services and Relationship Marketing
16 Business-to-Business Marketing
Chapter 14
Channels, Supply Chains,
and Retailing

Åhléns
Market Insight 14.1
Describe the nature and characteristics of a
Channelling Motorbikes
marketing channel
Explain the different types of intermediary and their Market Insight 14.2
Packaged Goods Companies
roles in the marketing channel
Look Online
Understand the different marketing channel
structures and their core characteristics Market Insight 14.3
Fashioning a Circular Supply
Explain the factors that influence the design and Chain
structure of marketing channels
Market Insight 14.4
Describe the main elements that constitute supply Enhancing Channel
chain management Experiences
Consider the role and function of retailers in the Market Insight 14.5
marketing channel Retail App-reciation
532 1 > Principles
Part 4 Marketing of
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Customer Management
Case Insight 14.1

Åhléns
As shopper behaviour turns increasingly digital,

established retailers have to adapt their channel strategies.
We talk to Lotta Bjurhult, business developer retail
operations at Åhléns, Sweden’s largest department store
chain, to find out what it takes to add an online channel to
an existing network of department stores.
Åhléns is Sweden’s leading department store chain.

You could say that we hold a position similar to John
Lewis in the UK or Karstadt in Germany. In 2015, we
had a turnover of about SEK5 billion, employed some
3,000 people, and served a total of 65 million visitors in
our 70 department stores located throughout Sweden.
Our customer base is very loyal, with more than 2.2
million club members who shop, on average, 8.5 times
a year at our stores.
Our mission is to offer carefully selected, priceworthy,

and sustainable solutions that we believe can satisfy
people’s requirements in a simple, inspiring, and A key challenge for Åhléns is translating the
accessible way. As with most department stores, we in-store shopping experience online
offer a broad assortment of products and provide Source: Courtesy of Åhléns.
a wide array of customer service facilities for store
customers. In our department stores, customers are currently not available in all our local department stores.
offered a carefully considered collection of selected At the end of 2016, our online channel will hold around
brands and proprietary labels all under one roof. Our 50,000 different products, which means that it will
customers are able to browse among an inspiring offer a larger assortment than most of our physical
assortment of value-for-money products within home department stores, but will be equal in size to our larger
styling and interior design, fashion, beauty, foodstuffs, department stores in Uppsala and Malmö. Over time,
and entertainment. we are aiming to provide the same assortment online
as we do in our flagship store Åhléns City Stockholm.
Adding an online channel to an existing department
store operation is complex. The challenge is to
We have also developed a tailor-made information
keep the overall experience of Åhléns, which is very
technology (IT) system to support the online channel.
much centred on the in-store shopping experience,
In creating our online store, we have gone through and
while simultaneously adapting it to an online setting.
developed all our internal processes—starting with
Customers consider Åhléns to be one department
how we relate to suppliers and vendors, through where
store: they don’t care if they buy something offline or
to stock and how to deliver products, as well as to the
online. In developing our online offer, we have looked at
role of physical store employees. Going online exposes
a range of issues.
any weaknesses you might have in your business
In terms of assortment, we have used statistics on operations. If something is not really working in a
what customers are already buying online as a starting physical store, there are store employees who can fix
point. We have also considered what products are it. And things such as payments and returns, which are
14 > Channels,
ChapterChapter SupplyPrinciples
1 > Marketing Chains, and
andRetailing
Society 533
533
Case Insight 14.1

continued
quite easily managed in a physical department store, our customers every day. This is essential if we are to
become a lot trickier online. offer our customers a seamless experience.
Another key consideration for us has been how to Key questions for Åhléns have been: what roles
engage store employees and make them embrace the should store employees play in integrating the
online channel as part of the overall value proposition offline and online channels? What activities are
of Åhléns. The online channel has profound and needed to ensure their support for a new online
long-lasting effects on the role they play in creating a channel?
high-quality customer experience.
One of my key tasks has been to ensure that in-store Visit the online resources to watch a
employees and customer service embrace the online video interview with Lotta Bjurhult in
channel and make it part of the experience offered to which she explains what Åhléns did.
Introduction
Have you ever considered the journey that a bottle of water, a computer, or a bag of potatoes
might take from its source (manufacturer or producer) to be available for you to purchase at the
point you prefer? In many cases, this journey can be complex, involving transactions between
many organizations, countries, and people.
The organizations involved with any one journey are collectively termed a distribution channel
or marketing channel. These are chains of organizations that are concerned with the man-
agement of the processes and activities involved in creating and moving products from produc-
ers and manufacturers to end users. Each organization adds something of value before passing
it to the next, and it is this interaction that provides mutual advantage (Kotler and Keller, 2009)
and underpins the concept of channel marketing.
Each of the various organizations electing to interact with others performs a specific
role in the chain of activities. Some act as manufacturers; some, as agents; others may be
distributors, dealers, value-added resellers, wholesalers, or retailers. Whatever the role, it is
normally specific and geared to refining, adding value, and moving a product closer to the
end user. This interaction requires coordination if participating organizations are to achieve
their goals and make available final products and services that represent superior value to
the channel’s end users, especially when there are multichannel activities (Ailawadi and
Farris, 2017).
In this chapter, we consider three main elements. The first concerns the management of the
intangible aspects, or issues of ownership, control, and flows of communication between the
parties responsible for making an offering accessible to target customers, commonly referred to
as marketing channel management.
534 1 > Principles
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Customer Management
The second element concerns the management of the tangible or physical aspects of moving
a product from the producer to the end user. This must be undertaken so that a customer can
freely access an offering, and so that the final act of the buying process is as convenient and
easy as possible. This is part of supply chain management, which includes the logistics associ-
ated with moving products closer to end users.
The third and final element is about retailing—a critical element of the way in which consum-
ers access the products they desire.
Channel Management
Europe’s largest clothing maker and retailer Inditex has seen its clothing sales rise consistently
in recent years because it adds new stock to its fashion stores (for example Zara, Pull&Bear,
and Massimo Dutti) twice a week, keeping the stock fresh and up to date with the latest fash-
ion trends. It achieves this by manufacturing over 50 per cent of its stock in Spain or Portugal.
Although this is more costly in terms of production, Inditex can get new designs into European
and American stores twice as quickly as it would if it were to have to wait for delivery of stock
manufactured in Asia. This shows that, by managing its marketing channels, Inditex has improved
its overall business performance.
If we consider the skills Inditex needs to design and assemble a range of garments, to source
the materials, and to manufacture, package, and then distribute the final fashion garments to
its stores and other customers globally, we can see that a major set of complex operations are
required. For many organizations, trying to undertake all these operations is beyond their skill-
set or core activity. For all organizations, there is a substantial risk associated with producing
too many or too few, too soon or too late for the target market. There are risks associated with
changing buyer behaviours, and with storage, finance, and competitors’ actions, to name but a
few of the critical variables.
By collaborating with other organizations that have the necessary skills and expertise, firms
can reduce these uncertainties. Working with organizations that can create customer demand or
access, and manage specialist financial issues, storage, or transportation, adds value and devel-
ops competitive advantage. For example, to reach the 600,000 rural villages in India, Samsung
partnered with the Indian Farmers Fertiliser Cooperative Ltd to sell its handsets. With this new
marketing channel, Samsung can now reach over 90 per cent of villages in India.
Collectively, organizations that combine to enable offerings to reach end users quickly and
efficiently constitute a marketing channel—sometimes referred to as a distribution channel.
Organizations that combine to reduce risk and uncertainty do so by exchanging offerings that
are of value to others in the channel. Therefore marketing channels enable organizations to share
or reduce uncertainty. By reducing the uncertainty experienced by all members in a channel,
each is in a better position to concentrate on other tasks.
How Channels Help to Reduce Uncertainty

Marketing channels enable different types of uncertainty to be decreased in several ways (Fill
and McKee, 2012). These include reducing the complexity, increasing value and competitive
advantage, routinization, and providing specialization.
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Reducing Complexity
If it were to contact them directly, the number of transactions and the frequency of contact a
producer might have with each individual end user would be so high that the process would be
unprofitable. This volume of activity can be seen in Figure 14.1.
If an intermediary is introduced into the process, the number of transactions falls drastically,
as demonstrated in Figure 14.2. The fall in the number of transactions indicates not only that
are costs reduced, but also that producers are better placed to redirect their attention towards
the needs of intermediaries. This allows them to focus on their core activities—that is, produc-
tion or manufacturing. In much the same way, end users receive improved individual support
from channel intermediaries in comparison with that which they would be likely to get from a
producer. For example, a local farmer could focus on growing a particular crop and cultivat-
ing cattle, and then ship the produce in large quantities to a wholesaler, who then takes over
the responsibly of selling and distributing the produce to retailers, who in turn sell them on to
consumers.
P1 R1
R2
Producers
Retailers
P2 R3
R4
Pn Rn
15 lines of channel contact
Figure 14.1
The complexity of channel exchanges without intermediaries
P1 R1
P2 R2
P3 Distributor/Dealer/ R3
Wholesaler
10 contact channels
P4 R4
Pn Rn
Figure 14.2
The impact of intermediaries on channel exchanges
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Increasing Value and Competitive Advantage

By using intermediaries, producers can reduce purchase risk—that is, the uncertainty that cus-
tomers might reject the offering. Intermediaries, rather than producers, have the skills and core
competencies necessary to meet end users’ requirements, for example retailing. By improv-
ing the overall value that customers perceive in an offering relative to competing products and
customer experience, it is possible to develop competitive advantage. For example, individuals
might not value the produce (for example strawberries) grown by a farmer so much that they
are willing to drive out to the farm to buy it, but when offered the strawberries by a retailer those
same individuals may see the produce as a relevant addition to other items they might be buying
as part of their shopping trip.
Routinization
Performance risk can be reduced by improving transaction efficiency. Standardizing, or ‘routin-
izing’, the transaction process—perhaps by regulating order sizes, automating operations, and
managing delivery cycles and payment frequencies—allows distribution costs to be reduced.
For the local farmer, selling produce to a wholesaler provides the opportunity to routinize trans-
actions in relation to, for example, size, delivery time, and payments compared to selling them
directly to end users who might have a wide variety of preferences in terms how much, when,
and how they want to buy.
Specialization
By providing specialist training services, maintenance, installation, bespoke deliveries, or credit
facilities, intermediaries can develop a service that has real value to other channel members or
end users. Value can also be improved for customers by helping them to locate the offerings they
want. Intermediaries can provide these specialist resources, whereas producers are not normally
interested or able to do so. This is because they prefer to produce large quantities of a small
range of goods. Unfortunately, end users want only a limited quantity of a wide variety of goods.
Intermediaries provide a solution by bringing together and sorting out all the goods produced
by different manufacturers in the category. They then represent these goods in quantities and
formats that enable end users to buy the quantities they wish, as frequently as they prefer. This
is referred to as sorting and smoothing. Table 14.1 provides an explanation of these forms of
specialization.
Intermediaries provide other utility-based benefits. For example, they assist end users by
bringing a product produced a long distance away to a more convenient location for purchase
and consumption—that is, they offer place utility.
They also help the end user because the product might be manufactured during the week,
but purchased and consumed at the weekend. Here, manufacturing, purchase, and consump-
tion occur at different points in time, and intermediaries provide time utility.
Immediate product availability through retailers enables ownership to pass to the consumer
within a short period of time—that is, ownership utility.
Finally, intermediaries can also provide information about the product to aid sales and usage.
The Internet has led to the development of a new type of intermediary: an information intermedi-
ary (for example Expedia, Google). Here, the key role is to manage information to improve the
efficiency and effectiveness of the distribution channel—that is, information utility.
There are some disadvantages to the use of intermediaries. For example, as the number of
intermediaries in a channel increases, a lack of product control can develop. Some manufacturers
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Table 14.1 Aspects of sorting and smoothing
Aspect Explanation
Sorting out Grading products into different sizes, qualities, or grades (e.g. potatoes, eggs or fruit)
Accumulation Bringing together different products from different producers to provide a wider
category choice
Allocation Often referred to as breaking bulk (by wholesalers), this involves disaggregating bulk
deliveries into smaller lot sizes that customers are able (and prefer) to buy
Assorting Assembling different collections of goods/services thought to be of value to the

customer (retailers and consumers)
Source: Fill and McKee (2012). Used with kind permission.
are unable to influence intermediaries in terms of in-store merchandising, placement, and even
pricing. Furthermore, intermediaries might be susceptible to competitor inducements, such as
trade promotions. For many manufacturers and producers, intermediaries often become a mar-
ket in their own right, and developing and sustaining a relationship with them can require consid-
erable time, money, and personnel.
Visit the online resources and complete Internet Activity 14.1 to learn more about the role of
intermediaries within the film and television industry.
Types of Intermediary
Having seen that intermediaries play a significant role in marketing channels, we now need to
consider the different types of intermediary. There are, of course, a number of such, each fulfilling
different roles and providing various forms of specialization. Some of the more common ones
are as follows:
■ An agent or broker acts as the intermediary between the seller of an offering and buyers,
bringing them together without taking ownership of the offering. These intermediaries have
the legal authority to act on behalf of the manufacturer and typically make money through
commissions. For example, fish and seafood agents typically help fisheries to sell their catch-
es to wholesalers and authors typically use international agents when selling rights to their
books on the international market.
■ A merchant undertakes the same actions as an agent, but takes ownership of a product.
■ Distributors or dealers distribute the product. They offer value through services associated
with selling inventory, credit, and aftersales service. Often used in business-to-business (B2B)
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markets, they can also be found dealing directly with consumers, for example automobile
distributors. (See Market Insight 14.1 for a view of Honda’s dealers and distributors.)
■ A franchisee holds a contract to supply and market an offering to the requirements or blue-
print of the franchisor, the owner of the original offering. The contract might cover many as-
pects of the design of the offering, such as marketing, product assortment, or service delivery.
Market Insight 14.1

Channelling Motorbikes
Honda sells more than 12 million motorcycles

each year in the Asia–Oceania region alone, and
the management of its distribution networks is a
vital element in maintaining customer access and
satisfaction. Honda produces a wide range of
motorcycles, ranging from the 50cc class to the
1,800cc class, and is the largest manufacturer of
motorcycles in the world in terms of annual units of
production. In the region, Honda’s motorcycles are
produced at sites in Japan, Indonesia, the Philippines,
Pakistan, and India.
In Japan, sales of Honda motorcycles (and automobiles Honda uses simulators to enable riders to
and power products) are made through different practise riding, receive risk awareness training,
distribution networks. Honda’s products are sold and experience the brand
Source: © Bloomberg/Getty.
to consumers primarily through independent retail
dealers and motorcycles are distributed through more countries distribute Honda’s motorcycles through
than 11,500 outlets, including approximately 1,400 approximately 1,600 independent local dealers.
authorized dealerships. These authorized dealerships
sell all Honda’s Japanese motorcycle models, not only One core element of Honda’s dealer strategy, worldwide,
selected models. is its comprehensive ‘4S’ support system, which covers
sales, service, spare parts, and safety. For example,
Most of Honda’s overseas sales are made through Honda provided its dealers in Thailand, Indonesia,
its main sales subsidiaries, which distribute Honda’s Vietnam, and India with an easy-to-use riding simulator,
products to local wholesalers and retail dealers. In called Riding Trainer, by means of which riders can
Indonesia, Honda has recently developed its dealer receive risk awareness training and riding practice, and
network of 4,000 dealers and service shops to support of course develop engagement with the Honda brand.
sales and provide excellent aftersales service. In the
United States, Honda’s wholly owned subsidiary Recently, a fifth ‘S’ has been added: ‘second-hand’ (or
markets Honda’s motorcycle products through a sales used) business. In Thailand, for example, the second-
network of approximately 1,260 independent local hand motorcycle business has been deliberately
dealers. Many of these motorcycle dealers also sell strengthened as a means of developing business. The
other Honda products. strategy encourages potential motorcycle owners and
those ready for an upgrade to purchase pre-owned
In Europe, subsidiaries of the company in the UK, Honda models, drawing this segment into the brand.
Germany, France, Belgium, the Netherlands, Spain,
Switzerland, Austria, Italy, and other European Source: https://www.honda.com/
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Market Insight 14.1

continued
This market insight demonstrates the variety and associated with its motorbikes varies considerably.
complexity of Honda’s marketing channels. The design Honda’s control over the marketing channel is
of a marketing channel depends partly on the context, enhanced by the establishment of authorized
culture, and level of economic development in a country dealerships and, in the United States, by wholly owned
or region. In other words, no one channel design can fit subsidiaries. At the other end of the spectrum are
every situation. independent local dealers, whom Honda has attempted
to influence and retain through the use of simulators.
The level of control and degree to which Honda, as This, in turn, helps to attract and retain customers.
a manufacturer, can control the marketing activities
Related Topics
intermediaries; channel structures; channel relationships
1 Why does Honda set up subsidiary organizations 3 What might affect Honda’s dealer network
in each overseas region or country? (marketing channel) in the future?
2 What do you think are the benefits of the ‘5S’

support system?
The uniformity of differing branches of McDonald’s and KFC is an indication of franchisee con-
tracts; however, franchise agreements are not used only in the fast food or product sectors:
■ A wholesaler stocks goods before the next level of distribution and takes both legal title and
physical possession of the goods. In consumer markets, wholesalers do not usually deal with
the consumer, but with other intermediaries (for example retailers). In B2B markets, sales are
made directly to consumers. Examples include Costco Wholesalers in the United States and
Makro in Europe.
■ Retailers sell directly to consumers and may purchase directly from manufacturers or deal
with wholesalers. This is dependent on their purchasing power and the volume purchased.
Leading retailers include Walmart, Marks & Spencer, Carrefour, and electronics retailers such
as Media-Saturn and Zalando.
■ Infomediaries are Internet-based organizations, such as Google and Pricerunner, designed to
provide information to channel members, including end users.
Visit the online resources and follow the web link to the European Franchise Association (EFA)
to learn more about business franchise collaboration activities across Europe.
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Managing Marketing Channels

There are two main issues associated with the management of marketing channels: the design
of the channel, its structure and activities; and the relationships between channel members.
These are considered in turn.
Channel Design
The design of an appropriate channel—that is, its structure, length, and the membership and
their roles—varies according to context. For example, the channels necessary to support a new
product or organization start-up are different from those required when modifying an existing
structure to adapt to changing market conditions. The channel design decision process requires
three key decisions:
■ the distribution intensity decision—that is, the level of purchase convenience required by the
different customer segments to be served;
■ the channel configuration decision—that is, the number and type of intermediaries necessary
to deliver products to the optimum number of sales outlets; and
■ the multichannel decision—that is, the number of different types of channel to be used.
This helps us to determine what is the most effective and efficient way of getting the offering to
the customer.
Key Considerations
When designing distribution channels, we need to consider a variety of factors to ensure that
the channel suits the organization’s objectives. Three broad elements need to be considered,
as follows:
■ Economics requires us to recognize where costs are being incurred and profits being made
in a channel to maximize our return on investment.
■ Coverage is about maximizing the offering’s availability in the market for the customer, satisfy-
ing the desire to have the offering available to the largest number of customers, in as many
locations as possible, at the widest range of times.
■ Control refers to achieving the optimum distribution costs without losing decision-making
authority over the offering—that is, how it is priced, promoted, and delivered in the distribu-
tion channel.
Sometimes, by covering a wide range of delivery times and locations by means of intermediar-
ies, organizations sacrifice some control in decision-making. Intermediaries start changing the
price, image, and display as they seek to maximize sales of a whole range of products. Think
about the positions of HTC, Huawei, Samsung, and Apple. To get the maximum number of
customers using their mobile phone handsets, they need to have the maximum number of
retailers and mobile phone networks promoting and selling their phones. However, the same
networks and retailers also sell the handsets of their competitors. As the retailers and networks
compete to sign up customers, they push for lower prices, or they demand advertising subsi-
dies to help them to sell the phones. So Samsung and LG may discover that their phones are
being sold at very low prices, and that their brand images are being compromised by retailers
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CHANNEL DECISIONS
Direct structure Indirect structure Multichannel structure
Market coverage Channel members Managing

(intensive, selective, (i.e. number and relationships
or exclusive) type) (trust and conflict)
Figure 14.3
Distribution channel strategy decisions
and networks who are desperately seeking to maximize their own sales. What happens if LG
reduces the number of retailers or networks it deals with to increase control over its marketing
mix? The danger, of course, is that its competitors will gain market share by continuing to deal
with these retailers and networks. In contrast, Apple has specific policies on what distributors
can and cannot discount on products like the iPhone. All face a trade-off between economics,
coverage, and control.
Visit the online resources and follow the web links to the Institute of Supply Chain Management
(ISM) and the Chartered Institute of Purchasing and Supply (CIPS) to learn more about the
profession and activities of managing the distribution and supply chain.
Distribution Channel Strategy

When devising a distribution channel strategy, several key decisions need to be made to serve
customers and to establish and maintain appropriate buyer–seller relationships. These are sum-
marized in Figure 14.3. The first decision is selecting how the channel will be structured. If the
channel requires intermediaries, we need to consider the type of market coverage we want,
the number and type of intermediaries to use, and how we should manage the relationships
between members in the channel. These choices are important because they can affect the
benefits provided to customers.
Channel Structure
Distribution channels can be structured in a number of ways. There are three main configu-
rations involving producers, intermediaries, and customers: direct channels; indirect chan-
nels; or multichannel structures. A direct channel structure involves selling directly to end
users with little involvement from other organizations, while an indirect channel structure
uses intermediaries and a multichannel structure combines both. These are presented in
Figure 14.4.
We now consider the advantages and disadvantages of each of type of channel structure.
Direct Channel Structure

In a direct channel structure, the producer uses strategies to reach end users directly rather
than dealing through an intermediary (an agent, broker, retailer, or wholesaler) (see Figure
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Producer Consumer
Direct
Producer Intermediaries Consumer
Indirect
Producer Consumer
Intermediaries
Multichannel
Figure 14.4
Distribution channel structure
14.4). Have you ever been to a farmers’ market and purchased produce directly from a
farmer, or downloaded music from the site of a local band? These are examples of direct dis-
tribution. The advantages of this structure are that the producer or manufacturer maintains
control over its product and profitability, and builds strong customer relationships. However,
this structure is not suitable for all products. It is ideally suited to those products that require
significant customization, technical expertise, or commitment on behalf of the producer to
complete a sale (Parker, Bridson, and Evans, 2006)—although electronic technologies such
as the Internet have enabled a greater number of product manufacturers to reach customers
directly.
Efficiency within the direct channel structure can be improved in the following ways:
■ By processing orders and distributing the offering electronically directly to customers—Ado-
be Reader is free universal software manufactured by Adobe Systems Inc. that enables us-
ers to read and share electronic documents. To increase the cost-efficiency of delivery, the
organization employs a direct structure via the Internet, providing digital delivery, installation,
and customer support.
■ Supporting the physical distribution of the product offering directly to customers—One
of the best-known examples of this is Dell Computer Corporation’s system. Dell sells
computer equipment through its own website, using telesales for product ordering, and
database technology for order processing, tracking, and inventory and delivery manage-
ment. The organization also distributes its products through its own delivery and installa-
tion staff.
The disadvantages of a direct channel structure typically include the large amount of capital
and resources required to reach customers. This means that there are virtually no economies
of scale. Manufacturers might also suffer from offering a low variety of offerings, which may
not meet the needs of buyers. This is especially apparent in consumer markets, such as fast-
moving consumer goods (FMCGs). Imagine having to shop for bread, milk, and a soft drink at
three differing retail outlets owned by each product manufacturer. Few consumers today would
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purchase their offerings from individual manufacturers because of the inconvenience and time
costs involved. Thus retailers satisfy the needs of end users for variety—something a direct
channel of distribution would not necessarily fulfil.
Indirect Channel Structure

Indirect channel structures enable producers to concentrate on the skills and processes nec-
essary to make offerings, and use one or more intermediaries for distribution. For example,
Procter & Gamble (P&G) focuses its resources and expertise on developing new types of FMCG,
whereas the core retailing activity of Sainsbury’s is to make P&G’s products (and those of P&G’s
competitors) available to consumers.
Multichannel Structure
An increasing number of organizations adopt a hybrid or multichannel structure to distribute
goods and services (Ailawadi and Farris, 2017). Here, the producer controls some marketing
channels and intermediaries control others. For example, many airlines sell their tickets directly
to consumers through the Internet, but also rely on travel agents. Consider the options for the
purchase of a mobile device. This could occur directly from the Samsung website, from a service
provider such as EE, or perhaps at Tesco, while picking up some bread and milk. Samsung,
Lenovo, and LG Electronics use service providers, electronic retailers, and wholesale discount
clubs alongside their own direct Internet and telesales channels to market and deliver their
mobile phone handsets.
The benefits of a multichannel structure include the following:
■ Increased reach—By utilizing existing direct networks and the relationships of intermediaries,
the provider can reach a wider target audience.
■ Producer control—Producers have greater control over prices, communication, and can
reach customers directly.
■ Greater compliance—Adherence to channel rules is more likely when producers use multiple
intermediaries and are not perceived to be a (direct channel) competitor.
■ Optimized margins—Producers can improve margins from the direct channel element and
increase their bargaining power as they become less dependent on intermediaries.
■ Improved market insight—By developing relationships with their direct customers, producers
can derive a better understanding of their needs and market issues.
The use of multichannel strategies has been encouraged by the growth of the Internet, which
has increased the efficiency with which consumers and manufacturers can interact. At the same
time, technologies are increasing the efficiency of information exchange between producers and
intermediaries, for example through electronic data interchange (EDI) and extranets. However,
the sharing of profits among channel members can be a source of conflict, especially when
intermediaries perceive the producer to be a competitor, as well as a supplier. This structure
may also confuse and alienate customers who are unsure about which channel they should
use. (For more about the challenges of using multiple channels, see Research Insight 14.1 and
Market Insight 14.2.)
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Ailawadi, K.L., and Farris, P.W. (2017). Managing multi- and omni-channel distribution:
metrics and research directions. Journal of Retailing, 93(1), 120–35.
In this article, the authors present a framework for managing distribution in increasingly complex channel
structures. In doing so, they point towards important questions that contemporary marketers are grappling
with in terms of distribution channels and also summarize the metrics that are relevant to each element of
the framework.
Market Insight 14.2

Packaged Goods Companies Look Online
The impact of e-commerce has been significant in centres. Online sales accounted for less than 1 per
many markets, but the consumer packaged goods cent of total sales in packaged food and approximately
(CPG) market has, until recently, avoided any major 3 per cent in non-food in 2013.
disruption. Traditionally, CPGs have been distributed
through independent retailers and supermarkets, Since then, there have been several innovative
using distributors and strategically placed distribution experiments in e-commerce in the CPG sector. A
Reorder your favourite products with the touch of a button

Source: © 2018 Amazon.com, Inc. or its affiliates.
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continued
number of regional grocers have piloted various the Dash Button—an Internet-connected device placed
‘click and collect’ operations whereby products are anywhere in the home—provides a one-touch way of
purchased online and picked up in stores. Perhaps ordering refills.
one of the most significant moves has been the trend
towards major CPG companies strengthening their In September 2016, supermarket retailer Sainsbury’s
digital channel strategies by working with Amazon and began the process of integrating high-street
other key digital players. One of the primary approaches digital retailer Argos into its business. Sainsbury’s
has been to locate teams of digital and functional purchased Argos to compete more effectively and
specialists at Amazon, then, through investment, to better adapt to changes in the retailing environment.
develop co-marketing activities with Amazon. It was also felt that there were several synergies
between the two organizations that could be
Amazon has tested Amazon Pantry, which lets its Prime developed.
users fill a box with selections of more than 2,000
products and ship them for a small fee. Prime Now Sources: Alldredge and Ungerman (2015); Alldredge, Newaskar,
offers delivery to the home within one or two hours and and Ungerman (2015); Armstrong (2016); Sheffield (2016).
The traditional marketing channels in the consumer The development of online channels means that
packaged goods (CPG) market are determined largely manufacturers have direct access to end users—in this
by market size. Manufacturers distribute their goods case, consumers. This lowers many of the supply chain
directly to large supermarket customers via distribution costs, but, because of the small number of units involved
points and warehouses. Ownership moves from the in any one transaction, distribution costs can raise prices.
producer to the retailer. Smaller customers, who This can be partially alleviated through click-and-collect
buy smaller volumes, buy branded products from arrangements.
distributors, such as wholesalers, who then sell them to
retailers. In this case, ownership moves with the product.
Related Topics
co-branding; collaboration; channel intensity
1 What might be the forces driving CPG 3 Now that Sainsbury’s has bought Argos, who
companies to develop e-commerce? might it consider to be its main competitor?
2 Outline the advantages and disadvantages of

using an online channel for packaged goods.
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Channel Intensity
Sometimes referred to as channel coverage, channel intensity refers to the number and disper-
sion of outlets an end user can use to buy a particular offering. This decision concerns the level
of convenience customers expect and suppliers need to provide to be competitive. The wider
the coverage, the greater the number of intermediaries, which leads to higher costs associated
with the management control of the intermediaries.
A decision to introduce a new channel refers to the addition of a new set of internal or external
channel entities to the firm’s existing channel system. This could be a decision to establish its
own retail stores or to provide an online e-commerce shopping facility. For example, Homburg,
Vollmayr, and Hahn (2014) refer to China Unicom, which started to sell its telecommunication
services in consumer electronics retail stores, such as Suning, in addition to its own specialized
telecommunications stores. Although the new channel offered a lower level of customer service
than China Unicom’s own stores, it carried a wider product variety and broader assortment,
enabling customers to purchase different kinds of electronic products and related services in
one store.
There are three levels of channel intensity—that is, intense, selective, and exclusive (see
Figure 14.5).
Intensive distribution involves placing an offering in as many outlets or locations as pos-
sible. It is used most commonly for offerings that consumers are unlikely to search for and
which they purchase on the basis of convenience or impulse, such as magazines, soft drinks, or
confectionery. However, retailers have increased control over the extent to which distribution is
intensive. For example, a manufacturer of a new brand of yoghurt might want its new brand put
on the shelves of all supermarkets; however, owing to limited shelf space, the retailers might limit
their assortment to the leading brands of yoghurt.
Selective distribution occurs when a limited number of outlets are used. This is because,
when customers are actively involved with a purchase and experience moderate to high levels of
perceived risk, they are prepared to seek out appropriate suppliers. Those that best match their
overall requirements are successful. Producers determine and control which intermediaries are
to deliver the required products and level of services. Electrical equipment, furniture, clothing,
and jewellery are categories in which selective distribution is appropriate.
Sometimes, an organization might use an intensive distribution to increase awareness of its
brand when entering a new market, but then move to a more selective strategy to improve con-
trol over quality and to manage costs and price.
Intensive Selective Exclusive
Distribution Distribution through Distribution through

through every multiple, but not all, a single wholesaling
reasonable outlet reasonable outlets in intermediary and/or
in the market the market retailer
Figure 14.5
Intensity of distribution continuum
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Exclusive distribution occurs when intermediaries are given exclusive rights to market
an offering within a defined ‘territory’. This is useful where significant support is required from
the intermediary, and hence the exclusivity is ‘payback’ for their investment and support. For
example, high-prestige goods such as Ferrari sports cars and designer fashion apparel such as
Chanel and Gucci adopt this type of distribution intensity.
If an offering requires complex servicing arrangements or tight control, then the exclusive form
of distribution may be best. The threat of price competition is also diminished, because it would
be inconsistent with the positioning strategy these offerings normally adopt.
Nearly all distribution through the Internet is intensive because of the massive reach of the
web. Even the smallest manufacturer can advertise and sell worldwide, using the same courier
services as major firms to deliver its offerings.
The decision about the number of intermediaries is often driven by cost considerations. The
costs of intensive distribution are higher because of the number of outlets that must be served.
The implications of these three distribution strategies are summarized in Table 14.2.
Disintermediation and Re-intermediation

Disintermediation concerns a reduction in the number or strength of intermediaries required
in a marketing channel. More specifically, it refers to a situation in which market intermediaries
are either displaced or eliminated, and manufacturers and buyers trade directly with each other
without the presence of agents (Tay and Chelliah, 2011). There has been an active debate about
Table 14.2 Intensity of channel coverage
Characteristics Exclusive Selective Intensive
Objectives Strong image channel Moderate market coverage; Widespread market

control and loyalty; price solid image; some channel coverage; channel
stability control and loyalty acceptance; volume
sales
Channel Few in number; well- Moderate in number; well- Many in number; all
members established reputable established better stores types of outlet
stores
Customers Few in number; Moderate in number; brand- Many in number;

trendsetters; willing to conscious; somewhat willing convenience-oriented
travel to store; brand- to travel to store
loyal
Marketing Personal selling; Promotional mix; pleasant Mass advertising;

emphasis pleasant shopping shopping conditions; good nearby location; items
conditions; good service service in stock
Examples Automobiles; designer Furniture; clothing; watches Groceries; household

clothes; caviar products; magazines
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Sites like Etsy put manufacturers in direct contact with their customers
Source: © Etsy.com.
whether the rate of disintermediation is increasing, but it is clear that online technologies and
virtual marketplaces have enabled buyers and sellers to find each other and to conduct business
efficiently across both B2B (for example Virtual Chop Exchange for electronics, ChemConnect
for chemicals) and consumer (for example eBay, Etsy) sectors.
The assumption underlying increasing disintermediation is that if producers could
reach their customers directly, they would no longer need intermediaries—or at least
they would not need so many of them. The technical possibility of reducing the number
of intermediaries doesn’t affect only ‘bricks and mortar’ intermediaries, but also elec-
tronic intermediaries. In Amazon’s case, for example, more consumers could skip the
intermediary and buy books online directly from publishers. Some publishers and printers
have been disintermediated, with authors now selling e-books directly to the consumer.
Where disintermediation does occur, it is strongly dependent on the nature of the offer-
ings distributed.
Although there are significant numbers of customers who like buying directly, many custom-
ers value and prefer the role of traditional intermediaries, such as bricks-and-mortar retailers,
for certain purchases. In fact, such is the value of some intermediaries to both customers and
producers that there has been a trend towards re-intermediation (Anderson and Anderson,
2002)—that is, the introduction of additional intermediaries into the distribution channel. In
fact, digitalization seems to have led to a kind of re-intermediation opening up for new types
of intermediary, such as price comparison websites that add value by lowering search costs
and reducing information asymmetry, thereby supporting consumers in making a product
choice (Laffey and Gandy, 2009). Examples of such intermediaries are Mysupermarket and
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Chakravarty, A., Kumar, A., and Grewal, R. (2014). Customer orientation structure for
Internet-based business-to-business platform firms. Journal of Marketing, 78(5), 1–23.
This article develops a two-dimensional conceptualization of customer orientation for Internet-based B2B
platforms, aiming to understand the unique challenges of platforms offering a triadic exchange system
involving a seller side, a buyer side, and the intermediary platform. It thus reflects the premise that this type of
intermediary must satisfy the needs of both buyers and sellers, both of whom are customers of the platform.
Pricerunner. Internet-based B2B platforms are also examples of such intermediaries (see
Managing Relationships in the Channel

An important managerial issue concerns channel relationships. Because channels are open
social systems (Katz and Kahn, 1978), some level of conflict between channel members is
inevitable. Conflict follows a breakdown in the levels of cooperation between channel partners
(Shipley and Egan, 1992) and may well affect channel performance. Gaski (1984: 11) defined
channel conflict as ‘the perception on the part of a channel member that its goal attainment is
being impeded by another, with stress or tension the result’.
Channel conflict may involve intermediaries on the same level (tier), for example between
retailers or between agents (horizontal conflict). It may also occur between members on
different levels (tiers), for example involving a producer, wholesaler, and a retailer (vertical
conflict).
If strategies to prevent or avoid conflict have failed, it is necessary to resolve the conflict that
erupts. The strategies depicted in Table 14.3 vary from selfishness/stubbornness and a refusal
to work with other members, through cooperation and compromise, to a strategy that seeks to
accommodate all of the views of other parties, even to the extent of jeopardizing one’s own posi-
tion. The prevailing corporate culture, attitude towards risk, and the sense of power that exists
within coalitions shapes the chosen strategy.
Visit the online resources and follow the web links to read about the conflict that has arisen in
the UK supermarket industry.
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Table 14.3 Conflict resolution strategies
Strategy Explanation
Accommodation Modify expectations to incorporate requirements of others
Argument A considered attempt to convince others of the correctness of your position
Avoidance Removal from the point of conflict
Compromise Meet the requirements of others halfway
Cooperation Mutual reconciliation through cooperation
Instrumentality Agree minimal requirements to secure short-term agreement
Self-seeking Seek agreement on own terms or refuse further cooperation
Source: Fill and McKee (2012). Used with kind permission.
Grey Marketing
The unauthorized sale of new branded products diverted from authorized distribution channels, or
imported into a country for sale without the consent or knowledge of the manufacturer, is referred
to as grey marketing and is a source of channel conflict. Very often, this is accompanied by a cut
in prices. Grey marketing is common in several different product categories, ranging from designer
handbags and make-up, through electronics and automobiles, to prescription drugs. This activity
is not necessarily illegal, but could fall foul of licensing agreements or trade regulations. Sometimes
referred to as parallel importation, this can concern the purchase of a product in one country at a
considerable discount and its resale in another at a far higher price. Differences in exchange rates
can stimulate this activity, as experienced by Chinese shoppers in search of luxury items. As the
value of the euro fell in 2015, many Chinese shoppers travelled to Europe to buy the same prod-
ucts at a much lower price. This affected the luxury brands, which lost out on high-margin sales
in China and Hong Kong (Stefan, 2015). In recent years, online grey marketing has also grown
rapidly, making it an important consideration for many brands (Zhao, Zhao, and Deng, 2016).
Supply Chain Management

The second major issue associated with marketing channels concerns the movement of parts,
supplies, and finished products through a chain of suppliers involved in providing raw materi-
als (upstream), through the assembly and manufacturing stages, to distribution to end users
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(downstream). This linkage is referred to as a supply chain and the process is commonly
referred to as supply chain management (SCM). The phrase supersedes the previous terms
‘logistics’ and, before that, ‘physical distribution’. Melnyk and colleagues (2009) believe that
SCM is about the creation of value—a value chain—across of all the activities associated with
distribution.
Integrated SCM refers to the business processes associated with the movement of parts,
raw materials, work-in-progress, and finished goods. Unlike marketing channels, which are con-
cerned with the management of customer behaviour, finished goods, and inter-organizational
relationships, the goal of SCM is to improve efficiency and effectiveness with regard to the physi-
cal movement of products. Supply chain management is essentially about the management
of all the business activities necessary to get the right product, in the right place, for the right
customer to access in a timely and convenient way (Fill and McKee, 2012). Supply chain man-
agement is changing rapidly and developments in artificial intelligence, block-chain technology,
and the Internet of Things are expected to impact supply chain management profoundly in the
coming years (WEF, 2018).
Supply chain management comprises four main activities: fulfilment; transportation;
stock management; and warehousing. Brewer and Speh (2000) argue that it is more apt to
say that SCM seeks to accomplish four main goals—that is, waste reduction, time compression,
flexible response, and unit cost reduction. These are explained in Table 14.4.
By achieving these four goals, the organization can improve the efficiency of its supply
chain and, as a result, end users will experience improved levels of channel performance.
Figure 14.6 shows these activities and goals brought together to promote superior supply
chain performance.
Table 14.4 Supply chain management goals
Goal Explanation
Waste reduction By reducing the level of duplicated and excess stock in the chain, it becomes
possible to harmonize operations between organizations to achieve new levels
of uniformity and standardization.
Time compression Reducing the order-to-delivery cycle time improves efficiency and customer
service outputs. A faster cycle indicates a smoother and more efficient operation
and associated processes. Faster times mean less stock, faster cash flow, and
higher levels of service output.
Flexible response By managing the order-processing elements (size, time, configuration,

handling), specific customer requirements can be met without causing them
inconvenience and contributes to efficiency and service delivery.
Unit cost reduction By understanding the level of service output that is required by the end-user
customers, it becomes possible to minimize the costs involved in delivering to
that required standard.
Source: Fill and McKee (2012); adapted from Brewer and Speh (2000).
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Supply chain management activities
Stock
Fulfilment Transportation Warehousing
management
Integrated and efficient supply chain
Time Flexible Unit cost

Waste reduction
compression response redution
Supply chain goals
Figure 14.6
Developing high-performance supply chains
Management of ASDA Walmart’s supply chain is based on computerized scanning to inform

suppliers very quickly of which products need delivery and in what quantities. More recent
developments in electronic technologies, such as radio frequency identification (RFID) tags,
are improving the efficiency and effectiveness with which supply chain activities are managed.
Increasingly, supply chain efforts are also aiming to create more sustainable flows, for exam-
ple by seeking to build circular supply chains that enable the reuse and recycling of materials
(Genovese et al., 2017). For more about this, see Market Insight 14.3.
Market Insight 14.3

Fashioning a Circular Supply Chain
Filippa K. is a medium-sized Swedish fashion brand,

known for its minimalist and timeless designs that last
for many years. Recently, Filippa K. has led the way in
creating a more sustainable fashion industry.
One avenue through which it aims to promote

sustainability is by redesigning a formerly linear supply
chain to accommodate circular material flows.
Linear systems emerged from fast-fashioning the

industry, leading fashion brands to use cheaper, lower-
quality raw materials in their production. The materials
are typically used for the first time (virgin materials), are
mixed materials (which therefore cannot be recycled), Would Filippa K’s sustainability credentials
and are of a lower quality (making them unfit for tempt you in-store?
second-life use). The best-case scenario is that these Source: © Iain Masterton/Alamy Stock Photo.
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Market Insight 14.3

continued
types of material can be recycled to become lower- ■ Reuse involves making part of the collection
purpose products (known as down-cycling), such as available for lease and supports a Stockholm-based
plastic pellets or fillings in car seats, but typically they second-hand store.
get disposed in landfills at the end of their lifetime.
■ Recycle targets the collection of worn-out Filippa K.
Circular material flows, however, aim at reusing materials. clothes by rewarding customers with a 15 per cent
This requires, for instance, reducing the use of virgin raw discount on future purchases.
materials, increasing the use of recycled materials, and
Filippa K. has identified the composition of material as
the production of mono-material products that make
key to achieving circularity. To ensure circular material
recycling and upcycling efficient and affordable, as well
flows, Filippa K is committed to long-term supply chain
as designing products for easy repair and establishing
partnerships, some of which have been under contract
systems that allow the product to have a second life.
since the early 1990s. Recently, the company has
Filippa K. is devoted to transforming its material started a comprehensive transparency initiative, which
flows to fit a circular economy business model. It has is crucial for controlling more circular material flows.
consequently launched the project ‘4Rs’: Unfortunately, however, Filippa K. experiences difficulties
■ Reduce aims at minimizing waste in the design in convincing its suppliers to be part of the transparency
stage of the clothes. initiative, because its small size gives the company little
purchasing power in relation to large fabric suppliers.
■ Repair encourages the consumer to mend their
clothes either themselves or by returning them to Sources: Svensson (2007); Filippa K. (2017); Genovese et al.
Filippa K. for mending. (2017).
Supply chain management is concerned with the in the supply chain, new approaches can be found.
value creation processes associated with physical Still, most companies are embedded in linear supply
distribution of goods. With the increasing scarcity chain systems, which are difficult and expensive to
of resources, companies have started to employ transform. Lack of suitable business partners who can
more circular supply chain designs that will close offer circular supply chains is one of several reasons
the loop between production and consumption. By why the shift from linear to circular is not always easy.
moving discussions of waste reduction upstream
Related Topics
Cost control is a core SCM activity, given that about 15 per cent of an average product’s price
supply
is chain; recycling;
accounted for in circular
shippingbusiness
andmodels; sustainability
transport costs alone. IKEA can sell its furniture 20 per cent
cheaper than competitors because it buys it ready for assembly, thereby saving on transport
and
1 inventory
Given that most costs.
currentThe Benetton
supply distribution centre
chain partners 3 VisitinFilippa
Italy isK.’s
runwebsite.
largely byHowrobots, delivering
well are
numerous goods to 120 countries within 12 days. Benetton also uses just-in-time (JIT) chains
are part of a linear system, how can Filippa K. different aspects of its circular supply
keep its long-term business relationship strategy, conveyed?
but still achieve a more circular supply chain?
This market insight was kindly contributed by Tina
Sendlhofer, PhD candidate at the Stockholm School of
2 In your opinion, what aspects in achieving Economics, Sweden.
circularity seem the most important: design,
production, or consumption?
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Cost control is a core SCM activity given that about 15 per cent of an average product’s price
is accounted for in shipping and transport costs alone. IKEA can sell its furniture 20% cheaper
than competitors as it buys it ready for assembly, thereby saving on transport and inventory costs.
The Benetton distribution centre in Italy is run largely by robots, delivering numerous goods to
120 countries within 12 days. Benetton also uses just-in-time (JIT) manufacturing, with some gar-
ments manufactured in neutral colours and then dyed to order, with very fast turnaround to suit
customer requirements. However, beyond lowering costs, many organizations are increasing their
focus on managing activities, in order to improve customer service, meet the explosion in product
variety, and harness the improvements in information and communication technologies (ICT).
Fulfilment
Fulfilment, or materials handling, is about locating and picking stock, and packing and securing
it, before shipping the selected items or bundle to the next channel member. The increasing use
of specialist software, IT, and equipment helps to manage a range of fulfilment activities. Intra-
warehouse stock movement needs to be minimized, while inter-warehouse movement is optimized
(Fill and McKee, 2012). Automated emails are sent out to customers following an online purchase
of, for example, music from iTunes, a book from Amazon, or a train ticket. Accuracy and speed
of billing and invoicing customers is also vitally important—especially for customer relationships.
In the retailing sector, order-processing technologies provide quick-response programmes to
help to manage a retailer’s replenishment of stock from suppliers. Kmart uses this kind of system,
with EDI/extranets to transmit daily records of sales to suppliers, who analyse the information, create
an order, and send it back to Kmart. Once in Kmart’s system, the order is treated as though Kmart
created it itself. Many technologies also speed up the billing cycle. For example, General Electric
operates a computer-based system that, on receipt of a customer order, checks the customer’s
credit rating, as well as whether and where the items are in stock. The computer then issues an
order to ship, bills the customer, updates the inventory records, sends a production order for new
stock, and sends a message back to the salesperson that the customer’s order is on the way—all
in less than 15 seconds. The hospitality industry also uses order-processing technology to improve
service delivery efficiency. Fast-food outlets such as McDonald’s and KFC have long recorded food
orders through telecommunications systems, transmitting them to food preparation areas, with
orders fulfilled within a matter of minutes, improving customer satisfaction in service delivery.
Transportation and Delivery

Transportation is considered to be the most important activity within SCM. Transportation involves the
physical movement of products using, for example, road, rail, air, pipeline, and shipping. Sometimes,
transportation is simply seen as a way of supplying tangible goods, but it can also be as relevant
to many service organizations and to the delivery of electronic (or digital) products. Consultants, IT
companies, and health organizations have to move staff around, incurring transport and accom-
modation costs. Management of transport usually involves making decisions between one or more
transportation methods and ensuring vehicle capacity. Transportation methods also include elec-
tronic delivery modes such as electronic vending machines, the telephone, the Internet, or EDI.
Physical Delivery
Information and communication technologies have improved physical product delivery. For
example, where freight moves, the size of typical shipments and the time periods within which
goods must be delivered have changed, with significant economic benefits to all transportation
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activities. Systems for transportation now include in-vehicle navigation and route guidance solu-
tions to help to manage transport fleets, track shipments, and optimize transportation, and
businesses are experimenting with autonomous vehicles and drone deliveries (WEF, 2018).
Amazon’s tracking system assigns a tracking number and, using proprietary software, provides
information to customers in real time about where the package or shipment is located, improving
customer experience.
Electronic Delivery
As early as the introduction of the television, radio, or even the telephone, electronic technolo-
gies have been used to deliver products. Because of product digitization, producers of music,
games, video, or software are typically unconstrained by the needs of physical distribution, and
this has increased with the development of the Internet. Organizations such as travel agents,
banks, and insurance companies, which have traditionally relied on customers coming to a
branch or agency, have quickly moved to using automated teller machines (ATMs), mobile tele-
communications, and the Internet to reach more customers. The Internet has clearly added to
the capacity of these electronic distribution channels, so that huge numbers of customers now
bank, trade stocks, and arrange insurance and travel through electronic channels—particularly
mobile phones.
Stock Management
Stock or inventory management involves trying to balance responsiveness to customer needs
with the resources required to store stock. The management of both finished and unfinished
goods can be critical to many organizations. For example, a balance needs to be achieved
between the number of finished goods to be available when customers need it (known as spec-
ulation) against a store of unfinished goods that can be assembled at a later date or when the
stock of finished goods runs low (known as postponement).
Carrying too little stock might jeopardize customer service levels, whilst carrying too much
can be expensive and adds to working capital. Imagine the cost of storing all the books
Amazon has listed for sale, or all the fashion items in the spring ready for summer demand.
With JIT systems, producers and retailers carry only small inventories of merchandise—often
only enough for a few days’ operations. New stock arrives exactly when it is needed, rather
than being stored. ASDA Walmart and even Burger King use these systems to track sales
to service their outlets worldwide, automatically replenishing their ingredients according to
product sales.
Zero-inventory, or JIT, production is ideal for many organizations, because it minimizes the
use of resources that are often tied up in stock that doesn’t sell. This must be balanced against
the risk of not having the products available when customers want them.
Warehousing and Materials Handling

Supply chains involved with the exchange of goods usually require storage facilities for the
periods between production, transportation, and purchase/consumption. For example, books,
dry goods such as sugar and canned goods, and even clothing require some level of storage
between the time they leave the producer or manufacturer and that at which they are required
to be delivered to end users.
Decisions involving the location, size, design, and operating systems used in warehouses
are important because they can impact on the performance of others in the supply chain.
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Producers using distributors will require a relatively small number of warehouses, as the dis-
tributors take ownership and physical possession of stock. A higher number of warehouses
are required in channels in which agents and manufacturers’ representatives are preferred,
because these intermediaries do not take ownership or physical possession. Organizations
must decide on how many and what type of ‘warehouses’ it needs, as well as where they
should be located. The type of warehouse is dependent on the type of product—that is, tan-
gible, digital, or perishable.
Visit the online resources and use the web link to read about how a major retailer has had to
redesign and update its warehousing to cope with online sales.
Warehousing Tangible Goods

For the storage of tangible goods, such as FMCGs, an organization can use either storage
warehouses or distribution centres. Storage warehouses store goods for moderate to long
periods (that is, they have long shelf lives), whereas distribution centres are designed to move
goods, rather than only to store them. For products that are highly perishable with a short shelf
life, such as fruit and vegetables, distribution centres are more appropriate. Grocery chains such
as Woolworths in Australia and Tesco in the UK use large cold-store distribution centres to move
perishable items such as fruit and vegetables to their various retail outlets. Storage centres are
more appropriate for products with long shelf lives or which might require stockpiling to meet
seasonal demands.
Warehousing Digital ‘Products’

Electronic warehousing systems, or database systems, are increasingly being used for the stor-
age of products (or product components) that can be digitized. These systems can be searched
or browsed electronically, providing the user with immediate electronic delivery options. For
example, emerald-library.com, ABI-Inform, and ScienceDirect are electronic databases acces-
sible through the web that store a vast array of documents electronically to facilitate customers’
search for information. In addition, many organizations use data warehousing facilities whereby
product information, or even actual products, are stored in digital form awaiting distribution. For
example, Amazon Kindle allows books to be downloaded and read immediately rather than hav-
ing physical books shipped to the reader.
Retailing
Retailing encompasses all the activities directly related to the sale of products and services to
consumers for personal use. Retailers differ from wholesalers, who distribute the product to
businesses, not consumers. Whether they are large retailers, such as Lotte (South Korea), Extra
(Brazil), or Carrefour (France), or one of the thousands of small owner-run retailers in India, all
retailers provide a downstream link between producers and end users.
Retailers help to reduce the uncertainty experienced by other intermediaries in the channel,
such as wholesalers and manufacturers. They do so by taking small quantities of stock on a
regular basis, promoting cash flows, and providing demand for their products and services.
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Retailers provide consumers with access to products. As such, it is very important to find
out what consumers actually want from a retailer if they are to deliver value. Convenience and
time utility is the primary concern for most consumers, with people increasingly being ‘leisure
time poor’ and keen to trade shopping time for more leisure time (Seiders, Berry, and Gresham,
2000). Consequently, convenience drives most innovations in retailing, for example the develop-
ment of supermarkets, department stores, shopping malls, the web, and self-scanning kiosks.
As noted by Seiders and colleagues (2000), from a customer’s perspective, convenience means
speed and ease in acquiring a product, and it consists of four key elements:
■ access—that is, being easy to reach;
■ search—that is, enabling customers to easily identify what they want;
■ possession—that is, being easily obtained; and
■ transaction—that is, ease of purchase and return of products.
These elements are outlined in more detail in Table 14.5.
Table 14.5 Retailing convenience: a customer’s perspective
Element Description
Access ■ The speed and ease with which consumers can reach or engage with a retailer
convenience ■ Influenced by factors such as location, availability, hours of operation, parking,
proximity to other outlets, as well as telephone, mail, and Internet
■ Convenience does not exist without access
Search ■ The speed and ease with which consumers identify and select products they wish
convenience to buy
■ Influenced by factors such as product focus, intelligent outlet design and layout
(servicescape), knowledgeable staff, interactive systems, product displays,
packaging and signage, etc.
■ Convenience in search means efficiently moving through the shopping experience
Possession ■ The speed and ease with which consumers can obtain desired products
convenience ■ Influenced by having merchandise in stock and available on a timely basis
■ Obtaining the product is the final objective when shopping, which makes
possession convenience critical. The Internet scores highly for search convenience,
yet is generally low in terms of possession convenience
Transaction ■ The speed and ease with which consumers can effect and amend transactions
convenience before and after the purchase
■ Influenced by factors before and after the actual purchase, such as trying on,
waiting lines, and returns. Well-designed service systems can mitigate the peaks
and troughs in store traffic as with the use of in-store traffic counters
■ Transaction convenience is a significant issue on the Internet, with pure Internet
retailers having problems with returns and customers not prepared to pay for
shipping and handling costs
Source: © 2000 from MIT Sloan Management Review/Massachusetts Institute of Technology. All rights reserved. Distributed by
Tribune Content Agency.
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Types of Retailer
There are numerous types of retailer. These can be classified according to the marketing strategy
employed (that is, product, price, and service) and the store presence (that is, store or non-store
retailing).
Marketing Strategy
Major types of retailer can be classified according to the marketing strategies employed, paying
particular attention to three specific elements: product assortment; price level; and customer
service. Table 14.6, although not exhaustive, provides a useful summary of these elements
across the differing types of retailing channel.
Table 14.6 Marketing strategy and retail store classification
Type of retail Product Pricing Customer Example

store assortment service
Department Very broad and Minimize price Wide array and David Jones;
deep, with layout competition good quality Debenhams; Harrods
and presentation of
products critical
Discount Broad and shallow Low price Few customer Poundstretcher;,

positioning service options Dollar Dazzlers;
Poundland
Convenience Narrow and shallow High prices Avoid price Co-op; 7-Eleven
competition
Limited line Narrow and deep Traditional— Vary by type Bicycle stores; sports
avoids price stores
competition
New kinds—low
prices
Speciality Very narrow and deep Avoids price Standard; Running shops;
competition extensive in some bridal boutiques
Category killer Narrow and very Low prices Few to moderate Officeworks; IKEA
deep
Supermarket Broad and deep Some are low Few and self- Tesco plc (UK);
price; others service Woolworths Ltd
avoid price (Australia); Carrefour
disadvantages (Europe)
Superstores Very broad and very Low prices Few and self- Tesco Extra; Walmart
deep service
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The types of retailing establishment can be distinguished as follows:
■ Department stores—These are large-scale retailing organizations that offer a very broad and
deep assortment of products (both hard and soft goods) and provide a wide array of cus-
tomer service facilities for store customers. For example, Debenhams has a wide array of
products, including home furnishings, foods, cosmetics, clothing, books, and furniture, and
also provides variety within each category (including brand, feature variety). Debenhams, like
many department stores, provides a wide array of customer service facilities to rationalize
higher prices and minimize price competition. Value-added services include wedding regis-
tries, clothing alterations, shoe repairs, lay-by facilities, home delivery, and installation.
■ Discount retailers—This type of retailer is positioned based on low prices combined with the
reduced costs of doing business. The key characteristics here involve a broad, but shallow,
assortment of products, low prices, and very few customer services. For example, Matalan
in the UK, Kmart in Australia, and Target in the United States all carry a broad array of soft
goods, such as apparel, combined with hard goods, such as appliances and home furnish-
ings. To keep prices down, the retailers negotiate extensively with suppliers to ensure low
merchandise costs.
■ Limited line retailers—This type of retailer has a narrow, but deep, product assortment and
customer services vary from store to store. Clothing retailers, butchers, baked goods, and
furniture stores that specialize in a small number of related product categories are all exam-
ples. The breadth of product variety differs across limited line stores, and a store may choose
to concentrate on several related product lines (for example shoes and clothing accessories),
a single product line (for example shoes), or a specific part of one product line (for example
sports shoes). Examples include bookstores, jewellers, athletic footwear stores, dress shops,
newsagents, etc.
■ Category killer stores—As the name suggests, these retailers are designed to kill off the
competition and are characterized by a narrow, but very deep, assortment of products, low
prices, and few-to-moderate customer services. Successful examples include IKEA in home
furnishings, Office Works in office supplies, and B&Q in hardware.
■ Supermarkets—Founded in the 1930s, these are large self-service retailing environments
offering a wide variety of differing merchandise to a large consumer base. Tesco Extra in the
UK stocks products ranging from clothing, hardware, music, groceries, and dairy products
to soft furnishings. Operating largely on a self-service basis, with minimum customer service
and centralized register and transactional terminals, supermarkets provide the benefits of a
wide product assortment in a single location, offering convenience and variety. Today, super-
markets are the dominant institution for food retailing.
■ Convenience stores, or corner shops—These offer a range of grocery and household items
that cater for convenience and the last-minute purchase needs of consumers. Key characteris-
tics include long opening times (for example 24 hours a day, seven days a week, or 24/7), being
family-run, and belonging to a trading group. Examples include 7-Eleven, Spar, and the Co-op.
Store Presence
We can further categorize retailers according to their presence—either store or non-store retail-
ing. Most retailing occurs through fixed stores, with existing operators having ‘sunk’ investment
into a physical building and equipment. The physical location of a store is seen as a source of
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competitive advantage, providing crucial entry barriers to competitors. Several characteristics

make store retailing unique from the customer viewpoint. The retail environment provides the
sensation of touch, feel, and smell, which is very important for many product categories, such as
clothing, books, and perfumes (see Market Insight 14.4). Furthermore, customers can interact
and seek advice with in-store staff. Once a product is selected and a purchase made, customers
can walk out of the store with the merchandise in hand.
Market Insight 14.4

Enhancing Channel Experiences
The rise of digital and mobile marketing and the to stimulate the senses, and it achieves this by mixing
growth of online shopping has put pressure on retailers interactive attractions and entertainment.
to reconsider and improve their in-store customer
experience. One of the approaches has been to involve US clothing and footwear brand Vans opened ‘The
music in retail environments, which has been found to House of Vans’ in the tunnels under Waterloo Station.
encourage customers to stay longer and spend a little It offered London’s only permanent indoor skate park,
more than when there is no music. Sales can also be as well as an art gallery, live music venue, and cinema,
improved by matching the music with the products with events and exhibitions that are changed regularly.
being sold. This is referred to as directional audio. For The informality of the environment enables brand
example, research has shown that sales of French wine relationships to develop through soft interaction.
increase when French music is played and, likewise,
sales of German wine increased when German music
was played. In a similar study in Sweden, shoppers
bought 10 per cent more organic products when they
could hear the sound of farm animals, with a narrator
talking about the various benefits of organic products.
Changes in the luxury retail market have forced

retailers to adapt and enhance the in-store experience.
Many luxury consumers have been found to be less
interested in accumulating possessions and much
more interested in the buying (shopping) experience.
One of these involves the use of in-store sales
associates to assist luxury customers in their purchase The House of Vans is based in the tunnels
decisions. Whilst the use of personal shoppers in luxury under Waterloo Station and is London’s only
stores is well established, stores such as Bebe, Zara, permanent indoor skate park
Source: Courtesy of House of Vans London.
and Anthropologie now offer personal styling services
in-store.
Car manufacturer Audi has developed ‘Audi City
The role of play within retail stores is becoming an in London’. This environment encourages visitors
important feature in the drive to create meaningful to explore and configure their ideal car using
experiences. Hamleys launched its largest European touchscreens and multisensory displays. ‘The Lexus
store in Moscow with a central design feature to Intersect’ space focuses on the whole Lexus lifestyle,
provide opportunities for customers of all ages to play. not only cars. By focusing on a range of topics, from
Nine different zones, which include an enchanted forest food to fashion, Lexus has positioned itself as a cultural
to explore, a motor city with a go-kart track, and a hub more than a showroom.
safari section, make the store feel more like a theme
park than a pure retail outlet. Each zone is designed Sources: Anon. (2014); Regan (2015); Sorin (2015).
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Market Insight 14.4

continued
What is evident in these retail examples of customer A further issue concerns customer perceived value. A
experience is the search for a position that helps a one-off visit may provide a memorable experience, but
retailer to differentiate its brand in such a way that it how many visits before the thrill wears off and the value
can provide competitive advantage. What may be an is negated? How much time can consumers afford to
issue, however, is whether these types of experience spend experiencing a brand in these ways, and if the
provide an advantage that is sustainable: competitors answer is ‘not very much’, then what is the long-term
can easily replicate providing touchscreens and value of providing these experiences? Will customers
multisensory displays and hence what was once a revert to an online store? (More ideas about experience
memorable experience may become an expectation of marketing are considered in Chapter 16.)
all such experiences.
Related Topics
purchase decision-making; information processing; branding
1 How might a fashion retailer provide a 3 Go to the websites of a department store

memorable in-store experience? (such as John Lewis) and a supermarket.
How do they compare? Are there any retailing
2 Identify those types of retailer that may be more
similarities?
dependent than others on the value-added
activities of the marketing channel.
In contrast, retailing can also involve non-store retailers. These are retail transactions that
occur away from a fixed store location. Examples include automatic vending machines, direct
selling, and, most notably, online retailing. Direct selling is one of the oldest retailing methods, and
is the personal contact between a salesperson and a consumer at a location away from a retail-
ing environment. These activities include door-to-door canvassing and party plans, where sales
presentations are made within a home to a party of guests. Examples include cosmetics com-
panies such as Avon, Nutri-Metics skincare, and Amway household products. Telemarketing
or telesales is another form of non-store retailing whereby purchase occurs over the telephone.
Another form of non-store retailing is the electronic kiosk. These are placed in shopping
centres (or malls) to assist the retailing experience. These computer-based retailing environ-
ments offer increased self-service opportunities, a wide array of products, and a large amount
of data and information to help the customer to make a decision. Automatic vending machines
provide product access 24/7. Products distributed through vending machines are normally con-
venient and typically low priced, and include cigarettes, soft drinks, hot beverages, condoms,
newspapers, and magazines. We also see the wide adoption of ATMs to facilitate the delivery of
financial retailing services.
562 1 > Principles
Part 4 Marketing of
Fundamentals
Customer Management
Mallapragada, G., Chandukala, S.R., and Liu, Q. (2016). Exploring the effects of ‘what’
(product) and ‘where’ (website) characteristics on online shopping behavior. Journal
of Marketing, 80(2), 21–38.
In this article, the authors explore online shopping behaviour by investigating the impact of various
characteristics on the basket value of an online transaction, after incorporating the role of other aspects of the
browsing process, including page views and visit duration. Their results indicate various product and website
strategies for online retailers.
Another form of non-store retailing is the online store. The key consumer categories on the
Internet are travel, clothes, groceries, and consumer electronics. Mallapragada, Chandukala, and
Liu (2016) point out that online retailers have a strategic interest in the basket value of an online
shopping transaction. This is because the delivery costs associated with an online purchase can
amount to 50 per cent of a firm’s operating costs and so impact directly on their profits. This is
unlike traditional stores, who are mostly interested in total sales. Thus these researchers suggest
that online shopping can be considered as a two-stage process. The first is a browsing stage,
which requires consumers to spend time visiting several web pages (page views) and which
may lead to a purchase decision; the second stage, purchase, involves the completion of the
financial transaction. However, these two stages mask several complexities, involving what it is
that is being purchased, the product or service, and where it is being purchased—namely, the
website. Online stores are thus interested in ensuring that browsing is converted into sales (that
is, the conversion rate), as well as driving the basket size for each transaction. (To learn more
about online retailing, see Research Insight 14.3.)
The shopping behaviour of contemporary consumers, however, tends to reflect a mix of
online and offline channels (Voorveld et al., 2016). This is reflected in the practice of ‘showroom-
ing’, whereby consumers use their smartphones in-store to compare prices, get the opinions of
family and friends through social media, and then negotiate the purchasing process (MacKenzie,
Meyer, and Noble, 2013), as well as the practice of ‘webrooming’, which occurs when consum-
ers research products online, but then complete their purchase in a bricks-and-mortar store
(Adler, 2014). From a retailer’s perspective, understanding and managing consumer movements
between channels is thus increasingly important (Rosengren et al., 2017). Market Insight 14.5
offers an illustration of the way in which smartphone apps can be used by retailers to facilitate
such movements.
Visit the online resources and complete Internet Activity 14.2 to learn more about the variety
of Internet retailing sites and the importance of delivery information for the music sector.
14 > Channels,
andRetailing
Society 563
563
Market Insight 14.5

Retail App-reciation
As shopper behaviour is coming increasingly digital, its users to have their location setting on to unlock
retailers are making efforts to bring digital elements deals, which was not the standard on all phones at the
in-store. Many of these efforts centre on the smartphone time, causing many to miss out on deals. Despite this,
and apps. Mobile apps offer many benefits for the retailer. the McDonald’s app quickly became one of the most
They can provide data on which customer is shopping downloaded food and drinks apps in the United States.
where and when. They also enable tailored offers and
Others retailers face the reverse problem. ICA AB, the
inspiration to be sent to the customer both inside and
largest grocery retailer chain in the Nordic Countries, has
outside the physical store. However, getting shoppers
consistently received relatively high ratings of its app ever
interested in apps has proved to be quite a challenge, in
since the launch in 2012. The app contains sophisticated
terms of both the value offered to shoppers through apps
personalized offers tied to its loyalty programme, recipes,
and getting shoppers to actually download and use them.
shopping lists, and maps of the stores to find specific
As an example, when restaurant chain McDonald’s products. All app content is synchronized with weekly
launched its mobile app in 2015, it quickly received flyers, the shopper’s personal account on the retailer
low ratings among customers in terms of the value it website, and in-store stand-alone coupon terminals—a
added. In fact, the app took the bottom place among all truly seamless experience. However, despite all these
major restaurant chains’ apps in terms of ratings. While functions, less than 1 per cent of shoppers are actively
apps from competitors such as Starbucks and Chipotle using the app while they are in the store, even though a
offered payment solutions, loyalty programmes, large fraction of shoppers used their smartphone for other
rewards, and more, the McDonald’s app was limited activities, such as social media. In ICA’s case, the problem
to nutrition information, coupons, and a coffee loyalty is to get customers to try the app in the first place.
programme. Additionally, the McDonald’s app required Sources: Ericsson (2017); Grewal et al. (2017).
Whereas retailers have traditionally been categorized apps provide a way of linking online and digital offers,
in terms of their physical store presence (as illustrated and there are many ways in which they might have a
by the use of store versus non-store as a way of positive impact on instore experiences. Still, in spite
describing retail), digitalization is moving retail offers of apps having been around for quite some time, the
into what is typically called omni-channel retailing. As advantages of apps to retailers seems to be clearer
illustrated in this market insight, smartphones and than the advantages of apps to shoppers.
Related Topics
customer behaviour; digital marketing; relationship marketing; big data; services
1 Look in your own smartphone. What retailer 3 What is a good metric for a successful retailer
apps have you downloaded (if any)? Consider app (for example number of downloads, number
why you downloaded them and what types of of active users, user ratings/satisfaction)? Might
customer value they offer for you. different metrics be beneficial for different
2 What do you think is the biggest barrier to strategic purposes?
getting customers to try a retailer app? Does it This market insight was kindly contributed by Carl-Philip Ahlbom,
differ between customer segments? PhD candidate at the Stockholm School of Economics, Sweden.
564 Part 4 > Principles of Customer Management
Chapter Summary
■ Describe the nature and characteristics of a marketing channel.

Marketing channels are chains of organizations that are concerned with the management of the processes
and activities involved in creating and moving particular offerings from producers and manufacturers
to end users (customers). Marketing channels enable different types of uncertainty to be lowered by
reducing complexity, increasing value and competitive advantage, offering routinization, and/or providing
specialization.
■ Explain the different types of intermediary and their roles in the marketing channel.
An intermediary is an independent organization that operates as a link between producers and consumers
or industrial users. There are several different types of intermediary, including agents, merchants,
distributors, franchises, wholesalers, and retailers. The main role of intermediaries is to reduce the
uncertainty experienced by producers and manufacturers, and to promote efficiency. The key difference
between the various intermediaries is that not all of them take legal title or physical possession of a product.
■ Understand the different marketing channel structures and their core characteristics.
There are three main channel structures: direct, indirect, and multichannel. A direct channel structure
involves selling directly to end users; an indirect channel structure involves using intermediaries; a
multichannel structure involves both. At the simplest level, direct channels offer maximum control, but
do not always reach all of the target market. Indirect channels can maximize coverage, but often at the
expense of control. This is because intermediaries start adapting the marketing mix and demand a share
of the profits in return for their involvement. Multichannel strategies often result in greater channel conflict
because intermediaries perceive the manufacturer to be a competitor.
■ Explain the factors that influence the design and structure of marketing channels.
When establishing or adapting marketing channels, it is necessary to consider the type of market coverage
that is required, the number and type of intermediaries to use, and how the relationships between channel
members are to be managed. These choices are important because they can affect the value that is
ultimately provided to customers.
■ Describe the main elements that constitute supply chain management.

Supply chain management concerns the various suppliers involved in providing raw materials (upstream),
those that assemble and manufacture products, and those that distribute finished products to end
users (downstream). It embraces four main activities—fulfilment, transportation, stock management, and
warehousing—which also subsume other important activities, such as order processing and purchasing.
Although these are not traditionally marketing management decisions, it is important to understand that
they require a marketing focus and marketing insight.
■ Consider the role and function of retailers in the marketing channel.

Retailing concerns all activities directly related to the sale of goods and services to consumers for personal
and non-business use. Retailers provide consumers with access to products and help to reduce the
uncertainty experienced by other intermediaries in the channel, such as wholesalers and manufacturers.
This is achieved by taking small quantities of stock on a regular basis, promoting cash flows, and providing
demand for their products and services. The different types of retailing establishment can be classified
according to two key characteristics: the marketing strategy (that is, product, price, and service); and the
store presence (that is, store or non-store retailing).
Chapter 14 > Channels, Supply Chains, and Retailing 565
Review Questions
1 What do we mean by ‘marketing channel management’?
2 Why do organizations use intermediaries?
3 Why are economics, coverage, and control important when making marketing channel
decisions?
4 What are the key elements of a channel strategy?
5 What are the advantages and disadvantages of the three different channel structures?
6 What are the advantages of using an exclusive, rather than an intensive, marketing channel
strategy?
7 Why is supply chain management of increasing importance to marketers?
8 What are some of the reasons for channel conflict?
9 Identify six types of retailer.
10 What does the term ‘non-store retailing’ mean? Identify the main types.
1 Having read Case Insight 14.1, what do you see as the main challenges for Åhléns in developing its
online offer? How would you advise Åhléns to deal with them?
2 Discuss the importance of intermediaries. In your discussion, outline the benefits and limitations of
three types of intermediary.
3 Convenience has become a critical issue in marketing channel decisions. Assess the arguments for
and against focusing on convenience, from a customer’s perspective.
4 What sort of marketing channels do you believe might be most relevant in the following markets in the
year 2020? Identify the three most relevant for each of the product categories:
A Music and video
B Home entertainment software (for example video games)
C Business application software
D Engineering consulting advice (say, on mining or construction applications)
E Financial services
F Shampoo
G Personal services (for example hairdressing, beauty therapies)

Glossary
direct channel structure a distribution structure marketing channel (also known as a distribution
whereby the product moves directly from the channel) an organized network of agencies
producer to the end user. and organizations that together perform all
disintermediation a reduction in the number or the activities required to link producers and
strength of intermediaries that are required in a manufacturers with consumers, purchasers, and
marketing channel. users to distribute product offerings.
distribution centre a facility designed to move multichannel structure a distribution structure
goods, rather than to store them. whereby multiple sales channels provide a variety
electronic kiosk machine placed in a shopping of customer touchpoints.
centre (mall) to assist the retailing experience; ownership utility the extent to which goods are
mediated by hypermedia web-based interfaces, available immediately from the intermediaries’
these computer-based retailing environments stocks and hence ownership passes to the
offer consumers increased self-service purchaser.
opportunity, wide product assortment, and place utility the extent to which the location of an
large amounts of data and information aiding offering enables its more convenient purchase
decision-making. and consumption.
exclusive distribution a distribution agreement re-intermediation an increase in the number or
whereby intermediaries are given exclusive rights strength of intermediaries that are required in a
to market the good or service within a defined marketing channel.
‘territory’ and hence only a limited number of retailing (also known as the retail trade) the
intermediaries are used. activities directly related to the sale of goods and
fulfilment those activities associated with services to the end-consumer for personal and
locating and picking stock, packing, and non-business use.
shipping the selected items to the next selective distribution a distribution structure
channel member. whereby where some, but not all, available
grey marketing the unauthorized sale of new outlets for the good or service are used.
branded products diverted from authorized stock management the management of the
distribution channels or imported into a country balance between the anticipated number of
for sale without the consent or knowledge of the finished goods required by customers and a
manufacturer. sufficient store of unfinished goods that can be
horizontal conflict conflict that may arise assembled at a later date or when the stock of
between members of a channel on the same finished goods runs low.
level of distribution. storage warehouses facilities that store goods
indirect channel structure a distribution for moderate to long periods of time.
structure whereby the product goes from the supply chain the value chain formed when
producer through an intermediary, or a series organizations are linked in the supply and
of intermediaries such as a wholesaler, retailer, distribution of a product or service.
franchisee, agent, or broker, to the end user. telemarketing (also known as telesales) a form
information utility the extent to which information of non-store retailing whereby purchase occurs
about the product offering is provided before and over the telephone.
after sales, which can further provide information time utility the extent to which the
about those purchasing it. manufacture, purchase, and consumption of
intensive distribution a distribution structure a product or service might occur at differing
whereby a product or service is placed in points in time.
as many outlets or locations as possible to transportation the physical movement of
maximize the opportunity for customers to find products using, for example, road, rail, air,
and buy it. pipeline, and shipping.
Chapter 14 > Channels, Supply Chains, and Retailing 567
vertical conflict conflict that may arise between warehousing facilities used to store tangible
sequential members in a distribution network, goods for the periods between production,
such as producers, distributors, and retailers, transportation, and purchase/consumption.
over such matters as carrying a particular range
or price increases.
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Chapter 15
Services and Relationship
Marketing

Withers Worldwide
Market Insight 15.1
Explain the nature and characteristics of services
Contactless: Speedy and
Describe what is meant by the terms ‘service Efficient Service Encounters
processes’ and ‘service encounters’, and the
Market Insight 15.2
principles associated with measuring service quality
Alliances in the Sky
Outline the principles of relationship marketing,
and consider the merits of customer retention and Market Insight 15.3
Co-creating the Zoo
loyalty programmes
Experience
Understand the concepts of trust, commitment,
and customer satisfaction, and explain how they Market Insight 15.4
Mercadona: Loyalty without
are interlinked
the Card
Explain the term ‘customer experiences’, the
dimensions associated with it, how it has evolved, Market Insight 15.5
Doing Customer
and how it might be measured
Engagement: Experiences
Explain the term ‘customer engagement’ and the from Start-ups and Market
strategies marketers use to increase it Leaders
570 1 > Principles
Part 4 Marketing of
Fundamentals
Customer Management
Case Insight 15.1

Withers Worldwide
Founded in London in 1896, Withers Worldwide has global

revenues of over US$200 million, 163 partners, more than
1,000 employees, and clients in more than 80 countries,
and has acted for 42 per cent of the top 100 Sunday Times
Rich List and 20 per cent of the top 100 of the Forbes Rich
List. We speak to Laura Boyle, head of EU marketing and
business development, to explore how Withers works to
improve the quality of its client relationships.
Predicting the global nature of private capital, Withers set support, operating in different areas of specialism and at
out over a decade ago, from its origins as a London- differing levels of experience to deliver a comprehensive
based firm, to do something that law firms had not done service, priced in the best way for clients. Any
before: to develop a genuinely international offering for conversation with a prospective client first considers
global wealth. Choosing global centres of private wealth, what their needs are and then we calibrate the input of
the firm strives to ensure that we match our clients’ senior partner time required, together with the support
evolving needs. We are now the largest law firm focused needed from more junior lawyers and paralegals.
on the needs of private wealth in the world, with 18
We avoid potential issues around variance in service
offices across the United States, Europe, Asia Pacific,
quality through our marketing function, which incorporates
and the Caribbean. Until recently, other law firms focused
client relationship management (CRM) specialists. We
on this market have operated from a domestic base.
seek feedback from our clients, but also from those who
As a professional services organization, making sure refer work to us and who recommend us to their clients.
that our employees understand our strategy and brand Our learning and development team delivers a global
is paramount, because they liaise with our clients and employee training programme, ensuring that, as we grow
embody the customer experience. Keeping everyone and acquire new teams of lawyers, they are brought into
informed on developments has been challenging, given the Withers ‘way of working’. We also work hard to ensure
our rapid expansion. In addition to the usual internal that our collective and accumulated knowledge is shared
communications, such as newsletters, intranet, and across all offices by running a global precedent system.
leadership briefings, we have developed ‘Withers TV’—
The problem we had as an organization focused on
television screens placed in prominent places in our
the way in which we sought client feedback. We had
offices. They share daily news updates about clients
always focused on the trusted adviser, client–lawyer,
and our people, so that everyone is in the best position
relationship, which involved personal and tailored
to feel part of the Withers Worldwide brand and knows
requests for feedback. But while we had a good
how to talk about it externally. This supports more
idea of where we were doing well and where one-off
personal communications too—for example with
problems existed, we had no central view of how
annual general meeting (AGM) sessions for all staff. We
clients perceived our service quality.
run standardized inductions for new joiners and each
team is assigned a business development manager, The following question arose for Withers: how
who acts like a key account manager for them as should it develop a more comprehensive system
internal clients, connecting them to central strategy, the to evaluate the quality of how clients experienced
brand, and our best practice approach. its service offering?
The variability of our service offering worldwide is a Visit the online resources to watch a
real benefit to our clients; it is how we deliver tailored video interview with Laura Boyle in which
services. We need to have lawyers, with associated legal she explains what Withers did.
Chapter 15 > 1Services
Chapter and Relationship
> Marketing Marketing
571
Introduction
The service sector represents a very large component of many countries’ gross domestic prod-
uct (GDP) (see Chapter 4). It is also a major component of the exports of many countries, includ-
ing countries such as the United States, UK, China, India, Ireland, and the Netherlands, to name
a few of the largest (World Bank, 2017). But have you ever considered how marketing a service
might be different from marketing a product? Service businesses have specific characteristics
that differentiate them from manufactured products. The range of services on offer (to organiza-
tions and consumers) is enormous, and we consume services in nearly all areas of our work, busi-
ness, home, and leisure activities. In this chapter, we review what makes services so unique and
how marketers can manage them effectively. After discussing services marketing, our attention
turns to the evaluation of relationships in marketing. We study why companies wish to build long-
term relationships with their customers and the different strategies they employ. Both these two
areas—the study of services and the importance of marketing relationships—are consistent with
a fundamental switch in marketing towards a service-dominant logic (SDL) (see also Chapters
1 and 8). As will be seen in this chapter, current marketing theory and practice goes beyond the
management of individual transactions to focus on the development of engaging relationships
with customers and other stakeholders, aimed at creating value for all those involved.
The Unique Characteristics of Services

As discussed earlier, the services sector can be very diverse. Table 15.1 indicates the variety of
sectors and some of the areas in which we consume different types of service.
To begin with, however, it is necessary to define what a service is, so that we can determine
what binds the services offered in all the sectors listed in Table 15.1, so that we can use a com-
mon approach to marketing them. As with many topics, there is no firm agreement, but for our
purposes the following definition, derived from a number of authors, will be used:
A service is any act or performance offered by one party to another that is essentially intan-
gible. Consumption of the service does not result in any transfer of ownership even though
the service process may be attached to a physical product.
Much of this definition is derived from the work of Grönroos (1990), who considered a range
of definitions and interpretations. Most scholars agree that services are characterized by five
distinct characteristics, as depicted in Figure 15.1—that is, intangibility, perishability, vari-
ability, inseparability, and a lack of ownership. These are important aspects that shape the
way in which marketers design, deliver, and evaluate the marketing of services.
Intangibility
The purchase of products involves the use of most of our senses. We can touch, see, smell, hear,
or even taste products before we buy them, let alone use them. When purchasing a tablet or
smartphone, it is possible to see the physical product and its various attributes, such as size and
colour, to test the functionality, to feel the weight, and to touch it. These are important purchasing
decision cues, and even if the equipment fails to work properly, it is possible to take it back for
a replacement. However, if a decision is made to buy additional insurance or support, this will
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Intangibility
Lack of
ownership
Perishability
Variability
Inseparability
Figure 15.1
The five core characteristics of services
Table 15.1 Service sectors
Sector Examples
Business Financial; airlines; hotels; solicitors; lawyers
Manufacturing Finance and accountants; computer operators; administrators; trainers
Retail Sales personnel; cashiers; customer support advisers
Institutions Hospitals; education; museums; charities; churches
Government Legal system; prisons; military; customs and excise; police
be itemized on the receipt, but cannot be touched, tasted, seen, heard, or smelt. Services are
intangible, and they are delivered and experienced only post-purchase.
Intangibility does not mean that customers buy services without using their senses; rather,
it means that they use substitute cues to help them to make these purchasing decisions and
to reduce the uncertainty because they cannot touch, see, smell, or hear the service. People
make judgements based on a range of quality-related cues. These cues serve to make the
intangible service tangible. Two types of cue can be identified: intrinsic and extrinsic (Olson and
Jacoby, 1972):
■ Intrinsic cues are drawn directly from the ‘service product’ itself and are regarded as difficult
to change.
■ Extrinsic cues are said to surround the ‘service product’ and can be changed relatively easily.
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Brady, Bourdeau, and Heskel (2005) found that different types of service brand need different
types of cue. Financial and investment-based brands prosper from the use of intrinsic cues,
which stress objective information sources, such as a strong reputation, industry rankings, and
favourable media reviews. The reverse is true of services that have a more tangible element,
such as hotels and transport services. In these circumstances, more subjective communication,
such as advertising and referrals through word of mouth, is more influential.
Perishability
A bottle of shampoo on a supermarket shelf benefits from a number of opportunities to be
sold and consumed. When the store closes and opens again the following day, the bottle is
still available to be sold and it remains available until it is purchased or until it reaches its expiry
date. This is not the case with services. Once a train pulls out of a station, or an aeroplane
takes off, or a film starts, those seats are lost and can never be sold. This is referred to as
perishability and is an important aspect of services marketing. Services are manufactured
and consumed simultaneously; they cannot be stored either prior to or after the service
encounter.
The reason why these seats remain empty reflects variations in demand. This may be a result
of changes in the wider environment and may follow easily predictable patterns of behaviour, for
example family holiday travel. One of the tasks of service marketers is to ensure that the number
of empty seats and lost-forever revenue is minimized. In cases of predictable demand, service
managers can vary the level of service capacity—for example with a longer train, a bigger air-
craft, or extra screenings of a film (multiplex facilities). However, demand may vary unpredictably,
in which case service managers are challenged to provide varying levels of service capacity at
short notice.
One of the main ways in which demand patterns can be influenced is through differential pric-
ing (see Chapter 9). By lowering prices to attract custom during quieter times and raising prices
when demand is at its highest, demand can be levelled and marginal revenues increased. Hotel
and transport reservation systems have become very sophisticated, making it easier to manage
demand and improve efficiency, as well, of course, as customer service. Some football clubs
categorize matches according to the prestige or ranking of the opposition and adjust prices to fill
the stadium. In addition to differential pricing, extra services can be introduced to divert demand.
Hotels offer specialist breaks, such as golfing or fishing weekends, and mini-vacations, to attract
people outside the holiday season. Leisure parks offer family discounts and bundle free rides into
prices to stimulate demand.
Variability
As already noted, an important characteristic of services is that they are produced and con-
sumed by people, simultaneously, as a single event. It is therefore exceedingly difficult to stan-
dardize the delivery of services for even the same customer on consecutive occasions. It is also
difficult to deliver services so that they always meet the brand promise, especially because these
promises often serve to frame customer service expectations. If demand increases unexpect-
edly and there is insufficient capacity to deal with the excess number of customers, service
breakdown may occur. A flood of customers at a restaurant may extend the waiting times of
those customers already seated who have ordered their meals, or too many train passengers
may mean that there are not enough seats. In both these cases, it is not possible to provide a
service level that can be consistently reproduced.
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A different way of looking at variability is to consider a theatre. The show may be doing well
and the lead actors performing to critical acclaim. However, the actual performance that each
actor delivers each night will be slightly different. This change may be subtle, such as a change
in the tone of voice or an inflexion, and will pass by relatively unnoticed. At the other extreme,
some actors go out of their way to make their performances very different. It is alleged that actor
Jane Horrocks once remarked that, during her performance of a certain play, she deliberately
changed each evening’s show to relieve her boredom.
There has been substantial criticism of some organizations that, in an effort to lower costs,
have relocated some or all of their call centre operations offshore. These strategies sometimes
fail, because the new provider has insufficient training, insufficient local or product knowledge,
or in some cases simply cannot be understood. This type of service experience will vary among
customers and for each customer. The resulting fall in customer satisfaction can lead to increased
numbers of customers defecting to competitors.
The variability of services does not mean that planning is a worthless activity. By anticipating
situations in which service breakdown might occur, service managers can mitigate the potential
for harm. For example, entertainment can be provided for queues at cinemas or theme parks
to change the customers’ perception of the length of the time it takes to experience the service
(that is, the film or ride).
Inseparability
As established previously, products can be built, distributed, stored, and eventually consumed
at a time specified by the ultimate end user. Services, however, are consumed at the point at
which they are produced. In other words, service delivery cannot be separated or split out of
service provision or service consumption.
This event in which delivery coincides with consumption means not only that custom-
ers come into contact with the service providers, but also that there must be interac-
tion between the two parties. This interaction is of particular importance not only to the
quality of service production, but also to the experience enjoyed by the customer. So, to
extend the earlier theatre example, the play itself may provide suitable entertainment, but
the experience may be considerably enhanced if the lead—Jane Horrocks, Judi Dench, or
Scarlett Johansson—actually performs rather than has the night off because she is unwell.
Alternatively, private doctors may develop a strong reputation and, if there is an increase in
demand beyond manageable levels, pricing can be used to reduce or reschedule demand
for their services.
These service experiences highlight service delivery both as a mass service experience
(the play) and as a solo experience (the doctor). The differences between the two impact on
the nature of the interaction process. In the mass service experience, the other members of
the audience have the opportunity to influence a customer’s perceived quality of the experi-
ence. Audiences create atmosphere and this may be positively or negatively charged. A
good production can involve audiences in a play and keep them focused for the entire per-
formance; a poor performance can frustrate audiences, leading some members to walk out
and hence influence the perception that others have of the performance and their experience
of the play.
Interaction within the solo experience (doctor–patient) allows the service provider to exercise
greater control, if only because they can manage the immediate context within which the inter-
action occurs and not be unduly influenced by wider environmental issues. Opportunities exist
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for flexibility and adaptation as the service delivery unfolds. For example, a check-in operator
for an airline operates within a particular context, is not influenced by other major events during
the interaction, and can adapt tone of voice, body language, and overall approach to meet the
needs of particular travellers.
One final aspect of variability concerns the influence arising from the mixture of customers
present during the service delivery. If there is a broad mix of customers, service delivery may be
affected because the needs of different groups have to be attended to by the service provider.
Such a mixture may dilute the impact of the service actually delivered.
Lack of Ownership
The final characteristic associated with services marketing arises naturally from the other fea-
tures: services cannot be owned, because nothing is transferred during the interaction or deliv-
ery experience. Although a legal transaction often occurs with a service, there is no physical
transfer of ownership as there is when a product is purchased. The seat in a theatre, train,
plane, or ferry is rented on a temporary basis in exchange for a fee. The terms associated with
the rental of the seat determine the time and use or experience to which the seat can be put.
However, the seat remains the property of the theatre owner, rail operator, airline, and ferry
company, respectively, because it needs to be available for renting to other people for further
experiences.
One last point concerns loyalty schemes, such as frequent flyer programmes and member-
ship clubs, whereby the service provider actively promotes a sense of ownership. By creating
customer involvement and participation, even though there is nothing to actually own, customers
can develop an attitude based around their perceived right to be a part of the service provider.
Visit the online resources and follow the web link to the British Bankers Association (BBA) to
learn more about how it supports its financial services member organizations worldwide.
While the characteristics discussed above have proven useful to describe some key differences
between products and services, they are not always applicable (Moeller, 2010). For example, while
inseparability and perishability are typical features of many service experiences, thanks to digital
technologies it is now possible to widely distribute services that formerly needed to be created on
one specific occasion and in one specific location. It is therefore possible to teach a class via Skype
and to record such a performance, so that it can be used later. This means that a service (that is,
teaching) can be, at least in some cases, both separable and not perishable. Similarly, it is hard to
argue that all services are intangible. Imagine you are taking your car to a garage to repair a dent to
its exterior. Your primary judgement of the service will likely depend on whether the physical damage
has been repaired expertly such that you are now the newly proud owner of a dent-free car! Rather
than consider the five core characteristics of services (that is, intangibility, inseparability, variability,
perishability, and lack of ownership) as definite prescriptions for how to undertake services market-
ing, we should instead consider them as general guidelines that apply, alone or in combination, in
many situations. Their effective importance should, however, be considered critically in each case.
Service Processes
An important feature of services is that they are essentially processes. A process is a series of
sequential actions that leads to a predetermined outcome. So a simple process might be the
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steps necessary to visit a dentist, whereas a complex process might be the actions necessary
to manage passengers on a two-week luxury cruise. Importantly, customers are often involved in
these processes. Service marketing strategy should therefore be based on insight into the ways
in which customers interact or contact a service. The form and nature of the customer encounter
are of fundamental importance.
A service encounter is best understood as a period of time during which a customer interacts
directly with a service (Shostack, 1985). These interactions may be short and encompass all the
actions necessary to complete the service experience. Alternatively, they may be protracted,
involve several encounters, several representatives of the service provider, and indeed several
locations if the service experience is to be completed. Whatever their length, the quality of a
service encounter impacts on perceived service value, which, in turn, influences customer satis-
faction (Gil, Berenguer, and Cervera, 2008).
Originally, the term ‘encounter’ was used to describe the personal interaction between a
service provider and customers. A more contemporary interpretation needs to include all those
interactions that occur through people and their equipment and machines, with the people and
equipment belonging to the service provider (Glyn and Lehtinen, 1995), as set out in Market
Insight 15.1. As a result, three levels of customer contact can be observed, as follows:
■ In high-contact services, customers visit the service facility, so that they are personally in-
volved throughout the service delivery process, for example in retail branch banking and
higher education.
■ In medium-contact services, customers visit the service facility, but do not remain for the du-
ration of the service delivery, for example in consulting services, and delivering and collecting
items to be repaired.
■ Low-contact services require little or no personal contact, for example software repairs, and
television and radio entertainment.
If processes are an integral part of the operations performed by service organizations, in the
general sense, what are they processing? Lovelock, Vandermerwe, and Lewis (1999) present a
categorization into four different processes: people processing; possession processing; mental
stimulus processing; and information processing.
People Processing
In people processing, people have to physically present themselves so that they become
immersed within the service process. This involves spending varying amounts of time
actively cooperating with the service operation. So people taking a train have to physically
go to the station and get on a train, and then spend time getting to their destination. People
undergoing dentistry work will have made an appointment prior to attending the dentist’s
surgery, and they will sit in the chair, open their mouths, and cooperate with the dentist’s
various requests. They have physically become involved in the service process offered by
their dentist.
From a marketing perspective, consideration of the process and the outcomes arising from
participation in the service process can lead to ideas about what benefits are being created
and what non-financial costs are incurred as a result of the service operation. In the dentistry
example, a comfortable chair, background music, non-threatening or neutral-to-warm decor,
and a pleasant manner can be of help.
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Possession Processing
Just as people have to go to the service operation for people processing, so objects have to
become involved in possession processing. Possessions such as kitchen gadgets, gardens,
cars, and computers are liable to break down or need maintenance. Cleaning, storing, repairing,
couriering, installation, and removal services are other typical possession-processing activities.
In these situations, people will either take an item to the service provider or invite someone in
to undertake the necessary work. In possession processing, the level of customer involvement
Market Insight 15.1

Contactless: Speedy and Efficient Service Encounters
Whether it is Hong Kong, Auckland, Amsterdam, simply because fares are charged directly to their
or London, the huge numbers of people travelling payment card accounts. The system also calculates
by trains, buses, trams, ferries, and metro systems the lowest possible fare, ensuring that commuters are
introduce service problems not only in terms of seating charged at the weekly, rather than the daily, rate.
capacity and general comfort, but also in terms of the
time and queues associated with purchasing travel In Hong Kong, the Octopus card is based on a
tickets and enabling people to keep moving. At peak smartcard that also incorporates NFC technology. This
times, queuing for tickets can be frustrating and cause enables two devices to exchange data when they are
enormous delays. adjacent. Here, the ‘wave and pay’ card is used not
only for transport and ticketing services, but also for
Ticket offices provide people with an opportunity to a whole range of purchases, including supermarkets,
discuss their requirements on an interpersonal basis restaurants, gift shops, and even hospitals and cinemas.
with a member of staff. However, this is an expensive
and, at times, time-poor use of resources. There are The NFC chip technology can be embedded in a variety
many people who know what (ticket) they need and of products, such as watches, key chains, ornaments,
self-service ticket machines are a way of providing a and, of course, smartphones.
service for people who do not want or need a personal
Sources: Oates (2009); Laja (2012); Curtis (2014).
service encounter. An enormous number of people
make the same journey each day. In much the same
way, airlines use e-ticketing and on-airport self-check-in
solutions, such as electronic kiosks, and off-airport
self-check-in through kiosk, web, and mobile apps.
In London, travellers can wave a prepaid Oyster card

a few centimetres from a point-of-sale terminal on
entry and exit from the bus, Tube, tram, DLR, London
Overground, and National Rail services, and a price for
the journey is debited from the card. In 2014, Transport
for London (TfL) added the facility for contactless
card payments. Contactless payments work in the
same way as the Oyster card, allowing customers to Oyster cards are prepaid and use wireless
use their debit cards to pay an adult-rate fare for their technology, allowing customers of the London
transport network to get in and out of stations
journey. Used in this way, near-field communication
quickly
(NFC) technology spares travellers the time they would
Source: iStock.com/mikeinlondon.
otherwise spend topping up their Oyster balances,
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Market Insight 15.1

continued
One way of interpreting service encounters is through Related to this interpretation is script theory. This holds
uncertainty reduction theory. A service provider and that a script contains information about a role that is
user will interact to better understand each other and to be performed. Deviation from the script leads to
hence reduce the uncertainty that exists between disorientation.
the parties at the outset of their relationship. Through
communication, a reduction in uncertainty occurs that In the examples outlined in this market insight, the role
drives trust and transaction frequency. of the service provider is clear and the contactless
payment system serves to develop the roles so
Another interpretation involves role theory. This holds that service receivers are less likely to deviate from
that people are social actors whose behaviour, or their script. This, in turn, should encourage further
performance, has been learned relative to the different interaction and use of the service, with increasingly less
positions they occupy. uncertainty and disorientation.
Related Topics
service processes; service quality management; relationship marketing; customer experiences
1 How would you classify ‘wave and pay’ as a form 3 How might a symbol or logo that indicates that
of service encounter with transport systems? a card uses contactless technology assist in the
marketing of this service?
2 How might business-to-business (B2B)
marketers make use of ‘wave and pay’?
is limited compared with that in people processing. In most cases, the sequence of activities is
as follows:
1. For an object to be attended to, a telephone call is often required to fix an appointment.
2. The item then either needs to be taken to the service provider or the customer must wait for
an attendant to visit.
3. A brief explaining the problem/task/solution is given and the work is completed.
4. The customer then returns at an agreed time and location to pay and take away the re-
newed item.
This detachment from the service process enables people to focus on other tasks. The key dif-
ference here is that the quality of the service is not dependent on the presence of the owner or
representative of the possession while the service operation takes place.
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Mental Stimulus Processing

Mental stimulus processing tries to shape attitudes or behaviour. To achieve this, these ser-
vices have to be oriented to people’s minds and hence the phrase mental stimulus processing.
Examples of these types of service include education, entertainment, professional advice, and
news. In all of these, people have to become involved mentally in the service interaction and give
their time if they are to experience the benefits of this type of service.
Service delivery can be through one of two locations. Services can be created in a location that is
distant from the receiver, in which case media channels are used to deliver the service; alternatively,
services can be delivered and consumed at the point at which they originate—that is, in a studio,
theatre, or hall. One of the key differences here is the form and nature of the audience experience:
the theatre experience is likely to be much richer than the distant format. Digital technology has
enabled opportunities for increased amounts of interactive communication, even though the experi-
ence will be different from the original. In the same way, online or e-learning in its purest form has not
yet become an established format, perhaps because learners need to spend some of their learning
time in interaction with their co-learners and in the presence of a tutor. As examples, consider Open
University’s use of summer schools and the increasing success of blended learning programmes.
Information Processing
The final type of service concerns the huge arena of information processing, the most intan-
gible of all the services. Transformed by advances in technology in general, and computers in
particular, information processing has become quicker, more accurate, and more frequent. The
use of technology is important, but we should not exclude people, because individuals have a
huge capacity to process information. Banking, insurance services, entertainment, and news all
represent examples of service areas that rely on information-processing activities.
One key issue that organizations need to consider concerns the degree to which employees
should become involved in the delivery of information processing services. Organizations could
deliberately route customers away from people processing by reducing the number of clerks and
counters, and towards information processing by pushing online and automated teller machine
(ATM) operations. easyJet reduces costs by making it difficult for customers to telephone the
company and seek advice from staff. Its approach is to drive people to its website and to answer
customer queries with the frequently asked questions (FAQs) found there.
Key Dimensions of Services Marketing

The marketing of services can be improved by understanding how customers evaluate service
performance. This gives rise to the question: how do customers judge the quality of a bank’s ser-
vices, or those of an airline? This is potentially very difficult, because complex services such as
surgery or stockbroking have few tangible clues based on which a customer can make a judge-
ment about whether the service was extremely good, good, satisfactory, poor, or a disgrace.
Zeithaml (1981) developed a framework categorizing different services, which, in turn, influ-
ence the degree to which market offerings can be evaluated and identified three main properties,
as follows:
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■ Search properties are those elements that help customers to evaluate an offering prior to pur-
chase. As already mentioned, physical products tend to have high search attributes, which
serve to reduce customer risk and increase purchase confidence.
■ Experience properties do not enable evaluation prior to purchase. Sporting events, holidays,
and live entertainment can be imagined, they can be explained, and they can be illustrated,
but only through the experience of the performance or the feel of sitting in an audience of
100,000 people can a customer evaluate the service experience.
■ Credence properties relate to those service characteristics that customers find difficult to
evaluate even after purchase and consumption. Zeithaml (1981) refers to complex surgery
and legal services to demonstrate the point.
As demonstrated earlier, most physical goods are high in search properties. Services, however,
reflect the strength of experience and credence characteristics that, in turn, highlight their intan-
gibility and their variability.
Many organizations recognize the importance and complexities associated with the market-
ing of services. As a result, they often develop and plan their marketing activities in such a way
that they help and reassure their customers prior to, during, and after purchase. The services
triangle (see Figure 15.2) is a marketing framework that summarizes these complexities. The
model suggests that success in services marketing depends on three sets of relationships:
customers’ relationship with the firm; customers’ interaction with the employees who deliver the
service; and the employees’ ongoing commitment to the company (Bitner, 1995). Managers
need to consider three types of marketing to deal with such relationships effectively: external
marketing; interactive marketing; and internal marketing.
To explain the differences between these three, let’s consider a traditional service business
such as a restaurant:
■ External marketing relates to the offering that makes the restaurant attractive to customers:
a nice and enticing menu, reasonable prices, and a good location.
■ Interactive marketing concerns the relationship between staff and customers, for example
how effectively employees can deal with customers’ requests and whether they are able to
provide an excellent experience.
■ Internal marketing requires offering a good experience to staff, so that good employees can
be attracted and retained over time.
Service marketing thus needs these three type of activities working together to achieve finan-
cial success.
Understanding service encounters, customer satisfaction, and associated service measure-
ment techniques, however, fails to lead to an understanding beyond the moment of truth—that
is, the point at which the service is actioned. Understanding and measuring the experience that
customers take away as a result of an interaction is much more pertinent and insightful.
Measuring Service Quality and Performance

Measuring the quality of a service encounter with a financial institution such as Withers Worldwide
(see Case Insight 15.1) and other organizations has become a major factor in the management
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Company
(Management)
Internal marketing External marketing

“Enabling the promise” “Making the promise”
Providers Customers
Interactive marketing
“Delivering the promise”
Figure 15.2
The services marketing triangle
Source: Adapted from Bitner (1995).
of service-based organizations. Service quality is based on the idea that customer expecta-
tions of the service they will receive shape their perception of the actual service encounter. In
essence, therefore, customers compare perceived service with expected service.
So if the perceived service meets, or even exceeds, expectations, customers are deemed
to be satisfied and are much more likely to return at some point in the future. However, if the
perceived service falls below what was expected, they are more likely to feel disappointed and
are unlikely to return.
To help organizations to manage and provide a consistent level of service, various models
have been proposed. Primarily, these have been based on performance measures, disconfir-
mation (the gap between expected and perceived service encounter), and importance–perfor-
mance ideas (Palmer, 2005) (see Table 15.2).
Table 15.2 Three approaches to service quality measurement
Contact level Explanation
Performance Derived from the manufacturing sector, this approach simply asks customers to rate
measures the performance of a service encounter.
SERVPERF is the standard measurement technique.
Disconfirmation This approach is based on the difference between what is expected from a service
and what is delivered, as perceived by the customer.
SERVQUAL is the standard measurement technique.
Importance– This seeks to compare the performance of the different elements that make up a
performance service with the customer’s perception of the relative importance of these elements.
Importance–performance analysis (IPA) is the standard measurement technique.
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Each of these approaches has its strengths and weaknesses, but the one approach that has
received most attention is SERVQUAL, as developed by Parasuraman, Zeithaml, and Berry
(1988). For some, it represents the benchmark approach to managing service quality. (See also
Research Insight 15.1 for more details on this approach.)
SERVQUAL is a disconfirmation model, based on the difference between the expected ser-
vices and the actual perceived service. Inherently, this approach assumes that there is a gap
between these variables and five particular types of gap have been established across service
industries, as follows:
■ GAP 1—The gap between the customer’s expectations and management perception By
not understanding customer needs correctly, management directs resources into inappro-
priate areas. For example, train service operators may think that customers want places in
which to store bags, whereas they actually want a seat in a comfortable, safe environment.
■ GAP 2—The gap between management perception and service quality specification In this
case, management perceive customer wants correctly, but fail to set a performance standard
and/or fail to clarify it, or set a standard that is not realistic and hence is unachievable. For exam-
ple, the train operator understands customers’ desire for a comfortable seat, but fails to specify
how many should be provided relative to the anticipated number of travellers on each route.
■ GAP 3—The gap between service quality specifications and service delivery In this situa-
tion, the service delivery does not match the specification for the service. This may be as a
result of human error, poor training, or a failure in the technology necessary to deliver parts of
a service. For example, the trolley buffet service on a train may be perceived as poor because
the trolley operator was impolite (perhaps because they had not received suitable training), or
because the train company’s supplier had not delivered the sandwiches on time.
■ GAP 4—The gap between service delivery and external communications The service prom-
ise presented in advertisements, on the website, and in sales literature helps to set customer
Parasuraman, A., Zeithaml, V., and Berry, L.L. (1988). SERVQUAL: a multiple-item
scale for measuring consumer perceptions of service quality. Journal of Retailing,
64(1), 5–37.
This is a classic article, structured in five sections, which describes the development of SERVQUAL, the
multiple-item scale for measuring service quality. It also includes an interesting discussion regarding the
scale’s properties and its potential applications. Slightly adapted to the specific context, these items can be
used to obtain reliable service-quality evaluations and to determine the aspects of the offering in highest need
of improvement.
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expectations. If these promises are not realized in service delivery practice, customers be-
come dissatisfied. For example, if an advertisement shows the interior of a train with comfort-
able seats and plenty of space, yet a customer boards a train only to find a lack of space and
hard seating, the external communications have misled customers and distorted their view of
what might be realistically expected.
■ GAP 5—The gap between perceived service and expected service This gap arises be-
cause customers misunderstand the service quality relative to what they expect. This may
be as a result of one or more of the previous gaps. For example, a customer might assume
that the lack of information when a train comes to a standstill for an unexpectedly long period
of time is a consequence of ignorance or because ‘they never tell us anything’. In reality, this
silence may be a failure of the internal communication system.
Using this ‘gaps’ approach, five different dimensions of service quality have been established:
■ reliability—that is, the accuracy and dependability of repeated performances of service
delivery;
■ responsiveness—that is, the ability and willingness of staff to provide prompt service;
■ assurance—that is, the courtesy, confidence, and competence of employees;
■ empathy—that is, the ease and individualized care shown towards customers; and
■ tangibles—that is, the appearance of employees, the physical location, and any facilities and
equipment, as well as the communication materials.
The SERVQUAL model consists of a questionnaire comprising 22 items based on these dimen-
sions. When completed by customers, it provides management with opportunities to correct
areas in which service performance is perceived to be less than satisfactory and to learn from,
and congratulate, people about the more successful components.
Although SERVQUAL has been used extensively, there are some problems associated with
it, including the different dimensions customers use to assess quality, which varies according to
each situation. In addition, there are statistical inconsistencies associated with measuring differ-
ences and the scoring techniques, and reliability issues associated with asking customers about
their expectations after they have consumed a service (Gabbott and Hogg, 1998). Finally, ideas
about measuring satisfaction are being overtaken as understanding about customer experi-
ence becomes more widely known. This is explored further at the end of this chapter.
The Principles of Relationship Marketing

Our attention now turns to ideas about relationship marketing. First, we look at some foun-
dational ideas about the exchanges that occur between a pair of buyers and sellers. Two main
types can be identified: market (or discrete) exchanges and collaborative exchanges
(see also Chapters 1 and 14).
Market (or discrete) exchanges occur where there is no prior history of exchange and no
future exchanges are expected between a buyer and a seller. In these transactions, the pri-
mary focus is on the product and price. Often referred to as transactional marketing, the ‘4Ps’
approach to the marketing mix variables (that is, the marketing management school of thought)
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is used to guide and construct transactional behaviour. Buyers are considered to be passive and
sellers, active, in these short-term exchanges.
However, the assumption that buyers are passive was soon challenged by the notion that,
in reality, buyers are active problem-solvers seeking solutions that are both efficient and effec-
tive. Research into business markets identified that, in practice, purchasing is not about a single
discrete event; rather, it is about a stream of activities between two organizations. These activi-
ties are sometimes referred to as episodes. Typically, these may be price negotiations, meet-
ings at exhibitions, or a buying decision, but they all take place within the overall context of a
relationship. This framed the relationship marketing school of thought, in which the buyer–seller
relationship was the central element of analysis. This meant that the focus was no longer the
product, or even the individual buying or selling firm, but the relationship and its particular char-
acteristics over time.
Therefore relationship marketing is based on the principle that there is a history of exchanges
and an expectation that there will be exchanges in the future. Furthermore, the perspective is
long term, envisaging a form of loyalty or continued attachment by the buyer to the seller. Price,
as the key controlling mechanism, is replaced by customer service and quality of interaction
between the two organizations. The exchange is termed collaborative because the focus is on
both organizations seeking to achieve their goals in a mutually rewarding way and not at the
expense of one another.
See Table 15.3 for a more comprehensive list of fundamental differences between transac-
tional and collaborative marketing.
Although market exchanges focus on products and prices, there is still a relational compo-
nent, if only because interaction requires a basic relationship between parties for the transaction
to be completed (Macneil, 1980).
Table 15.3 Characteristics of market and collaborative exchanges
Attribute Market exchange Collaborative exchange
Length of relationship Short-term Long-term

Abrupt end Continuous process
Relational Conflicts of goals Conflicts of interest

expectations Immediate payment Deferred payment
No future problems (there is no future) Future problems expected to be
overcome by joint commitment
Communication Low frequency of communication Frequent communication

Formal communication predominates Informal communication predominates
Cooperation No joint cooperation Joint cooperative projects
Responsibilities Distinct responsibilities Shared responsibilities

Defined obligations Shared obligations
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Dwyer, Schurr, and Oh (1987) refer to relationship marketing as an approach that encom-
passes a wide range of relationships not only with customers, but also with suppliers, regula-
tors, government, competitors, employees, and others. From this, relationship marketing might
be regarded as all marketing activities associated with the management of successful relational
exchanges.
Theron, Terblanche, and Boshoff (2013), among others, recognize that the role of collabora-
tion in relationship marketing is important. However, many organizations maintain a variety of
relationships with their different customers and suppliers, some highly collaborative and some
market-oriented—or, as Spekman and Carroway (2005: 1) suggest, ‘where they make sense’.
Visit the online resources and follow the web link to the Association for the Advancement of
Relationship Marketing (AARM) to learn more about continuing professional development in
relationship marketing.
The Customer Relationship Life Cycle

Relationship cost theory identified benefits associated with stable and mutually rewarding rela-
tionships. Such customers avoided costly switching costs associated with finding new suppli-
ers, whereas suppliers experienced reduced quality costs, incurred when adapting to the needs
of new customers.
Reichheld and Sasser (1990) identified an important association between a small (for example
5 per cent) increase in customer retention and a large (for example 60 per cent) improvement
in profitability. So a long-term relationship leads to lower relationship costs and higher profits. It is
on the basis of this simple, yet crucial, principle that many organizations develop and run loyalty
programmes (see Research Insight 15.2).
Reichheld, F.F., and Sasser, E.W. (1990). Zero defections: quality comes to services.
Often quoted by other authors and researchers, this article reported that a small increase in the number of
retained customers can have a disproportionately large increase in profitability, a finding which has helped to
propel a wealth of research and interest in relationship marketing. By definition, loyal customers are less likely
to switch, and therefore incur lower sales and service costs. They also help, through word of mouth, to recruit
new customers, so the net result is that they all contribute to higher profits. Although the specific loyalty gains
might have changed since the time the research was conducted, the analysis is an important reminder of
how crucial customer loyalty is for the profitability of any business.
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By undertaking a customer profitability analysis, it is possible to identify those segments

that are worth developing. This enables the construction of a portfolio of relationships, from
which it is possible to identify relationships that have the potential to provide mutually rewarding
benefits. This then provides a third dimension of the customer dynamic—namely, customer
development.
Understanding the economics associated with relationship stability and profitability uncovers
three main stages within customer relationships: customer acquisition; customer develop-
ment; and customer retention. This suggests similarities to the phases or stages of development
associated with the concept of the product life cycle.
Taking this idea one step further allows us to develop a customer relationship life cycle.
This consists of four main stages—namely, customer acquisition, customer development, cus-
tomer retention, and finally customer decline or termination (see Table 15.4).
Just as different strategies can be applied to different phases of the product life cycle, so it is
possible to observe that customers have different requirements as a relationship evolves. These
requirements are reflected in the intensity of the relationship and, of course, the level of intensity
will vary through time. Figure 15.3 illustrates the customer relationship life cycle.
Table 15.4 Stages in the customer life cycle
Stage Explanation
Acquisition There are three main events. First, both buyers and sellers search for a suitable
match. Second, once a suitable partner has been found, there is a period of initiation,
or ‘settling in’, during which both parties seek out information about the other before
any transaction occurs. The third phase is characterized by socialization. Once a
transaction occurs, the buyer and seller start to become more familiar with each other,
and gradually begin to reveal more information about themselves.
Development Sellers encourage buyers to purchase increased quantities, to try other products, to
engage with other added value services, and to vary delivery times and quantities.
The number and value of transactions increase as both buyer and seller begin
to understand each other’s requirements and goals in greater detail. During this
stage, sellers also develop a better understanding of the wider array of their buyers’
stakeholder relationships. This can have a significant influence on the nature of
the supplier’s relationship with the buyer, often indicating the depth to which the
relationship aspires.
Retention The relationship becomes stabilized, typified by greater levels of trust and
commitment between the partners. This facilitates increased cross-buying and
product experimentation, joint projects, and product development. Suppliers often
provide customer loyalty schemes to increase the volume and value of products and
services bought, and to lock in their customers by creating relationship exit barriers.
Decline Relationships can become destabilized and uncertainty between partners can
develop. There are many reasons for this, including purchasing agreements and loyalty
programmes that are not sufficiently attractive to lock in customers, as well as changes
in the wider environment such as legislative, climatic, or economic developments.
Customer recovery strategies are required at the first sign a relationship is waning.
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High
Relationship intensity
Low
Acquisition Development Retention Decline
Time and duration of the relationship
Figure 15.3
The customer relationship life cycle
Key to this concept is the differing level of relationship intensity that determines each stage.
Bruhn (2002) suggests that there are three primary indicators that make up this intensity dimen-
sion—that is, the psychological intensity, behavioural intensity, and economic intensity indica-
tors—and these are depicted in Figure 15.4:
■ The psychological intensity indicators are based on a customer’s judgement about the qual-
ity of the relationship and the extent to which they trust, and are committed to, the seller
or supplying organization. These are important foundations for establishing and maintaining
ongoing and mutually rewarding two-way relationships. These are explored in more detail
later in this chapter.
■ Behavioural intensity indicators refer to the manner and scope of a customer’s search for
information, including word-of-mouth communication, as well as their purchasing behaviour.
■ Economic intensity indicators refer to both the profit contribution and the lifetime value a
customer represents.
These three indicators signal the intensity of a relationship. They vary through time and help to
explain the characteristics associated with each of the relationship stages.
Customer relationship intensity
Psychological indicators Behavioural indicators Economic indicators
Purchasing behaviour Customer profit

Relationship quality
Information behaviour contribution
Trust
Integration behaviour Customer lifetime
Commitment
Communication behaviour value
Figure 15.4
Indicators of customer relationship intensity
Source: Relationship Marketing: Management of Customer Relationships, Bruhn, M. (2002). Pearson Education Limited.
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Loyalty, Retention, and Customer Satisfaction

The customer relationship life cycle implies that customers who keep coming back to buy from
a particular supplier are loyal. One problem with this suggestion is that what is understood to be
‘loyalty’ may actually be nothing more than pure convenience or habit. Consequently, scholars
have examined the concept of loyalty and developed more nuanced classifications. Table 15.5
represents some of the more general types of loyalty that can be observed.
These hierarchical schemes suggest that consumers are capable of varying degrees of loy-
alty. This type of categorization has been questioned by a number of researchers. Fournier and
Yao (1997) doubt the validity of such approaches, and Baldinger and Rubinson (1996) support
the idea that consumers work within an evoked set and switch between brands. This view is
supported on the grounds that many consumers display elements of curiosity in their purchase
habits, enjoy variety, and are happy to switch brands as a result of marketing communication
activities and product experiences.
At one level, loyalty can be seen to be about increasing sales volume—that is, fostering
loyal purchase behaviour. However, high levels of repeat purchase are not necessarily an ade-
quate measure of loyalty, because there may be a number of situational factors determining
purchase behaviour, such as brand availability (Dick and Basu, 1994). At whichever level of
loyalty, customer retention is paramount and neither behavioural nor attitudinal measures alone
are adequate indicators of true loyalty. O’Malley (1998) suggests that a combination of the two
is of greater use, and that the twin parameters of relative attitudes (to alternatives) and patron-
age behaviour (the recency, frequency, and monetary model), as suggested by Dick and Basu
(1994), offer more accurate indicators of loyalty when used together.
This expansion in the number of loyalty programmes led Capizzi, Ferguson, and Cuthbertson
(2004) to suggest that five clear trends within the loyalty market can be identified. These are set
out in Table 15.6. These trends suggest that successful sales promotions schemes will be those
that enable members to perceive significant value linked to their continued association with a
scheme. That value will be driven by schemes run by groups of complementary brands, which
use technology to understand customer dynamics and communications that complement their
Table 15.5 Types of loyalty
Type Explanation
Emotional loyalty This is a true form of loyalty, and is driven by personal identification with real or
perceived values and benefits.
Price loyalty This type of loyalty is driven by rational economic behaviour and the main
motivations are cautious management of money or financial necessity.
Incentivized loyalty This refers to promiscuous buyers with no one favourite brand, who
demonstrate through repeat experience the value of becoming loyal.
Monopoly loyalty This class of loyalty arises where a consumer has no purchase choice owing to
a national monopoly. This is not a true form of loyalty.
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Table 15.6 Five loyalty trends
Trend Explanation
Ubiquity For example, the proliferation of loyalty programmes in most mature markets, in which
many members have little interest other than in the functionality of points collection.
Coalition Schemes are run by a number of different organizations to share costs, information,
and branding (e.g. Nectar, Star Alliance) and appear to be the dominant industry model.
Imagination Opportunities to exploit technologies and niche markets will depend on creativity and
imagination if a company is to acquire customer data to feed into the loyalty system.
Wow To overcome consumer lethargy and boredom with loyalty schemes, in the future many
rewards will be experiential, emotional, and unique in an attempt to appeal to life stage
and aspirational lifestyle goals—i.e. to ‘wow’ the customer.
Analysis To be competitive, the use of customer data analytics and business intelligence is
becoming critical, if only to feed customer relationship management (CRM) programs.
It is essential to collect and analyse customer information effectively.
Source: Adapted from Capizzi et al. (2004).
preferred values. The medium-term goal might be that these schemes should reflect customers’
different relationship needs and recognize the different loyalty levels desired by different people.
Market Insight 15.2 describes the main loyalty schemes used by airlines (but see Market Insight
15.4, later in the chapter, which offers a reminder that relationship marketing goes well beyond
loyalty schemes and discusses the ability to create strong bonds with customers without a
loyalty card).
Visit the online resources and complete Internet Activity 15.1 to learn more about how to
increase customer loyalty.
Relationship Trust, Commitment, and Satisfaction

It is difficult to find a definition of trust on which everyone agrees, because many authors fail to
specify clearly what they mean when using it (Cousins and Stanwix, 2001). There is, however,
a general consensus that trust is an element associated with personal, intra-organizational,
and inter-organizational relationships, and is necessary for their continuation. Gambetta
(1988) argues that trust is a means of reducing uncertainty so that effective relationships can
develop.
Cousins and Stanwix (2001) also suggest that although trust is a word used to explain how
relationships work, it often refers to ideas concerning risk, power, and dependency, and these
propositions are used interchangeably. From their research on vehicle manufacturers, it emerges
that B2B relationships are about the creation of mutual business advantage and the degree of
confidence that one organization has in another.
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Market Insight 15.2

Alliances in the Sky
As costs have increased and competition intensified, premium levels, Silver and Gold, whilst SkyTeam offers
airlines around the world have formed strategic alliances. SkyTeam Elite and Elite Plus.
These collaborative schemes require members to share
routes, facilities such as executive lounges, and, of These schemes offer seamless travel, better usage of
course, customers. Three main alliances have emerged: amenities at airports, and—through compatible loyalty
schemes and code-sharing—the transference of
■ The oneworld® Alliance consists of 15 airlines, including frequent flyer miles from various alliance-based carriers,
Qantas, American Airlines, and British Airways, and which helps to build customer loyalty to the alliance
together they fly to more than 150 countries. rather than to an airline.
■ The Star Alliance has 26 member airlines, including
Sources: https://www.cheapflights.co.uk/travel-tips/airline-
Air China, Singapore Airlines, and United, and flies
alliances/; https://www.oneworld.com/ffp/my-oneworld-tier-
to more than 1,269 airports in 193 countries.
status; https://www.staralliance.com/en/recognition
■ The SkyTeam has 20 members, including Air
France, Delta Airways, and China Airlines, and
collectively they serve 1,064 destinations.
The use of loyalty schemes in the airline industry

is well established. These enable airlines to add
value and help to brand their propositions by
decommoditizing their services and offerings. Frequent
flyer programmes (FFPs) are now regarded as a key
part of an alliance’s success. Each airline within an
alliance has its own loyalty programme, with its own
procedures and complexities. In addition to these,
alliances offer a single alternative loyalty programme, The oneworld® alliance consists of 15 of the
which is integrated with the home airline’s primary world’s leading airlines and approximately
loyalty programme. Alliance schemes have several 30 affiliated carriers. Frequent flyers with the
membership tiers, based on usage. The membership
partner airlines earn and redeem points on
eligible oneworld flights.
tiers in the oneworld® Alliance are branded Emerald,
Source: © EQRoy/Shutterstock.com.
Sapphire, and Ruby. In the Star Alliance, there are two
Alliances occur when two or more organizations Networks, such as those formed in airline alliances,
seek mutual collaboration that is deemed beneficial. are considered to be a set of firms that coordinate
This means that organizational goals and external their activities to fulfil different roles and add different
opportunities jointly determine the formation of alliances. competencies. These are recognized as being
Such coalitions are formed to share costs, customer and important to the strategic success of businesses,
market information, and branding. The question of which especially in business-to-business (B2B) markets.
organizations link to which other organizations is based Such coalitions can impact on the relationship with
on whether or not they have a mutual fit of resources. customers, since the firms are likely to be sharing
Successful matching requires that an organization resources in their go-to-market strategy.
holding a valued resource must seek something that the
approaching organization can provide in return.
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Market Insight 15.2

continued
Related Topics
relationship marketing; trust and commitment; loyalty schemes; customer retention
1 Do you think that operating both an airline and 3 Some organizations choose not to offer loyalty
an alliance loyalty scheme is a good use of schemes, preferring to offer low prices. To what
resources? Justify your view. extent does this offer customers better value?
2 How might smartphone manufacturers retain

customers?
Trust involves judgements about reliability and integrity, and is concerned with the degree of
confidence that one party to a relationship has that another will fulfil its obligations and responsi-
bilities. The presence of trust in a relationship is important because it reduces both the threat of
opportunism and the possibility of conflict, which in turn increases the probability of buyer satis-
faction. It has been claimed that the three major outcomes from the development of relationship
trust are satisfaction, reduced perceived risk, and continuity (Pavlou, 2002):
■ Satisfaction is defined as meeting customer expectations (see ‘Measuring Service Quality
and Performance’).
■ Perceived risk is concerned with the expectation of loss and therefore is tied closely to orga-
nizational performance. Trust that a seller will not take advantage of the imbalance of informa-
tion between buyer and seller effectively reduces risk.
■ Continuity is related to business volumes, necessary in online B2B marketplaces, and the de-
velopment of both online and offline enduring relationships. Trust is associated with continuity
and therefore, when present, it is indicative of long-term relationships.
Trust within a consumer context is important because it can reduce uncertainty. Financial
institutions such as RBS, UBS, and HSBC have lost considerable amounts of consumer trust
as a result of their illegal behaviour, including the London interbank offered rate (Libor) fixing
scandal, cynical charges (such as payment protection insurance, or PPI), and questionable
investments (see Chapter 18). Strong brands provide sufficient information for consumers to
make calculated purchase decisions in the absence of full knowledge. In a sense, consum-
ers transfer their responsibility for brand decision-making, and hence brand performance, to
the brand itself. Through regular brand purchases, habits, or ‘routinized response behaviour’,
develop. This is important not only because complex decision-making is simplified, but also
because the amount of communication necessary to assist and provoke purchase is consider-
ably reduced.
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Commitment is important because it implies a desire that a relationship continues and is

strengthened because it is of value. Morgan and Hunt (1994) proposed that commitment and
trust are fundamental in explanations of the benefits of relationship marketing (see Figure 15.5).
These two variables connect the causes of relationship marketing to its consequences. In other
words, the authors believe that the positive consequences associated with the development of
a relationship (for example the increase in cooperation) can be explained by the increase in trust
and commitment towards the partner.
According to the commitment–trust model, the greater the losses anticipated through
the termination of a relationship, the greater the commitment expressed by the exchange
partners. When relationship partners share similar values, commitment increases. Morgan
and Hunt (1994) proposed that building a relationship based on trust and commitment
can give rise to a number of benefits. Some of these are developing a set of shared val-
ues, reducing costs when the relationship finishes, and increasing profitability as a greater
number of customers are retained because of the inherent value and satisfaction they
experience. Cooperation arises from a relationship driven by high levels of both trust and
commitment.
Ryssel, Ritter, and Gemunden (2004: 203) recognize that trust (and commitment) has a ‘sig-
nificant impact on the creation of value and conclude that value creation is a function of the
atmosphere of a relationship rather than the technology employed’. Trust and commitment are
concepts that are central to relationship marketing.
Relationship
termination Acquiescence
costs
+ +
Relationship + Relationship – Propensity

benefits commitment to leave
+ +
Shared
Cooperation
values +
+ +
+ + Functional
Communication Trust
conflict
– –
Opportunistic
Uncertainty
behaviour
Figure 15.5
The commitment–trust model of relationship marketing
Source: Reprinted with permission from R.M. Morgan and S.D. Hunt (1994), ‘The commitment–trust theory of relationship marketing’,
Journal of Marketing, 58(July), 20–38, published by the American Marketing Association.
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Customer Satisfaction
A natural outcome from building trust and developing commitment is the establishment of cus-
tomer satisfaction. This is seen as important because satisfaction is thought to be positively
related to customer retention, which in turn leads to an improved return on investment and
hence profitability. Unsurprisingly, many organizations seek to improve levels of customer sat-
isfaction, with the intention of strengthening customer relationships and driving higher levels of
retention and loyalty (Ravald and Grönroos, 1996). So the simple equation is build trust, drive
satisfaction, improve retention, and increase profits.
However, customer satisfaction is not driven by trust alone; customer expectations also play
an important role and help to shape a customer’s perception of product or service performance.
Customers compare performance against their expectations and, through this process, feel a
sense of customer satisfaction or dissatisfaction. More recent ideas suggest that the perceived
value of a relationship can be more important than trust when building customer satisfaction
(Ulaga and Eggert, 2005). If customer expectations are met, customer satisfaction is achieved. If
Withers Worldwide can exceed the expectations of its customers, both parties will be delighted
(see Case Insight 15.1). If expectations are not met, customers will be said to be dissatisfied.
It generally follows that satisfied customers are more likely to remain loyal. This simplistic inter-
pretation can be misleading, however, because satisfaction does not always imply loyalty (Mittal
and Lassar, 1998); what may be seen as loyalty may be nothing more than convenience, or even
inertia, and dissatisfaction need not result in brand desertion (O’Malley, 1998).
The following elements contribute to customer satisfaction and are therefore within the mar-
keter’s purview to exploit in pursuit of building customer loyalty:
■ the core product or service—that is, the bundle of attributes, features, and benefits that must
reach competitive levels if a relationship is to develop;
■ support services and systems—that is, the quality of services and systems used to support
the core product or service;
■ technical performance—that is, the synchronization of the core product or service with the
support infrastructure to deliver on the promise;
■ the elements of customer interaction—that is, the quality of customer care demonstrated
through face-to-face and technology-mediated communications; and
■ the affective dimensions of services—that is, the subtle and non-core interactions that say
something about how the organization feels about the customer (Cumby and Barnes, 1998).
This is a more useful insight into what it is that drives customer satisfaction, because it incor-
porates a wide range of factors and recognizes the importance of personal contact. Customer
satisfaction and the quality of customer relationships are related, in differing ways, among differ-
ing people and contexts. However, one factor that is common to both is the perceived value of
the interaction between parties.
Customer Experiences
The idea that providing a superior customer service might help in the (repeat) purchase deci-
sion process is something that several organizations, including Withers Worldwide (see Case
Insight 15.1), now appreciate. For a long time, it was assumed that product quality and pricing
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were sufficient differentiators. However, product quality is no longer a viable means of establish-
ing competitive advantage, simply because of shortening life cycles and evolving technologies.
Service, although difficult to deliver in a consistent way, is very difficult to replicate and has
become an important aspect of customer management.
Although generating customer satisfaction is important, it provides an incomplete picture. Of
greater interest is customer experience. As Prahalad and Ramaswamy (2004a: 137), cited by
Iyanna, Bosangit, and Mohd-Any (2012), suggest, the literature on value is no longer embedded
in goods and services, or indeed relationships, but ‘is now centered in the experiences of con-
sumers’. Customer value is regarded by an increasing number of academics and practitioners
as the central marketing activity (Iyanna et al., 2012), and that value is now central to customers’
experiences. The implications for marketing are clearly put by Meyer and Schwager (2007: 118)
when they say that ‘customer experience encompasses every aspect of a company’s offering—
the quality of customer care, of course, but also advertising, packaging, product and service
features, ease of use, and reliability’.
The importance and significance of customer experience to both individuals and society was
first established by Pine and Gilmore (1998) when they referred to the ‘experience economy’—a
term frequently used by authors and researchers in this area (see Market Insight 15.3). Chang
and Horng (2010) suggest that themed restaurants, such as Starbucks and the Hard Rock Café,
are prime examples of good companies generating excellent customer experiences. These
brands are not only about the consumption of coffee, but also present a situation or environment
in which the consumption of services occurs and relationships are developed, thereby providing
a meaningful or valuable customer experience. Ismail and colleagues (2011) refer to the trend
towards creating unique experiences for customers with a view to developing a competitive
advantage—something that must be sustainable, particularly for those in the service sector,
because replication is very difficult.
There are some similarities between many of these definitions. For example, customer experi-
ence is seen to be an individual event, and concerns emotional reactions following direct and
indirect interaction with an organization. It is also related to events prior to, during, or after con-
sumption. Perhaps one crucial point is that it is not possible for two people to have or to share
the same experience (Pine and Gilmore, 1998). As a result, the task of managing and measuring
customer experiences is inherently complex.
To help to disentangle some of this complexity, Pine and Gilmore (1998) derive four distinct
realms of experience, based on two dimensions: a customer’s participation in an experience
(weak/passive or active/strong); and an individual’s connection with the environment of the
experience or environmental relationship (from absorption/weak to immersion/strong).
The four realms that emerge from these dimensions are as follows:
■ The educational realm emerges when an individual learns and enhances their skills and
knowledge as a result of the events unfolding before them (Pine and Gilmore, 1999; Oh,
Fiorie, and Jeoung, 2007).
■ The entertainment realm occurs when an individual views a performance, listens to music, or
reads for pleasure. The experience is absorbed passively (Pine and Gilmore, 1999).
■ The aesthetic realm occurs when an individual passively appreciates an event or environ-
ment, but leaves without affecting or altering the nature of that environment (Pine and Gilm-
ore, 1999; Oh et al., 2007).
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Market Insight 15.3

Co-creating the Zoo Experience
Zoological parks invest heavily in their services and experiential value research was undertaken on
attractions every year. To keep up with the competition the experience needs of visitors. As a result, four
and to keep surprising returning guests, millions of main visitor experience segments were identified,
euros are spent on new attractions, landscaping, including:
restaurants, and merchandising. Deciding on these
1 the zoo as an enjoyable place for kids—these
investments relies on the positioning of the brand, but
visitors go to a zoo to entertain their children;
also on research and assumptions about the needs of
different types of guest. 2 the zoo as a place to be outdoors—these visitors
enjoy the physical activity of walking through a
Over the course of a day, zoo guests will be in natural environment;
contact with staff members at restaurants and
outlets, but they will also visit various exhibits, animal 3 the zoo as a place to be in contact with nature—
habitats, and often shows or playgrounds. We these visitors want to observe the aesthetic quality
refer to this sequence of activities as the customer of the flora and fauna; and
journey. Different types of guest will have different 4 the zoo as a place to be together—these visitors are
customer journeys. Depending on their preferences at the zoo to spend time with their loved ones and
and expectations, guests will evaluate the day as to create shared memories.
positive or negative, leading to recommendations
to others and/or the intention to revisit in the future. Visitors from each segment were then asked to rate
Understanding the purpose of the zoo visit from the their experience. GaiaZOO was rated as excellent
perspective of the guests is pivotal in the decision- by visitor types 1 and 3, whereas visitor types 2 and
making around new investments and in marketing 4 were less happy. GaiaZOO was advised to invest
communication. in shows and restaurant facilities for type 4 visitors,
whereas for type 2 new self-guided tours were
In 2013, GaiaZOO in the Netherlands, with more developed to positively influence their experiences.
than 500,000 visitors a year, wanted to get a better These investments were prioritized over investments in
understanding of the experiential value it offers to its new playgrounds, edutainment, and new habitats for
visitors, to help it to decide on future investments. new animals (type 1 and 3 visitors).
To understand the experiential value of a visit and
to predict the impact of investments in this area, Source: Smit and Melissen (2018).
This market insight describes how, in this case, customer-centricity has received a lot of attention
zoological parks are switching from a company-centric from authors such as Pine and Gilmore (1999) on
approach to value creation to a customer-centric the experience economy, Prahalad and Ramaswamy
process of value (co-)creation by segmenting (2004b) on experience co-creation, and Vargo and
customers on the basis of the customer journey. This Lusch (2004, 2008) on service-dominant logic (SDL)
customer-centric approach to service and experience and the idea of all propositions being a bundle of
design is relatively new in many service-oriented ‘service’ benefits.
businesses. In academia, the new paradigm of
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Market Insight 15.3

continued
Related Topics
new service development; new product development; branding; innovation; nature of services; customer experiences;
service encounters
1 Can you describe your customer journey at 3 Compare the service of Amazon.com to the
your educational institute today? Which service service provided by your local supermarket.
encounters and service environments have you What are the differences and similarities in the
been in? experiential value each creates for you?
2 If your educational institute had designed This market insight was kindly contributed by Bert Smit,
NHTV University of Applied Sciences, Netherlands.
the service of being educated in a customer-
centred way, what would change immediately?
■ The escapist realm occurs when individuals become completely immersed in their environ-
ment and actively participate, so that they affect actual performances or occurrences in the
environment (Pine and Gilmore, 1999; Oh et al., 2007).
Before exploring the characteristics and issues associated with customer experience, it is help-
ful to consider how the concept is defined. Although there have been several attempts in this
regard, there has been little consensus. Some of the more notable definitions are set out in
Table 15.7.
This approach has subsequently led to research that focuses on the ways in which experi-
ences are produced, narrated, and mediated (Lofgren, 2008).
Various authors have contributed to what might be the key dimensions of customer experi-
ence. Of these, Nysveen and Pedersen (2014) used the dimensions highlighted by Brakus,
Schmitt, and Zarantonello (2009)—namely, sensory, affective, intellectual, and behavioural—and
added a further relational dimension, as determined by Nysveen, Pedersen, and Skard (2013):
■ the sensory dimension refers to the extent to which a brand appeals to, and makes impres-
sions on, a consumer’s senses;
■ the affective dimension refers to how strongly a brand induces consumer feelings and emo-
tions;
■ the intellectual (or cognitive) dimension speaks of how much a brand stimulates a consumer’s
curiosity, thinking, and problem-solving;
■ the behavioural dimension measures how strongly a brand engages consumers in physical
activities; and
■ the relational dimension refers to how well an experience creates value for customers by driv-
ing social engagement, providing a social identity and a sense of belonging.
597
Table 15.7 Definitions of experience
Source Definitions
Csikszentmihalyi (1977: 36) The individual is experiencing flow when they have ‘a unified flowing
from one moment to the next, in which [they are] in control of
[their] actions and in which there is little distinction between self
and environment, between stimulus and response, between past,
present and future’.
Holbrook and Hirschman (1982), Experience is defined as a personal occurrence, often with
cited in Carù and Cova (2008) important emotional significance, founded on the interaction with
stimuli, which are the products or services consumed.
Carbone and Haeckel (1994: 8) ‘The take-away impression formed by people’s encounters with
products, services, and businesses, a perception produced when
humans consolidate sensory information.’
Schmitt (1999: 60) From a customer perspective: ‘Experiences involve the entire
living being. They often result from direct observation and/or
participating in the event—whether they are real, dreamlike
or virtual.’
Shaw and Ivens (2002: 6) ‘An interaction between an organization and a customer. It
is a blend of an organization’s physical performance, the
senses stimulated and emotions evoked, each intuitively
measured against customer experience across all moments
of contact.’
Gentile et al. (2007: 397) ‘The customer experience originates from a set of interactions
between a customer and a product, a company, or part of its
organization, which provoke a reaction. This experience is strictly
individual and implies the customer’s involvement at different levels
(rational, emotional, sensorial, physical and spiritual). Its evaluation
depends on the comparison between a customer’s expectations
and the stimuli coming from the interaction with the company and
its offering in correspondence of the different moments of contacts
or touch-points.’
Brakus et al. (2009: 53) '[S]ubjective, internal consumer responses (sensations, feelings,
and cognitions) and behavioural responses evoked by brand related
stimuli that are part of a brand’s design and identity, packaging,
communications, and environments.’
Ismail et al. (2011: 208) ‘Emotions provoked, sensations felt, knowledge gained and skills
acquired through active involvement with the firm before, during,
and after consumption.’
Source: Adapted from Ismail et al. (2011).

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Market Insight 15.4

Mercadona: Loyalty without the Card
Mercadona is a market leader in the Spanish retail sector, understanding customers’ needs and stimulating
and it offers a unique and unconventional example of customer feedback through a number of touchpoints,
how firms can successfully manage customer loyalty including extremely friendly and motivated salespeole
without necessarily following the dominant trends in their who are constantly listening to the consumer. Based on
industry. Founded in 1977, this family-owned discount- such feedback, Mercadona decided to cut its prices by
supermarket began as a small butcher’s shop in Valencia. 15 per cent during the recent economic crisis to avoid
Now, with 1,622 stores throughout Spain, Mercadona is losing customers and even reduced the number of
the most profitable retailer in Spain, supplying products items on shelves to make it easier for consumers to find
to 5.1 million households and accounting for about 24 their favorite products. In 2011, Mercadona developed
per cent of total market value. Carrefour, its nearest rival, a powerful research tool, the Co-Innovation Labs, with
has a market share of approximatley 9 per cent. One of the aim of testing and improving products or developing
the most striking facts about Mercadona is that, unlike new solutions. Co-innovation Labs are spaces in
its competitors, it does not have a loyalty programme to which customers participate in research projects and
reward customers with incentives on their purchases. consume their groceries, while interacting with, and
Nevertheless, it has a strategy able to foster customer being observed by, professionals from the company.
loyalty, interaction, and long-term engagement.
A second focus is on working closely with a limited
number (about 120) of integrated supplier-manufacturers
with whom Mercadona signs long-term agreements.
Close collaboration allows Mercadona to achieve (a)
high quality of products sourced, (b) low prices, and (c)
flexibility in responding to a volatile market environment.
A third area of focus is the development of high-quality

private-label brands that are real favorites in many
Spanish households. Brands such as Hacendado,
Bosque Verde, Deliplus, and Compy are consistently
ranked #1 by customers in terms of value for money
Mercadona is the most profitable retailer in Spain and are up to 40 per cent cheaper than the products of
Source: Er nun wieder/Wikimedia Commons (CC BY-SA 3.0). Mercadona’s main competitors.
There are three prongs to Mercadona’s relationship Sources: Institut Cerdá (2016); Valero (2016); García (2017).
marketing strategy. First, Mercadona focuses on
While loyalty programmes can improve the relationship relationship marketing than only a loyalty programme.
with consumers and generate useful insights for Having a comprehensive marketing strategy that
marketers, the case of Mercadona shows that produces customer satisfaction, positive customer
relationship marketing can also be based on solid experiences in store, and emotional attachment to
service processes and a superior service offering. the brand is far more important than having a loyalty
In other words, while a loyalty card can be useful in scheme. Mercadona shows that companies become
improving customer retention and deepening customers’ customer-centric by redesigning their marketing strategy
engagement with a brand, there is much more to and operations, not simply by having a loyalty card.
599
Market Insight 15.4

continued
Related Topics
relationship marketing; loyalty programmes; services; business models in retail
1 What, in your opinion, are Mercadona’s key 3 Mercadona implements an ‘always low price’
marketing levers to build strong relationships model (see Chapter 9). Do you think this
with customers? strategy is consistent with the principles of
relationship marketing? Why, or why not?
2 What are the advantages of having strong
private-label brands for retailers? How do these This market insight was kindly contributed by Professor
Victoria Labajo González, Universidad Pontificia Comillas,
brands contribute to a retailer’s relationship Spain.
marketing strategy?
From their research, Nysveen and Pedersen (2014) validated the importance of all these dimen-
sions. However, they stressed the significance of the relational dimension and its strong positive
influence on both brand satisfaction and brand loyalty. Market Insight 15.4 discusses the case
of Mercadona, the leading grocery retailer in Spain. Its strength on the relational component of
customer experience means that it does not need to have a loyalty card—something very atypi-
cal in the retail industry.
Visit the online resources and follow the web links to see how the Customer Experience
Professionals Association (CXPA) supports the industry.
Experience Quality
Earlier in the chapter (see ‘Measuring Service Quality and Performance’), we considered
SERVQUAL, the leading approach to measuring service quality. Although SERVQUAL has
many benefits and is used extensively, it is not suitable for measuring experience qual-
ity. SERVQUAL does provide a measure of customer satisfaction, but, as Maklan and
Klaus (2011) argue, it largely focuses upon customers’ assessment of the service process
and human interactions.
Building on earlier research into the quality of life experience by Csikszentmihalyi and
LeFevre (1989), Chang and Horng (2010: 2403) define experience quality as ‘how custom-
ers emotionally evaluate their experiences as they participate in consumption activities’.
Chang and Horng (2010: 2404) are keen to point out that the evaluation of experience
quality is not only about emotions, but also about putting more emphasis on the emotional
nature of experience quality, which can ‘reveal more of the characteristics of experience
that underlie contemporary experience marketing’. Thus they conceptualize experience
quality as a customer’s emotional judgement about their total experience and they identify
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five dimensions for the construct: the physical surroundings; the service providers; other
customers; customers’ companions; and the customers themselves. Chang and Horng
(2010) also refer to four sub-dimensions of the physical surroundings—that is, atmosphere,
concentration, imagination, and surprise—and suggest that the dimension of ‘customer
themselves’ has two sub-dimensions—that is, cognitive learning and having fun. Their
study concludes that the development of ‘elaborate physical surroundings to elicit positive
customers’ emotional perceptions of experience quality is significant for experience design.
Customers are commonly more impressed with service settings with atmosphere’ (Chang
and Horng, 2010: 2415).
Following their review of the literature, Chahal and Dutta (2014) also suggest that there are
five dimensions associated with outstanding customer experience. For these authors, however,
these dimensions are: sensory experience (sense); affective experience (feel); creative cognitive
experience (think); physical experience, behaviours and lifestyles (act); and social identity experi-
ence (relate). This model is illustrated in Figure 15.6.
Chahal and Dutta (2014) recognize customer experience as a central aspect of contem-
porary marketing, from both academic and practitioner perspectives. They also acknowl-
edge the lack of the empirical research that would help to consolidate ideas and underpin
suitable managerial advice. However, their model is useful because it serves to bring
together some of the central issues associated with understanding and developing cus-
tomer experiences.
Visit the online resources and follow the web links to explore more about customer experience.
Determinants/Antecedents Customer experience dimensions Outcomes
Core: Service quality
Favourable outcomes
Sensory
Supportive: Access, Satisfaction
choice, representation, Loyalty/word of mouth
Cognitive
information and redress Brand equity
Affective
Unfavourable outcomes
Contextual: Past experience,
Physical
level of perceived risk, distress, Dissatisfaction/
preference and personality negative word of mouth
Relational/social Voicing of complaints
Discontinuation of
Socio-characteristics: patronage/switching
Socio-economic status, groups
such as relatives, friends and
acquaintances
Figure 15.6
A proposed customer experience model
Source: Chahal, H., and Dutta, K. (2014). ‘Conceptualising customer experiences: Significant research propositions’, Marketing
Review, 14(4), 361–81. Reproduced by permission of Westburn Publishers Ltd.
601
Customer Engagement
While the concept of experience focuses on a deeper understanding of the interactions between
the company and its customers, marketers are also concerned with the level of customer
engagement. Pansari and Kumar (2017) define ‘engagement’ as the level of customers’ con-
tribution to the company through both direct and indirect activities. Direct contributions refer to
product or service purchases; indirect contributions comprise a range of activities that are cru-
cial for firms, especially in today’s interconnected world—that is, referring customers to the firm,
influencing customers through positive online and offline activities, and offering feedback to the
firm so that it can continuously improve its products.
The ‘Up for Whatever’ campaign, devised by Bud Light and described in Market Insight
15.5, is a clear example of a marketing activity aimed specifically at maximizing indirect benefits
by means of an event that energizes current advocates of the brand and offers them a plat-
form to influence others and generate positive media coverage. Digital technologies offer espe-
cially powerful tools to reinforce the direct and indirect contributions of customers to the firm.
Researchers identify four different types of tools that firms can use to grow the level of customer
engagement (Harmeling et al., 2017):
■ Amplificative tools, such as retweets or share buttons, increase the presence of the brand
within the customer’s existing networks.
■ Connective tools help to link customers to other customers or to the brand. Examples in-
clude tagging and following on social media, online virtual communities, and newsletters.
■ Feedback tools help to generate useful insights that the firm can use to improve its
offering and include text boxes, surveys, and polls/ratings that can be collected from
customers.
■ Finally, creative tools facilitate the exchange of ideas and the creation of new offerings. For
example, for more than a decade computer manufacturer Dell has been using its ideastorm.
com as a platform to collect ideas for potential improvements and innovations from users and
information technology (IT) professionals.
It is important to recognize the relationships between experience and customer engage-
ment. Most scholars agree that positive experience is a precursor to higher levels of cus-
tomer engagement (Van Doorn et al., 2010; Pansari and Kumar, 2017). Specifically, customer
engagement tends to be higher when customers are strongly satisfied by the offering, can
identify with the brand, and experience strong positive emotions towards the brand (Van
Doorn et al., 2010; Pansari and Kumar, 2017). While satisfaction is mostly caused by a cog-
nitive evaluation, customer engagement is greatly enhanced by emotional attachment to
the brand. (To find out more about customer engagement, read the article summarized in
Research Insight 15.3.)
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Market Insight 15.5

Doing Customer Engagement: Experiences from Start-ups
and Market Leaders
How do you boost customer engagement in practice? attendees posted on social media 37,000 pieces of
One example was Bud Light’s ‘Up for Whatever’ content that were accessed by a total of 15 million
campaign, aimed at strengthening the brand’s people on Facebook and Twitter. By the time the
connection with millennial consumers in the United campaign ended, usage among millennials had grown
States. The strategy comprised a television campaign, by 39 per cent.
which kicked off with a viral advert during the 2014 Super
Bowl, and thousands of events across the United States. However, customer engagement is also a useful
The final event was a weekend-long branded party in strategy for smaller companies with limited resources.
Crested Butte, Colorado. Bud, one of the brands owned An interesting example is sneaker brand Pompeii. The
by global beer giant AB Inbev, selected 1,000 customers company was founded in 2014 by five undergraduate
over a period of almost a year. More than 100,000 students in Spain, with a tiny capital of €18,000. They
people auditioned live or on social media in 2015 and the aimed to sell casual, yet stylish, trainers to a millennial
company ran a series of successful trade promotions. target market. The company sells more than 70,000
pairs of trainers a year around Europe. Some 85 per cent
The company specifically targeted individuals with of their sales come from Instagram, where the brand
large social networks and the willingness to share. The currently has more than 152,000 followers. Considering
customers were invited to participate free of charge in the its limited resources, customer engagement was always
Up for Whatever event, which was hosted in several US a key strategy. Before the launch, the company shared
locations over the years. Each event comprised a ‘town’ on its social media accounts draft designs and mock-
built specifically for the event, themed around Bud Light ups of its trainers to generate interest. Pompeii also uses
and named ‘Whatever, USA’. The events, hosted during limited sales, selling trainers for a limited period of time
the weekend, were streamed on social media, with the and/or in pop-up stores that open for only one day every
objective of generating interest in the campaign and month. These strategies created a sense of scarcity
attracting the next round of potential invitees, who would and exclusivity, and the feeling of uniqueness among
become brand ambassadors for the brand. prospect customers.
Customer engagement is also built by involving

customers in the innovation process. Pompeii asks
consumers to vote on new models, frequently asks
for feedback on its Instagram posts, and encourages
consumers to share their ideas. Pompeii also creates
one-off engagement initiatives to promote brand
interactions with its followers. For example, online
games allow customers to earn discounts. The brand
also organizes fun activities such as competitions
across its social sites or special events in its pop-up
stores. For Halloween, for example, Pompeii created a
pop-up store named ‘Cemetery Shop’ in which the only
Guests attend the welcome parade at Bud way to get discounts or to buy a pair of ‘limited edition’
Light’s Whatever, USA in Catalina Island, trainers was to lie in a casket dressed as Count Dracula.
California, where Bud Light invited 1,000 Pompeii communicated the promotion through catchy
consumers to a weekend full of unexpected videos on Instagram and Facebook. The whole event
concerts, classes, adventures, and more was broadcast on Pompeii’s social media accounts.
Source: © Mark Davis/Getty.
Sources: Nudd (2014); Monllos (2015); Anon. (2017); Bargueño
The campaign generated significant impact and won (2017).
several awards. In only its first year (2014), the 1,000
603
Market Insight 15.5

continued
This market insight offers examples of practical members use social media to interact with the
strategies that help to create customer engagement. marketing generated content. This market insight
From a behavioral perspective, customer engagement demonstrates the power of brand content to create
is defined by the frequency by which community interest and strengthen relationships with the brand.
Related Topics
customer engagement; brand community; branding relationships; relationship marketing; loyalty; marketing
communications
1 Engagement is based on creating genuine 3 What indicators would you use to measure the
interest among consumers in the content effectiveness of a marketing campaign aimed at
generated by the brand. What do you think are the promoting consumer engagement with a brand?
challenges that this strategy poses to marketers?
This market insight was kindly contributed by Professor
Carmen Abril, IE Business School, Spain.
2 Would you say that engagement can be
achieved regardless of the type of product and
industry? Explain your arguments.
Pansari, A., and Kumar, V. (2017). Customer engagement: the construct, antecedents,
and consequences. Journal of the Academy of Marketing Science, 45(3), 294–311.
This recent article is destined to become a marketing classic because it conceptualizes customer engagement
and examines its potential consequences for companies. It aims to start academic debates on this topic,
offering a set of theoretical propositions that can be examined in future empirical investigations of this construct.
For companies, the article identifies drivers of engagement and contingent factors that reinforce its
outcomes. Managers can consider these crucial variables and evaluate their current performance in terms
of these indicators, as well as devise marketing programmes able to increase customer engagement. The
key message of the article is that engagement is driven by a mixture of customer satisfaction and positive
emotions towards the brand. The authors also present a customer engagement matrix based on high or low
levels of these two variables. Strategies are offered for each of the four categories identified.
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized below:
■ Explain the nature and characteristics of services.

Unlike products, services are considered to be processes, and products and services have different
distinguishing characteristics. These are based around their intangibility (that is, you can touch a product,
but not a service); perishability (that is, products can be stored, but you cannot store a service); variability
(that is, each time a service is delivered, it is different, but products can be identical); inseparability (that is,
services are produced and consumed simultaneously); and a lack of ownership (that is, you cannot take
legal possession of a service). These are important because they shape the way in which marketers design,
develop, deliver, and evaluate the marketing of services.
■ Describe what is meant by the terms ‘service processes’ and ‘service encounters’, and the
principles associated with measuring service quality.
A process is a series of sequential actions that leads to predetermined outcomes. Four main service
process categories can be identified: people; possession; mental stimulus; and information processing.
A service encounter is best understood as a period of time during which a customer interacts directly
with a service (Shostack, 1985). There are three levels of customer contact: high-contact services;
medium-contact services; and low-contact services. As more services are introduced, so opportunities for
service variability and service failure also develop. Service quality is based on the idea that a customer’s
expectations of the service they will receive shape their perception of the actual service encounter. In
essence, customers compare perceived service with expected service. SERVQUAL is one model commonly
used to measure service quality. It is a disconfirmation model, and is based on the difference between the
expected service and the actual perceived service.
■ Outline the principles of relationship marketing, and consider the merits of customer retention and
loyalty programmes.
Relationship marketing is based on the premise that retained customers are more profitable than
customers based on transactional marketing. Loyalty is an important concept within relationship marketing
and different customers represent different levels of value to organizations. There are also different forms
of loyalty (for example behavioural and attitudinal) and different marketing strategies are required to reach
each of them.
■ Understand the concepts of trust, commitment, and customer satisfaction, and explain how they are
interlinked.
There are several key concepts associated with the management of customer relationships. The
main ones are trust, commitment, and satisfaction. These are interrelated, and the management of
customer relationships should be based on the principles of reducing the influence of power and the
incidence of conflict to build customer trust, gain customer commitment, and, through satisfaction,
generate loyalty and retention. This approach should increase the perceived value of the relationship
for all parties.
■ Explain the term ‘customer experiences’, the dimensions associated with it, how it has evolved, and
how it might be measured.
Customers experience an emotional transition and response through interactions with an organization and
its offerings. This individuality of experience implies that there are different types or levels of experience,
such as rational, emotional, sensorial, physical, and spiritual. The development of customer experience
marketing has been built on evolving ideas concerning service encounters, perceived value, relationship
marketing, and customer satisfaction.
Chapter 15 > Services and Relationship Marketing 605
■ Explain the term ‘customer engagement’ and the strategies marketers use to increase it.
Building strong bonds with customers is also important because it allows us to obtain indirect benefits from
customers’ engagement with the brand. Critically, engaged customers recruit new customers for the brand,
influence the opinions of other consumers, and provide useful feedback for organizations. Companies
therefore need to plan events and campaigns that allow them to develop customer engagement and
maximize its benefits for the firm.
Review Questions
1 Identify the essential characteristics of services and make brief notes explaining how they affect
the marketing of services.
2 What are the main types of service process? Identify their key characteristics.
3 Explain the term ‘service encounter’.
4 How does an understanding of the relevant search, experience, and credence properties of a
service influence the way in which it is marketed?
5 Name the five dimensions of service quality and explain their key characteristics.
6 What are the key differences between transactional marketing and relationship marketing?
7 Why is trust an important aspect of relationship marketing?
8 To what extent does the concept of relationship intensity assist our understanding of relationship
marketing?
9 Make notes for a short presentation in which you explain the term ‘customer experience’ and
track its evolution.
10 What dimensions are used by Csikszentmihalyi and LeFevre (1989) to measure experience
quality?
11 Think of a popular service brand and develop a marketing campaign aimed at increasing
customer engagement for this company.
1 Having read Case Insight 15.1, how would you advise Withers Worldwide about how best to evaluate
the quality of its service offering?
2 Westcliffe & Sons makes a range of fruit juice drinks. Its business falls into two main segments:
consumers; and business users, such as local councils and catering companies. Recent sales
figures suggest that orders from some catering companies are down on previous years and some
have stopped buying from Westcliffe altogether. The marketing director has reported that he cannot
understand the reason for the decline in business because product quality and prices are very
competitive. Advise the marketing director about the key issues he should consider and discuss how
the company should re-establish itself with the catering companies.
3 Consider the view that loose, or arm’s-length, B2B customer relationships can be just as productive as
those that are intense and close.

Glossary
collaborative exchanges a series of transactions loyalty the extent to which a customer supports
between a buyer and seller in which the a particular brand, possibly through repeat
relationship is the main focus. purchases.
commitment a desire that a relationship should market (or discrete) exchanges a type of
continue. transaction between a buyer and seller in which
customer acquisition the search for and settling the main focus is on the product and price.
in of new customers. ownership possession of and control over goods.
customer decline a stage in a buyer–seller perceived risk the real and imagined
relationship that is unstable and during which the uncertainties that customers consider when
relationship weakens. purchasing products and services.
customer development a period during which perceived value the ‘net satisfaction’ derived
buyers and sellers become more familiar with from consuming and using a product, not only
each other’s propositions and needs. the costs involved in obtaining it.
customer engagement the total of a consumer’s perishability a characteristic of a service—
direct contributions (that is, purchases) and namely, the fact that spare or unused capacity
indirect contributions (that is, referral, influence, cannot be stored for use at some point in
and feedback) to a company; develops when a the future.
customer is satisfied and feels intense positive relationship marketing marketing activities
emotions towards a company or brand. associated with the management of successful
customer experience the individual feelings relational (collaborative) exchanges.
and emotions felt during interactions with an service delivery the means through which
organization and its offerings. services are experienced by customers.
customer relationship life cycle the four main service encounter an event that occurs
stages associated with managing customer during which a customer interacts directly
relationships—namely, customer acquisition, with a service.
development, retention, and decline or termination. service process a series of sequential actions that
customer retention a stage in a buyer–seller lead to the delivery of a predetermined service.
relationship that is stable and holds the strongest service quality the extent to which customer
levels of trust and commitment. expectations of a service are met in an actual
electronic kiosk a computer terminal located service encounter.
within a retail environment that provides individuals SERVQUAL a model that measures the difference
with information about products and services. between the expected service and the actual
experience quality the emotional evaluation perceived service.
by customers of their experiences as they trust the extent to which one party to a
participate in consumption activities. relationship is confident in the reliability and
inseparability a characteristic of a service—namely, integrity of the other, and that each will fulfil its
its instantaneous production and consumption. obligations and responsibilities.
intangibility a characteristic of a service—namely, variability a characteristic of a service—namely,
that it does not have physical attributes and so the amount of diversity allowed in each step of
cannot be perceived by the senses (that is, cannot service provision.
be tasted, seen, touched, smelt, or possessed).
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Chapter 16
Business-to-Business
Marketing

Grant Thornton UK LLP
Market Insight 16.1
Explain the main characteristics of business
Translating the World: TRSB
markets and understand the different types of
Style
organizational customer
Market Insight 16.2
Describe the different types of offering that are
Marketing the Big League
bought and sold in business markets
Set out the main processes and stages associated Market Insight 16.3
KPMG Engages through
with organizational buying and purchasing
Social Media
Explain what business-to-business marketing is and
the marketing issues associated with professional Market Insight 16.4
Groupon: KAM Gone Wrong
services firms
Understand the principles of key account
management
Chapter
Chapter16 Business-to-Business
1 >> Marketing Marketing
611
Case Insight 16.1

Grant Thornton UK LLP
Grant Thornton UK LLP is part of Grant Thornton

International Limited (GTIL), one of the world’s leading
independent advisory, tax, and audit firms. In the UK, Grant
Thornton traces its origins to Thornton and Thornton in
Oxford in 1904. It grew through many mergers and, by 1980,
had formed an alliance with US firm Alexander Grant &
Co. One year later, a new international organization, GTIL,
was set up. We speak to Anne Blackie, head of bids and
strategic accounts at Grant Thornton UK, to find out how
the firm manages its client relationships.
Working in both the private and public sectors, Grant is continuing to grow. With our suppliers, we have
Thornton provides audit, tax, and advisory services to outsourced services ranging from catering and office
more than 22,000 clients. Our clients range from large facilities to marketing, working with niche agencies on
corporates (FTSE350 and equivalent), mid-market, the promotion of specific projects.
small and medium-sized enterprises (SMEs), start-ups,
For us, the key to successful client relationships
and individuals. Our go-to-market approach is through
is understanding the client and the market or
nine industry channels, such as financial services and
environment they work in, so that we can spot trends
business support services, and other channels such
quickly. Marketing has to be relevant, insightful, and
as intermediaries (banks, lawyers, and private equity).
attention-grabbing, since our audiences are often
One characteristic that a number of clients share is that
from the C-Suite. And ensuring that we follow up is
they are dynamic growing organizations.
a key part of the business development process. We
As a professional services firm, we sell the experience regularly review what worked well and respond quickly
and expertise of our people. Building relationships when necessary. To identify new market opportunities,
with our clients is key to our propositions, and the we get feedback from clients, targets, and marketplace
theme that runs through our diverse client and supplier advisers, we watch developments in other industries,
base is that we focus on building trusted, sustainable we undertake horizon scanning, and we use
relationships that deliver value. Depending on the technology and data analysis to identify trends.
organization and its complexity, our relationships can
We segment our clients in terms of complexity and
be one to one, one to many, or many to many. For
size. For example, large banking clients are typically
example, for our larger clients, we will have a number
more complex in their structure and we are more likely
of different relationships across that organization and
to provide them with a number of different services
an account manager who manages the account,
across their business than we would a smaller SME.
while for a smaller organization the relationship is
These larger, more complex clients tend to have
more likely to be one to one with the finance director
dedicated account managers and are part of our
or chief executive officer (CEO). More recently, we
strategic accounts programme.
also have developed community-based relationships
via programmes such as Growth 365, which brings Feedback from clients indicates that the reason they
together like-minded CEOs. This has been particularly choose us is because of our client relationship skills, our
successful and, through a very targeted approach, understanding of their needs, our experience/expertise,
we now have a well-established community that and the insight we share with them. We focus on
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Case Insight 16.1

continued
building relationships with organizations right from the the organization. So all the work we have done has
targeting stage, to build trust with the buyers prior to to be started again with a new individual and that can
going into a formal buying process. Such relationship- take us back 12 months.
building means that we understand our clients’ needs,
The question for Grant Thornton is: how can
so can articulate a better value client proposition and
it ensure that such churn does not damage its
help the client to find the right solution for them.
strategic relationships and the proposition it has
Building relationships like these takes time (typically, developed when key individuals in those firms
12–24 months). One of the challenges we have is move elsewhere?
that we spend a lot of time building a relationship
with a key individual, getting to know them, and Visit the online resources to watch a
understanding what’s important to them—and that video interview with Anne Blackie in which
individual then leaves or moves on to another part of she explains what Grant Thornton did.
Introduction
For many of us, marketing is concerned with consumer products, meaning those that we buy
and consume on a regular basis. There is, however, another (colossal) market hidden from our
daily view of the world: the business market. Business-to-business (B2B) marketing con-
cerns the marketing of the huge range of offerings bought and sold between organizations in
this market.
Some of the characteristics of B2B marketing are different from those associated with con-
sumer marketing. There are numerous reasons for these differences and the way in which
they impact varies among organizations. In this chapter, we explore the nature and impact of
these characteristics. We highlight the main types of B2B organization, learn about the different
types of B2B offering, and develop an understanding about the way in which organizations make
buying decisions, who makes them, and how this affects their purchasing strategies.
The traditional perception of business marketing activity is that it concerns salespeople selling
products with services attached (Leigh and Marshall, 2001). In many ways, this used to be true,
but now that much customer ordering is online, the role of the sales department has shifted.
Now, salespeople focus on managing relationships, increasing customer productivity, and clos-
ing deals (Rocco and Bush, 2016).
Many B2B firms are also servitizing their products (see Chapters 1 and 15), meaning that they
are hiring out or leasing their products, usually with an enhanced service component, instead of
selling them outright. For example, elevator (lift) company Otis offers a remote elevator monitor-
ing (REM®) service that detects problems with its lifts and automatically makes a maintenance
service call. Research by Storbacka and colleagues (2009) shows, first, that sales is increasingly
about process, rather than a series of separate transactions carried out by a specific function.
Chapter
613
Consequently, sales is much more relational than it used to be. Additionally, the sales function
now involves close working links between sales and operations—especially because sales is
increasingly linked to information gathering, processing, and interpretation, resource mobiliza-
tion, and delivery. This makes sales much more cross-functional than it was previously. Finally,
Storbacka and colleagues (2009) observe an increasing emphasis on customer issues and
on sales metrics, suggesting that the sales function has shifted from an operational activity to
become more strategic.
A key part of B2B marketing is associated with managing the relationships that develop
between organizations and those representing them. Managing customers is vitally important,
and one task is to identify and manage those customers who are important to the organization’s
success. Research has identified that when sales representatives for a business-to-business
firm leave, it can lead to a 13.2–17.6 per cent loss in annual sales (Shi et al., 2017). Keeping
hold of major accounts is referred to as key account management. We examine this important
topic later in this chapter. Although the chapter focuses on the distinctive characteristics of B2B
marketing, we conclude with a reflection of the similarities that exist between B2B and consumer
marketing.
What Is Business-to-Business Marketing?

Just imagine the complexity associated with the design and construction of the International
Space Station, the new Elizabeth Line on the London underground (which opens in 2019), the
new mega-city NEOM to be built on the Red Sea coast in Saudi Arabia (opening in 2022), or
the Hålogaland Bridge in Norway. Specifying, negotiating, buying and selling, building, delivering
and storing, and then replacing parts and materials as they are used can involve a vast network
of organizations, large and small. The operational task alone is enormous, and the value of the
materials, components, labour, and energy involved far exceeds consumer spending in either
the soap, beauty, or confectionery markets. The B2B market really is huge.
To make a car, a manufacturer tries to create value by buying a range of finished and part-
finished items, assembling them, and distributing the completed cars to dealers, who sell them
on to consumers or businesses (fleet buyers). The array of parts and finished items that the
manufacturer buys involves a large number of suppliers. This is how the business market oper-
ates; the actions undertaken by a supplier of a brake system to influence the car manufacturer
to select that system (rather than a competitor’s) constitute B2B marketing.
Some B2B suppliers seek to manage not only relationships with their direct customers (buy-
ers), but also those relating to their customers’ customers (sometimes referred to as end users).
This approach provides valuable market information, creates product preferences among these
indirect customers, and drives derived demand. For example, network equipment company
Cisco supplies systems to service providers, but in addition approaches the service providers’
customers to learn about their requirements (Homburg, Wilczek, and Hahn, 2014).
In a number of ways, B2B marketing is fundamentally different from consumer goods or
services marketing because organizational buyers do not consume the offerings themselves.
Unlike consumer markets, in which offerings are consumed individually, invariably by the people
who buy them, the essence of business markets is that organizations, not individual people,
undertake the act of purchase.
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Achrol, R.S. (1997). Changes in the theory of interorganizational relations in

marketing: toward a network paradigm. Journal of the Academy of Marketing
Science, 25(1), 56–71.
Achrol sets out how the then-established vertically integrated multidivisional type of organization started to be
replaced by new forms of network organization consisting of large numbers of functionally specialized firms
tied together in cooperative exchange relationships. He considers four main types, the variables involved,
the economic rationale, and the types of coordination and control mechanism necessary for organizations to
adapt to the new environment.
Far larger than the consumer market, the business market comprises many types and sizes
of organization. Each organization interacts with a selection of others, and they form relation-
ships of varying significance and duration. This web of interaction is referred to as a network (see
also Chapter 1 and Research Insight 16.1). Although organizations are often structurally and
legally independent entities, a key characteristic is that they are also interdependent—that is,
they have to work with other organizations, to varying degrees, to achieve their goals.
The Characteristics of Business Markets

Business markets are characterized by a number of distinct factors, but the main ones are the
nature of demand, the buying processes, international dimensions, and—perhaps most impor-
tantly—the relationships that develop between organizations in the process of buying and sell-
ing. These are shown in Figure 16.1 and each is examined next.
The Nature of Demand

There are three key aspects of demand in business markets: derivation; variance; and elasticity.
Demand in business markets is ultimately derived from consumers (Gummesson and Polese,
2009). Consider, for example, the demand for building trains. When Banverket, the Swedish
Railway Administration, and Canadian firm Bombardier Transportation considered developing a
‘Green Train’, the goal was to develop a new generation of high-speed, super-efficient trains to
meet the special technical and traffic requirements in the Nordic countries. Part of the project
team’s calculation was to estimate the number of people likely to make train journeys and what
they would be prepared to pay. Even though each train is the result of hundreds of organizations
Chapter
615
Buyer–seller Nature of
relationships demand
Business
markets
Buying
processes
Internationalism
Figure 16.1
Key characteristics of business
markets
interacting, it is the train’s passengers (consumers) who actually stimulate demand for the con-
struction of such trains.
Demand is variable because consumer preferences and behaviour fluctuate. For example,
the demand for rail journeys usually declines following a major train accident or a significant fare
increase; it also increases in response to petrol price rises and calls for consumers to be more
environmentally aware. The subsequent impact will be felt by rail operators, support services,
train manufacturers, and the whole array of suppliers and subcontractors in the market—all of
which suggests that organizations need to monitor and anticipate demand.
Demand is essentially inelastic (see Chapter 9). If suppliers raise their prices, most manu-
facturers will try to absorb the increases into their own cost structures either to avoid letting
their customers down in the short term or because they are tied into fixed-price contracts.
Incorporating these price increases, at least over the short-to-medium term, means that there
is price inelasticity. In the medium term, manufacturers can eliminate the original parts, redesign
the proposition, or search for new suppliers.
The Buying Processes

Organizations’ buying processes differ in a number ways from those of consumers. These dif-
ferences are a reflection of the potentially high financial value associated with B2B transactions,
the product complexity, the typically high value of individual orders, and the nature of risk and
uncertainty. As a result, organizations have developed specific buying processes and proce-
dures involving large numbers of people. The group of people involved in organizational pur-
chasing processes is referred to as a decision-making unit (DMU). The types of purchase
that they make are classified as buyclasses. The circumstances in which they buy are called
buyphases. Full details of these processes are outlined later in the chapter (see ‘The Processes
of Decision-Making Units’).
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International Dimensions
In comparison with consumer markets, B2B marketing is easier to conduct internationally. This
is because the needs of businesses around the world are more similar to one another than the
needs of consumers, whose preferences, tastes, and resources vary. As a result, an increasing
number of B2B organizations are moving into international markets. This is often enabled by
advances in technology, particularly via the web, allowing organizations to cover a greater geo-
graphical area (see Market Insight 16.1).
Market Insight 16.1

Translating the World: TRSB Style
Traductions Serge Bélair Inc, now known as TRSB, at an annual rate of around 7 per cent and was worth
is a professional translation and localization agency around US$43 billion in 2017, when TRSB was the
founded in the late 1980s in Montréal, Canada, by 14th largest provider in North America. Competitors
Serge Bélair. Fast forward 30 years and TRSB is one included the UK’s SDL, America’s TransPerfect and
of North America’s foremost translation agencies, with Lionbridge, and Switzerland’s Star Group.
a team of more than 200 professionals. The company
translates into more than 100 languages for a large Part of TRSB’s success lies in its use of technology.
client base spread across four continents. Over a Via a portal, clients can gain immediate access to their
quarter of the company’s sales come from outside translation project data, request translations, change
Canada. Interestingly, with less than 0.5 per cent of and track orders, manage review processes, create
the world population, Canada held 10 per cent of workload, expenditure, and service-level agreement
the global translation market in 2013—around half of (SLA) reports, and manage a project audit trail. If a
which is held by firms located in the French-speaking client wants it to do so, the portal will also integrate with
province of Québec. TRSB faces much competition in the client’s own e-procurement systems. To make its
Canada, not least because the Québécois market is so translation more efficient, TRSB uses computer-aided
attractive. There is a considerable amount of translation translation techniques. This means that when clients
undertaken in Canada from English to French and need to use previously translated material, they can,
French to English, given that the Canadian Official and do not have to pay for it twice.
Languages Act 1969 (as amended) gives English and
Sources: Turcotte (2013); Turgeon, Lavoie, and Bergeron
French equal status.
St-Onge (2017); https://www.trsb.com/en/about-trsb/
Common Sense Advisory, a market research firm, the-company/; http://www.trsb.com/en/category/media/; https://
suggests that the global translation market is growing www.trsb.com/en/technology/portal/
This market insight illustrates how the unique cultural required by governments, investment companies,
and historical circumstances of Montréal in Canada banks, and so on, in other countries were similar to
have set the conditions for the development of those required by clients in Canada. TRSB achieved
local translation services. One of those translation global expansion by means of export, making
services, TRSB, has managed to develop a global good use of technology to transcend geographic
operation, because it recognized that the services boundaries.
Chapter
617
Market Insight 16.1

continued
Related Topics
B2B marketing; e-procurement; international marketing; branding; export; services marketing
1 Who would be in the DMU for translation 3 Would the portal that TRSB has developed
services in client companies? be detrimental to the development of
client relationships in an industry based on
2 What value do you think TRSB creates for its
intercultural communication?
B2B clients?
In comparison with consumer markets, B2B organizations display a lower variety of product
functionality and performance. This is partly because trading associations around the world
have agreed standards relating to content and performance, such as standardized electric
socket types, or the digital video broadcasting (DVB) standard for digital television used in
countries including Australia, South Africa, India, and those in Europe. Having agreed stan-
dards means that the buying and selling of products and services, wherever the supplier and
buyer are located, becomes a relatively simple process and the trading environment can be
well regulated and controlled. Many industries (for example the steel, plastic, chemicals, and
paper industries) have commonly agreed standards aiming to facilitate inter-organizational
exchange processes. In consumer markets, however, there are numerous issues concerning
consumer culture and values, and the need to adapt propositions and promotional activi-
ties to meet various colour, ingredient, stylistic, buying process, packaging, and language
requirements.
Visit the online resources and follow the web link to the Association for B2B Agencies (ABBA)
to learn more about B2B organizations.
Relationships
If there is one characteristic that separates business marketing from consumer marketing, it is
the importance of relationships. In consumer markets, the low perceived value of the offer-
ings and the competitive nature of the market, which makes product substitution relatively easy,
make relationships between manufacturers and consumers relatively more difficult to establish.
In business marketing, the interaction between buyers, sellers, and other stakeholders is of
major significance. The development and maintenance of relationships between buying and
selling organizations is pivotal to success. Interdependence, collaboration, and in some cases
partnership in the development, supply, and support of products and services is considered
a core element of B2B marketing. Strong inter-organizational relationships are referred to as
embedded ties. Noordhoff and colleagues (2011) refer to these as a close and reciprocal
relationship between a customer firm and a supplier firm. Embedded ties improve relational and
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Dwyer, R.F., Schurr, P.H., and Oh, S. (1987). Developing buyer–seller relationships.
This article is one of the most cited in the subject area. Its popularity is based on the critical observation that
buyer–seller exchanges are not discrete activities or events, but a part of ongoing relationships. The authors
present a framework for developing buyer–seller relationships that links into marketing strategy.
business performance outcomes because they facilitate the transfer of complex, sensitive, and
even tacit knowledge between partners (Reagans and McEvily, 2003), and they improve innova-
tion. In the same way, damage to these ties can be a reason to terminate a business relationship
(Schreiner, 2015).
The importance of relationships in B2B marketing should not be underestimated (see
Research Insight 16.2). More information on relationship issues and concepts can be found in
Chapters 14 and 15.
Types of Organizational Customer

Once known as industrial marketing, B2B marketing has come to recognize the involvement of
a range of other, non-industrial, suppliers, agents, and participants. The government, the non-
profit sector, and charities and institutions in most countries are responsible for a huge level of
B2B activity. Consider the huge range of pharmaceutical and medical supplies offerings neces-
sary to support the healthcare sector, as well as the products and infrastructure necessary to
maintain prison services and the armed forces. All of these represent a major slice of B2B activity.
It is possible to categorize organizations by their size (by revenue or number of employ-
ees)—that is, as large, medium, and small organizations. Macfarlane (2002) refers to global
and national organizations, the public sector, SMEs, and small offices/home offices (SOHOs).
However, this approach is too general, and fails to accommodate different buyer needs and
purchasing procedures. In Table 16.1, we outline the principal characteristics of broad types of
B2B organization: commercial; government; and institutional.
All of these types of B2B organization buy other companies’ offerings. The types of marketing
activity used to encourage repeat exchanges between these various types of organization can
be considerable. However, one strategy common to all three has been to develop relationships
by means of cooperation and collaboration.
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Table 16.1 Key types of business organization
Type of organization Key characteristics
Commercial Distributors Not only do they smooth the progress of products through the
(wholesalers, value- marketing channel, but also they should add value to them by
added resellers, providing storage (through distribution centres), services (such as
retailers, and training), or financial support (such as credit facilities).
distributors/dealers)
Original equipment Refers to one company relabelling a product and incorporating

manufacturers it within a different product to sell it under the company’s own
(OEMs) brand name, offering its own warranty, support, and licensing.
For example, Toyota may have a contract with a headlight
manufacturer to supply Toyota with a certain quantity of headlight
assemblies. Toyota is the OEM, because it builds these headlight
assemblies into its different cars and sells the car as a Toyota,
without identifying the manufacturer of the headlight assembly.
Users Organizations that purchase goods and services, which are then
consumed as part of their production and manufacturing processes.
Therefore users are not identified in the final product offering, but
do contribute to its production. Toyota will purchase many support
materials (e.g. machine tools, electrical manufacturing equipment,
vending machines, office furniture, and stationery). None of these
can be identified within the cars they produce.
Retailers Need to purchase goods to resell them, just as do other

organizations. However, the buying processes are not always
as complex or as intricate as those normally associated with
organizational buying and the group of people who make
purchase decisions, i.e. the DMU. Suppliers need to understand
their retailers and their markets.
Government The value of the business undertaken by governments is very

high. Health, policing, education, transport, environmental
protection, and national defence and security are a few of the
areas that require public investment. Many of the larger projects
that concern governments and associated ministries are large and
complex, and involve a huge number of stakeholders. Although
bound by similar constraints to those of commercial purchasing
procedures and guidelines, buyers in the public sector are also
affected by political constraints, including budgets, regulation, and
trade bloc directives (e.g. the EU, Mercosur).
Institutions Include not-for-profit organizations such as churches and charities,

community-based organizations such as housing associations,
and government-related organizations such as hospitals, schools,
museums, libraries, and universities. Characteristically, institutions
tend to form large buying groups. Through collaboration, the
group is able to negotiate greatly reduced prices and much larger
discounts, usually related to bulk purchases.
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Table 16.2 Types of business goods and service
Type of goods Explanation
Input goods Input goods have been subjected to different levels of processing (raw
Raw materials, semi- materials, semi-manufactured parts, and finished goods), and so they lose
manufactured parts, their individual identities and become part of the finished item.
and finished goods
Equipment goods These are necessary for manufacturing and operations to take place.
Otherwise known as capital Land and buildings, computer systems, and machine tools are all
or investment goods necessary to support the production process, but they cannot be
identified in the finished proposition.
Supply goods These goods and services are ‘consumables’ because they are necessary
Otherwise known as to keep production processes and the organization running. For example,
maintenance, repair, and lubricants, paints, screws, and cleaning materials may all be necessary
operating (MRO) materials to maintain a firm’s operations. Computer or IT servicing is necessary to
maintain operations and to avoid down time, whilst accounting audits are
a legal requirement.
Type of Business Goods and Service

Just as there are a variety of types of organization in the business sector, so too the offerings
are equally varied and complex. Table 16.2 sets out the three principal business types of goods
and service.
Most organizations, at various points in their development, have to decide whether to make
or supply their own propositions or to buy them in from outsourced providers. This ‘make or
buy’ decision can have long-term effects not only on the strategic and operational aspects of an
organization, but also on the purchasing function and its role within an organization.
Outsourcing has become more popular with a wide range of organizations. As a result, com-
panies have adapted their purchasing behaviours accordingly, impacting on their business mar-
keting practices. The development of ‘lean management’ techniques has enabled organizations
to concentrate on their core processes and to outsource all other activities. As organizations
become ‘leaner’, they dramatically reduce their use of resources and the importance of purchas-
ing increases (Towne, 2010).
Internet is used to market computing software to business customers.
Organizational Buying Behaviour

Organizations need to appreciate customers’ particular behaviours, purchasing systems,
people, and policies if they are to effect suitable marketing and selling strategies. This sec-
tion builds on the introduction to buyer processes outlined earlier and the information about
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organizational market segmentation introduced in Chapter 6. It considers some of the key
issues associated with the way in which organizations purchase the offerings necessary to
achieve their corporate goals.
Two definitions of organizational buying behaviour (OBB) reveal important aspects
of this subject. First, Webster and Wind (1972: 2) defined organizational buying as ‘the
decision making process by which formal organizations establish the need for purchased
products and services and identify, evaluate and choose among alternative brands and sup-
pliers’. This adopts a buying organization’s perspective and highlights how OBB involves
numerous processes, rather than being a single static one-off event. There are a number of
stages, or phases, associated with procurement, each often requiring a key decision to be
made.
Organizational buying behaviour concerns purchasing an offering to solve organizational
needs, for example H&M’s announcement in 2017 of new investment in its supply chain by
bringing production to Europe and investing heavily in automation, to remedy the fact that its
supply chain lead times were double those of rival Zara (Sit, 2017). Organizational buying behav-
iour can be seen as more of an exercise of muddling through the buying problem rather than
working through a well-planned, goal-oriented process, largely because the organizational buy-
ing decision involves critical decision points and evolving information requirements (Makkonen,
Olkkonen, and Halinen, 2012).
Organizational buying behaviour is concerned with three key issues:
■ the functions and processes that buyers move through when purchasing products for use in
business markets;
■ strategy, where purchasing is designed to assist value creation and competitive advantage,
and to influence supply chain activities; and
■ the network of relationships that organizations belong to when purchasing, in that the place-
ment of orders and contracts between organizations can confirm a current trading relation-
ship, initiate a new set of relationships, or signal the demise of a relationship.
What should be clear is that OBB is not only about the purchase of other companies’ offerings,
but also the strategic development of the organization, creating value, and the management
of inter-organizational relationships, all of which are key issues in B2B marketing. These issues
overlap with each other and are not discrete items.
Hollyoake (2009) argues that business marketing is increasingly about managing buy-
ers’ experiences and interactions. This involves creating expectations—often referred to as
the brand promise—and then delivering propositions against these promises. It is impor-
tant that a customer’s evaluation of their experience is beyond that which they expected.
Hollyoake (2009) develops these ideas into ‘ease of doing business’ as a measure of the
supplier–customer relationship and suggests that customer experiences are based on four
pillars: trust; interdependence; integrity; and communication. These ideas are explored in
Chapters 14 and 15.
Grönroos (2009) develops these principles about customers’ expectations into a new per-
spective on (business) marketing, which he refers to as promise management. These
ideas are rooted in the value-creation process. Firms are involved in developing and deliver-
ing value propositions (promises). Value propositions are realized only when an offering is
consumed by customers; value creation, when experienced by customers, can be termed
value fulfilment.
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Decision-Making Units
The purchasing process is the means by which organizations create value. It is an integral part of
an organization’s value at some future point. Although organizations usually designate a ‘buyer’
as responsible for the purchase of a range of offerings, in reality numerous people are usually
involved in the purchasing process. This group of people is referred to as either the decision-
making unit (DMU) or the buying centre. In many circumstances, these informal groupings of
people align in varying ways to contribute to the decision-making process. Some procurement
projects—usually those of major significance or value—require a group of people to be put
together formally. This group has responsibility for overseeing and completing the purchase of
a stipulated item or offerings. Consider, for example, the buying team at Boeing, who help the
organization to produce planes by buying engines from Rolls-Royce, tyres from Michelin Aircraft
Tires, and engineering solutions from Novator AB, among many other suppliers.
The Characteristics of Decision-Making Units

Decision-making units vary in composition and size according to the nature of each individual
purchasing task. Webster and Wind (1972) identified the following people who undertake differ-
ent roles within buying centres, as illustrated in Figure 16.2:
■ Initiators start the whole process by requesting an item for purchase. They may also as-
sume other roles within the DMU or wider organization.
■ Users use the product once it is acquired. They also evaluate its performance. Users may
initiate the purchase process, but are sometimes also involved in the specification process.
Their role is continuous, although this may vary from the highly involved to the peripheral.
Initiators
Decision-
Influencers
makers
Decision-
making unit
Users Deciders
Gatekeepers
Figure 16.2
Membership of the decision-making unit
Source: Fill and McKee (2012). Reproduced with the kind permission of Goodfellow Publishers.
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■ Influencers often help to establish the technical specifications for the proposed purchase
and help to evaluate potential suppliers’ alternative offerings. This group might comprise
consultants hired to complete a particular project. For example, an office furniture manu-
facturer will regard office managers as key decision-makers, but understand that speci-
fiers, such as office designers and architects, also influence that office manager’s decision
about furniture.
■ Deciders (also known as key decision-makers, or KDMs) are those who make purchasing
decisions and they are the most difficult to identify. This is because they may not have formal
authority to make a purchase decision, yet are sufficiently influential internally that their deci-
sion carries the most weight. In repeat buying activities, the buyer may also be the decider.
However, it is normal practice for a senior manager to authorize expenditure decisions involv-
ing sums over certain financial limits.
■ Buyers, or purchasing managers, select suppliers and manage the process whereby the re-
quired offerings are procured. Buyers may not decide which offering is to be purchased, but
they influence the framework within which the decision is made. They will formally undertake
the process whereby offerings are purchased once a decision has been made to procure
them. For example, they may be formal buyers and may kick-start the purchase of a type of
lubricant because the stock figures have fallen to a threshold level that indicates that current
supplies will be exhausted within a certain number of weeks. They will therefore assume the
roles of both initiator and buyer.
■ Gatekeepers have the potential to control the type and flow of information to the organiza-
tion and the members of the DMU. These gatekeepers may be personal or other assistants
or secretaries, technical personnel, or telephone switchboard operators.
The size and form of the buying centre is not static; rather, it can vary according to the complexity
of the offering being considered for purchase and the degree of risk each decision is perceived
to carry for the organization. Different roles are required and adopted as the nature of the buying
task changes with each new purchase situation (Bonoma, 1982). All of the roles outlined might
be carried out by one individual for certain decisions. It is vital for seller organizations to identify
members of the buying centre, and to target and refine their messages to meet the needs of
each member of the centre.
Membership of the DMU is far from fixed and this fluidity poses problems for selling organi-
zations simply because it is not always possible to identify key members or shifts in policy or
requirements. Spekman and Gronhaug (1986) suggest that the DMU can reach across numer-
ous different functional roles and that any number of individuals might participate or exert influ-
ence over the process at any particular time. Within this context, how DMU members behave is
governed by the interpersonal relationships between the centre’s members.
The Processes of Decision-Making Units

Organizational buying decisions vary based on the nature of the offering, the frequency and the
relative value of purchases, their strategic impact (if any), and the type of supplier relationship.
These, and many other factors, are potentially significant to individual buying organizations.
There are three main types of buying situation. Referred to by Robinson, Faris, and Wind (1967)
as buyclasses, these are new task, modified rebuy, and straight rebuy. These situations
are summarized in Table 16.3.
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Table 16.3 Main characteristics of the buyclasses
Buyclass Degree of familiarity Information Alternative solutions

with the problem requirements
New buy The problem is fresh to the A great deal of information Alternative solutions are
decision-makers is required unknown; all are considered
new
Modified rebuy The requirement is not More information is Buying decision needs new
new, but is different from required but past solutions
previous situations experience is of use
Rebuy The problem is identical to Little or no information is Alternative solutions not

previous experiences required sought or required
Source: Marketing Communications (7th edn), Fill, C. and Turnbull, S. (2016). Reproduced with the kind permission of Pearson
Education Limited. © Pearson Education Limited (2016).
New Task
As the name implies, in a new task the organization is faced with a first-time buying situation.
Risk tends to be high at this point because there is little collective experience of the offering being
purchased (the ‘solution’) or the relevant suppliers. As a result of these factors, if the solution
purchased is a complex one, there may be a large number of DMU participants. Each participant
requires a lot of information, and a relatively long period of time is needed for the information to
be assimilated and a decision to be made.
Modified Rebuy
Having purchased a solution previously, uncertainty is reduced, but not eliminated, so the orga-
nization may request through their buyer(s) that certain modifications be made to future pur-
chases, for example adjustments to the specification of the solution, further negotiation on price
levels, or perhaps an arrangement for alternative delivery patterns. Fewer people are involved in
the decision-making process for a modified rebuy than in the new task situation.
Straight Rebuy
In the straight rebuy situation, the purchasing department reorders on a routine basis, very often
working from an approved supplier list. Offerings repurchased in this situation may be solu-
tions that an organization consumes to keep operating (for example office stationery), or low-
value materials used within the operational value-added part of the organization (for example the
manufacturing processes), or low-value services (for example maintenance contracts). No other
people are involved with the procurement exercise until suppliers try to change the decision-
making environment. For example, a new supplier may provide a potentially better offer and this
could stimulate the emergence of a modified rebuy situation.
Straight rebuy presents the classic conditions for the use of automatic reordering systems,
allowing costs to be reduced, managerial time redirected to other projects, and the relationship
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between buyer and seller embedded within a stronger framework. One possible difficulty with
automatic reordering systems is that both parties may perceive the procurement system to be
a significant exit barrier if conditions change and this may deter them from offering flexibility or
restrict opportunities to develop the relationship.
The use of electronic purchasing systems at the straight rebuy stage has, however, enabled
organizations to empower employees to make purchases, although control still resides with
purchasing managers. Employees can buy directly online from a catalogue list of authorized
suppliers. The benefits are that employees are more involved, the purchasing process speeds
up, costs are reduced, and purchasing managers can spend more time with other higher
priority activities.
Visit the online resources and follow the web link to Electronic Commerce Europe, the
biggest online trade network in the world, for more information on the use of electronic B2B
purchasing.
Buyphases
Organizational buying behaviour consists of a series of sequential activities through which orga-
nizations proceed when making purchasing decisions. Robinson and colleagues (1967) refer to
these as buying stages, or buyphases. The following sequence of buyphases is particular to the
new task situation just described; many of these buyphases are ignored or compressed accord-
ing to the complexity of the offering and when either a modified rebuy or straight rebuy situation
is encountered.
Need/Problem Recognition
The need/problem recognition phase is about the identification of a gap between the benefits
an organization is experiencing now and the benefits it would like to have. For example, when a
new offering is to be produced, there is an obvious gap between having the necessary materi-
als and components and being out of stock and unable to build. The first decision is therefore
about how to close this gap. There are two broad options for the organization—that is, whether
it should outsource the whole, or parts, of the production process, or build or make the offer-
ing itself. Once the need has been recognized and the gap identified, that decision must be
taken—and we will assume, in the rest of this section, that the organization has decided to
build the offering itself.
Product Specification
As a result of identifying a problem and the size of the gap, influencers and users can determine
the desired characteristics of the solution needed to resolve the problem. This may take the
form of either a general functional description, or a much more detailed analysis and the cre-
ation of a detailed technical specification for a particular proposition. What sort of photocopier
is required? What is it expected to achieve? How many documents should it copy per minute?
Is a collator or tray required? What associated services will be required (for example warranty,
maintenance)? This is an important part of the process, because if it is executed properly, it
will narrow the supplier search and save on the costs associated with evaluation prior to a final
decision. The results of the functional and detailed specifications are often combined within a
purchase order specification.
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Supplier and Proposition Search

At the supplier and proposition search stage, the buyer actively seeks suppliers who can sup-
ply the necessary solution(s). There are two main issues at this point: will the solution match
the specification and the required performance standards; and will the potential supplier meet
the other organizational requirements, such as experience, reputation, accreditation, and credit
rating? In most circumstances, organizations review the market and their internal sources of
information, then arrive at a decision based on rational criteria.
Wherever possible, organizations work to reduce uncertainty and risk. By working with other
organizations that it knows, of which it has direct experience, and which can be trusted, the
organization can reduce risk and uncertainty. This highlights another reason why many organiza-
tions prefer to operate within established networks that can provide support and advice when
needed, rather than to operate individually (see Market Insight 16.2).
Market Insight 16.2

Marketing the Big League
The sports industry within which leagues and teams

participate is characterized by multiple primary B2B
relationships. These occur between the teams and
their owners, those who own the league, corporate
sponsors, various media groups, and any governing
bodies. In addition, there are the business-to-consumer
relationships that teams have with their supporters.
In February 2015, the English Premier League

governing body awarded the live television broadcast
rights for 168 matches, across three football seasons
ending in 2019, to two main media groups, Sky and
BT Sport. The sale of these rights raised more than £5
The sale of live television broadcast rights by
billion, to be distributed amongst Premier League clubs
the English Premier League drives substantial
and also to be used to support grass-roots football.
income for football clubs
Source: © Krivosheev Vitaly/Shutterstock.com.
The sale of broadcast rights is one of several
transactions that participant teams benefit from
as a league member. Sports leagues, such as UK Professional sports leagues can operate across local,
football’s Premier League, Italy’s Serie A, Spain’s La national, and international markets, and the sale of game
Liga, Holland’s Eredivisie, or Sweden’s Allsvenskan, all broadcast rights is a key league activity. At an individual
create value that teams acting individually would not be team level, the sale of admissions and concessions at
able to generate. This is because sport leagues drive home games, stadium leasing and naming rights, shirt
team cooperation to make the league attractive to its sponsorship, and ancillary merchandise and event sales
various stakeholders. This causes teams to be mutually constitute critical revenue generators. These activities,
dependent on each other, yet at the same time they plus those necessary to sustain a team’s operations, all
have to be competitive to win the league. Team involve a wide range of organizations.
supporters and sports fans, however, have a widening
choice of entertainment options, meaning that leagues Sources: Mason (1999); Benijts, Lagae, and Vanclooster (2011);
can compete in a broader entertainment market. de Menezes (2015).
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Market Insight 16.2

continued
The teams in a league constitute an interactive this case, the various organizers, such as sponsors and
network, which can be considered using network the media—and a focal organization—here, the league
theory. Participants strive to add value for the league or the sport’s governing body.
and, in doing so, they create multiple B2B relationships.
The Premier League can be interpreted as a marketing The interaction and relationships that develop among
channel network. This is a type of marketing channel these teams and in the name of a league enable stability,
structure characterized by the performance of the strong relationships, value creation, and the facilitation of
teams and their relationships with intermediaries—in B2B marketing.
Related Topics
B2B marketing; transaction and collaborative exchanges; business relationships; channel design and structure; value
creation
1 Think of a sports industry with which you 2 Identify the ways in which individual sports teams
are familiar and make a list of the different can create value that benefits their league.
stakeholders and the relationships that might
3 How might changes in the environment impact
exist within it.
the relationships within sports leagues?
Evaluation of Proposals
Depending on the complexity and value of the potential order(s), the proposal is a vital part of the
process and should be prepared professionally. The proposals from the shortlisted organizations
are reviewed in light of two main criteria: the purchase order specification; and the evaluation
of the supplying organization. If the potential supplier is already part of the network, little search
and review time is needed. If the proposed supplier is not part of the network, a review may be
necessary to establish whether it will be appropriate (in terms of price, delivery, and service), as
well as whether there is the potential for a long-term relationship or whether this is a single pur-
chase that is unlikely to be repeated.
Supplier Selection
The DMU will normally undertake a supplier analysis and use a variety of decision criteria,
according to the particular type of item sought. A further useful perspective is to view supplier
organizations as a continuum, ranging from reliance on a single source to the use of a wide
variety of suppliers for the same offering. Jackson (1985) proposed that organizations might buy
an offering from a range of different suppliers to maintain a range of multiple sources (a practice
within many government departments). She labelled this approach ‘always a share’, because
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several suppliers are given the opportunity to share the business available to the buying centre.
The major disadvantage is that this approach fails to drive cost as low as possible, because the
discounts derived from volume sales are not achieved. The advantage to the buying centre is
that a relatively small investment is required and little risk is entailed via this strategy.
At the other end of the continuum are organizations that use a single-source supplier. All
purchases are made from the single source until circumstances change to such a degree that
the buyer’s needs are no longer being satisfied. Jackson (1985) referred to these organizations
as ‘lost for good’, because once they have developed a relationship with a new supplier, they
are lost for good to the original supplier. An increasing number of organizations are choosing
to enter alliances with a limited number of suppliers, or even a single source. The objective is
to build a long-term relationship, to work together to build quality, and to help each other to
achieve their goals. For example, outsourcing manufacturing activities for non-core activities
has increased considerably.
Evaluation
Next, the order is written against the selected supplier, which is then monitored and evaluated
against diverse criteria such as responsiveness to enquiries, modifications to the specification,
and timing of delivery. When the offering is delivered, it may reach the stated specification, but
fail to satisfy the original need. In this case, the specification needs to be rewritten before any
future orders are placed.
Developments in the environment can impact on organizational buyers and change both
the nature of decisions and the way in which they are made. For example, the decision to
purchase new plant and machinery requires consideration of the future cash flows that will be
generated by the capital item. Many people will be involved in the decision and the time neces-
sary for consultation may mean that other parts of the decision-making process are completed
simultaneously.
Visit the online resources and complete Internet Activity 16.2 to learn about the seven buying
phases that organizations go through when purchasing industrial goods and services.
Buygrids
When the buyphases are linked to the buyclasses, a buygrid is determined, as illustrated in
Table 16.4.
The buygrid serves to illustrate the relationships between buyphases and buyclasses. It is
important because it highlights the need to focus on buying situations or contexts, rather than on
offerings. Even though this approach was developed over 40 years ago, it remains an important
foundation for this topic.
According to the buyphase model, buyers make decisions rationally and sequentially, but this
does not entirely mesh with practical experience. For example, such a long and complex pro-
cess is not evident in every buying situation, which will differ according to the kinds of offerings
bought, the experience and resources available to organizations, and the prevailing culture. In
other words, there are many variables influencing organizational buying behaviour.
Many B2B marketing concepts were developed in the pre-Internet era and tend to con-
centrate on dyadic (that is, two-party) relationships—namely, the interchange between buyers
and sellers. In many cases, this is still true and relevant. However, the development of e-com-
merce platforms and other digital marketplace exchanges, such as auction sites, introduces
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Table 16.4 The buygrid framework
Buyphases Buyclasses
New task Modified rebuy Straight rebuy
Problem recognition Yes Possibly No
General need description Yes Possibly No
Product specification Yes Yes Yes
Supplier search Yes Possibly No
Supplier selection Yes Possibly No
Order process specification Yes Possibly No
Performance review Yes Yes Yes
a third dimension which suggests that, in some circumstances, B2B relationships should be
considered a triadic (that is, three-party) relationship system—namely, seller–platform–buyer.
For Chakravarty, Kumar, and Grewal (2014), this means that, in some e-commerce settings, the
platform firm should adopt a customer orientation towards both the seller and buyer firms that
they seek to attract and maintain within a relationship.
Purchasing in Organizations
All organizations have to buy a variety of other companies’ offerings to operate normally and
achieve their performance targets. What we have set out so far are the general principles, types,
and categories associated with organizational buying. However, the way in which organiza-
tions buy these offerings varies considerably and does not always fit neatly with the categories
presented here. For many organizations, professional purchasing is not only an important (if not
critical) feature, but also an integral part of their overall operations and strategic orientation (Ryals
and Rogers, 2006; Pressey, Tzokas, and Winklhofer, 2007).
In the past, an organization’s purchasing activities could be characterized as an ‘order-delivery
response function’. Purchasing departments signed orders and the right deliveries were made
at the right place at the right time, then invoiced correctly. The goal was to play off one supplier
against another and, as a result, to reduce costs and improve short-term profits. Purchasing
departments were an isolated function within organizations—a necessary, but uninteresting,
aspect of organizational performance.
This perspective changed towards the end of 1990s. Now, organizations reduce the number
of their suppliers, sometimes to only one, and strategic procurement (as it is often termed)
is used to negotiate with suppliers on a cooperative basis to help to build long-term relation-
ships. Purchasing has become an integral and strategic part of an organization’s operations, and
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managing a smaller number of suppliers can improve performance considerably. For example,
Senn, Thoma, and Yip (2013: 27) reported that Airbus had reduced its supplier portfolio by 80
per cent, from 3,000 to 500.
One of the main reasons for this changed approach was research that showed that busi-
ness performance improves when organizations adopt a collaborative, rather than adversarial,
approach to purchasing and account management (Swinder and Seshadri, 2001). Integral to
this approach is the use of information systems, which, according to Rodríguez-Escobar and
González-Benito (2015), are tools for streamlining and simplifying the way in which the pur-
chasing task is undertaken. For example, information technology (IT) can enhance the imple-
mentation of various purchasing practices that improve the quality, cost, flexibility, or reliability
of supply. This leads to an overall improvement in purchasing performance, benefiting both
supplier and buyer.
However, there are several other related issues that have changed the role of purchasing—
namely, customer sophistication, increasing competition, digital technology, branding, and vari-
ous strategic issues.
Customer Sophistication
Owing to increasing customer sophistication, organizations are trying to differentiate their offer-
ings and become more specialized. Organizational purchasing has to follow this movement and
also become more specialized; otherwise, the organization will become increasingly ineffective
in meeting customer needs.
Increasing Competition
With increasing competition, margins have been eroded. As a result, more attention has been
paid to internal costs and operations. By influencing the purchasing costs and managerial costs
associated with dealing with multiple suppliers, the profitability of the organization can be directly
impacted. Consequently, the importance of purchasing polices, processes, and procedures
within organizations has increased.
Digital Technology
The impact of digital technology has been felt across all functions within organizations. Digital
marketing refers to the use of all kinds of digital tools, including social media, and encom-
passes various integrated elements, platforms, and tools that facilitate social interaction. In a
B2B context, these instruments allow companies to develop interaction and dialogue between
businesses and customer networks with a view to securing stronger relationships, increased
cooperation, and opportunities for co-creation.
Social media presents a major opportunity for the development of inter-organizational rela-
tionships. Research has shown that social media can be used at different stages in the sales
process (Schultz, Shwepker, and Good, 2012). It can be used in the early stages of a customer
relationship, at which awareness, lead building, and prospecting take place, and to maintain
business relationships with established customers. Twitter and LinkedIn are used for referral
requests to influence potential prospects.
However, the numbers of companies using social media is relatively small, and it is seldom
used for business purposes by managers and senior managers (Keinänen and Kuivalainen,
2015). This might be because many senior managers do not use social media within a work-
place setting because they do not see it bringing them benefits. It is also because a large number
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of B2B firms still use linear, or one-directional, communications, such as email marketing and
newsletters (Järvinen et al., 2012). Since Järvinen and colleagues (2012) published, the use of
social media has increased, but it may still be used primarily by younger salespeople who have
migrated their personal skills into their work context, rather than those who have been specifi-
cally trained by organizations to use social media within their role (see Market Insight 16.3 later
in the chapter).
Branding
Despite the view that business brands are important assets that can enhance customer trust,
branding remains a greatly underutilized resource within business marketing. There are outli-
ers, such as Google, Cisco, Oracle, Intel, and IBM, all of whom realized the importance of B2B
branding between 1992 and 2006 (Seyedghorban, Matanda, and LaPlaca, 2016). Lennartz
and colleagues (2015) and Wiersema (2012) both acknowledge that branding has tremendous
potential and is of growing importance within business markets. Indeed, the role of branding
within this context appears to be gaining momentum at a time when digital marketing has gained
a stronger presence. In a digital interactive environment, the brand should be considered to
be the platform for all of a B2B company’s actions. In addition, branding in industrial contexts
provides a means of enabling the integration of different functions—an important requirement in
B2B organizations (Sisko, Lipiäinen, and Karjaluoto, 2015). (For more on branding within busi-
ness markets, see Chapter 13.)
Strategic Issues
There are several strategic issues related to the purchasing activities undertaken by organiza-
tions. First is the ‘make or buy’ decision: should organizations make and/or assemble products
for resale, or outsource or buy in particular products, parts, services, or sub-assemblies and
concentrate on what are referred to as core activities or competences?
Second, the benefits that arise through closer cooperation with suppliers, as well as the
increasing influence of buyer–seller relationships and ‘joint value creation’, have inevitably led to
a tighter, more professional, and integrated purchasing function.
The third strategy-related issue concerns the degree to which the purchasing function is
integrated into the organization. New IT systems have raised the level of potential integration of
purchasing and operations to the extent at which the competitive strength of the organization is
enhanced (Hemsworth, Sánchez-Rodríguez, and Bidgood, 2008).
As if to highlight the variation in approaches to purchasing behaviour, Svahn and Westerlund
(2009) identify six principal purchasing strategies that organizations may use, as follows:
■ The price minimizer purchasing strategy sees a buyer increase their efficiency, seeking the
lowest priced offering. To help them to achieve this, the buyer actively promotes competition
among several potential suppliers.
■ A bargainer purchasing strategy means that a buyer aims to achieve operational efficiency
through long-term collaboration with a selected supplier (Håkansson and Snehota, 1995).
■ The clockwiser purchasing strategy refers to network relationships that function predictably
and precisely, just as a clock works. Here, the goal is strict efficiency, achieved through the
vigilant integration of production-based integrated control systems and IT, and the careful
coordination of the value activities performed by each supply network partner (Glenn and
Wheeler, 2004).
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■ The adaptator purchasing strategy focuses on adapting the manufacturing processes

between the exchange parties. This can arise during the purchase of one major product
or service, when the seller is required to accommodate its offering to the particular needs
of the buyer.
■ The projector purchasing strategy occurs between buyers and sellers who are develop-
ment partners. It can arise during projects when partners develop their offerings in col-
laboration, after which the joint development project is completed and the parties continue
the development work independently. As an example of this strategy, consider the col-
laboration between Nokia and Skype. These major players in the information and commu-
nication technologies (ICT) industry joined their development efforts to develop a radically
novel type of mobile phone that utilized Voice over Internet Protocol (VoIP) to create a free
calling system.
■ The updater purchasing strategy is based on collaboration in research and development
(R&D). Here, collaboration between partners is continuous and the nature of the relationship
is not dyadic, but a supply network. This collaboration is intentional, as demonstrated by Intel
and various manufacturers of personal computers (PCs), which produce updated versions as
a result of constant co-development.
Developing a Customer Portfolio Matrix

Companies have an assortment of customers, many of whom vary in terms of their values
and contribution to the supplier. These customers constitute a portfolio and, although a large
portfolio might sound attractive, many organizations actively seek to reduce their numbers
of customers, aiming instead to increase their efficiency and profitability. For example, Senn
and colleagues (2013: 27) refer to ‘Tetra Pak, the Swedish–Swiss processing and packag-
ing solutions company, [which] earns roughly half of its revenues from a portfolio of 50 key
customers’.
The six core strategies mentioned earlier reflect the complexity and the variety of purchasing
activities undertaken by buying organizations. Most supplying organizations have a mixture of
different types of customer or account. Each account varies in terms of frequency of purchase,
types of product and service bought, prices paid, delivery cycles, time taken to pay, level of
support required, purchasing strategies, and many other factors. These variables reflect the
strength of the relationship between buyer and seller, and they impact on the profitability that
each account represents to the seller.
It makes sense to categorize customers to determine their relative profitability. This, in turn,
enables sellers to allocate resources to customers according to their potential to deliver profits
in the future. One useful approach, known as a customer (or account) portfolio matrix,
brings together the potential attractiveness and the current strength of the relationship between
seller and buyer (see Figure 16.3).
The relationship dimension incorporates the strengths from a customer’s perspective rela-
tive to competitors. For example, a strong relationship is indicative of two organizations work-
ing closely together, whereas a weak relationship suggests that they have little interest in each
other. Customer attractiveness refers to total revenue spend, average rate of growth, and the
opportunities a buyer represents to the seller in terms of profit potential. These calculations can
be complicated and involve a measure of management judgement. For clarity, these scales are
presented as high or low, strong or weak. However, they should be considered as a continuum
Chapter
633
Relationship strength
High Low
High
Sector B
Customer attractiveness/potential
Sector A
Good-to-have customers:
Must-have customers:
allocate resources
invest resources
selectively
Sector C Sector D
Need-to-have customers: Do-not-need customers:
maintain resources reduce resources
Figure 16.3
Customer portfolio matrix Low
and accounts can be positioned on the matrix not only within a sector, but also at a particular
position within a sector. As a result, strategies can be formulated to move accounts to different
positions, which, in turn, necessitate the use of different resources:
■ In sector A, must-have customers enjoy a close business relationship and are also attractive
in terms of their profit potential. Many of these customers are assigned key account status
(see ‘Key Account Management’), but all represent investment opportunities and resources
should be allocated to develop them all.
■ In sector B, good-to-have customers are essentially prospects, because although they
are highly attractive, their relationship with the seller is currently weak. In this situation,
marketing resources should be allocated on a selective basis proportional to the value
that each prospect represents—that is, high investment for good prospects and low for
the others.
■ In sector C, relationships with customers are strong, but customers do not offer strong po-
tential; hence these need-to-have customers are important only because they provide steady
background business that is marginally profitable, so resources need to be maintained.
Where it is identified that some of these customers are supported by a relatively large sales
team, significant cost savings can be achieved relatively quickly.
■ There is little reason to invest in the do-not-need customers in sector D. Relationships with
these customers are weak and, because they are relatively unattractive in terms of profit po-
tential, many of these customers should be let go—that is, released to competitors. These
customers represent a net drain on the selling organization, and hence customers in this
sector should receive little support, and resources subsequently freed up should be directed
to customers in sectors A and B.
One of the benefits of developing a customer portfolio matrix is that it becomes easier to allo-
cate sales channels to customers. Multichannel marketing decisions are important and should
be rooted within the customer portfolio matrix. A range of channel strategies that relate to the
channel needs of business customers and to any end-user target consumer segments can be
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Personal selling Telemarketing Direct Print & Web site/ Social media e-commerce
& KAM mail sales literature Mobile
Personal contact Electronic contact and

and face-to-face faceless interaction
interaction
Figure 16.4
A spectrum of multichannel strategies
identified (Payne and Frow, 2004). These can be considered to be part of a spectrum. At one
end, channels can consist of a dedicated, personal key account manager (highly personalized
sales channel); at the other end, the channel can be purely electronic, with no personal contact
at all. In the middle, there will be a range of different combinations of personal and electronic
channels (see Figure 16.4).
In reality, most business customers will use a mixture of online and offline resources wherever
possible and according to their specific needs. It is important for selling organizations to identify
and allocate the most appropriate set of channels for their customers, based on the business
potential each customer represents. These channels can be changed as the intensity of a cus-
tomer relationship and their attractiveness develops over time.
Professional Services Marketing

Professional services firms (PSFs) can be distinguished as an independent type of
organization. They provide services to all other organizations and can be found in many sec-
tors, including engineering, architecture, IT and software, and management consultancy and
financial services companies such as PricewaterhouseCoopers (PwC), Deloitte, KPMG, and
EY (formerly Ernst & Young). They offer extremely complex and customized services that are
created and delivered by highly qualified personnel (Reid, 2008). Professional services firms
possess an authority that is granted by the community in which they operate. For example,
accounting firms delineate international accounting standards, which in turn impact financial
markets. They are governed by ethical codes and exhibit a professional culture (Thakor and
Kumar, 2000).
According to Gummesson (1978), a professional service is provided by qualified people, is
advisory, focuses on problem-solving, and is an assignment from the buyer to the seller. Typical
services include management, accounting, law, engineering, surveying, and medicine, and are
often referred to as ‘knowledge engines for business’ (Lorsch and Tierney, 2002: 14).
Greenwood and colleagues (2005: 661) define PSFs as ‘those whose primary assets are a
highly educated (professional) workforce and whose outputs are intangible services encoded
with complex knowledge’. They use this understanding to identify two characteristic dependen-
cies that serve to segregate PSFs from goods-producing organizations. The first concerns a
client’s dependency on the PSF as a result of the imbalance of information held by the two par-
ties; the second concerns the dependency on its professional workforce and the high levels of
mobility necessary to generate the PSF’s output (see Market Insight 16.3).
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Market Insight 16.3

KPMG Engages through Social Media
KPMG is one of the world’s largest professional Social media was a critical activity because the tech
services companies, and its High Growth Technology start-up community is active on social media, and
(HGT) Group was established to build strong and uses these channels to stay informed and to connect
meaningful relationships with entrepreneurs and with like-minded people and companies. Twitter was
founders of tech start-ups. The goal was to become identified as the main social channel, supported by
the ‘go to’ professional services provider for the tech Instagram. A dedicated Twitter profile was set up for
sector. audience acquisition, direct posting, and fostering
relationships with media, influencers, and the business
To raise awareness of the HGT Group among community in and around Tech City (a technology
relevant companies, and to establish thought district located in East London).
leadership and drive traffic, a mobile-optimized
microsite and social media strategy was activated, Interestingly, KPMG’s agency not only assumed the
supported by an ongoing programme of content. It role of site editor responsible for the creation and
was important to ensure that the HGT Group’s social management of the site content, which included
identity was separate from that of the corporate part editorial, video, blog posts, and infographics, but
of KPMG. It was important to grow new follower also ran social media training workshops for all
communities. KPMG HGT Group members. This helped them
to get the most from their own use of Twitter and
New material, including video, blog posts, and LinkedIn for networking, and to extend the reach of
infographics, was posted on a weekly basis, HGT Group content.
feeding the social media strategy. This approach
was designed to encourage repeat visits and to Sources: https://www.b2bmarketing.net; http://www.
demonstrate the breadth and credibility of the HGT kpmgtechgrowth.co.uk; http://www.thecroc.com/case-study/
Group proposition. kpmg-start-ups-tech/
KPMG aimed at being both a key influencer and valued KPMG’s attempt to build meaningful long-term
partner to tech start-ups in this sector. The credentials relationships with start-ups can be best understood in
for a successful influencer involve being credible, terms of the key mediating variables (KMV) model (Morgan
trustworthy, and being seen to behave with integrity. and Hunt, 1994). Morgan and Hunt (1994) demonstrated
By linking up via social media, KPMG sought to drive that the presence of both commitment and trust leads
word-of-mouth communication and encourage the to cooperative behaviour, customer satisfaction, and
spread of positive comments regarding its services. ultimately successful relationship marketing. They
Over time, both forms of dependency can be observed argue that building a relationship based on trust and
with KPMG. The first dependency concerns a start-up’s commitment leads to major benefits: the development of a
dependency on KPMG because of the information set of shared values; reduced costs when the relationship
the PSF holds; the second concerns a start-up’s finishes; and increased profitability because a greater
dependency on KPMG in terms of its professional number of end users are retained as a consequence of the
workforce and mobility. inherent value and satisfaction they experience.
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Market Insight 16.3

continued
Related Topics
word-of-mouth communication; relationship trust; endorsement; opinion formers; opinion leaders
1 What value might potential clients perceive, be an ethical issue as a result of the part PSFs
through social media, of working with a large play in this?
PSF such as KPMG?
3 Find two PSFs in the same industry and consider
2 To what extent do PSFs influence industry their brand identities and their reputation. What
standards and regulations? When might there are the differences and similarities?
An important question concerns what it is that characterizes a PSF. Greenwood and col-
leagues (2005) identify two core characteristics. The first is that the outputs of PSFs are intan-
gible and are normally applications of complex knowledge, which makes it difficult for customers
to compare and evaluate the relative competence of suppliers, and makes clients dependent on
the professionals delivering these services.
The second defining characteristic concerns the engine of this knowledge. This is generated
within a highly educated workforce—professionals who are qualified and skilled at customizing
complex knowledge to different client situations. Professional services firms have to attract and
retain qualified people who can develop close ties with each client.
These two core characteristics shape the marketing strategies of PSFs. To simplify the out-
puts into understandable units of information and so convince clients of its superior compe-
tence, a PSF will strive to develop a superior reputation. To ensure that its workforce delivers
complex knowledge and fosters client relationships, it is necessary for the PSF to attract and
retain suitable professionals.
As Greenwood and colleagues (2005) acknowledge, herein lies an interesting and self-
fulfilling cycle of activities. The quest for suitable professionals is assisted by the develop-
ment of corporate reputation, because the latter helps the PSF to attract the best recruits. A
strong reputation can also lower marketing costs because clients seek out higher-status firms
(Podolny, 1994). Strong brand names allow organizations to charge premium fees (Krishnan
and Schauer, 2000).
Professional services firms—especially the larger multinational consultancies—invariably
adopt relational marketing strategies designed to retain, rather than acquire, clients (see Case
Insight 16.1, for example). According to Reid (2008), marketing activities are then geared towards
generating a financial return and building a business network. However, it is the quality of the
client relationship that is critical, and that relationship quality can be both formal (for example
evidenced in project briefings) and informal (for example social). This in turn requires a range of
technical and interpersonal skills, and the organization must have a clear brand vision and iden-
tity that is internalized by the professional workforce.
For PSFs, the key to successful marketing is the development of a strong reputation, and
this involves the creation and maintenance of a corporate brand. Marquardt, Golicic, and Davis
Chapter
637
BRAND MANAGEMENT BRAND EQUITY
Brand value Brand

proposition awareness
Customer’s Internal and

brand external brand
experience communication
Brand
meaning
Figure 16.5
The B2B service brand process
Source: Marquardt et al. (2011).
(2011) have developed a service brand process model (see Figure 16.5). This is useful because
it identifies three brand management components:
■ the need to develop a compelling brand value proposition, or promise;
■ the use of internal and external communications to inform and influence stakeholders—
particularly clients—about the brand; and
■ customers’ experiences with the brand and the realization of the brand promise.
These components are directly affected by interactions with the professional workforce (Berry,
2000). Indeed, there is general agreement that the development of a strong corporate reputation
has to be founded on a workforce that embodies, and identifies with, the mission and values
of the organization (Roper and Davies, 2010). The issue of customer experience is examined
in Chapter 15. Collectively, these managerial components impact on the development of brand
equity, which Marquardt and colleagues (2011) see as a composite of brand awareness and
brand meaning.
Corporate Social Responsibility

Organizations communicate with one another through application of a corporate com-
munications mix. The mix provides a series of cues by means of which stakeholders
develop impressions about an organization. It can be considered to be composed of five
main elements—that is, symbolic, management, marketing, organizational, and behavioural
communications (see Table 16.5).
Through the use of the different elements of corporate communications, organizations seek
to build strategies that differentiate the firm. Berry (2000: 131) argues that there is ‘a conscious
effort to be different, a conscious effort to carve out a distinct brand personality’. He also argues
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Table 16.5 The corporate communications mix
Form of corporate Explanation

communication
Symbolic Communications concerning the visual aspects of an organization. These

encompass names, letterheads, logos, signage, emblems, colour schemes,
architecture, and the overall appearance of all the design aspects associated
with the company.
Management Communications by managers who have a responsibility for the deployment

of resources. These communications may be directed at internal or external
audiences.
Marketing Communications designed to engage customer-oriented audiences with regard

to the promotion of an organization’s products and services.
Organizational Communications aimed at a range of stakeholders, not just customers, that

are designed to build identification, commitment, and relationships with an
organization, and are not sales oriented.
Behavioural Communications that emanate from the interactions, decisions, tone of voice, and
overall empathy between employees and with others outside the organization.
Source: Fill (2013). Based on Birkigt and Stadler (1986) and van Riel and Fombrun (2007). Reprinted with the kind permission
of Pearson Education.
that organizations need to represent something that is important to their customers. In the PSF
sector, this is represented by superior knowledge—the one critical element with which clients
want to be associated and that they use to compare propositions.
An important use of the mix is the development of corporate social responsibility (CSR), which
is considered to be of strategic importance for organizations (Homburg, Stierl, and Bornemann,
2013). A key aim of CSR, according to Bhattacharya, Korschun, and Sen (2009), is the creation
of mutually beneficial relationships with stakeholders over the long term.
Homburg and colleagues (2013) identify two facets of CSR. The first is business practice
CSR, targeted at the primary stakeholders. These are normally considered to be those employ-
ees and customers who are involved with a firm’s core business operations and with whom
there is market exchange. The second facet concerns philanthropic CSR, which is targeted at
secondary stakeholders—that is, those external to a firm’s core business operations. These are
essentially community and non-profit organizations, and the goal is to stimulate philanthropic
engagement.
Research by Homburg and colleagues (2013) found that business practice CSR can increase
trust in a supplier, while philanthropic CSR can improve customer–company identification. Part
of their conclusion was that managers should be proactive in their use of CSR issues in their
business strategy, that they should engage in CSR continually, and that they should communi-
cate their CSR efforts transparently.
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639
Key Account Management (KAM)

It is common knowledge that not all customers represent the same potential and profitability.
However, it is quite common for a small number of customers to contribute a disproportion-
ately large part of an organization’s income and profitability. As a result, these customers often
become essential to the firm’s survival, so it is not surprising that, as Sharma and Evanschitzky
(2016: 3) report, ‘key accounts receive special treatment, with directed additional resources,
compared with other sales accounts’.
The term ‘key accounts’ has become the established way of referring to those customers who
are considered to be strategically important. A key account might offer the supply-side company
opportunities to learn about new markets or types of customer. It might provide access to new and
valuable resources, offer involvement with other key organizations, or simply be symbolically valu-
able in terms of influence, power, and stature. Size alone is not sufficient for key account status.
The underlying principle of relationship marketing in business markets requires that the focus
should shift from short-term transactional exchanges to longer-term and collaborative relation-
ships. The fundamental purpose of KAM is to create strategic alliances with key accounts through
the development of long-term relationships (Tzempelikos and Gounaris, 2013). Establishing key
accounts and the supporting infrastructure represents a significant investment for organizations
and an opportunity cost.
sales force automation (SFA) applications to aid the management of key client accounts.
So why have so many organizations established and formalized their key account strategies?
There are many reasons, some of which are particular to each organization; however, the main
ones relate to changes in the competitive environment and in industry structure.
Changes in the Competitive Environment

In an increasingly complex and competitive environment, in which product life cycles appear
to be shortening and differentiation difficult to sustain, the need to find new ways of enhancing
business performance has intensified. One of the ways of achieving this is to provide a range of
services that are tailored to meet each customer’s needs.
Many types of service can be customized, for example training and development programmes,
extranets, customer-driven delivery routes and timings, product support, and customer service
lines. However, it is through the provision of value-added services that relationships are often
developed and maintained. Establishing key accounts is a natural extension of providing par-
ticular services for key customers: not only does this enhance the profile of these customers,
both internally and externally, but it also helps to focus resources on particular customers and
their individual needs.
Changes in Industry Structure

Many organizations have centralized their purchasing activities—a move driven by two main fac-
tors. First is the amount of industry consolidation, a process whereby a few organizations grow
larger by merging or acquiring their competitors, so that the industry is concentrated around a
small number of large organizations. Industry consolidation has increased substantially in recent
years. Second, in industries in which consolidation has not been significant, many organizations
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have moved towards centralizing their purchasing departments, processes, and functions as a
means of achieving cost savings, improving effectiveness and efficiencies, and in so doing improv-
ing profits. ABB Sweden is a global corporation operating in a variety of industry segments, includ-
ing power generation, pulp and paper, water, and chemicals. Brehmer and Rehme (2009) evaluate
the way in which ABB Sweden used three different approaches to key account programmes,
recognizing sales opportunities, customer demands, and a need to be more customer-focused.
The result of both of these actions is that there are a smaller number of purchasing units
responsible for a larger proportion of business. For business marketers and suppliers gener-
ally, these trends towards industrial concentration and purchasing centralization mean that
competition is increased and marketing strategies need to be much more customer-specific.
Key account programmes are used with the deliberate intention of building relationships, often
achieved by influencing levels of trust and commitment to generate more business.
However, in relationships between manufacturers and retailers (for example the grocery busi-
ness), the presence of a key account relationship does not appear to have any significant
benefit on the amount of resources allocated to the supplier’s products (Verbeke, Bagozzi, and
Farris, 2006).
Key Account Relationship Cycles

Key accounts do not only appear and flourish; they are the result of careful management,
nurturing, and time. Key accounts represent a particular strength of relationship and, as with
good wine, need time to develop to reach full potential (see Market Insight 16.4). Consequently,
each key account will, at any one moment, be at a particular stage of relationship development
(Millman and Wilson, 1995).
Key accounts can be plotted through various stages of a KAM development cycle. One
such cycle is shown in Table 16.6. The time between stages is not fixed, and varies according
to the nature and circumstances of the parties involved. The stages can be negotiated quickly,
in some cases, or negotiations may become protracted. The titles of each of the stages reflect
the relationship status of both parties rather than of the selling company (for example preferred
supplier) or buying company (for example prospect).
Managing Key Accounts

Key account managers provide the main link between employer and key account customers.
They provide a route through which information flows—preferably in both directions. They must
be capable of dealing with organizations in which buying decisions can be both protracted and
delayed (Sharma, 1997), and quick and demanding. However, key account managers do not
operate alone and are not the sole point of contact between organizations; normally, there are a
number of levels of interaction between the two organizations, to the extent that there could be
‘an entire team dedicated to providing services and support to the key account’ (Ojasalo, 2001:
109). Therefore key account managers assume responsibility for all points of contact within the
customer organization.
The value that a customer derives from a particular offering will have a significant influence on
the level of attention given by the buyer to the supplier’s programme. Furthermore, the level to
which an organization uses centralized buying procedures will also impact on the effectiveness
of a KAM programme. Key account managers’ behaviours differ from those in field sales roles in
relation to internal management, adaptability to customers, and planning, but align in relation to
Chapter
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Market Insight 16.4

Groupon: KAM Gone Wrong
could profit from broadcasting their offerings on the

Groupon website, and hence tap into the company’s
huge database of subscribers globally. The classic deal
worked on the basis that the merchant offered a 50 per
cent discount, after which the merchant and Groupon
split the rest of the revenue. After fees and discounts,
a merchant would generate around 23p in each £1 of
the original price, but this would be money well spent
if it were to generate new customers. Consequently,
consumers won by gaining the chance to find hidden
shopping and leisure gems in their locales, at bargain
prices. Local businesses (‘merchants’, in Groupon
jargon) benefited from exposure to an untapped and
widely inaccessible online target audience, attracting
new customers to their businesses.
Nevertheless, horror stories began to surface of

dissatisfied merchants whose businesses were
capsizing under unexpectedly large hordes of
voucher holders, because Groupon’s salesforce had
not consulted with them properly. From the German
subsidiary, many of the company’s key accounts
(merchants forming the so-called dream partners list,
such as renowned restaurants, retailers, or spas) raised
their concerns about key account managers’ business
practices. Complaints were made about false promises
made, specifically not capping the agreed maximum
number of deals available on the Groupon website,
which was intended to ensure that merchants did not
run the risk of being overwhelmed by voucher holders.
One merchant went so far as to accuse Groupon’s key
Cashback at restaurants is just one of many account management team of deliberately making up
deals the Groupon app offers contracts between merchants and Groupon because
Source: © Groupon. of a fear of getting sacked in the wake of a growing
‘hire and fire’ mentality amongst Groupon Germany’s
Since its inception in 2008, Groupon has become a Berlin-based management. As a consequence, sales
global e-commerce leader, offering consumers a vast slumped in the following months in virtually all markets.
marketplace of unbeatable local deals all over the In 2013, Groupon’s stock price fell and the company’s
world. The UK deals market was worth an estimated value dropped to $3 billion.
£6 billion by 2011. Groupon, with an estimated 100
million customers worldwide at that time, was worth To recover, Groupon developed a series of self-service
US$13 billion. By putting a twist on the boring old websites—mobile and tablet enhancements—to make it
coupon, Groupon created a powerful direct marketing easier for valued merchants to create and manage their
platform. Bricks-and-mortar-businesses with limited own Groupon marketing campaigns for their businesses
marketing budgets or a lack of skill in advertising online across any of their devices, wherever they are located.
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Market Insight 16.4

continued
Branded the ‘Groupon Merchant Centre’, merchants The changes made seemed to have worked: Groupon
use the app to cap their deals, monitor campaign claims category-leading customer satisfaction ratings
performance, share feedback via social media, and and a net promoter score of 72, rating it alongside
get in touch with Groupon’s customer service centre some of the world’s best-known brands.
whenever needed. Having learned from their earlier
mistakes, Groupon now provides value-added Sources: Morgan and Hunt (1994); Bice (2012); Kaczmarek
services in its business model, hoping to re-establish, (2012); Kaczmarek and Wohlert (2012); Tzempelikos and
develop, and maintain long-term relationships with Gounaris (2015); Sheppard (2017); https://investor.groupon.com/
key merchants and its growing base of 52.7 million financials/annual-reports-and-proxy-statements/default.aspx;
customers worldwide by the end of 2016. https://www.groupon.de/
If relationships with key account partners of a firm and Hunt, 1994), by adding extra services such as the
are not properly developed and nurtured, solely Groupon Merchant Centre, to demonstrate recognition
emphasizing a transactional approach to B2B of each other’s mutual importance. Being transparent
relationships can have a detrimental effect upon the about sharing sensitive information, as well as giving a
whole business in profit terms (Tzempelikos and firm’s most valued customers the chance to participate
Gounaris, 2015). To reach an interdependent and in joint problem-solving, makes the retention of
integrated relationship with key accounts, the supplying committed (long-term) profitable relationships with key
firm needs to establish trust and commitment (Morgan partners more likely.
Related Topics
key account management; relationship trust; relationship failure; KAM development cycle
1 Why do you think Groupon failed to consider 3 How do you think this incident would affect
merchants’ ability to fulfil customers’ voucher trust and commitment between Groupon and its
deals? merchants?
2 What should Groupon have done to ensure that This market insight was kindly contributed by Julius Stephan,
Aston University, UK.
merchants using its platform were not inundated
with more business than they could handle?
goal orientation, network embeddedness, and strategic priorities. In addition, many companies
treat KAM as a sales initiative rather than as a business-wide change management programme
(Davies and Ryals, 2013).
Abratt and Kelly (2002) found six factors that were of particular importance when establishing
a KAM programme—that is, key account manager suitability, understanding of the client’s busi-
ness, commitment to the partnership, delivering value, trust, and the proper implementation and
understanding of the KAM concept.
Chapter
643
Table 16.6 Key account management development stages
Development stages Explanation

within a cycle
Exploratory Suppliers identify and isolate those customer accounts that have key
account potential.
Basic In this transactional period, exchanges are used by both parties to test
each other as potential long-term partners.
Cooperative An increasing number of people from both parties become involved in the
relationship.
Interdependent This stage involves mutual recognition of each other’s importance. Very
often, single-supplier status is conferred.
Integrated Both parties share sensitive information and undertake joint problem-
solving. The relationship is regarded as a single entity.
Disintegrated The termination or readjustment of the relationship can occur at any time.
In addition to the interpersonal relationships that exist between the customer’s contact per-
son and the supplier’s key account manager, there are also inter-organizational relationships that
may concern system and policy issues (see Research Insight 16.3). These will vary in strength
and some may not be compatible with the tasks facing the key account manager.
Workman Jr, J.P., Homburg, C., and Jensen, O. (2003). Intraorganizational determinants
of key account management effectiveness. Journal of the Academy of Marketing
Science, 31(1), 3–21.
In this article, the authors investigate what dimensions of the KAM approach affect KAM effectiveness,
concluding that these include the KAM team’s esprit de corps (that is, pride and sense of loyalty to the
team), marketing and sales resource access, activity intensity, activity proactiveness, and top management
involvement. Conversely, formalizing the KAM approach is negatively related to performance. The authors also
found that factors such as top management involvement and KAM team esprit de corps mattered more than
formalization of the approach. The surprising conclusion is therefore that formalizing the approach to key account
management may lead to bureaucracy and inflexibility in responding to the key account clients’ demands.
Chapter Summary
■ Explain the main characteristics of business markets and understand the different types of
organizational customer.
Business markets are characterized by four main factors: the nature of demand; the buying processes;
international dimensions; and the relationships that develop between organizations. A range of
organizations make up business markets; and these can be classified as commercial, government, and
institutional. These organizations buy products and services to make goods for resale to their customers,
but they also consume items that are required to keep their offices and manufacturing units functioning.
■ Describe the different types of offering that are bought and sold in business markets.
Products and services bought and sold through business markets are categorized as input goods,
equipment goods, and supply goods.
■ Set out the main processes and stages associated with organizational buying and purchasing.
Organizational buying behaviour can be understood as a group buying activity in which a number of
people with differing roles make purchasing decisions that affect the organization and the achievement of
its objectives. Buying decisions can be understood in terms of different types of decision (buyclasses) and
different stages (buyphases).
■ Explain what business-to-business marketing is and the marketing issues associated with
professional services firms.
Business-to-business marketing is concerned with the identification and satisfaction of business
customers’ needs. This requires that all stakeholders benefit from the business relationship and associated
transactions. Customers derive satisfaction by purchasing offerings that they perceive as providing them
and/or their organizations with particular value. Professional services firms focus on developing their
reputation as the main means of differentiation.
■ Understand the principles of key account management.

Some suppliers refer to some of their strategically important customers as ‘key accounts’. Relationships
with these customers move through various stages known as key account management development
cycles. Each stage is marked by particular characteristics, and part of the role of the key account manager
is to ensure that all contact between the supplier and the customer builds on strengthening the inter-
organizational relationship.
Review Questions
1 Make notes setting out the essential purpose of B2B marketing.
2 What are the key characteristics associated with B2B markets?
3 What are the different types of organization that make up the business market?
4 Name four of the different types of person who make up a decision-making unit.
5 Distinguish clearly between buyphases and buyclasses.
6 What is the customer portfolio matrix?
7 What are key accounts and why are they important?
Chapter 16 > Business-to-Business Marketing 645
8 What are the different phases associated with key account development cycles?
9 How might social media be of help to professional services firms?
10 What are the main characteristics of the B2B corporate communications mix?
1 Having read Case Insight 16.1, how should Grant Thornton ensure that changes in its customer
relationships (for example when individual clients move elsewhere) within clients’ designated key
accounts do not damage those relationships and the propositions it has developed for the client?
2 What are the main characteristics of business marketing and what differences are there, if any, when
you compare these with the main characteristics of consumer marketing?
3 Wirebelt Ltd has been developing a conveyor belt designed to meet new government-driven hygiene
standards. The problem in many manufacturing, packaging, and assembly plants is that floors
underneath conveyor belts can become wet and hence may present a danger to people working
around the equipment. The new belt has a trough incorporated into it, which runs along its entire length.
Spillages feed into the trough, where collection sumps and filters remove the excess liquids before they
overflow to the floor (see https://www.wirebelt.co.uk/company-info/improve-hygiene-standards). Make
brief notes advising Wirebelt’s marketing manager about marketing the new conveyor.

Glossary
business-to-business (B2B) marketing the marketing, organizational, and behavioural
marketing of products and services that are elements of communications.
bought and sold between organizations. C-Suite the range of top-level executives whose
buyclasses the different types of buying situation title includes the word ‘chief’, for example chief
faced by organizations. executive officer (CEO), chief financial officer
buyers (also known as purchasing managers) (CFO), chief marketing officer (CMO), etc.
individuals within organizations who select customer (or account) portfolio matrix a 2 × 2
suppliers and manage the process whereby the grid used to reflect the strength of the relationships
required products are procured. between a buyer and seller, and the profitability
buying centre see decision-making unit that each account represents to the seller.
buyphases the series of sequential activities or deciders people who make organizational
stages through which organizations proceed purchasing decisions; often very difficult to
when making purchasing decisions. identify.
consumer marketing the marketing of decision-making unit (DMU) a group of people
products and services that are bought by who make purchasing decisions on behalf of an
consumers. organization.
corporate communications mix the particular embedded ties strong, close, and mutually
configuration of the symbolic, management, rewarding relationships between firms.
gatekeepers people who control the type and resellers, government units, and institutions
flow of information into an organization, in when purchasing goods and services.
particular to members of the DMU. perceived value the ‘net satisfaction’ derived
horizon scanning (also known as environmental from consuming and using a product, not only
scanning) the process whereby firms gather, the costs involved in obtaining it.
analyse, and disseminate external information professional services firms
to support organizational decision-making in (PSFs) organizations that deliver highly complex
support of the organization’s strategic objectives. and customized services that are created and
influencers people who help to set the technical delivered by highly qualified personnel.
specifications for a proposed purchase and promise management the process of enabling
assist the evaluation of alternative offerings by an organization to make and keep promises to
potential suppliers. customers by meeting the expectations that
initiators people who start the organizational have been created by those promises.
buying decision process. sales force automation (SFA) occurs when
key account a business customer who is firms computerize routine tasks or adopt
strategically significant and with whom a supplier technological tools to improve the efficiency or
wishes to build a long-lasting relationship. precision of sales force activities.
key account management (KAM) development straight rebuy the organizational processes
cycle the stages through which an organization associated with the routine reordering of goods
passes as it develops a relationship with a key and services, often from an approved list of
account customer. suppliers.
modified rebuy the organizational processes strategic procurement an approach used to
associated with the infrequent purchase of negotiate with suppliers on a cooperative basis
products and services. to help to build long-term relationships.
new task the organizational processes associated users people or groups who use business
with buying a product or service for the first time. products and services once they have
organizational buying behaviour (OBB) the been acquired and who then evaluate the
characteristics, issues, and processes performance of the businesses, products and
associated with the behaviour of producers, services.
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Part 5
Marketing
Part 1
Part 2
Strategy
Part 3
Managing Marketing
Programmes
Part 4
Management
Part 5
Marketing
Part 5
The Social Impacts of Marketing
17 Not-for Profit and Social Marketing
18 Marketing, Society, Sustainability,
and Ethics
Chapter 17
Not-for-Profit and Social
Marketing

City of London Police
Market Insight 17.1
List some key characteristics of not-for-profit
Red Nose Day: Coming to
organizations
America
Explain why not-for-profit organizations do not
Market Insight 17.2
always value their customers
Whetting Appetites for
Analyse stakeholders and develop appropriate Welsh Water
engagement strategies
Market Insight 17.3
Describe and assess cause marketing campaigns Shell Develops Room to
Understand how marketing is used in social and Breathe
political marketing campaigns Market Insight 17.4
Midwife or Marketer?
Market Insight 17.5

No Means No! Get It!
654 1 > The
Part 5 Marketing
Social Fundamentals
Impacts of Marketing
Case Insight 17.1

City of London Police
Founded in 1839, the City of London Police (CoLP) police

London’s ‘Square Mile’ financial district, with a national
responsibility for fraud and economic crime. Because they
also police many high-profile public events, they also focus
on the prevention of terrorism and crime. We speak to
Superintendent Helen Isaac to find out how the CoLP uses
social marketing to support law enforcement.
The Force’s core mission statement is ‘to uphold the a service to the public, not selling. We exist to keep
law fairly and firmly; preventing crime and anti-social people safe and we measure ourselves accordingly.
behaviour; keeping the peace; protecting and reassuring Our measures of success focus around social
the community; investigating crime and bringing offenders considerations, including public perceptions of safety
to justice’. No other place has the unique blend of tourism, and confidence in the CoLP to keep the public safe.
range of businesses, and resident population that the City The general public can sometimes see policing as
of London enjoys, where all this diversity is condensed reactive, with police responding after a crime has been
into 1.6 km2. Our community comprises the 9,000 committed. But we designed Project Servator as a
residents of the City, the 300,000 who travel into the proactive strategic approach to policing, incorporating
City to work every day, and businesses large and small, unpredictable and highly visible CoLP deployments,
in addition to the many famous multinational financial involving a wide range of assets including specially
corporations. We also serve the Corporation of London, trained officers, supported and amplified by community
our local authority (and police authority) for the Square engagement, and media and public relations (PR)
Mile. The Home Office provides us with our ‘core grant’ to help to disrupt hostile reconnaissance and wider
and other funding streams for specialist responsibilities, criminality, whilst reassuring and engaging the public.
and a number of trade bodies provide extra funding. Servator is principally a counter-terrorism operation, but
The City is a global powerhouse attracting hordes of its wider intention is to impress upon terrorists and other
tourists because of the many iconic locations within the criminals that the City’s police presence is unpredictable,
Square Mile. Any act of terrorism here would have a while simultaneously reassuring the general public
potentially highly damaging impact on the UK economy around public safety fears. Project Servator is about
and on the confidence of our community to keep them working with the public as partners in being vigilant and
safe. To counter this threat, the City introduced the reporting suspicious activity. Our partnership with the
‘ring of steel’—a security and surveillance cordon—in community is crucial; they are our eyes and ears.
the mid-1990s, following the bombings of Bishopsgate
Given the dual target audience for its communication,
and St Mary Axe by the Provisional Irish Republican
the CoLP had a seemingly impossible task: how
Army (IRA), both of which caused severe disruption
was it to design a social marketing campaign
and damage in the City and resulted in death and injury.
(including message and media mix) that would
This security measure was designed to deter large
deter terrorists and criminals more generally, but
vehicle-borne devices being brought into the City (the
simultaneously reassure the general public and
main terrorist threat identified), but since the bombings
encourage them to report suspicious activity?
of 7 July 2005 (‘7/7’), the terrorist threat has changed.
One key element of policing is communication with Visit the online resources to watch a
local communities and other stakeholders. Although we video interview with Helen Isaac in which
use many of the same communication channels that she explains what the CoLP did.
a brand would, our campaigns are rooted in providing
Chapter 1 Not-for-Profit
17 >
Chapter and Socialand
> Marketing Principles Marketing
Society 655
655
Introduction
Over the last 50 years, the role of marketing in not-for-profit organizations has grown substantially
as these types of organization have begun to realize how marketing can help them to develop
a strong understanding of customers and other stakeholders. But have you ever wondered
whether or not the techniques we use in commercial marketing are relevant in a not-for-profit, in
which the remit is not to enrich shareholders? Are the principles behind marketing not incompat-
ible with the mission of a charity? Are there any differences in how we use marketing techniques
in a social environment, for example when governments use marketing to reduce drink driving,
or to increase fruit-and-vegetable consumption to five or six portions a day, or to increase voter
registration? In this chapter, we answer some of these questions.
So far, our attention has centred on commercial organizations intent on making profits.
However, other types of organization—that is, those that operate in the not-for-profit sector—do
not seek to maximize profit. Kotler and Levy (1969) pioneered the ground-breaking application
of marketing to not-for-profit enterprises. In the twenty-first century, marketing is readily used
by local government, churches, museums, charities, universities, political parties, zoos, public
hospitals, and many others, all of which operate without profit as their central goal. However,
the view is no longer whether or not marketing should be undertaken by not-for-profits, but how
it should be applied (Wright, Chew, and Hines, 2012). There are also organizations that can be
characterized as somewhere between charity and commercial enterprise (for example coop-
eratives). Facebook’s chief executive officer (CEO) Mark Zuckerberg and his wife Priscilla Chan
announced in 2015 that they would donate 99 per cent of the Facebook shares they then held
(then worth US$45 billion) to the Chan Zuckerberg Initiative, a private company, which will itself
donate money to various charitable causes (Brandom, 2015).
Despite the similarities between not-for-profit and commercial marketing highlighted by Kotler
and Levy (1969) (see Research Insight 17.1), there are some key differences in how marketing is
used—particularly in relation to marketing communications. These key differences are as follows
(Rothschild, 1979):
■ Proposition—With not-for-profit offerings, the unique selling proposition is weaker—that is,
there are weaker direct benefits. For example, giving to charity provides us with a sense of
‘doing good’, but this feeling may not be sufficient to induce many people to give. For social
marketing, the proposition relates to the audience benefit gained from undertaking a specific
desired behaviour (LeFebvre, 2011), for example that not drinking and driving saves lives.
■ Price—This has different connotations in not-for-profit situations. For example, in a social mar-
keting context, what is the price when demarketing (that is, reducing the demand for) the
use of illicit recreational drugs such as cocaine? Is it the potential physical harm that could arise
from not stopping using a particular drug, or the damage it could do to the user’s relationships
with friends and family, for example? In social marketing, therefore, ‘price’ can be perceived as
the incentives and costs of (not) taking up a particular desired behaviour (LeFebvre, 2011). The
incentive to stop using cocaine, for example, relates to the removal of psychological and physi-
ological problems, such as mood swings and the risk of heart-related conditions, whereas the
cost might relate to the momentary loss of self-confidence or the feeling of having fun (Jones,
Baines, and Welsh, 2014). In relation to charities, the amount donated is often left to the discre-
tion of the donor (although suggestion of specific amounts tends to be more effective) and is
largely determined by the donor, rather than being specified as in a commercial transaction.
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■ Involvement—We speak of high and low involvement in commercial situations regarding how
consumers learn more about an offering during the purchasing process. The involvement in
not-for-profit situations displays more extreme tendencies: people often either really engage
with a charity (for example Oxfam, Médecins sans Frontières) or a political party (for example
Freedom Party in Austria, or Sweden’s Feminist Initiative) or social cause (such as People
for the Ethical Treatment of Animals, or PETA, and Greenpeace) or exhibit strong reactions
against it.
■ Segmentation—In the not-for-profit environment, it is often important to develop a campaign
that drives behaviour in all targets rather than a specific segment, as in commercial markets.
For example, a health promotion campaign might wish to encourage all adults to eat five por-
tions of fruit and vegetables a day, although there may well be subgroups who need specific
targeted messages (for example young children).
Another key difference in the marketing of not-for-profit organizations is the need to check the
marketing strategy against the environment, the available resources, and—uniquely—against
the organization’s social values (Hatten, 1982). In the latter case, the social values of the orga-
nization impact not only on why the organization exists, but also on how it goes about its mar-
keting activities, including fundraising, promotional programmes, and operational programme
developments. In the UK, major charities such as Oxfam and the British Red Cross came under
considerable pressure when they used an outsourced telemarketing firm employing predatory
fundraising techniques, targeting vulnerable people who were confused or even terminally ill.
Unsurprisingly, they dropped these techniques shortly after a media furore (Weaver, 2015).
Table 17.1 outlines the mission statements for various not-for-profit organizations. For com-
mercial organizations, the mission statement usually focuses on being ‘best in market’ and con-
sequently achieving high levels of profit; in the not-for-profit sector, mission statements focus on
causes. The raison d’être of a not-for-profit is to solve a particular societal problem. Of course, if
a charity were ever truly to solve a problem (for example if a cancer charity were to find a cure),
it might cease to operate—or it might simply amend its mission. Like any other organization, a
charity interacts with its environment and must stay relevant within the context that it operates
if it is to attract funding.
Kotler, P., and Levy, S.J. (1969). Broadening the concept of marketing. Journal of
Marketing, 33(1), 10–15.
In this seminal article, the authors proposed that marketing techniques and concepts, as typified by the 4Ps,
could be applied to non-business organizations and could be applied to the marketing of organizations,
persons, and ideas. It provoked considerable debate, with some writers suggesting that the concept of
marketing had been broadened too far.
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Table 17.1 A selection of mission statements from not-for-profit organizations
Organization Mission statement
The Louvre ‘To adapt to the diverse nature of [its] public, the Louvre continually strives for
(France) greater accessibility. To this end, its initiatives include the progressive widespread
use of labeling in two or even three languages to describe the 38,000 artworks
exhibited; the revamped numbering of exhibition rooms; the development of a
new, more user-friendly floor plan; and the fostering of art education. In addition,
the Louvre website . . . offers various visitor tips on planning a visit, gaining in-
depth knowledge, and teaching art history to children.
Not content merely to receive visitors, the Louvre often engages in public outreach,
in France in particular. The opening . . . of the Louvre Lens in northern France is a
case in point. . . .
In keeping with the universal scope of its vocation, the Louvre enjoys relations with
over 75 countries. Its activities serve to strengthen its bonds with its collections’
countries of origin, to gain a better understanding of overseas visitors, and to reach
out to those who are unable to travel to Paris.’
Emirates Red Our Motto: Life care.

Crescent Our Vision: Leadership and excellence in humanitarian work.
Our Mission: Mobilizing human power to support the vulnerable.
Our Role: The Authority works to support the official authorities in peacetime
and wartime, in accordance with the provisions of Article (26) of the First Geneva
Convention of 1949.
In PeaceTime: Organizing awareness programs, first aid, protection and control
of epidemics, paying attention to the social issues, and providing humanitarian
assistance for vulnerable, needy people and victims of accidents and disasters.
In WarTime: Transferring and treating the wounded and assisting prisoners in the
scope of the Geneva Conventions.
Provide first aid and relief to the victims. Protection of civilians and sheltering the
displaced and homeless.
Search for missing persons and reunion of separated families.’
Civil Nuclear ‘With over 1000 highly trained Police Officers and Police Staff, the CNC is a
Constabulary (UK) specialist armed police service dedicated to protecting the civil nuclear industry.
We protect 14 civil nuclear sites across England, Scotland and Wales, safeguard
nuclear material in transit and play a key role in national security.
The civil nuclear industry includes nuclear research and provides nuclear energy to
millions of people. To protect such an important commodity, as well as the public,
the Civil Nuclear Constabulary (CNC) and Civil Nuclear Police Authority (CNPA)
were established on 1 April 2005.
The CNPA is CNC’s governing authority and reports into the Department of
Energy and Climate Change. It is their job to ensure that we police effectively
and efficiently while being responsive to the needs and priorities of the
stakeholders we serve.
Ambition
To be recognised as the leading UK authority on the armed protection of civil
nuclear facilities and material in transit.
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Mission
In partnership with the civil nuclear industry, national security agencies and
regulatory bodies the CNC will deter any attacker whose intent is the theft or
sabotage of nuclear material whether static or in transit. If an attack occurs
CNC will defend that material and deny access to it. If material is seized or high
consequence facilities compromised the CNC will recover control of the facility
and regain custody of the material.’
China Charity ‘The goals of CCF [established in 1994] are to uphold the spirit of humanitarianism
Federation and the Chinese tradition to help people in poverty as well as people in difficulties.
(CCF, China) There are over 387 affiliates of CCF throughout China.
Since its establishment, CCF has maintained its goals of extending charitable work
in various fields and increasing public awareness of the great difficulties faced by
many members of our society. . . .
. . . Our projects include the following areas, which have great influence on all
aspects of our society: disaster relief, poverty relief, care of seniors and orphans,
education assistance, medical assistance and helping the disabled. So far, through
extensive fundraising activities, CCF has raised more than ¥60 billion [about £1.37
billion in 2018], both in cash and in kind.’
SIDA ‘SIDA is a government agency working on behalf of the Swedish parliament and
(Sweden) government, with the mission to reduce poverty in the world. Through our work
and in cooperation with others, we contribute to implementing Sweden’s Policy for
Global Development (PGU).
We implement the Swedish development policy that aims to enable people living
in poverty to improve their lives. Another part of our mission is reform cooperation
with Eastern Europe. The third part of our assignment is to distribute humanitarian
aid to people in need of assistance.
We carry out enhanced development cooperation with a total of 36 countries in
Africa, Asia, Europe and Latin America. Our selection of cooperation countries are
based on political decisions made by the Swedish government.’
Note: In some cases, the wording may differ slightly from that on the organization’s website. Changes have been made to correct the
English and to abridge the wording, where necessary.
Sources: https://www.louvre.fr/en/missions-projects; https://www.rcuae.ae/en/about.aspx#course and https://www.rcuae.ae/
en/about.aspx#role; http://www.cnc.jobs/about/; https://www.chinacharityfederation.org/English/NewsContent/121/1280.html;
https://www.sida.se/English/About-us/Our-mission/
The Key Characteristics of Not-for-Profit

Organizations
The main characteristics impacting on marketing are the existence of multiple stakeholders,
the degree of transparency expected when working to pursue the organization’s mission and
in dealing with its finances, the presence of multiple objectives in business and social terms, a
different orientation compared with commercial organizations, and, finally, different customer
perceptions (see Figure 17.1). We consider each of these characteristics in what follows.
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Multiple Transparency
stakeholders
Customer Multiple
perceptions objectives
Orientation
Figure 17.1
Key characteristics of not-for-profit organizations
Multiple Stakeholders
Although for-profit or private-sector organizations interact with a range of stakeholders to achieve
their business goals, their focus is on customers and shareholders. What differs about not-for-
profit organizations is their concern for a wider group of stakeholders. Stakeholders are groups
with whom the organization has a relationship and which impact on the operations of the organi-
zation. This includes shareholders (or trustees), regulatory bodies, other charity or not-for-profit
partners, supply chain partners, employees, and customers. In private companies, revenue is
distributed from customers to shareholders; it is initially converted into profits by the organization
and shareholders are rewarded with a dividend as a share of the profits earned. Companies also
have stakeholders, but those stakeholders have less influence on how the organization’s profits
are distributed.
Not-for-profits provide an offering, but their customers or end users seldom pay the full costs
incurred by the organization to provide them. Many not-for-profits rely on stakeholders to finance
the organization’s operations. Instead of revenue from customers being used to reward share-
holders, there are usually no profits to be redistributed because those who fund the organization
do not require a return on their resource provision. For example, local council taxes, Lottery
funding for special projects, and business rates are three of the main sources of income that
fund city councils in the UK, and some selected councils receive central government funding.
Charities are supported by individual and corporate donations. Museums may rely on a mixture
of grants, lottery allocations, entrance fees, and individual donations and bequests. Universities
rely on a mixture of government research and teaching grants, learner tuition fees, individual and
corporate donations, and fees from businesses for corporate services.
Because they serve multiple stakeholders, not-for-profits do not always value their ben-
eficiary customers (that is, those who receive their charitable services) as well as they should
and they sometimes fail to explain sufficiently to donors (that is, supporter customers) how
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Table 17.2 Why not-for-profit organizations do not always seem to value their
customers
Reasons for not valuing Reasons for not valuing Interactive reasons for
beneficiaries supporters undervaluing customers
Many not-for-profits exist in a Donors claim to be Dealing with multiple stakeholders

monopolistic situation, which approached too often for can cause inter-group tension
potentially engenders an arrogant donations and do not feel when one group’s call on resources
culture towards beneficiaries. sufficiently appreciated. takes precedence over others.
For example, a high-value donor
for a university might want their
donation to be used in a way that
is different from that envisaged by
the management of the university.
Demand far outstrips supply, Volunteer service workers

creating problems in delivering a can often feel undervalued
consistent quality of service. and under-supported.
There may be a lack of market

segmentation for beneficiaries.
Research into beneficiary customers’
needs is not common because
funds available are seen as better
used for funding operations.
donations will be used. The difficulties arising when seeking to satisfy multiple stakeholder
groups are outlined in Table 17.2, which considers beneficiary and supporter customers, and
explains why charities sometimes fail to satisfy—and may undervalue—these groups of cus-
tomers (Bruce, 1995).
Not-for-profits should determine which of the different stakeholders have the most interest
in their activities and the most power to affect their organization’s performance. One common
method used to distinguish between the interests and power of stakeholders is the stakeholder
mapping matrix, outlined in Figure 17.2. The matrix can be used to identify four types of stake-
holder, based on the high or low levels of interest that they have in an organization and the level
of power they exert over it:
■ Those with high levels of interest and power (group A) are key stakeholders, which need to
be continuously engaged. They might be funding bodies or powerful regulators, for example.
■ Those with high interest, but low levels of power (group B), for example individual donors to
charities, should be informed about that charity’s activities to maintain their interest.
■ Group C represents those organizations with high power, but low interest. It is important for
the not-for-profit to increase information flow to these organizations to increase their interest,
so that they can exert their power in the not-for-profit’s favour (as a funding body might), or
alternatively to keep them satisfied if they intend to exert their power against the not-for-profit
(as a regulator might).
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High Power Low
High
Maintain
Engage (A)
interest (B)
Interest
Inform or Revive or
satisfy (C) disregard (D)
Low
Figure 17.2
The stakeholder mapping matrix
Source: Scholes (2001).
■ Finally, an organization’s relationships with those stakeholders who have little power or inter-
est should either be disregarded or revived (group D).
The use of public money and donations in not-for-profit organizations requires their source and
allocation to be understood, audited, and tracked. Public scrutiny or transparency of funding is
a feature that distinguishes these organizations from their private-sector counterparts. For dona-
tions to continue to flow, not-for-profit organizations should demonstrate trust, integrity, and
honesty. For example, UK charities are governed by regulatory requirements that require them to
provide greater information on how they are governed compared with their commercial counter-
parts. Charities’ executive teams are overseen by boards of trustees—often unpaid volunteers
who are senior and experienced people who have some interest in running the organization. In
parallel, the executive teams of private or public limited companies are overseen by paid execu-
tive and non-executive directors.
Private-sector organizations declare the minimum financial information required—just enough
to comply with government disclosure requirements. By comparison, not-for-profit organizations
provide considerable detail of their internal procedures and processes. This is because they do
not want to be judged as financially incompetent, and they want to avoid adverse media cover-
age and the negative perceptions that would follow.
Multiple Objectives
In manufacturing and other sectors, profit is a central overriding goal. Investment decisions are
often based on the likely rate of return and resources are allocated according to the contribu-
tion (to profit) they will make. Profit provides a relatively easy measure of success. As the name
suggests, in the not-for-profit sector, profit is not the central overriding goal. Not-for-profit orga-
nizations have a range of goals—a multiple set of tasks that they seek to achieve. These include
generating awareness, motivating people to be volunteers, distributing information, contacting
customers, raising funds, allocating grants, and lobbying members of Parliament (MPs) for
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changes in regulations or legislation (see Chapter 4). Other goals include increasing their geo-
graphical spread to reach new people who might benefit from the organization’s activities and
campaigning to focus media attention on a particular issue. In the non-profit sector, performance
measurement is challenging, because a wider set of objectives are used.
Orientation
As a general rule, rather than manufacturing, distributing, and selling a physical product, not-for-
profit organizations deliver a service. Developing a market orientation (see Chapter 1) is important,
because the stronger the market orientation, the stronger the organization’s market performance,
particularly for smaller charities (Seymour, Gilbert, and Kolsaker, 2006). How the not-for-profit
generates income can impact upon the organization’s market orientation. In a study of Australian
not-for-profits, it was found that poorly operating charities can improve their organizational perfor-
mance by becoming more market-oriented, although the motivations and beliefs of employees in
this sector present unique managerial challenges (Chad, Motion, and Kyriazis, 2013).
Not-for-profit organizations need to create positive awareness about their cause or activities.
The principal focus of the organization is to motivate and encourage people to become involved
and identify with the aims of the organization, which might lead on to financial contributions and/
or volunteering support (for example by working in a charity’s shop, or by contributing financial,
marketing, or other professional services expertise).
Raising funds is an ongoing critical activity in the not-for-profit sector. The payment handed over
by a customer to a charity does not operate in the same way as the payment by a customer for
a banking service at the point of receiving the service. Raising funds for a charity requires people
or donors to contribute money, so the expectations of not-for-profit customers are different from
those of commercial firms. This leads to a greater focus on engaging supporters to become part of,
and identify with, the ethos of the not-for-profit organization rather than simply being a customer.
Customers’ Perceptions
Customers of private-sector organizations realize that, in exchange for an offering, they are con-
tributing to the profits of the organization with which they are dealing: customers have a choice,
and organizations compete to get their attention and money. In the not-for-profit sector, custom-
ers do not always have a choice: donors are free to give to one charity rather than another, or
not to give anything at all. In the public sector, choice is limited, although governments do try to
provide some choice (for example in school provision or choice of hospital for surgery in many
countries). In reality, however, there is little practical opportunity for the public to choose among
different public services in the same way as they can in the private sector. For example, ser-
vices provided by some local councils, such as meal services for the elderly and infirm, or by all
councils, such as magistrates’ courts, or building regulations and planning, are effectively single
source; there is no choice or alternative supplier. In these cases, pressure to deliver a superior
level of service interaction can often be based on an individual’s own sense of duty and integrity,
rather than on any formal organizational service policy and training.
Visit the online resources and follow the web link to the National Council of Non-profit
Associations (NCNA) to learn more about the challenges and developments facing non-profit
organizations.
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Types of Not-for-Profit Organization

We can classify four main types of not-for-profit organization: charities; the social enterprise
sector; the public sector; and political parties and campaigning organizations. How each of
these organizations uses marketing is considered next.
Charities
The increasing success experienced by many charities has resulted from improved commercial
professionalism and the adoption of commercial approaches from the private sector, together with
greater collaboration with the private sector through cause marketing activities. However, there
has also been a simultaneous increase in the number of charities in the marketplace. This means
that there is greater competition as more charities chase a finite number of donor contributions.
Cancer Research UK raised £8 million in one week on the back of the #nomakeupselfie meme—a
campaign it didn’t start
Source: © Cancer Research UK (2014).
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The act of making a donation to a charitable organization is the culmination of a decision-

making process involving a wide range of variables. Attitude to the cause, personal involve-
ment or related experience, and trust that the charity will use the funds appropriately are critical
to encouraging donations. Consequently, charities seek to develop empathy with potential
donors and to build trust on the basis of which an initial transaction or donation can be made.
Traditionally, the acquisition of a new donor is relatively expensive compared with the low costs
associated with the collection of monthly standing orders and direct debits. Costs are minimized
when repeat donations occur, so charities, just like private-sector organizations, practise rela-
tionship marketing principles (see Chapter 15).
However, charities are recognizing the power of the social media to generate significant
increases in fundraising revenue quickly. Cancer Research UK (CRUK) raised £8 million in one
week alone in 2014, when a young mother from Staffordshire in England set up a ‘No Make-Up
for Cancer Awareness’ Facebook page, encouraging people to submit a photo of themselves
wearing no make-up, to tag it #nomakeupselfie, and to donate £3 to CRUK (Duncan, 2014). Once
CRUK realized just how many people were taking notice of the campaign, it sent out the following
tweet: ‘Many are asking—we didn’t start #nomakeupselfie #cancerawareness trend. We like the
sentiment!’ This tweet generated so many retweets that CRUK then generated a text-message
donation number and tweeted this on Facebook, Twitter, Instagram, and Google+ (Eccles, 2014).
The process of giving is based on a strong emotional involvement with the objectives of the
charity. This means that charities try to communicate through messages that invoke an emo-
tional response in their target donors. In the case of marketing foster care, research has found
that positive emotional appeals are more persuasive than negative emotional appeals (Randle
et al., 2016). Charities need to provide people with a rationale—a reason to give money (see
Market Insight 17.1

Red Nose Day: Coming to America
Red Nose Day, first run in the UK in 1988, was set up merchandise; and Oxfam, which also sells the Red
by charity Comic Relief to tackle poverty via a biennial Noses in its charity shops and online. Since the early
telethon held in March. Co-founded by comedian days, the number of corporate partners has significantly
Sir Lenny Henry and screenwriter and producer/film increased. The marketers of washing powder brand,
director Richard Curtis of Love Actually fame, by 2015 Persil, raised £350,000 in 2001 and achieved a 25 per
the event had helped Comic Relief to raise more than cent increase in sales during the promotion period.
£1 billion worldwide. British Airways (BA) became a first-class partner
with Comic Relief in 2010, launching its Flying Start
Comic Relief partners with the British Broadcasting
programme encouraging passengers to donate their
Corporation (BBC) to produce a live television event,
small (foreign) change for the cause, from which BA has
featuring stunts and acts by renowned comedians, and
since raised more than £17 million. For Red Nose Day
other entertainment programmes, to encourage people
2015, among other partners Mars took part by donating
to give generously to the cause of alleviating poverty.
5p from each special Red Nose Day bag of Maltesers
What has particularly strengthened the reach of the
sold, while Unilever donated 8p per special pack of PG
fundraising activity is its partnership with corporates.
Tips teabags sold. In 2017, Pepsico (via its Walkers
Early partners included BT (British Telecom), which
Snacks brand) teamed up with Sainsbury’s over a three-
provides the call centres to take people’s donations;
week promotional period to offer 500 customers who
Sainsbury’s, which sells a variety of Red Nose
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Market Insight 17.1

continued
bought a six-pack of crisps the opportunity to win £50

off their next shop and a £50 donation to Comic Relief.
Red Nose Day is, however, not limited to the UK. Comic
Relief has granted international licences to organizations
around the world, including in China, Belgium, Finland,
Germany, Iceland, and the United States.
In the United States, which holds Red Nose Day events

annually, the first event took place in 2015, culminating
in a three-hour live primetime television special on NBC,
featuring celebrities from across the entertainment
industry. US corporate partners in 2015 included
Walgreens—the US pharmacy chain owned by
Walgreens Boots Alliance—which acts as the exclusive
retailer of Red Nose merchandise, confectioner M&M’s,
and NBC itself. In 2016, Walgreens donated 50 cents
for each US$1 nose purchased and 10 per cent of the
ticket price for other Red Nose merchandise, raising
more than $20 million.
It seems that partnering with Red Nose Day is a

laughing matter. ‘Monkey’ with a Red Nose makeover on
Sources: Gray (2003); Farey-Jones (2015); Roderick (2017); promotional packs of PG Tips
Walgreens (2017); Comic Relief (n.d.). Source: © Paul Daniels/Shutterstock.com.
This market insight describes how companies have a global reach, companies in individual country markets
partnered with a UK charity with global reach in an attempt can benefit from wider consumer awareness and interest.
to alleviate poverty. Red Nose Day allows companies to Corporate benefits for cause marketing campaigns
develop their social responsibility programmes by using a generally include improvements in corporate reputation,
cause marketing campaign. Because the programme has improved sales, and improved employee satisfaction.
Related Topics
cause marketing; social responsibility; sales promotion
1 Do you think Red Nose Day will be more or less 3 How important is it that a company promotes
successful in raising funds in the United States not only a cause, but also the fact that the
compared with the UK? Why, or why not? company is undertaking the initiative in the first
2 What are the likely business benefits of place?
partnering with Red Nose Day for US companies
Walgreens, NBC, and M&M’s, respectively?
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Charities also try to raise funds by working in partnership with commercial organiza-
tions in cause marketing campaigns. According to Kotler (2000), companies differenti-
ate themselves by sponsoring popular social causes to win the public’s favour. Such an
approach, termed cause marketing, is a useful way of developing a positive brand image
for the private company because it builds not only customer loyalty, but also employee
respect. The charity gains vital income from this partnership. The American Marketing
Association (AMA, 2018) defines cause-related marketing (now more commonly known as
simply cause marketing) as a:
Promotional strategy that links a company’s sales campaign directly to a non-profit organization.
Generally includes an offer by the sponsor to make a donation to the cause with (the) purchase of its
product or service. Unlike philanthropy, money spent on cause marketing is a business expense, not
a donation, and is expected to show a return on investment.
This type of campaign associates a company’s sales with the mission or campaign of a not-for-
profit organization and includes a promise to make a donation for each unit bought. However,
cooperation between the two organizations takes many forms. Traditionally, these schemes
are based on sales promotions, whereby a donation to the charity is made as a percentage of
sales. Yorkshire Water, a regional utility, won the 2017 Business Charity Awards in the UK for
its cause marketing programme ‘Big Wish for Ethiopia’, run in association with WaterAid and
aiming to deliver safe water, sanitation, and hygiene education to those without it. Every time
one of its customers signs up to pay their water bill by direct debit, Yorkshire Water makes
a donation to WaterAid—and it raised more than £731,000 in a 12-month period (Yorkshire
Water, 2017).
Cause marketing is an increasingly attractive proposition for organizations. Several
reports have found that a very large proportion of consumers (more than 85 per cent) agree
that when price and quality are equal, they are more likely to buy an offering associated
with a ‘cause’ or good deed. Therefore companies are increasingly likely to differentiate
themselves by co-opting social causes (Kotler, 2000). Other relationships, such as those
between pharmaceutical companies and medicine distribution charities, are based on the
company providing free product and technical knowledge (‘gifts in kind’). A good example of
a global cause marketing campaign is Kellogg’s ‘Breakfast for Better Days’ initiative, which
The winning campaign at the 2017 Business Charity Awards, UK

Source: By permission of Yorkshire Water.
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has provided 1.9 billion servings of cereal for people in need and aims to provide 3 billion
servings in the future by donating 2.5 billion servings of food, expanding breakfast pro-
grammes to reach 2 million children, supporting the livelihoods of 500,000 farmers, involving
employers in 45,000 volunteer days, and engaging 300 million people to help with the whole
effort (Kellogg’s, 2018).
Visit the online resources and complete Internet Activity 17.1 to learn more about cause
marketing.
Cause marketing can affect consumers’ overall attitude towards the sponsoring company or
brand, as well as their cognitive knowledge of the brand (that is, what they know). Cause mar-
keting campaigns are more effective when they are used over time and when there is a strong
fit between the brand and the cause (Till and Nowak, 2000). The perceived fit between the
company and the cause is important to the effectiveness of the campaign. Nevertheless, there
are risks to be considered for the not-for-profit organization. The charitable organization’s most
important asset is its name; because cause marketing is a business transaction, it is subject
to contract and hence there is a risk that the charity could suffer reputational damage (Gifford,
1999). Cause marketing should be used as part of a wider corporate social responsibility (CSR)
strategy (Steckstor, 2012). To reduce the risk, charities should not sell their association at less
than what it is really worth. They should also obtain the fee up front and control all uses of their
name (Gifford, 1999).
Social Enterprises
A new form of organization has emerged, with a format and purpose that has captured the
imagination of many different people, including people in commercial business, people work-
ing in the social sector, volunteers, academics, and leading political parties. In the UK, the
government considers a social enterprise to be an enterprise that ‘is a business with primarily
social objectives whose surpluses are principally reinvested for that purpose in the business
or in the community, rather than being driven by the need to maximize profit for shareholders
and owners’ (BIS, 2011: 2). Social enterprises blend social objectives with commercial reality.
There is a drive to make a profit, but any surplus might be reinvested into the enterprise and
not redistributed as a reward to owners. In the UK, Fairtrade schemes, Welsh Water (Glas
Cymru—see Market Insight 17.2), Jamie Oliver’s Fifteen, the Co-operative Group, charities,
and even farmers’ markets are all examples of social enterprise organizations. Elsewhere,
examples include Groupe SOS in France, which offers products and services to the disadvan-
taged and socially excluded, Specialisterne in Denmark, which specializes in software testing
and employs mainly people with Asperger’s, an autistic spectrum disorder, and Solvatten in
Sweden, which provides clean and hot water for households using the power of the sun.
One long-standing social enterprise in the United States is food company Newman’s Own,
set up by late Hollywood actor Paul Newman in 1982. It gives away all of its after-tax profits
and, by the end of 2017, the organization had paid more than US$495 million to charitable
causes worldwide.
Visit the online resources and follow the web link to the Newman’s Own website to learn more
about this inspiring social enterprise.
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Fifteen is a social enterprise set up by celebrity chef Jamie Oliver to train disadvantaged young
people to work in the hospitality industry, with restaurants in London, Cornwall, and Amsterdam
Source: © David Bathurst Photography.
Market Insight 17.2

Whetting Appetites for Welsh Water
The UK water industry was taken out of public its financial performance. It was named the best water
ownership (that is, privatized) in 1989. In subsequent and sewerage company in England and Wales by UK
years, Welsh Water Authority, a utility company water regulator Ofwat in 2003.
providing water and sewerage services to more than 3
million people in Wales and adjoining parts of England, By 2011, the company had achieved the best
acquired an electricity business and became saddled credit rating in the UK water sector. A study
with debt. It was eventually taken over by US utility by Cardiff University found that the company
company Western Power Distribution (WPD). generated more than £1 billion for the Welsh economy
In 2001, Glas Cymru, a not-for-profit company limited annually, generating more than £1.56 for every £1
by guarantee, was set up to raise the money to buy invested in it. By 2016, its 15th anniversary, the
the water company assets off WPD (Glas Cymru company had invested £4.5 billion in water and
paid £1), to pay off the debt through what was then wastewater services, returned more than £300
the largest corporate bond issue in UK corporate million in ‘customer dividends’ (effectively, rebates on
history, at £1.9 billion, and to remove shareholders. fees charged), helped 50,000 customers who were
It remains the UK’s first and only not-for-profit struggling financially to pay their bills, and come second
utility company—but working for customers and in Ofwat’s customer satisfaction survey in 2015–16 for
stakeholders instead of shareholders has not dented the second year running.
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continued
In 2016, the company launched a branding campaign first’ innovation: a Welsh bilingual chatbot to gauge
to promote its unique not-for-profit status and summer the views of its 3 million customers on issues such as
customer consultation programme over future upgrading of its water and sewerage networks, and
investment decisions. Roger Pride, managing director on climate change, in its ‘have your say’ consultation
at Heavenly, the agency running the campaign for conducted on Facebook Messenger and its own
Welsh Water, talked of how Welsh Water was putting website.
people, not pipes, at the centre of the campaign. In Sources: Glas Cymru (2016); Heavenly (2016); Newing (2016);
summer 2017, the company launched another ‘world Stewart (2017).
This market insight outlines how a water utility the company’s remit, through its investment decisions,
company transformed itself from a failing for-profit to its operating principles—but also by returning any
into a dynamic and innovative not-for-profit company. surplus funds, after investment decisions are taken,
Over several stages of its evolution, the company to its customers in the form of ‘customer dividends’.
has carefully consulted its customers. It thrives by Whilst consultation helps to increase customer
being highly customer-oriented—particularly by satisfaction, providing rebates also generates
consulting its customers about issues ranging from customer loyalty.
Related Topics
social entrepreneurship; customer dividends, stakeholder marketing, customer consultations
1 How sustainable do you think this social 3 Take a look at the website of Swedish social
enterprise is in the long term? enterprise Solvatten (https://solvatten.org/).
How does its business model compare with that
2 How do you think Welsh Water is using
of Glas Cymru?
marketing techniques differently compared to
traditional water companies?
However, social enterprises are not restricted in format. The sector is very diverse and
includes public limited companies (PLCs), community enterprises, cooperatives, housing
associations, charities, and leisure and development trusts, among others. All of these can
adopt social enterprise values. Companies, and their wealthy owners, also frequently donate
to charitable causes. Examples include Google, Microsoft, Pepsico, and Shell (see Market
Insight 17.3). All have active corporate philanthropy programmes with gift-matching pro-
grammes whereby the company will match the amounts that its employees donate to charity
(Weinger, 2015). Indeed, Porter has long argued that companies should be more philanthropic
because there is a long-term strategic opportunity in being so (Porter and Kramer, 2002) (see
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Porter, M.E., and Kramer, M.R. (2002). The competitive advantage of corporate
philanthropy. Harvard Business Review, 80(12), 56–68.
In this highly cited article, the authors argue that firms must look beyond the public relations (PR) value of their
social contributions; rather, the key to successful philanthropy is to focus giving on the context in which the firm
operates. They explain how Cisco Systems set up the Cisco Networking Academy to train computer network
administrators to alleviate a potential constraint on the company’s growth—that is, lack of available trained
employees. Interestingly, the authors argue that philanthropy can be the most cost-effective way in which a
company can improve its competitive context, given that, under these circumstances, companies can leverage
the efforts and resources of not-for-profit organizations and other institutions to make systemic changes.
Market Insight 17.3

Shell Develops Room to Breathe
A good example of a social marketing campaign is

that launched in India by Shell Foundation (SF), the
Anglo-Dutch oil-and-gas major’s charitable foundation.
The company has long been trying to develop a
market for a more efficient cookstove, which reduces
fuel usage, poisonous emissions, and cooking
time—but to no, or perhaps only limited, avail. Since
2007, SF has partnered with US social enterprise
Envirofit International to produce a range of clean,
efficient, and affordable cookstoves. In late 2008, SF
launched the ‘Room to Breathe’ campaign in Shimoga,
Karnataka, India. The aim was to raise awareness
of the benefits of the new improved cookstoves, Clean cookstoves reduce smoke and
principally because around 70 per cent of residents toxic emissions, and offer economic and
are impacted by the indoor air pollution caused by environmental benefits
Source: Envirofit International/Jessica Alderman.
existing dirty cookstoves. The campaign’s aim was to
raise awareness in the local population (of 1.6 million), sustained activist householders (typically, women
to sell 58,000 cookstoves, and to achieve a metric of operating using a network marketing approach), and
campaign spend per additional stove sold of US $5.75. using word of mouth amongst Anganwadi workers
It is important to note that all previous attempts by (government health workers in the villages) and, in the
cookstove manufacturers focused on the health and latter stages of the campaign, through a microfinance
environmental benefits of the improved cookstoves had initiative (with Grameen Koata), which allowed villagers
failed. The new campaign promoted the cookstoves to buy a stove and repay the cost in instalments (that is,
using billboard and wall paintings, a van campaign, hire purchase).
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Envirofit’s cookstoves retailed at ₹1,399 (£15.69/€17.64). clear. Women perceived that it caused them to cough
Other cookstoves promoted through the ‘Room to less, meant less cleaning and saved time, was healthier
Breathe’ programme included Prakti’s single pot (₹750 (particularly for children), and did not impact on the
or £8.41/€9.46), double pot (₹1,100 or £12.34/€13.87), taste of the food cooked. Men said that they liked the
and First Energy’s Oarja Plus (₹1,250 or £14.02/€15.76). stove because it saved money and time, because the
Such prices, whilst competitive, were beyond the reach food retained a smoky taste, because the cookstove
of many Indians living in the region. was easier to carry, and because the fuel it used was
cheaper. However, 55 per cent of people thought that
The campaign enjoyed some success. It ran between the cookstove was too expensive, 21 per cent did not
October 2009 and July 2012, hit 300,000 people, know how to operate it, and 18 per cent did not trust it
raised awareness in the population above the 30 to deliver the benefits promised.
per cent target, but sold only 11,447 improved
cookstoves—way below the target of 58,000. The The campaign achieved the most success in its final
total cost of the campaign was US$350,000. Lessons phase, through the microfinance initiative with Grameen
learned by SF and its partners were that having a Koata, when promotional activities were combined with
great product, which was good for people’s health loans to buy the cookstoves. This approach ultimately
and made economic sense, was insufficient in itself brought the cost of the campaign down to $4 per
because people were not aware of the product and its stove—a level that could then be built into the $30
benefits, and were suspicious of the new technology. stove loan.
However, the benefits for those who switched were Source: Bishop, Pursnani, and Sumpter (2013).
This market insight describes how the not-for-profit or behaviour is better for them. The case particularly
foundation of an oil-and-gas major sought to develop highlights the importance of developing an appropriate
the market, with partners, for a new form of cooker, pricing strategy when targeting people on very limited
which would have significant health benefits and would incomes and how important the provision of credit can
cost users less in maintenance and running costs. It be in such situations. Finally, the case demonstrates the
also demonstrates how difficult it can be to persuade importance of developing a set of objectives that are
people to adopt new products or new behaviours and carefully measured to evaluate whether or not a social
how suspicious people can be of those new products marketing campaign has been successful.
or new suggested behaviours, even when the product
Related Topics
social marketing; marketing metrics; awareness; advertising
1 Why do you think it was so difficult to change 3 What are the risks of developing a campaign
the behaviour of the target audience—that is, like this for (a) stove manufacturers and (b) Shell
Indians living in Shimoga in Karnataka, India? Foundation?
2 Why do you think Shell Foundation decided to

develop this campaign?
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The Public Sector

The term ‘public sector’ covers a range of activities around the provision of services by local
and central government, and by government agencies. These services are concerned with
satisfying social needs and benefiting society. In many countries, the public sector has devel-
oped on the back of ideas embedded within the concept of the welfare state, although many
of these countries have privatized their telecommunications, water, gas, and electricity provi-
sion. The types of service provided are founded on the principle of improving the quality of
people’s lives.
Public-sector organizations operate in industrial, governmental, consumer, and societal mar-
kets, and their marketing activities are driven by a complex web of stakeholder relationships.
Marketing in the public sector is governed by three main forces: social; economic; and political.
The interaction of these forces within an increasingly uncertain and unstable environment makes
the provision of customer choice of service more problematic.
Internal marketing is crucial in these organizations. Rather than refer to buyers and sellers, the
public-sector approach is based around providers and users. One distinguishing characteristic
of the public sector concerns the political tensions that arise between the various stakeholder
groups. For example, the conflict between central and local government is crucial, and percep-
tions of who is responsible for taxation and why tax rates rise faster than inflation reflect the
power imbalance between the participants.
Governments use marketing for a variety of reasons, including as a complement to law
enforcement (as Case Insight 17.1 demonstrates) and to help to promote services to support
companies with their export business, as well as ‘to bring about societal change or improve-
ment’ (LeFebvre, 2011: 57). Social marketing interventions can be highly effective in achieving
behavioural change in target audiences across a variety of social settings (Stead et al., 2007).
Visual messages are more effective than text messages in conveying an anti-smoking mes-
sage, according to a study of French consumers (Gallopel-Morvan et al., 2009). Demarketing is
often used to demarket behaviours—for example to encourage people not to use drugs, not to
smoke, not to drink drive, or not to avoid paying their vehicle tax.
‘Allo, ‘allo, ‘allo, what’s that then? British Transport Police and Network Rail use advertising to
encourage the reporting of unattended items
Source: Courtesy of the Department for Transport.
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DVLA’s ‘we can always spot an untaxed car’ ad campaign

Source: Driver & Vehicle Licensing Agency (UK), photographer Garry Simpson.
An example of a demarketing campaign (see also Market Insight 17.4) is that run by the
Thai Health Promotion Foundation to stigmatize the giving of alcohol as a New Year gift since
2008, reducing it from 30.5 per cent of gifts to 9 per cent in the last nine years. In Thailand,
22,356 people were killed in road accidents in 2016, of which half involved alcohol consump-
tion, according to the World Health Foundation. The campaign is called Hai Lao Taokap Chaeng,
meaning ‘giving liquor as a gift is to put a curse on the receiver, resulting in their injury or death’
(Charoensuthipan, 2017). A key success factor in social marketing is to have a proper under-
standing of the causality of the target audience’s behaviour—that is, why they are behaving as
they are now and what might cause them to adopt a different behaviour (Wymer, 2011). The Thai
campaign works because it links the giving of alcohol as a gift with injury or death, but it also ties
into Thai superstition that a violent death results in the creation of an angry ghost (Anon., 2015a).
Market Insight 17.4

Midwife or Marketer?
Smoking during pregnancy remains common in the UK. association between pre-term birth weight and mortality
Despite the documented dangers, around 10 per cent rates in the first four weeks after birth, low birth weight
of pregnant women smoke. Evidence from midwives and coronary heart disease in adulthood, as well as a
suggests that this figure is understated, with actual risk of miscarriage and sudden infant death syndrome
rates in the population at 16 per cent. This is supported (SIDS). Smoking during pregnancy is the single most
by studies showing that self-reporting by pregnant modifiable risk factor for adverse outcomes in pregnancy,
women is unreliable, often because women feel shame contributing to 40 per cent of all infant deaths.
to admit they are still smoking.
Organizations responsible for public health now embrace
Smoking in pregnancy is a significant health problem. marketing to encourage healthy behaviours in pregnant
It increases the risk of miscarriage, low birth weight, women. A range of interventions offered to promote
stillbirth, and antenatal depression. There is an smoking cessation in pregnancy include community and
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Market Insight 17.4

continued
individual-level programmes. Marketing designed to Midwives are at the front line of the PCT’s efforts to
reduce a particular behaviour is known as demarketing. reduce smoking in pregnancy. Although they face a
Nottinghamshire County Primary Care Trust (PCT) applied considerable challenge from the marketing activities
a number of social marketing techniques such as clearly of tobacco manufacturers, they gain an advantage
defining the behaviour it sought to promote, conducting from being able to intervene at the individual level—a
research to generate insight, applying behaviour change segment of one not always available to commercial
theory, and identifying the barriers to behavioural marketers. This allows midwives to gain specific
change. Using these techniques, the PCT recognized insight into the individual’s life, motivations, fears, and
the need to carefully segment audiences to help it to resources, and the things they value. Often, this is at a
achieve local smoking cessation targets. The PCT’s level of insight that traditional research cannot produce.
Tobacco Control Team (TCT), responsible for promoting Using this insight, alongside the DVD success story,
smoking cessation overall, decided that pregnant midwives delivered individual-level interventions in
women represented a key segment because health clinical and home settings across Nottinghamshire.
interventions amongst pregnant women impact the These interventions proved to be highly cost-effective
health of their baby; women influence the smoking habits methods designed to encourage smoking cessation.
of their partners, parents, friends, and other relatives;
Note: The Nottinghamshire County PCT has now been
and if the pregnant woman quits, the generational cycle
replaced by six local clinical commissioning groups (CCGs).
of smoking may be broken. The TCT produced a series
of DVDs based on the self-told stories of successful Sources: Bauld (2008); ONS (2016); POST (2016); ASH (2017).
quitters—one of whom was a pregnant woman.
This market insight shows how public health settings and that customer value can be understood in
organizations can use commercial marketing methods terms other than price (the value in this case being the
to design individual and insightful marketing messages health benefits that result in not smoking in the unborn
for the social good. It demonstrates how using success child versus the cost of compliance with the message
stories to inform and influence behaviour such as of not smoking, which might include addiction pangs,
smoking cessation in pregnant smokers is potentially a irritability etc.). The insight shows how social marketers
cost-effective way of communicating directly to specific can often work at the individual level to produce
social groups. A secondary insight from the case is targeted interventions that, in aggregate, provide a
that marketing tools can be applied in non-business wide benefit at the general level.
Related Topics
social marketing; segmentation; social groups; consumer behaviour; demarketing
1 What do you consider to be the main marketing 3 Explain what you see as the main differences
challenges in reducing the smoking rate and similarities between social marketing and
amongst pregnant women? commercial marketing.
This market insight was kindly contributed by Dr Seamus
2 Can you think of any ethical problems in demar- Allison, Nottingham Business School, and Claire Allison,
keting tobacco use among pregnant women? Sherwood Forest Hospitals NHS Foundation Trust.
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Sport England’s ‘This Girl Can’ campaign, designed to improve women’s self-motivation
Source: Courtesy of Sport England.
Social marketing can also be used to promote healthy behaviours. For example, Sport
England’s award-winning ‘This Girl Can’ campaign was designed to improve the participation
of women in sport and exercise activities. The Brazilian Ministry of Health ran a campaign
hijacking Tinder and Hornet (two dating apps) to promote a safer sex message by creating
a series of fake profiles of people stating a lack of interest in using condoms. Those who
swiped right on these profiles were shown a strong warning of the danger of unprotected sex
(Toor, 2015).
The idea that marketing techniques could be used in this way was first discussed by Kotler
and Zaltman (1971). One example was when the Crown Prince of Thailand, wearing a ‘Bike for
Mom’ T-shirt and in a bid to rehabilitate his image, led thousands of cyclists through the streets
of Bangkok to celebrate his mother Queen Sirikit’s birthday (Associated Press in Bangkok,
2015).
There is debate over the extent to which advertising, for example, can really change people’s
views and behaviour on social issues. There is also debate over whether or not advertising
should be used by the public sector at all in certain circumstances. An ineffective—and cer-
tainly inappropriate—example of public-sector advertising was when road signs were installed
in Treviso, Italy, in 2010, bearing the words attenzione prostitute (‘Beware, prostitutes!’), warning
motorists and pedestrians of the presence of sex workers, but without making the purpose of
the warning clear (Anon., 2015b).
Nevertheless, most social marketing campaigns are clear-cut—designed to advance social
causes to the benefit of a particular audience by changing social attitudes and behaviours.
Social marketing campaigns are typically, but not exclusively, run by public-sector organizations,
including examples such as the following:
■ Government health departments commonly encourage healthy eating (for example the Dan-
ish six-a-day campaign to encourage people to eat more fruit and vegetables), exercising,
stopping smoking and other addictive behaviours, or road safety.
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■ British Heart Foundation (BHF) ran the ‘Rock up in Red’ campaign to raise money to sup-
port research into beating heart disease—a campaign previously backed by model and actor
Rosie Huntington-Whiteley (Anon., 2013a).
■ The police or other emergency services use social marketing campaigns to reduce undesir-
able behaviour, either as an alternative or a complement to law enforcement. For example,
the City of London Police, Police Scotland, and others have used handbills and posters to
inform the general public about their ‘Project Servator’ crime-reduction security operations
(see Case Insight 17.1), and social marketing communications including cinema advertising
were used as part of the Wales Arson Reduction Strategy (JAG, 2011).
Visit the online resources and follow the web link to the Healthcare Communication and
Marketing Association, Inc. (HCMA), to learn more about marketing communications and the
healthcare profession.
Marketing has the potential to improve mass public communication in terms of ensuring mes-
sage receipt and positive processing of the message. However, some argue that wholesale
application of social marketing principles has considerable ethical implications and that public
oversight bodies should regulate social marketing techniques (Laczniak, Lusch, and Murphy,
1979). In the People’s Republic of China (PRC), film companies have been praised by state
media for launching a new era of ‘main melody’ propaganda films, promoting the Communist
Party line and building youthful patriotism. One example is Wolf Warrior 2, about a Chinese sol-
dier in Africa who saves locals and his compatriots from American mercenaries, which grossed
¥5.7 billion (£650 million) in 2015 (Anon., 2017).
One question arising is this: when might social marketing be propagandist? Some argue that
social marketing and social propaganda are distinctly different, but related, fields (O’Shaughnessy,
1996). A useful distinction is that while social marketing is based on audience wants, identified
through audience research, propaganda is a one-way evangelizing communication (that is, the
propagandist is convinced of the message’s own rightness; seeks to convince the target, often
coercively; and uses research only as a means of increasing the propaganda’s effectiveness).
Propaganda typically uses language aimed at either uniting or instilling grievances in minority groups.
The idea that marketing can be used to counter negative social ideas, or grievances, has a
long pedigree. In 1942—that is, during the Second World War—Edward Bernays, grandfather
of the PR industry and nephew of Austrian psychoanalyst Sigmund Freud, wrote a far-sighted
article on how the United States should use marketing and PR techniques to help people to ‘see’
the true alternative between democracy and fascism, and democracy and Nazism. In the pres-
ent day, governments around the world are increasingly seeking to develop public communica-
tions programmes to counter the narrative of terror groups such as so-called Islamic State (also
known as ISIS or Daesh) and Al-Qaeda. These include campaigns to urge law-abiding citizens
to report suspicious activity (such as that organized by the City of London Police, outlined in
Case Insight 17.1) and the ‘If you see something, say something’™ campaign launched by the
US Department of Homeland Security in 2010. Others have launched social marketing counter-
terrorism campaigns independently of government, such as that produced by a former Islamist
extremist who created the Abdullah-X cartoon aiming to stop British Muslims from leaving the
UK to join Daesh in Syria (Simpson, 2014). (See Research Insight 17.3 for a useful article on how
to design behavioural intervention campaigns.)
Visit the online resources and follow the web link to the US Department of Homeland Security’s
website to learn more about how it uses marketing communications to counter terrorism.
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Michie, S., van Stralen, M.M., and West, R. (2011). The behaviour change wheel:
a new method for characterizing and designing behaviour change interventions.
Implementation Science, 6(1), 42–53.
In this highly readable article, the authors undertake a systematic literature review to identify frameworks
for behaviour change interventions. They synthesize a new framework, based on 19 identified extant
behaviour change intervention frameworks, which they call the COM-B system. The COM-B system explains
how behavioural change should be analysed from the perspective of the capabilities, opportunities, and
motivations that target audiences have to change their behaviour. The analysis then leads to nine intervention
functions—that is, education, persuasion, incentivization, coercion, training, enablement, modelling,
environmental restructuring, and restrictions.
Political Parties and Campaigning Organizations

The use of marketing by political parties and third-party interest groups has increased since the
development of television and mass-media broadcasting worldwide around the 1950s. Scientific
methods of assessing market and public opinion have transformed how political campaigns are
run. Charities and other campaigning organizations use marketing techniques to influence legis-
lation and public opinion by means of lobbying techniques. With the development of globalized
industries, the interplay between marketing and politics has increased further, and so companies
use marketing methods associated with political campaigning to influence legislators and regu-
lators (for example in the European Parliament, on Capitol Hill in Washington, DC, and at World
Trade talks). Regulators seek to influence legislation associated with these markets.
Political parties use marketing to exchange political influence (for example legislative change
or amendment) for political support (for example votes, petitions, donations, volunteering).
Political marketing can be seen as a marketing–propaganda hybrid—that is, as mixing marketing
and propaganda. This is particularly the case, but not exclusively so, in the United States, where
negative campaigning is rife (O’Shaughnessy, 1990), 30-second and 15-second advertising
spots commonly being used to launch malicious attacks on political opponents. One example
of a negative campaign was that aimed at Mitt Romney by Barack Obama in the 2012 US presi-
dential campaign, which leveraged undercover video to position Romney as an uncaring elitist
on the basis that, in a closed session with his supporters, he had described the 47 per cent
intending to vote for Obama as ‘victims’ looking for handouts (Joyella, 2016).
In representative democracies, political parties use marketing to provide citizens and voters
with information on current plans for running the country (that is, their manifestos). In the pro-
cess, parties seek to improve social cohesion, democratic participation, and citizen belonging-
ness. The recent use of political marketing in post-war democracies worldwide appears to have
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co-occurred with a decline in political participation. Whether or not the two effects are related
is difficult to determine. Citizens do seem to be increasingly disengaged from political parties.
Some argue that marketing in politics has been overused, thereby damaging public trust; how-
ever, the truth is more likely that marketing techniques can be used to promote a poor party or
candidate just as they can be used to market an excellent party or candidate. In politics, it is
difficult to determine between the two until the party enters power. The disaffection and disap-
pointment that citizens and voters then feel can fuel later disengagement. In that sense, politics
is a credence service (see Chapter 15). In many countries around the world, there are differ-
ent legal requirements for political advertising compared with commercial advertising. In the UK,
political advertising regulations allow the comparison of political parties and adverts as long as
they are ‘decent’ and in ‘good taste’. In 2001, the BBC refused to air a party-political broadcast
by the Pro-Life Alliance Party because it contained graphic footage of an abortion (House of
Lords, 2003). It is more difficult to determine that a political advert must be truthful, however,
because politics is often a matter of opinion and judgement. In contrast, advertising claims for
commercial products must always adhere to the guidelines on taste, decency, and truthfulness.
(For more on the ethics of political advertising, see Chapter 18.)
Most political marketing campaigns (corporate or party political) have historically been under-
taken by specialized marketing and PR agencies on an ad hoc basis, although political parties
and multinational corporations are increasingly conducting their political marketing activity in-
house. In the United States, political consultants are more specialized, undertaking work in such
areas as polling, petition management, fundraising, strategy, media buying, advertising, public
affairs, grass-roots lobbying, law, donor list maintenance, online campaigning, and campaign
software consulting. The Internet and social media have become important areas for generat-
ing campaign finance and grass-roots support. Social media have become the battleground of
political campaigning efforts in elections around the world.
As with the use of marketing for social campaigning, its input into politics is cause for con-
cern in many who think that politics should not adopt such techniques. Marketing has played a
strong role in revolutions against Soviet-allied governments in Serbia, Georgia, and the Ukraine,
where American political consultants advised opposition parties that deployed ‘revolutionary
symbols and slogans’ to encourage activists to take to the streets (Sussman and Krader, 2008).
Facebook was used to generate support for the ‘We are all Khaled Said’ campaign, helping to
bring down the Egyptian government in 2011 (Ghonim, 2012). Twitter played a role in generat-
ing public support in various revolutions, including in Moldova in 2009 during civil unrest around
the election result in which the Communist Party of Moldova (PCRM) allegedly fixed its majority
(Mungiu-Pippidi and Munteanu, 2009), and in Iran during student protests in 2009–10, also
over disputed election results (Grossman, 2009). Russia is alleged to have sought to influence
the US presidential election campaign of 2016, spending around US$100,000 on adverts from
false sources on Facebook and Twitter (Solon, 2017). Given marketing’s ability to influence the
general public, the question arises: what is and what is not a legitimate use of marketing in the
political sphere?
Under certain circumstances, it is possible to influence the political environment, and therefore
the political agenda (see Chapter 4), in favour of an organization’s strategy. Charities and not-for-
profit organizations frequently focus on campaigning to change legislation or government policy
agendas (a process known as lobbying or public affairs). The organization Purpose.com in the
United States has had considerable success working with companies such as Google and Audi,
and organizations such as the Bill & Melinda Gates Foundation, aiming to build mass movements
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online to support particular causes. For example, when Audi entered the Indian car market, part
of its entry strategy involved designing and promoting clean water machines (Anon., 2013b).
Lobbying or public affairs campaigns often use stunts to obtain media publicity to influence
public opinion and, in turn, influence parliamentary opinion in the countries concerned. For
example, PETA campaigns for animal rights globally. It organized a protest with AnimaNaturalis
during the ‘Running of the Bulls’ event in Pamplona, Spain, recruiting activists to pose topless
with signs such as ‘Stop bullfights!’ and circulating a petition demanding that the Spanish prime
minister outlaw animal cruelty during such events (PETA, 2017). Publicity is important in pressure
group campaigning. Typically, pressure groups try to advance policy change despite government
opposition; on other occasions, they try to change social behaviour more generally. In Cairo, for
example, the Imprint Movement took out ads in a bid to stop the harassment of women on the
Metro (Anon., 2015c) (see also Market Insight 17.5). The publicity serves to highlight the cause
and to bring supporters from the general public, who can then volunteer their time or support, or
provide donations in the same way as they would with a charity.
Market Insight 17.5

No Means No! Get It!
In recent years, Sweden has emerged as the poster political consumer tribe. Formed by two feminist artists
child for progressive values on issues as diverse as social and culture and music groups—Crossing Borders
welfare, gender equality, and the environment. Indeed, and Femtastic—FATTA initially mobilized support from
such values are at the heart of its national identity, which existing memberships. However, the objective from the
influences not only domestic policy, but also a highly outset was to reach beyond the traditional audience
effective form of public diplomacy. After a century of for such messages (as well as beyond the highbrow
social democracy, there is widespread adherence to the debate columns of national newspapers) and, utilizing
principle of collective action and high levels of public trust hip-hop music, street art, and culture, to directly
in the institutions of government, which have allowed engage a powerful youth audience across the country.
consecutive administrations to pursue social agendas
for a longer term than might otherwise have been the FATTA’s aim to force legislative change for a consent
case. And, in those instances in which legal compliance law presents numerous difficulties for policymakers,
might be seen as too ‘heavy-handed’, Sweden has also but should be viewed against a backdrop of powerful
allowed state-sponsored social marketing campaigns to social attitudes towards sexual violence specifically,
successfully steer voluntary behavioural change in areas and gender equality more generally, in Sweden. In the
such as alcohol consumption, smoking, clean energy, period following its launch, FATTA built on its physical
and sexual attitudes. community engagement activities with a significant social
media presence. Membership numbers grew rapidly and
But social marketing is not solely the preserve of traditional media outlets began to show interest in the
governments; there are a multitude of not-for-profit organization. Importantly, from the group’s perspective,
organizations seeking to influence societal and/ rape cases began to receive more media attention at this
or subgroup behaviour, and these are increasingly time and created many opportunities for discussing the
turning to commercial marketing approaches for case for a consent law. This, in turn, placed a burden on
inspiration. One such organization, FATTA, an the target stakeholder group, policymakers, who were
advocacy group formed to tackle the issue of sexual quickly pushed into a defensive position on the issue.
violence and to demand an amendment to Swedish FATTA stepped up its efforts to engage more men in the
rape legislation, has—through an approach based on movement with the FATTA MAN launch.
brand co-creation—cultivated a powerful, and growing, Sources: Anon. (2018); https://www.fatta.nu
680 Part 5 > The Social Impacts of Marketing
Market Insight 17.5

continued
This market insight describes how a pressure insight shows how FATTA used marketing techniques
group, FATTA, used social marketing techniques to to develop a social movement to press for legislative
successfully press the case for, and achieve, a change change, effectively developing a grass-roots lobbying
in Sweden’s rape law in 2018 to require consent strategy.
between adults indulging in sexual relations. The
Related Topics
social media marketing; stakeholder analysis; grass-roots lobbying; public affairs
1 Do you think social marketing techniques 3 Should any and all pressure groups be allowed
should be used to change rape legislation? Why, to use social marketing techniques to effect
or why not? behaviour change? What topics might be ‘out of
bounds’?
2 Given the strength of feeling around this issue,
This market insight was kindly contributed by Dr Ian
does it matter how FATTA uses marketing Richardson, Stockholm University, with support from Maja
techniques to promote its cause? Magnusson, Cecilia Granström, and Hanna Kretz.
Chapter Summary
■ List some of the key characteristics of not-for-profit organizations.

Not-for-profit organizations are differentiated from their commercial counterparts in numerous ways.
Not-for-profit organizations tend to have multiple stakeholders and, because there are no shareholders,
any profit earned is reinvested in the organization. Because not-for-profit organizations do not distribute
funds to shareholders and are social enterprises, public-sector organizations, or charities, there is a need
for transparency in determining how these organizations operate, because they are claiming to act for the
common good. Accordingly, they have multiple objectives, rather than a simple profit motivation. Historically,
not-for-profit organizations have not been strongly market-oriented, but this is changing as they become
more experienced in marketing. Customers’ perceptions of not-for-profit organizations differ from those of
their commercial counterparts because the not-for-profit typically has a unique mission and set of values, as
well as a non-financial organizational purpose.
Chapter 17 > Not-for-Profit and Social Marketing 681
■ Explain why not-for-profit organizations do not always value their customers.

Not-for-profit organizations frequently do not value their beneficiary customers because they exist in a
monopolistic situation, because demand far outstrips supply, because a lack of market segmentation activity
exists, and because research into customer needs is not seen as a priority for expenditure and investment.
Not-for-profit organizations frequently also undervalue supporter customers because, typically, they
approach them to solicit funds too often and do not sufficiently appreciate customers when they do donate.
Moreover, volunteer service workers who generously give their time can often feel undervalued. Because
not-for-profit organizations have multiple stakeholders, problems can arise between these groups that need
resolution, but which can often lead to customers feeling undervalued as those tensions are resolved.
■ Analyse stakeholders and develop appropriate engagement strategies.

A common way of analysing stakeholders is by mapping them on a power–interest matrix to identify four
types based on the level of interest they display in an organization and the level of power they exert. Those
with high levels of interest and power (group A) are key stakeholders in need of continuous engagement.
Those with high interest, but low levels of power (group B), should be informed about the organization’s
activities to maintain their interest. Group C represents those organizations with high power, but low
interest. Here, it is important either to increase information flow to these organizations to increase their
interest, so that they can exert their power in the not-for-profit’s favour, or alternatively to keep them
satisfied if they intend to exert their power against the not-for-profit. Finally, an organization’s relationships
with those stakeholders who have little power or interest (Group D) should either be disregarded or revived.
■ Describe and assess cause marketing campaigns.

A cause marketing campaign occurs when companies and non-profit organizations form marketing
alliances. Often, these marketing campaigns are focused on sales promotions developed for mutual
benefit whereby the purchase of a commercial offering is linked to donations to a charitable third-party
organization. Such campaigns tend to work best where there is a strong strategic fit between the
commercial organization and the not-for-profit organization, particularly in relation to the audiences targeted
and when the campaign runs over the longer term.
■ Understand how marketing is used in social and political marketing campaigns.

Over nearly 50 years, we have embraced the use of marketing for social and political causes. Marketing
is commonly used in government social marketing campaigns to drive positive behavioural change and
to improve citizens’ well-being around such causes as encouraging populations to eat healthily, not to
use drugs or smoke, and not to drink and drive, for example. However, we might question whether or not
government should have this role and the ethics of using marketing in social and political campaigning.
The use of marketing techniques in election campaigns has a long pedigree and is now common in most
countries (democratic or otherwise) worldwide. In this scenario, marketing is used to understand the
electorate’s wants or needs and to provide them with a set of party policies and leaders that suit those
needs. In addition to the use of marketing by government to influence society, and by political parties to
gain support and votes, marketing is used by third-party organizations (for example pressure groups) to
drive legislative change in lobbying campaigns—particularly by courting publicity and the media’s support
more generally.
Review Questions
1 What key differences exist in marketing communications for not-for-profit versus for-profit
organizations?
2 How do not-for-profit organizations differ from commercial organizations in marketing terms?
3 Why do not-for-profit organizations not always value their beneficiaries?

4 Why do not-for-profit organizations not always value their donors?
5 What axes are used on a stakeholder analysis matrix?
6 How is marketing used to raise funds for charitable organizations?
7 What is cause marketing?
8 How do we assess cause marketing programmes?
9 What is social marketing and what is its purpose?
10 How do public-sector organizations use social marketing techniques?
1 Having read Case Insight 17.1 on the City of London Police, how would you use marketing and PR
techniques for the following purposes?
A To deter terrorists and criminals more generally
B To encourage the general public to report suspicious activity and unattended items, and to remain
vigilant at all times
2 Working in small groups, select three different not-for-profit organizations and consider the following:
A How do their ‘propositions’ differ from each other?
B What is the nature of ‘place’ (from the 4Ps) for each organization?
C What is the nature of customer involvement for each proposition?
D How can the audiences for these not-for-profit offerings be segmented, if at all?
3 Use Google Search to identify how social marketing campaigns are run in your own country, if at all, in
the following areas:
A The police service
B Health promotion campaigns, such as reducing smoking and alcohol consumption and increasing
vegetable consumption
C Road safety awareness

Glossary
cause marketing a campaign in which a credence service a service delivered by
company is linked to a charity or social cause professionals that is difficult to evaluate
with the express intention of building its own beforehand because of its technical nature.
customer goodwill, providing the charity with an demarketing the use of marketing techniques to
increase in resource and the company with either discourage, as opposed to encourage, demand
a concomitant increase in sales of its product/ for a particular proposition.
service or a reputational dividend.
grass-roots lobbying the targeting of the activities to influence the opinions or activities
general public using marketing communications of a receiving party and to direct them towards
techniques to persuade them to support the a predetermined agenda drawn up by the
case for legislative or regulatory change, often by communicating party, often using psychological
asking those members of the public to contact and symbolic manipulations.
their MPs or other political actors directly to social enterprise a business whose primary
press the case. objectives are essentially social and whose
lobbying the process employed by companies, surpluses are reinvested for that purpose in
charities, and third-party interest groups to the business or in the community, rather than
develop and build relationships with regulatory dispersed to the owners.
and political bodies to influence legislation in their stakeholders people with an interest (a ‘stake’)
favour or to advance a particular cause. in the levels of profit an organization achieves, its
negative campaigning campaigning in which environmental impact, and its ethical conduct in
marketing communications techniques are used society.
to present opposing candidates or parties in a telethon a portmanteau word combining
bad light so as to win electoral advantage. ‘television’ and ‘marathon’ to refer to a long
propaganda a technique used by a television event, usually held for purposes of
communicating party expressing opinions or fundraising.
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Chapter 18
Marketing, Society,
Sustainability, and Ethics

One Bag Habit
Market Insight 18.1
Assess the negative impact that marketing has on
Collaborative Consumption
society
Surely Glitters . . . But Is It
Define sustainable marketing and its implications for Gold?
marketing practice
Market Insight 18.2
Define stakeholder marketing and its role in Surviving a Food Scandal
corporate social responsibility initiatives
Market Insight 18.3
Define marketing ethics Volkswagen: Up in Smoke?
Explain the common ethical norms applied in Market Insight 18.4
marketing Forex Fixing
Describe the role of ethics in marketing
Market Insight 18.5
decision-making Drug Money in China
Understand how ethical breaches occur in
marketing mix programmes
Marketing,
Chapter 18 > Chapter 1 > Society,
MarketingSustainability,
Principles andandSociety
Ethics 687
687
Case Insight 18.1

One Bag Habit
Many sustainability initiatives require new thinking and new

partners. Sometimes, they require a collaboration with your
competitors. We talk to Anna-Karin Dahlberg, corporate
sustainability manager, Lindex; Felicia Reuterswärd,
sustainability manager, H&M Sweden; and Fredrika
Klarén, sustainability manager, KappAhl, to understand
the challenges involved in working on initiatives targeted
at stimulating more sustainable consumption behaviours
together with your closest competitors.
Responsible consumption and production have one of us changed it would not be enough. To change
been identified as one of the United Nations’ consumer behaviours at the core, efforts by one retailer
Sustainable Development Goals (SDGs) under Agenda will not suffice.’
2030. Another goal focuses on the importance of
The initiative was launched on 1 June 2017. In a joint
partnerships in achieving sustainability goals. An
statement, the three retailers said of the initiative:
example of one such partnership is the One Bag Habit
initiative, which brings together Swedish mass fashion Our vision is that the One Bag Habit should
retailers H&M, KappAhl, and Lindex, and aims to contribute to a more rapid development of
change shopper behaviours related to shopping bag sustainable consumption in terms of bags.
usage. The initiative had two main goals: to reduce the We want to spread awareness of the negative
number of bags used by customers; and to spread environmental impact of bags and urge other
awareness about the environmental effects of bags. retailers to join the initiative.
‘In fashion retailing, we have often worked together on The initiative is based on an agreement that customers
sustainability initiatives related to manufacturing and should always pay for shopping bags and that the
supply chain,’ says Anna-Karin Dahlberg of Lindex, revenues gained by selling bags should be donated
‘but joining forces at the point of purchase in our stores to causes promoting sustainable development. So
is something different. And it is an important step to far, the initiative has been a success. In its first year,
take. Engaging consumers around sustainability is 17 Swedish retailers joined, leading to a major impact
typically quite difficult, but crucial if we are to change on the market as a whole. For H&M, the use of plastic
the industry to become more sustainable.’ bags in Swedish stores was down 51 per cent in the
first six months of the initiative. Similarly, approximately
‘When we decided to come together in this initiative,
70 per cent of KappAhl’s customers chose not to
plastic bags had been on the sustainability agenda for
use a bag for their shopping. One Bag Habit has
quite some time,’ says Fredrika Klarén of KappAhl, ‘but
also spread to other markets, because KappAhl and
neither regulators nor the actors in the retail industry
Lindex have implemented it in all markets in which
seemed to be able to move forward. In December
they operate stores.
2016, we decided to come together to change our
customers’ behaviours in relation to all bags regardless ‘There are several reasons why the One Bag Habit
of material.’ worked,’ says Fredrika Klarén, ‘but one important
aspect is the simplicity of the concept. Sustainability
‘We realized that, to achieve real change, we needed
initiatives are often complex and hard to communicate.
to act jointly’, explains Felicia Reuterswärd of H&M. ‘If
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In One Bag Habit we managed to create a concept consumption—but collaborating with your competitors
that was easy to understand and buy into, both for our in customer-facing activities is a balancing act. A key
store employees and for our customers.’ challenge, looking forward, is how to determine which
sustainability initiatives to pursue independently and
‘Another key factor is that we separated the revenue
which to pursue jointly.
flow from bags from the revenues for the retailers’,
continues Felicia Reuterswärd. ‘All revenues from sales The dilemma for Anna-Karin Dahlberg, Felicia
of bags are to be donated to a predefined sustainable Reuterswärd, and Fredrika Klarén, in setting the
development cause, which makes it easy for both agenda for future collaboration building on the
customers and store employees to endorse the One insights gained from their participation in the
Bag Habit.’ One Bag Habit initiative, is: which sustainability
initiatives targeted at sustainable consumption
‘Because we have implemented One Bag Habit
will require them to continue to collaborate with
in several different markets, we can see that the
each other or with competitors and which should
customer reactions vary’, says Anna-Karin Dahlberg.
they pursue independently?
‘We also notice that the effects of the initiative are
greater in markets when we are not alone.’
Having seen the advantages of working together, video interview with Anna-Karin Dahlberg,
the three are confident that collaboration is the way Felicia Reuterswärd, and Fredrika Klarén,
forward for future initiatives targeted at sustainable in which they explain what they did.
Introduction
What is critical marketing and what is sustainable marketing? Why are banks reconsidering
their ethical policies? When are advertising and marketing communications coercive? When
should companies give back to their communities? What is ‘good’ marketing behaviour and
what is ‘bad’ marketing behaviour? Are corporate social responsibility (CSR) initiatives a
good idea or are they used only cynically to further organizational interests? These are the sorts
of question considered in this chapter.
We begin by looking at critical marketing, considering the practices it critiques through
the lens of unsustainable marketing. We discuss marketing’s shift towards sustainable eco-
nomic development and the sub-discipline of sustainable marketing, defining and explaining
its implications for marketing practice. We discuss the topic of ethics, before applying ethical
principles to the marketing context. We outline how ethical situations impact on the market-
ing decision-making process. Four main ethical approaches to marketing decision-making
are also considered, while ethical situations arising in product, promotion, price, and place
(distribution) programmes are also explained. We consider ethical issues in international mar-
keting—that is, whether or not different cultures should have different moral rules—and, finally,
we discuss the important topic of bribery as an aberrant element of sales management or
lobbying processes.
An understanding of marketing ethics is critical to making marketing practice more sus-
tainable. But it is also important that we, as practitioners, understand the ethical, legal, and
social dimensions of marketing decision-making to develop the analytical skills for considering
ethical problems when they arise; otherwise, ethical problems can wreak substantial repu-
tational damage on an organization, threatening its very existence and certainly its leaders’
careers.
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Unsustainable Marketing: The Critical ‘Turn’

Some argue that capitalism is under siege, given that it is a major cause of social, environ-
mental, and economic problems (Porter and Kramer, 2011). We agree that not all marketing’s
contributions to society are good; consequently, there is a need to develop a critical approach
to understanding marketing practice. To truly understand the discipline, we need to study both
mainstream and critical marketing, given their interdependence (Shankar, 2009). Critical market-
ing analysis helps in ‘problematizing hitherto uncontentious marketing areas to reveal underlying
institutional and theoretical dysfunctionalities’ (Saren, 2011: 95). A critical approach to marketing
suggests that we consider:
■ the need to (re-)evaluate marketing activities, categories, and frameworks, and to improve
them so that marketing operates in a desirable manner within society;
■ the extent to which marketing knowledge is developed based on our contemporary social
world—for example the extent to which current marketing knowledge is Western-centric
(and especially focused on practice and research conducted in the United States)—and the
implications this might have for the rest of the world;
■ how the historical and cultural conditions in which we operate, as consumers and as stu-
dents of marketing, impact on how we see marketing as a discipline; and
■ how marketing can benefit from other intellectual perspectives, for example social anthropol-
ogy, social psychology, linguistics, philosophy, and sociology (Burton, 2001).
Some key topics in critical marketing include the notion of marketing as manipulation, com-
modity fetishism, and the nature of need versus choice (Tadajewski, 2010). We consider each
of these topics next.
Marketing as Manipulation
Since its inception, marketing has been charged with the notion that it serves itself, rather than
consumers, and that it supports the capitalist, rather than the labouring, classes. Packard (1960)
critiqued marketing by explaining that it beguiled its target audiences, often covertly, and fre-
quently without people even understanding that they were being manipulated.
Marketers and public relations (PR) officers certainly do frame their communications to make
them more persuasive. Framing is the action of marketers presenting persuasive communica-
tion and audiences interpreting that communication to assimilate it into their existing under-
standing (Scheufele and Tewksbury, 2007). The framing takes place in relation to situations (for
example by highlighting sales promotions available for a fixed time only); attributes (for example
by highlighting usage features of, say, a mobile phone); choices (for example by showing a
potential car buyer options across the range); actions (for example buy now, pay later schemes);
issues (for example Asda explaining why it boycotted the 2015 UK Black Friday sales promo-
tion); responsibilities (for example Save the Children explaining why children in Indonesia or the
Yemen need help, so that it can solicit donations); and news (for example Volkswagen explain-
ing why its chief executive was replaced after the emissions scandal) (Hallahan, 1999) (see also
Market Insight 18.3, later in the chapter).
The problem arises when framing becomes ‘spin’, because then marketing promotion
becomes corporate propaganda. For example, some photographic tricks to make food offerings
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look great in print adverts include using motor oil as syrup or honey, or glue or shampoo as milk
in cereals. For hotels and resorts, photos are frequently doctored to remove unwanted elements
or a wide-angle lens is used to make scenes look expansive. In the United States, whilst ads are
generally fairly trusted, ads for diet offerings, financial services, and prescription drugs are far
less so (Anon., 2014a).
Visit the online resources and complete Internet Activity 18.1 to learn more about manipulative
practices in marketing.
Commodity Fetishism
As a critical perspective derived from Marxist economic theory, commodity fetishism proposes
that society is overly dominated by consumption and hence fetishizes it (that is, places supreme
importance on it). Marx (1867 [1990]) suggested that, prior to industrialization, goods were pro-
duced for their use-value. A producer manufactured a product for a user and exchanged it with
the customer. After industrialization, the social relationship between producer and user changed.
Marx argued that workers were exploited for their labour, because they became removed from
the product they produced and were paid a piece rate rather than a share of the financial
return generated as a result of their labour. In the process, the commodity produced acquired
exchange-value, becoming tradable with other commodities within the capitalist market sys-
tem, benefiting the capitalist (that is, the investor). Marx felt that the rigid pursuit of capitalism
was so doctrinal that it represented a religious ideology. Commodities produced as a result of
capitalist endeavour took on a religious aura, worshipped by those seduced by their perceived
value (Sherover, 1979). The idea that we are worshipping consumption triggers the question of
whether marketers meet our wants or our needs—or neither.
Need and Choice

The received wisdom is that marketing works to meet the needs of customers and consumers.
However, Alvesson (1994), coming from outside the marketing discipline, rejects this notion. He
argues that people in affluent societies seek more without gaining any further long-term satis-
faction from such consumption, because much of the consumption is superficial anyway, and
because appealing to people’s fantasies and highlighting their imperfections (to encourage them
to reduce these feelings of inadequacy by buying a particular offering) leads to narcissistic ten-
dencies. Inherently, the notion that more choice is good in itself has been challenged (Newman,
2001). Further, some customers are persuaded and manipulated into purchasing offerings that
they do not want or which are unfit for their requirements. For example, financial services com-
panies in the UK commonly mis-sold payment protection insurance (PPI). By 2015, British banks
had had to put aside £27 billion for extra administration and to settle customers’ compensation
to cover the claims of 16.5 million people, with a further 5.5 million still to claim (Treanor, 2015).
Ultimately, the aggregate marketing system (Wilkie and Moore, 1999; see also Chapter 1) dis-
tributes anything, including harmful products such as alcohol, tobacco, and gambling services.
If prostitution and drugs, such as cannabis, were made legal in the UK, the aggregate marketing
system would distribute them. It already does this in the Netherlands, for example, where they
are not criminalized. The aggregate marketing system is amoral (as opposed to immoral)—that
is, not designed to harm as such, but designed without any care as to whether it harms or not.
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The system is made moral only by the decisions taken by governments and other institutional
actors in regulating the aggregate marketing system.
However, illegal offerings can be marketed in almost the same way as legal offerings. This
occurs via the ‘dark web’ (also called cryptomarkets) in which illegal offerings, such as drugs,
forged passports, guns, stolen credit card details, and other ill-gotten gains, are traded (Franklin,
2013). Previous websites have included DarkMarket and Silk Road, both of which were closed
by law enforcement officials. Interestingly, whilst previous dark markets worked reasonably well
as trading platforms between criminal parties, contemporary cryptomarkets have closed down
relatively quickly because site owners have taken customers’ money after an initial period of
trading. They have therefore been operating more like scam sites (Greenberg, 2016).
Of particular concern are those situations in which one group is unfairly disadvantaged over
another, or in which one group exerts its power over another. Fairtrade is an example of a move-
ment established to counter this by ensuring that, in the coffee market, for example, shippers,
roasters, and retailers pay fair prices to the supplying farmers, who are mostly located in devel-
oping countries such as Kenya and Colombia.
Some other controversial issues include the following:

■ Is the price paid by companies or organizations in wealthier countries for supplies obtained
in poorer countries fair? Major multinational corporations, for example Nike and Gap, have
been caught exploiting labour in foreign countries to produce expensive branded goods (Ellis
et al., 2010: 219). The moral dilemma, and the resultant consumer backlash, has in part led
to companies taking steps to eliminate such practices from their supply chain.
Paying for products imported from overseas: are you prepared to pay more to give farmers and
labourers a fair deal?
Source: © Tracing Tea/Shutterstock.com.
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■ To what extent should the cultural propositions and ideas of one country be marketed in
preference to those of another? This is known as cultural imperialism and marketers are
starting to consider its implications. China, for example, has blocked Twitter, Facebook, and
Google, preferring instead to set up its own search engine (Baidu), microblogging site (We-
ibo), and social networking site (QQ), and this has implications for the flow of information.
■ How much should we consume of any one offering? When should governments step in to
limit consumption? In Sweden, alcohol retailing is run by state alcohol monopoly Systembo-
laget to ensure that public health is not adversely impacted by over-consumption. In the UK,
in 2015, police chiefs urged retailers to abandon Black Friday—American-led promotional
activity whereby a sales event is held on the fourth Friday of November (the day after Thanks-
giving)—after the 2014 flash sale caused ‘scenes of chaos’, with shoppers literally fighting
each other and clambering over each other to bag the best deals (Clarke-Billings, 2015).
■ Are some producers or buyer groups more powerful than others and what impact, if any,
does this have on society? For example, for many years, producers have been using intru-
sive ads (automatic video, pop-up ads) to raise awareness of their offerings, but ad-blocking
software such as that offered by Germany’s Eyeo is now commonly available (Anon., 2015b).
Argos offered many heavily discounted Black Friday deals in 2015, suggesting that bargain
hunters browse its website between 3 and 4 a.m., to avoid online queues
Source: Courtesy of Argos.
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This makes it difficult for some legitimate organizations, such as publishers (for example the
UK’s The Guardian), to make their business models work, since they provide free content on
the basis that they can raise revenue from advertising to the readership.
■ Does the shift from customer research to customer surveillance benefit customers? For ex-
ample, retailers are using mannequins integrated with facial recognition software of the type
used by law enforcement agencies in an effort to track the age, gender, and race of their
customers as they pass through or by a store. Depending on whether or not, and how, these
data are stored (and the purposes for which they are used), such an approach has serious
ethical implications (Clark, 2012).
These examples illustrate imbalances in power structures between consumers, producers,
retailers, and other actors. The question that arises for marketers is: how should these relation-
ships be structured to ensure that they are fair to all concerned?
Although companies are increasingly recognizing the negative impacts they can have on
society (known as externalities), many are also increasingly trying to contribute positively to
societal development through CSR programmes.
Sustainable Marketing
Supporters of sustainable marketing accept the limitations of marketing philosophy and
acknowledge the need to impose regulatory constraints on marketing (van Dam and Apeldoorn,
1996), particularly concerning its impact on the environment. Sustainable economic develop-
ment—that is, development that meets the needs of current generations without imposing con-
straints on the needs of future generations—was first proposed at a United Nations Conference
in Stockholm in 1972 (WCED, 1987). To understand why a policy on sustainable development
is necessary, consider the following two examples of companies having catastrophic environ-
mental impacts:
■ In 2010, more than 200 million gallons of oil were spilled into the Gulf of Mexico after a BP
oil rig explosion that killed 11 people. The resulting oil spill affected 1,000 miles of shoreline,
killing thousands of birds, at least 153 dolphins, and other local wildlife. The disaster caused
BP to initially lose half of its share value and total costs (including fines, compensation, legal
fees, and other costs) for the disaster stood at US$53.8 billion in 2015 (Bryant, 2011; Anon.,
2015a).
■ In 2011, three former executives at Tokyo Electric Power (Tepco) were charged with profes-
sional negligence contributing to death and injury from the meltdown in 2011 at the Fuku-
shima Daiichi nuclear plant (McCurry, 2016). The meltdown was caused after a magnitude 9
earthquake caused a massive tsunami, flooding the nuclear reactors. The men were charged
with failing to take measures to defend the plant, despite knowing the risks. More than
300,000 people were made homeless and 20,000 were killed as a result of the earthquake
and the tsunami across Japan (Conca, 2015).
Sustainability concerns, however, do not apply only to environmental issues; questionable mar-
keting practices can lead to significant social harm even when catastrophic environmental con-
sequences are not at stake. Consider the scandal that engulfed American bank Wells Fargo
in 2017. Because of unreasonable pressure from management demanding constant revenue
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increases, many employees of the bank started creating fake bank accounts and new credit
cards (Egan, 2016). Customers who had never requested such products in the first place could
then be charged fees on these unsolicited products. Misbehaviour was so widespread that the
bank uncovered at least 3.5 million fake bank and credit card accounts (Egan, 2017).
Sustainable marketers thus attempt to broaden sustainable development to the practice of
marketing beyond simple economic development. This introduces the following maxims, known
as the 3Es of sustainable marketing:
1 Ecological—Marketing should not negatively impact upon the environment.
2 Equitable—Marketing should not allow or promote inequitable social practices.
3 Economic—Marketing should encourage long-term economic development as opposed to
short-term economic development.
Sustainable marketing has been said to be the ‘third age’ of green marketing (Peattie, 2001). In
the ‘first age’, ecological green marketing (c.1960s–70s) was concerned with automobile, oil,
and agrichemical companies, which encountered environmental problems in the production
process. The ‘second age’, environmental green marketing (c.1980s), saw the development
of green consumers—that is, people who purchased offerings to avoid negative environmental
impacts (for example cosmetic products that had not been tested on animals). But green mar-
keting was too heavily focused on the purchasing element of consumption (Peattie and Crane,
2005), perhaps because the sustainability debate did not consider the business-to-business
(B2B) dimension sufficiently.
The third age of green marketing is sustainable green marketing. Sustainable marketers
focus on positioning, stimulating demand for recycled and remanufactured products and build-
to-order offerings, as well as consider supply chain management issues such as enabling
materials recovery from end users, designing offerings to enable their dismantlement, enabling
reverse logistics for recycling and remanufactured offerings, and reducing supply by offering
build-to-order offerings (Sharma et al., 2010). In the third age, companies also need to lengthen
the time horizons across which they achieve investment returns and require emphasis on the
full costs of purchase, rather than simply the price paid. Proposition development activities
should fully consider, equitably, inputs and cooperation from all members of the supply chain.
Companies need to adopt environmental auditing methods (to include costs for disposal, as
well as development, delivery, and consumption) and organizations may actually discourage
consumption in certain cases (Bridges and Wilhelm, 2008)—or at least encourage more mindful
consumption and temperance, rather than acquisitive, repetitive, or aspirational over-consump-
tion behaviour (Sheth, Sethia, and Srinivas, 2011). For example, in 2013, Coca-Cola launched
a worldwide campaign on obesity (partnering in the UK until 2015 with StreetGames, a sport
participation charity) by introducing smaller bottles (375 ml) and displaying detailed calorie con-
tent on the pack (Mintel, 2013). But the company has not always been consistent: in 2012, it
was said to have used more water than around a quarter of the world’s population—that is, 79
billion gallons to dilute its syrup and an extra 8 trillion gallons in other elements of production
(Gwyther, 2015). In 2014, The Body Shop—to maintain its own strict policy against animal test-
ing—removed all products from duty-free shelves in airports in China after consumer watchdog
Choice revealed that the Chinese government had conducted post-market testing of Body
Shop products on animals (Davidson, 2014).
Such longer-term thinking led to the development of what is known as the circular economy.
For example, Vodafone runs a ‘Red Hot’ deal whereby a customer leases a phone and returns
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the old one for an upgrade. Airbnb, founded only in 2008, but valued at US$25.5 billion in 2015
and $38 billion by 2018, is another example of a company encouraging the sharing, swapping,
and renting of possessions (that is, collaborative consumption) in the spare-room business
(Alba, 2015; Trefis Team, 2018). (For more information on collaborative consumption and its
positive and negative societal consequences, read Market Insight 18.1.)
Market Insight 18.1

Collaborative Consumption Surely Glitters . . . But Is It Gold?
Collaborative consumption is one of the disruptive underused capacity to be €572 billion in annual
trends of the present century. Collaborative consumption across the (then) EU-28.
consumption refers to markets in which consumers
exchange products or other offerings among However, collaborative consumption also destroys
themselves. Collaborative consumption frequently value. First, many of these exchanges are not taxable,
relies on digital devices and electronic marketplaces which reduces income for the state, having further
or platforms, as in the case of popular brands such as consequences on society’s welfare. Second, social
Airbnb, Uber, Couchsurfing, Freecycle, or Blablacar. capital may not be created if users exchange only
Users perform the role of producer, that of consumer, with other users similar to them or people whom
or both. The exchange may adopt many forms, such they would have met anyway. Furthermore, recent
as renting, lending, swapping, reselling, or donating. studies suggest that some consumer segments
The exchanges are not professional—that is, producers lacking technological skills are excluded from these
in these markets do not rely on the income to make a markets. Studies in the United States have found
living. Yet the distinction blurs in practice: on Airbnb, evidence of racial discrimination in home-sharing:
there are professional hosts with several listings, or hosts are less likely to accept Black Americans as
private owners who have their homes managed by guests. Thus collaborative consumption may lead to
professional agencies. Collaborative consumption has greater marginalization and social exclusion. Another
been also termed crowd-capitalism, because these unsolved social problem is how consumers’ rights
markets emerge on a distributed network of peers. can be protected and enforced in these markets
Platforms rely on peer control to avert any frauds or and what the responsibilities of the marketplace are.
malpractice. In many of these markets, companies Finally, what scholars call rebound effects may offset
create the marketplace in which consumers interact any environmental gains offered by collaborative
and exchange. Companies may either act merely as consumption. For instance, if people travel more
matchmakers, providing no further services, or they may by car because car sharing is a cheap alternative
perform other services and charge a fee accordingly. to public transport, emissions may increase, rather
than be reduced. There may be other negative,
Collaborative consumption creates value in three more systemic, effects. To illustrate, the legitimacy
ways. Economically, it increases choice, provides of home-sharing is being threatened by mounting
more affordable and convenient alternatives, helps evidence of the relationship between an increase
consumers to maintain material welfare when liquidity in home-sharing availability and excessive tourism,
is limited, and becomes a source of extra cash (without which creates housing shortages and rising prices for
providing other benefits associated with traditional locals, and noise and pollution for long-term residents.
employment). Second, it enhances trust and bonding Thus private individuals are getting more income, but
among otherwise unknown others, thus increasing the community is worse off.
social capital. Environmentally, it facilitates the use of
underutilized assets and avoids waste. One report Sources: Goudin (2016); Ranchordas, Gedeon, and Zurek (2016);
by the European Parliament estimated the potential Schor (2016); Edelman, Luca, and Svirsky (2017); Sundararajan
economic gain linked with a better use of otherwise (2017).

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Market Insight 18.1

continued
This market insight illustrates a traditional conundrum leads us to discuss whether these platforms, which
in sustainability: the management of positive and were allegedly created by socially and environmentally
negative externalities created by market innovations. oriented entrepreneurs, have ended up being
It also helps to explain the coincidence of self- business-as-usual with all of the usual potential
regulation and traditional state regulation in corporate impacts on stakeholders.
and citizens’ control. From a critical point of view, this
Related Topics
stakeholder view of the firm; value creation; social business; consumers’ rights
1 If you have not yet done so, spend some time on to minimize negative externalities while
different collaborative consumption platforms. ensuring the delivery of social, economic, and
How are these platforms designed to build environmental value?
trust? How does the community self-regulate?
3 Do you think that collaborative consumption is a
2 There is a dark side to collaborative sustainable way of constructing markets or is it
consumption and the sharing economy. How simply business-as-usual?
are stakeholders impacted by the activity of
This market insight was kindly contributed by Dr Carmen
major players? What can be done (if anything) Valor, Universidad Pontificia Comillas, Spain.
Corporate Social Responsibility and Stake-

holder Marketing
Corporate social responsibility initiatives are increasingly common. Most companies pub-
lish annual CSR or sustainability reports. Governments and supranational organizations
actively encourage CSR initiatives (for example the UN Global Compact project). Corporate
social responsibility practitioners and academics continue to try to demonstrate the com-
mercial effectiveness of CSR programmes to explain why being ‘good’ translates into being
profitable.
Despite any obvious return, businesspeople and companies have long given to charity.
Famous cases include the John Paul Getty Foundation in the United States (built on oil industry
profits), which funds art and social projects, and Anglo American, the mining conglomerate,
which provides welfare support in Africa for its employees living with HIV/AIDS. In 2014, Mars
launched a campaign named ‘Choose GALAXY® (RED). Make lives better’, whereby donations
from special packs of GALAXY® chocolate helped to provide more than 3 million days’ worth of
life-saving medication to help to prevent the transmission of HIV from mothers to their babies
in Ghana.
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The rationale for developing CSR initiatives, irrespective of their financial contribution, is based
around the following ideas (Buchholz, 1991: 19):
■ Corporations have responsibilities going beyond the production of their offerings at a profit.
■ These responsibilities involve helping to solve important social problems, especially those
that the corporation helped to create.
■ Corporations have a broader constituency of stakeholders than shareholders alone.
■ The impacts of corporations go beyond simple marketplace transactions.
■ Corporations serve a wider range of human values, not captured solely by a focus on eco-
nomic values.
A central theme of CSR is that corporations have a responsibility to society that goes beyond
pursuing profit (Martin, 2002). Intercontinental Hotels Group (IHG) illustrates this by running three
core programmes:
■ the IHG Green Engage System, allowing individual hotels to track their carbon footprints;
■ the IHG Academy, in which locals from a hotel’s community can work; and
■ IHG Shelter in a Storm, a fundraising programme allowing IHG to come to the aid of employ-
ees or guests, such as when Crowne Plaza Kathmandu allowed 1,000 people to sleep in the
ballroom when an earthquake struck in Nepal (Basford, 2015).
Marketers have echoed this focus on CSR and some have called for the need to introduce the
concept of stakeholder marketing. Stakeholder marketing explicitly recognizes the impor-
tant role played by a multiplicity of stakeholders (for example employees, suppliers, government,
media, publics) in generating positive outcomes for the organization and for society at large (Hult
et al., 2011).
There are two aspects to the implementation of stakeholder marketing. The first is recogniz-
ing marketing’s important role in engaging with stakeholders meaningfully to define suitable CSR
programmes (see Research Insight 18.1 for a specific analysis of this point). The second relates
to the importance of managing stakeholders’ relationships to achieve superior performance.
In other words, actively managing relationships with many stakeholders is a specific capabil-
ity of the firm, since these relationships are strategic resources to be leveraged to achieve a
competitive advantage (Kull, Mena, and Korschun, 2016). Think of a pharmaceutical company
developing a new drug treatment. Success in this context will depend on a large network
of stakeholders: regulators need to approve the drug; doctors will recommend it; insurance
companies might need to be involved and offer coverage; nurses might teach patients how to
use the new drug. Advocacy groups or the media might also play important role in covering
the launch and supporting the adoption of the new medicine. Value in stakeholder marketing
is created by the network of stakeholders and not only by the firm (Hillebrand, Driessen, and
Koll, 2015). Companies need to be able to engage with all stakeholders, and if they are to do
so meaningfully, they need to recognize and meet those stakeholders’ expectations (Maignan,
Ferrell, and Ferrell, 2005; Hillebrand et al., 2015). From this point of view, therefore, CSR is nec-
essary for a firm’s success because it nurtures the ability to act in harmony with a firm’s relevant
stakeholders. However, when CSR is not designed on the basis of stakeholder feedback, it
can be seen as a ‘gentle soap for washing dirty hands’ (Debeljak, Krkac, and Bušljeta Banks,
2011: 12). Indeed, it is often used by companies in industries regarded as unsustainable (for
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Maignan, I., Ferrell, O.C., and Ferrell, L. (2005). A stakeholder model for implementing
social responsibility in marketing. European Journal of Marketing, 39(9–10), 956–77.
This is a highly cited and readable article providing a managerial framework to help marketers to orient
towards stakeholders’ needs when designing CSR programmes. The authors base their advice on the
observation that stakeholders are central to marketing activity and that the important role of stakeholders is
recognized by the definition of ‘marketing’ given by the American Marketing Association (AMA).
Given the importance of stakeholders, the authors provide a series of eight steps outlining how to implement
CSR:
1 discover organizational norms and values;
2 identify stakeholders;
3 identify stakeholder issues;
4 assess the meaning of CSR;
5 audit current practices;
6 implement CSR initiatives;
7 promote CSR; and
8 gather stakeholder feedback.
example oil and gas, tobacco, alcohol) because managers believe that it is a way in which they
can improve their companies’ otherwise poor environmental credentials (Cai, Jo, and Pan,
2011). Research suggests, however, that these efforts are likely to be unsuccessful because
stakeholders are very sensitive to the motives that underpin CSR activities and react negatively
when companies are seen as engaging in CSR for selfish, or ‘strategic’, motives (Vlachos et
al., 2009).
Ethics and Marketing

Ethics, a sub-discipline of philosophy more than 2,000 years old, can be defined as ‘the branch
of knowledge that deals with moral principles’ (Oxford Dictionaries, 2016). Ethics can be divided
into the following types:
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■ Normative ethics is concerned with the rational enquiry into standards of right and wrong
(that is, norms), good or bad, with respect to character and conduct, which ought to be ac-
cepted by a class of individuals.
■ Social or religious ethics are concerned with what is right and wrong, good and bad, with
respect to character and conduct. It does not claim to be established merely on the basis of
rational enquiry and instead makes an implicit claim to general allegiance to something (for
example God, Allah, the Buddha).
■ Positive morality is a body of knowledge generally adhered to by a social group of individuals,
concerning what is right and wrong, good and bad, with respect to character and conduct.
■ Descriptive ethics are concerned with the study of the system of beliefs and practices of a
social group from the perspective of being outside that group.
■ Meta-ethics is a form of philosophical enquiry that treats ethical concepts and belief systems
as objects of philosophical enquiry in themselves.
Considering morality in marketing gives rise to the question: how should a ‘good’ marketer
behave? As we discuss next, this question has a complex answer. Since there are both pre-
scriptive and descriptive components of ethics, we define marketing ethics as the analysis and
application of moral principles to marketing decision-making and the outcomes of these deci-
sions (see Research Insight 18.2).
Ethical Norms in Marketing Decision-Making

Norms are suggestions about how we should behave. Professional marketing organizations have
a code of professional practice that requires members to behave and act in a certain manner,
as do many companies and organizations. For example, the American Marketing Association
(AMA) requires its members to:
1 Do no harm. This means consciously avoiding harmful actions or omissions by
embodying high ethical standards and adhering to all applicable laws and regulations in
the choices we make.
2 Foster trust in the marketing system. This means striving for good faith and fair dealing
so as to contribute toward the efficacy of the exchange process as well as avoiding
deception in product design, pricing, communication, and delivery of distribution.
3 Embrace ethical values. This means building relationships and enhancing consumer
confidence in the integrity of marketing by affirming these core values: honesty; respon-
sibility; fairness; respect; transparency; and citizenship. AMA (2018)
In ethics, norms typically comprise five general approaches: deontological ethics; teleological
ethics; managerial egoism; utilitarianism; and virtue ethics (see Table 18.1). We outline
each approach next, with examples to help you to understand the differences.
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Hunt, S.D., and Vitell, S. (2006). The general theory of marketing ethics: a revision and
three questions. Journal of Macromarketing, 26(2), 143–53.
This article builds upon the authors’ 1986 paper—one of the most highly cited in marketing ethics—which
defined the study of marketing ethics (Hunt and Vitell, 1986). This 2006 article suggests that the original
1986 theory required revision because the model was applicable in any ethical decision-making situation,
not only in business and management contexts, and required empirical testing. The authors argue that
ethical judgements lead to intentions and hence to behaviour. Our intentions to act ethically, however, can be
based on two different types of motivation, based on two main traditions in ethics. On the one hand, ethical
decisions can be based on a set of rules or principles (that is, deontological ethics); on the other, ethical
choices can be based on the perceived positive consequences of an action (that is, teleological ethics).
Which of these two is preferred will depend on contextual and personal factors.
Table 18.1 The main normative approaches to ethical decision-making
Ethical approach Explanation
Deontological ethics An ethical approach whereby the rightness or wrongness of an action or

decision is not judged to be based exclusively on the consequences of that
action or decision
Teleological ethics An ethical approach whereby the rightness or wrongness of an action is

determined by its consequences
Managerial egoism An ethical approach recognizing that a manager ought to act in their
own best interests and that an action is right if it benefits the manager
undertaking that action
Utilitarianism An ethical approach developed by English philosopher Jeremy Bentham

suggesting that an action is right if—and only if—it conforms to the principle
of utility, whereby utility (i.e. pleasure, happiness, or welfare) is maximized
and pain or unhappiness is minimized, more than any alternative
Virtue ethics A form of ethical approach associated with Aristotle, stressing the
importance of developing virtuous principles, ‘right’ character, and the
pursuit of a virtuous life
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Deontological Ethics
Deontological ethics proposes that the rightness of an action is not determined by the
consequences of that action (Mautner, 1999); rather, deontological ethics emphasizes the
importance of codes of ethics, such as those outlined by the Market Research Society
(MRS), governing market research in the UK, or by ESOMAR, the world association for
market research. Deontological approaches propose that we have not only a moral duty to
ensure customer satisfaction via the finished offering, but also a duty to ensure integrity in
how the offering is produced and marketed. (See Market Insight 18.2 for cases of ethical
concern in food processing.)
Market Insight 18.2

Surviving a Food Scandal
With an annual revenue of £3.1 billion in 2016 and would resume only when it was happy that retraining
employing more than 23,000 people, 2 Sisters Food had been successfully completed.
Group provides approximately a third of the poultry that
is consumed in the UK. However, in September 2017, There are, of course, stringent requirements that must
video evidence from The Guardian and ITV showed be adhered to regarding food safety, laid out in the UK
employees at the West Bromwich plant relabelling in the Food Safety Act 1990, which led many people
meat products to change the date on which the to question how such behaviour could go unnoticed.
animal was butchered. Images showed meat being The scandal at 2 Sisters follows the infamous
dropped onto the floor and then put back among other horsemeat scandal of 2013, whereby horsemeat was
food products, and there were instances in which found to have entered the supply chain and been sold
food that had been returned by supermarkets was as beef to thousands of unsuspecting customers.
repackaged and sent out again. Not only could this And in 2017 some 700,000 eggs contaminated with
have serious consequences in terms of hygiene and potentially harmful pesticides were found to have been
safety, but mislabelling would also negatively impact distributed and made available for sale in four major
any food recall processes. Following the report, major supermarkets.
supermarkets, including Marks & Spencer, Lidl, and
Research has shown that such instances of
Aldi, announced that they had stopped buying 2
corporate social irresponsibility can spark
Sisters products.
consumer backlash and have devastating
2 Sisters immediately issued a statement to the consequences for a company’s reputation. Trust is
public in which it said that although the Food perhaps the most important part of a relationship
Standards Agency (FSA) had visited the plant on between a customer and brand; once this has
a daily basis since the video evidence surfaced been broken, it is very difficult to recover. Research
and had found no obvious violations to food indicates that, after such a scandal has occurred,
safety requirements, the company had begun its customers must perceive that the company has
own internal investigation into the allegations and taken appropriate action to rectify the situation if
found that there were some cases in which quality they are to continue being loyal to the brand. By
levels were not met. As a result of these findings, immediately taking responsibility for the issues and
the company stopped production and required all conducting its own investigation into the claims,
employees to undergo retraining on various aspects 2 Sisters Food Group instantly began to rebuild
of food safety. During this time, workers were paid trust with both the public and supermarkets.
in full. The company also stressed that production Similarly, the response from supermarkets to cease
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Market Insight 18.2

continued
trading with the group upon learning about the position in the marketplace and job cuts were
scandal reinforced the trust between them and expected in a number of its factories.
their customers. The best type of communication
during a scandal depends, however, on the specific Sources: Antonetti and Maklan (2016); The Economist (2016);
circumstances. In March 2018, 2 Sisters Food Goodley (2017); Roberts (2017); Anon. (2017).
Group was still struggling to recover its earlier
This market insight offers an example of how a implement a suitable response that includes both
corporate crisis or scandal unfolds and presents a communication strategy and practical actions
the marketing implications in a B2B context. Once to deal with the problem raised. The entire future
a scandal is communicated, existing relationships of a crisis-stricken organization can hinge on this
with customers and other key stakeholders are attempt to manage the scandal and its negative
potentially threatened. At this stage, the firm tries to consequences.
Related Topics
corporate social responsibility; stakeholder marketing; supply chain management
1 Did 2 Sisters Food Group respond correctly to 3 What are the different stakeholders damaged
the video evidence and what could it have done (directly and indirectly) by this scandal? How
differently? might 2 Sisters Food Group attempt to recover
their trust?
2 How do scandals such as this, regarding food
safety, affect public attitudes towards the This market insight was kindly contributed by Rachael
Millard, PhD candidate, Queen Mary University of
brand and the product? How would they affect London (UK).
perceptions of the industry (beyond the firms
directly involved)?
Teleological Ethics
Teleological ethics proposes that the rightness of an action depends on the value of the conse-
quences (Mautner, 1999). An organization is acting morally if it does not intend harm to come
from its actions, but harm is caused by accident anyway, or if its behaviour is ‘bad’, but ‘good’
consequences result, for example paying a warlord ‘tax’ to continue operations in a developing
country as Firestone did in Liberia in 1992 (Taddonio, 2014).
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Managerial Egoism
The rationale for egoism is the pursuit of one’s own interests, or self-interest. We assume
that the interests of marketing managers align with the interests of owners or directors of the
organization (but they might not). The ethical principle of managerial egoism is to maximize
shareholder value, or stakeholder value for a non-profit organization. If managers maximize
their own self-interest (in a free market), economic welfare is maximized for all, according to
Adam Smith (1776). Adopting the managerial egoist principle, we conclude that companies
should shape their marketing programmes in a way that maximizes shareholder or stake-
holder value. However, markets are amoral and the free market mechanism does not work
to promote ethical decisions; rather, it works to supply the optimal amount of offerings in a
society.
Utilitarianism
Utilitarianism, developed by English philosopher Jeremy Bentham, proposes that an action
is right if, and only if, its performance is more productive of pleasure or happiness or wel-
fare, or more preventive of pain or unhappiness, than alternatives (Mautner, 1999). Utilitarian
arguments are concerned with an action’s consequences. Ethical arguments proposed by
marketers are typically utilitarian. Marketing itself could be argued to be utilitarian, because
it is often concerned with satisfying consumer needs and wants at the market level (Nantel
and Weeks, 1996). Utilitarianism advocates maximizing the benefits of a certain action for the
largest possible number of people—that is, what philosophers refer to as ‘the greater good for
the greatest number of people’ (Mautner, 1999). The problem is that the maximization of one
group’s utility may lead to the minimization of another’s. To evaluate the utility associated with
a particular decision, we must determine the ‘costs’ and ‘benefits’, which are extremely dif-
ficult to quantify. For example, where an offering may save lives, such as with life-saving drugs
or health treatments, the losers may pay with their lives and the gainers survive—particularly
where that offering is in scarce supply. An (extreme) example of utilitarianism is the rationing of
supplies, as occurs in wartime, and as occurred with electricity supply in Chile in 1999, with
petrol in Iran and diesel in China in 2007, and with an extension of rationing to diesel in Iran
in 2012.
Virtue Ethics
Previous normative ethical theories—that is, managerial egoist, utilitarian, and deontological—
provide marketers with decision-making approaches that inform their choice between alterna-
tive courses of ‘right’ action. In direct contrast, virtue ethics stresses the development of virtuous
principles, with ‘right’ character, and the pursuit of a virtuous life. This branch of ethics is associ-
ated principally with Aristotle (Mautner, 1999). Virtue ethics proposes the development of good
character, suggesting that we aim to develop the virtuous organization. Murphy (1999) argues
that virtue ethics offers a suitable framework for international marketing because it is compatible
both with Western moral traditions and the Eastern philosophical tradition of Confucianism. But
what virtues should organizations develop?
Many organizations claim to be virtuous. The values statements of pharmaceutical and oil and
gas companies often emphasize ‘integrity’. UK supermarket Tesco artificially inflated its earnings
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by £250 million (by delaying payments to suppliers), which, when exposed, wiped £2 billion off
its market value and precipitated an SFO investigation (Wearden, 2014; Butler, 2016). But in its
2013 Tesco and Society Report, Tesco claimed that its plan was to ‘use our scale for good’ and
to ‘trade responsibly’ (Tesco, 2013).
So what exactly are virtuous principles and how are they operationalized? Aristotle, in
Nicomachean Ethics, defines virtue as general dispositions that will determine how people
will feel and act in specific circumstances (Mautner, 1999). He defines 11 virtues—namely,
bravery, self-control, generosity, magnificence, self-respect, balanced ambition, gentleness,
friendliness, truthfulness, wittiness, and justice. Although a company does not have a char-
acter in the same way as a person does, its employees do. We can therefore consider how
these virtues might relate to a company. For example, generosity might relate to the develop-
ment of CSR or corporate philanthropy programmes, or incentives for employees and channel
partners.
Table 18.2 outlines each virtue and how it might be applied to organizations.
Visit the online resources and complete Internet Activity 18.2 to learn more about National
Australia Bank, which topped the list of the world’s most ethical companies in 2016.
Table 18.2 Moral virtues applied to companies
Moral virtue Application in business and marketing
Bravery, valour In relation to innovation/new proposition development and long-

term, as opposed to short-term, goal-setting
Self-control in respect of bodily Not given to excessive pricing or profit-taking

pleasure
Generosity Development of CSR/philanthropy, or in terms of discounted

offerings or other incentives given to employees/others
Magnificence Aiming to build a large enterprise with a well-defined mission that

serves its stakeholders well
Self-respect or pride Openly communicating to stakeholders the good and bad news
associated with a company’s operations
Having some ambition, but not Competitive, but not at all costs and not combative within an
in excess industry
Gentleness or good temper Takes a balanced approach to dealings with stakeholder relations,
e.g. industrial relations, consumer boycotts
Friendliness The will to join forces with competitors in the same industry where
necessary, e.g. for purposes of self-regulation, to develop industry
standards, and for an exemplary approach to customer service and
satisfaction
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Truthfulness In relation to financial integrity and other stakeholder

communications
Wittiness Taken to mean intelligence and a company’s ability to redefine the

‘rules of the game’ without taking itself too seriously
Justice Auditing one’s own ethical approaches and initiating reward/

punishment when in breach
The Ethical Decision-Making Process

Having defined five main ways of analysing how organizations should behave, we now consider
how they make ethical decisions. Initially, managers must perceive an ethical dilemma to exist
before entering the ethical decision-making process (Hunt and Vitell, 2006). If no ethical dilemma
is perceived, no consideration of alternative action can take place. Further, deciding whether a
situation has ethical content is culturally specific: some cultures perceive ethical breaches more
easily than others. However, there are also some universal standards. For example, bribery is
universally condemned and almost all countries have laws making bribery of public officials ille-
gal, yet it still happens in practice (see ‘Bribery’, later in the chapter).
Early attempts to devise frameworks modelling how to act ethically involved asking a series of
reflective questions (Laczniak and Murphy, 1993):
■ Does the contemplated action violate the law? (Legal test)
■ Is this action contrary to widely accepted moral obligations? (Duties test)
■ Does the proposed action violate any other special obligations that stem from the type of
marketing organization in focus? (Special obligations test)
■ Is the intent of the contemplated action harmful? (Motives test)
■ Is it likely that any major damage to people or organizations will result from the contemplated
action? (Consequences test)
■ Is there a satisfactory alternative action that produces equal or greater benefits to the parties
affected than the proposed action? (Utilitarian test)
■ Does the contemplated action infringe on property rights, privacy rights, or the inalienable
rights of the consumer? (Rights test)
■ Does the proposed action leave another person or group less well off? Is this person or group
already a member of a relatively underprivileged class? (Justice test)
An elaborate model of ethical decision-making is illustrated in Figure 18.1. The authors cite five
key issues for ethical consideration: bid rigging; price collusion; bribery; falsifying research
data; and advertising deception.
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Individual Factors
-Knowledge
-Values
-Attitudes
-Intentions
Individual Decision- Evaluation of

Ethical Issue or Dilemma Behaviour
Making Behaviour
-Advertising deception
Social and -Ethical
-Falsifying research data
cultural -Unethical
-Price collusion
environment
-Bribes
-Bid rigging
Significant Others Opportunity

-Differential association -Professional codes
-Role set configuration -Corporate policy
-Rewards/punishment
Figure 18.1
A contingency model of ethical decision-making in a marketing organization
Source: Reprinted with permission from Journal of Marketing, published by the American Marketing Association, Ferrell and Gresham,
1985, 49(3), 87–96.
In bid rigging, subcontractors might collude to agree in advance who will win a bid, with some
submitting bids with overly expensive pricing, to ensure selection of the preconceived competi-
tor. Alternatively, companies might not even submit a bid so another company can successfully
win the contract. Collusion occurs when companies collaborate on submitting bids for some
competitions, but not others. With price collusion, companies either conspire to set prices or
limit production, which has similar effects.
How a person in an organization responds to situations with ethical content depends on their
social and cultural environment. Although bribery is illegal worldwide, it remains more preva-
lent in some countries than others. How an employee makes a decision on an ethical issue is
affected by their own knowledge, cultural background, values, and attitudes, and whether or not
the company has a corporate ethics policy and guidelines on rewards or punishment for ethical
and unethical behaviour.
A person’s ethical decision-making also depends on how they interact with others (that is,
their reference group). Association with others behaving unethically, combined with the opportu-
nity to be involved in such behaviour oneself, is a major predictor of unethical behaviour (Ferrell
and Gresham, 1985). Therefore the behaviour of superiors determines how employees behave
and is the most important factor influencing ethical/unethical decisions.
Next, we consider how ethics impacts on the marketing mix.
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Distribution Management and Ethics

Distribution and production policy can have major ethical dimensions. Ethical breaches in dis-
tribution management occur when, for example, companies collude over production quotas,
abuse their monopoly status, or overcharge or exploit supply chain partners. The following are
some examples of companies and situations in which ethical breaches have occurred:
■ Collusion—The best-known and most tolerated global example of production collusion is
that which takes place in the oil industry, through the Organization of Oil-Exporting Countries
(OPEC), which co-manages oil production quotas in countries such as Nigeria, Saudi Arabia,
Iran, Venezuela, and elsewhere.
■ Abuse of monopoly status—Google abused its monopoly power in the search engine market
‘in ways that harmed Internet users and competitors’ according to a US Federal Trade Com-
mission (FTC) report in 2012, but the FTC backed off from suing it because it thought Google
would be a tough case to prosecute (Pagliery, 2015). The accusation was that Google’s own
products and services would be favoured in the search engine’s results, which would limit
unfairly access to the market for relevant competitors. The European Commission fined Mi-
crosoft €561 million for failing to adhere to previous EU anti-monopoly judgments regarding
Microsoft’s dominance of the browser market with Internet Explorer (Halfacree, 2013). Micro-
soft used to bundle Internet Explorer within its operating system, without offering customers
an initial choice to opt for a competitor’s web browser.
■ Exploitation of supply chain partners—In France, the Châtel Act stops supermarkets selling
at below-cost prices (which damage supply chain partners’ margins) and is aimed at increas-
ing competition in the sector. All discounts and services provided by the distributor to the
supplier now require stipulation up front in an annual agreement (Boutin and Guerrero, 2008).
In the UK, supermarkets have been shamed into paying dairy farmers a fair price for milk after
the price paid by consumers at supermarket tills dropped below the price of production. One
supermarket in the north of England, Booths, paying 33p a litre against the national average
of 24p a litre, saw a 5 per cent increase in sales during the first four weeks of a price increase
for its Fair Milk brand (Ruddick, 2015).
Promotion and Ethics

There are many advertising issues prompting ethical consideration, for example shock and
sexual appeals in advertising, the labelling of consumer products, the use of propaganda and
advertising in political campaigns, and marketing to children, each of which is considered next.
The Use of Sexual and Shock Appeals

Advertisers use emotional appeals to capture attention. We are persuaded by them because
we are less likely to consider objections about why we might not agree with the message. For
Baudrillard (2005), all advertising has an erotic element to it, because it seduces us into buying
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something. But the ethical question arises where sexual themes are used explicitly (for example
naked or semi-naked models) and depending on the circumstances. Italian fashion brand Diesel
has famously used sexual appeals, advertising on dating apps Tinder and Grindr and on adult
website Pornhub (Allwood, 2016). In fact, Pornhub became its top referral website following
the advertising deal (Maytom, 2016). A good example of a highly successful and long-running
campaign that used sexual appeal in a humorous way in some of its executions was the ‘Got
Milk?’ campaign run for the California Milk Processor Board by Goodby Silvstein and Partners
between 1995 and 2014.
Critics argue that sex appeals exploit women, and sometimes men, as sex objects. The fash-
ion industry has decided not to use models aged 16 or younger, but it does use, and encour-
ages, models to become dangerously thin. In 2013, Israel was the world’s first country to ban
the use of female models whose body mass index (BMI) was less than 18.5 (Bannerman, 2015).
Others argue that sexual advertising appeals can be appropriate, depending on the offering
(for example perfume)—but for what other offerings is it appropriate, in what countries, to what
degree, and targeted at people of what age? Interestingly, one cross-cultural study found that
young Chinese consumers hold similar attitudes towards the use of sex appeals in advertising as
US consumers and even more favourable attitudes than Australian consumers (Liu, Cheng, and
Li, 2009). Consumers generally prefer mildly erotic ads to non-erotic ads. When erotica is used
in cause-related advertising, for example, one study found it to be received more favourably if it
is congruent with the cause and to be received favourably more by women than by men (Pope,
Voges, and Brown, 2004).
Shock advertising appeals can also create controversy. Charities often use hard-hitting
guilt appeal messages to raise funds for suffering children. Less commonly, Slater+Gordon, a
British law firm, used a shock appeal with the tagline ‘Going through a divorce? Call us, before
your ex does’, causing upset on social media. But the firm argued that such an approach
was necessary to raise awareness of the firm’s services in a sector in which clients generally
have a weak understanding of what solicitors actually offer, including mediation for couples
(McAlister, 2015).
Shockingly humorous advert from British law firm Slater+Gordon created a firestorm on social
media, raising awareness of legal services in an area not renowned for advertising
Source: Courtesy of Slater+Gordon, https://www.slatergordon.co.uk
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Product Labelling
The key ethical issue with product labelling is whether or not labels mislead the buying public.
Proper labelling is important in the food, pharmaceutical, and cosmetic industries, because
we consume and absorb these offerings into our bodies. Food products—and particularly
meat products in Europe and elsewhere—are required to demonstrate their country of origin.
For Europe’s Muslims, whether or not food products are labelled halal is important. A food
product needs to meet certain requirements to be considered halal. Products that contain
alcohol or pork meat cannot be labelled halal. This labelling also requires specific production
practices, because Muslims believe that animals should be slaughtered according to the
custom of cutting the animal’s throat while it is alive and then draining its blood. Some animal
rights groups condemn the practice, and Sweden, Norway, Iceland, Switzerland, and Poland
have all banned ‘ritual slaughter’ despite the fact that it is allowed under EU law (Hasan,
2012). Similar dietary regulations apply also to other religions. For example, kosher foods fol-
low Jewish dietary regulations, which include, among other norms, rules on ‘ritual slaughter’
of animals.
Unscrupulous companies do circumvent product labelling rules by importing food products
from one country, processing them in another, and claiming that they come from the country in
which they are processed. However, guidelines on label advertising claims in the UK are covered
under Trading Standards, which investigates misleading packaging and labelling on behalf of the
consumer.
Propaganda and Political Advertising

In many countries, political advertising is exempt from the rules and regulations associated with
traditional advertising. As a consequence, it can be highly negative, making vitriolic statements
aiming to damage the credibility of other candidates and parties. In the UK, political advertis-
ing on billboards, in cinemas, and in magazines is exempt from the advertising rules set by the
Advertising Standards Authority (ASA).
Unlike their commercial counterparts, political parties are not expected to be truthful—that is,
to validate their claims. Therefore the ethical question is: should politicians be exempt from the
rules and regulations associated with traditional marketing activity, when many of the adverts
used can be so negative?
Concerns related to political campaigning and propaganda have intensified in 2018 fol-
lowing media reports of how operatives associated with Donald Trump’s 2016 presidential
campaign tracked the Facebook profiles of millions of consumers to deliver targeted mes-
sages appealing to individuals’ fears (Cadwalladr, 2018; see also Chapter 6). There are two
issues that are relevant for marketing ethics here. The first pertains to the potential misuse of
private data, which was allegedly shared in violation of Facebook’s own code of conduct (see
Research Insight 18.3). The second, perhaps more systemic, concern relates to the idea that
the widespread use of micro-targeting (that is, the targeting of specific political messages to
single individuals), which was also successfully implemented by the Obama campaign in 2012,
might lead to a more fragmented society. Being able to deliver different messages to differ-
ent people might relieve politicians of the burden to develop a broad, unifying message, with
the consequence that multiple, independent, and perhaps irreconcilable worldviews can be
fostered within a single political community (Jamieson, 2013; Summers, 2018). (See Market
Insight 6.2, in an earlier chapter.)
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Martin, K.D., and Murphy, P.E. (2017). The role of data privacy in marketing. Journal of
the Academy of Marketing Science, 45(2), 135–55.
This recent article maps and summarizes the field of study on marketing and data privacy. It offers an
overview of current knowledge in this area and identifies several important research questions that need
to be tackled in the future. The article also reviews differences among companies’ approaches to the
management of privacy issues. The authors question current practice and show how consumers actually
see certain practices that are currently common (for example the use of cookies and other techniques to
track their online activity) as a cause for concern. One contention advanced in this article is that firms who are
committed to protect the privacy of their customers will be rewarded with improved trust and loyalty in the
long term.
Visit the online resources and follow the web link to the Advertising Standards Authority (ASA)
to learn more about advertising rules and regulations.
However, political advertising is not only undertaken by political parties; other campaigning
organizations also use its general approach (see also Chapter 16). For example, marketing
tools and techniques are used by terror groups such as Al-Qaeda, which pioneered the use
of propaganda videos online to promote the cause of suicide bombing through Qatari televi-
sion station Al Jazeera and on the Internet (O’Shaughnessy and Baines, 2009). More recently,
so-called Islamic State (also known as ISIS or Daesh) has made extensive use of social media
in the West to disseminate violent propaganda, aimed particularly at disaffected Muslims and
Muslim converts, to promote their murderous cause and suicide bombing, which they depict
as martyrdom (Jones et al., 2015). It is critical to realize that an understanding of marketing
and PR provides users with the means of persuading huge groups of people. The question
then arises as to whether it is legitimate for governments and special interest groups (includ-
ing terrorists) to use these means to persuade citizens and electorates about their causes.
The problem, of course, is that terror groups seldom take notice of any law and their ethical
conduct is usually suspect.
Finally, companies also sometimes develop overt political messages and campaign stances
(see Chapter 16). Ben & Jerry’s, the ice cream brand now owned by Unilever, has also cam-
paigned on socio-political issues, announcing on social media that it is ‘open to creating a
cannabis-infused ice-cream’, and urging consumers to sign an online petition to tackle climate
change at the UN summit in Paris in 2015 (Anon., 2015c).
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Marketing to Children
Academics frequently comment on whether or not children should be targeted for advertising,
given their immature views of time, money, and identity. Researchers have found evidence that
children are explicitly targeted in promotional campaigns and that parents are concerned by this:
■ Children are more exposed to marketing than ever before and parents increasingly feel that
they are losing control of the marketing directed at their children.
■ Parents are particularly concerned about the marketing channels used to target children
directly (for example the Internet, mobile phones, social media, and advergames).
■ Inappropriate marketing to children damages the brand, making it less likely that marketers
will get past the parent as gatekeeper.
■ More appropriate marketing methods are informative and help parents to feel more in control.
■ Consumers are willing to support companies that communicate with children in a responsible
way.
■ Marketers, especially advertisers, should use the means of communication appropriately,
and should educate parents and children alike on newer and less traditional communication
media (Daniels and Holmes, 2005).
One example of a company under pressure for its promotion to children is McDonald’s, whose
offerings are designed to appeal particularly to children via the use of licensed characters and
celebrity endorsement. Child obesity is regarded as a major problem in many countries (for example
Australasia, the UK, the European Union generally, and the United States). While inactive lifestyles
and lack of exercise play a part, the problem is exacerbated by advertising fast food to children—
and fast food retailers have come under increasing pressure to make their menus healthier.
Products and Ethics

Companies must follow strict guidelines on product quality. Where consumers have concerns
about a particular company’s product quality, they can inform a government body, which will
then be charged with looking into the case on the consumer’s or customer’s behalf. For instance,
the Swedish Consumer Agency (Konsumentverket), Dubai Central Laboratory, and Ireland’s
Competition and Consumer Protection Commission (CCPC) all perform this role. Most coun-
tries charge organizations with enforcing minimum levels of product quality. The same degree
of protection for enforcing services quality does not exist, probably because it is more difficult
to monitor service quality, decide on minimum service standards, and determine whether or not
breaches have been made. Agencies often provide consumer information. In some countries,
product quality standards are supervised directly by governmental authorities. For example, in
France, a unit within the Ministry for the Economy and Finance is responsible for protecting con-
sumer rights and enforcing product quality standards.
Visit the online resources and follow the web links to the various consumer agencies and
government fair trading bodies to learn more about the regulations and guidelines that
organizations must follow to ensure the health and safety of consumers and the conduct of fair
business practice.
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Breaches in product quality can be extremely serious, and can lead to serious injury or even
death—particularly in the food industry. For this reason, countries have separate official bodies
charged with enforcing food safety guidelines, for example the US Food and Drug Administration
(FDA), the UK’s Food Standards Agency (FSA), France’s Agence nationale chargée de la sécu-
rité sanitaire de l’alimentation, de l’environnement et du travail (Anses), and the binational Food
Standards Australia and New Zealand (FSANZ), which covers both territories.
A recent example of a defective product causing not only injury and inconvenience, but death,
occurred when General Motors (GM) failed to promptly recall cars with a faulty ignition switch
despite allegedly uncovering the problem up to a decade previously. As many as 124 deaths
were the result and, in 2014, GM paid US$900 million in criminal damages and eventually recalled
800,000 cars (Smithers, 2016). In 2015, another car manufacturer, Volkswagen, announced a
product recall after it was found to have installed software allowing it to falsify emission reports
to pass safety tests, affecting up to 11 million vehicles (Bryant and Sharman, 2015; see also
Market Insight 18.3

Volkswagen: Up in Smoke?
On 11 September 2015, Volkswagen Group

announced to the world’s media that it was again the
most sustainable automaker in the world’s leading
sustainability rankings. It had even depicted its
engineers as angelic in ads aired during the US Super
Bowl in 2014. However, the company’s celebrations
were short-lived: exactly seven days later, the US
Environmental Protection Agency (EPA) stunned the
global business community by accusing Volkswagen
of illegally using ‘cheat devices’ to evade clean air
standards for six years between 2009 and 2014.
Since Volkswagen installed ‘cheat devices’
The scandal affected 11 million cars worldwide, 1.2
in its diesel cars, the VW brand has no longer
million of which were in the UK. After the accusations been squeaky clean
were made, Volkswagen chief executive officer (CEO) Source: © villorejo/Shutterstock.com.
Martin Winterkorn resigned when media investigators
companies to parade their virtue and look good while
uncovered systematic abuses within the company
internal standards are allowed to slip’. The scandal
taking place over many years, involving managers at
has also led many commentators to conclude that
all levels of the organization.
Volkswagen was greenwashing (that is, promoting
Previously, Volkswagen had been viewed as a global environmental initiatives, but actually operating in a way
leader in CSR. Its annual report was packed full of that is damaging to the environment) and was more
descriptions of projects it backed and the charities focused on doing the occasional good deed or project
it supported. It was viewed as a thought leader on rather than on embedding good deeds within its core
social issues and a change agent for improving society. company values.
Globally, it was ranked as the best company in the
Volkswagen offered to fix the models affected and
world for its CSR work. In the wake of this controversy,
started the recall in January 2016. Estimated fines
critics have begun to question the whole concept of
could be as much as US$45 billion in the United
CSR. Some commentators have suggested that CSR
States alone, based on the civil charges filed by the US
has become a ‘dangerous racket’, because it ‘allow[s]
Marketing,
Ethics 713
713
Market Insight 18.3

continued
Department of Justice (DoJ), although the company is loss of customer trust, bouncing back from this
likely to pay only a fraction of that sum. Volkswagen is devastating blow to its ‘angelic’ brand image.
facing investigations in many other countries, as well
as lawsuits from motorists. Only time will tell whether Sources: Hardyment (2015); Izzo (2015); Kaye (2015); Lynn
Volkswagen will survive the scandal and the associated (2015); Marshall (2015); Paton (2015); Tovey (2016).
This market insight illustrates how employees within plunged from 9.4 per cent to 7.2 per cent in the
Volkswagen, an apparent leader in CSR, displayed months immediately after the emission scandal. The
shockingly unethical, and illegal, behaviour in United States’ EPA, and other country regulators,
engineering ‘defeat devices’, allowing Volkswagen will now have to work out what the cost to society is
to cheat stringent emissions tests to gain access as a result of the higher levels of noxious chemicals
to various large automotive markets. Whilst the that have been released into the atmosphere over a
company did eventually accept responsibility for the six-year period. As an aside, the case also illustrates
cheating, its CEO had to resign as a consequence, the importance of having strong regulatory bodies
and the company is set to pay billions of dollars in for both the testing of products (the EPA) and the
fines, lawsuits, and compensation payments. In the enforcement of punishment for contraventions of the
UK, the company’s share of the overall car market law (the DoJ).
Related Topics
corporate deception; product standards
1 Given the recent scandal, should Volkswagen 3 How have other companies refocused their
abandon its CSR efforts? efforts and recovered from the negative fallout
of similar scandals? (Hint: Consider GM and
2 Who is to blame for the emissions scandal at
its faulty ignition switches, or Toyota’s instant
Volkswagen—the CEO, senior engineers who
acceleration problem.)
signed off on this, or all employees who were
This market insight was kindly contributed by Marie O’Dwyer,
involved? Waterford Institute of Technology, Republic of Ireland.
However, determining when to recall products is a difficult ethical problem. Often—and par-
ticularly with food products—the precautionary principle operates. For example, Tulip Food
Company, operating in Denmark and Sweden, recalled its Danish deli food products in 2014
despite the fact that the traces of listeria found were minuscule (Herriman, 2014). Where a risk
of injury is likely, a product should certainly be recalled—namely, when:
■ a serious consumer illness or injury is caused by product contamination;
■ there are similar complaints of illness or injury that apply to a specific product;
714 1 > The
Part 5 Marketing
Social Fundamentals
■ a design or manufacturing failure could result in potential harm to consumers; and/or

■ there is defective product labelling that could result in potential harm to consumers or a prod-
uct has been tampered with.
Pricing and Ethics

The main ethical concern in pricing is fairness. Key considerations concern price gouging,
whereby prices are set far higher than is considered reasonable, price discrimination,
whereby prices are set for different groups of people, and price collusion, whereby competi-
tors work together to set prices to the detriment of consumers and competitors. Price gouging
occurs when companies operate a demand-pricing formula (see Chapter 9) where demand is
very high, leading the companies to charge customers high prices. One shocking example is
that of Turing Pharmaceuticals, which raised the price of a life-saving drug from US$13.50 to
$750, putting lives at risk in the name of profit and creating a media furore (McCoy and Bomey,
2015).
Price discrimination involves setting different prices for different groups of people—that is,
price discrimination is linked to market segmentation (see Chapter 6). It is not necessarily an
unethical practice as such, but is more questionable where there is no difference in the offer
and the price remains the only difference. Price discrimination is commonplace. For example,
signs at tourist sites in different countries often show the price for foreigners versus the cost for
domestic nationals. For example, the price for international visitors to visit the Taj Mahal in India
has sometimes been 25 times that of the cost for Indian nationals.
Price discrimination also commonly occurs on airlines. For example, easyJet and Ryanair use
yield management systems to sell airline tickets, with different prices charged depending on
time of booking. Women’s haircuts are often more expensive than men’s, although it may be that
the service provided is more attentive and takes longer. And until new EU rules were introduced
in 2012, women could obtain up to 40 per cent cheaper car insurance than men in the UK
(King, 2012). This is still possible in the United States, where equalizing legislation has not been
introduced, and women are said to tend to drive more safely than men (that is, be involved in
fewer accidents), get fewer speeding tickets, and be less likely to be charged with driving under
the influence (esurance, 2016). Price discrimination also occurs when customers haggle (Kimes
and Wirtz, 2003). Haggling is more common in some markets than others (for example buying
a home or a car in Europe), and in some countries than others (for example Middle Eastern and
Southeast Asian countries).
Another ethical issue in pricing arises when companies collude to set prices (see also Market
Insight 18.4). Many well-known companies have been fined for this. In 2016, the European
Commission fined Mitsubishi Electric and Hitachi €137.8 million for fixing the prices of car alter-
nators and starters between 2004 and 2010. Denso, the world’s second-largest maker of car
parts, avoided a fine by informing on the cartel (Anon., 2016). Price collusion is regarded as
unethical because it results in unfair, and higher, charges to customers and it stifles innovation
because competitors do not need to develop better offerings—and that means that consumers
do not benefit from improvements in quality and performance.
Marketing,
Ethics 715
715
Market Insight 18.4

Forex Fixing
Between 2009 and 2013, the global banking industry names such as ‘The Bandits Club’ and ‘The Cartel’),
was fined more than £166 billion in settlement fees sharing confidential client currency order information
and provisions for bad behaviour including fixing the that allowed them to submit large currency orders
London interbank offered rate (Libor); currency market simultaneously during the time at which the benchmark
manipulation; breaching sanctions on Iran, Sudan, price is set. This is the price that many customers
and Cuba; money laundering for Mexican drug cartels; request to settle deals and it is calculated within the 30
abusive mortgage practices in the United States; and seconds of trading either side of 4 p.m. GMT (known as
mis-selling of payment protection insurance (PPI) in the the ‘fix’ time). If, just before these big trades occur, the
UK. That’s quite a list of dodgy dealing. traders also buy some currency on their own trading
account using the bank’s money (knowing that the
Consider foreign exchange (forex) currency market currency price will, say, go up because of their client’s
manipulation. This occurred between 2007 and 2013 in large currency orders), they can then sell the currency
a market totalling an estimated £3.3 trillion a day, 41 per after the large trade has taken place and make a
cent of which came through the City of London. Fines hefty profit (since they bought the currency at a lower
imposed by the UK’s Financial Conduct Authority (FCA) exchange rate than the rate at which they later sell it). If
and numerous regulators in the United States on various several currency traders collude, they are more likely to
international banks, including Barclays and Royal Bank affect ‘the fix’ and to a larger degree to their advantage.
of Scotland (RBS), totalled £6.3 billion. Barclays was
fined £1.5 billion by five regulators, including £284 million Despite the apparent evidence, in 2016 the UK’s
by the FCA. Barclays, RBS, and HSBC also agreed to Serious Fraud Office (SFO) closed the criminal
pay out £600 million to settle a US investor class-action investigation into forex fixing, deciding that there was no
lawsuit related to the fixing of forex markets. Investor serious prospect of getting a conviction under English
claims are also likely to be submitted in London, a much law. Losers include the banks themselves (because of
larger market than the United States, meaning that the the fines imposed), the banks’ clients because of slight
banks face legal costs running into further billions. skews in the market, and the financial system itself
because public trust is further undermined.
But what did the banks do to deserve these fines
and lawsuits? The answer is that their employees Sources: Goodley (2014); Kollewe, Treanor, and Hickey (2014);
rigged the market by colluding with other traders Augar (2015); Treanor and Rushe (2015); Trotman (2015); Treanor
in closed-membership online chatrooms (with (2016).
The market insight illustrates the sheer scale of fines deontological, teleological, virtue ethics), other
and compensation that large global banks have had to than a managerial egoist approach (what is in the
pay as a result of their employees’ unethical behaviour. trader’s interest is in the best interests of everyone),
Some bank employees, who were sacked for their can justify the traders’ forex-fixing actions. But even
conduct as part of the regulatory settlements, showed the managerial egoist approach, which assumes
no respect whatsoever for the wider forex system, that managers’ interests are linked to shareholders’
acting purely in their own interests (in pursuit of higher interests, fails to justify the actions in the longer term,
profits for the bank and bonuses for themselves). given that the banks eventually received stringent fines
No normative ethical framework (that is, utilitarian, (thereby reducing shareholder value).
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Market Insight 18.4

continued
Related Topics
corporate social responsibility; critical marketing
1 Why do you think global banks have been mired scandal like forex fixing never happens to the
in so many scandals? bank again? Why, or why not?
2 Barclays has developed an ethical code of 3 Look up the ethical policies of two other global
conduct, known as The Barclays Way. Do you banks on their websites. How are they similar
think such a policy will help to ensure that a and how do they differ?
Universalism or Cultural Relativism in

Marketing Ethics
Some cultures are less likely than others to perceive ethical dilemmas. Ethicists say that different
groups of people see ethical situations from two perspectives. From one perspective, universal
ethical codes of practice should exist because there are things that are simply ‘wrong’, no matter
what the colour or creed of the people concerned (for example murder, bribery, extortion). This
is termed universalism. The opposite argument, termed cultural relativism, suggests that differ-
ent groups consider ethical situations (for example gifts, corporate entertainment) from varied
viewpoints and that there is nothing wrong with this. The debate in international marketing ethics
concerns itself with this dichotomy between cultural relativism and ethical universalism.
How should a director of a Western company ensure that local managers do not use brib-
ery to gain access to particular markets? This question arose when French industrial company
Alstom paid more than US$75 million in bribes to government officials in Indonesia, Saudi Arabia,
Egypt, Taiwan, and the Bahamas, attracting a $773.2 million fine from the US Department of
Justice in late 2014 (Chon, 2014). The excuse was that if its managers did not agree to the
bribes, competitors would, and they would win the business. From a cultural relativist perspec-
tive, such a practice is ethically unacceptable except where bribery might lead to a greater
good—say, widespread distribution of health-giving pharmaceuticals—whereas the universalist
perspective suggests that bribery is a fundamental ethical breach regardless of the circum-
stances. A study concerning American–Thai differences showed that American marketers were
more likely than Thai marketers to perceive unethical marketing behaviours to be serious (Marta
and Singhapakdi, 2005). A study of Thai managers suggested that one approach that might
improve their ethical decision-making would be to encourage idealism—that is, the degree to
which individuals ‘assume that desirable consequences can, with the “right” action, always be
obtained’ (Singhapakdi, Salyachivin et al., 2000: 273)—rather than relativism, whereby people
reject universal moral rules (Forsyth, 1980). Building on idealism, Singhapakdi, Marta, and col-
leagues (2000) also found a strong positive relationship between a marketer’s religiousness and
Marketing,
Ethics 717
717
their degree of idealism—that is, that the more religious someone is, the more likely they are to
hold universal ethical principles.
In a study of marketing ethics in Korea, Kim and Chun (2003) found that Koreans perceived
the hierarchy of seriousness of ethical problems as follows:
1 bribery;
2 unfair price increases;
3 exaggerated advertising; and
4 sexual discrimination.
They found that younger Koreans were less likely to perceive situations as having ethical con-
tent, whereas older people perceived less ethical content in bribery situations.
Bribery
Transparency International publishes a Corrupt Perceptions Index to indicate the perceived
level of public-sector corruption in different countries around the world. In 2017, New Zealand,
Denmark, Finland, Norway, and Switzerland were the least corrupt governments, whilst the
worst perceived offenders were Somalia, South Sudan, Syria, Afghanistan, Yemen, and Sudan
(Transparency International, 2018). From an analysis of 427 international bribery cases by the
Organisation for Economic Co-operation and Development (OECD), the most com-
mon offending industries from which bribes originated included companies from the extraction
(oil and mining), construction, transportation, information and communication, and manufactur-
ing sectors (Kottasova, 2014). Companies in these industries have a greater need for ethical
training, confidential helplines, and robust whistleblowing procedures to allow employees to
highlight ethical breaches to senior managers without fear of penalty.
Where bribery occurs, it is used either to influence potentially adverse legislative programmes
(that is, for lobbying purposes) or to obtain favourable contracts at another company’s expense
(that is, for sales purposes). Many countries’ bribery acts are extraterritorial—that is, personnel
can be charged for their activities in other countries. To comply with the UK Bribery Act 2010,
for example, British companies must put in place procedures to deter employees from paying
bribes (see Market Insight 18.5).
Market Insight 18.5

Drug Money in China
In 2014, GlaxoSmithKline (GSK) was fined 元3 billion suspended jail sentences and deported from the
(£297 million) by Chinese authorities after it was found country. The company was said to have made US$150
to have bribed doctors and hospitals to promote its million in illegal profits as a result of the bribery. The
drugs. Numerous GSK senior executives were given scale and duration of the 15-month investigation at
718 1 > The
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Market Insight 18.5

continued
GSK led to a huge increase in whistleblowers’ reports ABAC Programme elements

in China, from 48 in 2013 to 652 in 2014, and a
■ Our leadership and managers lead by example,
considerable drop in Chinese drug sales. In a survey
ensuring our Staff and relevant third parties are
conducted for a white paper by Charney Research,
aware of the ethical significance and critical role of
35 per cent of companies operating in China had paid
our ABAC principles and standards.
bribes or given gifts simply to stay in business. Bribery
also differed by region, being more prevalent in Beijing ■ We perform a comprehensive risk assessment to
than Shanghai, and much less prevalent in the north determine the company’s exposure to bribery and
and west of the country. The corruption problem is so corruption risk. The risk assessment is reviewed
bad that nine in ten companies regard it as a plague on and updated regularly to reflect changes in our risk
doing business. profile.
■ The ABAC principles and standards established

GlaxoSmithKline now has an anti-bribery and
corruption (ABAC) policy statement that reads: in this policy are developed and supported by a
number of periodically reviewed corporate written
We do not, directly or through a third party, standards which constitute our ABAC controls,
promise, offer, make, authorise, solicit or accept policies and procedures.
any financial or other advantage, to or from
■ We provide mandatory periodic ABAC training to our
anyone to obtain or retain business, or secure an
Staff and relevant third parties in accordance with
improper advantage in the conduct of business.
their roles, responsibilities, and the risks they face.
This rule applies regardless of whether they are
government officials or work in a private sector ■ We perform risk-based due diligence prior to
entity. engaging any third party or undertaking a business
development transaction and ensure appropriate
Financial or other advantage covers anything of value, contractual clauses and monitoring controls are
including cash, gifts, services, job offers, loans, travel put in place as described in the relevant written
expenses, entertainment, or hospitality. standards.
We prohibit all facilitation payments as they are ■ Our dedicated ABAC website and regular
bribes. These payments are unofficial, improper, small communications ensure ABAC awareness and
payments or gifts offered or made to government support are available across the company.
officials to secure or expedite a routine or necessary
Sources: Anon. (2014b); Kollewe (2014); GlaxoSmithKline (2016);
action to which we are legally entitled.
Levick (2015); Roland (2015).
The market insight illustrates how senior executives of Chinese president has initiated a strong focus on anti-
a major UK multinational pharmaceutical manufacturer corruption and Western governments are prosecuting
were found guilty by public authorities of bribery in companies using extra-territorial laws such as the US
China. The case reveals the difficulty of doing business Foreign Corrupt Practices Act of 1977 and, in the UK,
in a country in which bribery of public officials is the Bribery Act 2010.
systematic, varied, and expected, but also when the
Chapter 18 > Marketing, Society, Sustainability, and Ethics 719
Market Insight 18.5

continued
Related Topics
deontological ethics; ethical codes of conduct
1 Do you think the GSK ABAC statement stops 3 What other major Western companies are you
the company’s employees and contractors from aware of that have been charged with bribery in
offering bribes to public officials in every part of China recently? Why do you think bribery is so
the world, including China? Why, or why not? commonplace in China?
2 Is it always unethical to pay bribes when doing

business? Can you envisage any circumstance
in which it might be ethical to do so?
Chapter Summary
■ Assess the negative impact that marketing has on society.

The critical marketing perspective suggests that marketing impacts negatively on society. The perspective
calls for the (re-)evaluation of marketing activities, categories, and frameworks to improve them, so that
marketing can operate in a more desirable manner within society. It critiques the nature of marketing
knowledge and questions in whose interests existing frameworks, approaches, and techniques operate.
■ Define sustainable marketing and its implications for marketing practice.

Sustainable marketing has been termed the ‘third age’ of green marketing, and it is concerned with
ecological, equitable, and economic impacts of marketing practice. Sustainable marketers seek to meet
the needs of existing generations, whilst not compromising the ability of future marketers to meet those
of future generations. Consequently, companies are re-imagining marketing practices, for example by
recovering the costs of investment financing over longer payback periods, by emphasizing the full costs
of purchase to customers, by considering all members of the supply chain and ensuring that they are paid
equitably, and by demarketing consumption to vulnerable groups or those who are overconsuming.
■ Define stakeholder marketing and its role in corporate social responsibility initiatives.
Stakeholder marketing comprises marketing activities undertaken in a system of interaction with different
stakeholders and aimed at generating value for all stakeholders involved, both internal and external to
the organization. Stakeholder marketing is important for an organization’s ability to develop successful
CSR programmes that demonstrate a concern for social and/or environmental issues. By implementing
stakeholder marketing, an organization ensures that its CSR engagements are relevant to the concerns of
its stakeholders.
■ Define marketing ethics.

Marketing ethics is concerned with how marketers go about the marketing process. In particular, it is the
application of moral principles to decision-making in marketing and the consideration of the outcomes of
those decisions.
■ Explain the common ethical norms applied in marketing.

Marketing ethics can be divided into normative and descriptive branches, distinguishing between how we
ought to act and how people actually behave when making marketing decisions. The five main normative
approaches to marketing decision-making are: deontological ethics (doing ‘the right thing’ because it’s
the right thing to do); teleological ethics (the right thing to do is the thing with the right consequences);
managerial egoism (doing the right thing because it’s the best thing to do for ourselves); utilitarianism
(doing the right thing for the largest number of people); and virtue ethics (doing the right thing for
everyone).
■ Describe the role of ethics in marketing decision-making.

Models of marketing decision-making outline the importance of the ethical content of a situation and
the importance of ‘significant others’, employees’ values, and the ethical training given by a company
in line with its own ethical policy. Hunt and Vitell’s (2006) model of marketing decision-making stresses
the importance of considering what is the right thing to do (deontological norms) and what are the right
intended outcomes for us to follow (teleological norms).
■ Understand how ethical breaches occur in marketing mix programmes.

Ethical breaches occur in all aspects of an organization’s marketing activity, including pricing, promotion,
product, and place (distribution) policies. Ethical breaches are often made by employees who may or may
not be following company ethical guidelines and codes of conduct appropriately.
Review Questions
1 Name the key concepts in critical marketing.
2 How will sustainable marketing impact on marketing practice?
3 How will stakeholder marketing impact on marketing practice?
4 What do we mean by ethics in marketing?
5 What role does ethics in marketing play in the marketing decision-making process?
6 What are key ethical considerations when pricing offerings?
7 What are key ethical considerations when promoting offerings?
8 What are key ethical considerations when distributing offerings?
9 What are key ethical concerns when developing the product offering?
10 What is bribery?
1 Having read Case Insight 18.1, what do you think are the most important issues to consider when
determining whether to work together with competitors to address sustainability challenges?
2 Consider Reckitt Benckiser’s condom product Durex, designed to reduce the proportion of people
sustaining sexually transmitted diseases (STDs) and women experiencing unwanted pregnancies.
Assuming that this is legally permitted, would it be appropriate for the company to promote condom
usage to (a) children below the age of consent (for example 16 years old in the UK) and (b) countries
in which conservative religious views are prevalent? (Hint: you might need to re-read the section on
normative ethics.) Discuss this ethical problem using the following approaches:
A Managerial egoism—that is, the principle of managerial self-interest
B Utilitarianism—that is, the principle of the greater good for the greater number of people
C Deontological ethics—that is, the principle of duty-based ethics
3 Consider whether or not it is unethical to act in the following ways in the following circumstances:
A You are a salesperson working for a South African construction company trying to secure a road-
building contract in Nigeria. You know that if you do not pay a ‘commission’ to the public official in
charge of tendering for the project, you will not win the contract. Should you pay the ‘commission’ or
do you have other options?
B You are a Dubai-based banker. A potential new client in Dubai insists on taking you to a very exclusive
restaurant at the Burj al Arab to discuss a loan she requires to purchase a new building for her rapidly
expanding business. Should you accept?
C You are a farmer supplying a large chain supermarket in Copenhagen with selected prime cuts of meat
products. The supermarket requests an upfront ‘listing’ fee of 170,000 Danish Krone before it can
accept you as a supplier; you can then expect high-value orders of millions of Krone. Should you pay
the ‘listing fee’? What other courses of action do you have?

Glossary
bid rigging when organizations conspire to and materials at the end of each service life
determine which company or companies should (WRAP, 2016).
win a particular contract. collaborative consumption the trend
capitalism the political system in which private towards the sharing, swapping, and renting of
(as opposed to governmental) capital and wealth possessions.
is the predominant means of producing and collusion when a group of competitor companies
distributing goods. conspires to control the market, often at the
circular economy an alternative to a traditional expense of the consumer or customer and
linear economy (make–use–dispose) in which we typically in relation to price fixing.
keep resources in use for as long as possible, corporate social responsibility (CSR) typically,
extract the maximum value from them whilst in a programme of social and/or environmental
use, and then recover and regenerate products activities undertaken by a company on behalf
of one or more of its stakeholders to develop Organisation for Economic Co-operation

sustainable business operations, foster goodwill, and Development (OECD) a grouping of 34
and develop the company’s corporate reputation. countries that exists to promote the economic
cryptomarkets hidden online marketplaces in and social well-being of people worldwide.
which people buy illicit offerings, often using precautionary principle the principle that, when
anonymous web browsers and untraceable the risk of a threat to the environment or human
currency forms for payment. health exists, it is better to put in place measures
deontological ethics a form of ethical approach to mitigate that risk than not to do so, even if
whereby the rightness or wrongness of an action there is no scientific evidence for a cause–effect
or decision is not judged to be exclusively based relationship for the threat implied by the risk.
on the consequences of that action or decision. price discrimination occurs where the price
externalities negative impacts that arise as a of a good or service is set differently for certain
result of economic development, for example on groups of people.
the environment, to society, etc. price gouging occurs when a seller sets the price
framing the dual action whereby communicators of a good or service at a level far higher than is
present ideas and concepts, and members of an considered reasonable.
audience interpret those concepts by assimilating reverse logistics the process of returning goods
them into their pre-existing cognitive schema. in a physical distribution channel, for example a
greenwashing occurs when an organization’s flow from customer to manufacturer via a retailer
rhetoric concerning the promotion of its (say, for repair or replacement).
environmental impacts (based on its offering stakeholder marketing marketing activities
or organizational practices) is not backed up in undertaken in a system of interaction with
practice—that is, it makes misleading claims different stakeholders and aimed at generating
about how environmentally friendly it is. value for all stakeholders involved, both internal
haggling when a customer argues with a supplier, and external to the organization.
usually a retailer, over the price to be paid for a sustainable marketing marketing activities
good or service and is successful in obtaining a undertaken to meet the wants and/or needs
discount. of present customers without comprising
halal a term referring to what is permissible the wants and/or needs of future customers,
under Sharia law and most typically used in particularly in relation to negative environmental
Western societies when referring to permissible impacts on society.
foodstuffs; halal food must not contain alcohol, teleological ethics a form of ethical approach
blood or its by-products, or the meat of an whereby the rightness or wrongness of an action
omnivore or carnivore; where the food is from or decision is judged primarily based on the
an animal, a Muslim must have pronounced the intentions of the decision-maker.
name of Allah before slaughtering the animal. utilitarianism an ethical approach originally
kosher a term referring to those food products developed by English philosopher and social
permitted under Jewish dietary regulations—that is, reformer Jeremy Bentham, which postulates
according to the extensive list of forbidden animals that an action is right if, and only if, it conforms
found in the Torah, which includes pigs, several to the principle of utility, whereby utility (pleasure,
birds, and most animals that crawl (although some happiness, or welfare) is maximized, or pain or
foods have been subject to interpretation and unhappiness minimized, more than any alternative.
debate within Jewish communities). virtue ethics principally associated with Aristotle,
managerial egoism a form of ethical approach a branch of ethics that stresses the importance
whereby a manager is said to be bound to act of developing virtuous principles, with ‘right’
in their own best interests and an action is said character, and the pursuit of a virtuous life.
to be right if it benefits the manager undertaking yield management a system for maximizing the
that action. profit generated from activities, which carefully
marketing ethics the analysis and application of manages price to ensure full utilization of
moral principles to marketing decision-making capacity, while balancing supply and demand
and the outcomes of these decisions. factors.
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May. Retrieve from: https://www.forbes.com/sites/
Index
Note: Tables, figures, and boxes weak theory of 401–2, 402 banner advertising 468t
are indicated by an italic t, f, and b advertising agencies 384b Baudrillard, J. 707
following the page number. Advertising Standards Authority beauty industry see cosmetics
(ASA) 140 industry
advocacy 54, 54f behaviour 402, 402f, 403f, 437
A age change 403–4
segmentation by 223 consumer see consumer behaviour
accessibility 486
structure 135 benefit segmentation 227
Achrol, R.S. 614b
agents 537 Bentham, J. 703
ACORN system 226
aggregate marketing system 29, beta testing 332
acquisition process see business-
29b, 31–5, 690 beverage industry 145, 156, 349b
to-business markets, buying
AIO (activities, interests, and see also alcohol
processes; proposition
opinions) 227–8 beyond compliance leadership 142
acquisition process
airline industry bid rigging 706
adaptive orientation 290
competitive marketing bidding 377
added value 536
strategies 187b real-time 446
advertisement testing 109–11
demand pricing 362, 362f big data 87, 88t, 89, 111–12
advertising 14, 26
loyalty schemes 590b blue ocean strategy 153, 153b
adaptation 76
marketing mix 20, 21t body language 269
AIDA model 400
price discrimination 714 born global organizations 283b,
ATR framework 401
superjumbos 312b 284, 284t
attitude change, and 675
alcohol 59b, 73–4, 91b, 140, 212b, Boston box 154–7, 154f, 155b, 156f
avoidance 447
245b, 247–8, 247f, 249b, bottled water 4
banner 468t
260b, 362, 422b, 602b, 673 bottom-of-the-pyramid (BoP)
blocking 692
alliances 189 strategies 181, 182b
classified 468t
ambient media 435t, 437 branded content 433–4
codes of practice 140–1
American Marketing Association brands 192, 491–527
communications mix, and 423, 427,
(AMA) 5, 6t, 6, 56, 88t, 666, associations 494, 497–500
427b, 429, 429t
698-99 attitudes 402–4, 402f, 403f
contextual 472
analysis of markets see market awareness 198
cultural aspects 414b
analysis benefits 516t
digital audio 469t
Ansoff’s (product–market) building 437–42, 505–6, 507f
digital video 468t
matrix 181, 181f, 288, 288f business markets 515–18
direct-response 404
anthropology 10 business-to-business markets 631
elasticity 349b
anti-globalization movement 295 co-creation 511–13
email 469t
application programming corporate 497, 505, 516, 519, 631
equity 479b, 479
interfaces (APIs) 167b definition 493–5
ethics
apps 563b differentiation 58–60, 214, 493, 496
children 711
Aristotle 703, 704 distributor 502, 503b
labelling 709
attacking strategies 188b eco- 142
propaganda and politics 709–10
attitudes 69, 271, 437, 675 equity 199, 520, 521–2
sexual material 707–8
brand 402–4, 402f, 403f extensions 496
shock appeals 708
formation 402, 402f, 403f extrinsic attributes 495
femvertising 405b
auctions 468t family 504–5
hierarchy of effects (HoE)
audience fragmentation 424 generic 503–4
model 400, 400f, 402
audit, marketing 157–8, 158f, 175 global 519–21
international markets 292b
automation of media planning, heritage 498b
Internet 436, 441t, 467–71, 468t
buying, and selling 446 individual 504
mobile 469t
autonomy 195 international markets 270t
native 433–4
intrinsic attributes 494
rich media 468t
loyalty 52–4, 185, 189
selective 14
strong theory of 401, 402
B manufacturer 502
mash-ups 512b
Super Bowl 449b backward integration 147
names 501–2
targeted 214 Bandura, A. 61
perceptual mapping 58–9,
television 434–6, 441t banking 179b, 715b
247–8, 247f
730 Index
brands (cont.) buyers 147–8 commitment 592, 592f

personalities 494, 497–500, 500f buying processes commitment–trust model 592, 592f
perspectives 506–10 business-to-business markets 615, commodity fetishism 689–90
portfolios 519–20 620–1 communication(s) 383–420
positioning 150, 244–53, 410, 493 buyclasses 615, 623–5, 624t brands
preference 513–14 buygrids 628–9, 629t business-to-business
private label 502, 503b buyphases 615, 625–8 markets 518, 519
professional service firms 636–7, decision-making units 615, 622–34 service 515, 519
637f see also proposition acquisition changing landscape 445–7
promise 621 process context analysis 409–10
rationale 495–7 control 412
corporate communications
relationships 189, 508–10
relevance 514 C mix 637–8, 638t
repositioning 250–3, 252t crisis 445
C–D (centrality–distinctiveness)
scope 519, 520t cultural aspects of 413–16
maps 248–9, 248f, 249b,
sectors 514–21 defining 385
251b
service 514–15, 519 evaluation 412
call to action 404
strategies 504–5 feedback 412
car industry 34b, 53b, 146, 249b,
trust, and 495–6, 500, 505, 591 integrated 426, 447–50, 450b
278b, 288, 492b, 712b
values 404 international marketing 269,
carelines 441t
breakeven pricing 360 270t, 294
cash cow products 154f, 155, 156f,
Brexit 129b media see media
156–7
bribery 705, 706, 717–19 messages 430–4
Catalonian independence
broadcast media 434–6, 435t, 441t methods 411–12
referendum 129b
brokers 537 mix 407, 423–9, 424f
category killer stores 558t, 559
budgeting 192f, 195 objectives 410
causal research 97, 100, 105
business cards 268 planning 408–12, 409f
cause marketing 663, 666–7
business gifts 268 resources 412
celebrity endorsement 70, 71b,
business plans 327 role of 404–12
397–8, 397b
business products 314, 317–18 schedule 412
centrality–distinctiveness (C–D)
business services 318 scope 386–8, 386f
maps 248–9, 248f, 249b,
business-to-business markets 9, strategy 411
251b
28–9, 446, 610–49 tasks 406–7
challengers 186, 186t
brands 515–18 DRIP model 406–7, 407t, 411
channel management see
buyclasses 615, 623–5, 624t theory 388–99
distribution: channel
buygrids 628–9, 629t interaction model 392–4, 393f
management
buying processes 615, 620–1 linear model 388, 389f, 389–91
charities 663–7
buyphases 615, 625–8 two-step model 389, 391–2, 392f
Chartered Institute of Marketing
characteristics 614–18, 615f tools 423, 427–9, 442–5
(CIM) 5, 6t, 6, 11
content marketing 478–9, 479t word-of-mouth 398–9, 438b
children 711
customers community data 112
choice and need 696–9
clusters 518t comparative advantage 262
churn rate 200
key accounts 639–43 competitive advantage 149, 168,
cinemas 435t, 437
portfolio matrix 632–4, 633f 176, 183–4, 189
circular economy 690
types 618, 619t distribution 536
civil aerospace sector 23b
customized targeting 243 market segmentation, and 243–4
classified advertisements 468t
decision-making units 615, 622–34 sustainable (SCA) 183–4
click-through rate (CTR) 470b
demand in 614–15 competitive edge 176
climbing supplies 44b
international dimensions 616–17 competitive environment 145–53,
co-creation of content 23–4, 312,
pricing in 375–7 274, 630, 639
462, 464
products and services 620t, 620 competitive positioning 186–7,
codes of practice 699–700,
professional services 186t
701, 716
marketing 634–7 competitive strategy,
advertising 140–1
relationships 617–18 international 290–5, 290f
marketing research 113
role of purchasing 629–32 competitor-oriented pricing 360,
cognitions 45, 55–6
sales function 612–13 364–6
cognitive biases 107b
segmentation 219, 234–8, competitor(s) 168
cognitive dissonance 52–6
234t, 243 analysis of 148–52, 175
collaborative consumption
customer characteristics 236–40 competitive scope 150
690, 690b
organizational marketing strategies 150
collectivism 269
characteristics 234–6, 235f orientation 8, 8f
collusion 706, 707, 714, 715b
trust in 589, 591 positioning strategy 150
commercialization 328
Index 731
complexity reduction 535, 535f convergence 447 portfolio matrix 632–4, 633f
component parts 318 cooperative relationships 187–90 price perceptions 352–8, 355f
computer science 10 copyright 484 publishing 433
conceptual equivalence, core competences 177, 178b quality perceptions 352–4
international marketing corporate brand 497, 505, 516, relationship intensity 587, 587f
research 114, 115t, 116t 519, 631 relationship life cycle 585–7, 586t,
conditioning corporate communications 587f
classical 60–1 mix 637–8, 638t retention 22, 585, 585b, 586, 586t,
operant 61 corporate objectives 410 587f, 588–603
confirmation bias 107b corporate social responsibility satisfaction 22, 199–200, 588–603
consumer behaviour (CSR) 637–8, 667, 696-8, 704 sophistication 630
attitudes, and 69, 271 corporate strategy 173, 174, 174t value 594
culture and ethnic groups 74–8 cosmetics industry 138b, 140, 148, value perceptions 353–4
emotion, and 46 201 customized targeting strategy 243
learning and memory 45, 60–3 cost leadership 184, 185 cycling 71b
life stage, and 74, 75t cost-oriented pricing 360–1
lifestyles, and 73–4 costs 350
memory, and 61–3 fixed 350, 351t, 352 D
motivation 45, 46, 48, 65–8 pricing, and 350–1, 359, 359if
dark web 691
opinions, and 69 supply chain management, and 551
data exhaust 111–12
perception, and 45, 56–60 variable 350, 351t, 352
data privacy 710b
personality, and see personality crisis communications 445
data protection 486
product acquisition see proposition crowdsourcing 137, 432, 432b,
dealers 537–8
acquisition process 483–4, 483t, 485t
decision-making
product classification, and 314 cryptomarkets 691
ethical 699–706
rational or emotional 45–7 cultural imperialism 692
organizational 236
reference group influences 45, cultural relativism 716–17
defence aerospace sector 23b
69–72 culture
defensive strategies 188b
segmentation criteria 219, 220f, characteristics of 413t
delivery 554–5
220, 221t, 222f, 228–33 consumer behaviour, and 74–8
demand
social contexts 69–78 layers of 416f
in business markets 614–15
social grade, and 72, 73t and marketing
estimation and stimulation 10
values, and 69 communications 413–16
price elasticity of 66, 346–8, 370
consumer engineering 9 organizational 192f, 193–5
supply, and 9
consumer goods perspective 25–6 see also socio-cultural environment
demand-oriented pricing 360,
consumer packaged goods (CPG) customer relationship
361–4
market 544b management (CRM)
demographics 134–5
consumers systems 22, 412
segmentation criteria 220, 222f,
and customers distinguished 7 customer(s)
223–4
relationships with suppliers 189 acquisition 586, 586t, 587f
see also geodemographics
segmentation 219–33, 220f, 221t, advocacy 200–1
deontological ethics 700t, 701–2
222f, 222b business see business-to-business
department stores 18b, 532b, 558t,
behavioural criteria 219, 220f, markets
559
220, 221t, 222f, 228–33 churn rate 200
descriptive research 97, 100, 105
profile criteria 219, 220f, 220–7, consumers distinguished, and 7
development of marketing 9–10
221t, 222f decline 586, 586t, 587f
differentiation 184–5
psychological criteria 219, 220f, development 586, 586t, 587f
brand 58–60, 214, 493, 496
221t, 222f, 227–8 engagement 601–3
product 184–5, 213, 216, 216b,
consumption, collaborative 690, expectations 593
217, 218b, 218f, 243–4
690b experiences 593–600
service 185
content 430–2, 446 definitions 597t
target 241
user-generated and model 600f
diffusion theory 336–7, 336f
co-created 23–4, 312, 430–2, insight 85–121
digital audio advertising 469t
432b, 462, 464, 484, 510 definitions 87–9, 88t
digital media 26, 423, 424, 429,
content analysis 102 marketing information systems 90
434, 435t, 436, 441t, 446, 447,
content marketing 434, 478–80, process 89–92
456–90
479t team 90
accessibility 486
context analysis 409–10 international marketing 262–3
business-to-business markets
contracting 280 loyalty 22, 52–4, 189, 588–603
630–1, 635b
control groups 109 not-for-profit organizations
communications 465–82
convenience 556, 556t 660t, 662
crowdsourcing 483–4, 483t, 485t
convenience stores 558t, 559 orientation 8, 8f
732 Index
digital media (cont.)

in-store technologies 563b
E advertising
children 711
integrated marketing e-marketing 460t labelling 709
communications, and 448 eco-branding 142 propaganda and politics 709–10
legal and ethical issues 484–6 eco-efficiency 141 sexual material 707–8
overview 436 ecological environment 141–2 shock appeals 708
security issues 486 economic environment 132–3, 271–2 decision-making
digital value 311 economies of scale 262 norms 699–704, 700t
digital video advertising 468t effectiveness 202–3 process 705–6, 706f
direct exporting 281 egoism, managerial 700t, 703 digital media 484–6
direct investment 282 elasticity distribution management 707
direct mail 439 advertising 349b international markets 716
direct marketing 404, 460, 460t of demand 66, 346–8, 370 marketing research 113–14
as communications tool 423, 424, of selective advertising 14 prices 706, 714–16
428 electrical goods 365b products 711–14
digital technologies 460, 460t electronic systems 561 social marketing 676
strength 429t delivery 555 universalism/relativism in 716–17
direct-response media 437–42, warehousing 556 ethnic groups, and consumer
441t see also digital media; Internet behaviour 74–8
direct selling 561 email ethnic marketing 76, 77b
directional audio 560b advertising 469t ethnographic studies 102
discount pricing 358b, 376 marketing 474–5 ethnography 10
discount retailers 558t, 559 embedded ties 617–18 European Advertising Standards
discussion/focus groups 102, 103t, emotional messages 430, 431t Alliance (EASA) 140
104b emotions European Society for Opinion
disintermediation 547–8 brand attitudes, and 402, 402f, and Market Research
distribution 201, 531–68 403f, 403 (ESOMAR) 88t, 113, 701
alliances 189 charitable causes, and 664 European Union (EU) 287
centres 556 consumer behaviour, and 46 General Data Protection Regulation
channel intensity 546–9, 546f, consumption 308 (GDPR) 113–14
547t loyalty 588t General Food Safety
channel management 26, 534–7 energy market 23b, 670b Regulation 139–40
channel design 540–1 Engels’ Law 13 General Product Safety
conflict 549, 549t entertainment 269 Directive 139
key considerations 540–1 environment 127 exchange rates 132, 133, 272
relationships 549 competitive 145–53, 274, 630, 639 exchange relationships 15–17, 16f,
structure 541–5, 542f external 127–44, 128f, 158 583–5, 584t
channel strategy 541f, 541 ecological 141–2 collaborative 584, 584t, 585
direct 541–3 economic 132–3, 271–2 market 583–4, 584t
disintermediation 547–8 legal 130, 139–41, 272–3, 484–6 transactional 583–4, 584t
exclusive 546f, 547, 547t political 129b, 130–2, 272–3 exhibitions 435t, 445
grey marketing 550 socio-cultural 133–6, 266–71, experience
indirect 541, 543 274 customer 593–600
intensive 546, 546f, 547t technological 136–9, 262, 271 definitions 597t
intermediaries 537–9, 543, 547–8 internal 127, 153–7, 158, 175 model 600f
management ethics 707 international markets 265–73 economy 594
multichannel 541, 543, 544b consumption attitudes 271 quality 599–600
re-intermediation 548–9 economic 271–2 exploratory research 97, 105
sales, and 15 legal 272–3 export quotas 132
selective 546, 546f, 547t political 272–3 exporting
supply chain management 550–6, technological 271 direct 281
552f performance 127, 144–53, 158, indirect 279–80
distributor brands 502, 503b 175 external environment 127–44, 128f,
distributors 152, 537–8 scanning 9, 126b, 142–4, 143f, 175 158
diversification 181 environmental concerns 141–2, 689 extrinsic cues 572–3
divest objectives 178, 178f, 180 environmental cost leadership 142 extrinsic evaluation 66
dog products 154f, 156f, 156, 157 EPRG classification 285, 285f
door-to-door marketing 439, 441t,
561
equipment goods 317
equivalence, international F
dress codes 268 marketing research 114, face validity tests 108
DRIP model 406–7, 407t, 411 115t, 116t facial coding analysis 109
dumping 261 ethics 688, 699–719 factor prices 132, 133
Index 733
fashion industry 216, 267b, 286b,
321b, 363b, 552b, 708 H development 282–7
drivers 261–5
fast food industry 280, 711 haggling 714 entry methods 276–9, 277f
Federation of Small harvest objectives 178f, 180 entry selection criteria 276–82,
Businesses 131 health promotion 673, 673b, 675 277f
feminine societies 270 heritage brands 498b environment 265–73
femvertising 405b hierarchy of effects (HoE) consumption attitudes 271
field marketing 445 model 400, 400f, 402 economic 271–2
film industry 425b hold objectives 178, 178f, 180 legal 272–3
financial services 132, 373b political 272–3
firmographics 234 socio-cultural 266–71, 274
focus/discussion groups 102,
103t, 104b
I technological 262, 271
market selection 273–5
focus strategies 185 idea generation 326–7 profit potential 274
followers 186, 186t imitation marketing 137 screening questions 275t
food safety 139–40, 701b, import duties 133, 273 types of international
712, 713 in-store media 435t, 436–7 organization 288–90, 289t
food sector 134b incentivized loyalty 588t international organizations 289,
forward integration 148 indirect exporting 279–80 289t
fragmentation individualism 269 Internet 26, 424, 448, 458–9
audience 424 indulgence versus restraint 271 advertising 436, 441t, 467–71,
media 424 industrial economics 9 468t
framing 689 industry, challenging an 152–3 click-through rate (CTR) 470b
franchising 280, 538–9 industry analysis 145 dark web 691
freedom 195 industry structure 639–40 distribution 547, 555
Freud, S. 63 inflation 132, 133 international marketing 262
fulfilment 554 infomediaries 539 marketing 460, 460t
functional equivalence, information marketing research 106,
international marketing gathering 48, 49f 106t, 113
research 114, 115t, 116t processing 579 mobile 480–2, 481t
security 486 penetration 459
sharing 189 price comparison websites 372
G systems 90
information technology
retailing 561, 562
search engine marketing
gaming 329b industry 193b, 306b, 387b (SEM) 471–3, 473b
gender, segmentation by 223–4 informational messages 430, 431t services marketing 20
general theory of marketing 14 innovation 138b, 139 social media 131, 151b, 156, 228b,
geodemographics 220, 222f, 226–7 diffusion theory 336–7, 336f 394, 394b, 396, 397b, 399,
geographics, segmentation product 139, 199, 288, 324–8, 326f 430–2, 457b, 458–9,
criteria 220, 226–7, 235 services 329–32 475–8, 502
global branding 519–21 Institute of Practitioners in advertising 469t
global capability 295 Advertising (IPA) 448 analysis 102
global competitive strategy 291–5 insurance market 345b business-to-business
global organizations 289–90, integrated marketing markets 630–1, 635b
289t communications (IMC) 447– content marketing 480
globalization 291 50, 450b evaluating 476–8, 477t
goals integrative growth 181 listening 54
organizational 172–3 intellectual property 484 marketing 460, 460t, 461
strategic marketing 175f, 175, intensive growth 181 not-for-profit organizations 664
177–83 intentions 66–8, 67b user-generated and co-created
competitor’s 150 interactive marketing 22, 460, 460t content 462, 464
government 672–6 interactivity 392–4, 464 voice over Internet Protocol 147
government health warnings 140–1 interfunctional coordination 8, 8f interviews 102, 103, 103t, 107–8
green marketing 142, 694 intermediaries 537–9, 543, 547–8 intrinsic cues 572–3
greenwashing 712b internal environment 127, 153–7, intrinsic evaluation 66
grey marketing 550 158, 175 inventory management 555
gross domestic product (GDP) per international marketing investment
capita 132 research 114–17 direct 282
growth 178f, 181–3 international markets 259–301, price, and 359, 360f
diversified 181 616–17 return on (ROI) 276
integrative 181 communication barriers 269, 270t, involvement 57, 58f
intensive 181 294 not-for-profit contexts 656
guerrilla media 435t competitive strategy 290–5, 290f
734 Index
J maintenance, repair, and operating

(MRO) products 317
brief 93, 94b
codes of conduct 113
joint ventures 281–2 managerial egoism 700t, 703 commissioning 92–3
just-in-time (JIT) systems 555 manufacturer brands 502 definitions 87, 88t
marine sector 23b design 103–5, 104f
mark-up pricing 360, 361 ethics 113–14
K market analysis 175t, 175–7, 327
distributors 152
international 114–17
market research distinguished,
Kantar Media 225 suppliers 152 and 87
key accounts SWOT analysis 175–7, 177f methodology 101–3
management 639–43 market challengers 186, 186t objectives 97–100
development cycle 640, 643t market development online 106, 106t, 113
relationship cycles 640 strategy 287–8 primary versus secondary 97,
key performance indicators market followers 186, 186t 100–1
(KPIs) 196, 201, 202 market intelligence 8, 9 process 93–109, 95f
Kim, W.C. 152, 153b market leadership 186, 186t data analysis and
market mix modelling 110b interpretation 106–9
L market nichers 186, 186t

market orientation 7–9, 8f
data collection and
sampling 105–6
labelling 140, 500, 709 market research see marketing problem definition 95–7, 95f, 96f,
language 269, 270t research 98b
launch pricing 369–71, 370f Market Research Society (MRS), report preparation and
law enforcement 654b Code of Conduct 113, 701 presentation 109
lead generation 468t market sensing 9 research plan 97–105
leadership, market 186, 186t market share 198 research proposal 96, 97t, 98b
learning 45, 402, 402f, 403f, 403 market testing 109–11 qualitative and quantitative 101–3,
classical conditioning 60–1 marketing 102t, 103t, 106–9
operant conditioning 61 contexts of 24–9 source 97, 100–1
social learning 61 definitions of 5–6, 6t marketing sustainability 141–2
legal environment 130, 139–41, exchange, as 15–17, 16f markets
272–3, 484–6 function 11–13, 12f access to 274
Levitt, T. 519 history 9–10 entry costs 274
licensing 280 impact on society 29–35 geographical proximity 274
life stage/life cycle manipulation, as 689 psychological proximity 274
consumer behaviour, and 74, 75t principal principles of 13–19 size and growth rate 273–4
product 262, 319–24, 319f, 321f relationship 189 masculine societies 269–70
segmentation by 225, 225t sales distinguished, and 10, 11t Maslow, A. 65
lifestyles 73–4, 135–6 search 468t, 471–4, 473b materials handling 554, 555–6
limited line retailers 558t, 559 unsustainable 689-93 Mauborgne, R. 152, 153b
list pricing 372 marketing analytics 87, 88t, 88–9, media 395, 423, 424, 434–42, 435t
lobbying 131–2 111–12 ambient 435t, 437
logistics industry 236b marketing audit 157–8, 158f, 175 brand building 437–42
logistics management see supply marketing communications see broadcast 434–6, 435t, 441t
chain management communication(s) changing role 437
logos 62, 62f, 500 marketing communications characteristics 434–7
long-term orientation 270 planning framework digital 26, 423, 424, 429, 434, 435t,
longitudinal studies 102 (MCPF) 408–12, 409f 436, 441t, 446, 447, 456–90
loss-leader pricing 373 marketing environment see accessibility 486
loyalty 22, 52–4, 189, 588–603 environment business-to-business
emotional 588t marketing function 192f, 192 markets 630–1, 635b
incentivized 588t marketing information systems communications 465–82
monopoly 588t (MIS) 90 crowdsourcing 483–4, 483t, 485t
price 588t marketing metrics see metrics in-store technologies 563b
schemes 189, 588–9, 590b marketing mix 15b, 15, 17–19, integrated marketing
trends 589t 583–4 communications, and 448
types of 588t 4Ps 15b, 15, 17–19, 25, 583–4 legal and ethical issues 484–6
7Ps 15, 19–20 overview 436
extended 19–24 security issues 486
M services 19–20
marketing orientation 8
direct response 437–42, 441t
fragmentation 424
macromarketing 29 marketing research 85–121 guerrilla 435t
magazines see print media biases 107b in-store 435t, 436–7
Index 735
media (cont.)
industry structure 445–6 N performance environment 127,
144–53, 158, 175
outdoor 435t, 436 national organizations 289, 289t perfume 310b
POEM 437, 438t needs 65–6, 65f personal selling 400, 404, 428–9
print 435t, 436, 441t choice, and 696–9 communications tool, as 423
social 131, 151b, 156, 228b, 394, net promoter score (NPS) 200–1 strength 429, 429t
394b, 396, 397b, 399, 430–2, netnography 10 personal shoppers 560b
457b, 458–9, 475–8, 502 network effects 190 personality 45
advertising 469t network theory 627b self-concept approach 63, 64–5
analysis 102 networks, cooperation, and trait theory 63–4
business-to-business relationships 187–90 PESTLE analysis 128, 128f, 142,
markets 630–1, 635b new entrants 145–6 144, 175, 176
content marketing 480 newspaper sector see print media pharmaceutical industry 140, 146,
evaluating 476–8, 477t niche markets 149, 177, 178, 186, 156, 199, 361, 364, 425b, 714,
listening 54 186t, 241 717b
marketing 460, 460t, 461–4 niche objectives 178, 178f photography market 215
not-for-profit organizations 664 non-tariff barriers 273 physical evidence, as component
top networks 461t not-for-profit organizations 6, 24, of service marketing mix
usage 233 653–85 19, 20
medical device market 216b customers’ perceptions 660t, 662 picking 66
memories 308 mission statements 656, 657t pipeline effects 190, 191b
memory 61–3 objectives 661–2 place
mental stimulus processing 579 orientation 662 component of marketing mix, as 18
merchants 537 price, and 655 see also distribution
mergers and acquisitions 189 proposition, and 655 planned behaviour, theory of 66–8,
metrics 192f, 195–201, 196f, 202 segmentation 656 67b, 67f
brand awareness 198 stakeholders 659–61, 661f planning, communications 408–12,
customer advocacy 200–1 transparency 661 409f
customer satisfaction 199–200 types 663–80 platform strategies 190–1
digital marketing 470b values 656 point-of-purchase (POP)
distribution/availability 201 displays 436–7
market share 198 political environment 129b, 130–2,
new products 199
operating margin 197–8
O 272–3
political marketing 677–80, 709–10
profit/profitability 197 observational studies 10, 102, 103 Porter, M.E. 152
relative price 199 odd-number pricing 357 differentiation strategy 184
sales 197 online markets see Internet five forces of competitive industry
microeconomics 9 operating margin 197–8 analysis 145, 146f, 175, 176
microenvironment see opinion(s) 69 portfolio analysis 154–7
performance environment followers 395 portfolio matrix 154
mineral water 4 formers 394, 396–8 positioning 150, 216, 244–53, 410
mission statements 169, 170t, leaders 394, 395–6, 399 C–D maps 248–9, 248f, 249b,
656, 657t order processing 554 251b
mobile advertising 469t organizational culture 192f, 193–5 competitive 186–7, 186t
mobile marketing 460, 460t, 480–2, orientation, long-term versus perceptual mapping 247–8, 247f
481t short-term 270 and repositioning, and 250–3, 252t
modelling 61 outdoor media 435t, 436 possession processing 575–6
monopoly loyalty 588t outsourcing 152, 189, 262, 290, 620 power distance 269
monopoly status, abuse of 707 precautionary principle 713
Mosaic system 226–7
motivation 45, 46, 48, 65–8 P price elasticity of demand 66,
346–8, 370
motivation research 9 packaging 140, 436, 437, 444 price wars 364, 365–6, 366b, 367t
motor industry see car industry party plans 561 prices/pricing 9, 348–71
motorbikes 538b Pavlov, I. 60 anchoring 357
multi-domestic competitive people approaches 359–68
strategy 290–1 processing 576 competitor-oriented 360, 364–6
multinational organizations service marketing mix, and 19–20 cost-oriented 360–1
289, 289t perception 45, 56–60 demand-oriented 360, 361–4
music 509b perceptual mapping 58–9, 247–8, value-oriented 360, 366–8
in-store 560b 247f breakeven 360
streaming 333b perfect competition 9 bundling 357–8
mystery shopping 102, 103 business-to-business 375–7
736 Index
prices/pricing (cont.) private data 111 profile communications

collusion 706, 714, 715b private label brands 502, 503b strategy 411
comparison decision aids 372 process, as component of service profiles, consumer 219, 220f,
consciousness 356 marketing mix 19, 20 220–7, 221t, 222f
costs, and 359, 359f procurement process, public profit/profitability 197
cues 356–7 sector markets 28 international marketing 274
customer-centric 375 product(s) 307 pricing, and 350–1
customer perceptions of 352–8, adaptation 76 programmatic 446
355f adoption of new 335–6, 335f promise management 621
differential 573 availability 201 promotion
discount 358b, 376 business 314, 317–18 component of marketing mix, as 18
discrimination 374, 714 business-to-business markets 620t, see also communication(s)
economic value to customer 620 propaganda 676, 709–10
(EVC) 376 cash cow 154f, 155, 156f, 156–7 proposition(s) 307
economy 369 commercialization of 328 costs 350–71
ethics 706, 714–16 consumer 314–17 levels 308–13, 309f
factor 132, 133 convenience 314, 315t tangibility 26, 307
FOB (free on board) destination 375 development and selection 327 see also product(s); services
geographical 375 differentiation 184–5, 213, 216, proposition acquisition
gouging 364, 714 216b, 217, 218b, 218f, 243–4 process 47–56, 48f
haggling 714 distribution 201 acquisition/purchase 51–2
inflation 132, 133 dog 154f, 156f, 156, 157 information gathering 48, 49f
investment, and 359, 360f durable 314 motive development 48
launch 369–71, 370f emergency 315t proposition evaluation 49
list 372 ethics 711–14 proposition selection 49–50
loss-leader 373 impulse 315t re-evaluation 52–6
loyalty 588t item 318t psychic difference 274, 293–4
management 372–7 labelling 140, 500, 709 psychographics 227–8
mark-up 360, 361 life cycle 262, 319–24, 319f, 321f psychological reactance 70
market penetration 369, 370–1, line 318, 318t psychology 9, 45
370f market challengers 186t segmentation criteria 219, 220f,
marketing mix, and 18 marketing mix, and 15b, 15, 17, 221t, 222f, 227–8
negotiated 375 19, 25 public data 111
new products/services 369–71, mix 318, 318t public relations (PR) 428
370f new 139, 199, 214, 288, 324–8, communications tool, as 423
not-for-profit contexts 655 326f, 369–71, 370f consultancies/managers 131, 132
objectives 369 non-durable 314 strength 429t
odd-number 357 packaging 140, 436, 437, 444 public sector 672–6
pay what you want 375, 376 placement 403, 435t, 444 purchase information 232–3
penetration 369, 370–1, 370f portfolio analysis 154–7 business markets 238
premium 369, 497 quality 352–4, 593–4, 711–14 purchasing power parity exchange
profits, and 350–1 question mark 154f, 155, 156f, rate 133
promotional 374 156–7 push/pull communications
proposition costs, and 350–1 range 318 strategy 411
purchase context in 357 recall 713–14
quality, and 352–4 safety 139–40
rebates 357–8
reference 354–5
servitization 332
shopping 314–15
Q
relationship 376 speciality 315–16 qualitative research 101–2, 102t,
relative 199 standardization 76, 262 103, 103t, 104
sale signs 356 staple 315t data analysis and
sales revenue, and 359, 359f star 154f, 155, 156f, 157 interpretation 106–9
segmentation 374 substitute 147 validity and reliability in 108–9
sensitivity 148 test marketing 327–8 quality
skim 369, 370, 370f unsought 317 experience 599–600
strategies 369 usage 220, 231–2 products 352–4, 593–4, 711–14
surge 372 product–service spectrum 308f, services 580–3, 581t, 711
tactics 372–5 308 quantitative research 101, 102,
tendering and bid 377 production collusion 707 102t, 103, 103t, 104
transfer 352, 376 professional services data analysis and
value-in-use 376 marketing 570b, 611b, interpretation 106–8
print media 435t, 436, 441t 634–7 validity and reliability in 108
Index 737
question mark products 154f, 155, rich media advertising 468t services 26–8, 569–609
156f, 156–7 risk 269, 276, 591 availability 201
quotas 273 role theory 578b business-to-business markets
routinization 536 620t, 620
characteristics 571–5, 572f
R inseparability 574–5
rationality 46
S intangibility 571–3
lack of ownership 575
raw materials 317 sales
perishability 573
real-time bidding (RTB) 446 business-to-business
variability 573–4
recognition and recall 62 markets 612–13
contribution to GDP 24, 25f
reference groups 45, 69–72 distribution, and 15
definition 571
Reilly’s Law of Retail marketing distinguished, and 10,
development 332–5
Gravitation 13, 14 11t
differentiation 185
re-intermediation 548–9 performance measure, as 197
goods, differences and similarities,
relational marketing see business- promotion 61, 404, 423, 428, 429t
and 26–8
to-business markets; return on 197
innovation 329–32
relationship marketing; revenue 359, 359f
key dimensions 579–80
services sampling 105–6
marketing mix 19–20, 21t
relationship marketing 15b, 15, sampling frame, international 114
7Ps 15, 19–20, 21t
20–2, 189, 569–609, 617–18 scenario planning 144
marketing triangle 581f
business markets 617–18 screening of new ideas 327
processes 575–9
characteristics of services 571–5, script theory 578b
quality and performance 580–3,
572f search directories 471
581t, 711
commitment 592, 592f search engine marketing
sectors 572t
corporate social (SEM) 471–3, 473b
segmentation criteria see
responsibility 637–8 search engines 30b
segmentation
customers search marketing 468t, 471–4,
substitute 147
engagement 601–3 473b
services marketing 26–8
experiences 593–600 segmentation 211–58
servicescapes 515
life cycle 585–7, 586t, 587f breakdown method 218–19
servitization 332, 612
loyalty 22, 189, 588–603 build-up method 218–19
SERVQUAL 581t, 582–3, 582b, 599
retention 22, 585, 585b, 586, business markets 219, 234–8,
share ownership, cooperation
586t, 587f, 588–603 234t, 243
based on 189
satisfaction 22, 593 customer characteristics 236–40
shelf space 14
foundations of 583–4 organizational
short-term orientation 270
principles 583–5 characteristics 234–6, 235f
showrooming 49, 50b, 348, 562
professional service firms 636 consumer markets 219–33, 220f,
Skinner, B.F. 61
service processes 575–9 221t, 222f, 222b
Smith, A. 703
service quality and performance behavioural criteria 219, 220f,
smoking 140–1, 673b
measurement 580–3, 581t 220, 221t, 222f, 228–33
social anthropology 10
services marketing, key profile criteria 219, 220f, 220–7,
social enterprises 667–71
dimensions 579–80 221t, 222f
social grade 72, 73t
trust 589–92, 592f psychological criteria 219, 220f,
social learning theory 61
relationships and 221t, 222f, 227–8
social marketing 460–1, 460t,
cooperation 187–90 DAMP evaluation 238–9
672–6
renewable purchasing limitations 243–4
social media 131, 151b, 156, 228b,
agreements 189 not-for-profit environment 656
394, 394b, 396, 397b, 399,
reputation 636, 637 process 218–19
430–2, 457b, 458–9, 475–8,
restaurants 94b, 98b segment attractiveness factors 239,
502
restraint versus indulgence 271 239t, 240t
advertising 469t
retailers/retailing 25, 26, 539, transnational markets 263
analysis 102
556–63 selective contestability 294–5
business-to-business markets
alliances 189 selective exposure 56–7
630–1, 635b
convenience 556, 556t self-concept 63, 64–5
content marketing 480
defined 556 self-interest 703
evaluating 476–8, 477t
Internet 561, 562 self-quantification data 112
listening 54
non-store 559, 561–2 semi-finished goods 317
marketing 460, 460t, 461–4
store presence 559–62 semiotics, brands 510
not-for-profit organizations 664
sustainability concerns 687b sentiment analysis 102
top networks 461t
types 558–62, 558t service brands 514–15, 519
society, impact of marketing
return on investment (ROI) 276 service-dominant logic (SDL) 22,
on 29–35
reverse engineering 137 22b, 323–4, 323b
738 Index
socio-cultural environment 133–6 networks, cooperation, and transvections 47

effect on consumer relationships 187–90 truck industry 425b
behaviour 69–78 organizational culture 193–5
international marketing 266–71, 274 platform strategies 190–1
socio-economic status, structure and type of marketing U
segmentation by 220, 223, function 192f, 192
uncertainty avoidance 269
224 strategy
unsustainable marketing 689-93
sociology 10 communications 411
user-generated content 430–2,
sorting and smoothing 536, 537t competitors’ 150
432b, 510
spam 474 corporate/organizational 173,
utilitarianism 701t, 703
speciality retailers 558t 174, 174t
specialization 536–7 distribution channel 541f, 541
sponsorship 442, 443b
Internet advertising 468t
retailer types 558–63, 558t
substitute products and
V
spoof adverts 70 services 147 VALs™ 69
sports industry 626b sunk-cost fallacy 107b value
stakeholder marketing 696-97 supermarkets added 536
stakeholders, not-for-profit exploitation of supply chain creation 593
organizations 659–61, 661f partners 707 customer 594
Standard Industrial Classification retailer type, as 558t, 559 perceived 354
(SIC) codes 235–6 superstores 558t value-oriented pricing 360, 366–8
standardization 76, 262, 291b, 293 suppliers 148, 152 values
star products 154f, 155, 156f, 157 relationships with consumers 189 brand 404
stock management 555 supply and demand 9 consumer 69
storage warehouses 556 supply chain management not-for-profit organizations 656
STP process 213–14, 214f (SCM) 28, 550–6 organizational 169–70, 171b
see also positioning; segmentation goals 551t vending machines 561
strategic alliances 290 surveys 102, 103, 103t viral marketing 399, 445
strategic business units sustainable competitive advantage virtue ethics 701t, 703–4, 704t
(SBUs) 173, 192 (SCA) 183–4 vision statements 169
strategic competition and sustainable marketing 141–2,
warfare 188b 693-95
strategic context 168–9, 168f SWOT analysis 175–7, 177f W
strategic marketing planning System 1 thinking 55–6
wage inflation 132, 133
173–204, 204t System 2 thinking 55–6
warehousing 555–6
action and implementation
warfare and strategic
phase 175f, 175, 183–201,
183f, 202–3 T competition 188b
waste management 94b, 98b
activities 175f, 175–91
t-tests 108 water 4
competitive advantage 183–4
Target Group Index (TGI) 225, 225t water industry 668b
competitive positioning 186–7, 186t
target markets 238–43, 241f webrooming 50b, 348, 562
financial resources 195
telemarketing 439, 441t, 561 wholesalers 539
generic strategies 184–5
teleological ethics 700t, 702–3 willingness to pay 355–6
metrics contribution to see
television see broadcast media winner’s curse 28, 377
metrics
test markets 109
goals 175t, 175, 177–83, 178f
time 268
implementation 191–201, 192f
managing and controlling marketing
tobacco products 140–1, 673b Y
toy market 264b, 466b
programmes 202–3 yield management 201, 362, 714
trait theory 63–4
market analysis 175t, 175–7
translation equivalence,
competitors 183–4
distributors 152
international marketing
research 114, 115t, 116t
Z
suppliers 152
translation market 616b z-tests 108
SWOT analysis 175–7, 177f
transnational organizations zoos 595b
measuring and controlling marketing
289t, 290
programmes 202

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To Karen, my loving companion in life

To Olof, Alma, and Moa—my own dream team

To Ermanno and Giuliana, for their example and support

Part 1: Principles of Marketing 1

Part 2: Marketing Management and Strategy 123

Part 3: Managing Marketing Programmes 303

Part 4: Principles of Customer Management 529

Part 5: The Social Impacts of Marketing 651

Part 1: Principles of Marketing 1

2 Consumer Buying Behaviour 43

3 Marketing Research and Customer Insight 85

Part 2: Marketing Management and Strategy 123

5 Marketing Strategy 166

6 Market Segmentation and Positioning 211

Market Segmentation in Consumer Markets 219

7 International Market Development 259

Part 3: Managing Marketing Programmes 303

9 Price and Customer Value Decisions 344

The Relationship between Pricing and Proposition Costs 350

10 Principles of Marketing Communications 383

11 Configuring the Marketing Communications Mix 421

12 Digital and Social Media Marketing 456

13 Branding Decisions 491

Part 4: Principles of Customer Management 529

15 Services and Relationship Marketing 569

Chapter Summary 604

16 Business-to-Business Marketing 610

Part 5: The Social Impacts of Marketing 651

18 Marketing, Society, Sustainability, and Ethics 686

Promotion and Ethics 707

Chapter 13: Aston Martin Chapter 17: City of London Police

9.3 Masstige Pricing at MED

Sara Rosengren is Professor of Marketing and Retailing at Stockholm School

Paolo Antonetti is Associate Professor of Marketing at Neoma Business School,

David Alcock, Birmingham City University, UK

Alice Maltby, University of the West of England, UK

Professor Carmen Abril, IE Business School, Spain

Dr Seamus Allison, Nottingham Trent University, UK

Steve Goodair, managing director, Holdz®, UK

Who Should Use This Book?

New to This Edition

How to Use This Textbook

Honey and Mumford’s Learning-Style

How to Use this Book

IDENTIFY & REVIEW through Learning Outcomes

LEARN & EVALUATE through Case

ANALYSE & APPLY through Market

RESEARCH & PROGRESS through

This early, easy-to-read article explains how marketing managers act as

RECAP & CONSOLIDATE through

REVIEW & REVISE through Review

CHALLENGE & REFLECT through

LOOK UP & CHECK through Key

How to Use the Online

There are signposts to the

Case Insight Videos

Career Insight Videos

Library of Video Links

Author Audio Podcasts

Lecturer Resources – For all registered adopters of the book.

Discussion Question Pointers

Figures and Tables from the Book

Learning Outcomes Case Insight 1.1