Marketing (Baines, Paul, Fi)
Marketing (Baines, Paul, Fi)
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Higher Education team at Oxford University Press, chose the winning entry
based on the striking simplicity of the design and how well it represented
marketing as a discipline.
Congratulations to June and thank you to all those who participated in our competition.
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To Ning, for taking us to new places
Paul Baines
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
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.
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.
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:
We would particularly like to thank the following lecturers, students, and practitioners who con-
tributed market insights to the fifth edition:
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
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
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.
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
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.
Borden, N.H. (1964). The concept of the marketing mix. J understanding of key topics.
Research, 4, 2–7.
www.oup.com/uk/baines5e/
Student Resources – Free and open-access material available for users of the book.
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
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.
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
Principles of Marketing
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
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
66 Part 1 > Principles
Marketing of
Fundamentals
Marketing
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)
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.
Chapter11 >> Marketing
Chapter MarketingPrinciples
Principlesand
andPractice
Society 77
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.
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
88 Part 1 > Principles
Marketing of
Fundamentals
Marketing
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).
■ 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.
Marketing Sales
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
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
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Product Digital
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all
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© 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.
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.
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15
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.
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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16 Part 1 > Principles
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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.)
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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.
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
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).
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).
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19
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.
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.
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)
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
■ 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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22 Part 1 > Principles
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.)
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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24 Part 1 > Principles
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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,
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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.
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.)
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?
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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
32 Part 1 > Principles
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Table 1.4 Some modern consumer products and the dates of their 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
Tampons Feminine hygiene Allows girls and women Tampax, United States 1936
(with product to maintain more active
applicator) lifestyles
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
Chapter11 >> Marketing
Chapter MarketingPrinciples
Principlesand
andPractice
Society 33
33
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
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
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
34 Part 1 > Principles
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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:
■ 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.
■ 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.
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
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
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.
38 Part 1 > Principles of Marketing
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.
Chapter 1 > Marketing Principles and Practice 39
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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National, 9 April. Retrieve from: https://www.thenational. 198–218.
ae/business/technology/google-backed-lab-brings-
Wilkie, W.L., and Moore, E.S. (2011). Expanding our
robotics-and-other-technologies-to-rak-and-northern-
understanding of marketing in society. Journal of the
emirates (accessed 13 October 2018).
Academy of Marketing Science, 40(1), 53–73.
Sheth, J.N., and Sisodia, R.S. (2005). A dangerous
Worcester, R.M., Mortimore, R., Baines, P., and Gill,
divergence: marketing and society. Journal of Public
M. (2011). Explaining Cameron’s Coalition. London:
Policy and Marketing, 24(1), 160–2.
Biteback.
Chapter 2
Consumer Buying Behaviour
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
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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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.
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.
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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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.
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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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?
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.
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
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
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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‘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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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.
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.
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.
■ 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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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).
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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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.
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).
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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).
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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.
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74 Part 1 > Principles
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■ 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.
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
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76 Part 1 > Principles
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
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
1 > 2Marketing Buyingand
Principles Behaviour
Society 77
77
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
78 Part 1 > Principles of Marketing
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
■ 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.
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?
Discussion Questions
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
80 Part 1 > Principles of Marketing
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
Chapter 2 > Consumer Buying Behaviour 81
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.
82 Part 1 > Principles of Marketing
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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of Consumer Research, 21(1), 32–54.
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Ratchford, B.T. (1987). New insights about the FCB grid.
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(accessed 13 October 2018).
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D.B. (2000). You can’t have that! A study of reactance
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19(3), 249–76.
Chapter 3
Marketing Research and
Customer Insight
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.
Visit the online resources to watch a
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.
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.
■ 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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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.
Visit the online resources to read the abstract and access the full paper.
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.
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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Figure 3.3
Example of a marketing research question
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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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.
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.
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.
100 Part 1 > Principles
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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.
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).
Purpose Oriented towards discovery and Oriented towards cause and effect
exploration
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).
Table 3.4 Top five qualitative and quantitative data collection methods, 2017
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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.
■ 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.
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
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.
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.
> Marketing
Chapter 3 Chapter ResearchPrinciples
1 > Marketing and Customer Insight
and Society 111
111
Related Topics
advertising effectiveness; marketing communications; consumer reactions; neuromarketing
To take your learning further, you might wish to read this influential paper:
Wedel, M., and Kannan, P.K. (2016). Marketing analytics for data-rich environments.
Journal of Marketing, 80(6), 97–121.
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.
Visit the online resources to read the abstract and access the full paper.
How many steps you’ve done might mean as much to marketers as it does to you
Source: © Dedi Grigoroiu/Shutterstock.com.
> Marketing
Chapter 3 Chapter ResearchPrinciples
1 > Marketing and Customer Insight
and Society 113
113
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.
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.
116 Part 1 > Principles
Marketing of
Fundamentals
Marketing
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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117
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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
118 Part 1 > Principles of Marketing
■ 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?
Discussion Questions
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
120 Part 1 > Principles of Marketing
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
Principles of Marketing
Part 2
Marketing Management and
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 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
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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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.
jobs would otherwise be threatened and investment Kollewe (2016); Glanfield (2016); Sheffield (2016); Anon. (2017);
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?
■ 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.
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.
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?
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?
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
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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.
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
138 1 > Marketing Management
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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://
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.
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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?
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.
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.
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.
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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
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
144 1 > Marketing Management
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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.
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.
146 1 > Marketing Management
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New entrants
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
Substitutes
' Switching costs and propensity
to substitute
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
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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?
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
152 1 > Marketing Management
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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?
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.
To take your learning further, you might wish to read this influential paper:
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’).
Visit the online resources to read the abstract and access the full paper.
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).
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.)
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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To take your learning further, you might wish to read this influential paper:
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.
■ 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
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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
158 1 > Marketing Management
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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.
Figure 4.6
Dimensions of a marketing audit
Chapter 4 > The Marketing Environment 159
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
■ 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.
■ 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.
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?
Discussion Questions
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.
Chapter 4 > The Marketing Environment 161
Ariel (Procter & Gamble) 11.6% 12% 12.1% 11.6% 10.4% 9.9%
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.
162 Part 2 > Marketing Management and Strategy
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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big-companies-sign-letter-backing-brexit-strategy Pullen, J.P. (2017b). Mark Zuckerberg outlines
(accessed 13 October 2018). Facebook’s plan to fight Russian election hacking.
Fortune, 21 September. Retrieve from: http://fortune.
May, R.C., Stewart, W.H., Jr, and Sweo, R. (2000).
com/2017/09/21/mark-zuckerberg-outlines-facebooks-
Environmental scanning behaviour in a transitional
plan-to-fight-russian-election-hacking/ (accessed 13
economy: evidence from Russia. Academy of
October 2018).
Management Journal, 43(3), 403–27.
Ramirez, R., Churchhouse, S., Hoffman, J., and Palermo,
Misachi, J. (2017). The nations of Europe by the average
A. (2017). Using scenario planning to reshape strategy.
age at first marriage. World Atlas, 25 April. Retrieve
MIT Sloan Management Review, 58(4), 31–37.
from: https://www.worldatlas.com/articles/the-nations-
of-europe-by-the-average-age-at-first-marriage.html Rao, P.M. (2005). Sustaining competitive advantage in
(accessed 13 October 2018). a high-technology environment: a strategic marketing
perspective. Advances in Competitiveness Research,
Mizrahi, I. (2017). The Hispanic market ‘long tail’: five
13(1), 33–47.
hidden growth opportunities for US CMOs to win in
2017. Forbes, 18 January. Retrieve from: https://www. Royal Dutch Shell (2018). Shell scenarios. Retrieve from:
forbes.com/sites/onmarketing/2017/01/18/the-hispanic- https://www.shell.com/energy-and-innovation/the-energy-
market-long-tail-five-hidden-growth-opportunities-for-u- future/scenarios.html (accessed 13 October 2018).
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October 2018). Development. Cambridge, MA: Harvard University Press.
Morrison, A., and Wensley, R. (1991). Boxing up or boxing Shayon, S. (2014). L’Oréal taps smart tech for Genius
in: a short history of the Boston Consulting Group Makeup app. Brandchannel, 16 May. Retrieve from:
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7(2), 105–29. smart-tech-for-genius-makeup-app/ (accessed 13
Neate, R. (2013). Coca-Cola takes full control of innocent. October 2018).
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control-innocent (accessed 13 October 2018). 23 February. Retrieve from: http://www.independent.
Chapter 4 > The Marketing Environment 165
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
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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.
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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.’
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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171
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.
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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173
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.
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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).
To take your learning further, you might wish to read this influential paper:
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).
Visit the online resources to read the abstract and access the full paper.
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.
Corporate strategy
Reports Reports
Frames Directs
Informs Informs
Shapes Guides
Achieves Achieves
Marketing strategy
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):
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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
Opportunities Threats
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).
Visit the online resources and complete Internet Activity 5.2 to learn more about the use of
SWOT analysis.
To take your learning further, you might wish to read this influential paper:
Prahalad, C.K., and Hamel, G. (1990). The core competence of the organisation.
Harvard Business Review, 68(3), 79–91.
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.
Visit the online resources to read the abstract and access the full paper.
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
Figure 5.5
Five types of strategic
marketing goal
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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.
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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.
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
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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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?
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
184 1 > Marketing Management
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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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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.
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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.
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.
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.
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.
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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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Organizational
culture
Structure and
type of
organization
Available
financial
resources
Marketing
metrics
Figure 5.8
Major elements that can impact the strategy implementation process
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).
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?
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.
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
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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
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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:
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:
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
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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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201
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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Marketing strategy
Ineffective Effective
Efficient
Revise strategy Prosper
Marketing implementation
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).
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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.
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Activity Explanation
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
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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
■ 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.
■ 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.
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.
Discussion Questions
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.
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
208 Part 2 > Marketing Management and Strategy
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Chapter 6
Market Segmentation and
Positioning
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.
Market Marketing
Market Target Brand/product
information decisions
segmentation market positioning
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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215
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).
216 1 > Marketing Management
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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).
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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217
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
To take your learning further, you might wish to read this influential paper:
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
Promotion
New
Offering Place New segment
offering
Price
Figure 6.2
The difference between market segmentation and product differentiation
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.
Consumer criteria
Benefits sought
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,
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221
Difficult
& High
Behavioural
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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223
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,
224 1 > Marketing Management
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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).
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.
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
Primary school parents Live with son/daughter and youngest child 5–9
Secondary school parents Live with son/daughter and youngest child 10–15
Non-standard families Not married, live with relations, do not live with son/daughter, and do not
live with parents if 15–34
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
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227
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
228 1 > Marketing Management
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(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.
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 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!).
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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.
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.
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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).
Organizational criteria
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
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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).
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.
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.
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.
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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:
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■ 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
Segment Rating
attractiveness
factors High (10–7) Medium (6–4) Low (3–0)
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).
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Undifferentiated
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).
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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.
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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.
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
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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
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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).
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.
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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.
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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
BAKED FRUIT
Figure 6.8
Perceptual map for non-vintage champagne
Source: Reproduced with kind permission of Lanson International UK Ltd.
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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.
Figure 6.9
A C–D map
Source: Used with the kind permission of HBR.
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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.
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
Figure 6.10
C–D maps for cars and beer
Source: Used with the kind permission of HBR.
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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?
To take your learning further, you might wish to read this influential paper:
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.
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.
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.
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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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).
■ 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.
254 Part 2 > Marketing Management and Strategy
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.
Discussion Questions
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)?
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
Chapter 6 > Market Segmentation and Positioning 255
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.
256 Part 2 > Marketing Management and Strategy
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 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.
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,
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Chapter Market Development
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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
264 1 > Marketing Management
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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
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Chapter Market Development
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265
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.)
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).
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).
268 1 > Marketing Management
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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;
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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
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American Dairy Mexico and other Launched its ‘Got milk?’ campaign into Spanish-speaking
Association Spanish-speaking countries, which translated as ‘Are you lactating?’
countries
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
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
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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.
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
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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.
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?
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?
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Costs
Speed
Flexibility
and time
Market entry
method
selection
criteria
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
278 1 > Marketing Management
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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.
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.
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M&S franchises M&S Lingerie and Beauty stores, like this one in Jeddah in Saudi Arabia,
through Alhokair Fashion Retail
Source: © Paul Baines.
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
282 1 > Marketing Management
Part 2 Fundamentalsand Strategy
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).
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
284 1 > Marketing Management
Part 2 Fundamentalsand Strategy
Table 7.3 Key differences between traditional and born global approaches to
internationalization
Internationalization Traditional
attributes internationalization view Born global view
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
International market
Domestic International
Domestic market market
market
Market
A
Global
market
Market Market
B C
Figure 7.4
EPRG strategic orientations for international marketing
286 1 > Marketing Management
Part 2 Fundamentalsand Strategy
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
Chapter7 1> >International
Chapter Market Development
Marketing Principles and Society 287
287
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?
■ 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).
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).
Figure 7.5
Ansoff’s matrix
Source: Adapted from Ansoff (1957).
Chapter7 1> >International
Chapter Market Development
Marketing Principles and Society 289
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
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.
Sources: Adapted from Bartlett and Ghoshal (1991) and de Mooij (1994); Anon. (2012)
290 1 > Marketing Management
Part 2 Fundamentalsand Strategy
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.
Standardization Adaptation
Figure 7.6
The spectrum of competitive strategies
Chapter7 1> >International
Chapter Market Development
Marketing Principles and Society 291
291
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.)
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?
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
294 1 > Marketing Management
Part 2 Fundamentalsand Strategy
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
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
296 Part 2 > Marketing Management and Strategy
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
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?
Discussion Questions
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.
298 Part 2 > Marketing Management and Strategy
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.
Chapter 7 > International Market Development 299
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Chapter 7 > International Market Development 301
Part 1
Principles of Marketing
Part 2
Marketing Management and
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 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
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.
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Education Toiletries
Entertainment Frozen foods
Hairdressing Fruit
Figure 8.1
The product–service spectrum
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
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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.)
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.
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
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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.
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
Chapter 8 > New Proposition
Chapter Development
1 > Marketing andand
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313
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?
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
314 1 > Managing
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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
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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.
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 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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Sales
Sales and profits
Profits
0
Time
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).
Figure 8.4
Types of product life cycle
■ 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
Research Insight 8.2).
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.
To take your learning further, you might wish to read this influential paper:
Vargo, S.L., and Lusch, R.F. (2004). Evolving to a new dominant logic for marketing.
Journal of Marketing, 68(1), 1–17.
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.
Visit the online resources to read the abstract and access the full paper.
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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.
Idea generation
Screening
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.
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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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
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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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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.
■ 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 8 > New Proposition
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Society 333
333
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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Programmes
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).
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?
Chapter 8 > New Proposition
Chapter Development
1 > Marketing andand
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Society 335
335
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).
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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Programmes
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
To consolidate your learning, the key points from this chapter are summarized here:
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.
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?
Chapter 8 > New Proposition Development and Innovation 339
Discussion Questions
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?
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-
340 Part 3 > Managing Marketing Programmes
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
Chapter 8 > New Proposition Development and Innovation 341
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22(3), 149–66.
trolling/1100-6418047/ (accessed 13 October 2018).
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Rodionova, Z. (2018). Pretty in pink: Nestle now makes Tynan, C., and McKechnie, S. (2009). Experience
a PINK KitKat—but you’ll have to travel pretty far to marketing: a review and reassessment. Journal of
get it. The Sun, 18 January. Retrieve from: https:// Marketing Management, 25(5–6), 501–17.
www.thesun.co.uk/money/5369550/nestle-now- Vargo, S.L., and Lusch, R.F. (2004). Evolving to a new
makes-a-pink-chocolate-kitkat-but-youll-have-to- dominant logic for marketing. Journal of Marketing,
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Vargo, S.L., and Lusch, R.F. (2016). Institutions and axioms:
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New York: Free Press. Alfa. Automotive News, 18 September. Retrieve
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13 October 2018). 13 October 2018).
Chapter 9
Price and Customer Value
Decisions
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
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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
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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.
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.
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■ 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.
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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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.
Professional service fees (e.g. legal, Professional services fees (e.g. legal) in a business with a
architectural) strong regulatory regime (e.g. pharmaceuticals)
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.
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)
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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:
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.
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.
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
(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:
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:
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).
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
Figure 9.5
International airlines: price versus service
Source: From 1843 Magazine © 2016 The Economist Newspaper Limited. All rights reserved.
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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).
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.
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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
Table 9.2 Circumstances under which price wars are more or less 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
■ 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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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).
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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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.
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.
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).
376 1 > Managing
Part 3 Marketing Marketing
Fundamentals
Programmes
■ 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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377
■ 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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
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).
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?
Discussion Questions
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
380 Part 3 > Managing Marketing Programmes
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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382 Part 3 > Managing Marketing Programmes
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.
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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.
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.
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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.
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.
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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?
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
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Realms of Realms of
understanding understanding
Message
Noise Noise
Feedback
Figure 10.2
A linear model of communications
Source: Based on Schramm (1955); Shannon and Weaver (1962).
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.
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
Electronic T3
sources
T2 Opinion
leaders
Personal
sources
T4
Mass
media
Opinion
formers
T1
Figure 10.4
An interaction model
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).
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.
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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.
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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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).
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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Awareness
Knowledge
Liking
Preference
Conviction
Purchase
Figure 10.5
Stages in the hierarchy of effects model
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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
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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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 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.
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.
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Principles and Society 409
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.
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.
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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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.
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.
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413
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.
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.
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.
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.
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415
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
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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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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
■ 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.
■ 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.
418 Part 3 > Managing Marketing Programmes
Discussion Questions
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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Marketing and Research Today, 19(40), 195–203. Theodorson, S.A., and Theodorson, G.R. (1969). A
Katz, E., and Lazarsfeld, P.F. (1955). Personal Influence: Modern Dictionary of Sociology. New York: Cromwell.
The Part Played by People in the Flow of Mass Traboulsi, S., and Guidère, M. (2009). Tell me
Communication. Glencoe, IL: Free Press. which country you live in, I’ll tell you which ad to
Kaufman, G. (2017). Madonna mocks Kendall Jenner broadcast. The Observers, 20 July. Retrieve from:
Pepsi ad fiasco by recalling her own Cola controversy, http://observers.france24.com/en/20090720-
Billboard, 6 April. Retrieve from: https://www.billboard. tell-which-country-you-live--tell-you-which-ad-
com/articles/columns/pop/7752245/madonna-mocks- broadcast-saudi-arabia-advertising-rules (accessed
kendall-jenner-pepsi-ad (accessed 13 October 2018). 13 October 2018).
Keller, E., and Fay, B. (2012). Word-of-mouth advocacy: Turner, N., and Kaplan, J. (2018). PepsiCo looks to
a new key to advertising effectiveness. Journal of bounce back from Kendall Jenner debacle with retro
Advertising Research, 52(4), 459–64. ads, Bloomberg News, 11 January. Retrieve from:
https://www.bloomberg.com/news/articles/2018-01-11/
Kosoff, M., and Jacobs, H. (2015). The 15 most
pepsico-looks-to-bounce-back-from-jenner-debacle-
popular YouTubers in the world. Business Insider, 18
with-retro-ads (accessed 13 October 2018).
September. Retrieve from: https://uk.businessinsider.
com/the-most-popular-youtuber-stars-in-the- Williams, R. (2014). Apple launches iPhone 6, 6 Plus and
world?r=US&IR=T (accessed 13 October 2018). Apple Watch. The Telegraph, 9 September. Retrieve
from: https://www.telegraph.co.uk/technology/
Lavidge, R.J., and Steiner, G.A. (1961). A model for
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predictive measurements of advertising effectiveness.
Apple-Watch.html (accessed 13 October 2018).
Journal of Marketing, 25(6), 59–62.
Chapter 11
Configuring the Marketing
Communications Mix
2 experiential marketing;
Visit the online resources to watch a
3 public relations (PR); video interview with Emma Hibbert in
which she explains what Adnams did.
4 sales promotion;
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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.
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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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
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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?
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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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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
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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Information-based messages
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.
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.
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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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.
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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Magazines:
Consumer Cosmopolitan, Woman
Business The Grocer, Plumbing News
Digital media Internet, social media, Websites, email, Facebook, Instagram, Twitter, eBay,
auctions, billboards, apps Clear Channel, Google Play
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).
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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.
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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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.
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
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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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?
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.
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?
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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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).
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
■ 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.
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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?
Discussion Questions
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.
454 Part 3 > Managing Marketing Programmes
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Chapter 12
Digital and Social Media
Marketing
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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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
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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
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).
Table 12.2 Top 10 social media networks in 2018 (based on active users)
Facebook 2,167
YouTube 1,500
WhatsApp 1,300
WeChat 980
QQ 843
Instagram 800
Tumblr 794
QXone 568
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).
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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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.
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?
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
‘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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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.
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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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.
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.)
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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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).
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.)
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.
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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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!?
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
Measure
Hits/visits/page views
Repeat visits
Sales levels
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
3 Videos 72%
5 Infographics 65%
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).
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
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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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?
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).
Goal Division of labour Division of labour Winner takes all Raise money
(integrative) (integrative) (selective)
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.
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
To consolidate your learning, the key points from this chapter are summarized here:
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?
Discussion Questions
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?
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?
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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Chapter 13
Branding Decisions
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:
Visit the online resources to watch a
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
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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.
Chapter 1 > Chapter > Branding
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
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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.
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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.
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.
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.
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.
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
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.
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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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.
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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4. RELATIONSHIPS = INTENSE,
What about you & me? ACTIVE LOYALTY
RESONANCE
2. MEANING = POINTS-OF-PARITY
PERFORMANCE IMAGERY
What are you? & DIFFERENCE
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).
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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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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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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.
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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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.
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.
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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517
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’?
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.
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
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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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
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
Chapter 1 > Chapter > Branding
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521
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
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
522 1 > Managing
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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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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
■ 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.
Discussion Questions
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?
524 Part 3 > Managing Marketing Programmes
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.
Chapter 13 > Branding Decisions 525
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Part 4
Principles of Customer
Management
Part 1
Principles of Marketing
Part 2
Marketing Management and
Strategy
Part 3
Managing Marketing
Programmes
Part 4
Principles of Customer
Management
Part 5
The Social Impacts of
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
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.
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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.
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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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
14 > Channels,
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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
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)
538 1 > Principles
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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.
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/
14 > Channels,
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539
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?
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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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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541
CHANNEL DECISIONS
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.
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.
Producer Consumer
Direct
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.
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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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?
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.
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.
Channel Few in number; well- Moderate in number; well- Many in number; all
members established reputable established better stores types of outlet
stores
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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
Pricerunner. Internet-based B2B platforms are also examples of such intermediaries (see
Research Insight 14.2).
Strategy Explanation
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).
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.
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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Stock
Fulfilment Transportation Warehousing
management
Figure 14.6
Developing high-performance supply chains
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.
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.
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.
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.
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.
Department Very broad and Minimize price Wide array and David Jones;
deep, with layout competition good quality Debenhams; Harrods
and presentation of
products critical
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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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.
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
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.
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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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,
ChapterChapter SupplyPrinciples
1 > Marketing Chains, and
andRetailing
Society 563
563
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
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
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.
Discussion Questions
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.
References
Adler, E. (2014). Reverse showrooming: bricks-and- report/reports/november-2017 (accessed
mortar retailers fight back. Business Insider UK, 24 September 2018).
13 July. Retrieve from: http://uk.businessinsider.com/ Filippa K. (2017). Sustainability Report 2016. Retrieve
reverse-showrooming-bricks-and-mortar-retailers-fight- from: https://www.filippa-k.com/media/wysiwyg/
back-2-2014-2?r%20=%20US (accessed 13 October filippa-k-world/sustainability/reports/Filippa-K-
2018). Sustainability-Report-2016.pdf (accessed 13
Ailawadi, K.L. and Farris, P.W. (2017). Managing October 2018).
multi- and omni-channel distribution: metrics and Fill, C., and McKee, S. (2012). Business Marketing.
research directions. Journal of Retailing, 93(1), Oxford: Goodfellow.
120–35.
Gaski, J.F. (1984). The theory of power and conflict in
Alldredge, K., and Ungerman, K. (2015). Cohabiting with channels of distribution. Journal of Marketing, 48(3),
your e-commerce partners. McKinsey Insights, June. 9–29.
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Genovese, A., Acquaye, A.A., Figueroa, A., and Koh, S.L.
marketing_sales/cohabiting_with_your_ecommerce_
(2017). Sustainable supply chain management and the
partners (accessed 13 October 2018).
transition towards a circular economy: evidence and
Alldredge, K., Newaskar, P., and Ungerman, K. (2015). some applications. Omega, 66, 344–57.
The digital future of consumer-packaged-goods
Homburg, C., Vollmayr, J., and Hahn, A. (2014). Firm value
companies. McKinsey Insights, October. Retrieve
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2018). Katz, D., and Kahn, R.L. (1978). The Social Psychology of
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Anderson, E., and Anderson, R. (2002). The new
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Review, 43(4), 53–62. Englewood Cliffs, NJ: Prentice Hall.
Anon. (2014). How to create immersive in-store Laffey, D., and Gandy, A. (2009). Comparison websites in
experiences with directional audio. Retail Customer UK retail financial services. Journal of Financial Services
Experience, 18 September. Retrieve from https://www. Marketing, 14(2), 173–86.
retailcustomerexperience.com/articles/how-to-create- MacKenzie, B., Meyer, C., and Noble, S. (2013). How
immersive-in-store-experiences-with-directional-audio/ retailers can keep up with consumers. McKinsey
(accessed 13 October 2018). Insights, October. Retrieve from: https://www.
Armstrong, A. (2016). Sainsbury’s bid could spell break mckinsey.com/industries/retail/our-insights/how-
up of Home Retail. The Telegraph, 5 January. Retrieve retailers-can-keep-up-with-consumers (accessed 13
from: https://www.telegraph.co.uk/finance/12082535/ October 2018).
Sainsburys-makes-bid-approach-for-Argos-owner.html Mallapragada, G., Chandukala, S.R., and Liu, Q. (2016).
(accessed 13 October 2018). Exploring the effects of ‘what’ (product) and ‘where’
Brewer, P.C., and Speh, T.W. (2000). Using the balanced (website) characteristics on online shopping behavior.
scorecard to measure supply chain performance. Journal of Marketing, 80(2), 21–38.
Journal of Business Logistics, 21(1), 75–95. Melnyk, S.A., Lummus, R.R., Vokurka, R.J., Burns,
Chakravarty, A., Kumar, A., and Grewal, R. (2014). L.J., and Sandor, J. (2009). Mapping the future
Customer orientation structure for Internet-based of supply chain management: a Delphi study.
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568 Part 4 > Principles of Customer Management
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
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> Marketing Marketing
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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.
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
Sector Examples
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.
Chapter 15 > 1Services
Chapter and Relationship
> Marketing Marketing
Principles and Society 573
573
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
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.
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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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.
■ 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.
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).
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
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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).
To take your learning further, you might wish to read this influential paper:
Reichheld, F.F., and Sasser, E.W. (1990). Zero defections: quality comes to services.
Harvard Business Review, 68(5), 105–11.
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.
Visit the online resources to read the abstract and access the full paper.
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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.
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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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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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.
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.
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.
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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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?
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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Relationship
termination Acquiescence
costs
+ +
+ +
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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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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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.
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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.’
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.
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.
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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.
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.
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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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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.
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
604 Part 4 > Principles of Customer Management
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized below:
■ 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.
Discussion Questions
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.
606 Part 4 > Principles of Customer Management
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).
Chapter 15 > Services and Relationship Marketing 607
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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
612 1 > Principles
Part 4 Marketing of
Fundamentals
Customer Management
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
Chapter16 Business-to-Business
1 >> Marketing Marketing
Principles and Society 613
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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.
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).
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/
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
Chapter16 Business-to-Business
1 >> Marketing Marketing
Principles and Society 617
617
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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To take your learning further, you might wish to read this influential paper:
Dwyer, R.F., Schurr, P.H., and Oh, S. (1987). Developing buyer–seller relationships.
Journal of Marketing, 51(2), 11–27.
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.
Visit the online resources to read the abstract and access the full paper.
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.
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)
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.
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.
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.
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.
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
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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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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Buyphases Buyclasses
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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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
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.
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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Fundamentals
Customer Management
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
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Principles and Society 637
637
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.
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.
Chapter
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Principles and Society 639
639
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).
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/
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
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Principles and Society 643
643
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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
644 Part 4 > Principles of Customer Management
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
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?
Discussion Questions
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.
646 Part 4 > Principles of Customer Management
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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centric leadership: how to manage strategic customers a-traduire (accessed 13 October 2018).
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Tzempelikos, N., and Gounaris, S. (2013). Approaching on resource allocation in the channel of distribution.
key account management from a long-term perspective. European Journal of Marketing, 40(5–6), 520–32.
Journal of Strategic Marketing, 21(2), 179–98. Webster, F.E., and Wind, Y. (1972). Organizational Buying
Tzempelikos, N., and Gounaris, S. (2015). Linking key Behaviour. Englewood Cliffs, NJ: Prentice Hall.
account management practices to performance Wiersema, F. (2012). The B2B Agenda: The Current State
outcomes. Industrial Marketing Management, 45, of B2B Marketing and a Look Ahead. University Park,
22–34. PA: Institute for the Study of Business Markets.
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Part 5
The Social Impacts of
Marketing
Part 1
Principles of Marketing
Part 2
Marketing Management and
Strategy
Part 3
Managing Marketing
Programmes
Part 4
Principles of Customer
Management
Part 5
The Social Impacts of
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
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
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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.
To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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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.’
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/
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
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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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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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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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.
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
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.
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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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
Research Insight 17.2).
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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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?
‘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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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).
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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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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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.
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
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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
To consolidate your learning, the key points from this chapter are summarized here:
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?
682 Part 5 > The Social Impacts of Marketing
Discussion Questions
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.
Chapter 17 > Not-for-Profit and Social Marketing 683
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
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.’
Visit the online resources to watch a
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.
Marketing,
Chapter 18 > Chapter 1 > Society,
MarketingSustainability,
Principles andandSociety
Ethics 689
689
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.
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.)
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
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.
To take your learning further, you might wish to read this influential paper:
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:
2 identify stakeholders;
Visit the online resources to read the abstract and access the full paper.
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).
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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To take your learning further, you might wish to read this influential paper:
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.
Visit the online resources to read the abstract and access the full paper.
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
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.)
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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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).
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.
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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Individual Factors
-Knowledge
-Values
-Attitudes
-Intentions
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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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.
To take your learning further, you might wish to read this influential paper:
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 to read the abstract and access the full paper.
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).
Marketing,
Chapter 18 > Chapter 1 > Society,
MarketingSustainability,
Principles andandSociety
Ethics 711
711
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.
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).
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
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Impacts of Marketing
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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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?
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).
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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Impacts of Marketing
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
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?
Chapter Summary
To consolidate your learning, the key points from this chapter are summarized here:
■ 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.
720 Part 5 > The Social Impacts of Marketing
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?
Chapter 18 > Marketing, Society, Sustainability, and Ethics 721
Discussion Questions
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
722 Part 5 > The Social Impacts of Marketing
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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