Marketing strategy text and cases 7e by ferrell

10 MAJOR MARKETING ACTIVITIES AND DECISIONS 13 Strategic Planning 15 Research and Analysis 15 Developing Competitive Advantage 16 Marketing Strategy Decisions 16 Social Responsibility an

O.C Ferrell and Michael D Hartline

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Printed in the United States of America

Print Number: 01 Print Year: 2016

O.C Ferrell

To my girls, Marsha, Meghan, Madison, and Mallory

Michael D Hartline

Brief Contents

Preface xiii

About the Authors xvii

CASES

CASE 1 USA TODAY: INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS ’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

Preface xiii

About the Authors xvii

1 MARKETING IN TODAY ’S ECONOMY 1

Power Shift to Customers 3 Massive Increase in Product Selection 4 Audience and Media Fragmentation 4 Changing Value Propositions 4 Shifting Demand Patterns 5 Privacy, Security, and Ethical Concerns 5 Unclear Legal Jurisdiction 6

What Is a Market? 8 What Is Exchange? 9 What Is a Product? 10 MAJOR MARKETING ACTIVITIES AND DECISIONS 13 Strategic Planning 15

Research and Analysis 15 Developing Competitive Advantage 16 Marketing Strategy Decisions 16 Social Responsibility and Ethics 19 Implementation and Control 20 Developing and Maintaining Customer Relationships 20

TAKING ON THE CHALLENGES OF MARKETING STRATEGY 21

2 STRATEGIC MARKETING PLANNING 27

Organizational Mission versus Organizational Vision 30

Corporate or Business-Unit Strategy 34

Functional Goals and Objectives 35

Functional Strategy 36

Implementation 36

Evaluation and Control 36

Marketing Plan Structure 37

Using the Marketing Plan Structure 43

Purposes and Significance of the Marketing Plan 44

Organizational Aspects of the Marketing Plan 45

Customer-Focused Planning 46

Balanced Strategic Planning 49

3 COLLECTING AND ANALYZING MARKETING INFORMATION 56

Analysis Alone Is Not a Solution 58

Data Are Not the Same as Information 59

The Benefits of Analysis Must Outweigh the Costs 59

Conducting a Situation Analysis Is a Challenging Exercise 59

Review of Current Objectives, Strategy, and Performance 61

Availability of Resources 62

Organizational Culture and Structure 63

Who Are Our Current and Potential Customers? 65

What Do Customers Do with Our Products? 65

Where Do Customers Purchase Our Products? 66

When Do Customers Purchase Our Products? 66

Why (and How) Do Customers Select Our Products? 68 Why Do Potential Customers Not Purchase Our Products? 68

Competition 71 Economic Growth and Stability 73 Political Trends 74

Legal and Regulatory Issues 74 Technological Advancements 75 Sociocultural Trends 76

Secondary Information Sources 79 Primary Data Collection 82

Overcoming Problems in Data Collection 83

4 DEVELOPING COMPETITIVE ADVANTAGE AND STRATEGIC FOCUS 89

Stay Focused 91 Search Extensively for Competitors 93 Collaborate with Other Functional Areas 93 Examine Issues from the Customers ’ Perspective 93 Look for Causes, Not Characteristics 95

Separate Internal Issues from External Issues 96

Strengths and Weaknesses 97 Opportunities and Threats 97

Developing Marketing Goals 111 Developing Marketing Objectives 112 Moving beyond Goals and Objectives 115

5 CUSTOMERS, SEGMENTATION, AND TARGET MARKETING 119

The Consumer Buying Process 121

Factors that Affect the Consumer Buying Process 127

Unique Characteristics of Business Markets 130

The Business Buying Process 132

Traditional Market Segmentation Approaches 133

Individualized Segmentation Approaches 136

Criteria for Successful Segmentation 138

Segmenting Consumer Markets 139

Segmenting Business Markets 144

6 THE MARKETING PROGRAM 153

Strategic Issues in the Product Portfolio 155

The Challenges of Service Products 158

Developing New Products 160

Key Issues in Pricing Strategy 162

Pricing Service Products 168

Base Pricing Strategies 170

Adjusting the Base Price 171

Strategic Supply Chain Issues 173

Trends in Supply Chain Strategy 178

Strategic Issues in Integrated Marketing Communications 183

Advertising 185

Public Relations 187

Personal Selling and Sales Management 189 Sales Promotion 191

7 BRANDING AND POSITIONING 203

STRATEGIC ISSUES IN BRANDING 206 Basic Branding Decisions 206 Strategic Brand Alliances 209 Brand Value 209

Packaging and Labeling 212 DIFFERENTIATION AND POSITIONING 213 Bases for Differentiation 215

Positioning Strategies 217

Development Stage 220 Introduction Stage 221 Growth Stage 221 Maturity Stage 223 Decline Stage 224

8 ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 230

ETHICS AND SOCIAL RESPONSIBILITY IN MARKETING STRATEGY 231 Dimensions of Social Responsibility 232

Sustainability 235 Marketing Ethics and Strategy 237 The Challenges of Being Ethical and Socially Responsible 239

Product-Related Ethical Issues 241 Pricing-Related Ethical Issues 243 Supply Chain –Related Ethical Issues 244 Promotion-Related Ethical Issues 245

MANAGING AND CONTROLLING ETHICAL ISSUES 246

Regulating Marketing Ethics 246

Codes of Conduct 248

Ethical Leadership 249

Stakeholder Orientation 250

Marketing Financial Performance 251

INCORPORATING ETHICS AND SOCIAL RESPONSIBILITY

9 MARKETING IMPLEMENTATION AND CONTROL 260

The Link Between Planning and Implementation 262

The Elements of Marketing Implementation 264

Implementation by Command 268

Implementation through Change 270

Implementation through Consensus 271

Implementation as Organizational Culture 271

The Internal Marketing Approach 272

The Internal Marketing Process 274

Formal Marketing Controls 276

Informal Marketing Controls 279

Scheduling Marketing Activities 281

10 DEVELOPING AND MAINTAINING LONG-TERM CUSTOMER

RELATIONSHIPS 289

Developing Relationships in Consumer Markets 292

Developing Relationships in Business Markets 294

QUALITY AND VALUE: THE KEYS TO DEVELOPING CUSTOMER RELATIONSHIPS 296 Understanding the Role of Quality 296

Delivering Superior Quality 298 Understanding the Role of Value 299 Competing on Value 303

Understanding Customer Expectations 304 Satisfaction versus Quality versus Value 307 Customer Satisfaction and Customer Retention 310 Customer Satisfaction Measurement 312

CASES

CASE 1 USA TODAY: INNOVATION IN AN EVOLVING INDUSTRY 318

CASE 4 NEW BELGIUM BREWING (A): SOCIAL RESPONSIBILITY AS COMPETITIVE ADVANTAGE 355

CASE 7 MISTINE: DIRECT SELLING IN THE THAI COSMETICS MARKET 384

CASE 8 BP STRUGGLES TO REPAIR ITS TARNISHED REPUTATION 396

CASE 12 INDYCAR: SEEKING A RETURN TO MOTORSPORTS ’ FAST LANE 443

CASE 13 ZAPPOS: DELIVERING HAPPINESS 454

CASE 14 NETFLIX FIGHTS TO STAY AHEAD OF A RAPIDLY CHANGING MARKET 465

CASE 15 GILLETTE: WHY INNOVATION MAY NOT BE ENOUGH 475

CASE 16 IKEA SLOWLY EXPANDS ITS U.S MARKET PRESENCE 487

CASE 17 UBER: THE OPPORTUNITIES AND CHALLENGES OF MARKET DISRUPTION 496

CASE 18 SCENTSY, INC.: A SUCCESSFUL DIRECT SELLING BUSINESS MODEL 507

CASE 20 BELLE MEADE PLANTATION: A SOCIAL ENTREPRENEURSHIP MARKETING STRATEGY 525

Welcome to one of the most interesting, challenging, and important topics in your

business education What makes marketing strategy so interesting, challenging, and

important you ask? To begin, marketing strategy is interesting because (1) it is

inher-ently people-driven and (2) it is never stagnant A distinct blend of both art and

sci-ence, marketing strategy is about people (inside an organization) finding ways to

deliver exceptional value by fulfilling the needs and wants of other people

(custo-mers, shareholders, business partners, society at large), as well as the needs of

the organization itself Marketing strategy draws from psychology, sociology, and

economics to better understand the basic needs and motivations of these people—

whether they are the organization’s customers (typically considered the most

critical), its employees, or its stakeholders In short, marketing strategy is about

peo-ple serving peopeo-ple

For this reason, marketing strategy is interesting because it is never stagnant

The simple fact is that people change A strategy that works today might not work

tomorrow Products that are popular today are forgotten next week These truisms

are important because truly understanding marketing strategy means accepting the

fact that there are few concrete rules for developing and implementing marketing

activities Given the constant state of change in the marketing environment, it is

vir-tually impossible to say that given “this customer need” and “these competitors”

and“this level of government regulation” that Product A, Price B, Promotion C, and

Distribution D will produce the best results Marketing simply doesn’t work that way

The lack of concrete rules and the ever changing economic, sociocultural,

competi-tive, technological, and political/legal landscapes make marketing strategy a terribly

fascinating subject

Now that you know why marketing strategy is so interesting, it should be easy

to see why it is also challenging A perfect marketing strategy that is executed

flawlessly can still fail Sometimes, organizations are lucky and have success despite

having a terrible strategy and/or execution The nature of marketing can make

mar-keting planning quite frustrating

Finally, the importance of marketing strategy is undeniable No other business

function focuses on developing relationships with customers—the lifeblood of all

organizations (even non-profits) This statement does not diminish the importance

of other business functions, as they all are necessary for an organization to be

suc-cessful In fact, coordination with other functions is critical to marketing success

However, without customers, and marketing programs in place to cultivate customer

relationships, no organization can survive

OUR FOCUS

Given this marketing landscape, Marketing Strategy: Text and Cases, 7 th Edition

provides a practical, straightforward approach to analyzing, planning, and menting marketing strategies Our focus is based on the creative process involved

in applying the knowledge and concepts of marketing to the development and mentation of marketing strategy Our goal is to encourage students of marketing tothink and act like a marketer By discussing the key concepts and tools of marketingstrategy, our emphasis on critical thinking, both analytical and creative, allows stu-dents to understand the essence of how marketing decisions fit together to create acoherent strategy

imple-Our approach in Marketing Strategy: Text and Cases, 7 th Edition is alsogrounded in the development and execution of the marketing plan Throughout thetext, we provide a comprehensive planning framework based on conducting soundbackground research, developing market capabilities and competitive advantages,designing integrated marketing programs, and managing customer relationships forthe long term We also emphasize the need for integrity in the strategic planning pro-cess as well as the design of marketing programs that are both ethical and sociallyresponsible We also stress the integration and coordination of marketing decisionswith other functional business decisions as the key to achieving an organization’soverall mission and vision Throughout the text, we offer examples of successfulplanning and implementation to illustrate how firms face the challenges of marketingstrategy in today’s economy

PURPOSE

We view strategic marketing planning not only as a process for achieving tional goals, but also as a means of building long-term relationships with customers.Creating a customer orientation takes imagination, vision, and courage, especially intoday’s rapidly changing economic and technological environments To help meetthese challenges, our text approaches marketing strategy from both“traditional” and

organiza-“cutting-edge” practices We cover topics such as segmentation, creating a tive advantage, marketing program development, and the implementation processwith a solid grounding in traditional marketing, but also with an eye toward emergingpractices Lessons learned from the rise, fall, and reemergence of the dotcom sector,recent corporate scandals, and the most recent economic recession illustrate theimportance of balancing the traditional and emerging practices of marketing strat-egy Our text never loses sight of this balance

competi-Although our approach allows for the use of sophisticated research anddecision-making processes, we have employed a practical perspective that permitsmarketing managers in any sized organization to develop and implement a marketingplan We have avoided esoteric, abstract, and highly academic material that does notrelate to typical marketing strategy decisions in most organizations The marketingplan framework that we utilize throughout the text has been used by a number oforganizations to successfully plan their marketing strategies Many companies reportgreat success in using our approach partially due to the ease of communicating theplan to all functional areas of the business

TARGET AUDIENCEOur text is relevant for a number of educational environments, including undergrad-uate, graduate, and corporate training courses At the undergraduate level, our text

is appropriate for the capstone course or any upper-level integrating course such as

“Marketing Management,” “Marketing Strategy,” or “Marketing Policy.” At this level,

the text provides an excellent framework to use with our included text-based cases,

live-client cases, or a computer simulation At the graduate level, our text is

appropri-ate for courses addressing strappropri-ategic marketing planning, competitive marketing

strat-egies, or as a supplement for any simulation-based course A growing segment of the

market, corporate training, can utilize our text when educating business

profes-sionals interested in developing marketing plans of their own, or interpreting and

implementing the plans of others

Each of the 21 cases included in our text describes the strategic situations of

real-world, identifiable organizations Because these cases feature real situations,

instructors have the option of using the case material as published, or they may

give students the opportunity to update the cases by conducting research to find

the latest information Many additional resources for students and instructors can

be found at our text’s companion website, www.cengagebrain.com

ACKNOWLEDGMENTS

Throughout the development of this text, several extraordinary individuals

pro-vided their talent and expertise to make important contributions A number of

indi-viduals have made many useful comments and recommendations as reviewers of

this text

We also deeply appreciate the assistance of several individuals who played a

major role in developing cases or other materials Specifically, we thank the

follow-ing individuals:

Joe Alexander, Belmont University

Noushin Laila Ansari, University of New Mexico

Timothy W Aurand, Northern Illinois University

Harper Baird, University of New Mexico

Chandani Bhasin, University of New Mexico

Christin Copeland, Florida State University

Linda Ferrell, Belmont University

John Fraedrich, Southern Illinois University – Carbondale

Bernadette Gallegos, University of New Mexico

Sederick Hood, University of New Mexico

Jennifer Jackson, University of New Mexico

Danielle Jolley, University of New Mexico

Kimberly Judson, Illinois State University

Robert P Lambert, Belmont University

Cassondra Lopez, University of New Mexico

Julian Mathias, University of New Mexico

Kevin Mihaly, Florida State University

Christian Otto, University of New Mexico

Greg Owsley, New Belgium Brewing Company

Kelsey Reddick, Florida State University

Don Roy, Middle Tennessee State University Mike Sapit, Sigma Marketing

Jennifer Sawayda, University of New Mexico Beau Shelton, University of New Mexico Bryan Simpson, New Belgium Brewing Company Debbie Thorne, Texas State University

Jacqueline Trent, University of New Mexico Robyn Watson, Florida State University Lecia Weber, University of New Mexico Celeste Wood, Florida State University

We greatly appreciate the efforts of Jennifer Sawayda, University of NewMexico, for coordinating much of the new case development in this edition Theeditorial, production, and marketing staff at Cengage cannot be thanked enough.With a deep sense of appreciation, we thank Mike Roche and Zach Fleischer.Finally, we express appreciation for the support and encouragement ofour families and friends, and our colleagues at Belmont University, Florida StateUniversity, and the University of New Mexico

About the Authors

O.C FERRELL, PH.D.

Belmont University

O.C Ferrell (Ph.D., Louisiana State University) is University Distinguished Chair of

Business Ethics at Belmont University He recently served 9 years as University

Dis-tinguished Professor of Marketing at the Anderson School of Management,

Univer-sity of New Mexico He also served at the UniverUniver-sity of Wyoming and was Chair of

the Marketing Department at Colorado State University Prior to his arrival at CSU,

Dr Ferrell was the Distinguished Professor of Marketing and Business Ethics at the

University of Memphis He has also served as a professor at the University of Tampa,

Texas A&M University, Illinois State University, and Southern Illinois University His

MBA and BA degrees are from Florida State University

Dr Ferrell is past president of the Academic Council of the American Marketing

Association and former chair of the American Marketing Association Ethics

Commit-tee Under his leadership, the committee developed the AMA Code of Ethics and the

AMA Code of Ethics for Marketing on the Internet He is a Society for Marketing

Advances Fellow and the Vice President of Publications for the Academy of

Market-ing Science He is a former member of the Board of Governors as a DistMarket-inguished

Fellow for the Academy of Marketing Science He received the Cutco Vector

Distin-guished Marketing Educator Award from the Academy of Marketing Science In

addi-tion, he received the first Innovative Educator award from the Marketing

Management Association

Dr Ferrell has taught a wide variety of courses, including marketing strategy,

principles of marketing, marketing ethics, international marketing, as well as most

undergraduate courses in marketing For 16 years he taught a graduate course in

competitive marketing strategies at Thammasat University in Bangkok, Thailand

He has also been a visiting professor at University of Wisconsin, University of

Michigan–Ann Arbor, and University of Hanover, Germany

Dr Ferrell is the co-author of over 20 books and more than 100 articles His

research is published in the Journal of Marketing Research, the Journal of

Market-ing , the Journal of Business Ethics, the Journal of Business Research, the Journal

of the Academy of Marketing Science , as well as other journals His Marketing:

Con-cepts and Strategies text, co-authored with Bill Pride, is one of the most widely

adopted principles of marketing texts in the world Furthermore, his Business

Ethics: Decision Making and Casesis the leading business ethics text

Dr Ferrell has served as an expert witness in many high-profile civil litigation

cases related to marketing ethics More recently he has assisted international

cor-porations and worked with state regulatory agencies in modifying marketing

pro-grams to maintain compliance with both ethical and legal requirements Currently,

he is working with the National Association of State Boards of Accountancy todevelop an ethical leadership certification for students He has appeared on the

NBC Today show and he has been quoted in national papers such as USA Today.

Dr Ferrell and his wife Linda (also a faculty member at Belmont University) live

in Nashville, Tennessee He continues to help coordinate the Daniels Fund Ethics tiative at the University of New Mexico He enjoys golf, skiing, reading, and travel

Ini-MICHAEL D HARTLINE, PH.D.

Florida State University

Michael D Hartline (Ph.D., University of Memphis) is Interim Dean and Charles A.Bruning Professor of Business Administration in the College of Business at FloridaState University Previously, he served as Associate Dean for Strategic Initiativesand Chair of the Department of Marketing Prior to joining the FSU faculty in 2001,

Dr Hartline served on faculty at the University of Arkansas at Little Rock, LouisianaState University, and Samford University His MBA and B.S degrees are fromJacksonville State University in Alabama

Dr Hartline primarily teaches graduate courses in Marketing Strategy andundergraduate courses in Services Marketing He has won many teaching andresearch awards and made many presentations to industry and academic audiences

Dr Hartline has also served as a consultant to several for-profit and nonprofit nizations in the areas of marketing plan development, market feasibility analysis,customer satisfaction measurement, customer service training, and pricing policy

orga-He currently serves on the Academic Advisory Council of the Direct Selling tion Foundation and on the board of the Knight Creative Communities Initiative inTallahassee, Florida He has previously served on the executive committee of theAcademy of Marketing Science, co-chaired two international conferences for theAmerican Marketing Association, and has served on the editorial review boards of anumber of leading marketing journals

Educa-Dr Hartline’s research addresses marketing implementation issues in servicefirms Specifically, his work examines the role of customer-contact employees andworkgroups in the effective delivery of quality service to customers Dr Hartline’s

research appears in the Journal of Marketing, the Journal of Service Research, the

Journal of Business Research , the Journal of Relationship Marketing, the Journal

of Services Marketing , the Cornell Quarterly, the Journal of Strategic Marketing, the Journal of Business Ethics, and the Marketing Science Institute Working

Paper Series

Dr Hartline and his wife Marsha live in Tallahassee with their three daughtersMeghan, Madison, and Mallory They have two dogs, Bella and Chief (both JapaneseChins), and two cats, Snickers and Sammie Dr Hartline is a self-professed electron-ics and gadget enthusiast who enjoys music, reading, computers, travel, collegefootball (Go Seminoles!), and being a dad

Marketing in Today ’s

Economy

INTRODUCTION

As noted in the opening Beyond the Pages 1.1 story, competing in today’s economy

means finding ways to break out of commodity status to meet customers’ needs

bet-ter than competing firms All organizations—both for-profit and nonprofit—require

effective planning and a sound marketing strategy to do this effectively Without

these efforts, organizations would not be able to satisfy customers or meet the

needs of other stakeholders For example, having an effective marketing strategy

allows Apple to develop popular products, such as the iPhone, iPad, iWatch, and its

MacBook line of computers Further, effective planning and strategy allows

Cola-Cola to continue its leadership in soft drinks, make key acquisitions, and continue

its expansion into the lucrative Chinese market These and other organizations use

sound marketing strategy to leverage their strengths and capitalize on opportunities

that exist in the market Every organization—from your favorite local restaurant to

giant multinational corporations; from city, state, and federal governments, to

chari-ties such as Habitat for Humanity and the American Red Cross—develops and

imple-ments marketing strategies

How organizations plan, develop, and implement marketing strategies is the

focus of this book To achieve this focus, we provide a systematic process for

devel-oping customer-oriented marketing strategies and marketing plans that match an

organization to its internal and external environments Our approach focuses on

real-world applications and practical methods of marketing planning, including the

process of developing a marketing plan The chapters of this book focus on the

steps of this process Our goal is to give the reader a deeper understanding of

mar-keting planning, the ability to organize the vast amount of information needed to

complete the planning process, and an actual feel for the development of marketing

plans

In this first chapter, we review some of the major challenges and opportunities

that exist in planning marketing strategy in today’s economy We also review the

nature and scope of major marketing activities and decisions that occur throughout

the planning process Finally, we look at some of the major challenges involved in

developing marketing strategy

CHAPTER

1

THE CHALLENGES AND OPPORTUNITIES OF MARKETING

Traditional ideas about marketing strategy began to change forever during the

mid-BEYOND THE PAGES 1.1

Thriving in Commodity Hell1

Have you noticed that regardless of the industry,

most goods and services offered by competing

companies are eerily the same? Most household

appliances, such as refrigerators, washing

machines, and stoves, offer the same basic

features and come in white, beige, black, or

stain-less steel Virtually all Android-based smartphones

offer the same features at similar prices Even

air-line flights from New York to Los Angeles are

essentially the same Everywhere you look, most

companies offer the same basic products to the

same customer groups at roughly the same prices

This situation is referred to as “commodity hell”

and it’s a tough situation for most companies

Commoditization is everywhere and is the result

of mature markets where goods and services lack

any real means of differentiation Unfortunately

for companies, when customers begin to see all

competing products as offering roughly the same

benefits, price is the only thing that matters

Commoditization is a consequence of mature

industries where slowing innovation, extensive

product assortment, excess supply, and frugal

consumers force margins to the floor Since

firms have few competitive differences, they are

unable to increase margins They must also spend

a great deal on promotion to attract new

custo-mers This situation makes firms more vulnerable

to the entry of new competitors Consider the

air-line industry Notwithstanding a few minor

differ-ences, most air travelers see all airlines as being

roughly the same They all get passengers from

Point A to Point B while offering the same basic

customer services This makes price the driving

force in consumer decision-making and allows

discount airlines such as Southwest and Jet Blue

to steal customers away from traditional

full-service carriers This same precarious situation

exists in a broad range of industries including

telephone service, hotels, packaged goods,

auto-mobiles, household appliances, and retailing

As you might expect, low price leaders can

do quite well in commoditized markets

South-west, for example, was profitable for over

33 years until the economic recession hit the

industry hard in 2008 To counteract the turn, Southwest expanded routes by acquiringrival companies such as AirTran The companyalso stands apart from others with its innovative

down-“No Bag Fees” policy Other firms, however,avoid commodity status through the most basic

of marketing tactics: brand building Here, firmsbreak free from commodity status by developing

a distinctive brand position that separates themand their products from the competition Firmsthat come to mind are Apple, Coca-Cola, andChick-fil-A By offering compelling reasons forconsumers to buy products, brand buildingallows firms to increase margins Apple, in partic-ular, enjoys the highest profit margins of any firm

in the technology sector

Starbucks is another case in point Starbucksclearly sells one of the most commoditized, ubiq-uitous products of all time: coffee StarbucksChairman Howard Schultz, however, does notaccept that his firm is in the coffee business.Instead, Schultz sees Starbucks as a“third place”

to hang out (with home and work being number 1and number 2, respectively) Through this mental-ity, Starbucks offers its customers much morethan coffee, including wireless Internet access,music, food, and relaxation Starbucks has contin-ued its brand-building activities by introducingbreakfast combos, Via instant coffee, and the con-tinued push of its Seattle’s Best brand into restau-rants, offices, hospitals, and vending machines.Getting out of commodity hell is not an easyfeat To do so, firms must give consumers a com-pelling reason to buy their products over compet-ing products Ultimately, winning the commoditygame is all about innovation Consider the firms

that top Fast Company’s list of the World’s MostInnovative Companies for 2014 (in order): Goo-gle, Bloomberg Philanthropies, Xiaomi, Dropbox,Netflix, Airbnb, Nike, and ZipDial Each of thesecompanies offers innovative products, processes,

or experiences that stand apart from the tition; yet each competes in mature industriesknown for commoditization These companiesprove that innovation and good marketing strat-egy are the antidotes for commodity hell

compe-changed the world and the ways that marketers reach potential customers The

col-lapse of the dot-com bubble in the late 1990s was followed by a historic colcol-lapse of

the worldwide economy in 2008 The powerhouse companies of the past have

weak-ened and lost relevance in an economy marked by constant change and consumer

skepticism Consider the following fundamental changes to marketing and business

practice, as well as our own personal buying behavior

Power Shift to Customers

Perhaps the single most important change during the last two decades is the shift in

power from marketers to consumers Rather than businesses having the ability to

manipulate customers via technology, customers often manipulate businesses

because of their access to information, the ability to comparison shop, and the

con-trol they have over spending Individual consumers and business customers can

compare prices and product specifications in a matter of minutes Using a

smart-phone and the Amazon app, customers can walk Target’s aisles, scan bar codes to

check prices on Amazon, and order items for 2-day delivery while in the store This

fact is the reason that Target, and other retailers like Best Buy, now price matches

Amazon and other online competitors In other cases, customers are able to set

their own prices, such as purchasing airline tickets at Priceline.com Customers can

now interact with one another, as merchants such as Amazon and eBay allow

custo-mers to share opinions on product quality and supplier reliability As power

con-tinues to shift to customers, marketers have little choice but to ensure that their

products are unique and of high quality, thereby giving customers a reason to

pur-chase their products and remain loyal to them

Massive Increase in Product Selection

The variety and assortment of goods and services offered for sale on the Internet and

in traditional stores is staggering In grocery stores alone, customers are faced withcountless options in most aisles, such as in cereal and soft drinks The growth inonline retailing now allows customers to purchase a car from CarsDirect, handmadegifts from over 1.2 million shops on Etsy, or a case of their favorite wine fromWine.com Increased transaction efficiency (e.g., 24/7 access, delivery to home oroffice even on weekends) allows customers to fulfill their needs more easily and con-veniently than ever before Furthermore, the vast amounts of information availableonline has changed the way we communicate, read the news, and entertain our-selves Customers can now have the news delivered to them automatically via smart-phone apps, such as Flipboard, that pull from hundreds of sources This radicalincrease in product selection and availability has exposed marketers to inroads bycompetitors from every corner of the globe

Audience and Media Fragmentation

Changes in media usage and the availability of new media outlets have forced keters to rethink the way they communicate with potential customers Since theadvent of cable television in the 1970s, mass media audiences have become increas-ingly fragmented Television audiences, for example, shifted from the big three net-works (ABC, CBS, NBC) and began watching programming on ESPN, HGTV,Nickelodeon, and the Discovery Channel When the growth of the Internet, satelliteradio, and mobile communication is added to this mix, it becomes increasingly diffi-cult for marketers to reach a true mass audience Media audiences have becomefragmented due to (1) the sheer number of media choices we have available today,and (2) the limited time we have to devote to any one medium Today, customersincreasingly get information and news from Facebook and Twitter rather than the

mar-New York Times or CBS They spend a growing amount of time interacting withhandheld devices than they do reading magazines, listening to the radio, or watchingtelevision As shown in Exhibit 1.1, consumer usage of traditional media is declining,while the usage of mobile media is on the rise However, despite the challenge ofreaching mass audiences today, media fragmentation does have a big advantage: It

is easier to reach small, highly targeted audiences who are more receptive to specificmarketing messages

Changing Value Propositions

Even before “The Great Recession” began in 2008, consumers and businessbuyers were already facing increasing costs associated with energy, food, buildingEXHIBIT 1.1 Change in Daily Media Usage by U.S Adults, 2010 –2014.

materials, and other essentials Then, as the economy weakened, buyers were forced

to tighten their belts and look for other ways to lower expenses This trend actually

began after the dot-com collapse as consumers saw for the first time that they could

bypass some types of firms and do things for themselves For example, travel agents

and real estate agents have been hit hard by e-commerce Many customers now turn

to Travelocity and Expedia, rather than travel agents, for assistance in booking

air-line tickets, cruises, or hotel stays A similar change has taken place in the real estate

industry as buyers are moving their house hunting online, while sellers are

increas-ingly taking the“for sale by owner” route Consequently, many marketers learned a

tough lesson: In situations where customers see goods and services as commodities,

they will turn to the most convenient, least-expensive alternative

Today, many of these same consumers face pay cuts or losing their jobs in

addi-tion to increased expenses These and other economic hardships have forced

con-sumer and business buyers to rethink value propositions and focus on the

importance of frugality The effects on business have been dramatic For example,

Radio Shack filed for Chapter 11 bankruptcy in early 2015 in the face of a highly

commoditized market and stiff competition from other electronics retailers,

particu-larly Amazon.2A similar shakeout is happening in the book retailing segment

Bor-ders, for instance, closed its doors after fierce competition from Barnes & Noble,

Amazon, Walmart, and Target lured its shoppers away Likewise, e-book readers,

like Amazon’s Kindle, have had a profound impact on traditional book publishing

Because books have become highly commoditized, consumers typically search for

the lowest prices rather than the fringe benefits offered by traditional bookstores

E-book readers add to that by being more ecologically advantageous This is the

essence of being frugal, as customers look for ways to cut spending on unnecessary

parts of their lives

Shifting Demand Patterns

In some cases, changes in technology have shifted customer demand for certain

product categories News is one well-known example, where traditional newspapers

are slowly disappearing while online and mobile news continues to grow Now, many

newspaper companies have folded, some are on the brink of folding, while others

have cut publication to only a few days per week Another example is the explosive

growth in the digital distribution of music and video The success of Apple’s iTunes,

YouTube, Spotify, and Netflix, along with the continuing integration of television and

computers, has dramatically shifted demand for the music and movie industries

Hol-lywood film studios are grappling with soft demand in theaters and the declining

popularity of DVDs as customers increasingly look for online movie options, or for

other forms of entertainment such as video games This trend ultimately led to the

demise of industry pioneer Blockbuster video in 2011

Privacy, Security, and Ethical Concerns

Changes in technology have made our society much more open than in the past As a

result, these changes have forced marketers to address real concerns about security

and privacy, both online and offline The fallout from the massive data breach at

Tar-get in 2013 is still being felt today The estimated loss to TarTar-get from thieves hacking

into its systems is roughly $148 million, not to mention the losses incurred by Target’s

customers.3Further, businesses have always collected routine information about their

customers Now, customers are much more attuned to these efforts and the purposes

for which the information will be used Though customers appreciate the convenience

of e-commerce and mobile access to information, they want assurances that their

information is safe and confidential Concerns over privacy and security are especially

acute with respect to online businesses such as Facebook, Google, mobile banking,

and mobile devices that can potentially track every move we make, literally Thesesame concerns are also keen with respect to children For example, many well-known and respected companies, including Mrs Fields Cookies, Sony BMG, and Her-shey Foods, have been fined for violating the standards of the Children’s Online Pri-vacy Protection Act (COPPA) For example, Playdom, Inc., an online gamingcompany owned by Disney, paid a $3 million fine to the Federal Trade Commissionfor collecting, using, and disclosing personal information from children under theage of 13 without their parents’ permission This was the largest civil penalty ever lev-ied for a violation of COPPA, which is overviewed in Exhibit 1.2.4

Unclear Legal Jurisdiction

When a company does business in more than one country (as many Internet-basedfirms do), that company often faces a dilemma with respect to differing legal sys-tems Today, this difference is especially keen for firms that do business in both theUnited States and China Google, for example, faces a difficult situation in dealingwith the Chinese government’s censorship demands Though Google is a U.S firm,

it must comply with the Chinese request by operating a completely separate searchservice that censors information considered sensitive by the Chinese government.5Doing business in China is also an issue with respect to protection of intellectualproperty rights, where Chinese laws do not offer the same protections found in theUnited States For example, the U.S International Trade Commission estimates thatChinese piracy costs the U.S economy in excess of $48 billion each year Most of this

is in the information sector, with high-tech and manufacturing also showing sizablelosses due to infringements of intellectual property rights by Chinese firms.6

Another important legal issue involves the collection of sales tax for onlinetransactions In the early days of e-commerce, most online merchants did not collectsales taxes for online transactions—giving them a big advantage against store-basedmerchants In fact, a 1992 U.S Supreme Court decision exempted out-of-state retai-lers from collecting sales taxes in states where they had no physical presence.States countered that they were losing millions in yearly tax revenue, but werepoorly organized to mount a collection effort In 2003, major retailers—including

EXHIBIT 1.2 The Children ’s Online Privacy Protection Act (COPPA).

The Children’s Online Privacy Protection Act applies to operators of commercial websites andonline services that attempt to collect personal information from children under the age of

13 The law explains what must be included in the firm’s privacy policy, when and how toseek verifiable consent from a parent or guardian, and the firm’s responsibilities to protectchildren’s privacy and safety Firms cannot evade the law’s provisions by claiming that chil-dren under 13 cannot visit their sites, nor can they make information optional or ask thevisitor’s age

In implementing the provisions of COPPA, the FTC issued the Children’s Online PrivacyProtection Rule, which is designed to give parents control over the information that is col-lected from their children The rule requires website operators to:

1 Determine if their company is a website or online service that collects personal tion from kids under 13

informa-2 Post a privacy policy that complies with COPPA

3 Notify parents directly before collecting personal information from their kids

4 Get parents’ verifiable consent before collecting information from their kids

5 Honor parents’ ongoing rights with respect to information collected from their kids

6 Implement reasonable procedures to protect the security of kids’ personal information.SOURCE: United States Federal Trade Commission, Bureau of Consumer Protection, http://www.ftc.gov/tips-advice/ business-center/guidance/childrens-online-privacy-protection-rule-six-step-compliance, accessed February 18, 2015.

Walmart, Target, and Toys“R” Us—in an agreement with a consortium of 38 states

and the District of Columbia, agreed to collect online sales taxes However, many

online merchants still did not charge sales taxes Today, states—much more

orga-nized than before—estimate that they lose a collective $23 billion per year in lost

tax revenue Amazon, for example, still collects sales tax from only 74 percent of

U.S consumers.7

Although the full effect of these challenges will not be recognized for some time,

circumstances have forced businesses to move ahead by adjusting their marketing

activities at both the strategic and tactical levels As we review the major marketing

concepts and activities in this chapter, we will look at how today’s challenges have

affected strategic planning in these areas

BASIC MARKETING CONCEPTS

Marketing is many different things Many people, especially those not employed in

marketing, see marketing as a function of business From this perspective, marketing

parallels other business functions such as production/operations, research,

manage-ment, human resources, and accounting As a business function, the goal of

market-ing is to connect the organization to its customers Other individuals, particularly

those working in marketing jobs, tend to see marketing as a process of managing

the flow of products from the point of conception to the point of consumption The

field’s major trade organization, the American Marketing Association, has changed

the definition of marketing over time to reflect changes in the economic and

busi-ness environments From 1985 until 2005, the AMA defined marketing this way:

Marketing is the process of planning and executing the conception,

pric-ing, promotion, and distribution of ideas, goods, and services to create

exchanges that satisfy individual and organizational objectives.8

Note how this definition focuses on the four Ps, or the marketing mix (product,

price, place, and promotion) In 2005, the AMA changed the definition to better

reflect the realities of competing in the marketplace:

Marketing is an organizational function and a set of processes for

creat-ing, communicatcreat-ing, and delivering value to customers and for

manag-ing customer relationships in ways that benefit the organization and its

stakeholders.9

This definition shifts the focus away from the marketing mix and toward value

creation for customers In 2007, the AMA changed the definition of marketing again:

Marketing is the activity, set of institutions, and processes for creating,

communicating, delivering, and exchanging offerings that have value

for customers, clients, partners, and society at large.10

Notice that the changes in the definition are not merely cosmetic in nature The

older definitions focused on the process of marketing to deliver value and manage

customer relationships The most recent definition shifts from“value” to “offerings

that have value.” Also, the notion of stakeholders is made more explicit Why would

the AMA make these changes? One reason has to do with commoditization as

dis-cussed in Beyond the Pages 1.1 Breaking free from commodity status means finding

ways to differentiate the offering The new definition recognizes that differentiation

can come from any part of the offering, whereas older conceptualizations of

market-ing placed the burden of differentiation on the product itself The second reason has

to do with marketing’s broader role in today’s corporation Firms don’t just sell

pro-ducts; they sell the firm as a whole Corporate relationships with partners, media,

government, investors, employees, and society are every bit as important as

relation-ships with customers These types of relationrelation-ships—which grow and thrive on

exceptional value—are an absolute necessity in the commodity-driven status ofmany product markets While the older definitions of marketing had a decidedlytransactional focus, the new definition emphasizes long-term relationships that pro-vide value for both the firm and its stakeholders.

A final way to think about marketing relates to meeting human and social needs.This broad view links marketing with our standard of living, not only in terms ofenhanced consumption and prosperity, but also in terms of society’s well-being.Through marketing activities, consumers can buy cars from South Korea and winesfrom South Africa; and organizations can earn a viable profit, making both employ-ees and shareholders happy However, marketing must also bear responsibility forany negative effects it may generate This view demands that marketers considerthe social and ethical implications of their actions, and whether they practice goodcitizenship by giving back to their communities As exemplified in the New BelgiumBrewing case associated with this text, firms can successfully meet human andsocial needs through socially responsible marketing and business practices

Let’s take a closer look at several basic marketing concepts As we will see,ongoing changes in today’s economy have forever altered our way of thinking aboutthese foundational aspects of marketing

What Is a Market?

At its most basic level, amarketis a collection of buyers and sellers We tend to think

of a market as a group of individuals or institutions that have similar needs that can

be met by a particular product For example, the housing market is a collection ofbuyers and sellers of residential real estate, while the automobile market includesbuyers and sellers of automotive transportation Marketers or sellers tend to usethe word“market” to describe only the buyers This basic understanding of a markethas not changed in a very long time What has changed, however, is not so much the

“what” but the “where” of a market; that is, the location of the buyers and sellers Inboth consumer markets (like housing and automobiles) and business markets (likereplacement parts and raw materials), the answer to the“where” question is quicklybecoming“anywhere” as markets become less defined by geography

Until recently, marketers have considered a market to be a physical locationwhere buyers and sellers meet to conduct transactions Although those venues(e.g., grocery stores, malls, flea markets) still exist, technology mediates some ofthe fastest growing markets Early in the beginning of the dot-com era, the termmarketspacewas coined to describe these electronic marketplaces unbound by time

or space.11Today, we refer to these electronic marketplaces as online markets ore-commerce In e-commerce, physical goods, services, and information areexchanged through the Internet Some of the largest marketspaces, such as Amazon,eBay, and Monster, are now household names In fact, Amazon has become thee-commerce equivalent of a shopping mall as the company now sells shoes, apparel,jewelry, beauty aids, and sporting goods in addition to its traditional offerings ofbooks and electronics E-commerce also exists in the business-to-business realm.The shift from physical to electronic marketplaces has significant ramifications formarketers The fact that customers can shop, place orders, and exchange informa-tion 24/7 means that these businesses must be capable of operating in that sametime frame In effect, online markets never take a break at closing time—they neverclose It also means that firms lose some control over the information that is dissem-inated about their company or products Through blogs, discussion forums, or evenTwitter, customers can exchange information about an online merchant outside themerchant’s own website Furthermore, the substitution of technology for humaninteraction can be both a blessing and a curse Some sites, like CarsDirect, are suc-cessful because they eliminate the hassle of dealing with another human in thebuying process Many customers, however, have been slow to embrace electronic

markets because they lack the human element In these cases, the design and

imple-mentation of the online experience is a serious challenge for online firms Finally,

the wealth of information available through e-commerce not only makes customers

more educated than ever before, but also gives customers increased power through

comparison shopping and price negotiation

Another interesting shift related to markets is the advent of metamarkets and

metamediaries A metamarketis a cluster of closely related goods and services that

center around a specific consumption activity Ametamediaryprovides a single access

point where buyers can locate and contact many different sellers in the

metamar-ket.12Assume for example that you are engaged to be married How many different

buying decisions will you and your fiancé have to make in the coming months? How

many newspaper ads, websites, and magazines will you explore? Although the

busi-nesses and decisions are diverse, they all converge on the single theme of wedding

planning This is the driving principle behind a metamarket Exhibit 1.3 shows

exam-ples of common metamarkets and metamediaries Although customers don’t use

these terms, they fully understand the concept of finding information and solutions

in one place For example, Parenting.com has become the Internet’s preeminent

metamediary for information and advice related to parenting, pregnancy, and

chil-dren Similarly, Edmunds.com is a popular site devoted to all things related to buying

and owning a vehicle Metamediaries like these fulfill a vital need by offering quick

access and one-stop shopping to a wide variety of information, goods, and services

What Is Exchange?

Closely related to the concept of a market, our ideas about exchange have changed

in recent years.Exchange is traditionally defined as the process of obtaining

some-thing of value from someone by offering somesome-thing in return; this usually entails

obtaining products for money For exchange to occur, five conditions must be met:

always been the case, the exchange process today can potentially include an

unlimited number of participants Online auctions provide a good example

Customers who bid on an item at eBay may be one of many participants to the

EXHIBIT 1.3 Common Metamarkets and Participants.

Metamarkets

Metamediaries www.edmunds.com

www.carsdirect.comwww.kbb.com

www.realtor.comwww.zillow.comwww.bhg.com

www.parenting.comwww.babycenter.comnewparent.comMetamarket Participants Buyers

ManufacturersCar dealershipsBanks

Credit unionsCredit reporting servicesInsurance firmsRating servicesMagazinesTelevision programsAftermarket parts/accessoriesRepair services

Car rental firmsAuction houses

HomeownersBuildersReal estate agentsMortgage companiesInsurance companiesHome inspectors and appraisersPest control services

MagazinesTelevision programsRetailers

ParentsDoctorsRetailersBaby supply manufacturersInsurance firms

Financial plannersEducational providersToy manufacturersTelevision programsMovies

exchange process Each participant changes the process for the others, as well

as the ultimate outcome for the winning bidder Some auctions include multiplequantities of an item, so the potential exists for multiple transactions within asingle auction process

possible, but not very likely, without this basic requirement The Internet hasexposed us to a vast array of goods and services that we did not know existedpreviously Today, not only can we buy a television or stereo receiver from alocal merchant; we also have access to hundreds of online merchants Further-more, the ability to comparison shop products and their prices allows customers

to seek out the best value

advan-tages of today’s communication and distribution infrastructure are amazing Wecan find and communicate with potential exchange partners anywhere and any-time via telephone, computers, interactive television, and smartphones We canalso conduct arm’s-length transactions in real time, with delivery of exchangeditems occurring in a matter of hours if necessary For example, you can text mes-sage an order to Pizza Hut on your way home from work

world, this condition of exchange becomes a bit more complicated Customershave grown accustomed to the ease with which they can return items to localmerchants Easy return policies are among the major strengths of traditional off-line merchants Returning items is more difficult with online transactions Insome cases, the ability to reject an exchange is not allowed in online transac-tions Ordering airline tickets on Priceline.com and winning a bid on an item ateBay are contractually binding acts for the customer Apple has a no refundspolicy in its App Store In other words, once the actual purchasing process hasstarted, the customer is not free to reject the exchange

Cus-tomers typically have a great deal of information about, or even a history with,offline merchants In online exchange, customers often know nothing about theother party To help resolve this issue, a number of third-party firms havestepped in to provide ratings and opinions about online merchants Servicessuch as BizRate and Epinions not only provide these ratings, but also provideproduct ratings and serve as shopping portals eBay and Amazon go one step fur-ther by allowing buyers and sellers to rate each other This gives both parties tothe exchange process some assurance that reputable individuals or organiza-tions exist on the other side of the transaction

The bottom line is that exchange has become all too easy in today’s economy.Opportunities for exchange bombard us virtually everywhere we go Customers don’teven have to trouble themselves with giving credit cards or completing forms for ship-ping information Most online merchants will remember this information for us if we letthem For example, Amazon’s 1-Click®

ordering feature allows customers to purchaseproducts with a single mouse click.13The ease with which exchange can occur todaypresents a problem in that individuals who do not have the authority to exchange canstill complete transactions This is especially true for underage customers

What Is a Product?

It should come as no surprise that the primary focus of marketing is the customer andhow the organization can design and deliver products that meet customers’ needs.Organizations create essentially all marketing activities as a means toward this end;this includes product design, pricing, promotion, and distribution In short, an organi-zation would have no reason to exist without customers and a product to offer them

But what exactly is a product? A very simple definition is that aproductis

some-thing that can be acquired via exchange to satisfy a need or a want This definition

permits us to classify a broad number of“things” as products:

sports memorabilia to used clothing The marketing of tangible goods is arguably

one of the most widely recognizable business activities in the world

• Services Services are intangible products consisting of acts or deeds directed

toward people or their possessions Banks, hospitals, lawyers, package delivery

companies, airlines, hotels, repair technicians, nannies, housekeepers,

consul-tants, and taxi drivers all offer services Services, rather than tangible goods,

dominate modern economies like the U.S economy

Examples include cause-related or charitable organizations such as the Red

Cross, the American Cancer Society, Mothers Against Drunk Drivers, or the

American Legacy Foundation’s campaign against smoking.14

publishers, schools and universities, research firms, churches, and charitable

organizations Examples include Khan Academy, Wikipedia, and the popular

TED Talks In the digital age, the production and distribution of information

has become a vital part of our economy

among the most profitable in our economy Advancements in technology have

also wreaked havoc in these industries because pirates can easily copy and

redistribute digital products in violation of copyright law Digital products are

interesting because content producers grant customers a license to use them,

rather than outright ownership.15

• People The individual promotion of people, such as athletes or celebrities, is a

huge business around the world The exchange and trading of professional

ath-letes takes place in a complex system of drafts, contracts, and free agency Other

professions, such as politicians, actors, professional speakers, and news

repor-ters, also engage in people marketing

• Places When we think of the marketing of a place, we usually think of vacation

destinations like Rome or Orlando However, the marketing of places is quite

diverse Cities, states, and nations all market themselves to tourists, businesses,

and potential residents The state of Alabama, for example, has done quite well

in attracting direct investment by foreign firms Over the last 20 years, Alabama

has landed assembly plants from Mercedes, Honda, and Hyundai, as well as

many different parts plants and related firms It’s no wonder that some people

think of Alabama as the new Detroit.16

goods, services, ideas, information, or people to create one-of-a-kind

experi-ences or single events Examples include theme parks such as Disney World

and Universal Studios, sporting events like the Daytona 500 or the Super Bowl,

or stage and musical performances like The Phantom of the Opera or a concert

by Rihanna

once marketed completely offline via real estate agents and investment

compa-nies, now occurs increasingly online For example, Realtor.com is the nation’s

largest real estate listing service, with almost 4 million searchable listings

Like-wise, Schwab.com is the world’s largest and top-rated online brokerage

with the public—not only to increase sales or inquiries, but also to generate

cus-tomer goodwill In this sense, General Electric is no different than the United

Way: Both seek to enhance their images in order to attract more people mers, volunteers, and clients) and money (sales, profit, and donations).

(custo-We should note that the products in this list are not mutually exclusive Forexample, firms that sell tangible goods almost always sell services to supplementtheir offerings, and vice versa Charitable organizations simultaneously market them-selves, their ideas, and the information that they provide Finally, special events likethe Daytona 500 combine people (drivers), a place (Daytona), an event (the race),organizations (sponsors), and goods (souvenirs) to create a memorable and uniqueexperience for race fans

To effectively meet the needs of their customers and fulfill organizational tives, marketers must be astute in creating products and combining them in waysthat make them unique from other offerings A customer’s decision to purchase oneproduct or group of products over another is primarily a function of how well thatchoice will fulfill their needs and satisfy their wants Economists use the termutility

objec-to describe the ability of a product objec-to satisfy a cusobjec-tomer’s desires Customers usuallyseek out exchanges with marketers who offer products that are high in one or more

of these five types of utility:

• Form Utility Products high in form utility have attributes or features that setthem apart from the competition Often these differences result from the use ofhigh-quality raw materials, ingredients, or components, or from the use of highlyefficient production processes For example, Ruth’s Chris Steakhouse, consid-ered by many to be one of the nation’s top chain restaurants, provides higherform utility than other national chains because of the quality of beef they use.Papa John’s Pizza even stresses form utility in its slogan “Better Ingredients Bet-ter Pizza.” In many product categories, higher priced product lines offer moreform utility because they have more features or bells-and-whistles Luxury carsare a good example

them Typically, this means that products are available now rather than later.Grocery stores, restaurants, and other retailers that are open around the clockprovide exceptional time utility Often the most successful restaurants aroundcollege campuses are those that are open 24/7 Many customers are also willing

to pay more for products available in a shorter time frame (such as overnightdelivery via FedEx) or for products available at the most convenient times(such as midmorning airline flights)

• Place Utility Products high in place utility are available where customers wantthem, which is typically wherever the customer happens to be at that moment(such as grocery delivery to a home) or where the product needs to be at thatmoment (such as florist delivery to a work place) Home delivery of any product,convenience stores, vending machines, and e-commerce are examples of goodplace utility Products that are high in both time and place utility are exception-ally valuable to customers because they provide the utmost in convenience

title from marketer to customer Products higher in possession utility are moresatisfying because marketers make them easier to acquire Marketers often com-bine supplemental services with tangible goods to increase possession utility.For example, furniture stores that offer easy credit terms and home deliveryenhance the possession utility of their goods In fact, any merchant that acceptscredit cards enhances possession utility for customers that do not carry cash orchecks Expensive products, like a home or a new factory, require acceptablefinancing arrangements to complete the exchange process

experiential or psychological attributes that customers find satisfying Sporting

events often fall into this category, especially when the competition is based on

an intense rivalry The atmosphere, energy, and excitement associated with

being at the game can all create psychological benefits for customers

Con-versely, a product might offer exceptional psychological utility because it lacks

negative experiential or psychological attributes For example, a vacation to the

beach or the mountains might offer more psychological utility to some

custo-mers because it is seen as less stressful than a vacation to Disney World

The strategic and tactical planning of marketing activities involves the important

basic concepts we have explored in this section Marketers often struggle with

find-ing and reachfind-ing the appropriate markets for their products In other cases, the

mar-ket is easily accessible, but the product is wrong or does not offer customers a

compelling reason to purchase it The ability to match markets and products in a

way that satisfies both customer and organizational objectives is truly an art and

a science As described in Beyond the Pages 1.2, doing so in an environment

of never-ending change creates both opportunities and challenges for even the

stron-gest and most respected organizations

The process of planning marketing activities to achieve these ends is the focus of

this book As we turn our attention to an overview of major marketing activities and

decisions, we also want to lay out the structure of the text The chapters roughly

coincide with the major activities involved in developing marketing strategy and

writing a marketing plan Although our approach is orderly and straightforward, it

provides a holistic representation of the marketing planning process from one period

to the next As we will see, marketing planning is an evolving process that has no

definite beginning or ending point

MAJOR MARKETING ACTIVITIES AND DECISIONS

Organizations must deal with a number of activities and decisions in marketing their

products to customers These activities vary in both complexity and scope Whether

the issue is a local restaurant’s change in copy for a newspaper ad or a large

BEYOND THE PAGES 1.2

Innovative Marketing Strategies for a

Rebounding Economy17

Innovation has long been considered the

life-blood of business, especially in terms of growth

and new market opportunities Unfortunately,

our economy’s most recent struggles have

made it difficult for companies to maintain

innovation when they must also cut costs and

maintain market standing The same is true for

consumers as they have reigned in spending

due to the economy Still, some companies

managed to maintain their creativity and

inno-vation even in a hesitant economy They do so

by looking for the new opportunities that come

along with changing customer spending

pat-terns Here are three cases in point:

Walmart

When customers have fewer dollars to spend,

they try to make those dollars go further In

the grocery business, this translates into

stron-ger sales for store brands (private labels) Many

of Walmart’s store brands are well known:

Great Value, Sam’s Choice, Faded Glory,

Home-Trends, Ol’ Roy, and Equate To further take

advantage of changing shopping patterns,

Wal-mart decided to reinvigorate Great Value—its

top-selling private label brand To do this,

Wal-mart improved the quality of roughly 750 food

and grocery products, updated the Great Value

logo, and freshened the packaging In one bold

move, Walmart pulled Hefty brand storage bags

from its shelves in favor of their lower-priced

Great Value brand The company later returned

Hefty to the shelves, but only after Hefty agreed

to make the Great Value brand for Walmart

Other chains, such as CVS, Walgreens, Kroger,

and Target, have copied Walmart’s strategy

Today, many of these store brands are among

Consumer Reports highest rated brands in

terms of quality and value

Procter & Gamble

One result of a weakened economy is that

cus-tomers forgo buying new cars and instead begin

taking better care of the cars they currently

own P&G decided to capitalize on this trend

by launching a national chain of franchised

car washes under its Mr Clean brand Since

the car wash industry did not have a dominant

national brand, P&G hoped that its Mr Clean

units would capture a good share of the

$35 billion industry To begin, P&G acquiredCarnett’s—a small car wash chain Next, P&Gtook advantage of lower real estate prices tofind suitable locations, and rising unemploy-ment to find talented employees The result, a12-unit chain of Mr Clean Car Wash franchisees(most are in the Atlanta area), has been a suc-cess Buoyed by this success, P&G now plans tolaunch 150 Tide-branded dry cleaners over thenext four years One major benefit of the Tideconcept is the lower franchise fee It costs

$950,000 to open a Tide Dry Cleaner, but up to

$5 million to open a Mr Clean Car Wash

Hulu

When customers have less money to spend onentertainment, they tend to entertain them-selves more at home Hulu.com is perfectlypoised to take advantage of this trend A jointventure between Disney-ABC, NBCUniversal,and Fox Entertainment, Hulu is an advertising-supported, online video streaming service thatoffers prime-time television programming viathe Internet and mobile apps Hulu’s growthcomes from a growing trend of watching full-length programming via the Internet instead

of network or cable television The trend isespecially prevalent among the prized 18- to44-year-old demographic—a statistic that hasadvertisers buzzing Hulu users spend anaverage of 256 minutes per month watchingvideos—each one embedded with advertisingfrom mainstream companies like Best Buy,Bank of America, and Nissan Customers canalso subscribe to Hulu Plus for roughly $8 permonth In only 7 years, Hulu has become one ofthe top Internet video websites and generatesover $1 billion in revenue each year Hulu’snext push is with original programming, includ-ing programs such as Battleground and Misfits.The company spends over $500 million eachyear on programming

What do these three stories teach us? First,companies can still be innovative in a weak-ened economy The key is to conduct research

to closely follow changing customer ences and spending Second, it’s not enough to

prefer-do the research Good innovation must be rately timed to the market Third, to be creative,companies will often have to step outside theircomfort zones P&G is a great example Whowould have thought that a packaged goodscompany could become a service provider?

accu-multinational firm launching a new product in a foreign market, all marketing

activi-ties have one thing in common: They aim to give customers a reason to buy the

orga-nization’s product In this section, we briefly introduce the activities and decisions

that will be the focus of the remaining chapters of this book

Strategic Planning

If an organization is to have any chance of reaching its goals and objectives, it must

have a game plan or road map for getting there Astrategy, in effect, outlines the

orga-nization’s game plan for success Effective marketing requires sound strategic

plan-ning at a number of levels in an organization At the top levels of the organization,

planners concern themselves with macro issues such as the corporate mission,

man-agement of the mix of strategic business units, resource acquisition and assignments,

and corporate policy decisions Planners at the middle levels, typically a division or

strategic business unit, concern themselves with similar issues, but focus on those

that pertain to their particular product/market Strategic planning at the lower levels

of an organization is much more tactical in nature Here, planners concern

them-selves with the development of marketing plans—more specific game plans for

con-necting products and markets in ways that satisfy both organizational and customer

objectives

Although this book is essentially about strategic planning, it focuses on tactical

planning and the development of the marketing plan.Tactical planning addresses

spe-cific markets or market segments and the development of marketing programs that

will fulfill the needs of customers in those markets Themarketing planprovides the

out-line for how the organization will combine product, pricing, distribution, and

promo-tion decisions to create an offering that customers will find attractive The marketing

plan also addresses the implementation, control, and refinement of these decisions

To stand a reasonable chance for success, marketing plans should be developed

with a keen appreciation of how they fit into the strategic plans of the middle and

upper levels of the firm In Chapter 2, we discuss the connection among corporate,

business-unit, and marketing planning, as well as how marketing plans must be

inte-grated with the plans of other functions in the organization (financial plans,

produc-tion plans, etc.) We also discuss the structure of the marketing plan and some of the

challenges involved in creating one

Research and Analysis

Strategic planning depends heavily on the availability and interpretation of

informa-tion Without this lifeblood, strategic planning would be a mindless exercise and a

waste of time Thankfully, today’s planners are blessed with an abundance of

informa-tion due to improving technology and the Internet However, the challenge of finding

and analyzing the right information remains As many marketing planners have found,

having the right information is just as important as having the right product

Marketers are accustomed to conducting and analyzing research, particularly

with respect to the needs, opinions, and attitudes of their customers Although

cus-tomer analysis is vital to the success of the marketing plan, the organization must

also have access to three other types of information and analysis: internal analysis,

competitive analysis, and environmental analysis.Internal analysisinvolves the

objec-tive review of internal information pertaining to the firm’s current strategy and

per-formance, as well as the current and future availability of resources Analysis of the

competitive environment, increasingly known ascompetitive intelligence, involves

ana-lyzing the capabilities, vulnerabilities, and intentions of competing businesses

Anal-ysis of the external environment, also known as environmental scanning, involves the

analysis of economic, political, legal, technological, and cultural events and trends

that may affect the future of the organization and its marketing efforts Some

marketing planners use the termsituation analysisto refer to the overall process of lecting and interpreting internal, competitive, and environmental information.The development of a sound marketing plan requires the analysis of information

col-on all frcol-onts In Chapter 3, we address the collecticol-on and analysis of internal, tomer, competitive, and environmental information We also discuss the challengesinvolved in finding the right information from an overwhelming supply of availableinformation The uncertainty and continual change in the external environment alsocreate challenges for marketers (as the Internet boom and bust have shown us) As

cus-we will see, this type of research and analysis is perhaps the most difficult aspect ofdeveloping a marketing plan

Developing Competitive Advantage

To be successful, a firm must possess one or more competitive advantages that itcan leverage in the market in order to meet its objectives Acompetitive advantageissomething that the firm does better than its competitors that gives it an edge in serv-ing customers’ needs and/or maintaining mutually satisfying relationships withimportant stakeholders Competitive advantages are critical because they set thetone, or strategic focus, of the entire marketing program When these advantagesare tied to market opportunities, the firm can offer customers a compelling reason

to buy their products Without a competitive advantage, the firm and its productsare likely to be just one more offering among a sea of commoditized products.Apple, for example, has been quite successful in leveraging innovation and the cus-tomer experience to maintain a sizable competitive advantage in computers, smart-phones, and music and movie distribution A typical Mac computer costssubstantially more than a comparable PC running Windows However, Apple bun-dles multimedia software and a top-rated user experience into the mix As a result,Apple computers continue to command a price premium, where most PC manufac-turers engage in price wars

In Chapter 4, we discuss the process of developing competitive advantages andestablishing a strategic focus for the marketing program We also address the role ofSWOT analysis as a means of tying the firm’s strengths or internal capabilities to mar-ket opportunities Further, we discuss the importance of developing goals and objec-tives Having good goals and objectives is vital because these become the basis formeasuring the success of the entire marketing program For example, Hampton Innhas a goal of 100 percent customer satisfaction Customers do not have to pay fortheir stay if they are not completely satisfied.18Goals like these are not only useful

in setting milestones for evaluating marketing performance; they also motivatemanagers and employees This can be especially true when marketing goals or objec-tives help to drive employee evaluation and compensation programs

Marketing Strategy Decisions

An organization’s marketing strategy describes how the firm will fulfill the needs andwants of its customers It can also include activities associated with maintaining rela-tionships with other stakeholders, such as employees, shareholders, or supply chainpartners Stated another way, marketing strategy is a plan for how the organizationwill use its strengths and capabilities to match the needs and requirements of themarket A marketing strategy can be composed of one or more marketing programs;each program consists of two elements—a target market or markets and a marketingmix (sometimes known as the four Ps of product, price, place, and promotion) Todevelop a marketing strategy, an organization must select the right combination oftarget market(s) and marketing mix(es) in order to create distinct competitiveadvantages over its rivals

Market Segmentation and Target Marketing

The identification and selection of one or more target markets is the result of the

market segmentation process Marketers engage in market segmentation when they

divide the total market into smaller, relatively homogeneous groups or segments

that share similar needs, wants, or characteristics When a marketer selects one or

moretarget markets, they identify one or more segments of individuals, businesses, or

institutions toward which the firm’s marketing efforts will be directed As described

in Beyond the Pages 1.3, marketers increasingly use online social networking as a

way to target specific markets

Advances in technology have created some interesting changes in the ways

that organizations segment and target markets Marketers can now analyze

customer-buying patterns in real time via point-of-purchase data collected from

sales transactions and credit card usage, as well as by analyzing clickstream data in

BEYOND THE PAGES 1.3

Targeting Consumers via Online Social

Networking19

Social networking has proven to be very

popu-lar with both users and advertisers Sites like

Facebook, Instagram, Google Plus, LinkedIn,

Pinterest, and Twitter allow users to share

information, find old friends, or network with

like-minded individuals Most users are teens

and young adults who use the sites to trade

messages, photos, music, and blogs The largest

of these sites currently is Facebook, which

boasts over 1.2 billion active users worldwide

Instagram has over 300 million active users,

while Twitter has over 232 million active

users Other sites are also growing rapidly

While social networks are very popular,

they have attracted a fair amount of criticism

Many argue that these sites make it easier for

predators to reach teens and children through

the use of their online profiles Business

experts have been skeptical of the long-term

success of social networking as a business

model They argue that younger audiences are

fickle and will leave these sites for the next hot

thing on the Internet For example, analysts

estimate that Twitter has over 651 million

aban-doned accounts—almost four times the number

of active Twitter users

Despite these criticisms, online social

networking appears to have legs for the

long-term—forcing media companies and

adverti-sers to take notice The reason is simple: The

demographic profile of the social networking

audience is extremely lucrative Facebook’s

fastest growing age segment is the 25 and over

crowd LinkedIn has a different profile of over

347 million registered members with an older,more professional demographic However,LinkedIn’s profile has been shifting as more stu-dents and recent college graduates join the net-work Powerful segmentation like this hasforced an increasing number of advertisers toconsider social networking as a viable mediastrategy

In addition to the demographic fortune,social networking also allows firms to carefullytarget promotions to the right audience andcollect a striking amount of informationabout users For example, Nike used FacebookPlaces to target consumers in Portland, Oregonwith free athletic jackets for individuals whochecked in to a specified location in the city

Vitamin Water used a Facebook campaign ing users to help them choose the next flavor ofthe popular drink Domino’s also used Face-book to distribute promotional codes to fans

ask-of its page American Airlines and IBM havehad similar success using Twitter to reachpotential customers

Social networking sites have become sosuccessful that they are now the entry point tothe Internet for most users In essence, socialnetworking sites have become one-stop shopsfor communication, information, and com-merce Consumers can buy products withouthaving to leave these sites, and marketers arepaying attention For example, when Facebookadded the ability to rent movies and buy musicdirectly from its site, competitors such asAmazon, Netflix, and Apple were forced to takenotice

online transactions This allows organizations to target specific segments with uct offers or promotional messages Furthermore, technology now gives marketersthe ability to target individual customers through direct mail and e-mail campaigns.This saves considerable time and expense by not wasting efforts on potentialcustomers who may not be interested in the organization’s product offering How-ever, these new opportunities for marketers come at a price: Many potential buyersresent the ability of marketers to reach them individually Consequently, customersand governmental authorities have raised major concerns over privacy andconfidentiality.

prod-Chapter 5 discusses the issues and strategies associated with market tion and target marketing In that discussion, we will examine different approaches

segmenta-to market segmentation and look at target marketing in both consumer and businessmarkets Effective segmentation and target marketing sets the stage for the develop-ment of the product offering and the design of a marketing program that can effec-tively deliver the offering to targeted customers

Marketing Program Decisions

As we will address in Chapter 6, successful marketing programs depend on a fully crafted blend of the four major marketing mix elements (i.e., product, price, dis-tribution, and promotion) Earlier in the chapter, we discussed the many differenttypes of products that can be offered to customers Since the product and its attri-butes fulfill the basic needs and wants of the customer, it is no surprise that the prod-uct and the decisions that surround it are among the most important parts of themarketing program This importance hinges on the connection between the productand the customers’ needs Even large corporations fail to make this connection attimes McDonald’s, for example, spent over $100 million in 1996 to launch the ArchDeluxe—a hamburger designed for adult tastes Considered the fourth worst productfailure in history, the Arch Deluxe failed miserably because it was designed for oldercustomers (who are not McDonald’s core market), was expensive, and had a veryhigh calorie content McDonald’s customers avoided the Arch Deluxe and the sand-wich was eventually discontinued.20 As this example illustrates, marketing isunlikely to be effective unless there is a solid linkage between a product’s benefitsand customers’ needs

care-Pricing decisions are important for several reasons First, price is the only ment of the marketing mix that leads to revenue and profit All other elements ofthe marketing mix, such as product development and promotion, representexpenses Second, price typically has a direct connection with customer demand.This connection makes pricing the most overmanipulated element of the marketingmix Marketers routinely adjust the price of their products in an effort to stimulate orcurb demand Third, pricing is the easiest element of the marketing program tochange There are very few other aspects of marketing that can be altered in realtime This is a huge plus for marketers who need to adjust prices to reflect local mar-ket conditions, or for online merchants who want to charge different prices for dif-ferent customers based on total sales or customer loyalty Finally, pricing is a majorquality cue for customers In the absence of other information, customers tend toequate higher prices with higher quality

ele-Distribution and supply chain issues are among the least apparent decisionsmade in marketing, particularly with customers The goal of distribution and supply chain managementis essentially to get the product to the right place, at the right time,

in the right quantities, at the lowest possible cost.Supply chaindecisions involve a longline of activities—from the sourcing of raw materials, through the production of fin-ished products, to ultimate delivery to final customers Most of these activities,which customers take for granted, take place behind the scenes Few customers,for example, contemplate how their favorite cereal ends up on their grocer’s shelf

or how Dell can have a made-to-order computer at your door in days Customers just

expect these things to happen In fact, most customers never consider these issues

until something goes wrong Suddenly, when the grocer is out of an item or an

assembly line runs low on component parts, distribution and supply chain factors

become quite noticeable

Modern marketing has replaced the term promotion with the concept of

integrated marketing communication(IMC), or the coordination of all promotional

activi-ties (media advertising, social media, direct mail, personal selling, sales promotion,

public relations, packaging, store displays, website design, personnel) to produce a

unified, customer-focused message Here, the term “customers” not only refers to

customers in the traditional sense, but also includes employees, business partners,

shareholders, the government, the media, and society in general IMC rose to

promi-nence in the 1990s as businesses realized that traditional audiences for promotional

efforts had become more diverse and fragmented IMC can also reduce promotional

expenses by eliminating the duplication of effort among separate departments

(mar-keting, sales, advertising, public affairs, and information technology) and by

increas-ing efficiencies and economies of scale

Branding and Positioning

When you think about a company like Southwest Airlines, what comes to mind? Most

people will likely say low fares and no bag fees Others may think of limited routes

and destinations As we will see in Chapter 7, what customers think about a company

and its offerings is the focus of branding and positioning strategy In order to

under-stand branding, the marketer must have a clear underunder-standing of how the elements

of the marketing program work together to create the brand While product

deci-sions (such as design, style, and features) play a prominent role in branding, so do

other program elements such as price/value, availability/exclusivity, and

image/repu-tation of both the firm and its offerings Marketers must also make decisions

regard-ing package design, trademarks, and warranties or guarantees Product positioning

involves establishing a mental image, or position, of the product offering relative to

competing offerings in the minds of target buyers The goal of positioning is to

distin-guish or differentiate the firm’s product offering from those of competitors by

mak-ing the offermak-ing stand out among the crowd As Southwest has shown us, even

something as simple as “no bag fees” can be very successful in setting the firm

apart from the competition Another example is the battle between Walmart and

Target The mental image that most customers have of Walmart is associated with

everyday low prices Target has a slightly different position, one that emphasizes

value with a stronger sense of style and quality

Social Responsibility and Ethics

The role of social responsibility and ethics in marketing strategy has come to the

forefront of important business issues in today’s economy Our society still

reverbe-rates from the effects of corporate scandals at Enron, WorldCom, and ImClone,

among others Although these scandals make for interesting reading, many innocent

individuals have suffered the consequences from these companies’ unethical

behav-ior.Social responsibilityrefers to an organization’s obligation to maximize its positive

impact on society, while minimizing its negative impact In terms of marketing

strat-egy, social responsibility addresses the total effect of an organization’s marketing

activities on society A major part of this responsibility ismarketing ethics, or the

prin-ciples and standards that define acceptable conduct in marketing activities Ethical

marketing can build trust and commitment and is a crucial ingredient in building

long-term relationships with all stakeholders Another major component of any

firm’s impact on society is the degree to which it engages in philanthropic activities

Many firms now make philanthropy a key strategic activity

In Chapter 8, we discuss the economic, legal, ethical, and philanthropic sions of social responsibility, along with the strategic management of corporateintegrity in the marketing planning process Although there are occasional lapses,most firms understand their economic and legal responsibilities However, socialand ethical responsibilities, by their nature, are not so clearly understood Manyfirms see social responsibility not only as a way to be a good corporate citizen, butalso as a good way to build their brands For example, the Red brand—created byBono in 2006—has been marketed successfully by firms such as Starbucks, Bank ofAmerica, Apple, Beats, SAP, and Coca-Cola These and other companies market Redbrand versions of their products with the aim to donate up to 50 percent of their prof-its to the Global Fund to fight AIDS in Africa.21

dimen-Implementation and Control

Once a marketing strategy has been selected and the elements of the marketing mixare in place, the marketer must put the plan into action.Marketing implementation, theprocess of executing the marketing strategy, is the “how” of marketing planning.Rather than being an add-on at the end of the marketing strategy and marketingplan, implementation is actually a part of planning itself That is, when planning amarketing strategy, the organization must always consider how the strategy will beexecuted Sometimes, the organization must revisit the strategy or plan to make revi-sions during the strategy’s execution This is where marketing control comes intoplay Adequate control of marketing activities is essential to ensure that the strategystays on course and focused on achieving its goals and objectives

The implementation phase of marketing strategy calls into play the fifth“P” ofthe marketing program: people As we will learn in Chapter 9, many of the problemsthat occur in implementing marketing activities are “people problems” associatedwith the managers and employees on the frontline of the organization who haveresponsibility for executing the marketing strategy Many organizations understandthe vital link between people and implementation by treating their employees asindispensable assets AFLAC, for example, has been named 16 consecutive years by

Fortunemagazine to its list of the“100 Best Companies to Work for in America.” TheGeorgia-based company has developed a corporate culture that focuses on caring foremployees and providing for their needs.22 Other companies cited as having goodrelationships with their employees include Google, SAS, Edward Jones, WegmansFood Markets, and The Container Store

Developing and Maintaining Customer Relationships

Over the last two decades, marketers have come to the realization that they can learnmore about their customers, and earn higher profits, if they develop long-term rela-tionships with them This requires that markers shift away from transactional mar-

keting and embrace a relationship marketing approach The goal of transactional

marketingis to complete a large number of discrete exchanges with individual tomers The focus is on acquiring customers and making the sale, not necessarily onattending to customers’ needs and wants In relationship marketing, the goal is to

cus-develop and maintain long-term, mutually satisfying arrangements where bothbuyer and seller focus on the value obtained from the relationship As long as thisvalue stays the same or increases, the relationship is likely to deepen and grow stron-ger over time Exhibit 1.4 illustrates the basic characteristics of transactional versusrelationship marketing Relationship marketing promotes customer trust and confi-dence in the marketer, who can then develop a deeper understanding of customers’needs and wants This puts the marketer in a position to respond more effectively tocustomer’s needs, thereby increasing the value of the relationship for both parties