an overview of contemporary marketing

1Part One Marketing in a Dynamic Environment

Chapter One

An Overview ofContemporaryMarketing

After studying this chapter you should be able to:

1 Discuss what marketing is and why it is important to

organizations and individuals.

2 Distinguish between marketing as an organizational

philosophy and a societal process.

3 Understand the components of a marketing strategy

and the different activities involved in marketing

products and services.

4 Be aware of the various types of marketing

institutions and the different marketing positions

available in these institutions.

5 Appreciate how marketing has evolved from earlier

times to the present.

6 Understand the basic elements and relationships in

the contemporary marketing framework.

www.amazon.com

The Amazon.com Web site represents an interestingentrepreneurial story. Jeff Bezos was employed in acomputer systems job in 1994 when he came acrossthe statistic that worldwide Web usage was growingat 2,300 percent a year. Because of this high growthrate, he began investigating potential businessopportunities for the Internet. His approach was toevaluate different business ideas against the Internet’sstrong points to determine the business best suited forthe Internet. The result of this analysis was the bookbusiness.

So, in July 1995, Amazon.com was introduced asa book retailer. The company’s mission was to usethe Internet to transform book buying into thefastest, easiest, and most enjoyable shoppingexperience available. Since Amazon.com did nothave an inventory of books in a retail location, itcould offer customers an enormous selection ofbooks over its Web site. Customers could also shopand place orders 24 hours a day and seven days aweek. The shopping experience was easy and fun,and various services were added to create value. Forexample, customers could post reviews of booksread on the Amazon.com Web site, and thosethinking about purchasing a specific book couldread these reviews. This was the beginning, andgrowth has been phenomenal.

Amazon.com now offers many different productsand services, including music CDs, videos, electronicproducts and software, toys and games, and home-improvement products. It also offers an auctionservice, a Special Occasions Reminder service, an

e-mail subscription service where customersautomatically receive information about newproducts in categories of interest, a scheduler/address book, and a comparison shopping tool;further, it provides customers instant personalizedproduct recommendations the moment they log on.International sites are being developed with localcontent, such as Amazon.co.uk for the UnitedKingdom and Amazon.de for Germany. Thecompany stands behind all of its services with theAmazon.com Safe Shopping Guarantee and theAmazon.com Auctions Guarantee.

Amazon.com has also developed partnershipswith and made investments in other companies. For example, the Amazon.com Associate programmakes it possible for other Internet sites to earnmoney by selling Amazon’s products on their sites. It has also invested in leading Internet retailers likedrugstore.com, Gear.com, Home-Grocer.com, andPets.com.

One of the major reasons for the success ofAmazon.com is its rapidly growing number ofsatisfied and loyal customers. The customer basegrew from around 3.3 million in June 1998 to about10.7 million in June 1999 and is over 13 milliontoday. Although the company has yet to earn a profit,its stock price has skyrocketed, making Jeff Bezos amultibillionaire. Amazon.com is expected to be veryprofitable in the long term, but is incurring lossesnow due to heavy investments in distribution systems,other Web businesses, and customer development.Sources: www.amazon.com and www.hoovers.com, December 16, 1999.

Chapter One An Overview of Contemporary Marketing 3

The Amazon.com story illustrates a basic principle of successful marketing: Identifymarket opportunities, and respond by developing and executing marketing strategiesto take advantage of the opportunities better than competitors do. Jeff Bezos realizedthat the Internet had the potential to offer customers new and exciting shopping ex-periences. He started in book retailing, because Amazon.com could provide a betterbook selection, customized services, and lower prices than could typical book retail-ers. Finally, and most important, Amazon.com focuses on the customer; the com-pany’s key advantage is its large and growing base of loyal customers.

In a dynamic and turbulent business environment, marketers must continuallyrevise their strategies to meet growth objectives. Amazon.com has done this byadding new product categories and new services. The firm now faces Internet com-petitors as well as traditional retail rivals. So it must continually look for ways toimprove its existing operations and expand its offerings to increase the value pro-vided to customers. Its rapidly growing customer base suggests that it is doing agood job in this area.

Amazon.com is actively involved in marketing. The most accepted definition ofmarketing is that adopted by the American Marketing Association:Marketing is the process of planning and executing the conception, pricing, promotion, anddistribution of ideas, goods, and services to create exchanges that satisfy individual and or-ganizational goals.1

This definition views marketing as a process involving marketing exchanges, strate-gies, activities, positions, and institutions. Before discussing each of these areas indetail, we examine the importance of marketing and different views of marketing.

The Importance of Marketing Marketing is usually associated withbusiness organizations. Most people are probably familiar with the marketing ac-tivities of consumer product firms such as Procter & Gamble, Sony, Nike, Mc-Donald’s, General Motors, and Kmart. They also may be aware of marketingefforts by firms—such as Xerox, Monsanto, Caterpillar, Boeing, and DuPont—thatmarket to other organizations.

Marketing also plays an important role in a wide variety of situations. Considerthe following examples of nonprofit, place, idea, and person marketing:

• Edgewood Symphony Orchestra—This community symphony orchestra per-forms four regular concerts in Edgewood, Pennsylvania, and special perfor-mances at local and regional events. The board of directors wanted to increaseconcert attendance. They surveyed residents and used the collected informationto develop a detailed marketing plan. The marketing plan included complimen-tary tickets to residents who had never attended a concert, a publicity campaignto enhance the orchestra’s good image, and cooperative marketing allianceswith local corporations. By the second concert of the season, attendance hadquadrupled.2

• Portland, Indiana—First National Bank of Portland dominates the market inthis town of 6,000. Bank growth depends on the growth of the community. Thebank and its advertising agency studied the town’s strengths and weaknesses,talked with residents, and devised a 38-point plan to stimulate the town’sgrowth. The plan focused on building relationships with youth so they wouldremain in the community when they got older and bring new business and res-idents into the community. After the plan was implemented, new businesseswere started and existing businesses expanded. The bank expects the town’spopulation to double in size within 10 years.3

• Certified public accountants (CPAs)—The American Institute of Certified Pub-lic Accountants is marketing the idea that CPAs are the premier providers ofbusiness and financial services. The marketing theme is: “The CPA. Never Un-derestimate the Value.” Advertisements communicating this theme were run in

Marketing is increasinglyimportant to many nonprofitorganizations. The BoyScouts uses advertising toincrease membership

4 An Overview of Contemporary Marketing Chapter One

major national daily newspapers and business publications and during prime-time news and business programs on network and cable TV. A CPA logo wasalso developed for promotional items such as mugs and pens.4

• Presidential campaigns—The 2000 U.S. presidential campaign is being drivenby integrated marketing communications programs. Mass advertising is still im-portant, but all of the candidates are integrating other marketing communica-tion’s tools to support advertising efforts. These programs typically include amixture of advertising, telemarketing, direct mail, town meetings, “grassroots”visits to voters’ homes, debates, appearances on news shows, and then there isthe Internet. All of the candidates have Web sites that allow them to communi-cate and interact with voters. George W. Bush has done an especially good jobof raising money from his web site. This is the first presidential election wherethe Internet is playing a major role in campaign marketing efforts.5

These examples illustrate marketing’s importance to a nonprofit organization, acommunity, a professional association, and political candidates. Today, more or-ganizations and individuals realize that effective marketing is a critical determinantof success.

Views of Marketing Most of the emphasis in this book is on marketing as theprocess defined at the beginning of the chapter. Nevertheless, marketing can also beviewed as an organizational philosophy and as a societal process.

Marketing as an Organizational PhilosophyAn organization typically has some type of philosophy that directs the efforts ofeveryone in it. The philosophy might be stated formally, as in a mission statement,or it might become established informally through the communications and actionsof top management. An organizational philosophy indicates the types of activitiesthe organization values. Three different philosophies deserve mention.

A production philosophy exists when an organization emphasizes the produc-tion function. An organization following such a philosophy values activities relatedto improving production efficiency or producing sophisticated products and ser-vices. Production drives the organization. Marketing plays a secondary role becausethe organization thinks the best-produced products can be easily marketed. High-technology companies often follow a production philosophy.

A selling philosophy predominates where the selling function is most valued. Theassumption is that any product can be sold if enough selling effort is given to it.Marketing’s job is to sell whatever the organization decides to produce. Althoughselling is one component of marketing, organizations driven by a selling philosophyemphasize selling efforts to the exclusion of other marketing activities.

A marketing philosophy suggests that the organization focuses on satisfying theneeds of customers. This focus applies to people in the marketing function as wellas to those in production, personnel, accounting, finance, and other functions. Pro-duction and selling are still important, but the organization is driven by satisfyingcustomer needs. Applied Materials reinforces the importance of a marketing phi-losophy every payday. “Your payroll dollars are provided by Applied Materials cus-tomers” appears on the front of every employee’s paycheck.6

MARKETING CONCEPT Marketing as an organizational philosophy has beenbased on the marketing concept. This concept consists of three interrelated principles:

1. An organization’s basic purpose is to satisfy customer needs.2. Satisfying customer needs requires integrated and coordinated efforts through-

out the organization.3. Organizations should focus on long-term success.


The marketing concept has been embraced by many firms since the 1950s.7 How-ever, the competitive business climate of the 2000s suggests that merely satisfyingcustomers is not enough.

Satisfied customers often leave and purchase from competitors. For example, Xe-rox polls 480,000 customers per year regarding their level of satisfaction using afive-point scale from 5 (high) to 1 (low). Analysis of these data indicated that cus-tomers giving 5s were six times more likely to repurchase Xerox equipment thanthose giving 4s. Now, Xerox’s objective is to have 100 percent of its customers be-ing totally satisfied with Xerox products and services.8 Xerox and other successfulmarketers are extending the focus beyond just customer satisfaction to customerloyalty.

CUSTOMER LOYALTY CONCEPT The customer loyalty concept, illustratedin Exhibit 1–1, consists of three basic relationships:

1. Earning high levels of customer loyalty leads to increased sales growth andhigher profitability.

2. Completely satisfying and delighting customers is the best route for earningcustomer loyalty.

3. Providing exceptional value is needed to delight and completely satisfy cus-tomers.

The basic reasons for the close relationship between customer loyalty and salesand profits are presented in Exhibit 1–2. Loyal customers contribute to increasedsales growth because they tend to buy more over time and are an excellent sourceof new business referrals. Some companies calculate the lifetime value of a loyal cus-tomer as the revenue stream from repeat purchases and referrals. For example, thelifetime value of a loyal pizza eater can be $8,000, of a Cadillac owner, $332,000.9

Typically, loyal customers involve limited acquisition costs, low operating costs,and higher profit margins. The conventional wisdom is that it costs at least fivetimes as much to serve a new customer as an existing one. Sometimes the efforts toget new customers may not even be profitable. For example, MBNA was spending98 percent of its marketing dollars on getting new customers. It found that it costabout $50 to get a new credit card customer, these customers were not profitable

Exhibit 1–1 Customer loyalty concept relationships

Organizationalstrategy &execution

Achievingcompletely

satisfiedcustomers

Earninghigh

customerloyalty

Increasedsales growth

&profits

Providingexceptionalcustomer

value

Sources: Adapted from James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard Business Review, March–April 1994, pp. 164–74; and Frederick F. Reichheld, The Loyalty Effect: The Hidden Force behindGrowth, Profits, and Lasting Value (Boston: Harvard Business School Press, 1996).

Exhibit 1–2 Customer loyalty, sales, and profits

1. Keeping loyal customers requires no acquisition costs. Getting new customers often requires high acquisition costs.

2. The longer a firm keeps a customer, the more base profit earned from continuing purchases over time.

3. Loyal customers tend to buy more from a firm over time.

4. It usually costs less to deal with loyal customers than with new customers.

5. Loyal customers are typically an excellent source of referrals for new business.

6. Loyal customers are often willing to pay a price premium to receive desired value.

Source: Frederick F. Reichheld, The Loyalty Effect: The Hidden Force behind Growth, Profits, and Lasting Value (Boston: Harvard Business SchoolPress, 1996), pp. 39–50.


until the second year, and many left before the secondyear. The company changed its strategy and focused onkeeping existing customers. It increased the customerretention rate to 50 percent and became one of themost profitable banks in the country.10

The link between customer satisfaction and customerloyalty is especially interesting. One study of this link inthe automobile, business personal computer, hospital,airlines, and local telephone service markets concludedthat completely satisfied customers are much more loyalthan merely satisfied customers. Another study in thebanking industry found that completely satisfied cus-tomers were 42 percent more likely to be loyal thanmerely satisfied customers.11 These results are consistentwith the Xerox example presented earlier. There is in-creasing evidence of the close relationship between com-plete customer satisfaction and customer loyalty.

How can organizations completely satisfy their customers? The simple answer isby continuously providing customers with exceptional value. Customer value is de-fined as what a customer gets (benefits from product use, related services) for whata customer gives (price paid, costs to acquire and use the product). Value is deter-mined by the customer. For example, Southwest Airlines is the only major airline tobe profitable for the past 20 years. One of the reasons for this success is that South-west’s customers value frequent departures, on-time service, friendly employees,and low fares. Southwest consistently provides customers exceptional value thattranslates into complete satisfaction, loyal customers, and increased sales and prof-its. Southwest does not assign seats, offer meals, or provide tickets as most otherairlines do. Its customers do not value these services, so they are not offered.12

Organizations are faced with a difficult challenge in continually providing excep-tional customer value, completely satisfying needs, and earning customer loyalty.Those successful in these endeavors are likely to achieve higher levels of sales growthand profitability than those that do not. Organizations increasingly have to be mar-ket-driven and customer-focused to compete effectively in the future. Some guide-lines for executing a marketing philosophy that incorporates the marketing andcustomer loyalty concepts are presented in Exhibit 1–3. These guidelines are relevantfor those in marketing and nonmarketing functions within an organization.

Exhibit 1–3 Executing a marketing philosophy

1. Create customer focus throughout the business.

2. Listen to the customer.

3. Define and nurture your distinctive competence.

4. Define marketing as market intelligence.

5. Target customers precisely.

6. Manage for profitability, not sales volume.

7. Make customer value the guiding star.

8. Let the customer define quality.

9. Measure and manage customer expectations.

10. Build customer relationships and loyalty.

11. Define the business as a service business.

12. Commit to continuous improvement and innovation.

13. Manage culture along with strategy and structure.

14. Grow with partners and alliances.

15. Destroy marketing bureaucracy.

One way to promote customer loyalty is to reward customersfor their loyalty. Friday’s awards points to customers based onthe amount spent. These points can be redeemed for free foodat subsequent visits.

Source: Frederick E. Webster, Jr., “Executing the New Marketing Concept,” Marketing Management 3, no. 1, p. 10.


Marketing as a Societal ProcessMarketing as a societal process can be defined as a process that facilitates the flowof goods and services from producers to consumers in a society. At this level, theemphasis is on issues such as:

• What institutions are involved in the societal marketing system?• What activities do these institutions perform?• How effective is the marketing system in satisfying consumer needs?• How efficient is the marketing system in providing consumers with desired

goods and services?

A society’s marketing system is closely related to its political and economic sys-tems. These close relationships are vividly illustrated by the tremendous changes thatcontinue in Eastern Europe. Countries that operated under a communist politicalsystem with centrally planned economies did have some sort of marketing system,because products and services were provided to consumers. The marketing systems,however, were woefully ineffective and inefficient, largely because most “marketing”decisions were made centrally by government bureaucrats. With little considerationof customer needs, these officials decided what to produce, in what quantities, howproducts were to be made available to consumers, and at what prices.

Ineffective marketing systems contributed to the overthrow of the communistregimes in Eastern Europe, and these countries continue to struggle with developingdemocratic political systems and market-based economies. A market-based econ-omy requires an effective and efficient marketing system that can identify and sat-isfy consumer needs for products and services. Although transforming political,economic, and marketing systems is painful and difficult in the short run, thechanges promise to improve the standards of living in these countries in the long run.

However, the transformation process is often slow and the benefits from a mar-ket economy are not distributed equally. Consider the following family situationsin China, which is trying to move to a market economy but keep its existing polit-ical system:

• Liu Fengtong used to be a welder at a coal plant a few miles away from Beijing.But he was laid off and now gives dance lessons to customers paying a 25¢ ad-mission fee. Liu earns about $90 a month, about half of what he earned as awelder. This is the only work he can find to support his family.

Speaking from Experience

Power Creative provides integrated marketingcommunications services for the domesticand international operations of large blue-chipcorporations. David received a BS inmarketing from the University of Louisville in1993 and joined Power Creative as an

David PowerPresidentPower Creative Inc.

ThinkingCritically

• Compare thepolitical, economic,and marketingsystems of adeveloped countrywith those of adeveloping country.

• Compare thepolitical, economic,and marketingsystems of thefollowing countries:China, Poland, andthe United States.

• On the basis ofthese comparisons,what can youconclude about theinterrelationshipsamong a country’spolitical, economic,and marketingsystems?

account executive, handling the RCA brandfor Thomson Electronics. He has since beenpromoted to senior account executive, VicePresident, and was recently named Presidentof the company.

“Power Creative was regarded as just a supplier of advertising and marketingmaterials for many years. But in today’s business world, with tight budgets andpressure to deliver higher margins, our customers view us as true businesspartners. Our objective is to improve the client’s bottom line. Consistently deliv-ering on this commitment has two major benefits. First, completely satisfiedcustomers remain loyal. For example, we have worked with General Electric Appli-ances for many years. Second, loyal customers help us get new business. A recentexample illustrates this. An individual we worked with at General Electric Appli-ances took a job as vice president and general manager of sales, marketing, anddistribution for Lennox. He contacted us to develop programs to promote Lennoxfurnaces and air conditioners to housing contractors. We would never have beenconsidered for this business without our previous successful relationship.”


• Frank Liu lives 700 miles away, in Shanghai. He heads a government agencythat recruits foreign investors for the Waigaoqiao Free Trade Zone. He worksin a wood-paneled office and wears expensive suits. His son attends an exclu-sive private school, and his family just bought a new apartment. Liu regularlymeets with executives from Intel, Hewlett-Packard, and Dell and travels to theUnited States and other countries to develop business for the trade zone.13

These situations illustrate very different results from the move to a market economyand new marketing system. Over time, more people are likely to benefit from thesechanges, but market economies and marketing systems are not perfect. For example,a recent study of the contributions of the aggregate marketing system to U.S. societyfound both benefits and criticisms. Benefits included economic well-being, quality oflife, and social/psychological benefits to individual workers and consumers. Criti-cisms included negative effects on societal values, unethical marketing practices, andecological problems. This analysis did, however, conclude that the contributions fromthe U.S. aggregate marketing system outweighed the negative impacts.14

Important relationships exist between marketing at the organizational and soci-etal levels. People moving from a planned to a market-based economic system mustlearn and implement basic marketing practices. The success of a society’s market-ing system depends on the ability of individuals in organizations to identify and re-spond to consumer needs effectively and efficiently. These individuals face thefollowing problems, as expressed in a study of managers in several Eastern Euro-pean countries:15

• Becoming more market-oriented and consumer-responsive.• Improving product quality.• Changing product design, assortment, finishing, and packaging.• Increasing communications efforts such as personal selling and point-of-

purchase sales.• Increasing merchandising efforts.• Using competitive pricing.• Instituting promotional pricing and price discounts.

The move to free-market economies and more open marketing systems offers tremendousopportunities for many firms. Dell is expanding its business in the China market.

Exhibit 1–4 Marketing exchanges


Marketing as a Process Marketing as an organizational philosophy and a societal process are related to the way marketing is performed by organizations andindividuals. We are now ready to discuss the major aspects of marketing as aprocess.

Marketing ExchangesExchange is generally viewed as the core element of marketing.16 Exchange hasbeen defined as the “transfer of something tangible or intangible, actual or sym-bolic, between two or more social actors.”17 Thus, the basic purpose of marketingis to get individuals or organizations to transfer something of value (tangible or in-tangible, actual or symbolic) to each other. The most familiar type of exchange oc-curs when a customer exchanges money with a retail store for a product. Every timea customer pays a Papa John’s pizza delivery person and receives a pizza, a mar-keting exchange takes place.

Marketing exchanges are not confined to transactions of money for products, asshown in Exhibit 1–4. Businesses engage in barter where they exchange their goodsand services for the goods and services of another firm. Nonprofit organizations,colleges and universities, politicians, and many other “social actors” are also in-volved in exchanges. Volunteers and contributors to nonprofit organizations, forexample, exchange their time and money for the satisfaction derived from helpinga good cause. Or consider the tuition that students pay a university or college in ex-

Poland and Malaysia are two developing countries with improving marketing systems. Colgate-Palmolive is taking advantage ofopportunities in these countries by marketing a variety of consumer products.

{~x2}Products & services

Money

Education

Tuition fees

Representation

Votes

Goods & services

Goods & services

Satisfaction

Money & time


change for the education they receive. Even politics in-volves exchanges, with people trading their votes forthe promise of representation from a political candi-date.

The major objective of marketing exchanges is tosatisfy the needs of the individuals and organizationsinvolved. For an exchange to take place, each partymust be willing to give up something to get something.What each party gets must be as satisfying as what itgives up. If someone decides to buy a delivered pizzafrom Papa John’s, the pizza must be as important as themoney exchanged to get it. Similarly, Papa John’s mustthink the money it receives from the customer is as im-portant as the delivered pizza it exchanges.

Creating exchanges that satisfy customer needs re-quires that marketing strategies be developed and mar-keting activities performed. The process involves

people in various marketing positions who determine what is to be done (they plan)and then do it (they execute). Some people in marketing positions are employed bythe firm that produces the product and some by other organizations that specializein specific marketing activities.

Marketing StrategiesMarketing strategies consist of selecting a target market and developing a marketingmix to satisfy that market’s needs. A target market is a defined group of consumersor organizations with whom a firm wants to create marketing exchanges. A market-ing mix is the overall marketing offer to appeal to the target market. It consists of de-cisions in four basic areas: product (development of a product, service, or idea to

The basic purpose of marketing is to facilitate exchanges. eBayfacilitates exchanges through auctions on the Internet.

Exhibit 1–5 Marketing mix decisions

Marketingmix

Product decisions

Quality

Design

Branding

Packaging

Customer service

New products

Setting prices

Price changes

Discounting

Product life cycle

strategies

Product line strategies

Product mix strategies

•

•

•

•

•

•

•

•

•

Distribution decisions

Type of channel

Channelmanagement

•

•

Distribution

intensity

Logistics

•

•

Transportation

methods

Service levels

•

•

Integrated marketing communications decisions

Messages

Media

Effectiveness

Objectives

Communicationsmix

Budget

•

•

•

•

•

•

Price decisions

•

•

•

•

•

•

Objectives

Strategies

Methods


Exhibit 1–6 Marketing strategies

Maybeline Mary Kay Clinique

Target market Low end Middle High end

Product Cosmetics Cosmetics Cosmetics

Price Low Moderate High

Distribution Mass merchandisers Direct to consumers Upscale department stores

Marketing communications Advertising through Personal selling to Targeted advertising and personalmass media consumers in home selling to consumers in stores

Exhibit 1–7 Marketing activities

End usersProducers

Buying

Selling

Transporting

Storing

Financing

Risk taking

Standardizing &grading

Obtaining marketinginformation

exchange), pricing (what to charge for the exchange), integrated marketing commu-nications (how to communicate with the target market about the possible exchange),and distribution (how to get the product, service, or idea to the target market to con-summate the exchange). As is evident from Exhibit 1–5, many marketing decisionsmust be made within the product, pricing, communications, and distribution areas.

The cosmetics industry is a good place to look for examples of different market-ing strategies. Note in Exhibit 1–6 that Maybelline, Mary Kay, and Clinique allmarket a variety of cosmetic products to defined target markets. Brands differ, asdo the prices charged, the methods of distribution, and the types of marketing com-munications. Each company effectively blends product, price, distribution, and in-tegrated marketing communications decisions into a different marketing mixdesigned to serve its target market.

Marketing ActivitiesRegardless of an organization’s specific marketing strategy, a number of differentmarketing activities must be performed to move products from producers to endusers. Exhibit 1–7 illustrates these important activities schematically.

Buying and selling activities are required to finalize an exchange. The product as-sortments desired by buyers must be transported to appropriate locations andstored in inventory. The inventories must be financed and the risk associated withholding the inventory assortment assumed. Quality and quantity of product as-sortments must be standardized and graded. Finally, marketing information aboutbuyers and competitors is needed to make marketing decisions.

Say you want to buy a DVD player. A number of producers of DVD players—Toshiba, Sharp, Panasonic, Sony—would like to sell you their brand. But it wouldbe inefficient if you had to visit each producer to examine its product and then pur-chase directly from the factory. To facilitate the exchange process, the producersmarket their DVD players through various types of retailers, such as Circuit City.


So now you can go to Circuit City, try out different DVD-player brands, and eas-ily purchase the one best suited to your needs. Circuit City has performed many ofthe marketing activities shown in Exhibit 1–7 that are required to complete an ex-change between you and the producer of DVD players. Circuit City buys an as-sortment of DVD-player brands, transports them to its retail outlets, and storesthem there in inventory. It assumes the expense and risk of holding this inventory.It standardizes and grades the product quality and quantity. Because it wants tomove the DVD players from inventory to end users, it advertises and promotes thebrands it carries and the price at which it is willing to exchange each brand. Buyerscome to the stores, talk with salespeople, and purchase desired brands.

This would be the typical approach for getting DVD players from producers toconsumers. However, with the tremendous growth of the Internet, other options areavailable. You might go to the Web site of one of the DVD producers and obtaininformation about DVD players, locate dealers for its brand, and possibly make apurchase. Or, you could go to a shopping site, such as Amazon.com, and comparevarious DVD brands and purchase the one that best meets your needs.

One way or another, certain marketing activities must be performed for exchangesto occur between producers and end users. In some cases, marketing institutions, suchas retailers like Circuit City, perform many of the marketing activities for producers.In others, most activities are performed by individuals within the producing firm.Sometimes consumers perform some of the required marketing activities.

Marketing PositionsThere are a variety of marketing positions within most organizations. Examples areshown in Exhibit 1–8. Some of these positions, such as advertising manager, distri-bution manager, or sales manager, indicate specialization in one area of marketing.Others suggest working across marketing areas (marketing manager, product man-ager, marketing research manager). The reality is that most marketing positions re-quire close working relationships among different marketing and business

ThinkingCritically

All of the keymarketing activitiesmust be performed formarketing exchangesto take place. Many ofthese marketing activi-ties are increasinglybeing performed overthe Internet. Assumeyou were interested inbuying a new car.

• How would each ofthe key marketingactivities beperformed if youpurchased the carfrom a local cardealer and did notuse the Internet inany way?

• How could you andcar producers andmarketers use theInternet to performthese marketingactivities?

Marketing research firms specialize in performing marketing research activities to help firms makebetter decisions. ACNielsen is a global marketing research firm.


functions. For example, advertising, sales, product, marketing, production, and ac-counting managers typically work together to develop and execute marketing plansfor specific products.

Marketing positions are most prevalent in business firms, although similar posi-tions exist in nonprofit organizations, hospitals, government agencies, museums,accounting firms, and other organizations. For organizations that follow a market-ing philosophy, many employees are involved in marketing activities even thoughthey may not hold formal marketing positions.David Power, President, Power Creative, talks about being involved in marketingthroughout his career: “Successful organizations are becoming increasinglycustomer-focused and are investing in ways to develop one-to-one relationships.These companies rely on everyone in the enterprise, from CEO to productdevelopment engineer to receptionist, to contribute to customer relationships.This means that everyone in the organization is involved in some marketingactivities. And, different positions perform different marketing activities. Forexample, as an account manager most of my job was to maintain and expand ourrelationship with one large account. Now, as President, I am involved in morestrategic issues that span all of our customers. I still, however, call on prospectsto get new business and on existing customers to keep their business.”

Marketing InstitutionsSome organizations specialize in specific marketing activities and become experts inperforming them. Thus, a firm may work with several of these organizations to han-dle the required marketing activities.

We have already discussed the important role that retailers, such as Circuit City,play in making a variety of different products and brands available to consumers.Sometimes wholesalers also undertake specific marketing activities for producersand retailers. Wholesalers engage in exchanges with producers and subsequentlyexchange these products from their inventory to meet the needs of retailers. Theymight also perform specialized services for producers and retailers. Some of theleading wholesalers are McKesson Corporation (health care products), Fleming Co.

Exhibit 1.8 Marketing positions

Position/Alternative titles Duties

Marketing manager Directs all company’s marketing activities, including planning,Vice president of marketing, director of marketing organizing, staffing, directing, controlling, evaluating

performance

Product manager Develops goals, objectives, plans, strategies, marketing mixesBrand manager for product line or brand

Advertising manager Devises advertising policy and strategy, selects advertisingAdvertising director, director of communications agencies, develops promotional campaigns, selects media,

allocates advertising expenditures

Distribution manager Manages distribution system, including storage and transportationLogistics manager, traffic manager, transportation manager for all products, services

Purchasing manager Manages all purchasing activities, including buying productDirector of purchasing, director of procurement ingredients or components, supplies, equipment, needed materials

Marketing research manager Develops research designs for specific problems; collects,Director of commercial research, director of market research analyzes, interprets data; presents results to top management

Public relations manager Manages all communications with media and companyDirector of public relations, director of communications, stakeholders, to present favorable public imagepublic affairs officer

Customer service manager Provides customer service, handles customer complaintsDirector of customer relations

Sales manager Organizes, develops, directs, controls, evaluates salesforceVice president of sales, director of sales, national salesmanager, regional, district, or branch sales manager

Source: Rolph Anderson, Professional Personal Selling. © 1991, p. 105. Reprinted by permission of Prentice-Hall. Englewood Cliffs, New Jersey.


(food), Produce Specialties (exotic fruits and vegetables), and United Stationers (of-fice supplies).

Marketing research firms and advertising agencies also provide specialized ser-vices for client firms. Some firms emphasize specific types of marketing research, butthe largest firms offer a full array of research services, including focus groups, con-cept tests, customer interviews, mail surveys, experiments, or other types of market-ing research. The largest marketing research firms include ACNielsen, IMSInternational, Information Resources, Inc., and the Arbitron Co.

Advertising agencies also provide various services to help firms develop and im-plement marketing communications campaigns. Again, some of these firms spe-cialize in specific areas; others provide full services, often including marketingresearch. The leading advertising agencies include Young & Rubicam, Saatchi andSaatchi, BBDO Worldwide, DDB Needham Worldwide, and Ogilvy & MatherWorldwide.

How Has Marketing Evolved? Traditionally, the roots of modern marketing have been traced to the 1950s, when the marketing concept was first ar-ticulated. Before then, according to this view, most firms were driven by either pro-duction or sales philosophies, even though they engaged in marketing activities. Soin the 1950s, leading firms presumably embraced the customer-oriented marketingconcept. However, recent historical analysis provides strong evidence that market-ing activities and customer orientations were commonplace in firms much earlierthan the 1950s in the United States, Germany, and England.18

The Early YearsIn the early 1500s in Germany and England and in the 1600s in North America,most of the population was rural and largely self-sufficient. Production and trans-portation were primitive, and capitalism was not well developed. Some astute mar-keters emerged nevertheless. Typically they marketed luxury goods to the nobilityand the growing urban middle class, armaments to governments, or textiles and ba-sic staples to selected elements of the population. Important marketing institutionsand activities originating during this period include fixed-location retail shops, ad-vertising, wholesale trade, warehouses, and traveling salespeople.

Modern Marketing BeginsThe Industrial Revolution, from about 1750 in England and 1830 in the UnitedStates and Germany, produced tremendous changes in marketing. Production meth-ods and transportation systems greatly improved. A substantial migration from ru-ral areas to urban centers created potentially large markets. Marketing became apervasive and central activity as firms tried to serve these developing markets. Be-cause of intense competition, firms targeted particular population groups, devel-oped products specifically for them, and promoted the products vigorously. Theimportant marketing activities that we know as market segmentation, target mar-keting, and promotion were carried out by many firms during this period.

Modern Marketing DevelopsBeginning with the Industrial Revolution, institutions and activities associated withmodern marketing became more widespread. Here are some ways firms imple-mented a customer orientation in the nineteenth century:

• During the 1880s, Waltham Watch Co. moved from marketing whatever thefactory decided to produce to producing exactly what customers wanted.

• Hampshire Paper Co. gave its salesforce extensive training in the philosophythat salespeople were expected to help customers solve their problems.


• Parker Pen Co. realized that all customers did not want the same type of pen;its 1899 catalog included 40 pens priced from $1.50 to $20.

Even though the marketing concept was not formally articulated until the 1950s,some firms were clearly practicing it much earlier, as shown by a business text pub-lished in 1916:Today the progressive business man makes careful, intensive studies not merely of the con-sumer’s recognized wants but of his tastes, his habits, his tendencies in all the common ac-tivities and relations of life. This he does in order to track down unconscious needs, tomanufacture goods to satisfy them, to bring these products to the attention of the consumerin the most appealing ways, and finally to complete the cycle by transporting the goods tohim in response to an expressed demand.19

Modern Marketing EvolvesMarketing has built on past accomplishments as it has evolved. Many firms formany years have taken a customer orientation and performed basic marketing ac-tivities. What has changed most in recent years is the way marketing activities areperformed. For example, the practice of dividing the market for a product into seg-ments with different needs (market segmentation) has been used by at least somefirms for over two centuries. However, segmentation procedures have changeddrastically from simple, judgmental approaches to the use of sophisticated statisti-cal techniques and large databases today. Even the tremendous changes broughtabout by Internet and e-commerce do not change the basics of marketing. Howmarketers do things has and will change dramatically, but the basics of a market-ing philosophy and organizational process remain the same. This book focuses onboth the marketing basics and the changes that have taken place in recent years andare expected to occur in the future.

A Contemporary Marketing Framework The contem-porary marketing framework that underlies the focus for this book is presented inExhibit 1–9. The framework has three major elements: marketing, the marketingenvironment, and marketing perspectives.

These ads were popular around 1900. Although marketing at Coca-Cola, Kellogg, and Ford has changed drastically since then, thesecompanies were practicing basic marketing concepts many years ago.


MarketingThe inner circle represents marketing as an organizational philosophy and organi-zational process. Most of this book expands on topics that fit within this circle: themarketing concept and marketing exchanges, strategies, activities, positions, andinstitutions. The marketing circle contains the largely controllable decision areasfor marketers in all types of organizations.

Marketing EnvironmentThe larger circle represents the uncontrollable environment within which marketersmust operate. The marketing environment is categorized further into social, eco-nomic, competitive, technological, legal/political, and institutional environments.Each of these categories is examined in detail in Chapter 2.

Marketing is largely concerned with identifying market opportunities and re-sponding to these opportunities by developing and executing effective marketingstrategies. Market opportunities are typically the result of conditions or changes inthe marketing environment.

Thus, successful marketing requires constant assessment of the marketing envi-ronment to identify opportunities and to determine the best way to capitalize onthem. The difficulty is that the marketing environment is complex, turbulent, anduncertain.

Key Marketing PerspectivesWe have identified seven key marketing perspectives to guide marketers in re-sponding effectively to opportunities offered by the marketing environment (see

Exhibit 1–9 A contemporary marketing framework

Marketing environment

Marketing environment

Global

Customer Value

Relationship Technology

Productivity

Ethics

Entrepreneurship

Marketing


Exhibit 1–9). These perspectives provide links between marketing and the market-ing environment. The seven key marketing perspectives are presented in Exhibit1–10 and were discussed in the Prologue about America Online.David Power, President, Power Creative, comments on the importance of thesekey marketing perspectives: “These key marketing perspectives are extremelyimportant in my business. Our clients operate globally, so we must have a globalperspective to meet their needs. Relationships with customers and teamworkwithin our company are critical to our success. We must continuously look forways to create value for our customers and to ensure we do business ethically.Increasing our productivity and the productivity of our clients is a constantconcern. Often, this requires being entrepreneurial, especially in using newtechnologies. We must be at the “cutting edge” in applying new technologies ininnovative ways. This will continue to be a challenge as the use of the Internet inmarketing and e-commerce grows.”

Because these perspectives are important considerations in all aspects of mar-keting, we integrate them throughout the remaining chapters in several ways.

First, the appropriate perspectives are discussed in relevant places in each chap-ter. Icons in the margin or in-text and italicized references indicate when a specificperspective is being discussed.

Exhibit 1–10 Key marketing perspectives

MarketingPerspective Icon Definition

GLOBAL Viewing the world as the potentialmarketplace to include identifying andresponding both to market opportunitiesaround the world and to different culturalgroups within each market.

RELATIONSHIP Building partnerships with firms outside theorganization and encouraging teamworkamong different functions within theorganization in order to develop long-termcustomer relationships.

ETHICS Addressing the morality of marketingdecisions and practicing social responsibilityto include ecological considerations.

CUSTOMER VALUE Constantly looking for ways to givecustomers more for less.

PRODUCTIVITY Trying to get the best return for eachmarketing dollar spent.

TECHNOLOGY Translating new and emerging technologiesinto successful products and services, andusing technology to improve marketingpractice.

ENTREPRENEURSHIP Focusing on innovation, on risk taking, andon being proactive in marketing efforts.


Second, many chapters also include sidebars entitled “Using Technology” and“Being Entrepreneurial.” These present examples of a technology and entrepre-neurship perspective toward the material covered in the chapter. In addition, somechapters feature sidebars entitled “Earning Customer Loyalty,” which highlight therelationship perspective.

Third, many chapters conclude with a section addressing important ethical issuesrelevant to the chapter topics.

Finally, in each chapter’s “Speaking from Experience” features, professionals ad-dress the perspectives in various ways through their comments.


Summary1. Discuss what marketing is and why it

is important to organizations and indi-viduals. Marketing “is the process of planningand executing the conception, pricing, promo-tion, and distribution of ideas, goods, and ser-vices to create exchanges that satisfyindividual and organizational goals.” Marketingis important to all types of organizations be-cause it focuses on satisfying the needs of cus-tomers. Individuals, such as politicians, alsoengage in marketing during campaigns forelection and when developing and implement-ing policies. Marketing activities are performedby people in various positions at different or-ganizations. Interacting with people is a majorcomponent of most marketing positions.

2. Distinguish between marketing as an or-ganizational philosophy and a societalprocess. Marketing can be defined in differentways. As an organizational philosophy, market-ing is an orientation where everyone in the or-ganization is driven by the marketing conceptto satisfy customer needs. At the societal level,marketing is the process that determines theflow of goods and services from producers toconsumers in a society.

3. Understand the components of a mar-keting strategy and the different activi-ties involved in marketing products andservices. A marketing strategy consists of theselection of a target market and the develop-ment of a marketing mix to appeal to that targetmarket. The marketing mix is an integration ofproduct, price, communications, and distribu-tion decisions to serve a target market betterthan competitors.

Implementing marketing strategies to facili-tate exchanges requires many activities, in-cluding buying, selling, transporting, storing,financing, risk taking, standardizing and grad-ing, and obtaining marketing information.

4. Be aware of the various types of mar-keting institutions and the different mar-keting positions available in theseinstitutions. The necessary marketing activi-ties are performed by different institutions andvarious positions within these institutions. Al-though some producers can perform all re-quired marketing activities, organizationsspecializing in specific marketing activities areoften used. Typical marketing institutions arewholesalers, retailers, distributors, marketingresearch firms, and advertising agencies.

Important marketing positions include mar-keting managers, product managers, advertis-ing managers, purchasing managers, salesmanagers, marketing research managers, andindividuals who report to these managers. Mar-keting activities are also performed by peoplein nonmarketing positions.

5. Appreciate how marketing has evolvedfrom earlier times to the present. Market-ing has evolved substantially. This evolutionmoved from the origins of retailing to improvedproduction and transportation methods(brought about by the Industrial Revolution) tothe consumer orientation of modern marketing.The biggest change in marketing today is theway in which marketing activities are per-formed—for instance, segmenting markets byusing statistical technology and databases.

6. Understand the basic elements and rela-tionships in the contemporary market-ing framework. The contemporary marketingframework depicts the important relationshipbetween marketing and the marketing environ-ment. Seven key marketing perspectives arepresented as orientations that drive marketing’sinteractions with the external environment.

Understanding Marketing Terms and ConceptsMarketing 3

Production philosophy 4

Selling philosophy 4

Marketing philosophy 4

Marketing concept 4

Customer loyalty concept 5

Lifetime value of a loyal customer 5

Customer value 6

Marketing as a societal process 7

Exchange 9

Marketing strategies 10

Target market 10

Marketing mix 10


Applying Marketing Skills

Thinking about Marketing1. How can top management in an organization ensure that

all employees are driven by a marketing philosophy?

2. What is an example of barter as a marketing ex-change?

3. How would you describe the major target market andmarketing mix for your college or university?

4. What are the marketing activities required to gettoothpaste from a producer, such as Colgate-Palmolive, to a consumer, such as yourself?

5. What marketing activities do Internet auctions likeebay.com perform?

6. What are the relationships between marketing as asocietal process and the economic and political sys-tems in a country?

7. What do you think is the most innovative developmentin marketing practice during the past few years? Why?

8. What types of marketing positions interest you?Why?

9. What role do the seven key marketing perspectivesplay in the contemporary marketing framework?

10. How does the marketing environment affect market-ing?

1. Pick a retail store at which you frequently shop.Identify and discuss the store’s target market and thespecific product, price, integrated marketingcommunications, and distribution decisions themanagement has made to develop a marketing mix.2. Interview someone in a marketing position. Ask himor her about the activities involved in the position, about

any expected future changes in the position, and aboutcareer opportunities.3. Identify a nonprofit organization in your community.Determine the role of marketing in this organization byreading promotional materials and talking with someonein the organization.

Using the www in MarketingActivity One Go to Amazon.com’s homepage (http://www.amazon.com).

1. What are the latest products and services offered byAmazon.com?

2. What services does Amazon.com offer to help youselect a DVD player that will best meet your needs?

3. Evaluate the selection and services offered byAmazon.com to help customers in purchasing books.

Activity Two Go to the Barnes & Noblehome page (http://www.bn.com).

1. Compare and contrast the home pages ofAmazon.com and Barnes & Noble.

2. Evaluate the selection and services offered by Barnes& Noble to help customers in purchasing books andcompare with what Amazon.com offers.

3. What would you recommend Barnes & Noble do inorder to provide more value to its book customers?

Making Marketing DecisionsCase 1-1 Coca-Cola: Reviving a Marketing PhilosophyCoca-Cola has been one of the world’s great marketers.Under the tutelage of Roberto C. Goizueta, Coke built astrong market position around the world and achievedstrong sales and earnings growth for 16 straight years. Itsstock increased a whopping 3,500 percent during thisperiod. Unfortunately, Mr. Goizueta died of cancer in1997. M. Douglas Ivester, chief financial officer at thetime, took over as CEO.

Mr. Ivester has faced a number of challenges duringhis tenure. Coke’s international growth has slowedconsiderably due largely to poor economic conditions andother problems in several international markets. Forexample, economic problems in two of Coke’s biggest

international markets, Japan and Brazil, translated into nogrowth in 1998. Coke has invested $700 million in Russiaduring the past eight years, but the economic collapse inRussia has Coke operating at only 50 percent capacity.Some of Coke’s efforts to expand in Europe and LatinAmerica have been rebuffed by regulators concerned thatCoke will dominate local markets. And reportedcontamination of Coke in Belgium hurt the company’simage considerably.

The situation in the United States is also difficult.American consumers already drink more soft drinks thanin any country in the world, except Mexico; therefore,domestic sales growth will have to come from increases


in market share. But Coke’s major competitor, Pepsi, isfighting for every piece of the market. Pepsi’s “Joy ofCola” communications campaign has been verysuccessful and has overshadowed Coke’s long-running“Always” theme. Pepsi is also fighting hard in the lucrativerestaurant-chain market and has increased the number ofits vending machines considerably. Although Coke stillleads Pepsi, this heightened competition is costly, puttingfurther pressure on earnings growth. One response hasbeen to raise the price of syrup to Coke’s independentbottlers by 7.7 percent in 2000; this is twice the normalprice increase and has infuriated the bottlers.

Although Coke’s problems are not all Ivester’s fault, thecompany’s lackluster performance has reduced its stockprice substantially and put Ivester under enormouspressure. On December 6, 1999, he stunned everyone byannouncing his pending retirement in April 2000 and theappointment of Douglas N. Daft as the new CEO.

Daft had been in charge of Coke’s Asia operations.Whereas Ivester had a financial background and spent

most of his career at Coke’s headquarters in Atlanta, Daftis a marketing person with extensive experience aroundthe world including the Middle East and China. Thoughthe economic conditions in Asia and Latin America areimproving, Daft faces the same problems Ivester did—difficult challenges both domestically and internationally—and is nonetheless expected to return Coke to its glorydays under Goizueta.

Questions

1. What is the first thing you would do if you were thenew Coke CEO?

2. Ivester employed a production-oriented philosophyduring his tenure as CEO. What does Daft need to doto instill a marketing philosophy throughout Coke?

3. What would you recommend Coke do to competemore effectively against Pepsi in the U.S. market?

4. What would you recommend Coke do to increase itsgrowth internationally?

SOURCES: Dean Foust, Geri Smith, and David Rocks, “Man on the Spot,” Business Week, May 3, 1999, pp. 142–51; Dean Foust, David Rocks, andMark L. Clifford, “Is Douglas Daft the Real Thing?” Business Week, December 20, 1999, pp. 44–45.

Case 1-2 Jollibee: Beating McDonald’s in BurgersMcDonald’s is clearly the most successfulfast-food brand in the world, with annualsales around $30 billion. It dominates mostmarkets by providing customers with

consistent product quality and service—but not in thePhilippines.

Jollibee Foods Corp. is a family-owned chain withabout $250 million annual sales. It has, however, capturedabout 52 percent of the Philippines market (comparedwith 16 percent for McDonald’s). The company has twiceas many stores in the Philippines as McDonald’s does.How has Jollibee’s been able to beat McDonald’s in thismarket?

The major key to success is understanding andmeeting the needs of the local market. Jollibee offersspicy burgers, fried chicken, and spaghetti and servesrice with all entrees. The food is similar to what “a Filipinomother would cook at home” and is designed “to suit theFilipino palate.” And Jollibee charges prices from 5 to 10 percent lower than McDonald’s. This combination ofthe right food at a lower price gives customers real value.

Jollibee also uses some marketing approaches thathave been borrowed from McDonald’s. It works hard toattract kids by targeting ads to children, providing in-storeplay activities, and offering signature characters and otherlicensed toys and products. The company locatesrestaurants in prime spots often surrounding aMcDonald’s outlet. And Jollibee maintains high standardsfor fast service and cleanliness.

The company is trying to duplicate its success in thePhilippines in other international markets. It currently has 27restaurants in 10 countries—even one in the United States.Jollibee will open six restaurants in Los Angeles and SanFrancisco to appeal to the large Filipino communities inthese cities. Longer term, the firm thinks Chicago, NewYork, Houston, and Miami will be good markets because oftheir large Asian and Hispanic populations.

Jollibee cannot rest on its laurels in the Philippines orelsewhere. Government restrictions on foreign firms, suchas McDonald’s, are being lifted within the next two years.This should make McDonald’s a more formidablecompetitor. Also, McDonald’s is not likely to sit back andmake it easy for Jollibee to gain footholds in other Asianand U.S. markets. Competition in the United States couldbe especially fierce.

Questions

1. Why do you think McDonald’s has not been moresuccessful against Jollibee in the Philippines?

2. What would you recommend McDonald’s do toincrease its market share in the Philippines?

3. What is your evaluation of Jollibee’s strategy toexpand into Asian, Middle East, and U.S. markets?

4. What marketing strategy would you recommend toJollibee for successful operations in the U.S. market?How do you think McDonald’s will respond asJollibee enters the U.S. market?

SOURCE: Hugh Filman, “Happy Meals for a McDonald’s Rival,” Business Week, July 29, 1996, p. 77; “King of Fast Food at Home, Jollibee Plans SixMore Stores in the U.S.,” Fox Market Wire, March 12, 1999, pp. 1–3.

an overview of contemporary marketing

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