Introduction
You face a constant business challenge in modern markets. How do you attract new buyers and keep existing ones while competition intensifies every day? Traditional selling focuses merely on pushing products out the door. That old approach fails when markets are crowded, informed, and volatile. You need a systematic way to understand what people need, create superior value, and build lasting relationships that generate profitable returns.
Philip Kotler and Gary Armstrong present a comprehensive framework for mastering this challenge in Principles of Marketing. The central idea is that marketing is not just a department but a company-wide philosophy centered on customer satisfaction. You learn to view your business through the eyes of the consumer, turning market understanding into sustainable advantage.
The book guides you through a logical sequence for building and executing a complete marketing program. You begin by exploring how to define customer value and set aligned company strategies. You then examine the marketing environment, learn to gather actionable customer insights, and analyze both consumer and business buying behavior.
Subsequent chapters show you how to design customer-driven strategies through segmentation, targeting, differentiation, and positioning. You discover how to manage products, services, brands, and new product development pipelines. Finally, you master the mechanics of pricing, distribution channels, and integrated marketing communications.
- How do you analyze market opportunities and changing environmental forces?
- What drives consumer and business buyer behavior?
- How do you segment markets and position your brand for maximum competitive advantage?
- What strategies govern pricing, supply chains, and promotional communication?
1. Creating and Capturing Customer Value
Marketing is fundamentally about managing profitable customer relationships by creating value for customers and capturing value in return.
Selling and advertising are merely the tip of the marketing iceberg. Marketing is a social and managerial process aimed at satisfying customer needs. Peter Drucker noted that the ultimate aim of marketing is to make selling unnecessary. You achieve this by understanding consumer needs and designing products that provide superior value.
Walmart became the world's largest retailer by delivering on its promise of saving money and living better. McDonald's achieved a dominant market share through its lovin' it motto.
Understanding Marketplace Concepts
Marketers must understand five core marketplace concepts: needs, wants, and demands; market offerings; value and satisfaction; exchanges and relationships; and markets.
Human needs are states of felt deprivation. Wants are the specific forms those needs take when shaped by culture and personality. When wants are backed by buying power, they become demands. You satisfy demands through market offerings that include products, services, information, and experiences.
An American needs food but wants a Big Mac, whereas a person in Papua New Guinea wants taro, rice, yams, and pork.
Building Customer Relationships
Customer relationship management is the overarching process of building and maintaining profitable relationships by delivering superior customer value and satisfaction. Achieving customer satisfaction relative to competitor performance builds lasting brand loyalty and positive word of mouth.
Harley-Davidson sponsors the Harley Owners Group, boasting over one million members across more than 1,500 local chapters to foster a shared community.
The ultimate goal of customer relationship management is to capture value from customers in the form of customer lifetime value, share of customer, and high customer equity. Losing a customer means losing their entire lifetime stream of purchases, making retention significantly cheaper than customer acquisition.
You can classify customers into four distinct relationship groups based on profitability and projected loyalty:
- strangers;
- butterflies;
- true friends;
- barnacles.
Stew Leonard calculates that every sulking customer walking out represents 50,000 dollars flying out of the store based on a ten-year patronage horizon. A single loyal Lexus customer generates an estimated 600,000 dollars in lifetime sales.
2. Company and Marketing Strategy
Strategic planning sets the long-run direction for survival and growth through market-oriented missions and coordinated internal value chains.
The strategic planning process starts at the corporate level by defining the overall purpose and mission. You translate this broad purpose into supporting objectives, design a business portfolio, and finally develop detailed departmental and marketing plans. Products and technologies eventually become obsolete, but basic market needs endure. You should avoid myopic definitions and instead build inspirational missions centered on the customer experience and the value created for them.
Under Armour defines its mission not just as making performance sports apparel, but to make all athletes better through passion, science, and the relentless pursuit of innovation.
The product/market expansion grid is a portfolio-planning tool used to identify company growth opportunities through market penetration, market development, product development, or diversification. You can grow by selling more current products to current markets, developing new markets for current products, offering new products to current markets, or diversifying into entirely new businesses and markets.
Under Armour applied these strategies by expanding apparel colorways for market penetration, targeting women and international regions for market development, and launching footwear for product development. This supported growth in the 19 billion dollar size of the athletic footwear market entered by Under Armour 14 years since Under Armour introduced its initial product line.
Planning Marketing
A company's internal value chain consists of all its departments carrying out value-creating activities. Your success depends on how well these departments coordinate their work. Every department acts as a link in designing, producing, marketing, delivering, and supporting the firm's products. Conflicts often arise because marketing's pursuit of customer satisfaction can disrupt production schedules, increase inventories, or raise purchasing costs.
Walmart's ability to offer low prices depends directly on the purchasing department obtaining low costs from suppliers and the IT department providing fast sales data.
Marketing Strategy and the Marketing Mix
Designing a customer-driven marketing strategy requires dividing the total market, selecting promising segments, and establishing a distinct market position. Because you cannot serve all consumers in the same way, you utilize specific strategic tools:
- market segmentation;
- market targeting;
- differentiation;
- positioning.
Logitech focuses on personal peripherals and dominates its niche with a 40 percent share of the world mouse market captured by Logitech. Ferrari targets high-end automotive buyers with expensive sports cars, reflected by a 229550 dollars starting price for a Ferrari F430 F1 Spider.
The marketing mix consists of the tactical tools of product, price, place, and promotion, which correspond to the customer-oriented four Cs framework. While sellers view their actions through the four Ps, buyers view them through the four Cs: customer solution, cost, convenience, and communication.
Ford blends product features, suggested sticker prices, independent dealer networks, and part of the 1.5 billion dollars spent annually by Ford on U.S. advertising into an integrated marketing program.
3. Analyzing the Marketing Environment
The marketing environment consists of outside actors and forces that affect marketing management's ability to build and maintain successful relationships with target customers.
Marketers must actively analyze and respond to microenvironmental partners and macroenvironmental demographic, economic, and cultural forces.
The Microenvironment
You must watch actors close to the company that shape your ability to serve customers. This microenvironment includes suppliers, marketing intermediaries, competitors, publics, and customers themselves. Dominant market leaders can find themselves on the brink of bankruptcy if they fail to adapt to rapid shifts in this surrounding network.
Xerox lost $38 billion in market value in 18 months, with its stock plunging from almost $70 in 1999 to under $5 by mid-2001. The company survived only by reinventing itself from a copier company into a global document-management and business-process technology services enterprise, later acquiring ACS, a $6.4 billion IT services company.
Macroenvironmental Forces
Larger societal forces create opportunities and threats that shape your strategic options. These macroenvironmental trends include demographic shifts, economic conditions, natural forces, technological changes, and political forces. Generational groups possess distinct historical experiences, economic weights, and psychographic profiles that dictate targeted marketing strategies.
Key generational cohorts shape current demand:
- Baby boomers born between 1946 and 1964;
- Generation Xers born between 1965 and 1976;
- Millennials born between 1977 and 2000.
Baby boomers account for about 25 percent of the U.S. population but hold 75 percent of financial assets. Merrill Lynch launched a help2retire campaign targeting boomers to address the emotional and financial hurdles of retirement planning rather than just the numbers. Meanwhile, 83 million Millennials possess over $733 billion in purchasing power, and 49 million Generation Xers prioritize family and experience over material acquisition.
Companies must also navigate social changes and corporate responsibility. Cause-related marketing allows companies to do well by doing good by linking product purchases to charitable contributions and social missions. By 2010, companies spent $1.6 billion on cause-related marketing in the United States.
TOMS Shoes built its entire business model on a one-for-one promise, giving away a pair of shoes to a needy child for every pair purchased, scaling up to over 600,000 pairs priced at roughly $55 each by mid-2010 without spending money on traditional advertising.
Responding to the Environment
Rather than passively reacting to an uncontrollable marketing environment, proactive companies take aggressive actions to shape their surroundings and counter negative events. You can use lobbying, public relations, and active online monitoring to manage public perception, correct false rumors, and turn potential customer service crises into brand loyalty.
When a bogus chain email claimed Oscar Mayer refused to support troops in Iraq, Kraft responded vigorously with blog posts and tracking pages to squelch the hoax quickly.
4. Managing Marketing Information
Effective customer insights derived from internal databases, marketing intelligence, and ethnographic research drive competitive advantage.
Companies face a massive data glut from digital sources, but managers frequently lack the right information rather than data itself. Creating specialized customer insights teams helps bridge the gap between raw data and actionable marketing decisions. Marketing information alone has little value unless it is transformed into customer insights that drive competitive advantage.
Apple uncovered the insight that consumers wanted to take all their music unobtrusively, leading to the development of the iPod with a capacity of 1,000 songs. This success helped capture 75 percent market share with its iPod and iPod Touch lines. Pepsi's servers take in 6 million public conversations a day when monitoring online brand discussions, exceeding 2 billion a year.
Customer Insights
You can build a marketing information system to give managers accurate data from everyday operations. A well-designed system balances what you would like to have against what you really need and what is economically feasible.
To gather this intelligence, you can use several standard tools:
- internal databases containing consumer records;
- marketing intelligence tracking public competitor actions;
- formal marketing research studies for specific problems.
Developing Marketing Information
Competitive marketing intelligence involves the systematic collection and analysis of publicly available information about consumers and competitors to improve strategic decision making. Firms monitor online chatter, industry trade shows, annual reports, and patent databases to gain early warnings of competitor moves, market threats, and opportunities while adhering to ethical standards.
Lifestyle retailer PacSun and Microsoft use Radian6 platforms to monitor millions of blogs, tweets, and reviews for real-time customer feedback and brand mentions. You can also tap into more than 3,000 online databases and information search services available by subscription.
Marketing Research Methods
Ethnographic research places trained observers inside consumers' natural environments to uncover unarticulated desires and real behaviors. Unlike traditional surveys where consumers may state incorrect preferences, ethnography provides an insider view of the customer's world, capturing hidden habits, frustrations, and emotional triggers.
Disney researcher Kelly Peña dug through a 12-year-old boy's dresser drawer and looked at his room decor to understand how to design hit entertainment for boys aged 6 to 14. This age group represents 50 billion dollars a year spent worldwide, while elderly shoppers will represent 20 percent of the total U.S. population by 2030.
5. Consumer Markets and Buyer Behavior
The American consumer market includes 308 million people, while the world consumer market reaches 6.8 billion people. These populations consume 10 trillion dollars worth of goods and services annually in the United States and an estimated 70 trillion dollars worldwide.
Consumer buying behavior is driven by cultural, social, personal, and psychological characteristics operating within the buyer black box.
External marketing and environmental stimuli enter your buyer black box and translate into specific purchase responses. You turn inputs such as the four Ps and major environmental forces into responses like product choice, brand choice, and purchase timing through buyer characteristics and decision processes. Apple successfully decodes consumer needs by recognizing that products like the iPhone serve as tools for self-expression and lifestyle representation.
Characteristics Affecting Behavior
Buying behavior is driven by psychological factors including underlying motivations, selective perception processes, learning experiences, and established beliefs and attitudes. Because you filter commercial messages through selective attention, distortion, and retention, marketers must rely on motivation research and align offerings with existing consumer attitudes. You face 3,000 to 5,000 ad messages exposed to people every day.
Coca-Cola's SoBe brand matches health and wellness attitudes by offering vitamin- and mineral-infused teas and elixirs without artificial preservatives.
Consumer decision-making varies based on the degree of buyer involvement and the perceived differences among brands, resulting in four distinct behavior types
- complex buying behavior;
- dissonance-reducing buying behavior;
- habitual buying behavior;
- variety-seeking buying behavior.
The Buyer Decision Process
The buyer decision process consists of five sequential stages starting long before the purchase and continuing into postpurchase behavior and satisfaction. You must manage customer expectations and postpurchase cognitive dissonance because satisfied customers ensure long-term profitability and customer lifetime value.
Park Place Lexus and JM Lexus offer massage chairs, putting greens, and valet pickup services to delight customers and secure a high customer lifetime value. The estimated average lifetime value of a Lexus customer reaches 600,000 dollars.
The adoption and diffusion of new products involve a mental progression through awareness, interest, evaluation, trial, and adoption at varying rates among consumer groups. An innovation's rate of adoption is determined by its relative advantage, compatibility, complexity, divisibility, and communicability across different adopter categories.
Hyundai introduced the Hyundai Assurance Program during an economic downturn to help consumers clear the evaluation stage by allowing vehicle returns if they lost their jobs. High-definition television set ownership shifted from 28 percent of US households in 2007 to 62 percent by 2010.
6. Business Markets and Buyer Behavior
Business markets involve large buyers and derived demand, requiring structured buying center roles and careful supplier development.
Business markets involve far more dollars and items than consumer markets. You deal with fewer but much larger buyers who operate on derived demand.
Goodyear buys rubber, steel, and equipment from industrial suppliers to make tires. It then sells these as original equipment to automakers or as replacement tires to fleet and retail markets.
Business demand is ultimately derived from the demand for consumer goods. It tends to be more inelastic and subject to much greater and quicker fluctuations than consumer demand. A 10 percent rise in consumer demand can cause as much as a 200 percent rise in business demand.
Business Buyer Behavior
Business buyers face three major types of buying situations that dictate the complexity of their decision-making process. You encounter these distinct purchase scenarios in industrial environments:
- a straight rebuy requiring no modifications;
- a modified rebuy altering specifications or terms;
- a new task situation requiring extensive research and evaluation for a first-time purchase.
Boeing experienced the high stakes of a new task situation when ANA ordered 50 of its 787 Dreamliners before a single plane had been built or tested for a 5 billion total cost.
The decision-making unit of a buying organization is called the buying center. It comprises individuals who play five distinct roles in the purchasing process:
- users who operate the product;
- influencers who define specifications;
- buyers who select suppliers and negotiate terms;
- deciders who approve final supplier choices;
- gatekeepers who control information flow.
Cardinal Health deals with multiple buying center participants for hospital surgical gowns. These participants include purchasing VPs, operating room administrators, and surgeons.
The Business Buying Process
The complete business buying process for a new task situation consists of eight distinct, sequential stages. You must navigate these steps carefully to close industrial sales.
- Problem recognition
- General need description
- Product specification
- Supplier search
- Proposal solicitation
- Supplier selection
- Order-routine specification
- Performance review
Makino Engineering Services uses ads featuring hard-to-machine parts to trigger problem recognition in the first stage of the buying process.
E-procurement through electronic connections lowers purchasing costs and speeds up order processing. Online purchasing tools like reverse auctions, trading exchanges, and company buying sites save time and eliminate paperwork, though they can introduce security risks and strain supplier relationships.
When remodeling its Rochester headquarters using only e-procurement across 1,600 contract bids from 150 contractors, Kodak saved 15 percent on purchasing-process costs, including 186,000 saved on photocopying expenses alone.
7. Customer-Driven Marketing Strategy
Market segmentation, targeting, differentiation, and positioning form the core framework for delivering superior value to target customers.
A firm first divides a broad market into smaller, distinct customer groups through market segmentation and evaluates their attractiveness through market targeting. It then establishes a clear value proposition by differentiating its offerings to deliver superior customer value and positioning those offerings uniquely in the minds of target consumers relative to competitors.
Best Buy carefully segmented its consumer electronics market, identifying profitable angel customers while weeding out unprofitable demon customers to sharpen its positioning. That retail network operated across 1,023 U.S. stores and a total store count worldwide of 2,835 stores.
Market Segmentation
Marketers divide consumer markets into segments using geographic, demographic, psychographic, and behavioral variables, frequently combining multiple bases for precision. Because no single variable suffices, companies test different criteria:
- geographic variables divide markets by location;
- demographic variables use traits like age, gender, and income;
- psychographic variables look at social class, lifestyle, or personality;
- behavioral variables segment based on consumer knowledge, attitudes, uses, or responses.
Walmart uses geographic segmentation to test Hispanic-focused Supermercado de Walmart stores in Hispanic neighborhoods in Texas and Arizona. Nielsen's PRIZM system classifies 66 distinct demographic and behavioral segments organized into 14 social groups.
Market Targeting
Companies select target markets along a spectrum ranging from broad mass marketing to highly narrow micromarketing. Marketers can pursue undifferentiated marketing by ignoring segment differences, differentiated marketing by targeting multiple segments with distinct offers, concentrated marketing by focusing heavily on one or a few specialized segments, or micromarketing by tailoring products to specific individuals and locations.
Zipcar uses concentrated urban lifestyle marketing, targeting densely populated city centers and college campuses rather than the general car-rental public. That passionate user base of 325,000 customers fueled a 65-fold growth in Zipcar's annual revenues over six years, rising from $2 million to $130 million.
Differentiation and Positioning
To gain a competitive advantage, you must differentiate your market offer along product, service, channel, people, or image dimensions. Solid market positions require concrete operational backing rather than empty advertising promises.
Staples withheld its "That was easy" marketing campaign for over a year while it remodeled stores, streamlined inventory, and retrained employees to actually deliver a simplified shopping experience. That operational turnaround addressed an initial ratio of customer complaints to compliments recorded at Staples stores of eight to one.
A brand's full positioning, or value proposition, defines the complete mix of benefits on which it is differentiated and positioned against competitors. Winning value propositions include 5 winning value propositions spanning more for more, more for the same, the same for less, less for much less, and more for less. Southwest Airlines successfully executes a less for much less value proposition by stripping away costly amenities like assigned seats, meals, and first-class sections to offer reliable, low-cost air travel.
8. Products, Services, and Brands
Product levels, service characteristics, and robust brand equity drive customer preference and long-term profitability.
Marketers must view products on three levels that add increasing customer value: core customer value, actual product, and augmented product. The core level addresses what the buyer is really buying. The actual product translates this into tangible features, design, and quality. The augmented product surrounds these with additional services and benefits.
People buying a BlackBerry smartphone are buying freedom and on-the-go connectivity as the core value, packaged with physical features as the actual product, plus warranties and repair services as the augmented product.
Services Marketing
Services possess four special characteristics—intangibility, inseparability, variability, and perishability—that require distinct marketing strategies. Unlike physical goods, services cannot be stored, separated from their providers, or seen before purchase. Their quality depends heavily on who provides them and when. Services account for 80 percent of U.S. gross domestic product (GDP).
A doctor's exam or financial services represent pure services where the market offer consists primarily of intangible activities.
The service profit chain links service firm profits with employee and customer satisfaction through internal marketing and interactive marketing. Reaching service growth goals begins with taking care of front-line employees through quality work environments and training. This creates satisfied employees who build greater service value for loyal customers. Four Seasons maintains 18 percent annual turnover for full-time employees.
Zappos.com maintains a culture emphasizing customer service by providing free meals, benefits, and a full-time life coach to keep employees perpetually chipper.
Building Strong Brands
Brand equity is the differential effect that knowing the brand name has on customer response to the product and its marketing. A brand has positive brand equity when consumers react more favorably to it than to an unbranded version. This forms the basis for building deep customer relationships and higher customer equity. Google holds 100 billion dollars estimated brand value.
In a taste test, subjects showed preference for Coca-Cola over Pepsi when the brands were identified due to long-established brand imagery.
Companies have four main choices when developing brands:
- line extension;
- brand extension;
- multibrands;
- new brands.
Line extensions add new flavors or sizes to existing categories. Brand extensions apply current names to new product categories to gain instant recognition.
P&G leveraged the strength of its Mr. Clean brand by launching new lines like Magic Eraser and Mr. Clean-branded car washes.
9. New Product Development Strategies
You must continually introduce original items and new brands to replace aging items and connect with changing economic trends. New-product development requires structured idea screening, concept testing, cross-functional teamwork, and management across life cycle stages.
Eighty percent of all new products fail or dramatically underperform. Between 20 billion and 30 billion dollars are lost each year on failed food products alone.
GfK's NewProductWorks collection displays historical product flops such as Look of Buttermilk Shampoo, Cucumber antiperspirant spray, and Ben-Gay aspirin.
The Development Process
Management utilizes screening criteria to review product concepts based on market need, competitive advantage, resource availability, and strategic alignment before committing significant capital to development.
The R-W-W framework asks three specific questions regarding whether an idea is real, whether the company can win, and whether the project is worth doing.
Managing Development
Sequential product development can be dangerously slow. Team-based development overlaps steps using cross-functional teams from marketing, finance, design, and manufacturing to save time.
PNC Bank observed young consumers for three months to design Virtual Wallet, a digital tool combining multiple accounts with money management features.
The LEGO Group achieved a 66 percent sales surge over a five-year turnaround period by keeping the consumer at the center of all decisions.
Product Life-Cycle Strategies
The product life cycle covers product development, introduction, growth, maturity, and decline. Specific brands and fads can experience compressed life cycles while product classes and styles endure for generations.
Gary Dahl sold 1.5 million ordinary beach pebbles as pet rocks at 4 dollars each as a temporary fad before consumer enthusiasm sank like a stone. Guinness beer celebrated its 250th anniversary recently.
Overcapacity in the maturity stage leads to intense competition and profit drops. To counter this, you can modify the market, modify product characteristics, or change marketing mix elements.
- Find new user segments and usage occasions.
- Improve quality, styling, or features.
- Alter price, distribution, or promotion.
American Greetings created Kiwee.com to reach younger digital consumers with emoticons and widgets. Traditional paper cards appeal primarily to older demographics, with 80 percent of greeting cards bought by women in the United States and a median age of 47 for traditional buyers.
10. Pricing Understanding and Strategy
Price is the only element in the marketing mix that produces revenue while all other elements represent costs, making it a vital strategic tool for profitability. In the narrowest sense, price is the amount charged for a product or service, but more broadly it is the sum of all values customers give up to gain benefits. Unlike product features or channel commitments, prices can be changed quickly, though pricing remains a major challenge for executives.
Customer Value-Based Pricing
Customer value-based pricing uses buyers' perceptions of value as the key to setting prices, reversing the traditional cost-based process.
Instead of designing a product, calculating costs, and setting a price, you assess customer needs and value perceptions first. The target value and price drive product design and allowable costs, setting the price ceiling where customers perceive price equals benefits.
Steinway grand pianos sell from $40,000 to $165,000 because owners value the classical concert mystique and handcrafted quality rather than just the physical instrument. The most popular Steinway model sells for $72,000.
Cost-Based Pricing
Price elasticity measures how responsive consumer demand is to changes in price, distinguishing between elastic and inelastic demand curves. If demand changes greatly with a small price change, demand is elastic; if demand hardly changes, demand is inelastic. Buyers are less price sensitive when a product is unique, prestigious, or high in quality, when substitutes are hard to find, or when total expenditure is low relative to income.
ConAgra Foods suffered severe sales drops and a 40 percent stock price decline when it raised Banquet frozen dinner prices above the psychological $1 threshold.
New-Product and Adjustment Strategies
New-Product and Adjustment Strategies
Companies introducing innovative products can set high initial prices to gradually skim maximum revenues from willing market segments. Market-skimming pricing works when product quality and image support a high price, production costs for lower volumes do not cancel out higher margins, and competitors cannot easily enter and undercut the price.
When Apple first introduced the iPhone, its initial price reached up to $599 before dropping over subsequent months and years.
Firms can set a low initial price to penetrate a market deeply and rapidly, capturing a large market share and driving down costs through high volume. This strategy requires a highly price-sensitive market, production and distribution costs that decrease with sales volume, and a low-price position that helps deter competitors.
Companies frequently adjust their basic prices to sell a product or service at two or more prices based on differences in customers, products, or locations, independent of cost differences. Segmented pricing forms include:
- customer-segment pricing;
- product-form pricing;
- location-based pricing;
- time-based pricing.
Evian mineral water costs around $5 an ounce in a plastic supermarket bottle, but sells for $2.28 an ounce as an aerosol facial spray.
11. Marketing Channels and Logistics
Value delivery networks and integrated logistics management optimize physical distribution efficiency across supply chains.
Supply Chains and Networks
You cannot create customer value alone. You must operate within an entire network of upstream and downstream partners. A value delivery network consists of the company, suppliers, distributors, and customers who partner to improve system performance. A demand chain perspective replaces the traditional make-and-sell view with a sense-and-respond approach based on customer needs.
Ford manages a complex network of thousands of suppliers and dealers to produce vehicles like the Ford Escape hybrid.
Channel Behavior and Organization
Intermediaries reduce the number of transactions required in an economic system. They bridge time, place, and possession gaps. Producers typically make narrow assortments in large quantities, whereas consumers want broad assortments in small quantities. Intermediaries buy in bulk and break down products into smaller quantities, performing transaction and fulfillment functions.
Unilever produces millions of bars of Lever 2000 soap. Large retailers like Kroger and Target buy this soap by the truckload so consumers can purchase single bars. Direct marketing for three manufacturers requires 9 contacts, compared to 6 contacts when using one distributor.
Vertical marketing systems provide formal leadership and power to eliminate the conflicts typical of conventional distribution channels. A VMS consists of producers, wholesalers, and retailers acting as a unified system through ownership, contracts, or sheer market power.
Kroger operates 40 manufacturing plants producing 40 percent of its private label items, representing a corporate VMS. Across the U.S., 1,500 franchise businesses and 883,000 franchise outlets account for over $844 billion of economic output.
You may adopt multichannel distribution systems to expand market coverage and tailor offerings to diverse customer segments. Using multiple channels allows firms to reach distinct segments, but it increases channel control challenges and generates internal conflict when different channels compete for the same customers. John Deere sells lawn and garden equipment through its own retailers, Lowe's home improvement stores, and online.
Marketing Logistics
Marketing logistics involves coordinating physical flows across the supply chain to provide targeted customer service levels at the lowest cost. Because maximizing customer service and minimizing distribution costs are contradictory, the ultimate objective of logistics is to maximize total profits rather than sales.
American companies spent $1.3 trillion or about 10 percent of GDP on logistics. Walmart logistics improvements aim to reduce supply chain costs by 5 to 15 percent, saving $4 billion to $12 billion.
Stonyfield Farm replaced its national distribution network with a regional multistop truckload system. This change reduced transportation-related carbon dioxide emissions by 40 percent and shipping expenses by 8 percent.
12. Communicating Customer Value
The promotion mix consists of five specific tools used by companies to persuasively communicate customer value and build relationships. You can combine these elements to reach your target audience and support your brand objectives.
- Advertising includes broadcast and print formats.
- Sales promotion uses discounts and coupons.
- Personal selling involves sales presentations.
- Public relations encompasses press releases and sponsorships.
- Direct marketing features catalogs and online channels.
Integrated marketing communications requires carefully coordinating all touchpoints to deliver a clear, consistent, and compelling brand message.
Because consumers experience all brand communications as a single message regardless of source, you must unify your channels to avoid blurred brand perceptions. You combine advertising, sales literature, websites, and social media into a cohesive program.
Häagen-Dazs combined TV and print ads, a dedicated website, grassroots events, public affairs, and Twitter outreach in its "Häagen-Dazs loves honey bees" campaign, boosting sales by 16 percent during a recessionary year. This effort generated 69 percent brand advocacy among consumers.
Steps in Developing Effective Marketing Communication
Marketers must identify where target audiences stand in the decision process and move them successively through the six buyer-readiness stages. Consumers pass through awareness, knowledge, liking, preference, conviction, and finally purchase, requiring tailored promotional tools at each sequential phase.
Kia used Super Bowl teaser ads and unveiled its redesigned Sorento CUV to build awareness and knowledge, followed by print ads, web details, and dealer visits to drive purchase, starting prices for the redesigned model beginning at $29K.
Setting the Total Promotion Budget and Mix
Companies determine their total promotion budgets using four distinct methods, ranging from affordable estimates to objective-based task costing.
- The affordable method sets budgets at levels management thinks the company can afford.
- The percentage-of-sales method fixes budgets at a certain percentage of current or forecasted sales.
- The competitive-parity method matches competitor outlays.
- The objective-and-task method builds budgets based on defined tasks and objectives.
John Wanamaker famously noted the difficulty of budget allocation, stating he did not know which half of his two million dollar advertising spend was wasted. Promotion spending shares of sales vary widely by industry, ranging from 10 to 12 percent for consumer packaged goods, 14 percent for cosmetics, down to 1 percent for industrial machinery products.
Promotion mix strategies contrast push approaches directed at channel members with pull approaches targeted directly at final consumers. A push strategy uses your sales force and trade promotion to push products through marketing channels. A pull strategy spends heavily on consumer advertising and promotion to create a demand vacuum that pulls products through channels.
John Deere relies on a push strategy working with retailers like Home Depot. Unilever uses a pull strategy promoting Axe grooming products directly to consumers via TV and digital channels, supported by the $2.4 billion amount Unilever spends on U.S. media advertising and consumer sales promotions.
Conclusion
All the strategic and tactical elements of the marketing discipline fit together into a single continuous loop of value creation and capture. You begin by understanding the marketplace and customer needs through deep research and environmental analysis. You then design a customer-driven strategy by selecting target segments and positioning your offering to deliver superior value. Next, you construct an integrated marketing program using the four product, price, place, and promotion pillars. Finally, you build profitable customer relationships and capture value from customers in return to create long-term equity.
To apply these principles effectively in your own organization, follow these practical rules:
- Put the customer at the center of every strategic decision by focusing intensely on building lasting relationships rather than executing isolated transactions.
- Ground your marketing plans in rigorous customer insights gathered from continuous market intelligence and direct observation rather than relying on intuition.
- Define your target markets with precision through careful segmentation and differentiation so your value proposition speaks directly to specific buyer needs.
- Manage your product and brand portfolio dynamically across its life cycle by anticipating changing market conditions and innovating ahead of competitors.
- Align your pricing strategy with perceived customer value while maintaining strict control over your cost structure and competitive positioning.
- Design efficient value delivery networks and integrated supply chains to ensure your products reach target buyers with maximum speed and reliability.
- Coordinate all communication channels into an integrated marketing program that delivers a consistent and compelling message to your audience.
- Maintain social responsibility and ethical standards across all marketing operations to build long-term trust with consumers and society.
10 Key Ideas
- Marketing is a company-wide philosophy centered on customer satisfaction, designed to create superior value and build lasting relationships that generate profitable returns.
- The ultimate goal of customer relationship management is to capture value from customers in the form of customer lifetime value, share of customer, and high customer equity.
- Strategic planning sets the long-run direction for survival and growth through market-oriented missions and coordinated internal value chains.
- Marketers must actively analyze and respond to microenvironmental partners and macroenvironmental demographic, economic, and cultural forces.
- Effective customer insights derived from internal databases, marketing intelligence, and ethnographic research drive competitive advantage.
- Consumer buying behavior is driven by cultural, social, personal, and psychological characteristics operating within the buyer black box.
- Market segmentation, targeting, differentiation, and positioning form the core framework for delivering superior value to target customers.
- Customer value-based pricing uses buyers' perceptions of value as the key to setting prices, reversing the traditional cost-based process.
- Value delivery networks and integrated logistics management optimize physical distribution efficiency across supply chains.
- Integrated marketing communications requires carefully coordinating all touchpoints to deliver a clear, consistent, and compelling brand message.