Because of permissions issues, some material (e.g.

, photographs) has been removed from this chapter, though reference to it may occur in the text. The omitted content was intentionally deleted and is not needed to meet the University's requirements for this course.

PART I Understanding Marketing Management

C H A P T E R

Defining Marketing for the Twenty-First Century

In this chapter, we will address the following questions:
1. Why is marketing important? 2. What is the scope of marketing? 3. What are some fundamental marketing concepts and new marketing realities? 4. What are the tasks necessary for successful marketing management?

MARKETING MANAGEMENT AT STARBUCKS

Two teenage girls walk into their local Starbucks, which happens to be in Shanghai. While one orders peppermint latts, the other sits at a table and opens her Lenovo ThinkPad notebook computer. She quickly connects to the Internet, courtesy of Starbucks deal to provide wireless access through China Mobile, and uses the Chinese search engine Baidu.com to search for information about online games from Chinas Shanda Interactive. Her friend returns with the latts, checks her Motorola cell phone for messages, and settles back to enjoy the chic coffeehouse ambience. Switch a few of the brand namesT-Mobile provides wireless access in the U.S. outlets, for exampleand this would be a typical scene in nearly any Starbucks worldwide. These days, Starbucks is really pouring on the marketing in China, where it sees huge profit potential. As a luxury brand, Starbucks appeals to status-conscious Chinese customers who are drawn to its coffee culture image. The company encourages coffee sales in a nation of tea drinkers by customizing its beverages to local tastes and offering free samples to both employees and customers. Starbucks already operates 500 coffeehouses in China and plans to 1
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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Part I Understanding Marketing Management open hundreds more, with the goal of making its lattes part of the daily routine for tens of millions of customers throughout the country.1 s Starbucks knows, good marketing has become an increasingly vital ingredient for business success. It is both an art and a sciencetheres a constant tension between its formulated side and its creative side. Its easier to learn the formulated side, which will occupy most of our attention in this book, but we will also describe how real innovation, creativity, and passion operate in many companies. In this chapter, we lay the foundation for our study by reviewing a number of important marketing concepts, tools, frameworks, and issues.

THE IMPORTANCE OF MARKETING

Financial success often depends on marketing ability. Finance, operations, accounting, and other business functions will not really matter if there isnt sufficient demand for goods and services so the company can make a profit. There must be a top line for there to be a bottom line. Many companies have created a Chief Marketing Officer (CMO) position to put marketing on a more equal footing with other C-level executives such as the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Marketing is tricky, however, and it has been the Achilles heel of many formerly prosperous companies. Large, well-known businesses such as Sears, Levis, Sony, General Motors, Kodak, and Xerox have confronted newly empowered customers and new competitors, and have had to rethink their business models. Even market leaders such as Intel, Microsoft, and Wal-Mart recognize that they cannot afford to relax as their leadership is challenged. Xerox, for example, has had to become more than just a copier company. It now sports the worlds broadest array of imaging products and dominates the market for high-end printing systems. And its making a huge transition to digital systems and color printing. Having been slow at one time to respond to the emergence of Canon and the small copier market, Xerox is doing everything it can to stay ahead of the game.2 The companies at greatest risk are those that fail to carefully monitor their customers and competitors and to continuously improve their value offerings. They take a short-term, sales-driven view of their business and, ultimately, they fail to satisfy their stockholders, their employees, their suppliers, and their channel partners. Skillful marketing is a never-ending pursuit.

THE SCOPE OF MARKETING

To prepare to be a marketer, you need to understand what marketing is, how it works, what is marketed, and who does the marketing.

What Is Marketing?
Marketing is about identifying and meeting human and social needs. One of the shortest good definitions of marketing is meeting needs profitably. When eBay recognized that people were unable to locate some of the items they desired most, it created an online auction clearinghouse. When IKEA noticed that people wanted good
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc. 2008933525

Chapter 1 Defining Marketing for the Twenty-First Century furniture at a substantially lower price, it created knock-down furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profitable business opportunity. The American Marketing Association offers the following formal definition: Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.3 We see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. Managers sometimes think of marketing as the art of selling products, but selling is not the most important part of marketing. Peter Drucker, a leading management theorist, says that the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.4 When Apple launched its iPod digital music player and when Toyota introduced its Prius hybrid automobile, these companies were swamped with orders because they had designed the right product based on careful marketing homework.

What Is Marketed?
Marketing people market 10 types of entities: goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

Goods. Physical goods constitute the bulk of most countries production and marketing effort. Each year, U.S. companies alone market billions of fresh, canned, bagged, and frozen food products and other tangible items. Thanks in part to the Internet, even individuals can effectively market goods. Services. As economies advance, a growing proportion of their activities are focused on
the production of services. The U.S. economy today consists of a 7030 services-togoods mix. Services include the work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, as well as professionals working within or for companies, such as accountants and programmers. Many market offerings consist of a variable mix of goods and services, as when a restaurant offers both food and service.

Events. Marketers promote time-based events, such as major trade shows, artistic
performances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to both companies and fans.

Experiences. By orchestrating several services and goods, a firm can create, stage, and
market experiences. Walt Disney Worlds Magic Kingdom represents this kind of experiential marketing, allowing customers to visit a fairy kingdom, a pirate ship, or a haunted house. There is also a market for customized experiences, such as spending a few days at a baseball camp playing with retired baseball greats.5

Persons. Celebrity marketing is a major business. Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals all get help from celebrity marketers.6

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Places. Cities, states, regions, and whole nations compete to attract tourists, factories,
company headquarters, and new residents.7 Place marketers include economic development specialists, real estate agents, commercial banks, business associations, and

A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

Part I Understanding Marketing Management

advertising and public relations agencies. For example, the Las Vegas Convention & Tourism Authority has spent about $80 million on its What Happens Here, Stays Here ad campaign, with the goal of attracting 43 million visitors by 2009.8

Properties. Properties are intangible rights of ownership of either real property

(real estate) or financial property (stocks and bonds). Properties are bought and sold through the marketing efforts of real estate agents, investment companies, and banks.

Organizations. Organizations actively work to build a strong, favorable, and unique

image in the minds of their target publics. Tescos Every Little Bit Helps marketing program has vaulted it to the top of the supermarket chains in the United Kingdom. Universities, museums, performing arts organizations, and nonprofits use marketing to boost their public images and compete for audiences and funds.

Information. Schools and universities essentially produce and distribute information

at a price to parents, students, and communities. Books, magazines, and newspapers also market information. One of our societys major industries is the production, packaging, and distribution of information.9 Even companies that sell physical products add value through the use of information. The CEO of Siemens Medical Systems, for instance, says the firms product is not necessarily an X-ray or an MRI, but information. Our business is really healthcare information, and our end product is really an electronic patient record: information on lab tests, pathology, and drugs as well as voice dictation.10

Ideas. Every market offering includes a basic idea. For instance, social marketers
are busy promoting such ideas as Friends Dont Let Friends Drive Drunk and A Mind Is a Terrible Thing to Waste.

What Is a Market?
Traditionally, a market was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market). Marketers often use the term market to cover groupings of customers. They view the sellers as constituting the industry and buyers as constituting the market. They talk about need markets (the diet-seeking market), product markets (the shoe market), demographic markets (the youth market), and geographic markets (the French market); or other types of markets, such as voter markets, labor markets, and donor markets. Marketers may serve consumer markets, business markets, global markets, nonprofit markets, government markets, or some combination of these. Figure 1.1 illustrates the relationship between the industry and the market. Sellers send goods, services, and communications (ads, direct mail) to the market; in return they receive money and information (customer attitudes, sales data). The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information. The marketplace is physical, such as a store you shop in, whereas the marketspace is digital, as when you shop on the Internet.11 Mohan Sawhney has proposed the concept of a metamarket to describe a cluster of complementary goods and services that are closely related in the minds of consumers but are spread across a diverse set of industries. The automobile metamarket consists of automobile manufacturers, new car and used car dealers, financing companies, insurance companies, mechanics,
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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Chapter 1 Defining Marketing for the Twenty-First Century FIGURE 1.1 A Simple Marketing System
Communication

Goods/Services Industry (a collection of sellers) Money Market (a collection of buyers)

Information

spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the Internet. Car buyers can get involved in many parts of this metamarket. This has created an opportunity for metamediaries to assist buyers to move seamlessly through these groups, although they are disconnected in physical space. One example is Edmunds (www.edmunds.com), where buyers can find the features and prices of different vehicles and search for the lowest-price dealer, for financing, for car accessories, and for used cars at bargain prices. Metamediaries can also serve other metamarkets, such as the home ownership market and the wedding market.12

Who Markets?
A marketer is someone who seeks a response (attention, a purchase, a vote, a donation) from another party, called the prospect. If two parties are seeking to sell something to each other, both are marketers. Marketers must have diverse quantitative and qualitative skills, entrepreneurial attitudes, and keen understanding of how marketing can create value within their organizations.13 The CMO has five key functions: (1) strengthening the brands; (2) measuring marketing effectiveness; (3) driving new product development based on customer needs; (4) gathering meaningful customer insights; and (5) utilizing new marketing technology. Harvards John Quelch and Gail McGovern note that there is tremendous variability in the responsibilities and job descriptions for CMOs.14 They offer eight ways to improve CMO success (see Figure 1.2).

How Is Marketing Done?

In practice, marketing follows a logical process. The marketing planning process consists of analyzing marketing opportunities; selecting target markets; designing marketing strategies; developing marketing programs; and managing the marketing effort. In highly competitive marketplaces, marketing planning is more fluid and is continually refreshed. Increasingly, marketing is not done only by the marketing department. Marketing needs to affect every aspect of the customer experience, all possible touch pointsstore layouts, package designs, product functions, employee training, and shipping and logistics methods. Marketing must also be heavily involved in key management activities
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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Part I Understanding Marketing Management

NOT AVAILABLE FOR ELECTRONIC VIEWING

such as product innovation and new business development. In creating a strong marketing organization, marketers must think like executives in other departments, and executives in other departments must think more like marketers.15

CORE MARKETING CONCEPTS

To understand the marketing function, we need to understand the following core concepts.

Needs, Wants, and Demands

Needs are the basic human requirements. People need food, air, water, clothing, and shelter to survive. People also have strong needs for recreation, education, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but may want a hamburger, French fries, and a soft drink. A person in Mauritius needs food but may want a mango, rice, lentils, and beans. Wants are shaped by ones society. Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few are willing and able to buy one. Companies must measure not only how many people want their product but also how many would actually be willing and able to buy it.
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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Chapter 1 Defining Marketing for the Twenty-First Century These distinctions shed light on the frequent criticism that marketers create needs or marketers get people to buy things they dont want. Marketers do not create needs: Needs preexist marketers. Marketers, along with other societal factors, influence wants. Marketers might promote the idea that a Mercedes would satisfy a persons need for social status. They do not, however, create the need for social status. Understanding customer needs and wants is not always simple. Some customers have needs of which they are not fully conscious, or they cannot articulate these needs, or they use words that require some interpretation. Consider the customer who says he wants an inexpensive car. A marketer may distinguish among five types of needs in this case:
1. 2. 3. 4. Stated needs: The customer wants an inexpensive car. Real needs: The customer wants a car with a low operating cost, not a low initial price. Unstated needs: The customer expects good service from the dealer. Delight needs: The customer wants the dealer to include an onboard navigation system. 5. Secret needs: The customer wants to be seen by friends as a savvy consumer.

Responding only to the stated need may shortchange the customer, because sometimes consumers do not know what they want in a product, especially breakthrough products such as the first cellular phone. Simply giving customers what they want isnt enough any moreto gain an edge, companies must help customers learn what they want.

Target Markets, Positioning, and Segmentation

A marketer can rarely satisfy everyone in a market. Not everyone likes the same cereal, automobile, college, or movie. Therefore, marketers identify and profile distinct groups of buyers who might prefer or require varying product and service mixes by examining demographic, psychographic, and behavioral differences among buyers. The marketer then decides which segments present the greatest opportunitywhich are its target markets. For each target market, the firm develops a market offering that it positions in the minds of the target buyers as delivering some central benefit(s). For example, Volvo develops its cars for buyers who are concerned about automobile safety. Volvo, therefore, positions its car as the safest a customer can buy. Companies do best when they choose their target market(s) carefully and prepare tailored marketing programs.

Offerings and Brands

Companies address needs by putting forth a value proposition, a set of benefits they offer to satisfy customers needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences. A brand is an offering from a known source. A brand such as McDonalds carries many associations in peoples minds that make up the brand image: hamburgers, fun, children, fast food, convenience, and golden arches. All companies strive to build a strong, favorable, and unique brand image.
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Part I Understanding Marketing Management

Value and Satisfaction

The offering will be successful if it delivers value and satisfaction to the target buyer. The buyer chooses between offerings on the basis of which is perceived to deliver the most value. Value reflects the sum of the perceived tangible and intangible benefits and costs to customers. Its primarily a combination of quality, service, and price, called the customer value triad. Value increases with quality and service and decreases with price, although other factors can also play an important role in perceptions of value. Value is a central marketing concept. Marketing can be seen as the identification, creation, communication, delivery, and monitoring of customer value. Satisfaction reflects a persons comparative judgment of a products perceived performance (or outcome) in relation to expectations. If product performance falls short of expectations, the customer is dissatisfied and disappointed. If it matches expectations, the customer is satisfiedand if it exceeds expectations, the customer is delighted.

Marketing Channels
To reach a target market, the marketer uses three kinds of marketing channels. Communication channels, which deliver and receive messages from target buyers, include newspapers, magazines, radio, television, mail, telephone, billboards, posters, CDs, and the Internet. And, just as people convey messages by facial expressions and clothing, firms communicate through the look of their stores, the appearance of their Web sites, and in other ways. Marketers are increasingly adding dialogue channels, including e-mail and blogs, to familiar monologue channels such as ads. The marketer uses distribution channels to display, sell, or deliver the physical product or service(s) to the buyer or user. These include distributors, wholesalers, retailers, and agents. The marketer also uses service channels such as warehouses, transportation firms, banks, and insurance companies to carry out transactions with potential buyers. Marketers clearly face a design problem in choosing the best mix of communication, distribution, and service channels for their offerings.

Supply Chain
The supply chain is a longer channel stretching from raw materials to components to final products that are carried to final buyers. The supply chain for womens purses starts with hides and moves through tanning operations, cutting operations, manufacturing, and the marketing channels bringing products to customers. Each company captures only a certain percentage of the total value generated by the supply chains value delivery system. When a company acquires competitors or moves upstream or downstream, its aim is to capture a higher percentage of supply chain value.

Competition
Competition includes all the actual and potential rival offerings and substitutes that a buyer might consider. Suppose an automobile company is planning to buy steel for its cars. There are several possible levels of competitors. The manufacturer can buy from U.S. Steel, from a foreign firm in Japan or Korea, or from a mini-mill such as Nucor.
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc. 2008933525

Chapter 1 Defining Marketing for the Twenty-First Century Other alternatives are to buy aluminum for certain parts to lighten the cars weight or to buy engineered plastics instead of steel for bumpers. Clearly, U.S. Steel would be thinking too narrowly of competition if it thought only of other integrated steel companies. In fact, U.S. Steel is more likely to be hurt in the long run by substitute products than by other steel companies.

Marketing Environment
The marketing environment consists of the task environment and the broad environment. The task environment includes the immediate actors involved in producing, distributing, and promoting the offering, such as the company, suppliers, distributors, dealers, and the target customers. In the supplier group are material suppliers and service suppliers such as marketing research agencies, advertising agencies, banks and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers. The broad environment consists of six components: demographic environment, economic environment, physical environment, technological environment, political-legal environment, and social-cultural environment. Marketers must pay close attention to the trends and developments in these environments and make timely adjustments to their marketing strategies.

THE NEW MARKETING REALITIES

Marketers today must attend and respond to a number of significant developments, including major societal forces, new consumer capabilities, and new company capabilities.

Major Societal Forces

New behaviors, opportunities, and challenges are emerging as a result of a variety of major and sometimes interlinking societal forces. Network information technology promises more accurate levels of production, more targeted communications, and more relevant pricing. Globalizationspecifically advances in transportation, shipping, and communicationmakes it easier to market in other countries and easier for consumers to buy from marketers in other countries. Deregulation has increased competition and growth opportunities in many nations, even as privatization in some countries has put public firms in private hands. Brand manufacturers face intense competition from domestic and foreign brands; at the same time, many strong brands are becoming mega-brands with considerable presence. Industry convergence is increasing as companies discover new opportunities at the intersection of multiple industries. Meanwhile, more consumers are resisting marketing efforts. Retailing is being transformed as small retailers succumb to the power of giant retailers and category killers and store-based retailers meet competition from non-store retailers. Finally, online businesses such as Amazon created disintermediation by intervening in the traditional flow of goods through distribution channels. In response, many firms engaged in reintermediation and added online services to their existing offerings.
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Part I Understanding Marketing Management

New Consumer Capabilities

Customers now perceive fewer real product differences and show less brand loyalty, while becoming more price- and quality-sensitive in their search for value. In fact, consumers have substantially increased their buying power because of the Internet and can choose from a greater variety of available goods and services. They have access to a huge amount of information about practically anythingand they can more easily interact, place, and receive orders from home, office, or mobile phone. Social networking sites bring together buyers with a common interest and allow them to compare notes on offerings. And the Internet gives consumers an amplified voice to influence peer and public opinion through MySpace, YouTube, and other sites.

New Company Capabilities

New forces are generating a new set of capabilities for companies, starting with the use of the Internet as a powerful information and sales channel that augments marketers geographical reach. Researchers can collect fuller and richer data about markets, customers, prospects, and competitors. Internal communication is faster and easier with todays technology. Also, companies are facilitating and speeding communication among customers by creating buzz through brand advocates and user communities. Target marketing and two-way communication are easier, thanks to the proliferation of special-interest magazines, TV channels, and Internet technology. Marketers can now send ads, coupons, samples, and information to customers who have requested them or given permission to have them sent. Companies can reach consumers on the move with mobile marketing. Firms can produce individually differentiated goods because of advances in factory customization, computers, the Internet, and database software. Managers can improve purchasing, recruiting, training, and internal and external communications. Finally, corporate buyers can save by comparing sellers prices online and purchasing at auction or posting their own buying terms.

COMPANY ORIENTATION TOWARD THE MARKETPLACE

What philosophy should guide a companys marketing efforts? Marketers have operated under the production concept, product concept, selling concept, and marketing concept; increasingly, they are operating under the holistic marketing concept.

The Production Concept

The production concept, one of the oldest concepts in business, holds that consumers will prefer products that are widely available and inexpensive. Managers of productionoriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries such as China, where the largest PC manufacturer, Lenovo, takes advantage of the huge inexpensive labor pool to dominate the market.16 This orientation is also used when a company wants to expand the market.
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Chapter 1 Defining Marketing for the Twenty-First Century

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The Product Concept

The product concept proposes that consumers favor those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time. However, these managers are sometimes caught up in love affairs with their products. Although they may believe that a better mousetrap will lead people to beat paths to their doors, new or improved products will not necessarily be successful unless they are priced, distributed, advertised, and sold properly.

The Selling Concept

The selling concept holds that consumers and businesses, if left alone, wont buy enough of the organizations products. The organization must, therefore, undertake an aggressive selling and promotion effort. As Coca-Colas former vice president, Sergio Zyman, once observed: The purpose of marketing is to sell more stuff to more people more often for more money in order to make more profit.17 The selling concept is practiced most aggressively with unsought goods, goods that buyers normally do not think of buying, such as insurance, encyclopedias, and funeral plots. Most firms practice the selling concept when they have overcapacity, aiming to sell what they make rather than making what the market wants. However, marketing based on hard selling carries high risks. It assumes that customers who are coaxed into buying a product will like it; and that if they do not, they not only wont return it or bad-mouth it or complain to consumer organizations, but they might even buy it again.

The Marketing Concept

The marketing concept emerged in the mid-1950s when business shifted to a customercentered, sense-and-respond philosophy.18 The job is not to find the right customers for your products, but to find the right products for your customers. Under the marketing concept, the key to achieving organizational goals is being more effective than competitors in creating, delivering, and communicating superior customer value to your target markets. Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the sellers need to convert his or her product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.19 Several scholars have found that companies that embrace the marketing concept achieve superior performance.20 This was first demonstrated by companies practicing a reactive market orientationunderstanding and meeting customers expressed needs. Some critics say this means companies develop only low-level innovations. Narver and his colleagues argue that more advanced, high-level innovation is possible if the focus is on customers latent needs. He calls this a proactive marketing orientation.21 Companies such as 3M, Hewlett-Packard, and Motorola have made a practice of researching latent needs through a probe-and-learn process. Firms that practice both reactive and proactive marketing orientations are implementing total market orientation and are likely to be the most successful.
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Part I Understanding Marketing Management FIGURE 1.3 Holistic Marketing Dimensions

Senior Management Products & Services Communications Channels

Marketing Department

Other Departments

Internal Marketing

Integrated Marketing

Holistic Marketing

Sales Revenue Brand & Customer Equity

Performance Marketing

Relationship Marketing

Ethics Community Environment Legal

Customers Channel

Partners

The Holistic Marketing Concept

Todays best marketers recognize the need for a more complete, cohesive approach that goes beyond traditional applications of the marketing concept. The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Holistic marketing recognizes that everything matters with marketingand that a broad, integrated perspective is often necessary. Holistic marketing is thus an approach to marketing that attempts to recognize and reconcile the scope and complexities of marketing activities. Figure 1.3 is a schematic overview of four broad components characterizing holistic marketing, themes that will appear throughout this book: relationship marketing, integrated marketing, internal marketing, and performance marketing. Successful companies apply holistic marketing to keep their programs and activities changing with the changes in their marketplace and marketspace. Breakthrough Marketing: Nike shows how the company has done this to maintain its market leadership over the years. Relationship Marketing Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their business.22 Four key constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts). The ultimate outcome of relationship marketing is the building of a unique company asset called a marketing network. A marketing network consists of the company and its supporting stakeholders (customers, employees, suppliers, distributors, retailers, ad agencies, university scientists, and others) with whom it has built
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BREAKTHROUGH MARKETING: NIKE

Nike hit the ground running in 1962. Originally known as Blue Ribbon Sports, the company focused on high-quality running shoes designed especially for athletes by athletes. Understanding that customer choices are influenced by top athletes preferences and behavior, Nikes marketing has always featured winning athletes. In 1988, Nike aired the first ads in its landmark Just Do It campaign, inspiring a generation of athletic enthusiasts to pursue their goals. As Nike began expanding internationally, however, it found that its ads were seen as too aggressive overseas. Nike had to authenticate its brand the way it had in the United States by building credibility and relevance in European sports, particularly soccer (known outside the United States as football). Nike began to sponsor youth leagues, local clubs, and national teams. The big break came in 1994, when the Brazilian team (the only national team for which Nike had any real sponsorships) won the World Cup. That victory helped Nike succeed in major markets such as China. Moving into new markets and new product categories has propelled Nike to the top, making it the worlds leading athletic apparel, footwear, and equipment manufacturer.23 mutually profitable business relationships. The operating principle is simple: Build an effective network of relationships with key stakeholders, and profits will follow.24 A growing number of companies are also shaping separate offers, services, and messages for individual customers, based on information about past transactions, demographics, psychographics, and media and distribution preferences. By focusing on their most profitable customers, products, and channels, these firms hope to achieve profitable growth by capturing a larger share of each customers expenditures, building high loyalty and customer lifetime value. Such activities fall under the umbrella of customer centricity.25 Note that marketers must conduct partner relationship management as well as customer relationship management. Integrated Marketing With integrated marketing, the marketers task is to devise marketing activities and assemble fully integrated marketing programs that create, communicate, and deliver value for consumers. Marketing activities come in all forms.26 McCarthy classified these activities as marketing mix tools of four broad kinds, which he called the four Ps of marketing: product, price, place, and promotion (see Figure 1.4).27 The firm can change its price, sales force size, and advertising expenditures in the short run. It can develop new products and modify its distribution channels only in the long run. Thus the firm typically makes fewer period-to-period marketingmix changes in the short run than the number of marketing-mix decision variables might suggest. The four Ps represent the sellers view of the marketing tools available for influencing buyers. From a buyers point of view, each marketing tool is designed to deliver a customer benefit. A complementary breakdown of marketing activities has been proposed, centering on the customer questions that the four dimensions (SIVA) are designed to answer:28
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1. Solution: How can I solve my problem? 2. Information: Where can I learn more about it?

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Part I Understanding Marketing Management FIGURE 1.4 The Four P Components of the Marketing Mix

Marketing mix

Product Product variety Quality Design Features Brand name Packaging Sizes Services Warranties Returns

Place Channels Coverage Assortments Locations Inventory Transport Price List price Discounts Allowances Payment period Credit terms Promotion Sales promotion Advertising Sales force Public relations Direct marketing

3. Value: What is my total sacrifice to get this solution? 4. Access: Where can I find it?

Two key themes of integrated marketing are that (1) many different marketing activities communicate and deliver value; and (2) when coordinated, marketing activities maximize their joint effects. In other words, marketers should design and implement any one marketing activity with all other activities in mind. Internal Marketing Holistic marketing incorporates internal marketing, ensuring that everyone in the organization embraces appropriate marketing principles, especially senior management. Internal marketing is the task of hiring, training, and motivating able employees who want to serve customers well. Smart marketers recognize that internal marketing activities can be as important as, or even more important than external marketing activities. It makes no sense to promise excellent service before the companys staff is ready to provide it (see Marketing Skills: Internal Marketing). Internal marketing must take place on two levels. At one level, the various marketing functionssales force, advertising, customer service, product management, marketing researchmust work together and be coordinated from the customers point of view. At the second level, other departments must embrace marketing and must think customer. Marketing is not a department so much as a company orientation.29 The bottom-line importance of internal marketing was highlighted in a recent study by Booz Allen Hamilton and the Association of National Advertisers, in conjunction with Brandweek magazine. The researchers identified six types of marketing organizations: Growth Champions, Marketing Masters, Senior Counselors, Best Practice Advisors, Brand Builders, and Service Providers. Marketing heavily influenced all aspects of the organization in the most successful type, Growth
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MARKETING SKILLS: INTERNAL MARKETING

One of the most valuable skills marketers can have is the ability to select, educate, and rally people inside the organization to build mutually satisfying long-term relationships with stakeholders. Internal marketing starts with the selection of managers and employees who have positive attitudes toward the company, its products, and its customers. The next step is to train, motivate, and empower the entire staff so that they have the knowledge, tools, and authority to provide value to customers. After establishing standards for employee performance, the final step is to monitor employee actions, then reward and reinforce good performance. Internal marketing is a key strength at Southwest Airlines. Top managers constantly visit different Southwest facilities, thank staff members for their efforts, send birthday cards to employees, and share customer comments with employees. Southwests employees deliver superior service with a smile, and they are so dedicated that some have worked without pay to keep the airlines costs down during difficult periods. Clearly, Southwests managers are good role models for learning the critical skill of internal marketing.30

Championsand this type was 20% more likely to deliver revenue growth and profitability than the other types.31 Performance Marketing Holistic marketing incorporates performance marketing and understanding the business returns from marketing activities and programs, as well as addressing broader concerns and their legal, ethical, social, and environmental effects. Top management is going beyond sales revenue to examine the marketing scorecard and interpret what is happening to market share, customer loss rate, customer satisfaction, product quality, and other measures.

Financial accountability. Marketers are increasingly asked to justify their investments to top management in financial and profitability terms, as well as in terms of building the brand and growing the customer base.32 Therefore, theyre using a variety of financial measures to assess the direct and indirect value of their marketing efforts. Theyre also recognizing that much of their firms market value comes from intangible assets such as their brands, customers, employees, and distributor and supplier relations.

Social responsibility marketing. Marketers must consider the ethical, environmental,

legal, and social context of their activities. Under the societal marketing concept, the companys task is to determine the needs, wants, and interests of target markets so it can satisfy customers more effectively and efficiently than competitors while preserving or enhancing customers and societys long-term well-being.33 Sustainability has become a major concern in the face of challenging environmental forces. For example, McDonalds strives for a socially responsible supply system encompassing everything from healthy fisheries to redesigned packaging.34 Some firms use social responsibility to differentiate themselves, build consumer preference, and improve sales and profits. Table 1.1 displays some different types of corporate social initiatives, illustrated by McDonalds.35

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A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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Part I Understanding Marketing Management

NOT AVAILABLE FOR ELECTRONIC VIEWING

MARKETING MANAGEMENT TASKS

With holistic marketing as a backdrop, we can identify a specific set of tasks that make up successful marketing management and marketing leadership.

Developing marketing strategies and plans. The first task is to identify the organizations potential long-run opportunities, given its market experience and core competencies. Chapter 2 discusses this process in detail.

Capturing marketing insights. Marketers must understand what is happening inside

and outside the organization by monitoring the marketing environment and conducting marketing research to assess buyer needs and behavior, as well as actual and potential market size. Chapter 3 looks at marketing research, demand, and the marketing environment.

Connecting with customers. The firm must determine how to best create value for its
chosen target markets and how to develop strong, profitable, long-term relationships with consumers and business customers, as discussed in Chapter 4. Chapters 5 and Chapter 6 explore the analysis of consumer and business markets. Next, marketers identify major market segments, evaluate each, and target those that the firm can serve most effectively, as discussed in Chapter 7.

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Building strong brands. Now marketers need to understand how customers perceive
their brands strengths and weaknessesthe subject of Chapter 8. Because brands

A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

Chapter 1 Defining Marketing for the Twenty-First Century

never exist in a vacuum, marketers must not only deal with the competitive situation, they must develop and communicate appropriate positioning. Chapter 9 explains how to do this.

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Shaping market offerings. At the heart of the marketing program is the product
the firms tangible offering to the market, which includes the product quality, design, features, and packaging, all explored in Chapter 10. Marketers may also include services as part of the market offering, as discussed in Chapter 11; in addition, pricing is a key element, as shown in Chapter 12.

Delivering value. Here, marketers determine how to deliver the offerings value to the
target market by identifying, recruiting, and linking with marketing facilitators such as retailers, wholesalers, and physical-distribution firms. Marketing channels are examined in Chapter 13; retailing, wholesaling, and logistics are covered in Chapter 14.

Communicating value. Now the firm must convey the value embodied by the
offering to the target market through an integrated marketing communication program that maximizes the individual and collective contribution of all communication activities. Chapter 15 discusses the design and management of integrated marketing communications; Chapter 16 explores mass communications such as advertising and sales promotions, while Chapter 17 looks at personal communications such as direct marketing and personal selling.

Creating long-term growth. The companys marketing strategy must take into
account changing global opportunities and challenges. Moreover, management must put in place a marketing organization capable of implementing the marketing plan. See Chapter 18 for more detail.

EXECUTIVE SUMMARY
Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. Marketers are involved in marketing 10 types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas. They operate in four different customer markets: consumer, business, global, and nonprofit. Marketers today must attend and respond to a number of significant developments, including major societal forces, new consumer capabilities, and new company capabilities. Over the years, organizations have operated under the production concept, product concept, selling concept, and marketing concept. Increasingly, they operate under the holistic marketing concept, based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Four components of holistic marketing are relationship marketing, integrated marketing, internal marketing, and performance marketing (both financial accountability and social responsibility marketing). Successful marketing managers must accomplish these tasks: develop marketing strategies and plans, capture marketing insights, connect with customers, build strong brands, shape the market offerings, deliver value, communicate value, and create successful long-term growth.
A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

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NOTES
1. Starbucks to Rely on China, Shed Trans Fats in N. America, Nations Restaurant News, May 21, 2007, p. 12; Janet Adamy, Different Brew: Eyeing a Billion Tea Drinkers, Starbucks Pours It on in China, Wall Street Journal, November 29, 2006, p. A1. 2. Sandra Ward, Warming up the Copier, Barrons, May 1, 2006, pp. 19, 21. 3. American Marketing Association, 2004. 4. Peter Drucker, Management: Tasks, Responsibilities, Practices (New York: Harper and Row, 1973), pp. 6465. 5. Philip Kotler, Dream Vacations: The Booming Market for Designed Experiences, The Futurist (October 1984): 713; B. Joseph Pine II and James Gilmore, The Experience Economy (Boston: Harvard Business School Press, 1999); Bernd Schmitt, Experience Marketing (New York: Free Press, 1999); Mark Hyman, The Family That Fields Together, Business Week, February 9, 2004, p. 92. 6. Irving J. Rein, Philip Kotler, and Martin Stoller, High Visibility (Chicago: NTC Publishers, 1998); H. Lee Murphy, New Salton Recipe: Celeb Chefs, Crains Chicago Business, April 4, 2005, p. 4. 7. Philip Kotler, Irving J. Rein, and Donald Haider, Marketing Places: Attracting Investment, Industry, and Tourism to Cities, States, and Nations (New York: Free Press, 1993); Philip Kotler, Christer Asplund, Irving Rein, and Donald H. Haider, Marketing Places in Europe (London: Financial Times Prentice-Hall, 1999). 8. Michael McCarthy, Vegas Goes Back to Naughty Roots, USA Today, April 11, 2005; Julie Dunn, Vegas Hopes for Payoff with Denverites, The Denver Post, June 16, 2005; John M. Broder, The Pied Piper of Las Vegas Seems to Have Perfect Pitch, The New York Times, June 4, 2004. 9. Carl Shapiro and Hal R. Varian, Versioning: The Smart Way to Sell Information, Harvard Business Review (NovemberDecember 1998): 106114. 10. John R. Brandt, Dare to Be Different, Chief Executive, May 2003, pp. 3438. 11. Jeffrey Rayport and John Sviokla, Managing in the Marketspace, Harvard Business Review (NovemberDecember 1994): 141150. Also see their Exploring the Virtual Value Chain, Harvard Business Review (NovemberDecember 1995): 7585. 12. Mohan Sawhney, Seven Steps to Nirvana (New York: McGraw-Hill, 2001). 13. Richard Rawlinson, Beyond Brand Management, Strategy & Business, Summer 2006. 14. Gail McGovern and John A. Quelch, The Fall and Rise of the CMO, Strategy+Business, Winter 2004. 15. Constantine von Hoffman, Armed with Intelligence, Brandweek, May 29, 2006, pp. 1720. 16. Jane Spencer and Geoffrey A. Fowler, Lenovo Goes for Its Own Olympic Medal, Wall Street Journal, March 27, 2007, p. B4. 17. Bruce I. Newman, ed., Handbook of Political Marketing (Thousand Oaks, CA: Sage Publications, 1999); and Bruce I. Newman, The Mass Marketing of Politics (Thousand Oaks, CA: Sage Publications, 1999). 18. John B. McKitterick, What Is the Marketing Management Concept? in Frank M. Bass, ed. The Frontiers of Marketing Thought and Action (Chicago: American Marketing Association, 1957), pp. 7182; Fred J. Borch, The Marketing Philosophy as a Way of Business Life, The Marketing Concept: Its Meaning to Management (Marketing series, no. 99) (New York: American Management Association, 1957), pp. 35; Robert J. Keith, The Marketing Revolution, Journal of Marketing ( January 1960): 3538. 19. Theodore Levitt, Marketing Myopia, Harvard Business Review, JulyAugust 1960, p. 50. 20. Ajay K. Kohli and Bernard J. Jaworski, Market Orientation: The Construct, Research Propositions, and Managerial Implications, Journal of Marketing (April 1990): 118; John C. Narver and Stanley F. Slater, The Effect of a Market Orientation on Business Profitability, Journal of Marketing (October 1990): 2035; Stanley F. Slater and John C. Narver, Market Orientation, Customer Value, and Superior Performance, Business Horizons (MarchApril 1994): 2228; A. Pelham and D. Wilson, A Longitudinal Study of the Impact of Market Structure, Firm Structure, Strategy and Market Orientation Culture on Dimensions of Business Performance, Journal of the Academy of Marketing Science 24, no. 1 (1996): 2743; Rohit Deshpande and John U. Farley, Measuring Market Orientation: Generalization and Synthesis, Journal of Market-Focused Management 2 (1998): 213232. 21. John C. Narver, Stanley F. Slater, and Douglas L. MacLachlan, Total Market Orientation, Business Performance, and Innovation, Working Paper Series, Journal of Marketing Science Institute, Report No. 00-116, 2000, pp. 120. See also Ken Matsuno and John T. Mentzer, The Effects of

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A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.

Chapter 1 Defining Marketing for the Twenty-First Century

Strategy Type on the Market OrientationPerformance Relationship, Journal on Marketing (October 2000): 116. Evert Gummesson, Total Relationship Marketing (Boston: Butterworth-Heinemann, 1999); Regis McKenna, Relationship Marketing (Reading, MA: Addison-Wesley, 1991); Martin Christopher, Adrian Payne, and David Ballantyne, Relationship Marketing: Bringing Quality, Customer Service, and Marketing Together (Oxford, U.K.: ButterworthHeinemann, 1991). Paula L. Stepankowsky, Nike Tries to Catch Up to Trend, Wall Street Journal, May 29, 2007, p. B3D; Justin Ewers and Tim Smart, A Designer Swooshes In, U.S. News & World Report, January 26, 2004, p. 12; 10 Top Non Traditional Campaigns, Advertising Age, December 22, 2003, p. 24; Chris Zook and James Allen, Growth Outside the Core, Harvard Business Review (December 2003): 66(8). James C. Anderson, Hakan Hakansson, and Jan Johanson, Dyadic Business Relationships within a Business Network Context, Journal of Marketing (October 15, 1994): 115. Larry Selden and Yoko S. Selden, Profitable Customer: The Key to Great Brands, Advertising Age, July 10, 2006, p. S7. Neil H. Borden, The Concept of the Marketing Mix, Journal of Advertising Research 4 ( June 1964): 27. For another framework, see George S. Day, The Capabilities of Market-Driven Organizations, Journal of Marketing 58, no. 4 (October 1994): 3752. E. Jerome McCarthy and William D. Perreault, Basic Marketing: A Global-Managerial Approach, 14th ed. (Homewood, IL: McGraw-Hill Irwin, 2002).

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22.

23.

24.

25.

26.

27.

28. Chekitan S. Dev and Don E. Schultz, A CustomerFocused Approach Can Bring the Current Marketing Mix into the 21st Century, (Marketing Management 14 (January/February 2005). 29. Christian Homburg, John P. Workman Jr., and Harley Krohmen, Marketings Influence Within the Firm, Journal of Marketing ( January 1999): 115. 30. Using Positive Four-Letter Words: Southwest Airlines Incorporates Myers-Briggs Personality Test into Training Program, Employee Benefit News, April 1, 2007; Barney Gimbel, Southwests New Flight Plan, Fortune, May 16, 2005, pp. 93+; Jane Lewis, The Leaders Who Changed HR, Personnel Today, January 22, 2002, pp. 2+. 31. Booz Allen Hamilton/Assn. of National Advertisers Marketing Profiles, in conjunction with Brandweek, from Constantine von Hoffman, Armed with Intelligence, Brandweek, May 29, 2006, pp. 1720. 32. Robert Shaw and David Merrick, Marketing Payback: Is Your Marketing Profitable? (London, UK: Pearson Education, 2005). 33. Rajendra Sisodia, David Wolfe, and Jagdish Sheth, Firms of Endearment: How World Class Companies Profit from Passion (Upper Saddle River, NJ: Wharton School Publishing, 2007). 34. John Ehernfield, Feeding the Beast, Fast Company, December 2006/January 2007, pp. 4143. 35. If choosing to develop a strategic corporate social responsibility program, see Michael E. Porter and Mark R. Kramer, Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review (December 2006): 7892.

2008933525 A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright 2009 by Pearson Education, Inc.