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Marketing by the Numbers: McDonald’s vs. Burger King

Marketing by the Numbers: McDonald’s vs. Burger King

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88



PART 1



| Defining Marketing and the Marketing Process



tasks. Finally, each Dyson product must infuse excitement into

products that are so mundane, most people never think much

about them.



The Man behind the Name



James Dyson was born and raised in the United Kingdom. After studying design at the Royal College of Art, he had initially

planned to design and build geodesic structures for use as commercial space. But with no money to get his venture started, he

took a job working for an acquaintance who handed him a blow

torch and challenged him to create a prototype for an amphibious

landing craft. With no welding experience, he figured things out

on his own. Before long, the company was selling 200 boats a

year based on his design.

That trial-and-error approach came naturally to Dyson, who

applied it to create Dyson Inc.’s first product. In 1979, he purchased what its maker claimed was the most powerful vacuum

cleaner on the market. He found it to be anything but. Instead,

it seemed simply to move dirt around the room. This left Dyson

wondering why no one had yet invented a decent vacuum

cleaner. At that point, he remembered something he’d seen in

an industrial sawmill—a cyclonic separator that removed dust

from the air. Why wouldn’t that approach work well in vacuum

cleaners? “I thought no one was bothering to use technology in

vacuum cleaners,” said Dyson. Indeed, the core technology of

vacuum motors at the time was more than 150 years old. “I saw

a great opportunity to improve.”

Dyson then did something that very few people would have

the patience or the vision to do. He spent 15 years and made

5,127 vacuum prototypes—all based on a bagless cyclonic

separator—before he had the one that went to market. In his

own words, “There were 5,126 failures. But I learned from each

one. That’s how I came up with a solution.”

Dyson’s all-new vacuum was far more than techno-gadgetry.

Dyson had developed a completely new motor that ran at

110,000  revolutions per minute—three times faster than any

other vacuum on the market. It provided tremendous suction that

other brands simply couldn’t match. The bagless design was

very effective at removing dirt and particles from the air, and the

machine was much easier to clean out than vacuums requiring

the messy process of changing bags. The vacuum also maneuvered more easily and could reach places other vacuums could

not. Dyson’s vacuum really worked.

With a finished product in hand, Dyson pitched it to all the

appliance makers. None of them wanted it. So Dyson borrowed

$900,000 and began manufacturing the vacuum himself. He

then convinced a mail-order catalog to carry the Dyson instead of

Hoover or Electrolux because, as he told them, “your catalog is

boring.” Dyson vacuums were soon picked up by other mail order

catalogs, then by small appliance chains, and then by large department stores. By the late 1990s, Dyson’s full line of vacuums

was being distributed in multiple global markets. At that point,

Dyson, the company that had quickly become known for vacuum

cleaners, was already moving on to its next big thing.



The Dyson Method



During the development of Dyson’s vacuums, a development

model began to take shape. Take everyday products, focus on

their shortcomings, and improve them to the point of reinvention.



“I like going for unglamorous products and making them a pleasure to use,” Dyson told Fortune magazine. By taking this route,

the company finds solutions to the problems it is trying to solve.

At the same time, it sometimes finds solutions for other problems.

For example, the vacuum motor Dyson developed sucked air

with unprecedented strength. But the flipside of vacuum suction

is exhaust. Why couldn’t such a motor blow air at wet hands

so fast that the water would be pressed off in a squeegee-like

manner, rather than the slow, evaporative approach employed by

commercial hand dryers?

With that realization, Dyson created and launched the

Airblade, a hand dryer that blows air through a 0.2-millimeter slot

at 420 miles per hour. It dries hands in 12 seconds, rather than

the more typical 40 seconds required by other hand dryers. It

also uses cold air—a huge departure from the standard warm air

approach of existing commercial dryers. This not only reduced

energy consumption by 75 percent—a major bonus for commercial enterprises that pay the electric bills—but customers were

much more likely to use a product that worked fast and did the

job right.

With very observable benefits, the Airblade was rapidly

adopted by commercial customers. For example, as part of a

comprehensive plan to improve its environmental impact, Los

Angeles International Airport (LAX) was looking for a solution to

the financial and environmental costs of manufacturing, distributing, and servicing the paper towel dispensers in more than

100  restrooms throughout its terminals. Switching to recycled

paper towels helped, but only minimally. The energy used by

conventional hand dryers made them an unattractive alternative.

But when LAX management saw a demonstration of the Dyson

Airblade, it was a no-brainer. With Airblades installed throughout

its terminals, LAX was able to significantly reduce landfill waste as

well as costs. The overwhelmingly positive feedback from travelers was icing on the cake.

Today’s Airblades have evolved, guided by Dyson’s customercentric approach to developing products. With the first Airblade,

it was apparent that all that high-powered air is noisy. So Dyson

spent seven years and a staggering $42 million to develop the

V4 motor, one of the smallest and quietest commercial motors

available. The new Airblade is quieter and almost six pounds

lighter than the original. But even more advanced is Dyson’s

new Blade V, a sleeker design that is 60 percent thinner than the

Airblade, protruding only four inches from the wall.



Assessing Real Customer Needs



Although Dyson sees itself as a technology-driven company, it

develops products with the end-user in mind. But rather than using traditional market research methods, Dyson takes a different

approach. “Dyson avoids the kind of focus group techniques that

are, frankly, completely averaging,” says Adam Rostrom, group

marketing director for Dyson. “Most companies start with the

consumer and say, ‘Hey Mr. or Mrs. X, what do you want from

your toothbrush tomorrow or what do you want from your shampoo tomorrow?’ The depressing reality is that you often won’t get

many inspiring answers.”

Rather, Dyson uses an approach it calls “interrogating products” to develop new products that produce real solutions to customer problems. After identifying the most obvious shortcomings

for everyday products, it finds ways to improve them. Dyson’s



CHAPTER 2



| Company and Marketing Strategy: Partnering to Build Customer Engagement, Value, and Relationships



philosophy is so focused on solving customer problems, he even

developed the James Dyson Award—the top prize at an annual

contest that challenges college students to design something

that solves a problem. Once a problem-centered design is in

place, the company then tests prototypes with real consumers

under heavy nondisclosure agreements. In this manner, Dyson

can observe consumer reactions in the context of real people

using products in their real lives.

This approach enables Dyson to develop revolutionary products like the Air Multiplier, a fan that moves large volumes of air

around a room with no blades. In fact, the Air Multiplier looks

nothing like a fan. By using technology similar to that found in

turbochargers and jet engines, the Air Multiplier draws air in, amplifies it 18 times, and spits it back out in an uninterrupted stream

that eliminates the buffeting and direct air pressure of conventional fans. Referring to the standard methods of assessing customer needs and wants, Rostrom explains, “If you . . . asked

people what they wanted from their fan tomorrow, they wouldn’t

say ‘get rid of the blades.’ Our approach is about product breakthroughs rather than the approach of just running a focus group

and testing a concept.”



No-Nonsense Promotion



In yet another departure from conventional marketing, Dyson

claims to shun one of the core concepts of marketing. “There is

only one word that’s banned in our company: brand,” Mr. Dyson

proclaimed at Wired magazine’s Disruption By Design conference. What Dyson seems to mean is that the company is not

about creating images and associations that do not originate with

the quality and function of the product itself. “We’re only as good

as our latest product.”

With its rigid focus on product quality and its innovative approaches to common problems, Dyson’s approach to brand

building centers on simply letting its products speak for themselves. Indeed, from the mid-1990s when it started promoting its

bagless vacuums, Dyson invested heavily in television advertising. But unlike most creative approaches, Dyson’s ads are simple

and straightforward, explaining to viewers immediately what the

product is, what it does, and why they need one.

“It’s a really rational subject matter that we work on, so we

don’t need to use white horses on beaches or anything like that,”

Rostrom says, referring to Dyson’s no-nonsense approach to

advertising. “We need only to explain the products. One thing

we’re careful to avoid is resorting to industry-standard ways of

communicating—fluffy dogs and sleeping babies and so on. We

don’t want to blend in that way.”

Today, Dyson complements traditional advertising with digital efforts. Like its TV advertising, such methods are simple,

straightforward, and right to the point. For example, e-mail communications are used sparingly, targeted to existing customers,

and timed for maximum impact. And beyond the media it buys,

Dyson considers public relations as the promotional medium that

carries most of the weight. From product reviews in the mainstream media to online reviews and tweets about its products,

word of Dyson’s products gets around fast.

The Airblade Tap sink faucet, Dyson’s most recent expansion into a new industry, is a microcosm of Dyson’s marketing

strategy. It took 125 engineers three years and 3,300 prototypes



89



to develop the final product. The Airblade Tap provides clearly

communicated solutions to everyday problems—solutions that

make life easier. It solves those problems in ways that no other

product has ever attempted, claiming to “reinvent the way we

wash our hands.” And it injects style into an otherwise boring product. Dyson sums it up this way: “Washing and drying

your hands tends not to be a very pleasant experience. Water

splashes, paper is wasted, and germs are passed along. The Tap

is a totally different experience. You have your own sink, your own

dryer.” And at $1,500, it illustrates another element of the Dyson

marketing mix—a high price point that communicates quality and

benefits that are worth it. And if the Airblade Tap is a hit, it will

serve to forward Dyson’s goal of doubling its annual revenues of

$1.8 billion “quite quickly.”

At Dyson Ltd., innovation never ends. On a daily basis, James

Dyson collaborates on top secret projects—many of them 5 to

10 years away from completion—with a sample of the company’s

army of designers and engineers. Its newest vacuum cleaner—

the DC59 Animal—is yet another example of how Dyson’s innovation cycle continues. It’s cordless, weighs less than five pounds,

is designed to be handheld, and boasts three times the suction

of any other handheld vacuum on the market—cordless or not.

The company is not only continuing to demonstrate that it can

come up with winning products again and again, it is expanding

throughout the world at a rapid pace. Dyson products are sold

in over 50 global markets, selling well in emerging economies as

well as developed first-world nations. Dyson does well in both

economic good times and recessionary periods. From a single

vacuum cleaner to what Dyson is today in less than 20 years—

that’s quite an evolution.



Questions for Discussion

2-18

2-19

2-20

2-21



Write a market-oriented mission statement for Dyson.

What are Dyson’s goals and objectives?

Does Dyson have a business portfolio? Explain.

Discuss Dyson’s marketing mix techniques and how they

fit within the context of its business and marketing strategy.



2-22 Is Dyson a customer-centered company? Explain.

Sources: Mary O’Neill, “James Dyson Revolutionizes Vacuum Cleaner

Industry,” Investors.com, February 5, 2014, www.news.investors.com/

print/management-leaders-in-success/020514-688937-james-dysonbuilt-a-fortune-solving-everyday-problems-with-good-design.aspx;

Darrell Etherington, “Dyson DC59 Review,” Techcrunch, February 7, 2014,

www.techcrunch.com/2014/02/07/dyson-dc59-review-a- portablepowerhouse-to-help-you-ditch-corded-vacuums-entirely/; Jonathan Bacon,

“Cleaning Up All Over the World,” Marketing Week, November 22, 2012,

www.marketingweek.co.uk/trends/cleaning-up-all-over-the-world/

4004751.article; Matthew Creamer, “Mr. Dyson: ‘I Don’t Believe in Brand’,”

Advertising Age, May 2, 2012, www.adage.com/print/234494; Kelsey

Campbell-Dollaghan, “Dyson’s Latest Coup: A $1,500 Sink Faucet That

Dries Hands, Too,” Fastco Design, February 5, 2013, www.fastcodesign

.com/1671788/dyson-s-latest-coup-a-1500-sink-faucet-that-drieshands-too; Alicia Kirby, “A Day in the Life of James Dyson,” Wall

Street Journal, December 5, 2013, www.online.wsj.com/news/articles/

SB10001424052702303914304579192123334228460; and information

found at www.dyson.com, accessed June 2014.



90



PART 1



| Defining Marketing and the Marketing Process



MyMarketingLab

Go to mymktlab.com for the following Assisted-graded writing questions:

2-23 How are marketing departments organized? Which organization is best?

(AACSB: Communication, Reflective Thinking)

2-24 Marketers are increasingly held accountable for demonstrating marketing

success. Research the various marketing metrics, in addition to those

described in the chapter and appendix 2, used by marketers to measure

marketing performance. Write a brief report of your findings. (AACSB:

Communication; Reflective Thinking)



References

1. Based on information from Austin Carr, “Nike: The No. 1 Most Innovative Company of 2013,” Fast Company, March 2013, pp. 89–93+;

Mary Lisbeth D’Amico, “Report Sends Nike and Adidas to Head of Digital Marketing Class,” Clickz, September 25, 2012, www.clickz.com/

clickz/news/2208172/report-sends-nike-and-adidas-to-head-ofdigital-marketing-class; Sebastian Joseph, “Nike Takes Social Media

In-House,” Marketing Week, January 3, 2013, www.marketingweek

.co.uk/sectors/sport/nike-takes-social-media-in-house/4005240

.article; John Cashman, “How Nike Is Killing It in Social Media Marketing,” Digital Firefly, October 19, 2013, https://digitalfireflymarketing

.com/how-nike-killing-it-social-media-marketing; and http://investors

.nikeinc.com/Investors and https://secure-nikeplus.nike.com/plus/,

accessed September 2014.

2. The NASA mission statement is from www.nasa.gov/about/highlights/

what_does_nasa_do.html, accessed September 2014.

3. For more discussion of mission statements and examples, both

good and bad, see Jack and Suzy Welch, “State Your Business;

Too Many Mission Statements Are Loaded with Fatheaded Jargon.

Play It Straight,” BusinessWeek, January 14, 2008, p. 80; Piet Levy,

“Mission vs. Vision,” Marketing News, February 28, 2011, p. 10;

Setayesh Sattari et al., “How Readable Are Mission Statements? An

Exploratory Study,” Corporate Communications,” 2011, p. 4; and

www.missionstatements.com/fortune_500_mission_statements

.html, accessed September 2014.

4. Based on information from “Buffalo Wild Wings,” a 22SQUARED

case study, September 5, 2012, http://22squared.com/work/project/

buffalo-wild-wings-flavor-fanatics-case-study; Lauren Johnson, “Buffalo Wild Wings Mobile Campaign Increased Purchase Intent by 45pc,”

Mobile Commerce Daily, April 15, 2013, www.mobilecommercedaily

.com/buffalo-wild-wings-mobile-campaign-increases-purchaseintent-by-45pc; Brandon Southward, “The Crowd Goes Wild,”

Fortune, July 22, 2013, p. 18; and www.buffalowildwings.com/

about/, accessed September 2014. Buffalo Wild Wings® is a registered trademark of Buffalo Wild Wings, Inc.

5. Information about Heinz and its mission and vision from www.heinz

.com/our-company/about-heinz/vision-and-values.aspx, and www

.heinz.com, accessed September 2014.

6. See “General Electric Co.,” Reuters, www.reuters.com/finance/stocks/

companyProfile?symbol=GE.N, accessed June 2014; and www

.ge.com/ar2013/pdf/GE_AR13.pdf and www.ge.com/products, accessed September 2014.

7. The following discussion is based in part on information found at www

.bcg.com/documents/file13904.pdf, accessed September 2014.

8. See http://corporate.disney.go.com/investors/annual_reports.html,

accessed September 2014.

9. H. Igor Ansoff, “Strategies for Diversification,” Harvard Business Review, September–October 1957, pp. 113–124.



10. Facts in this and the following paragraphs are based on information found in “Starbucks CEO Howard Schultz Opens Annual

Meeting of Shareholders,” Wireless News, March 25, 2013; Bruce

Horovitz, “China to Become No. 2 Market for Starbucks,” USA

Today, September 16, 2013; Cherryh Butler, “Starbucks Reports

Record-High EPS; Big Growth Plans for 2014,” FastCasual.com,

November 4, 2013, www.fastcasual.com/article/222377; Nat Rudarakanchana, “Starbucks Bets on Food, China and Innovation for

2014,” International Business Times, March 12, 2014, www.ibtimes

.com/starbucks-sbux-bets-food-china-innovation-2014-1560844;

Bruce Horovitz, “Starbucks Serving Alcohol at More Locations,”

USA Today, March 20, 2014; and www.starbucks.com, accessed

September 2014.

11. See Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985); and

Michael E. Porter, “What Is Strategy?” Harvard Business Review,

November–December 1996, pp. 61–78. Also see “The Value Chain,”

www.quickmba.com/strategy/value-chain, accessed July 2013;

and Philip Kotler and Kevin Lane Keller, Marketing Management,

14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), pp. 34–35

and pp. 203–204.

12. Nirmalya Kumar, “The CEO’s Marketing Manifesto,” Marketing Management, November–December 2008, pp. 24–29; and Tom French

and others, “We’re All Marketers Now,” McKinsey Quarterly, July 2011,

www.mckinseyquarterly.com/Were_all_marketers_now_2834.

13. See

www.gapinc.com/content/gapinc/html/aboutus/ourbrands/

gap.html, accessed September 2014.

14. “100 Leading National Advertisers,” Advertising Age, June 24,

2013, p. 16.

15. The four Ps classification was first suggested by E. Jerome McCarthy,

Basic Marketing: A Managerial Approach (Homewood, IL: Irwin,

1960). For the four Cs, other proposed classifications, and more

discussion, see Robert Lauterborn, “New Marketing Litany: 4P’s

Passé C-Words Take Over,” Advertising Age, October 1, 1990, p. 26;

Richard Ettenson and others, “Rethinking the 4 Ps,” Harvard Business

Review, January–February 2013, p. 26; and Roy McClean, “Marketing 101—4 C’s versus the 4 P’s of Marketing,” www.customfitfocus

.com/marketing-1.htm, accessed September 2014.

16. “Study Finds Marketers Don’t Practice ROI They Preach,” Advertising

Age, March 11, 2012, http://adage.com/article/233243/; “Accountability Remains Senior Marketers’ Top Concern,” Marketing Charts,

March 7, 2013, www.marketingcharts.com/wp/topics/branding/

accountability-remains-senior-marketers-top-concern-27565/; and

“Quantitative Proof of Marketing Spend’s ROI Still Eludes CMOs,”

Marketing Charts, February 21, 2014, www.marketingcharts.com/

wp/traditional/quantitative-proof-of-marketing-spends-impact-stilleludes-cmos-40005/.



CHAPTER 2



| Company and Marketing Strategy: Partnering to Build Customer Engagement, Value, and Relationships



17. For more on marketing dashboards and financial measures of marketing performance, see Ofer Mintz and Imran S. Currim, “What

Drives Managerial Use of Marketing Financial Metrics and Does

Metric Use Affect Performance of Marketing-Mix Activities?” Journal of Marketing, March 2013, pp. 17–40; and http://marketingnpv

.com/dashboard-platform, accessed June 2013.

18. For a full discussion of this model and details on customer-centered

measures of return on marketing investment, see Roland T. Rust,

Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of

Marketing, January 2004, pp. 109–127; Roland T. Rust, Katherine N.

Lemon, and Das Narayandas, Customer Equity Management

(Upper Saddle River, NJ: Prentice Hall, 2005); Roland T. Rust,

“Seeking Higher ROI? Base Strategy on Customer Equity,”

Advertising Age, September 10, 2007, pp. 26–27; Andreas Persson

and Lynette Ryals, “Customer Assets and Customer Equity: Management and Measurement Issues,” Marketing Theory, December

2010, pp. 417–436; and Kirsten Korosec, “‘Toma-to, Tomäto’? Not

Exactly,” Marketing News, January 13, 2012, p. 8.



91



19. “Marketing Strategy: Diageo CMO: ‘Workers Must Be Able to

Count,’” Marketing Week, June 3, 2010, p. 5. Also see Art Weinstein

and Shane Smith, “Game Plan: How Can Marketers Face the Challenge of Managing Customer Metrics?” Marketing Management,

Fall 2012, pp. 24–32; and Francis Yu, “Why Is It So Hard to Prove

ROI When Data and Metrics Are So Abundant?” Advertising Age,

October 15, 2012, p. 27.



PART 1: Defining Marketing and the Marketing Process (Chapters 1–2)

PART 2: Understanding the Marketplace and Customer Value (Chapters 3–6)

PART 3: Designing a Customer Value-Driven Strategy and Mix (Chapters 7–17)

PART 4: Extending Marketing (Chapters 18–20)



3

Chapter Preview



Analyzing the Marketing Environment



So far, you’ve learned about

the basic concepts of marketing and the steps in the marketing process for engaging and

building profitable relationships with targeted consumers. Next,

we’ll begin digging deeper into the first step of the marketing

process—understanding the marketplace and customer needs

and wants. In this chapter, you’ll see that marketing operates

in a complex and changing environment. Other actors in this

environment—suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company. Major environmental forces—demographic, economic,

natural, technological, political, and cultural—shape marketing

opportunities, pose threats, and affect the company’s ability to



engage customers and build customer relationships. To develop

effective marketing strategies, a company must first understand

the environment in which marketing operates.

To start, let’s look at Microsoft, the technology giant that

dominated the computer software world throughout the 1990s

and much of the 2000s. With the recent decline in standalone

personal computers and the surge in digitally connected

devices—everything from smartphones and tablets to Internetconnected TVs—mighty Microsoft has struggled a bit recently

to find its place in a fast-changing digital marketing environment. Now, however, the tech giant is making fresh moves to

reestablish itself as a relevant brand that consumers can’t live

without in the post-PC world.



MICROSOFT: Adapting to the Fast-Changing Digital Marketing Environment



L



ittle more than a dozen years ago, talking high tech meant

are connected and mobile, not stationary standalones like the

talking about the almighty personal computer. Intel

old PCs. They link users to an ever-on, head-spinning new world

provided the PC microprocessors, and manufacturers

of information, entertainment, and socialization options. And,

such as Dell and HP built and marketed the machines.

for the most part, these new devices don’t use the old MicroBut it was Microsoft that really drove the PC industry—it made

soft products. Increasingly, even the trusty old PC has become a

the operating systems that made most PCs go. As the dominant

digital-connection device—a gateway to the Web, social media,

software developer, Microsoft put its Windows operating system

and cloud computing. And these days, much of that can be done

and Office productivity suite on almost every computer sold.

without once-indispensable Microsoft software.

The huge success of Windows drove Microsoft’s reveIn this new digitally connected world, Microsoft found itnues, profits, and stock price to dizzying heights. By the start

self lagging behind more-glamorous competitors such as Google,

of 2000, the total value of Microsoft’s stock had hit a record

Apple, Samsung, and even Amazon and Facebook, which seemed

$618.9 billion, making it the most valuable company in histo provide all things digital—the smart devices, the connecting techtory. In those heady days, no company was more relevant than

nologies, and even the digital destinations. Over the past decade,

Microsoft.

although still financially strong and still the world’s dominant PC

But moving into the new millennium, the

software provider with 1.3 billion Windows users around the world,

high-tech marketing environment took a turn.

PC  sales growth flattened as the world fell in

Microsoft is undergoing a dramatic transformation to better align itself

love with a rush of alluring new digital devices

with the new digital world order in the post-PC era. More than just making

and technologies. It started with iPods and

smartphones, and evolved rapidly into a full

the software that makes PCs run, Microsoft wants to be a full digital

complement of digital devices—from e-readers,

devices and services company that connects people to communication,

tablets, and sleek new laptops to Internet-conproductivity, entertainment, and one another.

nected TVs and game consoles. These devices



CHAPTER 3



| Analyzing the Marketing Environment



93



Microsoft has lost some of its luster. In the year

2000—due largely to the collapse of the stock market

technology bubble—Microsoft’s value plummeted

by 60 percent. And whereas other tech stocks recovered, Microsoft’s share price and profits languished

at 2000’s levels for a dozen years or more.

But recently, Microsoft has begun a dramatic

transformation in its vision and direction to better align itself with the new digital world order.

Today, rather than just creating the software that

makes PCs run, Microsoft wants to be a full-line

digital devices and services company that delivers “delightful, seamless technology experiences” that connect people to communication,

productivity, entertainment, and one another. Its

mission is to help people and businesses realize In the fast-changing digital marketing environment, mighty Microsoft is making

fresh moves to reestablish itself as a brand that consumers can’t live without

their full professional and personal potential.

in the post-PC world.

To make this mission a reality, over the past

Getty Images

few years, Microsoft has unleashed a flurry of

Windows tablets, Windows phones, and even Macs via the

new, improved, or acquired digital products and services. Over

SkyDrive cloud. Or you can tap into a continuously updated,

one short span, it introduced a new version of Windows that

online-only version of Office from almost any device. In fact,

serves not just computers but also tablets and smartphones; a

Microsoft views Office as a service, not software. It sells the

next-generation Xbox console; a music and movie service to

service by subscription: $99 per year will get you Office 365,

rival iTunes and Google Play; an upgraded version of Skype

20 gigabytes of SkyDrive storage, and 60 minutes of Skype calls

(acquired in 2011); a SkyDrive cloud storage solution; and even

per month. “It embraces the notion of social,” says Microsoft’s

an innovative new tablet—the Microsoft Surface—that it hopes

recently departed CEO Steve Ballmer. “You stay connected and

will give it a firmer footing in digital devices. Also rumored to

share information with the people you care about.”

be in the works is an Xbox TV device for TV streaming. And

Perhaps Microsoft’s biggest about-face is the development

the company recently acquired Yammer, a Web-services proof its own hardware devices. In the past, the company has relied

vider and hip maker of business social networking tools—a sort

on partners like Dell, HP, and Nokia to develop the PCs, tablets,

of Facebook for businesses. In its boldest expansion move yet,

and phones that run its software. But to gain better control in toMicrosoft recently paid more than $7  billion to acquire Nokia’s

day’s superheated digital and mobile markets, Microsoft is now

smartphone business.

doing its own hardware development. For starters, it developed

More important than the individual new devices, software,

the cutting-edge Surface tablet. The Surface not only employs the

and services is the way that they all work together to deliver a full

Windows 8 interface and connectivity, it sports a nifty kickstand

digital experience. It all starts with Windows 8, a dramatic digitaland thin detachable keyboard that also serves as a cover, making

age metamorphosis from previous Windows versions. Windows 8

the Surface a unique combination of tablet and mini-laptop. The

employs large, colorful, interactive tiles and touchscreen naviSurface, plus Xbox and the Nokia smartphone acquisition, will

gation, making it feel lively and interactive. It works seamlessly

give Microsoft better control of access to three important new

across desktops and laptops, tablets, phones, and even Xbox, prodigital screens beyond the PC—tablets, TVs, and phones.

viding the cloud-based connectivity that today’s users crave.

Thus, Microsoft’s sweeping transformation is well under

Using Windows 8 software and apps with Windows-based

way. The company is putting a whopping $1.5 billion of marketdevices and cloud computing services, you can select a movie

ing support behind its revamped mission and all its new softfrom a tablet, start playing it on the TV, and finish watching it on

ware, hardware, and services. Still, Microsoft has a long way to

your phone, pausing to call or text a friend using Skype. What

go. Windows 8 and the Surface tablet are off to slow starts, and

you do on one Windows device is automatically updated on other

many tentative customers are still playing wait-and-see. Many

devices. Playlists created or songs and TV programs purchased

still see Microsoft as mostly a PC software company. It will take

from a mobile device will be waiting for you on your home PC.

a sustained effort to change both customer and company thinkAnd Windows 8 is a social creature; for example, it updates coning. Some skeptics think that Microsoft may still be too tightly

tacts automatically with tweets and photos from friends.

wedded to the olds ways. “Just having the Windows name

The latest version of Microsoft Office, Office 365, has also

still around captures the problems of this company,” says one

been transformed for the connected age. Using touchscreen

technology forecaster. “In their heads, they know the personal

interfaces, you can use an Office app and share files across PCs,



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| Understanding the Marketplace and Customer Value



Objective Outline

OBJECTIVE 1



Describe the environmental forces that affect the company’s ability to serve its customers.



The Microenvironment (pp 95–98)

The Macroenvironment (p 98)

OBJECTIVE 2



Explain how changes in the demographic and economic environments affect marketing

decisions.



The Demographic Environment (pp 99–105)

The Economic Environment (pp 106–107)

OBJECTIVE 3



Identify the major trends in the firm’s natural and technological environments.



The Natural Environment (pp 107–108)

The Technological Environment (pp 108–111)

OBJECTIVE 4



Explain the key changes in the political and cultural environments.



The Political and Social Environment (pp 111–114)

The Cultural Environment (pp 114–117)

OBJECTIVE 5



Discuss how companies can react to the marketing environment.



Responding to the Marketing Environment



computer revolution is over and that they have to move on,

but in their hearts they can’t do it. If Microsoft is around in

100 years, they will try and sell us a Windows teleporter.”

But Microsoft seems to be making all the right moves to

stay with or ahead of the times. Microsoft’s sales have trended

strongly upward over the past few years, and the company is



(pp 117–119)



confident that it’s now on the right track. Still, continued success will depend on the company’s ability to effectively adapt

to—or even lead—the lightning-quick changes occurring in the

marketing environment. “The opportunity ahead for Microsoft

is vast,” says new CEO Satya Nadella, “but to seize it, we must

focus clearly, move faster, and continue to transform.”1



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Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems.



Marketing environment

The actors and forces outside marketing

that affect marketing management’s

ability to build and maintain successful

relationships with target customers.



A company’s marketing environment consists of the actors and forces outside mar-



keting that affect marketing management’s ability to build and maintain successful relationships with target customers. Like Microsoft, companies constantly watch and adapt to

the changing environment—or, in many cases, lead those changes.

More than any other group in the company, marketers must be environmental trend

trackers and opportunity seekers. Although every manager in an organization should watch

the outside environment, marketers have two special aptitudes. They have disciplined

methods—marketing research and marketing intelligence—for collecting information about



CHAPTER 3



| Analyzing the Marketing Environment



95



the marketing environment. They also spend more time in customer and competitor environments. By carefully studying the environment, marketers can adapt their strategies to

meet new marketplace challenges and opportunities.

The marketing environment consists of a microenvironment and a macroenvironment.

The microenvironment consists of the actors close to the company that affect its ability to engage and serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. The macroenvironment consists of

the larger societal forces that affect the microenvironment—demographic, economic,

natural, technological, political, and cultural forces. We look first at the company’s

microenvironment.



Author The microenvironment

Comment includes all the actors close

to the company that affect, positively or

negatively, its ability to create value for

and relationships with customers.



Microenvironment

The actors close to the company that

affect its ability to serve its customers—

the company, suppliers, marketing

intermediaries, customer markets,

competitors, and publics.



Macroenvironment

The larger societal forces that affect

the microenvironment—demographic,

economic, natural, technological, political,

and cultural forces.



The Microenvironment

Marketing management’s job is to build relationships with customers by creating customer

Figure 3.1

value and satisfaction. However, marketing managers cannot do this alone.

shows the major actors in the marketer’s microenvironment. Marketing success requires

building relationships with other company departments, suppliers, marketing intermediaries, competitors, various publics, and customers, which combine to make up the company’s

value delivery network.



The Company

In designing marketing plans, marketing management takes other company groups into

account—groups such as top management, finance, research and development (R&D),

purchasing, operations, human resources, and accounting. All of these interrelated groups

form the internal environment. Top management sets the company’s mission, objectives,

broad strategies, and policies. Marketing managers make decisions within these broader

strategies and plans. Then, as we discussed in Chapter 2, marketing managers must work

closely with other company departments. With marketing taking the lead, all departments—

from manufacturing and finance to legal and human resources—share the responsibility for

understanding customer needs and creating customer value.



Suppliers

Suppliers form an important link in the company’s overall customer value delivery

network. They provide the resources needed by the company to produce its goods and

services. Supplier problems can seriously affect marketing. Marketing managers must

watch supply availability and costs. Supply shortages or delays, natural disasters, and

other events can cost sales in the short run and damage customer satisfaction in the

long run. Rising supply costs may force price increases that can harm the company’s

sales volume.

Most marketers today treat their suppliers as partners in creating and delivering customer value. For example, cosmetics maker L’Oréal knows the importance

of building close relationships with its extensive network of suppliers, who supply



FIGURE | 3.1

Actors in the Microenvironment



Th e C o m

pan

y



rs



Compe

titor

s



Pu

b



Marketing



ers

stom

Cu



Marketers must work

in harmony with other

company departments

to create customer

value and relationships.



lie



keting

Mar diaries

m

r e

inte



s

lic



Su

pp



In creating value for customers,

marketers must partner with

other firms in the company’s

value delivery network.



Customers are the most

important actors in the

company’s microenvironment.

The aim of the entire value

delivery system is to serve

target customers and create

strong relationships with them.



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| Understanding the Marketplace and Customer Value

everything from polymers and fats to spray cans and packaging to production equipment and office supplies:2

L’Oréal is the world’s largest cosmetics maker, with 34 global brands ranging from Maybelline

and Kiehl’s to Lancôme and The Body Shop. The company’s supplier network is crucial to its

success. As a result, L’Oréal treats suppliers as respected partners. On the one hand, it expects a

lot from suppliers in terms of design innovation, quality, and sustainability. On the other hand,

L’Oréal works closely with suppliers to help them meet its exacting standards. According to the

company’s supplier Web site, L’Oréal treats suppliers with “fundamental respect for their business, their culture, their growth, and the individuals who work there.” Each relationship is based

on “dialogue and joint efforts. L’Oréal seeks not only to help its suppliers meet its expectations

but also to contribute to their growth, through opportunities for innovation and competitiveness.” As a result, more than 75 percent of L’Oréal’s supplier partners have been working with the

company for 10 years or more, and the majority of them for several decades. Says the company’s

head of purchasing, “The CEO wants to make L’Oréal a top performer and one of the world’s

most respected companies. Being respected also means being respected by our suppliers.”



Marketing Intermediaries

Marketing intermediaries

Firms that help the company to promote,

sell, and distribute its goods to final

buyers.



Marketing intermediaries help the company promote, sell, and distribute its products

to final buyers. They include resellers, physical distribution firms, marketing services

agencies, and financial intermediaries. Resellers are distribution channel firms that help the

company find customers or make sales to them. These include wholesalers and retailers

that buy and resell merchandise. Selecting and partnering with resellers is not easy. No

longer do manufacturers have many small, independent resellers from which to choose.

They now face large and growing reseller organizations, such as Walmart, Target, Home

Depot, Costco, and Best Buy. These organizations frequently have enough power to dictate

terms or even shut smaller manufacturers out of large markets.

Physical distribution firms help the company stock and move goods from their points

of origin to their destinations. Marketing services agencies are the marketing research firms,

advertising agencies, media firms, and marketing consulting firms that help the company

target and promote its products to the right markets. Financial intermediaries include banks,

credit companies, insurance companies, and other businesses that help finance transactions

or insure against the risks associated with the buying and selling of goods.

Like suppliers, marketing intermediaries form an important component of the

company’s overall value delivery network. In its quest to create satisfying customer

relationships, the company must do more than just optimize its own performance. It

must partner effectively with marketing intermediaries to optimize the performance

of the entire system.

Thus, today’s marketers recognize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products.

For example, when Coca-Cola signs on as the exclusive beverage provider for a fast-food

chain, such as McDonald’s, Wendy’s, or Subway, it provides

It also pledges powerful

much more than just soft drinks.

marketing support:3



Partnering with intermediaries: Coca-Cola provides its retail

partners with much more than just soft drinks. It also pledges

powerful marketing support.

Bloomberg via Getty Images



Coca-Cola assigns cross-functional teams dedicated to understanding the finer points of each retail partner’s business. It

conducts a staggering amount of research on beverage consumers and shares these insights with its partners. It analyzes

the demographics of U.S. zip code areas and helps partners

determine which Coke brands are preferred in their areas.

Coca-Cola has even studied the design of drive-through menu

boards to better understand which layouts, fonts, letter sizes,

colors, and visuals induce consumers to order more food and

drink. Based on such insights, the Coca-Cola Food Service

group develops marketing programs and merchandising tools

that help its retail partners improve their beverage sales and

profits. Its Web site, www.CokeSolutions.com, provides retailers

with a wealth of information, business solutions, merchandising tips, and techniques on how to go green. We’re “working

together to make your business better,” says Coca-Cola to its

retail partners. Such intense partnering has made Coca-Cola a

runaway leader in the U.S. fountain-soft-drink market.



CHAPTER 3



| Analyzing the Marketing Environment



97



Competitors

The marketing concept states that, to be successful, a company must provide greater

customer value and satisfaction than its competitors do. Thus, marketers must do more

than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds

of consumers.

No single competitive marketing strategy is best for all companies. Each firm should

consider its own size and industry position compared to those of its competitors. Large

firms with dominant positions in an industry can use certain strategies that smaller firms

cannot afford. But being large is not enough. There are winning strategies for large firms,

but there are also losing ones. And small firms can develop strategies that give them better

rates of return than large firms enjoy.



Publics

Public

Any group that has an actual or potential

interest in or impact on an organization’s

ability to achieve its objectives.



The company’s marketing environment also includes various publics. A public is any

group that has an actual or potential interest in or impact on an organization’s ability to

achieve its objectives. We can identify seven types of publics:



• Financial publics. This group influences the company’s ability to obtain funds. Banks,

investment analysts, and stockholders are the major financial publics.

• Media publics. This group carries news, features, editorial opinions, and other content. It

includes television stations, newspapers, magazines, and blogs and other social media.

• Government publics. Management must take government developments into account.

Marketers must often consult the company’s lawyers on issues of product safety, truth

in advertising, and other matters.

• Citizen-action publics. A company’s marketing decisions may be questioned by consumer organizations, environmental groups, minority groups, and others. Its public

relations department can help it stay in touch with consumer and citizen groups.

• Local publics. This group includes neighborhood residents and community organizations. Large companies usually work to become responsible members of the local

communities in which they operate.

For example, Office Depot serves

its communities through the Office

Depot Foundation, an independent,

nonprofit foundation that serves as

Office Depot’s primary charitable giving arm. The Foundation supports

a variety of programs that give children tools to succeed in school and

in life; build the capacity of nonprofit

organizations; and help communities

prepare for and overcome disasters.

The company backs its “Listen Learn

Care” mission with several key community programs supporting children,

parents, and teachers. Since 2001, the

Foundation’s National Backpack Program has donated new backpacks

containing essential school supplies to

more than 3.3 million deserving children. The Office Depot Foundation

works with the Kids In Need Foundation to fund Ready, Steady, GO!

Teacher Grants that inspire innovative

hands-on learning projects in primary

Publics: The Office Depot Foundation’s “Listen Learn Care” mission calls for giving

and secondary classrooms. And the

children tools to succeed in school . . . and in life. Its National Backpack Program has

company’s Be The Difference: Speak

donated new backpacks containing essential school supplies to more than 3.3 million

deserving children.

Up Against Bullying initiative sponsors school assemblies for students,

Office Depot Foundation



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| Understanding the Marketplace and Customer Value

along with anti-bullying education sessions for parents, teachers, and administrators

conducted by nationally known experts.4

• General public. A company needs to be concerned about the general public’s attitude

toward its products and activities. The public’s image of the company affects its buying

behavior.

• Internal publics. This group includes workers, managers, volunteers, and the board of

directors. Large companies use newsletters and other means to inform and motivate

their internal publics. When employees feel good about the companies they work for,

this positive attitude spills over to the external publics.

A company can prepare marketing plans for these major publics as well as for its customer markets. Suppose the company wants a specific response from a particular public,

such as goodwill, favorable word of mouth and social sharing, or donations of time or

money. The company would have to design an offer to this public that is attractive enough

to produce the desired response.



Customers

Customers are the most important actors in the company’s microenvironment. The aim of

the entire value delivery network is to engage target customers and create strong relationships with them. The company might target any or all of five types of customer markets.

Consumer markets consist of individuals and households that buy goods and services for

personal consumption. Business markets buy goods and services for further processing or

use in their production processes, whereas reseller markets buy goods and services to resell

at a profit. Government markets consist of government agencies that buy goods and services

to produce public services or transfer the goods and services to others who need them. Finally, international markets consist of these buyers in other countries, including consumers,

producers, resellers, and governments. Each market type has special characteristics that call

for careful study by the seller.



Author The macroenvironment

Comment consists of broader forces that

affect the actors in the microenvironment.



The Macroenvironment

The company and all of the other actors operate in a larger macroenvironment of forces

Figure 3.2 shows the six

that shape opportunities and pose threats to the company.

major forces in the company’s macroenvironment. Even the most dominant companies

can be vulnerable to the often turbulent and changing forces in the marketing environment. Some of these forces are unforeseeable and uncontrollable. Others can be predicted

and handled through skillful management. Companies that understand and adapt well to

their environments can thrive. Those that don’t can face difficult times. One-time dominant

market leaders such as Xerox, Sears, and Sony have learned this lesson the hard way. In

the remaining sections of this chapter, we examine these forces and show how they affect

marketing plans.



FIGURE | 3.2

Major Forces in the Company’s Macroenvironment

Concern for the natural environment

has spawned a so-called green

movement. For example, Timberland

is on a mission to develop products

that do less harm to the environment.



Ec

on



ogic

al

Po

li



ic



Cult



Company



ural



Demog

raph

i



c



om



Techno

l



al

ti c



Changing demographics mean changes in

markets and marketing strategies. For

example, Netflix created a “Just for Kids”

portal and app targeting today’s fast-growing

young, tech-savvy "Gen Z" segment.



ral

Natu



Marketers also want to be

socially responsible citizens

in their markets and

communities. For example,

online eyeware seller Warby

Parker was founded on a

cause: For every pair of

glasses Warby Parker sells,

it distributes a free pair to

someone in need.



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