Strategic Marketing Plan

1)  Word count no limit but should not be less than 1000 words

2) References: Chicago format

2)  Search for Journal articles (2010 and above) Should not contain 2010 and below(refer to slide 13 for the references from those category)

3) Use “Strategic Marketing Group Assignment” Word doc to do point number 3 Market Analysis, Overall Market, Target Market Segmentation, Size & Growth Rate &  Unmet Needs of Target Market(include those highlighted) ( Those under the name Evon only)

4) Refer to “BUS350 – TMA 2019 UILG” printed Page 12 – 14 on the guide read carefully what is required

5) Refer to the slides read carefully as well especially Slide 9 & 10 those word in red is a must to have

6) Follow the marking guide in “BUS350 – TMA 2019 UILG” and the slides

7) Have clear referencing and clear in-text citation(not in number kind)

8) There is a sample group assignment for you to reference

9) Take note of the language use

10)  Urkund Score cannot exceed 10%

 
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KINDLE FIRE CASE STUDY AND SWOT ANALYSIS — GRAD LEVEL

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©2014 by the Kellogg School of Management at Northwestern University. This case was developed with support from the June 2010 graduates of the Executive MBA Program (EMP-78). This case was prepared by Professor Mohanbir Sawhney and Joseph R. Owens, PhD, and Pallavi Goodman. Cases are developed solely as the basis for class discussion. Some facts in the case have been altered for classroom discussion purposes. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 847.491.5400 or e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing.

REVISED APRIL 25, 2014

MOHANBIR SAWHNEY, JOSEPH R. OWENS, AND PALLAVI GOODMAN 5-413-751

Kindle Fire: Amazon’s Heated Battle for the Tablet Market

In January 2012, as Jeff Bezos reflected on the early sales success of Amazon’s Kindle Fire device, he was oddly troubled. In a little over three months, Amazon had sold nearly 5 million Kindle Fires and had captured half of the non-Apple tablet market share. Worldwide sales of e- books since the introduction of the Kindle product line had grown from less than 1 percent of all books sold to 15 percent in 2012. But Bezos was not ready to call it a success yet.

As he anticipated Apple’s imminent announcement of the third-generation iPad and its entry into the textbook market, Bezos knew he would have to refine his strategy for the Kindle Fire. In addition to Apple, new entrants such as Samsung, Motorola, and Google were beginning to enter the tablet market. Furthermore, Amazon’s long-time competitor in the E Ink1–based e-readers, Barnes & Noble, was now selling a device nearly identical to the Kindle Fire called the Nook. Bezos had told investors that the Kindle Fire was the key to Amazon’s future in the hardware space. The markets seemed to agree. Amazon stock had dropped $40 since the launch of the Kindle Fire. Analysts were concerned about the Kindle product line’s economics because Amazon was selling the hardware at cost, betting that content and commerce revenues would make up for the hardware price subsidy.

Bezos was wrestling with several issues with the Kindle Fire strategy. How should Amazon modify the positioning of the device in response to the new entrants in the tablet market since its launch? What was the most promising target market for the Kindle Fire, and how should it be positioned against competing products? How could Amazon turn the sales success of the Kindle Fire into business success? Would revenues and profits from commerce and content justify selling the hardware at cost? What were the likely responses of the competition?

History of Amazon

In 1999 Amazon accomplished its founding mission of becoming the world’s largest online bookstore. Two years later it turned its first profit. By 2011, just fifteen years after the company

 

1 E Ink was a specific proprietary type of electronic paper manufactured by E Ink Corporation and commonly used in mobile devices such as e-readers.

 

 

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started out of Jeff Bezos’s 400-square-foot garage, Amazon had 25 million square feet of warehouse space, reported $50 billion in revenues, and controlled 10 percent of the North American e-commerce market (Exhibit 1 and Exhibit 2). Competitors struggled to transition from brick-and-mortar–based businesses, but Amazon had repeatedly been at the forefront in the e-commerce market. From its pioneering use of user-based reviews for product comparisons to its development of 1-Click® ordering on its website, Amazon had continued to innovate. The company’s marketplace for third-party vendors, introduced in 1999, helped grow its selection rapidly.

Bezos’s 2010 annual letter to shareholders touted that “invention is in [Amazon’s] DNA” and that the long-term interests of its shareholders were perfectly aligned with the needs and wants of its customers. This focus on the long-term, however, with repeated innovation and thrusts into new markets, had created tension with the short-term interests of investors. The $45 fall in stock value between Q3 2011 and mid-Q1 2012 illustrated this tension between Amazon’s visionary investments and public market investors (Exhibit 3). Investors were doubtful of the margins Amazon would attain on the new streams of revenue that it was betting would flow through its new devices.

When Amazon began offering its spare server computing power and storage space as a service in 2006, the cloud-based information technology services field was still nascent. Under the rapidly expanding Amazon Web Services (AWS) division, Amazon rolled out its Elastic Compute Cloud (EC2) platform and the Simple Storage Service (S3). AWS was expected to make up just 3 percent of Amazon’s revenues by 2012, but AWS revenues were expected to almost triple in the following three years. Amazon called its “service-oriented architecture” the “fundamental building abstraction” for all Amazon technologies.2

This focus on internal technology development had led to significant benefits for customers. Through the widely popular Amazon Prime express shipping subscription service, the company had built a customer base that was motivated to always shop at Amazon.com first before they went elsewhere. This service, which for an annual fee of $79 provided two-day express shipping on most items sold directly by Amazon, was made possible by the company’s logistics innovations. Through its marketplace partners, Amazon had outsourced its long-tail3 offerings while lowering its overhead. Without the technical advancements that made the logistical infrastructure run smoothly, customers would not have embraced these partners as a seamless extension of the Amazon brand. Additionally, the advanced algorithms driving the popular product recommendations that were integrated into every product page relied on sophisticated management of the underlying data infrastructure.

Amazon, since its founding, had a strong history of investing in emerging opportunities years ahead of revenues or profitability. It took the company six years to become profitable primarily because of its commitment to innovation. It was this commitment to innovation that drove Bezos to found the Lab126 hardware development group, which developed, in extreme secrecy, the future of e-commerce: the first successful e-reader, the Kindle.

 

2 Amazon.com, 2010 Letter to Shareholders. 3 Long tail, a term popularized by Chris Anderson in The Long Tail: Why the Future of Business Is Selling Less of More (New York: Hyperion, 2006), describes the retail strategy of selling a large number of unique items in relatively small quantities while selling fewer popular items in large quantities. Underpinning this strategy is the belief that the sum of many small markets is worth as much, if not more, than a few large markets.

 

 

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The Emergence of E-Readers

Although the attractive prospect of reading long-form texts digitally had led to many e- readers coming to market over the years, e-books had remained a niche curiosity. The original “killer app,” the paper book, remained largely unchallenged until the advent of E Ink technology in 1997, which made reading possible in any light condition and with minimal power usage. The new crop of e-readers was born.

In 2007 the market leader was the Sony Reader. It could hold a library of up to one hundred books and was sold for $299–$399, depending on the accessory bundle. More than 10,000 titles were available for purchase at 75 to 85 percent of the retail price of a physical book. However, the Sony Reader was clunky to use and difficult to load content onto. Even the simple act of page-turning was slow and difficult to manage one-handed.

For more than a decade, various competitors offered iterations on this basic business model, and had sold a combined 400,000 units by the end of 2007. The Iliad by iRex, larger than the Sony Reader, was sold for $799 and could adequately display full-sized PDF files but had similar drawbacks in content acquisition for customers. Many early adopters also used the tiny screens of a variety of personal digital assistant devices such as the Palm III and V, as well as early- generation iPhones, to read e-books. Critics cited the slow and clunky operation and general poor usability of early e-readers as book replacements as well as the inadequate e-book distribution and promotion model as reasons that the e-book had yet to jump the chasm on the innovation curve.

The Amazon Kindle

In a highly successful product launch, Amazon introduced its own e-reader, the Kindle, in November 2007. The Kindle featured a QWERTY keyboard, an onboard dictionary, and access to Wikipedia. It had memory sufficient for two hundred titles, which was expandable via an SD card. Its grayscale, passively lit screen sipped battery and thus could last for more than a week. The stark white, 10.3-ounce device with a 6-inch E Ink screen was, at first glance, similar to competitors’ offerings. Under the hood, though, lay Whispernet, an EVDO cellular antenna with prepaid Sprint service that enabled wireless content delivery. At several points during the Kindle’s development, Bezos sent engineers back to the drawing board to make Whispernet work seamlessly. Bezos knew the key differentiator for the Kindle would be the capability for customers to discover, purchase, and sync content quickly and easily wherever they happened to be—sans computer.

The first-generation Kindle was priced competitively at $399. In addition to the more than 100,000 e-books offered by Amazon, customers could purchase subscriptions to nineteen newspapers (for $5 to $14 per month), sixteen magazines (for $1.25 to $3.49 per month), and hundreds of blogs (for $0.99 per month) that would self-update wirelessly. Customers were also provided with an e-mail address specific to their device that could be used to load and convert DOC and PDF file formats for viewing on the Kindle. This service cost 15 cents per megabyte.

Prior to the Kindle’s release, Amazon sent its representatives to knock on doors and cajole the major book publishers to digitize their offerings for its new e-reader. By bringing the publishers onboard, Amazon hoped to simplify the digital rights management (DRM) issues that

 

 

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were slowing the move toward electronic distribution of books. The company succeeded in convincing all of the “Big Six” publishers to rapidly accelerate their e-book development and to offer their content through the Amazon e-bookstore. Amazon subsequently shocked these publishers by subsidizing the price of new titles, many of which were offered at $9.99. This aggressive content pricing model, co-announced with the product launch, helped the first- generation Kindle sell out in the first three hours.

When Amazon started the development of its first-generation Kindle in 2006, the entire e- book market was only $3 million and less than 1 percent of all book sales in the United States. But both e-book reader device sales and revenues for e-book readers were projected to grow substantially in the ensuing years (Exhibit 4). Five years later, Amazon’s revenues from e-books were estimated to have topped $1 billion. Amazon had likely (it does not publicly release these metrics) sold a cumulative 30 million Kindle units.

As the Kindle product line evolved, Amazon continued to enhance the user experience, mostly by improving navigational features such as page-turn speed, battery life, and screen resolution, and by reducing the device’s weight and width (Exhibit 5). To expand the use cases for the Kindle product line, Amazon developed a larger version of the device. The $549 Kindle DX featured a 10-inch screen, making it the ideal e-reader for displaying figures and tables from textbooks or business documents.

As the e-reader market matured, price pressure on the devices slowly grew. Prior competitors such as Sony, iRex, and Hanlin released updated, cheaper devices, but importantly Barnes & Noble (B&N) jumped into the field as well (Exhibit 6). Each generation of the Kindle had focused on improving the user experience, lowering the cost, and growing the general adoption of Amazon e-books and other Amazon content. However, the newer entrants forced Amazon to begin to discount its devices considerably (Exhibit 7).

Amazon used its installed base4 of Kindle owners to push higher volumes of e-books, which had significantly lower distribution costs compared to physical books. The company’s profit per title fell from $13 for a new-release hardcover to a mere $3, but the increase in volume compensated for this loss. Given that the gross margin on each Kindle device was barely 5 percent and that the margin for each e-book was 20 to 30 percent, the Kindle devices were arguably a tool for getting the Amazon ecosystem of content into the hands of the customer.

With each e-book purchased from Amazon, customers were further committing themselves to the Amazon ecosystem, a completely unheard-of benefit in the traditional print space, where customers had complete independence in choosing a retailer. Bezos shrewdly knew that this lucrative customer base needed to be locked in before a competitor, such as B&N, could do the same.

 

4 Installed base refers to the total number of operating systems or products actually in use (i.e., that customers have installed), as opposed to market share, which only measures units sold. Analysts view the installed base as a more reliable measure of a platform’s popularity. See http://en.wikipedia.org/wiki/Installed_base (accessed January 16, 2014).

 

 

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E-Book Ecosystems

The advent of e-books meant that the traditional methods of book publishing and selling had to adapt to the digital platform. Book distributors began to develop entire ecosystems around the content, publication, and delivery of e-books. E-booksellers had to forge relationships with major publishers to make e-books available and added to their online portfolios. They developed proprietary platforms to adapt to this digital transition, which meant that competing platforms and ecosystems were controlled by the major players—primarily Amazon, followed by Apple and to a lesser extent, Google eBookstore and Barnes & Noble. However, the existence of competing e- book formats meant that digital books did not gain broad popularity until Amazon launched the Kindle e-reader. E-books could be purchased on the Amazon website or directly through the Kindle device via a 3G or Wi-Fi connection for e-book delivery. Amazon’s proprietary system was developed initially for its Kindle devices but was later adapted to the world of applications (apps) to encourage a cross-platform reading experience. Not only could books be read on the Kindle but e-books purchased on Amazon could now be read on different platforms, for instance, on iPads and iPhones, personal computers, and Android devices. (By contrast, books purchased from Apple could only be read on Apple devices.) To protect its ecosystem, however, Amazon made it difficult for books purchased outside of Amazon to be accessed on the Kindle device or through Kindle apps.

When Amazon started selling $9.99 e-books in 2007, the major book publishers were not happy to see the erosion of the agency-based pricing model they had enjoyed for more than a century. When approached by B&N in 2008 and Apple in 2009 to develop e-books for their new tablets, book publishers were eager to reassert their favored agency-based pricing model. B&N and Apple, as new entrants into the e-book market, were willing to cede pricing control back to the publishers in order to rapidly gain access to large content libraries for their devices. This move later forced Amazon to follow suit for e-book pricing in late 2009, though these actions launched several anti-trust, price-fixing lawsuits against the publishers and Apple. Consumer expectation of e-book pricing had shifted, however. For most popular titles, e-book prices remained at $9.99 ($13.99 for new releases), a far cry from the old $26 price of a hardcover book.

An area of contention among e-booksellers was competition for content sales through apps on smartphones, third-party e-readers, and computers. Amazon, Sony, Google, and B&N sold e- books through their own branded apps on all the major platforms (Exhibit 8). These apps reduced the switching costs for customers by making the DRM-protected content they purchased from a given retailer available on all their mobile devices and computers.

In July 2011 Apple announced that it would remove all applications from its App Store that did not use Apple’s “in-app purchase” platform. Critically, this platform directed a 30 percent cut of all sales to Apple. Apple’s change in policy set the stage for its announcement of its cross- platform iBooks App bundled with the iOS 5 release in October 2011. Apple’s counter-stroke was an attempt to lock out sales by competitors on its devices and to simultaneously offer its own partners’ content in their place.

Barnes & Noble E-Readers

In October 2009 B&N launched its Nook product line. The Nook, an E Ink e-reader similar to the Kindle, was B&N’s attempt to capitalize on Amazon’s success in e-books. The Nook featured

 

 

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a 6-inch E Ink screen, a seven-day battery life, Google’s Android operating system, native PDF support, and wireless access to the B&N e-bookstore through prepaid AT&T cellular service.

B&N tried to undercut the Amazon Kindle 2 (then priced at $359) by pricing the Nook at $259. A price war ensued. Second-generation Kindles fell from $359 in early 2009 to $259 after the Nook’s launch. As the two largest U.S. booksellers vied for the leading position, e-reader prices fell to less than $200 in 2010 and then to less than $100 in 2011 (for the simplest low-end devices from each product line). During this three-year period, sales of e-readers grew from less than 1 million units per year to more than 8 million in the United States. Both B&N and Amazon were focused on getting their customers to build their digital libraries as quickly as possible.

In contrast to Sony and other early Kindle competitors, B&N copied Amazon’s entire e- reader/e-book business model. B&N saw the writing on the wall and knew that its traditional book retailer business model was in major decline. It secured e-book deals with its publisher business partners, outsourced the development of the Nook’s hardware and firmware, and began a major push to drive Nook sales to the forefront of its physical as well as online stores. Employee retention and compensation metrics were amended to focus on Nook sales per shift, and company profits were divided into two categories: digital (profitable and growing for 2011) and traditional (unprofitable for 2011).

B&N provided one truly unique feature for all Nooks: customers had free Wi-Fi access to read the entire B&N library of e-books in its stores—a popular pastime given the Starbucks coffee shops located in each store. Subsequent versions of the Nook added touch support, more memory, a Wi-Fi–based Internet browser, and a “book-lending” capability compatible with other Nook devices. With the launch of the Nook Color (November 2010) and the follow-on Nook Tablet (November 2011), B&N sought to differentiate as the bargain color e-reader. These devices featured access to third-party apps in the B&N Marketplace and support for multimedia content.

Apple Introduces the iPad

Apple ported its iPhone operating system (iOS) to the tablet form factor5 in April 2010 with the iPad. Its beautiful 11-inch touchscreen immediately drew in customers. The iPad was basically a larger version of the popular third-generation iPod Touch, except Apple had painstakingly removed the time lag between a touch and an onscreen response. The responsive, pointer-less operating system allowed for numerous use cases that far exceeded those offered on the tiny screen of an iPod or iPhone and put the Apple experience comfortably in the lap of the high-end customer.

The iPad immediately became one of the most sought-after devices of 2010. The $499 base model had 16GB of storage, which could be doubled for $100. An optional cellular antenna could be purchased for $139 with an a la carte monthly data service plan from AT&T Wireless. Most Apple stores sold out of all models the first day. Apple sold roughly 1 million units the first week, and users continued to wait in lines for new shipments for weeks after its launch. The iPad broke open the long-underserved tablet market, with 15 million sold by 2010 year-end. Critics were apt

 

5 In computing, “form factor” refers to the specifications of the motherboard (e.g., the dimensions, they type of power supply, the location of mounting holes, etc.).

 

 

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to list a litany of features—such as a camera, USB port, and more—that the iPad “lacked,” but it became clear from the sales numbers alone that Apple had found the sweet spot for what consumers wanted in a device that sat squarely between smartphone and laptop.

In March 2011 Apple released the iPad 2, which upped the ante on its competitors. The iPad 2 had twice the processor speed (dual-core A5) of the original iPad. It was 15 percent lighter and 33 percent thinner and featured high-resolution front- and back-facing cameras to facilitate Apple’s new videoconferencing app, FaceTime. Apple had succeeded in creating a thriving tablet market, selling a total of 55 million iPads since the initial launch.

Tim Cook, Apple’s new CEO, became known for his fondness for pushing the idea that Apple’s slew of “iDevices” were ushering in the “post-PC era” that the late Steve Jobs had envisioned. Bezos likely knew, as March 2012 approached, that Apple would soon update the iPad product line and further raise the bar on the premium tablet space. What likely most concerned him, though, was whether Apple would release an “iPad mini” device at a lower price point to compete with the Kindle Fire. An iPad for less than $300 would definitely change the market environment for e-readers.

Google Android Tablets

The Open Handset Alliance was founded in 2006 to support the development of a unified mobile operating system experience for smartphones. Original equipment manufacturers (OEMs) Samsung, Motorola, LG, QUALCOMM, Broadcom, and HTC partnered with carriers T-Mobile and Sprint Nextel under Google’s leadership to develop the Android OS. These OEMs brought a slew of slick, touchscreen-based smartphones to market.

Apple’s success with porting the iPhone user experience (the iOS) to the tablet form factor attracted the Android OEMs. Android tablets such as Samsung’s line of Galaxy tablets and Motorola’s Xoom tablets came in several screen sizes (7-inch to 11-inch), packed sophisticated chipsets and graphics, came with high-resolution cameras, and had integrated Wi-Fi and even cellular antennae in some models. These tablets were sold through wireless carriers as well as via traditional electronics outlets at prices ranging from $499 to $799 depending on the feature set.

At the Consumer Electronics Show in January 2011, no less than twenty-one different tablets were introduced. This deluge, along with the release of the iPad 2, led to 2011 being dubbed the “year of the tablet.”6 Android tablet OEMs faced rapid commoditization of their devices, and competition for enhanced hardware specifications quickly led to shortened product life cycles, decreased profitability, and lower-than-predicted sales. Apple’s sale of 15 million (67 percent market share) iPads in Q4 2011 alone suggests that 2011 turned out to be the year of the iPad (Exhibit 9).

 

6 Nicholas Deleon, “Deloitte: 2011 Will Be the Year of the Tablet (Say Goodbye to Your Laptop),” TechCrunch, January 20, 2011.

 

 

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Introduction of the Kindle Fire

On September 28, 2011, Amazon previewed the Kindle Fire to the technical press in Seattle, Washington. The new tablet came equipped with a 7-inch, color LCD touchscreen, a Wi-Fi radio, a powerful dual-core processor, a fixed 8 GB of internal storage, and free cloud storage for content purchased from Amazon (Exhibit 10). The Kindle Fire came preloaded with a modified version of the Google Android mobile OS.

Bezos, in his announcement, referred to the Kindle Fire as “the culmination of the many things we’ve been doing for 15 years.” He went on to say, “We asked ourselves, ‘Is there some way we can bring all of these things together [Amazon Web Services, Prime, Kindle, instant video streaming, and the app store] into a remarkable product offering customers would love?’ Yes, the answer is Amazon Kindle Fire.”7 By leveraging its considerable cloud-based resources, Amazon packed numerous unique features and services into its new product. The Kindle Fire featured Amazon Silk, a cloud-accelerated web browser. By handling much of the computation necessary to render webpages in the cloud, Amazon hoped that Amazon Silk would be a differentiator for the Kindle Fire.

The Kindle Fire came with tens of thousands of preapproved apps and games available for purchase and download through the Amazon app market. Amazon provided 18 million movies, TV shows, songs, and magazines available for streaming or download. Amazon Prime subscribers received streaming access to more than 13,000 movies and TV shows for free. All new Kindle Fires came with a free one-month subscription to Amazon Prime to encourage customer integration into the Amazon ecosystem of content, goods, and services.

The $199 Kindle Fire was rumored to have reached 50,000 preorders per day during the two- week preorder period. According to Anthony DiClemente from Barclays, Amazon sold 3– 5 million units of the Kindle Fire in Q4 2011, likely generating revenues in excess of $1 billion. The Kindle Fire was widely rumored to be sold at cost or even at a loss, given the relatively sophisticated specifications at such a discounted price. Amazon, true to form, simply stated in the Q4 2011 earnings report that the Kindle Fire was the bestselling, most wished for, and most gifted device of the holiday season.

Apple would be responding soon with its update of the iPad product line, and Bezos feared a “mini-iPad” at a competitive price might strike hard at his initial success. The unproven Kindle Fire, despite its strong sales numbers, faced numerous challenges. Initial criticisms of the device focused on its sometimes lagging display, shorter-than-advertised battery life, and a number of smaller feature-set complaints. Although a firmware update would resolve the first two of these problems, the feature-set complaints would have to wait until a new version of the Kindle Fire was released.

Customer Segments for the Kindle Fire

The initial Kindle Fire launch had broad aims in an effort to probe the market and learn which use cases and customer segments would respond most favorably to the new product. Although

 

7 Steven Levy, “Jeff Bezos Owns the Web in More Ways Than You Think,” Wired, November 13, 2011; Shara Tibken, “Amazon Challenges iPad With ‘Fire,’” Wall Street Journal, September 29, 2011.

 

 

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this “probe-and-learn” process was acceptable at the start, the time had come for Amazon to be more focused in defining its target audience. There were several possible target segments the company could consider.

MEDIA JUNKIES

Amazon already attracted the most avid consumers of media because of its bargain prices for content and its huge selection. The “media junkie” market had evolved in the digital age to rabidly consume multimedia content from numerous channels, often simultaneously. Indeed, one of the primary use cases for tablets, according to Nielsen, was in front of the TV.8 As all content transitioned to digital, the case for targeting these most avid of users grew stronger. U.S. consumers were expected to purchase more music digitally than on CD by 2012. Additionally, DVD sales had fallen more than 20 percent in 2011, whereas streaming had risen by 33 percent. Subscription streaming services such as Hulu and Netflix for video and Spotify for audio were attracting millions of customers. Amazon was primed to offer an alternative to these, but only if they could get users to switch.

Media junkies were quite price conscious because of the scale of their purchasing. Amazon fit this niche well because of its extremely competitive pricing on its music, video, and reading content. The Kindle Fire platform was ideally suited for downloading popular content through the Prime Instant streaming feature and for purchasing the more obscure titles that the long tail demanded through the massive Amazon store.

For customers who desired having tens of thousands of books, magazines, music, and movies available in one affordable handheld device, the Kindle Fire would be ideal. But would the demanding tastes of these customers mean that they would take a pass on the Kindle Fire’s smaller screen? For most media junkies, an ideal tablet would need to have a high-resolution screen and a superior graphics chipset. Would these price-sensitive customers gorge on the free content through the Prime Instant service and pass up purchasing Amazon content? Additionally, would Kindle Fire customers increase their content consumption after purchasing a Kindle, or were they at their limit already?

CHILDREN AND MOBILE GAMERS

Children were a relatively untapped market for tablets. Handheld gaming devices had been around for decades, but few computers or devices had been created specifically to appeal to children. Although children were not favorable targets for the commerce aspects of Amazon, nor were they able to purchase apps on their own, they did heavily influence the purchasing behavior of their parents. U.S. parents reported that almost 30 percent of the apps on their tablets and smartphones were downloaded for their children. Nielsen reported that in 70 percent of U.S. households that owned tablets, children under the age of 12 used them frequently, and the primary children’s use was to play games.9

Handheld gaming on tablets and smartphones represented the fastest-growing gaming market for 2009–2011. At more than $20 billion in the United States and $57 billion globally in 2009, the

 

8 Nielsen Newswire, “In the U.S., Tablets Are TV Buddies While eReaders Make Great Bedfellows,” May 19, 2011, http://www.nielsen.com/us/en/newswire/2011/in-the-u-s-tablets-are-tv-buddies-while-ereaders-make-great-bedfellows.html. 9 Nielsen Newswire, “American Families See Tablets As Playmate, Teacher and Babysitter,” February 16, 2012, http://www.nielsen.com/us/en/newswire/2012/american-families-see-tablets-as-playmate-teacher-and-babysitter.html.

 

 

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gaming market was a high-value prize and an untapped market for Amazon. By the end of 2011, there were 15 billion apps downloaded from the Apple App Store and 10 billion from the Android Market, later known as Google Play. Games made up more than 25 percent of all available apps and occupied 30 percent of the top one hundred apps in both stores. Many parents, however, still balked at giving children their own $600 iPad or even a low-end $500 Android tablet that they could lose or break.

At less than $200, the Kindle Fire was considerably cheaper than other tablets. The screen was made of Gorilla Glass® and its smaller size made it more rugged than the iPad and some of the larger Android tablets. This combination made it an attractive tablet for children. The addition of a long-lasting battery and a small, hand-friendly, tactile rubberized coating was enough to push the product to the top of many 2011 Christmas lists.

However, the Kindle Fire’s slower processor, smaller screen, and limited memory capacity might weaken its perception as a gaming platform. Third-party developers might be hesitant to create special versions of their games expressly for the Kindle Fire. These developers would need to be managed to ensure adequate availability of hit titles in the Amazon App Marketplace.

HIGHER EDUCATION

The higher education industry made an attractive market for transition to digital books. Amazon had served the education market for years through its new and used textbook businesses but had failed to transition these customers to digital. Amazon’s first attempt, the 10-inch-screen Kindle DX, had failed to catch on broadly, likely because of its high price point ($459) and its grayscale screen. By 2012, the more than $10 billion new-textbook market had remained relatively untapped by digital alternatives, despite these customers being the largest consumers of Amazon’s core service: books.

To succeed in this market, Amazon would need to create a complex set of business-to- business partnerships with colleges, universities, and their bookstores to manage the timely distribution and updating of e-texts. Because students tended to be tech-savvy, adoption of the devices was likely, if adequate content could be made available. And the value proposition of reduced-price textbooks was compelling for students, who craved bargains on their expensive yearly book bills.

Textbooks were exceedingly expensive compared to trade books. Publishers traditionally faced inflated costs as a result of limited-run productions for many texts, and these additional costs were usually passed on to customers. These books also tended to be considerably larger and contained more glossy photos, figures, and equations than the average book. The high costs, in addition to the price sensitivity of students for textbooks, had led to the explosion of the online secondary market, from which Amazon had profited greatly.

College students faced with heavy backpacks and steep prices for their textbooks were very interested in reducing the load both physically and financially. Amazon was the largest online seller of new textbooks and thus had a large customer base to advertise to. This made the textbook market very attractive to Amazon, which could leverage its national brand and partnerships with publishers to bring e-textbooks to the entire U.S. market quickly if the use case could be proven.

By 2011, B&N had partnered with several universities to offer its Nook Color™ e-reader to students through campus bookstores. Titles on the Nook were 30 to 50 percent cheaper than their

 

 

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paper alternatives. These titles were also not transferable, which avoided the growing problem— for publishers, at least—of the secondary used market for textbooks. This limited trial by B&N represented a considerable threat to Amazon in this emerging market.

However, bringing textbooks to the Kindle Fire would mean updating its file formats significantly. Digital textbooks meant Amazon had to develop the capability to handle large figure and graph display, robust highlighting and annotation features, and complex equation display (which was unavailable in the current MOBI format). The smaller screen was also a significant hindrance to publishers; their offerings would need to be redesigned for the Kindle Fire. Some publishers had shown willingness to do this with B&N Nook and on the iPad’s iTextbook platform, but Amazon had yet to finalize such deals. The iTextbook platform, though still nascent, showed what the premium product in the market might look like. Amazon had yet to figure out how to move a bargain product into this space.

Positioning the Kindle Fire

Multiple new entrants had converged on the tablet and e-reader markets at which the Kindle Fire was targeted. These direct competitors were touted by analysts as direct responses to Kindle’s explosive growth in the e-book and periodical market and to the growing reading and web-surfing habits of the U.S. population in general. By Q4 2011, nearly 25 percent of U.S. Internet users were estimated to have some sort of tablet device (Exhibit 11). Analysts wondered if the Kindle Fire could be a credible low-cost entrant into the tablet market. Steven Levy of Wired magazine wrote that “the long-awaited Amazon tablet . . . represents [Bezos’s] most ambitious leap into the hearts, minds, and wallets of millions of consumers.”10

Amazon faced competition on numerous fronts. One of its most promising businesses, selling e-books to Kindle users, was now being attacked head-on by Apple’s iBooks and Newsstand apps, in addition to the stiff e-book competition it had received from B&N for the past three years. B&N’s Nook tablet was also beginning to push into the education market at universities and colleges in the United States. The mobile gaming market was in renaissance, with gesture- and gravity-based short-play games thriving on tablets and smartphones. And media junkies had a plethora of choices in buying and consuming content. For Amazon content alone, they could now find, purchase, and consume content on nearly three hundred devices.

POSITIONING THE KINDLE FIRE VERSUS THE iPAD

The tablet market was dominated by the first-mover iPad (2010) and subsequent iPad 2 (2011) offerings from Apple. These feature-rich devices succeeded where other tablets had failed by expertly walking the tight line between smartphone and laptop. Apple’s strategy was to teach its customer base to use the iOS on the iPhone and iPod Touch and then graduate them to a larger-screen device that was more fun and convenient to browse and play on. The couch (70 percent) and the bed (57 percent) were the most popular places for tablet use, according to Nielsen Research.11 Analysts, of course, began comparing the Kindle Fire to the iPad even before

 

10 Levy, “Jeff Bezos Owns the Web in More Ways Than You Think.” 11 Nielsen Newswire, “In the U.S., Tablets Are TV Buddies.”

 

 

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it was announced. Would the Kindle Fire be an “iPad killer?” Or, as one headline read, “Help! Santa can’t afford the iPad. Will the Kindle Fire do?”12

On specifications, the iPad was a multipurpose, Swiss army knife–type device. Importantly, however, it was three to four times as expensive as a Kindle Fire, as well as quite a bit larger and heavier. Amazon had specifically created the Kindle Fire to be an affordable consumption device. Would the minimum viable product13 beat out the feature-packed iPad? Or would consumers become frustrated by its slower speed, smaller memory, and more limited selection of apps? Both devices were exceptional at consuming streaming video, web surfing, and general reading. So would customers be satisfied with these uses, or would the Kindle Fire’s limitations irk them over time and lead them to opt for the iPad?

A battlefield on which Amazon was better equipped to fight was providing a wide and deep content catalog. Both Apple and Amazon were maneuvering to rapidly cement partnerships with content providers in the hopes of attracting customers by having the largest catalog of media. Early in 2012, Amazon had inked a deal with Viacom to provide a large number of videos through its Prime Instant Video service. This deal, combined with existing partnerships with the major networks, made the Amazon TV offerings significantly richer than those available on competing products.

POSITIONING THE KINDLE F IRE VERSUS THE NOOK TABLET

The Nook and the Kindle Fire were extremely similar (from the hardware point of view) and were following the same pricing strategy as the earlier e-readers. Bezos worried that another price war might ensue. B&N had pursued the additional strategy of offering subsidies for Nooks at the point of sale if subscriptions were purchased with the device. For example, a $19.99 per month subscription to the New York Times netted the customer a $100 subsidy on the purchase of any Nook product, which made the Nook tablet only $99. Bezos knew he could make this play as well but remained hesitant to give the appearance that Amazon was willing to “give away” its Kindles. He also knew that while B&N had posted a $6.6 million loss ($0.17 per share) for Q2 2011, it had increased its recently consolidated Nook business revenue 85 percent to $220 million in the same quarter.

Although the devices could not differentiate on hardware specifications, they did offer very different user experiences. Amazon’s focus was on its own content and services, whereas B&N focused on providing its own text-based content and allowing third parties to deliver the rest. The Hulu and Netflix apps came preinstalled on the Nook, along with the Google media store, Google Play. However, Amazon differentiated with its Silk web browser, which enhanced the experience of browsing on a limited device. Amazon also had numerous cloud-based services such as the Whispersync® feature, which kept the user’s place in a given book or video across all Amazon apps.

POSITIONING THE KINDLE FIRE VERSUS KINDLE E-READER

The traditional Kindle e-reader still maintained strong appeal with avid readers for its ability to wirelessly purchase new books and magazines and its eye-pleasing E Ink screen, as well as its

 

12 Marguerite Reardon, “Help! Santa Can’t Afford the iPad. Will the Kindle Fire Do?” CNET, November 25, 2011. 13 Coined by Frank Robinson and popularized by Eric Reis, a “minimum viable product” refers to an iterative process that allows a product to be launched with basic features.

 

 

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long battery life. But for these same users the Kindle faced stiff competition from newer tablets to be customers’ “third device” (the first and second being a laptop and a smartphone). For avid readers, the new Kindle Touch ($99 for the option with advertising “offers” on its lock screen) was an optimum device, but these same users might consider consolidating their devices if a strong reading experience was offered on one of the competing tablets and if they could get the battery life they wanted. The youngest and often most tech-savvy student customers were already reading more and more online, eschewing traditional reference sources in favor of wikis and blogs. A web-enabled tablet offered a strong use case for these customers, as did an electronic medium for their books for class.

Would the Kindle Fire cut into the business of selling Kindles? Bezos believed that customers should want to buy both.14 His optimism that both the Kindle Fire and the Kindle would find places in his customers’ lives seemed to signal that these devices might continue to get cheaper and cheaper. Given the tough competition for e-readers from tablets and larger-screen smartphones, the future profitability of dedicated e-readers was uncertain at best. Bezos was betting that the integration of the Kindle e-book ecosystem via the Kindle family of apps would maintain value for these special-purpose devices.

Pricing and Business Model Decisions

The Kindle Fire was no exception to Amazon’s traditional one-two punch of low margins combined with large-scale delivery. This model had succeeded for the company in market after market. Bezos wondered, however, whether the revenue streams from the Kindle Fire would be sufficient to meet the considerable costs of serving up the bevy of content that users desired. Particularly important and difficult to find was the sweet spot between the breadth of content sufficient to attract customers and a bloated library with excessive licensing costs. The success of the Kindle Fire business model would hinge on the demand for digital content, incremental online commerce sales, and price sensitivity for hardware. Bezos was betting that the integration of Amazon content, cloud-based storage, and the convenience of Amazon Prime all at a bargain price would prove to be a compelling proposition and profitable business model.

HARDWARE REVENUES

At $199, the Kindle Fire was well positioned to undercut the tablets currently on the market. For the first run of production, the components and labor were slated to be near $200. This meant that Amazon was selling the Kindle Fire at cost as a loss leader for content sales. Many analysts wondered if Amazon should have gone even lower with the Kindle Fire’s hardware price in order to emphasize the “razor-razorblade” model15 that Amazon was betting on. They pointed to the cellphone market, in which devices such as the iPhone (which cost more than $600) were subsidized heavily by wireless carriers in return for a long-term subscription contract. Was it possible for Amazon to offer the Kindle Fire for $149, $99, or even free, in return for customers signing up for an enhanced version of its Amazon Prime subscription service that would require them to commit to purchasing a minimum amount of content and products over a two-year

 

14 Lance Ulanoff, “Amazon CEO Jeff Bezos: Why Is This Man Smiling?” Mashable, September 24, 2013, http://mashable.com/ 2013/09/25/jeff-bezos-interview. 15 In this model, dependent goods are sold at different prices. One product is sold at a discount, while another is sold at a considerably higher price to make up for the loss.

 

 

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14 KELLOGG SCHOOL OF MANAGEMENT

period? Other experts felt that Amazon was leaving money on the table because the Kindle Fire was already priced so far below the iPad.

CONTENT REVENUES

As more and more music, movies, and books were consumed in digital form, online content revenues were expected to be a key driver of revenues from Kindle Fire customers.

ABI Research estimated that an average Kindle Fire customer would buy about $10 per month in content (music and movies), which would increase 10 percent annually over the expected two-year life of the Kindle Fire. Amazon netted a gross margin of 30 percent on content sales. An RBC Capital survey of Kindle owners found that the average customer purchased three e-books per quarter, at an average selling price of $10 per book. Amazon’s gross margin for e- books was 20 percent. Amazon expected a 10 percent increase in e-book purchases on an annual basis.

COMMERCE REVENUES

Amazon had boasted to its investors that Kindle owners purchased 3.3 times as many e-books than print books once they switched to digital. Bezos hoped that the Kindle Fire would have a similar effect on sales of physical products sold on its website. Customers in the post-PC era would increasingly be making their purchases based on convenience. The Kindle Fire offered a pleasing color video–capable device ideally suited to shopping from the couch. The dedicated Amazon device, combined with the convenience of Amazon Prime, would likely motivate customers to increase the proportion of online purchases they made through Amazon. The average Kindle Fire customer was expected to purchase about $50 per month in incremental products and services from Amazon, at an average gross margin of 20 percent. Amazon estimated that these commerce purchases would increase by 5 percent per year.

ADVERTISING REVENUES Amazon had built advertising for its retail goods and services into the pricing model for the

newest generation of Kindle e-readers. The Kindle device became an omnipresent billboard for Amazon to serve ads to its customers. Millennial Media, the second-largest mobile ad network in the United States, reported at the end of 2011 that the Kindle Fire was seeing a daily increase of 19 percent in overall ad impressions on its network. That translated to a monthly rate of about 300 million advertising impressions. Amazon could expect an average CPM (revenue per thousand impressions) of about $10. However, users could pay $30 to permanently dismiss all the ads on the Kindle Fire. An estimated 20 percent of owners were expected to choose this option. Advertising impressions would decrease in subsequent years, but the downward pressure on CPM would offset the increase in installed base so that advertising revenues would essentially remain flat in subsequent years.

APPLICATION MARKETPLACE REVENUES

The Amazon App Marketplace, a curated version of the Android Market, ensured an optimum experience for its customers. App purchases promised to be a significant source of revenue for Amazon. In a span of just eighteen months, the Amazon AppStore had grown to 50,000 apps after it debuted in March 2011 with just 4,000. Amazon took a 30 percent cut of the sales price (the same percentage Google and Apple took from their own app stores). It was estimated that the Amazon AppStore had logged about 180 million downloads over the first

 

 

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eighteen months. Research also indicated that about 10 percent of apps were paid apps, and the average paid app generated $1.29 in the Amazon AppStore. App revenue was estimated to increase by 20 percent each year.

Conclusion

Amazon was betting that the end-to-end Kindle Fire experience was superior to buying from Amazon on the iPad. Apple, on the other hand, was betting that the Kindle Fire was not quite good enough. As Bezos considered the myriad announcements by competitors likely to come in the following few weeks, he still wondered whether his gamble on the tablet market would be a success. By reaching further into the hardware market, he had exposed Amazon to the grueling product cycles and often-fickle whims of technology customers. Would these customers appreciate the Kindle Fire’s value proposition? Who should be the core target for the product? Would the Kindle Fire deliver on the various revenue streams laid out for it? Or would customers just load up on the free content and drain Amazon’s servers on subsidized hardware? As the embodiment of the Amazon experience, the Kindle Fire was particularly well-situated to signal to investors the future growth prospects of Amazon’s businesses.

 

 

 

 

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Exhibit 1: Amazon Financials Year Ended December 31, 2011 2010 2009 NET SALES ($ in millions)

North America Media 7,959 6,881 5,964 Electronics and other general merchandise 17,315 10,998 6,314 Othera 1,431 828 550

Total North America 26,705 18,707 12,828 International

Media 9,820 8,007 6,810 Electronics and other general merchandise 11,397 7,365 4,768 Othera 155 125 103

Total international 21,372 15,497 11,681 Consolidated

Media 17,779 14,888 12,774 Electronics and other general merchandise 28,712 18,363 11,082 Othera 1,586 953 653

Total consolidated 48,077 34,204 24,509 YEAR-OVER-YEAR PERCENTAGE GROWTH (%)

North America Media 16 15 11 Electronics and other general merchandise 57 74 43 Other 73 50 23

Total North America 43 46 25 International

Media 23 18 19 Electronics and other general merchandise 55 54 53 Other 24 22 9

Total international 38 33 31 Consolidated

Media 19 17 15 Electronics and other general merchandise 56 66 47 Other 66 46 20

Total consolidated 41 40 28 YEAR-OVER-YEAR PERCENTAGE GROWTH EXCLUDING THE EFFECT OF EXCHANGE RATES (%)

International Media 16 18 20 Electronics and other general merchandise 47 57 56 Other 18 24 19

Total international 31 34 33 Consolidated

Media 16 16 16 Electronics and other general merchandise 53 67 48 Other 66 46 22

Total consolidated 37 40 29 . . . . . .

 

 

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Exhibit 1 (continued) Year Ended December 31, 2011 2010 2009 CONSOLIDATED NET SALES MIX (%)

Media 37 43 52 Electronics and other general merchandise 60 54 45 Other 3 3 3

Total consolidated 100 100 100 a Includes non-retail activities, such as Amazon Web Services, miscellaneous marketing and promotional activities, other seller sites, and Amazon’s co-branded credit card agreements.

 

 

 

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AMAZON.COM ANNOUNCES FOURTH QUARTER SALES UP 35% TO $17.43 BILLION; KINDLE DEVICE SALES NEARLY TRIPLE DURING THE HOLIDAYS

SEATTLE—(BUSINESS WIRE)—January 31, 2012—Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter ended December 31, 2011. Operating cash flow increased 12% to $3.90 billion for the trailing twelve months, compared with $3.50 billion for the trailing twelve months ended December 31, 2010. Free cash flow decreased 17% to $2.09 billion for the trailing twelve months, compared with $2.52 billion for the trailing twelve months ended December 31, 2010. Common shares outstanding plus shares underlying stock-based awards totaled 468 million on December 31, 2011, compared with 465 million a year ago. Net sales increased 35% to $17.43 billion in the fourth quarter, compared with $12.95 billion in fourth quarter 2010. Excluding the $101 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 34% compared with fourth quarter 2010. Operating income was $260 million in the fourth quarter, compared with $474 million in fourth quarter 2010. The favorable impact from year-over-year changes in foreign exchange rates throughout the quarter on operating income was $5 million. Net income decreased 58% to $177 million in the fourth quarter, or $0.38 per diluted share, compared with net income of $416 million, or $0.91 per diluted share, in fourth quarter 2010. “We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Jeff Bezos, founder and CEO of Amazon.com. “Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold.” Full Year 2011 Net sales increased 41% to $48.08 billion, compared with $34.20 billion in 2010. Excluding the $1.09 billion favorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales would have grown 37% compared with 2010. Operating income decreased 39% to $862 million, compared with $1.41 billion in 2010. The favorable impact from year-over-year changes in foreign exchange rates throughout the year on operating income was $53 million. Net income decreased 45% to $631 million in 2011, or $1.37 per diluted share, compared with net income of $1.15 billion, or $2.53 per diluted share, in 2010.

Exhibit 2: Amazon Earnings Report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: “Amazon.com Announces Fourth Quarter Sales Up 35% to $17.43 Billion; Kindle Device Sales Nearly Triple During the Holidays,” Amazon.com press release, December 31, 2011.

 

 

 

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Exhibit 3: Amazon Stock Price Following the Kindle Fire Announcement

 

 

 

 

 

 

 

 

 

Exhibit 4: E-Book Market Growth and Projection

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 5: The Evolution of Amazon’s Kindle Product Line

 

 

 

 

 

 

 

 

 

 

Exhibit 6: E-Book Universe (circa 2009)

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 7: Kindle Price History

 

 

Exhibit 8: Amazon Kindle Cross-Platform Ecosystem

 

 

 

 

 

 

Kindle�6”�E�Reader�Price�Over�Time

 

 

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Exhibit 9: Global Top Five Media Tablet Brands, Q4 2011 (Ranking by Global Unit Shipments)

Q4 ’11 Rank

2011 Rank Brand

Q4 ’11 Shipments (in millions)

Q4 ’11 Share

(%)

Q3 ’11 Shipments (in millions)

Q3 ’11 Share

(%)

Q3–Q4 Change

(%)

2011 Shipments (in millions)

2011 Share

(%) 1 1 Apple 15,430 57 11,123 64 39 40,493 62 2 3 Amazon 3,885 14 0 0 NA 3,885 6 3 2 Samsung 2,140 8 1,850 11 16 6,110 9 4 4 B&N 1,920 7 750 4 156 3,250 5 5 5 Asus 612 2 801 5 -24 2,063 3 Others 3,122 12 2,917 17 7 9,389 14 Total 27,109 100 17,441 100 194 65,190 100

 

Exhibit 10: Nook, Fire, and iPad Compared

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 11: U.S. Tablet Sales and Forecast, 2011–2016

 

 

 

 

 

 

 

 

 

 

 

 

 

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Movie Assignment

Image result for the founderName: ________________________________

 

Date: ________________________________

 

Section: _______________________________

 

“The Founder” Assignment

Runtime: 1 hr. 50 mins.

 

The Founder features the true story of how Ray Kroc (played by Michael Keaton), a struggling salesman from Illinois, met Mac and Dick McDonald, who were running a burger operation in 1950s Southern California. Kroc was impressed by the brothers’ speedy system of making the food and saw franchise potential. The movie details how Kroc maneuvered himself into a position to be able to pull the company from the brothers and create a billion-dollar empire.

 

Directions: Obtain a copy or stream the 2016 move “The Founder” starring Michael Keaton. Answer the following questions as you view the movie. Type your responses in the lines indicated in bold blue. Upload this Word document to the “The Founder” assignment section in iLearn. Grading will be on the basis of 70% correctness of responses and 30% quality of English and communication.

 

1) At the start of the movie we meet Ray Kroc (Michael Keaton) who is a struggling traveling salesman for Prince Castle Sales. The year is 1954. The movie is opening with him delivering a sales pitch directly to the camera. What is Kroc selling that nobody wants?

 

Write your response here.

 

2) While traveling around, trying to sell his product, what does Kroc observe about the many fast food/drive-in restaurants that he stops at?

 

Write your response here.

 

3) When Kroc calls June, who is the secretary of the sales division of the company he works for, Prince Castle Sales, he finds out an order has been placed for six milkshake mixers from a restaurant drive-in out in California. He thinks this is an error so he calls the restaurant which he finds out is McDonald’s. He talks to Dick, one of the owners and finds out it was a mistake. How many do they really want?

 

Write your response here.

 

4) The ordering of so many milkshake mixer machines by McDonald’s piques Kroc’s curiosity and he makes a drive to San Bernardino to see the restaurant in person. What does Kroc find out about this restaurant that is so different than the other fast-food/drive-ins he has been to? What does he observe/experience?

 

Write your response here.

 

5) Kroc introduced himself to one of the owners—Mac McDonald and tells him he has some operation and that he was the one who sold him the milkshake mixer. Mac tells him he can give him a tour and Kroc happily agrees. Kroc gets a behind-the-scenes look at how McDonald’s operates. What are they doing that makes them so much better than their competition?

 

Write your response here.

 

6) After the initial kitchen tour, Kroc wants to take the McDonalds brothers out to dinner because he says he is impressed with how the restaurant runs and that it is so remarkable. Wanting to hear their story/the history of McDonald’s, he takes them out to dinner. Answer the following questions:

 

a) When the restaurant first opened, they were selling multiple items and sales were down. They also realized a drive-in restaurant had a host of problems like attracting teenagers, slow service, etc. They also realized that most of their profits came from hamburgers, fries, and milkshakes. With this realization, what did they decide to do?

 

Write your response here.

 

b) What was the purpose of the drawings out on the tennis court?

 

Write your response here.

 

7) Kroc tells the McDonalds brothers he wants to franchise the restaurant. The brothers tell him they already tried and are against it—they already have five restaurants set up—four around California and one in Phoenix, Arizona. They say that is all there will ever be. Why are they against franchising?

 

Write your response here.

 

8) Kroc makes note of a picture on the wall in the brothers’ office. It is of a McDonald’s with two golden arches on either side of the building. Who came up with the concept/design?

 

Write your response here.

 

9) True or False. Circle one. Kroc’s wife, Ethel, is skeptical of his idea to franchise McDonalds.

 

Write your response here.

 

10) Fill in the blank. Kroc insists that the brothers let him start franchising/lead their franchising efforts and says that he will start by opening one in his town- Des Plaines, Illinois so that he can monitor it. They finally agree and he signs a _______________. It allows the brothers control of every decision made since the franchise stores will be representing them. All changes need to receive the brothers’ approval in writing.

 

Write your response here.

 

11) Kroc goes from bank to bank to try to get a loan to start his franchise but they all remember him from his other pitches over the years and won’t give him a loan. Finally, a banker is open to loaning him start-up funds but tells him he has to put up what for leverage/collateral?

 

Write your response here.

 

12) As construction begins at Kroc’s first franchise in Des Plaines, Illinois (where he lives), Kroc tries to make some changes but contractually he can’t unless the brothers will approve it. What big company wanted to be a sponsor for McDonald’s in exchange for having their name on the menu? Note: The McDonalds brothers said no.

 

Write your response here.

 

13) True or False. Circle one. Kroc’s first McDonald’s franchise opens in Des Plaines, Illinois. Kroc micromanages it to make sure everyone on staff is following proper protocol.

 

Write your response here.

 

14) At his country club, Kroc entices his wealthy friends to invest/open a McDonald’s franchise. He tells them they just need to pay the franchise fee and he’ll take care of everything else. They aren’t responsible for anything. They can just share in the profits. In the next scene we see the McDonalds brothers talking about how many franchises Kroc has now opened in the last month. Answer the following:

a) How many has he opened?

 

Write your response here.

 

b) What is Dick McDonald worried about concerning all these new franchises Kroc has popping up all over the place?

 

Write your response here.

15) What does Kroc unfortunately encounter when he visits these new franchises that were owned by the country club men?

 

Write your response here.

 

16) What were the country club men’s’ reaction to Kroc when he went to the golf course to yell at them about their neglected restaurants?

 

Write your response here.

 

17) Kroc realizes that rich men aren’t good franchisee owners because they don’t care enough. When he stops by his sales company he comes across a gentleman selling a bible to June and when he questions him why he is selling them he says he just wants to make a living. Kroc then gets the idea that working class can get enough money together to buy a franchise and will take good care of it. He has this gentleman and other blue-collar workers buy a franchise. What is this gentleman’s (Leonard) restaurant like?

 

Write your response here.

 

18) At the Prince Castle Sales Office, June tells Kroc he is almost out of capital. Kroc is not making enough money off the franchises because by contract he only gets 1.4% of the profits. This is not covering his expenses and he is not breaking even. Kroc wants to renegotiate his contract with the McDonalds brothers. He calls the brothers to renegotiate. Will the brothers renegotiate the contract?

 

Write your response here.

 

19) At home, Ethel tells Kroc that a man called from Illinois First Federal Bank and she is upset that he mortgaged their home/put it up as collateral. How many months behind are they on payments?

 

20) Kroc has dinner with one of his franchisees, Rollie Smith and his wife June. They share an idea with him on how they can save hundreds of dollars in electrical costs and reduce time in making milkshakes. They say that the walk-in refrigerator and ice cream is costing them a fortune. Answer the following:

a) What is the solution?

 

Write your response here.

 

b) What is Kroc’s response?

 

Write your response here.

 

c) What happens when he calls the McDonalds brothers to pitch the idea of the milkshake mix to save costs? Do they agree?

 

21) While at the bank dealing with his overdue mortgage, a financial consultant for Tastee-Freez named Harry Sonneborn, requests to review Kroc’s books and gives him a solution to his money problems.

 

Write your response here.

 

True or False. Circle one. Harry tells Kroc he should be in the real estate business. That land is where the money is. He says he should buy land where the restaurants want to set up and make it mandatory for franchise owners to lease from him. He can then control the operation because if they don’t keep the restaurant up to quality, he can cancel their lease.

 

Write your response here.

 

ELIMINATE QUESTION #22 BELOW; DO NOT ANSWER:

 

 

 

23) The McDonalds brothers complain to Kroc when they find out that franchises are receiving shipments of the Inst-a-mix milkshakes packets when they said by contract he could not make that change.

 

Fill in the blanks. Kroc tells Mac that contracts are like Write your response here and they’re meant to Write your response here .

 

24) At dinner one night, Kroc abruptly tells his wife Ethel that he wants a divorce. He meets with his lawyer and tells him she can have the house, the car, etc. but that she cannot have what?

 

Write your response here.

 

25) The McDonalds brothers call Kroc when they realize he has now named his company The McDonalds Corporation. They threaten to sue him. What does Kroc tell them that sends Mac into a diabetic shock?

 

Write your response here.

 

26) Ray flies to California to meet with the McDonalds brothers and gives them a blank check. He wants to buy the company. The brothers talk it over and realize they will never beat him in court. What do the brothers ask for?

 

Write your response here.

 

27) The deal to buy the company is made in person but Kroc’s lawyers say the one percent earnings will have to be carried out by a what? It cannot be put into the contract.

 

Write your response here.

 

28) After the brothers receive their checks, Kroc runs into Dick in the bathroom and Dick asks him why he didn’t just run off and steal their ideas after he got a tour of the restaurant. Kroc says the restaurant would have failed and tells him he does not realize what made their restaurant so successful. What does he say made them so successful?

 

Write your response here.

 

29) Due to the terms of their agreement/contract with Kroc, the brothers are forced to change the name of their original hamburger stand because it infringes on the intellectual property of Kroc. What do they change the name to?

 

Write your response here.

 

30) Kroc opens up a new McDonalds across the street from the brother’s restaurant. When a reporter asks to do a story on his 100th location opening, Kroc gives him his business card listing him as what?

 

Write your response here.

 

31) What is the one-word Kroc contributing to making him go from an over the hill milkshake mixer salesman to building a fast-food empire with 1600 restaurants in 50 states and 5 foreign markets with a revenue around $700 million?

 

Write your response here.

 

32) Name three interesting facts we learn at the end of the movie.

 

After you write your response here you’re DONE! Now upload this Word doc to iLearn.

 
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"

Strategic Marketing

Using your HBR coursepack, review the following articles in the coursepack:

  • The Female Economy
  • Customer Value Propositions in Business Markets
  • Getting Brand Communities Right
  • The One Number You Need to Grow
  • Ending the War Between Sales and Marketing

Cite each source individually – do NOT cite as a coursepack!

Following your review, share a 750-words minimum review of the strategic marketing concepts discussed.  Make sure to cite your sources individually – using their original published dates.    This posting should be completed using APA formatting (in-text citations and references) attach in a formal word document.   Not accepted if there is no word document attached.

This initial post should be completed by Saturday at 11:59 p.m. EST.  After you submit the initial posting, return to the forum and review the findings of your classmates.  Post a meaningful comment or question (150 words minimum) to the postings of one (1) classmate.  Peer postings should be completed by Sunday at 11:00 p.m. EST.

Roger A. Kerin Steven W. Hartley

MARKETING THE CORE

Eighth Edition

 

 

MARKETING: THE CORE

Eighth Edition

Roger A. Kerin Southern Methodist University

Steven W. Hartley University of Denver

 

 

MARKETING: THE CORE, EIGHTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2016, and 2013. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LWI 21 20 19

ISBN 978-1-260-71145-5 (bound edition) MHID 1-260-71145-5 (bound edition) ISBN 978-1-260-08886-1 (loose-leaf edition) MHID 1-260-08886-3 (loose-leaf edition)

Executive Brand Manager: Meredith Fossel Senior Product Developer: Kelly I. Pekelder Senior Marketing Manager: Nicole Young Lead Content Project Manager: Christine Vaughan Senior Content Project Manager: Danielle Clement Senior Buyer: Susan K. Culbertson Senior Designer: Matt Diamond Lead Content Licensing Specialist: Carrie Burger Cover Image: ©@by Feldman_1/Getty Images Compositor: Aptara®, Inc.

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Kerin, Roger A., author. | Hartley, Steven William, author. Title: Marketing : the core / Roger A. Kerin, Southern Methodist University, Steven W. Hartley, University of Denver. Description: Eighth edition. | New York, NY : McGraw-Hill Education, [2020] | Audience: 18+ Identifiers: LCCN 2018048487| ISBN 9781260088861 (alk. paper) | ISBN 1260088863 (alk. paper) Subjects: LCSH: Marketing. Classification: LCC HF5415 .K452 2020 | DDC 658.8—dc23 LC record available at https://lccn.loc.gov/2018048487

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

 

 

WELCOME FROM THE AUTHORS!

Is technology an integral part of yo ur life? Are you innovative and entr

epreneurial? Do you consider

purpose-driven work important? Ha ve you ever thought you could cha

nge the world? If the answer

to any of these questions is yes, yo ur decision to study marketing is a

perfect match! In addition, if

you are curious about robots in the marketplace, virtual reality and aug

mented reality in advertising,

wearable technology, YouTube cha nnel brand advocates, shopping on

Pinterest, or the gamification

of almost everything, you will be exc ited by the insights you will learn du

ring your studies. And we are

excited to have the opportunity to h elp you along the way with our text

book about this exciting field!

We know from our experiences in the classroom that students choo

se to study marketing for

many reasons. For marketing majo rs this course is the first of many o

n the way to a marketing de-

gree. For students from other busi ness majors this may be a required

course in a business “core.”

For many other students, marketin g is an elective chosen because

of a personal interest in the

marketplace. Regardless of your r easons for taking this course, it is

our pleasure to help you ex-

plore the many new trends, conc epts, practices, challenges, and o

pportunities that are part of

marketing today. We encourage yo u to use your own past experience

s and future interests to cre-

ate a personalized journey of expl oration and study.

The dynamic nature of the marke ting discipline necessitates equa

lly dynamic learning re-

sources. As a result, we have focus ed our time and energy on ensurin

g that our textbook provides

the most current, insightful, and co mprehensive coverage of the mar

ketplace today. The dramatic

changes in student learning styles —from traditional observational sty

les to contemporary collab-

orative styles—are also reflected in our efforts as we have included m

any features to match these

interests. Our approach to present ing the complexities of marketing a

nd facilitating the changes in

learning is based on three importa nt dimensions:

• Engagement. As professors we have benefited from interactions

with many exceptional stu-

dents, managers, and instructors. T heir insights have contributed to o

ur approach to teaching

and, subsequently, to our efforts as textbook authors. One of the esse

ntial elements of our ap-

proach is a commitment to active l earning through engaging, integra

ted, and timely materials.

In-class activities, an interactive bl og, marketing plan exercises, and

in-text links to online ads

and web pages are just a few exam ples of the components of our eng

agement model.

• Leadership. Our approach is als o based on a commitment to takin

g a leadership role in the

development and presentation of new ideas, principles, theories, an

d practices in marketing.

This is more important now than e ver before, as the pace of change

in our discipline acceler-

ates and influences almost every a spect of traditional marketing. We a

re certain that exposure

to leading-edge material related to topics such as social media, data

analytics, and marketing

metrics can help students become leaders in their jobs and careers.

• Innovation. New educational tec hnologies and innovative teaching

tools have magnified the

engagement and leadership aspe cts of our approach. Connect, Lea

rnSmart, and SmartBook,

for example, provide a digital and interactive platform that embrace

s the “anytime and any-

where” style of today’s students. In addition, we have provided new v

ideos and increased the

visual impact of the text and Pow erPoint materials to facilitate mul

timedia approaches to

learning.

Through the previous 7 U.S. editio ns—and 19 international editions in

11 languages—we have

been gratified by the enthusiastic feedback we have received from

students and instructors. We

are very excited to have this oppo rtunity to share our passion for thi

s exciting discipline with you

today. Welcome to the 8th edition of Marketing: The Core! Roger A. Kerin

Steven W. Hartley

iii

 

 

iv

Marketing: The Core utilizes a unique, innovative, and effective pedagogical approach developed by the authors through the integration of their combined classroom, college, and university experiences. The elements of this approach have been the foundation for each edition of Marketing: The Core and serve as the core of the text and its supplements as they evolve and adapt to changes in student learning styles, the growth of the marketing discipline, and the development of new instructional technologies. The distinctive features of the approach are illustrated below:

The goal of the 8th edition of Marketing: The Core is to create an exceptional experience for today’s students and instructors of marketing. The development of Marketing: The Core was based on a rigorous process of assessment, and the outcome of the process is a text and package of learning tools that are based on engagement, leadership, and innovation in marketing education.

PREFACE

Personalized Marketing A vivid and accurate

description of businesses, marketing professionals, and

entrepreneurs—through cases, exercises, and testimonials—

that allows students to personalize marketing and

identify possible career interests.

Marketing: The Core 8/e

Pedagogical Approach

High-Engagement Style Easy-to-read, high-

involvement, interactive writing style that engages students through active

learning techniques.

Rigorous Framework A pedagogy based on the use of learning objectives, learning reviews, learning objectives reviews, and

supportive student supplements.

Traditional and Contemporary Coverage

Comprehensive and integrated coverage of

traditional and contemporary marketing concepts.

Integrated Technology The use of powerful

technical resources and learning solutions, such as

Connect, LearnSmart, SmartBook, the Kerin &

Hartley Blog (www.kerinmarketing.com),

and in-text video links.

Marketing Decision Making

The use of extended examples, cases, and videos

involving people making marketing decisions.

 

 

v

The members of this author team have benefited from extraordinary experiences as instructors, researchers, and consultants, as well as the feedback of users of previous editions of Marketing: The Core—now more than one million students! The authors believe that success in marketing education in the future will require the highest levels of engagement. They ensure engagement by facilitating interaction between students and four learning partners—the instructor, other students, busi- nesses, and the publisher. Some examples of the high-engagement elements of Marketing: The Core include:

In-Class Activities and Digital In-Class Activities. The in-class activities, located in the Instructor’s Manual, are designed to engage students in discussions with the instructor and among themselves. They involve surveys, online resources, out-of-class assignments, and personal observations. Each activity illustrates a con- cept from the textbook and can be done individually or as a team. Examples include: Designing a Candy Bar, Marketing Yourself, Pepsi vs. Coke Taste Test, and What Makes a Memorable TV Commercial? In addition, digital in-class activities have been added to selected chapters. These activities, located in the Instructor Resources, focus on the use of web resources and the marketing data they can provide students.

Interactive Web Page and Blog (www.kerinmarketing.com). Students can access recent articles about marketing and post comments for other students. The site also provides access to a Marketing: The Core Twitter feed!

Building Your Marketing Plan. The Building Your Marketing Plan guides at the end of each chapter are based on the format of the Marketing Plan presented in Appendix A. On the basis of self-study or as part of a course assignment, students can use the activities to organize interactions with businesses to build a marketing plan. Students and employers often suggest that a well-written plan in a student’s portfolio is an asset in today’s competitive job market.

ENGAGEMENT

 

 

vi

The popularity of Marketing: The Core in the United States and around the globe is the result, in part, of the leadership role of the authors in developing and presenting new marketing content and pedagogies. For example, Marketing: The Core was the first text to integrate ethics, technology, and interactive marketing. It was also the first text to develop custom-made videos to help illustrate marketing principles and practices and bring them to life for students as they read the text. The authors have also been leaders in developing new learning tools, such as a three-step learning process that includes learning objectives, learning reviews, and learning objectives reviews and new testing materials that are based on Bloom’s learning taxonomy. Other elements that show how Marketing: The Core is a leader in the discipline include:

Chapter 17: Using Social Media and Mobile Marketing to Connect with Consumers. Marketing: The Core features a dedicated chapter for social media and mobile marketing. This new environment is rapidly changing and constantly growing. The authors cover the building blocks of social media and mobile market- ing and provide thorough, relevant content and examples. The authors discuss major social media platforms like Twitter, Facebook, LinkedIn, and YouTube. They explain how managers and companies can use those outlets for marketing purposes. Chapter 17 also includes a section titled Social Media Marketing Programs and Customer Engagement that addresses criteria for selecting social media, how social media can produce sales, and methods of measuring a company’s suc- cess with social media and mobile marketing. This chapter is one of many ways Marketing: The Core is on the cutting edge of the field.

Applying Marketing Metrics. The Applying Marketing Metrics feature in the text delivers two of the newest elements of the business and marketing environment today—performance metrics and dashboards to visualize them. Some of the met- rics included in the text are: category development index (CDI), brand development index (BDI), load factor (a capacity management metric), price premium, sales per square foot, same-store sales growth, promotion-to-sales ratio, and cost per thou- sand (CPM) impressions. The feature is designed to allow readers to learn, practice, and apply marketing metrics.

Color-Coded Graphs and Tables. The use of color in the graphs and tables enhances their readability and adds a visual level of learning to the textbook for readers. In addition, these color highlights increase student comprehension by link- ing the text discussion to colored elements in the graphs and tables.

New Video Cases. Each chapter ends with a case that is supported by a video to illustrate the issues in the chapter. New cases such as IBM, Toyota, Justin’s, and Body Glove, and recent cases such as GoPro and Coppertone provide current and relevant examples that are familiar to students.

LEADERSHIP

 

 

vii

In today’s fast-paced and demanding educational environment, innovation is es- sential to effective learning. To maintain Marketing: The Core’s leadership position in the marketplace, the author team consistently creates innovative pedagogical tools that match contemporary students’ learning styles and interests. The authors keep their fingers on the pulse of technology to bring real innovation to their text and package. Innovations such as in-text links, a Twitter feed, hyperlinked Power- Point slides, and an online blog augment the McGraw-Hill Education online innova- tions such as Connect, LearnSmart, and SmartBook.

In-Text Links. You can see Internet links in magazine ads; on television program- ming; as part of catalogs, in-store displays, and product packaging; and throughout Marketing: The Core! These links bring the text to life with ads and videos about products and companies that are discussed in the text. These videos also keep the text even more current. While each link in the text has a caption, the links are up- dated to reflect new campaigns and market changes. In addition, the links allow readers to stream the video cases at the end of each chapter. You can simply click on the links in the digital book or use your smartphone or computer to follow the links.

Twitter Feed and Online Blog. Visit www.kerinmarketing.com to participate in Marketing: The Core’s online blog discussion and to see Twitter feed updates. You can also subscribe to the Twitter feed to receive the Marketing Question of the Day and respond with the #QotD hashtag.

Connect, LearnSmart, and SmartBook Integration. These McGraw-Hill Educa- tion products provide a comprehensive package of online resources to enable stu- dents to learn faster, study more efficiently, and increase knowledge retention. The products represent the gold standard in online, interactive, and adaptive learning tools and have received accolades from industry experts for their Library and Study Center elements, filtering and reporting functions, and immediate student feedback capabilities. In addition, the authors have developed book-specific interactive assignments, including (a) auto-graded applications based on the marketing plan exercises, and (b) activities based on the Applying Marketing Metrics boxes and marketing metrics presented in the text.

Innovative Test Bank. Containing more than 5,000 multiple-choice and essay questions, the Marketing: The Core Test Bank reflects more than two decades of innovations. The Test Bank also includes “visual test questions” in each chapter to reward students who made an effort to understand key graphs, tables, and images in the chapter.

INNOVATION

 

 

You’re in the driver’s seat. Want to build your own course? No problem. Prefer to use our turnkey, prebuilt course? Easy. Want to make changes throughout the semester? Sure. And you’ll save time with Connect’s auto-grading too.

They’ll thank you for it. Adaptive study resources like SmartBook® help your students be better prepared in less time. You can transform your class time from dull definitions to dynamic debates. Hear from your peers about the benefits of Connect at www.mheducation.com/highered/connect

Make it simple, make it affordable. Connect makes it easy with seamless integration using any of the major Learning Management Systems—Blackboard®, Canvas, and D2L, among others—to let you organize your course in one convenient location. Give your students access to digital materials at a discount with our inclusive access program. Ask your McGraw-Hill representative for more information.

Solutions for your challenges. A product isn’t a solution. Real solutions are affordable, reliable, and come with training and ongoing support when you need it and how you want it. Our Customer Experience Group can also help you troubleshoot tech problems—although Connect’s 99% uptime means you might not need to call them. See for yourself at status.mheducation.com

Students—study more efficiently, retain more and achieve better outcomes. Instructors—focus on what you love—teaching.

SUCCESSFUL SEMESTERS INCLUDE CONNECT

65% Less Time Grading

©Hill Street Studios/Tobin Rogers/Blend Images LLC

For Instructors

 

 

Effective, efficient studying. Connect helps you be more productive with your study time and get better grades using tools like SmartBook, which highlights key concepts and creates a personalized study plan. Connect sets you up for success, so you walk into class with confidence and walk out with better grades.

Study anytime, anywhere. Download the free ReadAnywhere app and access your online eBook when it’s convenient, even if you’re offline. And since the app automatically syncs with your eBook in Connect, all of your notes are available every time you open it. Find out more at www.mheducation.com/readanywhere

No surprises. The Connect Calendar and Reports tools keep you on track with the work you need to get done and your assignment scores. Life gets busy; Connect tools help you keep learning through it all.

Learning for everyone. McGraw-Hill works directly with Accessibility Services Departments and faculty to meet the learning needs of all students. Please contact your Accessibility Services office and ask them to email [email protected], or visit www.mheducation.com/about/accessibility.html for more information.

“I really liked this app—it made it easy to study when

you don’t have your text- book in front of you.”

— Jordan Cunningham, Eastern Washington University

Chapter 12 Quiz Chapter 11 Quiz

Chapter 7 Quiz

Chapter 13 Evidence of Evolution Chapter 11 DNA Technology

Chapter 7 DNA Structure and Gene…

and 7 more…

13 14

©Shutterstock/wavebreakmedia

For Students

 

 

Create

SmartBook iSeeit! Videos Mini Simulation

Marketing Plan Prep

Marketing Analytics

Video Cases/ Analytics

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er O

rd er

Th in

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S ki

lls H

ig he

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in ki

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ki lls

Asset Alignment with Bloom’s Taxonomy

Evaluate

Analyze

Apply

Understand

Remember

We Take Students Higher

As a learning science company we create content that supports higher order thinking skills. Interactive learning tools within McGraw-Hill Connect are tagged accordingly, so you can filter, search, assign, and receive reports on your students’ level of learning. The result—increased pedagogical insights and learning process efficiency that facilitate a stronger connection between the course material and the student.

The chart below shows a few of the key assignable marketing assets with McGraw-Hill Connect aligned with Bloom’s Taxonomy. Take your students higher by assigning a variety of applications, moving them from simple memorization to concept application.

Principles of Marketing

Asset Alignment with Bloom’s Taxonomy

 

 

• Adaptively aids students to study more efficiently by highlighting where in the chapter to focus, asking review questions and pointing them to resources until they understand.

• Short, contemporary videos provide engaging, animated introductions to key course concepts. Available at the chapter level. Perfect for launching lectures and assigning pre- or post-lecture.

• Mini-cases and scenarios of real-world firms accompanied by questions that help students analyze and apply marketing theory and other core concepts.

SmartBook

iSeeit! Videos

Video Cases & Case Analyses

Mini Simulation

Marketing Plan Prep

Marketing Analytics

• These newest auto-graded, data analytics activities challenge students to make decisions using metrics commonly seen across Marketing professions. The goal of this activity is to give students practice analyzing and using marketing data to make decisions.

• Marketing Mini Sims help students apply and understand the interconnections of elements in the marketing mix by having them take on the role of Marketing Manager for a backpack manufacturing company.

• Mini Sims can be assigned by topic or in its entirety.

• These exercises use guided activities and examples to help students understand and differentiate the various elements of a marketing plan.

gre87719_fm_i-xlii.indd 17 14/11/18 9:48 AM

 

 

xii

Chapter 1: Update of Chobani’s Success Story, New Showstopper Analysis, and New Material on Ritz- Carlton and Patagonia. Chobani’s continued success at creating customer value is discussed and updated. The company’s guiding mission, “Better food for more people,” new products such as Drink Chobani, Chobani Flip, Smooth Yogurt, and Chobani Savor, and advertis- ing campaigns such as “Love This Life” are presented. Discussion of Elon Musk and his success with entrepre- neurial endeavors such as Zip2, PayPal, SpaceX, and Tesla has been added to the Marketing and Your Career section. New-product examples such as smart glasses and the YoYo car subscription service have been added to the discussion of potential “showstoppers” for new- product launches. Discussion of the Ritz-Carlton’s use of relationship marketing concepts and Patagonia’s Common Threads Initiative have also been added.

Chapter 2: New IBM Video Case, Updated Chapter Opening Example, Addition of a New Example of Social Entrepreneurship, and New Discussion of Uber’s Changing Business Definition. The Chapter 2 opening example discusses Ben & Jerry’s mission to make fantastic, sustainable, world-changing ice cream. Free Cone Day has been added to the discussion of cre- ative marketing strategies used by the company to help accomplish its mission. The social entrepreneur venture NexGenVest has been added to the 30 Under 30 Forbes Social Entrepreneurs discussion in the Making Responsi- ble Decisions box. In addition, the discussion of business definitions and business models now describes how Uber has changed its definition from a cab service, to a ride-sharing service, to a delivery service. The applica- tion of the Boston Consulting Group business portfolio model to Apple’s product line has been updated to in- clude changes related to the Apple Watch, the iPhone, and the iPad/iPad mini tablet devices. The end-of-chap- ter video case is completely new, and features the recent IBM campaign and strategy: “Let’s Put Smart to Work.”

Chapter 3: New Toyota Video Case, Update of New Trends in Marketing, New Discussion on Generation

Z, and New Discussion of Gender-Neutral Marketing Actions. The discussion of new trends, such as the growing popularity of brand advocates, the increasing application of virtual reality and augmented reality, and the surging scrutiny regarding the collection and use of consumer data, has been updated. Generation Z, the post-millennial generation, has been added to the discussion of generational cohorts. The Making Responsible Decisions box includes new examples such as P&G’s recyclable shampoo bottles, Unilever’s “brands with purpose,” and Apple’s “greenest building on the planet.” New gender-neutral marketing actions have been added to the Culture section. A discussion of new trends in technology, such as the growth of au- tomation (e.g., autonomous cars, drones, and robots), digital assistants (e.g., Amazon’s Alexa), and wearable technology, has also been added. In addition, the chapter ends with a completely new video case about Toyota, its transition to a “mobility” company, and its marketing activities related to the hydrogen fuel-cell vehicle, the Mirai.

Chapter 4: New Section on Consumer Touchpoints and Consumer Journey Maps, and New Figure to Il- lustrate a Consumer Journey Map. A new section de- scribes consumer touchpoints, the product, service, or brand points of contact with a consumer, and consumer journey maps, the visual representation of all touch- points where a consumer comes into contact with a company’s products, services, or brands. The new Figure 4–4 illustrates consumer touchpoints and a con- sumer journey map for electronic devices sold by Apple in stores. The Marketing Matters box has been updated to reflect the latest procedures for BzzAgents.

Chapter 5: New Examples Including Lockheed Mar- tin and BMW, and Updated Marketing Matters Box Regarding eBay Business Supply. The description of government markets has been updated to include the Orion Multi-Purpose Crew Vehicle being developed by Lockheed Martin. In addition, the Buyer–Seller Relationship section now includes GT Advanced

NEW AND REVISED CONTENT

 

 

xiii

Technology’s $578 million contract with Apple to pro- duce iPhone camera lenses and screens as an exam- ple of a long-term agreement. BMW’s purchase of a Cloud-based data management system from IBM has been added as an example of a new buy. In addition, the Marketing Matters box has been updated to re- flect eBay’s trading platform, eBay Business Supply, which generates $4 billion in sales annually.

Chapter 6: Updated Chapter Opening Example Regarding Amazon in India, and Addition of UK Withdrawal from the EU. The chapter opening ex- ample is completely updated to describe the opportu- nities and challenges Amazon faces as it invests billions of dollars in India. The Economic Integration among Countries section has been revised to reflect increasing economic protectionism, including the withdrawal of the United Kingdom from the European Union, and discussions regarding possible changes in the North American Free Trade Agreement. In addi- tion, Listerine has been added as a new example of product adaptation in the Product and Promotion Strategies section.

Chapter 7: Updated Chapter Opening Example, New Primary and Secondary Data Coverage, and New Discussion of Artificial Intelligence. The chap- ter opening example has been updated to reflect the use of marketing research in movies such as Atomic Blonde, Edge of Tomorrow, and War Dogs. An update of the Secondary Data section reflects the upcoming 2020 Census. The Primary Data section has been up- dated to include new Nielsen program ranking data, an example of Gillette’s use of observational data, a discussion of the growing use of neuromarketing technologies, and a description of McDonald’s use of test markets in developing its delivery service. In ad- dition, artificial intelligence is discussed as part of the Intelligent Marketing Enterprise Platform presented in Figure 7–5.

Chapter 8: Update of Zappos’s Use of Behavioral Segmentation, New Segmentation Examples, and New Patronage Example Data. The chapter opening

example has been updated to describe how Zappos uses behavioral segmentation to deliver “happiness” to its customers. The Multiple Products and Multiple Market Segments section includes a new discussion of Ford’s shift in strategy to reduce its product line and provide higher quality at lower prices. In addition, in the Patronage of Fast-Food Restaurants section, the patronage and user/nonuser data have been updated; also, the Future Strategies for Your Wendy’s Restau- rant section has been updated.

Chapter 9: New Discussion of the Apple-Enabled iCar and New Marketing Matters Box Coverage of Feature Fatigue. The chapter opening example has been updated to include a discussion of Apple’s next innovation—the Apple-enabled iCar. The concept of feature bloat and fatigue is now introduced and illus- trated in the Marketing Matters box. Keurig Kold and the HP Tablet are introduced as examples in the Marketing Reasons for New-Product Failures section. An example of the success of Aaron Krause’s Scrub Daddy, originally pitched on Shark Tank, has been added to the section on inventors as a source of innovation.

Chapter 10: New Justin’s Video Case, New Material on Gatorade’s “Smart Cap,” New Co-Branding and Brand Dilution Coverage, and New Examples. The Chapter 10 discussion of Gatorade in the chapter opener now includes material on the microchip-fitted “smart cap” and the digital sweat patch for athletes and fitness buffs. In addition, new discussions of co- branding and brand dilution have been added to the Multiproduct Branding Strategy section. New examples include Olay Skin Care Advisor, the NFL and NBA, and P&G’s acquisition of Gillette. The chapter ends with a new video case titled Justin’s: Managing a Successful Product with Passion, which describes the inspiring story of entrepreneur Justin Gold, and the application of product management concepts to the Justin’s brand of organic nut butters.

Chapter 11: Updated Chapter Opening Example about VIZIO, and Discussion of Apple iPhone X, 8,

 

 

xiv

and 8-Plus Pricing. The updated chapter opening ex- ample describes VIZIO’s approach to pricing the 50 mil- lion HDTVs it has sold since its founding. Microsoft’s approach to pricing its Xbox One X videogame console is now included in the Skimming Pricing section. In ad- dition, examples of penetration pricing, odd-even pric- ing, standard markup pricing, and cost-plus pricing have been updated to reflect the current marketplace.

Chapter 12: New Chapter Opening Example about Multichannel Marketing at Eddie Bauer, Updated Marketing Matters Box about IBM’s Watson, and Updated Making Responsible Decisions Box. A new chapter opening example describes Eddie Bauer’s “brick, click, and flip” multichannel marketing strategy. The Marketing Matters box has been updated to reflect IBM’s use of artificial intelligence to manage its supply chain. In addition, the discussion of recycling e-waste in the Making Responsible Decisions box has been updated.

Chapter 13: Updated Chapter Opening Example about Smart Stores, Updated Making Responsible Decisions Box, and New Discussion about YouTube Programming, Robocalls, and EDLP 2.0. Chapter 13 opens with a description of the potential impact of smart stores on the customer journey. The Internet of Things, biometric scanners, virtual reality, 3D modeling tools, and wearable technology are discussed. The Making Responsible Decisions box now includes infor- mation about California’s “zero-waste” laws. New infor- mation, such as banks’ attempts to change ATMs into smart self-service devices, has been added to the Self- Service section. In addition, YouTube’s live program- ming, the FTC’s discussion regarding robocalls, and Walmart’s development of EDLP 2.0 are discussed.

Chapter 14: Expanded Discussion about Personaliza- tion; New Section Titled How Consumers Shop and Buy Online, including Coverage of Social Commerce; Broadened Implementing Multichannel Marketing Section; and New Figure Illustrating a Multichannel Consumer Journey Map. The Interactivity, Individuality, and Customer Relationships in Marketspace section has

an expanded discussion about the differences between collaborative filtering and personalization and includes Sunglass Hut as an example of a company using person- alization techniques. The use of chatbots has been added to the Communication section. A new section titled How Consumers Shop and Buy Online has been added and covers social commerce—the use of social networks for browsing and buying. In addition, the Implementing Multichannel Marketing section has been rewritten with new coverage of cross-channel consumer behavior, mutually reinforcing channels, and monitoring and mea- suring channel performance. New Figure 14–5 illustrates a multichannel marketing consumer journey map. This chapter was previously located later in the sequence of chapters and has been moved to follow coverage of mar- keting channels and supply chains (now Chapter 12) and retailing and wholesaling (now Chapter 13).

Chapter 15: Updated Chapter Opening Example, New Advertisements, New Example of an IMC Program for a Movie, and New Discussion of the Media Agency of the Year. The chapter opening ex- ample has been completely updated to reflect Taco Bell’s recent IMC activities. The company’s Love & Tacos Contest; new restaurant in Las Vegas; Happily Ever After sweepstakes; superbowl ads; collabora- tions with Sony, the NBA, and Airbnb; and social media tactics such as Taco Tales and Clip Show posts are all discussed. New advertisements include examples from The North Face, Sony, and Humira. The IMC pro- gram used to promote the movie Star Wars: The Last Jedi has been added to the Scheduling the Promotion section. In addition, the work of Advertising Age’s Media Agency of the Year, PHD Media, is discussed.

Chapter 16: Updated Chapter Opening Example about Virtual Reality and Augmented Reality in Ad- vertising, New Advertisements and Sales Promo- tion Examples, and New Discussion of the Advertising Agency of the Year. The growing impact of virtual reality (VR) and augmented reality (AR) on advertising is discussed in the chapter opening exam- ple. New examples of VR and AR campaigns include McDonald’s Happy Goggles and Lowe’s Holoroom. Coverage includes new advertising examples from

 

 

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Mercedes-Benz, Progressive, Duracell, Milk Life, Ama- zon, AG, and Sonos and new sales promotion exam- ples from Nabisco and Ben & Jerry’s. The Identifying the Target Audience section now includes Mountain Dew and Lululemon campaigns as examples, and the Message Content section includes a discussion of the increasing use of gender—neutral advertising. The chapter also includes new discussion of Advertising Age’s Agency of the Year—Anomaly. In addition, the results of a recent Association of National Advertisers survey about the most common forms of compensa- tion for ad agencies are discussed.

Chapter 17: New Body Glove Video Case, New Dis- cussion on Internet-Connected Cars, New Section on Influencer Marketing, New Material on Live Streaming at Facebook, and Updated Marketing Matters Box on Vloggers. Chapter 17 opens with a discussion of the new level of mobile marketing en- abled by Internet-connected cars. The discussion ad- dresses three channels that can reach cars—social media, e-mail, and messaging apps. In addition, a new section titled Emergence of Influencer Marketing ad- dresses the growth of social media influencers such as Kendall Jenner who has close to 100 million Instagram followers. New discussions about Facebook’s privacy protection, its new dating feature, and Facebook Live have been added to the section on Mobile Marketing at Facebook. The overview of Twitter now includes an example of teenager Carter Wilkerson obtaining

enough retweets to win free chicken nuggets for a year. The Marketing Matters box has been updated to describe how vloggers are becoming the online ver- sion of traditional celebrities and the Pepsi MAX “Friend Finder” YouTube video is included as an ex- ample of Pepsi’s use of social media. The revised sec- tion titled Social Media Marketing Programs and Customer Engagement introduces new key terms and definitions for social media marketing programs and customer engagement. The chapter ends with a new video case about Body Glove and the role social media play in the company’s marketing plan.

Chapter 18: New Material on Upselling and Cross- Selling, Updated Marketing Matters Box, and New Discussion of Customer Relationship Marketing Systems and Technology, including Sales Force Au- tomation, Marketing Automation, and Customer Service and Support Automation. The Consultative Selling section now includes discussion of upselling and cross-selling. The Marketing Matters box has been updated to include the most recent emotional intelli- gence test and the current link. In addition, the discus- sion of CRM systems and technology includes new material on the consolidation of customer and sales information, how marketing automation emphasizes sophisticated analytical techniques to track the behav- ior of anyone showing an interest in a product or service, and how customer service and support auto- mation provides services such as “live chat.”

 

 

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INSTRUCTOR RESOURCES

Practice Marketing Practice Marketing is a 3D, online, single or multiplayer game that helps students apply the four Ps by taking on the role of marketing manager for a backpack com- pany. By playing the game individually and/or in teams, students come to understand how their decisions and elements of the marketing mix affect one another. Practice Marketing is easy to use, fully mobile, and provides an interactive alternative to marketing plan projects. Log in to mhpractice.com with your Connect credentials to access a demo, or contact your local McGraw-Hill representative for more details.

Marketing Mini Sims—Now Assignable within Connect! Marketing Mini Sims are building-block sims based on our full Practice Marketing simulation that require students to take on the role of a marketing decision maker for a backpack manufacturing company. Each of the 9 Mini Sims focuses on one aspect of the marketing mix and serves to both reinforce the understanding of key concepts as well as allow students to make business decisions.

To view a demonstration video and/or see a list of available simulations, please visit the McGraw-Hill Marketing Discipline Landing page at http://bit.ly/ MHEmarketing

Video Cases A unique series of 18 marketing

video cases includes new videos featuring IBM, Toyota,

Justin’s, and Body Glove.

Marketing: The Core 8/e

Instructor Resources

Instructor’s Manual The IM includes lecture

notes, video case teaching notes, and In-Class Activities.

Test Bank We offer almost 5,000 test questions categorized by topic, learning objectives,

and level of learning.

Blog www.kerinmarketing.com

A blog written specifically for use in the classroom!

Throughout each term we post new examples of

marketing campaigns, along with a classroom discussion

and participation guide. Practice Marketing

(Simulation) Practice Marketing is a 3D,

online, multiplayer game that enables students to gain

practical experiences in an interactive environment.

Connect, LearnSmart, and SmartBook

The unique content platform delivering powerful technical

resources and adaptive learning solutions. Includes

new Marketing Analytics Exercises.

In-Class Activities Chapter-specific in-class

activities for today’s students who learn from active,

participative experiences. PowerPoint Slides

Media-enhanced and hyperlinked slides enable engaging and interesting classroom discussions.

Digital In-Class Activities Digital In-Class Activities focus on the use of web

resources and the marketing data they can provide

students.

 

 

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Acknowledgments

To ensure continuous improvement of our textbook and supplements we have utilized an extensive review and development process for each of our past editions. Building on that history, the Marketing: The Core, 8th edition development process included several phases of evaluation and a variety of stakeholder audiences (e.g., students, instructors, etc.).

Reviewers who were vital in the changes that were made to the 8th and previous editions and its supplements include:

A. Diane Barlar Abe Qastin Abhay Shah Abhi Biswas Abhik Roy Adrienne Hinds Ahmed Maamoun Al Holden Alan Bush Alexander Edsel Alicia Revely Allan Palmer Allen Smith Amy Frank Anand Kumar Andrei Strijnev Andrew Dartt Andrew Thacker Andy Aylesworth Angela Stanton Anil Pandya Ann Kuzma Ann Little Ann Lucht Ann Veeck Annette George Anthony Koh Anthony R. Fruzzetti Aysen Bakir Barbara Evans Barbara Ribbens Barnett Greenberg Barry Bunn Bashar Gammoh Beibei Dong Ben Oumlil Beth Deinert Bill Curtis Bill Murphy Bill Peterson

Blaise Waguespack Jr. Bob Dahlstrom Bob Dwyer Bob E. Smiley Bob McMillen Bob Newberry Brent Cunningham Brian Kinard Brian Murray Bronis J. Verhage Bruce Brown Bruce Chadbourne Bruce Ramsey Bruce Robertson Bryan Hayes Carl Obermiller Carmen Powers Carmina Cavazos Carol Bienstock Carol M. Motley Carolyn Massiah Casey Donoho Catherine Campbell Cathie Rich-Duval Cathleen H. Behan Cathleen Hohner Cecil Leonard Cesar Maloles Charla Mathwick Charles Bodkin Charles Ford Charles Schewe Cheryl Stansfield Chiranjeev Kohli Chris Anicich Chris Ratcliffe Christie Amato Christine Lai Christopher Blocker Christopher Kondo

Christopher Ziemnowicz Chuck Pickett Cindy Leverenz Clare Comm Clark Compton Clay Rasmussen Clint Tankersley Clyde Rupert Connie Bateman Corinne Asher Craig Stacey Cristanna Cook Cydney Johnson Dan Darrow Dan Goebel Dan Sherrel Dan Toy Daniel Butler Daniel Rajaratnam Darrell Goudge Dave Olson David Erickson David Gerth David J. Burns David Jamison David Kuhlmeier David Smith David Terry Paul Deana Ray Deb Jansky Debbie Coleman Debra Laverie Deepa Pillai Dennis Pappas Dennis Rosen Diana Joy Colarusso Diane Dowdell Diane T. McCrohan Don Weinrauch Donald Chang

 

 

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Donald F. Mulvihill Donald Fuller Donald G. Norris Donald Hoffer Donald Larson Donald R. Jackson Donald V. Harper Donna Wertalik Doris M. Shaw Dotty Harpool Douglas Kornemann Duncan G. LaBay Eberhard Scheuling Ed Gonsalves Ed Laube Ed McLaughlin Eddie V. Easley Edna Ragins Edwin Nelson Elaine Notarantonio Eldon L. Little Elena Martinez Elizabeth R. Flynn Ellen Benowitz Eric Ecklund Eric Newman Eric Shaw Erin Baca Blaugrund Erin Cavusgil Erin Wilkinson Ernan Haruvy Eugene Flynn Farrokh Moshiri Fekri Meziou Frances Depaul Francis DeFea Francisco Coronel Frank A. Chiaverini Fred Honerkamp Fred Hurvitz Fred Morgan Fred Trawick Frederick J. Beier Gail M. Zank Gary Carson Gary F. McKinnon Gary Law Gary Poorman Gary Tucker George Kelley George Miaoulis

George Young Gerald O. Cavallo Gerard Athaide Gerald Waddle Glen Brodowsky Glen Gelderloos Godwin Ariguzo Gonca Soysal Gordon Mosley Greg Kitzmiller Guy Lochiatto Harlan Wallingford Harold Lucius Harold S. Sekiguchi Havva Jale Meric Heidi Rottier Heikki Rinne Helen Koons Herbert A. Miller Herbert Katzenstein Howard Combs Hsin-Min Tong Hugh Daubek Imran Khan Irene Dickey Irene Lange Ismet Anitsal J. Ford Laumer Jacqueline Karen Jacqueline Williams James A. Henley Jr. James A. Muncy James C. Johnson James Cross James Garry Smith James Gaubert James Ginther James Gould James H. Barnes James H. Donnelly James L. Grimm James Lollar James Marco James McAlexander James Meszaros James Munch James Olver James P. Rakowski James V. Spiers James Wilkins James Zemanek

Jane Cromartie Jane Lang Jane McKay-Nesbitt Janet Ciccarelli Janet Murray Janice Karlen Janice Taylor Janice Williams Jarrett Hudnal Jason Little Jay Lambe Jean Murray Jean Romeo Jeanne Munger Jeff Blodgett Jeff Finley Jeffrey W. von Freymann Jefrey R. Woodall Jennie Mitchell Jennifer Nelson Jerry Peerbolte Jerry W. Wilson Jianfeng Jiang Jim McHugh Jo Ann McManamy Joan Williams Joanne Orabone Jobie Devinney-Walsh Joe Cronin Joe Kim Joe M. Garza Joe Puzi Joe Ricks Joe Stasio John Benavidez John Brandon John C. Keyt John Coppett John Cox John Finlayson John Fitzpatrick John Gaskins John H. Cunningham John Kuzma John Penrose John Striebich Jonathan Hibbard Joseph Belonax Joseph Defilippe Joseph Myslivec Joseph Wisenblit

 

 

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Juan (Gloria) Meng Judy Bulin Judy Foxman Judy Wagner Julie Haworth Julie Sneath Jun Ma June E. Parr Karen Becker-Olsen Karen Berger Karen Flaherty Karen Gore Karen LeMasters Kasia Firlej Katalin Eibel-Spanyi Kathleen Krentler Kathleen Stuenkel Kathleen Williamson Kathryn Schifferle Kathy Meyer Katie Kemp Kay Chomic Kaylene Williams Keith B. Murray Keith Jones Keith Murray Kellie Emrich Ken Crocker Ken Fairweather Ken Herbst Ken Murdock Ken Shaw Kenneth Goodenday Kenneth Jameson Kenneth Maricle Kerri Acheson Kevin Feldt Kevin W. Bittle Kim Montney Kim Richmond Kim Sebastiano Kim Wong Kimberly D. Smith Kimberly Grantham Kin Thompson Kirti Celly Koren Borges Kristen Regine Kristine Hovsepian Kristy McManus Kumar Sarangee

Kunal Sethi Lan Wu Larry Borgen Larry Carter Larry Feick Larry Goldstein Larry Marks Larry Rottmeyer Laura Dwyer Lauren Wright Lawrence Duke Lawrence Marks Lee Meadow Leon Zurawicki Leonard Lindenmuth Leslie A. Goldgehn Leta Beard Linda Anglin Linda M. Delene Linda Morable Linda Munilla Linda N. LaMarca Linda Rochford Lindell Phillip Chew Lisa M. Sciulli Lisa Siegal Lisa Simon Lisa Troy Lisa Zingaro Lori Feldman Lowell E. Crow Lynn Harris Lynn Loudenback Marc Goldberg Maria McConnell Maria Randazzo-Nardin Maria Sanella Marilyn Lavin Mark Collins Mark Weber Mark Young Martin Bressler Martin Decatur Martin St. John Marton L. Macchiete Martyn Kingston Marva Hunt Mary Ann McGrath Mary Beth DeConinck Mary Conran Mary Joyce

Mary Schramm Mary Tripp Matt Meuter Max White Mayukh Dass Melissa Clark Melissa Moore Michael Callow Michael Drafke Michael Fowler Michael Mayo Michael Peters Michael Pontikos Michael R. Luthy Michael Swenson Michelle Kunz Michelle Wetherbee Mike Hagan Mike Hyman Mike Luckett Milton Pressley Miriam B. Stamps Nadia J. Abgrab Nancy Bloom Nancy Boykin Nancy Grassilli Nanda Kumar Nathan Himelstein Neel Das Nikolai Ostapenko Norman Smothers Notis Pagiavlas Ottilia Voegtli Pamela Grimm Pamela Hulen Parimal Bhagat Pat Spirou Patricia Baconride Patricia Bernson Patricia Manninen Paul Dion Paul Dowling Paul Jackson Paul Londrigan Paul Myer Peter J. McClure Philip Kearney Philip Parron Philip Shum Phyllis Fein Phyllis McGinnis

 

 

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Poh-Lin Yeoh Pola B. Gupta Priscilla G. Aaltonen Priscilla LaBarbera Priyali Rajagopal Rae Caloura Rajesh Iyer Rajiv Kashyap Ram Kesaran Randall E. Wade Randy Stuart Ravi Shanmugam Raymond Marzilli Reid Claxton Renee Foster Renee Pfeifer-Luckett Rex Moody Rhonda Mack Rhonda Taylor Richard C. Leventhal Richard D. Parker Richard Hansen Richard Hargrove Richard J. Lutz Richard Lapidus Richard M. Hill Richard Penn Rick Sweeney Rita Dynan Robert C. Harris Robert Jones Robert Lawson Robert Luke Robert Morris Robert S. Welsh Robert Swerdlow Robert W. Ruekert Robert Williams Robert Witherspoon Roberta Schultz Roger McIntyre Roger W. Egerton Ron Dougherty Ron Hasty Ron Larson Ron Weston Ronald A. Feinberg Ronald Michaels Rosemary Ramsey Roy Adler Roy Klages

Ruth Ann Smith Ruth Rosales Ruth Taylor S. Choi Chan S. Tamer Cavusgil Sally Sledge Samuel E. McNeely Sanal Mazvancheryl Sandipan Sen Sandra Robertson Sandra Smith Sandra Young Sang Choe Sanjay S. Mehta Santhi Harvey Scott Cragin Scott Swan Scott Thorne Shabnam Zanjani Sheila Wexler Sherry Cook Siva Balasubramanian Soon Hong Min Srdan Zdravkovic Stacia Gray Stan Garfunkel Stan Scott Starr F. Schlobohm Stephen Calcich Stephen Garrott Stephen Pirog Stephen W. Miller Steve Hertzenberg Steve Taylor Steven Engel Steven Moff Sudhir Karunakaran Sue Lewis Sue McGorry Sue Umashankar Suman Basuroy Sundaram Dorai Sunder Narayanan Susan Godar Susan Peterson Susan Sieloff Susan Stanix Susie Pryor Suzanne Murray Sylvia Keyes Tamara Masters

Teri Root Terrance Kevin McNamara Terry Kroeten Theodore Mitchell Theresa Flaherty Thom J. Belich Thomas Brashear Thomas L. Trittipo Thomas M. Bertsch Thomas Passero Tim Aurand Tim Landry Timothy Donahue Timothy Reisenwitz Tina L. Williams Tino DeMarco Tom Castle Tom Deckelman Tom Marshall Tom Rossi Tom Stevenson Tom Thompson Tracy Fulce Vahwere Kavota Van R. Wood Vicki Rostedt Victoria Miller Vincent P. Taiani Vladimir Pashkevich Vonda Powell Walter Kendall Wendy Achey Wendy Wood Wesley Johnston William B. Dodds William Brown William D. Ash William Foxx William G. Browne William G. Mitchell William J. Carner William Motz William Pertula William R. Wynd William Rodgers William S. Piper Wilton Lelund Yi He Yue Pan Yunchuan Liu

 

 

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Thanks are due to many people, including current and past students, marketing educa- tors around the globe, university staff, business journal and periodical authors, company representatives, and marketing professionals of every kind. Their assistance has been essential in our efforts to continue to provide the most comprehensive, up-to-date, and integrated teaching and learning package available. We have been fortunate to have so many people be part of our team! In particular, however, we continue to benefit from the insights and guidance of our long-time friend, colleague, and coauthor, William Rudelius. His contributions to the textbook are truly timeless.

Nancy Harrower of Concordia University, St. Paul, led our efforts on the Instructor’s Man- ual, the PowerPoint slides, the In-Class Activities, and the new Digital In-Class Activities. In addition, she provides the content for our blog (kerinmarketing.com). Tia Quinlan- Wilder of the University of Denver was responsible for the Test Bank and Quizzes and the LearnSmart component of our interactive learning package. Erin Steffes of Towson University was responsible for the Connect application exercises and the new Marketing Analytics exercises. All of these professors are exceptional educators and we are very fortunate that they are part of our team. Michael Vessey, our long-time collaborator who recently passed away, also provided assistance in the preparation of materials that are still in use.

Thanks are also due to many other colleagues who contributed to the text, cases, and supplements. They include: Richard Lutz of the University of Florida; Linda Rochford of the University of Minnesota–Duluth; Kevin Upton of the University of Minnesota–Twin Cities; Nancy Nentl of Metropolitan State University; Leslie Kendrick of Johns Hopkins University; Lau Geok Theng of the National University of Singapore; and Leigh McAlister of the University of Texas at Austin. Rick Armstrong of Armstrong Photography, Dan Hundley and George Heck of Token Media, Nick Kaufman and Michelle Morgan of NKP Media, Bruce McLean of World Class Communication Technologies, Paul Fagan of Fagan Productions, Martin Walter of White Room Digital, Scott Bolin of Bolin Marketing, and Andrew Schones of Pure Imagination produced the videos.

Many businesspeople also provided substantial assistance by making available informa- tion that appears in the text, videos, and supplements—much of it for the first time in col- lege materials. Thanks are due to Ann Rubin, Teresa Yoo, and Kathleen Cremmins of IBM; Jana Hartline, Rommel Momen, Joanie Swearingen, and Amy Ulloa of Toyota; Justin Gold and Mike Guanella of Justin’s; Lisa Selk of CytoSport; Jeff Ettinger of Hormel; Russ Lesser, Billy Meistrell, Nick Meistrell, and Jenna Meistrell of Body Glove; Peter Maule of Marquee Brands; Daniel Jasper, Jill Renslow, and Sarah Schmidt of Mall of America; Mike Pohl of ACES Flight Simulation; Chris Klein, Jaime Cardenas, Casey Leppanen, Heather Peace, and Lori Nevares of LA Galaxy; Ian Wolfman and Jana Boone of meplusyou; David Ford and Don Rylander of Ford Consulting Group; Mark Rehborg of Tony’s Pizza; Vivian Callaway, Sandy Proctor, and Anna Stoesz of General Mills; David Windorski, Tom Barnidge, and Erica Schiebel of 3M; Nicholas Skally, Jeremy Stonier, and Joe Olivas of Prince Sports; Brian Niccol of Pizza Hut; Tom Cassady of JCPenney, Inc.; Charles Besio of the Sewell Automotive Group, Inc.; Lindsey Smith of GE Healthcare; Beverly Roberts of the U.S. Census Bureau; Sheryl Adkins-Green of Mary Kay, Inc.; Mattison Crowe of Seven Cycles, Inc.; Alisa Allen, Kirk Hodgdon, Patrick Hodgdon, and Nick Naumann of Altus Marketing and Business Development; and Nelson Ng from Dundas Data Visualization, Inc.

Those who provided the resources for use in the Marketing: The Core, 8th edition text- book, Instructor’s Manual, and/or PowerPoint presentations include: Todd Walker and Jean Golden of Million Dollar Idea; Karen Cohick of Susan G. Komen for the Cure; Liz Stewart of Ben & Jerry’s; John Formella and Patricia Lipari of Kodak; Erica Schiebel of 3M; Joe Diliberti of Consumer Reports; Patricia Breman of Strategic Business Insights (VALS); Brian Nielsen of the Nielsen Company; David Walonick of StatPac; Mark Reh- borg of Schwan’s Consumer Brands (Tony’s Pizza); Jennifer Olson of Experian Simmons;

 

 

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Kitty Munger and Mary Wykoff of Wendy’s; Mark Heller of RetailSails; Nicky Hutcheon of ZenithOptimedia; Amy Thompson and Jennifer Allison of Dell, Inc.; Adriana Carlton of Walmart and Rick Hill of Bernstein-Rein Advertising (Walmart); Janine Bolin of Saks, Inc.; Dr. Yory Wurmser of the Data and Marketing Association; and Elizabeth Clendenin of Unilever (Caress).

We also want to thank the following people who generously provided assistance with our Marketing: The Core, 8th edition In-Class Activities (ICAs) and associated PowerPoint presentations: Mitch Forster and Carla Silveira of Ghirardelli Chocolate Company; Karolyn Warfel and Betsy Boyer of Woodstream Corp. (Victor Pest); Leonard Fuld of Fuld & Co.; Maggie Jantzen of Starbucks Coffee Company; Michelle Green and Victoria Glazier of the U.S. Census Bureau; Lisa Castaldo of Pepsi; Muffie Taggert of General Mills; Robert M. McMath, formerly of NewProductWorks; Greg Rodriguez; Jeremy Tucker, Julia Wells, and Lisa Cone of Frito-Lay (Doritos); Susan Carroll and Bob Robinson of Apple, Inc.; Willard Oberton of Fastenal Company; Scott Wosniak and Jennifer Arnold of Toro; Kim Eskro of Fallon Worldwide (Gold’n Plump); Robin Grayson of TBWA/Chiat/Day (Apple); Katie Kramer of Valassis Communications, Inc. (Nutella/Advil); Triestina Greco of Nutella/Ferrero; Tim Stauber of Wyeth Consumer Healthcare (Advil); and Yvonne Pendleton and Lucille Storms of Mary Kay.

Staff support from the Southern Methodist University and the University of Denver was essential. We gratefully acknowledge the help of Jeanne Milazzo and Gabriela Barcenas for their many contributions.

Checking countless details related to layout, graphics, and photos, and managing last- minute text changes is essential for a sound and accurate textbook. This also involves coordinating activities of authors, designers, editors, compositors, and production spe- cialists. Christine Vaughan, our lead content project manager, of McGraw-Hill Education’s production staff provided the necessary oversight and attention to detail while retaining an extraordinary level of professionalism, often under tight deadlines. We are very fortu- nate that Christine was part of our team. Thank you again!

Finally, we acknowledge the professional efforts of the McGraw-Hill Education staff. Com- pletion of our book and its many supplements required the attention and commitment of many editorial, production, marketing, and research personnel. Our McGraw-Hill team included Susan Gouijnstook, Meredith Fossel, Nicole Young, Kelly Pekelder, Danielle Clement, Susan Culbertson, Matt Diamond, Carrie Burger, and many others. In addition, we relied on David Tietz for constant attention regarding the photo elements of the text, and Claire Hunter for management of the details of the online authoring system. Handling the countless details of our text, supplement, and support technologies has become an incredibly complex challenge. We thank all these people for their efforts!

Roger A. Kerin Steven W. Hartley

 

 

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BRIEF CONTENTS

Part 1 Initiating the Marketing Process 1 Creating Customer Relationships and Value through Marketing 2 2 Developing Successful Organizational and Marketing Strategies 26

Appendix A Building an Effective Marketing Plan 56 3 Understanding the Marketing Environment, Ethical Behavior,

and Social Responsibility 72

Part 2 Understanding Buyers and Markets 4 Understanding Consumer Behavior 98 5 Understanding Organizations as Customers 128 6 Understanding and Reaching Global Consumers and Markets 148

Part 3 Targeting Marketing Opportunities 7 Marketing Research: From Customer Insights to Actions 178 8 Market Segmentation, Targeting, and Positioning 210

Part 4 Satisfying Marketing Opportunities 9 Developing New Products and Services 236 10 Managing Successful Products, Services, and Brands 266 11 Pricing Products and Services 298 12 Managing Marketing Channels and Supply Chains 324 13 Retailing and Wholesaling 350 14 Implementing Interactive and Multichannel Marketing 378 15 Integrated Marketing Communications and Direct Marketing 402 16 Advertising, Sales Promotion, and Public Relations 428 17 Using Social Media and Mobile Marketing to Connect

with Consumers 460 18 Personal Selling and Sales Management 488

Appendix B Planning a Career in Marketing 516

Glossary 531 Name Index 539 Company/Product Index 549 Subject Index 558

 

 

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DETAILED CONTENTS

Part 1 Initiating the Marketing Process 1 CREATING CUSTOMER RELATIONSHIPS AND

VALUE THROUGH MARKETING 2

Creating Customer Value: The Chobani Way! 2 Creating an Exceptional Product 2 Connecting with Customers 2 Chobani Today 3 Chobani, Marketing, and You 4

What Is Marketing? 4 Marketing and Your Career 4 Marketing: Delivering Value to Customers 5 The Diverse Elements Influencing Marketing Actions 5 What Is Needed for Marketing to Occur 6

How Marketing Discovers and Satisfies Consumer Needs 7 Discovering Consumer Needs 7 The Challenge: Meeting Consumer Needs with New Products 8 Satisfying Consumer Needs 10

The Marketing Program: How Customer Relationships Are Built 11 Relationship Marketing: Easy to Understand, Hard to Do 11 The Marketing Program and Market Segments 12 3M’s Strategy and Marketing Program to Help Students Study 13

How Marketing Became So Important 15 Evolution of the Market Orientation 15 Focusing on Customer Relationship Management 15 Ethics and Social Responsibility in Marketing: Balancing the Interests of Different Groups 16 The Breadth and Depth of Marketing 17

Learning Objectives Review 18

Learning Review Answers 19

Focusing on Key Terms 19

Applying Marketing Knowledge 20

Building Your Marketing Plan 20

Video Case 1: Chobani®: Making Greek Yogurt a Household Name 20

Chapter Notes 24

2 DEVELOPING SUCCESSFUL ORGANIZATIONAL AND MARKETING STRATEGIES 26

Ben and Jerry Are on a Mission: To Make Fantastic, Sustainable, World-Changing Ice Cream 26

Today’s Organizations 28 Kinds of Organizations 28

©Diane Bond areff/Invision

for

Chobani/AP Images

©McGraw-Hi ll Education/E

velyn

Nicole Kirkse y, Photograp

her

 

 

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Making Responsible Decisions: New Types of Organizations Help Entrepreneurs Focus on Passion and Purpose 29

What Is Strategy? 30 The Structure of Today’s Organizations 30

Strategy in Visionary Organizations 31 Organizational Foundation: Why Does It Exist? 31 Organizational Direction: What Will It Do? 32 Organizational Strategies: How Will It Do It? 34 Tracking Strategic Performance with Marketing Analytics 34

Setting Strategic Directions 36 A Look Around: Where Are We Now? 36

Applying Marketing Metrics: How Well Is Ben & Jerry’s Doing? 36

Growth Strategies: Where Do We Want to Go? 37 The Strategic Marketing Process 41

Principles Underlying the Strategic Marketing Process 41 The Planning Phase of the Strategic Marketing Process 42 The Implementation Phase of the Strategic Marketing Process 44 The Evaluation Phase of the Strategic Marketing Process 46

Learning Objectives Review 48

Learning Review Answers 49

Focusing on Key Terms 50

Applying Marketing Knowledge 50

Building Your Marketing Plan 50

Video Case 2: IBM: Putting Smart Strategy to Work 50

Chapter Notes 53

Appendix A Building an Effective Marketing Plan 56

3 UNDERSTANDING THE MARKETING ENVIRONMENT, ETHICAL BEHAVIOR, AND SOCIAL RESPONSIBILITY 72

Fortune’s Businessperson of the Year: “I’m in This to Build Something Cool!” 72

Facebook in the Future 73 Environmental Scanning 74

An Environmental Scan of Today’s Marketplace 74 Social Forces 74

Demographics 74 Culture 76

Making Responsible Decisions: Balancing Profits and Purpose—Millennial Style 76

©David Paul Morris/Bloom

berg

via Getty Ima ges

 

 

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Economic Forces 77 Macroeconomic Conditions 77 Consumer Income 78

Technological Forces 79 Technology of Tomorrow 79 Technology’s Impact on Customer Value 80 Technology Enables Data Analytics 80

Competitive Forces 81 Alternative Forms of Competition 81 Small Businesses as Competitors 81

Regulatory Forces 82 Protecting Competition 82 Protecting Producers and Consumers 82 Control through Self-Regulation 83

Understanding Ethical Marketing Behavior 84 Societal Culture and Norms 84 Business Culture and Industry Practices 85 Corporate Culture and Expectations 85 Your Personal Moral Philosophy and Ethical Behavior 86

Making Responsible Decisions: Corporate Conscience in the Cola War 86

Understanding Social Responsibility for Sustainable Marketing 87 Three Concepts of Social Responsibility 87 Sustainable Development: Doing Well by Doing Good 89

Marketing Matters: Will Consumers Switch Brands for a Cause? Yes, If . . . 89

Learning Objectives Review 90

Learning Review Answers 90

Focusing on Key Terms 91

Applying Marketing Knowledge 91

Building Your Marketing Plan 92

Video Case 3: Toyota: Where the Future Is Available Today 92

Chapter Notes 95

Part 2 Understanding Buyers and Markets 4 UNDERSTANDING CONSUMER BEHAVIOR 98

Enlightened Carmakers Know What Custom(h)ers and Influenc(h)ers Value 98

Consumer Purchase Decision Process and Experience 100 Problem Recognition: Perceiving a Need 100 Information Search: Seeking Value 100 Alternative Evaluation: Assessing Value 101 Purchase Decision: Buying Value 102©Whisson/Jordan

/Corbis/Getty Images

 

 

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Postpurchase Behavior: Realizing Value 102 Consumer Involvement Affects Problem Solving 103

Marketing Matters: How Much Is a Satisfied Customer Worth? 103

Situational Influences That Affect Purchase Decisions 105 Putting the Purchase Decision Process into Practice: Consumer Touchpoints and Consumer Journey Maps 105

Psychological Influences on Consumer Behavior 107 Consumer Motivation and Personality 107 Consumer Perception 109 Consumer Learning 110

Making Responsible Decisions: The Ethics of Subliminal Messages 110

Consumer Values, Beliefs, and Attitudes 111 Consumer Lifestyle 112

Sociocultural Influences on Consumer Behavior 113 Personal Influence 113

Marketing Matters: BzzAgent—The Buzz Experience 115

Reference Group Influence 116 Family Influence 116 Culture and Subculture Influences 118

Learning Objectives Review 121

Learning Review Answers 121

Focusing on Key Terms 122

Applying Marketing Knowledge 122

Building Your Marketing Plan 122

Video Case 4: Coppertone: Creating the Leading Sun Care Brand by Understanding Consumers 123

Chapter Notes 125

5 UNDERSTANDING ORGANIZATIONS AS CUSTOMERS 128

Organizational Buying Is Marketing, Too! Purchasing Publication Paper for JCPenney 128

Business-to-Business Marketing and Organizational Buyers 130 Organizational Buyers 130 Organizational Markets 130 Measuring Organizational Markets 131

Characteristics of Organizational Buying 132 Demand Characteristics 132 Size of the Order or Purchase 132 Number of Potential Buyers 133 Organizational Buying Objectives 133 Organizational Buying Criteria 133 Buyer–Seller Relationships and Supply Partnerships 134Cou

rtesy of JCPe nney

 

 

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Marketing Matters: At Milsco Manufacturing, “Our Marketing Philosophy Is Designed to Develop Partnerships” and Deliver a Great Ride for Customers’ Seats 135

The Organizational Buying Function and Process and the Buying Center 136

The Buying Function in Organizations 136

Making Responsible Decisions: Sustainable Procurement for Sustainable Growth at Starbucks 136

Stages in the Organizational Buying Process 137 The Buying Center: A Cross-Functional Group 137

Online Buying in Business-to-Business Marketing 140 Prominence of Online Buying in Organizational Markets 140 E-Marketplaces: Virtual Organizational Markets 140 Online Auctions in Organizational Markets 141

Marketing Matters: eBay Means Business for Business-to- Business Marketing Entrepreneurs, Too! 141

Learning Objectives Review 142

Learning Review Answers 143

Focusing on Key Terms 143

Applying Marketing Knowledge 143

Building Your Marketing Plan 144

Video Case 5: Trek: Building Better Bikes through Organizational Buying 144

Chapter Notes 147

6 UNDERSTANDING AND REACHING GLOBAL CONSUMERS AND MARKETS 148

Transforming the Way India Sells and Transforming the Way India Buys: Amazon India Builds a Multibillion-Dollar Operation from the Ground up to the Cloud 148

Amazon’s Awesome Opportunity in India 148 Amazon’s Awesome Challenges in India 148 Failure Is Not an Option 149

Dynamics of World Trade 150 Global Perspective on World Trade 150 United States’ Perspective on World Trade 151

Marketing in a Dynamic Global Economy 152 Economic Protectionism by Individual Countries 152

Making Responsible Decisions: Global Ethics and Global Economics—The Case of Protectionism 153

Economic Integration among Countries 154 Global Competition among Global Companies for Global Consumers 155 The Presence of a Networked Global Marketspace 158

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Marketing Matters: The Global Teenager—A Market of Voracious Consumers 158

Prevalence of Economic Espionage 159 A Global Environmental Scan 160

Cultural Diversity 160 Economic Considerations 163 Political-Regulatory Climate 165

Comparing Global Market-Entry Strategies 166 Exporting 166 Licensing 167

Marketing Matters: Creative Cosmetics and Creative Export Marketing in Japan 167

Joint Venture 168 Direct Investment 168

Crafting a Worldwide Marketing Program 169 Product and Promotion Strategies 169 Distribution Strategy 171 Pricing Strategy 171

Learning Objectives Review 172

Learning Review Answers 173

Focusing on Key Terms 173

Applying Marketing Knowledge 173

Building Your Marketing Plan 173

Video Case 6: Mary Kay, Inc.: Building a Brand in India 174

Chapter Notes 176

Part 3 Targeting Marketing Opportunities 7 MARKETING RESEARCH: FROM CUSTOMER INSIGHTS

TO ACTIONS 178

Hollywood Loves Marketing Research! 178 A Film Industry Secret 178

The Role of Marketing Research 180 What Is Marketing Research? 180 The Challenges in Doing Good Marketing Research 181 Five-Step Marketing Research Approach 181

Step 1: Define the Problem 181 Set the Research Objectives 182 Identify Possible Marketing Actions 182

Step 2: Develop the Research Plan 182 Specify Constraints 182 Identify Data Needed for Marketing Actions 183 Determine How to Collect Data 183

Step 3: Collect Relevant Information 184 Secondary Data: Internal 184

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Secondary Data: External 185 Advantages and Disadvantages of Secondary Data 185 Primary Data: Watching People 186

Marketing Matters: Online Databases and Internet Resources Useful to Marketers 186

Primary Data: Asking People 188 Primary Data: Other Sources 192

Applying Marketing Metrics: Are the Carmex Social Media Programs Working Well? 194

Advantages and Disadvantages of Primary Data 195 Step 4: Develop Findings 195

Making Responsible Decisions: No More Personal Secrets: The Downside of Data Mining and Predictive Modeling 197

Present the Findings 198 Step 5: Take Marketing Actions 199

Make Action Recommendations 199 Implement the Action Recommendations 200 Evaluate the Results 200

Sales Forecasting Techniques 200 Judgments of the Decision Maker 201 Surveys of Knowledgeable Groups 201 Statistical Methods 201

Learning Objectives Review 202

Learning Review Answers 203

Focusing on Key Terms 204

Applying Marketing Knowledge 204

Building Your Marketing Plan 204

Video Case 7: Carmex® (A): Leveraging Facebook for Marketing Research 205

Chapter Notes 208

8 MARKET SEGMENTATION, TARGETING, AND POSITIONING 210

Segmentation Rules in the Kingdom of Happiness! 210 Zappos’s Secret to Success 210 Delivering WOW Customer Service 210

Why Segment Markets? 212 What Market Segmentation Means 212 When and How to Segment Markets 213

Steps in Segmenting and Targeting Markets 216 Step 1: Group Potential Buyers into Segments 216 Step 2: Group Products to Be Sold into Categories 220 Step 3: Develop a Market-Product Grid and Estimate the Size of Markets 222©Brad Swonetz/R

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Step 4: Select Target Markets 223 Step 5: Take Marketing Actions to Reach Target Markets 224 Market-Product Synergies: A Balancing Act 226

Marketing Matters: Apple’s Segmentation Strategy—Camp Runamok No Longer 227

Positioning the Product 228 Two Approaches to Product Positioning 228 Writing a Positioning Statement 228 Product Positioning Using Perceptual Maps 228 A Perceptual Map to Reposition Chocolate Milk for Adults 229

Learning Objectives Review 230

Learning Review Answers 230

Focusing on Key Terms 231

Applying Marketing Knowledge 231

Building Your Marketing Plan 231

Video Case 8: Prince Sports, Inc.: Tennis Racquets for Every Segment 232

Chapter Notes 234

Part 4 Satisfying Marketing Opportunities 9 DEVELOPING NEW PRODUCTS AND SERVICES 236

Apple: The World-Class New-Product Machine 236 Apple’s New-Product Development Successes 236 Apple’s New-Product Development Stumbles 237 The Next Chapter in Apple’s Story: An Apple-Enabled iCar? 238

What Are Products and Services? 238 A Look at Goods, Services, and Ideas 238 Classifying Products 239 Classifying Services 239 The Uniqueness of Services 241 Assessing and Improving Service Quality 242 Product Classes, Forms, Items, Lines, and Mixes 242

New Products and Why They Succeed or Fail 244 What Is a New Product? 244

Marketing Matters: Too Much of a Good Thing: Feature Bloat and Feature Fatigue in New-Product Development 245

Why Products and Services Succeed or Fail 246 How Applying Marketing Metrics Can Monitor New-Product Performance 249

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Applying Marketing Metrics: Which States Are Underperforming? 249

The New-Product Development Process 250 Stage 1: New-Product Strategy Development 250 Stage 2: Idea Generation 251 Stage 3: Screening and Evaluation 253

Marketing Matters: Was the Google Glass Half Full or Half Empty? 254

Stage 4: Business Analysis 255 Stage 5: Development 255 Stage 6: Market Testing 256 Stage 7: Commercialization 257

Learning Objectives Review 258

Learning Review Answers 259

Focusing on Key Terms 260

Applying Marketing Knowledge 260

Building Your Marketing Plan 260

Video Case 9: GoPro: Making All of Us Heroes with Exciting New Products 261

Chapter Notes 264

10 MANAGING SUCCESSFUL PRODUCTS, SERVICES, AND BRANDS 266

Gatorade: Bringing Science to Sweat for More Than 50 Years 266

Creating the Gatorade Brand 266 Building the Gatorade Brand 267

Charting the Product Life Cycle 268 Introduction Stage 268 Growth Stage 270 Maturity Stage 271 Decline Stage 271 Three Aspects of the Product Life Cycle 272

Marketing Matters: Will E-mail Spell Extinction for Fax Machines? 272

Managing the Product Life Cycle 276 Role of a Product Manager 276 Modifying the Product 276 Modifying the Market 277

Applying Marketing Metrics: Knowing Your CDI and BDI 277

Repositioning the Product 278

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Making Responsible Decisions: Consumer Economics of Downsizing—Get Less, Pay More 279

Branding and Brand Management 280 Brand Personality and Brand Equity 280 Picking a Good Brand Name 282 Branding Strategies 283

Packaging and Labeling Products 286 Creating Customer Value and Competitive Advantage through Packaging and Labeling 286

Marketing Matters: Creating Customer Value through Packaging—Pez Heads Dispense More Than Candy 287

Packaging and Labeling Challenges and Responses 288 The Marketing of Services 289

Product (Service) 289 Price 289 Place (Distribution) 290 Promotion 290 People 290 Physical Environment 290 Process 291

Learning Objectives Review 291

Learning Review Answers 292

Focusing on Key Terms 293

Applying Marketing Knowledge 293

Building Your Marketing Plan 293

Video Case 10: Justin’s: Managing a Successful Product with Passion 293

Chapter Notes 296

11 PRICING PRODUCTS AND SERVICES 298

Vizio, Inc.—Building a Smart TV Brand at a Great Value 298

Nature and Importance of Price 300 What Is a Price? 300 Price as an Indicator of Value 301 Price in the Marketing Mix 302

Marketing Matters: Does Spirit Airlines Engage in Value Pricing? For Some Yes, for Others No 302

Common Pricing Approaches 303 Demand-Oriented Pricing Approaches 303 Cost-Oriented Pricing Approaches 304

Marketing Matters: Energizer’s Lesson in Price Perception—Value Lies in the Eye of the Beholder 305

Profit-Oriented Pricing Approaches 306

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Competition-Oriented Pricing Approaches 307

Applying Marketing Metrics: Are Red Bull Prices Above, At, or Below the Market? 308

Estimating Demand and Revenue 309 Estimating Demand 309 Price Elasticity of Demand 311 Fundamentals of Estimating Revenue 311

Determining Cost, Volume, and Profit Relationships 312 The Importance of Controlling Costs 312 Break-Even Analysis 312

Pricing Objectives and Constraints 314 Identifying Pricing Objectives 314 Identifying Pricing Constraints 315

Setting a Final Price 316 Step 1: Select an Approximate Price Level 316 Step 2: Set the List or Quoted Price 317 Step 3: Make Special Adjustments to the List or Quoted Price 317

Making Responsible Decisions: The Ethics and Economics of Surge Pricing 318

Learning Objectives Review 319

Learning Review Answers 320

Focusing on Key Terms 320

Applying Marketing Knowledge 320

Building Your Marketing Plan 321

Video Case 11: Carmex (B): Setting the Price of the Number One Lip Balm 321

Chapter Notes 323

12 MANAGING MARKETING CHANNELS AND SUPPLY CHAINS 324

Eddie Bauer: The “Brick, Click, and Flip” Pick for the Active Outdoor Enthusiast 324

Eddie Bauer’s Multichannel Marketing Strategy 324 Supply Chain Dynamics at Eddie Bauer 325

Nature and Importance of Marketing Channels 326 What Is a Marketing Channel of Distribution? 326 How Customer Value Is Created by Intermediaries 326

Marketing Channel Structure and Organization 328 Marketing Channels for Consumer Products and Services 328 Marketing Channels for Business Products and Services 329 Internet Marketing Channels 330 Direct and Multichannel Marketing 330 Dual Distribution and Strategic Channel Alliances 331 Vertical Marketing Systems 332

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Marketing Matters: Nestlé and General Mills—Cereal Partners Worldwide 332

Marketing Channel Choice and Management 334 Factors Affecting Channel Choice and Management 334

Applying Marketing Metrics: Channel Sales and Profit at Charlesburg Furniture 336

Managing Channel Relationships: Conflict and Cooperation 337

Logistics and Supply Chain Management 338 Supply Chains versus Marketing Channels 339 Sourcing, Assembling, and Delivering a New Car: The Automotive Supply Chain 339 Supply Chain Management and Marketing Strategy 340

Marketing Matters: IBM’s Watson Supply Chain—Delivering a Total Solution for Its Customers 341

Two Concepts of Logistics Management in a Supply Chain 342 Total Logistics Cost Concept 342 Customer Service Concept 342

Closing the Loop: Reverse Logistics 343

Making Responsible Decisions: Reverse Logistics and Green Marketing Go Together at Hewlett-Packard: Recycling e-Waste 344

Learning Objectives Review 345

Learning Review Answers 345

Focusing on Key Terms 346

Applying Marketing Knowledge 346

Building Your Marketing Plan 346

Video Case 12: Amazon: Delivering the Earth’s Biggest Selection! 347

Chapter Notes 349

13 RETAILING AND WHOLESALING 350

Smart Stores Are Changing the Customer Journey! 350 The Value of Retailing 352

Consumer Utilities Offered by Retailing 352 The Global Economic Impact of Retailing 353

Classifying Retail Outlets 353 Form of Ownership 354

Making Responsible Decisions: How Green Is Your Retailer? The Rankings Are Out! 354

Level of Service 356 Type of Merchandise Line 356

Nonstore Retailing 357

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Automatic Vending 358 Direct Mail and Catalogs 358 Television Home Shopping 359 Online Retailing 359 Telemarketing 360 Direct Selling 361

Retailing Strategy 361

Applying Marketing Metrics: Why Apple Stores May Be the Best in the United States! 365

The Changing Nature of Retailing 366 The Wheel of Retailing 366 The Retail Life Cycle 367 Data Analytics 368

Wholesaling 368 Merchant Wholesalers 369 Agents and Brokers 369 Manufacturers’ Branches and Offices 370

Learning Objectives Review 370

Learning Review Answers 371

Focusing on Key Terms 371

Applying Marketing Knowledge 372

Building Your Marketing Plan 372

Video Case 13: Mall of America®: America’s Biggest Mall Knows the Secret to Successful Retailing! 372

Chapter Notes 375

14 IMPLEMENTING INTERACTIVE AND MULTICHANNEL MARKETING 378

Seven Cycles Delivers Just One Bike. Yours. 378 Creating Customer Value, Relationships,

and Experiences in Marketspace 380 Marketing Challenges in Two Environments 380 Creating Customer Value in Marketspace 380 Interactivity, Individuality, and Customer Relationships in Marketspace 382 Creating a Compelling Online Customer Experience 383

Online Consumer Behavior and Marketing Opportunities and Practices 386

Who Is the Online Consumer? 386

Applying Marketing Metrics: Sizing Up Site Stickiness at Sewell Automotive Companies 386

What Consumers Buy Online 387 Why Consumers Shop and Buy Online 387 When and Where Consumers Shop and Buy Online 391 How Consumers Shop and Buy Online 392

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Making Responsible Decisions: Who Is Responsible for Internet Privacy and Security? 392

Cross-Channel Consumers and Multichannel Marketing 393 Who Is the Cross-Channel Consumer? 393 Implementing Multichannel Marketing 393

Learning Objectives Review 395

Learning Review Answers 396

Focusing on Key Terms 396

Applying Marketing Knowledge 397

Building Your Marketing Plan 397

Video Case 14: Pizza Hut and imc2: Becoming a Multichannel Marketer 397

Chapter Notes 401

15 INTEGRATED MARKETING COMMUNICATIONS AND DIRECT MARKETING 402

Sometimes Taco Bell Leads to Wedding Bells! 402 The Communication Process 404

Encoding and Decoding Messages 405 Feedback 405 Noise 406

The Promotional Elements 406 Advertising 406 Personal Selling 407 Public Relations 408 Sales Promotion 409 Direct Marketing 409

Integrated Marketing Communications—Developing the Promotional Mix 410

The Target Audience 410 The Product Life Cycle 410

Marketing Matters: Hey Marketers, College Students Are Digital and Mobile! 411

Channel Strategies 412 Developing an Integrated Marketing Communications Program 413

Identifying the Target Audience 413 Specifying Promotion Objectives 414 Setting the Promotion Budget 414 Selecting the Right Promotional Tools 415

Applying Marketing Metrics: How Much Should You Spend on IMC? 415

Designing the Promotion 416 Scheduling the Promotion 416

Executing and Assessing the Promotion Program 417

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Direct Marketing 418 The Growth of Direct Marketing 418 The Value of Direct Marketing 419 Technological, Global, and Ethical Issues in Direct Marketing 419

Making Responsible Decisions: What Is the Future of Your Privacy? 420

Learning Objectives Review 421

Learning Review Answers 421

Focusing on Key Terms 422

Applying Marketing Knowledge 422

Building Your Marketing Plan 423

Video Case 15: Taco Bell: Using IMC to Help Customers Live Más! 423

Chapter Notes 425

16 ADVERTISING, SALES PROMOTION, AND PUBLIC RELATIONS 428

Fantasy Is Becoming Reality for Advertisers! 428 Types of Advertisements 430

Product Advertisements 430 Institutional Advertisements 431

Developing the Advertising Program 432 Identifying the Target Audience 432 Specifying Advertising Objectives 432 Setting the Advertising Budget 432 Designing the Advertisement 433 Selecting the Right Media 435

Applying Marketing Metrics: What Is the Best Way to Reach 1,000 Customers? 436

Different Media Alternatives 437 Scheduling the Advertising 441

Making Responsible Decisions: Who Is Responsible for Preventing Click Fraud? 441

Executing the Advertising Program 442 Pretesting the Advertising 442 Carrying Out the Advertising Program 443

Assessing the Advertising Program 443 Posttesting the Advertising 443 Making Needed Changes 444

Sales Promotion 444 Consumer-Oriented Sales Promotions 444 Trade-Oriented Sales Promotions 448

Public Relations 449

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Learning Objectives Review 450

Learning review Answers 451

Focusing on Key Terms 452

Applying Marketing Knowledge 452

Building Your Marketing Plan 452

Video Case 16: Google, Inc.: The Right Ads at the Right Time 453

Chapter Notes 455

 
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