Marketing

Creating Value and

Customer Engagement
Learning 1. Define marketing and outline the steps in the marketing
Outcomes process.

2. Explain the importance of understanding the marketplace

At the end of and customers and identify the five core marketplace
the chapter concepts.
you should
be able to… 3. Identify the key elements of a customer value–driven
marketing strategy

4. Discuss customer relationship management and identify

strategies for creating value for customers and capturing
value from customers in return.
What is Marketing?
Defining Marketing
Who Does Marketing?
Why Study Marketing?
“The activity, set of institutions, and
processes for creating, communicating, delivering,
and exchanging offerings that have value for
customers, clients, partners, and society at large.”
-American Marketing Association
 4 Components of Marketing
1 • Creating
2 • Communicating
3 • Delivering
4 • Exchanging
 4P’s of Marketing Mix
 Introduced by E. Jerome McCarthy in
early1950s.
 Refers to product, promotion, place, and
price.
1. Product
2. Promotion
3. Place
4. Price
Marketing is composed of four
activities centered on customer
value: creating, communicating,
delivering, and exchanging
value.
 The goal of marketers is to create a profitable
exchange for consumers. By profitable,
it means that the consumer’s personal value
equation is positive. The personal value equation is

Value = Benefits Received – [Price + Hassle]

 The marketing concept, a philosophy underlying all that
marketers do, requires that marketers seek to satisfy
customer wants and needs. Firms operating with that
philosophy are said to be market oriented. At the same
time, market-oriented firms recognize that exchange must
be profitable for the company to be successful. A
marketing orientation is not an excuse to fail to make
profit.
 Production Orientation Production Era
• A belief that the way to • A period beginning
compete is a function of with the Industrial
product innovation and Revolution and
reducing production concluding in the 1920s
costs, as good products in which production-
appropriately priced sell orientation thinking
themselves. dominated the way in
which firms competed.
 Selling Orientation Selling Era
• A philosophy that • A period running from
products must be the 1920s to post–
pushed through selling World War II in which
and advertising in order the selling orientation
for a firm to compete dominated the way
successfully. firms competed.
 Marketing Era Value Era One-to-one Era

• From 1950 to at • From the 1990s to • From the 1990s to

least 1990 (see present, some argue present, the idea of
service-dominant that firms moved competing by
logic era, value era into the value era, building
and one-to-one competing on the relationships with
era), the dominant basis of value; customers one at a
philosophy among others contend that time and seeking to
businesses is the the value era is serve each
marketing concept. simply an extension customer’s needs
of the marketing individually.
era and is not a
separate era.
 Service-dominant Logic
• An approach to business
that recognizes that
customers do not
distinguish between the
tangible and the intangible
aspects of a good or service,
but rather see a product in
terms of its total value.
Service-dominant Logic Era
• The period from 1990 to
present in which some
believe that the philosophy
of service-dominant logic
dominates the way firms
compete.
Creating Offerings
That Have Value
Marketing creates those goods and
services that the company offers at a
price to its customers or clients. That
entire bundle consisting of the
tangible good, the intangible service,
and the price is the company’s
offering.
Communicating Offerings
Communicating is a broad term in marketing
that means describing the offering and its
value to your potential and current customers,
as well as learning from customers what it is
they want and like. Sometimes communicating
means educating potential customers about the
value of an offering, and sometimes it means
simply making customers aware of where they
can find a product. Communicating
also means that customers get a chance to tell
the company what they think.
 Delivering Offerings
 Marketing can’t just promise value, it also has to deliver value. Delivering in
marketing, as in delivering value, a broad term that means getting the product to
the consumer and making sure that the user gets the most out of the product and
service.
 The supply chain includes a number of organizations and functions that mine,
make, assemble, or deliver materials and products from a manufacturer to
consumers.
 Logistics, or the actual transportation and storage of materials and products, is the
primary component of supply chain management, but there are other aspects of
supply chain management that we will discuss later.
Exchanging Offerings
 In addition to creating an offering,
communicating its benefits to consumers,
and delivering the offering, there is the
actual transaction, or exchange, that has
to occur.

 Exchange, the transaction of value,

usually economic, between a
buyer and seller.
Who does Marketing?
Different types of Organizations
Engage in Marketing.
1. For-Profit Companies
2. Non-profit Organizations
 When a nonprofit
organization engages
in marketing activities,
this is called non-profit
marketing.

 Non-profit marketing,
marketing activities
conducted to meet the
goals of nonprofit
organizations.
3. Individuals
Why Study Marketing?
 Opportunities Available in Marketing
Marketing Research
-Personnel in marketing research are responsible for studying markets and
customers in order to understand what strategies or tactics might work best for firms.
Merchandising
-In retailing, merchandisers are responsible for developing strategies
regarding what products wholesalers should carry to sell to retailers such as Target
and Walmart.
Sales
-Salespeople meet with customers, determine their needs, propose
offerings, and make sure that the customer is satisfied. Sales departments can also
include sales support teams who work on creating the offering.
 Opportunities Available in Marketing
Advertising
-Whether it’s for an advertising agency or inside a company, some marketing
personnel work on advertising. Television commercials and print ads are only part of
the advertising mix. Many people who work in advertising spend all their time creating
advertising for electronic media, such as Web sites and their pop-up ads, podcasts,
and the like.

Product Development
- People in product development are responsible for identifying and creating
features that meet the needs of a firm’s customers. They often work with engineers or
other technical personnel to ensure that value is created.
 Opportunities Available in Marketing
Direct Marketing
- Professionals in direct marketing communicate directly with
customers about a company’s product offerings via channels such as e-mail,
chat lines, telephone, or direct mail.
Event Marketing
- Some marketing personnel plan special events, orchestrating face-
to-face conversations with potential and current customers in a special
setting.
 THE GLOBAL
MARKETPLACE
Learning 1. Discuss how the international trade system and the
Outcomes economic, political-legal, and cultural environments
affect a company’s international marketing decisions.
At the end of 2. Describe three key approaches to entering
the chapter international markets.
you should be
able to…
3. Explain how companies adapt their marketing
strategies and mixes for international markets.

4. Identify the three major forms of international

marketing organization.
The Global Marketplace

The Global Market Today

Deciding how to enter the Market
Deciding on the Global Marketing Program
Deciding on the Global Marketing Organization
The Global Market Today
 The rapidly changing global environment provides both
opportunities and threats. It’s difficult to find a marketer
today that isn’t affected in some way by global
developments.

The world is shrinking rapidly with the advent of faster

digital communication, transportation, and financial flows.
• Since 1990, the number of multinational corporations in the world
has more than doubled to more than 65,000.

• In fact, of the largest 150 economies in the world, only 88 are

countries. The remaining 62 are multinational corporations.

• Many American companies have now made the world their market.

• As global trade grows, global competition is also intensifying.

• A global firm is one that, by operating in more than
one country, gains marketing, production, research and
development (R&D), and financial advantages that are
not avail able to purely domestic competitors.
 Elements of the Global Marketing Environment
The International Trade System
 U.S. companies looking abroad must start by understanding
the international trade system.
 Governments may charge tariffs or duties.
 Countries may set quotas.
 Firms may also encounter exchange controls.
 A company also may face nontariff trade barriers
 The World Trade Organization
• The WTO promotes
trade by reducing tariffs
and other international
trade barriers. It also
imposes international
trade sanctions and
mediates global trade
disputes.
 Regional Free Trade Zones
 Certain countries have
formed free trade zones or
economic communities.

 Economic community -A
group of nations organized to
work toward common goals
in the regulation of
international trade.
 Economic Environment
• Two economic factors reflect the country’s attractiveness as a
market: its industrial structure and its income distribution.

The country’s industrial The country’s income

structure shapes its distribution. Industrialized
product and service needs, nations may have low-,
income levels, and medium-, and high-income
employment levels. households.
 Political-Legal Environment
• In considering whether to do business in a
given country, a company should consider
factors such as the country’s attitudes toward
international buying, government bureaucracy,
political stability, and monetary regulations.
 Cultural Environment

• When designing global marketing strategies,

companies must understand how culture affects
consumer reactions in each of its world
markets.
I. The Impact of Culture on Marketing Strategy.
II. The Impact of Marketing Strategy on Cultures.
Deciding Whether to Go Global
Before going abroad, the company must weigh several risks
and answer many questions about its ability to operate
globally.

 Can the company learn to understand the preferences

and buyer behavior of consumers in other countries?

 Can it offer competitively attractive products?

 Will it be able to adapt to other countries’ business cultures
and deal effectively with foreign nationals?

 Do the company’s managers have the necessary

international experience?

 Has management considered the impact of regulations and

the political environments of other countries?
Deciding Which Markets to Enter

• A company should try to define its international marketing

objectives and policies.
• It should decide what volume of foreign sales it wants.
• The company also needs to choose in how many countries it
wants to market.
• The company needs to decide on the types of countries to enter.
 Possible global markets should be ranked on several
factors, including market size, market growth, the cost
of doing business, competitive advantage, and risk level.
 Indicators of Market Potential

Demographic Characteristics Sociocultural Factors Education

• Education • Consumer lifestyles,

• Population size and growth
• Population age composition
beliefs, and values
• Business norms and
approaches
• Cultural and social norms
• Languages
 Indicators of Market Potential
Geographic Characteristics Political and Legal Factors

• Climate • National priorities

• Country size
• Population density—
urban, rural
• Transportation structure
• Market accessibility
• Political stability
• Government attitudes
toward global trade
• Government bureaucracy
• Monetary and trade
regulations
 Indicators of Market Potential

Economic Factors

• GDP size and growth

• Income distribution
• Industrial infrastructure
• Natural resources
• Financial and human resources
Deciding How to Enter the Market
 A company has many options for entering an
international market, from simply exporting its
products to working jointly with foreign companies
to setting up its own foreign-based operations.
Exporting
• Entering foreign markets by selling goods produced in the
company’s home country, often with little modification.

• Companies typically start with indirect exporting that involves

less investment because the firm does not require an overseas
marketing organization or network.

• Sellers may eventually move into direct exporting, whereby they

handle their own exports.
Joint Venturing
• Entering foreign markets by joining with foreign
companies to produce or market a product or
service.

• There are four types of joint ventures: licensing,

contract manufacturing, management
contracting, and joint ownership.
Licensing
- Entering foreign markets through developing an
agreement with a licensee in the foreign market.

Contract Manufacturing
- A joint venture in which a company contracts with
manufacturers in a foreign market to produce its product or
provide its service.
Management Contracting
-A joint venture in which the domestic firm supplies
the management know-how to a foreign company that supplies
the capital; the domestic firm exports management services
rather than products.

Joint Ownership
-A cooperative venture in which a company creates a
local business with investors in a foreign market who share
ownership and control.
Direct Investment
• Entering a foreign market by developing foreign-
based assembly or manufacturing facilities.

• The main disadvantage of direct investment is that

the firm faces many risks, such as restricted or
devalued currencies, falling markets, or government
changes.
 Deciding on the
Global Marketing Program
• Companies that operate in one or more foreign markets must
decide how much, if at all to adapt their marketing strategies
and programs to local conditions.

• At one extreme are global companies that use standardized

global marketing, essentially using the same marketing
strategy approaches and marketing mix worldwide.
• At the other extreme is adapted global marketing. A global
marketing approach that adjusts the marketing strategy
and mix elements to each international target market,
which creates more costs but hopefully produces a larger
market share and return.
Product
Five strategies are used for adapting product and marketing
communication strategies to a global market.
Straight Product Extension
-Marketing a product in a foreign market without making
any changes to the product.

Product Adaptation
-Adapting a product to meet local conditions or wants in
foreign markets.

Product Invention
-Creating new products or services for foreign markets.
Promotion
• Companies can either adopt the same communication
strategy they use in the home market or change it for each
local market. Consider advertising messages.

• Rather than standardizing their advertising globally, other

companies follow a strategy of communication adaptation,
fully adapting their advertising messages to local markets.
Price
• Regardless of how companies go about pricing
their products, their foreign prices probably will
be higher than their domestic prices for
comparable products.
Distribution Channels
• An international company must take a whole-channel view
of the problem of distributing products to final consumers.

• Whole-channel view -Designing international channels

that take into account the entire global supply chain and
marketing channel, forging an effective global value
delivery network.
 Deciding on the
Global Marketing Organization
• Companies manage their international marketing activities
in at least three different ways: Most companies first
organize an export department, then create an international
division, and finally become a global organization.

• If its international sales expand, the company will establish

an export department with a sales manager and a few
assistants.
• Many companies get involved in several international
markets and ventures. Sooner or later it will create
international divisions or subsidiaries to handle all its
international activity.
• It plans for and provides services to various operating units,
which can be organized in one of three ways.

 They can be geographical organizations, with

country managers who are responsible for
salespeople, sales branches, distributors, and
licensees in their respective countries.
 Or the operating units can be world product groups,
each responsible for worldwide sales of different
product groups.

 Finally, operating units can be international

subsidiaries, each responsible for their own sales and
profits.
PESTEL ANALYSIS
 HOW TO DO PESTEL ANALYSIS?
1. Understand the factors in PESTEL (Do a research)
2. Create an infographic that will highlight the important information you
gathered.
3. Use the information to develop a SWOT Analysis
 HOW TO DO SWOT ANALYSIS?
1. Conduct a research about your market and competitors. Identify the
strengths and weaknesses of the brand.
2. What are the opportunities that the brand can exploit? Make sure that
you develop plans to exploit these opportunities.
3. What are the threats? What can the company do take appropriate
actions?
4. Create an infographic that will summarize the important points of your
SWOT Analysis.
THEORIES
OF
TRADE
Learning 1. Identify the major trade theories that attempt to
Outcomes explain international trade.

At the end of 2. Explain the weakness of early trade theories.

the chapter
you should be 3. Describe modern trade theories.
able to…
4. Critique modern day theories
Theories of Trade
Introduction to International Trade Theories
More Recent Theories
Modern Theories
 Introduction to
International Trade Theories
Theories of international trade attempt to provide explanations
of trade motives, underlying trade patterns, and the ultimate
benefits that come from trade. The major questions to be
answered through such an examination of trade are the
following:
• Why does trade occur?
• Is it because of price differentials, supply differentials, or
differences in individual tastes?
• What is traded and what are the prices or terms agreed upon in
these trading actions?
• Do trade flows relate to specific economic and social
characteristics of a country?
• What are the gains from trade and who realizes these gains?
• What are the effects of restrictions put on trading activity?
 Theories of trade have evolved over time, beginning with the
emergence of strong nation-states and the organization of
systematic exchanges of goods between these nations. The
theories are associated with discrete time periods, and the earliest
of these periods was the era of mercantilism.
Mercantilism
• Mercantilism, which became popular in the late seventeenth
and early eighteenth centuries in Western Europe, was based on the
notion that governments (not individuals, who were deemed
untrustworthy) should become involved in the transfer of goods
between nations in order to increase the wealth of each national entity.

• Wealth was defined as an accumulation of precious metals,

especially gold.
• The aim of the governments was to facilitate and support all exports
while limiting imports.
• During this period, nations acquired colonies to provide sources of
raw materials or precious metals.

• Trade opportunities with the colonies were exploited, and local

manufacturing was repressed in those offshore locations. The
colonials were often required to buy their goods from their
mother countries.
The Concept of Mercantilism Incorporates Three Fallacies.
• The first was the incorrect belief that gold or precious metals
have intrinsic value, when actually they cannot be used for either
production or consumption.
• The second fallacy is that the theory of mercantilism ignores
the concept of production efficiency through specialization.
• The third fallacy of mercantilism concerned the overall goal of
the system.
Neomercantilism corrected the first fallacy by looking at the overall
favorable or unfavorable balance of trade in all commodities; that is,
nations attempted to have a positive balance of trade in all goods
produced so that all exports exceeded imports.
The second fallacy, a disregard for the concept of efficient
production, was addressed in subsequent theories, notably the
classical theory of trade, which rests on the doctrine of comparative
advantage. Subsequent theories also attempted to address the third
fallacy as well.
Classical Theory
• What is now called the classical theory of trade superseded the
theory of mercantilism at the beginning of the nineteenth century
and coincided with three economic and political revolutions: the
Industrial Revolution, the American Revolution, and the French
Revolution.
• This theory was based in the economic theory of free trade and
enterprise that was evolving at the time.
• In 1776, in The Wealth of Nations, Adam Smith rejected as foolish
the concept that gold was synonymous with wealth. The crux of the
argument was that the costs of production should dictate what
should be produced by each nation or trading partner.

• Under this concept of absolute advantage, a nation would

produce only those goods that made the best use of its available
natural and acquired resources and its climatic advantages.
Comparative Advantage
• This question was considered by
David Ricardo, who in 1817
developed the important concept of
comparative advantage in
considering a nation’s relative
production efficiencies as they apply
to international trade.
• In Ricardo’s view, the exporting country should look at the
relative efficiencies of production for both commodities and
make only those goods it could produce most efficiently.
• The concepts of absolute advantage and
comparative advantage were used in a subsequent
theory development by John Stuart Mill, who in
1848 looked at the question of determining the
value of export goods and developed the concept
of terms of trade. Under this concept, export
value is determined according to how much of a
domestic commodity each country must exchange
to obtain an equivalent amount of an imported
commodity.
Weaknesses of Early Theories
• While the work of Smith, Ricardo, and Mill went far in
describing the flow of trade between nations, classical theory
was not without its flaws. For example, the theory incorrectly
assumed:
 The existence of perfect knowledge regarding international
markets and opportunities.
 Full mobility of labor and production factors throughout each
country.
 Full labor employment within each country.
• The theory also assumed that each country had, as its objective, full
production efficiency.

• The theory is overly simplistic in that it deals only with two

commodities and two countries.

• The largest area of weakness in classical theory is that while we

considered all resource units used in production, the only costs
considered by classical economists were those associated with labor.
More Recent Theories
Factor Endowment Theory
• The Eli Heckscher and
Bertil Ohlin theory of
factor endowment
addressed the question of
the basis of cost
differentials in the
production of trading
nations.
• They posited that each country allocates its production
according to the relative proportions of all its production
factor endowments: land, labor, and capital on a basic level,
and, on a more complex level, such factors as management and
technological skills, specialized production facilities, and
established distribution networks.
• The range of products made or grown for export would depend on
the relative availability of different factors in each country.

• Economist Paul Samuelson

extended the factor
endowment theory to look
at the effect of trade upon
national welfare and the
prices of production factors.
• Samuelson posited that the effect of free trade among nations
would be to increase overall welfare by equalizing not only the
prices of the goods exchanged in trade, but also of all involved
factors.
The Leontief Paradox
• An exception to the Heckscher-Ohlin theory was examined by
W.W. Leontief in the 1950s.

• Leontief found that US exports were less capital-intensive than

imports, although the presumption according to the Heckscher-
Ohlin theory would have been that capitalintensive rather than
labor-intensive export goods would have been more common,
because the proportion of capital endowments at that time was
higher than labor in the United States.
Criticisms
• Although these more recent theories seem to go far in explaining
why nations trade, they have nonetheless come under the following
criticisms as being only partial explanations for the exchange of
goods and services between nations:

 The theories assume that nations trade, when in reality

trade between nations is initiated and conducted by
individuals or individual firms within those nations.
 They are limited in looking at either the transfer of
goods or of direct investments. No theories explain
the comprehensive, dynamic flow of trade in goods,
services, and financial flows.

They do not recognize the importance of technology

and expertise in the areas of marketing and
management.
Modern Theories
International Product Life Cycle Theory
• This theory looks at the potential export possibilities of a product
in four discrete stages in its life cycle.

 In the first stage, innovation, a new product is manufactured

in the domestic arena of the innovating country and sold
primarily in that domestic market. Any overseas sales are
generally achieved through exports to other markets, often
those of industrial countries
 In the second stage, the growth of the product, sales tend to
increase.
 As the product enters the third stage, maturity, exports from
the home country decrease because of increased production
in overseas locations.

 In the final stage of the product life cycle, the product enters
a period of decline, often because new competitors have
achieved levels of production high enough to effect scale
economies in the production that are equivalent to those of
the original manufacturing country.
• The international product life cycle theory has been
found to hold primarily for such products as consumer
durables, synthetic fabrics, and electronic equipment;
that is, those products that have long lives in terms of the
time span from innovation to eventual high consumer
demand.
Other Modern Investment Theories

• Other theorists explain investing overseas by firms as a response to

the availability of opportunities not shared by their competitors; that
is, they take advantage of imperfections in markets and enter foreign
spheres of production only when their competitive advantages
outweigh the costs of going overseas.
• These advantages may be production, brand awareness, product
identification, economies of scale, or access to favorable capital
markets.

• Oligopolies are those market situations in which there are few sellers
of a product that is usually mass merchandized.

• Two examples are the automobile and steel industries

• Michael Porter of Harvard University authored the “National
Competitive Advantage Theory” in 1991. It brings in many of the
elements already discussed in this chapter. Porter believes that
successful international trade comes from the interaction of four
country- and firm-specific elements:
 Factor conditions
 Demand conditions
 Related and supporting industries
 Firm strategy, structure, and rivalry