Professional Documents
Culture Documents
1 Overview of Marketing 1
What Is Marketing? 2
Marketing Is About Satisfying Customer Needs and Wants 3
Marketing Entails an Exchange 4
Marketing Requires Marketing Mix Decisions 5
Marketing Can Be Performed by Both Individuals and
Organizations 8
Marketing Impacts Many Stakeholders 9
Sustainable Marketing 1.1 Sustainability and Reputation
Management 9
The Four Orientations of Marketing 10
How Do Firms Become More Value Driven? 11
Gathering and Sharing Information 12
Marketing Analytics 1.1 Location, Location, Analytics: Starbucks’
Use of Data to Place New Stores 12
Balancing Benefits With Costs 13
Building Relationships With Customers 13
Ethical & Societal Dilemma 1.1 Adding Value by Addressing Gender
Inequality in the Coffee Market 14
Connecting With Customers Using Social and Mobile Media 14
Why Is Marketing Important? 15
Marketing Expands Firms’ Global Presence 15
Marketing Is Pervasive Across Marketing Channel Members 16
Marketing Enriches Society 17
Marketing Can Be Entrepreneurial 18
Entrepreneurial Marketing 1.1 Kacee Vasudeva — Serial Entrepreneur 19
Learning Objectives Review 20
Key Terms 21
Concept Review 21
Marketing Applications 21
Marketing Digitally 22
Chapter Case Study: KIND Bars for a Kinder World 22
Appendix 7A: Using Secondary Data to Assess Customer Lifetime Value (CLV) 228
Glossary GL-1
Chapter Sources CS-1
Endnotes EN-1
Name Index IN-1
Company Index IN-3
Subject Index IN-8
What Is Marketing?
Regardless of your age, your gender, or the city in which you live, you
already know something about marketing. You have been an involved consumer
in the marketing process since childhood when, for example, you accompanied your
mother or father to the grocery store and asked to buy a particular brand of cereal
because you saw a friend eating it or heard about it on television. The prize inside
the box of cereal was of value to you as a child; the nutritional information offered on
the box panel was of value to your mother or father. Once you begin to explore the
many ways in which companies and brands create value for their customers through
marketing, you will also begin to appreciate the complex set of decisions and activities
that are necessary to provide you with the products and services you use every day.
Changes to the Fifth Canadian Edition
The central theme in this book is Marketing Adds Value. Beyond teaching students the principles of marketing, we need
to impress upon them why marketing in and of itself is valuable, regardless of a chosen career direction. Marketing creates
enduring and mutually valuable relationships. It identifies what customers value locally and globally. Without marketing,
it would be difficult for anyone to learn about new products or services. A solid understanding of marketing can help job-
seeking students demonstrate their value to market themselves on graduation. It can help them to embrace the power of
small businesses and entrepreneurship in the Canadian economy. Marketing, Fifth Canadian Edition, is all about the core
concepts and tools that marketers use to create value for customers. Throughout this book you will find many examples that
define how companies create value through branding, packaging, pricing, retailing, service, and advertising. The concept of
value is introduced in Chapter 1 and carried through the entire text.
Special attention was given to the COVID-19 pandemic and its impact on marketers. Chapters were updated to include
current, relevant discussion and examples of how companies were forced to adapt. These chapters include: Chapter 3
"Analyzing The Marketing Environment"; Chapter 4 "Consumer Behaviour"; Chapter 9 "Product, Branding, and Packaging
Decisions"; Chapter 11 "'Pricing Concepts and Strategies: Establishing Value"; Chapter 13 "Retailing and Omnichannel
Marketing"; Chapter 15 "Advertising, Sales Promotions, and Personal Selling"; and Chapter 16 "Global Marketing."
n irect s rib ti n
and more.
brew ng kombucha a ermented beverage made a so pursued organic certif cat on which helped Tofino
with tea sugar and a kombucha starter culture called Kombucha grow its sales and expand to other c ties n
the area Initia ly she set her s ghts on V ctor a for her
next target market Partnering with two distributors and
the Fifth Canadian Edition. USD by 2024 Even PepsiCo got nto the market first
by investing n KeVita an organ c kombucha company
in California and then by buying the company outright
W th explosive growth KeVita s ranked number two n
the kombucha market As a re atively young company
Tofino Kombucha offe s hree flavours Ginger Lemon Jasm ne Hendricks won’t be compe ing on that scale just yet
Hib scus and Apricot Rose However she is brewing up new flavours a l part of her
xxiv Features Inside Marketing, Fifth Canadian Edition
n
For example, in Chapter 1, the use of analytics is than 68 countries. But its growth has not been without a strategically placed to provide the greatest customer
few stumbles and bumps in the road. For example, in the convenience. The new approach has proven effective,
presented as a key factor behind how Starbucks last decade, hundreds of newly opened stores had to be according to results that show that the most recently
closed because of their poor performance. In analyzing opened stores, particularly those in the Americas, are con-
determines ideal locations for new stores. how the company got to that point, Patrick O’Hagan, sistently producing great returns and exceeding hurdle
Starbucks’ manager of global market planning, explained rates, the minimum rates of return on a project.
that many of the stores never should have opened.
However, the staff in charge of these location choices had
been inundated with so much data, they were unable to use
them to make profitable decisions. Thus, the Starbucks story
reveals a great deal about the importance of data analytics.
Starbucks began using Atlas, a geographic informa-
tion system (GIS) bui t by Esri in the 1990s. But it has
perfected its applications of the GIS-provided predictive
analytics more recently. For example, the technology
allows Starbucks to evaluate weather, demographics,
population density, proximity to other Starbucks loca-
tions, traffic patterns, and much more to help determine
new store locations. Using the system, Starbucks gets a
graphical summary of the GIS data in map form. These
data include both location information and demographic Starbucks uses geograph c information system (GIS) techno ogy
details, which the software analyzes according to perti- to pinpoint deal locat ons and the types of stores to open in
nent cr teria. The applications a low Starbucks’ staff to those locations
Reinforcing learning
Learning Objectives
LEARNING
ci itate media re uOBJECTIVES
s s, s cu e al dvanc
Chapter Vignette
On your way to class today, did you grab a bite to eat? If you’re like many students, you did not have enough
time or the ingredients needed to prepare a fresh meal and sit down to eat it. Instead, you might have grabbed
Each chapter begins with a Chapter an energy bar from your cupboard or snagged one from the coffee shop on the way to campus. Why do so many
Vignette that helps to introduce and people rely on these energy bars—pressed rectangles of grains, fruits, nuts, and so forth—rather than other
options as meal replacements or snacks throughout the day?
illustrate some of the main content Your individual answers might vary, but the overriding answer has a lot to do with marketing. Companies that
that follows. These vignettes have produce and sell energy bars work hard to position them as appealing, convenient, tasty, healthy, socially respon-
been carefully selected to pique sible, and energy-dense foods that can help nearly any consumer meet his or her consumption needs. By making
a product that can satisfy a variety of demands consumers have when it comes to a snack, these companies
student interest and are designed ensure that their offerings provide value.
to provide real-world examples of Consider, for example, the umbrella term often used to describe these prepared foods. By highlight-
ing the term energy, marketers inform consumers that they can expect a boost when they eat one of these
how the theory has been applied by products. But energy really is just another word for calories; every food item a human being ever consumes
a variety of companies. There are 13 provides energy.1 Still, with this emphasis, the marketing surrounding energy bars offers a valuable promise to
consumers, namely, that they will be energized and able to continue on with their day after they eat one.
new Chapter Vignettes in the Fifth According to one classification, this market consists of five general types: meal replacement bars, protein
Canadian Edition. bars, whole food bars, snack bars, and others.2 Other classifications are even more specific, reflecting more
detailed, unique benefits, such as paleo, gluten-free, low-carb, low-calorie, and workout-recovery options.3
p
Unique End-of-Chapter Applications
rg ni con en s of its pr and
duc s, a Exercises
ell as it effo ts to encou
McGraw Hill Connect® is an award-winning digital teaching and learning solution that
empowers students to achieve better outcomes and enables instructors to improve efficiency
with seamless course management. Within Connect, students have access to SmartBook®,
McGraw Hill’s adaptive learning and reading resource. SmartBook prompts students with
questions based on the material they are studying. By assessing individual answers, SmartBook
learns what each student knows and it identifies which topics they need to practise, giving
each student a personalized learning experience and path to success.
Connect’s key features also include analytics and reporting, simple assignment manage-
ment, smart grading, the opportunity to post your own resources, and the Connect Instructor
Library, a repository for additional resources to improve student engagement in and out of the
classroom.
Application-Based Activities
The Connect Application-Based Activities are highly interactive and automatically graded
exercises. They are application-analysis based, allowing students to immerse themselves in a
marketing environment, analyze the situation, and apply their knowledge of marketing strat-
egies. Students progress from understanding basic concepts to assessing and solving complex
real-world scenarios.
iSeeIt! Videos
These brief, contemporary videos offer dynamic student-centred introductions, illustrations,
and animations to guide students through challenging concepts. Ideal for before class as an
introduction, during class to launch or clarify a topic, or after class for formative assessment.
Writing Assignments
The Writing Assignment tool delivers a learning experience to help students improve their
written communication skills and conceptual understanding. As an instructor you can assign,
monitor, grade, and provide feedback on writing more efficiently and effectively.
Test Builder
Available within Connect, Test Builder is a cloud-based tool that enables instructors to format
tests that can be printed or administered within a Learning Management System. Test Builder
offers a modern, streamlined interface for easy content configuration that matches course
needs, without requiring a download.
Test Builder allows you to:
• access all test bank content from a particular title
• easily pinpoint the most relevant content through robust filtering options
• manipulate the order of questions or scramble questions and/or answers
• pin questions to a specific location within a test
• choose the layout and spacing
• add instructions and configure default settings
Test Builder provides a secure interface for better protection of content and allows for
just-in-time updates to flow directly into assessments.
Award-Winning Technology xxvii
Instructor Resources
• The Test Bank includes more than 2000 multiple-choice, true/false, and short-essay
questions. Each question is categorized according to learning objective, level of Bloom’s
taxonomy, and correct answer.
• The Instructor’s Manual, prepared by text author Shirley Lichti, contains learning
objectives, key terms with definitions, a detailed lecture outline, and suggested classroom
activities.
• Microsoft® PowerPoint® Slides include key lecture points and images from the text.
As an aid for instructors who wish to create their own presentations, an Image Bank
containing all visual elements from the text is also available.
Acknowledgments
I could not have completed this text without the help of others. In particular, I would like to
thank Erin Schilstra, Loral Christie, and Qianjun Qian who worked with me as research assis-
tants and sounding boards. Thanks also to the numerous Wilfrid Laurier University students
and professors who provided feedback on the chapter content, cases, and exercises.
A special thanks to the many talented staff and freelance members at McGraw Hill—Jade
Fair, Amy Rydzanicz, Derek Capitaine, Jessica Barnoski, Jeanette McCurdy, and Emily Park.
You made my job so much easier. It was a pleasure working with you.
I gratefully acknowledge feedback and constructive criticism from marketing colleagues
across Canada.
I would also like to thank the following individuals who helped adapt, critique, and shape
the ancillary package for the Canadian market: Sheldon Koufman, Durham College; Michael
Madore, University of Lethbridge; and Neil Tracey, Kwantlen Polytechnic University.
Shirley Lichti
SECTION One Assessing the Marketplace
Chapter 1
©HandmadePictures/iStock/Getty Images
Overview of Marketing
Learning Objectives
After studying this chapter you should be able to
LO1 Define the role of marketing and explain its core concepts
LO2 Describe how marketers create value for a product or service
LO3 Summarize the four orientations of marketing
LO4 Understand the importance of marketing both within and outside the firm
2 Section One Assessing the Marketplace
On your way to class today, did you grab a bite to eat? If you’re like many students, you did not have enough
time or the ingredients needed to prepare a fresh meal and sit down to eat it. Instead, you might have grabbed
an energy bar from your cupboard or snagged one from the coffee shop on the way to campus. Why do so many
people rely on these energy bars—pressed rectangles of grains, fruits, nuts, and so forth—rather than other
options as meal replacements or snacks throughout the day?
Your individual answers might vary, but the overriding answer has a lot to do with marketing. Companies that
produce and sell energy bars work hard to position them as appealing, convenient, tasty, healthy, socially respon-
sible, and energy-dense foods that can help nearly any consumer meet his or her consumption needs. By making
a product that can satisfy a variety of demands consumers have when it comes to a snack, these companies
ensure that their offerings provide value.
Consider, for example, the umbrella term often used to describe these prepared foods. By highlight-
ing the term energy, marketers inform consumers that they can expect a boost when they eat one of these
products. But energy really is just another word for calories; every food item a human being ever consumes
provides energy.1 Still, with this emphasis, the marketing surrounding energy bars offers a valuable promise to
consumers, namely, that they will be energized and able to continue on with their day after they eat one.
According to one classification, this market consists of five general types: meal replacement bars, protein
bars, whole food bars, snack bars, and others.2 Other classifications are even more specific, reflecting more
detailed, unique benefits, such as paleo, gluten-free, low-carb, low-calorie, and workout-recovery options.3
Brands leverage other elements to communicate the value of their products. For example, the brand name
adopted by Phyter bars refers to their unique contents: phytonutrient-dense vegetable and fruit purees.4
KIND even puts its healthy bars’ promised benefits right in its brand name. With a positioning that suggests
that consuming these bars supports a healthy lifestyle, KIND’s marketing department emphasizes its n atural
ingredients—along with its commitment to being “kind” and proactively seeking the good of the world
overall5 (as discussed further in the case study that concludes this chapter).
In establishing an even more specific promise of natural ingredients, Kashi’s emphasis is largely on the
organic contents of its products, as well as its efforts to encourage expanded organic production of wheat and
other ingredients. For farmers, switching from conventional to organic methods is costly and time-consuming.
To position itself as the organic option in this market, Kashi has developed a program to help farmers make the
transition, then publicizes this information widely to ensure customers regard it as an appealing choice.6
Other brands are less interested in healthy or natural offerings and more oriented toward appealing to con-
sumers’ sense of pleasure. For example, Fibre One bars might promise the healthy benefit of more fibre, but
General Mills also works hard to communicate their products’ great taste. The bars themselves, and the pictures
on the boxes, sport heavy “drizzles” of chocolate, as well as pretzels, salty nuts, and candy pieces mixed in with
the grains and fruits.7 Even confectionery brands such as Snickers and Mars offer entries in this market, placing
what are essentially candy bars in store aisles next to more protein-dense offerings.8
The pictures on the boxes are not the only packaging elements that are critical to the appeal of energy bars.
By designing the products as single-serve, relatively small portions, the companies provide convenience benefits
for consumers.9 These bars can be easily tucked into a backpack or suitcase. Most of them contain preservatives,
such that they can sit in a pantry or desk drawer for months without going bad.
That may be exactly why you grabbed an energy bar on your way to class today. It was readily available from
your kitchen and easy to stick in your bag. A banana or apple, as well as a conventional candy bar, might offer
some similar benefits and convenience. Yet the value established by good marketing, which helps consumers
see the appeal of energy bars, makes it more likely that you opted for one of these snacks instead.
What Is Marketing?
Unlike other subjects you may have studied, marketing is already very familiar to you. You
start your day by agreeing to do the dishes if your roommate will make the coffee. But doing
the dishes makes you late for class, so you dash out the door, make a quick stop to fill your
car with gas, and grab an energy bar for breakfast. You attend a class that you have chosen
and paid for. After class, you pick up lunch at the cafeteria, which you eat while catching up
Overview of Marketing CHAPTER 1 3
on Instagram posts on your iPad. Then you leave campus, get your hair cut, and check out
a movie. You take a bus to the movie theatre, and listen to new songs with your Spotify sub-
scription. In each example, you acted as the buyer and made a decision about whether you
should spend your time and/or money to receive a particular service or type of merchandise.
If, after you return home from the movie, you decide to sell an old phone on eBay, you have
become a seller. In each of these transactions, you were engaged in marketing.
This chapter will look at the definition of marketing and at how marketing is used to create
value in products or in services. We will examine the interrelated marketing mix, and see how
the four Ps create, transact, communicate, and deliver value. We will look at where marketing
happens and how it has evolved over the years into today’s concept of value-based marketing.
marketing
Lastly, we will discuss why marketing is an important function for any successful firm. A set of business practices
The Canadian Marketing Association states that “Marketing is a set of business designed to plan for and
present an organization’s
practices designed to plan for and present an organization’s products or services in ways products or services in
that build effective customer relationships.”10 What does this definition really mean? Good ways that build effective
marketing is not a random activity; it requires thoughtful planning with an emphasis on the customer relationships
ethical implications of any of those decisions on consumers and society in general. Firms marketing plan
develop a marketing plan (see Chapter 2) that specifies their marketing activities for a A written document
composed of an analysis
specific period of time. The marketing plan is broken down into various components—how of the current marketing
the product or service will be conceived or designed, how much it should cost, where and situation, opportunities
how it will be promoted, and how it will get to the consumer. In any exchange, the buyer and threats for the firm,
marketing objectives
and the seller should be satisfied with the value they obtained from a transaction. In our and strategy specified in
earlier example, you should be satisfied or even delighted with the energy bar you bought, terms of the four Ps, action
programs, and projected
and its maker should be satisfied with the amount of money it received from you. The core or pro forma income (and
aspects of marketing are shown in Exhibit 1.1. Let’s see how they look in practice. other financial) statements.
Marketing helps
create value.
Marketing is about
Marketing occurs
satisfying customer
in many settings.
needs and wants.
Marketing
Marketing can be
performed by both Marketing entails
individuals and an exchange.
organizations. Marketing
requires product,
price, place, and
promotion decisions.
4 Section One Assessing the Marketplace
Goods/Services Customers/
Producers Consumers (Buyers)
(Sellers) Money &
Information
in
Warranty
g
ng
Va
ati
lue
Product Price
Cre
Target
Market
Co
Promotion Place
e
mm
lu
Va
un
It was marketed as a dense nutrition option for marathoners and other extreme athletes
goods who must consume massive amounts of calories to maintain their body mass. As Power-
Items that can be Bar flew off the shelves, competitors such as Clif Bar and Balance Bar entered the market.
physically touched.
People liked the idea of eating like an elite athlete, even if they were not one.13 This market
services continued to grow, so new brands designed new products that would appeal to different
Intangible customer
benefits that are produced
audiences. Weight Watchers produced a bar that it touted, mostly to women, as a diet aid.
by people or machines and LÄRABAR and RXBAR promised all-natural, real food ingredients. The many different
cannot be separated from product versions of energy bars each create value in specific ways.
the producer.
Goods are items that you can physically touch. Roots clothing, Nike shoes, Molson
ideas Canadian beer, Kraft Dinner, a KIND or Kashi energy bar, and countless other products
Thoughts, opinions,
philosophies, and are examples of goods. Nike primarily makes shoes, but also adds value to its products. For
intellectual concepts. example, it offers custom designs under its Nike by You brand that increase their fashionable
appeal, and enlists popular celebrities such as Rafael
Nadal to add their names to the designs.
Unlike goods, services are intangible customer
benefits that are produced by people or machines and
cannot be separated from the producer. When people
buy tickets—whether for air travel, a sporting event,
or a movie—they are paying not for the physical ticket
stub but for the experience. Hotels, insurance agencies,
and spas all provide services. Getting money from your
bank by using an ATM or teller is another example of
using a service. In this case, cash machines usually
add value to your banking experience by being conve-
niently located, fast, and easy to use.
Many offerings represent a combination of goods
Rafael Nadal adds value to the Nike brand. and services. When you go to Hakim Optical, for
Shutterstock/pdrocha example, you can have your eyes examined (service)
Overview of Marketing CHAPTER 1 7
price chain, merchandise is produced and distributed in the right quantities, to the right loca-
The overall sacrifice a
consumer is willing to
tions, and at the right time, while minimizing systemwide costs and satisfying the service
make—money, time, levels required by the customers.
energy—to acquire a Many marketing students initially overlook the importance of distribution manage-
specific product or service.
ment because a lot of these activities occur behind the scenes. But without a strong and
efficient distribution system, merchandise isn’t available when or where customers want
it. Then customers are disappointed, and sales and profits suffer. Place or distribution
activities and decisions are discussed in detail in Chapters 12 and 13.
Sustainability and Reputation governance, and social. This means that sustainability
practices and policies must be embedded in all facets of
Management* the organization, from human resource management to
manufacturing, marketing, production, planning, invest-
Executives today view sustainability as an integral part of ments, and corporate strategy. Also, sustainability must
their marketing strategy. It is also seen as a way to man- involve all employees, in all areas and departments.
age corporate reputation. According to a McKinsey Global Implementing a comprehensive sustainability program is
Survey, 36 percent of executives believe that the main expensive, and so many businesses tend to do the bare
benefit of sustainability is that it improves corporate and minimum or implement low-cost programs.
brand reputation, while less than 20 percent believe that Reputation management as an outcome of sustainability
it improves operational efficiency, lowers costs, presents programs is seen as representing higher value-creation
growth opportunities (new markets and products), or potential to companies than energy or waste reduction.
strengthens competitive position. However, while reputation management is seen as impor-
One of the top reasons for addressing sustainability tant, it can be difficult to define. Companies are begin-
is meeting consumer expectations. Companies that make ning to incorporate activities into key organizational
sustainability programs a priority must ensure that these processes. Some of these activities include external
initiatives are aligned with their mission and business reporting to stakeholders and consumers, policy imple-
goals. Successful companies will embed sustainability mentation around ethical issues, participation in sustain-
into business functions and the very fabric of the organi- ability-focused organizations, and making investments in
zation. That means addressing accountability by putting communities where they operate.
the appropriate measures and staff in place. Yet sustaina- Sustainability leaders foster an organizational culture
bility presents its share of challenges. For example, many that sets a direction for their programs. They also set clear
companies still struggle with program execution. strategies and measurable targets. As sustainability con-
A truly comprehensive and proactive approach to tinues to grow in importance, more companies will focus
sustainability requires businesses to develop practices on performance management, with metrics to measure
and policies around three perspectives: environmental, results, ensuring that their reputation does not suffer.
*M Ramos-González, Mercedes Rubio-Andrés, and Miguel Ángel Sastre-Castillo, Building Corporate Reputation through Sustainable Entrepreneurship:
The Mediating Effect of Ethical Behavior, Sustainability, September 19, 2017, www.mdpi.com/2071-1050/9/9/1663/pdf ; “Sustainability’s deepening
imprint,” McKinsey & Company, December 2017, www.mckinsey.com/business-functions/sustainability/our-insights/sustainabilitys-deepening-imprint;
“Sustainability’s Strategic Worth: McKinsey Global Survey Results,” www.mckinsey.com/business-functions/sustainability/our-insights/sustainabilitys
-strategic-worth-mckinsey-global-survey-results (accessed June 20, 2019).
10 Section One Assessing the Marketplace
Now that we’ve examined what marketing is and how it creates value, let’s consider
how it fits into the world of commerce, as well as into society in general.
Product Orientation
Product-oriented companies focus on developing and distributing
innovative products with little concern about whether the products
best satisfy customers’ needs. This philosophy is best illustrated by a
famous quote made around the turn of the 20th century by Henry Ford,
the founder of Ford Motor Company, who remarked, “Customers can
have any colour they want so long as it’s black.” Manufacturers believed
that a good product would sell itself, and retail stores typically were
considered places to hold the merchandise until a consumer wanted it.
Companies with a product orientation generally start out by thinking
about the product they want to build; they try selling the product after it
is developed rather than starting with an understanding of the custom-
ers’ needs and then developing a product to satisfy those needs.
Sales Orientation
Companies that have a sales orientation basically view marketing as a
selling function where companies try to sell as many of their products as
possible rather than focus on making products consumers really want.
“Milk Life” replaced the well-known “Got
These firms typically depend on heavy doses of personal selling and adver-
Milk?” campaign, but the ads still create a
high level of awareness for the milk industry. tising to attract new customers. Companies with a selling orientation tend
Used by permission of Campbell Ewald as Agent of
to focus on making a sale or on each transaction rather than building long-
MilkPEP term customer relationships. They generally believe that if consumers try
Turn of the
century 1920 1950 1990
(a): ©Ryan McVay/Getty Images RF; (b): ©CMCD/Getty Images RF; (c): ©Lawrence Manning/Getty Images (d): ©Ryan McVay/Getty Images RF;
(e): ©McGraw Hill Education/Mark Dierker, photographer
Overview of Marketing CHAPTER 1 11
their products, they will like them. The focus of these companies tends to be on the products or
services they have to offer, more than on consumer needs and wants. Profits come from sales
volume rather than from repeat business from satisfied customers.
Market Orientation
Market-oriented companies start out by focusing on what consumers want and need before
they design, make, or attempt to sell their products and services. They believe that custom-
ers have choice and make purchase decisions based on several factors, including quality,
convenience, and price. Basically, “the customer is king,” and the market is a buyer’s mar-
ket since consumers wield tremendous power. In this orientation, marketers’ role is to
understand and respond to the needs of consumers and to do everything possible to satisfy
them. There is a focus on making marketing an integrated process throughout the entire
company rather than just in one department. Satisfied customers become long-term loyal
customers, contributing to bottom-line profitability.
Value-Based Orientation
Most successful firms today are market oriented.16 That means they have gone beyond a
product or sales orientation and have attempted to discover and satisfy their customers’
needs and wants. Some marketing firms recognized that there was more to good marketing.
To compete successfully, they would have to focus on the triple bottom line: people (con-
sumer needs and wants), profits (long-term profitable relationships with customers and
suppliers), and planet (do all this in a way that is socially and environmentally responsible).
Value-based companies provide their customers with greater value than their competitors.
Value reflects the relationship of benefits to costs, or what you get for what you value
give.17 In a marketing context, customers seek a fair return in goods and/or services for their Reflects the relationship of
benefits to costs, or what
hard-earned money and scarce time. They want products or services that meet their specific the consumer gets for what
needs or wants and are offered at a price that they believe provides good value. A creative he or she gives.
way to provide value to customers is to engage in value cocreation.18 In this case, customers
can act as collaborators to create the product or service. When clients work with their
investment advisors, they cocreate their investment portfolios; when Nike allows custom-
ers to custom design their sneakers, they are cocreating.
Every value-based marketing firm must implement its strategy according to what
its customers value. Depending on the specific product or service for sale, these valuable
benefits could include speed, convenience, size, accuracy, price, cost savings, or user-
friendliness. Sometimes providing greater value means providing a lot of merchandise for
relatively little money, such as Subway’s foot-long subs for $5, or a diamond for 40 percent
off the suggested retail price at Costco. But value is in the eye of the beholder and doesn’t
always come inexpensively. Satisfied Louis Vuitton customers probably believe the Vuitton
clothing, bags, or shoes they buy are good value because they have received many benefits
for a reasonable price. Similarly, teenagers may be willing to pay a premium for Apple’s
iPhone because of its extraordinary design and packaging, even though cheaper substitutes
are available. This is the power of marketing in general and branding in particular. Value-
based marketing is examined in greater detail in the following section.
relationships with customers. Fourth, they take advantage of new technologies and connect
with their customers using the latest social and mobile media channels.
Location, Location, Analytics: traffic and thus boost chainwide sales. Because the GIS
technology is accessible through desktops and mobile
Starbucks’ Use of Data to devices, location experts in the field also can combine
Place New Stores** the high-tech insights with their real-world observations.
Not only does the GIS technology help Starbucks
By now, nearly everyone on the planet recognizes the determine the ideal locations for new stores, but it can
green mermaid logo that is proudly displayed on every also enable the company to decide which kinds of stores
Starbucks sign, poster, and cup. The ubiquitous cof- to open. For example, many of the new stores will feature
fee giant maintains more than 22,500 locations in more drive-through windows; others will be smaller stores,
than 68 countries. But its growth has not been without a strategically placed to provide the greatest customer
few stumbles and bumps in the road. For example, in the convenience. The new approach has proven effective,
last decade, hundreds of newly opened stores had to be according to results that show that the most recently
closed because of their poor performance. In analyzing opened stores, particularly those in the Americas, are con-
how the company got to that point, Patrick O’Hagan, sistently producing great returns and exceeding hurdle
Starbucks’ manager of global market planning, explained rates, the minimum rates of return on a project.
that many of the stores never should have opened.
However, the staff in charge of these location choices had
been inundated with so much data, they were unable to use
them to make profitable decisions. Thus, the S tarbucks story
reveals a great deal about the importance of data analytics.
Starbucks began using Atlas, a geographic informa-
tion system (GIS) built by Esri in the 1990s. But it has
perfected its applications of the GIS-provided predictive
analytics more recently. For example, the technology
allows Starbucks to evaluate weather, demographics,
population density, proximity to other Starbucks loca-
tions, traffic patterns, and much more to help determine
new store locations. Using the system, Starbucks gets a
graphical summary of the GIS data in map form. These
data include both location information and demographic Starbucks uses geographic information system (GIS) technology
details, which the software analyzes according to perti- to pinpoint ideal locations and the types of stores to open in
nent criteria. The applications allow Starbucks’ staff to those locations.
pinpoint ideal locations that are likely to attract substantial Bhandol/Alamy Stock Photo
Balancing Benefits
With Costs
Value-oriented marketers constantly measure the
benefits that customers perceive against the cost
of their offering. They use available customer
data to find opportunities to better satisfy their
customers’ needs and in turn develop long-term
loyalties. Such a value-based orientation has
helped Canadian Tire and Walmart outperform
other department stores, and WestJet Airlines
and Southwest Airlines outperform mainstream
carriers. IKEA does not have highly paid sales-
people to sell its furniture. Its simple designs
mean customers can easily choose a product and
assemble it themselves. Furniture retailer IKEA focuses on what its customers
value—low prices and great design.
Shutterstock/Michael Gordon
Building Relationships
With Customers
Marketers have developed a relational orientation as they have become aware of the relational orientation
need to think about customers in terms of relationships rather than transactions.19 To A method of building a
relationship with customers
build relationships, firms focus on the lifetime value of the relationship, not how much based on the philosophy
money is made during each transaction. This relationship approach uses a process that buyers and sellers
should develop a long-term
known as customer relationship management (CRM), a business philosophy and relationship.
set of strategies, programs, and systems that focus on identifying and building loyalty
customer relationship
among the firm’s most valued customers.20 Firms that employ CRM systematically col- management (CRM)
lect information about their customers’ needs and then use that information to target A business philosophy and
their best customers with the products, services, and special promotions that appear set of strategies, programs,
and systems that focus on
most important to them. identifying and building
Some companies aim to build relationships that benefit society at large. Ethical & loyalty among the firm’s
Societal Dilemma 1.1 details how one coffee company is seeking to improve the lives of most valued customers.
Adding Value by Addressing Gender a negative into a positive. The company launched a new
brand, City Girl Coffee, dedicated to ensuring the empow-
Inequality in the Coffee Market† erment and employment of women throughout the sup-
ply chain. As a sustainable, responsible coffee company,
Worldwide, the coffee supply chain is dominated by it purchases beans only from cooperatives and farms that
women—not that most marketing in this industry would are owned or managed by women. In addition, it donates
indicate that. Contrary to the images of a male farmer 5 percent of its profits to nonprofit industry groups that
walking a burro along rows of coffee beans in fields, the are committed to supporting women.
reality is that women perform approximately 70 percent In line with these initiatives, City Girl is unapologeti-
of the work involved in getting beans to market and into cally feminine in its marketing. Beyond the brand name,
consumers’ cups. Together with the misleading imagery, the packaging is bright pink and the logo depicts a
gender inequality throughout the supply chain has meant clearly feminine figure on a scooter. The mission state-
that in many places, female farmers are underpaid, ment asserts straightforwardly, “We are bringing aware-
excluded from negotiations, and limited in the competi- ness and equality to the coffee industry.”
tive moves they are allowed to make.
For one small, family-owned gourmet coffee com-
pany, that situation led to the inspiration for a new way to
market its products. A second-generation family member,
Alyza Bohbot, took over Alakef Coffee Roasters from her
parents. Bohbot decided she did not want simply to keep
doing what her parents had done, because she believed
that brand had reached a plateau. It was not growing any-
more, and its marketing and branding had remained the
same for years.
Upon taking over, Bohbot attended a conference
of the International Women’s Coffee Alliance in Seattle.
There she heard a story of a farmer from Colombia who
lost her farm after her husband died because women
were not allowed to make decisions about property. With City Girl Coffee aims to bring equality to the coffee industry for
this growing recognition of the gender inequality that women farmers.
marked her industry, Bohbot realized that she could turn Courtesy of City Girl Coffee
†“About,” City Girl Coffee, www.citygirlcoffee.com; Dan Hyman, “Giving a Family Business a Jolt with a Coffee That Empowers Women,”
The New York Times, December 20, 2017, (accessed June 18, 2019).
Beyond social media sites, online travel agencies such as Expedia, Travelocity, and
Priceline have become the first place that users go to book travel arrangements. In addi-
tion to asking friends and relying on their own experience, 10 percent of travellers turn
to destination websites, 9 percent rely on websites run by specific providers, another
5 percent use social networking, and 4 percent depend on their mobile devices to plan
their trips.26 Almost 150 million bookings, representing 57 percent of all travel bookings,
are made on the Internet. Sixty-five percent of same-day bookings are made from mobile
devices.27
Customers who book hotels using travel agencies become loyal to the agency that gives
them the lowest prices, rather than to any particular hotel brand. So hotels are using social
media and mobile applications to lure customers back to their specific brands by engaging
in conversations with them and allowing fans of the page to book their hotel reservations
through Facebook. Some hotel chains have mobile applications that allow customers to
make changes to their reservations, shift check-in and check-out times, and add amenities
or services to their stays. The hotels know a lot about their customers, because they collect
information about their previous visits, including the type of room they stayed in, their
preferences (from pillows to drinks consumed from the minibar), and the type of room
service they prefer.
Numerous restaurant chains are exploiting location-based social media applications.
By using location-based apps, customers can find restaurants that cater to their specific
dietary requirements or find restaurants highly rated by Yelp users nearby. The result
is that users are driving the way in which brands and stores are interacting with social
media.
Marketing was once only an afterthought to production. Early marketing philosophy went
something like this: “We’ve made it; now how do we get rid of it?” However, marketing
has not only shifted its focus dramatically, but also evolved into a major business function
that crosses all areas of a firm or organization, as illustrated in Exhibit 1.5. Marketing
advises production about how much of the company’s product to make and then tells
logistics when to ship it. It creates mutually valuable relationships between the company
and the firms from which it buys. It identifies those elements that local customers value
and makes it possible for the firm to expand globally. Marketing has had a significant
impact on consumers as well. Without marketing, it would be difficult for any of us to
learn about new products and services. Understanding marketing can even help you find
a job after you graduate.
Expands Global
Presence
Importance
of
Marketing
Enriches Society
(global): Jason Reed/Getty Images RF; (organization): ©Digital Vision/PunchStock; (tailor): Royalty-Free/CORBIS; (supply
chain): Andrew Ward/Life File/Getty Images; (elderly couple): Purestock/SuperStock; (life easier): ©Brand X Pictures/
PunchStock; (society): BananaStock/JupiterImages; (entrepreneurial): Caia Image/Glow Images
including Canada.28 Its upscale competitor, Spain’s Zara, operates in more than 90 coun-
tries, including Canada.29 Starbucks even adjusted its menu to meet customer wants in
the Japanese market more effectively. How does marketing contribute to a company’s
successful global expansion? Understanding customers is critical. Without the knowl-
edge that can be gained by analyzing new customers’ needs and wants on a segment-by-
segment, region-by-region basis—one of marketing’s main tasks—it would be difficult
for a firm to expand globally.
or sold, they are transported to a different location, which sometimes requires that they be
stored in a warehouse operated by yet another organization. The group of firms and set of
techniques and approaches firms use to make and deliver a given set of goods and services
is commonly referred to as a supply chain. Excellent supply chains effectively and effi- supply chain
ciently integrate their supply chain partners—suppliers, manufacturers, warehouses, stores, The group of firms and
set of techniques and
and transportation intermediaries—to produce and distribute goods in the right quantities, approaches firms use to
to the right locations, and at the right time. Supply chain management is discussed in detail make and deliver a given
set of goods and services.
in Chapter 12; for now, let’s consider the value of the supply chain in marketing.
Consider Loblaw, Canada’s largest food distributor, and its relationships with its manu-
facturers and trading partners. In the past, Loblaw’s supply chain system suffered from inef-
ficiencies that drove up its costs substantially.30 For example, inaccurate demand forecasts
led trading partners to stock huge inventory to meet unpredictable demand. Inefficient use
of customer data meant that stock replenishment was made by estimation rather than by
knowing true customer data. Disconnected supply chain systems, limited collaboration,
reduced information sharing, and supply variability led to poor-quality information on
which to base sales forecasts, production plans, and replenishment schemes. The company
made many changes to improve the efficiency of its supply chain. Loblaw’s participation in
a radio frequency identification (RFID) pilot project for the grocery industry conducted by
the Canadian RFID Centre has helped it improve its operations.
Kacee Vasudeva — Serial a non-toxic way, including a power bar that d oubles as
a bed bug trap. He then aimed to reduce the spread of
Entrepreneur‡ mosquito-borne diseases such as Zika, West Nile virus,
malaria, dengue fever, yellow fever, and others. Under
In Canada, over 95 percent of businesses are small. In the brand name GreenStrike, he has launched a variety of
fact, small businesses are viewed as the backbone of products to help eliminate mosquitoes. The GreenStrike
the Canadian economy. Innovation in Canada is driven Mosquito Preventer is the largest. It looks simple—a barrel
by entrepreneurs like Kacee Vasudeva, founder and that holds six litres of water to which an all-natural prod-
president of Maxtech Mosquito Control in W
aterloo, uct is added to attract female mosquitoes. While females
Ontario. Vasudeva is a veteran entrepreneur. He started only live for six weeks, they lay up to 30,000 eggs. With
his first company in his garage and later founded GreenStrike, the eggs never hatch because water flushed
Maxtech Manufacturing, a group though a filter traps the eggs,
of six auto-parts manufactur- and they dry out.
ing plants with peak annual The products are sold through
sales of $100 million. Another Home Hardware, Canadian Tire,
venture, Maxtech Consumer Amazon, and Shopify at prices
Products, designs and manufac- ranging from $79 to $349.
tures hand tools and power tool Vasudeva is also pursuing global
accessories. opportunities in China and India.
His auto-parts business went The company has adapted its
into receivership after the reces- product’s marketing mix for the
sion of 2008-2010. The loss didn’t needs and wants of the devel-
dampen Vasudeva’s entrepre- oping world by offering a lower-
neurial zeal. Maxtech Consumer priced unit that can be manually
Products still develops innova- operated.
tive tools for manufacturers. As this example illustrates,
And he launched new compa- the entrepreneurial path some-
nies including Insty-Bit, which times leads in many different
sells countersinks and cutting directions. Although the domes-
tools, and iMagic with a focus tic auto-parts business failed
on smart-home systems and due to the recession, it opened
devices. Vasudeva also ventured the door for new ventures that
into public health initiatives. He are leading to global opportu-
began by tackling bed bug infes- nities. Given the importance of
tations crippling many hotels Kacee Vasudeva’s GreenStrike Mosquito small businesses in Canada, this
and public places. His company, Preventer drastically reduces the population is the first of many entrepreneur-
Beap Co, created products of disease-carrying mosquitoes. ial marketing examples you'll
that help detect bed bugs in Used with permission of Maxtech Mosquito Control Inc. see in the textbook.
‡Rocco Rossi, “Ford government’s first budget must walk a fine line,” Globe and Mail, April 9, 2019, www.theglobeandmail.com/business/commentary
/article-pc-partys-first-ontario-budget-must-walk-fine-line; Megan Devlin, “Nearly half of Canadian entrepreneurs struggle to overcome mental-health
issues, national study finds,” Globe and Mail, June 18, 2019, www.theglobeandmail.com/business/article-nearly-half-of-canadian-entrepreneurs-say
-mental-health-issues/; “Our Companies,” Maxtech Innovations, https://maxtechinnovations.com/; Terry Pender, “Entrepreneur believes mosquito trap
will slow spread of disease,” The Waterloo Region Record, March 5, 2016, page D12; Green Strike, “Who We Are,” http://green-strike.com/home/who-
we-are (accessed June 19, 2019).
20 Section One Assessing the Marketplace
Key Terms
■■ B2B (business-to-business) ■■ ideas ■■ relational orientation
■■ B2C (business-to-consumer) ■■ market ■■ services
■■ C2C (consumer-to-consumer) ■■ marketing ■■ social media
■■ customer relationship ■■ marketing mix (four Ps) ■■ supply chain
management (CRM) ■■ marketing plan ■■ target market
■■ exchange ■■ need ■■ value
■■ goods ■■ price ■■ want
concept review
1. What is marketing and why is it important? 7. Today, many marketers are not interested in selling
their products and services to everyone who wants
2. Is the marketing mix (the four Ps) enough to guarantee
them; instead, they want to sell them only to selected
successful marketing? Explain.
target markets. What do you think the main reasons
3. Explain how a strike at one of a company’s supplier are for targeting specific market segments?
firms or a new technology would influence the com-
8. Give reasons why understanding customer needs and
pany’s marketing efforts.
wants is fundamental to marketing success. How can
4. Discuss the main elements of value-based marketing. marketers go about understanding customer needs
List four ways in which marketing helps to create value. and wants?
5. Explain the relationship between customer value and 9. Which marketing orientation would most likely help a
customer satisfaction. company build strong customer relationships that are
profitable? Why?
6. Generally, all companies are in business to generate
profits and increase shareholder value. Yet, the Cana- 10. Explain how customer value is created or increased
dian Marketing Association’s definition of marketing when the company’s marketing department works
does not explicitly mention profits or shareholder closely with other departments within the firm as well
value. Why do you think these are not included in the as with the firm’s suppliers and customers.
definition? Should they be included?
Marketing Applications
1. When apparel manufacturers develop their market- 5. Assume you have been hired by the marketing
ing strategies, do they concentrate on satisfying their department of a major consumer products manu-
customers’ needs or wants? What about a utility com- facturer such as Colgate-Palmolive. You are hav-
pany? A cellphone company? ing lunch with some new colleagues in the finance,
manufacturing, and logistics departments. They are
2. Choose a product that you use every day. Describe
arguing that the company could save millions of dol-
its four Ps.
lars if it just got rid of the marketing department.
3. One of your friends was recently watching TV and saw Develop an argument that would persuade them
an advertisement that she liked. She said, “Wow, that was otherwise.
great marketing!” Was the ad in fact marketing? Why?
6. Why do marketers find it important to embrace soci-
4. Mercedes-Benz manufactures the Smart Car, which sells etal needs and ethical business practices? Provide an
for around $16,000, and the SL65 AMG 2-door Road- example of a societal need or ethical business prac-
ster for over $200,000. Is Mercedes providing the target tice being addressed by a specific marketer.
markets for these cars with a good value? Explain why.
22 Section One Assessing the Marketplace
7. Using the four Ps, discuss how Kashi creates value for 9. As described in this chapter, customer relationship
customers with its Kashi bars. management is a very important aspect of value-based
marketing. Pick any one of Canada’s major retailers—
8. For many consumers, the difference between Dasani
for example, The Bay (www.hbc.com), Loblaw (www.
water made by Coca-Cola (www.dasani.com) and
loblaws.ca), or Shoppers Drug Mart (www.shoppers
Aquafina water made by Pepsi (www.aquafina.com)
drugmart.ca)—and explain how it goes about building
is hardly noticeable. However, both companies and
strong relationships with its customers.
their loyal customers would argue that there are
many differences between these two brands of 10. Using the four Ps, discuss how the Apple iBeacon will
water. What is your view? Explain how customer per- create value for customers.
ceptions and emotions may influence the way they
value a company’s product.
marketing digitally
1. Happy Planet (www.happyplanet.com), a Vancouver- 2. Visit the websites for KIND (www.kindsnacks.com),
based organic juice producer, is an emerging player in Kashi (www.kashi.com), and Snickers and Mars
the organic beverage market. It supplies all of Canada (www.snickersandmarsproteinbars.com) bars. What
and some of the United States with organic juice. Visit value do these manufacturers provide customers?
its website and describe how the company delivers How are their value propositions different?
value above and beyond that provided by traditional
grocery retailers. Describe the ways in which the com-
pany communicates this value through its website.
PepsiCo is the corporate name of the company that produces and sells popular food and beverage brands such as
Gatorade, Frito-Lay, Tropicana, Quaker, and Mountain Dew. The company began by selling carbonated beverages,
but today it earns most of its revenues and enjoys most of its growth in snacks and food—not drink—categories.
For example, PepsiCo finds opportunity in the growing groups of consumers who search for healthy options,
even when they are consuming guilt-inducing snacks. It offers many “guilt-free” products, spanning baked potato
chips and lower-sodium chips and tortillas. And in the U.S., it offers Off the Eaten Path snacks made from green
peas and pinto beans.1 The acquisition of Bare Foods further diversifies its portfolio, adding baked fruit and veg-
etable snacks.2 Going beyond product innovations, the company also pursues value through novel packaging,
such as smaller packages to help consumers limit their calorie or sodium consumption.3 In these efforts, it seeks
to provide unique and appealing “platforms” for snackers interested in tasty treats, from salty chips to hearty
crackers, from spicy Cheetos to oat bites or Mermaid Confetti granola bars.4
Such versatility and diversity represent key strengths of the broad corporate brand. There are approximately
3,000 different flavour profiles among its intellectual property, which it refers to as its “flavour bank.” These valu-
able resources enable PepsiCo to introduce unique, distinctive flavours for its Lay’s potato chips, from Everything
Bagel with Cream Cheese in the U.S. market to Salmon Teriyaki in Asian markets. To enhance the benefits of
such resources, it also leverages these strengths in marketing efforts that get people talking. While no longer
running in Canada, Lay's in the U.S. still uses its crowdsourced “Do Us a Flavor” contest to encourage fans to pick
their favourite flavours among the unusual options.5 Lay’s Canada introduced limited specialty flavours, including
grilled cheese, pizza, and taco in its StrEATS of the World campaign.6
Of course, it is not the only company seeking to appeal to such consumers. Carbonated beverages remain an
important part of the company’s product portfolio, and in these segments, Coca-Cola and Dr Pepper Snapple are
actively in pursuit of more market share. All three corporations have increased their juice and sports drink offer-
ings, especially as sales of carbonated beverages continue their downward trend. Consumers still want fizz, just
in a healthier form. With sales of seltzer up 42 percent over the past five years, PepsiCo launched its sparkling
water brand, Bubly. Six months later, it bought seltzer-maker Soda Stream.7
Such threats are an inherent aspect of the highly competitive food and beverage market, where companies
also confront rising costs.8 Overall, modern consumer goods and grocery retailing scenarios are challenging. As
PepsiCo’s chair and chief executive officer Indra Nooyi recently acknowledged, “Over my several decades in busi-
ness I have never seen this combination of sustained headwinds across most economies, combined with high
volatility across global financial markets.”9
PepsiCo also has struggled with some formulations, such as the use of aspartame in Diet Pepsi. Studies sug-
gesting its harmful effects led consumers to call for its removal from the recipe. But when PepsiCo did so, fans
also complained about the taste of the reformulated version. In response, it now maintains several diet colas, in
an attempt to appeal to multiple audiences.10 Another weakness stems from its long-standing image as a company
that produces less-than-healthy snack options. As it has tried to expand its organic offerings, it has met with some
resistance. Although sales in this sector finally are starting to increase, it has had to adjust its growth projections
downward when those sales did not expand fast enough to keep shareholders happy.11
All these factors are reinforced and intensified by PepsiCo’s international presence in more than 200 countries.
In these various national markets, it leverages its massive flavour bank to appeal to consumers who might prefer
Yorkshire Pudding or Tikka Masala, rather than salt and vinegar, when they chow down on potato chips. It also enjoys
the power of recognizable brand names and the ability to deliver its products throughout the world. However, even
as the company has noted productivity gains in many international markets, it also has admitted that unfavourable
currency exchanges and wider macroeconomic factors have led to reduced profits in international markets.12
In the face of these challenges and promises, PepsiCo maintains a highly positive outlook. Its guiding phi-
losophy, whether it is developing new products or expanding into new markets, looks for the bright side while
attempting to mitigate any dark sides. As the company’s principal scientist Elizabeth Roark explained, in refer-
ence to healthy snack innovations, “We’re really looking to not only decrease the negatives but also increase the
positives and transform our portfolio in a positive direction.13
In this chapter, we start by discussing marketing strategy, which outlines the specific
actions a firm intends to implement to appeal to potential customers. Then we discuss how
to create a marketing plan, which provides a blueprint for implementing the strategy. The
26 Section One Assessing the Marketplace
chapter concludes with a discussion of strategies firms use to grow. Appendix 2A explains
how to write a marketing plan and provides an annotated example.
Operational
Excellence
Customer
Excellence
Customer Value
Product
Excellence
Locational
Excellence
Customer Excellence
Customer excellence is achieved when a firm develops value-based strategies for retaining
loyal customers and provides outstanding customer service.
Marketers use several methods to build customer loyalty. One method of achieving
customer loyalty is to create an emotional attachment through loyalty programs. Loyalty
programs, which constitute part of an overall customer relationship management (CRM)
program, prevail in many industries, from airlines to hotels to movie theatres to retail stores.
Canadian households belong to 8.2 loyalty programs on average.22 Although the benefits
of loyalty programs to consumers are limited since only a small percentage of customers
save enough points to claim their rewards, loyalty programs are a boon to marketers. With
such programs, companies can combine membership data with customer purchase data to
develop a deeper understanding of the customer. Companies often use this data to tailor
their offerings to better meet the needs of their loyal customers. For instance, by analyzing
their databases, financial institutions, such as Bank of Montreal, develop profiles of cus-
tomers who have defected in the past and use that information to identify customers who
may defect in the future. Once it identifies these customers, the firm can implement special
retention programs to keep them.
Operational Excellence
Firms achieve operational excellence, the second
Disney’s MyMagic+ system enables users to swipe their way to achieve a sustainable competitive advantage,
MagicBand wristbands to get on rides, make purchases, and through their efficient operations, excellent supply
open their hotel room door. chain management, and strong relationships with
©parrysuwanitch/123RF their suppliers.
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 29
Product Excellence
Product excellence, the third way to achieve a
sustainable competitive advantage, occurs by
having products with high perceived value and
effective branding and positioning. Some firms
have difficulty developing a competitive advan-
tage through their merchandise and service
offerings, especially if competitors can deliver
similar products or services easily. Entrepre-
neurial Marketing 2.1 notes how one company's
focus on premium ingredients and organic cer-
tification helped it stand out. However, others
have been able to maintain their sustainable
competitive advantage by investing in their
brand itself; positioning their product or service
by using a clear, distinctive brand image; and IBM is listed as one of Interbrand’s top global brands.
constantly reinforcing that image through their Shutterstock/drserg
30 Section One Assessing the Marketplace
merchandise, service, and promotion. For instance, RBC Financial Group, Shoppers Drug
Mart, Bell, Tim Hortons®, Molson, and Loblaw are all leaders in their respective industries, at
least in part because they have strong brands and a clear position in the marketplace.27
Top global brands—such as Apple, Google, Microsoft, Coca-Cola, Amazon, Samsung,
Toyota, Facebook, Mercedes, and IBM—lead, at least in part, because they have strong
brands and a clear position in the marketplace.28
Locational Excellence
Location is particularly important for retailers and service providers. Many say that the
three most important things in retailing are location, location, location. Most people will
not walk or drive very far when looking to buy a cup of coffee. A competitive advantage
*“Our Story,” Tofino Kombucha, www.tofinokombucha.com/our-story; Ike Seaman, “OUR TOFINO NEIGHBOURS KELSEY HENDRICKS OF TOFINO
KOMBUCHA,” Wickanninish Inn, June 26, 2019, www.wickinn.com/on-pointe/our-tofino-neighbours-kelsey-hendricks-tofino-kombucha; “Kombucha
Market Projected to Reach $4.46 Billion by 2024: Grand View Research, Inc.,” Canadian Insider, Sept. 26. 2016, https://m.canadianinsider.com
/kombucha-market-projected-to-reach-4-46-billion-by-2024-grand-view-research-inc-; Larissa Zimberoff, “Why Kombucha May Never Make It Really Big,”
Bloomberg, October 5, 2018, www.bloomberg.com/news/articles/2018-10-05/can-big-soda-take-kombucha-mainstream (accessed June 28, 2019).
**Update provided by Kelsey Hendricks in a December 5, 2019 email.
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 31
Effective marketing doesn’t just happen. Firms such as Tim Hortons®, The Bay, and
epsiCo carefully plan their marketing strategies to react to changes in the environment,
P
the competition, and their customers by creating a marketing plan. A marketing plan is
a written document composed of an analysis of the current marketing situation, oppor-
tunities and threats for the firm, marketing objectives and strategy specified in terms of
the four Ps, action programs, and projected or pro forma income (and other financial)
statements.30 The three major phases of the marketing plan are planning, implementa-
tion, and control.31
Although most people do not have a written plan that outlines what they are plan-
ning to accomplish in the next year, and how they expect to do it, firms do need such a
document. It is important that everyone involved in implementing the plan knows what planning phase
Where marketing
the overall objectives for the firm are and how they will be met. Other stakeholders, such executives and other
as investors and potential investors, also want to know what the firm plans to do. A written top managers define the
mission and objectives of
marketing plan also provides a reference point for evaluating whether or not the firm met
the business, and evaluate
its objectives. the situation by assessing
A marketing plan entails five steps, depicted in Exhibit 2.2. The first two steps are in how various players, both
inside and outside the
the planning phase. In Step 1, marketing executives and other top managers define the organization, affect the
mission and objectives of the business. In Step 2, they evaluate the situation by assessing firm’s potential for success.
32 Section One Assessing the Marketplace
Step 1: Business
Mission & Objectives
Planning
Phase
Implementation Marketing
Phase Strategy
Step 4: Implement Marketing Mix
how various players, both inside and outside the organization, affect the firm’s potential
implementation phase for success. There are two steps in the implementation phase. In Step 3, marketing
Where marketing managers managers identify and evaluate different opportunities by engaging in a process known
identify and evaluate
different opportunities as segmentation, targeting, and positioning (STP). Then, in Step 4, they implement the
by engaging in a process marketing mix by using the four Ps. Finally, Step 5, the control phase, entails evaluating
known as segmentation,
targeting, and positioning.
the performance of the marketing strategy by using marketing metrics and taking any
They then develop and necessary corrective actions.
implement the marketing As indicated in Exhibit 2.2, it is not always necessary to go through the entire process
mix by using the four Ps.
for every evaluation (Step 5). For instance, a firm could evaluate its performance in Step 5,
control phase and then go directly to Step 2 to conduct a situation analysis without redefining its overall
The part of the strategic
marketing planning mission.
process when managers We will first discuss each step involved in developing a marketing plan. Then we
evaluate the performance
consider ways of analyzing a marketing situation, as well as identifying and evaluating
of the marketing strategy
and take any necessary marketing opportunities. We also examine some specific strategies marketers use to grow
corrective actions. a business. Finally, we consider how the implementation of the marketing mix increases
mission statement
customer value. A marketing plan outline and a sample marketing plan are provided in
A broad description of a Appendix 2A, following this chapter.
firm’s objectives and the
scope of activities it plans
to undertake; attempts
to answer two main Step 1: Define the Business Mission
questions: What type of
business is it? and What and Objectives
does it need to do to
accomplish its goals and The mission statement, a broad description of a firm’s objectives and the scope of activi-
objectives? ties it plans to undertake,32 attempts to answer two main questions: What type of business
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 33
PepsiCo’s mission is “to provide consumers around the world with delicious, affordable,
convenient and complementary foods and beverages from wholesome breakfasts to
healthy and fun daytime snacks and beverages to evening treats.”**
Coca-Cola’s mission is “To refresh the world . . . To inspire moments of optimism and
happiness . . . To create value and make a difference.Ӡ
The Heart and Stroke Foundation's mission is to “Promote health. Save lives. Enhance
recovery.”‡
Tim Hortons® states, “We work hard to deliver the highest-quality products and services,
and strive to be a leader in everything we do. It’s that simple.”††
are we? and What do we need to do to accomplish our goals and objectives? These funda-
mental business issues must be answered at the highest corporate levels before marketing
executives can get involved. Most firms want to maximize shareholders’ wealth by
increasing the value of the firm’s stock and paying dividends.33 However, owners of
small, privately held firms frequently have other objectives, such as achieving a specific
level of income and avoiding risks, while not-for-profit organizations set non-monetary
objectives. (See Exhibit 2.3 for several mission statement examples.)
Non-profit organizations, such as the Heart and Stroke Foundation, specify non-
monetary objectives such as improving the health of Canadians. The Tim Hortons® mission
is very focused: delivering superior-quality products and services to customers and being
the quality leader in what it does.34 PepsiCo’s and Coca-Cola’s mission statements are
sufficiently broad to encompass the diversity and global nature of their businesses. For all
these organizations, marketing holds the primary responsibility of enhancing the value
of the company’s products for its customers and other constituents, whether or not the
company pursues profit. Another key goal or objective often embedded in a mission state-
ment is how the firm is building a sustainable competitive advantage.
PepsiCo’s mission statement emphasizes the global nature of its products, whereas Coke’s evokes emotions like
happiness.
(Left): ©Bloomberg/Getty Images; (Right): Source: The Coca-Cola Company
advantage or unique advantages that cannot be easily copied by competitors and how it
can leverage those advantages in response to new opportunities arising from changes in
its external environment. By understanding its competitive strengths and weaknesses, the
firm will be better positioned to address weaknesses and deal with threats arising from its
external business environment. A SWOT analysis requires the firm to undertake a critical
assessment of its resources, capabilities, organization, strategies, and performance in
relation to competitors. Similarly, the firm must conduct a careful analysis of changes
in the environment and understand how they affect its business, whether they represent
threats or opportunities. Strengths and weaknesses are within the control of the firm, and
it can take actions to alleviate weaknesses and consolidate its strengths. Opportunities
and threats are outside the control of the firm; therefore, the firm can decide only how it
wants to respond.
Exhibit 2.4 lists several general elements that are usually examined when conducting
a SWOT analysis. The relevance of specific elements will depend on the nature of the firm.
This list is for illustration purposes and is by no means exhaustive.
Consider how PepsiCo might conduct a SWOT analysis as outlined in Exhibit 2.5.
We focus on PepsiCo here, but we also recognize that its marketing managers might find
it helpful to perform parallel analyses for competitors, such as Coca-Cola. A company’s
strengths (Exhibit 2.5, upper left) refer to the positive internal attributes of the firm. In
this example, the strengths we might identify include PepsiCo’s diversified product port-
folio and celebrity endorsements. Pepsi has signed some of the world’s most recognized
musicians and athletes as spokespersons, from Beyoncé to Michael Jordan and David
Beckham. Building on this forte, it launched its own music program, Out of the Blue, that
debuted during a Grammy Awards ceremony. The program aimed to connect fans with
their favourite artists by giving away extravagant trips to major music festivals, concerts,
and other fabulous experiences. Another strength comes from its efforts to benefit society,
such as the PepsiCo Foundation’s Global Citizenship Initiatives, which encourage healthy
lifestyles, clean water, and waste reduction, among other positive goals.35
Every firm has its weaknesses, and PepsiCo is no exception. Weaknesses (Exhibit 2.5,
upper right) are negative attributes of the firm. PepsiCo has much lower global brand
awareness and market share than does its main rival, Coca-Cola.36 Also, PepsiCo’s Aquafina
water brand relies on a public water source. It has faced public criticism and negative press
that jeopardizes its market position and had to acknowledge that Aquafina is simply tap
water in a bottle.37
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 35
Environment Evaluation
Positive Negative
Internal Strengths Weaknesses
Superior resources and capabilities Little or no brand recognition
Superior management, marketing, technical Lack of financial resources
talent Lack of other resources and capabilities
Strong brand Lack of marketing, management, and technical
Superior product offerings talent
Extensive marketing reach Limited market reach or distribution network
Wide distribution networks (national/global) No proprietary technology
Strong financial resources Poor location
Excellent geographic location Limited customer base or loyalty
Proprietary technologies/intellectual property Lack of credibility
Strong base of loyal customers
Opportunities (Exhibit 2.5, lower left) pertain to positive aspects of the external envi-
ronment. Among PepsiCo’s opportunities is the rising demand for healthy food and drink
options, as we indicated in the opening vignette. That is, the increasing interest in healthier
options gives PepsiCo new opportunities to expand its product lines, introduce innovative
new colas that appeal to people’s preferences for premium options, and offer healthier
options as well. For example, even with the public sourcing controversy, PepsiCo’s bottled
water brand, Aquafina, and its other health options have seen significant growth.38 Another
notable opportunity for PepsiCo is the growth in global markets for snacks and beverages.
One of PepsiCoʼs strengths is its portfolio of celebrity endorsers such as Beyoncé (left) and David Beckham (right).
(Left): Wenn US/Alamy Stock Photo; (Right): ©Clive Brunskill/Getty Images
36 Section One Assessing the Marketplace
Environment Evaluation
Positive Negative
PepsiCo Internal Strengths Weaknesses
Brand product portfolio Relies heavily on Walmart
Strong celebrity endorsers Relatively lower brand awareness
Complementary products Public scrutiny over practices
Dedication to charitable and
social projects
Large marketing budget
One of PepsiCo’s Global Citizenship Initiatives is its S.M.A.R.T. program that identifies which Pepsi/
Frito-Lay products are healthier. S.M.A.R.T. stands for five steps that encourage active living and
better food choices: Start with a healthy breakfast; Move more; Add more fruits, vegetables, and
whole grains; Remember to hydrate; and Try lower-calorie or lower-fat foods.
©Kayte Deioma/Zumapress/Newscom
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 37
In particular, it has invested strongly in Brazil, India, and China, as well as in sub-Saharan
Africa.39 If these efforts are successful, PepsiCo can enjoy substantial growth while also
reducing its nearly exclusive reliance on the U.S. market.
Finally, threats (Exhibit 2.5, lower right) represent the negative aspects of the com-
pany’s external environment. Water scarcity is a significant concern because the production
of cola demands substantial amounts of water.40 In addition, increased attention to label-
ling and nutrition facts could threaten to undermine PepsiCo’s appeal.41 Finally, competi-
tion in the snack-food market continues to increase, not just among the existing members
of the market, but also by new entrants that are coming up with innovative, alternative
snacks to appeal to consumers’ specific preferences.42 These are just some of the threats
that PepsiCo is facing.
Cars Offered Chevrolet Camaro Mercedes Toyota Prius Toyota RAV4 Dodge Ram
which includes the Chevrolet Camaro and Mercedes Benz SLC, targeting single people
wanting to have a bit of fun. Its Sedan Collection, featuring the Cadillac and a variety
of Mercedes models, targets business customers and families who prefer a luxurious
ride. With its Green Collection of cars, such as the Toyota Prius and Toyota Camry,
Hertz appeals to environmentally conscious customers. It also offers commercial vans
for service customers.43 Note that Hertz uses a variety of demographic factors—gender,
age, income, interests—to identify customers who might want the Convertible, Sedan,
and Green Collections. But it also applies psychographic or behavioural factors, such
as a need to move possessions across town, to identify likely consumers of its commer-
cial vans. Firms may also segment consumers based on benefits sought or geographic
factors, which will be discussed in Chapter 6.
Targeting
After a firm has identified the various market segments it might pursue, it evaluates each
target marketing/ segment’s attractiveness and decides which to pursue by using a process known as target
targeting marketing or targeting. For example, Hertz realizes that its primary appeal for the SUV
The process of evaluating
the attractiveness of Collection centres on young families, so the bulk of its marketing efforts for this business
various segments and then are directed toward that group. Similarly, soft-drink manufacturers also divide their mar-
deciding which to pursue
as a market.
kets into submarkets or segments. Coca-Cola, for instance, makes several different types of
Coke, including regular, Coke Life, and Cherry Coke. Among its diet colas, it targets Coke
Zero to men and Diet Coke to women because men prefer not to be associated with diets. It
also markets Sprite to those who don’t like dark colas, Fruitopia and Minute Maid to more
health-conscious consumers, and Dasani bottled water to purists.
Hertz targets several markets. Its “Convertible Collection” (left) appeals to single people and couples wanting to have
fun; its “Sedan Collection” (right) appeals to its business customers and families who prefer a luxurious ride.
Source: The Hertz Corporation
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 39
Positioning
Finally, when the firm decides which segments to pursue, it must determine how it wants to
be positioned within those segments. Market positioning involves the process of defining the market positioning
marketing mix variables so that target customers have a clear, distinct, desirable understanding Involves the process of
defining the marketing
of what the product does or represents in comparison with competing products. Hertz positions mix variables so that
itself as a quality car (and truck) rental company that is the first choice for each of its target seg- target customers have a
clear, distinct, desirable
ments. In its marketing communications, it stresses that customers will get peace of mind when understanding of what the
they rent from Hertz, the market leader in the car rental business, and will be able to enjoy their product does or represents
journey (e.g., leisure consumers) and reduce travel time (e.g., business consumers). in comparison with
competing products.
To segment the coffee drinker market, Starbucks uses a variety of methods, including
geography (e.g., college campuses versus shopping/business districts) and benefits (e.g.,
drinkers of caffeinated versus decaffeinated products). After determining which of those
segments represent effective targets, Starbucks positions itself as a firm that develops a vari-
ety of products that match the wants and needs of the different market segments—espresso
drinks, coffees, teas, bottled drinks, pastries, and cooler foods. Even its cups are part of its
positioning; although, not all of its efforts regarding cups are viewed positively, as discussed
in Ethical & Societal Dilemma 2.1.
Tempest in a Festive Cup‡‡ one year, the plain red holiday cup was denounced with
some consumers saying that Starbucks had abandoned
Every November since 1997, Starbucks has introduced Christmas traditions, a decidedly un-Christian move. At
special holiday cups. Their festive designs are a tangi- the same time, at least a few Indian consumers thought
ble reminder of the upcoming holiday season. In recent the plain red cup was a celebration of Diwali. Knowing
years, controversy has followed the cups. For example, consumers practise many religions, Starbucks has never
tried to associate its cup with religious symbols.
The next year, a green cup was used, which some
customers associated with a political agenda. A doodle
on a cup two years later, depicting two people holding
hands, was (mis)interpreted as a same-sex couple. So, in
a bid to avoid controversy, Starbucks returned to its usual
Christmassy theme with four unique designs in 2018.
Along with the four holiday cups, Starbucks also intro-
duced a plain red, reusable cup, available for free one day
only to customers who purchased holiday drinks. Supplies
were limited and stores quickly ran out. Consumers could
later buy the reusable cup for $2.50. Still, this was not the
source of controversy. Instead, it revolved around the fact
that the holiday cups cannot be recycled. While the plastic
in the cup’s polyethylene liner keeps beverages hot and
leak-proof, it is extremely difficult to recycle. While, tech
nically, they could be sent to special recycling facilities,
one report notes that 99.75 percent of these cups end up
in the garbage. The festive cups do cheer consumers, but
Starbucks introduces new holiday cup designs every year. the fact that they last far longer in landfill sites illustrates
Zhang Peng/LightRocket via Getty Images just how difficult it can be to avoid societal dilemmas.
‡‡Rachel Sugar, “How Starbucks’s annual holiday cup became a battleground for the heart and soul of America,” Vox, Nov 2, 2018, www.vox.com/the
-goods/2018/11/2/18052550/starbucks-holiday-cup-explained-2018-controversies; Temi Abebowale, “Starbucks’ New Holiday Cups are Here, And Won’t
Cause Much Drama,” delish, Nov 1, 2018, www.delish.com/food-news/a24483790/new-starbucks-holiday-cups-2018/; Lindsay William-Ross, “How to get
a free reusable festive red cup at Starbucks,” Vancouver Courier, November 1, 2018, www.vancourier.com/news/how-to-get-a-free-reusable-festive-red
-cup-at-starbucks-1.23484411; Julia Mullaney, “All the Controversies Behind Starbucks’ Holiday Cups,” November 2, 2018, Showbiz CheatSheet,
www.cheatsheet.com/culture/controversies-behind-starbucks-holiday-cups.html/; Whitney Filloon and Brenda Houck, “A Brief History of Starbucks’
Holiday Cup Controversies,” Eater, Nov 5, 2018, www.eater.com/2015/11/10/9705570/starbucks-holiday-red-cups-controversy-history; Luke Upton, “Seeing
red? Starbucks festive cups face up to growing sustainability questions.” Bio Market Insights, November 21, 2018, www.biobasedworldnews.com/seeing
-red-starbucks-festive-cups-face-up-to-growing-sustainability-questions (accessed June 28, 2019).
40 Section One Assessing the Marketplace
After identifying its target segments, a firm must evaluate each of its strategic oppor-
tunities. A method of examining which segments to pursue is described in the Growth
Strategies section later in the chapter. Firms are typically most successful when they focus
on opportunities that build on their strengths relative to those of their competition. In Step
4 of the marketing plan, the firm implements its marketing mix and allocates resources to
different products and services.
The First Name in Predictive for companies to help improve their online presence by
providing insights into customers’ web searching behav-
Analytics: Google§§ iour. In addition, Google has started using its analytics for
more than just its search engine. They were critical to the
In the world of analytics, Google has made a significant development of Android software, Apple’s biggest com-
name for itself because, from the moment it was estab- petitor in the smartphone domain. Now, with the help of
lished, Google has put predictive analytics at the heart its sophisticated analytics, Google is taking on Apple in
of the company. As the most widely used search engine, another domain as well: cars.
Google needs to be able to predict which websites and In Google’s Android boot camp, the company offi-
pages a person is seeking, based on just a few keywords. cially introduced its Android Auto dashboard interface,
Google is so successful at this method that few users which will face off against Apple’s CarPlay. Data analyt-
even bother going to the second page of the results list ics have played a big role in the development of these
in a Google search. Google now offers Google Analytics systems. Study after study has shown how dangerous it
is to drive while using one’s phone. Data even show that
driving while using a smartphone is equatable to driv-
ing while under the influence of alcohol. These startling
results have spurred top phone system manufacturers’
interest in creating dashboard platforms. When Google
debuted Android Auto, it was clear that extensive analyt-
ics went into the development of every feature.
For example, Google developed a driver distraction
lab to learn what tasks people do frequently when driving.
These data informed which functions would be included
and how they would work in the Android Auto system.
According to Google’s studies, no action should take
longer than two seconds, so every function of Android
Auto must be “glanceable.” It was designed with safety in
mind, and so, the interface does not include a “back” but-
ton like the smartphone version. Not only are social media
Data analytics have played a big role in developing Google’s apps blocked, but texting is accessible only through voice
Android Auto dashboard interface to help keep drivers safe commands. With these improvements in the connection
while using electronic dashboard functions. between phones and cars, data analytics are helping make
©David Paul Morris/Bloomberg via Getty Images the world both more convenient and safer.
§§
Aaron M. Kessler and B. X. Chen, “Google and Apple Fight for the Car Dashboard,” The New York Times, February 22, 2015, www.nytimes.com
/2015/02/23/technology/rivals-google-and-apple-fight-for-the-dashboard.html; Tim Stevens, “2014’s Battle for Dashboard Supremacy: Apple’s CarPlay
vs. Google’s OAA vs. MirrorLink,” CNET, March 4, 2014, www.cnet.com/news/2014s-battle-for-dashboard-supremacy-apples-carplay-vs-googles-oaa
-vs-mirrorlink/; Ronan Glon, “What is Android Auto?” Digital Trends, www.digitaltrends.com/cars/what-is-android-auto/ (accessed July 4, 2019).
The metrics used to evaluate a firm vary depending on (1) the level of the organization
at which the decision is made and (2) the resources the manager controls. For example,
while the top executives of a firm have control over all of the firm’s resources and resulting
expenses, a regional sales manager has control over only the sales and expenses generated
by his or her salespeople.
Let’s look at PepsiCo’s sales revenue and profits (after taxes) and compare them with
those of Coca-Cola (Exhibit 2.8).
As corporate consciousness of the importance of social responsibility grows, firms are
starting to report corporate social responsibility metrics in major areas, such as their impact
on the environment, their ability to diversify their workforce, their energy conservation
initiatives, and their policies on protecting the human rights of their employees and the
employees of their suppliers.
Portfolio Analysis
strategic business unit
(SBU) In portfolio analysis, management evaluates the firm’s various products and businesses—
A division of the company its “portfolio”—and allocates resources according to which products are expected to be the
that can be managed
somewhat independently most profitable for the firm in the future. Portfolio analysis is typically performed at the
from other divisions since strategic business unit (SBU) or product line level of the firm, though managers can
it markets a specific
also use it to analyze brands or even individual items. A strategic business unit is a division
set of products to a
clearly defined group of of the company that can be managed somewhat independently from other divisions since it
customers. markets a specific set of products to a clearly defined group of customers. For example,
product line Loblaw Companies Limited consists of its general merchandise, drugstores, President’s
A group of products Choice brand, and financial products and services operations.47 Each of these is an SBU.
that consumers may use
together or perceive as A product line, in contrast, is a group of products that consumers may use together or per-
similar in some way. ceive as similar in some way.
The table above shows some of the business lines of Loblaw Companies Limited.
A A
Market Growth Rate
B
C
increase their market share. Managers must decide whether to infuse question marks
with resources generated by the cash cows, so that they can become stars, or withdraw
resources and eventually phase out the products. Brand A, for instance, is currently a
question mark, but by infusing it with resources, the firm hopes to turn it into a star.
Dogs. Dogs (lower right quadrant) are in low-growth markets and have relatively low
market shares. Although they may generate enough resources to sustain themselves,
dogs are not destined for stardom and should be phased out unless they are needed to
complement or boost the sales of another product or for competitive purposes. In this
case, the company has decided to stop making Brand B.
Now let’s look at Apple and some of its products. The four that we will focus our atten-
tion on are:
• iPod • iPhone • iMac • iPad
Let’s consider each of these products with respect to the BCG.
Apple’s iPod enjoyed a staggering absolute market share consistently above 75
percent, its relative market share is also 100 percent. More than 300 million iPods were
sold in a little over 10 years. However, the company lumped iPod sales in the “other”
category in its 2015 earnings report. It was the first time in 13 years that exact numbers
sold and revenues earned were not reported.51 While the iPod has been an important
product for Apple, the MP3 market is contracting. The iPod had been a cash cow for
Apple. Although it had been a huge success, it has now been discontinued.
48 Section One Assessing the Marketplace
While Android sales caused sales to slow, the iPhone was still a star with a
high growth rate. By the end of 2015, Apple had sold 78 million units in its fourth
quarter alone, representing the most profitable quarter ever recorded by any public
company.52 However even stars can fade, and the iPhone may be losing its lustre.
When Apple reported its second-quarter earnings for 2016, the company disclosed
that iPhone sales had fallen by 16 percent over the past year, below 51.2 million
units.53 Even after announcing the iPhone 7 and 7 Plus in the fall, Apple reported
that its annual revenues declined for the first time in 15 years.54 This pattern has not
abated as sales slid to their steepest rate ever in 2019.55 The iPhone remains the
most profitable handheld device in history. With its share hovering at 13 percent of
the global smartphone market since 2014, some analysts feel Apple has hit its peak.56
Can the iPhone regain its star status?
Although popular with graphic designers, the growth rate of the iMac has also
declined. Given that it also has a small relative market share in the desktop market, the
iMac can be tentatively classified as a dog. Should Apple get rid of the iMac? For at least
two reasons, this is probably a bad idea. First, it risks alienating graphic designers and
other Apple loyalists who depend on the iMac. Since these customers may also enjoy
other Apple products, their dissatisfaction might adversely affect sales of these other
products. Second, discontinuing the iMac would leave a gaping hole in its portfolio, and
would therefore hurt its brand image as a computer company. Furthermore, Apple is
performing better than its competitors in this market, where most PC makers have expe-
rienced double-digit declines in recent years.57
Then we have the iPad with an incredible sales growth rate from 2011 to 2012 of
61.6 percent, and sales of approximately 16.1 million units in the first quarter of 2016.58, 59
In 2011, its absolute market share was 59 percent, making it the market leader with a
relative market share of 100 percent.60 Looking at 2012 as a whole, the iPad captured
57 percent of the tablet market (more than 1 out of every 2 tablets sold was an iPad).
But by the end of 2012, its absolute market share had dropped to 51 percent.61 Although
Apple no longer reports unit sales, in 2018 the iPad enjoyed the strongest growth in
six years.62 Where on the BCG matrix would you classify the iPad? Are its recent sales
results enough to make it a star again or is it a question mark?
Like the Dalai Lama, Apple approaches the world by thinking differently.
©Gilles Mingasson/Liaison/Hulton Archive/Getty Images
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 49
As the examples illustrate, even hugely successful products can have a limited life
span. Over time, yesterday’s star may become tomorrow’s dog. That’s why companies
must continually innovate. As a case in point, Apple’s services revenue continued to rise,
hitting a high of $11.5 billion even as its hardware revenues fell.63 As an example, Apple
Pay recently became the market leader with 47.3 percent of proximity mobile payment
users.64
Although quite useful for conceptualizing the resource allocation task, the BCG
approach, and others like it, are often difficult to implement in practice. In particular, it is
difficult to accurately measure both relative market share and industry growth. Further-
more, other measures could easily serve as substitutes to represent a product’s com-
petitive position and the market’s relative attractiveness. Another issue for marketers
is the potential self-fulfilling prophecy of placing a product into a quadrant. As we have
shown in our Apple iPad example, whether it is classified as a star or a question mark
has profound implications on how it is treated and supported within the firm. Question
marks require more marketing and production support.
Because of these limitations, many firms have tempered their use of matrix
approaches to achieve a more balanced way of allocating their resources. Instead of
assigning allocation decisions to the top levels of the organization, many firms start at
lower management levels and employ checks and balances to force managers at each
level of the organizational hierarchy to negotiate with those above and below them to
reach their final decisions.
Firms consider pursuing various market segments as part of their overall growth strategies,
which may include the four major strategies shown in Exhibit 2.10.65 The rows distinguish
those opportunities a firm possesses in its current markets from those it has in new mar-
kets, whereas the columns distinguish between the firm’s current marketing offering and
that of a new opportunity. Let’s consider each of them in detail.
New
Market Penetration
market penetration A market penetration strategy employs the existing marketing mix and focuses the
strategy firm’s efforts on existing customers. Such a growth strategy might be achieved by encourag-
A growth strategy that
employs the existing ing current customers to patronize the firm more often or buy more merchandise on each
marketing mix and focuses visit. A market penetration strategy generally requires greater marketing efforts, such as
the firm’s efforts on existing
customers.
increased advertising, additional sales and promotions, or intensified distribution efforts in
market development geographic areas in which the product or service is already sold.
strategy To penetrate its target market, the superhero entertainment giant, Marvel, has
A growth strategy that expanded its movie offerings. In collaboration with several production companies,
employs the existing
marketing offering to reach as well as talented directors and well-known star actors, Marvel has helped bring the
new market segments, X-Men, Spiderman, Iron Man, and other popular characters to the big screen, where
whether domestic or
they confront some relevant, modern-day topics such as discrimination, environmen-
international or segments not
currently served by the firm. tal destruction, and international wars—before ultimately kicking tail and saving the
product development city. These films have grossed massive profits.66 Marvel has further increased its market
strategy penetration by expanding the distribution of its films. Today, Marvel movies can be
A growth strategy that
offers a new product or
seen in theatres, viewed on DVDs, and accessed on streaming services such as Netflix
service to a firm’s current or Disney+.
target market.
Market Development
A market development strategy employs the
existing marketing offering to reach new market
segments, whether domestic or international.
Marvel pursues such a market development strat-
egy when it enhances the viewing of its movies in
global markets. For example, the release of Black
Panther proved to be one of the biggest movies
of all time, grossing more than $1 billion world-
wide, about half of which were international
sales.67 These phenomenal results highlight
the importance of expanding into new market
segments.
Product Development
The third growth strategy option, a product
development strategy, offers a new product
or service to a firm’s current target market. For
example, Marvel has launched several success-
ful series on Netflix, including Jessica Jones, The
Defenders, Iron Fist, and Luke Cage.68 Unlike
traditional network providers, Netflix (and its
competitors, such as Hulu or Amazon) allows
viewers to binge watch entire series in one sit-
ting. Binge watching has become a phenomenally
successful pastime for couch potatoes. Netflix has
139 million subscribers worldwide,69 making it
an outstanding new service channel for Marvel
Marvel pursues a market development strategy by releasing character lovers. By developing series designed
Black Panther globally. for this format, Marvel can connect with its cus-
Moviestore collection Ltd/Alamy Stock Photo tomers in a new and important way.
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 51
Diversification
A diversification strategy, the last of the
growth strategies from Exhibit 2.10, introduces a
new product or service to a market segment that
is currently not served. Diversification opportuni-
ties may be either related or unrelated. In a related
diversification opportunity, the current target
market and/or marketing mix shares something
in common with the new opportunity. In other
words, the firm might be able to purchase from
existing vendors, use the same distribution and/
or management information system, or advertise
in the same magazines to target markets that are
similar to its current consumers. Marvel has pur-
sued related diversification with its home décor,
for example. Collectibles and T-shirts have long
been a staple of the comic market, but Marvel
also has diversified its offerings, expanding to
include lamp shades and throw pillows.70
In contrast, in an unrelated diversification, the
new business lacks any common elements with the
present business. Unrelated diversifications do not
capitalize on core strengths associated with markets
or with products. Thus, they would be viewed as
very risky. For instance, if Marvel ventured into the
child daycare service industry, it would be an unre-
lated diversification because it is so different from
its core business and therefore very risky.
While all four growth strategies present
unique challenges for marketers, a market pen-
Pursuing a product development strategy, Marvel has launched
etration strategy is the easiest to implement since
several series on Netflix including The Defenders.
it focuses on promoting existing products to exist-
©Netflix/Photofest
ing customers. In this case, marketers know both
their products and markets. With market develop-
ment or product development, marketers have experience with one element and must diversification strategy
learn the other element. Diversification requires marketers to go outside both their cur- A growth strategy whereby
a firm introduces a new
rent products and markets, and the risks of making mistakes are substantially greater product or service to a
with this strategy. The particular growth strategy a company chooses depends on its market segment that it
goals and capabilities, among other things. Also, marketers tend to pursue multiple does not currently serve.
growth strategies simultaneously.
Marketers may also develop strategies for downsizing their business operations downsizing
by either exiting markets or reducing their product portfolios. They may exit markets Exiting markets, reducing
product portfolios, or
or abandon products for many reasons; for example, because they have entered new closing certain businesses
markets where they have little or no experience; diversified into markets or products or store or plant locations.
that do not quite fit with current products, markets, or capabilities; developed products
that offer very little value for customers; or encountered declining demand for some
products.
52 Section One Assessing the Marketplace
Angela Simpson
I graduated from Wilfrid Laurier’s Bachelor of Business
Administration (BBA) program in 2010. With three Co-Op
terms behind me, I envisioned my career moving in the
direction of brand management within the consumer
packaged goods industry. I’d been interested in brand-
ing for several years before starting my BBA, and with
so many digital channels experiencing growth at this
time, I was excited to apply the theories from my busi-
ness courses to real-world problems using emerging
platforms.
What I didn’t expect was to become so quickly
focused on a specific channel. Since graduating, I’ve
developed nearly 10 years (and counting!) of experience
in email marketing and automation. Some speculate that Photo by Olga Zwart. Courtesy of Angela Simpson.
email is dead, but I can attest to its ability to contribute www.myfreshperspective.com
LO1 Define a marketing strategy effective branding and positioning. Finally, locational
excellence entails having a good physical location and
A marketing strategy identifies (1) a firm’s target market(s), Internet presence.
(2) a related marketing mix (four Ps), and (3) the bases
on which the firm plans to build a sustainable competi- LO2 Describe the elements of a marketing plan
tive advantage. Firms use four macro strategies to build
their sustainable competitive advantage. Customer excel- A marketing plan is composed of an analysis of the cur-
lence focuses on retaining loyal customers and excellent rent marketing situation, its objectives, the strategy for
customer service. Operational excellence is achieved the four Ps, and appropriate financial statements. A
through efficient operations and excellent supply chain marketing plan represents the output of a three-phase
and human resource management. Product excellence process: planning, implementation, and control. The
entails having products with high perceived value and planning phase requires that managers first define the
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 53
firm’s mission and vision, which helps to answer the satisfy the needs of those groups better and more prof-
questions “What business are we in now?” and “What itably than competitors. To complete the STP process,
do we intend to be in the future?” In the first phase, plan- firms position their products or services according to the
ning, managers conduct a situation analysis to evalu- marketing mix variables so that target customers have a
ate how various players, both inside and outside the clear, distinctive, and desirable understanding of what the
organization, affect the firm’s potential for success. In product or service does or represents relative to compet-
the second phase, implementation, the firm identifies ing products or services.
and evaluates different opportunities through a process
known as segmentation, targeting, and positioning, and LO5 utline the implementation of the marketing
O
develops the marketing mix, the four Ps. Specifically, mix as a means to increase customer value
managers focus on implementing the marketing mix,
allocating resources, designing the marketing organiza- The marketing mix consists of the four Ps—product, price,
tion, and developing schedules and action plans. Finally, promotion, and place—and each P contributes to cus-
in the third phase, control, the firm evaluates its perfor- tomer value. To provide value, the firm must offer a mix
mance to determine what worked, what didn’t, and how of products and services at prices its target markets will
performance can be improved in the future. view as indicating good value. Thus, firms make trade-
offs between the first two Ps, product and price, to give
LO3 Analyze a marketing situation using a SWOT customers the best value. The third P, promotion, informs
analysis customers and helps them form a positive image about
the firm and its products and services. The last P, place,
SWOT stands for strengths, weaknesses, opportunities, adds value by getting the appropriate products and ser-
and threats. A SWOT analysis occurs during the second vices to customers when they want them and in the quan-
step in the strategic planning process, the situation analy- tities they need.
sis. By analyzing what the firm is good at (its strengths),
where it could improve (its weaknesses), where in the LO6 Describe how firms grow their businesses
marketplace it might excel (its opportunities), and what is
happening in the marketplace that could harm the firm (its Firms use four basic growth strategies: market penetra-
threats), managers can assess their firm’s situation accu- tion, market development, product development, and
rately and plan its strategy accordingly. diversification. A market penetration strategy directs the
firm’s efforts toward existing customers and uses the
LO4 Explain how a firm chooses what consumer present marketing mix. In other words, it attempts to get
group(s) to pursue with its marketing efforts current customers to buy more. In a market development
strategy, the firm uses its current marketing mix to appeal
Once a firm identifies different marketing opportunities, it to new market segments, as might occur in international
must determine which are the best to pursue. To accom- expansion. A product development growth strategy
plish this task, marketers go through a segmentation, involves offering a new product or service to the firm’s
targeting, and positioning (STP) process. Firms segment current target market. Finally, a diversification strategy
various markets by dividing the total market into those takes place when a firm introduces a new product or ser-
groups of customers with different needs, wants, or char- vice to a new customer segment. Sometimes a diversifica-
acteristics who therefore might appreciate products or tion strategy relates to the firm’s current business, such as
services geared especially toward them. After identifying when a women’s clothing manufacturer starts making and
the different segments, the firm goes after, or targets, cer- selling men’s clothes, but a more risky strategy is when a
tain groups on the basis of the firm’s perceived ability to firm diversifies into a completely unrelated business.
Key Terms
■■ control phase ■■ market positioning ■■ product line
■■ customer excellence ■■ market segment ■■ relative market share
■■ diversification strategy ■■ market segmentation ■■ situation analysis (SWOT)
■■ downsizing ■■ marketing strategy ■■ STP
■■ implementation phase ■■ mission statement ■■ strategic business unit (SBU)
■■ locational excellence ■■ operational excellence ■■ sustainable competitive
■■ market development strategy ■■ planning phase advantage
■■ market growth rate ■■ product development strategy ■■ target marketing/targeting
■■ market penetration strategy ■■ product excellence
54 Section One Assessing the Marketplace
Concept Review
1. Briefly describe the activities involved at each of the 6. Describe the four growth strategies that firms typically
three phases of the marketing planning process: pursue. Use a fast-food restaurant or a grocery chain
(1) planning, (2) implementation, and (3) control. in Canada (e.g., Loblaw, Safeway, or Food Basics) to
illustrate each of the four growth strategies.
2. What is meant by a mission or vision statement? What
purpose does a mission statement serve, and how 7. Of the four growth strategies described in the chapter,
does it influence marketing planning? which is the most risky? Which is the easiest to imple-
ment? Why?
3. What does SWOT mean? List two benefits of SWOT anal-
yses. What do you think the differences are between a 8. Identify and describe the four strategies that firms
SWOT analysis for the entire firm and a SWOT analysis could use to grow their business. What other strat-
for a product? egies could companies use to compete in the
market?
4. What type of information is required to conduct a
SWOT analysis, and where do marketers typically look 9. What are the four components of the BCG matrix?
for this information? When would stars be preferred over cash cows?
5. Why are segmentation, targeting, and positioning 10. Explain why in the BCG matrix all products start out as
(STP) crucial for identifying and evaluating market question marks and end up as either stars, cash cows,
opportunities? How does STP influence the develop- or dogs.
ment of the marketing mix—the four Ps?
Marketing Applications
1. How have PepsiCo and Coca-Cola created sustain- diversification strategy as one of its growth strategies.
able competitive advantages for themselves? How successful was the company’s diversification
strategy? What factors do you think account for its
2. Perform a SWOT analysis for your college or university.
success or failure?
3. How does Coca-Cola segment its market? Describe
8. Imagine that you have just developed and launched a
the primary target markets for Coca-Cola. How does it
new sports bike for cycling enthusiasts and your busi-
position its various offerings so that it appeals to these
ness has become an instant success. You would like
different target markets?
to capitalize on this success and fame to grow your
4. Pick your favourite product, service provider, or business. Explain how you would go about expanding
retailer. How do marketers add value to it through the your business over the next three years.
implementation of the four Ps?
9. Using the sports bike scenario from the previous
5. Choose three retailers. You believe the first builds cus- question, describe what kinds of analysis you might
tomer value through product excellence, the second conduct before deciding which growth strategies to
through operational excellence, and the third through implement.
customer excellence. Justify your answer.
10. You and a few of your classmates are planning to
6. Dyson successfully sells its fans and heaters for $150 open a new spa facility near the campus of your uni-
to $400, whereas most conventional fans sell for versity. Explain how you would segment the market
around $25. Explain the value it creates and how this for your services, which segment you would target,
affects the price it can charge. and how you would position your spa to the chosen
target market.
7. Select a company with which you are familiar or
search online to find a company that has pursued a
Developing Marketing Strategies and a Marketing Plan CHAPTER 2 55
Marketing Digitally
1. Petro-Canada is considered a progressive company 2. More and more firms seem to be entering the dating
in terms of its values and the mission statement service industry. Visit eHarmony (www.eharmony.com)
that drives its business. Visit its website (www.petro and tour its website to find the types of activities and
-canada.ca) and review the portion that discusses the methods such companies use to help match compati-
company, its mission, and its values. Discuss aspects ble couples. Analyze the environment that might affect
of its mission and values that might be considered Internet dating services by using a SWOT analysis.
progressive. Do you believe its progressive attitude
creates a special position in the market that contrib-
utes to a sustainable competitive advantage?
They can also join one of the many discussions in the customer forums. The site connects
customers to its Twitter and Facebook sites, too, and it also links users to its mobile app.
It allows consumers to order their preferred beverage in advance and pay for their drinks or
other products, then pop into the store to grab their purchases without ever having to wait
in line.
The competition between coffee brands is well established and likely to continue, espe-
cially if Tim Hortons moves toward becoming a more food-centred business. And competi-
tors such as McDonald’s and Second Cup have entered the breakfast, coffee, and espresso
markets, which will necessitate both Starbucks and Tim Hortons to continue coming up with
new ways to retain their existing customer base.
Questions
1. Perform a SWOT analysis for Starbucks and Tim Hortons. Based on your analysis, in which
company would you invest? Justify your answer.
2. Which growth strategies have been pursued by Starbucks and Tim Hortons in the past?
Which strategies do you believe will be most successful for the two firms in the future?
Why?
3. Which marketing metrics would be most helpful for an executive in charge of developing
new products for a coffee chain?
Appendix 2A: Writing a Marketing Plan
Have a plan. Follow the plan, and you’ll be surprised how successful
you can be. Most people don’t have a plan. That’s why it’s easy to
beat most folks.
—Paul “Bear” Bryant, football coach, University of Alabama
However, a business plan also includes details about R&D and operations, and both docu-
ments may feature details about other key topics, depending on the focus of the company
and the plan.
Executive Summary
The executive summary essentially tells the reader why he or she is reading this market-
ing plan—what changes require consideration, what new products need discussion, and
so forth—and suggests possible actions to take in response to the information the plan
contains.
Company Overview
In this section, the plan provides a brief description of the company, including perhaps its
mission statement, background, and competitive advantages.
Objectives/Goals
This section offers more specifics about why readers are reading the marketing plan.
What does the company want to achieve, both overall and with this particular market-
ing plan?
Situation Analysis
Recall from Chapter 2 that a situation analysis generally relies on SWOT considerations;
therefore, this section describes the strengths, weaknesses, opportunities, and threats
facing the company.
STP Analysis
The analysis proceeds by assessing the market in which the company functions, the prod-
ucts it currently offers or plans to offer in the future, and the characteristics of current or
potential customers.
Marketing Strategy
The marketing strategy may be very specific, especially if the plan pertains to, for example,
a stable product in a familiar market, or it may be somewhat open to varied possibilities,
such as when the firm plans to enter a new market with an innovative product.
Financial Projections
On the basis of the knowledge already obtained, the marketing plan should provide pos-
sible developments and returns on the marketing investments outlined in the marketing
strategy.
Writing a Marketing Plan appendix 2A 59
Implementation Plan
This portion of the marketing plan includes the timing of promotional activities, when
monitoring will take place, and how expansions likely will proceed.
Appendix
The final section(s) offer(s) additional information that might be of benefit, such as a list
of key personnel, data limitations that may influence the findings, and suggestions of the
plan, relevant legislation, and so forth.
Information Sources5
When writing a marketing plan, you likely can turn to a variety of your firm’s in-house
information sources, including annual reports, previous marketing plans, published
mission statements, and so on. In addition, various sources offer suggestions and examples
that may provide you with direction and ideas. Exhibits 7.5 and 7.6 also list many sources
that you may find very helpful.
• Knowthis.com—“a knowledge source for marketing” (www.knowthis.com/
how-to-write-a-marketing-plan/marketing-plan-intro)
• Encyclopedia of American Industries—introduces industry structure; arranged by SIC
and NAICS codes
• Standard & Poor’s NetAdvantage—surveys of more than 50 different industries, with
financial data about companies in each industry
• Investext Plus—brokerage house reports
• IBISWorld—market research on thousands of industries; classified by NAICS code
• Statistics Canada surveys on virtually all aspects of business, the economy, social
statistics, and population data—a vast variety of statistics on a range of topics
• Statistics Canada Census—detailed statistical data gathered every 10 years on all
aspects of the Canadian population
• LifeStyle Market Analyst—lifestyle information about geographic areas, lifestyle
interest groups, and age and income groups
• Mediamark Reporter—information about demographics, lifestyles, product and brand
usage, and advertising media preferences
• Arbitron/Scarborough—local market consumer information for various media in 75
local markets for consumer retail shopping behaviour, product consumption, media
usage, lifestyle behaviour, and demographics
• Simmons Study of Media and Markets—products and consumer characteristics;
various media audiences and their characteristics
60 Section One Assessing the Marketplace
PeopleAhead Marketing
Plan Illustration6
A-1
Instead of using
separate “Executive
Summary” and
“Company Overview”
sections, this marketing
plan begins with a
general overview that
includes both aspects
and answers the key
questions: “What type
of business are we?”
and “What do we need
to do to accomplish
our objectives?” (see
Chapter 2).
2.2. Goals
• Use brand-matching technology: TrueMatch®
• Build critical mass of users.
• Drive traffic to the website through marketing blitzes.
• Utilize word-of-mouth advertising from satisfied users.
A-9
insufficient to make an educated hiring decision. Companies need more information and intelligent
Figures provide a
tools that make this screening process more accurate. visually attractive
break in the text and
3.1.1. Market Size
summarize a lot of
The market size for both member segments in 2005 was as follows:A-9 information in an easy-
to-read format.
24.4 M 3.7 M
134.5 M
1.33 M
5.27 M
The most critical issue in examining market size is the relationship between the number of
companies and the number of workers employed, because sales are based on the number of positions
(profiles purchased), not the number of companies that use the service.
The following figure shows the number of people employed by each enterprise market segment
as of January 2006, according to the U.S. Department of Labor. This segment information will be use-
ful in defining PeopleAhead’s target market.
64 Section One Assessing the Marketplace
15.4 M
51.7 M 35.1 M
27.3 M
6 $7.6B
$5.9B
4
$4.4B
$3.3B
2 $2.4B
$1.8B
$1.3B
0
2004 2005 2006 2007 2008 2009 2010
Positive Negative
Internal Strengths Weaknesses
• I ndustry best practices: The network- • bsence of industry “influentials”: As a
A
ing model used by PeopleAhead draws start-up, PeopleAhead does not currently
on the industry accepted “best prac- have resources to attract influential indus-
tices” contact protocols drawn from try managers.
multiple industries, including online • Inability to guarantee critical mass: As
feedback, recruitment, and social net- is true of many Internet companies, the
working and offline professional net- business must solve the “chicken and egg”
working. TrueMatch® software aligns puzzle to build critical mass.
business objectives with appropriate • Verifying efficiency of matching capabili-
candidates. ties: In theory, the system has an absolute
• T eam expertise: The combined talents guarantee of effectiveness; computations
of the founders include human make decisions rather than humans.
resources, system development, sales, However, the matching capabilities must
and marketing. be verified as accurate to gain widespread
• W eb development expertise: People acceptance.
Ahead has partnered with an • Broad target market: Because PeopleAhead
award-winning European software is targeting a wide range of businesses,
development provider. This company the product being developed has not been
provides quality usually reserved for “customized” ideally for each segment.
high-budget projects, at terms that are
favourable for a start-up company.
External Opportunities Threats
• Service gap: Recruiters are not pleased • Convergence: existing competitors may
with current online recruitment form strategic alliances and establish pow-
vendors. erful positions before PeopleAhead can
• Industry gap: Job turnover is every establish itself.
3.5 years per person. • Inability to protect model: Very little intel-
• Demand for productive candidates. lectual property created by online websites
• Online recruitment advertising: is protected by law. Although PeopleAhead
Growing by 35% per year, to reach will pursue aggressive IP protection
$7.6 billion by 2010.A-12 10 strategies, the model could be copied or A-12
• Fragmented business models: mimicked by competitors. Note that the analysis
Online recruitment is fragmented • Inadequate differentiation: Inability to uses outside sources to
by recruitment methodology: active explain our differentiation would relegate support its claims.
(people who need jobs), passive (people PeopleAhead to (unfair) comparisons
who are not looking but would move with competitors. Without differentiation,
if enticed), poised (people unsatisfied PeopleAhead will not be able to create
with jobs they have), and network scale through network effects.
(finding people of interest based on
who or what they know).
66 Section One Assessing the Marketplace
3.3. Competition
ost online recruitment websites compete in the active recruitment market, including Monster,
M
CareerBuilder, and Yahoo/HotJobs. The pervasive segment includes job seekers who actively look
for jobs, post their resumés, and search for jobs on company websites. Most active recruiters offer
free services to users and charge companies on a fee basis. Companies can post jobs and search for
candidate resumés in the database (average fee for local searches is $500 and nationwide is $1000). In
this first-generation online recruitment business model, competitors face the challenge to make the
A-13 process more user-friendly and reduce the effort required to make these sites deliver results.A-13
If PeopleAhead chooses
to adopt a competitor- • onster: Monster.com is the sixteenth most visited website in the United States, with more than
M
based pricing strategy 43 million professionals in its viewer base. Monster earns revenue from job postings, access to its
(see Chapter 11), resumé database, and advertisements on websites of partner companies.A-14
detailed information
about how other • areerbuilder: Careerbuilder.com has experienced 75 percent growth for the past five years.
C
recruitment firms work This job post/resumé search company uses its media ownership to attract “passive” candidates
will be mandatory. from partner websites. It achieves growth through affiliate partnerships that host job searches on
affiliated web pages, such as Google, MSN, AOL, USA Today, Earthlink, BellSouth, and CNN. Job
posting is the primary activity, sold together with or separately from resumé searches.
A-14 • assive Recruitment: The second generation of online recruitment locates candidates who are
P
Information about not necessarily looking for jobs but who could be convinced to move to a new position if the right
competitors’ revenues, opportunity was presented. The most recognized competitors in this category include Jobster,
customers, growth, LinkedIn, and H3 (Appendix B).A-15
and so forth often
is available publicly
through a variety of 3.4. Company AnalysisA-16
sources. eopleAhead’s mission is simple: improve people’s lives through career advancement. PeopleAhead
P
recognizes that career advancement means many things to many people and provides a fresh perspec-
tive on career networking that is flexible yet powerful:
A-15 • sers are not alone: Finding a job is not easy. Why search solo? PeopleAhead unites groups of
U
For information that friends, coworkers, and mentors to create natural, team-based career discovery.
may not belong in the • J ob posting is not natural: People spend countless hours searching job listings and posting
main text, an appendix resumés, only to be overlooked because their writing style or resumé format does not match
offers an effective
means to provide detail an overburdened recruiter’s preference. Good people make great companies, not resumés.
without distracting PeopleAhead’s TrueMatch® technology matches the right people with the right position. No
readers. posting, no applying—just good, quality matches.
• rofessionals being professionals: There is a place online for social networking, pet network-
P
ing, and music networking. So why is there no outlet for career networking online—the activity
that consumes the majority of our professional lives? PeopleAhead is a place where professionals
A-16 share their experiences, achievements, and objectives with other professionals that care and can
This section offers the be found by employers who value their professionalism.
“product” component
of the market/product/
customer analysis.
3.5. Customer AnalysisA-17
Because PeopleAhead’s eopleAhead’s R&D efforts show that the impetus to improve recruitment effectivity is pervasive and
P
product is mostly a ser that unmet needs revolve around a few core issues: the ability to find qualified talent, establishing a
vice (see Chapter 10),
it focuses on some
fit between the candidate and the company culture, verifying the candidate’s career progression, and
intangible features of its working quickly and cost-effectively. The following customer characteristics represent ideal attributes
offering. that align with PeopleAhead’s service offering. This information might be used in conjunction with
the Marketing Strategy.
• iring need: PeopleAhead serves two types of searches very well: those with too many appli-
H
A-18
Although the
cants and those with too few applicants. By drawing applicants that most systems overlook and introduction to this
delivering only the most qualified applicants, the system assures the right candidate is identified appendix and the plan’s
quickly.A-18 organization suggest
that analyses of
competitors, products,
3.5.2. Individual Member and customers are
• ackground: People who value professional development and are familiar with computer net-
B separate, as this plan
working technologies; most are likely college educated, motivated by career success, and aware shows, a firm usually
cannot address one
of their professional competencies/deficiencies. without considering
• ituation: Members should have a professional development plan to share with others who can
S the other. Here, in the
help them achieve their objectives—likely people who are inquisitive about their professional Business Customer
section, the plan notes
future and not content with their current situation. The common industry terminology for this
what PeopleAhead’s
group of people is “poised candidates.”A-19 competitors fail to do
• utlook: Proactive people who research, plan, self-educate, and talk about their career. Probably
O and therefore why it
the clearest example of proactivity is a student who devotes time, effort, and financial resources offers a more valuable
service.
toward career advancement.
4. Marketing StrategyA-20
• Senior college students. Students in the process of searching for a first career.
• raduate program students. Mid-career candidates searching for new career opportunities, such
G
as internships, part-time during enrollment, or full-time after graduation. A-20
The plan continues with
• urrent employees. Persons who are currently employed but are poised to locate better career
C the same segmentation
opportunities. throughout. Here the
• Unemployed. Persons searching for a job not included in previous segments. plan discusses targeting
and what makes each
4.2. Target MarketA-21 segment attractive.
eopleAhead plans to focus resources on small to medium enterprises (SMEs) in the New England
P
Metro market, including Boston, Providence, Hartford, Stamford, Norwalk, Worcester, and Spring-
field. Online recruitment companies compete for national recruitment spending, but most job seekers A-21
are locally based, so market penetration is possible by covering a single geographical location. By By already identifying
maintaining this focus, PeopleAhead will be better equipped to build a critical mass of users that rep- key markets in the
resent the job-seeking population and thus improve both users’ and customers’ experience, customer previous section,
the plan provides a
service, and the use of financial resources. foundation for a more
specific targeting
4.3. User PositioningA-22
statement in this
o the proactive professional, PeopleAhead is career advancement done right—providing a platform
T section.
to discover, plan, and advance careers by uniting friends, coworkers, and mentors with companies
searching for the right talent.A-23
A-22
The final step in the STP
process: positioning
for the segmented,
targeted market.
A-23
PeopleAhead’s mission
68 Section One Assessing the Marketplace
5.3. DistributionA-27
A-26
• eopleAhead Challenge: The PeopleAhead Challenge will act as a primary user acquisition strat-
P
According to well
known marketing egy. Selection will be focused on successful target segments demanded by customers.
concepts, the marketing • irect Sales: Direct customer contact is the preferred method of communication during the first
D
mix consists of the four six months. Telesales is the anticipated eventual sales model, due to reduced costs and quicker
Ps: product (service
here), price, place customer sales cycle, but it limits intimacy between the customer and PeopleAhead. During the
(distribution here), and initial stages, intimacy and excellent customer service are more highly desired than reduced cost,
promotion. and direct sales achieve that objective.
• I ndustry Events: Attendance at HR industry and recruitment events will supplement direct sales
efforts.
A-27 • Challenge Groups: Word-of-mouth distribution by PeopleAhead members.
Making the product
(service) available 5.4. Promotion
where and when • ublic Profiling: When the product is ready, with proper precautions for protecting competitive
P
consumers want it
may seem somewhat advantages, PeopleAhead can increase its web presence. Strategies include contributing articles
easier for PeopleAhead to recruitment publishers, writing op/ed pieces, public profiling of the founders on websites such
because of the vast as LinkedIn, ZoomInfo, and blogs.
development of the
Internet; however, • logger Community Testimonials: Influential users of blogs will be invited to try the system and
B
the firm still needs to be granted “exclusive” access to the inner workings of the site. A subsequent linking blitz will put
consider how it can opinion pieces in front of recruiters, job seekers, and the investment community.
ensure people know
where and how to • trategic Alliances: PeopleAhead offers a product that complements the services offered by many
S
access its offering. large organizations. Partner opportunities exist with
a. universities, colleges, academic institutions
b. professional associations, clubs, industry affiliation groups
c. online associations, groups, blogs
d. professional services firms, outplacement firms, and executive search firms
A-28
The plan offers a trategic alliances serve multiple purposes: They can help PeopleAhead increase public exposure,
S
specific time frame, increase the user base, expand product offerings, and increase revenue opportunities. These benefits
which recognizes the will be considered and partnerships proposed prior to the official launch. For strategic purposes, Peo-
potential need to make
pleAhead prefers to focus on product development in the near term (three months) and then reassess
changes in the future,
as the market dictates. potential alliances after system efficacy has been proven.A-28
Writing a Marketing Plan appendix 2A 69
6. Financials
tart-up costs consist primarily of website design and development, legal representation (business
S
formation, contract negotiation, and intellectual property protection), and general overhead.
PeopleAhead projects start-up expenditures of $70,000 during inception, of which $30,000 has been A-29
funded by the founding team.A-29 The marketing plan
After the website launches, the cost structure will consist of sales agent salaries, general and needs to identify not
only costs, but also
administrative operating costs, and marketing. In the first year, marketing expenses are projected to potential revenues to
be $6250 per month. Monthly overhead likely will reach $24,750 and remain constant.A-30 cover those costs.
A-31
This section contains
Revenue and Net Income Projections a lot of numbers in a
small space; the graphs
Revenue
and tables help to
$40M
depict those numbers
($31M) clearly and visually.
30
20 ($16.3M) ($14.2M)
($8.2M) ($7M)
10
($2.7M) ($3.4M)
$56K ($0.7M)
0
($157K)
–10
Year 1 Year 2 Year 3 Year 4 Year 5
7. Implementation Plan
he launch of PeopleAhead will use a phased approach, beginning with building brand awareness.
T
Brand awareness should be developed through the founders’ visible presence at professional events,
online searches, membership in professional associations, networking, and strategic alliances. This
visibility will help to gain investment capital.
©Shutterstock/Eakrat
There are mixed messages coming from Tesla as the first models of the long-promised Model 3 sedan roll off
the production line. The Model 3, with its base price of $45,000, represents an accessible version of the innova-
tive company’s famous (and thus far, very expensive) electric cars. After multiple delays and missed deadlines,
the sedans are finally entering into actual production, such that the environmentally conscious but less wealthy
customers who put their names on waiting lists are receiving delivery.
But even as excitement mounts about the fulfillment of this promise, Tesla’s founder, Elon Musk, is cautioning
that the months ahead will be marked by challenges related to its production capacities. Currently, Tesla has an
estimated 500,000 reservations for Model 3 sedans. Musk anticipates that the company can produce 10,000
cars per week—if everything goes right in the supply chain. But with the recognition that everything going right
is rare, Musk also has suggested that the first six months of production will be “manufacturing hell” and warned
people not to get their hopes up too high. External observers, noting that the company produced only 30 cars in
the month of Musk’s announcement, and 75 the month after that, suggest that even these cautions do not go far
enough. Most indications suggest that Tesla is nowhere close to its target production volume.
This balance between encouraging excitement to sell more cars and dampening expectations to avoid a ser-
vice failure remains a difficult one, though Tesla has walked the tightrope for years. Early predictions suggested
the Model 3 would be ready years ago, so consumers have grown a little accustomed to being disappointed in
their expectations of the company. But the company’s production capacity has finally caught up with its technol-
ogy, even as these technological advances continue to spread throughout and alter the broader automotive
market. Some observers even call the Model 3 a “breakthrough offering”—perhaps not the first electric vehicle,
but the one that will irrevocably change the marketing environment.
Although Tesla seeks to widen its reach by introducing this more affordable version of its electric car, it also
needs to avoid eliminating the market for its more expensive models, such as the existing Model S or the Model
X sport-utility vehicle. This specific balance is complicated by the broader goals that Musk has established for
his company. That is, Tesla seeks to make electric cars (including those produced by brands other than Tesla) the
norm in the vehicle market and eventually drive out gasoline-powered automobiles. Doing so requires it to attract
a vast number of consumers, not just those who can afford the luxury versions of its products.
At the same time, Tesla cannot ignore the impacts of competitors. Most major carmakers have announced
plans to introduce electric or improved hybrid models of their popular brands. For example, Volvo promised that
all its new cars would be hybrids or electric vehicles. Chevrolet already sells the fully electric Bolt, and though its
range at 238 miles is not as great as Tesla’s 310 miles, it is already selling thousands of these currently available
cars to customers every month.1
A Marketing Environment
Analysis Framework
As the chapter vignette notes, marketers who understand and manage the changes in their
marketing environments are able to adapt their product and service offerings to meet new
challenges and opportunities. Marketers get their ideas for new products or services from
monitoring and studying the marketing environment. Loblaw, for example, introduced
Click and Collect, a convenient way for time-starved consumers to order and pick up gro-
ceries, based on its understanding of the marketplace.
Analyzing the marketing environment starts with a SWOT analysis. As noted
in Chapter 2, that analysis helps marketers assess their continued strengths and the
value of their products and services, and any weaknesses resulting from changes in the
marketing environment. A broader analysis that considers other factors such as the
economy, political or legal issues, demographics, and concern for the environment is
also required. Over time, such factors change in importance for companies and their
consumers.
74 Section One Assessing the Marketplace
Culture Demographics
Company
MIcroenvironment
Corporate Competition
Partners
Macroenvironment
Economic Technology
Company
Consumers
Microenvironment
Corporate Competition
Partners
Company Capabilities
In the firm’s microenvironment, the first factor that affects the consumer is the firm itself.
Successful marketing firms focus their efforts on satisfying customer needs that match their
core competencies. The primary strength of Apple, for instance, originally rested in the
design, manufacture, distribution, and promotion of Macintosh computers. Then Apple
successfully leveraged its core competency in the digital audio player arena first with its
iPod, and then the iPhone, and iPad. The company is now increasing its focus on services
such as Apple Pay, Apple Music, the App Store, and iCloud. Marketers can use an analysis
of the external environment, like the SWOT analysis described in Chapter 2, to categorize
an opportunity as either attractive or unattractive and, if it appears attractive, to assess it
relative to the firm’s existing competencies.
Competition
Competition also significantly affects consumers in the microenvironment. Greater com-
petition may mean more choices for consumers, which influences their buying decisions.
It is critical that marketers understand their firm’s competitors, including their strengths,
weaknesses, and likely reactions to the marketing activities their own firm undertakes.
Such questions can become very complicated when one parent company, such as Luxottica,
owns several competing brands, such as Pearle Vision, LensCrafters, and Sunglass Hut. For
example, if Luxottica devotes more of its marketing budget to one brand, the others may
suffer. At the same time, Luxottica must consider the moves of true competitors, especially
as discount retailers such as Walmart expand their optical services offerings.
Watching competitors is a constant effort—and often a serious battle—in many con-
sumer goods categories. No one would want to get caught in the war between the two
razor giants, Gillette and Schick, as each manufacturer works to add ever more blades
to its disposable razors.3 Still, a focus on improving their own razors may have caused
them to underestimate new startups such as Dollar Shave Club and Harry’s. Although
Gillette enjoyed market share of 70 percent a decade ago, Euromonitor reports that its
share has now dropped below 50 percent.4 Likewise, Schick’s share has fallen from 19 to
76 Section One Assessing the Marketplace
15 percent.5 Explosive growth from startups offering subscription programs soon earned
them a 12 percent share of the market, forcing Gillette and Schick to introduce their own
subscription programs. And new competitors are always entering the market as seen in
Entrepreneurial Marketing 3.1.
Taking on the Giants: Bulldog Many successful entrepreneurial ventures are acquired
by larger consumer packaged goods companies. For exam-
Skincare* ple, Unilever bought Dollar Shave Club in 2016. Having
caught the attention of Edgewell Personal Care, which owns
The market for male grooming products is booming. At a the Schick brand, Bulldog Skincare likewise has become a
current five-year compound growth rate of 5 percent, rev- part of one of the giant companies it first competed against.
enues are projected to reach $81.2 billion USD by 2024.
Growth has been fuelled by an increased consciousness
in personal wellness along with societal pressures to put
one’s best face forward. For style-conscious men, looking
good has never been easier.
New entrants find a ready market for their products.
Take Bulldog Skincare as an example. The company was
founded by Simon Duffy in London, England, in 2005.
Frustrated with the lack of high-quality, natural skincare
products on the market, he and a partner quit their jobs
and spent the next several years developing products.
By 2010, they were winning awards for Best Men’s Face
Cream. Today, their product line includes face wash and
moisturizers, shower gels and body lotions, as well as
razors, beard-care creams, and oils.
The company’s success propelled it to international
markets. Its products are sold in 14 countries, including
Canada, where it has already earned a 20 percent share
of the market. Bulldog Skincare introduced its products
to Canadians in 2018 by taking over The Fitting Room,
a well-known Toronto barbershop. This allowed men to
try the products and have their questions answered. Con-
sumers can now buy its products online, by subscription,
or at retailers such as Shoppers Drug Mart and Walmart.
From the very start, Bulldog Skincare had a focus on
sustainability. Its website notes that no ingredients from
animal sources are used and that products are certified by
Cruelty Free International. Nor are artificial fragrances or
colours, and microbeads used. In 2019, the company intro-
duced a bamboo razor and celebrated Earth Month with
new packaging made from Brazilian sugarcane. It is the first Bulldog Skincare’s focus on sustainability is evident with
men’s brand to use sugarcane, whose properties are like products such as its bamboo razor.
traditional plastics, but without the environmental impact. Source: Bulldog, Edgewell Personal Care
*“Male Grooming Products Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2019-2024,” Business Wire, July 3,
2019, www.businesswire.com/news/home/20190703005348/en/Male-Grooming-Products-Market-Global-Industry-Trends; “Bulldog founder
Simon Duffy on life at Grand Union Studios,” Workspace, www.workspace.co.uk/community/homework/growth-and-strategy/bulldog-founder
-simon-duffy-on-life-at-grand-union; “About Us,” Bulldog Skincare, www.bulldogskincare.com/about-us/; Maria Alejandra, “Bulldog Skincare
for Men Launches New Products & Eco-friendly Packaging,” Ottawa Life Magazine, February 27, 2019, www.ottawalife.com/article/bulldog
-skincare-for-men-launches-new-products-eco-friendly-packaging?c=5; Jonathan Kim, “This Award-winning Natural Skincare Line for Men Just
Launched in Canada,” StyleDemocracy, February 27, 2018, www.styledemocracy.com/bulldog-skincare-men-launches-canada/; “Bulldog Skincare
For Men Kicks Off Earth Month With Launch of New Sustainable Sugarcane Packaging,” Market Watch, April 3, 2019, www.marketwatch.com
/press-release/bulldog-skincare-for-men-kicks-off-earth-month-with-launch-of-new-sustainable-sugarcane-packaging-2019-04-03; Christopher
Lombardo, “There’s room to male groom,” Strategy Magazine, June 18, 2019, http://strategyonline.ca/2019/06/18/theres-room-to-male-groom
(accessed July 4, 2019).
Analyzing the Marketing Environment CHAPTER 3 77
Corporate Partners
Few firms operate in isolation. For example,
automobile manufacturers collaborate with
suppliers of sheet metal, tire manufacturers,
component part makers, unions, transport
companies, and dealerships to produce and
market their automobiles successfully. Even
firms such as Dell, which makes its own
computers and sells them to customers, must
purchase components, consulting services,
advertising, and transportation from others.
Parties that work with the focal firm are its
corporate partners. Consider an example that
demonstrates the role these partners play and
how they work with the firm to create a sin-
gle, efficient manufacturing system. Unlike
most outdoor clothing manufacturers that
use synthetic, nonrenewable materials, Nau
makes outdoor and ski clothing from renew- Nau works with its corporate partners to develop socially
able sources such as sustainably harvested responsible outdoor (left) and urban (right) apparel.
eucalyptus and recycled plastic bottles. It (left): ©Philipp Nemenz/Cultura/Getty Images; (right): ©PeopleImages/E+/Getty Images
was founded by a team of entrepreneurs who
left companies such as Nike and Patagonia. To develop rugged and beautiful clothing
from sustainable materials, these founders turned to manufacturing partners around the
world to develop new fabrics that are performance-driven and technical. One example of
an innovative fabric used in Nau’s jackets is a blend of recycled polyester and organic cot-
ton that is coated and bonded to recycled polyester knit. The result is a water-resistant,
breathable soft-shell material that is ideal for outdoor activities. To complement the new
fabrics, the company uses only organic cotton and wool from “happy sheep,” provided
by partners in the ranching industry who embrace animal-friendly practices. Further-
more, Nau donates 2 percent of the profit from every sale to charities. Not only does
Nau represent the cutting edge of sustainability and green business, but it also clearly
demonstrates how “going green” can prompt companies to work more closely with their
partners to innovate.6
In addition to understanding the company itself, its competition, and its corporate partners,
marketers must also understand the macroenvironmental factors that operate in the macroenvironmental
external environment, namely, the culture, demographics, social/natural trends, technolog- factors
Aspects of the external
ical advances, economic situation, and political/legal environment, or CDSTEP, as shown environment—culture,
in Exhibit 3.3. demographics, social
trends, technological
advances, economic
situation, and political/legal
environment (CDSTEP)—
Culture that affect companies.
We broadly define culture as the shared meanings, beliefs, morals, values, and cus- culture
The shared meanings,
toms of a group of people.7 Transmitted by words, literature, and institutions, culture beliefs, morals, values,
is passed down from generation to generation and learned over time. You participate and customs of a group
in many cultures. For example, based on your family’s cultural heritage, perhaps your of people.
mealtime traditions include eating rugelach (a traditional Jewish pastry), or sharing
78 Section One Assessing the Marketplace
Culture Demographics
Economic Technology
corned beef and cabbage to celebrate your Irish ancestry on St. Patrick’s Day. Your
school or workplace also shares its own common culture. In a broader sense, you also
participate in the cultural aspects of the town and country in which you live. The chal-
lenge for marketers is to have products or services identifiable by and relevant to a
particular group of people. Our various cultures influence what, why, how, where, and
when we buy. Two dimensions of culture that marketers must take into account as they
develop their marketing strategies are the culture of the country and that of a region
within a country.
Country Culture
country culture The visible nuances of country culture—such as artifacts, behaviour, dress, symbols,
Easy-to-spot visible physical settings, ceremonies, language differences, colours and tastes, and food prefer-
nuances that are particular
to a country, such as dress, ences—are easy to spot. But the subtle aspects of culture generally are trickier to identify
symbols, ceremonies, and navigate. Disney and other global firms have successfully bridged the cultural gap by
language, colours, and
food preferences, and
producing advertising that appeals to the same target market across countries. The pictures
more subtle aspects, which and copy are the same. The only thing that changes is the language.
are trickier to identify.
Regional Subcultures
The region in which people live in a particular country affects the way they react to dif-
ferent cultural rituals, or even how they refer to a particular product category. A resident
of Quebec is less likely to buy a hot prepared meal or reheatable meal than a resident of
Ontario. This difference is attributed to the province’s rich food culture. Quebecers tend to
be food obsessed, have adventurous palates, buy a wide variety of meats and fine cheeses,
and focus on local products. Foods such as sea buckthorn, game meats, and foie gras are
staples in restaurants.8 The desire of French Canadians to eat well means they spend more
on food and invest more time cooking than Ontario consumers. These kinds of differences
can be the insight that helps a marketer make a strong connection with a consumer, rather
than communicating the same way to all Canadians.
Analyzing the Marketing Environment CHAPTER 3 79
Some firms, like Disney, bridge the cultural gap by using very similar advertising in different
countries, as illustrated by these two ads for The Avengers. The left photo is for the Russian
market; the right photo is for the Chinese market.
(both): ©Walt Disney Studios Motion Pictures/Photofest
Generational Cohorts
generational cohort A group of people of the same generation, a generational cohort, has similar pur-
A group of people of the chase behaviours because they have shared experiences and are in the same stage of life.
same generation who
typically have similar Applying age as a basis to identify consumers is quite useful to marketers, as long as it
purchase behaviours is used in conjunction with other consumer characteristics. For instance, baby boomers
because they have shared
experiences and are in the
(people born between 1946 and 1964) and Generation X (people born between 1965 and
same stage of life. 1981) both gravitate toward products and services that foster a casual lifestyle; however,
they tend to do so for different reasons.10 The aging baby boomers, who grew up with
jeans and khakis and brought casual dressing into the business arena, are often trying
to maintain their youth. Gen Xers, in contrast, typically wear jeans and khakis because
they are less impressed with the symbols of conspicuous consumption that their parents
seem to have embraced. Age groups can help to identify appropriate media in which firms
should advertise as well. Although there are many ways to cut the generational pie, we
discuss four major groups shown in Exhibit 3.4: Generation Z, Generation Y, Generation
X, and baby boomers. There is speculation that the cohort of people under the age of
30 could be renamed to the COVID-19 generation, given the high price exacted on this
group due to the pandemic.11
Generation Z/digital Generation Z Members of Generation Z (Gen Z) are also known as digital natives.
natives Born after 1991, people in this group were born into a world that already was
Generational cohort of
people born after 1991. full of electronic gadgets and digital technologies such as the Internet and social
networks. These technologies are being developed and adopted at an unprecedented rate.
Whereas it took 38 years for the radio to be adopted by 50 million people and 13 years
for television, it only took two years for the same number of consumers to sign up for
Facebook.
Generation Y/millennials Generation Y Generation Y, also called millennials or the “echo boom” generation,
Generational cohort of represent just over 4.6 million Canadians, or about 13 percent of the population.12 Born
people born between
1982 and 1991; the biggest between 1982 and 1991, this group ranges from people in their very late 20s to their
cohort since the original late 30s, many of whom have begun their own families.13 Generation Y grew up in a more
postwar baby boom.
media-intensive and brand-conscious era than their parents. Thus, they are more skepti-
cal about what they hear in the media, which makes marketing to this group even more
challenging. If Gen Y members believe the sell is “too hard,” they won’t buy. Regardless
Generational
Cohort
Range of birth Born after 1991 1982 to 1991 1965 to 1981 1946 to 1964
years
Sources: (gen z): ©Pavlo I - Dreamstime.com; (gen y): ©Muhammad Zafar - Dreamstime.com; (gen x): ©DreamStockIcons - Dreamstime.com;
(boomer): ©Maksym Drozd - Dreamstime.com
Analyzing the Marketing Environment CHAPTER 3 81
Baby Boomers After World War II, the birth rate in Canada rose sharply, resulting in
a group known as the baby boomers, who were born between 1946 and 1964. Once the baby boomers
largest cohort of Canadians, they now represent 24 percent of the population. Although the Generational cohort of
people born after World
baby boomer generation spans 18 years, experts agree that its members share several traits War II until 1964.
that set them apart from those born before World War II. They are individualistic, make
leisure time a high priority, believe that they will always be able to take care of themselves,
and have an obsession with maintaining their youth.
The oldest baby boomers have passed age 65 and many have retired. The baby boomers’
quest for youth, in both attitude and appearance, provides a massive market for anti-aging
products, cosmetics, pharmaceuticals, and biotechnology. It is estimated that this pursuit
of youth will push the global market for anti-aging products to more than $331.4 billion by
2021.16 With boomers rapidly aging, salon service providers are recognizing the potential
of positioning themselves as being in the rejuvenation business. Food companies have also
targeted baby boomers with healthier options for cereals, frozen entrees, and snacks that
have low fat, and no cholesterol or sugar.
Income
According to the most recent census data, the median income of Canadian families is
$70,336.17 Canadians may be classified into distinct groups based on their income and
other factors such as background, education, and occupation: upper class, middle class,
working class (or low-income earners), and underclass (at or below poverty). Upper-class
consumers are very affluent, and their spending patterns are not influenced by economic
conditions. They have high discretionary incomes and tend to purchase luxury items. The
82 Section One Assessing the Marketplace
top 10 percent of Canadians have family income in excess of $226,000. They are more
likely to be highly educated and work in managerial and executive roles. About 48 per-
cent of Canadian households are in the upper class.18 Middle-class families earn between
$41,707 and $100,260,19 with the majority tending toward the higher end of this scale.
They can afford a good life most of the time. They tend to be careful about their spend-
ing and are often value conscious. Approximately 38 percent of Canadian households fall
into the middle class. Working-class (or low-income) families represent 14.2 percent of the
population and earn between $17,267 and $41,707, barely sufficient income to cover their
basic needs. According to a report by Statistics Canada, the richest 20 percent of Canadians
spend five or six times more in every shopping category than the poorest 20 percent of
Canadians.20 Family income distribution in Canada varies by province, education level,
gender, and profession. This broad range in incomes creates marketing opportunities at
both the high and low ends of the market.
Although some marketers choose to target only affluent population segments, others
have had great success delivering value to middle- and low-income earners. Consider, for
example, SC Johnson, the parent company of many familiar household brands such as
Glade, Ziploc, Windex, and Raid. In the 1960s, it began establishing locations in impov-
erished countries. Its most successful project has been in Ghana, where SC Johnson uses
a direct-sales model and coaches to teach customers about the benefits of pest control
products and how to use them. Furthermore, SC Johnson sells these products in refillable
containers and bundles them with air fresheners, in an effort to boost sales.21
Another aspect of the income demographic relates to the concept of value. During the
first three decades after World War II, most families experienced real income growth but,
after 1980, growth flattened. Family incomes have stayed slightly ahead of inflation (the
general rate of price increases), but their healthcare costs, property taxes, and tuition bills
have risen much faster than inflation. And so customers are searching for value more than
ever today.
Education
Studies show that higher levels of education lead to better jobs and higher incomes. More-
over, average annual earnings are higher for those with degrees than for those without.
For example, the median earnings for the top 10 percent of Canadians with a bachelor’s
degree were $105,800.22 Those with a college diploma earned on average $38,000, and
those with less than a high school education earned considerably less at $30,900.23 The
median income for immigrants with a university degree was $36,451, and without a uni-
versity degree $27,698.24
For some products, marketers can combine education level with other data such as
occupation and income to obtain quite accurate predictions of purchase behaviour. For
instance, a full-time college or university student with a part-time job may have relatively
little personal income but will spend his or her disposable dollars differently than would a
high school graduate who works in a factory and earns a similar income. College and uni-
versity students tend to be engaged in playing sports and going to nightclubs, whereas the
high school graduate more likely watches sports and goes to bars. Marketers are therefore
quite cognizant of the interaction among education, income, and occupation.
Gender
Years ago, gender roles appeared clear, but those male/female roles have been blurred.
This shift in attitude and behaviour affects the way many firms design and promote their
products and services. For example, more firms are careful about gender neutrality in posi-
tioning their products and, furthermore, attempt to transcend gender boundaries whenever
they can.
Analyzing the Marketing Environment CHAPTER 3 83
Ethnicity
Statistics Canada data shows that the ethnic composition of Canada has changed over
the last two decades and will continue to change in the next decade. Canada's original
inhabitants, Indigenous peoples, represent 4.9 percent of the total population.28 Current
research shows that one out of every five Canadians was not born here, and account for
nearly 70 percent of Canada’s population growth. If this trend continues, Canada’s popu-
lation growth will be attributed almost exclusively to immigration by 2030.29 The two
fastest-growing groups are the Chinese (from Hong Kong, mainland China, and Taiwan)
and South Asians (from India, Pakistan, Sri Lanka, and Bangladesh). It is estimated
that by 2036, ethnic groups or visible minorities will include 15 million people, almost
42 percent of Canada’s population, because of immi-
gration and increasing birth rates among various
ethnic groups.30 Many new immigrants choose to set-
tle in Montreal, Toronto, or Vancouver; however, areas
such as Calgary, Edmonton, Winnipeg, and London
are growing in popularity. These groups of South
Asians and Chinese are typically young, educated,
and wealthy. Currently, more than a quarter of all vis-
ible minorities in Canada are under 14 years of age;
thus, they are likely to have considerable influence
over the economy in the future. South Asians are the
largest ethnic group in Ontario.31 Unlike immigrant
groups who live primarily in Canada’s most urban
areas, Indigenous peoples live mostly in the territo-
ries, western provinces, and Ontario. This population Women are no longer the only family member doing the
has been growing at a fast pace; from 2006 to 2011, it grocery shopping.
grew by 20.1 percent to 1.5 million people. By 2036, it Jochen Sand/Digital Vision/Getty Images
84 Section One Assessing the Marketplace
Sobeys’ Chalo! FreshCo. store was designed to appeal to the needs of South Asian consumers.
(both): Photos by Aamna Zaheer, Sobeys Inc. Used with permission of Sobeys Capital Incorporated
is estimated the population will reach 2.6 million.32 Will a growing population present new
opportunities for businesses to market to Indigenous peoples?
What does this ethnic demographic shift mean for marketers? Simply put, the grow-
ing number of ethnic groups or visible minorities represents both a challenge and a mar-
keting opportunity. The challenge is for marketers to understand the culture, value, and
spending patterns of the various groups and determine the best way to communicate and
serve them. For example, Nissan started to aim advertising campaigns at South Asians
and focused messages around in-vehicle technology since research has shown that South
Asians like technology.33
In terms of marketing opportunity, it is estimated that ethnic groups spend more than
$42 billion on retail goods and services, and the average Chinese household spends $63,500
per year, compared with the Canadian average of $58,500. Higher income results in spend-
ing more on big-ticket items such as cars, clothing, and home furnishings. Many also have
an affinity for brand-name products because they equate them with quality.34
Recognizing this huge opportunity and believing that much of their future growth will
come from ethnic markets, Canadian grocers have been adapting existing stores and launch-
ing new stores. Loblaws acquired T&T Supermarket in 2009 to reach the Asian market. It
also bought Arz Fine Foods in an effort to attract Middle Eastern consumers. The director
of ethnic merchandising for Save-On-Foods in Surrey, British Columbia, convinced the pro-
duce manager to stock 50 pound bags of onions to meet the needs of large South Asian fam-
ilies. While much smaller bags had not been selling, the first shipment of larger bags sold
out in seven days. The experiment proved the demand for competitively priced large bags
of other high-quality products, including flour, lentils, and spices.35 Heavyweight Sobeys
developed FreshCo to target the unique needs of the ethnic consumer. After converting
existing Price Chopper stores in particularly diverse Brampton and Mississauga markets,
it went on to launch over 90 stores across Ontario, and 11 stores across Western Canada,
with plans for further expansion.36 The concept is a value-driven store with low prices like
No Frills or Food Basics but with a focus on fresh produce, halal meats, and freshly baked
breads (unlike most discount banners) to meet the demands of ethnic clientele. The store
design includes value driven signage, using arrows and yellow and red colours to drive
price perception. Further adapting the FreshCo store format to match the demographics of
the surrounding neighbourhood, it launched Chalo! FreshCo in Brampton in late 2015. It
offers the largest assortment of produce of any FreshCo store. That’s because 30 percent of
its South Asian consumers are vegetarian. Other products designed to meet its shoppers’
unique needs include separate meat counters for halal and non-halal products, more than
100 varieties of rice, and even rice cookers and pressure cookers imported from India.37
Analyzing the Marketing Environment CHAPTER 3 85
Technological Advances
Technological advances have accelerated greatly during the past few decades, improving Technological advances
the value of both products and services. Consumers have constant access to the Internet Technological changes
that have contributed to
everywhere they go via Wi-Fi, mobile hotspots, 4G, and LTE. Smartphones using the iOS the improvement of the
and Android operating systems allow for greater computing, data storage, and communi- value of both products and
services in the past few
cation. Tablet computers and wearable technology have extended mobile computing even decades.
further by offering mobile interfaces in environments that traditionally limited access.
Nearfield communication technology takes payments, coupons, and loyalty card data from
customers as they walk by the scanner.
Spotify highlights the music we should listen to, Amazon tells us what we should
read, and streaming services have changed the way we view TV programs and movies. As
Marketing Analytics 3.1 details, Netflix relies on its advanced technological capabilities
not just to suggest which movies we should watch but also to develop new content that it
is confident we will like.
Mobile devices enhance the customer’s experience by making it easier to interact with
the manufacturer or retailer or other customers, and they add a new channel of access,
which makes customers more loyal and more likely to spend more with a particular retailer.
Shoppers Drug Mart’s applications allow customers to access new flyer offers, load person-
alized coupons, add items to a shopping list, order prescription refills, and set up reminder
refills.
New and exciting technologies are entering the market based on three cutting-edge
formats: artificial intelligence, robotics, and the Internet of Things.
Artificial Intelligence
Firms increasingly are experimenting with artificial intelligence (AI) solutions, which artificial intelligence (AI)
Solutions that rely on
rely on computer systems to perform tasks that require human intelligence, such as speech computer systems to
recognition, decision making, or translations. Such experimentation reflects the already perform tasks requiring
vast spread of AI in consumers’ pockets, such as through their smartphones that run Apple’s human intelligence, such
as speech recognition,
Siri, and in their homes, as exemplified by Amazon’s Alexa. In some ways, AI remains at decision making, or
an early stage of development. A recent study by Advertiser Perceptions suggests that “AI translations.
may be more hype than reality for many marketers” and that the pioneers tend to be big
brands with large budgets.38 Marketers that are embracing AI primarily use it for “advanced
customer segmentation, media selection and buying,” and customer engagement.39 They
also recognize that customers already prefer to search on their phones rather than interact
with a salesperson. In the U.S., Macy’s On Call mobile app leverages the abilities of IBM’s
Watson and smartphone location services to help customers navigate stores.40 The app can
recognize language, so customers can ask questions, using natural phrases in English or
Spanish, and the responses likely determine which products they consider, how readily
they find them in stores, and so forth.41
Recent tests conducted by The North Face with an innovative Expert Personal Shopper
program, suggest the great promise of AI for retailing. This program seeks to determine
exactly what consumers seek at the first moment they click onto The North Face’s website
or mobile channel—just like a salesclerk might do when greeting a consumer walking into
a North Face store. By asking questions with progressively increasing detail, the program
(powered by IBM’s famous Watson) selects several items that might meet a shopper’s
needs and presents them onscreen. The two-way communication seeks to feel natural and
organic, rather than imposing selections on the shopper. But before it achieves this status
or devises accurate recommendations, the program first must learn about all the products
available. A sophisticated search assistant is little help if it can’t recognize the meaning
of product descriptions to be able to match items with consumers’ wants. In addition, it
needs to integrate external information that might be pertinent: For a consumer searching
86 Section One Assessing the Marketplace
for a jacket to wear on a ski trip to Banff in December, the program needs to know what
the average temperatures are at that time and place. But as these lessons get learned, this
experiment might predict the future of retailing. The 50,000 customers who worked with
a beta version of the software remained on the site for an average of two minutes longer
than they did without the assistant. They also gave it high ratings for its functionality, and
75 percent of them noted that they would use it again.42
When the Best Is Good Enough: changed its strategy and its uses of predictive analytics to
focus more on creating original content.
Netflix’s Stellar Predictive Analytics** Netflix challenges traditional approaches to content
development by using data to help make new shows as well
Netflix’s data analytics are ground-breaking. In aca- as production decisions. This approach has almost guaran-
demic circles, its influence has been called a “scientific teed the success of the shows, as evidenced by the release
renaissance.” This is a result of the techniques the com- of the third season of the award-winning series House
pany has pioneered to handle the massive amounts of of Cards. Before this release, the show experienced an
data it deals with and to process payments from across unprecedented increase in fans on Facebook and Twitter,
the world. The power and precision of Netflix’s predic- approximately double the increase that occurred prior to
tive analytics have become such common knowledge the start of the second season. This jump was especially
that even Netflix pokes fun at itself. In one April Fool’s notable because a show’s social growth usually slows after
joke, it revised its recommended television and movie its first or second season. Even though the third season ini-
categories to include classifications such as “TV Shows tially brought some mixed reviews, many viewers already
Where Defiantly Crossed Arms Mean Business!”. Netflix had finished watching the entire season just a week or so
gathers data about every aspect of the viewing process, after its release. House of Cards eventually ended after six
including not just the basics, such as customer ratings, seasons but has been followed with other successful series
searches, time of day and week, and location, but also such as The Crown and Stranger Things.
customer behaviours that take place during the movie,
such as rewinds, fast-forwards, pauses, and how long
they let the credits roll. Going even a step further, Netflix
analyzes every hue of colour contained in the cover art
of the options that it offers and can create a profile of the
average colour of titles viewed by each customer.
Netflix clearly relies on such customer data to create
its hallmark personalized suggestions. But in 2010, Netflix
chose not to enhance its ability to personalize any further.
In 2009, a team of mathematicians created a new algo-
rithm that would have improved Netflix’s personalization by
10 percent, in response to a company-sponsored contest.
But Netflix never implemented the improved algorithm.
Why? There simply wasn’t enough value to be gained from
it. Various studies show that, even for the most personal
choices, including their love lives, people often forgo what
they already know for the thrill of what’s new. Thus, Netflix Netflix relies on its advanced technological capabilities not just to
decided that it could deliver more value to its customers suggest which movies we should watch but also to develop new
by offering something new rather than a personalized content that it is confident we will like.
version of what they wanted yesterday. Accordingly, it has ©Victor J. Blue/Bloomberg/Getty Images
**Scott M. Fulton III, “Netflix Has an Exchange So Complex That It Has Triggered a Scientific Renaissance,” The New Stack, February 24, 2015,
http://thenewstack.io/netflix-exchange-complex-triggered-scientific-renaissance/; Ben Kunz, “Why Netflix Walked Away from Personalization,”
ThoughtGadgets, January 4, 2014, www.thoughtgadgets.com/whynetflix-walked-away-from-personalization/; Amol Sharma, “Amazon Mines Its Data
Trove to Bet on TV’s Next Hit,” The Wall Street Journal, November 1, 2013, www.wsj.com/; Derrick Harris, “Netflix Analyzes a Lot of Data about Your
Viewing Habits,” Gigaom, June 14, 2012, https://gigaom.com/2012/06/14/netflix-analyzes-a-lot-of-data-about-your-viewing-habits/; Phil Simon, “Big
Data Lessons from Netflix,” Wired, March 11, 2014, www.wired.com/; Marianne Zumberge, “‘House of Cards’ Sees Unusual Social-Media Spike ahead of
Season 3,” Boston Herald, February 27, 2015, www.bostonherald.com/; Travis Clark and John Lynch, “103 of Netflix's notable original TV shows, ranked
from worst to best,” Business Insider, June 13, 2019, www.businessinsider.com/best-netflix-original-shows-ranked-2017-11 (accessed July 5, 2019).
Analyzing the Marketing Environment CHAPTER 3 87
Robotics
Robots in all shapes, sizes, and forms are entering
the marketplace and performing work that previ-
ously was the responsibility of human workers.
Robotics applications are commonly in distribu-
tion and fulfillment centres to fill orders for stores
or individual customers. Retailers also are experi-
menting with delivering products using drones or
driverless cars.43 But it is not limiting robots to the
back office; Walmart has announced plans to roll
out two-foot-tall, shelf-scanning robots that patrol
stores, looking for items that are out of stock or
goods that are incorrectly priced or missing tags.
The information each robot collects then gets com-
Retailers are experimenting with delivering products using drones.
piled and reported to management, so that human
©Ulrich Baumgarten via Getty Images
associates can better target their efforts to keep
things running smoothly. By automating these
repetitive and predictable tasks, Walmart hopes to free up its human staff to provide bet- Robotics
ter customer service and handle tasks that cannot be easily outsourced to robotic labour.44 Robotics applications
typically perform work
Service firms also are using humanoid robots—that is, robots that have humanlike that previously was the
features—at their information desks, such as a department store in Tokyo,45 or to serve responsibility of human
food, such as at a Pizza Hut in Asia.46 The customer service representative in the depart- workers.
ment store has a name (Aiko Chihira) and a backstory that specifies
some of her demographics (e.g., 32 years of age). She also is lifelike
enough that she fools some consumers into believing she is real, as she
bows in welcome and answers their questions. The pizza order taker
is Pepper, a popular robot that looks like a playful robot, rather than a
human, and that has found positions not only in restaurants but also
in various hotels and coffee shops. Such developments result from not
only the desire to reduce the costs of service (i.e., no longer needing
to pay servers), but also, some evidence shows that consumers tend to
order more food when they are served by robots.47
Internet of Things
Firms like iRobot have a long history of developing robotic machines
that help consumers undertake daily chores in the house, such as
vacuuming. But other home appliances are joining and extending this
trend, producing the new notion of the Internet of Things (IoT).
The IoT emerges when multiple “smart devices” with Internet-
connected sensors, such as refrigerators, dishwashers, and coffee
machines, combine the data they have collected to help both consum-
ers and companies consume more efficiently.48 Bosch Home Connect
ovens, Samsung smart washers and dryers, Nest thermostats, Ring
video doorbells, and SimpliSafe’s security system all promise to help
consumers take care of their homes and needs more effectively, usu-
The next time you disembark at the Munich,
ally by linking to apps on people’s smartphones. Sensors in smart
Germany, airport, you may be greeted by
vehicles can gather driving and engine performance data to schedule Josie Pepper, a robot that will answer your
service appointments when the car needs an oil change, and also questions in English about restaurants,
might alert drivers to the threat of critical engine failures or risky driv- shops, and flight operations.
ing conditions.49 ©EyesWideOpen/Getty ImagesInternet of Things
88 Section One Assessing the Marketplace
Internet of Things (IoT) Furthermore, the IoT delivers insightful data to retailers and manufacturers that
The IoT is reflected when
multiple “smart devices”
they can use to optimize their inventories, predict the need for maintenance services,
with Internet-connected and so forth.50 An innovation called the Smart Retail Solution combines dedicated soft-
sensors combine the data ware, wireless devices, and electronic kiosks that function as points of sale to gather
they have collected to
help both consumers and data from consumers, identify tagging or pricing errors, and follow up on employ-
companies consume more ees’ activities to make sure they are performing the tasks that still require human
efficiently.
intervention.51
Economic Situation
economic situation Marketers monitor the general economic situation, both in their home country and
Economic changes that
affect the way consumers
abroad, because it affects the way consumers buy merchandise and spend money. Some
buy merchandise and major factors that influence the state of an economy include the rate of inflation, foreign
spend money; see currency exchange rates, interest rates, and recession.
inflation, foreign currency
fluctuations, interest rates, Inflation refers to the persistent increase in the prices of goods and services.52 Increas-
and recession. ing prices cause the purchasing power of the dollar to decline; in other words, a dollar buys
Inflation less than it used to.
Refers to the persistent In a similar fashion, foreign currency fluctuations can influence consumer spend-
increase in the prices of
ing. For instance, on January 21, 2002, $1.00 CAD was worth $0.6179 USD, the lowest
goods and services.
exchange rate ever between these two currencies.53 In less than four months, the value of the
foreign currency
fluctuations
Canadian dollar relative to the U.S. dollar increased to $0.907154—a 32 percent increase—
Changes in the value of a and by September, the Canadian dollar increased to $1.10. After hovering at parity for two
country’s currency relative years, the Canadian dollar dropped to $0.90 and has continued to fall since then. Rapid
to the currency of another
country; can influence increases in the exchange rate between the currencies of Canada and the United States,
consumer spending. our largest trading partner, have both negative and positive consequences for Canadian
marketers, depending on whether they are exporters or importers and whether they report
their earnings in Canadian or U.S. dollars. The exchange rate changes also have serious
implications for consumers. As the value of the Canadian dollar increases compared with
the U.S. dollar, merchandise made in Canada and exported to the United States becomes
more costly to Americans, and Canadian exporting companies suddenly lose a good chunk
of their cost advantage. However, imports of products made in the United States cost less
for both Canadian importers and consumers.
Another perhaps unexpected result of the strength of the Canadian dollar compared
with the U.S. dollar is that imports of raw material from the United States are cheaper.
During such inflationary times, “made in America” claims become more important,
which means that Canadian manufacturers and U.S. retailers that specialize in Canadian
merchandise must decide whether they should attempt to maintain their profit margins
or accept a lower price to keep their customer base. It is not always easy for marketers
to respond quickly to rapid increases; however, marketers who monitor the economic
environment have the advantage, as they will be able to adjust their strategies if they
foresee the increase.
Interest rates Interest rates represent the cost of borrowing money. For example, when customers
Represent the cost of borrow money from a bank, they agree to pay back the loan, plus the interest that accrues.
borrowing money.
The interest, in effect, is the cost to the customers or the fee the bank charges those custom-
ers for borrowing the money. Likewise, if a customer opens a savings account at a bank, he
or she will earn interest on the amount saved, which means the interest becomes the fee the
consumer gets for “loaning” the money to the bank. If the interest rate goes up, consumers
have an incentive to save more, because they earn more for loaning the bank their money;
when interest rates go down, however, consumers generally borrow more.
For instance, when the Bank of Canada cut its overnight lending rate (the rate at which
it lends to banks) by 4.25 percent to 0.25 percent in April 2009, record numbers of Canadians
took advantage of the historic low interest rates and took out mortgages. The 0.25 percent
interest rate broke the previous record low of 1.12 percent, which had been set in 1958,
Analyzing the Marketing Environment CHAPTER 3 89
Political/Legal Environment
The political/legal environment comprises political parties, government organizations, political/legal
and legislation and laws that promote or inhibit trade and marketing activities. Organiza- environment
Comprises political parties,
tions must fully understand and comply with any legislation regarding fair competition, government organizations,
consumer protection, or industry-specific regulation. Since the turn of the century, the and legislation and laws
that promote or inhibit
government has enacted laws that promote both fair trade and competition by prohibiting trade and marketing
the formation of monopolies or alliances that would damage a competitive marketplace, activities.
fostering fair pricing practices for all suppliers and consumers, and promoting free trade
agreements among foreign nations.
90 Section One Assessing the Marketplace
Legislation also has been enacted to protect consumers in a variety of ways. First, regu-
lations require manufacturers to abstain from false or misleading advertising practices that
might mislead consumers, such as claims that a medication can cure a disease when in fact
it causes other health risks. Second, manufacturers are required to identify and remove
any harmful or hazardous materials (e.g., asbestos) that might place a consumer at risk.
As a result, the Alberta Energy Regulator ordered Nexen to shut down 95 pipelines after
a rupture at the Long Lake oilsands project leaked 5 million litres of bitumen, sand, and
water in the area. The spill was one of the biggest in Alberta’s history.57 Third, organiza-
tions must adhere to fair and reasonable business practices when they communicate with
consumers. For example, Montreal, Maine, and Atlantic Railway (MMA) seems to have
ignored its own safety procedures regarding the use of hand brakes, which resulted in the
fourth deadliest rail accident in Canadian history, killing 42 people and devastating the core
of Lac Megantic.
Last but not least, the government enacts laws focused on specific industries and on con-
sumers. These laws may be geared toward increasing competition, such as the deregulation
of the telephone and energy industries. Or they may be in response to current events or to
achieve specific objectives, such as when the governments of Ontario and British Columbia
introduced the harmonized sales tax (HST) to improve the competitiveness of Canadian
businesses, or when the federal government introduced the one-year home renovation tax
credit to encourage consumers to spend during the recession. Similarly, the government has
developed laws to regulate consumer behaviour, such as banning smoking in some areas,
mandating child car seats, and requiring drivers to use only hands-free cellphones.
Generally, government regulations may have a negative or positive impact on market-
ers. On the positive side, certain laws create an opportunity for marketers to sell more of
their products, as was the case with Bluetooth devices or car seats. Also, regulation may
help to create a level playing field for competition and set standards for marketers to follow.
In other cases, regulation tends to increase the cost of compliance. For example, compli-
ance costs will undoubtedly go up as a result of the federal government’s ban on single-use
plastics. Compliance usually requires more paperwork, time, effort, and money, and may
cause delays when government approval is needed. Some of the most significant legislation
affecting marketing interests appears in Exhibits 3.5 and 3.6.
Law Description
Price
Price fixing Sellers conspire to set the price of a product, usually higher than
it would be in a free market
Price discrimination Charging different prices to different (competing) buyers for
goods of the same quality and of the same quantity
Predatory pricing Pricing that is intended to drive competitors out of the market or
keep competitors from entering the market—usually low prices
Resale price Manufacturers or channel members try to influence the price at
maintenance which the product is sold to subsequent purchasers
Bid rigging Sellers collude to set prices in response to bids or quotations
for products
External
Misleading advertising All types of advertising about a product or service that are
false or misleading
Bait-and-switch Sellers try to attract customers to their stores by offering a
low price on a product (bait); but, once the customers are in
the store, sellers try to persuade them to buy a higher-priced
item (switch)
Referral selling Incentives offered to consumers to provide the names of other
potential consumers
Distribution (Place)
Refusal to deal A seller refuses to sell products or services to legitimate buyers
Exclusive dealing A seller refuses to sell to other channel members unless that
member agrees to buy exclusively from that particular seller
Pyramid selling Schemes where salespersons are paid to recruit other
salespeople, and each new salesperson pays for the right
to recruit other salespeople, with some of that money going
to earlier recruiters. Participants are often asked to buy a
specific quantity of goods or are knowingly sold unreasonable
quantities of goods and are not allowed to return the goods on
commercially reasonable terms.
United Nations, “Sustainable Development Goals: 17 Goals to Transform Our World,” www.un.org/sustainabledevelopment/sustainable-development-
goals/. Copyright ©United Nations. Reprinted with the permission of the United Nations.
Greener Consumers60
Green marketing Green marketing involves a strategic effort by firms to supply customers with environ-
Involves a strategic mentally friendly merchandise. Although this “green” trend is not new, it is growing. Many
effort by firms to
supply customers with consumers, concerned about everything from the purity of air and water to the safety of beef
environmentally friendly and salmon, believe that each person can make a difference in the environment. A study found
merchandise. that more than 90 percent of Canadians feel that individuals can take action to reduce air pol-
lution. More than half of Canadian households now recycle their soft-drink bottles, cardboard
boxes, and newspapers. Even so, Canadians generate 3.2 million tons of plastic waste annually.
Given that only 9 percent of this waste is recycled, there is much more to be done.61 European
consumers are more green. Germans are required by law to recycle bottles, and the European
Union does not allow beef raised on artificial growth hormones to be imported.
In many cities across Canada, the use of pesticides on lawns is banned and many con-
sumers are trying alternative, environmentally friendly lawn care treatment. Many cities
across Canada have introduced the “green bin” program that encourages consumers to
recycle their food and yard waste to make compost for gardening. Many fast-food companies
have announced that they will eliminate plastic straws in response to consumer concerns
about plastic waste not being recycled, or worse, ending up in our oceans. The trend for
green marketing is likely to persist as we still have a long way to go. According to a Confer-
ence Board of Canada report, Canadians produce more garbage than any other country in
the developed world and use almost double the amount of fresh water of other countries.62
The demand for green-oriented products has been a boon to the firms that supply them.
Marketers encourage consumers to replace their older versions of washing machines and
dishwashers with water- and energy-saving models and to invest in phosphate-free laundry
detergent and mercury-free, rechargeable batteries. Canada’s love affair with recycling also
has created markets for recycled building products, packaging, paper goods, and clothing.
Similarly, this higher energy consciousness has spurred the growth of more-efficient appli-
ances, lighting, and heating and cooling systems in homes and offices. Health-conscious
consumers continue to fuel the markets for organic foods, natural cleaning and personal
Analyzing the Marketing Environment CHAPTER 3 93
Sneakers From Ocean waste into future products. It is now introducing a line of
recycled clothing and taking steps to become even more
Plastic Trash† sustainable.
Although the recycled-shoe project was intended
The Adidas Group is always looking to make better prod- to kickstart change in ocean health, the Adidas Group
ucts and use innovative manufacturing techniques. To has long been committed to sustainability initiatives. For
show just how much of an impact companies can make, example, it ended the use of plastic microbeads in its
Adidas and Parley for the Oceans launched a sneaker products as of December 2015 and completed the phas-
design made with plastic trash reclaimed from the ocean. ing out of plastic bags in its retail stores in March 2016.
The recycling project helps the Adidas Group meet its Its DryDye project reduces the amount of water needed
ongoing sustainability goals. More importantly, it helps to to manufacture its products. Between 2011 and 2015, a
educate consumers and raise awareness of what can be virtualization project allowed the company to produce
done to stop ocean plastic pollution. 2.4 million fewer samples.
Concerned that the oceans are being destroyed by
plastic, Adidas joined with Parley for the Oceans to show
that ocean waste can be turned into something cool. Eric
Liedtke, the executive board member for global brands
with the Adidas Group, said that the company would pro-
duce 1 million pairs of shoes in 2017 using Parley Ocean
Plastic. Not only did the company achieve this goal, it
sold 5 million pairs in 2018 and were on track to selling
1 million pairs in 2019. Liedtke notes that the partnership
allows the company to tap into new areas, creating inno-
vative materials and products for consumers.
The sneaker is designed with an upper part from
ocean plastic content and a 3D-printed midsole that
uses recycled polyamid and gill net content. Introduced
at the Sustainable Innovation Forum in Paris in Decem-
ber 2015, the timing coincided with the addition of the
ocean movement cause to COP21’s agenda. According Adidas and Parley for the Oceans use waste pulled from the
to one sustainability report, Adidas says the sneaker is ocean to create sustainable sneakers.
not a standalone project. It intends to integrate ocean Krisztian Bocsi/Bloomberg via Getty Images
†Amir Ismael, “Adidas sold 1 million pairs of sneakers made from ocean waste in 2017 — now the company is introducing a line of recycled clothing
and taking steps to become even more sustainable,” Business Insider, May 18, 2018, www.businessinsider.com/adidas-parley-outdoor-collection
-sustainability-2018-5; Juan Hernandez, “Adidas and Parley Up the Ante With Recycled Ocean Waste Shoes in 2019; Vow to Make 11 Million Pairs,”
The Inertia, March 27, 2019, www.theinertia.com/business-media/adidas-x-parley-up-the-ante-with-recycled-ocean-waste-shoes-in-2019-vow-to-make
-11-million-pairs/; “Adidas Test to Sell Shoes Made of Ocean Plastic Was So Successful, They’re Going Even Further,” Good News Network,
March 23, 2019, www.goodnewsnetwork.org/adidas-shoes-from-ocean-plastic-going-even-further/ (accessed July 3, 2019).
care products, air- and water-filtration devices, bottled water, and organic fertilizers.
As discussed in Sustainable Marketing 3.1, sneakers made from ocean waste help educate
consumers about plastic pollution.
For companies selling environmentally friendly products, the green marketing trend
represents a great opportunity. Firms that sell products considered harmful to the environ-
ment may find this trend a threat to their business and must innovate to stay in business.
However, some green options are more expensive than traditional products and initiatives.
Are consumers interested in or willing to pay higher prices for green products? At any aver-
age cost of $220, Parley sneakers are high-priced yet selling well. That means Adidas could
earn a billion dollars while addressing a global environmental problem.63
To promote their greener practices, nearly 500 firms joined the Tropical Forest
Alliance (TFA) 2020,64 which seeks to reduce the deforestation caused by the production of
many consumer products that rely on palm oil, soy, tree pulp, and paper. Brands owned by
Unilever and Mondelēz, two corporate partners in TFA, commit to finding ways to support
94 Section One Assessing the Marketplace
regional production processes that not only limit deforestation but also help ensure the
living standards of farmers in tropical nations. Such commitments appeal to consumers,
but they also may help ensure stable supply chains and potentially reduce production costs.
Are all firms really interested in improving the environment? Or are they disingenu-
ously marketing products or services as environmentally friendly, with the goal of gaining
public approval and sales rather than actually improving the environment? Companies
need to rise above suspicions of “greenwashing.” Consumers often question whether a firm
is spending significantly more money and time advertising being green and operating with
consideration for the environment than actually spending these resources on environmen-
tally sound practices. To show it is a responsible retailer, Rona has adopted a strict scientific
method that monitors a product over all stages of its life cycle: acquisition of materials,
manufacturing, packaging and transportation, and finally, use and end of life.65 The
Sustainable Marketing boxes throughout this book provide many more examples of how
individual Canadians and businesses are taking actions to reduce the harmful effects of
their consumption and production decisions.
Privacy Concerns
More and more consumers worldwide sense a loss of privacy. At the same time that the
Internet has created an explosion of accessibility to consumer information, improvements
in computer storage facilities and the manipulation of information have led to more and
better security and credit-check services. Still, 83 percent of Canadian consumers think
businesses need to do more to protect them against cybersecurity threats and cite con-
cerns about data privacy when making decisions about apps they use and retailers they
buy from.66 Hacking still remains a concern. For example, Ashley Madison website’s
was compromised. The Toronto-based company offered a service to 32 million members
looking for extramarital affairs. These members assumed their email addresses and other
contact information were secure. The breach, which made global news, caused outraged
members to launch a class-action lawsuit. Canada’s privacy commissioner probed the issue
and a criminal investigation was launched. The company suffered huge revenue losses and
Ashley Madison’s founder, Noel Bidermann, stepped down as CEO.67 In 2019, a hacker
accessed data from over six million Canadians and 100 million Americans holding Capital
One credit cards. The breach was the largest in Canadian history. Given security breaches
at Quebec-based Desjardins and retailers such as Winners and Home Depot, it is hardly
surprising that more than three-quarters of Canadians are concerned about the security
and privacy of the information they provide over the Internet.68
Consumers Insist on Healthy foods when I want to indulge in some nostalgia or have
a sweet treat. Processed foods thus continue to sell well
Foods — Until You Mess with the to consumers who see no need to consider an organic
Colour of Their Trix†† kale chip when Pringles already taste great, or who enjoy
Apple Jacks cereal over organic alternatives because it
What trend watchers and marketing researchers tell us, contains preservatives that help it stay crisper in milk for
over and over, is that consumers are seeking healthier longer.
food options. But when General Mills tried to change the Accordingly, General Mills is not the only food man-
formula for its Trix cereal, using natural and vegetable ufacturer to face problems. When Coca-Cola began
options rather than artificial dyes to create the colouring sweetening some of its drinks with Stevia, a plant-based
of the sugar-laden product, people rejected the switch sweetener, customers complained that the levels of
wholeheartedly. And so, “Trix Classic” will return to store sweetness were not the same. Other companies have
shelves, with the bright colours and strong fruit flavours had better luck; Kraft changed the recipe for its famous
that generations of children have come to love, even macaroni and cheese to eliminate an artificial yellow
as the naturally coloured option remains an alternative dye. It did so without announcing the change, and it
choice on shelves. ensured that it could replicate the signature neon col-
For General Mills, offering the original recipe seemed our of the meal even without the dye. Then, when it
mandatory. On social media and the company website, made the change public, consumers already knew that
consumers complained so bitterly that it knew it would they had tried the new recipe and, in most cases, never
lose them if it only offered the “depressing” naturally noticed a difference.
coloured version. Using turmeric, beets, and purple car- But for most makers of processed foods, especially
rots as ingredients to manufacture its cereal, General those that resonate strongly with consumers’ sense of
Mills came up with a coloured but drab version, vastly nostalgia and childhood memories, changing things rep-
unlike the vibrant version achieved through artificial resents a risk. At the same time, ignoring the demands for
dyes. The clearly visible difference prompted people to healthier production methods could be risky, too. It turns
mourn the loss of a childhood favourite, worry that their out, as a spokesperson for General Mills noted in what
own children would never have the fun of eating Trix, may perhaps be the understatement of the century, con-
and accuse General Mills of selling “basically a salad” sumers “don’t all want the same thing.”
instead of a cereal.
But the switch back to artificial ingredients also creates
a dilemma for the company, which vowed several years
ago to eliminate all artificial flavours and colours from
its cereal products. By switching back to keep customers
happy, General Mills also is going back on a commitment
it publicized widely, which may annoy an entirely different
set of consumers. And so, General Mills continues to sell
the natural version in the hopes that its presence will be
enough to appease cereal eaters with more of a focus on
natural ingredients.
Although this latter group of consumers is influential,
and sales of products that bar artificial dyes and flavour-
ings are growing faster than those of other segments,
food manufacturers clearly cannot ignore the substantial
population of folks who love food produced with artifi-
cial means—always have, always will. Even if about half
of North American consumers indicate that they avoid Some consumers prefer Trix coloured with natural ingredients
artificial colours in their foods due to health concerns, (left), whereas others prefer “Trix Classic” (right).
they also appreciate a sense of balance: I’ll eat healthy (left): ©Michael Neelon/Alamy Stock Photo; (right): ©McGraw Hill
most of the time, so that I can consume some unhealthy Education
††Annie Gasparro, “Silly Rabbit! Original Trix with Artificial Colors Is Back after Customers Revolt,” The Wall Street Journal, September 21, 2017,
www.wsj.com/articles/silly-rabbit-original-trix-with-artificial-colors-is-back-after-customers-revolt-1506011635; Caitlin Dewey, “Consumers Loved
‘All-Natural’—Until Trix Cereal Lost Its Neon-Bright Glow,” The Washington Post, September 23, 2017, www.washingtonpost.com/news/wonk/wp/2017
/09/23/consumers-loved-all-natural-until-trix-cereal-lost-its-neon-bright-glow/; Monica Watrous, “Clean Label Not Always the Best Strategy,” Food
Business News, September 26, 2017, www.foodbusinessnews.net/articles/10649-clean-label-not-always-the-best-strategy (accessed July 3, 2019).
Analyzing the Marketing Environment CHAPTER 3 97
neighbourhood? Not very good. Marketers must be sen- Naturally, all firms must abide by the law, but many legal
sitive to such cultural issues to be successful, and then issues also affect marketing directly. These laws can be
they must also consider competitors as well as customer broken into those that pertain to competitive practices,
demographics—age, gender, income, race, ethnicity, and such as antitrust legislation, and those designed to pro-
education—to identify specific customer groups. In any tect consumers from unfair or dangerous practices, such
society, major social and natural trends influence the way as warning labels on cigarette packages.
people live. Understanding these trends can help mar-
keters serve their customers better. At no other time in LO3 Identify important social and natural trends
history has technology moved so rapidly and had such a that impact marketing decisions
pervasive influence on the way we live. Not only do mar-
keters help to develop technologies for practical, every- In any society, major social and natural trends influence
day uses, but technological advances also help marketers the way people live. Social trends have a tremendous
provide consumers with more products and services more impact on what consumers purchase and consume.
quickly and efficiently. The general state of the economy Understanding these trends—such as price sensitivity,
influences how people spend their disposable income. health and wellness, green marketing, privacy issues, and
When the economy is healthy, marketing success comes the time-poor society—can help marketers serve their
relatively easily. But when the economy gets bumpy, only customers better by offering them products and services
well honed marketing skill can yield long-term successes. that closely match their needs and wants.
Key Terms
■■ artificial intelligence (AI) ■■ Generation X ■■ interest rates
■■ baby boomers ■■ Generation Y/millennials ■■ macroenvironmental factors
■■ country culture ■■ Generation Z/digital natives ■■ political/legal environment
■■ culture ■■ generational cohort ■■ recession
■■ demographics ■■ green marketing ■■ robotics
■■ economic situation ■■ inflation ■■ technological advances
■■ foreign currency fluctuations ■■ Internet of Things (IoT)
concept review
1. List the three elements a firm must assess before 7. Why should marketers care about engaging tweens
looking externally (i.e., microenvironmental factors). quickly and sincerely?
2. List and describe the elements of a firm’s macro 8. How do changes in the value of the Canadian dollar in
environment. Select a Canadian company that you relation to the U.S. dollar affect Canadian companies
think has done a great job at managing the macro that sell to American consumers?
environmental factors and discuss what it has done.
9. Why is understanding cultures and subcultures so
3. List five ways in which baby boomers, Generation X, important in marketing?
and Generation Y are different.
10. The Chinese and South Asian consumer segment is
4. If a store permanently offers extended shopping hours, rapidly growing in Canada. What opportunities and
what macroenvironmental factor(s) is it appealing to? challenges does this trend pose for food and grocery
retailers? What strategies could they use to market
5. List some of the important social and natural trends
effectively to this segment of consumers?
affecting the Canadian market.
6. Besides language, explain why using the same adver-
tisement for Ontario and for Quebec wouldn’t be
equally successful.
Analyzing the Marketing Environment CHAPTER 3 99
Marketing Applications
1. Assume you are going to open a new store selling new technologies for greater empowerment and con-
fitness products. Describe it. Who are your competi- trol, (c) using their time productively when travelling or
tors? What would you do to monitor your competitors’ commuting, and (d) multitasking. Identify and describe
actions? Who are your customers? What are you going some products and services that consumers use to
to do to appeal to them? implement each of these strategies.
2. How do you approach buying a computer differently 9. Identify a company that you believe does a particularly
than your parents would? What about buying an outfit good job of marketing to different cultural groups. Jus-
to wear to a party? How can firms use their knowledge tify your answer.
of different age or generational cohorts to market
10. You have recently been hired by a major department
their products and services better?
store in its marketing department. Your boss informs
3. How can firms use customer demographics such as you that you will supervise a field research study.
income, education, and ethnicity to market to their You arrive at your assigned store and find that the
customers better? study consists of shadowing customers. The store
has set up a “private” shopping event for store credit
4. Identify some of the changes in the gender landscape.
card holders. All who attend must swipe their cards
Describe how they might affect the marketing prac-
to receive the special discount coupon book. The
tices of (a) men’s apparel retailers, (b) do-it-yourself
shadow shoppers (who the store manager hired)
home improvement retailers, and (c) upscale salon
are given hand-held devices loaded with a specific
services.
customer’s information and past purchase behav-
5. Identify some recent technological innovations in the iour. Thus, each shadow shopper knows the name,
marketplace and describe how they have affected address, income, family size, and spending patterns
consumers’ everyday activities. for the customer she or he is observing. You begin to
feel uncomfortable about this study since the consum-
6. Do you feel that firms are invading or could invade ers have no idea they are being tracked, nor do they
your privacy? Why or why not? know the level of confidential information about them
7. Why should Canadian companies selling goods in the that a stranger can access. You are also concerned
United States care about the value of the U.S. dollar? that the shadow customers are not regular employees
or employees of an established marketing research
8. Time-poor consumers have adopted various provider. What, if anything, would or should you do
approaches to “buy” themselves more time, such as about your concerns?
(a) voluntarily simplifying their complex lives, (b) using
marketing digitally
1. Seventh Generation is the leading brand of nontoxic, trends you note, and describe the ways in which the
environmentally safe household products in Canada company’s products address the wants and needs of
(products are sold at Home Depot). Visit Seventh its customers.
Generation’s website (www.seventhgeneration.com)
2. Visit the Cool Hunter (www.thecoolhunter.net) and
and review the philosophy behind the business. Next,
identify examples that would provide marketers with
review the site to identify the products that the com-
insights regarding social trends.
pany offers. Briefly summarize some of the consumer
100 Section One Assessing the Marketplace
Chapter 4
Source: L’Oréal
Consumer Behaviour
Learning Objectives
After studying this chapter you should be able to
LO1
Describe the steps in the consumer buying decision process
LO2 Identify what determines how much time consumers will spend searching for information
before buying a product or service
LO3 Summarize how psychological, social, and situational factors influence consumers’
buying behaviour
LO4 Explain how involvement influences the consumer buying decision process
102 Section TWO Understanding the Marketplace
When it comes to dyeing their hair, people have specific preferences. For those who do it at home, these prefer-
ences are so specific that some retailers can anticipate precisely when shoppers will need a new box of dye
to hide their grey or which colour-safe shampoos they are likely to buy about 10 days after they undergo the
beauty process.1 Accordingly, retailers can issue coupons and incentives to push beauty patrons to make specific
purchases from their stores.
Such signals make for compelling insights for not just retailers but also manufacturers that seek to sell to these
beauty-conscious, environmentally conscious, trend-conscious consumers. Many brands are pursuing an all-natural or
organic image2, and so in this chapter, we consider in more detail some of the reasons that they might be doing so. The
ultimate driver of brands’ choices and marketing strategies is how consumers behave: what they are doing and what
kinds of products and services they demand to support those behaviours.
For example, many people, and especially younger consumers, have grown wary of applying harsh chemicals to
their scalp every four to six weeks, whether at home or with the help of a professional at a salon. In response, L’Oréal—
the company known for creating the chemical technology that first allowed people to go platinum blonde3—launched
a new line of completely plant-based, vegan dyes.4 The product line, which takes the brand name Botanēa, relies on
natural elements such as indigo to impart vibrant colour to hair. Such options are not only natural but also “retro” in a
sense, because many cultures have long used plants such as henna or indigo to dye clothing and hair and in early
cosmetics products.5
However, the development process has been slow, as L’Oréal seeks to find plants that can produce the vast
range of colours that consumers demand for their hair. Accordingly, the plant-based line initially was introduced
only in salons, not on drugstore shelves. In particular, the current formulations require users to mix the product
using precise measurements, and the company realizes that such precision behaviours might be more than most
consumers are willing to undertake just to use a box of home-treatment hair colour.6
The move also reflects how consumer trends have affected L’Oréal’s business overall. For example, the
rise of selfie culture has meant that more people—and again, especially younger consumers—tend to wear
cosmetics more regularly in their attempts to present a positive image at all times. Thus, the company has
enjoyed growth in its cosmetics sector. But sales of its hair dye lines have stagnated, not just because people
seek to avoid chemicals, but also in response to the fashion trend that embraces grey hair as an attractive
choice.7
To go along with its natural hair dyes, L’Oréal also has introduced a line of vegan hair care options, under
the brand name Source. This move suggests its determination to retain its global market leadership in the styling
products sector. In addition, it reflects the company’s recognition that it is not just the harsh chemicals that people
seek to avoid; consumers also are embracing natural options more broadly for all of their health and beauty
needs.8
Beyond product alternatives, L’Oréal also has reacted to the changing ways that many consumers purchase
their cosmetics, moving increasingly into specialty retailer channels such as Sephora, rather than relying solely on
traditional department store counters or drugstore displays.9
Across the board, L’Oréal’s strategic marketing choices reflect its awareness and assessment of how con-
sumers are behaving—including what kind of hair dye they want, where they want it, and how they want to care
for their new colour.
Consumers should be at the heart of all marketing decisions and strategies, a point that has
been emphasized in every chapter so far. Marketers who develop a deep understanding of
consumer needs and wants are able to act even before customers articulate those needs.
Such insights help companies gain strategic competitive advantage over competitors. In
trying to satisfy consumer needs, one particularly difficult challenge for marketers is to
understand consumers’ behaviour—why they prefer one brand, store, or service provider
over another. And how do the factors that influence their purchase behaviour change over
time or with the types of purchases? In some cases, consumer behaviour must change for
products to be successful.
Consumer Behaviour CHAPTER 4 103
We begin this chapter by exploring the process that consumers go through when buying
products and services. Then we discuss the psychological, social, and situational factors that
influence this consumer decision process. We end the chapter with a discussion of how the level
of consumer involvement influences the buying decision process. Throughout the chapter, we
illustrate what firms can do to influence consumers to purchase their products and services.
Functional Needs
Functional needs pertain to the performance of a product or service. For years, BMW functional needs
Pertain to the performance
has made functionally superior motorcycles. BMW’s K1600 model has an inline six-
of a product or service.
cylinder motor, something previously available only in BMW automobiles, combined with
a stiff aluminum frame. Thus it offers remarkable power on a lightweight bike, enabling it
to outperform both the best luxury touring bikes, in terms of comfort, and serious sporty
motorcycles, in terms of speed.
Psychological Needs
Psychological needs pertain to the personal gratification consumers associate with a psychological needs
product and/or service. Purses, for instance, provide a functional need: to transport wallets Pertain to the personal
gratification consumers
and other personal items and keep them organized and safe. So why would anyone pay associate with a product or
more than $5,000 for a purse that does not perform these tasks any better than a $100 purse? service.
Because they seek to satisfy psychological needs. For example, Dior offers evening clutches
costing between $1,650 and $7,700. The most expensive Minaudière purse
features aged, gold-toned metal and embroidered suede lambskin.12 These
bags are often seen on the red carpet, such as when Charlize Theron showed
up at the 2017 Oscars carrying a Dior Minaudière clutch.13 Even though
these bags are not known for being particularly practical, strong demand
for Dior bags persists among women who love exciting (and expensive)
purses.
These examples highlight that most goods and services seek to satisfy
both functional and psychological needs, albeit to different degrees. Whereas
the functional characteristics of a BMW K1600 are its main selling point, it
also maintains a fashionable appeal for bikers and comes in several colours to
match buyers’ aesthetic preferences. Dior purses satisfy psychological needs
that overshadow the functional needs, though they still ultimately serve the
function of carrying personal items. You can get a $15 haircut at First Choice
Haircutters or spend $80 or more to get basically the same thing at an upscale
salon. Are the two haircuts objectively different? The answer might vary
depending on which you believe represents a good haircut and good value.
One person might value getting a really good deal; another might enjoy the
extra attention and amenities associated with a fancy salon.
Does a Dior Minaudière clutch, like this Successful marketing requires determining the correct balance of
one carried by Charlize Theron at the functional and psychological needs that best appeals to the firm’s target
2017 Oscars, satisfy psychological or markets. Harley-Davidson, for instance, produces motorcycles that do
functional needs? much more than get their riders to the mall and back. Harleys are a way of
©Jim Ruymen/UPI/Newscom life for motorcycle enthusiasts who want to ride and have fun. Even though
other manufacturers—such as Yamaha, Honda, Suzuki, and Kawasaki—offer functional,
dependable, and fast motorcycles, they cannot compete with the Harley mystique.
So, what can marketers do at the need recognition stage to influence consumer purchase
decisions? Marketers use numerous tactics to either remind customers of a need or create new
needs. Researching and understanding what products and services customers need or want
LO2 and why—these are the first steps in developing appropriate tactics. Common tactics market-
ers employ include using reminder advertising for their products, creating
awareness about a new product and its capabilities, showing how a product
could enhance consumers’ image, and even altering the physical layout of a
store or where products are placed in stores. Placing products near checkout
lanes or placing products that customers buy together near each other means
that when customers come to buy one item (meat), they are reminded of the
other item (freezer bags). That’s why in some grocery stores you will find
Ziploc freezer bags on permanent display in the meat section.
because cars are a relatively expensive and important purchase with significant safety
implications, whereas families likely spend little time researching which inexpensive
plastic toy car to buy for the youngest member of the family.
internal locus of control • The locus of control. People who have an internal locus of control believe they have
Refers to when consumers some control over the outcomes of their actions, in which case, they generally engage
believe they have some
control over the outcomes in more search activities. With an external locus of control, consumers believe that
of their actions, in which fate or other external factors control all outcomes. In that case, they believe it doesn’t
case, they generally
engage in more search
matter how much information they gather; if they make a wise decision, it isn’t to their
activities. credit, and if they make a poor one, it isn’t their fault. For example, if Bikram believes
external locus of control he can get a better deal when buying his first car, he will conduct an extensive search for
Refers to when consumers information and try to use the information when negotiating his purchase. However, if
believe that fate or other Bikram feels that regardless of what information he has, he can do little to influence the
external factors control all
outcomes. outcome of the deal, he will not engage in an extensive search.
• Actual or perceived risk. Five types of risk associated with purchase decisions can
delay or discourage a purchase: performance, financial, social, physiological, and
psychological. The higher the risk, the more likely the consumer is to engage in
an extended search. As the COVID-19 pandemic evolved, consumers engaged in
extended searches for hard-to-find products (such as disinfectant wipes and rubber
gloves) that would help them avoid the risk of becoming infected.
performance risk Performance risk involves the perceived danger inherent in a poorly performing
Involves the perceived product or service. Examples of performance risk might be the possibility that the
danger inherent in a poorly
performing product or Tesla Model 3 battery takes longer to charge than expected or that Bikram’s sports car
service. does not start on the day he is supposed to take his girlfriend out for a drive.
financial risk Financial risk is risk associated with a monetary outlay and includes the initial cost
Risk associated with a of the purchase, as well as the costs of using the item or service. Car manufacturers,
monetary outlay; includes
the initial cost of the for instance, recognize that extended warranties help alleviate financial risk because
purchase, as well as the consumers fear extensive postpurchase repair costs. For example, Bikram bought
costs of using the item or
service. two additional years of warranty over the manufacturer’s standard “three-year,
60,000-kilometre” coverage for his sports car to reduce his financial risk within the
first five years of buying the car.
social risk Social risk involves the fears that consumers suffer when they worry that others
Involves the fears that might not regard their purchases positively. When buying an outfit, consumers like
consumers suffer when
they worry that others Katie, Bikram’s girlfriend, consider what her friends would think. Alternatively,
might not regard their since a job interview is so important, Katie might make a conscious effort to assert
purchases positively. a distinctive identity or make a statement by buying a unique, more stylish, and
possibly more expensive dress than her friends would typically buy.
physiological risk Physiological risk could also be called safety risk. Whereas performance risk
Risk associated with the involves what might happen if a product does not perform as expected, physiological
fear of an actual harm
should the product not (or safety) risk refers to the fear of actual harm should the product not perform
perform properly. properly. Although physiological risk is typically not an issue with apparel, it can be
an important issue when buying other products, such as a car. External agencies and
government bodies publish safety ratings for cars to help assuage this risk. Consumers
compare the safety records of their various choices because they recognize the real
danger to their well-being if the automobile they purchase fails to perform a basic task,
such as stopping when the driver steps on the brakes. An example of this is the safety
recalls by Honda, Toyota, and Nissan that recalled over 200,000 cars in Canada due to
issues with faulty airbags, which sent pieces of plastic flying when the inflator burst.
psychological risk Finally, a psychological risk is associated with the way people will feel if the product
Associated with the way or service does not convey the right image. For example, Bikram looked up reviews of
people will feel if the
product or service does the various sports cars and asked his friends their opinions because he wanted people
not convey the right image. to perceive his choice as a really good one.
Consumer Behaviour CHAPTER 4 107
Attribute Sets
Research has shown that a consumer’s mind organizes and categorizes alternatives to aid
his or her decision process. Because consumers are unlikely to recall all possible alterna-
tives for every purchase decision, marketers tend to focus on only a subset of choices. For
example, retrieval sets are those brands or stores that can be readily brought forth from retrieval sets
memory, whereas a consumer’s evoked set includes only the brands or stores considered Consist of those brands or
stores that can be readily
when making a purchase decision. If a firm can get its brand into a consumer’s evoked set, brought forth from memory.
it has increased the likelihood of purchase and therefore reduced search time because the
evoked set
consumer will think specifically of that brand when considering choices. Includes only the brands
While Katie Smith knows that there are a lot of apparel stores, only Le Château, Ann that consumers consider
when making a purchase
Taylor, The Gap, and Banana Republic are in her retrieval set. as having the style she is look- decision.
ing for. She recalls that Ann Taylor is where her mother shops and The Gap is a favourite
Macy’s is part of the retrieval set of stores available to women for business apparel, but Banana Republic is in the evoked
set for young women looking for business apparel.
(left): ©Ron Antonelli/Bloomberg via Getty Images; (right): Sang Tan/AP Images
108 Section TWO Understanding the Marketplace
of her younger sister. But she is sure that Le Château and Banana Republic carry business
attire she would like, so only those stores are in her evoked set.
evaluative criteria Consumers base their evaluations on a set of important attributes. These evaluative
Consist of a set of salient, criteria consist of a set of important, attributes about a particular product that are used to
or important, attributes
about a particular product compare alternative products. For example, when Katie is looking for her outfit, she might
that are used to compare consider things like the selling price, fit, materials and construction quality, and reputation
alternative products. of the brand. Sometimes it becomes difficult to evaluate different options because there
are so many choices, especially when those choices involve aspects of the garment that are
difficult to evaluate, such as materials and construction quality.
To simplify the decision process, consumers use shortcuts such as determinant attri-
determinant attributes butes and consumer decision rules. Determinant attributes are product or service fea-
Product or service features tures that are important to the buyer and on which competing brands or stores are perceived
that are important to
the buyer and on which to differ.14 Because many important and desirable attributes are equal among the various
competing brands or choices, consumers look for something to differentiate one brand from another. Determi-
stores are perceived to
differ.
nant attributes may appear perfectly rational, such as health and nutrition claims offered by
certain foods and beverages, or they may be more subtle and psychologically based, such as
the red soles on a pair of Christian Louboutin heels.
consumer decision rules Consumer decision rules are the set of criteria that consumers use consciously or
The set of criteria
subconsciously to quickly and efficiently select from among several alternatives. These
consumers use consciously
or subconsciously to quickly rules take several different forms: compensatory, noncompensatory, or decision heuristics.
and efficiently select from
among several alternatives.
Compensatory
compensatory A compensatory decision rule assumes that the consumer, when evaluating alternatives,
decision rule trades off one characteristic against another, such that good characteristics compensate for
Is at work when the
consumer is evaluating bad characteristics.15 For instance, when Bikram was looking to buy a new car, he consid-
alternatives and trades off ered several factors, such as mileage, style, price, and accessories. Even if the car’s price is a
one characteristic against little more than Bikram was planning to spend, the superb mileage offsets, or compensates
another, such that good
characteristics compensate for, the higher price.
for bad ones. Although Bikram probably would not go through the formal process of making the
purchasing decision based on the model described in Exhibit 4.2, it illustrates how a com-
pensatory model would work. Bikram assigns weights to each factor depending on their
importance to him. These weights must add up to 1.0. So, for instance, mileage is the most
important with a weight of 0.4, and style is least important with a weight of 0.1. Then
Bikram assigns weights to how well each of the cars might perform, with 1 being very poor,
and 10 being very good. For instance, he thinks Toyota has the best mileage, so he assigns it
a 10. Bikram multiplies each performance rating by its importance rating to get an overall
score for each car. The rating for Toyota in this example is the highest of the three cars
([0.4×10] + [0.1 × 8] + [0.3 × 6] + [0.2 × 8] = 8.2).
Toyota 10 8 6 8 8.2
Honda 8 9 8 3 7.1
Nissan 6 8 10 5 7.2
Evaluations are based on a 1 (very poor) to 10 (very good) scale.
Based on the noncompensatory decision rule (based on price), Nissan is the best candidate for purchase.
Consumer Behaviour CHAPTER 4 109
Noncompensatory
Sometimes, however, consumers use a noncompensatory decision rule, in which they noncompensatory
decision rule
choose a product or service on the basis of a subset of its characteristics, regardless of the
Is at work when consumers
values of its other attributes.16 Thus, Bikram might find a car with a lot of accessories and choose a product or
great mileage that costs considerably more than he is willing to spend, but might reject the service on the basis of a
subset of its characteristics,
car simply on the basis of price. Because the Nissan offers a better price (he rated the price regardless of the values of
of a Toyota as 6 and a Nissan as 10), he decides that the good points of the Toyota do not its other attributes.
compensate for its biggest weakness—a high ticket price. Based on compensatory decision
rules, Bikram should choose the Toyota car; but, using a noncompensatory decision rule,
the prices of the cars, Bikram chose the Honda.
Once consumers have considered the possible alternatives and weighed the pros and
cons, they can move toward a purchase decision.
Decision Heuristics
Not everyone uses compensatory or noncompensatory decision rules. Some people use
decision heuristics, which are mental shortcuts that help them narrow down their decision heuristics
choices. Some examples of these heuristics follow: Mental shortcuts that help
consumers narrow down
choices; examples include
• Price. Consumers can choose the more expensive option, thinking they are getting
price, brand, and product
better quality along with the higher price (“You get what you pay for”), or they might presentation.
buy the product priced in the middle of the alternatives, neither the most expensive
nor the cheapest, thinking that it is a good compromise between the two extremes.17
For example, you know that Boston Pizza is your most expensive option. You also
know that Domino’s Pizza is more expensive than frozen options in the grocery store
but you choose it because it is still a good deal and faster, too.
• Brand. Always buying brand-name goods allows some consumers to feel safe with
their choices. Purchasing a national brand, even if it is more expensive, gives many
consumers the sense that they are buying a higher quality item.18 For example, many
consumers buy more expensive Tylenol or Advil
pain relief tablets over Shoppers Drug Mart’s
Life brand pain tablets because they believe
the former are higher-quality products, despite
identical ingredients in the generic brand.
• Product presentation. Many times, the manner in
which a product is presented can influence the
decision process. For example, two similar homes
that are comparably priced will be perceived quite
differently if one is presented in a perfectly clean
and uncluttered condition, with fresh flowers
and the smell of chocolate chip cookies wafting
through it, whereas the other appears messy, has
too much furniture for the rooms, and emits an
unappealing smell. Consumers want to see that The distinctive style of these lululemon yoga pants is a
some effort has been put into the selling process, determinant attribute that distinguishes the product from
and just the way the product is presented can other brands.
make or break a sale.19 Xaume Olleros/Bloomberg via Getty Images
Marketers can assist consumers in their evaluation process not only by educating them
about the company’s products, but also by providing detailed comparison information on
price, technical specifications, unique features and benefits, and so on. Marketers may even
provide free samples or trials of their products, which may enable consumers to compare
the actual products.
110 Section TWO Understanding the Marketplace
Step 5: Postpurchase
The final step of the consumer decision process is postpurchase behaviour. Marketers are
particularly interested in postpurchase behaviour because it entails actual, rather than
potential, customers. Marketers hope to create satisfied customers who become loyal, pur-
chase again, and spread positive word-of-mouth. However, dissatisfied customers are not
likely to patronize the store again and will spread negative word-of-mouth.
There are three possible postpurchase outcomes, as illustrated in Exhibit 4.3: customer
satisfaction, postpurchase cognitive dissonance (buyer’s remorse), and customer loyalty (or
disloyalty).
Customer Satisfaction
Setting unrealistically high consumer expectations of the product through advertising, per-
sonal selling, or other types of promotion may lead to higher initial sales, but eventually
it will result in dissatisfaction when the product fails to achieve these high performance
expectations. This failure can lead to dissatisfied customers and the potential for negative
word-of-mouth. (For a related discussion about communication gaps, see Chapter 10.)
Setting customer expectations too low is an equally dangerous strategy. Many retailers
don’t “put their best foot forward”; no matter how good their merchandise and service may
be, if their store is not clean and appealing, customers are not likely to enter.
Marketers can take the following steps to ensure postpurchase satisfaction:
• Build realistic expectations—not too high and not too low—and deliver on those
expectations.
• Demonstrate correct product use; improper usage can cause dissatisfaction.
• Stand behind the product or service by providing money-back guarantees and
warranties.
Consumer Behaviour CHAPTER 4 111
Customer
+ Satisfaction
Postpurchase Postpurchase
Outcome Dissonance
+ Customer
Loyalty
him a letter thanking him for his purchase and positively reinforcing the message that he
made a wise decision by mentioning the high quality of the product’s design and production.
Included with the letter was a customer satisfaction survey that asked about Bikram’s satis-
faction with the dealership, the salesperson, and other aspects of his purchase experience.
Bikram also received additional information about Honda services available to Honda Civic
owners. To reduce the dissonance, Bikram can take several actions:
• Pay attention to positive information about the Honda Civic, such as looking up
reviews by owners and car buffs on the Internet.
• Get positive feedback from friends about his new sports car.
• Seek negative information about sports cars he did not buy. Reading these reviews
makes him feel more comfortable with his purchase decision.
Customer Loyalty
Customer loyalty develops over time with multiple repeat purchases of the product or brand
from the same marketer. In the postpurchase stage of the decision-making process, market-
ers attempt to build and nurture a loyal relationship with their customers from the very first
purchase and with each subsequent purchase. They want customers to be satisfied with
their purchase every time and buy from the same company again. Loyal customers will
buy only certain brands and shop at certain stores, and they do not consider other brands
or firms in their decision. As we explained in Chapter 2, such customers are therefore very
valuable to firms, and marketers have designed customer relationship management (CRM)
programs specifically to retain them.
Situational
Factors
Purchase Situation
Shopping Situation
Temporal State
factors, such as the specific purchase situation, a particular shopping situation, and temporal motive
A need or want that is
states (the time of day), affect the decision process. strong enough to cause
Every decision people make as consumers will take them through some form of the the person to seek
consumer decision process. But, like life itself, this process does not exist in a vacuum. satisfaction.
Psychological Factors
Although marketers themselves can influence purchase decisions, a host
of psychological factors affect the way people receive marketers’ messages.
Among them are motives, attitudes, perceptions, learning, and lifestyles. In
this section, we examine how such psychological factors can influence the
consumer decision process.
Motives
In Chapter 1, we argued that marketing is all about satisfying customer needs
and wants. When a need (such as thirst) or a want (such as a Diet Pepsi) is
not satisfied, it motivates us (or drives us) to get satisfaction. So, a motive is
a need or want that is strong enough to cause the person to seek satisfaction.
People have several types of motives. One of the best-known para-
digms for explaining these motive types was developed by Abraham
Maslow more than 70 years ago.21 Maslow categorized five groups of
needs: namely, physiological (e.g., food, water, shelter), safety (e.g., secure
employment, health), love (e.g., friendship, family), esteem (e.g., confi-
In this ad, Subway satisfies the
dence, respect), and self-actualization (people engage in personal growth physiological need for food while
activities and attempt to meet their intellectual, aesthetic, creative, and letting the consumer know that
other such needs). The pyramid in Exhibit 4.5 demonstrates the theoretical healthy eating can also be delicious.
progression of those needs. Source: Subway IP Inc.
114 Section TWO Understanding the Marketplace
Self–
actualiz
ation
Esteem
Love
Safety
Physiolo
gical
physiological needs Physiological needs deal with the basic biological necessities of life: food, drink, rest,
Relate to the basic
biological necessities of and shelter. Although for most people in developed countries, these basic needs are generally
life: food, drink, rest, and met, there are those in both developed and less-developed countries who are less fortunate.
shelter. However, everyone remains concerned with meeting these basic needs. Marketers seize
every opportunity to convert these needs into wants by reminding us to eat at Taco Bell,
drink milk, sleep on a Simmons Beautyrest mattress, and stay at a Marriott hotel.
safety needs Safety needs pertain to protection and physical well-being. The marketplace is full
Pertain to protection and of products and services that are designed to make you safer, such as airbags in cars and
physical well-being.
burglar alarms in homes, or healthier, such as vitamins and organic meats and vegetables.
love (social) needs Love (social) needs relate to our interactions with others. Haircuts and makeup make
Relate to our interactions you look more attractive, and deodorants prevent odour. Greeting cards help you express
with others.
your feelings toward others.
esteem needs Esteem needs allow people to satisfy their inner desires. Yoga, meditation, health clubs,
Allow people to satisfy and many books appeal to people’s desires to grow or maintain a happy, satisfied outlook on life.
their inner desires.
Finally, self-actualization occurs when you feel completely satisfied with your life and
self-actualization how you live. You don’t care what others think. You drive a Prius because it suits the person you
Occurs when you feel
completely satisfied with are, not because some celebrity endorses it or because you want others to think better of you.
your life and how you live. Which of these needs applies when a consumer makes a purchase from Starbucks? On
the surface, Starbucks satisfies physiological needs by providing food and drink. But Starbucks
also satisfies safety needs related to healthier living, by publishing the calorie, fat, and sugar
contents of all of its products and offering healthy alternatives, such as a spinach, feta, and egg-
white breakfast wrap. Furthermore, Starbucks satisfies love needs through its powerful focus
on creating relationships with customers: Baristas call each customer by name, and the store
environment encourages customers to sit for a while, talk, and work together while enjoying
their beverages. On the other hand, a young man buying Bulldog Skincare products to boost
his confidence may be motivated by esteem needs. Good marketers add value to their products
or services by nudging people up the needs hierarchy and offering information on as many of
the pyramid needs as they can.
Consumer Behaviour CHAPTER 4 115
Attitude
We have attitudes about almost everything. For instance, we don’t like
this class, but we do like the instructor. We like where we live, but we
don’t like the weather. An attitude is a person’s enduring evaluation of
his or her feelings about and behavioural tendencies toward an object
or idea. Attitudes are learned and long lasting, and they might develop
over a long period of time, though they can also abruptly change. For
instance, you might like your instructor for much of the semester—
until she returns your first exam. One thing we all have in common
is that our attitudes have the ability to influence our decisions and
actions.
An attitude consists of three components. The cognitive component
reflects what we believe to be true, the affective component involves what
we feel about the issue at hand—our like or dislike of something—and the
behavioural component comprises the action(s) we take based on what
we know and feel. For example, Sourabh sees an ad for Bulldog Skincare
that shows a successful young male in a professional setting. His skin looks
smooth and healthy. The ad mentions that Bulldog Skincare has won numer-
ous awards, including one for best men’s face cream. On the basis of this Yoga satisfies self-esteem needs by
advertisement, Sourabh believes that the products must be healthy if they helping people satisfy their inner desires.
are award winning (cognitive component). Watching the young man in ©GoGo Images/age footstock
the ad looking comfortable in his own skin while interacting with senior attitude
managers makes Sourabh feel these products might boost his career (affective). Thus A person’s enduring
encouraged, he goes to the closest Shoppers Drug Mart to make a purchase (behavioural). evaluation of his or
her feelings about and
Ideally, agreement exists among these components. When there is incongruence among the behavioural tendencies
three, however, cognitive dissonance might occur. Suppose that although Sourabh believes that toward an object or
Bulldog Skincare products work well and he likes the feel of the sample he tried at the store, he idea; consists of three
components: cognitive,
buys another brand because it is cheaper. After he uses this product for a few days, he experiences affective, and behavioural.
buyer’s remorse, wishing he had purchased a higher-quality one. cognitive component
Although attitudes are pervasive and usually slow to change, the important fact from a A component of attitude
marketer’s point of view is that they can be influenced and perhaps changed through per- that reflects what a person
believes to be true.
suasive communications and personal experience. Marketing communication—through
affective component
salespeople, advertisements, free samples, or other such methods—can attempt to change A component of attitude
what people believe to be true about a product or service (cognitive) or how they feel toward that reflects what a person
it (affective). If the marketer is successful, the cognitive and affective components work in feels about the issue at
hand—his or her like or
concert to affect behaviour. dislike of something.
behavioural component
Perception A component of attitude
that comprises the actions
Another psychological factor, perception, is the process by which we select, organize, a person takes with regard
and interpret information to form a meaningful picture of the world. Perception is shaped to the issue at hand.
through inputs we take in through the five senses: sight, sound, smell, taste,
and touch. Perception influences our acquisition and consumption of goods
and services as consumers tend to assign meaning to things such as colour,
symbols, taste, and packaging. For example, when Sourabh tried sample
Bulldog Skincare products, he noticed that they smelled great and felt light
on his skin. His perceptions of the brand were very positive as a result. Cul-
ture, tradition, and our overall upbringing determine our perceptual view of
the world as well. Rima has always wanted a Volvo because her best friend
in university had one, and they had a great time driving across the country
together one summer. However, based on past experiences, Eduard has a Different categories of Maslow’s hierarchy
different perception. The boxy design of previous Volvos are seen by Edu- of needs can be satisfied by a visit to
ard as stodgy, unfashionable, and meant to be driven by much older adults. Starbucks.
Volvo has worked hard to overcome this long-standing, negative perceptual ©Jean Baptiste Lacroix/WireImage/Getty Images
116 Section TWO Understanding the Marketplace
perception bias that Eduard and others hold by designing new models and by using promotion to repo-
The process by which
people select, organize,
sition the brand to look, sound, and feel more stylish.
and interpret information to In trying to influence perceptions, marketers must understand and focus on the four
form a meaningful picture components of perception: selective exposure, selective attention, selective comprehension,
of the world.
and selective retention. People who look at the news and sports channels only, but not the
comedy or women’s TV network channels, are engaged in selective exposure because they
are excluding other programs or channels. Similarly, consumers who listen only to mes-
sages that are consistent with their beliefs, and not others, are practising selective atten-
tion. For instance, although someone may look at the sports channel, he or she may watch
hockey, soccer, or baseball but not boxing or wrestling because these may be too violent for
his or her taste. Selective comprehension occurs when consumers interpret a marketing
message in a way that is different from what the marketer intends. For example, a Dolce &
Gabbana ad was intended to be edgy and sexual but consumers felt that it reinforced stereo-
types about rape and degraded women. Knowing this, marketers can target their communi-
cations in those media that maximize exposure to their target market and create messages
that are consistent with their beliefs and attitudes, so that they will pay attention to the
messages and interpret them in the intended way. Finally, selective retention describes the
situation where consumers do not remember all the information they see, read, or hear.
Marketers can provide the information in various other forms such as print, online, and
other displays to reinforce their message.
Learning
learning Learning refers to a change in a person’s thought process or behaviour that arises from experi-
Refers to a change in a ence and takes place throughout the consumer decision process. For instance, after Bikram
person’s thought process
or behaviour that arises recognized that he wanted a sports car, he started looking for ads and searching for reviews and
from experience and articles on the Internet. He learned from each new piece of information, so that his thoughts
takes place throughout
the consumer decision
about sports cars were different from what they had been before he had read anything. In addi-
process. tion, Bikram liked the salesperson at the dealership who served him. Bikram learned from this
experience, and it became part of his memory to be used in the future, possibly so he would
recommend the dealership or salesperson to his friends. During his store visit, Sourabh learned
that Bulldog Skincare contains no artificial colours or fragrances. And when he learned that
the company has a Cruelty-Free designation, with no ingredients from animal sources, he was
convinced to try the products. Consumers who shifted to buying groceries online during the
COVID-19 pandemic learned new behavioural habits that are expected to be long-lasting. Hab-
its that form during times of intense activity tend to become stickier.22
Learning affects both attitudes and perceptions. Throughout the buying process, Bikram’s
attitudes shifted. The cognitive component changed for him when he learned that the dealer-
ship offers various additional services at low costs to Honda Civic owners. Once he started
getting the additional services (e.g., free car washes, special rates for car detailing), he real-
ized how much he liked the service, which indicates the affective component, and he then
subscribed to it—the behavioural component. Each time Bikram was exposed to information
about the service, he learned something different that affected his perception of the dealership.
Before he tried it, Bikram hadn’t realized how friendly and helpful the people at the dealership
were; thus, his perception of the dealership service changed through learning.
As consumers learned about potential privacy issues associated with a Bluetooth-
enabled doll, it changed the attitudes and perceptions of the toy among concerned parents,
as detailed in Ethical & Societal Dilemma 4.1.
Lifestyle
lifestyle Lifestyle refers to the way consumers spend their time and money to live. For many
Refers to the way
consumers spend their consumers, the question of whether the product or service fits with their actual lifestyle,
time and money. which may be fairly sedentary, or their perceived lifestyle, which might be outdoorsy, is an
Consumer Behaviour CHAPTER 4 117
*Kimiko de Freytas-Tamura, “The Bright-Eyed Talking Doll That Just Might Be a Spy,” The New York Times, February 17, 2017, www.nytimes.com
/2017/02/17/technology/cayla-talking-doll-hackers.html; “Frequently Asked Questions,” My Friend Cayla, www.myfriendcayla.com/us-c5ja; Bill C happell,
NPR, February 17, 2017, www.npr.org/sections/thetwo-way/2017/02/17/515775874/banned-in-germany-kids-doll-is-labeled-an-espionage-device; Christian
Hetrick, “Beware the holiday ‘smart toys’ that spy on your kids,” The Philadelphia Inquirer, December 4, 2018, www.inquirer.com/news/smart-toy-spy
-hack-cayla-bear-amazon-fire-20181204.html (accessed July 8, 2019).
important one. Some of the many consumers sporting North Face jackets certainly need the
high-tech, cold-weather gear because they are planning their next hike up Mount Robson
and want to be sure they have sufficient protection against the elements. Others, however,
simply like the image that the jacket conveys—the image that they might be leaving for
their own mountain-climbing expedition any day now—even if the closest they have come
to this trip has been shovelling their driveway. Consumers who pursue an active, healthy
lifestyle, focused around fitness, may purchase Bulldog Skincare products since they fit
their lifestyle. And as seen in Entrepreneurial Marketing 4.1, many people are choosing
organic juice as an expression of their healthy lifestyle.
A person’s perceptions and ability to learn are affected by their social experiences,
which we discuss next. Furthermore, Sustainable Marketing 4.1 shows how consumers’
changing attitudes are influencing their decision to support companies that produce sus-
tainable products.
118 Section TWO Understanding the Marketplace
Juiced for Success: Greenhouse** sold for between $10-$12. Expansion to a 35,000-square-
foot facility in Mississauga, Ontario has allowed them to
Emma Knight and Anthony Green discovered cold- bring prices down about 30 percent.
pressed juices while living in L.A. When they visited Consider why people would pay $12 for juice. While
friends back in Toronto, they lamented not being able to cold-pressed juices are healthy, other factors affect
find such juices in their hometown. After brainstorming consumer buying decisions. Psychological factors such
with friends, they decided to bring cold-pressed juice to as motives, attitudes, and lifestyle likely play a role.
Toronto. Working with another co-founder, Hana James,
they opened a small storefront branded as Greenhouse
Juice Co. In keeping with the company mission “to offer
widespread, sustainable access to plant-based nutrition
of the highest quality,” they decided their juices would be
organic and packaged in reusable glass bottles.
In spite of spending almost nothing on marketing, word
spread, inspiring a near cult-like following. It didn’t take long
before the company was forced to move from their tiny
350-square-foot store, which doubled as a production facil-
ity, to much larger quarters. The expansion allowed them
to better meet demand as well as open three new shops.
Their cold-pressed juices are made from organic ingre-
dients that come from local farms. The light filtration pro- Greenhouse uses intriguing product names such as
cess used to extract juice preserves nutrients and enzymes, Farma-C and a line of “greatest hits” to catch the attention
however, has a relatively short shelf life. That means mak- of consumers.
ing juice on a daily basis as opposed to warehousing Courtesy Greenhouse Juice Co.
stock. Today, the company offers six organic, plant-based
product lines. In addition to cold-pressed juice, it offers
kombucha (a fermented tea beverage), almond milk, pro-
biotic hydrators (such as Spicy Lemonade and Chia Seed
Hydrator), shakes, and booster shots. Products are given
intriguing names such as Farma-C, and offered in product
lines with names like greatest hits, days of the week, and
immunity kit. As the company added new product lines,
for example, protein bars and a cookbook inspired by the
company blog, it dropped the word juice from its name and
rebranded to become simply Greenhouse.
With a limited marketing budget, Emma Knight said
they knew they “had to be where people were.” That
led to placing Greenhouse products in cafes, book-
stores, yoga studios, and even flower shops. The strategy
worked. In addition to the 12 company-owned brick and
mortar stores, they now have more than 100 points of sale,
including six shop-in-shops at Pusateri’s Fine Food. In the
Greater Toronto Area, you can also find their products in
Loblaw stores. In 2019, they expanded to the Maritimes
and Western Canada, placing their products in the refrig-
erated section of grocery-store produce departments.
Word of mouth was really key to the company’s
early success, said Knight. They spent money to take
beautiful photos of their products and craft labels, then
posted them on Instagram. Their blog helped drive
organic audience growth and also led to the publication
of a Greenhouse Cookbook and a national tour. Being
named as one of the Brands of the Year for 2018 by
Strategy magazine created even more awareness. Quirky Instagram posts inspired by the success of the
Products have sold well in spite of a high price point. Toronto Raptors keep the brand top of mind.
Initially, a shot of juice was $2 and a 500-ml bottle of juice Courtesy Greenhouse Juice Co.
Consumer Behaviour CHAPTER 4 119
Purchasers may be motivated by esteem or self- by 2024. Sales look rosy for Greenhouse based on these
actualization needs as shown in Exhibit 4.5 (Maslow’s projections. Perhaps even more promising is Greenhouse’s
Hierarchy of Needs). Their attitude may be shaped by partnership with Canopy Rivers, a subsidiary of Canopy
an affective component that makes them feel good Growth, to launch a line of cannabidiol (CBD) infused bev-
about the juice, which prompts the behavioural com- erages. Research shows that cannabis has some of the
ponent, resulting in taking action to buy the juice. Life- highest anti-inflammatory potential of any plant. Produc-
style can also play a part because the juice is trendy. ing a non-psychoactive cannabis beverage would posi-
For consumers who are looking for a way to differen- tion Greenhouse as a first-mover in the cannabis-inspired
tiate themselves, buying Greenhouse products lets plant-based wellness market. Knight says the product line
them express their personality. will launch soon after cannabis-based food and beverages
Although no statistics are available for the Canadian become legal in Canada and will necessitate a new distri-
cold-pressed juice market, Wintergreen Research reports bution and promotion strategy since such products will only
that the U.S. market is expected to reach $8.1 billion USD be made available through licensed retailers.
**Phone interview with Emma Knight, Director of Brand and Marketing, Greenhouse Juice, July 19, 2019; Melissa Dunne, “2018 Brands of the Year: Growing
Greenhouse,” Strategy Magazine, October 2018, http://strategyonline.ca/2018/10/04/2018-brands-of-the-year-growing-greenhouse/; Greenhouse Announces
National Expansion Plans, Creation of New Line of CBD Beverages and Strategic Partnership with Canopy Rivers, Greenhouse Juice Media Kit, January 14,
2019, https://greenhousejuice.com; “About,” Greenhouse Juice, https://greenhousejuice.com/about#our-story; Melissa Dunne, “Greenhouse has found its
‘glass sipper’,” Stimulant Online, June 25, 2019, http://stimulantonline.ca/2019/06/25/greenhouse-has-found-its-glass-sipper (accessed July 10, 2019).
Social Factors
Exhibit 4.4 illustrates that the consumer decision process is also influenced by the exter-
nal, social environment, which consists of the customer’s family, reference groups, and
culture.23
Family
Many purchase decisions are made about products or services that the entire family will
consume or use. Thus, firms must consider how families make purchase decisions and
understand how various family members might influence these decisions.
When families make purchase decisions, they often consider the needs of all the
family members. In choosing a restaurant, for example, all the family members may par-
ticipate in the decision making. In other situations, however, different members of the
family may take on different roles. For example, Bikram recalled that when he was a kid,
his dad and two older brothers were the ones who looked through car magazines and
Consumer Reports to search for information about a new car. But once the family arrived
at the dealership, his dad, not his brothers, decided which model and colour to buy, and
his mom negotiated the final deal. And older siblings who
use products from Bulldog Skincare, may recommend them
to a younger brother, thus influencing his choice of razor
and shaving cream.
Children and adolescents play an increasingly important
role in family buying decisions. For instance, Canadian youth
indirectly influence family purchases on big-ticket items
such as recreation, vacations, technology, and the family car.
Influencing a group that holds this much spending power
is vitally important. Traditional food retailers are already
caught in a squeeze between Walmart, which lures lower-
income customers, and specialty retailers, such as Whole
Foods, which target the high end. Knowing how children
influence food-buying decisions is a strategic opportunity for Family members often influence buying decisions.
traditional supermarkets and their suppliers to exploit. ThinkStock/JupiterImages
120 Section TWO Understanding the Marketplace
†Sue McGill, “Taking the Long View of Consumer Habits,” Strategy, November 16, 2015, http://strategyonline.ca/2015/11/16/taking-the-long-view-of-
consumer-habits/#ixzz3rgqauT6U; “Shifting consumer demands in grocery,” pwc Canada, www.pwc.com/ca/en/industries/retail-consumer/consumer-
insights-2019/shifting-consumer-demands-in-grocery.html ; “P&G Thinks Inside the Box with New Tide Eco-Box,” Canadian Packaging, November 13, 2018,
www.canadianpackaging.com/sustainability/pg-thinks-inside-the-box-with-new-tide-eco-box-161558/; “Tide Eco-Box Recycling Program,” TerraCycle,
https://tide.com/en-us/shop/type/liquid/tide-original-eco-box; “Tide Liquid Laundry Detergent Eco-Box, Original Scent,” P&G, https://tide.com/en-us/shop
/type/liquid/tide-original-eco-box; Christopher Lombardo, “Sustainability and health-led disruptors enter retail,” Strategy, July 10, 2019, http://strategyonline
.ca/2019/07/10/sustainability-and-health-focused-disruptors-enter-retail/ (accessed July 16, 2019).
Consumer Behaviour CHAPTER 4 121
Reference Groups
A reference group is one or more persons an individual uses as a basis for comparison reference group
regarding beliefs, feelings, and behaviours. A consumer might have various reference groups, One or more persons an
individual uses as a basis
including family, friends, co-workers, or famous people the consumer would like to emulate. for comparison regarding
These reference groups affect buying decisions by (1) offering information, (2) providing beliefs, feelings, and
behaviours.
rewards for specific purchasing behaviours, and (3) enhancing a consumer’s self-image.
Reference groups provide information to consumers directly through conversation or
indirectly through observation. For example, when Emily, a second-year business student
at the University of British Columbia, saw that almost all her colleagues had an activity
tracker (Fitbit, Jawbone, or Garmin), she quickly decided it was time for her to purchase
a smartphone in order to fit in with her peers. Meanwhile, when her brother Sean saw his
football teammates using Bulldog Skincare face wash in the locker room after games, he
was encouraged to try it as well.
Some reference groups also influence behaviours by rewarding behaviour that meets
with their approval or chastising those who engage in behaviour that doesn’t.
For example, smokers are often criticized by their friends and made to smoke
outside or in restricted areas. Research suggests that consumers who feel ostra-
cized tend to make riskier purchase decisions,24 so ostracizing smokers may
make them smoke more or engage in even riskier behaviours.
Consumers can identify and affiliate with reference groups to create,
enhance, or maintain their self-image. Customers who want to be seen as
“earthy” might buy Birkenstock sandals, whereas those wanting to be seen
as “high fashion” might buy Dior bags.
With the increasing popularity of blogs, more and more people are get-
ting recommendations for products from their favourite bloggers. When
you follow a blog about kittens, you might notice that the author posts a
scathing review of a particular cat tree or strongly recommends a product
that encourages kittens to use their litter boxes. Because this blogger offers
insights you appreciate, you go out to buy the litter-box product but avoid What reference group is evoked by
adding that cat tree to your shopping cart. In realizing the vast influence of these Birkenstock sandals?
this reference group, companies today offer prominent bloggers free prod- Stockdisc/Getty Images RF
ucts and sometimes even pay them to write positive reviews.25
Reference groups are a powerful force, especially among young consumers. The
primary way teens have expressed their personalities has long been through their fashion
choices, which has made them an appealing market for retailers such as Forever 21, H&M,
and American Eagle. The teen market also uses social media, smartphones, and various
apps to communicate and express their self-image.
As a result, teens often look for fast-food restaurant
and coffee shops that offer free Wi-Fi.
Culture
We defined culture in Chapter 3 as the shared mean-
ings, beliefs, morals, values, and customs of a group
of people. Your cultural group might be as small
as your reference group at school or as large as the
country in which you live or the religion in which
you participate. For instance, the culture at Bikram’s
university evokes a “high-achiever” attitude. This
reputation influences, to some extent, the way he
spends his leisure time, the types of people he hangs Bloggers can influence their readers to buy or not buy certain
out with, and the kinds of products he buys. Cul- products or services.
ture is one of the most pervasive factors influencing Courtesy of geekgirlreviewsblog.com
122 Section TWO Understanding the Marketplace
Situational Factors
Psychological and social factors typically influence the consumer decision process the same
way each time. For example, your motivation to quench your thirst usually drives you to
drink a Pepsi, and your reference group at the workplace coerces you to wear appropri-
situational factors ate attire. But sometimes, situational factors, or factors specific to the situation, override
Factors affecting the (or at least influence) psychological and social issues. These situational factors are related
consumer decision
process; those that are to the purchase and shopping situation, as well as to the temporal state, as illustrated in
specific to the purchase Exhibit 4.4.
and shopping situation
and temporal state that
may override, or at least
influence, psychological
Purchase Situation
and social issues. Customers may be predisposed to purchase certain products or services because of some
underlying psychological trait or social factor, but these factors may change in certain pur-
chase situations. For instance, Priya Persaud, a Vancouverite, considers herself a thrifty,
cautious shopper—someone who likes to get a good deal. But her best friend is celebrating
a birthday, and she wants to buy her some jewellery. If she were shopping for herself, she
might check out the sale counter at People’s Jewellers. But since it is for her best friend, she
went to Tiffany & Co. Why? She did it to purchase something fitting for the special occasion
of a birthday.
Consumer Behaviour CHAPTER 4 123
Situational factors may influence your purchase decisions. If you are buying jewellery for yourself, you might browse the clearance
counter at People’s Jewellers (left). But if you are buying a gift for your best friend’s birthday, you may go to Tiffany & Co (right).
(left): Shutterstock/Andriy Blokhin; (right): ©Victor J. Blue/Bloomberg/Getty Images
Shopping Situation
Consumers might be ready to purchase a product or service but, for a variety of reasons, be
completely derailed once they arrive in the store. Marketers use several techniques to influence
consumers at this choice stage of the decision process. Consider the following techniques:
• Store atmosphere. For most people, the first sense triggered in a new setting is visual.
Some retailers and service providers have developed unique images known as
atmospherics.28 Research has shown that, if used in concert with other aspects of a
retailer’s strategy, music, scent, lighting, and even colour can positively influence the
decision process.29 Some Whole Foods stores have built bars and restaurants inside
their stores, where customers can stop and relax, have a glass of wine or a bite to eat,
but still get their shopping done for the week. Whole Foods has cutting-edge culinary
centres that offer cooking classes in several of its stores. Other grocery-store chains
are following suit; some have a band play in the store on Friday nights, or offer flat-
screen televisions, comfortable chairs, free Wi-Fi hotspots, in-store cooking classes, or
wine-tasting events to create interactive atmospheres that will appeal to customers.30
• Salespeople. Well trained sales personnel can
influence the sale at the point of purchase by
pointing out the advantages of one item over
another and by encouraging multiple purchases.
The salesperson at Tiffany & Co., for instance,
explained to Priya why one necklace was better
than the next and suggested some other pieces
to go with it. Each Apple store features a simple
layout that enables shoppers to play with the
latest gadgets, though the real key to success is
the salespeople. Apple keeps its product lines
relatively minimal so salespeople can become
familiar with every product in the store. For
more technical questions, Apple Geniuses are
available and consultations can be scheduled. A
training manual recently leaked online shows
that the company takes nothing for granted Abercrombie & Fitch stores blast loud dance music
when training its employees, such that it uses through powerful speakers and pump the company’s
role-playing scenarios, lists banned words, and signature cologne, Fierce, into the air.
specifies exactly how to communicate with AP Photo/Rick Bowmer
124 Section TWO Understanding the Marketplace
Temporal State
Our state of mind at any particular time can alter our preconceived notions of what we
are going to purchase. For instance, some people are “morning people,” whereas others
function better at night. In turn, a purchase situation may have different appeal levels
depending on the time of day and the type of person the consumer is. Mood swings can also
alter consumer behaviour. Suppose Priya received a parking ticket just prior to shopping
at Tiffany & Co. It is likely that she would be less receptive to the salesperson’s influence
than if she came into the store in a good mood. Her bad mood may even cause her to have a
less positive postpurchase feeling about the store. Unfortunately, such temporal factors are
usually beyond the control of even the most creative marketer.
Consumer Behaviour CHAPTER 4 125
As we’ve seen, people’s lives are lived in different contexts and consumer decisions are
made in unique contexts. Marketers who understand this fact are better positioned to serve
their target consumers. All the factors that affect the consumer decision process that we
have discussed—psychological factors, social factors, and situational factors—are impacted
by the level of consumer involvement, the subject of the next section.
)
126 Section TWO Understanding the Marketplace
because these customers don’t even consider alternative brands or stores. Marketers who
are trying to get consumers to switch to their brands often use marketing tactics that require
greater involvement in the purchase decisions. For instance, toothpaste is a habitual or rou-
tine purchase; however, in attempts to lure customers away from each other’s products,
both Crest and Colgate have developed toothpaste with a variety of ingredients and benefits
designed to get customers to stop and think that all toothpastes are not created equal and
that toothpaste is not just toothpaste—it offers various health benefits. The same thing can
be said of bread and a host of other consumer packaged goods.
128 Section TWO Understanding the Marketplace
Key Terms
■■ affective component ■■ functional needs ■■ performance risk
■■ attitude ■■ habitual decision making ■■ physiological needs
■■ behavioural component ■■ impulse buying ■■ physiological risk
■■ cognitive component ■■ internal locus of control ■■ postpurchase dissonance
■■ compensatory decision rule ■■ internal search for information ■■ psychological needs
■■ consumer decision rules ■■ involvement ■■ psychological risk
■■ decision heuristics ■■ learning ■■ reference group
■■ determinant attributes ■■ lifestyle ■■ retrieval sets
■■ esteem needs ■■ limited problem solving ■■ safety needs
■■ evaluative criteria ■■ love (social) needs ■■ self-actualization
■■ evoked set ■■ motive ■■ situational factors
■■ extended problem solving ■■ need recognition ■■ social risk
■■ external locus of control ■■ negative word-of-mouth ■■ specialty goods/services
■■ external search for information ■■ noncompensatory decision rule
■■ financial risk ■■ perception
concept review
1. Give three reasons why it is important for marketers 6. What marketing tactics could be used to break
to understand the factors that influence consumers’ through customers’ selective perception (i.e., selective
purchasing decisions. exposure, selective attention, selective comprehen-
sion, and selective retention)?
2. List the five steps of the consumer buying decision
process. What should be the primary focus of mar- 7. How can marketers use Maslow’s hierarchy of
keting strategy at the alternative evaluation stage? needs model to develop successful marketing
The purchase stage? programs for their target market?
3. What are the primary factors that affect consumers’ 8. Briefly explain how social and situational considera-
search processes? What marketing strategies can tions influence customer buying decisions.
marketers employ to ensure that customers get the
9. Perceived risks are a key determinant of con-
information they need in order to make their shop-
sumer buying decisions. Explain what is meant by
ping decisions?
perceived risks and identify tactics marketers could
4. Briefly explain how the extent of problem solv- use to mitigate these risks.
ing influences consumers’ buying behaviour, and
10. Culture is one of the most important but least
describe four strategies marketers could use to
understood influences on consumer buying
facilitate consumer purchasing in each case. Give
decisions. Explain how marketers can ensure that
examples of products you would classify as high-
their marketing efforts are suited to their cultur-
involvement purchases.
ally diverse target market. What are the challenges
5. Identify and briefly explain the five psychological involved in developing such efforts?
factors that influence consumer buying decisions.
130 Section TWO Understanding the Marketplace
Marketing Applications
1. Does buying Kashi cereal satisfy a consumer’s You decide such an event warrants a completely
functional or psychological need? How might this new outfit. Describe three social factors that might
information help a Kashi brand manager better influence your purchase decision.
promote the product?
8. Trek has designed a new off-road bicycle designed
2. When consumers buy a new notebook computer, to stand up to the rugged conditions of trail riding.
what sort of information search (internal versus Develop a theme for an advertising strategy that
external) would they conduct? If you were a market- covers all three components of attitude.
ing manager for Microsoft, how would you use this
9. What can a marketer do to positively influence a
information?
situation in which a consumer is ready to buy but
3. Explain the factors that affect the amount of time has not yet done so?
and effort a consumer might expend when choos-
10. You were recently hired by a retail and catalogue
ing an oral surgeon to get his or her wisdom teeth
company that promotes itself as a Canadian firm
removed. How would your answer change if the
selling only Canadian-made goods. The products
consumer were looking for a dentist to get a clean-
featured in advertising and in the catalogues tell
ing? How should the office manager for a dental
the stories of the firms that produced the goods in
practice use this information?
Canada. The sales response to the firm’s Made in
4. Explain how a consumer would use decision heuris- Canada position has been incredible and growth
tics to narrow down the choice of restaurants when has been impressive. One day while speaking to a
evaluating different alternatives for a Saturday night vendor, you learn that a shipment of merchandise
outing at a fine restaurant. Give examples of heuris- will be delayed since the product is coming from
tics such as price, brand, and presentation in your overseas and is late. A few days later you hear a
answer. similar story. As it turns out, the firm just barely
earns the Made in Canada label. Although techni-
5. What can retailers do to make sure that they have
cally the products meet the standard to be classi-
satisfied customers after the sale is complete?
fied as Canadian-made, you worry that the firm is
6. Tazo blends exotic green teas, spearmint, and rare not being truthful to its customers. You decide to
herbs to create a tea called Zen. Using Maslow’s write a letter to the vice-president of marketing
hierarchy of needs, explain which need(s) are being detailing your concerns. What would you put in the
fulfilled by this tea. letter?
7. You recently were invited to a formal event at the
home of the president of your university or college.
marketing digitally
1. Visit the Amazon website (www.amazon.ca) and 2. Companies often emphasize either the functional or
describe the benefits it offers to consumers. Click on the psychological needs their products fulfill. Go to Car and
“Try Prime” button. Which kinds of need appeals does Driver’s website (www.caranddriver.com) and identify a
Amazon use to encourage shoppers to join? Trace how luxury car company that emphasizes functional needs
you might go through the steps in the consumer deci- and one that emphasizes psychological needs.
sion process to make a purchase on Amazon. In which
steps does Amazon excel, and where could it improve?
Consumer Behaviour CHAPTER 4 131
Who will win the smart home device battle: Amazon Echo (left), Google Home (centre), or Apple
HomePod (right)?
(left): Charles Brutlag/Alamy Stock Photo; (centre): Shutterstock/Zapp2Photo; (right): Shutterstock/pianodiaphragm
This new device was a huge hit on Amazon Prime Day, sold at a special price of $35, which
made it the top-selling item on Amazon that day.47 In response, Google cut the cost of
Google Home to $100.48 Later, Google partnered with Spotify to give free Home Minis to
Spotify Premium subscribers.49
Even as this head-to-head competition persists and intensifies, other tech companies have
ventured onto the battlefield. Apple introduced its smart speaker home device, HomePod,
at $349 in January 2018.50 Along with the functions provided by Google Home and Echo,
Apple’s entry features a special focus on music and sound quality. Even its name is evoca-
tive of the revolutionary iPod, which changed the way people listen to music. Although it has
since dropped the price to $29951, it is still the most expensive option.
With only a 6 percent share of the market52, it will remain to be seen if devoted Apple
customers will turn this tide.
Questions
1. Trace how you might go through the steps in the consumer decision process if you were
thinking of buying a smart home device.
2. Identify the four determinant attributes that set apart the Amazon, Google, and Apple
smart home devices. Use those attributes to develop a compensatory purchasing model
similar to the one in Exhibit 4.2. Based on your importance and performance ratings,
which product would you buy?
3. Which device features examined in this chapter might have the greatest impact on con-
sumers’ propensity to buy one of these products?
4. After purchasing one of these products, why might you experience postpurchase cogni-
tive dissonance? What might the seller do to help you resolve this dissonance?
Chapter 5
Image of Rosa Scribe (Cree, Norway House) holding a pair of Storyboot Mukluks she produced for Manitobah
Mukluks. Photograph by Vincent Tsang. Used with permission of Manitobah Mukluks.
Business-to-Business Marketing
Learning Objectives
After studying this chapter you should be able to
LO1
Describe the nature and composition of B2B markets
LO2
Explain the key differences between B2B buying and B2C buying
LO3
List the steps in the B2B buying process
LO4
Identify the roles within the buying centre
LO5
Detail different buying situations
The first store that Ottawa-based Shopify built was its own. Founder Tobias Luke wanted to sell snowboards
online. When he couldn’t find an ecommerce solution that suited his needs, the self-professed computer nerd
built one. Little did he know that he would later abandon his snowboard business and sell his merchant system to
retailers. Today, Shopify has become the leading cloud-based platform for merchants to set up and manage their
stores. The company earned over $1 billion in revenue in 2018, a 59-percent year-over-year increase, making his-
tory as the fastest-growing software-as-a-service company ever.1 Full-year revenues for 2019 surpassed $1.5 bil-
lion USD.2 The company has over 800,000 active stores3 and a mission to make commerce better for everyone.4
134 Section TWO Understanding the Marketplace
Don’t be surprised if you’ve never heard of Shopify. As a B2B brand, the company is well known to mer-
chants, but not consumers. While Shopify’s initial goal was to help retailers set up ecommerce sites, the system
has evolved to merge digital and physical retail, working across multiple channels: brick-and-mortar, pop-up
stores, Web, mobile, and social media.5
Although the Shopify platform is suitable for merchants of all sizes, the company’s focus is on small- to
medium-sized businesses. Given that, the system needed to be very user friendly. Even the smallest merchants
can quickly and easily create landing pages to start their stores. One such example is Manitobah Mukluks. Sean
McMormick, a self-made Métis entrepreneur from Winnipeg, launched the company with Josh Fine in 2008 on a
very limited marketing budget.6
While the pair could have used other commerce platforms, they needed one that let them tell their brand
story. Customers paying upwards of $1,000 for Mukluk boots wanted to learn about Sean’s ancestry and com-
mitment to giving back to Indigenous communities. Other platforms would have helped them sell their goods but
were too expensive and not well suited for storytelling. The decision to go with Shopify helped propel Manitobah
Mukluks from a small business to the fastest growing brand of footwear in Canada, ranking among the top 300
fastest-growing companies on the Profit 500 and Growth 500 lists,7 and competing with large companies such as
Uggs in the global market.8
Shopify’s theme-based system is ideal for businesses entering the world of ecommerce. Professionally
designed online templates make it easy for even the smallest company to create an appealing retail presence.
Most companies start with ready-to-go bundled themes. Merchants can also purchase custom-designed themes
or have their developers design their own. The system is subscription based, usually on a one-month term. Sub-
scription solutions were responsible for driving 43.3 percent of total revenues in 2018.9 Growth like that neces-
sitates excellent customer service since there is no guarantee retailers will continue to use the system. Shopify
invests heavily in training its support team, and customers praise the company for its ability to quickly answer
their questions.10
Innovative marketing programs such as the Build a Business competition attract clients. Tens of thousands of
new businesses entered the eight-month competition, selling more than $250 million worth of products using the
Shopify platform.11 To increase its own bottom line, Shopify realizes it must help merchants achieve higher sales.
Retail tour roadshows, a blog, and Shopify Guru are initiatives geared at educating merchants and propelling
them to higher success. The Shopify Blog has become a top ecommerce and entrepreneurial blog.12
COO Harvey Finkelstein is quoted as saying, “In the future, consumers will dictate to the retailer how they
want to purchase.”13 The insight that retail is increasingly becoming digital led the company to develop part-
nerships with social-media platforms such as Pinterest and Facebook. Integrating its platform with Facebook
Messenger gives merchants the ability to provide live customer support, as well as automatically send order
confirmations and shipping updates. Shopify is also building bots for Messenger so merchants can better engage
with their customers.14 To serve customers at brick-and-mortar locations, Shopify offers a point-of-sale system
and allows merchants to accept mobile payments15 at smaller venues such as farmers’ markets. To further help its
clients grow, the company introduced Shopify Capital, a fast and easy way for merchants to secure financing and
grow their businesses.16 A partnership with Google offering Google Pay, recently added the ability for consumers
to choose their preferred shipping option to simplify the checkout process even further.17
The company opened its first-ever physical location in Los Angeles, a city with over 400 top-performing mer-
chants. The hub allows merchants to see Shopify’s new technology, and get support and education about prod-
ucts services to help their businesses grow.18 It launched Shopify Chat, a native chat function, allowing small- and
medium-sized businesses to offer live conversations to their customers.19 Merchants can also directly advertise to
customers through a new Shopify consumer app that gives shoppers access to a marketplace shopping experi-
ence based on every brand they like. Through the app, consumers will automatically see feeds of featured items
from merchants they purchase from.20 Shopify Balance was announced in the midst of the COVID-19 pandemic to
offer small-business owners banking services such as deposit accounts and payment cards. It will launch trials in
the U.S. in late 2020, before being rolled out in Canada.21
Such marketing initiatives helped Shopify grow its employee base threefold from December 2013 to over
1,900 four years later,22 and record 95 percent revenue growth only one year after going public. Today it has
4,000 employees throughout North America and plans to add another 750 employees to its new Toronto office
by 2022.23 It has attracted clients such as Tesla, Red Bull, Allbirds, Kylie Cosmetics, and Ellen DeGeneres. Even
Kanye West uses the platform, selling his clothing line and music through Universal Music Group on Shopify.24
Business-to-Business Marketing CHAPTER 5 135
Business-to-business (B2B) marketing refers to the process of buying and selling goods business-to-business
(B2B) marketing
or services to be used in the production of other goods and services, for consumption by the The process of buying
buying organization, or for resale by wholesalers and retailers. Therefore, B2B marketing and selling goods or
involves manufacturers, (e.g., Levi’s, IBM, Ford) selling to wholesalers that, in turn, sell services to be used in
the production of other
products to retailers. B2B transactions can also involve service firms (e.g., Shopify, UPS, goods and services,
Accenture) that market their services to other businesses but not to the ultimate consumer. for consumption by the
buying organization, or
The distinction between a B2B and a B2C transaction is not the product or service itself;
for resale by wholesalers
rather, it is the ultimate purchaser and user of that product or service. Had your jeans been and retailers.
sold to an industrial supply firm, which then sold them to a custodial firm whose employees
would wear them on the job, the transaction would still be a B2B transaction because the
jeans are being purchased and used by a business rather than by an individual household
consumer.
In this chapter, we will look at the different types of B2B markets and examine the B2B
buying process with an eye toward how it differs from the B2C buying process, which we
discussed in Chapter 4. Several factors influence the B2B buying process, and we discuss
these as well. Finally, the chapter concludes with a discussion about the role of the Internet
and its influence on the way B2B marketing is conducted.
Just like organizations that sell directly to final consumers in B2C transactions, B2B
firms focus their efforts on serving specific types of customer markets to create value for
those customers. For instance, Shopify helps small- and medium-sized companies estab-
lish online stores and reach their ultimate target markets. And, recognizing the growing
demand for ever-increasing smartphone connectivity in cars, both Apple (with its CarPlay)
and Google (with its Android-based Open Automotive Alliance) are making deals to inte-
grate their operating systems into cars. Ferrari, Audi, Mercedes-Benz, Volvo, and more all
offer CarPlay in select models, and it can also be added as an aftermarket system; Google’s
platform is compatible with select models from Cadillac, Honda, Hyundai, General Motors,
and more.25
Many firms find it more productive to focus their efforts on key industries or market
segments rather than on ultimate consumers. Cossette Communication Group and BBDO
Canada, two of Canada’s largest advertising agencies, provide advertising, public relations,
and other marketing communications services to large and small business clients across
Canada. Similarly, Canada’s Magna International designs, develops, and manufactures
automotive systems, assemblies, modules, and components primarily for sale to original
Apple (left) and Google (right) both offer smartphone connectivity for specific car manufacturers.
(left): ©Jae C. Hong/AP Images; (right): ©Martin Leissl/Bloomberg via Getty Images
136 Section TWO Understanding the Marketplace
equipment manufacturers (OEMs) of cars and light trucks in North America, Europe, Asia,
South America, and Africa.26
In the chapter opening vignette, we saw how both small and large merchants sell their
products using Shopify’s commerce platform. Basically, manufacturers, resellers, institu-
tions, and governments are all involved in B2B transactions (see Exhibit 5.1). In the next
sections, we describe each of these B2B organizations.
Resellers
B2B
Manufacturers Institutions
Markets
Government
Manufacturers or Producers
Manufacturers buy raw materials, components, and parts that allow them to manufacture
their own goods. For example, the German-based Volkswagen Group, the largest auto man-
ufacturer in Europe, owns and distributes the Audi, Bentley, Bugatti, Lamborghini, Seat,
Skoda, Scania VW, and VW Commercial Vehicles brands.27 Whereas purchasing agents
formerly spent 70 percent of their time searching for, analyzing, validating, and forwarding
information about parts and components, today they can use VW Group’s ONE.Konzern
Business Platform to communicate with suppliers for all transactions, from procurement
to logistics.
The VW Group is used by 45,600 suppliers engaged in transactions worth nearly $3 bil-
lion.28 Purchasing agents receive product descriptions directly from suppliers online, which
means search processes that used to take two hours now require about nine minutes. Users
of the system receive alerts of potential parts shortages before they occur and thus can
focus on efficiencies instead of redundant paperwork.
IBM provided the consulting services necessary to design the Volkswagen Group’s sys-
tem. IBM, which was once a major manufacturer of computers and related products, now
generates over 90 percent of its profits from its software, consulting, and financing busi-
nesses—all of which are considered services. Like Volkswagen Group, it requires a host of
B2B products and services to support these businesses. For instance, the airlines that IBM
consultants and service providers rely on to shuttle them around the globe also utilize a
mix of products like airplanes and fuel, as well as consulting, legal, and other services.
Business-to-Business Marketing CHAPTER 5 137
Resellers
Resellers are marketing intermediaries
that resell manufactured products with-
out significantly altering their form. For
instance, wholesalers and distributors buy
jeans from Levi Strauss and sell them to
retailers (a B2B transaction), and retail-
ers in turn resell those same jeans to the
ultimate consumer (a B2C transaction).
German-based Volkswagen Group, the largest auto manufacturer in
Wholesalers, distributors, and retailers are
Europe, owns and distributes numerous brands.
all resellers. The Retail Council of Canada
Oliver Hardt/AFP/Getty Images
estimates that there are more than 145,000
retail establishments in Canada, which employ 2.2 million Canadians and generate sales resellers
of $605.9 billion, making the retail industry the country’s largest employer.29 Similarly, the Marketing intermediaries
that resell manufactured
wholesale sector consists of more than 170,000 firms, generating sales of $757 billion in products without
2018.30 The role of wholesalers, retailers, and other intermediaries involved in the distribu- significantly altering their
form.
tion of goods is discussed in greater detail in Chapters 12 and 13.
Institutions
Institutions—such as hospitals, educational organizations, prisons, religious organizations,
and other non-profit organizations—also purchase all kinds of goods and services for the
people they serve. For instance, there are over 170,000 non-profit organizations in Canada,
employing about 2 million people.31 Public institutions engage in B2B relationships to ful-
fill their needs for capital construction, equipment, supplies, food, and janitorial services.
A public school board with a $40 million annual budget for textbooks has significant buy-
ing power, enabling it to take advantage of bulk discounts that would not be available to
individual schools.
Government
In most countries, the central government tends to be one of the largest purchasers of goods
and services. For example, the Canadian federal government spends about $240 billion
annually on procuring goods and services. If you add in the amounts spent by provin-
cial and municipal governments, as well as the academic, social, and health sectors, this
amount increases to more than $550 billion annually. The bulk of the federal government’s
buying of goods and services is done centrally by Public Works and Government Services
Canada on behalf of more than 85 departments, agencies, Crown corporations, and Spe-
cial Operating Agencies.32 Information about government buying can be obtained from
Business Access Canada or from MERX.33 MERX is the most complete source of Canadian
public tenders, private tenders, U.S. tenders, and private-sector construction news available
in Canada. MERX makes it possible for businesses of any size to have easy and affordable
access to billions of dollars in contracting opportunities with the government of Canada,
participating provincial and municipal governments, the U.S. government, state and local
governments, and the private sector.34
138 Section TWO Understanding the Marketplace
**Murat Yukselir, “Tech From Above, Top Drone Markets by 2020,” The Globe and Mail, May 19, 2016, p. B4; Joanna Pachner, “How Aeryon Labs
Intends to Keep Its Industrial Drone Business Aloft,” Canadian Business, December 3, 2015, www.canadianbusiness.com/innovation/aeryon-labs-
industrial-drones/; Keenan Kusan, “Sudbury’s Rise of the Drones,” The Sudbury Star, April 12, 2016, www.thesudburystar.com/2016/04/12/sudburys-
rise-of-the-drones; Aeryon Labs blog, “Ventus Geospatial Inc. Approved to Provide UAS Assistance in Fort McMurray Fire Response,” May 10, 2016,
www.aeryon.com/blog/ventus-geospatial-fort-mcmurray-fire; Aeryon Labs, “Local Drones Helping Survey Damage to Fort McMurray,” May 12, 2016,
https://www.aeryon.com/in-the-news/skyranger-fort-mcmurray; Government of Canada, “Company Profile – Canadian Company Capabilities, Aeryon
Labs, Inc.,” www.ic.gc.ca/app/ccc/srch/nvgt.do?prtl=1&estblmntNo=234567121891&profile=cmpltPrfl&profileId=501&app=sold&lang=eng; Adroit Market
Research, “Drones Market will grow at a CAGR of 40.7% to hit $144.38 Billion by 2025 - Analysis by Trends, Size, Share, Growth Drivers and Business
Opportunities: Adroit Market Research,” west, May 10, 2019, www.globenewswire.com/news-release/2019/05/10/1821560/0/en/Drones-Market-will-
grow-at-a-CAGR-of-40-7-to-hit-144-38-Billion-by-2025-Analysis-by-Trends-Size-Share-Growth-Drivers-and-Business-Opportunities-Adroit-Market-
Research.html; Aeryon, “High-Peformance Drones for Military, Public Safety and Industrial Operators,” www.aeryon.com/; Aeryon, “Aeryon Labs Once
Again Recognized as One of Deloitte’s Technology Fast 500 Companies,” November 16, 2018, www.aeryon.com/news/aeryon-labs-once-again-
recognized-as-one-of-deloittes-technology-fast-500-companies/; “Global Wind Turbine Inspection Drones Market 2019 – Aeryon Labs, Cyberhawk
Innovations, Hexagon, Strat Aero, UpWind Solutions,” http://PortNews24, July 12, 2019, portnews24.com/%EF%BB%BFglobal-wind-turbine-inspection-
drones-market-2019-aeryon-labs-cyberhawk-innovations-hexagon-strat-aero-upwind-solutions/108388 (accessed July 22, 2019).
140 Section TWO Understanding the Marketplace
Market Characteristics
Demand for business products is derived, fluctuates more, and more frequently
Fewer customers, more geographically concentrated, and orders are larger
Demand is more inelastic
Product Characteristics
Products are technical in nature and purchased based on specifications
Mainly raw and semifinished goods are purchased
Heavy emphasis is placed on delivery time, technical assistance, after-sale service, and financing assistance
Product Characteristics
In B2B markets, the products ordered are primarily raw materials and semifinished goods
that are processed or assembled into finished goods for the ultimate consumers. For exam-
ple, Dell orders all the computer components from different suppliers and then assembles
Business-to-Business Marketing CHAPTER 5 141
To Block or Not to Block: The Some digital content publishers also are experiment-
ing with anti–ad blocking software, including Forbes,
Competing and Compelling Interests Wired, and The New York Times. Some news out-
of Advertisers, Users, and Facebook† lets seek to solicit the help of users by asking them
to “whitelist” their specific site. This step tells the ad-
Facebook is, obviously, a social-media site. But it also is blocking software to give a free pass to the ads on a
an advertising platform that links advertisers to consum- particular site. To convince users to agree, one pub-
ers, and in this role, a recent move has stakeholders on lisher noted, “We need to spell this out clearly to our
all sides up in arms. users. The journalism they enjoy costs real money and
As a platform, Facebook has to mediate the interests needs to be paid for.”
of advertisers that pay to place their ads on the site versus Advertisers have praised the move toward anti–ad
the interests of users who don’t want their social interac- blocking software, noting that by facilitating their marketing
tions interrupted by various product and service advertise- communications, Facebook and other platforms are ena-
ments. These contradictory goals have prompted technical bling the market to survive. However, companies that cre-
developments in support of both efforts. For example, ad- ate and sell the ad-blocking software regard the move as
blocking software helps consumers limit the number of unacceptable and cite as evidence the limitations it places
advertisements that pop up as they browse websites, on consumers’ ability to define what they will see on their
including Facebook. In turn, anti–ad blocking software computers. Furthermore, some privacy advocates argue
entered the scene, offering a means to alter the signals that the ad-blocking software can serve another function,
that the blocking software uses to identify something as an as a means to limit the amount of tracking that websites can
advertisement. The advertising gets around the ad-blocking do. If the blocks on ad-blocking become strong enough,
software because it doesn’t look like advertising anymore, such privacy protections would disappear, too.
at least to the algorithm used by existing software. Together with these technological efforts to resolve
Facebook is the latest and most prominent adopter the demands of its various stakeholders, Facebook
of the anti–ad blocking software, suggesting that in this added new options to allow users to indicate their adver-
case, it is prioritizing the needs of its advertisers over tising preferences, which it asserts are sufficient to keep
the desires of its consumers. When users visit Facebook customers happy. As a firm that provides a service to con-
through their computers (the technology is different sumers, Facebook appears to be taking a big risk. As a
for mobile access), even if they have sophisticated ad- business that supports other businesses, it might have no
blocking software installed, they will confront ads. other option.
†Mike Isaac, “Facebook Blocks Ad Blockers, but It Strives to Make Ads More Relevant,” The New York Times, August 9, 2016, www.nytimes.com/
2016/08/10/technology/facebook-ad-blockers.html; Jack Marshall, “Facebook Will Force Advertising on Ad-Blocking Users,” The Wall Street Journal,
August 9, 2016, www.wsj.com/articles/facebook-will-force-advertising-on-ad-blocking-users-1470751204; Mark Scott, “Use of Ad-Blocking Software
Rises by 30% Worldwide,” The New York Times, January 31, 2017, www.nytimes.com/2017/01/31/technology/ad-blocking-internet.html (accessed
July 10, 2019).
the computers before shipping to the final consumer. In certain B2B markets (e.g., aero-
space, medical, pharmaceutical, shipping, defence), the products are very technical and
sophisticated in nature and must conform to technical standards specified by the buyer.
Thus, the raw materials, components, and semifinished goods undergo rigorous testing
before shipping. Also, orders must be delivered on the dates agreed to by both buyers and
sellers. Technical services and financing assistance are important aspects of B2B buying
behaviour. Companies such as Bombardier often provide vendor financing—a practice
where a company provides its customer with a loan that is used to buy goods from the com-
pany.36 In B2C markets, consumers buy finished goods for their own personal consumption.
trained and qualified professionals, and they represent different interests (e.g., managerial,
technical, and departmental) within the organization. The group of people involved in the
buying decision is often referred to as the buying centre, which is described in detail below.
Most companies have formal policies and procedures to guide buying decisions that must be
closely followed by the people involved in the buying decisions. Examples of such procedures
include rules governing competitive bidding, negotiated pricing, complex financial arrange-
ments, buying criteria, and objectives, as well as procedures for evaluating competitive bids.
Another major difference between B2B and B2C buying lies in the nature of the rela-
tionship between the firm and its suppliers. Generally, the buying decision is based on
negotiations, which for complex purchases could be quite extended. The negotiated con-
tract normally covers a range of concerns, including price, delivery, warranty, technical
specifications, and claim policies. In B2B markets, buyers and sellers strive to develop close
relationships with each other and so will often provide help or advice to ensure a win–win
situation for both parties. For example, Shepherd Thermoforming and Packaging is a lead-
ing Canadian manufacturer of plastic products ranging from hot tubs to Tylenol packaging,
as well as smoke detector covers and other plastic items in your home or car. It noted that
its B2B customers often chose to come in and work with its engineering staff to create the
desired look and product functionality that they needed.
In addition, some firms may engage in reciprocal buying arrangements—a practice
where two firms agree to buy each other’s products and services. Clearly, reciprocal buying
has both negative and positive consequences for both the buying and selling firms involved,
as well as for other suppliers. Two such consequences are that it excludes other vendors
from participating in the buying process and may limit the firms to each other’s products,
which may not be the best thing.
If the school does not have a preferred vendor, it issues an RFP and invites various
tablet suppliers, technology companies, and other interested parties to bid on the contract.
Smaller companies may lack the ability to attract broad attention to their requests, so they
might turn to a Web portal, which is an Internet site whose purpose is to be a major starting
point for users when they connect to the Web. Although there are general portals such as
Yahoo or MSN, B2B partners connect to specialized or niche portals to participate in online
information exchanges and transactions. These exchanges help streamline procurement or
distribution processes. Portals can provide tremendous cost savings because they eliminate
periodic negotiations and routine paperwork, and they offer the means to form a supply
chain that can respond quickly to the buyer’s needs.
Importance ×
(4)
(3)
[(2) × (3)]
(1) (2) Vendor’s Performance
Key Issues Importance Score Performance
Customer Service 0.4 5 2.0
evaluate the tablet vendor’s performance, as in Exhibit 5.4, using the following metrics:
delivery (based on promised delivery date), quality, customer service, and issue resolution.
1. The buying team develops a list of issues that it believes are important to consider in
the vendor evaluation.
2. To determine the importance of each issue (column 1), the buying team assigns an
importance score to each (column 2). The more important the issue, the higher its
score, but the importance scores must add up to 1. In this case, the buying team
believes that customer service and quality are most important, whereas the issue
resolution and delivery are comparatively less important.
3. In the third column, the buying team assigns numbers that reflect its judgments
about how well the vendor performs. Using a five-point scale, where 1 equals “poor
performance” and 5 equals “excellent performance,” the school decides that the tablet
vendor performs quite well on all issues except product quality.
4. To calculate an overall performance score in the fourth column, the team combines
the importance of each issue and the vendor’s performance scores by multiplying
them. Because the tablet vendor performed well on the most important issues, when
we add the importance/performance scores in column 4, we find that the overall
evaluation is pretty good—4.2 on a five-point scale.
Although most B2B organizations utilize the buying process described above as a way
to ensure they get the best value for their money, some organizations simply operate based
on a sole source or on longer-term business relationships.
The six-stage B2B buying process may be influenced by three factors within the purchasing
organization: the buying centre, the buying organization’s philosophy or corporate culture,
and the buying situation. In most large organizations, several people typically are respon-
sible for the buying decisions. These buying centre participants can range from employees buying centre
who have a formal role in purchasing decisions (e.g., the purchasing or procurement depart- The group of people
typically responsible for
ment), to members of the design team that is specifying the particular equipment or raw the buying decisions in
material needed, to employees who will be using a new machine that is being ordered. All large organizations.
these employees are likely to play different roles in the buying process, which vendors must
understand and adapt to in their marketing and sales efforts.
We can categorize six different buying roles within a typical buying centre (see Exhibit 5.5).
One or more people may take on a certain role, or one person may take on more than one of
146 Section TWO Understanding the Marketplace
Influencer
Initiator Decider
Buying
Centre
Gatekeeper Buyer
User
initiator the following roles: “(1) initiator, the person who first suggests buying the particular product
The buying centre or service; (2) influencer, the person whose views influence other members of the buying
participant who first
suggests buying the centre in making the final decision; (3) decider, the person who ultimately determines any
particular product or service. part of or the entire buying decision—whether to buy, what to buy, how to buy, or where to
influencer buy; (4) buyer, the person who handles the paperwork of the actual purchase; (5) user, the
The buying centre person(s) who consume(s) or use(s) the product or service; and (6) gatekeeper, the person(s)
participant whose views
influence other members of
who control(s) information or access, or both, to decision makers and influencers.”38
the buying centre in making To illustrate how a buying centre operates, consider purchases made by a hospital.
the final decision. Where do hospitals obtain their X-ray machines, syringes, or bedpans? Why are some
decider medical procedures covered in whole or in part by insurance, whereas others are not? Why
The buying centre might your doctor recommend one type of allergy medication instead of another?
participant who ultimately
determines any part of or
the entire buying decision— The Initiator—Your Doctor
whether to buy, what to buy,
how to buy, or where to buy. When you seek treatment from your physician, he or she initiates the buying process by
buyer determining the products and services that will best address and treat your illness or injury.
The buying centre For example, say that you fell backward on your snowboard and, in trying to catch yourself,
participant who handles
the paperwork of the actual
shattered your elbow. You require surgery to mend the affected area, which includes the inser-
purchase. tion of several screws to hold the bones in place. Your doctor promptly notifies the hospital to
user schedule a time for the procedure and specifies the brand of screws she wants for your surgery.
The person who consumes
or uses the product or
service purchased by the The Influencer—The Medical Device Supplier, the Pharmacy
buying centre.
For years, your doctor has been using Mendell bone screws, a slightly higher-priced screw.
gatekeeper Her first introduction to Mendell bone screws came from the company’s sales representa-
The buying centre
participant who controls tive, who visited her office to demonstrate how Mendell’s bone screws were far superior
information or access to those of its competition. Your doctor recognized Mendell as good value. Armed with
to decision makers and
influencers.
empirical data and case studies, Mendells’s sales rep effectively influenced your doctor’s
decision to use that screw.
must weigh a variety of factors to determine not only whether the Mendell bone screw is
best for patients, but also whether using Mendell bone screws involves a cost that is justified.
Organizational Culture
A firm’s organizational culture reflects the set of values, traditions, and customs that organizational culture
guides its managers’ and employees’ behaviour. The firm’s culture often comprises a set of Reflects the set of values,
traditions, and customs that
unspoken guidelines that employees share with one another through various work situa- guides a firm’s employees’
tions. For example, Walmart buyers are not allowed to accept even the smallest gift from a behaviour.
vendor, not even a cup of coffee. This rule highlights the company’s overall corporate cul-
ture: It is a low-cost operator whose buyers must base their decisions only on the products’
and vendors’ merits.
To excite its customers, GE publishes the series "Drone Week," in which a drone visits a GE
facility every day, and streams it live on Facebook.
Source: General Electric Company
148 Section TWO Understanding the Marketplace
At GE, the culture aims to ensure that members and partners regard B2B as a source
of innovation, not a “boring-to-boring” proposition. Rather than lament the relatively less
glamorous B2B processes, GE has “decided we are geeky and we are proud of it.”39 There-
fore, rather than turning to some of the more conventional uses of Instagram, GE relies
on the social-media site to communicate with “its people,” those followers it affectionately
refers to as #AVgeeks. What GE offers to its business customers is mainly advanced technol-
ogy and scientifically based products and services. But those sorts of offerings are exactly
what get geeks excited, so it offers content that they can share with other geeks, as well as
with their own customers. GE was one of the first adopters of Facebook Live, publishing
the series “Drone Week,” in which a drone visited a GE facility every day, and streaming it
autocratic buying centre live on Facebook. GE has also been innovative in its use of Snapchat, publishing Snapchat
A buying centre in which stories from its leadership event “Minds + Machines” using Snap “Spectacles.”40
one person makes the As these examples show, organizational culture can have a profound influence on pur-
decision alone, though
there may be multiple chasing decisions, and corporate buying centre cultures might be divided into four general
participants. types: autocratic, democratic, consultative, and consensus, as illustrated in Exhibit 5.6.
democratic buying centre Knowing which buying centre culture is prevalent in a given organization helps the seller
A buying centre in which decide how to approach that particular client, how and to whom to deliver pertinent infor-
the majority rules in making
decisions. mation, and to whom to make the sales presentations.
consultative buying
In an autocratic buying centre, though there may be multiple participants, one person
centre makes the decision alone, whereas the majority rules in a democratic buying centre. A
A buying centre in which consultative buying centre uses one person to make a decision, but he or she solicits input
one person makes the
decision, but he or she
from others before doing so. Finally, in a consensus buying centre, all members of the team
solicits input from others must reach a collective agreement through which they can support a particular purchase.41
before doing so. Cultures act like living, breathing entities that change and grow, just as organizations
consensus buying centre do. Even within some companies, culture may vary by geography, division, or functional
A buying centre in which department. Whether you are a member of the buying centre or a supplier trying to sell to
all members of the team
must reach a collective it, it is extremely important to understand its culture and the roles of the key players in the
agreement through buying process. Not knowing the roles of the key players in that case could waste a lot of
which they can support a
particular purchase.
time—both yours and the buying centre’s—and could even alienate the real decision maker.
Democratic
Autocratic
Buying Consultative
Culture
Consensus
Business-to-Business Marketing CHAPTER 5 149
products or services, and warm up a seemingly cold corporate culture.42 Fiberlink offers
document and mobile enterprise management services. To make its offerings and content
more engaging, it launched a series of fun webinars and video campaigns filled with pop
culture references. One webinar, “Game of Phones,” used comparisons from the popular
HBO series Game of Thrones to highlight the different mobile operating systems and detail
how Fiberlink’s platform could enable business customers to leverage their content on all
of them. Thus Apple, as the current market leader, was presented as the House Lannister;
Android was the House Targaryen because the factors that kept it on the sidelines also have
helped it gain power; and Windows was House Stark because it is “full of battle scars.”
The engaging campaign allowed the company to generate 20 percent more new leads than
previous campaigns had achieved.43
An expert who offers advice and knowledge about products can increase brand aware-
ness, and a blog is a great medium for this information. Web analytics, such as traffic on the
website and the number of comments, can offer tangible evaluations, but a better measure
is how often the blog gets mentioned elsewhere, the media attention it receives, and the
interaction, involvement, intimacy, and influence that it promotes.
The LinkedIn social network is mainly used for professional networking in the B2B mar-
ketplace. Twitter is also valuable for B2B marketers, because they can communicate with other
businesses as often as they want. Companies such as HootSuite and TweetDeck make it easier
for companies using Twitter to manage their followers, update their posts, track analytics, and
even schedule tweets, just as they would to manage a traditional marketing campaign.44
The majority of B2B marketers use white papers for their marketing efforts, and the
majority of B2B buyers regularly read them prior to making a purchase.45 When execu-
tives confront an unfulfilled business need, they normally turn to white papers. Their B2B
partner may have a technologically advanced solution, but buyers have to understand the
solution before they can consider a purchase. A good white paper provides information
about the industry and its challenges in an educational context, rather than a promotional
sense, to avoid seeming like simply propaganda. That is, the goal of white papers is to pro-
vide valuable information that a businessperson can easily understand and that will help
the company address its problems with new solutions.
To make its offerings more engaging, Fiberlink launched a series of fun webinars and video
campaigns, like this one that “plays” with the popular HBO series Game of Thrones.
Source: Mobile Nations
150 Section TWO Understanding the Marketplace
Straight
New Buy
Rebuy
Buying
Situations
Modified
Rebuy
Business-to-Business Marketing CHAPTER 5 151
the retail stores he or she represents while trying to imagine what the item will look like
in regular (as opposed to model) sizes. Buyers must also negotiate purchases for orders
that may not be delivered for as much as six months. Buyers can suggest modifications to
make the clothing more or less expensive or more comfortable for their customers. Buy-
ers and designers recognize the significant value of this relationship, which occasionally
prompts buyers to purchase a few items from a designer, even if those items do not exactly
fit the store’s core customers’ tastes. Doing so ensures that the buyer will have access to the
designer’s collection for the next season.47
In a modified rebuy, the buyer has purchased a similar product in the past but has modified rebuy
decided to change some specifications, such as the desired price, quality level, customer Refers to when the buyer
has purchased a similar
service level, and/or options. Current vendors are likely to have an advantage in acquiring product in the past but has
the sale in a modified rebuy situation, as long as the reason for the modification is not dis- decided to change some
specifications, such as the
satisfaction with the vendor or its products. For example, a university’s sports department desired price, quality level,
might ask Adidas to modify the specifications for its basketball shoes after noticing some customer service level, and
improvements made to the Adidas shoes used by a winning university team. options.
A straight rebuy occurs when the buyer or buying organization simply buys addi- straight rebuy
tional units of products that had previously been purchased. A tremendous amount of B2B Refers to when the buyer
or buying organization
purchases are likely to fall into the straight rebuy category. For example, sports teams need simply buys additional
to repurchase a lot of equipment that is not covered by apparel sponsorships, such as tape units of products that
had previously been
for athletes’ ankles or weights for the weight room. The purchase of bottled water also typi- purchased.
cally involves a straight rebuy from an existing supplier.
These varied types of buying situations call for very different marketing and selling
strategies. The most complex and difficult is the new buy because it requires the buying
organization to make changes to its current practices and purchases. As a result, several
members of the buying centre will likely become involved, and the level of their involvement
will be more intense than in the case of modified and straight rebuys. In new buying situa-
tions, buying centre members also typically spend more time at each stage of the B2B buying
process, similar to the extended decision-making process that consumers use in the B2C
process. In comparison, in modified rebuys, the buyers spend less time at each stage of the
B2B buying process, similar to limited decision making in the B2C process (see Chapter 4).
In straight rebuys, however, the buyer is often the only member of the buying centre
involved in the process. Similar to a consumer’s habitual purchase, straight rebuys often
enable the buyer to recognize the firm’s need and go directly to the fifth step in the B2B
buying process, skipping the product specification, RFP process, and proposal analysis and
supplier selection steps.
Over the course of a B2B relationship, the type of buying process also can change.
The buying process for restaurants appears poised to undergo a significant transformation,
because of the potential merger between Sysco and GFS Canada, two of the country’s larg-
est food distributors. Restaurants that once considered their purchases of hamburger meat
a straight rebuy might find that they need to reconsider the process. Because the merger
would create a single, dominant food supplier, the new company will gain much more
power over pricing. In turn, restaurants might need to enter into a modified rebuy (e.g.,
purchase lower quality hamburger to cut costs).
In various ways, B2B marketing both differs from and mirrors the consumer behaviour
(B2C) process we detailed in Chapter 4. The differences in the six stages of the buying pro-
cess make sense in view of the many unique factors that come into play. The constitution of
the buying centre (initiator, influencer, decider, buyer, user, and gatekeeper), the culture
of the purchasing firm (autocratic, democratic, consultative, or consensus), and the context of
the buying situation (new buy, modified rebuy, straight rebuy) all influence the B2B buying
process in various ways, which means that sellers must be constantly aware of these factors
if they want to be successful in their sales attempts. Finally, just as it has done seemingly
everywhere we look, the Internet has radically changed some elements of the B2B world,
increasing the frequency of both private electronic exchanges and auctions.
152 Section TWO Understanding the Marketplace
Key Terms
■■ autocratic buying centre ■■ decider ■■ new buy
■■ business-to-business (B2B) ■■ democratic buying centre ■■ organizational culture
marketing ■■ derived demand ■■ request for proposals (RFP)
■■ buyer ■■ gatekeeper ■■ resellers
■■ buying centre ■■ influencer ■■ straight rebuy
■■ consensus buying centre ■■ initiator ■■ user
■■ consultative buying centre ■■ modified rebuy
concept review
1. List and discuss the unique characteristics of B2B 6. Explain the concept of the buying centre. What factors
markets relative to B2C markets. may influence the behaviour of the buying centre?
What is the role of gatekeepers in buying centres, and
2. What are the major differences between the con-
how do they influence the buying decision?
sumer buying process discussed in Chapter 4 and the
B2B buying process discussed in this chapter? 7. Explain how understanding the role, structure, and
behaviour of a buying centre may help a marketer sell
3. Explain why all B2B purchases may not go through all
to B2B buyers.
the stages of the B2B buying decision process and
why some may go through the process in a more sys- 8. This book claims that the six-step B2B buying process
tematic and rigorous manner. Give examples of buy- is similar to the five-step B2C buying process. How
ing situations to support your answer. would you go about mapping the B2B process to fit
the B2C process?
4. What are the key bases for distinguishing between
new buys, modified buys, and straight rebuys? Sup- 9. How does understanding the organizational cul-
port your answer with three clear examples. ture and buying centre’s culture of a potential B2B
customer help a salesperson who is targeting that
5. List five specific ways in which the Internet has
organization?
enhanced B2B buying and decision making.
Marketing Applications
1. Provide an example of each of the four key types of 2. Mazda is trying to assess the performance of two
B2B organizations. manufacturers that could supply music systems for
its vehicles. Using the information in the table below,
determine which manufacturer Mazda should use.
3. Imagine you have written this book and are going to 8. You have recently been hired by IBM Cognos Analytics
attempt to sell it to your school. Identify the six mem- as a salesperson for its suite of business intelligence
bers of the buying centre. What role would each play applications. Pick one prospective company you plan
in the decision process? Rank them in terms of how to sell to and explain how you would go about identi-
much influence they would have on the decision, with fying the persons in the different roles in the buying
1 being most influential and 6 being least influential. centre for the chosen company. How would you try to
Will this ranking be different in other situations? target the needs of the different members in the buy-
ing centre?
4. Provide an example of the three types of buying situ-
ations that the bookstore at your school might face 9. IBM Cognos Analytics has developed a new busi-
when buying textbooks. ness intelligence application that it would like to sell
to some of its existing customers. You are part of the
5. Describe the organizational culture at your school or
sales team. How would your approach to selling to an
job. How is it different from the one at the last school
existing customer be different from selling to a new
you attended or the last job you had?
customer?
6. Nike manufactures shoes and sportswear. How has
10. You have just started to work in the purchasing office
the Internet changed the way this company communi-
of a major pharmaceutical firm. The purchasing man-
cates with its suppliers and retail customers?
ager has asked you to assist in writing an RFP for a
7. What are the major differences between the consumer major purchase. The manager gives you a sheet
buying process (discussed in Chapter 4) and the B2B detailing the specifications for the RFP. While read-
buying process discussed in this chapter? Use buying ing the specifications, you realize that they have been
iPads for personal use versus buying more than 100 written to be extremely favourable to one bidder. How
iPads for a firm to illustrate the key points. should you handle this situation?
marketing digitally
1. Browse the Public Services and Procurement Canada the primary task of helping the company move
website (www.tpsgc-pwgsc.gc.ca) to learn more about into the B2B marketplace, selling its merchandise
how you may sell goods and services to the federal primarily to government departments. Explain how
government. Using the information on the website, you would go about getting Mark’s ready to do
describe the buying process used by the federal gov- business with the Canadian government. Hint: You
ernment, and explain how the electronic tendering will find helpful information on the following
system supports buying and selling between Cana- websites: Public Services and Procurement Canada
dian companies and the government of Canada. (www.tpsgc-pwgsc.gc.ca), Public Works and Gov-
ernment Services Canada (https://buyandsell.gc.ca),
2. Mark’s, a Canadian company that currently oper-
and Innovation, Science and Economic Develop-
ates mainly in the B2C market, has hired you as
ment Canada (www.ic.gc.ca).
its government–business relations officer with
equipment to ensure that workers can keep their files organized and their workspaces pro-
ductive.48 To facilitate these offerings, Staples has equipped its B2B sales associates in the
field with iPads that are loaded with a virtual assistant. Rather than relying on their recall or
a bulky product catalogue, they can depend on the virtual tool to determine which type of
furniture polish will save their business clients the most money while still enabling them to
keep all their surfaces free of dirt.49
To appeal even more to these small-business owners and provide them with not just office
supplies but also ideas on how to run their offices, Staples has introduced the Quick Wins
app. The app tracks the small businesses’ performances on a range of measures, includ-
ing social-media engagement, website traffic, and financial metrics, all in one place. In this
case, the innovative offering is a clear response to customer demand. Through its research,
Staples determined that approximately 41 percent of its small-business customers expressed
their need for help with these measures of performance, but they also did not know which
metrics were most important or how to measure them accurately. Worried about their ability
to keep up with the information, respondents to Staples’ surveys also noted that they would
prefer for all the information to be available in one easy-to-read dashboard. In helping busi-
ness customers track key data regularly, Staples promises to develop customized, specific
suggestions for how the business customers can expand their firms and increase business.
Furthermore, through the Quick Wins app, users can interact with other small-business own-
ers, seeking answers and support from their peers.50
Once they determine their performance, small-business owners identify sources of
improvement. Pursuing such improvements often requires new investments, especially mon-
etary ones—a resource that many small-business owners usually lack. According to Statistics
Canada, almost 48 percent of working Canadians are employed by or own small businesses.
Many of these business struggle with cash flow and accessing needed capital to keep their
companies running.51 Therefore, Staples’ latest service introduction is Lendio, an online
financing arm that facilitates loans for these customers. Accessing the loan forms through
Staples’ main website, business customers can provide the necessary information quickly
and easily.52 Lendio then forwards the information to a relevant lender and maintains the
financing agreement. In just a few months, Lendio had facilitated close to $1.5 million in loans
to small firms.53
By spreading and expanding its B2B offerings, Staples effectively protects against
upheaval in any one market. Sales that it categorizes as B2B account for approximately one-
third of its $23 billion in annual revenue. The revenues earned through Lendio, for example,
are still just a tiny percentage of those totals, but by adding this service, Staples achieves two
critical goals. First, it establishes itself as a source for such services, so the contributions to
its bottom line might grow over time. Second, it makes sure that it is available for every need
that a business customer might have. By doing so, Staples becomes a true partner that busi-
nesses turn to so that they can serve their own customers.
Questions
1. Imagine a small business that has long bought its office supplies from Staples. It reads
about Lendio and considers whether to ask for a loan. What kind of buying situation has
this small business entered?
2. What attributes should this small business use to evaluate Staples as a vendor? What
about Lendio? Using those attributes for Staples and Lendio, perform two separate ven-
dor analyses.
SECTION three Targeting the Marketplace
Chapter 6
Segmentation, Targeting,
and Positioning
Learning Objectives
After studying this chapter you should be able to
LO1
Describe the bases marketers use to segment a market
LO2
Identify the criteria for determining the attractiveness of a segment and whether it is
worth pursuing (targeting)
LO3
Explain the differences among targeting strategies: undifferentiated, differentiated,
concentrated, or micromarketing
LO4
Define positioning and describe how firms do it
Segmentation, Targeting, and Positioning CHAPTER 6 157
Segmentation is key to identifying the right target markets. As a start-up company, SoCIAL LITE Vodka knew
it had to be extremely focused on segmentation. Its alcoholic beverages were made with 100 percent natural
flavours, were unsweetened, and had only 80 calories. Two great flavours were available: Lemon Cucumber Mint
and Lime Ginger. SoCIAL LITE co-founder Neetu Godara said they had to very quickly identify who would fall in
love with the products.1
You might think it would be easy to determine the target market for a new alcoholic drink. In this day and
age of heightened health-consciousness, SoCIAL LITE Vodka is the type of product that could appeal to a wide
variety of consumers. So it would seem like an obvious choice to use a psychographic approach to segment the
market, based on health and wellness. Sugar is in the news every day and it’s not hard to find groups of people
who read labels when shopping for new products.
Although the product appeals primarily to women, SoCIAL LITE Vodka was started in Toronto by two
men—Dan Beach and Kevin Folk—in their kitchen as they were mixing drinks. They wanted to be able to
enjoy a drink that wouldn’t impact their ability to go for a long run the following day. Given their Ontario
roots, you might wonder why the entrepreneurs decided to launch their product in Alberta. After all, other
geographical regions in the country offer much higher population density. Godara says Alberta was chosen
because liquor stores there are privately owned, not government-owned, which makes it easier to get prod-
ucts listed. Still, there were challenges. With 1,400 independently owned locations, it took a lot of phone
calls to convince store managers to carry the products.
Logistically it would have been far easier to sell into the Ontario market via government-owned Liquor Con-
trol Board of Ontario (LCBO) stores. And the Ontario geography was on their radar from day one. But convincing
the LCBO was a slow process. In the meantime, the Alberta launch allowed SoCIAL LITE to get its products into
affluent urban centres such as Calgary and Edmonton. Success in Alberta paved the way to move farther west
into British Columbia, where the liquor market is half publicly and half privately owned. Three years later, after
seeing sales results that proved the market for the products in Western Canada, the LCBO agreed to list SoCIAL
LITE Vodka.
For SoCIAL LITE, segmentation bases such as psychographics or geographics were an important part of
identifying and describing potential target markets. But marketers need to consider more than just one segmen-
tation base to find the right target markets. Godara notes that, demographically, you can target whomever you
like. For example, an ideal target market might include women in their mid-thirties to late fifties. But you also need
to consider if their psychographic profile indicates that they seek out healthy products and carefully watch what
they eat.
When segmenting the overall market, Godara says you also need to consider the retail environment in
which your product will sell. The reality is that the ready-to-drink category skews heavily to a younger crowd.
If you stop to think about store placement, ready-to-drink products are found in the cooler aisle. And the vast
majority of traffic in that aisle is under the age of 25. While older women matched the demographic profile
for the products, behaviourally, it was going to be harder to attract them in-store. Age became an important
demographic variable, together with a focus on psychographics in SoCIAL LITE’s segmentation analysis.
Multiple target markets were identified, with “Socialite Andy” being primary. You will read more about other
segments later in the chapter.
Having identified appropriate target markets, the company turned its marketing efforts to positioning its prod-
ucts in the minds of target consumers. SoCIAL LITE Vodka focuses on functional benefits and taste, as a way to
socialize without regret—have fun without having to worry about calories, sugar, artificial ingredients, or gluten.
With benefits like these, Godara knew that SoCIAL LITE would soon be on everyone’s lips. Competitors took note,
too. And in spite of over 20 brands now offering unsweetened vodka beverages, SoCIAL LITE is LCBO’s fastest
growing with over 234 percent growth in the last year.2
In Chapter 1, we learned that marketing is about satisfying consumers’ wants and needs.
A company could make one type of beverage and hope that every customer would buy
it, but that’s the kind of mistake that causes companies to go out of business. Beverage
manufacturers could analyze the market to determine the different types of drinks people
want and then make several varieties that cater to specific groups. It is not enough just to
158 Section Three Targeting the Marketplace
make the product, however. Drink manufacturers, such as SoCIAL LITE, must position
their products in the minds of their target market so those consumers understand why
a particular drink meets their needs better than competitive brands do. Chapter 3 noted
how companies analyze their markets and the environment around them to determine the
different kinds of products and services people want. This process requires a plan, as we
discussed in Chapter 2. As you might recall, the third step of this plan is identifying and
evaluating opportunities by performing a segmentation, targeting, and positioning (STP)
analysis. This chapter now expands on that very analysis.
In the chapter vignette, SoCIAL LITE identified the various groups, or market seg-
ments, of people who would respond similarly to the firm’s marketing efforts. Those who
like low-calorie drinks are one market segment; people who prefer drinks with higher alco-
hol content constitute a different segment. After evaluating the attractiveness of different
market segments, SoCIAL LITE decided to concentrate its new product line on one group
of consumers—its target market—because it believed it could satisfy this group’s needs bet-
ter than its competitors could.
Once the target market was identified, SoCIAL LITE had to convince members of the
targeted group that, when trying a new drink, their choice should be SoCIAL LITE Vodka.
It achieved this task by defining the marketing mix variables so that the target custom-
ers had a clear, distinctive, desirable understanding of what the product or services do or
represent, relative to competing products. To achieve its market positioning, SoCIAL LITE
designed messaging that has positioned its vodka drinks as low-calorie, healthy, and sin-
free. Packaging was prominently used in all advertising efforts so customers would be able
to recall SoCIAL LITE Vodka at the need recognition stage of the consumer buying process
described in Chapter 4. The company has also made sure that the drinks are available most
places its customers would want to buy them.
The Segmentation–Targeting–
Positioning Process
In this chapter, we discuss how a firm conducts a market segmentation or STP analysis. We
start by discussing market segmentation, or how a segmentation strategy fits into a firm’s
overall strategy and objectives and which segments are worth pursuing. Then we consider
how to choose a target market or markets by evaluating each segment’s attractiveness and,
on the basis of this evaluation, choosing which segment or segments to pursue. Finally,
we describe how a firm develops its positioning strategy. The segmentation, targeting, and
positioning process is shown in Exhibit 6.1.
opportunity, though following through on that opportunity could lead to the threat of
competitive retaliation. To make use of its strengths, SoCIAL LITE decided to look at
segments that would benefit from its health and wellness attributes, which is clearly
consistent with its overall strategy and objectives.
Now let’s take a look at the methods, or bases, that can be used to segment the market.
Segmentation
Step 2:
Geographic Segmentation bases
Geographic segmentation organizes customers into
groups on the basis of where they live. Thus, a mar-
ket could be grouped by country (Canada, Germany,
China), by region (Atlantic Canada, Western Canada), Evaluate
by areas within a region (province, city, neighbour- Step 3: segment
hoods, area codes), or by climate and topography attractiveness
(warm, cold and snowy, mountainous). For example,
SoCIAL LITE launched its products in Western Can- Targeting
ada first and then moved to Ontario. Not surprisingly,
geographic segmentation is most useful for companies
Select
whose products satisfy needs that vary by region. Step 4: target
Firms can provide the same basic goods or services market
to all segments even if they market globally or nation-
ally, but better marketers make adjustments to meet
the needs of smaller geographic groups. For instance,
a national grocery-store chain, such as Sobeys or
Identify and
Loblaws, runs similar stores with similar assortments
develop
in various locations across Canada. Within those Step 5: Positioning
positioning
similar stores, though, a significant percentage of the
strategy
assortment of goods will vary by region, city, or even
neighbourhood, depending on the different needs of
the customers who surround each location.
160 Section Three Targeting the Marketplace
Demographic Segmentation
demographic Demographic segmentation groups consumers according to who they are using easily
segmentation
measured, objective characteristics such as age, gender, income, education, race, occupa-
The grouping of
consumers according to tion, religion, marital status, family size, family life cycle, and home ownership. These
easily measured, objective variables represent the most common means to define segments because they are easy
characteristics such as
age, gender, income, and to identify. As discussed in Chapter 3, generational cohorts are often used by marketers,
education. and millennials are often targeted. In another example, car makers often consider mar-
ket segments defined by their income levels. Kellogg’s uses age to define segments for its
line of breakfast cereals. Froot Loops and Rice Krispies are for kids, while Special K and
All-Bran are for adults. In addition, demographically segmented markets are easy to reach.
For instance, if McCain Foods or Pizza Hut wants to advertise its newest pizza to kids, it
can easily determine that the best place for TV ads would be on Nickelodeon or the Disney
Channel. By considering the viewer profiles of various TV shows, McCain and Pizza Hut
can find those that fit their target market’s demographic profile.
Gender plays a very important role in how most firms market products and services.
For instance, TV viewing habits vary significantly between men and women. Men tend to
channel surf—switching quickly from channel to channel—and watch prime-time shows
that are action oriented and feature physically attractive cast members. Women, in con-
trast, tend to view shows to which they can personally relate through the situational plot
or characters and those recommended by friends. Print media are similar: A company such
as Proactiv, which seeks to appeal to both men and women worried about the condition
of their skin, carefully considers the gender-based appeal of different magazines when it
purchases advertising space.
However, demographics may not be useful for defining the target segments for other
companies. For example, demographics are poor predictors of the users of activewear, such
Segmentation, Targeting, and Positioning CHAPTER 6 161
as yoga pants or athletic shoes. At one time, firms such as Nike assumed that activewear
would be purchased exclusively by young, active people, but the health and fitness trend
has led people of all ages to buy such merchandise. Even relatively inactive consumers of
all ages, incomes, and education levels find activewear more comfortable than traditional
street clothes. Some companies focus on gender as a way to grow their revenues, as you will
read in the chapter end case on lululemon.
Because it is relatively easy to gather information, demographic variables are often
used for segmenting markets. Depending on the nature of the product and market, how-
ever, marketers may find it more advantageous to combine demographic segmentation
with other segmentation bases, described below, to derive a richer understanding of their
potential customers. Rethinking some stereotypical ideas about who is buying thus has
become a relatively common trend among firms that once thought their target market was
well defined.
Psychographic Segmentation
Of the various methods for segmenting, or breaking down the market, psychographics is psychographics
the one that delves into how consumers actually describe themselves, or how they live. As This segmentation base
delves into how consumers
you read in the opening vignette, SoCIAL LITE Vodka targets people whose psychographic describe themselves;
profile indicates that they are health conscious and carefully choose what they eat and allows people to describe
themselves by using
drink. Usually marketers determine (through demographics, buying patterns, or usage) those characteristics that
into which segment an individual consumer falls. Psychographics studies how people self- help them choose how
select, as it were, based on characteristics that help them choose how they occupy their they occupy their time
(behaviour) and what
time and what underlying psychological reasons determine those choices.3 For example, a underlying psychological
person might have a strong need for inclusion or belonging, which motivates him or her to reasons determine those
choices.
seek out activities and interests that involve others, which then influences the products he
or she buys to fit in with the group. If a consumer becomes attached to a group that enjoys
literary discussions, she or he is motivated to buy the latest books and spend time in stores
such as Indigo. Such self-segmentation by the consumer could be very valuable knowledge
Marketers such as MEC want their ads to appeal to one’s self-concept. “I’m like them, so I
should buy their products.”
Photo by Felix Rioux and Mountain Equipment Co-Op (MEC)
162 Section Three Targeting the Marketplace
for bookstore managers trying to find new ways of attracting customers. As you will read
in the chapter case study, when determining what ads customers see on its site, Netflix
focuses on what viewers like and then shows options that match those interests. Determin-
ing psychographics involves knowing and understanding three components: self-values,
self-concept, and lifestyles.
self-values Self-values are life goals, not just the goals one wants to accomplish in a day. They are
Goals for life, not just the overriding desires that drive how a person lives his or her life. Examples of self-value
the goals one wants
to accomplish in a
goals might include self-respect, self-fulfillment, or a sense of belonging. This motivation
day; a component of causes people to develop self-images of how they want to be and then determine a way
psychographics that refers of life that will help them arrive at these ultimate goals. From a marketing point of view,
to overriding desires that
drive how a person lives self-values help determine the benefits the target market may be looking for from a prod-
his or her life. uct. Lexus uses the tagline “Amazing in Motion” and BMW uses “‘Designed for Driving
Pleasure” and “The Ultimate Driving Machine” to target these values. In this sense, the
underlying, fundamental, personal need that pushes a person to seek out certain products
or brands stems from his or her desire to fulfill a self-value, or goal.
self-concept People’s self-image, or self-concept, is the image people have of themselves.4 A person
The image a person who has a goal to belong may see, or want to see, himself or herself as a fun-loving, gregari-
has of himself or
herself; a component of
ous type whom people wish to be around. Marketers can make use of this image through
psychographics. communications that show their products being used by groups of laughing people who
are having a good time. The connection emerges between the group fun and the product
being shown and connotes a certain lifestyle that many consumers seek. TV commercials
for dating services such as eHarmony use this technique to sell their services. L’Oréal uses
the tagline, “Because I’m Worth It,” for its hair colour products.
Such tactics need to balance the ideal with the realistic. Advertisements for men’s
underwear tend to feature salacious shots of incredibly cut men, usually with shaved
chests. But in making this appeal to women who might purchase briefs, boxers, and T-shirts
for their husbands or partners, underwear marketers forgot about men as their underlying
target market. And these male shoppers have long felt uncomfortable in stores, reaching
for a box featuring a nearly naked man. Rather than being aspirational, the models had
become so outside the norm that they seemed like a cruel taunt. Thus, a recent advertis-
ing campaign by the men’s underwear brand 2(x)ist features a handsome but not “perfect”
model, wearing a robe that covers most of his body. The Mack Weldon brand offers up
another handsome but slightly goofy model, who trips while trying to take off his pants to
reveal his underwear.5
lifestyles Lifestyles, the third component of people’s psychographic makeup, are the ways we
Lifestyles are how we live live.6 If values provide an end goal and self-concept is the way one sees oneself in the con-
our lives to achieve goals.
text of that goal, lifestyles are how we live our lives to achieve goals. Someone with a strong
sense of belonging who sees himself as a “people person” will probably live in a well popu-
lated area that allows for many activities. He likely will join clubs or partake in activities
that attract like-minded people. This gives marketers a built-in target group with similar
interests and buying desires. Lululemon quickly built a global empire of sportswear cloth-
ing and accessories based not on demographics but on the philosophy of a healthy, bal-
anced, fun-filled lifestyle. Likewise, SoCIAL LITE has targeted people who live a healthy,
active lifestyle and recently added the words “Be Social, Live Lite” on its cans to clearly
make the point that its products are about a lifestyle.7
One of the most storied lifestyles in North American legend is the Harley way of life.
The open road, wind in your hair, rebelling against convention—the image nearly always
depicted the same way it was decades ago by actor Dennis Hopper in the movie Easy Rider.
But the notions of freedom, rebellion, and standing out from a crowd vastly appeal to all
sorts of people. In response, Harley-Davidson has shifted its STP methods to define four tar-
get markets that include men older than 35 years, young adults 18–34 years, women older
than 35 years, and men and women older than 35 years.8 For millennials, for example, it
has partnered with social influencers such as Jessica Haggett, the founder of an all-female
Segmentation, Targeting, and Positioning CHAPTER 6 163
On the left is its core segment consisting of men older than 35 years. The ad on the right targets women older than
35 years.
Source: H-D U.S.A, LLC
motorcycle club, and actor, producer, and model Jason Momoa to be the voice of the com-
pany on social media. Furthermore, it is focusing its advertising efforts on popular events
such as the X Games and the Ultimate Fighting Championship (UFC.) Harley-Davidson
has even introduced a virtual reality game, Crew 2, that allows players to virtually weave
through city streets on a motorcycle. It is also expanding the number of stores with its rid-
ing academy, which now has almost 250 locations, to teach millennials how to ride and to
make sure they feel comfortable on a motorcycle.9
The most widely used tool to support such psychographic segmentation efforts is the
Values and Lifestyle Survey (VALS™), owned and operated by Strategic Business Insights VALS
(SBI).10 Adults aged 18 and older are classified into one of eight segments, based on answers A psychological tool
developed by Strategic
to the VALS™ survey and proprietary algorithm (www.strategicbusinessinsights.com/ Business Insights that
vals/presurvey.shtml). The vertical dimension of the VALS™ framework indicates level of classifies consumers
resources, including income, education, curiosity, energy level, and degree of innovation. into eight segments:
Innovators, Thinkers,
The upper segments (Innovators, Thinkers, Achievers, Experiencers) have more resources Believers, Achievers,
and are more innovative than those at the bottom (Believers, Makers, Strivers, Survivors). Strivers, Experiencers,
Makers, and Survivors.
The horizontal dimension shows the segment’s primary psychological motivation.
Consumers buy products and services because of their primary motivations—that is, how
they see themselves in the world and how that self-image governs their activities. The three
universal primary motivations are ideals, achievement, and self-expression. People who
are motivated by ideals (e.g., Thinkers, Believers) are guided by knowledge and principles,
whereas those who are motivated by achievement (e.g., Achievers, Strivers) look for prod-
ucts and services that demonstrate success to their peers. Exhibit 6.3 provides a description
of the VALS™ types. You can view a visual comparison of these types on the SBI website
(www.strategicbusinessinsights.com/vals/demobehav.shtml).
164 Section Three Targeting the Marketplace
It is just as easy to identify Thinkers (left) as it is Makers (right). A person is given the VALS™ questionnaire, and the VALS™
program at SRIC-BI runs the answers through the computer for scoring to determine the VALS™ type.
(left): Sam Edwards/Getty Images; (right): Huntstock/Getty Images
alike, as we saw with Harpreet and Javinder. Women are not all alike either! Since it can be
expensive to identify and target “Thinkers” versus “Makers,” psychographic segmentation
is often used in conjunction with other segmentation methods.11
Behavioural Segmentation
Behavioural segmentation groups consumers on the basis of why they buy, how often, behavioural
and how they plan to use the products or services. Each segmentation base addresses specific segmentation
Groups consumers based
aspects related to consumers. How geographic segmentation differs from demographic is on the benefits they derive
perhaps more obvious than how psychographic versus behavioural segmentation is applied. from products or services,
their usage rate, their
To make it easier to remember how each base is used, refer to Exhibit 6.4. loyalty, and the occasion.
As mentioned above, behavioural segmentation looks at the benefits consumers are
looking for in a product or service, their usage rates (in other words, how often they buy or
use the product or service,) how loyal they are to it, and the occasion for which the product
or service is used. For example, some universities consider interest in sustainability initia-
tives as a way to segment and target both students and their parents. Because marketing
is about satisfying consumers’ needs and wants, dividing the market into segments whose
needs and wants are best satisfied by the product benefits can be very powerful. It is also
relatively easy to portray a product’s or service’s benefits in the firm’s communication strat- occasion segmentation
egies: usage rates of products or services, user status, and loyalty. Some companies track Groups consumers based
on when they purchase
consumer behaviour and use it for better customer experiences or interactions with the or consume a product or
firm. For example, Amazon makes recommendations to customers while they are brows- service.
ing its site by matching their profiles to those of
other customers. Exhibit 6.4 Segmentation Bases Simplified
Behavioural segmentation based on when
a product or service is purchased or consumed Segmentation Base Simplification
is called occasion segmentation. Moores
Geographic Where do they live?
Clothing for Men uses this type of segmentation
to develop its merchandise selection and its pro- Demographic Who are they?
motions. Sometimes men need a suit for their
Psychographic How do they live?
everyday work, but other suits are expressly
What is their lifestyle?
for special occasions, like a prom or a wedding.
Snack food companies like Frito-Lay also make Behavioural Why do they buy?
and promote snacks for various occasions— How often?
How do they plan to use the products?
individual servings of potato chips for a snack
on the run, but 255 gram bags for parties.
166 Section Three Targeting the Marketplace
benefit segmentation As mentioned previously, benefit segmentation considers the benefits customers
Groups consumers based are looking for from products or services. Because marketing is all about satisfying needs
on the benefits they derive
from products or services. and wants, dividing the market into segments according to which consumers’ needs and
wants your offerings can best satisfy makes a lot of sense. An excellent illustration of
benefit segmentation can be found in the Royal Bank of Canada. Although it considers
that its customers may be defined in a number of ways, its primary categorization centres
on the benefits that customers seek from a bank. RBC divides personal (i.e., nonbusiness)
customers into five primary benefit groups: Youth, Nexus, Borrowers/Builders, Wealth
Accumulators, and Wealth Preservers.12 As the names of these segments suggest, RBC
approaches them according to the benefits these customers want their banks to provide,
such as the accumulation or the preservation of their wealth.
As discussed in Sustainable Marketing 6.1, Nature's Path understood that consumers
wanted the benefits associated with eating organic foods.
The Expanding Uses of Data restaurant managers and hosts can ensure that they rec-
ognize diners on sight, and welcome them personally,
Mining and Analytics in the even if they are not regular customers.
Restaurant Industry** For consumers, such operations offer clear benefits.
Being known by restaurant staffers gives consumers a
When Damian Mogavero, a restaurant group CFO, real- sense of importance. Furthermore, a vegetarian diner
ized the vast need for improved data analytics in the would not have to listen to a long list of meat-oriented
restaurant sector, he decided to found a new kind of specials, for example, but instead might receive informa-
technology company, Avero. It is dedicated to helping tion about alternative menu options that the chef could
approximately 40,000 restaurants around the world with create. If the restaurant also uses these data to enhance
their data needs. Specifically, Avero collects data from its operations, consumers likely would enjoy shorter wait
restaurants and provides them with meaningful insights times and less chance of popular menu items selling out
on everything from customer service to menus. Its dedi- before they can place their order. For the restaurants, the
cated server mentoring program helps improve servers’ benefits stem from their ability to provide such services
skills and ability. It also provides novel insights into how to customers. The results should include reduced oper-
weather might affect business, which food items are sell- ational costs, more streamlined service provision, and
ing the best, and which raw materials represent the most increased sales.
expensive costs for each restaurant. But concerns persist, even among these benefits. For
Avero is just one of the many companies offering consumers, these systems entail gathering substantial
advanced data analytics support for restaurants. Other amounts of data, with few means to opt out of providing
t systems being developed for the restaurant industry col- that information. If customers make a reservation and pay
lect the vast information that diners provide with every with a credit card, the company has a lot of information
meal, including the types of food they prefer, with whom already, and they can do little to stop a restaurant manager
they socialize, the time of day they like to eat, how often from searching for their name online. Thus privacy con-
they eat out rather than at home, and so on. These sys- cerns are paramount. For restaurants, in addition to being
tems make recommendations for the restaurants to expensive, the systems could lead to an over-reliance on
improve their service, such as by ensuring a particular data, undermining the personal touch that often leads to
menu item is in stock on the day and time that they can service success. Ultimately, personalized service requires
expect consumers to order it. By also integrating infor- a personal touch. Yet that touch might become far more
mation from consumers’ social-media pages, high-end effective if it is underlain by advanced data analytics.
**Karen Stabiner, “To Survive in Tough Times, Restaurants Turn to Data-Mining,” The New York Times, August 25, 2017, www.nytimes.com/2017/08/25/
dining/restaurant-software-analytics-data-mining.html; “How Data Analytics Is Becoming a ‘Moneyball’ for Restaurants,” CBS News, February 4, 2017,
www.cbsnews.com/news/how-data-analytics-is-becoming-a-moneyball-for-restaurants/; “About,” Damian Mogavero, www.damianmogavero.com/new-
index-1; “Restaurant Software Solutions,” Avero, www.averoinc.com/products (accessed July 15, 2019).
cluster profiles. The PSYTE system groups all neighbourhoods in Canada into 60 different
lifestyles clusters with specific locations. The information in Exhibit 6.5 describes three
PSYTE clusters PSYTE clusters.16 PRIZM, a segmentation system developed by Environics Analytics,
The grouping of all groups Canadians into one of 68 lifestyle types—with names such as Cosmopolitan Elite,
neighbourhoods in Canada
into 60 different lifestyles Diverse City, La Vie Est Belle, and Lunch at Tim’s—and is also widely used in Canada. The
clusters. system provides a Canadian segmentation model that has linked geodemographics to other
data, such as psychographics, incorporating “Social Values” data from Environics Research
with demographics and product preferences to explain consumer behaviour.17
Geodemographic segmentation can be particularly useful for retailers because custom-
ers typically patronize stores within or close to their neighbourhood. Thus, retailers can use
geodemographic segmentation to tailor each store’s assortment to the preferences of the local
community. If a toy-store chain discovers that one of its stores is surrounded by a less affluent
segment, “Big Sky Families,” it can adjust its offerings to include less expensive merchan-
dise. This kind of segmentation is also useful for finding new locations; retailers identify their
“best” locations and determine what type of people live in the area surrounding those stores,
according to the geodemographic clusters. They can then find other potential locations where
similar segments reside. Geodemographic systems, such as PSYTE and PRIZM, can also help
marketers track and compare sales performance among various clusters in different locations.
Segmentation, Targeting, and Positioning CHAPTER 6 169
Lifestyle Type
Description The most urban of all the The young families who moved With a population that’s more
segments, Urban Digerati is into starter homes a decade than two-thirds visible minority
a collection of younger, tech- ago are growing up. In Heritage and nearly 30 percent speaking
savvy singles concentrated Hubs, these now middle- a non-official language at
in the downtown apartment aged families have crafted home, the tech-savvy members
buildings of two cities: Toronto comfortable lifestyles—often of Young & Connected
and Montreal. Reflecting two thanks to dual incomes—in encompass a broad mix of
emerging demographic trends— suburban communities slowly cultural backgrounds. Younger
the increasing urbanization being absorbed by the urban immigrants from the Caribbean,
of Canada and the growth of sprawl. Nearly 85 percent of Africa, and Asia have all made
high-rise neighbourhoods— residents live in houses built their way to these inner-city
Urban Digerati offers residents since 1990. While the housing neighbourhoods mostly in
a vibrant vertical world, with stock is mixed, one-quarter Toronto and other big cities.
bedrooms in the clouds live in row houses—about four These days, the populace
and a lively social scene on times the national average. skews younger, with two-thirds
the ground. Upper-middle- Reflecting the increasing of residents under the age of
income, highly educated, diversity of the nation’s suburbs, 45. Their downscale incomes,
and culturally diverse, Urban more than 40 percent of modest educations, and
Digerati neighbourhoods are households contain immigrants, uncertain jobs create significant
typically filled with recently though no one cultural group challenges for the segment’s
built high-rise apartments and dominates. Family-filled households, more than a
condos located near fitness Heritage Hubs households quarter of which are lone-parent
clubs, clothing boutiques, and score high for participating families—among the highest
all types of bars—from wine to in basketball, swimming, and in the nation. Despite tight
coffee to microbrew. Because hockey. On weekends, families budgets, research shows that
many residents have yet to head to theme parks, zoos, Young & Connected members
start families, they have the and aquariums. With their enjoy active social lives, with
time and discretionary income international roots, families high rates for dining at Mexican
to pursue active social lives, here are seasoned travellers, and Asian restaurants, going
going dancing and bar-hopping, often visiting China, Florida, out to bars and nightclubs,
as well as hitting film festivals and Jamaica. To save money, and frequenting baseball and
and food and wine shows. A vacations are frequently booked basketball games. With their
group that likes to be viewed through discount online travel children, they shoot hoops at a
as trend-setters, they turn to services at all-inclusive resorts. local court and visit amusement
online shopping to purchase the parks and water parks. And for a
latest fashion and electronics. night out, they take in the latest
They have also made their action or family flick on the
health and wellness a priority, silver screen with their family or
taking aerobics and yoga/ friends.
Pilates classes. But they’re not
merely acquisitive materialists;
many are globally conscious
consumers who support the arts
and are actively involved in their
communities.
Knowing what benefits customers are seeking or how the product or service fits a
particular lifestyle is important for designing an overall marketing strategy, but such
segmentation schemes present a problem for marketers attempting to identify specifically
which customers are seeking these benefits. Thus, firms often employ a combination of
segmentation methods, using demographics and geography, as discussed above, to identify
and target marketing communications to their customers, and then using benefits or life-
styles to design the product or service and the substance of the marketing message.
Segmentation grids can be a useful tool when trying to identify possible target markets,
describe them using segmentation bases, and determine the most attractive segments to
pursue. Refer to Exhibit 6.6 for an example of a segmentation grid for SoCIAL LITE Vodka.
Segmentation Base Socialite Andy Looking for LITE Liz Fitness and Diet Seekers
Geographic Urbanite, Campus Urban/suburban areas Urban/suburban areas in
Where do they live? in Ontario, Alberta, and Ontario, Alberta, and British
British Columbia Columbia
Income <$50K
Who are they? Ages 19–34 Ages 25–55 Ages 25+
>$60K
Professionals Income
Psychographic Fun-loving party type, into Mindful shopper of what Proactively seek out “better
How do they live? yoga, running. Always she eats and drinks. Reads for you” products that fit their
What is their lifestyle? on top of trends. Enjoys labels and avoids negative active and clean lifestyle.
fashion, pop culture, ingredients. Tries to cook Active on social media
weekends with friends at fresh and local. Active, posting everything from gym
barbecues, concerts, and works out, successful but selfies to new gluten-free
parties. doesn’t take herself too recipes and latest protein
seriously. powder find. Still encourage
things that support a
balanced lifestyle.
Behavioural Very loyal to products she Wants to have a good time Super loyal to new finds
Why do they buy? likes, e.g., low calorie, all and drink with friends but that fit lifestyle. Brand
How often? natural, no added sugar. without the high calorie advocates for products they
How do they plan Influencer, likes introducing and sugar content of other love online. Niche segments
to use the products/ her network to new drinks. include:
services? products and trends. Wants single serve – Fitness buffs looking for
Always searching for new refreshments. healthy options
taste sensations. – Sugar-free dieters (paleo)
who avoid sugary drinks
– Gluten-free community
to deal with health
concerns
Segmentation, Targeting, and Positioning CHAPTER 6 171
Identifiable Reachable
Segment
Attractiveness
Substantial
Responsive
and Profitable
Identifiable
Firms must determine who is within their market to be able to design products or services
to meet their needs. It is equally important to ensure that the segments are distinct from
one another because too much overlap between segments means that distinct marketing
strategies aren’t necessary to meet segment members’ needs.
The Gap has identified several distinct segments to pursue. Recognizing that many
of its core customers had families, The Gap opened GapKids and babyGap. Its research
also indicated an opportunity to compete with Victoria’s Secret in the women’s intimate
apparel market, so it opened GapBody. Finally, though The Gap is largely successful with
middle-of-the-road customers, it was too expensive for some customers and not fashion-
forward enough for others. Its Old Navy and Banana Republic stores appeal better to
these markets.
Reachable
The best product or service cannot have any impact if that market cannot be reached (or
accessed) through persuasive communications and product distribution. Consumers must
know the product or service exists, understand what it can do for them, and recognize how
to buy it.
La Senza is one of Canada’s leading specialty retailers of women’s lingerie and apparel.
It is composed of La Senza Lingerie, La Senza Express, La Senza Spirit, and lasenza.com,
and it sells through stores and the Internet. The company simply uses its website to attract
its targeted customers to explore its merchandise and fashions so that they can be comfort-
able and knowledgeable when they visit the physical stores to shop. Advertisements appear
in media that are consistent with the lifestyle La Senza is trying to portray: lively, attractive,
stylish, fun, and cool.
172 Section Three Targeting the Marketplace
Responsive
For a segmentation strategy to be successful, the customers in the
segment must react similarly and positively to the firm’s offering. If,
through its distinctive competencies, the firm cannot provide prod-
ucts or services to that segment, it should not target it. For instance,
suppose La Senza is considering introducing a line of formal dress
wear for its large and very lucrative 18- to 35-year-old customer seg-
ment. People in this market are currently purchasing formal dress
wear at stores such as The Bay, Holt Renfrew, and Les Ailes de la
Mode (Wings of Fashion). In contrast, La Senza has built a reputa-
tion for carrying a full range of intimate, stylish, and sexy daywear
La Senza must ensure that any new segment it and sleepwear bras, panties, camisoles, pyjamas, and nightshirts
considers is identifiable, reachable, responsive, and competes best in this apparel line. Although the formal dress-
substantial, and profitable.
wear segment meets all the other criteria for a successful segment,
Chris Rout/Alamy Stock Photo
La Senza should not pursue it because the market probably will not
be responsive to it.
The Gap has identified several distinct segments to pursue. Two of its brands: Gap (left) and
GapKids (right) appeal to different target markets.
(left): The McGraw Hill Companies, Inc./Andrew Resek, photographer; (right): Andrew Walters/Alamy Stock Photo
Segmentation, Targeting, and Positioning CHAPTER 6 173
Which segment will be more profitable to Mark’s: its traditional market for industrial workwear
(left), or the top-line casual apparel segment (right)?
(both): Trademarks of Canadian Tire Corporation, Limited used under licence.
174 Section Three Targeting the Marketplace
markets. The homeowner segment is much larger than the business segment, but there
are already several lawn services with established customers. There is much less competi-
tion in the business segment. So, the segment adoption rate for the homeowner segment
is only 1 percent, compared with 20 percent for the business segment. Camillo can charge
a much higher price to businesses, and they utilize lawn services more frequently. The
profit margin for the business segment is higher as well because Camillo can use large
equipment to cut the grass and therefore save on variable labour costs. However, the fixed
costs for purchasing and maintaining the large equipment are much higher for the busi-
ness segment. Furthermore, he needs to spend more money obtaining and maintaining
the business customers, whereas he would use less expensive door-to-door flyers to reach
household customers. On the basis of these informed predictions, Camillo decides the busi-
ness segment is more profitable for his lawn service.
Using this formula, several segments could appear to be equally profitable. In some
cases, it is more accurate to evaluate the profitability of a segment over the lifetime of one
of its typical customers—that is, through customer lifetime value (CLV), the total value of
purchases of the customer over a lifetime of patronage. For example, Ken Danns has been
a loyal Costco customer for the last five years, spending about $300 per week at Costco.
He plans to continue patronizing Costco for at least another five years. To Costco, Ken
Danns is not a $300 customer but a $156,000 customer if he patronizes Costco for 10 years
($300 × 52 weeks × 10 years). To address the issue of CLV, marketers consider factors such
as how long the customer will remain loyal to the firm, the defection rate (percentage of
customers who switch on a yearly basis), the costs of replacing lost customers (advertis-
ing, promotion), whether customers will buy more or more-expensive merchandise in
the future, and other such factors. They would also consider the time value of money. See
Appendix 7A for more details on determining the lifetime value of customers.
Now that we’ve evaluated each segment’s attractiveness (Step 3), we can select the tar-
get markets to pursue (Step 4).
Exhibit 6.8 Profitability of Two Market Segments for Camillo’s Lawn Service
Homeowners Businesses
Segment size 75,000 1,000
Purchase behaviour
Purchase price $100 $500
Frequency of purchase 12 times 20 times
Micromarketing
Concentrated
One-to-One
(top left): © Digital Vision; (top right): © BananaStock/PunchStock; (bottom left): © Jose Luis Pelaez Inc/Blend Images LLC;
(bottom right): © Digital Vision.
the segment) and its own competencies (strengths and weaknesses based on SWOT analy-
sis) very carefully.
Determining how to select target markets is not always straightforward. Exhibit 6.9
illustrates several targeting strategies, which are now discussed in more detail.
What about gasoline? Everyone with a car needs it. Yet gasoline companies have
vigorously moved from an undifferentiated strategy to a differentiated one by segment-
ing their market into low-, medium-, and high-octane gasoline users. Esso even uses its
Speedpass to differentiate its quick service to consumers: With just a swipe at the pump
with Speedpass, you are ready to pump gas—no need to swipe cards, enter personal infor-
mation, or sign receipts. Plus, customers earn Esso Extra points or Aeroplan Miles on
every eligible purchase made at Esso. Points can be redeemed for gas, car washes, snacks,
and travel rewards.
taurant.†† Psychographics and behavioural segmentation A unique strategy attracts franchisees based on their
are also important to identify and attract customers who desired lifestyle. Restaurants serve only breakfast and
are interested in healthy eating and want the benefit of lunch and thus are open between 6 a.m. and 3 p.m., an
nutritious meals. To make it easy for consumers to find approach born out of necessity from Cora’s early days as
restaurants in different geographies, Cora’s launched an a single mom. These hours are considerably shorter than
app that finds the nearest restaurant and presents spe- most restaurant operations and thus appeal to franchisees,
cial offers.‡ allowing them to spend more time with their families.
†“The Founder,” www.chezcora.com/a/01-belle-histoire/1-3-fondatrice2.htm (accessed June 7, 2010).
††Sabritir Ghosh, “Made to Order,” Report on [Small] Business (September 2009), www.theglobeandmail.com/report-on-business/your-business/start/
franchising/made-to-order/article1265158 (accessed July 1, 2014).
‡Cora, “You can now download the Cora mobile app on your phone!,” www.chezcora.com/en/i-do-breakfast/voir/you-can-now-download-the-cora-
mobile-application-on-your-phone-18 (accessed July 12, 2019).
Newton Running has concentrated its targeting strategy on runners—but not all run-
ners. It focuses only on those who prefer to land on their forefeet while running, a style that
recently has been suggested to be more natural, efficient, and less injury-prone than the
style encouraged by more traditional running shoes with their heel-first construction and
substantial cushioning. In comparison, though it also is known for its running shoes, Nike
uses a differentiated targeting strategy (recall the opening vignette about Nike in Chapter 2).
It makes shoes for segments that include basketball and football players and skateboarders,
as well as fashion-conscious white-collar workers, with its subsidiary brand Cole Haan.
Micromarketing21
Take a look at your collection of belts. Have you ever had a belt made to match your exact
specifications? When a firm tailors a product or service to suit an individual customer’s micromarketing
wants or needs, it is undertaking an extreme form of segmentation called micromarketing (one-to-one)
(one-to-one) (see Exhibit 6.9). Small producers and service providers generally can tailor A form of segmentation
that tailors a product or
their offering to individual customers more easily, whereas it is far more difficult for larger service to suit an individual
companies to achieve this degree of segmentation. Nonetheless, companies such as Dell and customer’s wants or needs.
178 Section Three Targeting the Marketplace
mass customization
The practice of interacting
on a one-to-one basis with
many people to create
custom-made products or
services; providing one-
to-one marketing to the
masses.
Build-A-Bear lets
customers design their
own stuffed furry friend
with unique clothes,
accessories, sounds,
and the name printed
on its birth certificate.
Courtesy of Build-A-Bear
Workshop, Inc.
Segmentation, Targeting, and Positioning CHAPTER 6 179
strategy is customized in real time, using known and accurate data about the customer.
Customers can even do the work themselves, both to view items for themselves and to find
the perfect gifts for others. Mars’ M&M’s site (www.mymms.com) lets customers custom-
ize their own M&M’s with personalized greetings, including messages for birthday parties,
sporting events, graduations, and weddings—even wedding proposals!
The degree to which firms should target their markets—from no segmentation to one
segment to multiple segments to one-to-one segments—depends on the balance the firm
wants to achieve between the added perceived customer value that segmentation can offer
and its cost.
Gatorade 7-Up
Target market For athletes around the world For noncola consumers
A firm’s positioning strategies must focus on the value a product or service offers the
target consumer, or how it is better than competitors’ products and services. When position-
ing against competitors, the objective is to play up how the brand being marketed provides
the desired benefits better than those of competitors. Positioning strategies are realized by
positioning statement communicating particular messages (i.e., the positioning statement) in persuasive com-
Expresses how a company munications through different media.
wants to be perceived by
consumers. In Exhibit 6.10, we illustrate some elements of a positioning statement as follows:
1. target market
2. offering name or brand
3. product/service category or concept
4. unique point of difference/benefits
Let’s focus on a couple of well-known products—Gatorade and 7-Up—and their poten-
tial value propositions (brackets added to separate the components):
• Gatorade:23 For [athletes around the world] [Gatorade] is the [sports drink] that
[represents the heart and soul of athleticism. Unlike water, it gives the fuel for
working muscles, fluid for hydration, and electrolytes to help replace what is lost in
sweat before, during, and after activity to get the most out of your body].
• 7-Up:24 For [noncola consumers] [7-Up] is a [noncaffeinated soft drink] that [is light,
refreshing, lemon-lime flavoured. Unlike colas, it has a crisp, clean, and refreshing
taste].
Positioning Methods
Usually, firms position their products and services based on different methods such as
value, product attributes, benefits and symbolism, and competition. Let’s explore each of
these in a bit more detail.
Value
Value is a popular positioning method because the relationship of price to quality is
among the most important considerations for consumers when they make a purchase
Segmentation, Targeting, and Positioning CHAPTER 6 181
KIND and PowerBar both offer their respective target markets a good value. KIND bars (left) are made with natural
ingredients, all of which are pronounceable, thus supporting a healthy lifestyle. PowerBars (right) are protein bars
designed to improve the performance of athletes.
(both): ©McGraw Hill Education
decision. Some energy bar users buy only KIND bars because they are made with all-
natural ingredients, have no artificial preservatives or sweeteners, come in a multitude of
varieties (including its original nut-based products, fruit snacks, and protein bars), and are
a relatively healthy snack option. Consistent with the values of many in its target market,
it embraces a conscious marketing perspective. Importantly, it has attempted to provide a
better-tasting alternative to competing energy bars like PowerBars. PowerBars, while also
healthy and nutritious, appeal to endurance athletes and endurance athlete wannabees by
providing high-protein energy bars designed to replenish vital nutrients to tired muscles.
Recall from our discussion in Chapter 1, value means different things to different people.
Both KIND and PowerBars provide value to their respective target markets.
Value does not necessarily mean low priced. For example, in the kids’ toy market, Mega
Bloks uses a low-price, value-based strategy, whereas its competitor, Lego, relies on a high-
price positioning strategy. Watchmaker Patek Philippe uses the advertising tagline, “You
never actually own a Patek Philippe. You merely take care of it for the next generation,” to
encourage buyers to consider the watch's value as an investment.25 Other brands that rely
on a similar idea of luxury value include Hermès, Chanel, and Mercedes-Benz.
Some companies claim that they are offering the same value for much less money.
This type of positioning is common among wireless service providers (e.g., Rogers, Bell,
TELUS), cable/satellite TV and radio providers (Sirius, Rogers), electronics retailers (Best
Buy), and department stores (The Bay). Companies such as Internet Superstore, Buy.com,
and TigerDirect emphasize that consumers are getting the best computer deals anywhere
and at much lower prices. Finally, companies may use value positioning to let consumers
know that while they are getting much less, they are also paying much less. WestJet, dollar
stores (e.g., Buck or Two, Dollarama), and countless retailers targeting cost-conscious con-
sumers commonly use this strategy.
Product Attributes
Another common positioning strategy focuses on those attributes that are most important
to the target market. Volvo traditionally positioned itself for the safety-conscious driver but
now wants to stretch its safety image to one focused on driving performance and excite-
ment. With its all-wheel-drive Quattro, Audi has positioned itself on performance and
handling. Targeting a different market, Subaru positions its all-wheel drive slightly differ-
ently, instead focusing on safety and handling.
Positioning strategies that are based on product attributes tend to focus on product
leadership, emphasizing dimensions such as innovation, quality, performance, design,
and reliability. 3M and HP focus on their innovations, while Rockport focuses on com-
fort and a wide selection of shoes for all occasions. Cora’s, a product-attributes success
story, is able to compete in the highly competitive restaurant market by attracting a
target market that wants a healthy and homey breakfast or lunch (see Entrepreneurial
Marketing 6.1).
182 Section Three Targeting the Marketplace
Audi features the all-wheel-drive Quattro, which is positioned to appeal to those wanting great
performance and handling, particularly on snowy and icy roads.
Shutterstock/Lexan
Competition
Firms can choose to position their products or services head-to-head against a specific
competitor or an entire product/service classification on similar attributes within the tar-
get market. Using head-to-head positioning, Avis positioned itself alongside Hertz with its
message “We try harder.” Ranked second in the rental car market, Avis used this approach
for more than 50 years. Head-to-head positioning can lead to price wars such as the “cola
wars” and “cellphone wars,” which are good for consumers but bad for businesses. Market-
ers must be careful that they don’t position their product too closely to their competition
because they risk confusing customers or facing legal challenges. If, for instance, their
package or logo looks too much like a competitor’s, they might be opening themselves up
to a trademark infringement lawsuit. Numerous store brands have been challenged for
having packaging confusingly similar to that of national brands. McDonald’s, for example,
Segmentation, Targeting, and Positioning CHAPTER 6 183
sues anyone who uses the Mc prefix. It sued Quality Inns International when it named its
no-frills chain McSleep Inns.26 However, courts have allowed parody jeans for full-figured
women to be sold under the Lardashe label, despite the objections of Jordache jeans.
Firms can also choose a differentiation strategy by going after a less competitive, smaller
market niche.27 For instance, Goodrich tires were promoted as “The Other Guys,” or the ones
without the blimp, to set them apart from Goodyear tires. McDonald’s, which has long been
known as the world’s number-one beef burger joint, has responded to industry critics and health-
conscious consumers by improving the “health of its menu” with more healthy choices such as
salads and chicken sandwiches. In doing so, it tried to avoid competition with arch-rivals Wendy’s
and Burger King while minimizing the impact of cannibalization of its existing menu items.
As Ethical & Societal Dilemma 6.1 notes, Walmart positions itself as the low-cost
leader, even when selling typically premium priced organic products.
Market Leadership
Instead of positioning head-to-head, companies, especially well-established market leaders,
may emphasize their leadership position within their industry. Canadian companies such
as RBC Royal Bank, Loblaw, and Canadian Tire, and global companies such as Amazon,
Intel, HP, Google, and eBay, play up their status as market leaders in their respective indus-
try. All of these companies are already the leader in their industry and so consumers often
perceive them as setting the standards of their industry.
Chart B
Chart A Sweet taste
Sweet taste
Pepsi Powerade 2
1
Gatorade
Less
Healthy
Less natural 4
Healthy
natural
Propel Fitness 3
Water
Bottled water
Light taste
Light taste
Target market size indicated by size of oval
Segmentation, Targeting, and Positioning CHAPTER 6 185
2. Identify the market’s ideal points and size. On a perceptual map, marketers can
represent the size of current and potential markets. For example, Exhibit 6.11B uses
different sized ovals that correspond to the market size. Ideal point 1 represents the
largest market, so if the firm does not already have a product positioned close to this
point, it should consider an introduction. Point 3 is the smallest market, so there are
relatively few customers who want a healthy, light-tasting drink. This is not to suggest
that this market should be ignored; however, the company might want to consider a
niche- rather than mass-market strategy for this group of consumers.
3. Identify competitors’ positions. When the firm understands how its customers view
its brand relative to competitors’, it must study how those same competitors position
themselves. For instance, Powerade positions itself closely to Gatorade, which means
they appear next to each other on the perceptual map and appeal to target market 2.
(See Exhibit 6.11C.) They are also often found next to each other on store shelves, are
similarly priced, and are viewed by customers as sports drinks. Gatorade knows that
its sports drink is perceived to be more like Powerade than like its own Propel Fitness
Water (located near target market 3), or Coke (target market 1).
4. Determine consumer preferences. The firm knows what the consumer thinks of the
products or services in the marketplace and their positions relative to one another.
Now it must find out what the consumer really wants—that is, determine the “ideal”
product or service that appeals to each market. For example, a huge market exists for
traditional Gatorade, and that market is shared by Powerade. Gatorade also recognizes
a market, depicted as the ideal product for segment 4 on the perceptual map, of
consumers who would prefer a less sweet, less calorie-laden drink that offers the
same rejuvenating properties as Gatorade. Currently, no product is adequately serving
market 4.
5. Select the position. Continuing with the Gatorade example, the company has three
choices to appeal to the “less sweet sports drink” target market 4. It could develop
a new product to meet the needs of market 4. (See Exhibit 6.11D.) Alternatively, it
could adjust or reposition its marketing approach—its product and promotion—to
sell original Gatorade to market 4. Finally, it could ignore what target market 4 really
Chart C
Chart D
Sweet taste
Sweet taste
Coke
Pepsi Powerade Coke
Pepsi Powerade
1 2 Gatorade #2: Gatorade
1 2 repositions itself
Gatorade
#1: Gatorade
introduces new
Less product
Healthy Less Gatorade
natural 4 Healthy
natural 4
Propel
3 Fitness Propel Fitness
3 Water
Water Bottled water
Bottled water
Light taste
Light taste
186 Section Three Targeting the Marketplace
wants and hope that consumers will be attracted to the original Gatorade because it is
closer to their ideal product than anything else on the market.
6. Monitor the positioning strategy. Markets are not stagnant. Consumers’ tastes shift,
and competitors react to those shifts. Attempting to maintain the same position year
after year can spell disaster for any company. Thus, firms must always view the first
three steps of the positioning process as ongoing, with adjustments made in step 4 as
necessary.
Repositioning
Sometimes firms try to change their positioning. In its earliest days, Skechers was mostly a
lifestyle brand, with hip styles and vibrant designs that appealed to young trendsetters and
hipsters, both men and women. When it realized that older consumers wanted hip lifestyle
shoes too, it introduced its Shape-Up line and repositioned its image accordingly. CoverGirl
realized that consumers were becoming more diverse, and some of its consumers viewed
makeup as a means of self-expression. Since not only women were using its products, the
brand shifted its positioning away from its “Easy, Breezy, Beautiful” tagline to “I Am What
I Make Up.”28 Tiffany & Co. has long been known for luxury jewellery that is most often
purchased by wealthy individuals. In the 1990s, the company, following a trend of “afford-
able luxury,” tried to reposition by expanding its product assortment to appeal more to the
middle class. Tiffany introduced a silver charm bracelet priced at $110 that became very
popular with teenagers and resulted in explosive sales growth for the company. Although it
was a financial success, at least in the short term, the image of inexpensive silver jewellery
alienated older, more affluent customers who now viewed Tiffany as a common brand. In
response, the company increased prices on its silver products by 30 percent in an attempt to
reclaim its position as a luxury jeweller.
Good marketers constantly reevaluate their brand’s position to determine when to
reposition it. Companies should reposition their brands to keep up with changes in the
marketplace or to put a fresh spin on their stale and stodgy brand. Many companies that
operate on the idea “If it ain’t broke, then don’t fix it” often find out too late that their brand
needs a serious makeover. The result is that their positioning is so badly damaged that it
takes years and huge budgets to rebuild. Proactive companies change or tinker with their
positioning to keep up with market dynamics. For example, for most of General Electric
Company’s history, its positioning was based on product—“We Bring Good Things to
Gatorade with football player Jason Taylor (left) and Powerade with soccer player David Beckham (right) are positioned to
compete for target market 3 in Exhibit 6.11.
(left): Doug Benc/Getty Images; (right): Ezra Shaw/Getty Images
Segmentation, Targeting, and Positioning CHAPTER 6 187
Life”—which served GE very well. GE replaced that positioning with one that focuses on its
rich history of innovation: “Imagination at Work.”29
Brand repositioning (rebranding) refers to a strategy in which marketers change brand repositioning
a brand’s focus to target new markets or realign the brand’s core emphasis with chang- (rebranding)
A strategy in which
ing market preferences.30 Although repositioning can improve the brand’s fit with its marketers change a
target segment or boost the vitality of old brands, it is not without costs and risks. brand’s focus to target
new markets or realign
Firms often need to spend tremendous amounts of money to make tangible changes to the brand’s core emphasis
the product and packages, as well as intangible changes to the brand’s image through with changing market
various forms of promotion. These costs may not be recovered if the repositioned brand preferences.
and messages are not credible to the consumer or if the firm has mistaken a fad for a
long-term market trend.
Repositioning can change the quality image of the brand, as noted earlier in the Tiffany
example. However, WestJet successfully repositioned itself from a no-frills low-cost leader
to a considerably higher quality airline by adding luxuries such as leather seats and seat-
back LCD TV screens. Repositioning can breathe life into old brands.
Marketers use several criteria to assess a segment’s LO4 efine positioning and describe how firms
D
attractiveness. First, the customer should be identifi- do it
able—companies must know what types of people are in
the market so they can direct their efforts appropriately. Positioning is the “P” in the STP (segmentation, targeting,
Second, the market must be reachable—the firm must be and positioning) process. It refers to how customers think
able to reach the segment through effective communi- about a product, service, or brand in the market relative to
cations and distribution. Third, the firm must be respon- competitors’ offerings. Firms position their products and
sive to the needs of customers in a segment. It must be services according to several criteria. Some focus on their
able to deliver a product or service that the segment will offering’s value—customers get a lot for what the prod-
embrace. Finally, the market must be substantial enough uct or service costs. Others determine the most important
to be worth pursuing. If relatively few people appear in a product attributes for customers and position their offer-
segment, it is probably not cost-effective to direct special ing on the basis of those attributes. Benefits and symbols
marketing mix efforts toward them. Additionally, the seg- can also be used for positioning, though few products
ment must be profitable, both in the near term and over or services are associated with symbols that are com-
the lifetime of the customer. pelling enough to drive people to buy. Companies may
also use their dominant position in their market—market
LO3 Explain the differences among targeting leadership—to position their products or services. Finally,
strategies: undifferentiated, differentiated, competition is one of the most common positioning meth-
concentrated, or micromarketing ods and relies on the favourable comparison of the firm’s
offering with the products or services marketed by com-
Firms use a targeting strategy after they have identified petitors (head-to-head). Companies may also choose to
the segments. An undifferentiated strategy is really no compete by differentiating their value proposition.
Segmentation, Targeting, and Positioning CHAPTER 6 189
Key Terms
■■ behavioural segmentation ■■ ideal point ■■ psychographics
■■ benefit segmentation ■■ lifestyles ■■ PSYTE clusters
■■ brand repositioning (rebranding) ■■ loyalty segmentation ■■ self-concept
■■ concentrated (or niche) targeting ■■ mass customization ■■ self-values
strategy ■■ micromarketing (one-to-one) ■■ undifferentiated targeting strategy
■■ demographic segmentation ■■ occasion segmentation (mass marketing)
■■ differentiated targeting strategy ■■ perceptual map ■■ usage rate
■■ geodemographic segmentation ■■ positioning ■■ VALS™
■■ geographic segmentation ■■ positioning statement ■■ value proposition
concept review
1. How do segmentation, targeting, and positioning add 6. Explain the difference between positioning and a
value to a company’s value proposition? positioning statement. Why do you think market-
ers find market positioning one of the most difficult
2. Outline the steps in the STP process. What are some
aspects of the STP process? How can marketers try to
of the key decisions marketers have to make at each
influence the positioning of their products or services
step?
in the marketplace?
3. List the bases that can be used to segment a market
7. List four types of strategies companies could use to
for a product or service. Which of these bases is con-
position their products or services in the marketplace.
sidered to be the most difficult to use and which is the
When Home Depot says, “You Can Do It. We Can
easiest? Why?
Help,” for what type of positioning is it striving?
4. Describe the segmentation bases you think Coca-Cola
8. What is a perceptual map? How is it used in devel-
used to develop its target segment. What kinds of
oping positioning strategies or identifying market
products do you think this segment was buying before
opportunities?
Coca-Cola introduced its Coke Zero brand? Thinking
back to the consumer buying decision process, what 9. Why should marketers consider repositioning their
kinds of strategies do you think were necessary to get brand? Explain what is meant by repositioning and the
this segment to switch to Coke Zero? major challenges and risks inherent in repositioning.
5. List the four types of targeting strategies companies 10. An online news article suggests that Sony will launch the
can use to serve selected market segments. What PlayStation 5 game console with a “Play has no limits”
are the main points to consider before selecting one positioning. The focus is on lightning speed and a power-
or more of these strategies? What are the advan- ful CPU to rewrite the rules of what a PlayStation console
tages and disadvantages of each strategy, and how can do. Do you think that Sony can do this successfully?
can competitors influence the strategy a company Give reasons. Do you think consumers will ever see the
chooses? PlayStation as a computer? Why or why not?
190 Section Three Targeting the Marketplace
Marketing Applications
1. What segmentation methods would you suggest for a overall strategy, (b) characteristics of the target mar-
small entrepreneur starting her own business selling ket, (c) why that target market is attractive, and (d) the
gourmet chocolates? Justify why you would recom- positioning strategy. Provide justifications for your
mend those methods. decisions.
2. You have been asked to identify various segments 9. Think of a specific company or organization that
in the market and then a potential targeting strategy. uses various types of promotional material to market
Describe the segments for a pet supply store. Justify its offerings. (The Internet, magazine ads, newspa-
the best targeting strategy to use. per ads, catalogues, newspaper inserts, direct mail
pieces, and flyers might all be sources of promotional
3. For what types of products would you use demo-
materials.) Locate two or three promotional pieces for
graphic segmentation? How about psychographic
the company and use them as a basis to analyze the
segmentation? Explain how these products differ.
segment(s) being targeted. Describe the basic seg-
4. How and why would a retailer use micromarket- mentation strategy reflected in these materials, and
ing? What advantages would micromarketing have for describe characteristics of the target market accord-
that retailer over other targeting strategies such as dif- ing to the materials. Be sure to include a copy of all
ferentiated or concentrated? the materials used in the analysis.
5. You have been asked to evaluate the attractiveness 10. You have been hired recently by a large bank in its
of several potential market segments. What criteria credit card marketing division. The bank has rela-
should you use to evaluate those segments? Why are tionships with a large number of colleges and uni-
these appropriate criteria? versities and prints a wide variety of credit cards
featuring college and university logos, images, and
6. A small-business owner is trying to evaluate the prof- the like. You have been asked to oversee the imple-
itability of different segments. What are the key fac- mentation of a new program targeting first-year
tors he or she must consider? For how long should the students at the schools with which the bank has a
business owner conduct the evaluation? relationship. The bank has already purchased the
7. Think about the various soft drink brands that you names and home addresses of the incoming stu-
know (e.g., Coke, Pepsi, 7-Up, Gatorade, Powerade). dents. You have been told that no credit checks will
How do those brands position themselves in the be required for these cards as long as the student
market? is older than 18 years of age. The bank plans a first-
day-of-school marketing blitz that includes free hats,
8. Put yourself in the position of an entrepreneur who is T-shirts, and book promotions, as well as free pizza,
developing a new product to introduce into the mar- if the students simply fill out an application. Do you
ket. Briefly describe the product. Then, develop the think it is a good idea to offer this program to these
segmentation, targeting, and positioning strategy for new students?
marketing the new product. Be sure to discuss (a) the
marketing digitally
1. Go to the L’Oréal Canada website (www.lorealparis.ca), link to complete the VALS survey. After you submit
and try to describe the segmentation approach it uses your responses, a screen will display your primary
to group customers. Apply the vocabulary presented and secondary VALS types. Click on the coloured
in this chapter to describe its segmentation strat- names of each segment to get additional informa-
egy. Then click on “Haircare,” and look for “EverPure tion about them, and print out your results. Assess
Shampoo.” Who do you think is the target market for the extent to which these results reflect your
this product? How would you describe L’Oréal’s product lifestyle, and identify which characteristics accu-
positioning in Canada? rately reflect your interests and activities and which
do not.
2. Go to the VALS website (www.strategicbusiness
insights.com/vals/presurvey.shtml), and click on the
Segmentation, Targeting, and Positioning CHAPTER 6 191
who prefer to shop through its website, and have improved the site’s navigability.36 With
these efforts, it also can reach new segments of consumers in Asia, including Chinese con-
sumers who already shop more frequently online and through mobile channels than do their
Canadian or American counterparts.37 These consumers also are exhibiting increasing inter-
est in health and wellness, in response to Chinese government–provided health plans that
encourage people to exercise more. In support of this global targeting, lululemon made its
presence very visible on Alibaba on the most recent Singles’ Day (November 11, when young
Chinese people celebrate their single status, often by purchasing extravagant or fun gifts for
themselves), earning unprecedented foreign sales as a result.38
Even the supply chain for the company is using a segmentation approach. To enhance
efficiencies and get products to all segments of consumers faster, it separates its supply
chain into unique segments, each of which can be ramped up to increase supply as needed.
Then the fabrics that are most popular in various geographic locations get sent to the most
appropriate manufacturing facilities.39
As a result of these varied tactics to enhance its segmentation and targeting, lululemon
has exceeded recent predictions of its performance. The sales bumps occur across the
board but mainly come from the menswear items. For example, a remarkable 21 percent of
purchases by men came from new customers.40 The appeal to these guys—who previously
assumed that lululemon was only for women—is strategic and targeted. And it seemingly is
working. In a recent survey, men expressed far more positive views of the brand than they
had previously, and more of them had made purchases from it.41
Nevertheless, in spite of increased sales of menswear, lululemon recently closed its men’s
only stores in Toronto and New York City less than two years after opening.42 Brand aware-
ness of lululemon is low with men; still, the company is not abandoning them. In fact, mens-
wear revenues, which currently account for 20 percent of annual revenue, are projected to
double by 2023.43
Questions
1. Sales of lululemon menswear are good, but brand awareness remains low. How could the
company leverage its strength in the women’s market to address this?
2. What other segmentation bases could lululemon use to better appeal to men? Discuss
why your approach would be effective.
3. Based on the different needs and wants of men, recommend a positioning method that
would be appropriate for selling menswear.
Chapter 7
Shutterstock/Nada Sertic
Marketing Research
Learning Objectives
After studying this chapter you should be able to
LO1 Identify the five steps in the marketing research process
LO2 Describe the various secondary data sources
LO3 Describe primary data collection techniques and summarize the differences between
secondary data and primary data
LO4 Outline ethical issues firms encounter when conducting marketing research
194 Section three Targeting the Marketplace
To research a market, every company needs data about it. Marketing research encompasses a range of tech-
niques and options, as this chapter will make clear. But a key direction that modern companies are taking involves
leveraging what has come to be known as “big data.” These are the data gathered and integrated by advanced
technology applications and tools, and they allow even companies that have been researching their markets for
literally centuries to gain new insights and understanding of their customers.
Take American Express as an example. To appeal to both customers and merchants, it has long investigated
what will make its offers valuable to them. For example, in the 1980s, it relied on what was then called an “expert
system” to determine which transactions were most likely to be fraudulent and issue recommendations to human
monitors about whether to approve big purchases.1
These human analysts also are a long-standing tradition for American Express, which over the years has
established a staff of approximately 1,500 data scientists to ensure that it can handle all the marketing research
data it gathers.2 These scientists have a lot more material to work with these days, though, especially as the credit
card company shifts its focus from assessments of previous transactions to predictions of future ones.3 It also is
expanding its central offerings. Rather than just providing credit for customers, American Express increasingly
sees itself as a provider that facilitates connections between customers and the merchants from which they want
to buy.4
It gathers data from its customer relationship management systems, websites, and mobile apps to predict
what customers want. By leveraging these data, American Express alters its offers and promotions virtually in real
time, such that each contact with a customer reflects his or her most recent activity.5 For example, it can review
customers’ purchases and then recommend a local restaurant that they are likely to enjoy, where they can use
their card. Location-based services in the American Express app also enable the company to issue real-time
coupons according to customers’ locations.6 American Express asserts that it can anticipate the termination of
nearly one-quarter of the accounts that will close in any particular quarter, too, meaning that it can engage in
proactive efforts either to retain the customer or to reduce its own expensive efforts if the customer appears
destined to leave.7 Furthermore, it has constant in-depth contact with merchants. As partners in serving their
shared customers, it can gather purchase data from their systems. These resulting data span literally millions
of businesses and even more customers, meaning that American Express, overall, makes billions of marketing-
related decisions daily.8 For its merchant partners, the company also offers support for their marketing research
analyses. For example, a benchmarking tool allows companies to determine how well they are performing among
millions of American Express customers, segmented in various ways, relative to their competitors.
Finally, in an effort that benefits both merchants and customers, American Express leverages its advanced
marketing research and data analysis capabilities to anticipate, identify, and avoid fraud. Such abilities are
particularly valuable in the credit card industry because fraud threatens all members of the market. Therefore,
American Express’ proprietary machine learning model integrates data from a wide range of sources, coming
from both members and merchants, to identify suspicious transactions within milliseconds. For this identification,
it relies on comparisons with its vast database of existing purchases. Because it can do so nearly immediately,
American Express has saved its markets an estimated $2 billion by avoiding fraudulent transactions.9 But in addi-
tion to saving them money, American Express has developed its fraud detection skills to such an extent that it
does not need to contact customers to approve every purchase, which would risk annoying them.10
marketing research A key prerequisite to successful decision making, marketing research consists of a set
A set of techniques and of techniques and principles for systematically collecting, recording, analyzing, and inter
principles for systematically
collecting, recording, preting data that can aid decision makers involved in marketing goods, services, or ideas.11
analyzing, and interpreting When marketing managers attempt to develop their strategies, marketing research can
data that can aid decision
makers involved in
provide valuable information that will help them make segmentation, positioning, product,
marketing goods, services, place, price, and promotion decisions. Marketing research is also key to understanding
or ideas. topics such as competition (Chapter 3); consumer and B2B buying behaviour (Chapters 4
and 5); global marketing and cultural differences (Chapter 16); and new product devel
opment, branding, and customer service (Chapters 8, 9, and 10). It is also important for
assessing the effectiveness of pricing, promotions, and product and service delivery stra
tegies (Chapters 11, 12, 13, 14, and 15).
Marketing Research CHAPTER 7 195
Managers consider several factors before embarking on a marketing research project. First,
will the research be useful and provide insights beyond what the managers already know
and reduce uncertainty associated with the project? Second, is top management committed
to the project and willing to abide by the results of the research? Related to both of these
questions is the value of the research. Marketing research can be very expensive, and if the
results won’t be useful or management does not abide by the findings, it represents a waste
of money. Third, should the marketing research project be small or large? A project might
involve a simple analysis of data that the firm already has, or it could be an in-depth assess
ment that costs hundreds of thousands of dollars and takes months to complete.
The marketing research process itself consists of five steps, as shown in Exhibit 7.1.
Although the stages of the marketing research process are shown as a step-by-step
196 Section three Targeting the Marketplace
progression, of course, research doesn’t always happen this way. Sometimes, researchers
go back and forth from one step to another as the need arises. For example, marketers
may establish a specific research objective, which they follow with data collection and pre
liminary analysis. If they uncover new information during the data collection step or if the
findings of the analysis spotlight new research needs, they might redefine their objectives
and begin again from a new starting point.
Another important requirement before embarking on a research project, is to plan the
entire project in advance. When setting up a questionnaire, marketers should consider the
data collection process and anticipate the types of analyses that might produce meaning
ful results for decision makers. For example, open-ended questions on a questionnaire can
slow down the coding process and make it difficult to run some sophisticated statistical
analyses. If the decision makers want a sophisticated analysis fast, a questionnaire filled
with open-ended questions may not be the best choice. By planning the entire research pro
cess well in advance of starting the project, researchers can avoid unnecessary alterations
to the research plan as they move through the process. Now let’s examine each step of the
research process in more detail.
attitudes, perceived quality, perceived value, loyalty, and convenience. In our hypotheti
cal McDonald’s scenario, assume the research team has developed a questionnaire (see
Exhibit 7.3), using a few different types of questions. Section A measures the customer’s
experience in McDonald’s; Section B measures the customer’s experience in Wendy’s;
Please take a few minutes to tell us about your experience at McDonald’s and Wendy’s. For each question, please
respond by checking the box that applies or writing your response in the space provided.
A. McDonald’s Neither
Strongly Agree nor Strongly
Disagree Disagree Disagree Agree Agree
✓
1 2 3 4 5
McDonald’s food tastes good
McDonald’s is clean ✓
McDonald’s has low prices ✓
B. Wendy’s Neither
Strongly Agree nor Strongly
Disagree Disagree Disagree Agree Agree
✓
1 2 3 4 5
Wendy’s food tastes good
Wendy’s is clean ✓
Wendy’s has low prices ✓
C. McDonald’s
✓
In the last month, how many Never 1–2 times 3–4 times More than 5 times
times have you been to
McDonald’s? How often did you
order breakfast items?
Section C measures the customer’s habits at McDonald’s; and Section D measures customer
demographics.15
Furthermore, suppose the research team administered the survey to 1000 customers.
The results of the first question, “McDonald’s food tastes good,” were as follows:
1 2 3 4 5
Their responses are indicated by “N = .” Marketers could report several metrics, but
two common metrics would be that 80 percent [(300 + 500)/1,000] of respondents had high
that satisfaction was high because the mean was 4.15 [(50 × 1 + 50 × 2 + 100 × 3 + 300 ×
satisfaction since they responded to “Agree” or “Strongly Agree.” It could also be reported
4
Wendy’s
3
McDonald’s
2
1
Cleanliness Taste Low Price
learns that none of these customers was drawn to her store by a clever and expensive direct
mail campaign. By analyzing data she collected through a survey, she discovered that her
core customers are working professionals who are drawn to the store when they walk by it
on their way to and from work, not people from the upscale apartments in the downtown
region whom she targeted with her direct mail advertisements.
It is important for market researchers to analyze and interpret the data in an objec
tive manner. They should not try to hide or sugar-coat findings that are different from
what they had hoped for. Misinterpreting the findings or manipulating the statistics to
suit the researcher’s hunch or prediction could lead to the wrong decision, which could
have serious consequences for marketers. The temptation to lie with statistics is something
market researchers must always be aware of and try to avoid.
watch, at what time of day, and how much you watch at a given time. Correlations can
then be established (for example, between actors and movies, movie genres, or actors them
selves) and used to make recommendations to subscribers. The software also identifies what
scenes in an episode or movie are watched the most, and if scenes get skipped, which can
then be compared to user reviews and ratings. Although collecting data from one person
would not prove very helpful, a wealth of data can be mined from 81 million subscribers.
Data mining can also enable a home improvement retailer such as Lowe’s to learn that,
25 percent of the time, customers buying a garden hose also purchase a sprinkler. With
such information, the retailer may decide to put the garden hoses next to the sprinklers
in the store. Outside the retail realm, an investment firm might use statistical techniques
to group clients according to their income, age, types of securities purchased, and prior
investment experience. This categorization identifies different segments to which the firm
can offer valuable packages that meet their specific needs. The firm also can tailor sepa
rate marketing programs to each of these segments. By analyzing the enormous amount of
information that they possess about their customers, companies have developed statistical
models that help identify when a customer is dissatisfied with his or her service. Once the
company identifies an unhappy customer, it can follow up and proactively address that
customer’s issues. By mining customer data and information, the company also reduces its
churn levels. Churn is the number of participants who discontinue use of a service, divided
by the average number of total participants.
Overall, firms hope to use data mining to generate customer-based analytics that they
can apply to their strategic decision making, and thereby make good customers better, and
make better customers their best. Firms can also use secondary data to assess the profit
ability of their customers by determining the customer lifetime value (CLV). We offer more
details about calculating CLV in Appendix 7A.
Big Data The field of marketing research has seen enormous changes in the last few big data
years because of (1) the increase in the amounts of data to which retailers, service provid Refers to extremely large
quantities of data that
ers, and manufacturers have access; (2) their ability to collect these data from transactions, companies have access to
customer relationship management (CRM) systems, websites, and social media platforms but are unable to handle
using conventional data
that firms increasingly use to engage with their customers;16 (3) the ease of collecting and management and data-
storing these data; (4) the computing ability readily available to manipulate data in real mining software.
time; and (5) access to in-house or available software to convert the data into valuable
decision-making insights using analytic dashboards.
To specify this explosion of data, which firms have access to but cannot handle using
conventional data management and data-mining software, the term big data has arisen
in the popular media. Leading firms such as Amazon, Netflix, Google, Nordstrom, Tesco,
American Express, and Walmart are already converting their big data into customer
insights, and this list keeps growing.17
Amazon may be the poster child for big data. Any Amazon shopper is familiar with its
recommendation engine, which notes what the consumer is purchasing, analyzes purchase
patterns by similar customers, and suggests other items the customer might enjoy, as well
as what other people who bought the focal item also added to their shopping carts.18 With
more than 310 million active customers and billions of pieces of shopping data,19 Amazon
certainly qualifies as a big-data user; its item-to-item collaborative filtering helps it deter
mine which relevant products to suggest, generating almost one-third of its sales.20
To enable these efforts, firms such as SAP, Splunk, and GoodData offer a host of soft
ware solutions to help firms better integrate their data, visualize them, and then move from
data to real-time insights.21 The suite of options previously were available only to the largest
firms, but with costs falling they are now more accessible to smaller firms.
The big-data explosion also stems from the growth of online and social media. In
response, Google, Facebook, and Twitter all provide analytic dashboards designed to help
their customers understand their own Web traffic. In particular, Google has developed tre
mendous marketing analytical capabilities that it makes available to partner firms. Google
204 Section three Targeting the Marketplace
helps firms attract customer traffic to their sites through the use of more relevant keywords,
the purchase of Google AdWords, and better conversion methods.22 Using Google Analytics,
Puma has gained insights into which online content and products most engaged its Web
visitors, while also defining where these visitors lived. With these visitor behavioural data
in hand, Puma has revised its website to be more dynamic (www.puma.com) and has cre
ated unique identifiers for its various product categories (e.g., PUMA Golf), targeting them
in accordance with the home region of the visitor.23
*Adapted from Crane, Kerin, Hartley, Berkowitz, and Rudelius, Marketing, 6th Canadian ed. (Whitby, ON:
McGraw-Hill Ryerson, 2007).
might show that when Diet Pepsi is offered at a deep discount, 80 percent of usual Diet
Coke consumers switch to Diet Pepsi. Primary panel data could give insights into what
they think of each option.
Léger Marketing, one of the largest Canadian-owned independent marketing
research and polling firms, has an online panel of 350,000 people that represents various
206 Section three Targeting the Marketplace
Exhibit 7.6 Syndicated Data Providers in Canada and the United States and Their Services
Bureau of Broadcast Measurement Provides broadcast measurement and consumer behaviour data, as well
(http://en.numeris.ca/) as intelligence to broadcasters, advertisers, and agencies on audience
behaviours during and after broadcasts.
GfK Mediamark Research Inc. Supplies multimedia audience research pertaining to media and
(www.gfkmri.com) marketing planning for advertised brands.
GfK NOP (www.gfknop.com) The mKids US research study tracks mobile telephone ownership and
usage, brand affinities, and entertainment habits of American youth
between 12 and 19 years of age.
Ipsos Canada, Harris/Decima, Léger Provides polling services and marketing research on all aspects of
Marketing, Angus Reid, SES Research, marketing, including loyalty, branding, media analysis, pricing, position,
EKOS Research Associates, The Strategic image enhancement, customer satisfaction, focus groups, online panels,
Counsel, Pollara, and COMPAS and surveys across many industries.
J.D. Power and Associates Widely known for its automotive ratings, the company produces quality
(www.jdpower.com) and customer satisfaction research for a variety of industries.
National Purchase Diary Group Tracking services provide information about product movement and
(www.npd.com) consumer behaviour in a variety of industries.
Nielsen (www.nielsen.com) With its market measurement services, the company tracks data on the
sales of consumer packaged goods, gathered at the point of sale in
retail stores of all types and sizes.
Print Measurement Bureau (www.pmb.ca) Provides single-source data on print readership, non-print media
exposure, product usage, and lifestyles of Canadians. It uses an
annual sample of 24,000 to measure the readership of more than 115
publications and consumer usage of more than 2,500 products and
brands.
Research and Markets Promotes itself as a “one-stop shop” for market research and data from
(www.researchandmarkets.com) most leading publishers, consultants, and analysts.
Roper Centre for Public Opinion Research The General Social Survey is one of the United States’ longest-running
(www.ropercenter.uconn.edu) surveys of social, cultural, and political indicators.
Simmons Market Research Bureau Reports on the products American consumers buy, the brands they
(www.smrb.com) prefer, and their lifestyles, attitudes, and media preferences.
Yankelovich (www.yankelovich.com) The MONITOR tracks the consumer attitudes, values, and lifestyles
shaping the American marketplace.
consumer segments of the Canadian population. This impressive panel makes it possible
for Léger Marketing to complete surveys among the general public and more specific con
sumer segments. It is therefore hardly surprising that Léger Marketing can offer market
ers 48-hour service—a solution for businesses and decision makers who wish to receive
reliable information quickly from a large representative sample of consumers regarding
their marketing campaigns, products, and brands. Léger Marketing offers its clients stra
tegic advice in a wide array of areas, including media and advertising analysis, marketing
planning, market research, product launch, segmentation analysis, positioning, customer
satisfaction and loyalty strategies, pricing and packaging strategies, mystery shoppers,
and image assessment. It also offers website analytics, which marketers can use to evalu
ate and improve the performance of their websites.24
Overall though, both panel and scanner data provide firms with a comprehensive
picture of what consumers are buying or not buying. The key difference between scan
ner research and panel research is how the data get aggregated. Scanner research typically
Marketing Research CHAPTER 7 207
Syndicated external secondary data are acquired from scanner readings of UPC codes at
checkout counters (left) and from panel data collected from consumers that electronically
record their purchases (right).
(left): ©Glow Images/Getty Images; (right): ©Stephen Barnes/Bowline Images/Alamy Stock Photo
In many cases, the information researchers need is available only through primary data,
or data collected to address the specific research needs/questions currently under inves
tigation. Marketers collect primary data by using a variety of means, such as observing
consumer behaviour, conducting focus groups, or surveying customers by using the mail,
the telephone, in-person interviews, or the Internet. Primary data collection can help
eliminate some of the problems inherent to secondary data. Depending on the nature of
the research problem, the primary data collection can use a qualitative or a quantitative
approach. Marketing Analytics 7.1 highlights how Under Armour uses a variety of quanti
tative data sources to inform its decisions.
A major advantage of primary research is that it can be tailored to fit the research ques
tions; however, it also has its own set of disadvantages. For one thing, it is usually more costly
to collect primary than secondary data, and the collection typically takes longer. Furthermore,
208 Section three Targeting the Marketplace
**John Kell, “How Under Armour Wants to Use Data to Make You Healthier,” Fortune, April 5, 2016, https://fortune.com/2016/04/05/under-armour-apps-
healthier/; “Connected Fitness,” Under Armour, www.underarmour.com/en-ca/connected-fitness; Larry Dignan, “UnderArmour CEO: Connected fitness
unit logs $120 million in 2018 revenue, brings consumer insights,” ZDNet, February 13, 2019, www.zdnet.com/article/under-armour-ceo-connected-
fitness-unit-logs-120-million-in-2018-revenue-brings-consumer-insights/ (accessed July 16, 2019).
marketers often require extensive training and experience to design and collect primary data
that are unbiased, valid, and reliable. For a summary of the advantages and disadvantages of
each type of research, see Exhibit 7.7. Biased data results when, for example, the sample does
not represent the entire population, researchers inject their own biases by the way they ask
questions or try to get respondents to answer in specific ways, or the respondents may be the
qualitative research wrong people or provide answers they think researchers want to hear.
Exploratory in nature,
qualitative research is Exploratory in nature, qualitative research uses broad, open-ended questions to
more informal. It uses understand the phenomenon of interest. It provides initial information that helps the
broad, open-ended
researcher more clearly formulate the research problem or objectives. Qualitative research
question methods,
including observation, is more informal than quantitative research methods and includes observation, in-depth
in-depth interviews, interviews, focus groups, and following social media sites (see Exhibit 7.8 left side).
and focus groups, and
following social-media Data collection through primary research requires that the researcher make several
sites. important decisions, including which methods to use (see Exhibit 7.8 for a list of
Marketing Research CHAPTER 7 209
ethods), what types of sampling plans are best in light of the research objective, what
m
types of research instruments (e.g., questionnaire, observation) to use, how the research
instrument should be designed (described below), and how best to contact potential
respondents (telephone, online, in person, or by mail). Improper execution of any of
these important aspects of primary data collection could seriously reduce the reliability
and validity of the research study.
Simply put, reliability is the extent to which you will get the same result if the study reliability
is repeated in identical situations.25 For example, on a Saturday in August, you randomly The extent to which the
same result is achieved
stop shoppers in a mall and ask them to fill out a short questionnaire about why they when a study is repeated
shop at that particular mall. Let’s say your data analysis shows that they shop at that mall in identical situations.
because they get very good deals. Now, if you were to repeat the study in the same mall,
using the same questionnaire, on another Saturday, and randomly ask shoppers to fill out
the questionnaire, you should find the same result: people shop at the mall because they
get good deals. If you found otherwise, then the reliability of your study is called into
question. Validity is the extent to which the study actually measures what it is supposed validity
to measure.26 For example, suppose you want to measure consumers’ trust in online The extent to which a
study measures what it is
retailers by using a questionnaire. Validity seeks to determine whether the questions you supposed to measure.
asked on the questionnaire actually measure online trust or if they measure some other
construct. It is important to note that a market research study must be both reliable and
valid for it to be useful.
One very important aspect of market research that can affect the reliability and validity
of a study is the sampling plan. Often it is too difficult, impractical, or costly to study the
sample entire group of consumers, so marketers usually select a sample, a segment or subset of the
A segment or subset of the population that adequately represents the entire population of interest. For example, if you
population that adequately
represents the entire are interested in studying the loyalty of Canadian teenage boys to brand-name clothing,
population of interest. then your population is all Canadian teenage boys and your sample is the small subset of
boys selected for your study. How you select the sample is also very important. Three impor
tant questions that must be answered are (1) who should be surveyed, (2) how big should
the sample be, and (3) what types of sampling procedures should be used. For example,
simple random sampling (uses a subset of a statistical population with each person having
the equal probability to be selected), convenience sampling (subjects are selected on the
basis of accessibility and proximity to the researcher), stratified sampling (the population
is divided into smaller groups, or strata), or cluster sampling (the population is formed into
separate groups, or clusters). Each of these sampling procedures has its advantages and dis
advantages, and the decision as to which one to use will depend on the research objectives
of the study. Although there is a formula in statistics to calculate required sample size, as
a rule of thumb, sample sizes should be large enough to ensure the reliability of the study.
Generally, larger samples tend to yield more reliable results up to a certain point.
Once the firm has gained preliminary insights from doing qualitative research, it is
quantitative research likely to engage in quantitative research, which are structured responses that can be
Structured responses that statistically tested. Quantitative research provides the information needed to confirm
can be statistically tested
to confirm insights and insights generated via qualitative research of secondary data, allowing managers to pursue
hypotheses generated appropriate courses of action. For marketing researchers, quantitative research offers a
via qualitative research or
secondary data.
means to confirm implicit hunches through surveys, formal studies such as specific experi
ments, scanner and panel data, or some combination of these (see Exhibit 7.8, right side).
hypothesis Quantitative research also enables researchers to test their prediction or hypothesis, which
A statement or proposition is a statement or proposition predicting a particular relationship among multiple variables.
predicting a particular
relationship among The following sentence is an example of a hypothesis. “Customer satisfaction leads to or is
multiple variables that positively related to customer loyalty.”
can be tested through
research.
We now examine each of these primary data collection techniques, starting with the
qualitative and ending with the quantitative. Many research projects use qualitative research
as the first phase of the research process and then follow it up with quantitative research.
Using Microsoft Kinect sensors, firms like Shopperception create heat maps of shopper
interactions with the products (touches, pick-ups, and returns). The red represents the hot
zones where shoppers touch the most, yellow less, and blue not at all.
Source: Shopperception
(e.g., Unilever, P&G, Miller Brewing Co.). Ethnographic studies require highly trained
researchers who often use video cameras, audio recording devices, and diaries to keep
detailed records of their observations. Analysis of ethnographic data requires very expe
rienced and knowledgeable market researchers to make sense of hours of video or audio
recordings, or a volume of notes from the researcher’s diary.
Although traditionally firms might videotape customers’ movements, Microsoft’s
Kinect sensors are providing a less intrusive option. Discreetly embedded in aisles of retail
stores, the sensors provide three-dimensional spatial recognition. Retailers and their sup
pliers can unobtrusively track the amount of time people spend in front of a shelf, which
products they touch or pick up, the products they return to shelves, and finally what they
add to their carts for purchase.27 The data gathered can be used to improve store layouts
because they can identify causes of slow-selling merchandise, such as poor shelf place
ment. By studying customers’ movements, marketers can also learn where customers pause
or move quickly or where there is congestion. This information can help them decide if
the layout and merchandise placement is operating
as expected, such as whether new or promoted mer
chandise is getting the attention it deserves.
Observation may be the best—and is sometimes
the only—way to determine how consumers might
use a product, and therefore is useful for design
ing and marketing it. Unilever has found success
in developing countries by requiring managers to
spend a month living in a village during their first
year with the company. By watching customers in
Thailand, Unilever recognized the fallacy of its
assumption that the poorest consumers were only
interested in buying only necessities. So it worked
with retailers to develop stores that offer a wide
variety of Unilever products as well as other ser
By watching customers in rural Thailand, Unilever recognized
vices such as “food corners” and washing machines. the poorest consumers were interested in more than just buying
Furthermore, its Platinum store initiative offers an necessities, so it introduced Sunsilk hair products, which are
urban shopping experience to rural customers by available in many countries throughout the world.
offering more products, better layouts, and ATMs.28 Agencja Fotograficzna Caro/Alamy Stock Photo
212 Section three Targeting the Marketplace
Social Media
Social-media sites are a booming source of data for marketers. Marketers have realized
that social media can provide valuable information that could aid their marketing research
and strategy endeavours. In particular, contributors to social-media sites rarely are shy
about providing their opinions about the firm’s products or its competitors’ offerings. If
companies can monitor, gather, and mine these vast social-media data, they can learn a
lot about their customers’ likes, dislikes, and preferences. They then might cross-reference
such social-media commentary with consumers’ past purchases to derive a better sense of
what they want. Customers also appear keen to submit their opinions about their friends’
purchases, interests, polls, and blogs.
Blogs in particular represent valuable sources of marketing research insights. Marketers
are paying attention to online reviews about everything from restaurants to running shoes
to recycling. The Truth About Cars blog is known for its unflinchingly objective reviews of
various makes and models, as well as discussions about the industry as a whole, marketing
tactics, and global competition, among other topics.29 Analyzing the content of this blog, and
others like it, provides an excellent source of ideas and information for auto industry execu
tives. Another creative use of social media for marketing research involves building online
communities for companies. Sephora’s virtual community (an online network of people
who communicate about specific topics), Beauty Talk, is a massive beauty forum. It allows
customers to ask questions, join groups, live chat with other customers, get advice, and post
pictures wearing products. Uploaded customer photos are then linked to the product pages
of the featured products. Customers can also filter information based on their interests. This
community gives Sephora a lot of data about customer preferences and where the customers
need help, and allows the company to address many customer service issues. Therefore, the
community lowers customer service costs and heightens customer engagement.30
Facebook polls can be used to collect a wealth of data ranging from single-question
polls to customer satisfaction surveys. The polls are easy for even the smallest company to
use and very affordable at between $96 and $336 per year, depending on the plan chosen.31
Twitter recently introduced a new research initiative to allow advertisers to recruit respon
dents and design and collect research insights from its Twitter Insiders program. Both
qualitative and quantitative options
are available, from forum-like environ
ments to surveys. The research can also
be linked to participants’ behaviour,
such as what they tweet, whom they
follow, and what tweets they like.32
Noting these various opportunities
and market research sources online,
many companies—including Ford
Motor Co., PepsiCo, Coca-Cola, and
WestJet Airlines—have added “heads
of social media” to their management
teams. These managers take responsi
bility for scanning the Web for blogs,
postings, tweets, or Facebook posts in
which customers mention their experi
ence with a brand. By staying abreast
of this continuous stream of informa
tion, companies can gather the most
Sephora’s blog, Beauty Talk, is a valuable source of marketing research up-to-date news about their company,
insights. This virtual community allows customers to ask questions, join products, and services, as well as
groups, live chat with other customers, get advice, and post pictures. their competitors’. These social-media
Source: Sephora USA, Inc. searches allow companies to learn
Marketing Research CHAPTER 7 213
People of all ages use social Wider sample, greater Feedback may not be Not useful to research problem
media representation well thought out
Large amount of information Easier to find data Anonymity Could encourage extreme
posted on social media sites related to your brand opinions and comments
Very current feedback High relevance No depth of information Cannot distinguish differences
about consumer among consumers
Consumers freely offer No interviewer bias Conversations are No opportunity to probe for
opinions and insights observed only more detail
Can search for and filter data More timely No consent to study data Potential ethical issues
†Adapted from Kieran Griffiths, “Social Media in Research: Pros and Cons,” May 17, 2012, www.intersperience.com/blog/post/05/2012/Social-
Media-in-Research--Pros-and-Cons (accessed July 2, 2014), Mike Moran, “Will Social Media Listening Replace Market Research,” April 4, 2011,
www.biznology.com/2011/04/will_social_media_listening_re (accessed July 2, 2014).
about customers’ perceptions and resolve customer complaints they may never have
heard about through other channels.33 Social media has its pros and cons, as seen in
Exhibit 7.9, and is best used in combination with other research techniques.
The data gathered through the searches also undergo careful analyses: Are customer
sentiments generally positive, negative, or neutral? What sort of intensity or interest levels
do they imply? How many customers are talking about the firm’s products, and how many
focus instead on competitors’? This data analysis is understandably challenging, consider
ing the amount of data available online. However, monitoring consumer sentiments has
grown easier with the development of social-media monitoring platforms.
Sysomos is steadily becoming one of the most sought-after firms for monitoring cus
tomers using sentiment mining. Using social-media sites like Facebook, Twitter, and online
blogs, Sysomos and other firms collect consumer comments about companies and their
products. The data are then analyzed to distill customer attitudes toward and preferences
for products and advertising campaigns. Scouring millions of sites by combining automated
online search tools with text analysis techniques, sentiment mining yields qualitative data
that provide new insight into what consumers really think. Companies plugged into this
real-time information can become more nimble, allowing for quick changes in a product
roll-out or a new advertising campaign. Another novel use of social media to collect mar
keting information is to encourage or even pay people to share their activities in selfies, as
the chapter end case explains. Some companies take it a step further, by joining the online
conversation with customers, a process called social engagement.34
In-Depth Interviews
In an in-depth interview, trained researchers ask questions, listen to and record the in-depth interview
answers, and then pose additional questions to clarify or expand on a particular issue. For A research technique in
which trained researchers
instance, in addition to simply watching teenagers shop for apparel, interviewers might ask questions, listen to
stop them one at a time in the mall to ask them a few questions, such as “We noticed that and record the answers,
and then pose additional
you went into and came out of Aritzia very quickly, and without buying anything. Why questions to clarify or
was that?” If the subject responds that no one had bothered to wait on her, the inter expand on a particular
viewer might ask a follow-up question, such as “Oh? Has that happened to you before?” issue.
or “Do you expect sales assistance in that store?” The results often provide insights that
help managers better understand the nature of their industry, as well as important trends
214 Section three Targeting the Marketplace
Survey Research
Arguably, a survey is the most popular type of quantitative, primary data collection method
used in marketing research. It is widely used to study consumers’ attitudes, preferences,
behaviours, and knowledge about products and brands. It is generally more cost-effective than
other methods for reaching a large sample of consumers. With the one-year anniversary of the
legalization of marijuana approaching, Statistics Canada conducted a survey to understand
usage. Its National Cannabis Survey reported that 17.5 percent of Canadians (5.3 million
people) 15 years of age and older had used cannabis in the previous three months.37 Hockey
Canada and Bauer Hockey wanted to understand why more children were not playing hockey.
Surveys of 875 families in Ontario and Nova Scotia revealed some interesting findings: the
game was viewed as not fun, too time consuming, not affordable, and having safety concerns.38
Pilot programs to “Grow the Game” have since been launched to change attitudes and attract
new players. A BrandSpark survey of over 16,000 Canadians found that 67 percent look for
products that make life easier, and 69 percent say they want to live healthier and eat better.39
Survey questionnaires usually yield quantitative data that can be easily analyzed by
using sophisticated statistical methods to examine the relationships among variables. How survey
ever, surveys suffer from a few shortcomings. Consumers may be unable to answer some of A systematic means of
collecting information
the questions on the questionnaire, may not be able to recall the information, or may even from people using a
interpret the questions differently than the researchers intended. Some may even try to questionnaire.
answer the questions according to what they think the researchers want. Another big prob questionnaire
lem, especially in the data analysis phase, is when respondents answer some but not all of A form that features a set
the questions on the questionnaire. Incomplete data makes the analysis and interpretation of questions designed
to gather information
of the data more complicated and tricky. Sustainable Marketing 7.1 demonstrates how diffi from respondents and
cult it can sometimes be to interpret results from multiple surveys when making decisions. thereby accomplish the
researchers’ objectives;
A survey is a systematic means of collecting information from people that generally uses questions can be either
a questionnaire. A questionnaire is a form of survey that features a set of questions designed unstructured or structured.
to gather information from respondents and thereby accomplish the researchers’ objectives. unstructured questions
Survey questionnaires can take different forms: done by phone, mail, or fax; delivered via Open-ended questions
the Internet; or even conducted in person, for example, mall intercepts. Individual questions that allow respondents to
answer in their own words.
on a questionnaire can be either unstructured or structured. Unstructured questions are
open-ended and allow respondents to answer in their own words. An unstructured question structured questions
Closed-ended questions
like “What are the most important characteristics for choosing a brand of shampoo?” yields for which a discrete set
an unstructured response. However, the same question could be posed to respondents in a of response alternatives,
or specific answers, is
structured format by providing a fixed set of response categories (such as price, fragrance, provided for respondents
ability to clean, and dandruff control) and then asking respondents to rate the importance of to evaluate.
each. Structured questions thus are closed-ended
questions for which a discrete set of response alterna
tives, or specific answers, is provided for respondents
to evaluate (see Exhibit 7.10).
Developing a questionnaire is part art and part
science. The questions must be carefully designed
to address the specific set of research questions.
Moreover, for a questionnaire to produce meaning
ful results, its questions cannot be misleading in
any fashion (e.g., open to multiple interpretations),
and they must address only one issue at a time.
Furthermore, they must be worded in vocabulary
that will be familiar and comfortable to those being
surveyed. More specifically, the questions should
be sequenced appropriately: general questions first,
more specific questions next, and demographic Survey research uses questionnaires to collect primary data.
questions at the end. Finally, the layout and appear Questions can be either unstructured or structured.
ance of the questionnaire must be professional and Enis Izgi/kasayizgi/E+/Getty Images
216 Section three Targeting the Marketplace
SHAMPOO STUDY
We are working for a consumer packaged-good company and are interested in
understanding more about your shampoo usage.
Unstructured
easy to follow, with appropriate instructions in suitable places. For some tips on what to
avoid when designing a questionnaire, see Exhibit 7.11.
Similar to focus groups, marketing surveys can be conducted either online or offline,
but online marketing surveys offer researchers the chance to develop a database quickly,
with many responses. Web surveys have steadily grown as a percentage of all quantitative
surveys. Online surveys have a lot to offer marketers with tight deadlines and small budgets.
Many online survey tools let researchers quickly design a survey, launch it, download
the data, and analyze the data even as the survey is progressing, as well as at the end of the
data collection. SurveyMonkey and Qualtrics are two popular online survey tools with vastly
different capabilities, services, and pricing models. Online surveys have a lot to offer mar
keters with tight deadlines and small budgets.40 Response rates are relatively high. Typical
response rates run from 1 to 2 percent for mail and 10 to 15 percent for phone surveys.
Avoid sensitive questions unless Do you take vitamins? Do you dye your hair?
they are absolutely necessary.
Avoid double-barrelled questions, 1. Do you like to shop for clothing? Do you like to shop for clothing
which refer to more than one issue 2. Do you like to shop for food? and food?
with only one set of responses.
Avoid leading questions, which steer Please rate how safe you believe a Volvo is the safest car on the
respondents to a particular response, Volvo is on a scale of 1 to 10, with 1 being road, right?
irrespective of their true beliefs. not safe and 10 being very safe.
Avoid one-sided questions that To what extent do you feel that fast food Fast food is responsible for adult
present only one side of the issue. contributes to adult obesity? obesity: Agree/Disagree
1: Does not contribute, 5: Main cause
‡Adapted from A. Parasuraman, Dhruv Grewal, and R. Krishnan, Marketing Research, 2nd ed. (Boston, MA: Houghton Mifflin, 2007), Ch. 10.
218 Section three Targeting the Marketplace
Experimental Research
experimental research Experimental research is a type of quantitative research that systematically manipu
A type of quantitative lates one or more variables to determine which variable(s) have a causal effect on another
research that
systematically manipulates variable. In the hypothetical McDonald’s example, the research team was trying to deter
one or more variables to mine the most profitable price for a new combo item (a hamburger, fries, and a drink).
determine which variable
has a causal effect on
Assume that the fixed cost of developing the item is $300,000, and the variable cost, which
another variable. is primarily composed of the cost of the food itself, is $2.00. McDonald’s puts the item on
the menu at four different prices in four different markets (see Exhibit 7.12). In general, the
more expensive the item, the less it will sell. But, by running this experiment, the restaurant
chain determines that the most profitable item is the second least expensive item ($5.00).
These findings suggest that some people may have believed the most expensive item ($7.00)
was too expensive, so they refused to buy it. The least expensive item ($4.00) sold fairly
well, but McDonald’s did not make as much money on each item sold. In this experiment,
the changes in price likely caused the changes in quantities sold and therefore affected the
restaurant’s profitability.
Marketing Research CHAPTER 7 219
1 2 3 4 5
Total Cost of Units
Sold ($300,000
Firms are also actively using experimental techniques on Facebook. Once a firm has
created its Facebook page, it can devise advertisements and rely on Facebook’s targeting
options to deliver those ads to the most appropriate customer segments. To make sure
the communication is just right, companies can experiment with alternative versions
and identify which advertisement is most effective. State Bicycle Co., a manufacturer in
Arizona, needed to determine what other interests its customers had, as well as who its main
competitors were. Therefore, it tested a range of ads, targeting customers who searched for
different bands (e.g., did more Arcade Fire or Passion Pit fans click their link?) and other
bicycle manufacturers. With this information, it devised new contests and offerings on its
own homepage to attract more of the visitors who were likely to buy.43 Facebook tries to
help its corporate clients enhance their own customers’ engagement and influence through
a variety of options: check-ins, asking for customer comments, sharing information with
friends, and so on.44 It measures all these forms of data, contributing even further to the
information businesses have about their page visitors.
Using an experiment, McDonald’s would test the price of new menu items to determine which
is the most profitable.
©Mary Altaffer/AP Images
220 Section three Targeting the Marketplace
Now that we have discussed the various secondary and primary data collection meth
ods, we can see that both primary data and secondary data have certain inherent advantages
and disadvantages. Regardless of how marketers collect data, research can be an expensive
process for entrepreneurs working on a limited budget. Entrepreneurial Marketing 7.1 sug
gests a host of avenues entrepreneurs might pursue.
Information
As we will note in Chapter 17, upholding strong business ethics requires more than a token
nod to ethics in the mission statement. A strong ethical orientation must be an integral part
of a firm’s marketing strategy and decision making. In Chapter 17, we will discuss how
marketers have a duty to understand and address the concerns of the various stakeholders
in the firm.
Many firms voluntarily notify their customers that any information provided to them
will be kept confidential and not given or sold to any other firm. As more firms adopt
advanced marketing research technology, such as neuromarketing and facial recognition
software, they also are working to ensure they receive permission from consumers. For
example, Coca-Cola’s neuromarketing experiments will record participants’ faces as they
watch advertisements or prototypes, then assess how their eyes moved, when they smiled
or frowned, and so on—but only after those participants have agreed to be recorded.45
As technology continues to advance, the potential threats to consumers’ personal
information grow in number and intensity. Marketing researchers must be vigilant to
avoid abusing their access to these data. From charitable giving to medical records to
Internet tracking, consumers are more anxious than ever about preserving their funda
mental right to privacy. They also demand increasing control over the information that
has been collected about them. A potentially troubling ethical issue is how the Roomba
robotic vacuums can collect information inside people’s homes, as discussed in Ethical &
Societal Dilemma 7.1. Marketing researchers must be careful to avoid abusing their access
to these data. Unauthorized sharing of customer data with third parties or for purposes
other than legitimate company business is a serious breach of customer trust. Also, mar
keters must take every step possible to protect customer data from security breaches from
hackers and other unauthorized individuals. In the event of a security breach, the com
pany must quickly notify its affected customers and state clearly what steps it is taking to
protect their data and privacy.
Many firms voluntarily notify their customers that any information provided to them
will be kept confidential and not given or sold to any other firm. As more firms adopt
advanced marketing research technology, they also are working to ensure they receive per
mission from consumers. More and more, consumers want to be assured that they have
control over the information that has been collected about them through various means,
such as a website or product registration or rebate form. Consumers’ anxiety has become
so intense that the Canadian government has implemented various regulations, such as
the Privacy Act, that govern the collection, use, disclosure, and retention of personal infor
mation by federal government institutions, and the Personal Information Protection and
Electronic Documents Act (PIPEDA), which governs the collection, use, disclosure, and
retention of personal information by certain parts of the private sector.46 When conducting
marketing research, researchers must assure respondents that the information they provide
will be treated as confidential and used solely for the purpose of research. Without such
assurances, consumers will be reluctant to provide honest responses to marketing research
inquiries or even agree to participate in the first place.
It is extremely important to adhere to ethical practices when conducting marketing
research. The Canadian Marketing Association, for example, provides three guidelines for
conducting marketing research: (1) it prohibits selling or fundraising under the guise of
conducting research, (2) it supports maintaining research integrity by avoiding misrepre
sentation or the omission of pertinent research data, and (3) it encourages the fair treat
ment of clients and suppliers. Numerous codes of conduct written by various marketing
research societies all reinforce the duty of researchers to respect the rights of the subjects
in the course of their research. The bottom line: Marketing research should be used only to
produce unbiased, factual information.
222 Section three Targeting the Marketplace
‡‡Maggie Astor, “Your Roomba May Be Mapping Your Home, Collecting Data That Could Be Shared,” The New York Times, July 25, 2017, www.nytimes.
com/2017/07/25/technology/roomba-irobot-data-privacy.html; Alex Hern, “Roomba Maker May Share Maps of Users’ Homes with Google, Amazon or
Apple,” The Guardian, July 25, 2017, www.theguardian.com/technology/2017/jul/25/roomba-maker-could-share-maps-users-homes-google-amazon-
apple-irobot-robot-vacuum; Allen St. John, “How to Keep a Roomba Vacuum Cleaner from Collecting Data about Your Home,” Consumer Reports,
July 13, 2017, www.consumerreports.org/roomba/how-to-keep-a-roomba-vacuum-cleaner-from-collecting-data-about-your-home/; Brian Jackson,
“Do iRobot’s cloud-stored maps of my home represent a major privacy risk?” IT World Canada, December 4, 2018, www.itworldcanada.com/article/
do-irobots-cloud-stored-maps-of-my-home-represent-a-major-privacy-risk/412628; “Robot vacuums undergo a security check: trustworthy helpers
around the house or chatty cleaning appliances?,” AVTest, January 30, 2019, www.av-test.org/en/news/robot-vacuums-undergo-a-security-check-
trustworthy-helpers-around-the-house-or-chatty-cleaning-appli/ (accessed July 16, 2019).
Laws have yet to catch up with advances in other areas, including social media,
neuromarketing, and facial recognition software. As we noted previously in this chapter,
social media have grown into an important resource for marketing researchers because
consumers are so willing and likely to share their attitudes and opinions there. In this case,
protecting consumers’ privacy is mainly up to the consumer.
In contrast, consumers have little control over facial recognition software, which
allows companies to detect demographic information based on consumers' appearances.
For example, Kellogg’s used facial recognition software to record participants’ faces as they
watched three different ads for its Crunchy Nut cereal. It then assessed when they smiled
or frowned and their overall positive versus negative response—but only after those partici
pants had agreed to be recorded. Kellogg’s was then able to promote the ad that was most
widely liked.47
On Facebook, face detection software applied to photographs eliminates the need for
users to continue to tag the same people multiple times. It also stores all users’ biometric
data. Biometric data include one or more physical traits such as facial characteristics, iris
scans, or fingerprints. Facebookers can turn off the facial detection function, but their
biometric data is still collected. In Germany, with its strict privacy laws, regulators have
demanded that Facebook stop collecting any biometric data.
Going even deeper than using biometric data, neuromarketing claims the ability to
read consumers’ minds, using wireless electroencephalogram (EEG) scanners that measure
the involuntary brainwaves that occur when they view a product, advertisement, or brand
images. Such insights would be invaluable for marketers to discover what truly appeals to
consumers. For example, based on results of a series of neuromarketing studies, Frito-Lay
discovered that shiny potato chip bags invoked feelings of guilt. Therefore, it switched its
packaging to matte bags and its potato chips sales grew.48
But as anyone who has ever seen a science-fiction movie can imagine, the potential
for abuses of such tools is immense. And a key question remains: Do any consumers want
marketers reading their brain waves and then marketing goods and services to them in a
manner that bypasses their conscious thoughts?
LO1 Identify the five steps in the marketing project because, quite simply, the research must answer
research process those questions that are important for making decisions.
In Step 2, designing the research plan, researchers iden-
There are five steps in the marketing research process. tify the types of data that are needed, whether primary
Step 1 is to define the research problem and objectives, or secondary, on the basis of the objectives of the pro-
which sounds so simple that managers often gloss over it. ject from Step 1, and then determine the type of research
However, this step is crucial to the success of any research that enables them to collect those data. Step 3 involves
224 Section three Targeting the Marketplace
deciding on the data collection process and collecting include observation, social media, in-depth interviews,
the data. Depending on the research objectives and the focus groups and projective techniques. Quantitative
findings from the secondary data search, researchers will research is used to verify the insights gained from explor-
choose either qualitative or quantitative research. Quali- atory qualitative research and to aid in choosing a course
tative research usually involves observation, in-depth of action. Techniques used for primary quantitative
interviews, or projective techniques, whereas if the pro- research include surveys (both offline and online), panel
ject calls for conclusive research, the researchers may data, and experiments. With both types of research, the
perform a survey or an experiment, or use panel data. specific methods managers choose depends foremost
Step 4 is to analyze and interpret the data, and Step 5 is on the marketing research objectives, which must be bal-
to present an action plan. Although these steps appear to anced by other considerations such as costs, timeliness,
progress in a linear fashion, researchers often work back- and usefulness of the results.
ward through the process as they learn at each step. Compared with primary research, secondary
research is quicker, easier, and generally less expen-
LO2 Describe the various secondary data sources sive. The ability to use secondary data also requires less
methodological expertise. However, because second-
Secondary data are pieces of information that have been ary research is collected for reasons other than those
collected from other sources, such as the Census, inter- pertaining to the specific problem at hand, the informa-
nal company sources, the Internet, books, articles, trade tion may be dated, biased, or simply not specific enough
associations, or syndicated data services. Research pro- to answer the research questions. Primary research, in
jects typically start with secondary research, which pro- contrast, can be designed to answer very specific ques-
vides a background for what information is already known tions, but it also tends to be more expensive and time
and what research has been done previously. External consuming.
secondary data are pieces of information that have been
collected from other sources, such as Statistics Canada, utline ethical issues firms encounter when
O
the Internet, books, articles, magazines, newspapers,
LO4
conducting marketing research
trade associations, scanner data, panel data, or syndi-
cated data services. Internal secondary data are derived Marketing researchers have obligations to their sub-
from internal company records such as sales, customer jects and to society to behave in an ethical manner.
lists, and other company reports. Marketing researchers should gain permission to col-
lect information on consumers, and it should be for
escribe primary data collection techniques
D the sole purpose of conducting marketing research
LO3
and summarize the differences between endeavours. Information should not be collected under
secondary data and primary data the guise of marketing research when the intent is to
sell products or to fundraise. In addition, marketers
Primary data are collected to address specific research must take responsibility for protecting any information
needs. Techniques used for primary qualitative research they collect.
Key Terms
■■ big data ■■ marketing research ■■ scanner data
■■ data ■■ observation ■■ secondary data
■■ data mining ■■ panel data ■■ structured questions
■■ ethnography ■■ primary data ■■ survey
■■ experimental research ■■ qualitative research ■■ syndicated data
■■ focus group ■■ quantitative research ■■ unstructured questions
■■ hypothesis ■■ questionnaire ■■ validity
■■ in-depth interview ■■ reliability
■■ information ■■ sample
Marketing Research CHAPTER 7 225
concept review
1. Is marketing research really necessary? Defend your 6. Marketing research is designed to help marketers
answer. make better decisions on various aspects of their busi-
nesses. The quality of research findings is as good as
2. Briefly describe the steps in the marketing research
the quality of the data on which they are based. What
process. Explain why it is important to clearly define
are some things marketers could do to ensure that
the research problem and objectives from the very
they obtain the best quality data?
outset of the process.
7. Explain the main advantages and disadvantages of
3. What is the difference between secondary and pri-
using the Internet for marketing research versus con-
mary data? What are some of the advantages of each
ventional offline methods.
type of data? When should each type of data be used?
8. Identify and explain the ways in which the design of a
4. In data collection methods, researchers may choose
market research study could reduce the reliability and
between qualitative research methods and quantita-
validity of the study. Can a market research study that
tive research methods, or use both methods. What
has high reliability lack validity? Can a study that has
considerations guide their choice of data collection
high validity lack reliability? Explain your answers.
methods?
9. What do you think are some of the differences
5. Today, information and communications technolo-
between qualitative data collection methods, which
gies (ICT), including the Internet, are changing not
are mainly exploratory, and quantitative research
only the way marketing is practised, but also how
methods, which are more conclusive in nature? Which
market research is conducted. In response, many
type of method should a researcher prefer and why?
companies are using a wide variety of observational
methods (e.g., GPS, RFID, video cameras, audio 10. Explain some of the problems and challenges market
devices, ethnography) to gather customer data. researchers face in the data analysis and interpreta-
Discuss the ethical issues underlying the increas- tion stage of the marketing research process. Should
ing use of observational research methods that use they report these problems when presenting their
technology. action plan? Why or why not?
Marketing Applications
1. A large department store collects data about what its and Facebook Insights to decide if it should open the
customers buy and stores these data in a data ware- new store?
house. If you were the store’s buyer for children’s
clothing, what would you want to know from the data 5. A consumer packaged-goods company (e.g., Pepsi)
warehouse that would help you be a more successful has just developed a new beverage. The company
buyer? needs to estimate the demand for such a product.
What sources of syndicated data could it explore?
2. A consumer packaged-goods company (e.g., Pepsi)
has just developed a new beverage. The company 6. A bank manager notices that by the time customers
needs to estimate the demand for such a new product. get to the teller, they seem irritated and impatient. She
What sources of syndicated data could it explore? wants to investigate the problem further, so she hires
you to design a research project to figure out what is
3. Marketing researchers do not always go through the bothering the customers. The bank wants two studies:
steps in the marketing research process in sequential (a) several focus groups of its customers, and (b) an
order. Provide an example of a research project that online survey of 500 customers. Which study is quali-
might not follow this sequence. tative and which is quantitative?
4. A sunglasses retailer is trying to determine if there is a 7. Grocery chains such as Loblaws track consumers’
significant market for its merchandise in a specific mall purchasing habits through store loyalty cards. These
location where it is considering opening a store. It has cards collect purchasing data and build consumer
an active Facebook page where customers routinely profiles. How can grocers such as Loblaws use these
visit to get coupons and comment on the latest sun- data to create value for the firm and consumers? Which
glasses offered. How can this retailer use Facebook study was qualitative and which was quantitative?
226 Section three Targeting the Marketplace
8. Suppose Domino’s Pizza wants to open a new What are some secondary sources of information
restaurant. What are some secondary sources of that might be used to conduct research on this topic?
information that might be used to conduct research Describe how these sources might be used. Describe a
on potential new locations? Describe how these method you could use to gather primary research data
sources might be used. Describe a method Domino’s about the topic. Would you recommend a specific order
could use to gather primary research on prospec- in obtaining each of these types of data? Explain your
tive locations. Do you think Domino’s should answer.
conduct the primary or secondary source research
10. Identify a nonprofit organization that might use market-
first? Why?
ing research, and describe one example of a meaning-
9. Suppose your university or college wants to modify its ful research project that it might conduct. Discuss the
course scheduling procedures to better serve students. steps it should undertake in this project.
marketing digitally
1. Go to the website of either The Harris Poll (https:// 2. Select two online survey tools (e.g., SurveyMonkey,
theharrispoll.com) or Ipsos Canada (www.ipsos.ca), Qualtrics, Zoomerang, or SurveyGizmo) and com-
which administer public opinion polls. Search the site pare and contrast them in terms of their features,
for results from any recent survey that are available capabilities, ease of use, support service, pricing
for free. Print out the results. Identify the objective(s) models, clientele, and any other characteristics you
of the survey. Discuss one of the major findings, and think would be useful for a market researcher to
provide an interpretation of the data. know.
This appendix examines how secondary data from customer transactions can help
customer lifetime determine the value of a customer over time. Specifically, customer lifetime value (CLV)
value (CLV) refers to the expected financial contribution from a particular customer to the firm’s prof-
The expected financial
contribution from a
its over the course of their relationship.1
particular customer to To estimate CLV, firms use past behaviours to forecast future purchases, the gross
the firm’s profits over the margin from these purchases, and the costs associated with servicing the customers.
course of their relationship.
Some costs associated with maintaining customer relationships include communicating
with customers through advertising, personal selling, or other promotional vehicles to
acquire their business initially and then retain it over time.
Measures of CLV typically apply to a group or segment of customers and use avail-
able secondary data. A basic formula for CLV,2 with the assumption that revenues and
profits arrive at the start of the year, is as follows:
profits at the beginning of year 2 are worth only $90.91(=100/(1 + 0.1)) at the
chases in the future. For example, if the discount rate is 10 percent, $100 in
beginning of year 1.
Consider Gregory Missoni, a fairly new client of Very Clean Cleaners who switched from
his other dry cleaner because Very Clean sent him $100 worth of coupons in a direct
mailing.
Greg just picked up his $200 shirt from Very Clean and found that the dry cleaner had
broken a brown button and replaced it with a white button. When he complained, the clerk
acted as if it was no big deal. Greg explained to the clerk that it was a very expensive shirt
that deserved more careful handling and then asked to speak with the manager. At this
point, how important is it that the manager makes sure Greg is satisfied, so that he will
Using Secondary Data to Assess Customer Lifetime Value (CLV) appendix 7A 229
continue to bring his dry cleaning to Very Clean Cleaners? To answer this question, the
manager uses the following information:
• It cost Very Clean $100 to acquire Greg as a customer. Thus, the acquisition cost
is $100.
• Very Clean expects Greg to remain a client for 5 years (time horizon T = 5 years).
• Very Clean expects to make a $1,000 profit each year from Greg’s dry cleaning.
• On average, 10 percent of customers defect to another cleaner each year. Therefore,
the expected retention rate is 90 percent.
• The discount rate is 10 percent per year (i in this illustration). For simplicity, Very
Clean assumes all profits are accrued at the beginning of the year.
Applying the formula, such that CLV equals the profits from years 1 to 5, less the acqui-
sition costs, we obtain the following:
Let’s see how the formula works. The expected profit from Greg is $1,000 per year. Very
Clean assumes profits accrue at the beginning of the year, so the profits for the first year
equal $1,000; they are not affected by the retention rate or the discount rate.
However, the retention and discount rates have effects on the profits for the sub-
sequent time periods. In the second year, the retention rate, which Very Clean deter-
mined was 90 percent (i.e., 90 percent of customers continue to do business with it),
modifies profits, such that expected profits in the second year equal $1,000 × 90% =
$900. Moreover, the discount rate is applied such that the profits received in the second
year are worth less than if they had been received in the first year. Therefore, the $900
received at the beginning of the second year must be divided by 1.1, which is equivalent
to $818.20.
Using similar calculations for the third year, the expected profits adjusted for retention
are $1,000 × 0.9 × 0.9 = $810. The discount rate then reduces the profit to $810 ÷ 1.12 =
$669.40 in today’s dollars. (Note that the discount rate is squared because it refers to two
years in the future.) After calculating the adjusted and discounted profits for the fourth
and fifth years in similar fashion, we realize that the sum of estimated discounted profits
for five years is $3,483.40. However, we still must subtract the $100 spent to acquire Greg,
which provides a CLV of $3,383.40.
According to this analysis, it would be a good idea for the manager to take a long-term
perspective when evaluating how to respond to Greg’s complaint about his button. Greg
cannot be viewed as a $2.50 customer, as he would be if Very Clean determined his value
based on the cost of laundering his shirt, nor should he be viewed as a $200 customer, based
on the cost of the shirt. He actually is worth a lot more than that.
For illustrative purposes, we have simplified the CLV calculations in this example. We
assumed that the average profits remain constant at $1,000. But firms usually expect profits
to grow over time, or else grow, level off, and then perhaps decline. Retention costs, such as
special promotions used to keep Greg coming back, also do not appear in our illustration,
though such additional costs would reduce annual profits and CLV. Finally, we assume a
230 Section three Targeting the Marketplace
five-year time horizon; the CLV obviously would differ for longer or shorter periods. For
an infinite time horizon, with first period payments upfront, the formula becomes fairly
simple:3
Retention
rate
CLV = Profits × 1 + _______________________________ − Acquisition cost
[ ($1 + Discount rate + Retention rate) ]
0.9 − $100
= $1,000 1 + _____________
[ (1 + 0.1 − 0.9) ]
= $1,000 × (1 + 4.5) − $100
Chapter 8
Courtesy of North
LO2 Describe the diffusion of innovation theory and how managers can use it to make
product line decisions
LO3 List the stages involved in developing new products and services
LO4 Describe the product life cycle and summarize how it is used to make product
line decisions
232 Section FOUR Value Creation
Excitement ran high with the introduction of Google Glass in 2013. The company actively embraces innovation
and many people speculated that Google’s glass was half full. Even before the product was available, everyone
seemed to know what Google Glass was and have an opinion about its efficacy, appeal, and look. The wearable
product allowed users to surf the Internet and gather information simply by looking up and to the right. They could
swipe their finger over a sensor behind their ears to pull up a Google map and navigate, take pictures, or initiate
the embedded Bluetooth technology to make a call.1
Early pricing for Google Glass ranged from $1,500 to $2,000 USD. That limited sales to early adopters, the
most dedicated tech geeks, and those with plenty of disposable income. Ultimately, the market proved to be
more diverse. Consumers wanted multiple colours, and more function such as games, tools and music. Prices
were slashed to attract more buyers. Even optimists had to agree that the glass was half empty when Google
ceased production in late 2015.
Still, the innovative concept behind smart glasses lives on. Today, there are similar products on the market or
under development. For example, smart-glass technology is used in HoloLens by Microsoft, Blade by Vuzix, and
One Creator’s Edition by Magic Leap. Apple is also believed to be working on a product that will sync with its iPhone.2
A report from BBC Research, projecting smart glasses sales valued at $9.3 billion USD in 2022,3 helps to explain
why companies continue to enter the market long after Google failed.
Thalmic Labs, based in Kitchener, Ontario, is one of those companies. Now rebranded as North Inc., the com-
pany introduced smart glasses, called Focals, in late 2018. Text messages, email, Uber notifications, calendars,
weather, sports scores, and turn-by-turn navigational help are projected on the lenses.4 Another unique feature
of the glasses is the ability for consumers to order Focals with prescription lenses. Amazon Alexa enables voice-
activated commands.
One thing the glasses don’t have is a camera. North recognized that privacy was a big issue with Google
Glass. Users could record others without their permission or add face recognition software to identify others. Pri-
vacy experts worried about the potential abuses in private-seeming locations in public places, such as restrooms
and changing rooms. And so North made the decision not to include a camera.
Unlike Google Glass, which was heavy and unattractive, Focals are light and stylish. North enlisted the help
of eyeglass designers to ensure that consumers would want to wear its smart glasses. According to co-founder,
Aaron Grant, the product was “insanely challenging to build because we took this design-first approach, where
we built this as eyewear first, and then figured out how to fit the technology in, rather than a tech-first approach
and try to pretty it up.”5
Since the product’s introduction, North added new functions such as support for Spotify, and a “rewind”
feature that captures voice notes via the built-in microphone and then emails users audio files and transcribed
text notes.6 With cash infusions of over $170 million from the Amazon Alexa Fund and Intel Capital,7 the company
seemed poised for success.
The real question remains—are consumers ready for smart glasses? To be successful, new products need
to diffuse beyond innovators and early adopters. Google faced a number of problems in the effort to diffuse
its wearable technology globally. While consumers viewed
Google Glass as cool, they weren’t sure why they needed
it. Companies need to make it clear to consumers what
problem their product will solve.8 For North, the answer to
the “why” behind Focals is being able to stay connected to
the digital world without having to continually look down at
your phone.9
It remained to be seen as to whether North could
convince consumers that Focals were the answer. In
the first year on the market, prices were reduced from
$999 to $699. (As a privately owned company, no sales
data is available.) More concerning is that the company
laid off about 150 employees in early 2019. Still, analysts
continued to rave about the stylish design of Focals and
the slick software. One analyst went so far as to write Focals by North project images onto the lenses
that “North may have cracked the nut on smart glasses of the smartglasses.
with Focals.”10 Courtesy of North
Developing New Products CHAPTER 8 233
The company halted production of the original glasses as it prepared to launch a new line with a narrower
protective arm and a higher-resolution display.11 Less than six months later, in the midst of the COVID-19 pandemic,
plans for the second generation of glasses was halted when Google parent Alphabet acquired North Inc. Although
Google stopped making Glass as a consumer product, as it turns out, the company has been selling it for industrial
use.12 And while the future of smart glasses is unknown, there may still be hope that the glass is half full.
Few three-letter words are more exciting than “new.” It brings forth an image of freshness,
adventure, and excitement. Yet “new” is also a complex term when it comes to market
offerings, because it might mean adding something new to an existing product, introducing
a flavour never offered before, or relying on different packaging that provides added value.
But the most exhilarating type of new product is something never seen before. Thousands
of patent applications pursue this elusive prize: a successful and truly innovative new
product.
To think about how new products once changed the world, imagine living 200 years
ago. You cook your meals on a stove fuelled by coal or wood. As a student, you do your
homework by hand, illuminated only by candlelight. To get to school, you hike along
unpaved roads to reach a small, cold, basic classroom with just a few classmates who listen
to a lecture from a teacher writing on a blackboard.
Today you finish your homework on a laptop with word-processing software that
appears to have a mind of its own and corrects your spelling automatically. Your climate-
controlled room has ample electric lighting. While you work on your laptop, you can also
talk with a friend by using the hands-free headset of your phone. As you drive to school,
you pick up fast food from a convenient drive-through window while browsing or listen-
ing to your personal selection of songs playing through your car speakers, connected by
Bluetooth to your smartphone. Your friend calls to discuss a slight change to an assign-
ment, so you pull over to grab your iPhone, make the necessary changes, and email the
assignment from your phone to your professor. When you arrive at university, you sit in a
200-person classroom where you plug in your laptop, take notes on it, and use it to digitally
record the lecture. The professor adds notes on the day’s PowerPoint presentations by using
her tablet computer. You have already downloaded the PowerPoint presentations and add
similar notes through your own laptop. After class, to complete your planning for a last-
minute party, you invite to your friends and ask for responses to get a head count. Then
you text your roommate, telling her to get food and drinks for the right number of people,
which she orders through an online grocer that will deliver later in the day.
Our lives are defined by the many new products and services developed through sci-
entific and technological advances and by the added features included in products we have
always used.
This chapter deals with the first P in the marketing mix: product, specifically new
products. As a key element of a firm’s marketing mix (four Ps) strategies, product strategies
are central to the creation of value for the consumer. A product is anything that is of value product
to a consumer and can be offered through a marketing exchange. In addition to goods (such Anything that is of value
to a consumer and can
as toothpaste) or services (such as a haircut), products might also be places (e.g., Whistler, be offered through a
British Columbia), ideas (e.g., “stop smoking”), organizations (e.g., Canadian Blood marketing exchange.
Services), people (e.g., Drake), or communities (e.g., Instagram) that create value for con-
sumers in their respective competitive marketing arenas.
Product branding and packaging will be examined in Chapter 9. Now we explore how
companies add value to firms’ product and service offerings through innovation. We also
look at the process firms go through to develop new products and services. We conclude
the chapter with an examination of how new products and services are adopted by the
market and how firms change their marketing mix as the product or service moves through
its life cycle.
234 Section FOUR Value Creation
Market Saturation
The longer a product exists in the marketplace, the more likely it is that the market will
become saturated. Without new products or services, the value of the firm will ultimately
decline. Imagine, for example, if car companies simply expected that people would keep
their cars until they stopped running.18 If that were the case, there would be no need to
come up with new and innovative models; companies could just stick with the models that
sell well. But few consumers actually keep the same car that long. Even those who want to
stay with the same make and model often want something new, just to add some variety to
their lives. So car companies revamp their models every year, whether by including new
features, such as an automatic parking system or a more powerful engine, or by redesigning
the entire look of the vehicle. The firms sustain their growth by getting consumers excited
by the new looks and new features, prompting many car buyers to exchange their old vehi-
cle years before its functional life is over.
Saturated markets can also offer opportunities for a company that is willing to adopt a new
process or mentality. At one point in time, mass marketers would not even consider entering
236 Section FOUR Value Creation
Fashion Cycles
In industries that rely on fashion trends and experience short product life cycles—
including apparel, arts, books, and software—most sales come from new products. For
example, a motion picture generates most of its theatre, DVD, and cable TV revenues
within a year of its release. If the same selection of books were always available for sale,
with no new titles, there would be no reason to buy more. Consumers of computer soft-
ware and video games demand new products because once they have “beaten” the game,
they want to be challenged by another game or experience the most recent version, as
the remarkable sales of successive versions of the Call of Duty game exemplify.22 In the
case of apparel, fashion designers typically produce entirely new product selections a
few times per year.
Developing New Products CHAPTER 8 237
To generate sales, apparel fashion Video games like Call of Duty Infinite Warfare are “fashionable” because
designers produce entirely new product consumers demand new versions. Once they “beat” the game, they want
selections a few times a year. to be challenged with a new experience.
Zou Zheng Xinhua News Agency/Newscom © Chesnot/Getty Images
Apple has released several pioneer products in recent years, including the Apple Watch.
© prykhodov/123RF
listen to music, but it also created an entirely new industry devoted to accessories, such
as cases, earbuds, docking stations, and speakers. Although Apple offers many of these
accessories itself, other companies have jumped on the bandwagon, ensuring that you
could strap your iPod to your arm while on the move or insert it into the base of a desk
lamp equipped with speakers to get music and light from your desk. And while the iPod
is no longer sold, it launched other notable pioneers, such as the iPhone, Apple Music,
and Apple Watch.
disruptive innovations Disruptive innovations, while new, are generally simpler, are less sophisticated, and
New product introductions may be less expensive than existing products or services. As an example, Netflix’s introduc-
that are simpler, less
sophisticated, and tion of streaming video disrupted the movie rental industry. The company gained share at
usually less expensive the expense of entrenched competitors such as Blockbuster, which eventually closed all its
than existing products or
services.
Canadian locations.
Pioneers have the advantage of being first movers; as the first to create the market
first movers
Product pioneers that are
or product category, they become readily recognizable to consumers and often establish
the first to create a market a commanding and early market share lead. Studies have found that market pioneers can
or product category, command a greater market share over a longer time period than later entrants can.26 Yet
making them readily
recognizable to consumers not all pioneers succeed. In many cases, imitators capitalize on the weaknesses of pio-
and thus establishing a neers and subsequently gain advantage in the market. Because pioneering products and
commanding and early brands face the uphill task of establishing the market alone, they pave the way for fol-
market share lead.
lowers, as noted in the smart glasses example in the opening vignette. Companies like
North can spend less of their marketing effort creating demand for the product category,
and instead focus directly on creating demand for their specific brand. Also, because the
pioneer is the first product in the market, it often has a less-sophisticated design and
may be priced relatively higher, leaving room for better and lower-priced competitive
products.
An important question to ask is, why is the failure rate of new products so high?
One of the main reasons is the failure to assess the market properly by neglecting to
Developing New Products CHAPTER 8 239
As the consumer adoption cycle in Exhibit 8.2 shows, the number of users of an inno-
vative product or service spreads through the population over time and generally follows
a bell-shaped curve. A few people buy the product or service at first, then increasingly
more buy, and finally fewer people buy as the degree of the diffusion slows. For example,
it took close to 20 years to get about 90 percent of Canadians to use automated teller
machines (ATMs), and it only took five years for more than 60 percent of Canadians to
adopt the Internet. Comparing the iPod and Sony Walkman, Merrill Lynch analyst Steve
Milunovich observes that after only 2.5 years, iPod shipments were approximately 1 mil-
lion units ahead of the Walkman’s pace after being on the market for the same period of
time in the 1980s, when the Walkman was first released.27 Apple’s iPad reached 1 million
units in its first 28 days—less than half the 74 days it took for the iPhone to reach the
same milestone.28
Purchasers can be divided into five groups—innovators, early adopters, early majority,
late majority, and laggards—according to how soon they buy the product after it has been
introduced.
Innovators
Inovators Innovators are those buyers who want to be the first on the block to have the new prod-
Those buyers who want to uct or service. These buyers enjoy taking risks, are regarded as highly knowledgeable, and
be the first to have the new
product or service. are not price sensitive. You probably know someone who is an innovator—or perhaps you
are one for a particular product or service category. For example, the person who stood
in line for days to be sure to get a ticket for the very first showing of the latest superhero
movie is an innovator in that context. Consumers who fly drones off their back porches
are likely innovators, too (a development noted in Ethical & Societal Dilemma 8.1).
Firms that invest in the latest technology, either to use in their products or services or to
make the firm more efficient, also are considered innovators. Typically, innovators keep
themselves very well informed about the product category by subscribing to trade and
specialty magazines, talking to other “experts,” visiting product-specific blogs and forums
that cover the latest cool products, and attending product-related forums, seminars, and
special events. Typically, innovators represent only about 2.5 percent of the total market
for any new product or service.
Developing New Products CHAPTER 8 241
*Nick Madigan, “Need a Quick Inspection of a 58-Story Tower? Send a Drone,” The New York Times, August 14, 2018, www.nytimes.com/2018/08/14/
business/drones-real-estate-construction.html; Amia Srinivasan, “What Termites Can Teach Us,” The New Yorker, September 17, 2018, www.newyorker.
com/magazine/2018/09/17/what-termites-can-teach-us; April Glaser, “Federal Privacy Laws Won’t Necessarily Protect You from Spying Devices,”
Recode net, March 15, 2017; Elizabeth Thompson, “New rules for drones: Pilot certificates, avoiding airports—and no drunk droning,” CBC, Jan. 9, 2019,
www.cbc.ca/news/politics/drones-aviation-garneau-regulations-1.4970750 (accessed July 22, 2019).
Innovators are crucial to the success of any new product or service because they help
the product gain market acceptance. Through talking and spreading positive word-of-
mouth about the new product, they prove instrumental in bringing in the next adopter
category, known as early adopters.
Late Majority
At 34 percent of the market, the late majority is the last group of
buyers to enter a new product market; when they do, the product
has achieved its full market potential. Perhaps these movie watch-
ers wait until the latest movie is available on Netflix or when it
finally comes to cable television. Either way, they watch the movie
long after the other consumers interested in it have already seen it.
By the time the late majority enters the market, sales tend to level
off or may be in decline.
Laggards
Laggards make up roughly 16 percent of the market. These
consumers like to avoid change and rely on traditional products
until they are no longer available.29 In some cases, laggards may
never adopt a certain product or service. When the sequel to
Star Wars: The Force Awakens eventually shows up on regular
Early majority members would probably wait to see
the latest Guardians of the Galaxy movie. They TV networks, they might watch it. Other examples of laggards
may assess movie reviews and whether the cost to are households that still use flip phones versus smartphones
stream it will be lower than seeing it at the theatre. or listen to music on CDs because they do not subscribe to any
ZCHE/Supplied by WENN/Newscom music streaming service.
Developing New Products CHAPTER 8 243
late majority
Using the Adoption Cycle The last group of buyers
to enter a new product
Using the diffusion of innovation theory or adoption cycle, firms can predict which types of market.
customers will buy their new product or service immediately after its introduction, as well
laggards
as later, as the product gets more and more accepted by the market. With this knowledge, Consumers who like to
the firm can develop effective promotion, pricing, and other marketing strategies to push avoid change and rely
acceptance within each customer group. on traditional products
until they are no longer
Although they are not as flashy as wearable tech or the latest iPhone, everyone uses available.
cleaning supplies. Often the innovators who adopt new cleaning products are the ones who
are the most fanatical about cleaning. Firms conduct in-depth research into how people
clean their homes to identify such segments. This research finds that some people are so
obsessive about cleaning that they spend nearly 20 hours every week doing it, while oth-
ers are so reluctant that they avoid cleaning as much as they can; their average weekly
cleaning time is about 2.5 hours.30 Consumers have a wealth of options to choose from
when purchasing cleaning products such as scrubbers, sprays, vacuums, and dusters. Thus,
in the vacuum-cleaner market, manufacturers recognize that the segment of consumers
who will spend substantial amounts for the most technologically advanced, powerful, easy-
to-maneuver machines, such as the latest Dyson model, are likely to be the segment of
consumers that is most fixated on cleaning.31 But another segment just wants some basic
suction to get the grit out of their rugs.
However, because different products are adopted at different rates, marketers must
understand what the diffusion curve for the new product looks like, as well as the charac-
teristics of the target customers in each stage of the diffusion. For example, the market-
ing decisions for ereaders are notably different from the parallel decisions for electronic
books. When the ereaders first emerged on the market, the price of ebooks was a fraction
of the price of hardcover versions—a policy that made sense to consumers. But as ereaders
have grown increasingly popular and widespread, the price of ebooks has become compa-
rable to, and in some cases higher than, the price of the hardcover versions.32 The speed
with which products are adopted depends on several product characteristics, illustrated
in Exhibit 8.3.
Compatibility
Factors
Relative Affecting
Observability
Advantage Product
Diffusion
Complexity
and
Trialability
244 Section FOUR Value Creation
Relative Advantage
If a product is perceived to be better than substitutes, then
the diffusion will be relatively quick. As advertising for
Swiffer products emphasizes, its mops and dusters prom-
ise to make cleaning faster, easier, and more efficient. In
featuring real families, it seeks to highlight the relative
advantage for all types of cleaners. Older people who
might once have gotten on their hands and knees to scrub
the floor can now rely on the design of the cleaning pads
on the end of the mop to get the job done. Their children,
who have never been very good at cleaning, can swipe a
few surfaces and get the house looking clean before their
Products like the Swiffer have a relative advantage
over the competition because they make cleaning
parents visit. And a man who has lost an arm to cancer
faster, easier, and more efficient, especially for seniors can still help his family keep the house clean, because the
and other consumers with mobility issues. duster does not require him to use a spray or climb a lad-
Sara Stathas / Alamy Stock Photo der to dust the ceiling fan.33
Compatibility
A diffusion process may be faster or slower, depending on various consumer features,
including international cultural differences. Electrolux’s latest bagless vacuums offer a key
innovation: They solve the age-old problem of how to empty the chamber without having
a cloud of particles fly out. They do this by compacting the dirt into a “pellet.” To make the
product more compatible with the needs of people in different cultures, it is made in various
sizes. The North American version offers a carpet nozzle with a motor, to deal with the dirt
accumulated in larger, often carpeted homes. Because in many Asian “megacities” consumers
live in tiny apartments, Electrolux has introduced a smaller version that is also very quiet.34
Similarly, the ritual of “having a coffee” is well ingrained in many cultures, including
Canadian culture. “Having a coffee” is consistent with people’s past behaviour, their needs,
and their values. Since people are accustomed to drinking coffee, it has been relatively
easy for Starbucks to acquire customers in Canada. The diffusion has been much slower in
countries such as China and Japan, where tea has been the traditional drink.
Observability
When products are easily observed, their benefits or uses are easily communicated to others,
which enhances the diffusion process. To demonstrate to consumers why they should spend
$400 on a blender, Blendtec launched an extensive YouTube campaign titled “Will It Blend?”
to demonstrate the effectiveness of the blender. In each video, a spokesperson in a white lab
coat blends a different product in the Blendtec—iPads, baseballs, Justin Bieber’s autobiog-
raphy, you name it—and gives visible proof to consumers of the quality of the product. The
humour and innovativeness of this product demonstration has caused these videos to go
viral, with over 290 million views and 880,000 subscribers.35 Yet some cleaning products face
a serious challenge in making their innovations widely observable, because few consumers
spend a lot of time talking about the products that are of a more personal nature, such as
what they use to clean their toilets. Even a great product might diffuse more slowly if people
feel uncomfortable talking about what they perceive to be involved in their personal care.
new vacuum. In response, manufacturers seek ways to help people conduct trials. For example,
Dyson’s displays in national retailers such as Bed, Bath, & Beyond often include floor space that
allows shoppers to run the machine to see how well the roller ball works or watch it pick up dirt.
The diffusion of innovation theory thus comes into play in the immediate and long-
term aftermath of a new product or service introduction. But before the introduction, firms
must actually develop those new offerings. Therefore, in the next section, we detail the
process by which most firms develop new products and services and how they initially
introduce them into the market.
The new-product development process begins with the generation of new product ideas and
culminates in the launch of the new product and the evaluation of its success. The stages of the
new-product development process, along with the important objectives of each stage, are sum-
marized in Exhibit 8.4. Although this exhibit depicts linear and sequential stages, in reality, the
process is iterative, consisting of a number of feedback loops at various stages. Generally, the
process is a team effort with the new product team composed of members from various func-
tions: marketing, design, engineering, manufacturing, procurement, and finance, all of which
play different roles at different stages of the process. Marketing plays a crucial role in the new-
product development process by communicating customer needs and wants and marketplace
preferences and attitudes to the research and development (R&D) and engineering group.
Bear in mind that it’s not always necessary to take a new product through each stage
in the process. Substantially new products will likely follow the process fairly closely, while
products imitating a successful product from a competitor, having a low development cost,
or involving incremental changes (such as line extensions) may skip one or more steps. For
example, P&G launched its Folgers brand of decaffeinated crystal coffee without market
testing. Although skipping stages in the new-product development process is very risky,
companies often do it to reduce costs or launch new products quickly.
Idea Generation
To generate ideas for new products, a firm can use its own internal R&D efforts, collaborate
with other firms and institutions, license technology from research-intensive firms, brain-
storm, research competitors’ products and services, and/or conduct consumer research.
Sometimes new product ideas come from employees, customers, suppliers, and partners,
or are generated by attending trade shows and conferences. Companies also generate ideas
by using reverse engineering or, in more extreme cases, even by digging through a competi-
tor’s garbage. Firms that want to be pioneers rely more extensively on R&D efforts, whereas
those that tend to adopt a follower strategy are more likely to scan the market for ideas.
Let’s look at each of these idea sources.
EVALUATION
CONCEPT
IDEA PRODUCT MARKET PRODUCT OF RESULTS
TESTING
GENERATION DEVELOPMENT TESTING LAUNCH Analysis of the
Testing the new
Development of Development of Testing the actual Full-scale performance of
product idea
viable new prototypes and/or products in a few commercialization the new product
among a set
product ideas the product test markets of the product and making
of potential
customers appropriate
modifications
246 Section FOUR Value Creation
Where do you think the idea for a waterproof tablet from Fujitsu came from? Internal R&D,
licensing, brainstorming, outsourcing, competitors’ products, customer input, or a combination?
Odd Andersen/AFP/Getty Images
Data That Help the Brand and analyses of these data will likely define the cars found on
the roads of the future. Connected cars communicate with
the Customer: GM’s Big Data Use** the manufacturers directly through 4G or LTE. Currently,
there are 55 million of these cars on the road, with 77 mil-
With brands such as Chevrolet and Cadillac, General lion projected by 2022. That will result in connected cars
Motors (GM) is well-known in the auto industry. It was one constituting 73 percent of passenger vehicles sold. With
of the companies hit the hardest by the 2008 recession, OnStar, its subscription-based, in-car security system, GM
following which it filed for bankruptcy and received a has an advantage in this effort. It already uses OnStar
government bailout. In 2012, GM announced a new busi- for remote communication and diagnoses of problems.
ness strategy, a major component of which was more This gives it real-time information, which GM can use to
efficient and effective uses of big data. The importance improve its future car designs, even as the predictive
of analytics again came to centre stage in 2013, when diagnosis and preventive maintenance offer customers
the company faced legal allegations regarding the recall value by saving them money or preventing them from
of the Chevy Cobalt. After the crisis, GM stressed the being stranded by a car that won’t start.
importance of big data even more and promised that
analytics would be at the heart of all its future product
development.
In particular, data analytics at GM support the devel-
opment of new cars. Through GM’s centralized data
warehouse, it can analyze trends in both production and
customer behaviour. Furthermore, GM manufacturer data
can be segmented at the individual vehicle identification
number (VIN) level and then analyzed to improve qual-
ity and safety. For example, manufacturer data analytics
helped GM develop tools that reduce the complexity
associated with the mechanics of vehicle design. General
Motors also collects data about its sales and dealer-
ships and uses these data to create detailed customer
profiles. The level of customer insight that these profiles
offer enables GM to develop new products that provide
customers with value. For example, GM’s applied market General Motors uses its OnStar system for remote
information influenced its development of high-efficiency communication with customers and diagnoses of
products that help reduce pollution. problems. It analyzes the data it collects from its OnStar
All of this is just the start. “Connected cars” are gen- database to support the development of new cars.
erating even more data for the car industry, and the ©Bloomberg/Getty Images
**Chris Murphy, “GM’s Data Strategy Pushed to Center Stage,” Information Week, March 27, 2014, www.informationweek.com/strategic-cio/executive-
insights-and-innovation/gms-data-strategy-pushed-to-center-stage/d/d-id/1127921; Mark van Rijmenam, “Three Use Cases of How General Motors
Applies Big Data to Become Profitable Again,” DataFloq, August 25, 2014, https://datafloq.com/read/three-use-cases-general-motors-applies-big-data-
be/257; Jonathan H. Owen, David J. VanderVeen, and Lerinda L. Frost, “General Motors: Using O.R. to Meet Auto Industry Challenges and Provide
Value to Customers and the Company,” Informs Online, December 2013; Mark Fulton, “Five Critical Challenges Facing the Automotive Industry, A
Guide for Strategic Planners,” HIS Automotive, http://cdn.ihs.com/www/pdf/AUT-TL-WhitePaper-5.pdf (accessed July 22, 2019).
Licensing
For many new scientific and technological products, firms buy the rights to use the tech-
nology or ideas from other research-intensive firms through a licensing agreement. This
approach saves the high costs of in-house R&D, but it means that the firm is banking on a
solution that already exists but has not been marketed. Some of the largest recent licensing
deals in the pharmaceutical industry are for potential weight-loss solutions. In separate
deals, one worth $1.4 billion and another worth $1.1 billion, two big pharmaceutical firms
licensed the marketing rights for new products developed by small biotechnology firms to
combat obesity.38
248 Section FOUR Value Creation
Brainstorming
Firms often engage in brainstorming sessions during which a group works together to gen-
erate ideas. One of the key characteristics of a brainstorming session is that no idea can be
immediately accepted or rejected. The moderator of the session may channel participants’
attention to specific product features and attributes, performance expectations, or packag-
ing. Only at the end of the session do the members vote on the best ideas or combinations
of ideas. Those ideas that receive the most votes are carried forward to the next stage of the
product development process.
Outsourcing
When companies have trouble moving through these steps alone, they turn to outsourcing,
and hire external companies to help generate ideas to develop new products and services.
IDEO, a design firm, provides a service that helps clients generate new product and service
ideas in industries such as health care, toys, and computers. IDEO employs anthropologists,
graphic designers, engineers, and psychologists whose special skills help foster creativity
and innovation. Google Creative Lab wanted to create an interactive experience to help
reverse engineering children learn to code. In collaboration with IDEO, a new tool was developed based on
Involves taking apart a
competitor’s product, physical blocks to teach kids coding skills. The design revolved around a variety of blocks,
analyzing it, and creating each with specific shapes and functions. The children were able to play with the blocks,
an improved product that combining and rearranging them to create a set of instructions that could be used to con-
does not infringe on the
competitor’s patents, if any trol toys, robots or speakers. And because Project Bloks is an open platform, educators and
exist. developers around the world can build on it and fit it into their curricula.39
Competitors’ Products
A new product entry by a competitor may trigger a market
opportunity for a firm, which can use reverse engineering to
understand the competitor’s product and then bring an improved
version to market. Reverse engineering involves taking apart
a competitor’s product, analyzing it, and creating an improved
product that does not infringe on the competitor’s patents, if
any exist. This copycat approach to new product development
is widespread and practised by even the most research-intensive
firms. Copycat consumer goods show up in grocery and drug-
store products, as well as in technologically more complex
products such as automobiles and computers.
Customer Input
Listening to the customer in both B2B and B2C markets is essen-
tial for successful idea generation. Because customers for B2B
products are relatively few in number, firms can follow their use of
products closely and survey them often for suggestions and ideas
to improve those products. The firm’s design and development
team then works on these suggestions, sometimes in consultation
with the customer. This joint effort between the selling firm and
the customer significantly increases the probability that the cus-
Customers are an important source of new product
tomer eventually will buy the new product.
ideas. General Mills solicited input from consumers
to find out which flavours they like best, and Green Customer input in B2C markets comes from a variety of
Giant Roasted Veggie Tortilla Chips was one of the sources, though increasingly through social media. By monitor-
winners. ing online feedback, whether requested by the firm or provided
Source: General Mills voluntarily in customer reviews, companies can get better ideas
Developing New Products CHAPTER 8 249
about new products or necessary changes to existing ones. The recent intro-
duction of Green Giant snack chips provides a good example of using inputs
from various types of partners. General Mills (which owns the Green Giant
brand) heard a pitch for a new vegetable-based snack chip from its sup-
plier Shearer’s Chips. The chip manufacturer developed 10 options for its
business customer, General Mills. Then General Mills solicited input from
its end consumers to find out which flavours they might like best. Online
reviews suggested the need for a much zestier version of the roasted veg-
etable tortilla chips, which ultimately appeared on store shelves.40
In some cases, consumers may not expressly demand a new product,
though their behaviour demonstrates their desire for it. For example, Home
Depot conducted some in-home research with consumers to see where they
might have unexpressed needs. Although women never mentioned their
need, the researchers realized that many women engaged in heavy-duty
gardening tasks wound up struggling with the bulky, heavy buckets they
were using to transport dirt and fertilizer to different areas of the yard. In In response to consumers’ input, the
partnership with a design firm, it thus developed the Big Gripper bucket Big Gripper bucket was designed to
with a more ergonomic handle, a secondary grip on the side (to make it make it easier to handle.
easier to tip the bucket), and another grip on the bottom. In this case, Home Source: Leaktite Corporation
Depot has improved on a product that has not changed notably in decades,
lead users
by observing how people use it.41
Innovative product users
Another particularly successful customer input approach is to analyze lead users, those who modify existing products
innovative product users who modify existing products according to their own ideas to suit according to their own ideas
to suit their specific needs.
their specific needs.42 If lead users customize the firm’s products, other customers might wish
to do so as well. Studying lead users helps the firm understand general market trends that concepts
Brief written descriptions
might be just on the horizon. Manufacturers and retailers of fashion products often spot new of a product or service;
trends by noticing how trendsetters have altered their clothing and shoes. Designers of high- its technology, working
fashion jeans distress their products in different ways depending on signals they pick up “on principles, and forms; and
what customer needs it
the street.” One season, jeans appear with whiskers; the next, holes; the next, paint spots. would satisfy.
At the end of the idea-generation stage, the firm should have several ideas that it can concept testing
take forward to the next stage: concept testing. The process in which a
concept statement that
describes a product or a
service is presented to
Concept Testing potential buyers or users to
obtain their reactions.
Ideas with potential are developed further into concepts,
which in this context refers to brief written descriptions
of the product; its technology, working principles, and
forms; and what customer needs it would satisfy.43 A con-
cept might also include visual images of what the product
would look like.
Concept testing refers to the process in which a con-
cept statement is presented to potential buyers representative
of the target market or users to obtain their reactions. These
reactions enable the developer to estimate the sales value
of the product or service concept, possibly make changes
to enhance its sales value, and determine whether the idea
is worth further development.44 If the concept fails to meet
customers’ expectations, it is doubtful it would succeed if it
Innovative customers called “lead users” are especially
were to be produced and marketed. Because concept testing influential in the fashion industry because designers
occurs very early in the new-product introduction process, frequently change their designs based on trends they
even before a real product has been made, it helps the firm see on the street.
avoid the costs of unnecessary product development. Big Cheese Photo/SuperStock
250 Section FOUR Value Creation
Concept testing progresses along the research techniques described in Chapter 7. The
firm likely starts with qualitative research, such as in-depth interviews or focus groups, to
test the concept, after which it can undertake quantitative research through Internet or
mall-intercept surveys. Video clips on the Internet might show a virtual prototype and the
way the product or service works so that potential customers can evaluate it.46 In a mall-
intercept survey, an interviewer would provide a description of the concept to the respon-
dent and then ask several questions to obtain his or her feedback.
The most important question pertains to the respondent’s purchase intentions if the
product or service were to be made available. Marketers also should ask whether the prod-
uct would satisfy a need that other products currently are not meeting. Depending on the
type of product or service, researchers might also ask about the expected frequency of pur-
chase, how much customers would buy, whether they would buy it for themselves or as a
gift, when they would buy, and whether the price information (if provided) indicates a good
value. In addition, marketers usually collect some demographic information so they can
analyze which consumer segments are likely to be most interested in the product.
Some concepts never make it past this stage, particularly if respondents seem uninter-
product development ested. Those that do receive high evaluations from potential consumers, however, move on
Entails a process of to the next step, product development.
balancing various
engineering, manufacturing,
marketing, and economic
considerations to develop a Product Development
product.
Product development, or product design, entails a process of balancing various engineer-
prototype ing, manufacturing, marketing, and economic considerations to develop a product’s form
The first physical form or
service description of a and features or a service’s features. An engineering team develops a product prototype that
new product, still in rough is based on research findings from the previous concept testing step, as well as their own
or tentative form, that
knowledge about materials and technology. A prototype is the first physical form or service
has the same properties
as a new product but is description of a new product, still in rough or tentative form, that has the same properties
produced through different as a new product but is produced through different manufacturing processes, sometimes
manufacturing processes,
sometimes even crafted even crafted individually.47 As discussed in Entrepreneurial Marketing 8.1, sometimes
individually. many iterations are needed to come up with a design that works.
Bartesian — Premium Cocktails easy. Testing the concept and creating a prototype proved
to be a lot harder. The original prototype, P1, was really
on Demand† just a retrofitted coffee machine—a very minimalistic
device. The basic idea for the product didn’t change much
Sometimes the quest for a new venture leads in strange over time; however, the design and target market did.
directions. For Bryan Fedorak, the path moved from edu- Fedorak and his partner originally thought that the target
cational toys for children to cocktails. Fedorak graduated market would be female college and university students.
from mechanical engineering and later went on to do an Research through customer discovery sessions showed
MBA. With the help of Velocity Garage, a unique program that their market was indeed female, albeit older and more
for start-up businesses offered through the University of affluent—essentially the “hostess with the mostest.”
Waterloo, he was able to launch Bartesian with a partner. A trade show allowed them to collect more feedback
Their idea was a Keurig-like machine that would make and reactions from potential customers as well as get
cocktails instead of coffee. Coming up with the idea was more input on how people might use the unit. From there
Developing New Products CHAPTER 8 251
Many prototypes were developed before Bartesian was finalized. P1, P2, P4, and P5 protoypes are shown here.
Used with permission of Bartesian, www.bartesian.com
†All information presented in Entrepreneurial Marketing 8.1 comes from personal interviews with Bryan Fedorak, co-founder of Bartesian and “About,”
Bartesian, www.bartesian.com/product (accessed July 22, 2019).
††Ed McKinley, “Finally, A Useful Robot!,” LuckBox magazine, April 27, 2019, https://luckboxmagazine.com/trends/something-ventured/finally-a-useful-
robot/ (accessed July 22, 2019).
252 Section FOUR Value Creation
Premarket Tests
premarket tests Firms conduct premarket tests before they actually bring a product or service to market
Conducted before a product to determine how many customers will try and then continue to use the product or service
or service is brought to
market to determine how according to a small group of potential consumers. One popular proprietary premarket test
many customers will try and version is called Nielsen BASES. During the test, potential customers are exposed to the
then continue to use it.
marketing mix variables, such as the advertising, and then surveyed and given a sample of
the product to try.50 After some period of time, during which the potential customers try
the product, they are surveyed about whether they would buy/use the product again. This
second survey indicates an estimation of the probability of a consumer’s repeat purchase.
From these data, the firm generates a sales estimate for the new product that enables it to
decide whether to introduce the product, abandon it, redesign it before introduction, or
revise the marketing plan. An early evaluation of this sort—that is, before the product is
introduced to the whole market—saves marketers the costs of a nationwide launch if the
product fails.
Sometimes firms simulate a product or service introduction,51 in which case poten-
tial customers view the advertising of various currently available products or services,
along with advertising for the new product or service. They receive money to buy the
product or service from a simulated environment, such as a mock Web page or store, and
respond to a survey after they make their purchases. This test thus can determine the
effectiveness of a firm’s advertising as well as the expected trial rates for the new product.
Developing New Products CHAPTER 8 253
Beyond Meat — Diet and B.C.‡‡ The following week, McDonald’s announced that
it would partner with Beyond Meat to test the P.L.T. (Plant,
for the Whole Planet?‡ Lettuce, Tomato) burger at 28 restaurants in Southwest
Ontario. The test will determine whether to introduce the
In 1971, Frances Moore Lappé wrote Diet for a Small new product at more locations in Canada and globally.
Planet. The book made a case for adopting a vegetarian According to Nicola Pitman, McDonald’s Canada director
diet, based on the negative environmental impact of meat of menu innovation and management, the company always
production, which she viewed as wasteful and contribut- looks at trends when it comes to product innovation.§
ing to global food scarcity. Decades later, her book is still As consumers reduce the amount of meat in their diet,
changing the way people eat. Although the percentage food companies are introducing more plant-based alter-
of vegans in Canada is only 2.3 percent, with vegetarians natives. Some consumers are making the change based
slightly higher at 7 percent, the number of flexitarians, peo- on health concerns, while others do so for ethical reasons.
ple who identity as semi-vegetarian, is growing rapidly and Plant-based foods are seen as healthier and more envi-
projected to reach 10 million within five years. One study ronmentally sustainable. Research shows that 87 percent
reports that almost 85 percent of Canadians eat one veg- of farmland is used to produce meat and dairy, and that
etarian meal a month now, with half doing so once a week. produces 60 percent of agricultural greenhouse gas emis-
That is good news for plant-based food company, sions. However, meat and dairy provide only 37 percent of
Beyond Meat. It is on a mission to create The Future the protein and 18 percent of the calories we eat. Raising
of Protein®, to improve human health, have a positive animals is just plain inefficient. It takes five to seven kilo-
impact on climate change, improve animal welfare, and grams of grain to produce just one kilogram of beef.
address constraints on global resources. Fast-food chain A study by the University of Michigan reported on the
A&W partnered with Beyond Meat in 2018 to introduce environmental impact of the Beyond Burger. Its life-cycle
the Beyond Burger at its 850 locations. Demand was analysis found that production of the burger reduced
high, with more than 90,000 burgers sold in the first greenhouse gas emissions by 90 percent, and used
three days. Many of its restaurants were sold out for 93 percent less land, 99 percent less water, and only half
weeks, unable to keep up with demand. The new burger the energy needed to produce a conventional beef burger.
was so popular that A&W quickly moved to add a Beyond The pea protein used in Beyond Meat products is consid-
Meat breakfast sandwich to its offerings. erably more sustainable than meat. The real-life impact is
Only a few months later, Tim Hortons added a line of that if consumers were to switch one of the three burgers
breakfast sandwiches and wraps using Beyond Meat sau- they eat per week for a Beyond Burger, over one year “it
sage substitutes. It started testing the new products at 60 would be like taking 12 million cars off the road and saving
locations in the Greater Toronto Area (GTA) in the sum- enough energy to power 2.3 million homes.”
mer of 2019, with plans to expand the offering across the Frances Moore Lappé’s Diet for a Small Planet started
country. However, just three months later, it took Beyond an environmental eating revolution. Beyond Meat now
Burgers off its menus and removed Beyond Meat breakfast wants consumers to change their diets and do their part
sandwiches in all locations with the exception of Ontario for the whole planet.
‡Katrina Fox, “This Vegan Brand Just Proved That Plant-Based Burgers Are More Sustainable Than Those Made Of Beef,” Forbes, Sept. 26, 2018,
www.forbes.com/sites/katrinafox/2018/09/26/this-vegan-brand-just-proved-that-plant-based-burgers-are-more-sustainable-than-those-made-of-
beef/2/#236ed3146553; Josh Kolm, “A&W adds another Beyond Meat option,” Strategy, Feb. 28, 2019, http://strategyonline.ca/2019/02/28/aw-adds-
another-beyond-meat-option; Brenda Bouw, “How investors could profit from consumers’ hunger for meat alternatives,” The Globe and Mail, April 16,
2019, www.theglobeandmail.com/investing/markets/inside-the-market/article-food-companies-look-to-take-a-bite-out-of-meat-alternatives/; Justin
Dallaire, “Innovation Monitor: Tim Hortons adds Beyond Meat to its menu,” Strategy, May 21, 2019, http://strategyonline.ca/2019/05/21/innovation-
monitor-tim-hortons-adds-beyond-meat-to-its-menu; Jason McBride, “What the skyrocketing popularity of Beyond Meat means for our planet,” Macleans,
July 12, 2019, https://www.macleans.ca/news/canada/what-the-skyrocketing-popularity-of-beyond-meat-means-for-our-planet/; “Our Mission,” Beyond
Meat, www.beyondmeat.com/about/ (accessed July 23, 2019).
‡‡
Dan Healing, “Tim Hortons cutting Beyond Meat products from thousands of Canadian locations,” The Canadian Press, September 18, 2019,
www.theglobeandmail.com/canada/article-tim-hortons-cuts-beyond-meat-products-from-menus-except-in-ontario-and (accessed September 18, 2019).
§
Susan Krashinsky Robertson, “McDonald’s taps Ontario as test market to launch Beyond Meat burger,” The Globe and Mail, September 26, 2019,
www.theglobeandmail.com/business/article-mcdonalds-to-launch-beyond-meat-burger-in-ontario-as-a-test-market/; Josh Kolm, “McDonald’s puts
Beyond Meat on the menu,” Strategy, September 26, 2019, http://strategyonline.ca/2019/09/26/mcdonalds-adds-beyond-meat-to-the-menu/ (accessed
September 26, 2019).
Test Marketing
test marketing
A method of determining the success potential of a new product, test marketing intro- Introduces a new product
duces the offering to a limited geographical area (usually a few cities) prior to a national or service to a limited
geographical area (usually
launch. Test marketing is a strong predictor of product success because the firm can study a few cities) prior to a
actual purchase behaviour, which is more reliable than a simulated test. A test-marketing national launch.
254 Section FOUR Value Creation
effort uses all the elements of the marketing mix. It includes pro-
motions such as advertising and coupons, just as if the product
were being introduced nationally, and the product appears in tar-
geted retail outlets, with appropriate pricing. On the basis of the
results of the test marketing, the firm can estimate demand for the
entire market. Test marketing is widely used by fast-food chains
such as Tim Hortons as noted in Sustainable Marketing 8.1.
Test marketing costs more and takes longer than premarket
tests, which may provide an advantage to competitors that could get
a similar or better product to market first. For this reason, some firms
might launch new products without extensive consumer testing and
rely instead on intuition, instincts, and guts.52 However, test mar-
Is the 3D experience worth the price? keting offers a key advantage: The firm can study actual consumer
Shutterstock/Serhii Bobyk behaviour, which is more reliable than a simulated test. Beer makers
and other product companies like testing in Calgary. As a test market,
Calgary offers an attractive demographic in terms of income levels, lifestyle, and a relatively
youthful population. Other cities often used for test markets include London, Ontario, because
its population is reflective of a “typical” Canadian city. That might be why Tim Hortons® tested
its Dark Roast coffee in London as well as in Columbus, Ohio.53 Winnipeg is a good location to
test shampoos and skin lotions for dry skin because of its long, cold winters.
Product Launch
If the market testing returns with positive results, the firm is ready to introduce the product to
the entire market. This is the most critical step in the new product introduction and requires
tremendous financial resources and extensive coordination of all aspects of the marketing
mix. If the new product launch is a failure, it may be difficult for the product—and perhaps
the firm—to recover. For example, though the number of 3D movie theatres continues to
grow, ticket sales for these offerings first levelled off and now have started to decline. The
introduction of the new technology was popular enough that sellers invested heavily in
building more than 15,000 3D screens, and Hollywood promised a wider range of 3D film
options. But if—as appears to be the case—moviegoers have decided that the realistic, three-
dimensional images are not worth the higher ticket price, such investments might be painful
for both movie studios and movie theatres.54 In the food and beverage industry, where new
product failure rates are as high as 78 percent, Kraft minimizes its risk through a new product
development process that includes consumer research. Some products show great promise
after launch though, as Exhibit 8.5 describes.
Source: Product of the Year Management. http://productoftheyear.ca/winners-2019/ (accessed July 23, 2019).
***Product of the Year is the world’s largest consumer-voted award for product innovation and publishes a list
of best new products launched each year (http://productoftheyear.ca). The products listed were winners in the
2018 Product of the Year Awards, a competition judged by thousands of Canadian consumers coast to coast.
Developing New Products CHAPTER 8 255
So what does a product launch involve? First, the firm confirms its target market(s) and
decides how the product will be positioned. This is done using research it has gathered on
consumer perceptions and tests it has conducted, as well as any competitive considerations.
Then, the firm finalizes the remaining marketing mix variables for the new product, includ-
ing the marketing budget for the first year.55
Promotion
The test results help the firm determine an appropriate integrated marketing communica-
tions strategy.56 Promotion for new products is required at each link in the supply chain. If
the products are not sold and stocked by retailers, no amount of promotion to consumers
will sell the products. Trade promotions, which are promotions to wholesalers or retailers
to get them to purchase the new products often combine introductory price promotions,
special events, and personal selling. Introductory price promotions are limited-duration,
lower-than-normal prices designed to provide retailers with an incentive to try the products.
Manufacturers also use promotion to generate demand for new products with consum-
ers. If a manufacturer can create demand for the product among consumers, those consumers
will go to retailers asking for it (pull demand; see Chapter 12), further inducing retailers to
carry the product. These promotions are often coupled with short-term price reductions, cou-
pons, or rebates. Sometimes manufacturers promote new products in advance of the product
launch to create excitement with potential customers as well as to measure the likely demand,
so they have appropriate supply available. Automobile and motorcycle manufacturers, for
instance, advertise their new products months before they are available on the dealers’ floors.
Place
The manufacturer coordinates the delivery and storage of the new products with its retailers
to ensure that a product is available for sale when the customer wants it, at the stores the cus-
tomer is expecting to find it, and in sufficient quantities to meet demand. The firm must have
an adequate quantity of products available for shipment and to keep in stock at relevant stores.
The product offering should also be as complete as possible. For example, a firm launching a
new printer should ensure it has an adequate supply of the related cartridges or toners.
Accessibility is also key. Interested consumers can purchase an iPhone from any Bell,
Rogers, or TELUS wireless product location. This accessibility not only provides the new
product in a convenient location, but also allows the opportunity for tailored customer ser-
vice and subscription to appropriate service plans.
Price
Like the promotion of new products, setting prices is a supply chain–wide decision. Manu-
facturers must decide at what price they would like products to sell to consumers on the
basis of the factors discussed in Chapter 11. They often encourage retailers to sell at a speci-
fied price known as the manufacturer’s suggested retail price (MSRP). Although retailers
often don’t abide by the MSRP, manufacturers can withhold benefits such as paying for all
or part of a promotion or even refusing to deliver merchandise to noncomplying retailers.
The firm needs to ensure that it gets the price right. It is sometimes easier to start with a
higher price and offer promotions (e.g., coupons, rebates), and then over time, lower the
price than it is to introduce the new product at a low price and then try to raise it.
Timing
The timing of the launch may be important, depending on the product.57 Hollywood stu-
dios typically release movies targeted toward general audiences (i.e., those rated G or PG)
during the summer when children are out of school. New automobile models traditionally
are released for sale during September, and fashion products are launched just before the
season of the year for which they are intended.
256 Section FOUR Value Creation
Evaluation of Results
After the product has been launched, marketers must undertake a critical post-launch
review to determine whether the product and its launch were a success or a failure and
what additional resources or changes to the marketing mix are needed, if any. Some prod-
ucts never make it out of the introduction stage and are almost laughable in retrospect.
Bic underwear?58 Harley-Davidson perfume? Alcohol-free beer for pets? Firms measure
the success of a new product by three interrelated factors: (1) its satisfaction of technical
requirements, such as performance; (2) customer acceptance; and (3) its satisfaction of the
firm’s financial requirements, such as sales and profits.59 If the product is not performing
sufficiently well, poor customer acceptance will result, which in turn leads to poor financial
performance. The product life cycle, discussed in the next section, helps marketers manage
their product’s marketing mix during and after its introduction.
Profit
$0
Time
Developing New Products CHAPTER 8 257
The product life cycle also offers a useful tool for managers to analyze the types of
strategies that may be required over the life of their products. Even the strategic emphasis
of a firm and its marketing mix (four Ps) strategies can be adapted from insights about the
characteristics of each stage of the cycle, as we summarize in Exhibit 8.6B.
Let’s look at each of these stages in depth.
Introduction Stage
The introduction stage for a new, innovative product or service usually starts with a
single firm, and innovators are the ones to try the new offering. Some new-to-the-world
products and services that defined their own product category and industry include the
telephone (invented by Alexander Graham Bell in 1876), the transistor semiconductor (Bell
Laboratories in 1947), the Walkman portable cassette player (Sony in 1979), the Internet
browser (Netscape in 1994), iTunes (Apple in 2001), BlackBerry (RIM in 2003), Blu-ray (Sony
in 2006), iPad (Apple in 2010), and the Amazon Echo smart speaker (Amazon in 2015).
Sensing the viability and commercialization possibilities of this market-creating new prod-
uct, other firms soon enter the market with similar or improved products at lower prices.
The same pattern holds for less innovative products such as apparel, some music, or even a
new soft-drink flavour. The introduction stage is characterized by initial losses to the firm
because of its high start-up costs and low levels of sales revenue as the product begins to take
off. If the product is successful, firms may start seeing profits toward the end of this stage.
These new-to-the-world products defined their own product category and industry. The
telephone (left) was invented in 1876, and the Sony Walkman (right) came out in 1979.
(left): © Kasiden/Dreamstime.com/GetStock.com; (right): Comstock Images/Alamy Stock Photo
258 Section FOUR Value Creation
Growth Stage
The growth stage of the product life cycle is marked by a growing number of product adopt-
ers, rapid growth in industry sales, and increases in both the number of competitors and
the number of available product versions.61 The market becomes more segmented and con-
sumer preferences more varied, which increases the potential for new markets or new uses
of the product or service.62
Also during the growth stage, firms attempt to reach new consumers by studying
their preferences and producing different product variations—varied colours, styles, or
features—which enables them to segment the market more precisely. The goal of this
segmentation is to ride the rising sales trend and firmly establish the firm’s brand, so as
not to be outdone by competitors. In recognizing the growing demand for and appeal of
organic products, many food manufacturers are working hard to become the first brand
that consumers think of when they consider organic products. Del Monte was the first of
the major canned-vegetable sellers to go organic, releasing organic versions of its tomatoes,
green beans, corn, and sweet peas, along with an organic chicken broth product under its
College Inn line. The cans feature bold “organic” banners across the front and promise that
no pesticides were used to produce the food items. Even though Del Monte products have
been around for more than 100 years, in this growth category, the company must work to
establish its distinctive appeal, in the organic market in particular.63
As firms ride the crest of increasing industry sales, profits in the growth stage also
rise because of the economies of scale associated with manufacturing and marketing costs,
especially promotion and advertising. At the same time, firms that have not yet established
a stronghold in the market, even in narrow segments, may decide to exit in what is referred
to as an “industry shakeout.”
Maturity Stage
The maturity stage of the product life cycle is characterized by
the adoption of the product by the late majority and intense
competition for market share among firms. Marketing costs
(e.g., promotion, distribution) increase as these firms vigor-
ously defend their market share against competitors. At the
same time, they face intense competition on price as the average
price of the product falls substantially compared with the shifts
during the previous two stages of the life cycle. Lower prices
and increased marketing costs begin to erode the profit margins
for many firms. In the later phases of the maturity stage, the
market has become quite saturated, and practically all potential
customers for the product have already adopted the product.
Such saturated markets are prevalent in developed countries;
in Canada, most consumer packaged goods found in grocery and
discount stores are already in the maturity stage. For example, in the
well-established hair-care product market, consumer goods compa-
nies constantly search for innovations to set themselves apart and
extend the time in which they maintain their position in the matu-
rity stage. Observing the popularity of new skin-care products, hair-
care manufacturers have integrated similar product benefits to their
products. These companies have introduced anti-aging shampoos
and conditioners, prewash hair masks, serums, and multiple-step
Recognizing that shampoo is a mature product solutions that go beyond the old mantra of wash, rinse, and repeat.
category, Alterna and other manufacturers have Firms may pursue several strategies during this stage to
introduced anti-aging hair products. increase their customer base and/or defend their market share,
Source: Alterna Haircare such as entering into new markets and market segments and
Developing New Products CHAPTER 8 259
Strategy Example
Develop new uses for products Baking soda is now promoted for deodorizing
refrigerators, as an environmentally friendly cleaning
product, and much more.
Modify the product:
Change quality Add graphite to tennis racquets and golf clubs.
Boost performance Enhance computer chip speed.
Alter appearance Modify packaging; change colours; or introduce a
new scent.
Increase frequency of use Dentyne gum is promoted as a way to help clean
your teeth when you can’t brush after a meal.
Increase the number of users Tums have always contained calcium, but when this
fact was promoted, people concerned about bone
density began to purchase the product.
Find new users Club Med introduced vacations geared to baby
boomers, seniors, golfers, and those looking for
cruises after some of their original target market of
swinging singles got married and had children.
Reposition product Suntan lotion has evolved to become sunscreen
protection.
Vitamin D is sold as a cancer deterrent.
Tweak marketing strategy Greeting cards are sold in supermarkets.
Upscale cosmetics are sold in drug stores.
developing new products or promotions. See Exhibit 8.7 for additional strategies for extend-
ing the maturity stage of the product life cycle.
The nostalgia factor associated with the old albums has given new life to the older
medium that has caused a problem and created an opportunity. No one had made new
record-pressing machines since vinyl first went out of favour, forcing long waits for those
who wanted to create vinyl records. Toronto-based Viryl Technologies has since seized the
opportunity by designing a fully modernized, automated press to satisfy pent up demand.72
Sales
Time Time
Sales
Time Time
262 Section FOUR Value Creation
LO1 Identify the reasons firms create new products LO3 ist the stages involved in developing new
L
products and services
Firms need to innovate to respond to changing customer
needs, prevent decline in sales, avoid market satura- When firms develop new products, they go through several
tion, diversify their risk, and respond to short product life steps. First, they generate ideas for the product or service
cycles. This is especially true in industries such as fash- by using several alternative techniques, such as internal
ion, apparel, arts, books, and software markets, where research and development, licensing, brainstorming, track-
most sales come from new products. New products and ing competitors’ products or services, and working with cus-
services keep current customers coming back for more tomers. Second, firms test their concepts by either describing
and induce new customers into the market. Risky, new-to- the idea of the new product or service to potential customers
the-world products have tremendous potential because or showing them images of what the product would look like.
they are the first in the market to offer something that has Third, the design process entails determining what the prod-
never before been available. uct or service will actually include and provide. Fourth, firms
test-market their designs. Fifth, if everything goes well in the
LO2 escribe the diffusion of innovation theory
D test market, the product is launched. Sixth, firms must evalu-
and how managers can use it to make ate the new product or service to determine its success.
product line decisions
LO4 escribe the product life cycle and
D
The diffusion of innovation theory helps firms predict summarize how it is used to make product
which types of customers will buy their products or ser- line decisions
vices immediately upon introduction and as those prod-
ucts and services gain more acceptance in the market. The product life cycle helps firms make marketing mix deci-
Innovators are those buyers who want to be the first to sions on the basis of the product’s stage in its life cycle. In
have the new product or service. Early adopters do not the introduction stage, companies attempt to gain a strong
take as much risk as innovators but instead wait and pur- foothold in the market quickly by appealing to innovators.
chase the product after careful review. The members of During the growth stage, the objective is to establish the
the early majority really don’t like to take risks and there- brand firmly. When the product reaches the maturity stage,
fore tend to wait until “the bugs” have been worked out firms compete intensely for market share, and many poten-
of a particular product or service. The late majority are tial customers already own the product or use the service.
buyers who purchase the product after it has achieved Eventually, most products enter the decline phase, during
its full market potential. Finally, laggards like to avoid which firms withdraw marketing support and eventually
change and rely on traditional products until they are phase out the product. Knowing where a product or service
no longer available. Laggards may never adopt a certain is in its life cycle helps managers determine its specific strat-
product or service. egy at any given point in time.
Developing New Products CHAPTER 8 263
Key Terms
concept review
1. Explain how new product or service innovations add 6. What other factors besides the product itself does a
value to the firm. company need to finalize during the product launch
stage?
2. Sketch and describe the diffusion of innovation curve.
How can marketers use the information provided by 7. Do all products go through each and every stage of
this curve to make marketing strategies and decisions? this process? Explain your answer.
3. Identify and discuss the factors that influence the 8. What is the product life cycle (PLC)? Describe the char-
adoption of new products. acteristics of each stage of the PLC in terms of sales,
profits, typical consumers, competition, and four Ps
4. List the steps in the new product development pro-
strategies.
cess. Describe some of the sources companies use to
generate ideas for new products at the beginning of 9. Describe some of the strategies companies can use to
this process. extend the life of a mature product.
5. Why might a company need to exercise caution dur- 10. Explain why the product life cycle is not a fail-proof
ing the test-marketing stage of the new development tool in managing products.
process?
Marketing Applications
1. Some people think that a product should be consid- testing discussion in this chapter, describe how you
ered “new” only if it is completely new to the market would conduct a concept test for this product or service.
and has never existed before. Describe or give exam-
6. How does the Internet help companies gain customer
ples of other types of new products.
input on their existing and new products?
2. What are some advantages or disadvantages for
7. Nature’s Path is about to introduce a type of granola
companies that are the first to introduce products that
and is in the market-testing phase of the new-product
create new markets?
development process. Describe two ways that
3. If for question 2 you answered that you see advan- Nature’s Path might conduct initial market testing prior
tages, explain why some new products fail. to launching this new product.
4. Identify and describe the ways that companies gener- 8. What shampoo do you use? What stage of the product
ate new product ideas. Which of these ways involve life cycle is it in? Is the shampoo manufacturer’s mar-
the customer? How can firms assess the value of the keting strategy—its four Ps—consistent with the prod-
ideas that customers generate? uct’s stage in its life cycle? Explain.
5. Describe an example of a new product or service that 9. Android Wear is a new category of wearable com-
is targeted at the student market. Using the concept puting devices that link to android smartphones.
264 Section FOUR Value Creation
How quickly do you think this product will diffuse interested in cosmetics and have money to spend on
among the Canadian population? Describe the types them. The decision is made to create a line of tween
of people that you expect will be in each of the diffu- cosmetics based on the existing adult line. As the prod-
sion of innovation stages. uct moves through development, you begin to notice
that the team seems to lean toward a very edgy and
10. You have recently been hired by a cosmetics company
sexual theme for the line, including naming the various
for its product development group. The firm’s brand
lines “Envy,” “Desire,” “Prowl,” and “Fatal Attraction.”
is a top-selling, high-end line of cosmetics. The head
You begin to wonder if this concept is too much for girls
of the development team has just presented research
in the targeted age group. Explain your thoughts.
that shows that tween girls, aged 9 to 12, are very
Marketing Digitally
1. Visit Tesla’s website (www.tesla.com) and explore the 2. The automotive industry is constantly adding new
range of products it produces. What do its product and different products to cars and trucks. Conduct
groups have in common? Which factors have influ- an Internet or library database search for and discuss
enced Tesla’s creation of its newest products? two innovative new automotive technologies that are
changing the industry.
the introduction of Cars 3–related toys. However, such licensed toys offer lower margins than
Mattel’s original toys, so it is in the company’s best interest to produce and sell more original
product lines, like Barbie.
Accordingly, Mattel has no intentions to stop producing some of its best-known products.
Instead, together with its technology orientation, Mattel is seeking to update the image of its
dolls, most notably with its introduction of a wider variety of Ken dolls in its Fashionistas line.
The 15 new dolls feature three general body types, as well as far greater diversity in apparent
ethnicities, skin tones, clothing, and hairstyles. The goal is to appeal more to diverse modern
consumers, such as those who might believe that a “man bun” is exactly the kind of style that
Barbie’s boyfriend needs to sport.
Such diversity initiatives also inform a line of 12 dolls, designed to represent the top female
wrestlers with the WWE. Thus, young female fans can pose their favourite wrestler Charlotte
Flair in a flying leap off the ropes or have Nikki and Brie Bella collaborating to bring down an
opponent. This line purposefully and explicitly does not feature any men, encouraging girls
to embrace new roles that subvert traditional gender stereotypes.75 Mattel also launched
Robotics Engineer Barbie to pique the interest of girls in careers in STEM fields. It partnered
with a gaming company, Tynker, to create Barbie-inspired coding skills exercises.76
As Barbie approached her 60th birthday, Mattel introduced a doll featuring the image of
Canadian Olympic figure skater, Tessa Virtue, in its “Role Models” series.77 The company
hopes to inspire young girls by honouring women who have broken boundaries. New, more
diverse product offerings include dolls in wheelchairs and some with prosthetic limbs, to bet-
ter reflect real life. Barbie has been around for decades. Recent changes have helped propel
retail sales to their highest level in five years78, keeping Barbie firmly entrenched in the minds
and hearts of tomorrow’s children, too.
Questions
1. Based on the product development process described in this chapter, choose one of the
new products discussed in the case and explain how it might flow through the different
steps in the process.
2. Using the product life cycle, discuss what stage the product you chose in question 1 fits in.
Evaluate Mattel’s strategy for the product based on its current life cycle stage.
Chapter 9
Product, Branding,
and Packaging Decisions
Learning Objectives
After studying this chapter you should be able to
Look around. You see them everywhere: in remote communities, in heavily populated business districts, on uni-
versity campuses, and now even in Shanghai. From humble roots as a product designed to protect people who
worked in extreme cold conditions, Canada Goose parkas have now also become a fashion statement for the
urban chic. Fusing function with fashion while staying true to its heritage, Canada Goose offers the highest quality
outerwear in the world. CEO Dani Reiss took a stereotypical image of Canada as a cold, inhospitable place, and
built a luxury brand that is known around the world.
The brand has undergone a lot of change since 1957 when Sam Tick started Metro Sportswear Ltd., in
Toronto, making clothing and outerwear for automotive and industrial companies. In 1970, the company moved
into down-filled manufacturing and began producing a wide range of down-filled jackets for private-label brands
such as Eddie Bauer, L.L. Bean, and others. The company went on to make its own down-filled parkas, known
at first as Snow Goose1 and then as Canada Goose—all made entirely in Canada.
In 1997, Tick’s grandson, Dani Reiss, joined the company to earn money to travel. He stayed on after listening
to consumers tell him how much they loved the made-in-Canada coats. Filled with goose and duck down and
trimmed with coyote fur, the coats are designed with the company’s mission in mind: to free people from the cold,
no matter where they live, and empower them to experience more from life. The coats have become so popular
that a holographic badge was added to prevent counterfeiting.
In spite of that, the company regularly finds Canada Goose branded bathing suits, pants, and even tents (all
items the company has never made) for sale around the world. Last year it found numerous fakes, including 30,000
online ads, which it had removed, as well as 1,700 websites claiming to be official sites or selling legitimate products.2
Consumers seek products with authentic stories and love the mythology of Canada, the Arctic, wide-open
spaces, and the polar bear.3 Reiss says that “Made in Canada” is a brand differentiator. Visit the Canada Goose
website and you’ll see stories of Yukon Quest dogsledders, world-class mountaineers, and adventure athletes who
swear by the brand. In the early days, Reiss spread word of mouth by giving jackets to bouncers who stood outside
in the cold for long periods. Canada Goose has also been used in the film industry, outfitting film crews on movie sets
where it is cold. The parkas have been featured in movies such as Spectre, Manchester by the Sea, and X-Men 2.4 A
partnership with Fairmont Hotels has outfitted all door attendants and porters with a Canada Goose jacket, making
the brand very visible. A Sports Illustrated Swimsuit Edition cover featuring supermodel Kate Upton photographed
in Antarctica wearing a Canada Goose parka and skimpy bikini bottom created a social-media storm. Consumers
love to share their own stories on platforms like Facebook, Instagram, and Twitter, helping to make Canada Goose a
Canadian success story. A five-minute film about the company, featuring real adventurers wearing the iconic parkas,
won a Gold Lion in Design at Cannes 2016, further fuelling global publicity for the brand.5
In the past decade, sales have grown more than 4,000 percent, with no signs of slowing. Sales last year soared
past $830 million, growing 40.5 percent year over year.6 The growth is especially impressive when you consider
that Canadian fashion retail sales have fallen by 2 percent since 2017, and coat sales declined by 10 percent.7 While
the company took a hit during the COVID-19 pandemic, CEO Dani Reiss is optimistic about the future.8 Canada
Goose has not only created a valued product, but has also built strong brand equity, high customer awareness, and
intense loyalty.
Consumers value the “Made in Canada” label and Canada Goose’s longstanding commitment not to manufacture
outside of the country. That commitment helped during the COVID-19 pandemic, as it allowed the company to react
much faster than if it had to rely on offshore suppliers9 and should help as the company expands beyond cold-weather
gear. A three-minute video featuring ultra-marathon runner Ray Zahab10 was used to help launch its new line of ultra-
lightweight jackets. Reiss says that Canada Goose has built its brand on proprietary fabrics and performance and that
the line is a sign of things to come. He plans to launch more windbreakers, raincoats, and ultra-lightweight items in
the future, as well as other products suited for urban environments.11 Fans can check out these products in standalone
Canada Goose stores in Yorkdale Shopping Centre in Toronto and in New York’s SoHo area. Products resulting from
collaboration with Drake’s OVO brand, Levi’s, and Wings + Horns will extend the company’s own seasonal collections.12
The company released its Project Atigi collection as part of an entrepreneurship program to create economic
opportunities for women in Canada’s north. Parkas in the new collection were designed by tailors in nine com-
munities in Inuvialuit, Nunatsiavut, Nunavut, and Nunavik. The women earn a commission for their designs, and
profits from sales go to Inuit Tapiriiit Kanatami, an organization with a mission to improve life in Inuit communi-
ties.13 The collection demonstrates Canada Goose’s commitment to corporate social responsibility and its support
for northern communities. More recently, it announced plans to make its parkas with reclaimed fur in 2022 and to
start a consumer buy-back program for fur.14
268 Section FOUR Value Creation
This chapter is the second that deals with the first P in the marketing mix: product. In the
last chapter, you learned that developing new products is key to a firm’s marketing mix and
central to the creation of value for consumers. Continuing our discussion, we now explore
how companies add value to their offerings by developing an assortment of products and
product lines and by creating strong brands.
The chapter begins with a discussion of the complexity and types of products. Next,
we examine how firms adjust their product lines to meet and respond to changing market
conditions. Then we turn our attention to branding: Why are brands valuable to the firm,
and what are the different branding strategies firms use? We can’t underestimate the value
of a product’s packaging and labelling in product strategies and promotion. Packaging and
labelling must send out a strong message from the shelf, and so the final section of this
chapter examines packaging and labelling issues.
Actual Product
Brand-Name Packaging
Quality Level Features/Design
Core
Customer
Value
Associated Services
Financing
Product Warranty
Product Support
Shopping Products/Services
Shopping goods/services are products or services—such as furniture, apparel, fragrances, shopping goods/services
appliances, and travel alternatives—for which consumers will spend a fair amount of time Products or services—such
as apparel, fragrances,
comparing alternatives. When people need new sneakers, for instance, they will go from and appliances—for which
store to store shopping—trying shoes on, comparing alternatives, and chatting with sales- consumers will spend time
people. Canada Goose jackets may become a shopping product as more authorized retailers comparing alternatives.
A medical professional is a specialty service. Apparel is a shopping product. Soft drinks are
a convenience product. Insurance is an unsought service.
(top left): Comstock Images/SuperStock RF; (top right): Big Cheese Photo/SuperStock RF; (bottom left): © McGraw Hill
Education/Jill Braaten, photographer; (bottom right): numbeos/E+/Getty Images RF
Unsought Products/Services
Unsought products/services are products consumers either do not normally think of buy-
ing (e.g., funeral services, fire extinguishers) or do not know about. Because of their very
nature, these products require lots of marketing effort and various forms of promotion.
When new-to-the-world products, such as GPS systems, are first introduced, they often rep-
resent unsought products. Do you have cold hands and don’t know what to do about it? You
product mix
The complete set of all must not yet have heard of HeatMax HotHands Hand Warmers, air-activated packets that
products offered by a firm. provide warmth for up to 10 hours.
Product Lines
Product line breadth
Oral Care Personal Care Home Care Pet Nutrition
Product Toothpaste (Colgate Total) Deodorants (Speed Stick) Dishwashing liquid Hill’s Pet Nutrition,
Categories Toothbrush (Colgate Plus) Bar soap (Irish Spring) (Palmolive) Inc.—subsidiary
Kids’ products (Colgate Body wash (Soft Soap) Automatic dishwashing Dog and cat food
Barbie Bubble Fruit liquid (Palmolive) (Science Diet)
Hand wash (Soft Soap)
toothpaste) Household cleaners Dog and cat food
Men’s toiletries (Skin (Ajax) (Ideal Balance)
Product line depth
The product mix reflects the breadth and depth of a company’s product lines. A
firm’s product mix breadth (sometimes also referred to as variety) represents the product mix breadth
number of product lines offered by the firm; Colgate-Palmolive has four, as indicated The number of product
lines, or variety, offered by
by the four columns in Exhibit 9.2. Product line depth, in contrast, is the number of the firm.
product categories within a product line. Within Colgate-Palmolive’s oral-care line, for
product line depth
example, it offers toothpaste, toothbrushes, kids’ products, and so forth. Its pet nutri- The number of products
tion product line, however, comprises fewer offerings and therefore has less depth. In within a product line.
our Canada Goose example, Arctic Program jackets, parkas, vests, mountaineer jack-
ets, bomber jackets, hoodies, trench coats, and rain shells show product line depth for
jackets.
Within each product category are a number of individual items called stock keeping stock keeping units
units (SKUs), which are the smallest unit available for inventory control. For instance, (SKUs)
Individual items within
within the toothpaste category, Colgate-Palmolive offers 49 Colgate SKUs that represent each product category; the
various sizes, flavours, and configurations of Colgate Total, Colgate Optic White, Colgate smallest unit available for
inventory control.
Enamel Health, and Colgate Sensitive Pro Relief.16 Each individual product is a unique
SKU. The 100 millilitre size of Colgate Total Clean Mint is one SKU, while the 100 milli
litre package of Colgate 2-in-1 Whitening is a second SKU. The same size package of
Colgate Sensitive Whitening represents a third SKU. The category depth is the number
of SKUs within a category. Each SKU has its own unique universal product code (UPC)
as well.
However, adding unlimited numbers of new products can have adverse consequences.
Too much variety in the product mix is often too costly to maintain, and having too many
brands may dilute the overall reputation. In the past several years, for example, Revlon
undertook a significant restructuring. It introduced a new line, Vital Radiance, aimed at
women over the age of 45 years. But this line cut into the sales of its other brands and
harmed its reputation among younger consumers, so Revlon eliminated the Vital Radiance
line, to refocus on those products and markets that were doing well.17
So why do firms change their product mix’s breadth or depth?
272 Section FOUR Value Creation
Increase Breadth
Firms often add new product lines to capture new or evolving markets, increase sales, and
compete in new venues (e.g., addition of Product Line D in Exhibit 9.3). With the introduc-
tion of VIA Ready Brew, Starbucks changed the way people thought about instant coffee.
The new line was expected to produce more than a billion dollars in sales.18 And when the
company learned that more than 60 percent of its consumers enjoyed flavoured coffee, it
introduced Natural Fusions, a line of premium coffee available for sale in grocery stores in
vanilla, cinnamon, and caramel flavours. As part of Starbucks’ business strategy, it was a
natural way to grow its consumer products business.19
Decrease Breadth
Sometimes it is necessary to delete entire product lines to address changing market condi-
tions or meet internal strategic priorities (e.g., deletion of Product Line C in Exhibit 9.3). For
example, SC Johnson sold off many products in its skin-care line, including its successful
Aveeno brand, to Johnson & Johnson.20 The firm no longer competes in the skin-care busi-
ness but it remains a strong competitor in its original product lines, such as home cleaning
(Pledge, Windex), air care (Glade), and home storage (Saran, Ziploc).21
A1 B1 C1 D1
A2 B2 C2 D2
A3 B3 D3
A4 B4 D4
B5
B6
Increase Depth
Firms may add new products within a line to address changing
consumer preferences or preempt competitors while boosting
sales (e.g., addition of A4 in Exhibit 9.3). For Häagen-Dazs
brand ice cream, adding new flavours such as Banana Peanut
Butter Chip, Honey Salted Caramel Almond, and Midnight
Cookies & Cream enables it to appeal to its variety-seeking
customers. The product is still essentially the same (ice cream),
but the availability of over 45 different flavours significantly
increases the product line’s depth.22
Decrease Depth
From time to time, it is necessary to delete product categories
to realign resources (e.g., deletion of B5 and B6 in Exhibit 9.3).
The decision to delete products is never taken lightly. Gener-
ally, substantial investments have been made to develop the
brand and manufacture the products. Yet firms often make
pruning decisions regularly to eliminate unprofitable items and Häagen-Dazs has increased its product line depth by
refocus their marketing efforts on more profitable items. When adding new flavours such as Banana Peanut Butter
Procter & Gamble (P&G) announced that it would be merging, Chip, Honey Salted Caramel Almond, and Midnight
eliminating, or selling many of its brands and keeping only the Cookies & Cream.
top-performing 70–80 brand names, it seemed that the histori- © McGraw Hill Education
cally underperforming Duracell brand would be cut. However,
merchandising efforts, such as signing an exclusive distribution agreement with Sam’s Club,
pushed Duracell’s annual sales up to $2.3 billion, guaranteeing its continuation as a P&G
brand. This shift exemplifies the challenges of brand and product-line choices. An under
performing brand today might become a superior revenue generator a year later.23
branding
A company lives or dies based on brand awareness. Consumers can’t buy products that they
don’t know exist. Even if the overall brand name is familiar, it won’t help sales of individ-
ual products unless consumers know what products are available under that name. Sports
fans have long been familiar with the rallying cry for Under Armour and its line of athletic
gear: “Protect This House.” But when the company chose to refresh its tagline, it undertook
a massive ad campaign to introduce a new slogan, “I Will.” In addition to extensive online
and outdoor advertising, Under Armour intensified its brand-
ing efforts by signing top athletes such as golfer Jordan Spieth,
New England Patriots quarterback Tom Brady, and Washington
Nationals baseball star Bryce Harper, who got the biggest endorse-
ment deal for an MLB player.24
Branding provides a way for a firm to differentiate its pro
duct offerings from those of its competitors. Both Snapple and
Tropicana make and sell fruit drinks; yet a consumer may choose
one over the other because of the associations that the brands
evoke. Brand names, logos, symbols, characters, slogans, jingles,
and even distinctive packages constitute the various brand
elements firms use,25 which they usually choose to be easy
for consumers to recognize and remember. For example, most Under Armour is using its new slogan, “I will,”
consumers are aware of the Nike swoosh logo and would recog- and top athletes like golfer Jordan Spieth in its
nize it even if the word Nike did not appear on the product or in advertising to help promote its brand.
an advertisement. Exhibit 9.4 summarizes these brand elements. Source: Under Armour, Inc.
274 Section FOUR Value Creation
Tiffany & Co. works hard to protect its brand, including its The fact that consumers are familiar with Lululemon as
famous blue box. a brand helps the company reduce marketing costs.
Simon Lord/Alamy Stock Photo John Greim/LightRocket via Getty Images
276 Section FOUR Value Creation
*“Canada's Top 100 Most Valuable Brands Revealed,” May 1, 2019, www.newswire.ca/news-releases/canada-s-
top-100-most-valuable-brands-revealed-895891021.html (accessed July 26, 2019).
Product, Branding, and Packaging Decisions CHAPTER 9 277
Branding
Brand Brand
Brand
Ownership Name
Equity
Strategies Strategies
Manufacturer or Corporate or
Brand Awareness
National Brand Family Brand
Perceived Value
Store or Private Corporate and
Brand Associations
Label Product Line Brand
Brand Loyalty
Generic Individual
a brand’s life cycle. This can sometimes cause regulators to react if spending comes close to
crossing ethical lines, as described in Ethical & Societal Dilemma 9.1. Marketing expenditures
allocated carefully can result in greater brand recognition, awareness, and consumer loyalty
for the brand, enhancing overall brand equity.
How do we know how “good” a brand is, or how much equity it has? Experts look at
four aspects of a brand to determine its equity: brand awareness, perceived value, brand
associations, and brand loyalty.
Brand Awareness
Brand awareness measures how many consumers in a market are familiar with the brand brand awareness
and what it stands for, and have an opinion about that brand. The more customers are aware Measures how many
consumers in a market
of or familiar with a brand, the easier their decision-making process will be. Familiarity are familiar with the brand
matters most for products that are bought without much thought, such as soap or chew- and what it stands for;
created through repeated
ing gum. However, brand awareness is also important for infrequently purchased items
exposures of the various
or items the consumer has never purchased before. Many new brands were introduced to brand elements (brand
consumers when cannabis was legalized in Canada. Imagine how difficult it must have name, logo, symbol,
character, packaging,
been to purchase a product whose name you had never heard of before and for which strict or slogan) in the firm’s
advertising restrictions were in place that made building brand awareness difficult. communications to
If the consumer recognizes the brand, it probably has attributes that make it valu- consumers.
able.34 For those who have never purchased a Toyota, for instance, just being aware of
the brand can help facilitate a purchase. Certain brands gain such predominance in a
particular product market over time that they become synonymous with the product
itself; that is, the brand name starts being used as the generic product category. Examples
include Kleenex tissue, Clorox bleach, Band-Aid bandages, and the Google search engine.
Companies must be vigilant in protecting their brand names, because if they are used
so generically, over time, the brand itself can lose its trademark status. Thermos, tram-
poline, linoleum, and yo-yo are all examples of brands that lost their trademark status.
278 Section FOUR Value Creation
Does Taxing Sugary Drinks Reduce was rescinded less than a year after being passed, the
proposed sugar tax was abandoned. Mexico added a
Obesity?** 10 percent tax on sugary drinks in 2014. The U.K. govern-
ment also proceeded with its tax on sweetened drinks
Obesity rates are often highest in the nations and regions and Philadelphia became the first major U.S. city to
that drink the most soda. The sugary, high-calorie ver- impose a tax on soft drinks, in 2016. Ireland and South
sions of popular carbonated beverage brands in turn Africa have also proposed taxing sugary drinks. Senators
have been widely blamed for the growing rates of obe- filed a report on obesity in Canada that recommended
sity, especially among children. Those complaints also similar taxes. Diabetes Canada has also called for higher
are growing as brands expand outside the United States taxes on sugary beverages. According to a Mintel survey,
and potentially threaten the long-term health of children 69 percent of Canadians are concerned about the impact
across the globe. of sugar on their overall health.
To fight obesity, Denmark planned to introduce a tax Although it strongly maintains that sodas are not
on sugary drinks. However, when its tax on fatty foods the main culprit in rising obesity rates, Coca-Cola has
acknowledged its own limited responsibility and there-
fore vowed not to advertise in settings in which children
make up more than 35 percent of the anticipated audi-
ence (previously, it set this standard at 50 percent). Coke
ads have disappeared from cartoon networks and youth-
oriented shows, children’s magazines, and so forth.
In addition to its commitment not to advertise directly
to children younger than 12 years of age, Coke has
invested in initiatives to promote more physical activity
and to encourage consumers to consider lower-calorie
alternatives, whether Diet Coke or Minute Maid juices
(which Coca-Cola also owns). Beyond advertising, Coke’s
new product development efforts are largely focused
on identifying and integrating natural low-calorie sweet-
eners. In some countries, its packaging also will feature
more prominent information about calorie contents. The
soft-drink industry prefers these types of actions over
additional taxes.
Does taxing sugary drinks work? Malaysia recently
became one of more than 40 countries to pass some sort
of tax on sugary drinks. Many governments have tried
this approach and most found taxing did not yield the
desired effect. Sales of soft drinks fell for two years after
the tax was introduced in Mexico but have rebounded
since then. With such mixed results, should Canada con-
Should Coca-Cola and other consumer packaged goods sider imposing a sugar tax? For the moment, the govern-
companies be allowed to advertise to children? ment has indicated it will not proceed with this course
GL Archive/Alamy Stock Photo of action.
**Tiffany Hsu, “Coca-Cola Anti-Obesity Promises Include No Advertising to Kids,” Los Angeles Times, May 8, 2013, http://articles.latimes.com; Mike
Esterl and Paul Ziobro, “Coke to Limit Ads to Kids, Push Diet Drinks,” The Wall Street Journal, http://online.wsj.com; Henriette Jacobsen, “Denmark
Scraps Its Infamous Fat Tax After Only One Year,” EurActiv.com, February 21, 2016, www.euractiv.com/section/agriculture-food/news/denmark-
scraps-its-infamous-fat-tax-after-only-one-year/; Ivana Kottasova, “UK to Charge Soda Tax on Sugary Drinks,” CNN Money, April 4, 2016, http://money.
cnn.com/2016/03/16/news/sugar-levy-uk-budget/; “Philadelphia Becomes First Major US City With a Soda Tax,” The Guardian, June 16, 2016, www.
theguardian.com/us-news/2016/jun/16/philadelphia-passes-soda-tax-first-city-sugar; Patrick Luciani, “Soda Tax Would Leave Canadians Poorer, but No
Healthier,” The Financial Post, May 11, 2016, http://business.financialpost.com/fp-comment/patrick-luciani-soda-tax-would-leave-canadians-poorer-
but-no-healthier (accessed June 21, 2016); Harmeet Singh, “Canadians Concerned About Sugar’s Impact on Health,” StrategyOnline, February 15,
2017, http://strategyonline.ca/2017/02/15/canadians-concerned-about-sugars-impact-on-health; Amanda Jones, J. Lennert Veerman & David
Hammon, “THE HEALTH AND ECONOMIC IMPACT OF A TAX ON SUGARY DRINKS IN CANADA,” January 2017, www.heartandstroke.ca/-/media/
pdf-files/canada/media-centre/the-health-and-economic-impact-of-a-sugary-drink-tax-in-canada-summary.ashx?la=en&hash=69765598FF624EE7D8
586EBAD7BCF96835F3FA10; Peter Zimonjic, Katie Simpson, “No tax on sugary drinks in federal Liberal platform, says health minister,” May 28, 2019,
www.cbc.ca/news/politics/sugary-drinks-tax-a-no-go-1.5153015; Nielsen, “Hitting the Sweet Spot,” July 18, 2019, www.nielsen.com/apac/en/insights/
article/2019/hitting-the-sweet-spot (accessed July 25, 2019).
Product, Branding, and Packaging Decisions CHAPTER 9 279
These brands are so strong that they have become synonymous with the product itself.
© McGraw Hill Education
Aspirin has become a generic brand in the United States; however, it remains a registered
trademark in Canada.35
Marketers create brand awareness through repeated exposures of the various brand
elements (brand name, logo, symbol, character, packaging, or slogan) in the firm’s commu-
nications to consumers. Such communication media include advertising and promotions,
personal selling, sponsorship and event marketing, publicity, public relations, and social
media (see Chapters 14, 15, and 16). Because consumer awareness is one of the most impor-
tant elements in creating a strong brand, firms are willing to spend tremendous amounts of
money advertising the brand, including more than $5 million for just one 30-second spot on
TV during the Super Bowl.
Perceived Value
Brand awareness alone does not ensure a strong brand. Consumers could be aware of a
brand but have a negative opinion of its value or the firm’s reputation. Perceived value perceived value
is the relationship between a product or service’s benefits and its cost. Customers usually The relationship between
a product or service’s
determine the offering’s value in relationship to that of its close competitors. If they feel benefits and its cost.
an inexpensive brand is about the same quality as a premium brand, the
perceived value of the cheaper choice is high. Many private-label brands
are less expensive than brands developed by manufacturers. These brands,
commonly found in supermarkets or drugstores, have seen a rise in popular-
ity in recent years because of their high perceived value. With so many new
cannabis products on the market, little brand awareness, and wide-ranging
prices, it may be challenging for marketers to demonstrate the perceived
value of one product over another.
Retailers such as Joe Fresh and Giant Tiger specialize in providing
great value. Certainly, merchandise at these stores is not always of the
highest possible quality, and the apparel is not the most fashion-forward.
First Choice Haircutters, a national
But customers don’t necessarily want to buy a wastebasket that will last haircutting chain, provides its
for 50 years and be suitable for display in a living room, nor do they need customers with great value because
to show up at school looking like they came from a fashion-show run- the haircut is better than good and the
way. Instead, they want products to do what they were designed to do and price is more than reasonable.
be available at a reasonable price. First Choice Haircutters, a national Marc Romanelli/Blend Images LLC
280 Section FOUR Value Creation
Brand Associations
brand associations Brand associations reflect the mental links that consumers make between a brand and its
The mental links that key product attributes, such as a logo, slogan, or famous personality. WeedMD entered the
consumers make between
a brand and its key product recreational cannabis market with the product name Color. The company wanted consumers
attributes; can involve a to associate the brand with an open-ended, less polarizing view of a world that is black and
logo, slogan, or famous
personality.
white, and to recognize that every individual’s experience with cannabis is unique.36 Brand
associations often result from a firm’s advertising and promotion efforts. Given the restric-
tive rules in place for cannabis marketers, Color’s packaging design will need to convey a
sense of openness. Associations with specific attributes help create differentiation between
the brand and its competitors. For example, Toyota’s hybrid car, the Prius, is known for being
economical, stylish, and good for the environment. Volvo stresses that its cars are made with
consumer safety in mind. Firms also attempt to create specific associations for their brands
with positive consumer emotions, such as fun, friendship, good feelings, family gatherings,
and parties. Until recently, State Farm Insurance used the slogan “Like a good neighbor, State
Farm is there.” Hallmark Cards associates its brand with helping people show they care about
quality: “When you care enough to send the very best.”
Firms sometimes even develop a personality for their brands, as if the brand were human.
brand personality Brand personality refers to a set of human characteristics associated with a brand37 that has
Refers to a set of human symbolic or self-expressive meanings for consumers.38 Brand personality elements include
characteristics associated
with a brand, which has male, female, young, old, fun loving, and conservative, as well as qualities such as fresh,
symbolic or self-expressive smooth, round, clean, or floral. McDonald’s has created a fun-loving, youth-oriented brand
meanings for consumers.
personality with its golden arches, brightly lit and coloured restaurants, exciting and youthful
packaging and advertising, and spokesperson and mascot Ronald McDonald, the clown.
Brand Loyalty
brand loyalty Brand loyalty occurs when a consumer buys the same brand’s product or service again and
Occurs when a consumer again over time. As a result, brand-loyal customers are an important source of value for firms.
buys the same brand’s
product or service First, such consumers are often less sensitive to price. In return, firms sometimes reward loyal
consumers with loyalty or customer relationship management (CRM) programs, such as points
repeatedly over time rather
than buying from multiple
that customers can redeem for extra discounts or free services, advance notice of sale items, and
suppliers within the same
category. invitations to special events sponsored by the company. Second, the marketing costs of reaching
loyal consumers are much lower because the firm does not have to spend money on advertising
and promotion campaigns to attract these customers. Loyal consumers simply do not need per-
suasion or an extra push to buy the firm’s brands. Third, loyal
customers tend to praise the virtues of their favourite products,
retailers, or services. This positive word-of-mouth reaches
potential customers and reinforces the perceived value at no
cost to the firm. Fourth, a high level of brand loyalty insulates
the firm from competition because, as we noted in Chapter 2,
brand-loyal customers do not switch to competitors’ brands,
even when provided with a variety of incentives.
Brand loyalty is not always easy to achieve, though.
In most cases, it requires substantially better quality or
a distinctive promise. For example, lifetime satisfaction
guarantees are expensive to maintain. They mean that any
Dove rewarded consumers for their loyalty with double customer, at any time, can come back to the company to
Optimum points at Shoppers Drug Mart. complain about some feature they find unappealing, even if
Shutterstock/AlenKadr the item was purchased decades before. They are accordingly
Product, Branding, and Packaging Decisions CHAPTER 9 281
quite rare. But, for the companies that offer them—such as The North Face, Craftsman, and
Darn Tough socks—unconditional guarantees evoke tremendous loyalty. Even if customers
never need to replace one of these products, knowing that the company is willing to offer
the guarantee makes them more likely to purchase a related item from the same brand.39
Branding Strategies
Firms institute a variety of brand-related strategies to create and manage key brand assets,
such as deciding to own the brands, establishing a branding policy, extending the brand
name to other products and markets, cooperatively using the brand name with that of
another firm, and licensing the brand to other firms.
Brand
Ownership
Strategies
Manufacturer
actu e Generic
Ge
Private
Priv
vate Label or
Store
St
to
ore Brand
282 Section FOUR Value Creation
or retailers. President’s Choice, a private label developed and marketed by Canada’s largest
food distributor, offers high-quality products at moderate prices and is becoming a lifestyle
brand.40 In the past, sales of private-label brands were limited. But more recently, more
retailers have developed their own store brands and use them to establish a distinctive
identity. Private-label brands are particularly common in supermarkets, discount stores,
and drugstores. Their popularity among consumers depends on several factors, including
consumer preferences for a lower-cost brand and the trust consumers have in the store
and its brand. Such private-label brands, especially those marketed by large chains such as
Walmart and Costco, are fast gaining in popularity and consumer loyalty. After 31 years,
President’s Choice Decadent Chocolate Chip Cookies are still Loblaw’s best-selling cook-
ies.41 Private-label brands have also gained popularity in apparel and other categories found
in department and specialty stores. The Bay, for instance, provides several store brands,
including Beaumark, Mantles, Truly, and Togo.
generic Generic products are those sold without brand names, typically in commodities
A product sold without markets. For instance, shoppers can purchase unbranded salt, grains, produce, meat, or
a brand name, typically in
commodities markets. nuts in grocery stores. Hardware stores often sell unbranded screws, nuts, and lumber.
However, even in these markets, the popularity and acceptance of generic products has
declined. Consumers question the quality and origin of the products, and retailers have
found better profit potential and the ability to build brand equity with manufacturer and
store brands. For example, many fruits and vegetables sold through supermarket chains
now carry either the manufacturer’s brand name (e.g., Dole bananas) or the store’s. No
Name was originally launched as a generic brand by Loblaw in 1978. Over the years, it
expanded from 16 products to over 2600,42 and has evolved to join the ranks of other
Loblaw private-label brands.
family brand
The use of a combination
Naming Brands and Product Lines
of the company brand Although there is no simple way to decide how to name a brand or a product line, the more
name and individual brand
the products vary in their usage or performance, the more likely it is that the firm should use
name to distinguish a firm’s
products. individual brands. For example, General Motors utilizes several different individual brands
(Cadillac, Chevrolet, GMC), each catering to very
different target markets and meeting different
Exhibit 9.9 Brand Name Strategies needs. Hyundai, on the other hand, utilizes only
one brand since usage and level of performance are
relatively homogeneous. Firms use several very dif-
ferent strategies to name their brands and product
Brand lines (see Exhibit 9.9).
Name
Strategies
Family Brands
A firm also can use its corporate name to brand
similar product lines and products. For example,
Kellogg’s incorporates its company name into the
brand name for its cereal brands (e.g., Kellogg’s
Individual Corn Flakes, Kellogg’s Froot Loops, Kellogg’s Rice
brand
Krispies), helping to maintain its powerhouse sta-
tus on grocery store shelves. Kraft Foods also uses
its family brand name prominently on its cheese,
pasta, and condiment brands (e.g., Kraft Macaroni
& Cheese, Kraft Singles, Kraft Mayo).When all
Family brand products in a line are sold under one family brand,
individual brands benefit from the overall aware-
ness associated with the family name.
Product, Branding, and Packaging Decisions CHAPTER 9 283
Individual Brands
A firm can use individual brand names for each of
its products. While Kraft makes good use of the fam-
ily branding strategy, it allows other products, such
as Philadelphia cream cheese, Jell-O, Oscar Mayer,
and Planters nuts, to keep their individual identi-
ties. Some companies primarily use individual brands.
For example, in its house and home products line,
P&G markets various detergent products (Tide, Gain,
Cheer, Downy, Febreze), paper products (Bounty,
Charmin), household cleaners (Mr. Clean, Swiffer),
and dishwashing products (Cascade, Dawn, Joy).
Furthermore, it markets brands in various other prod-
uct lines, such as personal and beauty products (Olay, Kraft uses a family branding strategy in which several
Old Spice, Secret, CoverGirl), health and wellness product lines are sold under one name.
products (Pepto-Bismol, Oral-B, Puffs), and baby prod- © McGraw Hill Education/Evelyn Nicole Kirksey, photographer
ucts (Pampers).43 Similarly, Loblaw operates across
Canada under the following brands: Atlantic Superstore, Dominion, Extra Foods, Fortinos, individual brand
Loblaws, Maxi, No Frills, Provigo, Your Independent Grocer, and Zehrs. Sobeys operates The use of individual brand
names for each of a firm’s
under the following retail banners: Sobeys, IGA Extra, IGA, Foodland, FreshCo, and Price products.
Chopper. Individual brands allow a company to compete within one category, for example,
laundry detergent, offering a variety of products to different target markets. And if one
brand experiences problems, other products with unique brand names are protected from
any negative association with the failed brand.
Choosing a Name
What’s in a name? When it comes to naming new products, companies should consider the
following desirable qualities: (1) The brand name should be descriptive and suggestive of
benefits and qualities associated with the product. For example, the name Sunkist evokes
images of oranges ripening on the trees kissed by the sun. (2) The brand name should be
easy to pronounce, recognize, and remember, such as Tide, Crest, or Kodak. (3) The com-
pany should be able to register the brand name as a trademark and legally protect it. (4) For
companies looking to global markets, the brand name should be easy to translate into other
languages. Starbucks invited Canadians to submit names for a new Blonde Roast coffee.
The winning name was True North Blend, reflecting the stunning geography, vast land-
scape, and spirit of Canada.
Sometimes a change of name is in order. Vancouver’s Backwoods Brewery had been
selling its beer to restaurants and bars for nearly a decade when it decided to rebrand as
Dead Frog. Competing against wacky wine names such as Fat Bastard and Cat’s Pee on a
Gooseberry Bush, beer marketing had been pretty conservative. The company wanted a
memorable but irreverent name that would appeal to a younger audience.44 And chances
are that a band called Rainbow Butt Monkeys never would have become a hit sensation.
While it may have been memorable, band members received a better reception after they
changed their name to Finger Eleven.
Brand Extension
A brand extension refers to the use of the same brand name for new products being intro- brand extension
duced to the same or new markets.45 The dental hygiene market, for instance, is full of The use of the same brand
name for new products
brand extensions; Colgate, Crest, and Butler all sell toothpaste, toothbrushes, and other being introduced to the
dental hygiene products. Roots has extended its brand from athletic clothing to leather same or new markets.
bags, yoga wear and accessories, and even a line of baby clothes. Brand extensions are also
284 Section FOUR Value Creation
Brand extensions can be risky. Kate Spade opened Kate Spade Saturday stores to offer lower-
priced versions of its designs, but closed them within two years.
© Morgan Dessalles/Abacausa.com/Newscom
diluting the brand and damaging brand equity. When it was founded, the Kate Spade
brand offered aspirational luxury, selling nearly luxury handbags for $2,000 instead
of $20,000. Kate Spade sought to expand its reach, opening a range of Kate Spade
Saturday stores as well as Jack Spade shops for men to offer lower-priced versions
of its designs. Within two years though, the company closed all these stand-alone
storefronts and integrated remaining inventory into its traditional stores.54
• Firms should consider whether the brand extension will be distanced from the core
brand, especially if the firm wants to use some but not all of the existing brand associa-
tions. Marriott has budget, mid-tier, and luxury hotels. Its luxury hotels, including the
Ritz-Carlton, Edition, and Renaissance, do not use the name Marriott at all.55
Cobranding
Cobranding is the practice of marketing two or more brands together, on the same package cobranding
or promotion. Primarily because of credit card companies, such as Visa and MasterCard, the The practice of marketing
two or more brands
practice has greatly increased in the past decade. Airlines were among the first to cobrand together, on the same
with credit card companies (such as the CIBC Aeroplan Visa Card). Recently, firms in other package or promotion.
industries (such as banking, retail, and restaurants) have begun forming similar alliances,
resulting in cards such as BMO Mosaic MasterCard, TD Gold Visa, and President’s Choice
MasterCard, to name a few.
Cobranding enhances consumers’ perceptions of product quality by signalling other
wise unobservable product quality through links between the firm’s brand and a well-
known quality brand. For example, Yum Brands frequently combines two or more of its
restaurant chains—including A&W, KFC, Long John Silver’s, Pizza Hut, and Taco Bell—
into one store space. This cobranding strategy is designed to appeal to diverse market seg-
ments and extend the hours in which each restaurant attracts customers. Loblaw partnered
with Mattel in a cobranding agreement for its affordable fashion line, Joe Fresh, to create
a limited-edition collection of Barbie-branded sleepwear and underwear.56 Tim Hortons®
286 Section FOUR Value Creation
found that its customers responded enthusiastically to its efforts to cobrand with Cold
Stone Creamery ice cream in the United States. It tested and then launched the concept in
its Canadian stores, though, later discontinued the brand in Canada.57
However, there are some risks to cobranding, especially when customers for each of
the brands are vastly different. For example, the Burger King and Häagen-Dazs cobranding
strategy failed because the customer profiles for the brands were too different.58 Cobrand-
ing may also fail when there are financial disputes or conflicts of interest.
Brand Licensing
brand licensing Brand licensing is a contractual arrangement between firms, whereby one firm allows
A contractual arrangement another to use its brand name, logo, symbols, and/or characters in exchange for a nego-
between firms, whereby one
firm allows another to use its tiated fee.59 Brand licensing is common for toys, apparel, accessories, and entertainment
brand name, logo, symbols, products, such as video games. The firm that provides the right to use its brand (licensor)
or characters in exchange
for a negotiated fee.
obtains revenues through royalty payments from the firm that has obtained the right to use
the brand (licensee). These royalty payments sometimes take the form of an upfront, lump-
sum licensing fee or may be based on the dollar value of sales of the licensed merchandise.
Several aspects of a brand can be licensed. Popular apparel designers, such as Ralph
Lauren, Calvin Klein, and Eddie Bauer, and luxury goods manufacturers often license the
right to use their brand name on a variety of products. The Porsche name is used by Grundig
radios and also appears on watches, luggage sets, and tennis racquets. The computer world
has even capitalized on the Porsche brand name with the game Need for Speed: Porsche
Unleashed. One very popular form of licensing is the use of characters created in books and
other media. Such entertainment licensing has generated tremendous revenues for movie
studios such as Disney and Lucas Films. Star Wars memorabilia has been continually suc-
cessful since the first film was released in the 1970s. A long-standing staple of licensing has
been major league sports teams that play in the NBA, NFL, NHL, or MLB.
Licensing is an effective form of attracting visibility for the brand and thereby building
brand equity while also generating additional revenue. There are, however, some risks asso-
ciated with it. For the licensor, the major risk is the dilution of its brand equity through over
exposure of the brand, especially if the brand name and characters are used inappropriately.60
LO7 Packaging
Packaging is an important brand element with more tangible or physical benefits than
the other brand elements because packages come in different types and offer a variety of
benefits to consumers, manufacturers, and retailers. Packaging attracts the consumer’s
attention, enables products to stand out from their competitors, and offers a promotional
tool (e.g., “NEW” and “IMPROVED” promises on labels). It also allows the same product
to appeal to different markets with different sizes, such that convenience stores stock little
packages that travellers can buy at the last minute, whereas Costco sells extra-large ver-
sions of products. As discussed in Entrepreneurial Marketing 9.1, packaging plays a key
role in launching a new product.
Packaging also serves to protect products. Wrappers and exterior cartons protect eggs
from being broken, and they help prevent tampering with products such as toothpaste.
Packaging provides the UPC label used by retail scanners, and it provides contents, direc-
tions, and other additional product information. The package can also be an important
marketing tool for the manufacturer if it is used to convey the brand’s positioning. Cosmet-
ics giant Estée Lauder considers packaging to be key to brand image—if its packaging is
beautiful and perfectly executed, consumers have more confidence in the products inside.61
Packaging is considered by many marketers to be the last frontier in advertising because
of its role in promoting products to consumers on the floor of the store at the point of
Product, Branding, and Packaging Decisions CHAPTER 9 287
purchase. Packaging may also affect consumers’ emotions and drive impulse buying. The
shapes of fragrance, perfume, and deodorant bottles and containers are good examples of
marketers extending the use of packaging beyond a distribution function to encourage pur-
chase and differentiation. Many children also pressure their parents to buy products, like
breakfast cereal, more because of the packaging than for the product.
288 Section FOUR Value Creation
Eco-Strips: An Earth-Saving
Laundry Solution††
Laundry is not the most exciting topic for consumers. Yet it
is of great interest to consumer packaged goods compa-
nies. Globally, the laundry detergent market is valued at over
$133 billion U.S. The laundry detergent category has seen
a lot of innovation over the years from dry powder, to liquid,
and pods. One of the reasons behind some product formu-
lation changes has to do with global concern about water
scarcity. New products often replace chemicals tradition-
ally used in laundry detergent with ingredients that are less
water dependent. Companies have introduced concentrated
detergents that contain far less water and offer more loads
per container. That has allowed them to shrink the amount
of plastic used in packaging, also reducing shipping costs.
With more than 30 billion loads of laundry done in
North America annually, environmental impacts help to
spur innovation. As the clear market share leader, P&G has
more than double the sales of its nearest competitor. That
makes it extremely difficult for new companies to break Eco-Strips offer a convenient, eco-friendly, and space-saving
into the market. Yet that’s exactly what Vancouver-based alternative to traditional laundry detergents. Each strip contains
Tru Earth set out to do. Ryan McKenzie, one of the compa- one pre-measured dose of detergent.
ny’s co-owners, was looking for ways to reduce his carbon Courtesy of Tru Earth
footprint in all aspects of his life. Consumables, such as
laundry detergents, were a huge challenge. He was keen the household and how much laundry is done, consum-
to tackle it, and so product development of a more envi- ers can choose to receive delivery from once a month, to
ronmentally friendly product, Eco-Strips, began in 2016. once every two or three months. There is no charge for
Eco-Strips launched in April 2019 and look like small, the subscription, which can be cancelled at any time, and
very dense fabric-softener sheets. The strips, which feel shipping through Canada Post is included in the price.
a bit like fruit leather, contain ultra-concentrated, environ- Using only social media (primarily Facebook and
mentally friendly, pre-measured doses of laundry deter- Instagram) to spread the word, Tru Earth received 600
gent. Just take a strip out of the package and throw it subscriptions in the first two weeks that Eco-Strips were
in the laundry with your clothes. Eco-Strips weigh in at available. Could Eco-Strips ever be a rival to products like
less than three grams each, making their footprint dra- Tide? According to Dr. Karen Correia da Silva, a social
matically smaller than powder or liquid detergents. Not scientist who studies shifts in culture and behaviour,
only is the detergent itself eco-friendly, the space-saving “Sustainable products are rarely market leaders.” Prod-
packaging is bio-degradable. That adds up to eliminating uct performance is paramount. That’s crucial for Eco-
one billion plastic laundry detergent bottles, resulting in strips, which have proven cleaning power, are paraben
CO2 reductions that amount to planting nine million trees and phosphate free, have no added dyes or chlorine
or removing 27 million cars from the road for one day. bleach, and are certified hypoallergenic and vegan. While
The laundry sector is extremely difficult to break into. it may never be a market leader, Canadian Business
The fight for shelf space is long and expensive. That’s magazine has named the company the second-fastest-
why McKenzie decided against taking a traditional route growing startup in the country. And one last advantage
to distributing Eco-Strips. Instead, the company sells the for Tru Earth? It holds a patent for how the strips are
product online by subscription. Depending on the size of manufactured.
††Phone interview with Ryan McKenzie Co-Owner Tru Earth; “What Are Tru Earth Laundry Eco-Strips?,” www.tru.earth; Maria Coronado Robles, “Water
Scarcity Fuelling Product Innovation in Laundry Detergents,” Euromonitor International, April 15, 2016, https://blog.euromonitor.com/water-scarcity-
fuelling-product-innovation-in-laundry-detergents/; Grand View Research, “Laundry Detergent Market Analysis By Product (Powder, Liquid, Fabric
Softeners, Detergent Tablets), By Application (Household, Industrial or Institutional), By Regions, and Segment Forecasts, 2018-2025, Nov 2017, www.
grandviewresearch.com/industry-analysis/laundry-detergent-market; Liam O’Connell, “Sales of the leading liquid laundry detergent brands of the
United States in 2018 (in million U.S. dollars),” Statista, July 22, 2019, www.statista.com/statistics/188716/top-liquid-laundry-detergent-brands-in-the-
united-states/; Georgina Fuller, “Subscription suds: can a detergent-by-post model challenge the big brands?,” The Guardian, Nov. 16, 2018, www.
theguardian.com/business-to-business/2018/nov/16/subscription-suds-can-a-detergent-by-post-model-challenge-the-big-brands (accessed July 27,
2019), “Tru Earth Declared Canada’s 2nd Fastest Growing Startup Overall and Fastest Growing CPG Startup by Canadian Business Magazine,”
Business Wire, October 15, 2020, https://financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/tru-earth-declared-
canadas-2nd-fastest-growing-startup-overall-and-fastest-growing-cpg-startup-by-canadian-business-magazine (accessed Nov. 6, 2020).
290 Section FOUR Value Creation
To combat rising costs, manufacturers like MAC Cosmetics produce a collection of miniaturized
products, Little MAC, with each piece costing only $10 or $12.
© McGraw Hill Education
aware that everything from cleansing tissues to ice cream containers is shrinking. Today’s
customers are more empowered as well. As soon as Chobani's newer, smaller packages hit
store shelves, customers took to Twitter and Facebook and immediately began complaining
about the change, further raising awareness of the packaging change.70
Labelling
Labels on products and packages provide information that consumers need for their pur-
chase decisions and consumption of the products. In that they identify the product and
brand, labels are also an important element of branding and
can be used for promotion. The information required on
them must comply with general and industry-specific laws
and regulations, including the constituents or ingredients
contained in the product, where the product was made,
directions for use, and/or safety precautions.
Many labelling requirements stem from various laws,
including the Competition Act, the Consumer Packaging
and Labelling Act and Regulations, the Food and Drugs Act,
and the Hazardous Materials Act. Several federal agencies,
industry groups, and consumer watchdogs carefully moni-
tor product labels. The Food and Drugs Act regulates the
information on food, drugs, and cosmetics package labels.
Quaker Canada had to wait for Health Canada approval
before it could state on its labels that oat fibre helps reduce
cholesterol. The Consumer Packaging and Labelling Act
The packaging and label for siggi's® yogurt highlights covers food products and ensures that the claims made by
that the yogurt contains 18 grams of protein per the manufacturer are true and that labels accurately reflect
175-gram serving. ingredients and quantities. All this has to be done in both of
Source: Parmalat Canada Canada’s official languages, French and English.
Product, Branding, and Packaging Decisions CHAPTER 9 291
A product label is much more than just a sticker on the package; it is a communication
tool. Many of the elements on the label are required by laws and regulations (i.e., ingredi-
ents, fat content, sodium content, serving size, calories), but other elements of the label
remain within the control of the manufacturer. How manufacturers use labels to commu-
nicate the benefits of their products to consumers varies by the product. For example, the
labelling for siggi's® yogurt highlights that the yogurt contains 18 grams of protein per 175-
gram serving. Many other products highlight other specific ingredients, vitamin content,
or nutrient content. This focus signals to consumers that the product offers these benefits.
Although often overlooked, the importance of the label as a communication tool should
not be underestimated.
LO1 Describe the components of a product help sell the product. Finally, brands have real market
value as a company asset.
The product itself is important but so are its associated
services, such as support or financing. Other elements LO5 Summarize the components of brand equity
combine to produce the core customer value of a prod-
uct: the brand name, quality level, packaging, and addi- Brand equity summarizes the value that a brand adds to—
tional features. or subtracts from—the offering’s value. It comprises brand
awareness, or how many consumers in the market are
LO2 Identify the types of consumer products familiar with the brand; brand associations, which are the
links consumers make between the brand and its image;
These products tend to be classified into four groups: and brand loyalty, which occurs when a consumer will buy
specialty, shopping, convenience, and unsought prod- only that brand’s offer. Brand equity also encompasses
ucts. Each classification involves a different purchase situ- the concept of perceived value, which is a subjective
ation and consumer goal. measure that consumers develop to assess the costs of
obtaining the brand.
LO3 Explain the difference between a product
mix’s breadth and a product line’s depth LO6 escribe the types of branding strategies
D
used by firms
Breadth, or variety, entails the number of product lines
that a company offers. Depth involves the number of Firms use a variety of strategies to manage their brands.
categories in one specific product line. Firms grow their First, they must decide whether to offer manufacturer,
product lines by adding either new product categories private-label, or generic brands. Second, they have a
or new SKUs within a product category. The decision to choice of using an overall corporate brand or a collection
add products should be made carefully. Excessive prod- of product line or individual brands. Third, to reach new
uct line expansions can confuse consumers and dilute the markets or extend their current market, they can extend
appeal of the brand’s core products. Sometimes products their current brands to new products. Fourth, firms can
or product lines become unprofitable, the firm’s priorities cobrand with another brand to create sales and profit syn-
change, or consumer preferences shift. When this hap- ergies for both. Fifth, firms with strong brands have the
pens, firms must prune their product lines by deleting opportunity to license their brands to other firms.
items or possibly even entire product categories.
LO7 State how a product’s packaging and label
LO4 Identify the advantages that brands provide contribute to a firm’s overall strategy
firms and consumers
Like brands, packaging and labels help sell the product
Brands facilitate the consumer search process. Some cus- and facilitate its use. The package holds the product, and
tomers are loyal to certain brands, which essentially pro- its label provides product information. The package also
tects those brands from competition. In addition, brands provides additional consumer information on its label and
are valuable in a legal sense, in that trademarks and facilitates transportation and storage for both retailers
copyrights protect firms from counterfeiters and knock-off and their customers. Labels have become increasingly
artists. Firms with well-known brands can spend relatively important to consumers because they supply important
less on marketing because the brand and its associations safety, nutritional, and product usage information.
292 Section FOUR Value Creation
Key Terms
■■ associated services (or ■■ brands ■■ private-label brands (store brands)
augmented product) ■■ cobranding ■■ product category
■■ brand associations ■■ consumer products ■■ product line depth
■■ brand awareness ■■ convenience goods/services ■■ product lines
■■ brand dilution ■■ core customer value ■■ product mix
■■ brand equity ■■ family brand ■■ product mix breadth
■■ brand extension ■■ generic ■■ shopping goods/services
■■ brand licensing ■■ individual brand ■■ specialty goods/services
■■ brand loyalty ■■ manufacturer brands ■■ stock keeping units (SKUs)
■■ brand personality ■■ perceived value
concept review
1. Explain the differences between product mix breadth 6. What are the advantages of using the same brand
and product line depth. Why is understanding this dif- name and extending it to new products?
ference important?
7. Explain how brand licensing differs from cobranding.
2. Explain why branding is important to marketers. What
8. What is cobranding? When does it make sense for a
value do customers derive from purchasing and using
company to use a cobranding strategy?
brand name products?
9. Explain how marketers increase the value of their
3. What is brand equity? Describe the strategies marketers
product offering through packaging. Discuss the
could employ to increase the value of their brand equity.
ethical issues surrounding product packaging
4. Differentiate between a manufacturer’s brand, store and labelling. How might some of these issues be
brand, and generic brand. Should retailers carry all resolved?
three types of brands? Why?
10. Explain how labelling could be used as a marketing
5. Describe the desirable qualities companies should weapon rather than just to provide legally required
consider when choosing product names. information.
Marketing Applications
1. Prepared foods at Whole Foods Market, the world’s 5. Are you loyal to any brands? If so, pick one and explain
largest retailer of organic foods, are very profitable. To why you believe you are loyal, beyond that you simply
make them even more profitable, suggest two strat- like the brand. If not, pick a brand that you like and
egies that would alter the product mix breadth and explain how you would feel and act differently toward
depth. the brand if you were loyal to it.
2. Visit a grocery store and look for Colgate Total tooth- 6. Ford Motor Company owns several brands: Ford,
paste on the shelves. How many different SKUs Lincoln, Mercury, and Aston Martin. Within each brand
(including all sizes and flavour variations) are sold at are many models, each of which has a unique identify-
the store? What are the advantages and disadvan- ing name. Wouldn’t it be easier to just identify them all
tages of having so many different variations? as Fords? Justify your answer.
3. Suppose you have just been hired by a jewellery man- 7. Unlike Ford Motor Company, BMW has only one
ufacturer as a marketing consultant. The manufacturer brand and gives each car it makes a number instead
has been making private-label jewellery for 75 years of a name, for example, the BMW Series 3, Series 5,
but is thinking about developing its own brand of jew- or Series 7. What are the advantages to BMW of this
ellery. Discuss the advantages and disadvantages of approach?
such a strategy.
8. Consumers have become increasingly aware of the
4. Identify a specific brand that has developed a high amount of packaging that is used for certain products
level of brand equity. What specific aspects of that and the possible environmental impact of disposing
brand establish its brand equity? of packaging materials into the natural environment.
Product, Branding, and Packaging Decisions CHAPTER 9 293
Choose a product that you believe should change its expanded its production capacity. You have an appoint-
packaging. How would you change the packaging? ment with the manager of a local grocery chain. The
Do you feel these changes would make the product manager is familiar with the bakery’s products and is
more desirable for consumers? excited about the possibility of having them in the store.
He has asked you to come up with a plan to package
9. Do you think all food sold in a grocery store should
your products in a way that makes them attractive to
have an ingredient and nutrition label? Consider the
shoppers, keeps baked goods fresh, and uses the least
perspectives of consumers, the manufacturer, and
amount of packaging possible to satisfy even the most
the store.
stringent environmentalist. You’ve never had to deal
10. You are hired by a small bakery interested in distribut- with this issue before. At the bakery, goods are packed
ing its product through supermarkets. The market for in paper bags after being selected from protective
the bakery’s products has been steadily growing, and it glass displays. Come up with a package that works for
is time to expand distribution now that the bakery has the retailer and is affordable for the bakery.
marketing digitally
1. Visit the P&G website (www.pg.ca). Identify and briefly 2. Visit the Sephora website (www.sephora.com). Explore
describe its different product lines. Now identify one the Sephora Collection, which is their private-label
of its product categories, and discuss the depth of brand. How does Sephora position this brand in the
that particular category. market vis-à-vis the national brands?
At the 2019 Oscar Awards, Frances McDormand wore specially created acid-
yellow Birkenstocks with her Valentino gown.
Kevin Winter/Getty Images
Frances McDormand wore specially created acid-yellow Birkenstocks with her Valentino
gown. When asked about her choice of footwear, McDormand responded by saying her
“aesthetic perception always allowed gentle contrasts, as the one between a Haute Couture
gown and a casual sandal may appear to be. I see no contradiction in this.”73
The shift certainly did not result from a conscious effort by Birkenstock though. Rather,
it caught the company somewhat by surprise, because it had been doing business the
same way it had for more than two centuries. It has a virtually nonexistent marketing
budget, does not advertise widely, and did not pursue the endorsements it has received
from fashion trendsetters. Its CEO asserts that the popularity is a reaffirmation of a basic,
and seemingly outdated, marketing lesson: Build a great product, and people will seek it
out on their own.
Still, the company is not immune to the appeal of being known as fashionable. Accord-
ingly, it is happy to tout its mentions in popular media on the Birkenstock website. It also
has developed a nice collection of Instagram shots that emphasize its diverse assortment
of options. Along with fashion shots of models wearing its silver sandals with high-fashion
dresses, it also features hikers in remote locations, sporting its comfortable-looking, well-
worn footwear.
The combination of great products and strong branding has been highly effective.
Birkenstock’s sales have grown between 40 percent to 50 percent over the past year in
different regions of the world, and it estimates that it will sell 20 million pairs annually in the
coming years. That’s a lot of toes to show.74
Questions
1. Visit the company website (www.birkenstock.ca) and identify and describe the different
product lines that it markets.
2. Describe its product line breadth.
3. Review the different product categories in each of the company’s product lines. Which
has the greatest depth? Which has the least?
4. How has the company positioned its brand? How does it go about communicating its
position?
Chapter 10
Steven and David Sparling had long careers with one of Canada’s largest propane retailers, Sparling’s Propane,
a business their family owned for two generations. When it was sold to Parkland Fuel Corporation in 2013,1 the
Sparlings went looking for new challenges. The result was Cowbell Brewing Co., a brewery, restaurant, and enter-
tainment venue located on 120 acres of land at the corner of two highways in Blyth, Ontario. A location in the heart
of rural farmland may not seem like the most logical site for a brewery. The choice was rooted in family history.
After World War II, Sparling’s father, Grant, moved to Blyth and operated several small businesses. He made
it a point to quietly repay the local townsfolk for their support over the years. And now Steven Sparling and his
son, Grant Sparling II, are continuing this family tradition by supporting the local economy and helping to build
a strong community.2 David is championing a revitalization in the village. The company has already created 170
jobs, a point of pride for Sparling who notes that previously most young people left the area due to a lack of jobs.
Cowbell Brewing brings 150,000 guests a year to Blyth, a town of only 1,000 residents. The brewery team works
with local farmers, producers, and suppliers to provide truly local farm-to-table food3 for its restaurant and further
encourage economic development.
Services: The Intangible Product CHAPTER 10 297
The main building is 26,000 square feet and includes the brewery, a restaurant, and a number of rooms with
names like Thresher’s Hall, The Loft, and Cowbell Cellar. The venue can be used for conferences, weddings, team
events, or other private functions and celebrations. In fact, the company hosted 318 events in 365 days last year.
Plans are in the works for an outdoor amphitheatre with space for 15,000 people that can be used for live music,
and cultural and athletic events. The building, which has 45-foot-high ceilings, was designed using 'grand old barn'
architecture and used more than 600 renewably sourced beams from British Columbia. Rustic barn doors are used
throughout the building, along with a cowbell motif, including cowbells displayed as wind chimes on walls. On hot
days, customers can sit outside and enjoy one of many craft beers or order wood-fired pizza and other items from
the restaurant. When the weather turns colder, customers can sit inside and warm themselves in front of a beautiful
stone fireplace. A touch of local history and whimsy is noted in the names that Cowbell gives its craft beers: Absent
Landlord, Doc Perdue’s Bobcat, and Lorna Bray Fly Girl. In addition to selling its beers onsite, it also sells online, by
subscription, and through the Liquor Control Board of Ontario (LCBO) and the Beer Store.
Committed to sustainability, Cowbell is North America’s first carbon-neutral brewery. All the equipment used
in the brewery was designed to conserve energy and resources.4 Given its location in a small town, the brewery
needs to work around the limitations of local water supply. Cowbell’s water is sourced from its onsite well. The
company also built its own wastewater plant to ensure there is no impact from effluents on the municipal system.
In addition, as of 2019, Cowbell had planted trees to offset carbon emissions.
Everything in Cowbell Brewing’s design and operations helps it to deal with the challenges of being a service
business. The hand-crafted interior of the building complements the craft beers being sold and enhances the
overall atmosphere. Tangibility is further added by the murals and video kiosks throughout the building, which
educate customers about sustainability measures in place. Customers can even take photos by the Cowbell bar-
rels as they leave to preserve the memory, stop by the store to buy Cowbell merchandise, and take home some
of their favourite beer. The video kiosks ensure consistency since the message is always delivered exactly as the
company intended, with just the right amount of enthusiasm. That frees up the well-trained staff to focus on bar
and restaurant patrons. Managing perishability of space is easier given so many different room options available
in the building. Managing scarce inventory of time may be more of an issue. As more bus tours full of tourists trav-
elling to the Blyth Festival Theatre or Stratford Festival Theatre arrive, Cowbell is often booked and busy months
in advance. Locals sometimes complain about the difficulty in getting reservations!
The company culture was built on a strong commitment to community and doing the right thing. From
the day Cowbell Brewing opened, it has donated 5 cents from the sale of every pint and can to its Greener
Pastures Community Fund, which supports the Canadian Centre for Rural Creativity and four children’s hospitals
in Ontario.5 Additionally, it was the first brewery in Canada to receive gold-level certification from the Rick Hansen
Foundation for accessibility measures throughout the venue.6
Lastly, with 120 acres of land available, Cowbell has plans for a working farm, growing ingredients for the
beer and the restaurant. As one writer noted, No one has ever done this before.7
In this chapter, we examine the unique characteristics of services that differentiate them
from products. Then we discuss how companies can provide great service and use elements
in the Gaps model to help them meet customer expectations. Lastly, we look at how compa-
nies can recover from inevitable service failures.
Whereas a service is any intangible offering that involves an act, performance, or service
effort that cannot be physically possessed, customer service specifically refers to human Any intangible offering
that cannot be physically
or mechanical activities firms undertake to help satisfy their customers’ needs and wants. possessed.
By providing good customer service, firms add value to their products.
customer service
Exhibit 10.1 illustrates the continuum from a pure service to a pure product. For exam- Specifically refers to human
ple, some businesses install tires (pure service) while others only sell them (pure product). or mechanical activities
firms undertake to help
And some companies, like Cowbell Brewing, lie somewhere in the middle and include
satisfy their customers’
some service and some product. Still other firms sell products with an “embedded” service needs and wants.
element (e.g., restaurants). Some pure service companies operate in the online or mobile
world, for example, dating app firms such as Tinder. As we noted in Chapter 2, even firms
298 Section FOUR VALUE CREATION
Apparel
Dry Grocery
Doctor Hotel Restaurant Specialty
Cleaners Store
Store
(doctor): Ariel Skelley/Getty Images; (hotel): Onoky/SuperStock; (dry cleaners): The McGraw Hill Companies, Inc./Andrew Resek, photographer; (restaurant):
John A. Rizzo/Getty Images; (apparel store): Charles Bowman/Alamy Stock Photo; (grocery store): Photodisc; Brand X Pictures/Getty Images.
engaged primarily in selling a product, such as apparel stores, typically view service as a
means to maintain a sustainable competitive advantage. This chapter takes an inclusive
view of services as anything from pure service businesses to a business that uses service as
a differentiating tool to help it sell physical products.
Economies of developed countries such as Canada have become increasingly depen-
dent on services. For example, the service sector fuels the Canadian economy, accounting
for the lion’s share of jobs (more than 80 percent of the population works in services8), and
is growing far faster than goods-producing industries.
The current list of Fortune 500 companies contains more service companies and fewer
manufacturers than it did in previous decades.9 Many product-based companies are add-
ing to or expanding their services offerings. For example, as iPhone sales plateau, Apple
is expanding its services, which now subscribe to make up the company’s second largest
source of revenue. Along with Apple Music, consumers can access hundreds of popular
magazines and newspapers through AppleNews+, watch original television content on
AppleTV+, subscribe to Apple Arcade to play games, and pay for it all with an Apple credit
card.10 Retailers are also looking for ways to add services. MEC (Mountain Equipment
Co-op), which sells outdoor gear, recently launched MEC Adventures, offering special-
ized travel experiences. Tours include a multi-sport adventure in New Zealand, cycling in
Vietnam, or a food and wine hiking trip on the Amalfi Coast in Italy.11 And, recognizing
that people are time-poor, IKEA Canada introduced TaskRabbit, an in-home service to
assemble furniture bought at one of its Ontario stores.12
This dependence and the growth of service-oriented economies in developed countries
have emerged for several reasons. First, it is generally less expensive for firms to manufac-
ture their products in less-developed countries. Even if the goods are finished in Canada,
some of their components likely were produced elsewhere. In turn, the proportion of
service production to goods production in Canada, and other similar economies, has
steadily increased over time.
Never Buy Furniture Again* against the $1499 purchase cost. Subscribers can return
furniture or cancel their memberships any time. That’s
Younger consumers are not nearly as concerned with tan- also ideal for home stagers and real-estate agents who
gible possessions as previous generations. That includes can access great-looking furniture on a short-term basis
furniture. And so Daniel and Joshua Simair, the two broth- for clients who are selling their homes.
ers who built the successful SkiptheDishes app, have Sustainability is at the heart of the subscription
turned their attention to their next venture—furniture sub- model. Items don’t end up in landfills since Pivot takes
scriptions. Pivot Furniture launched in September 2018, them back when consumers no longer want them and
offering its services to residents in Simair’s hometown of repairs items if needed so they can be rented out again.
Winnipeg, as well as Saskatoon. Customers who use the Unlike consumers who may throw a couch out when it
monthly subscription service can furnish every room in starts to wear, Pivot can recover it to give it new life. It
their home with high-quality couches, beds, dining-room intentionally chooses materials that can be restored
tables and chairs, even wine racks. As they relocate, they or repurposed. To further protect the environment, the
can simply return the items they have rented rather than company will ensure that items are properly recycled
deal with the hassle of moving the furniture. when they are beyond repair.
Traditional furniture sales rely on expensive show- Furniture rental is not a new concept. Two companies,
rooms because people like to touch and feel items to get Feather and Fernish, offer subscription services in the
a sense of how they would look in their own homes. As U.S. However, the category has not exactly taken off. That
a result, convincing consumers to buy furniture online is may be about to change. Rent the Runway, which offers
quite difficult. Pivot’s subscription model does away with designer clothing subscriptions, recently partnered with
the need for showrooms because, if members don’t love West Elm to offer home décor items on a rental basis.
what they receive, they can send the items back and try And IKEA has announced that it will test furniture rentals
something else. A monthly membership is $9.99 and cov- in 30 countries.
ers delivery, assembly, and taking items apart for their Pivot Furniture has quickly grown to more than 100
return. Each item has a separate fee associated with it. employees and opened a Calgary location. Now it is look-
For example, the monthly rate for a coffee table is $4.99 ing to expand to more cities, hoping consumers in other
and a couch is $15.99. If consumers love a couch and locations will value the ability to effortlessly source and
want to keep it, they can apply subscription payments change the furniture in their homes as their needs change.
*Justin Dallaire, “The Disruptors: Pivot brings subscriptions to furniture,” Strategy, May 28, 2019, http://strategyonline.ca/2019/05/28/the-disruptors-
pivot-brings-subscriptions-to-furniture; Brenda Bouw, “SkipTheDishes founders launch subscription furniture service,” The Globe and Mail, April 12,
2019, www.theglobeandmail.com/business/small-business/startups/article-skipthedishes-founders-launch-subscription-furniture-service/; Pivot
Furniture, “Frequently Asked Questions,” www.pivotsubscriptions.com/ca/en/faq (accessed July 28, 2019).
300 Section FOUR VALUE CREATION
Second, people place a high value on convenience and leisure. Most households have
little time for household maintenance tasks, and many are willing to pay others to do their
chores, for example, cleaning up dog waste from their yards. As discussed in Sustainable
Marketing 10.1, some consumers pay a monthly fee for the convenience of having good
quality furniture in their homes.
Third, as the world has become more complicated, people are demanding more spe-
cialized services—everything from plumbers to personal trainers, from massage therapists
to tax preparation specialists, from lawyers to travel and leisure specialists and even to
healthcare providers. The aging population in particular has increased the need for health-
care specialists, including doctors, nurses, and caregivers in assisted-living facilities and
nursing homes, and many of those consumers want their specialists to provide personal-
ized, dedicated services.
Inseparable
Unique
Intangible Characteristics Inconsistent
Affecting
Service
Inventory
Services: The Intangible Product CHAPTER 10 301
Intangible
As the title of this chapter implies, the most fundamental difference between products and
services is that services are intangible; they cannot be touched, tasted, or seen like a pure intangible
product can. When you get a physical examination, you see and hear the doctor, but the A characteristic of a
service; it cannot be
service itself is intangible. This intangibility can prove highly challenging to marketers. For touched, tasted, or seen
instance, it makes it difficult to convey the benefits of services. Try describing whether the like a pure product can.
experience of visiting your dentist was good or bad and why. Service providers (e.g., phy-
sicians, dentists) offer cues to help their customers experience and perceive their service
more positively, such as a waiting room stocked with TV sets, computer games, and toys for
children; upscale beverages; and comfortable chairs to create an atmosphere that appeals
to the target market.
Similarly, Starbucks has always enhanced its service offering by providing a comfort-
able and cozy atmosphere for drinking coffee, working, reading, or chatting with friends.
It adds tangibility to its service by creating a warm and inviting environment and offer-
ing free Wi-Fi to customers nationwide. RBC Royal Bank offers clients myFinanceTracker,
an online financial management tool that tracks expenses, categorizes transactions, and
provides advanced budgeting capabilities for personal banking and credit card accounts.14
The tool improves RBC’s service offering and adds tangibility to the banking experience by
helping clients save time and money.
A service that can’t be shown directly to potential customers is difficult to promote.
Marketers must therefore creatively employ symbols and images to promote and sell ser-
vices, as Walt Disney World does in using its advertising to evoke images of happy families
and nostalgic memories of Mickey Mouse and previous visits to the theme park. Likewise,
Cirque du Soleil, considered Canada’s top cultural export, adds tangibility to its perfor-
mances with mesmerizing staged acrobatics, which are backed by a live orchestra playing
an original score. The entire circus experience is carefully coordinated to create memorable
impressions—the portable toilets on its big-top sites even have running water.15 Fans can
also buy a wide variety of Cirque du Soleil branded merchandise (e.g., music, videos, books,
clothing, and accessories) to extend their positive memories of the performances. In another
example, professional medical services provide appropriate images of personnel doing their
jobs in white coats surrounded by high-tech equipment. Dentists provide patients with
tangible evidence of their visits in the form of free toothbrushes. Educational institutions
promote the quality of their services by touting their famous faculty and alumni, as well
as their accreditations. They also often use
images of happy students sitting spellbound in
front of a fascinating professor or going on to
lucrative careers of their own.
Because of the intangibility of services,
the images marketers use reinforce the benefit
or value that a service provides. Professional
service providers—such as doctors, lawyers,
accountants, and consultants—depend heavily
on consumers’ perceptions of their integrity
and trustworthiness. Yet the promotional cam-
paigns some of these professionals use have
been criticized by their peers and consumer
welfare groups. Tension is created when service
providers such as personal injury lawyers use
aggressive marketing tactics to attract clients
to their service but still attempt to maintain a At Starbucks, customers can have a drink, meet with friends, and
perception of integrity and trustworthiness, or surf the Internet by using the stores’ free Wi-Fi access.
when invasion of privacy becomes an issue. RosaIreneBetancourt 3/Alamy Stock Photo
302 Section FOUR VALUE CREATION
Inconsistent
The more humans that are needed to provide a service, the more likely that the service’s
inconsistent quality will be inconsistent or variable. A hair stylist may give bad haircuts in the morning
A characteristic of a because he or she went out the night before; yet, that stylist may still offer a better service
service: its quality may vary
because it is provided by than the undertrained stylist working at the next station. A restaurant, which offers a mix-
humans. ture of services and products, generally can control its food quality but not the variability in
food preparation or delivery. If a consumer has a problem with a product, it can be replaced,
remade, destroyed, or, if it is already in the supply chain, recalled. In many cases, the prob-
lem can even be fixed before the product gets into consumers’ hands. But an inferior service
can’t be recalled; by the time the firm recognizes a problem, the damage has been done.
Internet-Enabled Kiosks
Many retailers have installed Internet-enabled kiosks. In addition
to offering customers the opportunity to order merchandise not Do self-checkout machines increase or reduce
available in the store, kiosks can provide routine customer ser- consumers’ perception of service?
vice, freeing employees to deal with more demanding customer Caro/Alamy Stock Photo
304 Section FOUR VALUE CREATION
requests and problems and reducing service variability. For example, customers can use
kiosks to locate merchandise in the store and determine whether specific products, brands,
and sizes are available. Kiosks can also be used to automate existing store services, such as
gift-registry management, rain checks, film drop-off, credit applications, and preordering
service for bakeries and delicatessens.
The Internet has reduced service inconsistency in several areas. Customers can pur-
chase travel items (e.g., airline tickets, hotel rooms, rental cars), concert and movie tickets,
insurance, mortgages, and merchandise directly via the Internet or by cellphone. Cineplex
launched mobile applications to allow customers to buy movie tickets faster. The apps not
only reduce inconsistency for moviegoers, but also reduce costs for theatres. And if the cus-
tomer wants more information than is available online, websites provide ways to contact
customer service personnel by email, telephone, or live chat. The app has been downloaded
14.6 million times, with over 780 million app sessions.20
Beyond online benefits, the Internet has also reduced service inconsistency. Many
Canadian YMCA locations use FitLinxx, a computerized system, to track their clients’
workout performance. At the YMCA of Simcoe/Muskoka in Barrie, members establish
goals, workouts, and schedules, and receive detailed workout programs (e.g., at least
14 abdominal muscle workouts pop up when users select “abs”). FitLinxx learns users’
programs, coaches them individually throughout workouts, and tracks progress over
time. The system not only has health benefits for users, who always get a consistent
workout, but also has boosted customer retention, and users typically exercise more
often than average.21
Inventory
inventory Services are perishable because they cannot be held in inventory or stored for use in
A characteristic of a the future. You can’t stockpile a yoga class like you could a six-pack of beer, for instance.
service: it is perishable
and cannot be stored in The perishability of services provides both challenges and opportunities to marketers
inventory for future use. in terms of the critical task of matching demand and supply. As long as the demand
for and the supply of the service match closely, there is no problem; but, unfortunately,
this perfect matching rarely occurs. A ski area, for instance, can be open as long as
there is snow, even at night, but demand peaks on weekends and holidays, so ski areas
often offer less expensive tickets during off-peak periods to stimulate demand. Airlines,
cruise ships, movie theatres, and restaurants confront similar challenges and attack
them in similar ways. Airlines offer promotional pricing to encourage people to book
flights during the off-season, and movie theatres routinely discount matinee showings
when demand is typically lower. Looking to increase facility usage and reach new audi-
ences, Cineplex Galaxy started broadcasting NHL games live in Canadian cities. For
some hockey fans, it’s the next best thing to being there, and with tickets priced at
$10.95, fans paid only a fraction of the cost of watching, for example, the Toronto Maple
Leafs at the Air Canada Centre, which costs between $80 and $381 a ticket.22 Cineplex
followed with livestreaming of concerts such as Mötley Crüe, Metropolitan Opera
performances, WWE events, and other shows. Gaming fans can rent theatre space for
private gaming sessions to indulge in two hours of playing Halo, Assassin’s Creed or
other Xbox games.
Balancing the ups and downs of demand and capacity is challenging. As noted earlier,
unlike products, services cannot be stockpiled in inventory. For services companies, excess
demand results in having to turn customers away in peak periods, while excess capacity
may mean less desirable expense-to-revenue ratios. For example, dental hygienists, rent,
and other expenses still need to be paid even if customers forget their appointments, so den-
tal offices maximize capacity by making advance reminder calls to patients or by charging
cancellation fees to clients who do not show up for their appointments without adequate
notice. Hotel reservation systems offer guaranteed late arrivals, ensuring that revenue is
Services: The Intangible Product CHAPTER 10 305
**Velofix, “About Us,” www.velofix.com/; “ Velofix Announces 50th Franchise Sold,” June 8, 2016, www.velofix.com/velofix-announces-50th-franchise-
sold/; Bob Vrbanac, “Shifting Into High Gear,” The Waterloo Chronicle, May 11, 2016, www.waterloochronicle.ca/news-story/6548796-shifting-into-
high-gear/; BDC, “Franchising Accelerates Growth for Bike Repair Firm,” www.bdc.ca/en/articles-tools/business-strategy-planning/manage-growth/
pages/one-company-growth-story.aspx; Mary Teresa Bitti, “How a $300,000 Dragons’ Den Deal Is Setting Velofix on the Road to Growth,” The
Financial Post, November 30, 2014, http://business.financialpost.com/entrepreneur/deal-with-dragon-sets-mobile-repair-shop-on-road-to-growth-2;
Velofix, “velofix Announces Growth Financing from MacKinnon, Bennett & Company ,” May 17, 2019, www.velofix.com/company/news-events/velofix-
announces-growth-financing-from-mackinnon-bennett-company/ (accessed July 30, 2019).
not forfeited by holding rooms until very late in the day. Dealing with the ups and downs
of weather can also pose a challenge to some businesses, for example ski resorts or out-
door water parks. As discussed in Entrepreneurial Marketing 10.1, velofix uses cloud-based
software for scheduling and route optimization to ensure its mobile bicycle repair service
operates at capacity.
306 Section FOUR VALUE CREATION
Since services are perishable, service providers such as ski areas offer less expensive tickets
at night to stimulate demand.
© Buddy Mays/Corbis/Getty Images
Sources: Michael Levy and Barton Weitz, Retailing Management, 6th ed. (Burr Ridge, IL: McGraw Hill, 2007). Adapted from
Valerie Zeithaml, A. Parasuraman, and Leonard Berry, Delivering Quality Customer Service (New York: The Free Press,
1990) and Valerie Zeithaml, Leonard Berry, and A. Parasuraman, “Communication and Control Processes in the Delivery
of Service Quality,” Journal of Marketing 52, no. 2 (April 1988), pp. 35–48.
As we discuss the four gaps, we will apply them to the experience that Marcia Kessler
had with a motel in Muskoka, Ontario. She saw an ad for a weekend package that quoted a
very reasonable daily rate and listed the amenities available at Paradise Motel: free babysitting
services, a piano bar with a nightly singer, a free continental breakfast, a heated swimming
pool, and newly decorated rooms. When she booked the room, Marcia discovered that the
price advertised was not available during the weekend, and a three-day minimum stay was
required. After checking in with a very unpleasant person at the front desk, Marcia and her
husband found that their room appeared to have last been updated in 1950 and had not been
cleaned. When she complained, all she got was attitude from the assistant manager. Resigned
to the fact that they were slated to spend the weekend, she decided to go for a swim. Unfor-
tunately, the water was “heated” by Georgian Bay and hovered at around 10 degrees. No
one was using the babysitting services because
there were few young children at the resort. It
turns out that the piano bar singer was the sec-
ond cousin of the owner, and he couldn’t carry
a tune, let alone play the piano very well. The
continental breakfast must have come all the
way from another continent, because every-
thing was stale and tasteless. Marcia couldn’t
wait to get home.
knowledge gap, firms must understand the customers’ expectations. To understand these
expectations, firms undertake customer research and increase the interaction and commu-
nication between managers and employees.
RELIABILITY:
The ability to perform the
service dependably and
accurately.
RESPONSIVENESS:
The willingness to help
customers and provide
prompt service.
ASSURANCE:
The knowledge of and courtesy
by employees and their ability to
convey trust and confidence.
EMPATHY:
The caring, individualized
attention provided to
customers.
TANGIBLES:
The appearance of physical
facilities, equipment, personnel,
and communication materials.
University A University B
Reliability Offers sound curriculum with Curriculum covers all the basics but
extensive placement services and important courses are not always
internships. available. Career placement is
haphazard at best.
Responsiveness Slow to respond to application. Very Quick response during application
structured visitation policy. Rather process. Open visitation policy.
inflexible with regard to personal Offers variety of campus resources
inquiries or additional meetings. to help with decision making.
Assurance Staff seems very confident in Informal staff conveys enthusiasm
reputation and services. for institution.
Empathy Seems to process student body as Very interested in providing
a whole rather than according to a unique experience for each
individual needs or concerns. student.
Tangibles Very traditional campus with old- New campus with modern
world look and feel. Facilities are architecture. Campus is less
manicured. Dorm rooms are large, manicured. Dorm rooms are zone of tolerance
The area between
but bathrooms are a little old. spacious with newer bathrooms.
customers’ expectations
regarding their desired
service and the minimum
level of acceptable
service—that is, the
The concept of the zone of tolerance refers to the area between customers’ expecta- difference between what
tions regarding their desired service and the minimum level of acceptable service—that the customer really wants
and what he or she will
is, the difference between what the customer really wants and what he or she will accept accept before going
before going elsewhere. It is an important marketing metric to evaluate how well firms elsewhere.
310 Section FOUR VALUE CREATION
perform on the five service quality dimensions (Exhibit 10.4). To define the zone of toler-
ance, firms ask a series of questions about each service quality dimension that relate to:
• the desired and expected level of service for each dimension, from low to high
• customers’ perceptions of how well the focal service performs and how well a
competitive service performs, from low to high
• the importance of each service quality dimension.
Exhibit 10.6 illustrates the results of such an analysis for Lou’s Local Diner, a family-
owned restaurant. The rankings on the left are based on a 9-point scale, on which 1 is low
and 9 is high. The length of each box illustrates the zone of tolerance for each service qual-
ity dimension. For instance, according to the length of the reliability box, customers expect
a fairly high level of reliability (top of the box) and will also accept only a fairly high level
of reliability (bottom of the box). On the other end of the scale, customers expect a high
level of assurance (top of the box) but will accept a fairly low level (bottom of the box). This
difference is to be expected, because the customers also were asked to assign an importance
score to the five service quality dimensions so that the total equals 100 percent (see bottom
of Exhibit 10.6). Looking at the average importance score, we conclude that reliability is
relatively important to these customers, but assurance is not. So customers have a fairly
narrow zone of tolerance for service dimensions that are fairly important to them and a
wider range of tolerance for those service dimensions that are less important. Also note that
Lou’s Local Diner always rates higher than its primary competitor, Well-Known National
Chain, on each dimension.
Further note that Well-Known National Chain scores below the zone of tolerance
on the tangibles dimension, meaning that customers are not willing to accept the way
the restaurant looks and smells. Lou’s Local Diner, in contrast, performs above the zone
of tolerance on the responsiveness dimension—maybe even too well. Lou’s may wish to
conduct further research to verify which responsiveness aspects it is performing so well,
and then consider toning those aspects down. For example, being responsive to customers’
3
Reliability Tangibles Assurance
Responsiveness Empathy
Empower Reduce
Use
Employees Delivery
Technology
Gaps
Provide
Support &
Incentives
314 Section FOUR VALUE CREATION
Finally, a key part of any customer service program is providing rewards to employees
for excellent service. Numerous firms have developed a service reputation by ensuring
that their employees are themselves recognized for recognizing the value the firm places
on customer service. Travelocity, for example, features employees who champion the cus-
tomer service experience in a weekly email. Believing that engaged employees are the key
to customer satisfaction, it works to create an atmosphere that reinforces the commitment
to customers by encouraging employees to nominate colleagues who exemplify its com-
mitment to customers. Through constant feedback about who is serving the customer best,
as well as smaller events such as monthly lunches with the CEO for selected employees,
Travelocity creates a business environment that recognizes and rewards customer service
with a Customer First Guarantee.38 The results for Travelocity have been a wealth of
awards, such as a top ranking for overall satisfaction in J.D. Power’s Online Travel Agency
Satisfaction Report.39
Using Technology
Technology has become an increasingly important means of facilitating the delivery of
services. In the past decade, firms have invested heavily in technologies that have enabled
customers to buy more quickly, more easily, and with more information than in the past.
Electronic kiosks, for instance, have found their way into many service venues. Ticketing
kiosks at airports allow customers to get boarding passes and seat assignments, often in less
than a minute. As previously noted, electronic kiosks and other technologies can reduce
the inconsistency of providing a service. Kiosks and self-checkout machines can also help
close the delivery gap.
Web-enabled services have also changed the way firms do business. Marsha
Vanwynsberghe found the Waterloo, Ontario, region too small a market for her life
adversity coaching service for parents of drug-addicted children. Offering one-on-one
or group sessions online allowed her to reach a much broader audience in a timely,
convenient manner. It also provided a level of anonymity to parents who wanted to
avoid being shamed by friends and relatives when dealing with the issue. The need for
convenience has driven some fitness companies and personal trainers to offer online
classes and services. In Bolton, Ontario, Lee-Anne Simpson teaches a variety of classes
via Skype through her company, Revive Fitness Training and Wellness Centre. And in
Steinbach, Manitoba, Tami Tyson holds live online bootcamps that have been a hit with
new mothers who can’t get away from the house for conventional gym workouts.40
Using technology to facilitate service delivery can provide many benefits, such as access
to a wider variety of services, a greater degree of control by the customer over the services,
and the ability to obtain information. Management also benefits from the increased effi-
ciency in service processes through reduced servicing costs and, in some cases, can develop
a competitive advantage over less service-oriented competitors. Marketing Analytics 10.1
highlights how technology can be used to reach and engage customers.
Technological advances that help close the delivery gap are expanding. Salons and cos-
metics counters use kiosks to show customers how they would look with different beauty
products and various hair colours. Stores enable customers to scan price tags and then have
a kiosk recommend complementary items. Touchscreen order kiosks have been installed at
many McDonald’s locations.41
Some markets are being irrevocably altered by the introduction of advanced technolo-
gies, including self-service, virtual reality, holograms, and robots. The implications for pro-
viding customer service are especially notable. Markets for service robots, for example, are
expected to be worth more than $1.5 billion within a few years.42 The integration of these
technologies into service settings, in turn, alters the elements that distinguish services from
products. For example, when an automated agent provides the service, it may be much
more consistent than is the case when humans provide it.
316 Section FOUR VALUE CREATION
†Kirsten Acuna, “Google Says It Can Predict Which Films Will Be Huge Box Office Hits,” Business Insider, June 6, 2013, www.businessinsider.com.
au/google-study-can-predict-success-of-movies-2013-6; Miguel Campo-Rembado and Sona Oakley, “How 20th Century Fox uses ML to predict a
movie audience,” Google Cloud, October 29, 2018, https://cloud.google.com/blog/products/ai-machine-learning/how-20th-century-fox-uses-ml-to-
predict-a-movie-audience; James Vincent, “Hollywood is Quietly Using AI to Decide Which Movies to Make,” The Verge, May 28, 2019, www.theverge.
com/2019/5/28/18637135/hollywood-ai-film-decision-script-analysis-data-machine-learning (accessed July 28, 2019).
Services: The Intangible Product CHAPTER 10 317
High Tech,
High Effort
Low Tech,
High Effort Doctors working
with a robot to
Skype
remotely deliver
service
Low Tech,
High Tech,
Low Effort
Low Effort
ATMs
Humanoid robots
Self-service kiosks
A straightforward way to think about how such advanced technologies are likely to
affect the marketing of services in the future is to distinguish them along two dimensions:
more traditional interactions with humans, such as with a front-line service person, and
interaction with technology, such as a computer or a robot. Combining these two dimen-
sions produces the four-cell matrix shown in Exhibit 10.8.
Each quadrant represents a different type of service interaction. The Low Tech, Low Effort
quadrant represents traditional service delivery technologies provided by ATMs, self-service
kiosks, or self-scanning devices, where the effort provided by both humans and technology are
low. Accordingly, the inseparability of production and consumption becomes less prominent
(refer back to Exhibit 10.1); an ATM can make the cash available at any time, not just when
the bank is open. The Low Tech, High Effort quadrant defines situations in which humans have
a strong presence, but the role of technology is less so, such as when a patient chats with a
medical professional through Skype. The technology facilitates the interaction and can address
some of the challenges of service intangibility by making access to human providers easier.
In contrast, the High Tech, Low Effort quadrant describes situations in which technol-
ogy is extremely prominent, but less human effort is required. In this case, the technology
deliberately and effectively engages with the consumer. This quadrant includes service
technologies like interacting with humanoid service robots, or chatbots, which already
appear in some hospitality settings. For example, various hotel chains have added robotic
concierges that can answer guests’ questions, provide recommendations for nearby
restaurants, or deliver room service requests to guests’ rooms.43
Finally, the High Tech, High Effort quadrant represents situations in which both human
effort and technology are critical. In these cases, advanced technologies meaningfully
supplement people’s abilities to provide services. These applications currently appear to
be most promising in healthcare settings, where human doctors can rely on robotic and
virtual technologies to reduce the chances of mistakes or process more information, such
that together they provide optimal service levels.
318 Section FOUR VALUE CREATION
Although technological advances can help close the delivery gap, they can cause prob-
lems as well. Some customers either do not embrace the idea of replacing a human with a
machine for business interactions or have problems using the technology, such as super-
market self-checkout devices that are too challenging for some customers. In other cases,
the technology may not perform adequately, such as ATMs that run out of money or are out
of order.
Shoppers Drug Mart Injects people with Botox. Consumers need to understand that
not everyone who offers injections is qualified to do so.
a Little Controversy†† Still, with the market for cosmetic dermatology
expected to double to $2 billion in the next five years,
Most consumers visit a drugstore with a goal to main- it is no surprise that companies such as Shoppers Drug
tain or improve their level of health and wellness. And Mart see an opportunity to offer such services. The com-
now, Canada’s largest drugstore chain has added a new pany notes that experienced nurse practitioners will be
wrinkle, or rather a service to remove wrinkles. Shoppers in charge of the clinics. That does not satisfy doctors and
Drug Mart opened its first beauty clinic in Oakville in late medical groups who feel that Shoppers Drug Mart should
2018 to test the introduction of cosmetic treatment ser- have doctors supervise staff who administer injections.
vices including injections of Botox and skin fillers as well Some medical practitioners wonder if it is a case of sacri-
as laser therapy. A second clinic opened in Toronto in ficing patient care in return for profits.
the spring of 2019. Unlike most of the cosmetic products On the plus side for Shoppers Drug Mart, consumers
the company offers, such services are not inexpensive. already trust the brand as a source of beauty products.
For example, skin resurfacing is $150 and, if you want And, as an added incentive, consumers who are PC
plump lips, one syringe of fillers will set you back $550. Optimum members can earn points on the services they
The most expensive offering is laser skin rejuvenation at use at the clinics.
a cost of $800.
While cosmetic dermatology treatments have been
increasing in popularity, some people question if the “need”
for these services is being driven by ageism. Do consumers
really need to look as if they are only 40 years old when they
may be decades older? Sarah Draper, Shoppers Drug Mart’s
senior director of healthcare and partnerships and innova-
tion, says the company wants to demystify the services and
allow everyone to see what the next level of beauty might
be. Perhaps it is ageism. More serious concerns come from
medical associations ,which have expressed dismay over
offering such services in a drugstore, where they are not
supervised by a doctor. Richard Bendor-Samuel is a Halifax
plastic surgeon and president of the Canadian Society for
Aesthetic Plastic Surgery. He says it is frightening to see
retailers get into medical treatments.
As these cosmetic procedures become normalized,
demand and availability have increased. However, in
recent years, news outlets have regularly reported on
'Botox gone bad' stories. For example, a woman from Shoppers Drug Mart will plump up your lips with one syringe of
Brampton, Ontario was charged with fraud after having fillers for $550.
misrepresented herself as a nurse and injecting three Jutta Klee/Getty Images
††Marina Strauss, “Shoppers Drug Mart to test cosmetic injection clinics,” The Globe and Mail, December 19, 2018, https://www.theglobeandmail.com/
business/article-shoppers-drug-mart-to-test-cosmetic-injection-clinics; Caitlin Agnew, “With drugstores getting into the Botox business, is the stigma
around cosmetic procedures changing?,” The Globe and Mail, April 1, 2019, https://www.theglobeandmail.com/life/style/article-with-drugstores-getting-
into-the-botox-business-is-the-stigma-around; Justin Dallaire, “Shoppers Drug Mart aims to make cosmetic dermatology approachable,” Strategy,
July 15, 2019, http://strategyonline.ca/2019/07/15/shoppers-drug-mart-aims-to-make-cosmetic-dermatology-approachable (accessed July 28, 2019).
Assuming that customers do not experience the service gaps that we have discussed,
they should be more or less satisfied. A service provider that does a good job one year is
likely to keep customers satisfied the next year, too. Some of the best service providers year
after year include Amazon, Zappos, L.L. Bean, and Nordstrom. Forrester compiles cus-
tomer experience (CX) scores that analyze the quality and effectiveness of brands treatment
of customers and Forrester also looks at the impact on brand loyalty. Topping the list of this
year’s national survey are Fairmont Hotels & Resorts, Mountain Equipment Co-op, and
Chapters/Indigo. While that is good news, Forrester noted the worrisome finding that 76%
of brands had stagnated, showing little or no improvement in their scores.44
320 Section FOUR VALUE CREATION
Amazon Prime's $119/year delivery service helps create Nordstrom consistently is ranked at the top of customer
customer loyalty and satisfaction. satisfaction surveys.
Web Pix/Alamy Stock Photo © Ben Nelms/Bloomberg via Getty Images
If a firm not only minimizes but eliminates any service gaps, customers are likely to
exhibit significant loyalty to that firm. Customers want to continue receiving such superior
service and have no desire to go elsewhere for the offerings it provides them.
fairly if the service providers follow specific company guidelines. A rigid adherence to rules
can have damaging effects. Have you ever returned an item to a store, even a very inexpensive
item, and been told that the return needed a manager’s approval? The process likely took sev-
eral minutes and irritated everyone in the checkout line. As we noted previously, service pro-
viders should be empowered with some procedural flexibility to solve customer complaints.
Key Terms
■■ communication gap ■■ inseparable ■■ service gap
■■ customer service ■■ intangible ■■ service quality
■■ delivery gap ■■ inventory ■■ standards gap
■■ empowerment ■■ knowledge gap ■■ voice-of-customer (VOC) program
■■ inconsistent ■■ service ■■ zone of tolerance
Concept Review
1. Describe the four dimensions in which services mar- 3. Discuss the actions companies can implement to
keting is different from product marketing. minimize the potential negative impact of service
inconsistency on the delivery of customer service.
2. Why is intangibility described as the most fundamental
difference between products and services? 4. How can companies deal with the perishability of their
services?
324 Section FOUR VALUE CREATION
5. Identify the components of the Gaps model. Describe 8. Discuss why underpromising and overdelivering is an
each component and explain the strategies companies important way to control the communication gap.
can implement to reduce the gaps in service delivery.
9. What is meant by service recovery? How can companies
6. Describe the five dimensions of service quality that use service recovery to ensure that a service failure does
consumers often use to judge the quality of a service not lead to a lost customer?
experience.
10. Explain the differences between distributive and
7. Explain how the use of technology can help compa- procedural fairness in the context of service recovery.
nies deliver higher quality service.
Marketing Applications
1. Those companies from which you purchase products had been empowered by an employer to do so. What
and services are not pure sellers of services, nor are should the service provider have done?
they pure sellers of products. What services does a
7. What types of support and incentives could your uni-
department store provide? What goods does a dentist
versity or college provide advisors to help make them
provide?
more attentive to students’ needs?
2. You have been sitting in the waiting room of your
8. What mobile apps do you use that help facilitate your
doctor’s office for an hour. With the knowledge that
transactions with specific retailers or service provid-
products are different from services, develop a list
ers? Would you rather use the apps or engage in a
of the things the office manager could do to improve
face-to-face relationship with a person? How, if at all,
the overall service delivery. Consider how the office
would your parents’ answers to these two questions
might overcome problems of intangibility, inseparabil-
differ from yours?
ity, inconsistency, and inventory issues associated with
services. 9. A local health club is running a promotional campaign
that promises you can lose an inch a month off your
3. You have conducted a zone of tolerance analysis for
waist if you join the club and follow its program. How
your local pizzeria. You find that the lengths of the reli-
might this claim cause a communication gap? What
ability and responsiveness boxes are much greater
should the club do to avoid a service failure?
than those of the other three service quality dimen-
sions. You also find that the pizzeria is positioned 10. You are hired by a career consulting firm that promises
above the zone box on reliability but below the box on to market new graduates to high-paying employers.
responsiveness. What should you tell the manager of The firm provides potential clients with an impressive
the pizzeria to do? client list. It charges the clients a fee, and then a sepa-
rate finder’s fee if the client gets a position. The firm
4. Assume you were hired by the Paradise Motel to help
aggressively markets its services and has a large
assess its service quality. How would you go about
client base. You learn that the firm simply takes any
undertaking this project?
submitted resumés and posts them to a variety of
5. What should a restaurant server do who is faced with online job search engines. The firm never actually
an irate customer who has received undercooked food contacts any companies on its clients’ behalf. The
after a long wait? How can the server avoid a service CEO, himself a recent university grad, tells you that the
failure by being empowered? What should the server firm never promises to contact potential employees,
do? only that the firm has access to employers and will
distribute clients’ resumés. What do you think of the
6. Describe a specific situation in which a service pro-
career consulting firm’s practices?
vider could have avoided a service failure if he or she
Marketing Digitally
1. What services does WestJet offer (www.westjet.com)? 2. Evaluate the ease with which you can make hotel reser-
Compare its services to those offered by Air Canada vations when using Fairmont’s online reservation system
(www.aircanada.ca) by using the five service qual- (www.fairmont.com). Check out the hotel’s privacy policy.
ity dimensions (tangibility, responsiveness, reliability, Are you comfortable with its use of cookies to identify
assurance, and empathy). visitors when they return to the site?
Services: The Intangible Product CHAPTER 10 325
Questions
1. Apply the Gaps model to see how chatbots help provide customer service.
2. With what service quality dimensions can chatbots help a firm?
SECTION FIVE TRANSACTING VALUE
Chapter 11
The leadership changes at Tiffany & Co., the jewellery line known for its signature blue boxes, are symbolic of the
struggles and challenges that many luxury brands face today. Those struggles led to the firing of one CEO and
the hiring of another in 2017. Since then, the brand has shown healthy increases in annual revenues and launched
a new, modern jewellery collection.1
Luxury markets are defined largely by their prices, which are set high specifically to signal their exclusivity
and high quality. But high prices limit market growth because only the “lucky few” can afford them. Furthermore,
even wealthy shoppers may grow price conscious; overall luxury goods sales recently dropped for the first time
since 2009. Several years back, in an attempt to reach more customers, Tiffany expanded its product lines,
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 327
seeking to attract some customers who could afford to spend a few hundred dollars, but
not thousands, on a beautiful trinket or gift for themselves or a loved one.
But by adding a range of lower-priced products, Tiffany risked its reputation for
exclusive items and put its luxury status at stake. Nearly half of its sales revenues started
coming from items with an average price of $530—really low for a luxury brand. Con-
sumers looking for something special instead started considering brands like Cartier,
where “You’d be hard pressed to find anything… for $500.”
At the same time as it adjusted its pricing strategy, Tiffany & Co. also was expand-
ing its marketing efforts and sales channels. Rather than being available only in the
310 dedicated, branded stores, the products started selling on the fashion website
Net-a-Porter and in other boutique retail stores. The marketing campaigns also appeared
more widely in various communication channels. As a result, some parties came to
believe the famous Tiffany blue was even being overused, being used for everything
imaginable instead of maintaining its exclusivity and cachet.
By the same token, when the fired CEO sought to limit the use of the blue, critics
also assailed the choice as a failure to respect the company’s long history and tradition.
Such criticisms also arose in response to the announcement that Lady Gaga would
be the new face of the brand; unfair comparisons suggested that she was no Audrey
Hepburn, the famous actress who helped make the retailer a familiar name by starring in
the film version of Breakfast at Tiffany’s.
Tiffany & Co. owns much of the production processes it uses to create its goods. Unlike
most jewellers, it polishes and finishes its own gemstones, and it maintains agreements
with diamond miners to purchase minimum amounts each year. Although this approach
helps the company guarantee the quality of its products, it also can create inventory issues.
For example, even if it has no pressing need for more diamonds, it must purchase them
under the terms of its contract. In that case, Tiffany & Co. could find itself forced to lower
prices to clear inventory—a most un-luxury move for a luxury brand.2 The recent sale of
Tiffany to French luxury goods maker LVMH may help to put a new shine on the brand.3
Although knowing how consumers arrive at their perceptions of value is critical to develop-
ing successful pricing strategies, sellers also must consider other factors—which is why
developing a good pricing strategy is such a formidable challenge to all firms. Do it right
and the rewards to the firm will be substantial. Do it wrong and failure will be swift and
severe. But even if a pricing strategy is implemented well, consumers, economic conditions,
markets, competitors, government regulations, and even a firm’s own products change con-
stantly—and that means that a good pricing strategy today may not remain an effective
pricing strategy tomorrow.
So much rides on marketers setting the right price, so it’s important to understand the
role price plays in the marketing mix. We start by explaining what “price” is as a marketing
concept, why it is important, how marketers set pricing objectives, and how various factors
influence price setting. Then, we extend this foundation by focusing on specific pricing strat-
egies as well as the psychological aspects of pricing. Lastly, we describe various B2B and con-
sumer pricing tactics and some important legal and ethical issues associated with pricing.
Imagine that a consumer realizes that to save money on a particular item, she will have
to drive an additional 20 kilometres. She may judge that her time and travel costs are not
worth the savings, so even though the price tag is higher at a nearby store, she judges the
overall cost of buying the product there to be lower. To include aspects of price such as this,
we define price as the overall sacrifice a consumer is willing to make to acquire a specific
product or service. This sacrifice usually includes the money that must be paid to the seller
328 Section FIVE Transacting Value
to acquire the item but it also may involve other sacrifices, whether nonmonetary (such
as the value of the time necessary to acquire the product or service) or monetary (such as
travel costs, taxes, and shipping costs), all of which the buyer must give up to take posses-
sion of the product.4 It’s useful to think of overall price like this to see how the narrower
sense of purchase price fits in.
Consumers judge the benefits a product delivers against the sacrifice necessary to
obtain it, and then make a purchase decision based on this overall judgment of value. A
great but overpriced product can be judged as low in value and may not sell as well as
an inferior but well-priced item. In turn, we cannot define price without referring to the
product or service associated with it. The key to successful pricing is to match the product
or service with the consumer’s value perceptions.
Price is the only element of the marketing mix that generates revenue. Every other ele-
ment in the marketing mix may be perfect but, with the wrong price, sales simply will not
occur. Research has consistently shown that consumers usually rank price as one of the most
important factors in their purchase decisions.5 Coming up with the “right” price is never easy.
If firms can price their products or services too high, can they price them too low as well? Quite
simply, yes. A price set too low may signal low quality, poor performance, or other negative
attributes about the product or service. Consumers don’t necessarily want a low price all the
time or for all products. Rather, they want high value, which may come with a relatively high
or low price, depending on the bundle of benefits the product or service delivers. Deeply dis-
counted pricing may bring in new customers, but it can cause retailers and manufacturers to
lose money. And it may also negatively impact perceived positioning of the product or service.
Knowing that price is so critical to success, why don’t managers put greater emphasis
on it as a strategic decision variable? Price is the most challenging of the four Ps to manage,
partly because it is often the least understood. Historically, managers have treated price as
an afterthought to their marketing strategy, setting prices according to what competitors
were charging or, worse yet, by adding up their costs and tacking on a desired profit to set
the sales price. Prices rarely changed except in response to radical shifts in market condi-
tions. Even today, pricing decisions often fail to reflect our current understanding of the
role of price in the marketing mix.
Moreover, managers have held an overly simplistic view of the role of price, consider-
ing it simply the amount of money a consumer must part with to acquire a product or
service. We now know that price is not only a sacrifice but also an information cue as
well. That is, consumers use the price of a
product or service to judge its quality,6 par-
ticularly when they are less knowledgeable
about the product category. For example,
most college and university students know
little about fine wine, so if a student found
herself in the Vintages section of the liquor
store and had to make a decision about
which bottle to purchase, she might judge
the quality of the various options accord-
ing to their prices and assume that a higher
price means higher quality.
In summary, marketers should view
pricing decisions as a strategic opportunity
to create value rather than as an after-
thought to the rest of the marketing mix.
Price communicates more than how much
When shopping for wine, most of us infer that a higher price means a product or service costs; it can signal qual-
higher quality. ity, or lack thereof. Let’s now turn to the
Shutterstock/Jasminko Ibrakovic five basic components of pricing strategies.
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 329
Successful pricing strategies are built through the five critical components: company objec-
tives, customers, costs, competition, and channel members (see Exhibit 11.1). We examine
these components in some detail because each makes a significant contribution to formu-
lating good pricing decisions.7 To start, the first step is to develop the company’s pricing
objectives.
Company Objectives
By now, you know that different firms embrace different goals. Walmart, for example, wants
to be seen as a value-based company and so uses everyday low pricing (EDLP), whereas
Holt Renfrew’s high prices reflect its high-fashion image.
Each firm embraces an objective that fits with where management thinks the firm
needs to go to be successful, in whatever way they define success. These specific objectives
usually reflect how the firm intends to grow. Do managers want it to grow by increasing
profits, increasing sales, decreasing competition, or building customer satisfaction?
Company objectives are not as simple as they might first appear; they often can be
expressed in slightly different forms that mean very different things. Exhibit 11.2 intro-
duces some common company objectives and examples of their implications for pricing profit orientation
strategies. These objectives are not always mutually exclusive, because a firm may embrace A company objective that
two or more noncompeting objectives. can be implemented by
focusing on target profit
pricing, maximizing profits,
Profit Orientation or target return pricing.
target profit pricing
Even though all company objectives may ultimately be oriented toward making a profit,
A pricing strategy
firms implement a profit orientation by focusing on target profit pricing, maximizing implemented by firms
profits, or target return pricing. when they have a
particular profit goal as
• Firms usually implement target profit pricing when they have a particular profit their overriding concern;
uses price to stimulate a
goal as their overriding concern. To meet this targeted profit objective, firms use price certain level of sales at a
to stimulate a certain level of sales at a certain profit per unit. certain profit per unit.
Competition
Costs
Company
Objectives VALUE
Customers
Channel
Members
330 Section FIVE Transacting Value
Adopting a market share objective does not always imply setting low prices. Rarely
is the lowest-price offering the dominant brand in a given market. Heinz ketchup,
Philadelphia cream cheese, Crest toothpaste, and Nike athletic shoes have all dominated
their markets, yet all are premium-priced brands. Thus, companies can gain market share
simply by offering a high-quality product at a fair price, as long as they generate high-value
perceptions among consumers. Although the concept of value is not overtly expressed in
sales-oriented strategies, it is at least implicit because, for sales to increase, consumers must
see greater value.
Competitor Orientation
When firms undertake a competitor orientation, they strategize according to the premise competitor orientation
that they should measure themselves primarily against their competition. Some firms focus A company objective
based on the premise that
on competitive parity, which means they set prices that are similar to those of their major the firm should measure
competitors. Value is only implicitly considered in competitor-oriented strategies, in the itself primarily against its
competition.
sense that competitors may be using value as part of their pricing strategies, so copying
their strategy might provide value. competitive parity
A firm’s strategy of setting
prices that are similar to
those of major competitors.
Customer Orientation customer orientation
A customer orientation explicitly invokes the concept of value. Sometimes a firm may Pricing orientation that
explicitly invokes the
attempt to increase value by focusing on customer satisfaction and setting prices to match concept of customer value
consumer expectations. Or a firm can use a “no-haggle” price structure to make the pur- and setting prices to match
chase process simpler and easier for consumers, thereby lowering the overall price and consumer expectations.
ultimately increasing value. Some car companies have embraced the “no-haggle” price
policy to do just that. Other companies make it easy for consumers to pay by offering a
variety of payment methods including mobile wallet apps.
Firms also may offer very high-priced, “state-of-the-art” products or services
in full anticipation of limited sales. These offerings are designed to enhance the
company’s reputation and image and thereby increase the company’s value in the
minds of consumers. For example, Paradigm, a Canadian speaker manufacturer
in Mississauga, Ontario, produces what many audiophiles consider a high-value
product, offering speakers priced as low as $320 per pair. However, Paradigm also
offers a high-end pair of Persona9H speakers for $19,000. Although few people
will spend $19,000 on a pair of speakers, this “statement” speaker communicates
what the company is capable of and can increase the image of the firm and the
rest of its products—even that $320 pair of speakers. Setting prices with a close
eye to how consumers develop their perceptions of value can often be the most
effective pricing strategy, especially if it is supported by consistent advertising
and distribution strategies.
After a company has a good grasp on its overall objectives, it must implement
pricing strategies that enable it to achieve those objectives. As the second step in
this process, the firm should look toward consumer demand to lay the foundation
for its pricing strategy.
Customers
The second C of the five Cs of pricing is the most important because it is about
understanding consumers’ reactions to different prices. Consumers want value Can you tell the difference
and, as you may recall, price is half of the value equation. Look at how two young between the $19,000 and the
women with vision set pricing for a new construction app in Entrepreneurial $320 Paradigm speaker?
Marketing 11.1. Source: Paradigm Electronics, Inc.
332 Section FIVE Transacting Value
out to all of the subcontractors involved.** Usage of Bridgit’s solutions increased during the
After thorough field testing, the challenge was to COVID-19 pandemic as construction companies looked to
convince contractors to buy the app. How do you put a fine-tune their operations and guard their margins. Even in the
price on better work flow, improved communication, and midst of the pandemic, Bridgit continued to raise venture capi-
not having tasks fall through the cracks? Lauren set up tal, as construction giant Autodesk invested $9.4 million.***
*Clare O’Connor, “Two 24-Year-Old Women Raise $1.7M for Tech to Streamline Construction Projects,” April 22, 2016, http://nytlive.nytimes.com/
womenintheworld/2016/04/22/meet-the-24-year-old-women-streamlining-the-construction-industry/ (accessed July 4, 2016).
**Peter Nowak, “How BridgIt’s App Keeps Big Construction Projects on Time and Budget,” Canadian Business, July 15, 2015, www.canadianbusiness.
com/innovation/waterloo-startups-2015-bridgit/ (accessed July 4, 2016).
†Lauren Lake, Keynote Speech at WIMin Ideathon, University of Waterloo, March 5, 2016.
††Deidre Kelly, “Graduates’ App for Tracking Construction Defects Takes Off,” The Globe and Mail, December 24, 2014, www.theglobeandmail.com/
report-on-business/small-business/sb-growth/the-challenge/graduates-app-for-tracking-construction-defects-takes-off/article22164725/; Andrea
Bellemare and Danielle Kappele, “Kitchener Construction Tech Firm Bridgit Raises $2.2 Million in Seed Funding,” CBC News, www.cbc.ca/news/
canada/kitchener-waterloo/kitchener-construction-tech-firm-bridgit-raises-2-2-million-in-seed-funding-1.3544552 (accessed July 4, 2016).
‡Josh O’Kane, “Ontario construction software firm Bridgit raises $6.2-million,” The Globe and Mail, March 18, 2019, www.theglobeandmail.com/
business/small-business/money/article-ontario-construction-software-firm-bridgit-raises-62-million/ (accessed July 26, 2019).
‡‡“Bridgit Receives $750,000 Investment from FedDev Ontario”, Betakit, May 22, 2019, https://betakit.com/bridigit-receives-750000-investment-from-
feddev-ontario/ (accessed July 26, 2019).
§
Isabelle Kirkwood, “Bridgit Raises $1.6 Million From CIBC Innovation Banking,” betakit, August 9, 2019, https://betakit.com/bridgit-raises-1-5-million-
from-cibc-innovation-banking (accessed August 9, 2019).
***Sean Silcoff, “Autodesk takes ownership stake in Canadian construction software company Bridgit,” The Globe and Mail, July 14, 2020, www.
theglobeandmail.com/business/article-autodesk-takes-ownership-stake-in-canadian-construction-software/ (accessed July 14, 2020).
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 333
Price $
30
25 Demand increases as
price decreases
20
P2 15
Dem
and
P1 10
0
2.5 5 7.5 10 12.5 Quantity
Q2 Q1 Demanded
(00 000s)
To determine how firms account for consumers’ preferences when they develop pricing
strategies, we must first lay a foundation of traditional economic theory that helps explain
how prices are related to demand (consumers’ desire for products) and how managers can
incorporate this knowledge into their pricing strategies.
and that the economy will not change in any significant way.
Exhibit 11.3 illustrates the common downward-sloping demand curve in which, as
price increases, demand for the product or service decreases. In this case, consumers will
buy more tooth whitening kits as the price decreases. We can expect to uncover a demand
curve similar to this one for many, if not most, products and services.
The horizontal axis measures the quantity demanded for the kits in units and plots
it against the various price possibilities indicated on the vertical axis. Each point on the
demand curve then represents the quantity demanded at a specific price. So, in this instance,
if the price of a kit is $10 per unit (P1), the demand is 1,000,000 units (Q1), but if the price
were set at $15 (P2), the demand would be only 500,000 units (Q2). The firm will sell far more
kits at $10 each than at $15 each. Why? Because of the greater value this price point offers.
Knowing the demand curve for a product or service enables a firm to examine different
prices in terms of the resulting demand and relative to its overall objective. In our preceding
example, the tooth whitening kit distributor will generate a total of $10,000,000 in sales at the
$10 price ($10 × 1,000,000 units) and $7,500,000 in sales at the $15 price ($15 × 500,000 units). In
this case, given only the two choices of $10 or $15, the $10 price is preferable as long as the firm
wants to maximize its sales in terms of dollars and units. But what about a firm that is more inter-
ested in profit? To calculate profit, it must consider its costs, which we cover in the next section.
Interestingly enough, not all products or services follow the downward-sloping demand
curve for all levels of price depicted in Exhibit 11.3. Consider prestige products or prestige products or
services
services, which consumers purchase for their status rather than their functionality. The
Those that consumers
higher the price, the greater the status associated with it and the greater the exclusivity, purchase for status rather
because fewer people can afford to purchase it. French luxury goods manufacturer and than functionality.
334 Section FIVE Transacting Value
Hermès uses prestige pricing for its handbags, like this one that sold for more than $300,000
at auction, which is more than $20,000 above the standard retail price.
©Lam Yik Fei/The New York Times/Redux Pictures
retailer Hermès is known for making expensive leather goods. But paying $300,168 for a
handbag at auction, which is more than the standard retail price of $280,000, is extraordi-
nary, and not for the casual shopper. Of course, the matte Himalayan crocodile handbag was
finished using white-gold hardware set with 245 F-colour diamonds.11 With prestige prod-
ucts or services, a higher price may lead to a greater quantity sold—up to a certain point.
When customers value the increase in prestige more than the price differential between the
prestige product and other products, the prestige product attains the greater value overall.
Exhibit 11.4 illustrates a demand curve for a hypothetical prestige service, such as
a Caribbean cruise. As the graph indicates, when the price increases from $1,000 (P1) to
$5,000 (P2), the quantity demanded actually increases from 200,000 (Q1) to 500,000 (Q2)
units. However, when the price increases to $8,000 (P3), the demand then decreases to
300,000 (Q3) units, after peaking at about 500,000.
Price
$000s
P3 8
De
Demand increases as
m
7
an
price decreases
d
P2 5
2
Demand decreases as
P1 1 price decreases
0
100 200 300 400 500 Quantity
Q1 Q3 Q2 Demanded
(in 000s)
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 335
Although the firm likely will earn more profit selling 300,000 cruises at $8,000 each
than 500,000 cruises at $5,000 each, we do not know for sure until we consider costs. How-
ever, we do know that more consumers are willing to book the cruise as the price increases
initially from $1,000 to $5,000 and that most consumers will choose an alternative vacation
as the price increases further from $5,000 to $8,000.
% change in price
price.
elastic
Refers to a market for a
In general, the market for a product or service is price sensitive (or elastic) when product or service that
is price sensitive; that is,
the price elasticity is less than –1: that is, when a 1 percent decrease in price produces relatively small changes
more than a 1 percent increase in the quantity sold. In an elastic scenario, relatively small in price will generate
changes in price will generate fairly large changes in the quantity demanded, so if a firm is fairly large changes in the
quantity demanded.
trying to increase its sales, it can do so by lowering prices.
The market for a product is generally viewed as price insensitive (or inelastic) when inelastic
Refers to a market for a
its price elasticity is greater than –1: that is, when a 1 percent decrease in price results in product or service that is
less than a 1 percent increase in quantity sold. Generally, if a firm must raise prices, it is price insensitive; that is,
relatively small changes
helpful to do so with inelastic products or services because in such a market, fewer custom- in price will not generate
ers will stop buying or reduce their purchases—customers just don’t notice or care about large changes in the
the lower price. quantity demanded.
Consumers are less sensitive to the price of milk (left) than to steak (right). When the price of milk goes up, demand does
not fall significantly because people still need to buy milk. However, if the price of steak rises beyond a certain point,
people will buy less because they can turn to the many substitutes for steak.
(left): Shutterstock/Korta; (right): Spencer Platt/Getty Images
336 Section FIVE Transacting Value
Consumers are generally more sensitive to price increases than to price decreases.12 Also,
the price elasticity of demand usually changes at different points in the demand curve unless
the curve is actually a straight line, as in Exhibit 11.3. For instance, a prestige product or service,
such as our Caribbean cruise example in Exhibit 11.4, enjoys a highly inelastic demand curve
up to a certain point, so price increases do not affect sales significantly. But when the price
reaches that certain point, consumers start turning to other alternatives because the value of
the cruise has finally been reduced by the extremely high price. Ideally, firms could maximize
their profits if they charged as much as each customer was willing to pay. The travel industry
and airlines realize this benefit particularly well, as Marketing Analytics 11.1 explains.
The Canadian economy has experienced the full force of this elasticity phenomenon.
Over the past decade, the Canadian dollar has fluctuated against the U.S. dollar. For
example, in 2011, the exchange rate hovered near parity before falling to $0.90 in 2014. By
mid-2019 the exchange rate was $0.76. An American family that travelled to Canada on a
two-week vacation in 2011 with a $5,000 USD budget likely enjoyed a nice trip. However,
eight years later, the same family would have spent far less because of currency fluctua-
tions. Not surprisingly, the low dollar encourages American travel and is a boon to tourism.
Travelling to Canada
on vacation is much
less expensive for
Americans today than
it was a decade ago
because of currency
fluctuations.
robertharding/Alamy Stock
Photo
cross-price elasticity Price Elasticity. Cross-price elasticity is the percentage change in the quantity of
The percentage change
in demand for Product A
Product A demanded compared with the percentage change in price in Product B. For
that occurs in response to example, when the price of coffee pods dropped rapidly, the demand for single-serve coffee
a percentage change in machines, such as Keurig and Nespresso, also increased rapidly. Products such as coffee
price of Product B.
pods and single-serve coffee machines are complementary products, which are products
complementary products whose demands are positively related, such that they rise or fall together. In other words, a
Products whose demand
curves are positively percentage increase in the quantity demanded for Product A results in a percentage increase
related, such that they in the quantity demanded for Product B.13 However, when the price for regular coffee mak-
rise or fall together; a
ers dropped, the demand for Keurig machines went down, so regular coffee makers and
percentage increase in
demand for one results in Keurig or Nespresso machines are substitute products because changes in their demand
a percentage increase in are negatively related. Today, shopping bots like PriceGrabber.com and Bizrate.com have
demand for the other.
made it much easier for people to shop for substitutable products like consumer electron-
substitute products ics, which has affected the price elasticity of demand.
Products for which
changes in demand are Clearly, knowing how prices affect sales is important, but it cannot give us the
negatively related—that whole picture. To know how profitable a pricing strategy will be, we must also consider the
is, a percentage increase third C, costs.
in the quantity demanded
for Product A results in a
percentage decrease in
the quantity demanded for
Product B.
Costs
To make effective pricing decisions, firms must understand their cost structures so they
can determine the degree to which their products or services will be profitable at different
prices. In general, prices should not be based on costs because consumers make purchase
decisions based on their perceived value; they care little about the firm’s costs to produce
and sell a product or deliver a service. Consumers use just the price they must pay and the
benefits they may receive to judge value; they will not pay a higher price for an inferior
product simply because the firm cannot be as cost-efficient as its competitors.
If, for instance, a bike helmet is available at both Sportchek and Walmart, most con-
sumers would buy it at Walmart, where it likely will be priced lower. But many consumers
see additional benefits to shopping at Sportchek because it also offers a good selection of
other sports accessories, and they can get help from knowledgeable staff. If consumers did
not value these benefits, Sportchek would not survive.
Although companies incur many different types of costs as a natural part of doing busi-
ness, there are two primary cost categories: variable and fixed.
Variable Costs
variable costs Variable costs are those costs, primarily labour and materials, that vary with produc-
Those costs, primarily tion volume. As a firm produces more or less of a good or service, the total variable costs
labour and materials,
that vary with production increase or decrease at the same time. Because each unit of the product produced incurs
volume. the same cost, marketers generally express variable costs on a per-unit basis. For a compact
disc manufacturer, the variable costs include the labour needed to burn each CD; the costs
of the blank CDs, jewel cases, and labels; and royalties paid to the artist. Each of these costs
is incurred each time the producer makes a new CD.
In the service industry, variable costs are far more complex. For example, banks must
pay a fee for each mobile wallet transaction, adding more cost as increasing numbers of
consumers choose to pay using their phones. Likewise, a hotel incurs certain variable costs
each time it rents a room, including the costs associated with the labour and supplies nec-
essary to clean and restock the room. Note that the hotel does not incur these costs if the
room is not booked. Suppose that a particular hotel calculates its total variable costs to be
$20 per room; each time it rents a room, it incurs $20 in variable costs. If the hotel rents
out 100 rooms on a given night, the total variable cost is $2,000 (= $20/room × 100 rooms).
Variable costs tend to change depending on the quantity produced. If a record pro-
ducer creates five CDs, it must pay a set amount for each one. If it makes 500, though, it can
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 339
probably get the discs at a lower price by buying in bulk. Though it’s not always the case,
variable costs per unit may go up or down (for all units) with significant changes in volume.
Fixed Costs
Fixed costs are those costs that remain essentially at the same level, regardless of any fixed costs
changes in the volume of production. Typically, these costs include items such as rent, Those costs that remain
essentially at the same
utilities, insurance, administrative salaries (for executives and higher-level managers), and level, regardless of any
the depreciation of the physical plant and equipment. Across reasonable fluctuations in changes in the volume of
production.
production volume, these costs remain stable; whether the producer makes five or 500 CDs,
the rent it pays for the building in which it burns the CDs remains unchanged.
Total Cost
Finally, the total cost is simply the sum of the variable and fixed costs. For example, in total cost
one year, our hypothetical hotel incurred $100,000 in fixed costs. We also know that because The sum of the variable
and fixed costs.
the hotel booked 10,000 room nights, its total variable cost is $200,000 (= 10,000 room
nights × $20/room). Thus, its total cost is $300,000.
Next, we illustrate how to use these costs in simple analyses that can inform manage-
rial decision making about setting prices.
Revenue &
Revenue
Costs
$
Costs
Profit
P
$125,000 Variable Costs
Break-Even ($20/night)
Point
Fixed Costs
Loss
Fixed Costs
($100,000)
0
1,250 Units
Break-Even Quantity
(1,250 rooms)
340 Section FIVE Transacting Value
Recall that the fixed costs are $100,000 and the variable costs are $20/room rented. If the
rooms rent for $100 per night, how many rooms must the hotel rent over the course of a year to
break even? If we study the graph, we find the break-even point at 1,250, which means that the
hotel must rent 1,250 rooms before its revenues equal its costs. If it rents fewer rooms, it loses
money; if it rents more, it makes a profit. To determine the break-even point in units mathemat-
contribution per unit ically, we must consider fixed costs and the contribution per unit, which is the price less the
Equals the price less the variable cost per unit. We use the following formula to calculate the break-even point in units:
Fixed
costs
Break-even point (units) = __________________
variable cost per unit;
$100,000
In this case,
When the hotel has crossed that break-even point of 1,250 rooms, it will then
start earning profit at the same rate of the contribution per unit. So if the hotel rents
2,500 rooms—which is 1,250 rooms more than the break-even point—its profit will be
$100,000 (= 1,250 rooms × $80 contribution per unit). Bear in mind that hotels are limited
by the number of rooms they have to offer and the number of days in a year. So if this hotel
had 50 rooms, it would need a full house 25 days of the year.
Although a break-even analysis cannot actually help managers set prices, it does help
them assess their pricing strategies because it clarifies the conditions in which different
prices may make a product or service profitable. It becomes an even more powerful tool
when performed on a range of possible prices for comparative purposes. For example, the
hotel management could analyze various prices, not just $100, to determine how many
hotel rooms it would have to rent at what price to make a $200,000 profit.
Naturally, however, a break-even analysis has limitations. First, it is unlikely that a hotel has
one specific price that it charges for each and every room, so the price it would use in its break-
even analysis probably represents an average price that attempts to account for these variances.
Second, prices often get reduced as quantity increases because the costs decrease, so
firms must perform several break-even analyses at different quantities.
Third, a break-even analysis cannot indicate for sure how many rooms will be rented
or, in the case of products, how many units will sell at a given price. It tells the firm only
what its costs, revenues, and profitability will be given a set price and an assumed quantity.
To determine how many units the firm actually will sell, it must bring in the demand esti-
mates we discussed previously.
In a hotel, the cost of the physical structure, including the lobby, is fixed—it is incurred even if no rooms are rented. The
costs to clean towels and sheets are variable—the more rooms that are rented, the more the costs.
(left): Erik Isakson/Getty Image; (right): Eric Audras/Onoky/SuperStock
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 341
Competition
Four Levels of Competition: Can you match each photo to its respective type of competi-
tion? Because the fourth C, competition, has a profound impact on pricing strategies, we
use this section to focus on its effect, as well as on how competitors react to certain pric-
ing strategies. There are four levels of competition—monopoly, oligopoly, monopolistic
competition, and pure competition—and each has its own set of pricing challenges and
opportunities (see Exhibit 11.6).
Four Levels of Competition: Can you match each photo below to its respective type
of competition?
In a monopoly, only one firm provides the product or service in a particular industry, monopoly
and as such results in less price competition. For example, in the utilities industry, there Occurs when only one
firm provides the product
is only one provider of power in each region of the country—for example, Hydro One in or service in a particular
most of Ontario and SaskPower in Saskatchewan. Power companies operate more effi- industry.
ciently when there is one service provider, so the government regulates the pricing of util-
ity monopolies to prevent them from raising prices uncontrollably. Some near monopolies
include SiriusXM radio and Alphabet (parent company of Google). As the only satellite
radio option, SiriusXM has a monopoly-like position and can set prices as it sees fit.
However, it is in competition with music streaming sites such as Pandora and Spotify,
which keep prices in check. Alphabet has a near monopoly on search engines, controlling
92 percent of the market.14 Monopolies have had a long history in the United States, where
they are regulated and can be dismantled through antitrust laws to protect customers from
paying overly high prices for goods and services.15
Exhibit 11.6 Four Levels of Competition: Can you match each photo
to its respective type of competition?
Monopoly Oligopoly
One firm controls
Fewer
A handful of firms
the market control the market Firms
(clocks): milos luzanin/Alamy Stock Photo; (corn): Corbis RF; (plane): Ingram Publishing/SuperStock;
(power pylon): Steve Allen/Getty Images
342 Section FIVE Transacting Value
oligopoly When a market is an oligopoly, only a few firms dominate. Firms typically change
Occurs when only a few
firms dominate a market.
their prices in reaction to competition to avoid upsetting an otherwise stable competitive
environment. Often-cited examples of oligopolistic markets include the banking industry,
the retail gasoline industry, and commercial airline travel.
price war Sometimes reactions to prices in oligopolistic markets can result in a price war,
Occurs when two or more which occurs when two or more firms compete primarily by lowering their prices. Price
firms compete primarily by
lowering their prices. wars often appear in the airline industry when a low-cost provider enters a market in
which established carriers already exist. But what motivates firms to enter price wars?16 In
the airline example, the new entrants might want to gain market share, whereas the estab-
lished airlines drop their prices to preserve their market share. Other reasons include
avoiding the appearance of being insensitive to consumers and simply overreacting to a
price decrease offered by competitors. In many cases, companies do not need to respond to
price cuts with price cuts of their own17 because consumers do not buy solely on the basis
of price. Better service, higher quality, and brand loyalty might be used as competitive
strategies instead.
monopolistic competition Monopolistic competition occurs when many firms are competing for customers in a
Occurs when many firms given market but their products are differentiated. When so many firms compete, product dif-
sell closely related but not
homogeneous products; ferentiation rather than a strict pricing competition tends to appeal to consumers. This form
these products may be of competition is the most common. Hundreds of firms make sunglasses, and the market is
viewed as substitutes but
are not perfect substitutes.
highly differentiated. Ray-Ban offers its iconic, thick-rimmed, black Wayfarer-style sunglasses.
Oakley sells ones that are sporty, while Prada and Gucci focus on fashion and prestige.
pure competition With pure competition, consumers perceive a large number of sellers of standard-
Occurs when different ized products or commodities as substitutable, such as grains, spices, gold, or minerals. In
companies sell commodity
products that consumers such markets, price usually is set according to the laws of supply and demand. For example,
perceive as substitutable; wheat is wheat, so it does not matter to a commercial bakery whose wheat it buys. How-
price usually is set
according to the laws of
ever, the secret to pricing success in a pure competition market is not necessarily to offer
supply and demand. the lowest price because doing so might create a price war and erode profits. Instead, some
firms have brilliantly decommoditized their products. For example, coffee beans used to
be regarded as all the same, and then Juan Valdez and the Colombian Coffee Growers
Federation made their “100% Colombian Coffee” special, ensuring that coffee drinkers
now know the difference between those beans and everything else.
When a commodity can be differentiated somehow, even if simply by a sticker or logo,
there is an opportunity for consumers to identify it as distinct from the rest, and in this case,
firms can at least partially extricate their product from a pure-competitive market.
Channel Members
Channel members—manufacturers, wholesalers, and retailers—can have different per-
spectives when it comes to pricing strategies. Consider a manufacturer that is focused
on increasing the image and reputation of its brand but working with a retailer that is
The sunglasses market is characterized by monopolistic competition with hundreds of firms with differentiated products.
Ray-Ban’s Wayfarer sunglasses (left) are classic, Oakley’s sunglasses (middle) are sporty, and Gucci’s sunglasses (right)
are very, very fashionable.
(left): Dean Atkins/Alamy Stock Photo; (middle): Chris Wilson/Alamy Stock Photo; (right): Stefano Rellandini/Alamy Stock Photo
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 343
Coming up with the “right” price is never easy. If the Apple Watch had been priced at a low
point initially, how might it have affected future sales? Firms embrace different objectives,
face different market conditions, and operate in different ways; thus, they employ unique
pricing strategies that seem best for the particular set of circumstances in which they find
themselves. Even a single firm needs different strategies across its products and services
and over time as market conditions change. The choice of a pricing strategy is specific to
the product/service and target market. Although firms tend to rely on similar strategies
when they can, each product or service requires its own specific strategy because no two are
ever exactly the same in terms of the marketing mix. In this section, we discuss three dif-
ferent approaches to developing pricing strategies: cost-based methods, competitor-based
methods, and value-based methods.
and calculated on a per-unit basis. Moreover, the process assumes that these costs will not
vary much for different levels of production. If they do, the price might need to be raised or
lowered according to the production level. Thus, with cost-based pricing, prices are usually
set on the basis of estimates of average costs.
Competitor-Based Methods
Most firms know that consumers compare the prices of their products with the different
competitor-based pricing product/price combinations competitors offer. Thus, using a competitor-based pricing
method
method, they may set their prices to reflect the way they want consumers to interpret
An approach that attempts
to reflect how the firm their own prices relative to the competitors’ offerings. Setting prices at the same level as or
wants consumers to very close to a competitor’s price signals to consumers that the product is similar, whereas
interpret its products
relative to the competitors’
setting prices much higher signals greater features, better quality, or some other valued
offerings. benefit. When McDonald’s offers free coffee promotions, it forces rivals such as Tim
Hortons® to reduce prices and accept lower profits. This was a strategic price promotion
for McDonald’s, since it helped double its market share to 11.5 percent of the out-of-home
coffee market.19 Gillette slashed prices in an effort to stave off defections to low-priced
online rivals such as Dollar Shave Club and Harry’s. P&G and other consumer packaged
goods companies cut prices for years in a bid to stoke demand; however, most have since
switched course, raising prices and boosting profits.20
Value-Based Methods
value-based pricing A value-based pricing method is an approach to setting prices that focuses on the overall
method value of the product offering as perceived by the consumer. Consumers determine value
Focuses on the overall
value of the product by comparing the benefits they expect the product to deliver with the sacrifice they will
offering as perceived by need to make to acquire the product. Of course, different consumers perceive value differ-
consumers, who determine
value by comparing the
ently. When Vancouver band Wintermitts went on tour, it offered CDs for sale at $10. In an
benefits they expect the attempt to encourage fans to access the band’s music digitally, download cards were priced
product to deliver with the at $5. To band members’ surprise, they sold out of CDs and sold only half as many down-
sacrifice they will need
to make to acquire the load cards as expected.21 Customers who purchased cannabis on the first day it was legally
product. available, were not price sensitive. It was a function of novelty perhaps; however, over
95 percent of consumers purchasing products were unfamiliar with the brands.22 Associat-
ing value with cannabis will be challenging in light of marketing restrictions on packaging
and advertising. Adding to the challenge will be the availability of cheaper black-market
products. Value is definitely subjective. As noted in Sustainable Marketing 11.1, many con-
sumers want companies to reduce plastic packaging; however, not everyone places a high
enough value on this desire to warrant paying higher prices. So how does a manager use
value-based pricing methods? We consider two key approaches.
In Pursuit of Plastic-Free
Packaging†††
Plastic packaging has become a dilemma for food
manufacturers. At the heart of this issue is cost. Plastic
is considerably cheaper than environmentally friendly
alternatives. The issue is compounded by the increase in
popularity of single-serve sizes, ready-to-eat foods, and
portable packaging, all of which require more packaging,
resulting in yet more plastic waste.
Research conducted by Dalhousie University repor
ted that while 93.1 percent of Canadians want less plastic
in their lives, only 23.2 percent are willing to pay more
for food packaging that is reusable. In a separate study,
Nanos Research found that 56 percent of Canadians
are in favour of an outright ban on single-use plastics. In
spite of this, fewer than one third of the people polled Consumers can get President’s Choice Decadent Chocolate
said they would be willing to pay even 5 percent more for Chip Cookies in a reusable metal container through the Loop
alternative packaging, and 25 percent of those surveyed program.
indicated they would not pay any extra. So, while many Source: Loblaw Companies Limited
people believe that a ban on plastics must be part of the
pollution solution, they are not yet ready to pay for the of people in Quebec, Ontario, and the Atlantic provinces
solution. also favour a ban. TerraCycle’s Loop program offers a
In an effort to reduce plastic pollution, the federal solution by packaging food in durable, reusable con
government is considering banning some plastic prod- tainers. As the largest food retailer in Canada, Loblaw
ucts, for example, bags, straws, and cutlery. The plastics has the necessary sales volume to support such an ini-
industry is expected to push back. Already the Canadian tiative and announced plans to pilot Loop’s program in
Plastic Bag Association has challenged bans in some cit- Toronto in 2020. Consumers will order select products
ies. It met with success in Victoria, where the city council online for delivery or pickup at Click and Collect stores.
had previously voted to ban plastic bags. A ruling by the Empty containers will be collected, cleaned, and refilled
B.C. Court of Appeal stated that the ban was beyond the for reuse. Costs for consumers are unknown at this point;
city’s jurisdiction. however, Loop usually charges an initial deposit on the
In Canada, 65 percent of residents in British Colum- containers. It remains to be seen if the same consumers
bia support a total ban on single-use plastic. The majority who expressed a desire for plastic-free packaging will
put their money where their mouths are.
†††Megan Devlin, “Ontario’s plan to transfer recycling costs to companies could raise prices for consumers, experts say,” The Globe and Mail, June 10,
2019, www.theglobeandmail.com/business/article-opinion-split-on-ontarios-plan-to-pass-recycling-costs-from/; Janice Dickson, “Majority of
Canadians support a ban on single-use plastics: poll,” The Globe and Mail, July 15, 2019, www.theglobeandmail.com/politics/article-majority-of-
canadians-support-a-ban-on-single-use-plastics-poll/; Sylvain Charlebois and Tony Walker, “Canadians want less plastic. But will they pay the price?,”
The Globe and Mail, June 11, 2019, www.theglobeandmail.com/opinion/article-industry-initiatives-to-limit-plastics-will-only-work-with-consumer; “Loblaw
joins Loop to bring reusable packaging program to Canada,” Canadian Grocer, June 6, 2019, www.canadiangrocer.com/top-stories/loblaw-joins-loop-
to-bring-reusable-packaging-program-to-canada-87730 (accessed July 15, 2019).
Pricing Strategies
Understanding the psychology underlying the way consumers arrive at their perceptions,
make judgments, and finally invoke a choice is critical to effective pricing strategies, so
marketers must examine some of the more important psychological processes that influ-
ence consumers’ reactions to and use of price. When consumers see a price, they place it in
a category, such as “expensive,” “a deal,” “cheap,” “overpriced,” or “fair.”
In this section, we discuss a number of commonly used pricing strategies—including
everyday low pricing (EDLP), high/low pricing, and new product pricing.
high/low pricing
A pricing strategy that
High/Low Pricing
relies on the promotion of Alternatively, some retailers prefer a high/low pricing strategy, which relies on the pro-
sales, during which prices
are temporarily reduced to motion of sales, during which prices are temporarily reduced to encourage purchases. In
encourage purchases. the end, which consumers prefer which strategy depends on how those consumers evaluate
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 347
prices and quality. Some prefer not to expend the time to find the lowest price and favour
EDLP as an efficient way to get low prices. Alternatively, other consumers may relish the
challenge of getting the lowest price or be so price sensitive that they are willing to expend
the time and effort to seek out the lowest price every time.
Price Skimming
In many markets, and particularly for new and innovative products or services, innova-
tors and early adopters (see Chapter 8) are willing to pay a higher price to obtain the new
product or service. This strategy, known as price skimming, appeals to these segments price skimming
of consumers who are willing to pay the premium price to have the innovation first. This A strategy of selling a new
product or service at a high
tactic is particularly common in technology markets, where sellers know that fans will wait price that innovators and
in line for hours, desperate to be among the first to own the newest version. These innova- early adopters are willing
tors are willing to pay top dollar to get the new product and its exciting enhancements. to pay to obtain it; after the
high-price market segment
After this high-price market segment becomes saturated and sales begin to slow down, becomes saturated and
companies generally lower the price to capture (or skim) the next most price-sensitive sales begin to slow down,
the firm generally lowers
market segment, which is willing to pay a somewhat lower price. For example, when the the price to capture (or
Apple Watch was first released, the most affordable option, the Apple Watch Sport, started skim) the next most price-
at $349.26 Although consumers were slow to embrace the new and expensive technology, sensitive segment.
enough early adopters purchased them that wearable technology has penetrated wider tar-
get markets, and sales for such technologies continue to grow. The Apple Watch now starts
at $279, while competitors’ smartwatches start at just $149.27 This process can continue
until the demand for the product has been satisfied, even at the lowest price points. Luxury
products are often an exception. For example, Louis Vuitton does not lower the price of its
bags, but rather keeps prices high to support its prestige image.
For price skimming to work, the product or service
must be perceived as breaking new ground in some way,
offering consumers new benefits currently unavailable in
alternative products. Firms use skimming strategies for
a variety of reasons. Some may start by pricing relatively
high to signal high quality to the market. Others may
decide to price high at first to limit demand, which gives
them time to build their production capacities. Similarly,
some firms employ a skimming strategy to try to quickly
earn back some of the high R&D investments they made
for the new product. Finally, firms employ skimming
strategies to test consumers’ price sensitivity. A firm that
prices too high can always lower the price; but, if the price
is initially set too low, it is almost impossible to raise it Apple uses a price skimming strategy. The Apple Watch
Sport (left) started at $349, but now sells for $279, which
without significant consumer resistance.
is still higher than competitors like Misfit (right) that start
For a skimming pricing strategy to be successful, com- at just $149.
petitors cannot be able to enter the market easily; other- (left): Shutterstock/Alexey Boldin/; (right): ©Olly Curtis/MacFormat
wise, price competition will likely force lower prices and Magazine via Getty Image
348 Section FIVE Transacting Value
undermine the whole strategy. Competitors might be prevented from entering the market
through patent protections, their inability to copy the innovation (because it is complex to
manufacture, its raw materials are hard to get, or the product relies on proprietary technol-
ogy), or the high costs of entry.
Skimming strategies also face a significant potential drawback in the relatively
high unit costs often associated with producing small volumes of products. Therefore,
firms must consider the trade-off between earning a higher price and suffering higher
production costs. Price skimming also can cause discontent for consumers. Those who
pay a higher price to purchase the latest Apple Watch may feel cheated if the prices
drop quickly.
Tactic
Price lining Establishing a price floor and a price ceiling for an entire line of similar products and then
setting price points in between to represent distinct differences in quality.
Price bundling Pricing of more than one product for a single, lower price.
Leader pricing Building store traffic by aggressively pricing and advertising a regularly purchased item,
often priced at or just above the store’s cost.
Price Lining
When marketers establish a price floor and a price ceiling for an entire line of similar prod-
ucts and then set a few other price points in between to represent distinct differences in
quality, the tactic is called price lining. price lining
Consider the specific price lines used by Moores Clothing for Men. The firm prices its Consumer market pricing
tactic of establishing a
sports jackets at different price points. For example, its house brand, Joseph & Feiss, sells price floor and a price
for around $119. Move up to a middle-range price point, and you can buy an Alfred Sung ceiling for an entire line
of similar products and
jacket for between $159 and $199. At the top end of the line, you can find a pure wool then setting a few other
Pronto Uomo sports jacket for $229. price points in between
While it may be difficult to determine which is the better jacket, having options at dif- to represent distinct
differences in quality.
ferent price points means Moores can satisfy a range of tastes and budgets.
Price Bundling
If your parents changed their high-speed Internet connection, did they also get cable TV
and telephone? If so, they probably paid less than if they got the three services separately.
This practice of selling more than one product for a single, lower price is called price price bundling
bundling. Firms bundle products together to encourage customers to stock up so they Consumer pricing tactic
of selling more than one
won’t purchase competing brands, to encourage trial of a new product, or to provide an product for a single,
incentive to purchase a less desirable product or service to obtain a more desirable one lower price than the
items would cost sold
in the same bundle. Some landlords use price bundling in apartments and include separately; can be used
Internet services in the monthly rent. It can result in a lower overall price, which helps to sell slow-moving items,
attract tenants. to encourage customers
to stock up so they won’t
purchase competing
brands, to encourage trial
Leader Pricing of a new product, or to
provide an incentive to
Leader pricing is a tactic that attempts to build store traffic by aggressively pricing and
purchase a less desirable
advertising a regularly purchased item, often priced at or just above the store’s cost. The product or service to
rationale behind this tactic is that, while in the store to get the great deal on, say, milk, obtain a more desirable
one in the same bundle.
the consumer will also probably pick up other items he or she needs. The store has priced
these items at higher profit margins, so their purchase will more than cover the lower leader pricing
Consumer pricing tactic
markup on the milk. Imagine the marketing potential of various combinations of prod- that attempts to build store
ucts; the store uses leader pricing on cocktail sauce, which gives employees the perfect traffic by aggressively
opportunity to ask, “How about a pound of fresh shrimp to go with the cocktail sauce pricing and advertising a
regularly purchased item,
you’re purchasing?” often priced at or just
above the store’s cost.
Markdowns
Markdowns are the reductions retailers take on the
initial selling price of the product or service.28 An
integral component of the high/low pricing strategy
we described previously, markdowns enable retailers
to get rid of slow-moving or obsolete merchandise,
sell seasonal items after the appropriate season, and
match competitors’ prices on specific merchandise.
Retailers must get rid of merchandise that isn’t
selling because holding on to such items hurts the
retailer’s image and ties up money in inventory that
Customers get a size discount for buying larger sizes. With
could be used more productively elsewhere.
Cheerios, the larger the box, the less it costs per gram.
Retailers also use markdowns to promote
©Michael J. Hruby
merchandise and increase sales. Particularly when
markdowns
used in conjunction with promotions, markdowns
Reductions retailers take can increase traffic into the store, which many retailers view as half the battle. Once
on the initial selling price of customers are in the store, retailers always hope they will purchase other products at
the product or service.
regular prices.
size discount
The most common
implementation of a Quantity Discounts for Consumers
quantity discount at the We have already discussed how firms use quantity discounts in the B2B marketplace, but
consumer level; the larger
the quantity bought, the the most common implementation of a quantity discount at the consumer level is the size
less the cost per unit (e.g., discount. For example, there are three sizes of General Mills’ popular cereal Cheerios:
per gram).
425 gram, 575 gram, and 1.5-kilogram boxes, priced at approximately $4.19, $4.49, and
coupon $6.89, respectively. The larger the quantity, the lower the cost per gram, which means the
Provides a stated discount
to consumers on the final manufacturer is providing a quantity discount. Most grocery stores now post the price per
selling price of a specific 100 grams on the shelves so consumers can easily compare value for money. The goal of
item; the retailer handles this tactic is to encourage consumers to purchase larger quantities each time they buy. In
the discount.
turn, these consumers are less likely to switch brands and often tend to consume more
rebate of the product, depending on the product usage characteristics. Typically, buying a larger
A consumer discount in
which a portion of the package of toilet tissue does not mean consumers will use it faster, but buying a larger box
purchase price is returned of cereal may encourage them to eat more of it or to eat it more often.29
to the buyer in cash; the
manufacturer, not the
retailer, issues the refund.
Coupons and Rebates
Coupons and rebates both provide discounts to consum-
ers on the final selling price. However, for the coupon,
the retailer handles the discount, whereas the manufac-
turer issues the refund in the case of the rebate, which is
defined as a portion of the purchase price returned to the
buyer in the form of cash.
The goal of coupons is to prompt consumers to try
a product, reward loyal customers, or encourage repur-
chases. By saving the consumer money, firms add value
to their products. Whereas a coupon provides instant sav-
ings when presented, a rebate promises savings, usually
mailed to the consumer at some later date. The “hassle
factor” for rebates is higher than for coupons; the con-
sumer must first buy the item during a specified time
Coupons offer a discount on the price of specific items period, then mail in the required documentation—which
when they’re purchased. usually includes the original sales receipt—and finally
Karen Bleier/AFP via Getty Images wait four to six weeks (or more!) for a cheque to arrive.
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 351
Although consumers may believe this process adds value when the potential rebate is
$50, they might question whether a rebate for a couple of dollars is worth their time and
effort. From the marketer’s viewpoint, however, rebates offer greater control than cou-
pons and provide valuable customer information. Coupons and rebates are considered
to be sales promotion tools as well as pricing tactics, so you’ll read more about them in
Chapter 15.
Seasonal Discounts
A seasonal discount is an additional reduction offered as an incentive to retailers to order seasonal discount
merchandise in advance of the normal buying season. For instance, Lennox may offer Pricing tactic of offering
an additional reduction as
its air-conditioning dealers an additional seasonal discount if they place their orders and an incentive to retailers
receive delivery before April 1, prior to the warm months when air-conditioner sales are to order merchandise in
advance of the normal
highest. If it can ship earlier in the season, Lennox can plan its production schedules more buying season.
easily and lessen its finished goods inventory. Its dealers, however, must weigh the benefits
of a larger profit because of the discount versus the extra cost of carrying the inventory for
a longer period of time.
Cash Discounts
A cash discount reduces the invoice cost if the buyer pays the invoice prior to the end of cash discount
the discount period. Typically, it is expressed in the form of a percentage, such as “3/10, Tactic of offering a
reduction in the invoice
n/30,” or “3 percent, 10 days, net 30,” all of which means the buyer can take a 3-percent cost if the buyer pays the
discount on the total amount of the invoice if the bill is paid within 10 days of the invoice invoice prior to the end of
the discount period.
date; otherwise, the full, or net, amount is due within 30 days. Why do B2B sellers offer
cash discounts to customers? By encouraging early payment, they benefit from the time
value of money. Getting money earlier rather than later enables the firm to either invest the
money to earn a return on it or to avoid borrowing money and paying interest on it. In both
instances, the firm is better off financially.
Tactic
Seasonal discounts An additional reduction offered as an incentive to retailers to order merchandise in advance
of the normal buying season.
Cash discounts An additional reduction that reduces the invoice cost if the buyer pays the invoice prior to
the end of the discount period.
Allowances Advertising or listing allowances (additional price reductions) offered in return for specific
behaviours. Advertising allowances are offered to retailers if they agree to feature the
manufacturer’s product in their advertising and promotional efforts. Listing allowances are
offered to get new products into stores or to gain more or better shelf space.
Quantity discounts Providing a reduced price according to the amount purchased.
Uniform delivered With uniform delivered pricing, the shipper charges one rate, no matter where the buyer
versus geographic is located. With geographic pricing, different prices are charged depending on the
pricing geographical delivery area.
352 Section FIVE Transacting Value
Allowances
Another pricing tactic that lowers the final cost to channel members is allowances, such as
advertising allowance advertising or listing allowances, offered in return for specific behaviours. An advertising
Tactic of offering a price allowance offers a price reduction to channel members if they agree to feature the manu-
reduction to channel
members if they agree to facturer’s product in their advertising and promotional efforts. Listing allowances are
feature the manufacturer’s fees paid to retailers simply to get new products into stores or to gain more or better shelf
product in their advertising
space for their products. Some argue that listing allowances are unethical because they put
and promotional efforts.
small manufacturers that cannot readily afford allowances at a competitive disadvantage.
listing allowances
Demanding large listing allowances could be considered a form of bribery—that is, paying
Fees paid to retailers
simply to get new products off the retailer to get preferential treatment.
into stores or to gain more
or better shelf space for
their products.
Quantity Discounts
quantity discount A quantity discount provides a reduced price according to the amount purchased.
Pricing tactic of offering a The more the buyer purchases, the higher the discount and, of course, the greater
reduced price according to
the amount purchased; the the value.
more the buyer purchases, A cumulative quantity discount uses the amount purchased over a specified time
the higher the discount
and, of course, the greater
period and usually involves several transactions. This type of discount encourages resellers
the value. to maintain their current supplier because the cost to switch must include the loss of the
cumulative quantity discount. For example, automobile dealers often attempt to meet a quota or a sales goal for
discount a specific period, such as a quarter or a year. If they meet their quotas, they earn discounts
Pricing tactic that offers on all the cars they purchased from the manufacturer during that period in the form of a
a discount based on the
amount purchased over rebate cheque. For this very reason, you will often find good deals on cars at the end of
a specified period and a quarter or fiscal year. If the dealership can just sell a few more cars to meet its quota,
usually involves several
the rebate earned can be substantial, so taking a few hundred dollars less on those last
transactions.
few cars is well worth the opportunity to receive a rebate worth many times the amount of
the losses.
noncumulative quantity A noncumulative quantity discount, though still a quantity discount, is based only
discount on the amount purchased in a single order. Therefore, it provides the buyer with an incen-
Pricing tactic that offers
a discount based on only tive to purchase more merchandise immediately. Such larger, less frequent orders can save
the amount purchased in a manufacturers order processing, sales, and transportation expenses. For example, a jeans
single order.
store might get a 40-percent discount off the manufacturer’s suggested retail price for plac-
ing a $500 order; a 50-percent discount for an order of $501 to $4,999; and a 60-percent
discount for an order greater than $5,000.
Prices tend to fluctuate naturally and respond to varying market conditions. Though we
rarely see firms attempting to control the market in terms of product quality or advertising,
they often engage in pricing practices that can unfairly reduce competition or harm con-
sumers directly through fraud and deception. A host of laws and regulations at the federal,
provincial, and municipal levels attempt to prevent unfair pricing practices, but some are
poorly enforced, and others are difficult to prove.
Price Discrimination
There are many forms of price discrimination, but only some of them are considered
illegal under the Competition Act. When firms sell the same product to different resell-
price discrimination ers (wholesalers, distributors, or retailers) at different prices, it can be considered price
The practice of selling the discrimination; usually, larger firms receive lower prices.
same product to different We have already discussed the use of quantity discounts, which is a legitimate method of
resellers (wholesalers,
distributors, or retailers) or charging different prices to different customers on the basis of the quantity they purchase. The
to the ultimate consumer legality of this tactic stems from the assumption that it costs less to sell and service 1,000 units
at different prices; some,
but not all, forms of price to one customer than 100 units to 10 customers. But quantity discounts must be available to
discrimination are illegal. all customers and not be structured in such a way that they consistently and obviously favour
one or a few buyers over others. Still, some marketers have found ways to get around these
rules, for example, by offering “preferred member” pricing. The Competition Act requires
companies to demonstrate only that their price discounts do not restrict competition. While
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 355
quantity discounts may be a grey area, it is perfectly legitimate to charge a different price to
a reseller if the firm is attempting to meet a specific competitor’s price. In addition, a barter
agreement, in which buyers and sellers negotiate a mutually agreed upon price, is common-
place and absolutely legal in retail settings such as car sales and collectibles markets.
Price Fixing
Price fixing is the practice of colluding with other firms to control prices. The former price fixing
head of Nestlé Canada and two other executives were criminally charged with price fixing The practice of colluding
with other firms to control
after a six-year investigation by the Competition Bureau. Charges were also laid against prices.
Cadbury Adams Canada, Mars Canada, and Hershey Canada for colluding with Nestlé to
horizontal price fixing
raise prices of chocolate products. Penalties for price fixing include fines of up to $25 million Occurs when competitors
and up to 14 years in prison.33 The four companies denied the allegations yet agreed to pay that produce and sell
competing products
$23.2 million to settle the lawsuit.34
collude, or work together,
This particular case of price fixing is especially interesting because it includes both to control prices,
horizontal and vertical price fixing. Horizontal price fixing occurs when competitors that effectively taking price out
of the decision process for
produce and sell competing products collude, or work together, to control prices, effectively consumers.
taking price out of the decision process for consumers. This practice clearly reduces com-
vertical price fixing
petition and is illegal. The major tobacco companies also have been accused of colluding Occurs when parties at
to fix the prices of cigarettes worldwide.35 As a general rule of thumb, competing firms different levels of the
should refrain from discussing prices or terms and conditions of sale with competitors. If same marketing channel
(e.g., manufacturers and
firms want to know competitors’ prices, they can look at a competitor’s advertisements, its retailers) collude to control
websites, or its stores. the prices passed on to
consumers.
Vertical price fixing occurs when parties at different levels of the same market-
ing channel (e.g., manufacturers and retailers) collude to control the prices passed on manufacturer’s
suggested retail price
to consumers. Manufacturers often encourage retailers to sell their merchandise at a (MSRP)
specific price, known as the manufacturer’s suggested retail price (MSRP). Manu- Manufacturers encourage
facturers set MSRPs to reduce retail price competition among retailers, stimulate retail- retailers to sell their
merchandise at a specific
ers to provide complementary services, and support the manufacturer’s merchandise. price.
Manufacturers enforce MSRPs by withholding benefits such as cooperative advertising
or even refusing to deliver merchandise to noncomplying retailers. As you will read
in Ethical & Societal Dilemma 11.1, Canada’s Competition Bureau is investigating
seven companies for allegations of bread price fixing.
As these legal issues clearly demonstrate, pricing
decisions involve many ethical considerations. In deter-
mining both their pricing strategies and their pricing tac-
tics, marketers must always balance their goal of inducing
customers (through price) to find value, and their need
to deal honestly and fairly with those same customers.
Whether another business or an individual consumer, Mars, maker of Snickers, and its competitor, Nestlé, were
buyers can be influenced by a variety of pricing methods; accused of collaborating with independent wholesalers to
it is up to marketers to determine which of these methods bump up the prices of their chocolates to a fixed level.
works best for the seller, the buyer, and the community. ©McGraw Hill/Mark Dierker, photographer
356 Section FIVE Transacting Value
Bread Price-Fixing Scheme Costs The penalties for price fixing are up to $25 million in
fines and jail time of up to 14 years, or both. So you might
Consumers‡‡‡ wonder what the outcome was in this case. Because
Loblaw voluntarily divulged its part in the wrongdoing,
George Weston Ltd. owns Weston Bread, along with and cooperated with the Competition Bureau’s investiga-
Loblaw and other grocery stores. In March 2015, the com- tion, it avoided any criminal charges or fines. As a good-
pany admitted to Canada’s Competition Bureau that it will gesture, it offered affected consumers a $25 gift card.
had participated in a 14-year price-fixing scheme to raise Not all consumers were easily able to determine which
the price of bread. Weston Bakeries, which is owned by products were purchased, let alone how much extra
Loblaw, and Canada Bread control about 80 percent they might have paid over the 14 year period. Since most
of the bread market in Canada. Loblaw named Canada households spend hundreds of dollars a year on bread
Bread, Sobeys, Metro, and others as co-conspirators in products, critics accused Loblaw of using the gift card as
the scheme. The CEOs of Sobeys and Metro publicly a marketing tool to placate consumers.
denied violating the Competition Act. In 14 years, bread And while the Competition Bureau obtained warrants
prices were raised 15 times at an average of cost of to search offices of some grocers, the bread price-fixing
10 cents per loaf. That amounted to the cost of bread investigation ended with no conclusion of wrongdoing
going up by 117%, more than double the rate of the con- and no charges were laid.
sumer price index for such products.
‡‡‡Marina Strauss, “Bread price-fixing scandal reveals rift between Canada’s big grocers,” The Globe and Mail, February 1, 2018, www.theglobeandmail.
com/report-on-business/bread-price-fixing-scandal-reveals-rift-between-canadas-big-grocers/article37826902; “Bread price-fixing: Investigation
into at least 7 companies,” CBC, December 21, 2017, www.cbc.ca/radio/thecurrent/the-current-for-december-21-2017-1.4458465/bread-price-fixing-
investigation-into-at-least-7-companies-1.4458469; “Loblaw parent company alerted competition watchdog to bread price-fixing,” Canadian Press,
December 19, 2017, www.cbc.ca/news/business/weston-loblaw-bread-price-fixing-1.4457061; Jeff Gray, “Chocolate Bar Price-Fixing Case Against Mars
Dropped by Prosecutors,” The Globe and Mail, September 10, 2015, www.theglobeandmail.com/report-on-business/industry-news/the-law-page/
chocolate-price-fixing-charges-dropped-against-mars-others/article26308396/ (accessed August 5, 2019).
to move more volume and so reduce the price, hence prices to infer a price–quality relationship. Marketers
the possibility for conflict. Also, manufacturers may give often use price skimming or penetration pricing when
discounts to channel members, which may influence the they introduce new products in the marketplace based on
price the ultimate consumer pays. the nature of the product and their marketing goals; for
example, whether they want to gain market share, show
LO3 nderstand the considerations for setting
U price leadership, or signal innovation.
prices; three pricing methods (e.g., cost-
based methods, competitor-based methods, LO4 Identify pricing tactics targeted to channel
and value-based methods); and various members and consumers
strategies (e.g., EDLP, high/low, and new
product pricing) used in marketing Pricing tactics focus more on the short-term aspects of
the five Cs of pricing. Companies may use a wide vari-
The various methods of setting prices have their own ety of pricing tactics from two categories: (1) pricing tac-
sets of advantages and disadvantages. The fixed per- tics aimed at consumers, and (2) business-to-business
centage and markup approaches are quick and easy but pricing tactics and discounts. Pricing tactics aimed at
fail to reflect the competitive environment or consumer consumers include price lining, price bundling, leader
demand. Although it is always advisable to be aware of pricing, markdowns, quantity discounts, and coupons and
what competitors are doing, using competitor-based rebates. B2B pricing tactics and discounts usually include
pricing should not occur in isolation without considering seasonal discounts, cash discounts, allowances, quantity
consumers’ reactions. Taking a value-based approach to discounts, and uniform delivered or geographic pricing.
pricing, whether the improvement value or the total cost
of ownership, in conjunction with these other methods LO5 ummarize the legal and ethical issues
S
provides a nicely balanced method of setting prices. involved in pricing
Companies tend to use different pricing strategies for
different products or different markets. Pricing strategies There are almost as many ways to get into trouble by set-
are a long-term approach to pricing products. The vari- ting or changing a price as there are pricing strategies
ous pricing methods can be grouped into three broad cat- and tactics. Three of the most common legal issues per-
egories: cost-based, competitor-based, and value-based. tain to advertising deceptive prices. (1) Deceptive refer-
Cost-based methods are based on the firm ascertaining ence prices: If a firm compares a reduced price with a
the cost of producing and marketing the product, and “regular” or reference price, it must actually have sold
then adding some markup for profit. Competitor-based that product or service at the regular price. (2) Loss leader
pricing is based on a firm understanding what competitors pricing: Advertising the sale of products priced below the
are doing and reacting accordingly. Firms may choose to retailer’s cost constitutes an unfair competitive practice.
set prices below, at, or above competitors’ prices. Value- (3) Bait and switch advertising constitutes an unfair com-
based pricing is based on a firm understanding consum- petitive practice. Predatory pricing, or setting a very low
ers’ perceptions of value as reflected in the price of the price in order to drive the competition out of business, is
product (e.g., cheap, expensive, bargain). Consumers’ illegal. Charging different prices to different customers is
assessments of value may be influenced by their refer- sometimes, but not always, illegal, whereas any collusion
ence prices of similar products or may use marketers’ among firms to fix prices is always illegal.
Key Terms
■■ advertising allowance ■■ demand curve ■■ manufacturer’s suggested retail
■■ bait and switch ■■ elastic price (MSRP)
■■ break-even point ■■ everyday low pricing (EDLP) ■■ markdowns
■■ cash discount ■■ experience curve effect ■■ market penetration pricing
■■ competitive parity ■■ fixed costs ■■ maximizing profits strategy
■■ competitor-based pricing method ■■ geographic pricing ■■ monopolistic competition
■■ competitor orientation ■■ grey market ■■ monopoly
■■ complementary products ■■ high/low pricing ■■ noncumulative quantity discount
■■ contribution per unit ■■ horizontal price fixing ■■ oligopoly
■■ cost-based pricing method ■■ improvement value ■■ predatory pricing
■■ cost of ownership method ■■ income effect ■■ prestige products or services
■■ coupon ■■ inelastic ■■ price bundling
■■ cross-price elasticity ■■ leader pricing ■■ price discrimination
■■ cumulative quantity discount ■■ listing allowances ■■ price elasticity of demand
■■ customer orientation ■■ loss leader pricing ■■ price fixing
358 Section FIVE Transacting Value
concept review
1. Explain the importance of pricing in the marketing mix 6. How has the Internet changed the way some people
from the perspective of the firm and the consumer. use price to make purchasing decisions?
2. List the five Cs of pricing. Which one do you consider 7. What is the major difference between pricing stra
to be the most important and why? tegies and pricing tactics? Give three examples of each.
3. Explain how companies try to determine consumers’ 8. Explain how psychological factors may influence a
sensitivity to price changes. What factors influence firm’s pricing strategy.
their price sensitivity?
9. In what conditions should a price skimming strategy
4. Why is it important for firms to determine costs when be used? When is it appropriate to use a market pen-
setting prices? etration strategy?
5. Why does a company need to understand a product’s 10. Explain the four types of illegal or unethical pricing
break-even point? practices.
Marketing Applications
1. You and your two roommates are starting a pet a new battery that uses zinc-air technology. The unit
grooming service to help put yourself through univer- costs for the zinc-air battery are as follows: battery
sity. There are two other well-established pet services housing, $8; materials, $6; and direct labour, $6 per
in your area. Should you set your price higher or lower unit. Retooling the existing factory facilities to manu-
than that of the competition? Justify your answer. facture the zinc-air batteries amounts to an additional
$1 million in equipment costs. Annual fixed costs
2. One roommate believes the most important objective
include sales, marketing, and advertising expenses
in setting prices for the new pet grooming business
of $1 million; general and administrative expenses of
is to generate a large profit, while keeping an eye on
$1 million; and other fixed costs totalling $2 million.
your competitors’ prices; the other roommate believes
it is important to maximize sales and set prices accord- a. What is the total per-unit variable cost associated
ing to what your customers expect to pay. Who is right with the new battery?
and why?
b. What are the total fixed costs for the new battery?
3. Assume you have decided to buy an advertisement in
the local newspaper to publicize your new pet grooming c. If the price for the new battery was set at $35, what
service. The cost of the ad is $1000. You have decided would the break-even point be?
to charge $40 for a dog grooming, and you want to 6. How do pricing strategies vary across markets that are
make $20 on each dog. How many dogs do you have to characterized by monopoly, oligopoly, monopolistic
groom to break even on the cost of the ad? What is your competition, and pure competition?
break-even point if you charge $50 per dog?
7. Many firms operating over the Internet have been
4. On your weekly grocery shopping trip, you notice that experimenting with charging different consumers
the price of ground beef has gone up 50 cents a kilo- different prices for the same product or service; this
gram. How will this price increase affect the demand practice is legal. Since stores in different parts of the
for ground beef, ground turkey, and hamburger buns? country might have different prices, some websites
Explain your answer in terms of the price elasticity of require postal code information before providing
demand. prices. Why would retailers charge different prices
5. Zinc Energy Resources Co., a new division of a major in different markets or postal codes? Is it ethical for
battery manufacturing company, recently patented retailers to do so? Is it a good business practice?
Pricing Concepts and Strategies: Establishing Value CHAPTER 11 359
8. As the product manager for Whirlpool’s line of washing and who is harmed from such a grey market transac-
machines, you are in charge of pricing new products. tion: you, Samsung, Best Buy, and the local store.
Your product team has developed a revolutionary new
10. Imagine that you are the newly hired brand manager
washing machine that relies on radically new technol-
for a restaurant that is about to open. Both the local
ogy and requires very little water to get clothes clean.
newspaper and a gourmet food magazine recently ran
This technology will likely be difficult for your competi-
articles about your new head chef, calling her one of
tion to copy. Should you adopt a skimming or a pen-
the best young chefs in the country. In response to
etration pricing strategy? Justify your answer.
these positive reviews, the company wants to position
9. Suppose you are in the market for a new Samsung 4K its brand as a premium, gourmet restaurant. Your boss
television. You see one advertised at a locally owned asks what price you should charge for the chef’s sig-
store for $300 less than it costs at Best Buy. The sales- nature filet mignon dish. Other restaurants in the area
person at the local store tells you that the television charge around $40 for their own filet offerings. What
came from another retailer in another province that steps might you take to determine what the new price
had too many units of that model. Explain who benefits should be?
Marketing Digitally
1. Several different pricing models can be found on the 2. Prices can vary depending on the market being served.
Internet. Each model appeals to different customer Because Dell sells its computers directly to consumers
groups. Go to www.ebay.com and try to buy this book. all around the world, the Dell website makes it easy to
What pricing options and prices are available? Do you compare prices for various markets. Go to www.dell.
believe that everyone will choose the least expensive com. Begin on the Dell Canada site and determine the
option? Why or why not? Now go to www.amazon.ca. price of a 3000 Series All-in-One desktop computer.
Is there more than one price available for this book? Next, go to the Dell U.K. website and another country
If so, what are those prices? If you had to buy another of your choice to find the price of the same computer.
copy of this book, where would you buy it, and why (If you need to convert currency, go to www.xe.com.)
would you buy it there? How does the price of the desktop computer vary?
What would account for these differences in price?
from its advertising that they can expect a non-intimidating workout environment, or as Planet
Fitness promises, “No gymtimidation. No lunks. Just $10 a month.”39 With its foundation in the
idea that simple is better,40 Planet Fitness has become the fastest-growing full-sized fitness
club in the United States.
For those who want a little more, Planet Fitness also offers a premium PF BlackCard
membership for $21.99 a month, which promises access to nearly all the clubs in the Planet
Fitness chain, unlimited guest privileges, use of tanning and massage chairs, and half-priced
drinks.41
In addition to these in-club benefits, Planet Fitness’s growth has been reinforced by its
effective location strategy and marketing efforts that focus on attracting new customers. The
low-cost monthly membership makes it easy to draw new members. Because most members
come in only a couple of times each week, Planet Fitness also enjoys operating efficiencies
and economies of scale, achieved by welcoming a high volume of members on any one
day.42 Helping its expansion efforts is access to space abandoned by brick-and-mortar retail-
ers. It will open 225 new locations this year and at least some will be in vacant Toys R Us and
Sears sites.43
Planet Fitness treats customers like real people. What kind of fitness club offers members
pizza on the first Monday of every month, bagels on the first Tuesday, and Tootsie Rolls on
a regular basis?44 It even launched a ‘Teen Summer Challenge” that invited Canadian teens
ages 15 to 18 to work out at no charge. This is the kind of gym that has over 1,800 loca-
tions,45 attracts more than 12.5 million members, and has system-wide sales approaching
$600 million.46
Questions
1. What benefits do customers receive in return for the sacrifice they make when buying a
membership at Planet Fitness?
2. How does this benefit–sacrifice ratio give Planet Fitness a competitive advantage in its
industry?
3. Given its price strategy, why is it essential for Planet Fitness to continually attract new
members? Do its high-end pricing competitors face the same need? Why or why not?
SECTION SIX Value Delivery: Designing
the Distribution Channel
and Supply Chain
Chapter 12 Distribution Channels
Chapter 13 Retailing and Omnichannel Marketing
Chapter 12
Distribution Channels
Learning Objectives
After studying this chapter you should be able to
LO1 Explain the importance of distribution and the interrelationships among distribution
channels, supply chain management, and logistics management
LO2 Describe distribution channel design and management decisions and strategies
LO3 Identify how distribution channels add value to businesses and consumers
LO4 Explain how logistics management affects distribution strategy
362 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
At one time, popular brand manufacturers held great sway over their physical retail partners. They could insist
on certain display rules, demand massive shelf space, and dictate the sale prices of their popular items. Nike, as
one of the most popular brands of footwear and athletic apparel, was also among the most demanding, requiring
retailers such as Foot Locker to follow strict rules if they wanted to receive its products in their stores.
The arrival of Amazon brought changes to retail markets, but initially, those changes were not enough to
convince Nike that it should sell through the site. For years, Nike resisted providing products for Amazon to sell
its shoppers, believing that its popularity meant that it did not need to rely on an external channel. Manufacturers
have less control over the presentation of their products on Amazon, and Nike worried about damage to its brand
image and differentiation if its cool shoes and gear were presented in the plain product pages used by Amazon
for all products.
What Nike did not realize was that its shoes were going to be on Amazon anyway, whether it provided them
directly or not. With the growth of third-party sellers on Amazon, there is plenty of Nike gear to be had through the
site—so much so that Nike is the most purchased apparel brand on all of Amazon.1 There are no laws or regula-
tions that limit people from obtaining goods legally and then reselling them through Amazon. Amazon works to
police these sellers to prevent the spread of grey market or counterfeit products, but it would be impossible to
monitor every one of them.
Nike was losing sales to Amazon, despite its efforts to spurn any sort of relationship with the retailer.
Recognizing that it could not win this battle, Nike decided that it would supply Amazon with a flood of merchan-
dise, in the hope of beating out some of the third-party sellers with which it was competing for customers. In
return for receiving the product line, Amazon promised to redouble its efforts to eliminate counterfeit items from
its site, and imposed limitations that would keep third-party sellers from offering certain Nike products at all. In
the aftermath of the pilot program, it appeared as though the strategy was working to cut down on third-party
resellers on Amazon.
Two years into the pilot project, Nike decided to end it. Even though Amazon removed third-party seller
listings, Nike found that the listings showed up under new names. Nike will focus on growing ecommerce sales
on its own. With its enormous reach and high demand, Nike has the advantage of being selective as to where
and how its products are distributed.2 Customers will seek them out. Not all brands have this kind of marketing
muscle.
Nike is taking on the bots and counterfeiters on its own platforms. With its new SNKRS app, Nike relies on
augmented reality to sell specific, widely sought-after sneakers. Beyond just creating an interactive experience
with the customer, this program has helped eliminate bots from making purchases.3
In this chapter, we discuss the third P, place, which includes all activities required to get
the right product to the right customer when that customer wants it. Students of market-
ing often overlook or underestimate the importance of place in the marketing mix simply
because it happens behind the scenes. Yet distribution channels, or place, add value for
customers because they get products to customers efficiently: quickly and at low cost.
We begin by understanding the importance of distribution, how distribution channels
are designed, how they are structured, and how they are managed. Then we move to a
discussion of the supply chain and the critical role it plays in distribution strategy. We end
the chapter by examining how logistics management integrates activities from the efficient
flow of raw materials through to the delivery of finished goods.
Suppliers
Supply Chain
Inbound flow of raw
suppliers and
materials and parts
suppliers networks
Logistics Management
Producers flow of materials
and information
Distribution Channels
Outbound flow of
wholesalers/retailers finished products
Consumers
preventing them from meeting customer demand. Industry insiders predict the shortage
could last for years.7 While some provinces are turning a profit, the Ontario Cannabis Retail
Corp. reported a loss of $42 million after its first year of operations, largely due to stocking
products consumers did not want, at high prices that could not compete with black market
offerings.8
Supply chain management takes a system-wide approach to coordinating the flow of
merchandise and includes both distribution management and logistics management. Zara,
a well-known global specialty apparel chain, has a completely integrated supply chain
because the company owns or at least has considerable control over each phase. It not only
owns most of its stores, but also produces the majority of its clothes and makes more than
40 percent of its fabric. As a result, it is able to conceive of, design, manufacture, transport,
and ultimately sell high-fashion apparel much more quickly and efficiently than any of its
major competitors.
A simplified supply chain would be one in which manufacturers make products and
sell them to intermediaries such as retailers or wholesalers. This chain becomes much more
complicated if we include suppliers of materials to manufacturers and all of the manu-
facturers, wholesalers, and stores in a typical supply chain. Wholesalers buy products wholesalers
from manufacturers and resell them to retailers, who sell products directly to consumers. Those firms engaged in
buying, taking title to, often
Manufacturers ship to a wholesaler, or, in the case of many multi-store retailers, to the storing, and physically
retailer’s distribution centre or directly to stores. The more intermediaries that are involved handling goods in large
quantities, and then
in the supply chain, the greater the complexity and number of transactions involved for a reselling the goods (usually
company to reach consumers. in smaller quantities) to
Although the above discussion reflects the typical flow of manufactured goods, many retailers or industrial or
business users.
variations to this supply chain exist. Some retail chains, such as Home Depot and Costco,
function as both retailers and wholesalers; they act as retailers when they sell to consumers retailers
Sell products directly to
directly and as wholesalers when they sell to other businesses, such as building contractors consumers.
or restaurant owners. When manufacturers such as Dell or Avon sell directly to consumers,
they are performing both production and retailing activities. Amazon has added its own
366 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
private-label brand for electronics, food, detergent, and diapers, performing both produc-
tion and retailing roles. When Dell sells directly to a university or business, it becomes
a business-to-business (B2B) transaction, but when it sells to the students or employees
individually, it is a business-to-consumer (B2C) operation.
Supply chain management focuses on the relationships among members of the supply
chain and distribution channel and the need to coordinate efforts to provide customers
with the best value.
logistics management Logistics management describes the integration of two or more activities to plan,
The integration of two implement, and control the efficient flow of raw materials, in-process inventory, and finished
or more activities for the
purpose of planning, goods from the point of origin to the point of consumption. These activities may include,
implementing, and but are not limited to, customer service, demand forecasting, distribution communications,
controlling the efficient
flow of raw materials,
inventory control, materials handling, order processing, parts and service support, plant and
in-process inventory, and warehouse site selection, procurement, packaging, return goods handling, salvage and scrap
finished goods from the disposal, traffic and transportation, and warehousing and storage.9
point of origin to the point
of consumption. Distribution channel management, supply chain management, and logistics manage-
ment are related but have been handled differently in the past. The management of distribu-
tion channels has traditionally been the responsibility of marketing departments, under the
direction of a marketing vice-president. Someone with responsibility for distribution chan-
nels in a consumer packaged goods company would manage the relationship with retailers
such as Loblaw or Shoppers Drug Mart. Logistics was traditionally the responsibility of
operations, under a vice-president of operations. Although their goals were similar, these
departments often saw solutions differently, and sometimes worked at cross-purposes. For
instance, the marketing department’s goal might have been to make sales, whereas logistics
wanted to keep costs low. Firms have come to realize that there is tremendous opportunity
in coordinating marketing and logistics activities not only within a firm, but also through-
out the supply chain.
Direct Distribution
As shown in Exhibit 12.2, there are no intermediaries between the buyer and the seller in
direct distribution channels. Typically, the seller is a manufacturer, such as when a car-
pentry business sells bookcases through its own store and online to individual consumers.
The seller also can be an individual, such as when a knitter sells blankets and scarves at
craft fairs, on Etsy, and through eBay. Other companies—such as TigerDirect.com, Avon,
and Tupperware—use a direct-only model. Some companies choose direct distribution to
avoid the high cost of using retailers. For example, retail outlets such as Canadian Tire,
Distribution Channels CHAPTER 12 367
Wholesaler
Retailer Retailer
the Hudson’s Bay Company, or Crate and Barrel command a 50-percent margin on some
products, which dramatically lowers profits for manufacturers.
Clearly (formerly Clearly Contacts) uses a direct model to sell glasses and contact lenses.
When the buyer is another business, such as when Boeing sells planes to Air Canada, the
marketing channel still is direct, but in this case, the transaction is a business-to-business
one. Some companies may be forced to distribute
their goods directly because they are unable to
secure shelf space in retail outlets or are unable to
pay the high listing fees demanded by retailers for
the shelf space.
Today, people increasingly use online channels
to purchase consumer goods such as diapers, deter-
gent, and paper towels. Seeking to enhance its direct-
to-consumer online sales, P&G is hoping consumers
will buy its products rather than adding them to a
repeat purchase list on Amazon or at Walmart.ca. In
so doing, it could boost its margins since no retailer
is needed. It launched its Gillette On Demand so cus-
tomers can make a one-time purchase or subscribe
for monthly razor blade refills.10 In addition, it could
undercut any retailer on price because it would not
To dissuade customers from purchasing razor blades from
need to maintain retail stores. Considering the long- online retailers, P&G started Gillette On Demand so customers
standing, close relationship between P&G and its can make a one-time purchase or subscribe for monthly razor
largest retail partner, Walmart, such a move might blade refills directly from the manufacturer.
make for some awkward strategy meetings between Source: Procter & Gamble
368 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
the two companies in the near future. Shipping directly required P&G to build a new dis-
tribution centre, that it staffs and operates to get products to customers quickly. As Ethical
& Societal Dilemma 12.1 notes, the technology needed to make this happen can have other
implications.
Indirect Distribution
With indirect distribution channels, one or more intermediaries work with manufacturers
to provide goods and services to consumers. In some cases, there may be only one inter-
mediary involved. Many automotive manufacturers, such as Ford and General Motors, use
indirect distribution with dealers acting as the retailer. Typically only one intermediary
is used in the case of large retailers such as the Hudson’s Bay Company. While selling
products through retailers adds costs to a company due to the margins that need to be paid
to them, retail outlets can reach a much broader market. Wholesalers are often used when
a company does not buy in sufficient quantity to make it cost-effective for a manufacturer
to deal directly with a retailer. The use of wholesalers is quite common for low-cost or low-
unit value items such as candy and chips.
Multi-Channel Distribution
Today, many companies are embracing a multi-channel, or hybrid, approach to distribution.
As shown in Exhibit 12.3, companies such as Sony are better able to reach both consumers
and business customers by using a combination of both direct and indirect distribution
Advances in Technology Can Mean flowing smoothly. Reuters reports that there are 110 ware-
houses, 45 sorting centres, and 50 delivery stations in
Layoffs for Workers** which Amazon employs more than 125,000 workers. To
date, robots make up a tiny part of the overall labour
Artificial intelligence (AI) is everywhere. Its benefits for “force.” They are not precise enough to replace humans.
retailing and consumers are undeniable. Sophisticated However, as technology improves, Amazon may be able
AI functions make it possible for retailers to perform to reduce the number of employees through the use of
inventory analyses more rapidly and accurately, as well AI systems that will enable shoppers to place orders on
as provide accurate and personalized customer service their own, pay for them without any assistance, and have
more efficiently. But the expansion of AI throughout them delivered by drones.
retail settings also threatens another critical group: the It is impossible to predict the future precisely—some
employees who currently perform those tasks. AI applications may never find widespread acceptance,
The retail industry employs vast numbers of e
mployees. and technologies such as driverless cars still need years
If those jobs can be performed by AI systems, it could of testing before they are safe to use widely. But it also is
result in higher unemployment rates. A recent government hard to contest the notion that AI is spreading further and
report suggests that cashiers and drivers are particularly further, so that someday soon, some workers will have to
threatened as innovations such as automatic checkouts find other ways to earn a living. If they cannot do so, the
and driverless cars come closer to reality. vast increase in unemployment rates would threaten the
Already, Amazon requires only half as many workers entire economy and depress consumer spending overall.
to sell the same amount of merchandise compared with The solution likely will require new forms of job train-
conventional retailers. It has pioneered the use of robots ing, job creation in other sectors, and possibly expanded
to pick up items in warehouses and move them on to the social safety nets. Unfortunately, such long-term (and
next part of the logistics chain. These AI-enabled robots expensive) initiatives are often hard to begin, until it’s
know exactly what to bring and when to keep orders almost too late.
**SCDigest, “Supply Chain News: Goya Foods Shows Path to Success for Mid-Market Companies from New Supply Chain Planning Tools,” July 13, 2011,
www.scdigest.com; Alina Selyukh, “Optimized Prime: How AI And Anticipation Power Amazon's 1-Hour Deliveries,” npr, November 21, 2018, www.npr.org/
2018/11/21/660168325/optimized-prime-how-ai-and-anticipation-power-amazons-1-hour-deliveries; Nick Statt, “Amazon says fully automated shipping
warehouses are at least a decade away,” The Verge, May 1, 2019, www.theverge.com/2019/5/1/18526092/amazon-warehouse-robotics-automation-ai-
10-years-away (accessed August 6, 2019).
Distribution Channels CHAPTER 12 369
Manufacturer
sales force
Business Segment 2
channels. In very large cities, Sony may sell directly via its own branded stores, while in
other areas, it may sell indirectly through retailers such as Best Buy. Some companies
engage a sales force to deliver products to customers, while others pursue a direct market-
ing approach through the use of catalogues. Lee Valley Tools sells directly at its retail stores
as well as online and through the use of catalogues.
PUSH MARKETING
PULL MARKETING
Manufacturer
Wholesaler / Retailer Consumer
Advertising,
social media,
store displays
and its online network in the next five years.12 The fee will put even more stress on razor-
thin supplier margins.
You may be surprised to learn that Amazon also uses listing fees. For example, it can
cost a toy company as much as $2 million to be included on Amazon’s Holiday Toy List. The
more money it pays, the more prominence its products will have on Amazon’s site.13 Gift
lists have become a well-known way for toy manufacturers to reach
buyers during peak holiday buying, when the majority of their
sales are made. Walmart charges toy companies $10,000 per month
for a spot on its toy list during the holiday season.14
Sometimes, if channel members are reluctant to stock new
products, manufacturers may use a pull strategy. In this case,
promotional efforts are directed at consumers to build demand
for products that, in turn, may convince retailers to carry them.
Consumers who see TV commercials or print advertisements
or who receive direct mail information or coupons regarding
new products may approach local retailers and request that they
stock these products, thus pulling them through the distribution
channels.
Martin’s used a sampling campaign as part of a One of Canada’s leading growers and packers, Martin’s Family
pull strategy to launch Apple Chips to consumers. Fruit Farm in Elmira, Ontario, produces and distributes apples
Used by permission of Martin’s Family Fruit Farm and apple cider. The company decided to diversify and access new
Distribution Channels CHAPTER 12 371
markets and suppliers. It came up with a concept that lets it use imperfect apples to produce
dried apple “chips” made from apples sliced into circles and then dehydrated. The chips are
all-natural, fat free, gluten free, wheat free, dairy free, and vegan. They contain no preserva-
tives, artificial colouring, or sugar, and have only 100 calories for 25 grams. To be accepted
on grocery-store shelves, the company had to prove that consumer demand for healthier
snacks would translate to sales of its Apple Chips. Working with Vancouver advertising
agency BrandFX, the company launched a sampling campaign targeting 45,000 GoodLife
Fitness members and also sent the product home with 35,000 children in Ontario daycare
centres.15 This pull strategy reached the target market of nutrition-conscious parents and
helped pave the way for a distribution agreement with Loblaws, which agreed to carry
Apple Chips at 37 Real Canadian Superstores.16 Since then, distribution has expanded, and
consumers can buy the product at Starbucks and Costco in Canada and Sam’s Club in the
United States.17
Distribution Intensity
When setting up distribution for the first time or introducing new products, firms decide
the appropriate level of distribution intensity—the number of channel members to use distribution intensity
at each level of the supply chain. Distribution intensity commonly is divided into three The number of channel
members to use at each
levels: intensive, selective, and exclusive (see Exhibit 12.5). Although increased sales and level of the supply chain.
access to more consumers is often desirable, that’s not always the case. Over the years,
companies such as Walmart and Esso have asked to carry M&M Food Market products.
These retailers would have dramatically expanded the company’s distribution intensity;
however, the company decided against such deals, sensing the move would ultimately hurt
the brand. M&M Food Market prides itself on offering high quality, whereas retailers such
as Walmart focus on low price.
(Walmart): Shutterstock/DayOwl; (Loblaws) Pat Holmes/Alamy Stock Photo; (Shoppers): Shutterstock/Lester Balajadia (Hudson’s Bay): Douglas Carr/
Alamy Stock Photo; (Simons): Goran Bogicevic/Alamy Stock Photo; (Tiffany): Shutterstock/Christian Mueller; (Cartier): Keith Mayhew/SOPA Images/
LightRocket via Getty Images
372 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
most other nationally branded products found in grocery and discount stores—strive for
and often achieve intensive distribution. PepsiCo, for instance, wants its product available
everywhere: grocery stores, convenience stores, restaurants, and vending machines. Timex
watches, starting at around $60, can also be found in many locations. The more exposure
these products get, the more they sell.
exclusive distribution
Strategy of granting
exclusive rights to sell
to one or very few retail Exclusive Distribution
customers so no other Manufacturers also might use an exclusive distribution policy by granting exclusive
customers can sell
a particular brand. geographic territories to one or very few retail customers so no other retailers in the
selective distribution
territory can sell a particular brand. Exclusive distribution can benefit manufacturers by
Lies between the intensive assuring them that the most appropriate customers represent their products. Cosmetics
and exclusive distribution firms such as Estée Lauder, for instance, limit their distribution to a few select, higher-end
strategies; uses a few
selected customers in retailers in each region. They believe that selling their products to drugstores, discount
a territory. stores, and grocery stores would weaken their image. Likewise, Rolex watches are sold
only by high-end jewellers and a few retail outlets, in keeping with
their prestigious brand image. In some cases, limiting distribution
can limit sales. Nespresso invented the single-serve capsule coffee
machine and sells the pods only in a direct-to-consumer model
through its own physical and online stores. In spite of competi-
tion from new entrants such as Kraft (Tassimo), Green Mountain
(Keurig K-Cup), and Starbucks (Verismo), Nespresso refuses to
sell in grocery stores and mass merchants. This notable absence
on retail shelves has led other brands to introduce pods that fit
Nespresso machines,18 thus impacting sales potential.
In cases of limited supply or when a firm is just starting out, pro-
viding an exclusive territory to one customer helps ensure enough
inventory to offer the customer an adequate selection. For instance,
Cervélo is a Canadian bicycle manufacturer that makes lightweight
racing bikes. It selects its authorized dealers carefully. By controlling
sales territories, it guarantees dealers adequate supply, which gives
them a strong incentive to push Cervélo’s products. Dealers know there
will be no competing retailers to cut prices, so their profit margins are
protected, which also gives them an incentive to carry more inventory
and use extra advertising, personal selling, and sales promotions.
Selective Distribution
Between the intensive and exclusive distribution strategies lies selec-
tive distribution, which uses a few selected customers in a territory.
Similar to exclusive distribution, selective distribution helps a seller
maintain a particular image and control the flow of merchandise
into an area, so many shopping goods manufacturers use it. Recall
that shopping goods are those products for which consumers are
willing to spend time comparing alternatives, such as most apparel
items; home items such as branded pots and pans, sheets, and towels;
Most consumer packaged-goods companies, branded hardware and tools; and consumer electronics. Seiko uses
such as PepsiCo (top), strive for intensive a selective distribution strategy for its watches to match its more
distribution—they want to be everywhere.
upscale image and pricing. Retailers still have a strong incentive to
But cosmetics firms such as Estée Lauder
(bottom) use an exclusive distribution strategy sell the products but not to the same extent as if they had an exclusive
by limiting distribution to a few select, higher- territory.
end retailers in each region. Four interrelated activities emerge in supply chain management:
(top): Shutterstock/Niloo; (bottom): Shutterstock/TY Lim making information flow, managing the relationships among supply
Distribution Channels CHAPTER 12 373
chain partners, making merchandise flow, and managing inventory. In the next few sec-
tions, we examine these remaining activities.
Why would a manufacturer want to use a wholesaler or a retailer? Don’t these supply chain
members just cut into their profits? Wouldn’t it be cheaper for consumers to buy directly from
manufacturers? In a simple agrarian economy, the best supply chain may in fact follow a
direct route from manufacturer to consumer: the consumer goes to the farm and buys food
directly from the farmer. Before the consumer can eat the food, it needs to be cooked. Most
consumers don’t know how to make a stove so must rely on a stove manufacturer, who has
the necessary knowledge to buy raw materials and components from various
suppliers, make the stove, and then make it available for sale. If the stove
maker isn’t located near the consumer, the stove must be transported to
where the consumer has access to it. To complicate matters, the consumer
may want to view a choice of stoves, hear about all their features, and have
the stove delivered and installed.
Each participant in the supply chain adds value. The components manu-
facturer helps the stove manufacturer by supplying parts and materials. The
stove maker then turns the components into the stove. The transportation
company gets the stove to the retailer. The retailer stores the stove until
the customer wants it, educates the customer about product features, and
delivers and installs the stove. At each step, the stove becomes more costly
but also more valuable to the consumer.
Exhibits 12.6A and 12.6B show how using supply chain partners can
provide value overall. Exhibit 12.6A shows three manufacturers, each
of which sells directly to three consumers in a system that requires nine
transactions. Each transaction costs money—for example, the manufac-
turer must fill the order, package it, write up the paperwork, and ship it—
and each cost is passed on to the customer. Exhibit 12.6B shows the same
three manufacturers and consumers; but, this time they go through a single
retailer. The number of transactions falls to six, and as transactions are How many companies are involved
eliminated, the supply chain becomes more efficient, which adds value for in making and getting a stove to your
customers by making it more convenient and less expensive to purchase kitchen?
merchandise. Thinkstock/Alamy Stock Photo
3 3 3
9
Factory
to
Consumer
Transactions
374 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
1
1 3
1
Factory
to
Store
to 3
Consumer 1 1 1
6
Transactions
When products are designed and manufactured, how and when the critical components
reach the factory must be coordinated with production. The sales department must coordi-
distribution centre nate its delivery promises with the factory or distribution centres. A distribution centre—a
A facility for the receipt, facility for the receipt, storage, and redistribution of goods to company stores or customers—
storage, and redistribution
of goods to company may be operated by retailers, manufacturers, or distribution specialists.19 Amazon operates a
stores or customers; number of fulfillment and distribution centres as well as sortation centres that can speed up
may be operated by delivery of products even further. Marketing Analytics 12.1 details how Amazon is attempt-
retailers, manufacturers, or
distribution specialists. ing to do just this. Advertising and promotion must be coordinated with all departments
that control inventory and transportation. There is no faster way to lose credibility with
customers than to promise deliveries or run a
promotion and then not have the merchandise
when the customer expects it.
Distribution channels are composed of var-
ious entities that are buying, such as retailers or
wholesalers; selling, such as manufacturers or
wholesalers; or helping facilitate the exchange,
such as transportation companies. Like interac-
tions between people, these relationships can
range from close working partnerships to one-
time arrangements. In almost all cases, though,
they occur because the parties want something
from one another. For instance, Home Depot
wants hammers from Stanley Tool Company;
Stanley wants an opportunity to sell its tools to
the public; and both companies want UPS to
Home Depot and Stanley Tool Company have a mutually beneficial
partnership. Home Depot buys tools from Stanley because its deliver the merchandise.
customers find value in Stanley products. Stanley sells tools to Home Each channel member performs a special-
Depot because it has established an excellent market for its products. ized role. If one member believes that another
REUTERS/Brian Snyder/Alamy Stock Photo isn’t doing its job correctly or efficiently, it
Distribution Channels CHAPTER 12 375
usually can replace that member. So, if Stanley isn’t getting good service from UPS, it can
switch to FedEx. Likewise, if Home Depot believes its customers don’t perceive Stanley
tools to be a good value, it may buy from another tool company such as Hitachi, Skil, or
others. Home Depot could even decide to make its own tools or use its own trucks to pick
up tools from Stanley. However, even if a channel member is replaced, the function it per-
formed remains, so someone needs to complete it.
As the Chapter Case Study notes, Zara gains its competitive advantage by bringing
fashions to the store and its customers much faster than other clothing retailers. It holds
minimal inventory, produces new fashions quickly, and rarely gets stuck with old inventory.
Deliveries are made to stores once a week, and the clothes rarely remain on shelves for
more than a week. But this speedy system is not limited to the retail side; Zara also takes
only four to five weeks to design a new collection and then about a week to manufacture
it, so it continually cycles through its inventory of fabric and materials needed to make its
376 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
Transactional Function
Logistical Function
Facilitating Function
clothing. Its competitors, in comparison, need an average of six months to design a new
collection and another three weeks to manufacture it.
Distribution channels perform a variety of transactional, logistical, and facilitating
functions, as noted in Exhibit 12.7. One important role played by intermediaries is to reduce
the number of marketplace contacts, resulting in more efficient systems. Intermediaries also
match the requirements of individual consumers to the goods that manufacturers produce;
handle physical distribution and storage of goods, making them available for customers to
purchase; facilitate searches by both buyers and sellers; and standardize exchange trans
actions. While channel functions may shift from one intermediary or channel member to
another, it’s important to recognize that they cannot be eliminated. As noted in the Home
Depot example above, these functions must be completed by some organization to get the
right products to the right customers when they want them.
Manufacturer Manufacturer
Wholesaler Wholesaler
Retailer Retailer
Consumer Consumer
378 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
because they realize that each party can maximize its individual benefits by working
together to make the distribution system more efficient rather than working individually
or at cross-purposes. Three types of vertical marketing systems—administered, contractual,
and corporate—reflect increasing phases of formalization and control. The more formal the
vertical marketing system, the less likely conflict is to ensue.
Contractual Vertical Marketing System Over time, members of the supply chain may
formalize their relationship by entering into contracts that dictate various terms, such as
how much Walmart will buy each month and at what price, as well as the penalties for
contractual vertical late deliveries. In a contractual vertical marketing system like this, independent firms
marketing system at different levels of the supply chain join together through contracts to obtain economies
A system in which
independent firms at of scale and coordination and to reduce conflict.20
different levels of the Franchising is the most common type of contractual vertical marketing system; fran-
supply chain join together
chising companies and their franchisees account for $100 billion annually to the Canadian
through contracts to obtain
economies of scale and economy and creates jobs for more than 1.9 million people.21 Franchising is a contractual
coordination and to reduce agreement between a franchisor and a franchisee that allows the franchisee to operate a retail
conflict.
outlet, using a name and format developed and supported by the franchisor. Exhibit 12.9 lists
franchising some of Canada’s favourite franchises.
A contractual agreement
between a franchisor and In a franchise contract, the franchisee pays a lump sum plus a royalty on all sales in
a franchisee that allows return for the right to operate a business in a specific location. The franchisee also agrees
the franchisee to operate a to operate the outlet in accordance with the procedures prescribed by the franchisor. The
retail outlet, using a name
and format developed franchisor typically provides assistance in locating and building the business, developing
and supported by the the products or services sold, training the managers, and advertising. To maintain the fran-
franchisor.
chisee’s reputation, the franchisor also makes sure that all outlets provide the same quality
of services and products.
A franchise system combines the entrepreneurial advantages of owning a business with
the efficiencies of vertical marketing systems that function under single ownership (a corpo-
corporate vertical rate system, as we discuss next). Franchisees are motivated to make their stores successful
marketing system because they receive the profits, after they pay the royalty to the franchisor. The franchisor
A system in which the
parent company has
is motivated to develop new products, services, and systems and to promote the franchise
complete control and can because it receives royalties on all sales. Advertising, product development, and system devel-
dictate the priorities and opment are all done efficiently by the franchisor, with costs shared by all franchisees.
objectives of the supply
chain; it may own facilities
such as manufacturing Corporate Vertical Marketing System In a corporate vertical marketing system,
plants, warehouse facilities,
the parent company has complete control and can dictate the priorities and objectives
retail outlets, and design
studios. of the marketing channel because it owns multiple segments of the channel, such as
Distribution Channels CHAPTER 12 379
manufacturing plants, warehouse facilities, and retail outlets. By virtue of its ownership
and resulting control, potential conflict among segments of the channel is lessened.
Warby Parker, an eyeglass retailer based in New York, represents a corporate vertical
marketing system because it designs its own glasses in-house rather than having contrac-
tual relationships with other firms, and it operates its own retail and online stores selling its
products.22 With this corporate ownership structure, it is able to achieve critical cost savings
needed to sell its products at low prices.
Warby Parker represents a corporate vertical marketing system because it designs its own glasses and operates
its retail stores.
Source: Warby Parker
380 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
the supplier will make very little money and therefore might not want to sell to Walmart
again. On the other hand, if Harry Rosen sees a trend for very narrow white belts, it
would be interested in purchasing from a vendor with whom an ongoing relationship
would be built. Harry Rosen would not purchase from a vendor on a one-time basis just
to get a one-time good price, because long-term relationship building is important to the
company’s business practices.
Frequently, firms seek a strategic relationship (partnering relationship), in strategic relationship
which the supply chain members are committed to maintaining the relationship over the (partnering relationship)
A supply chain relationship
long term and investing in opportunities that are mutually beneficial. In a conventional that the members are
or administered supply chain, there are significant incentives to establish a strategic rela- committed to maintaining
long-term, investing in
tionship, even without contracts or ownership relationships. Both parties benefit because opportunities that are
the size of the profit pie has increased, so both the buyer and the seller increase their mutually beneficial;
sales and profits. These strategic relationships are created explicitly to uncover and exploit requires mutual trust, open
communication, common
joint opportunities, so members depend on and trust each other heavily; share goals and goals, and credible
agree on how to accomplish those goals; and are willing to take risks, share confidential commitments.
information, and make significant investments for the sake of the relationship. Successful
strategic relationships require mutual trust, open communication, common goals, and
credible commitments.
Mutual Trust
Mutual trust holds a strategic relationship together. Trust is the belief that a partner is
honest (i.e., is reliable, stands by its word, is sincere, fulfills obligations) and is benevo-
lent (i.e., is concerned about the other party’s welfare). When vendors and buyers trust
each other, they’re more willing to share relevant ideas, clarify goals and problems, and
communicate efficiently. Information shared between the parties thus becomes increas-
ingly comprehensive, accurate, and timely. With trust, there’s also less need for the supply
chain members to constantly monitor and check up on each other’s actions, because each
believes the other won’t take advantage, even given the opportunity. Although it is impor-
tant in all relationships, monitoring supply chain members becomes particularly pertinent
when suppliers are located in less-developed countries, where issues such as the use of
child labour, poor working conditions, and below-subsistence wages have become a shared
responsibility.
Open Communication
To share information, develop sales forecasts together, and coordinate deliveries, Harry
Rosen and its suppliers maintain open and honest communication. This maintenance may
sound easy in principle, but most businesses don’t tend to share information with their
business partners. But open, honest communication is key to developing successful rela-
tionships because supply chain members need to understand what is driving each other’s
business, their roles in the relationship, each firm’s strategies, and any problems that arise
over the course of the relationship.
Common Goals
Supply chain members must have common goals for a successful relationship to develop.
Shared goals give both members of the relationship an incentive to pool their strengths
and abilities and exploit potential opportunities together. For example, Harry Rosen and its
local suppliers recognize that it is in their common interest to be strategic partners. Harry
Rosen needs the quick response local manufacturers afford, and those manufacturers rec-
ognize that if they can keep Harry Rosen happy, they will have more than enough business
for years to come. So, if Harry Rosen needs a special production run to make an emergency
shipment, suppliers will work to meet the challenge. If one of Harry Rosen’s suppliers has
382 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
Harry Rosen grew from a single 46-square-metre Toronto tailor shop to a national upscale
menswear chain. It works hard to develop strategic partnerships with its suppliers based on
mutual trust, open communications, common goals, and credible commitments.
Used with permission of Harry Rosen Inc.
difficulty getting a particular fabric or financing its inventory, it is in Harry Rosen’s best
interest to help it because they are committed to the same goals in the long run.
Credible Commitments
Successful relationships develop because both parties make credible commitments to, or
tangible investments in, the relationship. These commitments involve spending money to
improve the products or services provided to the customer. For example, if Harry Rosen
makes a financial commitment to its suppliers to help them develop state-of-the-art
manufacturing facilities and computer systems for improved communication, it is making
a credible commitment—putting its money where its mouth is. As previously described,
Amazon and P&G have worked closely to set up their Vendor Flex program, enabling
Amazon to operate fulfillment centres within P&G’s own warehouses and thereby lower
transportation expenses.
Similar to many other elements of marketing, managing the supply chain can seem
like an easy task at first glance: Put the merchandise in the right place at the right time.
The various elements and actors involved in a supply chain create unique and compelling
complexities and require that firms work carefully to ensure that they are achieving the
most efficient and effective chain possible.
1 3
4
HDTV
buyer
the supply chain in this section to exclude wholesalers, as well as the link from suppliers
to manufacturers. Exhibit 12.10 illustrates the flow of information that starts when a cus-
tomer buys a Sony HDTV at Best Buy. The flow follows these steps:
• Flow 1 (Customer to Store). The sales associate at Best Buy scans the universal universal product code
product code (UPC) tag (the black and white bar code found on most (UPC)
The black and white
merchandise) on the HDTV packaging, and the customer receives a receipt. The bar code found on most
UPC tag contains a 13-digit code that includes the manufacturer of an item and merchandise.
information about special packaging and special promotions. In the future, RFID
tags (Radio Frequency Identification tags, discussed later in this chapter) may
replace UPC codes.
• Flow 2 (Store to Buyer). The point-of-sale (POS) terminal records the purchase
information and electronically sends it to the buyer at Best Buy’s corporate office.
The sales information is incorporated into an inventory management system and
used to monitor and analyze sales and to decide to reorder more HDTVs, change a
price, or plan a promotion. Buyers also send information to stores on overall sales
for the chain, how to display merchandise, upcoming promotions, and so on.
• Flow 3 (Buyer to Manufacturer). The purchase information from each Best Buy store
is typically aggregated by the retailer as a whole, which creates an order for new
merchandise and sends it to Sony. The buyer at Best Buy may also communicate
directly with Sony to get information and negotiate prices, shipping dates,
promotional events, or other merchandise-related issues.
384 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
• Flow 4 (Store to Manufacturer). In some situations, the sales transaction data are
sent directly from the store to the manufacturer, and the manufacturer decides
when to ship more merchandise to the distribution centres and the stores. In other
situations, especially when merchandise is reordered frequently, the ordering process
is done automatically, bypassing the buyers. By working together, the retailer and
manufacturer can better satisfy customer needs.
• Flow 5 (Store to Distribution Centre). Stores also communicate with the Best Buy
distribution centre to coordinate deliveries and check inventory status. When the
store inventory drops to a specified level, more HDTVs are shipped to the store and
the shipment is sent to the Best Buy computer system.
In Flow 3, the retailer and manufacturer exchange business documents through a
system called electronic data interchange.
Data Warehouse
Purchase data collected at the point of sale (Flow 2 in Exhibit 12.10) goes into a huge data-
base known as a data warehouse. The information stored in the data warehouse is accessible
on various dimensions and levels. Using the data warehouse, the CEO can not only learn
how the corporation is generally doing but also look at the data aggregated by quarter for
a merchandise division, a region of the country, or the total corporation. A buyer may be
more interested in a particular manufacturer in a certain store on a particular day. Analysts
from various levels of the retail operation extract information from the data warehouse to
make a plethora of marketing decisions about developing and replenishing merchandise
assortments.
In some cases, manufacturers also have access to this data warehouse. They commu-
nicate with retailers by using electronic data interchange and use supply chain systems
known as vendor-managed inventory.
Vendor-Managed Inventory
Vendor-managed inventory (VMI) is an approach for improving marketing channel vendor-managed
efficiency in which the manufacturer is responsible for maintaining the retailer’s inventory inventory (VMI)
An approach in which
levels in each of its stores. By sharing the data in the retailer’s data warehouse and com- the manufacturer
municating that information via EDI, the manufacturer automatically sends merchandise is responsible for
replenishing inventory to
to the retailer’s store or distribution or fulfillment centre when the inventory at the store meet retailers’ needs.
reaches a pre-specified level.
In ideal conditions, the manufacturer replenishes inventories in quantities that meet
the retailer’s immediate demand, reducing stockouts with minimal inventory. In addi-
tion to providing a better match between retail demand and supply, VMI can reduce the
vendor’s and the retailer’s costs. Manufacturers’ salespeople no longer need to spend time
generating orders on items that are already in the stores, and their role shifts to selling new
items and maintaining relationships. Retail buyers and planners no longer need to monitor
inventory levels and place orders.
3 4
1
2
Manufacturers
386 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
centres or direct store delivery—is better, retailers consider the total cost associated with
each alternative and the customer service criterion of having the right merchandise at the
store when the customer wants to buy it.
Inbound Transportation
dispatcher Because its distribution centres typically are quite busy, a dispatcher—the person who
The person who coordinates deliveries to Best Buy’s distribution centres—assigns a time slot for each
coordinates deliveries to
distribution centres. shipment of HDTVs to arrive. If the truck misses the time slot, it is fined. Although many
manufacturers pay transportation expenses, some retailers negotiate with their vendors
to absorb this expense. These retailers believe they can lower net merchandise cost and
control their merchandise flow better if they negotiate directly with truck companies and
consolidate shipments from many vendors.
placed on racks or shelves for storage. When the merchandise is needed in the stores, a
worker goes to the rack, picks up a carton, and places it on a conveyor system that routes
the carton merchandise to the loading dock of a truck going to the store.
Using a cross-docking distribution centre, cartons are prepackaged for a specific store.
The merchandise already contains price and theft detection tags. Because the merchandise
is ready for sale, it is placed on a conveyor system that routes it from the unloading dock at
which it was received to the loading dock for the truck going to the specific store—hence
the term cross-docked. The cartons are routed on the conveyor system automatically by
sensors that read the UPC or RFID label on the cartons. Cross-docked merchandise is in the
distribution centre only for a few hours before it is shipped to the stores.
Merchandise sales rate and degree of perishability or fashionability typically determine
whether cartons are cross-docked or stored. For instance, because Sony’s HDTVs sell so
quickly, it is in Best Buy’s interest not to store them in a distribution centre. Similarly, cross-
docking is preferable for fashion apparel or perishable meat or produce.
retailing, are inventory management systems designed to deliver less merchandise on a more
frequent basis than traditional inventory systems. The firm gets the merchandise “just in
time” for it to be used in the manufacture of another product (in the case of parts or compo-
nents) or for sale when the customer wants it (in the case of consumer goods). The benefits
lead time of a JIT system include reduced lead time (by eliminating the need for paper transactions
The amount of time by mail and overnight deliveries), increased product availability, and lower inventory invest-
between the recognition
that an order needs to be ment. JIT systems lower inventory investments, but product availability actually increases.
placed and the arrival of Although firms achieve great benefits from a JIT system, it is not without its costs. The
the needed merchandise
at the seller’s store, ready
distribution function becomes much more complicated with more frequent deliveries. With
for sale. greater order frequency also come smaller orders, which are more expensive to transport
and more difficult to coordinate. Therefore, JIT systems require a strong commitment by
the firm and its vendors to cooperate, share data, and develop systems.
For more on JIT inventory systems, see the Chapter Case Study, “Zara Delivers Fast
Fashion.”
LO1 Explain the importance of distribution and image or are not large enough to sell to everyone tend to
the interrelationships among distribution use an exclusive distribution strategy. Somewhere in the
channels, supply chain management, and middle lies a selective distribution strategy.
logistics management
LO3 Identify how distribution channels add value
Companies cannot take the distribution of products for
to businesses and consumers
granted. Appropriate distribution channels must be iden-
tified and channel members need to be convinced to Without distribution channels, consumers would be
carry these new products, both of which are integral to a forced to find raw materials, manufacture products, and
successful distribution strategy. A distribution channel is somehow get them to where they could be used, all on
the set of institutions and marketing activities that trans- their own. Each channel member adds value to the prod-
fer the ownership of goods and move goods from the uct by performing one of these functions. Supply chain
manufacturer or producer to the consumer. Supply chain management creates value for each firm in the chain and
management refers to the effort to coordinate suppliers, helps bind together many company functions, including
manufacturers, warehouses, stores, and transportation manufacturing, inventory management, transportation,
intermediaries so that the merchandise the customer advertising, and marketing.
wants is produced in the right quantities and sent to the
right locations at the time the customer wants it. In this LO4 Explain how logistics management affects
sense, the supply chain is considered to be longer and distribution strategy
covers more aspects of the distribution strategy since it
extends backward to include suppliers. Logistics concen- For a supply chain to operate properly, the flow of infor-
trates on the physical movement and control of the prod- mation and merchandise must be coordinated, and s upply
ucts, whereas supply chain management includes the chain members must work together to their mutual b enefit.
managerial aspects of the process as well. In more sophisticated supply chains, information flows
seamlessly between supply chain members through EDI.
escribe distribution channel design and
D Many of the best supply chains use a JIT or QR inventory
LO2 management system, which provides the right amount
management decisions and strategies
of inventory just when it is needed. The JIT systems thus
Sometimes, particularly when firms are starting out, com- improve product availability and reduce inventory invest-
panies cannot choose their ideal partners but instead ments. The increasing use of RFID technology is expected
take any partners they can get to obtain the materials to have a revolutionary impact on distribution channels,
or customers they need. In general, the larger and more supply chain management, and logistics management in
sophisticated the company, the more likely it is to perform the future. The expectation is that the overall system of
some supply chain activities itself rather than use third- producing and delivering will become much more sophisti-
party intermediaries. When deciding on the distribution cated and efficient.
channel structure, firms can choose from direct, indirect, The more closely aligned the supply chain members
and multi-channel distribution. Firms that want as much are with each other, the less likely it is that there will be sig-
market exposure as possible use intensive distribution, nificant conflict. An administered supply chain occurs when
whereas firms that either want to maintain an exclusive a dominant and powerful supply chain member has control
Distribution Channels CHAPTER 12 389
over the other members. In a contractual s upply chain (e.g., can be effectively managed through strong relationships
franchising), coordination and control are dictated by con- developed with supply chain partners. To create such rela-
tractual relationships between members. Corporate supply tionships, the partners must trust each other, communicate
chains can operate relatively smoothly because one firm openly, have compatible goals, and be willing to invest in
owns the various levels of the chains. Supply chains also each other’s success.
Key Terms
■■ administered vertical marketing ■■ distribution intensity ■■ radio frequency identification
system ■■ electronic data interchange (EDI) (RFID) tags
■■ advanced shipping notice ■■ exclusive distribution ■■ retailers
■■ channel conflict ■■ franchising ■■ selective distribution
■■ contractual vertical marketing ■■ intensive distribution ■■ strategic relationship (partnering
system ■■ just-in-time (JIT) inventory systems relationship)
■■ corporate vertical marketing ■■ lead time ■■ supply chain management
system ■■ logistics management ■■ universal product code (UPC)
■■ dispatcher ■■ pull marketing strategy ■■ vendor-managed inventory (VMI)
■■ distribution centre ■■ push marketing strategy ■■ vertical marketing system
■■ distribution channel ■■ quick-response (QR) ■■ wholesalers
concept review
1. Explain why having a well-thought-out distribution 6. Explain intensive, selective, and exclusive distribution
strategy is important to a company’s success. intensity. Under what circumstances would it be best
to use each of these strategies?
2. Explain the factors that must be considered when
designing a distribution strategy. 7. Describe how companies manage distribution chan-
3. Explain the differences between direct, indirect, and nels by using vertical marketing systems.
multi-channel distribution systems. What role do tech-
8. Explain how supply chain management and logistics
nologies and consumer behaviour play in the rise of
management add value to a company’s consumer
multi-channel distribution?
offerings.
4. Describe the functions performed by intermediaries.
Why would companies choose to have intermediar- 9. Explain how supply chain management improves mar-
ies fulfill these functions rather than perform them keting activities.
themselves?
10. What are the major elements of a logistics manage-
5. Explain how customer expectations and channel member ment system? Explain the benefits of a well run just-in-
characteristics impact a company’s distribution strategy. time inventory management system.
Marketing Applications
1. Explain distribution strategy and identify the major grocery chain. The manager is familiar with the bak-
activities that distribution channels, supply chain, and ery’s products and is excited about the possibility of
logistics management involve. Identify several ways having them in the store. He presents the contract
that supply chain management adds value to a com- and you notice a $10,000 fee for stocking the product.
pany’s offerings, with regard to both consumers and When you ask about the fee, you are told it is simply
business partners. the cost of doing business and that the bigger baker-
ies are not in favour of adding your product line to the
2. You are hired by a small bakery that is interested in chain. You know that the bakery cannot afford to pay
distributing its product through supermarkets. The the fee. What should you do now?
market for the bakery’s products has been steadily
growing, and it is time to expand distribution now 3. Discuss the advantages and disadvantages of Dell’s
that the bakery has expanded its production capacity. decision to change from using a direct distribution
You have an appointment with the manager of a local strategy to a multi-channel approach to distribution.
390 Section SIX Value Delivery: Designing the Distribution Channel and Supply Chain
4. Research the “Buy Local” trend and discuss how in the distribution centre rather than having retail store
growing consumer awareness of shipping costs and staff members do it in the stores. Provide the logic
environmental concerns has led to a push for more behind your answer.
locally produced foods.
9. Why would a large company like Lenovo want to
5. Give an example of a retailer that participates in an develop strategic partnerships with locally owned run-
independent (conventional) supply chain and one ning shoe stores? Describe what Lenovo would have
involved in a vertical marketing system. Discuss the to do to maintain such relationships.
advantages and disadvantages of each. 10. You are hired as an assistant brand manager for a
6. In what ways can the flow of information be managed popular consumer product. One day in an emergency
in the supply chain? How can the ready flow of infor- meeting, the brand manager informs the group that
mation increase a firm’s operating efficiencies? there is a problem with one of the suppliers and that
she has decided to send you over to the manufactur-
7. Describe how B2B transactions might employ EDI to pro- ing facilities to investigate the problem. When you
cess purchase information. Considering the information arrive at the plant, you learn that a key supplier has
discussed in Chapter 5 about B2B buying situations, become increasingly unreliable in terms of quality and
determine which buying situation (new task, modified delivery. You ask the plant manager why he doesn’t
rebuy, or straight rebuy) would most likely align with the switch suppliers since this is becoming a major prob-
use of EDI technology. Justify your answer. lem for your brand. He informs you that the troubled
8. Discuss the advantages to a retailer such as Sport supplier is his cousin, whose wife has been very ill,
Chek of expending the time and effort to get merchan- and he just can’t switch right now. What course of
dise floor-ready at either the point of manufacture or action should you take?
marketing digitally
1. Dell is considered exemplary in its ability to manage its 2. The Chapter Case Study examines how Zara, a
supply chain efficiently. Go to the company’s website division of Inditex, successfully manages its supply
(www.dell.com), and go through the process of config- chain. Visit Inditex’s website (www.inditex.com), and
uring a computer to purchase. Print a summary of the review the company’s commitment to social respon-
computer system you have designed, making note of sibility, particularly the section that pertains to its
the delivery date and price. Describe how Dell has revo- code of conduct. Considering the discussion in this
lutionized computer sales and delivery. Is there any indi- chapter about strategic relationships, how does
cation that Dell has partnered with other companies to Inditex address the factors necessary for mutually
sell peripheral equipment such as printers or scanners? beneficial partnerships according to its code of
How would this partnership add value to customers? conduct?
very nature, fashion trends change rapidly and constantly, and so must the merchandise on
Zara’s shop floors. Faced with disappointed customers, some sales managers ordered extra
quantities of hot items to avoid stockouts. Even with this attempt to circumvent the replenish-
ment system, some stores still suffered from stockouts, because they received fewer units
than they had ordered when overall demand exceeded inventory levels. For some items, Zara
confronted perhaps the most frustrating scenario in a supply chain: inventory sat unused,
eating up storage costs at one location, even as another store desperately pleaded for the
same inventory to meet its customers’ demands.
One way Zara is trying to meet more customer needs is by investing in its in-store pickup for
online orders. Zara’s fast fashion model is the perfect fit for online shoppers because it can always
offer something new. Because Zara designed its ordering platforms for small store orders, it is
able to process online orders in much the same way. Home delivery can create a hurdle, and by
emphasizing in-store pickup, Zara can avoid delivery challenges. One way it is improving in-store
pickup is with self-service pickup kiosks that can hold up to 4,000 packages.27
As noted earlier, the company launches as many as 10,000 new styles annually, with
a range of colours and sizes, resulting in hundreds of thousands of SKUs in the system.
Counting replenishment orders, which are received twice weekly, Zara’s average shipping
total reached nearly 2.5 million items per week, all coming from the company’s distribution
centre. Its legendary supply chain efficiency thus was in danger of a clogged artery.
In response, Zara has adopted some new mathematical processes that turn human
experience and mountains of data into actionable information. These models factor in store
managers’ unique requests for merchandise replenishments, together with historical trends
in the sales of the same item. Merchandise display practices have been altered, such as
removing all sizes of a garment from the sales floor if a popular size is not available. This
practice helps reduce customer frustration, in that they never see an item that might not
be available in their size. It also diminishes shipping; if the medium size is unavailable, the
small and large sizes do not get shipped either. Instead, these remaining sizes head toward
the stores that still have all sizes in stock, so they can be available to customers there.
Zara is also making more effective uses of RFID technology. Because Zara manufacturers
its own clothing, it can insert RFID tags into the security tags that already appear on each
piece of clothing. Thus the very act of inserting the tags becomes viable as a parallel step to
the attachment of the security tags. In contrast, retailers that previously tried to insert RFID
tags struggled to find efficient methods and had trouble deciding exactly when in the supply
chain they should be inserted. Walmart, for example, demanded that suppliers add them, but
suppliers balked at the added expense associated with the additional step.28
By including the RFID elements within the security tags, Zara has found a way to reuse the
still relatively expensive RFID technology. In previous experiments, the tags left the store with
customers who purchased the related item. At Zara, employees remove the security tag as
they check out customers, so the RFID chips also stay in the store, available for reuse.
These methods give Zara a distinct advantage. The task of taking inventory has become
so much faster and easier that Zara can perform it every six weeks instead of twice a year,
as is common in the industry. Rather than actively scanning each item’s bar code, inventory
takers simply walk through the store with an RFID device that passively gathers information
from each rack. In turn, its inventory tracking is significantly more accurate, and it knows
exactly what styles and items are selling best (or worst).
Growth, costs, market demand, and technology advances all can push retail executives
to rethink their business processes. But truly savvy managers search for ways to optimize
operations, even when business is running smoothly. As Zara learned, current approaches
will not necessarily work tomorrow.
Questions
1. How does an individual firm like Zara manage a supply chain? How does it get new prod-
ucts from design to store so quickly?
2. What are some of the ways that Zara’s supply chain management system has helped
create value for its customers? Provide specific examples.
3. What challenges did Zara’s focus on supply chain efficiency create? Are all such systems
destined to suffer such “growing pains”?
Chapter 13
Canadian Tire Corporation (CTC) provides customers with everything they need for the jobs and joys of life in
Canada. The company started with a single store called Hamilton Tire and Garage Limited in Toronto, which was
purchased by brothers A.J. and J.W. Billes in 1922. They renamed the company Canadian Tire Corporation in 1927
and grew it into a powerhouse.
Almost a century later, Canadian Tire Corporation has become a family of companies that includes Canadian Tire
Retail, Canadian Tire Financial Services, Sport Chek, Hockey Experts, Sports Experts, National Sports, A
tmosphere,
Mark’s, Party City Canada, Helly Hansen, Canadian Tire Gas+, PartSource, CT Real Estate Investment Trust, and
Canadian Tire Jumpstart Charities.
● Canadian Tire has a network of approximately 500 retail stores across Canada that offer everything from
automotive parts and services to sports, leisure, home products, and a strong network of private-label
brands.1
● As the financial services arm of Canadian Tire Corporation, Ltd., Canadian Tire Bank (CTB) is primarily
engaged in marketing the Triangle™ Card portfolio to four million card members.2 Triangle credit cards are
accepted at more than 24 million locations worldwide and offer customers the ability to collect e-Canadian
Tire ‘Money’™.
●● Sport Chek is the largest and only national sporting goods retailer in Canada, with over 400 locations3
across multiple banners. The company sells a vast assortment of sports-related products, from athletic
footwear to athletic/leisure apparel, and to the equipment required for performing a favourite sport.
● Mark’s, known as L’Équipeur in Quebec, is one of Canada’s leading apparel and footwear retailers. Since it
was founded in 1977, Mark’s has evolved from one small store in Calgary to over 380 stores across Canada.
● Canadian Tire Gas+ is one of Canada’s largest independent gasoline retailers, pumping more than 1 billion
litres of gasoline each year at approximately 295 outlets4 nationwide.
● PartSource, launched in 1999, is an automotive parts specialty chain with approximately 90 corporate
specialty stores staffed by experts to meet the needs of professional automotive installers and serious
“do-it-yourselfers.”
● CT Real Estate Investment Trust is an unincorporated, closed-end real estate investment trust formed to
own income-producing commercial properties primarily located in Canada.
● Canadian Tire Jumpstart Charities is a national charity dedicated to helping kids overcome financial
and accessibility barriers to sport and recreation. Jumpstart helps eligible families cover the costs of
registration, transportation, and equipment, and provides funding to selected organizations for recreational
infrastructure and programming.5
Canadian Tire Corporation, through its various businesses, employs more than 65,000 people and earned
revenues of $14.06 billion in 2018.6 It is one of the most trusted brands in Canada, has been called one of the best
brands and most successful companies in Canada, and has earned a spot on Canada’s Top 10 Most Reputable
Brands every year for well over a decade.7 It has a unique assortment of products and services, a modern store
network, and global sourcing capabilities. The company does an excellent job of leveraging its trusted brand
across its multiple businesses. Because of Canadian Tire’s level of success over the years, one wonders about its
secret for success and whether it has always been smooth sailing for the company.
Canadian Tire has received lumps, bumps, and bruises on several occasions. For example, in 1982, Canadian
Tire debuted in the United States, but the venture failed miserably, and by 1985, the company was forced to
w
ithdraw.8 In 1992, the company decided to take another stab at the U.S. market under the name Auto Source.
It also failed, and the company bailed out in 1995, after three years and huge losses.9 Despite these and other
challenges, Canadian Tire has emerged as a successful and well-managed business, part of Canadian culture,
and found in virtually every community across the country. Its success has been attributed to CTC’s strong brand,
vision, good strategic planning, and excellent execution of its marketing strategies.
When global giants Walmart, Home Depot, and Lowe's entered the already crowded Canadian market, many
industry analysts feared that their deep pockets and aggressive business strategies would spell the end of Cana-
dian Tire Corporation. However, it not only has held its own against these global behemoths, but has steadily
grown. The company has responded to advancing technology by integrating its website into its physical store
operations and upgrading its information technology and communication infrastructure. Its acquisition in 2001
Retailing and Omnichannel Marketing CHAPTER 13 395
of Mark’s Work Wearhouse (now called simply Mark’s) allowed it to pursue a broader target market, including
women. Expansion continued in 2011 with the purchase of the Forzani Group (now Sport Chek), Helly Hansen
in 2018, and Party City’s 65 Canadian locations in 2019.10 Party City's product line will be available in Canadian
Tire stores, along with access to items in its catalogue and licensed products from international brands such as
Disney.
Canadian Tire’s wide variety of products had resulted in stores that were hard to navigate. In 2015, it launched
a new showcase store in Edmonton, featuring varied shelf sizes, better sight lines, more natural light, and a
cleaner overall look. Over 100 digital screens facilitate locating items and let customers watch tutorial videos
to identify the right tools and products needed for projects. Virtual reality simulators allow shoppers to see how
furniture would look in a backyard setting. A car simulator lets them test tires in different weather conditions.11 The
effort paid off when the Edmonton store won the Best In-Store Experience and Design Award at the Retail Council
of Canada’s Excellence in Retailing Awards.12
To reach consumers in a competitive retail environment, the company has invested heavily in the digital
realm. After years of not producing a catalogue, it reintroduced one—The WOW Guide—with a digital twist, com-
bining print and online features.
Canadian Tire has implemented, then abandoned, ecommerce in the past. When it returned again, it
was with a focus on integrating the digital side with the in-store experience, allowing customers to do their
research and shop in whatever manner suits them best. The company uses sophisticated analytics tools
to personalize email offers, track online purchases, and make merchandising decisions.13 Customers can
choose to have purchases shipped to their homes or opt for click-and-collect. The company found that
30 percent of click-and-collect customers add more products when in store to pick up their online order.14
During the COVID-19 pandemic in 2020, huge changes in buying behaviour occurred. The company saw
growth of 80 percent in online sales at Canadian Tire stores and a 44-percent combined increase across
all banners.15 President and CEO Greg Hicks says that change is expediting upgrades to the company’s
ecommerce sites.
Canadian Tire’s retail innovations have created sustainable competitive advantage for almost a century. Now,
can it stay relevant for the next 100 years?
Retailing sits at the end of the supply chain, where marketing meets the consumer. But
there is far more to retailing than just manufacturing a product and making it available to
customers. It is primarily the retailer’s responsibility to make sure that customers’ expec-
tations are fulfilled. This chapter extends the discussion of supply chain management
from Chapter 12 by examining why and how manufacturers use retailers. We explain how
manufacturers choose retailers to carry their products, and we discuss the types of retailers
currently operating in Canada. Then we examine how retailers create value by imple-
menting marketing mix strategies. We follow this with a discussion of how omnichannel
options are changing the face of retailing and the ongoing evolution toward omnichannel
marketing.
Retailing is defined as the set of business activities that add value to products and retailing
services sold to consumers for their personal or family use. Our definition of retailing The set of business
activities that add value
includes products bought at stores, through catalogues, and over the Internet, as well as to products and services
services such as fast-food restaurants, airlines, and hotels. Some retailers claim they sell at sold to consumers for
“wholesale” prices, but if they sell to customers for their personal use, they are still retail- their personal or family
use; includes products
ers, regardless of their prices. Wholesalers (see Chapter 12) buy products from manufactur- bought at stores, through
ers and resell them to retailers or industrial or business users. catalogues, and over
the Internet, as well as
Retailing today is changing, both in Canada and around the world. No longer do services such as fast-food
manufacturers rule many marketing channels, as they once did. Retailers such as Walmart, restaurants, airlines, and
Costco, Carrefour (a French hypermarket), Home Depot, Loblaws, and Metro (a German hotels.
manufacturer wishes to portray will determine how many retailers within a geographic
region will carry the products.
For the second factor, manufacturers identify the types of retailers that would be
appropriate to carry their products. Although the choice is often obvious—such as a
supermarket for fresh produce—manufacturers may have a choice of retailer types for
some products.
As we discussed in Chapter 12, a hallmark of a strong distribution channel is that
manufacturers and retailers coordinate their efforts. In the third factor, manufacturers and
retailers therefore develop their strategy by implementing retailing's six Ps: product, price,
place, promotion, presentation, and personnel.
Finally, many retailers and some manufacturers are exploring a multichannel multichannel strategy
strategy in which they sell in more than one channel (e.g., store, catalogue, kiosk, and Selling in more than
one channel (e.g., store,
Internet). The fourth factor therefore consists of examining the circumstances in which catalogue, kiosk, and
sellers may prefer to adopt a particular strategy. Although these factors are listed consecu- Internet).
tively, manufacturers may consider them all simultaneously or in a different order.
Imagine trying to buy a suit for a job interview without being able to visit a retailer. You
would have to figure out exactly what size, colour, and style of suit you wanted. Then you’d
have to contact various manufacturers, whether in person, by phone, or over the Internet,
and order the suit. Assuming it fit you reasonably well, you might still need to take it to a
tailor to have the sleeves shortened. Then you’d have to go through the same process for a
shirt or blouse, accessories, and shoes. It would not be very convenient.
Retailers such as Moores Clothing for Men create value by pulling it all together for
you. The store offers a broad selection of suits, shirts, ties, and other accessories that it has
carefully chosen in advance. You can see, touch, and try on each item while in the store.
You can buy one suit or shirt at a time or buy several shirts to go with your new suit. Finally,
the store provides a salesperson to help you coordinate your outfit and a tailor to make the
whole thing fit perfectly.
When choosing retail partners, manufacturers consider the basic channel structure,
where their target customers expect to find the products, and channel member character-
istics. A manufacturer’s strategy depends
on its overall market power, and how con-
sistent a new product or line is with cur-
rent offerings. As discussed in Chapter 12,
distribution intensity is also a factor to be
considered. Think about the following
scenarios:
• Scenario 1: Cosmetics conglomerate
Estée Lauder’s subsidiary brand MAC
is introducing a new line of mascara.
• Scenario 2: Coach, well known for its
women’s handbags, is introducing a
line of men’s leather goods, apparel,
shoes, and accessories—products not
previously in its assortment.
• Scenario 3: Britt, a young Moores Clothing for Men creates value by helping its customers put it
entrepreneur, is launching a new line all together. Its wardrobe consultants provide fashion advice, and their
of environmentally friendly (green) tailors make sure everything fits properly.
hair-care products. ©Lars A. Niki
398 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Channel Structure
The level of difficulty a manufacturer has in
getting retailers to purchase its products is
determined by the degree to which the chan-
nel is vertically integrated, as described in
Chapter 12; the degree to which the manu-
facturer has a strong brand or is otherwise
desirable in the market; and the relative power
of the manufacturer and retailer.
MAC will use different criteria than either Coach for Men or Britt’s Scenario 1 represents a corporate verti-
green cosmetics for placing products in retail stores. cal marketing system. Because MAC is made
Shutterstock/TY Lim by Estée Lauder and operates its own stores,
when the new mascara line is introduced, the
stores will simply receive the new line automatically. They have no choice. In contrast,
Revlon would have a much more difficult time getting Shoppers Drug Mart to buy a new
mascara line because these supply chain partners are not vertically integrated.
When an established firm such as Coach enters a new market with men’s leather
goods, apparel, shoes, and accessories, as is the case in Scenario 2, it cannot just place the
products with any retailer. It must determine where its customers would expect to find
higher-end scarves, leather goods, and accessories, and then use its established relation-
ships with women’s handbag buyers, the power of its brand, and its overall reputation to
leverage its position in this new product area.
In Scenario 3, our young entrepreneur Britt would have an even more difficult time
getting a retailer to buy and sell her green hair-care line, because she lacks power in the
marketplace—she is small, and her brand is unknown. It would be difficult to get buy-
ers to see her, let alone consider her line. She might face relatively high listing fees (see
Chapter 12) just to get space on retailers’ shelves. But like Coach in Scenario 2, when choos-
ing retailers to which to sell, Britt should consider where the end customer expects to find
her products, as well as some important retailer
characteristics.
Customer Expectations
Retailers should know customer preferences
regarding manufacturers. In contrast, manufac-
turers need to know where their target market
customers expect to find their products and those
of their competitors. Customers generally expect
to find certain products at some stores but not
at others. For example, Estée Lauder and Coach
would not choose to sell to Giant Tiger because
their customers would not expect to shop at this
store for high-end cosmetics or leather goods.
Coach partners with retailers to help conveniently deliver its Instead, such stores might carry less-expensive
products to satisfied customers. cosmetic brands, such as Revlon and Maybelline,
Shutterstock/TY Lim or even discontinued lines. But Coach customers
Retailing and Omnichannel Marketing CHAPTER 13 399
would definitely expect to find the brand’s clothing offerings at major department stores
and at Coach stores.
Companies need to stay abreast of changes in where customers buy products and what
products they request, and then change their distribution strategies accordingly. As an
example, Fitbit is both an electronic device and a fitness tool. Due to the nature of its prod-
uct, the company distributes through electronics stores (Best Buy and The Source), sport-
ing goods stores (Atmosphere and Sport Chek) and even Chapters, which has increased its
electronics offerings.
Amazon has an advantage here. It already tracks your online buying habits and uses
this data to attract advertisers. For example, a chain of physical therapy centres used online
ads to target people near its locations who purchased knee braces on Amazon. And a finan-
cial services company searching for customers for its retirement advisory services, placed
ads aimed at middle-aged people who ordered personal finance books from Amazon.21
Food Retailers
The food retailing landscape is changing dramatically. Not too long ago, people shopped
for food primarily at traditional grocery stores. Today, however, you can buy food at
drugstores, discount stores, warehouse clubs, and convenience stores. Pharmacy chains
such as Shoppers Drug Mart offer milk, bread, and even fresh fruit in some locations.
Walmart and the Real Canadian Superstore both provide supercentres whose product
mix contains 30–40 percent food items. With its purchase of Whole Foods, even Amazon
400 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Big-box food retailer Comes in three types: supercentres, Supercentres and warehouse clubs are
hypermarkets, and warehouse clubs. popular in Canada, whereas hypermarkets
Larger than conventional supermarkets, tend to flourish in Europe and South America.
they carry both food and nonfood items. Hypermarkets (Carrefour) and warehouse
clubs (Costco) generally carry a greater
percentage of food.
Convenience store Provides a limited number of items at Stores such as 7-Eleven generally charge
convenient locations in small stores with higher prices than most other types of food
speedy checkout. stores. Many convenience stores also sell
gasoline, which accounts for more than
55 percent of their annual sales.
Retailing and Omnichannel Marketing CHAPTER 13 401
about the selection of produce, storage, and cooking tips, and an in-house registered dieti-
tian helps shoppers understand which foods can re-energize their health.24
Specialty Stores
Specialty stores concentrate on a limited number of complementary merchandise catego- specialty stores
ries in relatively small stores. These stores tailor their retail strategy toward very specific Concentrate on a limited
number of complementary
market segments by offering deep but narrow assortments and sales associate expertise. For merchandise categories in
example, Walking on a Cloud is a Canadian-owned and -operated footwear retailer. Its a relatively small store.
stores feature an extensive collection of fashionable, quality footwear for women, men, and
children, suitable for everything from
outdoor activities to the work environ-
ment. Some specialty stores come with
concerns as noted in in Ethical & Soci-
etal Dilemma 13.1. But, with the
legalization of marijuana, many con-
sumers cheered the opening of new
specialty stores offering a variety of
cannabis products and accessories.
Estée Lauder’s MAC line of cos-
metics sells in the company’s own
retail specialty stores, as well as in
some department stores. Specialty
stores would be excellent outlets for the
new lines by Estée Lauder and Britt.
Customers likely expect to find Coach’s
line of men’s leather goods and acces-
sories in men’s apparel, gift, or leather People love to shop at Giant Tiger stores because their merchandise is
stores. Britt’s line of green hair-care inexpensive, the stores are conveniently located and easy to shop in, and
products would fit nicely in a specialty treasures are found every day among the basics.
store such as Sephora. Used with permission of Giant Tiger Stores Limited
402 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Outcry as Juul Opens First Retail Although Juul says it views youth vaping as “com-
pletely unacceptable,” the minimalist design of its prod-
Vaping Store* uct appeals to a young target market. Some critics have
pointed out that the packaging mimics the colours used
Canada legalized vaping in May of 2018. One e-cigarette by Marlboro cigarettes. Juul executives claim they are not
maker, Juul, has quickly emerged as the leading vaping marketing to youth and have shut down the company’s
brand in Canada, capturing a 78-percent share of the Facebook and Instagram pages to combat underage
market. Just as quickly, concerns have been raised that use. Still, in one high school, the principal estimates that
its products contain higher levels of nicotine than in the half of the students use e-cigarettes, many of which are
past. An online study that straddled the month before and Juul products.††† And with no telltale smell, vaping can be
just after Juul launched in Canadian stores found that the discrete enough that some high-school students have
number of young vapers aged 16 to 19 nearly doubled admitted to doing it in class.
from 2017 to 2018. Both the increase and the fact that Juul products are carried in about 11,000 stores in
minors are vaping (the legal smoking age in Canada is 19) Canada. Its first retail store in North America, which
are worrisome. recently opened in Toronto, has stoked concerns about
the harms of vaping. Along with banning fruity flavours
that appeal to youth, Health Canada announced severe
advertising restrictions for e-cigarettes. The Canadian
federal government will ban e-cigarette ads in places
where young people would see them, including social
media, convenience stores, and public transit.** To further
Critics have noted that Juul’s packaging mimics An ad in The Globe and Mail to promote the
colours used by Marlborough. opening of Juul’s Toronto store.
Sources: (left): JUUL Labs; (right): Philip Morris USA Inc. Source: JUUL Labs
Retailing and Omnichannel Marketing CHAPTER 13 403
limit exposure, no advertising is allowed at retail stores, as a result of vaping in the U.S.† The people affected
in print publications, or on websites or social-media sites were young–19 years old on a verage–and healthy, with
frequented by youth. one third of them under the age of 18. Most of them
The fact remains, the popularity of e-cigarettes means purchased their products on the black market.†† In lung
many youth are becoming addicted to nicotine. Although sample tests, researchers found a link between the ill-
the number of teen vapers has doubled since May 2018, ness and Vitamin E acetate, a cutting agent used in illicit
more teens still smoke than vape. That raised fears about THC vaping products.‡ The U.S. Food and Drug Admin-
vaping leading to smoking and led to calls for an out- istration plans to develop guidelines that would ban all
right ban on e-cigarettes as well as action to raise the flavoured e-cigarette products. Other countries, includ-
legal smoking age to 21. More alarming is the news that ing Australia, Singapore, Brazil, India, and China, have
dozens of people have died and thousands became sick banned e-cigarettes.‡‡
*Adina Bresge, “Juul opens store in Toronto amid outcry about rise of teen vaping,” The Associated Press, July 29, 2019, www.ctvnews.ca/business/
juul-opens-store-in-toronto-amid-outcry-about-rise-of-teen-vaping-1.4528256; Carly Weeks, “Health Canada proposes stricter advertising rules to
address youth vaping,” The Globe and Mail, February 5, 2019, www.theglobeandmail.com/canada/article-health-canada-proposes-stricter-advertising-
rules-to-address-youth/; André Picard, “Banning e-cigarettes is not the way to address fears about the harms of vaping,” The Globe and Mail, July 2, 2019
(accessed August 11, 2019).
†††“U.S. e-cigarette maker Juul facing mounting scrutiny by state attorneys-general,” The Globe and Mail, August 29, 2019, www.theglobeandmail.com/
business/international-business/article-us-e-cigarette-maker-juul-facing-mounting-scrutiny-by-state/ (accessed Sept. 3, 2019).
**Carly Weeks, “Ottawa to ban e-cigarette ads in bid to curb youth vaping use,” The Globe and Mail, December 19, 2019, www.theglobeandmail.com/
canada/article-vaping-teens-regulations-e-cigarettes-nicotine-vaping-ban (accessed December 22, 2019).
†Carly Weeks, “Canada’s first vaping-related illness reported in London, Ont.,” The Globe and Mail, September 18, 2019, www.theglobeandmail.com/
canada/article-canadas-first-vaping-related-illness-reported-in-ontario; Andre Picard, “A dual challenge: Preventing teen vaping and encouraging adult
harm-reduction,” The Globe and Mail, November 18, 2019, www.theglobeandmail.com/opinion/article-a-dual-challenge-preventing-teen-vaping-and-
encouraging-adult-harm/ (accessed November 19, 2019)
††Andre Picard, “Banning vaping is not the way to address the worrying outbreak of related lung disease,” The Globe and Mail, Sept. 9, 2019, www.the
globeandmail.com/opinion/article-banning-vaping-is-not-the-way-to-address-the-worrying-outbreak-of/ (accessed Sept. 10, 2019).
‡Julie Steenhuysen, " U.S. CDC reports 'breakthrough' in vaping lung injury probe as cases top 2,000,” Reuters, November 9, 2019, www.reuters.com/
article/us-health-vaping-cdc/u-s-cdc-reports-breakthrough-in-vaping-lung-injury-probe-as-cases-top-2000-idUSKBN1XI26R (accessed November 13, 2019).
‡‡Matthew Perrone, “Trump administration plans to ban flavours used in e-cigarettes,” The Globe and Mail, September 11, 2019, www.theglobeandmail.
com/world/us-politics/article-trump-administration-announces-plans-to-ban-flavored-e-cigarettes-from/; Ari Altstedter and Bibhudatta Pradhan, Tide
Turns Against Vaping as India Bans Sales, China Sites Pull Juul, Bloomberg, September 18, 2019, www.bloomberg.com/news/articles/2019-09-18/india-
bans-e-cigarettes-amid-global-concern-over-health-risks (accessed September 19, 2019).
Sephora, France’s leading perfume and cosmetic chain—a division of the luxury
goods conglomerate LVMH (Louis Vuitton–Moët Hennessy)—is an example of an inno-
vative specialty store concept. In Canada, prestigious cosmetics are typically sold in
department stores. Each brand has a separate counter, and a commissioned salesperson
is stationed behind the counter to help customers. Sephora is a cosmetics and perfume
specialty store offering a deep assortment in a self-service, 550- to 840-square-metre
format. Its stores provide more than 15 000 SKUs and more than 200 brands, including its
own, private-label brand. Merchandise is grouped by product category, with the brands
displayed alphabetically so customers can locate them easily. Customers are free to shop
and experiment on their own. Product testing is encouraged. The knowledgeable sales-
people, always available to assist customers, are paid a salary by Sephora, unlike depart-
ment store cosmetic salespeople, who are compensated in part by incentives provided
by the vendors. The low-key, open-sell environment results in customers spending more
time shopping.
Category Specialists
A category specialist offers a narrow variety but a deep assortment of merchandise. Some category specialist
are like large specialty stores, such as Paderno (home and kitchen tools) or Chapters Indigo Offers a narrow variety
but a deep assortment of
(books); others resemble discount stores in appearance and have similar low prices but merchandise.
offer a more concentrated assortment of goods, such as Best Buy (consumer electronics) or
Home Depot (home improvement). Most category specialists use a self-service approach,
404 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Department Stores
Department stores are retailers that carry many dif-
ferent types of merchandise (broad variety) and lots
of items within each type (deep assortment), offer
Estée Lauder’s MAC Cosmetics lines sell in specialty stores.
©Astrid Stawiarz/Getty Images for MAC Cosmetics
some customer services, and are organized into
separate departments to display their merchandise.
Department stores often resemble a collection of
category killer specialty shops, including women’s, men’s, and children’s clothing and accessories; home
Offers an extensive furnishings and furniture; and kitchenwares and small appliances.
assortment in a particular
category, so overwhelming Some observers argue that the era of the department store has come to an end. With
the category that other the demise of Eaton’s and Sears, the largest remaining department store chain in Canada
retailers have difficulty
competing.
is the Hudson’s Bay Company. Other store chains are very diverse. Some, such as Saks
OFF Fifth, carry less expensive products and compete more closely with discount stores,
whereas others, such as Holt Renfrew, sell expensive, exclusive merchandise and compete
with high-end specialty store chains. Founded in 1840, higher-end fashion retailer Simons
has been rapidly expanding outside of its home province of Quebec with new stores in
drugstore Ontario, Alberta, and British Columbia.
A specialty store that
concentrates on health
Department stores have lost market share to specialty stores, discount stores, and
and personal grooming category specialists in recent years. They seem to have gotten stuck in the middle,
merchandise, though between those retailers that provide a better value at lower prices and those that offer
pharmaceuticals may
represent more than more complete and fashionable assortments and better customer service, according to
60 percent of its sales. consumer perceptions. But they are fighting back with a vengeance. Hudson’s Bay has
begun placing a greater emphasis on high-fashion,
private-label merchandise than it did in the past.
Facing a flood of American rivals (including
Nordstrom, Nordstrom Rack, Bloomingdales, and
J. Crew) that have opened Canadian locations,
both Holt Renfrew and Hudson’s Bay leapt into the
discount category. Holt’s launched hr2 stores in
Brossard, Quebec, and Vaughan, Ontario, offering
leading brands at discount prices, however, closed
both in mid-2017.25 Hudson’s Bay unveiled its first
outlet store outside Toronto featuring “mid-tier”
brands such as Calvin Klein, Guess, and DKNY,
followed by a second store in Montreal. However,
one year later, both outlets were closed.26
Drugstores
Stores such as Home Depot are known as category specialists
because they offer a narrow variety but a deep assortment of A drugstore is a specialty store that concentrates
merchandise. on health and personal grooming merchandise,
Lawrence K. Ho/Los Angeles Times via Getty Images though pharmaceuticals often represent more than
Retailing and Omnichannel Marketing CHAPTER 13 405
60 percent of its sales. The largest drugstore chains in Canada—Shoppers Drug Mart
(Pharmaprix in Quebec), Jean Coutu, PharmaSave, and London Drugs—face a major
challenge because of the low margins they earn on prescription drugs; health insurance
companies and government programs pay most of the cost of many prescriptions, and the
health insurance companies negotiate substantially lower prices with drugstores. These
drugstores therefore are attempting to make up for their lost profits on prescriptions by
concentrating their efforts on nonpharmaceutical products. Shoppers Drug Mart has rede-
signed its cosmetic counters as Beauty Boutiques to capitalize on attractive profit margins
from cosmetic products. It has even added clinics offering cosmetic treatment services such
as laser therapy and injections of Botox or skin fillers. General merchandise has long been
a staple in drugstores, but food, particularly fresh food such as milk and fruit, has become a
relatively new addition to their assortment.
Off-Price Retailers
An off-price retailer—such as Winners, Designer Depot, Marshalls, and HomeSense— off-price retailer
offers an inconsistent assortment of merchandise at relatively low prices. They typically A type of retailer that
offers an inconsistent
buy from manufacturers or other retailers with excess inventory or at the end of a season assortment of merchandise
for one-quarter to one-fifth the original wholesale price. Because of the way these retailers at relatively low prices.
buy, customers can never be confident that the same type of merchandise will be in stock
each time they visit the store. Different bargains also will be available on each visit. To
improve their offerings’ consistency, some off-price retailers complement their opportu-
nistically bought merchandise with merchandise purchased at regular wholesale prices.
In addition to their low prices, the key to off-price retailers’ success is the treasure hunt
extreme-value retailer
environment they create. Customers often make purchase decisions based on price tags
A general merchandise
that are compared to “regular” retail prices. However, these comparisons can sometimes discount store found in
be misleading. lower-income urban or
rural areas.
Extreme-value retailers, such as Dollarama, are a subset of off-price retailers and one of
the fastest-growing retailing segments. An extreme-value retailer is a general merchan- services retailers
Firms that primarily sell
dise discount store found in a lower-income urban or rural area. They are much smaller services rather than
than traditional discount stores, usually less than 840 square metres. merchandise.
Services Retailers
The retail firms discussed in the previous sections
sell products to consumers. However, services
retailers, or firms that primarily sell services rather
than merchandise, are a large and growing part of
the retail industry. Consider a typical Saturday:
After a bagel and cup of coffee at a nearby Great
Canadian Bagel, you go to the laundromat to wash
and dry your clothes, drop off a suit at a dry cleaner,
have a prescription filled at a Rexall drugstore, and
make your way to Jiffy Lube to have your car’s oil
changed. In a hurry, you drive through a Burger
King so you can eat lunch quickly and be on time
for your haircut at Supercuts. By mid-afternoon,
you’re ready for a workout at the YMCA. After stop-
ping at home for a change of clothes, you’re off to
dinner, a movie, and dancing with a friend. Finally,
to end your day, you buy a caffè latte at Starbucks, Shoppers Drug Mart has opened numerous Beauty Boutiques
having interacted with 10 different services retailers to capitalize on attractive profit margins from cosmetics.
during the day. Source: Shoppers Drug Mart Corporation
406 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
There are a wide variety of services retailers, along with some national companies,
that provide these services. These companies are retailers because they sell goods and
services to consumers. However, some are not just retailers. For example, airlines, banks,
hotels, and insurance and express-mail companies sell their services to businesses as well
as consumers.
Organizations such as banks, hospitals, health spas, legal clinics, entertainment firms,
and universities that offer services to consumers traditionally have not considered them-
selves retailers. Yet due to increased competition, these organizations are adopting retailing
principles to attract customers and satisfy their needs.
Several trends suggest considerable future growth in services retailing. For example,
the aging population will increase demand for healthcare services. Younger people are also
spending more time and money on health and fitness. Busy parents in two-income fami-
lies are willing to pay to have their homes cleaned, lawns maintained, clothes washed and
pressed, and meals prepared so they can spend more time with their families.
activities. Offering assortments gives customers choice and helps attract new and
existing customers: Loblaw has created many different store formats for different
target customers. For example, Loblaw’s Real Canadian Superstores are for customers
who want high-quality products, a wide range of product assortments, and high lev-
els of service, and are willing to pay a premium, but Loblaw’s No Frills stores are for
customers who want to pay much lower prices and don’t mind narrower product assort-
ments and less service.
Hudson’s Bay added designer shoe lines to its mix when its analysis showed that
footwear sales trends were rising, while clothing and accessory sales were falling.27 It
is now the top seller of women’s shoes in Canada. To further boost sales, it will focus
on shoes and other key areas including clothing, handbags, jewellery, and cosmetics.28
Staples added more upscale headphones, such as Beats by Dre and Monster, which
resulted in double-digit sales increases.29 Likewise, the merchandise strategy at
Chapters Indigo stores has moved away from books and gift items to home decor, elec-
tronics, and higher-end toys such as American Girl dolls. Not all changes are success-
ful, however. HMV Canada shook up music retailing with the addition of headphones,
books, gadgets, and clothing designed to attract teens and 20-somethings looking to
make a fashion statement into its stores. And still, the chain was put into receivership,
closing all its stores in 2017.30
Manufacturers don’t like to store inventory because their factories and warehouses
are typically not available to customers. Consumers don’t want to store more than they
need because it takes up too much space. Neither group likes to store inventory that
isn’t being used because doing so ties up money that could be used for something else.
Retailers thus provide value to both manufacturers and customers by performing the
storage function, though many retailers are beginning to push their suppliers to hold
the inventory until they need it. (Recall our discussion of just-in-time inventory systems
in Chapter 12.)
It is difficult for retailers to distinguish themselves from their competitors through
the merchandise they carry because competitors can purchase and sell many of the same
popular brands. So, many retailers have developed private-label brands (also called store
brands), which are products developed and marketed by a retailer and available only from
that retailer. For example, if you
want House & Home bedding, you
have to go to Hudson’s Bay.
Price
Price helps define the value of
both the merchandise and the ser-
vice, and the general price range
of a particular store helps define
its image. Although both Banana
Republic and Old Navy are owned
by The Gap, their images could
not be more different. Banana
Republic prices its merchandise
to attract young professionals,
whereas Old Navy aims to satisfy
trendy, price-sensitive consum-
ers. Thus, when a manufacturer Many retailers have developed private-label brands to differentiate their
considers which of these stores is merchandise.
most appropriate for its new line Shutterstock/crystalfoto
408 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
of scarves and accessories, it must keep customers’ perceived images of these retailers’
price–quality relationship in mind.
As we showed in Chapter 11, there is much more to pricing than simply adding
a markup onto a product’s cost. Manufacturers must consider at what price they will
sell the product to retailers so that both the manufacturer and the retailer can make a
reasonable profit. At the same time, both the manufacturer and the retailer are con-
cerned about what the customer is willing to pay. Clothing retailers address this in part
by displaying new arrivals at the front of the store where fashion forward customers
browse. Price sensitive customers likely head straight to the sale racks at the back of
the store.
Technology can shape customer expectations of price by enabling them to quickly and
easily access information. Canadian Tire launched a mobile app that allows in-store shop-
pers to scan product bar codes to get price, availability, and product information, as well as
ratings and reviews by other customers. Shoppers can also access the Canadian Tire weekly
flyer to check out current sales and special pricing or to get alerts when items on their wish
list go on sale.31 The app also allows customers to shop using a mobile device and then pick
up in-store.
Retailers that provide great value, such as Costco, were once known largely as a des-
tination for monthly stock-up trips. But today, they have penetrated the weekly shopping
routine. Consumers of all ages, nearly all income groups, and practically all segments have
undertaken the “shift to value.” Consumers have fundamentally changed their reference
points for both price and quality, such that they have been trained to expect significantly
lower prices from many retailers.
Price must always be aligned with the other elements of the retail mix: product,
promotion, place, personnel, and presentation. For instance, you would not expect to
pay $20 for a chocolate bar sold in your local grocery store, but a limited-edition bar
made of fine Belgian dark chocolate, packaged in a gold-plated keepsake box, and sold
at Holt Renfrew might be a real steal at $20.
Promotion
Retailers and manufacturers know that good promotion, both within their retail environ-
ments and in the media, can mean the difference between flat sales and a growing consumer
base. Advertising in traditional media such as newspapers, magazines, and television con-
tinues to be important to get customers into the
stores. Increasingly, electronic communications are
being used for promotions. In the store, however,
retailers use displays and signs, placed at the point
of purchase or in strategic areas such as the ends of
aisles (known as end caps), to inform customers and
stimulate purchases of the featured products.
Technology is expanding the ways in which
retailers can reach customers with their promotional
message. For example, customers can access a retail-
er’s website using a variety of devices, ranging from
a computer to a mobile device. However, the typical
retailer’s website is not designed to accommodate a
mobile device’s small screen and slower download
speeds. As a result, companies such as Sephora have
Costco attracts people of all ages and income brackets as developed special sites for users to access through
consumers shift to value retailers. mobile devices. As noted earlier, Canadian Tire has
Michael Brochstein/SOPA Images/LightRocket via Getty Images created a specialized app to enable mobile device
Retailing and Omnichannel Marketing CHAPTER 13 409
Presentation (Store
Design and Display)
In addition to more traditional forms
of promotion, many retailers are
devoting more resources to their
overall retail environment as a means
to promote and showcase what the
store has to offer. Their displays of Retailers used augmented reality apps such as Pokémon Go to attract
merchandise, both in the store and in shoppers to their stores.
windows, have become an important Shutterstock/Artissara
410 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
forms of retail outlets compete in the market. Generally, retailers enter with low prices, low
margins, and low status. Over time, they add more and more service and other improve-
ments and thus are able to raise prices, earn higher margins, and achieve higher status with
consumers. For example, the first menu at McDonald’s offered only hamburgers, french
fries, and milkshakes for takeout. Today, McDonald’s has a wide and varied menu, upscale
coffee, indoor seating, Wi-Fi access, play areas for children, and even table service in some
locations.
In the Wheel of Retailing concept, as stores add services and improvements, expand
the mix of merchandise carried, and upgrade their facilities, costs are generally added to
412 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
As time
passes,
outlet Passage of Time
adds
services
the day-to-day operations, which results in higher prices. This change opens up opportuni-
ties for new lean, mean entrants at the beginning of the wheel.
In some Canadian McDonald’s outlets, unappealing plastic is being replaced by taste-
ful colours and natural materials, fireplaces, flat-screen TVs, leather chairs, and modern
lighting fixtures. Stores are being redesigned, featuring up to four different zones geared
to the needs of different target markets; for example, a high-traffic zone for people on the
go, a comfortable seating area where customers can linger, and an area specifically for
families and large groups.42 The retrofit is linked to McDonald’s strategy to gain a large
part of the specialty beverage market, which is dominated by retailers such as Starbucks
and Second Cup. By introducing upscale coffee and comfortable seating, McDonald’s can
earn higher margins and gain higher status. These innovations have enabled McDonald’s
to continue to serve its existing loyal customers and reach out to new target segments
while charging competitive prices—key factors for successful retailing. Thus, it is hardly
surprising that McDonald’s continues to dominate its industry and stave off competition
from new entrants.
Even beer stores across Canada are sprucing up their outlets in an attempt to
improve the customer experience. In British Columbia, signature stores now offer
broader selection and better presentation of products. To refresh the store experience
in Manitoba, the government has opened new express and mini-stores. You can browse
product selection on wall-mounted tablets in Ontario stores that feature upbeat music
and trained staff who suggest food pairings for your beer. Whenever a lease comes up for
renewal, the Société des alcools du Québec invests heavily in improving the look of the
Retailing and Omnichannel Marketing CHAPTER 13 413
McDonald’s redesigned restaurant (right) in Scarborough, Ontario, is considerably more upscale compared to early
restaurants (left).
(left): James Leynse/Corbis via Getty Images; (right): Heorshe/Alamy Stock Photo
stores. Although most storefronts in Nova Scotia were renovated years ago, the focus is
now on the back area, in pursuit of a browsing experience that doesn’t feel like being in a
warehouse. And in Prince Edward Island, a rebranding effort has taken place to provide a
new name, new colours, and new store layout and design.43
A variety of factors influence whether customers will actually buy once they are in the
store; some of these are quite subtle. Consumers’ perceptions of value and their subsequent
patronage are heavily influenced by their perceptions of the store’s “look and feel.” Con-
sider the difference between having coffee at Tim Hortons® versus Second Cup. In which
outlet would you rather spend time socializing with your friends? Music, colour, scent,
and crowding can also significantly impact the overall shopping experience. The extent
to which stores offer a more pleasant shopping experience fosters a good mood, resulting
in greater spending. As Sustainable Marketing 13.1 notes, some retailers are committing
to publicly stated sustainability measures to help both their stores and their customers
embrace greener practices.
Personnel
Personal selling and customer service representatives are also part of the overall promo-
tional package. Retailers must provide services that make it easier to buy and use products.
Well-trained sales personnel can influence the sale at the point of purchase by educating
consumers about product attributes, pointing out the advantages of one item over another,
and encouraging multiple purchases, whether in the store, on the phone, or on the Inter-
net. They can also facilitate the sale of products or services that consumers perceive as
complicated, risky, or expensive, such as an air conditioning unit or a diamond ring. Manu-
facturers can play an important role in getting retail sales and service associates prepared
to sell their products. Estée Lauder, for example, could conduct seminars about how to use
and sell a new line of cosmetics. In some retail firms, these salesperson and customer ser-
vice functions are being augmented, or even replaced, by technology used through in-store
kiosks, the Internet, or self-checkout lanes.
414 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Place
Retailers already have realized that conve-
nience is a key ingredient to success, and an
important aspect of this success is convenient
locations. As the old cliché claims, the three
most important things in retailing are “location,
location, location.” Great locations provide a
competitive advantage that few rivals can dupli-
cate. Although fashion retailer Zara spends
almost nothing on advertising, it invests heavily
in locating its shops in venues that offer beauty
and historical appeal.45 And once Starbucks
saturates a market by opening in the best loca-
tions, it will be difficult for a new competitor to
break into that same market—where would it
put its stores?
In pursuit of better and better locations,
retailers are experimenting with different
options to reach their target markets. Canada’s To offer more convenience, some Shoppers Drug Mart stores are
largest drugstore retailer, Shoppers Drug Mart, open 24 hours a day so customers can pick up prescriptions or other
now has some stores that are open 24 hours items at any time.
a day so customers can pick up prescriptions Shutterstock/Jeff Whyte
416 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
and other items at any time. P&G took the store to consumers when it opened a virtual
store in Toronto’s Union Station. Partnering with Well.ca, the month-long initiative pre-
sented consumers with photos of products with QR codes that could be scanned, allowing
them to order 120 different items and have them delivered to their homes at no cost.46 It
followed with another mobile exercise that launched mobile stores in 50 Toronto bus
shelters offering P&G personal care, baby, and beauty items from Walmart. The shopping
experience let consumers turn idle time waiting for the bus into productive time, order-
ing products on the go.47 IKEA recognizes that as more consumers are living in cities and
forgoing car ownership, it is hard for them to shop in its big box stores. To satisfy demand
from urban consumers, the retailer is opening smaller stores in the heart of cities such as
Madrid and New York City, with plans for Toronto as well.48 And although IKEA’s new
seven-storey retail outlet being built in Vienna is not small format, it is a nod to urban
shoppers who are expected to arrive by foot or public transit, and as such, has no parking
spaces.49
Pizza Pizza offers customers a seamless way to order across all channels.
Source: Pizza Pizza
Retailing and Omnichannel Marketing CHAPTER 13 417
In this section, we examine how the Internet has improved retailers’ ability to
serve their customers and build a competitive advantage. More and more Canadians
are embracing ecommerce. During the COVID-19 pandemic, online ordering became
critical for consumers as they self-isolated for extended periods of time. Forecasts pre-
dict that online retail sales in Canada will reach $55.4 billion by 2023, representing
10 percent of all Canadian retail sales.51 The addition of the Internet channel to tradi-
tional store-based retailers has improved their ability to serve their customers and build
a competitive advantage in several ways. According to Marketing Analytics 13.1, IKEA
effectively exemplifies these benefits.
First, the addition of an Internet channel has the potential to offer a greater selection
of products. Second, an Internet channel enables retailers to provide customers with more
personalized information about products and services. Third, it offers sellers the unique
opportunity to collect information about consumer shopping behaviour—information that
they can use to improve the shopping experience across all channels. Finally, the Internet
channel allows sellers to enter new markets economically.
In-Store and Online Analytics These social media–derived insights suggest channels
and routes for improving consumers’ perceptions of the
at IKEA§§ brand. The influences of these analytics on many of IKEA’s
online actions are evident. For example, remember when
IKEA’s affordable, ready-to-assemble product line has “The Dress” became a vastly and inexplicably trending
made it the go-to place for furnishing a new home, apart- topic–was it white and gold or black and blue? No one
ment, or room. Much of its success stems from its unique could agree, and IKEA rapidly leveraged the social-media
store layouts, which force shoppers to walk past virtually sensation to plug its products by using the hashtag
every product offered, as displayed in sample rooms that #TheDress. Its social-media video series, “Square Metre
have been modeled to inspire their design ideas. The lay- Challenge,” got millions of views from consumers looking
out also helps IKEA recognize which sorts of displays of to maximize tiny living spaces using IKEA products.
what types of products prompt purchases—a sort of ele-
mental analytics that benefits its strategy. So when IKEA
first decided to launch its website, it already recognized
the importance of analytics as vital information that would
enable it to serve its customers better.
Initially, IKEA’s analytics-oriented focus was on website
development. With its massive product range, the retailer
had to find ways to discover pertinent patterns in con-
sumers’ product navigation and selection approaches. As
it gathered this information, IKEA could begin to revise
its site and successfully design a Web page that encour-
aged customers to slow down during their online brows-
ing, which would expose them to new products, design
ideas, and other services the company offers, but without
ever sacrificing the convenience they demanded.
Having achieved that goal, IKEA turned its focus to
increasing its online presence. For this feat, it needed IKEA’s analytics are used for website development and to
to do more than analyze data that it had gathered from improve its social media presence.
its own site. It needed data from social networking sites. ©Sergio Dionisio/Bloomberg/Getty Images
Huge Inc., “Master Plan: IKEA,” Huge Inc., 2012; Case Studies, “IKEA and Brandwatch: Embedding Social across the Enterprise,” PerformanceIN,
§§
March 9, 2015; “IKEA: A Data Matching Love Story,” Cream Global, 2012; Matt Kwong, “Building Your Career in Hashtags,” Toronto Star, March
16, 2015; James Ainsworth, “IKEA Speaks the Language of Emoticons,” SmartData Collective, February 12, 2015; Gulsen Erkilic, “IKEA’s Digital
Marketing Strategy: 8 Things to Know About the Company’s Success,” Dan Digital Network Agency, January 14, 2019, https://digitalagency
network.com/ikea-digital-marketing-strategy/ (accessed August 10, 2019).
418 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Consumers who shop at omnichannel retailers—retailers that sell merchandise in more than one retail channel (such as a
catalogue (right), the Internet (centre) or a Canadian store (left)—typically buy more than those who shop in only one retail
channel.
Trademarks of Canadian Tire Corporation, Limited used under licence.
Although offering an electronic channel may draw away some sales from other chan-
nels, using it with other channels can result in consumers making more total purchases
from the seller.
Personalization
The most significant potential benefit of the Internet channel is its ability to personal-
ize promotions and services for each customer economically. Canadian consumers are
Retailing and Omnichannel Marketing CHAPTER 13 419
Personalized Offering The interactive nature of the Internet also provides an opportu-
nity for retailers to personalize their offerings for each of their customers. Using cookies
that provide identifying information, Amazon.ca enhances the shopping experience by
serving up personalized homepages with information about books and other products of
interest based on visitors’ past purchases. Amazon.ca will also send interested customers
customized email messages that notify them that their favourite author or recording artist
has published a new book or released a new CD. Another personalized offering that online
retailers are able to present to customers is recommendations of complementary merchan-
dise. Just as a well-trained salesperson would make recommendations to customers prior
to checkout, an interactive Web page can make suggestions to the shopper about items that
he or she might like to see, such as what other customers who bought the same item also
purchased.
Some omnichannel retailers are able to personalize promotions and Internet home
pages on the basis of several attributes tied to the shopper’s current or previous Web
sessions, such as the time of day, time zone as determined by a computer’s IP address, and
assumed gender. However, some consumers worry about this ability to collect informa-
tion about purchase histories, personal information, and search behaviour on the Internet.
How will this information be used in the future? Will it be sold to other firms, or will the
consumer receive unwanted promotional materials online or in the mail?
Integrated CRM
Effective omnichannel operations require an integrated customer relationship management
(CRM) system with a centralized customer data warehouse that houses a complete history
of each customer’s interaction with the retailer, regardless of whether the sale occurred in a
store, on the Internet, or on the telephone.58 This information storehouse allows retailers to
efficiently handle complaints, expedite returns, target future promotions, and provide a seam-
less experience for customers when they interact with the retailer through multiple channels.
Brand Image
Retailers need to provide a consistent brand image across all channels. For example, MEC
reinforces its image of selling high-quality, environmentally friendly sports equipment
Retailing and Omnichannel Marketing CHAPTER 13 421
in its stores, catalogues, and website. Each of these channels emphasizes function, not
fashion, in the descriptions of MEC’s products. Its position about taking care of the envi-
ronment is communicated by carefully lighting its stores and using recycled polyester
and organic, rather than pesticide-intensive, cotton in many of its clothes. A positive
omnichannel experience yields results. According to Sandy Treagus, chief financial
officer for MEC, “Our ecommerce presence has had a profound impact on our retail
stores, and vice versa.”59
Pricing
Pricing represents another difficult decision for an omnichannel retailer. Customers expect
pricing consistency for the same SKU across channels (excluding shipping charges and
sales tax). However, in some cases, retailers need to adjust their pricing strategy because of
the competition they face in different channels. Retailers with stores in multiple markets
often set different prices for the same merchandise to compete better with local stores. Cus-
tomers generally are not aware of these price differences because they are only exposed
to the prices in their local markets. However, omnichannel retailers may have difficulties
sustaining these regional price differences when customers can easily check prices on the
Internet.
Supply Chain
Omnichannel retailers struggle to provide an integrated shopping experience across all
their channels because unique skills and resources are needed to manage each channel.
For example, store-based retail chains operate and manage many stores, each requiring
the management of inventory and people. With Internet and catalogue operations, inven-
tory and telephone salespeople instead are typically centralized in one or two locations.
Also, retail distribution centres (DCs) supporting a store channel are designed to ship many
cartons of merchandise to stores. In contrast, the DCs supporting a catalogue and Inter-
net channel are designed to ship a few items to individual customers. The difference in
shipping orientation for the two types of operations requires a completely different type of
distribution centre.
Due to these operational differences, many store-based retailers have a separate orga-
nization to manage their Internet and catalogue operations. But as the omnichannel opera-
tion matures, retailers tend to integrate all operations under one organization. Walmart
initially had separate organizations for its Internet channel but subsequently integrated
them with stores and catalogues.
Retailers generally fall into one of two categories: food LO4 Identify the benefits and challenges
retailers and general merchandise retailers. Each of the of omnichannel retailing
categories consists of various formats, including supermar-
kets, supercentres, warehouse clubs, convenience stores, The various types of retail channels—stores, kiosks,
department stores, discount stores, specialty retailers, catalogues, and the Internet—offer their own benefits
drugstores, category specialists, extreme-value retailers, and limitations, including those related to availability,
and off-price stores. convenience, and safety, among others. If a retailer
Retailing and Omnichannel Marketing CHAPTER 13 423
adopts an omnichannel strategy, it can exploit the must organize their operations carefully to ensure an
benefits and mitigate the limitations of each channel integrated customer experience. In particular, they have
and expand its overall market presence. Furthermore, to have an integrated CRM system, and determine how
an omnichannel strategy offers the chance to gain a to maintain a consistent brand image across the vari-
greater share of customers’ wallets and more insight ous channels, whether to charge the same or different
into their buying behaviour. Of course, there are chal- prices, and how best to deliver merchandise to multiple
lenges as well. To function in multiple channels, retailers channels.
Key Terms
■■ big-box food retailer ■■ drugstore ■■ retail mix
■■ category killer ■■ extreme-value retailer ■■ retailing
■■ category specialist ■■ general merchandise retailers ■■ services retailers
■■ conventional supermarket ■■ off-price retailer ■■ share of wallet
■■ cooperative (co-op) advertising ■■ omnichannel ■■ specialty stores
■■ discount store ■■ multichannel strategy
concept review
1. Describe the factors that manufacturers must consider 7. In this chapter, we discuss the fact that researchers
when choosing retail partners. have found that store image and atmospherics exert a
huge impact on customers’ shopping behaviour. What
2. How would a manufacturer’s strategy for choosing a
are the key elements of a store’s atmospherics and
retailer change depending on its overall market power
image, and why do you think they affect consumers
and the consistency of the new product with existing
so strongly?
offerings?
8. Explain how the Internet has helped reshape retail
3. Discuss the types of retailers that operate in Canada
marketing strategies. What are some of the unique
and identify some of the issues facing each type.
advantages of physical store retailing, website selling,
4. Generally merchandise retailers are classified into and kiosks?
several different groups such as discount stores, spe-
9. Discuss the advantages of multichannel retailing from
cialty stores, category killers, and so on. However, it
the perspectives of both retailers and consumers.
seems that increasingly many of these retailers are
looking quite similar. Why is this so, and what factors 10. Explain why it is important for retailers to develop
may explain this trend? effective retailing strategy and positioning. How do
retailers develop such a strategy? (Hint: Look at the
5. How do marketers use the four Ps to create value in
various store formats of Loblaw or any national gro-
retailing?
cery chain.)
6. Does Reebok pursue an intensive, an exclusive, or a
selective distribution intensity strategy? Would you
suggest any changes to this strategy?
Marketing Applications
1. Imagine that you designed a high-end line of clothing to which brick-and-mortar retailers are threatened by
and accessories. Which factors should you consider Internet-only retailers with regard to these factors.
when choosing retail partners? What type of retailer
4. Some argue that retailers can be eliminated from the
would you choose as a partner? Why?
distribution channel because they add only costs to
2. Why don’t traditional department stores have the the final product without creating any value-added
same strong appeal to Canadian consumers that they services in the process. Do you agree with this per-
once enjoyed during their height in the last half of the spective? Is it likely that consumers will make most
20th century? Discuss which types of retailers are purchases directly from manufacturers in the near
now competing with department stores. future? Provide justification for your answers.
3. What do retailers do to increase the value of prod- 5. Assume that Adidas, the shoe manufacturer, has
ucts and services for consumers? Discuss the extent decided to sell expensive wristwatches for men and
424 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
women. What factors should it consider when devel- 8. Why have so many brick-and-mortar retailers adopted
oping its strategy for choosing retail partners? an omnichannel strategy?
6. Identify three categories of products especially suited 9. You can purchase apparel at a discount store, spe-
for sale on the Internet. Identify three categories that cialty store, category specialist, off-price retailer,
are not currently suitable for sale on the Internet. Jus- department store, or Internet-only store. From which
tify your choices. of these types of stores do you shop? Explain why you
prefer one type over another.
7. How do Staples.com and Officedepot.com provide
value to their customers beyond the physical prod- 10. Search the Internet for a product you want to buy. Are
ucts that they sell? Identify some of the ways that the there differences in the prices, shipping charges, or
companies have overcome the inhibitors to success- return policies among the different retailers offering the
ful Internet retailing. product? From which retailer would you buy? Explain
the criteria you would use to make the decision.
marketing digitally
1. Companies such as Lee Valley Tools have expanded 2. Select a familiar omnichannel retailer. Evaluate its
their offerings beyond their original channels to sell website in terms of how well it provides value to its
through multiple channels. Visit the company’s web- customers. Do you believe that offering multiple sell-
site (www.leevalley.com) and determine in which ing channels to customers enhances their shopping
channels it operates (Internet, stores, and/or cata- experience? How does it help the retailer? Explain
logue). Discuss the advantages of using a multichan- your answer.
nel strategy over a single-channel strategy.
Aldo Bensadoun founded his company with a desire to be seen as a brand that cares. Aldo
Fights Aids is just one of many philanthropic initiatives the retailer supports.
(both): Used with permission of The ALDO Group Inc.
data and respond to their questions in real time. Through the Marketing Cloud tool, Aldo can
join in social-media conversations related to its brand.66
In 2014, Patrik Fisk took over as the company’s CEO, launching international expansion
plans and high-tech store changes projected to double its business in five years. Already
recognized as an early adopter of ecommerce technology, Aldo has built on its digital prow-
ess through consumer-facing solutions. A suite of mobile apps lets shoppers digitally inter-
act with the brand. Customers can browse and access the collection by size, colour, or key
silhouettes, along with user-friendly self-service tools, which allow for try-on requests.67 The
Aldo Connected Store app allows customers to scan boots or bags for more product and
style information.68 The mobile app and virtual shelf features lifestyle content with fully styled
imagery to inspire customers and help them visualize ways to style the collection into their
own wardrobe. Apps are designed to enhance the shopping experience while providing Aldo
with the opportunity to offer better service.
David Bensadoun, named CEO in 2017, continues to tweak the company’s retail strategy
involving redesigning its brick-and-mortar stores. Aldo is seen as being very savvy and rec-
ognizing trends faster than other retailers, which makes it an attractive tenant according to
Cadillac Fairview, one of Canada’s largest enclosed-mall owners. Aldo invested more than
$500 million in store renovations, new systems, and staff education.69 Digital screens and
tablets were added to stores. Mobile features heavily in all of Aldo’s stores, including its new
“connected store” at the Westfield World Trade Center in New York. When app subscribers
enter the store, alerts are sent to sales staff with information about past purchases, items in
their digital carts, and also an estimate of the person’s lifetime value as an Aldo customer.70
Staff is being trained to bring the pair of shoes requested plus a second pair that matches
consumers’ specific needs, for example, a sandal that matches the style of a high-heeled
pump. They can also view store inventory in real-time through a mobile app that recom-
mends alternatives if the item is not in stock. And although mall traffic has been falling, in
some cases as much as 10 percent, Aldo is not worried about fewer browsers in its stores.
Most consumers do their research before arriving at a store, make targeted trips, are more
focused when shopping, and arrive ready to purchase.71
The company considers social media as frontline contact with customers. It received many
questions from social-media followers about where to buy the beautiful products they were engag-
ing with and Aldo wanted to provide a seamless solution. A social commerce solution developed
by Curalate, Like2Buy was rolled out offering a shoppable storefront to consumers. Aldo later
paired that function with Shoppable Instagram, which gives retailers the ability to directly sell to
customers. Like2Buy allows Aldo to research and rank influencers and Curalate-Fanreel, a user-
generated content tool, has helped increase average order size by more than 20 percent.72
426 Section six Value Delivery: Designing the Distribution Channel and Supply Chain
Aldo has heavily invested in store renovations, new systems, and staff training, and has
introduced apps that blend the online experience with that of shopping in a physical store.
Photo by Luciana Pampalone. Used with permission of The ALDO Group Inc.
Aldo has come a long way in the past four decades. Today it is able to deliver new prod-
ucts in less than a year, sometimes in less than three months, to locations around the world,
introducing new products in stores each month. The company has synced its in-store, online,
and mobile platforms to create a consistent, personalized, and seamless omnichannel experi-
ence for shoppers. Aldo knows that 70 percent of its customers browse online, then come
to the store, and that 25 percent buy online but opt for in-store pickup.73 For customers who
want their online orders shipped to their homes, Aldo uses an AI solution to optimize ship-
ments. Custom rules created within the system allow orders to be sourced from the most
profitable locations. For example, while the closest store may have inventory in stock, the
order could be shipped from another store that is preparing to mark the item down.74
Built on a foundation of ethics and compassion, Aldo has successfully navigated choppy retail
waters while meeting sustainability goals. In 2017, the company offset 100% of carbon emissions
produced by all of its stores, offices, and distribution centres and will continue to meet this com-
mitment in the future. That accomplishment earned it a designation by South Pole, as the world’s
first fashion footwear and accessories company to be certified as climate neutral.75
In the midst of the COVID-19 pandemic in 2020, Aldo filed for creditor protection in Canada,
the U.S., and Switzerland.76 This step became necessary to allow it to restructure and stabilize its
business while stores have been forced to close. The pandemic has been a very challenging time
for retailers. Aldo, recognized as a good corporate citizen, one that cares, and one with “sole,” is
now working to transform its business once again to survive this unexpected downturn.
Questions
1. Assess the role of consumer expectations in Aldo’s success as a footwear retailer.
2. How has Aldo used technology to differentiate it from other footwear retailers in a
crowded, competitive marketplace?
3. CEO David Bensadoun developed a new retail strategy for Aldo to increase value for
customers. Discuss how specific changes made to the four Ps and personnel will help the
company to attract more customers online and in stores.
4. While other retailers focus on pricing, Aldo has invested in staff training and introducing
global styles. Discuss how the company can increase sales and the level of customer
service through non-traditional initiatives like this.
Section seven Value Communication
Chapter 14
Integrated Marketing
Communications
Learning Objectives
After studying this chapter you should be able to
LO1
Outline the process that firms use to communicate with consumers
LO2
List the steps in planning an integrated marketing communications campaign
LO3
Describe what appeals advertisers use to get customers’ attention
LO4
Identify how firms determine which media to use
LO5
Summarize how firms measure integrated marketing communications success
LO6
Explain the six tools of integrated marketing communications campaigns
428 Section seven Value Communication
Founded in 1909, L’Oréal is the world’s largest cosmetic company operating in 130 countries around the
world.1 Headquartered in Montreal, L’Oréal Canada is the industry leader offering cosmetics, hair care and
colour, skin care, and sun protection products. For over a century, the company has been dedicated to the
business of beauty. When it comes to marketing communications, the company is always looking for new ways
to get its message to consumers. As an example, for International Women’s Day, it shone a light on women who
used the company’s “Because I’m Worth It” tagline to make a personal statement on a massive digital billboard
at Yonge-Dundas Square in Toronto. The billboard featured photos and quotes from company employees,
as well Women of Worth nominees and L’Oréal-UNESCO For Women in Science award winners. Women who
passed by the billboard also had a chance to have their photo and unique statement of worth displayed on the
billboard.2
In decades past, cosmetic companies made heavy use of television spots and glossy print ads to reach their
target markets. Today, digital marketing and social media have revolutionized how companies communicate with,
listen to, and learn from customers. The influence is far-reaching, whether firms are selling online or in stores,
providing services or products, or dealing primarily with consumers or business customers. L’Oréal realized that
digital and mobile technologies have fundamentally changed media consumption and how consumers develop
brand preferences. The company works hard to leverage the power of digital marketing to ensure that it adds
value to consumers, providing tips and tools to help them select hair colour products, find makeup tips, and
interact with others for inspiration.3
Because digital and mobile channels enable anyone to play around with images of themselves with various
hairstyles or colours, L’Oréal integrates these capabilities with its existing marketing, thanks to new technology-
enabled options.4 With the Makeup Genius app, it lets people scan their own faces, then get recommendations
for different cosmetic products or mixes of shades.5 The app considers approximately 60 facial characteristics,
and tracks what consumers do when they are using it. In turn, it can provide personalized, customized rec-
ommendations. With these insights, L’Oréal gains critical, detailed information about what the approximately
20 million users of the app want and need.
With the realization that most customers start searching online, the company is collaborating with Google to
determine which specific questions they have when they start their search.6 The insights they gain reveal that a
key target audience of people want to try contouring but lack the time or dedication to spend hours learning how
to do it. The launch of the company’s Maybelline Master Contour line of products coincided with the release of
a series of videos on YouTube that provide quick tips, with the promise of great contouring in just three simple
steps. The videos in the series, which have reached more than 9 million people, are personalized to people with
various skin types and colours to make the intimidating process of contouring easier, more appealing, and more
accessible. L’Oréal’s ads and videos are tested on important metrics. For example, viewability, reach, scale, and
sales lift are measured for YouTube campaigns.7
In the past, the company relied on celebrity spokespersons and brand ambassadors. Remember those Jennifer
Aniston “Because you’re worth it” ads? Today L’Oréal knows that consumers relate more to influencers who look like
them.8 It partnered with dubdub, a Toronto tech company, to accelerate its influencer marketing programs. Using a
new video application, dubcandy, influencers can make any video content they create shoppable. This gives L’Oréal
the ability to measure sales directly attributable to specific influencers and refine messaging used to reach new
target audiences for videos they create in-house. Vice-President and CMO Stéphanie Bérubé says that dubcandy
is helping to convert content into e-commerce sales and to “launch a new compensation model that will be directly
linked to the influencer’s branded content reach and engagement.”9
By showing viewers videos of people who look like them, L’Oréal places viewers in a sort of narrative or story,
enabling them to imagine themselves with great contours, a stylish haircut, or a perfect lipstick colour. By giving
viewers fast but clear insights about what its products can do for them, L’Oréal engages them and encourages
them to learn more. Today, consumers’ attention is limited, so L’Oréal embraces the appeal of bumper ads—short
messages that appear before a video.10 Testing short, six-second ads ensures L’Oréal’s focus on clear messaging
and having a unique value proposition. It designs these short marketing communications and expands them into
longer forms if needed,11 reflecting the interests, habits, and preferences of consumers.
Personalization is central to L’Oréal’s entire strategy. With digital marketing, it can go even further with its
efforts to provide value to consumers.
Integrated Marketing Communications CHAPTER 14 429
Throughout the last six chapters, we focused our attention on how firms create value by
developing products and services and delivering them to consumers when and where they
want to buy them. However, consumers are not likely to come flocking to new products
and services unless they are aware of them. Marketers must consider how to communicate
the value of a new product and/or service—or more specifically, the value proposition—to
the target market. The chapter vignette about L’Oréal Canada illustrates the importance
of using a variety of communication strategies to increase with consumers. Let’s begin by
examining what integrated marketing communications is, how it has developed, and how
it contributes to value creation.
Integrated marketing communications (IMC) represents the promotion dimen- integrated marketing
sion of the four Ps. It encompasses a variety of communication disciplines—advertising, communications (IMC)
Represents the promotion
personal selling, sales promotion, public relations, direct marketing, digital, social and dimension of the four
mobile media—in combination to provide clarity, consistency, and maximum communi- Ps; encompasses a
variety of communication
cative impact.12 Instead of separate marketing communication elements with no unified disciplines—general
control, IMC programs regard each of the firm’s marketing communications elements as advertising, personal
part of a whole, each of which offers a different means to connect with the target audi- selling, sales promotion,
public relations, direct
ence. This integration of elements provides the firm with the best means to reach the target marketing, and digital
audience with the desired message, and it enhances the value story by offering a clear and media—in combination
consistent message. to provide clarity,
consistency, and maximum
There are three components in any IMC strategy: the consumer or target market, communicative impact.
the channels or vehicles through which the message is communicated, and the evalua-
tion of the results of the communication. In the first section of this chapter, we focus on
consumers, examining the communication process: how consumers receive communica-
tions, and how the delivery of that communication affects a message’s form and content.
The second section identifies the steps involved in planning successful campaigns, from
identifying a target audience to creating an actual ad and assessing its performance.
Although we apply these steps specifically to advertising, the same process can be used
when planning sales promotions, direct marketing, public relations, and social or mobile
campaigns. We also consider how the level of complexity in IMC strategies leads mar-
keters to design new ways to measure the results of IMC campaigns. Our last section
examines the six distinct tools of IMC—advertising, personal selling, sales promotion,
direct marketing, public relations, and social and mobile media—and how each is used
in an overall IMC strategy.
As the number of communication media has increased, the task of understanding how
best to reach target consumers has become far more complex. In this section, we examine
a model that describes how communications go from the firm to the consumer, and the
factors that affect the way the consumer perceives the message. Then we look at how mar-
keting communications influence consumers, from making them aware that a product or
service exists to moving them to buy.
sender
The Sender The firm from which an
The message originates from the sender, who must be clearly identified to the intended IMC message originates;
the sender must be clearly
audience. Pepsi is always looking to communicate in new ways with customers. With its identified to the intended
emoji campaign, Pepsi established itself as a source of fun and of different emojis that audience.
430 Section seven Value Communication
Feedback
people could use in their daily activities. The Pepsi identity remained clear because they
consistently highlighted the familiar blue, red, and white colour scheme and logo images—
and portrayed happy consumers. People who saw and used the emojis knew precisely
which company made them available.
The Transmitter
The sender works with the creative department, whether in-house or from a marketing (or
advertising) agency, to develop marketing communications. Pepsi developed new mobile
Pepsi emojis encode the message that the iconic drink is associated with fun times and
activities when people might likely drink carbonated beverages.
Source: PepsiCo, Inc.
Integrated Marketing Communications CHAPTER 14 431
and social-media tools, together with websites, mobile apps, flyers, in-store displays, and transmitter
An agent or intermediary
televised commercials, to tout its brands and what they offer as the transmitter. with which the sender
works to develop the
marketing communications;
Encoding for example, a firm’s
creative department or an
Encoding means converting the sender’s ideas into a message, which could be verbal,
advertising agency.
visual, or both. The Pepsi emojis signal fun times and activities during which people
encoding
might be likely to drink carbonated beverages; the grinning face wearing sunglasses and
The process of converting
headphones, as if it is ready to head to the beach, is one such emoji. Although a picture the sender’s ideas into a
is worth a thousand words, the most important facet of encoding is not what is sent but message, which could be
verbal, visual, or both.
rather what is received. Consumers must receive information that makes them want to
try the new emojis, use Pepsi-linked symbols to communicate with their friends, and
continue to purchase new versions of the beverages.
The Receiver
The receiver is the person who reads, hears, or sees and processes the information con- receiver
tained in the message or advertisement. The sender, of course, hopes that the person The person who reads,
hears, or sees and
receiving it will be the one for whom it was originally intended. Pepsi wants its message processes the information
received and decoded properly by a broad population that includes teens, young adults, contained in the message
or advertisement.
and families. Decoding refers to the process by which the receiver interprets the sender’s
message. decoding
The process by which the
receiver interprets the
Noise sender’s message.
Noise is any interference that stems from competing messages, a lack of clarity in the mes- noise
Any interference that
sage, or a flaw in the medium, and it poses a problem for all communication channels. stems from competing
Pepsi may choose to advertise in newspapers that its target market doesn’t read, which messages, a lack of clarity
in the message, or a flaw
means the rate at which the message is received by those to whom it has relevance has
in the medium; a problem
been slowed considerably. As we have already defined, encoding is what the sender intends for all communication
to say, and decoding is what the receiver hears. If there is a difference between them, it is channels.
probably due to noise.
Feedback Loop
The feedback loop allows the receiver to communicate with the sender and thereby feedback loop
informs the sender whether the message was received and decoded properly. Feedback Allows the receiver to
communicate with the
can take many forms: a customer’s purchase of the item, a complaint or compliment, the sender and thereby
redemption of a coupon or rebate, a tweet about a product, and so on. informs the sender
whether the message was
received and decoded
properly.
How Consumers Perceive Communication
The actual communication process is not as simple as the model in Exhibit 14.1 implies.
Each receiver may interpret the sender’s message differently, and senders often adjust their
message according to the medium used and the receivers’ level of knowledge about the
product or service. And in spite of marketers’ best efforts to create clear messages, consum-
ers may not always respond as expected.
432 Section seven Value Communication
1. Identify 5. Evaluate
2. Set 3. Determine 4. Convey 6. Create 7. Assess
Target and Select
Objectives Budget Message Communication Impact
Audience Media
Integrated Marketing Communications CHAPTER 14 433
2. Set Objectives
Advertising objectives are derived from the overall objectives of the marketing program and
clarify the specific goals that the ads are designed to accomplish. Firms need to understand
the outcome they hope to achieve before they begin. Objectives, or goals, are crucial since they
will later serve as the standard against which success or failure is measured. These objectives
can be short-term, such as generating inquiries, increasing awareness, and prompting trial. Or
they can be long-term in nature, such as increasing sales, market share, and customer loyalty.
Increasing donations to support research efforts is the primary and long-term goal of Ovarian
Cancer Canada campaigns but, in the short term, the non-profit needs to increase awareness
of the disease. For SoCIAL LITE Vodka, campaign objectives revolved around driving trial
among its health-conscious target markets. Both short- and long-term goals should be explicitly
defined and measured. We discuss how firms measure IMC success later in this chapter.
Puma uses different ads to appeal to different target markets. Jozy Altidore (left) appeals to soccer fans, whereas Selena
Gomez (right) attracts teenaged pop music fans.
Source: (both): PUMA NA
434 Section seven Value Communication
Exhibit 14.3 outlines some campaign goals for a variety of companies as well as the
target markets, media used, and outcomes.
All marketing communications aim to achieve certain objectives: to inform, persuade, and
remind customers. These objectives are examined in more depth in Chapter 15. Communica-
tion objectives also need to consider focus—for example, does the company hope to stimulate
demand for a new product or service or to increase awareness for the company in general?
In Chapter 12, you learned about using push or pull marketing in determining distri-
bution channel strategy. When setting objectives, the overarching strategy used is one of
push versus pull. However, marketers also have to consider other factors, such as the nature
of the market (consumer versus business), the nature of the product (simple versus techno-
logically complex), and the stage in the product life cycle (PLC). Generally, when advertis-
ing to consumers, the objective is a pull strategy in which the goal is to get consumers to
pull the product into the supply chain by demanding that retailers carry it. Push strategies
also exist and are designed to increase demand by focusing on wholesalers, distributors,
or salespeople, who push the product to consumers via distribution channels. These cam-
paigns attempt to motivate the seller to highlight the product, rather than the products of
competitors, and thereby push the product onto consumers.
Once the campaign’s objectives are defined, the firm sets the advertising budget. objective-and-task
method
An IMC budgeting
method that determines
3. Determine Budget the cost required to
undertake specific tasks to
Firms use a variety of methods to plan their IMC budgets (see Exhibit 14.4). Because all accomplish communication
the methods of setting a promotional budget have both advantages and disadvantages, no objectives; process
one method should be used in isolation. Budgeting is not a simple process. It may take entails setting objectives,
choosing media, and
several rounds of negotiations among the company’s managers, who are each competing determining costs.
for resources for their own areas of responsibility.
competitive parity
The objective-and-task method determines the budget required to undertake specific method
tasks to accomplish communication objectives. To use this method, marketers first establish A method of determining
a communications budget
a set of communication objectives, and then determine which media best reach the target in which the firm’s share
market and how much it will cost to run the number and types of communications necessary of the communication
to achieve the objectives. This process—set objectives, choose media, and determine costs— expenses is in line with its
market share.
must be repeated for each product or service. The sum of all the individual communication
plan budgets becomes the firm’s total marketing communications budget. percentage-of-sales
method
In addition to the objective-and-task method, three rule-of-thumb methods—competitive A method of determining
parity method, percentage-of-sales method, and affordable method of budgeting—can a communications budget
that is based on a fixed
be used to set budgets.
percentage of forecasted
These rule-of-thumb methods use prior sales and communication activities to deter- sales.
mine the present communication budget. Although they are easy to implement, they obvi- affordable method
ously have various limitations, as noted in Exhibit 14.4. While small companies often use A method of determining
the affordable budgeting method, it generally results in underspending and thus may not a communications budget
based on what is left over
accomplish the company’s sales objectives. Large companies such as Coca-Cola and PepsiCo after other operating costs
may use the competitive parity method. However, this method is setting a budget based on have been covered.
PRODUCERS
Petroleum refining 0.2
Computers and office equipment 0.5
Business services 0.5
Dairy products 0.6
Investment advice 2.1
Motor vehicles and car bodies 2.6
Beverages 3.8
Footwear (except rubber) 4.4
Malt beverages 5.4
Cable and other pay-TV services 6.3
Games and toys, excluding dolls 7.9
Sporting and athletic goods 9.4
Dolls and stuffed toys 11.9
Soap and detergent 12.3
Perfume and cosmetics 21.5
Transportation services 33
RETAILERS
Grocery stores 0.7
Hotels and motels 1.3
Eating places 1.9
Women’s clothing stores 3.5
Catalogue, mail-order houses 3.9
Furniture stores 4.6
Amusement parks 6.2
5 10 15 20 25 30 35
Advertising as a percentage of sales
market share, which may result in PepsiCo being outspent. The percentage-of-sales method
is popular as well, and standard percentages are sometimes used in some product catego-
ries, as shown in Exhibit 14.5. Since everyone needs to eat, the grocery industry needs to
spend only a small percentage—around 1 percent—of its revenues on advertising, whereas
the toy and game industry must spend about 11 percent. Although alcoholic drink makers
spend around 13 percent of revenues on advertising,16 SoCIAL LITE Vodka spent consider-
ably less to launch its product, relying more heavily on publicity to get its message out.
When selecting the various budgeting methods for marketing communications, firms
must first consider the role that advertising plays in their attempt to meet their overall pro-
motional objectives. Second, advertising expenditures vary over the course of the PLC, with
considerably higher levels of spending during the introduction stage. Third, the nature of
the market and the product influence the size of advertising budgets. For example, advertis-
ing for Starbucks is much lower than other outlets because of its high awareness and exten-
sive use of PR. In the highly competitive consumer packaged goods industry, spending by
firms such as P&G is around 11 percent of sales.17
The nature of the market also determines the amount of money spent on advertising. For
instance, less money is spent on advertising in B2B marketing contexts than in B2C markets.
Personal selling, as we discuss in Chapter 15, likely is more important in B2B markets.
Integrated Marketing Communications CHAPTER 14 437
The Message
The message provides the target audience with reasons to respond in the desired way. A
logical starting point for deciding on the advertising message is to tout the key benefits of the
product or service. The message should communicate the product’s problem-solving ability
clearly and in a compelling fashion. In this context, advertisers must remember that products
and services solve problems, whether real or perceived. That is, people are not looking for
1/4-inch drill bits; they are looking for 1/4-inch holes.18 Because there are many ways to make
a 1/4-inch hole, a firm such as Black and Decker must convey to consumers that its drill bit
is the best way to get that hole. An equally compelling message used by SoCIAL LITE Vodka
focused on functional benefits and communicating the drink’s great taste.
Another common strategy differentiates a product by establishing its unique benefits.
This distinction forms the basis for the unique selling proposition (USP), which is often unique selling
the common theme or slogan in an advertising campaign. Briefly, a good USP communi- proposition (USP)
A strategy of differentiating
cates the unique attributes of the product and thereby becomes a snapshot of the entire a product by communicating
campaign. Some of the most famous USPs include the following: Ford, “Built Tough”; Red its unique attributes; often
becomes the common
Bull, “Gives You Wings”; Oreo, “Milk’s Favorite Cookie”; Nike, “Just Do It.” theme or slogan in the
The selling proposition communicated by the advertising must be not only unique to entire advertising campaign.
the brand, but also meaningful to the consumer; it furthermore must be sustainable over
time, even with repetition.
The Appeal
Advertisers use different appeals to portray their product or service to persuade consumers
to purchase them. Although advertising tends to combine the types of appeals into two
broad categories (rational and emotional), moral appeals are sometimes considered as a rational appeal
third category. Marketers, especially those who work in non-profit organizations, often Helps consumers make
use this type of message. Since moral appeals can be rational or emotional, they are not purchase decisions by
offering factual information
addressed as a separate category. and strong arguments
built around relevant
Rational Appeals issues that encourage
A rational appeal helps consumers make purchase decisions by offering factual infor- consumers to evaluate the
brand favourably on the
mation and strong arguments built around relevant issues that encourage consumers to basis of the key benefits it
evaluate the brand favourably on the basis of the key benefits it provides.19 Rational appeals provides.
focus on consumers’ sense of reasoning, logic, and learning. Kimberly-Clark, for example,
relies heavily on rational appeals to sell Kleenex Anti-Viral
Tissues. It is advertised as having a moisture-activated
middle layer that is scientifically proven to kill cold and
flu viruses. When moisture from a runny nose, cough,
or sneeze comes in contact with Kleenex Anti-Viral Tis-
sues’ special middle layer, 99.9% of cold and flu viruses are
trapped and killed within 15 minutes.20
This appeal is perfectly suited to this type of product.
The source of its competitive advantage is a tangible fea-
ture of the product. By stressing the superior benefits of
this product over regular facial tissue, the advertising copy
directly delivers a rational persuasive message. Unique selling propositions like this one by Oreo send
powerful messages about the benefits of their offerings.
Source: Mondelēz Global LLC
438 Section seven Value Communication
The UK insurance agency John Lewis uses a tender emotional appeal in an ad featuring a little
girl dancing to “Tiny Dancer” while almost breaking everything in the room.
Source: John Lewis Home Insurance
Emotional Appeals
emotional appeal An emotional appeal aims to satisfy consumers’ emotional desires rather than their utili-
Aims to satisfy consumers’ tarian needs. The key to a successful emotional appeal is the use of emotion to create a bond
emotional desires rather
than their utilitarian needs. between the consumer and the brand. For example, think about Coca-Cola’s use of polar
bears in its ads. The emotions most often invoked in advertising include fear appeal and
humour appeal, but also safety, happiness, love (or sex), comfort, and nostalgia. In its adver-
tising, the UK insurance agency John Lewis highlights what really makes homeowner’s
insurance important, like the daughter in a family who simply must dance to “Tiny Dancer”
but whose embellished twirls and leaps put everything in the home at risk of being broken.
Companies must pay attention to cultural influences because humour is not perceived the
same way across different cultural groups and sexual appeals are taboo in some cultures.
Although the term emotion often conveys the image of tears, many other effective
emotional appeals are used in advertising, ranging from sex appeal (e.g., Axe Body Spray),
need for affiliation, need for guidance (e.g., Betty Crocker), and need for attention (e.g.,
cosmetics). People need a sense of self-esteem, so advertisements for Bowflex and Jenny
Craig tend to feature celebrities or regular people talking about how much better they feel
about themselves after they’ve used the exercise equipment, joined the program, and lost
weight. Weight-loss ads also tend to play a bit on consumers’ fears, showing “before and
after” pictures as if the heavier version were a horror to behold.
newspapers, 13.1 percent; radio, 11 percent; magazines, 1.3 percent; and online, 49.8 per-
cent. Other media, such as out-of-home advertising (e.g., billboards, bus wraps, posters)
account for the remainder.22 To characterize these various types of media, we again use a
dichotomy: mass and niche media.
mass media
Mass and Niche Media Channels, such as national
Mass media channels include national newspapers, magazines, radio, and television, and newspapers, magazines,
radio, and television, that
are ideal for reaching large numbers of anonymous audience members. Niche media chan- are ideal for reaching large
nels are more focused and are generally used to reach narrower segments, often with unique numbers of anonymous
audience members.
demographic characteristics or interests. Specialty TV channels, direct mail, and specialty
magazines such as Skateboarding or CosmoGirl all provide examples of niche media. In niche media
Channels that are
some cases, niche media offer advertisers the opportunity to change and even personalize focused and generally
their messages, which is generally not an option with mass media. For example, magazine used to reach narrow
advertisers can print response cards with the name of the subscriber already on the card or segments, often with
unique demographic
change advertisements to reflect local differences, such as climate or preferences. characteristics or interests.
paid media
Paid, Owned, Earned Media Media such as TV, print,
radio, or display ads used
Marketers know that they must use a combination of media when implementing their IMC
to reach mass markets.
plans. As shown in Exhibit 14.6, they use paid media such as TV, print, radio, or display
owned media
ads to reach mass markets. Paid media is created and controlled by the advertiser. Owned
Media controlled by the
media, such as a website, is also controlled by the advertiser. Other forms of owned media advertiser, such as its
include a company’s blog, YouTube channel, or Facebook fan page. While there are costs website, Facebook fan
page, or YouTube channel.
associated with these media, they are less expensive than paid media. Lastly, earned media
comes as a result of word-of-mouth, buzz, or publicity. Customers, the public, or the press earned media
Media that results from
become the media channel. Brand mentions are given voluntarily by customers, the public, word-of-mouth, buzz, or
or the press, and so the company “earns” the visibility. publicity.
Direct Marketing Highly targeted Cost can vary depending on type of direct
Allows for personalization marketing used
Direct mail is more expensive than newer media
MINI Cooper sets a light tone using humour to effectively deliver its advertising messages.
Horizons WWP/Alamy Stock Photo
To convey a certain image, advertisers may use television and magazines. To promote
price, they can use newspapers and radio. To appeal to specific target markets, they can use
digital media. When using multiple media to deliver the same message, however, adver-
tisers must maintain consistency across the execution styles—that is, integrated market-
ing—so the different executions deliver a consistent and compelling message to the target
audience.
Although creativity plays a major role in the execution stage, advertisers must be care-
ful not to let their creativity overshadow the message. Whatever the execution style, the
advertisement must be able to attract the audience’s attention, provide a reason for the
audience to spend its time viewing the advertisement, and accomplish what it set out to
do. In the end, the execution style must match the medium and objectives. An additional
complication in Canada is the necessity to design some advertising messages in two offi-
cial languages. And, as mentioned earlier, Canada’s multicultural population means that
companies must carefully consider cultural influences so as not to alienate groups through
inappropriate messages.
Print advertising can be especially difficult because it is a static medium: it has no
sound, no motion, and only one dimension. Instead, print relies on several key components
that appear in most ads: the headline, or large type designed to draw attention and be read
first; the body copy, which represents the main text portion of the ad; the background for the
ad, usually a single colour; the foreground, which refers to everything that appears on top
of the background, and the branding, which identifies the sponsor of the ad. The advertiser
must convey its message by using compelling visuals and limited text.
competitors to determine their relative market share. Some product categories experience
so many influences that it is almost impossible to identify advertising’s contribution to any
individual consumer’s choice to purchase a particular product. This is especially true for
products such as cigarettes and alcohol or those with potentially negative health conse-
quences, such as fast food or high-sugar breakfast cereals.
Because of the cumulative effect of marketing communications, it may take several
exposures before consumers are moved to buy, so firms cannot expect too much too soon.
They must invest in the marketing communications campaign with the idea that it may
not reach its full potential for some time. One internal campaign to increase an advertis-
ing agency’s environmental scorecard wasn’t measured by conventional methods. Instead,
as presented in Sustainable Marketing 14.1, success was measured by how good it made
employees feel about the company.
Sustainability Ingrained in
theturnlab's DNA†
When it comes to advertising agencies, sustainable prac-
tices are not generally what comes to mind. Yet Toronto-
based theturnlab has woven sustainability into its DNA.†† It
has created a green office and pays employees to bike to
work. The agency’s tagline, “We want to turn the tide,”‡ is
applied to social good, not just developing market-
ing campaigns for clients such as Bullfrog Power, CAA,
Mattamy Homes, Yamaha, Metro Convention Centre, and
World Wildlife Fund.
A multi-million-dollar agency, theturnlab uses sustain-
able building practices throughout its offices, including
theturnlab offices use recycled and reclaimed materials
incorporating recycled and reclaimed materials wherever wherever possible.
possible. Ultra-low wattage LED lighting is supplemented
Used with permission of theturnlab
by lots of natural lighting. A green roof was added, com-
plete with a community garden that allows staff to grow
fresh produce. Even its power is sustainable, as it is pro- theturnlab’s co-founders, Howard Chang, received the
vided by Bullfrog Power.‡‡ Food for client and employee Clean50 Award for the agency’s commitment to using
events is sourced from local and organic companies. entirely green energy, convincing many clients to con-
Even office equipment is sourced from ethical and sus- vert media to digital from paper, and supporting a host
tainable vendors. of social causes including health, nutrition, and fitness.§
The agency’s efforts have not gone unnoticed. Part ad The agency has been recognized for its corpo-
agency, part consultancy, and part technology company, rate social responsibility efforts as well. For example, it
theturnlab has earned B-Corp certification for corporate donates 10 percent of staff billable hours to clients with
social and environmental responsibility. It is 100 per- social causes, and it supports numerous charities. While
cent carbon neutral, runs on 100 percent green energy, Chang acknowledges that individually these initiatives
and is 100 percent committed to protecting the planet. may not make a big difference, cumulatively they help to
Fewer than 110 companies in Canada and 900 compa- “move the needle.”§§ And everyone benefits when com-
nies globally have received this seal of approval. One of panies make a commitment to sustainability.
†Information for this Sustainability Marketing box provided by Malina Kaija, co-founder theturnlab in a phone interview, September 20, 2019.
††Top Drawer, “Sustainability,” www.topdrawercreative.com/who_sustainability.php#green-building (accessed August 3, 2016).
‡The Turn Lab, “About,” https://theturnlab.com/about-us/ (accessed August 15, 2019).
‡‡Howard Chang, “Corporate Social Responsibility—Marketing Hype or Real Change?” October 27, 2011, www.topdrawercreative.com/blog
/corporate-social-responsibility-marketing-hype-or-real-change/ (accessed August 3, 2016).
§
Michelle Dipardo, “Top Drawer Creative Sets Up Shop for a Good Cause,” Marketing Magazine, January 7, 2015, www.marketingmag.ca
/advertising/top-drawer-creative-sets-up-shop-for-a-good-cause-134241 (accessed August 3, 2016).
§§
“Sustainability.”
444 Section seven Value Communication
Traditional Media
When measuring IMC success, the firm should examine when and how often consumers
have been exposed to various marketing communications. Specifically, firms use measures
of frequency and reach to gauge consumers’ exposure to marketing communications. For
most products and situations, a single exposure to a communication is not enough to gener-
frequency ate the desired response. Therefore, marketers measure the frequency of exposure—how
Measure of how often the often the target audience is exposed to a communication within a specified period of time.
target audience is exposed
to a communication within The other measure used to determine consumers’ exposure to marketing communications
a specified period of time. is reach, which describes the percentage of the target population exposed to a specific
reach marketing communication, such as an advertisement, at least once. Marketing commu-
Measure of consumers’ nications managers usually state their media objectives in terms of gross rating points
exposure to marketing
communications; the
(GRP), which represents reach multiplied by frequency (GRP = Reach × Frequency). This
percentage of the target measure can be used for various media advertising—print, radio, or television.
population exposed to GRP can be measured for print, radio, or television but, when comparing the calculations,
a specific marketing
communication, such as they must refer to the same medium. Suppose that Unilever, the maker of Sunsilk, places five
an advertisement, at least advertisements in Flare magazine, which reaches 50 percent of the “fashion forward” target
once.
segment. The total GRP generated by these five magazine ads is 50 reach × 5 advertisements =
gross rating points (GRP) 250 GRP. Now suppose that Sunsilk includes 15 TV ads as part of the same campaign, run dur-
Measure used for various
media advertising—print,
ing the program Schitt's Creek, which has a rating of 9.2, meaning 9.2 percent of the popula-
radio, or television; GRP = tion watches the show. The total GRP generated by these 15 advertisements is 138 (9.2 reach ×
Reach × Frequency. 15 ads = 138 GRP). However, ads typically appear during more than one TV program, so the
total GRP equals the sum of the GRPs generated by all of the programs.
Digital Media
Firms in Canada spend over $6.9 billion annually on online advertising, which includes
paid search, display ads, email, and sponsorships.26 Although GRP is an adequate measure
for TV and radio ads, assessing the effectiveness of any digital communications efforts in
an IMC campaign generally requires Web tracking software to indicate how much time
click-through tracking viewers spend on particular Web pages and the number of pages they view. Click-through
Measures how many times tracking measures how many times users click on banner advertising on websites. All
users click on banner
advertising on websites. these performance metrics can be easily measured and assessed by using tools such as
Google Analytics. Marketing Analytics 14.1 describes how Puma makes use of Google
Analytics. Facebook also helps companies see who has been visiting their fan pages, what
these people are doing on the fan pages, and who is clicking on their ads. By keeping track
of who is visiting their fan pages, marketers can get to know these visitors and better cus-
tomize the material on these pages for them.
For instance, he has an extensive customer database as part of his CRM system from which
he draws information for matching new merchandise with his customers’ past purchase
behaviours and little personal nuggets of information that sales associates have collected
on the customers. He then emails specific customers information about new products that
he believes they will be interested in. He also encourages customers to use blogs hosted on
his website. Customers chat about the “hot” new sneakers, club events, and races. He does
everything with a strong sense of style.
To reach new customers, he uses search engine marketing (SEM). In particular, he search engine marketing
uses Google AdWords, a search engine marketing tool that allows advertisers to show up in the (SEM)
Uses tools such as Google
Sponsored Links section of the search results page based on the keywords potential customers AdWords to increase the
use (see the sponsored link section in the right-hand column of the Google screen grab). visibility of websites in
search engine results.
Oliver must determine the best keywords to use for his sponsored link advertising pro-
gram. Some potential customers might search using the keywords, “sneakers,” “sneakers in
New York City,” “athletic shoes,” or other such versions. Using Google AdWords, Oliver can
assess the effectiveness of his advertising expenditures by measuring the reach, relevance,
and return on investment for each of the keywords that potential customers used during
their Internet searches.
446 Section seven Value Communication
Advertisers pay Google to show up in the Sponsored Link section in the right-hand column of
this screen grab.
Google and the Google logo are registered trademarks of Google LLC, used with permission.
impressions To estimate reach, Oliver uses the number of impressions (the number of times the
The number of times an ad ad appears in front of the user) and the click-through rate (CTR). To calculate CTR, he
appears to a user.
takes the number of times a user clicks on an ad and divides it by the number of impres-
click-through rate (CTR) sions. For example, if a sponsored link was delivered 100 times and 10 people clicked on
The number of times a user
clicks on an ad divided by it, then the number of impressions is 100, the number of clicks is 10, and the CTR would
the number of impressions. be 10 percent.
The relevance of the ad describes how useful an ad message is to the consumer doing
the search. Google provides a measure of relevance through its AdWords system using a
quality score. The quality score looks at a variety of factors to measure how relevant a key-
word is to an ad’s text and to a user’s search query. In general, a high-quality score means
that a keyword will trigger ads in a higher position and at a lower cost per click.27 In a
search for “sneaker store,” the Transit ad showed up fourth, suggesting high relevance.
return on investment Using the following formula, Oliver also can determine an ad’s return on invest-
(ROI) ment (ROI):
Used to measure the
benefit of an investment,
ROI is calculated by Sales revenue − Advertising cost
dividing the gain of an ROI =
investment by its cost. Advertising cost
For the two keyword searches in Exhibit 14.8, Oliver finds how much the advertising
cost him (Column 3), the sales produced as a result (Column 4), and the ROI (Column 6).
For “sneaker store,” the Transit website had a lot more clicks (110) than the clicks
received from “New York City sneakers” (40) (Column 2). Even though the sales were
lower for the keywords “sneaker store” at $35/day, versus $40/day for the keywords
(5)
(1) (2) (3) (4) Net Sales Revenue (6)
Keyword Clicks Cost Sales (Col. 4) – Cost (Col. 3) ROI = (Col. 5 ÷ Col. 3) × 100
Sneaker store 110 $10/day $35/day $25 250%
New York City sneakers 40 $25/day $40/day $15 60%
Integrated Marketing Communications CHAPTER 14 447
“New York City sneakers,” the ROI was much greater for the “sneaker store” keyword
combination. In the future, Oliver should continue this keyword combination, in addi-
tion to producing others that are similar to it, in the hope that he will attain an even
greater return on investment.
To evaluate his IMC program, Oliver compares the results of the program with his
objectives (Exhibit 14.9). To measure his program’s effectiveness, he conducted an inex-
pensive online survey using the questions in Exhibit 14.9, which shows the survey results
for one year. The results show a steady increase in awareness, knowledge of the store, and
choice of the store as a primary source of sneakers. This research provides evidence that the
IMC program was conveying the intended message to the target audience.
As IMC programs become more sophisticated, measurement is not the only concern.
Marketers need to worry about a host of legal and ethical issues, which we will examine
in the next chapter. Now that we’ve examined the steps in planning integrated marketing
communications, let’s look at the specific tools used in creating IMC campaigns.
Tools
For any communications campaign to succeed, the firm must deliver the right message to
the right audience through the right media. Reaching the right audience is becoming more
difficult, however, as the media environment grows more complicated. No single commu-
nication channel is better than another. The goal of IMC tools is to use them in such a way
that the sum exceeds the total of the parts.
Advances in technology have led to a variety of new media options, such as satel-
lite radio, pop-up and banner ads, brand-sponsored websites, and text messaging, all of
which vie for consumers’ attention. There is a proliferation of TV stations. Print media
have grown and become more specialized. In Canada, there are currently 101 daily
newspapers, 1,060 community newspapers, more than 1,300 consumer magazines, and
694 business publications.28 This proliferation of media has led many firms to shift their
promotional dollars from advertising to direct marketing, website development, product
placements, and other forms of promotion in search of the best way to deliver messages
to their target audiences.
448 Section seven Value Communication
Coupons
Media relations Deals
News releases Premiums
Press kits Samples
Annual reports Loyalty programs
Public Relations Sales Promotion POP displays
Rebates
We now examine the individual tools of IMC and the way each contributes to a suc-
cessful IMC campaign (see Exhibit 14.10). Most of these tools work along a continuum
from passive to interactive and can be used either offline or online. Some tools—advertis-
ing, personal selling, and sales promotion—appear in detail in the next chapter, and so we
discuss them only briefly here.
Advertising
advertising Perhaps the most visible of the IMC components, advertising is a paid form of commu-
A paid form of nication from an identifiable source, delivered through a communication channel, and
communication from
an identifiable source, designed to persuade the receiver to take some action, now or in the future. Traditionally,
delivered through a advertising has been passive and offline; however, these days advertising is increasingly
communication channel,
and designed to persuade
placed online and is interactive. For instance, print ads in newspapers and magazines are
the receiver to take some offline, with customers simply viewing them (passive). In contrast, banner ads, Web-based
action, now or in the future. contests, or online coupons are all offered online and require customers to provide some
information or take some action (interactive).
In Chapter 15, we discuss the purpose of advertising and its various types, but for now,
we note that advertising is extremely effective for creating awareness of a product or ser-
vice and generating interest. Advertising can also be used to remind consumers of existing
brands. For example, McDonald’s “I’m Lovin’ It” ads helped revitalize interest in the com-
pany’s products, driving both traffic and sales.
Advertising can entice consumers into a conversation with marketers. However, adver-
tising must break through the clutter of other messages to reach its intended audience. In
the past decade, advertising’s share of total promotional dollars has fallen as the budgets
for social and mobile media, sales promotion, direct marketing, and public relations have
increased, resulting in a more balanced approach to the use of marketing communications
elements. Entrepreneurial Marketing 14.1 examines a marketing firm run by an entrepre-
neur with a dragon legacy.
Integrated Marketing Communications CHAPTER 14 449
Personal Selling
personal selling Personal selling is the two-way flow of communication between a buyer and a seller that
The two-way flow of is designed to influence the buyer’s purchase decision. Personal selling can take place in
communication between
a buyer and a seller that is various settings: face to face, video teleconferencing, on the telephone, or over the Internet.
designed to influence the Although consumers don’t often interact with professional salespeople, personal selling
buyer’s purchase decision.
represents an important component of many IMC programs, especially in business-to-
business (B2B) settings.
The cost of communicating directly with a potential customer is quite high compared
with other forms of promotion, but it is simply the best and most efficient way to sell cer-
tain products and services. Customers can buy many products and services without the
help of a salesperson, but salespeople simplify the buying process by providing information
and services that save customers time and effort. In many cases, sales representatives add
significant value, which makes the added expense of employing them worthwhile. Chapter
15 devotes more attention to personal selling.
Sales Promotion
sales promotions Sales promotions are special incentives or excitement-building programs that encourage
Special incentives or the purchase of a product or service, such as coupons, rebates, contests, free samples, and
excitement-building
programs that encourage point-of-purchase displays. While some sales promotions are offline (e.g., printed cou-
the purchase of a product pons or contest entries), others are online (e.g., ecoupons downloaded to a smartphone).
or service, such as
coupons, rebates, contests,
Marketers typically design these incentives for use in conjunction with other advertising
free samples, and point-of- or personal selling programs. Many sales promotions, such as free samples or point-of-
purchase displays. purchase displays, are designed to build short-term sales; though others, such as contests
and sweepstakes, have become integral components of firms’ CRM programs as means to
build customer loyalty. We discuss such sales promotions in more detail in Chapter 15.
Direct Marketing
The component of IMC that has received the greatest increase in aggregate spending
direct marketing recently is direct marketing, or marketing that communicates directly with target cus-
Marketing that tomers to generate a response or transaction.29 Unlike mass media, which communicate
communicates directly
with target customers to to a wide audience, direct marketing allows for personalization of the message, a key
generate a response or advantage. Direct marketing contains a variety of traditional and new forms of market-
transaction.
ing communication initiatives, including offline forms such as direct mail, direct response
TV commercials (infomercials), catalogues, and kiosks, as well as online technologies
such as email, mobile, and podcasts. Digital technologies have had a profound effect on
direct marketing initiatives. Email, for instance, can be directed to specific consumers to
inform them about new merchandise and
special promotions, confirm receipt of an
order, and indicate when an order has been
shipped. Currently available technologies
also mean handheld devices can function
as a payment medium: Just tap your smart-
phone, and the transaction occurs in much
the same way it occurs with a credit card.
Direct marketing has four defining
characteristics: it is targeted, motivates
an action, is measurable, and can provide
information for the development of a
Direct marketers now use mobile devices to reach potential customers. marketing database.30 It is an information-
© Maksym Yemelyanov | Dreamstime.com driven process that enables marketers to
Integrated Marketing Communications CHAPTER 14 451
narrowly target the appropriate audiences. For example, a company selling a health sup-
plement can use direct marketing to reach only people who subscribe to health-related
magazines in an effort to motivate them to take action, such as calling a toll-free number,
visiting a website, or placing a mail order. The company can easily measure the response for
each magazine by using uniquely assigned coded coupons, toll-free numbers, or Internet
microsites. The use of response-generating direct marketing forms (such as direct mail,
direct response television, or telemarketing) can provide meaningful results and allow the
evaluation of a marketing campaign in a timely manner.31
Direct marketing offers benefits to both buyers and sellers. Companies that use direct
marketing campaigns appreciate the ability to sell to a much wider target audience than
could be reached with traditional marketing channels. In comparison to personal selling
or mass media advertising, the cost of reaching consumers is much lower with direct mar-
keting. As mentioned earlier, one of the defining characteristics of direct marketing is its
measurability—campaigns can be closely monitored to track results. Measurability means
marketers know who responds to their campaigns, allowing them to build rich databases
that can be used to cross-sell, tailor offers, and create specific promotions geared to indi-
vidual customers in future campaigns.
The increased use of customer databases has enabled marketers to identify and track
consumers over time and across purchase situations, which has contributed to the rapid
growth of direct marketing. Marketers have been able to build these databases thanks to
consumers’ increased use of credit and debit cards, store-specific credit and loyalty cards,
and online shopping, all of which require the buyer to give the seller personal information
that becomes part of its database. Because firms understand customers’ purchases better
when they possess such information, they can more easily focus their direct marketing
efforts appropriately. Ethical & Societal Dilemma 14.1 describes how companies are target-
ing consumers with promotions based on their purchasing behaviour, which is sometimes
seen as an infringement on their privacy.
(continued )
452 Section seven Value Communication
As shown in Exhibit 14.11, direct marketing can take a number of forms, including direct
mail/email, catalogues, direct response TV, and kiosks. We focus on the first four forms here.
Direct Mail/Email
direct mail/email We consider direct mail/email primarily as targeted forms of communication distributed
A targeted form of to a prospective consumer’s mailbox or inbox. Mailing lists are a critical component of direct
communication distributed
to a prospective customer’s mail. Choose the wrong list and your promotion will be perceived as “junk mail” since
mailbox or inbox. the information and offer will not be targeted to the appropriate audience. Canada Post
research shows that Canadian households receive an average of 27 pieces of direct mail per
week. In spite of such high volumes, addressed mail continues to be welcomed by Canadi-
ans. Recipients are twice as likely to notice and read direct mail than email, and 81 percent
are likely to read it the day it is received.32 Studies consistently report that consumers are
more receptive to direct mail than email. Most of us receive far more email marketing mes-
sages, not all of which are welcome. (As noted in Ethical & Societal Dilemma 14.1, tough
Integrated Marketing Communications CHAPTER 14 453
Forms of
Direct Marketing
Kiosk Catalogue
(top left): RosaIreneBetancourt 8/Alamy Stock Photo; (top right): Stockbyte/Punchstock Images; (bottom left): Jack
Hollingsworth/Getty Images; (bottom right): © McGraw Hill Education/Christopher Kerrigan
new anti-spam legislation, CASL, is in effect in Canada to protect residents from unwanted
electronic communication.) And today, 55 percent of marketing emails are received and
opened on mobile devices, making it critical for marketers to ensure their messages are
optimized for mobile platforms.33
According to the Direct Marketing Association, direct mail generates $12 of revenue
for every dollar invested. For direct mail to be effective, a good contact list is a must and a
good offer is also needed to compel consumers to take immediate action. Good offers must
be relevant both to consumers and to the product, and are important whether a company is
promoting products to consumers or to businesses. But offers don’t always involve selling
a product. Registered charities rely on direct mail in their fundraising efforts. For example,
the Heart and Stroke Foundation of Canada, which receives no operational funding from
government sources, uses direct mail extensively to promote its cause. The Foundation’s
Heart & Stroke Lottery has been running for more than 20 years and has raised more than
$242 million in donations.34
Catalogues
Many companies use catalogues to strategically build their business. They represent a
medium that Canadians accept, with 80 percent welcoming retail catalogues into their
homes. After receiving a catalogue, one-third of Canadians make a purchase online, in a
store, or by phone. Plus, research shows that consumers who have looked at a catalogue
before going to a company’s website spend 109 percent more time on the site than other
visitors and buy more expensive items.35 Typically, catalogues have been mailed, which can
454 Section seven Value Communication
Direct Response TV
Direct response TV (DRTV) refers to TV commercials or infomer-
The IKEA catalogue is a key part of its IMC
strategy and allows consumers to purchase
cials with a strong call to action, usually via a toll-free number, return
a wide variety of products. mail address, or website. Although many people may question the
Source: Inter IKEA Systems B.V. 2020 effectiveness of this form of direct marketing, DRTV and the Shopping
Channel have historically been two of the most welcome forms
of direct marketing among Canadians. DRTV accounts for about
direct response TV 25 percent of all TV commercials, with the top purchases being exercise products, diet/
(DRTV) health/weight merchandise, videos, and beauty products/cosmetics.37
TV commercials or Most DRTV ads have short 60- and 120-second formats or are much longer 30-minute
infomercials with a strong
call to action. infomercials. For many people, the term infomercial conjures up images of a late-night TV
promoter telling them how the product slices and dices better than anything on the market.
Most infomercials appear to be selling products that seem too good to be true: fitness rou-
tines that promise to melt the pounds away, a miracle knife so sharp you’ll never have to buy
another, or rejuvenating face creams that magically erase wrinkles. Some products, such as
the Food Saver vacuum sealing system, are sold only using DRTV and not in retail outlets.
DRTV is used for its power to drive results not only through infomercials, but also in
shorter-format ads. SickKids Foundation launched a campaign to build brand awareness
and attract new donors. A compelling, emotional message was developed that told the story
of children who were being treated at SickKids Hospital. With a strong call to action, ads
in this campaign have proven to be among the most powerful tools of touching hearts and
minds and acquiring donors. Its Better Tomorrows “Life Unpaused” campaign increased
donations by 370 percent.38
Kiosks
As discussed in Chapter 10, digital kiosks can be used to facilitate the way services com-
panies deliver their services to customers; for example, allowing passengers at airports to
quickly print prebooked tickets. However, kiosks can also be used to sell both services and
products to end consumers. For example, after you print your ticket at an airport kiosk, you
can get a 10-minute manicure at another kiosk while you wait for your flight. Some kiosks
are temporary, such as the kiosks that are set up in malls primarily to sell seasonal gift items.
Others kiosks are permanent. For example, Dell’s mall kiosks allow shoppers to talk to a
Dell representative face-to-face and find the computer that’s just right for them. Consumers
can customize their PC, order it, and have it shipped directly to their homes. In Ontario,
Virgin Mobile unveiled a network of mall kiosks, which it may use to sell other Virgin
products and services in the future. Real estate companies such as Century 21 use kiosks in
malls where thousands of potential buyers can connect with property listings. Kiosks from
Hallmark allow customers to create their own personalized cards, and McDonald’s kiosks
Integrated Marketing Communications CHAPTER 14 455
let customers order personalized hamburgers and toppings. Disposable cameras and batter-
ies are available at kiosks throughout the Rogers Centre in Toronto.39 Business marketers
use kiosks as well, particularly at trade shows to collect sales leads and to provide informa-
tion on their products.
Public Relations
Public relations (PR) is the organizational function that manages the firm’s communica- public relations (PR)
tions to achieve a variety of objectives, including building and maintaining a positive image, The organizational function
that manages the firm’s
handling or heading off unfavourable stories or events, and maintaining positive relation- communications to achieve
ships with the media. Like advertising, this tactic is relatively passive in that customers do a variety of objectives,
including building and
not have to take any action to receive it. However, PR efforts span both offline and online
maintaining a positive
media. PR activities support the other promotional efforts by the firm by generating “free” image, handling or heading
media attention and general goodwill. off unfavourable stories or
events, and maintaining
While it can be very difficult to convince the media to write about a company or its positive relationships with
products and services, this media attention can be crucial to a company’s success. As a the media.
relatively new company with a limited marketing budget, SoCIAL LITE Vodka relied heav-
ily on PR to get awareness. It was successful in getting coverage on TV (Breakfast Television,
CityLine, The Social, Dragons’ Den, Food Network, Women’s Network), in print (National
Post, The Toronto Star, The Globe & Mail, Marketing Magazine, Strategy Magazine), and
numerous online blogs related to entrepreneurs, fitness, fashion, lifestyle, and business. It
doesn’t hurt to have help from former Dragons’ Den marketing expert Arlene Dickinson,
who has appeared at launch parties and done media interviews.
In essence, PR is the free placement of a company’s message in the media. In the past,
many companies used PR primarily to communicate with the news media, hoping their
messages would be picked up. Today, PR is more about connecting with consumers and
interacting in the hopes of having a conversation.40 Electric-car maker Tesla spends mini-
mally on advertising because it benefits from PR resulting from media coverage, bloggers,
and word-of-mouth. Unilever’s Dove Campaign for Real Beauty demonstrates the viral
power of digital media to quickly spread a message and generate a wealth of valuable pub-
licity. Its “Evolution” film generated over $150 million in unpaid media impressions. Its
“Real Beauty Sketches” video was the most-watched online ad ever, generating more than
163 million YouTube views.41
Car Heaven’s support of Mothers Against Drunk Driving (MADD) Canada illustrates
how using a combination of promotional and PR campaigns can enhance a firm’s image
while supporting a worthwhile cause.42 The Car Heaven program gives car owners a way to
conveniently dispose of old vehicles by towing them at no charge to a recycling facility. The
proceeds from the scrap metal are donated to MADD Canada and donors receive charitable
tax receipts.43 The program creates a positive association between the brand and a social
cause, in this case, prevention of drunk driving. This form of promotional campaign, called
cause-related marketing, refers to commercial activity in which businesses and charities cause-related marketing
form a partnership to market an image, product, or service for their mutual benefit.44 Commercial activity in
which businesses and
Designers vie to have celebrities, especially those nominated for awards, wear their charities form a partnership
fashions on the red carpet. Their brands offer intangible benefits, not just functional ben- to market an image,
product, or service for their
efits. Events such as the Oscars, with its 35 million annual viewers, provide an unparalleled mutual benefit; a type of
opportunity to showcase the emotional benefits of the brand and make others want to be promotional campaign.
a part of it. Thus, the celebrities whom designers pursue and offer their items to are those
who will sell the most or provide the best iconic images. Saoirse Ronan’s great popularity
meant that she could wear Versace to the Golden Globes, then switch to Calvin Klein for
the Academy Awards, and garner press for both design firms.45
The placement of designer apparel at media events benefits both the designer and the
celebrity. And neither happens by accident. PR people on both sides help orchestrate the
events to get the maximum benefit for both parties.
456 Section seven Value Communication
Saoirse Ronan’s great popularity meant that she could wear Versace to the Golden Globes (left), then switch to Calvin Klein
for the Academy Awards (right), and garner press for both design firms.
(left): ©Venturelli/WireImage/Getty Images; (right): ©Steve Granitz/WireImage/Getty Images
Good PR has always been an important success factor. Over the years, the importance
of PR has grown, as the cost of other forms of marketing communications has increased. At
the same time, the influence of PR has become more powerful, as consumers have become
increasingly skeptical of marketing claims made in other media.46 In many instances, con-
sumers view media coverage generated through PR as more credible and objective than any
other aspects of an IMC program, because the firm does not “buy” the space in print media
or time on radio or television.
For example, TOMS Shoes, a company founded by Blake Mycoskie, illustrates how
a well-orchestrated IMC effort, using a combination of promotional and PR campaigns,
can enhance a firm’s image while supporting a worthwhile cause.47 Mycoskie took tradi-
tional Argentinean shoes, known as alpargatas, and began selling and marketing them
to consumers outside the generally impoverished nation in which they originated. The
company’s website proclaims that Mycoskie’s inspiration was simple. Noting the comfort
of the shoes and the extreme poverty of Argentina, he promises that “With every pair
you purchase, TOMS will give a pair of new shoes to a child in need.” This message is
found on his website and other press vehicles, including a mention as the “Good Guy
event sponsorship of the Month” in O, The Oprah Winfrey Magazine. TOMS Shoes embraces cause-related
A popular PR tool; occurs
marketing. The company is not just about making and selling shoes, but also partners
when corporations
support various activities with groups such as Insight Argentina, an organization offering volunteer activities in
(financially or otherwise), Argentina to help that area address its most pressing social issues.48
usually in the cultural or
sports and entertainment Another very popular PR tool is event sponsorship. Event sponsorship occurs when
sectors. corporations support various activities (financially or otherwise), usually in the cultural
Integrated Marketing Communications CHAPTER 14 457
average. The tiny stadium conveyed the message that the company’s fees are also tiny, and was
sure to attract attention in a high-traffic location, with the tiniest budget possible.
Firms often distribute a PR toolkit to communicate with various audiences. Some
toolkit elements are designed to inform specific groups directly, whereas others are created
to generate media attention and disseminate information. We depict the various elements
of a PR toolkit in Exhibit 14.12.
The Wealthsimple Tiny Stadium garnered a lot of buzz for the company and conveyed an important message about its tiny fees.
Source: (both): Wealthsimple Technologies Inc.
458 Section seven Value Communication
PR Element Function
Publications: brochures, special- Inform various constituencies about the activities of the
purpose single-issue publications organization and highlight specific areas of expertise
such as books
Video and audio: programs, public Highlight the organization or support cause-related
service announcements marketing efforts
Annual reports Give required financial performance data and inform
investors and others about the unique activities of the
organization
Media relations: press kits, Generate news coverage of the organization’s activities
news releases, speeches, event or products/services
sponsorships
Digital media: websites, email Websites can contain all the previously mentioned
campaigns toolbox elements, while email directs PR efforts to
specific target groups
Firms have increased their emphasis on communicating with customers through their
websites. They use them to build their brand image and educate customers about their prod-
ucts or services and where they can be purchased. They also promote their social and mobile
platforms on their websites, encouraging consumers to follow them on these channels. Retailers
and some manufacturers sell merchandise directly to consumers online. Many firms encourage
customers to post reviews of products they have bought or used and even have visitors to their
websites rate the quality of the reviews. Research has shown that these online product reviews
increase customer loyalty and provide a competitive advantage for sites that offer them.51
In the next section, we examine blogs, social and mobile media.
Blogs
blog (weblog) A blog (weblog) contains periodic posts on a common Web page. A well-received blog can
A web page that contains communicate trends, promote special events, create positive word-of-mouth, connect cus-
periodic posts; corporate
blogs are a new form of tomers by forming a community, increase sales, improve customer satisfaction because the
marketing communications. company can respond directly to customers’ comments, and develop a long-term relation-
ship with the company. By its very nature, a blog is supposed to be transparent and contain
authors’ honest observations, which can help customers determine their trust and loyalty
levels. Nowadays, blogs are becoming more interactive as the communication between
bloggers and customers has increased.
Social Media
social media Social media is media content distributed through social interactions. We introduce the
Content distributed topic here and expand our discussion in Appendix 14A. Although there is a broad spec-
through online and mobile
technologies to facilitate trum of online communities and social networking sites, the most popular are Facebook,
interpersonal interactions. LinkedIn, Instagram, Twitter, and Snapchat.52 In these online sites, consumers review,
communicate about, and aggregate information about products, prices, and promotions.
These social media also allow users to interact among themselves (e.g., form a community),
as well as provide other like-minded consumers (i.e., members of their community) and
marketers with their thoughts and evaluations about a firm’s products or services. Social
media helps facilitate the consumer decision process (Chapter 4) by encouraging need rec-
ognition, information search, alternative evaluation, purchase, and postpurchase reviews.
Social-media marketers can use the 4E framework (Excite, Education, Experience, and
Engage) to engage their customers in a proactive dialogue. You can read more about the
Integrated Marketing Communications CHAPTER 14 459
Social media
Social network sites, e.g., Facebook and LinkedIn; Media-sharing sites, e.g.,
YouTube and Instagram; Thought-sharing sites, e.g., blogs and Twitter.
4E Framework in Appendix 14A. When it comes to social media, there is considerably more
transparency and honesty than in most other forms of marketing communication. And,
because members share so much personal information, marketers can tailor messages and
applications to very specific and desirable target markets. For example, most universities
and colleges use Facebook groups and student-made videos on YouTube (commissioned
and paid for by the university) to recruit future students.
As noted in Exhibit 14.13, there are three main types of social media. You can read
more detail about each type in Appendix 14A.
Media-Sharing Sites
The Internet has the ability to connect people more easily and in more ways than have ever
been possible before. Media-sharing sites explicitly rely on this capability to enable users to
share content they have generated, from videos on YouTube, Vimeo, and Tik Tok to pictures on
Instagram and Pinterest. In terms of the 4E framework (see Appendix 14A), companies use such
sites to highlight how consumers can experience their goods or services, as well as to encourage
consumers to engage with the firm, its other social-media outlets, and other consumers.
Thought-Sharing Sites
Thought-sharing sites consist of different types of blogs: corporate, professional, personal,
and micro. From the perspective of the 4E framework (see Appendix 14A), blogs and pod-
casts are particularly effective at educating and engaging users, and in many cases, enhance
their experience with the products and services being discussed.
In the past two decades, marketers have developed websites and other methods to com-
municate information about and to sell their goods and services. Their quest for new ways
to improve, integrate, and enhance these outcomes has resulted in a confluence of social,
mobile, and online marketing. Exhibit 14.14 is a brief summary of how these forces align
with the 4E framework. It highlights how social network and mobile applications and the
associated relevant offers are ideal for stimulating excitement in the offers. In particular,
460 Section seven Value Communication
Exhibit 14.14 Social and Mobile Tool Use from the 4E Lens
Social
networks
Media-sharing
sites
Thought-
sharing sites
Mobile
applications
mobile location-based apps are exciting because they provide customers with highly relevant
offers when they are in close proximity to the retailer or service provider, or they can even
be used to provide competitive offers. Media-sharing sites (e.g., YouTube and Instagram) are
excellent social-media tools that provide customers with visual experiences of other customers
or professionals who are using these goods and services. They also provide customers with an
opportunity to engage with the firms as well as their own social network by posting their own
experiences (i.e., uploading videos), as well as sharing their thoughts (blogs and Twitter posts).
Finally, thought-sharing sites, like blogs, are excellent for providing customer education.
Mobile Marketing
Smartphones have become far more than tools to place calls; they offer a kind of mobile
computer with the ability to obtain sports scores, weather, music, videos, and text mes-
sages, as well as purchase merchandise. Marketing success rests on integrating marketing
communications with fun, useful apps that are consistent with these consumer attitudes
toward mobile devices. In response, firms are steadily improving customers’ potential expe-
rience with their mobile interface.
Although most consumers use computers, 70 percent of the time they spend on social
media is via their mobile phones.53 Of the more than 100 million people who have smartphones
in North America, approximately half make purchases on them. In this huge market, consum-
ers generally are younger and wealthier than others who own older-model mobile phones (or
none at all). For example, more than 50 percent of mobile retail consumers earn at least $75,000
annually. Not surprisingly, mobile ad spending is growing fast. By 2020, mobile spending was
projected to reach more than $6 billion, representing 43 percent of total media spending.54
Mobile Apps
Mobile marketing is marketing through wireless handheld devices, such as cellular tele-
phones. In Canada the average person has 25 apps on their phone.55 Even though 92 per-
cent of apps downloaded are free, 194 billion apps were downloaded in 2018, generating
revenues of $462 billion USD.56 (You can read about app pricing models in Appendix 14A.)
As mobile app downloads continue to grow, mobile marketing will become even more
significant. Although a large number of people in every age group own smartphones, the
highest ownership is for young adults and teens. And what are they doing on their phones?
About 90 percent of their mobile time is spent using apps.57
Integrated Marketing Communications CHAPTER 14 461
Apps are used for a variety of purposes, from games and advertising to business appli-
cations, or even to order a pizza and then track its delivery. Apple’s App Store boasts the
world’s largest collection of mobile apps, with more than 2,000,000 applications, including a
wide range of categories such as music, cooking, travelling, the great outdoors, business, and
learning tools for students. CIBC was the first Canadian bank to introduce an iPhone banking
app that allows customers to access their bank accounts. Since then, every major bank has
developed and released its own banking app. The Android Marketplace has experienced huge
growth, making it one of the fastest-growing mobile application stores on the market today.
Technology will continue to improve, and other new means of communicating with
consumers will undoubtedly be added to the IMC media mix.
462 Section seven Value Communication
On the surface, marketing communications look simple: Planning an IMC budget should encompass a combina-
People become aware of a product or service, then grow tion of factors. The process could start by setting the
interested, then desire it, and finally take an action such overall IMC budget as a percentage of sales. Then, the
as purchasing it. But it isn’t quite that simple. First, there firm might examine what other firms are spending on simi-
is the cumulative effect of marketing communications, or lar product categories. When it gets down to planning the
messages a company has sent to consumers. Even ads budget for individual product categories or items, the firm
from the past help influence consumers’ actions in the should set its objectives for the campaign and allocate
future. Second, messages are encoded, and everyone enough money to meet those objectives.
interprets commercial messages differently, thus making Marketers rely on a mix of traditional and nontraditional
it difficult for a marketer to be assured that a particu- measures to determine IMC success. Because potential
lar, clear signal is getting through. Third, to be effective, customers generally need to be exposed to IMC mes-
marketers must adjust their messages to fit the media, sages several times before they will buy, firms estimate the
or communications channel, and the receiver’s knowl- degree to which customers are exposed to a message by
edge level. Lastly, consumers receive and decode the multiplying frequency (the number of times an audience is
messages. exposed to a message) by reach (the percentage of the
target population exposed to a specific marketing commu-
LO2 ist the steps in planning an integrated
L nication). Measuring Internet IMC effectiveness requires
marketing communications campaign different measures, such as click-through tracking, which
measures how many times users click on banner advertis-
Firms (1) identify their target market; (2) set objectives; ing on websites.
(3) determine the budget; (4) convey the message;
(5) evaluate and select the media; (6) create the communi-
cation; and (7) assess the impact of the ad. LO6 Explain the six tools of integrated marketing
communications campaigns
LO3 escribe what appeals advertisers use to get
D
The six tools of IMC campaigns are advertising, per-
customers’ attention
sonal selling, sales promotions, direct marketing, public
relations, and digital media. In the past, most of a firm’s
Advertising appeals are either rational or emotional.
promotional budget was spent on advertising. Although
Rational appeals influence purchase decisions with fac-
advertising still demands a sizable portion, other media
tual information and strong arguments built on relevant
channels have taken up a substantial chunk of the total
key benefits that encourage consumers to evaluate the
budget. While the cost of personal selling to reach poten-
brand favourably. Emotional appeals indicate how the
tial customers directly is quite high, it remains the best
product satisfies emotional desires rather than utilitarian
and most efficient way to sell certain products and ser-
needs.
vices. Sales promotions are incentives or programs
that promote immediate purchase. Many drive sales in
LO4 Identify how firms determine which media the short run, while others exist as part of a company’s
to use customer loyalty programs. Direct marketing expendi-
tures are growing because the number of direct market-
Firms can use mass media channels such as newspapers ing media options has increased in recent years; direct
or television to reach large numbers of anonymous audi- mail, infomercials, alternative media such as catalogues,
ence members. Niche media, such as cable TV, direct and other new communication technologies such as
mail, and specialty magazines, are generally used to smartphones are all expanding. Public relations also has
reach narrower segments with unique demographic char- become increasingly important as other media forms
acteristics or interests. When choosing the media, firms become more expensive and as consumers grow more
must match their objectives to the media. Also, certain skeptical of commercial messages. Finally, digital media
media are better at reaching a particular target audience have spawned innovative new ways to promote products
than others. and services.
Integrated Marketing Communications CHAPTER 14 463
Key Terms
■■ advertising ■■ event sponsorship ■■ personal selling
■■ advertising schedule ■■ feedback loop ■■ post-testing
■■ affordable method ■■ flighting advertising schedule ■■ pretesting
■■ blog (weblog) ■■ frequency ■■ public relations (PR)
■■ cause-related marketing ■■ gross rating points (GRP) ■■ pulsing advertising schedule
■■ click-through rate ■■ impressions ■■ rational appeal
■■ click-through tracking ■■ integrated marketing ■■ reach
■■ communication channel communications (IMC) ■■ receiver
■■ competitive parity method ■■ mass media ■■ return on investment (ROI)
■■ continuous advertising schedule ■■ media buy ■■ sales promotions
■■ decoding ■■ media mix ■■ search engine marketing (SEM)
■■ direct mail/email ■■ media planning ■■ sender
■■ direct marketing ■■ niche media ■■ social media
■■ direct response TV (DRTV) ■■ noise ■■ tracking
■■ digital media ■■ objective-and-task method ■■ transmitter
■■ earned media ■■ owned media ■■ unique selling proposition (USP)
■■ emotional appeal ■■ paid media
■■ encoding ■■ percentage-of-sales method
concept review
1. Briefly describe the marketing communication pro- these media changing the nature of the communica-
cess and identify the possible sources of noise at tion between the firm and its customers?
each stage of the process.
7. What are the steps involved in developing an IMC
2. What is meant by integrated marketing communications? campaign? Briefly explain each step.
3. Describe the IMC tools marketers use in campaigns. 8. Describe why a company would use a pull strategy ver-
sus a push strategy in its marketing communications.
4. Explain the differences between advertising and sales
promotion. 9. Briefly describe the two main appeals of advertising.
5. Describe some of the elements in a PR toolkit. Why 10. Explain the three different ways marketers measure
would a company include PR in its IMC mix? the success of their marketing communications. What
types of information does each method provide?
6. Identify some of the key digital media that marketers
use to communicate with their customers. How are
Marketing Applications
1. The designer jean company Juicy Couture has 3. Suppose a snack company introduces a new prod-
embarked on a new IMC strategy. It has chosen to uct called SumSeeds—sunflower seeds with energy
advertise on the NBC Nightly News and in Time mag- boosters like caffeine, taurine, lysine, and ginseng.
azine. The message is designed to announce new How would you expect this product’s IMC program to
styles for the season and uses a 17-year-old model. differ from that for regular sunflower seeds sold as a
Evaluate this strategy. snack?
2. It is holiday time, and you have decided to purchase 4. Bernard’s, a local furniture company, targets its mar-
a jewellery item for a friend at Birks. Evaluate how the keting at college and university students with apart-
company’s advertising, personal selling, public rela- ments and at households of young people purchasing
tions, and digital media might influence your purchase their first furniture items. If you worked for Bernard’s,
decision. How might the relative importance of each what type of media would you use for your advertising
of these IMC tools be different if one of your older campaign? Justify your answer.
relatives were making the purchase?
464 Section seven Value Communication
5. Should Bernard’s use continuous, pulsing, or flighting explains, “It’s really simple; just increase the budget
for its advertising schedule? Why? 5 percent over last year’s.” Evaluate your manager’s
strategy.
6. Social media, such as Instagram, are some of the
newest tools that firms are using in public relations 9. Imagine that you work for Puma and are tasked with
programs. Visit Red Bull’s Instagram account and producing an IMC campaign with a goal of increas-
browse through its recent posts. How is Red Bull using ing market share by three percent. First, you decide
Instagram in its public relations program? How does to use traditional and online advertising and public
its public relations program impact other aspects of its relations to achieve this goal. Finally, you determine
marketing communications? the cost of each product to determine the communi-
cations budget. What type of IMC budgeting process
7. Procter & Gamble sends new parents home from
are you using? Evaluate your strategy compared to a
the hospital with a sample of Pampers diapers, and
competitive parity budgeting process.
it has started sending Fusion ProGlide razors to each
young man in America on his 18th birthday. What are 10. You heard a friend talking about GNC’s healthy drinks
the likely goals of such marketing tactics? How could and decided to visit its website. Assume that GNC used
Procter & Gamble measure how well it has achieved the services of behavioural advertising firm Tacoda to
these goals with its free giveaways? track how consumers move through its website and
to create more targeted advertising. Would you view
8. As an intern for Michelin tires, you have been asked
these efforts as an invasion of privacy? Do you believe
to develop an IMC budget. The objective of the IMC
this action constitutes an ethical IMC strategy? How
strategy is to raise Michelin’s market share by 5 per-
will it affect your attitude toward GNC and the likeli-
cent in Canada in the next 18 months. Your manager
hood that you will purchase its products?
marketing digitally
1. View the website of Taxi (www.taxi.ca), a well-known 2. The Canadian Marketing Association (CMA) is the
IMC consulting firm. The site contains a lot of informa- primary source of information about direct market-
tion about what IMC is and how it can be used effec- ing activities for both academics and practitioners.
tively by a wide variety of companies. Of particular The website for the CMA (www.the-cma.org) contains
interest is the Work section. Locate the Work link, view information about direct marketing practices and self-
a video, and discuss the following: What were the regulation. How many different target markets does
goals of the IMC campaign? Which IMC components the CMA address on its home page? What services
were used in that particular campaign? How do those does the CMA provide for consumers? Why do you
components contribute to the success of the IMC think it offers those services?
campaign in achieving its stated goals?
The 2020 GR Supra was designed with sports car fans in mind.
Source: Toyota Motor Sales, USA, Inc.; Agency: Saatchi & Saatchi
Toyota’s North American VP of Marketing, Ed Laukes, says the new campaign “highlights
the thrill of getting to know the 2020 GR Supra and a rediscovered appreciation for the
simple joy of driving.”61 Messaging for the 2020 GR Supra (GR stands for Gazoo Racing,
which is Toyota’s motorsports partner) highlights power, precision, and performance in a
bid to inspire sports-car fans to check out what Toyota is hoping will be the car of their
dreams.
To promote the Supra’s release, an integrated marketing communication campaign was
launched, featuring digital, out-of-home, and TV ads.62 The ads will air across motorsports
TV programming and will also play on social-media sites including YouTube, Facebook,
Instagram, and Twitter. One ad plays the Julie Andrews’s song, ‘Getting to Know You’ as
drivers get to know the Supra while racing around the iconic Road Atlanta track. Other ads
that are 6, 15, and 30 seconds in length demonstrate the sleek, stylish power of the newly
launched sports car.
Print advertising is being used in car magazines. For example, in Motor Trend and
Road & Track, a pull-out poster will be inserted. Ads in Road & Track feature a QR code
Sports car fans will find a pull-out poster in Motor Toyota was the exclusive auto partner of Sports Illustrated’s
Trend and Road & Track magazines. Fashionable 50, honouring the world’s most stylish athletes.
Source: Toyota Motor Sales, USA, Inc. Source: Toyota Motor Sales, USA, Inc.
466 Section seven Value Communication
that launches an augmented-reality experience that lets readers virtually see the Supra
in their own driveways.63 Out-of-home plans include ads in movie theatres, digital radio
spots, and high-impact billboards in 17 markets. Some custom brand integrations are
planned as well, with GQ and Twitter’s @MarvelLIVE. And Toyota was the exclusive auto
partner of Fashionable 50, Sports Illustrated’s annual event that honours the world’s
most stylish athletes.64
As Ed Laukes noted in press interviews, the return of the Supra was “a long time coming,
and it’s well worth the wait.”65 The manufacturer’s suggested retail price of $64,90066 might
give some sports car fans pause, but with overall sales up 15.9% in July67 when the car was
launched, the return of the Supra might ensure winning sales figures.
Questions
1. Based on the information in the case, how would you describe the primary target market
Toyota is trying to reach?
2. Which appeal is Toyota using to communicate its marketing messages?
3. Discuss how Toyota might have used integrated marketing communication tools that
were not part of the campaign to launch the Supra.
Appendix 14A: Social and Mobile Media
This appendix expands the discussion from Chapter 14 on Social and Mobile Media. As
we have seen throughout the book, social media has become an integral component
of any integrated marketing communications strategy. The term social media refers to
content distributed through online and mobile technologies to facilitate interpersonal
interactions. These media utilize various firms that offer services or tools to help con-
sumers and firms build connections. Through these connections, marketers and cus-
tomers share information of all forms—from their thoughts about products or images to
uploaded pictures, music, and videos.
The changes and advances in social, mobile, and online technologies have created
a perfect storm, forcing firms to change how they communicate with their customers.
Traditional ways to market their products—using brick-and-mortar stores, traditional
mass media (e.g., print, television, radio), and other sales promotional vehicles (e.g., mail,
telemarketing)—are no longer sufficient for many firms. The presence of social, mobile,
and online marketing is steadily expanding relative to these more traditional forms of
integrated marketing communication (IMC).
Excite
Customers
Educate Engage
Experience
Staples excites its customers by giving them instant rewards through their mobile phones,
while they are in the store.
Source: Staples, Inc.
Social and Mobile Media appendix 14A 469
professionals who describe how viewers can achieve similar experiences with their hair,
nail, makeup, and skincare beauty tools.1 For customers seeking an experience in other
settings, Sephora also maintains its own YouTube channel featuring not only all the tutorial
videos but also dedicated videos that encourage them to experience specific product lines,
such as the “Kat Von D playlist.”2
Facebook
On this well-known social-network platform, more than 1.6 billion active users give com-
panies a forum for interacting with their fans. In Canada, over 24 million people have a
Facebook account and 87 percent of them access it least once a week, with the same per-
centage using a phone or tablet to access their accounts.7 In fact, Canadians have higher
daily Facebook usage at 71 percent than the global daily average.8 This fact not only lets
individual users connect with others but also gives marketers the ability to carefully target
their audience.
Companies have access to the same features that regular users do, including a “wall”
where they can post company updates, photos, and videos or participate in a discussion
board. Through this form of free exposure, the company can post content and informa-
tion regarding products, events, news, or promotions that might be exciting to customers.
Only the followers of its page generally have access to such information, so the company
can specifically target its fans. Successful companies on Facebook attempt to excite their
customers regularly.
In an attempt to extend the viral reach of posts, Facebook added the use of hashtags in
late 2013. Trending topics were added in 2014 in an attempt to turn Facebook into more of a
news discovery platform. Later, Facebook added an “autoplay” feature on videos and video
ads. Increasingly more important for the company, mobile ads now make up 94 percent of
its advertising revenues.9
Display advertising with Facebook ads targets specific groups of people, according to
their profile information, browsing histories, and other preferences. If online users reveal
an interest in ski equipment or Burton snowboards, marketers can target both groups.
Facebook offers a variation on more traditional forms of promotion, with the promise of
more accurate targeting and segmentation. But being effective and relevant on Facebook is
not simply a matter of shifting an offline ad into social network sites.
Snapchat
Snapchat—the picture-sharing and chat app—has reached 190 million daily users, surpass-
ing Twitter in only four years of operation.10 Snapchat has grown quickly, supported by its
popularity among youth. On any given day, the app is used by 73 percent of consumers aged
18–24 in the United States.11 Snapchat has made communicating into more of a game by
letting people send selfies and short videos. It has allowed people to use filters to swap faces
in a photo, transform themselves into puppies, and distort users’ faces in silly ways.
Some brands are creating Snapchat accounts and sharing content with their followers.
Tiffany & Co. was the first luxury brand to do so. The jewellery brand has launched branded
geofilters, which are live at all 93 of its stores across the United States, and is also investing
in video ads as it builds its presence under the handle @Tiffanyofficial.12 The goal is to
attract Generation Y users (millennials born between 1982 and 1991) and Gen Z Snapchat
users (born in 1992 and after), who may not be Tiffany shoppers today but may aspire to be
brand loyalists tomorrow.
LinkedIn
A professional—instead of casual or friendship-based—site, LinkedIn allows users to share
their professional lives. With more than 467 million users, it is a place where users can
post their resumés, network with other professionals, and search for jobs.13 It is not the
place where you will see games such as Candy Crush or FarmVille; instead, users post to
question-and-answer forums, do job searches, and post personal intellectual property, such
as presentations they have given.
The professional networking benefits of LinkedIn are particularly beneficial for
small-business owners. More than 12 million of LinkedIn’s users are small-business
472 SECTION SEVEN Value Communication
Media-Sharing Sites
Media-sharing sites explicitly rely on enabling
users to share content they have generated,
from videos on YouTube, Vimeo, and TikTok,
to pictures on Instagram and Pinterest. Compa-
nies use these sites to highlight how consumers
can experience their goods or services, and
to encourage consumers to engage with the
firm, its other social-media outlets, and other
consumers.
Marketers are increasingly investing in
online video. According to eMarketer research,
in 2019, Canadian advertisers spend $8.8 on
digital advertising, equating to 53.5 percent
of their total ad budgets, with video spend-
ing increasing by 23.3 percent.15 Taulia uses
video to increase qualified leads for its cloud
invoicing and supplier financing offerings.
LinkedIn is an excellent place to begin your search for a Working with the world’s leading video market-
marketing job. ing platform, Vidyard in Kitchener, Ontario,
LinkedIn; photos: (left to right): Joan Vicent Canto Roig/Getty Images; Siri Stafford/Getty Taulia discovered that “it’s easier to get people
Images; Shutterstock/Tiffany Bryant; Shutterstock/Jacob Lund; MStudioImages/Getty
Images; (top right): Morsa Images/Getty Images
to press play and watch a minute-long video”
than it is to convince them to download a white
paper.16 Knowing it would be difficult to make
one video suited for everyone, Taulia creates separate videos to appeal to each audience it
serves. By narrowcasting humorous videos that target the company’s audience types and
buying personas, it gets better sales results. Testing shows that 79 percent of its viewers
watched one video in its entirety. That’s a key point. According to Unruly, viewer enjoy-
ment increases purchase intent by 97 percent.17 Video helps leverage social capital to build
brand identity and relationships.18 And, according to a study done by Twitter, adding video
boosts retweet rates by 28 percent.19
Because video and social media are a perfect match, Vidyard has a solution that meshes
them. Most companies don’t know what to do with all their videos, which can get lost in a
black hole when hosted on YouTube or Vimeo.20 Through a Vidyard app, users can put their
entire video library on the HootSuite dashboard and add video to any social post directly
from HootSuite. Measurement of video performance can track metrics such as number of
views, click-through rates, attention spans, and shares on social-media sites. Being able to
see how much of the video was watched and when/if it was stopped helps to determine
what content is striking a chord with viewers. And the inherent trackability shows market-
ers whether a video posted to Facebook is engaging consumers more effectively than on
Twitter or other social-media platforms.
Social and Mobile Media appendix 14A 473
While video is a natural fit for social media, companies can use it to enhance customer
service, too. By monitoring social media, companies may see tweets from customers who
can’t figure out how to use a product. Companies could respond and include a video that
helps customers better understand how the product functions.
YouTube
On this video-sharing social-media platform, users upload, share, and view videos. This
medium gives companies a chance to express themselves in a different way than they have
in the past. YouTube videos also show up in Google searches, making YouTube an appeal-
ing vehicle for retailers.21 The site’s demographics indicate visitors are of the age range most
appealing to retailers, and racially reflective of the wider population.22
YouTube also provides an effective medium for hosting contests and posting instruc-
tional videos. The Home Depot attracts more than 4,400 viewers with an array of videos
detailing new products available in stores, as well as instructional do-it-yourself videos, like
“How-to Tips for Mowing Your Lawn” or “How to Repair a Toilet.”23 These videos maintain
the core identity of the Home Depot brand while also adding value for consumers, who
learn useful ways to improve their homes. As a good example of IMC, Home Depot reinforces
its brand image and makes itself more relevant to the consumer’s life.
Companies can broadcast from their own channel, that is, a YouTube site that con-
tains content relevant only to the company’s own products.24 For example, Home Shopping
Network (HSN) offers consumers an interesting vehicle to utilize the 4E framework—
excite, educate, experience, and engage—using a multi-channel strategy with its television
channel as its central focus. As competition in this field has increased, HSN has added
to its communication arsenal an ecommerce site, and Facebook, Instagram, Twitter, and
Pinterest, which are all integrated across each platform and into the live TV segment. But
perhaps the most powerful tool it has added is its dedicated YouTube channel, which it
exploits to reach target shoppers in an exciting way that maximizes the value of its media
content. Products promoted on HSN are available on YouTube almost immediately after
they appear on television. Then HSN marketers can use the information gathered from
YouTube to target direct-mail campaigns. For example, HSN could send jewellery promo-
tions to households that viewed the YouTube video clip for a necklace. Consumer responses
are monitored 24/7 and measured against hourly sales goals.
Instagram
More than one billion people have downloaded the Instagram app, with 500 million using
it on a daily basis to take photos of themselves or their surroundings.25 The app enables
them to add fun filters, such as causing the picture to look as if it were taken by an old
Polaroid camera. Then they can upload the artistic creation to various social-networking
sites, including Twitter, Tumblr, and Facebook.
The name of this app evokes the founders’ idea of its use: a sort of modern-day, imme-
diate telegram.26 It was effective enough that it has attracted the attention of some of the
most famous names in media sharing, including Justin Bieber, Kim Kardashian, and Tony
Hawk—which increased its popularity even more. Recognizing the value of a mobile
option, Facebook purchased Instagram in 2012. For the first time, the social-media giant
promised not to absorb its purchase, but to allow Instagram to continue functioning much
as it had been all along.27
Instagram later added video-sharing capabilities as well, though another app had
beaten it to that punch. Vine, which was purchased by Twitter in 2012, let users capture and
share six-second videos. Although Vine was later shut down, advertisers have embraced
such videos, finding that the short time limit appeals to consumers. People are ready to
share a quick video, far more so than a longer commercial, which enhances the chances of
a marketing campaign going viral.28
474 SECTION SEVEN Value Communication
Influencers and businesses can tag specific products in photos and users can easily
view the product name, price, descriptions, and can see the provider's website. A different
feature is the “swipe up” feature, where large accounts can link a website to their stories, so
that people can easily shop a look, buy tickets, or watch a video.
Podcasts
Advertising revenue associated with podcasts is expected to grow at a 30-percent annual rate and
hit $1.6 billion by 2022.29 Almost one third of Canadian Internet users listen to podcasts, and
36 percent of consumers listen to them monthly.30 Advertisers embrace podcasts for the ability
to hyper-target audiences. And if you have well-liked podcast such as Sharkpreneur by Kevin
Harrington, you can get exposure with hundreds of thousands of business owners.31 Linking
episodes to a website provides SEO benefits that make it easier for consumers to find you.
Thought-Sharing Sites
Thought-sharing sites consist of different types of blogs: corporate, professional, personal,
and micro. In terms of the 4E framework, blogs are particularly effective at educating and
engaging users, and in many cases, enhance their experience with the products and ser-
vices being discussed.
Blogs
Once confined to a journal or diary in a person’s room, the blog (shortened from “web log”)
on the Internet has allowed us to air our thoughts to the world through thought-sharing
websites. For corporations, the comment section allows marketing managers to create a
two-way dialogue directly with the end users. The wide availability of free blogging tools
such as WordPress, Blogger, and TypePad, which enable non-technically oriented people to
create their own blogs, has made blogging a very popular pastime. There are 471.6 million
Tumblr blogs and 76.5 million WordPress blogs alone.32
Companies have responded to this interest and now have several ways to include blog-
ging in their social-media marketing strategy. Blogs provide firms with the opportunity to
educate their customers about their offerings, and to engage them by responding to their
communications, both positive and negative. The reach that marketers have to their cus-
tomers from blogs can be categorized by the level of control they offer. Corporate blogs,
which are created by the companies themselves, have the highest level of control, because
to a large degree, they can control the content posted on them. Of course, blogs also allow
customers to respond to posts, so the content can never be completely controlled, but mar-
keting managers have a good opportunity to pepper their blogs with the messages they
wish their customers to see. The best corporate blogs illustrate the importance of engaging
customers around the core brand tenets without being overly concerned with a hard sell.
Starbucks (https://ideas.starbucks.com) uses its blog for new product development by
generating new product and experience ideas from its customers. General Electric (www.
gereports.com) educates customers through its blog by telling entertaining stories geared at
getting customers to realize it sells more than just light bulbs.33
From a marketing perspective, professional blogs are those written by people who review
and give recommendations on products and services. Marketers often offer free products or
provide modest remuneration to top-rated professional bloggers, in the hopes of getting a
good product review. Marketers have less control over professional bloggers than they do
their own corporate blogs. But consumers seem to trust professional bloggers’ reviews much
more than corporate blogs and other more traditional media, like advertising. Such trust may
be fleeting, however, as more consumers realize that professional bloggers are often compen-
sated for positive reviews. “Mommy Blogs,” a particularly popular type of professional blog,
feature advice and product recommendations from one parent to many others.
Social and Mobile Media appendix 14A 475
Finally, personal blogs are written by people who receive no products or remunera-
tion for their efforts. Thus, of the various types of blogs, marketers have the lowest level of
control over this type. However, personal blogs are useful for monitoring what is going on
in the marketplace and for responding to customer complaints or compliments.
Microblogs
As the name implies, a microblog differs from a traditional blog in size—short sentences,
short videos, or individual images. On the most popular microblogging site, Twitter, users
are limited to 280-character messages. In spite of this, most tweets still come in at less than
35 characters.34 Twitter provides another option for companies to educate their custom-
ers by providing corporate and product information, and to engage them by providing a
platform for two-way communications. Even companies that may have once resisted social
media have realized that Twitter is an important communications channel. However,
growth in new users has slowed and is projected to increase at only 2 percent by 2020.
Growth is virtually stagnant in the 12–17 year range according to eMarketer.com, while the
total number of all monthly users has fallen to 321 million people.35
As much as Twitter can help build a firm’s brand image, though, it can also tarnish
it instantly. Firms have to watch out for hacked Twitter accounts or ill-considered tweets.
And Twitter can also act as an international, rapidly spread complaint forum. Companies
also need to consider the frequency of their tweets since overcommunication can have
negative effects on a brand. A central problem for companies is ownership of relevant
Twitter handles and responsibility for outgoing Twitter communication. If Twitter con-
trol is shared by a lot of people, the message usually gets muddled. But if only one or two
people are in charge, the need to respond to the vast number of incoming tweets might
become overwhelming. Different companies thus manage their Twitter strategies in vari-
ous ways.
Whole Foods tries to develop a broader engagement with customers by interacting with
its 4.4 million Twitter followers. It instituted a weekly Twitter chat, for an hour every Thurs-
day, during which Whole Foods representatives discuss topics such as holiday menu plan-
ning and healthy eating. Many Whole Foods stores also have their own Twitter accounts to
answer questions directly related to their stores.
In contrast, Best Buy hires an army of specialists to manage its Twitter accounts:
not just the main account @Best Buy, but also @BestBuy_Deals, @GeekSquad, and
@BestBuyNews. The specialists who work Best Buy’s help desk also will answer questions
through Twitter, at @Twelpforce. Users who tweet the help desk receive an almost instant
response from one of Best Buy’s 3,000 employees who have signed up to participate on the
task force, which further helps showcase the broad spectrum of expertise available through
Best Buy.36
For small companies with limited marketing budgets, the use of tweeted promotional
messages is particularly appealing. A local bakery tweeted, “Two new scones: Lemon Blue-
berry and Chorizo Cheddar!” and received responses from 400 Twitter followers—a huge
captive audience for a local entity.
majority of app revenue is generated from the remaining three pricing models, dis-
cussed next.
Freemium apps are apps that are free to download but include in-app purchases. In-
app purchases are when a game or app prompts or allows customers to make small “micro-
purchases” to enhance an app or game. Common examples include extra lives, bonus maps,
in-game currency, a subscription, and unique character unlocks. In Candy Crush Saga, you
get five lives to play in the game. When you lose a life, it takes 30 minutes in real-life time
to get that life back. If you’re playing a particularly hard level and lose all your lives in
minutes, you’ll have to wait two and a half hours to play again. This is where in-app pur-
chases come in. For just $0.99, you can get all five lives back immediately so you can keep
playing.37 Candy Crush Saga is estimated to earn the developer $4 million a day in revenue
from in-app purchases.38
The remaining two pricing models are paid apps and paid apps with in-app pur-
chases. Paid apps charge the customer an up-front price to download the app ($0.99 is
the most common), but offer full functionality once downloaded. Similar to the freemium
model, paid apps with in-app purchases require the consumer to pay initially to download
the app and then offer the ability to buy additional functionality.
Which is the best pricing model? Time will tell, but it appears that freemium apps may
be the winner. Free apps with in-app purchases make up the vast majority of revenue from
Apple’s App Store in 8 of 10 app categories. According to Distimo, a research firm spe-
cializing in the mobile app market, 71 percent of apps in Apple’s App Store implement a
freemium pricing model, and 92 percent of revenues from Apple’s App Store and 98 percent
from Google’s Play App Store come from freemium pricing.39 Apple’s App Store continues
to be the market leader, generating $25.5 billion in the first half of 2019 from premium apps
and in-app purchases, 80 percent higher revenue than Google’s store.40 In terms of the 4E
framework, mobile marketing is particularly useful for creating excitement with consumers
at the time of sale.
Need to Socialize
Consumers want to stay connected with their friends, and apps can help people achieve
this goal. The average person spends about 19 percent of their smartphone time interacting
with friends (and the rest of the world).43 Although we are all familiar with Twitter and
Facebook, a number of specialized apps to interact through different mediums exist as well.
The app Vine allows users to share mini-movies on Twitter; Skype and Zoom allow people
to place video calls; Tumblr and Pinterest focus on image sharing; and Snapchat sends
pictures and videos that are automatically deleted a few seconds after opening. In China,
the social networking app Weixin (pronounced way-SHEEN) allows users to send videos,
photos, messages, Web links, status updates, and news; it has been released as WeChat in
the United States. Weixin has had a faster adoption rate than either Facebook or Twitter,
with more than 300 million users in only three years.44
Need to Shop
Customers demand to be able to shop when and where they want. Shopping apps allow
consumers not only to make purchases from a smartphone 24/7, but also to do many
other tasks such as comparing prices and creating grocery lists. The average person
spends about 12 percent of his or her smartphone time shopping.45 When out shopping,
smartphone users no longer have to go from store to store, or to stop at home to go online
and compare prices. A process called showrooming enables customers to scan a product
in a store and instantly compare the prices online to see whether a better deal is available.
Using the showrooming Amazon app, if the Amazon price is better, the customer can buy
the product online with a single click. The grocery app Out of Milk has brought social to
grocery lists; users can create a grocery (or any other type) list and sync it automatically
with everyone else’s devices in the same household. Out of bread? No need to call and ask
someone to pick it up next time he or she is at the store; just put it in the app and it will
appear in the grocery list.
Need to Accomplish
Consumers live busy lives and look to mobile apps to help them manage their activities
and goals. On average, people spend about 11 percent of their smartphone time using apps
to accomplish something, including managing finances, increasing overall health, and
enhancing productivity.46 Consumers trying to get in shape and live a healthy lifestyle can
download MyFitnessPal, as more than 19 million people world-
wide have done. It allows users to create a profile and track their
daily exercise, create a food diary to track calories, and track
weight loss. The app also adds a social component by enabling
people to post their success at, for instance, keeping below a tar-
get calorie level. Additionally, the app can interact with a number
of products, including FitBit, Jawbone UP, and iHealth Wireless
Scales. For people seeking instead to accomplish a financial goal
or create a budget, the Mint.com app allows customers to see all
of their account balances and transactions across banks and credit
cards in one convenient place.
Need to Prepare
As our lives get busier and faster paced, the need to keep orga-
nized and make quick decisions continues to grow. Apps meet this
need by helping us prepare and plan. Users spend about 7 percent MyFitnessPal fulfills the common need to
of their smartphone time using apps like calendars, trip planners, accomplish weight loss.
and flight trackers.47 Kayak, a free app on all major platforms, Source: MyFitnessPal, Inc.
478 SECTION SEVEN Value Communication
provides a convenient way for people to plan trips. Kayak allows users to find flights, hotels,
and rental cars and compare prices across hundreds of travel sites to find the best deals. Once
the trip is booked, travellers can get up-to-the-minute information on flight statuses, and if
there is a problem with a flight, the app has the phone numbers for all major airlines. Cloud-
based file storage apps like Dropbox and Google Drive allow customers to store files in the
cloud and access them from any device. Finally, Business Calendar helps people plan their
day with an interactive calendar that integrates multiple calendars (e.g., Google Calendar,
Outlook Calendar) and allows users to link an event to people in their contact list and put a
daily agenda widget on their smartphone home screen.
Need to Discover
Apps also help fulfill our need for information, to know what’s going on around us, and to
open our minds to new ideas. This need is met through news and weather apps, on which
people spend about 4 percent of their smartphone time.48 One of the most popular apps
for news and information is Flipboard, a unique app that produces a full-screen magazine
aggregating a number of news and entertainment sources based on user-defined topics
such as top stories, entertainment, local news, and business news. The app also adds a
social component by allowing the reader to send stories to friends or post on Facebook.
Need to Self-Express
Finally, individuals have diverse interests and tastes and, as a result, have a need for apps
that are tailored to their hobbies and passions. Surprisingly, the average person spends only
about 1 percent of his or her smartphone time engaging in personal interests.49 For the
beginning astronomer, Google’s SkyMap allows users to
hold their smartphones up to the sky and, using GPS and
compass data, the app shows them what they are look-
ing at. Want to know how to use a badger brush while
shaving? How about finding people who love balloon
animals as much as you? TapaTalk aggregates tens of
thousands of interest groups into a single app, making
it easy to connect aficionados of just about any interest
or hobby.
As you can see, apps can meet several needs at once.
Sharing an interesting story with friends via Flipboard
can meet the needs of discovery and socialization. When
a person looks at the latest 4K TVs sold on Amazon just
for fun, she can be meeting three needs—me time, dis-
covery, and shopping. Consider the person who purchases
Chinese food via GrubHub’s app on her ride home; she’s
Not only does Flipboard aggregate all of the news not only shopping, but also avoiding making dinner to get
important to you in one place, but its unique format gives some extra me time. With this information in mind, apps
the app the look and feel of a printed magazine. (and advertising within those apps) can be designed and
Alliance Images/Alamy Stock Photo targeted in ways that better apply the four Es.
Chapter 15
Coffee is more popular than tap water and is the drink of choice for 72 percent of Canadians, who drink it every
day. In fact, Canadians have the third-highest coffee consumption in the world, drinking 152 litres per person
annually.1 With over 3,665 restaurants across the country, Tim Hortons is a brand many consumers gravitate
toward.2 Having convenient locations and a variety of product offerings helped Tim Hortons become the second-
largest quick-serve chain in Canada and the leading coffee chain as measured by gross sales.3 Advertising, pub-
lic relations, and sales promotions are key components of its overall marketing plan.
The company differentiates itself through its community involvement as a sponsor of Timbit minor sports.
Its Children’s Foundation highlights some of the company’s corporate social responsibility initiatives. Store
owners hold annual Camp Days, donating coffee sales and collecting public donations to help send children
from economically disadvantaged families to camp. The Tim Hortons Coffee Partnership has been working
for almost a decade to improve the lives of coffee growers in South America. The company publicly reports
on sustainability and responsibility efforts, is committed to building more LEED Certified restaurants4, and, as
part of a pilot project, allows owners of electric vehicles to charge their cars at no cost.5
It connects with consumers on social media through Facebook, Twitter, and Pinterest, and rolled out
TimmyMe, a mobile app designed to simplify orders for office workers when it’s their turn to go for a “Timmy
Run.” The company even rolled out its own TV channel, TimsTV, streaming news, weather, and sports con-
tent, as well as programming to highlight its community activities such as free skating or swimming dates and
Camp Day.6 And it continually improves its product offerings, introducing premium espresso coffees made
with freshly ground beans and steamed milk.
To ensure consumers keep coming back, Tim Hortons runs promotions, such as Roll Up the Rim, which
has been running for over 30 years. However, recently this well-loved tradition has come under scrutiny due
to the environmental impact of the 300 million disposable cups the contest uses. Tim Hortons has been
singled out as one of the largest generators of garbage along with McDonald's, PepisCo, Coca-Cola, and
Nestlé.7 In spite of increasing the number of prizes to be won in a bid to improve sales, Tim Hortons same-
store sales fell. Overall results were also lower than analyst expectations.8 After the contest ended, Tim
Hortons announced that Roll up the Rim will be revamped in the future to move it online.9 A digital contest
would allow consumers to use their own cups; although, the tactile experience of rolling up the rim would be
lost. The company plans to use disposable cups for the first two weeks of its next contest. After that, custom-
ers can play using the digital contest. Those who bring reusable cups will get extra chances to win prizes.10
For years, Tim Hortons was ranked near the top of the list by the Reputation Institute’s survey of Cana-
da’s top brands. However, even stars can fall out favour—the company did not make the top 50 list for the
first time in 2018 and dropped even further in 2019.11 Merging with Burger King, a foreign-owned company,
didn’t sit well with Canadian consumers. A $500 million class-action lawsuit was launched by franchisees
against parent company Restaurant Brands International, followed by vocal and public disputes about the
company’s treatment of its workforce.
The company is working to turn things around, starting with a move to settle disputes with franchisees.
Moving beyond the brand’s hockey roots, a new campaign featuring singer Shawn Mendes celebrates his
modest upbringing in Pickering, Ontario, rise to fame, and the Canadian values he represents.12 An “innova-
tion café” (pictured) was opened in downtown Toronto to test new menu options such as nitro-infused cold-
brew coffee and handcrafted Dream Donuts. The café also features technology innovations like wireless
charging and a 98-inch 4K video wall.13 Its recent Camp Day promotions brought deeper meaning to sending
kids to camp by putting the focus on true stories of adults whose camp experiences gave them the boost
they needed to succeed.14 And during the NBA Finals in 2019, Tim Hortons made a superfan, not coffee,
the star. An ad told the story of Nav Bhatia, who immigrated to Canada, fell in love with basketball, and has
held the same seat at Raptors’ home games for 24 years. The message was one of unity, loyalty, and true
Canadian spirit15, all reasons why consumers love the brand. While the company works to manage this love,
Susan Weaver, a marketing expert and managing of Pearl Strategy & Innovation Design, believes that a com-
bination of new product innovations and advertising, and the new loyalty program, should help Tim Hortons
to achieve more consistent sales results moving forward.16
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 481
Advertising
As we saw in Chapter 14, marketing communication is not a straightforward process. After
being exposed to an advertisement, consumers go through several steps before actually
buying or taking some other action. There is not always a direct link between a particular
marketing communication and a consumer’s purchase.
AIDA model
A common model of the
The AIDA Model series of mental stages
through which consumers
To create effective advertising, marketers must understand how marketing communications move as a result of
work. Generally, marketing communications move consumers step-wise through a series of marketing communications:
Attention leads to Interest,
mental stages, for which there are several models. The most common is the AIDA model which leads to Desire,
(Exhibit 15.1),17 which suggests that Attention leads to Interest, which leads to Desire, which leads to Action.
Action
Desire
Interest
Attention
Think Feel Do
482 SECTION SEVEN Value Communication
which leads to Action. At each stage, the consumer makes judgments about whether to
take the next step in the process. Customers actually have three types of responses, so the
AIDA model is also known as the “think, feel, do” model. In making a purchase decision,
consumers go through each of the AIDA steps to some degree, but the steps may not always
follow the AIDA order. For instance, during an impulse purchase, consumers may “feel”
and “do” before they “think.”
Attention
Even the best marketing communication can be wasted if the sender doesn’t gain the attention
of the consumer first. Brand awareness refers to a potential customer’s ability to recognize or
recall that the brand name is a particular type of retailer or product/service. As such, brand
awareness is the strength of the link between the brand name and the type of merchandise
or service in the minds of customers. Coca-Cola already has excellent brand awareness and
might not have to focus as much effort on this step when it wants to introduce a new flavour.
In contrast, when Ovarian Cancer Canada wanted to raise its profile with potential donors,
it needed an edgy message to get people to stop and consider its cause, and so it launched
a campaign called “Ladyballs.” Likewise, in a public service campaign against domestic
violence, the nonprofit organization Women’s Aid used interactive billboards, picturing a
battered woman’s face and the words “Look At Me.” When people walking by stopped to
look, facial recognition software embedded in the billboard recognized their actions, and
the picture changed, such that the bruises healed. The creative approach not only attracted
people’s attention but also resonated with the underlying message—namely, that attention to
a societal problem can be meaningful for solving the problem.18
There are a number of awareness metrics, from aided recall to top-of-mind awareness.
aided recall Aided recall occurs when consumers recognize the brand when its name is presented
Occurs when consumers to them. Top-of-mind awareness, the highest level of awareness, occurs when a brand
recognize the brand when
its name is presented to has a prominent place in people’s memories that triggers a response without them having
them. to put any thought into it. For example, Harley-Davidson has top-of-mind awareness if a
top-of-mind awareness consumer responds “Harley” when asked about motorcycles. High top-of-mind awareness
A prominent place in means that a particular brand will probably be carefully considered when customers decide
people’s memories that
triggers a response without to shop for that product or service. Manufacturers, retailers, and service providers build
them having to put any top-of-mind awareness by having memorable names; repeatedly exposing their name to
thought into it. customers through advertising, locations, and sponsorships; and using memorable symbols.
As an example of memorable symbols, imagine two smaller circles, sitting on opposite
sides atop a larger circle. Did you think of Mickey Mouse ears and Disney? The company
uses images to ensure that its name comes easily
to the front of young consumers’ minds. Whether
they are individual acts like Austin Mahone,
Lucy Hale, or Demi Lovato or groups such as R5
and Lemonade Mouth, Disney starts off its stars
with Disney Channel shows, records them on
the Disney-owned Hollywood Record label, plays
the songs in heavy rotation on Radio Disney and
Disney movie soundtracks, organizes concert
tours with Disney-owned Buena Vista Concerts,
and sells tie-in merchandise throughout Disney
stores. Each of these marketing elements reminds
the various segments of the target market about
both the brand (e.g., “One Direction,” “Forever
This billboard will get your attention. Produced by the nonprofit
organization Women's Aid, this interactive billboard for battered women
In Your Mind”) and their owner, Disney. With
changes as people walk by and notice. The bruises heal. this multi-channel approach, Disney gets the
Source: WomensAid.org same “product” into more markets than would be
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 483
Interest
Once the consumer is aware that the company or product exists,
communication must work to increase his or her interest level. It
isn’t enough to let people know that the product exists; consum-
ers must be persuaded that it is a product worth investigating.
When Volkswagen was suffering as a result of an emissions
scandal, it launched marketing campaigns with its new tagline
“Think New!” And it introduced new family-friendly SUVs and
EVs, designed specifically to appeal to younger car buyers who
value high-tech features, such as smartphone integration and
convenient services such as Apple CarPlay and Google Android
Auto. The ad’s messages include attributes that are of interest to
the target audience—young drivers who want a car that is fun to
be in and fun to drive. Disney increases interest in an upcoming
tour or record by including a mention, whether casual or not, in
the stars’ television shows. Because the primary target market
for the tour is also probably watching the show, the message gets
received by the correct recipient.
Desire
If consumers watch Fox’s Empire or visit Fox’s website
After the firm has piqued the interest of its target market, to see what Cookie wore on the show, they might, in
the goal of subsequent messages should move the consumer turn, actually purchase the Empire original soundtrack on
from “I like it” to “I want it.” If Bella Thorne, star of the Freeform iTunes.
(owned by Disney) show Famous in Love, appears on Good ©Fox Network/Photofest
Action
The ultimate goal of any marketing communication is
to drive the receiver to action. If the message has caught
consumers’ attention and made them interested enough to
consider the product as a means to satisfy a specific desire
of theirs, they likely will act on that interest by making a
purchase. Sustainable Marketing 15.1 discusses how IKEA’s
Lamp ad got consumer attention and interest, hopefully
leading them to desire and action. If consumers watch
Fox’s Empire or visit Fox’s website to see what Cookie
The recurrent presence of De Beers’ advertising campaign
wore on the show, they might in turn actually purchase for diamond jewellery resonates with consumers over
the Empire original soundtrack on iTunes. time. So, when the occasion arises to buy jewellery for
oneself or for a loved one, the consumer will think of
The Lagged Effect diamonds.
Source: De Beers
Sometimes consumers don’t act immediately after receiv-
ing a marketing communication because of the lagged
effect—a delayed response to a marketing communication campaign. It generally takes lagged effect
A delayed response to a
multiple exposures to an ad before a consumer fully processes its message. In turn, measur- marketing communication
ing the effect of a current campaign becomes more difficult because of the possible lagged campaign.
484 SECTION SEVEN Value Communication
response to a previous one. The recurrent presence of De Beers’ advertising campaign for
diamond jewellery resonates with consumers over time. So when the occasion arises to buy
jewellery for oneself or for a loved one, the consumer will think of diamonds. But De Beers
doesn’t know if any particular marketing communication will lead consumers to check out
or purchase a new diamond.
Informative Advertising
Informative advertising communicates to create and build brand awareness, with informative advertising
the ultimate goal of moving the consumer through the buying cycle to a purchase. Such Communication used to
create and build brand
advertising helps determine some important early stages of the product life cycle (PLC; see awareness, with the
Chapter 8), particularly when consumers have little information about the specific product ultimate goal of moving
the consumer through the
or type of product. Retailers often use informative advertising to tell their customers about buying cycle to a purchase.
an upcoming sales event or the arrival of new merchandise. Toyota used informative adver-
tising to ensure consumers were aware of the 2020 GR Supra, as discussed in the chapter
case from Chapter 14.
The Canadian National Institute for the Blind (CNIB) works with people who are blind
or visually impaired to get rehabilitation support and help them lead more independent
486 SECTION SEVEN Value Communication
Persuasive Advertising
When a product has gained a certain level of brand awareness,
firms use persuasive advertising to motivate consumers to take
action. Persuasive advertising generally occurs in the growth and
early maturity stages of the PLC, when competition is most intense,
The Canadian National Institute for the Blind uses and attempts to accelerate the market’s acceptance of the product.
informative advertising to warn consumers of the In later stages of the PLC, persuasive advertising may be used to
damage the sun’s UV rays could do to their eyes.
reposition an established brand such as Axe by persuading consum-
Source: Canadian National Institute for the Blind (CNIB)
ers to change their existing perceptions of the advertised product or
Volkswagen, which is using advertising to persuade consumers to
persuasive advertising trust it again after recent scandals. It shelved its long-running “Das
Communication used to
motivate consumers to
Auto” tagline in favour of “Think New!” as the company tries to rebuild its brand. Prior
take action. to the emissions scandal, Volkswagen relied heavily on its so-called clean diesel vehi-
reminder advertising cles to appeal to environmentally conscious consumers. About 20 percent of total North
Communication used American sales featured such vehicles. Losing this market, as well as contending with
to remind consumers of
a product or to prompt
an overall decrease in VW sales, made it hard to turn the page. In an effort to start anew,
repurchases, especially for it is spending aggressively on advertising, highlighting new vehicle offerings. With a
products that have gained consistent core message, it wants to leverage nostalgia for the brand, and outline what
market acceptance and
are in the maturity stage of it stands for and where the company wants to go in the future. Cosmetic firms such as
their life cycle. Lancôme often use persuasive advertising to convince consumers to take action, switch
brands,23 try a new product, or even
continue to buy the advertised product.
Reminder Advertising
Finally, reminder advertising is com-
munication used to remind consumers
of a product or to prompt repurchases,
especially for products that have gained
market acceptance and are in the matu-
rity stage of their life cycle. For example,
if you decide to buy tissues, do you care-
fully consider all the options, comparing
their sizes, prices, and performance, or
do you just grab the first thing you see
on the shelf? When your grocery store
Volkswagen is using a new advertising campaign, “Think New!” to try to persuade places a display of Kleenex facial tissues
consumers to trust it again after recent scandals. on the end of the paper products aisle, it
Source: Volkswagen of America, Inc. relies on your top-of-mind awareness of
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 487
Focus of Advertisements
To help determine the focus for advertisements, many companies consider the stages in
the AIDA model discussed earlier. Some companies will focus their efforts on attracting
awareness, for example, in the case of a new product introduction. If consumers are already
aware of a product or service, the company will need to build interest and then desire.
Lastly, they need to ensure that consumers will be motivated to take action as a result of the
company’s advertising efforts.
The ad campaign’s objectives determine the specific ad’s focus. Product-focused product-focused
advertisements are used to inform, persuade, or remind consumers about a specific advertisements
Used to inform, persuade,
product or service. For example, Coke ads are designed to generate sales for Coca-Cola. or remind consumers
The focus of institutional advertisements is to inform, persuade, and remind consum- about a specific product or
service.
ers about issues related to places, politics, an industry, or a particular corporation. Some
advertisements are designed to generate demand for the product category (e.g., the “All institutional
You Need Is Cheese” campaign) or an entire industry (e.g., the Strategic Milk Alliance), advertisements
while others are designed to generate demand for a specific brand (e.g., Cracker Barrel Used to inform, persuade,
and remind consumers
cheese), firm (e.g., Kraft), or item. An ongoing and well-known institutional adver- about issues related to
tising campaign promotes GE’s Ecomagination. The program has invested millions places, politics, an industry,
or a particular corporation.
of dollars toward cleaner technologies, including water purification technology and
lower-emissions aircraft engines, and the development of cleaner energy such as wind
and solar power.
Perhaps the best-known campaign to build demand for a product category is the long-
running institutional campaign “Got Milk?” which encouraged milk consumption by
appealing to consumers’ needs to affiliate with the milk-mustached celebrities shown in
the ads.26 One campaign, as exemplified in the ad with Taylor Swift, promised that consum-
ing milk will help people get more B vitamins and protein. Most ads highlight the beneficial
488 SECTION SEVEN Value Communication
The GE Ecomagination program is institutional advertising in that it promotes the company and its “green”
programs, not specific products.
Source: General Electric
product placement properties of milk for building strong bones, which reflects an informative appeal, com-
Inclusion of a product in bined with a mild emotional fear appeal in its assertion that failing to drink milk can lead
nontraditional situations,
such as in a scene in a to medical problems.
movie or TV program.
Product Placement
When marketers use product placement, they include
their product in nontraditional situations, such as in a
scene in a movie or TV program. The first visible movie
product placement was Hershey’s Reese’s Pieces in the
film ET. The product actually became part of the story
line, offered the candy high levels of visibility, and
resulted in a large increase in sales.27 Although Hershey’s
did not pay to place Reese’s Pieces in ET, other firms have
been more than willing to shell out for product place-
ments. Companies spend approximately $11.44 billion28
on product placements in television and movies annually
(e.g., Mercedes in the film Jurassic World). Coca-Cola
reportedly paid $10 million to gain product placements
and advertising space on American Idol,29 stepping away
after 13 seasons.
The hard part is determining which movies will be
successes. For Apple, the challenge is a little less strin-
gent, because U.S. film directors seem to love its sleek
white laptops, ear-budded iPods, and ubiquitous iPhones.
More than one-third of all top-grossing films at the box
office—129 of 374 movies—have included Apple-branded
products in the past decade. Appearances include popu-
lar offerings as well as critically acclaimed broadcasts,
from an episode of Modern Family viewed exclusively
through Apple products to more nefarious uses depicted
in Billions.30 Apple is also unique in that until recently it
The “Got Milk?” institutional advertising campaign is used
to encourage milk consumption, appealing to consumers by claimed it did not pay for product placement beyond sup-
associating it with milk-mustached celebrities like Taylor Swift. plying the devices, nor does it comment on film appear-
Used by permission of Campbell Ewald as Agent for MilkPEP. ances. However, in 2017 Apple officially sponsored an
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 489
episode of Saturday Night Live in which its products were featured, and also sponsored
Fox’s new show, 9-1-1. An analytics firm that estimates the dollar value of product place-
ments reported that Apple’s five-minute screen time in Disney’s Zootopia alone was worth
about $5 million.31 In 2018, it was the most visible product placement brand, appearing
in 52 movies for three and half hours of screen time.32 While Apple seems to reap those
rewards without always paying for placements, not all companies are so lucky.
Other companies have also been lucky enough not to pay for product placement. When-
ever Sophie Grégoire Trudeau appears in public, the media reports on what she has been wear-
ing (e.g., Ava shoes from Zvelle, dresses from Canadian designers Jay Godfrey and Wayne Clark,
a white coat made of baby alpaca hair from Sentaler, accessories from WANT Les Essentiels).33
Toronto-based designer Lucian Matis said sales of his line went up 2,500 percent after Grégoire
Trudeau was photographed in two of his dresses during a visit to the White House. Dubbed “the
Sophie effect,” the ensuing publicity has been a boon to Canadian designers. However, there
are far more examples of paid placement, especially in music videos where product placement
revenues exceed $20 million annually.34 Lady Gaga, Jennifer Lopez, Britney Spears, Eminem,
and numerous other artists have all promoted products through their videos.
Public service advertising, for causes such as breast cancer awareness, focus on public welfare and
generally are sponsored by non-profit institutions.
Used with permission of Rethink Breast Cancer
490 SECTION SEVEN Value Communication
within six months. Another campaign’s goal may be to persuade 10 percent of a competi-
tor’s customers to switch to the advertised brand.
Competition Bureau Enforces federal laws that ensure Enforces laws relating to misleading advertising
Canada/The Competition businesses in Canada operate in a and deceptive marketing practices.
Act (1986) fair and equitable manner.
Health Canada/Food and Regulates food, drugs, cosmetics, Establishes standards and requirements for the
Drugs Act (1954) and medical devices. safety and sanitation of products. Regulates the
labelling of food products pertaining to nutrition
labelling, nutrient content, and health claims.
Advertising Standards Monitors voluntary advertising Administers the Canadian Code of Advertising
Canada (ASC; 1957) industry codes. Standards, the Gender Portrayal Guidelines, and
the Broadcast Code for Advertising to Children.
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 491
Coupons
A coupon offers a discount on the price of specific items when they’re purchased. Coupons
are issued by manufacturers and retailers in newspapers, magazines, and free-standing
inserts, on products, on shelves, at the cash register, over the Internet, and by mail to
stimulate demand. They are commonly used in supermarkets, but other retailers, such
as department stores and restaurants, also use coupons to pull customers away from the
competition. Some retailers even accept coupons from competitors. More than 6.8 billion
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 493
Sweepstakes Encourage higher Minimize brand switching Sales often decline afterward.
consumption. among existing consumers.
Samples Encourage trial. Offer direct involvement. Have high cost to the firm.
Loyalty Programs Encourage repurchase. Create loyalty. Have high cost to the firm.
POP Displays Increase brand trial. Provide high visibility. Difficult to get a good location
Provide in-store support. in the store.
Can be costly to the firm.
coupons are distributed every year in Canada, driving over $750 million in sales.44 While
redemption rates average around 2 percent, rates vary dramatically depending on how con-
sumers obtain the coupon. A segment of the market, the diehard “coupon clippers,” devote
a great deal of time and effort to searching for, clipping, and redeeming coupons. Many
coupon clippers have streamlined this process by using the Internet, which offers entire
forums dedicated to coupon sharing and management (e.g., Smart Canucks). Coupons
carried in newspapers, magazines, in-store displays, and direct mail have very low redemp-
tion rates of only 1–2 percent, whereas those downloaded from the Internet experience a
56-percent redemption rate. The reason for this dramatic difference is that consumers seek
out online coupons for specific items or stores, whereas many people who have no interest
in purchasing the product receive traditional coupons. While using customer data to create
more targeted promotions has resulted in higher redemption rates, it has also increased
their expense.
Some coupons, whether printed from the Internet or sent to mobile phones, also con-
tain information about the customer who uses them.45 The bar code may identify the cus-
tomer, his or her Internet address, Facebook page information, and even the search terms deal
the customer used to find the coupon in the first place. These new breeds of coupons may A type of short-term price
look standard, but they offer up a startling amount of data, which promises benefits for reduction that can take
several forms, such as a
advertisers who want to target their marketing more closely. “featured price” (a price
lower than the regular
price); a “buy one, get one
Deals free” offer; or a certain
percentage “more free”
A deal refers generally to a type of short-term price reduction that can take several forms, offer contained in larger
such as a “featured price” (a price lower than the regular price); a “buy one, get one free” packaging.
494 SECTION SEVEN Value Communication
Is Amazon Undercutting Other touting the alternative had any effects on sales of the
targeted products. It also claimed that not all the lower-
Brands with Pop-Up Ads for its priced options were Amazon-branded products, though
Own Products?** without clarifying which other brands were featured in
the pop-up windows.
Imagine you need batteries. You’re a modern consumer, For sellers on Amazon, the experiment likely appears
so of course, you turn to Amazon to order them and somewhat threatening. Several national brand manu-
have them delivered to you. When enter your search cri- facturers declined to comment, but the CEO of Nested
teria, the site returns several options, and you click on Naturals acknowledged concerns. The experiment implies
24-pack option offered by your preferred name brand, that it will need to find a way to compete directly with
say, Energizer. But before you can put it in your cart, a Amazon, as both a retailing giant and its primary channel
pop-up message appears on screen, promising a lower to reach customers. Noting that approximately 85 percent
price on a similar product—namely, private-label Amazon of its sales came through Amazon, the executive cited
batteries. You can click to ignore that offer, or you can the company’s “stomach of steel” when it came to work-
switch to it. What do you do? ing with Amazon. It has little choice but to continue sell-
Amazon is betting that, at the very least, you consider ing through the site, so it must put up with such “sneaky”
the cheaper option. It tested this prediction recently, in a lim- tactics.
ited experiment that imposed such pop-up ads on several Other tactics and tests have raised similar concerns.
product pages. Some of the affected products were national For example, Amazon ran a short-lived test of some
brands, like Energizer batteries and Glad trash bags. Others sponsored advertisements on registries that appeared
were offerings from smaller companies, like a sleep aid sold as if consumers had selected certain items to request
by Canadian supplement company, Nested Naturals. for their baby or wedding shower. The settings made it
Asserting that the experiment was not a form of nearly impossible to determine if expectant parents were
advertising, but rather an effort to determine the best actually requesting that their friends purchase large dia-
way to help consumers find lower-priced offerings, per packages or if the promotion was sponsored by Kim-
Amazon carefully limited the span of the test to selected berly Clark.
products and only some consumers. That is, some cus- Overall, these tests and experiments reinforce Amazon’s
tomers shopping for Energizer batteries might not have existing reputation: It is an innovative retailer, willing to try
seen the pop-up window, while others did. In line with lots of different things to meet its customers’ needs more
its reputation for closely guarding its strategic choices effectively. It also is an aggressive competitor, willing to lev-
though, Amazon would not confirm how many brands erage the power it wields over the suppliers that appear on
were subjected to the experiment, how it chose which its site to ensure it dominates them, even as they continue
consumers would see the pop-up offerings, or whether to need it.
**Jay Green, “Amazon Tests Pop-Up Feature Touting Its Lower-Priced Products,” The Wall Street Journal, March 15, 2019, www.wsj.com/articles
/amazon-tests-pop-up-feature-touting-its-lower-priced-products-11552655614; Robert Williams, “Amazon tests app pop-ups touting private-label
goods, Mobile Marketer, March 18, 2019, www.mobilemarketer.com/news/amazon-tests-app-pop-ups-touting-private-label-goods/550694/
(accessed August 19, 2019).
offer; or a percentage “more free” offer contained in larger packaging. Another form of a
deal involves a special financing arrangement, such as reduced percentage interest rates or
extended repayment terms. Deals encourage trial because they lower the risk for consum-
ers by reducing the cost of the good. As seen in Ethical & Societal Dilemma 15.1, when
consumers search for products on Amazon, they may be offered deals on the company's
private-label products.
But deals can also alter perceptions of value—a short-term price reduction may signal
a different price/quality relationship than would be ideal from the manufacturer’s perspec-
tive. As Old Spice learned, offering too many deals can offset likely gains. Its popular “Old
Spice Guy” campaign attracted consumer attention through funny television commercials
and interactive online campaigns, and sales of Old Spice jumped. But the company offered
so many “buy one, get one free” deals at the same time that the potential profit impact
of the great ads was essentially eliminated by the costs of the deals.46 Even beer makers
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 495
Premiums
A premium offers an item for free or at a bar-
gain price to reward some type of behaviour,
such as buying, sampling, or testing. These
rewards build goodwill among consumers, who Although the “Old Spice Guy” IMC campaign generated sales, its “buy one,
often perceive high value in them. Premiums get one free” deals were too costly and therefore diminished the profit
can be distributed in a variety of ways. They impact of the ads.
can be included in the product packaging, such Source: Procter & Gamble
as the toys inside cereal boxes; placed visibly
on the package, such as a coupon for free milk on a box of Cheerios; handed out in the premium
store; or delivered in the mail, such as the free perfume offers that Victoria’s Secret mails to An item offered for free
or at a bargain price to
customers. reward some type of
Furthermore, premiums can be very effective if they are consistent with the brand’s behaviour, such as buying,
message and image and highly desirable to the target market. Finding a premium that sampling, or testing.
meets these criteria at a reasonable cost can be a serious challenge. At fast-food restaurants
such as McDonald’s and Burger King, for instance, the average child’s meal costs around
$5, while the average premium distributed costs less than 50 cents. McDonald’s may be
forced to rethink its Happy Meal toys given backlash from consumer groups about the envi-
ronmental impact of plastic. In the U.K., McDonald’s is testing books, soft toys, and board
games, as well as looking for ways to make its toys from materials that can be more easily
recycled.48
Contests
A contest refers to a brand-sponsored competition that requires some form of skill or contest
effort. In Canada, you cannot give a prize away by chance alone. There must also be a skill A brand-sponsored
competition that requires
component, which is why skill-testing questions are used, making the game one of mixed some form of skill or effort.
chance and skill. The effort required by these contests often keeps participation lower than
that for other forms of promotion.
Contests are often used to drive sales, draw attention to a company’s initiatives, and
even promote environmental causes. For example, the annual Roll Up the Rim contest
by Tim Hortons is used to increase sales by encouraging consumers to try their luck regu-
larly during the contest period.
To be effective, contests must be advertised and enjoy high levels of retailer or dealer
support. Contests are often run to drive up a company's membership database and increase
store traffic. Such contests provide a wealth of valuable consumer data. In some cases, con-
tests can even be used to shine a light on a company’s guiding principles as highlighted in
Entrepreneurial Marketing 15.1.
Sweepstakes
A form of sales promotion that offers prizes based on a chance drawing of entrants’ names, sweepstakes
sweepstakes do not require the entrant to complete a task other than buying a ticket or A form of sales promotion
that offers prizes based
completing a form. Often the key benefit of sweepstakes is that they encourage current con- on a chance drawing of
sumers to consume more if the sweepstakes form appears inside the packaging or with the entrants’ names.
496 SECTION SEVEN Value Communication
Happy Effect, Happy Planet† In partnership with Farafena, a social enterprise com-
pany that works with over 800 female farmers in Afri-
Starting with a just a blender and some big dreams, Randal can villages, Happy Planet launched the “Happy Effect”
Ius and his friend Gregor Robertson, set out to share their contest. The women grow superfoods, such as moringa
love of freshly made juices. They and baobab, which are turned into powders and used as
formed Happy Planet in Vancouver, ingredients in Happy Planet’s
in 1994. When Robertson left in 2005 smoothies. (Baobab is a nutri-
to enter politics, Ius took the reins. tionally dense fruit traditionally
The company has steadily introduced harvested using bamboo sticks
new products, including smoothies and a knife. Moringa is a leaf
and fresh soups. It also sells organic rich in protein, B vitamins, iron,
dairy products in its creamery division. and antioxidants.) Under the
Today, Happy Planet is the leading red caps on specially marked
all-natural food and drink company in smoothies, consumers will find
Canada. a code that will let them enter
The company’s tagline “feel good The “Happy Effect” campaign and contest focus the contest for a chance to win
food” is supported by its extensive on the good that comes of supporting ethically a trip for two to Mali, Africa dur-
search to find the best ingredients produced superfoods. ing the baobab harvest.
from sources who farm in an ethical Courtesy of Happy Planet Foods Inc. Not your usual contest, the
and sustainable way. To shine a light “Happy Effect” draws atten-
on the good that comes of consumers supporting ethi- tion to the company’s guiding
cally produced superfoods, it launched a digital campaign principles of doing good abroad. A first for this type of
called “Happy Effect.” It was a way for the company to let giveaway, the contest also helps consumers to better
consumers learn more about the “power of purchase.” understand the Happy Planet brand story.
†Christopher Lombardo, “Happy Planet puts on a smiling face,” Strategy, April 17, 2019, http://strategyonline.ca/2019/04/17/happy-planet-puts-on-a-smiling
-face; Happy Planet, “Feel Good Ingredients,” https://happyplanet.com/; Jen St. Denis, “Life Lessons: Randal Ius,” BIV, December 9, 2013, https://biv.com
/article/2013/12/life-lessons-randal-ius; Western Grocer, “HAPPY PLANET AND FARAFENA ANNOUNCE PARTNERSHIP BY GIVING AWAY A TRIP TO
AFRICA,” May 19, 2019, http://westerngrocer.com/happy-planet-farafena-announce-partnership-giving-away-trip-africa/ (accessed August 21, 2019).
product. Unlike contests, sweepstakes winners are determined by a random draw. Reader’s
sampling
Offers potential customers
Digest Canada runs an annual national sweepstakes for which it invites both subscribers
the opportunity to try a and others to enter.
product or service before
they make a buying decision.
Samples
Sampling offers potential customers the oppor-
tunity to try a product or service before they
make a buying decision. Distributing samples
is one of the most costly sales promotion tools
but also one of the most effective. Quick-service
restaurants and grocery stores frequently use
sampling. For instance, McDonald’s offers
free coffee a couple of times a year to attract
customers to its outlets. Costco uses so many
samples that customers can eat an entire meal
while shopping. Sometimes trial-size samples
come in the mail or are distributed in stores.
SoCIAL LITE Vodka used heavy sampling at
LCBO stores to gain awareness and trial of its
SoCIAL LITE Vodka offered samples of its products at LCBO stores to raise products. Nespresso gives full-size servings in
awareness and trial. stylish glass mugs, bringing a premium feel to
Used with permission of SoCIAL LITE Vodka its samples. Many companies use pop-up stores
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 497
for sampling purposes. For instance, Campbell’s opened a pop-up restaurant on Queen
Street in Toronto to let customers sample dishes made with a variety of its soup products.
The goal was to demonstrate how soup could be used as an ingredient. Product samples
were also given out so consumers could recreate dishes such as Thai Chicken & Rice Khao
Soi curry at home.49
Loyalty Programs
As part of a sales promotion program, a loyalty program is specifically designed to retain loyalty program
customers by offering premiums or other incentives to customers who make multiple pur- Specifically designed
to retain customers by
chases over time. Well-designed loyalty programs encourage consumers to increase their offering premiums or other
engagement and purchases. Starbucks Rewards is one example consumers seem to love. incentives to customers
who make multiple
Not surprisingly, Tim Hortons launched its own loyalty program in response. Such sales
purchases over time.
promotions are growing increasingly popular and are often tied to long-term CRM systems.
In Canada, some of the most popular loyalty programs include Canadian Tire “Money,”
Aeroplan, Air Miles, and the PC Optimum program.
Point-of-Purchase Displays
A point-of-purchase (POP) display is a merchandise display located at the point of pur- point-of-purchase (POP)
chase, such as at the checkout counter in a grocery store. Marketers spend almost as much display
A merchandise display
on POP materials as they do on consumer magazine advertising, but the key to a successful located at the point of
POP is to make the display “pop out” in a crowded store. In addition, manufacturers must purchase, such as at the
checkout counter in a
encourage retailers to feature and use the POP displays to maximize their investments. grocery store.
Lindt Canada launched an illustrated storybook app based on its iconic Gold Bunny just in
time for Easter. “The Bell That Rang in Easter” told the story of a little girl and a bunny in
a way that allowed families to discuss values such as giving, love, and friendship. For every
story downloaded, Lindt donated $1 to The Children’s Aid Foundation. To promote the
story and sales of the Gold Bunny, a 1,400-square-foot point-of-purchase display featuring
life-sized scenes from the book was used at Mississauga’s Square One. The story is still
available for download from the App Store and Google Play.50
Rebates
Rebates are a particular type of price reduction in which a portion of the purchase price is
returned by the seller to the buyer. Many products, such as consumer electronics, now offer
significant mail-in rebates that may lower the
price of the item significantly. Firms offer such
generous rebates because the likelihood that
consumers will actually apply for the rebate is
low, even though consumers indicate that rebate
offers are a factor in their purchase decisions.
The firms thus garner considerable value from
rebates because they attract consumers with a
minimal risk that the firm will have to pay off all
the rebates offered.
Heavy rebate users, such as Best Buy, have
changed their approach. As with any promo-
tional tool, too much of a good thing can be a
problem. Best Buy found that consumers were
becoming increasingly annoyed by having to
mail in the rebate forms and wait to receive their POP displays are merchandise displays located at the point of purchase,
money. Many were requesting that the rebate such as at the checkout counter in a grocery store.
be given at the time of purchase and wondering RosaIreneBetancourt 5/Alamy Stock Photo
498 SECTION SEVEN Value Communication
why this immediate reduction was not possible. In addition, a growing number of lawsuits
claim rebate cheques were never sent to consumers and that rebate offers contain overly
detailed clauses that cause consumers to have to submit and resubmit their claims. Best
Buy has since put an end to mail-in rebates.51
Cooperative Advertising
One of the important functions retailers perform is promoting products to consumers.
Cooperative (co-op) advertising helps to compensate trade channel members for money
they spend promoting products and encourages them to feature products more often. Gen-
erally, manufacturers will pay 50 percent of the cost of advertising up to an agreed-upon
limit. This limit is usually determined based on the amount of business a retailer does with
a manufacturer. To ensure high-quality advertisements are placed at the local level, some
companies will provide a selection of final ads to choose from, ready to place in a variety of
media or adapt as necessary.
benefits at the expense of long-term sales stability. For instance, using sales promotions
such as coupons to stimulate sales of household cleaning supplies may cause consumers
to stockpile the products and decrease demand for those products in the future. But a simi-
lar promotion used with a perishable product such as Danone yogurt should increase its
demand at the expense of competitors like Yoplait.
The tools connected to sales promotions are as varied as the imaginations of the mar-
keters who devise them, and new forms are constantly popping up. Take, for example,
pop-up stores—such as the one Shoppers Drug Mart launched in downtown Toronto to pop-up stores
promote its Beauty Project campaign. The pop-up, hosted by The Real Housewives of Beverly Temporary storefronts that
exist for only a limited time
Hills star, Erika Jayne, let consumers try products at swatching stations and attend master- and generally focus on a
classes run by beauty experts.52 Equally appealing to Toronto consumers was the chance new product or a limited
group of products offered
to make their own custom Kit Kat bars at a “Chocolatory” pop-up. Designed to promote by a retailer, manufacturer,
the Kit Kat Ruby, a new pink chocolate bar, fans were able to choose from three types of or service provider; give
chocolate, three of 16 additional flavours, and even select customized packaging.53 consumers a chance to
interact with the brand and
Pop-up stores only exist for a limited time and generally focus on a new product or a build brand awareness.
limited group of products offered by a retailer, manufacturer, or service provider. These
temporary storefronts give consumers a chance to interact with the brand and build brand
awareness, but are not designed primarily to sell products. Most companies hope that con-
sumers who visit a pop-up will later buy from retailers that carry the products.
Retailers tend not to mind manufacturers’ pop-up stores because most are designed to
drive traffic to the retailers through giveaways of coupons and samples. Because pop-ups
are short lived, they don’t pose any long-term competition to retailers or cause channel
conflict.
Many firms are also realizing the value of cross-promoting, when two or more firms cross-promoting
join together to reach a specific target market. To achieve a successful cross-promotion, the Efforts of two or more firms
joining together to reach a
two products must appeal to the same target market and together create value for consum- specific target market.
ers. J. Crew has teamed up with several famous brands—including Lacoste, Timex, New
Balance, and Adidas—to offer well-known products in J. Crew stores and on its website.
The goal of any sales promotion is to create value for both the consumers and the firm.
By understanding the needs of its customers, as well as how best to entice them to purchase
or consume a particular product or service, a firm can develop promotional messages and
events that are of interest to and achieve the desired response from those customers. Tra-
ditionally, the role of sales promotion has been to generate short-term results, whereas the
Chocolate lovers got to create custom Kit Kat bars at the Chocolatory in Toronto.
(both): Media in Canada, “Spotted! Kit Kat breaks the mould” by Bree Rody, June 7, 2018. ©Brunico Communications Ltd. Reprinted with permission. https://
mediaincanada.com/2018/06/07/spotted-kitkat-breaks-the-mould/ (Accessed: February 10, 2020.)
500 SECTION SEVEN Value Communication
goal of advertising was to generate long-term results. As this chapter demonstrates, though,
both sales promotion and advertising can generate both long- and short-term effects. The
effective combination of both types of activities leads to impressive results for the firm and
the consumers.
my legal point of view. I even use selling skills when I’m talking to a
judge or jury.” In this chapter, though, we take a straightforward busi-
ness perspective on selling.
Fourth, because salespeople are the front-line emissaries for their firm, they are very
visible to management. Because it is fairly straightforward for management to identify top
performers, those high-performing salespeople who aspire to management positions are in
a good position to be promoted.
Although personal selling is an essential part of many firms’ IMC strategy, it offers its
own unique contribution to the four Ps. Sales is usually a separate and influential function
in companies, one that has a significant impact on the design and execution of marketing
mix components. Today, sales teams are becoming a vital link to customers and consum-
ers, especially through data insights and personalization of programs and promotions.
Because of the one-to-one nature of sales, a salesperson is in a unique position to customize
a message for a specific buyer—a preplanned sales presentation or demonstration can be
altered at any time as the need arises. In a personal selling situation, the salesperson can
probe the buyer for his or her potential reservations about a product or service, educate
the buyer when appropriate, and ask for the order at the appropriate time. Unlike other
types of promotion, the sales presentation can be directed toward those customers with the
highest potential. This highly directed approach to promotion is important because experts
estimate that the average cost of a single B2B sales call is about $600.55
Five years ago, many observers thought that travel agents and other service providers
would be replaced by more efficient Internet services, and the Internet has certainly changed
the way many consumers make travel decisions. Thousands use sites such as Expedia.ca and
Travelocity.ca or visit airlines, rail companies, hotels, and car rental firms online to make
reservations directly. But when planning to visit an exotic locale or booking a complicated trip
or cruise, or for those who don’t feel comfortable buying online, travel agents add significant
value. They can help with itineraries, give helpful tips, and even save the customer money.
Preapproach
Sales Presentations
and Overcoming
Objections
Follow-Up
504 SECTION SEVEN Value Communication
After salespeople generate leads, they must qualify those leads by determining
whether it is worthwhile to pursue them and attempt to turn the leads into customers.
In a retail setting, qualifying potential can be a very dangerous and potentially illegal
practice. Retail salespeople should never assume that a person in the store doesn’t fit
the store’s image or cannot afford to purchase there. Imagine going to an upscale jewel-
lery store to purchase an engagement ring, only to be snubbed because you are dressed
in your everyday, casual clothes. But in B2B settings, where the costs of preparing and
making a presentation can be substantial, the seller must assess a lead’s potential. Sales-
people should consider, for instance, whether the potential customer’s needs pertain to a
product or a service. They should also assess whether the lead has the financial resources
to pay for the product or service.
he or she knows ahead of time exactly what should be accomplished. For instance, the
consulting firm’s salesperson can’t expect to get a commitment from the bank that it will
buy on the first visit. But a demonstration of the system and a short presentation about how
the system would benefit the customer would be appropriate.
Exhibit 15.5 Aligning the Personal Selling Process with the B2B Buying Process
Sales Presentation
and Overcoming RFP Process
Objections
Proposal Analysis
Closing the Sale and Supplier
Selection
Performance Assessment
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 507
had reached Stage 4, proposal analysis and supplier selection. By asking a series of ques-
tions, however, the salesperson can assess the bank’s need for the product or service and
adapt or customize the presentation to match the customer’s need and stage in the decision
process.60
Asking questions is only half the battle; carefully listening to the answers is equally
important. Some salespeople, particularly inexperienced ones, believe that to be in control,
they must do all the talking. Yet it is impossible to really understand where the customer
stands without listening carefully. What if the COO says, “It seems kind of expensive”? If
the salesperson isn’t listening carefully, he or she won’t pick up on the subtle nuances of
what the customer is really thinking. In this case, it probably means that the COO doesn’t
see the value in the offering.
When the salesperson has a good feel for where the customer stands, she or he can
apply that knowledge to help the customer solve the problem or satisfy the need. The
salesperson might begin by explaining the features or characteristics of the system that
will reduce chequing account errors. It may not be obvious, based solely on these features,
however, that the system adds value beyond the bank’s current practices. Using the answers
to some of the questions the customer posed earlier in the meeting, the salesperson can
clarify the product’s advantages over current or past practices, as well as the overall benefits
of adopting the new system. The salesperson might explain, for instance, that the bank can
expect a 20-percent decrease in chequing account errors and that, based on the size of the
bank and the number of cheques it processes per year, this improvement would represent
$2 million in annual savings. Because the system costs $150,000 per year and will take only
three weeks to integrate into the current system, it will add significant and almost immedi-
ate value.
Handling Objections
An integral part of the sales presentation is handling objections that the buyer might have
about the product or service. Although objections can arise during any stage of the selling
process, they are very likely to occur during the sales presentation. Customers may raise
objections pertaining to a variety of issues, but they usually relate in some way to value,
such as that the price is too high for the level of quality or service.
Good salespeople know the types of objections buyers are likely to raise. They may
know, for instance, that their service is slower than competitors’ or that their selection is
limited. Although not all objections can be forestalled, effective salespeople can anticipate
and handle some of them. For example, when the bank COO said the cheque service seemed
expensive, the salesperson was ready with information about how quickly the investment
would be recouped.
Similar to other aspects of the selling process, the best way to handle objections is
to relax and listen, and then to ask questions to clarify any reservations. For example,
the salesperson could respond to the COO’s objection by asking, “How much do you
think the bank is losing through chequing account errors?” Her answer might open up
a conversation about the positive trends in a cost/benefit analysis. Such questions are
usually more effective than trying to prove the customer’s objection is not valid because
the latter approach implies the salesperson isn’t really listening and could lead to an
argument.
Step 5: Follow-Up
With relationship selling, the sale is never really over, even after it has been made. The
attitudes customers develop after the sale become the basis for how they will purchase in
the future. The follow-up therefore offers a prime opportunity for a salesperson to solidify
the customer relationship through great service quality. Let’s apply the five service quality
dimensions we discussed in Chapter 10 to the follow-up:61
• Reliability. The salesperson and the supporting organization must deliver the right
product or service on time.
• Responsiveness. The salesperson and support group must be ready to deal quickly with
any issue, question, or problem that may arise.
• Assurance. Customers must be assured through adequate guarantees that their
purchase will perform as expected.
• Empathy. The salesperson and support group must have a good understanding of the
problems and issues faced by their customers. Otherwise, they cannot give them what
they want.
• Tangibles. Because tangibles reflect the physical characteristics of the seller’s business,
such as its website, marketing communications, and delivery materials, their
influence is more subtle than that of the other four service quality dimensions. That
doesn’t mean it is any less important. Retail customers are generally more pleased
with a purchase if it is carefully wrapped in nice paper instead of being haphazardly
thrown into a crumpled plastic bag. The tangibles offer a signal that the product is of
high quality, even though the packaging has nothing to do with the product’s actual
performance.
When customers’ expectations are not met, they often complain—about deliver-
ies, the billing amount or process, the product’s performance, or after-sale services
such as installation or training. Effectively handling complaints is critical to the future
of the relationship. As we noted in Chapter 10, the best way to handle complaints is to
listen to the customer, provide a fair solution to the problem, and resolve the problem
quickly.
The best way to nip a post-sale problem in the bud is to check with the customer right
after he or she takes possession of the product or immediately after the service has been
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 509
completed. This speed demonstrates responsiveness and empathy; it also shows the cus-
tomer that the salesperson and the firm care about customer satisfaction. Finally, a post-
sale follow-up call, email, or letter takes the salesperson back to the first step in the sales
process for initiating a new order and sustaining the relationship.
Personal selling is an integral component of some firms’ IMC strategy. Although it
doesn’t make sense for all firms, it is widely used in B2B markets, as well as in B2C markets
in which the price of the merchandise is relatively high and customers need some one-to-
one assistance before they can buy. Because of the relatively high expense of maintaining
a personal selling force, it is important that salespeople be adequately trained, motivated,
and compensated.
LO5 Identify the steps in the personal selling and the customer. Through discussion and by asking
process questions, the salesperson learns where the customer is
in the buying process and tailors the discussion around
Although we discuss selling in terms of steps, it truly what the firm’s product or service can do to meet that
represents a process, and the time spent in each step customer’s needs. During the fourth step, closing the
varies according to the situation. In the first step, the sale, the salesperson asks for the order. Finally, during
salesperson generates a list of viable customers. During the follow-up, the salesperson and support staff solidify
the second step, the preapproach, the salesperson gath- a long-term relationship by making sure the customer is
ers information about the customer and prepares for satisfied with the purchase and by addressing any com-
the presentation. The third step, the sales presentation, plaints. The follow-up therefore sets the stage for the
consists of a personal meeting between the salesperson next purchase.
Key Terms
■■ AIDA model ■■ leads ■■ puffery
■■ aided recall ■■ loyalty program ■■ qualify
■■ closing the sale ■■ persuasive advertising ■■ relationship selling
■■ cold calls ■■ point-of-purchase (POP) display ■■ reminder advertising
■■ contest ■■ pop-up stores ■■ sampling
■■ cross-promoting ■■ preapproach ■■ social marketing
■■ deal ■■ premium ■■ sweepstakes
■■ deceptive advertising ■■ product placement ■■ telemarketing
■■ informative advertising ■■ product-focused advertisements ■■ top-of-mind awareness
■■ institutional advertisements ■■ public service announcement ■■ trade shows
■■ lagged effect (PSA)
concept review
Marketing Applications
1. Choose one of the ads featured in this book. What are 2. Using the steps in the AIDA model, explain why a
the objectives of this ad? Does the ad have more than potential consumer who views advertising by designer
one objective? Explain your answer. jean company Parasuco may not be ready to go out
and purchase a new pair of jeans.
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 511
3. Suppose Lexus is introducing a new line of light practice. What information should you include in your
trucks and has already created the advertising cam- letter?
paign. How would you assess the effectiveness of the
8. Consider all the diet products that are currently adver-
campaign?
tised on television today, including weight-loss supple-
4. Suppose now Lexus is planning a sales promotion ments, weight-loss programs, and fitness equipment.
campaign to augment its advertising campaign for the Do you believe that some of these ads overstate what
new line of light trucks. Which sales promotion tools the product or service can actually do?
do you believe would be the most effective? Why?
9. Choose an industry or a specific company that you
5. How would the Lexus sales promotion differ if it was would like to work for as a salesperson. How would
geared to a business organization with a fleet of you generate and qualify leads?
company-owned trucks?
10. You have taken a summer job in the windows and doors
6. Choose an ad that you believe unreasonably over- department of a large home improvement store. During
states what the product or service can do. (If you can’t sales training, you learn about the products, how best to
think of a real ad, make one up.) Explain whether the address customers’ needs, why the lifetime value of the
ad is actually deceptive or just puffery. How would customer concept is so important to a store like this, and
your answer change if you lived in France? how to sell customers the best product to fit their needs
regardless of price point. One day your manager informs
7. You are invited to your six-year-old niece’s birthday
you that you are to recommend Smith Windows to every
party and bring her the new superhero doll being
window customer. Smith Windows are more expensive
advertised on TV. She’s thrilled when she unwraps the
than other brands and don’t really provide superior
gift but is in tears a short time later because her new
benefit except in limited circumstances. The manager
doll is broken. She explains that, on TV, the doll flies
is insistent that you recommend Smith Windows. Not
and does karate kicks, but when she tried to play with
knowing what else to do, you recommend Smith
the doll this way, it broke. You decide to call the manu-
Windows to customers who would have been better
facturer, and a representative tells you he is sorry your
served by lower-cost windows. The manager rewards
niece is so upset but that the ad clearly states the doll
you with a sales award. Later, the manager tells you that
does not fly. The next time you see the televised ad,
he received an all-expenses-paid cruise for his family
you notice very small print at the bottom of the screen
from Smith Windows. What, if anything, should you do
that states the doll does not fly. You decide to write
with this information?
a letter to Advertising Standards Canada about this
marketing digitally
1. Go to the website for the Canadian Children’s Food & 2. Go to www.smartSource.ca and identify five of the
Beverage Advertising Initiative, one of the industry’s self- products featured. How effective are coupons for
regulatory bodies for children’s advertising, at https:// selling these products? Why? What are the benefits
adstandards.ca/about/childrens-advertising-initiative/. to the seller of using SmartSource.ca over other IMC
Click on “About the CAI” to learn more about the activi- options? How do you think SmartSource.ca makes
ties of CAI. Now look under the “Media Releases and money?
Announcements” link. Choose one of the news releases
and discuss what the main issue was in the case.
card. These audiences are closely related, which implies that a single campaign can target
both, likely even for an extended period. However, even the most successful campaigns can
grow stale.
In 1997, MasterCard International and the advertising agency McCann Erickson Worldwide
launched the emotion-based “Priceless” campaign, which celebrated life’s most precious
moments with the tagline, “There are some things money can’t buy. For everything else,
there’s MasterCard.”63 The campaign was hugely successful, saving MasterCard from dis-
aster, even in direct competition with the more widely accepted Visa card. Let’s look at how
MasterCard evolved to where it is today.
“Priceless” Revisited
MasterCard began its “Priceless” campaign by identi-
fying its target audience, which in this case was con-
sumers. Hoping to persuade shoppers to keep their
MasterCard at the top of their wallets, the campaign
stressed the relationship between the card and expe-
riences, as opposed to possessions. In early television
ads, the narration linked the price of beauty parlour
visits and new outfits to the “priceless” expression on
an ex-boyfriend’s face at a reunion, to create positive
self-assessment feelings.67 In another, the costs of
tickets, refreshments, and souvenirs at a game were
tied to the “priceless” opportunity for meaningful con-
versation between father and son, to invoke both hap-
piness and love.68 The “Priceless” campaign included
various promotions and competitions, in addition to
these television spots.
In 2004, “Priceless” print ads took a new tack,
The MasterCard “Priceless” IMC campaign has been going strong for weaving well-known retailers into the ads, together
more than 20 years, continuously adjusting to appeal to different target with MasterCard’s theme. These retailers—which rep-
markets through multiple media channels. resented another of MasterCard’s target audiences—
Source: MasterCard received value from the prominent placement of their
Advertising, Sales Promotions, and Personal Selling CHAPTER 15 513
names and product images in the ads. Messaging moved from the general to the specific;
an ad showing a teenaged rock band playing in a garage that might once have said,
“Extra-long extension cord: $11; Moving them out of the living room: Priceless,” was modi-
fied to indicate that the extension cord was from Radio Shack. The result was a form of
symbiotic marketing in which well-known brand names helped attract consumer attention
to MasterCard ads, and each brand appeared to be endorsing the other.69
Magic Moments
However, even the most successful campaigns can grow stale. As consumer values and
needs changed and the marketplace evolved, MasterCard faced a new challenge: how to
retain customer loyalty and brand identification while reinvigorating its advertising. The solu-
tion was four experiential platforms, designed to create priceless experiences, as opposed to
simply celebrating priceless moments.
The evolution in the “Priceless” campaign started with “Priceless Cities,” an expanded
campaign launched in July 2011. This platform concentrates on the world’s key cities, and
MasterCard is spending hundreds of millions of dollars on experiences that are espe-
cially curated for members in 45 of those cities.70 The campaign kicked off initially in
New York, offering cardholders special experiences in major cities that can be shared
with family and friends.71 A few months later, the campaign made its debut in Toronto,
where MasterCard piqued the interest of consumers by placing a huge vault in Maple
Leaf Square. Messaging invited Torontonians to discover what was inside the vault and
their city, and tweet about it using #unlockTO.72 Designed to provide busy consumers
with memorable opportunities in the realms of sports, music, entertainment, shopping,
travel, arts, culture, and dining out, the campaign offers exclusive discounts and experi-
ences for MasterCard holders. Promotions included $10 off the CN Tower EdgeWalk, $50
off Porter Airlines flights, and 20 percent off Ontario Science Centre admission.73 The
idea, says MasterCard’s chief marketing officer, is to transform consumers’ perception
of the card from simply part of a priceless moment to being the force that enables such
experiences.
At the 2014 GRAMMYS, with brand ambassador Justin Timberlake, MasterCard unveiled
#PricelessSurprises—a brand platform built to deliver surprises, big and small, to members.
By tweeting with #PricelessSurprises, or using their MasterCard, cardholders could be sur-
prised with anything from headphones to once-in-a-lifetime experiences—like spending a
day with Justin Timberlake.74 Since the 2014 GRAMMY night, #PricelessSurprises has been
incorporated into all social activities—connecting with consumers through the things they
are passionate about. This platform has rapidly become one of MasterCard’s most suc-
cessful initiatives. Cardholders used #PricelessSurprises over 877,000 times.75 According
to MasterCard’s chief marketing officer, Raja Rajamannar, in just over a year of running the
campaign, MasterCard created more than a quarter of a million surprises and expanded the
campaign into different regions around the world, leveraging music and sports stars and
their 4,000 event sponsorships.76
In 2018, MasterCard pulled from the social climate to innovate the “Priceless” cam-
paign with “Start Something Priceless.” This new spin on the campaign focuses on peo-
ple believing they can fuel change, and that actions small or large can improve the world.
Thus, these ads encourage customers to do the things they’ve been meaning to do, such
as reading or exercising more. The new campaign premiered at the GRAMMYS with a
music video in which the artists sing about the struggles they’ve overcome, and it ends
with the words “Let nothing stop you” across the screen.77 “Start Something Priceless” is
more than an ad campaign; it is a call to action for its customers. As such, MasterCard is
using the hashtag #StartSomethingPriceless on various social-media sites to encourage
people to share the passion or purpose they are committed to pursue. As part of the cam-
paign, MasterCard is also taking the call to action with its initiatives that include chari-
ties such as the World Food Programme and Stand Up to Cancer. For example, in Paris,
MasterCard unveiled an interactive billboard that allowed customers to donate meals to
hungry children.78
Marketers must continuously evaluate their campaigns and update them to ensure
they are effectively communicating with their customers. New channels like social mar-
keting can change shopping behaviours, creating opportunities that must be considered
514 SECTION SEVEN Value Communication
as part of any marketing strategy. And so, MasterCard regularly tests the strength of its
“Priceless” campaign.79 Doing so has allowed it to move from simply observing priceless
moments to actually enabling experiences that matter to consumers. MasterCard knows
that even the best ideas need new infusions and innovations to keep appealing to their
targets.
Questions
1. What is the primary objective of the “Priceless” campaign?
2. How can MasterCard integrate the “Priceless” campaign into a public relations program?
3. Which sales promotion tactics could MasterCard employ?
SECTION Eight Marketing in the Global
Environment
Chapter 16 Global Marketing
Chapter 17 Ethics and Socially Responsible Marketing
Chapter 16
Source: Starbucks
Global Marketing
Learning Objectives
After studying this chapter you should be able to
LO1 Explain the components of global market assessments
LO2 Understand the marketing opportunities in BRIC countries
LO3 Describe the various global market entry strategies
LO4 List the similarities and differences between a domestic marketing strategy and a global
marketing strategy
LO5 Explain how ethical issues affect global marketing practices
516 Section Eight Marketing in the Global Environment
The 78th country in which Starbucks has opened is also the first
place that the idea for Starbucks originated. As the chain’s well-
known story has noted, Howard Schultz loved the espresso cul-
ture in Italy and sought to bring it to the United States. However,
Schultz’s version of the coffee culture and experience that has
made Starbucks into a global juggernaut is quite different from the
traditional version of espresso consumption in Italy. That is raising
questions about just how successful this latest international expan-
sion will be.1
In Italy, an espresso break means heading over to a small bar,
where consumers receive small cups with saucers of strong coffee,
which is usually consumed quickly while standing up. Italians drink
as many as five espressos a day and often treat them like tequila
shots rather than a drink to slowly savour.2 They might chat for a
few moments about the weather, the football league, or politics,
but after a few minutes, the bar owner might even shoo them out
the door to make room for the next consumers.
Nevertheless, Starbucks opened two stores in Milan in late
2018 with an Italian licensee, and a Reserve Roastery3, a larger,
Arnold Coffee already offers “The American higher-end store where customers can see the entire coffee-
Coffee Experience” in its Italian stores. making process from roasting to brewing. It found a classic venue
©Alessia Pierdomenico/Getty Images to open its roastery–a historic building that once served as a
post office. The opulent interior features a 30-foot Tuscan marble
counter, and accents of pink stone, wood, and bronze. Candoglia
marble, sourced from the same quarry as Milan’s historic Duomo cathedral located just blocks away, was laid on
the floor using a traditional Palladiana flooring pattern and warmed with radiant heating.4
The Starbucks experience is totally different, of course. For some traditionalists, the expectation that Italians
would linger over sweetened drinks with made-up names, served in paper cups, is not just absurd but also a little
horrifying. Paper cups! Italy has one of the most developed coffee cultures in the world. The locals revere their
coffee and don’t take kindly to others trying to change their culture.5 Some people were especially incensed over
prices that were much higher than normal for Milan, expressing concern that the entry of Starbucks might drive
up prices at other coffee shops.6
Evidence suggests that there is room for both traditional bars and third-space venues like Starbucks. Arnold
Coffee is a four-store chain in Italy that has adopted the Starbucks model, offering free Wi-Fi, bagels and brown-
ies, and cinnamon caffè lattes. Even its motto highlights its distinction, laying claim to offering “The American Cof-
fee Experience.” Especially for younger consumers, as one student explained, “The experience at the traditional
Italian bar, downing an espresso in two seconds, isn’t what I’m looking for. I need a place like this to study or meet
friends or just relax.”
That is precisely what Starbucks offers, so the company expresses confidence in the expansion. At the same
time as offering its Americanized approach to coffee, it is also making some nods to local preferences. To start,
in Italy, Starbucks emphasizes espresso more than it does in other international locations, where coffee drinkers
prefer something a little lighter. It also relies on local farmers to source milk and some of its food options.
Choosing Milan, Italy’s centre of fashion and finance, was an astute move as the city is more modern than
Naples and Rome, which are seen as the coffee snob capitals.7 For Starbucks, coffee is all about spending time
with friends, not just getting a quick fix of caffeine. Still, purists raised their eyebrows when confronted with
Starbucks’ seven different cup sizes (in Italy there is only one cup size.) Colourful and playful drinks named for
zombies and unicorns must have been yet another jolt to their cherished coffee culture.
Will the mermaid logo appear on corners of cities throughout Italy, next to the espresso bars that line the
streets today? It remains to be seen if Starbucks can give Italy’s espresso culture a jolt.
Global Marketing CHAPTER 16 517
Tariff
Quota
Boycott nd
Political Economic
Technology
& Sociocultural
Infrastructure Analysis
Communication
Commerce Masculinity
used as shorthand to refer to these factors. Analysis of these four factors offers marketers
a more complete picture of a country’s potential as a market for products and services.
Although we describe each factor separately, it is important to note that marketers consider
them together in order to obtain a complete picture of a country’s marketing potential. In
fact, marketers often have to make trade-offs between these factors when entering or doing
business in a foreign market. For instance, Canadian oil and mining companies may enter
markets where the economic opportunity is great but the political risks are higher.
Trade Sanctions
Trade sanctions are penalties or restrictions imposed by one country over another coun- trade sanctions
try for importing and exporting goods, services, and investments. Canada placed sanctions Penalties or restrictions
imposed by one country
on Crimea after Russia’s illegal annexation of this region of the Ukraine.11 The European over another country for
Union recently extended its economic sanctions against Russia due to the ongoing tur- importing and exporting
of goods, services, and
moil in the Ukraine.12 An embargo is a form of trade sanction that prohibits trading with a investments.
certain country or trading in specific goods (e.g., oil embargo) by other signatory countries.
Tariffs
A tariff (or duty) is a tax levied on a good imported into a country. In most cases, tariffs tariff (or duty)
are intended to make imported goods more expensive and thus less competitive with domes- A tax levied on a good
imported into a country.
tic products, which in turn protects domestic industries from foreign competition. In other
cases, tariffs might be imposed to penalize another country for trade practices that the home
country views as unfair. For example, companies wishing to export dairy products to Canada
face a whopping 240 percent tariff put in place to protect Canadian dairy farmers. In 2002,
the United States imposed a 9.31 percent duty on Canadian softwood lumber exported to
the United States because the U.S. softwood industry claimed that Canada was subsidizing
Canadian softwood lumber and Canadian lumber producers were dumping (selling a good dumping
in a foreign market at a price that is lower than its domestic price or below its cost) low-cost The practice of selling a
good in a foreign market
softwood lumber on the U.S. market. The tariffs were increased to 20 percent during the at a price that is lower than
Trump presidency, further raising the prices of Canadian lumber sold in the United States, its domestic price or below
its cost.
making it difficult for Canadian companies to compete with U.S. lumber producers.13
The Government of Canada made Canada a tariff-free zone for industrial manufactur-
ers by eliminating all tariffs on machinery, equipment, and goods imported into Canada for
further manufacturing. The elimination of tariffs along with $450 million in tax relief gives
small and medium-sized manufacturers a competitive advantage.14
Quotas
A quota designates the maximum quantity of a product that may be brought into a country quota
during a specified time period. Many Canadian quotas on foreign-made textiles were elimi- Designates the maximum
quantity of a product that
nated in 2005, which reduced the cost of imported apparel products sold in Canada. It opened may be brought into a
the floodgates for garments made in Bangladesh. Some firms chose to pass the bulk of these country during a specified
time period.
savings on to consumers—in Walmart’s case, 75 percent of them—whereas others, such as
clothing retailer bebe, planned to share only 25 percent and keep the rest as profit.15 While
some quotas, for example those on foreign-made textiles, have been eliminated, Canada has
a long history of maintaining supply management quotas on dairy, poultry, and eggs.16
Tariffs and quotas can impose a potentially devastating blow on a firm’s ability to sell
products in another country—a lesson that the United Kingdom discovered in the after-
math of its Brexit vote. Tariffs artificially raise prices and therefore lower demand, and quo-
tas reduce the availability of imported merchandise. Conversely, tariffs and quotas benefit
domestically made products because they reduce foreign competition. In the case of soft-
wood lumber being exported from Canada to the U.S., tariffs and quotas benefit U.S. lumber
producers and reduce competition from Canadian lumber producers. Unfortunately, U.S.
consumers end up paying higher prices for U.S. softwood lumber rather than benefiting
from cheaper Canadian lumber, and Canadian lumber producers lost huge market share.
Boycott
A boycott pertains to a group’s refusal to deal commercially with an organization to protest boycott
against its policies. Boycotts might be called by governments or non-governmental organiza- A group’s refusal to deal
commercially with some
tions, such as trade unions, or human-rights or environmental groups. For example, the United organization to protest
States has only recently eased economic sanctions imposed against Cuba. Both the United against its policies.
States and Canada have imposed sanctions on Iran.
520 Section Eight Marketing in the Global Environment
Exchange Control
Exchange control refers to the regulation of a
country’s currency exchange rate, the measure
of how much one currency is worth in relation to
another.17 A designated agency in each country,
often the central bank, sets the rules for currency
exchange. In Canada, the Bank of Canada sets the
rules for the currency exchange rates. The value
of the Canadian dollar against the U.S. dollar has
been a roller coaster over the past two decades. It
increased significantly, from around $0.60 CDN
for $1.00 USD in 2001, to $1.10 CDN in Novem-
ber 2007. The exchange rate held steady at par
until 2014 when it slipped to $0.90. Since then, it
continued its slide to $0.69 in January 2016 before
improving to around $0.78 where it sits in 2020.
The increase in value of the Canadian dollar against the U.S. The fluctuating Canadian dollar has a twofold
dollar has made Canadian exports to the United States less effect on the ability of Canadian firms to conduct
expensive, and imports from the United States more expensive. global business. For Canadian firms that depend
Bank note image used with the permission of the Bank of Canada/Images de billet
on U.S. imports of finished products, raw materials,
de banque utilisées avec la permission de la Banque du Canada
or services, the cost of doing business has gone
up dramatically with the low Canadian dollar.
exchange control However, U.S. buyers find the costs of Canadian goods and services less expensive than
Refers to the regulation they were before. This tends to have a positive impact on Canadian manufacturing
of a country’s currency
exchange rate. exports to the United States, as Americans will find that their dollar can buy them more
in Canada, while Canadians find that they can buy less in the United States with their
exchange rate
The measure of how much Canadian dollars.
one currency is worth in
relation to another.
Trade Agreements
Marketers must consider the trade agreements to which a particular country is a
trade agreement signatory or the trading bloc to which it belongs. A trade agreement is an intergovern-
Intergovernmental mental agreement designed to manage and promote trade activities for a specific region,
agreement designed to
manage and promote and a trading bloc consists of those countries that have signed the particular trade
trade activities for specific agreement.18
regions.
Some major trade agreements cover two-thirds of the world’s international trade:
trading bloc the European Union (EU), the United States-Mexico-Canada Agreement (USMCA), the
Consists of those countries
that have signed a
Central America Free Trade Agreement (CAFTA), Mercosur, and the Association of South-
particular trade agreement. east Asian Nations (ASEAN).19 These trade agreements are summarized in Exhibit 16.3.
The European Union represents the highest level of integration across individual nations,
whereas, the other agreements vary in their integration levels. The United Kingdom had
been an EU member until a 2016 BREXIT referendum saw British citizens vote in favour
of leaving. A Trans-Pacific Partnership (TPP) trade deal was proposed in late 2015 between
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore,
the United States, and Vietnam. However, this latest free trade agreement has yet to be
ratified.20
These trading blocs affect how Canadian firms can conduct business in the mem-
ber countries. Some critics contend that such blocs confer an unfair advantage on their
member nations because they offer favourable terms for trade, whereas others believe
they stimulate economies by lowering trade barriers and allowing higher levels of foreign
investment.
Global Marketing CHAPTER 16 521
Name Countries
power among nations is The Economist’s Big Mac Index, which suggests that exchange rates
should adjust to equalize the cost of a basket of goods and services, wherever it is bought
around the world. Using McDonald’s Big Mac, the index shows that the cheapest burger
is in Ukraine, where it costs $1.57, compared with an average Canadian price of $4.60.
This difference implies that the Ukrainian hryvnia is undervalued by 68.8 percent: that is,
the hryvnia is priced too low relative to the Canadian dollar. In this case, the undervalued
hryvnia makes Ukraine’s exports to Canada cheaper than they would otherwise be, thereby
providing an unfair trade advantage to Ukraine. It also makes Canadian exports to Ukraine
more expensive.
These various metrics help marketers understand the relative wealth of a particular
country; however, as scholars have argued, they may not give a full picture of the eco-
nomic health of a country because they are based solely on material output. As a corol-
lary measure to those described previously, the United Nations has developed the human human development
development index (HDI), a composite measure of three indicators of the quality of index (HDI)
A composite measure of
life in different countries: life expectancy at birth; educational attainment; and whether three indicators of the
the average incomes, according to PPP estimates, are sufficient to meet the basic needs of quality of life in different
life in that country. For marketers, these measures determine the lifestyle elements that countries: life expectancy
at birth, educational
ultimately drive consumption (recall that Chapter 4 discussed the influence of consumer attainment, and whether
lifestyle on consumption). The HDI is scaled from 0 to 1: those countries that score lower the average incomes are
sufficient to meet the
than 0.5 are classified as nations with low human development, those that score 0.5 to 0.8 basic needs of life in that
have medium development, and those that score above 0.8 are classified as having high country.
human development.
These macroeconomic measures provide a snapshot of a particular country at any one
point in time. Because they are standardized measures, it is possible to compare countries
across time and to identify those that are experiencing economic growth and increased
globalization.
Although an understanding of the macroeconomic environment is crucial for manag-
ers facing a market entry decision, of equal importance is the understanding of economic
metrics of individual income and household size.
Guatemala
100
Panama
80 Venezuela
Brazil Poland
Ecuador El Salvador
Power Distance
60 Colombia
Chile Czech Republic
Canada
United States
40 Hungary
Australia
Finland Ireland United Kingdom
Germany Sweden
20 Switzerland
Norway Denmark
0
0 20 40 60 80 100
Individualism
Sources: Geert Hofstede, Gert Jan Hofstede, and Michael Minkov, Cultures and Organizations, Software of the Mind,
Third Revised Edition, McGraw Hill 2010, ISBN: 0-07-166418-1. ©Geert Hofstede B.V. quoted with permission.
Ads from Steimatzky, the oldest and largest bookstore chain in Israel, illustrate marketing along one of Hofstede’s cultural
dimensions: one is highly feminine (left) and the other masculine (right).
Source: Agency: ACW Grey Tel-Aviv, Israel; Production Company: We Do Production; Photographer: Shai Yehezkelli.
Brazil41
Long a regional powerhouse, Brazil has weathered and even
thrived during the most recent economic storm has transformed
it into a global contender. Brazil is the world’s eighth largest econ-
omy.42 Although a recession caused the country to have a negative
growth rate in 2016, it has slowly grown with economic growth
at 2.5 percent in 2019.43 Brazil’s impressive economic growth in
the 21st century largely can be attributed to the expansion of its
literate population and the imposition of social programs that have
Like other countries in which McDonald’s thrives, allowed more than half of the 209 million Brazilians to enter the
Brazil has a strong and growing middle class. middle class.44 This large South American democracy also wel-
Bloomberg/Getty Images comes foreign investors.
Global Marketing CHAPTER 16 529
Russia45
Relations with Russia are a little more complicated than for Brazil. Since the fall of the former
Soviet Union, Russia has undergone multiple up- and downturns in its economy. However,
its overall growth prospects appear promising, especially as a consumer market. Long denied
access to consumer goods, the well-educated population of 142 million exhibits strong demand
for North American products and brands. In particular, the number of Russian Internet users,
currently at 108.7 million, is growing, making Russia Europe’s largest Internet market. The
country spent 18 years negotiating to finally enter the World Trade Organization (WTO) to
improve trade relations with other countries. In 2015, it ranked as one of the top countries in
terms of retail growth; even though economic and political issues challenge its retail growth
prospects, the market simply is too big for most firms to disregard. Yet Russia still faces an
aging population and low birthrate. If these trends persist, Russia’s population could decline by
one-third in the next half-century. At the same time, corruption is widespread, creating ethical
dilemmas for firms trying to market their goods and services. Furthermore, international sanc-
tions on Russia, in response to its occupation of Ukraine and its involvement in the Middle East,
and fluctuations in oil prices threaten the country with a financial crisis.46
In which of the BRIC countries does each of the classic structures below reside?
(left): ©Travelif/iStock Exclusive/Getty Images; (right): ©McGraw Hill Education/Barry Barker, photographer
India47
With more than 1.3 billion people, or approximately
15 percent of the world’s population, together with
expanding middle and upper classes, India is one of the
world’s fastest-growing markets. With a median age of
28.1 years, India has one of the youngest populations
in the world. Its young inhabitants increasingly are
adopting global attitudes while living in growing urban
centres and shopping at large malls. The well-edu-
cated, modern generation is largely fluent in English,
and the highly skilled workforce holds great attraction
for firms that hope to expand using local talent, espe-
cially in technical fields.
India’s retail environment is still dominated by mil-
lions of small stores, and lacks modern supply chain man-
agement facilities and systems.48 Recent changes by the
Indian government, however, have the potential to signifi-
cantly modernize the retail landscape, as the description
in the opening vignette suggested. For example, foreign
retailers that carry multiple brands, like Walmart, are now
allowed to own up to 51 percent of joint ventures in India,
whereas previously these retailers were permitted only
to enter into wholesale joint ventures. Also, retailers that
carry only their own brand, like Reebok, can now own
100 percent of their Indian businesses, prompting brands
such as Skechers to plan on opening 400–500 more out-
lets in India in the next five years.49 India is also projected
Recent changes in India have the potential to modernize to become the fastest-growing ecommerce market in the
the retail landscape. Adidas, for example, can now own world, with ecommerce sales forecast to reach $120 billion
100 percent of its Indian business. in 2020.50
©Brent Lewin/Bloomberg via Getty Images
China51
For much of the 20th century, China experienced for-
eign occupation, civil unrest, and a strict one-party
communist regime. However, since 1978, China’s
leadership, while maintaining communist political
ideals, has embraced market-oriented economic
development, which has led to startlingly rapid
gains. For many Chinese, recent developments have
dramatically improved their living standards and
their levels of personal freedom. Increasing liberal-
ization in the economy has prompted a large increase
in China’s Global Retail Development Index (GRDI).
Even as growth in its gross domestic product (GDP)
has slowed, China maintains a thriving retail mar-
China’s population has been aging as a result of its one-child policy,
and will likely continue to do so for many years, even though the ket, likely to reach the $8 trillion mark and surpass
government has recently rescinded the policy and will now allow the United States as the world’s largest.52
two children per couple. Yet the country continues to suffer from drasti-
©Tang Ming Tung/Getty Images cally unequal economic distribution, which has led
Global Marketing CHAPTER 16 531
to a significant migrant workforce who subsist on part-time, low-paying jobs. These work-
ers were hit hard by the global financial crisis, which reduced demand for Chinese exports
for the first time in years. Furthermore, actual growth of the 1.3 billion-strong Chinese
population slowed as a result of government regulations that previously limited families
to one child. As a result, population growth has slowed. China is expected expected to fall
to second place, behind India, as the world’s most populous country by 2024.53 Although
its median age of 37.3 years is still slightly younger than that in North America currently,
China's population is aging. In spite of the central government policy changes, the effects
of the original regulations are likely to persist for generations to come.
Strategy
When a firm has concluded its assessment analysis of the most viable markets for its products
and services, it must then conduct an internal assessment of its capabilities. As we discussed
in Chapter 2, this analysis includes an assessment of the firm’s access to capital, the current
markets it serves, its manufacturing capacity, its proprietary assets, and the commitment of
its management to the proposed strategy. These factors ultimately contribute to the success
or failure of a market expansion strategy, whether at home or in a foreign market. After these
internal market assessments, it is time for the firm to choose its entry strategy.
A firm can choose from many approaches when it decides to enter a new market. These
approaches vary according to the level of risk the firm is willing to take. Many firms actually
follow a progression in which they begin with less risky strategies to enter their first foreign
markets and move to increasingly risky strategies as they gain confidence in their abilities,
as illustrated in Exhibit 16.6. Generally, profit potential increases with higher levels of risks.
We examine these different approaches that marketers take when entering global markets,
beginning with the least risky.
Exporting exporting
Producing goods in one
Exporting means producing goods in one country (exporting country) and selling them in country and selling them
another (host country). This entry strategy requires the least financial risk but also allows for in another.
only a limited return to the exporting firm. Global
expansion often begins when a firm receives an Exhibit 16.6 Entry Strategies
order for its product or service from another coun- investment
Control Direct
try, in which case it faces little risk because it can
demand payment before it ships the merchandise. Joint venture
By the same token, it is difficult to achieve econo-
tegic alliance
mies of scale when everything has to be shipped St r a
internationally. The Swiss watchmaker Rolex sells Fran
chising
relatively small numbers of expensive watches all
po r t i ng
over the world. Because its transportation costs Ex
are relatively small compared with the cost of the
watches, the best way for it to service any market
is to export from Switzerland. Exporting generally
provides less employment for citizens of the host
country than either joint venture or direct invest-
ment. During the COVID-19 pandemic, global
exports plunged and were expected to be more
consequential than those resulting from past trade
wars or natural disasters.54 Risk
532 Section Eight Marketing in the Global Environment
Indirect exporting Exporting may take two forms: indirect or direct. Indirect exporting occurs when
Indirect exporting occurs
when the exporting firm
the exporting firm sells its goods in the host country through an intermediary. Ossetra
sells its goods in the Wondrous Earth in Newfoundland produces an organic skincare line that uses water from
host country through an local icebergs. It has distributors in the United States, Greece, Hong Kong, and South Korea,
intermediary.
ensuring the company is in compliance with international regulations.55 This approach
carries the least risk but probably returns the least profit for the exporting company. This
approach is likely to be used when the company has limited contacts in the foreign country
Direct exporting but wants to market to that country. Direct exporting is when the exporting company
is when the exporting sells its products in the host country directly, without the intermediaries. This approach
company sells its products
in the host country directly carries more risk and offers greater returns to the exporting firm than indirect exporting.
without the intermediaries. For example, Christie Digital, a firm based in Kitchener, Ontario, manufactures a variety
of display technologies and solutions for cinemas, large audience environments, control
rooms, business presentations, training facilities, 3D and virtual reality, simulation, edu-
cation, media, and government. Christie has installed more than 100,000 projection solu-
tions in the United States, the United Kingdom, Japan, China, and many other countries
around the world.56 Similarly, IBM sells its intelligence tools and applications to businesses
around the world by using its own sales force. Entrepreneurial Marketing 16.1 describes
how Steeped Tea successfully entered the U.S. market using a direct sales model.
In Canada, the top five Canadian exporters account for 25 percent of Canada’s
exports, and the top 50 Canadian exporters account for 50 percent of Canada’s exports.
The remaining 45,210 exporters are responsible for the remaining 50 percent. Almost
three-quarters (72.6 percent) of Canadian exporters had exports of less than $1 million.
More than two-thirds of Canada’s exports come from two sectors: energy and motor
vehicles.57
Franchising
Franchising is a contractual agreement between a firm (the franchisor) and another firm
or individual (the franchisee). A franchising contract allows the franchisee to operate a
business—a retail product or service firm or a B2B provider—using a name and format
developed and supported by the franchisor. Many of the best-known retailers in Canada
are also successful global franchisers, including McDonald’s, Pizza Hut, Tim Hortons,
Domino’s Pizza, KFC, and Holiday Inn, all of which have found that global franchising
entails lower risks and requires less investment
than does opening units owned wholly by the firm.
Tim Hortons has over 4,400 stores in Canada, the
United States, and the Middle East, and has also
recently headed to the U.K., Philippines, Mexico,
and China.58
However, with franchising, firms have limited
control over the market operations in the foreign
country, potential profit is reduced because it must
be split with the franchisee, and, once the franchise
is established, there is always the threat that the fran-
chisee will break away and operate as a competitor
under a different name. White Spot, one of Canada’s
oldest restaurant chains, successfully used franchis-
ing to expand its operations into Asia. To protect its
brand reputation, it provides experienced supervisors
and “off the shelf” marketing programs to ensure
Rolex exports its watches to countries all over the world from its consistency.59 In Canada, more than 40,000 franchi-
factory in Switzerland. sees employ over 1.9 million people and generate in
Shutterstock/Jeafish Ping excess of $100 billion in annual sales.60
Global Marketing CHAPTER 16 533
Strategic Alliance
strategic alliance A strategic alliance is a collaborative relationship between independent firms, though
A collaborative the partnering firms do not create an equity partnership; that is, they do not invest in one
relationship between
independent firms, though another. For example, the music streaming service Spotify, with headquarters in Sweden,
the partnering firms do and the ride-sharing app Uber, with headquarters in San Francisco, have a strategic alliance,
not create an equity
partnership; that is, they
which allows Uber customers to use Spotify to control the music during their ride; although,
do not invest in one each company still operates independently. In fact, Uber has alliances with other music ser-
another. vices, such as Pandora. Because not all Uber drivers have Spotify, and not all Spotify listeners
use Uber, this alliance allows each company to reach new potential customers.61
Joint Venture
joint venture A joint venture is formed when a firm entering a new market pools its resources with
Formed when a firm those of a local firm to form a new company in which ownership, control, and profits are
entering a new market
pools its resources with shared. In addition to sharing the financial burden, the local partner offers the foreign
those of a local firm to form entrant greater understanding of the market and access to resources such as vendors and
a new company in which
real estate. Some countries require joint ownership of firms entering their domestic mar-
ownership, control, and
profits are shared. kets, as is the case with the new regulations affecting multi-line retailers entering India,
though many of these restrictions have loosened as a result of WTO negotiations and ever-
increasing globalization pressures.
Spotify and the ride-sharing app Uber have a strategic alliance that allows Uber customers to
use Spotify to control the music during their ride.
(left): © Shutterstock/tanuha2001; (right): © Emmanuel Dunand/AFP/Getty Images
Global Marketing CHAPTER 16 535
Direct Investment
Direct investment requires a firm to maintain 100 percent ownership of its plants, opera- direct investment
tion facilities, and offices in a foreign country, often through the formation of wholly owned When a firm maintains 100
percent ownership of its
subsidiaries. This entry strategy requires the highest level of investment and exposes the plants, operation facilities,
firm to significant risks, including the loss of its operating and/or initial investments. A and offices in a foreign
country, often through the
dramatic economic downturn caused by a natural disaster or war, political instability, or
formation of wholly owned
changes in the country’s laws can increase a foreign entrant’s risk considerably. Many firms subsidiaries.
believe that in certain markets these potential risks are outweighed by the high potential
returns; with this strategy, none of the potential profits must be shared with other firms. In
addition to the high potential returns, direct investment offers the firm complete control
over its operations in the foreign country.
Hundreds of Canadian mining, manufacturing, and technology companies have direct
investments in several countries around the world. For example, Barrick Gold is the world’s
largest gold producer, with a portfolio of 25 operating mines, and advanced exploration and
development projects in South America, North America, Africa, and Australia. Similarly,
Bombardier has production and engineering sites in 28 countries including all the BRICs.64
Although we often tend to think of direct investment flowing from more to less devel-
oped economies, the dynamic international market means that sometimes it goes the other
way. The computer maker Lenovo started in China but has since expanded. In addition to
purchasing IBM’s PC division and Motorola’s handset business unit, it established parallel
headquarters in both Beijing and North Carolina.
As we noted, each of these entry strategies entails different levels of risk and rewards
for the foreign entrant. But even after a firm has determined how much risk it is willing to
take, and therefore how it will enter a new global market, it still must establish its market-
ing strategy, as we discuss in the next section.
536 Section Eight Marketing in the Global Environment
China-based Lenovo
purchased U.S.-based
IBM’s PC division and
Motorola’s handset
business unit, and has
parallel headquarters in
both Beijing and North
Carolina.
Source: Lenovo
General Mills Commits to impact from a sourcing standpoint. In order to reach this
goal, General Mills tailors its approach to each ingredient
Sustainable Sourcing and geography to improve the economic, environmental,
and social sustainability of each ingredient’s production.
Agriculture is among the greatest contributors to global Part way through 2018, it had been successful in sus-
warming, emitting more greenhouse gases than all our tainably sourcing 85 percent of the ingredients.‡‡‡ Vanilla
cars, trucks, trains, and airplanes combined.‡ Agriculture is a challenge coming in at the bottom of the list, with
alone produces up to 35 percent of the world’s green- only 32 percent of total volume coming from sustainable
house gas emissions and uses 70 percent of the water.‡‡ sources. To improve this, General Mills invested in local
With the global population expected to reach 9 bil- communities in Madagascar—where more than 90 percent
lion people by 2050, food production is required to of the world’s vanilla is produced and where the vanilla
increase by 70 percent to feed the additional 2.3 billion used in Häagen-Dazs ice cream is grown.§§§ The biggest
mouths.§ Today, the biggest players in the agriculture issues come from the small family-operated farms that har-
industry have the opportunity to have significant impact on vest vanilla beans, the food security of those communities,
the sustainability of these practices going into the future. and the quality of ingredients they deliver.
General Mills has taken a proactive approach to ensure Since the start of the initiative, General Mills has launched
that it operates a sustainable business. The company has a program in the village of Belambo, located in Madagascar’s
announced a commitment to cut its emissions by 28 per- Sava region, to train farming families about vanilla produc-
cent across the entire value chain by 2025.*** To do this, tion practices.*† Farmers who know how to cure the vanilla
General Mills continues to invest in energy efficiency and they grow significantly increase their earnings. To combat
clean energy innovation at its manufacturing facilities, as food insecurity in the area, the company also funded the
well as to search for and make changes from farm to fork. construction of a storage warehouse in Belambo that makes
Over the long term beyond 2025, General Mills aims to rice available to local families year-round at lower prices,
achieve sustainable emission levels in line with scientific improving the reliability of their source of food.
consensus by 2050, which requires a reduction of 50– By spearheading these initiatives, General Mills has
70 percent in absolute emissions across the value chain.§§ become a role model in sustainability for other consumer
Perhaps its most significant goal is its commitment to packaged goods companies. It was recognized by CDP
sustainably source 100 percent of its 10 priority ingredients (Carbon Disclosure Project), a non-profit environmental
by 2020.††† These 10 ingredients—which include vanilla, impact agency as a global leader in corporate sustain-
cocoa, palm oil and sugarcane—represent over 41 percent ability in 2019, one of only two companies in the food
of General Mills’ annual raw material purchases and are sector worldwide to receive the highest scores for both
ingredients the company believes can have the greatest climate change and water security.*‡
‡Jonathan Foley, “Feed the World,” National Geographic, www.nationalgeographic.com/foodfeatures/feeding-9-billion/ (accessed August 19, 2016).
‡‡
Andrew Winston, “How General Mills and Kellogg Are Tackling Greenhouse Gas Emissions,” Harvard Business Review, June 2, 2016, https://hbr.org/
2016/06/how-general-mills-and-kellogg-are-tackling-greenhouse-gas-emissions (access August 19, 2016).
§
Food and Agriculture Organization of the United Nations, “2050: A Third More Mouths to Feed,” www.fao.org/news/story/en/item/35571/icode/
(accessed August 19, 2016).
***Shannon Heine, “General Mills Makes New Commitment on Climate Change,” Taste of General Mills, August 31, 2015, http://blog.generalmills.
com/2015/08/general-mills-makes-new-commitment-on-climate-change/ (accessed August 19, 2016).
§§
John Church, “Inside the General Mills Roadmap to a Sustainable Food Future,” The Guardian, October 23, 2015, www.theguardian.com/sustainable-
business/2015/oct/23/general-mills-sustainable-supply-chain-un-climate-conference-paris (accessed August 19, 2016).
†††General Mills, “Sustainable Sourcing,” www.generalmills.com/en/Responsibility/Sustainable-sourcing (accessed August 19, 2016).
‡‡‡General Mills, “Sustainable Sourcing,” www.generalmills.ca/en/Home/Responsibility/Sustainability/sustainable-sourcing (accessed August 27, 2019).
§§§
General Mills, “Vanilla,” www.generalmills.com/en/Responsibility/Sustainable-sourcing/Ingredients/Vanilla-new (accessed August 19, 2016).
*†Ibid.
*‡General Mills, “General Mills Recognized as Global Leader in Corporate Sustainability,” Cision, Jan. 22, 2019, www.prnewswire.com/news-releases/
general-mills-recognized-as-global-leader-in-corporate-sustainability-300782233.html (accessed August 22, 2019).
chips, which are sold in Italy and Germany.69 McCain Foods, which markets frozen potato
specialties in 100 countries, localizes its product by, for instance, calling french fries chips
in the United Kingdom and developing local advertising for markets by region.70
Manufacturers are not the only ones that must adapt their offering. On the retail side,
for example, Whole Foods is making shopping an experience in the United Kingdom to com-
pete with the local organic supermarket chains. And as Sustainable Marketing 16.1 notes,
General Mills has committed to sustainable sourcing of the key ingredients it uses in its
products around the world.
540 Section Eight Marketing in the Global Environment
Totally New Product or Service The level of economic development and cultural tastes
also affects global product strategy because it relates directly to consumer behaviour. For
example, although you are likely to know Heinz for its tomato ketchup, as you travelled
the globe, you would find it sells many unique products in different countries. If you taste
the ketchup in the Philippines, you’ll be surprised to find it’s made with bananas instead of
tomatoes (and sold under Heinz’s Jufran label). In many East Asian countries, Heinz com-
petes by selling soy sauce. The size of the package varies by country as well. Likewise, when
Tim Hortons entered China, it introduced brand-new products such as matcha, congee,
and salted-egg yolk timbits.71
through underground distribution channels and are displayed in local shops. Risking legal
action, florists, gift shops, and restaurants make special accommodations for the holiday.
Western tradition or not, Iranian youth want love and happiness and are expressing it by
embracing the holiday.
For other Iranians though, this type of celebration represents a threat to Iran’s culture
and the desire to hold on to traditional cultural values and ways of life. There is no simple
way to resolve these dilemmas. Firms that enter new markets simply must tread lightly to
ensure that their business practices, products, and services do not create any unnecessary
friction or offence in the host country.
Key Terms
Concept Review
1. What is globalization? What are the factors that 7. What is political risk? Why is it important to assess
facilitate globalization? Explain how globalization has political risk? How is political risk assessed? List two or
influenced marketing in Canada. three organizations in Canada that provide marketers
with political risk assessments.
2. List and describe the four components of market
assessments that firms must conduct to evaluate the 8. Protectionist policies restrict trade and global mar-
viability of different global markets. keting, while trade agreements facilitate global
marketing. Explain the reasons a country may want to
3. Which of the four components of market assessment
impose protectionist policies in some industries and
do you think are often most difficult to assess? Why?
liberalize other industries.
4. List the five types of strategies companies can use
9. Explain how measures such as GDP, PPP (e.g., the Big
to enter global markets. Compare these strategies in
Mac Index), and HDI help marketers decide whether
terms of level of risk, expected return, and control.
to enter a global market. What are the weaknesses of
5. Discuss the advantages and disadvantages of using a these measures?
global product strategy (i.e., offering the same product
10. Explain how useful Hofstede’s six dimensions of cul-
both at home and in overseas markets).
ture are to our understanding of different cultures
6. What are the primary considerations marketers should around the world. Where and how can marketers
use in deciding whether to customize the four Ps to learn about the culture of a country to which they are
specific markets? interested in marketing?
Marketing Applications
1. Of the four BRIC markets, explain why you think one 7. Provide an example of a potentially ethically troubling
country might be more welcoming to Lululemon than practice by a foreign firm doing business in Canada.
others.
8. Many Canadian and United States–based firms are
2. Cervélo is a high-end Canadian bicycle manufac- relocating their production facilities and services over-
turer. Assume the company is considering entering seas (outsourcing or offshoring). Why do you believe
the United Kingdom and Chinese markets. When they are doing so? Do the benefits outweigh the
doing its market assessment, what economic factors potential losses of Canadian and U.S. jobs? Why or
should Cervélo consider when making its decision? why not?
Which market do you expect will be more lucrative for
9. Assume you work for a Canadian-based financial ser-
Cervélo? Why?
vices firm that positions itself as having experts that
3. Now consider the political, economic, and legal sys- personally manage the clients’ accounts. The clients
tems of China versus the United Kingdom. Explain are unaware that most of the tax preparation work, the
why you think one country might be more hospitable bookkeeping, and other record keeping is done by a
to Cervélo than the other. company in India. The local office simply reviews the file
and signs the cover letters. Yet, as your manager pointed
4. Colgate-Palmolive sells products in many countries
out, there is still only one person who manages each
throughout the world. How would you expect its mar-
account. After recent news stories about the practice of
ket position to differ in those countries compared with
offshoring sensitive transactions such as tax preparation,
that in Canada?
clients have been commenting about how grateful they
5. How would Colgate-Palmolive vary its marketing are to have a local firm. What, if anything, should you tell
strategies for product lines in low-income, emerging your clients about the firm’s practice of offshoring?
markets? Discuss using each of the elements of the
10. Canadian companies such as Tim Hortons and
marketing mix.
Lululemon have expanded their global presence
6. What is cultural imperialism? Why would a recording through company-owned stores. In what instances
company such as Def Jam Recordings need to be might these companies consider using joint ventures
aware of and sensitive to this issue? as their global market entry strategy into new markets?
Global Marketing CHAPTER 16 547
Marketing Digitally
1. For many small businesses, the idea of entering a for- 2. McCain Foods is a global brand, but it alters its prod-
eign market is frightening. The Government of Canada ucts and promotions to accommodate local tastes in
and most provincial and territorial governments now each country. Go to www.mccain.ca and visit the Cana-
offer assistance designed specifically for small-business dian website. Then go to www.mccain.com/about-us/
owners. Two such government departments are contact-us and check out the websites for McCain in
Foreign Affairs and International Trade Canada (DFAIT) South America, the United States, and France. How
and Industry Canada. Visit Industry Canada’s Canada are these websites different from the Canadian site?
Business website at www.canadabusiness.ca and What products are different? What promotional ele-
examine the types of services it provides for Canadian ments are different?
businesses wishing to do business in a foreign country.
Evaluate the usefulness of the information provided.
incomes and purchasing power, to start off with an iPhone, not a competitive Android prod-
uct, then keep them coming back.87 History shows that once a consumer has committed to a
particular phone and platform, she or he is less likely to switch to a different platform. Thus, a
first-mover advantage is critical in global markets.
But in this effort, Apple has hit something of a roadblock. It continues to maintain its high
price points, whether in developed, developing, or underdeveloped economies. There are
several reasons to do so, including the effort to maintain its sophisticated, aspirational image.
In addition, one analyst estimated that raising the average sale price on an iPhone by $10
would increase Apple’s profit by $723 million, even if it never added another customer (but
retained all its current ones).88
Still, if the goal is global dominance, Apple’s price points might put it at a disadvantage.
There are many competitors seeking the same consumers, and in 2016, its sales in China
dropped a substantial 16 percent as people jumped ship and adopted Android phone mod-
els. These data are especially remarkable considering that, in just 2015, many observers were
arguing that Apple’s brilliant entry strategy for China—in which it partnered with a national
mobile network and thus gained immediate access to 760 million subscribers—would be the
key to its persistent and consistent success.89 Since then, sales have flatlined in developed
markets and declined further in China for an overall decline of 5 percent year-over-year.90
Perhaps it can learn from its experience in its efforts to enter India, though. For example, it
has opened around 100 stores throughout India, using a franchise model that can rely on the
Apple brand but still provide local expertise. It also has started discussions with government
officials to open manufacturing plants in the nation, which would enable it to avoid some
duties on products that thus far have had to be imported into the country.91 It is pursuing a
similar deal in Indonesia, where it invested $44 million to create a research and development
centre that it hopes will lead the government to allow it to sell there.92
Still, the challenges remain. For years Apple was a premium brand that only rarely offered
price promotions. It seemed that the company could raise prices year after year and con-
sumers would line up to buy new models. However, it offered a $300 discount on its newest
model of iPhone just before Christmas in 2018 and curtailed production.93 The company gets
65 percent of its revenue from iPhone sales and so this resistance from consumers must be
worrisome. It announced that it would not provide sales numbers going forward, which will
make it difficult to gauge success. Competitive pressures and the global slowdown in sales of
smartphones may have been behind the iPhone 11 being introduced with cheaper pricing.94
Designing promotions and pricing structures that span the globe and appeal to consumers
around the world may continue to vex Apple. In the end, it has no choice but to pursue those
consumers in global markets.
Questions
1. Which economic factors have helped Apple’s global expansion?
2. How might switching to a distribution strategy based on a franchise model in India and
Indonesia affect its tight control of it brand image?
3. Do you think Apple has reached the upper threshold of what most consumers are willing
to pay for a new iPhone?
Chapter 17
The market for more natural and organic beauty products is booming, with growth expected to double from $11 billion
in 2016 to $22 billion by 2024.1 Thousands of beauty and personal-care products vie to be perceived as the most
natural or most organic. In many cases, those claims are overstated. The shampoo may be made from the same
ingredients as “regular” shampoo; It’s just that the bottle features pictures of natural wildflowers, for example.
In developing its Love Beauty and Planet line, Unilever has gone well beyond such a superficial approach,
ensuring that a sustainability philosophy underlies every element of the products sold under that brand. From the
product formulations to the packaging to the promotions used, Unilever has embraced a sustainable and envi-
ronmental focus as a core element to the very essence of the brand.2 Consider the four Ps (which we introduced
in Chapter 1) as they apply to Love Beauty and Planet.
Product The products under the Love Beauty and Planet label promise to be ethically sourced and made
from natural ingredients.3 Its perfumes are vegan and never tested on animals.4 But many brands make simi-
lar claims. To distinguish itself and establish its sustainability credentials, Unilever also has pursued innovative
benefits. For example, a novel technology integrated into the hair conditioner allows it to be rinsed out of users’
hair faster. (The molecules scatter when hit by water, pushing the product out of hair more quickly.) As a result,
consumers can take shorter showers, which conserves water.5 Another innovation, a showerless cleansing mist,
makes it possible for people to freshen up without using any water whatsoever.
Price Although the innovative, all-natural products are priced higher than conventional shampoos, condition-
ers, and cleansers, Love Beauty and Planet is not a luxury brand with astronomical prices that make it impossible
for everyday consumers to embrace the sustainability initiative. Instead, the price points around $6–$9 seek
to encourage like-minded consumers to try the products but still feel good about their purchases.6 The brand
550 Section eight Marketing in the Global Environment
also highlights that the price reflects its voluntary, self-imposed carbon tax. That is, for every carbon ton produced
to manufacture Love Beauty and Planet products, Unilever will contribute an extra $40 to the Carbon Tax Fund.7
Its pricing strategy explicitly acknowledges and demonstrates how and why the sustainable products cost a little
more than conventional versions.
Place Unilever is a massive international conglomerate, but for Love Beauty and Planet, it relies on somewhat
limited distribution channels, such as ecommerce and drugstores that already have a reputation for selling natu-
ral and organic products. The goal is to help consumers who find such options appealing discover the products
on their own. Rather than pushing Love Beauty and Planet on every store shelf, it will be something special that
sustainability-conscious consumers can take pride in finding.8 By the same token, if it proves popular, Unilever
has relationships with major retailers so it can ensure consumers’ ready access to the responsible products.
Promotion To get consumers interested and convince them to investigate the innovative offering, Love
Beauty and Planet uses packaging that matches its sustainable philosophy. But it isn’t stopping at using colours
or images conventionally associated with sustainability. All the bottles are made from completely recycled plastic
and are fully recyclable themselves. In another innovation, Unilever designed labels that can be removed easily,
so that there is less threat of contamination in the recycling process.9
Although the Love Beauty and Planet line offers a coherent sustainability initiative, Unilever has commit-
ted itself to environmental responsibility across its portfolio. It has published the Unilever Sustainable Living
Plan, enumerating its dedication to reducing the environmental impact of its products by half within the next few
decades (along with improving the health of society and ensuring the livelihoods of the people who work for it, as
two other prongs of the plan).10 It explicitly aims to separate the growth of the business from growing damage to
the environment through a conscious approach to production and distribution. That sort of conscious pursuit of
environmental responsibility spans every element of Love Beauty and Planet, suggesting that Unilever is offering
consumers truly ethical sustainability and a way to feel good about their consumption—as well as a means to
smell nice.
Which is the more important corporate objective: making a profit, or obtaining and
keeping customers?11 This question underlies a primary dilemma that marketers have
long faced. At one point, they might have argued that profit was the primary goal of any
firm. But over time, firms—and society as a whole—came to agree that corporations
have social responsibilities to a range of stakeholders that they must meet. Although
firms cannot stay in business without earning a profit, using profit as the sole guiding
light for corporate action can lead to short-term decisions that may in fact cause the firm
to lose customers in the long run. The balancing act may turn out to be the quest to place
the company on the firmest footing possible. This question leads into the primary ethical
dilemma facing managers; that is, how to balance shareholder interests with the needs
of society.
Doing so can be harder than it sounds, especially because the goals of different
shareholder groups often can be at odds. For example, employees in the coal industry
want to keep their jobs; consumers want cheap energy; society wants clean, sustainable
energy; and shareholders who own stock in a coal company want to earn profits. But those
goals often come in conflict because coal will never be a clean or sustainable energy, so
to satisfy society, shareholders by definition would lose their source of income. Accord-
ingly, some industries and companies resist the idea that they need to acknowledge the
impact of their actions on others. However, in the long term, if customers believe they
can no longer trust a company or that the company is not acting responsibly, they will
no longer support that company by purchasing its products or services or investing in
its stock.
Many industries face similar ethical dilemmas and seek to find appropriate balances.
In the past two decades, most processed foods (e.g., cereals, salad dressings) have con-
tained ingredients made from plants whose DNA has been manipulated in a laboratory.
To weather frosts better and produce a greater yield of crops, tomatoes are spliced with
Ethics and Socially Responsible Marketing CHAPTER 17 551
salmon genes, for example. Such genetically modified organisms, or GMOs, appear in a
majority of the foods that consumers eat daily, yet most people remain unaware of their
presence because Health Canada does not require GMO food product labelling.12 The
ethical question for food manufacturers is whether they label their products as contain-
ing GMOs. On one hand, many consumers express a preference to know and worry about
potential negative health effects (though no available scientific evidence has confirmed
this threat). On the other hand, genetic modifications increase crop yields and lower
production costs, and avoiding a GMO label could help companies sell more of their
products. Most food manufacturers seem to be fighting GMO labelling. However, in 2014,
General Mills decided to make some of its products, such as Cheerios, completely free
of GMOs, and has been disclosing all bioengineered ingredients on its packaging since
2016.13
As these examples show, sometimes the ethical dilemma has as much to do with defin-
ing our terms as with what the products contain. But even if the question seems to be one
of terminology, if customers believe that they can no longer trust a company or that the
company is not acting responsibly, they will no longer support it by purchasing its products
or services or investing in its stock. For marketers, the firm’s ability to build and maintain
consumer trust by conducting ethical transactions must be of paramount importance.
In this chapter, we start by examining what marketing ethics is and why behaving ethi-
cally is so important to successful marketing. We then discuss how firms can create an ethical
climate among employees and how individual behaviour can affect the ability of the firm to
act ethically. Next, we discuss how consumers contribute to the corporate social responsibil-
ity (CSR) decisions that businesses make. To help you make ethical marketing decisions, we
also provide a framework for ethical decision making, and then examine some ethical issues
within the context of the strategic marketing planning process (from Chapter 2). Finally, we
present some scenarios that highlight typical ethical challenges marketing managers often
must face.
Source: Adapted from Gallup Poll, “Nurses Again Outpace Other Professions for Honesty, Ethics” by Megan
Brenan. December 20, 2018. https://news.gallup.com/poll/245597/nurses-again-outpace-professions
-honesty-ethics.aspx.
Yet there is some good news. In a recent survey, it was found that almost three-
quarters of Canadians pay attention to issues related to corporate ethics and social
responsibility and believe that firms have a responsibility to actively engage in doing
good for society.16 Many consumers remain highly skeptical of business, however, and
especially of marketing. But because the marketing function interacts with so many
entities outside the firm on a regular basis, it has a tremendous opportunity to build
the public’s trust. As many marketing executives correctly believe, creating an ethical
climate that establishes the health and well-being of consumers as the firm’s number-
ethical climate one priority just makes good business sense.
The set of values within a
marketing firm, or in the
marketing division of any
firm, that guides decision
Creating an Ethical Climate in the Workplace
making and behaviour. The process of creating a strong ethical climate within a marketing firm (or in
the marketing division of any firm) includes having a set of values that guides deci-
sion making and behaviour. In 1943, General Robert Wood
Johnson of Johnson & Johnson (J&J) wrote and published
the company’s first “credo”—a one-page document out-
lining the firm’s commitments and responsibilities to its
various stakeholders.17 The J&J credo can be summarized as
follows:
Marketers acknowledge that the establishment and maintenance of high standards of practice are a fundamental
responsibility to the public, essential to winning and holding consumer confidence, and the foundation of a successful
and independent marketing industry in Canada.
Members of the Canadian Marketing Association recognize an obligation—to the consumers and the businesses they
serve, to the integrity of the discipline in which they operate and to each other—to practise to the highest standards
of honesty, truth, accuracy, fairness and professionalism.
I1 Accuracy of Representation
I1.1 Marketers must not misrepresent a product, service or marketing program and must not mislead by statement or
manner of demonstration or comparison.
I2 Clarity
Marketing communications must be executed in a manner that is simple and easy to understand.
I5 Disguise
I5.1 Marketers should identify themselves and must not engage in marketing communications in the guise of one
purpose when the intent is a different purpose.
L2 Responsibility
Marketing to teenagers imposes special responsibilities on marketers. Marketers will use discretion and sensitivity in
marketing to teenagers, to address the age, knowledge, sophistication and maturity of teenagers. Marketers should
exercise caution that they do not take advantage of or exploit teenagers.
Q. Enforcement Procedures for the CMA Code of Ethics and Standards of Practice
Q1 Upon receipt of a consumer complaint regarding violation of this Code, whether regarding a member or a
non-member, the Canadian Marketing Association will contact the organization and use the Association’s internal
mediation procedures to attempt to resolve the consumer complaint.
Source: Adapted from “Code of Ethics and Standards of Practice,” Canadian Marketing Association, www.the-cma.org/regulatory/code-of-ethics.
Ethics and Socially Responsible Marketing CHAPTER 17 555
manager can (1) delay production and remedy the design flaw, which pushes produc-
tion off schedule, delays revenue, and may result in layoffs and loss of a bonus, or
(2) stay on schedule, put the flawed design into production, and hope it does not result
in injuries to consumers and loss of revenue for the firm. This type of dilemma, and
its competing outcomes, occurs nearly every day in thousands of different business
environments.
When asked in a survey whether they had seen any unethical behaviour among
their colleagues, chief marketing officers responded that they had observed employ-
ees participating in high-pressure, misleading, or deceptive sales tactics (45 percent);
misrepresenting company earnings, sales, and/or revenues (35 percent); withholding
or destroying information that could hurt company sales or image (32 percent); and
conducting false or misleading advertising (31 percent).19 Did all the marketers in these
situations view their actions as unethical? In making marketing decisions, managers are
often faced with the dilemma between doing what is beneficial for them and possibly the
firm in the short run, and doing what is right and beneficial for the firm and society in
the long run.
For instance, a manager might feel confident that earnings will increase in the next
few months and therefore believe it benefits himself, his branch, and his employees to
exaggerate current earnings just a little. Another manager might feel considerable pres-
sure to increase sales in a retail store, so she brings in some new merchandise, marks
it at an artificially high price, and then immediately puts it on sale. Consumers are
deceived into thinking they are getting a good deal because they view the initial price as
the “real” price. Each decision may have been justifiable at the time for the individual,
but each decision would have potentially serious ethical and legal consequences for the
company.
To avoid such dire consequences, the short-term goals of each employee must be
aligned with the long-term goals of the firm. In our hybrid car example, the brand
manager’s short-term drive to receive a bonus conflicted with the firm’s long-term aim
of providing consumers with safe, reliable cars. To align personal and corporate goals,
firms need to have a strong ethical climate; explicit rules for governing a firm’s transac-
tions, including a code of ethics; and a system for rewarding and punishing behaviour.
In the next section, we discuss this link between ethics and social responsibility by
businesses.
Cadillac Fairview Takes the Pledge youth empowerment initiatives, events, and celebrations
across CF’s retail properties nationwide, giving young peo-
The back-to-school season often starts with a trip to the ple an opportunity to get involved in communities where
mall to buy a cornucopia of new school supplies, a new CF operates.
wardrobe, and fresh kicks. Unfortunately, for many Cana- The campaign was the first of many efforts. The month
dian families, even the basic necessities can be a chal- preceding the start of the school year, CF shopping cen-
lenge to obtain. In 2016, Cadillac Fairview partnered with tres across the country displayed colourful interactive
WE, a movement that brings people together and gives pledge-walls where participants were able to learn more
them the tools to change the world locally and glob- about five causes: Education, Health, Hunger, Environ-
ally. The goal was to inspire Canadian youth and remind ment, and Shelter.†† Visitors could take a pledge, joining a
young Canadians shopping for the start of the new school movement of caring and compassionate people to show
year of big-picture issues that affect local, national, and their commitment to improving the communities around
global communities.* them. Along with taking the pledge, visitors were encour-
Cadillac Fairview is the owner of 72 properties in Can- aged to take a selfie in front of the cause of their choice,
ada, including the CF Toronto Eaton Centre.** This partner- and share their commitment to change on social media
ship with WE was part of CF’s youth-focused philanthropy with the campaign hashtag #WhoWillYouBe. Participants
platform aimed at inspiring and empowering today’s youth, who used the hashtag and tagged their local CF shopping
and represents an important part of CF’s corporate social centre received a limited-edition enamel pin representing
responsibility strategy and core values.† It supports several the cause they pledged to support.
*Sonya Fatah, “Cadillac Fairview Pledges to Do Good,” Strategy Online, August 15, 2016, http://strategyonline.ca/2016/08/15/teens-malls-and-we-join
-to-paint-a-bigger-picture/ (accessed August 20, 2016).
**Cadillac Fairview, “About Cadillac Fairview,” www.cadillacfairview.com/en_CA/about-us.html (accessed August 20, 2016).
†Cadillac Fairview, “Cadillac Fairview Invests in Future Community Leaders,” June 8, 2016, www.cadillacfairview.com/en_CA/news/
Cadillac-Fairview-Invests-in-Future-Community-Leaders.html (accessed August 20, 2016).
††Cadillac Fairview, “Cadillac Fairview Launches National ‘Back to School’ Campaign at Retail Properties,” August 9, 2016, www.cadillacfairview.com/
en_CA/news/Cadillac_Fairview_launches_national_back_to_school_campaign_at_retail_properties.html (accessed August 21, 2016).
issues as being a good citizen? But the fallout from the most recent global economic crisis
seems to have pushed economists to repudiate this school of thought.
However, it is important to distinguish between ethical business practices and corporate
social responsibility programs. Ideally, firms should implement programs that are socially
responsible, and employees should act in an ethically responsible manner (see Exhibit 17.3,
upper left quadrant). Danone yogurt, for example, has long supported internal research into
healthy eating, which supports its ethical commitment to bring “health food to as many
people as possible.”22 It is also socially responsible since it donates food and money to the
hunger-relief charity Feeding America, encourages employees to volunteer in their communi-
ties, holds annual “Children’s Day” outreach programs, and tries to reduce its environmental
footprint.
Being socially responsible generally means going above and beyond the norms of
corporate ethical behaviour. For example, a firm’s employees may conduct their activities
in an ethically acceptable manner but still not be considered socially responsible because
their activities have little or no impact on anyone other than their closest stakeholders:
their customers, employees, and shareholders (Exhibit 17.3, upper right quadrant). In this
case, employees would not, for instance, be involved in volunteer activities to clean up a
local park, coach the community’s youth baseball league, or take part in any other socially
responsible activities that improve the communities in which the company operates.
Likewise, some firms that are perceived as socially responsible can still take actions
that are viewed as unethical (Exhibit 17.3, lower left quadrant). For instance, a firm might
be considered socially responsible because it makes generous donations to charities but is
simultaneously involved in questionable business practices. Walmart offers an interesting
example in this discussion. The retail giant has been widely criticized as the worst-paying
company in the United States.23 Yet it also engages in extensive CSR programs across the
Ethics and Socially Responsible Marketing CHAPTER 17 557
Questionable firm
Neither ethical nor
practices, yet donates a
socially responsible
lot to the community
triple bottom line. It has committed to reducing its carbon footprint (environmental per-
formance), donates more than $1 billion in cash and in-kind items to charitable causes
per year (social performance), and still earns strong profits (economic performance).24
The worst situation, of course, is when firms behave both unethically and in a socially
irresponsible manner (Exhibit 17.3, lower right quadrant). For example, Premier Fitness
Club was fined $130,000 for nearly 40 violations of the Employment Standards Act (ESA
2000) in connection with wages owed to former employees, and paid a $200,000 settlement
to the Competition Bureau for misleading advertising.25 After facing numerous lawsuits
from trade creditors, the company was forced into receivership. Both the Walmart and
Premier Fitness examples go against the norms of socially acceptable business practices.
Consumers and investors increasingly appear to want to purchase products and services
from and invest in companies that act in socially responsible ways. According to the Confer-
ence Board of Canada, CSR is the business issue of the 21st century. The importance of CSR
is underlined by the finding that a majority of Canadians have rewarded or punished compa-
nies for their corporate citizenship. A driving push
behind having a social purpose is the competitive
advantage it represents for businesses, as 55 percent
of Canadians prefer to buy from companies whose
purpose reflects their personal values.26 Purpose
revolves around having a meaningful commitment
to important issues, not just responding to the
issue of the day. A survey by Edelman found that
88 percent of millennials report that social causes
are important to them, and 87 percent of them
say it is the responsibility of big brands to make
the world a better place.27 Nielsen’s Global Survey
on Corporate Social Responsibility indicated that
consumers were more willing to buy products and
services from companies with programs that give
back to society. A recent survey of 1,000 Canadians
found that 70 percent of them were more likely to Walmart employees protest low wages.
buy from companies which supported charities.28 Shutterstock/Marie Kanger Born
558 Section eight Marketing in the Global Environment
All HP laser cartridges come with instructions for returning the old cartridges. Cellphone
manufacturers promote recycling of old phones and batteries, encouraging consumers to
drop them off at collection depots across the country.
FedEx has implemented social responsibility initiatives in several ways,33 including:
• Charitable donations. Through its “Delivering for Good” program, FedEx has donated
more than 3.5 million pounds of delivery weight valued at $4.7 million for disaster
relief efforts around the globe.
• Diversity. FedEx maintains formal groups to ensure it meets global diversity standards.
For example, its Employment Pathways Program develops and promotes diversity
programs within the company to create meaningful employment opportunities for
underserved populations.
• Fuel conservation. FedEx surpassed its goal to boost vehicle fuel efficiency by 30 percent,
five years ahead of schedule. It reduced overall mileage through route optimization,
replaced older vehicles with new, efficient models, and introduced alternative fuel
vehicles to its fleet.
• Volunteerism. Almost 16,000 employees participate in FedEx Cares Week, supporting
charitable and community needs where they live and work.
Consumers increasingly want to purchase products and services from companies
that act in socially responsible ways. Most large companies understand this and actively
promote their efforts. Guelph-based The Co-operators, a cooperatively owned insurance
company, has built a reputation for caring about its members’ needs and the quality of
life in their communities. Safety-related events such as car-seat inspection clinics and
bike safety rodeos, and anti–drinking and driving initiatives are funded by its Community
Economic Development program, which granted $549,000 to 23 organizations in 2018.34
It also donated over $2 million through its corporate giving program to support social
enterprises, charities and non-profit organizations.35
Some companies have social responsibility woven into the very fabric of their business,
as Entrepreneurial Marketing 17.1 demonstrates.
560 Section eight Marketing in the Global Environment
When companies embrace CSR, they appeal not only to their shareholders but also to
their key stakeholders, including their own employees, consumers, the marketplace, and
society at large. Let’s consider each of these stakeholder categories to understand the mean-
ing and effects of corporate social responsibility in the modern marketing arena, as well as
how CSR ultimately can benefit the firm that undertakes it.
Employees
Perhaps the most basic corporate social responsibility to employees is to ensure a safe work-
ing environment, free of threats to their physical safety, health, or well-being. In some cases,
though, this basic level of safety seems insufficient to achieve responsibility to workers. For
example, more firms today realize that happy employee families make happy and produc-
tive employees, so they are offering new benefits and options, such as on-site daycare36 or
Ethics and Socially Responsible Marketing CHAPTER 17 561
flextime arrangements. In 2015, American outdoor retailer REI rethought its practices and
determined that living up to its higher purpose of helping people enjoy outdoor adventures,
meant closing its stores on Thanksgiving and on Black Friday. Although closing meant that
REI lost sales, the culture in the firm emphasized that employees should be enjoying time
outdoors with their families, too.37 Feedback by employees and customers was so positive
that REI has made the closure an annual practice.
Customers
Especially as changes in the marketing environment emerge, firms must consider the
effects on the customers who currently patronize them and future customers whom they
are targeting. Corporate social responsibility programs must take such shifts and trends
into account and react to them quickly. Some trends receiving substantial attention today
include respecting and protecting privacy in an electronic world and offering environmen-
tally friendly products. When conscious marketing takes on such pertinent issues, it often
increases consumer awareness of the firm, which can lead to better brand equity and sales
in the long run. The Walt Disney Company appears to be a strong proponent. In one year,
Disney gave more than $400 million to charity. It has also donated 23.1 million books, and
its employees have donated 2.9 million hours of their time through Disney’s VoluntEAR
program since 2012. Reflecting its higher purpose of ensuring the happiness and enjoyment
of children, Disney has partnered with Give Kids the World, and its employees have reno-
vated 88 vacation villas that the charitable organization offers to the families of children
with life-threatening illnesses, so that they can take life-affirming vacations.38
Other efforts work to ensure the healthfulness of products, especially those aimed at
children. ParticipACTION Canada has helped launch a variety of initiatives to help develop
a healthier way of life through an active lifestyle, offering tools and programs for teenagers
and corporations.39 The goal of such programs is to increase consumer awareness of the
need to make healthier, more active choices. These efforts ultimately benefit consumers, too,
who not only gain additional consumption choices but also suffer less risk of the dangers
associated with inactivity.
Marketplace
When one firm in the industry leads the way toward CSR, its partners and competitors
often have no choice but to follow—or run the risk of being left behind. To address issues
such as global warming, water scarcity, and energy consumption, GE uses a program it calls
ecomagination. Reflecting the company’s higher purpose, ecomagination encompasses
a business strategy comprising four commitments: to double investment in clean R&D,
increase revenues from ecomagination products, reduce greenhouse gas emissions, and
inform the public about these issues.40 When confronted with such initiatives, other energy
companies are forced to make a decision: continue as they have been doing, or adopt more
responsible practices themselves. In either case, the initiating firm enjoys an advantage by
gaining a reputation for being on the cutting edge of CSR efforts.
Society
Firms expend considerable time and energy engaging in activities aimed at improving the
overall community and the physical environment. According to a McKinsey survey, it is
increasingly important for company leaders to work with outside stakeholders41 who have
come to expect it. That is, in a broad sense, companies cannot ignore societal demands that
they act responsibly. A firm that fails to do so causes damage to all the preceding stake-
holders, as well as itself, putting 30 percent of corporate earnings at risk. Perhaps the most
famous recent example is Volkswagen. After news broke about its emissions testing scandal,
the company’s stock price plummeted almost 35 percent in only two days.42 Society quickly
punished Volkswagen for its actions, resulting in damage to its corporate reputation, profits,
562 Section eight Marketing in the Global Environment
and outlook for the future. Broader society, a key stakeholder, demands that companies act
responsibly; companies cannot ignore this—a lesson that Patagonia learned well, as Ethical &
Societal Dilemma 17.1 describes.
Environment
Are consumers doing their part to promote and support various CSR programs
aimed at protecting the environment? While consumers are concerned about ethical
Ethics and Socially Responsible Marketing CHAPTER 17 563
behaviour, today they are also interested in understanding the overall environmental
impact of a company’s products. Single-use plastics are an obvious and visible form
of waste, but recently, food waste has become a part of public consciousness as you
will read in the chapter end case. Canadians waste about 400 kilograms of food each
every year.43 When you buy a new cellphone, do you first consider what will happen
to your old one? What do you think? Should marketers take more responsibility for
educating consumers on the downside of consumption, or is it up to consumers to take
a proactive role?
Decision
Yes Maybe No
Test 1 2 3 4 5 6 7
1. The Publicity Test
Would I want to see this action that I’m about to take
described on the front page of the local paper or in a
national magazine?
2. The Moral Mentor Test
Would the person I admire the most engage in this activity?
3. The Admired Observer Test
Would I want the person I admire most to see me doing this?
4. The Transparency Test
Could I give a clear explanation for the action I’m
contemplating, including an honest and transparent account
of all my motives, that would satisfy a fair and dispassionate
moral judge?
5. The Person in the Mirror Test
Will I be able to look at myself in the mirror and respect the
person I see there?
6. The Golden Rule Test
Would I like to be on the receiving end of this action and all
its potential consequences?
Source: Adapted from Tom Morris, The Art of Achievement: Mastering the 7 Cs of Success in Business and in Life (Kansas City, MO: Andrews
McMeel Publishing, 2002); https://edbrenegar.typepad.com/ (accessed July 27, 2017).
Ethics and Socially Responsible Marketing CHAPTER 17 565
Next, let’s illustrate how the ethical decision-making metric in Exhibit 17.6 can be used
to make ethical business decisions.
Myra Jansen, the head cook at Confederation High School in Anytown, Canada, has
had enough. Reports showing that children rarely eat enough vegetables have combined
with studies that indicate school kids have a limited amount of time to eat their lunches.
The combination has led to increasing obesity rates and troublesome reports about the
long-term effects. Jansen has therefore decided that the tater-tots and hot dogs are out.
Vegetables and healthy proteins are in.
The problem, of course, is getting the kids to eat raw vegetables, plant proteins, and
lean meat. For many teenagers, recommending that they eat healthy food at lunch is akin to
calling detention a play date. But Myra has a plan: She’s going to reformulate various menu
items using different ingredients, and just never tell the students. Thus, the regular hot
dogs will be replaced with turkey or soy dogs. The hash browns will contain more nutrient-
dense sweet potatoes instead of the vitamin-deficient regular spuds they used to be made
out of. She is convinced she can make such switches for most of the menu items, and none
of the children needs to know.
Most of the kitchen staff is on board with the idea and even have suggested other pos-
sible menu switches that would benefit the students by ensuring that they received a well-
balanced meal at school. When apprised of the idea, school board members got very excited
and praised Myra for her innovative thinking. But the community liaison for the school,
whose job it is to communicate with parents and other members of the community, is not
so sure. Salim Gibran is nervous about how students will react when they learn that they
have been deceived. He also has two small children of his own, one of whom has a severe
wheat allergy. Thus, the Gibrans are extremely cautious about eating out, always asking for
a detailed, specific list of ingredients for anything they order.
Using his training in ethical decision making, Salim sits down to evaluate his alterna-
tives, beginning with identifying possible options available to the school district, as well
as the various stakeholders that might be impacted by the decision. He comes up with the
following list:
To make a clear recommendation to the board about what would be the best ethical
choice, Salim decides to evaluate each alternative using a series of questions similar to
those in Exhibit 17.6.
Question 1: Would I want to see this action described on the front page of the local
paper? The school board’s reaction caused Salim to think that the larger community would
appreciate the effort to improve students’ health. Thus, option 1 appears best for these
stakeholders, and possibly for society, which may reduce the prevalence of obesity among
these students. However, he shudders to think about how angry students might be if they
learned they had been tricked. They also likely are accustomed to their menu as it is and,
therefore, they would prefer option 2.
Question 2: Would the person I admire most engage in this activity, and would I
want him or her seeing me engage in this activity? For most of his life, Salim has held
up Mahatma Gandhi as his ideal for how to act in the world. For Mahatma Gandhi,
truth was an absolute concept, not something that could be changed depending on the
situation. Therefore, Salim believes Mahatma Gandhi would strongly disapprove of
option 1. However, Mahatma Gandhi also worried about the ethics of eating and took
care to avoid food choices that had negative effects on society, so he might reject option 2
as well.
566 Section eight Marketing in the Global Environment
Question 3: Can I give a clear explanation for my action, including an honest account
of my motives? In thinking about his children, Salim realizes that he is prioritizing their
needs, more so than the needs of other children, such as those who struggle with weight
issues. That is, he worries that his daughter might unknowingly be exposed to wheat in a
school cafeteria, so he prefers option 3.
Question 4: Will I be able to look at myself in the mirror and respect what I see? By
bringing up the ethics of this decision, even when it seems as if everyone else has agreed
with it, Salim feels confident that he has taken the right first step. The option chosen is still
important, but it is a group decision, and Salim thinks he is doing his part.
Question 5: Would I want to be on the receiving end of this action and its consequences?
Salim struggles most with this question. He remembers the junk foods he chose when he was
in college, and the 10 kilograms he put on as a result. He wishes now that his parents had
given him rules to follow about what to eat at school. But he also remembers how rebellious
he was and knows that he probably would not have followed those rules. And at the same
time, he hates the idea that someone could give him food to eat with falsified ingredients.
On the basis of this exercise, Salim decides that he wants to recommend option 3 to the
school board. When he does so, Myra Jansen protests loudly: “This is ridiculous! I know
better what kids should be eating, and I know too that some community liaison has no
idea what they are willing to eat. You’ve got to trick them to get them to eat right.” Another
school board member agrees, noting, “They’re just kids. They don’t necessarily have the
same rights as adults, so we are allowed to decide what’s best for them. And hiding the
healthy ingredients to get the kids to eat healthy foods is what’s best.”
So what does the school board decide?
Planning Phase
Ben & Jerry’s mission statement is known for reflecting Marketers can introduce ethics at the beginning of the
its strong ethical climate. planning process simply by including ethical statements in
Shutterstock/TravnikovStudio the firm’s mission statement. Many Canadian firms such
Ethics and Socially Responsible Marketing CHAPTER 17 567
Implementation Phase
In the implementation phase of the marketing strategy, when
firms are identifying potential markets and ways to deliver the
four Ps to them, companies must consider several ethical issues.
Sometimes a firm’s choice of target market and how it pursues it
can lead to charges of unethical behaviour. For instance, Molson General Mills switched to whole grains in all its
Brewery launched a Facebook campaign targeted toward uni- breakfast cereal lines to improve dietary benefits.
versity and college students in which it asked them to post party ©McGraw Hill Education/Jill Braaten
pictures, which it would use to identify the “top party school.”
This effort not only encouraged underage drinking but also
deeply irritated universities across Canada and the United States, which had little interest
in being thus identified. Although these student groups might have been responsive to the
firm’s efforts, they did not represent an appropriate target market.
The question of resource allocation in the implementation phase can be an ethical
minefield, and perhaps no business is more susceptible to charges of unethical resource
allocation than the pharmaceutical industry. For example, AIDS activists claim that phar-
maceutical companies are not doing enough to develop affordable drugs for underdevel-
oped countries to treat AIDS among their poor citizens. Some public-health officials also
have sounded alarm bells about the lack of research into the next generation of antibiotics,
at a time when bacteria continue to become increasingly resistant to existing drugs. Critics
of the pharmaceutical industry can also point to the increasing number of “lifestyle” drugs,
such as those for erectile dysfunction, obesity, male-pattern baldness, nail fungus, and
such, as possible causes for the lack of new treatments for serious diseases, even though the
pharmaceutical companies vehemently deny that they have been transferring assets from
research on treatments for life-threatening illnesses to fund lifestyle drugs.
Sourcing decisions are another problem area for some firms, such as companies choos-
ing to do business with factories in Bangladesh. Charges that they use sweatshop labour
to produce their goods have been made against many well-known companies. Locating
production in an underdeveloped country can make economic sense, because it allows the
company to take advantage of the lower production costs offered in poorer nations, but it
also raises a host of ethical issues, the most prominent of which deals with responsibility.
Who is responsible for ensuring that the workers in the factories that produce the goods
are treated fairly and paid a living wage? Environmental organizations have also joined the
568 Section eight Marketing in the Global Environment
attack recently, noting that many overseas factories do not maintain the highest environ-
mental standards.
Once the strategy is implemented, controls must be in place to be certain that the firm
has actually done what it has set out to do. These activities take place in the next phase of
the strategic marketing planning process.
Control Phase
During the control phase of the strategic marketing planning process, managers must
be evaluated on their actions from an ethical perspective. Systems must be in place to
check whether each ethical issue raised in the planning process was actually successfully
implemented. Systems used in the control phase must also react to change. The emer-
gence of new technologies and new markets ensures that new ethical issues continually
arise. In particular, people expect to be able to move normally in public spaces without
their location being recorded for subsequent use. Yet marketers regularly collect data on
people’s location through purchase transactions and posts on social and mobile sites such
as Facebook, Twitter, Instagram, Pinterest, and YouTube. Additionally, several retailers’
credit card systems have been violated, resulting in the theft of consumer data, the most
egregious of which were the estimated 143 million at Equifax (the credit rating company)
in 2017, and the Marriott credit card breach affecting 500 million people in 2018.
Many firms have emergency response plans in place just in case they ever encounter a
situation similar to the Tylenol tampering case or an industrial accident at a manufactur-
ing plant. Firms that respond in the first few hours of a crisis with an organized plan and
compassion for those affected suffer fewer long-term negative effects on their reputation,
credibility, and level of trust among consumers.
Ethics remains a crucial component of the strategic marketing planning process and
should be incorporated into all the firm’s decision making.
Understanding Ethics
by Using Scenarios
In this section, we present a series of ethical scenarios designed to assist you in develop-
ing your skills at identifying ethical issues. There is no one right answer to the dilemmas
below, just as there will be no “correct” answers to many of the ethical situations you will
face throughout your career. Instead, these scenarios can help you develop your sensitivity
toward ethical issues, as well as your ethical reasoning skills.
Exhibit 17.6 provides simple tests to assist you in evaluating these scenarios. By asking
yourself these simple questions, you can gauge your own ethical response.
hey, the husband is going to think she looks great. But let’s be honest here—not everyone
is all that beautiful. So you have to convince them that they look great in one, and only one,
dress. And that dress had better be the most expensive one they try, or they won’t believe
you anyway! And then you have to show them how much better they look with a veil. And
some shoes. And a tiara . . . you get the picture! I mean, they need all that stuff, anyway, so
why shouldn’t we make them feel good while they’re here and let them buy from us?”
Should she follow Marilyn’s advice and save her job?
Mia Rodriquez, the marketing director for Enjoy, only recently learned that Enjoy con-
tains small amounts of alcohol and is troubled about ABC’s failure to disclose this informa-
tion on the ingredients list. If the alcohol content is less than 1 percent, the beverage is not
an alcoholic beverage. But she worries about the impact of this omission on consumers
who have alcohol sensitivities or those who shouldn’t be consuming alcohol, such as preg-
nant women, recovering alcoholics, and children.
What should Mia do? What would you do in Mia’s place?
Identify why marketers should be concerned hurricane. Socially responsible firms try to conduct their
LO1 business operations in such a way as to eliminate or mini-
about ethics
mize the negative impacts on the natural environment
The most important reason to worry about making ethi- and vulnerable groups of consumers such as children,
cally correct decisions is that it is simply the right thing to elderly people, and people with disabilities. They also
do! Being a part of an ethically responsible firm should be inform consumers of potential harmful effects of their
important to every employee, but it is particularly impor- products, promote their products and services in a truth-
tant to marketers because they interact most directly with ful and responsible way, and are quick to take corrective
customers and suppliers, which offers them a multitude actions when deficiencies in their products and services
of opportunities to address ethically challenged issues. are revealed.
It is often challenging to make ethically correct decisions
because they can conflict with other personal or corporate escribe consumerism and explain how
D
objectives. LO3
it fosters ethical and socially responsible
business practices
LO2 istinguish between ethics and social
D
responsibility Consumers can pressure businesses to practise ethical
and socially responsible behaviour in a variety of ways.
Individuals and firms can (and should) act ethically, but They can protest poor practices, boycott companies’
the outcome of their acts may not affect anyone other products or services, and publicly call for higher ethical
than the firm’s immediate stakeholders, such as its standards. In addition, consumers encourage companies
employees, customers, and suppliers. To be socially to be socially responsible by supporting those companies
responsible, a firm also must take actions that benefit that have strong ethical practices. Consumerism—a social
the community in a larger sense, such as helping peo- movement aimed at protecting consumers from busi-
ple who have been affected by a natural disaster like a ness practices that infringe upon their rights—has been
Ethics and Socially Responsible Marketing CHAPTER 17 571
a major force driving the trends of increased ethics and evaluation questionnaire, such as the one in Exhibit 18.6.
CSR. Unfortunately, many consumers are not making full Firms could also recognize and reward employees for
use of the CSR programs established by corporations and making ethical decisions.
governments to foster greater environmental responsibil-
ity. Marketers must also be aware that consumers have Outline how ethics and social responsibility
levelled ethical and social criticisms against marketing, LO5
can be integrated into a firm’s marketing
especially when marketers breach the trust of consumers strategy
with inappropriate business practices.
Firms can ensure that ethics and social responsibility issues
LO4 Identify the four steps in ethical decision are an integral part of their planning processes. These con-
making siderations even could be integrated into the firm’s mission
statement, as long as top management commits to support-
First, firms can include ethics and social responsibility ing a strong ethical climate within the organization. When
in their corporate mission. Second, they should insti- considering their marketing strategy, firms should ask not
tute policies and procedures to ensure that everyone only “Can we implement a certain policy?” but also “Should
working for the firm is acting in an ethically respon- we do it?” Firms should hold their marketing mix—the four
sible manner. Third, firms can model their ethical poli- Ps—to the highest standard of social responsibility; that is,
cies after a well-established code of ethics, such as the they must develop safe products, price their products fairly
one provided by the Canadian Marketing Association. at all times, promote them truthfully, and distribute without
The ethical decision framework described in this chap- undue discrimination. Finally, in the control phase, market-
ter could be used as a template for developing policies ers must determine whether they truly have acted in an
and procedures. Fourth, when making ethically sensitive ethical and socially responsible manner. If not, they should
decisions, firms can utilize an ethical decision-making quickly rectify the situation.
Key Terms
■■ business ethics ■■ corporate social responsibility ■■ ethical climate
■■ consumerism (CSR) ■■ marketing ethics
concept review
1. Explain the meaning of ethics and corporate social behaviour and good corporate social responsibility in
responsibility in marketing. What are the main differ- Canadian companies?
ences between ethics and social responsibility?
7. Is it ever possible to eliminate or reduce the social and
2. List four factors that determine whether an individual ethical criticisms of marketing? What actions might
or firm will act ethically. List the different ways firms help in this regard?
could demonstrate their commitment to corporate
social responsibility. 8. Problems can arise when businesses from one culture
(e.g., the United States) operate in another culture (e.g.,
3. Describe how firms can integrate ethics and corporate China) that has vastly different ethical standards. Google
social responsibility into their marketing strategy. can be seen as trying to impose its ethical standards on
China and meddling in China’s domestic politics. Do you
4. Explain how the use of a sustainability scorecard could
agree with this perception? Should North American firms
add value to a company in the eyes of its consumers.
abide by the standards of foreign countries even though
5. Is it possible for companies that have a code of ethics they may conflict with North American standards?
to behave unethically? How might this happen?
9. Many commentators suggest that socially responsible
6. What is consumerism? Name two organizations that marketing is not simply a fad but can actually enhance
you think are at the forefront of consumerism in the revenues and profitability of a firm. Explain how
Canada. How has consumerism helped foster ethical socially responsible marketing may contribute to
572 Section eight Marketing in the Global Environment
improved revenues and profitability. Can you name and environmentally responsible ways, either through
one or two firms in Canada that explicitly make the recycling or by taking the used product to a retailer
claim that their corporate social responsibility efforts or depot. Yet tonnes of recyclable materials end up in
have resulted in increased revenues and profitability? landfills all across Canada. What factors do you think
might explain the behaviours of consumers who do not
10. Many marketers have developed programs to help dispose of their products in an environmentally friendly
consumers dispose of their products after use in safe manner?
Marketing Applications
1. Why are marketers likely to be faced with more ethical is to profitably sell good-tasting, healthy products and
dilemmas than members of other functional areas of to better society.” Although its products are organic,
the firm, such as finance, accounting, or real estate? they are also high in calories. The company gives a
small portion of its profits to United Way. Evaluate the
2. Develop an argument for why a cosmetics firm should
mission statement.
build and maintain an ethical climate.
7. The granola company described in Question 6 is
3. An insurance company gives generously to charities and
thinking about starting an advertising campaign
sponsors cancer awareness programs. It also makes it
directed at children that would air on Saturday morn-
difficult for elderly consumers to make claims on policies
ing television. Explain why you think it should or
that they have owned for years. Evaluate this company
should not do so.
from an ethical and social responsibility perspective.
8. Discuss why marketers use Internet cookies and the
4. A clothing company gives generously to charities
potential ethical issues this practice creates.
and sponsors donation drives to help lower-income
teen girls get reasonably priced prom dresses. It also 9. A women’s clothing retailer has been found guilty of
locates its manufacturing plants in countries with few misleading pricing practices. In spite of significant
labour laws, such that it does not know if children are fines, its pricing practices remain unchanged. Explain
working in its factories, and works to prevent union how consumerism could force the company to act
activity among its employees. Evaluate this company more ethically in the future.
from an ethical and social responsibility perspective.
10. Choose a company that you believe is particularly
5. Based on the evaluation you developed for Question 4, socially responsible that is not discussed in this
provide responses to the ethical decision-making met- chapter. How do you justify your choice? What coun-
ric from Exhibit 17.6. Provide a rationale for your score terarguments might someone make to suggest that
for each question. your chosen company is not responsible? Consider
all key stakeholders in developing both sides of the
6. A company that makes granola and other “healthful”
argument.
snacks has the following mission statement: “Our goal
Marketing Digitally
1. Perhaps no subdiscipline of marketing receives more box. Discuss the results of your search. How many dif-
scrutiny regarding ethical compliance than direct ferent ways did you find that the CMA was involved in
marketing, a form of nonstore retailing in which cus- assisting consumers and the industry to create a more
tomers are exposed to and purchase merchandise ethical marketplace?
or services through an impersonal medium such as
telephone, mail, or the Internet.46 Ethical issues in 2. An increasing number of firms are stating their strong
direct marketing cover a broad spectrum because commitment to corporate social responsibility initia-
this means of selling is conducted through all forms of tives. The Corporate Social Responsibility Newswire
communication. The Canadian Marketing Association service keeps track of these various initiatives and
(CMA) takes ethics very seriously and has several pro- posts stories on its website about what various corpo-
grams to ensure that its member organizations comply rations are doing. Go to www.csrwire.com and choose
with its Code of Ethics. Go to the CMA website (www. one story. Write a description of the corporation and
the-cma.org) and type the word ethics into the search the initiative.
Ethics and Socially Responsible Marketing CHAPTER 17 573
Daily Table
The growing social trends surrounding organic foods and healthy eating have helped com-
panies such as Whole Foods and Trader Joe’s become power players in the grocery market.
But the high price of organic food remains a hurdle to expanding this market, especially to
include lower-income families. Trader Joe’s has positioned itself as a lower-cost option, yet the
prices it charges still keep it out of reach of many working families. In response, the company’s
former president, Doug Rauch, decided to open a new kind of health-food store in 2015. Daily
Table, a non-profit, membership-based grocery store, sells fresh produce and prepackaged
meals at affordable prices.47 It operates one store in Dorchester, Massachusetts, a moderate-
to low-income suburb of Boston. It has expansion plans sighted for New York, Los Angeles,
Detroit, and San Francisco.48
The innovative approach to groceries seeks to address several elements of the “food
paradox” simultaneously. First, hunger is a major problem worldwide. One in six Americans
can be categorized as hungry, and according to the U.S. Department of Agriculture, nearly
50 million Americans—including 7.9 million children—are “food insecure.” Yet nearly one-
third of the nation’s annual food supply, or 133 billion pounds, goes uneaten. Grocery stores
that offer high-quality food tend to cater to wealthier consumers, and they discard more than
$165 billion worth of food annually, often simply because it has minor aesthetic flaws or blem-
ishes. According to the Environmental Protection Agency, food waste is the single biggest
source of waste in municipal landfills.
Not only are people from low-income sectors at risk of going hungry, but they also lack
reliable access to nutritious and affordable food. In turn, they often suffer health problems
related to their poor diets, including diabetes, heart disease, anemia, and so forth. Some
communities don’t have access to traditional grocery stores, thus smaller family-owned
stores often fill this gap and may sell overripe produce. However, as the only healthy option
available, those retailers can mark up the prices, such that the food sells at double the price it
would go for in conventional grocery stores. That is, the people who most desperately need
healthy food cannot access it.49
To address all these issues at once, Daily Table works with conventional supermarkets
and restaurants to recover food that otherwise would go to waste. These relationships ben-
efit both parties; the supermarket or restaurant reduces the margins of its losses by up to
half, and Daily Table receives inventory for its shelves. It also visits local farms and fisher-
ies to source excess produce and fish. For example, when New England enjoyed a bumper
crop of apples in a recent season, Daily Table partnered with the non-profit Boston Area
Gleaners to obtain more than 10,000 pounds of excess fruit that otherwise would have rot-
ted. The apples, brought from local farms, sold for $0.49 a pound. The fish wholesaler and
distributor John Nagle Co. brings its excess cuts of fresh fish to Daily Table every few weeks.
Daily Table can then sell the swordfish, ahi tuna, and salmon,
which can normally cost as much as $30 a pound, for as little
as $5.99 a pound.50
Such prices certainly are appealing, but they might not be
enough to overcome perhaps the greatest competition Daily
Table faces: namely, the fast-food chains that provide fast, plen-
tiful, easy food service options for lower-income families. To
enhance its competitive standing, Daily Table introduced pre-
pared meals, starting at $1.79, with sides ranging from $0.50 to
$1.00. The grab-and-go, ready-to-eat meals are ideal for some
families, though for others, Daily Table also encourages pur-
chases of convenient, ready-to-cook meals. Some of the tasty
ready-to-cook meals also get prepared in the stores’ kitchens,
on-site. Rather than the high-fat, high-sodium choices at fast-
food restaurants, these alternatives give consumers greater
access to wider choices of fresh food, rich in nutrients.51 Daily Table is a non-profit membership-based grocery
Beyond these choices, Daily Table also works to ensure store that sells fresh produce and prepackaged
that it provides its primary customers with a sense of dignity. meals at affordable prices.
Low-income consumers often sense a stigma associated with ©Jessica Rinaldi/The Boston Globe via Getty Images
574 Section eight Marketing in the Global Environment
visiting food pantries or soup kitchens. Daily Table cannot risk leading customers to feel as
if they are receiving charity when they shop there. Although its prices are vastly discounted,
it charges for all the food it sells. This strategy has another benefit, in that it increases the
chances that Daily Table can survive as a self-sustaining business. In another tactic to avoid
the stigma of charity, Daily Table’s store environment looks like any other trendy super-
market, with clean aisles, wooden crates to display the fresh produce, a friendly vibe, and
windows that look into the kitchen area.52
Finally, it identifies its valued customers as members. To ensure it primarily serves the com-
munity in surrounding neighborhoods, Daily Table established membership standards. The
first time customers visit, they must share some basic information to receive their (free) mem-
bership. On subsequent visits, they provide their zip code and phone number, which confirms
their membership, without any need for a physical membership card. Checking for whether
customers are from the local neighborhood may raise some privacy concerns, but Daily Table
assures customers that no such information is ever shared with outside institutions.53
Still, Daily Table has faced some challenges, as well as some criticisms. The first intro-
duction of the concept led to concerns that it would sell expired produce that conventional
supermarkets could not sell by law. According to this view, the store is a sort of dump-
ing ground for food rejected by the rich and affluent, discarded and left as crumbs for the
poor.54 In response, Daily Table cites a report from the Natural Resources Defense Council
and Harvard Law School that reveals that “sell by” and “best by” dates on food actually pro-
vide little relevant information because the dates are mostly unregulated. Therefore, Daily
Table calls its food “rescued” instead of “expired.”55 Regardless of what it is called, sell-
ing officially expired food creates several legal and regulatory challenges for Daily Table.
By working with regulatory authorities, it acquires the necessary permits, though the back-
and-forth interactions with bureaucratic institutions often hinder the smooth functioning of
its business model. The retailer also largely depends on grants and donations to keep its
prices low. The resulting financial constraints require Daily Table to rely on word-of-mouth
marketing; many consumers still have not heard of it.
Questions
1. How does Daily Table compare to Whole Foods and the conventional supermarket where
you shop on the principles of ethical behaviour?
2. How does Daily Table address the needs of each of the different stakeholder groups:
employees, customers, marketplace, society, and environment?
glossary
administered vertical marketing system A supply chain model, or professing an inadequate supply of the lower-
system in which there is no common ownership and no priced item.
contractual relationship, but the dominant channel member behavioural component A component of attitude that
controls the channel relationship. comprises the actions a person takes with regard to the issue
advanced shipping notice An electronic document that the at hand.
supplier sends the retailer in advance of a shipment to tell the behavioural segmentation Groups consumers based on the
retailer exactly what to expect in the shipment. benefits they derive from products or services, their usage
advertising A paid form of communication from an identifiable rate, their loyalty, and the occasion.
source, delivered through a communication channel, and benefit segmentation Groups consumers based on the
designed to persuade the receiver to take some action, now benefits they derive from products or services.
or in the future.
beta testing Having potential consumers examine a product
advertising allowance Tactic of offering a price reduction to prototype in a real-use setting to determine its functionality,
channel members if they agree to feature the manufacturer’s performance, potential problems, and other issues specific
product in their advertising and promotional efforts. to its use.
advertising schedule Specifies the timing and duration of big data Refers to extremely large quantities of data that
advertising. companies have access to but are unable to handle using
affective component A component of attitude that reflects conventional data management and data-mining software.
what a person feels about the issue at hand—his or her like or big-box food retailer Comes in three types: supercentre,
dislike of something. hypermarket, and warehouse club; larger than a conventional
affordable method A method of determining a supermarket; carries both food and nonfood items.
communications budget based on what is left over after other blog (weblog) A web page that contains periodic posts;
operating costs have been covered. corporate blogs are a new form of marketing communications.
AIDA model A common model of the series of mental stages boycott A group’s refusal to deal commercially with some
through which consumers move as a result of marketing organization to protest against its policies.
communications: Attention leads to Interest, which leads to
Desire, which leads to Action. brand associations The mental links that consumers make
between a brand and its key product attributes; can involve a
aided recall Occurs when consumers recognize the brand logo, slogan, or famous personality.
when its name is presented to them.
brand awareness Measures how many consumers in a
alpha testing An attempt by the firm to determine whether market are familiar with the brand and what it stands for;
a product will perform according to its design and whether created through repeated exposures of the various brand
it satisfies the need for which it was intended; occurs in the elements (brand name, logo, symbol, character, packaging, or
firm’s R&D department. slogan) in the firm’s communications to consumers.
artificial intelligence (AI) Solutions that rely on computer brand dilution Occurs when a brand extension adversely
systems to perform tasks requiring human intelligence, such affects consumer perceptions about the attributes the core
as speech recognition, decision making, or translations. brand is believed to hold.
associated services (or augmented product) The nonphysical brand equity The set of assets and liabilities linked to a brand
attributes of the product, including product warranties, that add to or subtract from the value provided by the product
financing, product support, and after-sale service. or service.
attitude A person’s enduring evaluation of his or her feelings brand extension The use of the same brand name for new
about and behavioural tendencies toward an object or idea; products being introduced to the same or new markets.
consists of three components: cognitive, affective, and
behavioural. brand licensing A contractual arrangement between firms,
whereby one firm allows another to use its brand name, logo,
autocratic buying centre A buying centre in which one symbols, or characters in exchange for a negotiated fee.
person makes the decision alone, though there may be
brand loyalty Occurs when a consumer buys the same
multiple participants.
brand’s product or service repeatedly over time rather than
B2B (business-to-business) The process of selling merchandise buying from multiple suppliers within the same category.
or services from one business to another.
brand personality Refers to a set of human characteristics
B2C (business-to-consumer) The process in which businesses associated with a brand, which has symbolic or self-expressive
sell to consumers. meanings for consumers.
baby boomers Generational cohort of people born after World brand repositioning (rebranding) A strategy in which
War II until 1964. marketers change a brand’s focus to target new markets
bait and switch A deceptive practice of luring customers or realign the brand’s core emphasis with changing market
into the store with a very low advertised price on an item preferences.
(the bait), only to aggressively pressure them into purchasing brands The names, terms, designs, symbols, or any other
a higher-priced item (the switch) by disparaging the low- features that identify one seller’s good or service as distinct
priced item, comparing it unfavourably with the higher-priced from those of other sellers.
GL-2 Glossary
break-even point The point at which the number of units sold competitor orientation A company objective based on the
generates just enough revenue to equal the total costs; at this premise that the firm should measure itself primarily against
point, profits are zero. its competition.
business ethics Concerned with distinguishing between right competitor-based pricing method An approach that attempts
and wrong actions and decisions that might arise in a business to reflect how the firm wants consumers to interpret its
setting. products relative to the competitors’ offerings.
business-to-business (B2B) marketing The process of buying complementary products Products whose demand curves
and selling goods or services to be used in the production of are positively related, such that they rise or fall together;
other goods and services, for consumption by the buying a percentage increase in demand for one results in a
organization, or for resale by wholesalers and retailers. percentage increase in demand for the other.
buyer The buying centre participant who handles the concentrated (or niche) targeting strategy A marketing
paperwork of the actual purchase. strategy of selecting a single, primary target market and
buying centre The group of people typically responsible for focusing all energies on providing a product to fit that market’s
the buying decisions in large organizations. needs.
C2C (consumer-to-consumer) The process in which consumers concept testing The process in which a concept statement
sell to other consumers. that describes a product or a service is presented to potential
buyers or users to obtain their reactions.
cash discount Tactic of offering a reduction in the invoice
cost if the buyer pays the invoice prior to the end of the concepts Brief written descriptions of a product or service; its
discount period. technology, working principles, and forms; and what customer
needs it would satisfy.
category killer Offers an extensive assortment in a particular
category, so overwhelming the category that other retailers consensus buying centre A buying centre in which all
have difficulty competing. members of the team must reach a collective agreement
through which they can support a particular purchase.
category specialist Offers a narrow variety but a deep
assortment of merchandise. consultative buying centre A buying centre in which one
person makes the decision, but he or she solicits input from
cause-related marketing Commercial activity in which
others before doing so.
businesses and charities form a partnership to market an
image, product, or service for their mutual benefit; a type of consumer decision rules The set of criteria consumers use
promotional campaign. consciously or subconsciously to quickly and efficiently select
from among several alternatives.
channel conflict Results when supply chain members are not
in agreement about their goals, roles, or rewards. consumer products Products and services used by people
for their personal use.
click-through rate (CTR) The number of times a user clicks on
an ad divided by the number of impressions. consumerism A social movement aimed at protecting
click-through tracking Measures how many times users click consumers from business practices that infringe upon their
on banner advertising on websites. rights.
closing the sale Obtaining a commitment from the customer contest A brand-sponsored competition that requires some
to make a purchase. form of skill or effort.
cobranding The practice of marketing two or more brands continuous advertising schedule Runs steadily throughout
together, on the same package or promotion. the year and therefore is suited to products and services
that are consumed continually at relatively steady rates
cognitive component A component of attitude that reflects and that require a steady level of persuasive or reminder
what a person believes to be true. advertising.
cold calls A method of prospecting in which salespeople contractual vertical marketing system A system in which
telephone or go to see potential customers without independent firms at different levels of the supply chain join
appointments. together through contracts to obtain economies of scale and
communication channel The medium—print, broadcast, the coordination and to reduce conflict.
Internet—that carries the message. contribution per unit Equals the price less the variable cost
communication gap Refers to the difference between the per unit; variable used to determine the break-even point in
actual service provided to customers and the service that the units.
firm’s promotion program promises. control phase The part of the strategic marketing planning
compensatory decision rule Is at work when the consumer process when managers evaluate the performance of the
is evaluating alternatives and trades off one characteristic marketing strategy and take any necessary corrective actions.
against another, such that good characteristics compensate
convenience goods/services Products or services for which
for bad ones.
the consumer is not willing to spend any effort to evaluate
competitive parity A firm’s strategy of setting prices that are prior to purchase.
similar to those of major competitors.
conventional supermarket Offers groceries, meat, and
competitive parity method A method of determining a produce with limited sales of nonfood items, such as health
communications budget in which the firm’s share of the and beauty aids and general merchandise, in a self-service
communication expenses is in line with its market share. format.
Glossary GL-3
cooperative (co-op) advertising An agreement between a deal A type of short-term price reduction that can take
manufacturer and retailer in which the manufacturer agrees to several forms, such as a “featured price” (a price lower than
defray some advertising costs. the regular price); a “buy one, get one free” offer; or a certain
core customer value The basic problem-solving benefits that percentage “more free” offer contained in larger packaging.
consumers are seeking. deceptive advertising A representation, omission, act, or
corporate social responsibility (CSR) Refers to the practice in an advertisement that is likely to mislead consumers
voluntary activities undertaken by a company to operate in acting reasonably under the circumstances.
an economically, socially, and environmentally sustainable decider The buying centre participant who ultimately
manner. determines any part of or the entire buying decision—whether
corporate vertical marketing system A system in which to buy, what to buy, how to buy, or where to buy.
the parent company has complete control and can dictate decision heuristics Mental shortcuts that help consumers
the priorities and objectives of the supply chain; it may own narrow down choices; examples include price, brand, and
facilities such as manufacturing plants, warehouse facilities, product presentation.
retail outlets, and design studios. decline stage Stage of the product life cycle when sales
cost of ownership method A value-based method for setting decline and the product eventually exits the market.
prices that determines the total cost of owning the product decoding The process by which the receiver interprets the
over its useful life. sender’s message.
cost-based pricing method Determines the final price to delivery gap The difference between the firm’s service
charge by starting with the cost, without recognizing the role standards and the actual service it provides to customers.
that consumers or competitors’ prices play in the marketplace.
demand curve Shows how many units of a product or service
country culture Easy-to-spot visible nuances that are consumers will demand during a specific period at different
particular to a country, such as dress, symbols, ceremonies, prices.
language, colours, and food preferences, and more subtle
aspects, which are trickier to identify. democratic buying centre A buying centre in which the
majority rules in making decisions.
coupon Provides a stated discount to consumers on the
final selling price of a specific item; the retailer handles the demographic segmentation The grouping of consumers
discount. according to easily measured, objective characteristics such
as age, gender, income, and education.
cross-price elasticity The percentage change in demand for
Product A that occurs in response to a percentage change in demographics Characteristics of human populations and
price of Product B. segments, especially those used to identify consumer markets,
such as age, gender, income, race, ethnicity, and education.
cross-promoting Efforts of two or more firms joining together
to reach a specific target market. derived demand The linkage between consumers’ demand
for a company’s output and its purchase of necessary inputs
cultural imperialism The belief that one’s own culture is to manufacture or assemble that particular output.
superior to that of other nations; can take the form of an active,
formal policy or a more subtle general attitude. determinant attributes Product or service features that are
important to the buyer and on which competing brands or
culture The shared meanings, beliefs, morals, values, and stores are perceived to differ.
customs of a group of people.
differentiated targeting strategy A strategy through which a
cumulative quantity discount Pricing tactic that offers a firm targets several market segments with a different offering
discount based on the amount purchased over a specified for each.
period and usually involves several transactions.
diffusion of innovation The process by which the use of
customer excellence Involves a focus on retaining loyal an innovation, whether a product or a service, spreads
customers and excellent customer service. throughout a market group over time and over various
customer lifetime value (CLV) The expected financial categories of adopters.
contribution from a particular customer to the firm’s profits digital media Tools ranging from simple website content to
over the course of their relationship. far more interactive features such as corporate blogs, online
customer orientation Pricing orientation that explicitly games, text messaging, social media, and mobile apps.
invokes the concept of customer value and setting prices to direct exporting is when the exporting company sells its
match consumer expectations. products in the host country directly without the intermediaries.
customer relationship management (CRM) A business direct investment When a firm maintains 100 percent
philosophy and set of strategies, programs, and systems that ownership of its plants, operation facilities, and offices in a
focus on identifying and building loyalty among the firm’s most foreign country, often through the formation of wholly owned
valued customers. subsidiaries.
customer service Specifically refers to human or mechanical direct mail/email A targeted form of communication
activities firms undertake to help satisfy their customers’ distributed to a prospective customer’s mailbox or inbox.
needs and wants.
direct marketing Marketing that communicates directly with
data Raw numbers or other factual information of limited value. target customers to generate a response or transaction.
data mining The use of statistical analysis tools to search for direct response TV (DRTV) TV commercials or infomercials
patterns in data or relationships among variables. with a strong call to action.
GL-4 Glossary
discount store Offers a broad variety of merchandise, limited esteem needs Allow people to satisfy their inner desires.
service, and low prices. ethical climate The set of values within a marketing firm, or in
dispatcher The person who coordinates deliveries to the marketing division of any firm, that guides decision making
distribution centres. and behaviour.
disruptive innovations New product introductions that are ethnography An observational method that studies people
simpler, less sophisticated, and usually less expensive than in their daily lives and activities in their homes, work, and
existing products or services. communities.
distribution centre A facility for the receipt, storage, and evaluative criteria Consist of a set of salient, or important,
redistribution of goods to company stores or customers; attributes about a particular product that are used to compare
may be operated by retailers, manufacturers, or distribution alternative products.
specialists. event sponsorship A popular PR tool; occurs when
distribution channel The institutions that transfer the corporations support various activities (financially or otherwise),
ownership of goods and move goods from the point of usually in the cultural or sports and entertainment sectors.
production to the point of consumption. everyday low pricing (EDLP) A strategy companies use
distribution intensity The number of channel members to to emphasize the continuity of their retail prices at a level
use at each level of the supply chain. somewhere between the regular, nonsale price and the deep-
discount sale prices their competitors may offer.
diversification strategy A growth strategy whereby a firm
introduces a new product or service to a market segment that evoked set Includes only the brands that consumers consider
it does not currently serve. when making a purchase decision.
downsizing Exiting markets, reducing product portfolios, or exchange The trade of things of value between the buyer and
closing certain businesses or store or plant locations. the seller so that each is better off as a result.
drugstore A specialty store that concentrates on health and exchange control Refers to the regulation of a country’s
personal grooming merchandise, though pharmaceuticals currency exchange rate.
may represent more than 60 percent of its sales. exchange rate The measure of how much one currency is
dumping The practice of selling a good in a foreign market worth in relation to another.
at a price that is lower than its domestic price or below its exclusive distribution Strategy of granting exclusive rights to
cost. sell to one or very few retail customers so no other customers
early adopters The second group of consumers in the can sell a particular brand.
diffusion of innovation model, after innovators, to use a experience curve effect Refers to the drop in unit cost as
product or service innovation; generally don’t like to take as the accumulated volume sold increases; as sales continue
much risk as innovators. to grow, the costs continue to drop, allowing even further
early majority A group of consumers in the diffusion of reductions in the price.
innovation model that represents approximately 34 percent experimental research A type of quantitative research that
of the population; members don’t like to take much risk and systematically manipulates one or more variables to determine
therefore tend to wait until bugs are worked out. which variable has a causal effect on another variable.
earned media Media that results from word-of-mouth, buzz, exporting Producing goods in one country and selling them
or publicity. in another.
economic situation Economic changes that affect the way extended problem solving A purchase decision process
consumers buy merchandise and spend money; see inflation, during which the consumer devotes considerable time
foreign currency fluctuations, interest rates, and recession. and effort to analyzing alternatives; often occurs when the
elastic Refers to a market for a product or service that is price consumer perceives that the purchase decision entails a great
sensitive; that is, relatively small changes in price will generate deal of risk.
fairly large changes in the quantity demanded. external locus of control Refers to when consumers believe
electronic data interchange (EDI) The computer-to-computer that fate or other external factors control all outcomes.
exchange of business documents from a retailer to a vendor external search for information Occurs when the buyer
and back. seeks information outside his or her personal knowledge base
emotional appeal Aims to satisfy consumers’ emotional to help make the buying decision.
desires rather than their utilitarian needs. extreme-value retailer A general merchandise discount store
empowerment In the context of service delivery, means found in lower-income urban or rural areas.
allowing employees to make decisions about how service is family brand The use of a combination of the company
provided to customers. brand name and individual brand name to distinguish a firm’s
encoding The process of converting the sender’s ideas into a products.
message, which could be verbal, visual, or both. feedback loop Allows the receiver to communicate with the
environmental concerns Include, but are not limited to, the sender and thereby informs the sender whether the message
excessive use of natural resources and energy, refuse from was received and decoded properly.
manufacturing processes, excess trash created by consumer financial risk Risk associated with a monetary outlay; includes
goods packages, and hard-to-dispose-of products such as the initial cost of the purchase, as well as the costs of using
tires, cellphones, and computer monitors. the item or service.
Glossary GL-5
first movers Product pioneers that are the first to create a glocalization When firms offer standardized products globally
market or product category, making them readily recognizable and change promotional campaigns geared to local markets.
to consumers and thus establishing a commanding and early goods Items that can be physically touched.
market share lead.
green marketing Involves a strategic effort by firms to supply
fixed costs Those costs that remain essentially at the same customers with environmentally friendly merchandise.
level, regardless of any changes in the volume of production.
grey market Employs irregular but not necessarily illegal
flighting advertising schedule Implemented in spurts, with methods; generally, it legally circumvents authorized channels
periods of heavy advertising followed by periods of no of distribution to sell goods at prices lower than those
advertising. intended by the manufacturer.
focus group A research technique in which a small group gross domestic product (GDP) The market value of the
of persons (usually 8 to 12) comes together for an in-depth goods and services produced by a country in a year; the most
discussion about a particular topic, with the conversation widely used standardized measure of output.
guided by a trained moderator using an unstructured method
of inquiry. gross rating points (GRP) Measure used for various media
advertising—print, radio, or television; GRP = Reach ×
foreign currency fluctuations Changes in the value of a Frequency.
country’s currency relative to the currency of another country;
can influence consumer spending. growth stage Stage of the product life cycle when the
product gains acceptance, demand and sales increase, and
franchising A contractual agreement between a franchisor competitors emerge in the product category.
and a franchisee that allows the franchisee to operate a retail
outlet, using a name and format developed and supported by habitual decision making A purchase decision process in
the franchisor. which consumers engage with little conscious effort.
frequency Measure of how often the target audience is high/low pricing A pricing strategy that relies on the
exposed to a communication within a specified period of time. promotion of sales, during which prices are temporarily
reduced to encourage purchases.
functional needs Pertain to the performance of a product or
service. horizontal price fixing Occurs when competitors that produce
and sell competing products collude, or work together, to
gatekeeper The buying centre participant who controls control prices, effectively taking price out of the decision
information or access to decision makers and influencers. process for consumers.
general merchandise retailers May be discount stores, human development index (HDI) A composite measure of
specialty stores, category specialists, department stores, three indicators of the quality of life in different countries: life
drugstores, off-price retailers, or extreme-value retailers; expectancy at birth, educational attainment, and whether the
may sell through multiple channels, such as the Internet and average incomes are sufficient to meet the basic needs of life
catalogues. in that country.
Generation X Generational cohort of people born between hypothesis A statement or proposition predicting a particular
1965 and 1981. relationship among multiple variables that can be tested
Generation Y/millennials Generational cohort of people born through research.
between 1982 and 1991; the biggest cohort since the original ideal point The position at which a particular market segment’s
postwar baby boom. ideal product would lie on a perceptual map.
Generation Z/digital natives Generational cohort of people ideas Thoughts, opinions, philosophies, and intellectual
born after 1991. concepts.
generational cohort A group of people of the same generation implementation phase Where marketing managers identify
who typically have similar purchase behaviours because they and evaluate different opportunities by engaging in a process
have shared experiences and are in the same stage of life. known as segmentation, targeting, and positioning. They then
generic A product sold without a brand name, typically in develop and implement the marketing mix by using the four Ps.
commodities markets. impressions The number of times an ad appears to a user.
geodemographic segmentation The grouping of consumers improvement value Represents an estimate of how much
on the basis of a combination of geographic, demographic, more (or less) consumers are willing to pay for a product
and lifestyle characteristics. relative to other comparable products.
geographic pricing The setting of different prices depending impulse buying A buying decision made by customers on the
on a geographical division of the delivery areas. spot when they see the merchandise.
geographic segmentation The grouping of consumers on the income effect Refers to the change in the quantity of a
basis of where they live. product demanded by consumers because of a change in
global labour issues Include concerns about working their income.
conditions and wages paid to factory workers in developing inconsistent A characteristic of a service: its quality may vary
countries. because it is provided by humans.
globalization Refers to the increased flow of goods, services, in-depth interview A research technique in which trained
people, technology, capital, information, and ideas around researchers ask questions, listen to and record the answers,
the world; has economic, political, social, cultural, and and then pose additional questions to clarify or expand on a
environmental impacts. particular issue.
GL-6 Glossary
indirect exporting Indirect exporting occurs when the introduction stage Stage of the product life cycle when
exporting firm sells its goods in the host country through an innovators start buying the product.
intermediary. inventory A characteristic of a service: it is perishable and
individual brand The use of individual brand names for each cannot be stored in inventory for future use.
of a firm’s products. involvement The consumer’s degree of interest in or concern
inelastic Refers to a market for a product or service that is about the product or service.
price insensitive; that is, relatively small changes in price will joint venture Formed when a firm entering a new market
not generate large changes in the quantity demanded. pools its resources with those of a local firm to form a new
inflation Refers to the persistent increase in the prices of company in which ownership, control, and profits are shared.
goods and services. just-in-time (JIT) inventory systems Inventory management
influencer The buying centre participant whose views systems designed to deliver less merchandise on a more
influence other members of the buying centre in making the frequent basis than traditional inventory systems; the firm
final decision. gets the merchandise “just in time” for it to be used in
the manufacture of another product; also known as quick-
information Data that has been organized, analyzed,
response (QR) systems in retailing.
interpreted, and converted into a useful form for decision
makers. knowledge gap Reflects the difference between customers’
expectations and the firm’s perception of those expectations.
informative advertising Communication used to create and
build brand awareness, with the ultimate goal of moving the laggards Consumers who like to avoid change and rely on
consumer through the buying cycle to a purchase. traditional products until they are no longer available.
infrastructure The basic facilities, services, and installations lagged effect A delayed response to a marketing communication
needed for a community or society to function, such as campaign.
transportation and communications systems, water and power late majority The last group of buyers to enter a new product
lines, and public institutions such as schools, post offices, and market.
prisons.
lead time The amount of time between the recognition that
initiator The buying centre participant who first suggests an order needs to be placed and the arrival of the needed
buying the particular product or service. merchandise at the seller’s store, ready for sale.
innovation The process by which ideas are transformed into lead users Innovative product users who modify existing
new products and services that will help firms grow. products according to their own ideas to suit their specific needs.
innovators Those buyers who want to be the first to have the leader pricing Consumer pricing tactic that attempts to build
new product or service. store traffic by aggressively pricing and advertising a regularly
inseparable A characteristic of a service: it is produced and purchased item, often priced at or just above the store’s cost.
consumed at the same time—that is, service and consumption leads A list of potential customers.
are inseparable.
learning Refers to a change in a person’s thought process
institutional advertisements Used to inform, persuade, and or behaviour that arises from experience and takes place
remind consumers about issues related to places, politics, an throughout the consumer decision process.
industry, or a particular corporation.
lifestyle Refers to the way consumers spend their time and
intangible A characteristic of a service; it cannot be touched, money.
tasted, or seen like a pure product can.
lifestyles Lifestyles are how we live our lives to achieve goals.
integrated marketing communications (IMC) Represents the
promotion dimension of the four Ps; encompasses a variety limited problem solving Occurs during a purchase decision
of communication disciplines—general advertising, personal that calls for, at most, a moderate amount of effort and time.
selling, sales promotion, public relations, direct marketing, and listing allowances Fees paid to retailers simply to get new
digital media—in combination to provide clarity, consistency, products into stores or to gain more or better shelf space for
and maximum communicative impact. their products.
intensive distribution A strategy designed to get products locational excellence Involves a focus on a good physical
into as many outlets as possible. location and Internet presence.
interest rates Represent the cost of borrowing money. logistics management The integration of two or more
internal locus of control Refers to when consumers believe activities for the purpose of planning, implementing, and
they have some control over the outcomes of their actions, controlling the efficient flow of raw materials, in-process
in which case, they generally engage in more search inventory, and finished goods from the point of origin to the
activities. point of consumption.
internal search for information Occurs when the buyer loss leader pricing Loss leader pricing takes the tactic of
examines his or her own memory and knowledge about the leader pricing one step further by lowering the price below
product or service, gathered through past experiences. the store’s cost.
Internet of Things (IoT) The IoT is reflected when multiple love (social) needs Relate to our interactions with others.
“smart devices” with Internet-connected sensors combine loyalty program Specifically designed to retain customers by
the data they have collected to help both consumers and offering premiums or other incentives to customers who make
companies consume more efficiently. multiple purchases over time.
Glossary GL-7
loyalty segmentation Strategy of investing in retention and mass customization The practice of interacting on a one-to-
loyalty initiatives to retain the firm’s most profitable customers. one basis with many people to create custom-made products
macroenvironmental factors Aspects of the external envi- or services; providing one-to-one marketing to the masses.
ronment—culture, demographics, social trends, technological mass media Channels, such as national newspapers,
advances, economic situation, and political/legal environment magazines, radio, and television, that are ideal for reaching
(CDSTEP)—that affect companies. large numbers of anonymous audience members.
manufacturer brands Brands owned and managed by the maturity stage Stage of the product life cycle when industry
manufacturer. sales reach their peak, so firms try to rejuvenate their products
manufacturer’s suggested retail price (MSRP) Manufacturers by adding new features or repositioning them.
encourage retailers to sell their merchandise at a specific price. maximizing profits strategy A mathematical model that
markdowns Reductions retailers take on the initial selling captures all the factors required to explain and predict sales
price of the product or service. and profits, which should be able to identify the price at which
its profits are maximized.
market The groups of people who need or want a company’s
products or services and have the ability and willingness to media buy The purchase of airtime or print pages.
buy them. media mix The combination of the media used and the
market development strategy A growth strategy that frequency of advertising in each medium.
employs the existing marketing offering to reach new market media planning The process of evaluating and selecting
segments, whether domestic or international or segments not the media mix that will deliver a clear, consistent, compelling
currently served by the firm. message to the intended audience.
market growth rate The annual rate of growth of the specific micromarketing (one-to-one) A form of segmentation that
market in which the product competes. tailors a product or service to suit an individual customer’s
market penetration pricing A pricing strategy of setting the wants or needs.
initial price low for the introduction of the new product or mission statement A broad description of a firm’s objectives
service, with the objective of building sales, market share, and and the scope of activities it plans to undertake; attempts
profits quickly. to answer two main questions: What type of business is it?
market penetration strategy A growth strategy that employs and What does it need to do to accomplish its goals and
the existing marketing mix and focuses the firm’s efforts on objectives?
existing customers. modified rebuy Refers to when the buyer has purchased
market positioning Involves the process of defining the a similar product in the past but has decided to change
marketing mix variables so that target customers have a clear, some specifications, such as the desired price, quality level,
distinct, desirable understanding of what the product does or customer service level, and options.
represents in comparison with competing products. monopolistic competition Occurs when many firms sell
market segment A group of consumers who respond similarly closely related but not homogeneous products; these products
to a firm’s marketing efforts. may be viewed as substitutes but are not perfect substitutes.
market segmentation The process of dividing the market into monopoly Occurs when only one firm provides the product or
distinct groups of customers—where each individual group service in a particular industry.
has similar needs, wants, or characteristics—who therefore motive A need or want that is strong enough to cause the
might appreciate products or services geared especially for person to seek satisfaction.
them in similar ways.
multichannel strategy Selling in more than one channel (e.g.,
marketing A set of business practices designed to plan for store, catalogue, kiosk, and Internet).
and present an organization’s products or services in ways
that build effective customer relationships. need A basic necessity, such as food, clothing, shelter, or safety.
marketing ethics Refers to those ethical problems that are need recognition The beginning of the consumer decision
specific to the domain of marketing. process; occurs when consumers recognize they have an
unsatisfied need and want to go from their needy state to a
marketing mix (four Ps) Product, price, place, and promotion—
different, desired state.
the controllable set of activities that a firm uses to respond to
the wants of its target markets. negative word-of-mouth Occurs when consumers spread
negative information about a product, service, or store to
marketing plan A written document composed of an analysis
others.
of the current marketing situation, opportunities and threats
for the firm, marketing objectives and strategy specified in new buy In a B2B setting, a purchase of a good or service for
terms of the four Ps, action programs, and projected or pro the first time; the buying decision is likely to be quite involved
forma income (and other financial) statements. because the buyer or the buying organization does not have
any experience with the item.
marketing research A set of techniques and principles for
systematically collecting, recording, analyzing, and interpreting niche media Channels that are focused and generally used
data that can aid decision makers involved in marketing to reach narrow segments, often with unique demographic
goods, services, or ideas. characteristics or interests.
marketing strategy Identifies a firm’s target market(s), a noise Any interference that stems from competing messages,
related marketing mix—the four Ps, and the bases upon which a lack of clarity in the message, or a flaw in the medium; a
the firm plans to build a sustainable competitive advantage. problem for all communication channels.
GL-8 Glossary
noncompensatory decision rule Is at work when consumers and evaluate the situation by assessing how various players,
choose a product or service on the basis of a subset of its both inside and outside the organization, affect the firm’s
characteristics, regardless of the values of its other attributes. potential for success.
noncumulative quantity discount Pricing tactic that offers a point-of-purchase (POP) display A merchandise display
discount based on only the amount purchased in a single order. located at the point of purchase, such as at the checkout
objective-and-task method An IMC budgeting method that counter in a grocery store.
determines the cost required to undertake specific tasks to political/legal environment Comprises political parties,
accomplish communication objectives; process entails setting government organizations, and legislation and laws that
objectives, choosing media, and determining costs. promote or inhibit trade and marketing activities.
observation A qualitative research method that entails pop-up stores Temporary storefronts that exist for only a
examining purchase and consumption behaviours through limited time and generally focus on a new product or a limited
personal or video camera scrutiny. group of products offered by a retailer, manufacturer, or
occasion segmentation Groups consumers based on when service provider; give consumers a chance to interact with the
they purchase or consume a product or service. brand and build brand awareness.
off-price retailer A type of retailer that offers an inconsistent positioning The mental picture that people have about a
assortment of merchandise at relatively low prices. company and its products or services relative to competitors.
oligopoly Occurs when only a few firms dominate a market. positioning statement Expresses how a company wants to
be perceived by consumers.
omnichannel A strategy that creates a consistent experience
for consumers across all distribution channels. postpurchase dissonance An internal conflict that arises from
an inconsistency between two beliefs, or between beliefs and
operational excellence Involves a focus on efficient operations behaviour; buyer’s remorse.
and excellent supply chain management.
post-testing The evaluation of an IMC campaign’s impact
organizational culture Reflects the set of values, traditions, after it has been implemented.
and customs that guides a firm’s employees’ behaviour.
preapproach In the personal selling process, occurs prior
owned media Media controlled by the advertiser, such as its to meeting the customer for the first time and extends the
website, Facebook fan page, or YouTube channel. qualification of leads procedure; in this step, the salesperson
paid media Media such as TV, print, radio, or display ads used conducts additional research and develops plans for meeting
to reach mass markets. with the customer.
panel data A type of quantitative research that involves predatory pricing A firm’s practice of setting a very low price
collecting information from a group of consumers (the panel) for one or more of its products with the intent of driving its
over time; data collected may be from a survey or a record of competition out of business; illegal under the Competition Act.
purchases.
premarket tests Conducted before a product or service is
perceived value The relationship between a product or brought to market to determine how many customers will try
service’s benefits and its cost. and then continue to use it.
percentage-of-sales method A method of determining a premium An item offered for free or at a bargain price to
communications budget that is based on a fixed percentage reward some type of behaviour, such as buying, sampling, or
of forecasted sales. testing.
perception The process by which people select, organize, and prestige products or services Those that consumers
interpret information to form a meaningful picture of the world. purchase for status rather than functionality.
perceptual map Displays, in two or more dimensions, the pretesting Assessments performed before an ad campaign is
position of products or brands in the consumer’s mind. implemented to ensure that the various elements are working in
performance risk Involves the perceived danger inherent in a an integrated fashion and doing what they are intended to do.
poorly performing product or service. price The overall sacrifice a consumer is willing to make—
personal selling The two-way flow of communication between money, time, energy—to acquire a specific product or service.
a buyer and a seller that is designed to influence the buyer’s price bundling Consumer pricing tactic of selling more than
purchase decision. one product for a single, lower price than the items would
persuasive advertising Communication used to motivate cost sold separately; can be used to sell slow-moving items,
consumers to take action. to encourage customers to stock up so they won’t purchase
competing brands, to encourage trial of a new product, or to
physiological needs Relate to the basic biological necessities provide an incentive to purchase a less desirable product or
of life: food, drink, rest, and shelter. service to obtain a more desirable one in the same bundle.
physiological risk Risk associated with the fear of an actual price discrimination The practice of selling the same product
harm should the product not perform properly. to different resellers (wholesalers, distributors, or retailers) or
pioneers New product introductions that establish a to the ultimate consumer at different prices; some, but not all,
completely new market or radically change both the rules forms of price discrimination are illegal.
of competition and consumer preferences in a market; also price elasticity of demand Measures how changes in a price
called breakthroughs. affect the quantity of the product demanded; specifically, the
planning phase Where marketing executives and other top ratio of the percentage change in quantity demanded to the
managers define the mission and objectives of the business, percentage change in price.
Glossary GL-9
price fixing The practice of colluding with other firms to profit orientation A company objective that can be
control prices. implemented by focusing on target profit pricing, maximizing
profits, or target return pricing.
price lining Consumer market pricing tactic of establishing
a price floor and a price ceiling for an entire line of similar prototype The first physical form or service description of
products and then setting a few other price points in between a new product, still in rough or tentative form, that has the
to represent distinct differences in quality. same properties as a new product but is produced through
different manufacturing processes, sometimes even crafted
price skimming A strategy of selling a new product or service
individually.
at a high price that innovators and early adopters are willing to
pay to obtain it; after the high-price market segment becomes psychographics This segmentation base delves into how
saturated and sales begin to slow down, the firm generally consumers describe themselves; allows people to describe
lowers the price to capture (or skim) the next most price- themselves by using those characteristics that help them
sensitive segment. choose how they occupy their time (behaviour) and what
underlying psychological reasons determine those choices.
price war Occurs when two or more firms compete primarily
by lowering their prices. psychological needs Pertain to the personal gratification
consumers associate with a product or service.
pricing tactics Short-term methods, in contrast to long-term
pricing strategies, used to focus on company objectives, psychological risk Associated with the way people will feel if
customers, costs, competition, or channel members; can the product or service does not convey the right image.
be responses to competitive threats (e.g., lowering price PSYTE clusters The grouping of all neighbourhoods in
temporarily to meet a competitor’s price reduction) or broadly Canada into 60 different lifestyles clusters.
accepted methods of calculating a final price for the customer
that is short-term in nature. public relations (PR) The organizational function that
manages the firm’s communications to achieve a variety
primary data Data collected to address the specific research of objectives, including building and maintaining a positive
needs/questions currently under investigation. Some primary image, handling or heading off unfavourable stories or events,
data collection methods include focus groups, in-depth and maintaining positive relationships with the media.
interviews, and surveys.
public service announcement (PSA) Advertising that focuses
private-label brands (store brands) Brands developed and on public welfare and generally is sponsored by non-profit
marketed by a retailer and available only from that retailer. institutions, civic groups, religious organizations, trade
product Anything that is of value to a consumer and can be associations, or political groups; a form of social marketing.
offered through a marketing exchange. puffery The legal exaggeration of praise, stopping just short
product category An assortment of items that the customer of deception, lavished on a product.
sees as reasonable substitutes for one another. pull marketing strategy Designed to get consumers to pull
product development Entails a process of balancing various the product into the supply chain by demanding that retailers
engineering, manufacturing, marketing, and economic carry it.
considerations to develop a product. pulsing advertising schedule Combines the continuous and
product development strategy A growth strategy that flighting schedules by maintaining a base level of advertising
offers a new product or service to a firm’s current target but increasing advertising intensity during certain periods.
market. purchasing power parity (PPP) A theory that states that if the
product excellence Involves a focus on achieving high-quality exchange rates of two countries are in equilibrium, a product
products and effective branding and positioning. purchased in one will cost the same in the other, expressed in
the same currency.
product life cycle Defines the stages that new products move
through as they enter, get established in, and ultimately leave pure competition Occurs when different companies sell
the marketplace and thereby offers marketers a starting point commodity products that consumers perceive as substitutable;
for their strategy planning. price usually is set according to the laws of supply and
demand.
product line A group of products that consumers may use
together or perceive as similar in some way. push marketing strategy Designed to increase demand by
focusing on wholesalers, distributors, or salespeople, who
product line depth The number of products within a product
push the product to consumers via distribution channels.
line.
qualify The process of assessing the potential of sales leads.
product lines Groups of associated items, such as those
that consumers use together or think of as part of a group of qualitative research Exploratory in nature, qualitative
similar products. research is more informal. It uses broad, open-ended question
methods, including observation, in-depth interviews, and
product mix The complete set of all products offered by a
focus groups, and following social-media sites.
firm.
quantitative research Structured responses that can be
product mix breadth The number of product lines, or variety,
statistically tested to confirm insights and hypotheses
offered by the firm.
generated via qualitative research or secondary data.
product placement Inclusion of a product in nontraditional
quantity discount Pricing tactic of offering a reduced price
situations, such as in a scene in a movie or TV program.
according to the amount purchased; the more the buyer
product-focused advertisements Used to inform, persuade, purchases, the higher the discount and, of course, the greater
or remind consumers about a specific product or service. the value.
GL-10 Glossary
questionnaire A form that features a set of questions retailing The set of business activities that add value to
designed to gather information from respondents and thereby products and services sold to consumers for their personal
accomplish the researchers’ objectives; questions can be or family use; includes products bought at stores, through
either unstructured or structured. catalogues, and over the Internet, as well as services such as
quick-response (QR) An inventory management system used fast-food restaurants, airlines, and hotels.
in retailing; merchandise is received just in time for sale when retrieval sets Consist of those brands or stores that can be
the customer wants it. readily brought forth from memory.
quota Designates the maximum quantity of a product that return on investment (ROI) Used to measure the benefit of
may be brought into a country during a specified time period. an investment, ROI is calculated by dividing the gain of an
investment by its cost.
radio frequency identification (RFID) tags Tiny computer
chips that automatically transmit to a special scanner all reverse engineering Involves taking apart a competitor’s
the information about a container’s contents or individual product, analyzing it, and creating an improved product that
products. does not infringe on the competitor’s patents, if any exist.
rational appeal Helps consumers make purchase decisions robotics Robotics applications typically perform work that
by offering factual information and strong arguments built previously was the responsibility of human workers.
around relevant issues that encourage consumers to evaluate safety needs Pertain to protection and physical well-being.
the brand favourably on the basis of the key benefits it
provides. sales orientation A company objective based on the belief
that increasing sales will help the firm more than will increasing
reach Measure of consumers’ exposure to marketing profits.
communications; the percentage of the target population
exposed to a specific marketing communication, such as an sales promotions Special incentives or excitement-building
advertisement, at least once. programs that encourage the purchase of a product or
service, such as coupons, rebates, contests, free samples, and
rebate A consumer discount in which a portion of the purchase point-of-purchase displays.
price is returned to the buyer in cash; the manufacturer, not
the retailer, issues the refund. sample A segment or subset of the population that adequately
represents the entire population of interest.
receiver The person who reads, hears, or sees and processes
the information contained in the message or advertisement. sampling Offers potential customers the opportunity to try a
product or service before they make a buying decision.
recession A period of economic downturn when the economic
growth of the country is negative for at least two consecutive scanner data A type of quantitative research that uses data
quarters. obtained from scanner readings of UPC codes at checkout
counters.
reference group One or more persons an individual uses
as a basis for comparison regarding beliefs, feelings, and search engine marketing (SEM) Uses tools such as Google
behaviours. AdWords to increase the visibility of websites in search engine
results.
relational orientation A method of building a relationship
with customers based on the philosophy that buyers and seasonal discount Pricing tactic of offering an additional
sellers should develop a long-term relationship. reduction as an incentive to retailers to order merchandise in
advance of the normal buying season.
relationship selling A sales philosophy and process that
emphasizes a commitment to maintaining the relationship secondary data Pieces of information that have been
over the long term and investing in opportunities that are collected prior to the start of the focal project.
mutually beneficial to all parties. selective distribution Lies between the intensive and
relative market share A measure of the product’s strength in exclusive distribution strategies; uses a few selected
a particular market, defined as the sales of the focal product customers in a territory.
divided by the sales achieved by the largest firm in the self-actualization Occurs when you feel completely satisfied
industry. with your life and how you live.
reliability The extent to which the same result is achieved self-concept The image a person has of himself or herself; a
when a study is repeated in identical situations. component of psychographics.
reminder advertising Communication used to remind self-values Goals for life, not just the goals one wants to
consumers of a product or to prompt repurchases, especially accomplish in a day; a component of psychographics that
for products that have gained market acceptance and are in refers to overriding desires that drive how a person lives his
the maturity stage of their life cycle. or her life.
request for proposals (RFP) A process through which buying sender The firm from which an IMC message originates; the
organizations invite alternative suppliers to bid on supplying sender must be clearly identified to the intended audience.
their required components. service Any intangible offering that cannot be physically
resellers Marketing intermediaries that resell manufactured possessed.
products without significantly altering their form. service gap Results when a service fails to meet the
retail mix Product (merchandise assortment), pricing, expectations that customers have about how it should be
promotion, place, personnel, and presentation (store design delivered.
and display) strategies to reach and serve consumers. service quality Customers’ perceptions of how well a service
retailers Sell products directly to consumers. meets or exceeds their expectations.
Glossary GL-11
services Intangible customer benefits that are produced by structured questions Closed-ended questions for which a
people or machines and cannot be separated from the producer. discrete set of response alternatives, or specific answers, is
services retailers Firms that primarily sell services rather than provided for respondents to evaluate.
merchandise. substitute products Products for which changes in demand
share of wallet The percentage of the customer’s purchases are negatively related—that is, a percentage increase in the
made from a particular retailer. quantity demanded for Product A results in a percentage
decrease in the quantity demanded for Product B.
shopping goods/services Products or services—such as
apparel, fragrances, and appliances—for which consumers substitution effect Refers to consumers’ ability to substitute
will spend time comparing alternatives. other products for the focal brand, thus increasing the price
elasticity of demand for the focal brand.
situation analysis (SWOT) The second step in a marketing
plan; uses a SWOT analysis that assesses both the internal supply chain The group of firms and set of techniques and
environment with regard to its strengths and weaknesses approaches firms use to make and deliver a given set of
and the external environment in terms of its opportunities goods and services.
and threats. supply chain management Refers to a set of approaches
situational factors Factors affecting the consumer decision and techniques firms employ to efficiently and effectively
process; those that are specific to the purchase and shopping integrate their suppliers, manufacturers, warehouses, stores,
situation and temporal state that may override, or at least and transportation intermediaries into a seamless value
influence, psychological and social issues. chain in which merchandise is produced and distributed in
the right quantities, to the right locations, and at the right
size discount The most common implementation of a quantity time.
discount at the consumer level; the larger the quantity bought,
the less the cost per unit (e.g., per gram). survey A systematic means of collecting information from
people using a questionnaire.
social marketing The application of marketing principles to a
social issue to bring about attitudinal and behavioural change sustainable competitive advantage Something the firm can
among the general public or a specific population segment. persistently do better than its competitors that is not easily
copied and thus can be maintained over a long period of
social media Content distributed through online and mobile time.
technologies to facilitate interpersonal interactions.
sweepstakes A form of sales promotion that offers prizes
social risk Involves the fears that consumers suffer when they based on a chance drawing of entrants’ names.
worry that others might not regard their purchases positively.
syndicated data Data available for a fee from commercial
specialty goods/services Products or services toward which research firms such as Symphony IRI Group, National Diary
the customer shows a strong preference and for which he Panel, Nielsen, and Léger Marketing.
or she will expend considerable effort to search for the best
suppliers. target market The customer segment or group to whom the
firm is interested in selling its products and services.
specialty stores Concentrate on a limited number of
complementary merchandise categories in a relatively small target marketing/targeting The process of evaluating the
store. attractiveness of various segments and then deciding which
to pursue as a market.
standards gap Pertains to the difference between the firm’s
perceptions of customers’ expectations and the service target profit pricing A pricing strategy implemented by firms
standards it sets. when they have a particular profit goal as their overriding
concern; uses price to stimulate a certain level of sales at a
stock keeping units (SKUs) Individual items within each certain profit per unit.
product category; the smallest unit available for inventory
control. target return pricing A pricing strategy implemented by firms
less concerned with the absolute level of profits and more
STP The processes of segmentation, targeting, and interested in the rate at which their profits are generated
positioning that firms use to identify and evaluate opportunities relative to their investments; designed to produce a specific
for increasing sales and profits. return on investment, usually expressed as a percentage of
straight rebuy Refers to when the buyer or buying sales.
organization simply buys additional units of products that had tariff (or duty) A tax levied on a good imported into a country.
previously been purchased.
technological advances Technological changes that have
strategic alliance A collaborative relationship between contributed to the improvement of the value of both products
independent firms, though the partnering firms do not create and services in the past few decades.
an equity partnership; that is, they do not invest in one another.
telemarketing A method of prospecting in which salespeople
strategic business unit (SBU) A division of the company telephone potential customers.
that can be managed somewhat independently from other
divisions since it markets a specific set of products to a clearly test marketing Introduces a new product or service to a
defined group of customers. limited geographical area (usually a few cities) prior to a
national launch.
strategic relationship (partnering relationship) A supply
chain relationship that the members are committed to top-of-mind awareness A prominent place in people’s
maintaining long-term, investing in opportunities that are memories that triggers a response without them having to put
mutually beneficial; requires mutual trust, open communication, any thought into it.
common goals, and credible commitments. total cost The sum of the variable and fixed costs.
GL-12 Glossary
tracking Includes monitoring key indicators, such as daily or VALS A psychological tool developed by Strategic Business
weekly sales volume, while the advertisement is running to Insights that classifies consumers into eight segments: Innovators,
shed light on any problems with the message or the medium. Thinkers, Believers, Achievers, Strivers, Experiencers, Makers,
trade agreement Intergovernmental agreement designed to and Survivors.
manage and promote trade activities for specific regions. value Reflects the relationship of benefits to costs, or what
trade deficit Results when a country imports more goods the consumer gets for what he or she gives.
than it exports. value proposition Communicates the customer benefits to
trade sanctions Penalties or restrictions imposed by one be received from a product or service and the reason(s) for
country over another country for importing and exporting of wanting to buy it.
goods, services, and investments. value-based pricing method Focuses on the overall value
trade shows Major events attended by buyers who choose of the product offering as perceived by consumers, who
to be exposed to products and services offered by potential determine value by comparing the benefits they expect the
suppliers in an industry. product to deliver with the sacrifice they will need to make to
acquire the product.
trade surplus Results when a country exports more goods
than it imports. variable costs Those costs, primarily labour and materials,
that vary with production volume.
trading bloc Consists of those countries that have signed a
particular trade agreement. vendor-managed inventory (VMI) An approach in which the
manufacturer is responsible for replenishing inventory to meet
transmitter An agent or intermediary with which the sender
retailers’ needs.
works to develop the marketing communications; for example,
a firm’s creative department or an advertising agency. vertical marketing system A supply chain in which the
undifferentiated targeting strategy (mass marketing) A members act as a unified system; there are three types:
marketing strategy a firm can use if the product or service is administrated, contractual, and corporate.
perceived to provide the same benefits to everyone, with no vertical price fixing Occurs when parties at different levels of
need to develop separate strategies for different groups. the same marketing channel (e.g., manufacturers and retailers)
uniform delivered pricing The shipper charges one rate, no collude to control the prices passed on to consumers.
matter where the buyer is located. voice-of-customer (VOC) program An ongoing marketing
unique selling proposition (USP) A strategy of differentiating a research system that collects customer insights and
product by communicating its unique attributes; often becomes intelligence to influence and drive business decisions.
the common theme or slogan in the entire advertising campaign. want The particular way in which a person chooses to satisfy
universal product code (UPC) The black and white bar code a need, which is shaped by a person’s knowledge, culture,
found on most merchandise. and personality.
unstructured questions Open-ended questions that allow wholesalers Those firms engaged in buying, taking title
respondents to answer in their own words. to, often storing, and physically handling goods in large
quantities, and then reselling the goods (usually in smaller
usage rate How often a person uses the product or service:
quantities) to retailers or industrial or business users.
occasional, light, regular, or heavy users.
zone of tolerance The area between customers’ expectations
user The person who consumes or uses the product or
regarding their desired service and the minimum level of
service purchased by the buying centre.
acceptable service—that is, the difference between what the
validity The extent to which a study measures what it is customer really wants and what he or she will accept before
supposed to measure. going elsewhere.
CHapter sources
Chapter 8 Chapter 9
Exhibit 8.1 Source: Michael Sauter, Samuel Stebbins, Exhibit 9.4 Source: Adapted from Kevin Lane Keller,
Evan Comen, and Thomas Frohlich, “50 Worst Strategic Brand Management, 4th ed. (Upper Saddle
Product Flops of All Time,” 24/7 Wall St, April 14, 2017, River, NJ: Prentice Hall, 2012).
http://247wallst.com/special-report/2017/04/14/50
-worst-product-flops-of-all-time/. Chapter 17
Exhibit 8.2 Source: Adapted from Everett M. Rodgers, Exhibit 17.4 Source: Adapted from Fortune, “The
Diffusion of Innovation (New York: The Free Press, World’s Most Admired Companies,” http://money.cnn.
1983), p. 247. com/magazines/fortune/most-admired.
endnotes
Journal of Consumer Research 38 (December 2011), pp. 650– 39. PepsiCo, “About the Company,” https://www.pepsico.com
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22. “The Top 15 Canadian Loyalty Rewards Programs,” Greedy 40. PepsiCo, “PepsiCo Exceeds Global Water Stewardship
Rates, December 10, 2018, https://www.greedyrates.ca/blog Goals,” August 29, 2016; Brian Dumaine, “The Water
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July 3, 2019). 20, 2015, http://fortune.com/2015/08/20/coca-cola-vs-pepsi/;
23. Valarie A. Zeithaml, Mary Jo Bitner, and Dwayne D. Gremler, PepsiCo, “Water 2018,” https://www.pepsico.com/docs/album
Services Marketing: Integrating Customer Focus Across the /esg-topics-policies/2018-cdp-water-response.pdf?sfvrsn
Firm, 5th ed. (Burr Ridge, IL: McGraw-Irwin, 2009). =c5c36f59_4 (accessed July 2, 2019).
24. Brooks Barnes, “At Disney Parks, a Bracelet Meant to Build 41. Martin Caballero, “FDA Issues Draft Guidance on New
Loyalty (and Sales),” The New York Times, January 7, 2013;” Nutrition Facts Label,” BevNET, January 4, 2017, www.bevnet
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https://disneyworld.disney.go.com/en_CA/plan/my -facts-label; Ilan Brat and Mike Esterl, “FDA Proposes Placing
-disney-experience/my-magic-plus/ (accessed July 3, 2019), Sugar Guide on Food Labels,” The Wall Street Journal,
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pp. 32–41. Also see articles in a special issue edited by John /08/26/dining/start-up-food-business-changing-appetites
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https://www.ama.org/resources/Pages/Dictionary.aspx Future?” The Wall Street Journal, September 19, 2013.
(accessed February 9, 2017). 46. Kirsten Acuna, “Google Says It Can Predict Which Films Will
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Planning, 7th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2008). 47. http://www.loblaw.ca/en/abt_corprof.html (accessed April 30,
32. Andrew Campbell, “Mission Statements,” Long Range 2007). ® President’s Choice, PC Financial, PC are registered
Planning 30 (1997), pp. 931–933. trademarks of Loblaws Inc., used with permission.
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Standard for Business Performance (New York: Wiley, Hartley, and William Rudelius, Marketing, 10th ed. (Burr Ridge,
1988); Robert C. Higgins and Roger A. Kerin, “Managing IL: McGraw-Hill/Irwin, 2011).
the Growth–Financial Policy Nexus in Marketing,” Journal 49. Farris et al., Marketing Metrics: 50+ Metrics Every Executive
of Marketing 59, no. 3 (1983), pp. 19–47; and Roger Kerin, Should Master (Upper Saddle River, NJ: Prentice Hall, 2006),
Vijay Mahajan, and P. Rajan Varadarajan, Contemporary p . 17.
Perspectives on Strategic Market Planning (Boston: Allyn & 50. Relative market share = Brand’s market share ÷ Largest com-
Bacon, 1991), Chapter 6. petitor’s market share. If, on the one hand, there are only two
34. Tim Hortons®, “About Us,” http://www.timhortons.com/ca/en products in a market, A and B, and product B has 90 percent
/about/faq.html (accessed April 23, 2011). market share, then A’s relative market share is 10 ÷ 90 = 11.1
35. PepsiCo, “Philanthropy,” www.pepsico.com/sustainability percent. If, on the other hand, B has only 50 percent market
/philanthropy (accessed July 2, 2019). share, then A’s relative market share is 10 ÷ 50 = 20 percent.
Farris et al., Marketing Metrics, p . 19.
36. Danielle Wiener-Bronner, “Why Coke is winning the cola
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37. RT, “PepsiCo Admits Public Source Origins of Its Aquafina 52. Fortune, “How Many iPhones Did Apple Sell Last Quarter?”
Bottled Water,” Oct 28, 2015, www.rt.com/usa/319980 http://fortune.com/2015/10/21/apple-iphone-q4
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38. Kate Taylor, “The Future of Coke and Pepsi Depends on This 53. Shane Dingman, “iPhone Sales Show First-Ever Decline”, The
Unlikely Beverage,” Business Insider, April 25, 2016, https:// Globe and Mail, April 26, 2016, http://www.theglobeandmail
www.businessinsider.com.au/coca-cola-pepsis-future-in .com/report-on-business/rob-commentary/executive-insight
-water-2016-4; Trefis Team, “Non-Carbonated Beverages /apple-iphone-sales-show-first-ever-decline-amid-challenging
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Forbes, December 10, 2015, www.forbes.com/sites 54. Kif Leswing, “Apple Shares Sink on First Annual Drop in
/greatspeculations/2015/12/10/non-carbonated-beverages Revenue Since 2001,” Business Insider, October 25, 2016,
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EN-4 Endnotes
55. “Apple iPhone sales drop at record pace,” BBC News, May 1, 72. Arwa Mahdawi, “What happened to Tim Hortons? The
2019, https://www.bbc.com/news/business-48110709 downfall of Canada’s brand,” The Guardian, July 9, 2018,
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56. Josh O’Kane, “Has the iPhone reached its peak?” The Globe -canada-coffee-brand-popularity-downfall (accessed July 1,
and Mail, November 24, 2018, https://www.theglobeandmail 2019).
.com/business/article-has-the-iphone-reached-its-peak-apple 73. S. Lock, “Number of Starbucks stores in Canada from 2005
-at-a-crossroads-as-smartphone/ (accessed July 3, 2019). to 2018,” Statista, Nov 20, 2018, https://www.statista.com
57. Katie Collins, “Apple Mac Sales Down, but the Broader PC /statistics/218392/number-of-starbucks-stores-in-canada/
Market Is Even Worse,” CNET, October 9, 2015, www.cnet (accessed July 1, 2019).
.com/news/apple-mac-sales-reportedly-hit-two-year-low/; Juli 74. “Are Canadian millennials drinking more Starbucks or Tim
Clover, “Apple;s Mac Sales Drop in Q4 2018 Amid Worldwide Hortons?,” Dished, Dec 4, 2018, https://dailyhive.com/calgary
PC Shipment Decline, January 10, 2019, https://www.macrumors /koho-millennials-coffee-starbucks-tims (accessed July 1,
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July 2, 2019). 75. Arwa Mahdawi, “What happened to Tim Hortons? The
58. “Apple Reports Record Results,” Apple, January 23, 2013, downfall of Canada’s brand.”
http://www.apple.com/pr/library/2013/01/23Apple-Reports 76. Starbucks, “Infographic: Starbucks Reports Q2 Fiscal 2019
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April 26, 2016). 77. Ibid.
60. “Media Tablet Shipments Outpace Fourth Quarter Targets;
Strong Demand for New iPad and Other Forthcoming
Products Leads to Increase in 2012 Forecast, According to Appendix 2A
IDC,” IDC, March 13, 2012, http://www.idc.com/getdoc 1. This appendix was written by Tom Chevalier, Britt Hackmann,
.jsp?containerId=prUS23371312 (accessed May 24, 2013). and Elisabeth Nevins Caswell in conjunction with the text-
book authors (Dhruv Grewal and Michael Levy) for class
61. “Low Cost Products Drive Forecast Increases in Tablet
discussion; it was not written as an illustration of effective or
Market, According to IDC,” IDC, March 12, 2013, http://www
ineffective Marketing practices.
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62. Jeremy Horwitz, “Apple reports $58 billion in Q2 2019
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org/Market.html (accessed May 18, 2008).
63. Ibid.
3. Roger Kerin, Steven Hartley, and William Rudelius, Marketing
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in the US,” emarketer.com, October 23, 2019, https://www
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-top-mobile-payment-app-in-the-us?ecid=NL1014 (accessed Plan.”
October 24, 2019). 5. This list of sources largely comes from the Babson College
Library Guide May 12, 2008, http://www3.babson.edu/Library
65. Kerin, Mahajan, and Varadarajan, Contemporary Perspectives
/research/marketing plan.cfm (accessed May 15, 2008).
on Strategic Market Planning; see also Susan Mudambi, “A
Topology of Strategic Choice in Marketing,” International Journal Special thanks to Nancy Dlott.
of Market & Distribution Management (1994), pp. 22–25. 6. This Marketing plan presents an abbreviated version of the
66. Devin Leonard, “Calling All Superheroes,” Fortune, May 23, actual plan for PeopleAhead. Some information has been
2007; Box Office Mojo, “X-Men (2000),” www.boxofficemojo changed to maintain confidentiality.
.com/movies/?id=xmen.htm. 7. Publishers’ and Advertising Directors’ Conference,
September, 21, 2005.
67. “Black Panther’ Surpasses $1 Billion in Sales After China
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United States from 3rd quarter 2011 to 1st quarter 2019 (in
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-hortons-is-no-longer-canadas-favourite-coffee-shop/; Hollie “Tesla Is Taking a Long Time to Ramp Up Production for the
Shaw, ``McDonald’s $1 coffee and higher-priced menu items Model 3—Here’s Why,” Business Insider, September 13, 2017,
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Endnotes EN-5
3. Linda Doell, “In Razor vs. Razor, Neither Gillette Nor Schick 20. “The Daily—Survey of Household Spending, 2015,” Statistics
Gains Edge With Ad Watchdog,” March 17, 2011, http://www Canada, January 27, 2017, http://www.statcan.gc.ca/daily
.dailyfinance.com/2011/03/17/in-razor-vs-razor-neither-gillette -quotidien/170127/dq170127a-eng.htm; “Shares of total
-nor-schick-gains-edge-with. expenditure of major spending categories y income
4. “Startups shook up the sleepy razor market. Here’s what’s quinitile, Canada, 2015,” Statistics Canada, January 27, 2017,
next,” CNBC, Sept 26, 2018, https://www.cnbc.com/2018/09 http://www.statcan.gc.ca/daily-quotidien/170127/t002a-eng
/26/startups-shook-up-the-sleepy-razor-market-whats-next .htm (accessed Sept. 13, 2017).
.html (accessed July 4, 2019). 21. Erik Simanis and Duncan Duke, “Profits at the Bottom of
5. Dennis Green, “Gillette is facing a new threat from one of its the Pyramid,” Harvard Business Review, October 2014,
oldest rivals,” Business Insider, May 24, 2017, https://www https://hbr.org/2014/10/profits-at-the-bottom-of-the
.businessinsider.com/gillette-facing-a-new-threat-from-its -pyramid.
-oldest-rival-schick-2017-5; Kaitlyn Tiffany, “The absurd quest 22. “Education and Occupation of High-Income Canadians,”
to make the “best” razor,” Vox, Dec 11, 2018, https://www.vox Statistics Canada, December 23, 2015, https://www12
.com/the-goods/2018/12/11/18134456/best-razor-gillette-harrys .statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/99-014-x2011003
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“Leap of Faith,” Fast Company, June 2007. Attained, School/Work Status and Gender,” Statistics Canada,
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8. Danielle Schalk, “La Belle Cuisine: Examining Quebec’s Rich 24. “Median Earnings of Recent Immigrants and Canadian
Food Culture,” Foodservice and Hospitality, April 28, 2017, Born Earners, Both Sexes, Aged 25 to 54 With or Without
https://www.foodserviceandhospitality.com/la-belle-cuisine University Degree, 2005, For Canada, Provinces and
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9. John Feto, “Name Games,” American Demographics, anchored_object__“ro_u4c3cins8e4e”?><?__anchored
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Andrew Heisz and Elizabeth Richards, “Economic Well-being June 30, 2014).
Across Generations of Young Canadians: Are Millennials 25. Bethany Clough, “Home-Improvement Store Empowers
Better or Worse Off?,” Statistics Canada, April 18, 2019, https:// Female Customers With Do-It-Herself Tools,” Knight Ridder
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the role of risk in society,” The Guardian, July 31, 2020, 26. http://www.statscan.ca (accessed April 23, 2011).
https://www.theguardian.pe.ca/business/perspectives-on
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August 2, 2020). http://www.theglobeandmail.com/news/national/women-still
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12. “Census Profile, 2016,” Statistics Canada, August 25, 2017, -study/article29044130/ (accessed May 3, 2016).
http://www12.statcan.gc.ca/census-recensement/2016/dp
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2=PR&Code2=01&Data=Count&SearchText=01&SearchType Census,” The Daily, October 25, 2017, (accessed June 29,
=Begins&SearchPR=01&B1=All&Custom=&TABID=3 (accessed 2020).
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14. Noah Rubin Brier, “Move Over Prime-Time!” American 30. “Ethnic Diversity and Immigration,” Statistics Canada,
Demographics (July/August 2004), pp. 14–20; John Hoeffel, November 27, 2015, http://www.statcan.gc.ca/pub/11
“The Next Baby Boom,” American Demographics (October -402-x/2011000/chap/imm/imm-eng.htm; Justin Dallaire, “How
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2=PR&Code2=01&Data=Count&SearchText=01&SearchType Ipsos Ideas, http://www.ipsos-ideas.com/article.cfm?id=3391
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Expected to Reach $331.41 billion by 2021 – Orbis Research,” .statcan.gc.ca/nhs-enm/2011/as-sa/99-011-x/99-011-x2011001
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Money Sense, January 27, 2015, http://www.macleans.ca 34. Rebecca Harris, “Skin Deep,” Marketing Magazine, January
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EN-6 Endnotes
35. Raizel Robin, “How Grocers Are Aiming to Connect With .ca/2019/04/fad-press-release-2019-04-24/ (accessed July 4,
Ethnic Consumers,” Canadian Grocer, February 10, 2016, 2019).
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2016). -statistics-debt-to-income-makes-a-lot-of-noise-but-does-it
37. James Cowan, “How FreshCo Is Connecting With South -really-matter (accessed June 6, 2017); David Parkinson,
Asian Shoppers,” Canadian Business, November 23, 2015, “Canadian Household Debt Soars to Yet Another Record,”
http://www.marketingmag.ca/consumer/how-freshco-is The Globe and Mail, March 11, 2016, http://www
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May 4, 2016). /canadians-debt-burden-still-growing-hits-record-in-fourth
-quarter/article29172712/; David Ljunggren, “Household
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marketers, study says,” Marketing Dive, March 9, 2020, 2019,” Reuters, June 13, 2019, https://globalnews.
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(accessed March 10, 2020).
57. Lauren Krugel, “Nexen Pipeline Spill Investigation Taking
39. Ibid. Longer Than Expected,” Huffpost Alberta, January 25, 2016,
40. Rachel Arthur, “Macy’s Teams with IBM Watson for AI- http://www.huffingtonpost.ca/2016/01/25/nexen-oil-spill
Powered Mobile Shopping Assistant,” Forbes, July 20, 2016. -investigation-taking-longer-than-expected-docu-
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41. Dhruv Grewal and Scott Motyka, “The Evolution and Future
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Education 40, no. 1 (2018). “About the Sustainable Development Goals” United
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43. Grewal and Motyka, “The Evolution and Future”; Jenny 60. This section draws heavily from Jacquelyn A. Ottman, Green
Van Doorn et al., “Domo Arigato Mr. Roboto: Emergence Marketing: Opportunity for Innovation (Chicago, IL: NTC
of Automated Social Presence in Organizational Frontlines Publishing, 1997), also available online at http://www
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46. Sophie Curtis, “Pizza Hut Hires Robot Waiters to Take Orders $1 Billion Helping Solve The Problem Of Ocean Plastic,”
and Process Payments at Its Fast-Food Restaurants,” The Forbes, Oct 29, 2018, https://www.forbes.com/sites
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69. Martin Peers, “Buddy, Can You Spare Some Time?” The Wall https://www.reuters.com/article/us-l-oreal-products/loreal
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70. Ibid. -idUSKBN1E71S7 (accessed July 8, 2019).
71. Lauren Vogel, “Overweight or overfat? Many Canadians are 5. Jill Ettinger, “L’Oréal Goes Retro (and Vegan) with Natural
both,” CMAJ, August 31, 2017, https://cmajnews.com/2017 Henna-Based Hair Dye,” EcoSalon, December 14, 2017, http://
/08/31/overweight-or-overfat-many-canadians-are-both-109 ecosalon.com/loreal-vegan-henna-hair-dye/ (accessed July 8,
-5472/ (accessed July 4, 2019). 2019).
72. Ibid. 6. White, “L’Oréal Turns to Plant-Based Hair Dye.”
73. “Yoga Statistics,” http://www.statisticbrain.com/yoga-statistics 7. Williams, “Platinum Blonde Creator L’Oréal Goes Vegan.”
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74. PBS, “Timeline: History of the Electric Car,” PBS.org, October 30, 9. Khadeeja Safdar and Sharon Terlep, “As Sephora Adds
2009, www.pbs.org/now/shows/223/electric-car-timeline.html. Products, Rivalry Heats Up at Its Stores,” The Wall Street
75. Brad Bennett, “Tesla drops Canadian Model S and X prices Journal, January 8, 2017, https://www.wsj.com/articles
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and Chromecast,” NYMag, Select all, July 10, 2017, http:// Future of Digital Retail,” Canadian Business, March 10, 2016,
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49. Nick Routley, “The Fight for Smart Speaker Market Share,” 16. Shopify, “Shopify Announces Shopify Capital,” April 27, 2016,
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52. Lauren Feiner, “Apple’s smart speaker is struggling against
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12. Ibid. https://www.retailcouncil.org/wp-content/uploads/2018/08
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Chapter 6
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We have bolded our key terms. Vodka, in May and June of 2016.
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28, 2017.
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http://www.ehow.com; U.S. Department of Labor, http://www and lifestyles. The VALS survey focuses more on values
.bls.gov. and lifestyles related to consumer behaviour and thus
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John Durant, “Predicting Consumer Behavior and Media 29. “GE Canada,” General Electric, https://www.ge.com/ca/en
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no. 11 (2013), pp. 937–49. “Teaching Old Brands New Tricks: Retro Branding and the
12. Kathleen Krhialla, “CRM Case Study: The Analytics That Revival of Brand Meaning,” Journal of Marketing 67, no. 2
Power CRM at Royal Bank [of Canada],” http://www.teradata (July 2003), p . 19.
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Journal of Retailing 89, no. 3 (2013), pp. 246–62; Irit 32. Adrianne Pasquarelli, “lululemon Woos Men with First
Nitzan and Barak Libai, “Social Effects on Customer Campaign,” Advertising Age, September 17, 2017, https://
Retention,” Journal of Marketing 75, no. 6 (November 2011), adage.com/article/cmo-strategy/lululemon-woos-men
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14. Terry O’Reilly, “Persuasive Perks: The World of Loyalty 33. CH Studio, “lululemon Taps Deep Design Expertise to Create
Programs,” The Age of Persuasion, http://www.cbc.ca New Outerwear for Men,” Cool Hunting, November 26, 2016,
/radio/popup/audio/listen.html?autoPlay=true&clipIds https://coolhunting.com/style/lululemon-mens-outerwear/
=&mediaIds=2689446465&contentarea=radio&subsection1 (accessed July 14. 2019).
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_influence&contenttype=audio (accessed May 26, 2016). 34. Erik Oster, “lululemon Is Redefining What Strength Means in
Its First Campaign for Men,” Adweek, September 14, 2017,
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16. “PSYTE Canada Advantage Cluster Descriptions,” http:// -men/ (accessed July 14, 2019).
tetrad.com/pub/documents/psyteadv_clusters.pdf (accessed 35. Ibid.
February 9, 2017).
36. Ballard, “lululemon athletica Pushes Forward.”
17. “Prizm5,” Environics Analytics, http://www.environicsanalytics
37. Ibid.
.ca/prizm5; http://www.tetrad.com/demographics/canada
/environics/; “Prizm5,” Tetrad, http://www.tetrad.com 38. Lauren Thomas, “lululemon’s Laurent Potdevin Sees Huge
/demographics/canada/environics/ (accessed July 15, Potential in Men’s Apparel Market, Adds Company Is ‘Almost
2019). Halfway’ to Lofty Sales Goals,” CNBC, December 7, 2017,
https://www.cnbc.com/2017/12/07/lululemon-ceo-laurent
18. Josh Kolm, “What do cannabis consumers look like post -potdevin-sees-huge-potential-in-mens-apparel.html
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.ca/2019/06/10/what-do-cannabis-consumers-look-like
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Speed,” just-style, September 4, 2017, https://www.just-style
19. Dhruv Grewal, “Marketing Is All About Creating Value: 8 Key .com/analysis/lululemon-switches-supply-chain-focus-to
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Aspatore Inc., 2003), pp. 79–96.
40. Thomas, “lululemon’s Laurent Potdevin Sees Huge
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21. B. Joseph Pine, Mass Customization: The New Frontier in 41. Emily Bary, “Why Men Are Flocking to lululemon,” Barron’s
Business Competition (Cambridge, MA: Harvard Business Next, August 28, 2017, https://www.barrons.com/articles/why
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Pine, eds., Markets of One: Creating Customer-Unique Value July 14, 2019).
Through Mass Customization (Cambridge, MA: Harvard
Business School Publishing, 2000). 42. Olivia Rockeman and Sandrine Rastello, “Lululemon quietly
closes its men’s-only stores after short-lived runs,”
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27. Crane et al., Marketing (6th Can. ed.) (Whitby, ON: McGraw-
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reach a greater consumer audience,” shopkick insights, Today, September 23, 2016, www.icas.com/ca-today-news
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EN-12 Endnotes
42. https://pulse.asda.com (accessed April 15, 2010); Joel Warady, Magazine of Management and Applications 16, no. 3
“Asda Takes the ‘Pulse of the Nation,’” Retail Wire (July 16, (Fall 2004), pp. 28–34; V. Kumar, G. Ramani, and T. Bohling,
2009). “Customer Lifetime Value Approaches and Best Practice
43. Facebook, “State Bicycle Co.: Building a Strong Customer Applications,” Journal of Interactive Marketing 18, no. 3
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Harvard Business Review (July–August 2004), pp. 116–123;
44. Facebook, “Grow Your Business Online,” https://www Werner Reinartz and V. Kumar, “The Impact of Customer
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2016). Journal of Marketing 67 (January 2003), pp. 77–99;
45. Roger Dooley, “NeuroMarketing: For Coke, It’s the Real Werner Reinartz and V. Kumar, “The Mismanagement of
Thing,” Forbes, March 7, 2013, http://www.forbes.com Customer Loyalty,” Harvard Business Review (July 2002),
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46. “Privacy Laws in Canada,” Office of the Privacy of Long Lifetime Customers: An Empirical Investigation
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February 9, 2017). 2. We have made some minor adjustments to the formula
47. E. J. Schultz, “Facial-Recognition Lets Marketers Gauge suggested by Gupta et al., “Modeling Customer Lifetime
Consumers’ Real Responses to Ads,” Advertising Age, May 18, Value.”
2015, http://adage.com/article/digital/facial-recognition-lets 3. Sunil Gupta and Donald R. Lehmann, Managing
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48. A. K. Ahuja, “How Big Brands Are Using Neuromarketing to School Publishing, 2005); Gupta et al., “Modeling Customer
Stay Bold,” LinkedIn, October 27, 2017, www.linkedin.com Lifetime Value.”
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-a-k-ahuja; Philip Mahler, “15 Powerful Examples of Neuro
Marketing in Action,” Imotions, March 7, 2017, https://imotions
Chapter 8
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1. David Pogue, “Google Glass and the Future of Technology,”
49. Courtney Rubin, “What Do Consumers Want? Look at
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APPENDIX 7A smart glasses with a consumer focus?” Strategy, October
1. V. Kumar, A. Petersen, and R.P. Leone, “How Valuable Is the 23, 2018, http://strategyonline.ca/2018/10/25/can-north
Word of Mouth?” Harvard Business Review (October 2007), -resurrect-smart-glasses-with-a-consumer-focus (accessed
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Maximizing Customer Equity: A Critical Analysis,” Journal 5. Craig Daniels, “FROM THALMIC LABS TO NORTH INC: Q &
of the Academy of Marketing Science 35, no. 2 (June A WITH AARON GRANTCO-FOUNDER TALKS ABOUT HIS
2007), pp. 157–171; V. Kumar, Denish Shah, and Rajkumar COMPANY’S NEW WEARABLE PRODUCT CALLED FOCALS,”
Venkatesan, “Managing Retailer Profitability: One Customer Communitech, Oct 23, 2018, http://news.communitech.ca
at a Time!” Journal of Retailing 82, no. 4 (October 2006), /from-thalmic-labs-to-north-inc-q-a-with-aaron-grant (accessed
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Research: A Magazine of Management and Applications 18,
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“Modeling Customer Lifetime Value,” Journal of Service -smart-glasses-update-software-spotify-navigation-features
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Venkatesan, and Werner Reinartz, “Knowing What to Sell, 7. “About Us,” North, https://www.bynorth.com/about (accessed
When and to Whom,” Harvard Business Review (March July 22, 2019).
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Maximize Profitability,” Journal of Marketing 69 (January /sites/ianaltman/2015/04/28/why-google-glass-failed-and
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Selection and Resource Allocation Strategy,” Journal
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Is One Better Than the Other,” Marketing Research: A 10. Ibid.
EN-14 Endnotes
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Endnotes EN-15
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6. Canada Goose, “Canada Goose Reports Results for Fiscal QobChMI8oPJjO_J2AIV1xSBCh2khAB1EAAYASAAEgLbXvD
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July 12, 2020, https://www.theglobeandmail.com/business 27. Kevin Lane Keller and Donald R. Lehmann, “Assessing Long-
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9. Ibid. 28. Grant Robertson, “Year of the Goose,” The Globe and Mail,
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14. Ibid. -1410884519 (accessed August 8, 2019).
15. Eve Lazarus, “Martin’s Puts New Apple Snack on Ontario
Shelves,” Marketing Magazine, July 2, 2013, http://www Chapter 13
.marketingmag.ca/news/marketer-news/martins-puts-new
-apple-snack-on-ontario-shelves-82737 (accessed July 18, 1. The details that follow were provided by Teresa Cugliari at
2014). Canadian Tire Corporation on February 3, 2017, and updated
on August 12, 2019.
16. Frances Barrick, “Fruit Farm Bites Into New Market With
Apple Chips,” The Record, August 1, 2013, http://www 2. Canadian Tire Bank, “About Us,” https://www.ctfs.com
.therecord.com/news-story/3915759-fruit-farm-bites-into /content/ctfs/en/about-us.html (accessed August 12,
-new-market-with-apple-chips (accessed August 7, 2013). 2019).
17. “Martin’s Family Fruit Farm Apple Chips Now Available at 3. FGL Sports, “FGL Sports Profile,” http://fglsports.com
Starbucks,” 570NEWS, January 13, 2015, http://www.570news /fglprofile.html (accessed August 12, 2019).
.com/2015/01/13/martins-family-fruit-farm-apple-chips-now 4. Canadian Tire Corporation, “Our Banners,” https://corp
-available-at-starbucks/ (July 5, 2016). .canadiantire.ca/English/our-banners/default.aspx (accessed
18. Dale Buss, “Nespresso Sticks With Distribution Model Despite August 12, 2019).
Increased Competition,” Brand Channel, May 22, 2013, http:// 5. Canadian Tire Corporation, “Community,” https://corp
www.brandchannel.com/home/post/2013/05/22/Nespresso .canadiantire.ca/English/community/default.aspx (accessed
-Growth-052213.aspx (accessed July 18, 2014). August 12, 2019).
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.org/resources/Pages/Dictionary.aspx?dLetter=D (accessed https://content.eluta.ca/top-employer-canadian-tire; Statista,
March 9, 2017). “Revenue of Canadian Tire Corporation in Canada from 2012
20. American Marketing Association Dictionary, https://www.ama to 2018 (in billion Canadian dollars),” https://www.statista
.org/resources/Pages/Dictionary.aspx?dLetter=C (accessed .com/statistics/448346/revenue-of-canadian-tire-canada/
March 9, 2017). (accessed August 12, 2019).
21. The Canadian Franchise Association, “Canadian Franchise 7. Russ Martin, “The 10 Most Reputable Brands in Canada,”
Association Announces 2019 Franchisees’ Choice Marketing Magazine, May 10, 2016, http://www.marketingmag.
Designees,” Cision, April 9, 2019., https://www.newswire.ca ca/brands/the-10-most-reputable-brands-in-canada
/news-releases/canadian-franchise-association-announces -174142, University of Victoria, “Canada’s Top 10 Most Trusted
-2019-franchisees-choice-designees-829807699.html Brands,” https://www.uvic.ca/gustavson/brandtrust/top-10
(accessed August 7, 2019). /index.php (accessed August 12, 2019).
22. Rachel Sam, “Warby Parker: No Blind Spots for the Company 8. “Canadian Tire Corporation, Limited,” http://www
That’s Revolutionizing Eyewear,” Harvard Business School .referenceforbusiness.com/history/Ca-Ch/Canadian-Tire
Open Knowledge, December 7, 2015, https://rctom.hbs.org -Corporation-Limited.html (accessed July 28, 2016).
/submission/warby-parker-no-blind-spots-for-the-company 9. “Canadian Tire Corporation, Limited.”
-thats-revolutionizing-eyewear/ (accessed July 6, 2016). 10. Christopher Lombardo, “Canadian Tire to buy Party City’
23. Ben Latham, “How Retailers Can Learn from Fast Fashion assets,” Strategy, August 8, 2019, http://strategyonline.ca
to Beat the Weather,” RetailWeek, April 20, 2016; Vertica /2019/08/08/canadian-tire-to-buy-party-citys-canadian-assets
Bhardwaj and Ann Fairhurst, “Fast Fashion: Response to (accessed August 12, 2019).
Changes in the Fashion Industry,” International Review of 11. Josh Kolm, “Canadian Tire Navigates a Reinvention,”
Retail, Distribution and Consumer Research 20 (February Strategy Online, July 8, 2015, http://strategyonline.ca
2010), pp. 165–73; Felipe Caro et al., “Zara Uses Operations /2015/07/08/canadian-tire-navigates-a-reinvention (accessed
Research to Reengineer Its Global Distribution Process,” March 12, 2017).
Interfaces 40 (2010), pp. 71–84; Carmen Lopez and Ying
Fan, “Case Study: Internationalisation of the Spanish Fashion 12. Canadian Tire, “Awards & Recognition,” http://corp
Brand Zara,” Journal of Fashion Marketing and Management .canadiantire.ca/EN/ABOUTUS/Pages/AwardsRecognition
13, no. 2 (2009), pp. 279–96. .aspx (accessed July 28, 2016).
24. Inditex, “2018 Annual Report,” https://static.inditex.com/an- 13. Marina Strauss, “Canadian Tire back in the e-commerce
nual_report_2018/en/year-review.html#financial-indicators home delivery game as service launches across country,”
(accessed August 6, 2019). The Globe and Mail, October 31, 2018, https://www
.theglobeandmail.com/business/article-canadian-tire
25. TradeGecko, “Zara supply chain analysis - the secret behind -is-back-in-the-e-commerce-game-as-service-quietly/
Zara’s retail success,” June 25, 2018, https://www.tradegecko. (accessed August 12, 2019).
com/blog/supply-chain-management/zara-supply-chain-its-se-
cret-to-retail-success (accessed August 6, 2019). 14. Ibid.
26. Laura Heller, “Why Zara Is the Most Exciting Retailer Today,” 15. Susan Krashinsky Robertson, “Canadian Tire sees permanent
Forbes, March 15, 2017, https://www.forbes.com/sites/ shift in online shopping habits in wake of COVID-19
lauraheller/2017/03/15/why-zara-is-the-most-exciting-retailer- pandemic,” The Globe and Mail, May 7, 2020, https://www
today/ (accessed August 8, 2019). .theglobeandmail.com/business/article-canadian-tire-posts
-loss-as-covid-19-pandemic-hits-results/ (accessed May 8,
27. Hayley Peterson, “The Next Generation of Walmart’s Giant 2020).
Pickup Towers Could Be Coming to a Zara Store Near
You,” Business Insider, December 12, 2017, https://www. 16. National Retail Federation, “Top 50 Global Retailers,” March
businessinsider.com/walmarts-pickup-towers-are-coming-to- 1, 2019, https://stores.org/2019/03/01/top-50-global-retailers/
zara-2017-12; Dow Jones Newswire, “How Zara Is Defying a (accessed August 11, 2019).
Broad Retail Slump,” Fox Business, June 14, 2017, https://www. 17. Statistics Canada, “Retail Trade, December 2018,” https://
foxbusiness.com/features/how-zara-is-defying-a-broad-retail- www150.statcan.gc.ca/n1/daily-quotidien/190222/dq190222a
slump (accessed August 8, 2019). -eng.htm (accessed August 11, 2019).
Endnotes EN-23
18. Retail Council of Canada, “Retail by the Numbers,” July 2019, /07/16/augmenting-the-shopping-experience-reality (accessed
https://www.retailcouncil.org/wp-content/uploads/2018/08 July 30, 2016).
/Retail_by_the_Numbers_July_2019.pdf (accessed August 11, 33. John Maxwell, Denise Dalhoff, and Claire-Louise Moore,
2019). “Competing for Shoppers’ Habits,” strategy+business,
19. David Parkinson, “Retail sales rebound nearly wipes out Summer 2018, https://www.strategy-business.com/feature
pandemic nosedive but economists still cautious,” The Globe /Competing-for-Shoppers-Habits, (accessed August 11,
and Mail, July 21, 2020, https://www.theglobeandmail.com 2019).
/business/economy/article-retail-sales-rebound-nearly-wipes 34. Nurun, “Building a Better Shopping Experience,” http://www
-out-pandemic-nosedive-but-economists/ (accessed July 22, .nurun.com/en/our-thinking/future-of-retail/building-a-better
2020). -shopping-experience/ (accessed July 25, 2016).
20. This Chapter draws heavily from Michael Levy, Barton A.
35. Aimee Picchi, “How ‘Smart Mirrors’ Are Boosting Clothing
Weitz, and Dhruv Grewal, Retailing Management, 9th ed.
Sales,” MoneyWatch, May 13, 2015, http://www.cbsnews.com
(Burr Ridge, IL: McGraw-Hill/Irwin, 2015).
/news/how-smart-mirrors-are-boosting-clothing-sales/
21. Karen Weise, “Amazon knows what you buy, and it’s building (accessed July 25, 2016).
a big ad business from it,” The New York Times, Jan/ 21, 2019,
36. Leane Delap, “At the Body Shop, It’s an Experience With
https://www.therecord.com/news-story/9136205-amazon
the World,” The Globe and Mail, May 28, 2012, http://www
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.theglobeandmail.com/report-on-business/industry-news
-from-it/ (accessed August 11, 2019).
/property-report/at-the-body-shop-its-an-experience-with
22. Ronny Kerr, “How Does Instacart Make Money?,” Vator News, -the-world/article4217870 (accessed March 12, 2017).
August 2, 2016, http://vator.tv/news/2016-08-02-how-does
37. Marjo Johne, “Sport Chek Sprints Into Digital,” The Globe
-instacart-make-money (accessed August 8, 2019).
and Mail, May 24, 2013, http://www.theglobeandmail.com
23. Aleksandra Sagan, “Fast-food chains launch grocery store /technology/tech-news/sport-chek-sprints-into-digital
versions of menu items in competitive market,” The Globe /article12098883 (accessed March 12, 2017).
and Mail, October 9, 2019, https://www.theglobeandmail
.com/business/article-fast-food-chains-launch-grocery-store 38. Christopher Reynolds, “Sport Chek Blends Physical and
-versions-of-menu-items-in-2/ (accessed October 10, Digital With New Square One Store,” The Toronto Star,
2019). November 19, 2015, https://www.thestar.com/business
/2015/11/19/sport-chek-blends-physical-and-digital-with-new
24. Pete’s Fine Foods, http://petes.ca/; Patricia Brooks, -square-one-store.html (accessed July 25, 2016).
“Pete’s COO Wins Major Award,” October 26, 2015, http://
thechronicleherald.ca/business/1318922-pete’s-coo-wins 39. Ibid.
-major-award; Rai-Lee Garnder, Dietitans’ Network Nova 40. “Hunter, Tokyo,” Chain Store Age, April 8, 2016; “5 Creative
Scotia, http://www.dietitiansns.com/halifax-metro (accessed Ways Stores Are Experimenting with Immersive Retail
March 11, 2017). Experiences,” Shopify, June 10, 2016, https://www.shopify.ca
25. Holt Renfrew, “About hr2,” http://www.holtrenfrew.com/ /retail/127297923-5-creative-ways-stores-are-experimenting
en/holt/twocolumn/footer/hr2/about-hr2; Marina Strauss, -with-immersive-retail-experiences; Hunter, “Hunter Ginza
“Fashion Chains Eye Closings as Retailers Feel Pinch,” Tokyo Flagship Store.” https://milled.com/TheOriginal
February 28, 2017, The Globe and Mail, http://www HunterBoots/our-tokyo-flagship-store-is-now-open-gm
.theglobeandmail.com/report-on-business/fashion-chains -DLFzoFO1muUpl (accessed August 8, 2019).
-eye-store-closings-as-retailers-feel-pinch/article34154092/ 41. Michael Levy, Barton A. Weitz, and Dhruv Grewal, Retailing
(accessed March 11, 2017). Management, 9th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2015).
26. Jeromy Lloyd, “Hudson’s Bay Opens First Outlet Store Near 42. Paul Brent, “McLatte Anyone?” Marketing Magazine,
Toronto,” Marketing Magazine, August 1, 2013, http://www. December 10, 2007: 10; Canadian Press, “McDonald’s
marketingmag.ca/news/marketer-news/hudsons-bay-opens- Earmarks $1-Billion for Canadian Renovations,” September 7,
first-outlet-store-near-toronto-85013; Amanda Phuong, 2011, http://www.theglobeandmail.com/globe-investor
“What’s Happening to All the Hudson’s Bay Outlets?” January /mcdonalds-earmarks-1-billion-for-canadian-renovations
11, 2016, http://www.styledemocracy.com/whats-happening- /article593454/ (accessed March 12, 2017).
to-all-the-hudsons-bay-outlets/ (accessed July 30, 2016).
43. Susan Krashinsky, “Beer Spruces Up in Battle for Market
27. Marina Strauss, “The Bay Steps Up Its Game With a Focus on Share,” The Globe and Mail, May 18, 2013, http://www
Shoes,” The Globe and Mail, June 5, 2010: B3. .theglobeandmail.com/report-on-business/industry-news
28. Marina Strauss, “New-Look Hudson’s Bay Pushes Retail /marketing/beer-spruces-up-in-battle-for-market-share
Growth Plan,” The Globe and Mail, April 8, 2013, http://www /article12000094 (accessed March 12, 2017).
.theglobeandmail.com/report-on-business/new-look-hudsons 44. Carmine Gallo, “Apple’s Secret Employee Training Manual
-bay-pushes-retail-growth-plan/article10836382 (accessed Reinvents Customer Service in Seven Ways,” Forbes,
March 12, 2017). August 30, 2012, https://www.forbes.com/sites/carminegallo
29. Marina Strauss, “In Store Aisles, Dr. Dre Meets Big Data,” The /2012/08/30/apples-secret-employee-training-manual
Globe and Mail, March 5, 2013, http://www.theglobeandmail -reinvents-customer-service-in-seven-ways/ (accessed
.com/technology/business-technology/in-store-aisles-dr-dre August 8, 2019).
-meets-big-data/article9302024 (accessed March 12, 2017). 45. Rupal Parekh, “How Zara Ballooned Into a Multi-Billion Dollar
30. Marina Strauss, “HMV Moves Beyond Music,” The Globe and Brand Without Advertising,” Advertising Age, August 19,
Mail, June 14, 2010: B1; Canadian Press, “Struggling HMV 2013, http://adage.com/article/cmo-strategy/zara-grew-a-multi
Canada Goes Into Receivership, Set to Close Stores,” January -billion-dollar-brand-sans-ads/243730 (accessed August 20,
27, 2017, CBC News, http://www.cbc.ca/news/business 2013).
/struggling-hmv-canada-goes-into-receivership-set-to 46. Matt Semansky, “Well.ca Opens Virtual Store in Toronto,”
-close-stores-1.3956302 (accessed March 12, 2017). Marketing Magazine, April 12, 2012, http://www.marketingmag.
31. Canadian Tire, “The Canadian Tire App,” http://www ca/news/marketer-news/well-ca-opens-virtual-store
.canadiantire.ca/en/mobile.html (accessedJuly 30, 2016). -in-toronto-49725 (accessed July 18, 2014).
32. Megan Hynes, “Augmenting the Shopping Experience Reality,” 47. Alicia Androich, “Walmart Canada and P&G Launch Bus
Strategy Magazine, July 16, 2012, http://strategyonline.ca/2012 Shelter Mobile Store,” Marketing Magazine, June 5, 2013,
EN-24 Endnotes
75. Aldo, Corporate Social Responsibility, https://responsibility (in Million U.S. Dollars),” Statista, August 31, 2018, https://www
.aldogroup.com/indicators/planet/carbon_footprint/climate .statista.com/statistics/262022/advertising-expenditure-of
_neutral (accessed August 11, 2019). -procter-und-gamble-worldwide/ (accessed August 2, 2019).
76. Susan Krashinsky Robertson, “Footwear retailer Aldo files 18. Theodore Levitt, The Marketing Imagination (New York: The
for creditor protection,” The Globe and Mail, May 7, 2020, Free Press, 1986).
https://www.theglobeandmail.com/business/article-footwear 19. George E. Belch and Michael A. Belch, Advertising and
-retailer-aldo-files-for-creditor-protection (accessed May 7, Promotion: An Integrated Marketing Communications
2020). Perspective, 10th ed. (New York: McGraw-Hill Education,
2015).
Chapter 14 20. Kleenex, “Kleenex Anti-Viral Tissues,” https://www.kleenex
1. John Waldron, “L’Oréal Canada Has an Influencer Marketing .com/en-ca/products/facialtissues/antiviral (accessed
Program Powered by dubdub,” eTail, https://etailcanada. August 3, 2016).
wbresearch.com/loreal-influencer-marketing-strategy-ty-u 21. AMA Dictionary, http://www.marketingpower.com/_layouts
(accessed August 2019). /Dictionary.aspx?dLetter=M (accessed March 13, 2017).
2. Josh Kolm, “Check it out: L’Oreal puts women’s worth on 22. “Net Advertising Volume,” Think TV, https://thinktv.ca
display,” Strategy, March 13, 2018, http://strategyonline. /wp-content/uploads/2018/05/thinktv-NAV-Advertising
ca/2018/03/13/check-it-out-loreal-puts-womens-worth-on _Revenue_December_2018.pdf (accessed August 2, 2019).
-display/ (accessed August 14, 2019).
23. Krista Monllos, “Lee Jeans bets big on digital advertising,
3. Marie Gulin-Merle, “L’Oréal’s Digital Transformation,” influencers,” DigiDay UK, August 15, 2019, https://digiday.
Think with Google, April 2017, www.thinkwithgoogle.com com/marketing/lee-jeans-doubling-digital-advertising-budget/
/marketing-resources/loreal-mobile-digital-marketing accessed August 16, 2019).
-strategy/ (accessed August 4, 2019).
24. “Net Advertising Volume,” Think TV, https://thinktv.ca/wp
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Future Will Be More about Technology, Quality, Formulation _Revenue_December_2018.pdf (accessed August 2, 2019).
and Individualization,” CNBC, January 12, 2018, www.cnbc
.com/2018/01/12/loreal-ceo-jean-paul-agon-on-the-beauty 25. AMA Dictionary, https://www.ama.org/resources/Pages/
-industrys-outlook-and-rise-of-digitalization.html (accessed Dictionary.aspx?dLetter=P (accessed March 13, 2017).
August 14, 2019). 26. “Net Advertising Volume.”
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Company?,” CNNMoney, March 16, 2018, http://money Advertising Innovation,” http://publishing2.com/2008/05/27
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6. Gulin-Merle, “L’Oréal’s Digital Transformation.” 28. Canadian Media Directors’ Council, “Media Digest,”
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Experimentation to Succeed in the Digital Age,” Think with uploads/2017/01/cmdc-media-digest-2017.pdf?8766fc;
Google, August 2017, www.thinkwithgoogle.com/marketing “Magazine Industry Profile,” Ontario Creates, April 4, 2019,
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8. Ibid. 29. http://online.wsj.com/article/SB10001424052748703481004
574646904234860412.html; George E. Belch and Michael A.
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Influencer Marketing Program,” Cision, Dec. 12, 2016, https:// Communications Perspective (New York: McGraw-Hill, 2015).
www.prnewswire.com/news-releases/dubdub-partners-with
-loreal-canada-to-power-influencer-marketing-program 30. Ruth Stevens, “Crash Course in Direct Marketing,” http://
-300376201.html (accessed August 14, 2019). www.marketingprofs.com/premium/seminar_detail.
asp?adref=semsrch&semid=104 (accessed August 14, 2014).
10. Gulin-Merle, “L’Oréal’s Digital Transformation.”
31. Canadian Media Directors’ Council, “Media Digest.”
11. Kim Larson, “How L’Oréal, a Century-Old Company, Uses
Experimentation to Succeed in the Digital Age.” 32. Canada Post, “Breaking Through the Noise,” https://www.
canadapost.ca/assets/pdf/blogs/CPC_BreakThruNoise_
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and Other Aspects of Integrated Marketing Communications
(Boston: Cengage Learning, 2013). 33. Campaign Monitor, “7 Stats That Will Make You Rethink
Mobile Email,” July 2019, https://returnpath.com/newsroom/
13. Shimp and Andrews, Advertising Promotion and Other mobile-now-preferred-platform-reading-email-half-email-
Aspects of Integrated Marketing Communications. opens/ (accessed August 3, 2019).
14. Michael Long, “Jozy Altidore Becomes Face of Puma in 34. Sharon Brown, “The Heart & Stroke Lottery’s Winning
North America,” Sports Pro, November 30, 2017, www. Formula,” DM Magazine, November 23, 2018, http://dmn.
sportspromedia.com/news/jozy-altidore-becomes-face-of- ca/64652-2/ (accessed August 13, 2019).
puma-in-north-america (accessed August 12, 2019).
35. Canada Post, “Small Is Beautiful, if You Want to Break
15. Puma, “Introducing Phenom Worn by Selena Gomez,” https:// Through the Holiday Marketing Clutter,” October 16, 2015,
eu.puma.com/de/en/selena-gomez (accessed August 12, https://www.canadapost.ca/web/en/blogs/business/details.
2019). page?article=2015/10/16/mini-catalogues_brea&cattype=busi-
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http://www.outburstadvertising.com/resources/adtosales.pdf 36. IKEA, “It’s the most wonderful time of the year - the 2020
(accessed August 4, 2016). IKEA Catalogue is almost here!,” July 31, 2019, CISION,
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http://www.pginvestor.com/Financial-Highlights/Index? -wonderful-time-of-the-year-the-2020-ikea-catalogue
KeyGenPage=209707; M. Shahbandeh, “Advertising -is-almost-here--827083474.html (accessed August 13,
Expenditures of Procter & Gamble Worldwide From 2011 to 2018 2019).
EN-26 Endnotes
37. “Direct Response Television,” http://www.direct-re- 56. Mansoor Iqbal, “App Download and Usage Statistics (2019),
sponse-television.com (accessed June 26, 2007). Business of Apps, August 7, 2019, https://www.businessofapps
38. “Unpausing SickKids’ Lives,” Strategy Magazine, November/ .com/data/app-statistics/ (accessed August 14, 2019).
December 2016, http://strategyonline.ca/2016/11/03/strategy- 57. Ian Blair, “Mobile App Download and Usage Statistics (2019),”
awards-2016-shortlists-part-three/ (accessed March 13, 2017). buildfire, https://buildfire.com/app-statistics (accessed August
39. “About Rogers Centre—Venue Policies,” http://www.roger- 14, 2019).
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13, 2017). 2019, https://global.toyota/pages/global_toyota/ir/financial
40. Emily Wexler, “Marketer Survey 2012,” Strategy -results/2019_4q_presentation_en.pdf; Benjamin Elisha
Magazine, December 7, 2012, http://strategyonline. Sawe, “The World’s Biggest Automobile Companies.”
ca/2012/12/07/2012-marketer-survey (accessed August 14, WorldAtlas, Jun. 7, 2019, worldatlas.com/articles/which-are
2014). -the-world-s-biggest-automobile-companies.html. (accessed
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41. “Real Beauty Shines Through: Dove Wins Titanium Grand Prix
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42. MADD, “Car Heaven,” http://madd.ca/pages/car-heaven/ (ac-
cessed August 4, 2016). 60. Ibid.
43. MADD Canada, “Cause Related Marketing,” http://www.madd. 61. Ethan Jackob Craft, “How Toyota is Marketing Supra’s
ca/madd2/en/giving/giving_cause_related_programs.html Comeback,” Advertising Age, July 15, 2019, https://adage
(accessed March 13, 2017). .com/article/digital/how-toyota-marketing-supras-comeback
/2183416 (accessed August 14, 2019).
44. Jackie Huba, “A Just Cause Creating Emotional Connections
62. Ibid.
With Customers,” http://www.inc.com.
63. “Toyota launches “This Is Our Sport” 2020 GR Supra cam-
45. Barry Samaha, “The Best-Dressed Celebrities at the Oscars
paign by Saatchi & Saatchi,” Marketing Communication News,
2018,” Forbes, March 5, 2018, www.forbes.com/; Erika
July 16, 2019, https://marcommnews.com/toyota-launches
Harwood “All the 2018 Golden Globes Red Carpet Looks,”
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Vanity Fair, January 7, 2018, www.vanityfair.com/.
-saatchi/; Simon Dumenco, “The Toyota Supra Gets a Sexy
46. Diego Rinallo and Suman Basuroy, “Does Advertising Pin-up Poster in Road & Track,” Advertising Age, August 14,
Spending Influence Media Coverage of the Advertiser?” 2019, https://adage.com/article/media/toyota-supra-gets
Journal of Marketing 73 (November 2009), pp. 33–46; Carl -sexy-pin-poster-road-track/2191556 (accessed August 14,
Obermiller and Eric R. Spangenberg, “On the Origin and 2019).
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64. “Toyota launches “This Is Our Sport” 2020 GR Supra cam-
Letters 11, no. 4 (2000), p . 311.
paign by Saatchi & Saatchi.”
47. “Improving Lives,” TOMS Shoes, http://www.toms.com
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48. “Insight Argentina,” One World 365, http://www.oneworld365
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financial point,” Media in Canada, August 19, 2019, http://
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mediaincanada.com/2019/08/19/spotted-how-a-tiny-stadium
Sales for July, up 15.9%,” August 1, 2019, https://www.toyota
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.ca/toyota/en/about/news/toyota-canada-inc-reports-increase
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in Social Media: How Online Consumer Reviews Evolve,” (2011), “Putting Social Media to Work,” Bain & Co.
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Canada,” Canadians Internet, June 30, 2019, https:// HubSpot, March 12, 2015, https://blog.hubspot.com
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54. “Mobile Ad Spending to Surpass All Traditional Media -revenue-of-social-networks-worldwide/ ; A. Guttman, “Social
Combined by 2020,” eMarketer.com, October 18, 2018, network advertising spending in the United States from
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19. Belinda Luscombe, “How Disney Builds Stars,” Time, -canadian-fashion-success-story/article30900639/
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21. Corey McNair, “Global Ad Spending: The eMarketer Forecast
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and Emotional Effects of Advertising Creativity,” Marketing 38. Susan Krashinsky Robertson, “Marketing group releases
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Shum, “Does Advertising Overcome Brand Loyalty? Evidence rules,” The Globe and Mail, October 29, 2018, https://www
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24. Megan Haynes, “The Strategic Milk Alliance Milks Every
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25. “Canadians Reminded to ‘Milk Every Moment’ in Strategic
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healthy food every year,” Strategy, October 31, 2018, http://
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28. Michelle Castillo, “That bucket of KFC in ‘Stranger Things’ is
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30. Roger Fingas, “Apple Becoming More Open about Product
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Product Placement Scenes,” Product Placement Blog, https:// Are Down Double-Digits,” AdAge, August 4, 2011, http://
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2019). -sales/229080.
31 “Product Placement Top 10 of 2016,” Concave Brand 47. John Heinzl, “Beer firms rethink giveaways,” The Globe and
Tracking, March 10, 2017, http://concavebt.com/top-10 Mail, April 18, 2018, https://www.theglobeandmail.com/report
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32. “Product Placement Top 10 of 2018,” Concave Brand (accessed August 20, 2019).
Tracking, May 1, 2019, http://concavebt.com/top-10-brands 48. Saabira Chaudhuri, “McDonald’s Happ. Meal Toys Caught in
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33. Laura Hensley, “‘The Sophie Effect’: Gregoire Trudeau https://www.wsj.com/articles/mcdonalds-happy-meal-toys
Putting Canada’s Fashion Industry on the Map,” The -caught-in-backlash-over-plastic-11562583605 (accessed
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/arts/weekend-post/the-sophie-effect-how-canadas-first 49. Chris Powell, “Campbell’s Opens Pop-Up Restaurant in
-lady-is-helping-the-local-fashion-industry-blossom; Deidre Toronto,” Canadian Grocer, February 2, 2016, http://www
Kelly, “The Sophie Grégoire Trudeau Coat: A Canadian .canadiangrocer.com/top-stories/campbells-opens-pop-up
Fashion Success Story,” The Globe and Mail, July 14, 2016, -restaurant-in-toronto-61553 (accessed August 11, 2016).
EN-30 Endnotes
50. Danny Kucharsky, “Lindt Brings Its Iconic Gold Bunny to Life,” 68. YouTube.com, “MasterCard Priceless Baseball (Commercial,
Marketing Magazine, March 17, 2016, http://www.marketing 1997),” http://www.youtube.com/watch?v=Q_6stXKGuHo
mag.ca/media/lindt-brings-its-iconic-gold-bunny-to-life (accessed August 19, 2019).
-170350; “Lindt Gold Bunny Presents The Bell that Rang 69. Stuart Elliott, “MasterCard Revamps Print Ads,” The New York
in Easter,” Lindt, http://goldbunnystory.com/ (accessed Times, August 11, 2004.
August 20, 2019).
70. Dale Buss, “‘Priceless’ Evolution: 5 Questions With
51. Dana Flavelle, “Best Buy Puts Stop to Mail-In Rebates,” MasterCard CMO Raja Rajamannar,” Brand Channel,
The Toronto Star, March 31, 2007, https://www.thestar.com January 4, 2016, http://www.brandchannel.com/2016
/business/2007/03/31/best_buy_puts_stop_to_mailin /01/04/5-questions-mastercard-010416/ (accessed August 11,
_rebates.html (accessed March 16, 2017). 2016).
52. Christopher Lombardo, “Shoppers Drug Mart launches 71. Stuart Elliott, “MasterCard Brings ‘Priceless’ to a Pricey
The Beauty Project,” Strategy, August 12. 2019, http:// Place,” The New York Times, July 7, 2011; http://www
strategyonline.ca/2019/08/12/shoppers-drug-mart-launches .creditcardeducation.com/news/mastercard-offers-priceless
-the-beauty-project (accessed August 20, 2019). -city-experiences.html.
53. BreeRody-Mantha, “Spotted: KitKat breaks the mould,” Media 72. MasterCard, “Torontonians Know Their City Is Unique, But
in Canada, June 7, 2018, http://mediaincanada.com/2018/06 Now It’s Priceless!” November 7, 2011, http://newsroom
/07/spotted-kitkat-breaks-the-mould (accessed August 20, .mastercard.com/canada/press-releases/torontonians-know
2019). -their-city-is-unique-but-now-its-priceless (accessed August
54. This section draws from Mark W. Johnston and Greg W. 15, 2014).
Marshall, Relationship Selling, 3rd ed. (Burr Ridge, IL: Irwin/ 73. MasterCard, “Priceless Toronto,” https://www.priceless.com
McGraw-Hill, 2009) and Mark W. Johnston and Greg W. /toronto/Home (accessed August 15, 2014).
Marshall, Relationship Selling and Sales Management,
2nd ed. (Burr Ridge, IL: Irwin/McGraw-Hill, 2007). 74. Shorty Awards, “Priceless Surprises,” http://shortyawards
.com/7th/pricelesssurprises (accessed August 11, 2016).
55. 4DSales, “The Cost of a Sales Call,” October 22, 2012, http://
4dsales.com/the-cost-of-a-sales-call/ (accessed August 11, 75. Ibid.
2016). 76. Mike Fletcher, “MasterCard Brings Priceless Campaign Into
56. Bill Stinnett, Think Like Your Customer, 1st ed. (Burr Ridge, IL: Digital Age,” M&M Global, September 30, 2015, http://
McGraw-Hill, 2004). mandmglobal.com/mastercard-brings-priceless-campaign
-into-the-digital-age/ (accessed August 11, 2016).
57. “CES by the Numbers,” Consumer Technology Association,
https://www.ces.tech/About-CES/CES-by-the-Numbers.aspx/ 77. Ibid.
(accessed August 20, 2019). 78. “Make 2018 Your Year of Action: ‘Start Something Priceless,’”
58. CES, “CES Implements New Bag Restrictions, Enhanced Mastercard, January 18, 2018, https://newsroom.mastercard.
Security Measures for CES 2016,” https://www.ces.tech com/press-releases/make-2018-your-year-of-action-start
/News/Press-Releases/CES-Press-Release.aspx?NodeID -something-priceless-2/; Adrianne Pasquarelli, “Mastercard
=108c88bf-5d38-4f2c-a172-e6fd6d0ffa8a “About CES,” Puts Altruistic Spin on ‘Priceless’ Campaign,” Advertising Age,
Consumer Technology Association, https://www.ces.tech January 18, 2018, http://adage.com/article/cmo-strategy
/About-CES.aspx (accessed August 20, 2019). /mastercard-issues-call-action-priceless-campaign/311966/;
Kristina Monollos, “Why Mastercard Is Adding a Charitable
59. Government of Canada, “Six Companies Pay $1.23 Million for Aspect to Its Long-Running ‘Priceless’ Campaign,” Adweek,
Making TeleMarketing Calls to Canadians,” June 29, 2016, January 19, 2018, www.adweek.com/brand-marketing/why
http://news.gc.ca/web/article-en.do?nid=1091989 (accessed -mastercard-is-adding-a-charitable-aspect-to-its-long-running
August 11, 2016). -priceless-campaign/.
60. Barton A. Weitz, Harish Sujan, and Mita Sujan, “Knowledge, 79. Mark Burgess, “Staying Priceless,” Strategy Magazine, April
Motivation, and Adaptive Behavior: A Framework for /May 2016, pp. 44–48, http://strategyonline.ca/2016/04/15
Improving Selling Effectiveness,” Journal of Marketing /staying-priceless/ (accessed August 23, 2019).
(October 1986), pp. 174–191.
61. Al Jury, “The Golden Ratio of Virtual Meetings to Face-to-
Face,” June 19, 2011, http://virtualteamsblog.com/2011/the Chapter 16
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62. Alina Comoreanu, “Market Share by Credit Card Network,” Espresso Back to Italians?,” Bloomberg, June 16, 2016, https://
WalletHub, March 7, 2017, www.cardhub.com/edu/market www.bloomberg.com/news/articles/2016-06-15/starbucks
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2019). “Starbucks to Open in Italy, Home of Espresso, in 2018. Italian
Cafes Say Bring It,” The Salt: What’s on Your Plate, February
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Reunion—Priceless,” http://www.youtube.com/watch?v /517783805/starbucks-to-open-in-italy-home-of-espresso-in
=3dcxQ2dvqmc (accessed August 19, 2019). -2018-italian-cafes-say-bring-it (accessed August 18,
64. MasterCard, “About Us,” http://www.mastercard.com 2019).
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Endnotes EN-31
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Store In Italy,” Forbes, Sept. 13, 2018, https://www.forbes.com (Upper Saddle River, NJ: Prentice Hall, 2013).
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Defied Starbucks – Until It Didn’t,” The Atlantic, Sept 9, 2018,
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7. Jenna Wang, “Why it Took Starbucks 47 Years To Open A (accessed August 26, 2019).
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Long-Term Changes?,” The Conference Board of Canada, July 25, 2016, http://timesofindia.indiatimes.com/india
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13. Global Affairs Canada, “Softwood Lumber,” May 7, 2019, www 31. Angela Doland, “Six Cringeworthy Blunders Brands Make in
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14. “Canada Eliminates All Tariffs on Machinery, Equipment
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Automation, April 20, 2015, http://www.automationmag.com www.geert-hofstede.com/. For research specific to Canada,
/industry-news/news/5148-canada-eliminates-all-tariffs-on seehttps://geert-hofstede.com/canada.html.
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(accessed August 16, 2016). 2006).
15. http://www.bloomberg.com/apps/news?pid 34. Note that the time orientation and indulgence dimensions
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16. Government of Canada, “Allocation and administration of tariff See Geert Hofstede, “Dimensions of National Cultures,” http://
rate quotas for dairy, poultry and egg products,” May 6, 2019, geerthofstede.com/culture-geert-hofstede-gert-jan-hofstede/
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/TRQ-CT/index.aspx?lang=eng (accessed August 28, 2019). 35. The Hofstede Centre, http://geert-hofstede.com/countries
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2016, http://www.theglobeandmail.com/report-on-business
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EN-32 Endnotes
40. The Economist, “Why Is South Africa Included in the BRICS?” 57. “Canada’s State of Trade: Trade and Investment Update—
March 29, 2013, http://www.economist.com/blogs/economist 2015,” Global Affairs Canada, http://www.international.gc
-explains/. .ca/economist-economiste/performance/state-point/state
41. “Brazil,” U.S. Department of State, www.state.gov; CIA, The _2015_point/index.aspx?lang=eng (accessed August 18,
World Factbook, https://www.cia.gov/library/publications/the 2016).
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2019). Strategy Online, July 28, 2016, http://strategyonline
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Investopedia, June 7, 2019, www.investopedia.com/articles Lloyd, “Tim Hortons Is Heading to Mexico,” Strategy Online,
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Tip of the Iceberg,” The Globe and Mail, October 25, 2012, Mail, February 25, 2019, https://www.theglobeandmail.com
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Endnotes EN-33
72. Silvia Fabiana et al., eds., Pricing Decisions in the Euro Era: 86. Ibid.
How Firms Set Prices and Why (Oxford: Oxford University 87. Tim Culpan, “Chindia Needs One More Thing from Apple,”
Press, 2007); Cateora et al., International Marketing. Bloomberg Businessweek, September 13, 2017, https://www
73. Ibid.; Amanda J. Broderick, Gordon E. Greenley, and Rene .bloomberg.com/news/articles/2017-09-13/chindia-needs
Dentiste Mueller, “The Behavioural Homogeneity Evaluation -one-more-thing-from-apple (accessed August 27, 2019).
Framework: Multi-Level Evaluations of Consumer Involvement 88. Shira Ovide, “Think You Won’t Pay $1,000? Apple’s Prices Are
in International Segmentation,” Journal of International Going Up Anyway,” Bloomberg Gadfly, September 12, 2017,
Business Studies 38 (2007), pp. 746–63; Terry Clark, Masaaki https://www.malaymail.com/news/tech-gadgets/2017/09/13
Kotabe, and Dan Rajaratnam, “Exchange Rate Pass-Through /think-you-wont-pay-us1000-apples-prices-go-up-anyway
and International Pricing Strategy: A Conceptual Framework -video/1464003 (accessed August 27, 2019).
and Research Propositions,” Journal of International Business
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Lot,” CNBC, January 29, 2015, https://www.cnbc.com/2018
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78. Michael Wines, “Picking Brand Names in Asia Is a Business /did-apple-retail-prices-get-too-high-2018-consumers-say
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80. Paul Muggeridge, “Which Countries Produce the Most
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81. Bruce Einhorn, “Apple’s Chinese Supply Lines,” 1. Jennifer Horn, “The clean beauty movement gains momen-
BusinessWeek, January 8, 2008; “Responsible Supplier tum,” Strategy, September 17, 2019, http://strategyonline
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Shai Oster, “Behind the Scenes at Apple’s Controversial (accessed September 17, 2019).
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6. Neff, “Why Unilever Needs Love Beauty and Planet.”
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-decadent-valentines-day-celebrations-a-crime/; Cristina 8. Neff, “Why Unilever Needs Love Beauty and Planet.”
Maza, “Valentine’s Day Celebrated in Iran with Gifts, 9. Lutkin, “Unilever’s New Beauty Line.”
Flowers, and House Parties Despite Police Crackdown,”
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85. Patrick Coffee, “Apple Shifts Global Marketing Strategy, Press, 1983).
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Adweek, February 17, 2017, https://www.adweek.com GMO Food Products,” The Star, March 30, 2016, https://www
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2019). 2020).
EN-34 Endnotes
13. Laura Parker, “The GMO Labeling Battle Is Heating Up— 28. Christopher Lombardo, “Challenges remain for brands transi-
Here’s Why,” National Geographic, January 11, 2014; Stefanie tioning from CSR to purpose-led.”
Strom, “Major Grocer to Label Foods With Gene-Modified 29. PepsiCo, “Performance with Purpose,” (Waste: Getting to Zero
Content,” The New York Times, March 8, 2013; “Our at Super Bowl LII, P. 25), https://www.pepsico.com/docs
Commitment to GMO Transparency,” Whole Foods, /album/sustainability-report/2017-csr/pepsico_2017_csr.pdf
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-transparency; General Mills, “On GMOs,” https://www
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Mills, “Do you use GMO ingredients in your products?,” https://www.pepsico.com/sustainability/esg-topics (accessed
https://www.generalmills.com/ask#/1000954062 (accessed August 29, 2019).
August 28, 2019). 31. Tim Hortons®, “Tim Hortons Camp Day Raises $9.9 Million!,”
14. For a detailed discussion on ethical and societal issues, see https://www.timhortons.com/ca/en/corporate/news-release.
An Introduction to Business Ethics, 5th edition, by Joseph php?id=7630 (accessed August 28, 2019).
Desjardins (McGraw-Hill Education), or Business Ethics: 32. “Our Environmental Commitment,” Mountain Equipment
Decision Making for Personal Integrity & Social Responsibility Co-Op, https://www.mec.ca/en/explore/our-environmental
by Laura Hartman, Joseph Desardins, and Chris MacDonald -commitment/ (accessed August 23, 2016).
(McGraw-Hill Education). 33. FedEx, “FedEx Cares,” https://fedexcares.com/about-fedex
15. Gallup, “Honesty/Ethics in Professions,” http://www.gallup -cares/overview (accessed August 29, 2019).
.com/poll/1654/honesty-ethics-professions.aspx (accessed 34. The Cooperators, “Community Economic Development (CED)
August 23, 2016). Funds,” https://www.cooperators.ca/en/About-Us/foundation
16. Rebecca Harris, “Consumers Expect Brands to Do Social /ced.aspx (accessed August 29, 2019).
Good,” Marketing Magazine, February 2, 2016, http://www 35. The Cooperators, “Corporate Giving Program,” https://www
.marketingmag.ca/consumer/consumers-expect-brands .cooperators.ca/en/About-Us/foundation/corporate-giving
-to-do-social-good-study-167090 (accessed August 23, .aspx (accessed August 29, 2019).
2016). 36. Rana Florida, “The Case for On-Site Day Care,” Fast
17. Johnson & Johnson, “Our Credo Values,” http://www.jnj.com Company, October 1, 2014, https://www.fastcompany.com
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2019).
18. Vanessa O’Connell and Shirley Wang, “J&J Acts Fast on
Tylenol,” The Wall Street Journal, July 9, 2009. 37. Aaron Katersky and Susannah Kim, “Slew of Retailers Say
No to Black Friday,” ABC News, October 27, 2015, https://
19. BSR (a global non-profit organization that works with a abcnews.go.com/Business/outdoor-retailer-rei-black-friday
network of more than 250 member companies and other /story?id=34760968 (accessed August 30, 2019).
partners to build a just and sustainable world)http://www.bsr
.org (accessed March 25, 2017). http://www.cmomagazine 38. Disney, “VoluntEARS,” https://publicaffairs.disneyland.com
.com. This survey was conducted in 2006; more recent /voluntears/; Disney, “Philanthropy,” https://thewaltdisney
reports suggest that 49 percent of respondents to a 2009 company.com/philanthropy/; Give Kids the World Village, Walt
survey reported having seen ethical misconduct overall. Disney World,” www.gktw.org/help/bio/disney.php; Disney,
See Ethics Resource Center, “2009 National Business Ethics “Disney Cast Members Create An ‘Extreme Village Makeover’
Survey,” http://www.ethics.org. for Give Kids the World,” http://disneyparks.disney.go.com
/blog/galleries/2014/01/disney-cast-members-create-an
20. Global Affairs Canada, “Corporate Social Responsibility,” -extreme-village-makeover-for-give-kids-the-world/#photo-5
http://www.international.gc.ca/trade-agreements-accords (accessed August 28, 2019).
-commerciaux/topics-domaines/other-autre/csr-rse.aspx?
lang=eng (accessed August 23, 2016). 39. ParticipACTION Canada, “Our Strategic Goals,” http://www
.participaction.com/about/our-vision (accessed August 23,
21. The most famous proponent of this view was Milton 2016).
Friedman. See, for example, Capitalism and Freedom
40. Mike Hower, “GE Renews Ecomagination Initiative, Commits
(Chicago: University of Chicago Press, 2002) or Free to
$25B to CleanTech R&D by 2020,” March 4, 2014, http://www
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.sustainablebrands.com/news_and_views/cleantech/mike
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“Companies Paying Americans the Least,” 247WallSt.com, 41. McKinsey, “How to Reinvent the External-Affairs Function,”
September 3, 2015. July 2016, http://www.mckinsey.com/business-functions
24. Ibid. /strategy-and-corporate-finance/our-insights/how-to-reinvent
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25. “Premier Fitness Fined $130,000 Over Failure to Pay
Employees on Time,” Hamilton Spectator, January 24, 2012, 42. John Browne, “Here’s a Better Way for Companies to Tackle
http://www.thespec.com/news-story/2231374-premier-fitness Big Social Problems,” Harvard Business Review, March 30,
-fined-130-000-over-failure-to-pay-employees-on-time/ 2016, https://hbr.org/2016/03/heres-a-better-way-for
(accessed August 23, 2016). -companies-to-tackle-big-social-problems (accessed
August 23, 2016).
26. Justin Dallaire, “‘Purpose’ crucial to how consumers view
43. Christopher Lombardo, “A report from Nourish Food
companies,” Strategy, Jan. 28, 2019,strategyonline.ca/2019
Marketing shows how waste-reduction trends align with
/01/28/purpose-crucial-to-how-consumers-view-companies
concerns about diet and convenience,” Strategy, Feb. 21,
-study/; Christopher Lombardo, “Challenges remain for brands
2019, http://strategyonline.ca/2019/02/20/consumers
transitioning from CSR to purpose-led,” Strategy, March 19,
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2019, http://strategyonline.ca/2019/03/19/challenges-remain
August 28, 2019).
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.ca/c/root-our-mission-and-vision-burt-s-bees.html (accessed
27. Josh Kolm, “Unilever gives everyday purchases a social
August 24, 2016).
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Endnotes EN-35
Coca-Cola, 15, 25, 27, 30, 33, 34, 36, Domino’s Pizza, 109, 532 General Electric (GE), 8, 148, 186–187,
38, 44–45, 79, 96, 205, 212, 221, Dr Pepper Snapple, 25, 126, 275 474, 487, 488, 559, 561
239, 275, 276, 278, 284, 288, 435, Dunkin’ Donuts, 537 General Mills (GM), 2, 43, 96, 236, 249,
438, 480, 487, 488, 491, 524, 526, Dyson, 40–41, 234, 245 350, 539, 551, 567
559 General Motors, 100, 135, 246, 247,
Cold Stone Creamery, 105, 286 E 282,
Colgate-Palmolive, 127, 239, 270–271, eBay, 184, 366 Genesis Toys, 117
283, 292, 369 Edelman, 557 George Weston Ltd., 356
Colombian Coffee Growers Federation, Eddie Bauer, 267, 286 GfK Mediamark Research Inc., 206
342 Edgar, 60 GfK NOP, 206
Columbia Sportswear, 434 eHarmony, 162 GFS Canada, 151
Comfort Inn, 274 EKOS Research Associates, 195, 206 Giant Tiger, 279, 398, 401
COMPAS, 195, 206 Gillette, 75–76, 344
Electrolux, 244
Competition Bureau, 353, 355, 356 Gilt, 110
eMarketer, 472, 475
Condé Nast, 176 Glamour, 293
Enterprise Rent-a-Car, 302
Conference Board of Canada, 92, 557 Global Electric Vehicles Outlook, 216
Environics Analytics, 168
Consumer Reports, 105, 119 GoodData, 203
Equifax, 568
Conversica, 325 GoodLife Fitness, 371
Ernst & Young, 305
Cora Breakfast and Lunch, 176, 177, 181 Goodrich, 183
Esso, 176, 371
Corelle Brands, 364 Goodwill Industries, 396
Estée Lauder, 286, 372, 397, 398, 399,
Coresight Research, 411 Google, 30, 43–44, 105, 131–132, 134,
401, 413
Corporate Social Responsibility 135, 184, 203–204, 232–233, 239,
Etsy, 366
Newswire, 572 248, 264, 277, 316, 332, 341, 444,
Expedia, 15, 503, 544
CosmoGirl, 439 445, 446, 468, 476, 477–478, 483,
Cossette Communication Group, 135 544, 559
Costco, 11, 174, 282, 286, 365, 371, F Great Canadian Bagel, 405
395, 400, 408, 500, 543 Facebook, 14, 15, 30, 80, 112, 134, 141, Greenhouse Juice Co., 118–119
Country Style Foods, 379 203, 212, 213, 219, 223, 267, 290, Groupon, 41, 468
CoverGirl, 186 444, 459, 468, 471, 473, 477 Grow Daddy Canada, 235
Cowbell Brewing Co., 296–297 Factiva, 220 Grundig, 286
Cracker Barrel, 487 Fair Labor Association, 414 Gucci, 342
Craftsman, 281 Fairmont Hotels, 267, 319, 324
Crate and Barrel, 367 Farafena, 496 H
Crave, 5 Fashion Design Council of Canada, 461
H. J. Heinz Company, 239, 331, 540
Crest, 127, 226–227, 283, 331 Fatburger, 537
H&M, 15, 121, 390, 391, 424
Crispin Porter + Bogusky, 484 Feather, 299
Häagen-Dazs, 273, 286
Cruelty Free International, 76 FedDev Ontario, 332
Haier, 524
CT Real Estate Investment Trust, 394 Federal Network Agency, 117
Hakim Optical, 6
Cultures, 105 Federal Trade Commission, 117
Hallmark Cards, 260, 280
Curalate, 425 FedEx, 375, 559
Happy Planet, 496
Fernish, 299
Harley-Davidson, 104, 162–163, 482
D Ferrari, 135
Harley Watt University, 167
Fiat Chrysler, 325
Daily Table, 573–574 Harris/Decima, 195, 206
Fiberlink, 149
Dairy Queen Canada, 379 Harrod’s, 418, 420
Fibre One, 2
Dalhousie University, 288, 345 Harry Rosen, 381–382, 406, 420
Fiesta Farms, 560
Danone, 499, 556 Harry’s, 75, 344
Financial Post Publishing, 220
Darn Tough Socks, 281 Harvard Business Review, 476
First Choice Haircutters, 104, 279–280,
DDB Canada, 487 Harvey’s, 127
302
De Beers, 484 HBO, 5, 149
Fitbit, 121
Del Monte, 258 Health Canada, 235, 290, 402, 490,
Flair Airlines, 354
Dell, 77, 140, 177, 252, 359, 365, 366, 551
Flir Systems Inc., 139
390, 454, 503, 558 Heart and Stroke Foundation, 33, 453,
Food and Drug Administration, 403
Deloitte, 139 491
Foot Locker, 362
Delta Airlines, 140, 312 HeatMax, 270
Ford Motor, 10, 100, 125, 135, 212, 292,
Dentyne, 259 Heineken, 15
Designer Depot, 405 437 Helly Hansen, 395
Desjardins, 94 Forever 21, 121 Hermès, 181, 334
Diabetes Canada, 278 Forrester Research, 195, 319 Hershey Canada, 488
Dior, 104, 121 Fortune, 299, 555 Hertz, 37–39, 182,
Direct Marketing Association, 453 Forzani Group, 395 HMV, 407
Dirty Lemon, 227 Fox, 483 Hockey Canada, 215
Disney, 28, 50, 78, 79, 160, 286, 301, FreshCo, 400 Holiday Inn, 532
482–483, 489, 561 Freshii, 227 Hollywood Record, 482
District Ventures Accelerator, 449 Frito-Lay, 165, 223, 284 Holt Renfrew, 172, 404, 408
Dolce & Gabbana, 116 Home Depot, 94, 110, 249, 365, 374,
Dole, 282 G 375, 376, 394, 395, 403, 404, 418,
Dollar Shave Club, 75, 76, 344 Garmin, 121 469, 473
Dollarama, 181, 405 Gatorade, 180, 185–186 Home Hardware, 19, 421
Company Index IN-5
Home Shopping Network (HSN), 473 Kijiji, 484 MasterCard, 285, 511–514
HomeSense, 405 Kimberly-Clark, 437, 494 Match.com, 492
Honda, 15, 100, 104, 106, 108, 110–111, KIND, 2, 6, 8, 22–23, 181 Mattel, 264–265, 285
116, 135, 538 Kleenex, 277, 486–487 Maxtech Consumer Products, 19
HootSuite, 149, 472 Knowthis.com, 59 Maxtech Manufacturing, 19
HP Canada, 17, 81, 184, 260, 284, Kodak, 252 Maxtech Mosquito Control, 19
558–559 Kraft Foods, 6, 204, 234, 254, 282, McCain Foods, 160, 539, 547
HubSpot, 469 283, 337, 369, 371, 372, 487, 560 McCann Erickson Worldwide, 512
Hudson’s Bay Company, 31, 95, 172, Kurl-On, 527 McDonald’s, 31, 55–56, 182–183,
181, 282, 353, 367, 368, 404, 407, Kylie Cosmetics, 134 196–201, 218–219, 253, 276, 280,
424, 503 288, 303, 315, 344, 379, 411–412,
Hulu, 476 L 448, 454, 480, 491, 495, 496, 523,
Hunter, 410 526, 532, 537, 559
Hydro One, 341 La Senza, 171, 172, 176, 182 McKinsey & Company, 9, 42, 561
Hyundai, 135 Lacoste, 275, 499 MEC (Mountain Equipment Co-Op), 41,
Lamborghini, 136 299, 319, 414, 420–421, 454, 558
I Lancôme, 486 Mechanical Turk, 218
Lands’ End, 178 MediaCorp, 414
IBISWorld, 59 LÄRABAR, 6
IBM, 29, 30, 85, 135, 136, 246, 325, Mediamark Reporter, 59
Le Château, 107, 108, 424 Mega Bloks, 181
532, 535, 536 Lee Jeans, 440
IDEO, 248 Mercedes-Benz, 30, 38, 135, 181, 274,
Lee Valley Tools, 41–42, 369, 419 488, 541
iHeartMedia, 26 Léger Marketing, 55, 79, 195, 204–206
IKEA, 13, 299, 416, 417, 420, 438, 441, Merck, 246
Lego, 517 Mergent, 220
454, 483, 484 Lendio, 155
iMagic, 19 Merrill Lynch, 240
Lennox, 351 MERX, 137, 138
IMAX, 344 Lenovo, 535, 536
IMDB, 5 Metro, 95, 395
Les Ailes de la Mode, 172 Metro Sportswear Ltd., 267
Instagram, 118, 267, 458, 459, 460, Levi Strauss & Co., 15, 135, 137, 284
472, 473–474 Microsoft, 30, 149, 211, 232, 233, 261,
Lexus, 4, 162 541
Instant Brands, 364 Life Savers, 284
Insty-Bit, 19 Milestones, 127
LifeStyle Market Analyst, 59 Miller Brewing Co., 211
Intel, 184, 274 Lindt Canada, 497
Intel Capital, 232 Mintel, 60, 278
LinkedIn, 149, 458, 459, 471–472, 504 MLB, 286
Interbank Card Association, 512 Liquor Control Board of Ontario
Internet Superstore, 181 Molson, 6, 30, 567
(LCBO), 157, 297 Mondelēz, 440, 497
Inuit Tapiriiit Kanatami, 267 L.L. Bean, 267, 319
Investext Plus, 59 Monster, 407
Loblaw, 17, 30, 46, 84, 118, 159, 167, 184, Montclair, 5
Ipsos-Reid, 79, 195, 206, 216, 303 282, 283, 285, 345, 356, 366, 371,
IRI, 204 Montreal, Maine, and Atlantic Railway
395, 400, 407, 497 (MMA), 90
iRobot, 87, 222 London Drugs, 405 Moores Clothing for Men, 165, 349,
Longines, 542 397
J Longo’s, 254 Moose Knuckles, 491
J. Crew, 404, 499 L’Oréal, 102, 162, 254, 288, 428, 429 Motorola, 535, 536
Jan-Pro Cleaning Systems, 379 Louis Vuitton, 8, 11, 347 Mountain Dew, 281
Jawbone, 121 Lowes, 203, 394, 409 MSN, 144
J.D. Power and Associates, 315 Lucas Films, 286 MTV, 26
Jean Coutu, 405 Lucent Technologies, 541
Jenny Craig, 438 Lululemon, 52, 162, 191–192, 275, 27, N
Joe Fresh, 279, 285 5176
Luxottica, 75 Nanos Research, 345
John Lewis, 438
LVMH, 327, 403 National Bank, 325
Johnny Rockets, 537
National Purchase Diary Group, 198,
Johnson & Johnson, 552–553
204, 206
Jordache, 183 M Nature’s Path, 166
Juul, 402–403
M&M Food Market, 371 Nau, 77
Mack Weldon, 162 NBA, 26, 286
K Macy’s, 85 Neiman Marcus, 410
Kanetix, 216 MagicLeap, 232 Nespresso, 338, 372, 496
Kashi, 2, 6 Magna International, 135 Nest, 87
Kate Spade, 285 Manitobah Mukluks, 134 Nested Naturals, 494
Kawartha Dairy, 288 MarketResearch.com, 60, 220 Nestlé, 5, 127, 288, 355, 480, 499, 538,
Kawasaki, 104 Marks & Spencer, 525 541
KAYAK, 336 Mark’s Work Wearhouse, 394–395 NetAdvantage, 59
Kellogg, 160, 204, 223, 227, 236, 274, Marriot, 114, 281, 285, 568 Net-a-Porter, 327
275, 282, 432 Mars, 2, 179, 268, 355, 491 Netflix, 12, 50, 85, 86, 94, 202–203,
Keurig Green Mountain, 338, 372 Marshalls, 405 242, 476
KeVita, 30 Martin’s Family Fruit Farm, 370–371 Netscape, 257
KFC, 379, 532 Marvel, 50–51 Neutrogena, 284
IN-6 Company Index
Splunk, 203 Tiffany & Co., 122–124, 186, 187, 276, Vivid Toy, 117
SportChek, 178, 338, 366, 394–395, 326–327, 330, 471 Vogue, 293
399, 410 TigerDirect, 181, 366 Volkswagen, 136, 137, 483, 486
Sports Illustrated, 267 TikTok, 459, 472 Volvo, 73, 115, 135, 181
Spotify, 85, 95, 167, 232, 330, 341, Tim Hortons, 26, 30, 31, 33, 42, 55–56, Vuzix, 232
534 126, 253, 254, 274, 285–286, 288,
Standard & Poor’s, 59 344, 379, 400, 413, 480, 495, 497, W
Stanley Tool Company, 374–375, 376 532, 540, 558
Staples, 154–155, 419, 454, 468 Tim Hortons Children’s Foundation, Walking on a Cloud, 401
Star Wars, 242 480, 558 Walmart, 13, 75, 76, 87, 95, 117, 119,
Starbucks, 7, 12, 16, 26, 28, 31, 39, Tim Hortons Coffee Partnership, 480 147, 183, 203, 218, 237, 282, 311,
55–56, 114, 272, 283, 284, 288, Timex, 499 338, 346, 363, 367, 369, 370, 371,
301, 371, 372, 405, 412, 415, 474, Tinder, 297 377, 378, 380, 394, 395, 399, 400,
491, 497, 516, 524, 559 Ting Hsin, 535 401, 406, 416, 519, 530, 540, 543,
State Bicycle Co., 219 Tofino Kombucha, 30 556–557
State Farm, 274, 280 TOMS Shoes, 456 WANT Les Essentiels, 489
Statistics Canada, 59, 79, 82, 83, 155, TomTom, 252 Warby Parker, 379
204, 215 TopShop, 390 Water Is Life, 468
Steeped Tea, 18, 532, 533 Toronto Breeze Air Duct Cleaning, 505 Waterstone Human Capital, 312
Strategic Business Insights (SBI), 163 Toyota, 30, 38, 106, 108, 125, 126, 216, Wayfarer, 342
Strategic Milk Alliance, 487 274, 277, 280, 464–466, 485 Wealthsimple, 325, 457
Strategy, 118 Trader Joe’s, 573 WeChat, 477
Subaru, 457 Transport Canada, 139, 241 WeedMD, 280
Subway, 11, 113, 379 Travelocity, 15, 315, 503 Weight Watchers, 6
Supercuts, 405 Trek, 268, 269 Weixin, 477
SurveyMonkey, 217, 218 Tropical Forest Alliance (TFA), 93 Well.ca, 416
Suzuki, 104 Tropicana, 273 Wendy’s, 183, 199–201, 537
Swarovski, 8 Tru Earth, 289 WestJet Airlines, 13, 31, 181, 187, 212,
Sysco, 151 True Religion, 105 312–313, 324, 354
Sysomos, 213 Tumblr, 473, 474, 477 Weston Bread, 356
System for Electronic Document Tums, 259 Whirlpool, 112, 259, 359
Analysis and Retrieval (SEDAR), Tupperware, 366, 541 White Spot, 518, 532
220 TweetDeck, 149 Whole Foods, 119, 123, 292, 399, 475,
20th Century Fox, 316 539, 573
Twitter, 149, 203, 212, 213, 267, 290, WildOats, 183
T 458, 468, 469, 470, 473, 475, 477 Winners, 94, 353, 405
Tylenol, 109, 142 Wintergreen Research, 119
Taco Bell, 114
TypePad, 474 Wintermitts, 344
Target, 377
WNBA, 26
Tastemakers, 461
Women’s Aid, 482
Taulia, 472 U WordPress, 469, 474
TaylorMade, 176
Uber, 311, 534 World Trade Organization (WTO), 138
Taxi, 464
Uggs, 134 World Wildlife Fund (WWF), 17
TD Bank, 276, 285, 325
Ultimate Fighting Championship (UFC), Wowbutter, 287
Television Bureau of Canada, 440
163
TELUS, 181, 255, 276
Under Armour, 207, 208, 273
tentree, 380
Unilever, 76, 211, 234, 246, 259, 444,
Y
TerraCycle, 120, 345 Yahoo, 144
455, 523, 541, 549–550
Tesco, 202, 203, 527, 535 Yamaha, 104
Universal Music Group, 134
Tesla, 4, 73, 100, 106, 134, 410, 455 Yankelovich, 206
Unruly, 472
T-fal, 254 Yellow Pages, 527
UPS, 135, 375, 502
Thalmic Labs, 232 Yelp, 15
The Beer Store, 297 YMCA, 304, 405
The Body Shop, 410, 567 V
Yoplait, 499
The Children’s Aid Foundation, 497 Valentino, 294 YouEye, 252
The Co-operators, 559 Vaughan Mills, 411 YouTube, 244, 459, 460, 469, 470, 472,
The Fitting Room, 76 Vault, 316 473, 476, 544
The Gap, 107, 171, 391, 407, 470 Velocity Garage, 250 Yum Brands, 285
The Globe and Mail, 202 velofix, 305
The Keg Steakhouse, 314 Venture Communications, 449
The North Face, 85, 117, 281 Versace, 445, 456 Z
The Retail Council of Canada, 137 Victoria’s Secret, 495 Zappos.com, 319, 375, 424
The Salvation Army, 396 Vidyard, 472 Zara, 13, 16, 365, 390–392, 415, 424,
The Source, 399 Vimeo, 459, 472 540
The Strategic Counsel, 195, 206 Vine, 472, 473, 477 Ziploc, 104
The Truth About Cars, 212 Virgin Airlines, 419 Zippo, 284
theturnlab, 443 Virgin Mobile, 454 Zoom, 477
Thomson ONE Banker, 60 Viryl Technologies, 261 Zoomerang, 218
3M, 181, 246, 260 Visa, 285, 511 Zvelle, 489
Thrive Market, 52 VitalScience Corp., 498
Subject index
A autocratic buying centre, 148, 151 brand equity. see brand equity
achievers, 163–164 automated teller machines (ATMs), 303 brand name, 274, 282–283
action, 483 competition and, 274, 275
actual product, 268 B dilution, 284
actual risk, 106 B2B (business-to-business) elements, 274
administered vertical marketing vs. B2C, 140–142 extension, 283–285
system, 378 buying process. see B2B buying family brand, 282
advanced shipping notice, 384 process habitual decision making, 126–127
advertising. see also integrated definition, 8 individual brand, 283
marketing communications (IMC); institutions, 137 labelling, 290–291
sales promotion; social media manufacturers, 150 licensing, 286
advertising schedule, 441 marketing, 135, 138 loyalty and, 274, 275, 280–281
AIDA model, 481–484 markets. see B2B markets market value and, 274, 276
cooperative (co-op) advertising, 409, pricing tactics, 351–352 marketing costs and, 274, 275, 280
498 producers, 136–137 omnichannel strategy, 420–421
deceptive advertising, 491 B2B buying process. see also B2B overview of, 277
deceptive reference prices, 353 (business-to-business) ownership, 281–282
definition, 448 vs. B2C, 140–141 packaging, 286–290
digital social mobile, 440 building relationships, 148–149 perception of communication,
direct marketing, 440 buying centre, 145–149 431–432
focus of, 487–488 buying situations, 150–151 personality, 280
IMC tool, 448 ethics, 141 purchasing and, 274
informative, 485–486 organizational culture, 147–148 services marketing, 301
magazine, 440 personal selling and, 507 value, 274–276
newspaper, 440 B2B markets. see also B2B (business- brand associations, 280, 284
objectives/goals, 484–485 to-business) brand awareness, 277, 279, 284,
outdoor advertising, 440, 448 vs. B2C markets, 140–142 482–483
persuasive, 486 buying process, 142–145 brand dilution, 284
print advertising, 448 challenges, 138 brand equity. see also brand;
product placement and, 488–489 customer input and product branding
public service announcements, development, 248–249 brand associations, 280
489–490 described, 135–136 brand awareness, 277, 279
radio advertising, 440, 448 government, 137 brand loyalty, 280–281
regulatory/ethical issues, 490–492 institutions, 137 brand personality, 280
reminder advertising, 486–487 manufacturers, 136–137 definition, 276
sales promotion and, 492–500 fresellers, 137 licensing, 286
schedule, 441 B2C (business-to-consumer) perceived value, 279–280
sustainability, 484 customer input and product brand extension, 283–285
television advertising, 440, 448 development, 248–249 brand licensing, 286
types of media, 440 definition, 8 brand loyalty, 274, 275, 279–280
advertising allowance, 352 market characteristics, 140 brand name, 274. see also brand
advertising schedule, 441 baby boomers, 80, 81 brand naming, 282–283
Advertising Standards Canada, background, 442 brand ownership, 281–282
490–491 bait and switch, 354 brand personality, 280
affective component, 115 BCG matrix, 46–49 brand repositioning (rebranding), 187
affordable method, 435–436 behavioural component, 115 brand value, 274–276. see also brand
AIDA model, 481 behavioural segmentation, 160, equity
aided recall, 482 165–167, 177 branding. see also brand
allowances, 351, 352, 498 believers, 163–164 awareness, 277, 279
alpha testing, 252 benefit segmentation, 166, 300 brand equity, 276–277
analyst reports, 220 beta testing, 252 brand extension, 283–285
annual reports, 448, 458 big data, 203–204, 247 brand licensing, 286
anticipatory shipping, 375 Big Mac Index, 523 brand naming, 282–283
appendix, 59 big-box food retailer, 400 brand ownership, 281–282
artificial intelligence (AI), 85–86, 325, Bill C-32, 490 cobranding, 285–286
368 biometric data, 223 described, 273
ASEAN, 520–521 blockbusters, 246 print advertising, 442
associated services, 269 bloggers, 121, 212 rebranding, 187
Association of Southeast Asian Nations blogs (weblog), 448, 458, 474–475 strategies, 281–286
(ASEAN), 520–521 boycott, 519 value of, 274–276
assurance, 308–309, 508 brainstorming, 248 brands, 270. see also product line;
attention, 482–483 brand. see also branding product mix
attitude, 115 alternative evaluation, 110 Brazil, 528
attribute sets, 107–108 as an asset, 274, 276 break-even analysis, 339–340
augmented product, 269 attribute sets, 107–108 break-even point, 340
augmented reality, 409 awareness, 277, 279, 284, 482–483 BREXIT, 520
Subject Index IN-9
BRIC countries common goals and strategic consumer buying decision process.
cultural dimensions, 525 relationships, 381–382 see buying decision process
global marketing, 528–531 communication. see integrated consumer decision rules, 108
IMC strategies, 541 marketing communications (IMC) consumer feedback, 195, 213
market growth rate, 523–524 communication and strategic consumer legislation, 90
Broadcasting Code for Advertising to relationships, 381 Consumer Packaging and Labelling
Children, 491 communication channel, 431 Act, 290, 490–491
Business Calendar, 478 communication creation, 431–432 consumer perception of
business ethics, 551. see also ethics communication gap, 306, 307, 318. see communication, 431–432
business plan vs. marketing plan, also Gaps model consumer price reductions, 349–351
57–58 communication process, 429–431 consumer pricing tactics, 348–352
business-to-business (B2B) marketing, company capabilities, 75 Consumer Privacy Bill of Rights, 451
135. see also B2B (business-to- company objectives and pricing, 329–331 consumer products, 269
business) company overview, 58 Consumer Reports, 558
buyer, 146, 147 compatibility, 244 consumer sales promotions. see also
buyer’s remorse, 110–111, 116 compensatory decision rule, 108 sales promotion
buying centre, 145–149 competition. see also competitive contests, 493, 495
buying decision process intelligence (CI) coupons, 492–493
alternative evaluation, 103, 107–109 brand, 274, 275 deals, 493–495
extended problem solving, 126 brand loyalty, 280–281 entrepreneurship, 496
family buying decision process, 119 competitor orientation pricing, 331 loyalty programs, 493, 497
information search, 103, 104–107 legislation, 90 POP displays, 493, 497
involvement, 125 microenvironment, 75–76 premiums, 493, 495
limited problem solving, 126–127 perceived value, 279–280 rebate, 493, 497–498
need recognition, 103–104 positioning, 182–183 samples, 493, 496–497
postpurchase, 103, 110–112 predatory pricing, 354 sweepstakes, 493, 495–496
psychological factors of, 113–117 price fixing, 355 consumerism, 558
purchase decision, 103, 110 pricing and, 329, 341–342 contests, 493, 495
situational factors, 113, 122–125 Competition Act, 90, 91, 290, 353–355 continuous advertising schedule, 441
social factors, 113, 119 Competition Bureau, 490–491 contract manufacturing, 535
buying process, B2B vs. B2C, 140–142 competitive intelligence (CI). see also contractual vertical marketing system,
buying situations, 150–151 competition 378
marketing research, 194–195 contribution per unit, 340
C strategies for, 75–76 control phase. see also evaluation and
C2C (consumer-to-consumer), 8 competitive parity, 331 control metrics
CAFTA, 520–521 competitive parity method, 435–436 definition, 32
Canadian Anti-Spam Legislation competitor orientation, 331 marketing plan, 32
(CASL), 452 competitor-based pricing method, 344 marketing strategy with ethics, 568
Canadian Marketing Association (CMA), complementary products, 284, 338 convenience goods/services, 269
553–554 concentrated (or niche) targeting convenience store, 400
Canadian Radio-television and strategy, 176–177 conventional supermarket, 400
Telecommunications Commission concept testing, 245, 249–250 conversion rate, 110
(CRTC), 490–491 concepts, 249 cooperative (co-op) advertising, 409,
Candy Crush Saga, 476, 477 consensus buying centre, 148, 151 498
Cannabis Act, 490 consultative buying centre, 148, 151 copyright, 276
cash cows, 46 consumer adoption cycle core customer value, 268–269
cash discount, 351 compatibility, 244 corporate partners, 77
catalogues, 418, 418, 420, 448, 453– complexity, 243 corporate social responsibility (CSR)
454 diffusion speed, 243 consumerism, 558
category killer, 404 early adopters, 240, 241–242 customers, 561
category specialists, 403–404 early majority, 240, 242 definition, 555
cause-related marketing, 455 innovators, 240–241 described, 555–558
CDSTEP, 33, 77 laggards, 240, 242 employees, 560–561
Central America Free Trade Agreement late majority, 240, 242 ethics scenarios, 568–570
(CAFTA), 520–521 observability, 244 ethics vs., 556–557
channel conflict, 376 relative advantage, 244 marketplace, 561
channel member characteristics, 399 using, 244–245 programs, 558–559
channel members and pricing, 342– consumer awareness, 277, 279, 284 society and, 561–562
343 consumer behaviour corporate vertical marketing system,
channel structure, 398 buying decision process, 103–112 378–379
characters, 274, 286 extended problem solving, 126 cost of ownership method, 345–346
China, 525, 530–531, 541 involvement, 125–127 cost-based pricing method, 343–344
churn, 203 limited problem solving, 126–127 costs and pricing, 329, 338–340,
click-through rate (CTR), 446 psychological factors and buying 343–344, 347–348
click-through tracking, 444 decision, 113–117 country culture, 78
closing the sale, 508 situational factors and buying coupons, 350–351, 409, 448,
cobranding, 285–286 decision, 113, 122–125 492–493
cognitive component, 115 social factors and buying decision, credible commitments and strategic
cold calls, 505 113, 119–122 relationships, 382
IN-10 Subject Index
electronic data interchange (EDI), 384 everyday low pricing (EDLP), 329, 346 G
embargo, 519 evoked set, 107–108 Gaps model
emotional appeal, 438 exchange, 4–5 communication gap, 306, 307, 318
empathy, 308–309, 508 exchange control, 520 definition, 306–307
empowerment, 313–314 exchange rate, 520 delivery gap, 306, 307, 313–318
encoding, 431 exclusive distribution, 371, 372 knowledge gap, 306–311
end caps, 408, 487 executive summary, 58, 61 service gap, 306–307, 319
“entertailing,” 410 experience curve effect, 348 service recovery, 320–322
entrepreneurship experiencers, 163–164 standards gap, 306, 307, 311–313
consumer sales promotions, 496 experimental research, 218–220 gatekeeper, 146, 147
distribution, 364 exporting, 531–532 gender, 82–83, 160–161
global markets, 533 extended problem solving, 126 gender inequality, 14
marketing, 18 external locus of control, 106 general merchandise retailers
marketing research, 220 external search for information, 104, category killer, 404
packaging, 287 105 category specialists, 403–404
presentation, 411 external secondary data, 204–207 department stores, 404
pricing, 332 extreme-value retailer, 405 discount stores, 401
prototype, 250, 252 drugstores, 404–405
sales promotion, 449 F off-price retailers, 405
service as inventory, 304–305 Facebook, 471 services retailers, 405–406
social responsibility, 120 facial recognition software, 221, 223 specialty stores, 401, 403
sustainability, 560 fairness, 321–322 Generation X, 80, 81
environmental concerns, 542–543 family brand, 282 Generation Y, 80–81
esteem needs, 114, 119 family buying decision process, 119 Generation Z, 80
ethical climate, 552–553 fashion product, 261 generational cohorts, 80–81, 160
ethical decision making framework, fast fashion, 390–392 generic brands, 282
563–566 feedback loop, 431 genetically modified organisms
ethical marketing strategy, 566–568 financial performance and marketing (GMOs), 550–551
ethical standards in professions, 552 plan, 44–45 geodemographic segmentation,
ethics financial projections, 58, 69 167–170
advertising, 490–492, 494 financial risk, 106 geographic pricing, 351, 352
B2B buying process, 141 first movers, 238 geographic segmentation, 159–160,
business ethics, 551 FitBit, 477 165
code of, CMA, 554 five Cs of pricing, 329, 331, 348 global communication strategies,
communication gap, 319 fixed costs, 339, 340 541–542
corporate social responsibility vs., flighting advertising schedule, 441 Global Goals of Sustainable
556–557 Flipboard, 478 Development, 91, 92
ethical climate, 552–553 floor-ready merchandise, 387 global distribution strategies, 540–541
framework for ethical decision focus group, 214, 220 global labour issues, 543
making, 563–566 follow-up to sale, 508–509 global market assessment. see also
gender inequality, 14 Food and Drugs Act, 290, 490–491 macroenvironmental factors
global marketing and, 542–544 food retailers, 399–401 economic environment analysis, 518,
growth and conscious marketing, 562 foreground, 442 521–524
location-based social media, 15 4E framework PEST diagram, 518
marketing decisions, 551–558 educate the customer, 467, 469 political environment analysis,
marketing ethics, 551 engage the customer, 467, 470 518–521
marketing research, 221, 223 excite the customer, 467, 468 sociocultural factors analysis, 518,
marketing strategy with, 566–568 experience the product/service, 467, 524–527
metric for ethical decision making, 469–470 technology and infrastructure
564 illustration, 467 capabilities, 518, 527–528
obesity and sugary drinks, 278 media-sharing sites and, 472–474 global market entry strategy
organics, 183 mobile app pricing, 475–476 direct investment, 535
personal ethics, 553, 555 social media, 467–470 exporting, 531–532
PIPEDA, 221 foreign currency fluctuations, 88 franchising, 532
pricing and, 353–356 four Ps. see also marketing mix; place; joint venture, 534–535
privacy concerns, 451–452 pricing; product; promotion risk, 531
scenarios, 568–570 definition, 5 strategic alliance, 534
supply chain management, 368 global marketing mix, 537 global marketing
vaping store, 402–403 IMC tool, 429 BRIC countries, 528–531
ethnicity, 83–84 implementation phase, 40, 397 entrepreneurship, 533
ethnography, 210–211 marketing plan, 5–8, 31, 57 ethical issues, 542–544
European Union (EU), 520–521 marketing strategy, 26 global market assessment. see global
evaluation and control metrics, 59, 71. personal selling, 502 market assessment
see also control phase; marketing value and, 5–8 global market entry strategy, 531–
metrics franchising, 378, 532 535
evaluation of buying alternatives, 103, freemium apps, 476 global marketing strategy, 536–542
107–109 frequency, 444 globalization, 517
evaluative criteria, 108 fulfillment centre, 386 sustainability, 539
event sponsorship, 456–457 functional needs, 103 global marketing mix, 537–542
IN-12 Subject Index
global marketing strategy indirect distribution, 367, 368 internal search for information, 104, 105
communication strategies, 541–542 indirect exporting, 532 internal secondary data, 202–204
global marketing mix, 537–541 individual brand, 283 International Consumer Electronics
target market, 536 individualism, 525 Show (CES), 504
global presence and marketing, 15–16 indulgence, 525 Internet channel, 417, 420–422
global pricing strategies, 540 inelastic, 335 Internet-enabled kiosks, 303–304
global product strategies, 537–540 inflation, 88 Internet of Things (IoT), 87–88
globalization, 517 influencer, 146 introduction stage, 256, 257
glocalization, 538 infomercials, 454 introductory-price promotions, 255
goals/objectives, 58 information, 200 inventory
goods, 6 information flow, logistics management distribution centre, 385–386
Google Drive, 478 data warehouse, 384 merchandise flow, 385–387
government, 137 electronic data interchange, 384 retailing strategy, 407
green marketing, 92–94 illustration of steps, 383–384 service as, 300, 304–305
grey market, 343 universal product code (UPC), 383 vendor-managed inventory (VMI), 385
gross domestic product (GDP), 522 vendor-managed inventory (VMI), 385 involvement, 125
gross rating points (GRP), 444 informative advertising, 485–486
growth stage, 256, 257, 258 infrastructure, 527 J
growth strategies infrastructure capabilities, 527–528 Jawbone UP, 477
definition, 49 initiator, 146 jingles, 274
diversification, 49, 51 innovation JIT systems, 387–388
downsizing, 51 customer need, 234–235 joint venture, 534–535
market development, 49, 50 definition, 234 just-in-time systems, 387–388
market penetration, 49, 50 diffusion of innovation, 237–245
product development, 49, 50 fashion trends, 236
GrubHub, 478 market saturation, 235–236
K
Guidelines for Responsible Food risk management, 236 Kayak, 477
Marketing to Children, 95 supplier relationships, 237 Kindle, 476
innovators, 163–164, 240–241, 257 kiosks, 416, 448, 454–455
H inseparable, 300, 302 knowledge gap. see also Gaps model
Instagram, 473–474 customer expectations, 308
habitual decision making, 126–127 definition, 306, 307
Hazardous Materials Act, 290 institutional advertisements, 487
institutions, 137 service quality, 308–311
headline, 442
health and wellness concern, 95, 97 in-store demonstrations, 124
Heritage Hubs, 169 intangible, 300–301 L
high-involvement consumer, 125 integrated marketing communications labelling, 290–291. see also packaging
high-learning product, 261 (IMC). see also promotion laggards, 240, 257, 260
high/low pricing, 346–347, 350 advertising, 448. see also advertising lagged effect, 483–484
HootSuite, 472 advertising schedule, 441 late majority, 257, 258
horizontal price fixing, 355 appeal, 437–438 lead time, 388
Hulu, 476 budget planning, 435–436 lead users, 249
human development index (HDI), 523 communication creation, 441–442 leader pricing, 349, 354
hypothesis, 210 communication process, 429–431 leads, 504–505
definition, 429 learning, 116
digital media, 457–461 Lemon Aid, 558
I direct marketing, 448, 450–455 licensing, 247
idea generation, 245–249 global communication strategies, lifestyle, 116–117, 162–163, 177
ideal point, 184–185 541–542 limited problem solving, 126–127
ideas, 6, 7 illustration, 444–447 listing allowances, 352
identifiability, 171 impact assessment, 442–444 listing fees, 369–370
iHealth Wireless Scales, 477 media selection, 438–441 locational excellence, 26, 30–31
images, 301 message, 437 location-based social media, 14–15
implementation phase objectives/goals setting, 433–435 locus of control, 106
definition, 32 perception of communication, logistics management. see also
implementation plan, 59, 70–71 431–432 distribution channel; supply chain
marketing mix and, 32, 42 personal selling, 448, 450 management
marketing plan and, 32 public relations, 448, 455–457 definition, 366
marketing strategy with ethics, sales promotion, 448, 450 distribution centre, 385–387
567–568 social and mobile media, 448 information flow, 382–385
STP, 37–40 steps for planning, 432 just-in-time systems, 387
impressions, 446 sustainability, 443 merchandise flow, 385–388
improvement value, 344 target identification, 433 supply chain and, 366
impulse buying, 126 intensive distribution, 371–372 logo, 274, 286
income, 81–82, 160 interest, 483 loss leader pricing, 354
income effect, 337 interest rates, 88 love (social) needs, 114
inconsistent, 300, 302–304 intermediaries’ functions, 376 low-involvement consumer, 125
independent distribution channel, 377 internal locus of control, 106 low-learning product, 261
in-depth interview, 213–214 internal research and development, loyalty. see also customer relationship
India, 523–524, 529–530, 548 246 management (CRM)
Subject Index IN-13
price elasticity of demand, 335–338 B2B vs. B2C, 140–141 product mix. see also brand; product
price fixing, 355 branding. see branding line
price lining, 349 category, 270 changes to breadth, 272
price skimming, 347–348 complexity, 268–269 changes to depth, 273
price war, 342 definition, 233 definition, 270
pricing. see also price development. see product illustration, 271, 272
channel members, 342–343 development product category, 270
company objectives, 329–331 excellence, 26, 29–30 product lines. see product lines
competition, 329, 341–342 global product strategy, 537–540 product mix breadth, 271
costs, 329, 338–340 implementation phase, 40 stock keeping units (SKUs), 271
customers and, 329, 331–338 marketing mix and, 5–7 product mix breadth, 271
demand curves, 333–335 product development, 233–256 product orientation, 10
entrepreneurship, 332 product life cycle. see product life product packaging. see packaging
ethical and legal issues, 353–356 cycle product placement, 211, 488–489. see
five Cs, 329 product line, 46 also place
global pricing strategies, 540 product packaging. see packaging product presentation, 109, 409–413
importance of, 327–328 retailing strategy, 406–407 product specification, 143
market share, 330 service continuum, 297–298 product types, 269–270
methods, 343–346 types, 269–270 product-focused advertisements, 487
omnichannel strategy, 421–422 product attributes, 181 profit orientation, 329–330
price elasticity of demand, 335–338 product branding. see branding; profitability, 173–174, 340
price war, 342 brands promotion. see also advertising;
strategies for, 346–348 product category, 270 integrated marketing
tactics, 348–352 product complexity, 268–269 communications (IMC); sales
tactics vs. strategies, 348 product development promotion
technological advances, 408 concept testing, 245, 249–250 buying decision process, 124
pricing methods customer need, 234–235 implementation phase, 41–42
competitor-based pricing method, definition, 245, 250, 252 marketing mix and, 5, 8
344 evaluation, 245, 255, 256 mobile apps, 124
cost of ownership method, 345 fashion trends, 236 place, 255
cost-based pricing method, 343–344 idea generation, 245–249 price, 255
improvement value method, 344 innovation. see innovation product launch, 255
sustainability, 345 innovation adoption, 237–245 retailing strategy, 408–409
value-based methods, 344–345 market saturation, 235–236 sponsorship, 7
pricing strategies market testing, 245, 252–254 technological advances, 408–409
everyday low pricing (EDLP), 346 product, 233 timing, 255
high/low pricing, 346–347 product failures, 239 proposal analysis, 144
market penetration pricing, 348 product launch, 245, 254–255 protectionist policies, 518. see also
new product pricing, 347–348 product life cycle, 260 political/legal environment
price skimming, 347 prototype, 250, 252 prototype, 250, 252
pricing tactics vs., 348 risk management, 236 psychographics
reference pricing, 346 strategy, 50 definition, 161
pricing tactics supplier relationships, 237 franchising, 177
B2B pricing tactics, 351–352 sustainability, 234 lifestyle, 162–163
consumer price reductions, 349–351 product development strategy, 49, 50 segmentation base, 165
consumer pricing tactics, 348–349 product excellence, 26, 29–30 self-concept, 162
coupons, 350–351 product failures, 239 self-values, 162
definition, 348 product launch, 245, 254–255, 256 STP analysis, 160
pricing strategies vs., 348 product life cycle VALS, 163–166
rebates, 350–351 curve shape variations, 261 psychological factors and buying
primary data decline stage, 256, 257, 260–61 decision
definition, 198 definition, 256 attitude, 115
facial recognition software, 221, 223 growth stage, 256, 257, 258 learning, 116
qualitative research, 208, 209, ideas for extending, 258–259 lifestyle, 116–117
210–214 illustration, 256 Maslow’s hierarchy of needs, 113–114
quantitative research, 209, 210, introduction stage, 256, 257 motives, 113–114
214–220 maturity stage, 256, 257, 258–260 perception, 115–116
reliability, 209 strategies based on, 262 psychological needs, 103–104, 114
sample, 210 product line. see also brand; product psychological risk, 106
secondary data vs., 204–205, 209 mix PSYTE clusters, 167–168
validity, 209 changes to depth, 273 public relations (PR), 448, 455–457
print advertising, 448 definition, 46, 270 public service announcement (PSA),
privacy concerns and marketing, 94, product category, 270 489–490
451–452 product line depth, 271 puffery, 353, 491
private-label brands, 279, 281, 407 stock keeping units (SKUs), 271 pull marketing strategy, 369, 370, 434
PRIZM, 168, 169 product line depth, 271 pulsing advertising schedule, 441
producers, 136–137 product lines, 282–283 purchase decision, 103, 110. see also
product product marketing vs. services buying decision process
attributes, 181 marketing, 300 purchase situation, 122
IN-16 Subject Index
purchasing power parity, 522 retailers. see also retailing IMC tool, 448, 450
pure competition, 341, 342 choosing retail partners, 395, 397– pop-up stores, 499
push marketing strategy, 369, 370, 434 399 trade channel sales promotion, 498
definition, 365 salespeople, 142. see also personal
Q factors for establishing relationship, selling
395 samples, 210, 448, 493
QR systems, 387–388 food retailers, 399–401 sampling, 496–497
qualify, 504 general merchandise retailers, 401, scanner data, 204
qualitative research 403–406 scanner research, 218
definition, 208 identifying types, 396 search and the buying decision
ethnography, 210–211 independent vs. vertical distribution process, 103, 104–107
focus group, 214 channel, 377 search engine marketing (SEM), 445
in-depth interview, 213–214 manufacturers’ relationship with, seasonal discount, 351
observation, 210–211 395–397. see also retailing secondary data
reliability, 209 multi-channel distribution, 369 big data, 203–204
sample, 210 multi-channel strategy, 397 customer lifetime value (CLV), 203,
social media, 212–213 push vs. pull distribution strategies, 207, 228–230
validity, 209 369–371 data mining, 202–203
quality and market share, 330, 348 retailing strategy, 406–416 definition, 198
quality and pricing, 327–328 wholesalers vs., 395 entrepreneurship, 220
quantitative research retailing. see also retailers external secondary data, 204–207
definition, 210 choosing retail partners, 397–399 internal secondary data, 202–204
experimental research, 218–220 definition, 395 marketing research and, 202
hypothesis, 210 ethics, 402–403 panel data, 204–205
panel research, 218 identifying types of retailers, 395 primary data vs., 204–205, 207
surveys, 215–218 nature of, 395 scanner data, 204
quantity discounts, 350 strategies for. see retailing strategy sources, 202, 205
Quebec Consumer Protection Act, 491 types of retailers, 399–406 syndicated data, 204
question marks, 46–47 Wheel of Retailing, 410–412 segmentation. see also positioning;
questionnaire, 215, 217–218 retailing strategy target market; targeting
quick-response (QR) systems, 387–388 personnel, 413, 415 behavioural base, 160, 165–167
quota, 519 place, 415–416 benefit base, 166
presentation (store design and demographic base, 160–161, 165
R display), 409–413 geodemographic base, 167–170
radio advertising, 440, 448 price, 407–408 geographic base, 159–160, 165
radio frequency identification (RFID), product, 406–407 global marketing, 536
386 promotion, 408–409 grid example, 170
ratings systems, 311 retail mix, 406 loyalty base, 167
rational appeal, 437 share of wallet, 415 market segmentation, 37–38
reach, 444 sustainability, 414 occasion base, 166
reachability, of segment, 171–172 retrieval sets, 107 psychographic base, 160, 161–165
rebate, 350–351, 409, 448, 493, return on investment (ROI), 446–447 segment evaluation, 170–174
497–498 reverse engineering, 248 STP analysis, 159
rebranding, 187 reverse innovation, 246 strategy/objectives, 158–159
receiver, 431 RFP process, 143–144 usage rate, 167
recession, 89 risk, 106, 126 VALS, 163–165
reciprocal buying, 142 robotics, 87 selective attention, 116
reference group, 121 royalty payments, 286 selective comprehension, 116
reference pricing, 346, 353 Russia, 519, 528–529, 538 selective distribution, 371, 372–373
regulatory/ethical issues in advertising, selective exposure, 116
490–492 S selective retention, 116
related diversification opportunity, 51 safety needs, 114 self-actualization, 114, 119
relational orientation, 13 sales calls, 448 self-checkouts, 303
relationship selling, 502 sales force training, 498 self-concept, 162
relative advantage, 244 sales orientation, 10–11 self-values, 162
relative market share, 46 sales oriented, 330–331 sender, 429–430
reliability, 209, 308–309, 508 sales people, 123–124 sentiment mining, 213
reminder advertising, 486–487 sales presentation, 506–507 service. see also services marketing
repositioning, 186–187 sales promotion. see also customer service, 28, 297
reputation management, 9 advertising; integrated marketing definition, 297
request for proposals (RFP), 143–144 communications (IMC); promotion; dependence on, 298–299
resellers, 137 social media Gaps model, 306–320
resolving problems, 322 advertising and, 491 product continuum, 297–298
responsiveness consumer sales promotions, 492–498 quality. see service quality
personal selling, 508 coupons and rebates, 350–351 service gap, 306–307. see also Gaps
of segment, 172 cross-promoting, 499 model
service quality, 308–309 definition, 450 service quality
retail mix, 406. see also retailing entrepreneurship, 449 building blocks, 309
strategy evaluation metrics, 500 commitment to, 312–313
Subject Index IN-17
customer evaluation, 310 media-sharing sites, 470, 472–474 retailers, 365, 374. see also retailers
customer expectations, 308 owned media, 439 value and, 373
customer satisfaction and loyalty, paid media, 439 wholesalers, 365
318–320 social network sites, 470–472 supply chain management. see also
definition, 308 thought-sharing sites, 470, 474–475 logistics management
delivering, 313–318 social needs, 114 definition, 7, 363
dimensions of, 309 social network sites ethics and, 368
Gaps model, 306–320 described, 459 illustration, 365
service recovery, 320–322 Facebook, 471 strategic relationships, 379–382
zone of tolerance, 309–310 LinkedIn, 471–472 sustainability, 380
service quality commitment, 312–313 Snapchat, 471 surveys, 199, 215–218, 220, 252
service training, 312 social responsibility, 120. see also survivors, 163–164
services, 6 corporate social responsibility (CSR) sustainability. see also sustainable
services marketing social responsibility performance, 45 marketing
Gaps model, 306–320 social responsibility vs. ethics, 556– advertising, 484
inconsistent, 300, 302–304 557 corporate social responsibility, 556,
inseparable production/consumption, social risk, 106 560
300, 302 social trends global marketing, 539
intangible, 300, 301 green marketing, 92–94 integrated marketing communications
people replacements, 303 health and wellness concern, 95, 97 (IMC), 443
product marketing vs., 300 macroenvironmental factors, 77, 78 packaging, 288, 289
service as inventory, 300, 304–305 privacy, 94 presentation (store design and
service recovery, 320–322 time-poor society, 94–95 display), 414
training and standardization, sociocultural factors analysis pricing, 345
302–303 cultural dimensions, 525 product development, 234
services retailers, 405–406 global market assessment, 518 service, 299
share of wallet, 415 verbal/nonverbal communication, supply chain management, 380
“shift to value,” 408 526 sustainable business practices, 120
shopping goods/services, 269 visible artifacts of, 524 sustainable competitive advantage
shopping situation, 123–124 specialty goods/services, 269 customer excellence, 26, 27–28
showrooming, 477 specialty stores, 401, 403 definition, 26
simulated product or service, 252 sponsorship, 7 locational excellence, 26, 30–31
situation analysis stakeholders, 9 marketing strategy and, 26
definition, 33–37, 58 standards gap, 306, 307, 311–313. see multiple sources of advantage, 31
example, 62–67 also Gaps model operational excellence, 26, 28–29
SWOT analysis, 33–37, 65 stars, 46 product excellence, 26, 29–30
situational factors and buying decision stock keeping units (SKUs), 271 sustainable development, 92
definition, 122 storage, 374, 376 sustainable marketing. see also
illustration, 113 store atmosphere, 123 sustainability
purchase situation, 122 store brands, 281–282 clothing, 380
shopping situation, 123–124 store credit cards, 409 reputation management, 9
temporal state, 124–125 store design, 409–413 sweepstakes, 467, 495–496
size discount, 350 storing, 386–387 SWOT analysis, 33–37, 65. see also
SkyMap, 478 STP. see also positioning; situation analysis
Skype, 477 segmentation; targeting symbolism, 182
slogans, 274 analysis, 58, 158–159 symbols, 274, 286, 301
Snapchat, 471 definition, 37–40, 58 syndicated data, 204
social engagement, 213 global marketing, 536
social factors and buying decision STP analysis, 58, 158–159 T
culture, 121–122 straight rebuy, 150, 151 tangibles, 308–309, 508
family, 119 strategic alliance, 534 TapaTalk, 478
illustration, 113 strategic business unit (SBU), 46 target market. see also positioning;
reference groups, 121 strategic objectives, 61–62 segmentation; targeting
social marketing, 489 strategic relationship (partnering definition, 4
social media relationship), 381 global marketing, 536
4E framework, 460, 467–470 strivers, 163–164 integrated marketing communications
categories of. see social media structured questions, 215, 217 (IMC), 433
categories subculture, 78–79, 122 marketing mix, 5
customer input and product substitute products, 338 target marketing, 38. see also targeting
development, 248–249 substitution effect, 337 target profit pricing, 329
definition, 8, 458 supplier selection, 144 target return pricing, 330
IMC tool, 448, 458–459 supply chain. see also distribution; targeting. see also positioning; target
marketing and, 14–15 logistics management; supply chain market
marketing research, 212–213 management concentrated strategy, 176–177
mobile applications, 475–478 definition, 16–17, 363–364 definition, 38
social network sites, 459–460 direct, 373 differentiated strategy, 176
social responsibility, 567 distribution channel and, 363 global marketing, 536
social media categories indirect, 374 identifiability, 171
earned media, 439 omnichannel strategy, 422 illustration, 171
IN-18 Subject Index
Dedication: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 v
About the Authors: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 vi
Detailed Contents: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 ix
What Is Marketing?: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 xxi
Changes to the Fifth Canadian Edition: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021
xxii
Features Inside Marketing, Fifth Canadian Edition: Chapter from Marketing, Fifth Edition by Grewal, Levy,
Lichti, 2021 xxv
Award-Winning Technology: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 xxviii
Acknowledgments: Chapter from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 xxxi
1. Assessing the Marketplace 1
1. Overview of Marketing: Chapter 1 from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 3
2. Developing Marketing Strategies and a Marketing Plan: Chapter 2 from Marketing, Fifth Edition by
Grewal, Levy, Lichti, 2021 26
Appendix 2A: Writing a Marketing Plan: Appendix 2A from Marketing, Fifth Edition by Grewal, Levy, Lichti,
2021 59
3. Analyzing the Marketing Environment: Chapter 3 from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021
74
661
5. Transacting Value 335
11. Pricing Concepts and Strategies: Establishing Value: Chapter 11 from Marketing, Fifth Edition by Grewal,
Levy, Lichti, 2021 336
6. Value Delivery: Designing the Distribution Channel and Supply Chain 371
12. Distribution Channels: Chapter 12 from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021 373
13. Retailing and Omnichannel Marketing: Chapter 13 from Marketing, Fifth Edition by Grewal, Levy, Lichti, 2021
405
662