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 MARKETING
MANAGEMENT
 Third Edition

MARKETING
MANAGEMENT
A RELATIONSHIP APPROACH
Svend Hollensen
Pearson Education Limited
Edinburgh Gate
Harlow CM20 2JE
United Kingdom
Tel: +44 (0)1279 623623
Web: www.pearson.com/uk

First published 2003 (print)

Second edition published 2010 (print)
Third edition published 2015 (print and electronic)

© Pearson Education Limited 2003, 2010 (print)

© Pearson Education Limited 2015 (print and electronic)

The right of Svend Hollensen to be identified as author of this work has been asserted by him in accordance
with the Copyright, Designs and Patents Act 1988.

The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval
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ISBN: 978-0-273-77885-1 (print)

978-0-273-77888-2 (PDF)
978-0-273-79485-1 (eText)

British Library Cataloguing-in-Publication Data

A catalogue record for the print edition is available from the British Library

Library of Congress Cataloging-in-Publication Data

Hollensen, Svend.
Marketing management : a relationship approach / Svend Hollensen. – Third edition.
pages cm
ISBN 978-0-273-77885-1
1. Relationship marketing. 2. Marketing–Management. 3. Relationship marketing–Case studies. I. Title.
HF5415.55.H65 2015
658.8–dc23
2014020019

10 9 8 7 6 5 4 3 2 1
16 15 14 13 12

Front cover image: © Getty Images

Print edition typeset in 10pt Minion Pro by 73

Print edition printed and bound in Malaysia

NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
BRIEF CONTENTS

Guided tour xvi

Preface xxi
About the author xxviii
Author’s acknowledgements xxix
Publisher’s acknowledgements xxx

1 Introduction 1

PART I ASSESSING THE COMPETITIVENESS OF THE FIRM (INTERNAL) 23

2 Identification of the firm’s core competences 29
3 Development of the firm’s competitive advantage 69

PART II ASSESSING THE EXTERNAL MARKETING SITUATION 111

4 Customer behaviour 115
5 Competitor analysis and intelligence 161
6 Analysing relationships in the value chain 192

PART III DEVELOPING MARKETING STRATEGIES 239

7 SWOT analysis, strategic marketing planning and portfolio analysis 245
8 Segmentation, targeting, positioning and competitive strategies 288
9 CSR strategy and the sustainable global value chain 329

PART IV DEVELOPING MARKETING PROGRAMMES 357

10 Establishing, developing and managing buyer–seller relationships 362
11 Product and service decisions 396
12 Pricing decisions 440
13 Distribution decisions 471
14 Communication decisions 503

PART V ORGANISING, IMPLEMENTING AND CONTROLLING THE

MARKETING EFFORT 547
15 Organising and implementing the marketing plan 552
16 Budgeting and controlling 583

Appendix: Market research and decision support system 616

Glossary 648
Index 660
This page intentionally left blank
CONTENTS

Guided tour xvi

Preface xxi
About the author xxviii
Author’s acknowledgements xxix
Publisher’s acknowledgements xxx

1 Introduction 1
Learning objectives 1
1.1 Introduction 2
1.2 The marketing management process 2
1.3 The traditional (transactional) marketing (TM) concept versus the relationship
marketing (RM) concept 8
1.4 Balancing the transactional and relationship concepts throughout the book 13
1.5 How the RM concept influences the traditional marketing concept 13
1.6 Different organisational forms of RM 16
1.7 Summary 17
Case study 1.1: Hunter Boot Ltd: the iconic British brand is moving into
exclusive fashions 18
Questions for discussion 20
References 20

ParT I ASSESSING THE COMPETITIVENESS OF THE FIRM (INTERNAL) 23

Part I Video case study: Tata Nano - competitiveness of the world’s cheapest car 24
Introduction to Part I 28

2 Identification of the firm’s core competences 29

Learning objectives 29
2.1 Introduction 30
2.2 Roots of competitive advantage 30
2.3 The resource-based view (RBV) 31
Exhibit 2.1: Honda’s competences in small engines 33
2.4 Market orientation view (MOV) compared to the resource-based view 35
2.5 The value chain-based view (VBV) 38
Exhibit 2.2: Nike’s value chain 40
Exhibit 2.3: The value chain of Acme Axles, Inc. 45
2.6 Value shop and the ‘service value chain’ 47
2.7 Internationalising the value chain 51
2.8 The virtual value chain 53
2.9 Experiential marketing 55
Exhibit 2.4: IkEA’s use of AR 57
2.10 Summary 58
viii CONTENTS

Case study 2.1: Zalando: how can the online apparel retailer turn financial
losses into positive profits? 59
Questions for discussion 66
References 66

3 Development of the firm’s competitive advantage 69

Learning objectives 69
3.1 Introduction 70
3.2 General sources of competitive advantage 70
3.3 Introduction of a holistic model of competitiveness: from macro to micro level 73
3.4 Analysis of national competitiveness (the Porter diamond) 76
3.5 Competition analysis in an industry 80
3.6 Value chain analysis 84
3.7 Blue ocean strategy and value innovation 91
Exhibit 3.1: Value innovation at hotel chain Formule 1 93
3.8 Outsourcing – a strategic decision framework based on customers’ evaluation 95
Exhibit 3.2: Sony, an outsourcing company 98
3.9 Summary 100
Case study 3.1: Nintendo Wii: Nintendo’s Wii took first place on the world
market – but it didn’t last 102
Questions for discussion 107
References 107

ParT II ASSESSING THE EXTERNAL MARkETING SITUATION 111

Part II Video case study: Müller - Müller yogurts are penetrating the US market 112
Introduction to Part II 113

4 Customer behaviour 115

Learning objectives 115
4.1 Introduction 116
4.2 Consumer B2C decision making 119
4.3 Influences on consumers’ decision making 124
Exhibit 4.1: Example of loyalty: store loyalty versus brand loyalty 129
Exhibit 4.2: Brand-switching strategy in times of recession – the case
of Skoda Superb 131
4.4 Organisational B2B decision making 131
4.5 Influences on the buying process 141
4.6 Customer-perceived value and customer satisfaction 145
4.7 Customisation – tailoring the offer to the individual customer 148
4.8 Summary 151
Case study 4.1: Spotify: the online music-streaming company is expanding
globally 153
Questions for discussion 159
References 159

5 Competitor analysis and intelligence 161

Learning objectives 161
5.1 Introduction 162
5.2 Who are our competitors? 165
 CONTENTS ix

5.3 How are the competitors interacting? 167

Exhibit 5.1: McDonald’s and Burger king in an asymmetric interaction 168
5.4 How do we learn about our competitors? 169
5.5 What are the strengths and weaknesses of our competitors? 171
5.6 Market commonality and resource commonality 173
5.7 What are the objectives and strategies of our competitors? 174
5.8 What are the response patterns of our competitors? 176
Exhibit 5.2: Role play in CI as a predictor of competitive behaviour 177
5.9 Six steps to competitor analysis 178
5.10 How can we set up an organisation for competitor analysis and CI? 180
Exhibit 5.3: Counterintelligence done by Johnson Controls against Honeywell 181
5.11 Summary 182
Case study 5.1: Cereal Partners Worldwide (CPW): The no. 2 world player
is challenging the no. 1 – Kellogg 183
Questions for discussion 190
References 190

6 analysing relationships in the value chain 192

Learning objectives 192
6.1 Introduction 193
Exhibit 6.1: Value chain of Braun (Oral-B) electric toothbrush 194
6.2 The value net 196
Exhibit 6.2: Value net of Braun (Oral-B) electric toothbrush 197
6.3 Relationships with customers 198
Exhibit 6.3: Speedo’s relations with its retailers 209
6.4 Relationships with suppliers 215
6.5 Relationships with complementors/partners 218
Exhibit 6.4: Irn-Bru’s distributor alliance (Y coalition) with Pepsi Bottling
Group (PBG) in Russia 219
6.6 Relationships with competitors 223
Exhibit 6.5: Value net – cooperation/coopetition between competitors within
each airline alliance. The three alliances are competing against each other 225
6.7 Internal marketing (IM) relationships 226
6.8 Summary 227
Case study 6.1: arM: challenging Intel in the world market of computer chips 229
Questions for discussion 233
References 233

ParT III DEVELOPING MARkETING STRATEGIES 239

Part III Video case study: Nivea: segmentation of the sun-care market 240
Introduction to Part III 243

7 SWOT analysis, strategic marketing planning and portfolio analysis 245

Learning objectives 245
7.1 Introduction 246
7.2 Corporate mission 246
7.3 SWOT analysis 246
7.4 Corporate objectives 252
7.5 Corporate growth strategy 254
x CONTENTS

7.6 SBU marketing strategy/portfolio analysis 256

7.7 Introduction to portfolio models 258
7.8 The Boston Consulting Group’s growth-share matrix – the BCG model 259
7.9 General electric market attractiveness – business position matrix
(GE matrix) 265
7.10 International portfolio analysis 268
7.11 Portfolio analysis of supplier relationships 271
7.12 Summary 275
Case study 7.1: red Bull: the global market leader in energy drinks is
considering further market expansion 277
Questions for discussion 285
References 286

8 Segmentation, targeting, positioning and competitive strategies 288

Learning objectives 288
8.1 Introduction 289
Exhibit 8.1: Segmentation in the pet food market 294
8.2 Segmentation in the B2C market 295
Exhibit 8.2: Segmentation in work (‘salty snacks in the workplace’) 300
8.3 Segmentation in the B2B market 302
8.4 Target marketing 307
8.5 Positioning 310
Exhibit 8.3: Björn Borg’s brand positioning and business modelling in
the international apparel market 312
8.6 Generic competitive strategies 313
Exhibit 8.4: Good-enough markets in China – the case of Duracell batteries 315
8.7 Offensive and defensive competitive strategies 316
8.8 Summary 320
Case study 8.1: LEGO Friends: the world’s third-largest toy manufacturer is
moving into the girls’ domain 322
Questions for discussion 326
References 326

9 CSr strategy and the sustainable global value chain 329

Learning objectives 329
9.1 Introduction 330
9.2 Different levels of ethical behaviour 331
9.3 Social marketing as part of CSR 333
9.4 Cause-related marketing 334
Exhibit 9.1: Examples of cause-related marketing campaigns 334
9.5 Identification of stakeholders in CSR 335
9.6 Drivers of CSR 336
9.7 The sustainable global value chain (SGVC) 336
9.8 CSR and international competitiveness 337
9.9 Poverty (BOP market) as a ‘market’ opportunity 339
Exhibit 9.2: Grameen Danone Foods opens plant in Bangladesh 343
9.10 The ‘green’ market as a business opportunity 344
Exhibit 9.3: Unilever’s introduction of ‘Comfort One Rinse’ saves water 345
9.11 Summary 349
Case study 9.1: YouthaIDS: social marketing in a private, non-profit
organisation 350
Questions for discussion 355
References 355
 CONTENTS xi

ParT IV DEVELOPING MARkETING PROGRAMMES 357

Part IV Video case study: Tequila Avión - a premium tequila is introduced 358
Introduction to Part IV 359

10 Establishing, developing and managing buyer–seller relationships 362

Learning objectives 362
10.1 Introduction 363
10.2 Building buyer–seller relationships in B2B markets 363
10.3 Relationship quality 365
10.4 Building buyer–seller relationships in B2C markets 366
Exhibit 10.1: Husqvarna’s consumer wheel 367
Exhibit 10.2: Employee commitment drives value at Southwest Airlines 370
10.5 Managing loyalty 370
Exhibit 10.3: Developing service loyalty at Volkswagen 373
Exhibit 10.4: Best Buy’s approach to loyalty, compared to competitor
Circuit City 375
10.6 The CRM path to long-term customer loyalty and advocacy 376
10.7 key account management (kAM) 378
10.8 Summary 384
Case study 10.1: Dassault Falcon: the private business jet, Falcon, is
navigating in the global corporate business sector 385
Questions for discussion 393
References 393

11 Product and service decisions 396

Learning objectives 396
11.1 Introduction 397
11.2 The components of the product offer 398
11.3 Service strategies 398
11.4 New product development (NPD) 406
11.5 The product life cycle 408
Exhibit 11.1: Threadless T-shirt crowdsourcing business 413
11.6 New products for the international market 414
11.7 Product cannibalisation 416
11.8 Product positioning 416
11.9 Branding 417
Exhibit 11.2: Roundup – a global brand for multiple markets 421
Exhibit 11.3: kellogg is under pressure to produce Aldi’s own-label goods 422
11.10 Brand equity 424
11.11 Implications of the Internet for product decisions 425
Exhibit 11.4: Ducati motorcycles – product development through
Web communities 426
11.12 ‘Long tail’ strategies 429
11.13 Summary 430
Case study 11.1: British american Tobacco (BaT): launch of the e-cigarette Vype 432
Questions for discussion 436
References 436

12 Pricing decisions 440

Learning objectives 440
12.1 Introduction 441
12.2 Pricing from an economist’s perspective 441
xii CONTENTS

Exhibit 12.1: Johnnie Walker whisky faced positive price elasticity in Japan 443
12.3 Pricing from an accountant’s perspective 444
12.4 A pricing framework 445
12.5 Market value-based pricing versus cost-based pricing 449
Exhibit 12.2: Value-based pricing in Bossard – the ‘15/85 rule’ 451
12.6 Pricing services versus physical products 452
12.7 Pricing new products 453
12.8 Price changes 455
12.9 Experience curve pricing 456
12.10 Product line pricing 457
12.11 Price bundling 459
12.12 Pricing for different segments 459
12.13 Relationship pricing 461
12.14 Pricing on the Internet 463
12.15 Communicating prices to the target markets 464
12.16 Summary 464
Case study 12.1: Harley-Davidson: is the image justifying the price level
in a time of recession? 465
Questions for discussion 469
References 469

13 Distribution decisions 471

Learning objectives 471
13.1 Introduction 472
13.2 The basic functions of channel participants 473
13.3 Distributor portfolio analysis 474
13.4 Developing and managing relationships between manufacturer
and distributor 475
13.5 External and internal determinants of channel decisions 476
13.6 The structure of the channel 478
13.7 Multiple distribution-channel strategy 481
13.8 Managing and controlling distribution channels 482
13.9 Implications of the Internet for distribution decisions 487
13.10 Online retail sales 488
13.11 Smartphone marketing 489
13.12 Channel power in international retailing 491
Exhibit 13.1: The ‘banana split’ model 492
13.13 Mystery shopping in retailing 495
13.14 Summary 496
Case study 13.1: Bosch Indego: how to build B2B and B2C relationships
in a new global product market – robotic lawnmowers 497
Questions for discussion 500
References 501

14 Communication decisions 503

Learning objectives 503
14.1 Introduction 504
14.2 The communication process 505
14.3 Communication tools 511
Exhibit 14.1: LEGO Ninjago’s 360-degree marketing communication 516
Exhibit 14.2: Ambush marketing strategy – Dutch brewery vs Anheuser
Busch’s Budweiser during the FIFA World Cup 2010 520
14.4 Personal selling 523
14.5 Trade fairs and exhibitions 528
 CONTENTS xiii

14.6 Social media marketing 530

Exhibit 14.3: Generating buzz in the pre-communication stage for
BMW 1 Series M Coupé 537
14.7 Developing a viral marketing campaign 538
14.8 Summary 540
Case study 14.1: Orabrush Inc.: how a ‘pull’ B2C YouTube marketing
strategy helped consumers to focus on the ‘bad breath’ problem 541
Questions for discussion 544
References 544

ParT V ORGANISING, IMPLEMENTING AND CONTROLLING

THE MARKETING EFFORT 547

Part V Video case study: Pret A Manger - how to control the expansion of an
international restaurant chain 548
Introduction to Part V 550

15 Organising and implementing the marketing plan 552

Learning objectives 552
15.1 Introduction 553
15.2 Marketing audit 553
15.3 Building the marketing plan 554
15.4 Organising the marketing resources 558
15.5 Implementation of the marketing plan 564
15.6 The role of internal marketing 565
Exhibit 15.1: Merger of Mars’ European food, pet care and
confectionery divisions 567
15.7 Summary 568
Case study 15.1: Triumph: how to manoeuvre as a modern brand in
the global underwear market 569
Questions for discussion 581
References 582

16 Budgeting and controlling 583

Learning objectives 583
16.1 Introduction 584
16.2 Budgeting 584
16.3 Social media metrics 589
16.4 Customer profitability and customer lifetime value 593
Exhibit 16.1: Simulation of firm X’s customer value (cumulative sales
for firm X over periods 1 to 10) with different retention rates 599
16.5 Controlling the marketing programme 600
16.6 Summary 607
Case study 16.1: Sony Music Entertainment: new worldwide organisational
structure and the marketing, planning and budgeting of Pink’s new album 608
Questions for discussion 614
References 614

Appendix Market research and decision support system 616

Learning objectives 616
A.1 Introduction 617
A.2 Data warehousing 617
xiv CONTENTS

A.3 Data mining 618

A.4 The customer information file 618
A.5 Linking market research to the decision-making process 620
A.6 Secondary research 622
A.7 Primary research 626
A.8 Online (Internet) primary research methods 637
A.9 Other types of market research 639
A.10 Setting up a marketing information system (MIS) 643
A.11 Marketing research based on Web 2.0 644
A.12 Summary 645
Questions for discussion 646
References 646

Glossary 648
Index 660

Companion Website ON THE

WEBSITE
For open-access student resources specifically written
to complement this textbook and support your learning,
please visit www.pearsoned.co.uk/hollensen

Lecturer Resources
For password-protected online resources tailored to support
the use of this textbook in teaching, please visit
www.pearsoned.co.uk/hollensen
This page intentionally left blank
GUIDED TOUR

PART III
Developing
marketing strategies

PART III CONTENTS

Part III Video case study
Nivea: segmentation of the sun-care market

Introduction to Part III

7 SWOT analysis, strategic marketing planning and portfolio analysis
8 Segmentation, targeting, positioning and competitive strategies
9 CSR strategy and the sustainable global value chain

PART IV
PART II
Developing
Assessing the marketing
external marketing
situation PART III programmes
Chs 10–14 PART V
PART I Chs 4–6 Developing Organising,
Assessing the marketing strategies implementing and
competitiveness of Chs 7–9 controlling the
the firm (internal) marketing effort
Chs 2–3 Chs 15–16

Each Part introduction lists the chapters and case studies within the part. It also includes a structure map that
allows you to get a clearer picture of how the part relates to the other sections in the book.
PART III VIDEO CASE STUDY 241

PART III VIDEO CASE STUDY

Nivea: segmentation of the sun-care market

Hamburg-based Beiersdorf AG can trace its origins back to a

patent received for medical plasters in 1882 by the pharma-
cist Paul C. Beiersdorf. The business did not remain focused
on this area alone: the first Labello lip-care stick was sold
almost 100 years ago. In 1911, Nivea Creme (which literally
means ‘snow white’) – the first stable, oil-and-water-based
cream – was created. From early on, the company was
looking abroad. Already by 1913 the company generated
42 per cent of its sales abroad.
The 1990s saw the start of Nivea’s systematic expansion
into an umbrella brand. Today, the process is regarded inter-
nationally as a classic example of successful brand devel-
opment. Brand trust has been extended to a wide range of
products: men’s care, hair care, body care, face care, hand
care, sun protection, bath and shower care, deodorants and
make-up. Thanks to Nivea Sun, Beiersdorf is not just the
European market leader for sun-care products; it was also Source: Courtesy of Beiersdorf AG.
the catalyst for the introduction of a sun protection factor
as a new global standard.
a philosophy passed on for generations, and it reflects the
For a long time, Beiersdorf was active in four business
traditional criteria for beauty.
areas: cosmetics, toiletries, medicinal and pharmaceutical
products. Since the 1990s, Beiersdorf has focused consist- The choice of product depends on usage occasion (when) –
ently on the growing market of skin and beauty care – a e.g. holiday, outdoor sports, gardening, working. This relates
strategic decision that has now made Beiersdorf Germany’s to the Sun Protection Factor (SPF) required, e.g. the SPF
largest cosmetics company. required for a holiday in Egypt differs greatly to outdoor work
Today the company’s skin-care products are sold in more Source: Courtesy of Beiersdorf AG.
in the UK. This is one of the reasons why Nivea Sun includes a
than 100 countries.
wide range of sun protection, from SPF 4 to 50+.
Sales of the first full-spectrum range of men-care prod- protection). Nivea Sun provides products that enable Sun protection is the primary benefit, but the prefer-
ucts for the mass market began in 1993. Today Nivea for people to be as safe as possible. Nivea Sun also encourages ence by which this is delivered will vary by segment, e.g.
Men also has a strong position on the global market and is the use of other forms of protection (e.g. wearing a sun hat
consistently gaining market share. convenience is important to men (so they choose spray
and avoiding midday sun). Protection is the largest segment
The global market of cosmetics and toiletries totalled applicators). Parents want to provide maximum protection
in the sun-care market.
€200 billion in 2008. In the same year, Beiersdorf had total for children (high SPFs and coloured products are therefore
2 After-sun important).
sales of nearly €6 billion, and €480 million in net income. The
company had 21,700 employees as of 31 December 2008. Providing cooling and refreshing effects for the skin after a Women are the main purchasers of sun care for the family.
whole day in the sun. This is reflected in above-the-line (advertising) communica-
3 Self-tan tions, generally targeted towards a female audience.
Nivea sun care
In contrast to protection and after-sun, the self-tan category Children are not purchasers of sun care. However, Nivea
The Nivea Sun brand portfolio has grown to over 40 prod- is concerned mostly with cosmetic appeal. Many adults use Sun recognises it can play an important part in educating
ucts, which can be characterised in four different categories: self-tan to have an all-year-round sun-kissed glow. children from a young age to be safer when in the sun.
1 Sun protection 4 Whitening products In Asia, Nivea has considerable success with a combina-
It is vital that skin is adequately protected against the sun’s The popularity of whitening products in Asia is based on tion of sun-care and whitening products in face care. While
harmful effects (although no sunscreen can provide total the old Asian belief that ‘white skin conceals facial defects’ – there may be a market for bleaching products in these
zones, Nivea sticks to gentle formulas. In 2005, Nivea was
the world’s first brand to introduce whitening products for
men in Thailand. Source: Courtesy of Beiersdorf AG.

Following each part introduction, you will find a video case study from a leading international company. Read the
case study, watch the video, which is available on the companion website at www.pearsoned.co.uk/hollensen,and
then answer the questions.
 GUIDED TOUR xvii

7.1 Introduction

A strategic approach to marketing has a number of advantages. First, a strategic emphasis

CHAPTER 3 helps organisations orientate themselves towards key external factors such as consumers
and competition. Instead of just projecting past trends, the goal is to build market-driven
strategies that reflect customer concerns. Strategic plans also tend to anticipate changes in
the environment rather than just react to competition. Another reason strategic marketing is
Development of the firm’s important is that it forces you to take a long-term view.
The structure of this chapter will follow the phases in the corporate marketing planning
competitive advantage process.

7.2 Corporate mission

A formal organisation exists to serve a purpose. This purpose may take a variety of forms and
may be classified in a number of ways according to the view points of a particular organisation.
A well-defined organisation provides a sense of direction to employees and helps guide
them towards the fulfilment of the firm’s potential. Managers should ask, ‘What is our busi-
ness?’ and ‘What should it be?’ The idea is to extract a purpose from a consideration of the
CONTENTS firm’s history, resources, distinctive abilities and environmental constraints. A mission state-
3.1 Introduction ment should specify the business domains in which the organisation plans to operate, or more
3.2 General sources of competitive advantage broadly – for example, ‘we are an office productivity company’. The firm should try to find a
3.3 Introduction of a holistic model of competitiveness: from macro purpose that fits its present needs and is neither too narrow nor too broad.
to micro level Determining a corporate mission that fulfils these requirements is by no means easy. Some
3.4 Analysis of national competitiveness (the Porter diamond) companies spend two or three years redefining their corporate mission and still manage to
3.5 Competition analysis in an industry produce a corporate mission statement that is not particularly useful or relevant. But what
3.6 Value chain analysis precisely is the nature of such a statement?
3.7 Blue ocean strategy and value innovation To be useful and relevant, a business definition should ideally fulfil a number of criteria.
Exhibit 3.1 Value innovation at hotel chain Formule 1 The following represents the more important of these criteria when thinking about how to
3.8 Outsourcing – a strategic decision framework based on customers’ evaluation define a business:
Exhibit 3.2 Sony, an outsourcing company The definition should be neither too broad nor too narrow. Definitions such as ‘we are in
3.9 Summary the business of making profits’ or ‘we produce pens’ are not really useful. Effective mission
Case study 3.1 Nintendo Wii: Nintendo’s Wii took first place on the world statements should cover product line definition, market scope and growth direction.
market – but it didn’t last Ideally, the definition should encompass the three dimensions of what Abell (1980) refers to
Questions for discussion as the ‘business domain’. These three dimensions are customer groups to be served, customer
References needs to be served and technologies to be utilised.

LEARNING OBJECTIVES
After studying this chapter you should be able to:
● define the concept ‘international competitiveness’ in a broader perspective from
a macro level to a micro level
● discuss the basic sources of competitive advantages
● explain how ‘economies of speed’ can be used as a competitive advantage
● explain how Porter’s traditional competitive-based five forces can be extended
to a relationship (five sources) model
● define the steps in competitive benchmarking and explain how these steps are
related to the outsourcing decision process
● explain the purposes and motives for outsourcing activities
● discuss the advantages and disadvantages of outsourcing
7.3 SWOT analysis
SWOT (strengths, weaknesses, opportunities and threats) analysis is a technique designed
especially to help identify suitable marketing strategies for the company to follow.
A SWOT analysis encompasses both the internal and external environments of the firm.
Internally, the framework addresses a firm’s strengths and weaknesses on key dimensions
including: financial performance and resource; human resources; production facilities and
capacity; market share; customer perceptions of product quality, price and product availability;
and organisational communication. The assessment of the external environment includes
information on the market (customers and competition), economic conditions, social trends,
technology and government regulation. When performed correctly, a SWOT analysis can
drive the process of creating a sound marketing plan. SWOT analysis can be especially useful
in discovering strategic advantages that can be exploited in the firm’s marketing strategy.

Each chapter begins with a set of learning objectives that Short chapter introductions concisely introduce the themes
will enable you to focus on what you should have achieved and issues that are built upon within the chapter.
by the end of the chapter.

15.3 Building the marketing plan

Basically, the major functions of the marketing plan are to determine where the firm is, where
it wants to go, and how it can get there.
Marketing planning is linked to planning in other functional areas and to overall corpo-
rate strategy. It takes place within the larger strategic marketing management process of
the corporation. To survive and prosper, the business marketer must properly balance
the firm’s resources with the objectives and opportunities of the environment. Marketing
planning is a continuous process that involves the active participation of other functional
areas.
The marketing plan is responsive to both corporate and business unit strategy, and formally
describes all the components of the marketing strategy – markets to be served, products or
services to be marketed, price schedules, distribution methods and so on. The key compo-
nents of the marketing planning process are situational analysis, marketing objectives and
goal, marketing strategies and programmes, budgets and implementation and control. Note
that the planning process format centres on clearly defined market segments, a thorough
assessment of internal and external problems and opportunities, specific goals and courses of
Market potential action. Business market intelligence, market potential and sales forecasting (see Appendix)
The upper limit of are fundamental in the planning process.
industry demand. That
is, the expected sales At a fundamental level, the marketing plan establishes specific objectives by market
volume for all brands of a segment, defines marketing strategy and actions required to accomplish these objectives
particular product during and pinpoints responsibility for the implementation of these programmes. Ultimately, the
a given period.
marketing plan translates objectives and strategies into forecasts and budgets that provide a
basis for planning by other functional areas of the firm.
A good marketing plan requires a great deal of information gathered from many sources.
It is used to develop marketing strategy and tactics to reach a specific set of objectives and
goals. The process is not necessarily difficult, but it does require organisation, especially if
the marketer is not developing this plan by himself and is depending on others to assist or to
accomplish parts of the plan.
Every marketing plan should have a planned structure or outline before it is started. This
ensures that no important information is omitted and that the material is presented in a
logical manner. One outline to recommend is this:
1 Title page
2 Table of contents
3 Executive summary
4 Introduction
5 Situational analysis
6 Marketing objectives and goals
7 Marketing strategies and programmes
8 Budgets
9 Implementation and control
10 Conclusion.
However, there are other ways to organise a marketing plan that are equally good.
Let us examine each section of the marketing plan structure in further detail.
Title page
The title page provides the reader with the following essential information:
● the business unit for which the plan was prepared;
● the individual or group of individuals for whom the plan was developed;
● the names and addresses of the individuals or agencies who authored the plan;
GLOSSARY
3-D printing An additive manufacturing process that
turns a computer-aided design (CAD) file, created on a
computer or with a 3-D scanner, into a physical object. 3-D
printing enables firms economically to build custom prod-
ucts in small quantities, which also allows firms profitably
to serve small market segments.
4 Ps The basic elements of the marketing mix: product,
place (distribution), price and promotion; also called the
controllable variables of marketing, because they can be
controlled and manipulated by the marketer.
above-the-line advertising Advertising in the mass
media, including press, radio, television and Internet. This
is normally handled by advertising agencies.
adoption process The mental and behavioural stages
through which a consumer passes before making a pur-
chase or placing an order. The stages are awareness, inter-
est, evaluation, trial and adoption.
advertising Non-personal communication that is paid for
by an identified sponsor, and involves either mass commu-
nication via newspapers, magazines, radio, television and
other media (e.g. billboards, bus stop signage), or direct-
to-consumer communication via direct mail.
advertising agency A marketing services firm that
assists companies in planning, preparing, implementing
and evaluating all or portions of their advertising
programmes.
advertising objective A specific communication task to
be accomplished with a specific target audience during a
specific period of time.
affordable approach Setting the promotion budget at
the level management thinks the company can afford.
agent A marketing intermediary who does not take title
to the products but develops a marketing strategy and es-
tablishes contacts abroad.
AIDA Awareness, interest, desire, action – the stages
through which a consumer is believed to pass before pur-
chasing a product.
allowance Promotional money paid by manufacturers to
retailers in return for an agreement to feature the manufac-
turer’s products in some way.
always-a-share customers Customers who have low
switching costs and do not value long-term relationships
with suppliers, making them more suited to transaction
marketing.
ambush marketing An attack from a hidden position. It
occurs when a marketer works on connecting its product
with a particular event in the minds of potential custom-
ers, without having paid sponsorship expenses for the
event.
augmented reality A live view of a physical, real-world
environment whose elements are augmented (or supple-
mented) by computer-generated sensory input, such as
sound, video, graphics or gps data. AR technology allows
consumers to interact virtually with three-dimensional
product visualisations displayed on users’ screens.
baby boom The major increase in the annual birth rate
following the Second World War and lasting until the early
1960s. The ‘baby boomers’, now moving into middle age,
are a prime target for marketers.
below-the-line advertising Advertising that uses less
conventional methods, which are handled directly by
the company itself. It includes email campaigns towards
decision makers, promotions and brochures placed at
point of sale. It could also involve product demos and
sampling at busy places such as malls and shopping
centres.
benchmarking The process of comparing the company’s
products and processes to those of competitors or leading
firms in other industries to find ways to improve quality
and performance.
benefit segments Dividing the market into groups accor-
ding to the different benefits that consumers seek from the
product.
big data Massive volume of data that is so large that it is
difficult to process using traditional database and software
techniques. Big data demands cost-effective, innovative
forms of information processing for providing enhanced
insights and better decision making.
blue oceans The unserved market, where competitors are
not yet structured and the market is relatively unknown.
Here it is about avoiding head-to-head competition. See
also red oceans.
bottom-up method A sales forecasting method that starts
with small-scale estimates (e.g. product estimates) and
works up to larger-scale ones. See also top-down method.

Key terms are highlighted in the text with a brief explanation in the margin where they first appear. These terms are also included in
the Glossary at the end of the book.
xviii GUIDED TOUR

CHAPTER 9 CSR STRATEGY AND THE SUSTAINABLE GLOBAL VALUE CHAIN 345

range of markets such as cleaning products, paper goods, cosmetics and food. Boutique envi-
ropreneur marketing involved the marketing of innovative green products from a production
orientation. All efforts were focused on producing the most environmentally benign products,
rather than the products that consumers actually wanted. Thus, firms ended up with products
that were perceived as under-performing, or over-priced, or just too worthy and ‘unsexy’.
The average consumer would not understand that the reason their green detergents did not
get their clothes ‘whiter than white’ was that they lacked the optical brightener additives that
conventional detergents deposit on clothes (which hardly qualifies as ‘cleaning’ them). Simi-
larly, they would not understand that green washing-up liquids would not produce a big fluffy
bowl of soap bubbles because they lacked polluting, cosmetic ingredients. So, the enviro-
preneur marketers may have meant well, but, while they had the right environmental goals,
they were always destined to have problems establishing a significant market presence in the
long term because they failed to successfully research, understand or educate their customers
(Peattie and Crane, 2005).
EXHIBIT 9.3
Unilever’s introduction of ‘Comfort One rinse’ saves water
In India, more than 50 per cent of the population lives on less than 10 litres of water a day. Demand for water
resources will increase significantly as populations, economies and consumption rates grow. Estimates tell that by
2030, the supply of water in India will be half the demand for it.
Unilever’s Sustainable Living Plan aims to change the domestic routines of millions of people in water-scarce coun-
tries to help reduce water use significantly by 2020, by providing 60 million households with laundry products that
deliver excellent cleaning but use less water.
As part of this plan, Unilever launched Comfort One Rinse in 2012 – a fabric conditioner that removes detergent
foam in just one rinse, saving 20 litres of water every wash. In the first round, Comfort One Rinse has been introduced
in India, Cambodia, Thailand, Vietnam, Indonesia and the Philippines. In the next round, other countries in Asia and
Africa will be included.
In 2012, One Rinse products were used in 1.4 billion washes in 28.7 million households worldwide.
Please also watch the following YouTube videos: www.youtube.com/watch?v=MAzyI_Ndsdgwww.youtube.com/
watch?v=6qcl74FghMs
Source: Adapted from Baker (2012).
EXHIBIT 8.3
Björn Borg’s brand positioning and business modelling in the international
apparel market
Back in the mid to late 1970s, a tennis player from Sweden captivated the crowds at Wimbledon, winning five
straightsingles titles and nearly a sixth in 1981. His name was Björn Borg. Today Björn Borg AB, formerly Worldwide
Brand Management AB, is a Sweden-based company active within the fashion industry. In December 2006, the Björn
Borg Group acquired the Björn Borg trademark and rights to the tennis legend’s name from Björn Borg for
US$18 million. Today Björn Borg himself has nothing to do with Björn Borg AB or its business activities. Björn Borg
AB is headquartered in Stockholm, Sweden.
The company’s operations comprise five product areas: clothes, footwear, bags, eyewear and fragrances.
A majority of the company’s sales are currently in the northern part of Europe, i.e. Sweden, The Netherlands and,
to a lesser extent, Norway and Denmark.
In 2012 the net sales of Björn Borg AB’s activities was €62 million (70 per cent of this was clothing – primarily
underwear), with total profits of €7.8 million (before taxes). Björn Borg AB has 139 employees in its company group
and is involved in the product areas of underwear, sportswear and footwear, as well as bags and luggage, eyewear and
fragrances. Björn Borg products are sold in around 20 markets, the biggest of which are Sweden and The Netherlands.
Björn Borg today is a well-known brand in its established markets, thanks to consistent, long-term branding from
a clearly defined platform and focused marketing. The brand has an especially strong position in men’s underwear,
where Björn Borg is considered a market leader in terms of quality and design in its established markets.
Based on its established position in underwear (especially for men), Björn Borg is working actively to strengthen its
position in clothing, as well as in shoes and accessories. In its main product group, underwear, Björn Borg competes
with well-known international brands such as Calvin Klein, Hugo Boss and Hom, in addition to local players. Competi-
tion is generally expected to grow as more major fashion brands such as Diesel and Puma introduce their own under-
wear collections and new companies enter the market.
Björn Borg’s business model utilises a network of product companies and distributors, which are either part of
the Group or independent companies and have been granted licences to one or more product areas or geographical
markets. The network also includes Björn Borg stores operated by the Group or as independent franchisees. By utilising

Source: Stockbyte/Getty Images (left), Unilever plc (right) Source: Sergio Dionisio/Getty.

New and engaging exhibits analyse and discuss specific companies to show how the theories in the chapter are used by well known
brands in the business world.

14 CHAPTER 1 INTRODUCTION

In 2013 the new Super Mario Bros. U has been one of

Chapter 1: Balancing a the best-selling Wii U games. Also released in 2013 was the
Chapter 1: popular LEGO City: Undercover. In this original lEGO game,
traditional marketing
Introduction
and an RM approach exclusive to Wii U, players assume the role of Chase McCain,
Internal (Part I): External (Part II):
a tough police officer who is a master of disguise.
Chapter 2: Core Chapter 4: When the plans for Wii U were announced at the end
competences Customer
Chapters 2–5: A more
of 2011, the stock market was a bit disappointed. Investors
traditional became more optimistic when they were told, at the begin-
Chapter 3: Competi- Chapter 5:
tive advantage Competitor
marketing approach ning of 2013, that the global sales of the new console had
reached 3.5 million units by the end of December 2012. The
Chapter 6:
original Wii sold 3.1 million units over a similar period after
its release in November 2006. however, Figure 2 shows that
The vertical RM = Relationship Marketing
network Suppliers The Nintendo ‘Wii U’ Wii U is still behind Nintendo’s two competitors, as was the
Source: Kevork Djansezian/Getty Images.
case in 2006, and the question now is whether Nintendo
can create another ‘blue ocean’. These concerns about
Upstream

2 Section 6.4

U GamePad is the main controller for the Wii U. It features a

built-in touchscreen, which can either supplement or repli-
R&D Chapter 6: A true cate the game play shown on the main display. When using
5 RM approach
Section 6.7: the ‘Off TV Play’ function, the controller can act as a stan-
4 Internal 3
Competitors
Production
relationships Complementors dalone screen without the use of a TV.
Section 6.6 Section 6.5 Table 1 shows the worldwide sales of games consoles (in
Marketing millions units) from 2005 to 2012, together with the corre-
Focal firm sponding market shares, which are illustrated in (Figure 2).
Sales &
service
The Wii U is available at two prices: basic (US$300 in
US) and deluxe ($350). At these prices Nintendo will make
a loss on selling the hardware, but from the moment the
Downstream

consumer buys one piece of software, that entire customer

1 Section 6.3
relationship becomes positive, in terms of profits for Satoru Iwata, President of Nintendo, introduces the Wii U
Nintendo. The purpose of the business model is to drive at the Electronic Entertainment Expo (ov E3) in Los Angeles,
The horizontal Customers the installation base for the hardware, and then to drive a 7 June 2011
network strong tie-in ratio with all the software (games). Source: Bloomberg/Getty Images.
Parts III, IV and V:
Balancing a traditional
marketing and a RM
approach

80
Figure 1.4 Balancing the concepts of transactional and relationship marketing
70

customer requirements. The product is therefore the output of a process of collaboration that 60
creates the value customers want for each component of the product and associated serv-
Market share (%)

ices. Products are not bundles of tangible and intangible benefits that the company assembles 50
Sony PS3
because it thinks this is what customers want to buy. Rather, products comprise an aggrega-
40 Xbox 360
tion of individual benefits that customers have participated in selecting or designing. The Wii + ‘U’
customer thus participates in the assembly of an unbundled series of components or modules 30
that together constitute the product or service. The product resulting from this collaboration
may be unique or highly tailored to the requirements of the customer, with much more of the 20
customer’s knowledge content incorporated into the product than was previously the case.
10

Price 0
2005 2006 2007 2008 2009 2010 2011 2012
Traditional marketing sets a price for a product, perhaps discounting the price in accordance Year
with competitive and other marketplace considerations. The price seeks to secure a fair return
on the investment the company has made in its more or less static product. Figure 2 Development of world market shares for SP3 (Move), Xbox 360 (Kinect) and Wii (‘U’)
Source: Based on www.vgchartz.com.

Colour figures and photographs illustrate the key points and concepts and help clarify the topics discussed.
 GUIDED TOUR xix

CASE STUDY 1.1
Hunter Boot Ltd: the iconic British brand is moving into
exclusive fashions
The Hunter boot brand (www.hunter-boot.com) has
become a symbol of British country life and celebrity
fashion. Hunter boots, designed over 150 years ago, were
originally created to deal with Britain’s rugged and unpre-
dictable weather. Today, Hunter is firmly established as a
fashion brand beloved by Hollywood celebrities.
Arthur Wellesley, the first Duke of Wellington, instructed
his shoemaker, Hoby of St James Street, London, to modify
his eighteenth-century boot. They designed the boots in
soft calfskin leather, removed the trim and made the cut
closer around the leg. It was hard to wear the new boots in
battle but it was said that the Duke of Wellington wore the
boots at the famous Battle of Waterloo in 1815. The boots
were dubbed ‘Wellingtons’ or ‘wellies’ and the name stuck.
Wellingtons quickly caught on with patriotic British
gentlemen eager to emulate their war hero. The orig-
inal Wellington boots were made of leather; however, in
America, where there was more experimentation in shoe-
making, producers were beginning to manufacture using
rubber. One such entrepreneur, Mr Henry Lee Norris,
moved to Scotland in search of a suitable site to produce
rubber footwear. Eventually he found it on the farm of the
Castle Mill in Edinburgh. Norris began his boot-making
company, the North British Rubber Company (the company
changed its name to the Hunter Rubber Company in 2004),
in 1856. Committed to fit, comfort, durability and perform-
ance Hunter Wellington boots bear two rare and coveted
stamps of approval of the British royal family.
Source: Jeffrey Blacker/Alamy Images.
Production of the Wellington boot was dramatically
boosted with the advent of World War I, due to the demand
for a sturdy boot suitable for the conditions in flooded
trenches. This made the wellies a functional necessity.
By the end of World War I, the North British Rubber
Company had produced more than 1.8 million pairs of
boots for soldiers. Shoe production ran 24 hours a day.
Again the Wellington made an important contribution
during World War II. At the outbreak of war in September
1939, although trench warfare was not a feature, those
forces assigned the task of clearing Holland of the enemy
had to work in terrible flooded conditions. By the end of
the war, the Wellington had become popular among men,
women and children for wear in wet weather. The boot had
developed to become far roomier with a thick sole and
rounded toe. Also, with the rationing of shoes at that time,
labourers began to use them for daily work.
The company’s most famous welly, the original Green
Wellington, was made over 50 years ago in the winter of
1955. It was launched alongside the Royal Hunter – another
boot that remains in Hunter’s range today.
From 1966 to 2005 a number of ownership changes
took place, and in 2006, the Hunter Rubber Company was
placed into administration as a result of cash flow problems.
In spite of a reported turnover of over £5 million, account-
ants from KPMG said the firm suffered from high manufac-
turing costs, including fuel costs, and made a loss from the
expansion of its business to the US. Hunter reported a loss
of £600,000 from September 2003 to the end of
February 2005, when it had a net debt of £2.03
million.
In 2006, a private consortium led by Lord
Marland, Peter Mullen and Julian Taylor bought
Hunter out of administration and Hunter Boot
Ltd was born. After rapid restructuring of the
company, new supply routes and distribution
partners were found in the UK and the US and
the Hunter portfolio was rationalizes to core
products exhibiting the key skills and tradition
of the company.
Hunter re-established itself as a major player
in the traditional country and leisure footwear
market in the UK in the aftermath of the 2006
acquisition and positioned itself as a strong
contender in the US — opening showrooms on
Seventh Avenue in New York and Carnaby Street in London.
A new management team was also put in place.
One Hunter Wellington tall boot is made from 28 indi-
vidual parts. Each part is individually tailored and assem-
bled by hand to support specific parts of the foot, calf and
ankle. Hunters continue to be made and finished by hand
from natural rubber. Because of this degree of ‘handmade’
in the production of Hunter boots, the management moved
manufacturing from Scotland to China to cut production
cost. Retail prices were also increased by 20 per cent, and
modern ranges in a selection of colours and textures were
added.
A major breakthrough for Hunter in the realm of fashion,
as opposed to farms, came in 2006 when Kate Moss was
seen wearing an Original pair in black at the Glastonbury
music festival. Since then, the Hunter boot has become a
familiar sight among celebrities, on catwalks and on high
streets, as well as in the countryside.
In September 2008, following the 2008 Olympics in
Beijing, China, Hunter Boot Ltd sent specially made gold
Wellington boots to every member of the Great Britain
Olympic team who had won a gold medal at the Games.
In 2010 the UK Prime Minister David Cameron bought
pink and purple pairs of Hunter boots for his US trip, as gifts
for Barack Obama’s daughters.
Hunter Boot Ltd today
Since the downturn in 2006, Hunter has expanded its sales
and profits rapidly, as seen in (Table 1).
Hunter has since seen strong growth with international
distribution in 30 countries.
Hunter is moving into alliances with exclusive
fashion designers
In January 2009, Hunter announced that it would be
collaborating with London-based luxury fashion designer
Table 1 Hunter Boot Ltd’s financial performance, 2008–2010
2010
Sales (% for export) 56.3 (57.9%)
Cost of sales 29.6
Gross profit 26.7
Pre-tax profit 15.9
Profit after tax 11.0
Number of employees 56
Source: Based on various data on www.hunter-boot.com
Jimmy Choo for a limited-edition black Wellington boot,
embossed with signature Jimmy Choo crocodile print and
containing gold rivets and a leopard-print lining. Another
boot was then launched in 2011. The boots costs £250 and
were sold exclusively online at www.jimmychoo.com (the
original version normally costs around £80).
Jimmy Choo and Hunter Boot Ltd received a tremendous
reaction from customers; the online waiting list opened on
1 May, and by 16 May more than 4,000 fashion-conscious
customers had already joined it. Today, the luxurious
Wellington boots have become a classic lifestyle item at
Jimmy Choo and can be purchased regardless of the season,
and not only in traditional black, but in several variations.
In March 2012, J. Mendel and Hunter — two iconic brands
dating back to the nineteenth century — joined forces in a
special collaboration to produce the most glamorous of
Wellington boots: exclusive to North America, these limited-
edition boots brought together the sumptuous look and feel
of J. Mendel with the timeless functionality of Hunter Boot.
The boots went on sale in November 2012 and retail at from
Source: Buzz Photo/Rex Features
Millions of £
2009 2008
25.7 (48.6%) 18.2 (48.4%)
13.6 8.4
12.1 9.8
4.1 3.5
2.8 2.5
41 43

A case study concludes each chapter, providing a range of material for seminars and private study, by illustrating real-life
applications and implications of the topics covered in the chapter. These also come with a set of questions to help you test
your understanding of the case.

PART I CASE STUDY 107

3-D printing has created a new generation of at-home and do-it-yourself manufacturers.
Microsoft has adapted its popular Kinect device (for its Xbox games console) to make 3-D Nintendo’s Wii U arise at a time when smartphones and 3 What are the competitive advantages of the original Wii
scanning easy and inexpensive. This can be used, for example, for scanning the human body tablet PCs are taking shares away from games consoles. and the new Wii U?
in order to get the right sizes and style in clothing. 4 What do you think Nintendo’s chances are of creating a
On the macro level, 3-D printing has the potential to disrupt or destroy traditional models QUESTIONS new ‘blue ocean’ with Wii U?
of manufacturing, distribution, warehousing, shipping and retailing because products will be Source: From Global Marketing: A Market Responsive Approach, 2nd edn,
made where they are needed. Future sales will be of designs, not products, and because 3-D 1 What were Microsoft’s motives in entering the games Financial Times Prentice Hall (Hollensen, S., 2014) p.132–7, © Pearson
console market with Xbox? Education Limited 2001.
printing allows a product to be printed where it is needed, warehouses may be replaced with
digital inventories. Lower entry barriers will allow more local and small businesses to prosper. 2 What are the competitive advantages of Microsoft’s
Instead of relying on traditional manufacturing chains, people will design and print their own Xbox Kinect and Sony’s PlayStation 3 Move?
products or have a local service bureau print it for them. 3-D printing enables firms to build
custom products economically in small quantities, which also allows firms to serve small
market segments profitably.
By reducing the need to ship physical products and efficiently using raw materials, 3-D
printing saves energy. By combining 3-D printing with the energy-saving efforts that most Questions for discussion
countries are undertaking, jobs can be repatriated or kept at home.
3-D printing will eliminate some manufacturing jobs, but it should create others. New jobs,
1 Which sources of competitive advantage are the most important?
coupled with diminishing cost savings of offshoring and outsourcing, give 3-D printing the
2 How can analysis of national competitiveness explain the competitive advantage of a single
potential to foster a manufacturing come-back in countries with strong intellectual capital but
firm?
high manufacturing and labour costs.
3 Is it possible to identify not only national competitiveness, but also regional competitive-
However, when 3-D printing of complex structures, such as electronic devices, becomes
ness? (A region is here defined as more than one country.)
commonplace in the home, 3-D printing may place stress on the utility patent system in the
4 In which situations should a firm consider outsourcing its activities?
same manner that the digital revolution, the Internet and file sharing have placed stress on
5 What are the advantages and disadvantages of outsourcing?
the music industry and the copyright system. Products that are copyrightable, such as dolls,
action figures and figurines and toys, are especially vulnerable to 3-D printing at home. Toys
can be scanned and 3-D printed at home, and the designs can be shared peer-to-peer, thereby
threatening copyright and design patent protection for such products. Trademark owners may References
also be affected when branded products are copied at home (Hordnick and Roland, 2013).
Abraham, S. (2006) ‘Blue oceans, temporary monopolies, and lessons from practice’, Strategy &
Leadership, 34(5): 52–7.
4.8 Summary Allen, J., Reichheld, F.F., Hamilton, B. and Markey, R. (1998) ‘On becoming a strategic partner:
the role of human resources in gaining competitive advantage’, Human Resource Management,
37(1): 31–46.
Consumers’ decision-making processes are classified largely on the basis of high and low Allen, J., Reichheld, F.F., Hamilton, B. and Markey, R. (2005) ‘Closing the delivery gap: how to
involvement with the product and the extensiveness of the search for information. High- achieve true customer-led growth’, Bain Briefs, 10 May, accessed from: www.bain.com/bainweb/
involvement products or services are psychologically important to the consumer. To reduce the pdfs/cms/ hotTopics/closingdeliverygap.pdf.
psychological and financial risks associated with buying a high-involvement item, consumers Blumberg, D.F. (1998) ‘Strategic assessment of outsourcing and downsizing in the service market’,
engage in a complex decision-making process. The five major steps in the process are problem Managing Service Quality, 8(1): 5–18.
identification, information search, evaluation of alternatives, purchase and post-purchase eval- Bonn, I. (2001) ‘Developing strategic thinking as a core competency’, Management Decision, 39(1):
uation. The way in which these steps are carried out differs between products and services. 63–70.
Most purchase decisions have low consumer involvement. Therefore, consumers do not Bonoma, T.V. and Shapiro, B. (1984) ‘How to segment industrial markets’, Harvard Business
engage in an extensive search for information or make a detailed evaluation of alternative Review, May–June: 104–10.
brands. Such search-and-evaluation behaviour is more likely to occur with products than Booms, B.H. and Bitner, M.J. (1981) ‘Marketing strategies and organization structures for service
with services. Buying behaviour is strongly influenced by psychological and personal firms’, in J.H. Donelly and W.R. George (eds) Marketing of Services, Chicago: American Market-
characteristics that vary across individual consumers and countries. Information and social ing Association.
pressures received from other people influence consumers’ wants, needs, evaluations and Brookfield, J., Liu, R.-J. and MacDuffie, J.P. (2008) ‘Taiwan’s bicycle industry A-team battles Chinese
preferences for various products and brand names. competition with innovation and cooperation’, Strategy & Leadership, 36(1): 14–19.
By definition, organisational customers can be grouped into three main categories: Brownlie, D. (2000) ‘Benchmarking your marketing process’, Long Range Planning, 32(1): 88–95.
Burton, J. (1995) ‘Composite strategy: the combination of collaboration and competition’, Journal
1 goods and services producers (raw materials, components, software, office supplies); of General Management, 21(1): 1–23.
2 intermediates (resellers); Cardy, R.L. and Selvarajan, T.T. (2006) ‘Competencies: alternative frameworks for competitive ad-
3 public organisations/government. vantage’, Business Horizons, 49: 235–45.
Chen, Y.G. and Hsieh, P.-F. (2008) ‘A service-based view of Porter’s model of competitive advan-
Organisational buyers purchase goods and services for further production for use in operations, tage’, International Journal of Management, 25(1): 38–53.
or for resale to other customers. In contrast, individuals and households buy for their own use

Chapter summaries reflect on what the chapter has Questions for discussion provide a useful assessment to
covered and will help you to consolidate your learning and test your knowledge and encourage you to review and/or
provide an important revision tool. critically discuss your understanding of the main topics
and issues covered in each chapter.
An extensive list of references at the end of each chapter
directs you to other books, journal articles and websites,
which will help you develop your understanding and
inspire independent learning.
This page intentionally left blank
PREFACE
relationship
marketing (rM)
The process of creating,
maintaining and
enhancing strong long-
term relationships with
customers and other
stakeholders through
mutual exchange and
trust. RM seeks to build
a chain of relationships
between the firm and its
main stakeholders.
Transactional
marketing (TM)
The major focus of the
marketing programme
(the 4 Ps) is to make
customers buy.
Independence among
marketing actors (‘arm’s
length’) is considered vital
for marketing efficiency..
Marketing
management
The process of planning,
executing and controlling
marketing activities to
attain marketing goals
and objectives effectively
and efficiently.
The World Is Flat. This was the title of an international bestselling book by Thomas L. Friedman,
published in first edition in 2005. It analyses globalisation, primarily in the early twenty-first
century, and the picture has changed dramatically. The title is a metaphor for viewing the
world as a level playing field in terms of commerce, where all players and competitors have
an equal opportunity. We are entering a new phase of globalisation, in which there will be no
single geographic centre, no ultimate model for success, no sure-fire strategy for innovation
and growth. Companies from every part of the world will be competing with each other – for
customers, resources, talent and intellectual capital – in every corner of the world’s markets.
Products and services will flow from many locations to many destinations. Friedman mentions
that many companies in, for example, the Ukraine, India and China provide human-based
sub-supplies for multinational companies, from typists and call centres to accountants and
computer programmers. In this way these companies in emerging and developing countries
are becoming integral parts of complex global supply chains for large multinational companies
such as Dell, SAP, IBM and Microsoft.
As this new scene unfolds, the new global leaders increasingly will be forced to defend
the ground they thought they had won and secured long ago. And their expansion into new
markets will be challenged as never before. Their established processes and traditional business
philosophies will be turned upside down by challengers whose experiences in new emerging
markets cause them to see the world very differently and to do business in completely new
ways. Many executives of developed-country companies are not prepared to deal with the
massive wave of competition from skilled and determined new rivals.
As the world is becoming a flat playing field, there is also an increasing need in different
industry supply chains for creating relationships between the involved companies in the
industry value chains. This has important implications for the way that we look at the
marketing discipline in the individual firm. The consequence is that the development of
marketing theory and practice is undergoing a paradigm shift from a transactional to a
relationship orientation. As many companies are still relying on the traditional marketing
approach, this book will bridge the gap between relationship marketing (rM) and traditional
(transactional) marketing (TM).
In the traditional transactional approach, marketing management is about planning,
coordinating and controlling marketing activities that are aimed at satisfying customer needs
and desires – and receiving money from sales.
In recent years, marketing has been undergoing considerable self-examination and internal
debate. The overriding emphasis in the ‘traditional’ marketing approach is on acquiring as
many customers as possible. Evidence is mounting, however, that traditional marketing is
becoming too expensive and is less effective.
Many leading marketing academics and practitioners have concluded that a number of the
long-standing practices and operating modes in marketing need to be evaluated, and we need
to move towards a relationship approach that is based on repeated market transactions and
mutual gain for buyers and sellers.
The ‘new paradigm’ is commonly referred to as relationship marketing (RM). Relationship
marketing is not a new idea. Before the advent of mass production and mass media, relation-
ship marketing was the norm; sellers usually had first-hand knowledge of buyers, and the
successful ones used this knowledge to help keep customers for life.
xxii PREFACE

Relationship marketing reflects a strategy and process that integrates customers, suppliers
and other partners into the company’s design, development, manufacturing and sales
processes.
Fundamentally, relationship marketing draws from traditional marketing principles.
Marketing can be defined as the process of identifying and satisfying customers’ needs in a
competitively superior manner in order to achieve the organisation’s objectives. Relationship
marketing builds on this.
The customer is still fundamental to a marketing relationship. Marketing exists to meet
efficiently the satisfaction of customer needs, as well as those of the marketing organisation.
There is a considerable body of knowledge in social sciences that sheds light on the many
facets of human relationships. We draw from these sources to further our understanding of
consumer relationships.
Marketing exchange seeks to achieve satisfaction for the consumer and the marketing
organisation (or company). In this latter group we include employees, shareholders and
managers. Other stakeholders (such as competitors, financial and governmental institutions)
are also important. As we shall see later, relationships can cover a wide range of organisations
in the environment, for example:
● governmental institutions
● industry associations
● European Union (EU) institutions
● religious groups.
However, the main focus of this book is still on the relationships between the firm and its
closest external bodies, primarily the customers.
In the transactional approach, participants focus exclusively on the economic benefits of
the exchange. Even though in relational exchange the focus widens, economic benefits remain
important to all of the partners in marketing relationships.
With the relationship approach in mind, an integrated view of marketing manage-
ment will be presented. To do this, the latest research findings in marketing manage-
ment and related disciplines are summarised. Yet, marketing management is still a very
practical discipline. People still have practical needs, firms still face practical problems
and solutions still have to work in real life. Most marketers cannot and should not hide
in labs. Marketing is a social science based on theories and concepts, but it also requires
that most marketers meet with people, observe them, talk to them and understand their
activities. In essence, marketing is a dialogue between sellers (marketers) and buyers
(customers). This book reflects this applied approach. Together with important concepts
and theories, my experience that has been obtained through work for many years
with numerous companies – large and small, domestic and international – will be
drawn on.

Target audience
This book is written for people who want to know how the relationship and the traditional
marketing approach (in combination) affect the development of effective and efficient
marketing plans. This book is aimed primarily at students, MBA/graduate students and
advanced undergraduates who wish to go into business. It will provide the information,
perspectives and tools necessary to get the job done. My aim is to enable you to make better
marketing decisions.
A second audience for this book is the large group of practitioners who want to build
on the existing skills and knowledge already possessed. The book is of special interest to
the manager who wishes to keep abreast of the most recent developments in the ‘marketing
management’ field.
 PREFACE xxiii

Unique features of this book

This marketing text tries to integrate the ‘new’ relationship approach in the traditional process
of developing effective marketing plans. Compared to other marketing management books,
this text will attach more importance to the following themes.

Buyer–seller relationships
The guiding principle of this text is that of building relationships between buyers and sellers.
Relationships is a growing trend, and for good reason. Dramatic changes in the marketing
environment are presenting immense new opportunities for companies that really build and
retain relationships with customers. Relationship marketing emphasises the tremendous
importance of satisfied, loyal customers. Good customer relationships happen when all
employees within the organisation develop the sensitivity and desire to satisfy customers’
needs and wants. It may be argued that the traditional concept of marketing (as exemplified
later in Chapter 1) does not adequately reflect the recognition of the long-term value of a
customer. The argument is that many of the traditional definitions of marketing, although
stressing the importance of customer needs and satisfaction, are essentially concerned with
maximising the profitability of each transaction. Instead they should seek to develop long-
term relationships with customers that cannot easily be duplicated by competitors.

Buyer–seller interaction on a global scale

Today’s companies are facing fierce and aggressive competition. Today, most firms compete
not only locally and nationally, but globally as well. Companies that have never given a thought
to internationalisation now also face competition in their home market from international
companies. Thinking globally also requires an understanding of the international diversity
in buying behaviour and the importance of cross-cultural differences in both the B2C and
Business-to-consumer B2B markets. This cross-cultural approach is centred on the study of the interaction between
(B2C)
Marketing that involves
buyers and sellers (and their companies), who have different national and/or cultural
exchange relationships backgrounds.
between a firm and its
end customers, perhaps
via retailers.
Creating competitive advantage through relationships with other companies

Business-to-business Greater emphasis is given to the development of competitive advantage, and consequently to
(B2B) the development of resources and capabilities and competences within the organisation and
Marketing that involves with other companies. Relationship marketing seeks to build a chain of relationships (networks
exchange relationships
between two or more or value net) between the organisation and its main stakeholders, including customers,
business customers and suppliers, distribution channel intermediaries and firms producing complementary products
suppliers. and services. Relationships to competitors are also considered.

Cross-functionalism
Marketing is not an isolated function. A marketer’s ability to implement effectively a
Cross-functional team strategic marketing programme depends largely on the cooperation and competence of
A team made up other functional areas within the organisation. Consequently, substantial attention is given
of individuals from to the interfunctional approach of marketing management. This includes: the concept of
various organisational
departments, who share a competitive advantages, cross-functional teams in the development of new products, supply
common purpose. chain management, internationalisation, quality management and ethics.
Supply chain
management What is new in the third edition?
How products are moved
from the producer to The main theme of this edition is how to build and retain B2B and B2C marketing relationships
the ultimate consumer, in the value chain, both offline but increasingly also online. Consequently, an important
with a view to achieving
the most effective and
aspect of this edition is the strengthening of the online theme (social media, e-commerce,
efficient delivery system. etc.), which is now incorporated in all the chapters and in many cases and exhibits.
xxiv PREFACE

The book’s chapters, cases and exhibits are totally updated with the latest journal articles
and company information. Besides that, the following new concepts are introduced in the
single chapters:
● Chapter 2 – discusses four different strategies for closing the so-called ‘marketing
capability gap’. The starting point is two different dimensions: ‘Inside-out’ (resource-
based view) versus ‘Outside-in’ (market orientation view) and ‘Exploitation’ versus
‘Exploration’ Chapter 2 then analyses the way a company generates perceived value for
customers (value creation) and how it captures some of this value as profit (value capture).
In this chapter the concept of providing customer value through the product value chain
and the service value chain is now extended by adding ‘customer experiences’. The new
section (2.9 Experiential marketing) builds on the trends in the ‘experience economy’.
● Chapter 3 – introduces the concept of ‘strategic groups’.
● Chapter 4 – discusses 3-D printing as a potential new industrial revolution in customisation.
● Chapter 9 – discusses different ways of segmenting the ‘green’ consumer market.
● Chapter 10 – introduces the ‘consumer wheel’ (in the form of the Swedish Husqvarna case)
as a model for creating and retaining relationships with end-customers.
● Chapter 11 – the service-dominant logic (S-D logic) is included as a supplement to the
traditional goods versus services considerations. Furthermore, crowdsourcing is dis-
cussed extensively as a measure for gaining access to new R&D resources among external
users.
● Chapter 12 – discusses the total cost of ownership (TCO) from the customer perspective,
meaning all the lifetime costs that follow from owning the product over its entire lifetime,
including costs connected to disposal of the product. Furthermore, the ‘Freemium’ model
is introduced as a ‘loss leader’ concept, in which a marketer rapidly builds a customer base
when the marginal costs of adding customers and producing value for these are relatively
low.
● Chapter 13 – smartphone marketing aspects in a distribution perspective are added, and
location-based app services – a niche of mobile marketing – are further explained and
implications for marketers are discussed.
● Chapter 14 – now contains comprehensive discussions of the following ‘hot’ topics: Web
2.0, social media marketing and the ‘6C’ model. The transition of market communication
from ‘Bowling’ to ‘Pinball’ is also explained.
● Chapter 16 – now contains a new section about social media metrics, both financial and
non-financial.
● Appendix – introduces marketing research based on Web 2.0 (social media, such as
Facebook and Twitter).
This edition presents 11 new case studies:
1 Part II Video case study – Müller yogurts: penetrating the US market
2 Part IV Video case study – Tequila Avión: a premium tequila is introduced
3 Chapter 1 case study – 1.1 Hunter Boots Ltd: the iconic British brand is moving into
exclusive fashion
4 Chapter 2 case study – 2.1 Zalando: how can the online apparel retailer turn financial
losses into positive profits?
5 Chapter 4 case study – 4.1 Spotify: the online music-streaming company is expanding
globally
6 Chapter 6 case study – 6.1 ARM: challenging Intel in the world market of computer
chips
7 Chapter 8 case study – 8.1 LEGO Friends: the world’s third-largest toy manufacturer is
moving into the girls’ domain
8 Chapter 11 case study – 11.1 British American Tobacco (BAT): launch of the e-cigarette
‘Vype’
 PREFACE xxv

9 Chapter 13 case study – 13.1 Bosch Indego: how to build B2B and B2C relationships in a
new global product market – robotic lawnmowers
10 Chapter 14 case study – 14.1 Orabrush Inc.: how a ‘pull’ B2C YouTube marketing strategy
helped consumers to focus on the ‘bad breath’ problem.
11 Chapter 16 case study – 16.1 Sony Music Entertainment: new worldwide organisational
structure and the marketing, planning and budgeting of Pink’s new album
Furthermore, several new exhibits have been added to the book.

Outline
The book is structured around the two main steps involved in marketing management –
that is, the decision-making process regarding formulating, implementing and controlling a
marketing plan:
● Step 1: Analysis of the internal and external situation (Parts I and II)
● Step 2: Planning and implementation of marketing activities (Parts III, IV and V).
The schematic outline of the book in the diagram on page [xxvi] shows how the two main
steps are divided into five parts. The book has a clear structure according to the marketing
planning process of the firm. Based on an analysis of the competitive advantages of the
firm (Part I) and the analysis of the external situation (Part II), the firm is able to develop
marketing strategies (Part III) and marketing programmes (Part IV). Finally, the firm has
to implement and control its activity in the market and, if necessary, make changes in the
marketing strategy (Part V). Throughout the book this marketing planning process is seen in
a relationship approach, as a supplement to the transactional approach.
The market research function gives a very important input to all five phases (parts) of
this decision-making process, with a possible feedback to the marketing information system
(MIS). Therefore, this section of the book is an Appendix, but a very important one, as the
past marketing experiences are stored in the marketing information system, which may add
important contributions to new marketing decision-making processes – i.e., for making
better marketing decisions.

Pedagogical/learning aids
Many aids to student learning come with the book. These include:
● Chapter learning objectives: these tell the reader what he/she should be able to do after
completing each chapter.
● Case studies: there is a case study at the end of each chapter and each case study contains
questions.
● Video case studies: each part starts with a video case study, which can be accessed on the
book’s website (www.pearsoned.co.uk/hollensen).
● Exhibits: these examples from the real world illustrate the text and the marketing models.
● Summaries: each chapter ends with a summary of the main concepts.
● Discussion questions: at the end of each chapter the discussion issues are presented as
questions.
● Marginal definitions: key concepts from the glossary are defined in the margins of the
text.
● Glossary: a glossary on page [648] provides a quick reference to the key terms in the
book.
Supplementary material to accompany the book can be downloaded by lecturers from www.
pearsoned.co.uk/hollensen.
Tables 1 and 2 show the video case studies and the chapter case studies in this book.
xxvi PREFACE

Chapter 1: Introduction

A
N
Assessing the current situation: A
L
Part I: Assessing the competitiveness of Part II: Assessing the external marketing Y
the firm (internal) situation S
Chapter 2: Identification of the firm’s core Chapter 4: Customer behaviour I
competences Chapter 5: Competitor analysis and intelligence S
Chapter 3: Development of the firm’s competitive Chapter 6: Analysing relationships in the
advantage value chain

P
Part III: Developing marketing strategies L
Chapter 7: SWOT analysis, strategic marketing planning A
Appendix:
and portfolio analysis N
Market research Strategic
Chapter 8: Segmentation, targeting, positioning and N
and decision decisions I
support system competitive strategies
Chapter 9: CSR strategy and the sustainable global N
value chain G

A
N
Part IV: Developing marketing programmes D
Chapter 10: Establishing, developing and managing
buyer–seller relationships I
Chapter 11: Product and service decisions
Functional/ M
Tactical decisions P
Chapter 12: Pricing decisions
Chapter 13: Distribution decisions
L
E
Chapter 14: Communication decisions
M
E
N
T
Part V: Organising, implementing and controlling the A
marketing effort
Action planning T
Chapter 15: Organising and implementing the I
decisions
marketing plan
O
Chapter 16: Budgeting and controlling N

Table 1 Video case studies in the book: overview

Part Video case study Location of Target market area

headquarters and type

Part I Assessing the competitiveness Tata Nano Competitiveness India World B2C/B2B
of the firm (internal) of the world’s cheapest car
Part II Assessing the external Müller yogurts Penetrating Germany USA B2C/B2B
marketing situation the US market
Part III Developing marketing Nivea Segmentation of the Germany World B2C
strategies sun-care market
Part IV Developing marketing Tequila avión A premium tequila is USA USA/World B2C
programmes introduced
Part V Organising, implementing Pret a Manger How to control UK UK/USA/World B2C/B2B
and controlling the marketing the expansion of an international
effort restaurant chain
 PREFACE xxvii

Table 2 Chapter case studies in the book: overview

Chapter Chapter case study Location of Target market

headquarters area and type

1 Introduction 1.1 Hunter Boot Ltd Uk World B2C

The iconic British brand is moving into exclusive
fashions

2 Identification of the firm’s 2.1 Zalando Sweden/ World B2C

core competences How can the online apparel retailer turn financial losses Germany
into positive profits?

3 Development of the firm’s 3.1 Nintendo Wii Japan World B2C

competitive advantage Nintendo’s Wii took the first place on the world market –
but it didn’t last

4 Customer behaviour 4.1 Spotify Sweden/UK World B2B

The online music-streaming company is expanding
globally

5 Competitor analysis and 5.1 Cereal Partners Worldwide (CPW) UK/Switzerland World B2C
intelligence The no. 2 world player is challenging the no. 1 – Kellogg

6 Analysing relationships in 6.1 arM UK World B2B

the value chain Challenging Intel in the world market of computer chips

7 SWOT analysis, strategic 7.1 red Bull Austria World/Japan

marketing planning and The global market leader in energy drinks is considering B2C/B2B
portfolio analysis further market expansion

8 Segmentation, targeting, 8.1 LEGO Friends Denmark World B2C

positioning and The world’s third-largest toy manufacturer is moving
competitive strategies into the girls’ domain

9 CSR strategy and the 9.1 YouthaIDS USA World B2C/B2B

sustainable global value Social marketing in a private, non-profit organisation
chain

10 Establishing, developing 10.1 Dassault Falcon France World B2B

and managing buyer– The private business jet, Falcon, is navigating in the
seller relationships global corporate business sector

11 Product and service deci- 11.1 British american Tobacco (BaT) UK Europe B2C
sions Launch of the e-cigarette ‘Vype’

12 Pricing decisions 12.1 Harley-Davidson USA World B2C

Is the image justifying the price level in a time of
recession?

13 Distribution decisions 13.1 Bosch Indego Germany World B2C/B2B

How to build B2B and B2C relationships in a new global
product market – robotic lawnmowers

14 Communication decisions 14.1 Orabrush Inc. USA World B2C

How a ‘pull’ B2C YouTube marketing strategy helped
consumers to focus on the ‘bad breath’ problem

15 Organising and imple- 15.1 Triumph Switzerland/ World/Western

menting the marketing How to manoeuvre as a modern brand in the global Germany Europe/USA
plan underwear market B2C/B2B

16 Budgeting and controlling 16.1 Sony Music Entertainment New worldwide USA, Japan World B2C/B2B
organisational structure and the marketing, planning
and budgeting of Pink’s new album
ABOUT THE AUTHOR

Svend Hollensen is an Associate Professor of International

Marketing at the University of Southern Denmark (Department
of Border Region Studies) and also a visiting professor at
London Metropolitan University. He holds an MSc (Business
Administration) from Aarhus Business School. He has practical
experience from a job as International Marketing Coordinator
in a large Danish multinational enterprise, as well as from being
International Marketing Manager in a company producing
agricultural machinery.
After working in industry, Svend received his PhD in 1992
from Copenhagen Business School. He has published articles
in journals and is the author of several marketing textbooks.
Among others he is the author of Global Marketing, published
by Financial Times-Prentice Hall and now in its sixth edition
(2014). Indian, Spanish and Dutch editions have been developed
together with co-authors, and it has been translated into Russian
and Chinese.
He may be contacted via:
University of Southern Denmark
Department of Border Region Studies
Alsion 2
DK-6400 Sønderborg
Denmark
e-mail: svend@sam.sdu.dk
Another random document with
no related content on Scribd:
theory requires them to be, namely honest interpreters of the popular
will instead of crooked agents of sinister influence into which they will
otherwise degenerate. Taking the most moderate view of the benefits
to arise from such reforms, therefore, it would seem a clear duty of
all patriotic citizens and statesmen to work first for the publicity of
campaign contributions and afterwards for such other restrictions
upon their collection and use as experience may suggest.

FOOTNOTES:
[67] “Present Discontents,” Bohn ed. vol. i, p. 375.
[68] Cf. Jane Addams, “Democracy and Social Ethics,” ch. vii.
[69] Cf. “The Rise and Growth of American Politics,” p. 312.
[70] Cf. “The Rise and Growth of American Politics,” p. 323. He
adds that: “No other nation in the world is rich enough for the
political experimentation which the United States is carrying on;
but when the end crowns the work, its cost may be found to have
been small in comparison with the value of the recompense.”
[71] Nevada was the first state to enact legislation of this
character. (L. 1895, ch. 103; repealed, 1899, ch. 108.) In the
same year a Minnesota law (ch. 277) presented a very detailed
definition of legitimate expenses. The laws of Pennsylvania
(1906, ch. 17), and of New York (1906, ch. 503), are very
significant. Professor Merriam sums them up as follows: “Both
provide that no expenses shall be incurred except of the classes
authorised in the act. The New York list, which is rather more
liberal in this respect than that of Pennsylvania, includes rent of
halls and compensation of speakers, music, and fireworks,
advertisement and incidental expenses of meetings, posters,
lithographs, banners, and literary material, payments to agents to
supervise the preparation of campaign articles and
advertisements, and furnish information to newspapers; for
advertising, pictures, reading material, etc.; for rent of offices and
club rooms, compensation of clerks and agents; for attorneys at
law; for preparation of lists of voters; for necessary personal and
travelling expenses of candidates and committeemen; for
postage, express, telegraph, and telephone; for preparing
nominating petitions; for workers and watchers at the polls, and
food for the same; for transportation of the sick and infirm to the
polls.” (“N. Y. State Library Review of Legislation, 1906,” p. 160.)
Cf. also Virginia, L. 1903, ch. 98; South Dakota, L. 1907, ch. 146;
and California, L. 1907, ch. 350.
In 1907, New York took the further step of limiting the amount of
expenditure for a given purpose, ch. 398 of that year providing
that not more than three carriages in a city district, nor more than
six in other districts, should be used for the transportation of
voters. Acting on the same principle Massachusetts in 1908 (ch.
85), prohibited the employment by political committees of more
than six persons in a voting precinct or city ward. As the lavish
expenditure of campaign funds for service, rents, and
commodities may become nothing more than a veiled form of
vote buying, the significance of the action of New York and
Massachusetts is apparent. The English Act of 1883 contains
similar provisions.
The New Jersey law of 1906 (ch. 208) contains a long list of
prohibited expenditures, including payments for entertainment, for
fitting up club rooms for social or recreative purposes, or
providing uniforms for any organised club, and the payment for
insertion of articles in newspapers and magazines unless labelled
as paid articles.
[72] Cf. also the Oregon law proposed by initiative petition and
adopted June 1, 1908.
[73] New York now requires full reports from committees also
(ch. 502, L. 1906).
[74] Iowa, L. 1907, ch. 50, followed New York’s example.
[75] “Republican Campaign Text Book,” 1908, p. 25. In his
message at the beginning of the second (i. e., the first regular)
session of the Sixty-first Congress on December 7, 1909,
President Taft returns to the subject as follows:
“I urgently recommend to Congress that a law be passed
requiring that candidates in elections of Members of the House of
Representatives, and committees in charge of their candidacy
and campaign, file in a proper office of the United States
Government a statement of the contributions received and of the
expenditures incurred in the campaign for such elections, and that
similar legislation be enacted in respect to all other elections
which are constitutionally within the control of Congress.”
 The passage in the foregoing, italicised by the writer, is
noteworthy in that it indicates a step in advance by the president.
His speech of acceptance referred to contributions only, whereas
the message of December 7, 1909, demands publicity of
expenditures as well as of party income.
[76] New York Tribune, November 24, 1908, p. 3. The
Cincinnati Enquirer of November 22, 1908, said that
approximately 20,000 persons contributed to the Republican fund.
Possibly the discrepancy is due to the inclusion in the latter figure
of contributors to the finance committees of the Republican
National Committee in the several states, which as noted above
collected $620,150.
[77] Cincinnati Commercial-Tribune, November 23, 1908.
According to the New York Tribune of November 24, 1908, p. 3, in
which is given a list of contributors to the Republican fund in sums
of $500 and upward the larger contributors to the Republican fund
were as follows: C. P. Taft, $110,000; Union League Club, New
York, $34,377, Larz Anderson and G. A. Garrotson, each
$25,000; Union League Club, Philadelphia, $22,500; Andrew
Carnegie and J. P. Morgan each $20,000. In addition to these
there were fifteen contributors of sums of between $6000 and
$15,000 inclusive; twenty-four contributors of $5000 each; thirty-
four of sums between $2500 and $4000 inclusive; twenty of
$2000 each; twenty-eight of sums between $1250 and $1500
inclusive; one hundred and nineteen contributors of $1000 each;
ten of between $750 and $900 inclusive; and two hundred and
fifty contributors of $500 each.
The Democrats made a preliminary report of contributions on
October 15, and daily reports thereafter until the election. As the
newspapers did not state clearly whether the later figures
regarding contributions were inclusive or additional it is difficult to
summarise the larger contributions accurately. According to the
New York Times of October 14, Tammany Hall sent a check for
$10,000 to the Democratic National Committee. The general
report issued October 15, showed the following contributors in
excess of $2000: C. J. Hughes, $5000; W. J. Bryan, Profits of the
Commoner, $4046; Nathan Straus, $2500; National Democratic
Club, $2500; Norman E. Mack, $2000; Sen. W. A. Clark, $2000;
George W. Harris, $2000. Some of the foregoing were reported
as making contributions after October 15, and if other
contributions reported at various times were not repetitions the list
of contributors of $2000 and over would be somewhat increased.
On October 29, the New York Times reported a gift of $10,000
from Herman Ridder, Treasurer of the Democratic Committee,
and gifts of $9000 each from his three sons, Victor, Bernard, and
Joseph. A contribution of $3000 from E. F. Goltra was also
reported on this date. In addition to the foregoing, five
contributions of between $1000 and $1500, and thirty-three of a
thousand dollars each were reported. According to the Cincinnati
Commercial-Tribune of October 16, Democratic newspapers
collected almost $100,000 out of the $248,000 obtained up to that
date. The New York Times of October 31, noted that one paper,
The New Orleans States, had collected a total of $22,000, said to
be the record contribution for any one newspaper.
[78] “The Dollars Behind the Ballots,” World To-day, vol. xv
(1908), p. 946.
[79] Cf. p. 145, supra.
[80] As final corrections were being made upon these pages
the continental press announces the passage of a publicity
measure by Congress. Unfortunately the writer is unable to
secure details upon which to base a judgment of the new law.
That publicity before election was not provided for is, in his
opinion, to be regretted. On the other hand the enactment as
federal law of a measure of this character represents a decided
victory for a principle capable of great expansion. In this
connection the able and persistent propagandist work of the
National Publicity Law Association under the presidency of Mr.
Perry Belmont deserves the warmest commendation. Noteworthy
also is the fact that the Association includes in its membership
many of the most distinguished leaders of both political parties.—
Paris, July 1, 1910.
[81] According to the English Corrupt and Illegal Practice
Prevention Act of 1883, bribery as the unauthorised act of an
agent renders the election invalid and disqualifies the candidate
from representing the constituency in which the offence was
committed for seven years. While the penalty may seem drastic it
has the good effect of compelling candidates to scrutinise
expenditures in their behalf with a degree of anxious care seldom
duplicated on this side of the Atlantic.
[82] Missouri, L. 1907, p. 261. This law was declared
unconstitutional in 1908, however, on the ground that it impaired
liberty of press and speech. Ex parte Harrison, 110 S. W. 709.
 [83] A similar provision was included in the Massachusetts law
of 1892.
[84] A Michigan law which went into effect in 1892 (Repealed,
ch. 61, 1901) provided that all expenditures on behalf of
candidates, with few exceptions, should be made through the
party committees.
[85] Following the four states which took action in 1897,
Kentucky forbade corporate contributions in 1900. In 1905,
Minnesota (ch. 291) made it a felony for an officer of a business
corporation to vote money to a campaign fund. Wisconsin in the
same year (ch. 492) made it a felony for a corporation to
contribute to political parties for the purpose of influencing
legislation or promoting or defeating the candidacy of persons for
public office. New York in 1906, (ch. 239) prohibited political
contributions by corporations and made violation of the act a
misdemeanor. Alabama, Iowa, North Dakota, South Dakota, and
Texas were the five states which forbade corporate contributions
in 1907, and the following eleven were reported as specifically
prohibiting contributions from life insurance companies in that
year: Delaware, Indiana, Michigan, Minnesota, Montana, New
Hampshire, New Jersey, North Carolina, North Dakota,
Tennessee, and West Virginia. In 1908, Ohio, Georgia,
Massachusetts, and Mississippi also forbade corporate
contributions. Altogether to the end of 1908, seventeen states had
forbidden corporate contributions in general, and eleven had
specifically forbidden contributions from life insurance companies.
[86] Massachusetts, L. 1908, ch. 85.
[87] Ohio, L. 1896, p. 123; repealed, L. 1902, p. 77.
[88] Nebraska in L. 1899, ch. 29, fixed the same maxima and
minima as the Garfield Act. The sliding scale principle was
employed in the English Act of 1883.
[89] California, L., 1893, ch. 2; Missouri, L. 1893, p. 157;
Montana, Penal Code, 1895, sec. 80 ff.; Minnesota, L. 1895, ch.
277; and New York, L. 1907, ch. 584.
[90] New York, L. 1895, 155; Connecticut, L. 1895, 338.
[91] California, L. 1907, ch. 350.
[92] New York, L. 1906, ch. 503.
[93] Cf. p. 177, supra.
 [94] See p. 250, supra.
[95] Cf. p. 246, supra.
[96] Wisconsin, L. 1897, 358.
[97] Cf. President Arthur T. Hadley’s discussion of “The
Constitutional Position of Property in America” in the Independent
of April 16, 1908.
[98] Cf. Professor C. Edward Merriam’s “Primary Elections.”
[99] Laws of 1896, p. 123. The repeal was due to minor defects
in the law which could easily have been corrected by amendment.
[100] Laws of 1906, ch. 17.
[101] Nebraska, L. 1901, 30; Virginia L. 1903, ch. 98; Georgia,
L. 1908, 63.
[102] An able argument on this point is presented by Mr. Perry
Belmont in his “Publicity of Election Expenditures,” North
American Review, vol. clxxx (1905), p. 166. For many of the most
important facts cited in the preceding pages of this study the
writer is indebted to Mr. Belmont’s valuable article.
[103] Cf. the Association’s searching “Report of Examination of
Election Expense Statements, 1908;” also its leaflet on “Future
Plans to Prevent Corrupt Practices.”
CORRUPTION AND NOTORIETY: THE
MEASURE OF OUR OFFENDING
 VII
CORRUPTION AND NOTORIETY: THE MEASURE OF OUR

OFFENDING

Charges of corruption make up a large and important part of the

stock in trade of the ordinary American journalist, politician, and
reformer. One unfortunate result of this condition of affairs is that,
taking us at our word, Europe is forming a very low estimate of the
honesty of governmental and business practices on this side of the
Atlantic. Even among ourselves corruption is coming to be thought of
as an indefinite percentage of evil corroding the general service of
the state, and this percentage is assumed to be much larger in the
United States than abroad. Similar comparisons are drawn between
the principal local and state governments of the country. One popular
writer owes no small part of his vogue to the crisp and supposedly
accurate tags which he has affixed to several of our municipalities
and states, e.g., “corrupt and contented,” “half free and fighting on,”
“a city ashamed,” “bad and glad of it,” “a traitor state,” “a state for
sale,” and so on. Between actual corruption, however, and the
notoriety attached to it no definite and known ratio can be said to
exist. Much as it is to be regretted quantitative measures of this
political and social evil are at present quite impossible. Many
difficulties stand in the way even of approximations sufficiently exact
for comparisons of any value. It may perhaps be as well worth while
to consider the nature of these difficulties as to indulge in
denunciation regardless of them.
In the first place a thoroughgoing policy of concealment and
silence would seem absolutely essential on the part of those who
engage in corrupt practices. Our most astute leaders and
manipulators realise this fact. All observers agree, however, that
among the initiated, which usually means a pretty large circle,
corrupt transactions are discussed with comparative freedom. It is a
matter of no great difficulty for an ordinarily capable reporter to learn
in a general way what has been done by the boss or gang in certain
instances, although this, of course, is sufficiently far from being legal
evidence. And it is notorious that our politicians of the baser sort
often indulge their cronies with boasting accounts of their own
achievements in grafting. No one has commented upon this fact with
greater vigour than Professor H. J. Ford of Princeton in his admirable
review of Mr. Steffens’ Shame of the Cities.
“The facts with which Mr. Steffens deals,” writes Professor Ford,
“are superficial symptoms. Hardly any disguise of them is attempted in
the ordinary talk of local politicians. One of the first things which
practical experience teaches is that the political ideals which receive
literary expression have a closely limited range. One soon reaches
strata of population in which they disappear, and the relation of boss
and client appears to be proper and natural. The connection between
grafting politicians and their adherents is such that ability to levy
blackmail inspires the same sort of respect and admiration which Rob
Roy’s followers felt for him in the times that provided a career for his
particular talents. And as in Rob Roy’s day, intimate knowledge finds
in the type some hardy virtues. For one thing, politicians of this type
do not indulge in cant. They are no more shamefaced in talking about
their grafting exploits to an appreciative audience than a mediæval
baron would have been in discussing the produce of his feudal fees
and imposts. Mr. Steffens has really done no more than to put
together material lying about loose upon the surface of municipal
politics and give it effective presentation. The general truth of his
statement of the case is indisputable.”[104]
Possibly, however, Professor Ford underestimates the penetrating
force of “political ideals which receive literary expression.” If by this
phrase he means only the highest conclusions of philosophy clothed
in the noblest language, it is apparent that a very small circle will be
reached at first, although in time these ideals also are certain to be
widely diffused by the schools, by journalism and by the learned
professions. If, on the other hand, “literary expression” is understood
to include the news and editorial columns and the cartoons of the
daily newspaper, a great and constantly increasing body of readers
are becoming amenable to ideals higher than those bred by the
personal relation of “boss and client.” Tweed’s sensitiveness to the
terribly cutting cartoons of Thomas Nast shows this process in the
course of development. In spite of the fact, of which the Tammany
chieftain had boasted, that most of his constituents could not read,
he was nevertheless forced to exclaim:—“If those picture papers
would only leave me alone I wouldn’t care for all the rest. The people
get used to seeing me in stripes, and by and by grow to think I ought
to be in prison.”[105] Even that portion of our foreign population which
differs most widely in language and customs from the native
American stock is being brought with amazing swiftness under the
influence of the daily papers published in English.[106] That influence
may not be all that we would like it, but at any rate it is much more
broadening than the ethics of the clan.
In addition to the perverted class ideas current in the lower political
ranks there are other causes of the astounding garrulity which
prevails regarding corrupt practices. One of these is the exaggerated
vanity which all penologists note as a common trait of criminal
character. The most adequate explanation, however, is to be found
in the fact that so many of the offenders of this sort are allowed to
escape the penalties of the law. If corruption even in its grosser
forms were as certain of punishment as burglary or forgery, its still
unterrified votaries would speedily learn to keep their mouths shut.
One almost amusing consequence of the large degree of immunity
they enjoy at present is the maudlin sympathy expressed by
confrères when an occasional unlucky rascal is fairly caught in the
net of the law. Well they know, these friends of his, that he is no
more guilty than a score of others who go scot free. Often the
untoward event is made the subject of denunciations on the flagrant
injustice involved, and if the gang is particularly impudent its next
accession to power is pretty apt to be marked by the complete
rehabilitation of the “martyrs” who suffered during the reform
uprising.
As a result of the reckless and often exaggerated gabble of the
grafters, sensational newspapers and magazines find it an easy
matter to keep their columns filled continually with highly spiced
political exposures. In all probability comparatively few out of the
total of corrupt transactions that actually take place are thus made
public, but the prominence given these few may easily lead to
overestimates of the extent of this evil in our political life.
Undoubtedly, also, our practical political leaders are sometimes
accused of offences in which they had no part. Inefficiency, as we
have seen, is very common and very similar in appearance to
corruption. No great reportorial or editorial skill is required to dress it
in the garb of the latter. The constant reiteration of stories of this kind
creates as well as meets a popular demand. Ordinarily a saving
sense of the exaggeration and partisanship indulged in by a section
of the press leads readers to make the necessary discount in
forming their opinions of the published accounts of corruption. At
times, however, the popular craving for pungent stories of corruption
amounts to a positive mania. Such was the case in 1905, 1906, and
1907, as any comparison of the tables of contents of certain
magazines and papers of that period with previous years will
abundantly show. On the other hand there can be no doubt that a
considerable part of this literature of exposure and denunciation was
substantially accurate, and that its publication was a service of high
merit. That it was also profitable is no reproach: society is the gainer
when instead of ostracism and punishment it provides rewards and
honours for those who attack real public abuses. In not a few cases
where corruption was thus charged by journalists subsequent
investigations before commissions and courts left no doubt of the
existence of vicious practices, and led to reforms of a most
beneficent character.
Extremely deplorable as must be the effect of false accusations
inspired by selfish motives, a policy of the widest publicity offers
great advantages over one of suppression and silence. Better fifty
exposures, ten or even twenty of which are misleading, than blind
concealment of official misdoing. Disproof of false charges is
comparatively easy and when effectively made redounds to the
prestige of the official or individual who has been unjustly assailed.
As for those newspapers and periodicals which flagrantly abuse their
privilege, it is seldom that they altogether escape penalties in the
form of loss of influence if not of circulation. If penalties of these
kinds can be made effective press censorship and lese majeste
laws, such as exist in autocratic governments, need never be
resorted to in America. From this point of view the horror frequently
expressed by continental publicists at the corruption existing in the
United States appears rather equivocal. Bad as some of our political
conditions may be, we at least deserve credit for our willingness,
nay, our determination, to hear the worst about ourselves. Certainly
there would seem to be greater hope of improvement under our
policy than in a country whose chief national hero used the
enormous income from the sequestered estates of the House of
Hanover to fill the news and editorial columns of the “reptile” press
with lying articles favourable to his policies, and in which only
recently the facts concerning the Camarilla surrounding the Emperor
were so cautiously and partially brought to light. And it is well known
that in Russia the censorship was deliberately used by provincial
bureaucrats to conceal their misdeeds from the knowledge of the
Czar.
As between countries which muzzle the press and those which
allow liberty it is inevitable, then, that the governments of the latter
will be charged far more openly and frequently with corruption.
Citizens who are shocked by the accusations thus trumpeted forth
may be pardoned some apprehensions for the continued stability
and success of their institutions. The sentiment does them more
credit than callous disregard or brazen Chauvinism, and is altogether
more likely to be productive of good works in the future. But it may
easily be carried to an extreme. National shamefacedness is not a
virtue. In forming a judgment of the extent of contemporary
corruption the garrulity of politicians, the sensationalism of the press,
the popular demand for highly spiced accounts of official sinning
should all be taken into account. A cynical representative of yellow
journalism, replying to the criticism that his paper indulged too much
in lengthy and lurid accounts of crime and immorality, remarked
rather sententiously that “sin is news.” The statement is only partially
true. Most sins are too common and too petty to have any news
value. Only those offences that to current estimation seem large and
dangerous are given prominence and headlines. If Turkey and China
enjoyed the blessings of a free press it is hardly probable that the
papers of those countries would give much space to what, according
to Western standards, would be frankly considered corrupt and
extortionate practices on the part of their pashas and mandarins.
Such practices would be so common, so universally known, and so
little in conflict with contemporary Turkish and Chinese political
morals that they would excite little interest and comment. If then, as
in our own papers, accounts of atrocious crimes and accusations of
corrupt practices are given the same large measure of prominence it
means simply that both kinds of offences are considered to possess
a high degree of news value. Puritans may deplore the popular taste
which finds interest in such reports, but we cannot deny the
existence of that interest. Primarily it exists not because sin as such
is news but because offences which are considered large and
dangerous appeal powerfully to the popular mind.
To the normal reader, of course, the fascination of such accounts
is the fascination of repulsion, not of attraction. In attempting to
explain the pornographic note in modern French literature, Professor
Barrett Wendell makes a most ingenious suggestion that is not
without its application to the present argument.[107] With the
exception of a class forming a small part of the whole population,
French family life is conspicuously pure. Why, then, asks Professor
Wendell, should fathers and mothers who themselves practise every
conjugal virtue delight in novels and dramas that dissect all the
prurient phases of divorce, adultery, and sexual laxity? Simply
because such topics take them out of themselves by presenting
situations quite foreign to their experience and hence strikingly
interesting. In some degree the same answer applies to American
public interest in corrupt practices. The great mass of business and
professional men, and of politicians as well, who sincerely attempt to
live up to the best standards of their vocations nevertheless read and
hear with avidity spicy accounts of the malpractices of their
disreputable colleagues. Nor can this interest on their part be
denounced as morbid so long as it leads not to palliation and
imitation but to reprobation and efforts for the wiping out of abuses.
Would the situation be really improved if instead of the daily grists
presented to us by the newspapers we should read nothing but
accounts of the straightforward methods which are employed in the
great bulk of political, business, and professional transactions? The
habit might be exemplary but it would certainly be supremely dull.
While it is not true that all sin is news there would seem to be
nothing to regret in the fact that neither are all virtues. Of the two the
former undoubtedly has the greater news value. But the reason for
this is that relative to the sum total of everyday transactions the more
heinous offences against morals and law are to a high degree
unusual. Virtue and ability, on the other hand, are so commonplace
that it requires a most exceptional display of either to secure public
notice. Considerable vogue has been enjoyed recently by the term
“smokeless sin,” as applied to certain forms of social evil-doing
which although large and dangerous are also so subtle and
complicated that responsibility for them can easily be avoided.[108]
Students of sin would do well to remember, however, that now as
always virtue as a whole possesses the quality of smokelessness to
a much more eminent degree than vice.
Admitting that political corruption exists among us to a disquieting
extent the point is frequently made that the vigour with which it has
recently been exposed and attacked is in itself evidence of moral
health and harbinger of ultimate victory over the evil. Such exposure
and attacks, it is said, signify the development of higher ideals
measured by which practices formerly tolerated are now condemned
by public opinion and will later be condemned by law. As to the
emergence of higher ideals there can be no doubt, and so far we
have just ground for encouragement. Reform sentiment as a whole,
however, can scarcely be accepted at its full face value. A
considerable part of the denunciation which accompanies it is as
much exaggerated as the corresponding campaign “literature” and
“oratory” of the practical politician. Thus the volume of clamour is
augmented and the difficulty of correctly estimating honesty in public
life increased. There are always those who deliberately attach
themselves to reform movements solely because they foresee
victory at the polls with office and emoluments and other less
legitimate opportunities for themselves. In other words while
ostensibly fighting corruption the motives of such persons are at
bottom corrupt from the start. Bandit Mendoza of the Sierras, that
eminent socialist of Shaw’s creation, was not entirely wrong in
maintaining that “a movement which is confined to philosophers and
honest men can never exercise any real political influence: there are
too few of them. Until a movement shows itself capable of spreading
among brigands, it can never hope for a political majority.” In some
American cities charges have even been made that corporate
interests which did not enjoy the favour of the gang or boss have
contributed largely to “anti-graft” campaigns, their real purpose being
to place themselves in a position to claim the favour of the “honest”
administration elected by their efforts. Knowledge of corrupt
transactions, discretely hinted at in the press, has been used in other
instances as a sort of political blackmail to club the gang or boss into
the granting of privileges to applicants who had hitherto been denied.
The mere volume of clamour developed by reform movements
against corrupt practices is, therefore, no certain index of higher
moral standards. There is even danger that we may too
complacently accept mere denunciation for real achievement. Nor
can the work be deemed finished when popular uproar has secured
new legislation, for laws, notoriously, do not execute themselves.
Discouragement then too easily overtakes the rank and file of the
anti-corrupt element; hence, in part, the spasmodic character of
many reform movements. When every necessary deduction has
been made, however, the fundamental strength and continued
progress of the cause of honesty in politics is beyond question. Even
the selfish interests that attach themselves to it prove this contention.
It is true they bring no enthusiasm for higher standards as such, and
also that the results of alliances of this character are often
disheartening. Nevertheless the mere fact that such alliances are
entered into by practical politicians is pretty strong testimony, coming
as it does from men who are very little affected by considerations of
sentiment, to the power of the sincere reform element which is
pursuing no ulterior ends. In all cases of this sort the selfish politician
is seeking to strike with the strength of others, and this strength must
be reckoned with as a real factor, no matter what uses designing
men endeavour to make of it. Here as elsewhere the counterfeit
bears witness to the value of the genuine.
Whatever may be the extent of corruption in the United States it is
under fire all along the line. Moreover we regard and attack as
abuses practices which in other countries are considered free from
reproach or even as pillars of the state. Comparisons to our
disadvantage on the score of corruption are most frequently made
with England and Germany. In England, however, the privileges of
peerage, gentry, clergy, and the landholding class generally are
enormous.[109] Land is assessed at a fraction of its real value, local
rates are thrown upon the tenant, railroads seeking charters and
cities seeking legislation to wipe out disease-breeding slums or to
take over badly managed docks find themselves mulcted by special
acts exacting excessive prices for the property taken, and the
interests responsible for all these conditions sit enthroned in an
omnipotent parliament. Landlordism has progressed to a
considerable degree in the United States, to be sure, and we
possess a more than plentiful supply of slum landlords. Property
rights in realty are abundantly protected among us, but our
landowners are very far from enjoying the class privileges or the
social standing accorded them in England. Moreover when abuses
arise in connection with their management, public opinion does not
hesitate to express itself unmistakably, nor is corrective legislation
difficult to procure. In Germany, which like England is frequently
extolled for its high political morality, autocracy, aristocracy,
Junkertum, and the swaggering military class are sacrosanct.
Landtag and city councils in Prussia are elected under a three-class
voting system which fills these bodies with agents of the landed and
plutocratic interests and deprives the great mass of the people of
adequate representation. Against these and kindred abuses has
risen the menace of social-democracy. The prospects for peaceful
reform in the near future are not altogether bright. Autocratic,
aristocratic, and plutocratic rule is seated firmly in the saddle, and is
not inclined to listen to proposals that it shall reduce its own powers.
Special privileges exist in the United States, it is true, but they are
always regarded as questionable, they must continually justify
themselves to a majority of the whole people, they can never feel
themselves secure in public opinion even if for the time being they
have the support of law. “Grafting,” said Governor Folk of Missouri,
“may or may not be unlawful. It is either a special privilege exercised
contrary to law or one that the law itself may give. Special privileges
are grafts and should be hateful to all good citizens.”[110] The
statement is an unguarded one, but it is thoroughly typical of a deep-
seated American tendency to suspect corruption in every special
privilege, whether it be legal or illegal, whether it be condemned by a
sweeping consensus of moral opinion or only by some reforming
voice crying in the wilderness.
It is no part of this argument to assert that the rights and
immunities enjoyed by the English aristocracy, for example, are
corrupt. Under the definition earlier proposed this is clearly not the
case. On the contrary these privileges have as yet the support of
law, tradition, custom, public opinion, and public deference. A radical
democrat might say that all this simply proves the blind ignorance of
the great mass of Englishmen and the fatal ease with which they can
be exploited by a horde of social parasites. From an unprejudiced
point of view, however, we must concede the right of a people to
govern itself according to its own lights. The English may be
committing a monstrous political blunder in tolerating their
aristocracy, but if they decide to do so that is their own concern, and
the privilege so established is, both in morals and in law, beyond the
accusation of corruption. Exactly the same defence may be made for
the Prussian Junkertum and the German military class, or, for that
matter, for the caste system of India. The development of new
standards of public opinion, morals, and politics, in these countries
may at some time bring their privileged classes under effective
criticism; the conviction that they are socially harmful may gain
ground; and out of this conviction may come reform movements
designed to secure their abolition. Until that time, however, while we
may perceive clearly enough the political ills entailed upon our
neighbours by special privilege, we cannot denounce them as
corrupt because they tolerate it.
It may even be conceded that in some cases the glorification of a
class is in the best interests of the state as a whole. Feudal
aristocracy was certainly functional and efficient, whatever one may
think of its modern descendants. Considering Germany’s powerful
neighbours and her extended frontier there is much to be said even
for the privileges at present granted to her military class, however
odious they may appear to the citizen of a non-militant country. One
need not go far afield in search of illustrations of this sort. Under our
tariff system advantages accrue particularly to manufacturers that
are not entirely dissimilar to the special privileges referred to above.
Protection was established, however, on the ground that while
manufacturers might benefit primarily by duties on imports, the
resulting advantages would be widely diffused, and the interests of
the country as a whole advanced by this policy. It is possible that the
majority was mistaken in so thinking, just as the English may be
mistaken in thinking that the maintenance of an aristocracy is to their
national advantage. Deeply as our protective system is entrenched,
however, it has no such support as aristocracy in England, as
militancy in Germany. It has continuously been criticised by very
large minorities, and the only real basis of defence it possesses is
the conviction of the majority that it is conducive to the welfare of the
country as a whole. If it once loses this support its ultimate fall is
assured. Other forms of privilege existing among us,—railroad
interests, franchise interests, interests seeking land, timber, and
mineral grants, or subsidies, and corporations generally,—are on the
defensive to an even greater degree than the protective system.
The argument so far as it relates to special privileges may now be
summed up as follows: Special privileges are not necessarily
corrupt; they may be in the public interest and recognised as such.
They exist in the United States, but are much more common in
England and Germany. We, however, have chosen to regard all of
them with suspicion and to attack many of them vigorously, charging
them not only with corruption but with every other political crime in
the calendar. Abroad they enjoy greater security and respectability.
Even when they are assailed by English and continental publicists
more deferential methods of attack are employed than we are used
to in America. Rude words such as “graft” are avoided.[111] Hence in
part the greater appearance of corruption which we present to
Europe, and which we seem to confirm by the criminations and
recriminations which issue from our own mouths. Mr. Frederic C.
Howe is therefore right in maintaining the probability that “it is not so
much in the badness, as in our knowledge of the badness, that
America differs from the rest of the world.” Without underestimating
the enormous power of the forms of special privilege which exist
among us, and the difficulty of restraining and regulating them,[112]
European nations may nevertheless find it a far more trying task to
adjust the claims of their own widespread and deeply rooted forms of
privilege when they come into conflict with the rising tide of
democratic and socialistic sentiment. So far as privilege in autocratic,
aristocratic, and clerical forms, is concerned we have every reason
to be grateful that the fathers of the Republic long ago made away
with it. They left the awful heritage of slavery, but privilege resting
upon that basis has also been wiped out. We ourselves must face
the power of the political machine and massed wealth, and we are
facing it. Momentous as is the issue, we have, at least, the
satisfaction of being able to rejoice, in the trenchant and essentially
true words of Mr. William Allen White, that the United States is “a
country where you can buy men only with money.”[113]
In comparing the political morality of Europe and America
reference must finally be made, even at the risk of repetition, to the
greater political trust imposed in the mass of our people. As regards
the number participating suffrage is not materially different in the
United States from the systems of the leading European nations.
The tendency abroad, however, is to limit the direct popular vote to
legislative offices only and to the smallest possible number of these.
It is undeniable that we have gone too far in the opposite direction.
We crowd not only legislative but also many judicial and
administrative offices on our “blanket” ballots, and as a result the
total number of places submitted to the popular vote passes all
bounds. Instead of realising greater democracy by this method we
enable the machine to take advantage of the confusion which the
elector feels when confronted by so many places and candidates,
and his consequent inclination to vote “straight.”[114] Apart from this
point, however, it is extremely important to note that the power of the
vote to confer place is much greater in the United States than
abroad, and consequently, if it is to be corruptly purchased or
misused, its value is higher. To put the matter in another way, the
trust imposed by the Republic in the voter is greater. The number of
offices to which the ordinary citizen is eligible by ballot without regard
to class standing or desirable preparation, the greater importance of
state and local government, and the placing of the latter under
popular control,—all contribute to increase the burden of
responsibility which is imposed upon the great mass. We must admit
that the trust thus created is often violated, but on the other hand we
deserve such credit as may arise from the fact that we have
deliberately chosen to believe in the virtue of the whole people and
have established a system which puts that virtue to a supreme test.
European nations which take the “holier than thou” attitude with
reference to our corruption might be forced to abandon their
pretensions if they were to lodge as much power in their electorates
as we do in ours. Given two communities, one “dry” and the other
“wet,” the mere fact that there was more drunkenness in the latter
would not prove a less degree of moral control of appetite on the part
of its inhabitants. One would have to take into account that the
citizens of the “wet” community could satisfy their thirst openly and
frequently, whereas some of the “drys” must be sober at times simply
because they cannot get liquor. On the other hand, those citizens of
the “wet” community who abstain must do so of their own volition
and in the face of constant temptation. Similarly it may be said of the
political vice existing in the United States that its magnitude is in part
due to the fact that, loving democracy “not wisely but too well,” we
have distributed powers and responsibilities broadcast with the
consequence that they have fallen partly into unworthy hands. And
of such political virtue as we possess at least we may assert that it is
not the anemic innocence which has never known the approach of
temptation.
It would appear from the foregoing that the various factors which
must be taken into account in attempting to determine the extent of
existing corruption are extremely conflicting and uncertain. As
between country and country, city and city, comparisons are certain
to be odious and likely to be misleading. Each has problems
sufficiently pressing and extended to occupy its reform energies to
better advantage. We in the United States may not be so wicked as
our neighbours believe, but our work is cut out for us, and it is work
that will require the greatest intelligence and the greatest virtue that
the republic possesses. Hasty conclusions regarding the outcome,