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Lessons and Best Practices From the
    World’s Greatest Companies

    edited by   Anthony G. Bennett

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Preface                                                                              xv
Part 1    Introduction                                                               1
1.   Marketing Overview                                                               2
          Anthony G. Bennett
     Introduction                                                                     2
     Marketing Definitions                                                             2
     Marketing—Changing Perspectives                                                  3
     Marketing Goals                                                                  3
     Providing Value to the Customer                                                  4
     Marketing and Consumption                                                        4
     Marketing Elements (The Marketing Mix)                                           4
     Marketing Applicability                                                          5
     Marketing’s Place in the Organizational Structure                                7
     Notes                                                                            7
Part 2    Planning                                                                   9
2. Organizational Responsibility                                                     10
          Weyerhaeuser / Verizon / Texas Instruments / Pfizer /
          Xerox / SC Johnson / Tenet Healthcare / Bristol-Myers
     Organizational Responsibility by Weyerhaeuser                                   10
     Ethical Responsibility by Weyerhaeuser                                          11
     Ethics—Accountability by Verizon                                                14
     Ethical Responsibility—International by Texas Instruments, Inc.                 17
     Social Responsibility by Pfizer                                                  18
     Social Responsibility—International by Texas Instruments, Inc.                  20
     Environmental Responsibility by Xerox and SC Johnson                            20
     Environmental Responsibility—International by Bristol-Myers Squibb              29
     Organizational Responsibility—Case Study by Tenet Healthcare                    30
     Organizational Responsibility—Case Study by Pfizer                               33
     Organizational Responsibility—Case Study by Xerox                               35
     Corporate Profiles and Author Biographies                                        37
     Notes                                                                           38
3.   Strategic Planning                                                              39
          GE / ExxonMobil
     Planning by GE                                                                  39
     Planning—International by ExxonMobil                                            54
     Corporate Profiles and Author Biographies                                        56
     Notes                                                                           56
                                                                          CONTENTS        v
 4.       Branding                                                                                         57
                by Landor Associates / Fleishman-Hillard / Under Armour / HOLT CAT / Paramount Pictures
           The Essentials of Branding by Landor Associates                                                 57
           Starting a Branding Project                                                                     59
           The Brand Strategy                                                                              62
           Creating the Brand Experience                                                                   65
           Delivering the Brand Experience                                                                 73
           Managing a Brand                                                                                74
           Measuring the Performance of a Brand                                                            75
           Branding—International by Fleishman-Hillard                                                     77
           Branding—Case Study by Under Armour                                                             79
           Branding—Case Study by HOLT CAT                                                                 83
           Branding—Case Study by Paramount Pictures                                                       84
           Branding—Case Study by Landor Associates                                                        87
           Corporate Profiles and Author Biographies                                                        89
           Notes                                                                                           90
     5.   Marketing Research                                                                               91
                by Colgate-Palmolive / Synovate / ACNielsen / Sports and Leisure Reasearch Group
           The Essentials of Marketing Research by Colgate-Palmolive                                       91
           Types of Firms                                                                                  92
           Research Needs                                                                                  93
           Organizational Marketing Research                                                              104
           Marketing Research—International by Synovate                                                   104
           Marketing Research—Case Study by ACNielsen                                                     107
           Marketing Research—Case Study by Sports and Leisure Research Group                             109
           Corporate Profiles and Author Biographies                                                       110

 Part 3        Demand                                                                                     111
 6.       Consumer Purchasing Behavior                                                                    112
                Kimberly-Clark / Frito-Lay / Kraft / Discovery Communications
           The Essentials of Consumer Behavior by Kimberly-Clark                                          112
           Internal Influences on Consumer Behavior                                                        117
           External Influences on Consumer Behavior                                                        120
           Consumer Segmentation                                                                          123
           Consumer Behavior—International by Frito-Lay                                                   125
           Consumer Behavior—Case Study by Kraft                                                          127
           Consumer Behavior—Case Study by Discovery Communications, Inc.                                 129
           Corporate Profiles and Author Biographies                                                       131
           Notes                                                                                          132

     7.   Organizational Purchasing Behavior                                                                       133
             Boeing / Snap-on Tools / IBM / DuPont
     The Essentials of Organizational Purchasing by Boeing                                                         133
     Characteristics of Organizational Demand                                                                      133
     Segmenting Organizational Demand                                                                              135
     Organizational Buyers/Purchasing Department                                                                   136
     Organizational Purchasing—International by Snap-on Inc.                                                       144
     Organizational Purchasing—Case Study by IBM                                                                   146
     Organizational Purchasing—Case Study by DuPont                                                                148
     Corporate Profiles and Author Biographies                                                                      150
     Notes                                                                                                         150

Part 4       Marketing Communications                                                                              151
8. Marketing Communications Management                                                                             152
     Introduction                                                                                                  152
     Communications Pathway to Customers                                                                           152
     Marketing Communications Tactics                                                                              152
     Determining the Optimal Mix                                                                                   153
     Overcoming Communications Interference                                                                        154
     Specific Marketing Communications Elements                                                                     154
     Corporate Profile and Author Biography                                                                         154
9.   Sales                                                                                                         155
             Eastman Kodak / Tupperware / 1– / American Express / Hilton / Coldwell Banker
     The Essentials of Sales by Eastman Kodak Company                                                              155
     Sales Force Management                                                                                        156
     Business-to-Business Selling                                                                                  165
     Inside Sales by                                                                             168
     Business-to-Consumer Selling by Tupperware                                                                    168
     Sales—International by American Express                                                                       170
     Sales—Case Study by Hilton Hotels Corporation                                                                 174
     Sales—Case Study by Coldwell Banker                                                                           176
     Corporate Profiles and Author Biographies                                                                      178
     Notes                                                                                                         178
10. Advertising                                                                                                    179
             Y&R / McCann Erickson / TBWA\Chiat \Day / Arnold Worldwide
     The Essentials of Advertising by Y&R                                                                          179
     The Advertising Process                                                                                       180
     Digital Production Process                                                                                    195

                                                                                                            CONTENTS     vii
              Advertising—International by McCann Erickson                                     198
              Advertising—Case Study by TBWA\Chiat\Day                                         201
              Advertising—Case Study by Arnold Worldwide                                       204
              Corporate Profiles and Author Biographies                                         207
              Notes                                                                            208
       11.    Public Relations                                                                 209
                   Burson-Marsteller / Porter Novelli / Edelman / Public Relations Worldwide
              The Essentials of Public Relations                                               209
              Public Relations—International by Porter Novelli                                 225
              Public Relations—Case Study by Edelman Public Relations Worldwide                228
              Public Relations—Case Study by Burson-Marsteller                                 230
              Corporate Profiles and Author Biographies                                         232
              Notes                                                                            232
       12.    Promotional Marketing                                                            233
                   VISA / OgilvyAction / Mars / New York Times / Mars / PepsiCo
              The Essentials of Promotional Marketing by VISA                                  233
              Promotion Objectives                                                             234
              Promotion Creative                                                               235
              Promotion Tactics to Consumers                                                   236
              Promotional Marketing to the Trade                                               242
              Promotional Marketing Media                                                      243
              Financial Analysis of Promotional Programs                                       245
              Promotional Marketing—International by OgilvyAction                              246
              Promotional Marketing—Case Study by Mars, Inc.                                   247
              Promotional Marketing—Case Study by The New York Times                           249
              Promotional Marketing—Case Study by PepsiCo                                      250
              Corporate Profiles and Author Biographies                                         252
              Notes                                                                            252
       13.    Direct Marketing                                                                 253
                   RAPP / L.L. Bean / Draftfcb / Wunderman
              The Essentials of Direct Marketing by RAPP                                       253
              Consumer Data Gathering                                                          255
              Direct Marketing Tactics                                                         258
              Direct Marketing—International by L.L. Bean                                      266
              Direct Marketing—Case Study by Draftfcb                                          267
              Direct Marketing—Case Study by Wunderman                                         269
              Corporate Profiles and Author Biographies                                         272
              Notes                                                                            272

viii         CONTENTS
14.   Brand Ambassadors                                                                                       273
           BzzAgent / Zappos / Nordstrom / Washington Nationals Baseball Club
      Brand Ambassadors—Consumer Advocates by BzzAgent, Inc.                                                  273
      Brand Ambassadors—Employee Advocates by                                                      274
      Brand Ambassador—Case Study by Nordstrom                                                                276
      Brand Ambassador—Case Study by the Washington Nationals Baseball Club                                   278
      Corporate Profiles and Author Biographies                                                                280
      Notes                                                                                                   280

Part 5    Supply (Goods and Services)                                                                         281
15.   Product Management                                                                                      282
      The Essentials of Product Management                                                                    282
      Product Classifications Serve Customer Needs                                                             282
      Product Mix                                                                                             284
      Product Competition and Differentiation                                                                 285
      Product Life Cycle                                                                                      286
      Additional Life Cycle Scenarios                                                                         291
      Corporate Profile and Author Biography                                                                   292
      Notes                                                                                                   292
16.   Product Development                                                                                     293
           Antimicrobial Technologies Group / Ford / Wilson Sporting Goods / Gillette / Hair Cuttery
      The Essentials of Product Development by Antimicrobial Technologies Group                               293
      Product Development Process
      Product Development—International by Ford Motor Company                                                 297
      Product Development—Case Study by Wilson Sporting Goods                                                 299
      Product Development—Case Study by Gillette                                                              300
      Product Development—Case Study by Hair Cuttery                                                          303
      Corporate Profiles and Author Biographies                                                                304
      Notes                                                                                                   304
17. Product Packaging                                                                                         305
           O-I / Caraustar / Alcoa / Silgan / Sealed Air / Fabri-Kal / MCC / Sara Lee / Dean Foods /
           Tanimura & Antle, Inc.
      The Essentials of Packaging by O-I (Owens-Illinois)                                                     305
      Packaging Aspects                                                                                       305
      Packaging—Glass by O-I (Owens-Illinois)                                                                 307
      Packaging—Paperboard by Caraustar Industries, Inc.                                                      308
      Packaging—Aluminum Containers by Alcoa, Inc.                                                            309
      Packaging—Steel by Silgan Containers                                                                    309

                                                                                                       CONTENTS     ix
           Packaging—Flexible Packaging by Sealed Air Corporation            310
           Packaging—Rigid Plastics by Fabri-Kal Corp.                       311
           Packaging—Labeling by MMC                                         312
           Packaging—International by Sara Lee Corp.                         313
           Packaging—Case Study by Tanimura & Antle                          317
           Packaging—Case Study by Dean Foods                                319
           Packaging—Case Study by O-I (Owens-Illinois)                      321
           Corporate Profiles and Author Biographies                          322
    18. Product Pricing                                                      323
                United Airlines / NCR / Papa John’s / International Paper
           The Essentials of Pricing by United Airlines                      323
           Factors Affecting Pricing Strategies                              324
           Pricing Strategies                                                329
           Revenue Management                                                334
           Pricing—International by NCR                                      334
           Pricing—Case Study by Papa John’s International                   336
           Pricing—Case Study by International Paper                         337
           Corporate Profiles and Author Biographies                          339
           Notes                                                             339
    19.    Product Quality                                                   340
                Cargill / Ritz-Carlton / 3M / Stoner Solutions
           The Essentials of Quality and Performance Excellence by Cargill   340
           Business Excellence Criteria                                      342
           Customer Satisfaction                                             343
           Managing Quality within the Company                               345
           Establish Quality Guidelines                                      346
           Quality—International by Ritz-Carlton                             349
           Quality—Case Study by 3M Dental Products Division                 350
           Quality—Case Study by Stoner Solutions, Inc.                      352
           Corporate Profiles and Author Biographies                          354
           Notes                                                             354

    Part 6      Supply Chain                                                 355
    20. Supply Chain Management                                              356
                Procter & Gamble / McDonald’s
           The Essentials of Supply Chain Management by Procter & Gamble     356
           Supply Chain Components                                           356
           Factors Influencing Supply Chain Configuration                      359
           Supply Chain Configurations                                        360

x         CONTENTS
      Supply Chain Synchronizing Strategies                                                                  361
      Evolution of Supply Chain Management                                                                   364
      Reverse Logistics                                                                                      364
      Supply Chain Management—International by McDonald’s                                                    366
      Corporate Profiles and Author Biographies                                                               367
21. Wholesaling                                                                                              368
           McKesson / Ingram Micro / United Stationers / SUPERVALU
      The Essentials of Wholesaling by McKesson Corporation                                                  368
      Goals of Wholesaling                                                                                   368
      Functions of Wholesaling                                                                               369
      Wholesale Types                                                                                        372
      Wholesaling—International by Ingram Micro                                                              375
      Wholesaling—Case Study by United Stationers                                                            376
      Corporate Profiles and Author Biographies                                                               379
      Notes                                                                                                  379
22.   Warehousing                                                                                            380
           OHL / APL Logistics / Safeway / DSC Logistics
      The Essentials of Warehousing by OHL                                                                   380
      Product Storage Factors                                                                                381
      Warehousing Types                                                                                      382
      Warehouse/Distribution Center Process                                                                  383
      Warehouse/Distribution Center Location Factors                                                         385
      Inventory Control                                                                                      386
      Warehousing Design Factors                                                                             386
      Logistics Service Providers                                                                            387
      Warehousing—International by APL Logistics                                                             387
      Warehousing—Case Study by Safeway Inc.                                                                 389
      Warehousing—Case Study by DSC Logistics                                                                390
      Corporate Profiles and Author Biographies                                                               392
      Notes                                                                                                  392
23.   Transportation                                                                                         393
           FedEx / Con-way / BNSF / Atlas / OSG / Ingram Barge/ Colonial Pipeline Co. / Southwest /
           Greyhound / MTA LIRR / Carnival / John Deere / Skyhook / Amtrak
      The Essentials of Transportation by FedEx Trade Networks                                               393
      Transportation Marketing—How It Evolved                                                                393
      Transportation Mode Selection Factors                                                                  398
      Freight—Trucking by Con-way Freight                                                                    400
      Freight—Trains by BNSF                                                                                 402
      Freight—Air by Atlas Air Worldwide Holdings, Inc.                                                      403

                                                                                                      CONTENTS     xi
             Freight—Ocean Shipping by Overseas Shipholding Group Inc.            404
             Freight—Inland Barge by Ingram Barge                                 405
             Freight—Pipelines by Colonial Pipeline Co.                           406
             Passenger Transportation Modes                                       407
             Passenger—Airlines by Southwest Airlines                             407
             Passenger—Buses by Greyhound                                         408
             Passenger—Commuter Trains by MTA Long Island Rail Road               409
             Passenger—Ships by Carnival Cruise Lines                             410
             Transportation—International by John Deere                           411
             Transportation—Case Study (Passenger) by Carnival Cruise Lines       413
             Transportation—Case Study (Freight) by SkyHook                       415
             Transportation—Case Study (Passenger) by Amtrak                      417
             Corporate Profiles and Author Biographies                             421
             Notes                                                                423
      24. Store Retailing                                                         424
                  Fifth Avenue Saks / Costco / Sears / Patagonia / Trader Joe’s
             The Essentials of Retailing by Saks and Costco                       424
             Retail Ownership                                                     424
             Retail Categories                                                    426
             Retail Service Levels                                                428
             Retail Location                                                      428
             Retail Store Physical Elements                                       430
             Retail Merchandising Selection and Buying                            431
             Retail Receiving/Inventory and Stocking/Pricing                      432
             Retail Presentation of Product Assortment                            433
             Retail Promotion                                                     434
             Retail Personal Selling by Sears                                     435
             Retail After-Sale Service                                            436
             Retail Unsold Merchandise                                            436
             Retailing—International by Patagonia                                 437
             Retailing—Case Study by Costco                                       438
             Retailing—Case Study by Trader Joe’s                                 439
             Corporate Profiles and Author Biographies                             441
             Notes                                                                441
      25.    Internet Retailing                                                   442
         / / /
             The Essentials of Internet Retailing by                  442
             Organize the Business                                                442
             Develop the Site                                                     443
             Promote the Web Site                                                 446

xii         CONTENTS
    Web Site Analytics/Feedback                                 446
    Internet Retailing—International by                447
    Internet Retailing—Case Study by                448
    Internet Retailing—Case Study by          449
    Corporate Profiles and Author Biographies                    451
    Notes                                                       451
Index                                                           452

                                                         CONTENTS     xiii
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The goal of The Big Book of Marketing is to provide students, small business owners, marketing profes-
sionals, and entrepreneurs with the best source of marketing strategies available in order to help them craft
a successful marketing plan, launch a successful product, and help grow a successful business.
    The Big Book of Marketing is the most comprehensive and authoritative book on marketing ever pub-
lished. This approach provides a real-world perspective that explains the How and Why essentials to under-
standing today’s fast-paced marketing environment.
    The Big Book of Marketing is a unique marketing book with chapters and case studies written by experts
from 110 of the world’s most successful companies.
    The editor developed the chapter outlines based on an extensive review of over 1,200 marketing
books. The outlines were then reviewed by 47 major associations prior to submission to the contribut-
ing companies.
    The authors—acknowledged experts in their industry—were selected through recommendations by
associations, trade journals, government agencies, and other professionals in their fields. The 110 con-
tributing companies represent an exciting range of organizations covering goods and services, high-tech
and low-tech, industrial and consumer, and are located in every region of the United States. These com-
panies are the most successful in the world, have been leaders in their field of expertise for decades, and
most rank in the Fortune 100.

Respective corporate profiles and author biographies are detailed at the end of each chapter.

Anthony G. Bennett has worked in marketing for over 30 years, including sales account executive with AT&T,
international marketing research analyst with Union Camp (now International Paper), general manager/vice
president for Hunt-Marmillion Public Relations (now Ogilvy Action), entrepreneur and inventor of two
products that sold nationally, special assistant promoting solar energy in the first Bush administration, reg-
istered lobbyist on behalf of the solar energy industry, and marketing consultant. Mr. Bennett has taught
marketing as an adjunct lecturer for ten years, the last seven years at Georgetown University in Washington,
D.C. Mr. Bennett received his BBA and MBA from George Washington University.

                                                                                                 PREFACE    xv
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  Part 1
       1            OVERVIEW

                                           by Anthony G. Bennett

    INTRO DUCT ION                                              • Demand is the desire to possess something
                                                                  (goods, services, ideas, information) combined
    Why does anyone choose to buy one product
                                                                  with the ability to purchase/accept it.
    instead of another? Why does one product succeed
                                                                • Supply is the thing (goods, services, ideas,
    (making billions of dollars) and another languish
                                                                  information) available to meet the demand.
    (losing money)? Product providers of goods and
    service are constantly in search of new tools to          Marketing is a process that starts with identifying
    make their product the successful product, the one        and understanding the needs and wants of the cus-
    that sells. These tools are collectively called market-   tomer (demand) and then fulfilling those needs and
    ing. A dynamic marketing effort can make the dif-         wants (supply). An effective marketing plan offers a
    ference for a product and propel a company into           solution to fulfill the needs and wants of society
    the billion-dollar category.                              (individuals and organizations), while achieving the
       Why did customers around the world, who typ-           goals of the organization. In addition, marketing
    ically watch action films, flock to see Paramount         can create new needs or reformat existing needs.
    Picture’s The First Wives Club, a romantic comedy?
    Why did customers who were happy using steel              MARKET ING DEFINIT ION S
    tennis rackets buy Wilson’s new carbon fiber
    racket? Why did customers who were buying regu-           Multifaceted and evolving, marketing encompasses
    lar paper by the ton start buying International           a wide array of activities. As such, defining market-
    Paper’s new more expensive paper? How, after cus-         ing has always been difficult. The following defini-
    tomers had been using green money in the United           tions can serve as a starting point.
    States for decades, did Burson-Marsteller help              • “Marketing is the activity, set of institutions,
    remove skepticism for using the new money with                and processes for creating, communicating,
    the purple ink? Why are customers who love                    delivering, and exchanging offerings that have
    bananas, America’s favorite fruit, drawn to Safeway?          value for customers, clients, partners, and soci-
       The answer is that each of these companies                 ety at large.”1
    understood the needs and wants of their customers           • “Marketing is a process of facilitating exchanges
    and supplied a product (goods or services) that met           in which buyers exchange something of value
    those needs. Understanding this demand and sup-               (typically money) for something of equal
    ply through the eyes of the customer is a process             value to them (goods or services).” (common
    called marketing.                                             usage)

  • “Marketing is all activities after manufacturing        ors of paint for their cars. The field of marketing has
    that promote and deliver the good or service            become extremely important and is applicable to
    to the customer.” (common usage)                        every individual and organizational endeavor. Glob-
  • “Marketing is the process by which resources            ally, consumers desire to be free to choose what they
    are brought to bear against opportunities and           want, when and where they want it, and how much
    threats.”2                                              they are willing to pay. Marketing helps these con-
                                                            sumers make the best and most informed choices.
PER SPECT IVES                                              Tomorrow
Yesterday                                                   In the future, it will be incumbent upon marketers
                                                            to understand that life will be more complex and
In the Pre-Industrial Age, products were custom-
                                                            increasingly global. There will be more sophisti-
made, and while they could be custom-tailored to
                                                            cated customers, more sophisticated competitors,
each individual, they were expensive on a per-unit
                                                            and fewer natural resources. As more countries’
basis and varied in quality.
                                                            economies become increasingly sophisticated and
   In the Industrial Age, mass production and spe-
                                                            more trading opportunities emerge, marketing will
cialization could make a higher-quality, more uni-
                                                            be key in reaching customers globally. As the world
form, and less expensive product. Unfortunately,
                                                            matures, so will marketing. In addition, marketing
individual consumer needs were often a secondary
                                                            will increasingly lead organizations toward ethical,
consideration to the manufacturing processes. Sell
                                                            social, and environmental responsibility.
what was made was the order of the day. The “one
size fits all” concept was exemplified by Henry Ford
who said in 1909, “Any customer can have a car              MARKET ING GOALS
painted any color that he wants, so long as it is black.”   Both customers (demand) and organizations (sup-
   Starting in the 1960s and 1970s, customers real-         ply) have objectives. Customers’ goals are to satisfy
ized that they did not want to be “sold to.” They           their needs and wants. Organizations’ goals are to
wanted to be listened to as individuals (or as groups       supply a good or service that provides value or is
known as market segments), and they wanted their            useful to customers and to provide employment for
wants and needs to be met. Marketers had to com-            employees and profit to shareholders. In the case of
pete with other companies and convince the poten-           nonprofit organizations, marketing success may be
tial consumer that their company’s goods or                 measured by the public’s response rather than by
services were worth the customer’s consideration. A         profitability. In each instance, marketing manage-
true marketing orientation was coming of age.               ment must ensure that these goals are met. Idealis-
                                                            tically, value is provided to the customer, and the
                                                            organization benefits.
Today, in 2009, Henry Ford would be proud to know              Marketing provides the customer with choices,
that his company offers customers 60 different col-         and, hopefully, the superior product stands out and

  A business is not defined by the company’s name, statutes, or articles of incorporation. It is defined by the
  want the customer satisfies when [he/she] buys a product or service. To satisfy the customer is the mis-
  sion and purpose of every business.
                                              Peter Drucker, Management: Tasks, Responsibilities, Practices3

                                                                                        MARKETING OVERVIEW       3
succeeds. However, just as important as what              MARKET ING AND CON SUMPT ION
marketing can do is what it cannot do. It cannot
                                                          Marketing facilitates the satisfaction of consumer
overcome an inferior product or offset a noncom-
                                                          and business demands or needs, typically by pro-
petitive marketing situation. If competitors provide
                                                          moting the use or consumption of goods or services
important benefits that are not matched by the
                                                          considered to be beneficial. However, marketing ele-
inferior product, no amount of promotion will be
                                                          ments also are used to reduce the demand for prod-
able to maintain sales for the inferior product for
                                                          ucts or services perceived as harmful or negative
long. If a product is overpriced versus the compe-
                                                          (liquor, cigarettes, addictive drugs) and to reduce the
tition, consumers will eventually notice and switch
                                                          demand for something in short supply (gas during
brands. If consumers cannot find a product in
                                                          an oil crisis, water during a drought). These market-
stores, then the product cannot be purchased. If
                                                          ing efforts generally are initiated or promoted by
consumers are not aware of a product or its bene-
                                                          government organizations or public interest groups.
fits, special promotional offers will not motivate
purchases. And, if a product does not live up to its
claims, promotion can actually accelerate the             MARKET ING ELEMENTS
decline of a brand because it will make customers         (THE MARKET ING MIX)
notice the deficiencies faster.
                                                          Various marketing elements, or functions, are used
                                                          to satisfy the needs and wants of the customer and
PROVIDING VALUE TO THE                                    achieve the goals of the organization. Each element
CUSTOMER                                                  is studied separately, but in practice they are per-
Customers feel they must receive some value or            formed simultaneously to provide an optimal
utility from a good or service that satisfies their       approach to both demand and supply objectives in
needs or demand objectives, and thus have a rea-          what is known as the marketing mix or integrated
son to make the purchase or act in accord with the        marketing.
marketer’s persuasive suggestions. In order to be             Traditionally, the marketing mix has been
successful, marketers must understand customer            described as the “the four Ps”: Product, Price, Pro-
values. Customer value or utility has four aspects:       motion, and Place. This book groups the various
                                                          marketing elements according to the business and
    • Form is what the customer needs or wants, as        economic concepts of demand and supply. Each of
      either a good or a service.                         the marketing elements listed below are discussed
    • Place is the availability of this good or service   in the indicated chapters.
      where the customer needs it.
    • Time is the availability of this good or service
                                                          Marketing Planning Elements
      when the customer needs it.
                                                          (Chapters 2–5)
    • Ownership is the customer taking possession
      (transfer of title from seller to buyer).             • Corporate Responsibility (ethical, social, envi-
                                                              ronmental) moves the company in a direction
Organizations contribute to the fulfillment of
                                                              that helps the company, employees, share-
demand objectives and provide utility to the
                                                              holders, and the community.
consumer through the use of all the marketing
                                                            • Strategic Planning is the management and
                                                              coordination of the marketing mix to allow
                                                              customer needs to be fulfilled and organiza-
                    Value Stream                              tional goals to be met.
                                                            • Branding determines the essence of the
    Manufacturer       Marketing        Consumer

  • Marketing Research determines and imple-              • Product Management controls brand legal
    ments the appropriate methods of researching            protection and product life-cycle strategies.
    the actual and potential customer base.               • Product Development is the idea creation,
                                                            research and development, and product design.
Demand Elements (Chapters 6–7)                            • Product Packaging and Labeling protects and
  • Consumer Purchasing Behavior understands                promotes the product.
    the consumers’ needs and wants and their buy-         • Product Pricing determines strategies and fac-
    ing habits.                                             tors that affect pricing strategies.
  • Organizational Purchasing Behavior under-             • Product Quality oversees quality strategies.
    stands business and organizations’ needs and
    wants and their buying habits.                      Supply Chain Elements (Chapters 20–25)
                                                          • Supply Chain Management manages the sup-
Marketing Communications Elements
                                                            ply chain (wholesaling, warehousing, trans-
(Chapters 8–14)
                                                            portation, retailing) that delivers products to
Demand promotion management, known as mar-                  the customer.
keting communications, attempts to reach the              • Wholesaling creates transaction economies of
appropriate customers and communicate with                  scale for the manufacturer and the retailer.
them in order to promote demand and increase              • Warehousing is the storing and distribution of
sales. When all demand management elements are              the product.
performed in a coordinated approach, the effort is        • Transportation is the physical movement of
called integrated communications.                           the products.
  • Personal Selling is one-on-one selling between        • Retailing creates ease of purchase and transac-
    a sales representative and a buyer.                     tion economies of scale for the customer.
  • Advertising is the mass communications of             • Internet retailing is buying and selling by
    information through paid media.                         computer.
  • Public Relations provides information and
    third-party endorsements to assure the cus-         MARKET ING APPLIC ABILIT Y
    tomer of the organizations’ goodwill and qual-
    ity products.                                       Marketing targets individual consumers and organ-
  • Promotional Marketing is a variety of market-       izations (businesses, governments, institutions, and
    ing tactics (coupons, free samples, trial periods   nonprofits). In turn, organizations, governments,
    of services/subscriptions) designed to over-        individuals, and geographic entities use marketing
    come buying hesitancy.                              to establish a mutually beneficial relationship with
  • Direct Marketing creates messages specifically       their own customers.
    designed and delivered to targeted buyers and
    potential buyers.                                   Organizations
  • Brand Ambassadors are employees who                   • Profit orientation
    embody the spirit and enthusiasm of the                 • For profit (Pepsi expanding its beverage lines)
    company.                                                • Not-for-profit (the Red Cross promoting a
                                                              blood drive)
Supply Elements (Chapters 15–19)                          • Size orientation
Supply management develops the appropriate                  • Large (General Motors selling a fleet of elec-
products (goods and services) and pricing mecha-              tric cars to the government)
nisms in response to customer demand.                       • Small (local, family-owned restaurant)

                                                                                   MARKETING OVERVIEW      5
                                                The Marketing Mix
                      Customer demand is at the center of the Marketing Mix.
                      SUPPLY                                        SUPPLY CHAIN
                      Product                                       Wholesaling, Warehousing
                      Pricing                                       Transportation, Retailing


                      MARKETING COMMUNICATIONS                      INFLUENCING FACTORS
                      Selling, Advertising                          Economy, Quality
                      Public Relations                              Ethical, Social, Environmental
                      Promotional Marketing                         Cultural, Technology
                      Direct Marketing
                      Brand Ambassadors

      • Individual entrepreneur (a new singer                  • Local (a mayor promoting citywide recycling
        pitching her first demo tape to a recording               efforts)
    • Product offering: Goods or services                    Individuals
      • Goods (Kodak introducing a new digital
                                                               • Celebrities (an actor promoting his or her new
      • Services (United Airlines promoting vaca-
                                                               • Sports stars (enhancing their community
        tion packages)
                                                               • Political candidates (running for office)
Governments                                                    • Employees (trying to get a promotion)
    • Federal (a national program to explore space
      that results in NASA spending billions on new          Geographic Entities
      technology from companies such as Boeing)                • States (“Virginia is for Lovers”)
    • State (a governor promoting higher pay for               • Cities (“I Love NY”)
      teachers)                                                • Countries (“It’s better in the Bahamas”)

    Marketing is so basic that it cannot be considered a separate function within the business, on a par with
    others such as manufacturing or personnel. Marketing requires separate work, and a distinct group of
    activities. But it is, first, a central dimension of the entire business. It is the whole business seen from the
    point of view of its final result, that is, from the customer’s point of view. Concern and responsibility for
    marketing must, therefore, permeate all areas of the enterprise.
                                               Peter Drucker, Management: Tasks, Responsibilities, Practices4

MARKET ING’S PL ACE IN THE                                    NOTES
ORG ANIZAT IONAL STRUCTURE                                    1. The American Marketing Association, 2007. Printed
Each business function (any of which may be pro-                 with permission.
vided by in-house staff or by outside companies) is           2. A New Brand World by Scott Bedbury, Penguin, 2002,
essential to an organization’s success. A typical cor-           p. 153. Printed with permission.
                                                              3. Peter Drucker, Management: Tasks, Responsibilities,
porate organization includes many functions, as
                                                                 Practices, Harper, 1973, p. 79. Reprinted by permis-
shown in the organizational chart in Figure 1.1.
                                                                 sion of HarperCollins Publishers, Inc.
Each function must interrelate smoothly with all of           4. Ibid., p. 63.
the other functions in order for the company to
operate and compete effectively.



                                                        Board of


           VP Manu-        VP               VP             VP           VP Human        VP Informa-          VP
           facturing      Legal          Finance        Marketing       Resources      tion Systems     Distribution

            Mgr.         General          Mgr.         Mgr. Product       Mgr.             Mgr.             Mgr.
          Operations     Counsel        Financial       Planning       Employment        Systems      Warehousing and
                                        Planning                                                       Transportation
          Mgr. R & D   Mgr. Ethics        Mgr.            Mgr.        Mgr. Benefits       Mgr.
                                       Purchasing       Marketing                       Technical
                                                        Research                         Support
            Mgr.                          Mgr.         Mgr. Comm-          Mgr.
         Engineering                   Accounting      unications        Training

                                                        Mgr. Sales

                                     Sales Mgr. – Region A     Sales Mgr. – Region B
                                          Sales Rep.                  Sales Rep.
                                          Sales Rep.                  Sales Rep.
                                          Sales Rep.                  Sales Rep.

                            Figure 1.1 Typical Corporate Organizational Chart

                                                                                                MARKETING OVERVIEW      7
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Part 2
        2            RESPONSIBILITY

              by Bristol-Myers Squibb, Pfizer, SC Johnson, Tenet Healthcare,
                Texas Instruments, Inc., Verizon, Weyerhaeuser, and Xerox

                         That which is not good for the bee-hive cannot be good for the bees.
                                                                         Marcus Aurelius, Roman Emperor
                                                                                              (A.D. 121–180)

     ORG ANIZAT IONAL RESPON SIBILIT Y                       and business leaders. Organizations that are strate-
     by Weyerhaeuser                                         gically positioned to gain customer trust will suc-
                                                             ceed in the marketplace.
     Introduction                                               As with society, as marketing organizations
     The legal, ethical, social, and environmentally         mature, their level of responsibility increases. These
     responsible aspects of marketing are important          increases in responsibility form a hierarchy: eco-
     because of marketing’s immense influence on soci-        nomic, legal, ethical, social, and environmental.
     ety. These aspects can pose restraints on, and
     opportunities for, marketing efforts. The impetus
                                                             Hierarchy of Organizational Responsibilities
     for corporate responsibilities came from culture,
     religions, scientific reasoning, political structure,                Environmental Responsibility
     and the economic structure.                                                        ↑
        Historically, business has been held in relatively                    Social Responsibility
     high esteem. The current focus on business ethics                                  ↑
     by the corporate, government, and public sectors                        Ethical Responsibility
     began to change during the 1970s when foreign
                                                                              Legal Responsibility
     bribery and illegal campaign financing scandals                                    ↑
     attracted increased attention. By the mid–1980s, a                     Economic Responsibility
     Wall Street Journal front-page story called business
     ethics “an oxymoron, a contradiction in terms like
                                                             Economic Responsibility
     jumbo shrimp.”1 However, little more than a
     decade later, a national survey found that 60 per-      Organizations have economic responsibilities to
     cent of the American public believed that business      their customers, shareholders, and employees.
     and ethics can coexist, and that ethical dilemmas in    Companies must perform their marketing tasks
     the workplace can and should be reduced.2               well in order to succeed and be profitable. This will
        The public has become more demanding of eth-         provide goods and services to the customers, jobs
     ical and socially responsible behavior in businesses    for the employees, and profits for the shareholders.

Legal Responsibility                                      behavior with employees, suppliers, customers,
                                                          shareholders, and the communities in which busi-
Organizations have a legal responsibility to adhere
                                                          nesses operate. Ethics is the right thing to do.
to the laws of society. This is for the good of all and
                                                              The society designs standards or establishes
ensures economic fair play and freedom from
                                                          goals so as to promote the highest quality of life.
unsafe work practices. Marketing programs must
                                                          Business and trade help create a better standard of
incorporate a company’s responsibility to conduct
                                                          living for all. Business ethics helps the system work
all business operations in accordance with the high-
                                                          to establish its maximum value. All players have a
est legal standards. It is very difficult for a market-
                                                          responsibility to adhere to these rules in order to
ing communications campaign to overcome a
                                                          allow the greatest number of people to achieve their
well-publicized infraction. The continued goodwill
                                                          maximum potential, thus improving the system
of a clean record directly assures a customer base
                                                          and creating yet more potential. Breaking these
that has many alternatives from which to choose. In
                                                          rules hurts the system and denies the benefits of the
addition, there are local, state, and federal govern-
                                                          system to all. For example, bribery is wrong, not
ments, and international agencies that promulgate
                                                          just because you will get caught, but because it cre-
literally thousands of codes, laws, and regulations
                                                          ates a benefit for only one, while hindering every-
concerning marketing. These laws pertain to every-
                                                          one else in the system.
thing from toy safety to consumer credit. There are
specific legal aspects to each element of the market-
ing mix, and it is important to note that the market-     Marketing Elements Ethics Issues
ing professional should seek legal counsel for            Organizations usually are confronted on a daily
guidance on each marketing element.                       basis with a wide variety of ethics issues. These
                                                          issues can be divided into five broad categories: per-
                                                          sonal conduct, protection of company assets, fair
                                                          dealings, international business activities, and gov-
by Weyerhaeuser
                                                          ernment interactions.
It is imperative that organizations work proactively         There are specific ethical aspects to each element
in facing new ethical challenges. This is important,      of the marketing mix. The following are the main
not because of fear of punishment, but because it is      representative examples.
the right thing to do. Virtually all large U.S.-based     Planning
corporations have a written ethics and compliance         The main ethical concern in planning is prioritiz-
document. A majority of U.S. corporations have an         ing loyalties to customers, employees, and share-
ethics training program, and more than one-third          holders.
have an ethics officer or a senior manager who is
responsible for implementing and overseeing the           Marketing Research
organization’s internal ethics, compliance, or busi-      The primary ethical issue in marketing research is
ness conduct programs.3                                   privacy or confidentiality. Privacy should be bal-
    Marketing ethics aspects include ethics defini-        anced with the genuine need for information. For
tion, specific marketing issues, and ethics account-       example, it is important to separate individual
ability methods.                                          survey information from data that later will most
                                                          likely be linked to database marketing. Respon-
                                                          dents should not be directly affected by market-
Ethics Definition
                                                          ing or sales efforts after participating in a survey.
Business ethics are the practices, policies, and pro-     The Council of American Survey Research Orga-
grams that ensure consistently high standards of          nizations (CASRO) mandates that all its members

                                                                          ORGANIZATIONAL RESPONSIBILITY       11
     subscribe to the industry-accepted CASRO Code             Direct Selling Association’s Code of Conduct sets
     of Standards and Ethics for Survey Research.              and polices ethical standards among its member
     Some unethical sales companies have used the              companies. The customer should always be dealt
     premise of selling under the guise of research.           with in good faith. However, occasionally, there are
                                                               cases where the financial rewards of the sale tempt
     Consumer Purchasing Behavior
                                                               the salesperson to resort to unethical practices.
     The main ethics issues in the understanding of con-
                                                               Examples include overexaggeration of product per-
     sumer behavior are the overzealous drive to gather
                                                               formance, overzealous commitment to delivery
     information concerning individuals leading to pri-
                                                               schedules, or, in rare instances, bribery to achieve
     vacy concerns and an overzealous approach to hype
                                                               the sale. Some aspects of bribery are still legal in a
     the consumers’ needs and wants in a manner that is
                                                               few countries; however, it is becoming regulated
     confusing to the customer.
                                                               more and more. Sales puffery, which is stating overly
     Organizational Purchasing Behavior                        generalized positive aspects of a product (“This is
     Because external perceptions of a company’s pur-          the world’s best car!”) is legal, although unethical.
     chasing personnel are so important in building a
     firm’s reputation, most organizations include in their
                                                               What constitutes ethical and acceptable advertising
     policy manuals numerous statements about conflicts
                                                               is a matter of constant debate and is dictated gen-
     of interest, personal obligations, and fairness. Buyers
                                                               erally by evolving social standards and behavior.
     and other members of the procurement system who
                                                               For example, advertising that appears on program-
     deal with present and potential suppliers must recog-
                                                               ming with controversial levels of sex and violence is
     nize their responsibilities as agents. Buyers know of
                                                               frequently criticized even though the advertising
     major procurement contracts that may affect the per-
                                                               itself may not have any controversial content. This
     formance of the supplier and the purchasing com-
                                                               debate presents tough choices for advertisers and
     pany ahead of the financial markets and therefore
                                                               their agencies. The advertiser is anxious to reach
     have been occasional targets of insider trading.
                                                               the maximum number of potential customers via
     Personal Selling                                          the mass audiences attracted to such programming,
     Illegal pyramid schemes may confuse some people           but, at the same time, the advertiser should be care-
     by a surface resemblance to hierarchical sales force      ful not to alienate consumers who regard such pro-
     infrastructures in the direct-selling industry. The       gramming as inappropriate.
     distinguishing difference is that pyramid schemes             Sensitivity to the particular vulnerability of chil-
     collect their profits up front on the high-cost sale of    dren is another ethical challenge facing the adver-
     the business opportunity to the gullible recruit,         tising community. Children do not yet have the
     whereas legitimate direct-selling companies typi-         mental ability to fully understand the difference
     cally require very little or no capital investment, and   between the show or magazine’s content and the ad
     entry costs are usually limited to a kit of start-up      and can’t make a reasoned choice. Overzealously
     product samples and supplies. The pyramid scheme          promoting a product to children violates the core of
     may offer products or paybacks for a time in order        the social system. The government and consumer
     to establish credibility or hold out the hope that        protection groups often carefully monitor advertis-
     investors may rise to the top and get rich by bring-      ing on children’s programming. However, even
     ing in other new recruits, but ultimately the busi-       though the advertising may deal with a product
     ness opportunity evaporates as the pyramid                that can only be legally purchased by adults, such
     collapses, and victims lose their investment and/or       advertising may have some exposure to children.
     get stuck with substantial inventory. In an effort to     Advertisers must evaluate the extent to which they
     ensure high integrity in the direct-selling industry,     should modify their message and its presentation
     the industry’s professional trade organization, the       to accommodate this unintended audience.

  In general there also is the ongoing debate as to     deceived and disappointed. Certain marketing prac-
persuasion versus manipulation, and overzealous         tices, such as gathering personal information from
and misleading claims versus free speech rights.        a child online, can be both illegal and unethical.
Public Relations                                        Product Management
Managers, who have inside information about such        Product managers should have as a major ethical
matters as mergers, new products, profitability, and     focus the promotion of product safety and disclo-
other commercial knowledge, are restricted about        sure of usage risks. They also should seek to elimi-
what they can say about their organizations. Lobby-     nate planned obsolescence, industrial espionage,
ing and political influence is increasingly coming       product knock-offs (particularly products pro-
under scrutiny.                                         duced in foreign countries that may violate patent,
                                                        copyright, and trademark protections), and
Promotional Marketing                                   overzealous product claims.
The most important ethical issue with promo-
tional marketing is to ensure the honest and            Product Packaging and Labeling
straightforward design of promotional offers and        Product labeling issues include full disclosure, accu-
the way in which they are communicated. Too             racy, and truth in advertising and label knock-offs
often, promotional programs are developed with          (confusingly similar product packaging/labeling).
complicated or obscure restrictions that deceive        Product Pricing
consumers. Doing so is always counterproductive         In a free market, corporations are encouraged to
because dissatisfied customers tell others, find        compete in an ethical, yet vigorous, manner. This
competitive alternatives in the future, and some-       provides customers with the best product while
times even sue the offending company. All are           providing assurances that they may purchase that
costly to companies in the long term.                   product at a fair price. Many companies and indus-
                                                        tries have adopted a set of guidelines to answer any
Direct Marketing
                                                        ethical issues (price fixing, price gouging, full dis-
The Direct Marketing Association established
                                                        closure of needed additional costs) they may
Guidelines for Ethical Business Practice in 1960, and
                                                        encounter. For example, in 1994, the major airlines
constantly updates them to reflect consumer and
                                                        submitted a consent decree to the U.S. Department
regulatory concerns, as well as new marketing tech-
                                                        of Justice outlining certain rules of conduct regard-
niques. The self-regulatory guidelines are intended
                                                        ing fair and open pricing that the major airlines are
to provide individuals and organizations involved
                                                        still following today.
in direct marketing in all media with generally
accepted principles of conduct. The DMA’s Com-          Product Quality
mittee on Ethical Business Practice, an industry peer   Because of the growing emphasis on quality, compa-
review committee, implements the guidelines.            nies now are more assured that they are doing what
Other trade associations, as well as most major cor-    is right and thus are more open to outside inspection.
porations, have also instituted guidelines and poli-    Supply Chain Management
cies for consumer protection and customer service.      Supply chain partners should be aware of exerting
One of the major current ethics issues for direct       undue control over other supply chain participants.
marketers is privacy. Consumers should be               Dual-channel conflicts arise when the expectation
informed of how companies collect and use infor-        of channel exclusivity is met instead with competi-
mation and should have choices about how infor-         tion. Another ethical issue regards the duty of a
mation about them is used. Marketing to children        third-party logistics provider or distributor within
deserves special mention. Children cannot make the      the supply chain to maintain inventory at sufficient
same types of informed purchase decisions as            levels so that there are no lost sales due to sudden
adults. Because of this, children can be more easily    surges in customer demand.

                                                                        ORGANIZATIONAL RESPONSIBILITY            13
     Wholesaling                                             Society’s Role in Marketing Ethics
     Wholesalers usually represent multiple suppliers        Society has both individual and group norms that
     and may have the issue of promoting one supplier        hold business to a higher ethical standard than that
     over another, which may infrequently promote            of the individual. Business relies on the consumer
     favoritism or kickbacks. When wholesale sales reps      for its livelihood and makes its best efforts to be a
     make recommendations to customers, the sales            good corporate citizen. Individuals and consumer
     reps should not promote excessive claims for either     groups are ever watchful of any lapse of ethics in
     product performance, service performance, or mis-       business or marketing. Current corporate practice
     represent product availability. When a requested        incorporates the advice of individuals (whether
     product is unavailable, a substitution of product       they be customers or stakeholders or neither) and
     should not be done without the customers’ knowl-        consumer groups as to how businesses may act
     edge. Employee shrinkage (theft) is a concern in        more responsibly.
     wholesale as it is in retail.                              Individuals or consumer groups who feel that a
                                                             certain business is not acting in an ethical manner
     Warehousing                                             have several courses of action, including:
     When a product arrives at the warehouse below
     quality standards, it must be destroyed or returned       • Contact the company directly, usually through
     to the factory. However, occasionally, these prod-          complaint-reporting channels set up by the
     ucts may be listed as having been destroyed but end         company.
     up being sold for a profit.                                • Contact any number of business and profes-
                                                                 sional groups that represent a particular
     Transportation                                              industry.
     Transportation managers should refrain from               • Report any alleged wrongdoing to the govern-
     promising delivery schedules that they know are             ment, traditional media, and new media.
     unrealistic.                                              • Form consumer boycotts.
     Some unethical retailers resort to bait and switch      Government’s Role in Marketing Ethics
     and selling of private mailing lists. Many compa-       Many of the first formal ethics and compliance pro-
     nies have had to reduce their liberal return poli-      grams, which reflect the style that is common today,
     cies due to occasional consumer return fraud.           were developed in conjunction with the 1986 Defense
     Friendly customer service must also include ask-        Industry Initiative on Business Ethics and Conduct
     ing for identification to prevent fraudulent checks.    (DII). During the 1980s, 18 major defense contrac-
     Consumer ethics issues also include shoplifting         tors were being investigated for waste, fraud, and
     (both consumer and employee theft) amounting            abuse. These contractors accepted the DII Commis-
     to over $98 billion per year globally in retail         sion’s challenge as an opportunity to improve corpo-
     losses,4 which marketers must recoup through            rate ethics and as a methodology to avoid additional
     higher consumer prices.                                 regulations. The contractors agreed to promote eth-
                                                             ical business conduct through the implementation of
                                                             policies, procedures, and programs such as the cre-
     ETHIC S—ACCOUNTABILIT Y                                 ation of codes of ethics. They also vowed to develop
     by Verizon                                              and deliver ethics training to create avenues for inter-
                                                             nal reporting of allegations of misconduct, and to
     Ethics Accountability (External)
                                                             implement internal systems to monitor compliance.
     Organizations are held accountable for their            The DII signatory companies also agreed to allow
     actions by several forces, including society, govern-   public audits of their ethics and compliance pro-
     ment, and business.                                     grams and to share best practices with one another.

   In 1991, new federal regulations known as the      They also provided an impetus for many compa-
U.S. Sentencing Guidelines for Organizations were     nies to create an ethics office.
designed to ensure that organizations that were
                                                      Business Community’s Role in
found to be in violation of federal law would
                                                      Marketing Ethics
receive uniform sentencing. The guidelines enabled
                                                      Peer review of ethical behavior is a constant factor
organizations to greatly reduce fines levied against
                                                      for every business. It is in an industry’s best interest
them by cooperating with investigators and creat-
                                                      to alter the behavior of those businesses that tarnish
ing ethics and compliance programs.
                                                      an industry’s reputation. Shareholders, professional
   Importantly, the guidelines applied to all types
                                                      associations, industry associations, and trade jour-
and sizes of organizations, not just large govern-
                                                      nals all investigate ethical lapses.
ment contractors. The guidelines included a sum-
mary of the steps that organizations should take in
order to have an effective internal ethics and com-                    Ethics and Business
pliance program. The specific steps outlined in the
                                                       In a survey of 120 business executives, whose com-
guidelines were largely based on the experiences of    pany sales volume ranged between $1–250 million,
the DII companies.                                     the following desirable personal characteristics of
   According to the Organizational Guidelines, an      managers were ranked, highlighting the need for ethi-
effective program includes the following:              cal behavior:

                                                         1.   Personal moral / ethical integrity
  • Established standards and procedures that are
                                                         2.   Ability to work with others
    reasonably capable of reducing the prospect of       3.   Ability to listen
    criminal conduct                                     4.   Tolerance of individual differences
  • Specific individual(s) at high levels within the      5.   Perseverance
    organization who are assigned responsibilities       6.   Ability to follow instructions
                                                         7.   Leadership
    to oversee compliance with such standards
                                                         8.   Confidence
  • Steps to communicate the standards and pro-          9.   Decisiveness
    cedures to all employees and agents by “requir-     10.   Ability to work alone
    ing participation in training programs or by
                                                                                          Compiled by: A. G. Bennett
    disseminating publications that explain in a                    Source: Survey conducted by Mr. Shotaro, MBA,
    practical manner what is required”                                      in conjunction with The College of William
  • A monitoring and auditing system(s) designed                            and Mary’s Bureau of Business Research.
    to detect criminal conduct and an internal
    reporting system that employees and others        Ethics Accountability (Internal)
    can use to report criminal conduct “without
    fear of retribution”                              Many corporations have responded to the global
  • A record of consistent enforcement of the         and economic changes of business against the back-
    standards                                         drop of heightened social scrutiny and governmen-
                                                      tal initiatives. An important part of their response
  • A plan to respond appropriately to prevent
                                                      has been the creation of a formal ethics office
    similar offenses from recurring
                                                      and formal internal corporate ethics programs,
   It is clear that the business ethics and compli-   chiefly designed to prevent and detect violations of
ance landscape has been shaped in significant ways     both law and company standards and policies.
by the DII and by the 1991 Organizational Guide-      Increasingly, they also are being seen as tools to
lines. The guidelines prompted many organiza-         communicate and develop shared values within
tions that had been slow to join the ethics           organizations and to help employees make respon-
movement to review their policies and practices.      sible choices in the workplace.

                                                                         ORGANIZATIONAL RESPONSIBILITY                   15
     Office of Ethics and Business Conduct                      Some companies facilitate this by including the
     Ethics officers are responsible for particular activi-     ethics office in the development of the organiza-
     ties within an organization.5                             tion’s strategic business plan, which is aligned with
                                                               corporate strategy and supported by the executive
       • Preparation of a Code of Conduct
                                                               team. The ethics office of any organization typically
       • Ethics training design
                                                               is part of the larger goal of maintaining a business
       • Oversight of hotline/internal misconduct
                                                               environment where all employees are encouraged
                                                               and reinforced to act in accordance with an organi-
       • Assessing/reviewing vulnerabilities
                                                               zation’s ethical standards. To facilitate this role,
       • Overseeing investigations of wrongdoing
                                                               many companies have established integrity as one of
       • Assessing/reviewing successes
                                                               the organization’s core values. To put this value into
        Ethics officers also coordinate with legal, human       action, it is important that all executives have a hand
     resources, security, and finance. In order for ethics      in establishing the business conduct standards.
     and compliance programs to be effective, compli-              An organization’s ethics officer usually reports
     ance must be viewed as a marketing management             directly to the most senior members of manage-
     function rather than a policing and/or legal func-        ment or the Board of Directors’ Audit Committee
     tion. A commitment to good management practices,          on activities, results, and strategic recommenda-
     such as those that encourage two-way communica-           tions. Companies view this reporting relationship
     tions and enable employees to take responsibility for     as critical to providing an objective and confiden-
     their actions, is proving to be the most reliable indi-   tial resource for employees.
     cator of successful compliance practices.
                                                               Ethics Programs
        The creation of an ethics office can either reflect
                                                               Ethics programs consist of five major areas: a code
     the existing values of an organization or can serve
                                                               of conduct, communicating ethics standards,
     as the cornerstone of a new direction for a corpo-
                                                               employee ethics training, ethics risk assessment,
     ration. In either case, an ethics office usually is
                                                               and an ethics complaint resolution process.
     based on the following:
                                                                 • Establish Corporate Ethics Code of Conduct.
       • Common ethical standards for the corporation
                                                                   The organization’s ethics office usually is
       • Ethical awareness, training, and ongoing edu-
                                                                   responsible for establishing and updating an
         cation of employees
                                                                   organization’s ethics standards, known as the
       • An avenue for communication and dialogue
                                                                   Ethics Code of Conduct. The Code of Conduct
         with employees and customers
                                                                   typically contains guidelines for the following
        One of the most important purposes of an orga-             areas of marketing conduct: antitrust; com-
     nization’s ethics office is to give employees a formal         pany funds; conflict of interest; employment
     channel to voice their concerns and report wrong-             practices; environmental responsibility; gov-
     doing. The ethics office can underscore an organi-             ernment affairs; inside information; relation-
     zation’s commitment to ethical behavior and                   ships with suppliers, contractors, and
     reinforce an organization’s core values. The ethics           customers; marketing communications; and
     office can serve as a resource to all employees by            trade secrets and intellectual property.
     providing guidance and interpretation of actual or          • Communicate the Ethics Standards. To ensure
     potential issues. The ethics office typically responds         that employees have the knowledge to make
     daily to questions and issues from employees and              decisions and take actions in accordance with
     management.                                                   an organization’s ethics and compliance stan-
        Many organizations give ethics a high priority in          dards, many companies use numerous strate-
     the daily operations of the marketing elements.               gies and resources to put the right information

  at their employees’ disposal. Ongoing commu-        ETHIC AL RESPON SIBILIT Y—
  nication is seen as essential. A communication      INTERNAT IONAL
  strategy to convey corporate ethics goals will      by Texas Instruments, Inc.
  typically focus on conveying subject matter that
  reaches all employees, stakeholders, and busi-      As U.S.-based organizations increasingly incorpo-
  ness suppliers. This communication may be           rate international marketing into their activities, as
  made available in the company newsletter and        well as establish non-U.S. operations, it is extremely
  on the company Intranet.                            important to align ethics with a company’s global
• Employee Ethics Training. The ethics office          business strategy.
  typically develops corporatewide training pro-
  grams that raise and reinforce ethics awareness.    International Ethical Aspects
  The ethics office may also offer targeted courses    The reputation of any organization depends on the
  that address specific needs. In addition to ongo-    actions, decisions, and choices made on its behalf
  ing ethics training, many companies have            by those who represent it. That reputation can be
  mandatory ethics or Code of Conduct training        either enhanced or damaged by the nature of these
  as part of the new employee orientation process.    actions. A company that has earned a reputation
• Ongoing Ethics Risk Assessments. An organi-         for business competency and for being highly eth-
  zation’s ethics office may perform ongoing          ical is attractive to potential customers and
  manage-by-prevention actions that encourage         investors. It is reliable and predictable because it
  proactive disclosure of activities or relation-     makes every effort to honor its commitments. By
  ships that may create the appearance of impro-      minimizing the time required to gain trust, the
  priety or conflicts of interest. These programs      company can do more business and do it quickly. In
  are for individuals and organizations.              regions of the world where corruption and bribery
  Many organizations distribute a Conflict of         have been well documented, companies with strong
  Interest Questionnaire to all of its higher man-    reputations can provide a comfort zone of ethical
  agement worldwide on an annual basis and            consistency for suppliers and customers. There is
  update as needed.                                   an increasing understanding worldwide that ethical
  Before many organizations enter into any poten-     shortcuts have a distorting impact on the free mar-
  tial partnership, the ethics office may conduct an   ket by displacing sound business decisions with
  assessment of the potential business partner’s      personal incentives and conflicts of interest. Com-
  values and standards through a thorough,            panies that can deliver maximum value back to
  formalized Ethics Risk Assessment process. This     their customers through high-integrity business
  process includes outside research on litigation     relationships are being recognized as attractive
  and scandalous or high-risk activities.             business partners worldwide.
• Ethics Complaint Resolution Processes. There
  are quite a few steps in an ethics complaint        Global Approach
  resolution process.                                 Company relationships with other companies have
                                                      now become so intertwined that a company may
  1. Promoting awareness of process                   be dealing with another company as a customer,
  2. Providing reporting channels                     supplier, competitor, or an alliance partner. Irre-
  3. Complaint examination                            spective of their geographic location, employees
  4. Conduct investigation                            are expected to understand their ethical and legal
  5. Determining cause                                obligations.
  6. Enacting preventive measures                        Communicating an organization’s ethical and
  7. Taking corrective measures                       legal expectations and requirements in today’s

                                                                      ORGANIZATIONAL RESPONSIBILITY        17
     global market presents both opportunities and             • Determine the common cultural themes and
     challenges. Opportunities are there for those who           values in the global organization.
     learn how to operate ethically under a variety of         • Draft an ethics document incorporating core
     different cultural and legal environments. However,         ethics policies.
     companies are presented with serious risks if they        • Disseminate to company employees worldwide
     focus too heavily on respecting local customs               for review and comment.
     because locations within a multinational corpora-         • Discuss individually with the top management
     tion are not isolated from regulations imposed by         • Review by the Board of Directors.
     other parts of the world. For example, in the United      • Distribute to employees worldwide in appro-
     States, the concept of informal relationships is pro-       priate languages and train employees on their
     moted to create open and candid communications,             responsibilities.
     something that is viewed as a primary attribute for
     enhancing the ethics of the workplace. This con-
                                                             Attributes of an Effective International
     cept is not viewed as appropriate in many cultures
                                                             Ethics Program
                                                               • Align the values and principles to the business
     where respect for authority and organizational
                                                                 objectives of the company. In many cultures it
     hierarchy are very important.
                                                                 is important to equate individual efforts to
     Local Approach                                              overall objectives.
     Companies cannot simply extend home country               • The core values that drive the conduct and
     ethics principles outward. A company should                 behavior of an organization must be sourced
     implement a global ethical strategy and deploy it           from headquarters. The local and country
     effectively on a local basis by using a four-level          implementation becomes a shared or deployed
     approach:                                                   responsibility.
       • Comply with all legal requirements, especially        • Focus on positive statements. For example, the
         focusing on local laws.                                 words avoid or never are viewed as negative in
       • Understand how these local requirements or              Asian cultures.
         practices may impact coworkers in other parts         • If translated, have the document interpreted
         of the world.                                           back into the original language to be certain
       • Understand when practices need to be adapted            that the core message has been retained.
         based on local laws and customs of a particu-
         lar locality.                                       SOCIAL RESPON SIBILIT Y
       • Anticipate the points of friction and proac-        by Pfizer
         tively address the dissonance employees may
                                                             In the next level above corporate ethical behavior is
                                                             socially responsible behavior. Social responsibility
     Developing a Global Code of Ethics                      (SR) is important in order to improve the quality of
     Companies provide the tools with which world-           life in the community at large. Marketing organi-
     wide employees make informed decisions and take         zations are paying more attention to their role and
     actions quickly and correctly both in the office and     influence in the world, and many now have social
     on the factory floor. A set of policies or rules can     responsibility programs. In addition, many
     never be comprehensive enough for all employees         investors are investing in socially responsible funds
     to deal with all of the issues that will inevitably     and impose selective screens on investments. Sim-
     arise. Individual actions and decisions can be          ilarly, stockholders, employees, and consumers have
     guided only through basic core values.                  exerted pressure on corporations to help advance a
        There are several steps to developing a com-         number of socially responsible causes. Social
     pany’s code of ethics:                                  responsibility issues include work/family benefits,

environmental protection, time for worker com-              research appeal to women and sponsorships of
munity outreach, charitable giving, women and               Alzheimer’s research appeal to the elderly.
minority advancement, worker health/safety, full          • It promotes a corporate culture of caring and a
information disclosure, and job security.                   customer first attitude among employees.
   Recipients of charitable contributions may be
individuals, communities, research labs, cause-         Methods for Community Involvement
related marketing sponsorships, or even countries.
Corporate giving typically is done through chari-       Organizations give in three ways: financial,
ties that represent the local community or segments     employee time, and in-kind.
of the world community.                                   • Financial donations. Known as philanthropy,
   Companies may differentiate themselves in the            provide needed funding for new or existing
marketplace by promoting their social programs in           programs. Marketing communications typi-
advertising or packaging and have become very               cally promote these contributions by stating
successful. For example, Ben & Jerry’s (1% for              that the organization is “a proud sponsor of ” a
peace), Newman’s Own (100% of after-tax profits              program such as the Race for the Cure or the
go toward education and charitable purposes),               Special Olympics.
Reebok (Amnesty International Concert Tour), and          • Employee time donations. Known as volun-
Star Kist Tuna (Dolphin safe).                              teerism, provide support through contribu-
   These programs have worked, in large part, due           tions of individual skills. The employee, and
to the corporate commitment at senior levels,               thus the organization, is seen interacting in the
which typically then permeates to all employees.            community through events such as Habitat for
                                                            Humanity or Red Cross disaster relief. These
Definition                                                   events may be company organized or employee
Corporate social responsibility (also known as cor-         chosen.
porate citizenship) is a comprehensive set of poli-       • In-kind donations. Specific corporate goods
cies and practices that organizations adopt in order        or services, are matched up with and provided
to demonstrate respect for ethical values, people,          to a specific need. For example, Intel, Hewlett
communities, and the environment, thereby                   Packard, Microsoft, and Premio provided $500
enhancing corporate value for customers, investors,         million worth of computers, software, and
and employees.                                              technical assistance to “Teach to the Future,” a
                                                            program designed to train teachers in com-
Reasons for Social Programs                                 puter skills.

There are three main reasons why an organization
                                                        Organizing a Cause-Related Partnership
institutes a social responsibility policy.
                                                        There are several steps involved in coordinating a
  • It is the right thing to do, and responds to the
                                                        marketing relationship:
    needs of individuals and the community.
  • It promotes a positive image of the company,          1. Determine corporate giving and marketing
    creates corporate identity differentiation, and          goals.
    promotes goodwill to various audiences, such          2. Determine which community or charitable
    as consumers, governments, the business/finan-            organization has the most need or best fits
    cial community, and suppliers/vendors. Recip-            with the organization’s goals.
    ients of corporate giving programs may be             3. Determine a formal legal agreement, includ-
    selected in order to appeal to a specific customer        ing responsibilities, amounts of giving, liabil-
    base. For example, donations to breast cancer            ities, and codes of conduct.

                                                                        ORGANIZATIONAL RESPONSIBILITY        19
       4. Manage the SR program.                            challenges with more specific standards that apply
       5. Communicate involvement in the program.           to their industry, for example, textiles and electron-
       6. Evaluate marketing results. In many cases a       ics. Tailoring a benchmark on a specific area can
          program will succeed and a long-term part-        provide a standard by which similarly situated sup-
          nership is formed. In some instances, the         pliers and customers understand the generally
          need may diminish and the corporation             accepted variables that apply to the business mod-
          may then move on to another cause. The            els in their marketplace.
          public is quick to see hypocritical market-
          ing efforts, and if these efforts are not work-   ENVIRONMENTAL RESPON SIBILIT Y
          ing, the program should be either enhanced        by Xerox and SC Johnson
          or dropped.
                                                            Introduction/Environmental Issues

     SOCIAL RESPON SIBILIT Y—                               Throughout the first half of the twentieth century,
     INTERNAT IONAL                                         during the age of global industrialization, the
     by Texas Instruments, Inc.                             developed world grew at a rapid pace with little
                                                            regard for lasting impacts on the earth and its
     Social responsibility, on an international basis,      resources. Few considered the implications of
     addresses a variety of different topics such as        industrial waste disposal into the environment or
     human rights issues, environmental stewardship,        the possibility that the materials needed to fuel
     philanthropy, and governance. Global companies         continued global growth might someday be in
     now are being held accountable for their business      short supply.
     practices, and many desire to certify and promote          In the 1970s and 1980s, the previous lack of
     their acceptable practices, seeking to differentiate   awareness of the environment began to change.
     themselves from companies that do not have             A series of environmental disasters, such as Love
     acceptable workplace conditions. Similar in nature     Canal, Bhopal, and the Valdez, triggered closer
     to ISO 9000 and ISO 14000 is the social accounta-      scrutiny of industry practices and led to tighter
     bility certification program SA8000, developed by       government regulation and controls of pollution
     the Council on Economic Priorities Accreditation       outputs at manufacturing facilities. Many viewed
     Agency. SA8000 is a third-party standardized pro-      further industrial development as a choice between
     gram that assesses and monitors the social account-    continued economic expansion and environmen-
     ability of suppliers, manufacturers, and vendors.      tal protection.
     SA8000 certifies corporate performance in the fol-          In 1992, at the Earth Summit in Rio de Janeiro,
     lowing areas: child labor, forced labor, health and    Brazil, world leaders from the public and private
     safety, freedom of association, discrimination, dis-   sectors promoted the concept of sustainable
     ciplinary practices, working hours, and compensa-      development to emphasize that environmental
     tion. Increasingly, corporations are requested to      and economic goals not only could be, but had to
     produce more CSR-related information for public        be, reached together.
     consumption. Investors and customers frequently            Environmental marketing can indicate a com-
     include publicly available information in their        parative advantage and enhance the company’s
     investing and purchase decision models. The            image for those companies that embrace sustain-
     Global Reporting Initiative (GRI) framework has        able development through environmental prod-
     become a generally accepted framework for setting      uct development, environmental cost-based
     CSR-related goals and reporting CSR results.           pricing structures, and providing environmen-
        In several instances, individual industry associ-   tally oriented information through marketing
     ations have taken steps to address industry-specific    communications.

  • Global population growth, coupled with cur-      deserts, forests into poor pastures, and freshwater
    rent consumption patterns around the world,      wetlands into salty dead soils. As ecosystems are
    make resource scarcity a growing and costly      degraded, the biological diversity and genetic
    concern for the world’s consumers. Sustain-      resources they contain could be lost permanently.
    able development both acknowledges and pro-
                                                     Expanding Consumption
    vides the opportunity for business to assume a
                                                     The overuse and misuse of consumed resources
    leadership role in addressing the burden that
                                                     often are accompanied by the pollution of the
    human occupancy places on the earth’s
                                                     atmosphere, water, and soil with substances that
    resources. The economic power, technological
                                                     continue to harm the environment for long periods.
    assets, and marketing savvy wielded by global
    industrial giants may place them in a unique     Earth’s Finite Resources
    position to contribute to the world’s economy.   Much of the earth’s natural resources are finite.
    At the same time, these companies can mini-      Even though it is difficult to predict how long they
    mize their impact on the environment and         will last, they will run out. Metals and minerals are
    win consumer support for their efforts. Recog-   the most finite of the world’s resources, including
    nition of this opportunity is what drives the    all the fossil fuels. These resources are being
    integration of sustainability thinking into      depleted relatively rapidly and are extracted and
    business strategy.                               used almost as soon as they are found. The amount
  • Sustainable development is broadly defined as     of resources extracted depends on market prices
    meeting consumer needs today without com-        and the rate at which technical innovation allows
    promising the ability of future generations to   increasingly difficult sources to be tapped.
    meet their needs.                                    In most cases, easily found, high-quality finite
  • Environmental marketing provides that all par-   resources are becoming scarce, and companies
    ticipants in the commerce chain produce, con-    search in increasingly environmentally sensitive
    sume, dispose, and promote the use of            areas. For example, companies now search for oil
    resources so that the world economy expands      under the sea, in hostile arctic regions, and in trop-
    to support the needs of the world’s population   ical forests. As these materials become more costly
    without sacrificing the environment.              to find and extract, their price increases.
                                                         In the face of finite resource depletion, many
                                                     industries around the world are turning to substitu-
Environmental Factors                                tion. The U.S. telecommunications industry, for
To understand environmental concerns and their       example, now uses fiber optics based on ubiquitous
impact on marketing, it is important to understand   silicone (sand) instead of copper. Canada’s largest
environmental factors such as expanding popula-      electrical utility has embarked on the development
tion, expanding consumption, and the earth’s finite   of renewable energy resources, such as solar, wind,
resources.                                           and biomass, to replace fossil fuel. British Petro-
                                                     leum’s efforts to shift to renewable sources of energy
 Supply ↔ Environmental Factors ↔ Demand             are the main focus of their advertising campaigns.

                                                     The Global Response to
Expanding Population
                                                     Environmental Factors
The world’s population now stands at approxi-
mately six billion people, with expectations that    Consumers
that number will double by 2039. Productive areas    Successful environmental marketing campaigns are
are the most severely affected. For example, agri-   designed around understanding and meeting the
culturally rich drylands already are turning into    needs of the marketplace. Increasingly, consumers

                                                                     ORGANIZATIONAL RESPONSIBILITY        21
     are expressing their demand for products and serv-       indicated that the average customer would pay
     ices that are effective, competitively priced, and not   10 percent more for their electric utility bill if a sig-
     harmful to the environment. Clean air and safe           nificant portion of the power was generated by
     drinking water are among the top concerns of fam-        renewable energy sources.
     ilies around the world today. According to a 1997        Environmental Groups
     survey conducted by the Global Environmental             Increasingly, companies are working together with
     Monitor (GEM), the environment and the effect of         environmental groups to find solutions for corpo-
     pollution on human health are strong and growing         rate environmental issues, while at the same time
     global concerns among a representative sampling          marketing these proenvironmental efforts to con-
     of 60 percent of the world’s total population. While     sumers. One example is the partnership between
     individuals are generally aware of the global impli-     McDonald’s Corporation and the Environmental
     cations of environmental protection, most are pri-       Defense Fund to cut waste and improve recycling
     marily interested in what happens locally.               efforts. In another example, British Petroleum (BP)
         Consumer environmental needs are being pro-          has initiated renewable energy programs and is
     moted by environmental groups, nongovernmen-             working with the Environmental Defense Fund to
     tal organizations, governments, and international        develop voluntary emissions trading systems for
     organizations. These groups are challenging com-         greenhouse gases.
     panies to think globally, while acting locally. Multi-
     national enterprises with offices and manufacturing       Governments
     facilities around the world find benefits and mar-         Governments can assist businesses to progress
     keting opportunities by working toward sustainable       faster toward sustainable development goals. Gov-
     operations within each host community, and fol-          ernments can influence corporate environmental
     lowing the regulations and reporting requirements        strategies through government regulatory require-
     of the local government.                                 ments, government-driven market programs, and
         According to the 1997 Green Gauge Report from        the promotion of industry self-regulation.
     Roper-Starch, 81 percent of Americans find envi-          Government Regulatory Requirements
     ronmental marketing acceptable. According to             Environmental engineers are now expected to
     recent polls reported in the International Herald        design manufacturing emission treatment/control
     Tribune, the environment is among the top five fac-       technologies to ensure compliance with environ-
     tors influencing U.S. consumers’ purchasing deci-         mental laws and/or regulations. The government’s
     sions. Women, minorities, and parents with young         move to eliminate toxic materials in the manufac-
     children tend to be the most environmentally             turing process has become a factor in product
     minded in their purchasing decisions.                    design. Manufacturers have realized they can avoid
         The consumer usually will not buy a green            manufacturing costs most effectively in the design
     product unless that product is price-worthy and          stage. In addition, these design efforts can provide
     performs the same function as a product without          a mechanism for differentiating products in the
     green claims. This is especially true for fast-moving    marketplace.
     consumer goods. For example, when Procter &                 The Federal Trade Commission (FTC) has
     Gamble (P&G) introduced a hair spray that used           issued Guides for the Use of Environmental Market-
     hand-pumped air rather than an aerosol as the            ing Claims. These guides represent administrative
     propellant, the company suffered poor sales. P&G         interpretations of laws administered by the FTC for
     concluded that customers are not willing to accept       the guidance of the public in conducting its affairs
     the inconvenience of hand pumping just to gain           in conformity with legal requirements. These
     an environmental benefit. However, in 1997–1998,          guides apply to environmental claims included in
     surveys of electrical utility customers in Texas         labeling, advertising, promotional materials, and all

other forms of marketing, whether asserted directly      scale and a good marketing campaign, these com-
or by implication, through words, symbols,               panies will effectively translate business products
emblems, logos, depictions, and product brand            and services to the consumer marketplace. For
names. Environmental claims typically include the        example, after the federal requirement for recycled
areas of: biodegradability, compostability, recycla-     paper took effect, Union Camp (subsequently
bility, recycled content, source reduction, refillabil-   acquired by International Paper) introduced the
ity, ozone safety, and ozone friendliness.               Great White brand of office paper in 1993. This
    The guidelines state that an environmental mar-      brand was one of only a few recycled-content copy
keting claim should not be presented in a manner         papers available from a high-volume manufacturer.
that overstates the environmental attribute or ben-      It was positioned as an everyday copy paper that
efit, expressly or by implication. Marketers should       had the appearance, performance, and price of reg-
avoid implications of significant environmental          ular, nonrecycled content paper. This enabled
benefits if the benefit is in fact negligible. For exam-   Union Camp to quickly obtain shelf space in retail
ple, if a package is labeled,“50% more recycled con-     channels and rapidly increase market share. Dur-
tent than before,” and the manufacturer increased        ing its first five years on the market, Great White
the recycled content of its package from 2 to 3 per-     sales volume grew 10 times faster than the total
cent recycled material, the claim is technically true,   retail market for copy paper.
but it conveys the false impression that the adver-
                                                         Government Promotion of Industry Programs
tiser has significantly increased the use of recycled
                                                         While regulations and enforcement of environ-
                                                         mental policies are getting tougher, there has been
                                                         a greater emphasis among some governments to
Government Market Programs
                                                         promote innovation in the private sector by focus-
Procurement requirements listing environmental
                                                         ing on voluntary methodologies. Many govern-
specifications are the most powerful government-
                                                         ments are encouraging self-regulation in business
driven mechanism for the achievement of environ-
                                                         and pacts with government agencies, rather than
mental goals. For some products, the federal and
                                                         new and costly environmental laws and command-
state governments are the largest purchasers, and
                                                         and-control policies.
their purchasing power can create economies of
scale. Therefore, compliance with government             International Organizations
environmental specifications makes economic              With the globalization of corporations, the new
sense for most suppliers. Once the government pro-       manufacturing environmental performance stan-
cures an environmentally friendly product and an         dards are expanding across the globe. Many in
economically justified price is reached, then, and       industry are adopting voluntary environmental
only then, is it likely that other smaller purchasing    management standards to drive continuous
entities will adopt the use of the product. For exam-    improvement beyond local compliance require-
ple, the U.S. government now mandates a mini-            ments.
mum 30 percent recycled content in office paper.             The International Standards Organization
In 1996 the federal government purchased 20.9 bil-       (ISO), headquartered in Switzerland, has developed
lion sheets of copy paper, so it is obviously a major    global voluntary standards in an effort to bring
influence in promoting the growth of the recycled         greater uniformity to management systems and
paper industry.                                          reporting. Similar to the ISO 9000 quality stan-
   While these programs effectively define environ-       dards, ISO 14000 is a series of standards address-
mental responsibility in the business market, they       ing environmental management. Many companies
do not necessarily create a pull in the consumer         use ISO environmental standards to market and
marketplace. The hope is that with economies of          promote their products.

                                                                        ORGANIZATIONAL RESPONSIBILITY      23
                                                                  program to recover parts from returned products
                                                                  as reusable assets. Designing new products with
      ISO 14000   →   a series of environmental standards         asset recovery in mind has enabled Xerox to be
      ISO 14001   →   internal systems for corporations to
                                                                  positioned for mandatory product take-back leg-
                      achieve the standards7
                                                                  islation in Europe.
                        Source: ISO (International Organization      As with any other marketing strategy, it is
                                for Standardization)
                                                                  important to quantify the potential market value
                                                                  of an environmentally friendly product or service
        Multilateral Environmental Agreements (MEAs)
                                                                  through market research, direct customer request,
     are international treaties negotiated among coun-
                                                                  or competitor activities. The preferred approach is
     tries to address environmental concerns. MEAs can
                                                                  to identify the opportunity before the competition
     serve as important environmental objectives. Inter-
                                                                  does. For example, Xerox developed its print/copy
     national conventions, such as the Montreal Proto-
                                                                  and toner cartridge return programs in direct
     col, the Biodiversity Convention, and the Climate
                                                                  response to customer requests. SC Johnson
     Convention, recognize that global problems war-
                                                                  responded to its customers’ desires and introduced
     rant global solutions.
                                                                  numerous lower environmental impact products
        The Montreal Protocol has led to the phasing-
                                                                  and processes, including Raid Flea Trap, a nonin-
     out of ozone-depleting substances. This phaseout
                                                                  secticidal flea control device that was redesigned in
     was done in conjunction with industry as businesses
                                                                  the concept stage to cut plastic use by 25 percent.
     worked to develop environmentally friendly substi-
     tute products that would meet consumers’ needs.              Corporate Financial/Environmental Goals
                                                                  While eco-efficiency has helped industry make sig-
     Organizational Response to
                                                                  nificant strides in reducing pollution and waste, it
     Environmental Concerns
                                                                  often fails to address another important aspect of
     The general increase in public awareness of envi-            sustainability: the potential for economic market
     ronmental issues has provided a marketing oppor-             growth through sustainable technology develop-
     tunity to shift industry’s perceived role from               ment. DuPont, Monsanto, SC Johnson, and Xerox
     problem creator to solutions provider. Whereas               were among the first U.S. corporations to recognize
     regulation traditionally has been used to address            the critical link between environmental and finan-
     environmental market failure, regulators and pol-            cial performance. These companies began to focus
     icy makers are now leveraging increased public               less on the cost to the business of environmental
     environmental awareness to drive environmental               compliance and more on the potential for profit in
     improvement through voluntary market-based                   environmental innovation. For example, from 1992
     incentive programs. Businesses are participating in          to 1998, SC Johnson eliminated over 420 million
     government-sponsored voluntary programs as                   pounds of waste material from its products and
     well as using environmental attributes to capture            processes and, as a result, saved over $125 million.
     market share.                                                   Environmental marketing strategies are depend-
        There is a growing corporate awareness that               ent on the type of goods or services being marketed
     the environment can provide an opportunity for               and the end user. For example, in the office equip-
     revenue generation. Companies that have inte-                ment market, where the purchasing decision makers
     grated environmental thinking into their business            are not necessarily the end users of the product, there
     processes can capture competitive advantages.                are fewer environmental-based marketing opportu-
     For example, Xerox realized that solid waste from            nities than for the consumer products marketplace.
     the return of leased copiers was their largest envi-            Implementing an environmental management
     ronmental issue. Xerox undertook an aggressive               system and auditing the system’s performance will

aid in ensuring sustainable environmental per-             stewardship is the management of a product by
formance. International recognition and accept-            both economic and environmental standards.
ance have resulted in many companies choosing to           Thus, sustainable marketing includes continuous
implement the ISO 14001 environmental manage-              product improvement for greater safety, efficiency,
ment system. This type of system drives a company          and environmental effectiveness.
to understand the environmental impact of its                 The application of sustainable business strate-
operations and products, work toward reducing              gies to product development not only improves a
those impacts, and comply with applicable envi-            product’s environmental friendliness but also may
ronmental laws and regulations.                            offer a significant marketing advantage. Being the
    An environmental audit gauges how a company            first to market a product that is highly effective and
manages itself against compliance requirements             less harmful to the environment can capture con-
and its own policies and practices. Compliance             sumer loyalty.
with national and state environmental regulations             Incorporating sustainable thinking into product
is sometimes the lowest common denominator as              development can require turning thoughts into
companies start to aim higher to meet international        actions. For example, SC Johnson organized work-
requirements, to comply early with the next level          shops for multifunction product development
of government requirements, and to appeal to a             teams designed to raise awareness of the financial
growing consumer base that expects corporate               benefits of reducing waste at the point of product
environmentalism. An environmental audit reviews           design. SC Johnson introduced a computer tool,
every aspect of the company including research and         Success Through Environmental Progress (STEP),
development, suppliers, the manufacturing process,         to provide a comprehensive way of internally meas-
all aspects of physical distribution, and all aspects      uring environmental improvement in products and
of the supply chain.                                       processes. This tool enabled SC Johnson to gain
    Environmental performance-based standards              information that it could then translate into a con-
measure energy/material input versus product out-          sumer-friendly format for marketing purposes.
put, life cycle impacts, disposal costs, durability, and      When communicating with a target audience,
toxicity. Performance indicators should be specific,        companies should differentiate themselves in order
numeric, and include timelines. Companies should           to increase sales. This can be done by promoting
apply these indicators uniformly to provide com-           the company’s environmental image and assuring
parability from year to year, among companies              that product attributes are presented in a way that
within the industry and across industries.                 the consumer can understand. In some cases, the
                                                           communication of environmental attributes may
Corporate Green Marketing and the                          require an education campaign to influence con-
Marketing Mix                                              sumer understanding of, and preference for, certain
Credibility is built on market recognition and pub-        environmental benefits.
lic perception that a company is a good environ-              For example, at SC Johnson, educational pro-
mental corporate citizen and is maintained through         grams on two fronts help to create pull from the
a clean environmental record coupled with contin-          marketplace for the company’s products. First, to
uous environmental performance improvement.                clarify consumer misconceptions about aerosols
    In its simplest form, green or eco-marketing           and the upper ozone layer, the company includes a
might add terms like “phosphate free,” “recycla-           CFC-free (chlorofluorocarbons) message on prod-
ble,” “refillable,” and “ozone-friendly” to product        uct packages and in advertising, and sponsors an
advertising. Sustainable marketing goes much fur-          education campaign with the Consumer Aerosol
ther than this by incorporating product steward-           Products Council (CAPCO) to raise the public’s
ship into the business planning process. Product           awareness that today’s aerosols do not contribute

                                                                           ORGANIZATIONAL RESPONSIBILITY       25
     to upper ozone depletion. Second, SC Johnson             Advertising
     partnered with other industrial companies, includ-       After the first Earth Day in 1970, many products
     ing the Steel Recycling Institute, to promote the        were advertised touting environmental benefits.
     acceptance of empty aerosol cans in community            Unfortunately, not all of these advertisements were
     recycling programs.                                      true. Consumers became wary of the hype. Never-
        Each element of the marketing mix both                theless, according to recent polls reported in the
     affects the environment and can be used to dif-          International Herald Tribune, 10 to 15 percent of all
     ferentiate companies that embrace environmental          new products now make some kind of environ-
     stewardship.                                             mental claim in their labeling and advertising.
                                                                 Products will never have a zero impact on the
     Marketing Research
                                                              environment, but a company may advertise its
     It is important to know consumers’ attitudes
                                                              commitment to continuous environmental prac-
     toward the environmental impact of their needs
                                                              tices improvement, environmentally aware product
     before developing and marketing new offerings.
                                                              ingredients, how to use the product in an environ-
        Most people say they are pro-environment.
                                                              mentally safe way, and how to properly recycle or
     However, observational marketing research tech-
                                                              dispose of the product.
     niques can be very insightful to determine which
                                                                 General terms such as “ozone friendly,”“recycled,”
     consumers actually put this attitude into practice.
                                                              and “recyclable” cannot be used unless specifically
     One research group even dug up garbage from
                                                              qualified as to what is meant by the claim. For exam-
     a city dump to determine actual product usage
                                                              ple, when claiming a product is “recycled,” the man-
     patterns, which showed that more products
                                                              ufacturer must indicate the percent of the product
     were thrown away than were claimed in consumer
                                                              that is recycled and whether this recycled material is
                                                              preconsumer or postconsumer. If this claim is on the
     Organizational Purchasing                                package, it must further clarify whether it pertains to
     Most companies and many governmental agencies            the product or to the package.
     are beginning to incorporate some environmental
     aspects into their purchasing requirements. For          Public Relations
     example, since the early 1990s, the federal govern-      Companies use public relations to communicate a
     ment has mandated by executive order the use of          consistent leadership role in their environmental
     recycled content in various items purchased such         efforts and seek dialogue with targeted publics.
     as paper, tires, and motor oil.                          Most publishing organizations give full support to
                                                              articles written about the company’s environmen-
     Sales                                                    tal activities, processes, and products. The socially
     Companies market product-specific environmental           responsible ethic of a company promotes image
     attributes both proactively and by using competi-        building. Partnering with environmental groups is
     tive strategies. Typically, these attributes translate   another strategy companies can use to promote an
     into aspects of the product that address a customer      environmentally conscious image.
     environmental need. Proactive approaches promote
     new features, functions, and/or services provided by     Promotional Marketing
     the supplier. Salespeople often travel great distances   Promotional programs may be blamed for excessive
     either by car or by plane. Both methods of travel rely   packaging or excessive use of materials related to in-
     on fossil fuels that are harmful to the environment.     store promotional offers. When selecting premiums
     Telephones, videoconferencing, and the Internet          or the packaging in which they are delivered to con-
     provide more environmentally friendly methods of         sumers, promotional marketers should attempt to
     delivering sales messages.                               use renewable resources and minimize waste.

Direct Marketing                                        Product Design
The direct marketing community actively sup-            One of the first tools implemented in industry
ports environmental protection in many ways,            efforts to operate more sustainably is eco-effi-
including programs that promote recycling, tree         ciency. The World Business Council for Sustain-
replanting, solid waste management, and envi-           able Development (WBCSD), a coalition of some
ronmental education. Shopping from catalogs             130 leading multinational corporations commit-
and other forms of direct mail saves gasoline and       ted to advancing environmental protection and
cuts pollution.                                         sustained economic growth, defines eco-efficiency
   Many direct marketers, including JCPenney, The       as designing a product that uses fewer but more
Body Shop, and National Wildlife Federation, print      efficient materials and less energy in production.
portions or all of their catalogs on paper made with    The end result is a product manufactured with less
recycled content. Some companies contribute to          waste and a lower environmental impact that also
tree replanting programs. In addition, companies        costs less to produce and may avoid potential envi-
are encouraged to use the Direct Marketing Associ-      ronmental liabilities.
ation’s Mail Preference Service and to have their
                                                        Product Packaging
own in-house name-suppression services so that
                                                        Packaging was one of the first product-oriented
they do not send mail to consumers who do not
                                                        environmental considerations in the marketplace,
wish to receive it, thereby cutting down on
                                                        because it contributed significant volume to land-
resources used.
                                                        fills. It is important that marketing incorporates
Product Development                                     consumer environmental concerns into waste man-
Realizing that environmental research and devel-        agement and packaging. Packaging efforts fall into
opment (R&D) proposals will be competing with           three main categories: reduce, reuse, and recycle.
other investment proposals, it is critical to develop
                                                          • Reduce. Lightweight or streamlined packaging
a strong business case. When considering R&D
                                                            reduces use of materials at the source. For
investments, there are two marketing aspects to
                                                            example, the soft drink bottlers have made
consider. The first is specifically developing a tech-
                                                            great strides in reducing the amount of mate-
nology that will solve a customer environmental
                                                            rial used in their containers: the weight of alu-
problem. For example, SC Johnson determined that
                                                            minum cans was reduced by 35 percent, PET
many institutional cleaning employees could not
                                                            plastic bottles by 28.5 percent, and glass bot-
read the direction labels on cleaning products. As a
                                                            tles by 25 percent.
result, many solvents were improperly mixed, thus
                                                          • Reuse. Reusable or refillable packages mini-
leading to expensive, environmentally degrading,
                                                            mize resource utilization. For example, a long-
and potentially harmful waste. Consequently, SC
                                                            time favorite of kids, the Welch’s grape jelly
Johnson developed a color-coded, mechanical mix-
                                                            jars, can be reused as glassware.
ing system for its clients.
                                                          • Recycle. Packaging that is recyclable or has
   The second R&D aspect is to market the envi-
                                                            recycled content cuts down on the use of virgin
ronmental applications of new technologies being
                                                            materials. Mail Boxes Etc., a private mailbox
developed that the customer does not yet realize
                                                            and shipping company, promotes its accept-
will be a benefit. For example, in DuPont’s basic
                                                            ance and reuse of foam shipping peanuts.
research laboratories, new plastics have been devel-
oped that are easier to recycle than previous ver-      Product Labeling
sions. Marketing was then responsible for               Environmental labels were created to provide a
determining a market and creating a demand for          simple way for purchasers of the products to select
the new technology.                                     those that are environmentally preferable. The

                                                                        ORGANIZATIONAL RESPONSIBILITY       27
     labels provide the credibility of an independent            materials and chemicals. Companies should have a
     endorsement. Environmental labeling programs                rigorous communications policy regarding these
     typically focus on a single environmental charac-           environmental issues due to community right-to-
     teristic, such as the U.S. Energy Star program that         know regulations and worker safety concerns.
     focuses on energy efficiency. Alternatively, some              The land around a warehouse typically is three
     labeling programs may include multiple criteria             to four times the area of the warehouse and may be
     spanning the product life cycle.                            entirely paved. This large paved area creates rain-
     Pricing                                                     water runoff that causes erosion and carries oil
     Additional costs caused by environmental efforts            contaminants. Used packing and handling materi-
     should be reflected in a product’s price. However,           als such as pallets, peanuts, and shrink-wrap often
     business customers generally balk at paying more            are not recycled.
     for products even if they are environmentally ori-          Transportation
     ented. Public opinion polls indicate that the general       Transportation users and providers are confronted
     public is willing to spend only a small percentage          with a number of issues that potentially impact the
     more for environmental products. Consequently,              environment, yet the transportation sector rarely
     pricing is dependent on the company’s target mar-           has used environmental issues as a differentiating
     ket strategy. If the strategy is to capture the extremely   marketing tool. In the near future, as technologies
     environmentally sensitive niche market, a price pre-        such as electric or natural gas delivery trucks come
     mium may be appropriate. Otherwise, the focus               into use, this environmentally sound delivery prac-
     should be on positioning environmental aspects as           tice could become a sought after point of differen-
     the deciding factor where cost, quality, and features       tiation in the supply chain.
     are equal. Some business companies will price new              Concentrated products, such as Concentrated
     products at a premium and offer remanufactured              Tide, require less delivery fuel per unit, are both
     goods at a discount. Other companies, such as               environmentally and economically sound, and can
     Xerox, will incorporate remanufactured/recycled             be marketed as a differentiating benefit. In addi-
     parts into new products, offer the new products at a        tion, proposed take-back requirements to recycle
     slightly reduced rate to incorporate lower parts cost,      used products would mean never returning to the
     and warranty the products as new products (as the           factory with an empty truck, thus not wasting fuel.
     recycled parts are identical to new parts).
     Wholesaling                                                 The retail industry has minimal environmental
     Wholesaling as a process has little environmental           impact in general. However, there are several spe-
     impact; however, certain products handled by                cific environmental areas that should be addressed.
     wholesalers, such as hazardous materials and chem-          These include excessive use of energy for heating,
     icals, require extra care when handling, storing,           cooling, and lighting; parking lot rainwater runoff
     shipping, and sorting. Occupational Safety and              for shopping centers; ground storage leakage for
     Health Administration (OSHA) requirements and               retail gas stations; overpackaging of products; and
     Material Safety Data Sheet (MSDS) documentation             overproviding of shopping bags. Retailers are likely
     requirements should be strictly adhered to. Mar-            to become the return point for a variety of recycled
     keting communications in trade magazines and                product programs (as they currently are for glass
     internal publications such as newsletters should            bottles and automobile batteries). Some retailers,
     stress the importance of safety.                            such as Ben & Jerry’s Ice Cream, have found suc-
     Warehousing                                                 cess in using an environmental approach to differ-
     An important environmental concern in ware-                 entiate themselves from their competition. Other
     housing is the handling and storage of hazardous            retailers are finding that having environmentally

sound operational practices, such as installing effi-   requirements of product needs versus environ-
cient lighting that uses less energy, can be finan-    mental sensitivity and the impact of products
cially advantageous. Security is a big concern         throughout their environmental life cycle: research
among retailers, as theft accounts for profit loss of   and development, marketing, procurement, man-
approximately 10 percent. Music stores and music       ufacturing, packaging, sales, distribution, con-
departments in department stores were using            sumer use, and ultimate disposal.
excessively large plastic packaging of cassettes to       Marketing personnel are able to communicate
deter theft of the otherwise small product. Several    the company’s accomplishments and develop the
musical groups, including the Grateful Dead, were      company’s image as an environmental leader. For
instrumental in bringing about the voluntary ban       example, marketers at Clairol determined that
on excessive packaging in the retail music industry.   international consumers had preferences for natu-
                                                       ral products with sound environmental attributes,
ENVIRONMENTAL RESPON SIBILIT Y—                        including a biodegradable formula, natural plant-
INTERNAT IONAL                                         derived ingredients, and recycled and recyclable
by Bristol-Myers Squibb                                packaging. Clairol launched Herbal Essences in
                                                       1995, and by 1997 the product line was being sold
There is a growing consensus worldwide among           in more than 40 countries and was on its way to
scientists, consumers, and policy makers that pro-     becoming a billion-dollar franchise.
tecting the natural environment is critical to the        Marketing contributes to environmental protec-
world’s economic and environmental vitality. Com-      tion by considering how the international customer
panies are working with shareholders, lawmakers,       will use the product. Most companies are commit-
regulators, environmental groups, and consumers        ted to reducing the pollution created by their labo-
to clean up their processes and products. Compa-       ratories, manufacturing sites, distribution,
nies recognize that doing business in an environ-      products, and packaging. If a product design can-
mentally conscious or sustainable manner               not fully avoid possible health or environmental
encourages marketing innovation and is essential       impacts, consumer information should provide
to developing and maintaining a competitive            instructions on safe use and disposal, in the lan-
advantage in the international marketplace.            guage of the country where the product will be
   Innovative companies have developed manage-         sold. With the growing emphasis on environmen-
ment systems that integrate environmental              tal progress and responsibility, providing these
responsibility across international organization       tools is more than just good citizenship, it is essen-
lines and drive companies beyond pollution con-        tial to gaining a competitive edge. For example, a
trol to sustainable business innovations. For exam-    Bristol-Myers Squibb facility in Germany has devel-
ple, Monsanto, a major chemical manufacturer, is       oped two instructional tools in German for its busi-
designing bioengineered potatoes and cotton that       ness customers: a booklet on the basics of handling
are protected from insects and viruses. As a result,   hazardous drugs, including precautions that should
farmers in any country will not need to use pesti-     be taken by home health care attendants, and a
cides, thereby protecting land and water from          notebook on the safe use and disposal of oncology
chemical applications. This will reduce human          products for physicians, hospitals, and pharmacists.
exposure to chemicals and eliminate the need to           Marketers are marketing not only a product or
use energy and raw materials to manufacture,           product line but the whole corporation. Environ-
package, and distribute the pesticides.                mental responsibility is a growing aspect of the cor-
   The participation of marketing personnel on         porate persona. The current trend is not to place
international-multifunctional teams will help          environmental requirements on specific products,
strike a balance between the potential conflicting      but rather on suppliers of those products and

                                                                       ORGANIZATIONAL RESPONSIBILITY        29
     whether the supplier has adopted an environmen-         investors, and governments. Through ingenuity,
     tal management system. Companies often place a          companies can achieve both economic growth and
     requirement on their suppliers to be certified to       environmental progress. Marketers will be at the
     ISO 14000, an assurance to the buyer that the sup-      forefront in making the business decisions that will
     plier meets its environmental performance criteria.     transform responsible environmental management
     This requirement for certification may extend           into competitive advantage.
     throughout the entire supply chain.
         Although the United States has more environ-
                                                             Environmental Labels
     mental regulations than any other country, the rest
     of the world is catching up to and, in some             A standard international environmental label would
     instances, outpacing, the United States with regula-    make all consumers aware of the environmental fea-
     tory and nonregulatory requirements that will           tures and benefits of a product. However, currently,
     affect a company’s ability to market products. For      most countries have their own approach. The most
     example, in Sweden, the government health system        successful environmental label programs are in
     requires companies to report on their environmen-       Germany, Sweden, Canada, the United States, and the
     tal programs as part of their business licensing. The   Nordic countries. Other label programs are being
     benefits of environmental leadership go beyond          developed in Japan, France, Spain, Singapore, and the
     risk avoidance, regulatory compliance, and cost         European Union. Most international labeling pro-
     savings; in some markets it may become the price        grams include multiple environmental criteria span-
     of admission to do business.                            ning the product life cycle, such as the German Blue
         Marketing’s focus on building and maintaining       Angel label. European label programs are designed
     market share for the product line has now expanded      to target the top 10 to 20 percent of environmental
     beyond the traditional customer requirements of         performers. Label specifications become progres-
     cost, convenience, and quality, and encompasses the     sively more aggressive as more products are able to
     growing environmental concerns of consumers,            meet the certification requirements.


       by Tenet Healthcare
       Company: Tenet Healthcare
       Case:    Ethical Responsibility

       A decade ago, National Medical Enterprises (NME) was beset by a federal investigation into allega-
       tions that certain NME psychiatric hospitals had committed ethical and legal violations in their
       marketing practices, overbilled Medicare, and violated federal antikickback statutes. In fact, FBI
       agents had descended on the headquarters of the company to seize documents related to the com-
       pany’s psychiatric hospital division. To help rebuild its reputation and its business, the company put
       together an ethics and compliance program that has become recognized as a model in the health care
           Ten years later, the company, renamed Tenet Healthcare in 1995, found itself once again in the
       middle of a federal investigation concerning certain Medicare billing practices. And, more than ever,
       it is counting on the ethics and compliance program that helped it so much in 1993 to help it regain
       a position of leadership and integrity in the industry.

   Health care is one of the most regulated industries in the United States, subject to multiple reviews
by federal, state, and local agencies. Almost every day, news stories report on industry investigations.
So Tenet’s predicament was not unique, but the harm to its reputation was very real.
   In 1994, a year later, NME had negotiated a settlement with the federal government that included
an agreement to sell the psychiatric hospital division and pay a $375 million fine, at that time the largest
such penalty ever for a health-care provider. A little noticed, but far more important, component of the
settlement was a Corporate Integrity Agreement that mandated an ethics and compliance program.
   This program became the foundation on which Tenet, which now operates 53 general hospitals
and various related health-care facilities in 12 states, worked hard to rebuild its reputation. With its
new challenges, the company has committed to enhancing and strengthening the program to help it
engineer a corporate culture in which ethics plays a central role in company decision-making.
   Tenet’s ethics and compliance program has several components:
   •   Mission and values statements
   •   Standards of Conduct
   •   A training program
   •   Ethics Action Line
   •   Ethics and Compliance Department
   •   Quality, Compliance, and Ethics Committee of the Board of Directors
   •   Corporate Compliance Committee
   The above components are integrated into a closely knit system that guides the program, estab-
lishes priorities, and evaluates the results. By virtue of the program permeating the entire company
and its culture, it created an awareness and sensitivity, both internally and externally, that no one
envisioned. For example, the existence of the program became a positive factor in recruiting employ-
ees, in making Tenet hospitals more visible in the communities served, and in the marketing of
services in the competitive health industry.
   The Ethics and Compliance Program has become a part of the Tenet company culture. Examples
include numerous additional evaluation techniques, including assessments by trainees, instructors,
and managers of company procedures. Also, all employees are encouraged to evaluate the program
periodically by completing a comprehensive questionnaire. About 60 percent of Tenet’s more than
62,000 employees respond.
   The Ethics Action Line has responded to calls since its inception over 14 years ago. Evaluation of
the patterns and types of calls indicates that about half of the calls received are related to human
resources issues and the remaining half include requests for clarification of company policy or other
ethics concerns. This is attributed to the effective handling of the calls by a staff of company employ-
ees, who receive training on how to encourage callers to share information needed for appropriate
follow-up. In a recent company survey, 95 percent of participating employees responded that issues
are investigated when reported. An average of 400 calls is received monthly.
   The Ethics Action Line provides advice on a variety of issues, many related to compliance and
ethics allegations and others involving human resources problems. As Tenet’s ethics and compliance
program has matured, the number of alleged wrongdoing as a percentage of the total number of
employee ethics calls has decreased, while the percentage of calls requesting information or consul-
tation has increased. Many of these calls come from managers who are sensitive to the company’s

                                                                       ORGANIZATIONAL RESPONSIBILITY            31
     desire to have employees seek advice on ethical issues before taking an action that they may later
     regret. Tenet’s program emphasizes that it is more appropriate to seek permission than make a mis-
     take and then hope for forgiveness.
        Tenet’s ethics training program has several aspects that go beyond what was required in the agree-
     ment with the federal government. For example, instead of using just a videotape, as many ethics
     training programs do, all of Tenet’s ethics training is conducted in classrooms by a Hospital Compli-
     ance Officer. The Hospital Compliance Officers who lead the training sessions are full-time compli-
     ance officers who are part of the Tenet Ethics and Compliance Department. One of the strengths of
     Tenet’s Ethics and Compliance Program is its independent reporting structure. Each Hospital Com-
     pliance Officer reports to Regional Compliance Directors who report to the Tenet Chief Compliance
     Officer. The Tenet Chief Compliance Officer reports to the Quality, Compliance and Ethics Commit-
     tee of the Tenet Board of Directors. The Ethics and Compliance Department works collaboratively with
     the company’s operations but maintains its independence from company operations and the com-
     pany’s Law Department so that it can provide objective advice on ethics and compliance matters.
        Most significantly, Tenet opted to continue its ethics program even though it was no longer
     required to do so after its Corporate Integrity Agreement with the federal government expired in
     1999. Tenet’s ethics and compliance program has created a consciousness among its employees that
     emphasizes doing the right thing. It has fostered a commitment among employees to report possi-
     ble wrongdoing without fear of retaliation. Today, Tenet’s employees routinely indicate how comfort-
     ing it is to work for a company that encourages and supports their efforts to make sound ethical
     decisions. Although the value of the ethics and compliance programs is difficult to quantify, Tenet’s
     experience has been very positive, and most employees believe the program has made a major con-
     tribution to the company’s success.
        The development of a strong and highly visible ethics and compliance program also has served as
     a positive factor when Tenet expresses interest in acquiring other hospitals. Although this is a sub-
     jective measure, hospitals seeking new ownership clearly value an acquirer with a proven record in
     ethics, especially given the scrutiny of the health-care industry by the government and others. Tenet’s
     ethics program is an asset to both the company and those with whom it conducts business.
        In 2006, Tenet entered into a comprehensive settlement agreement with the U.S. Department of
     Justice to resolve allegations regarding Medicare billing and coding and financial arrangements with
     physicians. In connection with the settlement, Tenet entered into a five-year Corporate Integrity
     Agreement with the Office of Inspector General of the U.S. Department of Health and Human Ser-
     vices. The agreement will be in effect for five years and reflects Tenet’s agreement to act honestly and
     openly with the federal government—one of Tenet’s key customers. The Corporate Integrity Agree-
     ment reflects the ethics and values that the company already adheres to and requires Tenet to con-
     tinue its Ethics and Compliance Program and to periodically submit reports to the federal
     government on program activities. It also requires that every Tenet employee participate in ethics
     and compliance training and certify that he or she will abide by the Tenet Standards of Conduct.
     Tenet and its hospitals are also subject to internal and external audits of its operations to determine


by Pfizer

Company: Pfizer
Case:    Social Responsibility (2009)

As a research-based, global pharmaceutical company, Pfizer’s most important contribution to soci-
ety remains discovering, developing, and bringing to market new medicines. But producing even a
great treatment is not enough. What is also essential is how responsibly we use our skills and resources
to invest in health around the world. Pfizer’s corporate responsibility is an expression of the com-
pany’s mission: working together for a healthier world.
    A principal focus of corporate responsibility at Pfizer has been improving health care and access
to health care around the world. To do this requires a commitment on many fronts: engaging and
educating health-care providers and patients about diagnosis and treatment, building health-care
capacity, delivering the medicines where they need to be, and partnering effectively with organiza-
tions treating patients on the ground.
    Today, Pfizer is a corporate leader in global health, whose $1.7 billion in contributions in 2008
ranked us one of the top corporate donors in the United States.6 Our philanthropy is focused on
investing the full scope of the company’s resources—people, skills, expertise, and funding—to
broaden access to medicines and strengthen health-care delivery for underserved people around the
world. Our philanthropy platform, Pfizer Investments in Health, offers a coordinated approach to
contribute to society beyond medicines:
    Treat. Improving access to medicines and health-care services
    Teach. Increasing patient education and health-care worker training on disease prevention and
treatment options
    Build. Strengthening the capacity of health-care organizations to support prevention, diagnosis,
treatment, and care
    Serve. Advocating and sharing best practices to improve health care for the underserved
    Through direct engagement and collaboration with local nongovernmental organizations
(NGOs), multilateral organizations (MLOs), governments, and private-sector partners, we strive to
implement sustainable programs and impact global health outcomes.
    The International Trachoma Initiative (ITI) was founded in 1998 by Pfizer and the Edna
McConnell Clark Foundation to treat and prevent trachoma, the world’s leading cause of prevent-
able blindness. Trachoma plagues the developing world, particularly rural populations with lim-
ited access to clean water and health care. According to the World Health Organization (WHO),
63 million people suffer from trachoma infection and 8 million people are visually impaired or
blind as a result of trachoma. Globally, the disease results in an estimated $2.9 billion in lost pro-
ductivity per year.7
    ITI supports the implementation of the WHO recommended SAFE strategy, a comprehensive
public health approach that combines treatment with prevention, involving sight-saving surgery,
mass treatment with the Pfizer-donated antibiotic Zithromax®, facial cleanliness, and environmen-
tal improvement to increase access to clean water and improved sanitation.

                                                                     ORGANIZATIONAL RESPONSIBILITY           33
        One dose of this medicine once a year has proven effective in treating active trachoma infection,
     a major advance from the standard treatment. Through Pfizer’s donation of Zithromax, health-care
     workers are able to greatly simplify the process of getting treatment to those with trachoma and to
     increase compliance with the treatment regimen.
        Since 1998 ITI has administered 94 million treatments of Zithromax in 16 countries and sup-
     ported over 399,000 sight-saving surgeries to treat trichiasis, the advanced and blinding stage of tra-
     choma. With the support of the ITI, Morocco became the first country to complete the campaign for
     trachoma control in 2006, and is now working toward WHO certification to signify that blinding tra-
     choma has been eliminated as a public health problem.
        Pfizer’s commitment to global health and communities around the world goes beyond providing
     medicines and aims to build capacity and strengthen health-care systems in areas hardest hit by dis-
     ease. Pfizer sends its highly skilled employees to serve on the front lines of health challenges in devel-
     oping countries. Their goal is simple: to improve basic health-care infrastructure by loaning Pfizer
     employees to local nonprofit organizations and health service providers.
        Since 2003, 171 Pfizer Fellows in 34 countries have worked with and transferred skills to local
     partners and nongovernmental organizations during three- to six-month assignments to share
     knowledge, learn new skills, and explore solutions to improving health care. Pfizer Global Health
     Fellows include physicians, nurses, lab technicians, marketing managers, financial administrators,
     and health educators from the United States, Europe, Latin America, Australia, Canada, and Asia.
     Assignments range from helping hospitals improve data collection and information technology to
     providing clinical training for health-care workers and supporting the expansion of services of
     local clinics.
        The program delivers benefits for both the local nonprofit organizations and Pfizer. Studies
     find Global Health Fellows have a profound impact on partner organizations. A study by Boston
     University’s Center for International Health and Development reveals that 100 percent of partners
     report Pfizer Fellows accelerated sustainable change, and 86 percent of partners stated that Fellows’
     performance exceeded initial expectations. Pfizer’s program goals initially focused strictly on
     creating high social impact, but over time Fellows demonstrated business impact as well, by
     bringing back a broader world vision, a renewed focus on their work at Pfizer, and new ideas for
        International Trachoma Initiative and the Pfizer Global Health Fellows programs are both flag-
     ships of Pfizer’s corporate responsibility efforts and have received impressive awards and recognition
     from diverse audiences. These programs also are important because they are key examples of what
     makes Pfizer employees proud to work for Pfizer. Corporate responsibility continues to be a major
     part of Pfizer’s corporate identity and a motivator for its workforce.


by Xerox

Company: Xerox
Case:    Environmental Responsibility

The Xerox Corporation has developed and implemented a comprehensive, corporatewide Environ-
mental Leadership Program (ELP). The ELP program’s goals are to manufacture waste-free products
in waste-free factories. In addition to the environmental benefit, this approach was designed to
improve Xerox’s productivity and capture substantial cost savings in manufacturing. Xerox believes
that both the environmental improvements and the cost savings could result in a more satisfied cus-
tomer and improve Xerox’s global competitiveness. Components of ELP include product recycling
management, facility waste reduction and recycling, cartridge return program, designing of envi-
ronmental products, and environmental marketing. Employee involvement is key to the integration
of the program across the corporation. The ELP is coordinated by a steering committee and includes
participation by senior management from all aspects of the company.
   Xerox’s primary motivation to establish the program was its desire to manage products that were
returned at the end of a customer lease program in a cost-effective and environmentally responsible
manner. Large volumes of these returned products had accumulated and were costing the corpora-
tion significant investment in storage fees. External factors for establishing the program included
the developing public interest in producer responsibility and potential product take-back legislation
in Europe. The public had already accepted the notion of recycling and was starting to consider the
purchase of recycled content products.
   The first step in developing the program was to understand the customers’ requirements. Using
marketing research techniques such as surveys and customer focus groups, Xerox collected cus-
tomer data on environmental preferences and practices. Product recycling management was one
of the primary topics of research, as this program would result in incorporating reprocessed
parts/assemblies into products. Customer perception of this practice was critically important.
Would customers think that Xerox products were inferior if built with reprocessed parts? The
findings indicated that what customers really cared about was getting a high-quality reliable prod-
uct; they did not care how Xerox managed to achieve this. Customers’ concerns about this new
approach also were allayed because the products would continue to carry the total satisfaction
   The second step was enlisting senior management whose support was critical to the success of
the program. This was accomplished by detailing the environmental benefits and quantifying the
potential cost the program would save the corporation.
   The third step in developing the ELP was to incorporate asset recycle design into the product
development process. Prior to this program, asset recycling was only considered after products had
been returned.

                                                                   ORGANIZATIONAL RESPONSIBILITY          35
         The fourth step was to develop an effective product return process. Getting products back was
     fundamental to recovering asset value and to effectively managing manufacturing inventory. Xerox
     first applied the product recycling management design approach to toner cartridges. Substantial
     investment in the new design of the recyclable cartridges meant that used cartridges needed to be
     recovered for remanufacturing; otherwise the company would lose the additional value designed
     into the cartridges. Xerox realized that to optimize cartridge recovery they had to make it easy and
     cost-free for customers to return the cartridges. The return process includes providing a new cartridge
     in a container, with a prepaid postage label included, in which the old cartridge can be returned.
     Xerox then disassembles and remanufactures returned cartridges. Currently, this return process has
     reached a 65 percent cartridge return rate.
         Establishing supplier partnerships was critical to the program’s success. Xerox relies on its suppli-
     ers to reprocess the parts and assemblies they originally supplied as new. Optimizing the asset value
     of recovered products is dependent upon incorporating environmental principles into Xerox prod-
     uct design to extract value. The greatest value is recovered in remanufacturing returned products. The
     next option is to add features and functions to meet new market requirements. When products are
     not remanufacturable, parts are stripped for the machine, repaired, and reused in other products.
     Finally, nonreusable parts are recycled for material content. The ultimate objective of the entire
     process is to prevent waste.
         Xerox has developed innovative signature analysis technologies for ensuring the quality and reli-
     ability of its parts. Signature analysis works on the basis that parts have unique characteristics that
     indicate the performance and remaining life of the part. This technology enables Xerox to sort out
     parts that may fail so that only reliable parts are reused.
         The product recycling management program has delivered impressive results both financially and
     environmentally. The program saves Xerox over $200 million each year and decreases the amount of
     Xerox parts destined for waste landfills by 74 percent.
         Of note is that our product design efforts are in context of our overall strategy, which focuses on
     where we have the greatest opportunity to reduce impact along the value chain. We strive to focus
     efforts on where we can make a measurable difference and not waste efforts on the relatively small


BRISTOL-MYERS SQUIBB                           Audrey Andrews                                 WEYERHAEUSER
Bristol-Myers Squibb, headquartered in         Audrey Andrews serves as Tenet’s Chief         Weyerhaeuser Company, one of the
New York City, is a global biopharmaceu-       Compliance Officer. Ms. Andrews is             world’s largest forest products companies,
tical company whose mission is to extend       responsible for the company’s ethics           is principally engaged in the growing and
and enhance human life. Visit Bristol-         and compliance program. She received           harvesting of timber; the manufacture,
Myers Squibb at                   her BA in government and her JD in             distribution, and sale of forest products;
                                               law from the University of Texas at            and real estate construction, development,
Thomas M. Hellman                              Austin.                                        and related activities. Visit Weyerhaeuser
Thomas M. Hellman formerly was Vice                                                           at
                                               TEXAS INSTRUMENTS, INC.
President, Environment Health & Safety,
                                               Texas Instruments is a global semicon-         Nancy Thomas-Moore
and the Corporate Quality Officer for
                                               ductor company and the world’s leading         Nancy Thomas-Moore is Weyerhaeuser’s
Bristol-Myers Squibb. Dr. Hellman
                                               designer and supplier of digital signal        Director of Ethics and Business Conduct,
received his BA from Williams College
                                               processing and analog technologies. Visit      and is responsible for the development
and his Ph.D. from Pennsylvania State
                                               Texas Instruments at               and implementation of companywide
                                               Carl Skooglund                                 ethics education, review and modifi-
PFIZER                                         Carl Skooglund is the former Vice Pres-        cation of the code of conduct, and res-
Pfizer, headquartered in New York City,         ident and Ethics Director for Texas            olution of business conduct issues.
is the largest pharmaceutical company in       Instruments. Mr. Skooglund received            Ms. Thomas-Moore received her BA
the United States by sales. Founded in         his BS from Pennsylvania State Univer-         degree in Biblical Literature from Simp-
1849, it has 84,000 employees. Visit Pfizer     sity.                                          son College and her MBA from Pacific
at                                                                             Lutheran University.
                                               David Reid, CPA
Rich Bagger                                    David Reid is Vice President and Ethics        XEROX
                                               Director for Texas Instruments. Mr. Reid       Xerox is a multinational corporation,
Rich Bagger heads Worldwide Public
                                               received his BBA in accounting from the        offering the broadest array of document
Affairs and Policy for Pfizer, with respon-
                                               University of Texas at Austin and his MA       products and services in the industry—
sibility for public policy, government
                                               in behavioral management from the Uni-         copiers, printers, fax machines, scanners,
relations, international public affairs,
                                               versity of Texas at Dallas.                    desktop software, digital printing and
corporate responsibility, philanthropy,
                                                                                              publishing systems, supplies, and com-
and stakeholder advocacy.                      VERIZON                                        prehensive document-management serv-
                                               Verizon Communications Inc., head-             ices—from the running of in-house
SC JOHNSON                                     quartered in New York City, is a leader in     production centers to the creation of net-
SC Johnson is one of the world’s leading       delivering broadband and other wireline        works. Visit Xerox at
manufacturers of household cleaning            and wireless communication innova-
products and products for home storage,        tions to mass market, business, govern-        Patricia Calkins
air care, personal care, and insect control.   ment, and wholesale customers. Visit           Patricia Calkins, Manager Environmental
Visit SC Johnson at         Verizon at                    Market Leadership for Xerox Corpora-
                                                                                              tion, is responsible for establishing the
Cynthia A. Georgeson                           Greg Miles                                     company’s strategic direction for environ-
Cynthia Georgeson formerly was the             Greg Miles, Director of Verizon’s Office        ment, health, and safety. Ms. Calkins
Director, Corporate Public Affairs—            of Ethics and Business Conduct, is             received her BA in Biology from Merri-
Worldwide for SC Johnson.                      charged with administering and enforc-         mack College, her MS in Civil/Environ-
                                               ing Verizon’s Code of Conduct and other        mental Engineering from Tufts University,
TENET HEALTHCARE                               compliance programs. Mr. Miles has a BS        and certificates from Northwestern Uni-
Tenet Healthcare, through its sub-             from Virginia State University. He also        versity and Columbia University.
sidiaries, owns and operates acute care        holds professional certifications from
hospitals and related ancillary health-        Cornell University, The Wharton School,        Additional information was
care businesses, which include ambula-         Bentley College, and the Center for Cre-       provided by:
tory surgery centers and diagnostic            ative Leadership—Leadership Excellence         Tim Mazur, COO, The Ethics and Com-
imaging centers. Visit Tenet at                Program.                                       pliance Officer Association (ECOA).

                                                                                            ORGANIZATIONAL RESPONSIBILITY              37
     1. Wall Street Journal, May 5, 1983.                      3. Ethics and Compliance Officers Association.
     2. 1997 survey “Sources and Consequences of Work          4. 2007 study by the Centre for Retail Research in
        Place Pressure” by the Ethics and Compliance Officers      England.
        Association (ECOA) and the American Society of         5. Ethics and Compliance Officers Association.
        Chartered Underwriters and Chartered Financial         6. The Chronicle of Philanthropy, 2008.
        Consultants.                                           7. World Health Organization, 2008.

   3            PLANNING

                            by General Electric and ExxonMobil

PL ANNING                                                   For example, General Electric’s Equipment
by GE                                                   Financial Services has a marketing goal to create
                                                        “targeted selling models for Construction Finance,
Introduction                                            facilitate greater sales efficiency by improved prior-
Every organization that intends to be successful        itization and improve the scalability of the sales
should conduct marketing planning because it            model across both the direct and indirect value
anticipates market opportunities and problems and       chain, and to rationalize and harmonize our value
allows time for a proper approach or solution to be     propositions to the target segments.” This is directly
attained.                                               linked to the corporate goal of increased sales
                                                        and profits.
Marketing planning is a detailed process of man-
                                                        Increase Sales and Profit
aging the organization’s marketing mix, or ele-
                                                        Companies should set targets for Operating Profits
ments of marketing, in order to accomplish the
                                                        (OP) and for unit and value share. OP describes
goals of the organization. This process entails
                                                        the percentage of revenue after costs have been
researching potential options for the functional-,
                                                        deducted. Unit share is the percentage of the total
geographical-, and product-specific areas of the
                                                        number of individual units sold in a given market.
company and assigning responsibilities, budgets,
                                                        Value share is the percentage of total sales dollars
and timelines. It comprises planning of all the
                                                        generated by a product category in a given market.
activities involved in the development, design, cre-
                                                        These percentages are frequently different from each
ation, production, launch, distribution, advertis-
                                                        other. For example, in a market in which 1,000 male
ing, promotion, public relations, and sale of a
                                                        shaving systems are sold, Gillette sells 500 of them,
product (good or service).
                                                        or 50 percent of the unit share. However, the Gillette
Goals of Marketing Planning                             system may sell at a higher retail price than compet-
Marketing goals evolve from general, long-term          itive products, meaning that they achieve 60 percent
corporate goals. Effective marketing planning will      of the value share in that category.
allow for the successful realization of these goals.
Marketing is responsible for planning activities that   Improve Quality
will increase the value of the business through out-    Companies should constantly improve their prod-
comes, such as increasing sales and profits, improv-     uct and service offerings. There are many ways
ing quality, and reducing risk.                         to manage and measure quality improvements

                                                                                     STRATEGIC PLANNING      39
     (described in detail in Chapter 19, “Product Qual-     from a wide variety of cultures and disciplines.
     ity”). Quality improvement goals include new fea-      And it will be just as important to consider the
     tures or upgrading performance, such as an             requirements of three competing factors equally:
     increase in power or speed. Generally, a company       the customer, the shareholder, and the employee.
     will set quality goals based on a performance defi-
     ciency or upon improvements in competitors’
     products. A typical quality improvement goal                    Marketing Planning Process
     includes the removal of negatives associated with                  Determine planning structure
     product manufacturing and customer-oriented                                       ↓
     performance, such as the reduction of customer                Define the customer need/target market
     product returns and reduction of product failures                                 ↓
     in the field.                                                     Define the organizational offering
                                                                          Perform situation analysis
     Reduce Risk
     Risk is the possibility of suffering financial loss,                   Determine strategies
     such as loss of sales or loss of business. Planning                               ↓
     helps to understand the organization’s markets,                 Implementation/Control of strategies
     product offerings, potential business climate, and                                ↓
     so forth. Systematically creating a knowledge base              Feedback/Evaluate/Adjust strategies
     will allow for more reliable choices, thus reducing
     the risk of failure.
                                                            1. Determine Planning Structure
     Planning Perspective                                   The planning structure consists of planning
     The start-up of a company or the reinvention of a      approaches or methods, planning time frames, and
     company could well begin in marketing. When            the planning participants.
     looking beyond the current product range and
                                                            Planning Methods
     served markets, it is important to ask several plan-
                                                            There are three basic methods to the planning
     ning questions:
                                                            process: top-down, bottom-up, and the team
       “What might we sell (given our market access)?”      approach.
       “What new customers could we approach (given
                                                              • Top-down Planning. Marketing plans are for-
         our capabilities)?”
                                                                mulated by the senior executives and commu-
       “What new product/service capabilities could we
                                                                nicated to the rest of the staff who execute the
         develop or acquire?”
                                                                plans. Advantages of top-down planning are a
        Speedy competitive introduction of new prod-            long-term, companywide perspective and the
     ucts will continue to shorten planning timelines.          speed and ease of administrating the process.
     Businesses will seek to gain competitive advantage         The disadvantage is the distances between the
     by creating products and services that are unique          senior executive and the customer and the
     and difficult to copy or reproduce. Businesses will         senior executive and the product develop-
     continue to expand their operations worldwide in           ment/manufacturing process.
     pursuit of growth through entry into new markets.        • Bottom-up Planning. Marketing plans are
     This will put global marketing skills and the abil-        formulated by people working at the opera-
     ity to create products and services that succeed           tions and field level, then presented to and
     worldwide at a premium. Companies will need to             approved by senior executives. The advantage
     collaborate on marketing planning with people              of bottom-up planning is that field and

    operations personnel are closer to the cus-            planning is the ability to be flexible and react
    tomer and often have a better feel for the mar-        quickly to market changes and opportunities.
    ket. The disadvantage is the field level person’s       The disadvantage is that the short-term out-
    lack of overall company understanding.                 look does not budget for long-term research,
  • Team Approach Planning. There is early and             which may uncover new areas in which the
    continual interaction among various depart-            company is not currently participating.
    ments, such as marketing research, sales, man-       • Continuous Planning. The participants meet
    ufacturing, and finance. The major advantage            regularly, usually weekly or monthly. The rep-
    of team approach planning is the assurance             resentatives of the planning group meet or
    that everyone associated with managing the             have a teleconference with the field marketing
    business shares the same vision. The disadvan-         leaders to exchange information, ideas, and
    tage is the cumbersome process of meetings.            requirements, and to agree on action plans.
                                                           These discussions can be wide-ranging and/or
Planning Time Frames                                       very specific in nature, depending entirely
There are three basic time frames considered in            upon the needs and characteristics of each sit-
planning: long-term, short-term, and continuous.           uation. The advantage of this dialogue is that
Most businesses use a combination of the three.            the product and service requirements needed
                                                           to solve problems, retain business, and gain
  • Strategic (Long-Term) Planning. The technol-
                                                           sales are determined early. The disadvantage is
    ogy, capacity, personnel, and capital require-
                                                           the time spent in meetings that disrupts work
    ments of a company are forecast and typically
    focus on a three- to five-year outlook. For some
    industry segments, the product development
                                                       Planning Participants
    cycle can be as long as seven years for indus-
                                                       Different planning methods and time frames
    try-changing innovations such as using plastic
                                                       require participants from different areas and levels
    to replace steel in some automobile parts. As
                                                       of expertise.
    part of this process, marketing takes an in-
    depth look at the market possibilities and the       • Strategic Planning. The corporate mission,
    potential for new products. This activity is           objectives, and goals are part of the input. The
    focused on understanding the needs, chal-              following individuals are usually involved: the
    lenges, trends, and vulnerabilities of each            Chief Executive Officer (CEO), the Chief
    industry, and assessing them in a competitive          Financial Officer (CFO), the Chief Operating
    context. Formerly, some businesses attempted           Officer (COO), the Chief Marketing Officer
    ultra long-range planning, from 15 to 20 years,        (CMO), as well as Executive Vice Presidents.
    but found that the business and competitive          • Tactical Planning. Marketing objectives,
    environment were changing too rapidly for              goals, and strategies are discussed. The follow-
    this effort to be effective.                           ing people are usually involved: the Vice Pres-
  • Tactical (Short-Term) Planning. The operat-            ident of Marketing, Sales Director, Public
    ing plan is prepared for one year. The following       Relations Director, Advertising Director, and
    year’s opportunities usually are set by long-          the Marketing Research Director. For opera-
    term development cycles, with effective imple-         tional planning, where execution, implemen-
    mentation being the key to delivering results.         tation, and tasks are discussed, the following
    Competitive shortcomings or new opportuni-             levels are usually involved: district sales man-
    ties determined through the situation analysis         agers, senior account supervisors, and senior
    process may change the short-term marketing            sales representatives.
    possibilities. The advantage of short-term           • Continuous Planning. Input comes from sev-

                                                                                   STRATEGIC PLANNING         41
         eral areas within the company. These cross-              broad cross-section of consumers.
         functional teams are comprised of personnel            • Niche market. A subset of the mass market,
         from the different areas listed above plus head-         niche markets are determined by demographics
         quarters marketing and field marketing.                   or customer needs. Consumers may have a
                                                                  need for inexpensive tissue paper versus the
     2. Define Customer Needs/Target
                                                                  desire for lanolin and antibiotic impregnated
     Market Segmentation
                                                                  tissue paper. Businesses may have a need for
     It is essential that customer needs be clearly and suc-
                                                                  more flexible terms and conditions, or broader
     cinctly defined. These are determined through mar-
                                                                  service support, such as 24/7 365. The advan-
     keting research with an understanding of consumer
                                                                  tage of this approach is the potential for higher
     and organizational needs and buying behavior.
                                                                  per unit profits as customers pay incrementally
         Not every consumer or organization will have
                                                                  higher amounts to satisfy specific needs, as well
     identical needs. Therefore, the next step is to break
                                                                  as the benefit of less competition. The disad-
     the total market into potential customer segments
                                                                  vantage is the smaller market and lower overall
     that have similar needs. In marketing, the funda-
                                                                  profit potential. For example, Buckle stores sell
     mental unit of planning is the market segment, or
                                                                  trendy clothes to teens in rural settings.
     target market. A target market or market segment is
     comprised of a set of actual and potential users of       Consumer Market/Organizational Market
     a product or service. Segmentation allows for a           The consumer and organizational markets are
     more precise response to customer needs, a more           described in detail in Chapters 6 and 7.
     precise tracking of the performance of an individ-
     ual product in the market, and a reasonable mar-           • Consumer Market. May be segmented by
     keting budget that does not include all consumers            demographics (age, income, gender) and psy-
     and/or companies. Defining customer segments is               chographics (values, lifestyles, beliefs). For
     accomplished through marketing research. There               example, a record company may target teens by
     are many market segments with the list changing              advertising on MTV and target retirees by
     from time to time, but not very rapidly. The target          advertising on the History Channel.
     market generally may be defined as mass or niche,           • Organizational Market. May be segmented by
     consumer or organizational, or core/new.                     businesses (manufacturing, wholesale, retail,
                                                                  transportation), governments (federal, state,
     Mass Marketing/Niche Marketing                               local, international), institutions (schools, hos-
     Planners should decide through marketing research            pitals, prisons), and organizational size (small
     and an analysis of the core competencies whether             businesses, large businesses). For example, in
     their company will target a mass market or a niche           the manufacturing market, there are three
     market.                                                      types of customers: companies that purchase
       • Mass Market. This is the largest possible                products (Original Equipment Manufacturers
         grouping of potential users of the product or            or OEMs), companies (such as engineering
         service. There are some products/services that           and consulting firms) that specify the use of
         virtually all customers use, such as clothing,           products to end users, and companies that par-
         food, tissue paper, or mattresses. The advan-            ticipate in the supply chain (such as subassem-
         tages of marketing to such a large audience are          blers and distributors).
         the potential for large sales revenue and
                                                               Core/New Markets
         economies of scale in production. The disad-
         vantage is the immense competition for the             • Core Market. One in which the applications are
         same market. For example, GAP attempts to                established and form the heart of the current
         sell khakis to all people, and their ads reflect a        business. This does not imply that these seg-

    ments are static in their product development         quality, manufacturing capacity, pricing strategies,
    possibilities or in the needs of the existing prod-   after-the-sale service capabilities, or special distri-
    uct applications. There are frequently new (and       bution networks. For example, GE Transportation’s
    revolutionary) applications available in markets      core technical competencies are in engineering
    that are well-established users of a product. For     high-performance locomotives, parts and services,
    example, GE Mining’s vertical strategy inte-          and signaling.
    grates several business offerings from the Water,        Some companies have too broad a focus and
    Energy, Motors, Transportation, and Enterprise        overextend management, marketing, and financial
    Solutions Organization, to create two mining          capabilities. These companies may eventually shut
    division segments or core markets: operations         down or sell off divisions resulting in loss of sales
    and transport.                                        and jobs. For example, NCR, in order to avoid
  • New Market. One in which the cost or per-             being overextended, decided to concentrate on soft-
    formance case for the product or service has          ware development and data-warehousing services,
    yet to be introduced or widely accepted and           and sold several manufacturing operations.
    established by actual practice. New markets              Some companies have too narrow a focus,
    may be determined by applying accepted prod-          relying too heavily on current product lines, and
    ucts to new customers or finding new uses for          may miss growth opportunities from new prod-
    existing products. (See Chapter 15, “Product          ucts/ services or new customers and therefore may
    Management.”) Generally more time and                 lose business or fail altogether. For example, the
    resources are required to create product              leaders of the vacuum tube industry did not
    demand in new markets, because the company            become leaders in the transistor industry. Similarly,
    has to become familiar with the needs of the          the leaders of the transistor industry did not
    new client base and the client base has to            become leaders in the microchip industry. A spe-
    become more familiar with the new product.            cific example of broadening perspectives is the shift
                                                          of BP, the oil and gas company, to encompass the
3. Define Organizational Offering                          renewable energy business.
Companies must determine what goods or services
they will offer to their customers to fulfill their       Match Core Competencies with
needs. Defining the organizational offering (goods         Customer Needs
or services) has three steps: define core competen-        The next step is to match the core competencies
cies, match core competencies with customer               against customer requirements to determine the
needs, and define the value proposition and differ-        product offering. Marketing research should collect
entiation features/benefits.                               and analyze data on the targeted market, competitor
                                                          strengths and weaknesses, existing product feature
Define Core Competencies                                   trends and gaps (if any), major customer segments,
The first step involves gathering data on the com-         customers’ buying habits/preferences, and customer
pany’s core competencies. A core competency is that       critical-to-quality factors (CTQs). Customer CTQs
which a company does best and its major reason for        include both hard performance-oriented expecta-
business success. Business is very competitive and        tions (such as material properties for a polymer) plus
those companies that can concentrate on one area          soft performance-oriented expectations (such as a
and do it better than all competitors have a better       positive sales and service follow-up experience). The
chance of succeeding. This step should include            ultimate product offering needs to be designed to
inputs from a cross section of the company’s depart-      maximize customer satisfaction. From this data,
ments/functions. Core competencies may include            planners can assess what features a company should
brand name recognition, technological product             offer that will fill important feature gaps and/or

                                                                                       STRATEGIC PLANNING       43
     address a key competitor weakness for specific cus-        tomer, which the customer feels most comfortable
     tomer segments. For example, GE Oil & Gas prod-           purchasing from that particular company. The
     ucts fill a customer’s need for oil extraction             product or service specifically meets the customer’s
     capabilities at a higher rate of barrels per day.         needs as determined through continuous dialogue
                                                               between the customer and the company.
     Define Value Proposition/Product
                                                               4. Perform Situation Analysis
                                                               The next step is to perform an analysis or evalua-
     The next step, and a primary company objective, is
                                                               tion of the business itself and the business and
     to be the best at satisfying a particular customer
                                                               social environment in which the company is oper-
     need and therefore deliver a specific customer ben-
                                                               ating in order to determine how these factors
     efit. A company must determine a value proposition,
                                                               impact the customers’ needs and wants and the
     or define their strategic reason why a customer
                                                               company’s ability to satisfy these needs. In general,
     would choose their company brand in general or
                                                               this step is an ongoing process.
     their product specifically. This value proposition of
     a product offering is what sets the good or service
     apart, or differentiates it, from the competition.
     Brand managers set the company’s brand apart                    Supply → External/Internal Variables → Demand
     from the competition in order to meet customers’
     needs. For example, Wal-Mart promoted lower
     prices and Target aired hip ads, and both have been       Internal Variables
     successful. Kmart never broke out of the middle           An internal variable originates within the organi-
     and ended up filing for bankruptcy.                        zation or stems from an organization’s activities,
        Differentiation determines a unique set of fea-        and generally is thought of as being within the con-
     tures or benefits that will appeal to the target mar-      trol of the organization. Internal variables prima-
     ket’s needs. Features are the physical element of a       rily consist of the current corporate mission, the
     product or service, such as seat belts. Benefits are the   current marketing mix, and the current business
     met needs of the customer, such as reduced injury         capabilities.
     during an automobile collision. Differentiation can           • Corporate Mission and Marketing Objectives.
     be achieved through any (or a combination) of the               In a start-up company, establishing corporate
     elements of the marketing mix.                                  mission and objective statements is a first step
        The offerings that satisfy customer needs will               in the planning process. Marketing planning
     form the basis for the company goal of relationship             should be accomplished in light of the overall
     marketing. Relationship marketing is the ability of a           corporate mission and objectives, such as finan-
     company to offer something of value to the cus-                 cial goals for shareholders, employment goals

                                               Product Differentiation
     Marketing Element                    Differentiating Aspect                      Example
     Product                              Quality                                     GM Cadillac
                                          Uniqueness                                  L.L. Bean boots
     Pricing                              Lowest                                      Costco
                                          Highest                                     Tiffany
 Promotion                                Attention getting                           Pedigree Dog Adoption ads
                                          Desire creating                             Saks ads
 Distribution                             Right place                                 7-Eleven locations everywhere
                                          Right time                                  1– available 24/7

  for employees, and need fulfillment goals for                     • Products. Any marketing activity should be
  customers. Specific marketing goals that follow                      planned within the context of the company’s
  typically include increased customer satisfac-                      current product mix (also known as portfolio
  tion, increased sales, improved brand image,                        or basket) and where each is located in its
  and increased market share. For example, the                        product life cycle (discussed in the “Product
  mission of the Gillette Company “is to achieve                      Management,” Chapter 15). Often, a good or
  or enhance clear leadership worldwide in the                        service is introduced or repositioned in
  existing or new consumer categories in which                        order to fill a gap in a company’s product
  they choose to compete.” That means that the                        line. Every change in a company’s offering is
  marketing plans must be formulated to ensure                        likely to affect every other offering. For
  that category leadership is achieved or                             example, when Gillette introduces a new,
  enhanced. In support of the overall mission, a                      improved shaving system, the company
  company should set both general and specific                         expects and desires that the new product will
  objectives. A company may wish to increase                          take market share away from its older, exist-
  sales by a certain percentage each year, intro-                     ing product. This intentional act, known as
  duce a certain number of new products, or                           cannibalism, allows greater marketing
  increase their involvement in their community.                      emphasis and budgeting to be placed on the
  For example, Gillette “seeks to increase its pace                   new product.
  of new product development, so that a certain                     • Pricing. The price of a product is deter-
  percentage of the company’s sales derives from                      mined by the costs required to develop and
  products introduced within the previous five                         manufacture the product, the sales and
  years.” L.L. Bean’s mission is to “sell good mer-                   profit objectives established for the prod-
  chandise at a reasonable profit, treat your cus-                     uct, the projected lifetime of the product,
  tomers like human beings, and they will always                      and the competitive market conditions.
  come back for more.”                                                Determining the optimum price for a prod-
• Current Marketing Mix. The marketing mix                            uct is key to achieving its success. This
  consists of products, pricing, marketing com-                       requires assessing the product costs, fore-
  munications, and the supply chain.                                  casting the unit sales over a given period of

                                    DSC Logistics Partnership Statement
It is the parties’ shared vision to leverage our capabilities in teamwork, technology, manufacturing, logistics, and infor-
mation resources. Integrating our capabilities under a process of continuous improvement, we will achieve operational
excellence and exceptional products and services at the lowest system cost.
To successfully leverage integrated manufacturing and logistics capabilities, and to ensure continuing competitive advan-
tage in a rapidly changing marketplace and deliver outstanding products and services and minimum system costs.

Provide service which exceeds customer requirements.
Continually lower systems costs.
Develop a framework that emphasizes ease of operation.
Provide the opportunity to capitalize on value-added services.
Work cooperatively to achieve expanded market share.
Establish and monitor benchmarks to assure the partnership’s performance.
                                                                                                      Source: DSC Logistics

                                                                                                STRATEGIC PLANNING            45
         time, setting a desired profit margin, and           and applications (pull marketing) whereas a
         setting a unit price accordingly. Some prod-         manufacturing viewpoint starts with prod-
         ucts may be priced below typical retail in           uct properties and production capabilities
         order to attract new customers, service              and their potential to satisfy customer needs
         existing ones, or enter new markets. Some            (push marketing). This interaction is contin-
         products that have substantial competitive           ual and designed to maximize the value to
         advantage may be priced at a substantial             the customer.
         premium, and the profits may carry other           • Research and Development. It is important to
         underperforming products in the com-                 know the research and prototyping capabil-
         pany’s portfolio. For example, Gillette sells        ities of the company’s research and develop-
         its flagship male shaving systems at a pre-          ment (R&D) labs. This process can be done
         mium because the company considers that              in-house or outsourced. For example, GE
         their products deliver clear and perceptible         has capabilities for full prototyping at its
         benefits to the consumer and sets the                appliance division but can only test sub-
         appropriate corporate image.                         assemblies at its jet engine facility. In addi-
       • Marketing Communications. Marketing plan-            tion, R&D should be consulted for new
         ning involves the provision for communica-           product ideas and potential new product
         tions among a number of constituencies both          features.
         inside and outside the corporation. Effective      • Suppliers. As companies focus on their core
         communications are essential between com-            competencies, push into new geographic
         pany personnel and external parties, includ-         markets, and seek to outsource activities
         ing partners, suppliers, distributors, and sales     that are not profitable for them or in which
         outlets. It is important that key internal           they have no special expertise, the role of the
         groups have effective means of communicat-           supplier and partner has become increas-
         ing and sharing information among them-              ingly important. Very often, a supplier is
         selves. A plan for which groups should be in         responsible for delivering a critical aspect of
         communication with other groups, and at              a product or service. For example, a vehicle
         what points in any given process, is often           manufacturer may work with a design firm
         developed as a flow chart or process diagram.         to create a new car design, and an advertising
       • Supply Chain/Distribution. Planning consid-          agency may work with freelance directors to
         ers the various supply chain partners for the        create television commercials. Marketing
         optimal distribution and delivery of prod-           planning, therefore, should take into account
         ucts to the customer.                                those activities that will be accomplished in-
     • Current Business Capabilities. These include           house and those that will be outsourced.
       manufacturing, research and development,               Partners and suppliers should be managed
       suppliers, financial resources, and personnel          so that they understand the company’s
       resources.                                             objectives, cost constraints, schedules, and
       • Manufacturing. Manufacturing is responsi-            other requirements.
         ble for the technology and manufacturing of        • Financial Resources. Every marketing activ-
         the company’s products, and there is contin-         ity will be constrained by the amount of
         ual comparison of the two perspectives:              financial resources available. Even a com-
         marketing and manufacturing. A marketing             pany with large amounts of capital available
         viewpoint starts with the customers’ needs           must weigh the optimum use of that capital

      for marketing. For example, Gillette will           toys, clothing, computers, and cars. Some prod-
      commit substantial capital to the develop-          ucts are designed to respond to the most basic
      ment and launch of its key male shaving             and long-term needs of a society, such as food
      products ($750 million was spent to bring           staples or building materials, and are less
      the MACH3 razor to market). Other compa-            affected by short-term events or national
      nies, such as fashion retailers, will commit        trends. However, even these products gradually
      large amounts of capital to product advertis-       change as a result of cultural shifts, and mar-
      ing and promotion, and relatively little to         keting planners should periodically review and
      product development.                                research these products. An example is the
    • Personnel Resources. Most companies today           long-term trend toward natural foods.
      operate with as few layers of authority as          Also, many products are designed for selling in
      possible. The result is that most jobs are          more than one geographic market. This
      complex and employees tend to work on               requires very careful understanding and test-
      multiple projects and assignments at all            ing of how a product will be perceived,
      times. In addition, people with specialized         accepted, and used in each market. For exam-
      skills, such as computer programmers, mul-          ple, because male shaving habits show little
      tilingual human resource professionals, and         variation from market to market, Gillette is
      top executives are generally in high demand         able to create a single product that meets the
      within the organization. Marketing planning         needs of men worldwide.
      should therefore take into account the per-         Occasionally, products fail in a specific country
      sonnel required for any marketing project or        because of a lack of planning for cultural dif-
      task, when the people will be needed, and for       ferences, such as a product name that means
      how long. It may be necessary to hire new           something odd in the local language, or fea-
      staff or reassign people within the company         tures that do not respond to local customer
      to accomplish a specific goal.                       needs. For example, sales of the Chevrolet
                                                          Nova, which means “brightness” in English,
External Variables                                        were slow in Latin America until General
An external variable affects the organization from        Motors realized that no va means “it does not
outside its control. External variables include the       go” in Spanish.
competition, societal norms/culture, the economy,
government regulations, and technological change.
                                                                  Changing Societal Norms
  • Competition. The company’s competitors
    must be well understood. A determination           What percentage of U.S. households consist of only
    should be made of the competitor’s capabilities,   one person? Today, over one quarter of all U.S. house-
                                                       holds consist of only one person. These households
    particularly regarding the types of offerings
                                                       consist of: the young single person, the older divorced
    where the competition is strongest. For exam-      parents whose children have moved out, and widows
    ple, the U.S. automobile industry constantly       and widowers, who are increasing in number because
    researches the quality of Japanese cars.           of longer life expectancies. Football is the most
  • Societal Norms/Culture. Marketing takes place      watched sport on American TV. What sport is #2? It is
                                                       ice skating. Since the last Winter Olympics, ice skating
    within the context of the society in which the
                                                       has become an enormously popular spectator sport in
    company’s products or services are sold. Many      the United States.
    products are highly affected by sociocultural
                                                                                       Source: Colgate-Palmolive
    factors and require constant planning, such as

                                                                                     STRATEGIC PLANNING            47
       • The Economy. Marketing planning should              necessary in that market. There are some market
         take into account the economic conditions of        segments for which there is no marketing develop-
         the markets into which the company’s prod-          ment, but rather only selling to the segment upon
         ucts or services will be sold. Economic condi-      their request.
         tions include current and projected conditions.        No strategy can achieve every marketing objec-
         A number of economic variables are usually          tive. The optimum strategy is the one that best
         considered, including rate of economic              supports the corporate objectives, that has the
         growth, employment, interest rates, inflation       highest probability of being successful, and that
         rates, availability of investment capital, avail-   best utilizes the company’s resources.
         ability of skilled labor, national debt, and the
                                                             Strategic Business Plan
         national mood usually expressed through retail
                                                             Each organization creates its own strategic business
         sales or consumer confidence levels.
                                                             plan (SBP) that includes extensive detail about
       • Government Regulations. These are issued at
                                                             objectives, market conditions, expected financial
         the federal, state, local, and international lev-
                                                             performance results, financial performance targets,
         els. Changes in regulations can create oppor-
                                                             product plans, organizational structure, budgets,
         tunities or threats. For example, changes in
                                                             schedules, and critical success factors. These plans
         environmental performance requirements for
                                                             typically are developed by a committee comprised
         an industry could open up new markets for the
                                                             of the executives of each operating unit, and pre-
         first manufacturer that meets the new codes. A
                                                             sented to the chairman or president each year for
         continual monitoring of regulatory activity is
                                                             approval or adjustment.
         necessary. It often is possible to help shape
         these regulations, through government rela-         Strategic Business Unit
         tions, as part of the marketing activity.           Companies typically form separate units of their
       • Technological Change. Company growth may            organization centered around separate products or
         rely on new products or improvements in exist-      markets, each called a strategic business unit (SBU).
         ing products. Company decline may result from       SBUs are set up to facilitate planning, budgeting,
         a competitor’s technological improvement.           and market focus. Companies or SBUs determine
         Technology changes rapidly, and planning            the best mix of strategies for products/service
         should incorporate reviews of industrial, gov-      offerings, pricing, marketing communications, and
         ernmental, and academic laboratory reports.         supply chain management through management
                                                             expertise and planning tools.
     5. Determine Marketing Strategies
     There are never enough resources to research in         Positioning
     great detail and sell to every market. The goal is to   Positioning is the targeting of product attributes
     prioritize and sell to those markets that represent     and demand promotion toward a definable target
     the majority of the current business and/or pro-        audience segment that yields the greatest profits.
     vide the most significant growth opportunities.         Planners should position each product relative to
     For example, GE Aviation’s approach has always          the competition so that the customer’s perspective
     been to stimulate core markets to innovate, which       finds the product offering superior to the competi-
     requires considerable understanding of the nature       tor’s brand. The product’s best features and benefits
     of an industry, the forces at work within it, and the   should be strengthened to be superior to the
     places and applications where change is most            competition’s and then promoted in marketing
     likely. The long-term planning process categorizes      communications to the customer.
     markets and leads to the determination of what             Each customer chooses a product based on
     level of coverage is appropriate to achieve what is     preference for a combination of price and quality.

The more customers that agree on a specific com-        Marketing Strategy Planning Tools
bination, the greater the value to the company         There are several planning tools that can be used to
of positioning their products to meet that partic-     facilitate the creation of marketing mix strategies,
ular customer demand. Depending on the com-            including product grid, Six Sigma, SWOT, and mar-
pany’s capabilities, some niches on the customer       ket share matrix.
choice grid may be more profitable than others
                                                         • Product Grid. This shows all the products that
(see Figure 3.1).
                                                           all the divisions of a company will launch in a
                                                           given time period. For example, Gillette plans
                                                           its new product development on a five-year grid.
                                                           It identifies potential synergies among operat-
                   Brand D                                 ing units that could be leveraged for joint-prod-
                                  Brand B                  uct development (such as Gillette’s Braun unit,
                                                           which makes small household appliances, and
                                                           Duracell, which makes batteries). It also classi-
                                                           fies each new product as incremental (a minor
                                Brand C                    improvement to an existing product) or as a
                                                           breakthrough (usually involving a new technol-
             Brand A                                       ogy and warranting a new product name).
                                                         • Design for Six Sigma. An analysis tool used for
                                                           marketing opportunity and innovation is

                                                           called Design for Six Sigma. The objective of
                                                           this tool is to produce a high-quality business
        Quality                                            opportunity design through the use of statisti-
Figure 3.1 Positioning on the Customer Choice
                                                           cal analysis. Use of data-driven decisions is the
                                                           general practice for engineers designing new
                                                           products. Marketing and business develop-
Marketing Mix Strategies                                   ment functions can apply a similar practice to
Each element of the marketing mix has several              select new market opportunities, define new
strategy options, which are detailed in this book.         products, track market behavior after product
These factors depend on the financial resources            launch, and to improve sales efforts.
available and the skill qualities of the management        Sigma is a letter of the Greek alphabet used as a
team.                                                      symbol by statisticians to mark a bell curve
                                                           showing the likelihood that something will vary
    • Target Market Demand (consumer, organiza-            from the norm. The statistical definition of Six
      tion)                                                Sigma is 3.4 defects per 1 million opportunities,
    • Demand Promotion / Marketing Communi-                or 99.9997 percent perfect. Most good compa-
      cations (advertising, public relations, promo-       nies operate at less than four sigma, which is
      tional marketing, direct marketing, brand            99 percent perfect. For perspective, operating at
      ambassadors)                                         only three or four sigma means 20,000 lost arti-
    • Product – goods and services (quality, unique-       cles of mail per hour, unsafe drinking water
      ness, design looks, functionality)                   almost 15 minutes each day, 5,000 incorrect sur-
    • Pricing (high, low, image, corporate need)           gical operations per week, and 200,000 wrong
    • Distribution (wholesaling, warehousing, trans-       drug prescriptions each year. The goal is to move
      portation, retailing, internet retailing)            the marketing capabilities to Six Sigma.

                                                                                   STRATEGIC PLANNING         49
     The Six Sigma approach has five major steps:          • SWOT. SWOT is an acronym for the process of
                                                            analyzing a company’s Strengths, Weaknesses,
     • Define. Identify the market opportunity and
                                                            Opportunities, and Threats. This process is done
       general technical scope based on existing
                                                            in conjunction with the process of determining
       knowledge and secondary research.
                                                            the internal and external situation analysis and
     • Measure. Focus the primary data gathering
                                                            helps to determine a company’s planning focus.
       within the context of business opportunity
                                                            When a company’s internal strength, such as a
       through the use of cross-functional teams to
                                                            technical patent, matches an external opportu-
       translate the voice of the customer into
                                                            nity, such as a competitor’s possible sale, the
       measurable customer needs and expecta-
                                                            company should plan to leverage the strength by
       tions. The use of more nontraditional data
                                                            taking advantage of the opportunity, such as
       gathering tools, such as customer site visits,
                                                            acquiring the company and making use of its
       team-based market research, and end-user
                                                            idle manufacturing facilities. When opportuni-
       research, is encouraged.
                                                            ties are present and the company cannot
     • Analyze. Analyze the data to generate a con-
                                                            respond due to a weakness, such as lack of cap-
       cept design (market segmentation, product
                                                            ital, the company is restrained from taking
       concept) and to define the most attractive
                                                            advantage of the opportunity. The company
       product opportunity using mathematical
                                                            should plan to reverse this particular weakness.
       transfer functions to calculate customer
                                                            When there is a new threat (such as a new com-
       expectation measures versus design variables.
                                                            petitor) to an existing strength, the company
     • Design. Evaluate the impact of alternative
                                                            should focus on this new vulnerability, typically
       strategies and concepts. Develop a detailed
                                                            by reinforcing the strength. When there is a
       design for the most attractive approach
                                                            threat to a weak area it is called a problem, and
       using system cost model, product scorecard
                                                            the company should plan to make the weak area
       (quantitative measure against customer
                                                            a strength or consider divestiture.
       expectations, wants).
     • Verify. Determine that the opportunity is real       Typical marketing opportunities include the
       through business case studies, such as               development of a breakthrough product, tech-
       prelaunch focus groups, which verify cost            nology, or service; the failure of a competitive
       and quality targets.                                 product; identification of a new demographic or
       The key deliverables include a business              geographic market; identification of a new appli-
       model and forecast, a prioritized list of cus-       cation or use for a product or service; a potential
       tomers’ expectations and needs, and a top-           tie-in with an event or activity; and a new law or
       level product or service configuration plan.          regulation.

                       Strengths                                           Opportunities
               Good product quality                                     New markets
               Promotion quality                                        New products
               Good name recognition                                    New technology
               Low costs
                      Weaknesses                                               Threats
               Poor name recognition                                    Loss of customer base
               Poor product quality                                     New competitors
               Weak promotion capabilities                              Regulatory restraints
               High costs

    Typical marketing threats include the loss of                     • High growth/Low competitive advantage
    market share, the emergence of a new competi-                       (Question Marks). Many products require
    tor or competitive product, inability to manu-                      far more cash input than they can generate.
    facture enough products to meet demand,                             A strategy is to invest enough to grow the
    excess on-hand inventory, price-cutting in the                      product or to withdraw the product.
    marketplace, slow sales, labor disputes or strikes,               • Low growth/Low competitive advantage
    poor product distribution, and poor product or                      (Dogs/Cash Traps). Many products gener-
    service positioning.                                                ate very little cash flow even though they use
  • Market Share Matrix. Often called the Boston                        very little. Profits probably will always need
    Consulting Group Matrix, the market share                           to be reinvested. A strategy is to withdraw or
    matrix gives planners a simple methodology                          to sell the product.
    for allocating corporate resources toward their
                                                                  6. Implementation/Control of Strategies
    products/services offering. “The first objective
                                                                  After an optimum strategy has been selected, the
    of corporate strategy is protection of the cash
                                                                  next step is the control process that is necessary to
    generators. Only the largest two or three com-
                                                                  assure successful implementation. The control
    petitors in any product-market segment can
                                                                  process includes establishing goals, responsibilities,
    reasonably expect to avoid being a cash trap.
                                                                  and activity schedules; delegating tasks; and moti-
    However, there are usually several times that
                                                                  vating personnel.
    number of active competitors.”1 Market
    growth or attractiveness is correlated against a
    company’s product strength or market share.                   Establish Goals/Budgets/Timelines
                                                                  A marketing plan includes descriptions of all tasks
                            CASH GENERATION
                                (Market Share)                    that must be accomplished, detailed budgets for
                            High                Low               each task and activity, and schedules that include
                                                                  start and end points, with critical milestones along
                                                                  the way. This is coordinated between the market-
                High                                              ing department and the sales department. The
                                                                  planning gets down to the level of individual
(Growth Rate)
                                                                  accounts, ensuring that there is the right level of
                                                                  resource behind each account.
                                                                  Establish Responsibilities/Performance Indicators
                                                                  The marketing plan should establish management
Figure 3.2 Market Share Matrix                                    responsibilities. A common problem in organiza-
                                                                  tions is that personnel do not have clearly defined
Source: The Boston Consulting Group. Reprinted with permission.
                                                                  responsibilities and roles. As a result, they may
     • High growth/High competitive advantage                     devote time to tasks that are not within their scope
       (Stars). A few products are self-sufficient in              of responsibility, neglect tasks that need attention,
       cash flow. A strategy is to reinvest in the prod-           or waste time trying to define what they should
       uct to keep ahead of large competitive base.               be doing.
     • Low growth/High competitive advantage                         The marketing plan also should set performance
       (Cash Cows). A few products generate far                   goals for each individual, so that he or she knows
       more cash than they can profitably reinvest. A              what is expected of him or her. There are many
       strategy is to use the profits to reinforce other           kinds of performance goals, including the achieve-
       products or to grow new products.                          ment of a sales target, the successful management

                                                                                               STRATEGIC PLANNING      51
     of a budget, the completion of a project, the launch   Lead/Motivate
     of a new project, the reduction of costs, the train-   Once the marketing plan is complete, execution
     ing of personnel, or the acquisition of a new skill.   and implementation may begin. The role of the
     An employee’s performance evaluation should be         marketing executive or manager is to ensure that
     based on whether the employee achieved these pre-      the plan is executed as designed, or, in the case of
     determined goals.                                      changes or unforeseen circumstances, to adjust
        Performance indicators can be objective or          the plan as needed. In most organizations today,
     subjective:                                            the manager is expected to help people under-
                                                            stand their responsibilities, secure resources, solve
       • Quantitative, or objective, performance
                                                            problems, resolve disputes, and provide encour-
         indicators. These can be determined numer-
                                                            agement and support, with the goal of executing
         ically. Generally, they are linked to the objec-
                                                            the plan so that the objectives are met on time and
         tives established at the beginning of the
                                                            within budget.
         planning process and include objectives for
         unit sales, market share, value share, stock       7. Feedback/Evaluate/Adjust Strategies
         price, number of customers, number of ship-        After the marketing plans have been imple-
         ments, productivity, and speed-to-market.          mented, it is essential to receive feedback indicat-
         The advantages of objective performance            ing actual performance. The plan should be
         indicators are that they are impartial and easy    evaluated by comparing the selected performance
         to administer.                                     indicators against actual performance. Once the
       • Qualitative, or subjective, performance indi-      marketing plan has been executed and evaluated,
         cators. These are extremely varied and include     it should be adjusted to make any necessary
         those areas that cannot be specifically quanti-     improvements.
         fied. Subjective indicators include corporate or
         product image, customer satisfaction, and            • The marketing plan may be sufficiently suc-
         industry influence. The advantage of these             cessful to be continued for a second time with
         indicators is the overall sense of customer            few alterations.
         needs and marketing direction.                       • It may have been partially successful and need
                                                                to be revised.
     Establish Activity Schedules/Operating Plans             • It may be judged to have been a failure and dis-
     An activity schedule adds more detail to the over-         continued altogether.
     all timeline, shows the specific tasks that must be
     accomplished, and indicates the order in which
     they must be completed. Activities that can be con-    THE BUSINESS PLAN/MARKETING PLAN
     ducted simultaneously, in order to save time, also     The primary challenge in marketing is to convert
     are indicated.                                         a product or service idea into a successful busi-
                                                            ness. Every great idea needs a business and mar-
     Delegate Tasks/Assign Authority                        keting plan to bring the idea to market. The
     Each of the tasks identified must be delegated to a     objective of the business and marketing plan is to
     department, operating unit, group, team, or indi-      detail a strategy or blueprint for running the busi-
     vidual. The person selected will have authority to     ness and act as a vehicle to attract sufficient capi-
     make unilateral decisions (sign-off authority) and     tal to finance the plan. The business plan outlined
     will have the ultimate decision-making authority       below lists the elements typically found in a
     in the case of a dispute or disagreement.              request for funding.

                                Business Plan
I.   Business Opportunity
     A. Consumer needs
     B. Product/service description
     C. Potential for growth
II. Executive Summary
     A. Description of business
     B. Funding needs analysis (% equity, % debt)
     C. Projected return to investors
     D. Timetable for use of funds and repayment of loan
     E. Key personnel
III. Business Description
     A. Location and description of business
     B. Legal form of business and tax status election
     C. Products/services provided (companywide)
     D. Competition
     E. Personnel policies and incentives
     F. Company advantages (patents, resources)
IV. Management Expertise
     A. Key personnel and related experience
     B. Board of Directors
     C. Officers
     D. Organization chart
V. Products or Services (specific to the business plan)
     A. Full description of products or services
     B. Manufacturing process
     C. Competition (product specific)
VI. Marketing Plan
     A. Source of customer base (target segment, size)
     B. Product sales strategy/goals
     C. Packaging
     D. Pricing strategy and factors affecting
     E. Promotional strategies (advertising, PR, promotional marketing, DM)
     F. Distribution (transportation modes, warehousing)
     G. Marketing research capabilities
VII. Financial Detail
     A. Financial statements (historical)
     B. Financial statements (projected)
     C. Uses of funds (specific)
     D. Projected return to investors
     E. Collateral
     F. Exit strategy (eventual sale of business)
                                         Source: A. G. Bennett, Compiled from major banks.

                                                                          STRATEGIC PLANNING   53
     PL ANNING—INTERNAT IONAL                                  • Infrastructure standards (metric measure-
     by ExxonMobil                                               ments, left side driving, electrical standards)

     The international marketplace is dominated by           International Trade Entry Strategies
     products, services, and brand names that have           If a company decides that the opportunities outweigh
     migrated across the borders of every developed          the risks, there are several strategies for entering the
     country and many developing countries around the        international trade arena. These include:
     globe. The ubiquity of these products, services, and      • Product Export. The advantages of exporting
     brand names attests to the current sophistication           are the control of product quality, economies
     of international marketing. A large part of this            of scale from existing plants, and expansion of
     sophistication hinges on the planning and organi-           local jobs. Disadvantages are the cost of ship-
     zation of a corporation’s international marketing           ping and potential difficulty of changing man-
     efforts. A corporation’s planning and organiza-             ufacturing to accommodate foreign product
     tional structure directly influences its competitive         specifications.
     advantage.                                                • Foreign Licensing/Royalty Agreements. The
                                                                 advantage of foreign licensing is the additional
     Planning                                                    profit with no additional infrastructure costs
     Marketing planning includes defining objectives,            involved. The disadvantage is disclosing sources
     assessing resources, formulating marketing mix              and processes to a potential future competitor.
     strategies, and determining operational plans.            • Joint Venture. The advantages of a joint ven-
     International planning adds the assessment of               ture are the sharing of costs and the immediate
     international opportunities and risks and interna-          addition of outside infrastructure or capabili-
     tional trade entry strategies.                              ties. The disadvantage may be the political
                                                                 requirement of a joint venture where a major
     Opportunity Assessment                                      investment is given for a small return.
     International marketing provides many opportu-            • Direct Investment in Foreign Facilities. The
     nities for companies, including:                            advantages of direct investment are the quicker
       •   Sales growth from exports to new markets              responsiveness to foreign customer needs and
       •   Sales growth from new product imports                 the attainment of local host country visibility.
       •   New product and service ideas                         The disadvantages are the cost of additional
       •   New production and distribution methods               infrastructure and the time spent on siting and
                                                                 constructing facilities.
     Risk Assessment
     There also are many risks for companies involved in     Organizational Structure
     international marketing, including:
                                                             Companies such as GM, Ford, IBM, and Coca-Cola
       • Financial (tariffs, nontariff barriers, cash flow,   that continually reevaluate their organizational
         currency conversion, profit repatriation, tax       structures and planning processes thrive in the
         considerations)                                     global marketplace. Those that are fixed to old par-
       • Political (nationalization/property seizure, buy    adigms and do not incorporate new global struc-
         local edicts)                                       turing, such as Gulf and Tennaco, cease to exist.
       • Military (insurrection, war)                           In order to optimally organize and manage inter-
       • Cultural (language, religious differences)          national operations, it is important to understand
       • Legal (intellectual property rights, product        the larger influences and constraints of the interna-
         dumping, industrial espionage, contract             tional marketplace. A competitive international
         abrogation)                                         organization must take into account a myriad of

issues such as regional differences, governmental          mix is centralized and extended unchanged to
issues, and transcontinental distances while being         foreign markets. The advantage of market
organizationally structured to provide customers           extension is its ease of administration. The dis-
with clear expectations of its goods, the greatest         advantage of market extension is the difficulty
value, and a reasonable cost. International organi-        responding to diverse worldwide demands in
zations encounter two opposing organizational              a timely and effective manner. For example,
approaches: integration and variation.                     Coca-Cola withdrew their two-liter bottle from
                                                           Spain because few consumers owned refriger-
Organizational Approaches/Influences
                                                           ators that would accommodate the large bot-
  • Integration centralizes the organization by giving     tles. Hallmark cards initially failed in France
    corporate headquarters tight control over mar-         because the French prefer writing their own
    keting, product development, and operations.           cards and disliked the sentiments that Hall-
    This is done in order to minimize costs and            mark cards contained.
    maximize focus on the corporation’s primary          • Multidomestic Market Model. This model is
    strategic objectives. Companies increasingly           chosen when control is spread to local affiliates
    require integration of their worldwide opera-          that are loosely held together by corporate
    tions in order to achieve economies-of-scale           headquarters. This decentralized organiza-
    while meeting consumer demand on a global or           tional structure tailors the marketing mix to
    regional basis.                                        suit the individual characteristics of each for-
  • The international marketplace encompasses a            eign market. The advantage is increased
    wide variation in consumer preferences and in          responsiveness to the individual market. The
    economic development. This creates a need to           disadvantages may be duplication of efforts,
    accommodate variation and leads to decentral-          inefficiencies in operations, and barriers to
    ization of the organization. Control is dissem-        learning across the organization. For example,
    inated to local regions. Local subsidiaries in a       when IBM first began to market computers
    decentralized organization are able to accom-          overseas in the late 1940s, it set up an affiliate
    modate the need for more local differentiation         structure consisting of autonomous units in
    and responsiveness to the fast-changing oppor-         58 key markets around the world. Each sub-
    tunities and threats of individual country             sidiary was responsible for marketing IBM
    markets. International market differences in           products and executing marketing research
    consumer taste, market structure, and govern-          and development. This structure enabled IBM
    mental regulation require close monitoring             to establish a firm foothold in critical markets
    and finely tuned responses. Often, headquar-            and to develop strong relationships with ven-
    ters finds itself too distant from the regional        dors and distributors. However, this level of
    issues to keep up with them and implement              decentralization made it impossible for IBM to
    responses.                                             quickly identify and react to industry trends.
                                                           By the 1980s, the company was lagging behind
Organizational Models
                                                           its competition in pricing, service, and the rate
As corporations have organized in order to respond
                                                           of technological innovation. In 1995, IBM uni-
to these two opposing needs, three organizational
                                                           fied its subsidiaries into a global marketing
models have evolved: the domestic market exten-
                                                           strategy that aligned all marketing communi-
sion model, the multidomestic market model, and
                                                           cations around the world while allowing for a
the global market model.
                                                           level of local customization. This overhaul had
  • Domestic Market Extension Model. This                  dramatic results; today IBM is considered one
    model is chosen when the domestic marketing            of the top 10 global brands.

                                                                                   STRATEGIC PLANNING      55
       • Global Market Model. This model integrates                        market. The country manager communicates
         the simultaneous demands of integration and                       opportunities and threats in the local market to
         variation by creating a master marketing mix                      corporate headquarters, advocates the country
         to suit large sets of varying markets around the                  organization’s interests, and implements the
         world, with local subsidiaries adapting strate-                   corporate strategy.
         gies that are cost-effective and culturally                       The global market strategy has a number of
         appropriate. The global market model, or inte-                    advantages. First, corporations can realize
         grated network structure, is an organization                      economies of scale in production and market-
         that concentrates control, coordination, and                      ing. For example, Ford estimates that it can
         strategic decision processes at a corporation’s                   save up to $2 billion a year in product devel-
         headquarters whereas technology, finances,                        opment, purchasing, and supply activities by
         people, and materials flow between interde-                       adopting a global orientation. Secondly, a
         pendent corporate units in foreign countries.                     global orientation allows for a greater transfer
         Within a global market strategy, headquarters                     of experience and know-how across countries.
         sets the primary strategic direction for the cor-                 Finally, the global orientation supports a uni-
         poration, determines the direction of the                         form global brand image.
         brand, and coordinates the strategic objectives                   In the integrated networks of many corpora-
         and operating policies across businesses, func-                   tions, national units are no longer viewed sim-
         tions, and geographic units. Headquarters also                    ply as delivery pipelines for company products,
         ensures that flows of supplies, components,                       the implementers of centrally defined strategies,
         and funds are coordinated throughout the                          or local adapters of corporate approaches.
         organization. The marketing manager ensures                       Instead, they are viewed as sources of ideas, skills,
         the transfer of knowledge, skills, responsibili-                  capabilities, and knowledge that can be har-
         ties, and resources to the local unit to develop                  nessed for the benefit of the entire organization.
         its contribution to the larger organization.
         At the country or regional level, subdivisions              NOTES
         must implement and adapt corporate directives               1. The Boston Consulting Group on Strategy, 2nd ed.,
         and policies while sensing and responding to                   edited by Carl W. Stern and Michael S. Deimier,
         the demands and opportunities of the local                     (Hoboken, NJ: John Wiley & Sons, 2006).


     GE (NYSE: GE)                              portfolio of Finance, Media, and Infra-    which is responsible for the marketing,
     GE (General Electric) is a diversified      structure representing over $175 billion   sales, and distribution of ExxonMobil’s
     global infrastructure, finance and media    in revenue. She received her BS in Man-    fuels in the United States. Mr. Carter
     company that is built to meet essential    agerial Economics from the University of   received his BS in mechanical engineer-
     world needs, from energy, water, trans-    California at Davis and her MBA from the   ing from Clemson University in 1970.
     portation, and health to access to money   University of Southern California.         Following service in the U.S. Army, Mr.
     and information. Visit GE at                                              Carter received his MBA from Tulane
                                                                                           University in 1974.
                                                ExxonMobil Corporation is engaged in
     Jacqueline Woods
                                                oil and gas exploration, production,       Additional information was
     Jacqueline Woods is GE’s head of GTM
                                                refining, and marketing. Visit Exxon at    provided by:
     Segmentation and Customer Experience.
                                                                   Karl Fink, Vice President of Marketing,
     Ms. Woods is responsible for driving
                                                                                           Exxon Company International.
     the company’s customer-centric focus       James S. Carter
     through the execution of global growth     James S. Carter was Regional Director of
     initiatives for its product and service    ExxonMobil Fuels Marketing Company,

             by Landor Associates, Fleishman-Hillard, Under Armour,
                      HOLT CAT, and Paramount Pictures

THE ESSENT IALS OF BRANDING                              tripled in the 1990s from 15,000 to 45,000.1 The
by Landor Associates                                     purpose of branding is to ensure that your product
                                                         or service is the preferred choice in the minds of
Introduction                                             your key audiences (whether customers, consumers,
It is incredibly rare for a product or organization      employees, prospective employees, fans, donors, or
to be without a brand. There are museum brands           voters). The way in which the brand affects business
(Guggenheim, Smithsonian), people brands                 performance is shown below.
(Martha Stewart, David Beckham), political brands           Business performance is based on the behavior
(Obama versus McCain, Labour versus Conserva-            of customers, whether they choose to buy a partic-
tives), destination brands (Australia, Hong Kong),       ular product or service. And that behavior is based
sport brands (Manchester United, New York Yan-           a great deal on the perception customers have of
kees, Super Bowl), nonprofit brands (Red Cross,          the brand: how relevant it is to them and how dif-
Oxfam, RED), branded associations (YMCA, PGA,            ferentiated it is from the other brands in the same
Association of Zoos and Aquariums), along with           category. In turn, customers derive their percep-
the product, service, and corporate brands with          tions of a brand from the interactions they have
which we are all familiar. Many old marketing text-      with it. Finally, that customer experience, ideally, is
books talk about brands versus commodities               informed by a brand idea—what the brand stands
(no-name products), but in today’s world very few        for: the promise it is willing to make and keep in
true commodities are left. Even basic foodstuffs         the marketplace. If the first part of this chain of
have some sort of identifier on them, whether it is       cause and effect is indistinct or irrelevant to cus-
a private-label store brand such as Walmart’s Great      tomers, there is little chance the rest of the chain
Value salt or a major brand such as Morton Salt.         will work, and the brand will not affect the busi-
    Brands help people make a choice, a choice           ness’s bottom line. Yet, despite the proliferation of
among salts, financial institutions, political parties,   brands and their inextricable link to business per-
and so on, and the choices are increasing. The num-      formance, it is not easy to define what a brand is,
ber of brands on grocery store shelves, for example,     along with how to create, manage, and value it.

 Brand       →        Customer       →      Brand         →       Customer      →        Business
 Idea                 Experience            Perception            Behavior               Performance

                                                                                                  BRANDING     57
     The Difference between a Brand                            uct placement, the color red, the association with a
     and Branding                                              popular TV program, and the advertising all make
                                                               us feel good about the brand. Coke has not con-
     Most experts define what a brand is in one of two
                                                               trolled the buildup of these associations, but it has
     ways. The first focuses on some of the elements that
                                                               tried, at every stage of our experience with the
     make up a brand:
                                                               brand, to positively influence them.
        I. “The intangible sum of a product’s attributes:          Accepting the second set of definitions poses
           Its name, packaging and price, its history, its     more of a challenge. The first definition suggests that
           reputation, and the way it’s advertised.”2          the brand is the purview of the marketing depart-
       II. “A name, sign, or symbol used to identify           ment—just get the name, logo, design, and advertis-
           items or services of the seller(s) and to differ-   ing right and you have your brand. The second
           entiate them from goods of competitors.”3           shows how the brand is inextricably linked to the
                                                               business. The creation of the brand may begin in
    The second set of definitions describes the asso-           the marketing department, but the experience of the
 ciations that come to mind when people think                  brand has to be driven through all parts of the
 about a brand:                                                organization. Every interaction, or touchpoint, in a
       III. “Products are made in the factory, but brands      customer’s experience of a brand makes a difference.
            are created in the mind.”4                             If you consider Apple, the quintessential brand
       IV. “A brand is a person’s gut feeling about a          success story, the most powerful parts of the cus-
            product, service or company. … It’s a per-         tomers’ experience of the brand are not confined to
            son’s gut feeling, because in the end the          traditional brand elements, such as the logo, the
            brand is defined by individuals, not by com-        name, or the advertising. It is the environment of
            panies, markets, or the so-called general pub-     the Apple stores that encourages you to stay and
            lic. Each person creates his or her own            explore (and upgrade) and interact with its prod-
            version of it.5                                    ucts and its genius bar. It is iTunes as much as the
                                                               iPod, the applications as much as the iPhone. It is
    What do we mean by “created in the mind”?                  Apple’s customer service and tone of voice that are
 When we think of Coke, we may think of the time               seamless, from the instruction manuals to the real-
 we went to Disney World years ago. It was an                  time chat in the support section of the online store.
 incredibly hot day, and we drank an ice-cold Coke             The brand is driven throughout this whole experi-
 from the iconic glass Coke bottle and there was               ence, throughout every interaction.
 nothing more refreshing. When we think about the                  But if a brand exists in an individual’s mind, and
 can, we might think red. Today perhaps we think of            if it is delivered by the business, what is the role of
 American Idol (and wonder whether they are really             branding? Branding cannot control what people
 drinking Coke in those plastic cups). We think of             think of a brand, it can only influence. A brand can
 how that Christmas polar bear ad made us smile.               put some of the elements in place that will help
 Those of us who are old enough may remember the               people understand why they should choose or pre-
 “I’d like to teach the world to sing” commercial.             fer a particular good, service, organization, or idea
 These personal Coke brand associations are neither            over another. Branding, and the related marketing
 positive nor negative, they just come to mind. Coke           disciplines covered in this book, can help influence
 has worked incredibly hard at implanting some of              and explain how many of these associations in our
 these brand associations in our minds: the idea and           minds have been built, and whether they were built
 delivery of refreshment (and the supply manage-               through advertising, PR, employee behavior, sup-
 ment and distribution that are behind this), prod-            ply chain management, and so on.

Branding is about signals—the signals people use to        you embark on a rebrand it is critical to ensure that
determine what you stand for as a brand. Signals           you are rebranding for the right business reason,
create associations.                                       and if there is a desire to alter some visual or verbal
                                                           elements, a clearly defined brand idea is essential
                     Allen Adamson, Brand Simple6
                                                           for guiding this change.
   The bulk of this chapter will explain the process
that determines the foundational signals of a brand:       Start with the Right Commitment
what a brand stands for (the brand idea); the atti-
tude it projects (the brand personality); its name and     It is critical to have the right steering committee
how it talks (the verbal identity); what it looks like     before starting a branding process. Because the
(the visual identity); and what it feels and sounds like   brand idea reflects what a company says it stands
(the sensory identity). Creating these foundational        for and its vision for the future, the CEO must be
signals is the core business of a branding agency.         100 percent in agreement with it. And because a
   Before foundational signals are created, however,       brand is inextricably linked to the business, all
a certain amount of groundwork needs to be done            branding initiatives need to involve the business
to ensure that the best conditions for success are in      leaders, not at every stage of managing the project,
place. The first section of this chapter explains this      but at every stage that a significant decision needs
essential preparation. The second section describes        to be made, particularly in the early stages when the
the creation of the foundational signals. The final         brand idea and personality are being defined.
two sections focus on what to do next with these               The areas of the business that interact with the
foundational signals once they have been created,          target audience need to be represented on the brand
looking at brand management and measuring the              steering committee to ensure that the brand idea
performance and value of brands.                           will be delivered. If this means that the steering
                                                           committee increases to more than eight to ten peo-
                                                           ple, then “buy-in” stages are needed in the process to
                                                           keep decision making manageable while ensuring
Starting a branding project includes finding the right      that the areas of the business responsible for living
reason, commitment, and strategy; analyzing brand          up to the brand are committed to the process.
equity; and uncovering insights and opportunities.             Finally, experts in the field of branding will also
                                                           be essential partners in the process. Branding agen-
Start with the Right Reason                                cies are usually hired as partners and guides in the
                                                           process, since they are in the business of helping to
Take care to get born well.                                create and manage this kind of change. The best
                  George Bernard Shaw, playwright          agencies show strong strategic and creative thinking
                                                           and output and have relevant expertise (not neces-
Fundamentally, there are two reasons a business            sarily expertise in the same industry or product cat-
needs branding. Either a new product or company            egory, but experience in handling similar problems
has been created or there is a desire to change an         for similarly sized organizations and products, or
existing brand to better reflect new business objec-        with similar target audiences).
tives (most often called a rebrand). There must be a           The foundational signals of a brand need to last
solid business reason to change, or refresh, a brand       at least a decade, and creating them is costly, so
and a brand idea. Without a solid business objective       investing in the right advice is important at both
and brand idea, the judging of brand change                the macro level (“How do we align our business
becomes purely subjective. Suffice it to say, when         with the brand idea?”) and the micro level (“What

                                                                                                    BRANDING     59
     should we do about our printers to ensure the new        for both product and corporate brands, it is impor-
     brand color reproduces well around the world?”).         tant to understand insights into these audiences to
     Because creating a new brand or undertaking a            ensure that the brand idea resonates.
     rebrand requires significant investment and signals       What Is the Benefit to Customers?
     change, there is really only one opportunity to do it;   A company should be able to articulate clearly, in a
     so it must be done right.                                few words, the unique aspect that differentiates its
                                                              product from the competition and provides a ben-
     Start with the Right Business Strategy
                                                              efit to its customers. This is also called the unique
     Good branding cannot save a poor product or busi-        selling proposition, the dominant selling idea, the
     ness. In fact, the desire to rebrand can sometimes       unique value proposition, or the universal guarantor
     mask a fundamental business problem and can dis-         of performance.
     tract managers from actually addressing it. Before
     you brand anything, it is important to have a            Start with the Right Focus: Customers
     strong, clear answer to three simple questions: (1)      One of the most important first steps in a branding
     What are we selling? (2) Who is it intended for? and     project is to create a framework that identifies and
     (3) What is the benefit to customers?                     compares all possible interaction points where a
     What Are We Selling?                                     customer experiences the brand. This is often called
     In a very practical sense, selling involves making       a customer journey, and the interactions are some-
     tough decisions about the market you are in, such        times referred to as touchpoints. These interactions
     as Intel’s decision to abandon manufacturing com-        can be physical, such as in a supermarket, at an air-
     puter memory chips and focus on microprocessors.         line check-in desk, or in a showroom. They can be
     Or it can be about deciding how you intend to            digital, such as through a download from a com-
     describe the product or service being offered. In        pany Web site or on social media sites like Twitter
     Welcome to the Creative Age, Mark Earls tells the        or YouTube. Interactions can be analog, such as on
     story of working for Clarks, one of the leading shoe     the phone, via advertising on TV, or through pro-
     companies in the United Kingdom, and spending            motional events.
     time in focus groups. His agency hit on an idea that        The important thing is to create the framework
     resonated well: not a reexpression of the brand but      from the customers’ point of view and not simply
     a reevaluation of what Clarks was selling. Clarks        compile a list of all things currently being executed
     had defined the business of selling shoes as a           to build the brand. Doing only the latter will not
     “replacement business”—replacing shoes that were         help you discover a new interaction that could bet-
     worn out. The new model was about selling pleas-         ter connect the customer to your brand. Creating
     ure—buying new shoes that give you a lift.               the full framework, however, will foster under-
     Who Is It Intended For?                                  standing of where you are delivering the brand
     The more specific and targeted the answer to this         promise, where you are failing to keep it, where you
     question, the better. For example, rather than           need to innovate to improve the experience, and
     focusing on “moms,” target “moms who put their           where you should spend your marketing dollars to
     careers on hold and are now back in the workforce        generate the most impact.
     trying to juggle career advancement with guilt
                                                              Analyze the Brand’s Equity
     about not having the time or energy to puree
     homemade baby food every evening.”                       When a rebrand is undertaken, or if a new brand
        For corporate brands, it is more difficult to focus    has another brand attached to it (for example,
     on a single audience; at a minimum, both cus-            through a parent brand endorsement), it is impor-
     tomers and employees need to be considered. But          tant to understand where current brand equity lies

to avoid inadvertently losing key elements that are       Powerade, PepsiCo instituted a dramatic redesign
actively building consumer recognition and rele-          for Gatorade that minimized the bolt and empha-
vant brand associations. To be clear, we are not talk-    sized a somewhat collegiate-looking serif-type let-
ing about the broadest definition of “equity”—the          ter G as the prominent label graphic. Apparently,
accumulated value of a company’s brand assets,            PepsiCo made this decision without conducting
both financially and strategically, which comprises        extensive packaging research and, at this writing,
the overall market strength of a brand. Rather, we        the results at point of sale have been mixed. It will
are talking about the equity inherent in the brand        be interesting to see whether this dramatic rebrand-
signals to help answer questions such as “Should we       ing helps turn the brand’s fortunes around.
keep the logo?” “Should the brand still be red?”              Consider also the spate of brands such as Atari
“Should we continue to use the same brandline?”           and Mini that have recently returned from the dead
   When embarking on a rebrand, provided it is not        to take up residence at retail once more. Part of a phe-
occurring for a predominantly negative reason, you        nomenon dubbed “dormandize” by consumer trend
will often hear people within a company speak             spotters at, these brands hope to
about the strong equity inherent in the current           capitalize on residual brand equity to leapfrog com-
brand signals.“We can’t get rid of the tagline. We’ve     petitors. Of course these revived brands get a head
had it for five years. It has a lot of equity.” “People    start on awareness, but with brands such as Atari,
love the logo. It’s who we are. You can’t change that.”   much more work needed to be done to bring the
“Don’t get rid of ‘green.’ It’s a core brand color.”      brand out of eight-bit graphics and give it relevance
Employees are likely to have some emotional attach-       in the world of PlayStation and Xbox. As Steven
ment to certain brand signals. But often, impartial       Mallas wrote, “Atari’s brand equity doesn’t have that
brand equity research must be conducted to truly          differentiated, maverick feel of yesteryear when it was
understand where real equity lies and whether it          always associated with the cutting edge of video game
remains relevant moving forward.                          technology and was worshipped by hardcore players
   For the redesign of the Gatorade packaging in          at the forefront of the video game revolution. Nowa-
2002, PepsiCo and Landor conducted equity                 days, it is an all-purpose distributor that finds intense
research with customers who were asked to draw            competition in the likes of Electronic Arts and Activi-
the bottle. This was a simple exercise, but one that      sion.”7 Atari’s fiscal losses ($38.6 million in 2004, a
resulted in a marked consistency of output. The           significant reversal of $17.4 million profit in 2003)
lightning bolt seemed to be the most important            seem to affirm the point. Just because people recog-
and distinctive design element associated with the        nize a brand does not mean they have positive
brand; it was recalled and drawn many times, and          impressions about it or that they will purchase it.
consumers associated it with a “spark of energy.”             Overemphasizing recognition in the brand
Other aspects (orange cap, brand colors, bottle           equity equation is a quick way to get an immensely
shape) also had strong recall, but did not evoke the      distorted picture of a brand’s value. Ultimately, it
same emotional responses.                                 can have the effect of making a company think that
   But equity is not simply about awareness—it is         everything is so good there is no need to change
also about relevance. The reason that Gatorade            anything. Yet if people know about the brand, but
increasingly focused on the bolt in subsequent            it does not reflect what you want it to stand for in
package designs and other marketing communica-            their minds, then it is not relevant to keep. GE
tions was not simply because people recalled it, but      walked away from the ubiquitous tagline “We bring
because they associated it with the difference            good things to life” because it no longer encapsu-
Gatorade made to their athletic performance. In           lated what it stood for as a business.
2009, however, facing increasing pressure from                A rebrand is a marker of change. It should be
Coke’s VitaminWater and other competitors like            undertaken for a business reason.

                                                                                                    BRANDING     61
     Uncover Insights and Identify Opportunities             debate, and sometimes more research to determine
                                                             the right brand idea.
 From an agency’s point of view, the process of cre-
                                                                 The most important thing about your brand
 ating a new brand or a rebrand usually starts with
                                                             idea is that it is differentiated from the competition
 a situation analysis, often called an audit, or what
                                                             and relevant to your target audience. It is essential
 Scott Bedbury calls a “big dig.”8 Even in the creation
                                                             to give the target audience a reason to choose your
 of a new brand you are never starting with a com-
                                                             brand over all others. If there is nothing different
 pletely clean slate. This big dig can be as small or as
                                                             about your brand, there is no reason to purchase it;
 large as you want to make it, and there are various
                                                             if you are different but that difference is not impor-
 models and ways to structure it. It often involves
                                                             tant or meaningful to consumers, it is equally
 consumer and/or customer research, whether pri-
                                                             unlikely your brand will be purchased.
 mary or secondary (see Chapter 5, “Marketing
                                                                 Creating the brand idea also requires a leap of
 Research,” for an explanation).
                                                             faith to articulate something that captures the
    The most important thing to keep in mind about
                                                             good about the present state of the brand, and,
 situation analysis, however, is that the ultimate pur-
                                                             more importantly, a vision for its future. Mark
 pose is not to gather information. Its purpose is to
                                                             Earls talks about the brand idea having to create “a
 assemble insights about customers, the category,
                                                             longer-term trajectory for your business and
 competitors, or the brand itself in order to identify
                                                             your working life. It is rooted in a dream of the
 an opportunity that will shape the brand idea.
                                                             world as it should be. A dream that you feel and
    What is an insight? Professor Mohanbir Sawhney
                                                             believe in with your whole being, rather than
 describes it as “a not yet obvious understanding that
                                                             the small part of yourself that business normally
 can be the basis of a competitive advantage.”9
                                                             connects with.”10
 Insights can be about a business, brand, category, or
                                                                 The more visionary this idea, the more it can
 customer. These insights come from interpreting
                                                             inspire the people who are tasked to deliver it. And
 information available in a creative and analytical
                                                             the more relevant and differentiated it is, the better
 way, often using a framework, model, or map. And
                                                             the outcome. This idea of having a noble purpose
 opportunities are usually identified through a com-
                                                             above and beyond the commercial or product
 bination of insights that connect multiple areas such
                                                             equation seems to be gaining more traction in the
 as competition; category; customers; product or
                                                             Internet age. Consider Dove’s Campaign for real
 organization; heritage, ambition, and stories; and
                                                             beauty, or Ikea’s purpose being defined as Creating
 brand architecture.
                                                             a better everyday life for the many. Brands that claim
                                                             a higher purpose in their brand ideas, and those
     THE BRAND STRATEGY                                      that do it earlier than their competitors may con-
     Creating the brand signals includes defining the        nect better with consumers in the long run.
     brand idea, brand architecture, and brand person-           However, the limits of differentiation are impor-
     ality, and producing the creative brief.                tant to note. The brand idea does not have to be, nor
                                                             is it likely to be, different from any other idea that
                                                             has ever been expressed by a brand before. Differ-
     Defining the Brand Idea
                                                             ence is a relative term and is proportional to a
     A good situation analysis leads to insights and iden-   brand’s competition: other brands the target audi-
     tifies areas of opportunity for a brand, but a stake     ence might choose instead of yours. For example, if
     must then be placed in the ground to define the         the proposed brand idea for a child’s new toy is
     brand idea: what you want the brand to stand for.       “stimulating imagination,” this should not be disre-
     There is no magic formula or model for this. It takes   garded because GE also stands for “imagination at
     smart people, clarity, and creativity of thought,       work.” The child or parent is not going to be making

a choice between the toy and a GE steam-assisted          Defining the Brand Architecture
gravity drainage produced water evaporator.
                                                          One component of developing a brand strategy
   Similarly, you want the brand idea to be own-
                                                          requires establishing a clear structure and relation-
able; not in the sense of patenting the idea or the
                                                          ship among brands in a portfolio. This process is
words, but rather in the sense of delivering the
                                                          usually called brand architecture. Fundamentally,
idea, relentlessly and with commitment. This way,
                                                          brand architecture is about deciding what you want
the idea becomes so well associated with a given
                                                          to show as your face to the market and how to pres-
brand that any competitor would be foolish to
                                                          ent your goods and services to your target audience.
invest time and money claiming it stands for the
                                                          Many models and a great deal of marketing termi-
same thing.
                                                          nology are used to describe different approaches to
   Many models can be used to help encapsulate
                                                          brand architecture. But all fall somewhere among
the brand idea. Consumer goods companies with
                                                          three strategies:
large marketing departments usually have their
own models; branding agencies have theirs. Com-             •   A monobrand strategy (sometimes called a
panies often want to incorporate a vision state-                branded house), in which one brand is applied
ment, mission statement, and sometimes add a                    across everything. Examples are GE, Virgin,
brand positioning statement.                                    and IBM.
   The most valuable piece of any of these models           •   An endorsed or subbrand strategy, in which the
is getting to a short, memorable phrase that                    organization owns a variety of brands that
encapsulates the core of what the brand is about.               include the parent name in some way. Exam-
This is not a brandline or tagline, although it                 ples are Nestlé, Cadbury, and Marriott.
could become one. Rather, the brand idea defines            •   A multibrand strategy (or house of brands), in
what the brand is about at its most basic level. For            which a company uses many different brands
example:                                                        with no parent endorsement. Examples
  •   BP is about going beyond.                                 are Procter & Gamble (P&G), Diageo, and
  •   GE is about imagination at work.                          GlaxoSmithKline (GSK).
  •   Nike is about authentic athletic performance.
                                                              Almost all brands, particularly those that have
  •   eBay aspires to be the global online marketplace.
                                                          been around for a while and have gone through
  •   Ikea seeks to create a better everyday life for
                                                          various mergers and acquisitions, sit somewhere in
      the many.
                                                          the messy, real-life middle with a hybrid strategy.
   These simple articulations can be fleshed out          For example, Starwood Hotels has a Sheraton
into a paragraph, a positioning statement, a mis-         brand that itself endorses Four Points by Sheraton.
sion statement, or a vision statement, but if the core    It owns stand-alone hotel brands, such as W Hotels,
brand idea is not clear, then all elements emanat-        Westin, and St. Regis, and yet shows its face to the
ing from it will be even weaker. Content will be          market as Starwood in its loyalty program that
spun off (PR messages, ad copy, Web sites, leader-        spans all its hotels. Toyota endorses the Prius,
ship speeches, recruitment specs, blogs), and with-       Corolla, Tacoma, and RAV4 brands (along with
out a clear idea to link back to, the brand will          others) but not its luxury brand, the Lexus.
quickly become disparate, hard to manage, and not             As these examples show, determining the best
associated with anything distinct in the consumer’s       portfolio strategy is often difficult and rife with
mind. The brand idea acts as a strategic filter for       tradeoffs. It is important to remember that brand
the future; it is a waste of time to fill in models or     architecture is not about internal organizational
craft mission statements without spending time            structure. Well-designed architecture will be con-
clarifying the brand idea first.                           sumer-oriented and help customers make choices

                                                                                                 BRANDING     63
     between one product or brand and another. It will        can feel that their role is being downplayed, or even
     use the minimum number of brands to cover the            in jeopardy. Such strategic decisions must therefore
     maximum number of market opportunities, while            be carefully and clearly managed to help employ-
     clearly differentiating among brands. Not only will      ees understand that brand architecture is not about
     good brand architecture reflect the strategic vision      restructuring the internal organizational chart
     of the firm, but it should also improve financial        (which addresses optimizing delivery and costs),
     performance by helping organizations direct              but rather about the company’s face to its markets
     resources to the best bets for future growth by min-     (which concerns maximizing revenue). One is not
     imizing redundancy among brands and cutting              a mirror image of the other.
     underperforming brands.
        Brand architecture should not just rationalize an
                                                              Defining the Brand Personality
     existing portfolio and stretch the remaining brands
     into new areas, as tempting as that may be. It is        Many brand strategists may be uncomfortable with
     important to be careful with assumptions about how       the following statement: There are not an infinite
     far current brands can stretch to cover future growth    number of brand ideas in the world, and many
     areas by understanding what each brand stands for        brands occupy very similar territories. If you look
     in customers’ minds. For example, when Polaroid          across the list of global Fortune 500 companies, the
     began selling conventional camera film under the          statements about what the organizations stand
     Polaroid label, this brand extension did not work        for generally use some combination of the words
     because in the minds of consumers Polaroid stood         in Table 4.1.
     for instant photography, not generic photography.           We need not be downhearted by this. If, as
     The consumer’s idea of Polaroid would not stretch        Christopher Booker says, there are only “seven
     enough to accommodate the new meaning.                   stories in the world,”11 yet tens of millions of books,
        In contrast, because Virgin stands for something      films, and plays tell these stories differently, the
     so broad (essentially the idea of challenging con-       opportunity for relevant differentiation remains
     vention), and because Virgin delivers its promise so     strong. BP and Toyota both focus their ideas on a
     relentlessly, the company has extended successfully      sense of progress. However, nobody would say these
     into categories as diverse as financial services,        brands are the same. One way they differ is through
     mobile phones, airlines, beauty products, bever-         personality, and defining this is the next important
     ages, and space travel.                                  element in building a brand.
        Although a very rational and analytical process,         The premise behind Rohit Bhargava’s book Per-
     brand architecture often becomes an emotional            sonality Not Included illustrates how critical it is for
     topic for a company because it is mistaken for an        companies to move beyond being faceless organiza-
     attempt to change the organizational structure. For      tions and express authentic personalities in order
     example, when a company decides not to create a          to thrive in the social media era. Given that func-
     subbrand for a business unit and instead uses the        tional attributes and benefits are not unique or long
     master brand (for example, going to market as            lasting enough to build a brand around, and that
     “Deloitte” rather than as “Deloitte Tax”), employees     benefit areas are not infinite in number, defining

                                           Table 4.1 Popular Branding Words
     Company Description                                     Purpose
     Superior, leading, pace setting, number one, world      Enhance, improve, grow, success, performance, progress,
     class, trusted, innovative, inspirational, creative,    quality, value, peace, harmony
     passionate, customer focused

the personality and expressing it across all interac-     that the audacious brand idea and personality
tions with customers is an important way to differ-       being proposed for the brand had roots in the pas-
entiate a brand and build relevance with customers.       sion and actions of employees. Along with the
But a discussion around brand personality can be a        brand idea of going beyond, BP has four values—
difficult one to have in a boardroom. Brand per-          performance, progressive, innovation, and green—
sonality is usually seen as an accepted part of what      and people inside the company truly embrace
helps to differentiate a smoothie or chips brand.         them; they can be expressed authentically in com-
But a financial institution? A petroleum company?          munications.
A parcel delivery firm? Not so acceptable. Yet often
it is these types of companies that could benefit         Producing the Creative Brief
most by appearing more human.
    Bhargava describes personality as “the unique,        Once a brand idea and personality are in place, the
authentic, and talkable soul of your brand that peo-      core visual and verbal symbols can be developed.
ple can get passionate about.”12 Defining company          They are usually encapsulated in a creative brief,
values is often the way large corporations try to         literally a short document that a creative team will
articulate this. But when working on the creation         work from as it designs and generates names,
of a brand idea, agencies are often told: “Don’t          brandlines, and visual and sensory identities. A
touch the values.” This may be because the client         good brief is succinct (often only one page), uses
has already gone through a huge program inter-            words and pictures to help stimulate creativity, and
nally to define them (or, just as likely, a group of      has the brand idea and personality at its core. It also
senior executives crafted a values statement in a         reflects learning about competitors and market cat-
board meeting years ago) or the values have been in       egories from the situation analysis (for example, by
place since the founding of the firm and are an           including a section with things to avoid such as a
inextricable piece of “who we are.” But when we           color that a competitor uses consistently). Obtain-
look at values across an industry they are often          ing client sign-off on the brief is a critical part of
remarkably similar. Consider the big four account-        managing expectations when it comes to reviewing
ancy firms: If we take out integrity, respect, collabo-    work. Client sign-off should help to guide discus-
ration, and leadership (since at least three of the big   sions around the work at every stage.
four share these values, which do nothing to help             Along with the brief, the meeting itself is very
differentiate the firms), we are left with very little:    important. This is often the first time a creative team
some energy and enthusiasm from Ernst & Young;            will come into contact with a business or product
seeking facts and providing insight from KPMG; and        and its challenges. It pays to take time to inspire and
getting strength from cultural diversity from Deloitte.   educate team members and involve them in discus-
Not exactly the foundations of a brand personality        sions about the business challenges and the brand
to get passionate about.                                  idea. Most brand signals need to last at least a decade,
    One way of building internal passion for brands       so bringing the team charged with creating them
is through the creation of stories. For example,          into the process early, and agreeing on the brief
James Dyson’s inventiveness and tenaciousness are         together rather than simply handing it to the agency
hallmarks of the Dyson brand personality. When            team, will provide the best, most engaged start.
BP defined its Beyond Petroleum strategy, one of the
first activities it undertook was to conduct hun-
                                                          CRE AT ING THE BRAND E XPERIENCE
dreds of interviews with employees within the
organization to get at these stories. The output was      Creating the brand experience involves crafting the
something called the “BP scroll” that was literally       verbal identity, designing the visual and sensory iden-
rolled out in a board meeting to help demonstrate         tities, and testing the verbal and visual identities.

                                                                                                    BRANDING     65
     Crafting the Verbal Identity                             •   Have an available domain name
     Naming                                                     These criteria are often given to an agency before
     A new brand needs a name whereas a rebrand rarely      it begins to generate names. But how many brand
     has a name change. Indeed, changing a name sig-        names can you think of that actually live up to all
     nals that something significant has happened in the     these criteria? Coke? BlackBerry? Facebook? Audi?
     business, through forced circumstances, through a      Google? CNN? Target?
     merger and acquisition, or through a negative event.       Name creation is an incredibly difficult business.
     A company that changes its name is expected to         It demands an immense amount of creativity, cou-
     change the way it does business, too, so a name        pled with a heavy dose of practicality since most of
     change should never be undertaken lightly.             the names created will not be legally available. In fact,
         Names can take many forms. They can be             almost 90 percent of names created will have to be
     acronyms: IBM, BP, NBC. They can take the form         rejected due to copyright considerations. And this is
     of existing words or phrases: Shell, Apple, Twitter.   the most important thing to understand: A name is
     They can be names constructed from other words:        only one small part of a brand. Its power to build
     Spudulike, Kwik Save, Accenture. They can be           positive associations is limited when it is viewed in
     coined: Avensis, Aventis, Avertis. And they can        isolation. It only really gains meaning over time and
     derive from the names of specific people or fami-       in combination with all other brand signals.
     lies: Ferrari, Hershey, Mercedes-Benz. See Table 4.2       Some brands create more than a name. They cre-
     for more examples.                                     ate a naming device that allows them to link a series
         Ideally, a name should be the pure encapsulation   of products together under a similar naming con-
     of the brand idea and, along with this audacious       vention. The iMac spawned the iPod, iPhone, and
     goal, should meet other key criteria:                  iTunes. The iPod spawned the podcast. People tweet
                                                            on Twitter and use devices such as Power Twitter to
       •     Be easy to pronounce in every language         improve their brand experience. A good name will
       •     Be memorable (being brief also helps)          likely meet some of the criteria above, though not
       •     Help people understand what the business       all; fortunately, there are many other brand signals
             is about                                       to work with to help build a more complete picture
       •     Be able to stretch into other categories and   of what you want your brand to stand for. It is most
             areas in the future                            critical to make sure that the name is legally pro-
       •     Have no negative connotations in other         tected and that due diligence has been applied to
             languages                                      check for negative connotations in other languages.
       •     Be ownable and protectable as a trademark in       Furthermore, prepare to develop a hard skin at the
             all countries in which you want to operate     launch of your new name. The media like nothing

                                            Table 4.2 Names of Brands
                   Name Types                        Real                                  Coined
                   Abstract                          Apple                                 Google
                                                     Twitter                               Kodak
                                                     Egg                                   Avaya
                   Associative                       Lucent                                Agilent
                                                     Oracle                                Clarica
                                                     Sprint                                Visteon
                   Descriptive                       British Airways                       FedEx
                                                     America Online                        Microsoft
                                                     Computer Associates                   Wikipedia

more than a name change they can react to, and their      ate something that does not work hard enough to
reaction is almost never positive. A name only            help to differentiate them. Look at PwC’s competi-
becomes imbued with true meaning postlaunch. So           tors: KPMG locks up three words with its logo:
as long as the homework has been completed up             Audit. Tax. Advisory. It tells people what the firm
front, it pays to be patient and focus on constructing    does but nothing about why it is different from its
all of the many other signals that will help to support   competitors (who are already perceived as very
and give weight to this meaning.                          similar). There is already very little differentiation
                                                          in this category, and KPMG’s brandline does noth-
                                                          ing to help. Ernst & Young is stuck with a legacy line
Because names can only do so much, brandlines are
                                                          from the immediate post-Enron days, Quality in
often developed in conjunction with the name to
                                                          everything we do; surely a given for one of the most
help signal what the brand stands for. Brandlines are
                                                          regulated industries in the world. It focuses on an
often called taglines; however, taglines suggest a
                                                          unspecific parity point (quality) with Ernst &
sign-off at the bottom of a piece of communication,
                                                          Young’s competitors rather than something that
and they can change as different marketing cam-
                                                          differentiates the organization. Deloitte has chosen
paigns change. A brandline is developed as a per-
                                                          not to use one, which, according to Brandweek, is
manent brand element to be used across different
                                                          an increasing trend. Perhaps some companies are
channels, often everywhere the logo appears. For
                                                          finding that if you cannot have a good one (that is,
example, FedEx’s brandline is The world on time. It
                                                          one that focuses on your differentiation and rele-
appears consistently on FedEx trucks, planes, and
                                                          vance), it is better not to have one at all.
packaging and has been in place since 1995. Since
then, however, FedEx has had many advertising             Tone of Voice
campaigns that have featured different taglines, such     Tone of voice is another means of conveying what
as When it absolutely, positively has to be there         a brand stands for. Tone of voice is not messaging
overnight and Relax, it’s FedEx.                          or writing; it is about how you say things rather
   Taglines can change (they are tactical), but           than what you say. For example, a brand’s voice can
brandlines remain the same unless a significant           be friendly, informative, precise, grounded, real,
rebrand occurs. PricewaterhouseCoopers’ brand-            honest, daring, playful, irreverent, emotional, or
line, Connected thinking, is at the heart of what the     witty. The brand voice can express the personality
company says it stands for as an organization.            of a friend or teacher, a geek or gamer, a leader or
Beyond Petroleum works cleverly to change associ-         an advocate, a visionary or a knowledge seeker, a
ations with the name of the company from British          magician or an engineer. When tone of voice is con-
Petroleum to something that implies what the              sistent, it gives the consumer another means of rec-
firm wants to be about as a brand—going beyond.           ognizing the brand and its promise.
GE’s Imagination at work captures the driving                 When you consider how many people within a
mission of the company. The brand overhaul of             company use words to communicate with a target
Citroën saw an end to the tagline Just imagine            audience on a daily basis, tone of voice would appear
what Citroën can do for you and replaced it with a        to be an incredibly important part of branding. Yet,
brandline that captures its business strategy: Créa-      compared with the development of a visual identity,
tive technologie.                                         creating tone of voice is less common. Whatever the
   Creating a brandline presents many of the same         reason, many brands do not have a consistent tone
challenges as creating a name (for example, it needs      of voice, or their tone of voice is not considered
to be legally protectable and often needs to work in      when creating the foundational signals for a brand.
different countries), which may be why so many            Even brands that have crafted a tone of voice often
brands eschew a brandline altogether. Other brands        do very little to train people on how and where to
seem to feel that a brandline is mandatory but cre-       use it, or to promote its use on an ongoing basis.

                                                                                                  BRANDING     67
    A few brands are known for their tone of voice,           Logo
 and they deliver it consistently and memorably. For          There is something revered about the logo, and it is
 example, tone of voice helps differentiate maverick          probably the first thing that comes to mind when
 brands such as Virgin, as well as staid brands such          we think about branding. It can mistakenly be
 as the BBC and the Economist. Southwest Airlines             where the desire to rebrand begins (“The new CEO
 has a tone of voice that links strongly to its brand         doesn’t like our logo”) and is often where emotions
 personality. The Southwest style is fresh and imme-          can ride high in a branding project. It may have to
 diate, expressing respect and warm regard for peo-           do with the fact that the logo becomes personal on
 ple in general:                                              our business cards, or perhaps it has acquired such

       Although we cannot predict what external, uncontrollable events might transpire during 2003, we can
       forecast with considerable certainty that our valorous, caring, nimble, good-hearted, and resilient people
       will ensure that Southwest ends 2003 just the way it ended 2002—at the forefront of our industry.
                                                                              Southwest 2002 Annual Report

    To help an organization understand tone of                hallowed status that its role in branding is often
 voice and its implications for business communi-             overemphasized.
 cations, a common step is to take some current                   A logo becomes a visual shorthand for the mean-
 pieces of communication and rewrite them in the              ings people attach to a brand, but it is not the only
 new tone. It is better to show than to tell, and focus-      strong visual symbolism. As with a name, a logo will
 ing on high-profile, visible pieces of communica-             play up some aspects of the brand but will not be
 tion helps ensure that the new brand voice is                able to communicate others. However, it is also
 noticed. Getting people to act on tone of voice is           often undervalued, and stories about logos being
 more difficult, however.                                      “drawn on a napkin over a pint” abound, suggesting
                                                              there is nothing difficult about their creation.
     Designing the Visual and                                     Most logos (also called brandmarks, brand iden-
     Sensory Identities                                       tities, or corporate identities) are made up of several
                                                              components: the wordmark (usually the name of
     Great design gives people the shorthand markers of       the company), a symbol (a graphic device placed
     identification and engagement with a product,            within, adjacent to, or around the logo), and the
     service, or organization: It stops us in our tracks to   colors chosen to reflect the brand. Some logos com-
     think again about our usual choices. It helps us find     prise only a wordmark (such as Kiehl’s, Virgin,
     coffee, aids us in sending urgent documents in an        Google, FedEx, IBM); a few use just a symbol (Nike,
     unfamiliar city, or can make us feel part of a           Apple, Prince); and others combine a symbol and a
     smarter or more stylish community. As we sit at the      wordmark (The Body Shop, UBS, BP).
     neighborhood Starbucks, typing on a MacBook,                 Some of the most memorable logos communi-
     wearing Uggs or Adidas, minding a baby asleep in         cate myriad meanings, breaking new ground while
     a Bugaboo stroller, we may suddenly realize that all     respecting heritage. For example, the BP sun-
     these brands stand for something singular, that all      flower symbol (officially called the Helios mark) is
     of them have a personality, and that all of them use     a highly effective encapsulation of the core values
     their visual and sensory identities to create power-     of the brand. It is notably progressive and
     ful associations that we connect with.                   innovative—no other petroleum brand had done

anything like the sunflower symbol at the time it      diverse as Dell, American Express, Gap, Hallmark,
was created—and it successfully represents BP’s        Converse, and Emporio Armani.
brand idea of going beyond to become an environ-          The Olympic 2012 logo created a negative media
mental leader and a truly great company. Incor-        frenzy when launched in the United Kingdom. Its
porating green, a heritage color for BP, the symbol    purpose was to be used in conjunction with other
captures the feeling of pure energy, and its           brands, allowing partners to adapt the logo to their
solar power initiative represented in the sunburst     own brand colors. But even this flexibility did not
flame evokes broader environmental meanings for        go far enough for some who felt that the logo had
BP’s future.                                           been “foisted on” the United Kingdom without
   Some logos add essential communication that is      properly involving members of the community it
missing from the name alone. For instance, a literal   would represent.
visualization of the word Amazon would take you           By contrast, in creating the branding for
to rainforests or Greek mythology. But instead,        Worldeka (a social-networking platform that brings’s logo helps suggest the range of           together citizens who aim to change the world),
products available (the arrow points from a to z)      Landor provided some brand structure—including
and forms a smile to communicate a sense of the        the simplification of Worldeka to WE, the key
welcoming, helpful, customer-friendly nature of        insight that encapsulates the brand’s collective
the brand. The FedEx logo incorporates a hidden        voice—but decided along with the client to let the
(negative space) arrow to subtly imply its speed and   online community own the logo and the brandline.
guarantee that packages will always get there on       This encouraged a multitude of design executions
time. Evoking a story within the brand symbol          that expanded the visual and verbal language (such
presents not only a visual metaphor for the brand,     as allowing various interpretations of WE: Wrestling
but also a word-of-mouth communication cam-            Evil, Working Effectively, or World Engaged).
paign. Over the years, many people have recounted         This kind of “open branding” is not appropriate
the story of discovering the arrow in the FedEx logo   for all brands, but what these examples highlight is
as an amusing “aha” moment.                            that there is no one-size-fits-all approach to logo
   While virtually no brand identity can convey        usage, and tools like animation, customization, and
everything about a product, service, or company, a     flexibility need to be considered along with colors,
logo must be evaluated on its ability to communi-      fonts, and symbols.
cate at least one or two important concepts about
the brand. The brief should incorporate these con-     Color
cepts, guiding both the creative team and the client   Logos are not designed in black and white. The cre-
in appraising the recommended designs.                 ation of a logo always introduces other core aspects
   Logos were once designed as purely static, two-     of the brand. For some brands, color is one of the
dimensional devices with strict rules around usage     most important associations they have: for exam-
that no one could distort or change in any way, on     ple, the Tiffany robin’s-egg blue box, ING’s orange
any application. This is still the case in many        versus the blue and red of other financial institu-
instances, but there are some logos that are           tions, and Coca-Cola’s red.
designed to be more fluid. This trend started with         There is much written about color theory and
the MTV logo in 1981, but it can also be seen with     the meaning of color in different societies. While
brands such as Google, which creates new designs       white is traditionally the color of death or mourn-
within its wordmark and encourages its audiences       ing in Asia, yellow means caution in the United
to engage in the practice as well. The RED logo        States, and red is the color the eye is drawn to
builds the brand by associations with others (iPod,    most—differing meanings of color should not be
Bono) and was created to work with brands as           the overriding reason to either choose or discount

                                                                                              BRANDING    69
     these colors for a given brand. It is more important     organization and one also used by other, albeit
     to go back to the brand idea and personality, and        nonfinancial products. Yet the Peanuts canine char-
     the situation analysis, to ensure that a color palette   acter has become virtually synonymous with
     is chosen that first and foremost differentiates the      MetLife owing to long and extensive awareness-
     brand from the competition and is relevant to what       building efforts (and expenditures) while techni-
     it is trying to stand for. Without doing this, design-   cally having little, if anything, to do with the
     ers face the inevitable risk of designing a logo and     original brand idea or personality of MetLife.
     then being asked,“Can we just see it in red/blue/yel-    Rather, Snoopy’s relationship to MetLife began as
     low/pink/aqua?” This exercise should rarely be nec-      an advertising idea, intended to add warmth and
     essary. If you plot your competitors on a color wheel    borrowed interest to an otherwise somber and
     and are clear about how color theory relates to your     impersonal industry.
     brand idea, the choice of colors will be limited.
     Look and Feel or House Style                             A package may have only half a second to engage
     Other graphic elements that make up the visual           with a consumer, yet it has a laundry list of func-
     identity can help create something that becomes          tions to fulfill. For example, the structure needs to
     differentiated and communicates the right associa-       respect shelf space, sustainability, and safety con-
     tions about the brand. Some agencies call this col-      siderations; the graphics need to include legal
     lection of elements the “look and feel,” others the      information such as weight, nutritional facts, and
     “house style.” They consist of the color palette         bar codes, along with names (parent brand, sub-
     (main and supporting colors), fonts, photography,        brand, flavor names, unique ingredient names),
     imagery style, and any other graphic element.            illustrations, photography, icons, logos, and the
        A successful rebrand can occur without ever           list goes on. Great package design manages to
     touching the logo, name, or brandline. Ernst &           serve the brand first and foremost, while working
     Young’s rebrand is a case in point. Its brand idea is    within the mandatory limits of legal and struc-
     about achieving potential, implying a personality        tural constraints.
     that is dynamic, optimistic, and always striving to          It is important to understand what the brand
     move forward. The yellow beam powerfully trans-          idea and personality are and project these associa-
     lates this brand idea and personality into a graphic     tions onto the packaging. Innocent smoothies are
     element that allows an organization of more than         a much-cited case of packaging success in the
     130,000 people to create diverse communications          United Kingdom. Every aspect of Innocent pack-
     that nonetheless look and feel like they came from       aging gets across its brand, from tone of voice and
     one brand—Ernst & Young. Absolut used a                  copy, to its recycling efforts, to its name and logo
     graphic element derived from its unique bottle           design. Moreover, Innocent packaging does not
     shape as a symbol that became far more important         follow category conventions. Its labels do not show
     than the actual logo in identifying its brand. Tar-      photographs or illustrations of cranberries or
     get’s use of the bull’s-eye makes its communica-         raspberries—these images are not a means of dif-
     tions so distinctive that the name Target is             ferentiation. Breaking traditional category conven-
     unnecessary. These graphic elements are all part of      tions is a simple way to stand apart, but few brands
     a visual toolbox that help these brands become dif-      have the courage to do it.
     ferentiated and memorable.                                   Another way of differentiating packaging is by
        Occasionally, however, the use of another             taking cues from innovation and design in other
     graphic element can detract from your brand idea.        categories. When Landor designed the packaging
     Snoopy, although now associated with MetLife             for Crest Vivid White toothpaste, it took inspira-
     insurance, is an icon created independently of this      tion from the cosmetic category. The package’s

vertical orientation, sans serif font, embossing, and     defined. A missed opportunity, but one some iconic
clean side panel clearly define a cosmetic product,        brands have fully grasped. Martin Lindstrom calls
appealing to consumers who consider oral care part        this the “smash your brand” principle, explaining,
of their beauty regimen. But the design speaks just       “Nearly a century ago, when the first-ever Coca-
as loudly to consumers more focused on health             Cola bottle was in the planning stages, the designer
care. In the first three months following its launch,      received his marching orders. Company executives
Crest Vivid White exceeded sales forecasts by nearly      wanted him to develop a bottle so distinctive that if
300 percent, and Vivid White was the top-selling          you smashed it against a wall, you would still be
oral care item in Target stores in the United States      able to recognize the pieces as part of a Coke bot-
during the first quarter of 2006. According to Mary        tle. The designer obviously lived up to the require-
Zalla, managing director of both the Cincinnati           ment, and to this day it works.”14 But how many
and Chicago offices of Landor Associates, “Just           brands could you smash today and still identify—
because no company had ever designed a cosmetic-          Coke, Heinz Tomato Ketchup, Marmite in the
looking oral care package didn’t mean it should           United Kingdom, Gatorade, Absolut? And then it
never be done. What has been done will only               gets harder.
get you so far. Great design is about what can                The deliberate use of structure to build brand
be done.”13                                               differentiation varies even within product cate-
    Packaging is usually created before all other mar-    gories. Perrier, Johnnie Walker, Smirnoff, and other
keting communications, which may be why, when             drink brands use bottle shape as a distinctive brand
there is something new to say, a branding violator        element, while graphics in the canned-drinks mar-
is added to the front of a pack to link it to a current   ket are generally the only differentiator. In another
promotion or ad campaign. Why not use the pack            sector, Ferrero Rocher chocolates’ gold wrapping
more creatively to link better to these other brand       and clear container are essential parts of the brand
associations that consumers are picking up else-          experience, while a low-cost chocolate product’s
where? When U.K. laundry detergent brand Ariel            propylene flow wrap is designed purely to grab
launched Ariel Cool Clean, it was the second in a         attention at the point of sale. Apple is expert at
series of innovative brand-led approaches to on-          designing packaging that engages us even after we
pack promotion. The goal was to advocate Ariel’s          have penetrated the first layer, as anyone who has
effectiveness at 30°C and its inherent energy cost        opened an iPod Nano box will attest.
savings to consumers by washing at a lower temper-            Great package design will only become more
ature. One of Ariel Cool Clean’s challenges was to        important as differentiation on-shelf gets harder.
overcome perceptions that lower temperatures have         Couple this with the increasing consumer interest
reduced cleaning power. The idea was to make the          in ecofriendly options and better functionality, and
promotion the actual pack design. The “Turn to            the stakes rise dramatically. In the 2008 Image-
30°C” message is reinforced visually by placing the       Power® Green Brands Survey, one of the most
Ariel logo on a washing machine dial that mirrors         notable trends that surfaced is the attention con-
the act of physically turning the dial down. This         sumers are giving to sustainable packaging. In 2008,
concept maintains Ariel brand equities while push-        Amazon launched a Frustration-Free Packaging
ing the boundaries of promotional packaging. Fol-         initiative to make it easier for customers to liberate
lowing the launch, Ariel became the market leader.        products from their packages, focusing on two
    As noted, package design is connected to both         kinds of items: those enclosed in hard plastic cases
graphics and structure. Branding has usually been         known as “clamshells” (said to cause “wrap rage,”
reserved for the former, while packaging structure        as anyone who has tried to open one will attest),
and materials are often unfortunately designed            and those secured with plastic-coated wire ties,
before the brand idea and personality have been           commonly used in toy packaging. These types of

                                                                                                  BRANDING     71
     packaging pose a challenge for brick-and-mortar       and lobbies into which prospective clients walk,
     retailers attempting to prevent incidents of theft.   and where events, meetings, and interviews are
     Green and frustration-free are two other aspects to   held. The effective use of positive scent could have
     juggle in the development of future packaging that    a potentially dramatic impact on employees and
     can create positive brand associations.               customers alike.
                                                              Choosing the right scent for your brand should
                                                           link back to the brand idea and personality attrib-
 Smell is one of the most powerful senses. Memo-
                                                           utes. Alex Moskvin, director of BrandEmotions at
 ries, imagination, old sentiments, and associations
                                                           International Flavors & Fragrances, says he studies
 are more readily reached through the sense of smell
                                                           the DNA of the brand and its relationship to con-
 than through any other channel. In humans there
                                                           sumers to figure out what resonates olfactorily. In
 are four genes for vision, whereas there are 1,000
                                                           designing a hotel fragrance, for example, Moskvin
 allocated to scent, which means we have the ability
                                                           wants to know if the chain is trying to stand for
 to differentiate more than 10,000 odors. According
                                                           family-friendly hostelry (think chocolate chip
 to the Sense of Smell Institute, 75 percent of all
                                                           cookies) or a haute couture Zen-like retreat (think
 emotions we generate are due to what we smell.15
                                                           sandalwood or hinoki).“We want to capture a smell
    Some brands are synonymous with a smell.
                                                           that makes people feel part of the club,” he says.18
 Johnson’s has become the baby smell. The smell of
 Crayola crayons is instantly recognizable and can         Sound
 take most of us on a nostalgic trip back to child-        Sonic brand identity, like its visual counterpart, has
 hood. In fact, Crayola’s smell is ranked 18 among         many components. Sound can be used as an iden-
 the 20 most recognizable smells in the United States.     tifier of a brand, the equivalent of a sonic logo (like
 Kentucky Fried Chicken now regards its signature          the Intel chime, McDonald’s “I’m lovin’ it,” Nokia’s
 aroma as one of its key “brand ambassadors.”16            ring tone, Yahoo’s yodel), or on the device itself to
    Scent branding is a relatively new field, but more      accompany certain actions (such as the always-wel-
 and more companies are realizing the power of             come sound of Microsoft Windows and Apple
 scent to build brand experiences. In 2003, about          operating systems booting up). A longer piece of
 $30 million was spent on aroma marketing around           music can also be used to create positive brand
 the world; by 2010, that figure is set to reach $220       associations (United Airlines uses Gershwin’s Rhap-
 million.17                                                sody in Blue). These identifying sounds have been a
    Some brands, such as Victoria’s Secret and Star-       prominent signal of brand experience since the
 bucks, have used scents to connect with their con-        invention of radio (such as the NBC chimes), but in
 sumers for years. Singapore Airlines, which               today’s cluttered, multimedium, audiovisual, and
 regularly achieves top ranking as the world’s most        online world, sonic branding has evolved into an
 preferred airline, incorporates the Stefan Floridian      increasingly serious business.
 Waters scent in perfume worn by its flight atten-             Originally used as a one-off piece of music for a
 dants, on hot towels, and in numerous other ele-          British Airways ad, Leó Delibes’s “The Flower Duet”
 ments of service.                                         from the opera Lakmé became so connected to its
    Besides food, fashion retailers, and the occa-         brand that when the airline dropped the music in
 sional airline, scent has been underused as a brand-      2000, it received such a volume of complaints that
 ing symbol. Things are changing, however: breathe         it was reinstated. Today British Airways nurtures its
 in Westin Hotels’ white tea signature fragrance or        accidental sonic brand: even Dave Stewart from the
 the mandarin orange and vanilla scent in the Sony         Eurythmics has worked on one of the many British
 Style stores. Furthermore, scent branding does not        Airways–commissioned versions of the song. How-
 need to be limited to a retail, service, or product       ever, trying to appropriate a famous song for your
 experience. Most corporations have office spaces          brand, rather than composing something original,

is costly and often unsuccessful. In France some              losers from brand signal research. Use it
years ago, a David Bowie song was used to drama-              instead to understand attributes people asso-
tize the Vittel brand. After a few months, consumers          ciate with the signals and assess how well they
remembered David Bowie but forgot Vittel. In                  match what you intend to communicate in
essence, Vittel was asking consumers to remember              your brand idea and personality. Do not expect
two brands, David Bowie and Vittel, but the con-              every signal to communicate everything
nection was strictly promotional and the stronger             equally well. Understand strengths and weak-
brand dominated recall.                                       nesses and make decisions with the whole pic-
   Although it may take time to build recall, com-            ture in mind.
posing a sonic identity or longer piece of music          •   Think laterally and metaphorically. Our
based around a brand idea is a very efficient way to           brains are programmed this way. Use images,
create differentiation and identifiable associations           metaphors, and cross-category analogies to
with your brand. Sounds are less likely to exacer-            help consumers help you. If you want to com-
bate cultural differences than words and images,              municate a sense of indulgence for a chocolate
particularly in a short sonic identity, and most con-         bar name, ask about the name’s appropriateness
tain only a few notes that can become relevant                in another indulgent category, such as spas or
across most of the world.                                     retail stores specializing in cashmere.19
                                                          •   Consumers are not namers or designers.
Testing Verbal and Visual Identities                          Consumers live in the real world, not the con-
                                                              ceptual world. Put the names and designs in as
Once you have established a direction for a brand’s           real a context as possible. Let the designers do
verbal, visual, and sensory identities, the next step         the designing and the consumers the reacting.
is to test leading concepts on targeted consumers         •   Familiarity is a powerful force. New designs
to learn whether the brand signals effectively com-           are usually less findable on a shelf than ones
municate the intended idea and have the desired               with which people are already familiar. Because
impact. Research can be used in two main ways to              of this, the strength of a new design must be
inform and optimize the design process: insight               evaluated on more than just “shelf pop.” And
and equity understanding before design and post-              new designs often underperform current ones
design validation. Preferably, both should be incor-          in research; consumers often need time to
porated into a branding project because you learn             adjust to new strategies and may not immedi-
different things at each stage.                               ately like a new design.
    Many different methodologies for testing brand        •   Place more importance on emotional rather
signals are appropriate, depending on your goals,             than rational responses. Use the research to
the category, geography, and whether you are intro-           help you understand them. Do not underesti-
ducing a new brand or a rebrand. Here are some                mate emotional identification that cannot be
lessons and principles to remember when under-                rationalized. Try harder to understand it.
taking a design or naming a research project:
                                                        DELIVERING THE BRAND E XPERIENCE
  • People are skeptical about things that are dif-
    ferent. Brand signals are designed to be differ-    It is important to stress that only in combination
    ent. Skepticism is magnified in a group             do brand signals make an impact on a customer’s
    situation. Focus groups are therefore not the       experience of a brand. And only when they are
    right choice for design research. Be creative.      deployed boldly, with courage and single-minded-
    Talk to individuals; find them where they shop.      ness, will they create impact in the cluttered world
  • Research should be designed to inform your          of brands we live in. You might notice the logo of an
    decisions. Do not aim to pick winners and           airline first, but it is your experience buying a ticket,

                                                                                                  BRANDING     73
     waiting in line, flying in the cabin, and interacting        creation of templates (for specific applications such
     with service people that will form your opinion of          as presentations, business cards, stationery suites,
     that airline brand. Red Bull may have a distinctive         brochures, internal Web sites, country-specific
     can, but its sponsorship and events probably                home pages), the design of packaging mechanicals
     imprint the idea of the Red Bull brand most firmly           (printer-ready files created to printer’s specifica-
     in our minds. Consumers derive their perception             tions), and so on. Implementing a brand requires
     of a brand from the sum of interactions they have           developing a plan for every touchpoint on the cus-
     with it. And delivering the promise of that idea is         tomer journey. It inevitably means creating guide-
     the work of an entire organization, not just the            lines: visual identity guidelines, verbal identity
     marketing department.                                       guidelines, digital guidelines, and print guidelines.
        Only through a deep understanding of its cus-            Often these are translated into other languages for
     tomers can airlines, soft drink companies, or finan-         online accessibility.
     cial institutions deliver a brand promise that lives            An implementation process might involve
     up to the brand idea. Occasionally, the brand idea          updating training modules and brand resource
     will be so well understood that an organization can         centers. Some organizations develop help centers,
     hit on something that has the power to generate             particularly in the months pre- and postlaunch,
     viral communications and amplify the brand idea.            and create brand modules for new recruits to edu-
     For example, Virgin Atlantic’s head massage service         cate them on exactly what the brand stands for and
     got everyone talking about how amazing the Vir-             how to use and “live” it. The implementation
     gin experience was. In truth, it was one of the             process also needs to factor in all the other com-
     smallest parts of a holistic brand experience, but it       munications partners and their work (advertising,
     generated buzz and marked the Virgin experience             marketing, Facebook sites, screensavers, press
     as remarkable.                                              releases, leadership speeches, conferences, events,
        In a world that gets noisier and more complex            exhibitions, offices, chairs, pens).
     by the day, a company can design a relevant and dif-            This process is typically seen as a key part of
     ferentiated brand and still not cut through the clut-       brand management, which is generally interpreted
     ter to capture public imagination. If you can add a         as the means of controlling your brand and keeping
     single catalyst, or power application, to the mix and       its expression consistent. It jars significantly with
     ignite consumer excitement, the entire brand will           some of the other key aspects of branding: the two-
     be elevated by it. Finding this powerful interaction        way interactions with customers on their journey,
     with customers can significantly stretch your mar-           the continually evolving impressions of a brand in
     keting dollars and the impact of your brand.                people’s minds, and the use of social media chan-
                                                                 nels to develop a dialogue with customers rather
                                                                 than push out a stock message.
     MANAGING A BRAND                                                Brand management used to be about limiting
     Once the foundational signals are in place for a new        external influences. Rigidity was the means to consis-
     or refreshed brand, the next step is to begin the           tency, and consistency emphasized scale and profes-
     process of codifying and communicating these to all         sionalism. But the Internet and the democratization
     the people who will use them. This very involved            of image creation have made everything public
     process takes a long time. You may read about a firm         property. (Is there really such a thing as internal and
     undertaking a rebrand in July of one year, but not          external communications today?) Today we create
     actually see it until a year later. It is not usually the   brand ideas that transcend the need to impose disci-
     production of the visual identity elements that gen-        pline by inviting partnerships with people, inside
     erally takes the most time (and money) but the              and outside an organization, who want to be part of
     implementation. This can include media testing, the         the idea. Brands are no longer about one-way

communication; they are about dialogue between             BAV stands apart from other brand studies
the brand and its customers. Indeed, brand imple-       because it is predictive, highlighting leading indi-
mentation can often incorporate cocreation with the     cators of brand strength. Moreover, it is an incred-
consumer; the MyStarbucksIdea Web site and Dell’s       ible diagnostic tool, illustrating how a brand is
IdeaStorm are examples of this.                         performing against not only direct competitors but
    Brand management today should be about              also against all other major brands in different cat-
determining what cannot change and what must            egories. In this way it replicates a consumer’s real
change. Advertising agency DDB talks about the          experience of brands in the very cluttered brand-
70/30 rule: 70 percent consistency but 30 percent       scape. (You wake up to a Sony alarm clock, eat
flexibility. The 30 percent portion relates to lan-     Kellogg’s cereal for breakfast, watch the CNN
guage and cultural differences, buying behavior         morning news, turn on your iPhone, get in a
nuances, insights into the target market and its        Toyota car, and drive to a Safeway supermarket to
preferences for media consumption, and so on. For       use the HSBC ATM inside.)
example, this understanding of the balance of con-         To date, BAV has been fielded in 48 countries,
sistency and flexibility allows McDonald’s to offer a    covers some 30,000 brands, has conducted inter-
teriyaki burger in Japan and porridge in the United     views with more than 500,000 consumers, and
Kingdom, yet still deliver a consistent set of expec-   includes dozens of brand metrics and attitudinal
tations for the familiar golden arches.20               questions. BAV is currently run by Young & Rubi-
    Consider the role of the brand launch. Rather       cam Brands, a consortium of companies that
than seeing it as the way to push out tools and         includes Landor, itself a WPP company.
information, brand managers should make                    BAV posits a proven model on how brands are
sure that it fully engages employees with the brand     built that is based on the interrelationship of four
idea so that they are inspired to be part of deliver-   brand dimensions, known as the four pillars:
ing a customer experience that expresses the
                                                          1. Differentiation: What makes your brand
brand. Brand management in the future should
                                                             stand apart
not be about policing standards but rather
                                                          2. Relevance: How appropriate this difference is
about nurturing and developing the ongoing brand
                                                             to the audience you want to reach
                                                          3. Esteem: How well regarded your brand is in
                                                             the marketplace
ME A SURING THE PERFORMANCE                               4. Knowledge: How well consumers know and
OF A BRAND                                                   understand your brand
Tracking Brand Strength                                    This model shows how brands are built one pil-
Building a brand based on differentiation and rel-      lar at a time, with differentiation being the first,
evancy is not simply common sense; its success can      most critical step. A strong brand has high levels of
be proven. In the mid–1980s it was recognized that      differentiation and relevance. The healthiest brands
all brands, regardless of category, country, or tar-    have greater differentiation than relevance, which
get, seemed to live by certain rules. To understand     gives them room to grow. When a brand has a
those rules and describe the strongest brands, Lan-     higher degree of relevance to differentiation it is in
dor Associates developed ImagePower®, the first         danger of being seen as a commodity; Energizer,
cross-category, multicountry study of brands. In        Bic, and Saran Wrap are examples of this.
the early 1990s, the ImagePower study was                  Esteem and knowledge, the other two pillars,
expanded from a few key measures of brand stature       make up a brand’s stature. A brand with a higher
to the largest study of brands in the world, the        level of esteem than level of knowledge is a brand
BrandAsset® Valuator (BAV).                             that has a good reputation, although people may

                                                                                                BRANDING     75
     not know much about it. This puts a brand in a           to valuation and the degree of subjectivity used in
     great position to convince consumers to get to           determining their primary inputs. On one hand,
     know it better. Brands such as Coach and Movado          several models employ expert judgment to assess
     fit this mold. Too much knowledge and not enough          structural factors such as the role of brand in driv-
     esteem is an uncomfortable place to be, however.         ing business results, and the brand risk that is
         In the case of leadership brands, such as Disney,    reflected in the rate used to discount a business’s
     Coca-Cola, Sony, and IBM, all four pillars are           branded cash flows to determine value. In many
     strong. A successful new brand, or a successfully        people’s minds, this subjectivity casts doubt on the
     relaunched brand, will demonstrate a desirable           reliability of the valuations such models produce.
     step-down pattern of pillars, from differentiation       On the other hand, more rigorous approaches use
     as the highest to knowledge as the lowest, indicat-      statistical models built on objective market data for
     ing that the brand has found a meaningful way to         brand strength and financial performance, to assess
     differentiate itself in people’s minds. It is ready to   the value contribution of a brand to a company’s
     intensify its marketing efforts in order to expand       financial success.
     its knowledge base. JetBlue and Ikea were in this sit-      For example, significant progress has been made
     uation early on and only grew stronger from there.       with BAV, the research database that employs a
     In the early 1990s Starbucks had this profile, moved      well-established approach to measuring brand
     to a balanced pillar leadership profile, and now is       strength. In one study, partnering with Stern
     beginning to show slight declines in differentiation.    Stewart, a financial consulting firm, BAV was used
                                                              to show a correlation between brand differentiation
     Measuring Brand Value                                    and operating margins. The study found that those
                                                              firms whose brand differentiation grew tended to
     There is a natural desire to understand how much         have an operating margin of 10.5 percent, while
     a brand is worth—to have a tangible means to             those that saw differentiation decline had an aver-
     measure what is fundamentally an intangible asset.       age operating margin of 7 percent.21 Longer term,
     However, just as absolute control in brand manage-       BAV has been used to track how declines in differ-
     ment is not an achievable goal, neither is there a       entiation often set a precedent for a long-term
     widely accepted, definitive way to accord value to a      decline in business performance.
     brand in financial terms.                                    Another brand strength methodology, Millward
        Nonetheless, several approaches and models            Brown Optimor’s BrandZ, is as expansive as BAV
     have been developed to create estimates for brand        (more than 23,000 brands across 31 countries).
     value. The application of these numbers falls            BrandZ uses a pyramid model that plots increasing
     broadly into two categories: brand rankings pub-         levels of rational and emotional engagement of
     lished in the business press and brand valuations        consumers over six levels. The top of the pyramid,
     that provide more serious support for business           the level called bonding (where, on average, 8 per-
     decisions.                                               cent of customers sit), contributes, along with
        The lack of consensus over valuation techniques       claimed purchasing data, to a Voltage score, a one-
     is most clearly seen in the widely divergent value       number summary of the growth potential of a
     estimates for brands in published rankings and, for      brand. Millward Brown Optimor has mapped this
     many people, calls into question the usefulness of       score against market share and has proved that
     such estimates for more serious purposes.                brands with strong Voltage scores are more likely
        However, there is good academic and practical         to grow market share. Ogilvy and Mather and con-
     evidence that certain approaches provide more            sultant A.T. Kearney have done further work with
     robust results than others. Brand value models gen-      these Voltage scores in the United States and the
     erally differ in two areas: their structural approach    United Kingdom, linking them not only to market

share growth but also to profit, total shareholder         that take into account objective measures of brand
returns, and levels of business risk.22                    strength based on consumer perception. After all,
    Three companies publish annual rankings of             if we go back to what a brand is, and if we believe
brand value. The longest-running global study is           it is ultimately held in the minds of consumers,
Interbrand’s Global Brand Scorecard, published             brand valuation models that do not factor
annually in conjunction with BusinessWeek. It              consumer perceptions into their results may be
assigns a brand value, measured in billions of U.S.        seriously flawed.
dollars, to the world’s top 100 brands and plots this          Brand value is perhaps still best understood in
against past-year results to show the year-on-year         hindsight, by looking at the price that companies
change in brand value. Arguably the best-known             are prepared to pay for brands. P&G bought
and most publicized approach, the scorecard                Gillette in 2005 for $57 billion, and the value that
includes qualitative judgments to assign relative          P&G put on the Gillette brand was 17 percent
weight to contributing factors. It also includes a         higher than its stock market value.
range of inputs such as analysts’ projections, com-            Although measuring the ultimate worth of a
panies’ financial reports, and Interbrand’s own            brand is still evolving as a discipline, what is firmly
qualitative and quantitative analysis.                     accepted is the importance of brands to business
    Millward Brown Optimor first launched its list          performance the world over. Creating a strong
of top 100 global brands in 2005, establishing a           brand is an even more complicated task than valu-
methodology based purely on market data that               ing one, and it is never actually complete. The
looks both at financials (a brand’s reported earn-          stronger the foundation, however, the more chance
ings and assets) and the results of surveys that           there is that all the “scraps and straws” that con-
assess consumers’ perceptions of the brands versus         sumers pick up along the way will accumulate into
their competition.                                         strong preference and long-term affinity for a
    Another approach, used by U.K. consultancy             brand.
Brand Finance, aims to forecast the top 500 global
brands and focuses its reporting on a number that          BRANDING—INTERNAT IONAL
is said to signify future brand earnings.                  by Fleishman-Hillard
    Unsurprisingly, there are differences in these rank-
ings. In 2008, Interbrand identified Coca-Cola, IBM,        Seems unusual that change associated with market-
Microsoft, GE, Nokia, Toyota, Intel, McDonald’s, Dis-      ing and communication—where “new” is so valu-
ney, and Google in its top 10. Millward Brown Opti-        able—has not affected the longevity or importance
mor’s BrandZ included Google, GE, Microsoft,               of branding. In fact, it grows in application and
Coca-Cola, China Mobile, IBM, Apple, McDonald’s,           influence.
Nokia, and Marlboro. Brand Finance selected Coca-             It is a testimony to the basic concept of branding
Cola, Microsoft, Google, Walmart, IBM, GE, HSBC,           that it has held up over the years to varied interpre-
HP, Nokia, and Citi. More significant, as well as dif-      tations by so many experts. Whether a brand is
fering top 10 lists, the single-number evaluations of      described by its platform, foundation, pillar, core,
brand worth also diverge considerably. For example,        essence, or personality, branding will continue
in the 2008 studies, Millward Brown Optimor sug-           despite the rapidly changing environment in which
gested that the Google brand is worth more than            the concept functions.
three times what Interbrand reported ($86.057 bil-            The order and organization that branding pro-
lion versus $25.590 billion).                              vides are more important now than ever. Marketers
    Clearly, brand valuation scores are not as defin-       recognized the opportunity (or need) to broaden
itive as other measures of financial performance,          the target audience for products and services
but the better models going forward will be those          around the world so a disciplined tool became

                                                                                                   BRANDING         77
     necessary. It is important to understand two criti-    process has gone from local to national to multina-
     cal and interrelated international dynamics that       tional, then global, and now, because of social
     influence the art and science of your branding         media, to personal. A branding process must drive
     process: one is geographical understanding and the     the development of brand strategies that impact
     other is technology.                                   performance: sales, employee productivity, and
         As the world grew flatter and consumers in loca-    shareholder satisfaction.
     tions around the world were more frequently
     exposed to the brand, the need for a global brand      Phase One Is Discovery
     strategy became obvious. Since product names, for-
                                                            It is simply finding everything you need to know.
     mulations, packaging, and marketing were modi-
                                                            At least, know what you don’t know. With a global
     fied for local idiosyncrasies of key stakeholders—
                                                            marketplace, it can take time, talent, and
     especially consumers—country by country, the
                                                            resources. Getting it right pays off. You must learn
     transfer of recognition and loyalty was challenged.
                                                            about the targeted stakeholders, both qualitatively
     Everything about the brand’s relevance would liter-
                                                            and quantitatively, what is relevant to them, cur-
     ally need to be translated to different cultures and
                                                            rent attitudes, and all about the competition. It is
                                                            important to develop key sources of information
         The second dynamic, technology, can help to
                                                            that help determine the emotional triggers that
     develop successful brands. Touch, smell, sound,
                                                            lead to advocacy. Sometimes, it seems the varia-
     visual symbols, memories, emotions, and so on,
                                                            tions are infinite as you factor in all audiences in
     all still guide product and package design, adver-
                                                            all places around the world. However, occasion-
     tising, public relations, and merchandising. But
                                                            ally, a brand attribute resonates in the same way
     technology is changing that; now everything is
                                                            through the same vehicles everyplace, just the lan-
     global, instant, and online. Marketers are learning
                                                            guage is different. The outcome of this phase is a
     that the more interactions with a brand, the faster
                                                            clear foundation for the brand. All the informa-
     and more intense the affinity. The global brand-
                                                            tion is synthesized into manageable statements. A
     ing process embraces the new technology as it
                                                            brand position forms the basis for all the further
     provides new ways to analyze and connect to the
                                                            work. Since the brand has to be relevant for the
     target audience that is faster, broader, and less
                                                            audiences to allow it into their world, you must
                                                            get this right.
         The key tools of a global branding process
     include common vocabulary; an action plan with
                                                            Phase Two Is Translate
     goals, responsibilities, deliverables, deadline, and
     budget; consistent information to allow compar-        Now the verbal and visual elements of the brand
     isons; empowered team with a leader; priorities        are developed based on the position. A structure is
     (especially objectives) outlined; exchange of infor-   developed to manage the brand in all its environ-
     mation that results in next steps; universally         ments with all its audiences. Call it the “brand
     accepted messages; internal buy-in; roll-out strat-    architecture.” Included is messaging, logo develop-
     egy; programs that appeal to the target audiences      ment, guidelines, and toolkits for implementation.
     delivered by media they use (not just “see”); and      Testing is key. You have to resolve legal, cultural,
     evaluating outcomes.                                   and language issues. Your defined direction must
         The branding process typically follows a four-     be received as desired by key stakeholders. The best
     phased approach. It is regularly modified to accom-     way to find out is to show and tell. Be prepared for
     modate the ever-changing environment in which          the compromises required when input from
     companies, their products/services, and the key        around the world is processed. How far from the
     audiences must operate to be successful. The           language, colors, design, or tagline must you go in

certain places and still be true to the desired posi-   feedback—not all have to be costly or time-con-
tion? The outcome is an overall communications          suming. Certain geographies may be more impor-
system. It is the road map for the elements basic to    tant or sensitive; therefore, they deserve more
the global brand initiative.                            comprehensive research. Ideally, you have access to
                                                        tools that allow you to quantify the value of your
Phase Three Is Execute                                  brand. There is no better way to generate support.
                                                        Everyone appreciates seeing that value increase as
Based on the business and communications objec-
                                                        the elements are executed in more places and ways.
tives, you now develop an overall plan. Objectives
                                                        The outcome here is proof that your planning paid
are quantified; key audiences are identified; strate-
                                                        off. You base your future planning on real data that
gies are outlined; creative program elements are
                                                        makes the program all the more valuable.
prioritized; budgets and timelines are set. The plan
                                                           The white paper The Authentic Enterprise sum-
must ensure that authority and responsibility are
                                                        marized the challenge of the current environment:
factored against the dynamic of central and/or local
                                                        “The converging forces of technology, global inte-
control. Each interaction must be reinforcing. The
                                                        gration, multiplying stakeholders and the result-
outcome is an effective and efficient delivery of
                                                        ing greater need for transparency are the most
actions that indicates the planning paid off. The
                                                        important communications challenges facing 21st
inevitable need for modifications for optimum
                                                        century companies.”23 All can be managed confi-
results is part of the plan.
                                                        dently and leveraged successfully with a commit-
                                                        ment to a global branding system. In fact, because
Phase Four Is Evaluation
                                                        a branding process leverages geography and tech-
The plan must include measurement protocols in          nology, the borderless marketplace, and credible
order to prove you have met or exceeded the met-        opinions expressed instantly by stakeholders, it is
rics outlined. If not, explain why and what you are     impossible to hide a strong brand. Why would you
doing about it. There are a variety of ways to seek     want to?


  by Under Armour
  Company: Under Armour
  Case:    Company Start-up

  Brand Philosophy
  We always say that we treat the Under Armour Brand like a book. Every chapter must carry on the
  story from the one before it and set up the next chapter to advance the story further. If you follow
  the story line, and do not skip pages or chapters, you take your loyal brand fanatics on a journey
  with you as you evolve and as they grow as well.
     In theory, it all sounds easy enough, but building a brand and meeting the growth goals set forth
  by a red hot, publicly held company do not always mesh with the brand goals of staying true to the
  core consumer and the niche that established the company in the first place.
     First, there is the challenge of competition. Once the niche brand is strong enough, and decides
  to expand, the larger mainstream corporations take notice. Sometimes for Under Armour, flying

                                                                                               BRANDING        79
     under the radar was its best asset in the early days. But in the world of sports, where billion-dollar
     marketing budgets are the norm and even mediocre athletes can demand million-dollar endorse-
     ment deals, it does not bode well for a brand like Under Armour. We take great pride in providing
     apparel and footwear that athletes choose to wear for the benefits the garments provide during
     competition, not because there is a check coming to them in the mail. And lastly, there is the price
     at retail. If a brand like Under Armour that makes its product with the very best microfiber, mois-
     ture-wicking products never dilutes itself with nonperformance products, how do we succeed when
     other companies go cheaper on fabrics and sell at a discount or even a loss just to try to gain mar-
     ket share?
        The answer to all these scenarios was the same. We blew up the old marketing model; we refused
     to pay athletes for the “honor” to have them wear our gear, and to this day we have never, ever com-
     promised our brand integrity by making anything less than the very best performance apparel and
     footwear in the world. Simple answers, but the execution was not (and is not) always easy. But then
     again, building a brand takes time. And hard decisions. And great timing.

     How the Brand Started
     Kevin Plank, a 23-year-old former special teams captain on the University of Maryland football
     team, founded Under Armour in 1996 by solving one simple problem for athletes. Why do
     we accept wearing a heavy, sweat-soaked cotton T-shirt beneath our uniforms. Isn’t there some-
     thing better?
        Through his testing done at major textile universities, he did discover that microfiber and fabric
     blends could be put together, as in biking shorts, to create a mixture of compression, stretch, and,
     most importantly, a silky, hydrophilic texture that would refuse to absorb sweat or other moisture.
     Where some players could weigh a sweat-soaked T-shirt at 2 to 3 pounds near the end of the game,
     an Under Armour prototype weighed mere ounces.
        So using credit card advances to make 50 prototypes, Plank set up shop in the basement of his
     grandmother’s townhouse in Washington, D.C., and sold them from locker room to locker room
     out of the back of his beat-up Ford Bronco.

     Branding Rationale
     The strength of a brand can be measured by the fact that its name defines the entire category or
     becomes synonymous with the entire category, such as Band-Aid, iPod, Coke, Kleenex, Under
     Armour. In fact, many sporting goods retailers still label the entire section of performance apparel
     and base layer “Under Armour.” While market share in performance apparel for UA is still well over
     80 percent, the telling sign for strength of a brand is hearing straight from the retail store sales asso-
     ciates who work on the floor. “No one asks for the ‘moisture wicking compression shirts’; they say,
     ‘Where’s your Under Armour?’”
        Typically, a company has to be The First or The Biggest to gain the status as the brand that defines
     the category. However, being first is often enough power to capture the market only for the time
     being, and being big does not always mean you can buy your way into consumers’ hearts either. When
     Under Armour launched its first commercial campaign, WE MUST PROTECT THIS HOUSE, it was

not only the tagline, but the rallying cry. We said nothing about the technology in the gear and did
not even show a field or a ball. We had two simple goals. Establish Under Armour as the creator of
the performance apparel category, and, secondly, create a tagline that athletes could replicate in their
own world of sports, something that would take off long after the 30-second ad was over.
   So, while Under Armour did create the Performance Apparel category, we had a three-pronged
strategy to build the brand: (1) We started by seeding the product to the right influencers, the best
athletes in the world. (2) We made sure our story was told clearly and succinctly online and in stores.
(3) We built our brand not on the great looks of our T-shirts and mock turtlenecks but on the plat-
form of performance.

Getting the Influencers
For Under Armour that meant getting it to the right players, the highly visible players, the best ath-
letes in the world who showed up on televised games every Saturday and Sunday and on ESPN
SportsCenter highlights every day and night. Not having any capital to follow suit of the big sports
companies and pay athletes for endorsement deals, Plank relied on his network of friends who had
gone on from college to play professionally in the National Football League (NFL) or Major League
Baseball (MLB).
   He also had those 50 high-tech Under Armour HeatGear prototype T-shirts, which he sent out
to some of those former teammates, including the likes of prep school buddy and Heisman trophy
winner Eddie George. Plank’s only request was to put the shirts through the pro rigors and give
some feedback.
   To a man, each player asked for more of the silky, stretchy tight T-shirts. Many of the players
asked for extras to hand out to their teammates who wanted to try the Under Armour Advantage.
The other added benefit was that Under Armour shirts were so distinctive in their appearance,
almost like superhero costumes, one athlete remarked. The tight long sleeves could be seen on tel-
evision, the UA logo on the mock turtleneck poked above the jersey sometimes, and the large Under
Armour chest logo was easily seen in the locker room. In fact, the original logo on the shirt was
larger and raised higher on the chest, almost to the shoulder, so that it would get more exposure on
postgame interviews.
   The influencer role played heavily here since Under Armour could not be purchased in every
sporting goods store yet, and having the UA logo meant you were authentic, a real player. Word of
mouth spread from athlete to athlete. A problem they did not even know they had was now solved
by a single layer underneath their pads. Plus they looked great in the muscle-enhancing shirts. So as
long as players continued to wear those crazy new shirts on televised games, and as long as equip-
ment managers would provide them for their top pro and collegiate teams, the influencers, then
every other athlete around the globe, would know that if Under Armour could make the best run-
ning back in the world a little bit better, then it sure could help their game.

Telling the Story
We shaped the technology story not around what it did or how it did it, but focused marketing on
what it would mean for an athlete’s game. Imagine a T-shirt that keeps you cool (or warm), dry, and


                                                                                             BRANDING        81
     two-to-three pounds lighter throughout the course of a game or workout. Now recall the alternative
     from the not-so-distant past, pre-Under Armour: a sweat-soaked cotton T-shirt and the equivalent
     of a two-pound weight bouncing around your neck.
         In the world of sports, where a fraction of a second or one inch can mean the difference between
     winning and losing, it is not hard to understand why athletes—men and women, boys and girls—
     go out of their way to purchase Under Armour even if it costs four or five times more than its regu-
     lar, heavier cotton alternative.

     Building the Platform
     The turning point for the brand came early on four years into business. We took the hard stance that
     we could not put our logo on anything that was not best in class—even trade show promotions and
     monogrammed golf balls for our annual golf tournaments. These cotton items and trinkets used at
     store openings and even sold online contradicted our platform of performance, even though they rep-
     resented our biggest and easiest logo exposure.
        Much like a simple red cross represents first aid in almost any language, we decided the inter-
     locking UA logo that had become so hot in sporting goods was now the Universal Guarantee of Per-
     formance. Product would never again be built around the logo; the product would have to be good
     enough to earn it! That way, whether it was a new UA bag, a hat, or launching Under Armour
     footwear, athletes would know that if it had a UA logo, the Universal Guarantee of Performance
     (UGOP) was built in. And because of strict adherence to the UGOP, the question now, for
     any new Under Armour product, be it a padded hockey shirt, a football cleat, or a running
     shoe, will always be “What does it do?” The answer in broadest terms is “It’s Under Armour; it
     makes you better.”

     Branding Philosophy Conclusion
     If the product does not do what the advertising says it will, then the marketing is merely smoke and
     mirrors. The brand loyalty is built through delivering a promise. The performance on the field is the
     real reason why athletes choose to wear Under Armour. It is also why Under Armour, the brand
     known for its high-powered, intense commercials, will always be relied on to keep athletes cool, dry,
     light, and, at the very least, a step or two faster.
         Still, the consumers need to know. And as easy as it is for another brand to outspend Under
     Armour in marketing, they cannot buy the brand equity. The brand is the loyalty we have established
     by making great products that make you better (the UGOP). The brand is the connection we have
     with athletes, so that when the athletes in our commercials scream “We Must Protect This House!”,
     the athletes who see that advertising take it back to their field, their game, their teams, and make it
     their own.
         Under Armour went from $17,000 in sales that first year to more than $700 million in 2008 as the
     hottest brand in sports. The brand is a story, and while the temptation is always there to skip to the
     later chapters, we have many, many pages to write before the story is finished.


Company: HOLT CAT
Case:    Company Rebranding with Values-Based Leadership

When Peter Holt took over HOLT CAT as CEO in the 1980s, he found a company that was unclear
about its identity, which resulted in poor communications among management, employees, and cus-
tomers. This lack of communication brought about mistrust, attrition, lack of focus, low morale,
low productivity, and low sales. HOLT CAT was experiencing growing pains. At the same time, the
petroleum and construction industries in Texas were in the middle of their downward spiral, and
both industries were very important to the business of HOLT CAT. As a result, Holt’s employees were
depressed and pointing fingers at each other. Holt said, “I felt that the company and I needed a rev-
olutionary approach in the way we operated.” The challenge was to convey a corporate belief to cus-
tomers and employees alike.
   Through a process of exploring personal and organizational values, Peter Holt developed a vision of
a company driven by what it values, not driven solely by bottom-line results. He wanted a company
where employees wake up in the morning, eagerly come to work, and truly believe in the important con-
tribution that they, and the company’s products and services, provide to customers and the community.
   Peter Holt evaluated his company to determine how to reenergize the company and revolution-
ize a values-based leadership approach in his business. Then, beginning in 1988, HOLT CAT adopted
a new method of operating. Holt quit its “how much” and “how many” management style and began
to operate on the basis of “shared company values.”
   HOLT CAT reflected a philosophy that values-based leadership and development are an ongoing
journey, not a quick-fix program. The process of determining shared company values at HOLT CAT
started by a rigorous discussion and selection of a set of core values that would be used to direct and
drive key decisions. This process took several months for HOLT CAT to complete and eventually
became known as Holt’s Values-Based Leadership© program (also known as VBL). In the case of
HOLT CAT, five core values were identified and prioritized. They include:
   •   Ethical. Doing the right thing
   •   Success. Consistently achieving targeted goals
   •   Excellence. Continually getting better
   •   Commitment. Being here to stay
   •   Dynamic. Pursuing strategic opportunities
   Ethical is the first of the five stated values, and it comes before success. It means doing the right
thing, being honest, showing integrity, being consistent, and being fair. This value, along with the oth-
ers, defines the culture of HOLT CAT and guides individual and organizational actions. Putting “eth-
ical” as the first core value was a very conscious decision. The spirit of the core values is captured in
HOLT CAT’s Vision Statement that reads:

   We manage by our business values to provide a safe, productive, fulfilling work environment for
   employees, legendary service for customers, enhanced value for shareholders, and mutually bene-
   ficial outcomes for all stakeholders.

                                                                                              BRANDING        83
        Peter Holt sees the CEO’s role as one of “steward and guardian” of HOLT CAT’s values. He mon-
     itors the values-development process, checking constantly to see that both his and the companies’
     actions are in alignment with the values. Holt also developed several supporting processes and train-
     ing programs that were put in place to monitor and measure alignment with the stated values. HOLT
     CAT also established an ongoing and systematic evaluation system to identify gaps between what is
     said and what is done.
        HOLT CAT’s growth and success since 1988 has been phenomenal. The employee base has grown,
     turnover has declined, and customer satisfaction has increased. Sales and profits have increased
     substantially as the company grew beyond the $1 billion mark. Today, HOLT CAT is the largest
     Caterpillar dealer in North America. A spirit of shared responsibility and collaboration has accom-
     panied these very tangible results. Peter Holt attributes these successes to the Holt Values-Based
     Leadership process.
        Holt’s unique brand of leadership has led it to influence many other companies. In 1994, Holt
     Development Services, Inc. (HDSI) was formed to share Holt’s model, and success, with other organ-
     izations. They offer organizational and leadership development facilitation and products to organi-
     zations throughout North America, and have helped many begin their own values journey.


     by Paramount Pictures
     Company: Paramount Pictures
     Case:    Rebranding The First Wives Club for the International Market

     On Friday, September 20, 1996, Paramount Pictures released The First Wives Club, a $40 million
     romantic comedy starring Goldie Hawn, Diane Keaton, and Bette Midler. By the following Monday
     morning, the film had grossed $20.1 million, landing it firmly atop the weekend box office chart and
     setting the all-time record (up until then) for any September or October opening. From there, the
     film quickly went on to gross over $100 million in North America, a rare accomplishment. The stu-
     dio had the makings of a major hit in the domestic market and quickly needed to decide whether to
     roll out the film internationally, and if so, how.
        A classic comedy, The First Wives Club is the story of three college girlfriends reunited some 20 years
     later in the midst of strikingly similar mid-life crises. Having lost touch after graduation, each of them
     went on to marry seemingly decent men who all turned out to be of loathsome and failing character. As
     the three women reunite, it emerges that all three have been divorced in favor of younger trophy wives.
        The film features a distinguished cast of three award-winning actresses in the starring roles: Bette
     Midler (Oscar nominations for The Rose and For the Boys); Diane Keaton (Academy Award for her
     role in Annie Hall); and Goldie Hawn (Academy Award for her role in Cactus Flower).
        The domestic marketing campaign drew heavily on the star appeal of the cast. The poster art promi-
     nently featured all three women, seated triumphantly with legs crossed and their hands clutching

champagne flutes and cigars. Marketing efforts trained the public’s attention on the hilarity of three
down-and-out wives getting back at their rich husbands, a theme captured in the movie’s tagline (spo-
ken by Ivana Trump in the movie): “Don’t get mad. Get everything.”

International Film Potential
It is commonplace today to believe that foreign markets represent a kind of rich bonus which is auto-
matically allocated to films that have proved themselves in the United States. However, this is hardly
the case. Clueless, which did extremely well in the United States and even spawned a successful spin-
off series on television, earned less than half its domestic box office in foreign release. Howard Stern’s
Private Parts and Beavis and Butt-Head Do America were solid hits in the United States, but did not
perform well overseas. Generally speaking, very few U.S. films do as well abroad as they do at home.
The films that do well internationally tend to do so for two main reasons: big stars or big action.
    However, data from 1996–1998, showed that foreign revenues began to exceed domestic revenues.
For example, the breakout success of the film Titanic, which was released in late 1997, earned
$1.2 billion overseas, twice its domestic box office. Movie studios live from the profits of their hit
films. This is why Paramount had no choice but to release First Wives internationally.

International Film Issues
Whereas foreign revenues fluctuated relative to the domestic box office in the era preceding First
Wives, the costs of releasing a film internationally continued to steadily increase. Today it is not
uncommon for the international release of a film to cost $25 million (promotional costs). Unlike
traditional consumer products that can be test-marketed, recalled, altered, postponed, or “strategi-
cally deployed,” releasing a movie is basically an all-or-nothing proposition.
    Given the considerable expense of international release, films that fail commercially in the domes-
tic market are rarely released internationally. In the case of First Wives, Paramount had a success.
However, it also had a comedy with all-female stars, which typically fell into a statistical category of
motion pictures that have little significance. With the exception of action films, there is little consis-
tency in the ratio of foreign box office to domestic box office in other genres.
    Successful films were heavily skewed toward the action genre or star vehicles. For First Wives, a
well-executed marketing strategy would have to fill the breach. If anything can be said of all films, it
is this: until it opens, a film is largely what one tells the public it is. Empirically speaking, Gone with
the Wind was a drama set against the backdrop of racial oppression in the post-civil war South. Of
course no one thinks of it as such, because the film was advertised to the public as an epic romance.

Marketing Strategies
For Paramount Pictures and the motion picture industry, undeniably Bette, Goldie, and Diane are
major stars. What the international marketing department was really concerned about was: Could
the film be promoted abroad as a star vehicle or could the U.S. cultural experience of this film be repli-
cated elsewhere?
   Up to this point, the successful films that had dealt with the subject matter of divorce had mostly
treated the topic dramatically (Kramer vs. Kramer, The Goodbye Girl, Ordinary People). America
instantly liked First Wives, but would the rest of the world really laugh as hard as America had?


                                                                                              BRANDING         85
        How would the film play, for instance, in such major territories as:
        •   France, where few men choose divorce when they can simply take a mistress
        •   Japan, where although divorce is technically an option, it is scarcely a topic for discussion
        •   Korea, where marriages are still arranged
        •   Predominantly Catholic nations of Latin America where, if it is more commonplace than it is
            in Asia, divorce is nonetheless nothing to be made light of
         Paramount decided on a wide international release for First Wives. Within two months of open-
     ing in the United States, First Wives debuted in the next-largest territories: the United Kingdom and
     Germany, followed in rapid succession by France, Spain, Italy, and Japan.
         Each time a studio releases a film abroad, numerous focus groups and test screenings are instituted
     in order to gauge viewer reaction and develop a sense for how the film should be positioned in a
     particular market. One of the chief benefits of this additional research is its ability to suggest an effec-
     tive pattern for allocating marketing dollars to radio, television, or print advertising.
         Despite the fact that, in the case of First Wives, international prerelease research largely confirmed trends
     witnessed in North America, the international marketing campaign was hardly a clone of the North Amer-
     ican campaign. While it preserved some of the core features of the domestic release, the foreign campaign
     was varied and regionalized in a way that is not typically part of marketing a movie at home.
         It also is important to realize that film marketers, particularly the international team, do not have
     carte blanche to dream up an entirely new campaign, as this would be prohibitively expensive.
     Domestic campaigns for major releases are now averaging almost $30 million, a fact that forces a
     certain amount of budgetary discipline on international marketers and compels them to incorporate
     as much of what has already been paid for as they possibly can. In the case of First Wives, the key
     poster art with the champagne and the cigars had to be changed for regulatory reasons, given that
     outdoor alcohol and tobacco advertising are severely restricted outside the United States. The tagline,
     on the other hand, was changed only out of creative necessity. In Germany, the title of the film
     was Club der Teufelinnen (“The She-Devils’ Club”) and the tagline, “Jede Scheidung hat ihren Preis”
     literally means “every divorce has its price.”
         Five general principles applied to the marketing of First Wives:
        1. The film’s success in the United States became a marketing instrument in itself. Publicists
           could more easily entice journalists to cover the film, and advertisements were able to invite
           audiences to “come see the film that took America by storm.”
        2. Marketers tended to rebrand the film as “a classic tale of revenge” rather than focusing on the
           more specific (and trickier) notion of divorce. Some campaigns directly catered to a “soak-the-
           rich” or similarly motivated revenge instinct and would, for instance, ask radio listeners or
           newspaper readers to share any personal experiences related to the movie’s theme. This
           approach proved highly successful in building awareness about the picture. Radio stations in
           particular welcomed the promotion as a chance to build their own audiences. Similarly, tele-
           vision news magazines would do spin-off stories based on women who called in with similar
           experiences or related, interesting stories.
        3. Managers carefully rebranded First Wives as the comedy alternative in a field of action films and
           dramas. Because First Wives’ international release placed the film in a crowded field (which was
           not the case during the U.S. run), foreign marketers were forced to clearly differentiate the

     film from the moment they brought it to the public’s attention. For example, in cutting film
     trailers down to 20- and 30-second television commercials, editors selected the best liked
     moments of physical humor in the film.
  4. Media buying targeted women primarily, in the belief they would drag the men with them. They
     did. Numerous promotional efforts created awareness among the core demographic: beauty
     salon giveaways and luxury spa weekends in connection with radio call-in contests; in Spain,
     marketers teamed up with Moschino accessories and Gianni Versace toiletries; in Korea, they
     partnered with Toblerone chocolates. Despite the fact that promotional efforts were exclusively
     focused on women, exit polls consistently showed audiences to be evenly mixed, male to female.
  5. The number of advance screenings was significantly increased in an effort to build word-of-
     mouth. If hype is the most expensive way to open a film, word-of-mouth is the cheapest way
     to sustain one. Screening polls showed that nearly all women who enjoyed the film also liked
     it enough to actively recommend it to a friend. In many countries, special screenings were
     added for influential women, such as in Hungary, where 200 female VIPs attended; in Poland,
     celebrity divorcées were invited to a special gala opening.
   On a territory-by-territory basis, campaigns naturally diverged in interesting ways. Brazil actually
already had its own club of divorcées and was able to benefit accordingly. Prerelease interest in the
film was so strong in other countries that it actually led to a First Wives’ Club being founded, and in
Hungary, actor Sandor Friderikusz even called for the creation of the First Husbands’ Club.

The film completed its international theatrical run on July 4, with a total of approximately $82 mil-
lion in receipts, one of the best titles in foreign release for all of 1996.


by Landor Associates
Company: BP
Case:    Delivering the Brand Promise

The BP story is one of the most famous corporate brand transformations in recent memory. It began
with a clear vision from a strong leader, Lord John Browne, who wanted to forge a new kind of com-
pany from the merger of several well-established brands, chief among them British Petroleum,
Amoco, Castrol, and bits and pieces of major oil and gas companies such as Mobil and Arco. Like all
good visions, it was a serious stretch for the organization. Lord Browne and his team did not set out
to be merely one of the best petroleum companies in the world; they wanted BP to be one of the
best companies in the world, period.
   This meant redefining itself from being primarily a refiner of hydrocarbons to a provider of com-
plete energy solutions. It also meant evolving from a British corporation to becoming a diverse global


                                                                                            BRANDING        87
     citizen organized around a clear brand idea and personality. With BP’s upstream and downstream
     markets spanning over 100 countries, the challenge was to find an idea that could resonate meaning-
     fully and credibly across multiple audiences while differentiating the brand from competitors.
     Through work with Ogilvy & Mather and Landor, the Beyond Petroleum brand idea became the
     mantra that championed both a vision and a promise for the future.
         The brand idea was expanded into a Brand Driver™ platform consisting of the core brand idea,
     articulated as a verbal brand driver and statement of relevant differentiation (essentially a brand
     promise); personality, expressed in terms of brand beliefs (performance, progressive, innovation,
     and green); and an added tool Landor calls a visual Brand Driver, which is a metaphorical set of
     images the creative and consulting team develops with the client to help bridge the brand idea and
     the visual identity.
         From the Brand Driver platform came the Helios logo and other aspects of the visual identity
     symbolizing energy and environmental sensitivity. The logo in particular became an external repre-
     sentation of the brand idea and a powerful internal symbol. But the real transformation came from
     the inside. The branding process involved creating a series of tools including Web sites, CDs, brand
     movies, newsletters, and all manner of company-branded items that emphasized not only the excite-
     ment of the new visual identity but, more importantly, the idea behind it. Indeed it was the story of
     the brand and its promise that BP focused on telling.
         Brand champion workshops were organized to train trainers, generating ownership among indi-
     viduals within the company who then evangelized the mission to others. In all, more than 1,400
     brand champions were trained in 19 countries over the initial two months following the launch in
     July 2000. This was viral marketing at its best: from the inside. The impact was also measured, reveal-
     ing that by the ninth month postlaunch, 97 percent of all BP employees were aware of the Beyond
     Petroleum brand idea and new identity.
         Awareness and action, of course, are two different things. BP leadership knew that to engage the
     hearts and minds of employees over the long term, the brand transformation would have to be about
     more than flag waving. The result, among other initiatives, was the creation of the Helios awards. This
     annual program honors those employees who have contributed to the company and their respective
     communities through actions judged to be on-brand: performance, progressive, innovation, and
     green. In this way, leadership communicates that Beyond Petroleum is to be a way of life at BP, not a
     transient tagline.
         Of course, it is all well and good to get the foundations in place, but, in the end, deeds count for
     more than words. BP chose its initial actions carefully. Early on, it committed publicly to reducing
     greenhouse emissions 10 percent by 2010, the equivalent of taking 18 million cars off the road. It ini-
     tiated partnerships with leading auto manufacturers in the pursuit of more efficient engines and
     practical alternative fuels. BP quickly became one of the world’s largest producers of solar panels
     and solar power, and the second-largest provider of natural gas. In the summer of 2005, the company
     announced an $8 billion investment in alternative energy.
         These were among the many clear indicators that BP was committed to: achieving its goal of tak-
     ing the promise of Beyond Petroleum seriously and becoming one of the world’s greatest companies.
     But did this have any impact on the bottom line? That, too, was impressive. Retail sales at conven-
     ience stores increased 23 percent within one year of the rebranding effort.24 Overall sales, and sales
     of lubricants and fuels, increased steadily between 5 and 10 percent above market growth through

   2004. Profits were exceptional at $91.3 billion in 2005, enabling BP to fund new initiatives to drive
   its business.
       These actions have been well noted by the public and press. Fortune magazine consistently ranks
   BP a Most Admired Company and as one of the 10 most improved brands in terms of brand equity
   value. Indeed, if we apply BAV metrics and Stern Stewart’s Economic Value Added analytics, BP’s
   brand assets alone were quantified as having increased by more than $7 billion between 2001 and
   2005 while competitors declined in value.25 In the intervening years, economic, competitive, and
   professional ups and downs have plagued all companies of BP’s scale, but its brand continues to be
   regarded as one of the most respected and progressive in the world. And no other company comes
   close to owning BP’s green positioning in its industry.
       BP is still clearly committed to keeping and delivering its brand idea. As Lord Browne himself said:
   “In a global marketplace, branding is crucially important in attracting customers and business. It is
   not just a matter of a few gasoline stations or the logo on pole signs. It is about the identity of the com-
   pany and the values that underpin everything that you do and every relationship that you have.”26


FLEISHMAN-HILLARD                             Additional input by:                         Paramount Pictures. He was responsible
Fleishman-Hillard, one of the world’s         Larry Axeline.                               for worldwide acquisition, marketing,
leading public relations firms, specializes                                                 and distribution of feature films and
                                              LANDOR ASSOCIATES
in strategic communications that deliv-                                                    videos. Mr. Friedman was responsible for
                                              Landor Associates is one of the world’s
ers what clients value most: meaningful,                                                   the U.S. marketing of Titanic, the high-
                                              leading strategic brand consulting and
positive, and measurable impact on busi-                                                   est grossing film in history.
                                              design firms. Landor is part of WPP, one
ness performance. Visit Fleishman-
                                              of the world’s largest global communica-     Thomas B. McGrath
Hillard at
                                              tions services companies. Visit Landor at    Thomas McGrath was Executive Vice
Rich Jernstedt                                                    President, Viacom Entertainment Group,
Rich Jernstedt has a 40-year career in pub-   Sarah Wealleans                              which includes Paramount Pictures and
lic relations with a focus on brand and       Sarah Wealleans is consultant and former     Paramount Television. Mr. McGrath
reputation management. Mr. Jernstedt          senior client director with Landor Associ-   received his BA cum laude and his MBA
received his BA in journalism from the        ates, responsible for leading strategy       from Harvard.
University of Oregon. He is active in the     development and managing projects. Ms.
major public relations organizations.
                                                                                           David L. Molner
                                              Wealleans received her BA in modern          David Molner was Senior Vice President,
HOLT CAT                                      European history from the University of      Worldwide Corporate Business Develop-
Benjamin Holt invented the first practi-       Warwick and received her MA in Japan-        ment for Viacom Entertainment Group
cal track-type tractor in 1904 and gave it    ese studies from the University of London.   and was responsible for the expansion
the name Caterpillar. His firm, Holt          PARAMOUNT PICTURES                           and development of Paramount Pictures’
Manufacturing Company, merged with a          Paramount Pictures is one of the origi-      ancillary businesses including online
competitor in 1925 to form the Caterpil-      nal motion picture studios and is a lead-    ventures, multiplex cinemas, theme
lar Tractor Company. Visit HOLT CAT at        ing producer and distributor of feature      parks, licensing, merchandising, music                              films with more than 2,500 titles includ-     publishing, and television. Mr. Molner
                                              ing The Ten Commandments, The Godfa-         received his BA from Trinity College.
Dan Norris, CMCT
Dan Norris is the Director of Training        ther, and Titanic. Visit Paramount at
                                                                                           Additional input by:
for Holt Development Services, Inc., the
                                                                                           The authors would like to extend their
developmental training group of HOLT          Robert G. Friedman                           special thanks to Mr. Paul Oneile, chair-
CAT. Mr. Norris specializes in the science    Robert Friedman was Vice Chairman of         man of United International Pictures
of ethical influence.                          the Motion Picture Group and COO of          (UIP), and Ms. Joanna Johnson, Vice

                                                                                                                    BRANDING       89
     President of International Marketing in     moisture-wicking synthetic fabrications    public relations, marketing communica-
     the Paramount Pictures Motion Picture       are engineered in many different designs   tions, product integration, events, and
     Group, as well as the many field man-       and styles for wear in nearly every cli-   sponsorships. Mr. Battista and his team
     agers and executives at UIP who helped      mate. Visit Under Armour at www.under      serve as the “Voice of the Brand” to ensure
     put together this case study.                                     authenticity and find innovative ways to
                                                                                            tell the Under Armour story to millions of
     UNDER ARMOUR                                Stephen (Steve) J. Battista
                                                                                            athletes around the world. Mr. Battista
     Under Armour, founded in 1996, is a         Steve Battista, Senior Vice President of
                                                                                            received his BA from Towson University
     leading developer, marketer, and distrib-   Brand, oversees all aspects of domestic
                                                                                            in 1996 and received his MFA from Johns
     utor of branded performance apparel,        and international communications,
                                                                                            Hopkins University in 2000.
     footwear, and accessories. The brand’s      including brand marketing, advertising,

     NOTES                                                            11. Christopher Booker, The Seven Basic Plots: Why We
                                                                          Tell Stories. (London, UK: Continuum, 2006).
      1. McKinsey & Company, “Strike Up the Brands,”                  12. Rohit Bhargava, Personality Not Included. (New York:
      2. David Ogilvy,                          McGraw-Hill, 2008).
      3. Dictionary of Business and Management, Oxford                13. Mary Zalla, Packaging Design magazine, April 2009.
         University Press.                                            14.
      4. Walter Landor, founder of Landor Associates.                 15. Linda Tischler, Fast Company, December 19, 2007.
      5. Marty Neumeier, The Brand Gap.                               16. Reena Amos Dyes, Emirates Business, June 20, 2008.
      6. Allen Adamson, BrandSimple (New York: Palgrave               17. Ibid.
         Macmillan, 2007).                                            18. Linda Tischler, Fast Company, December 19, 2007.
      7. Steven Mallas, Motley Fool (May 7, 2004).                    19. Gerald Zaltman, How Customers Think. (Watertown,
      8. Scott Bedbury and Stephen Fenichell, A New Brand                 MA: Harvard Business Press, 2003)
         World: Eight Principles for Achieving Brand Leader-          20., October 2007.
         ship in the Twenty-First Century. (New York: Penguin         21. Jon Miller and David Muir, The Business of Brands.
         Putnam, 2003).                                               22. Ibid.
      9. “Insights into Customer Insights,” kellogg.north-            23. The Arthur Page Society.                                        24. Wall Street Journal, July 2002.
     10. Mark Earls, Welcome to the Creative Age, (Hoboken,           25. Al Ehrbar, Fortune magazine, October 31, 2005.
         NJ: Wiley, 2002).                                            26. Chicago Business Journal, April 3, 2000.

   5           RESEARCH

              by Colgate-Palmolive, Synovate, ACNielsen, and Sports
                           and Leisure Research Group

                       First get your facts; then you can distort them at your leisure.
                                                              Mark Twain, American Author, 1835–1910

THE ESSENT IALS OF MARKET ING                              Companies want to make marketing decisions
RESE ARCH                                              quickly in order to act decisively in the market-
by Colgate-Palmolive                                   place. Any time spent researching an issue is time
                                                       that might be lost in generating sales and profits.
                                                       Whenever marketing research is commissioned,
                                                       companies must weigh the benefits of gaining spe-
Marketing research is the element of marketing that    cific information against the costs of the research
provides information about current and potential       and the time required to obtain useful answers.
customers to management in order to reduce uncer-      Occasionally, marketing research will be unable to
tainty and improve the quality of management’s         provide exactly the kind of information needed
decision making and marketing planning. The needs      within a reasonable timetable or budget.
of individual consumers and many organizations are         Marketing research may be unnecessary if a
often extremely diverse. Marketing research can help   company already knows its target market well. For
identify groups of customers who are homogeneous       example, many small personal service organiza-
in some respects. By understanding and quantifying     tions, such as lawyers, accountants, and child-care
the nature and magnitude of these distinct groups      workers, have exceptionally close relationships with
and their needs, marketers can take advantage of       relatively few clients and are able to understand,
unique and profitable marketing opportunities.          anticipate, adjust, and respond to their client base.
    Marketing research gives companies insights        However, as the number of customers gets larger—
into the influences of market demand and allows         many companies manage brands with millions of
companies to see how well their products or ser-       international customers—the organization’s abil-
vices compare with the competition. It identifies      ity to know its customers diminishes, and there is a
which segments of the market to target, how to best    need for marketing research.
reach and communicate with these targets, and              For example, Nike is an effective user of market-
how to design and price products or services to        ing research. During the decade of the 1980s,
meet the needs of these target customers. Marketers    America was characterized by a profound interest
who understand and anticipate customers’ needs         in health and fitness. Running shoes and sports
will often outperform their competition.               clothing became the hottest-selling apparel. Yet by

                                                                                   MARKETING RESEARCH      91
     the mid–1980s, marketing research indicated that         T YPES OF FIRMS
     the momentum behind the hard-body craze was
                                                              The marketing research industry includes the follow-
     beginning to shift. The fastest growing outdoor
                                                              ing separate, yet interlocking, entities: advertisers/
     activity was gardening, not exactly a high-energy
                                                              marketing organizations, marketing communica-
     sport. Nike listened to marketing research and was
                                                              tions agencies, and marketing research companies/
     able to anticipate changing customer needs. They
     introduced a broad array of walking shoes and
     shoes targeted to specific sports beyond jogging. As
     a result, Nike was able to achieve a larger share of     Advertisers/Marketing Organizations
     the footwear market in the 1990s.                        All organizations need information concerning
        Marketers drive innovation, introduce prod-           their customers, markets, and competition. Organi-
     ucts, and make brands grow. Often marketers are          zations that use marketing research services are
     the only people in the organization who have a           manufacturers of products, suppliers of services,
     clear vision of what a brand can or should be.           and government agencies.
     However, marketers may risk becoming overly                 A typical marketing research project begins with
     convinced by their own advocacy. Research pro-           a marketer who has a need for information about a
     vides an important check to this natural optimism.       problem or opportunity. The corporate marketing
     Research often is used as an objective control or        research manager has responsibility for identifying
     audit mechanism against which marketers can              an appropriate research response to the information
     gauge progress or success.                               need or problem. He or she may contact a research
                                                              institute or an agency to discuss alternative solutions.
     Definition                                                A research institute may employ a project director to
                                                              design the research approach, manage a research
     Marketing research is the element that links the
                                                              project, analyze the results, and present them to the
     customer to the marketer through information
                                                              marketer. The project director will have professional
     used to identify and define marketing opportuni-
                                                              support in the form of sampling statisticians, field
     ties and problems; generate, refine, and evaluate
                                                              interviewers, data processing professionals, database
     marketing actions; and monitor marketing per-
                                                              analysts, statistical analysts, production/printing
     formance. Marketing research involves problem
                                                              experts, and graphics specialists.
     definition, research design, sampling methodol-
     ogy definition, data collection, data analysis, sta-
     tistical inferences, and reporting of results that aid   Marketing Communications Agencies
     corporate marketing decisions in a way that makes        Promotional agencies, such as advertising, public
     it possible for the corporation to profitably act        relations, promotional marketing, and direct market-
     upon it.                                                 ing, share responsibility for effectively communicat-
                                                              ing marketing messages and producing advertising
                                                              and other promotional marketing materials. Agen-
          Marketing Research Links Customers
                                                              cies tend to focus much of their research spending on
                  and Organizations
                                                              communications effectiveness.

                                                              Marketing Research Companies/Institutes
      Organizations                       Customers
                                                              Most of the marketing research survey and analysis
                       Marketing information                  work is conducted by research institutes or their
                      Regarding needs/wants                   subcontractors. Research institutes include qualita-
                                                              tive research companies, syndicated quantitative

research companies, and custom marketing research         U.S. households. Through marketing research,
survey companies. Their subcontractors include            companies can better understand consumer behav-
field services that do interviewing work (personally,      ior, and structure their efforts toward fulfilling
or via mail, telephone, or Internet), data entry or       demand opportunities. For example, Disney used
keypunch shops that convert questionnaire infor-          to target their ads exclusively to kids; however, now
mation from paper form into machine-readable              they appeal to a much broader audience and spend
data, tab houses that do large-scale cross-tabulations    a significant percentage of their promotion budget
of data, and database modeling companies that pre-        targeting adults.
pare sample lists and develop predictive models.              Marketing research should consider general or
Consulting companies have become increasingly             macro market demand and consumer trends and
important generators of marketing research data.          integrate this with specific brand information.
   Research companies can provide syndicated or           Macro trends are the forces that influence consumer
nonsyndicated (custom) research.                          behavior at the broadest level. These trends may
                                                          lead to important implications for a company’s
  • Syndicated Research. A syndicated research
                                                          brands. Macro trends include economics, social
    service is one in which a research company splits
                                                          habits, values, lifestyles, demographics, and tech-
    the costs of the research by selling the same data
                                                          nology. These observations must be acted on and
    to multiple underwriters or clients. The largest
                                                          are not just theoretical or nice to know.
    amount of evaluative research spending is used
                                                              For example, because of the increase in women
    for syndicated research services. For example, a
                                                          going to work, in many households, kids and teens
    typical consumer packaged-goods company
                                                          started preparing meals as well as eating at separate
    may spend approximately 70 percent of their
                                                          times from other family members. This led to the
    annual marketing research budget on syndi-
                                                          development of high-quality convenience foods
    cated research. The advantage of syndicating is
                                                          because adults wanted convenient but satisfying
    that a data collection process that would be too
                                                          meals even if it meant paying a premium. The
    expensive for any one company can be offered at
                                                          result was a success for Stouffer’s and the birth of a
    a reasonable price to many underwriters. A dis-
                                                          major new product segment (high-quality frozen
    advantage is that all underwriters have access to
                                                          meals). Frozen pizza makers also caught on to this
    the same information.
                                                          trend and have enjoyed success.
  • Custom Research. Marketing research compa-
    nies also provide proprietary data. This research
    is very specific to the client’s products or ser-      Consumer Studies
    vices. The advantages are the ability to tailor the   It is important to know in specific detail what, why,
    questions to the company and specify the time         and how consumers use products. This kind of
    and locations of the research. The disadvantage       learning can lead to the identification of new con-
    is the additional cost.                               sumer segments with products specifically designed
                                                          to meet their needs. There are three main types of
RESE ARCH NEEDS                                           consumer studies: habits and practices, attitude and
                                                          usage, and equity studies.
In 1975, in the United States, the stereotypical con-
sumer target of most brands was a woman, 18 to            Habits and Practices
49 years old, with an average of 2.5 kids, in a high-     Habits and practices studies describe what con-
consumption household. However, the world is              sumers do, both reported and actual. For example,
becoming increasingly complex, and the traditional        a study may be conducted to determine how peo-
consumer target is changing. Today, this stereotyp-       ple brush their teeth. People differ in how long they
ical household represents less than 20 percent of         brush, although most overestimate the actual

                                                                                      MARKETING RESEARCH       93
     amount of time they brush when asked. It is impor-             How many consumers mainly seek therapeutic
     tant to know the actual time the average person                  benefits in a toothpaste: protection from cav-
     brushes because a company may need to reformu-                   ities, tartar, and gum problems?
     late a minty toothpaste flavor so that it will not             How many mainly seek cosmetic benefits: whiter
     burn within the average time period. The amount                  teeth and fresher breath?
     of time people brush also is critical for formulas             What brands do consumers use, and why?
     that fight cavities and other problems.
        Examples of habits and practices questions
                                                                                  Attitude and Usage
                                                                   Colgate found out through an attitude and usage study
       Do consumers rinse their brush before brushing?             that consumers wash hands in order to kill germs. The
       Do consumers brush their tongue?                            company acted on this information with the outcome
       Do consumers use cold water or hot water?                   being the antibacterial Hand and Dish Liquid, one of Col-
       Do consumers rinse with water or mouthwash                  gate’s biggest successes.
          after brushing?                                          Source             Information         Outcome
                                                                   Attitude and Usage Killing germs is #1 Palmolive
                                                                   Research           reason for washing Anti-Bacterial
                    Habits and Practices
                                                                                      hands.              Hand and
      M&M Mars found out through a habits and practices                                                   Dish Liquid
      study that consumers were putting their Snickers choco-
      late bars in the freezer, because it tastes good and pro-   Equity Studies
      vides a nice consistency. The company acted on this
                                                                  Equity studies seek to understand how consumers
      information with the outcome being the Snickers Ice
      Cream Bar.                                                  think and feel about a particular brand. These stud-
                                                                  ies seek to get at the attributes, characteristics, and
      Source               Information        Outcome
                                                                  personality of a brand and identify triggers and
      Habits and Practices Some consumers Snickers Ice
      Research             put chocolate bars Cream Bars          barriers to brand acceptance.
                           in freezer.
                                                                                     Equity Studies
     Attitude and Usage                                            Irish Spring discovered through an equity study that
     Attitude and usage studies describe why con-                  users and nonusers had very divergent feelings about
     sumers behave a certain way and why they make                 the brand. The company acted on this information with
     certain brand choices. Companies should study                 the outcome being a successful new ad campaign used
     attitudes separately because people do not always             to attract nonusers to the brand.
     do what they say. Behaviors cannot always be fully            Source     Information                        Outcome
     described: it may be too complex or there may be              Equity     Irish Spring user feels that the   Change in
     inaccurate memory. The only way to be sure of                 Research   soap means “Green, fresh,          advertising
                                                                              outdoors, and active.”
     getting the facts is by researchers observing con-
                                                                              Irish Spring nonuser feels
     sumers or by consumers filling out a diary right                         that the soap means “Harsh,
     after performing the task of interest. For example,                      masculine, too strong, and
     if everyone really flossed as often as they say they                     applies to heavy dirt.”
     do, the floss market would be about six times big-
     ger than it really is.                                          Consumer insight should influence product
         Examples of attitude and usage questions include:        development; technology alone should not be
       Which brands are consumers aware of?                       the motivating force of a company’s marketing
       Why do consumers use certain brands?                       activity. Unfortunately, sometimes companies try

to promote new products that the consumer does           their customers. It can be simple and expensive,
not really want.                                         such as when Honda Motor Company sends its
   For example, Colgate Gum Protection was a             senior Japanese marketing executives to different
technology-driven product that promoted supe-            export market countries to keep in touch with their
rior gum-protection benefits; however, it was a          dealers and customers. It also can be highly com-
sales disappointment, selling only $35 million a         plex and expensive. For example, Yankelovich Part-
year. Consumers who saw themselves needing               ners recently conducted a $1.8 million study of
gum protection were a small group of people who          credit card customers that involved segmentation,
suffer from gum disease. The same product was            forecasting, and market response modeling.
relaunched as Colgate Total, appealing to a much         3. Research Hypothesis
broader group needing tooth cleaning, tartar             If research is deemed beneficial and cost-effective,
control, and gum protection. The result was that         then the next step is to create a research hypothesis.
Colgate Total became a $200 million brand.               The research hypothesis presupposes an association
                                                         or causation between customer behavior and the
Marketing Research Process                               marketing opportunity or problem. By attempting to
1. Opportunity/Problem Definition                         prove or disprove the hypothesis, this forces a very
The marketing research process begins with a mar-        specific direction to the research and eliminates
keting opportunity or problem and a need for             wasteful side-issue research. For example, a researcher
information to assess the options or solutions. The      might hypothesize the following:“We believe school-
marketing researcher needs to understand the             age kids are the primary drivers of fruit-flavored soda
entire context of the problem in order to determine      purchases.” Marketing research will determine the
the proper research scope. For example, the brand        possible outcomes of the hypothesis. A company
manager for Jello may need to know how many              should set up an action standard to determine what
people feel full after a meal.                           it will do if this hypothesis is true versus if it is false,
                                                         such as whether it will focus its advertising on school
2. Cost-Benefit Analysis (Initial Budgetary               kids, teenagers, young adults, or parents.
Considerations)                                              To test the hypothesis, the researcher must spec-
Research that does not result in action is largely       ify what types of information, questions, data collec-
wasted. A marketing research budget should be in         tion methods, sample designs, and questionnaires
proportion to the magnitude of the opportunity or        are needed.
problem. The cost of making marketing mistakes
                                                         4. Specify Information/Data Needs
can be very high and should be roughly quantified
                                                         Information needs are specified to give the researchers
in financial terms. When the benefit of additional
                                                         direction. They include amount and detail, time-
information is low and the cost is high, perhaps
                                                         series, and demographic/psychographic.
research is not called for. When the opportunity is
great, such as the soft drink market, the value of       Amount and Detail
information that reduces the risk or increases           The amount and detail of marketers’ data needs can
the opportunity may be correspondingly higher.           be small and simple or expansive and detailed,
However, marketing research needs to realize a very      depending on the product’s characteristics, such as
high return on its expenditures for it to be a good      taste, consumer familiarity, and technical complex-
business investment, typically at least a 20:1 rela-     ity. This decision also is dependent on time and
tionship. In addition, there is a risk of revealing to   budget constraints.
competitors what is being tested.                        Time-Series
   Marketing research can be simple and inexpen-         Researchers should determine whether the surveys
sive, such as when marketers talk directly to a few of   will be a one-time test or longitudinal (repeated

                                                                                        MARKETING RESEARCH          95
     over time). Multiple time-period surveys give a         generative, or predictive. This will determine how
     more complete reading of the market but take sig-       the results are presented.
     nificantly more time and cost more money.
                                                               • Evaluative Research. Evaluative research ana-
     Demographic/Psychographic                                   lyzes marketing activity performance (for exam-
     It is important to understand who is contributing           ple, how big, how good, or how much). Most
     answers to the research in order to have more pro-          research studies are evaluative in nature. Evalu-
     jectable results and to understand their rationale.         ative research examines results relative to a stan-
     Consumer backgrounds are determined by demo-                dard or an objective, often called an action
     graphic and psychographic data.                             standard. Having an action standard implies that
                                                                 the results will be acted upon depending on their
       • Demographic. Demographic information is
                                                                 relation to the standard of measurement. Mar-
         that which provides an external identification of
                                                                 keting objectives often are set relative to market-
         the individual. This data includes age, gender,
                                                                 place measurement action standards, for
         income, race, location of residence, make of car,
                                                                 example, market share objectives or sales objec-
         and years of schooling. This information is help-
                                                                 tives. Evaluative research provides the standard
         ful in depicting a typical consumer and therefore
                                                                 measurement, such as share, sales, preference,
         selecting appropriate media and a spokesperson
                                                                 satisfaction, or level of response for marketing
         for promotional efforts. This information is
         relatively easy to determine; however, it is of
                                                                 Typical evaluative questions are
         decreasing importance as product and service
                                                                    “Which of these two advertisements works
         usage crosses demographic boundaries. For
         example, determining household composition
                                                                    “By how much can I decrease the costs of
         or income levels would be useful for a regional
                                                                      ingredients and still have a product that
         ad campaign. The U.S. Census determines con-
                                                                      satisfies my customers?”
         sumer income levels in order to know where to
                                                                    “How satisfied are my customers compared
         spend social program funding.
                                                                      to my competitors’ customers?”
       • Psychographic. Psychographic information is
                                                                 Evaluative research areas include retail sales;
         that which provides an internal identification of
                                                                 copy testing services; product, concept, and
         the consumer and their rationale for making
                                                                 package testing; customer satisfaction track-
         product or service selections. This data includes
                                                                 ing; and advertising tracking for awareness
         an individual’s values, beliefs, and attitudes
                                                                 and usage.
         (described in Chapter 6, “Consumer Purchas-
                                                               • Generative Research. Generative research iden-
         ing Behavior”). These variables are difficult to
                                                                 tifies opportunities by determining how and why
         determine and usually are indicated through
                                                                 results occur. Generative research tries to move
         proxy or indicator variables such as type of mag-
                                                                 from specific observations about the consumer
         azines read, television shows watched, brand of
                                                                 and the marketplace to general principles about
         clothing worn, and age of car. For example,
                                                                 how people make brand choice decisions. Know-
         finding out whether an individual is introspec-
                                                                 ing these principles allows marketers to predict
         tive or extroverted would help an organization
                                                                 results, rather than rely on trial and error. Gen-
         determine whether to market books on philos-
                                                                 erative research techniques, including everything
         ophy through a direct mailing or books on
                                                                 from focus groups to sophisticated mathemati-
         travel through telephone solicitation.
                                                                 cal market response models, often employ the
     5. Specify Type of Questions/Type of Research               scientific method. The scientific method begins
     Based on the information needed, the next step is to        with an observation, which leads to a hypothesis
     select the appropriate research type: evaluative,           that is then tested through experiments.

     Typical generative research questions are             Much of the art of marketing research is in making
        “How can I make my customers more loyal?”          design tradeoffs among different data sources to
        “How can I make my advertising message             obtain information of sufficiently high quality
          work better?”                                    within an appropriate time-frame for decision
        “Will my brand increase sales more if I            making and at a reasonable cost. The best data
          increase my spending on advertising or if        quality may be too expensive to be worthwhile, or
          I put the same amount of money into pro-         it may take too long to generate an answer. There
          motion spending?”                                are two main components of data collection meth-
     Generative research areas include in-depth per-       ods: characteristics and sources.
     sonal interviews, market experiments, market
     segmentation research (broad-scale surveys            Characteristics of Data Collection
     that examine the nature and composition of the        Methodology
     customer base for an industry), and product           Data quality can be assessed using six factors: reli-
     optimization research (which uses an experi-          ability, validity, projectability, relevance, sensitivity,
     mental design to systematically test alternative      and practicality (see Table 5.1). Before making any
     product configurations in order to identify the        major changes in marketing programs, it is impor-
     optimal product offering).                            tant to evaluate the quality of new information.
  • Predictive Research. Predictive research ana-          Increases in data quality usually are accompanied
     lyzes behavior and market response. Predictive        by increases in time spent and costs.
     research is most concerned with forecasting
                                                             • Reliability. Reliability assesses the data collec-
     sales. By attempting to forecast, marketers can
                                                               tion method’s ability to collect the same data
     set production targets, spending budgets, and
                                                               again and get the same results. The goal is to
     sales goals. Typically, predictive research is
                                                               reduce sources of error and make sure any dif-
     dependent upon a quantitative model of con-
                                                               ferences in data are not due to the collection
     sumer processes or marketplace channels.
                                                               method. Reliability can be increased by repeated
     Typical predictive research questions are
                                                               observations. Data quality improves in research
        “How much can I decrease spending and still
                                                               surveys as more observations are added. There-
          maintain my market share?”
                                                               fore, increasing the sample size will improve the
        “How much impact will my competitor’s new
                                                               reliability of the answer. For example, if three
          marketing program have on my business?”
                                                               surveys from different cities report the same
        “What is the forecast volume for my prod-
                                                               information, the company will have more con-
          uct line over the next six months?”
                                                               fidence in the data.
   Predictive research techniques include new prod-
                                                             • Validity. Validity assesses whether the data
uct forecasting services (which offer an estimate of
                                                               actually measures what it purports to measure.
the first-year sales likely to be generated), sales fore-
                                                               Validity is enhanced through the use of multi-
casting models (which examine the historical sales
                                                               ple measurements. Rather than depending
data and the factors associated with higher or lower
                                                               upon a single observation of an attitude or
sales), consumption models (which examine store
                                                               behavior, the market researcher prefers to see
or consumer inventories relative to sales to try to pre-
                                                               convergence across multiple measurements.
dict the sell-through of products), and vulnerability
                                                               For example, the results obtained when asking
models (which predict the likelihood of customers
                                                               people how much time they spend watching
remaining in the franchise over time).
                                                               Public Television are not always valid. Most
6. Specify Data Collection Method                              consumers in the United States believe that it is
Data is the information collected through market-              socially desirable to watch Public Television
ing research and used to make marketing decisions.             because the content is educational. Therefore,

                                                                                         MARKETING RESEARCH         97
         more people will claim to watch Public Televi-           The more specific and comprehensive the data
         sion than will be observed behaviorally.                 needs to be, the more expensive it will be to
     •   Projectability. Projectability assesses whether          obtain the information and the more time it
         the data is a fair representation of the entire          will take.
         market. It is important to know if one observa-
                                                              Sources of Data
         tion is a sufficient basis to project the results
                                                              Data can be derived through primary and second-
         upon the entire business base. The most pro-
                                                              ary sources.
         jectable result would be one where everyone in
         the market is interviewed; however, a census of        • Secondary Data. Secondary data is generated
         the entire population is impractical. Some               by some other individual or organization and is
         form of sampling is used to extract a represen-          common, generic, and preexisting. Secondary
         tative cross-section of members of the market            data is found in journals, trade periodicals,
         population. For example, a test with positive            databases, syndicated services, and government
         results in an area with a large retired popula-          sources. The advantages of secondary data are
         tion may not project onto a national sales               that it is relatively quick and inexpensive to
         program with a younger target audience.                  acquire and is helpful background information.
     •   Relevance. Relevance assesses whether the col-           The disadvantages are the lack of specific fit
         lected information is appropriate to the mar-            with organizational research needs and it is
         keting decisions to be made. Information                 typically noncurrent. Examples of secondary
         should be relevant to the context and not only           data sources include building permits, new car
         of casual interest. Lack of relevance is one of          registrations, retail sales, electricity consumed,
         the leading problems of marketing research               and newspaper advertising lineage.
         when little thought is given to what will be the       • Primary Data. Primary data is information col-
         decision impact of this expensive information.           lected directly from the consumer or market-
         For example, knowing what type of automo-                place, and is original, specific, and proprietary.
         bile a typical consumer of a brand of cereal             Primary data can be internally or externally
         drives may be interesting but not relevant to            generated. Internal primary data is generated by
         cereal sales.                                            an organization as it does business and includes
     •   Sensitivity. Sensitivity assesses the susceptibil-       sales call reports, sales orders, shipment infor-
         ity to how small a difference can be detected            mation, inventory, and production information.
         between two alternative conditions. Sensitivity          External primary data is data that a company
         determines how easily a difference is likely to          collects, or pays to have collected, from outside
         be noticeable to the consumer. If the difference         sources specifically for the company.
         needed to substantially affect a business is
         small, a much more sensitive measurement is              Primary data is collected through qualitative or
         needed. On the other hand, if the difference         quantitative methods. Qualitative research methods
         between success and failure requires a huge dif-     use discussions with individuals in small focus
         ference in marketplace measures, a very sensi-       groups, in-depth interviews, or laboratory settings
         tive test will not be needed to determine            to gain insight into consumers’ thoughts about
         success or failure, such as rating intent-to-pur-    nonquantifiable areas such as trust, integrity, idea
         chase on a 1:100 scale versus a 1:10 scale.          generation, concept screening, and reaction to ini-
     •   Practicality (Specific). Practicality assesses the    tial exposure. Typically companies start with qual-
         cost and time required for each data collection      itative research, then perform quantitative research.
         method. The most practical data is that which        Quantitative research asks questions for which there
         can be acquired immediately and with no cost.        are specific answers from a much larger database,

often in the hundreds or thousands, in order to            may be more inclined to exaggerate or misre-
determine the feedback from a more projectable             port their feelings or behavior.
quantity of individuals. Quantitative methods            • In-Depth Interviews. This qualitative research
include telephone interviews, mail interviews,             technique uses nonstructured, one-on-one dis-
Internet interviews, intercept interviews, and obser-      cussions for several hours in order to fully
vation. The advantage of primary data is that it           understand the individual’s behavior and
is specific to a company’s current needs and the           motivations. The advantages of in-depth inter-
exact source of the data is known. The disadvan-           views are that they provide a lot of informa-
tage is the additional time and cost to acquire the        tion not obtainable in short quantitative
data.                                                      approaches, eliminate the biases inherent in
                                                           focus group dynamics, can be used for sensi-
Qualitative Research Methods
                                                           tive subject matter, and can be conducted with
  • Focus Groups. The most common type                     relative confidentiality. The disadvantages are
    of qualitative marketing research—a focus              that they take a long time to perform, have a
    group—involves a group of individuals, typi-           high cost per interview, and only a few people
    cally 8 to 12, with similar characteristics            are involved.
    recruited to participate in a one- or two-hour
                                                        Quantitative Research Methods
    discussion about a product, service, or idea. A
    group moderator leads the discussion and elic-       • Telephone Interviews. The most common
    its input, such as opinions and beliefs, from          type of quantitative marketing research, tele-
    each individual. Focus groups should only be           phone interview information is derived from
    viewed as generative research. Focus groups            those individuals answering phones in a home
    are conducted for two reasons: to generate             or business setting called by outbound tele-
    hypotheses (later to be quantitatively verified)        phone representatives. The advantages of tele-
    and to gather consumer language and views              phone interviewing are that it is inexpensive
    regarding a subject area. Focus groups have            due to low cost of staff, has a quick response,
    several advantages. Having several people in           and can generate a high-quality representation
    the discussion allows the respondents to talk          of the marketplace (telephone penetration is
    in their own words and to build on each                97 percent in the United States), and there is
    other’s ideas. Additionally, the sponsor of the        low interviewer bias. Telephone interviewing
    research can hear and see firsthand the group           has several disadvantages, such as samples have
    feedback through a one-way mirror without              short attention spans and are unlikely to finish
    affecting the research. The disadvantage of a          a lengthy questionnaire since neither the inter-
    focus group is that the results are not pro-           viewer nor visual presentation is present. In
    jectable onto the total universe because of the        addition, telephone interviews are most appro-
    usually low number of respondents, negative            priate when interest in the question area is high
    group dynamics such as teaming up or a                 and respondents are likely to be knowledge-
    leader emerging and influencing the others,            able. When low-involvement categories are
    and the subjective analysis phase. A number of         surveyed, cooperation rates are poor and the
    companies are now using the Internet to con-           quality of answers obtained is often weak. For
    duct chat sessions using traditional qualitative       example, people with no children usually do
    research techniques, with very good success.           not want to participate in a 30-minute tele-
    These reduce the cost and time required to             phone interview about diaper services.
    conduct exploratory research; however, there         • Mail Interviews. Information comes from
    are fewer controls on content, and participants        response cards mailed to specific individuals or

                                                                                  MARKETING RESEARCH       99
        attached to purchased products. The advan-             and the most projectable data. Personal inter-
        tages of mail interviews are the possible wide         views usually have a dialogue between the
        distribution and no interviewer bias. In addi-         interviewee and interviewer that allow for
        tion the recipient can see visual stimuli, can         flexibility and additional input. For example,
        answer at their leisure, provide deeper psycho-        personal interviewing should be selected when
        graphic information, and have less concern             stimuli are present such as tasting products,
        with privacy issues. The disadvantages are the         showing advertising, and testing concepts.
        low and slow response rate, no follow-on ques-         Disadvantages include their high cost, low
        tions can be asked, and only those interested in       response rates, long execution time in the field,
        the subject matter may respond.                        the extra time and personnel required to
      • Internet Interviews. These interviews can              obtain information in sparsely settled areas of
        range from qualitative ad hoc chat rooms to ran-       the country, and they may be difficult to con-
        dom quantitative surveys where text is instantly       duct in high-crime areas. They require careful
        available for analysis. The advantages are the         control of interviewers who must execute
        speed of response, the low cost, and the large         the block-level sampling plans, making the
        sample size. The disadvantages are the self-           required calls at the required times.
        selection of the recipients, usually with strong     • Laboratory Test Method (LTM). The LTM
        points of view, and the lack of randomness,            research technique creates a simulated store-
        usually with the young and educated online.            buying environment. Typically, consumers are
        Internet interviewing is the fastest growing           shown advertising and then permitted to shop
        form of survey research today and is character-        in a simulated store. Their subsequent pur-
        ized by extremely large sample sizes and poor          chasing activity in the laboratory is incorpo-
        sample control.                                        rated into a marketing model. This model can
      • Intercept Interviews. An example of an inter-          then be used, for example, to predict the total
        cept interview would be attempting to talk             year-one sales of new products prior to their
        with consumers while the behavior in ques-             actual introduction in the market. Corpora-
        tion, usually shopping, is fresh in their minds.       tions can use this model to estimate the
        This usually is accomplished by having the             demand for new products, determine whether
        interviewer walk directly up to the respondent         to introduce them, and test and fine-tune new
        in a central location, usually as the respon-          product entries before spending millions of
        dent walks between stores in a mall. The               dollars on a new product launch.
        advantages are that consumer recollection is         • Observation. Researchers watch consumers’
        current because the consumer is currently              behavior unbeknownst to the individuals being
        engaged in relevant purchasing behavior. The           observed. This is done because people often
        disadvantages are that many shoppers may be            specify one type of behavior to researchers
        too busy to participate, the high cost of              and actually do something different. Typically,
        trained personnel, length of time involved to          observation research is done by observing
        intercept enough respondents, and the con-             in-store shopping behavior. An unusual
        tent of the questionnaire must be short to             method is to study actual garbage outside
        entice participation.                                  someone’s home to see what products and in
      • Personal Interviews. Also known as door-to-            what amounts have been used. The main
        door or in-home interviews, they involve an            advantage of the observation method is the
        interviewer asking questions of the respondent         high validity of the research. The disadvantages
        one-on-one. Advantages of personal interviews          are the length of time involved, the high cost,
        are the smallest error rates, the highest-quality,     and privacy issues.

                                                               about their preferences; therefore, a small sample is
               Observation Research
                                                               used. The basic principle of sampling is that every
 The American Society for Microbiology and Bayer Phar-         person within the target market should have an
 maceuticals are interested in preventing the spread of
                                                               equal probability of being selected to participate in
 diseases, which may cost $4 billion in the United States
 alone. A national telephone survey had indicated that
                                                               the survey. It is important to use a random sample,
 94 percent of the population washed their hands after         because it allows for a more accurate representa-
 using public restrooms, a questionably high figure.           tion of the target audience and it is only possible to
 Wirthlin Worldwide was contracted to conduct a public         make statistical projections from a random sample.
 survey using observational techniques. The results            Statistical projection means that the results from the
 would determine the direction of health education ini-
                                                               people who are questioned can be projected to the
 tiatives. Observers in five cities, pretending to comb
 their hair or put on lipstick (so as not to influence the     rest of the people in the target market.
 observees or appear suspicious), saw only 68 percent             When designing a sample, four critical issues
 of washroom attendees actually wash their hands.              must be addressed:
                   Source: American Society for Microbiology
                                                                  • Target Market. Determine the target market.
                                                                    Typically this is already specified.
7. Specify Sampling Design                                        • Sampling Frame. This is the specific source of
Once a data source has been selected, data quality                  target members from which the sample will
is directed by the sampling design. It is too expen-                be extracted. Sampling frames may include
sive to ask every member of the target audience                     groupings such as telephone number listings,

                       Table 5.1 Data Collection Methods and Selection Criteria
Source             Reliability    Validity     Sensitivity     Projectability   Relevance     Cost              Time
Focus Groups       Low            Low           Low            Low              High          Moderate          Moderate
In-Depth           Low            Low           Moderate       Low              High          Moderate          Moderate
Central Location   Moderate       Moderate      Depends on     Low              Depends on    Moderate          Slow
Intercept                                       Sample Size                     Question
Interviews                                                                      Asked
Mall Interviews    Moderate       Moderate      Moderate       Moderate         Depends on    Moderate          Slow
Telephone          High           High         Depends on      Highest if       Depends on    Low               Fast
Interviews                                     Sample Size     Random           Question
                                                               Digit Dialing    Asked
Personal           Highest        Highest       Depends on     Moderate         Depends on    Expensive         Slow
Door-to-Door                                    Sample Size    to High          Question
Interviews                                                                      Asked
Internet           High           Low          High            Good for         Best for      Cheap             Fast
Interview                                                      Internet         Technology
                                                               Products         Response
Observation        Low            High         Moderate        Low              High          Costly            Fast
Lab Test           High           High         Moderate/       Moderate/        High          Costly            Slow
                                               Low             High
Secondary Sources Low             Low           Low            Low              Moderate      Cheap             Fast
                                                                                                     Source: Colgate-Palmolive

                                                                                             MARKETING RESEARCH                  101
          street addresses, employee ID numbers, and
          demographic groupings. The sampling frame
          will dictate the repeatability and reliability of      Reliance on a self-selected sample also may lead to wrong
                                                                 marketing decisions. For example, Nestle Foods wanted
          the research.
                                                                 to cut marketing research costs by using a less expensive
        • Sampling Method. This is the technique of              data collection method. Comparing results from an in-
          selecting the individuals from within the sam-         pack survey to a random survey in the same markets was
          pling frame to participate in the research sur-        proposed. The product evaluated was a new freeze-dried
          vey. For example, a sampling method could              soup product under the Crosse & Blackwell label. The
          select every “Nth” name from the telephone             freeze-drying process allowed extremely high quality.
                                                                 However, they were extremely expensive soups. Nestle
          book or every “Nth” person who walks into a
                                                                 included postage-paid survey forms within each box of
          mall or store.                                         soup sold in the test market and, at the same time, con-
        • Sample Size. Marketing research based upon             ducted an RDD product satisfaction and forecasting study
          samples has a small, but real, chance of giving        in the same test market. At the end of six months, the
          an inaccurate reading of the target market             Crosse & Blackwell soups were doing poorly from a sales
                                                                 perspective. Yet, when in-pack survey responses were
          when sample sizes are small. When decisions
                                                                 examined, there were over 10,000 survey responses that
          are critical to business success, it may be worth      were nearly uniformly positive. Nestle could have incor-
          the additional cost to have a larger sample size       rectly concluded from the survey responses that the soup
          to reduce the risk that results will be affected       was a total winner, suitable for national introduction. The
          by sampling error.                                     random survey of soup purchasers in the test market
                                                                 allowed Nestle to examine the attitudes of people who
          Sampling error is one of the major risks with qual-    were aware of the Crosse & Blackwell soups, but had not
      itative research, such as focus groups. Interviewing       tried them. The company was able to project these results
      groups of 8 to 10 people in a market may provide an        to the target market and concluded that they would never
                                                                 have enough buyers at that price to profitably introduce
      understanding of the group; however, the groups may
                                                                 the brand.
      or may not represent the true perspective of the total
      target market. When companies hear a consumer say         8. Determine Questionnaire Layout
      something in a focus group, they tend to presume          After a decision has been made to conduct primary
      that these attitudes are projectable, or extendible, to   consumer survey research, the next step is determin-
      the rest of the target market customer base. Yet, even    ing the questions that need to be answered, and how
      with a large sample size, there is some risk that the     to best ask the questions in order to get the most
      results from a sample are going to be different than      useful information. Every question in the question-
      the rest of the target market population.                 naire takes time to administer. Careful questionnaire
          For most consumer survey interviews, telephone        development will manage the information flow,
      book databases have been replaced by random digit         obtain only the specific information needed to
      dialing (RDD) samples. RDD samples, generated by          address the marketing issues, make it easy for the
      computers, are the only way unlisted households can       respondent to answer and for the interviewer to
      be sampled via a telephone interview. Other types of      administer, and minimize biased responses.
      random sampling include door-to-door sampling
      (very expensive, but may reach certain segments of          • Wording Clarity. Question wording needs to
      the population who have less access to telephones),           be clear and concise, particularly if the data
      random shopper sampling (intercepts at point-of-              collection occurs over the telephone, so that
      purchase), and random database samples. For exam-             information is not misunderstood.
      ple, random samples often include self-selected or          • Questionnaire Order. Questionnaire order, also
      self-response questionnaires on the Internet, mail-in         known as scaling, refers to the proper order of
      magazine survey forms, on-pack/in-pack question-              questions. Question content should move from
      naires, and in-room guest surveys.                            general (product category) to specific (purchase

  behavior, specific brand evaluations). Most sur-          important to make the questionnaire fun and
  vey questionnaires will have specific information         give clear instructions in order to encourage
  areas that are more critical to the decision             correct responses and timely return. Game-
  processes. Where possible, these should be asked         playing situations and pictures add interest to
  earlier in the questionnaire to avoid respondent         the questionnaire, increase respondent involve-
  fatigue.                                                 ment, and consequently increase the quality of
• Bias Reduction. It is important to avoid bias-           their information.
  ing respondents toward or away from particu-
                                                       9. Data Collection
  lar answers. There are several types of biases.
                                                       After the research design has been completed, the
  • Wording bias. Often is done unconsciously,         next step is for the interviewer team to collect the
     simply from the way questions are asked. For      research data. This task may take a few hours, days,
     example, wording a question a certain way         or weeks.
     may influence or annoy some respondents.
  • Sponsor bias. May occur if respondents are         10. Data Input
     influenced by knowledge of or experience          Research data input involves aggregating and tabu-
     with the sponsor of the survey. Respondents       lating consumer responses. Consumer responses to
     might be positively or negatively influenced.      a survey need to be translated into a computer-
  • Order bias. May influence respondents by the        readable form. A number of technologies are used
     order in which they see things. It often is       for research data input, including optical character
     important to control the order and the con-       recognition of responses on a paper questionnaire,
     text within which stimuli are presented. Some     handwriting recognition software, mark-sense read-
     people tend to prefer the thing they see first     ers of card markings, or keypunching of paper-
     (primacy bias) whereas others tend to prefer      based interviews. Telephone interviewing is nearly
     the one they saw last (recency bias). The expo-   universally conducted via CATI (computer-assisted
     sure order should be controlled, and the eval-    telephone interviews), and many mall locations use
     uation standardized across research subjects.     CASI (computer-assisted self-administered inter-
  • Interviewer bias. May be introduced by char-       views) where the data is directly captured in a com-
     acteristics of the interviewer, the style of      puter. Once the information is in hand, it is put into
     questioning, or overall demeanor. These           a marketing research database. This treats each
     characteristics can be either personal looks      respondent as a record with each piece of informa-
     (too attractive or too unattractive) or the       tion from the survey treated as a data field. Every
     style of questioning (too meek or too harsh).     question results in a field value that is entered into
     They may cause interviewees to rush their         the data field based upon the respondent’s answer
     answers and limit their responses or try to       to that question.
     become too informative and waste time.            11. Research Analysis
• Instructions to Respondents. Respondents are         Researchers analyze the collected data to test the
  not used to being interviewed. Their closest         hypothesis. The primary analysis tool is cross-tabula-
  analogy is being tested in school. This leads        tion, whereby a standardized set of subgroups are
  them to presume that there are right answers         profiled against all of the survey questions. Research
  that the interviewer seeks. It is important to       companies use frequency distribution software that
  reassure respondents that the survey is only         transforms information from the database into charts
  interested in their opinions, and that there are     and graphs, and organizes the data around a stan-
  no right or wrong answers.                           dardized reporting framework to make analysis as
• Self-Administered Format. If a questionnaire         simple as possible. Increasingly, marketers are using
  is to be self-administered, it is particularly       research results to feed complex marketing models.

                                                                                   MARKETING RESEARCH       103
      A new type of analysis tool has emerged on the Inter-   material sources, and service levels. Determining
      net called Application Service Providers (ASPs).        competitors’ actions early allows a company to react
      Instead of buying an entire forecasting project from    in an appropriate time frame.
      a research institute, a corporation may do its own
      data collection and rent the forecasting application    Sources of Organizational Information
      from an ASP Web site to model the results and eval-
      uate alternative business scenarios from the results.     • Trade associations
                                                                • Trade shows
      12. Reporting and Recommendations                         • Delphi sampling (panel of client decision
      Results reporting is communicating the research             makers)
      results to marketing decision makers. Typically           • Business publications
      there is a hierarchy of information in any study.         • Patent activity
      Reports should first focus on the most important           • Industry experts, specialists, consultants
      measures and use other measures to support over-          • Regulatory agencies and offices of elected
      all conclusions. Presentations should take into             officials
      account the specific needs of the end users of the         • Reports from industry suppliers
      information, using either pictures, words, or num-        • Former competitive personnel
      bers. Recommendations also should include areas           • Former competitive supply chain partners
      that need further study or where results of the           • Help wanted ads
      immediate study can be used by other groups or            • Shop in competitors’ stores
      brands. Most managers in organizations are too            • Use competitors’ products
      busy to read extensive research reports. Increas-         • Visually watch a plant’s activities
      ingly, results are being delivered via corporate          • Aerial reconnaissance photographs
      Intranets, or as Web sites organized hierarchically
      using HTML hyperlinked text. The Web site may
      show a few key findings from the research. By click-     MARKET ING RESE ARCH—
      ing a mouse on any of the findings or keywords, a        INTERNAT IONAL
      corporate user can drill down to see the data sup-      by Synovate
      porting the finding, and even perform a reanalysis       Even though the fundamentals of international
      of the data using attached “what if ” models.           market research are the same as domestic U.S.
      13. Results Implementation                              research, there are both process and content issues
      The final step in the research process is to develop     that need to be considered, especially around
      an action plan for integrating the research results     adapting for multiple and differing environments.
      into the marketing decision process. Most market-
      ing research is part of an ongoing process within a     Objectives and End Product Remain the Same
      corporation, and although the information is tar-
      geted to a specific decision, the results become part    International research begins the same way as
      of a corporate database used on a daily basis to        domestic research—by defining the business or
      make ongoing marketing decisions.                       marketing issue that needs to be addressed and
                                                              determining the desired outcomes. This informa-
                                                              tion is needed to help reduce the uncertainty of
                                                              key decisions.
                                                                  It also ends identically, with analysis and synthe-
      Organizations typically need to know about current      sis of the findings to provide the user with practi-
      competitors, potential competitors, and acquisition     cal insight into consumer behavior and attitudes.
      candidates to determine product quality, pricing, raw   This must be presented in a manner that allows

the user to address the original business or market-        target market demographics and to set quotas or
ing issue.                                                  weight the results. While this may sound simple, in
   What happens in between will differ. Clear               many cases it is not. In most developed countries,
research hypotheses or objectives are required,             government census and other public data is both
good questions and a representative sample design           plentiful and reliable. But in the developing world
are needed, the questionnaire must be laid out, and         this is often not the case, and care must be taken in
an appropriate method of obtaining the answers              evaluating the accuracy of market data.
and processing the results need to be specified.                It is also key to survey across different regions, as
What will differ is the process of how this is done.        the responses in a capital city might differ signifi-
                                                            cantly from elsewhere. For example, research in
Data Collection Is More Varied                              India routinely covers over a dozen languages and
                                                            regions. In China it is common to cover both Tier 1,
What differs most is how the data is collected, as
                                                            2, and 3 cities (and sometimes rural areas where 600
research design needs to be sensitive to the represen-
                                                            million lower-income people live) while also cover-
tativeness and cost efficiency of a wider array of
                                                            ing the north, south, east, and central regions, since
methods. In the United States, more and more
                                                            habits and attitudes differ substantially across both.
research is conducted online while door-to-door
                                                                In addition, local habits will lead to differences in
interviewing was long ago abandoned. The same is
                                                            how research is conducted. In many Muslim coun-
true in most developed markets, and online research
                                                            tries, it is necessary to have males interview males
is common in the European Union (EU), Japan, and
                                                            and females interview females, as cross-gender inter-
Australia. However, in most developing markets,
                                                            viewing is socially unacceptable. Likewise, differences
face-to-face and phone interviewing dominate as
                                                            in holidays affect when interviewing can be done as
they are both more representative (given lower
                                                            the holiday season impacts response rates and is
online penetration) and still economical. For exam-
                                                            believed to lead to potentially atypical responses. For
ple, in India, door-to-door interviewing can be
                                                            example, research activity declines in the United
cheaper and faster than online, and it reaches a much
                                                            States between Thanksgiving and Christmas; no
broader audience. In China, phone interviewing still
                                                            researcher wants to be in the field in China during
works, as the volume of calls has not reached the
                                                            Chinese New Year (and elsewhere such as Korea
annoyance level it has in the United States, so people
                                                            where it is called the Lunar New Year). The same is
still answer the telephone and will cooperate.
                                                            true in the Middle East during Ramadan, when
    What this means is that the researchers are more
                                                            daytime fasting and late evening meals impact both
likely to require a variety of methodologies when
                                                            the feasibility and accuracy of results.
working in multiple countries. To reach affluent
                                                                Rural interviewing can also provide unique chal-
consumers in apartment complexes, phone inter-
                                                            lenges, particularly in communal societies, where
views are often needed, as security precludes a
                                                            friends and neighbors will gather around the inter-
door-to-door approach. Mall or street intercept
                                                            viewer and respondent and often provide input. To
interviewing can efficiently reach other audiences
                                                            address this, it is sometimes necessary to pair inter-
while door-to-door interviewing is usually required
                                                            viewers, so that one interviewer conducts the real
for low-income groups as phone penetration can
                                                            interview while the other interviews the crowd,
be quite limited. For example, in Argentina, one-
                                                            allowing for an undisturbed interview.
third of households do not have a telephone, so
home visits are the most widely used.
                                                            Meaning, Not Just Language,
    Because the research methods are more likely to
                                                            Must Be Considered
be in person, it is also important to be sensitive to the
representativeness of interviews. In many situations,       Attention must also be paid to language, to make
it will be important to have a good sense of the            sure questions are understood in the proper context

                                                                                          MARKETING RESEARCH        105
  and the translation is accurate. In many cases this        versions of Japanese so that men and women speak
  can be addressed with back translation, where the          differently). Chinese actually has no word for yes.
  questionnaire is translated into the local language        The most commonly used translation means more
  and then translated back into English (by a different      like “can,” a more active term than the passive yes,
  translator), to check if the meaning is clear and          while the Japanese hai really means “I hear you” not
  unambiguous. In many cases it is not, and further          “I agree.”
  attention is necessary to clarify the meaning. For
  example, in Korea a meal includes rice so if you ask
                                                             Interpreting the Results Can Be Difficult
  someone who ate a Big Mac, fries, and a shake at
  1 P.M. if he had a meal, he will say “no.” Ask him if he   Even though we can ask the same question around
  ate food and he will readily agree.                        the world, interpreting what the answers mean
      There are also instances where more work needs         raises additional issues. Cultural differences exist in
  to be done to ensure that the respondents’ answers         how people use scales. Some cultures are very
  are interpreted correctly. For example, Mexicans           polite, like Thailand, where negative answers, even
  find it hard to say “no”—a cultural predilection that       if true, would be considered rude. In others, there
  can lead to misunderstandings. On a personal level,        is greater willingness to try new products but con-
  this means that a dinner party host should repeat-         version to regular usage is less certain. Finally, the
  edly seek confirmation that a guest is really going to      ability of the marketer to build awareness via media
  attend before actually setting a place at the table.       and achieve access via distribution varies consider-
  With marketing research, this shows that any find-          ably. All of this will impact the interpretation of
  ings must be interpreted with care.                        research findings.
      Sometimes the questionnaire must be consider-              There is active debate among research profes-
  ably reworked due to differences in the local envi-        sionals about how best to address this issue. Some
  ronment. For example, whereas about 15 percent             will use calibration factors, derived from outside
  of Korean women smoke, it is considered culturally         sources or benchmarks from previous research.
  unacceptable and most women smokers will deny              Others maintain that the differences are less cul-
  they smoke. Therefore, tobacco research in Korea           tural and more the impact of different local envi-
  is done only among men. Similarly, the consump-            ronments and do not require adjustment.
  tion of alcohol is prohibited among Muslims so                 Besides comparability, interpretation can also
  asking about their drinking habits will return mis-        require proper context. It can be difficult for some-
  leading results and is therefore avoided.                  one in New York or Chicago to understand out-
      Practically, it is also important to consider the      comes driven by macro habits. For example, one
  interview length after translation. English is a very      analyst’s report assumed that the lower rate of
  efficient language as a result of having more words         beverage spending in China versus other develop-
  than any other language, by a significant factor.          ing markets was due to lower prices. While prices
  Therefore translated questionnaires can often be           may explain some of the difference, what likely had
  50 percent longer in a local language than in the          a greater impact was the category definition. In the
  English original.                                          United States most liquid consumption is via bever-
      Finally, there are some topics or ideas that just      ages. But beverages are not the only form of liquid
  do not translate well (or are forbidden). It is against    consumption—another is soup. Although soup may
  the law to discuss politics in China or the Royal          not play a big role in overall liquid consumption in
  Family, especially the King, in Thailand. Some lan-        the United States, in China it is part of almost every
  guages do not have genders, so feminine and mas-           meal, suggesting that the different findings are due
  culine terms are more difficult to convey (while           in part to different eating and drinking habits and a
  others have the opposite issue—there are nuanced           substitution of drinks with soup.

Quality Matters                                         to then produce ownership papers in their name
                                                        (as sometimes people borrow a vehicle to qualify).
In the EU, Japan, and many other countries, quality     Unfortunately, the same care must sometimes be
standards are consistent and strong; it is likely the   taken with interviewers, who have been known to
results reflect accurate consumer feedback. But in       fake the results.
much of the world this is not a given, and care must       Although the above can seem daunting, it need
be taken to assure that adequate quality control pro-   not be. There are many international research agen-
cedures are in place. For example, when conducting      cies whose networks cover the world. Working with
high-end automotive focus groups in China, the          them can help the marketer identify the issues that
incentive can lead some to lie about their ownership    need to be addressed and then leverage their expe-
of a certain vehicle. To avoid this, respondents are    rience and local colleagues to provide the needed
asked to drive to the group in their vehicle and        guidance.


  by ACNielsen

  Company: Unilever
  Case:    Frequent Shopper Program Analysis (2002)

  The explosion of U.S. retailers implementing frequent shopper programs and their demands for
  manufacturers to financially participate in rewarding their loyal consumers have led organizations
  such as Unilever to analyze the return on investment for these growing promotion programs.
     ACNielsen provides clients, such as Unilever, with consumer insights through its Homescan Panel,
  which equips 62,000 households nationwide with an in-home scanner, capturing purchasing data
  from all UPC-marked products from all outlets. These households are nationally projectable and
  demographically balanced to ensure local, regional, and national views. Promotional activity, such
  as feature ads, store coupons, and freestanding inserts from manufacturers also are cross-referenced
  with the household’s purchasing data.
     In 2001, shopper survey data found that 78 percent of all U.S. households participate in some fre-
  quent shopper program (with some markets such as Chicago hitting a participation rate of 96 per-
  cent) and 63 percent of all households participate in two or more programs. This raised the
  hypothesis that these programs only heighten promotional marketing sensitivity and do not build
  loyalty for the retailer or a manufacturer.
     Unilever, with annual sales over $50 billion, is one of the world’s largest consumer packaged goods
  companies. Unilever produces and markets a wide range of foods, beverages, and home and per-
  sonal care products, such as Dove beauty bar, Lipton tea, Breyers ice cream, Hellmann’s mayonnaise,
  Promise margarine, Vaseline and Pond’s skin care products, Eternity perfume, and Sauve beauty care
  products. Historically, Unilever had completed several loyalty marketing projects using retailer-spe-
  cific frequent shopper databases as well as geodemographic profiles to identify the optimal targets for
  comarketing efforts. These comarketing efforts link Unilever’s brand promotions with a specific
  retailer, providing consumer incentives for the Unilever product to be purchased exclusively in that
  retailer’s stores. Now, Unilever wanted a more complete national assessment. However, an analysis of
  every retailer’s data would be far too expensive.

                                                                                  MARKETING RESEARCH          107
         Unilever determined that the ACNielsen Homescan market in Boston would be the optimal mar-
      ket to analyze for a national perspective for two reasons: the retailer landscape was considered to be
      typical of an average U.S. market and frequent shopper membership was prevalent (85 percent of
      Boston households participated in such programs).
         The analysis spanned two years of purchasing behavior from Boston Homescan panelists for the
      calendar years 1997 and 1998. Unilever wanted to specifically segment the heavy oral care buyers, as
      their mission was to convert toothpaste and toothbrush buyers to their Mentadent, Close-Up, and
      Aim brands.
         The ACNielsen analysis illustrated some eye-opening purchasing dynamics of the oral care con-
      sumer. The heavy buyer classification of households represented 30 percent of the category buyers,
      but accounted for 70 percent or more of the category sales. Heavy oral care buyers in Boston repre-
      sented 912,000 households of a total of 2.7 million oral care households in the entire marketplace.
      These heavy oral care households, on average, shopped in roughly 3.4 retailers over the two-year
      time frame.
         The largest allocation of their oral care purchases was bought at Stop & Shop at a 16.7 percent
      share, followed by CVS at 15.4 percent. However, in comparison to all oral care buyers, the heavy oral
      care consumers’ volume allocated to these two dominant retailers was somewhat average, indexing
      a 96 for CVS and 104 for Stop & Shop (with 100 being the average). Heavy oral care consumers in
      the Boston market were disproportionately buying oral care products in Shaws, BJ’s Warehouse Club,
      and in Kmart.
         Further segment analysis of heavy oral care consumers was based upon their shopping behavior
      by retailer. Consumers were grouped into frequent shoppers, medium shoppers, and light shoppers.
      This study cross-referenced the heavy oral care category purchasing dynamics with frequent shop-
      ping patterns, thereby identifying which retailers were the prime candidates for comarketing efforts.
      Heavy oral care buyers that also were classified as frequent shoppers to Shaws or Stop & Shop allot-
      ted over 60 percent of their oral care dollars to the respective chain. Unilever saw this as an oppor-
      tunity to use these retailer frequent shopper databases to develop consumer promotions that would
      encourage brand switching to Mentadent, Aim, or Close-Up. Unilever would show a stronger return
      on investment for their organization, as well as for the retailer, by developing programs that entice
      these highly desirable consumers to switch retailers in a concerted effort to allocate more dollars to
      these chains.
         The proliferation of the channels in which its products is distributed, along with the maturing U.S.
      market for consumer packaged goods, has led marketers such as Unilever to assess the financial ram-
      ifications of loyalty programs. The frequent shopper phenomenon is going to gain strength with the
      quest for one-to-one marketing becoming a reality. The directive Unilever has for its brands is to
      build profitable growth, rather than growth at any expense. This analysis was on the forefront of
      assessing which specific retailers would provide the most promise in building profitability through
      the utilization of frequent shopper information.


by Sports and Leisure Research Group
Company: Renaissance Cruises
Case:    Itinerary Development and Positioning Research (2001)
The highly competitive leisure travel industry has seen price achievement (yields) undergo significant
stress during periods of global conflict and economic hardship. The confluence of these factors along with
a marked ramp-up in capacity exacerbated the need for niche travel marketers like Renaissance Cruises
to pursue innovative offerings for past guests and prospective new customers. Comprehensive market-
ing research programs became a critical element in assessing potential consumer demand, price elastic-
ities, and in determining the optimum marketing messaging to draw brand trial and loyalty.
    Boutique full-service research firms like Sports and Leisure Research Group provide clients, like
Renaissance Cruises, with both a means to test and assess the impact of various marketing strategies
and communications platforms directly with best customers and prospective guests. Category-
focused research firms combine skills in both classic marketing research methodology and an inti-
mate understanding of the dynamics of a particular industry to offer not only marketing data, but
tactical direction and strategy recommendations, drawn directly from the research.
    At the turn of the new century, the high-end luxury cruise segment was confronted with bur-
geoning capacity growth coupled with a saturation of the core U.S. passenger cruise market. At the
time, roughly only 9 percent of all U.S. households had cruised previously. With political instability
in various foreign markets and a mild recession domestically, this time period was a particularly
challenging environment for cruise lines as they sought greater new customer volume as well as
repeat business from past guests to fill their growing fleets.
    Earlier research into the cruise consumers’ mindset had demonstrated that travelers typically chose
a cruise vacation for several reasons including the all-inclusive nature of the experience, the ability to
visit multiple exotic destinations without having to pack and repack, the allure of being on the open sea,
and a welcome environment for relaxation around intensive touring. This phenomenon led to the
launch of many new vessels by major players in the cruise industry, particularly Carnival, Royal
Caribbean, and their various brands. These ships were often categorized as floating cities, with capac-
ities of 2,500 passengers and onboard amenities that included rock climbing walls, skating rinks, large
theaters, and extensive shopping and dining choices. Characterized by some as floating parties, they
met many of the expressed needs of U.S.-based cruise guests, but fell woefully short for others.
    Niche players like Renaissance Cruises sought to develop alternative offerings for a more discern-
ing and older clientele. It was evident by 2000 that demand for the South Pacific sailings, even among
Renaissance’s loyal past guests, was not meeting expectations. Because Renaissance Cruises had com-
mitted to French Polynesian itineraries, redeploying the vessels was not an option. The executive
management team sought marketing research to uncover both potential objections to the French
Polynesian sailings as well as to identify best prospective customers to target for the sailings and the
optimal messaging to pique potential interest.
    Renaissance Cruises wanted to remain a premium brand and did not want to resort to the ram-
pant discounting that was proliferating in other areas of the cruise market. So the research team
sought out a dual methodology of qualitative research to first tap into and identify key objections and
expectations, followed by a rigorous and projectable quantitative study, conducted online, to test the
hypotheses raised by the qualitative work and gauge their magnitude among key customer groups.
                                                                                   MARKETING RESEARCH          109
            The researchers took great care in isolating several different groups of samples so as to be able to per-
         form gap analysis against these targets and determine if needs and objections varied among different
         groups. The research studied past guests who had already sailed on the South Pacific itinerary to deter-
         mine overall satisfaction and to identify strengths of the cruise offering that could be potentially accen-
         tuated in marketing communications. The more impactful propositions were then developed into a
         variety of direct marketing collateral (both e-mail and print) that were tested against samples of both past
         Renaissance guests who had not yet sailed the South Pacific as well as prospective cruise guests in the com-
         pany’s database that had been unresponsive to itinerary-specific marketing. Prior to the concept testing,
         respondents were questioned about their vacation habits, their specific desires for a cruise vacation, as
         well as their perceptions of a cruise to the South Pacific and price expectations for the same.
            Among the more significant findings of the research was that those who had rejected the South
         Pacific cruise offer exhibited great concern about the ease of travel into the region, and duration and
         cost of transportation to the ship. This insight led directly to a variety of tactical product innovations
         by Renaissance that included the more subtle use of various maps and graphics that showed French
         Polynesia’s proximity to the west coast of the United States and the Hawaiian Islands. The research
         and marketing teams also used this insight to creatively package a variety of inclusive airfares and
         discounted charter flights into the region. This combination of adjustments to both the product
         offering and its promotion enabled Renaissance to stay away from potentially devaluing the core
         cruise offering and tarnishing the brand through discounting, while addressing potential customer
         concerns about the destination’s accessibility and affordability by enhancing the air offering.
            Bookings for the itinerary and overall satisfaction did increase, after the above enhancements and
         others suggested by the research were implemented.


      ACNIELSEN                                     James S. Figura                              Jon Last
      ACNielsen is the global leader in pro-        Jim Figura, Vice President, Consumer         Jon Last is founder and President of
      viding business information, analysis,        Research North America, is responsible       Sports and Leisure Research Group. Last
      and insights to consumer packaged             for all facets of consumer research and      received his BA, magna cum laude, from
      goods companies, their brokers, and           providing marketing with consumer            Tufts University. He received his MBA
      retail organizations. Visit ACNielsen at      insights. Mr. Figura received his BS in      from The Wharton School of the Univer-                            Business Administration and MS in            sity of Pennsylvania.
      John O’Donnell                                Industrial Management from Carnegie
                                                    Mellon University.                           SYNOVATE
      John O’Donnell was formerly Senior
                                                                                                 Synovate, founded in 2003, is one of the
      Vice President, Strategic Accounts, man-
                                                    SPORTS AND LEISURE                           world’s largest (and most curious) cus-
      aging six of ACNielsen’s largest clients in
                                                    RESEARCH GROUP                               tom marketing research firms. Synovate
      the United States, including Unilever,
                                                    For more than 20 years, the principals of    has over 6,000 employees and annual
      Pillsbury, Quaker, and Best Foods. Mr.
                                                    Sports and Leisure Research Group have       revenue of $867 million (2007). Visit
      O’Donnell received his B.S. in General
                                                    coupled an acute understanding of the        Synovate at
      Management from Purdue University.
                                                    sports, travel, and leisure markets with a
      COLGATE-PALMOLIVE                             classical marketing research approach to     Mike Sherman
      Colgate-Palmolive is the second largest       combine market insights with actionable      Mike Sherman is the Global Director,
      consumer products company in the              strategies. Visit SLRG at www.sportsand      Knowledge Management & Insights.
      United States. Visit Colgate-Palmolive at                         Mr. Sherman received his MBA from                                                                           Harvard Business School.

Part 3
         6           PURCHASING
                                by Kimberly-Clark, Frito-Lay, Kraft,
                                    Discovery Communications

      THE ESSENT IALS OF CON SUMER                         by which human beings conduct the exchange
      BEHAVIOR                                             aspects of their lives.”2
      by Kimberly-Clark                                       Consumer behavior is “the exchange process
                                                           involved in acquiring, consuming, and disposing of
      Introduction                                         goods, services, experiences, and ideas.”3
      After consumers acquire money through work,             When organizations sell to individual con-
      inheritance, or luck, they have two options: spend   sumers, the selling process is known as “business-
      their money or save/invest it. Consumers typically   to-consumer” or “B to C.”
      spend over 97 percent of their earnings.1 And
      these same individuals spend one-third of their      Consumer Purchasing Process
      day sleeping, one-third at work, and it would
                                                           Marketers should understand the process that
      seem, the other third spending their money.
                                                           consumers follow to purchase their goods and
      Understanding consumer purchasing behavior
                                                           services in order to successfully use all elements of
      allows a company to more easily provide for con-
                                                           the marketing mix. Consumers typically follow a
      sumers’ needs and more easily promote the com-
                                                           purchasing process sequence of steps. Depending
      pany’s products and services. Understanding
                                                           on the situation, such as attitudes, financial sta-
      consumer behavior leads to marketing success.
                                                           tus, or the level of involvement in the product or
      Consumer behavior is constantly changing, and
                                                           services purchased, a step in the process may take
      companies should identify consumer trends
                                                           only an instant or it may require a lengthy process
      before their competitors do in order to strengthen
                                                           in itself. Marketers attempt to influence each
      the organization’s sales. Companies focus on con-
                                                           of these steps through the marketing mix (prod-
      sumers because consumer demand, or spending,
                                                           uct development, pricing, distribution, and mar-
      is approximately two-thirds of the gross national
                                                           keting communications). This process is repeated
                                                           countless times in a consumer’s lifetime. The
                                                           goal of marketing is to influence this process so
      Definitions                                           that each step ultimately narrows down a con-
      Consumer behavior is “the dynamic interaction of     sumer’s choice of competing options to one
      affect and cognition behavior and the environment    product brand.

                                                         archy of relative prepotency [in an effort] to become
 Consumer Purchasing Process (in General)
                                                         everything that one is capable of becoming.”
                   Need/want recognition
                   Information search                            Hierarchical Model of Consumer
                          ↓                                               Needs/Wants
                   Evaluate alternatives
                          ↓                               5. Self actualization     (fulfilling personal goals or
 INFLUENCES        Purchase intentions/decision                                     dreams, peace of mind)
                   Purchase                                                         ↑
                          ↓                               4. Esteem                 (being respected by the com-
                   Product usage/evaluation                                         munity, confidence)
                          ↓                                                         ↑
                   Disposal action                        3. Love                   (belongingness, being liked or
                          ↓                                                         loved by an individual, family,
                   New needs/wants                                                  friends)
                                                          2. Safety                 (free from physical threats by
1. Need/Want Recognition                                                            man or nature)
The first step in the consumer purchasing process                                    ↑
occurs when a consumer recognizes the presence of         1. Physiological          (hunger, sex, thirst, sleep)
a need or want. The recognition step can be influ-                     Source: A. H. Maslow, Dominance, Self-Esteem,
enced by marketing efforts when companies under-                              Self-Actualization, Brooks/Cole
                                                                              Publishing, 1973. Used with permission.
stand consumer needs (“I am thirsty”) and then
promote products (“Drink our soft drink”) that
meet those needs. Researchers have determined
that there are several needs and wants that moti-           The need to satisfy one of these needs motivates
vate human behavior. These needs range from basic        a consumer to procure a product or service. The
biological necessities to a desire for inner happi-      marketing process seeks to address existing and
ness. There are two main models of needs and             aspirational needs with an appropriate product.
wants: the hierarchical model and the simultane-         Product development and the supply chain are
ous model.                                               geared to create ever better (price and quality)
                                                         products to allow consumers to achieve their needs.
Hierarchical Model of Needs and Wants                    Demand promotion (marketing communications)
A basic premise of this research is that the lower or    is geared to informing the consumer of these
most basic needs must be fulfilled before an indi-        products and how they can fulfill a consumer’s
vidual can concentrate on fulfilling higher or more       needs or wants.
complicated needs. Another theory holds that                This hierarchical approach may be depicted as an
humans never reach the apex of satisfaction, but         inverted pyramid in developed societies (with a nar-
constantly strive to do so. By striving or aspiring to   row base for needs and a broad top for wants). Con-
reach each new level, in theory, each person will be     versely, less developed societies have a greater
better off. This hierarchy of needs has been depicted    requirement for basic needs; thus their hierarchy may
as having from 2 (wants and needs) to 12 levels.         be depicted as a pyramid. For example, in a devel-
Researcher Abraham H. Maslow’s five-level hierar-         oped country, a neighborhood Starbucks Coffee shop
chy is a commonly accepted approach. Maslow              may position itself to not only satisfy thirst with bet-
states that,“Human needs are organized into a hier-      ter tasting coffee but also satisfy a “belongingness”

                                                                           CONSUMER PURCHASING BEHAVIOR                 113
      need with a convivial atmosphere. Marketers of              2. Information Search
      Gatorade associate their brand with professional            In order to resolve the newly recognized need or
      athletes for “esteem” needs.                                want, consumers need information with which to
                                                                  make an appropriate evaluation and purchase deci-
                                                                  sion. There are three main factors regarding the
      Simultaneous Model of Needs and Wants
                                                                  information search process: the amount of infor-
      Dr. John C. Mowen’s model of consumer motiva-
                                                                  mation needed, the sources of the information, and
      tion states that people need to protect and/or
                                                                  the learning process itself.
      enhance four fundamental resource needs: the
      body, material possessions, information, and social         Amount of Information
      resources. Mowen’s research indicates that both             The amount of information needed and the effort
      safety needs (the desire to protect a resource) and         put into an information search and evaluation
      self-actualization needs (the desire to enhance a           process is contingent upon several factors, including:
      resource) can operate simultaneously. For example,            • Level of involvement with the product (impor-
      consumers may simultaneously seek to protect                    tance, usage frequency, image, etc.)
      their bodies from harm by purchasing and con-                 • Price
      suming a healthy diet and attempt to enhance their            • Complexity of the product
      bodies through purchasing exercise equipment and              • Number of times the product has been pur-
      vigorously exercising.                                          chased before
         The marketing process often begins with a                  • Consequences of making a poor choice
      global assessment of how many people have a par-
      ticular need or want. By calculating the number of             Marketers should provide the appropriate
      people who have the need or want identified, the             amount of information, such as brochures, sales
      marketing person can quantify the financial oppor-           training, or advertising, for each product situation.
      tunity being explored. Once adequate numbers                For example, more research is needed in an
      of people exhibit the behavior under study, research        involved purchase, such as for a new audio system,
      is conducted to better understand the need to               than for a routine purchase, such as toothpaste.
      be satisfied.                                                Best Buy thus provides literature, and trained sales
         For example, beverage manufacturers conduct              reps to provide information to the potential con-
      market segmentation studies to understand the               sumer of a new stereo.
      need and wants that people have when trying to              Sources of Information
      satisfy their thirst. These studies will typically inves-   For ease, consumers will first search their own
      tigate the context of the various times in each day         knowledge for how to resolve their problem, and if
      when people are thirsty. Further study may classify         they cannot find a satisfactory solution, they will
      the various types of thirst that people exhibit. The        search external sources.
      product solutions that satisfy the thirst that people
                                                                    • Internal Search. The internal search is based in
      might have after an hour of full court basketball
                                                                      the consumer’s memory of pleasant and
      (Gatorade) varies from the thirst that occurs when
                                                                      unpleasant usage experiences and of marketing
      we rise in the morning (coffee or tea). Once the
                                                                      communications. This creates a key opportu-
      marketing person can identify the need, quantify
                                                                      nity for a company’s brand. In the interest of
      the opportunity or incidence of this need, and
                                                                      saving time and stress, consumers want to recall
      classify the different ways it manifests itself, new
                                                                      that a specific brand meets their needs and
      products can be developed or existing products
                                                                      recall how to easily obtain this brand. Thus a
      repositioned. For example, the soft drink manufac-
                                                                      company should strive to make consumer expe-
      turers were able to successfully encourage noncof-
                                                                      riences consistently pleasant and use marketing
      fee drinkers to drink Coke or Pepsi with breakfast.

  communication, such as advertising and public         The Learning Process
  relations, to reinforce this experience.              Psychologists speculate that humans have innate
      Three factors work in tandem here. They are       mental faculties that enable us to create culture. It
  product consistency, brand equity, and the            would be impossible to influence these innate abil-
  consumer’s historical product experience. By          ities, and thus marketers attempt to influence the
  producing the product consistently and care-          customer’s process of learning about culture, needs
  fully limiting product changes, marketers             and wants, and product selection. Learning is the
  ensure that the historical comfort and satisfac-      process of gaining information and comprehension
  tion expected from the brand are maintained.          through study or experience. Understanding the
  Consumers buy brands for this consistency             consumer learning process helps marketers devise
  and to avoid the risk associated with change.         more accurate marketing communications pro-
      For example, over the past century, Heinz has     grams. Marketing researchers have developed sev-
  maintained its ketchup category leadership            eral learning process models. One important model
  worldwide by consistently manufacturing the           developed by social psychologist William J.
  “thick, rich one,” or the “slowest ketchup in the     McGuire, retired from Yale, is included in Table 6.1.
  East, West, North, and South.” The product and
                                                        3. Evaluate Alternatives
  its characteristic bottle and label represent con-
                                                        Once the research step is completed, consumers can
  sistent quality. Consumers expect this quality
                                                        then evaluate the alternatives that have been deter-
  every time and therefore are willing to pay more.
                                                        mined. The goal of the consumer is to select the
• External Search. If a consumer’s internal
                                                        option that results in the greatest reward. Consumer
  knowledge is uncertain (or if there is no specific
                                                        evaluative criteria of the product or service attrib-
  brand recall), then the consumer searches for
                                                        utes are impacted by internal influences, such as
  external information. An external search can
                                                        existing beliefs and attitudes, and external influences,
  review many sources, including the news media;
                                                        such as marketing attempts and group norms.
  friends; a trusted advisor (such as a pharmacist);
                                                           Marketers attempt to understand consumers’
  informational sources such as Consumer Reports
                                                        evaluative criteria in order to segment the market
  magazine or the Internet; and marketing com-
                                                        based on consumer benefits. For example, in the
  munications, such as a salesperson, labels on the
                                                        late 1970s, the Beecham Products Company
  product or packaging, and advertising.
                                                        learned from a benefit segmentation study of the
      For example, a consumer may have Tylenol
                                                        toothpaste market that there were three consumer
  in memory for a headache remedy but not have
                                                        segments or groups differentiated by their level of
  any memory for a sleeping aid. When examin-
                                                        interest in the following benefits: cavity prevention,
  ing the shelf, the consumer may notice Tylenol
                                                        fresh breath, or the combination of the two.
  P.M. (a sleeping aid) and generalize his or her
                                                        Beecham introduced Aquafresh toothpaste, which
  trust in that brand to this item. Marketers need
                                                        contained separate layers of toothpaste and gel,
  to have consistent elements in their branding
                                                        positioned as having all of the cavity prevention of
  and package graphics so that consumers can
                                                        the leading paste and all of the breath freshening of
  quickly recognize their brand. It is critical for a
                                                        the leading gel. Aquafresh achieved over a 10 per-
  company to understand consumers’ external
                                                        cent share of the market by addressing the evalua-
  information sources so they can provide the
                                                        tion criteria of this combination segment.
  right communication. For example, since con-
  sumers tend to trust pharmacists’ objective           4. Purchasing Intentions/Decision
  opinions of nonprescription products, many            Consumers develop purchasing intentions, the sub-
  companies advertise and provide samples to            jective probability for purchasing an alternative,
  pharmacists.                                          based on favorable research and favorable influences

                                                                        CONSUMER PURCHASING BEHAVIOR          115
                                           Table 6.1 Learning Process Model
      Learning Process    Explanation
      Stimuli             Communications: advertising, public relations, and so on.
      ↓ ↓                 A well-defined target (demographics, life stage, attitudes) enables the advertising agency to select
                          the media so the target consumers will be “exposed” to the advertising.
      Exposure            Opportunity for a consumer to see and/or hear a message (stimuli). The more communications
      ↓                   consumers are exposed to, the more likely they will perceive and retain the input. Therefore,
                          marketers attempt to furnish optimum exposure by using all media methods (advertising, public
                          relations, promotional marketing, direct marketing, and personal selling).
      Attention           Ability of message to gain consumers’ attention.
      ↓                   The marketer needs to develop a selling message or promise that meets a consumer need and
                          attracts their attention (to avoid the clutter of other stimuli).
      Comprehension/      Interpretation of the message. Consumers tend to absorb concepts that fit with their beliefs and
      Perception          attitudes, and those ideas that conflict with their convictions are filtered out. It is the marketer’s
      ↓                   challenge to identify these beliefs and attitudes and present information to overcome them. This
                          message should be clear and simple so consumers can comprehend it.
      Acceptance          Extent to which consumers are persuaded by message.
      ↓                   The marketer should provide a reason or demonstrate a benefit for consumers to accept the message.
      Retention           Transfer of message into long-term memory.
      ↓                   Unfortunately for marketers, humans tend to recall little of what is perceived and less of what they
                          are exposed to. Marketers typically respond to this by providing a constant stream of information
                          and reminder advertising. The marketer should communicate a consistent message and image that
                          will reinforce awareness and build the brand’s value over time.
      Memory              Integration of message into consumers’ belief system. The marketer’s objective is for target
                          consumers to “retain” and incorporate the brand-related selling message in their long-term
                          “memory” and belief system.

                                                                      Source: William J. McGuire, Yale University. Printed with permission.

      (both internal and external). Marketers often ques-          5. The Purchase Act
      tion consumers about their purchasing intention as           In order to save time and minimize stress, con-
      inputs to forecasting sales. In development of new           sumers want the purchase transaction to be as
      products, marketers will show consumers a concept            quick and simple as possible. Consumers do not
      or description of a new product and ask their pur-           like to wait in lines, on the telephone, or on the
      chasing intention.                                           Internet. Marketers can develop competitive advan-
         A consumer’s purchasing intentions often lead             tages (or eliminate a disadvantage by matching the
      to a purchasing decision, which may be immediate             service) with innovative ways to simplify purchase
      or postponed, depending on the situation. The sit-           transactions. Examples include express checkout at
      uation may be influenced by many smaller factors,             hotels, credit card transactions at the gas pump, and
      such as the weather, time constraints of the shop-           car rental services that process the consumer’s bill
      ping trip, availability of cash, product availability,       as he or she steps out of the car.
      and competitive offers. Marketers use promotion
      and sales tactics to influence purchase decisions.           6. Product Usage/Evaluation
      These offers can influence a consumer to purchase             After the purchase, consumers use the product and
      a new item or stimulate purchase of an impulse               evaluate its effectiveness in fulfilling their needs
      item. Retailers stock impulse items, such as candy           against their expectations, which can affect their
      and film, near the cash register to increase the size         beliefs about a particular brand. There are two out-
      of a consumer’s overall purchase.                            comes of a purchase: satisfaction or dissatisfaction.

This information is stored in consumers’ memory,         process. Therefore, there will always be an opportu-
which affects future purchasing behavior and their       nity for marketing to influence these purchases (see
desire to disseminate information about the brand        Table 6.2).
to influence others.
    Marketers use several means to measure consumer      INTERNAL INFLUENCES ON
satisfaction. This can be as simple as a waiter asking   CON SUMER BEHAVIOR
how a customer liked his or her meal. Many mar-
keters prominently display toll-free telephone num-      The reason why a consumer chooses one product
bers and e-mail addresses to encourage consumers to      over another lies in the make-up or core of the per-
report any questions or concerns. Studies have shown     son who initiates the purchase. The actual decision
that if marketers promptly address a consumer’s dis-     process is often internalized by the consumer, and
satisfaction, they are much more likely to continue      there are several factors that influence the con-
repurchasing the brand. It is much more cost-effi-        sumer’s purchasing behavior. It is important for the
cient to retain a customer than to obtain a new one.     marketer to understand these influences in order
    Sometimes consumers have second thoughts             to provide for the consumer’s needs and then accu-
about their purchase, known as buyer’s remorse or        rately promote a company’s products and services.
post-purchase dissonance, which could cause a con-       These influences include life stage, income/spend-
sumer to return a purchase. This may happen as a         ing capacity, and values/beliefs attitudes.
result of any of several reasons, including lack of
comparison shopping, hearing about a better deal,        Life Stage
or acknowledging a poor impulse purchase. Mar-
                                                         There are several stages that an individual goes
keters use several means to reduce post-purchase
                                                         through in his or her lifetime. Each stage has
dissonance. A waiter can compliment a person’s
                                                         unique behavior patterns, and consumers’ needs
entrée selection or a sales clerk can compliment how
                                                         can be monitored and targeted by marketers at each
well the buyer looks in a new outfit or pair of
                                                         stage. The stage in a consumer’s life cycle, coupled
glasses. Many automobile salespeople check with
                                                         with household income, has an important influ-
the consumer a week or so after purchase to solid-
                                                         ence on consumer purchasing. For example, newly-
ify in the customer’s mind the wisdom of the pur-
                                                         weds purchase more furniture and durable goods,
chase. Marketing has an important role to convince
                                                         and the addition of a new baby causes most con-
buyers they made the right purchase and strengthen
                                                         sumers to reconsider their purchase of many cate-
their beliefs to encourage future repurchase.
                                                         gories. Couples with no children, known as “empty
7. Product Disposal Action                               nesters,” tend to have more discretionary personal
After use, consumers look for a quick and simple         income and are attractive customers for travel and
disposal of products and packaging. Consumers            other leisure goods. The younger the audience, the
generally want to be responsible about the environ-      greater the ability to influence purchasing behav-
ment and recycle, if it does not take too much of        ior over time. By age nine, 90 percent of children
their time. Common examples are recyclable alu-          have shopped independently.4 However, very young
minum cans and plastic bottles. Marketers can            individuals are impressionable and impulsive,
develop competitive advantages by reducing the           therefore ethically limiting this audience as a tar-
amount of material that needs to be disposed of or       get. See Table 6.3 for stages and examples of needs
by making disposal or recycling easier.                  in different life cycles.
                                                            Age plays a role in consumer behavior, and it is
8. Continuous Needs/Purchasing Cycle                     often used in marketing research to understand
Consumers will always have needs and wants to            trends of target groups. Using American birth years
resolve, and thus will always continue the purchasing    1961 to 1981, the Generation X market accounted,

                                                                        CONSUMER PURCHASING BEHAVIOR        117
                           Table 6.2 Consumer Purchasing Process (Purchase Funnel)

      Purchasing                                          Purchase                   Branding
      Process                                             Funnel*                    Pyramid**
      Need / Want Recognition

      Information Search                              Brand Awareness                “I’ve heard of you.”

                                                      Brand Familiarity              “I know who you are”

      Evaluate Alternatives                            Brand Opinion                 “I know what you stand for.”

                                                     Brand Consideration             “You are a brand I would
                                                                                       consider buying.”

                                                 First Choice Intention              “You are my current top choice.”

                                                       Shopping/Trial                “Show me what you can do.”

      Purchase Decision / Purchase                        Purchase                   “You have met my expectations.”



      Usage / Evaluation                   Expectations Reinforcement                “Did I make the right decision?”

                                             Satisfaction / Brand Equity             “I like you.”

                                                          Referral                   “I’ll tell my friends to try you.”

      Disposal Action

      New Needs / Wants                               Repeat Purchase

      * GK Automotive Purchase Funnel ®, 2009 © GK Custom Research North America.
      ** Ronald S.Luskin, creator of the “Branding Pyramid,” has over twenty-five years of experience in the
         marketing, advertising, and public relations profession.

        Table 6.3 Life Stages and Typical
                                                              is an important statistic for marketers compar-
                Consumer Needs
                                                              ing opportunities across markets and over time.
                                                            • Discretionary Income. Another important
Young dependent              Games, food, movies, toys,       statistic is discretionary personal income,
pre-teen                     clothes
Young dependent teen         Car, dates, music, movies,
                                                              which is the income available after outlays for
                             clothes, food                    necessities such as housing, insurance, and
Young adult single           Dates, apartment, simple         food. Marketers typically favor lower taxes to
                             furniture, better car            allow greater disposable income to be spent for
Young married/               Bigger apartment, better         their products.
no children                  furniture, travel
Young married/               House, baby stuff, yard
with children                equipment, insurance         Values/Beliefs/Attitudes
Middle-aged/                 Financial security, bigger
with children                house, more insurance
                                                          Psychographics are the consumers’ learned predis-
Middle-aged/                 College tuition, travel      positions, either positive or negative, that affect
children in college                                       their purchasing behavior. Understanding these
Middle-aged/children         Smaller house, better        predispositions helps marketers to determine how
out of college               car, travel                  a consumer will react to a product or marketing
Older married/single         Medical attention,
                                                          communications. There are three levels of orienta-
                             retirement living
                                                          tions based on their importance and conviction:
                                                          values, beliefs, and attitudes.
in 1995, for 79.4 million people. This fact will exac-
erbate marketers to develop a product and service          values     beliefs   attitudes    purchase intent
mix for this growing target group. For example,
Oldsmobile changed their advertising to include
the phrase, “This isn’t your father’s Oldsmobile.”
                                                          A value is a pattern of behavior within a culture,
The median American age is getting older, 35.2
                                                          which the members of that society hold in high
years in July 1998 compared to 32.8 years in July
                                                          regard and around which individuals integrate
1990. Americans over 50 years of age, the “graying
                                                          societal goals.5 Examples include freedom, justice,
market,” represent 64 million consumers, one out
                                                          and education. For instance, parents may have a
of every three adults. Therefore, a strategy is to cre-
                                                          value such as placing importance for their child
ate products and services such as maintenance-type
                                                          being successful in school or of having more
pharmaceutical products and retirement commu-
                                                          opportunities than they had. Companies must
nities for America’s aging population.
                                                          design products and communications with an
                                                          understanding of consumer values, such as mar-
Income/Spending Capacity
                                                          keters of educational computer software incorpo-
Individual purchasing behavior in a developed             rating the value of education and learning into
society is dependent on the capacity to exchange          their marketing communications.
money for need satisfaction. Household income
limits the amount of consumer purchasing, and is
                                                          A belief is an emotional acceptance of some propo-
delineated by disposable and discretionary income.
                                                          sition or doctrine.6 Consumers develop purchasing
  • Disposable Income. Consumers cannot spend             beliefs over time based on product experience,
    all of their income because they generally must       input from reference groups, and marketing com-
    pay taxes to government units. The remaining          munications. Experience leads to a belief that an
    income, disposable personal income, is the            alternative is either the best choice, an acceptable
    amount available for spending and saving and          choice, or an unacceptable choice. For example, a

                                                                         CONSUMER PURCHASING BEHAVIOR           119
      consumer may have a belief that “you generally get         A culture’s legal system influences behavior
      what you pay for” and therefore infer that higher-         through its framework of socially approved con-
      priced brands must have higher quality.                    duct. It can be said that values are a derivative of
                                                                 society’s laws; however, values also incorporate the
                                                                 effect of religious and upbringing beliefs and ideas.
  An attitude is an internal orientation toward
                                                                 For the marketer, certain products deemed accept-
  intended action. This encompasses the idea that
                                                                 able in America, such as the Jerry Springer Show,
  this orientation is cognitive (consciously held), eval-
                                                                 may be deemed inappropriate in another culture.
  uative (feelings either positive or negative), and
                                                                    In addition to cultural behavior patterns, sub-
  conative (indicating disposition for action).7 Thus
                                                                 cultures influence consumer behavior and are
  attitudes denote a person’s current disposition or
                                                                 important to research and influence in a marketing
  feelings about a company or product and impacts
                                                                 environment. Subcultures include national origin/
  the buying decision process.
                                                                 ethnicity, education, geography, and occupation.
                                                                 Many consumers are now receptive to mixing food,
      E XTERNAL INFLUENCES ON                                    music, and fashion across subcultures and are more
      CON SUMER BEHAVIOR                                         open to ethnic groups maintaining the traditions
      A complete marketing plan should incorporate the           and customs of their heritage. Marketers should
      external influences on consumer behavior, which            understand how these subcultures are consistent
      include culture, opinion leaders, the environment          with the mass market and their product offerings.
      (physical/technological), product value, and mar-          This will assist them in developing appropriate
      keting communications/demand promotion.                    communications approaches and specific products.
                                                                 For example, many companies in the United States,
                                                                 such as Old El Paso, have developed packaged foods
                                                                 that cater to the tastes of those who grew up prefer-
      Culture is the behavior and customs that are passed        ring spicy foods.
      down through generations socially, rather than genet-
      ically. Culture is a multifaceted concept that ties        Opinion Leaders
      together attitudes, beliefs, and habits. Each con-
      sumer’s individual needs are relatively similar from       Opinion leaders are people that the consumer looks
      person to person. However, groupings of individuals        to for information about an upcoming decision.
      do have some differences from other groupings. For         Opinion leaders are divided into two groups: influ-
      example, each country has its own way of doing             encers and personal reference groups.
      things, such as American or French culture. Culture
      is defined by various attributes of the way these
                                                                 Influencers are opinion leaders that the consumer
      groups act in a somewhat homogeneous manner.
                                                                 does not know personally. A political leader may
      Cultural elements include time, space, self, honor, val-
                                                                 persuade the individual to think a certain way
      ues, possessions, gender, and laws. Each of these ele-
                                                                 about a social or tax issue. A movie critic may per-
      ments affects or influences the individual’s behavior.
                                                                 suade an individual to see or not see a movie.
         People in a particular culture have similar
      behaviors and views. A marketing plan will define           Personal Reference Groups
      itself with a specific culture in mind. The United         Reference groups are sources of information, and they
      States has become a credit society where purchases         influence consumer purchasing behavior. Reference
      are not necessarily a reflection of income. This           groups are groups of people that the individual per-
      direction has spurred buying patterns that were            sonally knows, frequently contacts, and whose opin-
      previously untracked through marketing research.           ions and approval are valued. There are several types

including family, friends, neighbors, and affiliations   environment influences include weather, geogra-
(work, clubs, churches). Desiring to gain approval or   phy, and time. Examples of weather and seasonal
acceptance from a group is an attempt to be per-        influences are the sales of snowblowers during the
ceived as normal (fitting into the group norm).          winter and lawn mowers in the spring and summer.
   Within each of these groups, there are influential    Geographic influences are diminishing as mass
individuals whose behavior can shape the percep-        communications is creating a more homogeneous
tions and ultimately the purchases of the group         society. Regional aspects are giving way to the more
itself. For example, the female head of household       dominant differentiation between urban and rural
has been long regarded as the opinion leader in         lifestyles. Activities reliant upon different geo-
charge of most family purchases. This authoritative     graphic settings, such as skiing in the Rocky Moun-
position is earned through many years of success-       tains, will always influence consumer purchases
ful purchases. In this role, most family members are    such as air transportation.
trained to make purchases according to the behav-
                                                        Technological Environment
ior of this gatekeeper. In like manner, these gate-
                                                        Technology, such as automobiles, telephones, com-
keepers now extend their authority to include
                                                        puters, refrigerators, and plastic food containers,
members of their extended family in need of their
                                                        influences how consumers behave and what they
expertise. It is now common for these gatekeeper
                                                        purchase. Many technological innovations con-
family members to influence health-care decisions,
                                                        tribute to an easier, more productive, and healthier
large capital purchases, and even exert control over
                                                        life, and therefore are sought after by consumers.
their elderly parents. Finding and influencing a
                                                        Each in turn influences behavior.
gatekeeper to become loyal to a company’s prod-
ucts can have a dramatic impact on sales.
                                                        Product Value
   Organizations such as Weight Watchers have
thrived by tapping into the power of personal ref-      Product value traditionally was the ability to satisfy
erence groups. By providing a safe haven where a        needs as a function of quality and price. Now, many
group of people can discuss their common chal-          of today’s consumers are busy working longer
lenges, such as losing weight, millions of people       hours, spending more time in longer commutes to
have been served. The successful sitcom Cheers          work, and caring for children or older parents and
demonstrated this power with the theme “where           are concerned with the additional need for personal
everybody knows your name.”                             and family safety. As a result, many consumers have
   Teenagers who would outright reject the idea of      expanded their value equation beyond their tradi-
school uniforms may, nonetheless, purchase cloth-       tional trade-off of quality and price to include time
ing to associate with reference groups. Some brands,    savings and a feeling of security.
such as Nike, Tommy Hilfiger, and Abercrombie &                Product Value   Quality/Price/Time/Security
Fitch, show their trademarks boldly on the outside
of clothing to facilitate these associations and show      Most consumers want to shorten their purchas-
groups of people in their advertising.                  ing processes. One example is fast-food restaurants,
                                                        which now derive over half of their business from
The Environment                                         drive-through service. Other retail outlets are
                                                        adding this service, such as drugstores with drive-
Both the physical and technological environment
                                                        through pharmacy service. Dominos created a
influence consumer behavior.
                                                        fast-food segment by delivering pizzas. And one-
Physical Environment                                    hour photo developing will soon be too slow com-
The physical environment is another aspect that         pared to digital camera processing using in-home
influences consumer behavior. Elements of physical       computers and printers.

                                                                       CONSUMER PURCHASING BEHAVIOR          121
     Most consumers want to shop when it is con-                        Marketing Communications Slogans
  venient for them, which is often not during normal                     Touting Consumer Needs/Wants
  business hours. As a result, many retail outlets are
  open extended hours or 24 hours to meet these                5.       Self actualization
                                                                        “Just do it.” (Nike)
  consumer demands. Banks, which once had                               “Be all that you can be.” (U.S. Army)
  restricted bankers’ hours, now have Saturday hours           4.       Esteem
  and automatic teller machines in convenient loca-                     “If your friends could see you now.” (Carnival Cruises)
  tions that are open 24 hours. Many consumers now                      “Selected by James Bond.” (Omega watches)
                                                               3.       Love/Belongingness
  shop any time of the day or night by Internet, cat-                   “Be a hero.” (FTD flowers)
  alog, and through toll-free telephone numbers.                        “A diamond is forever.” (DeBeers)
                                                               2.       Safety
      Marketing Communications/                                         “A house is not a home until it’s safe.” (Brinks
                                                                        Home Security)
      Demand Promotion                                                  “I want my car to be as protective as I am.” (Ford)
      It is one of marketing’s basic principles to satisfy     1.       Physiological
                                                                        “Hungry? Grab a Snickers.” (M&M Mars)
      consumer needs by providing appropriate products.                 “Good for your bones.” (Ocean Spray Cranberry
      Companies influence the consumers’ desire for                     Juice Cocktail Plus with calcium)
      these products through marketing communications                   “You gotta eat.” (Checkers)
      (described in Part 4 “Marketing Communications,”                                       Source: Compiled by A. G. Bennett
      beginning with Chapter 8). Marketing communica-
      tions (sales, advertising, public relations, promo-        Marketing research has found that increasing
      tional marketing, and direct marketing) provides        advertising spending (and presumably all market-
      persuasive information and imagery. Understand-         ing communications spending) increases sales for a
      ing consumer needs helps the marketer to deter-         time, although further increases in advertising
      mine the appropriate tone and appeal of various         spending beyond a certain point do not contribute
      promotional approaches. Satisfaction of current         to further increases in sales. That is, the target con-
      and striving needs is a common theme in the pro-        sumers have seen the message and reacted. A mar-
      motion of products and services, and is referred to     keter should continuously conduct marketing
      as aspirational marketing. Marketing communica-         research in order to understand the consumers’ level
      tions uses slogans to make references to a product’s    of response, and thus guide promotional strategies
      ability to satisfy an individual’s needs.               and budgets. See the illustration in Figure 6.1.
          Marketers use marketing communications
      devices, such as advertising and public relations, to
      communicate their idea/product/service message
      in an attempt to influence learning and consumer
      purchasing behavior. Because of both the potential

      increase to sales and the cost of communications,
      marketers need to understand how the communi-
      cations process influences consumer behavior.
      Marketers use marketing communications to
      impart information, or cues, to influence the learn-
      ing process. The cues stimulate a response: a pur-
      chase. If the purchase is satisfactory, the response                            Advertising Spending
      is reinforced and a loyal customer is created. If the                                                 Source: Kimberly-Clark
      purchase is unsatisfactory, the customer is poten-      Figure 6.1 Consumer Response to Advertising
      tially lost.                                            Expenditures

CON SUMER SEGMENTAT ION                                    process and research among these innovators
                                                           help them establish marketing strategies
The internal and external influences on consumer
                                                           targeted to innovators during introduction.
purchasing result in different consumer behavior
                                                           Distribution initially is made through a
patterns. Understanding these patterns helps the
                                                           manageable and limited distribution channel
marketer to develop appropriate products and deter-
                                                           known to the innovators. Initially, a high-pric-
mine more accurate communications approaches.
                                                           ing strategy may be used because innovators
Consumer purchasing behavior can be quantified by
                                                           tend to be higher-income consumers who can
marketing research and segmented into various
                                                           afford expensive interests and purchase new
groupings that are more easily and efficiently ser-
                                                           products. Communications budgets can be
viced or targeted. Consumers may be segmented by
                                                           smaller if the innovators like the product
psychographics and demographics.
                                                           and inexpensive word-of-mouth allows for
                                                           adequate dissemination of information.
Psychographics                                                For example, golf equipment manufactur-
Psychographic segmentation has three primary               ers introduce new technologically advanced
types: timing of product adoption, shopping atti-          golf equipment at professional golf shops at a
tudes, and lifestyles.                                     premium price. Later, they may sell the same
                                                           items through discount golf shops, catalogs,
New Product Adoption Patterns                              and the Internet at a lower price.
An adoption pattern is the length of time it takes for        But not all innovators fall into the same cat-
a consumer to purchase a product after its introduc-       egory. Some athletic shoe and clothing com-
tion. When developing new products or services,            panies consider urban youth as innovators,
marketers need to understand which consumers will          and the diffusion moves from the inner city to
first try a new product, how they might inform             the suburbs. Computer usage diffuses from
other consumers about the product, and the rate of         children (exposed through schools and their
adoption of the product in the society as a whole.         friends) to their parents and grandparents.
The incremental purchasing process of consumers is
                                                              Once the innovator market has been satu-
known as the community’s “diffusion of innova-
                                                           rated, companies shift their focus to the larger
tion”. Dr. Everett M. Rogers, a leading academic at
                                                           markets of the early adopters and the early
the University of New Mexico, defined diffusion as
                                                           majority with the goal of increased sales.
the process by which an innovation (a new product
                                                           Reaching these markets requires a larger pro-
or idea) is communicated through certain channels
                                                           motional budget and wider distribution.
among the members of a social system over time.
                                                         • Majority. Most consumers fall into this cate-
    Consumers are classified according to the time
                                                           gory. Some consumers already are satisfied
at which they typically adopt a new product rela-
                                                           and have no need for a new product.
tive to other consumers. The first consumers to
                                                           Some may be influenced by the old adage of
adopt are called innovators, followed in order by
                                                           waiting until the bugs are worked out of
early adopters, early majority, late majority, and
                                                           newly introduced products. Improved prod-
then laggards. The timing patterns differ by prod-
                                                           ucts or lower prices may move this group to
uct, marketing effort, pricing levels, competition,
economic conditions, and so forth. And each con-
                                                         • Laggards. This category is primarily influenced
sumer may not follow the same adoption pattern
                                                           by price. These consumers wait for price reduc-
each time.
                                                           tions brought about by competition, economies
  • Innovators and Early Adopters. Marketers’              of scale, or sales of product closeouts before
    understanding of this societal purchasing              they purchase.

                                                                      CONSUMER PURCHASING BEHAVIOR         123
      Shopping Attitudes                                       Lifestyles
      Consumers may be segmented based on their atti-          Lifestyle is another classification that marketers use
      tude toward shopping (and thus their potential           to think about the people who may buy their prod-
      purchasing behavior). These attitudes may be             ucts. Lifestyle clustering emerged as a popular seg-
      defined as elite, strategic, or value.                    mentation tool in the early 1980s as marketers
                                                               learned to use the enormous pool of data that
        • Elite Shopper. This segment of upscale shop-
                                                               emerges from the U.S. Census each decade. Lifestyle
          pers demands prestige products and personal
                                                               combines the homogeneous beliefs and aspirations
          service, for whom price is of little or no con-
                                                               that groups have with the resulting purchases they
          cern. The retailers and services that cater to the
                                                               generate. With the help of software, Census data is
          elite shopper train their salespeople to refer to
                                                               aggregated and zip codes identify where the major-
          the shopper by name and to learn and antici-
                                                               ity of the population exhibits wide similarities in
          pate his or her personal preferences. For exam-
                                                               lifestyle. Lifestyle clusters can center on a variety of
          ple, companies such as Hertz offer these
                                                               factors, such as economic status, educational level,
          shoppers personal pickup at the airport and
                                                               or preferences for either the arts or sports. This is
          the preferred car is waiting and warmed up.
                                                               helpful in determining locations for direct-mail
          Hertz has also altered the purchase process to
                                                               campaigns and advertising in specific lifestyle mag-
          reduce the waiting time in the pickup and
                                                               azines or separate sections of the newspaper. For
          return of the car.
                                                               example, subscribers to Outdoor magazine would
        • Strategic Shopper. There is a large segment of
                                                               be good targets for a direct-mail campaign to raise
          shoppers who either do not mind or enjoy the
                                                               funds for The Nature Conservancy.
          challenge of shopping to find the lowest price
          for specific products. They tend to have average
          or better than average incomes and education.        Demographics
          These consumers know which retailers (pres-          Demographic segmentation primarily includes
          tige shops, outlet stores, and Internet) have the    income, age, and ethnicity.
          best prices and sales. This shopper might use a
          broker from the Internet to locate the best          Income
          price for a BMW and then drive it to Sam’s           Over most of the past 50 years, marketing efforts
          Club to purchase staple items at the lowest          were generally directed toward the large middle
          price. Note that a shopper can be elite for          class. Consumers generally purchased identical tel-
          selected products and services and strategic for     evision sets, telephone services, and watched the
          most other items. This type of shopper uses          same network television programs. Since the 1980s,
          word of mouth and the Internet for informa-          consumers have been dividing into two income
          tion sources.                                        tiers, as the wealthiest 20 percent of the population
        • Value Shopper. There is a large segment of           has seen its income grow by 21 percent while wages
          shoppers with average or lower incomes who           for the bottom 50 percent have stagnated or
          shop in outlets and discount stores that provide     declined, according to Census Bureau data. This
          value in lower prices on a regular basis. Since      widening gap in incomes has changed how mar-
          this is a large segment of the population, about     keters are developing, advertising, and selling prod-
          40 percent according to Roper Reports, there is      ucts and services.
          substantial opportunity for companies and               For example, the automobile industry keeps
          retailers to service this market. Examples of suc-   introducing a more expensive sports utility vehicle
          cessful retailers serving this segment are Wal-      (SUV) to meet the demands of higher-income con-
          Mart and Family Dollar Stores that has opened        sumers, while AutoNation and others are targeting
          1,588 new stores during the last 10 years.           refurbished used cars to lower-income households,

who cannot afford a new car. The telecommunica-                 For example, American Hispanics are projected
tions industry has tailored its services to the two tiers,   to comprise a third of the U.S. population in the near
such as satellite telephone service for traveling exec-      future. In some markets, they are already the largest
utives and prepaid telephone cards to consumers              population segment. In Los Angeles, Hispanic radio
who want the added convenience or cannot afford              stations have the largest listening audience of any
credit cards or telephone service.                           stations in this tremendous population center. Com-
                                                             panies cannot successfully market a mass appeal
Age                                                          product in LA without fully understanding the wants
Age is the single most predictable aspect of con-            and needs of the Hispanic population.
sumer behavior. Age dictates life stage, which is pre-          However, stereotyping ethnic consumer behav-
dictive of needs and wants, which in turn influence           ior can often lead to wrong decisions. Companies
product usage and therefore product development,             must take a multidimensional approach that com-
distribution, and marketing communications                   bines many of the segmentation options to remain
strategies. As the most predictable aspect of con-           successful. Marketing departments also fall into the
sumer behavior, age is also among the most actively          trap of thinking that they can conduct an occa-
used segmentation method. Life stages usually cor-           sional relationship with an ethnic group when the
respond with distinct product and service needs.             available dollars exist in any year’s budget. The
   Advertising communication options such as tel-            commitment to conduct ethnic marketing should
evision, newspapers, magazines, and direct mail can          be viewed as long term and carry the desire for a
easily be purchased with age as a selection criterion.       long-term relationship. Anything less will become
Television is purchased almost exclusively in age            quickly transparent to the audience targeted, and
breaks with gender as the only other primary clas-           damage the image and reputation of a company.
sification. Marketing people, to further leverage age
as a clustering tool, can use the many factors that
have shaped each generation or captured the head-            CON SUMER BEHAVIOR—
lines.                                                       INTERNAT IONAL
                                                             by Frito-Lay
       Product Consumption Projections
 Product Use by Age    Population Projections by Age         Across international markets, the foundations of
   Future Product Consumption                                consumer purchasing behavior are very similar.
                                 Source: Colgate-Palmolive   Wants and needs hierarchies, adoption patterns,
                                                             and other purchasing behavior patterns influence
Ethnicity                                                    consumers in every country. Companies manage
Another powerful segmentation tool is ethnicity.             unique and standard international marketing pro-
Generational influences over a culture establish             grams that will promote similar consumer purchas-
beliefs, attitudes, and images that are strongly             ing behavior (trial, repeat, long-term frequency). It
linked to the diverse group of ethnic cultures that          is the similarity in consumers worldwide that make
comprise a country’s population. At times, by                global brands possible and multinational busi-
understanding these common influences, mar-                  nesses profitable. The challenge in understanding
keters can leverage common preferences to shape              and influencing international purchasing behavior
communications or develop desirable products and             is in developing mechanisms for measuring behav-
services. Many Latin cultures, for example, retain           ior. Unlike the U.S. market, many international
family values and cohesiveness as a fabric for               markets lack the infrastructure needed to track
their lives. Marketers need to both respect and mir-         consumer behavior. Companies need to analyze
ror these values if they wish to be successful with          and respond to behaviors based on the level of
these groups.                                                information that is available.

                                                                            CONSUMER PURCHASING BEHAVIOR          125
     There are several product key performance indi-              entials can change abruptly with emerging interna-
  cators that are used to continually measure con-                tional competitors and changes in competitors’
  sumer purchasing behavior. These measures                       manufacturing capabilities. Local materials often
  provide benchmarks of a brand’s relationship to its             fail to meet the specifications needed to make a
  consumer and give direction as to any corrective                quality product. Supply chains are set up to ensure
  actions needed. These measures are applicable in                that quality can be maintained at affordable costs.
  most countries, and include price/value needs, con-             Quality is now so critical in most countries that
  sumer quality needs, product availability, and con-             companies use the entire supply chain to ensure
  sumer awareness.                                                that quality is maintained from the initial moment
                                                                  after manufacturing to the time that the product
      Price/Value Needs                                           enters the marketplace. Handling specifications and
                                                                  shelf life dates can contribute to maintaining qual-
      Value as it relates to price is a critical decision point   ity after long length-to-market shipments.
      in many international markets. Many markets have
      unstable fluctuating economies in which a con-
                                                                  Product Availability
      sumer’s economic situation can change overnight.
      Monitoring the affordability of a company’s prod-           Most consumers desire to purchase products that
      ucts relative to the competition on a frequent basis        are easy to find and are available on a continuous
      is very important. Companies should monitor                 basis, although, in some countries, seeking out new
      changes in the consumer’s economic situation so             products and price bargaining are an enjoyable
      products designed to be priced affordably do not            part of the shopping experience. Therefore, distri-
      become premium items. Companies also should                 bution is another critical element in a new prod-
      monitor competitors’ costs as they can change rap-          uct’s success. Without commercial availability, the
      idly based on changes in suppliers, manufacturing           best marketing promotions and advertising cam-
      principles, and marketing strategy. It is important         paigns cannot create a sustainable business. In
      to know prior to setting a price increase whether the       international markets, building distribution for a
      perceived value of a brand warrants those changes.          small brand can be difficult if there is not sufficient
      A brand that is perceived by consumers as declining         marketing spending behind that brand. It is often
      in value is likely to suffer revenue declines in the face   easier to build a brand’s business using alternative
      of higher prices. In contrast, a brand with increasing      trade channels such as small kiosk stores or indi-
      perceived value may warrant increases in price and          vidual retail outlets that may literally only be
      continue to flourish once they are initiated.                a grass hut with 10 products on a table. These
          Packaging also plays a key role in how consumers        alternative channels are easy to penetrate and can
      view a product’s value. For example, metalized or           lead to great gains in building new markets for
      high-barrier packaging is often more expensive, but         unknown products.
      improves shelf life in high humidity climates and in
      countries where length-to-market is high. However,          Consumer Awareness
      regardless of the benefits or higher costs, consumers
      in some cultures simply prefer the looks of the met-        Media, packaging, and point-of-purchase materi-
      alized packaging and purchase the product.                  als work together to create a brand’s image inter-
                                                                  nationally, just as they do in the United States.
                                                                  However, promotions and outdoor advertising
      Consumer Quality Needs
                                                                  often play more important roles in consumer
      Quality also is a key influence in consumer pur-            awareness internationally. Promotions, such as
      chasing, and maintaining quality is particularly            inserted toys or games, often add greater perceived
      challenging internationally. Product quality differ-        value. Unfortunately, consumers can become so

addicted to promotions that the brand value              a common package design throughout the world.
becomes tied to continuing these promotions.             However, the name may change from country to
   Branding is a critical factor in international con-   country. See Table 6.3 for salty snack consumption
sumer purchasing decisions. Each company’s               in various countries.
approach to branding will differ based on company
culture and consumers’ similarity around the world
in particular categories. Most multinational com-                 Table 6.3 International Consumer
panies pursue a strategy of global concepts with                         Purchasing Behavior
local execution. That is, brands have one position-                Varying international consumer tastes present
ing, one package design, and one name worldwide,                             opportunities for growth.
while each market determines the appropriate mar-                             “Salty Snack” Per Capita
keting communications (both in terms of message          Country                        Consumption (kilos)
content and appropriate marketing plan for prod-         Japan                                 2.15
uct launch). Product innovation is a strong local        Spain                                 2.18
marketing option as each country has a slightly dif-     Canada                                5.45
ferent approach to variety within each category. For     UK                                    5.46
                                                         USA                                   7.90
example, the consumer desire for snack food is very
similar on a global basis, and Lay’s potato chips use                                            Source: Frito-Lay, 2002.


  by KRAFT Foods, Inc.
  Company: Kraft Pizza Company
  Case:    Influencing the Consumer Learning Process—DiGiorno Pizza

  What do you do if you’ve figured out a way to make a frozen pizza that tastes as good as those deliv-
  ered by the big retail chains, only you’re pretty sure no one will believe you? That was the situation
  the Kraft Pizza Company found itself in during the mid–1990s when it was time to introduce its
  newly developed DiGiorno Rising Crust Pizza.
     Kraft knew what it was getting into; it had the leading entries in the frozen pizza market:
  Tombstone, and Jack’s, a strong regional brand. Both were healthy, but growth had been limited to
  modest gains in the $1.6 billion a year frozen pizza segment. Kraft had never grabbed pizza’s brass
  ring: volume from the rest of the $24 billion category, dominated by Pizza Hut, Domino’s, and
  Little Caesars. But this attempt would be different. In DiGiorno Rising Crust Pizza, Kraft finally had
  a product that delivered the quality consumers expected from the carry-out and delivery (CO/D)
     The trouble was a tangle of consumer beliefs and behaviors that would make it hard to build
  awareness and initial purchase/trial, including:
     • Skepticism. Consumers had heard this pitch before. Other brands in the frozen segment had
       promised a frozen pizza that would taste as good as CO/D. But the products did not deliver,
       leaving a consumer perception that the quality gap was probably too wide to cross.
     • Price Deals. Over the years, the frozen pizza case at the grocery store had become a battleground
       where frequent and deep discounts had trained consumers to wait for deals or to buy whatever
                                                                           CONSUMER PURCHASING BEHAVIOR                 127
          was on sale among their preferred set of brands. Along the way, this dynamic helped erode brand
          loyalty and increased the perception that frozen pizza was a commodity product. Would con-
          sumers be willing to fork over the unheard-of price of $5.49 for a frozen pizza when they could
          buy other frozen pizzas on a “three for $7” deal?
        • Purchase Routine. Beyond looking for sales, frozen pizza users had little involvement with the
          category, and spent little or no time looking over the options in the aisle. It was not at all a given
          that consumers would notice a new product on the shelf.
        • User and Product Imagery. To take volume from the CO/D brands, Kraft was going to have to
          attract a new kind of user to the frozen pizza aisle: a more affluent, urban, and adult-oriented
          pizza lover who was used to spending about $10 to have a pizza delivered. But the target mar-
          ket’s perception of frozen pizza was negative. Focus group comments included: “Bad crust,”
          “Skimpy toppings,” and “Just for the kids.” How could Kraft convince these consumers that
          DiGiorno could deliver a pizza with fresh-baked taste from the freezer case?
          Kraft knew it needed to influence the learning process in order to shake up this consumer skep-
      ticism and complacency by driving home one key message to the target consumer: DiGiorno is as
      good as a CO/D pizza. To achieve this, the company saw to it that every element of the marketing mix
      worked to change the consumer perceptions about frozen pizza.
          Kraft started with the box it came in. A slice-shaped hole was die-cut in the front so consumers
      could see the dramatic difference in the product right at the shelf. They could see huge toppings,
      bright and crisp-looking like the food in the produce aisle, and a heavy-gauge plastic vacuum seal
      locking in the freshness, preventing the freezer burn typical on frozen pies.
          Kraft also took a risk and bucked the category’s traditional retail promotional marketing by spend-
      ing only a fraction of its marketing budget on retail pricing discounts. This put a strong focus on
      building real consumer equity from day one.
          In order to begin generating the awareness needed to get consumers to pay attention at the shelf,
      Kraft and its advertising agency, Foote, Cone & Belding, then launched the “It’s not delivery” cam-
      paign. They surrounded the target consumers with a marketing program featuring a strong televi-
      sion presence, magazine insertions, and a range of transit and outdoor advertising. The hallmarks of
      the campaign worked to address the consumers’ negative image of frozen pizza and to reinforce the
      DiGiorno’s-as-good-as-CO/D message:
        • The campaign showed consumers who were fooled by DiGiorno’s appearance and taste into
          believing it must be a carry-out or delivery pizza. If these people were pleasantly surprised, the
          thinking went, you could be, too. Each spot featured the line, “It’s not delivery, it’s DiGiorno,”
          as did the print and outdoor advertising.
        • The centerpiece of each commercial was a demonstration of DiGiorno’s star attribute: a rising
          crust that was not prebaked like ordinary frozen pizzas but “baked up fresh like pizzeria pizza.”
          This demonstration was a real influence on consumers’ belief that DiGiorno was different.
        • Finally, the situations in each spot were the kinds of occasions when one might have ordinarily
          ordered a pizza for delivery: throwing a casual party, a relaxing night at home for a young cou-
          ple, or watching a pay-per-view boxing match on television with friends.
        As good as the product, message, and advertising were, however, Kraft knew that many skeptics
      might see it and remain unconvinced. Although the rising crust was new, these target consumers

had been promised CO/D quality before. So the company embarked on a massive sampling pro-
gram, based on consumer research that revealed that over 50 percent of consumers who tried
DiGiorno would repeat the purchase. Two “Travelin’ Pizzerias” were built, which roamed from town
to town offering consumers the fresh-baked taste of DiGiorno. The units were decked out in the
brand’s colors and graphics and carried the “It’s not delivery…” theme line from the advertising.
   Before the year was out, it became clear that consumers were accepting that DiGiorno was rein-
venting frozen pizza. Brand awareness and trial were climbing past initial forecasts. The repeat pur-
chase rate was high. But the ultimate proof of the brand’s success came from data on sources of
volume. Over 50 percent of DiGiorno’s business was from outside the frozen pizza category. Kraft
went back to get a deeper understanding of consumers’ perceptions of the brand and how they were
using it.
   The focus group research revealed shifts in attitudes about frozen pizza:
   •   Consumers described DiGiorno as a “fresh pizza in the freezer case, not frozen pizza.”
   •   They said DiGiorno looked like it was “handmade, not mass-produced.”
   •   They felt it was made with adults in mind: “This is not just for the kids.”
   •   They saw CO/D pizzas as the benchmark for value: “It’s a $12 pizza for $5.”
   Kraft also noted that its efforts behind DiGiorno were changing behavior:
   • Consumers were substituting DiGiorno for CO/D on some occasions: “We used to order out.
     Now we just open the freezer.” “Hey, it costs less to buy DiGiorno than a restaurant pizza.”
   • Some were buying DiGiorno for themselves and “the cheaper ones” for the kids.
   Consumer reactions like these were a sign that the brand was fulfilling its promise. By the end of the
18-month rollout, the business was breaking Kraft records for successful new product launches. Even
the northeastern United States, the region with the deepest skepticism rankings and the lowest use of
frozen pizza, was posting record share gains. DiGiorno, followed by its inevitable rising crust competi-
tion, has established a new kind of grocery store pizza: “real pizza that just happens to be frozen.”


by Discovery Communications, Inc.
Company: Discovery Communications, Inc.
Case:    Consumer Needs Are Universal—“Watch with the World”

Discovery Communications, Inc. (DCI) is the number-one nonfiction media company in the world,
devoted to helping people explore their world and satisfy their natural curiosity. Marketing research
had shown that there was a similarity of desire among consumers in different countries to see inform-
ative and entertaining programming. The Discovery Channel, launched as a single U.S. cable network
serving 156,000 subscribers 23 years ago, now satisfies consumer needs in 170 countries.
   Discovery’s integrated promotion campaign aims to build awareness for global programming.
The “Watch with the World” initiative is built around the concept of a “same day, same primetime,
                                                                     CONSUMER PURCHASING BEHAVIOR             129
      same network” airing of Discovery programming in then 155 countries and 33 languages with cor-
      responding content and merchandise opportunities through online, retail, and consumer product
      platforms. The marketing campaign takes advantage of Discovery’s unique ability to deliver an inter-
      national goal: a multiplatform event that brings a global audience the same programming during a
      shared prime-time viewing experience.
          Raising the Mammoth was a two-hour never-before-seen television special recounting the discov-
      ery of the first nearly intact 20,000-year-old woolly mammoth in Siberia. The special showed the
      mammoth from its initial discovery in the spring of 1997 by reindeer herders, to its October 1999
      excavation and airlift to an ice cave 200 miles away. For the show, Discovery created a two-tiered
      marketing strategy.
          The first phase was the successful expedition to excavate the woolly mammoth. Coverage of the
      expedition online with live updates from Siberia allowed people to experience the expedition and
      pique their interest about the program five months ahead of its air date. Teasers for the program also
      began to run at this time, helping bridge the gap between the expedition and actual airing of the
      event, keeping audiences interested, and maximizing the marketing opportunities.
          The second tier focused on tune-in as well as the promotion of Raising the Mammoth as a major
      cinematic event leveraging all of the marketing assets of DCI for one single event. No other cable or
      broadcast network had ever attempted this type of international strategy for a television program.
          The Discovery Channel built expedition awareness and “Watch with the World” tune-in momen-
      tum by rolling out in phases over the last few months before airing, including “Mammoth Moments”
      vignettes with program sponsorship, online information, and “March Is Mammoth” countdown
      spots. These vignettes had a global reach through international and domestic use on the Discovery
      Channel as well as other Discovery networks: TLC, Animal Planet, and the Travel Channel.
          In the style of theatrical releases, Discovery launched its first program-specific theatrical trailer to
      run in almost 300 theaters in 11 major U.S. markets. Featuring a fully animated mammoth and expe-
      dition footage, and scored by a 60-piece orchestra, the trailer maximized the large screen impact
      with powerful and dramatic sound and imagery. Discovery Channel India and Singapore also ran this
      movie trailer in their native languages.
          Discovery developed free promotional materials specifically for Raising the Mammoth including
      plush mammoths, fleece parkas, and “Mammoth Munch” ice cream. Made by Kemps Dairy, this fla-
      vor is a premium fudge ripple with a chocolate-covered mammoth cookie buried deep within the pint
      of ice cream just waiting to be “excavated.”
          Discovery Channel and created a Raising the Mammoth sweepstakes inviting online
      consumers to experience a similar expedition. After watching Raising the Mammoth on Discovery
      Channel, consumers were able to enter and win a trip to a dinosaur dig in South Dakota with
      paleontologist Dr. Larry Agenbroad, who participated in the Mammoth expedition or an expedition
      to Russia that included a first-class journey through Siberia on the Trans-Siberian Railway.
          Online marketing efforts included animated tune-in banners and ads that linked the Raising the
      Mammoth online feature content and sweepstakes and interactive banners that delivered mammoth-
      related facts.
          Internationally, Discovery Channel Germany created an online initiative with sweepstakes, inter-
      active game and banners, while Discovery Channel Europe created a feature event site, promoted on-
      air, with online stories, quick facts, discussions with experts, sweepstakes, and video clips. Discovery

  Channel Asia promoted Raising the Mammoth through an on-air/off-air sweepstakes competition
  with a grand prize trip to Washington, D.C., with local stops at the Smithsonian Museums.
      Discovery Channel U.S. and international ad sales teams secured extensive global sponsorship
  packages for Raising the Mammoth, including on-air, retail, in-flight, home video, poster, and online
  areas for several major companies. Participating international markets included Asia, Europe, and
  Latin America and involved additional customized regional marketing elements.
      Retail stores showcased prehistoric-themed merchandise in Discovery and Nature Company
  stores, including mammoth plush toys, branded T-shirts, archeological dig kits, Discovery’s Atlas of
  the Prehistoric World, as well as other related books and videos. The in-store promotional designs
  featured the same look and feel of the network’s marketing elements for Raising the Mammoth.
      Additional consumer marketing elements exclusive to New York City included a “fur-wrapped”
  commuter “Big Woolly Bus” that traveled around the city.
      On Sunday, March 12, 2000, Raising the Mammoth drew a remarkable 7.8 rating in the United
  States. Those results made Raising the Mammoth not only the most watched program in the history
  of Discovery Communications, Inc., but also the most highly rated documentary in U.S. cable tele-
  vision history. In Canada, it drew the largest single audience for any program in Discovery’s five-
  year history. In the United Kingdom, it earned the highest adult rating for all satellite channels that
  night. And, in the total 147 countries in which it aired, Raising the Mammoth drew over 30 million
  households in its first screening. Raising the Mammoth also proved to be the highest-trafficked Dis- feature, measured in a seven-day period, with over 3.75 million page views over the week.
  Approximately 919,000 page views were registered the day after Raising the Mammoth aired, which
  is the second highest one-day page view record to date for


KIMBERLY-CLARK                              Dwight R. Riskey                               DISCOVERY
CORPORATION                                 In 2002, Dwight Riskey was Senior Vice         COMMUNICATIONS, INC.
Kimberly-Clark Corporation is a leading     President of Global Marketing for Frito-       Discovery Communications, headquar-
global manufacturer of tissue, per-         Lay and has since retired from the com-        tered in Silver Springs, Maryland, is the
sonal care, and health-care products.       pany. Dr. Riskey received his bachelor’s,      world’s number-one nonfiction media
Visit Kimberly-Clark at www.kimberly-       master’s, and doctorate degrees from the       company. Visit Discovery at www.                                  University of California, Los Angeles.

Jeff Drake                                  KRAFT FOODS, INC.                              David C. Leavy
Jeff Drake was formerly Director of Mar-    Kraft, headquartered in Northfield,            David Leavy is Executive Vice President
keting Research for Kimberly-Clark Cor-     Illinois, is the world’s second largest        of Global Communications and Corpo-
poration (KCC). Mr. Drake led the           food company. Visit Kraft at www.kraft         rate Affairs. Mr. Leavy received his BA
marketing research function at KCC for                                     from Colby College.
over 10 years. He received his BS in Mar-   Mary Kay Haben                                 Additional information was
keting from Wright State and his MBA        Mary Kay Haben was formerly Executive          provided by:
from the University of Cincinnati.          Vice President and President, Kraft Cheese     John C. Mowen who is a Regents Profes-
FRITO-LAY                                   Division. Ms. Haben received her BBA           sor of Business Administration at Okla-
Frito-Lay North America is the $11 bil-     from the University of Illinois and her        homa State University.
lion convenient foods business unit         MBA from the University of Michigan.
of PepsiCo. Visit Frito-Lay at www. frito

                                                                                         CONSUMER PURCHASING BEHAVIOR                  131
      1. U.S. Department of Commerce, 1999.                     4. Snack Food & Wholesale Bakery, Sept. 1999, p. 9.
      2. Peter D. Bennett, Dictionary of Marketing Terms        5. Arthur S. Reber, The Penguin Dictionary of Psychology,
         (Chicago, IL: American Marketing Association, 1995),      Penguin, 1985.
         p. 59.                                                 6. Ibid.
      3. Consumer Behavior, 5th ed., by John C. Mowen and       7. Ibid.
         Michael Minor.

   7            PURCHASING
                          by Boeing, Snap-on, IBM, and DuPont

THE ESSENT IALS OF                                      for acquisition of required material, services, and
ORG ANIZAT IONAL PURCHA SING                            equipment.”1 (Institute for Supply Management)
by Boeing                                               Organizational purchasing also is known as pro-
                                                        curement or industrial purchasing (IP).When
Introduction                                            organizations sell to other organizations, the sell-
                                                        ing process is known as “business-to-business.”
Of the consumers in the United States, 300 million
account for two-thirds of demand (sales or GNP)
and only 23 million organizations account for
approximately one-third of demand. Organizational                    ↓                       ↓
purchasing is conducted by individuals who have a        Organizational purchasing   Consumer purchasing
specific buying behavior when involved in the
process of purchasing products and services in large
                                                        CHARACTERIST IC S OF
quantities. There can be several types of products
                                                        ORG ANIZAT IONAL DEMAND
procured through industrial purchasing, such as
raw materials, components, subassemblies, equip-        Organizational, or business, demand is derived
ment, or finished products. These products are then      from a company’s needs, and depends on the type
turned into products and services that are sold to      of product or service that is being purchased. There
end consumers. Organizational purchasing agents         are several characteristics of business demand
are concerned with buying the right quality, in the     including derived demand, dependent/independ-
right quantity, at the right price and time, and from   ent demand, stability of demand, and competitive
the right sources. The quality of the organizational    demand.
finished product in turn leads to the organization
having a competitive advantage.                         Derived Demand
                                                        Derived demand occurs when business product
                                                        needs are derived from consumer needs. For
Organizational purchasing is the identification,        example, a consumer may need a pair of in-line
acquisition, access, positioning and management of      skates, and the roller blade company will then
resources and related capabilities the organization     need to purchase plastic, metal buckles, ball bear-
needs or potentially needs in the attainment of its     ings, and so forth. Virtually all business demand is
strategic objectives, “a business process responsible   based on consumer demand. Purchasing agents

                                                                 ORGANIZATIONAL PURCHASING BEHAVIOR        133
      must pay attention to consumer trends as well as        Perfect Competition
      industrial needs. This is why manufacturers of          In a perfect competition industry, the abundance of
      component parts will team up with consumer              suppliers prevents any one supplier from determin-
      manufacturers on advertising designed to stimu-         ing the price. Under this condition, the market-
      late consumer demand.                                   place, or the actions of all the organizational
                                                              buyers, dictates the price of products. The buyer
      Dependent and Independent Demand                        needs to continually research what is happening in
                                                              the marketplace in order to determine the best
      Dependent demand occurs when a product’s use is         value. Examples are agricultural commodities and
      directly dependent on the scheduled production of       the current large variety of business computers
      a larger component or parent product. For exam-         such as Hewlett Packard, IBM, Dell, and Gateway.
      ple, in a plant that produces automobile engines,
      the demand for engine block castings is a depend-       Imperfect Competition
      ent demand; once the production schedule for a          In an imperfect competition industry, there are
      group of engines is established, the planner knows      many sellers that have some control over price,
      with certainty that one block will be required for      each with differentiated products, The organiza-
      each engine.                                            tional buyer should concentrate on pricing and
         Independent demand occurs when an item’s use is      product quality and service. Examples are soap
      not directly correlated to a production schedule. For   manufacturers, cereal companies, and television
      example, the demand for oil used by the machines        broadcast companies.
      on the assembly line cannot be calculated accurately    Oligopoly
      from the production schedule; therefore, oil is said    In an oligopolistic industry, there are a few sellers of
      to have an independent demand. Generally, in an         an identical, or nearly identical, product. Each seller
      assembly or fabrication-type operation, most pro-       can have some effect on prices. It is very difficult to
      duction inventory items will have a dependent           get price concessions in an oligopolistic setting,
      demand, whereas maintenance items will have an          especially if the product is standardized. This hap-
      independent demand.                                     pens because, if a supplier’s competitors hear about
                                                              a price reduction, all competitors tend to reduce
      Stability of Demand                                     prices to meet the competition, resulting ultimately
                                                              in lost profits for the oligopolistic industry. Exam-
      A business typically has a continuous demand for        ples of oligopolies are the steel, paper, hotel, and
      the raw materials or components that it uses in its     airline industries. The buyer should concentrate on
      daily operations. Organizational purchasing agents      service standards, such as performance, quality,
      become experts in their fields by buying items on a      and delivery.
      daily basis. In turn, purchasing agents count on
      other businesses to provide stability of supply.        Monopoly
                                                              In a monopolistic industry there is one seller with a
                                                              unique or proprietary product. The company will
      Competitive Demand                                      have no direct competition and the purchaser will
      Markets may be segmented into four economic             have no control over the price. A monopolistic
      conditions: perfect competition, imperfect compe-       setting occurs when a company is first to market
      tition, oligopoly, and monopoly. Knowledge of the       with a new product. A company may be granted an
      competitive supply structure helps the buyer and        exclusive ability to sell their product by the govern-
      seller know how prices are set, whether price con-      ment, such as through a patent on a new drug. Also,
      cessions may be possible, and how to get the best       a company may be granted an exclusive ability to
      terms and conditions.                                   operate its business in a given area, such as utilities

or a cable television company, through a business      their company should make; what components
license. In this case, the company prices are regu-    or parts the company should manufacture; what
lated by the government and given a rate that will     services the company should provide; and what
yield a fair return on investment to the investors.    components, parts, or services should be purchased
However, the selling company in a monopolistic         from outside suppliers. They correlate their pur-
segment has no control over alternative products       chasing actions with sales forecasts and production
or services.                                           or demand schedules. They select suppliers from
                                                       whom purchases can be made on a continuing and
SEGMENT ING ORG ANIZAT IONAL                           mutually profitable basis. Since many purchased
DEMAND                                                 items are technical in nature, they integrate the
                                                       efforts of their departments with those of the other
Organizational markets may be segmented, as in         departments of the company. Also, because many
consumer markets, to more accurately satisfy           items are extremely expensive, there is a need for
specific needs in a cost-effective manner. Each of     the business-to-business sales rep to offer financ-
these organizational markets has industry-specific      ing for these products. An example of a highly tech-
purchasing agents. One method of determining           nical industrial purchase is high-quality silicon that
specific target companies within an industry is the     will become part of a solar panel.
North American Industry Classification System
(NAICS). NAICS classifies and lists industries by
product and service in the United States, Canada,
and Mexico by six-digit categories. The old system     Government buyers include procurement authori-
was formerly known as the Standard Industrial          ties from city, state, county, and federal govern-
Classification system (SIC). Business-to-business      ments. The purchasing principles are generally the
sales managers and representatives spend many          same as business markets. However, the governmen-
months or years learning about their specific tar-      tal documentation, procedures, and regulations are
get market in an effort to better serve their target   more detailed because of the large size of typical
clients. There are many types of organizational        contracts, the sovereignty of the government, and
markets, including commercial, governmental,           the source of the funding which requires the trust
institutional, and trade.                              of the taxpayers. The U.S. government has its own
                                                       set of comprehensive federal regulations affecting
Commercial                                             procurement. Most notably are the Federal Agency
                                                       Regulations (FAR) and the Defense Federal Agency
Commercial markets involve purchasing materials        Regulations (DFAR). Government purchasing man-
and services used for internal consumption or          agers typically seek low cost (low bidder), detailed
for conversion into other products or services.        product specifications, and the capability to deliver
Commercial markets consist of industrial manu-         large quantities on time. Examples of products spec-
facturers such as automobiles and furniture,           ified might be hundreds of miles of paved roads
resource producers such as farming and mining,         for a multistate highway project or new guidance
and service providers such as transportation and       systems for a jet fighter.
legal services. Most commercial companies provide
differentiated products and therefore require high
quality or specific inputs to their manufacturing or
service processes. Purchasing managers who buy         Institutional buyers include universities, schools,
materials and services for these markets typically     hospitals, churches, and prisons. Due to the size of
are called industrial buyers. Industrial buyers par-   the institution, buyers typically purchase large quan-
ticipate in determining what products and services     tities of goods and services and, therefore, often have

                                                                ORGANIZATIONAL PURCHASING BEHAVIOR               135
      specific rules and internal regulations governing the      the sales force of supplying companies. The size of
      purchasing process. Purchasing managers seek low          a company’s purchasing department, including the
      cost due to the typically low budgets of institutions.    number of buyers, often depends on the size and
      Quality often is not a primary requirement because        complexity of the products, commodities, and ser-
      end users of the purchased items have few if any          vices being procured. Typically one or two buyers
      competitive options and are considered to be a cap-       from a company will work with a supplier on the
      tive audience. However, quality requirements are          daily management issues of a contract. The sup-
      improving as competition increases among institu-         plier, often referred to as a business-to-business sales
      tions. For example, many colleges and hospitals now       representative, will work with the buyer to provide
      tout their improved food offering.                        important information. The role of buyers is to
                                                                ensure that all parties involved adhere to any
      Trade (Wholesale/Retail)                                  unique or special business provisions and the gen-
                                                                eral corporate terms and conditions of the purchase
      The trade segment consists of wholesale and retail.       contract. Buyers also are responsible for the coordi-
      Trade buyers purchase essentially finished products        nation and communication of any activity with
      that may require some assembly, reprocessing, or          other groups within the organization, including the
      repackaging. Value-added resellers (VARs) buy basic       technical, finance, and legal departments; quality
      products from original equipment manufacturers            assurance; and customer service. It is imperative to
      (OEMs), add various items such as hardware, soft-         have open and regular communications among
      ware, and services, and then resell them to various       these groups to ensure that the right product is
      business niches. Many items are purchased in bulk         delivered at the right time and at the right cost.
      and therefore the buyers’ primary concerns are qual-         Marketers should understand the consumers of
      ity and price. Purchasers buy with the knowledge          the business community, known collectively as
      that the items will go to the end user, and therefore     purchasing decision makers. They may be individu-
      are in constant touch with the consumer market            als, buying teams, design-build teams, or buying
      through trade shows, marketing research, and busi-        consortiums, and are the people with whom sup-
      ness-to-business sales representatives. Space con-        plier companies’ sales managers and sales repre-
      straints may require a small retail purchaser to buy      sentatives should strive to form long-term business
      in small lots from a wholesale distributor, despite the   relationships.
      higher cost. For example, Costco, a large store,
      chooses to buy directly from the manufacturer for
      most of its purchases because of the sheer volume         Individuals
      of its purchases, its extensive distribution system,      Individual decision makers often make the final
      and the price discounts. Many retail buyers will seek     decision in the procurement process. These individ-
      unique or exclusive merchandise in an effort to pro-      uals can either be part of the purchasing staff, the
      vide a differentiating factor for their store. Many       manager of the purchasing department, or a mem-
      purchasing systems require a manufacturer or dis-         ber of the group that will be using the product or
      tributor to carry an entire line of products rather       service. The advantages of individual buyers are the
      than just one item to set up an account with the          ability to have knowledge and responsibility in one
      buyer and achieve economies of scale in purchasing.       person and the faster response of one individual.

      ORG ANIZAT IONAL BUYER S/                                 Buying Teams
      PURCHA SING DEPARTMENT                                    Most companies use buying teams in the procure-
      Each organizational market segment has a purchas-         ment process. A typical buying team consists of
      ing department. These departments interact with           representatives from the purchasing, finance, legal,

and engineering departments. The advantage of                 quickly and efficiently if a company has a sin-
buying teams is the additional knowledge imparted             gle operating facility. However, with the scat-
by additional personnel.                                      tering of plants and diversification of products,
                                                              the problems of purchasing departments
Design-Build Teams                                            become increasingly complex with additional
                                                              demands on communications.
In some instances, design-build teams (DBTs) are            • Decentralized. Decentralized, or departmen-
used to facilitate communication among customers,             talized, organizational purchasing exists when
manufacturers, and organizations in the supply                operations, marketing, finance, engineering,
chain. These teams typically will codevelop the               or other functional area personnel do their
requirements for a new product. Taking advantage              own buying. Decentralization provides quick
of the expertise of the manufacturer and the supply           response to local needs; however, this struc-
base, and coupling that with the experience of the            ture tends to produce duplication of effort and
end user will help alleviate last-minute production           inefficiency.
changes and disruptions that ultimately will drive
up the cost of the product.
                                                          Purchasing Process

Buying Consortiums                                        Organizational buyers typically follow a formatted
                                                          purchasing process. This process assures that all of
Consortium buying is defined as a group of com-           an organization’s needs are met. Marketers attempt
panies that collaborate to leverage their procure-        to influence each of these steps through the mar-
ment clout.                                               keting mix (product development, pricing, distri-
                                                          bution, and marketing communications). The goal
Types of Organizational Purchasing                        of marketing is to influence this process so that
Organizational purchasing usually is identified as         each step ultimately narrows down the organiza-
centralized or decentralized. Although these terms        tional buyer’s choice of competing options to one
sometimes are used to refer to the physical location      product brand. See the box that illustrates the
of purchasing staff within a company, it is more          Organizational Purchasing Process.
commonly referred to as the location of the purchas-      1. Determine Needs
ing authority. Neither completely rigid centraliza-       The need for a purchase typically originates in one
tion nor loose decentralization of purchasing seems       of an organization’s operating departments or in its
to meet the needs of all companies. The solution to       inventory control section. These needs can be for
the problems presented by either extreme structure        several types of products and services.
often is found in a centralized corporate staff control
of purchasing policies and administration, with           Installations/Structures
decentralization of purchasing operations. For            Installations or structures are buildings and equip-
example, the policies and strategic initiatives of        ment attached to buildings, such as heating and
some companies are derived at a central procure-          cooling equipment. Structures include manufac-
ment division whereas the procurement operations          turing, utilities, mining operations, roads, dams,
are carried out in the decentralized manufacturing        and airports. These are generally the most expen-
and operating facilities.                                 sive of any business purchase and are therefore pur-
                                                          chased infrequently and involve many people. In
  • Centralized. Centralized organizational pur-          some instances, installations are leased rather than
    chasing exists when the responsibility for the        purchased owing to the large capital outlays
    purchasing function is assigned to a single           needed. In many instances, state governments may
    group and its manager. This structure works           be involved in promoting one installation site over

                                                                   ORGANIZATIONAL PURCHASING BEHAVIOR            137
                                                               perceives will give it a competitive advantage. In
           Organizational Purchasing Process
                                                               some instances, the buyer may supply these unique
                         Determine needs                       components, known as “buyer-furnished equip-
                         Determine amount needed
                                 ↓                             Raw Materials
                         Select options: Make/Buy/Lease        Raw materials are commodities that will be con-
                                                               verted into production materials that are then con-
                         Transmit specifications
                                 ↓                             verted into end items. Examples of raw materials
                         Create purchase order/contract        include steel sheets, plastic resins, rubber com-
                                 ↓                             pounds, and aluminum ingots. Purchasing raw
                         Determine sourcing methodology        materials and commodities is different from buying
                                                               services, component parts, or fully manufactured
       INFLUENCES        Evaluate/Qualify potential sources
                                                               products. Raw materials must meet the needs of
                         Distribute request for                many processing technologies, as the material
                         proposals/bids                        passes through the manufacturing process. For
                                 ↓                             example, to produce a steel fabrication the material
                         Receive/Evaluate proposals/bids       must be formed, welded, and perhaps finished.
                                                               Each of these process technologies may require dif-
                         Select supplier
                                 ↓                             ferent material characteristics for optimal process-
                         Make purchase/Administer              ing. To achieve the lowest total cost, a buyer needs
                         contract                              to work across all process technologies required to
                                 ↓                             produce a product, including the design stage.
                         Evaluate contract performance
                                                               Maintenance, Repair, Operating Supplies
                                                               Maintenance, repair, and operating supplies (MRO)
      another, as jobs follow the selection and purchase of
                                                               are materials that are purchased for the support of
      installations. For example, Mercedes Benz had sev-
                                                               manufacturing or operations. These supplies are
      eral states competing for the site of a new automo-
                                                               expendable items and do not become part of a
      bile assembly plant.
                                                               product. Some examples are hand tools, cleaning
      Capital Equipment                                        materials, and office supplies. Service organiza-
      Capital equipment has four components: indust-           tions such as hospitals, schools, and banks usually
      rial, information processing equipment, transport-       buy large volumes of MRO supplies. Typically,
      ation equipment, and accessory/general-purpose           80 to 85 percent of an organization’s purchase
      equipment.                                               orders are for MRO supplies; however, only 15 to
                                                               20 percent of the total purchasing dollars are spent
      Parts and Components
                                                               for MRO items.
      Parts and components are defined as the materials
      supplied to the manufacturer during the manufac-         Services
      turing process that are then incorporated into the       Services provide skilled labor that does not produce
      finished product. For example, when Boeing signs          a tangible good. Services range from architectural,
      contracts with airlines to manufacture airplanes,        engineering, advertising, and software development,
      the contract usually specifies certain customer vari-     to the maintenance and repair of production equip-
      ables for a particular aircraft that is unique to that   ment. Procurement of services may represent more
      airline. These may include such added components         than 25 percent of an organization’s expenditures.
      as the interior configuration, seats, in-flight enter-     As outsourcing increases, expenditures on services
      tainment, or other specific hardware that the buyer       increase each year. Specifying service quality levels

can be one of a purchasing department’s most chal-                                  EOQ
lenging responsibilities.                                                                                Total Cost

Standardized versus Custom/Unique
Goods and Services

                                                        Cost Per Unit
Products or services obtained through procure-                                                            Carrying
ment can be categorized as either standardized                                                            Cost
or unique.
    The advantages of standardized products are the
ease of purchase and known capabilities to the end                                                        Order
consumer. The disadvantage is the inability to dif-                                                       Processing
ferentiate based on these parts or products.                                                              Cost
    The advantage of using custom parts or prod-                                  Order Size
ucts is the ability to serve a consumer need and the    Figure 7.1 Determining the Economic Order
potential for additional revenue. The disadvantage      Quantity
is the additional time and cost to purchase unique
products.                                               whether it should be procured from a supplier. This
                                                        make/buy decision usually is made with input from
2. Determine Amount Needed                              the purchasing, technical, and finance departments.
The next step is to determine the amount of the            A company conducts an internal analysis to
product needed. Organizational buyers can make          determine whether the costs will be less if the prod-
purchases of an item ranging from one to millions       uct or service is produced internally or externally.
of the item. The advantages of purchasing many          Costs, the company’s long-range plans, and mana-
items at once is the lower cost of order processing.    gerial expertise usually establish that some parts
Typically the administrative cost is the same regard-   and components of the company’s products will be
less of the amount ordered, thus repeating the same     made internally and that others will be purchased
process can be very expensive. The disadvantage of      from outside suppliers. Within this framework,
purchasing large quantities at the same time is the     make-or-buy determinations can originate in one
excessive inventory carrying costs (detailed in         of several ways:
“Warehousing,” Chapter 22). Determining the cor-
rect amount to order is known as the economic                      • New Product Development. The development
order quantity (EOQ). The goal of EOQ is to deter-                   of a new product or the major modification of
mine the order size that minimizes the total cost.                   an old one are typical situations requiring
                                                                     make-or-buy determinations. Every major part
3. Select Options: Make/Buy/Lease                                    of the new product should be studied well in
There are three options that a buyer considers when                  advance to determine the most advantageous
deciding whether to purchase a product or service.                   production and sourcing decisions.
The buying company can make the product or pro-                    • Unsatisfactory Supplier Performance. Unsat-
vide the service internally, buy the product from                    isfactory supplier performance for certain
another company, or lease the product or service                     purchased parts and components may also
from another company.                                                trigger make-or-buy determinations. It may
                                                                     stem from the supplier’s inability to perform
Make/Buy                                                             certain complex production operations or
Traditionally, a company will utilize a make/buy                     from unstable quality performance.
committee to determine if a product or service                     • Changing Sales Demand. Periods of signifi-
should be provided from within a company, or                         cant sales growth or sales decline also generate

                                                                          ORGANIZATIONAL PURCHASING BEHAVIOR           139
          situations that initiate make-or-buy determi-           tity and date, and sends it to the purchasing
          nations. Reduced sales result in reduced pro-           department.
          duction activity, thus leaving company-owned          • Bill of Materials. A bill of materials (BOM) is a
          plant facilities and workers underutilized.             structured list of materials that is used to cre-
          Rising sales require a rapid expansion of pro-          ate a particular part. The BOM, along with a
          duction capacity that cannot be met through             production schedule, can be sent directly to the
          plant expansion.                                        purchasing department as notification of the
      Lease                                                       need for materials. Total requirements are
      An operating lease is used by an organization to            obtained by calculating the BOMs for the
      facilitate financial convenience and flexibility, usu-        production quantity scheduled.
      ally when a firm has a need to use the assets but is       • Computerized Production/Inventory Con-
      not interested in owning them. This may be due to           trol Systems. Many companies use computer-
      the risks and responsibilities that are associated          ized production and inventory control systems
      with owning the asset or the potential cost of              to produce a complete requirements schedule
      upkeep on the equipment. Most operating leases              for a given time period, containing most of the
      are for a short, fixed period of time, usually consid-       information needed by the buyer.
      erably less than the life of the equipment being        5. Create Purchase Orders/Contracts
      leased. For example, companies may lease comput-        Once the determination is made to purchase or
      ers or a fleet of corporate automobiles.                 lease, a contract is needed to initiate a new pur-
      4. Transmit Specifications                               chase. A new purchase is a new purchasing/leasing
      The operating departments within the organization       requirement that has been developed by the man-
      will specify to the buyers the type of product or       ufacturer’s new specifications. Purchase contracts
      service and the quantity, quality, price, and time      for small dollar amounts, usually under $1,000,
      needed. Transmission of the specifications to the       with standard terms and conditions are typically
      purchasing department usually is accomplished in        called purchase orders. Purchase contracts are for
      one of four ways:                                       larger amounts with nonstandard terms and condi-
                                                              tions. The vendor or supplier sales representative
        • Standard Purchase Requisition. This is an           should be aware of any potential new purchase
          internal document, in contrast with a purchase      decisions and assist in determining specifications
          order that usually is an external document.         and requirements.
          Most companies use a standard, serially num-
          bered purchase requisition form for requests        6. Determine Sourcing Methodology
          originating in the operating departments. The       The purchasing department will determine the two
          essential information on the form includes a        main options for sources for contract fulfillment:
          description of the material, quantity, date         sole source or multisource competitive bidding.
          required, estimated unit cost, operating account    Sole Source
          to be charged, date, and authorizing signature.     Sometimes a buyer will ask only one company to
        • Traveling Purchase Requisition. This type of        bid on a contract, known as a sole source or a non-
          requisition is used to communicate to the pur-      competitive contract. There are several reasons why
          chasing department the material needs that          sole sourcing may be used: only one source is avail-
          originate in the inventory control sections.        able for a particular product (replacement parts for
          When the stock level drops to the reorder point     a specific computer), only one supplier has the spe-
          in a manual system, an inventory clerk takes        cialized technical expertise, there is a time limita-
          the traveling requisition from the file, notes      tion, or a company has a special relationship with a
          the current stock level and the desired quan-       particular supplier. An advantage of sole sourcing is

the speed of contract fulfillment. The disadvantages         generally is of a smaller dollar value than
of sole source contracts are the lack of competition        closed bidding. For example, a city with a
and difficulty of negotiating terms. A negotiated           requirement for a new ballfield facility may
contract may be used when there is only one sup-            select two or three landscaping companies and
plier. This is typically used to attempt to secure          invite them in for formal negotiations to
favorable terms and conditions for the purchaser            determine which can provide the best service
despite being in a sole source setting.                     at the most reasonable price. Advantages are
                                                            the ease of administration and the short time
Multisource Competitive Bidding
                                                            needed for responses. The disadvantage is the
Bids are sales proposals in writing from the supplier
                                                            potential for unethical dealings.
or vendor. There are several competitive purchasing
                                                          • Negotiated Bid. A negotiated bid is a bargain-
options, including closed bid, open bid, negotiated
                                                            ing or discussion process between two or more
contracts, two-step bidding, and online auction
                                                            parties, each with its own viewpoints and
bidding. The advantage of competitive bidding
                                                            objectives, seeking to reach a mutually satis-
usually is the negotiation of preferred terms. The
                                                            factory agreement on, or settlement of, a mat-
disadvantage is the length of time taken to secure
                                                            ter of common concern. For example, a
the contract. No legal requirements compel a pri-
                                                            grocery store chain may come to a city with a
vate firm to award a contract to the lowest bidder;
                                                            proposal to buy and develop a parcel of the
however, the competitive-bidding process itself
                                                            city’s property to construct a new store.
implies that the highest-qualified and lowest-priced
                                                            Through continuous talks and negotiations,
bidder will get the contract. Competitive bidding
                                                            the city may decide that the proposal has a
practices demand that a buyer be willing to do busi-
                                                            mutually acceptable agreement and enter into
ness with every vendor from whom he or she solic-
                                                            a contract with the company to proceed with
its a bid. Whenever the lowest bidder does not
                                                            the project.
receive the contract, the buyer is required to explain
                                                          • Two-Step Bidding. Two-step bidding is used
the decision. Government contracts usually require
                                                            when not enough initial product or service
competitive bidding.
                                                            specifications are available to start a formal
  • Closed Bid. A closed bid is a formal method for         bidding process. The first step seeks technical
    acquiring goods and services in which a main            compliance, and the second step seeks price
    requirement is to use the lowest bidder. Bids           bids. The advantage of this process is the time
    are submitted in sealed envelopes, to prevent           saved in lieu of waiting until all specifications
    dissemination of its contents, before a strict          are ready. The disadvantage is the setting of
    deadline. For example, a city may use a closed          parameters by the supplying vendors. An
    bid for the highly competitive selection of a           example was the need for a solution to the
    contract for city recycling. Advantages are that        Y2K computer problem that required starting
    the process is fair and ethical to all bidders. The     the debugging process immediately and
    disadvantage is that this system prevents               working out the contract requirements later.
    the development of a long-term, cooperative           • Online Auction Bidding. Online auction bid-
    relationship.                                           ding uses the Internet to receive bids from as
  • Open Bid. An open bid is a method for acquir-           many sources as possible. This method usually
    ing goods and services in which discussions or          is used by private industry for nonstrategic,
    negotiations may be conducted with offerors             spot buys. The advantages are the lower prices,
    who submit proposals in the competitive                 ranging in savings from 2 to 25 percent, and
    range. Open bidding is less formal; may be              the quick response for receiving bids. The
    conducted in person, by phone, or by fax; and           disadvantage is the lack of source loyalty.

                                                                 ORGANIZATIONAL PURCHASING BEHAVIOR         141
      7. Evaluate/Qualify Potential Sources                    8. Distribute Request for Proposals/Bids
      If multiple source bidding is selected, then compa-      Once the list of potential bidders/suppliers has
      nies typically will rate suppliers against established   been approved, they will be sent an invitation for
      criteria and then rank the results. Suppliers that are   bids (IFB) or a request for proposal (RFP). An IFB
      not financially sound or do not meet the quality         or RFP is a formal request to prospective vendors
      criteria set forth by the buyer generally will be        soliciting price quotations or bids and consists of a
      excluded from the bidding process. Some compa-           description of the item or service required, infor-
      nies require that their suppliers or vendors have        mation on quantities, required delivery schedules,
      strict quality systems in place and are certified to      special terms and conditions, and standard terms
      ISO 9000 requirements. The International Stan-           and conditions. The IFB typically has more prede-
      dards Organization, headquartered in Switzerland,        termined specifications and primarily is concerned
      helps determine quality standards worldwide.             with the bid price. The RFP may seek input from
      Many vendors or suppliers are selected only when         the bidding company regarding suppliers and
      they meet all the requirements in several determin-      methodology.
      ing categories and are then ranked in the top level
                                                               9. Receive/Evaluate Bid Responses
      of all vendors. The process of achieving the top-
                                                               Once the RFP bids from all qualified bidders are
      level status takes an average of 1.6 years and can
                                                               received, the company will conduct an evaluation.
      range from three months to five years.2 Companies
                                                               Generally, this evaluation consists of an independ-
      may assist suppliers in improving their qualifica-
                                                               ent review of the relevant portions of the RFP by
      tions by providing communications regarding
                                                               the technical, finance, and legal departments.
      expectations or problems, training, and plant visits
                                                               Typically, the bidders with a technically acceptable
      or audits. Many companies use quantifiable ratings
                                                               bid and the lowest cost will be selected for nego-
      charts to qualify sources. Companies utilize both
                                                               tiation of a contract. When one or more bidders is
      quantitative and qualitative criteria when choosing
                                                               brought in for final negotiations, the representa-
      a supplier. Many companies try to minimize the
                                                               tive from the procurement department will usu-
      subjective influences in a procurement process
                                                               ally lead the negotiations, with assistance from
      through a process of checks and balances and
                                                               relevant departments. Usually procurements
      through a strict segregation of the technical, finan-
                                                               above a certain level will require authority from a
      cial, and legal analysis of a bid.
                                                               member of senior management to finalize the
      Quantitative Criteria                                    contract.
      Quantitative influences or criteria that affect              Occasionally, a soliciting company may not pro-
      purchasing include quality, on-time delivery, cost,      ceed with the evaluation process for any of several
      technological capabilities, after-market service,        reasons, such as reduced funding capacity, a deci-
      continuity of supply/financial stability, reciprocity,    sion to make the product in-house, or the cancella-
      geographic location, and government guidelines.          tion of a larger project. In this case it is important
      For example, a buyer may give preference to sup-         to notify the bidding companies as soon as possible
      pliers that are geographically close or that have the    to prevent them from performing unnecessary bid-
      lowest cost.                                             ding tasks.
                                                                   Not every company capable of bidding will bid.
      Qualitative Influences                                    They may be overbooked with other work or this
      Qualitative or subjective influences that affect pur-     particular bid may not be economically justified.
      chasing include the reputation of a particular com-      Suppliers may be kept out of the bidding by sub-
      pany and its management team, friendships                mitting late bids, bids with errors, or by having
      between supplier and buyer, and the security in          employees with conflicts of interest with the solic-
      knowing a supplier well.                                 iting company.

   In many instances, one prospective supplier is         ing process. This allows the supplier to alleviate
obviously superior to its competition, and the            some of the risk involved with capital tied up in a
selection is a simple matter. However, the choice is      product that potentially could be canceled by the
not always so clear. In these cases, a numerical          buyer. For example, customers typically pay in
weighted-factor rating system can facilitate the          increments as their products move toward comple-
decision process. A weighted-factor system calls for      tion in the manufacturing line. This type of pay-
both the development of evaluation criteria and the       ment is typically done with higher dollar value
assignment of criteria weighting.                         products or products that are unique to the partic-
Evaluation Criteria                                       ular customer. Typical purchasing methods include
The first step is to identify the key factors to be con-   blanket purchase orders, purchase credit card sys-
sidered in the selection, along with their respective     tems, and master schedules.
weights. Typically, this is accomplished by a com-        Blanket Purchase Orders
mittee of individuals involved in the purchasing          Blanket purchase orders or blanket ordering agree-
process. Factors that are evaluated include the sup-      ments (BOAs) allow a buyer and supplier to nego-
plier’s technical approach; understanding of the          tiate the terms and conditions for future contracts,
technical problem; production facilities; operator’s      without specific commitment. Then, when the
requirements; maintenance requirements; price,            buyer wishes to order equipment or services, only
managerial, financial, and technical capabilities;        the prenegotiated price and quantity need to be
product quality; ability to meet schedules; and legal     inserted into the final contract. The advantage is
compliance with terms and conditions.                     that the contracts can be negotiated and finalized
Criteria Weighting                                        on an expedited basis.
The second step requires the assignment of numer-         Purchasing Credit Card Systems
ical ratings for each of the competing firms. These        Another mechanism is to allow certain authorized
assessments are based on the collective judgments         employees to purchase products and services that
of the evaluators after studying all the data and         are less than a specified dollar amount with a cor-
information provided by the potential suppliers, as       porate credit card in lieu of the formal procure-
well as that obtained in field investigations.             ment process. The advantage of purchasing
10. Select Supplier                                       through credit cards is that it greatly expedites the
The selection of a supplier typically involves a          procurement process. The disadvantage is that
negotiation with one or more bidders with the             there generally is no opportunity to review or nego-
highest evaluation. The negotiation process pro-          tiate terms or conditions.
vides a legitimate and ethical means for a buyer and      Master Schedules
a supplier, through give and take, to determine           In some instances, products or services are pro-
terms and conditions, including cost. The most            cured in accordance with a master schedule. A mas-
successful negotiations produce results that satisfy      ter schedule incorporates the manufacturing and
both sides and provide a framework for a long-            delivery schedules for various customers and cor-
term, mutually beneficial relationship.                    porate programs. As a company’s or an organiza-
11. Make Purchase/Administer Contract                     tion’s master schedule is firmed up, major divisions
After the selection of a supplier, both the technical     within a company will begin procuring their prod-
and procurement departments typically handle the          ucts and services in accordance with this master
contract administration. Progress payments often          schedule.
are used as a way of sharing risk in a buyer/supplier     12. Evaluate Contract Performance
relationship. The buyer releases funds to the sup-        The final step in the purchasing process is to eval-
plier at predetermined points of the manufactur-          uate the contractors, during and after the term of

                                                                   ORGANIZATIONAL PURCHASING BEHAVIOR           143
      the contract, against the original bidding criteria.      ORG ANIZAT IONAL PURCHA SING—
      The evaluation process promotes continued atten-          INTERNAT IONAL
      tion to the performance requirements and pro-             by Snap-on Inc.
      vides input into the next round of contract
      bidding. The results of the evaluation can lead
      to any of several outcomes, including project             Globalization has dramatically increased the pro-
      completed/contract expires, development of a              curement of goods and services from different
      strategic alliance, contract extension, or cancella-      countries around the world. International purchas-
      tion of contract.                                         ing, often called international procurement or con-
                                                                tracting, is the process of selecting, contracting for,
      Project Completed/Contract Expires
                                                                and, in some companies, handling the shipping of
      In this instance, the organization’s needs have been
                                                                goods and services in a different country. The need
      fulfilled, the contract expires, and there is no con-
                                                                for international procurement is influenced by:
      tinuing need for the supplier.
                                                                  • Better total cost availability (price, quality,
      Strategic Alliance                                            delivery, financing) for the company
      After a superior performance evaluation, a com-             • The product and service needs of subsidiaries
      pany occasionally may develop a strategic alliance            of international companies operating overseas
      with a supplier. A strategic alliance identifies and         • Innovative and unique products
      exploits opportunities to expand business and tech-         • Shorter tooling lead time to launch new
      nical relationships with a few select suppliers.              products
      Contract Extension                                           Marketers should be aware of several issues that
      If a good or service is still necessary and the con-      can impact the international purchasing process.
      tractor performance is acceptable, the contract may
      be extended. A contract extension can take either         International Contract Laws
      of two forms: a straight repurchase or a modified          There are differences in the legal structures of
      repurchase.                                               various countries. For example, Common Law is
      Contract Cancellation                                     based on judicial precedent and is used in many
      If the supplier fails to deliver an order by the          countries such as the United States, China, India,
      delivery date agreed in the contract, or if it fails to   and England. Civil Law is based on statutory law,
      perform in accordance with contract provisions,           enacted by the legislature, and is used in many
      the supplier may have breached the contract. The          countries such as France and Spain. Even though
      breach usually gives the purchaser the right to           purchasing involves a private contract in which
      cancel the order. In addition, the purchaser may          terms and conditions are defined freely between
      be able to sue the supplier for damages. Situations       parties, the contract cannot go against basic rules
      sometimes arise that compel a buyer to cancel an          defined in national or local laws.
      order before the supplier is obligated to supply             Contractual clauses commonly used in the
      the material. In making such a cancellation,              United States may not apply or may not be enforce-
      the buyer may breach the purchase contract. If            able when used in purchase contracts in other
      the cancellation leaves the supplier with semifin-        countries. For example:
      ished goods, the supplier may suffer injury if              • Jurisdictional Claims. A contract claiming the
      the material cannot be resold at the contracted               jurisdiction of the State of New Jersey Courts,
      value. The majority of lost business occurs due               with a favorable ruling to an American company,
      to lack of attention by the selling company’s                 might be difficult to enforce with a supplier or
      representative.3                                              client in another country.

  • Workplace Health and Safety, Human Rights,          tions of formulas that include indicators or indexes
    and Environmental Clauses. Suppliers have           such as cost of living, wholesale prices, cost of com-
    to comply with local regulations, not U.S.          modities, and devaluation index. These may help
    regulations.                                        contract fulfillment in the short term but also have
  • Child Labor Laws. Suppliers have to comply          side effects, such as refueling inflation and elimi-
    with all applicable local child labor laws and      nating pressure on companies to reduce cost. In
    employ only workers who meet the applicable         some countries today, it is illegal to include such
    minimum legal age requirement for their loca-       formulas in contracts.
    tion, not U.S. laws.
  • Intellectual Property, Proprietary, Confiden-        Sourcing Issues
    tial, and Personal Information. Suppliers have
                                                        Product and service sourcing decisions may need to
    to comply with all applicable treaties, agree-
                                                        consider restrictions based on the creation of regional
    ments, laws, and regulations governing the
                                                        common markets, such as NAFTA, the European
    protection, use, and disclosure of intellectual
                                                        Common Market, and the South American common
    property, proprietary, confidential, and per-
                                                        market, known as Mercosur. The primary benefit of
    sonal information.
                                                        common markets is the reduction of import duties
  • Language Issues. A contract may be signed in
                                                        among its members and simplified trading regula-
    one language, for example, English, but in case
                                                        tions. Thus, commercial exchanges among member
    of litigation, a judge will require a translation
                                                        countries have increased since the creation of the
    into the local language performed by a Certi-
                                                        common markets. For a company in a common mar-
    fied Public Translator, who will translate
                                                        ket country, procuring products from outside these
    according to his or her knowledge. Therefore,
                                                        consortiums may be time-consuming or more costly.
    some wording issues may arise.
                                                        Political Issues
Procurement Economic Issues
                                                        Social and political issues may affect continuity of
International procurement also may be affected by
                                                        supply. For example, there are pending changes in
international economics. For example, contract can-
                                                        labor laws in many countries that may reduce cost
cellations may occur due to economic downturns.
                                                        and increase competitiveness or increase cost and
Dramatic differences in economic stability may hit
                                                        benefits (for example, China reduced and/or elim-
various regions or countries around the world at any
                                                        inated the VAT rebate for export and increased the
given time: for example, currencies’ appreciation in
                                                        minimum wages and benefits in 2008) but are
2007–2008, commodities’ dramatic ups and downs
                                                        potential causes of social turmoil. However, politi-
in 2008, the global credit crunch, falling stock mar-
                                                        cal stability has dramatically improved in many
kets, and then currencies’ depreciation in 2008–2009.
                                                        countries during the last decade.
   Procurement agents of most major corporations
generally develop plans to deal with potential infla-
                                                        Delivery Lead Time
tion/currency devaluation situations. They track
commodity indexes and currency fluctuations.            Delivery lead time (the time between ordering and
Some tie the price adjustment to an index. Some         receiving) is important for international procure-
do currency hedging and/or incorporate provisions       ment. This lead time includes not only the manu-
in the agreement to adjust prices up and down if        facturing of the product but all transportation in
the currency is outside the agreed-upon range.          the country of origin, air or ocean delivery, cus-
   During inflationary years, many countries use        toms, and internal delivery in the country of final
an automatic adjustment method for contract pric-       usage. Normally lead time increases cause an
ing. These adjustments are based on the applica-        increase in work-in-process inventory.

                                                                 ORGANIZATIONAL PURCHASING BEHAVIOR           145
      Customs/Import Regulations                              enacted new standards to enhance the visibility of
                                                              the supply chain for targeting purposes by Cus-
      The import process is complex due to import restric-
                                                              toms and Border Protection agents. For example,
      tions, either economic or political, and customs
                                                              in the United States, the Security and Accountabil-
      requirements, including detailed technical descrip-
                                                              ity For Every Port Act (SAFE Port) became effec-
      tions of the product. From time to time, new rules
                                                              tive on January 25, 2009. The new Importer
      are established. One should be fully aware of these,
                                                              Security Filing (ISF) is focused on those specific
      for example, CTPAT (Customs-Trade Partnership
                                                              data elements that further identify the entities
      Against Terrorism), ISF (Importer Security Filing
                                                              involved in the supply chain, the entities’ locations,
      10 2) for ocean imports, TSF for Air Exports, Free
                                                              as well as a corroborating and potentially more
      Trade Agreements, HTS changes, RLF (remote loca-
                                                              precise description of the commodities being
      tion filing) expansion, and so forth. Any missed
                                                              shipped to the United States. This data significantly
      detail may cause the local customs officials to delay
                                                              enhances the risk assessment process.
      the customs clearance process, impose fines, or
                                                                 The following 10 data elements are required of
      require additional warehousing payments until cus-
                                                              the importer and are required to be submitted 24
      toms issues are resolved. It is often helpful to have
                                                              hours prior to the loading of a U.S.-bound vessel.
      good public relations between the exporting com-
      pany and the importing company and country;                1. Manufacturer name and address
      otherwise, international customs may present frus-         2. Seller name and address
      trating problems. For example, during shipment of          3. Container stuffing location
      mobile telephone equipment, the engineer for the           4. Consolidator name and address
      manufacturing company who was helping with                 5. Buyer name and address
      packaging decided that a can of special grease would
                                                                 6. Ship-to name and address
      be helpful to install the equipment in the receiving
                                                                 7. Importer of record number
      country. The engineer included the can without
                                                                 8. Consignee number
      informing anyone of his action. Consequently, the
                                                                 9. Country of origin of the goods
      grease (less than $10) was not listed on the shipping
      invoice and the shipment was delayed in customs           10. Commodity Harmonized Tariff Schedule
      and fines and extra warehousing fees were paid.                number (6-digit number)

                                                                 An importer should take steps to ensure that the
      Security Issues                                         company is complying with all new security rules.
      Marketers must be aware of the new threats to           A customs/brokerage filer, AMS provider, or a des-
      ports and the need to enhance security for all          ignated agent can transmit this data on the com-
      international shipments. Most countries have            pany’s behalf.


        by IBM
        Company: IBM
        Case:    Qualifying Sources

        During the late 1980s and early 1990s IBM’s business results deteriorated steadily, reaching nearly dis-
        astrous proportions in 1993 when the firm’s net loss exceeded $8 billion. There were many
        reasons for this near debacle, including the company’s inability to sense and respond to market and

technology changes, bloated and costly departments, fragmented business processes, and an ineffec-
tive purchasing process.
   A new chief procurement officer (CPO) and his team quickly took steps to address the problems
affecting procurement and respond to the corporate strategic imperatives, especially the leveraging
of IBM’s size, global resources, and scope. They initiated new global procurement policies and strate-
gies, including:
   •   Segment the purchased goods and services into commodity groups or families
   •   Create global councils to be fully responsible for each of the commodity groups
   •   Establish global processes and a virtual global management organization structure
   •   Develop IT systems and tools to support the reengineered processes
    A fundamental concept introduced by the new procurement team was that IBM would embrace a
collaborative approach to its suppliers as opposed to its traditional arm’s-length, short-term relation-
ships that were based on annual sealed bid requests for quotation. Successful collaborative relationships
require careful selection of a limited number of suppliers who operate under long-term agreements
based on their ability to consistently meet high performance standards in cost, technology innovation,
quality, and service. Another fundamental change the new team introduced was the consolidation of all
IBM’s global requirements for the various goods and services purchased by the company. Until then,
purchases were fragmented by division, geographic region, and IBM site. The combination of a limited
number of suppliers engaged in long-term, collaborative relationships and the ability to speak with one
voice for IBM was considered essential to leveraging IBM’s global scale and scope.
    The goods and services purchased by IBM were segmented into 16 commodity groupings of items
used in IBM-manufactured products (for example, microprocessors, memory chips, keyboards,
cables, and other components used in producing IBM’s personal computers), and 12 commodity
groupings of items that IBM either consumed internally (such as office supplies and travel services)
or used in providing IT solutions for IBM’s external customers (such as non-IBM computer equip-
ment or technical professional services). Each of the commodity groupings was set up to be managed
by a Global Commodity Council responsible for developing and executing pertinent strategies, select-
ing and contracting with suppliers, and managing the supplier relationships.
    The Technical Professional Services (TPS) Global Commodity Council was given responsibility for
annual worldwide purchases of $1.5 billion. TPS typically includes IT programmers, systems analysts,
engineers, computer room operators, and other professionals contracted by IBM for a specific, inter-
nal project or for direct customer operations. Because there is no truly global supplier, the TPS sup-
ply market is made up of several national and multinational companies and thousands of regional
or local service providers. Many of the smaller suppliers often specialize in niche or unique skills
and have limited resources. In general, there is potential overcapacity of supply; the millennium issue
(Year 2000), however, caused shortages on specific programming skills. Average industry wages are
widely known and clearly benchmarked. It would be difficult for IBM to control a major portion of
any large supplier’s business but it would be relatively easy to do with smaller local and niche sup-
pliers. The best suppliers (large and small) aggressively search the marketplace for the best employ-
ees and tend to behave opportunistically if allowed to become cozy with the buyer or user.
    The TPS global commodity council decided to focus initially on the North American market since
it represented the greatest spending by far and thus provided the best opportunity for improvement.
Until then, IBM’s TPS needs in North America had been serviced by nearly 1,000 suppliers with no
                                                               ORGANIZATIONAL PURCHASING BEHAVIOR             147
      consistent strategy, contract price structure, or terms and conditions. The result was wide variation in
      service quality, costs, and process management. The TPS commodity council implemented a strategy
      that ultimately reduced the supplier base to a core of 10 companies capable of servicing the entire North
      American market. Those national suppliers were expected to subcontract selectively with second-tier
      suppliers to provide specialized skills they did not have. The selected suppliers also were expected to
      ensure price competitiveness against industrywide standards, guarantee high-quality service, and offer
      flexibility in providing the service so that IBM’s internal transaction costs could be reduced.
         The strategy was implemented in 1995 and led to considerable cost savings from consolidating and
      leveraging IBM’s purchasing volume. Service reliability and consistency in meeting IBM’s needs were
      also improved. There were some difficulties with the strategy deployment, particularly in the area of
      supplier relations. Many displaced suppliers were naturally unhappy and were unwilling to partici-
      pate as second-tier subcontractors.
         By 1997, TPS purchases had grown to over $3 billion, driven by the rapid growth of IBM’s IT
      services business. TPS had become one of the company’s top five spending areas and represented
      nearly 10 percent of IBM’s global purchases. The strategy implemented during the prior two years
      had delivered significant competitive advantage to IBM by providing considerable cost savings each
      year. The contracted rates were highly competitive in the industry. The coverage provided by the 10
      national providers and their 200 core sub-tier suppliers could meet 85 to 90 percent of all IBM needs
      under contracts that offered both competitive rates and advantageous terms and conditions in such
      areas as warranty, overtime premiums, on-call service, and uplift rates.
         In mid-1997, this new procurement process was reevaluated, and it was concluded that the
      national suppliers could not effectively and efficiently meet local demand; thus many purchasers of
      TPS were bypassing the contracted supplier base. Over time, this led to discretionary pricing, and
      IBM ended up paying higher rates than those contracted. A newly recommended process shifted
      from 10 national suppliers that managed over 200 local second-tier subcontractors to a local sup-
      plier strategy based on hundreds of local suppliers in some 80 demand locations. IBM pursued
      aggressive renegotiations of existing contracts with TPS supplier firms and the contracted techni-
      cal personnel they represent. In addition, the company took a strong stand with internal users to
      strictly enforce compliance and avoid bypass contracting. This new process has saved IBM
      hundreds of millions of dollars, which allowed IBM to be more competitive in the marketplace.


      by DuPont
      Company: DuPont
      Case:    Purchasing Procedures—2001

      DuPont found that the very procedures used in buying essential materials and supplies contribute
      to a competitive advantage in the marketplace. These purchasing procedures include two major ele-
      ments: the number of suppliers and total life cycle costs.
         In the last two decades, dramatic shifts in the competitive marketing environment required organ-
      izations to readdress every aspect of their businesses. One of these shifts, globalization, generated

worldwide competition in pricing, quality, service, delivery, and reliability. DuPont now had to com-
pete against lower-cost products manufactured overseas by companies with minimal overhead struc-
tures. Shifts in technology have caused radical changes in consumer preferences and business
practices because computerizing commerce has resulted in more standardization and lower prices
around the world. Successful companies have reduced overhead expenses by streamlining depart-
ments, including purchasing, and cutting dollars spent on direct purchases.
   In response to changing markets, DuPont studied cost savings opportunities in procurement. The
study team found the company was spending more than $250 million per year to purchase mainte-
nance, repair, and operational supplies (MRO). Even for a $25 billion company, an expenditure that
large becomes a cost-cutting target.
   As a first step, the team tallied the number of MRO transactions, the number of suppliers, and the
value of the average purchase. DuPont buyers were processing 2 million transactions each year con-
ducted with 60,000 suppliers, of which 20,000 submitted only one transaction/invoice per year. Fur-
ther analysis showed that nearly half of these purchases averaged less than $40 each and that purchase
order invoices cost DuPont more than $40 apiece in overhead expense to process.
   DuPont identified a small number of integrated distributors out of the 60,000 suppliers that could
provide nearly all MRO orders. Using a formal process the company selected distributors after eval-
uating their management, computer capability, prices, logistics, and product coverage. Electronic
data interchange capability offered significant potential for cost reductions through streamlining the
order/payment paperwork and procedures. A study of logistics determined the geographic proxim-
ity of potential distributors to DuPont sites.
   Proposing replacement of most local suppliers with a few integrated distributors, however, ended
many comfortable buying relationships. At most plants, purchasers had established strong ties with
local suppliers. In many company communities, these suppliers were neighbors who depended on
DuPont for their livelihood and offered extra services as well as personalized assistance. They were
willing to make evening or weekend deliveries. They often introduced new products and materials,
explaining how the upgrades could improve DuPont processes. Local suppliers often convinced oper-
ating teams to select a particular brand or item before the site buyer was in the loop. In those cases,
the buyer had little leverage in negotiating lower prices. When the buyer stepped in and canceled or
changed an order, the action reinforced employees’ image of red-tape procurement procedures.
   For decades, DuPont management has encouraged each internal unit, such as business teams and
manufacturing plants, to operate as separate and independent organizations. Each unit developed its
own policies and procedures. When it came to purchasing processes in that environment, employees
selected their favorite brands for everything from pencils to custom-made prototype manufacturing
equipment. Production groups frequently ordered tools and materials with special specifications that
required long procurement lead times. One result was that company research and production teams
bought several back-ups for every inventoried item to ensure that they did not miss delivery goals
because they had to wait for a crucial delivery. Items with similar but not interchangeable specifica-
tions also increased inventory costs and presented potential quality problems because damaging or
costly errors could occur if someone inadvertently installed the wrong part or used a substitute.
   The study team also analyzed total life cycle costs in procurement. Life cycle costs include more
than the sticker price of an item whether it is a pump, a valve, or a gallon of paint. In addition to the
product price, total life cycle costs encompass the cost of delivery, stocking and restocking the item,
maintenance after the warranty period, processing the invoice, obsolescence, duplications of resources,
                                                               ORGANIZATIONAL PURCHASING BEHAVIOR             149
        shortages, downtime, cancellation charges, and modification or customization of an item to ensure
        that it exactly matches DuPont specifications. The lowest cost calculated across the entire procurement
        supply chain can differ greatly from the price that appears to be lowest to the requisitioner or buyer.
           To change the established system and lower total life cycle costs, the company developed new pur-
        chasing strategies that focused on obtaining materials that meet manufacturing specifications and fit-
        ness for use from the perspective of total life cycle cost rather than unit price. The new methodology
        categorizes suppliers based on how critical they are to the success of business operations. In addition,
        buyers go out periodically to test prices on the open market and compare them to the integrated
        suppliers’ prices to make sure their prices are competitive.
           The results proved to be so successful that management implemented the recommended buying
        procedures across the entire company after just three years instead of the projected five years. The sav-
        ings DuPont achieved allowed the company to increase research and development efforts for new dis-
        coveries. DuPont recognized that strategic buying adds value for the customers through competitive
        prices and to the shareholders through increased earnings.

      THE BOEING COMPANY                           is responsible for working with the Snap-      Bucknell, his MS in Electrical Engineering
      The Boeing Company, founded in 1916,         on global businesses to establish best prac-   from Catholic University in Argentina,
      is the leading manufacturer of commer-       tices and processes for sourcing and           and his MBA from James Madison
      cial jet transportation aircraft in the      procurement; to establish strong business      University.
      world and is at the forefront of military,   relationships with suppliers around the
                                                                                                  DUPONT COMPANY
      commercial, and aerospace products.          world; and to formulate strategies to
                                                                                                  The DuPont Company focuses on tech-
      Visit Boeing at              achieve quality, delivery, and cost-savings
                                                                                                  nology-based life sciences and materials.
                                                   goals and objectives. Mr. Arora received his
      Del Hoffman                                                                                 DuPont researchers discovered nylon,
                                                   BS in Mechanical Engineering from India,
      Del Hoffman was formerly Director of                                                        Teflon, fluoropolymer resins, Lycra brand
                                                   his MS in Industrial Engineering from the
      Strategic Planning and Supplier Diversity                                                   fiber, and Kevlar brand fiber. Charles J.
                                                   University of California, Berkeley, and his
      in Supply Management and Procure-                                                           Pederson, a DuPont researcher, was
                                                   MBA from Kellogg School of Manage-
      ment for Boeing Commercial Airplanes.                                                       awarded the Nobel Prize for chemistry in
                                                   ment, Northwestern University.
      Mr. Hoffman received his BS in aeronau-                                                     1987. Visit DuPont at
      tical engineering from California State      IBM
                                                   IBM Corporation is a world leader in the       Fred Strolle
      Polytechnic University.
                                                   design and manufacturing of computers          Fred Strolle was formerly the Global
      SNAP-ON INC.                                 and microelectronic components. Visit          Sourcing Manager for Marketing and
      Snap-on, founded in 1920, is one of the      IBM at                            Communications. Mr. Strolle was respon-
      largest hand and power tools and diagnos-                                                   sible for business agreements covering
      tics equipment companies in the world.
                                                   Javier R. Urioste                              advertising, public relations, and sponsor-
                                                   Javier Urioste was formerly Director of        ships. Mr. Strolle received his BS from
      Visit Snap-on at
                                                   Policy, Strategy, and International Opera-     Villanova and his MBA from Temple
      Govind Arora                                 tions for IBM’s Global Procurement divi-       University.
      Govind Arora is the Vice President of        sion. Mr. Urioste received his BS and
      World Wide Strategic Sourcing. Mr. Arora     MS in Mechanical Engineering from

      1. Institute for Supply Management.                                 3. According to a study conducted by the Rockefeller
      2. Purchasing Magazine.                                                Institute.

        Part 4
Marketing Communications
         8         COMMUNICATIONS
                                                    by AT&T

                                               It’s always something.
                                                                 Roseanne Rosanna-Danna (Gilda Radner)
                                                                            on NBC’s Saturday Night Live

      INTRO DUCT ION                                        targeted message, but if you deliver it at the wrong
                                                            time or at the wrong point in the customer buying
      Whether buying as a consumer or on behalf of
                                                            cycle, the marketing communications campaign
      an organization, people all have needs and
                                                            will miss the mark and confuse the audience. See
      wants…and seek the goods, services, ideas, or
                                                            the chart titled “Communications Pathway.”
      people that help fulfill them.
         The primary objective of an organization’s mar-
      keting efforts is to capitalize on those needs and               Communications Pathway
      wants by influencing purchasing behavior to pro-
      mote demand for their goods and services. That                         Organization (source)
      influence comes in many shapes and forms, but,                                  ↓
      most often, organizations use tactics generally                       Information (message)
      referred to as marketing communications to deliver
                                                              Demand promotion (marketing communications mix)
      messages that increase awareness of offerings, pro-                             ↓
      mote demand, and drive preference for their prod-                  Customer receiving message
      ucts and services. To be most effective, these                                  ↓
      messages need to be grounded in how customers            Customer learning process (business or consumer)
      learn and buy and be compelling and targeted to
                                                                    Customer purchasing of specific product
      the audience the organization is trying to reach.

      COMMUNIC AT ION S PATH WAY                            MARKET ING COMMUNIC AT ION S
      TO CUSTOMER S                                         TACT IC S
      Marketers should understand how their customers       Although organizations use many different tactics
      locate and consume information in the pursuit of      to promote demand, the two primary categories of
      the offerings that might satisfy their needs and      marketing communications are personal selling
      wants. You might have a really compelling and         and mass communications.

  • Personal Selling. Direct personal selling, inside       The capabilities of the various marketing
    sales/service (inbound telephone sales), tele-       communications elements are ranked in order to
    marketing (outbound telephone sales), and            select the best mix. Companies select marketing
    retail sales are all part of personal selling.       communications tactics based on their corporate
  • Mass Communications. Mass communica-                 objectives and the criteria listed in Table 8.1, and
    tions includes advertising, public relations,        typically use a mix or combination of methods.
    promotional marketing, and direct marketing          The goal is to develop a set of tactics that are effec-
                                                         tive both individually as well as part of an inte-
   These elements can be used individually, or in
                                                         grated campaign.
combination, as part of either business-to-business
                                                            A relatively new addition to the marketing com-
or business-to-consumer marketing efforts.
                                                         munications mix is the concept of brand ambassa-
                                                         dors. In many instances, the customer chooses a
DETERMINING THE OPT IMAL MIX                             particular company before choosing a specific
Optimizing customer response is as easy as deliver-      product. Companies can help customers feel com-
ing the right message, at the right time, from the       fortable and secure in their selection of a company.
right spokesperson, using the right media, to the        Company employees should be selected and
right audience. Okay, maybe it’s not so easy.            trained for their ability to promote the company’s
   The success of the marketing efforts can be           brand (its goals, ideas, and products).
directly correlated to the relevance of the message
and the ability to control its communication. Each         Marketing Communications        Brand Ambassador
of the marketing communications tactics needs to:          Goal                            Capability
                                                           Influence customer purchasing    High
  • Influence customer purchasing behavior.                 Control the message             High
  • Exert control over the message.                        Cost                            Medium
  • Deliver the message cost effectively.

               Table 8.1 Marketing Communications Mix Ranked by Selection Criteria
                                       Personal   Mass             Public             Promotional      Direct
                                       Selling    Advertising      Relations          Marketing        Marketing
Customer Purchasing Influence
• Attention                            Low        High             Medium             Medium           High/Low
• Interest                             Medium     Medium           Medium             Medium           High/Low
• Desire                               High       Medium           Medium             Medium           High/Low
• Action                               High       Medium/Low       Low                Medium           High/Low
• Control message                      High       High             Medium/Low         High             High
• Ability to target specific audience   Medium     Medium           Low                High             High
• Ability to reach large audience      Low        High             High               Medium           Medium
• Timeliness/Adjustability             High       Medium           Medium             Low              Medium
• Feedback                             High       Low              Low                Low              High
• Absolute costs                       High       High              Low               Medium           Medium
• Cost per contact                     High       Low               Low               Medium           Medium

                                                                                           Source: A. G. Bennett; AT&T

                                                                MARKETING COMMUNICATIONS MANAGEMENT                  153
      OVERCOMING COMMUNIC AT ION S                                 SPECIFIC MARKET ING
      INTERFERENCE                                                 COMMUNIC AT ION S ELEMENTS
      Regardless of the marketing communications mix               Each of the marketing communications tactics intro-
      you choose, the message will need to get from                duced above is detailed in the following chapters:
      sender to receiver. And no matter how hard you try,
                                                                     • Personal Selling and Sales Force Management
      those messages sometimes suffer from interfer-
                                                                       (Chapter 9)
      ence—situations or dynamics that prevent the mes-
                                                                     • Advertising (Chapter 10)
      sage from being received clearly.
                                                                     • Public Relations (Chapter 11)
         There are many tools available to help marketers
                                                                     • Promotional Marketing (Chapter 12)
      understand the clarity of message delivery: market-
                                                                     • Direct Marketing (Chapter 13)
      ing research, sales reports, online visits/clicks, and
                                                                     • Brand Ambassadors (Chapter 14)
      more. It is important that you develop metrics
      through which you can measure marketing effective-
      ness and course correct as necessary. See Table 8.2.

                                Table 8.2 Overcoming Communications Interference
      Communications Path                    Interference Factor                      Overcome Interference
      Source (company)                       Poor knowledge of consumer needs         Additional marketing research,
                                                                                      more specific targeting
      Message encoding (creative ideas)      Lack of specific appeal, confusing        Better creative team, differentiated
                                                                                      message, creative approach, better
      Message channel (communications        Competing message clutter                Sufficiency/timeliness of messages,
      media)                                                                          targeted channels
      Receiver Decoding (target audience     Customer misunderstanding                Simplicity/memorability of message

                                                                                                       Source: A. G. Bennett; AT&T


      AT&T                                    Stephen E. Block                          advertising. Mr. Block received his BA
      AT&T is the largest communications      Stephen Block was formerly Director,      from Kenyon College.
      holding company in the world by rev-    Consumer Advertising, and was respon-
      enue. Visit AT&T at        sible for brand, local, and Internet

                PERSONAL SELLING
   9            AND SALES FORCE
  by Eastman Kodak, Tupperware,, American Express,
                 Hilton Hotels, and Coldwell Banker

                                    Everyone lives by selling something.
                                                  Robert Louis Stevenson, Scottish Author, 1850–1894

THE ESSENT IALS OF SALES                                a customer needs specific handling instructions as
by Eastman Kodak Company                                with unique or custom items, answers to complex
                                                        questions as with technical equipment, or confir-
                                                        mation of quality as with an expensive product.
The fundamental unit of measurement for every               A company’s sales force has three main compo-
business venture is sales. At the most basic level,     nents: sales management, sales representatives
something of value, usually money, must be              (known as reps), and a sales support team. Sales
exchanged for a product or service for a business to    representatives usually are a company’s main inter-
be successful. Moving the customer to the point         face with customers, and customers form an opin-
where he or she makes the decision to buy is the        ion of the company by the actions of a sales rep.
objective of every salesperson. Inherent in this        The salesperson who interacts well with the cus-
objective is the sales organization’s focus on cus-     tomer is extremely important, whether he or she
tomer trust, which promotes an effective sales envi-    is behind the retail counter or calling on a govern-
ronment. Personal selling that can properly identify    ment customer with a billion-dollar sale on the
and cultivate a satisfied customer is the basis of      line. The sales support team, usually comprised of
a successful marketing process and, ultimately, a       field resources such as Sales Engineers (SEs) is
successful business.                                    made up of technical people deployed to support
    Personal selling is the element of marketing that   complex sales of technology or software, field
creates or enhances demand for a product by dis-        engineers, break-fix support people who repair
cussing the customers’ needs on a personal, one-        equipment at customer locations, and business
on-one basis and then attempting to solve their         development managers, who may provide category
problem by selling appropriate goods or services        or vertical expertise to a customer application.
to the customers. Selling works in conjunction          Each of these groups affects the relationship your
with the other demand promotion elements, but           company has with a customer since they are a
is the only method of demand promotion that can         touch point for that account, and none of them is
instantly respond directly to a customer’s con-         less valuable than the other. At the end of the day,
cerns. Personal selling is most advantageous when       however, it is the sales representative or account

                                                        PERSONAL SELLING AND SALES FORCE MANAGEMENT        155
      manager who will take responsibility for the suc-
                                                                               Personal Selling
      cess or failure of a particular account.
         The interpersonal skill behind the building of         Business-to-Business        Business-to-Consumer
                                                                       (B2B)                       (B2C)
      customer relationships is very important. Person-
                                                                          ↓                           ↓
      able, well-trained, and motivated salespeople are an
                                                                              Direct Personal Selling
      integral part of a successful company. There are
                                                                           Inside Selling/Sales-Service
      several factors that motivate a salesperson to be
                                                                    Telemarketing (Outbound Telephone Selling)
      successful, including recognition, money, the emo-
                                                                                Retail Store Selling
      tional connection with customers, or a belief in
                                                                          ↓                           ↓
      what he or she is selling. In many organizations,
                                                                Organizational Purchasing    Consumer Purchasing
      sales representatives start as sales trainees, and if
      successful, may become sales managers or join the
      marketing staff.                                        SALES FORCE MANAGEMENT
                                                              The goal of the sales manager is to secure a revenue
      Definitions                                              stream for the organization by managing the sales
  A sale is the exchange of money for a product or            force. The best sales managers are those who have
  service (a transaction). A salesperson is a company         had successful sales experience and thus under-
  representative whose contact with a customer                stand the needs of the sales force. A company must
  hopefully results in an exchange of money for               determine whether it is better to keep its best sales-
  something offered by the company. A customer is             people in selling positions or move them into
  anyone who is willing to pay for what the salesper-         supervisory/management roles. In addition to their
  son is selling. Sales management is the art and             sales management tasks, sales managers coordinate
  science of managing sales people and their trans-           their activities with senior management and the
  actions. Selling comes in two forms: transactional          marketing staff, including product managers and
  and relationship sales. Transactional selling is based      market researchers.
  simply on achieving the transaction or sale. Rela-             Sales force managers establish the sales force,
  tionship selling is based on a long-term series of          coordinate with the sales force, determine sales
  transactions that meet the customer’s require-              force strategies, and coordinate with corporate
  ments. For example, a financial company’s adver-             management.
  tisement states, “At J.P. Morgan, a relationship with
  a client is a marathon, not a sprint.”                      Establishing the Sales Force
      Personal selling, either to consumers or to busi-
                                                              In order to establish the sales force, either initially
  nesses, is accomplished by the sales rep talking one-
                                                              or on an ongoing basis, the sales manager must
  on-one with the customer. Businesses sell their
                                                              recruit and select applicants, train the sales force,
  products to other businesses in what is known as
                                                              and determine adequate compensation. The goal of
  “business-to-business” sales or to end consumers,
                                                              a well-selected sales team is to outperform the com-
  in what is known as “business-to-consumer” sales
                                                              petition and to achieve the company’s strategic and
  or simply “consumer sales.” The salesperson to
                                                              tactical goals.
  business-customer relationship is very important
  because the business in turn resells the product to         Recruiting Applicants
  many end consumers.                                         Salespeople usually are recruited through human
      There are several formats, or methods, of selling,      resource (HR) channels, including classified ads in
  including direct personal selling, inside selling/sales-    newspapers and professional publications, refer-
  service (inbound telephone sales), telemarketing            rals from current or former employees, and visits
  (outbound telephone sales), and retail sales.               to college campuses. Today, online job sites such as

156      THE BIG BOOK OF MARKETING,, and various             include HR consultants, industrial psychologists,
specialty sites are often used by sales managers and    and the company’s successful sales and manage-
recruiters alike. Industry associations are an effec-   ment teams.
tive way to find qualified talent from consumer to
                                                        Sales Training
the B2B segments. Sources of potential sales reps
                                                        The goal of sales training is to effectively hone sell-
include the following:
                                                        ing skills. The successful salesperson must assimi-
  • A rep who has risen through the ranks of a          late both hard and soft skills. The hard skills, which
    company, affectionately known as “home-             include technical and product knowledge, market
    grown,” knows the company’s products, cus-          awareness, and the ability to gather intelligence, are
    tomers, and methods and has the advantage of        fundamental and can be taught. The soft skills, often
    institutional memory. However, these reps may       called people skills, tend to be more instinctive.
    lack a broader perspective and may have prob-       However, there are some soft skills that can be
    lems with flexibility, because they have worked      taught or fine-tuned, including listening behaviors,
    so long for one organization.                       the ability to make things interesting to a specific
  • Hiring a former competitor as a sales rep has       audience, negotiating skills, and ability to observe
    several advantages. The outsider can provide a      the characteristics of customers in an effort to
    company with a potential source of new mar-         understand them better as individuals (known as
    ket growth by bringing his or her clients along,    reading the room). Management can help by pro-
    which is called buying share. The outsider          viding training, but the individual salesperson must
    knows the market, the competition, and can          commit to learning these disciplines.
    bring a new perspective to the job. He or she           Often, the company that has the clearest corpo-
    also probably has a sense of the company’s          rate mission, vision, and strategic framework, and
    products, customers, and methods from study-        that can concisely impart that vision to its sales
    ing former competitive intelligence. However,       force will have an advantage in the marketplace.
    the outsider may have trouble dropping his or       A uniform framework for sales training usually is
    her old competitive feelings and may not be         the best foundation for training and will meet the
    accepted in the sales organization.                 long-term needs for corporate team building.
  • A sales rep who is a former customer brings             Training usually is done when someone is hired,
    unique perspectives to the job, knows the view      although additional training typically is provided
    from the other side of the desk, is reasonably      throughout a career. No one method of sales train-
    familiar with the company and its products or       ing is inherently superior to another. Initial sales
    services, and knows his or her own customers        training can be done effectively through manuals,
    well.                                               teaching, role-playing, or mentoring. Mentoring is
  • A sales rep who is hired from a different busi-     the use of seasoned sales personnel to reinforce
    ness altogether brings a new perspective to the     teaching and to establish positive role models for
    job and a new approach to sales and customer        younger and less experienced sales personnel.
    relations, adds to the overall knowledge base,          As with any other job category, it is important
    and often can rejuvenate a stagnant workforce.      for salespeople to sharpen and refine their job skills
                                                        as they progress along their career path with a com-
Selection of Applicants                                 pany. A salesperson’s continuing education and
A successful salesperson requires a combination of      training should be done in small increments that
selling talent, judgment/adaptability, and training.    are more easily learned and retained. A sales force
Companies select the best candidate by using a          will stop paying attention to too much information
combination of impartial written tests and subjec-      in too short a time span. Sales seminars, sales con-
tive questioning by a panel of experts that may         ferences, conventions, the annual sales meeting, and

                                                        PERSONAL SELLING AND SALES FORCE MANAGEMENT           157
      loaned executive programs with other organiza-           Establish Goals
      tions offer continued training. In recent years,         The sales manager must let the sales force know the
      Computer Based Training (CBT) has grown more             intended direction of the company and integrate
      sophisticated and popular with sales managers as a       company goals with sales goals. Sales goals typically
      cost-effective tool for continued training of both       are established for the sales force in the form
      the sales force and even the customer’s sales force in   of sales quotas (an agreed-upon quantitative or
      a two-tiered model. Live webinar types of training       qualitative amount).
      are also used, although more expensive and restric-
      tive since they require a live host and everyone to      Sales Information Management
      join the webinar at the same time.                       In order for the sales force to be well informed, the
                                                               sales manager must disseminate new product
      Compensation of Sales Force                              information, updated market data, and client
      There are several forms of compensation for sales-       information. The sales manager also must collect
      people, including salary, commission, bonuses,           competitive information and market information
      expense accounts, and car allowances. The com-           from the sales force in order to update senior
      pensation of salespeople, unlike that of other           management.
      employees, usually is tied directly to their success
      or lack of it. A typical compensatory structure for      Motivation of Sales Force
      salespeople is a base salary, with a commission          Sales reps perform better and become top sellers
      based on the number of sales made, reimbursement         faster when motivated. Sales managers must match
      for out-of-pocket expenses, and a bonus at the end       their incentive plans to the sales force and to the
      of the year if they have met or exceeded their quota.    company goals. Motivation of the sales force should
      The ratio of fixed (salary) to variable (commission       be a continuous process, although pragmatically it
      or bonuses) compensation ranges from heavily             often is relegated as an outcome of the evaluation
      leveraged positions (very small base) such as copier     process. A lack of motivation makes people careful,
      sales to 50/50, and 60/40 in roles where the techni-     and a lack of risk taking hampers sales growth. The
      cal expertise and experience are harder to find.         major motivational methods are
      Many plans may also use Management by Objec-               • Management respect (closer working relation-
      tives (MBOs) or Key Performance Objectives                   ships, enhanced mentoring)
      (KPOs) as additional components to the compen-
                                                                 • Employee recognition (plaques, announce-
      sation plan, often to complete certain tactical goals
      that may not be purely revenue based. Most sales
      plans also include hurdles (minimums) and acceler-         • Rewards (financial, gifts, travel)
      ators that reward performance once quota is
      achieved, sometimes at two to three times the            Evaluation of the Sales Representatives
      normal commission rates to provide exceptional           It is important for the sales manager to evaluate the
      incentives for the top achievers.                        performance of each sales rep, just as senior man-
                                                               agement will evaluate the performance of the sales
                                                               force in total. Formal evaluation should consist of
      Coordination with the Sales Force                        two-way communication between manager and
      The sales manager should spend time with his or          employee, and be conducted on a regular basis, typ-
      her salespeople in order to coordinate the many          ically quarterly or twice a year. Informal evaluations
      activities beyond selling. Coordinating with the         can be conducted on an as-needed basis. There are
      sales force includes establishing goals, managing        two main methods of sales performance evalua-
      sales information, and motivating and evaluating         tion: quantitative and qualitative. In many cases the
      the sales force.                                         evaluation is a blend of both.

  • Quantitative Evaluation. The quantitative            be determined: channel model, sales force struc-
    approach is based strictly on the comparison         ture, selling approaches, and sales force sizing
    of projected sales (quota) and actual sales fig-      requirements.
    ures. The advantages of this type of perform-
    ance evaluation are that it is easy to administer    Channel Model
    and is objective. However, it may not take into      There has been a growing trend in recent years to
    account subjective skills such as long-term          more indirect sales models, especially for technol-
    relationship building or the time a salesperson      ogy products. The major criteria that determines
    has been on the job.                                 the go to market (GTM) strategy for any given
  • Qualitative Evaluation. A sales manager should       product is often based on the average sales price
    listen carefully to customer comments, both          (ASP), or typical transaction value. For high-end,
    positive and negative, about the sales rep and the   complex products such as a Kodak Nexpress, for
    company. Areas such as relationship building,        example, a $500,000 sale is much more suitable for
    team work, new product ideas, and competitive        a direct sales organization or model. Low-end
    feedback often are not quantifiable. Successful       consumer products in the $500 or less category
    sales managers often spend a lot of time visiting    obviously work well in either a retail store or Web
    customers with their representatives so that they    site environment. Mid-range products, $500 to
    can observe the salesperson in action.               $20,000, such as Kodak document scanners, fit
                                                         more logically into the indirect or channel model.
   After the sales evaluations have been completed,         Technology products are mostly sold through a
sales managers provide rewards or take corrective        two-tiered distribution model where the manufac-
action.                                                  turer sells at wholesale to companies such as
  • Rewards. Rewards can be a powerful motivator         Ingram Micro or Tech Data, the two largest IT dis-
    and can be either monetary or involve recogni-       tributors in the world, both with revenues of about
    tion. Both are highly desired. Monetary rewards      $20 billion each. In turn, these distributors sell to
    include pay raises, promotions, and bonuses in       the channel of value-added resellers (VARs), inte-
    the form of cash, a gift certificate, or incentive    grators (such as IBM Global Services), various
    travel. Recognition rewards can come in the          online retailers, and Direct Market Resellers
    form of trophies or plaques such as those            (DMRs) (such as CDW). Industry data indicates
    engraved with “Salesperson of the Year/              there are more than 70,000 active resellers just in
    Month”; announcements of success in com-             the U.S. market alone.
    pany newsletters, trade journals, or local news-        According to the Global Technology Distribution
    papers; assigned parking; and so forth.              Council, more than half of all its goods and services
  • Corrective Action. Corrective action may             flows through the indirect model, and the trend
    include additional training, a demotion, or dis-     continues to be in that direction as the average sales
    missal. Typically a corrective action plan will      prices continue to fall and the products continue to
    be a 3- to 6-month program with specific met-         be more user-friendly and easier to implement. Of
    rics and goals to be met with the consequences       course, there will always be a place for the direct
    for failure clearly defined ahead of time.            model where price, complexity, and need for close
                                                         support by the manufacturer are required.
Determining Sales Force Strategies
                                                         Sales Force Structure
Once the sales force has been established and moti-      There are several methods that may be used to effec-
vated, the sales manager should determine how the        tively structure the sales force. Sales management
sales force will be directed to interact with the cus-   must decide what strategy will direct their sales force
tomer base. There are several strategies that must       most effectively toward the goal of meeting a sales

                                                         PERSONAL SELLING AND SALES FORCE MANAGEMENT           159
      quota. Many of the sales force strategies may be         and building that relationship is critical. Learning
      combined. A sales force should be organized in a         the customer’s needs and meeting them is essential.
      way that best understands the customer, obtains          Many companies practice Customer Relationship
      quality positioning, and forms a long-term relation-     Management by gathering extensive information
      ship selling approach. If customers fall into groups     on the customer, with input from sales reps, man-
      with common characteristics, then a company can          agement, and marketing researchers. This informa-
      organize its sales force accordingly. More than any      tion is used to allow a more complete dialogue with
      other group in an organization, the sales force has a    the customer, making him or her feel more com-
      direct impact on top-line revenues, and the pressure     fortable with the selling company. This customer
      on a sales force to perform can be enormous and          database may be simple written notes or a compre-
      unrelenting. Many organizations, faced with this         hensive computer program.
      pressure, mistakenly fall back to tactical approaches       In order to form an effective and efficient sales
      to “get sales done now,” rather than taking a longer-    force, the sales manager must determine sales force
      term strategic view.                                     structure strategies, which include outside and
          For any company’s sales organization, an impor-      inside reps, individual versus team selling, and out-
      tant issue is deciding how to apply its finite           side sales rep territories.
      resources to a virtually unlimited universe of pos-
                                                               Outside Reps
      sible customers. No company has the financial
                                                               Outside reps leave the company premises to call on
      ability to sell to every conceivable sales prospect.
                                                               customers. The main advantage of an outside rep is
      A company has to make decisions about how to
                                                               the ability to personally meet with customers and
      narrow the focus of the selling effort. Sales man-
                                                               see their needs firsthand. The main disadvantage is
      agement’s mission is to determine the point beyond
                                                               the cost involved in salary, training, and travel. Out-
      which the cost of selling outweighs the financial
                                                               side reps include company reps, manufacturer’s
      return of a completed sale. The successful sales
                                                               reps, wholesale reps, and direct-selling reps.
      organization will determine who the best prospects
      are and how to sell to those prospects in the most         • Company Reps. A company’s sales reps tend to
      cost-effective manner.                                       carry a single company’s products and services
          The objective of the personal sale is to sell            and sell to other manufacturers, VARs, whole-
      as much as possible while incurring the lowest               salers, and retailers. These reps can be sales reps
      possible selling costs. Reaching customers always            that have general knowledge of products,
      requires a combination of strategies and tactics,            customers, and finance. Today, many reps are
      such as personal selling, mass advertising, and retail       based out of a home office and cover a specific
      location. It is up to the company to decide what             geographic area or group of accounts. They
      makes the most sense for the budget it has allocated         may only visit the corporate office a few times
      toward making the sale. For example, a company               a year, and other than that are totally dedicated
      may decide to locate in a shopping mall. This could          to the field. They are usually supported by
      result in a guaranteed flow of foot traffic, so the          sales engineers who specialize in a particular
      company would have some walk-in, self-identified              technical field and matching territory. Sales
      prospects. The company may take dollars that                 engineers are essential to a technology-based
      would otherwise have gone to a direct sales force            company and very often sell products that will
      and advertising, and instead put the money into              be part of a much larger and very complex
      leasing the more expensive mall location.                    project. For example, to make a new manufac-
          It generally costs seven times as much to win            turing facility work properly, the manufacturer
      a new customer as it costs to hold an existing               might need to design a production line with
      customer. Therefore, retaining an existing customer          each item represented by a sales engineer.

  • Manufacturer’s Reps. These sales rep organi-              • Customer Service Reps. Customer service reps
    zations are often used by new and smaller                   work with sales reps and perform initial cus-
    companies. These are independent sales organ-               tomer contact or much-needed follow-up with
    izations that contract with various manufac-                customers.
    turers to represent their products into a specific
    territory or group of accounts, and are paid a          Individual versus Team Selling
    fee or commission for their services.                   The number of sales reps needed to successfully
  • Wholesale Reps. Wholesale reps or “route                close a sale may be an individual or a group.
    salespeople,” represent the wholesaler and
                                                              • Individual Selling. The advantages of individ-
    resell products or groups of products to the
                                                                ual selling are that the individual can react
    retail level.
                                                                quickly to a customer’s needs and usually has a
  • Direct-Selling Reps. Most personal selling is
                                                                better chance of getting to know the customer
    business-to-business (in-office), such as with
                                                                well. The disadvantage, however, is that indi-
    Kodak, IBM, AT&T, and Xerox. These reps are
                                                                vidual salespeople can have a short-term, com-
    paid a salary and commissions and are trained
                                                                mission-oriented outlook and strive just to
    extensively by the company. However, most
                                                                complete the transaction.
    business-to-consumer (in-home or door-to-
                                                              • Team Selling. Team selling requires that the
    door) sales reps such as with Tupperware,
                                                                customer’s team and the selling team commu-
    Avon, Fuller Brush, and Encyclopedia Britan-
                                                                nicate effectively. The advantage of the team
    nica are independent reps. They typically work
                                                                selling approach is that it allows for a greater
    on their own schedules and may represent
                                                                knowledge base of diverse in-house specialists
    multiple product lines.
                                                                from every aspect of the organization, such as
Inside Reps                                                     business researchers, technical experts, and
Inside reps do not leave the company premises.                  financial experts. The disadvantage is the con-
They typically make and receive sales calls, resolve            fusion to the customer if there are conflicting
problems, and provide customer feedback to man-                 messages from the sales team. Another form of
agement. The main advantage to inside reps is the               team selling is often referred to as “Hunter-
ability to economically talk with many customers                Gatherer,” where one sales rep specializes in
in a short period of time. The main disadvantage is             prospecting and the other specializes in mak-
the inability to personally visit with the customer             ing the presentation and closing the sale. The
to gain a better understanding of his or her needs.             advantage to this approach is that the company
Inside reps can be in direct sales, retail sales, or cus-       has an expert in each aspect of the selling
tomer service.                                                  process. The disadvantage again is that the cus-
                                                                tomer may be confused by the change in team
  • Direct Sales Reps. Direct sales reps make sales
    via the telephone, either by calling customers
    or by receiving toll-free calls and e-mails from
                                                            Outside Sales Rep Territories
    customers. Direct sales reps work for compa-
                                                            There are three ways to base sales force territories to
    nies, telemarketing firms, or are individuals,
                                                            accommodate the customer: by geography, by
    such as stockbrokers, who seek out their own
                                                            industry, and by client size.
  • Retail Sales Reps. Retail sales reps sell to cus-         • Geographic-Based Territories. Sales territo-
    tomers in retail stores and typically create cus-           ries organized geographically is the traditional
    tomer interest by being courteous and quickly               means of delineating a sales force. The geo-
    locating stock.                                             graphic size of a territory is determined by the

                                                            PERSONAL SELLING AND SALES FORCE MANAGEMENT               161
        density of the customer base. Markets tend to            and deserves good service in the form of a sales
        organize themselves geographically, either               call, but it may not make economic sense. Each
        locally, regionally, or nationally. For example,         sales contact costs the same regardless of the size
        logistical limits based on food distribution             of the sale, and the top 20 percent of customers
        have kept the retail food business largely               typically provide 80 percent of sales. Therefore,
        regional. For a small business, the only feasible        it makes economic sense to concentrate more of
        approach may be local or regional, although              a company’s resources on its best customers.
        the Internet has the potential to make any               The lower 80 percent of customers become a
        small business a global marketer. Some mass              company’s second and third tier.
        retailers like Target, Walmart, and Costco, have
                                                                Both retailers’ and manufacturers’ cost pres-
        turned the retail store approach into a national
                                                             sures are higher than ever before due to increasing
                                                             competition. A typical business-to-business sales
           Many industries have geographic concentra-        call can cost hundreds of dollars. Customers expect
        tions due to common industry needs, such as          prices to continue going down while expecting the
        access to personnel expertise or to raw materi-      level of service to remain high. To survive and
        als. For example, the automobile industry is         thrive in this situation requires tiering the cus-
        located predominantly in Michigan and Ohio,          tomer base.
        the lumber industry is in the Northwest, and            Major customers typically receive a personal
        the oil and gas industry is in Texas and the Gulf    visit from a sales rep. A large customer account
        states. An advantage to organizing the sales         team may have a dedicated sales team that services
        force geographically is that they can be sta-        only that client’s needs. This close working relation-
        tioned near the customers and keep travel time       ship, or even partnership, usually generates a high
        and expenses to a minimum. A disadvantage is         level of sales because the sales force typically is
        the difficulty in controlling and coordinating        familiar with every aspect of the customer’s busi-
        sales reps from a distance.                          ness. The disadvantage of this is that the profits of
      • Industry-Based Territories. Organizing a sales       the dedicated sales force are tied to the business
        force around client industries enables familiar-     cycle of the client.
        ization with specific client needs and can result        Small customers also can be quite valuable for
        in a closer working relationship and increased       a company. For example, customer turnover is
        sales. For example, every business in the health     inevitable, so a company needs to keep customers
        field (hospitals, doctors’ offices, dentists’        that can potentially move up from the lower tiers
        offices, emergency clinics, etc.) may use the        to replace higher-tier customers. A small customer
        exact same billing software. Hiring experts in       account team usually services all the small busi-
        key areas allows a sales force to dominate that      nesses in a given territory and may be a training
        market. A disadvantage is that the sales force       ground for new reps. The advantage is flexibility,
        may tend to specialize in one field and not          but the disadvantage is a minimal working relation-
        develop additional industry expertise.               ship. Telesales can be the most cost-effective way of
      • Client Size–Based Territories. Tiering occurs        reaching the bottom tier, providing a dialogue with
        when a company categorizes its customers based       small customers and vendors quickly, easily, and
        on the size of the account and effectively man-      efficiently.
        ages the cost per sale. For companies with many         Another option is mailing or e-mailing to small
        tiers of customers, like Eastman Kodak, at some      customers. For example, Eastman Kodak sends out
        point the company must make a decision as to         a mailing every month to its small retail customers
        which customers buy enough to justify the cost       that provides updates on products, pricing, cus-
        of a sales visit. Every small retail store expects   tomer policy, and sales opportunities. E-mail has

provided the most cost-effective means of touch-       sale. The consultative salesperson offers additional
ing more customers at a lower cost than traditional    solutions to the customer that may result in
direct mail and has the added benefit of allowing       increased sales and revenues. Consultative sales
instant feedback or action from the customer,          require a well-trained representative who can assess
either by connecting to the link on a Web site or by   client needs as they grow and change, and then
placing orders immediately at the company store.       offer solutions. This strategy may require a support
    Routine sales account activity can be monitored    team of experts ready to travel to the customer.
through the use of a database that measures needs      Many times the customer appreciates the additional
and determines the shipments from a company to         services, such as computer training or software
its retailers automatically.                           upgrades, of an outside problem-solving consult-
    As the cost of selling rises and product prices    ant, and this translates into additional sales.
fall, companies may decide it is more cost-effective       In addition, value-added services, such as
to sell through third-party agents, dealers, VARs,     financing, repair, delivery, and installation can dif-
and Web partners.                                      ferentiate a company in a crowded marketplace.
                                                       The challenge to any selling organization is how to
Selling Approaches
                                                       add value without losing money on the transaction.
Sales managers must also determine which
                                                           If a salesperson can build upon a relationship
approach the sales reps will take with customers
                                                       with an existing client, the selling process is less
prior to the reps calling on a customer. Selling
                                                       expensive. New customer sales are harder and more
approaches include product selling and solution
                                                       expensive to get than additional sales from existing
                                                       customers. Additional follow-on sales (sales that
Product Selling                                        come after the initial sale, such as additional soft-
Many customers prefer a transaction-based sales        ware after the purchase of a computer) usually
approach as they have a thorough knowledge of          require incrementally less effort than first sales.
their own requirements and need only to purchase           At the retail level this approach is often referred
the needed products. A product-based sales force       to as “suggestive selling vs. order taking.” Order
must have expert knowledge of specific products.        taking only requires that a sales rep, typically an
For example, a computer company might delineate        inside rep or retail clerk, wait for the customer to
its sales force by mainframe computers or by per-      approach and state his or her preference, whether it
sonal computers. Advantages of this method are         is for a certain software or a certain shirt. This
that customers appreciate the expert advice on         method is quick, easy, and requires little training.
specific product needs, training is relatively inex-    However, it does not maximize sales. Suggestive
pensive, and administration of the sales force is      selling requires that the sales rep take a proactive
relatively easy. A disadvantage is that sales growth   approach and suggest additional items and
potential may be limited.                              upgraded alternatives. For example, at McDonald’s,
                                                       the question “Would you like fries with that?” does
Solution Selling
                                                       generate significant additional sales. The advantage
Other customers may require a consultative or rela-
                                                       is the additional revenue. The disadvantage is that
tionship-based approach. For example, in technol-
                                                       it requires more employee training, and some
ogy sales, the customer’s requirements may include
                                                       customers feel annoyed by this approach.
multiple vendors to solve a particular business
problem. During every sales call, there is an oppor-   Location of Sales Meetings
tunity to go beyond taking an order or restocking      The sales manager, the sales rep, and the customer
inventory. As competing products enter the market      may all decide the proper location of a sales meet-
and competitors achieve near-parity on product         ing. Locations include the customer’s office, the
quality, a sales force must find new ways to make a     sales rep’s office or factory visit, or a trade show.

                                                       PERSONAL SELLING AND SALES FORCE MANAGEMENT           163
      New and small business owners often ask where          negative impact on the company. For example, if
      they can have sales meetings (they often erro-         the company makes too much of a product, prices
      neously believe they must have a big shiny office to    could drop and profits could suffer. If the com-
      impress the customer).                                 pany does not make enough of a product, there
                                                             could be lost opportunities to maximize market
      Sales Force Sizing Requirements
                                                             share and revenues.
      The calculation of the appropriate size of a sales
                                                                Supply chain management is a key driver of
      force is determined by the number of potential cus-
                                                             better forecast tools and accuracy for any company
      tomers, the number of customers that a sales rep
                                                             manufacturing in other countries. Most technol-
      can engage in successful dialogue in a given time
                                                             ogy companies have factories or contract produc-
      period, and the territory’s anticipated annual rev-
                                                             tion in Asia. With that savings comes very long
      enue size. This requires a careful balance between
                                                             supply routes and lead times that can affect sales
      the cost of maintaining a sales force and the poten-
                                                             success in a major way. It is very expensive when
      tial sales determined by the sales forecast.
                                                             the manufacturer has to airfreight product due to a
                                                             poor forecast.
      Coordination with Corporate Management                    There are several sales forecasting methods
      Sales managers meet routinely with senior man-         available, from qualitative to sophisticated quanti-
      agement to provide market feedback and sales           tative computer modeling. Typically, companies use
      forecasts.                                             a combination. The determining factors in the
                                                             selection of the appropriate method are financial
      Market Feedback
                                                             resources, time, and corporate culture.
      The sales manager is responsible for providing sales
      information from the field sales reps to the market-    Qualitative Forecasting Methods
      ing staff and senior management. Marketing is          Qualitative forecasting relies on judgment, experi-
      responsible for evaluating and applying this data      ence, and feedback from relatively few but select
      and blending it with ongoing marketing research.       sources. It is inexpensive, quick, and moderately
      The information that the sales force provides          accurate. Qualitative forecasts can come from sales
      includes sales and revenue data, competitive infor-    force estimates, management judgment, customer
      mation, new product ideas, new uses for company        surveys, or historical projections.
      products, and client information.
                                                               • Sales Force Estimates. A corporate sales
      Sales Forecasting                                          force, when listening to its customers, can
      The sales forecast is the instrument by which a            find out a wealth of information about how
      business seeks to predict the future sales of a            those customers perceive their needs for the
      product. The results are coordinated with other            coming year. This field-level information is
      functions of the company in order to determine             an important indicator of future trends, but,
      production levels, staffing, promotion require-            depending on the organization, it can also
      ments, potential revenue, and the need for capital         result in projections that underestimate or
      outlays. The most important purpose of a sales             exceed actual performance. Sales managers
      forecast is simply to make sure there is sufficient        who are compensated for surpassing quotas
      demand in the market to justify the production             tend to underestimate, and sales managers
      of the company’s product or service. If the prod-          who are provided resources on the basis of
      uct is new and there is no historical data, then           projections tend to overestimate. Top man-
      data from a substitute product may be used.                agement must understand the perspectives of
      An inaccurate sales forecast can have a severely           its sales managers.

  • Management Judgment. Informed manage-                that may indicate a general trend for the sale of
    ment judgment is intuition that comes from           industrial equipment and supplies; or a survey of
    long experience in a particular business. These      the intentions of corporate purchasing managers
    instincts are very important, but they cannot        that may show a trend for the sale of office com-
    be the sole basis on which to make decisions.        puters. Quantitative methods of forecasting are
    Sales managers are fallible, subject to being        more expensive to initiate, faster (if done in real
    blindsided by an overly ambitious (or under-         time), and more accurate. Because of the expense,
    ambitious) sales force, and can be prejudiced        small companies may rely on broad-based eco-
    toward success through wishful thinking. Cor-        nomic or industrywide quantitative forecasts per-
    porate decision makers should check sales            formed by the government or their industry
    managers’ perceptions against objective facts        association. Quantitative forecasting methods
    and other subjective opinions.                       include correlation analysis, equation models,
  • Customer Surveys. Customer surveys can pro-          end-use analysis, input-output analysis, and trend
    vide enormous help to a company’s sales force.       and cycle analysis.
    Companies should survey not just their own              Customer Relationship Management (CRM)
    customers but expand the surveys to the entire       software such as Siebel or have
    marketplace. Third-party research organiza-          pipeline management tools that provide some
    tions often sell their market assessments for        limited forecasting tools. As with all of these sys-
    less than it would cost a business to conduct its    tems, the value of the output is directly related
    own customer survey.                                 to the value of the input. Sales reps are notorious
  • Historical Projections. Historical projections       for not entering all of their pipeline data (called
    look at sales or customers over a certain period     sandbagging), either for lack of time or some-
    of time, and then use this data to project the       times in an effort to underpromise and over-
    future. For example, a historical projection         achieve. Nonetheless, any system is better than no
    may examine last year’s sales figures and then        system at all and if management provides the
    factor in changes in market size, consumer           motivation and oversight to keep these tools up-
    shifts, competitive thrusts, advances in tech-       to-date, the results can be quite positive for fore-
    nology, changes in customer attitudes, and           casting accuracy.
    potential losses or gains of important cus-
    tomers. This type of extrapolation is probably
                                                         BUSINESS-TO-BUSINESS SELLING
    the most common methodology used by small
    service organizations.                               Each customer’s needs are different and making a
                                                         sale depends on the ability of the individual sales
Quantitative Forecasting Methods                         rep to discern those needs and match them with the
Quantitative forecasting uses a greater number of        correct product. In order to maximize sales effec-
inputs than qualitative forecasting. In building         tiveness, most companies use a proven sales
statistical models for quantitative forecasting, stat-   methodology. This process may only take a few
isticians find a leading indicator whose perform-        moments or a day for a small sale, such as selling a
ance precedes the behavior of the product sales          new diagnostic tool to an independent environ-
record on a fairly reliable basis. Examples include      mental analysis lab. Or, this process may take
an uptick in the sale of desks and related office        months or years for a large sale, such as selling an
furniture that could be a leading indicator of an        internationally organized construction project to a
upward trend in the sale of office cleaning ser-         national government. The business-to-business
vices; real estate sales for new factory locations       selling process includes the following steps:

                                                         PERSONAL SELLING AND SALES FORCE MANAGEMENT        165
                                                                • Referrals from existing customers, suppliers, or
                 Qualify Prospective Companies
                                                                  business associates
             Qualify Prospective Company Individuals
                                                                • Self-identification by calling customer service
                                  ↓                               on a toll-free number or sending in a response
                            Sales Meeting                         card received in a trade publication or at a
                           • Listening to Needs                   trade show
                           • Presentation of Offer              • Through an outside sales rep’s unsolicited or
                           • Overcoming Objections
                                                                  cold calls
                           • Closing
                                  ↓                             • Through purchased commercial lists
                   Filling and Delivery of Orders
                                                                 Cold calls and cold lists are typically the least
                   Follow-up/Customer Service                 productive means of developing a solid prospect,
                                  ↓                           whereas the best prospects tend to come from a
                           Record Keeping                     customer referral. Any program that requires the
                                                              prospect to qualify himself one or more levels
                                                              (such as some Web programs do), delivers a better
      Selling Process Steps                                   qualified candidate for the sale.
      1. Qualifying Prospective Companies                        The initial sales contact or approach can be
      After receiving training on a company’s products        made through a variety of channels: telephone call,
      and sales methods, the first step in the sales process   e-mail, direct mail, personal letter, or an in-person
      is to qualify potential customer companies. This        visit. The initial contact must explain why it is in
      step is often called the presale preparation. It is     the prospect’s best interest to listen to the presenta-
      important for a salesperson to research the tar-        tion and grant the salesperson a meeting. The sales-
      geted customer industry base in general and             person often has to sell him- or herself before
      prospective customer companies in particular,           selling the product.
      prior to calling on individuals within the compa-       3. Sales Meeting
      nies. The goal is to determine a match between          After determining who the decision maker is and
      company offerings and the potential customer            convincing him or her to grant an appointment, the
      company’s needs. There are many sources that can        next step is the actual sales visit. The goal of the ini-
      provide lists of potential business customers,          tial contact is to listen to the potential customer’s
      including: internal company files, the Yellow Pages,     needs and present the company’s products. Making
      government NAICS codes, government census               a sale typically takes multiple visits. The sales meet-
      data, and private data banks.                           ings have several steps: listening to needs, presenta-
      2. Qualifying Prospective Individuals                   tion of offer, overcoming objections, and closing.
      The next step is to identify and qualify individual
                                                                • Listening to Needs. Listening to a prospective
      decision makers, customers within the targeted
                                                                  customer’s comments, whether positive or
      company who have the need, interest, and financial
                                                                  negative (objections), is extremely important.
      capacity to buy the product, and then set up an
                                                                  During a presentation, one objective should be
      appointment. This step is often called prospecting.
                                                                  to get the prospective customer to do as much
      Getting a lead on prospects may be determined
                                                                  of the talking as possible. As the customer
      through several methods:
                                                                  provides more and more information, the dis-
        • Referrals through the company’s inside tele-            cussion becomes increasingly focused on the
          sales reps                                              needs of the prospect.

  • Presentation of Offer. Effective sales presenta-      satisfaction is to deliver exactly what the customer
    tions create attention, interest, and a desire to     wants. Generally, the customer has specific expec-
    buy on the part of the audience through an            tations in mind. However, if it is probable that
    emphasis on the product or service’s features         delivery will be in 10 days, it generally is advisable
    and benefits. At the core is a connection with         to tell the customer 15 days, allowing a margin for
    the audience and their needs. The salesperson         error. If it is objectionable to the customer, he or
    should be aware of who he or she is talking to,       she will say so. Consider Chief Engineer Scott in
    the size of the audience, and what the goal is        Star Trek as one of the great underpromisors. He
    on each side (whether it is a potential sale on       would always complain, “Captain, I can’t make her
    the spot or the beginning of a longer-term            go any faster.” But somehow, he always found a way
    selling process).                                     to exceed expectations.
  • Overcoming Objections. After making the
                                                          5. Follow-Up/Customer Service
    sales presentation, most often there are com-
                                                          Customer service becomes important after the sale
    ments, questions, and objections from the
                                                          is made and is an integral part of relationship sell-
    prospective customer. Some objections can be
                                                          ing. The quality of customer service can make or
    simple, for example, “Your price is too high.”
                                                          break the next sale. Any organization can look good
    This objection could mean that the prospect
                                                          until a problem comes up. The customer’s feelings
    needs financing, or that the prospect has had a
                                                          must be considered in order to provide adequate
    very bad year financially and will not be able
                                                          sales service.
    to purchase at all, or that the price really is too
                                                             A basic tenet of marketing is that a customer’s
    high and a discount is needed. It is important
                                                          awareness of ads for recently purchased products
    to overcome each objection by providing solu-
                                                          goes up immediately after a sale. Buyers want to be
    tions to the stated concerns. The implied ques-
                                                          reassured that they have made the right purchasing
    tion is, “If I overcome all of your objections
                                                          decision. So, some companies reassure recent
    and show you that this is the best solution for
                                                          customers by calling, sending a note, or sending a
    satisfying your needs, will you buy?”
                                                          gift appropriate to the sale and the product. For
  • Closing. In the end, the customer is the only one
                                                          example, Mercedes Benz sales reps send service
    who can decide whether to buy. Once the sales-
                                                          reminders and promotional products (with the MB
    person becomes aware that the customer has
                                                          logo) such as a flashlight for the glove compart-
    arrived at that moment, it is extremely impor-
                                                          ment and a silver bookmark for travel books to
    tant to close the sale. There are several closing
                                                          each of their clients after the sale.
    methods that can shift the dialogue away from
    discussion to the close. They can be serious,“Let     6. Record Keeping
    me show you where to sign the contract.” Or           Sales reps should keep thorough records and write
    humorous,“Can I wrap that 900 tons of steel for       everything down (paper and/or computer). Your
    you?” After the close, the departure should not       notepad never crashes and never runs out of batter-
    be hasty. The close of a sale should be the begin-    ies. Record keeping is important for several reasons:
    ning of a long-term sales relationship.               continued communications with the customer,
                                                          keeping commitments, and administrative commu-
4. Filling and Delivery of Orders                         nications with sales management (sales evaluation,
After the sale is closed, the next step is filling and     sales forecasting, and product/competitive feed-
delivering sales orders. The customer is depending        back). Fortunately, e-mail and various CRM systems
on the company and the salesperson to fulfill the          keep track of much of this for the sales rep, automat-
obligations of the sale. The essence of customer          ing what used to be a completely manual task.

                                                          PERSONAL SELLING AND SALES FORCE MANAGEMENT          167
      IN SIDE SALES                                             outside a tiny town, and the elderly woman had
      by                                      been unable to find a florist who lived within deliv-
                                                                ery distance. The associate took
      The customer experience has a significant impact           down all the appropriate information and started
      on a company’s bottom line. History indicates that        to work. There were no easy solutions because, as
      the better the interaction with customers, the more       the inside sales rep reconfirmed, there were no
      loyal they will become and the more purchases they        florists in the vicinity. Eventually the associate dis-
      will make. As sales activities expand beyond face-        covered that there was a police station in the town,
      to-face interaction to telephone, Internet, and           and she tracked down the lone officer on duty.
      mobile applications, the goal of the inside sales rep     As the associate explained the problem, the officer
      is to create the same feeling of walking into an inti-    explained that he knew exactly where the sister
      mate storefront and speaking with a friendly, help-       lived. The associate arranged for a local delivery to
      ful salesperson. Telephones, and especially toll-free     the police officer who took the flowers to the sick
      numbers, enable customers to always reach a               woman. Two days later, the associate received a
      person, either as the first point of contact with a       return call from the woman who had placed the
      company or as a follow-up to Internet or mobile           order. Her sister had been delighted with the flow-
      transactions.                                             ers, the first special delivery of its kind that had
          Recruiting, screening, selection, and training for    found its way to her distant location. 1–800-
      this specialized area of sales have increased in impor- had added not one but three new
      tance as companies grow. Inside sales and service         customers (including the police officer).
      reps must be personable and possess telephone skills
      as well as computer skills, given the change of many
      companies’ call centers to service centers that sup-      BUSINESS-TO-CON SUMER SELLING
      port both telephone and online business.                  by Tupperware
          The typical customer contact, whether for sales       Business-to-consumer personal selling, also known
      or service, begins with an offer to help the cus-         as direct personal selling, is “the sale of a consumer
      tomer. Depending on whether the customer is               product or service in a person-to-person manner
      placing an order or checking on the status of one         away from a fixed retail location.”1 Direct selling is
      already placed, the inside sales associate proceeds       strong and growing; nearly 10 million people
      to assist the customer in the appropriate manner.         participate in direct selling in the United States and
      In either case, the goal is to have a delighted and       73 percent of Americans have purchased goods or
      satisfied customer by the end of the call. Technol-       services through direct selling.2 Sales in the United
      ogy is now available that gives the inside sales rep      States have gone from $22.21 billion a decade ago
      information about the caller so the conversation          to more than $30 billion in 2007, and constitute
      can be personalized. Product descriptions may be          more than one-quarter of an estimated worldwide
      scripted on a computer for consistency and as an          market of $110 billion. Two factors generally define
      aid to the inside sales rep. The critical relation-       and differentiate the direct-selling process and
      ship building that occurs during a call comes             infrastructure from other sales formats: selling
      from extensive customer service training and              methods and the sales management relationship
      experience.                                               with the sales force.
          If the customer’s needs are exceeded, you have a
      call where sales, current and future, and customer
                                                                Selling Methods
      service coincide. For example, an elderly woman
      who wanted to send flowers to her sick sister called       The salesperson meets the customer prospect away The sister lived on a mountain         from a typical retail location. Consumers receive a

benefit from the in-person selling process due to
                                                                             Direct Selling Locations
personalized customer information and/or demon-
strations solving their individual wants and                     •   Home (70.4%)
                                                                 •   Internet (11.4%)
requirements. The product then comes directly to
                                                                 •   Telephone (8.8%)
the customer.                                                    •   Temporary location (3.7%)
   Historically, the door-to-door salesman defined                •   Workplace (2.5%)
the prototype of the direct-selling method: reach-               •   Other (3.2%)
ing consumers outside the retail store environment                              Source: The Direct Selling Association, 2007,
in their home. The door-to-door sales method has                                        Growth & Outlook Survey.
never disappeared, although other strategies also
have become associated with direct personal sell-                 In the past, direct-selling companies attempted
ing to the consumer.                                           diversification into other distribution channels,
                                                               such as catalogs and retail stores. However, in order
             Direct Selling Methods                            to avoid the appearance of competition with, and
 • One-on-one or relationship selling including door-to-
                                                               thus discouragement of, their independent direct
   door cold calling (64.5%)                                   sales force, their efforts were constrained. Today, in
 • Party plan where groups of consumers are brought            response to consumer demands, many direct sellers
   together in a party setting, usually in the home            are diversifying into new and complementary cus-
   (27.7%)                                                     tomer access venues, including sales force-operated
 • Customer direct order (6.6%)
                                                               mall kiosks, the Internet, TV infomercials, and TV
 • Other (1.2%)
                                                               home shopping programs. Integrating all of these
               Source: The Direct Selling Association, 2007,
                                                               direct access strategies is a planning priority among
                       Growth & Outlook Survey.
                                                               many companies in the direct-selling industry.
                                                                  Global opportunities for direct selling have been
   Product demonstrations typify the advantage                 an important expansion strategy in industrialized
of direct selling to the consumer. The virtually               countries where work opportunities for women
airtight Tupperware® seal requires that the user               may be limited and in developing countries where
learn how to attach and “burp” the flexible top of             the retail infrastructure may be limited. For exam-
the plastic container to create a partial vacuum.              ple, through direct selling, consumers can buy an
Even though Stanley Home Products has been                     Avon lipstick in the Amazon jungle, a Tupperware
credited with originating home demonstrations                  food container in Botswana, or Amway detergents
of its hardware products, it was a former Stanley              in Russia.
Home Products distributor named Brownie Wise
who was recruited by Earl Tupper and then pop-
                                                               Sales Management/Sales Force Working
ularized the Tupperware Party in the 1950s. Usu-
ally held at the home of a hostess who invited
several of her friends, the Tupperware Party                   The primary sales force of the direct-selling enter-
would feature a Tupperware consultant or man-                  prise is comprised of independent contractors, in
ager conducting product demonstrations com-                    effect entrepreneurs working for themselves and
bined with giving tips for the home, ice-breaker               managing their own businesses. The independent
games, and activities in which participants                    contractor relationship is the cornerstone of the
(including the hostess) would be awarded prizes.               direct-selling industry, whereas the direct-selling
Today, a new Tupperware demonstration is begin-                company determines the way the sales force is struc-
ning approximately every two seconds somewhere                 tured, trained, and motivated. The advantages of
in the world.                                                  being an independent contractor are the ability to:

                                                               PERSONAL SELLING AND SALES FORCE MANAGEMENT                      169
        • Pursue income and occupational opportuni-
                                                                     Direct-Selling Product Categories
          ties that do not require a degree or specific level
          of education, prior experience, or substantial        • Personal care products, such as cosmetics and
                                                                  jewelry (32.8%)
          financial resources
                                                                • Home and family care products, such as cookware,
        • Work part-time or full-time                             cutlery, and cleaning products (25.6%)
        • Own, manage, and build a business starting            • Wellness products, such as vitamins and weight loss
          with little or no capital investment                    programs (21.4%)
        • Receive sales training and continuing support         • Services/Miscellaneous/Other (16.2%)
          from a successful, established company                • Leisure and educational products, such as toys,
                                                                  games, and encyclopedias (4.0%)

      Sales Force Structure                                                  Source: The Direct Selling Association, 2007,
                                                                                     Growth & Outlook Survey.
      At one time, the direct-selling industry consisted
      entirely of traditional direct sellers such as Avon
      and Tupperware with relatively flat hierarchical         SALES—INTERNAT IONAL
      sales force infrastructures. Today, a majority of        by American Express
      direct sales companies use a multilevel compensa-
                                                               Even though the goal of sales is the same world-
      tion plan where sellers are compensated both for
                                                               wide—to satisfy the needs of the customer—there
      their own sales as well as for sales made by those
                                                               are many considerations that need to be managed
      they have recruited. Members of the sales force,
                                                               when selling internationally or globally. These
      who may be known as consultants, demonstrators,
                                                               issues may require companies to adjust their sales
      dealers, distributors, executives, or a variety of
                                                               techniques, processes, and methods when entering
      other terms, may recruit new sales representatives
                                                               international markets. They may also require com-
      themselves, build their own business organizations,
                                                               panies to update their expectations, particularly
      and advance to higher levels or sales management
                                                               with regard to the time and effort required to
                                                               penetrate foreign markets.
      Sales Force Training
      Successful direct sellers must be good mentors,          Language as a Barrier and an Opportunity
      educating their recruits on the products and sell-
                                                               Language is the first obvious obstacle when selling
      ing programs, mentoring prospects, scheduling
                                                               internationally, but may not be the primary one.
      demonstrations, and teaching sales and recruiting
                                                               English is a generally accepted language for con-
                                                               ducting business throughout the world, and if the
      Sales Force Motivation                                   sales contact does not speak English, this barrier
      The average individual sales activity and expecta-       can be overcome with the use of an interpreter.
      tions of income varies greatly due to the varied         The danger of language is not actually in the act of
      amounts of time dedicated to selling. Therefore,         translating the words but in conveying the meaning
      sales force promotions also provide incentives that      of the words. Use of jargon or slang or even slight
      win loyalties and capture imaginations. Incentives       variations in meaning due to regional differences
      include product discounts, a company car, vaca-          (British English versus American English, for
      tions, and shopping sprees. Annual educational and       example) can cause major delays or misunder-
      motivational events produced by the larger direct-       standings. Salespeople should, therefore, choose
      selling companies are typically high-energy extrav-      their words very carefully and use words with
      aganzas in resort locations, often showcased with        universal meanings when communicating even
      well-known entertainers.                                 through an interpreter.

   Language is also a challenge when considering        the aggressive conquering nation without regard
the manner of one’s speech. Different cultures have     for the culture or the health and fitness of the
different tolerance levels when it comes to direct      people. This approach has led to failure in most
versus passive use of language. Some Asian cultures,    cases. In such markets, personal relationships are
for example, tend to be more passive and unde-          extremely important. People in international
manding. A direct approach can be seen as insult-       markets want to see that the foreign company is
ing. Other cultures are suspicious of passive           making an investment in the market. Strategies for
language. If the salesperson is not upfront in his or   penetration such as forming a joint venture or
her approach, the buyer may assume the salesper-        hiring a local representative with existing relation-
son is hiding something or, at least, not telling the   ships provide confidence that the relationship they
whole truth. In larger markets, these differences in    are forming is long term.
approach can occur across different regions or             Forming relationships and partnerships can take
provinces.                                              time. Naturally companies want to aggressively
   Use of language can also provide great advan-        pursue a market with great potential. Expectations
tages. If the salesperson has an understanding of       are high, and the sales force is under great pressure
the local language and dialect, even if not fluent, it   to take advantage of the opportunity. Yet, when
shows that he or she has taken an interest in the       they enter a sales relationship, they find that the
market and its culture. In this way, use of language    partners in the market are not operating with the
becomes a tool for forming the relationship and         same urgency. The first meetings can be frustrating
bonding with the potential buyer. It is better as a     for the salesperson because little business is actu-
rule to know a bit of the language well than to know    ally done. Instead, the buyers are sizing up the for-
a lot of the language and speak it poorly. Learning     eign salesperson to determine if there is a genuine,
a language is a great way to be introduced to a         trusting relationship to be had. Of course, the
culture and their way of thinking.                      situation may be just the opposite. The company
   Humor as a form of language is a good thing.         attempting to enter a market may, according to
There are important things to remember about the        their own culture, expect to base their sales efforts
use of humor. Certain types of humor do not trans-      on forming a deep partnership over time only to
late well. Sarcasm, for example, requires a variation   find that the buyer just wants to complete the deal
of tone in language and therefore does not trans-       and move on. This can leave them insulted and
late well. Political, racial, and raunchy humor are     frustrated even though they have won the business.
best avoided whereas self-deprecating, physical            The propensity to negotiate can be another
humor (think Japanese game show) is almost              major cultural variation. Some cultures enjoy the
universally accepted.                                   art of negotiation more than others. Some feel that
                                                        the only way to reach a good deal is by negotiating
                                                        and not to engage in the process is, once again,
Selling Approach and Cultural Variations
                                                        insulting. Other cultures look at negotiation as a
The approach of the sales effort is very important.     necessary evil whereas others see the use of negoti-
If international customers get the impression that      ation tactics as a way of concealing the truth and
salespeople consider their market to be just another    assume that they are being manipulated. How the
territory to conquer, they can be very wary. Humil-     salesperson treats the negotiation process can
ity and a show of respect is almost always the best     determine how successful the relationship will be.
approach.                                                  A variation on the negotiation theme is the con-
    In markets like China and Japan, the past west-     cept of the written contract. Western cultures tend
ern approach to business has generally been that of     to see the signing of a contract as the completion of

                                                        PERSONAL SELLING AND SALES FORCE MANAGEMENT         171
      the deal. The contract sets the rules of the relation-       Understanding differences in business customs
      ship and is binding. To reopen issues is to say that      is an important part of presale preparation.
      the partners are not satisfied with the deal and the       Researching the culture of the market is important
      relationship is therefore at risk. Other cultures don’t   and accounting for regional or provincial variations
      see it that way. Whereas most have accepted the           can be just as important. Still, for all the research
      practice of the written contract, they see it only as a   that can be done, success is best driven by experi-
      snapshot of the relationship at the time. The con-        ence. Where major cultural variations exist, use
      tract is an iterative document that not only can be       local representatives or consultants as guides. Most
      but will be and should be adjusted over the course        importantly, be flexible to the environment and be
      of the relationship. In these cultures, they ask ques-    prepared to adjust your approach.
      tions like, “Why let the business environment at
      a specific point in time determine the nature of
                                                                International Sales Management
      the relationship?” or “Things change, the business
      changes, companies grow or contract, so why               Managing sales internationally and globally is
      shouldn’t relationships be flexible to that change?”       extremely challenging. The most obvious obstacles
         One major aspect of a market culture that is           are language, logistics (variations in time zone,
      often overlooked in the sales approach is religious       technology, and distance), and quality of talent
      or nonreligious belief structures. This has less          (education, product knowledge, sales techniques).
      impact in markets with high levels of syncretism,         Other, more subtle challenges exist as well.
      where belief systems have blended or become                   An example of just such a subtle challenge comes
      obscured in a multicultural environment, such as          from the establishment of a scuba diving franchise
      in New York, London, or Singapore. But in cultures        business in Borneo. The owner was a banker from
      with a single belief system or a few dominating           England who was very aggressive in his business. He
      belief systems, the influence can be quite signifi-       made a change of life decision to develop a tourism
      cant. Belief systems can influence how and when           business in Kota Kinabalu (KK) and purchased a
      sales meetings take place, the agenda of meetings         franchise license. All his training and analysis
      (to accommodate prayer times), the pecking order          showed there was a very good opportunity for a
      of the attendees, the decision process, and many          western-type scuba business in the rapidly growing
      other aspects of the sales effort. Belief systems cer-    city. Working through local authorities, he managed
      tainly influence buying behavior in many cultures.         to get all the permits and permissions he needed to
      In some Muslim cultures, for example, buyers are          do business; he bought a high-quality dive boat and
      required to purchase products at a premium if they        set up a very efficient operation; and, finally, he
      have the means. This requirement allows them to           hired a local sales force to help drive revenue
      fairly distribute wealth to the working population.       growth. After about six months, the business was
      In other cultures, the belief system acts in a restric-   doing well but it was not meeting what the owner
      tive way, preventing the purchase of certain prod-        thought would be very achievable growth numbers.
      ucts that elsewhere would be seen as quite normal.        On review, he found that he had not accounted for
      This is true in India where some religious practices      the local culture in KK. The people in the city were
      prevent the use of animal-based products, Muslim          only a generation or two from local fishing village
      countries where alcohol and pork products are pro-        life. Their culture still maintained many elements
      hibited, and even in parts of the United States           of the village psyche. In a fishing village, the fisher-
      where puritan cultures still prevail. When entering       men would set out to make their catch for the day;
      a foreign market, it is important that salespeople        when they achieved what they needed to feed them-
      understand the belief systems of the people. If they      selves and their family, they would return home.
      do not, it can mean delays or even failure.               This practice had bled over into his sales force for

the dive business. The owner found that the sales              There are, however, other influences that impact
force would set out to make a single sale a day. Once      consumer sales even when economic, infrastruc-
they achieved this, whether it took three minutes or       ture, and talent considerations are minor. One such
twelve hours, they would head home or to the local         key influence is the people’s sense of nationalism
tea shop. Teaching his team that they needed to            or loyalty to local products and services. An inter-
continue to make additional sales throughout the           esting example of a product where local branding
day proved very difficult, but eventually the team          is surprisingly influential is in the airline business.
accepted the change.                                       For example, in Singapore the dominance of the
    Sales management challenges can also vary              national carrier is apparent wherever one goes in
based on the type of sales. Business-to-business           the country. Singapore Airlines has a worldwide
selling among large, multinational, and global com-        reputation and represents not only a quality brand
panies has become fairly standard in the last few          for consumers but is, in itself, the pride of the small
decades. This has been enabled by the advance-             nation. Not only has this made penetration of
ments in global communications and global travel.          the market by other airlines difficult through the
Yet, there are still considerations, such as infrastruc-   years, but it also influences the sales penetration of
ture and talent. For example, sales and service man-       other tangentially related products and services. In
aged through call centers can raise interesting            Singapore, an association with Singapore Airlines
questions. Is it better to manage a call center in the     through a sales and marketing partnership can
local country and in the local language with the risk      mean extreme success in the market. If buyers
that the technologies and talent are of a lower stan-      know about that association, whether it is a retail
dard? Should there be a centralized call center            product or even a credit card, it can positively influ-
where the company can be more confident of its             ence the buying decision. Everyone wants to sup-
capabilities? Will a centralized approach irritate for-    port the national carrier (even one that is privately
eign buyers? Or, possibly, is there a hybrid solution      owned). This relationship can be seen with other
to be had? Different companies have developed dif-         airlines as well, such as Germany’s Lufthansa,
ferent solutions based on their needs. How a com-          Australia’s Qantas, and UAE’s Emirates Airlines.
pany deals with these questions can determine the          How a sales force works with these local icons can
level of success that is achieved.                         make the process much easier.
    The greatest challenge in managing international
sales may be in the consumer products areas. A defin-
                                                           International Sales Ethics
itive consideration when selling consumer products
abroad is the economic situation in the market. The        When managing sales abroad, there are a number
availability of disposable income will dictate priori-     of legal and ethical questions that the salesperson
ties for buyers, the prices they are willing and able to   must consider.
pay, the type of products that they can purchase, and         One major cultural and ethical variation that a
even where they purchase. To this point, emerging          company must deal with, particularly in develop-
markets are still dominated by small, local establish-     ing markets, is the question of facilitated payments.
ments that carry locally demanded products at              In some markets, it is not unusual to pay sums of
locally acceptable prices. The dominance of small,         money to gain access to the market or speed up the
local stores to meet the demands in developing coun-       sales process. For companies based in the United
tries requires sales management to focus on sales          States, this practice is not only deemed unethical
efficiency and sales execution. Sales execution must        but it is also illegal. This applies not just to facili-
be quick in order to accommodate the number of             tated payments made within the United States
accounts. Sales force training and incentive systems       but to payments made by U.S.-based companies
must be designed to support these activities.              dealing abroad.

                                                           PERSONAL SELLING AND SALES FORCE MANAGEMENT            173

      By Hilton Hotels Corporation
      Company: Hilton Hotels
      Case:    Team Selling

      Maximizing revenues at a large hotel property such as the Hilton San Francisco & Towers (HSF&T)
      is a big job. With 1,890 bedrooms, 156 suites, 110,000 square feet of state-of-the-art meeting and
      banquet space and more than a half dozen food and beverage outlets open 365 days a year, the Sales
      and Marketing team has no shortage of work.
          The sales team is comprised of specialists who focus on selling to the different types of businesses
      that make up the customer market mix for the hotel. The customer mix includes business travel sales,
      conference center sales, tour and travel sales, and a team of professionals specializing in selling to the
      large international, national, and regional association markets and to corporations holding large
      meetings, exhibitions, or product launches.
          In April 1993, the HSF&T Sales and Marketing team received a sales lead indicating that the Club
      Managers Association of America (CMAA) was targeting the West Coast for their 1999 Annual Con-
      vention. CMAA is an association of club managers that promotes efficient club operations for a vari-
      ety of prestigious clubs, including golf, yacht, athletic, city, university, and military. CMAA’s 5,000
      members hold a variety of meetings, the most important being the annual convention. The conven-
      tion could be worth in excess of $1.5 million in combined rooms and food and beverage revenue to
      the Hilton San Francisco & Towers.
          The HSF&T team started reviewing the Hilton’s research file on the CMAA group and examining
      the information needed to qualify the account. The first course of action was to turn to the Director
      of Sales—National Accounts in Hilton’s Washington, D.C., National Sales Office to assist with this
      D.C.-based account. In addition to sales professionals on site at each and every Hilton Hotel, the Hilton
      Hotels Corporation also has several national sales offices based in key locations. The role of the sales
      professionals in the national and international sales offices is to establish long-term working relation-
      ships with the key contacts in organizations that represent potential for multiple Hilton properties.
          A review of CMAA’s file indicated that, although Hilton had done some business in the past with
      them, CMAA had a history of booking with other hotel chains. In fact, two other major competitor
      chain hotels were strongly preferred by CMAA as both had provided excellent service to their group
      in the past. In addition, CMAA had particular concerns over the Hilton San Francisco & Towers’
      location (4 blocks away from the Moscone Convention Center), the quality of food and beverage, and
      the service levels at the hotel.
          The HSF&T team continued its research and was able to establish CMAA’s convention objectives
      and personal needs. It also determined that the CMAA board would vote on a site within a week of
      its site inspection trip to San Francisco.
          The first and most immediate challenge was to get a chance to make a presentation to the CMAA
      Board of Directors. The Board and CMAA executives (15 people altogether) were going to be staying
      at a competitor’s hotel for a site review for two days in July 1993. Hilton’s Washington, D.C., office was
      able to persuade CMAA to give Hilton a chance to make a presentation. It was clearly going to be an
      uphill battle to change some of the perceptions of the CMAA Board in less than two hours over a
      breakfast when one of Hilton’s competitors was going to have their attention for almost two days.
          After getting answers to all the questions needed to qualify the account, the HSF&T team put
      together the “Hilton Solution.” The customer’s unique business, event, and personal needs were set

out in order of priority. The corresponding features and services of the Hilton that met each of the
needs were identified. The benefits of buying Hilton were listed and the competitive spin (how Hilton
is bigger, better, different, or uniquely qualified to handle this business) was highlighted. The HSF&T
team put together a strategy that would present the Hilton Solution to the CMAA Board over break-
fast and then give a tour of the hotel. The entire presentation was scheduled to be less than two hours.
A pivotal decision was made that Hilton would do a team sell, pulling together the key Hilton play-
ers at the Corporate, National Sales Office, and Hotel level to impress CMAA. It would later be
revealed that the other competitors used a single-salesperson approach.
    The Hilton team was given from 7 A.M. to 8:45 A.M. to show their hotel and serve breakfast. It was
decided that the entire Executive Committee of the hotel, headed by the General Manager, would host
the breakfast. The key requirements for CMAA, identified earlier by the HSF&T team, were printed on
presentation boards and placed on easels around Cityscape, the hotel’s spectacular rooftop restaurant.
    The CMAA requirements included:
    Requirement #1: 1,600 rooms on the peak nights of the convention, all within close proximity of
each other and the Moscone Convention Center. They wanted a first-class facility and a hotel dedi-
cated to “keeping up appearances” to create an environment conducive to education, networking, and
recognition of individual achievement.
    The Hilton Solution: Hilton proposed committing 1,300 rooms per night (100 more than the
competition), with overflow into four-star properties directly across the street. Hilton noted that the
attendees would be able to network better because the Hilton Solution saved time and effort in cov-
ering shorter distances between colleagues’ accommodations. The fact that Hilton also was spend-
ing $7 to $9 million a year in upkeep and maintenance of its San Francisco hotel also was highlighted.
    Requirement #2: Top-quality, creative food and beverage concepts.
    The Hilton Solution: The Sous Chef and the food and beverage team created a spectacular break-
fast, including blintzes and caviar, exotic fruits, and lox and bagels. The room was decorated with
beautiful flowers, fresh vegetables, polished fruit, and ice sculptures. A variety of different creative
ideas were put forward, with emphasis on Hilton’s commitment to buy fresh foods from local farms
around the San Francisco Bay area. Hilton also demonstrated credibility by revealing that the Hilton
San Francisco & Towers had just accommodated a high-profile culinary group, a group of demand-
ing food and beverage professionals with 1,000 chefs in attendance.
    Requirement #3: Flawless and attentive service, and involvement from top management in
executing the events.
    The Hilton Solution: In addition to showing the support and enthusiasm of the entire HSF&T
team by having them all present to host the breakfast, Hilton demonstrated that the San Francisco
hotel had one of the lowest turnover rates in the company. Many of the service staff had been
with the hotel since 1964, when the hotel first opened its doors. Hilton advised CMAA that the
convention servicing and catering management would move into the hotel when the group was
in-house, giving them 24-hour coverage. The benefit to CMAA would be peace of mind that there
would be immediate assistance for any unexpected eventuality. This would give CMAA time to
focus on the reasons for having their annual convention: “education, camaraderie, and successful
advancement of its members.” This quote, from their mission statement (researched by the HSF&T
team), was woven into the Hilton presentation boards around the restaurant.
    Forethought and planning also was demonstrated prior to the arrival of CMAA in San Francisco.
Hilton had prepared a customer-focused sales proposal for each site inspection attendee, along with
a personalized letter from Barron Hilton. Each package was expressed overnight to each CMAA site
inspection attendee.
                                                    PERSONAL SELLING AND SALES FORCE MANAGEMENT              175
         At the appointed time, Hilton escorted a minivan over to the competitor’s hotel to pick up the
      CMAA Board and on the way back to the Hilton showed them how easy it was to get from the
      Moscone Convention Center to the Hilton Hotel. As the minivan pulled up to the front entrance,
      members of the Hilton Sales Management Team were curbside to welcome them with a red carpet
      and a welcome banner.
         The CMAA group then proceeded to the breakfast where they met the rest of the hotel’s execu-
      tive committee. Each executive committee member talked about what they do, in casual conversation
      rather than in a formal presentation. The flow of conversation was well orchestrated by the Hilton
      team, and the breakfast ended at 8 A.M., giving 45 minutes to conduct the tour of the hotel.
         When the CMAA Board decision was made, it was unanimous; they booked its 1999 Annual
      Meeting at the Hilton San Francisco & Towers. Solid research; good qualification work; a smooth,
      customer-focused presentation; creativity; and a team sell made the difference and landed a very
      lucrative signed contract.


      By Coldwell Banker
      Company: Coldwell Banker
      Case:    10-Day Sales Event

      Background/Business Challenge
      During 2008 the residential real estate industry made headlines as a sector in trouble. In an effort to
      bring home buyers and sellers together and help jump-start the U.S. real estate market, Coldwell
      Banker, the nation’s oldest residential real estate brand, devised a bold initiative to help move home
      buyers off the sidelines and into homes.
          The Coldwell Banker “10-Day Sales Event” kicked off on October 10, 2008, with immense enthu-
      siasm and support. During this time, participating home sellers from across the United States agreed
      to reduce the listing price on their homes. The goal of the national “10-Day Sales Event” was to bring
      participating sellers and interested buyers together—and to help Americans recognize that now truly
      is a smart time to buy.
          Further demonstrating the need for a leader in real estate to take a stand, a survey of 3,379 Cold-
      well Banker real estate professionals in markets across the United States found that 56 percent said
      that listing prices in their market remain above where they need to be to attract qualified buyers.
      Additional findings from the survey included:
        • 77 percent agreed that the majority of sellers in their market still had unrealistic expectations
          regarding the initial listing price for their homes.
        • 79 percent agreed that homes in their market that were priced appropriately were attracting
          more buyers and moving more quickly.
        • 76 percent felt that a 10 percent or less reduction in listing prices in their area is all it would take
          to help push these homes over the tipping point to a sale.
         Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate LLC, was quoted
      in the event kick-off press release stating:

   Despite the difficult headlines regarding our overall economy, the residential real estate market has
   been showing several positive signs over recent months that could be signaling a tipping point.
   Because of higher inventory, buyers have more homes to choose from and they can take advantage
   of near historically low interest rates and affordability levels that are the best they have been in
   years. The recent housing and economic recovery legislation also provides first-time homebuyers
   with the added incentive of a $7,500 tax credit.
PR Strategy
To generate buzz about this event, a focused public relations effort was implemented including a detailed
“communications blueprint” for the Coldwell Banker affiliate and company-owned offices with mes-
saging, Q&A, fill-in-the-blank press releases, and so on. In addition, two media training sessions were
conducted to provide tips and tools for offices speaking with the media during the 10-Day Sales Event.
   Because of this intensive preevent coordination, local media coverage for the 10-Day Sales Event
was impressive. Coldwell Banker CEO Jim Gillespie kicked off the media buzz with national inter-
views and the affiliate and Coldwell Banker–owned offices continued this media attention on a local
level throughout the event.
   As part of the integrated communications platform, sellers who participated in the 10-Day Sales
Event also had added promotional power from the Coldwell Banker brand behind their listing. Those
sellers’ listings were specially promoted through national and local radio and print advertising as
well as being featured prominently on the Web site.
The 10-Day Sales Event was particularly successful generating media attention both nationally and locally.
Below are highlights of the media coverage and business highlights to date for the 10-Day Sales Event.
Media Coverage
  • Media Impressions (to date): 28 million
  • Ad Equivalency: $6.7 million
  • 101 national and local broadcast segments, including CNBC Power Lunch, FOX—Opening Bell,
    FOX—Cavuto on Business, NPR, Reuters TV, Bloomberg TV, and more
  • 15 Satellite Media Tour and radio interviews with Jim Gillespie
  • More than 300 print and online hits including Los Angeles Times, Chicago Tribune, Denver Post,
    Boston Globe, Atlanta Journal-Constitution, and others
  • Stories in 10 of the top 30 newspapers
Across the country, more than 32,000 homes listed with Coldwell Banker participated in the sale.
The average price reduction was around 9 percent. The number of sales varied from market to mar-
ket with an average of 6 percent of sale properties going under contract during the sale. These results
were exceptional considering the financial and credit collapse that occurred just days before which
further eroded consumer confidence.
   The sales strategy proved effective in a variety of markets:
   • Markets that have been historically stable in terms of price such as Ohio, Pittsburgh, Dallas/
     Fort Worth
   • Markets with a high level of inventory such as Chicago
   • Markets affected by high levels of speculation such as Utah
   • Many entry- and mid-level markets across New England
                                                     PERSONAL SELLING AND SALES FORCE MANAGEMENT               177
            In addition, close to 70 percent of participating properties maintained the reduced price after the sale,
         indicating support for the event’s main goal of bringing buyers and seller together on the issue of price.
            Web traffic to during the 10-Day Sales Event saw an 11 percent increase in
         property searches during the event with a total of 2.5 million searches executed.
            Many Coldwell Banker offices also reported significant increases in phone inquiries and Open House
         visits related to the reduced price listings. In some cases, properties that had been on the market for
         months, now reduced in price, received offers within the first few days of the 10-Day Sales Event.

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