Marketing Principles

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Part One: Introduction to Marketing

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Chapter 1: Scope and Concepts of Marketing

Part 1
Introducton to Marketng

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Afer studying this chapter,
you should be able to:

Learning Objectives
1. Address the central role
of marketng in the twenty-frst
century.

2. Defne marketng and identfy
its key concepts.

3. Address the diferent marketng
philosophies and explain them in
view of the
historical development of
marketng.

4. Discuss the key elements of the
societal marketng concept and
the importance of these elements
in meetng the needs of consum-
ers, society, and the organizaton.
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Chapter Outline
1-1 Chapter Overview
1-2 The Importance of Marketng in the Twenty-First-Century
Economy
1-3 Defning Marketng
1-3a Needs, Wants, and Demands
1-3b Value, Quality, and Satsfacton
1-3c Goods, Services, Ideas, and Experiences
1-3d Exchanges and Transactons, Relatonships and Mar-
kets

1-4 Marketng Philosophies
1-4a The Product/Producton Concepts
1-4b The Selling Concept
1-4c The Marketng Concept
1-4d The Societal Marketng Concept
1-4e The History of Marketng Philosophies
1-4f Beyond the Marketng Philosophies: Avoiding Mar-
ketng Myopia

1-5 Key Elements of the Societal Marketng Concept
1-5a A Market Orientaton and an Integrated Marketng
Approach
1-5b A Focus on Consumer Needs and the Needs of Society
1-5c A Value-Based Philosophy
1-5d An Organizatonal Goal Orientaton
1-5e The Next Level of Marketng: Integratng Societal
Marketng Practces through Customer Relatonship
Management (CRM) Summary

Key Terms
Discussion Questons
Review Questons
Notes
Case 1-1: Customer Relatonship Demarketng at Mamas Pizza
Case 1-2: Kraf Foods: Changing the Focus from Yummy to Healthy

Chapter Outline
1-2 The Importance of Marketng in the Twenty-First-Century Economy
1-3d Exchanges and Transactons, Relatonships and Markets

1-4f Beyond the Marketng Philosophies: Avoiding Marketng Myopia

1-5a A Market Orientaton and an Integrated Marketng Approach
1-5e The Next Level of Marketng: I ntegratng Societal Marketng
Practces through Customer Relatonship Management (CRM) Summary

Key Terms
Discussion Questons
Review Questons
Notes

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cope and oncepts
o areng

Chapter Outline
1-2 The Importance of Marketng in the Twenty-First-Century Economy
1-3d Exchanges and Transactons, Relatonships and Markets

1-4f Beyond the Marketng Philosophies: Avoiding Marketng Myopia

1-5a A Market Orientaton and an Integrated Marketng Approach
1-5e The Next Level of Marketng: I ntegratng Societal Marketng
Practces through Customer Relatonship Management (CRM) Summary

Key Terms
Discussion Questons
Review Questons
Notes

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1

cope and oncepts
o areng
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Untl a few years ago, Charles M. Harper,
chairman of ConAgra Inc., had about as much inter-
est in eatng right as the average middle-aged guy:
not much (his diet consisted primarily of pork chops,
roast beef, and ice cream). As he lay in the hospital
recuperatng from a heart atack, he contemplated
his new personal goal (to improve his eatng habits)
and his old company goal (proft) and came up with
a vision for a new line of health foods called Healthy
Choice. Afer he returned to work, Harper enlisted
the help of his product development team to create
a healthy product that would not compromise taste.
The researchers overdelivered on taste, packaged
the product in a distnctve green color that stood
out, and advertsed it in traditonal channels, rather
than positoning it as health or diet food. With strong
support from retailers, today Healthy Choice domi-
nates the frozen dinner and entre market.
Healthy Choice is a marketng success.
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Successful companies, such as Procter & Gamble, Kraf, Microsof, Siemens, and Wal-Mart, rely
on marketng to ensure the success of their products and services in the marketplace. What is mar-
ketng? Many peopleincluding some management professionalsthink of marketng simply as adverts-
ing or selling. Indeed, promoton in the form of selling and advertsing is omnipresent, arriving in neat
packages in our mailboxes at home and at the ofce, resonatng on our television screens and radios, pop-
ping up in our e-mails and Web sites, calling for our atenton from billboards on the side of the road, and
enchantng us with catchy slogans, such as the Coke side of life and Alka-SeltzerPlop, Plop, Fizz,
Fizz! Promoton is, in fact, part of marketng: It is an important marketng functon.

Yet marketng is much more. It is an integral part of contemporary life. Marketng is pervasive,
permeatng many aspects of our daily existence, from our selecton of the neighborhoods where we
live, to the brands we purchase, to our choice of retailers and service providers, and to our selecton of
television and radio programs (see Figure -). Marketng profoundly afects our decisions and features
prominently in our lives.
HAPTER OVERVIEW
This chapter presents marketng as an engine of the modern economy and as an important deter-
minant of our high standard of living in the Western world. Secton 1-2 addresses the importance of mar-
ketng in the twenty-frst-century economy, as a driver of economic growth and development, and as a
vehicle for enhancing buyers well- being and quality of life in general. Secton 1-3 ofers a defniton of
marketng and describes the important concepts of marketng. Secton 1-4 addresses the diferent mar-
ketng philosophiesthe product/producton concepts, the selling concept, the marketng and societal
marketng concepts, and their historical underpinnings. Secton 1-5 addresses the key elements of the soci-
etal marketng concept: a market orientaton and an integrated marketng approach, a focus on consumer
and society needs, a value- based philosophy, and an organizatonal goal orientaton.

THE IPORTANE OF ARKETING IN THE 2st ENTURY EONOY
Marketng consttutes an ever-growing, important driving force of todays
modern society. In the United States alone, according to the 2012 Statstcal Abstracts
of the U.S. Census Bureau, there are more than 308 million consumers living in 110
million households, spending over $5 trillion on products and services, or two-thirds of
the natonal gross domesc product (GDP). A signifcant number of all Americans

1-1

1-2

Gross Domesc Product (GDP):
The sum of all goods and
services produced within the
boundaries of a country.
Figure - Sleek, colorful and super-clean displays with just the right
lightng announce a shopping experience masterfully created
through well-thought-out marketng strategies.
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are employed entrely or in part in assistng the marketng system
to perform its functons. More than 30 million Americans work
directly within the aggregate marketng system, with salespeople
accountng for the largest segment.
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There are almost 20 million
business-to-business buyers, 3 million of which are retailers that
resell to consumers and another half-million are wholesalers.
Firms in general spend more than $200 billion per year on adver-
tsing; all these fgures do not account for the marketng expendi-
tures of professional practce, such as doctors, lawyers, and other
service providers who must engage in marketng to atract and
maintain their clients (see Figure -2).
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The broad marketng system is integral to a societys eco-
nomic system, ofering employment and income for millions work-
ing in the marketng feld, enabling them to be productve and
earn money needed for consumpton. In this process, private in-
vestments for the marketng system further assist in the development of the natonal infrastructure, in such
areas as transportaton, telecommunicaton, medical care, and fnance. In turn, companies engaged in mar-
ketng pay taxes that further fund public programs. The systems mass-market efciencies allow for lower
costs, lower prices, and increased overall consumer access, fostering innovaton that ultmately benefts
consumpton.
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Marketng enhances economic development. Natons with higher proportons of their populatons
involved in marketng and with a developed marketng system also have a higher GDP. It is important to
note, however, that the roles of the marketng system difer by stage of economic development.
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For exam-
ple, in developing countries, the focus of producton is to satsfy basic needs, such as hunger and shelter;
here, the limited excess producton is traded in local markets. In developed countries, marketng is manifest
in all aspects of producton and consumpton, and all marketng functons are essental for a company to
surviveaccountng for 50 cents of every dollar spent on consumer products.
Marketng also enhances consumers well-being and quality of life. In many organizatons, mar-
ketng practtoners represent consumers interests, infuencing the decisions of which products and ser-
vices will be ofered. The marketng system then informs consumers about the oferings through advertsing
campaigns and supports the delivery of products and services in a manner that is convenient to consumers.
Competton leads to a broader spectrum of product choices and to an improved distributon system that
reduces product costs. These eforts further help improve the overall natonal infrastructure, such as tele-
communicatons and transportaton.
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As an important aspect of the daily life of a consumer, marketng informs the consumer about new
products, their benefts, and their side efects. It ofers choices of products, prices, and retailers. It enter-
tains with well-executed commercials, it irritates with intrusive sounds that demand atenton, and it
atempts to satsfy many consumer needs and desires. What, then, is marketng?
DEFINING ARKETING
Marketng is described by management guru Peter Drucker as the most
efectve engine of economic development, partcularly in its ability to develop entre-
preneurs and managers.
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He defnes marketng as a systematc business discipline that
teaches us in an orderly, purposeful, and planned way to go about fnding and cre-
atng customers; identfying and defning marets; and integratng customers needs,
wants, and preferences. Marketng is also the intellectual and creatve capacity and
skills of an industrial society to facilitate the design of new and beter products and
new distributon concepts and processes.
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Perhaps a more succinct defniton of marketng is the one developed by the American Marketng
Associaton:
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Figure -2 This advertsement by the Family Care Clinic
encourages people to use the clinics services.
Source: Courtesy of Newcomer, Morris & Young.

arets:
All of the actual and potental
consumers of a companys
products.
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Exchange is at the heart of marketng. The objectve of marketng is to satsfy the needs, wants,
and demands of consumers and businesses through providing value, quality, and satsfacton. Exchange
of ideas, goods, and services becomes possible through the efectve planning and executon of the pro-
ducton, pricing, promoton, and distributon functons. In the following sectons, the defniton of mar-
ketng is explained in more detail.
-3a: Needs, Wants, and Demands
Successful marketers must be able to identfy target consumers and their needs, wants, and
demands. Needs are defned as basic human requirements: physiological needs, such as food and water;
safety needs; social needs, such as afecton and acceptance; self-esteem needs, such as the need for
recogniton; and self-actualizaton needs, such as the need for self-improvement. (A hierarchy of these
needs will be addressed in Chapter 5.) Marketers atempt to address consumer needs with the diferent
goods and services they ofer.
Needs become wants when they are directed to a partcular product. Wants
are shaped by ones culture. Shelter in the United States typically consists of frame
housing with Tyvek (synthetc) insulaton. In much of Europe, it consists of brick
homes, whereas in sub-Saharan Africa, it consists of round huts made out of straw
and/or mud. In each format, the home meets the consumers need for shelter. Self-
esteem needs can be addressed in the United States and Europe through educaton
or through luxury possessions, such as a home in the right neighborhood with the
right furnishings (see Figure -3) or an automobile that qualifes as appropriate for
the individuals aspiratons. In sub-Saharan Africa, self-esteem needs are ad-
dressed by the number of catle owned or the number of servants helping with
housework.
Wants become demands
when they are backed by the abil-
ity to buy a respectve good or service. Discerning adults
with deep pockets can buy San Pelegrino mineral water,
drive a BMW M-class, or take the Queen Mary 2 ultra-
modern gigantc cruise ship, self-touted as the grandest,
most magnifcent ocean liner ever built, on a transatlan-
tc voyage. Busy fathers who do not want to take tme
cooking can appease their own hunger with Hot Pockets
and feed their kids Hot Pockets Juniors.
-3b: Value, Quality, and asacon
Companies are successful because they provide
products of value. That value, defned as the overall price
given the quality of the product, is especially important to
consumers when they frst purchase the product. Con-
sumers vary in how they defne value. To one consumer,
a good value may be a cheap price. To another consumer, the value may be a quality product at a moder-
ate price. To a third consumer, value may be an expensive product that conveys an image of prestge. Alt-
hough consumers defne value diferently, each consumer makes a purchase be-
cause in the exchange process, he or she antcipates obtaining something of value.
Closely ted with the concept of value is quality, which is the overall product
value, reliability, and the extent to which it meets consumers needs. Perceived
quality has the greatest impact on satsfacton. Again, successful companies sell
products that are perceived to be of high quality relatve to the price being charged.

Figure -3 Inside an uptown home in Minneapolis where sim-
ple but upscale furnishings are selected for their ft to the
rooms purpose.
areng: is defned as an organizatonal functon and a set of processes for creatng, communicatng, and delivering value to
customers and for managing customer relatonships in ways that beneft the organizaton and its stakeholders.
-American Marketng Associaton

Needs:
Basic human requirements:
such as food and water.

Wants:
Needs that are directed at a
partcular productfor
example, to meet the need for
transportaton, consumers
may purchase an automobile
or a bus ride.

Demands:
Wants backed by the ability to buy
a respectve good or service.

Value:
The overall price given the quality
of the product; perceived as im-
portant for the frst purchase
decision.
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The quality of food served at a four-star restaurant is higher than that in a value meal at McDonalds. But
for the amount a consumer pays at McDonalds, it is perceived to be a quality meal. Indeed, fast-food res-
taurants are quickly bridging the quality gap by providing food of high quality. For example, Hardees sells
a line of premium Thickburgers made from Angus beef, and Arbys is ofering quality entre salads and a
line of low-carb wraps, all for a reasonable price of around $5.
Companies that do not provide quality that is refectve of the price may get someone to try the
product once, but more than likely that consumer will not come back. And generally speaking, that busi-
ness will not survive without repeat customers.
One reason the Edsel failed in the late 1950s was the poor quality of the automobile. In contrast, a
major reason the Mustang succeeded a few years later was the superior quality of the automobile. Both
cars were made by Ford: One is used as an example of failure, whereas the other has become an icon of
American cars. More recently, the frequent recalls for many of Fords speed controlequipped super
duty trucks, Excursions, E-450 vans, Explorers, and Mountaineers from the late 1990s untl 2002 have cast
a doubt in the mind of the consumer as to the quality of the Ford brand.
asacon is the key to whether consumers or businesses purchase again. If
someone is satsfed with the taste and quality of a new favor of potato chips, he or
she will purchase them again. If not, that consumer will purchase another brand.
The same is true for a business that is purchasing raw materials or components to man-
ufacture a vacuum cleaner. The level of satsfacton is a functon of the quality and per-
ceived value and whether it adequately meets the need or want for which it was pur-
chased.
-3c: Goods, ervices, Ideas or Experience
As the defniton of marketng states, the primary focus of marketng is on the creaton and distri-
buton of goods, services, ideas, and experiences that satsfy consumer needs and wants. Goods gener-
ally refer to tangible products, such as cereals, automobiles, and clothing. In industrial marketng,
equipment, component parts, and hospital uniforms are examples of goods. ervices refer to intangible
actvites or benefts that individuals acquire but do not result in ownership. Airplane trips, a massage, and
the preparaton of a will are examples of services. Ideas and experiences refer to concepts and experienc-
es that consumers perceive as valuable because they fulfll consumer needs and wants: Watching a mov-
ie, riding Dumbo at Disneyland, and going on a safari in Kenya fulfll consumers needs for adventure and
exploraton. See Table - for more examples of goods, services, ideas, and experiences.

A restaurant is a serviceor is it? Hawaiian Tropic Zone claims to also ofer a unique expe-
rience, as areng Illustraon - (on the following page) suggests.

Goods:
Tangible products, such as
cereals, automobiles, and
clothing.

ervices:
Intangible actvites or benefts
that individuals acquire but
that do not result in
ownership, such as an
airplane trip, a massage, or
the preparaton of a will.

Ideas:
Concepts that can be used to
fulfll consumer needs and
wants.

Experiences:
Personal experiences that
consumers perceive as
valuable because they fulfll
consumer needs and wants.

Table - Goods, ervices, Ideas or Experience?
asacon:
A match between consumer
expectatons and good or
service performance.
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In this text, goods, services, ideas, and experiences will be collectvely re-
ferred to as products. Products represent the frst P of marketng. Marketng has
four Ps that jointly shape the marketng strategy for a partcular brand, as the chap-
ters that follow illustrate.
-3d: Exchanges and Transacons, Relaonships and arets
Exchanges and transactons refer to obtaining a desired good or service in exchange for
something else of value. Exchanges involve at least two partes that mutually agree on the desirability of
the traded items. Shelter in New York City can be obtained by rentng a tny one-bedroom apartment in
one of the citys expensive condos in exchange for about $4,000 a month, rentng a room at a hotel in
Times Square in exchange for about $250 per night, rentng a room at a hotel in Queens for about
$150 per night, or going to a homeless shelter. Other examples of exchanges in-
volve votng for a partcular politcal candidate for a promise of lower taxes or
ofering donatons to charity in exchange for the comfort of knowing that others
will be beter of as a result. All of these are examples of transactons in which an
exchange of something of value was given in return for something else of per-
ceived equal value.
The exchange process is central to marketng. Ultmately, an exchange takes place
between consumers and manufacturers or service providers. Consumers pay money for the goods and
services produced by manufacturers or service providers. In reality, the exchange is more complicated
because it usually involves a complex distributon process and middlemen:
Hawaiian Tropic Zone is a
unique restaurant ofering that
took New York City and Las Vegas
by storm. They claim to bring the
glitz and entertainment back into
fne dining. With a 16,000 square
foot tri-level locaton on 49th Street
and 7th Avenue in Manhatan, this restaurant aims to
be an excitng nightlife destnaton in Times Square.
The restaurant is wrapped in Olympic-style fame
torches, invitng the patrons outside to experience
the exotc interior. A two-story waterfall and a large
video wall behind the bar provide the background
for a catwalk stage. The frst foor features top de-
signer Nicole Millers wearables, and customers can
purchase the same bikini styles as those sported by
the waitresses and other fne gifs. What is partcular-
ly noteworthy about this establishment is that, with
its nightly beauty pageant featuring bikini-wearing
waitresses, this is not another Playboy Club, which
folded in 1986mainly because women patrons
made the male patrons uncomfortableor a Hooters
of America operaton. Hawaiian Tropic Zone atempts
to appeal to men and to women. The restaurant
is much more sophistcated, with a female-friendly
menu that has small porton sizes, fsh, and low-
calorie grilled dishes. Female patrons can go to the
shop to purchase the Nicole Miller bikinis and sa-
rongs that the waitresses are parading or the Nicole
Millers signature litle elegant black dress. Moreover,
pageants appeal to women, so they are likely to react
positvely to the catwalk parade. Waitresses, too,
have been trained how to properly entertain both
male and female patrons: Diners are made to feel as
if they are all at the beach together. And they are
instructed not to firt with the male patrons. They are
positoned by management as social coordinators
between tables, introducing male and female custom-
ers and making the restaurant an established
meetng place.

Sources: Gwendolyn Bounds, Enterprise: Theme Restaura-
teur Wants More Than Men: With a Bikini-Clad Staf, Atractng
Both Genders Is a Start-Up Challenge, Wall Street Journal
(September 19, 2006, online editon, accessed March 31,
2007): B8;
areng Illustraon -:
Hawaiian Tropic Zone: Fine Service or Fine Entertainment?

Products:
Any ofering that can satsfy
consumer needs and wants.
The frst level of the exchange takes place between the manufacturer and a wholesaler: The wholesaler buys the prod-
uct from the manufacturer.
A second exchange takes place between that wholesaler and another wholesaler who is closer to the consumer;
there could be several levels of wholesalers in the distributon chain, and at each level, an exchange will take place.
Yet another exchange takes place between the wholesaler and the retailer where the target consumer will pur-
chase the product.
The fnal exchange takes place between the consumer and the retailer when the consumer pays the retailer for
the product.
Exchanges and Transacons:
Obtaining a desired good or
service in exchange for some-
thing else of value; involving
at least two partes that mutually
agree on the desirability of the
traded items.
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At each level, products (goods, services, or ideas) are exchanged for a monetary sum. Each prod-
uct has a price (cost) at each level of distributon, with the consumer paying the fnal price for the good or
service at the end of the distributon channel. Price is the second P of marketng.
At all these levels, important relatonships of mutual beneft develop. Con-
sumers develop loyalty or preference for the brand or the retailer. The retailer de-
velops relatonships with wholesalers, and wholesalers develop relatonships with
manufacturers. The manufacturer nurtures a relatonship with all the partes in-
volved in marketng its products and with the fnal consumer. This is known as re-
laonship mareng, which is defned as the process of developing and nurturing
relatonships with the partes partcipatng in the transactons involving a compa-
nys products. The partes involved in the exchange are part of the distributon pro-
cess; distributon is referred to as placethe third P of marketng.
The manufacturer develops these relaton-
ships by communicatng with the wholesalers, retail-
ers, and especially, with its market. A market is the
set of all the actual and potental buyers of the com-
panys products whose needs can be satsfed with
the respectve products. The company needs to un-
derstand its markets to produce goods that address
the markets needs and wants and to communicate
with them efectvely about their products. Com-
municaton with the market is accomplished through
promoton in the form of advertsing, personal sell-
ing, sales promoton, or public relatons. Promoon
is the fourth P of marketng (see Figure -4).
Hence, product, place, price, and promo-
tonthe four Ps of marketngare used to address
the needs and wants of the fnal consumer. The four
Ps of marketng are described in Figure -5.

Figure -4 Banks today are advertsing heavily. In Europe, it is not
unusual for banks to advertse their services on the side of buses.
Insert Kens new photo...
Product:
any ofering that can satsfy
consumer needs and wants;
products include goods
(tangible products), services,
ideas, and experiences;
the frst P of marketng

Price:
The amount of money necessary
to purchase a product.;
the second P of marketng.

Place:
The physical movement of
products from the producer to
individual or organizatonal con-
sumers and the transfer of own-
ership and risk;
the third P of marketng.

Promoon:
All forms of external
communicatons directed
toward consumers and
businesses with an ultmate
goal of developing customers;
the forth P of marketng.

Figure -5 The 4 Ps o areng

Relaonship areng:
The process of developing and
nurturing relatonships with all the
partes partcipatng in the transac-
tons involving a companys prod-
ucts; the development of marketng
strategies aimed at enhancing
relatonships in the channel.

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ARKETING PHILOOPHIE
Firms can opt for one of fve diferent approaches to marketng. The frst approach is for a compa-
ny to place a heavy emphasis on producing the best product it can, hoping someone will buy it. A second
approach is for the company to reduce costs through improved manufacturing processes and techno-
logical development, thus selling its products at a lower cost than its competton. A third approach is for
the company to put a heavy emphasis on selling its products to consumers and businesses, striving to
convince customers of the superiority of its product. A fourth approach is for the company to fnd out
what customers want frst and then develop a product that meets that want. The last approach is similar
to the fourth, but in additon to fnding out what customers want, the company produces and markets
the product in the way that will best beneft society.
-4a: The Product/Producon oncepts
The producon concept assumes that consumers prefer products that are easily accessible and
inexpensive. The product concept assumes that consumers prefer products that are of the highest quali-
ty and optmal performance. For the company, product and producton concepts both focus strategies
on the producton process and delivery, devotng signifcant resources to research, product development,
manufacturing, and engineering. The Artesyn Technologies example in areng
Illustraon -2 ofers the example of a company whose focus is on both the prod-
uct and producton concepts. In terms of the product concept, Artesyns goal is to
manufacture beter-quality products. In terms of the producton concept, Artesyn is
concerned with faster producton tme and lower producton costs.
Certainly, there are trade-ofs between a producton orientaton where the
goal is to cut costs and a product orientaton where the goal is to provide a high-
quality product. The producton orientaton works well for mass-market service or-
ganizatons, such as fast-food providers and retailers; for people-processing gov-
ernment agencies; and in developing countries in general. Consumers in developing
countries cannot aford high-priced products.
1-4
Producon oncept:
A marketng philosophy that
assumes consumers prefer
products that are easily
accessible and inexpensive.

Product oncept:
assumes consumers prefer
products that are of the
highest quality and optmal
performance.
areng Illustraon -2:
Producton and Product Focus at Artesyn
A precursor of Artesyn Technologies, Zytec
Corporaton, a medium-sized manufacturer of power
supplies based in Eden Prairie, Minnesota, boasted a
customer base in the early 1990s that included in-
dustry giants such as IBM, Fujitsu, Unisys, and AT&T.
Zytecs product quality was considered a benchmark
against which all its compettors were measured and
consttuted an important compettve advantage.
Zytec built on its capabilites with an additonal com-
pettve advantage: just-in-tme producton manage-
ment, which was a novel manufacturing and distribu-
ton strategy at that tme. Just-in-tme producton
refers to a system used
to simplify and redefne
manufacturing, from the
raw materials stage to
delivery, so that every
part arrives in guaranteed
working order at every
stage of the assembly line,
just in tme to be installed.
The outcome of this approach to manufacturing was
beter-quality products, reduced producton tme,
and lower producton costs. Zytec merged with Com-
puter Products Inc. in 1997, forming Artesyn Tech-
nologies, a successful company that ranks as the ffh
largest among power supply companies. The primary
focus of the new company is on communicaton.
Now part of Emerson Network Power, Artesyn is
atemptng to meet the challenges involved in be-
coming the lowest-cost provider in the world. To this
end, it atempts to gain additonal compettve ad-
vantage by turning to low-cost areas for manufactur-
ing, such as Zhongshan in China and Tatabanya in
Hungary, where it has 3,500 and 1,000 employees,
respectvely.

Sources: Tom Murray, Just-in-Time Isnt Just for ShowIt
Sells, Sales and Marketng Management 142, no. 6 (May 1990):
6266; Robert Bellinger, Artesyn Reclaims Growth TrackFocus
on Internet, Wireless Leads to Strong Turn- around, Electron-
ic Buyers News no. 1229 (September 18, 2000): 44;

www.artesyn.com (accessed on December 6, 2011).

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10

Other organizatons, such as medical and dental practces and law frms, may also atempt to opt-
mize their use of resources. However, their primary goal is to provide the highest-quality service using the
latest techniques based on the latest informaton available in the industry itself. Given this goal, they are
more likely to focus on the product frst and producton second. As such, they are guided primarily by the
product concept but stll are cognizant of the producton process and costs.
Firms at the forefront of technology introducing new products to the market are most likely to
adopt the product concept. Pharmaceutcal frms developing drugs that revolutonize the treatment of
formerly incurable illnesses and manufacturers developing the latest communicaton and computng tech-
nology tend to have a product focus.
However, even these frms have to fend of competton and broaden their customer base when
patents expire and compettors appropriate their new technology and know-how. At that point, frms
with a product orientaton are likely to shif to a producton orientaton. For example, patent expiraton
presented challenges to Claritn, a popular allergy medicine. Compettors were allowed to ofer generic
allergy medicine using its identcal formula at signifcantly lower cost. As a result, Claritn had to adapt its
entre marketng strategy by obtaining approvals for the brands over-the-counter distributon and ofer-
ing it to the mass market.
The main disadvantage of the product and producton orientatons is that the focus is on the prod-
uct and producton processes, rather than the consumer. It is manufacturing, engineering, research, and
development that dictate what products should be made, rather than the preferences and interests of
the fnal consumer. This can lead to marketng myopia, whereby marketng eforts ignore specifc consum-
er needs or important markets; this concept will be further examined in Secton 1-4f.

-4b: The elling oncept
The selling concept assumes that when lef alone, consumers will not normal-
ly purchase the products the frm is selling or will not purchase enough products.
Consumers, according to the selling concept, need to be aggressively targeted
and approached with personal selling and advertsing to be persuaded to purchase
the companys products. Although frms may focus on aggressive selling when they
have excess inventories at the end of the year or when new models must replace
the old on the retail foor, companies are more likely to embrace the selling concept
when their products are unsought goods, such as tme-shares and insurance ser-
vices.
In the process of selling tme-shares, companies such as Fairfeld Resorts iden-
tfy prospectve buyers, approach them with an ofer of two nights close to the re-
sort locaton, and then require those who choose to take advantage of the ofer to spend about two
hours in a hard-sell environment. areng Illustraon -3 addresses Hiltons strategy to sell tme-shares
in Hawaii to target consumers.
Even mainstream department store retailers, such as Macys and Lord and Taylors, adopt the
selling concept toward the end of the year, just before the Thanksgiving holiday. At that tme, they
aggressively promote their merchandise, increasing their advertsing in local newspapers and sending
direct mail to their target consumers. For example, the mailers advertse the Biggest SALE of the year,
look for our lowest prices of the season in large white leters against a bright red background. These com-
municatons also ofer diferent types of promotons, such as coupons worth 15 percent of total purchase
price, an all-day shopping pass, a zero percent fnance charge, and other atractve deals. In their deluge of
communicatons, retailers are ofen assisted by manufacturers, who ofer additonal promotonal incen-
tves to consumers, which reinforces the selling strategy (see Figure -6).
In both the tme-share and the retailer examples, the focus is on persuading consumers to want
products, rather than ofering them the products that best ft their needs and interests. In the case of
the tme-shares, consumers might respond to the ofer only to obtain the subsidized stay at the hotel
or the loyalty points. In the case of the retailers holiday blitz, consumer response will be short term
and most likely focused on the promotons ofered.
elling oncept:
assumes consumers, if lef
alone, will normally not
purchase the products the frm
is selling, or not purchase
enough products; as a result,
consumers need to be
aggressively targeted and
approached with personal
selling and advertsing to
purchase.

11
11


areng Illustraon -3: Hard Sell at the Hilton?
The Hilton Internatonal Grand Vacatons Company Technologies
Hilton Internatonal Grand Vacatons Company ofers
carefree vacatons in your own holiday lodge for
two adults at a low price in diferent locatons world-
wide. For Hilton Honors members in the United States,
the company periodically sends emails ofering a 3-
day, 2- to 3-night vacaton in Las Vegas, Hawaii, or
Disney World in Orlando for two adults. These are just
three of Hilton Grand Vacatons Club destnatons.
They have 11 club-developed resorts, located mainly
in Hawaii, Las Vegas, and around Orlando, and 27 club
-managed resorts, located throughout the United
States, Mexico, and the United Kingdom.

The Hawaii Grand Vacatons
ofer is especially atractve because
it includes accommodatons at the
Hilton Hawaiian Village in Waikiki.
Here, the company entces consum-
ers to spend 6 days and 5 nights in a
one-bedroom suite and receive a
$100 gif certfcate for shopping and dining, all for
$1,199. The regular retail value of the package is up to
$2,795. Typically, the ofer either fashes on the Hilton
Web site, or it is sent in an e-mail solicitaton to Hilton
Honors members. Once at the resort, the guests have
to atend a 2-hour presentaton on the resort premis-
es. Hilton Grand Vacatons also solicit regular hotel
guests at the Hilton Hawaiian Village by placing an
invitaton on the bed pillows to take a tour of the
rooms in the tme-share secton of the hotel complex
and atend a 2-hour presentaton on the premises in
return for about 30,000 Hilton Honors points. Guests
are invited to the Hilton Grand Vacaton tower in the
resort, where they have the opportunity to admire the
elegant lobby area; from there, they go to the hospi-
tality and waitng area, where entcing refreshments
are displayed. The area has a playroom for children
and informal babysitng services. During the presenta-
ton, guests are shown the advantages of tme-share
ownership and given a tour of typical rooms. Then the
hard-sell process begins, with diferent individuals
atemptng to persuade guests about the long-term
benefts of vacaton ownership and the importance of
commitng immediately and signing on the doted
line.
Source:
www.hiltongrandvacatons.com/vacaton-previewofers.php
(accessed on March 14, 2007).
-4c: The areng oncept

The mareng concept assumes that a company can compete more efectvely if it frst research-
es consumers generic needs, wants, and preferences, as well as product- or service-related attudes and
personal interests. With this knowledge of the consumer, the frm is able to deliver the goods and ser-
vices that consumers want more efciently and efectvely than the competton. This marketng philos-
ophy entails a company-wide consumer focus across all functonal areas.

areng Illustraon -4 ofers an applicaton of the marketng concept
philosophy at Arbys. However, adoptng the marketng concept is not limited to
the product ofering or the restaurant ambience. Arbys restaurants are located
conveniently to target consumers, typically close to shopping centers that are fre-
quented by its target market. Its prices are somewhat higher than those at a
McDonalds or Burger King. Sandwiches, for example, cost about $4 or more, but
they are marketed as being of superior quality and match the taste desires of old-
er Americans. Convenient locatons, appropriate pricing, and well-targeted pro-
motons are indicatve of a consumer focus, hence refectng a marketng concept
philosophy.

The marketng concept has fve principal components that are essental to a companys perfor-
mance. They are a market orientaton, an integrated marketng approach, a focus on consumer needs,
a value-based philosophy, and an organizatonal goal orientatonas illustrated in Figure -7. Each will
be discussed in detail in Secton 1-5.

The marketng concept is superior to the selling concept in many ways. The outcome of a focus
on aggressive selling leads to short-term results (sales), whereas adoptng the marketng concept leads
to a long-term relatonship with the customer. Selling has as its primary goal increasing sales volume,
whereas the marketng concept has as its primary goal addressing customer needs and wants. Figure -8
illustrates the diferences between a selling philosophy and a marketng philosophy.
areng oncept:
assumes a company can
compete more efectvely if it
frst researches consumers
generic needs, wants, and
preferences, as well as good-
or service-related attudes
and interests, and then
delivers the goods and
services more efciently and
efectvely than compettors.
12
12

areng Illustraon -4:
The areng oncept at Arbys: Appealing to Adult onsumers
Arbys is a fast-food company that has a keen
understanding of its target consumers. The frst Arbys
opened in Ohio in the 1960s and served roast beef
sandwiches, chips, and drinks. Today, the company
has more than 500 licensees operatng more than
3,000 restaurants worldwide. Arbys is known for a
number of successful frsts for fast-food restaurants,
such as ofering adult fast food like the Market Fresh
deli-style sandwiches (chicken, turkey, ham, or beef on
thick-sliced honey-wheat bread with mustard). In late
2002, Arbys created a restaurant of the future proto-
type, with warmer tones and a more contemporary look
to appeal to its adult audience.
Arbys focus on adults results from its research of
the baby boomer generaton, a generaton brought up
on fast food. As baby boomers have grown up, their
preferences have shifed toward healthier adult food
(Arbys restaurants were among the frst fast- food
restaurants to eliminate trans fats) and toward a com-
fortable contemporary ambience, rather than a lively,
children-oriented environment. However, the need for
convenience and fast-food preparaton has remained
the same. Given the baby boomers busy lifestyles,
Arbys is addressing these new preferences and needs.
Arbys communicates these changes to its fast-
food consumer through well-targeted advertsing cam-
paigns aimed at reaching its upscale demographic seg-
ment. To promote its Market Fresh sandwich line,
for example, Arbys aired a 4-week, $17-million fight of
testmonial ads toutng this sandwich line, using the
theme Satsfy your adult tastes. In the advertse-
ments, consumers were asked to taste a sandwich, and
then they were asked how they would react if they were
told that the sandwiches were from a fast-food restau-
rant. The ad was aired on about 15 to 20 cable televi-
sion networks, including Discovery Channel, USA, and
ESPN. Currently, the company is using an innovatve
lead advertsing agency, Omnicom Groups Merkley +
Partners in New York, for its integrated marketng com-
municatons.
In the latest development, however, there are
serious questons regarding the extent to which Arbys
is truly embracing the marketng concept. Known for its
roast beef sandwiches, Arbys is startng to emphasize
its healthy chicken menu in its advertsing, while mak-
ing fun of fast-food rival chains. Arbys is atacking the
quality of the chicken served by it compettors, such as
McDonalds and Wendys Internatonal. In one ad, set
in a McDonalds boardroom, a young executve is con-
vincing executves to stop placing phosphates, salt, and
water into the chicken; a voiceover at the end states:
Unlike McDonalds, all of Arbys chicken sandwiches
are made with 100% natural chicken. Arbys must be
aggressive in todays compettve market because its
marketng budget is only around $100 million, com-
pared with McDonalds, which
is seven tmes greater. However,
it remains to be seen if this strate-
gy resonates with consumers and
if Arbys stll embraces the mar-
ketng concept.

Sources: Kenneth Hein, The Heat Is on to
Remake Fast-Feeder Menus, Brandweek 46, no. 1 (January 3, 2005):
9; Bob Sperber, Arbys Gets Fast-Casual Makeover, Brandweek 43,
no. 41 (November 11, 2002): 14; Bob Sperber, Arbys Sandwiches Get
Slice-of-Life Tack, Brandweek 42, no. 29 (December 20, 2002): 6;
www.arby.com; Arbys Claims a First in Plan to Shed Trans Fat from
Fries, Natons Restaurant News 40, no. 50 (December 11, 2006): 3;
Suzanne Vranica, Arbys TV Spots Play Game of Fast-Food Chicken,
The Wall Street Journal Online Editon (July 5, 2006).

Figure -6
Retailers ofen promote their own brands. Here, Sing-Rays restaurant displays its own locally-
produced barbecue sauce. Courtesy of Stng-Rays.

Figure -7 The areng oncept
13
13


-4d: The ocietal areng oncept
The societal mareng concept assumes that the company will have an ad-
vantage over compettors if it applies the marketng concept in a manner that maxim-
izes societys well-being. Presently companies are expected to be good citzens of so-
ciety and to build societal consideratons into their marketng endeavors while they
pursue organizatonal proft goals. Thus the societal marketng concept assumes that
a company can compete more efectvely if it frst researches consumers generic
needs, wants, and preferences and product- or service-related attudes and personal
interests and then delivers the products and services more efciently and efec-
tvely than compettors in a manner that maximizes societys well-being.
Arbys has established an exemplary record of following the societal marketng concept through
its social involvement. The Arbys Foundaton supports Big Brothers and Big Sisters of America, the Boys &
Girls Clubs of America, and various other causes through donatons from franchisees, suppliers, employ-
ees, customers, and sponsors. It also sponsors initatves such as the Arbys Charity Tour, a series of
amateur golf tournaments beneftng its natonal charites, and local youth mentoring organizatons in
cites where the tournaments take place. Ben & Jerrys, a Unilever subsidiary, positons itself as a support-
er of social causes. The company ensures that none of its ice cream products are made with milk from
hormone-fed cows and takes a strong stand against it. We oppose recombinant bovine growth hor-
mone is a statement found on most of the Ben & Jerrys packages. It also supports environmental eforts,
such as those involving Vermonts Lake Champlain Watershed, peace in the world, and other causes.
Among other examples of societal involvement are the Ronald McDonald House Charites, which pro-
vide comfort to children in need and their families, and the Avon Breast Cancer Crusade.
Many companies, in the process of adoptng the societal marketng concept, partner with non-
proft frms to engage in cause-related marketng. Cause-related marketng refers to a long-term partner-
ship between a nonproft organizaton and a corporaton that is integrated into the corporatons mar-
ketng plan. This topic will be further addressed in Secton 3-4a. Examples of corporate societal mar-
ketng programs abound. BMW promoted the Drive for the Cure test drive program, which donates $1
to the Susan G. Komen Breast Cancer Foundaton to fund cancer research for every test-driven mile. This
cause-related program is targeted toward women, who are not traditonally BMWs target market.
10
In
another example, a number of prominent companies are actvely campaigning against domestc violence
in partnership with Glenwood Regional Medical Center in Louisiana (see Figure -9).

Figure -8 The areng oncept

ocietal areng oncept
assumes the company will
have an advantage over
compettors if it applies the
marketng concept in a
manner that maximizes
societys well-being.
14
14

The societal marketng concept can be illus-
trated as a modifed version of the marketng concept
(see Figure -7). Its principal components are a mar-
ket orientaton, an integrated marketng approach, a
focus on consumer and society needs, a value- based
philosophy, and an organizatonal goal orientaton.
Companies that subscribe to the societal mar-
ketng concept philosophy will, at tmes, engage in the
demareng of their own products if demarketng
solves societal problems that their products may have
created. Demarketng is defned as reducing the de-
mand for a companys own products if that is in the
interest of society. Philip Morris, for example, uses an
expensive, sleek newspaper insert that directs con-
sumers to its Web site to fnd informaton on the seri-
ous efects of smoking, quitng smoking, cigarete
ingredients, and talking to children about not smok-
ing. The insert has artcles such as Women and
Smoking: A Report of the Surgeon General and
Natonal Cancer InsttuteLow-Tar Cigaretes: Evi-
dence Does Not Indicate a Beneft to Public Health. In
one of the artcles, the pamphlet states: Philip Morris
U.S.A. believes that the conclusions of public health ofcials concerning environmental
tobacco smoke, also known as secondhand smoke, are sufcient to warrant measures
that regulate smoking in public spaces (p. 13).
11
In efect, through this brochure,
Philip Morris is instructng its own target market to reduce demand for its product
or to quit smoking.
Demarketng for vice products, such as cigaretes and alcohol, although focusing the messages on
vulnerable populatons, such as children, the elderly, and the poor, demonstrates social concern on the
part of the company and may difuse public scrutny of the sponsors products and practces.
-4e: The History o areng Philosophies
The product/producton concept, the selling concept, and the marketng
concept can be traced historically to the producon era, the sales era, and the mar-
eng erathe periods when the respectve philosophies were dominant. The pro-
ducton era, between 1870 and 1930, was characterized by frms focusing their
atenton on physical producton and the producton process. Firms atempted to ft
products within their producton capabilites, rather than focusing on customer needs.
Output consisted of limited product lines, and because demand exceeded supply,
competton was minimal. Retailers and wholesalers were only of peripheral concern
because the products practcally sold themselves.
12
Producton efciency led to a new phenomenon: overproducton. Companies
turned to marketng professionals to sell their products during the sales era, between
1930 and 1950. The sales era was characterized by a focus on selling, which was
based on the assumpton that if the customer were lef alone, he or she would not
purchase the product or would not purchase enough products. Also supply exceeded
demand. With excess supply, companies had to persuade consumers and other busi-
nesses to buy their brand instead of the compettors.
In the 1950s, scholars were concerned that marketers were not paying enough atenton to the
customers needs and wants. Thus the marketng concept emerged as the dominant marketng paradigm.
It was then agreed that the main task of the marketng functon should not be to be skillful in making the

Figure -9
This advertsement, created by French Creatve Group, highlights
the problems with domestc violence. The ad was sponsored by
French Creatve, the News-Star, TV8, Glenwood Regional Medical
Center, Philip Morris Company, and the YMCA.

Source: Courtesy of French Creatve Group, Monroe, LA.
Demareng:
A company strategy aimed at
reducing demand for its own
products to beneft society.
Producon Era:
Period between 1870 and
1930, when the primary
focus of marketng was on
producing the best products
possible at the lowest price.

ales Era:
Period between 1930 and
1950, when the primary
focus of marketng was on
selling.

areng Era:
Period from 1950 untl the
present, when the primary
focus of marketng shifed to
the needs of consumers and
society.

15
15


customer do what suits the interests of the busi-
ness ... but to be skillful in conceiving and then mak-
ing the business do what suits the interests of the
customer.
13
The marketng concept is the dominant
philosophy for todays successful companies, such
as Unilever, Kmart, McDonalds, and Gateway (see
Figure -0).
-4: Beyond the areng Philosophies:
Avoiding areng yopia
The danger of the product, producton, and
selling concepts is that they may lead to marketng
myopia.
14
This term is atributed to Theodore
Levit, one of the most notable early marketng
theorists, who notced that marketers at the tme
(in the 1950s) were ignoring an important mar-
ketseniors. The term marketng myopia is de-
fned here as the tendency of marketng eforts to
focus on products, producton, or sales and ignore
specifc consumer needs or important markets.
Even companies that embrace the societal
marketng concept could experience marketng myopia. A case in point is the limited atenton, relatve
to potental, that certain ethnic markets receive in the United States. Ethnic AmericansAfrican Ameri-
cans, Hispanic Americans, and Asian Americanshave a spending power of more than $1 trillion; the
projected growth of these three ethnic populatons is 115.2 million by the year 2020.
15
And yet for mar-
ketng practtoners, they primarily represent an aferthought.
16
Marketers need to redefne their target
markets with a more precise focus, strengthening their advertsing presence in ethnic media vehicles, such
as cable channels like Telemundo and Black Entertainment Television and magazines such as Latn, Vibe,
and A, to gain both the recogniton and loyalty of these markets. Indeed, even in the general media, a full
racial palete and representaton is stll rare. The New York Times conducted a survey of 471 magazine
covers from 31 magazines published in 2002 and revealed that only one in fve depicted nonwhites.
17

These examples illustrate that even if companies do focus on consumers and society, they need to
follow developments in the marketplace and give due focus to traditonally overlooked consumer seg-
ments, such as the elderly and ethnic markets.

KEY ELEENT OF THE OIETAL ARKETING ONEPT
Marketng managers today understand that their frms can no longer aford to limit their focus
on the needs of their consumers and the needs of their organizatons. The marketng concept alone can-
not lead to optmal frm performance in the marketplace. As corporate citzens of society and as employ-
ers, companies must meet the needs of their consumers and society, as well as those of their employees
and other relevant stakeholders, and achieve their own organizatonal goals in the process.
-5a: A aret Orientaon and an Integrated areng Approach
Today, marketng managers agree on the importance of a frm-wide focus on customer needs and
on delivering high quality to consumers and other businesses in the process of
achieving company objectves (i.e., on the importance of adoptng a market orienta-
ton). A maret orientaon should be part of the company culture. The company
should systematcally seek marketng informaton at the organizaton level; dissemi-
nate that informaton to the other departments, such as fnance, research and de-
velopment, engineering, manufacturing, and purchasing; and ensure that the entre

Figure -0
H&Ms success is atributed to its use of the marketng philosophy

1-5

aret Orientaon
A frm-wide focus on customer
needs and on delivering high
quality to consumers in the
process of achieving
company objectves.
16
16

organizaton can respond to this informaton in a manner that best meets customers needs.
18
A market
orientaton is defned as a company wide culture creatng the necessary behaviors for delivering superior
value to buyers.
19
It is a systematc quest for and disseminaton of informaton across departments and
subsequent organizaton-wide response in a manner that best addresses customers needs and prefer-
ences. A market orientaton also requires that the marketng functon has considerable prominence in
company-wide decision making, with the marketng vice president occupying a senior positon in the frm.
20

In other words, a marketng orientaton calls for an integrated marketng approach.
Adoptng a marketng orientaton necessitates top management commitment. Without the in-
volvement and commitment of top management, it would be difcult to create an environment in which
informaton is openly and systematcally disseminated across departments, where organizatonal re-
sponse is aimed at delivering quality goods and services to customers, thereby increasing customer
satsfacton.
Chef America has followed its target consumers closely over the decades and has been changing
with them. The company frst launched the frozen stufed sandwich in 1977. Since then, it has kept pace
with all the consumer trends relevant to its business, such as the growth of grazing (eatng small portons
all day long, rather than the traditonal three big meals); the increasing need for convenience, primarily
atributed to the return of women to the workforce in the past decades; and the need for smaller portons
for adult consumers and children alike.
21
Like manufacturers, retailers also have to adapt to meet the needs of con-
sumers and to adopt a market orientaton to succeed. Especially today, in the Infor-
maton Age, consumers want to fnd the merchandise they need in stock quickly and
at an atractve price. To meet this need, retailers are learning more about their con-
sumers needs and desires by using a tactc called data mining, which is the systematc
data analysis procedure of compiling personal, pertnent, and actonable infor-
maton about the purchasing habits of current and potental consumers.
22
Through
data mining, retailers hope to:

-5b A Focus on onsumer Needs and the Needs o ociety
For optmal performance in the marketplace, marketers need to address consumer needs and
wants more efectvely than compettors. That is, they have to employ a marketng strategy using the four
Ps of marketng in a manner that optmally addresses consumer needs. This requires that a company:

Data ining
The process of compiling
personal, pertnent,
actonable informaton about
the purchasing habits of
current and potental
consumers.
Increase sales from their existng customers and hence solidify and increase market share.
Determine purchase habits of consumers with regard to price preferences, sale or regular prices, fashion, and size.
Find out who customers are and what, where, and how ofen they buy (see Figure -) .
Obtain informaton about products, services, and marketng practces of competton.
23

Figure -
This sign for the East-
ern Shore Potery is
placed just one mile
before the store, on
the main highway that
leads to it, so that
consumers who drive
by can quickly decide
to take a break and
look at the
merchandise.

Courtesy of Stng-Rays.
17
17


Ofers the goods or services that best satsfy consumer needs.
Ofers a price the consumer perceives as fair in return for the value received.
Makes the product available at retailers that are conveniently located close to the consumer.
Promotes its marketng eforts through vehicles that efectvely reach the target consumer.
For example, the Gap is successful in its marketng campaign. The company has undertaken sub-
stantal research of its target market, younger consumers, and provides fashions that appeal to them, be-
ing careful to follow the trends that are popular with this market. The Gap combines a relaxed shopping
environment with bold brand expressions, which enhances sales associates ability to provide outstanding
service. Its goal is to make every customers experience the best of any retailer.
24

The Gap advertses using lively, bold ads in fashion magazines and on television during prime tme.
Gap stores are conveniently located in regional malls, within easy access of target consumers. And Gap
brand prices are in line with consumers ability to payfor example, about $30 for a sweater and $50 for a
pair of jeans. The Gap Web site also serves as a venue for promotng the store to consumers and a retail
venue that ofers convenience at a fair price. For orders over $100, the Gap ofers free shipping.
The Gap also communicates with its consumers through its social marketng endeavors. Its dona-
tons focus on the Boys & Girls Clubs of America and the Lorraine Monroe Leadership Insttute, both of
which aim to help students to develop self-esteem, stay in school, and succeed academically so that they
can lead rewarding and fulflling lives. The Gap emphasizes the importance of a code of conduct that it
requires of its vendors and other distributors, such as compliance with local labor laws, working condi-
tons, and the environment; and expectatons regarding wages, child labor, safety, and respect of the
right of workers to unionize. Finally, it communicates to employees the importance of reducing waste in its
packaging materials and of recycling and purchasing products that contain high percentages of recycled
material.
25

-5c: A Value-Based Philosophy
A value-based philosophy is essental to organizatonal success. Companies
with a value-based philosophy ensure that their consumers needs are addressed
in a manner that delivers a good or service of high quality and value that ultmate-
ly leads to consumer satsfacton, and it does so while also enhancing consumers
and societys quality of life. In fact, successful companies that adopt a value-based
philosophy are also likely to invest in society, primarily for altruistc reasons that ben-
eft society, not the companyeven if, ultmately, there is an expectaton of com-
mercial return.
26

Product quality, product value, and consumer satsfacton are interrelated. One measure that ad-
dresses both quality and consumer satsfacton is the American Consumer Satsfacton Index, a natonal
economic indicator of the quality of goods and services from companies producing about one-third of
the natonal GDP. The following are the dimensions related to consumer satsfacton,
27
and they will be
further addressed in Secton 9-5a, which discusses the gap theory related to the discrepancy between ex-
pectatons and performance:

Value-based Philosophy:
A philosophy that focuses on cus-
tomers, ensuring that their needs
are addressed in a manner that
delivers a product of high quality
and value, leading to consumer
satsfacton.
1. Customer expectatons occur when consumers antcipate product performance based on their experiences, on infor-
maton received from the media, and on informaton from other consumers. Expectatons infuence the evaluaton of
good or service quality and predict how the good or service will perform on the market.
2. Quality refers to overall product quality, reliability, and the extent to which it meets consumers needs. Perceived
quality has the greatest impact on satsfacton (see Figure -2).
3. Value refers to the overall price given the quality of the product; perceived value is important in the purchase decision.
4. Consumer complaints are measured as the percentage of consumers that report a problem with a good or service;
complaints are related to dissatsfacton.
5. Consumer retenton refers to the likelihood to purchase the product in the future.
18
18

Over tme, the American Consumer Satsfacton Index has demonstrated that companies ratng
highly are more proftable and have greater shareholder value. These companies are in a beter positon
to reach their organizatonal goals, as the next secton illustrates.
Goods manufacturers, service providers, retailers, and wholesalers frequently conduct consumer
satsfacton surveys to assess their own performance. Historically, consumer satsfacton has been defned
as a match between consumer expectatons and good or service performance:

To understand these concepts, take the test in Table -2 to evaluate your recent experience with a
retail website.

-5d: An Organizaonal Goal Orientaon
The ultmate organizatonal goal is cre-
atng proft for the company and wealth for its
shareholders. In that sense, increasing produc-
tvity and producton volume, maximizing con-
sumpton, and as a result, increasing sales con-
sttute primary objectves for the company,
which can be accomplished with the appropri-
ate marketng strategies. In the process of
achieving organizatonal goals, companies ofer
quality and value to consumers and businesses,
leading to a higher level of consumer satsfac-
ton. They compete to ofer a wide variety of
goods and services and a maximum of choices
for consumers. As they compete, they lower
prices that consumers pay for their products to
gain market share. Ultmately, the marketng
system creates a higher standard of living for
consumers while improving their quality of life.

-5e: The Next Level o areng: Integrang ocietal areng Pracces through ustomer
Relaonship anagement (R)
Societal marketng practces are formally integrated into a process known as cus-
tomer relatonship management (CRM). CRM is defned as a database applicaton pro-
gram designed to build long-term loyalty with customers through the use of a personal
touch. Its eight building blocks are vision, strategy, customer experience, organizatonal
collaboraton, CRM processes, CRM informaton, CRM technology, and CRM metrics.
28

As a direct outgrowth of the marketng concept, CRM:
29

If a product or service performs beter than expected, then consumers are likely to be satsfed with it. If
satsfed, consumers are likely to purchase the good or service in the future.
If performance matches expectatons, consumers are somewhat satsfed.
Psychologists refer to this as satsfcing or neutralitymeaning that the consumer is satsfed but
would switch to another good or service without much persuasion.
If expectatons are greater than performancethat is, product performance is not up to consumer expecta-
tonsthen consumers are likely to be dissatsfed with the good or service and may never purchase it again.
These consumers are expected to engage in negatve word-of-mouth communicatons about the good or
service and brand or frm switching behavior.

ustomer Relaonship
anagement (R):
A database applicaton
program designed to build
long-term loyalty with
customers through the use of a
personal touch.

Figure -2
This advertsement by Haik Humble Eye Center highlights the importance of quality
in terms of using the most advanced eye surgery techniques.
Source: Sartor Associates, Inc., for Haik Humble Eye Center.
19
19


How would you rate the retailer Web site you have used most recently? Take the following test.
Indicate the extent to which you agree or disagree with the following statements by circling one of the following numbers:
5 = you strongly agree, 4 = you agree, 3 = you neither agree nor disagree, 2 = you disagree, 1 = you strongly disagree
Please answer EVERY queston!
Table -2 Web ite asacon el-Test
Expectaons
Excellent retailer Web sites:
Perormance
The most recent retailer Web site you visited:
Have an atractve design and other visuals.
Have litle cluter.
Have few or no banners.
Are easy to navigate and allow rapid access
to the diferent pages and links.
Are easy to access day or night.
Require customers to fll in only a minimum
of necessary informaton.
Allow customers to reach a customer service
center at all tmes.
Have a customer service center that is always
willing to help clients.
Have a customer service center that will
promptly respond to customer inquiries.
Have a customer service center that is con-
sistently courteous.
Have a knowledgeable customer service
center that can address client questons.
Let consumers know exactly when they will
receive their products.
Deliver their products when they promise to
do so.
Deliver the quality products that are accu-
rately described on the Web site.
Sell products at a fair price.
Allow you to compare prices with other sites.
Show a sincere interest in solving customers
problems.
Protect customers personal informaton.
Ofer safe transactons.
Ofer customers personal atenton when
needed.
Have the customers interests at heart.
Tailor their ofering based on customer pref-
erences and/or purchase history.
5 4 3 2 1
5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
Have an atractve design and other visuals.
Have litle cluter.
Have few or no banners.
Are easy to navigate and allow rapid access
to the diferent pages and links.
Are easy to access day or night.
Require customers to fll in only a minimum
of necessary informaton.
Allow customers to reach a customer service
center at all tmes.
Have a customer service center that is always
willing to help clients.
Have a customer service center that will
promptly respond to customer inquiries.
Have a customer service center that is con-
sistently courteous.
Have a knowledgeable customer service
center that can address client questons.
Let consumers know exactly when they will
receive their products.
Deliver their products when they promise to
do so.
Deliver the quality products that are accu-
rately described on the Web site.
Sell products at a fair price.
Allow you to compare prices with other sites.
Show a sincere interest in solving customers
problems.
Protect customers personal informaton.
Ofer safe transactons.
Ofer customers personal atenton when
needed.
Have the customers interests at heart.
Tailor their ofering based on customer pref-
erences and/or purchase history.
5 4 3 2 1
5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
5 4 3 2 1

5 4 3 2 1
5 4 3 2 1
Subtract the expectatons score from the performance score. If the number is positve, you are satsfed with the Web site and will contnue to use it. If the number is
zero, you are sort of satsfed (psychologists refer to this as satsfcingmeaning that you are satsfed but could switch to another site without extensive persua-
sion). If the number is negatve, expectatons are greater than performance; you are somewhat dissatsfed with the Web site and may not use it again.

Source: Adapted from Dana-Nicoleta Lascu and Kenneth Clow, The Website Interacton Satsfacton Scale, working paper.
Add the circled numbers in the expectatons column: _____________ Add the circled numbers in the expectatons column: _____________
20
20


The customer database is partcularly valuable. It provides a unifed customer view across the en-
terprise, tying together all the interacton between the company and a partcular customer. For example,
the call center can fnd out about Web transactons or direct mail pieces sent to a partcular customer, and
the customer thus does not have to repeat or reenter informaton to engage in a new transacton.
CRM allows for multchannel marketng so that customers can deal with the frm when they want
to. In a retailing example, the customer can go to the store during store hours to purchase a product, he or
she can go to the Web site, or he or she can order the product by phone. Ultmately, CRM leads to more
efcient customer targetng and retenton, improving cost management and increasing proftability and
thus shareholder equity. However, the Gartner Group, which specializes in CRM applicatons, predicts
that most companies will use CRM to increase revenue or customer loyalty, rather
than use them to save money.
30
For CRM to be proftable, companies must retain their customers for long
periods. At the heart of customer relatonship management is the concept of cus-
tomer lieme value (LTV), defned as the estmated proftability of the customer
over the course of his or her entre relatonship with a company. Companies that
understand customer value have been shown to be 60 percent more proftable
than those that do not.
31

CRM has proven itself as a vital ingredient in the value creaton strategy. Yet even though CRM
technologies have matured in the past decade, their implementaton failure rates are high, ranging from
55 to 75 percent.
32
Some of the reasons behind their failure are: implementng CRM before creatng an ade-
quate customer-focused strategy or before making the appropriate organizatonal transformaton; assum-
ing that more CRM technology is beter, rather than focusing on the appropriate technology; and stalking;
rather than wooing customers.
33

The keys to CRM success are:
34

Incorporates an organizatonal focus on the behavior of, and communicaton with, the customer.
Uses technology for mining data related to customer preferences and behaviors; that is, the company
codes or grades customers based on these data.
Shares the collected data across the entre enterprise.
Uses the technology to design business processes that enhance efciency and efectveness.
Boosts customer satsfacton by providing consistent, seamless, quality experiences.
ustomer Lieme Value
(LTV):
The estmated proftability of
the customer over the course
of his or her entre relatonship
with a company.
Getng executve buy-in.
Determining why and where CRM is needed.
Defning objectves.
Setng measurable goals.
Taking an incremental approach.
Building and training the right teams.
Managing and selling change internally.
Having an outside marketng specialist monitor the program.
Developing efectve feedback mechanisms.
And conductng ongoing systematc customer research.
21
21


SUMMARY
Key Terms

customer lifetme value (LTV)
customer relatonship management (CRM)
data mining demands
demarketng
exchanges and transactons
experiences
goods
gross domestc product (GDP)
ideas marketng
marketng

concept marketng
era marketng
marketng myopia
market orientaton
markets
needs
place (or distributon)
price
product concept producton concept
producton era products

promoton quality
relatonship marketng
sales era
satsfacton
selling concept
services
societal marketng concept
value
value-based philosophy
wants
1. Address the central role of marketng in the twenty-frst century. Marketng consttutes an ever-
growing, important driving force of todays modern society. In the United States alone, there are more than 275
million consumers living in 100 million households, spending $5 trillion on products and servicesequal to two-
thirds of the natonal GDP. A signifcant porton of all Americans are employed entrely or in part in assistng the
marketng system to perform its functons. Thus the broad marketng system is integral to a societys economic sys-
tem, ofering employment and income for millions working in the marketng feld, enabling them to be productve
and earn money needed for consumpton, and leading to an improved natonal infrastructure in such areas as trans-
portaton, telecommunicaton, medical care, and fnance. Companies engaged in marketng pay taxes that further
fund public programs. The systems mass-market efciencies allow for lower costs, lower prices, and increased over-
all consumer access, fostering innovaton that ultmately benefts consumpton. Marketng enhances economic de-
velopment, buyers well-being, and general quality of life.
2. Defne marketng and identfy its key concepts. Marketng is defned as the process of planning and exe-
cutng the concepton, pricing, promoton, and distributon of ideas, goods, and services to create exchanges that
satsfy individual and organizatonal objectves. Important concepts in marketng are needs (basic human require-
ments), wants (directed to a partcular product), and demands (wants backed by the ability to buy the respectve
product or service brand). The four P s of marketng are products (goods, services, ideas, and experiences), price,
place (distributon), and promoton. At each level of distributon between the manufacturer, wholesaler, retailer, and
consumer, an exchange takes place: A desired good or service is obtained in exchange for something else. Exchang-
es involve at least two partes that mutually agree on the desirability of the exchange.
3. Address the diferent marketng philosophies and explain them in view of the historical development of
marketng. The diferent philosophies are the producton concept, which assumes that consumers prefer products
that are easily accessible and inexpensive; the product concept, which assumes that consumers prefer products
that are of the highest quality and optmal performance; the selling concept, which assumes that consumers lef
alone will not buy or not buy enough (they need to be aggressively sold to purchase); the marketng concept,
which focuses on consumers needs and works to create a good or service that matches those needs; and the socie-
tal marketng concept, a philosophy that applies the marketng concept in a manner that maximizes societys well -
being. Historically, the product/ producton concept can be traced back to the product era (18701930), when the
focus was on products and producton; the selling concept to the sales era (19301950), when the focus was on
selling overproducton to consumers; and the marketng concept to the marketng era (1950present), when the
focus shifed to the needs of the consumer, and later, to the needs of society.
4. Discuss the key elements of the societal marketng concept and the importance of these elements in
meetng the needs of consumers, society, and the organizaton. The frst key element is a market orientaton and
an integrated marketng approach, which is a frm-wide focus on customer needs and on delivering high-quality
products to consumers. The second key concept is the achievement of company objectves. The third key element
is the disseminaton of marketng informaton across departments using an integrated marketng approach. The
fourth key element is a focus on consumer and societal needs. The ffh key element is a value-based philosophy that
puts value, quality, and consumer satsfacton frst. This is accomplished through the last key element, which is an
organizatonal goal orientaton that creates proft and shareholder wealth, while ofering goods or services that are
desirable, compettvely priced, and delivered within easy consumer access.
22
22

1. You take an aspirin and you feel beter. You take Claritn, an allergy medicine, and you have fewer allergy symp-
toms. When you purchase these drugs, do you buy the products or the reacton to the products? In that sense, are
they goods, services, ideas, or experiences?
2. Are the aspirin and the Claritn in the previous queston wants or demands? What need do they address?
3. Explain the process of exchange that takes place at diferent levels of distributon from the manufacturer to the
fnal consumer.
4. What marketng philosophy is likely to be embraced in general by the manufacturer of Claritn, the allergy medi-
cine mentoned in queston 1? Explain. Now that Claritns patent has expired, and the brand is available over the
counter, along with countless generic copies, how should the company philosophy change ?
5. As described in the chapter, Philip Morris, the manufacturer of Marlboro and the creator of the legendary Marl-
boro Man, is atemptng to reach consumers with pamphlets of informaton on the dangers of smoking. Does Philip
Morris subscribe to the social marketng concept? Explain.
6. Develop an exercise that helps you calculate your degree of satsfacton with a prime-tme television program.
Use the Web site satsfacton survey in Secton 1-5c as a model.
True or False

1. Marketng is a process of exchange at diferent levels.
2. The producton concept assumes that consumers prefer products of the highest quality and performance.
3. The societal marketng concept assumes that the company will have an advantage over compettors if it is applied in
a manner that maximizes societys well-being.
4. The selling concept assumes that, if consumers are lef alone, they will normally purchase the product.
5. Overall product quality is a set of norms used by the manufacturer to meet the producton specifcaton.
6. The marketng concept emerged in the 1950s as a dominant marketng paradigm.
7. Either product or producton orientaton consttute the best approaches to sat- isfying consumers.
8. The selling concept is superior to the marketng concept.
9. A market orientaton is defned as a company-wide culture creatng the necessary behaviors for delivering superior
value to buyers.
10. Companies that adopt a value-based philosophy ofer high-priced products.

ulple hoice
11. Which of the following refers to demands?
a. Basic human requirements
b. Needs directed at a partcular product
c. Wants backed by customer ability to buy a product
d. Obtaining a product in exchange for something else

Discussion Questons
Review Questons
23
23


12. A haircut is an example of a(n)
a. good.
b. service.
c. idea.
d. none of the above.
13. Demarketng is defned as a
a. decline in retail distributon.
b. reducton in demand for the companys own product for the well-being of society.
c. a process of changing advertsements in the media.
d. none of the above.
14. The producton era corresponds to a. 18501870.
b. 18701930.
c. 19301950.
d. 1950present.
15. Companies provide products of value. Value is defned as
a. a low price guarantee.
b. product quality at moderate price.
c. an expensive product that conveys prestge.
d. a products overall price given its quality.
16. The marketng mix consists of the following four main components:
a. product, people, place, and price.
b. product, percepton, price, and place.
c. product, price, place, and promoton.
d. prosperity, product, potental, and price.
17. Marketng myopia is defned as
a. considering an important market segment.
b. selling a new brand product within a short period.
c. a marketng philosophy that is rooted in price and promoton.
d. a tendency of marketng eforts to focus on product, producton, and sales.
18. Components of consumer satsfacton are
a. customer expectatons and product quality.
b. value and consumer retenton.
c. consumer complaints.
d. all of the above.
19. To gain a compettve advantage in the marketplace, a company should
a. ofer products that satsfy consumers at a perceived fair price.
b. make products available to consumers.
c. use efectve promoton to reach a target consumer.
d. all of the above.

24
24

20. The ultmate organizatonal goal is to
a. provide high-quality products at low prices.
b. create proft for the company and wealth for its shareholders.
c. ofer products that consumers deem as satsfactory.
d. increase marketng eforts.

1. Louise Driben, Bill Kelley, Richard Szathmary, Betsy Wisendanger, and Kerry Rotenberger, Sales & Marketng Managements
Marketng Achievement Awards, Sales and Marketng Management 144, no. 9 (August 1992): 4041.
2. William L. Wilkie and Elizabeth S. Moore, Marketngs Contributon to Society, Journal of Marketng 63, no.1 (1999): 198
218.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Peter Drucker, Marketng and Economic Development, Journal of Marketng 22, no. 1 (July 1957April 1958): 252259.
8. Ibid.
9. Lisa M. Kiefe, What Is the Meaning of Marketng? Marketng News (September 15, 2004): 1718.
10. Steve Hoefer and Kevin Lane Keller, Building Brand Equity through Corporate Societal Marketng, Journal of Public Policy &
Marketng 21, no. 1 (Spring 2002): 7889.
11. Where Can You Find Informaton On ... ? Philip Morris Newspaper Insert (November 2002): 13.
12. Robert A. Fullerton, How Modern Is Modern Marketng? Journal of Marketng, 52, no. 1 (January 1988): 108126.
13. J. B. McKiterick, What Is the Marketng Management Concept? in Fronters of Marketng Thought and Acton, ed. F. Bass
(Chicago: American Marketng Associaton, 1957): 7182.
14. Term coined by Theodore Levit, Marketng Myopia, Harvard Business Review (JulyAugust 1960): 4556.
15. Cultural Access Group, U.S. Ethnic Markets, www.accesscag.com/hispanic.htm, accessed on April 20, 2005.
16. Media Maters, Adweek 42, no. 9 (February 26, 2001): 4450.
17. David Carr, On Covers of Many Magazines, A Full Racial Palete Is Stll Rare, New York Times (November 18, 2002): C1, C5.
18. Ajay K. Kohli and Bernard J. Jaworski, Market Orientaton: The Construct, Research Propositons, and Managerial Implica-
tons, Journal of Marketng 54 (April 1990): 118.
19. J. C. Narver and S. F. Slater, The Efect of a Market Orientaton on Business Proftability, Journal of Marketng 54 (October
1990): 2035.
20. Dana-Nicoleta Lascu, Lalita Manrai, Ajay Manrai, and Ryszard Kleczek, Interfunctonal Dynamics and Firm Performance: A
Comparison between Firms in Poland and the United States, Internatonal Business Review 15, no. 6 (2006): 641659.
21. Howard Riell, A Hot Hand, Frozen Food Age 50, no. 3 (October 2001): 5254.
22. Tom Hicks, Data Mining Ofers Mother Lode of Informaton, Sportng Goods Business 33, no. 13 (August 23, 2000): 1617.
23. Ibid.
24. See www.gap.com.
25. Ibid.
26. Marylyn Collins, Global Corporate Philanthropy: Marketng beyond the Call of Duty? European Journal of Marketng 27, no.
2 (1993): 4655.
27. Adapted from www.theacsi.org.
28. Sudhir H. Khale, CRM in Gaming: Its No Crapshoot! UNLV Gaming Research & Review Journal 7, no. 2 (2003): 4354.
29. Ibid.
30. Ed Thompson and Michael Maoz, Grow Revenue Again, Gartner Research, www.gartner.com, accessed on January 7, 2005.
31. Khale, CRM in Gaming.
32. Joseph O. Chan, Toward a Unifed View of Customer Relatonship Management, Journal of the American Academy of Busi-
ness 6, no. 1 (March 2005): 3238.
33. Khale, CRM in Gaming.
34. Ibid.
Notes
25
25


ase - ustomer Relaonship
Demareng at amas Pizza
Karen Jensen and her family own and manage Mamas Pizza in Scotsdale, Arizona. This has been a
successful family business for many years, but recently, they have been running into trouble. They send coupons to
their customers regularly in hopes that they return ofen and bring their families along. However, they have always
had their share of customers who are problematc: they complain about the size of their drink or the temperature
of the pizza and expect, in return, to receive a free drink or a free pizza in additon to the discount. These custom-
ers are the excepton, but they are quite a nuisance and Karen is seriously thinking about eliminatng them
from the mailing list because, even though they come to Mamas relatvely ofen, they tend to be trouble. But
somehow she is having difculty reconciling this situaton with the ingrained idea that the customer is always right.
She tried to fnd out how other businesses deal with this type of problematc customer. Karen found
out that many other companies have problem customers. At Best Buy, an electronics retailer, they are known as
devils. Best Buy classifes customers as angelscustomers who are less demanding and spend money on ex-
pensive and new technologiesand devilscustomers who seemingly buy products, apply for rebates, return the
purchases, and then buy them back at returned merchandise discounts. And they request that the company hon-
ors their lowest-price pledge by fnding low-price deals on the Internet. The devils, according to the company,
can wreak havoc on the company, and they should be discarded.
A marketng consultant informed Karen that, just as companies are taught to manage their products much
like investments, by using a product portolio, customers should be managed in a similar way. If customers are the
most important assets of the business, then it makes sense to manage customers and allocate frm resources to
those who are the most proftable. That made sense to her. Many artcles Karen read suggest that only the right
customer is always right. These customers are satsfed, they derive value from the company and its oferings,
they provide referrals, and they make money for the company. Karen has many of those customers. They are al-
ways happy, friendly, love Mamas Pizza, and bring their families over ofen.
According to an artcle in Business Week, customer supremacy can be destructve, especially when a
customers demand for low prices destroys proftability but also when the customer demands a diferent product,
creatng extra work for staf, and also when a customer disrespects employees. Clearly, for Karen, the problematc
customers are seriously eroding her business proftability. One thing that she can do frst is to eliminate these cus-
tomers from her marketng list so that she does not waste money on advertsing to them, on special ofers, or
other communicatons. Best Buy established that 20 percent of their customers are wrong for the frm. Karen is
wondering: what percentage of her customers are problem customers?

Quesons:
1. You have learned, throughout you experience as a customer, that the customer is always right. Did you ever do
something that would lead one to conclude that you, as a customer, were wrong? Explain.
2. What are some problematc, but ubiquitous, consumer behaviors?
3. When is it appropriate for a business to terminate a relatonship? Discuss Mamas Pizzas situaton, and suggest
to Karen how to handle these problem customers, beyond taking them of her mailing list.
Sources: Ian Gordon, Relatonship Demarketng: Managing Wasteful or Worthless Customer Relatonships, Ivey Business
Journal Online (March/April 2006): 1; Jack Suzy Welch, Thats Management! Business Week (February 19, 2007): 94.

ase -2: Kraf Foods: hanging the Focus rom Yummy to Healthy
It is hard to be the manufacturer of yummy food nowadays, and Kraf knows that only too well: Its Oreo
and Nila cookies, its Tobler chocolate, and its Oscar Mayer hot dogs have been washed down with Kool -Aid to cre-
ate a proftable botom line for the company. Kraf further bet on the cookie business in 2000 with its $15 billion
acquisiton of Nabisco. However, a few years later, the natons largest food manufacturer is cutng back on its
indulgence food. Its Oreos in partcular have become the bad poster child for trans fats; Atkins and the South
Cases
26
26

Beach diet, the growing obesity epidemic, and the popularity of low-carbohydrate diets have severely eaten into the
companys profts.
As a reacton to the falling profts, the company cut 6,000 jobs and closed 20 plants in 2004 in an efort to
reduce operatng costs and placed the savings into marketng. In additon, Kraf decided to change its marketng
strategy to focus on social responsibility as its main theme. Kraf Chief Executve Ofcer, Roger Deromedi, admited
that the company has been hurt lately, partcularly in four businesses: cereal, cookies, frozen pizza, and candy. He
hosted analysts and reporters for a daylong presentaton at the companys headquarters north of Chicago to in-
form them about changes in its oferings: healthier, beter-for-you food choices. In a radical move toward socially
responsible marketng, the company decided to help fght obesity around the world by insttutng limits on porton
sizes, ofering nutritonal guidelines for its products, and ending all in-school marketng eforts aimed at boostng con-
sumpton.
Today, social responsibility eforts at Kraf go beyond its partnership with Save the Children USA: Kraf
boasts a broad Sensible Soluton program as part of a strategy to improve its customers health. Sensible Soluton
is a labeling program to help consumers easily identfy beter-for-you choices from the companys product mix. The
company has formed a global council of advisers to develop policies, standards, measures, and tmetables to ad-
dress the obesity issue. The council boasts experts, mostly academic, in obesity, nutriton, physical actvity, behavior,
lifestyle educaton, and interventon programs. The council developed standards in line with the 2005 U.S. Dietary
Guide- lines, authoritatve statements from the U.S. Food and Drug Administraton, Natonal Academy of Sciences,
and other public health authorites. Kraf then labeled its food with Sensible Soluton fags.
To qualify for bearing a fag, the product must provide benefcial nutrients, such as protein, calcium, or f-
ber/whole grain, at nutritonally meaningful levels or deliver a functonal beneft, such as hearth health or hydra-
ton. At the same tme, it must meet specifc limits in terms of calories, fat, sodium, and sugar. Alternatvely, the
product must meet specifcatons for reduced, low, or free in calories, fat, saturated fat, sugar, or sodium. Among
the products bearing the fag are Crystal Light ready-to-drink beverages, Kraf 2% Milk Mild Cheddar Reduced Fat
cheese shreds, Minute Rice Instant whole grain brown rice, Post Shredded Wheat cereal, and Triscuit Original baked
whole grain wheat crackers.
In other eforts to be socially responsible, Kraf had already reduced the fat content in 200 of its products.
In its current health drive, it has stocked shelves with new snacks that cater to diet-conscious consumers pursuing a
healthy lifestyle. Among Krafs new oferings are 100-calorie packages of Chips Ahoy, Cheese Nips, and Wheat Thins
Minis. The company also introduced its CarbWell line of cereals, salad dressing, and barbecue and steak sauce.
The company also reformulated products to meet the U.S. Food and Drug Administraton standard of
zero grams of trans fat per serving. Among the products that have been reformulated are reduced fat Oreo
cookies, Golden Oreo cookies, Triscuit crackers, Back to Nature organic and natural products, and the Boca line of
meat alternatves.
Its pursuit of a healthy lifestyle reaches far beyond U.S. borders and into Canada. There, Kraf partnered
with the Boys and Girls Clubs of Canada, launching Cool Moves, a program directors guide for a health and ftness
program, creatng and testng recipes in Kraf Kitchens. The program has two parts: Eat Smart, which encourages
children to eat healthy, and Play Cool, which encourages physical actvity. Among others, children record their
progress in a journal daily, they create grocery lists at the club and purchase the products later, with their par-
ents. The program was a great success, with more than 80,000 children partcipatng.

Quesons:

1. Kraf eliminated a number of jobs and closed its plants, thus cutng costs and improving the stockholders
botom line. It also used some of its profts to enhance its marketng communicatons. Is Kraf endorsing the societal
marketng concept?

2. How is Kraf demonstratng social responsibility in its new health-oriented strategy? Or is
the company simply jumping on the current health fad?

3. Will the current new health focus bring long- term success for Kraf? Justfy your response.

4. Suggest how Kraf could incorporate the concepts of CRM in its new health drive.

Sources: Diets Force Kraf to Change Marketng Approach Marketng News (September 15, 2004): 37; www.kraf.com;
Kraf Launches Initatves to Fight Obesity, Natons Restaurant News 37, no . 2 8 ( July 14 , 2003 ): 46; Natalia Wil-
liams, The Skinny on ObesityKraf, Strategy (August 2006): 50.

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Part One: Introduction to Marketing

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