Marketing management [2nd edition.] 9782765072515, 2765072515

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2nd Edition

JOHANNE BRUNET | FRANÇOIS COLBERT | SANDRA LAPORTE RENAUD LEGOUX | BRUNO LUSSIER | SIHEM TABOUBI

In collaboration with Jean-Luc Geha

2nd Edition JOHANNE BRUNET | FRANÇOIS COLBERT | SANDRA LAPORTE RENAUD LEGOUX | BRUNO LUSSIER | SIHEM TABOUBI

In collaboration with Jean-Luc Geha Translator Karen Sherman

Marketing Management 2nd Edition

Iconography

Johanne Brunet, François Colbert, Sandra Laporte, Renaud Legoux, Bruno Lussier and Sihem Taboubi. In collaboration with Jean-Luc Geha © 2018, 2014 TC Media Books Inc. Managing Editor: Sonia Choinière Editor and Project Manager: Annie Ouellet Permissions Researcher: Marc-André Brouillard and Patrick St-Hilaire Copy Editor: Paul Paré Proofreader: Laurel Sparrow Book Designer: Julie Ménard Cover Designer: Byebye Bambi

Bibliothèque et Archives nationales du Québec and Library and Archives Canada cataloguing in publication Brunet, Johanne, 1951-

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[Gestion du marketing. English] Marketing management

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2nd edition. Translation of the 6th edition of: Gestion du marketing. Includes index. ISBN 978-2-7650-7251-5 1. Marketing – Management. 2. Marketing. i. Colbert, François, 1948. ii. Laporte, Sandra. iii. Legoux, Renaud. iv. Lussier, Bruno. v. Taboubi, Sihem. vi. Geha, Jean-Luc. vii. Title. viii. Title: Gestion du marketing. English. HF5415.13.G4713 2017

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C2017-940283-8

ALL RIGHTS RESERVED. No part of this book may be reproduced by any means known or not yet known without prior permission from TC Media Books Inc. Any use not expressly authorized shall constitute an infringement, which could result in legal action against the individual or institution reproducing any part of this book without permission. ISBN 978-2-7650-7251-5 Legal deposit: 1st quarter 2018 Bibliothèque et Archives nationales du Québec Library and Archives Canada Printed in Canada 1

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Government of Québec – Tax credit program for book publishing – SODEC

Foreword This is the second edition of Marketing Management, a practical

introductory work that covers the most important concepts in contemporary marketing. It aims to help students acquire a global and strategic vision of marketing and better understand the contribution of marketing to business management. All of the content of Marketing Management has been reviewed and updated to reect the evolution of marketing in recent decades, along with foreseeable trends in the years to come. is English edition remains true to the approach that has made the original ve French versions of Marketing Management a success. Notably, this original work adopts the managerial perspective and conveys the authors’ diverse areas of expertise with content that focuses on the essentials. e perspective highlighted in this work reects an approach that marketing managers should seriously consider. Further, the content emphasizes important marketing decisions and implementation of best practices. Marketing Management is an original work that has been rened and improved with each edition for over 25 years. Customized to meet the needs of its market, the content fully reects the reality in Québec and the rest of Canada, while also covering globalization and international markets. Six marketing specialists, university professors, expert consultants and researchers have jointly written the 12 chapters of the book. Marketing Management is neither an encyclopedia nor a literary work, but its content is substantial. e authors have striven to be concise, and have deliberately chosen to emphasize practical information for marketing management students. Clarity, conciseness and synthesis consistently characterize this book. Marketing Management is structured in a logical sequence. Chapter 1 covers the marketing approach and explains the fundamental marketing concepts. Chapter 2 presents the marketing process, and Chapter 3 species the key concepts of marketing strategy: segmentation, targeting, positioning and dierentiation. Chapter 4, which concludes the rst section, deals with creativity and innovation in marketing. e second section of this book, which focuses on analysis, begins with Chapter 5,

IV

Foreword

which explores how organizations analyze their internal and external environments to make decisions and formulate marketing strategies according to four key concepts. Chapter 6 immerses the reader in the marketing research universe, and Chapter 7 underlines the importance of interpreting consumer behaviour correctly. Lastly, Chapters 8 to 12 examine each of the elements of the commercial mix in detail, to help businesses make concrete decisions regarding products, services, brands, marketing communication, relationship selling, distribution and price. is second edition of the English translation of Gestion du marketing oers concrete examples that reect the reality of the business world. Numerous examples have been added, and many were replaced or updated since the last edition. e author team is made up of Johanne Brunet, François Colbert, Sandra Laporte, Renaud Legoux, Bruno Lussier and Sihem Taboubi, all professors at HEC Montréal. ey thank Jean-Luc Geha, a visiting professor at HEC Montréal who collaborated in this edition, along with Karen Sherman, translator, and the publishing team at Chenelière Éducation: Sonia Choinière, editor-designer; Annie Ouellet, editor; Paul Paré, copy editor; and Laurel Sparrow, proofreader.

Authors Johanne Brunet, CPA-CGA, MBA, Ph.D. (Industrial and Business Studies, University of Warwick UK), is a professor of marketing at HEC Montréal. She is the co-director of the Catalytic Mindset, EMBA McGill-HEC Montréal, and an associate member of the Carmelle and Rémi-Marcoux Chair in Arts Management. Her research interests include creativity and innovation in complex settings, product development, international marketing and cultural industries. She sits on numerous boards of directors in Quebec and the United Kingdom. She chairs the boards of the SAQ and the SHDM. François Colbert, C.M., MSRC, is a professor of marketing at HEC Montréal, holder of the Carmelle and Rémi-Marcoux Chair in Arts Management and the UNESCO Chair in Cultural Management, and co-director of the Master of Management in International Arts Management. He is the founding editor of the International Journal of Arts Management. An expert consultant and an author of nearly 200 publications on the arts, he is also a member of the Order of Canada and of the Royal Society of Canada. Jean-Luc Geha, BBA, MBA, P.CRM., is a guest professor of marketing at HEC Montréal, pedagogical coordinator of the marketing option in the BBA and coordinator of courses on sales in the MBA and BBA programs. He is also the director of the HEC Montréal Sales Institute. He has extensive experience in the business world, where he has held various consulting and management positions. As a manager, coach and mentor, he is renowned for his expertise in sales, call centres, and the customer experience, and for his ability to clarify complex notions that link theory and practice. Sandra Laporte, Ph.D., is an associate professor of marketing at HEC Montréal. She holds a doctorate (sciences de gestion), an M.Sc. in management from HEC Paris, and an M.A. in marketing and strategy from Université Paris-Dauphine. Before joining HEC Montréal in June 2010, she taught at HEC Paris. She specializes in consumer judgment and decision under uncertainty, social inuences, sales promotion and lottery design, and the impact of nancial dissatisfaction on eating behaviours.

VI

Authors

Renaud Legoux, Ph.D., is an associate professor of marketing at HEC Montréal. He is the pedagogical coordinator of the Maîtrise en management des entreprises culturelles. He holds a doctorate in management from McGill University. Prior to his career in academia, he worked as a manager in the cultural sector. His research focuses on consumer behaviour, marketing of the arts and cultural industries, and customer satisfaction. Bruno Lussier, Ph.D., is an assistant professor of marketing at HEC Montréal. Holder of an MBA in administration from Laval University and a doctorate (sciences de gestion) from the Université de Grenoble, his expertise lies in sales techniques, sales force eciency, sales management, B2B marketing, relationship marketing and positive organizational behaviour applied to sales. Sihem Taboubi, M.Sc., Ph.D., has been an associate professor of marketing at HEC Montréal since 2002. She holds a Ph.D. in business administration and an M.Sc. in marketing from HEC Montréal. She teaches courses in marketing research, market analyses, and, at the M.Sc. level, in analysis of demand. She was the pedagogical coordinator of the M.Sc. program between 2012 and 2017. She is also a very active researcher. Her publications mainly concern applications of game theory in modelling and resolving decision-making issues in distribution channels.

Table of contents Part 1 Key Concepts

...............

2

1.6.3 The consequences of technical advancement.........................................

27

Chapter 1 Marketing Approach

.............

3

29

1.1

Denition of marketing...................

5

Chapter 2 Marketing Process.....................

1.2

1.2.4

Milestones in the development of marketing ...................................... Production orientation........................... Product orientation................................ Sales orientation .................................... Marketing orientation............................

1.3 1.3.1 1.3.2 1.3.3 1.3.4 1.3.5

Basic marketing concepts .............. Needs and desires.................................. Demand.................................................. The market and its components ............ Exchange................................................ The result of the exchange process .......

1.4

Understanding the integrated marketing model ............................... 21

1.2.1 1.2.2 1.2.3

1.5

5 5 6 6 6 7 7 10 13 15 18

The internal marketing management process....................... 24

1.6 The future of marketing .................. 25 1.6.1 The development of trade...................... 25 1.6.2 The effect of globalized competition.... 26

2.1

How marketing contributes to a company’s mission ..................

31

2.2 Business strategies .......................... 32 2.2.1 Types of business strategies ................. 33 2.2.2 Analysis of strategic market positioning............................................. 39 2.3 Marketing planning ......................... 2.3.1 The marketing planning process........... 2.3.2 The marketing plan ............................... 2.4 2.4.1 2.4.2 2.4.3 2.5 2.5.1 2.5.2 2.5.3 2.5.4 2.6

41 41 42

Control................................................. 46 46 Control tools and objects...................... 46 Marketing audits................................... 48 Control: a cycle .....................................

Organizational structure ................

50

Functional structure..............................

50

Product or brand structure ...................

50

Market or region structure....................

51

Matrix structure ....................................

52

Ethics in marketing ..........................

52

viii

Table of contents

Chapter 3 Marketing Strategy...................

4.6.1 Innovation and development of new products and services ...............

98

55

4.6.2 Marketing communication ................... 104

3.1 Segmentation ................................... 56 3.1.1 Segmentation on consumer markets.... 57 3.1.2 Business market segmentation............. 63

4.6.3 Distribution............................................ 105

3.2 3.2.1 3.2.2 3.2.3

Targeting ............................................ 64 Selecting targets ................................... 65 Types of targeting ................................. 67 Refocusing, or changes in targeting..... 70

............................. 108

3.3 3.3.1 3.3.2 3.3.3

Positioning ......................................... 70 Positioning of a new brand................... 71 Positioning of an existing brand........... 72 Ensuring successful positioning............ 73

3.4 3.4.1 3.4.2 3.4.3

Differentiation .................................. Bases of differentiation......................... Perceptual map ..................................... Statement of positioning.......................

Chapter 4 Creativity and Marketing Innovation...........................................

76 76 79 81

83

4.6.4 Price ...................................................... 106

Part 2 Analysis

Chapter 5 Internal and External Environments ..................................

109

5.1

The SWOT model .............................. 111

5.2

The TOWS model .............................. 112

5.3 The internal environment .............. 5.3.1 Objectives and mission of the organization................................ 5.3.2 Components of the internal environment ......................................... 5.3.3 The value chain ..................................... 5.3.4 Benchmarking .......................................

112 114 115 119 122

5.4 The external environment ............. 124 5.4.1 The microenvironment.......................... 124 5.4.2 The macroenvironment......................... 134

4.1

The creativity and innovation process ................................................ 84

4.2

4.2.5

The role of research: explore and innovate...................................... Empathy ................................................ Denition............................................... Idea generation..................................... Prototype............................................... Test.........................................................

90

4.3

The value chain .................................

91

6.1.3

4.4

The business model .........................

92

6.1.4

4.5

The creation of value: marketing strategy ..........................

95

The marketing mix ...........................

97

6.2 Data ................................................... 151 6.2.1 Typology of data ................................. 152 6.2.2 Data collection .................................... 154

4.2.1 4.2.2 4.2.3 4.2.4

4.6

87 88 89 89 89

Chapter 6 Marketing Research 6.1 6.1.1 6.1.2

............... 145

Marketing information system (MIS) .................................... Internal data collection and analysis system ............................ Marketing intelligence ........................ Marketing research ............................. Role of the MIS ....................................

147 148 149 149 149

Table of contents

6.3 6.3.1 6.3.2 6.3.3

Marketing research ....................... Exploratory research ........................... Descriptive research ............................ Causal research ...................................

6.4

Steps of the marketing research process ............................. Preliminary analysis ............................ Formulating the research problem ..... Structuring the methodology ............ Construction of measurement instruments ......................................... Testing of measurement instruments ......................................... Data collection ................................... Data analysis and interpretation ........ Communication of results and recommendations ........................

6.4.1 6.4.2 6.4.3 6.4.4 6.4.5 6.4.6 6.4.7 6.4.8

156 158 158 159 159 161 161 164 177 179 180 181 182

Sources of inuence on consumer behaviour ............... 7.6.1 Internal inuences ............................. 7.6.2 External inuences ............................. 7.6.3 Contextual or situational inuences ...

7.6

7.1

185

Understanding the consumer is crucial ............................................ 187

7.2

The study of consumer behaviour ......................................... 188

7.3

The integrated model of consumer behaviour................... 189

7.4

Characterizing the decision process .............................................. 190 7.4.1 Level of effort and involvement in the decision ..................................... 190 7.4.2 Cognitive and emotional decisions ..... 192 7.5 7.5.1 7.5.2 7.5.3 7.5.4 7.5.5 7.5.6

Steps in the decision process ..... 194

217

221

8.1

Products and services ................... 223

8.2 Product dimensions ...................... 224 8.2.1 Core product ...................................... 225 8.2.2 Related services ................................. 230 Product portfolio management .................................. 231

8.4 Brand management ....................... 233 8.4.1 Brand equity ........................................ 234 8.4.2 Strategic branding decisions ............... 235 8.5 8.5.1 8.5.2 8.5.3 8.5.4

Product life cycle management ... 238 Introduction phase .............................. 239 Growth phase .................................... 239 Maturity phase ................................... 240 Decline phase ..................................... 240

Chapter 9 Marketing Communication

........................ 243

9.1

The role of communication in marketing strategy ................... 245

9.2

Strategic planning in communication ............................... 246

9.3

Target audience and consumer insight ................................................ 246

9.4

Communication objectives .......... 247

The purchasing act ............................. 199 Post-purchase evaluation ................... 200

211

Chapter 8 Products, Services and Brands .......................................

Evaluation of options .......................... 196 Purchasing decision ........................... 197

201

220

Recognition of a need ......................... 194 Information search .............................. 194

201

Part 3 Commercial Mix .......

8.3

Chapter 7 Consumer Behaviour ............

ix

x

Table of contents

The key message ............................ 250

10.4.5 Presentation of a business solution .... 302

The main types of media and integrated marketing communication ............................... 250 9.6.1 Types of media ..................................... 251 9.6.2 Incorporating components of integrated marketing communication ................. 252

10.4.6 Handling objections ........................... 304

9.5 9.6

9.7 9.7.1 9.7.2 9.7.3 9.7.4 9.7.5 9.7.6 9.7.7 9.7.8

Marketing communication media ................................................. Advertising ......................................... Public relations and media relations .... Direct and relationship marketing ...... Sponsorship ......................................... Sales promotion ................................. Digital and mobile marketing ............. Social media ....................................... Alternative forms of communication ...

252 253 259 261 263 268 271 276 278

9.8

Creative strategy and the advertising idea ............................... 280

9.9

Structure and role of communication agencies ............ 281

Chapter 10 Relationship Selling ................ 10.1 10.1.1 10.1.2 10.1.3

Selling approaches ....................... Transactional approach .................... Consultative approach ...................... Relational approach ..........................

10.4.7 Closing the sale and gaining customer commitment ...................... 307 10.4.8 Follow-up ........................................... 308

10.5 Business development ................ 309 10.5.1 Customer relationship management software ............................................. 310 10.5.2 Customer service ............................... 310 10.6 International selling ..................... 311 10.7 Sales force management ............ 10.7.1 Role of the sales force manager ........ 10.7.2 Size of the team and sales forecasting ......................................... 10.7.3 Structure of the sales force ................ 10.7.4 Recruiting and selecting salespeople ... 10.7.5 Compensating salespeople ............... 10.7.6 Evaluating, training and motivating salespeople ........................................

Chapter 11 Distribution ...................................... 283 284 285 286 286

10.2 Relational selling approach ....... 287 10.3 10.3.1 10.3.2 10.3.3

The salesperson ............................ Salespeople’s activities ...................... Main types of salespeople ................ Job outlooks ......................................

288

10.4 10.4.1 10.4.2 10.4.3 10.4.4

Selling process ............................... Prospecting ........................................ Pre-approach ..................................... Approach ........................................... Needs assessment .............................

292

288 289 291 293 295 296 300

11.1

313 314 314 315 318 318 319

323

The rationale for distribution intermediaries ............................... 325

11.2 The functions of distribution intermediaries ............................... 11.2.1 Logistics function ............................... 11.2.2 Financing function ............................. 11.2.3 Research function .............................. 11.2.4 Title transfer function ........................ 11.2.5 Promotion function ............................ 11.2.6 Sales function .................................... 11.2.7 Customer service function ................. 11.2.8 Payment function ..............................

327 328 329 329 329 330 330 330 330

11.3 Types of distribution intermediaries ............................... 331 11.3.1 Traders ............................................... 331 11.3.2 Agents ................................................ 333

Table of contents

11.4 Distribution channels .................. 334 11.4.1 Distribution channel length ............... 334 11.4.2 Integration of distribution intermediaries .................................... 336 11.5 Selecting a distribution network ........................................... 340 11.5.1 Determining the intensity of distribution .................................... 341 11.5.2 Selection of the type of channel and intermediary ............................... 343 11.6 Multi-channel distribution with an omnichannel strategy ............ 11.6.1 Multi-channel distribution ................. 11.6.2 Disruption in the various channels .... 11.6.3 Conicts linked to a multi-channel distribution strategy .......................... 11.6.4 Omnichannel strategy to resolve conicts ..............................................

345 345 346 347 348

Chapter 12 Price ........................................................... 351

12.3 12.3.1 12.3.2 12.3.3 12.3.4

XI

Pricing objectives ......................... 356 Prot-oriented objectives .................. 357 Competition-oriented objectives ...... 358 Sales-related objectives ..................... 359 Customer perception-related objectives ........................................... 359

12.3.5 Distribution intermediary-related objectives ........................................... 360

12.4 Pricing strategies .......................... 12.4.1 Pricing strategies determined by competitive pressure .................... 12.4.2 Pricing strategies dictated by consumer preferences ................... 12.4.3 Pricing strategies based on business costs .............................. 12.4.4 Pricing strategies for a product line ... 12.4.5 Price and product life cycle ............... 12.5 12.5.1 12.5.2 12.5.3 12.5.4

360 361 362 363 364 365

Pricing methods ............................ 367 Cost-based method ........................... 367 Competition-based method .............. 369 Demand-based method ..................... 370 Customer-based method ................... 370

12.1 Product prices ................................ 353 12.2 Environmental inuences on pricing ........................................ 354 12.2.1 Economic environment ...................... 355 12.2.2 Governments and the legal environment ....................................... 356

Photo credits .................................................. 375 Bibliography ................................................... 376 Sources Index ................................................. 389 Subjects Index ................................................ 392

PART

1

Key Concepts

Chapter

1

Marketing Approach Chapter outline 1.1

Denition of marketing

1.2

Milestones in the development of marketing

1.3

Basic marketing concepts

1.4

Understanding the integrated marketing model

1.5

The internal marketing management process

1.6

The future of marketing

Learning objectives After reading this chapter, you will be able to: dene the role of marketing within the company, along with the components of the marketing concept; distinguish between various marketing approaches; describe the basic marketing concepts; understand the basic marketing model; recognize the components of the marketing management process; understand the factors that inuence the future of marketing.

4

Chapter 1

The modern environment is complex:

increasingly sophisticated techniques are needed to bring producers and consumers together. Marketing covers not only all these techniques, but also the process of planning and managing marketing operations. Marketing serves to promote everything from products, services, ideas, candidates for election, and celebrities to social causes. Consequently, it applies to both for-prot businesses and non-prot organizations, in both the domestic market and foreign markets, and for selling to individual, industrial and organizational customers. Product manufacturers such as service companies—accounting rms, advertising agencies, head-hunters, management consultants, fashion designers—and stores and restaurants have to attract a large enough clientele to be successful. ey all face the challenges of competition and globalization. is chapter provides an overview of the marketing eld and related concepts. First we dene marketing and clarify its importance for a business. We then present the main milestones in the development of this discipline. Key marketing concepts such as needs, wants and demand, the market and its components, exchanges, transactions, customer relations, value, quality, satisfaction and loyalty are then described, to better understand the marketing model. We explore the internal marketing management process by discussing analysis, marketing strategy and the components of the marketing mix. Lastly, we briey situate marketing in the history of development of trade and in management science education, to prompt reection on the future of marketing.

Flow chart

Marketing Approach

5

1.1 Denition of marketing e denition of marketing has evolved considerably. Notably, Marketing Peter Drucker (1994) asserted that the only purpose of a busi“The activity, set of institutions, and ness (and hence marketing) is to create a customer. Guiltinan, processes for creating, communicating, Paul and Madden (1997) believe that the expression “creating a delivering, and exchanging offerings that have value for customers, clients, partners, customer” means identifying customers’ needs, pinpointing the and society at large.” (AMA 2013) needs that the organization can satisfy at a prot, and developing products and services that convert potential buyers into customers. McCarthy and Perreault (1984) dene marketing as the philosophy whereby the organization aims all its eorts at satisfying customers, at a prot. In contrast, Kotler and Armstrong (2005) dene marketing as a social and managerial process by which individuals and groups obtain what they need and want through exchanges of products and services of value with others. e denition that we will use here is that of the American Marketing Association (AMA), presented in the margin. With the proliferation of supply, the concept of value for customers and society has become central in marketing. Consumers are demanding because they can choose from a large number of products. ey can easily go to another supplier if they do not get what they want. e concept of social responsibility has also become quite important in business relationships with customers. at is why special attention must be paid to customer service. Customers not only want a product or service: they want someone to listen to their needs and treat them as though they were important. Above all, they want to have a positive experience when consuming a product or service. Many businesses have understood this requirement and have made customer service central to their operations. ey have understood that it is much easier and less costly to keep an existing client than to try to gain a new one.

1.2 Milestones in the development of marketing Marketing has evolved in step with business philosophies and the economic context. e main orientations that make up the milestones in the development of modern marketing are the production orientation, product orientation, sales orientation and marketing orientation.

1.2.1 Production orientation is orientation focuses on production eciency that will lead to high quality products. It developed during the Industrial Revolution and lasted until after World War II. e most important thinkers in this eld are Frederick W. Taylor

6

Chapter 1

(e Principles of Scientic Management, 1911) and Frank and Lillian Gilbreth, who studied motion and the organization of work. ey advocated and promoted eciency and ecacy. Similarly, Henry Ford introduced standardization and specialization on his assembly line. e production orientation is particularly eective when productivity must be improved because demand exceeds supply, or when companies want to reduce the cost of a product.

1.2.2 Product orientation Some sellers think that consumers will always buy a good product at a reasonable price, so a business only has to make the best product to automatically reap nancial success. is is called product orientation . However, even if you market the very best mousetrap, a consumer who does not have a mouse problem will not run to the store to buy one, no matter how many bells and whistles it has. In any case, a consumer with a mouse problem is not buying a mousetrap, but a solution to the problem. Proponents of product orientation assume that consumers are completely informed about everything available on the market and that their purchases are always “rational,” in the economic sense of the term. However, what we know about consumers indicates that they do not always buy a product or service for objective reasons: emotions and the unconscious play an important role in the buying process. At any rate, if there is no need to begin with, the chances of selling a product are nil.

1.2.3 Sales orientation Some people think that all you need is a good sales and communication strategy to convince a consumer to buy a product. is is called the sales orientation . Once again, these people overlook the consumer’s needs and presume that they can convince the consumer to buy their product by skillfully applying one of the components of their marketing strategy. It is true that in some cases it is possible to sell a product to someone who has absolutely no need for it. However, the chances of pulling o this feat a second time with the same customer are very slim.

1.2.4 Marketing orientation Finally, the idea behind the marketing orientation is to satisfy the customer while keeping the company’s goals in mind. is orientation focuses on the consumer rather than the business. It represents a shift from a sellers’ market to a buyers’ market. A sellers’ market is characterized by a shortage of products or services, whereas a buyers’ market features an abundance of products or services. Since the end of World War II, myriad products and services have entered the market. As a result, the marketing orientation is found in all organizations whose objective is to succeed over the short and medium terms. is orientation converts needs into demand by concentrating on the benets that products and services can oer.

Marketing Approach

7

1.3 Basic marketing concepts Any business, whatever its size, performs two basic activities: producing and selling. A craftsman who works alone in his shop has rst to make his product and then to nd a buyer. In a large corporation, the process is more complex and requires sophisticated management functions: accounting, human resources, logistics, production, information technology, etc. It is the role of the marketing function to identify the appropriate consumers and try to sell them the product manufactured by the rm. e marketing function also discovers what Product products these consumers want, and then reports back to the A manufactured product, a pure service or production division on what it needs to produce, and in what a clever mix of both. quantity, format, etc. e marketing function therefore plays a vital role for a business. Its work is particularly dicult when competition is plentiful and dynamic. A company that has the assurance of holding a monopoly can impose its will on customers to a certain extent, but such monopoly situations are rare. Sooner or later, competitors enter the market, and the company has to adapt quickly or perish. Barely 20 years ago, Bell Canada had a monopoly on telephone communications. e arrival of satellite and cell phone communications took away that monopoly, and Bell has had to adjust. e following section presents the key basic concepts that underlie the marketing function. ey consist of needs and desires, demand, the market and its components, exchange, and the result of the exchange process, including customer relations, value, quality, satisfaction and loyalty.

1.3.1 Needs and desires One of the basic concepts underlying the market phenomenon is that of need, whether expressed or latent. If a product does not correspond to a consumer need or want, it will be dicult to market. Contrary to popular myth, marketers do not spend their time trying to create consumer needs any way they can. Certain fundamental needs already exist, and marketing merely attempts to identify them and then meet them by creating the appropriate product. Abraham Maslow (1954) asserted that human beings satisfy their needs in a sequence beginning with physiological needs (food, water, etc.). ey then seek to satisfy their need for safety and protection (security), the need for belongingness (love, friendship), the need for esteem (prestige, respect from others) and lastly the need to self-actualize (see Figure 1.1, on the following page). Self-actualization is not dened in the same way by each individual. For example, some people are drawn to scientic knowledge, others to cooking and still others to meditation. Businesses can use this pyramid to ensure that their product corresponds to the type of need that they aim to satisfy. Massimo Fumarola, vice-president of Ferrari, says that people do not need to own a Ferrari to go from point A to point B. Any other car could even be much more ecient, he adds. In fact, owning a Ferrari is a form of self-actualization—a very compelling way to position a car in this highly competitive market (Conroy, 2007).

8

Chapter 1

Figure 1.1 Hierarchy of needs from Maslow

Analysis of the messages conveyed by consumer product manufacturers shows that many of them are crafted to meet consumers’ real needs, but not necessarily the needs that are the products’ basic reason for existing. A consumer is buying not a camera, but memories; not cosmetics, but the desire to be beautiful; not a soft drink, but a symbol of youth; not a simple piece of clothing, but a reection of their personality. In addition, while some products may at rst glance seem frivolous, closer examination may show that they meet deep needs, sometimes irrational ones, but important enough to lead the consumer to buy them. ree typical examples are potato chips, cars and clothing. Some may claim that potato chips have no nutritional value, that people do not eat them for nourishment and that they are useless. Has the need for them been entirely fabricated by marketers? In reality, many people associate eating potato chips with relaxing. ey eat them while watching television, for instance. e product may not meet their need for nourishment, but it does satisfy their need to relax.

A car may satisfy the need for a utility vehicle, the need for prestige or the need to belong to a group.

Similarly, one could argue that the function of an automobile is strictly to convey passengers from point A to point B. If this were the case, then there would be no need for the proliferation of makes, models, colours and options. Although for some consumers an automobile is merely a means of

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transportation or a utility vehicle, for most people it is more than that. Many see it as a symbol of prestige, power or style. Marketers try to pinpoint these needs as accurately as they can and then ensure that their company’s products meet these needs, as the Ferrari example illustrates. Finally, in the area of clothing, fashion is an eective means of displaying personality traits in terms of taste, comfort, social standing, being part of a group, etc. Clothing is a visible symbol of who we are or who we want to be. Even people who want to be dierent from the rest of society at all costs, or who reject society, still display the external signs of their refusal in the way they dress. Punks are a striking example. Clothing no longer simply meets a need for protection from the cold but is also a way to dierentiate oneself, or show that one belongs to a social group. It thus meets needs for a sense of identity and belonging. ese examples clearly show that it is important to distinguish between need and want. Need is a state of lacking something: being hungry, needing aection, having to earn a living, etc. A want corresponds to a way to meet this need—for example, satisfying your hunger by choosing an Italian restaurant instead of a fast food restaurant. Of course, consumers are sometimes duped by product promotion. ere are many examples of dubious or outright fraudulent practices by which unscrupulous people try to take advantage of the naïveté or vulnerability of certain consumers. Fortunately, this is not a widespread practice. e AMA has established a code of ethics for its members stipulating that “Marketers shall uphold and advance the integrity, honor and dignity of the marketing profession by being honest in serving consumers, clients, employees, suppliers, distributors, and the public” (AMA, 2003). is code also sets a guideline for each of the variables in the marketing mix, such as product safety, fraudulent advertising and price xing. More and more businesses have their own customer service policy designed to prevent unethical conduct and to build customer loyalty. If popular belief gives marketing experts so much power, it is because people perceive only the visible part of the marketing of a product (its advertising) and are often unaware of the commercial failure of other products. e concept of needs and wants is denitely fundamental in marketing: Backed by purchasing power, a want is transformed into demand. Market dynamics are therefore based on consumers and their needs. Consumers change over time and so do their needs and wants; the marketing analyst has to monitor these changes so that the business can adjust to them and survive. A business that The marketer’s job is to identify the needs does not pay attention to these changes risks nding itself in (and wants) of customers and to try to meet a dicult situation. is is what happened to North American them with the right products, at the right carmakers that did not adjust in time; they lost crucial ground price, through the right distribution network, to Japanese carmakers. GM, once the world leader in the auto using the right communication tools and industry, was outpaced by Toyota, which still dominates the unparalleled customer service. market (Leblanc, 2014).

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1.3.2 Demand Consumers express needs that a business tries to meet with a series of products or services. A consumer can be an individual, but also a business, government or associ­ ation. We use the term consumer here in its broadest sense to designate all economic agents (industry, government, distribution market, etc.), not just an individual mak­ ing a purchase. e term “customer” refers to the person or entity that makes the purchasing decision. For example, when it comes to dog food, the canine is the consumer, but the dog’s owner is the customer. Demand The quantity of a good or service that economic agents buy in a given market.

Consumers buy products or services and thereby create what economists call demand. Marketers try to meet consumers’ needs by carrying out one of the key tasks of marketing: managing demand.

Market demand is expressed in transactions carried out to acquire a product. It can be expressed in units of quantity (volume) or in monetary units (dollars or other currencies). One measure or the other will be used depending on the need and the availability of data. Expressing demand in volume often represents reality most accurately because the results are not inated or, on the contrary, are not underestimated because of higher or lower prices. It is therefore easy to compare data from one year to another; the basis of comparison is similar. For instance, from 2013 to 2014, box oce revenues (demand) for performing arts in Québec rose from $229 million to $238 million, a 4% increase, whereas the number of spectators climbed 2%, from 6.7 million to 6.8 million (ISQ, 2015). To be able to compare the dollar increase in sales to the rise in audience volume, you must negate the eect of ination. An uninformed observer who considers only the demand expressed in dollars might conclude that the performing arts market had experienced a much greater increase than it actually did. When we look at the change in demand in dollars without adjusting for the change in price, we say that the measurement is done in current dollars. When we calculate the change in demand while eliminating ination as a factor (that is, using the same reference year), we say that the measurement is done in constant dollars. If volume data are not available, every eort must be made to calculate changes in demand in constant dollars to oset changes in price and get an accurate picture of the phenomenon. While it is often more useful to express demand in volume terms, this gure is sometimes hard to obtain, either because the data do not exist, or because the product in question is made up of a series of disparate elements. For instance, demand in the leisure and recreation market cannot be measured in volume terms because this category encompasses a number of elements that cannot be added together: theatre seats, book purchases, travel, etc.

Company demand and market demand A distinction is usually made between company demand and market demand. Company demand is the expression, in volume or dollars, of the transactions carried out to buy a product or service from a specic company. Given that market demand for a product is made up of the sum of individual company demand values, total market demand may

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experience a trend that is the inverse of the trend seen in individual company demand. Demand for a product may be rising, while demand for some of its components may be falling. For example, demand for cultural products declined 10% between 1997 and 2009, yet when we look at the sectors that make up this industry, demand for news­ papers plunged by 52% and demand for cinema slipped 10%, while demand for indoor shows rose by 24% (ISQ, 2012a). It is interesting to note that the arrival of new infor­ mation and communications technology has transformed cultural consumption in Québec. In fact, spending to access cultural products (such as video game consoles and cellular telephone services) soared by 110% between 1997 and 2009 (ISQ, 2012b). Sometimes several businesses or actors join forces to stimulate total market demand. ey presume that it is possible to increase total demand and that each will benet in proportion to its size in the market. For instance, milk producers encourage consumers to drink more milk through ads that do not mention any brand in particular. Similarly, the Québec government tells Americans about the advantages of a trip to the province based on the assumption that increased tourism will benet the entire hotel industry. In these cases, a presumption is made that if none of these businesses changes its mar­ keting mix, a campaign to increase market demand should increase each company’s sales in proportion to its market share. A competitor’s action may sometimes also lead to an increase in total market demand that benets all the competitors.

Market share Every business tries to get part of the market to consume its product and thereby capture part of the demand (see Example 1.1). In marketing, a company’s market share refers not to the share of consumers who buy the company’s products, but to the company’s share of demand. While it would be more accurate to talk about share of demand rather than market share, market share is the expression used by marketing specialists. We will also use it in this sense.

Example

1.1

PS4 versus Xbox One: which brand won the console war?

November 2013 marked a new milestone in the videogame industry: two new consoles were launched only a few days apart: the Microsoft Xbox One and the Sony PS4. This is the eighth generation of consoles since the industry emerged in the late 1970s.

One month later, the PS4 had achieved the most massive console launch ever, with 2.1 million units sold worldwide, experts report. Sony thus handily conquered the nextgeneration console market with its PS4, which captured a 50.7% market share in rst quarter 2015, versus 28% for Microsoft Xbox One, according to VG Chartz.

Source : Pieters, C. (2013, December 12). PS4 : « Le plus grand lancement connu à ce jour » pour une console. Gameblog. Consulted at www.gameblog.fr/ news/40000-ps4-le-plus-grand-lancement-connu-a-ce-jour-pour-une-console; D'Angelo, W. (2016, July 21). PS4 vs Xbox One vs Wii U Global Lifetime Sales – June 2016 Update – Sales. VGChartz. Consulted at www.vgchartz.com/article/265168/ps4-vs-xbox-one-vs-wii-u-global-lifetime-salesjune-2016-update/

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The different types of demand ere are two main types of demand: actual demand and potential demand. Both types of demand are measured for three time periods: past demand, present demand and future demand, also called projected demand. Actual demand Actual demand corresponds to a company’s actual sales or business volume at a specic point in time. e same is true of market demand: it is a measurement of demand at a specic point in time, either the current period or a previous one. By measuring changes in previous years’ actual demand, a business can obtain a historical picture of its vitality and the dynamism of its sector or industry. Potential demand Potential demand is the maximum level that demand for a product can reach in a given context. Not all consumers buy all the products available on the market, even for generally consumed staple products. It is therefore very rare for a product to reach 100% of consumers. People who do not use a product but who might do so are potential consumers. To increase sales, producers try to persuade these potential consumers to buy their products. Similarly, if a per capita increase in sales is possible among existing customers, producers will try to convince their customers to consume more. Demand projection However, every demand has a ceiling, and this ceiling depends as much on consumers’ nancial means as on their tastes, interests, receptivity to a marketing strategy and environment. e marketing managers’ task is then to estimate the maximum level that market demand could reach at a given time, which is the potential market demand. Potential company demand is estimated in the same way. As in the case of actual demand, past or present potential demand for a product can be determined, and potential demand can be projected. Actual demand is usually less than potential demand, which gives businesses hope that they can increase their sales or market share. When actual demand and potential demand are equal in a given market, the market can be considered to have reached its saturation level, which generally corresponds to the maturity stage in the product lifecycle. e sales projections made by a business must take expected changes in potential demand into account. When managers expect an increase in potential demand, they can anticipate higher sales for their business. Conversely, when potential demand declines in a market, competing rms must expect to make a greater eort to maintain company demand. e concept of the relationship between the dierent types of demand over time can also be applied to the market. An actual market and a potential market can be dened, and the past, present and future sizes of each of these markets can be estimated. For example, consider the market represented by retirees for certain types of products, such as tourism. Because we know the number of retirees, say in the year 2000 (past market), we can estimate the number today (present market) and in 2025, when the impact of the massive wave of retiring baby boomers will be felt (future market). In the same way, we can nd out what the demand for travel among people in this category was in 2000, estimate what it is now, and forecast what it will be in 2025.

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We can do a similar analysis at every step in the distribution chain, from both the producer’s and the retailer’s perspective. Figure 1.2 illustrates dierent relationships in market demand.

Figure 1.2 Market demand relationships

1.3.3 The market and its components A business can target one or several markets. In either case, it will try to capture a share of demand in each market and will have to deal with competitors who are trying to reach the same goal. e market is made up of consumer units that may represent an entire population or just part of it, depending on the product oered or the target clientele. Companies rarely target an entire population: not all individuals are interested in all the products oered in the market, except perhaps for staple foods such as milk, our and sugar.

Market A set of consumers, individuals or businesses that express wants and needs by buying products, services or even ideas.

When we talk about marketing, the tendency is to think only of the consumer market, while there are in fact other markets for which marketing tools can be useful. In this subsection, in addition to the consumer goods market, we will examine four other markets: the business market (for-prot and non-prot companies), distribution intermediaries market, government market, and international markets.

The consumer goods market In 2014, the population of Canada was 35,543,658, divided into approximately 9,831,316 families who spent $1,022,345,100 that year (Statistics Canada, 2014). e consumer goods market

Consumer goods market All the individuals who purchase products or services to meet their personal needs.

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(Business-to-Consumer or B2C) is thus a vast market that oers enormous potential. One of Canada’s most important characteristics for marketing strategists is the size of the territory. Compared with European countries or the United States, whose populations are both large and concentrated, marketing a product across Canada presents particular problems in the area of distribution. Eighty-one percent of the Canadian population is urban (Statistics Canada, 2011) and lives in a strip more than 6,000 km long and over 300 km wide. The consumer goods market includes all individuals old enough to buy Certain metropolitan areas account for half of their products. province’s inhabitants. In 2015, Vancouver had a population of 2,504,300, or over 50.0% of the total population of British Columbia, which was 4,683,100. In addition, most of the potential buyers of consumer goods are concentrated in the two central provinces of Québec and Ontario, representing 22,055,700 people, or 61.5% of the population of Canada (Statistics Canada, 2014). Most of this population can be found in an 800-km corridor that runs from Québec City to Sault Ste. Marie.

The business market Business market Organizations that buy products and services in order to use them to make other goods, or to meet their internal needs. They may be the industrial suppliers of a consumer goods manufacturer, or any rm that sells to other businesses, municipalities or public organizations.

e business market, or Business-to-Business (B2B) market, represents an important sector of today’s economy. e market addressed by B2B marketing does not include individual consumers. e main types of rms in this sector of the economy include processing companies, farm producers, construction industries, extraction industries and service companies.

e marketing concepts used in the marketing of consumer goods also apply to the industrial market. However, the relative weights of the variables in the marketing mix dier. To market consumer goods, the key elements in a marketing plan are generally advertising, sales promotion and merchandising, while in the case of an industrial market, more emphasis is placed on the product, price, sales and after-sales service, given that sales are an essential point of contact between the producer and the customer. is does not mean that advertising, sales promotion and merchandising are absent from the industrial market; certain specialists in this type of marketing have become experts in using promotional tools such as trade shows, movies, merchandising, bonuses, sales oor display units and posters.

Distribution intermediaries market e distribution intermediaries market buys products and services with the intention of reselling them. e main types of Individuals and organizations situated intermediaries are retailers, wholesalers, manufacturers’ agents between the producer and the consumer. and dealers. Given that Canada has a relatively small population spread out over a large area, intermediaries greatly facilitate product distribution.

Distribution intermediaries market

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Distribution intermediaries use marketing tools in the same way as specialists working for businesses in other sectors. Retailers apply the same marketing techniques as manufacturers that deal directly with the end consumer. As the last intermediary in the chain, the location of the retailer’s business is a key success factor, particularly in the case of staple goods such as groceries. Consumers generally do not want to travel great distances to buy a good that they do not view as having signicant monetary or symbolic value, such as a litre of milk. e retailer with the best location in the neighbourhood therefore has a guaranteed advantage. For wholesalers, the marketing process is much more similar to the process used by service companies, because they do not sell a tangible product but rather a sales organization. ey provide a manufacturer with access to attractive markets through a network of stores, and the owners of these stores with a reliable supply. For all producers that do not sell their products directly to consumers, distribution intermediaries are the market to penetrate. ey must convince the intermediaries to adopt their products and need to provide them with all the necessary elements so that they in turn can convince consumers to buy the products.

Government market Federal, provincial and municipal governments—important partners in the economy— make up a considerable market, even though they represent a limited number of decision-makers (Business-to-Government or B2G). e government can become the main customer of some of these businesses. To reach this market, the use of marketing tools is more limited because governments mostly issue calls for tenders, a process in which the contract usually goes to the lowest bidder. Price is therefore the priority among the decision-making criteria, although other factors such as product quality and customer service may also be taken into consideration.

International markets Much of the Canadian economy’s vitality comes from exporting products, particularly to the United States. Governments are encouraging businesses to look abroad to nd new markets and thereby counterbalance the ood of products invading the Canadian market (see Example 1.2, on the following page). International marketing is thus an important eld of study. Yet marketing between countries can be a complex task because culture, government regulations and technical standards may dier greatly from one country to another.

1.3.4 Exchange All denitions of marketing have one thing in common: the concept of exchange. is concept rests on four elements: • • • •

the customer’s need, the satisfaction of this need, a relationship between the business and the consumer, and the optimization of business prots.

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Example

1.2

Chapter 1

A home run for the Cirque

In 2015, the Cirque du Soleil was sold to a consortium led by the American private investment rm IPG Capital. The rm acquired 60% of the equity of the circus. The Chinese investment rm Fosun Capital Group holds 20% of the stock, the Caisse de dépôt et placement du Québec owns 10%, and cofounder Guy Laliberté kept 10%. The controlling shareholder, which has plans to expand beyond circus shows, and Fosun Capital Group, which aims to springboard the Cirque du Soleil into the Chinese market, handed Guy Laliberté a cheque for over

$1.5 billion. “I hit a home run,” the Cirque du Soleil cofounder says. “I could not ask for a better future for the Cirque.” One of the conditions of sale was that the head ofce stay in Montréal, and that it “remain the centre of creative and artistic services.” The new owners are also committed to “ensuring an important presence of Québec and Canada within the management team of the Cirque and its Board of Directors.” They have also agreed to nance local cultural and community organizations.

Source: Brousseau-Pouliot, V. (2015). La meilleure décision pour l’avenir du Cirque. La Presse. Consulted at http://affaires.lapresse.ca/economie/ quebec/201504/20/01-4862536-la-meilleure-decision-pour-lavenir-du-cirque.php

It is important to make the distinction between maximizing prot and optimizing prot. Maximizing aims to generate the largest possible prot, while optimizing seeks to obtain the largest prot while taking into consideration organizational or environmental elements such as employees’ The goal of marketing is to optimize the relation­ well-being, creating a good corporate image, satisfying the ship of exchange between the business and the consumer, the company’s commitment to the community, and customer and to maximize their satisfaction. environmental protection.

Transactions An exchange is usually concluded with a transaction (contract or agreement that species the accepted terms), which constitutes a basic unit. e business chooses its payment and nancing modes according to industry practices or the types of relationships it wishes to develop with its customers.

The customer relationship is exchange relationship can take dierent forms depending on the products, services and environment of the rm. e objective is to create important economic and social ties on an ongoing basis while providing superior Customer service value. Customer service is closely related to customer satisfacEverything that customers experience when tion and customer loyalty, which have become very important doing business with a company. in the past 20 years. Customer service concerns a company’s relationship with its customers. It consists of everything that customers experience when doing business with a company.

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Managing customer service means managing all these experiences and customers’ expectations. Customer service goes beyond the marketing department to encompass other departments that help forge customers’ experiences in their relationship with a company. Customer service involves a customer approach, that is, the analysis and understanding of the expectations, wants, needs and behaviours of target customers, as well as the design and implementation of actions, policies and programs intended to best satisfy customers in a cost-eective way and thus build customer loyalty. However, a customer approach is not limited to satisfying customer wants. It also means innovating to go beyond the needs and expectations explicitly formulated by customers. First and foremost, customer service concerns a company’s existing customers; its primary function is to satisfy them and build their loyalty. It also concerns prospective customers obtained through word of mouth by existing customers. e concept of a customer includes users and deciders, buyers, gatekeepers, initiators, inuencers and speciers, as well as immediate, intermediate and end customers. It also includes a company’s partners, associates, allies and distributors. In many markets, customer service has become an indispensable tool that enables a company to stand out advantageously from its competitors and improve customer retention. e growing importance of customer service reects the trend in contemporary marketing thinking that emphasizes building and strengthening customer relationships. In contrast, traditional marketing dealt more with customer transactions and considered its job done once a purchase had been made. Managing this relationship implies building and maintaining protable relations, providing superior value and ensuring a high degree of satisfaction. In fact, there are very few new customers, only those of the competition.

Customer lifetime value To assess the protability of its customers, a business has to look beyond the current situation because some customers that are not protable at present may become so in the short or medium term; enough to compensate for the current nonprotability. is is why many businesses use the concept of customer lifetime value.

Customer lifetime value The sum total of the present values of all the prots that can be made from a particular customer over that person’s lifetime.

To calculate this value, the prots generated by the customer year after year are considered, taking into account the fact that $1 of prot in ve years is not worth the same as $1 of prot in the current year. e present value of the prots generated each year is thus calculated. Customer lifetime value represents the value of all the purchases the customer may make over his or her lifetime. It proves that it is more protable for a business to take care of its customers than to seek out new ones. Some businesses think that it costs ve times as much to attract new customers as to retain their existing ones.

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eoretically, by applying this concept, the lifetime value of a potential customer, an existing customer, a customer at risk or a lost customer can be calculated to better assess how much can be invested to acquire, retain, save or win back the customer. is method requires the use of an accounting system that is accurate enough to compute the costs of each of the dierent products or services sold and of each of the various customer segments. It also requires an analysis of a set of data contained in the customer databases (sometimes obtained through marketing research). By using the data collected on a customer’s personal characteristics and past behaviour, future behaviour can be predicted if the customer becomes or remains a company customer, or is won back again.

1.3.5 The result of the exchange process Delivering products or services of value and high quality will satisfy customers, and consequently greatly inuence their future purchasing behaviours. e more satised the customers, the more loyal they will tend to be.

Value Value The benets received minus the monetary and non-monetary costs.

e notion of value is important for consumers; they want to emerge a winner from the exchange process. It is therefore important for the business to clearly understand what its customers expect in terms of value, on the functional, economic, social and experiential levels.

Consumers hope to nd added value in the benets they seek. e business must be aware of these benets and should make them a priority. It must also be able to attribute a monetary value to each of these benets and to set the suggested retail price. Often, consumers must deprive themselves of some things to obtain others. Businesses need to be aware of their customers’ monetary sacrices along with nonmonetary costs such as psychological fatigue, eort and time. e production cost should include sales and operations expenses. A good exchange process should achieve a satisfactory result for both the consumer and the marketing manager.

Quality Consumers also care about the quality of the product or service they procure. ey expect it to be defect-free, meet the specications and deliver superior, constant and reliable performance.

Satisfaction Satisfaction is situated between the customers’ expectations and their perception of performance (see the denition on page 200). Why worry about customer satisfaction? First of all, it is a matter of professionalism and business ethics. Satised consumers are also more loyal than dissatised ones, and loyal customers are more protable because they tend to incur lower costs and generate higher sales per customer. It is

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also easier and cheaper (hence more protable) to retain customers than to replace them with new ones. As a result, if a company manages to improve customer satisfaction levels (or to maintain them if they are already very high), there will be a positive impact on customer loyalty and protability.

Loyalty When we discuss consumer loyalty or disloyalty we assume that consumers are either completely loyal or completely disloyal, to simplify the presentation. In reality, however, there is no dichotomy between the concepts of loyalty and disloyalty; instead, we should talk about the degree of customer loyalty to a brand or company. A number of authors have written about the concept of loyalty and proposed denitions, including Richard L. Oliver in 1999. We are not referring to the “romantic” denition of loyalty (i.e., delity, which represents the moral concept of loyalty), where customers who are loyal to a brand or company display great emotional attachment to it, because this denition does not t all buying sectors, even if this concept is a type of ideal to be attained by a brand or company. e behavioural denition of loyalty, which includes customer retention and customer share, is the preferred denition because it is practical and reects marketing practitioners’ concept of loyalty. e rst aspect of loyalty is the length of customer retention, or how long the customer has been dealing with the same business or buying the same brand: the longer that time period, the more loyal the customer. e retention rate from one period to another is a helpful indicator of a company’s success with its customers. A company that keeps 80% of its customers from the previous year has only 33% of its rst-year customer base at the end of ve years if it has not won back any of its lost customers. A company that retains 50% of its customer base keeps as little as 3% of its rst-year customers after ve years. e second aspect of loyalty is less obvious, but it is just as important as the length of retention. It concerns the customer share, or the proportion of a customer’s relevant purchases from a company or of a brand. Building customer loyalty means not only retaining customers from one period to the next, but also maintaining or increasing the customer share of the brand or company. For less frequently purchased products or services (such as cars), customer loyalty can be estimated by asking customers whether they intend to buy again from the same supplier instead of waiting for them to do so. For products or services purchased very rarely or just once, or only in an emergency or as needed, the concepts of retention and customer share are not as relevant because customers will probably not buy the same product or service a second time. If they do, it might only be in 15 or 20 years. In these cases, a good way to estimate loyalty is to nd out if customers intend to recommend the brand or business to other people (“Would you recommend this company or this brand to your friends and acquaintances or your coworkers or associates?”), or whether they would choose to buy the product again (“If you had to do

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it again, would you buy the same brand?”). is also applies to categories of goods and services like tourist destinations, wine, or gourmet restaurants, where variety and novelty are among the benets associated with this category. Figure 1.3 shows the positive nancial impact of customer loyalty on a company over a period of several years. e researchers Reichheld and Sasser (1990) observed this phenomenon in a number of industries. Every new customer comes with an acquisition cost. is same customer will generate a base prot for the company. If the customer stays and continues to make purchases, the acquisition cost will not recur, and prots will accumulate. Customer satisfaction will generate growth in revenues, and if the company gets to know this customer better, it will help reduce costs. is customer will also provide free publicity for the company (through word of mouth). Satised customers are also less price-sensitive.

Figure 1.3 The nancial impact of customer loyalty

Source: Adapted from Reichheld, F. F. and Sasser, W. E. Jr. (1990, September–October). Zero defections: Quality comes to services. Harvard Business Review. Consulted at https://hbr.org/1990/09/zero-defections-quality-comes-to-services

e positive connection between customer loyalty and corporate protability is irrefutable. Yet some question the link between satisfaction and loyalty, insisting that a satised customer is not necessarily loyal, and that a loyal customer is not necessarily satised. It is also true that the positive relationship between satisfaction and loyalty assumes that customers can choose their suppliers, which implies that there is competition. Customers of a monopoly will be loyal, even if they are dissatised. It is equally true that some dissatised customers will remain loyal simply because they have been attached to the company for some time and they think that a change in

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supplier would be too costly or more costly than their current dissatisfaction. ey might also think the competition would not be any more satisfactory. Customers’ perceptions of competitors also aect their loyalty. Satised customers may stray if they believe that one of the company’s competitors could do a better job of satisfying them. Conversely, dissatised customers of a company may remain loyal if they think that the company performs better than or as well as its competitors. Nonetheless, an indisputable link exists between satisfaction and loyalty: the more satised customers are, the more loyal they are. is link is not simple, automatic or linear, but it does exist. e marketing manager of an auto manufacturer explained that, according to data collected over many years, a completely satised customer is, on average, three times more loyal than a very satised customer. Xerox gures that its very satised customers are six times more likely to buy Xerox equipment again than ones that are merely satised ( Jones and Sasser, 1995). Some studies emphasize the existing link between satisfaction and protability. After analyzing the Prot Impact of Market Strategy (PIMS) database, Andreas Eggert and Wolfgang Ulaga (2002) discovered that companies with customers who are more satised than those of their competitors have notably higher protability. What’s more, companies that increase their customers’ satisfaction more quickly than their competitors also grow their market shares and boost their protability. Since the 1990s, the American Customer Satisfaction Index (ACSI) has been measuring the satisfaction of American consumers with almost all major corporations on consumer markets. A statistical study of developments in satisfaction with each of these companies and trends in their listed stock prices shows a strong relationship between the two variables: for all these companies, a 1% increase in average customer satisfaction results in a 3% increase in the corporate stock price, on average (Fornell, 2001). is seems logical because higher satisfaction leads to greater loyalty, which in turn results in higher protability, and the stock price is supposed to reect the present value of all the prots the company will earn in the future. Businesses must therefore strike a balance between levels of satisfaction and cost. Satised customers will be less price-sensitive, will create positive word-of-mouth and will remain loyal for longer. Satisfaction is a cornerstone of loyalty. Small changes can prompt customers to stray, or can satisfy them completely. Given the very strong inuence of satisfaction on loyalty, businesses can capture a greater share of customers’ spending if their customers are satised (see the section on customer lifetime value, on page 17).

1.4 Understanding the integrated marketing model To better understand the marketing approach along with its many concepts and components, we propose an integrated marketing model. e ow chart (see page 4)

22

Chapter 1

shows that marketing is central to the relationship between the organization and the market, and that it acts on both of these elements. Businesses perform analysis (see Chapters 5 and 6) to better understand the market along with the opportunities and value that it oers. Analysis helps businesses grasp the needs of current and potential customers and determine the value the business can oer them. It also allows businesses to monitor the evolution of their programs and continue to serve their customers well while tracking changes in the environment. Chapter 7, dealing with consumer behaviour, describes the factors that inuence consumers’ purchasing decisions. Chapter 1 has provided an overview of the dierent types of markets. Marketing activity includes developing the marketing strategy of the business (see Chapter 3), which dictates its decisions related to segmentation, targeting, positioning and dierentiation. At this step, the company determines how it can create value. Once these decisions are made, marketing managers put in place value production, namely a set of tactics known as the marketing mix: products, services and brands (see Chapter 8), marketing communications (see Chapter 9), sales (see Chapter 10), distribution (see Chapter 11) and price (see Chapter 12). Creativity and innovation are integral parts of the marketing process (see Chapter 4). Innovation is possible at each step, from product and service creation to process development. Similarly, at each step of the process, creation of value for the business and for the customer must remain central to the orientation. Marketing success depends on having the right dose (optimal proportions) of the elements of the marketing mix: product, price, promotion, and place (distribution). We add to this traditional vision of the marketing mix elements by explicitly integrating the sale into the business strategy. A product that has a good distribution network and good promotion strategy will not be a success if the consumer does not want it, even at a good price. e same is true for a good product with good customer service, but oered at the wrong price or with a faulty distribution system resulting from a awed promotion strategy. In fact, there are many more new products trying to nd a place on the market each year than products that are successfully launched. ese components are therefore fundamental to marketing; it is important to strive for synergy by combining them eectively. Synergy occurs when the total eect of several elements combined is greater than the sum of the elements taken individually. Although the elements of the marketing mix form a whole, they generally follow a logical sequence. Managers must rst know what product they are going to sell before they can determine the price, decide on distribution or assemble its sales force. Similarly, they cannot design a communication campaign without knowing what the business oers, at what price, where the product will be sold and the type of service provided. To start with, their decisions are made in a predetermined order. An iterative process is then used to achieve the right amounts of each element; they are adjusted until the nal combination is reached.

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23

e elements of the marketing mix are considered controllable variables, as opposed to macro-environment variables, over which the organization has no control. In contrast, competition is a semi-controllable variable. e product is the central element on which the business depends. Consumers identify the rm with this element, which they consume. In this book, we use the term “product” (see the denition on page 7) in its broadest sense to designate a tangible object, service, idea or cause. Every product has a price. e price is usually expressed as the monetary value attributed to the product, but it also includes the eort consumers have to make when buying it. ere is always a price to be paid for a product, even a free one (the risk of disappointment, the time spent to acquire it, etc.). In addition, the price paid for a product is not necessarily proportionate to the cost of manufacturing it, or to the value attached to it. e cost of a movie ticket has nothing to do with the cost of making the movie. Conversely, the rarity, reputation and symbolic value of an object are factors likely to increase the price the consumer is willing to pay for it. A work of art or a vintage car may be sold at a very high price that, once again, has nothing to do with the cost of manufacturing it. e fairest price is therefore the one the consumer is willing to pay, and the business will base the development of its strategies on this price. A good promotion strategy can increase the value associated with a product. However, marketing managers must also make other decisions, relating to payment conditions and credit policies, for example. e element of place (or distribution) is divided into a number of components, the main three of which are physical distribution, distribution networks and the place of business (where the product is sold). Physical distribution has to do with the logistics of distributing the product from the manufacturer to the end consumer. Distribution networks (channels) are characterized by the relationship between the various intermediaries. Place is an important success factor for businesses that sell directly to consumers. e location of a bookstore, supermarket, service station or restaurant must be chosen with care. As mentioned earlier, customer service has become an important element of any marketing strategy. In today’s business environment, where consumers perceive many products as being equivalent to one another, the quality of customer service becomes a decisive factor in choosing a product. Promotion comes last when dening the marketing mix: before designing a communication campaign, one must identify the product that is being oered, its price and the place where consumers can buy it. Similarly, the business must rst know its target consumers’ basic characteristics and, in particular, which arguments will win them over. At this step, the business also decides on the type and intensity of the sales eort it will deploy.

24

Chapter 1

1.5 The internal marketing management process Marketing strategies adopted must always be consistent with the company’s mission and objectives. ey must also take its human, technical and nancial resources into account. e marketing management process can be broken down into four main elements: analysis, planning, implementation and control. Marketers analyze the market situation rst, and then the objectives and resources of the rm. e results of this analysis will enable them to make a marketing plan by determining which marketing objectives are compatible with the company’s actual situation. e marketers then look at the strategic aspects of the process: brand or product positioning, expected reactions from the competition and the selection of the most appropriate distribution network. ese strategic aspects are based on three key marketing concepts: segmentation, positioning and targeting. ese concepts underpin the dierentiation of the company’s products on a given market compared with those of its competitors. ese concepts will be covered in depth in the following chapters. e strategic aspects must all connect with operational elements, which include sales sta meetings, advertising material put in the right place at the right time, and an adequate supply of products. Because a single error can derail a good marketing idea, every element is important. Implementation of a marketing plan requires proper coordination of everyone involved, and each sector has its role to play: production, so that sucient quantities of the products are available; nance, so that funds are freed up; personnel, because additional sta may need to be hired; and IT, so that hardware is up to the task and powerful enough to support the strategy. While determining the optimal proportions of the four elements of the marketing mix is a manager’s main activity at this stage of the marketing management process, the task does not end there. When the strategy is implemented, company executives must be informed of the success or failure of the operation via the marketing information system (MIS). is control method allows the rm to compare its results with its objectives and to deal with any discrepancies by taking the necessary corrective action. Marketing specialists must know their market and the variables likely to aect it. ey must correctly determine consumers’ needs, measure the level of and changes in demand for a specic good and divide up the overall market into submarkets, or segments, in order to seize business opportunities and gain a distinctive advantage over their competitors. ey must also study and weigh the dierent macro-environment variables. Competition in all its forms can aect sales; changes in demographics, culture, the economy, laws and regulations as well as technology and the international context all constantly aect the rules of the game, beyond marketers’ control. Finally, marketers must use their information system eectively and know how to balance each variable in the marketing mix.

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25

1.6 The future of marketing To predict the future of the marketing discipline, it is crucial to be familiar with some of the background behind the development of this science. One must also understand the major impact of globalization on trade, and the inuence of technologies on consumers, in terms of both communication and purchasing behaviours.

1.6.1 The development of trade e science of modern marketing took shape in conjunction with the rise in the material well-being of industrialized nations and is thus connected with the development of trade. In the 19th century, supply created demand. At that time, consumers did not have large incomes and manufacturers had a hard time meeting the primary needs of the population. e distribution chain of goods was made up of a number of small manufacturers at one end and a number of small retailers at the other. Wholesalers and other agents made up the links of the chain and were the physical connection between the two parties. It was a seller’s market rather than a buyer’s market. Industrialization changed these conditions considerably. At the beginning of the 20th century, lower manufacturing costs resulting from assembly line production led to growth in manufacturing companies and stores, along with a concentration of businesses in certain industries. Competition intensied, both locally and on an international scale. At the same time, the cost of making a product was no longer considered the main determinant of its price. Producers quickly understood that consumers, with their increased buying power, wanted products that satised not only their needs, but also their tastes and wants, and as a result were no longer motivated solely by the low price of a good. It was around 1910 that the term marketing came into general use to signify something other than distribution or trade (Bartels, 1976). en, with the rst market studies in 1920 came the use of advertising to win customer loyalty and house brands. e spectacular growth of the economy after World War II ushered in the creation of suburbs and shopping centres. In the 1950s, there was a shift from product orientation and sales orientation toward a marketing orientation. ese were the rst steps toward modern marketing. Rather than consisting of the application of a set of rules and principles, marketing then became the management of a function, with marketing management being considered a process of analysis, planning and action. To get to know their customers better, marketing specialists drew on the social sciences, including psychology and sociology. ey were increasingly interested in buyers’ individual and collective behaviours. is complex eld of study led, in the 1960s, to the processing of massive amounts of data and the use of recent advances in quantitative methods and information technology. Marketing was originally

26

Chapter 1

developed from applications of economic theory, yet it was subsequently enriched by contributions from other sciences, which it appropriated to form its own eld of study. In the 1970s, marketing went from being fairly general and standardized to being specialized. e science reached a stage where specialists studied its application in specic sectors of the economy: small and medium-sized enterprises, hospitals, services, non-prot organizations, arts and culture, and the industrial sector. e concept of marketing thus found new applications in marketing people, ideas, political entities, social causes and institutions. is led to the development of international marketing. e 1990s were characterized by the explosion in Internet communications and the beginning of e-commerce. Today, e-commerce is vigorous and protable in the consumer and Business-to-Business markets. Lastly, society has become more demanding of businesses. It wants businesses to operate ethically and monitor their activities in a way that minimizes environmental impacts. All in all, citizens want businesses to do well, of course, but they also want businesses to be concerned about maintaining or improving the general welfare of society (see Example 1.3 ). In some cases, this can go as far as demarketing. For instance, since 2004, the government corporation Hydro-Québec has been trying to encourage consumers to reduce their use of electricity, publishing advertisements centred on being Energy Wise, with premiums for households that buy energy-ecient appliances. Similarly, when Mountain Equipment Co-op builds new stores, it is careful to follow the four Rs of construction: • Reduce: Avoid using unnecessary materials. • Reuse: Integrate existing materials. • Recycle: Use existing materials in a dierent way. • Rethink: Find new, more eco-friendly building solutions. Québec manufacturers are becoming more eco-responsible.

ese guiding principles have also been used in the renovation of HEC Montréal’s Decelles building.

1.6.2 The effect of globalized competition e globalization of competition has opened the world to consumers. It has led to the exporting of certain Canadian products and the importing of products from foreign countries. ese products represent additional competition for Canadian products. Because the potential market in Québec and Canada is already limited by a relatively small number of consumers, many businesses have to look abroad to increase their sales or the lifespan of their products.

Marketing Approach

Example

1.3

27

Sweden: eco-responsibility pays off

The Québec government is drafting legislation that will make many manufacturers responsible for their products until the end of the product’s useful life. In Sweden, this has been the norm for the past 15 years, and the economy is doing very well, as Commerce magazine notes. Sony Ericsson will soon launch the rst biodegradable cell phone, the GreenHeart. Ericsson telephones, Electrolux washing machines and Volvo engines are the manufacturers’ responsibility from the moment they are made until they are destroyed, which explains why Swedish businesses are world leaders in the creation

of eco-responsible products. In environmental terms, Québec could learn a lot from the Swedish model of social responsibility. The Swedish economy has not stalled since the conservative government made producers accountable. On the contrary, Sweden’s growth (5.5%) is almost twice the average of the European Union, and has been for more than 10 years. Not only has the shift to eco-responsibility not harmed the economy, it has gained a broad base of support. The heavyweights of the business world— notably IKEA, Electrolux, Ericsson and Volvo—are strong advocates of the regulations the government put in place.

Source: Adapted from Rochon, F. (2008). Suède : écoresponsable et prospère. Les Affaires. Consulted at www.lesaffaires.com/secteurs-d-activite/aeronautique-etaerospatiale/suetegravede--eteacutecoresponsable-et-prospetegravere/485528

When the concept of a market is expanded to take in the whole world, the concept of competition is inevitably expanded as well. Today’s businesses face competition that is much more formidable than that arising from their local or national counterparts exclusively.

1.6.3 The consequences of technical advancement All industries are subject to the inuence of technology to some degree. In sectors like the audiovisual sector, there is constant pressure due to the steady inux of innovations on the market. Ever since people have been able to download movies and music, conventional broadcasters have had to ght and innovate in order to survive this competition. However, some sectors are less aected by technological development. Craftspeople, for instance, often use very old methods that a new technology could not replace without completely changing the product. Technological changes aect all business sectors, including communications, and, in the case of online retail, distribution. e iPod, iPad and iPhone are examples of technical advancements that have combined several functions in a single device: television, Internet, email, etc.

28

Chapter 1

Summary Marketing is a set of activities that aim to bring businesses closer to customers so that they can better meet their needs. Several orientations have shaped the development of the discipline: the production orientation, which centres on greater demand than supply, the product orientation, in which product development is a primary concern of businesses, and the sales orientation, which mainly focuses on facilitating transactions. Modern marketing has developed a customer orientation that emphasizes customer value along with real and perceived benets. The marketing function strives to determine the products that customers want, and tries to sell these products to them, yet it is also important to distinguish between wants and needs. A need corresponds to a lack, whereas a want corresponds to a way to ll this need. A want will transform into demand if there is a corresponding supply on the market. The result is an exchange that concludes with a transaction. The satisfaction that customers feel when they nd value added in a high quality product will build their loyalty to the

business that provided this product. The integrated marketing model states that marketing is central to the relationship between the organization and the market. The model demonstrates the importance of marketing research both upstream and downstream of the organization’s activities. It also conrms that careful analysis can help businesses optimize their marketing mix, consisting of product, price, place and promotion. The marketing management process includes four main elements: analysis, planning, implementation and control. The marketing strategy is central to the activities of the manager and inuences all marketing tactics. Marketing has evolved considerably over the years, from its origins in economic theory. It is also rooted in psychology, sociology and quantitative methods. Modern marketing is made up of a body of knowledge that distinguishes it from other disciplines. The future of marketing hinges on globalization and technology that affect consumers’ buying habits.

Suggested readings Textbooks Bonoma, T. V. & Kosnik, T. J. (July 13, 1989). What is marketing? Harvard Business Review.

Kotler, P. T., Armstrong, G., Trifts, V. & Cunningham, P. H. (2013). Principles of marketing. Toronto, Ontario : Pearson. Levitt, T. (July 1, 2004). Marketing myopia. Harvard Business Review.

Websites American Marketing Association (AMA): www.ama.org

Marketing Process

Chapter

2

Marketing Process Chapter outline 2.1

How marketing contributes to a company’s mission

2.2

Business strategies

2.3

Marketing planning

2.4

Control

2.5

Organizational structure

2.6

Ethics in marketing

Learning objectives After reading this chapter, you will be able to: explain how marketing contributes to a company’s mission; describe the strategic marketing process; distinguish various marketing strategies; dene the contents of a marketing plan; recognize the importance of marketing control within a company; grasp the role and importance of ethics in marketing.

29

30

Chapter 2

Throughout this book,

all of the elements that we look at are integrated in a process that leads to the attainment of a company’s objectives, known as the “planning and control cycle.” Planning and control are closely related and complementary. For the control cycle to take place, companies must have set measurable objectives. Managers can evaluate the eectiveness of their activities by comparing the results obtained with these objectives. Planning therefore consists of dening the end point, while control helps guide the process and indicate the extent to which objectives have been achieved. Control also helps managers plan by indicating the kinds of eorts that will be required to attain desired results. In this chapter we focus on the various components of the planning and control cycle in marketing. First we dene how marketing contributes to a company’s overall eort. We will also see that marketing plans are based on companies’ overall strategies and objectives. e marketing strategies dened should contribute to the success of these business strategies. In addition, we will study the marketing planning process, which is built around a marketing plan. en we present the main components of the control function of marketing activities. In addition, we describe various types of organizational structures related to company size, product mix and market scope. In conclusion, we present a few concepts in the ethics domain that all marketing managers should consider.

Flow chart

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31

2.1 How marketing contributes to a company’s mission To fulll its mission, a company distributes tasks and powers among various functions or organizational units, each of which makes a distinct contribution to the company’s overall mission. e marketing function thus contributes in a particular way to attaining the company’s growth, sales, protability and general eectiveness objectives. e responsibilities of this unit dier from those given to the nance function or the production and operations management function, even if all these functions share the same overall objectives. e principle of synergy must also apply to each business function: the combined eect of the eorts made by the different units of an organization should produce a greater eect than the sum of each individual eort. e marketing function must be linked to the company’s mission before the concepts of marketing planning and control are even considered. e company mission generates a series of general and specic objectives that form the basis of general and specic strategies, including marketing objectives and strategies. In all management planning, a hierarchy of objectives corresponding to a hierarchy of strategies must be dened (see Figure 2.1 on the following page). Marketing must dene its particular objectives based on the company’s overall objectives. e overall marketing objective will then translate into a series of specic objectives connected with each of the marketing mix variables—price, product, place and promotion—and with their associated activities. Similarly, based on its own objectives, the company will determine the strategies that the marketing strategy will support. In turn, the marketing strategy will be supported by the strategies for the marketing mix variables. Naturally, the company’s overall planning will include the plans for each of its units. Marketing planning should therefore be considered within the context of the company’s overall plan. Further, each of the elements of the marketing mix must create a synergy eect if the business is to succeed. e objectives of a business, and those of each of its functions, may have a short-, medium- or long-term horizon. Each company denes what these horizons imply. For example, a short term may equal six months for one company and one year for another, and a long term may be two years in a fast-evolving technology sector and ve years in a sector where radical change occurs over a longer time span.

32

Chapter 2

Figure 2.1 Hierarchy of business objectives and strategies

2.2 Business strategies A strategy is dierent from a tactic because it follows an overall vision of the means used to achieve a nal objective (for example, gaining a certain market share by setting the lowest price possible), whereas a tactic is a temporary adjustment of an element of the strategy at a given time (for example, inserting rebate coupons in a magazine). Without changing their initial business strategy, managers can use several tactics to achieve the intended results of the strategy. As mentioned, a company will have a hierarchy of strategies, ranging from an overall strategy to a marketing strategy, strategies for marketing mix variables and so on. e company’s overall strategy and marketing strategy may overlap considerably and be dicult to tell apart. In fact, the company’s strategy is often based on the marketing mix variables. In addition, business strategy is sometimes confused with marketing strategy. A marketing strategy is often dened according to one variable of the marketing mix. is is logical because to survive, a business must sell: without customers there can be no business. In this section, we will examine the types of business strategies that inuence marketing strategies. Chapter 3 covers marketing strategy and its four components: segmentation, targeting, positioning and dierentiation.

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2.2.1 Types of business strategies Companies must develop an approach that takes into account the balance of power between themselves and other businesses in the same sector. is power relationship stems from a company’s size compared to that of its rivals and its relative competitive advantage. is type of advantage may be linked to the company’s characteristics (cost advantage, for example), the characteristics customers perceive as being unique to its product, or any other element that gives the rm an advantage over its competitors. is power relationship will determine a company’s competitive and development strategies. Without changing their initial strategy, managers can draw on dierent tactics to achieve the intended results of the strategy. Below we present two types of business strategies: competitive strategies and development strategies.

Competitive strategies ere are four main types of competitive strategies: leader, challenger, follower and specialist (or nicher). Leader strategies A leader is often a point of reference that rival companies strive to attack, imitate or avoid. erefore, the leader is the one that sets the pace of the market; it is watched constantly by all competing companies. e market leader’s freedom to choose its strategies is commensurate with the strength of its competitive position and market dominance (company size, market share, cost advantage, etc.).

Leader A company that occupies a dominant position in a given market and that is recognized as a leader by its competitors.

Challenger strategies A challenger openly uses oensive strateChallenger gies intended to make it the market leader. On one hand, it can try A company that is considered the main rival to confront the leader directly by using the leader’s own methods of the leader; it seeks a dominant position. without attempting to take advantage of its weaknesses. For example, it may lead a sustained, aggressive advertising campaign, develop an improved product or oer very competitive pricing. A challenger must often deploy much more eort than the leader to reach its objectives. On the other hand, it could attempt to gain rst place by taking advantage of the dominating company’s weaknesses. For instance, a challenger may try to inltrate the leader’s poorly developed network by oering the same product at a more attractive price, delivering better service, penetrating a region or a segment that is only partially covered by the leader or using aggressive communication to increase its market share. Obviously, before embarking on this type of venture, it must try to predict and assess the leader’s potential reactions. Reebok is a good example of a challenger in sports brands (see Example 2.1, on the following page). Follower strategies Rather than trying to take rst place, a Follower follower develops strategies aimed primarily at retaining its marA competitor with a small market share that ket share instead of attempting to increase it considerably. ese adapts its actions to its competitors. strategies are used mainly in oligopolistic markets comprising few companies, none of which would benet from upsetting the established order.

34

Example

2.1

Chapter 2

Reebok becomes a challenger

In 1994, Reebok was the world leader in sports brands. Fiercely rivalled by Nike and Adidas, the brand sustained a global decline in 2002; its name had simply aged along with its customers. In late 2005, Reebok was acquired by Adidas, which aimed to capture market share in North America and thus reduce the gap with its main American competitor, Nike. The union was certainly no game-changer. According to the Wall Street Journal, Nike’s market share on sales of

basketball shoes soared from 35% in 2005 to 60% in 2014, while Adidas’s share dipped from 10% to 6% during the same period. By comparison, the market share of the Reebok brand plummeted from 8% to 1.8% in less than 10 years (Farrell, 2014). To orchestrate a turnaround, Reebok launched the Be More Human campaign in 2015, which focuses on the tness market. With its commitment to developing cross t and strategic partnerships with events like the Spartan race, the future of the brand looks promising.

Source: Gianatsio, D. (2015). Reebok is quietly emerging as a challenger brand to contend with–Athletic company is leveraging “ tough tness” movement to boost sales. Adweek. Consulted at www.adweek.com/news/advertising-branding/reebok-quietly-emerging-challenger-brand-contend-163074

is type of strategy should not be confused with a lax or laissez-faire approach. A follower takes its competitors’ actions into account and adjusts accordingly. ese active strategies are thus based on market realities and depend on the actions of each company operating in the market. For example, Cirque du Soleil has spawned several imitators, which now try to stand out from the leader by introducing dierent products. Similarly, as soon as a pop group is successful, various imitators appear on the music scene. In the consumer goods market, several rms have successfully imitated Montblanc pens, thus oering consumers the illusion of writing with a prestige symbol. Market specialist A company that focuses on a distinctive market segment.

Specialist (or nicher) strategies A market specialist focuses on a relatively distinctive market segment. erefore its strategies are developed to seek a niche that distinguishes the company from its competitors and then focus exclusively on that niche.

is specialization may result from the originality of the company’s product, the use of a single technique, an eective production capacity allowing a relatively low cost price or any other distinct advantage. is strategy is well suited to small businesses that need to compete with well-established giants. However, big companies can also successfully apply niche strategies, by developing very specialized products for a specic segment, for example. Often, the segment is too small to be protable because of the organization’s xed costs. It must therefore give over this niche to smaller specialists that have a lower cost structure.

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35

Take, for example, the Québec company Scéno Plus in the entertainment venue construction market, which has denitely acquired expertise and has become one of the world leaders in this sector. is company notably designed all the performance halls for Cirque du Soleil, and Céline Dion’s shows in Las Vegas (see Example 2.2).

Development strategies As they follow their development objectives, most companies want their sales, profits, market share or size to grow. To achieve Bellagio Theatre: One of the achievements of Scéno Plus, it demonstrates these objectives, managers may use dierent The this market nicher’s expertise. development strategies based on the product-market concept. Anso (1957) proposed four types of Development strategy strategies for this purpose: market penetration, market development, product development and diversication (see Table 2.1, A strategy that consists of increasing sales, prot, market share or the size of the business. on the following page).

Example

2.2

Niche strategy: the case of Scéno Plus

Founded in 1985, Scéno Plus specializes in design and construction solutions for entertainment venues. Architects, technicians, theatre designers, graphic designers, technology and specialized audiovisual equipment designers, and project managers all share their expertise and passion within a team that sees the most ambitious projects as a call to creative action.

Scéno Plus and the province of Québec. In 1994, Scéno Plus made its breakthrough on the international scene with the design of the rst permanent Cirque du Soleil theatre in Las Vegas, the Treasure Island Showroom, which won the Las Vegas Showroom of the Year award in its very rst year, along with other awards like Best Major Concert Venue, in 2010.

Scéno Plus has designed and built numerous enter­ tainment venues in Québec, in both Montréal and surrounding areas. Past achievements—including the Théâtre d’Aujourd’hui, the Théâtre du Rideau Vert, Usine C, the Cabaret­Théâtre du Casino Lac­Leamy, the Théâtre Hector­Charland, the Amphithéâtre de la Cité de l’Énergie and the Centre de Conservation de la Biodiversité Boréale—clearly show the special relationship between

Scéno Plus’s international odyssey continued in the United States with further monumental achievements in Las Vegas, Chicago, Orlando and Biloxi, as well as in Europe and the Middle East. Among these projects, special mention goes to the Bellagio Theatre for the “O” water show, and The Colosseum at Caesars Palace, which hosted Céline Dion’s mega­production “A New Day” for ve years.

Source: www.scenoplus.com/en

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Table 2.1 Ansoff’s matrix Existing market

New market

Existing product

Market penetration

Market development

New product

Product development

Diversication

Source: Adapted from Ansoff, I. (1957, September–October). Strategies for diversication. Harvard Business Review.

Market penetration With market penetration, a company seeks to increase the sales of its existing products in existing markets by using dierent methods. It can, for instance, set up a more dynamic distribution network, launch a new communication campaign or establish attractive pricing. It is important to note that the company remains in the same market niche and keeps its product intact. Market development rough market development, a company seeks to increase its sales by introducing existing products on new markets. While maintaining its sales eorts in the market segments that it already covers, it broadens its customer base by proposing the same product to new groups. Product development With a product development strategy, a business seeks to increase sales by using its existing markets to launch entirely new products, or “new” products developed by modifying existing ones. e sale of artists’ memorabilia exemplies this strategy. e product development strategy also explains why Walmart now carries groceries, and why Provigo (Loblaws) branched out into lingerie. Diversication Finally, a business that adopts a diversication strategy aims to increase its sales by developing new products for new markets. is strategy is riskier than the three preceding ones because it combines two new and completely unknown parameters: products and markets. Lego has used this strategy to fuel its rebound (see Example 2.3). Table 2.2 presents a few examples of actions that can be taken for each of the strategies discussed above.

Lego adopted a diversication strategy to boost its revenue.

In the Anso matrix, dierent possible scenarios can be classied according to the degree of risk associated with a strategic choice. e newer the product or market, the higher the business risk. e diversication strategy is therefore the riskiest because it requires a company to develop new products for markets it does not know; the penetration strategy is the least risky because it allows a business to remain on familiar territory; the two other strategies represent situations between the two extremes.

Marketing Process

Example

2.3

37

Lego’s adventure in movie land

Brand Finance ranked the Danish construction toy manufacturer as the strongest global brand in 2014; it handily dethroned both Mattel, renowned for its Barbie dolls, and Ferrari. To compile the list, the rm examined companies’ marketing investment and brand equity (namely the goodwill that the brand generated in consumers, employees, and shareholders), along with the impact of these factors on the company’s results. Lego owes its success to being the sole toy producer that turned to innovation to fuel its growth. Fifteen years ago, the brand seemed doomed to a slow decline,

but it solidied its strong position by changing strategy and diversifying. The plastic brick manufacturer ventured into video games, purchasing licences for franchises like Star Wars and Harry Potter, and notably harnessed innovative communication vehicles like The Great Lego Movie Adventure. Released in 2014, this computer-animated lm, which made $450 million worldwide, had a direct inuence on both sales and the brand image. The Brand Finance report says that this movie “has helped propel Lego from a well-loved, strong brand to the world’s most powerful.”

Source: Lego est la marque la plus puissante du monde (2015). 20 minutes. Consulted at www.20minutes.fr/monde/1543867-20150218-lego-marque-pluspuissante-monde

Table 2.2

Examples of actions for Ansoff’s four types of strategies

Strategy 1. Market penetration (increase the rate of use of existing products on existing markets)

Actions • Increase customers’ current rate of use – Increase the number of units purchased at a time – Accelerate the product obsolescence rate – Advertise for other uses – Grant monetary premiums for increased use • Attract competitors’ customers – Better dene brand differentiation – Enhance communication efforts • Attract current non-users – Promote testing by distributing samples, monetary incentives, etc. – Push prices up or down – Advertise new uses

2. Market development (sell existing products on new markets)

• Open new geographic markets – Initiate regional expansion – Undertake national expansion – Plan international expansion • Attract other market segments – Develop attractive product versions for other sectors – Penetrate other distribution channels – Advertise in other media

38

Table 2.2

Chapter 2

Examples of actions for Ansoff’s four types of strategies (Continued)

Strategy

Actions

3. Product development (develop new products for existing markets)

• Develop new product features – Adapt (to other ideas or other renements) – Modify (colour, movement, sound, smell, shape or outline) – Magnify (stronger, longer, thicker or superior value) – Miniaturize (smaller, shorter or lighter) – Substitute (other ingredients, procedures or power) – Modify the arrangement (other designs, displays, sequences or components) – Return (inverse) – Combine (mixture, blending, assortment or series; combine units, objects, attractive features or ideas) – Develop nuances in quality – Design new models and new sizes (product proliferation)

4. Diversication (develop new products for new markets)

• Develop any new product intended for a new market

Source : Adapted from Kotler, P. and Dubois, B. (1973). Marketing management: Analyse, planication et contrôle (2nd ed.). Paris, France: Publi-Union, p. 287.

is analytical tool may be applied in various market contexts. For instance, players in a given region may use the matrix to compare dierent strategic choices available to them when developing a tourist customer base, as shown in Example 2.4.

Example

2.4

A company’s campaign to augment its tourist clientele

Table 1 illustrates the hypothetical situation of a region that wants to mount a coordinated offensive to heighten

tourists’ interest; possible choices are presented based on the risk of the operation.

Table 1 Using the Ansoff matrix to increase tourism in a region Existing market Existing product

New product

New market

1

2

Penetration

Market development

Intensive promotion

Promotion abroad or packages

3

4

Product development

Diversication

Opening of a nature interpretation centre

Setting up a summer theatre or organizing a festival

Marketing Process

A strategy involving the least risk would be to seek to extend a tourist’s stay and increase related spending through coordinated promotion of the existing activities in the region (quadrant 1). This objective can be achieved by modifying the four marketing mix variables (people, price, place and promotion) by organizing, for instance, a communications campaign aimed at existing customers, showcasing all the various cultural products, or by offering reductions to tourists who combine several activities. An attempt can also be made to attract customers who are not covered by the current strategy, for example by conducting a communications campaign abroad and offering packages to specic consumer

39

categories (older people, couples with young children, etc.) that are not found in the existing customer segment (quadrant 2). A third strategy (quadrant 3) aimed at extending stays and increasing tourist spending is to offer a new activity (new product) to existing customers. For instance, an area that already attracts hunting and shing enthusiasts could plan to open a nature interpretation centre that would reach some of the same customers. Lastly, a new offer likely to be of interest to another market segment could be developed, such as setting up a summer theatre or organizing a festival (quadrant 4).

2.2.2 Analysis of strategic market positioning Companies select a set of marketing strategies by assessing the strategic position of the products they oer. is strategic position can be dened using the matrix developed by the Boston Consulting Group (BCG) (Lambin, 1998). e BCG matrix takes into account the position of a company or of one of its products based on its market share relative to the market leader and the market growth rate. us, holding a 20% market share while the leader holds 60% (ratio of 1:3) is not the same as holding the same 20% market share as the main competitor (ratio of 1:1). In the rst case, the leader calls the shots, while in the second case rms of equal size compete for consumers. Similarly, these market shares have a dierent strategic meaning in a booming market, where a rm can increase its sales by attracting new customers, while in a slow-growing or stagnating market, market shares are ercely contested. is type of market analysis produces a BCG matrix with four quadrants dening the four situations that a company can experience: high relative market share in a fastgrowing market, low relative market share in a fast-growing market, high relative market share in a slow-growing market, and low relative market share in a slow-growing market (see Table 2.3). Note that other models have been proposed since the BCG matrix; all of these models help companies analyze their market and make strategic decisions.

Table 2.3 The BCG matrix High relative market share

Low relative market share

High market growth

Stars

Problem children

Low market growth

Cash cows

Dogs

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Stars Stars are products for which a company has a high relative market share in a growing market. e company needs considerable liquidity to nance its growth.

Problem children With products classied as “problem children,” companies must remove the ones whose competitive position regarding relative market share is not expected to improve. ese are the products that drain capital just to maintain their position, without any potential for a turnaround. As for the other products, companies must devote the necessary nancial resources to improve their competitive position.

Cash cows In a slow-growing market, companies can reap abundant benets from products with a high market share. ese benets are used to provide the necessary liquidity for nancing stars and improving the competitive position of problem children.

Dogs A company cannot use its capital to attempt to grow its market share on a market with weak growth potential. It can opt to either remove dogs or slash their marketing costs to a minimum, knowing that this decision may trigger the elimination of these products. For a company, using the BCG matrix to analyze its products facilitates strategic decision-making in order to support its stars, invest selectively in its problem children, maximize the returns of its cash cows and abandon its dogs, which are considered beyond salvaging. e matrix also helps businesses assess their nancial needs and the potential protability of their products, and balance their product portfolio. is type of analysis is particularly eective for large corporations, where the objective pursued is protability. In addition, the resulting conceptual scheme may also be useful to small businesses, in that it allows them to understand market dynamics and foresee changes, even if having only a minimal fraction of market share reduces the chances that the resulting calculation will be illuminating. However, knowing that one of the products on which a company has set its sights is a dog may help it decide to channel its valuable resources elsewhere. It is important to mention that using the BCG model can pose a problem. Based on this model alone, the products in the quadrants on the left would be kept, while those in the lower right quadrant would be dropped. ese days, most businesses rely instead on an attractiveness–competitiveness matrix that incorporates many additional factors. Growth is not the only determinant of market attractiveness. Other factors governing attractiveness include the degree of competitive rivalry in the industry, prots generated on the market, the existence of entry barriers or an ability to maintain customer loyalty. A product’s competitiveness in its market is also not the only determinant of its relative market share. A product whose cost is falling at a time when overall industry costs are increasing is certainly competitive. e same is true of a brand that has a very high customer retention rate while its competitors are struggling to hold on to their customers.

Marketing Process

41

2.3 Marketing planning During the marketing planning process (see Figure 2.2), managers answer a series of questions related to the components of the marketing model, to ensure that the marketing plan rests on a solid base: • Where are we and where are we going? (Situation analysis) • Where do we want to go? (Formulating business strategies) • What eorts should we invest in this? (Resource allocation) • How do we want to get there? (Strategy and marketing mix) • What should we do? (Implementation) • How do we know if we’re going in the right direction? (Control) After dening the objectives and marketing strategy, we will now look at the marketing planning process and the various components of this plan.

Figure 2.2 The marketing planning process

2.3.1 The marketing planning process e marketing planning process must be rigorous to ensure that crucial elements are not neglected, which could cause problems for the company and prevent it from attaining its objectives. is series of questions prompts an examination of the past, present and future. e actions a company takes today largely result from those it took in the past. Similarly, its future actions will partly depend on those taken today. is process therefore leads managers to reect on the plan that should be formulated in a context of continuity. is process can rest on a short-, medium- or long-term perspective. In fact, long-term planning is usually made up of a sequence of short-term plans.

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Planning should therefore be considered as a nonlinear reection process. Managers often question steps taken earlier as they advance in their analysis of the plan. For example, they may review previously set objectives when they think about a pricing strategy, or change some communication elements. In the case of a long-term plan, managers must review their forecasts each year and make necessary adjustments as the situation evolves.

2.3.2 The marketing plan e marketing planning process leads to the denition of a marketing plan. It may be vast and cover the entire company— An analytical framework that features three becoming an integral transposition of the company’s strategic general elements: a situation analysis, a set vision—or it may be restricted to a particular sector, and conof strategies and an action program. centrate on a market, a product line, or a particular product or brand. As an analytical framework, a marketing plan is applicable to either of these situations (see Table 2.4). It features three general elements: a situation analysis, a set of strategies and an action program. ese three elements may be broken down into seven parts:

Marketing plan

• • • • • • •

situation analysis; setting marketing objectives; resource allocation; dening the marketing strategy; deciding on the marketing mix; implementation; and control.

Situation analysis e rst part of a marketing plan requires managers to analyze the situation. ey must answer two questions: “Where are we right now?” and “Where will we go if we continue our activities without changing our objectives or our strategies?” A marketing management team must examine the company’s markets, the competition and the business environment. Markets e dierent markets that companies serve evolve due to pressure from uncontrollable variables and competitors’ actions. Managers must therefore try to determine whether the prole of consumers or organizational customers has changed, or if market segments have altered (see the section on segmentation in Chapter 3, on page 56), how demand has evolved and if the characteristics of distribution network intermediaries are still the same. Competition and the environment Because competition and environmental variables act on a business and its markets, companies should examine environmental trends (political, demographic, economic, cultural, technological and international) and recent or imminent changes in competitors’ strategies.

Marketing Process

43

Table 2.4 The marketing plan Element Situation analysis Where are we, and where are we going?

Description • Markets – Consumers or organizational customers, demand and segments • Competition and environment • Company – Mission and objectives – Strengths and weaknesses – Distinctive advantage

Setting objectives Where do we want to go?

• Marketing objectives – Sales, market share and contribution to prots

Resource allocation

• Budget

What efforts should we invest in?

• Human resources

Dening the marketing strategy

• Objectives and strategies

Whom do we want to target and how do we want to be perceived?

• Marketing strategies

Deciding on the marketing mix

• Formulating the product, pricing, distribution, communication and customer service strategies

How do we want to get there? Implementation What do we do?

– Target segments, desired positioning, differentiation and innovation

• Statement of activities (program) for each of the marketing mix variables • Dening responsibilities for each member of the marketing unit • Coordinating operations • Schedule of activities

Control

• Contingency plan

How will we know if we are going in the right direction?

• Description of the means of control • Scorecard

e company Marketing plans must adopt an overview of the company because the marketing unit must contribute to attaining the company’s objectives. To do so, marketers must examine the coherence between a company’s marketing objectives and its mission and objectives. Second, planners must produce a prole of results in relation to sales, market share, prices, costs, and customer satisfaction and retention for each product and brand, if necessary. Marketers must then examine the challenges the company faces and the best way to meet them. ese challenges may be linked to the organization itself or to its markets. It is also crucial to review the situation in terms of competitive advantages: “Do we still have competitive advantages? Do we need to dene them? If so, how?” In

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other words, the company must examine what Kotler (1999) calls SWOT (strengths, weaknesses, opportunities and threats). What business opportunities can the company seize? What threats does it face? What are its strengths and weaknesses given that the success of the marketing plan hinges on these variables?

Setting marketing objectives Setting objectives answers the question “Where do we want to go?” e marketing unit reviews its objectives, modies them if necessary, and sets target levels for sales, market share or contribution to projected prots. It is essential to dene objectives operationally in a marketing plan so that their achievement can be measured. Objectives that are vague and dicult to measure should be avoided. Of course, a decision can be made to increase overall market share, for example, but this statement is linked to a goal to be achieved rather than an objective. e objective will be represented by a given percentage of the market share for the whole marketing unit as well as each product and brand. Companies must seek to dene objectives that are quantiable, measurable and realistic. It is easy to measure the attainment of a concrete objective like increasing sales by 5% compared with the previous operating year or increasing market share by 10% for a given market segment. However, it is dicult to know when a vague objective, like increasing sales or boosting market share, has been reached. Once the objectives are known, managers can choose a marketing strategy that will help attain them, rst by deciding on the resources they want to (or can) allocate to the strategy.

Resource allocation Achieving marketing objectives requires nancial outlays and the mobilization of human and technical resources, which are usually limited. e answer to the question “What eorts do we want to invest in?” therefore determines the means that will be used to achieve the objectives, and has a direct impact on the viability of the strategies envisioned. us, the setting of objectives and strategies does not take place in a vacuum; it requires the simultaneous examination not only of objectives, strategies and marketing mix variables, but also of available resources. Depending on the company’s resources, both the strategies and the objectives may need to be modied.

Dening the marketing strategy e overall marketing strategy includes the identication of target markets or segments, the desired positioning and dierentiation, and projected innovations (see Chapter 3).

Deciding on the marketing mix Having determined the direction to take, the marketing unit can now answer the question: “How do we want to get there?” is involves making coordinated strategic decisions to obtain a synergy eect for each of the four marketing mix variables.

Marketing Process

45

Managers will also consider the strategic characteristics that the product should possess, dene the appropriate degree of customer service, set price levels for products and services, select distribution channels and determine the proportions of the components of the communication mix.

Implementation In this phase of the marketing plan, managers dene operational elements (the marketing program) that should help the company meet its objectives. is entails presenting a statement of activities for each of the marketing mix variables; dening the objectives and responsibilities of each member of the marketing unit while coordinating these activities; and establishing a schedule of activities that includes clear deadlines. e organization’s resources are thus mobilized to achieve the objectives while ensuring that this program reects the dened strategies. It is important that all members of the marketing unit be well informed of the objectives, understand their role and focus their energy appropriately. It is at this point in the implementation that the company will produce a detailed media plan and decide how social media will be used; select points of sale and the materials that will be given to representatives; and communicate with representatives and enlist their cooperation. It will also develop the logistics that will guarantee a sucient quantity of the product in each area and in each store, etc. e importance of this portion of the marketing plan to the success of the organization should not be underestimated. A good plan rests on a well thought-out strategy coupled with a meticulously prepared marketing program based on this strategy. ese two elements are inseparable. However, very few companies have successfully dened both an excellent strategy and an excellent marketing program. According to Clancy and Krieg (2000), who scrutinized the marketing plans of 82 organizations, barely 2% of large companies accomplish this feat. Although their sample was small, it underscores the importance of these two elements of the marketing plan.

Control and contingency plan Marketing plans also include a description of the controls designed to measure progress made toward achieving a company’s objectives. A contingency plan, which proposes possible solutions to deal with unforeseen events, is also included. To formulate this plan, managers must perform a forward-looking exercise and envision dierent scenarios that could prolong timeframes or make it harder to achieve objectives. Competitors’ reactions are a key component of this projection exercise. A scorecard can be produced to facilitate follow-up, guide the process and monitor the progress of marketing activities. A marketing plan is an essential tool that helps managers plan, coordinate, implement and control their activities. It is a living tool that must be reviewed periodically. We have presented a linear structure, but it is obviously necessary to adapt the

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parts of the plans to each other throughout the planning process. Also note that a good plan rests on a sound situation analysis, a coherent set of strategies and a well-dened and eectively managed marketing program. A brilliant strategy can become totally worthless if managers do not take this process seriously.

2.4 Control Control involves examining all or some of the results of a marketing action to assess its performance and make the necessary adjustments if there is a dierence between actual and forecast results. According to the marketing planning process presented in Figure 2.2, on page 41, managers can control one, several or, in what is known as a marketing audit, all of the marketing elements. In this section we will look at the steps of control and the tools that marketers can use to ensure that a company is indeed following its plan.

2.4.1 Control: a cycle A business must take measures to ensure that it is sticking to the plan that it adopted. For example, a control (or an evaluation) of a company’s marketing activities must be done continuously with specic tools. It is part of a cycle that includes planning and the necessary corrective measures. A control must be preceded by planning; planning denes control measures. e objectives of the marketing unit and those of each variable in the marketing mix translate into a series of means of action (MOA), or programs. Objectives and means of action must correspond to standards or criteria that lead to performance measures. In other words, it must be possible to ag dierences between forecasts and actual results. Analyzing the causes of the dierences observed must lead to corrective actions that will aect objectives or means of action, or both (see Figure 2.3).

2.4.2 Control tools and objects Control tools vary depending on the object to be analyzed and how it is to be examined. Reaching the marketing unit’s objectives or the objectives for each variable in the marketing mix, the eectiveness of the MOA put in place and budget compliance are all among the elements to be controlled through the use of specic tools at some point. A marketing unit’s objectives are generally expressed in terms of sales levels, market share or prots to be reached; control tools are thus related to those parameters. A check is done to see whether the desired sales level has been reached (by comparing sales records with the objective set in the marketing plan), whether the projected market share has been obtained (by calculating the ratio of level of sales and demand, based

Marketing Process

47

Figure 2.3 Control cycle

on the objective) or whether protability has lined up with the forecast (by comparing the results presented in nancial statements with the objective stated in the plan). Similarly, marketing managers check whether the objectives were reached, and assess the eectiveness of the methods used for each element in the marketing mix— product, price, place, and promotion. e sales level per product is checked at different times, as well as protability in relation to each product or territory. Product pricing and level of service quality are compared with those of the competition, and the eectiveness of communication methods is evaluated. Internal data, including performance indicators (see Chapter 6), and secondary external data from a business’s information system are essential for this exercise. Internal data help measure the time required to process or ship an order; secondary external data show changes in the size of the market, which the company can compare to changes in its sales. Control methods can also involve the use of primary data; a check can be done on whether the company’s products have achieved the desired positioning and whether the awareness created by the promotional campaign has met objectives. Satisfaction of distribution network members can also be measured. In addition, managers must establish operational control criteria to be able to compare results at dierent times while ensuring that they are using the same criteria for comparison. Non-standard criteria should be avoided because they do not permit a real comparison with the results obtained. Managers can create a special tool called a scorecard that will help them monitor the progress of marketing activities. is tool is an analytical document that brings together all dened indicators for monitoring. Introduced in 1996 by Kaplan and Norton, the balanced scorecard makes it possible to steer performance eciently, allowing managers to include all the indicators necessary when implementing a business’s strategy. It is an essential tool, and marketing managers need to devote considerable thought to deciding which indicators to include in it.

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e scorecard must reect marketing objectives and strategies. To produce it, managers must understand the relationship between cause and eect. It will also feature nancial and non-nancial measures from a number of sources, both internal and external. is instrument will be used not only to monitor activities but also as a communication method between marketing managers and senior management.

2.4.3 Marketing audits A marketing audit is a comprehensive, systematic and periodic critical examination of a company’s main marketing orientations in its environment and its implementation of them. is audit must enable the company to solve its current problems and develop its competencies in relation to the competition by improving the eectiveness and protability of its marketing activities. A marketing audit focuses on a company’s objectives, policies, organization, procedures and personnel. Audits must be done on a regular basis, not just in a crisis situation. ey must cover all of the company’s marketing activities, not just the ones that are problematic. To ensure the objectivity required by this task and be credible to top management, they must be conducted by a department outside the marketing department. Table 2.5 presents a checklist that contains all the questions that need to be asked when performing a marketing audit. e checklist can also be used to draw up a marketing plan; the questions it raises help managers consider all the important dimensions of a marketing plan.

Table 2.5

Marketing audit checklist

Element Situation analysis

Description • Market and environment – What markets has the business reached? – Who are its customers? – How were the market segments dened? – What is the current level of demand? Potential demand? – Who are the business’s competitors? How big are they? What are their strategies? – What elements of the business’s environment are likely to have an impact on its activities? How have they evolved and how are they likely to evolve in the future? • Company – What is the company’s mission? – What are its specic objectives? – What are its overall strategies? – What are its strengths and weaknesses? – Does the company have a competitive advantage? What is it? – Does the company have a long-term plan? A short-term plan?

Marketing Process

Table 2.5

49

Marketing audit checklist (Continued)

Element Analysis of the marketing plan

Description • Objectives and strategies – What are the marketing objectives? – What results have been achieved for these objectives? – What are the company’s marketing strategies? What are its target segments? – How does it want to position itself? – Are these strategies consistent with the company’s overall strategy? – What control methods has the company established to measure the extent to which its marketing objectives have been reached and the effectiveness of its strategies? • Marketing mix – What objectives have been dened for each variable in the marketing mix? – What is the product strategy? – What is the target positioning for each product? – Is the product mix consistent? – Is the customer service level adequate? – How does this product contribute to meeting the marketing objectives? – What is the pricing strategy? – What factors are considered in pricing? – How does this pricing compare with the competition’s? – How does the pricing strategy contribute to the marketing objectives? – What is the distribution strategy? – Are the networks used adequate? Effective? – Are there good relationships with circuit members?

Analysis of the marketing plan

• How does the distribution strategy contribute to the marketing objectives? • What is the communication strategy? • What role is assigned to each communication method? • Has the effectiveness of each communication method been measured? How? What was the result? • How does the communication strategy contribute to the marketing objectives? • Are the strategies for each variable in the marketing mix consistent with the overall marketing strategy?

Analysis of the marketing program

• Has a statement of activities (a program) been prepared for each marketing mix variable? • How much did each member of the marketing unit contribute to the success of the marketing plan? Were the tasks clearly divided up? • Was a schedule of operations drawn up? Was it used? • How were actions coordinated? • Was there a contingency plan for the marketing plan? Was it realistic?

Forecasts

• How are the environment and the competition likely to evolve? • How will this affect the organization? • Is the business ready to deal with the expected changes in the environment? • What attractive business opportunities are available to the business? • What are the business’s success factors? How will it acquire the new competencies it needs?

50

Table 2.5

Chapter 2

Marketing audit checklist (Continued)

Element Suggestions

Description • Should the business change its objectives and strategies? If so, which ones? • How can the business go about making these changes? • How much will they cost? • What additional information is necessary for decision-making purposes?

2.5 Organizational structure e organizational structure can take several forms based on the size of the business, product mix and how diverse its markets are. However, the structure must be consistent with the business objectives and strategies. In small businesses, the team in charge of organizing marketing activities tends to be very small. In some cases, the owners themselves may assume this responsibility, while in other cases this function may be fullled by someone else acting alone or with a small number of collaborators. Bigger businesses that market a relatively large number of products and that target several markets need a more complex organizational structure in which the business’s main functions are assigned to an executive (for example, the marketing vicepresident) who coordinates the activities of a number of directors of specialized departments. e marketing unit may be divided into permanent functions (organized by function, product, market, region or matrix) or into temporary functions (action teams, special teams, new product departments, etc.).

2.5.1 Functional structure A functional structure is especially appropriate for a business with a fairly limited or homogeneous product mix. Several directors (the research and development director, the marketing research director, the sales director, the advertising director, etc.) work under the authority of the marketing vice-president. e main advantage of this structure is that the functional director has direct authority over each unit director. e functional structure is eective as long as the business’s activities are simple. For an expanding business that is increasing its product mix and extending its activities to several markets, the functional structure may not be optimal because it does not maximize the necessary connections between its product oering, distribution network requirements and the market’s needs. Figure 2.4 presents an example of a functional structure.

2.5.2 Product or brand structure When a business is undergoing intensive growth or diversication, it is preferable to organize marketing activities by product. Characterized by the presence of product managers, this structure is particularly suitable for businesses that make and market several products that are distributed in a similar way.

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Figure 2.4 Example of a functional organizational structure

With this structure, the product manager is responsible for all the marketing activities related to a product or brand. Product managers are in charge of strategy and look after analysis, planning, coordination and control related to a product during every phase of its life cycle. However, they do not have any direct power over support services like advertising, sales teams or market research. Product managers set the marketing objectives for a product, make sales projections, prepare budgets and draw up the marketing plan for their product or brand. As for other marketing sectors, they play an advisory role for the sales force and must work together with the director to carry out advertising campaigns.

Cirque du Soleil has divided up its market by continent (North America, Europe and Asia).

2.5.3 Market or region structure When a business is targeting customers that make up separate markets in terms of their buying habits and preferences, it should ideally specialize in particular markets. e more similar the products and the more numerous and dierentiated the markets, the greater the need for market management organization.

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Market managers are responsible for developing a market; they must explore potential markets, set objectives, monitor the penetration rate of the competition, segment markets as applicable and choose the most appropriate segments. ey coordinate all marketing activities for a given set of customers in a market. Like product managers, they do not have any line authority with other marketing units (advertising, sales, etc.).

2.5.4 Matrix structure e matrix structure is a combination of the functional structure and the market or product management organization. is structure has the advantages of both the centralized and the decentralized functions. e matrix organization combines resource managers (functional managers) and product program or market program managers at the same management level. If the products are heterogeneous and the target markets are homogeneous, the structure will include both product managers and functional managers. If the products are homogeneous and the markets are heterogeneous, the structure should comprise both market managers and functional managers. Product managers or market managers are fully responsible for their product or market and use functional services (resources) to make their programs work. ese managers coordinate resources eciently, while managers of specialized departments (for example, sales and advertising) oer product or market managers their means of action. As a result, sales supervisors have to report not only to the sales director, but also to the product or market managers. Clearly, working under two superiors can sometimes be a source of conict.

2.6 Ethics in marketing Consumers are increasingly aware of business ethics. at is why it is in a company’s interest to comply with a code of ethics known to every member of the organization. A number of nancial scandals and consumer complaints about practices considered fraudulent or unethical has led the American Marketing Association (AMA) to develop comprehensive Codes of Conduct (2016) for its members. ey include a statement of ethics, a sexual or personal harassment policy, and a conict of interest policy. Rules of conduct in marketing also aect each of the variables of the commercial mix. Here are some examples of statements from the AMA code: a product must be safe; the price must be fair (for instance, there must be no collusion to x prices); distributors, producers and retailers must not abuse their power by imposing overly restrictive conditions on the rest of the network; advertising must not use fraudulent or inaccurate arguments; and customer service quality must always be consistent, no matter who the customer is.

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Advertisers have also adopted a code of ethics, administered by Advertising Standards Canada (ASC, 2016). e Canadian code of advertising sets the criteria for acceptable advertising in Canada. ese criteria form the basis of a review of consumer and interest group complaints, along with intra-industry complaints that advertisers formulate against their competitors. e code is broadly supported by advertisers, advertising agencies, the media that disseminate advertising, and other actors in the advertising creation process.

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Summary Marketing planning and control are two complementary parts of the same process. For control to be applied, there must rst have been some planning to dene clear and precise operating objectives and policies that managers will use to assess the effectiveness of their marketing activities.

marketing plan. It involves answering a series of questions: Where are we now, and where are we going? Where do we want to go? What can we do? What means are available to us? How do we proceed? How do we know if we’re going in the right direction?

For successful planning, businesses can use two kinds of strategies: competitive strategies and development strategies. Competitive strategies involve creating an approach that takes into account the balance of power between businesses operating in the same sector. These strategies, which are based on the respective position of each business, are called the leader, challenger, follower and specialist strategies.

A marketing plan has seven main components: situation analysis; setting marketing objectives; resource allocation (which includes establishing a budget); identifying the marketing strategy; deciding on the marketing mix; implementation; describing control methods and formulating a contingency plan.

Development strategies, which are classied with the Ansoff matrix, help to dene parameters for new and existing products and markets. The business may decide to focus on its existing market with its existing product, launch an existing product on a new market, launch a new product on its existing market or launch a new product on a new market. Before choosing a marketing strategy, managers may want to dene their strategic position on the market. The BCG model can help them position the company’s products based on market growth and the relative market share of each competitor. Marketing planning is based on two elements: the formulation of a marketing strategy and the development of a

Control involves monitoring and evaluating the extent to which objectives have been reached based on qualitative and quantitative standards. It must be seen as a cycle. Beyond sales and market share results, managers will want to evaluate the results for each variable in the marketing mix. They may also want to systematically control all their marketing activities, which entails performing a marketing audit. Planning and control take place within an organizational structure in which four models can be dened: functional, product or brand, market or region, and matrix. Lastly, marketing and advertising specialists have adopted a code of ethics, which they invite managers to read and follow to ensure that they are serving their customers fairly.

Suggested readings Textbooks Cohen, W. A. (2006). The marketing plan (6th ed.). Hoboken, NJ: J. Wiley & Sons. Colbert, F. (2014). Le marketing des arts et de la culture (4th ed.). Montréal, Québec: Chenelière Éducation.

Filiatrault, P. (2010). Comment faire un plan marketing stratégique (3rd ed.). Montréal, Québec: Éditions Transcontinental/Charlesbourg, Éditions de la fondation de l’entrepreneurship.

Websites American Marketing Association (AMA): www.ama.org Advertising Standards Canada: http:// www.adstandards.com/en/

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3

Marketing Strategy Chapter outline 3.1

Segmentation

3.2

Targeting

3.3

Positioning

3.4

Differentiation

Learning objectives After reading this chapter, you will be able to: understand marketing strategy and its components; distinguish the various categories of segmentation variables; know the factors related to targeting decisions and the four types of targeting; understand how positioning and differentiation decisions are made; grasp the importance of the statement of positioning and of using it effectively.

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Marketing strategy

is a constant concern for marketing managers. e American Marketing Association (AMA, 2016) denes a marketing strategy as: “A statement (implicit or explicit) of how a brand or product line will achieve its objectives. e strategy provides decisions and direction regarding variables such as the segmentation of the market, identication of the target market, positioning, marketing mix elements, and expenditures. A marketing strategy is usually an integral part of a business strategy that provides broad direction to all functions.” is denition incorporates the four components of marketing strategy: segmentation, targeting, positioning and dierentiation. Using these components correctly is critical to the success of a marketing strategy. Further, a good understanding of their nature facilitates marketing analysis and strategic thinking. In this chapter, we present each of these components along with the main steps that underlie marketing strategy activities. In practice, when considering a company’s marketing strategy, it is often dicult to separate the elements of segmentation, targeting, positioning and dierentiation because these four components are so closely intertwined. It is, however, useful to distinguish the concepts from one another to stimulate strategic thinking and to make sure that none of them has been overlooked when developing the marketing strategy and the marketing plan.

Flow chart

3.1 Segmentation For a group of customers to constitute a segment, the aspects selected to form this group must be related to the buying behaviour, needs and expectations of these customers in the market in question. ese aspects must aect their demand for the products or services sold on the target market as well as their responses to marketing stimuli.

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A group of consumers who are similar because of various aspects that distinguish them from other groups does not necessarily constitute a segment. For instance, grouping together consumers of the magazine market based on the colour of their eyes and their month of birth is not segmentation, even if the members of each group are similar in that they share these aspects and dier from those of other groups on the basis of these same aspects. ese characteristics have nothing to do with the buying behaviour, needs and expectations related to magazines, or with consumer responses to marketing mix elements. To segment the magazine The application and integration of the key concepts, as well as a market, consumers should be aggregated on the basis of good understanding of their nature, are crucial to the success of age, gender, education, language, personal interest in var- a marketing strategy. ious types of news, and lifestyle because these variables aect their expectations, tastes, the types of magazines they buy and Segmentation their reactions to marketing mix elements of magazine publishers. A marketing strategy that consists of

3.1.1 Segmentation on consumer markets

dividing the market into submarkets, that is, homogeneous groups of consumers, users or customers who have similar needs and behave in the same way; however, each group is different from the others.

To select the right segmentation variables, marketers must study and try to understand the customers in a market and, hence, the variables aecting the nature and level of their demand. e number and types of segments within the same market vary depending on the company. Companies do not necessarily segment the same market in the same way.

Eight categories of variables, which can be considered as descriptive (who, what, how and when) or related to the benets sought (why), make it possible to dene consumer market segments. ey are described in Table 3.1 on the following page.

Sociodemographic variables Sociodemographic variables include consumers’ demographic, economic and social characteristics that aect their demand for products and services in a number of markets: income, age, education, net worth, gender, ethnic origin, religion, language, occupation, marital status and family structure. Marital status and family structure are an important variable of consumers’ needs and choices. A young single female with a low income, living in her rst apartment downtown, will have a dierent consumption pattern with regard to her furniture from that of a recently widowed retiree with much greater income. Life-cycle stages of an individual are described in Box 3.1 on the following page. e nancial services market provides another example of sociodemographic segmentation. Customer needs and demand in this market are strongly inuenced by three sociodemographic variables: age, income and net worth. It is thus relevant to segment the nancial services market in terms of these three variables. Young people starting their careers have very dierent nancial needs from those of retirees with substantial assets.

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Table 3.1

Categories of consumer market segmentation variables

Category of variables

Description

Sociodemographic

Income, age, education, net worth, gender, ethnic origin, religion, language, occupation, marital status and family structure

Descriptive

Geographic

Region of the world, country, neighbourhood, postal code, climate and type of physical environment

Descriptive

Psychographic

Consumer mindsets, values, opinions, interest in various activities and attitudes toward life

Descriptive

Lifestyles

A combination of the three preceding categories

Descriptive

Behavioural

Needs, expectations, situations and usage

Benets sought

Volume and protability

Sales volume and prot amount

Descriptive or benets sought

Market

Consumers and variables specic to a market

Descriptive or benets sought

Combination of variables A combination of two or more of the preceding seven categories

Box 3.1 • • • • •

Type of variables

Descriptive or benets sought

Life-cycle stages

Single (young, living alone, not with parents) Newly married couple (young, no children) Full nest I (youngest child under age six) Full nest II (youngest child age six or older) Full nest III (older married couple with children at home)

• Empty nest I (older married couple still working, whose children have left home) • Empty nest II (older married couple, retired, with no children at home) • Solitary survivor (in labour force) • Solitary survivor (retired)

Source: Adapted from Wilkes, R. E. (1995). Household life-cycle stages, transitions, and product expenditures. Journal of Consumer Research, 22, pp. 27–42.

In the Montréal radio station market, listeners’ tastes and preferences are strongly inuenced rst by age and language, and second by education and gender. All radio stations segment their markets on the basis of these sociodemographic variables (Schmouker, 2001). Demographic factors are interesting to use as segmentation variables because they are relatively easy to dene and measure.

Geographic variables Geographic variables include characteristics related to consumers’ geographic location: the region of the world, country, neighbourhood, postal code, climate and type of physical environment (large city, mid-size city, small town or village, rural community, etc.).

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For example, in the tourism market, companies often use customers’ place of origin as a geographic variable to segment their markets because it is related to customers’ expectations about their vacation experience (that is, concerning two marketing mix components—the product and people [customer service]), how easily they can be reached (by the marketing mix components, particularly promotion and place) and distance, which aects the amount that customers will need to pay to travel to their vacation destination (price component). In the tire market, consumer demand for winter tires varies according to the region and climate. In the home heating energy market, the region in which consumers live may be a segmentation variable because this factor aects demand and the types of energy sources that they will likely choose. Given that people with similar sociodemographic characteristics tend to live in the same neighbourhoods, many businesses, especially in the retail sector, use neighbourhoods, and particularly postal codes, as segmentation variables. is type of segmentation is so widespread that it is now referred to as geomarketing.

Psychographic variables and lifestyles Psychographic variables concern consumer mindsets, values, opinions, interest in various activities and attitudes toward life. e book Le code Québec (Duhamel, Léger, & Nantel, 2016) identies seven dierences between Québecers and other North Americans. It explains and analyzes Québecers’ values, mindsets and attitudes toward life. is book helps marketers better understand and target Québec consumers. When marketing specialists use psychographic variables for segmentation, they typically combine them with geographic and sociodemographic variables; we can then speak of lifestyles. For example, according to the American typology of lifestyles used by the Values and Lifestyles (VALS) method, consumers are divided into eight segments and are dierentiated according to aspects based on variables such as risk-taking ability and innovation, and on sociodemographic variables such as access to resources, to determine the various types of lifestyles. VALS identies Actualizers (8% of the U.S. population), Fullleds (11%), Believers (16%), Achievers (12%), Strivers (13%), Strugglers (14%), Makers (l3%) and Experiencers (13%) (Harrell and Frazier, 1999). Lifestyle typologies classify consumers into a number of universal categories based on their psychographic, demographic and geographic characteristics. Each category bears a catchy name, and each lifestyle is described so as to stoke marketing managers’ imaginations (see Example 3.1 on the following page). Even though they are potentially useful in many consumer markets, they are still general categories and cannot be successfully applied in their entirety to all consumer markets.

Behavioural variables e fth category of segmentation variables directly concerns customer needs, expectations and behaviour. What do customers want? What are their needs, expectations

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Example

3.1

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How to dene a distinctive lifestyle

Gastrosexual:

Aged 25–44

Term used to describe men who cook for pleasure, not as a chore. For them, cooking is a hobby that they use to impress friends and potential partners. Women are increasingly attracted by this quality, as they are by other male traits (beauty, personality, status, income, etc.). Incidentally, the American public radio station network NPR recently began serving up the “gastro-sexual of the month” contest.

Wealthy Aware of and passionate about cuisines from all over the world • • • •

Cooking is a passion (a form of self-actualization) Cooking for praise Cooking to impress and seduce Love of travel

Source: Rice, L. R. (2009, April 10). Gastrosexual intercourse with Lynne Rossetto Kasper. Mother Jones. Consulted at www.motherjones.com/ RIFF?page=64&PAGE=10

and buying behaviours? A market can be segmented directly based on these criteria, without using other segmentation variables. is approach often provides constructive ideas on what a company should oer to each segment to satisfy it and build its loyalty to the company. Segments are established based on the type and relative size of the needs or expectations that consumers or customers want to meet by purchasing a product or service. is approach may lead to segmentation for a particular situation or use because needs and expectations are often tied to a customer’s situation or how a customer will use a product or service. For instance, consumers in the restaurant market will have dierent needs and expectations depending on their current situation. ey will choose a fast food restaurant if they are alone, are in a hurry and simply want to eat; they will opt for a family restaurant if they have more time and want to eat well, accompanied by loved ones; and they will select a gourmet restaurant if they want to enjoy an unhurried romantic tête-à-tête or just relax and savour a ne dining experience. Another example is the market for renovation tools. It includes two large segments— amateur and professional handymen or handywomen—whose needs and expectations are quite dierent. Professionals seek more durable, sturdy, powerful, versatile and upgraded tools than amateur do-it-yourselfers. ey are also ready to pay more because they need the tools to practise their trade. e same applies to the short-term car rental market, which is both a business and a consumer market. is market has three large segments, based on the type of customer expectations, which depend on the situation and the use of the vehicle. e business segment is made up of customers who travel for business and who do not

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need to pay for the rental themselves. Price is thus a secondary consideration for them. ey are more concerned about saving time and having a comfortable car so that they can travel without stress and fatigue. Most often, they want to rent a car as soon as they get o the plane. eir priority needs are to have a car immediately available to them as close as possible to where they arrive, which means at the airport itself, and the possibility of returning the car to the airport with their return ight. ey also want the rental, use and return of the car to take the least amount of time possible. e company targeting this market segment will try to oer a suitable car to the customer, have an airport location (which is much more expensive than a branch on a commercial street) and provide service as fast as possible. is requires substantial information technology (IT) investments. Fortunately, customers in this segment are willing to pay more to get what they want. e two other segments of the short-term car rental market are the replacement and retail segments. In the replacement segment, people rent a car temporarily to replace their own, which either has been stolen or is being repaired. Property and casualty insurers, insurance brokers, body shops and car dealerships are important stakeholders in this segment. In the retail segment, customers are travellers who get o the plane and want to rent a car to go to their destination or to start their trip from home. It is largely a tourist market. A new form of service has surfaced in this sector: self-service car rental with or without reservations. Car sharing services let people rent a car whenever they want as long as they pay an annual membership fee and hourly usage fees. Initially embraced by fervent environmentalists, car sharing is now becoming a fully edged global industry. Car sharing is a less expensive option than ownership and is more exible than leasing. Car manufacturers have no choice but to get on board: one rented car can replace 15 owned vehicles (Car sharing, 2010). In these last three segments, customer needs and expectations, as well as buying behaviour, are dierent from those in the business segment. To be successful, marketing mix components must be adapted. Table 3.2 summarizes the short-term car rental market concepts.

Table 3.2

Short-term car rental market

Segments

Denition

Expectations

Businesspeople

Fast service

Do not pay the bill themselves

Car availability

Replacement

Insurers, insurance brokers, body shops and car dealerships

Price sensitivity

Retail

Consumers/tourists

Price sensitivity

Car sharing

Urban consumers

Flexible service

Business

Car availability

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Volume and protability Rather than being based on customers and their specic characteristics, segmentation based on volume and protability emphasizes the amount of customers’ purchases or the prot that they generate for the company. As a result, customers are classied in various categories depending on their purchase volume (potential customers and actual customers, including large, average and small customers) or their protability (highly protable, moderately protable, not very protable and unprotable customers). Customers in the various categories are then studied to nd how they are similar or dierent in terms of needs, expectations, buying behaviour, situations, usage and characteristics (sociodemographic, geographic and psychographic). Major similarities and dierences can help identify potential customers who should be prioritized to target (because they will be more protable or purchase more) and make it easier to dene how marketing mix components will be adapted to win over and retain customers in target segments. Understandably, companies usually prefer segments with large customers, average-size customers, highly protable customers and moderately protable customers.

Variables specic to a market It is dicult to generalize about variables because they vary from one market to the next. Roughly speaking, these segmentation variables not included in the preceding categories are relevant because they aect demand in a specic market signicantly. For example, whether a customer is a tenant or an owner is an important segmentation variable in the paint, decorating and renovation markets. Owners are much more inclined than tenants to spend large amounts on the purchase of these products. Another variable specic to the renovation market is the age of the building, which signicantly inuences the type and quantity of products and services that a customer will need. In the area of new home sales, there is a rst-time buyer segment (made up of people who have never owned a home before) and an experienced buyer segment (people who have been homeowners for a number of years), with rst-time buyers generally being less sophisticated and more emotional than experienced buyers when making their purchase. In the soft drink and beer markets, companies dene two large but quite dierent segments that they then subdivide into smaller segments based on the place of consumption. ey distinguish between the on-site consumption segment (restaurants, bars, taverns, pubs, cafeterias, hotels, etc.) and the home consumption segment. In the market for auto parts, accessories, and repair and maintenance services, the type and age of the vehicle are two relevant segmentation variables. As a last example, the surface area of a lot where the grass needs to be cut is denitely a relevant variable for the lawnmower market.

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Combination of variables In general, companies use more than one tool to segment their market. ey do not limit their marketing eorts to a single category of variables or to a single variable within the same category. e main factor that must serve as a guide in the selection of segmentation variables is the nature of the target market. e variables and variable categories mentioned above do not apply to all markets. Marketers must identify the most important ones for the company and the target market. e most useful are those that are the most closely related to the benets sought by the consumers and the responses to marketing mix components. e choice of variables also depends on the nature of the variables for which the company already has data or can obtain data at a reasonable cost. Example 3.2 shows the possible segmentation criteria.

Example

3.2

How to choose segmentation criteria

If we take the example of a lipstick manufacturer, managers should ask the following questions before they launch a new product.

Why? What benets are the customers seeking? Whether it be beauty, a positive self-image, or seduction, they certainly want much more than sparkling lips alone.

Where? Where do they live? Do we want to sell this product only in large cities, only in Canada or worldwide?

Who? Who are our customers? How old are they and what is their family status? Is this lipstick designed for a younger or more mature clientele? What is their prole? Are they athletes or businesswomen?

How? What are they looking for? Are women from the two proles seeking the same benets? Where do they want to buy it or use it? Online or in stores? To wear on an evening out or to work?

3.1.2 Business market segmentation Companies active in business markets use the same categories of segmentation variables as those that target consumer markets, except for sociodemographic and psychographic variables. Instead of sociodemographic variables, they take into account economic variables such as business customers’ size, the industry or the economic sector to which they belong, their nancial solvency and their growth. For example, IT sector suppliers segment their market by distinguishing between small and medium-sized enterprises (SMEs), mid-size companies and large corporations, depending on whether they are private sector, public or parapublic, and according to the type of products or services they manufacture or supply.

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Psychographic variables and lifestyles are superseded by variables related to organizational culture and business customers’ procurement policy, such as the purchasing process and the types of relationships fostered with suppliers. e behavioural variables and uses category is commonly applied in business markets. For example, in the area of mail and courier service, various segments can be dened based on the relative importance of needs for fast service (the package or letter must get to its destination as soon as possible or in a very short timeframe), reliability (the package or letter will be delivered to the right recipient in one piece, without being damaged and by the deadline promised), geographic coverage (the supplier serves all possible regions), accessibility (the supplier is easy to reach), condentiality and legality (legal proof can be obtained for the dispatch and the receipt by the recipient) and cost. Segmentation based on volume and protability is often used in business markets. Texas Instruments serves its 10 largest customers diligently, even going so far as to develop products specially adapted to their needs. e company also directly takes care of its 100 largest customers by assigning them application engineers: special advisors who go to the companies to help them make optimal use of Texas Instruments products. Unfortunately for its “small” customers, the company does not nd it suciently protable to serve them directly. It refers them to its network of independent third-party companies, generally SMEs that are experts in a specic eld. Lastly, three other categories (geographic variables, variables specic to a market, and a combination of variables) apply to both business markets and consumer markets. Table 3.3 summarizes all of the business market variables.

Table 3.3

Categories of variables of business market segmentation

Variables

Description

Type of variables

Economic

Company size, nancial soundness and growth

Descriptive

Geographic

Region, country and type of physical environment

Descriptive

Organizational culture, procurement policy

Purchasing process, types of relationships desired

Descriptive

Behavioural

Needs, expectations, situations and usage

Benets sought

Volume and protability

Purchase volume

Descriptive or benets sought

Market

Types of companies or industries

Descriptive or benets sought

3.2 Targeting Targeting a market segment or clientele basically means selecting exactly where the business wants to compete. Normally, it selects an area in which it has the best chance of succeeding, where it has developed or may develop a competitive

Marketing Strategy

edge that its competitors lack. e decision concerning which segments to choose and how much to adapt marketing mix components to these segments is a targeting decision (see Example 3.3).

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Targeting A marketing strategy that consists of selecting segments, markets or customers that a business wants to win over and retain.

e segment targeting concepts covered in this section also apply to market targeting because the same factors are taken into account. Only the scale involved is dierent because markets are larger than segments, and the dierences between markets are usually greater than those between segments. However, what one company considers a market may very well be a segment for another company, and vice versa. Uncontrollable market and environmental factors and the semi-controllable competition factor are crucial. However, it is important to keep in mind that targeting decisions, like those related to positioning and dierentiation, must take into account the company itself, its background, and its current and future resources.

Example

3.3

The SAQ and its taste tags

The Société des alcools du Québec (SAQ) has innovated in the area of customer service by creating taste tags. In its 2010–2012 Strategic Plan, the SAQ dened, in terms of relational marketing, seven specic segments, including the Enthusiast, Connoisseur and Discoverer segments, which represent 29% of customers and 52% of sales. It plans to target these three important segments in particular. Alain Brunet, SAQ vice-president, explains: “We have segmented our customers so that we can better accommodate all of them. We are setting up tools for each of the segments and want to know more about the expectations of all our customers, whether they are occasional or regular drinkers, enthusiasts or connoisseurs.”

Taste tags were therefore introduced for SAQ customers. Eight small circles or “tags,” of different colours, are designed to help customers easily nd the wine that will be best paired with the food that they plan to eat, or simply steer them toward their favourite types of wine. This greatly appreciated tool enables a large number of customers to learn more about their taste prole and speak a common language with SAQ employees and wine advisors. Buoyed by the success of this campaign, the SAQ decided to use the same tool to highlight ne spirits. To simplify the universe of these products, the “Espace Cocktail” campaign unveiled ve taste tags to guide consumers.

3.2.1 Selecting targets What segments should be targeted? It is best to choose those that oer the most potential in terms of protability. is will be signicantly aected by the following factors: the segment’s size, growth, accessibility and competitive position, and the cost of adapting to target segments (see Figure 3.1, on the following page).

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Figure 3.1 Selecting target segments

e target segment needs to generate a fairly large sales volume to be protable, not only for the company, but also for its intermediaries or distributors. It is important to avoid hypersegmentation, which involves targeting a very large number of segments, most of which are too small to be protable, and whose dierences are too minimal to be taken into account in the marketing mix. e potential for protability is also aected by the selected segment’s probable growth. A small segment can have strong growth potential and prove to be more attractive in the future than it currently is. When Bombardier targeted the regional aircraft segment, this segment was small, and the two world leaders in the industry, Boeing and Airbus, were not interested in it. Nevertheless, Bombardier projected strong growth in this segment, and that is exactly what occurred. e segment’s accessibility must also be taken into consideration. Is there an economical way of reaching the target segment through distribution (place) and promotion? Potentially promising segments are sometimes not targeted by companies because no distribution channel or promotion medium can reach them at an aordable cost. e number and strength of current and future competitors in the segment under consideration is another critical factor. It may be more attractive to target a segment accounting for 15% of a market where there are no competitors than a segment forming 60% of a market in which four competitors are already solidly entrenched. Lastly, the adaptation costs for targeted segments must also be considered. Targeting a segment involves adapting one or more marketing mix components to this segment and its needs, expectations and behaviour. e less costly an adaptation is, the greater the chance that implementing it will be protable, if everything else remains constant. One might think that the large customer segment is the most protable because each customer therein represents a high sales volume, but this is not always the case. For instance, in business markets, the largest customers may have so much bargaining

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power that they manage to obtain very favourable conditions from their supplier. As a result, the supplier hardly realizes any prot with each of them because of a very slim prot margin. At the other end of the spectrum, small customers often result in a much better prot margin, but the sales volume may be so low that it yields little prot in terms of dollars. Mid-size customers are often the most protable because their normal bargaining power results in conditions that are advantageous for the supplier. As well, the sales volume is high enough to generate a decent prot in dollars and not solely in terms of prot margin. On top of that, the company can serve both the consumer and business markets with the same product. One example is a coee service like Nespresso, oered to businesses and consumers alike, and banks that serve both a retail and a business clientele. In contrast, the Québec cable provider Vidéotron is one company that clearly understands the segments that can boost its protability, and the importance of cultivating them (see Example 3.4).

Example

3.4

Vidéotron refuses to bow to pressure from rivals

Vidéotron has no intention of emulating its rivals by offering promotions to increase its market share in the cable broadcasting sector. It is even ready to relinquish some of its share in order to better target a precise clientele. “Our attention is focused on the customers that can let us boost our margins,” Manon Brouillette, Vidéotron president, explains. “The customers who decide to take

three or four services like television, telephone and Internet will drive our growth.” To justify this choice, she explains that monthly average revenue per Vidéotron subscriber rose in the third quarter of 2013, to $119.24, equal to growth of 6.2%. For the year 2013, Vidéotron increased its revenue by 5.1% to reach $683 million, and raised its operating income by 8.2%.

Source: Arsenault, J. (2013, November 7). Télévision: Vidéotron ne veut pas céder à la pression de ses concurrents. Canadian Press. Consulted at http://quebec. hufngtonpost.ca/2013/11/07/tlvision-vidotron-ne-_n_4231897.html

3.2.2 Types of targeting ere are four types of targeting based on the number of segments targeted by businesses: mass marketing, segment marketing, niche marketing and personalized marketing (see Table 3.4 on the following page).

Mass marketing Mass marketing involves targeting the entire market and using the same marketing mix for the market as a whole. is approach normally entails oering

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Table 3.4

Four types of targeting

Type of targeting

Denition

Mass marketing

The same marketing mix for the entire target market

Segment marketing

A marketing mix adapted to each target segment, which can apply to one or two segments (concentrated segment marketing), to all or almost all segments (comprehensive segment marketing) or to some of them (broad segment marketing)

Niche marketing

A single marketing mix thoroughly adapted to a single small segment

Personalized marketing

Adapting the marketing mix to each customer

products or services designed to satisfy average needs at a low or average price, with mid-range customer service, mass distribution and appropriate promotion. In the large department store market, Walmart and Super C mainly practise mass marketing, although these companies partially adapt their product oering to various geographic segments. e same applies to most oil companies in the retail gasoline market, even if most oer more than one type of gasoline. In areas other than retail trade, mass marketing is used less often. Unless a company has a sustainable cost benet that it can pass along to its customers by oering them a lower price, it is hard for a company practising mass marketing to successfully compete with companies that have adopted the other three types of target marketing. rough narrower targeting, these companies can better adapt to the needs of their target customers, improve their satisfaction rate and gain their loyalty.

Segment marketing Segment marketing may target one, a few or all market segments; the marketing mix components are adapted to each of the target segments. Segment marketing may be concentrated, broad or comprehensive, depending on the number of segments targeted. At one end of the spectrum, a company may target a single segment (sometimes two), of no particular size. is approach, referred to as concentrated market segmentation, is used by television channels, both specialized (such as Bravo, MuchMusic and TSN) or general (such as CBC, Global, CTV and TVA). At the other end of the spectrum, a company may target all or most market segments by adapting the marketing mix components to each segment. is is referred to as comprehensive market segmentation. Most large automobile makers and major Canadian banks practise comprehensive market segmentation. Between the two ends of the spectrum, a company may target three or more segments; this is referred to as broad market segmentation.

Targeting means choosing a segment in a market.

In international marketing, some companies practise concentrated marketing on a single segment in all the countries in which they do business. For example, the manufacturers of several luxury or high-end brands—Cartier, Givenchy, but also beers like Stella Artois—believe that there is a group of consumers who travel frequently and are knowledgeable

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about major fashion trends, and that the members of this group, be they in Tokyo, Singapore, New York, London or Montréal, have more traits in common with one another than with their own fellow citizens. In Europe, brands like Orange (cell phones and Internet) or EDF (Électricité de France), historically attached to their country of origin, now go after similar consumer segments (individual and organizational) throughout the continent. is trend will likely grow in the coming years.

Niche marketing Niche marketing is a variant of concentrated market segmentation, but is considered to be a specic type of targeting because it also reects a company’s specialization. It involves targeting a single segment, which is small in relation to the market as a whole (representing no more than 10% of the market, usually less), and adapting all marketing mix variables to this small segment. e company thus becomes a specialist, by developing unique expertise in meeting the needs of this small segment, and becomes highly eective at it. is expertise often becomes an entry barrier for competitors. e large corporations present in bigger segments tolerate this competitor because they do not perceive it as a threat given its high degree of specialization and its segment’s narrow focus, or because they would be unable to properly adapt to the niche’s specic requirements at a reasonable cost. For example, before being bought out by a rival rm, Technomarine Group—a Québec manufacturer of oating structures, docks, gangways, pedestrian bridges and breakwaters—practised niche marketing. e company targeted only the high-end segment of the global market. is segment accounted for less than 10% of the market for recreational harbours, but because Technomarine Group was active in the global market, it was large enough to ensure protability (http://technomarinegroup.com). Niche marketing is increasingly becoming an attractive option for SMEs operating in a small national market like Canada because of the growing globalization of markets, which facilitates business with other countries. An SME can therefore target a small segment whose size would be insucient in a national scale but is largely sucient on an international scale.

Personalized marketing Personalized marketing involves adapting a company’s oering to each of the customers that it plans to win over. is is segmentation pushed to the extreme, where every customer becomes a segment consisting of only one person. Many professional service rms and companies active in business markets practise personalized marketing with a large portion of their customers or even with the entire clientele. is practice occurs less frequently in the consumer market but according to predictions made over the past several years, it should spread to a growing number of markets because of technological advances (see Example 3.5 on the following page). Some high-end hotel chains are already practising personalized marketing with their regular business customers, oering customized service to each individual without the customer needing to request such service because each branch has access to the same database on customer preferences, individual tastes and personal requirements.

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Mymuesli, personalized marketing

It may seem like grocery stores already offer breakfast cereals for every taste, but this is not the case. As Max Wittrock, president and cofounder of Mymuesli, explains: “If you don’t like raisins, you’re in trouble.” This is why the young German rm decided to offer its customers a chance to create their own recipe online

from among a vast array of ne organic ingredients, including some fair trade options. They thus offer a staggering 566 quadrillion combinations of different cereals. Customers are also invited to personalize their cereal box by naming it themselves. These personalized mixes are sold online and in the eight branches of the Mymuesli boutique in Europe.

Sources: Fournier, M. È. (2017, January 27). Commerce de détail: les grandes tendances mondiales. La Presse. Consulted at http://affaires.lapresse.ca/economie/ commerce-de-detail/201401/27/01-4732659-commerce-de-detail-les-grandes-tendances-mondiales.php; https://uk.mymuesli.com/

3.2.3 Refocusing, or changes in targeting Companies may need to modify their targeting because of ercer competition or their own development. Take, for example, Matériaux Coupal, a construction materials wholesaler and retailer from Saint-Jean-Sur-Richelieu with several branches in the Montréal area. When the rst big-box stores arrived in the Montréal area, the company analyzed its customers’ needs, its resources and those of new competitors, as well as rivals’ strengths and weaknesses. It concluded that to survive in this new environment and to continue to prosper, it had to refocus and concentrate its segment marketing by specically targeting the contractor segment. is refocusing proved to be successful. Before RONA acquired a 51% holding in Matériaux Coupal in 2006, the “growth business” was making more than 85% of its annual sales, amounting to nearly $125 million, in the target segment of construction and home renovation contractors. Indeed, RONA bought Coupal specically to improve its contractor segment oering. In 2013, RONA went on to acquire the remaining 49% holding in the company from the Société de gestion Doucet, a family-run business that had operated Groupe Coupal since 1971 (RONA seul propriétaire, 2013). Positioning A marketing strategy that consists of dening the position that the brand or business occupies or wishes to occupy emotionally and cognitively, namely, in the hearts and minds of customers in relation to competing brands or businesses. It pertains to the identity, personality and image that marketing managers want their brand or business to have.

3.3

Positioning

Desired positioning is an important marketing decision: it concerns the identity, image and personality of a brand or business. It is the place that the business wishes to occupy in the hearts and minds of customers. Not all brands or businesses have actual positioning; awareness is the rst necessary condition to achieve it. If a brand is not known by the customers in target segments, then it does not exist for them

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and quite simply it has no actual positioning. All marketing of a brand or business must be consistent with the desired positioning. However, actual positioning is not necessarily identical to desired positioning. If there is a gap between the two, the business will take measures so that the actual positioning reects the desired positioning.

3.3.1 Positioning of a new brand How is desired positioning dened? In the case of a new brand, a market study of target customers is used to examine the positioning of existing brands to determine the positioning that would be best for the new brand. is positioning would give the brand a real competitive advantage with target customers while remaining feasible. In most cases, the most advantageous positioning requires a degree of dierentiation relative to competing brands. e arrival of Home Depot in Québec is an interesting example (see Example 3.6).

Example

3.6

Home Depot and its positioning

In terms of targeting, Home Depot practises mass marketing and, just like its competitors, it targets the vast majority of retail decoration, construction and renovation market segments. In retailing, the ve major attributes (or selection criteria or needs) are variety, quality, price, proximity and customer service. Preexisting competing brands were Réno-Dépôt, RONA L’Entrepôt and Canadian Tire, with the latter participating in the renovation and decoration market. At the end of summer 2000, Home Depot opened its rst store in Québec. How did the company position itself? In its advertisements on television and in newspapers and circulars, it used two slogans: “Low prices are just the beginning.” and “Experience the difference! Variety and service at low prices, guaranteed!” These two slogans clearly reected the positioning desired by Home Depot: to be a champion of variety and low prices, but more importantly, customer service. Why the emphasis on service? Because, according to its market study, Home Depot had the best chance of obtaining a competitive edge for this particular

Source: www.homedepot.ca

attribute; its three competitors were not perceived by most consumers as providing good customer service. However, Home Depot was also careful to position itself in relation to two major strengths that consumers associate with this type of big-box store: prices (“Low prices are just the beginning.”) and variety (“Variety and service at low prices, guaranteed!”). Even if proximity is an important criterion, Home Depot could not position itself as being easily accessible and located near all consumers because it had opened only a few stores. In any case, even if it had been in a strong position with regard to this point, such a positioning would not have given it a competitive edge. Nor did Home Depot position itself as a champion of product quality. This is because it would not have had any credibility in that market given the fact that consumers did not perceive any difference in quality among the products offered by various competitors. Incidentally, Home Depot has kept this positioning and updated it to “More saving. More doing.” This approach represents a much clearer positioning relative to its competitors.

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3.3.2 Positioning of an existing brand When a brand or a business is well known, a market study must rst be conducted on target customers to determine its actual positioning and that of its competitors. If it already has the desired positioning, it will try to reinforce it. Otherwise, it will attempt to bring its actual positioning closer to the desired positioning. A name change is sometimes an eective repositioning tool. For instance, a Drummondville organization active in the tourist and leisure market has used this technique to successfully reposition itself in recent years. e Festival International de Folklore de Drummondville, a major international event that attracts not only a Québec following but also a Canadian and international audience, became the Mondial des Cultures de Drummondville (www.mondialdescultures.com). e change of name helped to reposition the event in a more attractive way by giving it a more universal image from both a geographic and a cultural standpoint. Other changes were also made, because a change of name alone would not have been enough to reposition the event. As Example 3.7 illustrates, Molson Export beer has reoriented its positioning to appeal to a younger clientele. Example 3.8 describes how a renowned Montréal jeweller successfully gave its brand a makeover.

Example

3.7

Molson Export repositions itself

A few years ago, the actual positioning of the Molson Export beer brand was too distant from the youth segment, who perceived it as a brand for drinkers aged 40 and over. Molson Brewery wanted to give this brand a new image so that it would appeal to young people without losing its older customers due to modernization attempts that would ignore its longevity and history. It achieved its goal via a repositioning associating youth

with its long history. The slogans “Young since 1903” and “97 years old and still going to bed at 3 in the morning” clearly illustrate this successful repositioning that helped substantially increase Molson Export’s total market share, especially in the young adult segment. Although Molson Export continued to lose market share, it has afrmed its youth-oriented positioning, and is now linked to the National Hockey League.

Source: Molson, les ventes de Coors Light déclinent. (2015, February 10). Canadian Press. Consulted at www.lesaffaires.com/secteurs-d-activite/general/ molsonles-ventes-de-coors-light-declinent/576126

It is not always possible to reposition an existing brand at an aordable cost and in a reasonable timeframe. During the nancial crisis of 2009, General Motors considered this option for its Oldsmobile brand, but decided instead to withdraw the brand from the market. In the short term, it is very hard to reposition a well-known, mid-range brand as a high-end brand because this takes time and requires a great deal of eort. However,

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The Chanel of jewels

Montréal jeweller Birks is trying to attract Generation Y by making its image more modern and accessible. President and CEO Jean-Christophe Bedos wants to tap into the essence of the Birks brand, to ensure its longevity. “Over the years, Birks has become a multibrand distributor. As a result, its soul has become slightly diluted,” Bedos says. In 2013, to revitalize its image the brand launched new mono-brand boutiques with modern décor in which wood and glass predominate. The shopping experience has been reimagined: sellers give customers advice by their side, instead of from behind the counter. Bedos

explains: “It’s a small revolution in the jewellery world!” The new brand image reects the two ofcial languages of Canada: the French word “maison” was added in front of the Birks logo, to appear more “haute couture,” and the English expression “Est.1879” highlights its origins. This positioning also permeates the collections and store décor, which integrate a red maple leaf, wood and frost. After sustaining losses of $88 million from 2009 to 2011, Birks reported a net prot of $1.5 million for its 2012– 2013 scal year—a dramatic rise from the $200,000 prot for the previous year.

Source: Rudel-Tessier, M. (2013, August 17). La métamorphose de Birks. Les Affaires. Consulted at www.lesaffaires.com/archives/generale/la-metamorphosede-birks/560543 and Fournier, M. È. (2013, November 5). Birks veut devenir la Chanel des bijoux. La Presse. Consulted at http://affaires.lapresse.ca/economie/ commerce-de-detail/201311/05/01-4707271-birks-veut-devenir-le-chanel-des-bijoux.php

it is easier to do the reverse and position a high-end brand as a mid-range one. is is perhaps what Daimler AG did with the Mercedes Benz brand by introducing less expensive and less luxurious models than traditional Mercedes models (A, B and C classes). In the short term, it is making additional sales because it is tapping a new target segment of customers who love this brand but cannot pay its traditional price. On top of that, in the long term, the company is creating brand loyalty in the customers. However, this strategy must be carefully managed because of the risk of diluting its high-end positioning and repelling some of its current customers (www.daimler.com). When the actual positioning of a brand is not what is desired and it seems very difcult to change it, another option is to introduce a new brand, which can perhaps be given the desired positioning more easily without changing that of the existing brand (see Example 3.9, on the following page).

3.3.3 Ensuring successful positioning Positioning involves dening the desired position based on important attributes for target customers and in relation to competitors. To succeed, the positioning must be consistent with the targeting. It must also be clear and unambiguous for the managers themselves and the target customers. If a brand strives to please too large a variety of customers, target customers will become confused and will no longer know exactly what the brand stands for. e brand must represent something specic and relevant for the targets set (see Example 3.10 on the following page).

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Example

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Repositioning a product: St-Hubert restaurants

Each of the 108 traditional St-Hubert restaurants welcomes an average of 250 people per day; this is the maximum number of restaurants that the group can sustain protably in Québec. Keeping in mind that each of these establishments requires a $4-million investment, a pool of about 100,000 consumers is required for a St-Hubert restaurant to be protable. That is why company owner Jean-Pierre Léger launched his St-Hubert Express concept in the early 2000s. With about a hundred locations, this restaurant

without table service requires an investment of only about $1.5 million. As for St-Hub resto-bars, almost all St-Hubert outlets include one. Launched in the 1990s, the concept has drawn a younger restaurant crowd, compared with the predominantly family clientele of the traditional restaurants. With a more musical than sports-oriented positioning, St-Hub resto-bars avoid stepping on the toes of the Cage aux Sports.

Source: Froment, D. (2009, February 7). Bientôt à l’étroit au Québec, St-Hubert prépare son expansion en Ontario. Les Affaires. Consulted at www.lesaffaires.com/ archives/generale/bientot-a-l-etroit-au-quebec-st-hubert-prepare-son-expansion-en-ontario/500329 and www.st-hubert.com

Example

3.10

Walmart’s positioning

Walmart provides an example of the strength of clear and very well executed positioning, even if it seems rather unimpressive and trite to most advertising professionals. Without being pretentious, Walmart epitomizes the low end and mid-range of fashion, renement and imagination. It offers solid, everyday products; features low-end and mid-range merchandise at reasonable prices that meet the basic needs of the targeted mass market; and offers customers good quality for the price paid. As a result, customers have the impression that they are getting their money’s worth. Walmart’s positioning is concretely expressed in its clean, orderly stores, where it is easy to nd what you are looking for. The staff is generally polite and helpful, there are few stock shortages, shelves are almost always well stocked and there are well-known brands. Brands come in a satisfactory variety; nothing is extraordinary

Source: www.walmart.com

but it all meets basic needs. There is ample parking space, numerous store locations that are generally well situated, an average in-store experience that is not unpleasant but is nothing special, as well as friendly, simple advertising using an informal tone. The layout is compatible with good prices: décor is neither elegant nor particularly attractive, with no wide open spaces, and no luxurious displays adorning the store, only commonly used, mundane materials. The price policy (“everyday low prices”) projects the image of a general price level that is lower than it actually is because Walmart ensures that the prices of a limited number of key products (a few hundred or so) are never higher than those of competitors. Walmart even goes so far as to announce that it never has sales, only what it calls rollbacks! Its current positioning is “Save Money. Live Better.”

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Positioning must also represent value for the customer. It can be either tangible or symbolic. For example, the positioning of most beer brands represents value that is more symbolic than tangible. Positioning can be conveyed transparently and directly, as seen in Example 3.6 (see page 71). It can also be more subtle, indirect and evocative, as illustrated by the slogans cited in the Molson Export case (see Example 3.7, on page 72). Example 3.11 concludes the list with the very strong international and global brand Coca-Cola, which has preserved a youthful image despite its 125-year history.

Example

3.11

Coca-Cola: the taste of happiness

Despite being 125 years old, Coca-Cola is successfully preserving a youthful image. Early in the year, the brand announced that it wants to focus more on young people by making growing investments in the musical world.

to nd out what makes young people happy. Not too surprisingly, music and friends top the list, at home and elsewhere,” says Denis Ferlatte, marketing director for Québec.

“Youth, happiness and music have always been part of the DNA of the brand. But recently, as part of our global campaign ’Open happiness,‘ we conducted a survey

Coca-Cola will propose other campaigns in cooperation with partners like La Ronde and Subway to trigger moments of happiness.

Source: 125 ans de Coca-Cola: “Provoquer le bonheur.” (2011, May 9). Infopresse. Consulted at www.infopresse.com/archive/article/37361

In several markets, specifying whom the brand is targeting in an interesting and original way may suce to ensure adequate positioning, as Nike did with its slogan “Just do it.” In the cultural industry market in particular, businesses can choose from among several types of positioning according to benets oered. For example: • • • • • • • • • • •

e charisma of a company representative: Kent Nagano Programming: A full season dedicated to the repertoire of Michel Tremblay Actors or directors: Anne Dorval or Xavier Dolan Place: Montréal Museum of Fine Arts Reputation: e Montréal International Jazz Festival Price and quality: free concerts staged as part of an event Time: a 25th anniversary Users: children and families Genre: pop, jazz Competitors: the Montréal OFF Jazz Festival Multiple attributes: something for everyone

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ese various types of positioning create benets that might appeal to existing and potential customers. Consistency over time is an important aspect of positioning. To position a brand eectively, the message must be hammered in for a long time. For example, the furniture, home appliance and electronics chain Brault & Martineau has kept its mid-range positioning for years by using the slogan “Where quality always meets low prices,” which has become “A vow to quality and price” (www. braultetmartineau.com). Positioning involves dening the desired position in terms of important attributes for target customers vis-à-vis the competition. To succeed, it must be consistent with targeting decisions.

Consistency does not necessarily imply the use of a single message or slogan for a long period of time. One can be consistent even if one varies the slogan and messages, as the Metro supermarket chain did by devising variations on its French slogan “Profession: épicier” (“Grocers by profession”) for years. Most recently it has adopted the slogan “Tout le Québec se retrouve chez Metro” (“Quebecers nd everything they need at Metro”). In the example of Molson Export mentioned above, the rebranding was aligned with the past positioning of an old brand with a long tradition. Consistency was successfully maintained while rejuvenating the brand.

3.4 Differentiation Differentiation Consists of a brand or company standing out from the others by getting the target customers to perceive it as different from the competition, in a positive sense, based on one or more signicant attributes.

Dierentiation is so closely tied to positioning that in practice it is often dicult to distinguish between them when one considers a brand or company.

Without dierentiation, a brand can compete with others solely based on price, because customers are usually inclined to buy the cheapest from among several brands that they consider identical, unless they associate a higher price with better quality and deliberately seek higher quality. is is why companies and brands usually try to dierentiate themselves from the competition by adopting a positioning that distinguishes them: to provide target customers with a reason to choose them over the competitors. e exceptions to this general principle of dierentiation are companies that have a real cost advantage relative to the competition, and that adopt a positioning that brings them closer to the competition rather than standing out by highlighting that they are similar to their rivals, only cheaper.

3.4.1 Bases of differentiation How can a company dierentiate itself ? Businesses must choose the attributes that make them look dierent and more desirable, from among those the target customers consider important. e attribute on which dierentiation is based must be signicant for the customers. If this is currently not the case, the company

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must ensure that it becomes signicant. For instance, an innovation can make an attribute signicant even if it did not exist before. Real dierentiation based on a signicant attribute may already be present, unbeknownst to the company or potential target customers. e dierentiation process is then simpler, and consists of eectively communicating the real but unnoticed distinction. New Brunswick beaches are one example. It has long been known that water temperature is an important attribute for vacationers; people prefer warmer water. For millennia, the waters o New Brunswick have been warmer than those o the New England coast. However, it is only recently that New Brunswick has begun to dierentiate itself to its target clientele in Québec by highlighting this dierence in its promotion campaign. Its slogan is “Warm water helps you relax,” and its positioning is that New Brunswick hosts over 50 beaches that are ideal for swimming, some of which can boast the warmest saltwater in Canada (http://www.tourismnew brunswick.ca/See/Beaches.aspx). Dierentiation must concern an aspect that counts for customers, or that they can be convinced is important to them. Ideally, this aspect should represent a real or symbolic advantage for the target customers; an advantage that the competitors do not oer and cannot easily imitate. If they do oer the advantage, the business must dierentiate itself more strongly than the competition. Dierentiation must also be communicated eectively. Ideally, dierentiation must be visible, signicant and authentic if consumers are to perceive the brand as distinct (in a positive way) from competing products. It is not enough to conceive of dierentiation: it must also be implemented to take concrete form in customers’ minds (see Example 3.12). Example

3.12

Chocolats Favoris: delectable competition

This institution, founded in Levis in 1979, opened its rst store in the Montréal area in 2014. Today it has 13 chocolate shops across Québec. The company has successfully differentiated itself in a category where there was very little room left for innovation. Chocolats Favoris stands out not only because of its wide array of avours, but also because

of the unique, playful experience offered in its stores, where customers marvel at chocolate pumps and vats. The chocolate shop has also reinvented chocolate fondue by offering it in cans available in supermarkets and boutiques. A tireless innovator, Chocolats Favoris expects sales to reach $100 million by 2020.

Source: Chocolats Favoris: faire “fondre” la competition (2014, May 19). TVA Nouvelles. Consulted at www.tvanouvelles.ca/2014/05/19/chocolats-favoris--faire-fondre--la-competition

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Dierentiation can address any or all of the four marketing mix components: 1. Price: billing and payment terms, packages oered, and credit and volume discount conditions. 2. Product: the product or service oered, its variety, quality, technology used, guarantee, format (or package oered), additional maintenance, repair, installation, training services and after-sales service. Customer service: reliability, speed, simplicity, exibility, courtesy, employees’ skills and accessibility. 3. Place (distribution): geographical coverage, types of intermediaries that distribute the services or products and the image they project, and business hours. 4. Promotion: image transmitted by advertisements and by other means of communication, loyalty programs, sales team and direct marketing. Customers must be able not only to distinguish a product or service through its points of dierence, but also to categorize it, hence the points of parity. Businesses want to nd the zone where the product both satises consumers’ needs and stands out from the competition. As Figure 3.2 shows, the points of parity are the frames of reference and the benets of the category, while the points of dierence are the distinctive elements associated with performance, the brand or consumers’ perceptions.

Figure 3.2 Points of intersection between the business, consumers and competitors

Source: Adapted from Urbany, J. E. and Davis, J. H. (2007, November). Strategic insight in three circles. Harvard Business Review, pp. 28–30.

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How many elements of dierentiation should there be for the same brand? It is possible to nd several, but they must be complementary and consistent, rather than divergent or contradictory. However, communicating a large number of points of dierence may confuse customers, who will not notice or retain them. is is especially true of potential customers. is confusion may even undermine the brand’s credibility. Many experts recommend that promotion contain a single point of dierence, or a maximum of two or three points. For the message to be understood, another important aspect must also be considered: consistency over time. A brand can be successfully dierentiated even in a common and mature product market, as Van Houtte did for coee sold in supermarkets (see Example 3.13).

Example

3.13

Van Houtte differentiates itself with brio

Van Houtte has become the leader in its targeted segment: high-end coffee. Instead of taking on the three giant coffee multinationals (Kraft with Maxwell House, Nestlé with Nescafé and Procter & Gamble with Folgers) in the mid-range segment where the titans were well established for years, Van Houtte targeted the high-end segment, aiming to position itself as a superior quality brand. To do so, it had to differentiate its product from the other brands. It succeeded by offering better quality

coffee beans by reducing the degree of humidity in the product; the result is a distinctive, more pronounced taste. As well, it sets its product at a much higher price, which boosts the retailer’s prots and encourages it to sell Van Houtte coffee. It also differentiated its products by offering more avours of ground coffee and beans, various sizes, several types of elegant packaging that include a valve to preserve freshness, along with more rened Europeanstyle graphics, and attractive and varied in-store displays.

Source: www.vanhoutte.com

3.4.2 Perceptual map Another way for a business to optimize dierentiation is to produce a perceptual map of its place in the market and compare it with that of its competitors. When producing this map, the challenge is to choose the right axes of comparison (see Example 3.14 on the following page).

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Example

3.14

The perception of exercise shoes

A business can draw up a perceptual map of exercise shoes based on the hedonic and utilitarian axes.

Hedonic dimension • • • • •

The sample was made up of 58 women and 45 men with a median age of 20. Males and females paid the same price for their exercise shoes, about $100.

Aspect (look) Originality (of style) Pleasure Relaxed aspect (cool) Fashion dimension

They bought and owned the same number of shoes (about 2.6 pairs). Men bought more exercise shoes for everyday wear.

Utilitarian dimension • • • •

Observations:

Performance Durability Quality Comfort

The hedonic dimension is a more important factor than the utilitarian dimension in determining brand preferences. If we include all brands of exercise shoes, the perceptual map would look like this:

Figure 1 The perceptual map of the footwear brands

Visualizing the position of the business and that of its competitors can reveal gaps in the market and potential opportunities. First, the perceptual map claries the current positioning of a business. As we

can see, Reebok and Converse are the brands in the most precarious position because they lack advantages related to the two important dimensions of hedonism and utilitarianism. Second, the perceptual map lets

Marketing Strategy

us identify direct competitors. Here, Adidas and Nike are neck and neck in terms of positioning. Third, the map points to opportunities. For example, no brand is strictly utilitarian. A business like Reebok would benet from developing this axis, given its major decit in the hedonic dimension. It is important to avoid following a

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perceptual map blindly: you may have ignored an axis that is important for a market segment. Because it is difcult to read, interpret, communicate and manage a perceptual map of a business or product that includes several dimensions, most maps present only two.

3.4.3 Statement of positioning A statement of positioning is a useful exercise to ensure that the segmentation, targeting and positioning strategies are coherent. A good statement of positioning can validate the dierentiation of the business or of the brand relative to the competition. When a business formulates its statement of positioning, it must keep in mind that it is not simply stating a slogan. e statement must specify the points of parity and the points of dierence, along with the promise it makes to its customers. Here is a typical statement of positioning: For [target segment] [brand] is a [concept] that [distinguishing characteristic] and its [justication]. is exercise is crucial for marketing managers. Table 3.5 presents the statements of positioning linked to the examples seen in this chapter.

Table 3.5 Example

Examples of statements of positioning New Brunswick beaches

St-Hubert resto-bars

Chocolats Favoris

Communauto car sharing

Target

Québec tourists

Young people who want to meet and spend time together

People who like chocolate and want a special experience

Environment-minded people who want to rent cars for the short term

Brand

New Brunswick beaches

St-Hubert resto-bars

Chocolats Favoris

Communauto

Concept

Ideal destination for vacations and relaxation

A full menu with beer and wine

Sell good chocolate

Car rentals

Distinguishing characteristic

Warm water

Good music, relaxed A sensory experience ambience. Whether you want to just unwind or watch the hockey game, St-Hub offers all you need for an unforgettable evening!

Very short-term rentals

Comparative advantage (justication)

Close to Québec

Several restaurants across Québec

Availability of good cars in urban centres

Chocolate sold in pumps and tanks

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Summary This chapter presented the four key marketing concepts: segmentation, targeting, positioning and differentiation.

segment; and 4) personalized marketing, where the marketing mix is adapted to every customer.

Segmentation in a market consists of subdividing it into submarkets called segments, that is, homogeneous groups of customers whose buying behaviour, needs, expectations and responses to marketing mix components are similar in the same segment but differ from one segment to another.

The positioning of a brand or a business entails demonstrating its personality and transmitting its image in the eyes of the customers in target segments or in the target market. It is the place a brand or a business occupies in the minds and hearts of consumers in relation to competing brands or businesses. Awareness of a brand or a business is the rst condition to be satised for successful positioning. All marketing must be consistent with the desired positioning. If there is a gap between the desired positioning and the actual positioning, the company will need to act to rectify the situation and achieve its positioning objective.

While demographic, geographical and psychographic variables should all be considered, the need that the business must satisfy is the most crucial variable. Targeting consists of choosing segments (or markets, or customers) that a business wants to win over and retain. The business selects segments with the most potential in terms of protability. This will be signicantly affected by a segment’s size, growth, accessibility, competitive position and the cost of adapting to a segment. There are four types of targeting: 1) mass marketing, which proposes the same marketing mix for the whole target market; 2) segment marketing, adapted to each target segment; it may apply to one or two segments (concentrated), to all or nearly all segments (comprehensive) or to some segments (broad); 3) niche marketing, in which a single marketing mix is adapted in depth to a small

Differentiation is closely related to positioning. A brand or a business is differentiated if the customers in the target segment or market perceive it as different from competing brands or businesses, in the positive sense, based on one or more signicant attributes. Lastly, an important tool to help managers better understand the positioning of a business in a market is the perceptual map, which situates businesses relative to the competition, along selected axes.

Suggested readings Textbooks Barwise, P. and Meehan, S. (2004). Simply better. Boston, MA: Harvard Business School Press. Chan, K. W. and Mauborgne, R. (2008). Stratégie océan bleu: comment créer de nouveaux espaces stratégiques. Paris, France: Pearson.

Crawford, F. and Mathews, R. (2001). The myth of excellence. New York, NY: Crown Business. Kumar, N. (2004). Marketing as strategy. Boston, MA: Harvard Business School Press. Trout, J. (2004). L’essentiel de la stratégie. Paris, France: Village Mondial.

Websites Infopresse: http://www2.infopresse.com Strategic Business Insights: www.strategicbusinessinsights.com

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4

Creativity and Marketing Innovation Chapter outline 4.1

The creativity and innovation process

4.2

The role of research: explore and innovate

4.3

The value chain

4.4

The business model

4.5

The creation of value: marketing strategy

4.6

The marketing mix

Learning objectives After reading this chapter, you will be able to: dene the role of creativity and innovation in various components of the marketing process; distinguish approaches used in the creativity and innovation process; understand the nature of creativity and innovation and how to measure their importance in a company; grasp the elements that inuence creativity and innovation.

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Creativity and innovation should be central to all business

operations. Given erce global competition, and the fact that demand exceeds supply, companies must oer current and potential customers a strong value proposition. In this chapter, we will explore the many ways that businesses can innovate. We will examine the possibilities of innovating through the value chain and by revising the business model, along with the marketing strategy. Lastly we will look at innovation in marketing tactics. is analysis will highlight the key role of research as a tool and source of innovation.

Flow chart

4.1 The creativity and innovation process Creativity and innovation are not only part of a continuous process in a company; they also reect the state of mind of executives and the business culture. Creativity and innovation allow a company to stand out from its competitors, and foresee and meet its customers’ needs. It can thus propose appropriate solutions to make consumers’ lives easier. Canadian entrepreneur Charles Sirois describes the 21st century as the age of creativity. In his book Organic Management: Creativity Creating a Culture of Innovation (2000), he argues that we began with the industrial revolution, passed through the current tranThe production of novel, useful, and apprositional age of information, and are moving toward a new age of priate ideas in any realm of human activity. These valid ideas are related to the objeccreativity. e terms “creativity” and “innovation” are buzzwords, tives set by an individual or a small group of and an important concern for executives. individuals working together. Creativity is not so much a talent as a process consisting of innovation (Amabile, 1996).

Innovation consists of oering change by proposing new progressive solutions to customers that represent an improvement compared

Creativity and Marketing Innovation

with the existing situation, yet it is important to remember that innovation is a necessity, not a luxury. Even if the company succeeds at segmentation, targeting, positioning and dierentiation, achieves high levels of sales and prots, and satises its customers very well, it must always seek to innovate because the current formula will not guarantee its success indenitely. Companies must adapt to evolution and constantly renew themselves.

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Innovation The successful implementation of new and creative ideas within an organization. Innovation prompts action, and uses new and appropriate solutions that must be applied at certain steps of the process (Amabile, 1996).

Québec entrepreneur Lise Watier claims that creativity (and hence innovation) is “a spark hidden deep in one’s imagination; it is just waiting for the moment to be ignited so it can shine. It is nourished by its own energy, and when it bursts forth it is manifested in multiple proposals or solutions. It gains from being shared and thus evolves until its ultimate realization” (personal communication, January 13, 2017). Charles Sirois shares this view of creativity and innovation: “Innovation is the utilitarian outcome of creativity driven by a rejection of the status quo. Within an open, competitive economic system, innovation by one of the participants induces a competitive imbalance among the others, who react by innovative adaptation, which in turn leads to new instability. is cycle is the economic engine of the age of creativity, creating many casualties among the losers, as well as dominant winners” (personal communication, January 20, 2017). Creativity and innovation play a role in all aspects of a company. As we will see in this chapter, they can inuence the entire value chain. Companies can also develop innovative business models. In marketing, innovation does not necessarily consist solely of launching a new product. It can also be manifested in other marketing mix variables. In the past, some markets were relatively immune to change and innovation. Many companies could thrive without making much eort to implement changes. Today this is no longer the case. Proposing something new is a growing necessity in most markets. A company cannot achieve long-term success if it does not strive to innovate. By proposing constant innovations, the company Moment Factory (see Example 4.1) has made innovation its rationale and mission. Example

4.1

Moment Factory

This Montreal-based multimedia entertainment studio specializes in the conception and production of immersive environments combining video, lighting, architecture, sound and special effects to create remarkable visitor experiences. Moment Factory has created more than 350 shows and destinations across the world for big-name clients such as Cirque du Soleil, Madonna, and Disney. Whether at a concert, at a agship store or across an urban square,

Source: www.momentfactory.com

the company aims to inspire a sense of collective wonder and connection. In order to showcase its charms, Parc de la Gorge de Coaticook commissioned Moment Factory to create Foresta Lumina, an illuminated night walk through the forest. After nightfall in summer, visitors are invited to discover an enchanted trail winding 2 km through the woods. As they walk through the mysterious forest, visitors meet characters inspired by the area’s myths and legends.

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In some markets, innovation has become a way for dominant businesses to outlast and exhaust their weaker competitors that lack the stamina to follow their pace, and consequently always lag behind. In most markets, being perceived as an innovator that is ahead of the others is becoming an increasingly important competitive advantage. Of course, the novelty proposed by the company must be pertinent and attractive for customers and must satisfy quality standards and needs. e degree of real technical innovation may vary. Change need not necessarily be major, radical or totally novel. It may take the form of regular renewal, continuous adaptation or constant evolution to ensure that the clientele notices that the brand or company is improving and adapting to new situations. Cavalia (see Example 4.2) is an illustrative example of successful innovation in the entertainment market. It has enhanced spectators’ experience through an original and harmonious combination of pre-existing elements.

Example

4.2

Cavalia redenes the circus experience

Cavalia is a pioneer in the entertainment world that specializes in the creation, production and touring of innovative shows. Founded by Normand Latourelle and Dominique Day, the Cavalia group reimagines the equestrian and theatrical arts. Its expertise in high technology, multimedia and special effects creates magical, unique, never-before-seen experiences. Its rst show, Cavalia, has been seen by more than 5 million people across North America, Europe, Australia, the Middle East and Asia since its 2003 debut. Headquartered in Montreal, Cavalia Inc. is an integral part of Canada’s cultural heritage, and the largest Canadian-owned cultural enterprise. Spurred by this success, Cavalia went on to produce Odysseo. The company’s second show, even more impressive, is staged under the largest touring big top tent in the world. It has garnered rave reviews and public acclaim since its 2011 premiere. In 2016 the company signed a major agreement with the Chinese rm Gold-Finance Group. Gold-Finance

Source: www.cavalia.net

has asked Latourelle to collaborate on imagining and producing a revolutionary new show as well as every detail of a purpose-built 1,200-seat theatre to be located in Hangzhou’s future JC Plaza. This magnicent plaza promises to be a unique, must-see attraction for locals and international tourists alike. Cavalia Inc.’s two shows, Cavalia and Odysseo, have travelled the world and enthralled over 7 million spectators. By combining Canadian creativity, talent and entrepreneurialism with Chinese business acumen, Cavalia has quickly established itself as the most active and successful foreign-owned entertainment company in China. The show Cavalia began its current Asian tour in Singapore in August 2014, then galloped through successful runs in Seoul, Taipei and Hong Kong. Since July 2015, Cavalia has been staged in Shanghai and Zhengzhou, and it has been playing in Beijing since April 2016. Working with Sinocap, the Chinese partner for Cavalia, the show has achieved unprecedented success in China.

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What constitutes an innovation from technical experts’ standpoint may not be perceived as new by customers, and vice versa. In marketing, an innovation is dened mainly in relation to customers’ perceptions, thus from the market point of view. It must correspond to a market need. In turn, the market must be willing to pay a price that is high enough to make the product protable. For example, Louis Garneau, founder of the company Louis Garneau Sports, which sells its products in 33 countries, claims that innovation is what really saved the business in dicult times like recessions and market slumps. From the start, he understood that innovation was synonymous with “doing something dierent.” Garneau cites six periods during which the company had to invent and reinvent its products to dierentiate itself. e rst innovation was to design coloured shorts; in the other world markets, they were available in black only. is was not a revolutionary innovation, but they were the rst to imagine it. e second phase was when it teamed up with China. In addition, the company introduced technical innovations in products like bike helmets, shoes, cycling gloves and racing bikes (Louis Garneau: “L’innovation a sauvé l’entreprise dans les moments diciles”, 2011).

4.2 The role of research: explore and innovate e main tool behind creation and innovation is commercial or marketing research, discussed in Chapters 5 and 6. Research lets marketers detect and better understand market trends, and more importantly, explore ways to pinpoint customers’ needs and expectations. Research also lets businesses act ahead of these needs and stand out in a saturated market. rough models and approaches, research facilitates work upstream and downstream of innovation because the company is not simply innovating just to innovate. It must develop a market or customer approach. Figure 4.1 on the following page, shows a framework for innovation and what elements companies may target. Inspiration, which is the source of personalized innovation, emerges from an understanding of the needs, values and capacities of customers, partners and distribution networks in their respective social context. In fact, an innovation may be welcomed by one group, whereas another group may nd it pointless or even harmful. Some managers may create and innovate based on their own perceptions and understanding of the environment, instead of relying on the vision and perception of customers, partners and distribution networks. Innovations that stem solely from the creators’ values and perceptions are more likely to fail than innovations based on the market. Similarly, innovations that do not consider the needs and motivations of the company’s whole value chain are also more likely to fall short. In addition to the methods that will be described in Chapters 5 and 6, one approach that is very popular today is design thinking. Previously, design was almost always

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Figure 4.1 Framework for creativity and innovation

addressed before and after the development of innovation, and mainly aected the aesthetic and attractive aspects that enhanced the perception of the brand. Today, because innovation tends to focus on the human experience with services and products, businesses ask designers to create ideas instead of simply giving them material form. Tim Brown, CEO and president of the innovation and design rm IDEO, is a leader in design thinking, a method that lets one clearly understand people’s needs and wants by using a technologically viable and strategic approach (Brown, 2008). is method presumes that innovation is based on a deep understanding, gained from direct observation, of what people want in life, and what they like or dislike in the way products are produced, marketed, sold and supported. Design thinking is used by companies like GE, P&G, Pepsico and Airbnb. is method helps businesses rethink products, services, processes and strategies. e design thinking method includes ve steps: empathy, denition, idea generation, prototype and test.

4.2.1 Empathy Empathy lets companies understand for whom an innovation is developed. Researchers observe, interact with people and immerse themselves in the customers’ experiences. Empathy is crucial to the human-centred process of design thinking because it lets developers set aside their own perceptions of the world and gain insight into users’ needs. is step therefore implies observing, engaging and empathizing to better understand individuals’ experiences and motivation, along with immersing oneself to keenly grasp the pertinent issues. Depending on time constraints, a substantial amount of information is gathered at this stage to

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use during the next stage and to develop the best possible understanding of users and their needs, and the problems that may hinder product development.

4.2.2 Denition Based on this information, researchers analyze and synthesize the team’s observations to dene the core problems identied. e statement of the problem should focus on the human aspect. e denition of these ndings can give the designers a “user” viewpoint that will be useful during the development of the design.

4.2.3 Idea generation Very few ideas make it through to the marketing phase: either they are eliminated along the way because of technical questions of feasibility, or they just do not t what the market wants. It is therefore essential for innovative companies to constantly generate a large number of new ideas. Fierce competition due to globalization has exacerbated this phenomenon and put considerable pressure on innovation and idea generation. Idea generation involves considering a large number of very diverse solutions ranging beyond the short term. During this phase of the process, designers are ready to generate ideas. ey have gained insight into users and their needs during the empathy phase, analyzed and synthesized their observations and understood that their problem must be expressed according to human needs. ey must now nd new solutions to the problem and new avenues toward the solution. ere are a number of ways that companies can generate these valuable ideas, ranging from the simple suggestion box to complex methods of analyzing latent needs. e classic methods include brainstorming, use of focus groups and consumer observation. ere are hundreds of techniques that can be used in this step, including the Worst Possible Idea and SCAMPER. ese methods and techniques stimulate free thought and help designers go beyond the immediate problem. It is important to have as many ideas or solutions as possible at the start of this phase.

4.2.4 Prototype In the prototype phase, the designers transform ideas into a concrete form. is will let them experiment and interact with the product. ey can also learn from it and empathize even more. e early versions of these prototypes should be low-cost to ensure that these ideas can successfully solve the problem identied in the previous stage. ese prototypes may be tested by the development team, by other departments of the company, or even by other groups. During this experimental phase, the aim is to identify the best possible solution to the problem. One by one, the solutions are investigated and either accepted, improved and re-examined, or rejected on the basis of the users’ experiences. By the end of this stage, the design team will have a better idea of the product’s inherent constraints and problems, and grasp more clearly how real users would behave, think, and feel when interacting with the end product.

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4.2.5 Test Most often, ideas do not go directly to the commercialization stage. Given the high cost of developing and launching new products, which represents a major risk, usually the company rst tries to evaluate the market potential of the ideas retained. Before creating an initial prototype, the company may develop a virtual prototype and gauge how attractive the concept is to consumers or its customers, in addition to collecting recommendations on the nal product’s features or design. e test therefore provides more information about the innovation. e prototype can then be rened, and the designers can learn from users. If the results are satisfactory, development can begin. e uncertainty associated with validating a prototype is nonetheless fairly high. Generally speaking, test marketing can greatly reduce the risk of introducing a new product. Many failures could have been prevented if the companies had done some testing rst. e more disruptive or radically new the product, the more complex it is to validate its market performance. e main reason for this complexity is that average consumers nd it hard to evaluate concepts, products or services they do not know, and the representations they are usually given at that stage are fairly abstract. During this phase, changes and renements are made to eliminate all problems and continue to gain a deeper understanding of customers’ needs. In Example 4.3, design thinking is being used to modernize the camping experience. By empathizing, understanding millennials’ camping needs, and testing the new oering, this industry has adapted and now provides an experience that this clientele values highly. It has thus created value for the whole industry.

Example

4.3

Camping redened for millennials

More and more North Americans are going camping; this industry is suddenly growing after years of decline. Last year, people from more than one million households camped for the rst time. Nearly half of them were millennials, between 18 and 35 years old. This generation is also reshaping the entire recreation business. For younger campers, who regularly post pictures on Instagram, Facebook or Snapchat, it is important to stay connected. Three out of four millennial campers say they use social media every day while travelling and seek out activities worth sharing with friends or family members.

The major privately held campgrounds are taking note. Kampgrounds of America surveys thousands of campers to nd out their behaviours and expectations, and thus better understand what these young people seek in a camping experience. They are now redesigning some of their nearly 500 North American campgrounds to include features younger campers value. The Catalina Island campsite, about 30 km off the California coast, is also following this trend. The island campground provides all the basics, like tents and stoves, along with stand up paddle boards and kayaks. Most importantly, it also provides easy access to Wi-Fi.

Creativity and Marketing Innovation

Even brands like The North Face, which used to focus on technical gear for avid adventurers, are now also creating stylish, user-friendly and comfortable products that appeal to millennials.

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For younger campers who are not ready to invest in outdoor equipment, sites like GetOuttted offer weekend gear rental. Hipcamp, an online Airbnb-type rental site, makes it easier for users to nd and reserve unique spots at campsites.

Source: More millennials head outdoors—while staying connected (2016, July 29). CBS News. Consulted at http://www.cbsnews.com/news/camping-industryattracts-millennials-with-extra-services

4.3 The value chain e value chain, which will be described in Chapter 5, consists of internal elements that stimulate creativity and innovation. It can be used as a framework for internal analysis to detect the strengths and weaknesses of the organization (see Figure 5.1, page 112). e company must clearly understand not only its own value chain, but also that of its competitors. It can thus identify important sources of value creation and dierentiation.

Young millennials seek a connected camping experience.

At this step, the company must concentrate not only on analyzing the processes that make up its value chain, but also on its labour and its management style. Given that the objective of innovation is the customer approach (for whom?), the company should think about “how” and “by whom” through its value chain. When analyzing its value chain, the company must also think about the strengths and weaknesses of its workforce. Researchers have found that individuals who create and innovate tend to possess three types of aptitudes. First, they must be technically competent in their eld. Second, they need certain creative skills like independence, capacity to function in changing environments and a predilection for risk-taking. ird, although technical competencies and creative skills are essential, motivation is also a fundamental condition for innovation (Amabile, 1996). Companies must also understand how their teams work, and determine which dynamics to use to maximize their productivity. Research shows that in general, the most creative teams are characterized by: • individual dierences that can cause friction that in turn spawns new ideas or innovative ways to function; • diverse thoughts or perspectives that prevent lethargy from setting in, which would lead to uniform thinking in the group; diversity thus fosters the development of new ideas. Lastly, the company should consider its management style and business culture. Once again, research shows that the most stimulating environments are those that exhibit a balance between overly controlling and negligent management (Amabile,

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1988). e multinational accounting and consulting rm KPMG, which has made the quality of its sta central to its value chain, has opted to innovate in its employee training. Specically, it created an innovation centre to develop innovative and useful solutions for its customers (see Example 4.4).

Example

4.4

KPMG: employee training and innovation laboratory In 2017, KPMG unveiled plans to invest $400 million to build a 55-acre campus in the 14-square-mile community of Lake Nona in Florida. This facility will provide immersive learning experiences that will improve the skills of the KPMG professionals who help solve customers’ problems. The campus will also feature 800 guest rooms, tness and outdoor recreational facilities, and multiple food and beverage venues. “At KPMG, we’re passionate about developing our people and creating growth opportunities for them,”

says Lynne Doughtie, chairman and CEO, KPMG LLP. “This facility is a signicant investment that will ensure our partners and professionals continue to have access to leading-edge learning and development opportunities to enrich themselves, stay connected to our inclusive, innovative culture, and remain equipped to deliver the highest quality in this fast-changing marketplace. Delivering a world-class training experience is also an investment in our ability to attract and retain the best talent.”

Source: KPMG to build state-of-the-art learning, development, and innovation facility in Orlando, Florida. (2017, January 9). KPMG. Consulted at https://home. kpmg.com/us/en/home/media/press-releases/2017/01/kpmg-to-build-state-of-the-art-learning-development-and-innovation-facility-in -orlando-orida.html?cq_ ck=1483980927758

4.4 The business model To serve its customers better, a company can also innovate by dierentiating its business model. Osterwalder and Pigneur have developed a Business Model Canvas that explains the dynamics of the economic business model. “A business model describes the rationale of how an organization creates, delivers and captures value” (2011, p. 14). e model presented in Figure 4.2 illustrates the links formed within a company and between a company and the outside world. All the elements situated on the left side of the model—namely key partners, key activities, key resources and the cost structure—refer to activities carried out within the company. Elements on the right side concern the relations between the company and its clientele, namely value propositions, customer relationships, customer segments and sources of income. Each of the elements of this matrix lets a company stand out from its competitors. Business model innovation consists of changing or developing one of these variables. is changes the dynamics of the model, which can grant the company a competitive advantage in its industry and

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Figure 4.2 Business matrix

Source: www.strategyzer.com

enable it to stand out in its oer to customers. is model, made up of nine blocks, is useful to describe and manipulate the various possibilities available to businesses. ese blocks cover four important elds: customers, the oer, the infrastructure and nancial viability. For example, consider the media industry, and daily newspapers in particular. Digitization and the proliferation of media that disseminate images, text, and sound, combined with new technological interactivity, have shattered the supremacy of traditional media. In recent years, the growing prominence of the web, the advent of smart phones, tablets, and phablets, and the explosion in social media use have transformed consumer habits dramatically. Clearly, the Internet is increasingly used as a source of information, and is fast becoming the primary information medium. Actors in the daily newspapers that post information online must adapt to these new trends by developing new business models that can ensure the survival of information in its most traditional form, paper. ere are two important ndings. First, traditional actors are no longer limited to written content. ey are seeking to dierentiate their products by adding technological components like new applications to attract Internet users. However, due to a lack of resources and the fact that some important players have already developed these technological capacities, newspapers are turning to external partners. For example, the daily Le Monde has partnered with Dailymotion, a French video sharing website that competes with YouTube, to integrate the video component on its own site. Actors are also looking for additional revenue streams. Being open to working with external partners is another solution that can increase media revenues. For example, Le Monde has formed a business partnership with edarling.fr, an online dating site.

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e second nding is that traditional media are increasingly trying to attract more Internet users by creating their own web communities. e nurturing of communities is one of the most widely used sales development strategies. Other strategies include user blogs, integration of social networks, subscriber zones (paywall), and publications that encourage user participation, which may extend to the aggregation of web content fully controlled by “virtual” communities. In Montréal, each of the three French news dailies has developed a dierent business model. La Presse is available for free on digital platforms, but the paper-only Saturday issue must be purchased. Le Journal de Montréal is released mainly on paper, but digital versions are available for a fee on all platforms. Le Devoir is also keeping a for-pay model. Although it developed a signicant digital platform, it is keeping its paper version (Brunet, Haurat, & Legoux, 2015). A similar comparison can be done regarding the markets where the dailies seek out their optimal new business model. Even the renowned New York Times, a pioneer in this area, has worked for many years to evolve its business model. Dailies have announced structural changes to their internal resources, partnerships and cost structure in an eort to continuously adapt to a changing and turbulent environment (Alpert, 2017). Examples 4.5 and 4.6 illustrate other models of innovation regarding the business model where businesses want to stand out from their competitors by oering their customers a distinctive value proposition.

Example

4.5

Oatbox, cereals at your door

Oatbox is a Québec company that was founded in November 2014. For $20 per month, customers can order two blends of healthy and natural breakfast cereals, which are delivered to their home by mail. Designed by chefs, these mixes are packaged in bags that are placed in boxes for delivery. Their mission is to offer customers nutritious breakfasts made from top quality products. “[The cereal industry] is immense, but it is dominated by traditional players who have not innovated in a

long time,” says Pierre-Luc Laparé, cofounder of the brand. Delivery accounts for 25% of the cost, but the cofounder said it would cost them more to sell their cereals at grocery stores. Pierre-Luc Laparé is betting that the zeal for monthly delivery of cereal boxes is here to stay. He thinks this model will let him build a company that can compete favourably against the large industry players like Kellogg’s and Quaker’s Harvest Crunch.

Source: www.oatbox.com; Breault, J. (2015, July 14). Cette start-up québécoise veut clouer le bec du coq de Kellogg’s. Les Affaires. Consulted at: www.lesaffaires.com/blogues/julien-brault/cette-start-up-quebecoise-veut-clouer-le-bec-du-coq-de-kellogg/580238

Example 4.6 describes how Busbud has created value for customers by introducing a new application that simplies their lives.

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Busbud, for budding globetrotters In 2011, Montréal-based Busbud launched a bus ticket search, reservation and purchasing service that can be used by travellers around the world. The company serves 89 countries.

Busbud is tapping into the interest in apps that reinvent ways to travel, like Uber, HAILO and Lyft. “We are in the right place at the right time,” says Louis-Philippe Maurice, president and cofounder of Busbud. “Our model is similar to Expedia, but in a new industry.”

Source: www.busbud.com; Massé, I. (2014, July 9). Des millions de plus pour Busbud. La Presse. Consulted at http://affaires.lapresse.ca/economie/ technologie/201407/09/01-4782410-des-millions-de-plus-pour-busbud.php

4.5 The creation of value: marketing strategy To generate prots and achieve sustainability, companies must consider their target clientele, positioning and value proposition. In Chapter 3, we closely examined the role of segmentation, including targeting, and positioning in marketing strategy. Companies want to provide their customers with solutions, and try to satisfy their needs. e matrix introduced by Osterwalder and Pigneur (2015), presented in Figure 4.3, illustrates an exploded view of how to approach innovation related to positioning in relation to a target clientele. Above all, it is important to clearly understand customers’ behaviours, needs and diculties, along with the solutions a company can propose.

Figure 4.3 Value proposition matrix

Source: Osterwalder, A. and Pigneur, Y. (2014). Value proposition design. How to create products and services customers want. Get started with... New Jersey, NY: John Wiley & Sons, Inc. p. 61.

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is matrix helps companies develop a value proposition. e rst step is to understand the customers’ jobs, and know the problems they face, the gains they seek and the pain they try to avoid. After doing this analysis, it is much easier for a company to know which products or services to oer its customers to help them realize gains and relieve pains. Consider the example of Unilever. e company wanted to reposition its Dove brand of soap, which was introduced in the 1950s. After conducting descriptive ethnographic research, Unilever found that most women had a poor self-image. It then decided to reposition the soap by emphasizing women’s natural beauty. e company staged a massive campaign on traditional and social media designed to reposition soap around this theme (Deighton, 2007). A very interesting aspect of this initiative is that the product itself did not change. What changed is its value proposition, specically its positioning relative to female consumers. Buoyed by the success of this campaign in terms of sales and customer perceptions, Dove developed a line for men, Dove Men+Care, whose selected positioning appeals to men’s paternal qualities (Milosevic, 2013). e major brands have also developed innovative value propositions. For example, the famous perfume brand Chanel No 5. has altered its positioning over the decades by using contemporary icons, from Marilyn Monroe in 1954 to Gisele Bündchen today, together with Catherine Deneuve (1970–1980), Carole Bouquet (1990) and Nicole Kidman (2003). e French company even inducted a male endorser, Brad Pitt (2012), for a short time. Apparently, this choice did not optimally reach the target clientele. Although the perfume remained the same, the value proposition, promise and positioning are inuenced by the chosen image. As the Hungton Post reports, the advertisement featuring Brad Pitt was perceived as a bad joke (Misener, 2012). e show Saturday Night Live decided to run the original advertisement rather than do a parody of it, arguing that its cast could not imagine anything funnier than that (Mitch, 2012). Example 4.7 illustrates segmentation based on articial intelligence.

Example

4.7

L’Oréal’s smart brush Who could have predicted that choosing a shampoo and hair brush could be so difcult? How do you know what kind of hair you have? And the hair care you need? These questions may seem supercial, but the associated economic issues are evaluated at several billion dollars. Withings and L’Oréal have collaborated to produce the rst Internet-connected “smart” brush: Kérastase Hair

Coach Powered by Withings. The brush features sensors that can determine hair quality and measure the effects of hair care. The company is going beyond merely trying to promote the purchase of a product; the application also provides usage advice. “L’Oréal already knew how to analyze types of hair. Our expertise is notably to use daily acts to gather health parameters,” says Withings CEO Cédric Hutchings. The

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simple action of brushing one’s hair triggers the data collection process. Guive Balooch, director of L’Oréal’s Research and Innovation Technology Incubator, says that companies will soon see the benets that connected objects offer consumers, and discover how to improve their

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experience. This new era of connected objects creates many possibilities for the cosmetics industry. Brands will be able to provide highly personalized care that will be perfectly adapted to users’ real needs.

Source: Bembaron, E. (2017, January 4). L’Oréal lance une brosse à cheveux connectée avec Withings. Le Figaro. Consulted at www.legaro.fr/secteur/ hightech/2017/01/04/32001-20170104ARTFIG00002-l-oreal-lance-une-brosse-a-cheveux-connectee-avec-withings.php

Example 4.8 paints a clear portrait of an innovation in brand positioning.

Example

4.8

Snapchat’s connected specs Snapchat recently launched Spectacles, sunglasses equipped with mini-cameras. By simply tapping the frame, you can take a 10 second video, the maximum duration of a “snap.” The mini-cameras capture images at 115°, which reproduces the human eld of vision. They thus offer more immersive videos, like those of GoPro. The images are then transferred to Snapchat via WiFi. The failure of Google’s virtual glasses taught Snapchat the importance of proceeding with caution. Google

Glass raised a real problem of privacy protection because it was impossible to know whether someone wearing the glasses was filming at any given time. Initial distribution will be limited; the company wants to observe how the market responds to the product. “We will see how it is received by the public and whether or not it integrates in customers’ lives,”Snapchat CEO Evan Spiegel explains.

Source: Woitier, C. (2016, September 25). Snapchat va lancer ses propres lunettes connectées. Le Figaro. Consulted at www.legaro.fr/secteur/ hightech/2016/09/25/32001-20160925ARTFIG00088-snapchat-va-lancer-ses-propres-lunettes-connectees-spectacles.php

4.6 The marketing mix Now that we have seen how creativity can be used to introduce innovations in a company’s value chain, business model, value proposition and marketing strategy, we will explore how it applies to the marketing mix. e chosen tactics must align with the company’s dened marketing strategy. e company must also consider its targets and selected positioning. is section covers development of new products and services, marketing communication, distribution and price.

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4.6.1 Innovation and development of new products and services Innovation and development of new products and services power the long-term success of a company. Brands that do not constantly renew their oer will quickly fall behind and may become anemic. Companies must therefore innovate at least as quickly as their competitors. If not, they will lose market share and may perish. In fact, the creation and introduction of new products are risky activities that managers must learn to manage. e development and introduction process consists of three main phases: idea generation, test and launch.

A team discusses new ideas.

To develop new products, companies can use design thinking (see page 88) or other approaches that will be described in Chapters 5 and 6. After a quick review of the implications of the life cycle of products and services, we will examine the dissemination of innovations and adoption factors of new products.

Life cycle of products and services As part of the innovation process, companies must consider the life cycle of their products or services. As we will see in Chapter 8, the pace of the life cycle of products and services varies. Consequently, brands must decide when to introduce innovation. Innovation involves bringing a product, idea or service to market that is perceived as being substantially dierent from any products, ideas or services already on the market. Innovations are characterized by their degree of continuity: they may be continuous or discontinuous. Continuous innovations Continuous innovations propose new characteristics that do not necessarily call for redening the product category, for example a new avour of Colgate toothpaste or a new Budweiser beer. Discontinuous innovations At the other extreme, discontinuous innovations are radically new products, ideas or services, which disrupt established habits or create an entirely new product category. is type of innovation is fairly rare, however, and would include computers, the electric light bulb and the jet engine. Another radical innovation put forward by a Longueuil rm is the D-Box system (www.d-box.com), which produces motion systems perfectly synchronized with the on-screen action on video games and movies.

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Diffusion of innovations Whatever their degree of continuity, new products follow pretty much the same diusion process, spreading throughout a market over time and among the dierent categories of adopters (Rogers, 1995). Figure 4.4 presents the distribution of these adopters.

Figure 4.4 Categories of adopters of innovations

Source: Rogers, E. (1995). Diffusion of innovations. New York, NY: The Free Press, p. 262.

First, there are the innovators, corresponding to the rst 2.5% of the total buyers of a product. en come the early adopters, at 13.5%. ese rst two types of adopters are characterized by their innovative personalities and opinion leadership. Innovators adopt innovations just because they are innovative, not for any actual benets that the innovations may oer. Early adopters are consumers who want to continue to be recognized as opinion leaders. ey thus quickly embrace the technologies adopted by innovators. Consumers who bought an iPad in 2010 were early adopters. In 2016, the Apple tablet was purchased and used by the following category, the early majority. Innovators are often fans of the product category and are eager to try out anything new that comes out. For example, fans of British comedy will readily go out and see a new comedy that has arrived in Montréal movie theatres for their own enjoyment because of their interest in the product category. Early adopters in the same movie theatre for the Montréal premiere are there less because of their interest in the product category and more for the sake of maintaining the status as opinion leader

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that comes with being among the rst to see a new British comedy. ey brag about being there and update their Facebook status with a photo of themselves in front of the movie theatre on the night of the premiere. Innovators and early adopters are also sometimes called visionaries because they do not need to be told what the innovation is good for; they are able to gure that out for themselves. A simple advertisement or an e-newsletter is enough to persuade them to try the new product. is visionary character is also linked to a particular product category; a consumer may be a visionary when it comes to fashion, but not at all when it comes to cars or restaurants, for instance. Once the visionaries have adopted the innovations, the two largest markets that follow are the early majority (34% of buyers) and the late majority (another 34% of buyers). Consumers who are part of the early majority do not adopt innovations until they have seen how the product benets them. e language to use with this type of consumer is very dierent from that used with innovators and early adopters. ere is a chasm between the third and fourth categories and the previous groups of adopters that, some researchers and practitioners maintain, largely explains the failure of certain innovative companies outside their initial markets. For a business focused on a new technology, selling the technology for what it is comes naturally. For instance, an engineer who has developed a new processor can talk about it proudly for hours on end without ever getting around to its benets. Many businesses, generally guided by technology and innovation, have been unable to tailor their language and their promotion to better communicate with a customer segment that is not interested in the product’s spec sheet, but rather wants to know what the product can oer them. is is a major challenge facing marketers working for innovative businesses. e early majority—which, along with the late majority and laggards constitutes the general segment of pragmatics—is therefore not concerned about what is new about a given product; they are interested in what the new product can do for them. ese benets must be communicated in a credible way. To use the example of the British comedy again, it is enough for visionaries to see a poster with the names of the cast and the director to be able to deduce the movie’s value. Pragmatics will not necessarily be able to interpret a poster properly and in this regard will be much more inuenced by a review by a critic, friend, or relative. e late majority generally does not adopt an innovation until it has proven itself, has been adopted by the early majority of consumers and has attained maturity. Individuals who bought home Wi-Fi Internet system adapters, XM/Sirius radio receivers or at-screen TVs in 2016 were part of the late majority. Finally, the laggards are the nal 16% of individuals who are the last to adopt innovations. By then, the products have mostly lost their innovative character and have practically become classics. For instance, consumers who bought a microwave oven or a cell phone for the rst time in 2016 can be considered part of this group. Table 4.1 summarizes the characteristics of these segments.

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Table 4.1

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Characteristics of segments of adopters Segment

Innovators (technology enthusiasts)

Characteristics • Appreciate innovation for its own sake • Motivated by status of agents of change in their social circles • Seek out communities of innovators • Accept and tolerate imperfections of the innovation

Early adopters (visionaries)

• Adopt and use innovations to make major improvements (revolutions) • Are attracted by major risks and rewards of innovations • Are insensitive to price • May demand personalized solutions and quick and efcient support

Early majority

• Motivated by evolution, change, improving productivity • Want proven, tested solutions • Want to reduce risks

Late majority

• Adopt innovations to keep up to date • Do not want to take risks • Are not very interested in technologies • Are price sensitive • Seek solutions that are ready to use, very certain

Laggards

• Want to preserve the status quo • Don’t think innovations improve productivity • Purchase the product only when all other options are less interesting

Adoption factors Marketers are also interested in factors that may favour adoption at the product level. Five major factors are usually identied as facilitating or hindering adoption: relative advantage, compatibility, triability, observability of the innovation, and perceived complexity. Relative advantage e product’s relative advantage is the rst facilitator. As we described above, the early majority will not buy the new product unless it is perceived as oering tangible benets. e bigger the product’s relative advantage, the faster it will be adopted by consumers in general. Incidentally, this is the main obstacle to the adoption of green and fair trade products. Beyond their environmental and social benets, these products do not oer the user much in the way of additional benets. In fact, sometimes it is just the opposite: green products often do not perform as well, and fair trade products are generally more expensive than standard products.

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Compatibility Compatibility with the usual way of doing things is the second factor that potentially facilitates the adoption of innovations. e arrival of frontloading washing machines in North American markets did not require a revolution in the way this type of product is used, apart from where the laundry goes. In contrast, voicerecognition programs oer many benets but have been slow to catch on because they challenge the traditional interface between users and their keyboards. Some people have been slower to adopt digital cameras because they change the way photos are viewed and stored. Ever since stores started oering the possibility of printing digital photos on traditional photo paper, their adoption has progressed quickly with the late majority. Triability Triability, or how easily the innovation can be tried out, also favours the adoption of new products. Buying a new product is a risk for buyers, be it nancial, social, physical, psychological or other. By testing out the product, consumers can greatly reduce the perceived risk of adoption. at is why many types of software and websites for services oer free trial periods, and why many businesses mail out samples of beauty products such as shampoos. Observability The observability of innovations also facilitates their diffusion. For instance, very few consumers are able to quickly and easily observe, unaided, the added power of a 1600 MHz Pentium M compared with the previous generation of processors, like the 2400 MHz Pentium 4. If Intel had not invested in advertising to make consumers aware of the benefits, its innovations would have been mainly unobservable and adopted less quickly. Many businesses are able to reap huge profits by using newspapers, magazines and infomercials on TV to sell products ranging from knives to workout machines and miraculous creams. These direct promotional vehicles are very popular because they concretely demonstrate the “extraordinary” benefits of products to consumers. Finally, observability simplifies word-of-mouth communication about innovations, which is one of the basic elements of diffusion.

Adidas is reusing waste from plastic water bottles.

Perceived complexity Finally, the perceived complexity of the innovation can be a barrier to its adoption in the population. A new product that seems complicated to use discourages potential users. Digital cameras are made to look like traditional cameras to show that they are just as easy to use. Some even go so far as to make a noise that sounds like a traditional lm camera. at was how the Apple brand was able to capture a considerable share of the consumer market for

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personal computers. e original iMac, with its all-in-one mono-block architecture with peripherals (keyboard, mouse, etc.) connected via USB ports, promised amazingly simple set-up and Internet access. Example 4.9 presents the case of Adidas, which is developing products from waste materials. is goal is linked to the company’s sustainable development. Example

4.9

Adidas: walking in waste Accumulation of plastic on land and in the ocean is a real environmental catastrophe. Following damaging revelations about the working conditions of its subcontractors in Asia, Adidas wanted to improve its corporate image as both an employer and a producer. It thus developed a sustainable development strategy

that centres on the reuse of plastic waste. It aims to market a collection of shoes and clothing made from recyclable materials whose quality matches that of new materials. Adidas is working in cooperation with partners like BASF, the world’s largest chemical group, to develop this type of material.

Source: Bientôt des chaussures fabriquées à partir de déchets plastiques chez Adidas. (2016, April 15). La Presse. Consulted at www.lapresse.ca/vivre/ mode/201604/15/01-4971497-bientot-des-chaussures-fabriquees-a-partir-de-dechets-plastiques-chez-adidas.php

Example 4.10 describes Téo Taxi, a company that has innovated in the area of customer service. Example

4.10

Téo: electric taxis

Ofcially introduced in 2016, Téo is the rst eet of 100% electric taxis in Canada. “With the arrival of Téo, we plan to demonstrate the economic, social and ecological protability of this large-scale green project that abides by the regulatory framework,” says Alexandre Taillefer, entrepreneur, investor and senior partner at XPND Capital. “By launching the service, we will concretely contribute to reducing CO2 emissions and expanding the reach of Montréal, which is entering the elite club of large cities that offer an electric taxi service.”

In addition to providing a greener service, Téo rethought the customer experience. The company has two distinct offers: Téo Taxi, made up of a eet of Nissan Leaf, Tesla and Kia Soul cars, and Téo Noir, a eet of luxury Teslas that mainly targets businesspeople. Téo also boasts of its personalized service. The mobile app lets customers share a ride, and passengers can reserve taxis. Téo also supplies customers with a digital tablet that presents content adapted to their prole and destination. A Wi-Fi signal and chargers for customers’ devices are also available in the cars, which are cleaned, checked and recharged daily.

Source: Jacques, G. (2015, November 18). Téo: nouveau joueur dans l’industrie du taxi. Infopresse. Consulted at www.infopresse.com/article/2015/11/18/teonouveau-joueur-dans-l-industrie-du-taxi.

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Some product launches are ascos. Causes of failure include: • • • • • • • •

Overestimation of the market Flawed design Poor positioning on the market Pricing errors Ill-designed sales communication Production orientation rather than customer orientation Cost overruns Competition

4.6.2 Marketing communication Opportunities for creativity and innovation in communication abound. We will see in Chapter 9 on marketing communication that it is possible to innovate when dening the key message and in the use of each of the means of marketing communication: advertising, public relations and media relations, direct and relationship marketing, sponsorship, sales promotion, digital and mobile marketing, social media, experiential marketing and content. Example 4.11 shows how Topshop uses Twitter to promote its brand.

Example

4.11

Topshop’s social and digital experience During “Fashion Week” in London, Topshop joined with Twitter to present a personalized shopping experience. The brand used Twitter’s technology to give its customers almost instant access to the apparel worn on the catwalk. Digital and interactive displays installed in London, Leeds, Birmingham, Manchester, Liverpool

and Glasgow let the public watch the fashion show live. After the show, the @Topshop Twitter account showcased the trends in the windows of the Oxford Circus store. Customers who tweeted hashtags to @Topshop that referred to these trends received a list of items that they could purchase online immediately.

Source: Fashion week de Londres: Topshop offre une nouvelle expérience sociale et digitale à ses clients. (2015, February 18). La Parisienne. Consulted at www. leparisien.fr/laparisienne/mode/fashion-week-de-londres-topshop-offre-une-nouvelle-experience-sociale-et-digitale-a-ses-clients -18-02-2015-4546665.php

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4.6.3 Distribution Distribution, which will be discussed in greater detail in Chapter 11, is an element of the marketing mix (place) that is fertile ground for innovation. Technological innovations have revolutionized retail trade. Consumers use high tech to nd information about products and to make purchases. As a result, the role of brickand-mortar retail outlets has completely changed. Consumers are now researching products or services on the Internet. ey can also order products online and have them delivered wherever they wish. Similarly, people can go to a store, compare prices of products on their smart phone and, if applicable, order them from somewhere else. In all of the cultural industries like music, movies or publishing, online distribution has forced companies to completely rethink their customer approach. e possibilities for innovation in distribution are vast, and they all aim to make customers’ lives simpler. Example 4.12 demonstrates how a Pop-Up Shop distributed a musical experience in a distinctive way.

Example

4.12

Pop-Up Shop Technology is now treating music fans to a human experience. “Music comes to life with videos or shows. However, animating it indoors offers another experience. It evokes the idea of sharing and creates closeness with my fans,” Alex Nevsky points out. For the launch of his album “Nos Eldorados,” Alex Nevsky and his manager Julien Aidelbaum approached Cath

Laporte to produce the album sleeve, which evolved into an exhibition project housed in a pop-up boutique. Customers can listen to the album on headphones while contemplating the artist’s work. Many Canadian and American artists like Justin Bieber or Kanye West have orchestrated pop-up boutiques to market their music, yet this practice is still rare in Québec.

Source: Rigano, A. (2016, November 8). Pop-Up Shop “Nos Eldorados”: un pont entre arts et affaires. Infopresse. Consulted at www.infopresse.com/ article/2016/11/8/relation-arts-et-affaires-alex-nevsky-et-cath-laporte-y-mettent-un-peu-d-amour

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4.6.4 Price Chapter 12, the last one in this book, covers price. It may seem dicult to innovate in this area, but some companies are using pricing strategies to dierentiate their brand. In fact, price is one of the elements that is communicated by advertising about a product or service. When a new product or service is launched on the market, setting a single price may not be the right approach: dierent prices, depending on the uses or versions, can be highly eective. Pricing is more than just an exercise involving numbers: it requires a clear understanding of customers’ needs and knowledge of how to meet them. Example 4.13 discusses an initiative by the airline Transavia, which turned chip and candy packets into tickets.

Example

4.13

Transavia: budget airline turns chip and candy packets into airline tickets In 2015, French budget airline Transavia created branded packets of chips, candy and cereal bars that doubled as tickets for a Transavia ight. The products were sold at participating Carrefour City shops, in

vending machines at metro stations, and at a cinema in Paris, and cost between $45 and $55. Customers who bought the products could use a code printed on the packet to secure a ight to Barcelona, Lisbon or Dublin.

Source: 2015’s most expectation-raising innovations (2015). Trend Watching. Consulted at http://trendwatching.com/trends/15-innovations-from-2015/

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Summary This chapter discussed the different ways that businesses can innovate. First, we distinguished between creativity and innovation, and established the importance of innovation to ensure the continuity of a company. We then discussed research, the main tool that drives creativity and innovation. The design thinking method notably lets companies clearly understand customers’ needs and wants. Design thinking includes ve steps: empathy, denition, idea generation, prototype and test. The value chain can serve as an analytical framework to identify sources of innovation. Further, knowledge of

the workforce and the importance companies place on it contributes to managing innovation in business. Companies can also innovate by differentiating themselves through their business model. Marketing strategy, particularly segmentation, targeting, positioning and value proposition, is also enriched by creativity and innovation. Lastly, a company can stand out by innovating with regard to all of the elements of the marketing mix. Development of new products and services, marketing communication, distribution and price can all be enhanced by creativity and innovation.

Suggested readings Textbooks Amabile, T., Fisher, C. M. & Pillemer, J. (2014, January/February). Ideo’s culture of helping. Harvard Business Review. Amabile, T. M. & Khaire, M. (2008, October). Creativity and the role of the leader. Harvard Business Review. Christiansen, C. M., Kaufman, S. P. & Shih, W. C. (2008, January). Innovation killers: How nancial tools destroy your capacity to do new things. Harvard Business Review.

De Jong, M., Marstong, N. & Roth, E. (2015). The eight essentials of innovation. McKinsey Quarterly. Dyer, J. H., Gregersen, H. B. & Christensen, C. M. (2009, December). The innovator’s DNA. Harvard Business Review. Innovation: a customer-driven approach. (2011). Harvard Business School. #9-695-016.

Websites 2016 Global Innovation 1000 Study: http://www.strategyand.pwc.com/ innovation1000 Creativity and Innovation Journal: http://onlinelibrary.wiley.com/ journal/10.1111/(ISSN)1467-8691

PART

2

Analysis

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5

Internal and External Environments Chapter outline 5.1

The SWOT model

5.2

The TOWS model

5.3

The internal environment

5.4

The external environment

Learning objectives After reading this chapter, you will be able to: grasp the importance of analyzing an organization’s internal and external situation, and of linking the situation to marketing planning and strategy formulation in an organization; situate an organization in its environments; distinguish different levels of the environment and their components; master a set of tools used to analyze internal and external environments.

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For a wide array of business actors,

from established organizations to young entrepreneurs who want to launch a new project, diagnosing the internal environment, tracking trends in the external environment and analyzing how the phenomena identied will aect business operations are fundamental steps in the planning and execution of marketing strategy.1 e reason for this is simple: regardless of the size or age of the organization, it cannot act in a vacuum. It must use its strengths to seize opportunities in its external environment, and must overcome its weaknesses to protect itself from threats that may hinder its performance and jeopardize its sustainability. e SWOT analytical framework helps analysts process information gathered internally, together with external data. SWOT stands for strengths, weaknesses, opportunities and threats, which may act as either a brake or a springboard for an organization. To ensure that the framework is useful, analysts must go beyond simply identifying the strengths, weaknesses, opportunities and threats prevailing in the company’s internal and external environments. ey must also be able to integrate this information and transform it into strategic orientations. e TOWS matrix, which is an alternative version of the SWOT framework, lets organizations achieve this objective. Managers can use the results of these analyses to formulate their marketing plans and determine the commercial mix. Entrepreneurs can also use these analyses to gauge whether or not it is the right time to enter a market.

Flow chart

1. is step corresponds to the situation analysis phase of the marketing planning process, described in Chapter 2.

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is chapter situates an organization within its internal and external environments, denes the main concepts related to the analysis of these environments and demonstrates the importance of considering the company’s environments when planning and formulating marketing strategies. Several analytical tools used in strategic marketing and planning are presented. Not only do they highlight the strengths and weaknesses of the organization and the opportunities and threats in its external environment, but they can also transform this information into strategic information that will guide marketing managers and decision-makers during the planning process and help them choose the most appropriate marketing strategies.

5.1 The SWOT model e SWOT (strengths, weaknesses, opportunities and threats) model systematically summarizes and integrates all the information issuing from the diagnosis of the company’s internal (see page 112) and external (see page 124) environment in one tool. Managers can use this model not only to choose marketing strategies that integrate the strengths and weaknesses of the organization, but also to identify opportunities and threats that may aect the company’s operations over the short, medium and long term. e winning strategies are those that ensure the best match between the environmental imperatives and what the organization can oer, and between what the organization needs in order to achieve its objectives and its mission, and what opportunities exist in its environment (West, Ibrahim & Ford, 2010). To depict dierent combinations related to the company’s internal situation and to the characteristics of its environment, the SWOT analytical model is presented as a two-dimensional matrix. e rst dimension traces the origin of phenomena that may impact the organization’s activities. It distinguishes phenomena related to the internal environment from those related to the external environment. e second dimension indicates how the information concerning the internal and external environments will impact the company’s operations and performance. is impact is positive when the business has an internal strength or external opportunity, and is negative when internal weaknesses are combined with threats coming from the external environment. Figure 5.1, on the following page, illustrates the combinations that make up this matrix. Managers can use the model to evaluate the extent to which the company’s current internal situation (strengths and weaknesses) will let it face challenges related to threats in its external environment, and seize opportunities that arise externally. is analysis should help managers dene winning strategies and eective actions.

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Figure 5.1 SWOT model

5.2 The TOWS model Owing to its simplicity, the SWOT model has become a very widely used marketing planning tool in the business world. However, simplicity can be a double-edged sword. Several strategy researchers have criticized practitioners for having used this tool to simply compile a list of strengths, weaknesses, opportunities and threats, without placing any value on their real signicance and without formulating strategies based on the results of the analysis. Consequently, the TOWS model (TOWS stands for threats, opportunities, weaknesses and strengths) was proposed by Weihrich in 1982 (cited in West, Ibrahim, & Ford, 2010) as an alternative analytical tool. Although this matrix contains the same information as that found in the SWOT matrix, the main advantage of the TOWS matrix is that it integrates all of this information in one analytical model that then serves as a strategic planning tool. is model presents the strategic tools that the organization can use to seize opportunities that arise or protect itself from threats to its operations, according to its capacity to harness its strengths and overcome its weaknesses (see Figure 5.2, on the following page). Of course, this tool must be constantly updated to integrate all new information related to changes in the situation of the organization and its environment. Marketing research and a market watch, including a competition watch, are essential for the eective collection and analysis of this information.

5.3 The internal environment Diagnosing a company’s internal situation is a process that resembles personal introspection. is exercise consists of methodically looking inside oneself to gain a better understanding of one’s status or situation. Whereas introspection often

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Figure 5.2 The strategic options of the TOWS matrix (Weihrich, 1982)

Source: West, D. C., Ibrahim, E. & Ford, J. B. (2010). Strategic marketing: creating competitive advantage (2nd ed.). Oxford, UK: Oxford University Press, p. 85.

concerns individuals’ psychological or spiritual dimensions, diagnosis of the internal environment of an organization focuses on the attainment of objectives (or, more generally, the mission), the availability of resources, competencies, achievements and performance. Analyzing these components of the internal environment can shed light on the strengths that contribute to the company’s success and the weaknesses that may hinder its performance and sustainability. When identifying these elements, managers or marketing analysts strive to cover all aspects of the company’s internal environment as completely and precisely as possible. An incorrect or incomplete denition of the objectives, market or sector may result in a poor diagnosis of the internal environment, which would translate into an inecient plan and poor execution of strategies. Several analytical frameworks can be used to diagnose the strengths and weaknesses of the organization. e rst method consists of analyzing each of the components of the internal environment and seeing how the organization is positioned relative to each of these components. e second method can

The internal environment of an organization is made up of its resources, competencies, achievements, current offer, performance in its sector(s) and all of the other key factors that represent obstacles or that may act as springboards to allow the organization to fulll its objectives and mission.

Strength An important characteristic that an organization uses to attain its objectives, seize opportunities in its environment and protect itself from threats. Weakness A factor that can harm the organization by limiting its ability to achieve its objectives, either because it cannot seize opportunities that arise, or because it makes the company vulnerable to potential threats.

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also focus on each of the primary and support activities that make up the value chain. e third method, recommended by some authors and often used in practice, is called benchmarking. It consists of identifying existing best practices in a given sector by analyzing the processes used by the “best in the class.” In this section we will explore these three methods, which are the most commonly cited and used. However, before analyzing the environment, three major elements must be dened: the organization’s objectives and mission, along with its market and sector.

5.3.1 Objectives and mission of the organization e analysis of the internal environment should produce a complete prole of the organization, which must be constantly updated. is is why it is crucial that marketing managers describe this environment precisely. First they must dene the objectives and mission of the organization as clearly as possible (see Example 5.1). e ultimate objective of all organizations is to achieve acceptable protability, but this will not be possible if the organization does not pledge to oer its customers and partners added value, and if it does not deploy the strategies that will enable it to keep this promise.

Example

5.1

The local pharmacist

The Jean Coutu pharmacy retailing group summarizes its main objective in one sentence: “Our goal is to offer customers all the advantages of a large drugstore chain while still retaining the personalized service offered by a local pharmacist.”

experience throughout its vast network of pharmacies. Franchisees can benet from the group’s awareness and supervision services. When fullled, these promises constitute strengths that allow the company to position itself as a leader in its sector.

The retailer pledges to offer its customers high quality products and services and a personalized shopping

Source: www.jeancoutu.com

Generally, organizations summarize their objectives in the form of a mission. e mission of an organization is often dened based on its vision, which is simply the projection of its evolution in the future. In its mission, an organization can clearly state its main activities and specify its distinctiveness relative to other organizations in the same sector. is is where its competitive advantage lies. Following the analysis of its internal environment, and by comparing its oer with that of its competitors, this advantage may become a strength that will let the company carve out a desirable place in the market. Note that a distinction can be transformed into a

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competitive advantage or strength only if the company’s customers and partners perceive its importance. An organization that cannot nd a way to stand out from the competition limits its chances of achieving its objectives, seizing opportunities that arise and protecting itself from threats to its operations.

5.3.2 Components of the internal environment Wood (2010) asserts that the internal environment is made up of several factors or components. ese factors are: resources and core competencies (or capacities) of the organization, its current oer, its prior performance and its business relations. Some factors may contribute to its success or signal threats to its development. Managers must therefore know how to recognize and analyze each of these factors and translate them into strengths or weaknesses.

Resources and core competencies Wood denes core competencies as “internal capabilities that contribute to competitive superiority yet are not easily duplicated” (2010, p. 31). ese competencies originate in the company’s resources (see Example 5.2).

Example

5.2

Reitmans conquers the US market

The Canadian company Reitmans, which owns several retail apparel and fashion accessory chains, has recently conquered the American market by teaming up with Macy’s, Nordstrom and Lord & Taylor. On the strength of its knowledge and mastery of the plus-

sized niche, Reitmans is now selling its lingerie and plus-size fashion collections through these prestigious retailers, allowing it to penetrate a market with high potential that had been poorly served by its American competitors.

A company’s strengths allow it to seize opportunities that arise on the market, but a lack of resources and competencies may impede its growth and jeopardize its future. Because resources (human, nancial, information or purchasing-related) are often limited, managers must ensure that they allocate them optimally. e organization can consequently maximize its performance while fullling its mission and objectives. Human resources An organization whose sta is qualied, competent and motivated will certainly oer higher quality service and products, especially compared with a company that does not invest in hiring, training and retaining its human resources. Service rms often use employee qualications as a distinctive marketing argument to retain their current clientele and attract potential customers (see Example 5.3, on the following page).

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80 years of experience at Securo Vision

To highlight its competitive presence in the market, Securo Vision puts its human resources at centre stage.

Source: http://securovision.com/en/about-us/prole/qualied-staff/

Financial resources Organizations can invest their nancial resources in dierent aspects of the marketing mix. For example, they can nance large-scale communication or distribution campaigns, or invest in research and development (R&D) to enable them to better meet their customers’ needs.

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Information resources Procter & Gamble (P&G) is one company that has made innovation a top priority. Each year, this large multinational invests nearly $2 billion in research and development to nd solutions that can improve its customers’ daily lives (Procter & Gamble, 2016a). e company also relies heavily on its information and procurement resources. It clearly states that in addition to its innovation capa­ cities, its strengths lie in its knowledge of its customers’ needs and its preferred relations with distributors. In fact, distributors claim that P&G is their favourite supplier, and consider its brands as the most important among those that they carry (Procter & Gamble, 2016b). Resources linked to purchasing e competitive advantage, in other words the strength of an organization, may come from its capacity to purchase goods and ser­ vices from its suppliers distinctly and eectively. Top quality raw materials, a fast inventory management system, and developing preferred relations with suppliers are all examples of this type of resource.

Current offer Before analyzing the current oer of an organization, it is useful to compile a list of the products and services that it markets, along with their performance (sales, market share, protability, contribution to prot, etc.). e objective of this exercise is to ensure that the oer eectively reects the mis­ sion of the organization and that it takes its resources and capacities into account. is analysis may illustrate development possibilities that had been overlooked, or incorrect decisions concerning the marketing of some products or services that do not (or no longer) match the mission stated by the organization. Joseph Joseph, the kitchen accessory brand present in over 100 countries, had been marketing a product line made up of cutting boards, serving dishes, mugs and clocks since its inception in 2003. Interviewed by the newspaper e Telegraph, Antony and Richard Joseph, the twin brothers who founded the brand, explained why they removed mugs and clocks from their product line. One of their customers, a kitchenware buyer for a retailer, convinced them to focus on what they do best, which is oering kitchen design accessories that are innovative, clever, and problem­solving. Mugs and clocks did not mesh with the company’s primary mission. After withdrawing these items, the brand achieved international acclaim, winning design awards for its kitchen accesso­ ries. is renown let it not only extend its new oer by proposing a larger variety of kitchen accessories, but also diversify its product line by adding storage and cleaning solutions (Bright designs behind Joseph Joseph success story, 2014).

Past performance Performance history can shed light on the strengths and weaknesses of organizations. By analyzing the evolution of sales, market share and prots generated by products, marketing analysts or managers can identify which products have stopped attracting customers. ey can then conduct studies to explain this decline. ey can also better understand some weaknesses and act quickly to correct them, before the situation poses a real threat to the company’s image and the perception of its other products.

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Walt Disney Animation Studios announced in May 2016 that it was bowing out of the video game sector and stopping production of its famous Disney Innity gurines. e cost of this exit was estimated at $147 million; over $100 million was invested in the creation of the rst gurine in 2013. Disney justied this decision by the decline in sales of this product in a sector characterized by stalled growth and high production costs (Woitier, 2016). Performance analysis also serves to assess the impact of previous marketing actions and identify the most eective initiatives. A successful communication campaign represents a strength if the company can exploit the awareness it generated when it later launches a new product or brand.

Relations with business partners Suppliers, distributors and other business partners can contribute to reinforcing a company’s position in the market or, conversely, slow its expansion. As we saw above, good relations between P&G and its distributors are the strength that lets the multinational ensure the guaranteed presence of its brands on a global scale and facilitates the entry of its new products in the market. A rm that cannot successfully gain distributors’ trust will not survive the cutthroat battle for shelf space, especially if it is up Owing to the product’s dismal performance, Disney stopped marketing against powerful players like P&G or private brands Disney Innity gurines in 2016. controlled by distributors. Strong dependence on business partners generally represents a weakness that all organizations must try to mitigate or sidestep by envisioning new purchasing or distribution solutions (for example, direct distribution) and by ensuring that this dependence with partners is mutual. It can then be transformed into a negotiation lever and consequently an advantage.

Key factors of failure or success Within an organization, internal factors have a positive or negative impact on operations and thus represent an asset or a gap. Key failure factors become a weakness if the organization lacks the tools to dampen their eects. In contrast, success factors can become a strength if the organization adopts means to use them to its advantage. A company’s brand awareness in its sector is an example of a success factor. Awareness is often a strength that a business can transpose to other sectors. e brand Louis Vuitton (LV), for example, has thrived as a major player in the luxury

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handbag sector since it rst began to market travel trunks in 1854. In 2016, LV announced that it was entering the perfume sector, despite several unsuccessful attempts (in 1927, 1928 and 1946). is new launch is justied by the awareness that the brand has cultivated in the high-end sector over the decades. LV has harnessed this awareness by diversifying its activities to oer prêt-à-porter, tableware and, most recently, perfumes. Being an innovation leader is a strength that companies can translate into a key success factor. Apple is a perfect example. By investing massively in new product development, the company not only successfully carved out a choice place in the telephone and entertainment market, but also made its mark in other sectors, such as watches. Estimates of its annual sales in 2016, based on its performance only a few months after the launch of Apple Watch, ranked it third in the sector, just behind Swatch and Richemont (Hirel, 2015). Failure factors are internal factors that may weaken an organization or prevent it from achieving its objectives and mission. For a company that specializes in online sales, these factors are exemplied by a defective website or an unsecure online payment mode. ese two factors may make the shopping experience unappealing, and even unpleasant and frustrating for visitors.

5.3.3 The value chain An organization that dierentiates itself from its competitors through an aspect that is important to consumers clearly benets from a strength in the market (see Chapter 4). is strength results from its capacity to carry out some of its primary or support activities more eciently than its competitors. In the market, its eciency may be manifested in its ability to propose a dierentiated oer (for example by oering consumers a product of better quality or a faster and more personalized service), or by more attractive prices arising from advantages related to costs. is is notably the case for companies that benet from economies of scale thanks to their presence in several sectors that use the same inputs. In both cases, eciency improves the margins for the organization’s products and services, and consequently boosts protability. e works of economist Michael Porter on the competitive advantage of businesses have laid the foundations of business strategy. ey are considered an indispensable reference in the eld of management, particularly marketing. In his book Competitive advantage: Creating and sustaining superior performance, published in 1985, Porter contends that one cannot grasp the competitive advantage of an organization if the whole entity is analyzed simultaneously. Rather, this analysis must be more specic, and examine each of the main and support activities of the organization, presented in the form of the value chain (see Figure 5.3, on the following page). When the value chain is used as a framework of internal analysis, it can identify the strengths and weaknesses of the company.

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Figure 5.3 Value chain

Source: Porter, M. E. (1985). Competitive advantage: creating and sustaining superior performance. New York, NY: Free Press, p. 37.

Primary activities e primary activities (or basic activities) of an organization are all activities related to the creation, production and marketing of products and services. Porter lists ve activities: inbound logistics, operations, outbound logistics, marketing and sales, and service. Inbound logistics activities encompass activities related to reception, storage and procurement logistics, and those related to management of the inputs required for production of the good or service oered in the market. A rm that successfully procures materials from its suppliers at a low cost, or more quickly than its competitors, holds an advantage and therefore a strength in the market, which may be very powerful. Dollarama, the gigantic vendor of low-price items, has managed to keep its prices below $4 by purchasing low-cost products from its Chinese suppliers. Fashion retailer Zara stands out from its main competitors (H&M, Mango and GAP) because of its speed and exibility in procurement management. e Spanish company has built a reputation as a pioneer in fast fashion by shaving its procurement times to two weeks, compared with two months for the global average (Textile: La mode rapide sauve la mise, 2007). To meet this challenge, the company has moved many of its production sites to Morocco, taking advantage of its geographical proximity. is choice implies that the company has anchored its strength in procurement speed rather than low cost, unlike many of its rivals who opted to deal with Asian suppliers. Activities linked to operations involve the transformation of inputs into products. Production, assembly, packaging and equipment maintenance activities are all related to operations. Similar to inbound logistics activities, if they are done at a lower cost or in a shorter time, and if their quality is superior, they represent an undeniable

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strength for the organization. Another strength based on this type of activity is the ability to procure machinery and production and assembly tools that are more ecient and in better condition than those of the competitors. Lastly, the ability to produce small quantities at a low cost can also be a strength for an organization that serves the custom-made sector. Outbound logistics activities include all aspects of distribution, including the storage of nished products and their delivery to customers. Amazon, for example, installed robots in two of its main distribution centres in California. is investment enabled it to optimize its storage space and increase its inventory capacities, which allows it to provide faster and more ecient delivery to its customers in San Francisco (Lelliâtre, 2015). Recently, the company tested a drone prototype that can deliver 2 kg items ordered from its website within less than 30 minutes. is new delivery mode, if implemented, would represent an undeniable strength for this online distribution titan (Raynal, 2015). Activities related to marketing and sales Marketing and sales cover all activities linked to segmentation, targeting, positioning and management of the marketing mix, as described in Chapters 8 to 12. Activities linked to after-sale service ese activities are intended to add value to the company’s oer and to improve customer satisfaction and retention. ey consist of installation, repair, return management and claims services. ey represent a strength if the company can oer these activities in a unique way, or more eciently than the competitors. However, they may become a weakness if they do not measure up to customers’ expectations.

Support activities e strengths or weaknesses of an organization can also result from its support activities, which Porter (1985) described as all activities that ensure that basic activities are executed as eciently as possible. e four support activities are: infrastructure of the organization, human resources management, technological development, and purchasing and procurement. e inability of the Montréal company Beyond the Rack to eciently procure inventory for its private sales site clearly demonstrates how a weakness linked to this support activity created nancial diculties and creditor discontent in 2016 (Fournier, 2016a). e company, which served Canadian and American markets alike, prospered when it emerged in 2009 by oering designer items at very enticing prices. At the time, its oer was favoured by the economic crisis, which limited manufacturers’ capacity to fully liquidate their stock via traditional channels. After the recession ended, several of Beyond the Rack’s suppliers developed their own online sales sites, which led to procurement problems and consequently to a much more limited oer, coupled with a drop in interest among its subscribers and potential customers (Fournier, 2016a).

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An organization that benets from infrastructure, resources and skills that let it carry out its activities in a distinct way, or that make it more ecient than the competitors, can boast that it has a strength that makes it a leader, owing to the additional margins that these activities can generate in the short term, along with the impact on customer retention and acquisition in the longer term.

5.3.4 Benchmarking Benchmarking Benchmarking is a continuous process that lets companies measure their performance in terms of products, services and practices against their most efcient competitors in their sector, or rms considered as leaders in other sectors (Camp, 1989). The comparison can also be done internally based on best processes and practices within the other divisions of the organization.

Pioneered by Xerox in 1979, benchmarking has become an indispensable internal analytical tool for organizations. Not only can it identify a company’s strengths and weaknesses in its execution of dierent functions in its sector, but it also lets businesses draw inspiration from best practices that have proven themselves in other settings to improve their own processes and set performance objectives.

erefore, unlike the two internal diagnosis methods described above, the value of benchmarking goes beyond simply identifying the strengths and weaknesses of the organization. By highlighting best practices and setting standards of excellence and precise targets to achieve them, this analytical framework provides orientations that drive improvement. Benchmarking may cover all the components of the internal environment listed above or the primary and support activities that make up the value chain. In strategic marketing, benchmarking based on analysis of the value chain is called “strategic priority analysis.” is analysis serves to determine the priority activities (sources of competitive advantages), which the organization should exploit as key strengths, and the actions that it should ignore in its strategic planning exercise (Mooradian, Matzler & Ring, 2012). Figure 5.4 depicts this analytical framework. It shows the positioning of several activities of a rm’s value chain along two dimensions. e rst dimension categorizes activities according to strategic importance, whereas the second dimension evaluates the company’s relative performance in the execution of this activity. e organization is thus compared with its most ecient competitor and may be ranked better or worse than that company. e matrix obtained by crossing the levels of the two dimensions shows four possible positions for these activities. • Cell 1: ese activities are undeniably a key strength; the organization should strive to maintain and reinforce them. • Cell 2: ese activities are very important on the strategic level, but the organization does not perform as well as its main competitor. is situation points to weaknesses that the organization must correct and prioritize immediately. Failure to act may pose a real threat to the organization.

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• Cell 3: ese activities require less attention because they are not as important and the organization does not perform them very eciently. erefore, developing them would be a poor allocation of resources. • Cell 4: ese activities are unimportant strategically, but the organization performs them eciently. is diagnosis indicates a poor allocation of resources, which should be reassessed by decision makers.

Figure 5.4 Analytical matrix of strategic priorities

Legend: 1: R&D, 2: Purchasing, 3: Inbound and outbound logistics, 4: Operations, 5: Marketing, 6: Sales, 7: Service. Source: Mooradian, T. A., Matzler, K. & Ring, L. J. (2012). Strategic marketing. Boston, MA: Pearson Prentice Hall, p. 112.

By examining the components of their internal environment and their performance in the execution of the activities of their value chain, and comparing their performance with that of other organizations, companies can use the frameworks that analyze the internal environment described in this subsection to identify their strengths and weaknesses. Regardless of the framework used, the internal analysis of the environment should be done continuously; the organization must not be treated as a static entity. On the contrary, because the organization evolves over time, a strength that was detected at one point may weaken or disappear after a change occurs within the organization or its environment (for example, the arrival in the market of a competitor with similar strengths and less pronounced weaknesses). erefore, for a competitive advantage to represent a strength, it must be durable and dicult to imitate. e example of the company Beyond the Rack clearly illustrates how the long-term outlook of a company may be undermined and even threatened when its competitive advantage becomes unsustainable because it is easily imitable. Lastly, the analysis of the internal environment can be complete and useful only if it considers pressures that the immediate environment (microenvironment) exerts on the organization, along with the set of factors that the company cannot control, and that exert their power over the whole market (macroenvironment). ese two environments make up the external environment of the organization.

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5.4 The external environment All organizations decide on their strategy and actions by considering their internal environment, along with their context. is context is represented by the external environment, which can be analyzed at two levels: micro The external environment of the organization and macro. comprises two levels: the microenvironment, or the competitive environment, and the macroenvironment.

Figure 5.5 situates the organization on these two levels, along with the main actors and phenomena that inuence the organization and the market as a whole.

Figure 5.5 The place of the organization in its environment

Source: Mooradian, T. A., Matzler, K. & Ring, L. J. (2012). Strategic marketing. Boston, MA: Pearson Prentice Hall, p. 112.

5.4.1 The microenvironment e microenvironment, also known as the competitive environment, is the set of actors that are in direct contact with the Established and potential competitors, organization; their activities may aect the company’s strategies. substitute products, customers (buyers on ese actors feel the impact of the organization’s strategic decithe business and consumer markets) and sions, but they also exert pressure on the organization, which suppliers of the organization. may even lead it to modify its commercial strategies and actions. e microenvironment is often described as uncontrollable, because of its eects on the organization. However, the strategy literature categorizes it as semi-controllable by distinguishing passive organizations from proactive organizations according to their level of reactivity to their external environment. Because they are aected by the environment, passive organizations are reactive organizations that have no control over their environment. Conversely, companies that track the evolution of their environment and that anticipate its positive and negative eects are proactive

Microenvironment

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organizations. Generally, these organizations are less vulnerable to threats posed by the microenvironment. Even if they cannot fully control these threats, they have sucient time to choose their strategies to avoid direct confrontation with the competition, or they can arm themselves to face it eectively. e analysis of the external environment should start with the microenvironment because it is the competition that denes the market and the sector. Competition may come from direct competitors of the organization that are already active in the market, or from potential newcomers or substitute products. e microenvironment also includes other actors that interact with the organization and contribute to the competitive dynamics in the industry: suppliers and customers. ese customers may be individual consumers in the consumer goods market or buyers in the B2B market that use the product as a production input, or may belong to the distribution intermediaries market (wholesalers, retailers, etc.). If they are powerful enough, these actors may pressure the organization to modify its commercial strategies and actions. is power comes from the role that these actors play in balancing supply and demand. When supply exceeds demand, the balance of power leans toward the customers, who may insist that the organization add value to its oer. As a result, the organization may reduce its prices, improve its product quality or provide more services. Conversely, suppliers exert more pressure when demand exceeds supply. Like the customers mentioned above, they want to exploit their power to demand more sacrices from their business customers. Often these sacrices take the form of higher margins for suppliers, stricter payment modes or times, or less appealing delivery conditions. As mentioned at the beginning of this chapter, the analysis of the environment is based on a precise denition of the objectives and mission of the organization, along with its market and sector. Dening objectives and the mission well is crucial to the diagnosis of the internal environment, just as clearly dening the market and sector, and analyzing its components, are key to diagnosing the external environment eectively.

The market and sector e most challenging task in the analysis of the microenvironment is to properly dene the market and sector associated with the product or service marketed by the organization (West, Ibrahim & Ford, 2010). is denition identies who the competitors are, how many there are, what their market shares are, etc. To perform an accurate analysis of the microenvironment, managers should make sure to include all the key actors whose products and commercial actions do not appear, at rst glance, to pose threats to the organization. Mooradian et al. (2012) use the case of Red Bull, the company that created the energy drinks of the same name, to illustrate the importance of precisely dening the market when analyzing the competitive environment. When rst launched,

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Red Bull drinks were promoted as a source of energy and vivacity. Rightly or wrongly, they were also portrayed as a sports performance enhancer. Two market analyses put Red Bull’s market share at 60% and 12%. Although they are very far apart, these estimates are both accurate. e spread is explained by the fact that the two reports rely on dierent denitions of the markets served by the company. With over 4 billion units sold per year, Red Bull is a clear leader in the energy drink market, with a 60% market share. However, the percentage plunges to 12% when the brand is compared with competing brands in the sports beverage market (Gatorade or Powerade) and may slide further if the market is extended to non-alcoholic beverages, which Red Bull also serves. A denition based on supply A denition of the market based on supply groups similar organizations operating in the same industry or sector. e market is also dened by sector. e North American Industry Classication System (NAICS), for example, classies businesses according to their main activity (Statistics Canada, 2016). e system assigns the same NAICS code (made up of a set of numbers) to businesses whose main activity is to produce similar products. Using this code, several industrial reports published by Innovation, Science and Economic Development Canada (2015a) can be obtained. e public, and in particular businesses and entrepreneurs with a particular interest in a sector, may consult reports on the size and performance of the sector by specifying this code. NAICS 31183, for example, corresponds to the tortilla production industry, which comprises nine producers in Canada, whose annual earnings are between $30,000 and $5 million. e reports contain diverse nancial data to help new investors assess the performance of the industry. Established businesses can use this data to compare their performance with that of their competitors. Denition based on supply and demand Dening a market as a sector is not always sucient because the market may include actors belonging to other industries. is is why West et al. (2010) recommend using the denition of the market, and hence that of the competition, proposed by Kotler (2000). is denition, based on both supply and demand, can help analysts set the frontiers of the market and avoid overlooking any of the major actors. Kotler argues that competition is the result of the interaction between organizations that oer products and services intended to satisfy the same need. is denition expands the market because it encompasses not only direct competition, made up of all organizations oering the same types of products under dierent brands, but also substitute competitors, whose products dier from the initial product but satisfy the same need. Substitute products make the competitive dynamics more complex by adding the impact of pressure from the organizations that produce competing products that do not belong to the same sector as that of the initial product. Because the analysis of the microenvironment may quickly become complicated and dicult to manage if the market is dened too broadly, the market may be determined by the nature of the decisions to be made. For tactical decisions that must be made quickly, managers will adopt a more general denition based on the analysis of direct competitors in the same sector. When making more challenging decisions

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whose implications will be felt over the medium and long term, the frontiers of the market must be expanded to include new potential competitors identied based on analysis of the substitute competition.

Components of the microenvironment Once the actors in the market are identied, their interactions are analyzed. e objective is to identify the main challenges (in the form of threats) or the best opportunities that may arise in the market. Porter’s model of ve competitive strengths (1985) is one of the main analytical frameworks used for this purpose.

Porter’s model of ve competitive strengths

e balance of power and the competition resulting from interactions between the organization and all the other actors in its microenvironment depend on the ve competitive strengths that Porter (1979) identied:

competitors, suppliers and customers, along

lets managers analyze the interactions between the organization and its microenvironment. The microenvironment is made up of the company’s existing with new entrants and substitute products.

1. Competitive rivalry within an industry; 2. Bargaining power of suppliers; 3. Bargaining power of customers; 4. reat of new entrants; 5. reat of substitute products and services. Figure 5.6 represents the dierent actors in the microenvironment along with the types of relationships that they maintain with the organization.

Figure 5.6 Porter’s model of competitive strengths

Source: Porter, M. E. (1985). Competitive advantage: creating and sustaining superior performance. New York, NY: Free Press, p. 5.

Strengths included in Porter’s model result from the organization’s ongoing interactions with its direct competitors, suppliers and customers, but also from potential threats posed by new competitors or substitute products.

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Competitive rivalry within an industry Apart from monopoly situations, most organizations operate in competitive environments where existing rivals deploy massive commercial eorts to conquer the market. e intensity of the rivalry between these rms depends on a set of factors. e main ones are: • growth rate of the industry; • number of competitors in the industry; • level of product dierentiation and transfer costs. One of the main factors of rivalry between competitors is the industry’s growth rate. In industries that are fairly mature, competitive rivalry is often erce because growth can be achieved only by conquering the market share of rival companies (see Example 5.4).

Example

5.4

IGA’s “GIGA low price”

In the retail sector, the large supermarket chains Sobey’s, Loblaws and Metro hold nearly identical market shares, but compete ercely to maintain and expand them. To respond to the anemic growth of the food market, where products are minimally differentiated and consumers are very price sensitive, these large chains launched private labels, but mainly apply price reduction strategies. In May 2016, IGA, owned by the chain Sobey’s, announced its “GIGA low price,” a commitment to lower prices of about 8,500 products, or roughly 20% of the total number of products at the supermarket, by 5% to 7%.

This announcement surprised not only consumers, who were used to seeing higher prices at IGA than at its direct competitors, but also experts in the sector, who noticed that this cut coincided with an increase in the prices of other products at the same stores. These experts see the “GIGA low price” as more of a marketing action intended to stimulate goodwill in the retailer’s stores rather than a real price war in the industry. It is mainly linked to IGA’s goal of attracting a new, more price-sensitive clientele, who usually shop at Super C and Maxi, low-price stores owned by competitors Metro and Loblaws.

Source: Meneu, G. (2016, May 17). Que cache la baisse des prix chez IGA? Radio-Canada. Consulted at http://ici.radio-canada.ca/ nouvelles/Economie/ 2016/05/17/001-iga-epicerie-baisse-prix-analyse.shtml; Bérubé, G. (2016, September 13). Le panier d’épicerie est moins cher chez Walmart et Maxi. Le Devoir. Consulted at www.ledevoir.com/economie/actualites-economiques/479833/protegez-vous-le-panier-d-epicerie-est-moins-cher-chez-wal mart-et-maxi

e number of competitors in an industry also aects the level of rivalry between rms. In an industry that includes several competitors, or a concentrated industry like that of supermarkets or beer producers in Canada, companies are more likely to engage in erce competition to dominate the market. e battle will be especially heated if exit barriers are high owing to major investments that organizations in this industry must make or because their top managers wish to remain in business despite the weak protability of the sector. Other factors that may escalate rivalry between competitors include the level of product dierentiation and transfer costs, Porter maintains. When similar products are marketed and the switching costs for the consumer are low, competitors will intensify their eorts to retain their customers and attract those of rival businesses.

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In sectors like cell phones or cable broadcasting, competitors often protect themselves from rivals by binding their customers to attractive contracts that stipulate very high transfer costs. In 2013, the Canadian Radio-television and Telecommunications Commission (CRTC) abolished some of these practices by imposing new codes to govern activities in these sectors, which notably reduce transfer costs and stimulate competition intended to protect consumers. In other sectors, some companies have opted to protect their market share from escalating competition by rewarding their most dedicated and protable customers through loyalty programs. Airlines and retail chains are two examples of sectors that favour this approach. Price wars intended to attract consumers who are most price-sensitive and least loyal—together with increased investments in advertising, new product launches and acquisitions of businesses—are all ways that companies respond to competition. ese marketing actions and strategies often aim to reinforce rms’ market presence, and to dierentiate their oer from that of their competitors, to achieve their desired positioning. For example, the discount supermarket chain Maxi announced in late 2016 that it invested over $5 million. Nearly half of this amount is dedicated to training its sta and adding service hours. e company aims to stand out from its main competitors in the sector by oering better customer service (Turenne, 2016). In contrast, in the beer industry the two main competitors, Molson and Labatt, have chosen to compete based on intensied advertising eort, new product launches and acquisition of small industry players in a bid to dominate the market. All businesses that operate in a sector marked by heated competition must harness their strengths to preserve their position or increase their market share by attacking that of their competitors. If exit barriers are high and the company does not have sufcient assets to ercely rival its competitors, it should try instead to avoid confrontation and carve out a more comfortable place by identifying the market segments with the highest growth potential. Showcasing organic, vegan and ethnic products is an option that several food sector actors have chosen. is choice is explained by the fact that consumption of these types of products is growing markedly in Canada relative to regular products, according to a report by Ibis World2 (Supermarket & Grocery Stores in Canada, 2016). Suppliers e intensity of an organization’s dependence on its suppliers has a direct impact on the sharing of power between these two market actors. If the organization needs a particular input to integrate in its production chain, and only one supplier can deliver it, this supplier holds greater bargaining power, which may prompt it to raise its prices or impose more advantageous payment times. Some organizations may be weakened by these requirements if they are forced to raise their nal price or reduce their margins. In some cases, dependence on suppliers may even lead to interruption of production or of the service oer. Volkswagen experienced this problem in summer 2016, when a conict with its seat cover and transmission part suppliers forced it 2. Ibis World reports are available on the HEC Montréal library website.

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to suspend deliveries. For one week, the automaker had to stop several assembly lines in its plants in Germany, delaying delivery of the Golf and causing the company to lose revenue and implement temporary lay-os. Porter explains that the supplier’s bargaining power depends on several characteristics related to its situation in its industry (number of competitors supplying the same input, level of product dierentiation, presence of substitutes, etc.), along with transfer costs, contribution of this clientele to the realization of its sales, and its capacity to integrate its activities vertically. Customers Like suppliers, customers can pressure an organization to change its marketing strategies and actions so that they can derive more value. Whether they be manufacturers, distribution intermediaries or nal consumers of the company’s products, customers tend to seek lower prices, better quality or better service. eir threat often takes the form of a break in their ties with the organization, and in more extreme cases a call to boycott the company’s products and services, an action increasingly facilitated by social media. e case of Joe Fresh, the store brand of the mega-retailer Loblaws, clearly illustrates how susceptible a brand can be to pressure from consumers (Agence QMI, 2013). e tragic collapse of one of the company’s suppliers’ plants in Bangladesh, which revealed its negligence of its social responsibilities, ignited strong indignation in Canadian consumers. Following calls for a boycott, the president and founder of Joe Fresh announced that the brand would stop procuring from Bangladesh if the company did not receive the necessary support from the local authorities (Maltais, 2013). is decision had signicant consequences on production costs and, by extension, on the brand’s prices and competitiveness in its market. e bargaining power of customers is higher the fewer they are, or if their purchases represent a large portion of the company’s revenues. In addition, if the products or services oered are not dierent enough from those of the competitors, if the transfer costs are low and substitute products exist, customers will nd themselves with more and more choices, which reinforces their position of strength while weakening that of the company. Upstream vertical integration is another threat posed by distributor intermediaries. e increasing space given to private brands on distributors’ shelves is a clear indicator of distributors’ growing bargaining power concerning the national brands of their suppliers. Often, producers of national brands must emphasize the added value of their brand to justify a higher price, because the quality of private brands is becoming increasingly comparable to their own brand. e action that Loblaws, Metro and Provigo took against their suppliers in summer 2016 clearly demonstrates the bargaining power of purchasing customers. ese retailers forced various food processing companies to reduce or freeze their prices. Because their market share was threatened by the rise of Walmart and Costco,

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retailers insisted that suppliers reduce their prices so that they could keep their own prices competitive without having to trim their margins. La Presse reports that Loblaws simply informed its suppliers that, starting in September 2016, a systematic reduction of 1.45% would be deducted from their invoices (Fournier, 2016b). is power is pronounced in industries like nancial services, pharmaceutical products and household appliances, where end consumers’ choices are largely inuenced by the distributor’s advice. Porter argues that it is essential for all organizations to analyze the ve strengths that dene the dynamics of the competitive environment. is analysis allows companies not only to identify the strengths that govern their industry, but also to evaluate the intensity and impact of these strengths on the protability of the industry, and to judge how attractive it is. erefore, an industry in which all the strengths are intense may be unattractive because it is not very protable, whereas an industry in which the strengths are weaker would attract more investors. An analysis of the Canadian contact lens industry done in 2014 found that the industry no longer has a growth outlook, and that the competition is intense. is makes the sector less attractive for new entrants and weakens the position of existing competitors (Toor, 2014). ese ve strengths also shape strategic choices by oering companies a clear image of their strengths and weaknesses, and help them stake out their competitive position in the industry. e organization can consequently defend itself optimally from the ve competitive strengths, or it can tilt the balance in its favour. Newcomers If the market served by the organization has good growth and protability potential, it will naturally attract new competitors (notably rms operating in other industries that want to diversify their operations) or new investors. e market share of the existing market actors is thus threatened by the arrival of these new entrants, especially if they propose a more attractive oer and target the same clientele. In the case of large supermarket chains, the threat comes not only from the existing competition, but also from the arrival of Walmart and Costco. ese two retailers, known for their competitive prices, are dedicating more and more space to a widening array of food products in their stores, thus eroding the market share of established food distributors. e risk related to the entry of new competitors in a market and the threat they pose depends on the presence or absence of entry barriers in the industry. Porter lists six entry barriers that may impede new entrants from penetrating a market: economies of scale, product dierentiation, capital requirements, absolute cost advantages, government policy and access to distribution circuits. Table 5.1, on the following pages, describes each of these obstacles and its impacts, and presents concrete examples.

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Entry barriers for new entrants

Barrier

Impact

Example

Economies of scale

Firms with large sales volumes in a market may benet from economies of scale that lower their unit production costs and marketing costs. It will be difcult for new entrants to produce goods at such low costs, unless they also invest in large-scale production.

The beer market in Canada is controlled by two main actors: Labatt and Molson, which hold market shares of 44% and 35% respectively (Beer in Canada, 2016). Through acquisitions and new product launches, these companies have achieved economies of scale that shield them from frontal attacks by new entrants. Microbreweries, which face higher production and marketing costs owing to their small volume, are not very competitive in the mass market, and are consequently constrained to target niche markets exclusively.

Differentiation

When a rm established in a market has achieved higher awareness owing to the quality of its products or the efciency of its marketing strategies, it is more difcult for a player with little or no renown to steal the more experienced rm’s market share. Because it is rare for a new player to have marketing budgets comparable with those of established players, new entrants often choose to offer lower prices to target a clientele that is disloyal and very price sensitive. New entrants often opt for online distribution and communication on social media to minimize their costs.

The cosmetics industry is strongly inuenced by the presence of this barrier. In Canada, L’Oréal and Estée Lauder largely control the best-known brands, with market shares of 31% and 14% respectively (Colour Cosmetics in Canada, 2016).

Many industries require large capital investments for their development and production activities, or for activities related to product marketing. The higher the required capital, the less new entrants will be tempted to penetrate the market.

The Canadian pharmaceutical industry ranks second among industries that require the most capital for R&D. Developing and testing a new drug over a span of 12 to 13 years costs more than US$600 million (Innovation, Science and Economic Development Canada, 2015b). Companies that want to penetrate this market need ample capital, and must be able to wait many years before seeing a return on their investment.

Advantages linked to costs These advantages are not linked to sales volume or economies of scale achieved by established firms. They result from the lessons that companies learned from experience in the market, and their ability to procure top quality raw materials or subsidies. Such advantages may be acquired through patents, which protect the companies’ new products and brands.

The concept of pressurized coffee extraction, which spawned individual coffee pods, was developed and patented in 1970 by Nestlé’s R&D team. By obtaining more than 1,700 innovation patents, the company shielded itself from competing pod producers starting from the early 1980s, when the Nespresso brand was launched in the market, until 2011, when these patents expired (Letessier, 2010; Pratte, 2013).

Capital requirements

Even if, for drugstores like Jean Coutu or Pharmaprix, it is easier to liquidate their private brands than other national brands, sales of their makeup brands (Personnelle and Quo) remain marginal relative to other product categories (Ministère de l’Économie, de l’Innovation et des Exportations, 2014). This is mainly due to the importance of the name and the brand image as factors that inuence purchases for a product like makeup.

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Entry barriers for new entrants (Continued)

Barrier

Impact

Example

Government policies

Governments impose laws and regulations to protect a local industry from foreign competition (by imposing import quotas, for example, or by raising safety standards). Conversely, they may seek to stoke competitiveness in a sector by enacting laws that will liberalize it. For new actors, protective policies constitute entry barriers, while liberal policies have the opposite effect.

Distribution of alcoholic beverages is highly regulated in Québec, which hinders the operations of existing rms and limits the attractiveness and chances of success for companies that would want to penetrate the market. This regulation obliges alcohol producers to sell their products via the government monopoly, namely the Société des alcools du Québec (SAQ). Bill 88, on the development of the industry, lifted this entry barrier in 2016 by allowing artisanal producers to display vintages and appellations of origin on their bottles and to sell them in supermarkets.

Access to distribution

Even if a rm offers the best products in the world, its sales will surely suffer if distributors refuse to grant its products a place on retailers’ shelves. Producers established in the market have the advantage of having built solid relations with distributors and having gained sufcient awareness to carve out a place. This barrier can be circumvented by newcomers if they choose direct distribution on the Internet, but other marketing efforts must also be deployed.

Until 2016, artisanal wine producers in Québec had to struggle to carve out a path to the SAQ shelves, which was the only distribution channel authorized by the government. The adoption of Bill 88, which lets small producers sell their products at grocery stores and convenience stores, smoothed these producers’ path to success.

Substitute products and services Substitute products may pose a threat to established rms. ese products satisfy the same needs as conventional products among the target clientele, but propose a more ecient alternative solution or a more advantageous price. e level of risk that these products represent for established competitors depends on the added value that consumers perceive when comparing the products oered. e example of hair removal products clearly illustrates this threat. e advent of permanent laser hair removal as a substitute for razors, shaving cream and wax strips caused sales of depilatory products to slump in several countries. is trend was particularly pronounced in countries where laser hair removal technology has proven itself, and where a growing number of users pressed prices downward. In Canada, sales in this industry were estimated to have dipped by 2% between 2013 and 2014, which equals approximately $4.5 million. is decline will inevitably accelerate over the years (Depilatories in Canada, 2016). Current actors in the industry (mainly P&G with Gillette and Energizer with Schick) have no choice but to devise new products that will satisfy and retain the current clientele and attract a new one. Several other markets have suered the same fate: permanent makeup, toxin injections (Botox, for example) and laser surgery are all new services that have enabled surgery centres to penetrate the beauty, skin care, and vision markets. e solutions proposed by these centres have displaced traditional products, often oering permanent and more eective results at increasingly competitive prices.

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As they evolve within their sector, all organizations undergo pressure and benet from business opportunities resulting from their interactions with actors in their microenvironment. Because organizations also experience threats and prot from opportunities present in the macroenvironment, analyzing the components of the macroenvironment and their impact on the organization and on the market as a whole is critically important.

5.4.2 The macroenvironment Macroenvironment The macroenvironment includes all factors of the external environment that the organization cannot control, but that may affect supply and demand in a market. These factors may be political, economic, social, technological, ecological or legal.

e second level of the external environment is the macroenvironment. It comprises a set of factors that aect not only all the actors included in the microenvironment, but also those in other industries and markets. ese factors, which may manifest as opportunities or threats, are not controllable by the organization, and their impact is often felt over the medium and long term. Companies must therefore take them into account during their strategic planning.

All organizations must undoubtedly understand the components of their external environment and their implications for the conduct of their current operations and for the planning of future actions.

Importance of the macroenvironment To grasp the importance of studying the macroenvironment and analyzing its eects on consumer behaviour and companies’ marketing strategies, consider the impact of certain technological developments on your consumption habits compared with those of your parents and grandparents. e advent of the Internet, tablets and smart phones ushered in Generation Y and new business models, together with new marketing practices. Some organizations have seen these changes as business development opportunities, while others perceived them as threats and had to modify their methods to face these new challenges more eectively. Companies that ignored these changes or that were ill-prepared for them are no longer around to attest to the catastrophic impact of their inertia. Mark Prensky (2001), a teacher who became a consultant and a conference speaker in education, popularized the term “digital natives” for Generation Y. Because its members were born in the last decade of the 20th century, at a time of major technological innovation, this generation has dierent points of reference, habits and behaviours than previous generations. is so-called generational digital break arises from the new relationship that this generation has with time, objects, space, communication, etc. Digital natives have come to expect instant access to information and services, mobility, and free digital content in multiple forms. ey also crave being constantly connected and sharing everything with their community. Technological progress, combined with these sociocultural changes, has also driven other economic changes, notably the rise of the sharing economy. Encouraged by the development of smart phone applications and the sharing culture, Generation Y, unlike those before it, no longer feels the need to own and store physical goods that

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can impede mobility. People in Generation Y are especially averse to paying extra to obtain a tangible version of a product if they can consume the same product immediately in electronic form, and share it for free or with the help of network members. Companies like Uber, Airbnb and Turo have emerged to serve a novelty-seeking clientele, some of whom are dissatised with the current oer on the market. Some businesses have harnessed the power of digital media by capitalizing on their access to a vast quantity of personal data and the navigation and consumption habits of Internet users to gain a commercial advantage. Big data, or metadata, very popular in the management world in recent years, is omnipresent today. When doing a market analysis, businesses neglect this aspect at their own risk. Other companies have exploited the social network presence of their target clientele to organize activities that involve their customers in the development of their marketing mix (for instance, creating a new logo, slogan or even product). ese activities, commonly known as crowdsourcing, have enabled companies to minimize the costs of their commercial research activities while meeting their target market’s needs. All of these new practices have also inuenced legislation and regulations. In several sectors, businesses have urged governments to enact laws and regulations to govern activities that had become vulnerable following the arrival of new competitors (very often based abroad). Example 5.5 describes the crisis that shook the taxi industry in Québec and the rest of Canada following the advent of Uber. Example 5.5 clearly illustrates the impact of components of the macroenvironment on business operations, and in particular the interdependence between these Example

5.5

The Uber saga

Since it arrived in Montréal in 2014, Uber, the American transportation network company, has revolutionized the passenger transportation market. The Uber X service is an unprecedented business model that lets any motorist sign up to be an Uber driver and transport passengers for pay via an ultra-modern mobile application. This service represents a revolution for consumers, who can now order and pay for their ride instantly, and follow the driver’s route before and during the trip using geolocation. On top of that, Uber X charges cheaper rates than the traditional taxi industry. This consumer revolution is naturally causing an upheaval in the traditional taxi industry, which accuses

Uber of offering services that violate taxi laws, and engaging in unfair competition. While the Taxi Bureau of Montréal tried to deter Uber X by seizing its vehicles, the Québec government set about dening a new regulatory framework for the whole transportation industry, reducing the regulations imposed on traditional taxis and increasing governance of Uber X. To this end, the Québec government led Bill 100 on transportation services by taxi. It states that Uber X must rent taxi permits and its employees must hold a specic driver’s permit, 4C, reserved for taxi drivers. However, the government granted a 90-day grace period before the bill takes effect, to develop a pilot project with the multinational.

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components. Consider the draft bill on passenger transportation. Would it still have emerged if the Internet and connected devices were not part of our daily life?

Components of the macroenvironment e forces of the macroenvironment, unlike those of the microenvironment, are uncontrollable because they cannot be manipulated by the organization. e macro­ environment thus dictates the activities of organizations and the other actors in a sector. Even if organizations cannot control all the facets of the macroenvironment, it is important that they monitor trends and anticipate the eects of these trends on their activities. Organizations that neglect these aspects rarely survive changes in the macro­ environment, but those that are vigilant have slightly more time to prepare to seize opportunities and protect themselves from threats. A striking example of corporate decision­makers’ failure to gauge their macroenvironment is that of Kodak, the former photography giant that pioneered instant lm and cameras. e company was forced to declare bankruptcy in 2012 because it could not survive the advent of digital cameras introduced on the market by new Asian and German competitors. Ironically, the rst digital photo was developed at the Kodak Research Laboratories a few decades earlier, but no one in the company had enough vision to realize that the digital shift would deter­ mine the future of the industry (Comment Kodak s’est tiré une balle dans le pied, 2012). Macroenvironmental factors are often considered in isolation. However, as men­ tioned above, analyses of the macroenvironment should note that all changes to one factor may induce major changes in the others. ese factors are therefore inter­ related. Companies that neglect this fact risk ignoring information that could be decisive for their operations. Two other very important points deserve mention here. First, the impact of a given microenvironmental factor diers depending on the industry, market or organization analyzed. In Québec, milder temperatures in winter 2016 were ideal conditions for strawberry producers, but created a nightmare for ski resort managers and owners. Note that the impact of each of these macroenvironmental factors is not felt in the same way across the board. Some industries and markets are more vulnerable to par­ ticular factors. e recreation and entertainment industry, for example, was hit very hard by the digitization trend, whereas this transition posed a minimal threat to handicrafts. e acronym PESTEL refers to the main macroenvironmental factors that can inuence markets. ese factors are: • • • • • •

political; economic; social; technological; ecological; and legal.

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ese factors can simultaneously aect consumers’ habits and behaviours, companies’ operations and the actions of governments and their institutions. is analytical framework lets managers compile a list of opportunities that can be seized by all the actors in the sector, along with threats to their development and sustainability. Marketing managers and analysts must formulate scenarios based on these phenomena, and categorize them according to their probability of occurrence and the extent of their impact on the activities and performance of the organization. Political environment e political situation of the country directly inuences not only established businesses, but also those that choose this country as an export market or an international production site. Respect for democratic values, political stability, and politicians’ degree of liberalism are all factors that may encourage or slow investment in a given sector or country. Each political leader necessarily adopts an economic policy that shapes the activities of dierent sectors in a country. Some advocate nationalism to protect local actors, while others sign free-trade agreements intended to improve the competitiveness of the economic sectors and reinforce their presence in foreign markets. e Conservative government led by Prime Min ister Stephen Harper was roundly criticized for its withdrawal from the Kyoto Accord and its meagre eorts to reduce greenhouse gas (GHG) emissions. is position was actually consistent with the economic policy of that regime: it deliberately chose to capitalize on the tar sands industry, which was highly polluting but very lucrative for the Canadian economy and employment. As a result, many oil companies beneted from this stance, while companies that wanted to invest in sustainable energy did not receive the support they needed to develop their projects, especially given the rise in value of the Canadian dollar fuelled by oil exports (Shields, 2013). After regaining power in 2015, the Liberals revised Canada’s stance on GHG and the development of so-called clean energies. Several promises were made in this area and budgets were developed to equip Canadian cities with ecological infrastructure. Incentives to encourage citizens and businesses to procure electric cars are among the ongoing projects. e automobile industry will be particularly impacted by such decisions. However, consumers should benet from these incentives, which will probably lower the price of electric cars and reduce their energy expenses. e Trans-Pacic Partnership Agreement is another politico-economic decision made by the Conservatives that will aect economic sectors in Canada. Although it creates opportunities for some Canadian industries by opening new markets, this treaty jeopardizes one of the main sectors of the Québec economy: agricultural production. Protected up to now by a supply management system, this sector may suffer from the TPP, which gives foreign producers higher quotas on cheese and milk

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exports to the Canadian market. e government has promised to compensate producers for any losses, yet this situation has sparked discontent, and may force several Québec farmers into bankruptcy (Desrosiers, 2016). Economic environment Countries’ economic cycles are generally made up of periods of prosperity and recession. In times of prosperity the economy is growing. Incomes are high and the unemployment rate is low, as is the debt level, which generally translates into greater purchasing power and strong conSome accords create disadvantages for previously protected sectors, sumer interest in buying durable goods and services like dairy production. (for example, a car or home) or investing in recreation and entertainment. A favourable economic climate also encourages companies to invest more because there is a market to purchase their goods and services. is type of period, bolstered by higher purchasing power that removes obstacles to consumers’ trying and purchasing products, is generally a good time for new product launches. In contrast, during a recession, the inverse eect occurs because the uncertainty associated with periods of crisis makes consumers lethargic. People will feel obliged to increase their debt level either because they are unemployed, or because their salaries cannot keep pace with ination. eir income mainly covers the costs of the most essential products and services. Spending on restaurants, travel and all other non-utilitarian products and services will be deferred until conditions improve. Before analyzing the impact of the economic environment on a company’s operations, it is important to keep in mind that today’s economy is global. For instance, organizations procure inputs imported from other countries and market their products abroad. As a result, business operations are aected not only by the economic situation of the domestic market, but also by the global economic situation. An unfavourable exchange rate can easily weaken a business whose competitive advantage is based on price. In addition, unlike the other forces of the macroenvironment, the economic environment is very volatile. is is why marketing managers and analysts must monitor the economy constantly. e Conference Board of Canada periodically conducts studies to calculate two indicators that tend to reect the impact of economic conditions on consumers’ attitudes and businesses’ intentions to invest. ese indicators, called the consumer condence index and the index of business condence, are particularly useful for companies that want to evaluate the status of a market. For example, Figure 5.7 indicates that the consumer condence index edged upward in early 2016, and declined slightly in August of that year. Consumers surveyed were somewhat pessimistic about their major spending plans (home or car). e detailed analysis of these indices by

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Figure 5.7 Evolution of the consumer condence index

Source: Conference Board of Canada database

province shows that Albertans were the most pessimistic, dragging the index for the whole country. is decrease is attributed to the res that ravaged Fort McMurray in summer 2016, along with the plunge in the price of oil, one of the province’s most important resources. Social environment e social dimension of the macroenvironment generally describes the demographic and socio-cultural makeup of a society. In fact, it is very important to analyze information regarding the size, growth and composition of the population. is information is essential because all marketing oers are intended for a market, and marketing managers must ensure that there is sucient market potential for their product or service, and that the growth rate of this market can allow its oer to be protable. For example, the Canadian population aged 65 and over will soon surpass the number of young people, according to the demographic projections of Statistics Canada (2010). is represents considerable market potential for industries like orthopedic prostheses, prescription glasses and services for seniors. Réseau Sélection, a Québec company that specializes in construction and administration of seniors’ residences, has been seizing opportunities in this highly lucrative market. Growing demand for housing for retirees in Québec has spurred the company to launch an ambitious development plan (Labbé, 2015). e growth rate of a population generally takes into account three main parameters: the birth rate (total fertility rate), the mortality rate, and growth linked to immigration, the main factor behind demographic growth in western countries, including Canada. Demographic projections are often presented in the form of an age pyramid. is pyramid depicts growth rates of the population for several age brackets, and is divided by gender (men/women). Contrary to the usual form of the pyramid, which we would see in Egypt or Mexico, the age pyramid in Canada will soon become inverted, an alarming phenomenon for the government and for many industries, although some sectors are proting from this trend. According to Statistics Canada projections (2010), this reversal, which should happen between 2015 and 2021, is unprecedented in the history of Canada.

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Another characteristic of the demographic makeup of Canada is its multicultural nature, mainly linked to our immigration policy. Within the Canadian population, at least one out of ve people is foreign-born. Statistics Canada conrms that this is the highest percentage among all G8 countries. ese immigrants represent over 200 ethnic origins (Statistics Canada, 2013). Table 5.2 presents the distribution of visible minorities in the main Canadian cities.

Table 5.2 Visible minorities in Canada Region

Total population

Population of visible minorities

Percentage of visible minorities relative to the total population

Three main groups of visible minorities

Canada

32,852,325

6,264,755

19.1

Southeast Asian, Chinese, Black

Toronto

5,521,235

2,596,420

47.0

Southeast Asian, Chinese, Black

Montréal

3,752,475

762,325

20.3

Black, Arab, Latin American

Vancouver

2,280,695

1,030,335

45.2

Chinese, Southeast Asian, Filipino

Ottawa–Gatineau

1,215,735

234,015

19.2

Black, Arab, Chinese

Calgary

1,199,125

337,420

28.1

Southeast Asian, Chinese, Filipino

Edmonton

1,139,585

254,990,

22.4

Southeast Asian, Chinese, Filipino

Winnipeg

714,635

140,770

19.7

Filipino, Southeast Asian, Black

Hamilton

708,175

101,600

14.3

Southeast Asian, Black, Chinese

Source: Statistics Canada (2013). Immigration and ethnocultural diversity in Canada. 2011 National Household Survey. Consulted at www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-010-x/99-010-x2011001-eng.cfm

Several industries see this demographic makeup as a means of fuelling their growth, and have proposed products and services to meet the specic needs and consumption habits of this expanding clientele. Proof of this lies on the supermarket shelves in Canada or in the myriad new products that cosmetics multinationals have developed especially for an ethnically diverse clientele. Technological environment Technological evolution denitely has a strong impact on our lives, consumption habits and economic activity. Of all the technological developments of recent decades, the advent of the Internet and of new ways to access information seems to have triggered the most dramatic changes. We saw at the beginning of this section that technological changes have raised new challenges for

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existing businesses and opened opportunities for others. Some companies, and even an entire industry, have disappeared because they could not preserve an oer of value in this new environment (see Example 5.6).

Example

5.6

Boîte Noire bows out

The DVD rental industry lost the battle against new technologies and market trends. Nestled in cozy quarters on the Plateau Mont-Royal, the Boîte Noire video club was an undisputed pillar of the neighbourhood. Nonetheless, it closed its doors for good in 2016 after 30 years in business.

Founder and owner François Poitras explains that the multiplication of platforms, the clientele’s shift toward TV series and the rise of digital rental services triggered the collapse of the whole industry. In 2010, nearly 94% of lm rental revenues in Canada still came from video stores.

Source: Cassivi, M. (2016, May 5). Adieu, Boîte noire. La Presse. Consulted at www.lapresse.ca/debats/chroniques/marc-cassivi/201605/05/01-4978336-adieuboite-noire.php

To this day, the impacts of technical evolution have been tremendous. Not only has technology allowed many organizations to propose new products, but it has also helped them improve their production and marketing processes, and consequently boost their protability. On top of that, the technological evolution has brought about the “uberization” of some industries. is recently coined word refers to the company Uber, whose business model (based on the use of connected devices and geolocation) puts consumers and service suppliers in direct contact. is model has inspired other start-ups like Airbnb, a multinational that is strongly challenging the large hotel chains around the world. Lastly, we cannot ignore the eects of technological advances on consumer behaviour and companies’ business practices. e impact of e-commerce on consumers’ buying process is a convincing example. A recent study by the Centre Facilitating Research and Innovation in Organizations (CEFRIO, 2016) found that in 2015, 65% of adults in Québec engaged in webrooming, an increasingly widespread practice that consists of looking for information on products and services online before making a purchase in store, whereas 55% exhibit the opposite behaviour, called showrooming, which is gathering information in store before making a purchase online. Such behaviours have led several businesses to adopt increasingly sophisticated technological means and analytical tools to follow consumers’ navigation paths and to adapt their marketing strategies based on this information. e audit and consulting rm Deloitte studies technological trends in Canada and around the world. In its latest report (2016), it cites augmented reality and virtual

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reality as new technological trends that businesses should keep an eye on. Interactive marketing and an immersive customer experience should be pivotal to the strategies of frontrunners in this domain. For some industries, such as tourism and video games, these technological developments represent opportunities if they are seized today, but may evolve into threats for organizations that are ill-prepared for them or that lack the resources and skills to integrate them. Ecological environment e ecological environment includes all factors related to the environment that may aect Virtual reality is a promising new technological trend. supply and demand in a given market. In this environment, changes are imposed by regulation, when governments announce new environmental protection measures, for example. ey may also result from pressure exerted by environmentalists and consumer groups committed to defending this cause. ese movements, whose objectives include raising public awareness of the importance of wildlife and the dangers of pollution, often call for local consumption and organic agriculture, and protest the use of pesticides and genetically modied organisms (GMOs), animal cruelty and natural resource overexploitation. e power of these groups is undeniable. ey frequently compel the government to enact new laws and regulations, and they organize boycotts against businesses that harm the environment. e growing prominence of organic products, the appearance of labels and special spaces for “Aliments du Québec” (foods of Québec), and proposals to ban the use of plastic bags are just a few examples of the impact of ecological movements on the food industry in Québec. Bill S-214, the Cruelty-Free Cosmetics Act that would prohibit cosmetic animal testing in Canada, is another example of the pressure that militant groups can exert on organizations by inuencing politicians. If approved, this law would force some businesses to be more transparent about the methods they use to test their products, while creating market opportunities for other businesses like the British rm Beauty Without Cruelty (www.bwcv.com), which chose to join this movement to attract a clientele that fervently embraces these causes. Once again, a business that follows these trends, and that adapts its commercial strategies and actions to integrate them, protects itself from the threats arising from such changes. Companies that lack the foresight to take these threats into account and that neglect to prepare for them will nd themselves in a vulnerable situation that may lead directly to failure. Legal environment e legal environment corresponds to the set of laws and regulations that govern companies’ market activities. is environment is often closely linked to the political environment because it is generally politicians who are asked to intervene, protect or liberalize some industrial sectors. e example of the Uber saga and the law governing passenger transportation clearly reects this link.

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A business cannot penetrate the market without rst familiarizing itself with the applicable laws and regulations. Some industries are governed not only by competition laws, but also by other regulations, for example concerning product safety and labelling. In many cases, it is consumers who demand that their interests and health be protected. ey thus pressure governments and public institutions to enact laws and regulations in this area. Following the 2012 crisis linked to the presence of E. coli bacteria in beef, which sparked the largest meat recall in Canadian history, several consumer associations demanded changes to the laws and regulations governing labelling in this sector. Consumers militated for more transparency about the origin of the meat they consume and the procedures used in the industry, particularly regarding mechanical meat tenderizing. e Canadian Food Inspection Agency (CFIA) informs consumers and businesses in Canada of the regulations and requirements concerning food safety and labelling. In the aftermath of the E. coli crisis, new requirements for meat labelling imposed by the CFIA had major consequences for producers and distributors in this industry, who had to assume the costs of changing their labelling systems. Laws and regulations are also shaped by changes in other factors of the macroenvironment, notably technology. Given the growing role of the Internet in consumers’ lives and the fact that companies are becoming better equipped to track individuals and their activities online, the laws on protection of personal data and privacy will inevitably tighten to deter abuse. All organizations must keep informed of these laws. Companies whose business plan rests on access to consumer data will be forced to review their practices. For example, even if Facebook does not directly sell information related to its members, Facebook uses this information to produce a comprehensive prole of the users of its services to attract advertisers interested in increasingly targeted sales actions. New laws regarding protection of private data may impose stricter limits on the use of this data by Facebook and many other companies.

Duration and effect of factors Once the situation and trends of the macroenvironment are recognized and their impacts analyzed, marketing managers must distinguish factors based on the duration of their eects. While structural changes have a long-term impact, the inuence of one-time or short-term trends tends to fade or disappear in conjunction with the phenomenon that sparked them. e hosting of an international-calibre sports event clearly shows the importance of considering the duration of eects because this event may impact diverse sectors. To take the example of the Olympic Games, one of the sectors most aected is undoubtedly construction. ese impacts are immediate and one-time because after the event is over, the facilities will not be needed, and the level of activity in the sector will revert to its usual pace. All the same, the impacts on the tourism industry of the host country are both one-time and structural because tourist volume will rise not only during the event but also in the years to follow. e 1976 Olympic Games in Montréal attracted a record number of tourists to the city at the time, and their eects are still being felt today because this event highlighted Montréal and its Olympic Park as a prime tourist destination in Canada.

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Summary In an organization, the choice of a marketing strategy and commercial actions is guided by an analysis of opportunities and threats posed by the external environment, along with the strengths and weaknesses of the organization in its sector. This strategic choice can be made using the SWOT analytical framework or its improved version, the TOWS model. To analyze the internal and external environments of an organization, managers collect information to diagnose the internal situation and identify external phenomena that may have a positive or negative impact on the company’s current or future activities. The internal environment is controllable if the organization has sufcient resources and capacities to act on its components. By analyzing its internal environment, a company can pinpoint its own strengths and weaknesses. This analysis must consider the objectives and missions of the company, following an assessment of each of the components of the

microenvironment, and of its value chain. Benchmarking, a comparative analysis of the processes and performance of the organization relative to best practices and performance in the sector, is another useful analytical tool. The external environment, in contrast, is unforeseeable, and organizations cannot control it. It encompasses both the microenvironment, made up mainly of actors in charge of the competitive dynamics of the market, and the macroenvironment, which is a set of political, economic, social, technological, ecological and legal factors. Even though organizations cannot control their external environment, they can follow its evolution attentively and use insight to detect which factors may transform into opportunities or threats over the short, medium and long term. By taking a proactive stance relative to other actors in the market, organizations can control their microenvironment to a slight extent. In contrast, reactive rms have no control over either level of their external environment.

Suggested readings Textbooks

Websites

Blythe, J. & Megicks, P. (2010). Marketing planning: strategy, environment and context, vol. 1. Harlow, England: Financial Times/Prentice Hall.

L’économie du partage: www.lesaffaires.com/blogues/ nicolasduvernois/leconomie-du-partageun-choc-des-generations-/585398

Piercy, N. & Giles, W. (1989). Making SWOT analysis work. Marketing intelligence & planning, 7(5), p. 5.

Age Pyramid in Canada: www.statcan.gc.ca

Tourism Intelligence Network: tourismintelligence.ca

Chapter

6

Marketing Research

Chapter outline 6.1

Marketing information system (MIS)

6.2

Data

6.3

Marketing research

6.4

Steps of the marketing research process

Learning objectives After reading this chapter, you will be able to: understand the marketing information system (MIS) and its importance in the marketing management process; distinguish primary data from secondary data; grasp the importance of marketing research and its role in organizations; know the approach to follow to carry out a marketing research project; discern the main methods of marketing research and differentiate them according to their usage contexts.

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Is there any potential for

my new online grocery service? What is the prole of potential users of this service? Does my website oer a pleasant navigation experience? What is the maximum price that customers are willing to pay for delivery? Are delivery costs an important criterion in their choices? What other criteria do they consider? e answers to these questions and many more help managers and entrepreneurs seize business opportunities on the market, shape future marketing decisions, and measure the eectiveness of past marketing decisions. Marketing research data can provide insights into trends, consumers’ proles, preferences, attitudes and opinions, behaviours and reactions to the commercial actions that the organization implements. If companies apply a structured marketing research approach and a rigorous methodology to gather data and conduct analyses, the information obtained can be transformed into opportunities, competitive advantages and informed decisions that can help organizations to better achieve their strategic objectives. is chapter denes the marketing information system (MIS) and its main components. Various types of data are presented, with an emphasis on gathering and analysis of primary data through marketing research. In addition to highlighting the importance of marketing research for organizations and its various uses, this chapter describes the steps to follow when conducting applied marketing research projects.1

Flow chart

1. It is important to distinguish applied marketing research from pure marketing research. Applied research has a managerial role and is intended to solve pragmatic problems that decision-makers face in organizations. In contrast, pure marketing research is academic research intended to formulate and validate theories. Nonetheless, over the long term, theoretical developments obtained from pure marketing research are often used in applied marketing research.

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6.1 Marketing information system (MIS) One way to obtain information is to gather data that can answer marketing managers’ questions. Surveys administered to consumers, intermediaries, customers or sales forces are tools used to collect data. ese data are called primary data. In other cases, managers’ questions can be answered by consulting existing and archived data. ese data are considered secondary. Whether they come from the internal databases of the organization, its market or its macroenvironment, primary and secondary data represent the basic ingredient of a marketing information system (MIS). is system is made up of people, equipment and procedures put in place in organizations to collect, organize and process data, and disseminate it in the form of information. It serves as a support to facilitate and improve decision-making at all steps of the marketing management process.

Marketing information system (MIS) A set of resources and procedures for collecting and analyzing data from the organization and its environment, and transforming it into useful information that will be used in marketing decision-making.

e internal data analysis system, marketing research and marketing intelligence are the main components used for integrated data collection and analysis within the MIS. e internal data analysis system, as its name suggests, mainly uses data gathered by the company internally. In contrast, marketing research and intelligence mainly use data from the external environment (microenvironment and macroenvironment). Similar to the internal data analysis system, these two components of the MIS serve the same objective: supply marketing managers with useful information to make their decision process more eective. Information from the MIS is transmitted to marketing managers to help them make informed decisions at each step of the marketing management process, namely planning, execution and control. To reach this objective and to ensure that decision-makers are interested in the system and condent that it has value and is reliable, it is essential that the information supplied by the MIS be of high quality. erefore, it must be: • pertinent and useful for addressing a marketing problem: the information must be communicated in the form of recommendations for decision-makers, and help them to reduce the risk related to the decision; • reliable, so that the manager can use it condently: the information must be gathered and processed by professional analysts and based on a rigorous approach; • valid, to avoid misleading the user: information must be complete and based on real facts. e data related to these facts must be synthesized and interpreted as objectively as possible. Figure 6.1, on the following page, illustrates the structure of an MIS and situates it as an information vehicle between decision-makers, the organization and its external environment. e system includes three components: the internal data analysis system, marketing research and marketing intelligence. e arrows represent information ow within the organization and between the organization and its external environment.

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Figure 6.1 Structure of a marketing information system (MIS)

Source: Adapted from Kotler, P., Armstrong, G., Cunningham, P.H., Denize, S. and Trifts, V. (2011). Principles of marketing (5th Can. ed.). Toronto, Ontario: Pearson Canada, p. 142.

is gure highlights the role of analysis in the marketing management process. It clearly shows that to meet the information needs of marketing managers, internal and external data are transformed into useful information by the following three components: internal data analysis system, marketing research and marketing intelligence. e following subsections describe these components in detail.

6.1.1 Internal data collection and analysis system e internal data collection and analysis system is generally part of the accounting system. It includes records of transactions made by the organization, its suppliers, distributors and end customers (orders, deliveries, returns, invoices, etc.). Sales managers contribute to the system through detailed and continuous sales follow-up. e system also identies the people in charge of managing customer databases and includes data on online transactions, for organizations that carry out e-commerce. anks to computer tools and state-of-the-art data mining techniques, database managers supply the organization with information on the protability of each of its customers (lifetime value) and the probability of losing them (attrition rate). ey also identify market segments and provide information to support marketing actions targeted to the customer prole. If used well, these data may represent a gold mine for the organization and a source of eciency in the planning and deployment of its marketing actions.

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6.1.2 Marketing intelligence Marketing intelligence is the component of the MIS that systematically collects external secondary data concerning the company’s environment. Reports produced by marketing intelligence mainly serve to keep managers informed of the evolution of this environment, allowing them to detect any event or trend that may threaten or create an opportunity for the organization. Comprehensive data on industries, new laws and regulations governing a commercial activity, and information on demographics, social trends and technological developments is disseminated by government agencies (Innovation, Science and Economic Development Canada, Statistics Canada), professional associations (Quebec Brewers Association, Egg Farmers of Canada) or private organizations (Deloitte, AC Nielsen, Passport). Marketing intelligence teams in organizations use these data to produce reports, which they update regularly. Data available on the Internet and new analytical tools used to process these data also provide information that may be very valuable to marketing managers. Adwords, for example, is one of the tools that Google oers to help businesses monitor keyword queries of Internet users. Usage statistics for these keywords and their evolution over time help businesses compare themselves to their competitors regarding citation and research on the web. Brands can also nd other keywords that may be associated with their brand names and their products. ese keywords can be inserted in communication campaigns to increase search engine optimization for their websites.

6.1.3 Marketing research Marketing research is a process that lets decision-makers better understand a market or marketing phenomenon, translate their questions into information needs, and collect and analyze data to meet these needs. Marketing research is mainly based on primary data, collected to answer a specic managerial problem or to explore business opportunities. ese data can be collected using qualitative or quantitative methodologies (see page 164).

Whereas marketing intelligence is based on systematic and continuous collection and analysis of external secondary data, marketing research addresses a specic information need expressed by decisionmakers. It therefore often requires the collection of primary data.

Sections 6.3 and 6.4 of this chapter describe the types of marketing research to carry out depending on the decision context, and the steps to follow when conducting a marketing research project.

6.1.4 Role of the MIS e information obtained from the MIS is transmitted to marketing managers, who can then make better decisions concerning strategies to adopt (segmentation, targeting, positioning and dierentiation), and the resulting marketing mix (product, price, place, etc.).

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e MIS is used to collect data and analyze it continuously and systematically. As a result, its role is not limited to helping managers during the planning and execution phases of marketing strategies; it also extends to the control phase. During this phase, marketing research serves to verify whether the decisions made allow the company to achieve its objectives. Data gathered for control are analyzed, and the resulting information is transmitted to the marketing managers so that they can re-orient their eorts if necessary. In some cases, this information may reveal a business opportunity that the internal data analysis system, used in tandem with marketing research and intelligence, may investigate by collecting and analyzing new data. Two elements are important when implementing an MIS. First, the information produced must be useful and serve to improve the decision process. To achieve this objective, the data gathered must meet the information needs of marketing managers and possibly those of other users. e added value of this information must justify its acquisition cost. Marketing analysis helps managers evaluate these information needs and subsequently identify the type of data to use, and choose the optimal methodological approaches for data collection and processing. e second important element concerns the ow of information exchanged within the MIS. e arrows linking the three components of the MIS in Figure 6.1 (see page 148) indicate that the information obtained from internal or external data must be communicated to the people in charge of the internal data analysis system, marketing intelligence and marketing research. e MIS will be useful and eective only if these three components work in an integrated way. It is therefore crucial that they share information unreservedly, so that all parties are fully informed and eort is not wasted on procuring information that another party already has (see Example 6.1).

Example

6.1

The MIS of a company that offers a loyalty program

For a company that offers a loyalty program, like Air Miles, its primary source of data is transactions between its members and its partners (see Figure 1). It also holds data transmitted by members when they enroll in the program, and records of all communication with the company

by email, on the website and with customer service. It thus has a very rich internal database. Its MIS may also rely on information obtained from collection of primary data from public panels like those offered by Asking Canadians, a company specializing in market studies

Marketing Research

and online opinion surveys. With ample information and the ability to integrate it in a single database where each customer can be identied by a member number, the company can benet from a 360° view of its members. Some companies have their own member panels. For example, Air Miles has the Research Now panel,

151

which is made up of members of the company. They are encouraged to participate, on a volunteer basis, in surveys and tests offered on the panel forum, to share their opinions and inuence decisions made by the company and its partners. To increase the participation rate, the company rewards participants by offering them bonus miles.

Figure 1 The MIS of a company that offers a loyalty program

e issue of information sharing between the components of the MIS is minor in small and mid-sized businesses because their structures are more concentrated, and the task of data analysis is often centralized. For example, in companies that do not have a marketing intelligence team, the marketing research team will process both the primary and secondary data to produce regular reports, along with ad hoc reports that aim to answer specic questions. Example 6.1 describes an MIS.

6.2 Data For an MIS, data can be compared to the ingredients for a cake recipe. You cannot prepare a cake without the basic ingredients, and the cake will turn out well only if the ingredients are good and the steps in the recipe are followed meticulously. erefore, data collection, verication of sources, reliability and validity of collection methods are crucial when putting an MIS in place and executing the rst step of

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the marketing management process: analysis. is section denes and compares the various types of data and their sources, and describes data collection techniques.

6.2.1 Typology of data Data may be gathered on the company’s sales, customers’ needs, competitors’ activities, and opportunities and threats in the macroenvironment. Some of these data are already available and accessible when the manager wants to Secondary data know more about these areas. Often, data are collected accordData collected by a third party according to ing to a methodology not controlled by the analyst, but rather a methodology not controlled by the analyst, to meet another information need generally expressed by a third but that the analyst can use during research party. All the same, these data may still answer some or all of projects. the analyst’s or manager’s questions. Such information is called secondary data. Primary data Original data collected according to a methodology designed by the analyst. Primary data can meet managers’ specic information needs.

In other situations, analysts need quite specic information that the secondary data may not provide. In this case, they may decide to gather primary data, which is original data intended to meet their own information needs. To do so, they will:

• choose the methodology for gathering this data: individual interviews, focus groups, observations, experiments or surveys; • select the sample of people from whom data is collected; • design data collection instruments, for example, discussion guides, observation checklists or questionnaires; • choose the data analysis tools. Section 6.4 describes the steps to follow to collect primary data as part of an applied marketing research project. In contrast to primary data, whose collection and analysis procedures are determined when the information need is expressed, secondary data are already available and may be easily and quickly accessed by analysts. ese data are found in paper documents, multimedia materials and computer databases. Data are internal when they are collected and archived within the organization, whereas all data that originate outside the organization are external data.2 Figure 6.2 presents this typology and a few examples of data sources for each category. Several types of internal data, particularly sales data, are gathered continuously and used by organizations to better understand the market and oer their customers value propositions. ink of all the sales data that companies hold. Highly precise data can be a valuable source of information for organizations. For instance, they can determine which products and services have been most successful, pinpoint geographic areas where more marketing eorts are needed, make sales projections 2. Interested readers can consult the book by d’Astous (2015, pp. 50–51) for a more detailed list of sources of external secondary data that can be useful for marketing research.

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Figure 6.2 Data typology

and plan commercial actions more eectively. Customer databases, often supplemented by databases of loyalty programs, give companies insight into their customers’ proles, preferences and shopping habits. Companies often use their databases to segment their customers and devise targeted marketing strategies and actions, which are consequently more eective (see Example 6.2).

Example

6.2

Amazon opens a brick-and-mortar shop thanks to its elibrary

If you have already bought a book from Amazon’s virtual bookstore, you will certainly remember the information you gave the company when you placed your order. In addition, if you reviewed the book on the Amazon website, you will have helped the company decide whether to open a bookstore in your neighbourhood.

You also guided the company when selecting what books it will offer you. Indeed, thanks to its transactional site and the myriad of information that Amazon can gather about its customers, the retail titan can now determine which categories

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of books and authors will be popular at each street corner, all over the world. This information lets Amazon optimize its offer relative to traditional bookstores, and boost sales of its more high-tech products like the Kindle and Fire readers. As many traditional bookstores were closing their doors and focusing on online sales, the online mega-bookseller announced in 2015 that it was opening a brick-and-mortar shop in the heart of Seattle.

Amazon’s announcement included the following explanation: “We select books based on Amazon.com customer ratings, pre-orders, sales, popularity on Goodreads, and our salesforce’s assessments.” This statement illustrates the undeniable link between the company’s strategic choice and the richness of the internal and external secondary data at its disposal.

Source: Amazon ouvre une première librairie à Seattle. (2015, November 3). Radio-Canada. Consulted at http://ici.radio-canada.c a/nouvelle/747847/ amazonboutique-seattle-non-virtuelle

6.2.2 Data collection Data collection as part of an applied research project must follow a structured approach. is approach consists of determining the information needed to carry out the project and to categorize the data by level of specicity. Some information is considered general, such as that used to describe the state of an industry or compile a list of the macroenvironmental forces that may inuence it. is information often has an exploratory purpose for the analyst, who wants to better understand the decision-making context. More specic information may concern the brand’s customers, along with their attitudes and preferences regarding the company’s products and brands. e general information analysts need is often available in the form of secondary data produced by government institutions, or in reports produced by associations or private rms (see Figure 6.2, on the preceding page). Information pertaining specically to the company is rarely found in external secondary databases. Analysts then need to check whether the information is available in the company’s internal secondary databases (like customer les or archived research reports). If they cannot nd such data, then gathering primary data becomes the last alternative.

Information on customer transactions and reviews on its virtual bookstore let Amazon optimize its books offer in its new brick-and-mortar bookstore.

A basic principle in data collection is to check whether the needed information is available by consulting secondary data, before collecting primary data. e justication is very simple: primary data are often quite costly to collect. ey also involve longer delays for data gathering

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and compiling than do secondary data. In fact, secondary data are often available and inexpensive (apart from some reports done by private companies). Because secondary data were collected by a third party with a dierent objective and methodology than the analyst’s, they often are not very detailed. In this case, analysts must evaluate how important precision is for their analysis. e additional cost of carrying out primary data collection intended to rene the information must always be lower than the added value of information accuracy. e choice of proceeding with primary data collection is also dictated by the importance of the decision to be made based on this information (strategic versus operational decision) and by the requested delay to collect and analyze the data. Sometimes, the information needed by the analysts can be found in secondary data, and is already complete. However, there is no guarantee that it is accurate or that its source is reliable. Analysts must therefore be careful about the quality of the secondary data before using it. ey must verify its source meticulously and ensure that the data collection methodology was rigorous. McDaniel, Gates and Sivaramakrishnan (2009) suggest the following list of questions that analysts should consider before using secondary data. 1. Who collected the data? Government sources are viewed as the most reliable. Other sources may provide information according to a perspective that serves their cause exclusively. Analysts must pay particular attention to secondary data available on the Internet because it is often almost impossible to know who is hosting the website. McDaniel, Gates and Sivaramakrishnan (2009) propose a set of techniques to evaluate the quality of secondary data gathered online. For example, they recommend that people check whether the site is personal, organizational or government-run, that they nd the host domain and be sure to click on About and Contact, and other links to other websites to better grasp the credibility and neutrality of the source. Analysts should be wary of all information found on the Internet whose origins and sources are unclear. 2. Why was the data collected? All secondary data were originally primary data collected to meet an objective. Here again, analysts must pay attention to the context in which the study was commissioned because this context may have inuenced the presentation and signicance of the data. 3. What data were collected and by whom? Does the prole of respondents who provided the information correspond to the prole of respondents targeted by the analyst? How were they chosen? How many respondents participated in the study? 4. When were the data collected? Are there reasons to think the population of interest to the analysts is part of the sample surveyed during this period? Are data gathered one or two years ago still relevant?

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5. How were the data collected? Some data collection modes used in surveys, for example, have limitations. Analysts must know the method used in order to detect possible biases arising from the limitations of this method. 6. Are the data consistent with other data? Validation is often done by consulting several sources and checking whether the data converge. Analysts must investigate cases of divergence to determine their origin. Primary data collection is justied only when secondary data do not provide sucient information to answer the research question.

6.3 Marketing research Marketing research The American Marketing Association (AMA) proposes the following denition of Marketing research: “Marketing research is the function that links the consumer, customer, and public to the marketer through information—information used to identify and dene marketing opportunities and problems; generate, rene, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process” (AMA, 2004).

Value creation and production are central to the marketing approach and the link between organizations and their markets. Marketing research is one of the approaches that organizations can use to explore this value by collecting and analyzing data. ese data are transformed into information that helps companies understand consumers, customers, competitors and distributors. e information also helps to identify the phenomena and trends that may represent threats or opportunities for the organization as it pursues its mission and strategic objectives.

e AMA denition of marketing research places information at the centre of the relationship between the organization and the market. It highlights the role of marketing research as a function that can take advantage of this information during all of the steps of the marketing process. Like the other components of the MIS3, marketing research aims to provide managers with information that will guide their decision processes and make them more eective. ese decisions cover all of the elements of the marketing mix: product, price, marketing communication, etc. For example, marketing research can provide information on consumers’ price sensitivity, consumers’ willingness to pay for a product, and their perception of brand positioning based on price. is information helps marketing managers choose the prices of their products, and, in the case of poor sales, allows them to investigate whether the problem results from their pricing strategy. Marketing research also helps managers make decisions related to the product. It can be used to nd innovative ideas to develop new products, test prototypes or check whether the brand packaging is attractive and coherent with the brand image. 3. Marketing research is based mainly on primary data collection, but also uses secondary data supplied by other components of the MIS. As mentioned at the start of this chapter, very often, marketing managers in an organization are also responsible for analyzing internal data and carrying out marketing intelligence activities. ese three components do not function in isolation and never should.

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Marketing research also clearly shapes decision-making regarding marketing communication, sales or distribution of the product. For instance, research is crucial when marketing managers must determine which messages to communicate regarding their brands, which media are most appropriate to reach target markets, which types of stores attract customers, and how satised customers are with the services provided by salespeople (see Example 6.3).

Example

6.3

Kellogg’s, the triumph of tastiness

Kellogg’s campaign, whose communication axis was based on the taste of a product aimed at adults, stirred up the cereal industry in 2001. At the time, communication focused on taste had been aimed at the children’s segment exclusively. In their advertisements for cereals intended for adults, the competitors had often highlighted health advantages (nutritional value and bre content, for example) and usage context (diet, quick and practical breakfast for active people).

Kellogg’s audaciously appealed to adults’ taste buds when it launched Crunchy Nut. This decision was based on the results of a survey addressed to adult consumers of cereal. The research rm behind this survey (Mintel) found that taste was consumers’ most important criterion when choosing a cereal. Price, product ingredients (multigrain, and bre and sugar content) and familiarity of avour were found to be secondary.

Source: Newman, A. A. (2011, January 26). Did we mention that It tastes good? The New York Times. Consulted at www.nytimes.com/2011/01/27/business/ media/27adco.html

Marketing research is based mainly but not exclusively on collection and analysis of primary data. Analysts often use secondary data in their marketing research projects. First, they check whether these secondary data respond to their information needs and help them better formulate these needs. Secondary data also let them explore the context (current and historical) of the marketing decision.4 Marketing research analysts must follow a rigorous approach that includes a set of steps ranging from planning to data collection and analysis, and Marketing research consists of planning, lastly to communication of information to marketing managers. Marketing research projects are shaped by the decision situation that managers face. ere are in fact many types of marketing research projects. e main three are exploratory research, descriptive research and causal research.

collecting and analyzing data, and communicating the results of this analysis to managers and decision-makers in the organization.

4. Secondary data can also be used in marketing research during the primary data collection phase, particularly during sampling.

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6.3.1 Exploratory research When marketing managers face decision situations regarding a crucial issue for the organization (for example, a plunge in sales or low store trac), and they do not understand the exact causes or know what decisions to make to solve the problem, exploratory marketing research can be useful. Exploratory research also applies when managers seek new business opportunities (new product or service launch) based on ideas issuing from the monitoring of market trends, or insights. Exploratory research often requires the use of secondary data, observation and qualitative research to better understand the situation, detect trends and help managers clarify their objectives and information needs. e most appropriate data collection instruments in this case would be ones with no structure or with a exible structure. Unstructured research methods allow analysts to discover aspects of the phenomenon being studied that are unexpected because they are unknown. Large-scale surveys where structured questionnaires are administered to large samples are not suited to this type of research, mainly for eciency reasons.

6.3.2 Descriptive research When marketing managers want to conduct a study for specic purposes, their marketing problem has clear objectives that allow managers to determine their information needs. In such a context, causal or descriptive research is appropriate. Information provided by descriptive research can describe a situation. It can be used to prepare reports on the level of customer satisfaction, the prole of the target customers or the analysis of the brand positioning relative to its competitors, if any. is information can be obtained through secondary data collection, qualitative methods, observation or surveys. e most appropriate data collection instruments in this case are slightly more structured, or sometimes highly structured, compared with those used in exploratory research. Examples include observation checklists, focus groups or individual interview guides that include a nearly exhaustive list of topics (or themes) to cover. In the case of a survey, structured questionnaires are used to collect the data. Although descriptive research often requires the use of surveys, this type of research does not allow analysts to make inferences based on cause-and-eect relationships between the phenomena observed. To illustrate this, take the example of a study of buying intentions based on a survey done on a representative sample of the population. e analyst notes that the intention to buy this product is higher among respondents with higher income. e analyst may make an association between these two variables (purchase intention and income) in the population. However, this association is not enough to allow the analyst to conclude that an increase in income would necessarily increase purchase intentions. is inference cannot be made because other variables may explain the high (or low) level of purchase intentions caused by the high (or low) income level. Causal marketing research could help the analyst reach this conclusion.

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6.3.3 Causal research Causal marketing research is therefore recommended when the decision situation requires the investigation of cause-and-eect relationships between variables. For example, marketing managers may want to know whether a drop in the price of a product or a change in packaging may aect sales. Causal research requires the use of experimentation as a research methodology. Experimentation lets analysts establish whether there is a cause-and-eect relationship between the variation in the product price (or packaging) and the sales volume: • by eliminating the eect of all other variables that may aect this relationship; • by verifying that changes in price (or packaging) are necessarily associated with changes in sales; • by ensuring that the variation in sales was observed after modifying the product’s price (or packaging), and not the opposite (see page 177).

6.4 Steps of the marketing research process A marketing research project is necessarily triggered by a marketing problem or a business opportunity. Specically, decision-makers are trying to nd the causes and solutions to a problem or detect a business opportunity to seize. If the managers feel that the information at hand is insucient to answer these questions, and that additional data can be collected aordably and within a reasonable time, the next steps of the marketing research process are initiated. If preliminary analysis suggests that a marketing research project must be conducted using primary data collection, analysts must follow the subsequent steps of the research process: formulating the research problem, structuring the methodology, construction and testing of measurement instruments, data collection, and data analysis and interpretation. e last step is the communication of the results and the recommendations to managers (see Figure 6.3, on the following page). During the planning steps of the research process, managers must prepare a service proposal (or research proposal) in detail. e other steps are described more generally in this chapter. Interested readers can refer to the book by Alain d’Astous (2015) to nd out more details, which they will need if they want to proceed to the execution step of the research process. is section of the chapter emphasizes the importance of carrying out each of the steps in the marketing research process by considering two characteristics: the interdependence of these steps and the nonlinearity of the process. Marketing analysts must be aware that each of the steps requires choices to be made: the choice of a methodological approach, the choice of measurement scales for the main concepts investigated in the research project, and the choice of the population and the sampling technique. ese choices are not independent from those made in the previous steps, and, in turn, will inuence those of the following steps. Take, for example, the choice of the scale to be used to measure important concepts in a questionnaire, such

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Figure 6.3 Steps of the marketing research process

Source: Adapted from d’Astous, A. (2015). Le projet de recherche en marketing (5th ed.). Montréal, Québec: Chenelière Éducation, p. 9.

as attitude toward an advertisement or purchase intention regarding a product. Some scales allow more advanced statistical analyses, while others limit the possibilities of such analyses (see page 181). erefore, as soon as they begin constructing the questionnaire, analysts must think about what kinds of analyses they wish to perform on the data collected. ese analyses clearly depend on the information needs formulated in the rst step of the research process. e second characteristic of the marketing research process is its nonlinearity. is means that despite the sequential approach presented in Figure 6.3, during the execution of a research project analysts may want or need to return to various steps of the process. For example, when analyzing survey data, analysts may notice an unanticipated phenomenon, like the fact that the perception of the brand after the product launch does not correspond at all to the positioning chosen by the organization. In this case, analysts can move backward and return to the step of research problem formulation. Questions about the origin and causes of this perception could be added to the list of information needs identied during this step. is would also imply revisiting the structure of the methodology, which may then require the use of a qualitative approach.

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6.4.1 Preliminary analysis e rst step of the marketing research process is to conduct a preliminary analysis (see Figure 6.4), which could determine whether the marketing problem or the business opportunity the decision-maker wants to explore requires primary data collection.

Figure 6.4 Preliminary analysis justifying the execution of a marketing research project

6.4.2 Formulating the research problem As mentioned in the previous sections, all marketing research projects arise from a situation, which may be: • a serious issue for a company linked to a plunge in market share, a high level of customer dissatisfaction or a failure to achieve its sales objectives; • a business opportunity to seize: for instance, when the decision-maker wonders whether it is worth opening a new store, launching a new product or service or targeting a new market segment; • exploring actions to undertake to achieve particular strategic or sales objectives. e questions may concern changes to make to the prototype to increase the chances of success of a new product or the choice of positioning that can grant the company a place on the market. All of these situations require decision-making, which is an action that the marketing manager must take based on the information conveyed by marketing research.

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It is therefore important that the marketing researchers clearly understand the marketing problem and compile a complete list of the information needs required for decision-making. is step is called the formulation of the research problem. Not only does this step ensure that the following steps of the process can be successfully completed, but it is also crucial to ensure that the research is useful and relevant for the decision-maker, who will then take it seriously. A poor transformation of the marketing problem into a research problem, either because the marketing problem was poorly understood or because the research problem was poorly or only partly formulated, may have very serious consequences for the organization. e commercial failure of New Coke clearly illustrates this challenge (see Example 6.4).

Example

6.4

New Coke, or how to spend $4 million on marketing research to achieve a sales asco!

Coca-Cola’s withdrawal of New Coke in the mid-1980s, just a few weeks after its highly trumpeted launch, is one of the most widely cited sales ascos in the marketing eld. This story is particularly signicant for marketing research specialists, and underlines the importance of correctly formulating the research problem as the rst step of a marketing research project. The story begins as the company’s centennial approached. To mark the occasion, Coca-Cola devised a new formula that spawned New Coke. The brand invested $4 million in marketing research before the product launch. These funds were largely used to conduct blind taste tests and surveys of consumer preferences among nearly 200,000 cola drinkers. The results showed a clear preference for New Coke compared with its main competitor at the time, Pepsi. New Coke was also preferred to the regular (traditional) Coke produced according to the original formula. Buoyed by the research results, the president of CocaCola held a major press conference to announce the launch of New Coke and the discontinuation of regular Coke. The rationale for this decision was to reduce the

risk of cannibalization between the two brands if regular Coke was kept on the market. The company’s main objective at that time was to increase its market share. The announcement of the end of regular Coke caused a seismic shock among loyal consumers of the brand and led to a record number of complaints, a boycott and an undeniable commercial disaster for the company. CocaCola was forced to yank the new product only a few weeks after its launch, and bring regular Coke back to store shelves. How could this failure have occurred despite enormous investments in marketing research and taste tests that boded so well? The explanation is simple: marketing research done for this launch aimed to measure consumers’ preferences between New Coke and other colas. The research results would probably have been different if the research team had examined the symbolic value of the brand and customers’ attachment to it. Instead of simply measuring consumers’ preference for different avours of colas, the research team should have asked respondents whether they intended to switch from regular Coke to New Coke.

Source: Duchesneau, P. (2011, November 9). Le op des grands fabricants. L’actualité. Consulted at www.lactualite.com/lactualite-affaires/les-ops-des-grandsfabricants/

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To ensure that the research problem is formulated well, analysts must clearly understand the managers’ marketing problem and thoroughly dene all of the information required to carry out the research. During this step, which is a process in itself, analysts must do the research required for the successful execution of the project. is may involve analysis of secondary data linked to the problem studied, and discussions with decision-makers, salespeople, consumers and anyone else who could guide the analyst at this step. Analysts could also use theoretical models like those linked to consumer behaviour (see Chapter 7). ese models help analysts identify key variables that may aect and explain a perception, attitude or behaviour, which are The formulation of the research problem is a then included in the list of variables to investigate as part of the step where the marketing problem expressed research problem. Example 6.5 illustrates the transformation of by the decision-maker is translated into a list a marketing problem into a research problem for a project that of information needs to obtain. investigates the customer experience. Example

6.5

Carabins customers’ experience

The marketing managers of the sports team Les Carabins were wondering about how to improve the experience of fans who regularly attended matches. A marketing research team working on this project used the customer experience model

proposed by Louis Fabien in 2009. This model includes 14 dimensions that trace all contact points between a customer and an organization before, during and after the execution of the service. Figure 1 illustrates these dimensions.

Figure 1 The 14 dimensions of the customer experience

Source: Fabien, L. (2015). Marketing de services. Amélioration continue de l’expérience client. Montréal, Québec: Presse HEC, pp. 6–7.

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Figure 1 The 14 dimensions of the customer experience (Continued)

With this model, the research team could clearly formulate the research problem based on these dimensions. The information needs were sorted into three themes: the pre-game experience, experience during the game and post-game experience. For each of these themes, questions concerning the evaluation of all points of contact between the fan and the organization were developed. The rst theme that the survey explored was the fans’ experience of searching for information before a Carabins match. Respondents were asked to describe the quality of their experience with respect to different information search media used: Internet, mobile applications,

social networks, communications by telephone, by email, by fax or by postal mail (dimensions 1 to 4 illustrated in the gure). The second theme concerned all of the dimensions that were part of the customer experience during the match (dimensions 5 to 10). The last four dimensions were evaluated under the theme of after-sale service. This model enabled the team to summarize the research problem as follows: “How do Carabins fans evaluate the quality of services offered by the organization related to each dimension of the customer experience before, during and after the organization of events?”

6.4.3 Structuring the methodology After they have clearly dened their information needs, analysts must choose the methodological approach to use to gather the data to meet these needs. e four main methodological approaches are: • Qualitative research, observation, experimentation and surveys are the main methodological approaches used in marketing research.

• • •

Qualitative research (focus groups, projective techniques and individual interviews); Observation; Experimentation; Surveys.

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e choice of the methodological approach will be dictated primarily by the nature of the information to obtain. For example, if analysts want to explain a behaviour, an interrogation-based approach should be selected because the behaviour cannot be explained by observation alone. ey can then choose between a qualitative approach and a survey, but the nal choice will also depend on other criteria: type of marketing research and the issue of statistical inference, the subject of the project and the reliability of the responses, together with the budget and time constraints.

Type of marketing research and the question of statistical inference As we saw in Section 6.3, the decision situation determines whether exploratory, descriptive or causal research is most appropriate. Methodological choices may be limited by the constraint on sample representativity. Accordingly, if the analysis requires the results obtained to be generalizable from a sample to an entire population (statistical inference), exploratory research or some forms of descriptive research (qualitative methods, for example) are not appropriate. Statistical inference is possible only when analysts choose a probability sample (see page 180). For causal research, experimentation is the optimal methodological approach.

Research subject and reliability of the responses Some subjects may involve privacy concerns or might make respondents reluctant to give true answers because of a fear of social judgment. For instance, respondents may refuse to answer the questions or try to conform to the group by giving incorrect answers, which will inevitably introduce bias in the study results. In this situation, if the research is exploratory, analysts should use a qualitative method based on individual interviews. If they prefer to carry out a large-scale study to be able to generalize the results to the population, they can opt for a survey of a probability sample with a self-administered questionnaire that guarantees condentiality and anonymity. If the research topic can be treated in a group and participant interaction is desired, it is preferable to organize focus groups. e exchanges of ideas and experiences and the discussions among participants may prompt them to propose new products or improvements to existing products. Projective techniques can be used when analysts want to collect spontaneous and immediate reactions from participants regarding a concept or a message. ey are particularly appropriate for testing advertising messages, and new brand names or packages. Lastly, if analysts want to unobtrusively obtain information on consumers’ spontaneous behaviour in real time and in a natural setting, observation is ideal.

Budget and time constraints Constraints related to the budget and the time available may also lead analysts to make methodological choices that are not necessarily the best, but that can result in

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a fair compromise between the quality of the information, the cost of obtaining it and the time needed to collect and analyze it. e paragraphs below dene each of these methodological approaches and the contexts that justify their use. e measurement instruments used for each approach are also presented, and examples are given to illustrate their use in the business world.

Qualitative research Qualitative research is one of the most eective methodological approaches when the analysts’ objective is to better understand a behaviour or a decision process, or to explore a situation or phenomenon about which they have no prior knowledge. In this approach, data are collected from small groups, such as focus groups, or from individual interviews. In both cases, analysts can use projective techniques to facilitate the communication of the information sought. e paragraphs below give a brief overview of the main qualitative methods used in marketing research. Focus group e focus group consists of 8 to 12 people (participants) carefully selected by analysts, who gather around a table. To encourage them to participate and to cover their travel expenses, a lump sum of between $50 and $300 is generally oered as an incentive. Candidates are selected according to their capacity to provide the information needed. Analysts must be careful about who they select and avoid some proles that may hinder the group dynamics. ey will specically avoid choosing people whose prole is inconsistent with that of the group, or people who regularly participate in focus groups. ey will also reject participants who belong to the same family, unless this characteristic is absolutely necessary for the research project. Discussions are led by a moderator who facilitates the group dynamics and ensures that all of the themes selected by the analyst are covered. ese themes will be included in an interview guide that will help the moderator touch on all aspects related to the phenomenon studied, in a logical and satisfactory order. A focus group may last between one and three hours. Very often, activities are organized during the interview to gather additional data related to the research or simply to keep the participants active and interested. For example, participants may view advertising messages, navigate a website, do photo sorts and drawings, or manipulate products. ey may even be invited to cook, if the research objective is to know how they perform some tasks or use particular products. Companies often conduct focus groups to test new product concepts or prototypes, to collect consumers’ reactions to a new advertising message or to determine their perceptions and ways of using an existing product or service (see Example 6.6). Focus groups generally meet in well-appointed rooms equipped with materials required for the study, like whiteboards and notebooks to draw in, televisions to display advertising messages and computers.

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6.6

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Dr. Oetker’s home-baked cakes

By conducting focus groups, Dr. Oetker, a producer of frozen pizzas, cake mixes and ready-made puddings, gathered very useful information to adapt one of its products to its market’s needs. Although consumers liked the taste of one of its new cake mixes, sales were at. Focus groups conducted after the product launch showed the company’s main target (part-time working women in households with several children) did not feel comfortable buying this mix.

The main reason was that they thought their reputation as a mother was at stake if they used the product. They explained that even if the cake made from the mix came out well, preparing it did not require an effort from them. As a result, they couldn’t tell their family it was a homebaked cake! To solve this problem, the company changed the product to allow the baker to add ingredients to the mix (eggs, milk and in some cases butter).

Source: Gofn, K., Lemke, F. and Koners, U. (2010). Identifying hidden needs: creating breakthrough products. New York, NY: Palgrave Macmillan.

Although the moderator often takes notes, the focus group session is usually lmed to capture nonverbal reactions that may provide useful information for the researchers. Analysts will draw on the moderator’s notes and audiovisual materials when they write up the synthesis report. e rooms used in focus groups feature a one-way mirror; people can sit on the other side to follow the interview process (see photo). ese observers are generally members of the research group (analyst and project manager5) and the client, or any other person hired by the client, such as a representative of the communication agency. As more and more consumers are joining social networks, online focus groups are becoming an established trend. As long as there are no technical problems, online focus groups represent a very interesting alternative in that the costs and eort of organizing them are considerably lower. Generation Y or millennials (also known as digital natives) commonly share their opinions, experiences and activities on social networks. As a result, several research rms use market research online communities (MROC) to collect information resulting from their interactions on forums and social media. 5. Person in charge of the project at the research rm.

A focus group room at SOM Research and Surveys.

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Projective techniques Whether the focus group is held at a physical site or online, the moderator may want to integrate activities to collect participants’ reactions to certain messages, products, concepts, etc. To elicit spontaneous reactions or subconscious feelings, emotions or profound beliefs that are dicult to articulate, direct questioning may not be useful because this technique lets respondents rationalize their answers. To avoid this risk of bias, moderators can adopt projective techniques, which consist of “leading participants to project their beliefs, needs, attitudes and motivations through various stimuli” (d’Astous, 2015, p. 68). e stimuli may take the form of words, images, and drawings, along with role-playing. Dierent types of methods can be used. In personication (series of questions and answers), for example, participants are asked to name an animal, object or character that represents the company, product or brand. Word association is a similar technique, but that requires a faster, and therefore less rational, reaction. Respondents hear a word and then are prompted to quickly reply with the rst word or adjective that comes to mind. ese two techniques are particularly useful during marketing research on studies of a brand image. e results can be used to design slogans and advertising displays that reect the messages that the brands want to communicate to their target consumers. Other projective techniques involve photo sorts, individual or group drawings, role-playing, photography by participants, and phrases and stories to complete.6 All of these projective techniques are also used in marketing research based on individual interviews. ey facilitate communication between the interviewer and the participant very eectively. Individual interview Similar to the focus group, the individual interview is a qualitative technique based on asking questions. e main dierence lies in the fact that only one person is interviewed at a time, the interviewee, and the questions are asked by an interviewer. is method is best suited to research projects investigating delicate topics like private information or opinions that could expose the interviewee to social judgment and intimidate respondents if they were interviewed as a group. e individual interview is also a practical alternative to a focus group when gathering several participants at the same time is complex, or when the respondent prole is specic (e.g., businessmen), and the interviewer considers it preferable to question individuals in their natural environment. An average individual interview lasts between 60 and 90 minutes, and generally follows an interview guide. is guide is less structured and more exible than a survey questionnaire, although its structure is similar. It contains a logical and coherent series of questions that go from general to particular. e interviewer generally decides on the themes to discuss, but gives the respondents the freedom to provide as much information as they wish. e guide for an individual interview 6. Interested readers can consult the book by Alain d’Astous (2015) for more detailed descriptions and examples of several of these techniques.

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should mainly consist of open-ended questions. e guide allows for improvisation, so if the interviewees raise a topic that may translate into useful and valuable information for the project, the interviewers can investigate this topic and add it to their notes. How many individual interviews should be conducted as part of a marketing research project? As many as necessary to gather the information needed. As soon as analysts realize that one more interview will not provide any additional information, they may stop this phase. is is called the saturation principle.

Observation ere is no need to provide a denition for observation. However, it is important to emphasize its value and the context of its use in marketing research projects. Observation has become a common marketing research method mainly because it can provide information on consumers unobtrusively, while the participants act naturally and spontaneously. is method thus oers a major advantage compared with other qualitative research methods or surveys, where answers can be distorted in various ways. In addition, in some cases it may be impossible to ask the consumer questions, like in projects that involve very young children. Another advantage of observation techniques is that most of them let the researchers gather information in real time, at the very moment when the person under observation is interacting with the organization, via either its products and services or its distribution channel (store or website). Of course, the information gathered in this way is more precise than the results of an interview; memory gaps or automatic performance of some repetitive everyday tasks may lead people to forget details. For example, most Internet users cannot recall how many webpages they browsed when searching for a product, and the time spent on each page. Installing spyware (cookies) on people’s computers will ensure that a larger quantity of more precise information is gathered, especially if the spyware records the user’s navigation path (clickstream). With these machine observation tools, analysts can get access not only to navigation statistics, but also to information on the navigation path and decision process of online consumers.

Eye-tracking glasses produce heat maps in which the darkest zones show where the participant’s gaze is focused the most.

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e objectivity of methods when the study involves human subjects is another important aspect of observation. Observers may make personal judgments based on their own interpretation of the situation or behaviour observed, or notice some details that other observers do not. Analysts should therefore recruit several observers and check the consistency between their observations by triangulation. When they observe a familiar phenomenon, they can also use observation checklists that can specify the elements to observe (number of customers in the store, prole of customers who touch, try or buy the product, etc.). New technologies and software that give users increasingly sophisticated observation and diagnostic tools have fueled many developments in the neurosciences eld. ese discoveries have been applied to marketing to study consumers’ reactions to several stimuli. Neuromarketing, which is based on machine observation, consequently emerged. Studies of user experience (UX, for short), a specialty of the Tech3lab (see Example 6.7), are increasingly being used in this new discipline to explain consumer behaviour.

Example

6.7

Tech3lab and the user experience

The Tech3lab at HEC Montréal is the largest user experience (UX) laboratory in North America. Research in this laboratory focuses on interaction between individuals and technological interfaces, particularly websites and mobile applications. Using state-of-the-art tools, the laboratory measures users’ attention and emotional and cognitive reactions while they interact with technology. The Tech3lab is equipped with a wide array of instruments

that can perform eye-tracking (or gaze-tracking), automatically read facial (emotional) expressions, and measure electrical activity in the brain (electroencephalography). When synchronized, these measurements can detect whether consumers feel joy or frustration when they use specic elements of a mobile application. Researchers can then associate this emotion with the element that triggered it by examining where the participants were gazing during any emotional experience.

Source: www.tech3lab.hec.ca

Today, software like FaceReader allows researchers to measure consumers’ sequence of emotions at precisely the moment when they watch an advertising message, navigate on the Internet or play a video game. ese tools also let marketers observe where participants are looking, when, and for how long, by producing heat maps generated by eye-tracking glasses. ere are several possible ways to use observation in a marketing research project. Box 6.1 presents dierent forms of observation used in marketing research.

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Forms of marketing observation

Natural (disguised observation) • Spying • Mystery shopping

Participant observation • Real: ethnography • Virtual: netnography

Machine observation • Video cameras, trafc counters • Transactions (bank cards and loyalty cards) • Internet (spyware, clickstream) • Eye tracking, facial recognition software and measures of brain activity (MRI, EEG)

Protocol method • Simultaneous • Retrospective Indirect observation • Analysis of the consumer’s environment • Content analysis

e techniques selected vary depending on: • the nature of the observer: e observer may be a human or a machine. • the entity observed: Does the observer study consumers directly or examine all elements that could provide information about the consumers, like their living environment or communication on social networks (indirect observation)? • awareness of being observed: disguised observation (such as spying and mystery customers) is a technique in which the subject is not aware of being observed and the observation is made in a natural environment. In ethnography and the simultaneous protocol method, the person observed is aware of the observer’s presence (open observation). • level of observer’s participation: observers who “spy” remain hidden, whereas observers in an ethnographic study participate in the activity observed and the subjects observed are aware of the observer’s presence. In the second case, even if the researchers interact with the subjects (persons or communities) observed, their participation is fairly passive. Further, because observation generally covers a long period in the natural environment of the observed subjects, the latter ultimately act naturally and authentically. Example 6.8 illustrates how Miele uses ethnography to meet its customers’ needs.

Example

6.8

Miele listens to consumers’ hidden needs while it observes them!

German company Miele, a leader in the high-end household appliance market, regularly conducts ethnographic marketing research. Olaf Dietrich, the product management director, explains that Miele uses this methodology

in order to “watch and listen” to consumers. This methodology allows Miele to gain insight into needs that customers cannot express. The company prefers to study consumer behaviour by visiting people’s homes to observe

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them when they perform household tasks. Researchers can then see how people act naturally when they use a product, how they adapt it to their needs and space, and which aspects they nd most frustrating when they use it. Dietrich explains that this information reveals profound needs that consumers do not necessarily express, which often translate into ideas for new products or changes to existing ones. These ideas are then sent to Miele’s R&D teams. For example, the company’s marketing research team conducted an ethnographic study in households where some members suffered from allergies. After vacuuming her allergic son’s mattress three times, a mother

explained that this was the only way she could make sure that it was dust-free. Although she did not clearly express her need for a specic product, this consumer inspired the Miele team to design a vacuum cleaner equipped with a dust sensor that could display the level of cleanliness of spaces and objects. Many new products were designed at Miele as a result of ethnographic studies. The launch of the automatic liquid dosage system (TwinDos) stemmed from observations from consumers who were not able to evaluate the right quantity of detergent needed to wash their clothes.

Source: Adapted from Gofn, K. and Mitchell, R. (2010). Innovation management: strategy and implementation using the pentathlon framework (2nd ed.). Houndmills, England: Palgrave Macmillan.

Although observation provides rich information about consumers’ behaviour, this methodology cannot explain all aspects of these behaviours. In fact, it captures only the behavioural dimension, and very rarely sheds light on the motivations behind the behaviour. If analysts’ objective is to nd an explanation for a behaviour, they will probably use the qualitative techniques described above, or an observation method based on the simultaneous or retrospective protocol techniques, where participants are asked to voice aloud their thoughts, emotions or behaviours concerning the tasks they are performing (simultaneous protocol) or have completed (retrospective protocol). A browsing experience on a company website is an example of a task that could be observed with a protocol method. Figure 6.5 provides general information on the most appropriate qualitative techniques to be used depending on the analysts’ information needs.

Figure 6.5 Choice of a technique depending on the information needs

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Experimentation Experimentation is the appropriate research method when the project aims to test causality between variables. For example, analysts may be interested in examining the impact of a price reduction on product sales or the eect of classical music played in a store on customers’ average shopping time. Experimentation involves examination of two types of variables: • Independent or explanatory variables, also called factors, which represent possible causes of the phenomenon studied; • Dependent variable, which represents the eect, that is, the phenomenon to measure. A company may want to investigate a possible relationship between the location of its product on store shelves and sales of this product at a store. Given that shelf space is limited and brands tend to battle ercely to attract consumers’ attention and to gain market share, the answer to this question may be very important to a company. Further, the impact of a product’s location on sales varies across product categories. For example, price-sensitive consumers will often examine all the brands of the same product category wherever they are located on the shelves. Bearing this in mind, companies can save the added costs of premium locations by choosing the least costly location in the store. Experimentation can thus help marketing managers make decisions because it can provide information about the presence or absence (and direction) of eects between a given sales action and the brand’s performance. To prove the existence of a causal relationship between two variables, marketing analysts must design their research project such that it meets the three prerequisites to establish a causal relationship. • Temporal precedence is condition stipulates that on a timeline, the variable suspected of being the cause (that is, the independent variable) must occur before the change in the dependent variable. If a company observes a variation in sales before airing a new advertising message, it cannot say that the advertisement caused the sales variation. • Concomitant variation (covariance) is condition requires that variation in one of the variables always be accompanied by a predictable variation in the other. In other words, if one of the variables increases, the other should either increase or decrease. If it remains constant, this condition is not met and the causality relationship cannot be established. • Elimination of other possible explanations To be able to attribute a single cause to the variation in the dependent variable, researchers must be able to exclude the impact of all of the other variables that may interfere with this relationship. ese variables are called “external variables.” To check if all of these conditions are present in the relationship examined, analysts manipulate the independent variables and measure their eects on the dependent

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variable. Specically, analysts set dierent levels of the independent variables to verify whether each one will cause an observable variation in the dependent variable. Going back to the example of the causal relationship between the shelf location of a product and its sales performance, this type of relationship can be tested according to the following experiment. Marketing analysts will need to manipulate the product location by positioning it at three levels, for example eye level, hand level and foot level. ey will do these manipulations in dierent stores of the same supermarket chain and collect data on product sales in these stores. e stores represent the experimental units. Experimental units are individuals, or any other entity, that undergo the eect of manipulation and in which a dependent variable is measured. In our example, the store is the experimental unit because product sales are collected at the store level. Manipulations (or experimental conditions) are generally presented as an experimental design that includes several independent variables and classication variables. Classication variables may aect the dependent variable measured, but the analyst cannot manipulate them. Store locations where experiments are done are a classication variable. For instance, even if all of the stores belong to the same supermarket chain and are the same size, it is quite possible that dierences in sales gures among stores may be explained by the fact that purchasing power varies between districts where these store are located. Hence, the analyst cannot conclude that the manipulation of product placement on the shelves causes product sales variations. To separate the eect of classication variables from the eect of independent variables, analysts separate the experimental units by levels of the classication variable. In the case above, they would compare sales in stores located in higher-income districts (where purchasing power is above the average) with sales in stores situated in lower-income districts (where purchasing power is below the average). Table 6.1 illustrates the experimental design that marketing analysts may use to analyze the causal relationship between product placement on shelves and their sales performance in stores.

Table 6.1

Example of an experimental design Store Location

Product placement on shelves Eye level

Hand level

Foot level

Store located in a lower-income district

Condition 1

Condition 2

Condition 3

Store located in a higher-income district

Condition 4

Condition 5

Condition 6

Studies based on experimentation are generally conducted in highly controlled environments that allow the researchers to isolate the eects of external variables that may interfere with the investigation of the causal relationship. Laboratories are the perfect setting for such experiments. In laboratory experiments, simulated stores or websites are created to mimic real shopping or website browsing. By manipulating the independent variables to create dierent experimental conditions, analysts can measure participants’ reactions under each of these conditions (see Example 6.9).

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La Presse+: experiments to develop mobile applications

In 2010, the top managers of the newspaper La Presse decided to take a step forward by developing La Presse+. This mobile application was designed to transform the company’s business model by migrating readers and advertisers from the paper version to a digital edition while promising to enrich their reading experience on mobile interfaces. The ultimate goal was to attract younger readers to La Presse and add value to the benets that advertisers receive. Although La Presse already had a website and mobile applications, the creation of La Presse+ required a major investment ($40 million) to develop a one-of-a-kind mobile application. Several experiments were done on customers throughout the development process of the application. These

experiments aimed to validate the impact of the users’ experience of several elements related to content, like editing and advertising, and to the various functions of the new application. Some of the experiments were done at the Tech3Lab, and entailed eye-tracking and emotion measurements (see Example 6.7, on page 170). For example, one experiment evaluated the effectiveness of different advertising formats. Participants wearing eyetracking glasses were invited to browse an experimental version of La Presse+ in which the researchers had inserted various types of advertising formats. Using the eye-tracking data, the researchers quantied the level of attention paid to the formats offered and showed that the engagement time was higher for interactive advertisements.

Source: La Presse+, du laboratoire Tech3Lab à la stratégie d’affaires : la neuroscience au service du marketing (2017). Fondation HEC Montréal. Consulted at: www.hec.ca/fondation/ou-vont-vos-dons/force-de-vos-dons/la-presse-tech3lab.html; Pierre Arthur, December 20, 2016, personal com munication.

e major disadvantage of laboratory experiments is that they are sometimes unrealistic. is is why some analysts conduct real eld experiments by organizing test markets. In these test markets, researchers investigate the relationship between the variables being studied based on data collected in real stores and from real customers, but in a small, well-controlled market that must be representative of the targeted market, and isolated enough to reduce the impact of external variables. e main weakness of these eld experiments is linked to the lack of internal validity. Furthermore, market tests are risky because competitors could imitate the company’s action and act faster by launching their own product before the end of the market test.

Survey research A survey is a research method based on the use of a questionnaire to gather data. e questionnaire includes the same questions, formulated uniformly and measured identically for all respondents. is makes it the most structured methodological approach in marketing research. e survey is also one of the most popular research methods used by companies. e main key to its success is that it can be administered to large samples, and the results obtained can be extrapolated to the whole population when probability (random)

Because it is based on the use of a questionnaire, the survey is the most structured marketing research method.

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samples are used. In addition, it can provide answers to many questions in a wide range of areas, such as estimation of a product’s potential, and description of the prole of the current and potential consumers and their preferences, purchasing habits, etc. Surveys allow marketing managers to answer several types of questions: • Who? Who are our current and potential customers? Who liked our new product? Who prefers to buy our products on our website rather than in our physical (or brick and mortar) store? • How many? How many consumers know the product? How many noticed our new advertisement? How many purchased the product after having viewed it? How many are satised? How many would recommend our brand to their friends? • How? How do customers evaluate our service? How do they use our product? How do they position us relative to our main competitors? • Why? Why aren’t people buying our product? Why are they dissatised? • Where? What? and When? Another non-negligible characteristic of the survey, which has spurred its success, is its exibility. A survey can be conducted using a questionnaire administered by interviewers or can be self-administered. In the latter case, respondents can read and reply to the questions at their own pace, and according to their own interpretation. Collection methods are adapted to communication modes and to the opportunities to come into contact with people targeted by the study: telephone, website, social networks, email, at home, outside the home, etc. Surveys can thus be tailored to each situation. If the subject studied is delicate, a survey with a self-administered questionnaire avoids the embarrassment that respondents can feel at revealing sensitive information to a survey administrator. If the respondents are dicult to reach at home, or if a company wants to ask individuals to test a new product to measure purchasing intentions, it may conduct a survey outside the home. If the information sought concerns consumers’ impressions of their experience when browsing the company website, the questionnaire can be displayed directly on the website. In short, the possibilities are varied, and can be categorized according to the typology presented in Figure 6.6. e choice of a survey type should not be random. It must be guided by a set of important criteria. Specically, analysts must consider: Budget allocated to data collection Target response rate Speed of response rate Need to ascertain respondents’ identity Availability of a sampling frame (see page 180) and nature of respondents’ contact information: mailing address and email, telephone numbers, etc. • Level of complexity of the questionnaire • Obligation to conduct some activities simultaneously: taste the product, browse the website, watch a video • • • • •

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Figure 6.6 Different types of surveys

Source: d’Astous, A. (2015). Le projet de recherche en marketing (5th ed.). Montréal, Québec: Chenelière Éducation, p. 80.

In fact, all forms of surveys have both advantages and disadvantages regarding all these criteria. For instance, surveys conducted in respondents’ homes are very costly, but can conrm the identity of the respondent and ensure that they understand the questions. Other methods are cheaper and quicker, like surveys conducted online and on social networks, but do not guarantee that the analysts are reaching the right person (sampling unit). Analysts must therefore make trade-os when selecting the method that best meets their information needs. e method chosen will be the one with the fewest limitations and the most advantages according to the selection criteria mentioned above.

6.4.4 Construction of measurement instruments e choice of measurement instrument depends on the research methods chosen by the analyst. For instance, individual interviews and focus groups are based on the use of interview guides, whereas observation may require the use of an observation checklist. e latter is used to produce a list of elements to observe when analysts have a good grasp of the phenomenon studied. When analysts do not have previous knowledge of the phenomenon under investigation, the study will be based on unstructured observation. In this case, the analysts observe the phenomenon and take note of all information that they consider useful for the study. e design of the questionnaire that will be used to gather data in survey research takes into account the type of survey selected. e length, and consequently the time required to complete it, will dier depending on whether the respondents are surveyed as they leave a metro station or when they are seated in the comfort of their living room. e formulation of each of the questions, the response format proposed (binary responses, multiple choice questions, ordering, scoring), and the speed

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required by the researcher to get to the heart of the research topics are also aected by this choice. e response rate, which corresponds to the ratio of compliant questionnaires7 to the number of questionnaires completed and returned, depends not only on the type of survey, but also on the quality of the questionnaire. If the questionnaire is long and poorly structured, if questions are formulated poorly or if the response format is demanding, respondents may refuse to answer, may answer only partially, or, worse yet, may rush through the exercise and supply wrong answers that erode the quality of the data. Analysts must therefore try to build a questionnaire that has a logical structure, and that is pleasant and easy to read and complete. To do so, they must formulate clear questions and choose appropriate measurement scales. When designing the questionnaire, they should opt for a funnel structure that ranges from the most general themes to the most specic themes. ese themes correspond to subquestions that result from the research problem. Once the list and sequence of themes is dened, the next step is to insert a set of questions that cover each theme. Analysts will thus have to make decisions regarding the order of the questions (ow), the type of questions to ask (open-ended or closed) and, for closed questions, the answer format (measurement scale). Because open questions tend to trigger longer replies, they should be used sparingly in surveys. e main response format to closed questions corresponds to dierent types of measurement scales. ere are two main categories of scales: qualitative (or nonmetric) scales and quantitative (or metric) scales. ese scales have dierent levels of sophistication. Table 6.2 describes these scales and gives some examples of how they are used. e more sophisticated the measurement scales, the richer the statistical analyses they allow. As indicated in Table 6.2, the level of sophistication of quantitative scales is higher than that of qualitative scales. In addition, it is easier and quicker for survey participants to provide answers on a qualitative scale. Here again, analysts must make choices that depend on the type of analysis to be done and the nature of the concepts to measure. For example, to measure purchase intentions of a new product, analysts can use a nominal scale, for which the possible answers are “Yes” or “No,” or they can choose a metric scale of the ratio type. In the second case, respondents are invited to specify the probability that they will buy the new product, on a scale ranging from 0% to 100%. e “Yes” or “No” scale allows only the calculation of numbers or percentages that represent the proportion of individuals who are interested in purchasing the new product. It also indicates where the majority is situated (mode). In contrast, the metric scale allows Variables can be measured in a survey using the analyst to calculate the average probability of purchase for nominal, ordinal, interval or ratio scales. the whole sample along with the variance of this probability, 7. e number of questionnaires sent less the number of questionnaires returned due to an error in the email address, unassigned telephone number, etc.

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Table 6.2 Types of measurement scales

Level of sophistication

Higher

Type of scale Metric scales

Ratio

Intervals

Non-metric scales

Ordinal

Lower

Nominal

Properties

Possible analysis

Examples of use

Takes a measure that is used to compare respondents based on the variable measured. It can also capture information on order and distances.

• Central tendency

• Average expense

• Dispersion

• Usage frequency

In addition to capturing information on order, it allows the calculation of distances.

• Central tendency

Captures information on order, but does not allow the calculation of distances.

• Number

Allows the categorization of responses, but does not give an order or measure.

• Number

• Sex

• Mode

• Multiple choice questions

• Probability of purchase

• Dispersion

• Mode • Median

• Measures of attitudes and opinions • Ordering of products or attributes according to their importance

• Buy/not buy distinction

and therefore the level of homogeneity or heterogeneity of the sample. Analysts can then examine whether there is a correlation between this variable and other variables measured by a metric scale. Correlation analyses are possible only if the two variables under investigation are measured according to metric scales.

6.4.5 Testing of measurement instruments To avoid unpleasant surprises that may compromise the quality of the data and the research results, analysts must pretest their measurement instruments before collecting the data from the selected sample.

As its name suggests, the test allows researchers to administer a preliminary version of a questionnaire to a small group of respondents who represent the sample. They can then evaluate and adjust the

e test consists of administering the questionnaire, according questionnaire before the data collection step. to the survey method selected, to a small number of respondents that are representative of the sample. e analysts can thus gather their responses, impressions and comments, which will help them ne-tune the questionnaire. e corrected version of the survey will be used in the nal data collection, involving the sample. e test is very important in cases where respondents misunderstand the wording in some questions. ey may also be reluctant to disclose very personal information, or may be unable to answer some questions because of the required response format. In addition, they may skip some questions simply because the links between the questions were not correctly programmed, or because they did not realize that the question was intended for them. Lastly, respondents may stop before completing the questionnaire because they nd it too long.

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By doing a test, analysts can evaluate the time required to complete the questionnaire, check if the answers illustrate a good understanding of the questions or, if the test participants have not answered particular questions intended for them, adjust the questionnaire before starting the data collection step.

6.4.6 Data collection Data collection corresponds to the step where the analysts choose the sampling plan. Specically, they: • dene the target population: the set of people or entities studied; • dene the sampling unit: the entity to which the questionnaire will be administered and from which the data will be collected; • choose the sampling procedure to form a sample; and • determine the sample size. Only very rarely does a marketing research project require collecting data from an entire population (this is known as a census). Consequently, researchers must choose a sample. e can make a statistical inference, which consists sample is a subgroup that may or may not be representative of of extrapolating the results obtained from the the population. A representative sample lets analysts make a sample to the whole target population. statistical inference, in other words extrapolate the results they obtain from the sample to the whole population, with an allowed sampling error (or level of accuracy) and a given level of condence.

When a sample population is selected according to a probability sampling procedure, analysts

For a sample to be representative, it must be selected according to a probability sampling procedure, which is a technique that allows all members of the population to have the same chance of being selected. is probability is known and strictly positive. A sampling procedure consists of probability sampling and non-probability sampling (see Figure 6.7). e choice of a procedure depends on several criteria. One of the rst choices concerns the need for the study sample to be representative. If the study is exploratory and the methodological approach is qualitative, the issue of representativeness is clearly not as important as in a descriptive study, where the goal is to produce a customer prole for a brand based on data collected from a sample of customers. e choice of sampling procedures also depends on the nature of the target population under study, the ease of locating and reaching it, whether an exhaustive list of members is available (sampling framework), and nancial and time constraints that analysts face when conducting their research project. When a probability sampling procedure is used, the sample size can be determined according to statistical formulas. Otherwise, the data collection budget and industry standards will dictate the sample size.

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Figure 6.7 Typology of sampling procedures

Source: Adapted from d’Astous, A. (2015). Le projet de recherche en marketing (5th ed.). Montréal, Québec: Chenelière Éducation, p. 184.

6.4.7 Data analysis and interpretation In the analysis step, the primary data collected as part of marketing research are transformed into useful information for managers. Analysts thus prepare an analysis plan that indicates the list of variables and the relationships that they intend to study. e analysis plan depends on the methodological approach chosen, and thus on the nature of the data collected. Qualitative data are obtained by transcriptions of focus group discussions, individual interviews or observation reports. Very large quantities of data can be processed statistically using software that analyzes text content, like SAS or R. is software can calculate the frequency of appearance of some key words in a text, and present the key words in the form of word clouds, for example. Analysts can also synthesize the data issuing from qualitative research without having to use software. For example, they can produce a report by considering the statements heard most often in focus groups or individual interviews. ese phrases are often used as excerpts (verbatim) to support some quantitative results. In addition, the comments by some participants who disagreed with the other group members or who had caused them to change their opinions may be reported in the results. Survey data are analyzed by specialized quantitative data processing software (Excel, SPSS, SAS, etc.). is software can synthesize data, making it possible to test associations between variables included in a database. e database is nothing more than a table made up of columns that present all the variables measured in the survey, and rows that show the responses of each survey participant. is table is lled with

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numbers representing the variable coding chosen by the analyst for these variables. e coding is based on the measurement scales used to collect respondents’ answers. e questions formulated by the analyst in the research problem determine the nature of analyses to perform. If the question concerns the examination of a variable related to sociodemographic characteristics or the monthly average spending of a company’s customers, the researchers will do univariate analyses (measure of central tendency and dispersion). If the question concerns the link between two or more variables, the analysts will do bivariate or multivariate analyses (cross tabulation, correlations, variance analyses, etc.). e choice of what type of measurement scale will be used in the later steps of the project, and the coding to be used by the analyst to create the database, inuences the types of univariate and bivariate analyses that can be done to synthesize the results. Statistical software can also be used to produce charts to insert in the report and the presentation.

6.4.8 Communication of results and recommendations Often, analysts announce the research results to managers and decision-makers in an oral presentation at the client’s oce. e client may also insist that a complete analysis report be submitted in addition to the presentation. e structure of the report is more or less based on the steps of marketing research presented in Figure 6.3 (see page 160). Even when there is no particular format required for a research report, a basic structure can cover all of the pertinent elements of the study, while giving analysts room to adapt the report to their style, project and client. is basic structure generally tends to follow the pattern below: 1. Highlights: Key ndings and results, accompanied by a list of recommendations. 2. Table of contents: Describes the structure of the report and provides a numbered list of charts and tables. 3. Study context and objectives: A review of the project that links the marketing problem and the research problem, as dened by the list of information needs. 4. Research methodology: is section species the methodological approaches used and justies their use. e sampling plan is also specied. 5. Detailed results: is section describes the results obtained in detail. It also presents the response rate to the survey, the sampling technique used and the characteristics of the sample. 6. Strategic recommendations: In this section, analysts must suggest strategies and actions that marketing managers should take to solve the problem. ese recommendations must be linked to the study results. 7. Limitations of the study: is portion summarizes all the aspects that could not be addressed optimally in the study, and suggests avenues of improvement. 8. Appendices: is section contains all of the documentation used in the project, whose inclusion in the body of the report was not considered essential (statistical analyses done, questionnaires, observation guides, some secondary data).

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Analysts may choose to present all of the information concerning the results in chronological order. erefore, if they conducted a qualitative study before a quantitative study, they will present the qualitative results rst. ey can also present the ndings according to techniques used or themes examined. Another important point to mention here is that although the report must denitely comprise useful and necessary information, its content must not be too heavy or boring for the reader. e report design must present the results not only as written text, but also in the form of charts, tables and quotes from respondents issuing from qualitative research. Regardless of the format chosen, the research report must demonstrate the analysts’ capacity to communicate the study results clearly, rigorously and objectively, while transforming them into managerial recommendations. e outcome should interest managers or decision-makers, and convince them to dedicate their precious time to reading the report and tackling the problem. ese considerations can improve analysts’ chances of landing new research project proposals in the future.

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Summary Marketing managers must constantly make decisions. Whether they concern the strategic orientations of the organization (segmentation, targeting, positioning, etc.) or its marketing proposal (price, product, distribution, etc.), decisions are often made based on information coming from companies’ marketing information system (MIS). The MIS is formed of human and material resources and procedures intended to collect and analyze the organization’s internal and external data and transform it into pertinent information used in decision-making. Data that are already available in the form of articles, reports or databases are called secondary data. Secondary data are sometimes sufcient to meet marketing managers’ information needs, especially for research intended to constantly track market evolution, conduct a competition and macroenvironment watch, or diagnose the strengths and weaknesses of the organization. When the information needs concern a specic, short-term decision situation, secondary data are rarely sufcient and satisfactory. The use of primary data, collected to meet these precise needs, should then be considered. Marketing research is the process of planning, collecting and analyzing primary data. This process can begin as soon as managers notice a marketing problem or business opportunity, and when preliminary analysis of the decision context requires the use of original data. The starting point of marketing research is to transform managers’ marketing problem into a research problem that describes all of the information required

for decision-making in detail. The next step is to structure the methodology. Qualitative research, observation, experimentation and surveys are the main methodological approaches that marketing analysts use. The methodological choice depends on several factors, including the nature of the information required and the subject covered, whether or not the results must be generalizable, the need to ascertain the respondent’s identity, and the budget and time constraints of the study. The survey is one of the most structured methodological approaches because it requires a questionnaire to be designed and validated in a pretest before data collection. The pretest step is as important as the other steps because the quality of the questionnaire will inuence the quality of the data collected. Analysts must design a questionnaire that follows a logical sequence, and that includes clear questions and adapted measurement scales that will help respondents give valid and precise answers. In the next step, data collection, analysts must dene the target population and sampling units, select the sampling procedure and dene the size of the sample. If the probability sampling method is chosen, analysts can extrapolate the results of the study from the sample to the whole population, with relative accuracy and condence. Once the qualitative and quantitative data are analyzed using appropriate methods, the research results and the managerial recommendations are transmitted to the client in the form of a report or an oral presentation.

Suggested readings Textbooks d’Astous, A. (2015). Le projet de recherche en marketing (5th ed.). Montréal, Québec: Chenelière Éducation.

Pradeep, A. K. & Safari Books Online (2010). The buying brain: secrets for selling to the subconscious mind. Hoboken, NJ: Wiley.

Website Asking Canadians: www.askingcanadians.com

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7

Consumer Behaviour Chapter outline 7.1

Understanding the consumer is crucial

7.2

The study of consumer behaviour

7.3

The integrated model of consumer behaviour

7.4

Characterizing the decision process

7.5

Steps in the decision process

7.6

Sources of inuence on consumer behaviour

Learning objectives After reading this chapter, you will be able to: understand the importance of analyzing consumer behaviour to guide marketing strategy and marketing planning; grasp the diverse phenomena linked to the study of consumer behaviour; dene the integrated model of consumer behaviour; fully understand the steps of the consumer decision-making process and know how to adapt the levers of the marketing strategy to each step; describe the different types of inuences on consumer behaviour.

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Why study consumer behaviour?

Schneider and Hall (2001) nd that about 75% of new mass consumption products launched each year are considered failures due to disappointing sales. is huge failure rate can mainly be attributed to the fact that sometimes managers poorly understand their target consumers. In fact, competition is so intense that only businesses that can capitalize on their consumer research will be able to penetrate the market. Managers also tend to underestimate consumers’ resistance to changing their consumption habits (Labrecque, Wood, Nea & Harrington, 2016). Schneider and Hall (2001) identify additional consumer-related obstacles that can explain the failure of a new product. For example, the public may not perceive the attractiveness of a new product relative to the existing oer. In 2004, Coca-Cola launched C2, which contained half the calories and carbohydrates of Classic Coke. is product was aimed at men who wanted to consume fewer calories but still enjoy the taste of Classic Coke; a similar product, Diet Coke, was typically associated with women. Despite a $50 million advertising campaign, this compromise drink never made inroads among male consumers. e reduction in calorie content was not distinctive enough from Classic Coke, and the low-carb diet trend faded. After pulling C2 from the market, Coca-Cola learned from its mistake and, one year later, successfully launched Coke Zero, a new product that promised the taste of Classic Coke at “zero calories.”

Flow chart

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Other high-risk situations are when a new product falls into an entirely new category that consumers do not yet understand, or when the new product does not meet a real consumer need. ese obstacles illustrate the importance of acquiring in-depth knowledge of consumers to guide marketing strategy. What need are marketing managers seeking to ll with this new product? How will consumers perceive its added value? Which types of individuals should the company target and how should it address them? is chapter begins by dening consumer behaviour and emphasizing the diversity of the phenomena that consumer behaviour can encompass. A more detailed description of these phenomena is then presented in an integrated model of consumer behaviour. is model dierentiates the categories of variables that may inuence the consumer during the steps of the decision process.

7.1 Understanding the consumer is crucial Consumer behaviour is extremely complex because it Consumer results from interactions between the idiosyncratic characAn individual to whom a business makes a teristics of individuals and the parameters of the marketcommercial offer, as well as a donor, a user ing mix proposed. These interactions occur under particular of public services or a citizen. circumstances related to time and place. Further, consumers’ choices and actions are not random. By gaining an in-depth understanding of the psychological process and how individuals are influenced, managers can attempt to predict how consumers will respond to their commercial offers. Consumer analysis should allow marketers to grasp why, when and how an individual decides to try an offer and subsequently adopt it. Managers can then adapt the levers of the marketing strategy in order to commercialize the offer as effectively and profitably as possible. A strategy based on understanding consumers must include a study of their wants and needs, along with the obstacles and costs linked to adoption of a product or service, the purchasing experience and use, and the optimal way to communicate with the consumer (Hamilton, 2016). Data on consumers are in fact indispensable for orienting segmentation, targeting and positioning. ese data can then guide decisions on all the variables of the mix. In this chapter, the term consumer is used in the broad sense. e concepts discussed can also shed light on the phenomena of donations and volunteering with nonprot organizations, and on the adoption of behaviours that public bodies wish to encourage in citizens, such as safe driving, alcohol consumption in moderation, or adoption of a balanced diet (see Example 7.1, on the following page).

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The Ice Bucket Challenge

The viral success of the Ice Bucket Challenge, which promoted awareness of amyotrophic lateral sclerosis (ALS), clearly illustrates how advertising techniques can be used effectively to dramatically raise awareness of a rare, little known disease. The campaign harnessed psychological characteristics like the need to project the image of being altruistic, or simply fun­loving, combined with the mechanism of a challenge to harness the social inuence of friends, peers and family members, facilitated by social media. The involvement of a wide range of celebrities—including Barack Obama, Bill Gates, Mark Zuckerberg, Anna Wintour, Matt Damon, Taylor Swift and Novak Djokovic—attracted the attention of very diverse population segments. Lastly, the staging of the campaign in midsummer 2014 was conducive to maximizing its impact. At this time of year, family and friends typically gather at the beach or around the pool while on vacation. In this setting it is much easier (not to mention more bearable) to get an ice bucket poured over your head.

The Ice Bucket Challenge involved lming a participant getting soaked with a bucket of ice water, and then convincing one or more people to take up the challenge, or to give money to an organization that ghts ALS. The challenge was shared virally, and spread all over the world. Over 15 million people published, commented on or “Liked” a publication related to this challenge, according to gures provided by Facebook. “Never has an unplanned fund drive achieved such success [...] ‘In two months, some 75,000 donors contributed over $2.5 million in Québec. To date, none of our annual campaigns had gathered more than $1 million,’ says Claudine Cook, executive director of the Québec ALS Society. In 2014, more than $16.2 million was collected in Canada and $150 million in the United States. This improvised campaign beneted from the power of social media, along with traditional media and a host of celebrities, the director explains” (Hébert, 2014).

7.2 The study of consumer behaviour e eld of study of consumer behaviour is vast. It is a dynamic process that goes well beyond the simple purchasThe set of processes that individuals or ing act, namely when a monetary transaction occurs between groups use when selecting, securing, using a buyer and a producer. Studying the consumer can help or disposing of products, services, experien­ marketing strategy only if it covers the entire consumption ces or ideas, to satisfy their needs and wants. process, which includes all decisions, emotions and actions that precede and follow the purchase. For example, seasoned The study of consumer behaviour should not managers should try to determine the sources of information be limited to the purchase itself. To adapt that inuence their target customers most strongly during the marketing strategy most effectively, managers pre-purchase phase. ey must also ensure that the purchase must examine the steps before the purchase experience is pleasant, ecient and non-stressful, notably by and the experience of using the product after manipulating atmospheric and merchandising variables in the purchase. stores, along with the ergonomics of their e-commerce website. Managers must also understand the determinants of customer satisfaction after a purchase: a satised customer will naturally be more likely to make a rebuy,

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and to spread positive word-of-mouth about the brand and its oers. e phase following the purchase can also raise problems linked to recycling of products, which may create an opportunity for new services like that proposed by Harricana (see Example 7.2).

Example

7.2

Harricana gives fashion apparel a second life

Mariouche Gagné hails from the First Nations village of Loretteville. She launched the Harricana brand in 1994 to nance her studies at the Domus Academy in Milan. Her rst creation was a ski garment made by recycling her mother’s fur coat. Since then, the designer has greatly expanded her fashion creations derived from furs and recycled materials. Harricana has gone well beyond its Québec origins to become an internationally renowned brand. “By recovering old furs we saved the lives of over 800,000 animals. At the same time, we also breathed

new life into more than 80,000 coats, silk scarves, cashmere scarves, and wedding gowns that would never be worn again had they not been remodeled. We give gorgeous materials a second life and transform them into unique pieces, proving that fashion can also be sustainable.” Since 2000, more than half of the company’s sales have come from exports. Harricana has also collaborated with many prestigious brands like the ski equipment and apparel manufacturer Rossignol.

Source: www.harricana.qc.ca

7.3 The integrated model of consumer behaviour Consumers are inuenced by various factors as they complete the steps of the decision process. Figure 7.1, on the following page, illustrates these steps along with the dierent types of inuences. Internal inuences include central psychological processes (motivation, perception, knowledge, emotions and attitude), and psychographic variables (identity and self-concept, values and lifestyle). In contrast, external inuences have a more or less direct and explicit inuence on consumers. ese inuences consist of consumers’ reference groups, subcultures and culture of origin. Whereas internal and external inuences can be considered fairly stable over time and evolve slowly if at all, it is important to keep in mind that consumers can also react to contextual inuences; that is, the particular situation in which they make a specic purchase (which is conditioned by their mood, time available and the physical and social environment). Lastly, consumers react to the overall marketing mix proposed.

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Figure 7.1 Integrated model of consumer behaviour

7.4 Characterizing the decision process e steps in the decision process can be depicted in a malleable framework that is translated dierently in reality depending on the consumers’ situation. For example, are they buying their favourite cereal at the supermarket or their rst car in preparation for the birth of their rst child? Before describing each of these steps in detail along with the types of inuences on the decision process, it is useful to look at a few ways to characterize this process. e level of eort dedicated to the decision and the more or less emotional dimension of the decision are important characteristics that aect the way consumers make a decision.

7.4.1 Level of effort and involvement in the decision To use the examples mentioned above, we can compare the eort devoted to a routine purchase of cereal with that devoted to buying a new car. is comparison lets us situate diverse consumer decisions along a continuum ranging from everyday decision-making to limited problem solving to extended problem solving. Figure 7.2 illustrates this continuum. Everyday decisions are made with little or no conscious eort. Many of our routine purchases, like buying a soft drink with our lunch or renewing a gym membership, are automatic. Customer inertia also falls into this category: we often buy the same brand repeatedly out of habit and convenience. In fact, this behaviour does not reect real brand loyalty: a competitor may see such behaviour as an opportunity to attract a new customer via an in-store promotion.

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Figure 7.2 The continuum of decision behaviours during a purchase

Source : Solomon, M. R., White, K. & Dahl, D. (2014). Consumer behaviour: Buying, having and being (6th ed.). Toronto, Canada: Pearson Education.

is low involvement may result from the low cost of the product Involvement or the minor associated risk. At the other end of the spectrum, some The amount of importance that consumers purchases may require extended problem solving, which implies place on an object according to their needs, greater eort in terms of cognitive resources and time. Consumer values and interests. Involvement can apply to a product (or brand), a message or a involvement is high because the consequences of the purchase are purchasing situation. perceived as important and highly visible to others, like the choice of a wedding gown. e product in question is often costly or is related to the consumer’s identity. People may then invest time and energy in the information search phase online and in stores, and may ask other customers for their opinions. e level of involvement with a product or service varies between individuals. A product manager may notice that some consumer segments are highly involved in the purchase process while others put in much less eort. For instance, some people are passionate about wine and spend a lot of time choosing a bottle because of the pleasure they derive from this process, whereas for other consumers the purchase will be much more casual. Beyond the particular characteristics of the product and the individual, the consumption situation may also determine the degree of eort dedicated to the decision: even individuals who are not personally interested in wine may spend time choosing a suitable bottle for a particular occasion, such as a gift for someone they respect highly or want to impress. A business like the SAQ (see Example 3.3, page 65) can benet greatly from keenly understanding the dierent levels of involvement of its customer segments. Whereas minimally involved customers may be sensitive to a cash-based promotion, pointof-sale (POS) advertising and signage that facilitates a purchase, like categorization by taste tags, consumers who favour higher involvement expect to receive detailed information and recommendations by advisors in store.

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For home appliances or audiovisual equipment, some highly involved consumers may be sensitive to return policies and satisfaction guarantees that reduce the perceived risk of the purchase. Another tactic adapted to decisions that demand only a slight eort consists of giving a product like chewing gum and other candy more visibility by placing it next to the checkout, or by suggesting additional purchases (products that you might also like) on the shopping cart page of frequent users of a site like Amazon.ca. ese well-placed “temptations” encourage unplanned impulse purchases.

7.4.2 Cognitive and emotional decisions Another important distinction within types of consumer decisions is the relative weights of emotions and cognition in the process. Some purchases are governed mainly by reason, and result from deliberate and well-thought-out processing of information on the pertinent characteristics of the product. For most people, the choice of an insurance policy is a very rational and cognitive decision that involves meticulous examination of the scope of the risks covered and the cost, leading to an optimal economic choice. In contrast, other decisions are aected primarily by the heart and emotions: subjective feelings that the product or the brand evokes in the individual may outweigh an objective and rational evaluation of the product attributes. For instance, a consumer may “fall for” a light winter coat because it reminds her of one she saw in her favourite movie, even though it is ill-suited to Québec winters. In fact, many purchasing decisions include both cognitive and emotional components. e choice of a smart phone, for example, entails careful scrutiny of its performance in terms of memory, the quality of the digital camera, the guarantee, after-sale service, ease of use, etc. All the same, its aesthetic aspect and design, the range of colours and the fact that friends will nd it “cool” will also inuence the nal choice. Whether a decision is more cognitive, more emotional, or equally cognitive and emotional may depend on the characteristics of the product, of the situation and of the individual.

Product characteristics Products that meet a utilitarian need (like washing machines, lawnmowers or tools) trigger a cognitive decision process. In contrast, products that meet a hedonic need or a need for self-expression, like fashion accessories, tend to induce emotional processing. Similarly, products for which consumers can accumulate large quantities of information before a purchase lend themselves more to a cognitive decision process. Further, experience goods like movies, music, food or drinks, which can be evaluated only through rsthand experience, necessarily require emotional processing to complement the cognitive processing of the opinions of consumers and professional critics, which may be gathered beforehand.

Characteristics of the situation e context of use of a product can also dictate more or less emotional or cognitive processing of the purchasing decision. Consumers looking for clothing to wear at their

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weekly yoga class will probably make a cognitive evaluation of the fabric’s stretchability and sweat absorbency, or how well the cut allows a large range of movement. However, we must not neglect the “athleisure” phenomenon, a fashion trend where people wear exercise clothing for any occasion. Brands like Lolë and Lululemon have clearly grasped this opportunity that is linked to a new lifestyle and the desire to project an image that blends the active, athletic, casual and stylish. ese new usage contexts are determined largely by emotional and hedonic processing of aesthetic aspects of clothing.

Individual characteristics Individuals dier in their tendency to approach a decision cognitively or emotionally, a distinction that can also be described as cerebral vs. instinctive. is natural predisposition may explain how, in the same context, one consumer may ponder and evaluate each characteristic scrupulously, while another will act spontaneously based on his or her rst impression. When formulating a marketing strategy, distinguishing between a cognitive purchase decision and an emotional decision and dierentiating low involvement from high involvement are equally important. To prompt emotional decisions, the message content should emphasize feelings associated with the product like rebelliousness, happiness, and patriotism. To encourage cognitive decisions, communication eorts should focus on demonstrating the superiority of the product relative to the competition. In addition, the product’s location on the e-commerce site or in stores will be less important for individuals engaged in a cognitive decision process because they are likely to actively seek products about which they have already gathered information, whereas location may be crucial to stimulate an impulse buy, where simply seeing the product is enough to trigger a purchase. Box 7.1 presents an example that contrasts individual decision-making styles. Box 7.1

What type of consumer are you: a maximizer or a satiscer?

Many studies have examined the distinction between two types of consumers: maximizers and satiscers. Maximizers try to choose the best option, while satiscers want a satisfactory solution even if it is not necessarily the best. If one of the following statements seems to describe you perfectly, you probably tend to behave like a maximizer: • When I watch television, I often surf through the options available even while I am trying to watch a program. • When I shop, I have trouble nding clothing that I like. • Each time I am faced with a choice, I imagine all the other options, even those that are not possible right now. Evidently, in their quest for perfection, maximizers invest much more time in the decision process than satiscers do. A study conducted by professors Legoux and Carrillat

of HEC Montréal found that maximizers, unlike satiscers, also tend, paradoxically, to rely less on information acquired during previous decisions when they need to make a new similar decision. Like the mythical Sisyphus condemned for eternity to roll a rock up a hill, only to watch it roll back down and hit him, maximizers restart their quest for the perfect choice from zero rather than consider information acquired during their previous purchase experiences. In this way, maximizers also minimize their negative experiences, like regretting a purchase decision. Lastly, the results of this research show that even satiscers tend to maximize their decision and act like maximizers when considering products that require more involvement because of their high price.

Source: Carrillat, F. A., Ladik, D. M. & Legoux, R. (2011). When the decision ball keeps rolling: An investigation of the Sisyphus effect among maximizing consumers. Marketing Letters, 22(3), pp. 289–296.

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7.5 Steps in the decision process Aside from characterizing the decision process by the amount of eort invested or the relative weight of cognitive and emotional components, marketing managers must examine the various steps of this decision process, from the recognition of a need to usage and the post-purchase evaluation.

7.5.1 Recognition of a need Two types of situations may give rise to a need. e rst is a negative change in an individual’s state following a breakdown, loss, deteThe gap felt between the current state and rioration of an object or stockout (see Example 7.3). In the second the desired state. situation, the ideal desired state may be revised. For example, the announcement of the release of the Apple iPhone 7, backed by a massive advertising campaign, aimed to make this edition a new desired state, which some consumers perceived as an opportunity for change even if their iPhone 6 still worked very well (therefore no deterioration in the current state).

Need

Example

7.3

What if there was a magic button?

Amazon, the American online sales titan, has launched a service to let its customers order consumer goods easily and quickly: Amazon Dash Replenishment. This service can be used in two ways: 1) by directly integrating a sensor in the product, which will order more of itself automatically before the customer runs out; for example, an electronic pet food dispenser can automatically order a new bag of pet food; 2) by giving customers buttons linked to specic products. The technology, called a dash button, is congured upon receipt to determine

the quantity to order. When the customer presses the button, the Amazon application sends an order alert via Wi-Fi to the customer’s smart phone, to request an order conrmation. The dash button system, free for subscribers to the Amazon Prime service, currently offers over 100 product types, including brands like Tide, Gillette, Huggies, Kraft, Gatorade and L’Oréal Paris.

Source: www.amazon.com ; Amazon s’immisce dans les foyers (2015, April 1). Infopresse. Consulted at www.infopresse.com/article/2015/4/1/ amazon-s-immisce-dans-les-foyers-grace-a-des-boutons-de-vente

7.5.2 Information search e emergence of a need triggers an information search phase in a specic product category. is search for information may take several forms that translate into different levers of action for brand managers. e result of this search then depends on the sources of information and the quantity of information sought.

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Sources of information rough experience with and exposure to brand communication, we have all accumulated knowledge in our memory (see page 205). Without doing any research at all, most people can recall brand names in a given product category (spontaneous awareness). is internal information search is often supplemented by external research in which people pay attention to advertisements, ask for advice from trusted people or experts, and of course use online search engines like Google and social media (see Figure 7.3). Brands have grasped the dominant role of search engines in information research and are increasingly perfecting the art of appearing atop results pages thanks to search engine marketing (SEM). Paid advertising can also increase the visibility of a website on results pages, by presenting the website as a sponsored link.

Figure 7.3 Trustworthy sources of information according to Canadian Internet users

Source: Adapted from Environics Communications (2016). The Environics Communications 2016 CanTrust Index. Consulted at www. multivu.com/players/English/7819751-environics-cantrust-index

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Another means of enhancing visibility is search engine optimization (SEO), which consists of adapting the code and architecture of a website to ensure high ranking placement on results pages (see Chapter 9).

Quantity of information sought e quantity of information sought may vary between individuals because of intrinsic characteristics and expertise accumulated in a particular eld. e ease of nding and understanding information also plays a role here. Lastly, the perceived risk associated with a purchase also increases the search intensity. ere are ve types of risk: monetary, physical, social, psychological and functional. Table 7.1 provides a denition of each type of risk along with examples of products.

Table 7.1 Types of perceived risk Type of perceived risk

Denition

Examples

Monetary risk

Risk related to cost and ownership

Relatively costly purchases: cars, home appliances

Physical risk

Risk related to physical integrity, health and wellness

Drugs, medical treatments, children’s car seats, cosmetics, food

Social risk

Risk related to afliation, group and status

Watches, jewellery, cars, sports equipment, clothing

Psychological risk

Risk related to self-esteem and self-condence

Gym membership, personal luxury items

Functional risk

Risk related to the performance of the product and its ability to meet the need relative to other options

Subscription to Internet services, cell phones, insurance policies

Source: Solomon, M. R., White, K. & Dahl, D. (2014). Consumer behaviour: Buying, having and being (6th ed.). Toronto, Canada: Pearson Education.

7.5.3 Evaluation of options e internal and external information search phase allows consumers to identify a number of options, or brands, that they retain because Includes brands already known to the they can possibly meet their needs. is is called a consideration consumer, and those that emerge from set. is set will probably not include all of the products oered on the external information search, that are evaluated before a purchase. the market. e concept of a consideration set, very important for marketing managers, corresponds to the options that consumers seriously consider when contemplating a purchase, among all the options that they know. e options of the consideration set are retained because they satisfy the consumer’s initial purchase criteria. For instance, for a car purchase, a luxury brand like Porsche, although known to the consumer, can be ruled out of the consideration set because it costs too much. Further, the brand Volkswagen, although it is also part of a consumer’s awareness set, may be excluded because of the recent pollution emission test scandal.

Consideration set

It is crucial for a product and brand manager to understand the reasons why individuals in a segment targeted by a marketing strategy may not include the brand in their consideration set. is diagnosis is especially important because judgments of exclusion from

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the consideration set (is brand is not for me!) generally persist, and are very dicult to reverse when a new purchasing opportunity arises.

7.5.4 Purchasing decision After having compiled options in their consideration set, individuals must choose from among them. To do so, they pay particular attention to determinant attributes.

Determinant attributes Aspects of a product that differentiate it from the other products.

Some brands may try to introduce new characteristics and make them a determinant attribute for consumers. For example, Coors Light signals optimal freshness in the form of mountains that go from white to blue on its cans, to stand out from its competitors. e two main decision models that consumers adopt are the compensatory model and the non-compensatory model.

The compensatory model Compensatory decision rules take into account all determinant attributes. erefore, the poor performance of one of the product’s attributes may be compensated for by the excellent performance of another attribute. For some consumers, the trendy design of some audio headsets that they can proudly wear in public may compensate for the mediocre sound quality.

The non-compensatory model Non-compensatory decision rules consider only the determinant attributes that the consumers view as most important. If the perceived performance of a product or service regarding these attributes does not meet the minimum acceptable level, the consumer rejects the product or service even if this negative performance might be compensated for by the excellent performance of another attribute. For example, a traveller may eliminate all ights that include a connection and retain only direct ights, even if they are much more expensive.

Adoption of a model Designers of e-commerce websites that let users select and sort options by characteristics would benet from understanding how consumers make their choices. Online travel agencies like Expedia allow users to apply a non-compensatory model where all ights with a connection can be eliminated from the list of options if the consumer chooses this criterion. A brand can also seek to inuence the type of decision that gives it the greatest advantage. If it outperforms the competition on one attribute, like safety for Volvo, not only can it try to heighten the perceived importance of its star attribute, but it can also encourage a non-compensatory decision mode that would automatically exclude competitors because of their poor performance on this attribute. In contrast, brands with a more balanced prole for all attributes without any points of excellence could benet from encouraging a compensatory model by emphasizing the satisfactory performance of all of their attributes.

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e choice of adopting a compensatory or a non-compensatory model primarily depends on the quantity of information to process. If the consideration set includes a large number of options, the non-compensatory approach can be used to quickly eliminate products for which one attribute does not oer satisfactory performance. Once the panoply of choices is reduced, the consumer can then evaluate the remaining options by using a compensatory approach that will consider all the attributes. e level of eort invested in the decision (see page 190) will also determine the probability that a compensatory or a non-compensatory model will be adopted. If the consumers have enough time and are suciently involved, they may consider a larger number of attributes simultaneously, as compensatory models require. Box 7.2 illustrates how the decision context may nonetheless lead the consumer to depart from these rational decision rules. Box 7.2

Do we control our own decisions?

Behavioural economist Dan Ariely argues that we are not as rational as we think when we make decisions. One of his experiments shows that we actually do not know our preferences very well, and as a result, our choices are sometimes inuenced by the decision context. In this experiment, 100 MBA students were exposed to an advertisement in the magazine The Economist that had attracted the researcher’s attention.

none chose option 2, which was clearly less appealing. Dan Ariely then submitted the same choice to a second group of students with the same prole and removed the unattractive option:

The advertisement offered the following three annual subscription options: 1. Internet subscription: US$59 => chosen by 16% of the participants 2. Print subscription: US$125 => chosen by no participants 3. Internet and print subscription: US$125 => chosen by 84% of the participants.

This time the results show that the bundled option of an Internet and print subscription, which was most popular with the rst group of participants, became the least popular (32%). Even if it was not chosen, the print option for $125 made the bundled option for the same price seem like a good deal. Therefore, simply adding a “ctitious” option to the set of choices could reverse students’ preferences.

Most of the students (84%) chose the third option, and

1. Internet subscription: US$59 => chosen by 68% of the participants 2. Internet and print subscription: US$125 => chosen by 32% of the participants.

Source: Ariely, D. (2008). Dan Ariely: Are we in control of our own decisions? [Online video]. Consulted at www.ted.com/talks/dan_ariely_asks_are_we_in_ control_of_our_own_decisions?language=en

The decision-making unit One element that managers must consider is the fact that often, several people participate in the steps of the decision process. e concept of a decision-making unit (DMU) refers to all the people who participate in a buyer’s decision process. Marketers must determine who does what in the process to successfully inuence the right person at each key step. e toy market provides a perfect example of this division of roles in the decision process. e initiator of the purchase is often the child, who will also be using the toy. However, the tasks of information search and evaluation of options and the purchase itself fall on the parents. Other family members may also intervene and inuence the buying process. In a study of blogger moms, Mattel discovered

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that Hot Wheels toys, particularly popular with small boys, were mainly bought by their mothers (Townsend, 2013). However, the fact that these women probably had no experience with this type of toy in their childhood hindered purchases because they could not identify with their children’s love for these toys. While ensuring that it kept the product characteristics that were determinant for the young users, the brand consequently developed a communication strategy that targeted mothers more directly and reduced their reluctance to buy the toy, which some perceived as violent. For example, the toy website oers content to teach basic principles of physics using small cars.

7.5.5 The purchasing act e purchasing act may be particularly sensitive to situational variables (see page 217), such as the consumer’s mood at the time, pressure linked to the time available to make the purchase or whether the consumer is shopping alone or with someone else. e physical environment of a store is made up of a set of situational variables over which marketers have some control. e Montréal-based brand of men’s clothing Frank + Oak has carefully cultivated the atmosphere of its stores, notably by letting customers enjoy gourmet coee provided by Café Névé, well known to local coee acionados, and by oering a barber shop. Beyond the purchase act itself, customers have many reasons to enjoy spending time at the store. e inuence of situational variables also plays a role in the travel retail sector. is dynamic sector has notably attracted much attention from luxury brands: 40% of spending on personal luxury items is done by travellers, and 12% to 13% of this spending occurs in distribution networks dedicated to the travel retail sector, like airports and cruise ships (Solca, 2015). e brands can therefore oer a unique and memorable experience to a cosmopolitan and auent clientele that travels the world (Solca, 2015). While waiting for a connecting ight, these potential customers are captive at the airport and may spend time shopping. In another example, beauty consultants associated with some cosmetic brands may let travellers touch up their makeup or get a makeover, while inviting them to try products. By oering advice and information, salespeople also play a key role at the decisive moment of the purchasing act through their verbal and nonverbal behaviour (see Box 7.3, on the following page). Consumers may appreciate a compliment on the way a piece of clothing ts them, even if this compliment is not the most sincere or credible (Chan & Sengupta, 2010). Beyond the expertise and behaviour of the salesperson, their physical appearance and perceived similarity with the customers may also be inuential. Research shows that similarity with a salesperson, even if only the same rst name or date of birth, can improve a consumer’s attitude toward that person, and increase the likelihood that they will follow the salesperson’s recommendations ( Jiang, Dahl & Chattopadhyay, 2010).

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Should the devil sell Prada?

The devil may be ideally qualified to sell products in a high-end store, a UBC study finds. The researchers show that staff who project an aloof, or even unpleasant, attitude in these stores motivate consumers to want to buy more.

to be associated with luxury brands are more inclined to want to buy products after being treated poorly by a salesperson. The researchers explain that consumers’ desire to be accepted by these brands is reinforced by their being rejected by the salespeople.

The study participants imagined interacting or actually did interact with a salesperson who had either an aloof attitude or a neutral one. Participants who interacted with snobby sellers claimed that they intended to purchase luxury brands like Gucci and Louis Vuitton rather than mass brands like American Eagle and H&M. The results of this research also showed that consumers who aspire

However, for the effect to occur, the seller must represent the brand authentically. Therefore, if a consumer is treated poorly by a salesperson in a luxury store, she will tend to buy more only if the salesperson’s values are consistent with those of the brand. In other words, a snobby sales attitude may have positive effects as long as the right salesperson works in the right store.

Source: Ward, M. K. & Dahl, D. W. (2014). Should the devil sell Prada? Retail rejection increases aspiring consumers’ desire fo r the brand. Journal of Consumer Research, 41(3), pp. 590–609.

7.5.6 Post-purchase evaluation Consumers’ experience with a product or service purchased is the moment of truth: this is when they personally evaluate the quality Satisfaction occurs when the performance of of their purchase and judge how well it meets the need that initiated a product or service exceeds the customer’s the whole decision process. A crucial aspect of the phase following expectations. the purchase is the consumer’s satisfaction or dissatisfaction. is judgment does not depend solely on the perceived quality of the product or service.

Satisfaction

Expectation disconrmation theory is theory states that consumers form an opinion on a brand based on their past experience and on all the forms of communication (advertising, word-of-mouth, expert opinion, etc.) to which they are exposed. Even before using the product, they therefore have some expectations about its quality. If the product meets their expectations, they probably will not notice: “e hotel room was clean, the bed was made, and there were towels in the bathroom.” In contrast, disconrmation of these expectations will cause dissatisfaction: “I expected to have an ocean view and I ended up with a view of the parking lot.” Conclusion: consumers will be satised only if the performance exceeds their expectations, like if the hotel oers a free minibar or complimentary bicycle rental.

Expectation management is model of satisfaction/dissatisfaction illustrates why it is important for a brand to manage consumers’ expectations eectively. e company must convey attractive but realistic performance, or risk disappointing users in the post-purchase phase. Warning a buyer that the fabric of pants may stretch during wear and giving maintenance advice are examples of eective ways to anticipate and limit the risks of disappointment. Considering the consumption process as a whole is thus very signicant: understanding the customer must go beyond the purchase act.

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Loyalty As seen in Chapter 1 (see page 18), ensuring customer satisfaction is indispensable because it is the rst step toward gaining customers’ loyalty and motivating them to buy the product again. is loyalty, based on deep satisfaction, should not be confused with inertia purchasing, described earlier in this chapter as an example of a low-eort decision. On the contrary, brand loyalty reects a conscious and rational decision to repeat the purchase, a choice reinforced by the delight the customer feels when using the brand’s products and services. Over time, loyalty can also be reinforced by emotional attachment to a brand, which can even become an integral part of the consumer’s self-image. is means that the next decision process triggered by a similar need will be shorter and will consider only the brand already purchased; the consumer will not feel the need to consider and search for information on the competing options. Customers who are satised because a product or service exceeds their expectations are also likely to spread positive word-of-mouth, to be an ambassador of the brand and its products, and to recommend them wholeheartedly. Social networks certainly extend the reach of these behaviours to a large and diversied consumer base. Conversely, dissatised customers may not only refuse to buy the product again but may even go so far as to spread their negative impressions by posting bad reviews of their experience on popular sites like TripAdvisor or Amazon.com. As Grégoire, Tripp and Legoux (2009) explain, this type of behaviour may be motivated by the consumers’ desire for vengeance. ey note that musician Dave Carroll became a legend by posting a video on YouTube that slams United Airlines: “United Breaks Guitars” has been viewed over 50 million times. is example underscores the need for businesses to closely monitor conversations about them on social media. ese conversations between consumers also illustrate the importance of not neglecting the post-purchase phase.

7.6 Sources of inuence on consumer behaviour Figure 7.1 (see page 190) presents the four main types of inuences on the decision process: internal, external, marketing mix (which we will see in Chapters 8, 9, 11 and 12) and contextual (or situational).

Consumer behaviour is the result of the interaction among internal psychological inuences, external social and cultural inuences, and situational inuences on individuals. Managers must be aware of these

7.6.1 Internal inuences

three sources of inuence to be able to adapt the marketing mix variables accordingly.

Whereas central psychological processes are part of the mental “mechanics” of all consumers, psychographic variables refer to the description of consumers based on their psychological and behavioural characteristics.

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Central psychological processes Fundamental psychological processes shape consumers’ behaviour and decisions. For instance, motivation determines the level of eort that an individual is ready to deploy when making a decision (see page 190). In addition, mechanisms behind perception illustrate how consumers notice and decode the marketing stimuli to which they are exposed. Consumers also memorize and mentally organize knowledge and emotions related to marketing stimuli, which they eventually mobilize to make decisions. Lastly, consumers form more or less favourable or unfavourable attitudes toward brands, their products and services, and their messages. Motivation Why is a consumer willing to spend hours online to research the characteristics of dierent cars that they are thinking of buying? We have seen that the will to satisfy a need, which implies reducing the gap between the current state and the desired state, initiates the decision process. Consumer Motivation motivation is important because it determines the level of A state of internal stimulation that provides eort that consumers are willing to dedicate to a behaviour, to the energy required to satisfy a need. decision-making and to information processing. e types of needs that can stimulate motivation in consumers fall into dierent categories. e typology proposed by psychologist Abraham Maslow, presented in Chapter 1 (see page 8), is certainly one of the most inuential, and has been used for decades. Maslow suggests that individuals’ fundamental needs can be organized in a hierarchy made up of ve main categories. According to this hierarchy, needs that are at the base of the pyramid (physiological and safety needs) must be fully satised before the needs at the top (belongingness and self-actualization needs) are activated. is approach has been strongly criticized, mainly because individuals do not prioritize these main types of needs in the same order. For instance, it is quite possible to aspire toward self-actualization through an artistic pursuit while feeling nancially insecure or socially isolated. Maslow’s hierarchy also tends to reect a more Western vision, where individualism and needs related to the ego prevail over the need to belong to a group and to society, whereas this order is inverted in societies considered “collectivist,” as in some regions of Asia. e ve main types of needs proposed by Maslow, along with the idea that a hierarchy of needs may dier between individuals, should nonetheless be considered in studies of consumer behaviour. An SUV manufacturer, for example, would benet from knowing whether potential buyers are mainly seeking security from this type of vehicle, see it as a sign of belonging to a certain reference group in their neighbourhood, or value the status that this brand of vehicle can grant. Further, several needs may be felt simultaneously, and their relative weight in buyer motivation varies with each consumer segment. Another useful typology to characterize consumer needs is that of utilitarian needs versus hedonic and symbolic needs. Utilitarian needs motivate the search for products and services that solve a consumption problem. Tools, home appliances, and cleaning services may meet this type of need, for which the tangible characteristics of products are particularly salient in the decision process, which is mainly cognitive and hardly emotional.

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Hedonic and symbolic needs are linked to the search for pleasure and to the selfconcept. Many food products evoke pleasure when consumed, while luxury brands are portrayed as meeting a need for prestige or uniqueness. In this case, it is mainly the intangible characteristics and the brand capital that are most important: a Rolex watch is a means to signal status, Apple gadgets evoke creativity, and the Tesla car responds to a new environmentally conscious luxury reserved for an enlightened minority. Studying and understanding consumers’ needs are fundamental prerequisites that guide segmentation and the positioning of a product oer. e brand Rise Kombucha, for example, began by emphasizing the nutritional characteristics of its drink among consumers motivated by the utilitarian need to improve their health and wellness. However, the brand later conquered new consumer segments driven by hedonic and symbolic needs like “patriotic” consumption of a drink produced in Québec, the feeling of being hip or simply enjoying how the drink tastes. Perception Consumers are constantly being bombarded with marketing stimuli: music in stores, colours on packaging, the smell of a new car, the message in an advertisement, and so on. Perception describes the process whereby a consumer absorbs these multiple sensations and uses them to give their environment meaning.

Perception A process of selecting, organizing and interpreting information received by the ve senses.

Perception includes dierent steps during which individuals select, organize and interpret sensations. e stimuli captured by our sensory receptors are processed in three steps: exposure, attention and interpretation. To adjust a communication strategy to the target consumer, marketing managers must understand the nature of each of these steps to ensure that their message will be decoded properly. Marketers must use marketing stimuli that exceed consumers’ Exposure sensory threshold to ensure that they perceive the message. For The process whereby a consumer comes into example, the font on a billboard alongside a highway must be contact with a stimulus. large enough to be easily read by motorists. Ambient perfume and music in a store must be perceptible. e position of an advertisement in a medium (on a page of a magazine or website, or at the beginning, middle or end of a podcast) or of a product on store shelves can also aect the probability of the target consumer’s being exposed to the brand. Even if marketing managers diligently reach the perception threshold, another obstacle to exposure lies with the consumers themselves. Selective exposure refers to how consumers deliberately select the marketing stimuli to which they want to be exposed. Many individuals use various ways to try to avoid advertising messages: PVRs let you fast-forward through the commercials, some web browsers allow you to block pop-up windows, and an “Ignore ad” link lets you skip an ad before viewing a YouTube video. is type of behaviour intensies if the consumers do not feel involved in the message or the product category, or when they have previously been exposed to the message. Consumers’ dislike of traditional advertising is driving brands to better target their audiences, to choose the most appropriate media and to nd new ways to convey their message, notably via content marketing (see Chapter 9).

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Exposure to a marketing stimulus is not an end in itself: the consumer must still pay attention to it, which implies dedicating The act of applying the mind to a stimulus. mental activity to process it. In fact, these cognitive resources are limited, so we must continually divide our attention among the myriad solicitations generated by our information society. Here again, the attention that consumers devote to marketing stimuli is selective.

Attention

Consumers tend to be more interested in marketing messages that meet an active need. For instance, an individual who is usually not drawn to the automotive eld will suddenly take an interest in car ads during the information search phase leading up to a car purchase. Another phenomenon pertains in particular to public health communications that aim, for example, to deter people from smoking or from driving while drunk: a perceptual defence mechanism leads people to ignore shocking images of cancer patients or road accident victims. Brands can choose from among various tactics to capture consumers’ attention, for instance by presenting messages containing characters that consumers can identify with. ey can also ensure that the stimuli are appealing by using humour, popular personalities or nice music. Inducing surprise is another good way to conquer a share of consumers’ attention. For example, the young French jeweller Gemmyo staged an advertising campaign in the Paris metro that featured giant posters showing a hot pink cat wearing a toe ring on its ear. is image is intriguing and unexpected; it violates the codes that jewellery ads usually follow. In parallel, the brand’s business model represents a break from the prestigious competitors; because it distributes its products online exclusively, it can oer lower prices. Another tactic is to facilitate processing of the message by making it prominent and contrasting with its environment, for example because of its size or colour. e last step of the perception process is interpretation, when the message is decoded by the individual, who gives it meaning. The action of assigning a meaning to a Consumers do not interpret a marketing message in isolation: sensory stimulus. they tend to integrate all of the knowledge and beliefs that they have accumulated in their memory. An evocative example of this idea is the case of the Pepsi Challenge. Pepsi launched this campaign in the 1970s to attack the leader, CocaCola. e key argument of the advertising message was to show that during blind taste tests, most consumers preferred the taste of Pepsi to that of Coca-Cola. Later, a neuromarketing study by McClure et al. (2004) shed new light on consumers’ perception of the taste of these soft drinks using cerebral imaging data (fMRI). e researchers found that dierent zones of the brain were activated depending on whether individuals tried the colas when blindfolded or whether they could see which brand they were drinking. In a blind taste test, the zone linked to reward processing was most active, whereas the zone responsible for thought and judgment—the medial prefrontal cortex—prevailed when brands could be seen during the taste test. is nding clearly shows that consumers mobilize the mental associations that they have established with brands when they taste their product. Even if a blind taste test tends to show that

Interpretation

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the tastes of the two competing drinks are evaluated equivalently, the brand capital of Coca-Cola positively colours the interpretation of this sensation under classic tasting conditions. erefore, when designing a message, marketing managers must also take into account what their target audience knows (see Example 7.4). Example

7.4

The consumer’s expertise

The advertisement for the Volkswagen Golf R32 presented below may be difcult to understand for an individual who does not know the car industry well. In the worst case, it can be wrongly interpreted as a desire to convey that the Golf R32 is as roomy and comfortable as a bus.

In contrast, consumers with more expertise may use their knowledge of the R32 model and the power of a 250hp engine to interpret this message. They will thus more easily grasp the meaning that the brand intended, namely that the Golf R32 is so powerful that it can quickly pass a bus. The image of the bus is consequently shortened.

Relatedly, the following section looks at memory and consumer knowledge as another psychological process that inuences decision making. Knowledge We have just seen that mental associations with brands represent the rst type of knowledge that inuences the interpretation of stimuli generated by the brand. We will now examine two other aspects of consumer knowledge that can inuence the decision process: inferences and mental categorization. Inferences rest on beliefs that lead consumers to use an observable Inferences characteristic of a product (for example, price) to deduce an unobConclusions that consumers can draw based servable characteristic (its quality). One of these beliefs is therefore on marketing stimuli. the positive correlation between price and quality. A consumer may infer that the most expensive product in a category is necessarily the best.

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Another example of beliefs concerns the country of origin of products. Some countries are renowned for the quality of particular types of products. Just think of Swiss watches, Italian leatherwork, French wine and spirits, German cars and Belgian beers. Accordingly, consumers may use the origin of a product as a shortcut to infer its quality (Canada Goose coats are warmer and sturdier because Canada has harsh winters) and brands may encourage this type of inference more or less subtly (“Volkswagen. Das Auto”). ese beliefs are not always false. Often they can constitute a heuristic— a mental shortcut that lets people simplify the decision process. It is easier to observe the price or country of origin of a product than to judge its performance based on all the information available online and elsewhere. Marketers must be aware of these inferences that can aect consumers’ judgment and decisions. Consumers spontaneously organize what they know about products, services and brands into categories based on similarities Organization of knowledge based on between objects. is mental categorization is arranged hiersimilarities between objects. archically. In the wine category, most consumers begin with a higher level of categorization: red, white or rosé. At the lower level, some structure their knowledge by grouping wines by grape variety. At an even lower level, wines of the same variety can be grouped by region. When they come across a new bottle of wine, consumers who possess this type of mental structure may assign the bottle to a category (for example, a red Merlot from Bordeaux) and retrieve a set of useful related associations: expected aromas, price range, dish pairing, etc.

Mental categorization

Understanding mental categorization has crucial managerial implications. Most importantly, it lets marketers ne-tune their positioning of the product oering. Specically, attributes and communication should motivate consumers to place the product in the category desired by the managers. e brand can thus capitalize on the associations with this category. e Québec brand Rise Kombucha has deftly taken advantage of this aspect of consumer behaviour. Kombucha, a fermented tea, was long known only to nutrition bus because it was distributed exclusively in health-food stores, which restricted it to a niche market. To expand the target segments, the business repositioned the brand such that kombucha was no longer associated uniquely with healthy drinks. In a two-pronged approach involving the look of the bottle and a communication strategy, the brand presented kombucha as a tasty recreational drink that also lends itself well to being mixed in an alcoholic cocktail, while oering health benets. e goal was to encourage consumers, particularly students and young athletes, to categorize the Rise brand as a soft drink and energy drink. is example highlights another managerial implication of mental categorization: it lets businesses identify the brand’s competitors from the consumers’ viewpoint. Once categorized as a recreational beverage, Rise Kombucha is now portrayed as an alternative to soft drinks: its energizing and revitalizing properties after a long night of partying (as the bottle states) make it a direct competitor of brands like Red Bull. Lastly, managers must ensure that the location of products in store or on e-commerce websites is consistent with consumers’ mental categorization. To revisit the example of wine categorization, the SAQ draws on consumers’ natural mental categories to

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organize its oering in store and thus facilitates its customers’ purchasing experience. It favours separate red wine and white wine sections, along with shelves organized by major wine-growing regions. Emotions We saw that the decision process is often not guided by reason alone. Emotions are certainly a critical aspect of consumer psychology. is is why brands try to create an emotional attachment to enrich their capital and forge a unique tie to the individual. Known for the “Like” button since its inception, Facebook recently decided to expand the palette of emotional reactions available to users, who can now select “Like,” “Sad,” “Haha,” “Love,” “Wow,” or “Angry.” Brands can thus analyze more specic emotions. Similarly, for several years Coca-Cola has positioned itself as the drink that delivers happiness (“Choose Happiness”; “Open Happiness”). Many brands have also successfully used the lever of nostalgia, like Volkswagen with the New Beetle or Austin with the Mini Cooper (see Example 7.5).

Example

7.5

RBC: nostalgia marketing

Nostalgia is a powerful emotion that may propel us to reminisce fondly. Simply think of the popularity of the hashtag #TBT (“Throwback Thursday”) on Instagram. Brands like American Express and RBC

(see advertisement below) have integrated this trend in their social media strategies by publishing vintage advertisements that recall their history.

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Negative emotions can be another eective communication tool. For example, marketers can arouse guilt to encourage people to donate to a charitable organization. Marketing managers must understand which emotions can be associated with their brand and their products, and how to make them engines of their consumer relations. Attitude e term attitude is frequently used in everyday language to refer to a way of behaving or being. For marketing managers, this concept is particularly important because consumers’ attitude toward a product or brand is one Attitude of the elements that determines purchase intention. An attitude An enduring evaluation of a person, object reects all of individuals’ complex evaluations of an object. It or subject. comprises three dimensions: • a cognitive dimension, which refers to beliefs about the object; • an emotional dimension, which includes aective reactions to the object; and • a behavioural dimension, which integrates the individual’s action intentions toward the object. is multidimensionality may lead marketing managers to adopt dierent strategies in order to cultivate a positive attitude about their products and services in target consumers. Communication of documented facts on a product’s performance aims to improve attitude by appealing to people’s cognitive dimension. is strategy may be particularly useful if consumers are suciently involved and subsequently devote the requisite eort to process this information. Another strategy consists of associating positive emotions with a brand through advertising, a celebrity endorser, or eye-catching packaging. Lastly, for a low-involvement product, marketing managers may facilitate and trigger a trial, via a monetary promotion, for example. Buyers can then develop the cognitive and emotional elements of their attitude based on this experience. Consumers want to preserve harmony, or consistency, among their thoughts, feelings and actions. Cognitive dissonance theory states that people faced with inconsistency between their attitude and behaviour try to resolve this unpleasant psychological state of “dissonance” by changing their attitude or behaviour. is phenomenon may have an impact during the post-purchase phase of the consumer decision process (see page 200). When consumers have chosen from within the consideration set, being exposed to new information on the quality of the options that they ruled out will probably create cognitive dissonance in their mind because of the inconsistency between their purchase (“I chose product A”) and the new information (for instance, a customer review claiming that product B is the best on the market). To reduce this dissonance, consumers may, for example, question the credibility of the review while reinforcing their positive attitude about their purchase by consulting new sources they nd favourable. is type of behaviour is called post-purchase information distortion.

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Can consumers’ behaviour be predicted based on their attitude? If only it were that simple. Some people may claim that they like a brand but do not buy it. Other people may have a positive attitude toward sustainable development yet may make choices that are polluting or highly energy costly. Attitude determines a behavioural intention, yet many obstacles may later hinder the actual behaviour. Despite a positive attitude toward energy-ecient cars, a consumer may not be able to aord an electric or hybrid model. Another major factor that can interfere with the realization of an attitude is social pressure, or the desire to conform to a given norm. For example, a young woman may like a certain brand of an Italian purse, but publicly displaying one would be extremely frowned upon at her workplace, the maker of a competing French brand. We will examine the social inuence mechanisms that aect consumer behaviour in greater detail on page 211.

Psychographic variables Beyond the general psychological functioning of the individual, managers also need tools to capture the diversity of their current and potential customers. Psychographic variables include identity and aspects of the self-concept, values and lifestyles. ese variables let managers gain an in-depth understanding of consumers well beyond the knowledge that emerges simply from their observable sociodemographic characteristics like sex, age, cultural identity and income. Managers who start with segmentation and targeting based on demographic variables then need to understand the more profound psychological drivers of their customers in order to create and communicate an oer that will meet their needs appropriately. For example, when Porsche launched the compact SUV Macan in 2014, it overtly expressed its goal to conquer the female market, which had been out of the brand’s reach. At the time, 85% of Porsche drivers were male (Stock, 2014). Once this strategic marketing development decision was made, the marketers also had to determine which “type” of women to target, and especially which characteristics their new model should oer to best respond to their lifestyle, in addition to reecting their values and the image they want to project. e analysis of consumers’ psychographic variables can answer these questions. Identity and self-concept e self-concept is an extremely complex structure that concerns both physical appearance and mental qualities. Judgments can be positive or negative (self-esteem), more or less intense, stable over time, or precise. Of course, a person’s self-judgment may be biased.

Self-concept The way one perceives and evaluates one’s characteristics.

We all have our own idea of who we want to be: our “ideal me.” Our “real me” corresponds to a realistic perception of the qualities that we possess, or not. e gap between these two concepts can reveal low self-esteem, which may be exacerbated by exposure to advertisements that feature very attractive models. Dove, the makers of beauty and body care products, skillfully used this understanding of how advertising images showing perfect bodies could have a harmful impact on many women. Over 10 years ago, the brand adopted an unprecedented positioning around “real

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beauty” to help women accept themselves as they are by highlighting dierent forms of beauty (full-bodied, wrinkled, freckled). e viral video “Real Beauty Sketches,” viewed over 67 million times on YouTube, is one of the latest expressions of this positioning: an FBI forensic artist drew sketches of women based on the descriptions of an observer, and then based on the women’s own description. ese women were shocked to discover that the rst picture was much more attering than the second. e video concluded with a message from Dove: “You are more beautiful than you think.” e most recent campaign conveys a message of emancipation from the judgments of others: “My beauty, my say.” is message is a real source of dierentiation from the codes of the product category, which mainly emphasize aspiration toward an ideal self, represented in the features of an actor or model. e products and brands that we consume help build our self-concept and can even help us adopt a particular role. A brand like Banana Republic overtly suggests different styles for a professional setting, and others for a romantic rendezvous, plus casual attire for a weekend brunch with friends. Consumers tend to prefer brands that they perceive as congruent with their own identity, in which they recognize themselves. Apple is “cool” and casual, Levi’s evokes rebellion and non-conformity, Ralph Lauren is sporty and chic, Converse signals humour and fantasy, etc. is search for a match between the image of brands that people acquire and their self-concept is reected mainly in socially visible products like cars, smart phones, laptops, clothing, jewellery and purses. Some objects can become so indispensable in building our identity that they become elements of our extended self (Belk, 1988). Values Abstract, lasting beliefs about what is good or bad, acceptable or unacceptable, and preferable or not.

Values People’s values are largely shaped by the culture in which they were raised or have lived for some time. Cultures are in fact dierentiated by their prevailing value systems, which place varying importance on the family, ecology, professional success, education, equality of the sexes, patriotism, etc.

To begin with, understanding these value systems can guide the orientation of messages that a brand wants to transmit. For example, during the London Olympic Games and again during the Rio Games, Procter & Gamble targeted mothers by emphasizing their key role in educating the elite athletes of the future. Its advertising message, “It takes someone strong to make someone strong,” expressed the values of perseverance, ambition, performance and a demanding nature. Beyond the simple advertising message, a brand can portray the attributes of its products as means to attain more abstract ultimate values that are just as important for consumers. For instance, buying a pair of Toms shoes means encouraging the values of generosity and mutual aid because the brand pledges to give a pair of shoes to a child in need with every purchase. Crudessence, a restaurant that specializes in raw, living cuisine, and which also developed Rise Kombucha, discussed above, advocates that eating healthy food is a good way not only to take care of yourself, but also to live in harmony with society, particularly by developing sustainable consumption habits.

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Lifestyle e last psychographic concept widely used by managers is consumers’ lifestyle. Lifestyle describes the activities and pastimes to which individuals dedicate their spare time. ese choices of how to allocate one’s budget and time often reect individuals’ values. ese activities and pastimes naturally involve brands, which thus gain an opportunity to become real supports and means of expression of a lifestyle. For example, the brands Lolë and Lululemon periodically oer physical tness and yoga courses to rally the community of people interested in these activities around their brand. Lifestyle marketing focuses on behavioural patterns, and particularly the constellation of products and brands that individuals associate with dierent aspects of their lifestyle. e brands Anthropologie and Urban Outtters (which incidentally belong to the same group) market not only clothing but also decorative items and books, carefully selected to form a coherent set. Starbucks also sells compilations of the music style that can be heard in its cafés. Crudessence restaurants deliver courses in living cuisine, in addition to providing classic restaurant service. Sometimes, the creation of a product or service emerges from new lifestyle trends. For instance, users of the Blue Apron website can sign up to receive quick, healthy, sophisticated and original recipes each week, together with the fresh ingredients included in the recipes. Vegetables are washed and chopped to save time, and the more exotic spices are included in appropriate quantities to prevent frustration at the grocery store and needless storage of large quantities of a rarely used ingredient. is carefully planned oer targets auent couples and families in which both spouses work but who nonetheless aspire to cook like professionals and share a healthy and elaborate meal. Currently, managers frequently perform segmentation based on lifestyle because of the richness of information on consumers that it provides, and the levers for action that it engenders. is approach can help marketing managers better dene the target segment, position the product adequately in relation to the customer’s activities, communicate with consumers more eectively by describing a lifestyle that mirrors their own, and identify new brand extension opportunities.

7.6.2 External inuences Consumers do not live in a bubble. We are “social animals” whose needs are profoundly inuenced by our social and cultural environment. In this subsection, we look at the dierent sources of inuence, which we situate on a continuum ranging from “micro,” which represents the most direct and immediate inuences of reference groups, to “macro,” which implies more indirect cultural inuences.

Reference groups Our family, friends, colleagues, and students at our university are Reference groups all potentially part of our reference groups: they inuence our Real or imaginary individuals or groups that judgments and choices. A reference group can be as small as one inuence a person’s evaluations, aspirations individual, like a fashion blogger, or take a form that is instituand behaviour. tionalized (fellow university students, members of the professional institute of accountants) or more informal (fans of K-Pop, Star Wars or mangas).

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e fact that an individual does not need to belong to a reference group to be inuenced by it is another important detail. erefore, some reference groups are aspirational, like star NBA players, pop artists like Rihanna, Justin Bieber or Taylor Swift, and multimillionaire entrepreneurs like Mark Zuckerberg or Elon Musk. In contrast, we are also inuenced by dissociative groups because of a desire NOT to resemble them or be associated with them. One social marketing strategy thus consists of using dissociative groups to dissuade the target audience from adopting certain dangerous or harmful behaviours (see advertisement below). Reference groups may exert three main types of inuence on consumers: informational, normative and comparative. Informational inuence ese groups are valuable sources of information on products, services and brands, and thus play an important role in the information search phase preceding a purchase (see page 194). A consumer will naturally seek advice from family members and friends, along with virtual communities found on social networks, to solicit opinions on a purchase, trip or restaurant. A brand may proactively facilitate these information exchanges among customers by oering discussion forums. e brand Vorwerk, for example, which sells the high-end food processor ermomix, oers an Internet forum in each country that it serves, on which users of the product can exchange recipes and cooking tips. Normative inuence Unlike informational inuence, which can be actively sought out by consumers, normative inuence exerted by reference groups is spread through the norms of conduct and consumption that they adopt. Individuals may then feel that the group exerts pressure on them to conform with these norms. For example, a new employee will quickly notice what type of clothing is best suited to the work environment, which varies depending on whether the workplace is a law rm, a start-up business or a communication agency. Very interesting experiments have been done to encourage more sustainable consumption behaviour by capitalizing on the normative inuence.

An example of the use of a dissociative group in an anti-drinking campaign.

For example, OPower is a platform that lets users track household energy consumption in a personalized way. It claims to reduce energy consumption by exploiting behavioural science principles (Schultz, Nolan, Cialdini, Goldstein & Griskevicius, 2007). e company conducted an experiment in a real situation that targeted a reference group formed of the residents of the California suburb of San Marcos. All households in the community received feedback on their energy consumption in the previous weeks, along with their neighbours’ average consumption during the same period, which thus represented the norm. Households whose consumption exceeded the norm consequently reduced their

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energy expenses signicantly in the following weeks. is normative inuence on consumption was still observable four weeks after receiving the information on their neighbours’ average consumption. Comparative inuence A reference group may procure a comparison point to eval­ uate its own performance or conduct. Mobile applications like Nike+ Running or My Fitness Pal by Under Armour let several people in a given group follow their training data. Runners can then compare themselves with their selected reference group, and the group members can launch challenges and set objectives. Brands behind these applications therefore combine individual aspects of motivation to attain an objective with the comparative inuences of the reference group. is eective strategy capitalizes on the current trend toward quantication of the self, facilitated by connected objects, or wearables. e brand thus becomes a linking vehicle within the runner’s reference group while helping individuals attain their personal objectives. e managerial implications of the inuence of reference groups on the consumer are varied, as the examples above illustrate. e main goal for brands is to “inltrate” these dynamics of inuence to reach the consumer via a dierent and more power­ ful angle than traditional advertising based on singing the praises of their products. Social media certainly oer many opportunities to develop these new forms of com­ munication strategies, which we will discuss in Chapter 9 on marketing communica­ tion. Bloggers, explicitly called inuencers, are consequently courted by brands based on the number of their subscribers on Instagram, Facebook, Twitter or Snapchat. Companies try to get their brands and products to be mentioned in posts followed by thousands or even millions of people, like that of the fashion Italian blogger Chiara Ferragni, who has over 7 million Instagram subscribers. More traditionally, brands may sign endorsement contracts with celebrities. Many actors lend their image to cosmetics brands, top athletes wear the brand of their equipment maker sponsor exclusively, Rihanna helped design a Puma collection, and Kanye West collaborated with Adidas to create Yeezy sneakers. Direct home sales often rely on customer sponsorship. Consumers invite friends to their home to introduce them to specic products. e person hosting the party, backed by a brand representative, receives a gift from the brand in return for organ­ izing the gathering. is sales technique, which is still called the “Tupperware party,” harnesses the power of the informational and normative inuence of the reference group formed of friends and neighbours. ese techniques are popular among direct sales cosmetics brands like Avon, or home appliance brands like Vorwerk, described above. Ultimately, brands may generate such strong attachment in their most fervent custom­ ers that they become the focal point of the reference group. is is known as a “brand community.” Harley­Davidson has found a unique way to bring together owners of its famous motorcycles: it regularly organizes meetups, large and small, where people can commune, connect and celebrate the joys of biking with other “hog” enthusiasts.

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Subcultures Subculture A group whose members share beliefs and experiences that differentiate them from other groups (Solomon, White & Dahl, 2014).

Subcultures are another unavoidable aspect of external inuences on consumers. Below we present examples of the following subcultures: generations, ethnic groups, regional subcultures and social classes. Some marketing managers ne-tune their strategies to entice members of these particular groups.

Generations An age subculture is dened by a cohort of individuals born in the same period and who thus share a set of signicant experiences. ey have many shared memories of popular heroes ( John Lennon or Kurt Cobain) and historical events (World War II, 9/11 attacks on the World Trade Center in 2001 or the Vancouver Olympics in 2010). Brands often segment markets based on generation. For example, the babyboomer generation (formed of people born between 1946 and 1964), and Generation Y (also known as “millennials,” born between 1981 and 2000) have certainly received the most attention from the media and advertisers. Baby boomers, who grew up during the period of stability and prosperity that followed World War II, represented nearly 30% of the Canadian population in 2011 (9.6 million people), according to the last census (Statistics Canada, 2011a).Today, this generation is reaching retirement, and is endowed with considerable purchasing power and much better health than the previous generation. Not only are they a preferred target for health products and insurance services, but they also represent a very dynamic market for tourism, recreation, cars and electronics. Members of Generation Y (9.7 million, or 27% of the Canadian population in 2011) are dened notably by the advent of the Internet (Statistics Canada, 2011a). ese “digital natives” grew up connected to a personal computer and later to a smart phone. Adept at multitasking, they communicate with their friends on Facebook, Messenger or Snapchat while consulting Instagram or Vine and playing a video game. Brands must therefore formulate sophisticated digital strategies to communicate with this generation on social media. eir comfort with manipulating new technologies also lets them easily produce user-generated content, in the form of either a review of a brand or product, or photos or videos that spotlight a brand. Although they shy away from classic advertising, they tend to trust similar content created by other consumers, especially by inuencers. Marketers can tap into this type of behaviour as part of a content marketing strategy (see Chapter 9). For example, the “Starbucks White Cup Contest,” launched in 2004, invited customers to draw on their paper cups and submit their work under the hashtag #WhiteCupContest. Starbucks used the winning entry on a limited series of cups. Ethnic groups Canada is a good example of a diverse multicultural society: in 2011 nearly 20% of the country’s citizens had been born overseas, the highest percentage of any G8 country (Statistics Canada, 2011b). Ethnic groups are dened by common and recognizable cultural and genetic links that unite their members and that create distinct categories like French Canadians, English Canadians, First Nations, and

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Chinese Canadians. e members of these subcultures often seek to perpetuate their identication with these ethnic groups through language, religion, consumption habits and other rituals. Marketing managers can adapt their strategies in response to the specic values and preferences of these subcultures, by developing products with specic avours, by translating their communications into other languages or simply by choosing a spokesperson who belongs to the same ethnic group as the target market segment. Regional subcultures Another means of segmentation of the inhabitants of the same country is geographical location. For example, the dierences related to climate, predominant language, ethnic makeup, customs and lifestyles between British Columbia and Québec can justify consideration of these regions as two distinct segments that deserve particular marketing treatment. Social classes e social class of consumers exemplies a subculture that should be factored into a marketing strategy. A social class is determined by a complex set of variables that include income, family origins, education and profession, and that refer to the idea of a rank occupied within a society. Social class allows a more rened understanding of the allocation of individuals’ resources beyond the consideration of income alone. It refers to people’s lifestyles, including tastes in recreation and cultural activities. Luxury brands pay particular attention to these class dynamics, especially because some of these products and services are ways to signal belonging or aspiration to a specic class. Nowadays, however, the boundaries between social classes are blurring owing to the growing number of brands that oer aordable luxury, like Michael Kors or Tory Burch. Similarly, Winners sells designer brands at a discount. As a result, marketing managers must approach the concept of social class very prudently. is multidimensional concept is not restricted to income. Further, intergenerational mobility enables children to rise to a higher class than their parents. Lastly, managers must understand the complex dynamics that may exist between the subjective class to which individuals feel that they belong and the class in which they actually do belong. All the same, some brands perpetuate an idea of hierarchy by proposing products and services reserved for a very auent and well-informed clientele. e iconic Birkin handbag, which Hermès designed for the actress and singer Jane Birkin in 1984, is valued at over $10,000, and is considered the ultimate hallmark of success in some business circles. e brand has cleverly orchestrated scarcity marketing around this product, which has never been oered on store shelves. Simply being willing to pay a ve gure sum is therefore not enough to procure this precious product and be judged worthy of wearing it. One must also be a suciently dedicated customer of the brand to even have the right to be entered on the waiting list, or be introduced by the right people, who already own the legendary purse (Sherman, 2015). A similar logic of targeting a privileged elite can be seen in the tourism sector, particularly cruises, theme parks and all-inclusive resorts. For example, the new ship Escape, by Norwegian Cruise Line, has a 4,200-passenger capacity yet features a section aptly named “e Haven” reserved for an elite set of 275 passengers. is luxury oasis oers 24-hour concierge and butler service, and a private pool, deck and restaurant. Occupants of e Haven enjoy prime seats at onboard shows along with priority

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disembarking from the ship. While the 4,000 or so other passengers are certainly treated better than those in the lower decks of the Titanic, the company still wishes to oer a feeling of exclusivity and extravagance to a restricted category of very wello customers. Depending on the season, the price of a room in this realm can reach $10,000 for two people per week, compared with only $3,000 for a standard room on the same ship. Category upgrades are not permitted, to ensure that Haven customers never have to mingle with the common herd (Schwartz, 2016).

Culture e culture of a people or a social group is an essential factor that shapes consumer behaviour. A culture transmits a set of values to its members and represents the accumulation of shared signications, rituals, norms and traditions. Culture is also manifested in physical objects and services produced and valued by a group of individuals. It is therefore essential to understand the cultural lens through which consumers perceive a product oering. We have already seen the importance of values as a psychographic variable (see page 210). In fact, many of our individual values reect the value system prevailing in our culture. One of the main distinctions that can dierentiate cultures is the importance placed on the individual versus the group. In a predominantly collectivist culture, for example, individuals may tend to value preserving the balance and harmony of the group above their personal objectives. In contrast, in a largely individualistic culture, prerogatives like personal happiness and success are emphasized. A brand must be sensitive to the specic value system of the target culture to ensure that its oering is consistent with the most important values therein. For instance, the ad “Unsung Hero,” produced by ai Life Insurance, was viewed over 28 million times on YouTube. It recounts the daily altruistic actions of a young man, which include helping an old woman push her shopping cart, feeding a stray dog, giving money to a mother and her young daughter who are begging in the street, and bringing fruit to an elderly neighbour. is obvious selessness and compassion for others is clearly reective of a collectivist culture such as that of ailand, but it would certainly be considered utopian and farfetched in an individualist society. Box 7.4 describes a study of moving practices in Montréal. Individual members of the same culture may also share a number of customs, habits and rituals that may aect food behaviours (dieting, meal time, “happy hour”), hygiene rituals (types of products used), celebrations of milestones (birth of a baby, bachelor or bachelorette party, prom night), the protocol surrounding gifts (baby shower or bridal registry), holiday traditions (Halloween, Christmas), etc. Businesses in these sectors must make sure to embed their products and services in culturally appropriate codes of conduct. Some brands even invent and encourage a ritual around their product. Consider the diamond producer and distributor De Beers, which for the past century has staunchly promoted the diamond as a symbol of commitment and delity, and made it an essential ornament in engagement rings. In 1940, the brand introduced the slogan: “A diamond is forever.” In Japan, for example, only 5%

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No thanks, no gift for me!

It may seem surprising to hear that someone would turn down a favour. What is even more remarkable is the research method used by Jean-Sébastien Marcoux, marketing professor at HEC Montréal, to try to understand this phenomenon. To find out why people would reject a gift, the researcher studied the social relations of more than 30 people who were moving to a new address within the city of Montréal. The data were gathered using an ethnographic approach, by observing and participating in all of the steps of the participants’ move, from the packing of personal effects to arrival in the new home. The duration of the researcher’s participation varied from a few weeks to a few months or years. A move is an event where gifts of goods or services occur quite frequently among relatives, friends, and

even acquaintances. However it is also possible to avoid this “donation economy” and turn instead to the market by renting or buying goods (furniture, van, etc.) and services (painter, mover, etc.). This research shed light on different situations where people prefer to pay professionals rather than accept free services from their social circle. In one example, an immigrant preferred to hire movers rather than to accept services from her friends and family, to avoid being indebted to them. In another example, a very elderly man who had not had contact with his children for several years was too proud to ask them for help. The research showed that some people prefer to pay for a product or service rather than feel indebted and obliged to return the favour.

Source: Marcoux, J. S. (2009). Escaping the gift economy. Journal of Consumer Research, 36(4), pp. 671–685.

of women wore a diamond engagement ring in 1967 ; De Beers’ eorts propelled this proportion to a staggering 80% in 1981 (Friedman, 2015). Marketing managers must nonetheless nd a subtle balance between standardizing an oer (which would allow them to easily measure eciency gains, economies of scale and the unity of the brand image) and adapting the oer to local cultures (which would allow the business to engage in a close dialogue with consumers). e Japanese clothing distributor Uniqlo faced this dilemma when it expanded beyond its national borders. e brand’s positioning of “life wear” is the same in all 1,574 of its stores around the world: it oers clothing for everyday life that combines high quality, fashion, aordability and comfort through the use of innovative high-tech fabrics. Even so, in March 2016 when it renovated its agship store on Oxford Street in London, the brand dedicated two out of six storeys to showcasing English culture. is space featured products made by local artists and entrepreneurs, and had a stage for performances by London-based artists. e inauguration was accompanied by a partnership with prominent cultural institutions like the Tate Modern art gallery and radio station NTS, along with an advertising campaign that spotlighted local cultural ambassadors. Since its inauguration, the site has hosted a conference by an English Olympic medalist, a yoga class by a renowned British coach and a street food fair (Kansara, 2016). e aim is to provide a place that lets the local culture express itself, in order to forge ties with the community.

7.6.3 Contextual or situational inuences A consumption situation refers to all the contextual factors that are not stable characteristics of the individual or product. is means that in addition to internal individual

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variables, external inuences and marketing mix inuences, consumers also make decisions based on their mood, pressure felt because of the time available to make the purchase, the physical and social environment, and how they plan to use the product or service acquired.

Mood Consumers’ mood and physiological conditions, which are rarely the same from one purchase occasion to another, explain how A temporary emotional state, which may be individuals’ choices regarding the same product may vary between positive or negative. purchases. e theory of mood congruence states that a consumer who is in an optimistic or joyful mood will tend to evaluate a product favourably, unlike a person who is in a bad or grumpy mood. Lastly, mood can be aected by several elements, including store ambience, harried or aggressive salespeople, and even weather conditions. Another phenomenon, known as “retail therapy,” is characterized by people shopping to cheer themselves up (Rick, Pereira & Burson, 2014).

Mood

Time available We have seen that consumers tend to spend more or less time on a purchase decision according to their involvement, among other factors. However, they may also not always have as much time as they would like to make a decision. For consumers today, time is undoubtedly one of their most precious resources. Distributors must therefore accelerate the purchasing process by oering automatic tellers, facilitating product identication and using all the opportunities that mobility permits, like the South Korean initiative that lets commuters shop on virtual store shelves on the subway platform while they wait for the next train.

Physical and social environment As seen above (see page 199), décor, odour and temperature of the physical purchasing environment may inuence consumers’ decision process. e presence of other shoppers in the store can also have an impact. Studies have shown that consumers may hesitate to buy a product that was touched by another shopper because they view it as “contaminated.” e eect may be inverted if they nd the person who touched the object attractive (Argo, Dahl & Morales, 2006). Feeling conned in an overly narrow aisle or, conversely, feeling isolated if you are alone in a store, may also have unexpected eects. In the rst case, feeling hemmed in by a crowd makes consumers try to restore this freedom by choosing more varied products (Levav & Zhu, 2009). Lastly, a consumer may be sensitive to the prole of the people who frequent a store or restaurant. Are they regulars or tourists? Do the customers mirror the consumer’s sociological prole or lifestyle? Observing other consumers is therefore a source of information that allows consumers to make inferences about a place and its oering.

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Summary Understanding consumer behaviour in depth is crucial when designing an effective marketing strategy. The study of consumers goes well beyond the purchase act itself: managers must also pay attention to all steps that precede the nal choice of product, along with its use after purchase and even the way the consumer disposes of it. The detailed reconstruction of consumers’ decision process is an essential analytical tool that lets managers understand the sequence that links the recognition of a need to the post-purchase evaluation of a product or service, and includes the information search, evaluation of different options making up the consideration set, the purchase decision and the actual purchase act. This sequence may involve a varying level of effort by the consumer, inuenced in particular by the degree of involvement. A purchase decision can also be qualied as more or less cognitive and rational or, conversely, emotional and intuitive. Understanding these dimensions lets marketing managers characterize the decision for each target segment and adjust the variables of the marketing mix accordingly.

These variables are one of the sources of inuence on consumer behaviour. However, they combine with other types of inuences beyond managers’ control, which managers must nonetheless consider when making strategic decisions. Inuences may be internal, like processes that are central to human psychology (motivation, perception, knowledge, emotions and attitude) and the psychographic characteristics of each individual (aspects of identity, values and lifestyle). In contrast, external inuences refer to social and cultural pressures on consumers emanating from reference groups, and from the consumer’s subculture and culture of origin. Contextual inuences that characterize the time and place of the purchase like mood, pressure felt due to time, and the atmosphere of the purchasing site complete this bundle of inuences on the consumer. The detailed identication of these various levers derived from research on target consumers should point to opportunities to rene the positioning and value proposition of brands, which, once translated into the marketing mix, can differentiate the business from the competition.

Suggested readings Textbooks Ariely, D. (2008). Predictably irrational. New York, NY: HarperCollins. D’Astous, A., Balloffet, P., Daghfous, N. & Boulaire, C. (2014). Le comportement du consommateur (4th ed.). Montréal, Québec: Chenelière Éducation.

Hoyer, W. D., MacInnis, D. J. & Pieters, R. (2013). Consumer behavior (6th ed.). Mason, OH: South-Western, Cengage Learning. Solomon, M. R., White, K. & Dahl, D. (2014). Consumer behaviour: Buying, having, and being (6th ed.). Toronto, ON: Pearson Education.

Websites Dan Ariely: http://danariely.com/ resources/the-blog Journal of Consumer Research: www.ejcr.org/inthenews.php

PART

3

Commercial Mix

Products, Services and Brands

Chapter

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8

Products, Services and Brands Chapter outline 8.1

Products and services

8.2

Product dimensions

8.3

Product portfolio management

8.4

Brand management

8.5

Product life cycle management

Learning objectives After reading this chapter, you will be able to: Demonstrate the role of the marketing manager in product management; Understand the particular characteristics of services; Distinguish the dimensions of a product; Dene product portfolio management, brand management and product life cycle management strategies.

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A product is

commonly viewed as a good that a consumer procures. Marketing managers nd this denition too restrictive. From this perspective, it is dicult to dene concrete actions to manage a company’s products. By concentrating on the transaction, or the act of procuring a product, we tend to neglect other components that are essential to the consumer’s satisfaction. is is why it is more useful to consider a product as a basket of benets that is oered to consumers. ese benets are concretely manifested by a set of attributes, functions and uses proposed by the company. is denition lets marketers act explicitly on these dimensions by implementing a product management process. e rst step of this process is to set objectives for the product, which are in turn linked to those of the marketing plan. Note that marketing objectives may be formulated in terms of market share, sales, prots, and brand image. e strategy then species what must be done to attain these objectives, like proposing new uses of the product, improving its quality, or adding, removing or repositioning products relative to the current oer. is chapter is divided into ve sections. e rst section portrays service as a specic and important kind of product, and the second section presents the dimensions of the product. Based on this description of the product dimensions, the three following sections cover the main areas of product management: product portfolio management, brand management and product life cycle management. New product launches were rst discussed in Chapter 4, which describes innovation and creativity.

Flow chart

Products, Services and Brands

223

8.1 Products and services e marketing denition of the product integrates the idea that the product may be tangible, as in the case of a consumer good, or intangible, as in the case of a service. e services sector encompasses diverse industries, ranging from nance and insurance to retail commerce, healthcare, culture and education. Statistics Canada (2016a, 2016b) reports that this sector accounts for nearly 80% of jobs in Canada and about 70% of the gross domestic product (GDP).

Product A basket of benets offered to consumers. Service An action or effort offered by one party to another.

Four characteristics of services dierentiate them from other types of products: intangibility, inseparability, variability and perishability. Intangibility means that the service cannot be touched, held or even seen before the purchase decision. For example, a concert is intangible. Inseparability is when production is tied to consumption, and this consumption is often linked to a particular provider. For example, a concert is oered by a musician (the provider) and consumed by a spectator when the music is produced. Variability implies that the quality depends on who oers the service, and when, where and how it is oered. erefore, the quality of the musician’s performance will dier depending on the venue, on the time or setting (St. Jean-Baptiste Day or a Tuesday in September) and on the accompanists. Lastly, perishability comes from the fact that a service, such as a portion of a concert, cannot be stored until demand increases. Several business management functions are aected by these characteristics. Because the provider is an integral part of the service, human resources management plays a key role in the oer of this type of product. e variability and perishability of a service raise major logistics challenges. Marketing management must also be adapted to services. As Figure 8.1 shows, service marketing integrates three approaches: external marketing, internal marketing and interactive marketing. External marketing, like all other marketing activities, concerns the relationship that the organization maintains

Figure 8.1 The three types of services marketing

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with its customer. However, much of a company’s marketing eorts are deployed by employees who are in direct contact with consumers. e company must therefore carry out an internal marketing eort to ensure that these employees are well trained and supported in their service delivery. Interactive marketing also includes activities like provision of service and sales, which we will explore in Chapter 10.

8.2 Product dimensions e core of a product consists of the benets it oers (see Figure 8.2). ese benets are motives that drive consumption behaviour. For example, an individual who attends a show may derive a set of benets such as intellectual enrichment, emotional stimulation, entertainment, or the pleasure of sharing an experience with the public or with friends (Bouder-Pailler, 1999).

Figure 8.2 Dimensions of the product

ese benets drive the value that the consumer perceives. By clearly pinpointing consumers’ needs, managers can oer their customers the benets they seek in a product. is process is a major challenge for companies. As we have seen in Chapters 1 and 7, this idea of value, which represents the gap between the benets and the costs associated with consumption of the product, is a crucial aspect of pricing. In order to adopt a coherent price policy, managers must clearly understand the set of benets that a consumer will derive from consuming the product. It is essential to present the benets of a product adequately and visibly to ensure the eectiveness of marketing communication and the sales relationship.

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8.2.1 Core product e core product is what is concretely oered to consumers to provide the benets they seek. e core product consists of a set of attributes such as the design, packaging, quality and brand. It is important to avoid confusing the attributes of a product with the benets associated with that product. Attributes are the product characteristics that satisfy consumers’ needs. An illustration of the distinction between benets and attributes is an expression attributed to eodore Levitt: “People don’t want to buy a quarter-inch drill, they want a quarter-inch hole” (Levitt, 1986). A set of technical attributes may dene a drill, but the consumer will buy a drill because it oers the benets they seek. For example, a basic Black & Decker drill (model BDEDR3C), which can obviously drill holes, costs $36.76 on Amazon.ca. is drill has a 3-amp motor that does 2,700 revolutions per minute, and it takes a ⅜-inch bit. A comparable drill that uses rechargeable batteries (model SSL20SB) costs $126.99. e benets associated with this battery-operated drill are not only the power to drill holes, but also to do so with greater freedom of movement. e monetary value of this freedom is $90.23 ($126.99 − $36.76). In other words, 71% of the value of the model SSL20SB drill is associated with freedom of movement. What is important to remember here is that it is worthwhile for a business to invest in adding attributes that consumers value. In the subsections below, we will discuss the key elements of the core product: design, packaging, product quality and brand.

Design e design of a product results from the tension between function and form. Function refers to the specications and design standards of a product; it is dominated by a utilitarian perspective (Townsend, Montoya & Calantone, 2011). e functional component of design denes the attributes that should be part of a product for it to be considered useful by the consumer. For example, a portable speaker must be able to connect easily through Bluetooth technology, have good battery life, be compact and light, and of course amplify music well. e form of a product makes the functional component of the design concrete. It is a largely hedonic component of the product design. For example, the rm UE gave its Boom model speaker an elongated cylindrical form, vivid colours and robust materials to materialize its functions. In addition to embodying its function, the form of a product can evoke a particular symbolism and meaning (Townsend, Montoya & Calantone, 2011). Accordingly, a form can bring out or hide a technology. For example, several models of Air Jordan Nike shoes display the air-lled cushions in the sole. In doing so, the Nike managers wanted to position Air Jordan along a technological axis. Conversely, the Active Air technology of the Clarks brand, although similar to that of Nike, is not visible in the shoes, which are known for their more formal style.

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e form of a product can also activate schemas through visual codes, which refer to a specic interpretation of the product. For example, Chanel integrates distinctive aesthetic codes in its design to recall the history of the brand and evoke simplicity and elegance. erefore, the product often incorporates understated materials—the little black dress, short hair, a string of pearls and lipstick—in current collections to recall the essence of the brand. Lastly, the form induces sensory experiences that inuence emotions and cognition. For example, seeing a candy store from our childhood may trigger a ood of positive emotions and memories. is is one of the reasons why candy makers rarely change the shape of their products. A product whose design emphasizes the functionality of a product while downplaying the hedonic component may not be noticed. However, sometimes the form of a product interferes with its function. Apple was roundly criticized after it launched the iPhone 4 (Chamary, 2016). Many consumers complained that these new smart phones would suddenly drop calls. In what would be dubbed Antennagate, the company discovered that the antenna, situated on the rim of the telephone, caused interference when the user’s hand was in certain positions. e problem was apparently compounded for left-handed people. Media pressure mounted when Steve Jobs, then CEO of Apple, ostensibly blamed the consumer, chiding users for “holding it wrong.” e crux of the problem, common to many smart phones, is that phones are now made with metal cases that conduct electronic signals. e metal may serve as an antenna for the device, but contact with the human body creates interference. For aesthetic reasons, consumers do not want to go back to plastic phones. ey prefer the tactile sensation, rened contours and elegance of brushed metal, even if this means they have to sacrice the main function of a telephone: communication.

Packaging Packaging fullls technical and communication functions simultaneously. Technically, it protects the product before its consumption. Consider the various packaging solutions that are used to preserve the freshness of Packaging food and cushion it during transit. e shelf life of a prepackaged salad mix can be increased by four days by changing the The concept of packaging includes the function and form of the container that atmosphere within the bag to 5% oxygen, 15% carbon dioxide holds the product. and 80% nitrogen (Modied Atmosphere Packaging, 2012). In terms of communication, packaging activates the brand and the logo of a product. Packaging is often the rst contact between the customer and the product in store. e case of the Del Monte Orchard Select line of preserved produce clearly illustrates the potential of packaging to position a product (Ashman, 2004). Del Monte aimed to oer a high-end line of preserved fruit. e pieces of fruit are hand-sorted and packaged in a glass jar, to ensure that they are visible. ey are found in the chilled products section, which lets Del Monte extend its presence in supermarkets beyond traditional cans. is line delivers four benets. First, a jar that customers can close and open whenever they wish is practical because the contents do not have to be transferred to another container, not to mention that the jar can be reused.

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Second, the fruit is appetizing because it is picked when fully ripe, and retains its avour throughout the year. ird, the health value is highlighted because these canned fruits are a good source of vitamin C and phenols, and the syrup has been replaced with fruit juice. Fourth, these jars, adorned with a retro looking label, evoke nostalgia by harking back to traditional preserves. is oer certainly required a substantial investment in packaging. is product is very lucrative for Del Monte because it is well worth its higher price, and delivers more benets than metal cans. In fact, in its rst year on the market, this line generated margins of 22% versus 11% for classic cans.

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Packaging evokes the benet of the product before its consumption.

Unboxing provides another opportunity to highlight a product. Simply think of the meticulous care that Apple takes to have people discover the product presented in its rened packaging. Unboxing of products has even spawned a subgenre of online videos. In 2015, unboxing videos were seen 1.1 billion times for a total of 60 million hours of viewing (Hof, 2015). e target audience of this type of video consists of children, for toys, but adults for product categories like sneakers or smart phones. A YouTube video showing a young child unboxing an egg-shaped gift package brimming with myriad Toy Story merchandise was viewed over 170 million times on YouTube (Kiddyzuzaa, 2014). Viewers seek information on the product such as details about the design. ey are also captivated by the anticipation that people feel when they unbox a product (Selvi, 2016). is phenomenon is creating opportunities for the business world. Unboxing videos are preceded by ads, and the content is increasingly sponsored or produced by manufacturers or retailers. However, unboxing videos raise ethical questions because this type of advertising often targets children, but is not regulated by laws.

Product quality e quality of a product may be dened from two angles: technical and perceptual. Technical dimensions of quality include: • performance: the product’s capacity to adequately perform the tasks for which it was designed; • reliability: the likelihood that a product will fail. Companies usually determine this by measuring the average time until the rst breakage or between two breakages; • conformity: the capacity to meet the product design specications. It is measured by how well the product satises the constraints imposed by the manufacturing process; • durability: how long the product can be used before it deteriorates.

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e second perspective focuses on consumers, particularly perceived quality. A product is perceived to be of high quality if it satises consumers’ expectations. Perceived quality is therefore dened as the gap between consumers’ expectations and the qualities they observe. ese expectations may be based on technical dimensions, along with attributes such as reputation, the brand, advertising or prior experiences with the product. In marketing, the technical approach and the perceptual approach must both be considered when evaluating product quality. e disadvantage of a strictly technical approach is that the company risks ignoring what the consumers really want, and what they dene as quality indicators. e company also risks investing in aspects of quality that are unimportant to consumers. Conversely, an approach that is based only on perceptions may disappoint consumers if the company does not monitor the technical quality of its products. Importance–performance analysis lets companies prioritize the resources to invest in quality management (Hansen & Bush, 1999). In Figure 8.3, the horizontal axis represents the importance placed on each dimension of perceived quality, and the vertical axis shows the performance of each dimension of product quality compared with that of the competition. By gathering information using a customer survey, marketers can place perceived performance, reliability, conformity and durability in the plane created by these axes. If a dimension is found in the high performance/high importance quadrant, it is important for the company to strive to maintain the quality of this dimension. Conversely, if a dimension is found in the low performance/ high importance quadrant, the company should consider improving this aspect as a top priority. e high performance/low importance quadrant indicates that the company may have invested too much in the dimension in question, and it should reduce its investments. e same is true for the low performance/low importance quadrant, which represents a low priority.

Figure 8.3 Importance–performance analysis of dimensions of product quality

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e growing importance of related services associated with products and with the service industry in general has spurred the development of specic measures of service quality. e most widely used measure is SERVQUAL, designed by Parasuraman, Berry and Zeithaml (1991). is tool is used to evaluate the quality of a service in order to manage it more eectively. SERVQUAL species ve important dimensions in evaluating the quality of a service: • Reliability: in a service context, this refers to the ability to perform the promised service dependably and accurately. • Responsiveness: willingness to help customers and provide prompt service. • Assurance: knowledge and courtesy of employees and their ability to convey trust and condence. • Empathy: provision of caring, individualized attention to customers. • Tangibles: appearance of physical facilities, equipment, personnel, and communication materials. To summarize, quality is a key element of the core product. Many companies promise good quality to stand out from the competition. However, beyond promises, companies must understand the criteria that consumers use to evaluate quality, and must measure these criteria to be able to carve out a real competitive advantage.

Brand A brand is a set of material signs that often consist of a com- Brand bination of a name, a term, a design element, a symbol, a logo, All material signs that allow a product, a number, a colour or even a sound. Brand dierentiation lets a business or organization to differentiate its company charge higher prices, generate bigger margins, increase offer from that of the competition. its inuence in its distribution circuit, carve out more shelf space, and reduce its vulnerability to promotions staged by the competition, and thus prevent its market share from eroding due to erce competition. A brand can also attract or retain talent within the company. is is known as the employer brand. Physical signs contribute to creating a brand image with which the consumer will identify, or not. e British brand Burberry is a good example of managers’ use of a set of signs. e brand logo, created in 1856, depicts a knight in armour. Included in the image is the Latin word prorsum, which means “forward.” e brand name is systematically written with the Didot bold font. e terms “gabardine” and “trench coat” are automatically associated with Burberry because that company invented them. Gabardine is a tightly woven cotton or wool fabric that is partly waterproof. e trench coat was designed for British army ocers during World War I. e brand’s current product continues to evoke the “Nova check,” a white, black and camel scotch tartan that covers the interior of the trench coats. We will revisit the tools used to manage a brand later on in this chapter.

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8.2.2 Related services Related services include guarantees, installation, delivery and credit, along with after-sales service. ey are not an integral part of the core product, but are essential for the creation of a consumption experience. For example, Brault & Martineau promotes several related services to stand out from other furniture and home appliance retailers. Notably, the company oers free delivery, interest-free installment plans, free collection of old equipment, free layaway service, 90-day trials for mattresses, protection plans (extended guarantees) and an installation service. ese related services, especially delivery, may be provided by a third party. A company can include related services in the product oering, as Brault & Martineau does for delivery, collection or layaway. It can also decide to cover some or all of the costs of the related service, like installation, and still generate worthwhile income, as Brault & Martineau does with its protection plans. In some cases, the company uses the related service as an independent business unit that supports and uses competitors’ products. One example is Best Buy, which competes with Brault & Martineau in some product categories. Best Buy oers the Geek Squad service, which helps customers with conguration, installation and repairs of home appliances, regardless of whether they were purchased at the retailer or elsewhere. e choice of economic model for the provision of related services depends on consumers’ expectations and the integration of these services in the core product. If related services are seen as an integral part of the core product, that is, if they are directly attached to the benets associated with the product, it is preferable to integrate them for free. Brault & Martineau can oer some of these related services for free because of its aordable positioning. Related services can also help ll a gap in the core product. For example, despite its constantly increasing reliability and durability, Hyundai struggled in the 2000s to be seen as a car brand whose quality was equal to that of Toyota or Honda (Anantharaman, 2015). e automaker then oered a more generous guarantee than the competition to demonstrate its commitment to quality. e general guarantee is ve years or 100,000 km and 10 years or 160,000 km for the power train. is initiative boosted the proportion of consumers who were thinking of buying a Hyundai brand vehicle from 8% to 28%. In the B2B sector, related services are so pivotal to the consumption process that they spawned a new type of offer: solutions. A solution is a personalized offer that integrates a combination of tangible products, services and information to solve a consumer’s problem (Sawhney, 2006). In a B2B context, a solution meets

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complex needs and demands a high level of integration and personalization. For example, to extend its product line beyond printers, Xerox now offers a line of solutions like workflow simplification and automation (service), a new solid ink technology that nearly eliminates printing waste (tangible product) and an IT security management service (combination of tangible products and service).

8.3 Product portfolio management Up to this point in the chapter, the product has been discussed in isolation, but almost all companies oer more than one product. e product line must be managed consistently. Most businesses organize their products in an architecture made up of a product portfolio, product ranges and product lines. e architecture of the product portfolio makes it easier for consumers to understand the company’s product oering. It also helps professionals in charge of lines and ranges manage the set of products consistently.

Product portfolio All products offered by a company. Product ranges A set of products of the same category or that meet the same type of need. A range is made up of product lines. Product line

ere are several ways to organize a portfolio. For example, A group of products intended for a specic Gap manages its product portfolio by dividing it into tarmarket, or that solve a specic problem for get segments. e company has one product range for men the consumer. (made up of lines of pants, shirts, sweaters, etc.), another for women and yet another for children. Nike organizes its lines by types of use: it markets lines of running shoes, golf equipment, sportswear, etc. e architecture of brands marketed by L’Oréal is based on its distribution network. e products in the L’Oréal Luxe range are distributed in a selective network (department stores, perfume shops, and airport boutiques, and on dedicated websites), products aimed at the general public are found in mass distribution circuits, professional products are at hair salons and the Active Width of the range Cosmetics range is in pharmacies and healthcare outlets. Number of lines that make up the range. A range is described in terms of its width, depth and length. Lines are designed to order products logically, beginning with the basic or low-end models, which possess the fewest attributes and which are often the least expensive. e more attributes the product possesses that have value for the consumer, the higher their selling price can be. ese are called high-end products.

Depth of the range Number of models per line. Length of the range Total number of products in the range.

Example 8.1, on the following page, presents the ranges oered by Toyota and Volkswagen in Québec.

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Example

8.1

Toyota and Volkswagen ranges in Québec

Compared with Volkswagen, Toyota offers a range that is much longer (18 vehicles vs. 10), deeper (up to 6 vehicles vs. 5) and wider (4 lines vs. 3). It is interesting to see how these two companies organize their products differently.

Toyota groups its compact cars and sedans in the automobile and minivan lines. This categorization choice is strategic. Toyota probably does not want to propose an overly broad range, which might confuse consumers.

Table 1 Toyota product portfolio Automobiles and minivans

Hybrids

SUVs and crossovers

Pickup trucks

Sienna

Highlander hybrid

Sequoia

Tundra

Avalon

Rav4 hybrid

4Runner

Tacoma

Camry

Prius V

Highlander

86

Prius

Venza

Corolla

Prius C

Rav4

Yaris

Prius V

Conversely, Volkswagen probably split its automobile line in two (compact cars and sedans) to present a broader range. Toyota could have easily redistributed its hybrids in the automobile

and SUV/crossover lines. Instead, by offering a line of hybrids it gained an opportunity to demonstrate its leadership in this more environmentally friendly type of vehicle.

Table 2 Volkswagen product portfolio Compacts

Sedans

SUVs and wagons

Golf

CC

Tiguan

Beetle

Passat

Atlas

Jetta

Touareg Golf Alltrack Golf SportWagen

e BCG matrix is a useful tool to analyze the balance of a product portfolio. Developed by the Boston Consulting Group in 1970, the matrix positions brands representing product ranges or lines along two axes: market growth rate and relative market share (see Table 2.3, page 39). e relative market share is the ratio of the

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market share of the brand to the market share of the main competitor. If a brand is the leader, its main competitor will be that which controls the second largest market share. e relative market share will then be higher than 1. If a brand is not the leader, the market share of the main competitor will be that of the leader. A brand can be situated in one of the following four quadrants: stars, problem children, cash cows and dogs. is matrix suggests that the advantage derived from market share depends on the maturity of the market (Day, 1977). A large market share is desirable because it is generally associated with interesting prot margins. When a market is mature, an increase in share will be more costly because additional sales must be captured from the competitors. In a market that is growing vigorously, market share can be gained from an increase in sales volumes. Although very popular, this tool has its limits. A sizable market share is not always associated with interesting prot margins. For example, a company may incur exorbitant and ultimately disastrous sales promotion and advertising costs to acquire a market share in a low-margin market (Van Laethem & Moran, 2014). In contrast, a company that holds only a very small market share may be highly protable. A niche player may carve out an enviable competitive position in a very small segment protected by major entry barriers. Examples include high-end brands of watches like Patek Philippe and Panerai. In addition, companies that adopt a follower strategy can also be very popular despite their low market share because, by imitating the leader, they do not need to invest in innovation. By actively managing their product portfolio, companies not only Cannibalization meet consumers’ needs, but also avoid cannibalization between The drop in sales of a current product caused products. Cannibalization, and its harmful eects, can occur durby sales of a new product launched by the ing the introduction of incremental innovations or line extensame company. sions, because sales simply shift from one product to another without a real gain for the rm. However, the fear of cannibalization may become a major deterrent to the introduction of radical innovations (Chandy & Tellis, 1998). e company Bausch & Lomb invented exible contact lenses but did not launch the product because it did not want to eat into sales of its rigid lenses and very protable eyedrops. Johnson & Johnson seized this opportunity to conquer the exible lens market (Cannibalisation, 2009). It is sometimes better for a company to compete with itself than to let itself be bested by other competitors.

8.4 Brand management To maintain or even develop a brand, product managers must choose which signs to activate (see page 229). ese choices tell a story that highlights the brand. For example, Burberry is historically associated with great explorations and sports. e company equipped Roald Amundsen during his expedition to reach the South Pole in 1911. Burberry also provided some of the equipment and clothing for the fateful Antarctic expedition of Ernest Shackleton in 1914, and for George Mallory’s failed

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attempt to climb Mount Everest in 1924. e company later identied with the rened and subdued character of England. is association has let the brand rejuvenate its image and expand its line by oering women’s clothing and accessories in the early 2000s. At the end of 2016, the company decided to revisit its past by producing a commercial that depicts the early days of company founder omas Burberry, along with the history of the pioneers and momentous events that shaped the brand (Burberry, 2016). Burberry also developed initiatives like Burberry Acoustics, a series of concerts and videos by established or emerging British musicians, also nanced by the brand. e company has thus associated sound signs with its brand. Positive, strong and unique associations reinforce the brand image. However, some associations are more dicult to control, and may have a negative eect on the brand. Between 2001 and 2005, Burberry was marred by an association with the hooligan subculture; the brand’s scarves and caps were commonly worn by people who engage in violence at sports matches. In response, the company temporarily withdrew these accessories from the market. ey were later reintroduced with a noticeable increase in price and quality. Identication with a brand applies to individual products as well as to product lines and ranges. Brands are also associated with people, countries, cities, etc. For instance, television host Ricardo Larrivée has established a personal brand that has given rise to a broad product range. One type of brand that has become very prominent in recent decades is the private label. Also called the generic brand, the A brand developed by and marketed for private label is often compared with national brands, which disa retailer, and distributed in that retailer’s tribute their products at a set of retailers. By fully controlling stores exclusively. the distribution of its brand, a retailer saves not only on the distribution cost, but also on development and promotion. One strategy commonly used by private labels is to imitate the attributes of the products of the market leader, and thus save on development costs. ey then present the basic product at a lower price. Because the product is exclusive to a store and its shelf space is guaranteed, the brand need not deploy major promotion eorts. is is the strategy that the Canadian company Loblaw uses with its generic brand No Name. In addition to this low-end strategy, superior quality private labels have emerged. ese products are more rened, their prices are higher and communication eorts are deployed even beyond points of sale. One example is the President’s Choice brand oered by the Loblaws supermarket chain.

Private label

8.4.1 Brand equity Dening a brand is one thing, but determining its value is quite another. Brand equity is the added value that a brand gives a product. is value is expressed by brand loyalty, brand awareness, perceived quality and a set of brand associations that consumers make (Aaker, 2012). For the company, this added value eventually translates into nancial gains. ree approaches can be used to measure brand equity: the customer-based approach, the price dierential approach and the income-based approach.

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Customer-based approach is approach can involve surveys to directly evaluate loyalty, awareness, perceived quality and the set of brand associations. Measures of awareness generally integrate spontaneous awareness and assisted awareness. As we saw in Chapter 7, these two variables are important for understanding consumers’ decision process. Good spontaneous awareness facilitates consumers’ internal information search (see page 194). A brand that has good assisted awareness will be included in the consideration set (see page 196). ese measures of awareness are also very useful when determining the eectiveness of communication campaigns. Conjoint analysis, which will be discussed in greater detail in Chapter 12 (see Box 12.1, page 371), is another technique used to directly measure the value of a brand based on consumers’ responses.

Price differential approach is more indirect approach measures the price dierential associated with a specic brand. Starting from the premise that consumers who place more value on a brand will be ready to pay more for a product of this brand, marketers compile all the prices of products available in this category along with the set of their attributes. As the following formula shows, price is used as a dependent variable in a multiple regression model. Price = β0 + β1Brand 1 + β2 Brand 2 + … + α1Attribute 1 + α2Attribute 2 + ... e brands and product attributes are the independent variables. We can then calculate the value of each brand by statistically controlling the attributes of each product. In the equation above, β1 is the parameter that shows the value of brand 1. is approach, developed by Rosen (1974), is called the hedonic regression. It may be tempting to simply compare the price dierential between a national brand and a private label given that private labels have limited equity. However, this approach is biased because it does not take into account the variance between the cost of private labels and those of national brands (Lehmann & Winer, 2006). As we have seen earlier, private labels demand less investment in product development, distribution and communication. e price dierential between a private label and a national brand can therefore be partly explained by lower costs. In this context, the equity of the national brand will tend to be overvalued.

Income-based approach e third approach consists of determining the proportion of the company’s future income attributable to the brand. e risk (or uncertainty) associated with this revenue produced by the brand is subtracted from this result. e consulting rm Interbrand uses this type of approach.

8.4.2 Strategic branding decisions e following main types of branding strategies will be presented in this section: organization of brands within a product portfolio, brand extension and launches, and brand alliances.

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Organization of brands within a product portfolio Brands in a product portfolio can be managed according to an umbrella brand approach or a house of brands approach. Umbrella brand An umbrella brand is a brand whose name and signs appear on all products marketed by a particular company. A classic example of the umbrella brand is General Electric (GE). e subsidiaries of this conglomerate are all preceded by the letters GE: GE Aviation, GE Capital, GE Digital, etc. e GE logo, barely modied since the late 19th century, also invariably appears. ese subsidiaries must all follow a very strict graphic code. Notably, the font used for these brand names is GE Inspira, and the blue must be exactly Pantone 7455 (http://hansstol.total design.nl/en/ge.html). e main advantage of this approach is that the brand is visible, unied and clear. In the case of GE, projecting brand coherence is important for a diversied group whose subsidiaries operate in diverse sectors ranging from nance to lighting systems. e main disadvantage of this approach is that such constraints make it more dicult to adapt the brand of a subsidiary, a range or a product line to the specic needs of a market or a segment. Another disadvantage is that if a scandal tarnishes a subsidiary, the eects may spread to all of the brands grouped under the umbrella. For instance, the nancial crisis of 2008 hit the sub-brand GE Capital very hard, which in turn aected the value of parent company GE. House of brands In a house of brands approach, each brand in the portfolio is treated independently. Unilever, a consumer goods giant, manages a portfolio of over 400 brands, each of whose image it treats independently. e Unilever logo is a capital U formed of a composite of 25 icons representing the company’s most important brands. ese brands sometimes compete with each other. is portfolio organization grants each brand a very distinct positioning. For example, the brands Axe and Dove are not associated with the same values. On its website, the company describes Axe: “Cool, adventurous and never dull, Axe is designed to keep guys a step ahead in the dating game” (www.unilever.com/brands/our-brands/axe.html). In contrast, for Dove, it says: “In a world of hype and stereotypes, Dove provides a refreshingly real alternative for women who recognize that beauty comes in all shapes and sizes and isn’t simply about how you look—it’s about how you feel” (www.unilever.ca/brands/ our-brands/dove.html). e integration of a new brand in a product portfolio managed as a house of brands is quite simple: the brand is simply added to the existing oer. e brand equity acquired is thus preserved. In contrast, within an umbrella brand, integration is more delicate. If the brand acquired dissolves completely, the company may lose signicant equity. If the integration goes awry, the coherence of the parent company may suer. erefore, new brands should be integrated gradually: initially, the same visual signs as the parent company (typography, colours) are used. After that, the logo of the sub-brand slowly gives way to that of the parent company, and lastly, the brand name itself disappears.

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Brand extension and launches Figure 8.4 presents the strategies for new product launches: line extension, brand extension, multibrand approach and new brand creation. e optimal strategy depends on whether the product is existing or new.

Figure 8.4 Brand extension and launches strategies

Existing product e case of multinational Starbucks demonstrates that a company may deploy several of these strategies, depending on its objectives. A line extension implies that the use of a brand is extended within the same category. Extension can be downward or upward. For example, Starbucks launched Starbucks Reserve, a line of rare and exotic coees. Black coee sells for US$4.36 per 350 mL in store. is line is intended to enhance the general image of the company. If a brand cannot support such an increase in its range, a company can deploy a distinct brand, like Lexus, the luxury brand oered by Toyota. e introduction of a new brand in the same product category is called a “multibrand approach.” New product Downward extension is also possible, and may be very protable if the segment reached is attractive enough. However, brand equity may be diluted. Starbucks uses the Seattle’s Best brand to reach a clientele who is more price sensitive, and who would rather drink less rened coee than Starbucks lattés. is strategy helps the brand maintain its high-end positioning. Note that a multibrand approach risks cannibalizing sales if the positioning of the two brands and the targets is not distinct enough. When extending brands, companies try to prot by building brand equity in a new category. is is what Starbucks aimed to do by launching a range of instant coee packets distributed in grocery stores. Although dilution is still a risk, the company considered that the new product would need the associations with the quality of the

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Starbucks brand to be competitive. In a new product category, when the company considers that the brand associations can allow an extension, it can simply launch a new brand. Starbucks launched the Teavana brand of tea because the Starbucks brand was too strongly associated with coee.

Brand alliances Cobranding is a particular case of extension where at least two brands partner to market a new product, line or range. A line can be extended with cobranding, as in the case of the movie Batman vs Superman, Dawn of Justice. Two brands can also be associated in a new category, as in the case of the video game Lego Batman.

Cobranding at the movies.

When one of the brands is a barely visible element of the product, this is known as an ingredient brand strategy because the presence of this ingredient is emphasized. e best-known example is the message “Intel Inside” on PC computers. Brand alliances work best when the associations between the brands complement each other well.

8.5 Product life cycle management To describe how product management conditions change over time, we use the analogy of a life cycle that consists of the phases of introduction, growth, maturity and decline. e product life cycle refers to both an individual product and the product class. e life cycle of a category unfolds much more slowly than that of a product. Several generations of products may follow one another in the life cycle of a category. We will see in this section how product managers must adapt their strategy according to the evolution of the life cycle of the product category. Table 8.1 presents the characteristics of each phase of the life cycle.

Table 8.1

Characteristics of the phases of the product life cycle

Life cycle phase

Introduction

Growth

Maturity

Decline

Market growth

Moderate

Strong

Stable

Negative

Expected nancial results

Losses

Prot growth

Prot decline

Prot decline

Competition

Limited

Growing

Declining

Declining

Consumers

Innovators (2.5%)

Early adopters (13.5%) and early majority (34%)

Late majority (34%)

Laggards (16%)

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8.5.1 Introduction phase During the introduction phase, sales usually progress slowly, and prots are limited; many companies even sustain nancial losses. However, the competition is generally limited. According to Rogers’ typology (2010), introduced in 1962, innovators are most likely to consume the product during this phase. Rogers maintains that people who tend to adopt a product soon after its arrival on the market are generally less dogmatic, more empathetic and have higher tolerance of risk and uncertainty. ey are generally well educated and prosperous, although they are not necessarily younger than individuals who belong to other consumer segments. ese people consult the media often and are linked to a large number of people on social networks. Many of them are opinion leaders. All of these traits tend to decline systematically along the spectrum from innovators, early adopters, early majority, and late majority to laggards (see page 99).

8.5.2 Growth phase During the growth phase, as more consumers join innovators, competition intensies. A company that has managed the introduction of its product eectively will see its prots increase. Table 8.2 shows that product managers must adapt their objectives according to the phase of the product’s life cycle (Avlonitis & Papasthopoulou, 2006), but they must also be able to coordinate the other elements of the marketing mix. Now that we have explored product innovation, which occurs in the introduction phase, we will focus on the objectives pursued in the growth, maturity and decline phases. e objectives of promotion (communication), place (distribution) and price will be covered in subsequent chapters.

Table 8.2

Objectives of the elements of the marketing mix pursued throughout the product life cycle

Marketing mix element

Introduction

Growth

Maturity

Decline

Product

Product launch

Defend the territory Expand the range and deepen the lines

Optimize the portfolio by adjusting the range and lines

Contract the range and lines

Price

Market share or medium-term prots

Increase market share

Maintain or increase market share

Liquidate inventory

Communication

Draw attention and raise awareness

Convert

Engage

Reduce budgets

Distribution

Build the network

Expand the network

Stimulate the network

Reduce the network

Two objectives may be pursued during the growth phase. First, if the company has a clear competitive advantage and the market is homogeneous (that is, it contains few segments), it may want to defend its territory. e company thus aims to improve its

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product oering without adding to the line or expanding the range. Because the benets sought in a market containing few segments are relatively similar across products, the company does not have to propose new product variants. e strategies employed then focus on enhancing satisfaction and loyalty by increasing the product’s quality, by promoting its superiority and by rening related services. Second, if the market is fragmented (that is, if it contains a large number of segments), the company will want to expand its range and deepen its product lines. Firms that identify a weakness in their oer may develop a product or line that supports the initial product. is support product will protect the business from the competition, but it risks eating into the sales of the initial product. Several upward and downward extensions of a line were originally intended to support an initial product.

8.5.3 Maturity phase During the maturity phase, market growth begins to stagnate. Some competitors leave due to declining prots. e late majority buys the product and previous segments may rebuy it. e objective is to optimize the product portfolio by actively managing the width and depth of the range. In a stalled market with shrinking margins, managers must gauge the eciency of their investment in marketing eorts. One of the dangers of the maturity phase is that a company may be harmed by product proliferation. In other words, its oer may be too vast and complex relative to the market needs. Product proliferation results from an increase in sales in each extension of the line or range. Over time, these extensions increasingly cannibalize sales of the initial product. Soaring sales prompt companies to launch even more extensions, which creates a vicious circle of product proliferation. In this situation, the company should trim its product portfolio, as Unilever did in the early 2000s. is producer of consumer goods, a mature category, concentrated its marketing eorts on 400 agship brands within its portfolio, which had once contained 1,600 products (Kumar, 2003).

8.5.4 Decline phase e most dicult phase to manage is probably the decline of a product category. is phase is characterized by market shrinkage and steadily decreasing prots. Many competitors leave the market. At this point, only one segment remains to be reached: laggards. In this phase, it may be hard for managers to stay motivated because they are working in a context of a sustained sales slump. To deter employees from leaving en masse, companies must provide key managers who implement strategies during this phase with advantageous conditions (Haines, 2014). Four options are possible. First, if the company has a clear competitive advantage in terms of cost management, it may try to be the sole protable survivor. is is the goal that Transcontinental set in the printing sector (Transcontinental, 2016). Even in a greatly reduced market, the last player in place benets from a lack of competitors.

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Second, the company may decide to boost its prots by investing as little as possible in the products. We have already looked at this harvesting approach in relation to the BCG matrix (see page 39). ird, a company may shrink its ranges to serve a more worthwhile niche. Although the market may be declining globally, one segment may remain attractive. Swintec, a typewriter producer, developed a line of products specically for the correctional system. ese machines are made of transparent plastic to prevent smuggling. e comeback of vinyl discs is another example of a niche market, in this case audiophiles, who eectively revived a category. Fourth, a company may decide to withdraw from the market by selling a brand. is strategy is more protable at the end of the maturity phase, when the brand still has good resale value. It is important to end product marketing in a structured and organized way. Otherwise, consumers who remain loyal to the discontinued brand may feel betrayed at being abandoned, and the expression of their resentment (complaints, negative word-of-mouth on social media or outcry in traditional media) may hurt the brand. Zappos, an online shoe retailer, exited the Canadian market in 2011. Customers who contacted customer service to order items for delivery to Canada were redirected to independent online retailers of Zappos products. In closing, note that Avlonitis and Papasthopoulou (2006) warn marketers not to apply the product life management cycle too literally. For one thing, the adoption curve may vary in shape. Some products have a slower adoption rate, like electric cars, and others are taken up faster. Other products decline without ever really taking o, like the Segway, a two-wheeled electric scooter. Another atypical cycle is a passing frenzy for a product, followed shortly thereafter by its steep decline. One example is Hoverboards, which are low-end Segways that had an infuriating tendency to suddenly catch re or explode. For another thing, the evolution of the adoption curve is subject to considerable uctuation and uncertainty, which makes it dicult for managers to clearly recognize the product life cycle phases. For instance, it may be quite challenging to discern a passing dip from a steady decline. In addition, the product life cycle depends on the company’s decisions. If a company stops promoting and developing a product, it will inevitably perish. In this case, the downturn is attributable not to major mar- Since launching the Segway in 2001, the company is still trying to jumpstart its strong growth phase. ket trends, but rather to the company’s choices.

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Summary The product is a basket of benets offered to consumers. Products may be tangible or intangible, as in the case of a service. Benets associated with products are provided by the core product and related services. The core product is made up of attributes like the brand, design, packaging and quality. Related services include guarantees, installation, delivery, credit and after-sales service. These attributes and services may be directly integrated in the product offering as free extras, or they may allow the company to recover part or all of the associated costs. They may also be supplied by a third party. The conguration of related services depends on the consumption experience that the company wants to offer. Beyond the composition of the core product and the related services, product managers must understand the main challenges related to product portfolios, brands and the product life cycle. Products sold by a company are organized in a portfolio that usually consists of ranges and lines. A product portfolio must be structured coherently from the consumers’ viewpoint. By constantly analyzing the product portfolio,

brands can determine whether the market needs are covered well by the current offer. To manage a brand, managers must know the story that the company wants to tell consumers. Companies convey brands using signs such as a name, term, design element, symbol, logo, number, colour or even sound. Brands can be organized in a product portfolio under a single parent brand, called the umbrella brand, or by a constellation of independent brands, known as a house of brands. Line extension lets companies prot from brand associations within an existing product line, just as brand extension does for new products and categories. Companies that do not wish to extend their brands can use a multibrand approach within the same category, or launch a new brand in a new category. Marketing strategies must be adapted to each phase of the product life cycle (introduction, growth, maturity and decline). Life cycle management also involves constant monitoring of the environment because it is sometimes difcult to pinpoint exact phases of the product life cycle.

Suggested readings Textbooks Aaker, D. A. (2012). Building strong brands. New York, NY: Simon and Schuster.

Avlonitis, G. & Papastathopoulou, P. (2006). Product and services management. Thousand Oaks, CA: Pine Forge Press.

Van Laethem, N. & Moran, S. (2014). La boîte à outils du chef de produit (2nd ed.). Paris, France: Dunod. Websites Interbrand: http://interbrand.com/

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Marketing Communication Chapter outline 9.1

The role of communication in marketing strategy

9.2

Strategic planning in communication

9.3

Target audience and consumer insight

9.4

Communication objectives

9.5

The key message

9.6

The main types of media and integrated marketing communication

9.7

Marketing communication media

9.8

Creative strategy and the advertising idea

9.9

Structure and role of communication agencies

Learning objectives After reading this chapter, you will be able to: understand the role of communication in a company’s marketing strategy; dene the integrated marketing communication approach and describe the steps in the strategic planning process in communication; master the different types of media and communication tools that companies use to attain communication objectives; measure the performance of communication initiatives.

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Marketing communication encompasses

all of a brand’s eorts to transmit a message to its target consumers. A prominent trend in marketing communication is the constant multiplication of media through which a brand can express its message. To rethink and revitalize advertising, sponsorship, public relations, direct marketing and sales promotion strategies, marketers can harness not only traditional vehicles like television, displays and the press, but also the vast digital ecosystem and social media. e range of possibilities to reach the right individual at the right time in the right way has expanded considerably: a brand can communicate through an advertisement on a movie screen or on YouTube, a smart phone application, a Snapchat lter, placement in a video game, a coupon sent in a text, a webcast or an emoji. e development of digital and mobile technology also gives the audience greater control over their exposure to messages. For example, when viewing a webpage, you can click on an ad or not, and run ad-blocking software. In this rapidly evolving context where each new trend represents a new opportunity to engage a target consumer, it is understandable that the communication sector is extremely competitive. To capture the attention of consumers who are constantly being bombarded with messages from multiple advertisers, brands hire specialized communication agencies to help them deploy innovative campaigns that stand out from the endless barrage of ads that individuals face. Given the sophistication of the media universe, it is crucial for businesses to transmit a coherent and pertinent message to the target audience. is is the main challenge of the integrated communication approach: convey a central and unifying message through the means of communication available to the brand. To successfully apply this approach, described below, managers’ analysis should follow a

Flow chart

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strategic communication plan that notably rests on clear communication objectives. Do they want to improve awareness of a brand? Inform people about the characteristics of a new product? Create an emotional commitment in consumers? Increase the sales of a particular oer? e choice of communication objectives subsequently guides the selection of the most appropriate communication media along with the performance indicators that are best suited to measuring the attainment of these objectives. is chapter begins by specifying the role of communication in marketing strategy, and describes in detail the steps involved in strategic planning in communication. is process starts with a situation analysis and understanding the target audience. Next, the communication objectives are examined. At this stage, communication managers must decide on the key message of the campaign and then choose the communication media that they will use to communicate this message in an integrated fashion. e remainder of the chapter covers the denition of these media. A discussion of the creative process and the role of communication agencies concludes the chapter.

9.1 The role of communication in marketing strategy Marketing communication, or promotion, is one of the four elements of the marketing mix, together with product, place and price. It specically consists of translating and expressing the positioning of the oer in a language that the target segment will understand in order to attain communication objectives that include publicizing a product or service, and ers to notice or like it, as well as informing, interacting with or consumers.

Marketing communication The set of initiatives deployed to reach a target audience and transmit a message.

getting consumconvincing target

It is important to note that the marketing communication media covered in this chapter, such as advertising, are not the only means of expressing the positioning of an oer. Well thought out packaging, the choice of a selective distribution channel or a high price also contributes to signalling high-end positioning. For example, the Québec dairy product brand Riviera relies on packaging to communicate the positioning of its new line of yogurt and other products inspired by French haute cuisine. Aptly named “Petit Pot,” this product line comes in small transparent glass containers. ese fully recyclable and reusable jars hark back to the artisanal tradition by reviving the classic milk bottle. Marketing communication thus functions in synergy with the other elements of the mix to convey the positioning of the brand to the target consumers. Due to the proliferation of communication media, the integrated approach has become indispensable. is approach entails planning and evaluating communication initiatives by considering both their specic role and their interrelations to ensure that messages are coherent and investments optimized.

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9.2 Strategic planning in communication To follow the strategic orientation of the marketing plan, particularly the segmentation, targeting and positioning choices, A business that transmits a message to the communication plan begins with an in-depth situation a target segment. analysis. is diagnosis, informed by the analysis of the internal and external environments, is performed upstream of the global marketing strategy (see Chapter 5). Of all the elements that make up the analysis of the environment, communication professionals pay particular attention to the foundations and positioning of the brand that issues the message (see Chapter 8). e term advertiser is often used in communication to refer to the brand. Marketers must also clearly understand the recipients of the message, namely the targets, along with their decision process and the factors that inuence them (see Chapter 7).

Advertiser

After making this diagnosis, communication professionals will be able to identify communication opportunities and proceed to the strategic planning phase. At this stage, the communication objectives that will guide the choice of communication media are dened. ese objectives must be supported by detailed performance indicators that serve to evaluate the success of the communication plan. Based on the communication objectives, professionals must choose the main communication axis—that is, the key message that will be delivered coherently through the channels and media selected. Planners also produce a timetable for deployment of communication eorts, along with a detailed budget showing the allocation of human and nancial resources. e creation and implementation phase of communication initiatives can then begin. Lastly, the communication plan is deployed in the eld, and managers focus on following up its performance through previously dened indicators. Table 9.1, on the following page, summarizes the steps of this strategic planning process.

9.3 Target audience and consumer insight e analysis of the target audience is a crucial step in the situation analysis; it initiates the strategic planning process in “[...] The consumer’s perception of an communication. is analysis, which uses the concepts presented unresolved problem or dilemma in a product in Chapter 7, should foster an in-depth understanding of category that the brand offers” (de Baynast consumers’ behaviour. Communication professionals seek & Lendrevie, 2014). consumer insight from the wealth of information accumulated concerning consumers’ psychographic prole. e concept of consumer insight, used very frequently in the profession, refers to a profound truth felt by the target audience that encapsulates its motivations and represents an opportunity for a company to connect with its clientele. An insight can serve as the basis for the statement of an eective axis of communication, and can inspire the creative process. Once identied, a good insight should be seen as evident and intuitive.

Consumer insight

e Dove Campaign for Real Beauty, whose success has lasted over a decade, rests on the discovery that many women aspire to a denition of beauty that

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Table 9.1

247

Steps of strategic planning in communication Step

1. Situation analysis and diagnosis

Description • Internal and external environments • Business and competitive contexts • Foundations of the brand and positioning • Key benets of products and services • Target audience and consumer insight

2. Planning

• Setting and prioritization of communication objectives • Selecting performance indicators • Dening the key message • Choosing the communication media • Producing the deployment timetable • Allocating the budget and resources • Preparing a contingency plan in case of failure

3. Creation and implementation

• Producing advertising materials (displays, videos, web banners, advertising messages on TV and radio, etc.)

4. Deployment and follow-up

• Measuring and updating performance indicators • Optimizing and adjusting initiatives, if possible and if necessary

diers from the image of slimness and perfection traditionally projected by the cosmetics industry. Dove tapped into this insight to devise several creative ideas that could appeal to consumers. Specically, they highlight women who represent a broad diversity of body forms, ages and looks, and speak out against the practices of enhancement and airbrushing of photos in magazines. e advertising campaign for the smart phone application HBO GO, which lets users watch a series of channels on any smart phone device, is another example of the reach of a good consumer insight. e ads show a young person in the living room about to watch an HBO series with explicit sexual content, like Girls or Game of rones, when a parent walks in. e embarrassment and discomfort the adolescent feels in this situation, which constitutes an insight easily understandable by the target audience, is skillfully encapsulated in the advertising message: “Might be a good time for HBO GO. HBO GO. e best of HBO on all your favorite devices. Far, far away from your parents” (Nudd, 2016).

9.4 Communication objectives e situation analysis and diagnosis phase must produce a statement of clear communication objectives that will guide the choice of key message and the communication media. e communication objectives ensue from the marketing objectives. Whereas marketing objectives tend to be more general because they concern the whole company (sales volumes, market share, prots, etc.),

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Communication objectives What the target should know, think, feel or do after exposure to a communication.

• • • • •

communication objectives are more specic to the brand’s communication eorts and what they should accomplish in the target. Here are some examples of communication objectives.

Build awareness of a brand. Change consumers’ attitude toward a brand or oer. Inform consumers that a service or function exists. Steer trac toward a website. Stimulate trials, buys or rebuys.

e hierarchical eects model (Lavidge & Steiner, 1961) claries communication objectives. It species six steps that consumers complete when making a purchase decision: awareness, knowledge, liking, preference, conviction and purchase (see Figure 9.1).

Figure 9.1 Hierarchical effects model and message strategies

is model is useful because it proposes a sequence to follow when prioritizing communication objectives. Accordingly, a target audience must rst be aware of the existence of a brand (knowledge objective) before being able to prefer it over the competing products. However, this sequence must not be used rigidly. It suggests that communication eorts should rst concentrate on cognitive aspects (awareness, knowledge), then on emotions (liking, preference), before encouraging consumers to take action (the behavioural aspect). ese three aspects can also be approached in a dierent order. For example, a campaign may aim to have people try a product (particularly if its cost and risk are low) before it focuses on disseminating information about it, and on the emotional aspect. In addition, many communication plans seek to associate positive emotions with a brand before appealing to consumers’ reasoning by providing detailed information. It is important to ensure that a communication objective corresponds with measurable performance indicators. For instance, many awareness indices measure the proportion of the target market that knows the brand, as part of surveys (see Table 9.2). If managers have these measures (e.g., only 10% of the target population spontaneously mentions brand X in the detergent category) in hand before they design the communication plan, they can evaluate the eectiveness of a communication plan by quantifying the increase in this awareness rate after the campaign is deployed. Similarly, the success of a campaign to direct trac to a website can be measured by the increase in the number of visits, the number of pages consulted or the duration of visits. Of course, a communication plan may pursue several objectives simultaneously. In this case, managers must make sure to rank and structure the goals. e engagement

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Table 9.2

249

Measures of awareness

Type of awareness

Denition

Question

Assisted awareness

The rate of assisted awareness is the percentage of people who say that they recognize a brand presented in a list.

Of the following brands (list of brands), which ones do you recognize?

Spontaneous awareness

The rate of spontaneous awareness is the percentage of people who spontaneously mention the brand. An open question is asked.

Name all brands (in a given product category) that you know.

Top-of-mind awareness

The rate of top-of-mind spontaneous awareness is the percentage Name all brands (in a given product of people who spontaneously mention the brand rst. category) that you know.

Source: de Baynast, A. & Lendrevie, J. (2014). Publicitor. Paris, France: Dunod.

cycle of the target can be a helpful tool for this structuring process. Managers must determine the temporal sequence of the target audience’s interactions with the brand. is process is similar to the analysis of the consumer decision process described in Chapter 7, and can be done during the target analysis phase. Managers can thus dene specic communication objectives as the engagement cycle unfolds, at each point of contact between the consumer and the brand (see Example 9.1).

Example

9.1

The organization of communication objectives of the FitSpirit foundation

The communication agency Cossette used the engagement cycle to dene communication objectives for the FitSpirit

foundation, which encourages girls aged 12 to 17 to adopt a healthy and active lifestyle. See Table 1.

Table 1 Objectives through the cycle Step Marketing objectives

Attention • Awareness

Knowledge

• Conference attendance

Engagement

• Enrolments

• Consideration

• Number of participating • Word-of-mouth schools

Communication • Be excited by • Know about the FitClub objectives FitSpirit’s proposal • Have her fears allayed The target should:

Performance indicators

Conversion

• Perception

• Visits to the site

• Enrol • Ask the organization to contact her school, if it does not yet offer the program • Number of people who join

• Time spent on site • Views of the video • Number of pages visited • Number of schools • Google searches • Requests for information • Calls

• Repetition

• Share her experience with her friends • Find out about and participate in upcoming activities • Number of Facebook fans • Social media engagement

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9.5 The key message Key message Encapsulates the promise or benet that the business offers, to reach the target consumers. Sometimes also called line of communication, it refers to the main idea that the communication program must express (Clow & Baack, 2016).

After having determined the strategic objectives of the communication plan, managers must dene the terms the brand will use to address the targets and reach them most eectively. is involves encapsulating the intention of the campaign in a unique key message that may help orient the creative team in charge of expressing the message toward particular communication media.

e key message for back-to-school 2016 conveyed by the Université de Montréal sports complex (CEPSUM) expresses the idea that tness can trigger strong emotions. It is translated by the communication axis “Vivez + fort” (live stronger), used in dierent versions of the advertising campaign displayed around the campus and on the digital platform (website and social networks). is message is general enough to address all of the members of the CEPSUM, whatever their preferred sport. e communication objective is to remind the Université de Montréal community of the CEPSUM at a key point, namely the beginning of the fall term, when people must join or renew their membership.

The key message of CEPSUM’s back-to-school 2016 campaign expresses the idea that tness can trigger strong emotions.

A recent campaign by Équiterre aimed to raise consumers’ awareness of the economic advantages of electric cars. e advertising video message featuring actress Christine Beaulieu explained that driving an electric car makes a lot of sense: “Dans la vie, il faut se brancher pour avancer” (“In life, you have to plug in to get ahead”) (Équiterre, 2010). is message challenges the widespread perception that driving an electric car is more expensive. e campaign points out that the higher price of the car is compensated for by long-term savings (tax rebates, and lower fuel and maintenance costs).

9.6 The main types of media and integrated marketing communication After having dened the communication objectives and the key message, managers must choose the communication media that will let the brand reach the target audience as eectively as possible. Below we describe the types of media along with the components of integrated marketing communication.

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9.6.1 Types of media To understand the diverse media at marketers’ disposal, it is useful to classify them as follows: paid media, owned media and earned media (see Table 9.3).

Table 9.3 Types of media Paid media

Owned media

Earned media

• Television

• Brand brochures and magazines

• Public/media relations

• Radio

• Points of sale controlled by the brand

• Word of mouth (traditional and online)

• Website and natural referencing (search engine optimization (SEO))

• Web referencing, external blogs

• Mobile applications and sites

• Conversations about the brand in social networks

• Displays • Print • Online and mobile advertising • Onsite activities and promotions • Sponsorships • Search engine marketing

• Customer relationship management and newsletters • Facebook page, Twitter account, YouTube channel, Instagram account, etc.

Paid media Paid media are content providers that sell space to advertisers. Traditional media like the press, television, radio, displays in bus shelters or on Metro platforms, digital advertising on social media platforms or search engines and sponsorship contracts all fall into this category. Advertisers mainly use these paid media to broadcast advertisements.

Owned media Owned media are broadcasting channels that belong to the brand; they are under its full control. ey include a company’s stores, website, blog, newsletter, and pages and accounts on social media.

Earned media Unlike the two previous types, earned media are not controlled by the brand: it does not pay to disseminate content and does not own these media. It can inuence earned media indirectly by encouraging the creation and dissemination of content generated by the users of these media. Earned media therefore represents free exposure for a brand, provided by personal or professional support. O-line or online word of mouth falls into this category in the form of comments, publications or shares on social media. For example, a hotel or restaurant may encourage its customers to post positive comments on rating websites like TripAdvisor or Yelp. Consumer comments on social networks or forums are also considered earned media. Media relations aim to solicit positive feedback from print journalists or inuencers who post on blogs, vlogs, or other publications.

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A well-orchestrated communication plan can take advantage of the interaction of the three types of media. For instance, paid media can generate trac toward owned media by inviting the audience of an advertisement to consult the company’s website. e content available on these owned media (product sheets, videos) may then serve as a basis to stimulate earned media, when consumers, journalists and bloggers retransmit some of this information to enrich their own content related to the brand.

9.6.2 Incorporating components of integrated marketing communication Integrated marketing communication managers must view communication as a whole, to ensure that the consumer perceives The process of coordinating and integrateverything related to the company or product as an integral part ing all marketing communication tools to of the message. e main philosophy underlying integrated maximize the impact of the message sent to the consumer. marketing communication is that the consumer receives information about a product or company from several sources, not only from messages created by marketing managers. Marketers must seek every opportunity to publicize their products or organization, while ensuring that they communicate the desired message coherently and receive the expected response. Integrated marketing communication targets a particular group using a large number of communication methods. When the communication objectives and the key message are dened, the next steps of the strategic planning phase are to develop an ecosystem of communication media that are best adapted to reach the target audience. e expression “360° communication” is sometimes used to translate the idea that a brand communicates with its target audience through all possible contact points. Figure 9.2 presents the eight communication tools used to deliver a key message to a target audience.

Integrated marketing communication

is chapter concentrates on communication as an element of the marketing mix, yet it is important to keep in mind that the other components of the mix also communicate the positioning of the brand and its oer. e marketing plan must therefore ensure that the characteristics of the product, along with its price and place, are consistent with the message that it wants to send to the target. Everything communicates: from packaging and salespeople’s uniforms to store décor.

9.7 Marketing communication media In the last 20 years, communication media have evolved dramatically. Some media have lost much of their impact, while other recent arrivals have become ubiquitous. e main communication media that managers use are: advertising, public and media relations, direct and relationship marketing, sponsorship, sales promotion, digital and mobile marketing, social media and other forms of communication like experiential and content marketing.

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Figure 9.2

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Communication media in an integrated communication plan

9.7.1 Advertising Advertising is often the rst thing that comes to mind when people think about marketing communication, to the extent that some people think that communication is just a form of advertising. It is important to remember that an advertiser pays an advertising vehicle or medium (newspaper, magazine, television station, etc.) to broadcast its message. Advertising therefore falls under the category of paid media, described above (see Table 9.3, page 251). In Québec, for all traditional and digital media, advertising expenses reached $2.85 billion in 2015; retailers made most of these investments (Infopresse, 2016).

Advertising “Advertising involves the placement of announcements and persuasive messages in time or space purchased in any of the mass media by business rms, nonprot organizations, government agencies, and individuals who seek to inform and/or persuade members of a particular target market or audience about their products, services, organizations, or ideas” (American Marketing Association, 2016).

Advertising is used to achieve various communication objectives. First, it is a powerful means to raise awareness of a brand. It can also provide information about the characteristics of a product or service, and how to obtain it, along with ongoing promotional oers. In addition, advertising can serve to improve consumers’ attitude toward a brand or change their perception of it. Advertising is a very popular strategy because of its capacity to reach broad segments of the population, and owing to the creative possibilities it oers. Some large brands

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even hire famous directors when putting together big budget commercials, which may feature stars and special eects. For instance, the brand Kenzo asked Spike Jonze to direct the advertisement for the new fragrance Kenzo World, which starred the actor Margaret Qualley from the series e Leftovers. is type of initiative certainly serves to associate complex emotions with a brand, and ideally, successful content may go viral on the Internet. Advertising, an example of paid media, then fuels earned media if it sparks conversations online. However, it may be dicult to determine the return on investment of an advertisement, particularly on traditional media that cannot track the behaviour of the individuals targeted. Digital advertising, which will be discussed in the section on digital marketing (see page 271), now makes it easier to quantify the impact of an advertisement. However, consumers who are bombarded with messages, especially youth in the millennial generation, are becoming increasingly skeptical about advertising. In the digital advertising eld, a study of North American Internet users done by Adobe nds that almost one-quarter of Canadians use ad blocking tools. e same study reports that 57% of consumers consider being unable to skip ad videos as the most irritating aspect of online ads, and that 52% of people aged 18 to 24 say they are reluctant to watch an ad that includes a soundtrack (Près du quart des Canadiens utilisent un bloqueur de pub, 2016). In addition, ad zapping is not limited to digital media: more and more often, people quickly skip through the commercials when they watch a series, and totally ignore advertising billboards or inserts in magazines. is behaviour is driving brands to rene their media planning in the hopes of nding better ways to reach the target audience at the right time in the right place.

Media planning Media planning consists of selecting the media to use to disseminate an advertisement as eectively and economically as possible, according to its t with the target audience of the brand and with the message to deliver. is choice is an essential strategic decision when implementing an advertising program. Media planners must therefore determine who to reach (target group), where to reach them (place), when (time), for how much time (duration) and how often (frequency). Media planning is a decisive step because it consumes a huge portion of the total advertising budget (often between 80% and 85%). Media planners play an essential and fairly complex role. When they use an integrated approach, they must consider the potential of each medium (to reach the target group) and ensure that all the messages are coherent and harmonious. Advertising media include traditional media like television, print, displays, radio and cinema, together with digital media. As Figure 9.3 shows, on the following page, 2015 marks the rst year that investment in advertising in the digital environment surpassed that of television in Québec. Apart from a slight rise in investment in radio, spending in all other traditional media decreased. Dave Gourde, partner and vice-president, media, at the agency Bleublancrouge, attributes this trend to the greater measurability of digital media, the growing adoption of mobile technologies and the possibility of disseminating content in real time on social networks

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Figure 9.3

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Distribution by media of advertising investments in Québec in 2015

Source: Brasier, A. (2016, September 13). Série 100% médias: les investissements en numérique au sommet. Infopresse. Consulted at www.infopresse.com/article/2016/9/13/serie-100-media-les-investissements-en-numerique-au-sommet

(Brasier, 2016). As proof of this trend, Twitter obtained the rights to digitally stream National Football League (NFL) games, and Facebook live-streamed the American Democratic National convention in July 2016, garnering 28 million views. Media planning raises several challenges. First, both qualitative and quantitative criteria guide the choice of media to use in a campaign. After making this choice, managers must decide on the media schedule. Specic performance measures are also applied.

Criteria for media selection Several criteria may inuence the choice of media; above all, their capacity to communicate the message and cover the target (de Baynast & Lendrevie, 2014). Does this medium communicate the whole message? Does the message need colour? Movement? Extensive explanations? If a product is complex and must be explained to the target group, the planner may decide to buy space in print media like newspapers and magazines. If a business wants to illustrate the superior quality of its product in a colour reproduction, it will opt to publish an ad in a magazine. Some media may enhance a message through their credibility and prestige. For instance, some luxury brands choose prestigious international publications like the International Herald Tribune. Table 9.4, on the following page, summarizes the advantages and disadvantages of the main advertising media.

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Table 9.4 Advantages and disadvantages of the main advertising media Media Television

Advantages

Disadvantages

• Mass coverage

• Low selectivity

• Large reach

• Short-term message

• Impact of sound, image and movement

• High absolute cost

• Prestige

• High production cost

• Low cost per exposure

• Advertising clutter

• Capacity to capture viewers’ attention • Favourable image Radio

• Local coverage

• Sound only

• Low cost

• Advertising clutter

• High frequency

• Diluted attention

• Flexibility

• Fleeting message

• Low production cost • Very segmented audience Magazines

• Segmentation potential • Quality reproduction

• Long implementation period before advertisement appears

• Very informative content

• Image only

• Longevity

• Not exible

• Multiple readers Newspapers

• Broad coverage

• Short term

• Low cost

• Advertising clutter

• Short implementation time to run advertisements

• Diluted attention

• Ads can be placed in different sections

• Reader chooses exposure to ads

• Poor quality reproduction

• Timely information (ads can reect current events) • Reader controls exposure to ads • Discount coupons can be distributed Outdoor advertising

• Precise locations • High frequency

• Brief exposure time, so ad must be short

• Good visibility

• Negative image • Local constraints

Source: Belch, G. E., Belch, M. A., Guolla, M. A., Balloffet, P. & Coderre, F. (2013). Communication marketing. Une perspective intégrée (3rd ed.). Montréal, Québec: Chenelière McGraw-Hill, p. 263.

e legal environment is another important variable. In Québec, advertising that targets children aged 13 and under is prohibited. Companies that sell toys or other children’s products are thus limited by law in their choice of media.

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Aside from these qualitative selection criteria, several quantitative indicators serve to compare media in terms of their capacity to cover the target eectively and economically. ey include reach, opportunity to see, continuity, cost per 1000 and share-of-voice. Reach Reach or cumulative audience is a very important factor in media selection. Reach is the percentage of the target group exposed to a medium in a given geographical area. For example, a television program watched by 1 million people in a target population of 7 million would have a reach of about 14% (1 million /7 million).

Reach or cumulative audience The unduplicated percentage of the target group that is exposed, at least once, to a set of media during a previously dened period (e.g., one week or four weeks).

Opportunity to see Opportunity to see (OTS) refers to Opportunity to see (OTS) the notion of frequency. In a media plan, the reach and OTS The number of times that the target popvariables are used jointly to calculate the gross rating point ulation is exposed to a message (reached) (GRP)—that is, the reach multiplied by the OTS—thereby during a given period (usually one to allowing media comparisons. Take, for example, an advertising four weeks). campaign of 450 GRP for a week, which may mean 9 times (frequency) 50% of the target group (reach) or 10 times 45% of the target group. For an identical GRP, a compromise must be made between the reach and the frequency, the optimal combination being to take into account all the previously mentioned elements. us, when a new everyday consumer product is launched, a wider reach will generally be required, while during the mature stage of a product, emphasis will be placed instead on the frequency. Continuity Media planners must consider reach, frequency and continuity, which will maximize the benets derived from the dollars invested in the media. Several factors aect the scheduling of the media eort, namely, the seasonal sales cycle, the buying frequency cycle and the product life cycle.

Continuity The time required to ensure that a medium will have a particular effect on a target group.

Cost per 1000 Lastly, media costs must be evaluated and compared in terms of their returns. e cost per thousand (CPM) people reached is often used when comparing media. Share-of-voice Media planners must also consider constraints in the choice of the media mix for a given product category, for example media used by competitors. us, a brand would want to know its share-of-voice; that is, the portion of its media purchases relative to its competitors in the industry. For example, if company A buys $1,000,000 worth of time or media space and the total purchases of the industry are $10 million, this means that A has a 10% share-of-voice. It will therefore be inuenced by the current and past presence of its competitors in the media.

Media schedule When media are selected, planners must specify the times when ads will be broadcast. To do so, they use a time chart called the “advertising schedule.” Planners can reach the target group even more easily if they know the market and consumers in

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depth. For instance, some products—like ski equipment, winter clothes, winter tires, heating products, and air conditioners—are seasonal, or linked to weather conditions. Planners with expertise in seasonal products can choose the optimal week or month to address consumers. Further, marketers with advertising expertise can determine the ideal time of the week or day to communicate with the target group.

Measuring effectiveness To evaluate or measure the eectiveness of an advertisement, managers can choose from among a large number of market research techniques. e objective of various types of research concerning the eectiveness of an advertisement is to measure the impact of the message or the campaign on a target group. Will the message achieve the objective for which it was created (pre-test) or did it achieve the campaign objective (post-test)? e pre-test Pre-testing is the process by which an advertisement or a message is evaluated before nal production or media placement. It is thus possible to determine the strengths and weaknesses of the proposed advertisement as well as the media that should be used if the idea is accepted. Both qualitative and quantitative methods are used in pre-testing, which prompt participants to freely express their opinions about a message conveyed by an advertisement. ey examine several versions presented and can suggest improvements. Other methods include home interviews, tests in shopping centres, laboratory tests and Internet surveys. e main advantage of pre-test research is that messages can be modied before large amounts are spent on production and diusion. In addition, more than one message can be tested, and the message that best meets the objectives can be retained. Post-test e post-test, which follows the advertising campaign, determines if a campaign has achieved the initial objectives. e advantage is that the results obtained can be used to analyze the situation for the next campaign. Among the research methods described in Chapter 6, several can be used in a post-test; surveys are the most popular. When an advertisement must be broadcast in dierent regions of the world, managers must think about how to adapt it to each region. Example 9.2 describes a “glocalization” strategy deployed by the bank HSBC. Example

9.2

Standardization or adaptation of an advertisement in an international context

For many global brands that are present in many countries—like McDonald’s, Starbucks, Nike or Danone— the standardization of messages and advertising executions is very sensitive. They must nd a subtle balance in their global communication plan that lets them communicate the unique positioning of the brand around

the world, while projecting sensitivity to legal, cultural and economic differences between the geographic segments targeted. The glocalization approach applies to advertising planning as well: companies must try to maintain a coherent execution across different countries while expressing recognition of local characteristics.

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HSBC Bank, which has long defined itself as “The world’s local bank,” has been striking this balance skillfully since it launched its first displays in airports around the world in 2010. The concept of cultural relativism is always the same–a single image can evoke different values and meanings depending on the culture–yet the images are

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subtly adapted to the country: Machu Picchu in Peru, soccer in Spain, and Renaissance artworks in Italy (Renteria, 2010). These local adaptations of a single advertising concept reinforce HSBC’s positioning as a global bank that can easily adapt to the specific traits of its customers wherever they may live.

9.7.2 Public relations and media relations Public relations and media relations can be categorized as earned media. ey serve to build and manage the reputation of the organization among its audiences through an approach that is more relational than transactional. Advertising is controlled and paid for by the company, while public relations is controlled by the media and is not paid for by the company reported on in the article. e media determine which article they are going to print or which message they are going to convey.

Public relations Public relations is the strategic management of relationships between an organization and its diverse publics, through the use of communication, to achieve mutual understanding, realize organizational goals and serve the public interest. (www.cprs.ca)

Objectives Public relations specialists must take several actions to ensure that diverse target groups are getting the right message from the company. Public relations strategies must harmonize with the other communication methods to achieve the communication objectives, which include: • Launching a new product; • Lobbying government and informing the public of these eorts; • Drawing attention to the company’s social commitment or publicizing its sense of social responsibility; • Correcting a problematic situation that recently occurred, in other words implementing damage control following a crisis.

Audiences ere are two types of target audiences in public relations: internal and external audiences. Internal audiences are the ones the business deals with most often, the ones it is closest to, including employees, shareholders, suppliers and existing customers. Communicating with these groups is very important, because they know the organization and do business with it. Public relations is a way to stay in contact with these various groups, keep them informed and maintain their loyalty by keeping them in the loop to promote a feeling of belonging.

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External audiences are those with whom the business communicates, but through less direct relationships. ey include government, the media, potential customers, potential employees and shareholders, businesspeople and lobby groups. Journalists are the external audience most sought after by marketers. e business community also uses public relations to issue nancial information that will inuence investors and induce them to buy shares in the company.

Tools Media relations refers specically to activities that target journalists and the media. Today, these activities are also aimed at inuencers such as bloggers. e role of public relations ocers is to provide these journalists and inuencers with information on the company—together with its products, services, and projects—so that they can inform the public. is transmission of information involves ve activities: press releases; invitations to press conferences; meetings and events; specialized articles; and letters to the editor. A press release is the main tool used to communicate information to journalists and inuencers. Generally, a press release has to be short (one or two pages maximum) and contain only the essential information of interest to journalists and bloggers. To complement the information transmitted by the press release, companies often organize events, conferences or meetings, for example during the launch of a new product or service, or to explain their position on a particular situation in detail. e news must be interesting and the event must be attractive enough to persuade journalists, who are deluged with demands on their time, to respond to the invitation. Fashion shows staged by the major brands in New York, Paris, London or Milan are becoming increasingly extravagant events. ey not only highlight the collections at exceptional venues, but are also designed to solicit heavy press coverage: brands oer the most inuential editors and fashion bloggers choice places in the hopes that they will share their positive experience in print and online magazines, blogs and Instagram, Twitter and Snapchat accounts.

Strengths and weaknesses of public relations and media relations Public relations oers multiple advantages. First, it is a way to reach target audiences that cannot be reached by advertising or other methods of communication. Some people are sensitive to information they get from the news, or newspaper or magazine articles, whereas they are totally uninterested in advertising or are even hostile toward it. One of the strengths of public relations is that it can eectively reach these target audiences. In addition, public relations specialists can manage crises and minimize their negative eects on a company’s image. Public relations is more credible than advertising because consumers consider information from news media to be more objective than any form of communication paid for by the advertiser.

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Public relations also eectively reaches target groups like potential customers, existing customers, shareholders, employees, suppliers, opinion leaders, the nancial community and advocacy groups. Finally, a public relations program is much cheaper than other methods of communication because the information is disseminated free of charge by the media. Public relations may have strengths, but it also has weaknesses. For one thing, businesses have no control over the nal message delivered by the news media. e media can interpret the news item and transmit it however they wish. To make sure their message is unbiased, they will regularly use other sources of information. In addition, media do not immediately disseminate all the information that reaches them. ey are the ones who decide whether the new information is pertinent or important for their audience, and have the nal say about what information is distributed. It is also possible that a large-scale public relations campaign may be overshadowed by a major or at least a more important event, even if the campaign is of great interest to the public. Finally, it is hard to measure the eectiveness of public relations. While the business may be able to assess media coverage of the campaign with the number of articles or publications obtained (press coverage), it will nd it dicult to evaluate its impact on the perceptions of the target audience.

9.7.3 Direct and relationship marketing Direct marketing consists of reaching an audience directly (without intermediaries), generally to provoke a reaction in the customer: product trial, call, membership, etc. Direct marketing is both a communication tool and a distribution channel. ere are a number of ways to practise Direct marketing consists of directly direct marketing: direct mail, and paper or electronic catalogue reaching a target clientele via direct mail sales, telemarketing, telesales and email marketing. In addition, advertising, telemarketing, television, printed advertising in newspapers, magazines, television or radio, where advertisement, catalogues, emails or texts, to a toll-free telephone number is given to consumers so that they spark a favourable reaction or a transaction. can order a product, is also popular. Today, marketing people see direct marketing not only as an eective means of selling products or services, but also as a method of retaining customers and thus forging a long-term relationship with them. is is known as relationship marketing and customer relationship management (CRM). anks to increasingly sophisticated databases, companies can get to know their customers even better and communicate with them on a much more personal basis. For example, on a customer’s birthday it can send the customer a birthday card. By reviewing customers’ purchase history, which reects their preferences, companies can oer customers special oers and send them personalized information.

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Companies may compile this information in their own customer database, or may acquire databases from third parties. Loyalty programs of retailers like IGA, Costco, Walmart, Amazon or Sephora let these businesses consult their customers’ contact information (address, telephone number, email address), online and in-store purchasing history, the history of their interactions (complaints, requests for information), replies to surveys, stated preferences, responses to past promotional oers, demographic data and possibly lifestyle, if the customer database is enriched by data from other companies. is trend to store and analyze big data is intended to make a large quantity of information easily understandable, to optimize interactions with each customer. Sophisticated statistical analyses can be used to produce in-depth customer proles based on their purchasing behaviour (price sensitivity, brands, tastes and preferences) and ultimately to reliably predict the nature and time of the next purchase. Consumers’ purchasing behaviour history can also help organizations estimate the customer lifetime value. By updating this information daily, companies can predict the prots that a customer will generate in the future, and judge whether this customer should be retained. Marketing managers have used this method more extensively since the rise of relationship marketing. Customer data also support customer retention by allowing companies to personalize each interaction. For instance, Sephora’s Beauty Insider loyalty program can deduce the skin type and preferences of each of its members from their purchasing histories. It then proposes products that complement the ones the customers have already purchased. e prole can also include information derived from in-store tests done with SkincareIQ and ColorIQ technologies, which scan people’s skin to make a personalized diagnosis. is highly personal information lets salespeople immediately oer the best product of any brand, without having to do a series of tests. Clearly, this type of ultra-personalized initiative helps consumers make optimal product choices, and encourages them to remain loyal to Sephora for their skincare and cosmetics purchases. Similarly, the SAQ’s Inspire loyalty program lets salespeople pinpoint customers’ tastes according to their previous purchases, and propose wines that reect their preferences. In both cases, the relationship approach also involves creating a personalized prole on the website and the online application. e use of personal data to directly contact a customer is subject to strict regulation. Permission marketing implies that individuals must give their prior consent to receive messages and solicitations from a given brand. Canada’s anti-spam legislation, which took eect on July 1, 2014, obliges businesses to obtain an email recipient’s consent, to clearly identify themselves as the senders of the message and to include the option of unsubscribing in all their commercial messages. One of the main advantages of direct marketing is that it allows advertisers to measure the eectiveness of each dollar invested, for example for each telephone call, mailing, email or advertisement that contains an incentive to act, placed in a newspaper or magazine. It is thus possible to observe the reaction of the individual contacted and to calculate various conversion rates such as number of purchases with the promo code among all the individuals who received the oer.

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9.7.4 Sponsorship e goal of sponsorship is to associate a brand with an event, Sponsorship activity or celebrity prized by the target audience, to ideSponsorship is the nancial support that ally benet from transference of these positive attitudes. Bell, a business or an advertiser provides to a for example, tries to capture some of Quebecers’ love for cultural, sports or humanitarian activity the Montréal Canadiens, while Hydro-Québec supports the with which it is not directly related and with which it wants to associate the brand of a Montréal Symphony Orchestra, along with many other organproduct or service in consumers’ minds. izations. Sponsorship activities can also increase the visibility of the brand among the target audience in an original context. It can anchor a company’s positioning and let it communicate with its target audience in a casual setting. Sponsorship is dierent from a donation in that the business expects a return on its investment, for instance increased awareness and a more positive image. Businesses are investing enormous sums in this communication tool: sponsorship in North America reached $21.4 billion in 2015, and was expected to grow by 4.5% in 2016 (As Sponsorship Borders Fall, Spending Rises, 2016).

Types of sponsorships Advertisers can choose from several types of sponsorships, all of which are signicant communication tools. e sports domain is largely favoured by brands, far ahead of causes, the arts, events and associations (see Figure 9.4).

Figure 9.4 Distribution of sponsorship investments in North America

Source: As sponsorship borders fall, spending rises (2016, January 5). IEGSR. Consulted at www.sponsorship.com/ IEGSR/2016/01/05/As-Sponsorship-Borders-Fall,-Spending-Rises.aspx

Sponsorship of a cause is nonetheless an eective way to bolster a brand’s image as being civic-minded and socially responsible (see Example 9.3 , on the following page).

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Example

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Bell sponsors the cause of mental illness

Bell introduced “Let’s Talk Day,” a campaign to inspire Canadians to combat the stigmatization linked to mental illness by supporting associations in this eld. During this campaign, Bell donates 5¢ to mental health associations or initiatives for each call, text or tweet that includes the hashtag #BellLetsTalk on Twitter, or that shares the image “Bell let’s talk” on Facebook. Through

this strategy, the popularity of the day has a direct effect on amounts contributed by the company. “Getting a whole country to talk about a topic that is still extremely taboo can be a daunting task […] the creative platform has evolved, notably by welcoming new faces, but the core message is the same: ‘we need to talk about it,’” Nicolas Dion, partner at Lg2, explains.

Source : Parlons, textons et tweetons pour la santé mentale (2016, January 25). Infopresse. Consulted at www.infopresse.com/article/2016/1/25/parlons-textonset-tweetons-pour-la-cause

ousands of businesses invest in event sponsorship because they want to establish an image or boost their reputation. Many events would not be possible without the aid of sponsorships; just think of the Festival International de Jazz de Montréal, the Just for Laughs Festival, the Rogers Cup and the Grand Prix du Canada. Event sponsorship has grown considerably in recent years because events attract similar kinds of participants, which facilitates communication. In addition, participating in certain events can help a business motivate its employees or distribution channel members while arming its commitment to the community. Finally, this type of sponsorship helps businesses connect with groups they could not otherwise reach through advertising or another method of communication. A striking example of cultural sponsorship is the Cirque du Soleil show Luzia. After partly funding its creation and production, the Mexican government has invested $47.5 million in the show’s world tour for the next ve years. e Mexican Secretariat of Tourism (Sectur) sees this initiative as a means to promote the cultural richness of the country (Massé, 2016). Using an event as a communication method nonetheless has certain weaknesses. If there is not an obvious connection between the company and the event, the return on investment will be low. For example, it is easy to make the connection between a beer company and a summer festival, but harder to associate a steel manufacturer with the same festival. Another weakness is that the company does not control the environmental conditions surrounding the event, such as the weather, which can have an impact on the number of participants. To determine which events could help them achieve their objectives, businesses must make an evaluation chart and analyze the dierent opportunities open to them. Here, in the form of a list of questions, are a few examples of criteria that can help businesses choose appropriate events.

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• Does the event reach a signicant portion of the company’s target clientele at an aordable cost? • Is the event consistent with the image of the business or the product? • Do any competitors sponsor the event? Is it possible to obtain industry exclusivity? How much will it cost? • What kind of exposure is the company given in the promotional material for the event? • What visibility will be oered on the event site? • Is it a serious event? Are the organizers competent? Are the promoters solvent? • Does the event guarantee adequate media coverage? • Can the business oer its product on-site? • Does the event complement the sponsorship program and integrated communication plan? • Is the event economically viable?

Athletes as spokespeople Sponsorship of sports events like the Olympic Games and tennis and golf tournaments is the most widespread type of sponsorship in Québec. A related form of sponsorship is to hire an athlete to be a company spokesperson. Just think of Roger Federer for Gillette, Lewis Hamilton for Men Expert, and Maria Sharapova for Porsche. Athletes may use the company’s products or services, appear in advertisements or even give talks to employees or distribution channel members. Finally, the choice of a spokesperson is very important because the positive impact related to an athlete’s performance could turn negative if the endorser displays undesirable conduct. For example, Tag Heuer watches and Avon cosmetics had to break their sponsorship contract with Maria Sharapova after she was banned from participating in competitions for two years due to doping. Speedo and Polo Ralph Lauren cut all ties with American swimmer Ryan Lochte after he admitted that he lied about a robbery at the Rio Olympic Games in 2016. One of the most shocking scandals is probably that of the indelity of renowned golfer Tiger Woods in 2009; this incident shone a spotlight on brands’ reactions. While Nike decided to continue collaborating with the golfer, other brands like Accenture and Gillette ended their partnerships, believing that Tiger Woods was no longer a suitable spokesperson. Researchers at HEC Montréal have studied brands’ optimal reactions following a scandal (Carrillat, d’Astous & Lazure, 2013). e results of their experiments show that companies can take proactive measures that will have a positive impact on consumers’ responses. For example, when the brand and celebrity spokesperson share a close link of congruence, as in the case of Nike and Tiger Woods, the brand should support its endorser by announcing the continuation of their association. In the case of weak congruence, there do not seem to be advantages associated with the decision to maintain or revoke the agreement. e link between Nike and

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Tiger Woods, for example, was so strong that Woods had become the very essence of the brand, as illustrated by Nike’s Tiger line of golf items. In practice, brands seem to consider a multitude of factors, like the nature and severity of the scandal, before they react. Nike cut short its partnership with cyclist Lance Armstrong in 2012, when allegations of doping were conrmed. In 2013, it also axed its agreement with Paralympic runner Oscar Pistorius, accused of having murdered his partner. Although the link between Nike and these athletes was strong, the severity of the scandal obviously could not be ignored. Despite all the scandals that dogged it directly or indirectly, Nike continues to invest heavily in celebrities, channelling over US$6 billion into endorsement strategies in 2015 (Dunne, 2015).

Brand events Sometimes, if businesses cannot nd an event that will enable them to reach their target groups, they may create their own event. For instance, a business that wants more visibility with its customers or suppliers may hold a golf tournament. Another main reason for businesses to create their own event is that they have complete control over it. ey can determine the date, the content and the guests. What’s more, this formula is often less expensive and more eective than participating in ocial events. A good example is the Montréal brand Rise Kombucha, which organizes a Full Moon Rise Party every three months in clubs in Mile End, the hip and artistic district of Montréal that is home to one of its target segments. ese events also represent opportunities for the Rise creator to bring together its fans in Québec, who have fuelled the success of the brand, and to consolidate its roots in Montréal (see Example 9.4).

Example

9.4

Event creation

For several years, there has been an upsurge in sports and cultural events organized by brands like Red Bull, Etsy, Lolë and Mountain Equipment Co-op. Red Bull’s rst event was Red Bull Flugtag, where teams compete to produce human-powered ying machines. Since 1992, Red Bull has organized over 500 events of all kinds around the world. Further, the sports clothing brand Lolë offers yoga classes. For ve years, the Lolë White Tour has staged 18 events in Canada, the United States and Europe.

The boutique Etsy and the Mountain Equipment Co-op (MEC) also create their own events targeting their community. This strategy has several advantages: not only does the initiating brand hold the rights to broadcast its events, but event organization is also an original and preferred means of reaching a younger clientele who is generally skeptical about classic advertising.

Source: Albors, M. (2015, November 13). Ces marques qui créent leurs propres événements. Infopresse. Consulted at www.infopresse.com/dossier/2015/11/13/ creatrices-d-evenements

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Product placement Product placement is another form of sponsorship that consists of negotiating the prominence of a brand and its products in television shows, movies or video games. In 2015, the lm Transformers: Age of Extinction featured a record number of placements, by 55 brands such as Budweiser, Armani and Yili milk (Lee, 2015). Subway sandwiches appear in the game Chartered 3, and players of Everquest 2 can even order a pizza from Pizza Hut without leaving the game environment. e main advantage of product placement is undoubtedly the visibility and reputation associated with the product and vehicle chosen. For very visible placements, brands can even create advertisements to prot from this association with a popular cultural product, which may be costly. Pepsi provides an original example: in the movie Back to the Future 2, released in 1989, the two main characters, Marty McFly and Doc Brown, travelled ahead to October 21, 2015, where we see Marty drinking “Pepsi Perfect.” Pepsi launched a limited series of this drink on that exact date, cleverly commemorating its initial product placement 26 years after the lm debuted. is limited edition mirrors the design of the bottle shown in the movie, and was featured in ads that recalled the themes of the original lm, including the famous self-tying shoelaces. It also used the slogan “Pepsi Perfect: the future is now.” e success of this limited edition, each bottle of which sold for over US$20, was such that Pepsi had to reissue it the following month because fans who could not buy it on that particular day were deeply disappointed. e practice of product placement enables advertisers to compensate for consumers’ loss of interest in traditional advertising: recorders let viewers automatically skip commercial breaks on television series, and streaming services like Netix or HBO are not interrupted by ads. Product placement will also likely develop as it becomes possible to digitally insert products and brands in movies, television series and programs in post-production. New products and brands can then appear in rebroadcasts of old cult series like Friends. However, this less explicit form of sponsorship has sparked criticism and mockery from the media and the audience when used excessively, as in the Netix series House of Cards, which the Los Angeles Times dubbed House of Brand Placement (Fleischer, 2013), or in recent lms in the James Bond franchise. Although the impact of sponsorship is dicult to measure, it represents a unique opportunity to create an emotional connection with the audience, providing that the presence of the brand is perceived as relevant and unobtrusive. Increasingly, sponsors and sponsorships are going beyond the association of a logo with an event, and work in close cooperation to create a quality experience. Brands can harness social media, as well as mobile marketing, to activate a sponsorship. For instance, Coca-Cola used geolocation to send personalized oers to spectators at the World Cup in Brazil.

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9.7.5 Sales promotion Sales promotion The media and nonmedia marketing pressure applied for a predetermined, limited period of time at the level of consumer, retailer, or wholesaler in order to stimulate trial, increase consumer demand, or improve product availability (AMA, 2016).

Sales promotion is a very popular method of communication for businesses because it induces immediate action and because its results are easy to measure. rough sales promotion, a company can stimulate buyers, distribution channel members and vendors to buy or sell the product or service. In other words, sales promotion prompts action.

Types of sales promotion Two types of sales promotion can be implemented depending on whether the promotion targets the consumer (the nal buyer) or a distribution channel member (wholesaler, retailer or other) that uses the promotional oer to boost its prots or sales. ese two forms of promotion refer to the distinction between a pull strategy and a push strategy. e rst approach aims to increase demand in end consumers—that is, heighten their desire for the product—to attract them to the point of sale. e second approach, in contrast, aims to motivate partners and distribution intermediaries to develop sales to end consumers. Promotions aimed at intermediaries therefore try to “push” the product through the distribution chain until it reaches the nal consumer. Promotions directed at nal consumers All types of sales promotion give consumers a reward that encourages certain behaviours desired by marketing managers. e reward is sometimes immediate, sometimes deferred. Below are several sales promotion methods directed at nal consumers. • Discount coupon A coupon gives a reduction on the purchase of a specic brand of product or service. e coupons can be given out in newspapers, in magazines, in or attached to packaging, through the mail, at points of sale, by email or by text. • Contest Consumers are oered a chance to win money, an item, a car, a trip, etc. is form of promotion is used to improve the product’s image, increase consumption or get consumers to try a new product or nd out about a product— the main objective being to increase sales. ere are several types of contests. Given their abundance, it requires considerable creativity to catch consumers’ attention. Whereas promotions based on a price reduction meet a more utilitarian need in consumers, contests satisfy a more playful and experiential need. • Demonstration is promotion method is frequently used to get consumers to try a product or service, show how it is used, or let consumers taste it. Demonstrations are often held at the point of sale, in shopping centres, at trade shows or fairs, and sometimes even at home. • Samples Consumers can try the product or service for free. Samples are often used to introduce a new or modied product or to try to dethrone a competitor that dominates the market. To work properly, this method must be applied to a dierentiated product that will have an eect from the rst trial. e samples are distributed in several ways, the most common being through the mail or doorto-door, at shows and at points of sale. For example, all orders placed at Sephora.ca automatically qualify customers for several free samples.

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• Packaging Packaging is used to identify the product, but also as a promotional tool. e packaging can be used to oer a discount coupon on the next purchase or a larger quantity of the product for the price of the usual amount. • Bonus An item is oered as a gift or at a very low price when buying a product or visiting a point of sale. ere are dierent types of bonuses: – A bonus placed in the container when packed at the plant. ese include collectible cards and small items like spoons or toys; – A bonus attached to the container or packaging, like a DVD or a miniature game; – A bonus package, when the container (for example, a glass) becomes the bonus to be kept; – A mail-in bonus, sent in after purchase. To receive the bonus, the customer must submit the product code and a proof of purchase. • Promotional items is type of promotion is like a bonus, except that consumers do not have to make a purchase to get one. e item has a promotional message. ere are many kinds of items, like golf caps, calendars, pens, T-shirts and oce supplies. e important thing for the business is to be seen by the consumers who are being sent a message. • Deferred payment e company gives buyers a grace period before they have to pay principal or interest. A nancial establishment takes charge of the agreement and charges interest if payment in full is not made on the date specied in the contract. • Loyalty program is method, linked to direct marketing (see Chapter 6) involves giving customers a premium in the form of points or play money at the time of purchase. is method of promotion, which aims to increase customer loyalty, enables the customer to accumulate points with every purchase. e best known programs in Canada are Air Miles, which has partnered with numerous merchants, including Shell, and Air Canada’s Aeroplan program, along with the Hudson’s Bay bonus program. • Price cut e usual price of a product or service is temporarily reduced. For example, an item that usually sells for $5.99 may be oered at $4.99 or at 50% o. e price cut is usually advertised at points of sale, in yers, or on the company’s or the product’s website, or is prominently displayed on the product packaging. • Refund e manufacturer or retailer oers to refund all or part of the price of the product if the customer is not satised. Promotions for intermediaries Manufacturers oer promotions to distribution channel members in order to gain their support. ey may also use promotions as part of their push strategy to boost product sales to potential customers. Here are a few forms of sales promotion directed at intermediaries. • Gifts Gifts like trips and GPS devices are given to intermediaries who agree to oer a product or who have reached certain objectives.

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• Sales contests is technique is used to encourage and motivate intermediaries. As with contests aimed at consumers, it is very important to determine rules that will give everyone a chance to win. e prizes must be attractive and stimulating enough to boost sales and make the investment protable. • Assistance contract Under this short-term contractual agreement, a manufacturer compensates an intermediary for marketing its products. e assistance may apply to dierent programs: contributing to advertising, providing stands for demonstrations or free samples, providing point-of-sale material, etc. • Demonstration is promotion method involves lending demonstrator products to intermediaries. For example, the manufacturer of specialized photography software will oer intermediaries its product free for one month for demonstration purposes. • Point-of-sale material is type of promotion can be considered a promotional tool geared to both consumers and intermediaries. Intermediaries are provided with material to display at points of sale to create an atmosphere conducive to sales. • Promotional items Similar to items oered to consumers, items with the name of the company or the product are given to intermediaries to build brand awareness or bolster their image. • O-invoice allowance A certain amount of money is oered for each unit of merchandise leaving a wholesaler’s warehouse during a given period of time. • Sales premium A premium is oered to intermediaries or their salespeople that have sold a specic brand over those of the competition. For example, a camera manufacturer could oer a $20 premium per camera sold during a given period of time. • Retailer premium is promotion method involves all types of premiums given to retailers for buying a certain quantity of merchandise. • Bonus pack A certain quantity of a product is provided free to promote the purchase of a specic quantity of this or another product. For example, a manufacturer will throw in a dozen hair brushes free with every 12 dozen purchased. • Cooperative advertising In this type of agreement, the manufacturer agrees to pay a set amount or a percentage of the advertising done by the wholesaler or retailer for one of its products. For example, food or pharmacy product manufacturers pay considerable amounts to have their products featured in yers sent out by retailers. • Rebate is short-term promotion involves giving an intermediary a reduction on a certain quantity of products purchased during a given period. • Follow-up rebate Following a special oer to the intermediary, the manufacturer gives a certain rebate on purchases based on the quantity of merchandise purchased during the special oer. • Shows and stands Often held annually, trade shows are usually organized by the members’ association of an industry so that manufacturers have the opportunity for their new products or services to become better known. Trade shows are heavily attended by intermediaries because it gives them a chance to nd out about new trends. Manufacturers see them as an excellent way to build a list of potential customers, which will be given to their sales teams for follow-up.

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Strengths and weaknesses of sales promotion Sales promotion is particularly well suited to push potential buyers to action. In particular, it plays a determining role when consumers are evaluating their options that make up the consideration set. is communication tool is easy to put in place and relatively inexpensive. All forms of promotion can be used strategically, depending on the step of the product lifecycle (see Chapter 8). Samples and demonstrations are particularly appropriate during a new product launch, contests can stimulate awareness, and price cuts will lower the risk of buying a new product. Later in the product lifecycle, promotion can stimulate rebuys or help a manufacturer liquidate its inventory during the product’s decline phase, before it introduces a new generation of products. Companies appreciate sales promotion because it lets them measure the impact of their campaign by the coupon redemption rate and rebates, participation in contests and drawings, or an increase in trac online and in store. Managers can also evaluate the direct impact of a promotion on sales by isolating the sales increase generated by a particular campaign. rough sales promotion, the company can also expand its customer database by compiling the information customers provide on contest entry forms. is information can be used to conduct a direct marketing activity. Finally, sales promotion facilitates the introduction of new products to intermediaries and consumers. For instance, a company can give intermediaries an introductory discount on a product or organize an in-store tasting to present it to consumers. However, some promotion mechanisms must be used sparingly and prudently. For instance, overuse of promotions based on price cuts will reduce the product’s value in the long run. e promotional price will become the normal price in consumers’ minds, and they may wait until the product is on sale before buying it. Excessive use of a promotional price may also suggest to consumers that the normal price is too high and must be reduced to make the product aordable. Along the same lines, repeated use of the promotion will lead consumers to put too much importance on the price, and not enough on the brand. is phenomenon reduces brand loyalty.

9.7.6 Digital and mobile marketing ere are two types of digital marketing: outbound and inbound. Other forms of digital marketing include social media management, which we will discuss in the following section, and mobile marketing, which harnesses the power of the Internet to reach consumers anywhere, any time.

Outbound marketing Outbound marketing refers to strategies that businesses use to reach target customers as they search for a service or product. It mainly consists of paid listings and display advertisements.

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Paid listings Internet use often begins with the entry of keywords on a search engine like Google. Advertisements then appear on the search results page. ese “sponsored” links are found at the top of the page, before the natural referencing (see Example 9.5). Advertisers compete to buy keywords related to their oers, derived from their understanding of their customers’ search behaviours. e Google platform that manages these keywords is called Google AdWords. How much a company will bid for keywords depends on several factors, including the intensity of the competition, the budget allotted for this type of advertising, and the expected click rate and conversion rate (number of sales per number of clicks).

Example

9.5

An example of a paid listing

Trivago bought advertising placements associated with the keywords “cheap hotel Montreal”. The Ad

pictogram preceding the URL address of the site indicates that the link is a paid listing.

Display advertising Similar to paid listings, display advertising may try to prompt Internet users to click immediately, but it is also used to enhance brand awareness, on a par with advertising in traditional media. Display ads may appear on websites consulted by the target audience of the brand and take the form of a simple text in a box, images or videos.

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Contextual and behavioural targeting can improve the performance of a display ad. Contextual targeting consists of placing an ad on a site with a pertinent context. For instance, an ad for childcare equipment is more likely to capture the attention of consumers who are visiting a site that provides information on pregnancy or children. Retargeting, a behavioural targeting technique, consists of targeting Internet users according to their browsing history, provided by cookies. Although consumers may consult a product on an e-commerce site without completing the transaction, this consultation indicates individuals’ potential interest in this item. anks to cookies installed on browsers, merchants can trace customers to other sites or on Facebook, for example, and remind the consumers of their interest in the item consulted through a banner or box oering the product in question. e American clothing brand JCrew uses this technique by inserting a photo of clothing previously consulted on its site accompanied by the phrase “You’ve got great taste.” Clearly, the intention here is to target Internet users based on their browsing behaviour and not their prole or lifestyle. Example 9.6 describes another type of digital advertising, native advertising.

Example

9.6

Native advertising

Native advertising is a type of online advertising where brands create content that is embedded in the editorial content of a website. The site Lapresse.ca includes several examples of this type of advertising in the form of “XTRA” boxes. By clicking on the link “Qu’est-ce qu’un XTRA?” (What is an XTRA?), you get the following answer: “XTRA is a section that contains promotional content produced by or for advertisers.” This section presents an article sponsored by a business, whose advertisement appears alongside it. For example, an article about the attractions of Kenya as a tourist destination was sponsored by the National Bank, whose advertisement, visible next

to the story, highlights the World Elite card, which includes advantageous travel insurance. The popularity of native advertising is growing because such ads deliver higher click rates than traditional digital ads. Most online media offer advertisers this option. In turn, advertisers gain from the editorial legitimacy of renowned publications like The Gazette or the New York Times. However, this practice, where the boundary between advertising and editorial content is blurred, may raise ethical questions if readers do not realize that they are reading sponsored content.

Performance of outbound marketing e performance indicators of digital ads include the number of impressions, click rate and cost per click. • Advertising impression: exposure to an advertising element in a downloaded le. An impression is generated when the advertising element is seen by the consumer. • Click rate: ratio expressed as a percentage between the number of advertising clicks and the number of impressions. • Cost per click: the cost of an advertisement divided by the number of clicks that it generated.

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Digital advertising experts are developing increasingly advanced techniques to be able to attribute a sale to a specic advertisement. After extensive exposure to communication tools (TV or display ads), Internet users ultimately click on a sponsored link (paid listing) which motivates them to buy the product. It would be tempting to attribute the sale to their online activities alone, but it in fact results from an integrated communication program. Sophisticated regression models use consumers’ entire browsing history and weigh the impact of each contact point with the brand to explain the nal sale. Another way to accurately determine the causal link between a digital advertisement and a purchase is to conduct systematic experiments known in the digital marketing world as “A/B testing.” Internet users are exposed randomly to a page with and without ads, and the click rate and sales can be compared between the two situations. People sometimes underestimate the eectiveness of the conversion rate associated with a digital ad because they fail to consider the long-term eect of exposure to advertising. For example, car purchases require long deliberation and multiple sources of information. A sale may take place “o-line,” at a physical distributor, yet it was facilitated by eorts previously invested in outbound marketing.

Inbound marketing Inbound marketing refers to search engine optimization (indexing). Businesses try to optimize their websites according to consumers’ search processes and search engine algorithms so that people can nd them quickly. e inbound marketing approach favours the pull strategy (see page 268) in the digital ecosystem: rather than hunt for the potential customer through advertising (outbound marketing), this approach aims to attract the customer to the brand. e objective of inbound marketing is to ensure that the natural referencing of the brand (links naturally suggested by search engines that appear below the paid links, called “natural links” or “organic links,” see Example 9.5, page 272) places the brand above its competitors. Search engine optimization (SEO) To do so, the company must create blogs, podcasts and studies, The process whereby a business improves and practise search engine optimization (SEO) to ensure that its positioning in the list of natural (organic) consumers can easily nd its brand, products and services when links proposed by a search engine. they search for information. SEO requires a keen understanding of the indexing algorithm of the main search engine: Google. is algorithm (whose exact formula is a secret) considers the usefulness and authoritativeness of a link. Usefulness measures the correspondence between words entered by the user and those that a webpage contains. Businesses must therefore make sure that they are using the right words—those that correspond to the search—in the title, content and lines of code of their website. e authoritativeness or importance of a site depends on the number of pages on which it is listed as a link and the authoritativeness of those pages. erefore, the business must strive to create content that inspires condence, and is original and interesting, to encourage other sites to reuse it and to insert links to the site in their own pages. Tutorials,

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blogs on subjects of general usefulness related to the brand, and discussion forums are all vehicles that can eectively improve the authoritativeness of a website.

Mobile marketing e Internet is increasingly consulted on an ever expanding variety of devices, such as computers, tablets and smart phones. Mobile marketing consists of adapting a communication strategy to the specic parameters of each device. e proliferation of Internet use via smart phones is motivating brands to develop applications to interact with their target audience on mobile devices. e feminine protection brand Always has seized this opportunity by releasing the application BackMeApp by Always, which lets a woman who is going home alone at night share her path with a friend or relative who can then track her route through an application that sends a message and sounds an alarm if she stops for two minutes or deviates from her path unexpectedly. is application responds to a real need felt by many women while upholding the brand’s mission of “protection”: Always aims to give women more freedom and boost their self-condence. Mobile marketing can also take advantage of geolocation options that can target individuals, and adapt the message to their precise location. e brand Pantene by Procter & Gamble has developed a campaign in partnership with Walgreen pharmacies and e Weather Channel application. When consumers consult the weather in the app, they receive a personalized recommendation on the Pantene routine that they should follow for their hair depending on the weather conditions (heat, humidity, dryness, etc.) on that day, wherever they may be. e app also indicates the location of the nearest Walgreen. Campari America has adopted the same logic to give a bonus (see page 269) to consumers over age 21 who use a number of applications, like Mixology, when they go to bars at times when alcohol consumption is highest. ese consumers receive a $5 credit on their telephone to use Lyft taxi service instead of driving under the inuence. For best results, brands should ideally blend mobile marketing initiatives with oline communication eorts. Coca-Cola achieved huge success with its “Chok” campaign, staged in Hong Kong, by tapping into the gamication trend, and by combining an app with more traditional advertising. By shaking their phones (chok means “to ing”) in front of a TV, movie, or computer (YouTube) screen or in outdoor spaces where the advertisement was broadcast every evening at 10:00 p.m., players could catch virtual bottle caps. ey could then win mobile games and discounts, or participate in sweepstakes. e application was one of the most downloaded in a single day in Hong Kong, and drew over 380,000 Pokémon GO: a revolutionary fun application.

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downloads in one month, while the ad garnered 9 million views (Kirby, 2013). Example 9.7 reviews the phenomenon of summer 2016, the Pokémon GO application, and discusses its implications for mobile marketing.

Example

9.7

Pokémon GO application sparks a mobile marketing revolution

Summer 2016 was marked by the Pokémon GO phenomenon, not only on the web, but also on the streets, in parks and around monuments in cities. Linked to Google Maps, this gaming app let users hunt down virtual Pokémon hidden in the real world. It experienced immense popularity and staggering growth. Within two short weeks of its launch, the app was downloaded over 30 million times, and attracted 23 million players. Understandably, many brands wanted to take advantage of the success of Pokémon GO. Some made Pokémon central to their business offer by launching spinoff products like gurines, stuffed animals, cards, and

hunting equipment, while others were inspired by the frenzy of the game to create a wide array of campaigns and promotions. By nature, Pokémon GO can easily integrate brands in the heart of players’ mobile gaming experience. Brands can insert themselves in the game by sponsoring key locations like PokéStops and arenas. McDonald’s was the rst brand to sign a partnership with Pokémon GO: 3,000 restaurants in the chain were transformed into Pokémon GO arenas throughout Japan. Further, augmented reality lets brands offer experiences via mobile applications that are both immersive and useful.

Source : Teisson, G. (n.d.). Pokémon Go: quelles opportunités pour les marques? Dans ta pub. Consulted at www.danstapub.com/pokemon-go-quellesopportunites-pour-les-marques; Olson, P. (2016, July 20). Pokémon GO’s McDonald’s partnership points to a promising business mo del. Forbes. Consulted at www.forbes.com/sites/parmyolson/2016/07/20/pokemon-go-mcdonalds-japan-nintendo-revenue/#126a93893a09

9.7.7 Social media Another very important aspect of digital marketing is conversations between consumers on social media like Facebook, Instagram, Twitter or Snapchat. Among the many opportunities that these networks oer, simple observation and analysis of conversations in which the brand is mentioned can be a highly eective way to track the evolution of its perceived positioning. Managers can also identify possible sources of dissatisfaction, which they can convert into innovations. Brands are doing more than passively listening to conversations: they are actively participating in them, and even inuencing them to make social media another instrument of their 360° communication plan. Most of these networks let advertisers buy advertising space. Snapchat lenses and geolters make such ads highly interactive. For example, Gatorade skillfully used the customary “Gatorade Super Bowl Dunk,” where football players pour buckets of energy drinks on their heads after a major victory, to create a lens on Snapchat, the social network that is enjoying the strongest growth in the number of users. is lens, which lets users pour a bucket

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of Gatorade over themselves, was seen over 165 million times in a single day during Super Bowl 2016 (Benner & Merced, 2016). Tiany & Co., Kraft Foods and Burger King have also created lters to playfully interact with their audience, particularly the much sought after millennials. ese lters can also be adapted to the user’s location through geolocation. In a similar eort to engage its fans, each fall Starbucks activates the Twitter account of PSL, alias Pumpkin Spice Latte, and regularly publishes humorous tweets that let users enter contests to taste a limited edition rst or to win discount coupons. By participating in conversations on social media, brands can also react very quickly to news and trends that interest their target audience. Rather than issue messages directly via their Facebook, Instagram, YouTube or Twitter accounts, brands can also turn to inuencers who already have large numbers of followers on these platforms. Lolë and Biotherm, for example, have teamed up to promote the wellness of young Canadians by appointing nine ambassadors. ese female “inuencers” receive a box of products from the two companies each month. ey have created and published brand-related visuals on their Instagram accounts, which also include advice about their wellness routine, the importance of hydration or how to get ready for summer (Lolë et Biotherm font équipe pour promouvoir le bien-être, 2016). e section above on media relations described inuencers who have become indispensable actors in marketing communication. Although media relations theoretically belong to the category of earned media, the phenomenal development of inuencers is changing the rules of the game. Many inuencers are in fact paid to mention particular brands in their publications on social media, which makes these media more similar to paid media like advertising or sponsorship. Inuencers who have over 50,000 subscribers receive on average $1,700 for mentioning a brand on Instagram. is amount rises with the inuencer’s reach. In the fashion world, people like Chiara Ferragni, Aimee Song or Kristina Bazan, who boast several million Instagram followers, may charge up to $97,000. Brands justify these expenses by the immediate surge in requests for an item soon after it is mentioned in a post by these super inuencers (Spedding, 2016). Today, regulation has emerged to govern these practices. Kim Kardashian recently posted photos of a penthouse apartment where she stayed in New York through Airbnb, along with rave reviews. e American association Truth in Advertising, which aims to protect consumers from false advertising, discovered that Airbnb had actually loaned the West–Kardashian couple the apartment for free. e celebrity therefore should have added the hashtag #ad to her publications (“Kim K” et Airbnb: la publicité qui voulait se cacher, 2016). New rules proposed by Advertising Standards Canada (ASC) will soon govern these practices in Canada, and require disclosure of any material connection between an endorser and a brand (Nowak, 2016).

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9.7.8 Alternative forms of communication In addition to the main communication tools described above, new trends are constantly emerging, as brands strive to engage their audience innovatively and creatively.

Experiential marketing Experiential marketing combines elements of direct marketing and sales promotion within a single consumer experience. ese initiatives often involve distribution of samples as part of an event orchestrated to oer consumers an original and memorable experience. e term guerrilla marketing signies that these initiatives use particular eld conditions and do not necessarily involve large nancial resources. Example 9.8 describes a campaign designed to promote Nivea sunscreen to children and their parents. Example

9.8

Nivea dolls hit the Brazilian beaches

In Brazil, where beaches are numerous and crowded, Nivea launched a campaign with the communication objective of raising children’s awareness of the importance of using sunscreen to protect themselves from harmful UV rays, a particularly serious problem for Brazilian parents. The insight behind this effort comes from the observation that in general, children hate to have to wait for their parents to slather them with sunscreen, and especially for the sunscreen to take effect, before they can frolic on the beach. This situation sparks unpleasant negotiations and difcult

dilemmas for parents. To address this problem, Nivea created dolls made of material that reacts to exposure to UV rays by turning pink, as if the dolls got sunburned. This reaction does not happen if the owner puts sunscreen on the doll. Kits containing the doll and samples of Nivea sunscreen were distributed to children on the beaches of Rio de Janeiro by brand representatives who could explain to families how it works and present the product. The campaign spread on social media through the movie Nivea Dolls, posted on YouTube.

Source : Prigg, M. (2015, June 4). The terrifying toys that get SUNBURN: Dolls that turn pink when left in the sun designed to scare children into using sunscreen. Mail Online. Consulted at www.dailymail.co.uk/sciencetech/article-3110208/The-terrifying-dolls-sunburn-Creepy-toys-designed-scare-children -using-sunscreen.html

e #PropreEnSwier (SwierClean) campaign waged in the streets of Montréal during the prime moving season is another example of a creative and well-crafted eort. Trucks clearly bearing the Swier brand distributed Swier wipes, which are particularly useful to clean old and new apartments. In addition to having its own hashtag, #PropreEnSwier, the campaign was also featured in a humorous video by YouTuber PL Cloutier (2016), which oered 12 tips to move “from a no-good apartment to a no-good apartment.” ese initiatives are noteworthy because they exploit new points of contact with the target audience. Companies can talk to consumers about the brand and its promises at a time when they are most likely to be sensitive to the message.

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Content marketing Content marketing consists of producing and disseminating content that is relevant, informative, educational, useful or playful, and that focuses on customers’ interests in order to reinforce their anities with the brand. e brand itself thus becomes the medium. A similar concept is branded entertainment. According to a recent study by the group Content Marketing Institute, North American companies allot 28% of their marketing budget, on average, to content marketing in the eld of B2B marketing, versus 32% in consumer marketing (Faire vivre la marque en tant que média, 2016). Content created by a brand can take multiple forms, limited only by managers’ imagination. Here again, the goal is to nd the best way to attract the attention of the target audience and make it want to consume this content regularly. e YouTube channel of videos produced by users of GoPro cameras is a prime example of content marketing. Extreme sports enthusiasts are one of GoPro’s target segments; the brand lets them view videos made by other amateurs and professionals who share their passion. is strategy is especially clever because GoPro can use consumer-produced content without having to pay; the video-makers gladly share it. It would take three years to view all the GoPro videos on the web. ese countless videos have catapulted the brand to a top ranking position on YouTube (Le Bourdon, n.d.). Although the GoPro product lends itself particularly well to the production of this type of content, this strategy can also be used with other types of content, adapted to the lifestyle of the target segment (see Example 9.9). e toy brand Lego aimed high by using the silver screen to promote its content. e launch of the movie e Lego Movie, which stars the brand’s toys, attracted hordes of consumers of all ages, and grossed global box-oce revenue of $408.68 million in 2014 (Calcagno, 2014).

Example

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Webcasting, a new opportunity for brands

The rst season of Serial, an investigative journalism podcast series, ofcially marked the resurgence of audio through podcasts. Each week an episode was broadcast online recounting an investigation into the murder of the young Hae Min Lee, allegedly by Adnan Syed. The positive response was immediate; the quantity of listeners ballooned with each episode. In total, the series was downloaded 100 million times, with an average of 8.3 million downloads per episode. MailChimp, a little known email services supplier, was the only sponsor in the rst season. The success of the series

boosted MailChimp’s popularity tremendously. This case made advertisers realize the enormous potential of podcasts. Brands have also begun to produce their own content, and have hired scriptwriters and producers to showcase their products. For example, The Message, an eightepisode ctional series by General Electric offered as a podcast, tells the story of a scientist who has to decode a message that came from space using technology developed by General Electric. Pet-food leader Purina launched a documentary series DogSmarts, which discusses the cognitive development of dogs.

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Podcasts therefore offer a broad range of possibilities. Advertisers understand that this form of audio media offers unique advantages over other types of content. It can engage listeners

more intimately and, unlike other media, reach them at moments when they are captive: on public transport, or when driving, taking a stroll or doing housework. All they need are headphones.

Source : Brasier, A. (2016, January 11). Le retour de l’audio. Infopresse. Consulted at www.infopresse.com/dossier/2016/1/11/le-retour-de-l-audio; “DogSmarts” podcast series reveals the inner workings of a dog’s brain. (2016, June 10). PR Newswire. Consulted at www.prnewswire.com/news-releases/dogsmarts-podcastseries-reveals-the-inner-workings-of-a-dogs-brain-300282879.html

9.8 Creative strategy and the advertising idea After having completed the strategic planning step and selecting which communication tools to use, strategic planning teams prepare a brief for the creation teams. is document describes the objective of the communication program, the target audience, the main message to convey, the tools chosen and the constraints, for example legal, to consider. e creative team must then translate the unifying key message of the campaign into words, images or video. ey must nd the right form of expression to achieve the communication objective vis-a-vis the target audience. Should they appeal to emotions or reason? If the tone is more emotional, what type of emotion should be evoked: humour, nostalgia, fear, guilt, envy? For example, after having played the emotional card with “A Natural Source of Comfort,” Québec milk producers adopted a more cognitive approach in 2016 that trumpets the benets of milk based on its essential nutrients, with a dash of humour. ese televised messages insinuated that the prowess of pilot Robert Piché, rower Mylène Paquette, mixed martial artist Georges SaintPierre and gymnast Nadia Comaneci may well be linked to the health properties of milk (Une campagne solide pour les producteurs de lait du Québec, 2016). e creation process entails frequent back-and-forth interaction between the advertiser and the creative team. e agency that represents the advertiser client must ensure that this dialogue is constructive and that it spawns a “creative solution” that corresponds well with the initial brief. Box 9.1 proposes several useful criteria for assessing a creative idea, which is denitely a complex process. Box 9.1

Criteria for evaluating creative ideas

1. Strategic criteria • Strategic pertinence and t of the strategy to the message – t with the target

– strength of the idea – originality of the idea – immediacy of the idea • Attribution value

– t with the communication objectives

– to the category

– t with the promise or the message

– to the brand

2. Communication criteria • Attention value

– to the product

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• Comprehension value – clarity/simplicity • Persuasion value

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• Deployment potential of the creative idea 3. Execution criteria • Respect for the visual identity of the brand

– force of conviction

• Modernity value

– capacity to stimulate desire

• Technical/budget feasibility

• Capacity to evolve the brand

• Legal validity

• Credibility Source : de Baynast, A. & Lendrevie, J. (2014). Publicitor. Paris, France: Dunod, p. 234.

9.9 Structure and role of communication agencies In response to the growing complexity of the media landscape and the need for creative expertise, many businesses are hiring communications agencies to help them develop and execute their communication plans. Agencies advise and assist advertisers in the search for communication opportunities, the crafting of messages, the setting of priorities, the creative process and the implementation of creative concepts, along with media purchases, and measurement and optimization of initiatives. e two types of agencies are (1) integrated generalists, which oer all of the services required to produce an integrat communication plan; and (2) specialists in specic communication media like digital, experiential, promotion or public relations. Some advertisers draw on their own internal communication competencies, however. L’Oréal Canada launched a production studio in November 2015 at its Montréal head oce (L’Oréal Canada inaugure un studio de production, 2015). is “content producer” provides the L’Oréal sta with professional lighting, photo and video equipment, along with professionals to quickly produce original content (tutorials, beauty tips, product descriptions) internally for the group’s brands, mainly intended for digital platforms. ese internal resources should allow L’Oréal to be more responsive in its conversations with consumers on social media by creating content in real time. Within an agency, teams are generally organized around three main functions. • Advice: manages relations with customers and projects internally by bringing together stakeholders, budgets and timetables; • Creation: includes designer–editors, artistic directors, and graphic artists in charge of the conceptualization process, who translate the advertiser’s message into words and images; • Strategy: provides a rened understanding of the brand and of the consumer that the advertiser wants to address, and recommends the most useful tools and the most appropriate messages. is function includes strategic planners, analysts, researchers and experts in dierent communication tools (traditional media, CRM, promotion, social media, etc.).

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Summary Marketing communication encompasses all the initiatives that a brand can use to address and interact with its target segment. The specic communication objectives result from more general marketing objectives, which are set upstream in the marketing plan. Communication efforts may aim to develop brand awareness, familiarize the public with an offer, improve consumers’ attitude toward a brand, engage consumers in an experience or stimulate purchases. Owing to the complexity of the communication process and the proliferation of media and tools, brands must follow a rigorous strategic planning process. Companies often turn to communications agencies for assistance with these initiatives. Situation analysis, communication objectives, and understanding the insight of the target audience help planners devise the key message of the campaign. This message must be expressed coherently through pertinent

communication media, deliberately selected for their ability to reach the target most effectively. The digital revolution has made the traditional media landscape more complex. Brands can draw on a vast array of communication tools to reach the right consumer at the right place and right time, and in the right way. These tools include advertising through traditional media or on the Internet, public relations and media relations, direct and relationship marketing, sponsorship, sales promotion, digital and mobile marketing, social media and alternative forms of communication like experiential marketing and content marketing. The combination of these means should consider their respective strengths and weaknesses to faithfully communicate the brand’s positioning. The impact of each communication initiative should be carefully measured using predened performance indicators to determine if the communication objectives have been reached.

Suggested readings Textbooks Belch, G. and Belch M. (2014). Advertising and promotion: An integrated marketing communications perspective (10th ed.). McGraw-Hill Education.

Clow, K. E. and Baack, D. (2016). Integrated advertising, promotion, and marketing communications (7th ed.). Pearson. De Baynast, A. and Lendrevie, J. (2014). Publicitor. Paris, France: Dunod.

Websites Association of creative communication agencies: http://a2c.quebec Adweek: www.adweek.com Infopresse: www.infopresse.ca Canadian Public Relations Society: www.cprs.ca

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Relationship Selling Chapter outline 10.1 Selling approaches 10.2 Relational selling approach 10.3 The salesperson 10.4 Selling process 10.5 Business development 10.6 International selling 10.7 Sales force management

Learning objectives After reading this chapter, you will be able to: understand the importance of relationship selling and its role in a business; recognize the types of salespeople and describe their activities; describe the eight steps of the relationship selling process; understand how business development and customer service complement selling; grasp the main decisions and activities of sales force management (SFM).

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To successfully carve out a place in the market, it is not enough to oer, distribute and price the right product in the right way and provide good customer service—except maybe in the rare cases where there is no competition or when market demand far exceeds the global supply. Businesses must also communicate with existing and potential customers to promote their oering. is chapter mainly covers relationship selling. is approach is central to the complex context of business to business (B2B) selling. First we will look at the dierent selling approaches, the denition of relationship selling and the importance of formulating a strategy that is suciently market oriented. We will then describe the role and activities of salespeople and examine the eight steps of the selling process in a B2B context, followed by the main characteristics of business development and the specic case of international selling. Lastly, we will analyze strategic decisions and sales force management.

Flow chart

10.1 Selling approaches Selling is a form of personal communication between two people: a company representative and an existing or potential A form of communication between two customer. It can take place face-to-face or by other means— people: a company representative and an orally, in writing or electronically (for example via social netexisting or potential customer. works). is interpersonal communication implies an exchange between two people who alternate between being the transmitter and being the receiver. Figure 10.1 shows how, in the sales domain, communication includes several interacting elements:

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• e transmitter (i.e., the person who sends a message). • e receiver (i.e., the person who receives the message). • e message (i.e., the verbal or non-verbal element that carries information). • e channel through which the message circulates from the transmitter to the receiver. • Feedback, or the return of the information to the transmitter.

Figure 10.1 The communication process

is process, applied to the interaction between a salesperson and customer, has spawned three selling approaches: the transactional approach, the consultative approach and the relational approach.

10.1.1 Transactional approach Conventionally, salespeople’s work with customers was considered as mainly consisting of obtaining orders, performing transactions, leading customers to buy on the spot and closing sales in the short term. is type of selling relationship emphasizes spot transactions, in which price is the central element. Consequently, the transactions and economic actors are viewed as independent of one another, and exchanges between salespeople and customers are observed from the angle of a spot exchange (MacNeil, 1978; Williamson, 1981). is is known as transactional selling (or the transactional approach). is relationship is based on the customer’s need to procure a product (or service) of acceptable quality at a competitive price. e price is central to transactional selling (Williamson, 1981). anks to technological developments, the task of obtaining and taking orders, which used to be associated with the classic role of the salesperson, is now done automatically in many industries without the salesperson having to interact with the

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The transactional selling relationship emphasizes spot transactions in which price is the central element.

customer each time an order is placed. For example, instead of soliciting an order at each meeting, salespeople will negotiate and enter into an agreement with their customers at the start of the year. ey will then strive to eectively manage their business relationships with their customers. Orders reach the company as needs arise, either by telephone, mail, fax or the Internet; the salespeople do not have to solicit orders outright. However, transactional selling still predominates at some companies because the products or services they oer are bought only once or at very long intervals. Real estate agencies are one example.

10.1.2 Consultative approach Historically, consultative selling was the next approach to emerge. Salespeople’s duties evolved from merely obtaining and taking orders to advising customers. ey sought not only to close sales, but also to help clients satisfy their needs, solve problems, attain objectives or earn a better return. To meet these multiple responsibilities, salespeople needed to nd out about their customers’ situation and needs, analyze this information, and design and propose the most suitable solutions for them. IT consulting companies like IBM use this approach with their business clientele. is relationship of trust is based on recognition of the customers and on their willingness to pay for the value added (benet obtained), in addition to the investment in the purchase of the product (service). It is important to conrm that at the time of the consultative sale, the customer agrees to receive advice. Whereas transactional selling hinges on a salesperson’s persuasive skills, consultative selling emphasizes the task of diagnosing customers’ needs. In fact, the two approaches are not mutually exclusive and can be used in combination.

10.1.3 Relational approach Relationship selling, also known as the partnership approach, has existed for more than two decades. Although this type of selling is chiey intended to establish and reinforce a long-term relationship with the customer that is mutually satisfactory to both the customer and the salesperson’s company, it can lead to a real partnership with the customer (Morgan & Hunt, 1994; Palmatier, Dant, Grewal & Evans, 2006; Perrien & Ricard, 1994). Perfectly compatible with consultative selling, relationship selling emphasizes tasks related to customer satisfaction and retention, but persuasion still plays a role. Such relationships are found in the aeronautics industry, for instance, between airplane part makers and leading manufacturers like Bombardier or Boeing. To take an example from the food industry, salespeople working for Danone develop mutually protable business relations

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with their distributors. Relationship selling—namely the ability to establish, maintain and improve long-term business relations—is essentially the quest for intimacy with the customer.

10.2 Relational selling approach On a global scale, businesses have undergone major changes triggered by the advent of new technologies (such as digitization), increasing globalization, changes to business organization, rising expectations and consumers’ increased ability to access information. In parallel, customers are much better informed, mainly thanks to social networks (Agnihotri, Dingus, Hu & Krush, 2016). e very nature of the salesperson–customer relationship has gone from a transactional mode to a relational mode (Dampérat & Jolibert, 2009; Dwyer, Schurr & Oh, 1987). Following these important changes, a growing number of businesses have understood the importance of letting their customers “live” a positive experience to ensure their survival and even prosperity in an environment of omnipresent competition (Lassk & Shepherd, 2013). In this new reality, the salesperson is positioned at the very heart of the relational approach, and has become the cornerstone of the company. is is because salespeople spend almost all their time in direct contact with customers. Salespeople thus become a competitive advantage for a business in addition to serving as an excellent loyalty-building tool and a sales driver. Relationship selling is Relationship selling even more crucial in a B2B context: It has become the key to establishing, maintaining and developing a long-term mutuA selling approach that aims to establish, develop and maintain protable business ally protable relationship (Morgan & Hunt, 1994; Palmatier, relations over the long term. Dant, Grewal & Evans, 2006; Perrien & Ricard, 1994). e relational selling approach has grown dramatically in the past 20 years, in both academia and the managerial world (Palmatier, Dant, Grewal & Evans, 2006; Srinivasan & Moorman, 2005). It is part of a long-term perspective based on mutual knowledge, shared trust and production of reciprocal benets (Perrien & Ricard, 1994). Academic research and managerial practices show that investing in the relational approach strengthens relations with customers, which directly inuences the salesperson’s performance in terms of increasing sales, market share and prots (Crosby, Evans & Cowles, 1990; Morgan & Hunt, 1994; Palmatier, Dant, Grewal & Evans, 2006). In addition, this approach views customers’ interests and needs as central to the company’s priorities. Reichheld and Sasser (1990) claim that “companies can boost prots by almost 100% by retaining just 5% more of their customers.” Kumar, Venkatesan, and Reinartz (2008) note that improving customer retention by 1% can increase rm value by 5%. Further, in a B2B context, 75% of customers rely on word-of-mouth, including via social media, when making a purchasing decision (Srinivasan & Kurey, 2014). Even if customers today are much better connected and informed when

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making their purchasing decisions (Agnihotri, Dingus, Hu & Krush, 2016), in a B2B context, 39% of buyers select a supplier according to the salesperson’s competencies rather than the price, quality or characteristics of the service (Fogel, Homeister, Rocco & Strunck, 2012). In a context where the only constant variable is change, studies have underlined the importance of nding and training salespeople who possess new qualities such as: • optimism and resilience (Lussier & Hartmann, 2016); • condence and self-ecacy (Fu, Richards, Hughes & Jones, 2010; Mullins, Ahearne, Lam, Hall & Boichuk, 2014); • luck (Lebon, 2015); • open mindset (Novell, Machleit & Sojka, 2016); • emotional intelligence (Kidwell, Hardesty, Murtha & Sheng, 2011; Lassk & Shepherd, 2013); • intuition (Hall, Ahearne & Sujan, 2015); • humour (Lussier, Grégoire & Vachon, 2016); • creativity (Groza, Locander & Howlett, 2016; Lassk & Shepherd, 2013); • the ability to create and participate in networking activities (Bolander, Satornino, Hughes & Ferris, 2015; Ploue, Bolander, Cote & Hochstein, 2015); and In a B2B context, 39% of buyers select a supplier according to the salesperson’s • social responsibility (Korschun, Bhattacharya & competencies rather than the price, quality Swain, 2013). or characteristics of the service (Fogel, Hoffmeister, Rocco & Strunck, 2012).

e relational selling approach is therefore instrumental to rms’ success.

10.3 The salesperson Salespeople are certainly one of the cornerstones of a business because they spend all their time in direct contact with customers. In other words, salespeople are central to the relational approach because they are directly and constantly related to it. e sections below describe the activities of salespeople, the main types of salespeople and the job outlook for salespeople.

10.3.1 Salespeople’s activities Although their fundamental responsibility is to manage personalized business relationships with existing and potential customers, this does not mean that salespeople spend most of their time selling to customers. In fact, they perform a wide range of activities, including: • preparing for and following up on meetings with customers; • evaluating and understanding customers’ needs, objectives and problems, as well as competitors’ oerings;

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• detecting and resolving problems, dissatisfaction and complaints from customers; • designing appropriate solutions that correspond to their customer’s situation in order to outperform the competition; • making calculations and estimates to ensure that these solutions are protable for customers and the business; • designing and writing service proposals; • performing administrative tasks like writing reports and data entry; • preparing negotiation strategies and negotiating agreements; • attending and preparing for meetings; • travelling (to customers, conventions, training sessions, team meetings, etc.); • pursuing professional development (training); • organizing and participating in conferences, trade shows and exhibitions; • participating in networking events; • organizing information sessions; • contributing to and applying the company’s marketing plan; • constantly searching for data and qualitative and quantitative information (marketing intelligence), and transmitting it to the company (keeping in step with new information); • taking and following up on orders; • contributing to developing new products or services and presenting them to customers; and • managing pilot projects on customers’ premises.

10.3.2 Main types of salespeople ere is no consensus on the exact number of types of salespeople. Desormeaux (1987) lists nine types: promotional (or missionary) salesperson, internal sales­ person, direct salesperson, business development salesperson, commercial salesperson, industrial salesperson, technical salesperson, consultative salesperson and executive salesperson. In this book, we present six types in order to synthesize the role of salesperson (Moncrief, Marshall & Lassk, 2006): the consultative salesperson, new business/channel development salesperson, missionary salesperson, delivery salesperson, sales support salesperson and key account salesperson. Salespeople have been ranked based on the following characteristics of their work: required degree of proactivity; length and complexity of the selling process; duration of the relationship with the customer; type of customer with whom the salesperson does business (distributor, consumer or business); • importance of the analysis of customers’ needs and the design of personalized solutions; • • • •

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whether or not the salesperson carries out functions other than sales; complexity of products or services from the customer’s perspective; time spent recruiting new customers; and type of contact between the salesperson and customer (with or without travel to customers’ premises).

Consultative salesperson Consultative salespeople sell business solutions and analyses to managers based on their dissatisfaction or problems that are frequently imprecise or ill-dened. eir analyses and solutions can be costly, complex and fairly intangible. It may be difcult for customers to objectively evaluate the quality of a product or service, even after it is purchased or used. e more innovative these products or services are, the greater the perceived risk in customers’ eyes during the purchase, and the more they need a consultative salesperson. Such salespeople can be viewed as an important component of the product or service. ey often oer excellent post-sale service. e more time they spend cultivating their relationship with the customer, and the more eort they put into ensuring the quality of this relationship, the more successful the consultative salespeople will be. Senior advisors at corporate professional services rms or salespeople working for large distributors are examples of consultative salespersons.

New business development salesperson New business channel development salespeople spend most of their time recruiting new customers (prospecting). Why? Because they sell products or services that are bought very rarely or only once by the same customer, or because, as soon as they recruit a new customer, this customer is assigned to another salesperson in the business. Real estate agents, senior associates of consulting rms and vice-presidents of banks or of start-ups are all new business development salespeople.

Missionary (or promotional) salesperson Missionary salespeople do not carry out sales in the strict sense because they are not the ones who take the order. Rather, they educate, inform and promote products or services to people who hold decision-making power or who wield a strong inuence over customers’ buying decisions. One example is pharmaceutical company representatives who work with physicians. In this case, the main role of the missionary salesperson is to inform and educate the prescribers—for instance general practitioners or specialists, along with their team—of the characteristics of the pharmaceutical product they represent. Armed with this information, physicians will then decide whether or not to prescribe it to their patients.

Delivery salesperson Delivery salespeople play the dual role of distributor and salesperson, personally delivering the products they sell. ey must ensure that the right quantity of a product is delivered to the right place, within the predetermined time frame.

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e delivery salesperson must also maintain an up-to-date inventory and keep the shelves well stocked. Often this task is assigned to young salespeople who are just starting their careers.

Sales support salesperson Sales support salespeople are often hired to coach and support salespeople with more eld experience. At some companies, a sales support person may be an order taker, a coach, or a technical support provider. Order taker Order takers—who are becoming more and more scarce, mainly owing to the Internet—are the salespeople in charge of doing follow-up with the customer and processing the order. ey also conrm the quantities ordered and the delivery time. Field sales trainer e role of the eld sales trainer is to support, train, guide and motivate the salespeople. Field sales trainers help salespeople improve their performance by training and supporting them on a regular basis, for example once a month. Technical support Salespeople who provide technical support carry out little or no selling to the clientele. is type of salesperson most often works in the oce, and receives customers’ complaints, concerns and questions by telephone and Internet. e technical support salesperson is often an expert on the product, and has very good technical knowledge of it. Technical support people also need fairly advanced relationship skills to handle things like customers’ objections. Unlike the position of delivery salesperson, the position of sales support salesperson requires experience, and is therefore not held by a new recruit. is type of job is found in the following sectors: food and beverages, banks, biotechnology, high technology, and pharmaceuticals.

Key account salesperson Key account salespeople are not full-time salespeople. ey usually accumulate several years of experience before taking on this position. ey sell to executives of organizations or to the company’s largest customers. Key account salespeople spend much of their time providing a short list of customers with after-sale service, for example during delivery and installation of new accounting software to a prestigious law rm. ese highly experienced salespeople cultivate partnerships between the company and its customer list. ey consequently devote almost all of their time to travelling so that they can spend as much time as possible with their customers. Like sales support, key account salespeople work in large companies in the following sectors: food and beverages, banks, biotechnology, high technology, and pharmaceuticals, among others.

10.3.3 Job outlooks University graduates who plan to start their career in sales should ideally possess the following qualities (or at least be able to acquire and develop them) if they want a successful and rewarding work experience:

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• a positive attitude toward sales • a generally positive and resilient attitude, to be able to handle diculties and failures • expertise, adaptability and a customer orientation (or be willing to acquire these skills) • strong oral communication skills and an ability to really listen • emotional intelligence; that is, the capacity to identify, feel, understand and manage other people’s reactions and emotions • analytical skills, in order to clearly diagnose customers’ needs • an ability to see the big picture, so that they can concentrate on things that are important for the customer and paint a portrait that is clear and easy to understand • autonomy and initiative, given salespeople’s freedom • ample energy, to manage stress and peak periods • tenacity (perseverance) and passion, to be able to meet and exceed objectives; and • the desire to constantly learn and improve. ere are many employment opportunities in this eld. Here is an example of career advancement within this job category: • • • • • • • • • • • • •

internship or temporary work in sales: telemarketing, after-sale service, merchandising part-time or trial salesperson business analyst generalist salesperson specialist or senior salesperson key account manager sales manager marketing manager marketing director regional sales director national sales director vice-president, sales president.

10.4 Selling process e selling process comprises eight steps, which must be completed sequentially to close a transaction with a customer (see Figure 10.2). is process may be completed in a single meeting or require several, depending on the type of sales position, the nature of the products or services sold, the type of clientele or the sums involved. It may last 10 minutes, a couple of hours, a few months or even years. In fact, in the pharmaceutical industry a meeting between a representative and a physician

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often lasts only two minutes. In contrast, in hospitals or even universities, a contract may be signed only after dozens of meetings between the representative and the department or committee. During a short meeting, only a few steps of the sale may be completed, such as the approach and needs assessment. In this section, we begin by discussing prospecting and the pre-approach. We will then look at the steps during which the salesperson interacts with the customer, namely the approach, needs assessment, presentation of a business solution, handling objections, closing the sale and gaining customer commitment. Lastly, we emphasize the importance of the after-sale follow-up.

Figure 10.2 Selling process

10.4.1 Prospecting Prospecting, the rst step of the selling process, consists of the salesperson seeking out potential customers. During this crucial step, the salesperson uses the objectives established in the marketing plan to create a target list by taking the designated

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customer sector into account, along with how frequently to meet with each customer and how much eort to dedicate to them. Without potential customers, selling is impossible! Prospecting also involves identifying potential customers in a territory and qualifying them, that is, determining whether it is worth approaching them. Figure 10.3 shows that the steps to follow to identify the most worthwhile potential customers may not be immediately evident. Today, most businesses help their salespeople identify and qualify potential customers by assigning this step to analysts or internal salespeople; they have discovered that this is an excellent investment because it boosts sales force productivity.

Figure 10.3 Steps of prospecting

e rst step of prospecting consists of identifying customers who are likely to buy a product or service. Salespeople can use various means to do this, but they must know the main sources of potential customers (see Box 10.1). Box 10.1

Sources of potential customers

• Internal databases—customer relationship management (CRM) software • Secondary databases (for example, Statistics Canada)

• Networking • Prospecting in person (unannounced visits) or by telephone (cold calls)

• References from current or former customers (wordof-mouth)

• Directories (general or specialized)

• Shows, conventions and trade fairs

• Internet—email, web pages, social networks

• Family, friends and colleagues

e next step of prospecting, solicitation, involves seeking and meeting with potential customers, who may be found among both non-targeted (unknown) customers and current and former customers. Once the prospect has been

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identied, the next step is validation. is third step in prospecting is very important because the salesperson’s time is valuable. Validation involves conrming the customer’s real interest in the product or service. Lastly, when salespeople are certain of the customer’s interest, they can proceed to the fourth step, which con sists of setting an appointment with the customer. It is easy to make appointments with existing customers: You simply have to contact them. However, in the case of a potential customer whom the salesperson has never met, making the appointment may be fairly dicult; it may demand as much skill as selling the product or service itself. We will look at the follow-up step in greater detail, on page 308.

10.4.2 Pre-approach e pre-approach, the second step of the selling process, involves preparing for the meeting with the customer. Salespeople analyze the pertinent information available (and gather more if necessary), set one or more objectives for the meeting (see Box 10.2), and foresee the broad outlines of their actions at the meeting. Depending on the objectives, the pre-approach may cover all, or just a few, of the following steps of the selling process.

Box 10.2

Setting objectives for the meeting

According to Peter Drucker (2006), each objective must be SMART: • Simple/Specic: The objective must be detailed, precise and clearly stated to the customer. • Measurable: The attainment of the objective must be quantiable.

• Realistic/Results-based: Participants must want to attain the objectives and to devote the necessary resources and efforts to do so. • Time-bound: The objective must include a precise timetable so that progress can be evaluated.

• Ambitious/Achievable: The objective must be ambitious enough to represent a challenge and must be accepted by the customer.

It is crucial that salespeople prepare well for all meetings with customers, which will let them track the evolution of their relationship. For example, during the second meeting with a customer, they will be able to review the broad outlines of the last meeting or answer a question that the customer had asked by referring to testimonials, studies on the topic or users’ guides. In this case, particular “customer focused” attention will show the customers that the salespeople are listening to their needs and truly care about their situation. is personalized preparation will certainly have a positive inuence on the customer’s openness and receptiveness. Although each business has its own methods, Figure 10.4, on the following page, presents the usual steps of the selling pre-approach.

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Figure 10.4 Steps of pre-approach

Customer prole Many businesses categorize their salespeople and customers according to their behavioural style or thinking style, to ensure optimal adaptation to and compatibility of styles. For example, researchers have found that a particular thinking style (for example the legal style) inuences salespeople’s capacity to exhibit creativity in their presentations, along with their performance (Groza, Locander & Howlett, 2016).

Preparation tools It is important to take the time to prepare well. Some businesses use very thorough preparation tools. For example, they specify questions to ask for each need identied (see page 300), for each business solution (see page 302), for each of the most common objections, for those that were raised at the last meeting (see page 304), or for each of the commitment ideas. Other companies opt for a more general preparation. Example 10.1 presents a “synthetic” preparation tool from the pharmaceutical industry.

10.4.3 Approach e approach, the third step in the selling process, unfolds during the rst minutes of the meeting. It is particularly important in the case of a potential customer you meet for the rst time, because you never get a second chance to make a good rst impression. One study found that the customers’ perceptions of quality and condence in the salesperson are inuenced by their initial impression of the salesperson (Bergeron, Fallu & Roy, 2008). Often, the impression created by the approach will strongly inuence the customer’s receptiveness, open-mindedness and willingness to listen. A good rst impression can quickly lead to development of a strong

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Example

10.1

297

Preparation tool for a meeting with a doctor

Customer’s name: Dr. Raymond Roberge Date: December 1, 20XX

1. Notes from the last meeting (key points) • • • •

I presented the product and the study, accompanied by a visual. The customer prescribes the competitor’s product out of habit. The customer does not see a big difference between the two products. Dr. Roberge asked me for a copy of the study.

2. Customer prole Receptionist and/or assistant’s name:

Ms. Mia Rose

Type of business or practice:

General practitioner

Key information on the customer:

– Has not yet prescribed our product to his patients with hypertension. – Told me he recently bought a red Porsche Boxster.

Note: The receptionist is very nice, but she doesn’t let anyone meet the doctor without a good reason.

3. Action plan (SMART) Objective of the meeting:

– Present the study. – Emphasize how our product is effective. – Ask the customer to try our product on his new patients with uncontrolled hypertension before my next visit on January 30, 20XX.

FAB Method (see Table 10.1, page 303):

F – Our product is effective. A – You will be able to achieve your target values. B – You will have peace of mind, which will let you concentrate on other patients.

Materials to use:

– Visual aid – Study (original article) – Boxes of samples of our product

General interest message:

I’m Gabriel, your pharmaceutical representative from the company (division) X, which has been specializing in treating high blood pressure for 20 years.

Friendly conversation:

Good morning/afternoon Dr. Roberge. First, I couldn’t help but notice your red Porsche Boxster in the parking lot of the clinic when I came in. Tell me about some times you took it out for a spin …

business relationship, which can be protable over the long term. A meta-analysis on relationship marketing shows that developing relationship quality that rests on trust, satisfaction and customer commitment positively inuences the salesperson’s performance (Palmatier, Dant, Grewal & Evans, 2007). e importance placed on

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the initial business relationship therefore shapes the salesperson’s long-term success. is initial contact will have a positive or negative eect on subsequent meetings. Figure 10.5 presents the steps of the approach.

Figure 10.5 Steps of the approach

Initial contact In some sectors, some elements are more important than others. For example, if a medical representative selling stents visits a customer (a surgeon) just before or during an operation, they will probably not shake hands. Box 10.3 presents a few general rules to follow during the initial contact. Box 10.3

Rules to follow during initial contact

• Greet the customer and pronounce his or her name clearly.

• Ask permission to place things on the customer’s desk.

• Shake the customer’s hand.

• Ask permission to take notes.

• Introduce yourself:

• Smile naturally, sit straight, and have a good attitude.

– state your name and position; – name the company (division) you represent;

• Respect the limits of physical proximity (don’t violate the customer’s personal space).

– present your business card and look at the customer’s card;

• Dress professionally:

– use a dynamic tone of voice and adopt a smooth speech ow; – establish steady eye contact.

– The choice of clothing must take several factors into account including the business, the industry, the environment and even the target clientele.

• Thank the customer for the meeting.

– Clothing must be clean and in good condition.

• Use appropriate terms of politeness and respect.

– Outts should be modest rather than ashy: simple clothing (not necessarily high-end) and neutral colours. Use jewellery, perfume and makeup sparingly.

• Ask permission to sit and wait until the customer is seated before sitting down.

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General interest message A general interest message is a short statement to the customer that describes the salesperson’s position, the business they work for and their eld of activity, along with the reason for the meeting. Here are some examples of general interest messages: • • • • • •

Our company (or division) specializes in … sector … Our business is the rst to use this new technology … launched on the market in … We have been in business since ... We are experts in … We specialize in … We are leaders in … and have been for the past …

Friendly conversation Friendly conversation, or small talk, serves as an introduction to a formal discussion; it breaks the ice. It can precede or follow the general interest message. One of the key elements of friendly conversation is salespeople’s ability to adapt to the customer and emphasize the elements they prepared or observed. For example, they might bring up the diploma or trophy that they saw in the customer’s oce, or open the discussion by talking about a current event. Box 10.4 presents a few guidelines on how to engage in a friendly conversation eectively. Box 10.4

How to engage in a friendly conversation

Preferred topics

Subjects to avoid

• Results of research on the customer and the company: customer’s studies and career, divisions, prizes and distinctions the company has received, etc.

• Anything related to discrimination or that conveys disrespect toward others: sexism, ageism, racism, homophobia, etc.

• Current events: a topic recently in the news.

• Sexuality, politics and religion.*

• Waiting room: customers, patients, assistants, posters, pamphlets, brochures, magazines, etc.

• Any subject that could make the salesperson or customer uncomfortable.

• Customer’s ofce: diplomas, trophies, photos, desks, sports bag, business card, furniture, etc. * If a customer decides to open up and talk about his or her religion or culture, we recommend that you take an interest in it and actively participate in the conversation.

Gentle and smooth transition Lastly, to nalize the approach, the salesperson must make a gentle and smooth transition to the assessment of the customer’s needs by encouraging the customer to cooperate and answer questions. Here are two examples of a gentle transition to the needs analysis:

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• If you don’t mind, sir, I would like to ask you a few questions to better understand your current situation. Based on your answers, I will be better able to evaluate how we can help you achieve your objectives. • Would you mind giving me a few minutes of your time? I have a few questions I would like to ask. Your answers will help me evaluate the best way for our business to oer you a solution adapted to your needs.

10.4.4 Needs assessment Customer orientation, or the capacity to help customers satisfy their needs (Saxe & Weitz, 1982; omas, Soutar & Ryan, 2001), is one of the fundamental qualities of a good salesperson. is capacity to identify the customers’ expectations, needs, concerns, objections and wants is strongly related to the quality of the questions asked and the interpretation of the answers. In other words, the needs assessment, also known as the identication of needs or the diagnosis, is the art of asking questions. e quality of the customer’s answers depends on the quality of the questions the salesperson asks, and his ability to listen. Not everyone can easily master the art of asking questions. Techniques like the open and closed question method or the identication of needs or the diagnosis, is the SPIN method can be very eective here. ese techniques will art of asking questions. help you discover and adapt to customers’ needs, expectations and dissatisfaction. Salespeople’s capacity to show their level of expertise in the subject discussed, their adaptability to customers and their environment, and their customer orientation are central to this step. Needs assessment, also known as the

Open questions and closed questions e best way to get customers to open up and express themselves is to use open questions. In contrast, if you want the customer to give short and precise answers, you should ask closed questions. Box 10.5 explains the dierence between open questions and closed questions and presents a few examples of each type.

SPIN method e SPIN method (Rackham, 1988) includes questions related to the Situation, Problem, Implication and Need-payo, which is the solution. It is used to identify the customer’s needs, expectations and dissatisfaction using a combination of open and closed questions. It involves dening the customer’s implicit needs, which the salesperson then transforms into explicit needs. Situation questions (S) Salespeople usually ask situation questions at the beginning of the meeting, particularly when serving a new customer. is type of question, asked more often by inexperienced salespeople, aims to prompt customers to describe their current general situation. While these questions provide essential answers for salespeople, they should be asked sparingly because they may make the customer impatient. Here are some examples of situation questions:

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301

How does the decision process unfold at your company? ese days, what methods do you use regarding … ? What is your main type of clientele? What is your current sales volume? Tell me about your suppliers.

Box 10.5

Open questions and closed questions

Open questions

Closed questions

• To understand, obtain an opinion or an explanation, or to revive the discussion. • To encourage dialogue and facilitate the exchange of information.

• • • •

A few examples:

A few examples:

– – – – –

– – – – – – – – –

How … ? What do you think about … ? What are you looking for … ? How do you see … ? Tell me about …

To solicit short and precise answers. To get facts. To offer a choice. To steer the sales interview. How many … ? Is ... ? Who … ? When … ? Where … ? What is … ? What are ... ?* Can you … ?** Blue, green, or red … ? Yes or no ... ?

* A question beginning with “What are” can be open or closed, depending on the underlying intention. For example, the question: “What elements or countries have been most successful?” put to a representative of a multinational established in 52 countries could be considere d an open question because it encourages dialogue. In contrast, the question: “What are the two least protable services for you?” put to a represen tative of a small or medium rm that offers only four types of services will be considered a closed question because it prompts a very short answer. ** The question “Are you free to talk to me right now?” may be considered a closed question. In contrast, the question: “Could you tell me about your childhood?” would be considered an open question because the intention is to learn something about the customer’s youth.

Problem questions (P) ese questions aim to quickly pinpoint the customer’s needs, problems, diculties and dissatisfaction. Problem questions help the sales­ person detect opportunities because each question should encourage customers to open up and talk about their implicit needs. e salesperson’s success seems to be directly linked to the number of problem questions rather than the number of situation ques­ tions. In fact, the more salespeople take an interest in customers’ problems, the better their chances of closing a sale. Here are some examples of problem questions: • • • • •

Are you satised with your current situation? What diculties have you experienced in … ? If one aspect of your situation could be improved, which would it be? Could you describe your ideal situation when it comes to … ? What objectives do you want to achieve concerning … ?

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Implication questions (I) In a B2B selling context, most experienced salespeople are very skilled at asking questions about the situation and the problem, especially when they are dealing with an important customer (Rackham, 1988). Unfortunately, for most salespeople, even the most experienced ones, the questions stop there. In fact, implication questions are very powerful because they allow the customer to really envision that the problem can be solved once and for all. rough implication questions, salespeople can take a problem perceived as minor and develop it until it becomes suciently important to justify immediate action. ese questions also help customers become more aware of the costs linked to the problems, along with the importance of needs and the impact of development possibilities. Here are some implication questions: • Why do you want to … ? • Could you clarify what led you to research … ? • Why is this need important to you? • What are the implications in terms of costs? • How does this problem aect … ? • What kind of nancial impact will this have for you? • What aspects of this business solution do you nd interesting? • How would this let you … ? Need-payo questions (N) Good salespeople ask two types of questions to transform an implicit need into an explicit one. First, they ask one or more implication questions, then one or more need-payo (solution) questions. In other words, they clarify the problem to highlight the value or usefulness of the solution. Solution questions oer a positive perception of the need to ll and turn the customer’s attention from a problem toward a solution. Here are typical examples of solution questions: • So, if I prove to you that our business solution can satisfy your needs, would you be interested … ? • If there was a way to eliminate your problem, would it be worth considering? • If I understand well, would a solution that would let you … be protable for you? • In an ideal world, when would you want to benet from … ?

10.4.5 Presentation of a business solution In the fth step, salespeople determine what they will try to sell based on the needs assessment. ey present customers with what they have decided to sell them, and try to convince them to buy it. e presentation may be only oral, or it may include an audiovisual document (on a laptop or tablet) like a price list, a video testimonial or a chart showing data and impressive facts.

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In complex situations like B2B selling, when major issues are involved and more than one actor is concerned on the customer side, salespeople must also take decision criteria into account. During the needs assessment, they must grasp the customer’s decision criteria and their relative importance. During the presentation, salespeople must show how their oer satises these criteria better than the competition does (or the status quo). Often, salespeople must inuence decision criteria to improve the competitive positioning of their oer. ey then conrm whether customers are ready to buy. If so, they go directly to the seventh step, closing the sale and gaining customer commitment. Otherwise, they proceed to the sixth step, handling objections. As we have seen above, a good selling approach is customer-oriented and emphasizes long-term customer satisfaction, along with close attention to the customer and a low-pressure selling approach that focuses on problem-solving (Franke & Park, 2006; Saxe & Weitz, 1982). It is of course essential to know the customer’s needs and to meet them eectively. To achieve these goals, salespeople must determine the customer’s needs and respond to them appropriately. Specically, salespeople must: • list and analyze the customer’s expectations, needs, concerns, objections and wants; • prepare a business proposal that is customized, protable and eective, to address the factors above; • present a logically structured business solution that will benet both parties; and • adequately handle the customer’s objections and resistance. e L-FAB-F method is renowned for its ability to present a business solution adapted to the customer (Rackham, 1988). Table 10.1 illustrates this method in detail.

Table 10.1

L-FAB-F method

Step

Description

Examples of formulation

5.1 L

Link to the need noted by the salesperson

Regarding …

5.2 F

Features (or characteristics) of the product or service (neutral, descriptive, factual or immutable)

Our product or service is ...

5.3 A

General advantage of the characteristic (or functions): Why is this characteristic interesting?

So you will be able to …

5.4 B

Benet of the characteristic (most important part): Why does the solution directly meet the customer’s need?

It lets you … What this means to you …

5.5 F

Functioning of the product or service (often demonstrated with proof such as a testimonial, study, pamphlet or price list)

Given that … Because ... Due to …

Followed by validation

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e L-FAB-F method helps salespeople communicate with customers by using their language, and oers a guideline to adapt the presentation of a product or service. e characteristics of a product or service are descriptive and factual aspects, specications, and objective particularities. By comparison, the advantages are general positive consequences, and the benets that the customer will derive from the characteristics. In other words, a characteristic (linked to the customer’s need) oers a general advantage that represents the benet sought by the customer. e presentation should therefore highlight the advantages more than the characteristics, and the benets (or particular advantages adapted to the customer) more than the advantages. Table 10.2 presents an example of the application of the central steps (FAB) of this method to smart phones.

Table 10.2 Example of an application of the FAB steps to a smart phone Step

Description

Example

Inuence on the sale

F

Describe the product or service (neutral, descriptive, factual, and immutable)

Large storage capacity of the smart phone

Neutral to weak

A

Show why this characteristic is interesting for the customer or the business

It can store music, videos, etc.

Positive

B

Show why this characteristic meets the need of the customer or the business

No need to worry about running out of space, customers can carry their whole collections with them (videos and music), etc.

Very positive

One of the most important aspects of the Functioning step is the demonstration, which is often integrated in the presentation because it shows the product or service in a real usage situation. is step lets the customer see, smell, taste and even concretely experience the attributes of the product or service. e demonstration may involve presenting evidence (a scientic study, for example), a testimonial (such as a video clip or a letter), or a sample. A salesperson who has a specialized photocopier delivered to an architectural rm (with the company’s consent) and shows the team how it functions is providing a demonstration with a sample. is selling technique is one of the most eective. When customers have a chance to manipulate the product, they will feel engaged and will adopt it more quickly. is is why the food and drink industry uses this method very extensively: direct contact with the object, for example wine tasting at the SAQ , triggers a “customer experience” reaction that is often very positive, which leads to a buy or rebuy, hence the famous slogan: “To try them is to love them!”

10.4.6 Handling objections Objections (doubt or hesitation) are arguments that question or atly oppose the purchase. Salespeople must respond to them eectively and perceive them as a sign of the

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customer’s interest in, or indierence to, their proposal. If a customer objects in good faith, experienced salespeople will not reject the objection, because they know that it demonstrates a real interest. However, a customer may also formulate an objection that is totally invalid, by asking irrelevant questions or by stating generalities. is indicates that the customer is not interested or is uncomfortable. In this case, the salesperson should try to determine whether this objection hides another more legitimate one by questioning the customer and observing them, which is admittedly not an easy task. To handle objections successfully, salespeople must draw on their experience, on their interpretation of the customers’ words and on non-verbal communication. Eective salespeople learn fairly quickly about almost all the objections that customers may raise related to what they sell, and come up with valid counterarguments. e better they know their products and services, the competition and their customer base, the better equipped they will be to handle objections. However, having a vast repertoire of rebuttals to objections is not sucient in itself. Salespeople’s interaction with customers is also important. A good way to handle an objection is to ask the customer to reformulate it to make sure that you have understood it well. In fact, studies indicate that salespeople who are truly talented at handling objections formulated by potential customers are more likely to close the sale and establish good customer relations (Homburg, Müller & Klarmann, 2011). However, handling objections is a double-edged sword (Lussier, Ouellet & Guizani, 2015) in that salespeople’s ability to manage objections will work in their favour only if the customers perceive them as being technically competent (or expert), as able to propose creative and original business solutions, and especially as dedicated to nding a solution adapted and oriented to their needs. To this end, salespeople must rst prompt the customers to express their real objections. e characteristic steps of eective handling of objections are presented in Table 10.3, on the following page.

Acknowledge the objection During this rst step of handling objections, salespeople must put themselves in the customer’s shoes and show that they understand the customer. e salespeople thus “accept” the customer’s point of view, and really empathize with them. It does not necessarily mean that they must agree with the customer completely, but rather that they understand and respect the customer’s point of view. In fact, this step in handling objections—which is crucial to encouraging the customer to open up, and which allows the salesperson to better understand the customer’s situation and to respond to it eectively—is often neglected by salespeople who never go beyond simply asking questions or replying to objections.

Identify needs e second step, intended to clarify the customer’s needs and dissatisfaction, requires the salesperson to ask the right questions to pinpoint the real problem. Such questions might be: “Is the objection that the customer just stated justied or not?” “Have I understood the objection?” is part of handling objections is needed to

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Table 10.3

Steps of handling objections

Step 6.1 Acknowledge the objection

Development Salespeople’s ability to exhibit empathy toward the customer

Examples related to price – I can understand why the price makes you hesitant. – You’re not the rst person to tell me that. – You are right to raise this question about the price.

6.2 Identify (or clarify) needs

Salespeople’s ability to ask customers the right questions to pinpoint their real needs and problems

– Can you tell me if your questions are linked to the price (too expensive) or to your budget (not in line with your expectations)? – Have you recently made a large transaction?

6.3 Present a business solution adapted to the customer’s needs

Salespeople’s ability to respond to – F – Our price is high, but you will customers’ objections in a personalized save in the long run. way, according to their needs, – A – You can save a lot of money. and by emphasizing the features (characteristics), advantages, benets – B – This will give you peace of mind and let you put your savings elsewhere. and functions of the product or service

6.4 Validate the business solution

The ability to validate the solution proposed to the customer

– Have I answered your question to your satisfaction? – Is it clearer to you now? – Do you have any other questions?

conrm the nature of the malaise or of the problem, and also to ensure that the salesperson and the customer have a shared understanding of the objection. is exercise rests on the ability to ask good questions and to listen attentively.

Present a business solution adapted to the customer’s needs Once they reach the third step, salespeople must try to eliminate or at least defuse the objection by giving the customer additional information or by modifying the terms of the business solution proposed. is step therefore requires the salesperson to address the customer’s needs and problems by emphasizing the characteristics, advantages and benets of the product or service (FAB method).

Validate the business solution e fourth and nal step in handling objections is to have the customer validate the solution. is crucial step, often omitted by salespeople, entails having the customer validate the business solution or express their opinions about it. If their reaction is negative (or inconclusive), salespeople must try to address the objections indirectly, but without directly contradicting the customers. ey should return to step 2 of handling objections to determine and clarify the dissatisfaction and hesitation. In contrast, if the customer’s reaction is positive, the salesperson can resolve the objection and continue the selling process.

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e salespeople who are most successful at handling their customers’ objections are the ones who are best prepared. e ability to anticipate possible objections and to prepare responses is part of the step of the pre-approach to the meeting with the customer. Bear in mind, however, that above all, salespeople must be oriented toward the customer’s needs, and must demonstrate creativity and solid expertise in their sector.

10.4.7 Closing the sale and gaining customer commitment In the seventh step of the selling process, salespeople try to close the sale and gain customers’ commitment to their proposal. ere are special techniques to help them do this. For example, during a complex transaction (such as a sale in B2B), during the step of customer commitment, salespeople conrm with customers that they have covered all of the pertinent elements. ey then summarize the key points of the discussion by emphasizing advantages that are adapted to the customer. Lastly, they try to gain a commitment, in the form of either a purchase or a step leading to a purchase. For a simple sale, one technique consists of assuming that customers want to buy the product, and asking questions related to the purchase (for example, “To which address should we deliver the merchandise?” or “Do you want to pay by cash or credit?”). Another technique consists of presenting a logical summary of the advantages customers will derive from the purchase, followed by minor disadvantages, if applicable, then asking customers if they intend to buy the product. Other salespeople prefer to rely more on emotions, and tell customers to imagine themselves owning the product, what they would do and how they would feel. Still others save the description of some of the advantages for the step of gaining commitment and closing the sale, to win customers’ approval. Example 10.2 presents a few examples of commitment.

Example

10.2

Gaining commitment

La Gare is a collaborative space for entrepreneurs situated in the Mile End district of Montréal. To offer visitors a personalized approach, this start-up business trains its new employees in sales techniques. To foster commitment in new customers, the trainer may give the following advice: • Offer the customer a choice: “Do you need an ofce for 1, 6 or 12 months?”; “Would you prefer a oating

Source: http://garemtl.com/en

seat or a xed desk?”; “What name should I put on the membership contract?” • Summarize the benets: “You say you want to get out of the house, and we both agree that La Gare will let you meet other workers and potential customers. Isn’t this the type of place that you would need?” • Show that the customer should feel at ease at La Gare: “We offer an easy way to achieve your objectives and be proud of your work environment. What do you think?”

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10.4.8 Follow-up e follow-up stage consists of verifying with customers, once they are in possession of what they bought, that everything meets their expectations and that they are satised. If they are not, salespeople must take action to satisfy them. An eective follow-up leaves a good impression on the customer. Customer satisfaction has been found to be directly inuenced by the nal impression that the salesperson leaves on the customer (Bergeron, Fallu & Roy, 2008). However, salespeople often neglect this step because of insucient time and resources. In fact, keeping a customer condent, satised and committed is much more protable than trying to recover or replace a customer. Note that some companies can boost their prots by up to 85% by improving their customer retention by 5% (Reichheld & Sasser, 1990). Further, follow-up can reinforce or destroy salespeople’s image as professionals in customers’ eyes. In a B2B selling context, it is not surprising to learn that 39% of customers would select a supplier based on the salesperson’s competencies and the service quality rather than the price (Fogel, Homeister, Rocco & Strunck, 2012). is clearly demonstrates that follow-up is a very important step in the creation and reinforcement of a sustainable relationship with the customer, which aects the performance of both the salesperson and the business (Kumar, Venkatesan & Reinartz, 2008). To ensure that the business honours its commitments (e.g., a delivery date), salespeople must do a close follow-up with the company. ey will thus check that the delivery procedures are well underway and that they meet the foreseen time frames. Salespeople must be competent not only outside the company but also within it. One study has found that the best salespeople invest equal amounts of energy in current and potential customers and in internal teams and external partners (Ploue, Bolander, Cote & Hochstein, 2015). is is why a salesperson must maintain regular contact with internal teams (e.g., after-sale service, production team or operations department). In addition, if a problem arises, for example if a delivery is delayed, the salesperson must be proactive and discuss the situation with the customer. It is better to notify customers before they even notice the issue. By averting unpleasant surprises, the salesperson will be perceived by the customer as being honest and credible. At the same time, the salesperson will convey a strong sense of responsibility, professionalism and transparency. As much as possible, salespeople should also be present during the installation or delivery of a product or service because, despite all their eorts, there will always be disgruntled and dissatised customers. It goes with the territory! During the follow-up, salespeople must ensure the quality of the relationship with the customer, which entails trust, satisfaction and commitment toward the salespeople and their products. Salespeople should at least verify the customer’s level of satisfaction during each meeting. e following closed question is recommended: “Are you satised with our product?” In fact, each meeting is an opportunity to validate the customer’s trust, satisfaction and commitment.

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Regular checks of this relationship can quickly resolve dissatisfaction, and, more importantly, will ensure that the company does not lose the customer. Table 10.4 presents the steps of follow-up.

Table 10.4

Steps of follow-up Step

7.1 Thank the customer for the meeting

Examples “Ms. Y, thank you very much for having met with me at your ofce this morning.” “Mr. X, I am very pleased to have met with you and I thank you for your time.”

7.2 Reassure the customer

“I will personally make sure that the product will be delivered next week.” “You can rest assured that when you do business with our company, you are in good hands.”

7.3 Set the next appointment by offering a precise choice

“Ms. Y, would Monday morning at 8 a.m. be convenient for you or would you prefer Tuesday morning?” “Mr. X, how about an appointment on Wednesday at 8 a.m., right before the start of your work day?” – Smile, stand up straight and project a positive attitude.

7.4 Finish strong

– Shake the customer’s hand just before you leave.

10.5 Business development Business development is based on creation of value for an Business development organization among a target clientele—which can be internal The creation of long-term value for an or external. rough business development, a company can organization from customers, markets, and seize a maximum number of business opportunities to achieve relationships (Pollack, 2012). its objectives. One study conrms that salespeople obtain better results when they work on several fronts simultaneously; on current and potential customers, for example, or on internal teams and external business partners (Ploue, Bolander, Cote & Hochstein, 2015). Box 10.6 presents the two types of customers that salespeople may encounter in a business development context.

Box 10.6

Internal customers and external customers

Internal customers

External customers

• All departments

• Current customers

• Managers and executives

• Potential customers

• Team members (colleagues)

• Business partners

• Work team members

• Market actors (inuencers, decision makers, specialists, collaborators, etc.)

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In terms of business development, one of the main qualities that a salesperson must possess is being at ease in networking situations. is will help them develop a network of social and professional contacts, notably through social media. In fact, good opportunities to establish, develop and maintain protable business relations abound. An American study shows that sales will increase if salespeople develop networks both with individuals already connected to other networks and with individuals who have few or no connections (Bolander, Satornino, Hughes & Ferris, 2015). Another key nding of this study is the importance of developing good political skills, especially when networking is done with people who are already connected. In the following sections, we will examine the two pillars of customer relations: customer relationship management (CRM) software and customer service.

10.5.1 Customer relationship management software Customer relationship management (CRM) software is an indispensable tool in business development, especially in B2B commerce. is software compiles information on current and potential customers (postal and electronic “To make a prot you have to sell. To sell you addresses, telephone numbers, etc.), together with their purchase must satisfy customers and land new ones. or usage history and their expectations and needs. Not only can This is known as business development. salespeople access all this information in one place, but CRM Technological tools let you do this very software also lets a company understand its market so that it can effectively” (Lord, 2015). develop it protably (Lord, 2015).

10.5.2 Customer service e eight components of customer service reect the areas in which a company must act to achieve excellent performance: studying customer expectations of customer service; establishing a customer service vision; enhancing moments of truth; measuring customer satisfaction; delivering customer service interactions that are in line with the customer service vision; • compiling customer databases; • selecting and implementing loyalty building strategies; and • continuously reinforcing the quality of customer service. Customer service employees and salespeople interact with customers. Both roles inuence the degree of customer satisfaction and loyalty, along with the company image, sales volume and protability. ese two positions connect the business and its customers and must satisfy the needs of both. ey not only represent the business to the customers, but also represent the customers to the business. • • • • •

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However, their primary goal is not the same. e salesperson aims to favourably inuence customers to help increase sales volume, while the customer service employee seeks to satisfy customers. is distinction does not mean that salespeople do not care about satisfying customers or that the customer service representative is not concerned with sales volume. For the customer service employee, however, sales volume is a consequence of customer satisfaction and not an objective in itself. For the salesperson, satisfying customers is a way to inuence them favourably. Another distinction lies in the more proactive role of the salesperson compared with the more reactive one of the customer service representative. Usually, the salesperson takes more initiative with customers than the customer service employee does. Lastly, potential customers are a much greater concern for the salesperson than for the customer service employee. e more proactive role of salespeople partly explains why, even when their education and experience are similar to that of customer service employees, they are almost always better paid. is gap is also explained by the greater scarcity of skilled salespeople. Keep in mind that salespeople are on the front lines every day, as they interact directly with the customers. Given that customer service is an eective way for a good salesperson to stand out from the competition, they will not hesitate to oer Maximum customer service a very high level of customer service, often called maximum A strategy that consists of offering a very high customer service, which is visibly superior to the competilevel of customer service that is visibly superior to the competition to ensure that customers tion, to ensure that customers are gratied, delighted or even are gratied, delighted or even thrilled. thrilled. It is nonetheless important to keep in mind that maximum customer service is rarely protable because it costs the business more (in terms of time and energy), and customers are not willing to pay the price. However, it is a good strategy if the business, unlike its competitors, can apply it at a reasonable cost and if a market segment that values such a service and is ready to pay the price is being targeted, or if it is reserved for the most important and most protable customers. is is what many businesses do without actually bragging about it. Rather than oering the same customer service to everyone, they oer good service to all their customers, and superior service to their most important customers. For example, airlines provide their frequent yers with maximum service. Air Canada oers its Super Elite members (who have accumulated over 100,000 miles in one year) concierge service, priority boarding and private lounge access, etc. (www4.aeroplan.com/home.do). Care must be taken, however, not to stigmatize the other customers by making this dierence in quality very obvious.

10.6 International selling Despite the growing homogenization of business practices triggered by globalization, many cultural, religious, legal, economic and social dierences remain: companies must adapt their communication modes and sales techniques to each country where they want to do business.

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In general, even if the relational selling approach has become a widespread trend, businesspeople in foreign countries value the human and social aspects of relationships between customers and salespeople more than their counterparts in the Canadian and American cultures, which are primarily business oriented. In North America, people talk business and then perhaps gradually get to know salespeople personally. In most other countries, the rst task is for the parties to get acquainted on a personal level, as human beings, and Businesses, especially those that want to sell overseas, must adapt to an ever then talk business. Jean-François Ouellet, diversifying clientele, mainly owing to globalization and digitization. a professor at HEC Montréal, points out that in Japan, when someone gives you their business card, it is as intimate a gesture as showing an ID card or a passport. is means that you should read it carefully, scrutinize it for a long time, and especially avoid putting it away too quickly. You have to give it as much respect as you would the person who handed it to you! As another example, in Finland, after a negotiation session businesspeople will often go to the sauna together and strip down to the basics. “ey laughingly told me that they wanted to know the people without their fancy suits or their masks before signing an agreement,” Jean-François Ouellet explains (Massé, 2016). Unlike in Canada and the United States, salespeople in international markets have to sell themselves as people before selling their company and its services or products. Most importantly, it is crucial to carefully observe and listen to people from other cultures. e international sales process is generally longer than that of domestic sales. is stems from the fact that a potential foreign customer is, at rst, less familiar with the salesperson’s company than a potential domestic customer would be. e typical sales process between salespeople and customers in business markets is also longer than in Canada, because customers want to establish a relationship with suppliers before buying from them. Language barriers also complicate communication. Even if both people are speaking English, it is often their second language. Even though they speak the same language as their potential customers, Québécois salespeople working in France should not think that communication is done in exactly the same way as in Québec. In general, French businesspeople do not appreciate the familiar spontaneity of most Québécois. ey bristle at the use of the informal pronoun tu, so common here, and resent the hasty use of rst names. Legal and business vocabulary may also be very dierent. Non-verbal communication signals do not have the same meaning around the world. What is considered polite, impolite or even insulting varies depending on the country. e appropriate physical distance to maintain between two people having

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a conversation is not the same in Mediterranean countries as in Canada. Chinese, Japanese and Vietnamese people are more reserved than Americans and Canadians in their speech. Behaviours considered appropriate for North American women may be perceived negatively in other countries. Patting someone on the shoulder is not universally considered a sign of agreement and camaraderie. e concept and importance of punctuality also varies between countries: German customers consider it more important than we do, whereas Latin American or North African customers may make a salesperson wait without intending to be impolite. Behaviour toward people of the opposite gender that is considered proper in our society may be viewed dierently in others. In many cultures, bargaining is an indispensable part of the sales ritual, whereas here it is not. For example, in some regions of Southeast Asia, buying something without bargaining (even for only a few dollars) is practically unthinkable. In some foreign countries, signing a contract is not always considered an obligatory formal commitment. Conferences, study days, launches and trade shows are all networking events that represent golden opportunities for salespeople to prospect and forge ties with current or potential customers. Knowing one’s industry well, nding out about key players and summing up one’s company in 30 seconds are all excellent ways to prepare for a networking event. Whereas trade shows provide prime prospecting opportunities, this is even truer in international marketing. Germans, for example, spend considerable time attending and exhibiting at such events. e commercial success of a product in their country generally begins with its introduction at a major trade show. Even though they are informal, trade shows require appropriate preparation and follow-up if a business wants to succeed. It is important for business representatives to scout out a show in advance because of the high participation costs, and to ensure that the clientele corresponds to their marketing objectives. For exhibitors, the appearance of their booth and interactions between company representatives and visitors are crucial: both must be aligned with the company strategy. Given the multitude of exhibitors, representatives must clearly convey their points of difference. ey must then quickly contact potential customers they encountered, who will be more inclined to do business with the company following the contact established at the show. Despite all the preparation this requires, trade shows are denitely worth the eort because they permit a company to meet a large number of potential customers in a relatively short time, particularly in international markets.

10.7 Sales force management Sales force management (SFM) comprises several categories of decisions and activities: the role of the sales force manager, the size of the team and sales forecasting, the structure of the sales force, recruiting and selecting salespeople, and compensating, evaluating, training and motivating salespeople.

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10.7.1 Role of the sales force manager e sales force manager can be compared to the captain of a crew of sailors who are navigating across the ocean. In other words, the role of the manager is to guide the sales team and to optimize their eciency and performance. Sales managers are responsible for bringing out the best in their salespeople (which implies keeping their motivation high), while oering them maximum resources and support. ey must also maintain good relations with salespeople, top managers, internal teams and the market. In addition, they must distribute the allotted resources fairly to help the salespeople attain the sales objectives stated in the marketing plan. e position of sales force manager involves two distinct tasks: management in the strict sense and human relations. Box 10.7 presents a few examples of the dierent hats that sales force managers wear. Box 10.7

Roles of the sales force manager

Management

Human relations

• Dening and executing strategies

• Managing relationships

• Planning and organization

• Motivating salespeople

• Allocating budgets and resources

• Training salespeople

• Time management

• Coaching salespeople

• Prioritizing important decisions

• Active listening, empathy and adaptability

10.7.2 Size of the team and sales forecasting e optimal number of salespeople in the sales force should be based on the company’s expected prots. is means that the company’s prots would decrease if a team member were added or removed, due to the higher or lower selling expenses. If the size of the sales team exceeds the optimal number, the increase in selling expenses would be higher than the increase in gross prot generated by sales. If the sales team were smaller than the optimal number, the decrease in selling costs would be lower than the decrease in gross prot produced by the decrease in sales. is decision comes down to a rate that depends on the market growth rate. It has a direct eect on protability. erefore, a team that is too large would generate overly high selling costs and lower prots. Conversely, a team with too few salespeople would generate insucient sales and lower prots. e size of the sales team is determined based on the estimated size of the potential market. In many organizations (mainly large businesses), teams of sales analysts (perhaps in a marketing intelligence department) are responsible for evaluating the potential market of a product. Specically, a budget is allotted to the sales force manager based on this estimate, which will dictate the size of the team.

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After having estimated the potential market for a product, the business goes to the following step: sales forecasting. In this step, the business estimates the market share that it can attract given its resources and the competition. Similar to the process of estimating the potential market, sales analysts use internal and external data to forecast sales.

10.7.3 Structure of the sales force e choice of a structure is a strategic decision for the sales force manager. is choice inuences the orientation of the sales force and the distinctive competencies that the salespeople will acquire. e organizational structure chosen must be consistent with the denition of the role of the sales force. is choice is a market segmentation decision because it consists of deciding how to subdivide a market into segments, each of which will be assigned to a salesperson. e segmentation may be identical to that used in other variables of the marketing mix, or it may be broader or more rened. Below we describe the nine most common types of structures used: geographic, product- or service-based, market-based, customer sizebased, salesperson availability-based, and sales task-based structures, the structure where salespeople are free to solicit, the team selling structure, and the matrix structure.

Geographic structure With a geographic structure, a business divides its market into geographic segments and assigns each one to a single salesperson who will sell all the company’s products or services to all the customers in that segment. is organizational structure is well suited to companies that oer similar products or services to a fairly homogeneous clientele. It minimizes travel time and expenses. However, for companies that serve dierent types of customers with varying needs, or that oer many dierent products or services, it has a major disadvantage.

Product- or service-based structure Companies that adopt this structure divide all of their products or services into groups; each is sold by only part of the sales force. As a result, it is easier for salespeople to know all the products or services they sell in depth, and no product or service is neglected. is structure is well suited to companies that oer many complex or heterogeneous products or services. However, travel expenses are higher than in other structures. e main disadvantage arises when the same customers buy more than one group of products or services. ey usually do not appreciate having to spend time with two or three salespeople in the same company rather than dealing with only one.

Market-based structure A market-based structure segments customers by needs. Salespeople sell to a particular segment or type of customer. ey specialize according to customers’ needs, with each becoming an expert in the needs of a customer segment. eir skills are dened based on clientele rather than services, products or regions.

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ese salespeople are consequently better equipped to understand and satisfy their customers’ needs because they gain in-depth knowledge of the distinctive needs of a particular segment that they serve. However, when groups of products or services oered are numerous and complex, it may be impossible for salespeople to have in-depth knowledge of all the products or services. In this case, a team of technical experts is often required to assist them. In addition, the market-based structure may incur high travel costs.

Customer size-based structure Often, the most important customers (also called large customers, key accounts, national accounts or major accounts) are distinguished from other customers based on their purchasing power or actual sales. The sales force is divided into two groups: senior salespeople are dedicated to large customers while regular salespeople serve other customers. The best salespeople are reserved for the largest customers, which should yield better results where they are needed the most. The positions of senior salespeople offer interesting potential for promotions, which is an additional motivating factor for the other salespeople. Recruitment is facilitated because hiring is done only for the positions of regular salespeople, for which it is easier to find candidates with the required skills.

Salesperson availability-based structure In this structure, found mainly in internal sales, any customer can do business with any salesperson, with each customer being served by the rst available salesperson. is structure oers the advantage of minimizing the total number of salespeople and ensuring the fastest possible customer response time. However, it is not conducive to forming long-term personal relationships between a customer and a particular salesperson. It is the only organizational structure that does not foster this relationship.

Sales task-based structure Some companies segment the position of salesperson. ey dene a few dierent sales positions—for example, industrial, promotional and internal salespeople—and structure their sales organization based on these positions. is structure simplies salespeople’s work and the training and recruitment of competent candidates because the skills required are limited to those that are necessary for a single type of position rather than for two or three types at a time. It promises an interesting career path for people who want to work in sales within a single company. Salespeople can progress from one type of position to another as they accumulate experience. e disadvantage lies in the fact that two or three salespeople must sometimes work in tandem when they serve the same customer.

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Structure where salespeople are free to solicit In this structure, salespeople are free to sell to whomever they wish, as long as they do not target a colleague’s customer. In practice, this structure frequently leads to natural specialization among salespeople, with each choosing to concentrate his or her eorts on the types of customers, services or products for which he or she is the most eective. is is the only structure that leaves the choice of whom to solicit entirely up to the salesperson. is structure is found in situations where personal contact between salespeople and customers is particularly important, where recommendations have great inuence and especially in development sales. For example, companies that hire people to sell cars, securities, life insurance and real estate prefer this structure. It is also commonly used by people who are starting up an SME and do not know their market well.

Team selling structure Team selling can be done in dierent ways, on a continuum ranging from simple to complex. e rst type, the simplest, is ad hoc team selling. For example, the sales force manager or a colleague may conduct sales jointly with a salesperson. e second type is a specialist-supported team, where a salesperson specializing in a given market requires help from technical specialists at the company to make a sale. e third type is continuous team selling by a duo. It is found in companies where regular relationships with customers do not necessarily require a high-calibre salesperson, but the actual sale demands the skills and knowledge of an expert representative. e fourth type is a cross-functional team. Such teams are common in businesses that work with projects or assignments. Each team comprises a salesperson and specialists from other company departments, and manages a number of assignments, projects or customer accounts. e fth type is a strategic account team. In the case of very large customers, who are often geographically dispersed, the business builds a strategic account team made up of a senior salesperson who coordinates the team, other salespeople who focus on customers in particular sectors or territories, and functional specialists from each of the company departments concerned. Most of the members of the strategic account team dedicate themselves to a single customer full-time; some even have an oce on the customer’s premises to ensure their availability. Team selling is more complicated to manage than other structures where a salesperson works individually with a customer. It also costs more. However, it often boosts sales and prots because better cooperation has a greater positive eect on customers.

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Matrix structure Many companies adopt an organizational structure based on more than one structure. ey can thus often benet from the advantages of each type of structure and eliminate disadvantages by switching types. However, the level of complexity is greater as a result.

10.7.4 Recruiting and selecting salespeople Companies build sales teams to ensure that they can assemble a sucient number of new salespeople with the necessary skills in a timely fashion. A company’s human resources department performs most of the activities related to building this team (see Box 10.8), but the sales manager should also participate in this process. Box 10.8 1. 2. 3. 4.

The seven steps of building a sales team

Dene hiring criteria Recruit candidates Prescreen Select

5. Hire the candidate 6. Integrate the new salesperson 7. Train the salesperson

Crucial activities and decisions go into building a suciently large sales team made up of competent, motivated and eective salespeople. e rst stage of this process consists of dening the hiring criteria, which entails specifying the qualities to be evaluated in candidates. e exact nature of the hiring criteria varies according to the denition of the role of the sales team. e criteria also vary depending on whether the company is willing to invest in training newly hired salespeople. Some companies, particularly SMEs, often prefer to invest little in training and hire only experienced salespeople. Others take the opposite route. After dening the hiring criteria, the other steps of the process involve recruiting a sucient number of suitable candidates; prescreening, that is, rapidly doing a preliminary screening to retain candidates who meet the minimum qualications; and making the selection, which entails evaluating the remaining candidates and hiring the best ones. After hiring, the new salesperson or salespeople will be integrated in the business and oered initial training.

10.7.5 Compensating salespeople e compensation plan for salespeople in a company is vast in scope, not only in relation to recruitment, retention, behaviour and motivation, but also because compensation represents a large sum for most businesses. e average amount of compensation must be determined, along with the kinds of components it will include.

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A company will set the average amount of total compensation based on the income required to attract and retain a sucient number of skilled candidates. e company’s general costs and ability to pay must also be considered. If the company sets an average amount of compensation that is too low, it will attract only poor calibre salespeople. e best candidates will not apply, or will quit very soon. If the compensation is too high, the business will increase its costs unnecessarily, which can aect its ability to pay. e company must also determine the elements that make up the xed portion of the compensation, namely the salary, along with the variable portion of the compensation, made up of commission and premiums (bonuses), and the relative weight of each element for various levels of performance and on average. Paying a salary allows a company to better control salespeople’s activities because in this case they are salaried employees. It is also easier to make changes if the salespeople are salaried employees than if they are paid solely by commission. A mixed compensation plan includes a xed portion and a variable portion. In this way, companies try to benet from the advantages of a salary without its disadvantages, which the variable portion is intended to eliminate. ere has been a marked trend toward mixed compensation in recent years. e xed portion provides security for salespeople, facilitates recruitment and contributes to building loyalty. e variable portion spurs salespeople to surpass themselves and rewards stronger performers.

Salary The amount paid to a salesperson for a given period. The salary represents the xed portion of compensation. Variable portion of the compensation A sum that uctuates according to the salesperson’s performance. It may consist of a commission, a bonus or both. Commission Amounts paid regularly that are calculated according to easily measurable results like the salesperson’s sales volume or contribution to the gross prot. Premiums (bonuses) Amounts paid infrequently that may be fully or partly based on more qualitative aspects of performance.

10.7.6 Evaluating, training and motivating salespeople Evaluating, training and motivating salespeople takes up much of a sales force manager’s time.

Evaluation Evaluating salespeople’s performance informs managers of the aspects that deserve closer attention. Companies use evaluation to gauge the eciency of the sales force. Evaluation can be based on two major categories: analysis of sales and analysis of performance. Analysis of sales is done by sector or territory, by product or service, by customer or account, or by adopting an 80–20 approach.

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Analysis of the salesperson’s performance evaluates the return on sales relative to objectives, the return on sales in the strict sense, market share and qualitative performance.

Training Providing training to the sales force is a strategic decision that will help salespeople develop their knowledge and skills in order to improve their performance. Whereas the primary goal of training is economic, it also provides an opportunity to listen to and observe salespeople. is will keep them motivated, and ease their retention. Nonetheless, training is quite costly for a business. An American study published in 2005 found that the annual costs of training one salesperson exceed US$100,000 (Leach, Liu & Johnston, 2005). In 2013, American businesses spent over $20 billion to train their sales forces (Hall, Ahearne & Sujan, 2015). Overall, training programs let salespeople develop expertise, which can increase their credibility among the clientele and help them achieve their selling objectives (Palmatier, Scheer, Evans & Arnold, 2008).

Motivation Paradoxically, selling is simultaneously an activity where the degree of motivation probably has the most inuence on workers’ results, yet because of the very nature of the tasks performed and their particular diculties, salespeople might be more prone to a temporary or permanent lack of motivation than workers in other sectors. Motivation primarily depends on good strategic decisions in sales force management, on the building of an eective sales team and on well-managed sales eorts. Without these prerequisites, it is very dicult to have a motivated sales team. Sales managers must also constantly strive to create a climate that favours strong motivation within their sales force. e rst factor that contributes to this favourable climate is sales managers’ everyday behaviour toward their salespeople. e second factor consists of the reasonably frequent (neither too often nor too rare) and appropriate use of motivation tools, including:

Sales force managers must always ensure that their team is motivated.

Relationship Selling

• regular follow-ups to track the rate at which quotas (or objectives) are met, followed by individual meetings; • meetings and discussions among team members; • mentoring and sharing of best sales practices; • individualized coaching in the eld; • training and development programs; • incentive programs (or sales contests); • formal recognition programs; • posting of results; • team building activities; and • pats on the back and informal recognition of good work.

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Summary In this chapter, we have underlined the importance of relational selling in a B2B, or business-to-business, context, and described the process. Relationship selling involves establishing, developing, and maintaining a long-term business relationship that will be mutually rewarding for the customer, the salesperson and the company. The salesperson’s primary role is thus to manage and develop personalized business relationships with current and potential customers through a wide range of activities. We have presented six key types of salespeople: the consultative salesperson, new business/channel development salesperson, missionary salesperson, delivery salesperson, sales support salesperson and key account salesperson. In addition, we have examined the eight steps of the selling process in a B2B context, and presented the main characteristics of business development and the specic features of international sales.

The personal selling process includes eight steps that must be completed for a sale to be closed. In order, the steps are: prospecting, pre-approach, approach, needs assessment, presentation of a business solution, handling objections, closing the sale and gaining customer commitment, and follow-up. Business development is the process of giving an organization long-term value. The two pillars on which it rests are customer relationship management (CRM) software and customer service. A business that wishes to pursue business development on an international scale must adapt to a clientele that is more diversied in terms of culture, values and language. Lastly, we have analyzed the strategic decisions and activities related to sales force management. We have presented several categories of decisions and activities specic to sales force managers: the role of the sales force manager, the size of the team and sales forecasting, the structure of the sales force, recruiting and selecting salespeople, and compensating, evaluating, training and motivating salespeople.

Suggested readings Textbooks Dicaprio, A. (2004). Vendre gagnant gagnant. Montréal, Québec: Les Éditions Transcontinental. Johnston, M. W. & Marshall, G. (2005). Relationship selling and sales management. Montréal, Québec: McGraw-Hill Irwin. Lachance, Y., Mathieu, A. & Guay, R. (2008). Gestion de l’équipe de vente. Boucherville, Québec: Gaëtan Morin. Manning, G., Ahearne, M., Reece, B. L. & Mackenzie, H. F. (2015). Selling today:

partnering to create value (7th ed.). Toronto, Ontario: Pearson. Pink, D. H. (2012). To sell is human. The surprising truth about moving others. New York, NY: Riverhead Books. Websites Gestion, HEC Montréal: www.revuegestion.ca Industrial Marketing Management: www.journals.elsevier.com/ industrialmarketing-management

Journal of Marketing: www.ama.org/ publications/JournalOfMarketing/Pages/ Current-Issue.aspx Journal of Personal Selling and Sales Management: www.jpssm.org Journal of the Academy of Marketing Science: www.springer.com/ business+%26+management/ journal/11747

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Distribution Chapter outline 11.1 The rationale for distribution intermediaries 11.2 The functions of distribution intermediaries 11.3 Types of distribution intermediaries 11.4 Distribution channels 11.5 Selecting a distribution network 11.6 Multi-channel distribution with an omnichannel strategy

Learning objectives After reading this chapter, you will be able to: understand the role of distribution; describe the various types of distribution channels; describe and explain the steps in selecting a distribution channel; recognize the importance of managing a distribution channel.

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Of all the marketing mix elements,

distribution is the least visible and transparent for consumers because they deal only with retailers when making their purchases. e main purpose of a distribution network is to make a manufacturer’s product or products available to potential consumers in the form and quantity and at the time and place desired, so as to create continuous business relationships between network members. Distribution decisions are closely related to a company’s choice of targeting and positioning. For example, garment manufacturers that choose to sell their products at e Bay versus Holt Renfrew will reach dierent targets. Holt Renfrew customers are more auent. e Holt Renfrew network has 10 stores (not including two “hr2” stores, which liquidate inventory), whereas e Bay has 90 stores. By doing business with Holt Renfrew, the manufacturer has no alternative but to oer a high-end luxury product that it will distribute selectively. In this chapter, we dene the role of distribution along with the dierent types of distribution intermediaries, namely businesses that participate in moving a product from its manufacturing site to the customer. In fact, all actors in a distribution network, except for the producer and consumer, are intermediaries. Most of the examples that we present to illustrate how distribution networks work refer in particular to physical goods. We look at how these intermediaries are organized into distribution channels (of products or services), and examine the various steps in selecting distribution intermediaries. Lastly, we discuss the problems related to managing several distribution channels simultaneously.

Flow chart

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11.1 The rationale for distribution intermediaries Why do producers go through distribution intermediaries to reach their nal customers? By distributing products or services directly to consumers, a company could generally avoid having to share its revenues, and could retain total control over its marketing mix. If a manufacturer puts its fate partly in intermediaries’ hands, it is because it derives certain benets from doing this. e role of intermediaries is to reconcile the needs of consumers with those of producers; in other words, to maintain a link between the elements of supply and demand. However, some intermediaries apply pressure to serve their own interests, as we will see in Example 11.1.

Example

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The company that said no to Walmart

In 2002, Snapper lawn mowers stopped being distributed in Walmart stores (Fishman, 2007). Snapper president Jim Wier decided not to bow to the retailer’s pressure to reduce the quality and price of his lawn mowers. The reply from the Goliath of Bentonville was swift: The brand would no longer be distributed. At the time, the giant retailer accounted for about 20% of Snapper’s sales of half a billion dollars. Was it a momentary lapse of reason or false pride that made Jim Wier turn his back on Walmart? No. His decision was motivated mainly by the positioning of the Snapper brand and potential conicts with independent distributors. Snapper is a brand known in the business not for large market shares or huge sales volume, but for the quality, reliability and durability of its products. A well-maintained Snapper lawn mower can last for decades. Many customers buy this lawn mower because their fathers used them when they were kids. A typical buyer of a Snapper gas lawn mower takes great pride in cutting his own lawn and wants the right mower for the job. All Snapper lawn mowers are assembled in a factory in McDonough, Georgia. Production costs are high, but quality control is impeccable. In 2002, the most affordable Snapper lawn mower retailed at $350, while the most elaborate ones could fetch more than $1,000. In comparison, the cheapest lawn mowers sold at Walmart in 2002 cost barely $100. As a result, Snapper’s high-end positioning was incompatible

with that of Walmart. Jim Wier was afraid of killing his brand by repositioning his products at too low a price. In fact, he would have had to outsource production outside the United States and risk losing control over quality. What’s more, lowering its prices for the Walmart chain would have put Snapper in conict with 10,000 independent retailers of the brand. Although these retailers were individually small in size, they represented 80% of Snapper’s sales. Since the separation, Snapper was bought out by Briggs & Stratton in 2004 and the brand is still not distributed at Walmart. However, to counter the dwindling number of independent retailers in North America, Snapper mowers are now sold by the Sears national chain. To limit disputes with independent distributors, Snapper distributes only the SE series, which is the most affordable, at Sears. This series’ positioning is still way above normal entry-level models because the lowest price of an SE series Snapper lawn mower is $289, while the most affordable models sold at Sears retail for $180. The entry-level price of mowers sold at Walmart is $130. To take advantage of Walmart’s distribution power, Snapper’s parent company nonetheless decided to mend fences with the retailer. A new Briggs & Stratton brand has been created for wider distribution at an affordable price.

Source: Fischman, C. (2006, January–February). The man who said no to Wal-Mart. Fast Company magazine.

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e main role of distribution intermediaries between producers and consumers is to make the necessary eort to reach the customers. As shown in Figure 11.1, 18 dierent contacts would be required to move a product to consumers in a market consisting of three producers and six customers. ese contacts involve 18 times the work in terms of logistics, sales, promotion, customer service and product payment. By including a distributor, the number of contacts required can be substantially reduced.

Figure 11.1 Economies of effort provided by an intermediary

Legend: P: Producer; D: Distributor; C: Consumer.

Intermediaries are thus particularly useful when it comes to reducing the gaps between the needs of consumers and producers. Because most producers specialize in a limited number of products and are located far from their customers, they must produce their goods in large enough quantities to benet from economies of scale. In contrast, consumers buy in very small quantities. ey like to choose from a vast assortment of similar products and comparison shop. Normally, they buy several dierent products during one trip and prefer to do their shopping near home. In our ctitious example in Figure 11.1, consumers may nd the three products at the same distributor instead of having to go to three dierent producers who oer only a single product. e second advantage of turning to distribution intermediaries is that they can make the distribution network more ecient because they specialize in specic

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tasks. For an intermediary, specialized tasks become routine and can thus be executed more quickly. Take, for example, Robert Transport, a company specializing in the transportation of goods and supply chain logistics management that invested in real-time product assignment and traceability systems. With its 3,300 employees and eet of 1,100 trucks, Robert could acquire renowned expertise and deploy resources, something that a producer wanting to ensure physical distribution could not do as eciently (www.robert.ca). What’s more, by specializing in a specic sector, Robert Transport can oer services to many companies and thus benet from economies of scale. Intermediaries can meet these gaps between producers’ supply and consumers’ demand by performing a series of functions that we will discuss in the next section.

11.2 The functions of distribution intermediaries Distribution intermediaries perform several dierent functions. Figure 11.2 illustrates the case of a producer that goes through a retailer to distribute its products. Note that some functions—such as transfer of title, promotion, sales and customer service—move toward the consumer, situated downstream. In contrast, payment moves up through the distribution network. Finally, certain functions like logistics, nancing and research are bidirectional. For distribution to be eective, there must be a link with the other marketing mix elements.

Figure 11.2 Functions of distribution intermediaries

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In Figure 11.2, it is assumed that a retailer performs all the distribution functions. However, some functions that concern consumers, such as customer service, are often performed directly by the producer without going through an intermediary. A more in-depth explanation of these functions is presented elsewhere in this book, in particular the business research required for a rm grasp of a company’s external environment (Chapters 5 and 6), customer service (Chapters 1 and 10), sales promotions (Chapter 9) and relationship selling (Chapter 10).

11.2.1 Logistics function Logistics functions are the operations required to move products from the producer to the consumer. ey smooth out gaps in quantity and assortment between supply and demand. e gap in quantity is the dierence between a producer’s protable production quantity and the quantity normally desired by a consumer. For example, let’s imagine that a hockey stick manufacturer normally mass produces a minimum of 1,200 hockey sticks of a certain type and size. Hockey enthusiasts rarely buy more than two or three hockey sticks of the same type and size at a time. To minimize this gap, there is a rst intermediary, the retailer, which is the link between the consumer and the manufacturer. However, retailers only solve part of the problem because they can rarely aord to buy 1,200 sticks at a time. at is why there is a second intermediary, the wholesaler, which buys an acceptable quantity from the manufacturer and then resells an acceptable—that is, a smaller— quantity to a large number of retailers. e rst gap in quantity only partially justies the need for intermediaries because manufacturers can very well operate retail stores themselves and can also act as wholesalers. However, consumers, who only want a small quantity of a product, also want to be able to buy an assortment of products in the same category. For example, hockey enthusiasts want to get skates, shin pads, pants, socks, a hockey jersey and all the remaining equipment they need to play their favourite sport. ey will want to buy everything at the same place, if they can. Because most manufacturers specialize in a product or a limited range of products, a second gap results: an assortment gap is the dierence between a manufacturer’s product line and all the products that a consumer wants. Once again, specialists (retailers and wholesalers) bridge this gap. ey assume responsibility for combining dierent items within the same category to create the assortments that consumers are seeking. is is primarily the role of wholesalers. Not only are wholesalers the only ones able to buy sucient quantities of products from manufacturers, but the fact that they can sell dierent products to each retailer also enables them to make protable transactions with each retailer. However, to fully satisfy customer needs, a retailer must supplement a wholesaler’s basic assortment with other items that can usually be obtained from rival wholesalers of its main supplier. In this way, retailers strive to round out an assortment established by a given wholesaler.

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In practice, this is not a simple process because, to thrive, most retailers must oer more than one family of products to their customers. e same retailer will thus carry equipment for downhill skiing, cross-country skiing, tennis, running, etc. Retailers will need to do business with more than one wholesaler to be able to oer all these products, with a number of them specializing in only a few families of products. Two other logistics functions help maximize the eciency of these adjustment activities: warehousing and transportation. Products must be stored by intermediaries and there must be modes of transportation between them. If products need to be shipped across borders, customs specialists may also intervene occasionally to facilitate transit between countries. e logistics function is therefore a two-way street: it is absolutely essential that the information required for the physical transfer of merchandise in a network circulate optimally. Owing to its strategic importance and complexity, logistics and operations management is often administered separately from marketing.

11.2.2 Financing function Intermediaries may also facilitate transactions by oering nancing options to customers and suppliers alike. For instance, retailers like Canadian Tire, e Bay and Rona oer their customers credit cards to make it easier for them to shop. In the wake of the 2008–2009 recession, which triggered a clampdown on business credit, Walmart decided to oer nancing to some of its suppliers. In addition to helping suppliers weather a crisis, this practice allowed Walmart to strengthen ties between intermediaries in its distribution network. Producers can also extend nancing to distribution intermediaries. For example, business market producers like General Electric can directly oer nancing services. e nancing function also goes from the consumer to the retailer, which may seem counterintuitive. Apart from the payment function, which is a form of nancing, some bargain retailers transfer a portion of their costs to their customers. By buying large volumes at Costco, for instance, customers assume the warehousing costs of merchandise, in a sense performing a nancing function for the retailer.

11.2.3 Research function Another function intermediaries fulll is to gather information about consumers and the market, which they transmit to manufacturers and other intermediaries. Business research allows better network planning and coordination. e information gathered may also concern competitors, intermediaries or producers in the market.

11.2.4 Title transfer function Not only must a product move from the producer to consumers, but it must also change title. We will see later, in Section 11.3, that this transfer of title is not automatic from one distribution intermediary to another. Some intermediaries refuse to assume the risk associated with acquiring merchandise.

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11.2.5 Promotion function Promotion, when done through distribution intermediaries, is called a push strategy. In this case, an intermediary is encouraged to order a larger quantity of a product and give the brand a privileged position on store shelves. Such encouragement often takes the form of a sales promotion aimed directly at the intermediary. Alternatively, businesses can try to get around the distribution network and intermediaries by directly addressing the nal customer through sales promotions or advertising. is is referred to as a pull strategy. In short, a good marketing communication strategy must take into account a product’s distribution network.

11.2.6 Sales function A distribution intermediary ensures that contact will be made with customers, which entails selling the product. is function implies searching for potential customers and meeting with them to convince them to buy the product. Buying a product means more than just actually acquiring it; it also requires nding acceptable suppliers, evaluating their products and entering into contractual agreements with them. e sales function involves negotiations between intermediaries and suppliers. Such negotiations establish the link between supply and demand, and inuence the selling price and the other conditions of the nal oer directly or indirectly.

11.2.7 Customer service function Intermediaries are often called upon to provide physical support and customer service. Physical support notably involves installation, delivery, taking over the repair procedures during the manufacturer’s warranty period and, sometimes, regular maintenance under an extended warranty.

11.2.8 Payment function Payment management is increasingly used as a strategic tool by businesses. Several organizations Customer service entails supporting the customer before, during and have built a competitive advantage with their after the purchase. suppliers by ensuring quick payment. For example, Walmart and Costco are renowned for their eective inventory management but also for their expedient supplier payment policy. Conversely, some businesses delay paying suppliers to secure more liquidity (Fox, 2015). is nancial strategy is used by distribution intermediaries whose large size gives them an advantage over small suppliers. Amazon, which manages a huge number of small independent suppliers, has a cash conversion cycle of less than 24 days. e cash conversion cycle is a measure of the time between when the business is paid by its customers and when it pays its suppliers. Amazon thus benets from 24 days of liquidity to nance its operations.

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All of these functions must be performed to ensure that the gap between supply and demand is lled. Marketing managers must therefore carefully select the intermediaries with whom they do business and dene the conditions of their relationship. Given that many intermediaries have become specialists in certain functions because of their knowledge of the market, economies of scale, experience or relationships, it is safer to assign them these tasks. In the next section, we will look more closely at the various types of intermediaries involved in distribution networks.

11.3 Types of distribution intermediaries Marketing managers must consider various types of intermediaries when they set up their distribution circuit or network. Each producer tries to partner with intermediaries that will enable it to better achieve its objectives. Two types of businesses can be distinguished in a distribution network: traders and agents. In addition, a set of facilitators carries out logistics functions, for example.

Distribution circuit or network The combination of all the businesses that perform the various distribution functions and help transfer a product, service or title from a producer to a consumer.

11.3.1 Traders Traders are intermediaries like retailers and wholesalers that buy merchandise that they oer to their own customers. ey assume all the risks inherent in possessing the merchandise.

Retailers Some retailers are physically present on a site, while others operate mainly on the Internet. Nearly two million people work in the retail trade sector in Canada (Statistics Canada, 2014).

Retailer A merchant whose main activity is making direct sales to nal consumers.

e retail trade has gone through major changes in recent years. At one time, consumer goods companies like Procter & Gamble, Colgate and Kraft dominated distribution networks. Yet today, retailers are most prominent on the market. Why? First, producers continually launch new products, and space on store shelves is limited. A typical supermarket oers about 40,000 dierent products, while more than 100,000 products compete for space on store shelves. Second, producers oer the same products in several dierent stores, and dierentiation between these identical products sold in a number of places can be made only on the basis of price. Retail stores thus pressure their suppliers to constantly lower prices. ird, this erce competition based on price has led companies to consolidate. Example 11.1, on page 325, presents a few elements of the strategy that producers can apply to react to this kind of consolidation. In this example, the Snapper brand chose which product lines to distribute in large chains to preserve its margins on its more sophisticated models. ere are two major retail strategies: high-level service stores and discount stores (Coughlan, Anderson, Stern & El-Ansary, 2006).

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High-level service stores e business model for high-level service stores provides maximum quality customer service and a wide selection of products in each category. In terms of product management, these companies oer a narrow range of products but good depth in each product line. For instance, the chain store Running Room has qualied sta to advise customers in their selection at its nine stores in Québec. Each point of sale oers workshops on running and information on the major races in the area. Running Room oers most of the 11 brands of jogging shoes. Because each model is permanently available, inventory turnover is sporadic. Discount stores In contrast, discount stores operate with slimmer prot margins and a much quicker inventory turnover. ese types of stores can oer the lowest prices because their buying volumes give them bargaining power with their suppliers, which allows them to cut costs and transfer a portion of these savings to consumers. ey can cut costs by oering a limited selection of products in each category, by choosing a location where rent is low and by providing a more rudimentary atmosphere and customer service. In Chapter 12, we will see that price also has non-monetary aspects. Consumers who buy in discount stores benet from a lower monetary price but often accept higher non-monetary costs. ey agree to travel farther from home to buy a product, buy larger quantities and assume part of the warehousing costs. In comparison with Running Room, Sports Experts stores use a low-price strategy. ey only oer a few models of the six major brands of jogging shoes, and inventory turnover is faster. e sta is less specialized in jogging. However, there are 17 categories of shoes. e example of Sports Experts and Running Room shows that the business model of high-level service and low price forms a continuum. Canadian Tire exemplies a store that oers running shoes at a discount. It carries only one model of running shoe, retailing at around $30. Discount stores, the fastest growing category of retailer, have upended distribution networks the most in the past 40 years. Walmart is often presented as an extreme example of a discount store, but new competitors go even further, as explained in Example 11.2. Contrary to public perception, these hard discounters attract all sociodemographic proles as their market. In short, the hard discount business model consists of cutting costs and simplifying processes for all of the distribution intermediaries’ functions (see Figure 11.2, on page 327), not only for the logistics function, as a number of their competitors do.

Wholesalers Retailers are the most widely known intermediaries because they have direct contact with nal consumers. e same is not true for wholesalers. In fact, in 2014, 775,000 people were working in the wholesale A merchant who buys large quantities of trade industry in an average month, representing about 5.5% of merchandise from producers and importall employees in Canada (Statistics Canada, 2015). e growth ers, and resells it in varying quantities to retailers and industrial or institutional rate of these intermediaries is higher than that of retailers and users. producers. e previous section described the important logistics

Wholesaler

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Hard discounters

European retail stores like Aldi and Lidl can offer groceries at prices 30% to 50% lower than traditional supermarkets by ghting hard against costs (The Germans Are Coming, 2008). These hard discounters have cornered a market share of nearly 40% in Germany. In the United States, Aldi already has over 1,375 outlets. This European discount giant was established in the 1960s by Karl and Theo Albrecht (the latter died on July 24, 2010, at the age of 88). Karl and his brother were ranked as the two richest individuals in Germany. Their 10,000 stores across Germany, Austria, France and the United States generate annual sales of almost €40 billion (Allemagne: Mort de Karl Albrecht, l’un des fondateurs d’Aldi, 2014).

Rather than stocking up to 16 varieties of ketchup like a traditional supermarket, hard discounters only offer one. Given this lack of variety, the number of products offered in each store is reduced to 1,400, a fraction of the tens of thousands of products sold in a traditional grocery store. For example, Aldi stores typically have a oor area of 800 sq. ft., versus 30,000 sq. ft. or more for larger grocers. Aldi and Lidl sell private-label goods, and a fee is charged to customers who pay with a credit card. Relationships with suppliers and producers are on the simplest terms possible. The focus is on long-term relationships; there is no promotion or advertising, and coupons are not used.

function performed by wholesalers, but the fundamental characteristic of this type of intermediary is that it takes title to the product. Regarding title, wholesalers are mostly involved with distributing tangible property and are particularly active in the auto, food and pharmaceutical industries. ey eectively take control of most of the distribution functions of the marketing mix. Going through a wholesaler allows producers to reach a larger customer base but limits their capacity to control their product’s positioning. e phenomenon of consolidation has also aected wholesalers. Nearly 40% of them belong to companies in other industries (Lebreux, 2006), many of which are retailers that want to better control their distribution network. e consolidation of retailers has also pushed wholesalers to consolidate among themselves to restore the balance of power among intermediaries.

11.3.2 Agents Agents perform functions similar to those of a manufacturer’s Agents sales team, and receive a commission for their services. ese Intermediaries who do not buy the intermediaries are called manufacturers’ representatives, manmerchandise that they sell for producers. ufacturers’ agents, distributor agents or brokers (sales functions performed by agents are discussed in detail in Chapter 10). Given that agents do not have title to the product that they sell, producers retain better control of the marketing mix. An agent, for instance, does not have control over pricing policies. In addition, producers obtain more information about the market because agents need to relay orders to them. By comparison, wholesalers communicate only the information that they want to share. Another advantage of using an agent as an intermediary

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is that agents oer a variety of complementary products while ensuring exclusivity in each product category. Buyers deal with a single intermediary for each product category, thus reducing the number of contacts required in distribution. Further, producers do not have to worry about inter-brand competition with their agents.

11.4 Distribution channels Up to this point, this chapter has analyzed distribution intermediaries on an individual basis. To better understand distribution, we will now look beyond the functions of distribution intermediaries and consider the links between these interDistribution channel mediaries and how they are organized among themselves. at is where distribution channels come in. A channel is a subset of a A network of interdependent organizations distribution network. e concept of interdependence is important engaged in a process aimed at making a product or service available for use or in this denition because a channel’s performance depends on the consumption. quality of the work of each of the members (Coughlan et al., 2006). Marketing managers who need to choose their best options should know the advantages and disadvantages of the various types of channels. Distribution channels can be described according to two typologies. e rst classies types of channels according to how many distribution intermediaries they include: channels are either direct, short, long or ultralong. e second way of classifying channels is based on the links between the various intermediaries. Apart from the number of intermediaries, how intermediaries are managed and the coordination among them are relevant factors.

11.4.1 Distribution channel length When dening a channel by its length, two major categories of channels can be distinguished: direct and indirect channels. Indirect channels are in turn divided into three main types: short, long and ultralong (see Figure 11.3). Producers and nal consumers are involved in performing some of the distribution functions; they thus form part of each channel.

Figure 11.3 Length of distribution channels

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Direct channel A direct channel is characterized by the absence of an intermediary between producers and consumers. In this case, producers carry out all the distribution functions. As a result of being in direct contact with consumers, producers are better informed about the market. ey can then react more quickly to changes in consumer attitudes and developments in the environment, and can modify the marketing mix accordingly. In addition, producers do not need to convince intermediaries that these changes are valid. e use of this type of channel also makes it much easier to introduce new products on the market. Notably, the Internet has let producers improve interaction with consumers, accelerate reaction time and extend the geographic boundaries of markets. However, it would be wrong to believe that the arrival of the Internet has helped direct channels exclusively. iTunes, Amazon and eBay are among the many intermediaries that have emerged and prospered in the e-commerce landscape. Even though producers avoid paying a commission to intermediaries, they need to have sucient nancial and human resources to perform all the distribution functions properly. In addition, when they must form a sales team for a product, producers face all the problems inherent in hiring such sta: recruitment, training, motivation and even control. Many industrial products are distributed through a direct channel. For instance, IBM’s huge computer systems are sold solely by company representatives. Orders are quite large and the number of transactions is reduced. Dell uses the Internet to sell directly to individuals, and its sales team serves large corporations. e sizes of orders and the services that such businesses expect justify the use of a specialized sales team. Direct channels are also used to sell consumer goods like Avon cosmetics and Amway household products.

Indirect channel ere are three main types of indirect channels: short, long and ultralong. ese channels involve at least three, four and ve levels respectively. Short channel A short channel is frequently used for durable goods like furniture, household electrical appliances and clothing. Its main advantage over longer channels is that it gives producers more control and more eective cooperation with retailers during communication campaigns. By not paying commissions to wholesalers, producers can seek a broader customer base in some cases. However, the functions performed by wholesalers are not eliminated. is means that producers wind up with higher selling expenses because they need to conduct their own advertising campaigns to attract retailers and nal consumers, in addition to building up their internal and external sales organization. Physical distribution problems are also more frequent and credit risks are higher. Long channel A long channel is generally used for routine consumer goods like food, beverages and beauty products. In the case of industrial products, the long channel

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has the same number of levels but the intermediaries are sales agents and distributors instead of wholesalers. is type of channel has the same advantages and disadvantages as an ultralong channel, but to a lesser degree. Ultralong channel e ultralong channel, whose sequence is shown in Figure 11.3, is the most common. In this type of channel, a manufacturer goes through agents to get to wholesalers. Ultralong channels are frequently used in the food industry, particularly for imported products. A manufacturer that uses an ultralong channel reduces its cash ow needs and can better plan production because it needs to enter products into inventory and usually receives rm orders from wholesalers. e costs of maintaining a sales team are also minimized because the manufacturer deals primarily with agents, and there is a small number of customers to visit. e main disadvantage is that, as a result of the large number of stakeholders involved, the system is fairly inexible, which restricts the manufacturer’s manoeuvring room. e loss of direct contact with nal customers also sometimes aects the quality of after-sales service. In addition, because wholesalers often oer retailers competing brands, retailers are more likely to be disloyal. Frequently, manufacturers are required to revert to a pull strategy, resulting in extra costs. Finally, in such cases, producers must also organize sales promotions among their wholesalers, which raises selling expenses. e above illustrations of various types of channels focus on physical goods. However, the concept of a distribution channel or network can also apply to services. Service and idea providers must also make their goods available to target markets. Because factors relating to physical distribution mostly do not apply to service providers, the most common types of channels in these cases are the direct channel and the short indirect channel. Such distribution channels are commonly used in insurance, nancial services and package tours. For certain products like automobiles and subsequent repair services, it is not always easy to separate the service dimension from the characteristics of the physical good.

11.4.2 Integration of distribution intermediaries e length of a distribution channel does not explain all the dynamics among intermediaries. To clearly understand what a channel is, we must also look at the coordination and integration of the functions of various intermediaries. is integration has led to the creation of several forms of vertical marketing systems in recent years. A vertical marketing system (VMS) is a professionally managed network with centralized management. Members of the channel(s) do not work independently. On the contrary, their eorts are coordinated for a single purpose: to maximize the positive inuence on customers. ey achieve operating savings as a result of the combined eect of their size, bargaining power and the concentration of their expertise. As competition intensies, management becomes more complex and consultations with specialists become increasingly important. us, a good vertical marketing system can provide expertise in areas such as geographic location, inventory management, promotion, sales merchandising and information technology.

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ere are three types of vertical marketing systems: the corporate VMS, the contractual VMS and the administered VMS (see Figure 11.4). In terms of the vertical integration of distribution functions, these three types of VMS form a continuum, with the corporate VMS being the most integrated, and the administered VMS being the least integrated. Vertical integration is one of the factors that lead to the consolidation of an industry. When intermediaries are integrated, they have more bargaining power with other intermediaries in a distribution channel.

Figure 11.4 Vertical marketing systems

Corporate VMS In a corporate VMS, one company owns every level of the distribution channel and performs every function, from manufacturing or procurement to distribution and retail sales. In this type of network, coordination and control are easier, in principle, but the nancial resources required are very extensive. Multinationals H&M, Apple, and Nike are all examples of such networks. In the case of Nike, the corporate VMS is only a small part of the company’s distribution network because these channels are used primarily to take the consumers’ pulse and serve as a communication vehicle.

Contractual VMS A contractual VMS is a network in which cooperation and coordination are the products of a legal agreement that clearly sets out the responsibilities and commitments of each member of the channel. Voluntary chains and franchises are examples of contractual vertical marketing systems. Voluntary chain A voluntary chain is initiated by a wholesaler that organizes a group of distributors (typically retailers) into a program that standardizes the way they operate and lets them achieve economies of scale in areas like advertising, IT and

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purchasing. Most of these chains have been formed to better withstand competition from large chain stores and to retain a loyal and viable customer base for whole­ salers. Voluntary chains are found in several sectors, including food products with Sobeys (Sobeys, Safeway, IGA extra, rifty Foods, IGA, Foodland, FreshCo, Price Chopper, Lawtons Drugs, Rachelle­Béry, Needs, Marché Bonichoix, and Tradition Markets), and auto parts with NAPA AUTOPRO. Franchises Finally, franchises are undoubtedly the best­known type of contractual VMS. eir popularity is probably due to the fact that they are the most widespread type of VMS and the one that has grown the fastest in the last few decades. A fran­ chise is an agreement entered into between the owner of a corporate name and busi­ ness system—the franchisor— and another organization or person—the franchisee. e franchisor provides the franchisee with a product or service, a work method and a corporate name or trademark. Franchising is characterized by how the franchisor is paid, which is sometimes quite complex. Remuneration typically includes a lump sum and royalties on gross sales. Payments for rent (for the space and facilities provided by the franchisor), a portion of the prots, and consulting fees are sometimes added. In almost all cases, the franchisee must also pay an advertising fee because the franchisor is normally the one in charge of communications and hence the manager of the advertising fund. Example 11.3 shows the amounts involved in establishing a franchise and the diverse versions of this formula found in Québec. Example

11.3

Franchises in Québec

Tim Hortons (www.timhortons.com) has a network of more than 3,596 fast food outlets in North America. To obtain a Tim Hortons franchise in Québec, a franchisee must invest between $450,000 and $490,000, of which 30% must be unencumbered. There is a lump sum, called an , of $50,000, and royalties represent 4.5% of gross sales. Rental costs and advertising fees are equal to 8.5% and 4% of gross sales. The franchising formula is associated above all with retail trade, mainly in the fast food industry (McDonald’s,

Kentucky Fried Chicken, Mikes, St-Hubert restaurants, Cora, etc.), but it is spreading to a wide range of products and services. According to the Conseil québécois de la franchise (www.cqf.ca), there are more than 300 franchisors in Québec and over 7,000 franchisees. These franchisees operate in elds as varied as real estate (Century 21), drugstores (Jean Coutu, Pharmaprix), car rental (Discount, Hertz), travel (Uniglobe Voyages) and body care and ambiance products (Fruits & Passion).

In principle, being part of such a system is equally advantageous for franchisees and franchisors. For franchisees, many of whom have no managerial experience and little business experience, a franchisor provides a training program and operating man­ ual; helps choose the site, the construction or layout plans and a brand image; and

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provides assistance in advertising, promotion and accounting as well as free consultations. For franchisors, which most often lack the nancial or human resources to support a fast growth rate over several years, franchisees contribute necessary capital and, in particular, the time and motivation of owners who want to succeed. Although belonging to a franchising system increases the chances of success, there are still risks involved. It would be wrong to assume that a franchisor’s reputation automatically guarantees success. A franchisor’s performance is based on periodically renewing its business model and continuously adapting to consumer tastes. e example of Dunkin’ Donuts in Québec illustrates this point quite well. e master franchisor of this chain failed to react quickly and vigorously enough to the actions taken by its main competitor, Tim Hortons. While Tim Hortons was opening new restaurants at a steady pace, Dunkin’ Donuts’ prots faltered, and the number of its outlets shrank from 250 to 115 between 1997 and 2003. e situation had deteriorated to such an extent that in 2003, franchisees instituted proceedings against their franchisor for $7 million, and a number of them stopped paying their royalties. Some of the reasons cited to justify this lawsuit included “an inadequate product oering, ineective advertising campaigns and a clearly decient marketing strategy” (our translation of Bourassa, 2003). is legal saga ended in 2016 when the Supreme Court of Canada refused to hear the appeal by the franchisor, which had been sentenced by the Québec Court of Appeal to pay its franchisees $18 million (Olivier, 2016).

Administered VMS In an administered VMS, the coordination of members and their eectiveness hinge on the power and inuence of one of the members of the channel. In this system, the intermediaries involved do not sign a legal agreement. In most cases, a dominant brand manufacturer that is recognized as having considerable expertise in marketing its product takes control. Such expertise rallies the support of both distributors and retailers. is cooperation can take the form of an information exchange through a networked information system, a standardized automatic inventory ordering procedure, a standardized automatic accounting system and, above all, very eectively coordinated shared promotional eorts. Take, for example, Caterpillar, one of the world’s leading manufacturers of heavy construction equipment, whose philosophy has always been to help its independent distributors meet customers’ demands quickly and eectively. With that in mind, it decided to set up a computer network accessible to all its distributors. rough this system, Hewitt Equipment, a local Québec distributor, is connected to all other U.S. and Canadian distributors, as well as to Caterpillar’s central warehouse in Morton, Ohio. is system allows each distributor to keep a lower parts inventory and helps the manufacturer to plan production better. More importantly, it helps distributors provide better customer service. As a result, Hewitt can guarantee delivery of any replacement part within 48 hours, which gives it a signicant competitive advantage. It is no coincidence that its main competitors have also installed systems in an attempt to match or perhaps outperform Caterpillar’s system.

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11.5 Selecting a distribution network Among the decisions that a company’s management must make, the choice of distribution channels is critical because it fundamentally aects all other decisions relating to the marketing mix. Selection of a pricing policy necessarily depends on choices made concerning the size, quality and number of intermediaries. e company’s decisions regarding the size and quality of the sales team will hinge notably on the number of distributors and their training needs. If a manager opts for mass distribution, more resources will probably be allocated to advertising and promotional activities than to a sales team. Products will also likely be modied; packaging will need to play a role in a product’s appeal to consumers. Finally, decisions concerning the distribution network may prompt a company to establish long-term relationships with other companies. Its degree of exibility regarding this marketing mix component is thus reduced because it will also need to consider the interests of other companies when making changes.

The choice of a distribution network is not limited to the physical delivery of a product.

People might think that the main goal of all marketing managers is to ensure distribution of their products to all potential customers in every segment. Yet that would not always allow a company to reach its objectives; for instance, pursuing that goal would cause total marketing expenses to increase tremendously.

Given this dilemma, marketing managers must make a host of decisions at various levels of the distribution network. e rst step is to determine the intensity of the distribution that will best meet the company’s objectives: this decision will impact the types of channels used and the distribution intermediaries selected. For example, for everyday consumer products, intensive distribution often leads to the selection of a long or ultralong channel. A manufacturer will then be required to choose wholesalers, retailers and sometimes even manufacturers’ agents. Having selected intensive distribution, the manufacturer will also need to manage multi-channel conicts. Section 11.6, on page 345, focuses on this problem, which is increasingly common in marketing. e approach presented here is particularly useful for businesses with well-established product lines. At the start-up of a business, it is often hard to nd a satisfactory distribution network. e new company distributes its products to the intermediaries that agree to put them up for sale. In such a case, a pre-existing network chooses its suppliers. Usually, this means that the new business must cultivate the members of the existing network to convince them to attach enough importance to its products. For instance, the business may supply the network with a unique product for which consumers are willing to actively search. Ironically enough,

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it is only when new products have proven themselves—often after a solid network of intermediaries has been established—that a company can actually choose a network. Nonetheless, it is important for a business to evaluate the relevance of its distribution choices from time to time.

11.5.1 Determining the intensity of distribution e intensity of distribution depends on the degree of market coverage that a company seeks, which is partly guided by customer expectations. e intensity of distribution at the customer level will determine that of the levels upstream. ere are three types of distribution: intensive, selective and exclusive.

Intensity of distribution The number of intermediaries used at each level of a channel.

Intensive distribution Intensive distribution is characterized by extensive coverage of all appropriate points of sale (retailers or wholesalers) where the company wants to stock and sell a product. is form of distribution is usually sought by manufacturers of everyday consumer products and industrial goods. Intensive distribution is linked to mass marketing, which aims to make a product as easily available as possible for the largest target possible. If a company’s objective is to capture market share, intensive distribution is the optimal strategy. For instance, the maker of a new kind of candy will probably choose intensive distribution. If it is a new player, it will probably not obtain maximum coverage right away, because its product will not be widely recognizable enough for all intermediaries to want to stock it. Nonetheless, the term intensive distribution still applies because the maker’s intention is the determining factor in this case. Intensive distribution requires the greatest involvement from a manufacturer in terms of both management resources and promotional resources. In this case, a promotion must make the product known to the largest possible number of consumers, designate the intermediaries that will sell the product, and encourage consumers to visit them. is means that a number of intermediaries must get involved to make this type of distribution eective. Intensive distribution thus tends to be associated with long or ultralong distribution channels. Several distribution channels can also be used simultaneously, which is referred to as multi-channel distribution (see Section 11.6, on page 345).

Selective distribution Selective distribution is characterized by the availability of a product at points of sale where retailers are willing to give it special attention and meet certain criteria required by the manufacturer. It covers a very large range of situations, from the upper limit of exclusive distribution to the lower limit of intensive distribution. In selecting this type of distribution, a manufacturer benets from the advantages of exclusive distribution while achieving relatively broad market coverage. Given that usually 80%

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of sales come from 20% of the points of sale, it is protable to choose only the best intermediaries: this reduces support costs and grants the manufacturer greater control. What’s more, selective distribution may be more protable for all the members of a channel simultaneously. e prot is divided into fewer shares, and stands a good chance of being more substantial. For many products, distribution that is too intensive leads to price wars that stunt the protability of all intermediaries and often reduces customer service quality, as shown in Example 11.1, on page 325. Selective distribution promotes an attitude of cooperation among the members of the same channel. Knowing that doing so will increase their chances of reaping the rewards of their eorts, distributors will support the manufacturer’s promotional eorts more enthusiastically, keep more products in inventory and provide better service—and this will translate into increased sales. is type of distribution is typically favoured by manufacturers of shopping goods (e.g. clothes or furniture) and specialized goods, and by manufacturers of industrial products, which require a special eort from members of the distribution network (see Example 11.4).

Example

11.4

Selective distribution in the fashion industry

Mackage (www.mackage.com), a company founded in Montréal by two young designers, has clearly grasped the importance of handpicking its distribution intermediaries. It makes magnicent apparel that combines leather with wool and nylon in cuts that atter the female gure. Its clothes appeal to young women who are seeking a unique, desirable and sophisticated look, and who can afford to pay for it. Hollywood stars like Kim Kardashian and Gwyneth Paltrow have been smitten by Mackage creations.

The brand also benets from advantageous product placements in American TV series like The Flash, Arrow and Once Upon a Time. It is therefore not surprising that these creations can be found only at specialized retailers in Canada and the United States like Holt Renfrew, Saks Fifth Avenue, Bloomingdale’s and Henri Bendel, and more recently in agship stores in Laval, Toronto and the SoHo district of New York. These outlets attract and connect with highly sought after customers and know how to serve them well.

In conclusion, it is much easier and more protable for a company to choose selective distribution when it is well established and has a good reputation. Still, it is often the only option available to young businesses that want to benet from a network of intermediaries that will really give their product a chance.

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Exclusive distribution Exclusive distribution exists when a product is available at only one point of sale in each geographic zone. It often corresponds to niche or high-end positioning. Companies that opt for this type of coverage not only benet from the advantages of selective distribution, but also usually have greater control over the policies of the members in the channel with regard to communication, pricing and customer service quality. e target objective is to optimally showcase a product. It is also not uncommon for companies to require that their distributors not sell rival products. Contrary to the other forms of distribution, ocial agreements in writing are the rule in exclusive distribution. In several cases, the intermediaries themselves seek such exclusive territorial rights. In categories like women’s fashion and certain household appliances and high-end home stereo systems, exclusivity secures major competitive advantages. On the ip side, it allows companies to be very demanding. For instance, when Bang & Olufsen decided to sell its famous stereo systems in Québec, it initially chose only two retailers on the island of Montréal, making sure that its products were demonstrated under optimal sound reproduction conditions. e technical know-how of the sales clerks had to be outstanding and their product presentation techniques impeccable. It is much easier to select and impose this type of distribution when the product and company image is very strong, that is, when the product is dierentiated or specialized.

11.5.2 Selection of the type of channel and intermediary e length of a network is closely linked to the selection of the type of intermediary because preference for a type of point of sale limits the selection of intermediaries upstream to those that can provide the necessary support. e chain of intermediaries already in place will then determine the length of the network. Sometimes this optimal chain of intermediaries should be avoided because it is too expensive and results in a selling price that will be too high for consumers, or a prot margin that will be too low for the manufacturer. A compromise must then be reached between the ideal service level demanded by consumers and the objectives of the manufacturer and intermediaries. Choosing the right types of intermediaries is paramount because it is the intermediaries that will determine whether a given target market will be eectively reached. Too often, intermediaries are chosen only on the basis of their ability to reach the target market and not because of all the benets that they can provide. In fact, knowledge of consumers’ expectations and the functions that each type of intermediary can perform eectively is important so as to reach the best balance between consumers and the business.

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When the current network’s intermediaries cannot meet consumers’ expectations eectively or economically, new types of intermediaries or new distribution arrangements that are dierent from traditional networks should be considered. Distribution intermediaries are selected based on six criteria: cost and protability of each distribution option, control of the network, image of the intermediaries, sharing of functions, compatibility with the existing network and exibility of the network.

Cost and protability of each distribution option When choosing a distribution intermediary, businesses inevitably weigh the cost and protability of each distribution option. is means that for each distribution option, the sales volume, the margins that must be allowed for and the cost of supporting the intermediaries in the channel must be estimated.

Control of the network e purpose of control is to enhance the coordination of intermediaries that will guarantee the smooth running of the network and solid relationships between the players (Calantone & Gassenheimer, 1991). Control can be exercised by making compliance with the manufacturer’s marketing policy a stipulation. A business can thus discourage horizontal competition to avoid price wars among members of the distribution network. By keeping control over the distribution network, a manufacturer retains its power to determine the segmentation, targeting and positioning of its product.

Image of the intermediaries e image of the intermediaries—that is, consumers’ perception of their competence—is also very important. Ideally, there should be synergy between the manufacturer’s actions and those of the distributors.

Sharing of functions As we have already seen, for a channel or a distribution network to function eectively, functions must be shared equitably between the intermediaries, and all members must be aware of and accept their role. is sharing of functions determines the respective responsibilities and commitments of the network members and is set out most often in policies on communication, pricing, sales conditions, territorial rights, etc. In a vertical marketing system, this sharing of responsibilities is stipulated in a contract or an informal agreement.

Compatibility with the existing network When a network is modied, which in most cases means the addition of a new channel, compatibility with the existing channels must be conrmed. e new channel must not disrupt the existing network excessively; if it does, network intermediaries might boycott the new channel. is would cause an increase in horizontal competition, with adverse results. Resolution of the resulting multi-channel conict will be covered in the next section.

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Compatibility with the existing network is particularly important when selective distribution exists and the intermediaries have made exclusivity commitments. In this situation, existing intermediaries usually perceive the addition of a new channel as a lack of loyalty on the part of the manufacturer. As a result, exclusivity is quite often infringed upon, and support for the manufacturer’s products plummets. It is therefore very important to take the time to meet with the stakeholders of the existing network and explain the logic of the addition of the new channel and the desired eect on the current network.

Flexibility of the network Economic dependency established between a producer and its intermediaries quickly becomes very dicult to change. is is why, before making a long-term commitment, it is necessary to check that the option considered will yield substantial benets in terms of costs, control or growth. A manufacturer therefore looks for intermediaries that will not aect the network’s exibility, because such exibility allows the manufacturer to benet more from favourable opportunities that arise and gives it a chance to reduce the cost of its errors. A network’s exibility is particularly important when a business is at the start-up stage or when any new product series is launched.

11.6 Multi-channel distribution with an omnichannel strategy Managing distribution extends beyond a simple choice of distribution intermediaries. First of all, the dynamics of distribution are strongly aected by technological advances and evolving consumer behaviour. One of the most challenging issues in distribution is how to manage several channels at the same time. In this section, we will look at how distribution channels evolve and how to eectively manage several channels simultaneously.

11.6.1 Multi-channel distribution e multi-channel distribution strategy to reach nal consumers Multi-channel distribution is a very widespread practice and is considered “the rule rather A distribution mode that combines several than the exception” (Frazier, 1999). Apple, for instance, distribdistribution channels to reach different utes some of its products across a broad spectrum of distribution target markets. channels, including its website, specialized boutiques and big box stores. Whether by way of more traditional channels like physical points of sale or through more recent means like the Internet, several channels are available to companies to ensure that their goods and services are moved to consumers. e drive to achieve growth is a major motivator for implementing a multichannel distribution strategy. An immediate benet of this type of distribution is

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broader market coverage, which translates into higher sales (Kotler, Armstrong & Cunningham, 2008). In addition, the use of several distribution channels can reduce risk because of the diversication of companies’ sources of revenue (Coelho & Easingwood, 2003) and the setting up of entry barriers in the market served (Frazier, 1999). Multi-channel distribution not only increases points of contact with consumers, but also gives consumers the opportunity to reach companies through the channel of their choice. Companies are facing increasThe use of several distribution channels to reach the nal consumer is the rule ingly fragmented consumer markets that rather than the exception. cannot be served by only one distribution channel. e use of several channels is thus an eective solution to this problem, as well as being a segmentation tool for businesses. In addition, in the current environment where consumers consult several distribution channels before making their purchases, companies that use various channels become more rmly anchored in consumers’ minds.

11.6.2 Disruption in the various channels Strategic considerations linked to distribution have been expanding over the years because of the emergence of information technology, e-commerce, mobile commerce, and the consolidation of some intermediaries. Rapid advances in information technology and e-commerce have disrupted traditional distribution channels. Some intermediaries have seen their inuence weaken with the advent of new distribution methods. For instance, the arrival of the MP3 format and streaming in the music industry eliminated a number of record stores. ese traditional businesses found it very dicult to compete with the prices and broader selection of their virtual competitors, some of which operate illegally. e disappearance of these intermediaries is referred to as disintermediation. At the same time, new intermediaries appeared on the scene such as iTunes, Apple’s digital multimedia library player and management software. is process is known as reintermediation. Typically, a new form of specialist intermediary tends to surface when there is a gap between supply and demand of a large number of consumers. Recent examples include the emergence of new equipment and accessory retailers for jogging, mountain climbing, scuba diving and even extreme sports. Platforms like Etsy, Airbnb and Uber represent a new category of intermediaries that let small producers reach consumers.

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Information technology has also cut distribution costs through tighter and more ecient supply management. e consolidation of intermediaries is particularly apparent at some large retailers that have acquired greater inuence over distribution channels. Consolidation occurs when the weighting of the businesses within an industry increases. For example, food distribution has become fairly consolidated across Canada and Québec. ree major players control nearly 50% of food distribution in Canada and 66% in Québec: Loblaws–Provigo, Sobeys–IGA and Metro (Ministère de l’Agriculture, des Pêcheries et de l’Alimentation, 2015). Of the major food chains, Steinberg disappeared in 1992 and Provigo and IGA were integrated into other groups in 1998. e three large chains also strongly aect global supply because they each have a wholesaler that supplies all their stores with food and nonfood products. Given this context of consolidation, the manoeuvring room of the other players has been signicantly reduced. Such changes in distribution networks’ balance of power aects companies’ overall business strategies. Example 11.1, on page 325, presents the case of Snapper lawn mowers, which concretely illustrates the eects of the consolidation of an industry on a company’s distribution strategies.

11.6.3 Conicts linked to a multi-channel distribution strategy Possible conict among the various channels is another disadvantage of using a multi-channel distribution strategy. Although channel conict between panel members can result from several factors; the literature on the subject shows that three major sources of conicts commonly emerge: incompatibility of objectives, poorly dened roles and rights, and dierences in perception (Webb & Lambe, 2007).

Channel conict A situation in which members perceive that other members’ behaviour is preventing them from achieving their own goals or is detrimental to them.

Incompatibility of objectives Each channel has its own objectives, which often dier from those of the other channels. Incompatibility of goals is a common situation and may result from several factors such as an intermediary’s prot margin, competition with another distribution channel or the availability of a product supply. For example, a manufacturer wanting to ensure rapid growth in its market will tend to maintain a low-price policy. is strategy may conict with the objectives of some of its retailers, which would like to benet from improved short-term protability by adopting higher prot margins (Kotler, Filiatrault & Turner, 2000).

Poorly dened roles and rights e second most common source of conict, poorly dened roles and rights, is characterized by confusion in the denition of the sphere of activity and the functions of each distribution channel. is type of conict arises when several channels compete for the same customers. e personal computer market is often cited as an example

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of this source of conict. A number of manufacturers in this segment distribute their products directly to consumers, while some retailers also attempt to sell such products to the same customers. is ambiguity in the denition of the roles and functions of each member of the distribution network often results in tension between these entities.

Differences in perception Dierences in perception are the third source of conict frequently encountered in multi-channel businesses. is type of conict results from poor communication among the members of the distribution channels. e fact that they have dierent visions of the same situation results in diverging responses. For example, a manufacturer whose attention is focused more on the product may not have any direct contact with consumers. However, consumers may be the main focus of another member of the channel.

11.6.4 Omnichannel strategy to resolve conicts Conicts in distribution channels can obviously hinder existing relationships between the various channels of a company and possibly undermine the success of its distribution strategy. After learning about the various sources of conict, it is important to look at the strategies that could mitigate such tensions. When conict resolution is highly personalized, an omnichannel strategy represents a sustainable solution to the tension. “Complete and transparent integration For instance, a manager can recongure the rm’s distribution of all channels and points of contact to channel by paying attention to each point of contact with the offer an optimized and personalized expecustomer at all times, under conditions suitable to the customer. rience” (Salle, Lacerte, Dupont & Grégoire 2014, p. 39). us, customers may be able to do a product search both in store and on their cell phones. e company must then ensure that the experience is consistent between contact points. Customers can purchase online and choose to have the product delivered to their home or pick it up in store.

Omnichannel strategy

e omnichannel strategy is easier to execute when the distribution intermediaries are highly integrated. It is simpler for Apple to oer an omnichannel experience than it is for a computer manufacturer that does not have specic points of sale in Canada, such as businesses like Acer or Asus. However, these non-vertically integrated businesses may use economic and personal incentives to convince the other intermediaries to collaborate with their strategy. For example, the manufacturer may ensure that a retailer receives a portion of the revenues if the buyer comes from the retailer’s territory, regardless of whether the sale was made by Internet or in store. is lets the manufacturer emphasize the customer experience rather than the transaction itself. Companies can also integrate information systems to share key data on customers more eectively.

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An omnichannel can also resolve conicts based on the marketing mix elements. A manufacturer may thus decide to adopt a dierent marketing mix for each channel. e various distribution channels may be dierentiated so that the same product cannot be in several channels at the same time. By making certain products available only through a particular channel or distributing dierent brands of products across various distribution channels, a company can avoid cannibalization among channels. For instance, in Example 11.1, on page 325, Snapper opted to supply dierent product lines of the Snapper brand to independent stores and to the Sears department store chain. It even created a dierent brand to serve Walmart. Given all the conicts that may occur when managing several channels simultaneously, the idea of silo management may seem appealing. However, it is important to keep in mind that, like it or not, the customer already uses several channels. For example, showrooming has become a widespread practice. is occurs when customers systematically compare prices by consulting mobile sites while shopping at a retail store. ese customers try out a product in store but will buy it online to take advantage of a more competitive pricing policy. In this context, a well-coordinated omnichannel strategy becomes essential. A study by the rm GfK found that between 18% and 39% of consumers are showroomers (El Chami, 2016). ese gures correspond to baby boomers and Generation Z respectively.

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Summary Of the decisions facing a company’s management, those involving distribution are among the most critical because the choice of business channels fundamentally affects all other decisions about the marketing mix, and will commit the company to long-term relationships. To make the best choice possible, managers must clearly understand the different functions that the distribution network can perform. This knowledge will help them to balance consumer needs and the networking of existing intermediaries. It will then be easier for managers to encourage intermediaries to provide enhanced customer service. Managers must pay special attention to the part of the network that is in contact with customers, that is, retailers. For

managers who must choose among the various congurations of intermediaries on the market, it is good to know the advantages and disadvantages of the types of channels (ranging from direct channels to indirect channels, whether short, long or ultralong) and to study the characteristics of the links between such intermediaries. The traditional distribution network seems to be fading in importance, so managers must understand how vertical marketing systems (VMS)—organizational, administered or contractual—will help them better coordinate the efforts of intermediaries so as to have a positive inuence on customers. Armed with this core knowledge, managers will be in a better position to choose the best distribution network and to manage conicts between channels.

Suggested readings Textbooks

Websites

Mackage: www.mackage.com

Hadeld, R. B. & E. L. Nichols Jr. (1999). Introduction to supply chain management. Upper Saddle River: Prentice Hall.

Conseil québécois de la franchise: www.cqf.ca

Tim Hortons Restaurants: www.timhortons.com

Rosenbloom, R. (1999). Marketing channels: a management view, 6th ed. Fort Worth: Dryden Press.

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Price Chapter outline 12.1 Product prices 12.2 Environmental inuences on pricing 12.3 Pricing objectives 12.4 Pricing strategies 12.5 Pricing methods

Learning objectives After reading this chapter, you will be able to: describe the marketing manager’s role in pricing and price management; understand the role of price within the marketing mix; identify the factors that inuence price; describe the most widespread pricing objectives; dene the most common pricing strategies; describe and comment on pricing methods.

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In this chapter,

we will examine one of the most visible variables of the marketing mix: price. Setting a price for (or pricing) a product or service is an important decision because price has a decisive inuence on customer purchase probability, along with sales volume, market share and company protability. Decisions on pricing generally have the most direct short-term impact on a business’s sales, and by extension its long-term prots and viability. According to the Boston Consulting Group, a 1% rise in prices has up to four times more impact on company prots than a 1% decrease in general expenses and xed costs. is is why it is very important to know and understand every detail related to price. e concept of price can be examined from dierent angles: for example, microeconomic analysis and management accounting. In this chapter, pricing policy management is approached from the perspective of the company’s marketing strategy. In marketing terms, pricing is a continuous process that must be coherent with the entire marketing mix. e business must rst prioritize its pricing objectives according to the strategic role of the price and to its internal and external environment. Based on these objectives, it formulates a pricing strategy and method. e nal phase of the application and control of price policies is followed by a new cycle of pricing. At rst glance, pricing is integrated in the marketing model presented at the start of each chapter of this book (see the ow chart). However, because price often is of prime importance in consumers’ decision-making process and given that prices can be adjusted quickly, this cycle is much faster. Just think of prices at gas stations that change several times a week or sudden price increases in supermarkets.

Flow chart

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In the rst part of this chapter, we look at how a company’s environment aects its pricing objectives and strategies. We then explore the pricing objectives and strategies most widely used in businesses. Lastly, we describe the most common pricing methods in detail.

12.1 Product prices What is a price? From the seller’s standpoint, it is the amount of Price money that the buyer pays in exchange for a product or service. The amount spent plus the time and From the company’s standpoint, it is a way to cover its expenses psychological cost incurred to obtain a and make a prot. In economic terms, it is where the supply and product or service. demand curves intersect. From a more global perspective, price serves as a guide to convey the value society places on dierent products and services. From the buyer’s perspective, which is what interests marketers most, price is what a customer gives up or is willing to sacrice to obtain a set of benets. e denition of price, presented in the margin, integrates both the objective dimension of price (that is, the amount spent), and non-monetary dimensions (that is, the time invested in research and consumption of the product, along with the psychological costs). Consider the example of a consumer who wants to go downhill skiing. For that person, the price of a day on the slopes represents much more than the price of the package that includes a lift ticket and access to the ski runs. It is also the time, eort and money required to nd a worthwhile package, get to the ski hill, procure appropriate equipment, and pay for gas, meals and maybe a babysitter. It is fairly easy to grasp that the eort exerted—along with the time, duration and diculty of travel—is integral to the price. e psychological eort associated with the perceived risk in consuming the product and the eort made to decrease this risk are harder to assess. People who want to ski at a hill they have never visited before incur a psychological risk that varies according to their skiing abilities. ey might feel uncertain whether their expectations will be met about the degree of diculty of the slopes, how crowded the hill will be and the length of the lineups. To reduce their uncertainty, consumers can obviously contact the customer service representatives at the ski hill, talk to people who visit the centre regularly or consult specialized websites. To evaluate the total cost of their ski outing, these skiers should consider the cost of nding information, which represents an additional type of eort. As we will see in Example 12.1, on the following page, a business can use these various dimensions of price to its advantage. e IKEA example underlines that it is essential to integrate the concept of price into the concept of value. e value of a product is the set of benets derived from consumption of the product minus the price associated with consumption. If the price exceeds the perceived benets, the consumer will not buy the product. Conversely, if the perceived value far exceeds the price, the company misses the opportunity to obtain a higher price for its product. When setting prices, one must

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An assemble-it-yourself pricing strategy

IKEA is one business that has clearly understood these various dimensions of price, and has integrated them into its business model. This furniture and décor industry titan targets segments sensitive to the objective dimension of price. However, these same segments are willing to incur higher non-monetary costs. By buying the Billy classic bookshelf, the customer spends about $70 but also agrees to put in the time and effort to transport and assemble this piece of furniture. By not assembling the furniture itself, IKEA saves considerably on shipping and storage costs, which gives it more manoeuvring room to offer its merchandise at a low

price. This business model has repercussions beyond the marketing mix variables of price and distribution: IKEA meticulously designs its products to minimize the psychological cost for the consumer. If the assembly instructions are vague or too difcult to follow, the Billy bookshelf may be abandoned half-assembled in the middle of the living room, exposing the customer to humiliation and teasing from friends and family. Frustrated at not being able to enjoy a product that is supposed to be functional and practical, this customer will get the impression that he paid much more than $70 for it.

constantly ask what benets the customer will derive. A good price is set by assessing the rest of the marketing mix, and by clearly understanding the challenges of segmentation. Distinct segments associate a dierent value with the benets oered. When precisely targeting one or more segments, it is the combination of benets and prices that makes pricing so complicated.

12.2 Environmental inuences on pricing Pricing practices are shaped by diverse environmental inuences. As Figure 12.1 shows, competitors, consumers and distribution intermediaries play a role in how a company sets prices for a product or service. e pricing strategy a business adopts is closely related to those of its competitors, because consumers inevitably compare

Figure 12.1 Environmental inuences on price setting

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prices. Price is determined not only according to what the customer is willing to pay; it is also limited by what competitors charge and by the presence of substitution products on the market. e possible responses and reactions of competitors when pricing decisions are made must also be considered (Rao, Bergen & Davis, 2000). Uncertainty can be reduced by regularly collecting detailed information about competitors, specically regarding their technological approaches, product style, consumers’ perception of their products, organizational structures, marketing expertise, manufacturing processes, production costs, preferred pricing strategies and policies, prot margins and changes in market share. It is important to consider all the competitors, which oer dierent means of meeting customers’ needs. In this era of globalization and rapid diusion of new technologies, the choices available to consumers are growing rapidly and constantly. As we saw in Chapter 5, external environmental factors inuence all decisions concerning the marketing mix, pricing included. e subsections below present two additional constraints: the economic environment, and governments and the legal environment. roughout the chapter, we will also specify the ways that the competition, consumers and distribution intermediaries strongly inuence the pricing process.

12.2.1 Economic environment Marketing managers must monitor economic cycles because they aect the way consumers perceive prices. In times of prosperity, demand for goods increases, consumers have condence in the economy and their ability to pay, and price increases are accepted more easily. Further, costs usually do not increase at the same pace as prices, which boosts prots. Of course, the opposite phenomenon occurs during a period of recession or stagnation. Many organizations specialize in compiling and transmitting economic indices, constantly gathering data on the level of condence in the economy, along with consumers’ perceptions. is level of condence in the economy and the resulting perception of ability to pay aects the importance that consumers place on price. Demand is not aected homogeneously by an economic crisis. Some product categories are hit hard, while sales might increase in other categories. e recession in the late 2000s was particularly tough for Starbucks: demand for lattes, mochas and cappuccinos costing more than $4 each plunged. Starbucks had to lay o over 6,700 employees in 2009 and saw its prots evaporate by close to 75% in a single quarter. During the same period, competitors like 7-Eleven, Dunkin’ Donuts and McDonald’s, which oered ltered coee for under $1, saw sales rise. In times of economic turmoil, low-cost and customer-value pricing strategies are often advantageous, while a prestige pricing strategy could stunt sales signicantly.

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12.2.2 Governments and the legal environment Governments inuence prices in several ways: in the energy, transport and communications sectors, among others, regulators and agencies reserve the right to approve or reject requests for price increases. e dual objective is to protect consumers while ensuring that companies earn a fair return on investment. In other sectors, such as agriculture, governments inuence prices indirectly by permitting marketing organizations to be set up to dictate the supply conditions for consumers and sometimes change demand conditions for producers. e milk quota in Québec is a good example of a mechanism whereby producers are allowed to regulate supply with government approval. Industry subsidy programs run by dierent levels of government also impact prices. In the grain and lumber sectors, the commercial disputes between Canada and the United States are largely linked to subsidies and their repercussions on export prices. Similar practices in agriculture have also sparked trade disputes between the United States and the European Union. Lastly, the federal government, because of its inuence on the monetary system (mainly on the cost of funds), can aect prices and price increases, notably for prices of imported and exported products. e legal environment has a marked inuence on price setting. Price-related practices are stipulated in the Competition Act and the Consumer Packaging and Labelling Act at the federal level, and in the provincial Consumer Protection Act. ere is a ne line between a vigorous competitive practice and an unfair practice. e legal environment impacts pricing objectives and strategies to the extent that companies deliberately adopt behaviours intended to avoid attracting government attention to their pricing practices. Given the many legal implications of pricing, legal consultations often shape pricing decisions.

12.3 Pricing objectives All companies set objectives when pricing their products. ese price objectives must be consistent with and subordinate to the company’s global objectives and marketing strategies. However, because of its fundamental strategic importance, price is often used as a reference point when marketing and business objectives are dened (see Figure 12.2). For example, low prices are central to the business models of companies like Walmart and WestJet. In some situations, a target price is set for a product before it is even designed. Many Chromebook laptop computers were designed from the outset to be sold for around $250. ese computers, which run on the Chrome operating system and are developed by Google, are mainly used to surf the web. Technical choices had to be made very early in the design phase by manufacturers like Samsung and Acer. Notably, they chose slower chips, limited memory capacity, and screens that oer less contrast and luminosity. As a result, at the psychological threshold of $250, consumers can buy a computer that costs less than most tablets

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and cell phones on the market. Even in these cases, price objectives must be clearly stated because they have a direct inuence on price-setting strategies and methods.

Figure 12.2 Pricing process

Prot maximization is the objective mentioned most frequently by companies. However, due to organizational and environmental constraints, companies often envision several objectives simultaneously. ese objectives may even be contradictory. For example, a company may want to keep the support of a distributor that wishes to lower the price of a product oered to nal consumers, while at the same time wanting to project an image of prestige through high prices. To help it select the appropriate option, it is important that the company dene a hierarchy of price objectives. When dening a price objective, a company must frequently choose between short-term and long-term prots. Long-term prots are often related to growth objectives for sales or market share, yet prot targets are often set over the short term. In addition, a company’s objectives change over time and are aected by its environment. For example, a company that pursues a general growth objective for a newly launched product may adopt an objective of market share growth. Later in the product life cycle, this objective may change to one of making as much prot as possible in the short term because the product category is in its decline phase.

12.3.1 Prot-oriented objectives For most businesses, the main objective is to make a prot. ey must therefore set a price that allows them to recover their production and development costs and earn a prot. When the price objective is prot maximization, a company will determine its prices in a way that generates the highest income possible relative to its costs, to reach the highest prot over a given period. e prot maximization objective usually has a short-term horizon. For many managers, the targeted prot is an acceptable prot, that is, a prot that lets the company survive and at the same time convinces shareholders that the managers are doing a good job. is attitude, known as satiscing, is surprisingly widespread. It can

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often be observed in small family-run businesses whose objective is to make enough of a prot to let the owner live comfortably. In contrast, many large companies pursue a similar objective of acceptable prot, but over the long term. Aware of their strategic position in the eyes of the public and government representatives, they know that they are expected to act in the public interest. is attitude is quite common in the United States, largely because of antitrust laws. e phenomenon is less prevalent in Canada— the large Canadian chartered banks are a Because of its great strategic importance, price is often used as a reference point notable exception. Hydro-Québec faces a when marketing and business objectives are dened. similar situation because it must justify its rate increases to the Régie de l’énergie du Québec and prove that they are fair. e objective related to target return (on investment) is similar to that of satiscing (acceptable prot). However, it is more precise because the acceptable prot margin is specied. e objective is expressed as a percentage of the invested capital. erefore, a manufacturer may set the objective of earning a 25% return on invested capital. e company must be able to calculate the income generated by a product and evaluate the total amount of investment required to produce this income, which encompasses costs related to nancial investments, marketing, production equipment, and so on. Involving a long-term strategy, this type of objective is used mainly by managers who are concerned with nances and want to evaluate the use of funds invested in product development. is measure lets them compare the various uses of limited nancial resources. For most large companies, this type of objective has clear administrative advantages because it lets the company compare returns across several divisions. e target return objective is very useful for managers in charge of designing and launching new products. It orients go/no-go decisions, and guides launch activities.

12.3.2 Competition-oriented objectives Many companies set an objective of maintaining or increasing their market share; price most often plays a key role in attaining this objective. is objective is attractive because it is much easier to estimate a market share than to verify whether the prot is really maximized. In addition, companies that pursue market share get notable results by constantly monitoring competitors. In general, this objective is very popular with dynamic companies that aim to dominate a market, like General Electric, Kraft and Coca-Cola. It is justied by the fact that a company can achieve economies of scale if it has a large market share. For a company with a long-term vision, a policy of gaining market share is very attractive when the total market is growing, because it implies a benecial tradeo

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between lower short-term prots and higher long-term prots. is strategic objective is nonetheless somewhat risky, and requires solid knowledge of the marketing environment and of competitors’ resources and strategies. In fact, a larger market share does not automatically guarantee higher prots. Once again, to succeed, the company must set its price structure according to volume sold. In industries that serve mature markets or ones with few competitors, the objective is often to maintain the status quo. To maintain market share, companies set prices according to market trends and to follow the competition. e implicit objective pursued is to maintain a balance between production capacity, sales volume and profitability. is approach implies that the company is satised with its market share and its prot and that it thinks that any steps taken to change the situation will probably do more harm than good. is choice has little short-term risk. Businesses rarely admit to pursuing this unambitious objective of keeping things in balance and preserving the status quo. Lastly, in an industry where the threat of newcomers is strong, for instance a mature market, existing companies may set the objective of erecting or maintaining entry barriers. ese companies often use sharp price cuts and encourage customers to sign long-term contracts when a new competitor surfaces.

12.3.3 Sales-related objectives An alternative to setting objectives based on prots or market share is setting sales-related objectives. ese objectives have the advantage of being easy to quantify because the objectives can be measured using data coming exclusively from the company. ese data are more accessible than data on the competition or consumers. A sales-related objective is often used to achieve short-term results. e problem with this approach is that it might be disconnected from a general objective of boosting protability or increasing market share. is type of objective is frequently seen in companies that have production overcapacity or considerable inventories to liquidate over the short term. During an economic crisis, many car dealers set sales-related objectives to get rid of unsold stock. is objective rests on the assumption that higher sales inevitably lead to higher prots, or at least stable prot levels. For a sales-related objective to be compatible with a prot-related objective, the company must ensure that variable expenses do not rise faster than sales. is is therefore a very risky objective for companies that do not closely monitor their operating expenses and do not precisely determine the relationship between their sales and these expenses.

12.3.4 Customer perception-related objectives Price signals the product’s positioning to consumers. A company can use price as a lever to project the desired image of the product. If it wants to adopt a positioning of exclusivity, it should set prices that consumers perceive as high. For example, a Louis Vuitton handbag can easily cost more than $2,000. LVMH, the parent

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company of Louis Vuitton, preserves this brand image by refusing to grant Louis Vuitton licences to external companies. Quality control during production is particularly rigorous. However, preserving the desired image does not end with brand management and production. To underscore that price is a signal of quality, Louis Vuitton never reduces prices or oers rebates. When inventory is not sold, LVMH will destroy the merchandise rather than oer it at a lower price (e Substance of Style, 2009). Conversely, a product perceived as accessible will be sold at an aordable price. A retailer brand like Winners even incorporates aordable prices into its advertising slogan: “Find fabulous for less.” ese two examples seem obvious, but clearly illustrate the key concept of customer-perceived value. To understand the message conveyed by price, consumers’ behaviour must be determined based on the product attributes they consider important, their capacity to properly judge these attributes and their attitude toward risk.

12.3.5 Distribution intermediary-related objectives In some industries, distribution intermediaries greatly inuence pricing. For example, in the retail trade, a store like Walmart can pressure manufacturers to try to impose a price that is in line with its own positioning. In the case of an exclusive retailer with a luxury positioning, this pressure may result in a higher price. For a discount retailer, this pressure may have the opposite eect. If the retailer represents a large portion of a company’s sales, the company can set the objective of retaining or recruiting the distributor’s support. In the short run, this dependence on the distributor is not a problem because it lets the company maintain or increase market share and sales. In the long run, however, this objective may lead to loss of control over pricing policies and product positioning.

12.4 Pricing strategies In the previous section, we explored the results a company could hope to attain using the price variable of the marketing mix. In this section, we look at how it can go about achieving these objectives. e means that a company uses to meet the objectives form a strategy. A strategy is more concrete and detailed than an objective. To be useful and applicable, a pricing strategy must include a relative price and a timetable. e link between objectives and strategies is more complex than it seems. e same objective can lead to the use of several dierent strategies, depending on organizational and environmental constraints. Take the example of a company that launches a new product with a prot maximization objective. A skimming strategy (see denition on page 365) maximizes prots when consumers are insensitive to variations in price and the products on the market are highly dierentiated. However, if the company is facing consumers who are very sensitive to variations in price and if it is in a position to achieve large economies of scale, a penetration strategy is the best way to maximize prots.

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e next subsections present the pricing strategies used most frequently in marketing. For clarity purposes, the pricing strategies are grouped by context of use. e strategies listed in Table 12.1 are used when competitive pressure is strong, when consumers have a decisive inuence on the company, and when the company’s costs play a key role. Because price management is usually concerned with more than a single product at a given time, we also explore pricing strategies for product lines and in dierent phases of the product life cycle.

Table 12.1

Pricing strategies and contexts Context

Pricing strategy External inuences

Competitive pressure

Price leadership Competitive parity Low-cost pricing

Consumer preferences

Price signalling (for example, prestige price) Internal inuences

Company costs

Cost-plus pricing

Product lines

Complementary product Price bundling Customer value

Product life cycle

Launch: skimming or penetration Growth: lower prices because of competition Maturity: discounts and reductions Decline: sharp drop in prices or withdrawal

12.4.1 Pricing strategies determined by competitive pressure When competitive pressure is strong, three main strategies are usually used: price leadership, competitive parity and lowest price.

Price leadership strategy A price leadership strategy is an approach usually favoured by dominant market players: Apple uses this strategy for its iPod and iPhone.

Competitive parity strategy e competitive parity strategy, although not risky over the short term, may become a problem for companies that are weaker than their competitors. A company that uses this strategy often cannot charge a high price because its product is not dierentiated enough from those of the competition. In addition, companies

Price leadership strategy This strategy consists of adjusting a price and expecting the competitors to follow suit. Competitive parity strategy This strategy consists of setting the same price as the market average or the leader.

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that use a competitive parity strategy usually cannot oer the lowest price because their production costs are generally higher than those of the competition. Lastly, the leader is in a position of power because its large market share often allows economies of scale. Businesses that use parity pricing often nd themselves in a situation where the leader can reduce its prices at any time while remaining protable. For example, Apple is the leader in the smart watch category. It lowered the price of its Apple Watch Sport from US$350 to US$300 in spring 2016, which put pressure on parity rms like Motorola and Samsung. It is therefore essential for a company that uses a competitive parity strategy to weigh the competitive advantage it can gain over the long term.

Low-cost pricing strategy A low-cost pricing strategy is viable over the long term only for businesses that have a competitive advantage in production costs. Walmart and WestJet, examples mentioned above, use the low-cost pricing strategy because their production and operating costs are particularly low. In addition, their size grants these businesses considerable bargaining power with their suppliers. ey can thus realize economies of scale while providing good customer service. Some busiLow-cost pricing strategy nesses, like American automakers, use this strategy when their This strategy involves systematically offerproduction capacity is underused. In these situations, however, ing the lowest price on the market. this strategy is not viable over the long term.

12.4.2 Pricing strategies dictated by consumer preferences Would you be willing to pay $27,240 for two melons? is is an actual price that some Japanese consumers paid for perfect fruit (Hokkaido melons fetch record ¥3 million at season’s rst auction, 2009). ese fruits are not for everyday consumption; they are oered as gifts. In Japanese culture, the gift ritual is very important—one must oer something very valuable and artfully packaged to loved ones and business partners. e company Sun Fruits seized this business opportunity by opening luxury boutiques selling awless fruit grown exclusively in Japan. Prices this high create expectations in consumers. Price, in this case as in many others, signals product quality to consumers. Conversely, consumers harbour no illusions about the quality of a product oered at a very low price. ey also have realistic expectations of the quality of a product whose price is considered reasonable. A high price like that of melons that cost more than $27 000 creates strong expectations regarding product quality while decreasing the perceived risk level. Many consumers nd high prices reassuring and a guarantee of quality. In a buying situation they consider risky, some consumers would prefer to rely on price and brand reputation rather than to closely examPrestige or quality signalling ine the product to judge its quality. Many companies aim for a pricing strategy prestige eect when choosing a pricing strategy. However, for a prestige or quality signalling pricing strategy to be eecThis strategy consists of setting a price that will project the desired image of the tive, the product in question must obviously oer real physical product to consumers. or psychological advantages. e association between high price

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and high quality must be anchored in a solid understanding of the values consumers associate with the product or with the brand. What’s more, this association is not universal: it depends on each individual’s experiences, personal knowledge and habits relating to the product, as well as the trust inspired by the company marketing the product. e exorbitant prices Sun Fruits charges for its fruit are aimed at only a small segment of the Japanese population. e American company Bose uses a prestige pricing strategy for its high-end stereo systems and home theatre systems. e prices of its models are generally 50% higher than those of competing models with the same basic characteristics. Bose makes a particular eort to stand out by giving its electronics a distinctive design. e rm also uses a patented technology (the Acoustimass System) to reproduce lowfrequency sounds. Its communication strategy focuses entirely on these two competitive advantages and helps justify its premium prices in a very limited market segment.

A high price creates expectations in consumers and signals product quality to them.

A prestige pricing strategy can usually target only the market segment that is made up of consumers who are sensitive to the social recognition that these product attributes promise (Wertenbroch & Skiera, 2001). A prestige price is eective when the buyer cannot judge product quality. is is why the strategy is frequently used for technically complex products, but it is certainly not limited to the high tech category. For a wide array of household products, consumers do not have sucient information to evaluate product quality. ey will then use price as an indicator of quality. is price–quality association can be observed in the case of products like oor wax or items sought by professional buyers, such as electric drills.

12.4.3 Pricing strategies based on business costs e cost-plus pricing strategy is used most frequently by man- Cost-plus pricing strategy agers (Nagle, Hogan & Zale, 2016). It consists of setting a This strategy consists of setting a product price by adding a margin to production costs. A cost-plus stratprice that lets the company achieve a egy allows prot maximization only in the rare cases when the predetermined prot margin. average unit cost remains constant at all points on the demand curve. However, most often companies can benet from economies of scale and a learning curve that negates these conditions. e aw with this approach is that it is centred on the company and ignores information from consumers and the competition. A cost-plus strategy is justied when a company has little information about demand. In addition, the simplicity of this approach makes it easy for managers to justify this strategy to their organization and clients.

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12.4.4 Pricing strategies for a product line Up to now, we have discussed strategies for companies oering only one product. Obviously, businesses most often manage several products at a time. is means that they must project a coherent structure within a product line and between product lines. is coherence must take into account the benets linked to each product in the line and the range. In this context, the following pricing strategies are implemented: complementary product pricing strategy, price bundling strategy and customer value pricing strategy.

Complementary product pricing strategy A complementary product pricing strategy consists of selling one central product at a low price, while complementary goods like accessories, spare parts or services are sold at a higher price. For example, a Canon PIXMA MG2920 Complementary product pricing strategy inkjet printer sells for about $50 (including a set of ink carThis strategy consists of selling the central tridges), but a set of cartridges alone costs $29.99. is type of product at a low price, while complemenstrategy is particularly protable when the customer is captive tary goods are sold at a higher price. after the product is bought, as is the case with printer cartridges.

Price bundling strategy e price bundling strategy lets businesses increase their sales volume and market share. Bundled sales can also ease the introduction of a new product on the market (Stremersch & Tellis, 2002). For example, imagine a marketing manager at McDonald’s who is responsible for introducing a new avour Price bundling strategy of McFlurry. To maximize the penetration of this product on the market, the manager can oer the new McFlurry with each This strategy consists of offering a product sandwich at an advantageous total price. is strategy enhances with a group of items that is sold at a the new product’s visibility and helps publicize it by allowing lower price than the sum of all products at their regular cost. consumers to try it. Season tickets to hockey games and opera subscriptions are also examples of price bundling.

Customer value pricing strategy In markets characterized by slowing growth or decline, customer value pricing strategies are becoming increasingly widespread. With this kind of strategy, a version of the product is oered at a very competitive price because that product has fewer options than other products in the line. For this strategy to be eective, the rm must precisely dene the benets consumers view as essential. A customer value pricing strategy targets a segment that is very price sensitive, and allows a brand to increase its market share considerably. For example, Procter & Gamble launched basic versions of its Bounty and Charmin brands of bathroom Customer value pricing strategy tissue in 2005. When the customer is loyal to the brand, a customer value pricing strategy can serve as a gateway to a prodThis strategy consists of pricing a product very competitively, but offering fewer uct range. Makers of economy cars like the Toyota Yaris use this options than other products in the line. type of strategy.

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12.4.5 Price and product life cycle Pricing strategies evolve over a product’s life cycle. Figure 12.3 summarizes the pricing strategies according to life cycle.

Figure 12.3 Pricing strategies and product life cycle

Setting the launch price of a new product is one of the most important decisions that marketing managers make. is decision usually determines the strategy used throughout the product’s life. It also assumes that the manager in question has predicted the shape of the product’s demand curve, future market conditions and the nature of possible competition. Two strategies can be envisioned: skimming and penetration.

Skimming strategy A skimming strategy consists of setting a high initial price to Skimming strategy establish an image of quality and stimulate demand that can easThis strategy consists of setting a high ily be satised by existing production capacity. When competiinitial price that is later lowered. tors enter the market, the company can lower the price and thus oer the product to a wider market. Initially, when the price is high, the business can maximize its prot by selling to this market segment, which is relatively insensitive to price. It thus targets innovators and early adopters. By lowering its price, it expands its target by skimming the second layer of consumers, who are more sensitive to price. e Rogers innovation diusion curve presented in Chapter 4 (see Figure 4.4, on page 99) shows that in the skimming strategy, the price follows the adoption phases of new products. is strategy is very eective for highly dierentiated products that are dicult for the competition to imitate. It is thus frequently used to promote complex high-tech products whose research and development costs are fairly sizable. A skimming strategy lets companies quickly recover these investments. To summarize, a skimming strategy is appropriate when launch costs are fairly high, when there is a market segment that is not very price sensitive, when competition is limited and when a company wants to quickly recover its investment costs.

Penetration strategy For a product that is similar to those of the competition or that can be imitated fairly easily, a penetration strategy is most suitable. is strategy involves setting a relatively low initial price that, at rst, does not cover all of the company’s investments, but

Penetration strategy This strategy consists of setting an initial low price.

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that lets it quickly capture a large market share, keep the competition at a distance over the long term and achieve a worthwhile prot once manufacturing costs have decreased signicantly. e objective of a penetration strategy is therefore to grab a sizable market share as quickly as possible by targeting the largest number of segments possible, eliminating potential competition and lowering the long-term manufacturing costs by realizing economies of scale attributable to the learning curve. As Table 12.2 summarizes, contrary to the penetration strategy, the skimming strategy lets a company immediately earn a prot on each item sold, and capture market share if it reduces the price at opportune times.

Table 12.2

Comparison of skimming and penetration strategies Skimming • Reduced in phases to gradually capture more market share

• Relatively low initial price to minimize competition and make a long-term prot

Objective

• Short-term prot maximization

• Long-term prot maximization

Advantages

• Quick recovery of costs

• Rapid market penetration

• Immediate prot

• Large market share

Denition

• High initial price

Penetration

• Reduction of competition Prior conditions

• Superior product that is difcult to imitate • Existence of a segment relatively insensitive to price

• Market sensitive to price • Economies of scale possible over the long term

Price reduction strategy During the growth and maturity phase of the product life cycle, competitive pressure increases. Most companies then decide to reduce their prices, and oer rebates and periodic price cuts. We will discuss these strategies briey, given that they are very similar to sales promotions, which were discussed in Chapter 9. Price reductions can be oered to distribution network members or to nal customers. Rebates given to distribution network members are intended to encourage them to market the product diligently. A reduction relative to a reference price is oered because a function or role has been transferred to another member of the network. A price decrease is provided as an incentive to carry out this function eectively. Some industries, like automobiles and apparel, favour this approach to stimulate their sales at various times of year and to liquidate their merchandise before new models are launched. is strategy is sometimes known as promotional pricing. Retailers in the furniture sector (for example, Brault & Martineau and Germain Larivière) commonly use this strategy. eir objective is to instill in the minds of potential customers the perception that they constantly oer the best quality–price ratio. However, using a periodic price reduction strategy has some risks. For one, the promotional price eventually becomes the regular price or the reference price in the long run; it thus loses its incentive power. e regular price may then be considered too

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high, and consumers will no longer be enticed to buy the product at that price. is is what seems to have happened to General Motors in recent years. Despite several years of frequent periodic rebates on most of its models, its market share has dwindled steadily, jeopardizing protability. Only its nancing division has been protable. Another consequence of this strategy is that it incurs high promotional costs. Procter & Gamble, after oering permanent low prices on a host of everyday consumer products to improve protability, decided to share the savings it achieved on its promotional costs with its customers. During the decline phase of a product’s life cycle, the company must decide if it wants to relaunch the product or accept its imminent death. If it decides to let the product perish, the company will lower its price dramatically to liquidate stocks. It also stops investing in the product in a bid to maximize sales before the product dies.

12.5 Pricing methods As a manager, how do you determine the best price for a product? Four main methods are used to do this: cost-based, competition-based, demand-based and customer-based.

12.5.1 Cost-based method e cost-based method is used very often by businesses that seek to make an acceptable prot (satisce), want to achieve a specic return on investments or want to highlight quality. It consists of calculating the cost price of a product and then adding a xed percentage that repre- Four main methods are used to set a product price: cost-based, sents a standard prot factor. e standard prot competition-based, demand-based and customer-based. factor is established so as to allow the business to attain its objectives. e cost price can be determined according to variable costs or total costs. e main advantage of this method is that it provides price-setting rules that are fairly simple to apply. Under the right conditions, it also guarantees the business a prot on all items sold. is is why it is still the most popular method in North America. Part of Costco’s nancial success is driven by the use of this pricing method. is approach harnesses the strength of businesses that have a competitive cost structure. However, it requires the ability to clearly calculate sales projections. In recent years, highly automated pricing systems integrated with production have allowed businesses to use this method even more easily. e main disadvantage of this method is that unit costs vary based on the level of production, and it is dicult to estimate sales and the level of production before setting the selling price. In addition, this approach does not consider consumer reaction to the price suggested.

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To set product prices and calculate the resulting protability, regardless of the pricing method used, marketing managers must know and understand the various components of the total cost of the products and the relationships between these components. ree types of costs must be considered: xed costs, variable costs and total costs. Fixed costs are those whose amount is independent of production volume (rent, depreciation, managers’ wages, taxes, insurance, etc.). ey remain constant even if production stops. Variable costs uctuate directly based on production volume (raw materials, energy needed for processing, direct labour, packaging, salespeople’s commissions, etc.). e total cost is simply the sum of these two amounts. Semi-variable costs vary according to production volume but not in direct proportion to the volume of activity. For example, supervisors’ salaries and employee benets are part of this category. e amount changes each time production reaches a certain level. It is important to recognize the existence of these costs and know how to calculate them. However, in this example (and in this chapter) we do not specify them because the objective here is to illustrate the concept, not to delve deeply into calculations. Marketing managers seek to understand how costs vary based on demand for a product, so that they can estimate the minimum demand that will allow protability. is calculation therefore lets managers evaluate the probabilities of exceeding the sales volume and thus achieving acceptable protability. One concept that is useful for understanding these relationships is the breakeven point, presented in Figure 12.4. Because this is a familiar concept, we will mainly discuss the possible components of the total cost and their consequences.1

Figure 12.4 Breakeven curves

1 To learn more about the mathematical aspects of the breakeven point, see Boisvert, Laurin and Mersereau (2007) and Pindyck and Rubinfeld (2005). Complete references for these two works can be found in the “Suggested readings” section at the end of this chapter.

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e components of the total cost of a product often determine the approach and reasoning marketing managers follow when setting prices. For example, in the paperboard industry, where xed costs represent a high proportion of total costs, prices are often set based on production capacity rather than with the goal of maximizing short-term prots. If they are operating under capacity, companies may decide to temporarily sell products at a price below the total cost; the margin between the selling price and the variable cost thus partly contributes to covering the xed expenses. ese companies hope that this condition will be only transitory, that the competition will not react too quickly and energetically, and that total demand will soon increase suciently to bring production above the breakeven point. In the meantime, this approach lets them decrease losses, retain key employees and keep equipment running. In these circumstances, price becomes a tactical tool for the company, and marketing objectives are temporarily set aside. However, in industries where variable costs represent a high proportion of the total cost, prices are set so as to produce the largest gross margin possible in an eort to cover variable costs and xed costs and thus generate a prot. Even under these conditions, a company may sometimes sell a product below the total cost in a bid to land a large order or increase market share. Most often, businesses hope to reduce unit costs not only by increasing quantities sold, but also by learning, from experience, to produce more economically. is is called the learning curve. In many industries, costs drop by 15% to 20% each time cumulative total production doubles. Following this concept, price is not set according to the current total unit cost but according to the future unit cost. is approach was popularized by Texas Instruments in the early 1970s and is still widely used in the electronics industry. In 2006, Sony set the selling price of its PS4 at US$599, although the cost of its electronic components was estimated at US$805 (Hesseldahl, 2013). By 2009, because of economies of scale, the drop in price of components and the learning curve, the production cost had fallen to US$336. Nonetheless, due to competitive pressure from XBOX 360 and Wii, Sony reduced the selling price to US$299. is method has its risks: it works well only if projections are precise, if it gives the company a competitive advantage and if the market develops as expected.

12.5.2 Competition-based method A company can set prices above, below or on a par with those of the competition in general or with those of its main competitor to give its products the desired perceived value. is method is often used by businesses that seek to maintain the status quo or that want to retain or increase their market share. In these situations, if market share decreases or if it has not increased as much as the company expected, it is easy to conclude that the price is at fault and should be adjusted to correct the situation. e problem is that competitors often adopt the same pricesetting method; if one company changes its price, all the competitors will follow suit. A price war then ensues that does not benet any of the players. is price-setting method has become more popular in the past decade due to intensifying global competition.

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In situations where consumers consider that competing products are fairly similar, the main advantage of this method is that it lets a company easily assess the value of the product relative to those of its competitors without having to do much research on how buyers make their decisions. is method is favoured by the fact that in very competitive markets, consumers are more sensitive to dierences other than price. However, price sensitivity varies depending on the situation. e main disadvantage for companies that adopt this method is that they are then at the mercy of the competition, and often end up making little or no prot because they did not take their production costs into account. In addition, the company must react each time its competitors change a price; it thus loses control over both its strategy and its protability. Another weakness of this method is that it assumes that the competition sets prices rigorously and intelligently, factoring in what consumers are ready to pay. is assumption often proves to be false; market conditions are rarely considered. Lastly, this approach does not suciently consider the dierences consumers may perceive between competing products. As a result, marketing managers neglect to highlight the strengths of their product or to use other means available to emphasize its comparative advantage. Positioning eorts, if there are any, are concentrated on the price aspect exclusively. is method has the same weakness as the cost-based method: it focuses on a single element and largely ignores consumer behaviour.

12.5.3 Demand-based method e demand-based method is related to the prot maximization objective. Each product has a demand curve that indicates the quantities that consumers are ready to buy based on the price at a given time. In most cases, the quantity demanded is inversely proportional to the price. e slope of the curve is linked to the elasticity of demand relative to the price. Regarding supply, the quantities increase according to the price consumers are willing to pay. Most product managers are very reluctant to use this method, thinking it is dicult to accurately draw a demand curve, or that the resources required to perform this task would be more protably invested elsewhere. Even if it is not always easy to draw this curve, it is important to retain the fundamental idea behind this method. In fact, many managers intuitively reason along these lines. e main advantage of the demand-based method is that it lets businesses maximize their prot. Its main disadvantage is that it is very dicult to apply. ere are currently no precise, reliable and ecient methods of estimating the demand curve of a new or existing product. Even when it is possible to precisely determine a demand curve, it is often related to a product class rather than a product specic to one company.

12.5.4 Customer-based method Newer than the other methods, the customer-based method stems from the rigorous application of the marketing concept to price setting. First, companies must

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determine the value the customer places on a product or service. is value is used as a ceiling when setting prices (see Box 12.1). Most often, this method precedes a quest for prot maximization. Box 12.1

What price should I charge?

When managers set a price, it must be based partly on cost, on prices competitors are charging and on consumers’ perception of the product’s value.

provide examples of how these approaches are used for the Québec market. For obvious reasons, the companies in question will remain anonymous.

To determine this value for current and potential customers, one can always ask them directly what price they consider fair. However, this approach is not necessarily the best: often customers want to bargain by suggesting a lower acceptable price than what they would actually be willing to pay, because they are afraid that the price the merchant proposes will be higher than what they have in mind.

First approach: conjoint analysis

For its part, the manufacturer or reseller of a product or service wants to know what price range is acceptable for customers, how much inuence price has compared to other product or service attributes and how customers perceive these elements. Various approaches can be used to nd out customers’ answers to these price-related questions. Two in particular have become very popular in recent years: conjoint analysis and price sensitivity measurement. Below we

Conjoint analysis breaks down consumers’ preference for different attributes of the same product to determine the utility or value associated with each of the attributes. According to this method, several combinations of product attributes are presented to potential customers, who indicate their relative evaluation of each combination. For example, a manufacturer that wants to determine the best format to offer at Costco warehouses and the optimal product price can use this method to obtain similar results to those presented in Figure 1. Because the brand is the most important attribute, the manufacturer that produces Brand A can determine whether it should, for example, offer packages of 28 units at a price of $21.50.

Figure 1 Evaluation of the optimal combination of product components according to conjoint analysis

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Second approach: price sensitivity measurement Price sensitivity measurement (PSM) allows managers to discover desirable and acceptable price ranges for a given product. According to this method, a sample of potential consumers is asked to answer the following four price-related questions: • At what price would you consider the product expensive? • At what price would you consider the product to be so expensive that you would not consider buying it? • At what price would you consider the product to be a bargain?

• At what price would you consider the product to be priced so low that you would suspect that its quality would be very low? By combining the cumulative percentage distribution curves (normal and inverted) of the answers to these questions, one can obtain the ideal price (according to the consumer) and the acceptable price ranges. A large manufacturer of hair products used this approach to obtain the results presented in Figure 2. Ideally, managers can combine the results of the two methods described above to set a selling price and at the same time determine the optimal combination of attributes sought by consumers.

Figure 2 Evaluation of a hair product using the PSM (price sensitivity measurement) method

Note : Thanks to the rm Ad Hoc Research for providing us with the results of one of its studies.

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According to Shapiro and Jackson (1978) and Nagle and Holden (1992), this method is used when a company sets prices according to the benets or value of a product. is process is therefore linked to customers’ perception of the product and the way they use it. ese perceptions of costs and benets must encompass both nancial and non-nancial factors. Although product managers have long recognized that this method is superior to other approaches, it has started to gain popularity only recently. is may be partly attributable to the major eorts required to implement it. e growing use of customer relationship management systems (CRM) and the large databases that result from them have paved the way for greater use of this method. Using this method, marketing managers quickly realize that price is more important for some consumers than others, and that perception of the benets derived from price also varies between individuals. e customer-based method almost always leads to market segmentation, and requires the attribution of monetary value to the tangible and intangible benets that consumers perceive in the product. is method must consider both the customers’ perceptions of the company and those of its competitors. e company can then position itself in relation to its rivals according to the benets that are important to customers. When properly applied, this approach also takes production costs into account. e company can thus conrm whether the suggested price will yield the desired prots. e main disadvantage of this method is that it is dicult to apply. It is not easy to clearly pinpoint the benets sought and especially to quantify the value of these tangible and intangible benets. However, the increasing use of multidimensional data processing methods can partially reduce these diculties. Another disadvantage of this method is that it cannot be employed without taking the other marketing mix elements into consideration. Because the price must reect the product value, it is very important that these other elements (product, communication, distribution and customer service) reect the benets and convey the real value of the product. In the end, a good price mainly allows a company to recover the real value of a product.

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Summary The concept of price is not limited to the simple monetary value of a product. The effort and psychological risk incurred by the consumer must also be considered. Several factors inuence price setting: marketers’ ideas about consumers’ perception of the value of a product, knowledge of the competition, and analysis of business costs, distribution intermediaries, governments and the legal and economic environment.

Pricing is a process that assumes a consistent alignment of objectives, strategies and pricing methods. Pricing objectives can be related to prots, the competition, sales, and distribution intermediaries. Pricing strategies can be dictated by competitive pressure, business costs, existing product lines and the phases of the product life cycle. The four methods of setting prices (or pricing) are respectively based on business costs, competition, demand and customers. Ideally, managers should combine all of these methods.

Suggested readings Textbooks Boisvert, H., Laurin, C. & Mersereau, A. (2007). La comptabilité de management: prise de décision et contrôle. Saint-Laurent, Québec: Éditions du Renouveau pédagogique. Engelson, M. (1995). Pricing strategy: an interdisciplinary approach. Portland, OR: Joint Management Strategy.

Nagle, T. T. & Holden, R. K. (2002). Strategy and tactics of pricing. A guide to protable decision making (3rd ed.). Englewood Cliffs, NJ: Prentice Hall.

Websites

Pindyck, R. S. & Rubinfeld, D. L. (2005). Microeconomics. New York, NY: Macmillan.

Ofce de la protection du consommateur: www.opc.gouv.qc.ca

Rao, V. R. (2009). Handbook of pricing research in marketing. Cheltenham, England: Edward Elgar.

Competition Bureau: http://www. competitionbureau.gc.ca/eic/site/cb-bc. nsf/eng/home

Photo credits Chapter 1

Chapter 7

Chapter and section opening: Unconvention / Shutterstock. com; p. 7: Sergey Kohl / Shutterstock.com; p. 13: Dragon Images / Shutterstock.com; p. 27: Ruslan Ivantsov / Shutterstock.com

Chapter opening: Evannovostro / Shutterstock.com; p. 221: Volkswagen; p. 224: Reproduced with permission from the Royal Bank of Canada; p. 229: L. M. Chabot

Chapter 8 Chapter 2 Chapter opening: Mohd KhairilX / Shutterstock.com; p. 35: Bellagio Theatre. Courtesy of Scéno Plus Inc.; p. 37: Ekaterina_Minaeva / Shutterstock.com; p. 53: Ververidis Vasilis / Shutterstock.com

Chapter and section opening: inter reality / Shutterstock. com; p. 245: Shulevskyy Volodymyr / Shutterstock.com; p. 257: DayOwl / Shutterstock.com; p. 261: Dima Sidelnikov / Shutterstock.com

Chapter 9 Chapter 3 Chapter opening: Lyciz Mill / Shutterstock.com; p. 59: SFIO CRACHO / Shutterstock.com; p. 72: Arthimedes / Shutterstock.com; p. 79: WHYFRAME / Shutterstock.com

Chapter 4 Chapter opening: Roland Shainidze / Shutterstock.com; p. 96: View Apart / Shutterstock.com; p. 103: bbernard / Shutterstock.com; p. 108: Gigira / Shutterstock.com

Chapter 5 Chapter and section opening: lulu and isabelle/ Shutterstock.com; p. 124: CTR Photos / Shutterstock.com; p. 146: symbiot / Shutterstock.com; p. 151: Yuganov Konstantin / Shutterstock.com

Chapter 6 Chapter opening: Boat Rungchamrussopa / Shutterstock.com; p. 162: schab / Shutterstock.com; p. 164: SEASTOCK / Shutterstock.com; p. 179: Photo of Pierre Pelletier; p. 182: © imarklab / www.imarklab.com/2016/12/ etude-oculometrique-dans-les-rayonsde-la-saq

Chapter opening: Nataliya Hora / Shutterstock.com; p. 271: Cepsum; p. 299: pim pic / Shutterstock.com

Chapter 10 Chapter opening: Gudng Du / Shutterstock.com; p. 309: Brian A Jackson / Shutterstock.com; p. 336: Rawpixel.com / Shutterstock.com; p. 345: Uber Images / Shutterstock.com

Chapter 11 Chapter opening: yuliaisupova / Shutterstock.com; p. 355: Kzenon / Shutterstock.com; p. 366: Krivosheev Vitaly / Shutterstock.com; p. 372: Monkey Business Images / Shutterstock.com

Chapter 12 Chapter opening: 4Max / Shutterstock.com; p. 384: photopixel / Shutterstock.com; p. 390: Zvonimir Atletic / Shutterstock.com; p. 395: George Rudy / Shutterstock.com

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Sources Index A

Aaker, D.A., 234 Ad hoc Marketing, 372 Adobe, 254 Advertising Standards Canada (ASC), 53 Adweek, 34 Agence QMI, 130 Agnihotri, R., 287, 288 Ahearne, M., 288, 320 Albors, M., 266 Alpert, L., 94 Amabile, T., 85, 91 Amazon.com, 194 American Customer Satisfaction Index (ACSI), 21 American Marketing Association (AMA), 5, 9, 52, 56, 156, 253 Anantharaman, M., 230 Anderson, E., 331, 334 Ansoff, I., 35, 36, 37, 38, 54 Argo, J.J., 218 Ariely, D., 198 Armstrong, G., 5, 148, 346 Arnold, T.J., 320 Arsenault, J., 67 Ashman, H., 226 Avionitis, G., 239, 241

B

Baack, D., 250 Balloffet, P., 256 Balooch, G., 97 Bartels, R., 25

Beauty Without Cruelty, 142 Bedos, J.-C., 73 Beer in Canada, 132 Belch, G. and M., 256 Belk, R. W., 210 Bembaron, E., 97 Benner, K., 277 Bergen, M.E., 355 Bergeron, J., 296, 308 Berry, L.L, 229 Bérubé, G., 128 Bhattacharya, C.B., 288 Boichuk, J.P., 288 Bolander, W., 288, 308, 309, 310 Boston Consulting Group (BCG), 39, 232, 352 Bouder-Pailler, 224 Bourassa, M., 339 Brasier, A., 255, 280 Brault et Martineau, 76 Brouillette, M., 67 Brown, T., 88 Brunet, A., 65 Brunet, J., 94 Burberry, 234 Burson, K.D., 218 Busbud, 95 Bush, R. J., 228

C

Calantone, R.J., 225, 344 Calcagno, L., 279 Canadian Food Inspection Agency (CFIA), 143 Canadian Press, 67, 72 Carrillat, E.A., 193

Carrillat, F., 265 Car sharing, 61 Cassivi, M., 141 Cavalia, 86 CBS News, 91 Cefrio, 141 Chamary, J.V., 226 Chandy, R.K., 233 Chan, E., 199 Chattopadhay, A., 199 Cialdini, R.B., 212 Clancy, K.J., 45 Clow, K.E., 250 Coderre, F., 256 Coelho, F.J., 346 Colour Cosmetics in Canada, 132 Conference Board of Canada, 138, 139 Conroy, 7 Conseil québécois de la franchise, 338 Content Marketing Institute, 279 Cook, C., 188 Cote, J.A., 288, 308, 309 Coughlan, A.T., 331, 334 Cowles, D., 287 Crosby, L.A., 287 CRTC, 129 Cunningham, P.M., 148, 346

D

Dahl, D., 191, 196, 199, 200, 214, 218 Dampérat, M., 287 D’Angelo, W., 11 Dans ta pub, 276

Dant, R.P., 286, 287, 297 D’Astous, A., 160, 177, 181, 265 Davis, J. H., 78 Davis, S., 355 Day, 233 D-box.com, 98 De Baynast, A., 246, 249, 255, 281 Deighton, J., 96 Deloitte, 142, 149 Denize, S., 148 Depilatories in Canada, 133 Desormeaux, R., 289 Desrosiers, 138 Dietrich, O., 171 Dingus, R., 287, 288 Dion, N., 264 Doughtie, L., 92 Drucker, P., 5, 295 Dubois, B., 38 Duchesneau, P., 162 Duhamel, P., 59 Dunne, B., 266 Dwyer, F.R,, 287

E

Easingwood, C., 346 Edarling.fr, 93 Eggert, A., 21 El-Ansary, A., 331, 334 El Chami, 349 Environics Communications, 195 Équiterre, 250 Evans, K.R., 286, 287, 297, 320

390

Sources Index

F

Fabien, L., 163 Fallu, J.M., 296, 308 Fast Company magazine, 325 Ferlatte, D., 75 Ferris, G.R., 288, 310 Filiatrault, P., 347 Fischman, C., 325 Fleischer, M., 267 Fogel, S., 288, 308 Fondation HEC Montréal, 175 Forbes, 276 Ford, J.B., 111, 112, 113, 125, 126 Fornell, C., 21 Fournier, M. E., 70, 73, 121, 131 Fox, 330 Franke, G.R. and Park, 303 Frazier, G. L., 59, 345, 346 Friedman, U., 217 Froment, D., 74 Fu, F.Q., 288 Fumarola, M., 7

G

Gameblog, 11 Garneau, L., 87 Gassenheimer, J.B., 344 Gates, R., 155 Gianatsio, D., 34 Gofn, K., 167, 172 Goldstein, N.J., 212 Gourde, D., 254 Grégoire, Y., 201, 288 Grewal, D., 286, 287, 297 Griskevicius, V., 212 Groza, M.D., 288, 296 Guiltinan, P., 5 Guizani, H., 305 Guolla, M.A., 256

H

Haines, 240 Hall, J., 186 Hall, Z.R., 288, 320 Hamilton, 187

Hansen, E., 228 Hardesty, D.M., 288 Harrell, G.D., 59 Harricana, 189 Harrington, N., 186 Hartmann, N.N., 288 Harvard Business Review, 20, 36, 78 Haurat, F., 94 Hébert, 188 Hesseldahl, A., 369 Hirel, 119 Hochstein, B., 288, 308, 309 Hoffmeister, D., 288, 308 Hof, R.D., 227 Hogan, J., 363 Holden, R.K., 373 Homburg, C., 305 Home Depot, 75 Howlett, C.H., 288, 296 Hu, M.Y., 287, 288 Hughes, D.E., 288, 310 Hutchings, C., 97

I

Ibis World, 129 Ibrahim, E,, 111, 112, 113, 125, 126 IEGSR, 263 Infopresse, 75, 103, 105, 194, 253, 255, 264, 266, 280 Innovation, Science and Economic Developement Canada, 126, 132, 149 Institut de la statistique du Québec (ISQ), 10

J

Jackson, B.B., 373 Jacques, G., 103 Jean Coutu, 114 Jiang, L., 199 Jobs, S., 226 Johnston. W.J., 320 Jolibert, A., 287 Jones, E., 288 Jones, T.O., 21 Joseph, A. & R.J., 117 Journal of Consumer Research, 58, 200, 217

K

Kansara, V.A., 217 Kaplan, R.S., 47 Kiddyzuzaa, 227 Kidwell, B., 288 Klarmann, M.J., 305 Kodak, 136 Koners, U., 167 Korschun, D., 288 Kotler, P. T., 5, 38, 44, 126, 148, 346, 347 KPMG, 92 Krieg, P.C., 45 Krush, M.T., 287, 288 Kumar, 240 Kumar, V., 287, 308 Kurey, B., 287

L

Labbé, F., 139 Labrecque, J. S., 186 L’Actualité, 162 Ladik, D. M., 193 La Gare, 307 Lam, S.K., 288 Lambe, J., 347 Lambin, J.-J., 39 Laparé, P.- L., 94 La Parisienne, 104 La Presse, 16, 70, 73, 94, 95, 103, 131, 141, 175 Lassk, F., 287, 288, 289 Lavidge, R. J., 248 Lazure, J., 265 Leach, M.P., 320 Leblanc, J., 9 Lebon, 288 Lebreux, J., 333 Le code Québec, 59 Le Devoir, 94, 128 Lee, B,, 267 Le Figaro, 97 Lelliâtre, J., 121 Léger, J.-M., 59 Legoux, R., 94, 193, 201 Lehmann, D.R., 235 Le Journal de Montréal, 94 Lemke, F., 167

Le Monde, 93 Lendrevie, J., 246, 249, 255, 281 Les Affaires, 27, 73, 74, 94 Letessier, I., 132 Levav, J., 218 Levitt, T., 225 Liu, A.H., 320 Locander, D.A., 288, 296 Lord, 310 Lussier, B., 288, 305

M

Machleit, K., 288 MacNeil, I., 285 Mail Online, 278 Maltais, I., 130 Marcoux, J.S., 217 Marketing letters, 193 Marshall, G.W., 289 Maslow, A., 7, 202 Massé, I., 264, 312 Matzler, K., 122, 123, 125 Maurice, L.-P., 95 McCarthy, E. J., 5 McClure et al., 204 McDaniel, C., 155 Meneu, G., 128 Merced, M. J., 277 Milosevic, M., 96 Ministère de l’Économie, de l’innovation et des Exportations, 132 Misener, J., 96 Mitch, 96 Mitchell, R., 172 Modied Atmosphere Packaging, 226 Moment Factory, 85 Moncrief, W.C., 289 Mondial des cultures, 75 Montoya, M.M., 225 Mooradian, T. A., 122, 123, 125 Morales, A.C., 218 Moran, S., 233 Morgan and Hunt, 286, 287 Mother Jones, 60 Müller, M., 305 Mullins, R.R., 288 Murtha, B.R., 288

Sources Index

N

Nagle, T.T., 363, 373 Nantel, J., 59 Neal, D. T., 186 Nevsky, A., 105 Newman, A.A., 157 New York Times, 94, 157 Nolan, J. M., 212 Norton, D.P., 47 Novell, C., 288 Nowak, P., 277 Nudd, T., 247

O

Oatbox.com, 94 Oh, S,, 287 Oliver, R. L., 19 Olivier, F., 339 Olson, P., 276 Osterwalder, A., 92, 95 Ouellet, J.-.F., 305, 312

P

Palmatier, R.W., 286, 287, 297, 320 Papasthopoulou, P., 239, 241 Parasuraman, A., 229 Pereira, B., 218 Perreault, W. D., 5 Perrien, J., 286, 287 Pieters, C., 11 Pigneur, Y., 92, 95 Plouffe, C.R., 288, 308, 309 Porter, M.E., 119, 120, 121, 127, 128, 130, 131 Pratte, A., 132 Prensky, M., 134 Prigg, M., 278 PR Newswire, 280 Proctor & Gamble, 117 Prot Impact of Market Strategy (PIMS), 21

Publicitor, 281

R

Rackham, N., 300, 302, 303 Radio-Canada, 128, 154 Rao, A.R., 355 Raynal, 121 Reichheld, F. F., 20, 287, 308 Reinartz, W., 287, 308 Renteria, M., 259 Ricard, L., 286, 287 Rice, L. R., 60 Richards, K., 288 Rick, S., 218 Rigano, A., 105 Ring, L. J., 122, 123, 125 Rocco, R., 288, 308 Rogers, E., 99, 239, 365 RONA, 74 Rosen, S., 235 Roy, J., 296, 308 Rudel-Tessier, M., 73 Ryan, M.M., 300

S

SAQ, 65 Sasser, W. E. Jr., 20, 21, 287, 308 Satornino, C.B., 288, 310 Saturday Night Live, 96 Sawhney, M., 230 Saxe, R., 300, 303 Scéno Plus, 35 Scheer, L.K., 320 Schmouker, O., 58 Schneider, J., 186 Schultz, P. W., 212 Schurr, P.H., 287 Schwartz, N.D., 216 Sécuro-Vision, 116 Selvi, A., 227 Sengupta, J., 199

Shapiro, B.P., 373 Sheng, S., 288 Shepherd, C.D., 287, 288 Sherman, 215 Shields, 137 Sirois, C., 84 Sivaramakrishnan, S., 155 Skiera, B., 363 Sojka, J., 288 Solca, L., 199 Solomon, M., 191, 196, 214 Soutar, G.N., 300 Spedding, E., 277 Spiegel, E., 97 Srinivasan, A., 287 Statistics Canada, 13, 14, 126, 139, 140, 149, 214, 223, 331, 332 Steiner, G. A., 248 Stern, L.W., 331, 334 Stock, K., 209 Strategyzer.com, 93 Stremersch, S., 364 Strunck, D., 288, 308 Sujan, H., 288, 320 Swain, S.D., 288

T

Taillefer, A., 103 Tech3lab, 170 Technomarine Group, 69 Teisson, G., 276 Tellis, G.J., 233, 364 The Hufngton Post, 96 The Telegraph, 117 Thomas, R.W., 300 Toor, T., 131 Townsend, J.D., 225 Townsend, M., 199 Transcontinental, 240 Trend Watching, 106 Trifts, V., 148 Tripp, T., 201 Turenne, M., 129 Turner, R.E., 347

391

TVA Nouvelles, 77 20 Minutes, 37

U

Ulaga, W., 21 Urbany, J. E., 78

V

Vachon, M.-A., 288 Van Laethem, N., 233 Venkatesan, R., 287, 308 VGChartz, 11

W

Ward, M.K., 200 Watier, L., 85 Webb, K.L., 347 Weihrich, H., 112, 113 Weitz, B., 300, 303 Wertenbroch, K., 363 West, D.C., 111, 112, 113, 125, 126 White, K., 191, 196, 214 Wilkes, R.E., 58 Williamson, O.E., 285 Winer, R.S., 235 Wittrock, M., 70 Woltier, C., 97, 118 Wood, M.B., 115 Wood, W., 186

X

Xerox, 122 XPND Capital, 103

Z

Zale, J., 363 Zeithaml, V.A., 229 Zhu, R.J., 218

Subjects Index 7-Eleven, 355

A

A/B testing, 274 Access to distribution, 133 Acer, 348, 356 Acknowledging the objection, 305–306 Act, purchasing, 199 Activities after-sale service, 121 inbound logistics, 120 linked to operations, 120–121 marketing-related, 121 organizational, 120–122 outbound logistics, 121 sales-related, 127–128 salespersons’, 288–289 support, 121–122 Ad blocking tools, 254 Ad hoc team selling, 317 Adaptation of advertising for international markets, 258–259 costs, 66 Adidas, 34, 80–81, 102–103, 213 Administered VMS, 339 Adopters of innovation, 99–101 Adoption of a model, 197–198 Advantages advertising media, 256 distribution channels, 336 linked to costs, 132

objectives, prot or salesoriented, 358–359 pricing methods, 367, 369–370, 373 pricing strategies, 362–364, 366 of products, 101 surveys and, 177 Advertiser, 246 ethics and, 53 Advertising, 253–259 avoidance of, 203 blocking tools, 254 idea and creative strategy, 280–281 media, 254–259 native, 273 paid digital, 272 point-of-sale (POS), 191 positioning, 203 pre-test/post-test, 258–259 schedule, 257–258 using celebrities/icons, 96 Advertising Standards Canada (ASC), 277 Aeroplan, 269 After-sale service, 121, 230 Age pyramid, 139 Agencies, communication/ teams, 281 Agents, 333–334, 336 Agriculture, 138 government inuences, 356 organic, 142 Air Canada, 311 Air Miles, 150–151, 269 Airbnb, 88, 135, 141, 277, 346 Airbus, 66

Airline innovation, 106 Albrecht, Karl and Theo, 333 Alcoholic beverage industry, 133 Aldi, 333 Alliances, brand, 238 Allocation of resources, 44 ALS, awareness of, 188 Always, 275 Amazon, 121, 194 e-commerce and, 335 elibrary, 153–154 loyalty program, 262 payment management, 330 American Eagle, 200 Amway, 335 Analysis business, 22 conjoint, 371 data, 181–182 internal data, 147 of the macroenvironment, 136 of market situation, 24 marketing audit/ program, 48–50 marketing information system (MIS), 147–148 of needs, 300–302 of past performance, 117–118 plan, 181 preliminary, 161 of product quality, 228 of the salesperson’s performance, 320 situation, 42–44, 244, 246–247 of strategic market positioning, 39–40

strategic priority, 122–123 Ansoff matrix, 36–39 Anthropologie, brand, 211 Anti-spam legislation, 262 Antitrust laws, 358 Apple corporate VMS, 337 distribution channels, 345–346, 348 image, 210 innovation, 99, 119, 203 iPhone, 194, 226 packaging, 227 personal computer market, 102 pricing strategy, 361–362 Approach consultative, 286 customer-based, 235 income-based, 235 methodological, 164–165 partnership, 286 price differential, 235 relational, 286–287 relational selling, 287–288 selling, 284–287, 296–300 transactional, 285–286 Articial intelligence, 96–97 Asking Canadians, 150 Assessment of needs, 300–302 Assistance contract, 270 Assisted awareness, 235, 249 Association(s) price-quality, 362–363 professional, 149

Subjects Index

Assortment gap, 328–329 Assurance, product, 229 Asus, 348 Athletes as spokespeople, 265–266 Attention, 204 Attitude, 208 Attractiveness vs. competitiveness, 40 Attributes, determinant, 197 Audience, public relations, 259–260 Audience, reach or cumulative, 257 Audiovisual equipment, 192 Audits, marketing, 48–50 Augmented reality, 141–142 Auto parts market, 62 Automobile. see Cars Avon cosmetics, 213, 265, 335 Awareness assisted/spontaneous, 235 indices/measures, 248–249 Axe, 236

B

B2B market, 14, 230–231, 279, 302–303 relationship selling and, 287 B2C market, 14 Baby-boomers, 214, 349 Banana Republic, 210 Bang & Olufsen, 343 Bargaining, cultures and, 313 Bargaining power, customers/suppliers, 129–130 BASF, 103 Bausch & Lomb, 233 BCG matrix, 39–40, 241 Beaulieu, Christine, 250 Beauty, women and, 209–210, 246–247 Beer market, 62, 68, 129, 132 positioning of brands, 72 Behaviour consumer, 172, 186–218, 188. see also Consumer(s)

cultural differences, 312–313 external inuences, 189–190 inuence on consumer, 201–218 integrated model of consumer, 189–190 internal inuences, 189–190, 201–211 purchase, 261–262 Behavioural variables, 59–61, 64 Bell Canada, 7, 263, 264 Bellagio Theatre, 35 Benchmarking, 114, 122–123 Benets, product, 224, 373 Best Buy, 230 Beyond the Rack, 121, 123 Big data, 135 Biotherm, 277 Birkin handbag, 215 Birks, 73 Bivariate analysis, 181 Black & Decker, 225 Bland taste test, 204 Bloggers, 94, 213, 260 Blue Apron, 211 Boeing, 66, 286 Boîte noire, 141 Bombardier, 66, 286 Bonus, 319 gift/low price, 269 pack, 270 Book industry, 153–154 Bose, 363 Box ofce revenues, 10 Brain activity detection, 170, 204 Brainstorming, 89 Brand events, 266 Brand(s), 229 advertising and, 210 alliances, 238 attributes, 197–198 capturing attention, 204 community, 213 company awareness of its, 118–119 consumer evaluation, 196–197 employer, 229 equity, 234–235

events, 266 extension, 237–238 generic, 234 house of, 236 identity and, 210 inuence, 197–198 launches, 237–238 luxury, 199, 215–216 management, 233–238 market research and, 157 market share, 233 movie advertising, 238, 267, 279 organization within a product portfolio, 236 perception, 79–81 positioning of a new/ existing, 71–73 positioning of an existing/new, 96–97 private label, 234 reputation, 362–363 strategies/decisions, 235–238 structure by, 50–51 umbrella, 236 webcasting, 279 Brault et Martineau, 76, 230, 366 Breakeven curves, 368 Briggs & Stratton, 325 Budget constraints, 165–166 Burberry, 229, 233–234 Burger King, 277 Bus ticket marketing, 95 Busbud, 95 Business analysis, 22 condence, index of, 138 development, 309–311 market, 14 market (B2B), 14 market segmentation, 63–64 marketing contribution, 31 model, 92–93 newspaper, 92–93 partners, 118 positioning of an existing/new brand, 71–73

393

strategies, 32–40 websites, 251, 253, 272, 274–275 Business Model Canvas, 92–93 Business-to-business marketing (B2B), 14, 26, 284, 302–303 Business-to-Consumer (B2C), 14 Business-to-Government (B2G), 15 Buyers’ market, 6, 25 Buying. see Purchase

C

Cable broadcasting industry, 129 Café Névé, 199 Cage aux Sports, 74 Caisse de dépôt et placement du Québec, 16 Cakes, Dr. Oetker, 167 Campari America, 275 Camping industry, 90–91 Canada competitive rivalry, 128–129 consumer market, 13–14 demography, 13–14, 139–140, 214 ethnic groups, 214–215 globalization and, 27 market for newcomers, 132–133 political environment, 137–138 Canadian chartered banks, 358 Canadian Food Inspection Agency (CFIA), 143 Canadian Tire, 71, 329, 332 Candidate selection, 166, 318 Cannibalization, 233 Canon Pixma, 364 Capital requirements, 132 Car rental market, 60–61 Car sharing, 61, 81 Carabins, 163–164 Carroll, Dave, 201 Cars attitude, 209 auto parts market, 62

394

Subjects Index

consumers and, 8–9 electric, 103, 137, 241, 250 low-cost pricing strategy, 362 marketing, 230 positioning of an existing/new brand, 72–73 ranges of, 232 rental franchises, 338 Cartier, 68 Cash conversion cycle, 330 Cash cows, 40 Caterpillar, 339 Causal research, 159 Cavalia, 86 Celebrities endorsement contracts, 213 inuence of, 188, 342 social media and, 277 as spokespeople, 265–266, 280 Cell phone industry, 129 Central psychological processes, 202–209 CEPSUM, 250 Cereal marketing, 70, 94, 157 Chain, value, 91–92, 114, 119–122 Challenger, 33 Chanel, 96, 226 Channel, distribution, 334–339. see also Network conict, 347 direct/indirect, 334–336 disruption in, 346–347 selection of, 343–345 short/long/ultralong, 335–336 Characteristics of the decision process, 190–193 product, 192 of the purchasing situation, 192–193 Checklist, marketing audit, 48–49 Checklist, observation, 152, 158, 170, 177 Chocolats Favoris, 77, 81 Chrome/Chromebook, 356 Circuit, distribution, 331

Cirque du Soleil, 16, 34–35, 51, 85, 264 Clarks brand, 225 Class, social, 215–216 Classication variables, 174 Click rate, 273 Clientele, tourist, 38–39 Clients, 10 Closing the sale, 307 Clothing industry, 8–9. see also Fashion industry exercise, 193 recycling and, 189 Reitmans, 115 selective distribution, 342 Coaticook, 85 Cobranding, 238 Coca-Cola brand perception, 186, 207 competition-oriented, 358 image, 75, 204 mobile marketing, 267, 275 sales op, 162 Code(s) AMA, 52 of Conduct, 52 of ethics (AMA), 9 Coffee industry, 132 Cognitive decision, 192–193 Cognitive dissonance theory, 208 Collection, data, 154–156, 180–181 Combination of variables, 63 Commercial research, 87 Commission, 319 Communauto, 81 Communication agencies, 281 alternative forms of, 278–279 consumer and, 252 criteria, 280–281 integrated marketing, 250–252 internationally, 312–313 marketing, 104, 245 media, 252–280 objectives, 248 of results and recommendations, 182–183

selling and, 284–285, 286–287 steps of strategic planning, 247 strategic planning in, 246–247 Communities, online, 167 Company demand, 10–11 innovation, 98–104 internal/external environment, 111 management style, 91–92 marketing plan and, 43–44 mission of a, 31–32 pricing objectives, 356–360 productivity, 91 value chain, 91–92 Comparative inuence, 213 Compatibility, 102 with the existing network, 344–345 Compensation, variable portion of the, 319 Compensatory model, 197 Competencies, core, 115–117 Competition, 125 -based method of pricing, 369–370 changes in targeting and, 70 differentiation and, 76–77, 79–81 direct/substitute, 126 environment and, 42 and globalization, 27 niche marketing and, 69 -oriented objectives, 358 positioning and, 71–74 price wars, 129 pricing and, 355 pricing strategies and, 361–362 in the segment, 66 supply and demand, 126 Competitive environment, 124 -ness of a product, 40 parity strategy, 361 rivalry within an industry, 128–129 strategies, 33–35 strengths, model of, 127

Complementary product pricing strategy, 364 Complexity, perceived, 102 Conclusion de la transaction, 307 Concomitant variation, 173 Conduct codes of, 52–53 norms of, 212–213 Condence index, consumer, 138–139 Conict, channel, 347 Conict, multi-channel distribution strategy, 347–349 Conformity, 227 Conjoint analysis, 235, 371 Conseil québécois de la franchise, 338 Consent, customer, 262 Consideration set, 196 Console, videogame, 11 Consolidation, wholesalers and, 333, 347 Consultative approach, 286 Consultative salesperson, 290 Consumer(s), 10, 187. see also Customer(s) advertising and, 203–205 behaviour, 172, 186–187 behaviour, integrated model of, 189–190 categories of, 99–101 cognitive dissonance theory and, 208 condence index, 138–139 culture and, 216–217 distribution and, 104 distribution intermediaries and, 326 environment and, 218 expectation, 200–201, 228 experience, 278–279 expertise, 205 goods market, 13–14 inertia, 190 inuence on behaviour, 201–218 insight, 246 internal inuences, 201–211 Internet use, 169 knowledge, 205

Subjects Index

lifestyle, 211 loyalty, 19–21 market segmentation variables, 57–63 mood and, 218 motivation, 202–203 needs, 202–203 needs and wants, 187–188 needs/desires, 7–10 preference, strategy based on, 362–363 price sensitivity, 156 product differentiation, 79 Protection Act, 355 protection of privacy, 143 psychological processes, 202–209 purchase decisions, 248 purchasing behaviour history, 262 social classes, 215–216 specic markets, 62 study of behaviour, 188–189 technology and, 134–135, 141 type of, 99–101, 193 understanding the, 187–190 Consumption process, 181, 200. see also Decision Consumption segments, 62 Contact, initial, 298 Contact lens industry, 131, 233 Content marketing, 279 Contest, promotional, 268 Contextual inuences, 217–218 Contingency plan, 45–46 Continuity, 257 Continuous innovation, 98 Continuous team selling by a duo, 317 Contractual VMS, 337–339 Control contingency plan, 45–46 criteria, 47 cycle, 46 of the network, 344 tools and objects, 46–47 Conversation, friendly, 299 Converse, 80, 210 Cookie, browser, 273

Cooperative advertising, 270 Core competencies, 115–117 Core product, 225–231 Corporate VMS, 337 Correlation analyses, 179 Cosmetic industry, 132, 133, 142 direct channel and, 335 direct home sales, 213 direct marketing, 262 Cossette communication agency, 249 Cost(s) adaptation, 66 advantages linked to, 132 -based method of pricing, 367–369 and benets, 373 business and pricing strategies, 363 of distribution options, 344 xed/variable/total, 368 per 1000 (CPM), 257 -plus pricing strategy, 363 pricing strategies based on business, 363 of production, 362–363, 370, 373 unit, 369 Costco, 130–131, 329–330, 367 loyalty program, 262 Country of origin, 206 Coupal, 70 Covariation, 173 Creation of teams, 280 of value, 95–96 Creative strategy, 280–281 Creativity, 84 framework, 88 process, 84–87 Criteria, choice of segmentation, 63 Cross-functional team, 317 Crowdsourcing, 135 CRTC, 129 Crudessence, 210–211 Cruise industry, 215–216 Cultural differences, 312 Cultural sponsorships, 263–264 Culture

Cirque du Soleil, 16 consumer behaviour and, 216–217 promotion of, 10–11 subcultures, 214–216 Cumulative audience, 257 Current offer of an organization, 117 Customer(s). see also Consumer(s) bargaining power, 130 -based approach, 235 -based method of pricing, 370–373 business model, 93 business segments, 63–64 buying behaviour, 59–61 commitment, 307 data, 262 database, 153–154 experience, 163–164 handling objections, 304–307 intermediaries and, 330 internal/external, 309 lifetime value, 17 loyalty, 16–17 mystery, 171 needs, 6 needs assessment, 300–302 perception-related objectives, 359–360 potential, 294 product differentiation, 78–79 prole, 261–262, 296 protability, 62, 148 purchase volume, 62 relationship, 310 relationship management (CRM), 261, 310, 373 relationship selling and, 287 satisfaction, 20–21, 121, 188–189, 308 service, 5, 16, 23, 310–311 service function, 330 share, 19–20 showrooming, 349 -size based structure, 316 sponsorship, 213 supply and demand, 125

395

transaction and, 285–287 validation of the solution, 306–307 value creation, 95–96 value pricing strategy, 364 Cycle cash conversion, 330 control, 46 engagement, 249 lifecycle stages, 58 planning and control, 30 product life, 365–367

D

D-Box system, 98 Dailymotion, 93 Daimler AG, 73 Dairy production, 137–138 Dash button technology, 194 Data, 151–156 analysis, 181–182 collection, 148, 150, 154–156, 166, 175, 180–181 collection instruments, 158 customer, 262 internal, 47, 147–148, 152–153 interpretation of, 181–182 mining, 148 personal, 262 primary, 149, 152, 154–155 protection of, 143 sales-related, 152–153 secondary, 152, 154–155, 157–158 typology of, 152–153 Database customer, 153, 261–262, 271 internal, 154 managers, 148 software, 181 Day, Dominique, 86 De Beers, 216–217 Decision characterizing the process, 190–193

396

Subjects Index

cognitive, 192–193 control of, 198 emotional, 192–193 involvement in the, 190–192 making unit (DMU), 198–199 process, 190–193 purchasing, 197–199 steps in the process, 194–201 Decline phase, 240–241, 367 Deferred payment, 269 Del Monte, 226–227 Delivery salesperson, 290–291 Delivery service, 230 Dell, 335 Demand, 10 actual, 12–13 -based method of pricing, 370 company/market, 10–14 economic crisis and, 355 market based on supply and, 126 potential, 12–13 price and, 370 projection, 12–13 supply and, 125–126 types of, 12 Demarketing, 26 Demography, makeup/ projections, 139–140 Demonstration of product/ service, 270, 304 Dependent variables, 173–174 Depth of the range, 231 Descriptive research, 158 Design experimental, 174 product, 225–226, 363 test of prototype, 90 thinking, 92–93 Detergent, research on, 171–172 Determinant attributes, 197 Development business, 309–311 business salesperson, 289–290 market, 36–37

strategies, 35–38 strategy, 35 team, 89 Differentiation, 76, 132 bases of, 76–79 newcomers and, 132 Diffusion of innovations, 99–101 Digital advertisements, 272–274 cameras, 102, 136 marketing, 271–276 media, 135 newspapers, 93–94 Dimension(s) attitude, 208 behavioural, 208 cognitive, 208 of the customer experience, 163–164 emotional, 208 of the product, 224–233 Dion, Céline, 35 Direct channel, producer/ consumer, 335 Direct marketing, 261–262 Disadvantages. see Advantages Discontinuous innovation, 98 Discount coupon, 268 Discount stores, 332–333 Discussion moderator, 166 Disintermediation, 346 Disney, 118 Display advertising, 272–273 Disruption in the various channels, 346–347 Dissatisfaction. see Satisfaction Dissonance, state of, 208 Distribution access to, 133 activities of, 121 channel, 334 channel length, 334–336 circuit, 331 conict resolution, 348–349 costs, 344 differentiation, 78 element of marketing, 23 exclusive, 343

innovation and, 104–105 intensity of, 340–341 intermediary-related objectives, 360 multi-channel, 345–346 network, 340–345 omnichannel, 348–349 protability, 344 protability of options, 344 selection of channel, 343 selective/intensive, 341–342 Distribution intermediaries, 325–327 functions of, 327–331 market, 14 types of, 331–334 Diversication, 35–38 Dogs (problem products), 40 Dolan, Xavier, 75 Dollarama, 120 Dorval, Anne, 75 Dove products, 96, 209–210, 236, 246–247 Dr. Oetker, 167 Drummondville, 72 Dunkin’ Donuts, 339, 355 Durability, 227 DVD, 141

E

bacteria, 143 Early adopters/majority, 99–101 Earned media, 251 eBay, 335 Ecological environment, 142 ecommerce, 26, 141–142, 197, 273, 346 websites, 188, 195–197, 203, 206 Economic environment, 138–139 environment, and prices, 355 Economies of scale, 132 Economy sharing _, 135 variables, 63

EDF (Électricité de France), 69 Effectiveness, measuring, 258 Effort economies by an intermediary, 326 level in decision process, 190–192 price and, 353 elibrary, 153–154 Elimination of other explanations, 173 Emotion consumer purchase, 208 creative strategy, 280 decision and, 192–193 decision process and, 207 negative, 208 Empathy, 88–89, 229 Employer brand, 229 Employment outlooks, 291–292 Energy consumption, 212–213 Energy drink market, 125–126, 206 Engagement cycle, 249 Environment competition and, 42 competitive, 124 eco-responsibility, 26–27 ecological, 142 economic, 138–139, 355 external, 124–143, 147 internal, 112–123 legal, 142–143, 356 physical, 218 political, 137 and pricing, 354–356 social, 139–140, 218 store physical, 199 technological, 140–142 Equity for a brand, 234–235 Estée Lauder, 132 Ethics,, 26 Ethics code of, 9 in marketing, 52–53 Ethnic groups, 214–215 Etsy, 266, 346

Subjects Index

Europe, segment marketing, 69 Evaluation of options, 196–197 post-purchase, 200–201 of salespeople, 319–321 Event creation, 266 Event sponsorship, 263–265 Excel, 181 Exchange concept of, 15 result of the process, 18–21 Exclusive distribution, 343 Exclusivity, 359–360 Exhibitors in trade shows, 313 Expectation disconrmation theory, 200 management, 200 Expedia, 197 Experience, customer, 163–164 Experimental design, 174 Experimentation, 173–175 Explanations, elimination of other, 173 Explanatory variables, 173–174 Exploratory research, 158, 165 Exposure, 203 to publicity, 203–204 Extension, brand, 237–238 External audiences, 260 environment, 124–143, 147 inuences, 211–217 marketing, 223–224 Eye-tracking glasses, 170, 175

F

Facebook, 255 advertising and, 273 customer proling, 143 emotions and, 207 external inuences, 213, 214

social media inuence, 276–277 FaceReader, 170 Facial expression reading, 170 Factor(s) duration and effect of, 143 of failure or success, 118–119 of product adoption, 101–104 variables, 173–174 Failure key factors of, 118–119 marketing, 162 Fashion industry, 8–9, 120, 189, 342 shows, 260 Fast fashion, 120 Fast-food franchises, 338 Ferrari, 8 Festival, sponsorships and, 75, 264 Field sales trainer, 291 Film. see Movie brand alliances Financial function, 329 resources, 116 services market, 57 viability, 93 FitSpirit foundation, 249 Fixed costs, 368 Flexibility of the network, 345 surveys and, 176 Focus group, 89, 166–167 analysis, 181 communication, 168 Follow-up rebate, 270 Follow-up stage, 308–309 Follower, 33–34 Food packaging, 226 Ford, Henry, 6 Forecasting, marketing audit and, 49 Forecasting, sales, 314–315 Foresta Lumina, 85 Forums. see Social networks Fosun Capital Group, 16 Franchises, 338–339 Frank & Oak, 199

Friendly conversation, 299 Function customer service and, 330 nancing, 329 payment, 330–331 promotion, 330 research, 329 sharing of, 344 title transfer, 329 Functional structure, 50

G

Gagné, Mariouche, 189 Gap, 231 Gastrosexual, 60 Gatorade, 276 Gemmyo, 204 General Electric (GE), 88, 236, 279, 329, 358 General interest message, 299 General Motors (GM), 9, 72, 366 Generation Y, 134–135, 214 Generation Z, 349 Generations, 214 Genetically modied organisms (GMO), 142 Geographic structure of a business, 315 Geographic variables, 58–59, 64 Geolocation, 267, 275, 277 GetOuttted, 91 Gift economy, 217 Gifts, promotional, 269 Gilbreth, Frank and Lillian, 6 Gillette, 265 Givenchy, 68 Glasses, eye-tracking, 170, 175 Glasses, Snapchat, 97 Global brands, 258–259 Globalization of competition, 26–27 GMOs, 142 Gold-Finance Group, 86 Google, 149, 272, 274, 356 GoPro cameras, 279 Government agencies/organizations, 149

397

legal environment, 356 legislation/policies, 133, 135, 142–143 market, 15 Green products, 101, 137 Grocery stores, 129–131 Gross rating point (GRP), 257 Group ethnic, 214–215 pressure, 212–213 reference, 211–213 subculture, 214 target, 252–255, 257–259, 261 Growth phase, 239–240 Guarantees, 230 satisfaction, 192 Gucci, 200 Guerrilla marketing, 278–279

H

H&M, 200, 337 Hair removal products, 133 Handling objections, 304–307 Hard discounters, 333 Harley-Davidson, 213 Harper, Stephen, 137 Harricana, 189 HBO, 247, 267 HEC Montréal, 26, 170, 193, 267 Hedonic needs, 203 Hedonic regression, 235 Hermès, 215 Heuristic, 206 Hewitt Equipment, 339 Hierarchy of business objectives and strategies, 31 of consumer needs, 202 effects model, 248 of needs, 8 High-end positioning, 343 High initial price, 365 High-level service stores, 332 Hipcamp, 91 Hiring criteria, 318 History, purchase, 261–262

398

Subjects Index

Holt Renfrew, 324 Home appliances, 192 Home Depot, 71 Home sales market, 62 Horizon, short-, medium- or long-term, 31 Hotel industry, 11, 69 House of brands, 236 HSBC, 259 Hudson’s Bay bonus program, 269 Human resources, 115 Hydro-Québec, 26, 263, 358 Hyundai, 230

I

IBM, 286, 335 Ice Bucket Challenge, 188 Idea advertising, 280–281 creative, 280 generation, 89 Identication of a brand, 234 of needs, 305–306 Identity brand perception, 210 and self-concept, 209–210 IDEO, 88 IGA, 128, 338, 347 loyalty program, 262 IKEA, 353–354 iMac, 102 Image of the intermediaries, 344 Implementation of a marketing plan, 24, 45 Implication questions (SPIN method), 302 Importance-performance product analysis, 228 Inbound logistics activities, 120 Income-based approach, 235 Incompatibility of objectives, 347 Independent variables, 173–174 Index of business condence, 138

Indicators, performance, 248–249 Indices, economic, 355 Indirect channel, 334–336 Indirect observation, 171 Individual characteristics, 193 effect of culture on the, 216 values, 210 Industrialization, 25 Inferences, 205 Ination, 11 Inuence(s) comparative, 213 on consumer behaviour, 189–190, 201–218 contextual, 217–218 environment and pricing, 354–356 external, 211–217 informational, 212 situational, 217–218 of social media, 276–277 Information marketing (MIS), 147–151 media dissemination and, 261 needs, 172 quantity sought, 196 research report, 182–183 resources, 117 search, 194–196 sources, 195–196 Informational inuence, 212 Infrastructure, 121–122 business model, 93 Initial contact, 298 Innovation, 22, 85 business model, 92–94 in communication, 104 continuous/ discontinuous, 98 diffusion of, 99–101 framework, 88 KPMG, 92 observability, 102 perceived complexity, 102 positioning of an existing/new brand, 97 process, 84–87

of products/services, 98–104 success factor, 119 Innovators, 99–101 Inseparability, 223 Insight, consumer, 246 Inspiration, 87 Instagram, 213, 214, 276–277 Instruments, data collection, 158, 177–180 Intangibility, 223 Integrated marketing communication, 250–251, 252 marketing model, 21–23 model of consumer behaviour, 189–190 Integration of distribution intermediaries, 336–339 Intel, 102, 238 Intelligence, marketing, 149 Intensity of distribution, 340, 341 Interactive marketing, 142 Interbrand, 235 Interdependence of research steps, 159 Intermediaries agents, 333–334 distribution, 325–334 distribution and integration, 336–339 image of the, 344 selection of, 343–345 traders, 331–333 types of distribution, 331–334 Internal data, 47, 152–153 data analysis/collection, 147–148 environment, 112–123 inuences on behaviour, 201–211 marketing management process, 24 International advertisements, 258–259 market, 15 marketing, 68–69 selling, 311–313 Internet, 26

consumers and, 134 data, 149 digital/mobile marketing, 271–276 direct channel and, 335 distribution and, 104–105 focus groups, 167 generation Y and, 214 observation and, 169–172 online brand searching, 195–196 protection of privacy, 143 technological evolution, 140–142 users, 274–276 visibility of a site, 195–196 Interpretation, 204 of data, 181–182 Interview data analysis, 181 guides, 177 individual, 168 rooms, 167 Introduction of a brand, 239 Investment advertising and, 253, 255 sponsorship and, 263 target return, 358 iPad, 99 iPhone/iPod, 194, 361 iTunes, 335, 346

J

JCrew, 273 Jean-Coutu, 114, 132, 338 Jewellery industry, 73 advertising and, 204 Job outlooks, 291–292 Joe Fresh, 130 Johnson & Johnson, 233 Joseph Joseph, 117 Journalists, 260

K

Kampgrounds of America, 90 Kellogg’s, 157

Subjects Index

Kenzo, 254 Kérastase Hair Coach, 96 Key account salesperson, 291 Key message, 250, 252 Keywords, 149, 272 Kitchen accessories, 117 Knowledge, consumer, 205 Kodak, 136 Kombucha, 206 KPMG, 92 Kraft Food, 277, 358 Kyoto Accord, 137

L

La Gare, 307 La Presse+, 175 La Ronde, 75 Labatt, 129, 132 Labelling, rules on, 143 Laboratory experimentation, 174–175 Laboratory Tech3lab, 170 Laggards (innovation), 100–101, 240 Laliberté, Guy, 16 Language barriers, 312 Laptop computer market, 356–357 Larivée, Ricardo, 234 Las Vegas, 35 Laser surgery, 133 Late majority adopters, 100–101 Latourelle, Normand, 86 Launches, brand, 237–238 Lawnmower industry, 62, 325, 331, 347, 349 Laws on advertising, 256 on industry development, 133, 135, 142–143 Le Monde, 93 Leader, 33 Legal environment, 142–143, 356 Legislation on customer consent, 262 Lego, 36–37, 279 Length of a network, 343

of the range, 231 Level, control of sales, 46–47 L-FAB-F method, 303–304 Lidi, 333 Life-cycle management, product, 238–241 of products/services, 98, 361, 365 stages, 58 Lifestyle marketing, 210 typologies, 59 Liquidating merchandise, 365 Loblaw, 128, 130, 234, 347 Logistics function, 328–329 internal, 120 Lolë, 193, 211, 266, 277 Long channel, 335–336 Long-term impacts, 143 prots, 357, 359 L’Oréal, 96–97, 132, 231, 281 Louis Garneau Sports, 87 Louis Vuitton (LV), 118–119, 200, 359–360 Low-cost pricing strategy, 362 Loyalty, 201 of consumers, 19–21 programs, 262, 269 Loyalty programs, 129, 150–151, 262, 269 Lululemon, 193, 211 Luxury items, 199–200 LVMH, 359–360 Lyft taxi service, 275

M

Machine observation, 171 Mackage, 342 Macroenvironment, 134 components of the, 136–143 factors, PESTEL, 136–137 importance of the, 134–136 Magazines, advertising and, 256

MailChimp, 279 Management of a brand, 233–238 customer relationship, 310, 373 expectation, 200 internal marketing and, 24 product life cycle, 238–241 product portfolio, 231–233 sales force, 313–320 Managers, market/product, 50–52 Manufacturers, channel to wholesalers, 336 Map, perceptual, 79–81 Market(s), 13, 42 analysis for positioning, 39–40 based structure, 315–316 business, 14, 63–64 buyers’/sellers’, 6 camping, 90–91 car rental, 60–61 consumer goods, 13–14 denition, 126 demand, 10–13 development, 36–37 diffusion of innovations, 99–101 distribution intermediaries, 14–15 nancial services, 57 government/ international, 15 managers, 52 maturity, 233 penetration, 36–37 planning, 41–46 radio station, 58 sector and, 125–127 segmentation, 56–64 share, 11, 39–40, 232–233, 358–359 specialist, 34 structure by, 51–52 targeting, 64–70 test, 175 trends/insights, 158 variables, 57–63, 64 variables specic to a, 62

399

Market Research Online Communities (MROC), 167 Marketing, 5 activities related to, 121 basic concepts, 7–21 communication, 82, 104, 244–281 communication, integrated, 250–252 company mission and, 31–32 content, 279 control cycle, 46–48 development of, 5–6 digital, 271–276 elements in plan, 42–43 ethics in, 52–53 external, 223–224 function, 7 future of, 25–27 history of, 25–26 information system (MIS), 24, 147, 149–151 integrated model of, 21–23 intelligence, 147, 149 interactive, 142, 223–224 internal, 223 internal management, 24 international, 68–69 jobs, 291–292 lifestyle, 211 managers, 149 mass, 67–68 mobile, 271–276 niche, 69 objectives, 44, 46, 249 observation, 171 orientation, 6 outbound, 271–274 personalized, 69–70 plan, 24, 42 plan checklist, 48–50 planning. see Marketing planning problem denition, 89 research, 87, 149, 156–183. see also Marketing research segment, 68–69 specialization of, 26

400

Subjects Index

stimuli, 203–205 strategies. see Marketing strategies strategy, 22, 44, 56–81 vertical (VMS), 336–339 Marketing mix, 97–105 communication marketing, 245, 252 conict resolution, 349 deciding on the, 44–45 differentiation, 78 elements, 22–23, 239, 252 marketing plan, 49 targeting types, 67–69 variables, 47–48 Marketing planning and control cycle, 30 or strategy, 31 process, 41–42 tools, 111–113 Marketing research, 156 analysis, 161, 181–182 budget, 165–166 causal, 159 data collection, 180–181 descriptive, 158 experimentation, 173–175 exploratory, 158 formulating the problem, 161–164 instruments of, 177–180 interpretation, 181–182 observation, 169–172 qualitative, 166–169 results, 182–183 steps of the process, 159–160 survey, 175–177 time constraints, 165–166 type, 165 type of, 165 uses, 156–157 Marketing strategies, 33 analysis of priorities, 122–123 components, 56–81 creation of value, 95–96 internal/external environment, 110–111 Mass marketing intensive distribution and, 341

targeting, 67–68 Matériaux Coupal, 70 Matrix Ansoff, 36–39 attractiveness/ competitiveness, 40 BCG, 39–40, 232 business, 93 of strategic priorities, 123 structure, 52, 318 SWOT, 111–112 TOWS, 110, 112–113 value proposition, 95–96 Mattel, 198–199 Maturity of the market, 232 Maturity phase, 240, 366 Maxi, 129 Maximization of prots, 370 Maximizer, 193 Maximum customer service, 311 McDonald’s, 355, 364 Means of action (MOA), 46 Measurement of effectiveness, 258 of optimal price, 371–372 scales/survey instruments, 177–180 Media(s), 254–259 advertising, 253–259 digital, 135 marketing communication, 252–280 newspapers, 93–94 planning, 254–255 press releases, 260 relations, 259–261 schedule, 257–259 selection criteria, 255–257 social, 267, 276–277, 310 types of, 251–252 Member panels, 151 Men Expert, 265 Mental categorization, 206 Mercedes-Benz, 73 Merchants, 331–333 Message advertising, 204, 253–254

communicating the, 252, 255 general interest, 299 key, 250 strategies, 248 Messenger, 214 Metadata, 143 Methodology, structuring, 164–177 Method(s) competition-based, 369–370 cost-based, 367–369 customer-based, 370–373 demand-based, 370 design thinking, 87–91, 98 L-CAB-F, 303–304 pricing, 367–373 SPIN, 300–302 Values and Lifestyles (VALS), 59 Metric scales, 178–179 Metro, 76, 128, 130, 347 Microbreweries, 132 Microenvironment, 124 components of, 127–134 market and sector for products, 125–127 Microsoft, 11 Miele, 171–172 Milk, market promotion, 11 Millennials, 167 MIS (Marketing Information System), 24, 147–151, 149–151 Mission of an organization, 114–115, 125 Missionary salesperson, 290 Mix, marketing. see Marketing mix Mobile applications, 175, 213 Mobile marketing, 271–276 Model adoption of a, 197–198 BCG, 40 business, 92–93 compensatory, 197–198 of competitive strengths, 127 of consumer behaviour, 189–190 integrated marketing, 21–23

non-compensatory, 197–198 SWOT, 111–112 TOWS, 112–113 Moderator, discussion, 166 Molson, 129, 132 repositioning, 72, 75–76 Moment Factory, 85 Mondial des cultures de Drummondville, 72 Monopoly, 7 Mood, 218 Motivation, 202 of salespeople, 319–321 Motorola, 362 Mountain Equipment Co-op, 26, 266 Movie brand alliances, 238, 267, 279 MP3 format, 346 MROC, 167 Multi-channel distribution, 341, 345–346 Multibrand approach, 237 Multiculturalism, 140, 214–215 Multiple regression model, 235 Multivariate analysis, 181 Musée des beaux-arts de Montréal, 75 Music industry, 105, 346 Mymuesli, 70

N

Nagano, Kent, 75 NAICS, 126 Napa Autopro, 338 Native advertising, 273 Natural observation, 171 Navigation path (clickstream), 169 Need(s), 194 advertising and, 204 assessment, 300–302 consumer, 7–8, 224 identication of, 305–306 information, 172 -payoff questions, 302 presentation of a business solution for, 306 Nespresso, 67, 132

Subjects Index

Netix, 267 Network. see also Channel, distribution compatibility with the existing, 344–345 control of the, 344 developing a, 310 distribution, 331 exibility, 345 length of a, 343 selecting a, 340–345 Networking events, 313 Neuromarketing, 170, 204 New Brunswick beaches, 77, 81 New business, 340–341 development salesperson, 290 New Coke, 162 New product, launch of a, 237–238 Newcomers, 131–133 threat of, 359 Newspapers advertising and, 256 business model, 93–94 digital, 175 Niche marketing, 69, 343 Niche strategies, 34 Nike, 34, 75, 225, 231, 265–266, 337 Nivea sunscreen, 278 Non-compensatory model, 197 Non-linearity of research process, 159 Non-metric scales, 178–179 Non-verbal communication signals, 312 Normative inuence, 212–213 North American Industry Classication System (NAICS), 126 Norwegian Cruise Line, 215–216 Nostalgia marketing, 207

O

Oatbox, 94 Objections, handling, 304–307 Objectives business, 31–32, 114–115, 125

communication, 247–249 competition-oriented, 358–359 customer perceptionrelated, 359–360 distribution intermediaryrelated, 360 incompatibility of, 347 marketing, 44, 46 pricing, 356–360 prot-oriented, 357–358 public/media relations, 259–260 sales-related, 359 Objectivity, observation and, 170 Observability of innovations, 102 Observation, 169–172 checklist, 177 marketing, 171 technology and, 170 Odysséo, 86 OFF Festival de jazz de Montréal, 75 Off-invoice allowance, 270 Offer, business model and, 93 Offer, current, 117 Oil industry, 68 Olympic Games, 143, 210, 265 Omnichannel strategy, 348 Online communities, 167 Online focus groups, 167 Online payment, 119 OPower, 212 Opportunity to see (OTS), 257 Options, evaluation of, 196–197 Orange, 69 Order taker, 291 Organization activities, primary/basic, 120–122 benchmarking, 122 governmental, 149 mission, 114–115 model SWOT, 111–112 objectives, 114–115 passive, 124 proactive, 124–125 resources of an, 115–117 strengths/weaknesses, 113

Organizational structure, 50–53 Orientation in marketing, 6 OTS, 257 Outbound logistics activities, 121 Outbound marketing, 271–274 Outdoor publicity, 256 Owned media, 251

P

P&G. see Proctor & Gamble Packaging, 226, 269 Paid listings, 272 Paid media, 251–252 Paper-bound industry, 369 Participant observation, 171 Participation, level of, 171 Partnership approach, 286 Past performance, 117–118 Payment function, 330–331 Penetration, market, 36 Penetration strategy, 360, 365–366 Pentium, 102 Pepsico, 88, 204, 267 Perceived complexity of innovations, 102 Perceived risk, types of, 196 Perception, 203–205 customer related objectives, 359–360 differences in, 347 of product quality, 227–228 Perceptual map, 79–81 Performance analysis of, 117–118 indicators, 249 innovation, 86 marketing, 117–118 of outbound marketing, 273–274 of a product, 227–228 salespersons’, 320 scorecard, 47–48 Performance arts Cavalia, 86 Cirque du Soleil, 16, 34, 35, 51 Mondial des cultures de Drummondville, 72

401

Scéno Plus, 35 Perfume market, 96, 119 Perishability, 223 Permission marketing, 262 Personal computer market, 102, 347–348 Personal data, customer, 261–262 Personalized marketing, 69–70 Personalized shopping, 104 PESTEL, 136–137 Pharmaceutical industry, 114, 132, 338 Pharmaprix, 132, 338 Phase decline, 240–241, 367 growth, 239–240 introduction (brand), 239 maturity, 240, 366 Pitt, Brad, 96 Pizza Hut, 267 Place, distribution and, 23, 66, 78, 104 Plan control/contingency, 45–46 control cycle, 46–48 integrated communication, 253 marketing, 42, 43–46 Planning market, 41–46 a marketing strategy, 24 media, 254–255 process for marketing, 41–42 strategic, 246–247 Plastics, reuse of, 103 PlayStation, 11 Podcasts, 279–280 Point-of-sale material, 270 Pokémon Go, 275–276 Policies conict of interest/ harassment/sexual, 53 government, 133 return, 192 Political environment, 137 Polo Ralph Lauren, 265 Poorly dened roles and rights, 347 Pop-Up Shop, 105 Population growth rate, 139–140

402

Subjects Index

target, 180 Porsche, 196, 209, 265 Porter’s model of competitive strengths, 127 Portfolio, product, 231 Positioning, 24, 70 of an advertisement, 203 ensuring successful, 73–76 high-end, 245 of a new/existing brand, 71–73, 97 product and consumers, 359–360 statement of, 81 strategic, 39–40 Post-purchase evaluation, 200–201 Post-purchase information distortion, 208 Post-test, 258–259 Potato chips, 8–9 Practices, price-related, 355 Prada, 200 Pre-test, 258 Preference, consumer, 362–363 Preliminary analysis, 161 Premium, retailer/sales, 270 Premiums/bonuses, 319 Preparation tools for meeting, 296 Presentation of a business solution, 302–304 research report, 182–183 Press release, 260 Prestige or quality signalling pricing strategy, 362–363 Price, 353. see also Pricing bundling strategy, 364 conjoint analysis measurement, 371 consumers and, 156 cut, promotional, 269 demand and, 370 differential approach, 235 differentiation, 78 dimensions, 353 discount stores and, 332–333 innovation and, 105 leadership strategy, 361 new product, 360

paid per product, 23 prestige product, 363 process, 357 product, 353–354 and product life cycle, 365–367 quality and, 205, 360, 362–363 reduction strategy, 366–367 selection of, 371–372 sensitivity measurement (PSM), 372 and transaction, 285–286 and value, 353 wars, 129, 130–131, 342, 369 Pricing. see also Price business costs strategies, 363 competition-based method, 369–370 competitive pressure and, 361–362 complementary product strategy, 364 consumer preferences and, 362–363 customer value strategy, 364 environmental inuences on, 354–356 innovation, 106 low-cost pricing strategy, 362 methods, 367–373 objectives, 356–360 prestige or quality signalling, 362–363 promotional, 365 reduction strategy, 366–367 strategies, 360–367 Primary data, 47, 149, 152, 154–155 collection, 159 Priorities, strategic, 122–123 Privacy, protection of, 143, 165, 168, 262 Private label, 234 Probability sampling, 175–176, 180–181 Problem children, 40 denition of marketing, 89

formulating the, 161–164 with product, 308 questions, 301 Process(es), 191 communication, 284–285 creativity, 84–87, 280–281 decision, 190–193, 198–199 innovation, 84–87 marketing research, 159–160 pricing, 357 selling, 292–309 Proctor & Gamble (P&G), 118, 275 innovation, 88, 117 pricing strategy, 364, 367 value advertising, 210 Procurement, 120 Producers consumers and intermediaries, 326 direct/indirect channels, 335–336 distribution channels, 334–336 Production orientation, 5–6 Product(s), 7, 223 adoption factors, 101–104 based structure, 315 brand organization within a portfolio, 236 business costs and pricing, 363 characteristics, 192 compatibility, 102 component evaluation for pricing, 371–372 core, 225–231 country of origin, 206 cultural, 10–11 decision-making, 157 demonstration, 268, 304 design, 225–226 development, 36–38, 98–104 differentiation, 78 dimensions, 224–233 emotions and, 192–193 existing, 237 failure, 104 fair-trade, 101

function vs. form, 225–226 green, 101 hair removal, 133 innovation, 98–104 launch asco, 104 life cycle, 98 life cycle and price, 361, 365–367 life cycle management, 238–241 line, 231, 364 location, 173–174 luxury, 231 management of a portfolio, 231–233 managers, 50–52 market for, 125–127 organic, 129, 142 orientation, 6 placement, 267 portfolio, 231–233, 236 positioning to consumers, 359–360 pricing, 23, 105–106, 353–354 problem/star/cash cows/ dogs, 40 promotion, 9, 22–23, 102 quality, 227–229 ranges, 231 relative advantage of, 101 safety, 143 satisfaction questions, 176 sector for, 125–127 specialized, 342 structure by, 50–51 substitute, 126, 133 support, 240 triability, 102 visibility, 192 Proles, customer, 261–262, 296 Prot maximization, 357–358, 370 -oriented objectives, 357–358 Protability, 21, 62 of distribution options, 344 product prices and, 368 targeting and, 66 variable, 62, 64 Program, loyalty, 129, 150–151, 262, 269

Subjects Index

Projection of demand, 12–13 Projective techniques, 165, 168 Promotion(s) and differentiation, 78 directed at nal customers, 268–269 function, 330 innovation, 96, 102, 104, 106 intensive distribution and, 341 for intermediaries, 269 items, 270 marketing strategy, 23 monetary, 208 pricing and, 367 of products, 9, 22–23, 102 sales, 268–271 salesperson, 290 strengths/weaknesses, 271 types of, 268–270 Proposal, research/service, 159 Prospecting, 293–295 Prosperity, times of, 138 Protection, environmental, 142 Protection plans, 230 Protocol method, 171 Prototype, 89, 157 Provigo, 36, 130, 347 PSM, 372 Psychographic variables, 59, 209–211 culture and, 216 Psychology of the consumer, 202–209 Public interest, acting in the, 358 Public relations, 259–261 strengths/weaknesses, 260–261 Publicity. see also Advertising fraudulent, 9–10 Pull strategy, 330 Puma, 80–81, 213 Purchase act of, 199 decision and, 192–193, 197–199 decision behaviours during a, 190–191

history, customer, 261–262 impulse, 192 post-purchase information distortion, 208 resources linked to, 117 time available, 218 Purina pet-food, 279 Push strategy, 330 PVRs, 203

Q

Qualitative research, 166–169 Quality consumers and, 18 measure of service, 229 price and, 360, 362–363 of a product, 227–229 Quantity gap, 328 Québec advertising investment, 253, 255 franchises, 338 lifestyle, 59 Questionnaire data collection, 177 scale of, 159–160 self-administered, 165 survey, 176, 179–180 Question(s) closed, 300–301 implication, 302 need-payoff, 302 open, 300–301 problem, 301 situation, 300–301 SPIN method, 300–302 survey, 176

R

Radio industry, advertising and, 256 Radio station market, 58 Ralph Lauren, 210 Range, depth/length/width, 231 RBC, 207 Reach or cumulative audience, 257 Rebates, 270, 367

Recession, 138 Recommendations, communication of, 182–183 Recruiting salespeople, 318 Recycling, 103, 189 Red Bull, 125–126, 206, 266 Reduction strategy, price, 366–367 Reebok, 33–34, 80–81 Reference groups, 211–213 Refocusing, 70 Refund, satisfaction and, 269 Region, structure by, 51–52 Regional subcultures, 215 Regression models, 235, 274 Regulations, government, 135, 142–143 Reintermediation, 346 Reitmans, 115 Related services, 230 Relational approach, 286–287 Relation(s) with business partners, 118 customer, 310 media, 259–261 public, 259 Relationship customer, 16–17 marketing, 261–262 selling, 287 Reliability of marketing research, 165 of a product, 227, 229 Réno-Dépôt, 71 Renovation market, 60, 62, 70 Replacement segment, 61 Report, research, 182–183 Repositioning, 72–73 Research causal, 159 choice of method, 165 descriptive, 158 exploratory, 158 formulating the problem, 161–164 function, 329 information, 195–196 marketing, 149. see also Marketing research online, 195–196 qualitative, 166–169

403

report/recommendations, 182–183 role of, 87–90 subject, 165 Réseau Sélection, 140 Resources allocation of, 44 nancial, 116 human, 115 information, 117 linked to purchasing, 117 of the organization, 113, 115–117 Response rate, survey, 178 Response, reliability of the, 165 Responsiveness, 229 Restaurant market, 60 Result of the exchange process, 18–21 Results, communication of, 182–183 Retail sector, 128 Retailers, 331–332 nancing function, 329 indirect channel, 335–336 logistics and, 328–329 premium, 270 pricing, 360 Retargeting, 273 Retention rate of consumers, 19 Retiree market, 12 Return policies, 192 Rights, poorly dened, 347–348 Rise Kombucha, 203, 206, 210, 266 Risk, types of perceived, 196 Rivalry in an industry, 128–129 Riviera, 245 Robert Transport, 327 Roles, poorly dened, 347–348 Rolex, 203 Rona, 70–71, 329

S

Salary, 319 Sales activities related to, 121 analysis of, 319

404

Subjects Index

closing and commitment, 307 contests, 270 data, 152–153 direct home, 213 follow-up, 308–309 force management (SFM), 313–320 force manager, role of the, 314 force structure, 315–318 forecasting, 314–315 function, 330 international, 311–313 levels, 46–47 managers, 148, 320–321 online, 119 orientation, 6 premium, 270 preparation tools, 296–297 product location and, 173–174 projections, 12 promotion, 268–271 -related objectives, 359 support salesperson, 291 task-based structure, 316 team, 314–315 volume, 66–67 Salesperson availability-based structure, 316 consultative, 290 delivery, 290–291 follow-up with customer, 308–309 free to solicit, 317 inuence, 199 key account, 291 missionary (promotional), 290 new business development, 290 presentation of a business solution, 302–304 questions for the customer, 300–301 recruiting/selecting, 318 relational approach, 286–287 support, 291 types of, 289–291 Samples/sampling

data collection and, 180–181 probability (random), 175–176, 180–181 promotional, 268 Samsung, 356, 362 SAQ, 65, 133, 191, 206–207, 262 Satisfaction, 200 consumer, 18–21 customer, 188–189, 308 guarantees, 192 loyalty and, 201 Satiscer, 193 Satiscing, 358 Saturation principle, 168 Scales, measurement, 178–179 SCAMPER, 89 Scandals, sponsorship reactions and, 265 Scéno Plus, 35 Schedule, advertising/ media, 257–259 Scorecard, marketing, 47–48 Search engine keywords, 272 marketing (SEM), 195 optimization (SEO), 274 Search information, 194–196 Sears, 325, 349 Secondary data, 47, 152, 154–155, 157–158 Sectors, market and, 125–127 Sécuro-Vision, 116 Segment, selecting target, 65–66 Segmentation, 24, 57 articial intelligence (AI) and, 96–97 business markets and, 63–64 on consumer markets, 57–63 criteria, 63 geographic variables, 58–59 market, 373 marketing, 68–69 marketing strategy, 56–57 Segway, 241 Selection

of channel/intermediary, 343–345 of a distribution network, 340–345 of salespeople, 318 Selective distribution, 341–342 Self-concept, 209–210 Self-esteem, 209 Self-service car rental, 61 Sellers’ market, 6 Selling, 284 approaches, 284–287 process, 292–309 relationship, 287 Seniors, market for, 140 Sensitivity, price, 372 Sephora, 262, 268 Service(s), 223 after-sale, 117–118, 230 based structure, 315 customer, 5, 16, 23, 310–311 customer _ function, 330 development of new, 98–104 marketing, 223 proposal for research, 159 quality, 229 related, 230–231 substitute, 133 SERVQUAL, 229 Share of demand, 11 Share-of-voice, 257 Shares, market, 39–40 Sharing economy, 135 Sharing of functions, 344 Shelf life, 226 Shoe marketing, 80–81, 103, 332 Short channel, 335 Short-term car rental market, 60–61 Short-term prots, 357, 359 Showrooming, 141, 349 Shows and stands, promotional, 270 Sinocap, 86 Situation analysis, 42–44, 48, 244, 246–247 characteristics, 192–193 inuences, 217–218 marketing problem and, 161–162

questions, 300–301 variables, 199 Skimming strategy, 360, 365, 366 Small and medium enterprises (SME), 63–64, 69 Smart brush, 96–97 Smart watch, 362 Smartphones, 134, 192, 226, 247, 275 SME, 63–64, 69 Snapchat, 97, 213, 214, 276 Snapper, 325, 331, 347, 349 Soap marketing, 96 Sobey’s, 128, 338, 347 Social classes, 215 environment, 139–140 media, 267, 276–277, 310 networks, 94, 201, 212, 214, 251 pressure, 209 responsibility, 5, 27 Société de gestion Doucet, 70 Société des alcools du Québec. see SAQ Sociodemographic variables, 57–58 Soft drink market, 62 Software customer relationship management, 310 data analysis, 181 Solicitation of customers, 294–295 Solution presentation of a business, 302–304, 306 validating the business, 306–307 Sony, 11, 27, 369 Specialist-supported team, 317 Specic market variables, 62 Spectacles, Snapchat, 97 Speedo, 265 SPIN method, 300–302 Sponsorship, 263 types of, 263–265 Spontaneous awareness, 235, 249 Sport event sponsorship, 265–266

Subjects Index

Sports Experts, 332 Spyware, 169 St-Hubert restaurants, 74, 81 Standardization, global brands and, 258–259 Star products, 40 Starbucks, 211, 214, 237, 277, 355 Start-ups, 141 Statement of positioning, 81 Statistical inference, 165 Status quo, preserving the, 359 Stella Artois, 68 Steps of the approach, 298 FAB, 304 of follow-up, 309 of handling objections, 306 of marketing research process, 159–160 of pre-approach of customers, 296 of selling process, 293 Stimulus marketing, 203–204 Stock, unsold, 359 Store(s) discount, 332–333 high-level service, 332 location, 174 physical environment, 199 Strategic account team, 317 branding decisions, 235–238 criteria, 280 planning in communication, 246–247 priority analysis, 122–123 Strategies Ansoff, 37–39 business, 32–40 challenger, 33 competitive parity, 361 consumer preference, 362–363 cost-plus pricing, 363 creative, 280–281 development, 35–39 diversication, 36–38 follower, 33–34

ingredient brand, 238 integrated marketing communication, 252 leader, 33 low-cost pricing, 362 marketing, 56–81. see also Marketing strategies multi-channel/ omnichannel distribution, 347–349 omnichannel, 348 penetration, 360, 365 prestige or quality signalling pricing, 362–363 price leadership, 361 price reduction, 366–367 pricing, 354–356, 360–367 for pricing a product line, 364 pricing and consumer preferences, 362–363 sales promotions, 268–270 skimming, 360, 365 targeting, 65 Streaming in the music industry, 346 Strength(s), 113, 117–123 competitive, 127, 131 Strengths, Weaknesses, Opportunities, Threats (SWOT), 44, 110–112 Structure customer size-based structure, 316 functional, 50 geographic, 315 market, 51–52 matrix, 52, 318 methodology and, 164–177 organizational, 50–51 product of brand, 50–51 product- or servicebased, 315 region, 51–52 of the sales force, 315–318 Subculture, 214–216 Subject, choice of research, 165 Subjective feelings, decision and, 192–193

Subscription, decision context, 198 Substitute products and services, 133 Subway, 75, 267 Success, key factors of, 118–119 Sun Fruits, 362–363 Super C, 68 Supermarkets, 129–131 Suppliers, dependence on, 129–130 Supply denition based on, 126 and demand, 25, 125–126 Support activities, 121–122, 330 Surveys data analysis, 181–182 measurement instruments, 177–179 online, 151 questionnaires, 177 research, 175–177 types of, 177 Sustainable consumption behaviour, 212–213 Sweden, eco-responsibility, 27 Swiffer, 278 Swintec, 241 SWOT, 44, 110–112 Symbolic needs, 203 System(s) franchise, 338–339 marketing information (MIS), 147–151 vertical marketing (VMS), 336–339

T

Tactic vs. strategy, 32 Tag Heuer, 265 Tangibles, service and, 229 Target audience, 205, 246–247, 252, 259–260 group, 252–255, 257–259 return on investment, 358 Targeting, 24, 65 changes in, 70

405

marketing strategy, 64–70 positioning and, 73–76 selecting targets, 65–66 types of, 67–69 Taste tags, 65 Taxi industry, 103, 135 Taylor, Frederick W., 5–6 Team(s) agency, 281 creative, 280 recruiting/selecting, 318 selling structure, 317 size, 314–315 Tech3lab, 170, 175 Technical dimensions of quality, 227 Technical support, 291 Technological development/ environment, 135, 140–142 Technology changes in marketing, 134–135 consequences of, 27 development of new, 140–142 of information, 346–347 observation and, 170 Technomarine Group, 69 Television channel marketing, 68 Temporal precedence, 173 Téo Taxi, 103 Tesla, 203 Test(s) A/B testing, 274 markets, 175 of measurement instruments, 179–180 pre- and post-, 258–259 prototype, 90 Texas Instruments, 64, 369 Thai Life Insurance, 216 The Bay, 324, 329 The North Face, 91 Theory expectation disconrmation, 200 Threats by newcomers, 127, 131 organizational environment, 125, 134, 136–137, 142 substitute products/ services, 133

406

Subjects Index

SWOT, 110–112 Tiffany and Co, 277 Tim Hortons, 338–339 Time available for purchase, 218 Tire market, 59 Title transfer function, 329 Toms shoes, 210 Tools market for, 60 for marketing control, 46–48 media relations and, 260 preparation, 296–297 Top-of-the-mind awareness, 249 Topshop, 104 Tourism boosting, 38–39 bus ticket service, 95 car rental market, 60–61 cruise industry, 215–216 impacts of, 143 market demand, 11 New Brunswick beaches, 77 retirees and, 12 variables in, 59 TOWS matrix/model, 112–113 Toy market, 198–199 Toyota, 9, 231–232, 237, 364 Trade history of its development, 25–26 shows, 270, 313 traders, 331–333 Training of salespeople, 319–321 Trans-Pacic Partnership Accord, 138 Transactional approach, 285–286 Transactions closing and commitment, 307 customer, 16 Transavia, 106 Transcontinental, 240 Transportation, 329 Travel. see also Tourism retail sector, 12, 199 spending, 199

Tremblay, Michel, 75 Trench coats, 229 Triability, 102 TripAdvisor, 251 Tupperware party, 213 Turo, 135 Twitter, 104, 213, 255, 276–277 Typology of sampling procedures, 181

U

Uber, 135, 141, 142, 346 UE Boom, 225 Ultralong channel, 336 Umbrella brand, 236 Unboxing videos, 227 Unilever, 96, 236, 240 Uniqlo, 217 Unit cost, 363, 367, 369 United Airlines, 201 Univariate analysis, 181 Unsold stock, 359 Urban Outtters, 211 User experience (UX), 170 User-generated content, 214 Utilitarian needs, 202

V

Validating the business solution, 306–307 VALS (Values and Lifestyles) method, 59 Value(s), 18, 210 chain, 91–92, 114, 119–122 creation, 95–96 customer lifetime, 17 and price, 353 proposition matrix, 95–96 Van Houtte, 79 Variability, 223 Variables analysis, 181–182 behavioural, 59–61, 64 of business market segmentation, 64 cause-and-effect relationships, 159

choice of, 63 classication, 174 combination of, 63 controllable, 23 costs, 368 dependent, 173–174, 235 economic, 63–64 explanatory, 173–174 geographic, 58–59, 64 independent, 173–174, 235 in a marketing plan, 24 organizational, 64 portion of the compensation, 319 protability, 62, 64 psychographic, 59, 209–211 regression model and, 235 situational, 199 sociodemographic, 57–58 volume, 62, 64 Variation, concomitant, 173 Vertical marketing system (VMS), 336–339 Video game industry, 11 Vidéotron, 67 Vinyl discs, comeback of, 241 Virtual reality, 142 Visible minorities, 140 Visionaries, 99–101 VMS, 336–339 Voice-recognition programs, 102 Volkswagen, 129–130, 196, 205, 207, 231–232 Volume sales, 66–67 segmentation variable, 62 variable of, 62, 64 Voluntary chain, 337–338 Volvo, 197 Vorwerck, 212, 213

W

Walmart, 36, 349 competition, 130–131

nancing/payment functions, 329–330 low-price strategy, 332 loyalty program, 262 mass marketing, 68 positioning of, 74 pricing, 356, 360, 362 Snapper and, 325 Warehousing, 329 Warranty, customer service and, 330 Weakness, 113. see also Strength(s) Web. see Internet Webcasting, 279 Webrooming, 141 Websites. see also Internet advertising and, 272–273 business, 248, 251, 253, 272, 274–275 e-commerce and, 188, 195–197, 203, 206 newspaper, 93–94 WestJet, 356, 362 Wholesalers, 15, 332–333, 336 logistics and, 328–329 Width of the range, 231 Wine industry, 133, 191, 206–207 Winners, 215, 360 Withings, 96 Word association, 168 Work in sales, 291–292 Worst Possible Idea, 89

X

Xbox, 11 Xerox, 21, 122, 231

Y

Yelp, 251 YouTube, 209, 216, 227, 277, 279

Z

Zappos, 241 Zara, 120

, at the forefront of marketing trends This second edition has been redesigned and updated, yet remains true to the approach that has fuelled the success of the previous version: simple language, clearly presented theories and real-world examples taken from the market that reect the business world. This practical introduction to marketing offers future marketing managers a global and strategic vision of their eld. Readers will discover: • the marketing process, from planning to control • the main marketing strategies: segmentation, targeting, positioning and differentiation • the importance of analyzing internal and external environments and consumer behaviour • elements that dene the commercial mix: products, services and brands; marketing communication; relationship selling; distribution and price The book also features two new chapters that illustrate its understanding of future trends: • creativity and innovation in marketing • marketing research

ISBN 978-2-7650-7251-5

www.cheneliere.ca/gestiondumarketing