Practice and Principles of marketing tenth edition 9781526849533, 1526849534, 9781526849540

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Dedication
Brief Table of Contents
Detailed Table of Contents
Vignettes
Case Guide
Preface
Guided Tour
Connect
About the Authors
Acknowledgements
PART 1 Fundamentals of Marketing
1 Marketing and the Organization
Introduction to Principles and Practice of Marketing
What is Marketing?
Adopting a Market Orientation in a Changing World
Understanding Market-driven Businesses
Creating Customer Value, Satisfaction, Loyalty and Relationships
Marketing Planning
Does Marketing Have All the Answers?
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 1 The Rivalry Between Coca-Cola and Pepsi
CASE 2 H&M and Fast Fashion
2 The Marketing Environment
Technological Forces and the Digital Revolution
Economic Forces
Political and Legal Forces
Legal and Regulatory Responses to Ethical Issues in Marketing
The Physical Environmental Forces
Culture and Society
The Influence of Consumerism and Environmentalism
The Microenvironment
Monitoring the Marketing Environment
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 3 The New [Augmented] Reality for Fashion Retailing
CASE 4 Sodastream: Using Environmental Awareness to Reach Generations X, Y and Z
3 Sustainable Marketing and Society
The Environment, Society and the Changing Marketing Landscape
Sustainability Marketing
Practical Approaches Towards Developing Sustainable Marketing Strategies: Corporate Social Responsibility
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 5 Mcdonald’s and Its Plan for Environmental Change: Not Everyone is ‘Lovin’ It’
CASE 6 Unilever: In Pursuit of Purpose
4 Customer Behaviour
The Changing Context of Consumer Behaviour
The Dimensions of Consumer Behaviour
Influences on Consumer Behaviour
Business-to-Business Customers
Why is B2B Marketing Important?
People and Processes in Purchasing
Influences on Buying Decisions
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 7 Coffee Shop Wars
CASE 8 Naked Wines: A Community of Winemakers and Wine Drinkers
5 Value Through Relationships
Value Creation
Value and Relational Networks
Key Concepts of Relationship Marketing
Relationship Management and Managing Customer Relationships
How to Build Relationships
Benefits for the Organization
Benefits for the Customer
Developing Customer Retention Strategies
Customer Relationship Management
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 9 Starbucks: Brewing Great Customer Experiences Through Outstanding Digital Marketing
CASE 10 Manchester City Football Club: Co-Creating the Future
6 Digital Marketing Analytics and Customer Insights
Digital Marketing Analytics: Goals, Performance and Measurement
Customer Insights and Data-driven Marketing
Marketing and Research
The Market Research Process
Ethical Issues in Marketing Research, Analytics and Customer Insights
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 11 Accelerating Market Research: Harley-Davidson Turns to Albert
CASE 12 Hubspot: Harnessing the Power of Artificial Intelligence for Marketing
7 Market Segmentation and Positioning
Why Bother to Segment Markets?
The Process of Market Segmentation and Target Marketing
Segmenting Consumer Markets
Segmenting B2B Markets
Target Marketing
Positioning
Building an Effective Marketing Mix
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 13 Unleashing the Power of Nablabs
CASE 14 Boots: Managing Own-Label Products and Their Positioning Within a Changing Environment and Dynamic Market(s)
PART 2 Creating Customer Value
8 Value Through Brands
Products and Brands
The Product Line and Product Mix
Brand Types
Why Strong Brands are Important
Brand Equity
Brand Building
Key Branding Decisions
Global Branding
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 15 Dr. Martens: Engaging Consumers for More Than Half a Century
CASE 16 Brand Strategy Changes at Burberry
9 Value Through Pricing
Why an Economist’s Approach to Pricing is Important
Cost-orientated Pricing
Competitor-orientated Pricing
Customer-orientated Pricing
Dynamic Pricing
Pricing and Marketing Strategy
Initiating Price Changes
Reacting to Competitors’ Price Changes
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 17 A Recipe for Success: Adding New Innovations to the Pot
CASE 18 Collaborative Innovation: The Apple and Nike Partnership
10 Value Through Innovation
What is an Innovation and What Is a New Product?
Creating and Nurturing an Innovative Culture
Organizing for Innovation and New Product Development
Managing Idea Realization (New Product Development)
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 19 Driving Electric Car Innovation: Influencing Factors of Tesla’s Pricing Strategy
CASE 20 Louis Vuitton: A Timeless Success in Premium Pricing
11 Value Through Service
The Service Industries
The Nature of Services
Managing Services
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 21 Serving up Sustainability: The Impetus for Greener Fast-food Outlets
CASE 22 Spill the Beans: Chipotle’s Signature Flavour
PART 3 Communicating and Delivering Customer Value
12 Introduction to Marketing Communications
Integrated Marketing Communications Approach
Planning for Integrated Marketing Communications
Elements of Integrated Marketing Communications
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 23 Domino’s: Reaching and Staying Number One
CASE 24 Craft Beers: Marketing Rebels?
13 The Marketing Communications Mix: Mass Communications
Introduction
Advertising
The Role of Advertising
Advertising Expenditure
How Advertising Works
When to Use Advertising
Organizing for Campaign Development
Ethical Issues in Advertising
Product Placement
Public Relations and Sponsorship
Sales Promotion
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 25 Is Advertising ‘Unmentionables’ No Longer a Taboo?
CASE 26 Blackwater Tasters Club: Thinking Inside the Box
14 Digital Marketing and Media
What are Digital Marketing and Digital Media?
The Digital Communication Environment
Digital Marketing Campaign Planning
The Dark Side of Digital Marketing
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 27 Netflix: Using Big Data to Succeed
CASE 28 The Happy Pear: Go With Your Gut!
15 Direct Marketing, Social Media and Direct Messaging
Principles of Direct Marketing Communications
Direct Marketing Campaigns
Managing a Direct Marketing Campaign
Social Media Marketing
Personal Selling and Sales Management
Exhibitions and Trade Fairs
Ethical Issues in Direct Communications
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 29 Airbnb: Belong Anywhere
CASE 30 Billie Eilish: Leveraging the Personal Anti-brand Across Digital Media
16 Place: Distribution, Channel Management and Retailing
Functions of Channel Intermediaries
Types of Distribution Channel
Channel Strategy
Channel Management
Retailing: Physical and Digital Channels to Market
Retailing
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 31 ASOS and Online Fashion
CASE 32 A Look Into Sephora’s Omnichannel Strategy
PART 4 Marketing Planning and Strategy
17 Marketing Strategy and Planning
Marketing Planning Context
The Functions of Marketing Planning
The Process of Marketing Planning
Marketing Audit
Marketing Objectives
Core Marketing Strategy
Rewards of Marketing Planning
Problems in Making Planning Work
How to Handle Marketing Planning Problems
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 33 Marks & Spencer: Reviving a British Icon
CASE 34 Anthon Berg Travels the World With Luxury Chocolates Made in Scandinavia
18 Analysing Competitors and Creating a Competitive Advantage
Analysing Competitive Industry Structure
Competitor Analysis
Competitive Advantage
Creating a Differential Advantage
Creating Cost Leadership
Competitive Marketing Strategy
Competitive Behaviour
Collusion
Developing Competitive Marketing Strategies
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 35 Mastercard’s Sonic Brand Identity: A Sound Strategy
CASE 36 Coca-Cola: Can an Iconic American Brand Adapt Itself to the Indian Market?
19 Product Strategy: Lifecycle, Portfolio and Growth
Challenges of Product Lifecycle Management
Managing Product Lines and Brands Over Time: The Product Lifecycle
Uses of the Product Lifecycle
Limitations of the Product Lifecycle
Value of the Product Lifecycle Concept
Managing Brand and Product Line Portfolios
Strategies for Growth: Product
Strategies for Growth: Services
Ethical Issues and Products
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 37 Unilever’s Search for Growth
CASE 38 Fever-Tree: Capitalizing on Market Trends
20 Global Marketing Strategy
Deciding When to Go Global and When to Stay Local
Deciding Which Markets to Enter
Deciding How to Enter a Foreign Market
Developing Global Marketing Strategy
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 39 IKEA: A Swedish Icon
CASE 40 Marimekko: A Story of Design, Determination and Leadership
21 Managing Marketing Implementation
Implementation and Managing Change
Management of Change
Objectives of Marketing Implementation
Value Creation and Implications for Marketing Implementation
Developing Implementation Strategies
Managing Resistance to Marketing Implementation
Marketing Organization
Marketing Control
Big Picture: Key Topics in This Chapter
Detailed Review
Key Terms
Study Questions
Recommended Reading
References
CASE 41 Crocs: Back With More Bite!
Glossary
Company Index
Subject Index
Contents
Introduction
Epstein's Black Book Unredacted!
A
B
C
D
E
F
G
H
I-J
K
L
M
N
O
P
Q
R
S
T
U-V
W
Y
Z
65th St NYC
America
Brazil/Entertainment/Finance
France
Hotels
Island
Israel/Italy
J E Biz Assoc?
71st St. NYC
Kenya/Kinnerton
Medical
PB
Rugs/Security
Switzerland/Travel
Ranch/RM
Who's Who Of Epstein's Black Book | spidercatweb.blog
A
B
C
D
E
F
G
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I-J
K
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O-P
Q-R
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U-V
W
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Z, Etc. Ghislaine
Jeffrey Epstein_ Complete FLIGHT LOGS of the Lolita Express and you should see the names! _ SocialMediaMorning.com
Copyright
Title Page
Dedication
Contents
Chapter 1: ‘I’m thinking’ – Oh, but are you?
Chapter 2: Renegade perception
Chapter 3: The Pushbacker sting
Chapter 4: ‘Covid’: The calculated catastrophe
Chapter 5: There is no ‘virus’
Chapter 6: Sequence of deceit
Chapter 7: War on your mind
Chapter 8: ‘Reframing’ insanity
Chapter 9: We must have it? So what is it?
Chapter 10: Human 2.0
Chapter 11: Who controls the Cult?
Chapter 12: Escaping Wetiko
Postscript
Appendix: Cowan-Kaufman-Morell Statement on Virus Isolation
Bibliography
Index

Citation preview

 

page i

Tenth Edition

Principles and Practice of Marketing David Jobber and

Fiona Ellis-Chadwick  

page ii

 

page iii

Tenth Edition

Principles and Practice of Marketing    

David Jobber and

Fiona Ellis-Chadwick

page iv

Principles and Practice of Marketing, Tenth Edition David Jobber and Fiona Ellis-Chadwick ISBN-13 9781526849533 ISBN-10 1526849534 Published by McGraw-Hill Education (UK) Limited Unit 4, Foundation Park, Roxborough Way,

Maidenhead SL6 3UD T: +44 (0) 1628 502500 Website: www.mheducation.co.uk British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data The Library of Congress data for this book has been applied for from the Library of Congress Portfolio Manager: Sabrina Farrugia Content Developer: Maggie du Randt Content Product Manager: Ali Davis Marketing Manager: Ros Letellier Text design by Kamae Design Cover design by Adam Renvoize Printed and bound in the UK by Bell and Bain Ltd, Glasgow Published by McGraw-Hill Education. Copyright © 2024 by McGraw-Hill Education. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Fictitious names of companies, products, people, characters and/or data that may be used herein (in case studies or in examples) are not intended to represent any real individual, company, product or event. ISBN-13 9781526849533 ISBN-10 1526849534 eISBN-13 9781526849540 © 2024. Exclusive rights by McGraw-Hill Education for manufacture and export. This book cannot be re-exported from the country to which it is sold by McGraw-Hill Education.

 

page v

Dedication To Jackson, River, Rosie, Molly, Evie and Bohdi.

Brief Table of Contents Detailed Table of Contents Vignettes

vii

page vi

xi

Case Guide

xiii

Preface

xvii

Guided Tour

xx

Technology to Enhance Learning and Teaching

xxiii

About the Authors

xxvii

Acknowledgements

xxviii

PART 1 Fundamentals of Marketing

1

1

Marketing and the Organization

3

2

The Marketing Environment

41

3

Sustainable Marketing and Society

93

4

Customer Behaviour

133

5

Value Through Relationships

183

6

Digital Marketing Analytics and Customer Insights

215

7

Market Segmentation and Positioning

253

PART 2 Creating Customer Value

303

8

Value Through Brands

305

9

Value Through Pricing

349

10 Value Through Innovation

387

11 Value Through Service

423

PART 3 Communicating and Delivering Customer Value 12 Introduction to Marketing Communications

463 465

13 The Marketing Communications Mix: Mass Communications 503 555 14 Digital Marketing and Media 15 Direct Marketing, Social Media and Direct Messaging

595

16 Place: Distribution, Channel Management and Retailing

639

PART 4 Marketing Planning and Strategy 17 Marketing Strategy and Planning

679 681

18 Analysing Competitors and Creating a Competitive Advantage 717 Product Strategy: Lifecycle, Portfolio and Growth 759 19 20 Global Marketing Strategy

799

21 Managing Marketing Implementation

837

Glossary

875

Company Index

887

Subject Index

896

 

page vii

Detailed Table of Contents Vignettes

xi

Case Guide

xiii

Preface

xvii

Guided Tour

xx

Technology to Enhance Learning and Teaching

xxiii

About the Authors

xxvii

Acknowledgements

xxviii

PART 1 Fundamentals of Marketing

1

1 Marketing and the Organization

3

Introduction to Principles and Practice of Marketing

4

What is Marketing?

5

Adopting a Market Orientation in a Changing World

7

Understanding Market-driven Businesses

11

Creating Customer Value, Satisfaction, Loyalty and Relationships

16

Marketing Planning

21

Does Marketing Have All the Answers?

22

Big Picture: Key Topics in This Chapter

25

Detailed Review

25

Key Terms

27

Study Questions

28

Recommended Reading

28

References

28

CASE 1 CASE 2

The Rivalry Between Coca-Cola and Pepsi H&M and Fast Fashion

31 35

2 The Marketing Environment

41

Technological Forces and the Digital Revolution

43

Economic Forces

48

Political and Legal Forces

57

Legal and Regulatory Responses to Ethical Issues in Marketing

62

The Physical Environmental Forces

62

Culture and Society

66

The Influence of Consumerism and Environmentalism

70

The Microenvironment

72

Monitoring the Marketing Environment

75

Big Picture: Key Topics in This Chapter

76

Detailed Review

77

Key Terms

78

Study Questions

78

Recommended Reading

79

References

79

CASE 3 CASE 4

The New [Augmented] Reality for Fashion Retailing 83 Sodastream: Using Environmental Awareness to Reach Generations X, Y and Z 89

3 Sustainable Marketing and Society

93

The Environment, Society and the Changing Marketing Landscape

95

Sustainability Marketing

96

Practical Approaches Towards Developing Sustainable Marketing Strategies: Corporate Social Responsibility 113 Big Picture: Key Topics in This Chapter

119

Detailed Review

119

Key Terms

121

Study Questions

121

Recommended Reading

121

References

122

CASE 5 CASE 6

Mcdonald’s and Its Plan for Environmental Change: Not Everyone is ‘Lovin’ It’ 125 Unilever: In Pursuit of Purpose 129

4 Customer Behaviour The Changing Context of Consumer Behaviour

133 134

The Dimensions of Consumer Behaviour

136

Influences on Consumer Behaviour

145

Business-to-Business Customers

153

Why is B2B Marketing Important?

157

People and Processes in Purchasing

159

Influences on Buying Decisions

165

Big Picture: Key Topics in This Chapter

167

Detailed Review

167

Key Terms

169

Study Questions

171

Recommended Reading

171

References

172

CASE 7 CASE 8

Coffee Shop Wars Naked Wines: A Community of Winemakers and Wine Drinkers

5 Value Through Relationships

175 178 183

Value Creation

184

Value and Relational Networks

187

Key Concepts of Relationship Marketing

189

Relationship Management and Managing Customer Relationships

192

How to Build Relationships

194

Benefits for the Organization

196

Benefits for the Customer

197

Developing Customer Retention Strategies

198

Customer Relationship Management

201

Big Picture: Key Topics in This Chapter

205

Detailed Review

205

Key Terms

206

Study Questions

207

Recommended Reading

207

References

207

page viii CASE 9 CASE 10

Starbucks: Brewing Great Customer Experiences Through Outstanding Digital Marketing Manchester City Football Club: Co-Creating the Future

6 Digital Marketing Analytics and Customer Insights

210 212 215

Digital Marketing Analytics: Goals, Performance and Measurement

216

Customer Insights and Data-driven Marketing

222

Marketing and Research

224

The Market Research Process

225

Ethical Issues in Marketing Research, Analytics and Customer Insights

238

Big Picture: Key Topics in This Chapter

240

Detailed Review

241

Key Terms

242

Study Questions

243

Recommended Reading

244

References

244

CASE 11 CASE 12

Accelerating Market Research: Harley-Davidson Turns to Albert 246 Hubspot: Harnessing the Power of Artificial Intelligence for Marketing 250 7 Market Segmentation and Positioning 253 Why Bother to Segment Markets?

254

The Process of Market Segmentation and Target Marketing

256

Segmenting Consumer Markets

257

Segmenting B2B Markets

268

Target Marketing

272

Positioning

279

Building an Effective Marketing Mix

283

Big Picture: Key Topics in This Chapter

286

Detailed Review

287

Key Terms

288

Study Questions

289

Recommended Reading

289

References

289

CASE 13

Unleashing the Power of Nablabs

293

CASE 14

Boots: Managing Own-Label Products and Their Positioning Within a Changing Environment and Dynamic Market(s) 297

PART 2 Creating Customer Value

303

8 Value Through Brands

305

Products and Brands

306

The Product Line and Product Mix

307

Brand Types

307

Why Strong Brands are Important

308

Brand Equity

312

Brand Building

314

Key Branding Decisions

320

Global Branding

330

Big Picture: Key Topics in This Chapter

333

Detailed Review

334

Key Terms

335

Study Questions

336

Recommended Reading

336

References

337

CASE 15 CASE 16

Dr. Martens: Engaging Consumers for More Than Half a Century Brand Strategy Changes at Burberry

9 Value Through Pricing

340 344 349

Why an Economist’s Approach to Pricing is Important

351

Cost-orientated Pricing

352

Competitor-orientated Pricing

354

Customer-orientated Pricing

355

Dynamic Pricing

364

Pricing and Marketing Strategy

365

Initiating Price Changes

370

Reacting to Competitors’ Price Changes

372

Big Picture: Key Topics in This Chapter

374

Detailed Review

375

Key Terms

376

Study Questions

376

Recommended Reading

377

References

377

CASE 17 CASE 18

A Recipe for Success: Adding New Innovations to the Pot Collaborative Innovation: The Apple and Nike Partnership

10 Value Through Innovation

380 384 387

What is an Innovation and What Is a New Product?

389

Creating and Nurturing an Innovative Culture

391

Organizing for Innovation and New Product Development

395

Managing Idea Realization (New Product Development)

396

Big Picture: Key Topics in This Chapter

410

Detailed Review

410

Key Terms

411

Study Questions

412

Recommended Reading

412

References

412

CASE 19 CASE 20

Driving Electric Car Innovation: Influencing Factors of Tesla’s Pricing Strategy 415 Louis Vuitton: A Timeless Success in Premium Pricing 419

11 Value Through Service

423

The Service Industries

424

The Nature of Services

431

Managing Services

435

Big Picture: Key Topics in This Chapter

448

Detailed Review

448

Key Terms

449

page ix Study Questions

450

Recommended Reading

450

References

450

CASE 21 CASE 22

Serving up Sustainability: The Impetus for Greener Fast-food Outlets Spill the Beans: Chipotle’s Signature Flavour 459 454

PART 3 Communicating and Delivering Customer Value 12 Introduction to Marketing Communications

463 465

Integrated Marketing Communications Approach

467

Planning for Integrated Marketing Communications

469

Elements of Integrated Marketing Communications

472

Big Picture: Key Topics in This Chapter

488

Detailed Review

488

Key Terms

490

Study Questions

490

Recommended Reading

491

References

491

CASE 23 CASE 24

Domino’s: Reaching and Staying Number One Craft Beers: Marketing Rebels?

13 The Marketing Communications Mix: Mass Communications

493 498 503

Introduction

504

Advertising

507

The Role of Advertising

507

Advertising Expenditure

511

How Advertising Works

512

When to Use Advertising

516

Organizing for Campaign Development

520

Ethical Issues in Advertising

521

Product Placement

522

Public Relations and Sponsorship

525

Sales Promotion

532

Big Picture: Key Topics in This Chapter

538

Detailed Review

538

Key Terms

540

Study Questions

541

Recommended Reading

541

References

542

CASE 25 CASE 26

Is Advertising ‘Unmentionables’ No Longer a Taboo? Blackwater Tasters Club: Thinking Inside the Box

14 Digital Marketing and Media

546 551 555

What are Digital Marketing and Digital Media?

556

The Digital Communication Environment

566

Digital Marketing Campaign Planning

571

The Dark Side of Digital Marketing

579

Big Picture: Key Topics in This Chapter

581

Detailed Review

581

Key Terms

583

Study Questions

583

Recommended Reading

584

References

584

CASE 27 CASE 28

Netflix: Using Big Data to Succeed The Happy Pear: Go With Your Gut!

15 Direct Marketing, Social Media and Direct Messaging

588 591 595

Principles of Direct Marketing Communications

597

Direct Marketing Campaigns

601

Managing a Direct Marketing Campaign

605

Social Media Marketing

608

Personal Selling and Sales Management

610

Exhibitions and Trade Fairs

620

Ethical Issues in Direct Communications

622

Big Picture: Key Topics in This Chapter

624

Detailed Review

624

Key Terms

627

Study Questions

627

Recommended Reading

628

References

628

CASE 29 CASE 30

Airbnb: Belong Anywhere 631 Billie Eilish: Leveraging the Personal Anti-brand Across Digital Media 635

16 Place: Distribution, Channel Management and Retailing

639

Functions of Channel Intermediaries

642

Types of Distribution Channel

645

Channel Strategy

650

Channel Management

658

Retailing: Physical and Digital Channels to Market

661

Retailing

663

Big Picture: Key Topics in This Chapter

666

Detailed Review

666

Key Terms

668

Study Questions

669

Recommended Reading

669

References

669

CASE 31 CASE 32

ASOS and Online Fashion A Look Into Sephora’s Omnichannel Strategy

672 675

PART 4 Marketing Planning and Strategy 17 Marketing Strategy and Planning

679 681

Marketing Planning Context

682

The Functions of Marketing Planning

685

The Process of Marketing Planning

685

Marketing Audit

688

page x Marketing Objectives

694

Core Marketing Strategy

697

Rewards of Marketing Planning

700

Problems in Making Planning Work

701

How to Handle Marketing Planning Problems

702

Big Picture: Key Topics in This Chapter

703

Detailed Review

703

Key Terms

705

Study Questions

706

Recommended Reading

706

References

706

CASE 33 CASE 34

Marks & Spencer: Reviving a British Icon Anthon Berg Travels the World With Luxury Chocolates Made in Scandinavia

18 Analysing Competitors and Creating a Competitive Advantage

709 713 717

Analysing Competitive Industry Structure

718

Competitor Analysis

723

Competitive Advantage

728

Creating a Differential Advantage

732

Creating Cost Leadership

735

Competitive Marketing Strategy

737

Competitive Behaviour

738

Collusion

738

Developing Competitive Marketing Strategies

740

Big Picture: Key Topics in This Chapter

743

Detailed Review

743

Key Terms

745

Study Questions

745

Recommended Reading

746

References

746

CASE 35 CASE 36

Mastercard’s Sonic Brand Identity: A Sound Strategy 749 Coca-Cola: Can an Iconic American Brand Adapt Itself to the Indian Market? 752

19 Product Strategy: Lifecycle, Portfolio and Growth

759

Challenges of Product Lifecycle Management

761

Managing Product Lines and Brands Over Time: The Product Lifecycle

764

Uses of the Product Lifecycle

766

Limitations of the Product Lifecycle

769

Value of the Product Lifecycle Concept

770

Managing Brand and Product Line Portfolios

772

Strategies for Growth: Product

780

Strategies for Growth: Services

784

Ethical Issues and Products

785

Big Picture: Key Topics in This Chapter

786

Detailed Review

786

Key Terms

788

Study Questions

788

Recommended Reading

789

References

789

CASE 37 CASE 38

Unilever’s Search for Growth Fever-Tree: Capitalizing on Market Trends

20 Global Marketing Strategy

791 795 799

Deciding When to Go Global and When to Stay Local

802

Deciding Which Markets to Enter

804

Deciding How to Enter a Foreign Market

809

Developing Global Marketing Strategy

814

Big Picture: Key Topics in This Chapter

823

Detailed Review

823

Key Terms

824

Study Questions

825

Recommended Reading

825

References

825

CASE 39 CASE 40

IKEA: A Swedish Icon Marimekko: A Story of Design, Determination and Leadership

828 833

21 Managing Marketing Implementation

837

Implementation and Managing Change

838

Management of Change

840

Objectives of Marketing Implementation

844

Value Creation and Implications for Marketing Implementation

845

Developing Implementation Strategies

846

Managing Resistance to Marketing Implementation

848

Marketing Organization

856

Marketing Control

859

Big Picture: Key Topics in This Chapter

865

Detailed Review

866

Key Terms

867

Study Questions

867

Recommended Reading

868

References

868

CASE 41

Crocs: Back With More Bite!

871

  Glossary

875

Company Index

887

Subject Index

896

Vignettes Marketing in Action H&M: Look Good, Do Good, Feel Good 13

page xi

1.2

Brand Loyalty Wobbles When Starbucks Employs a Siren That’s Just Too Perfect

2.1

The Impact of the Cost of Living Crisis

2.2

China: The Greatest Connected Market in the World?

55

2.3

VAT Taxes the World

57

2.4

The GDPR and Brexit

61

2.5

ID. Buzz

65

2.6

Consumerism in Sweden and Britain

71

3.1

We Know What the Problems Are, But What Are We Doing to Halt the Deteriorating Climate? 96

3.2

Are Electric Vehicles Good for the Planet?

3.3

State Monopoly Systembolaget: Taking Sustainability Seriously

103

3.4

Will Working from Home Save the Planet?

112

4.1

Impulsive Behaviour, Panic Buying and WeChat Mini Programs

142

4.2

Technology Delivers Consumer Insights: The Age of Neuromarketing

149

4.3

Quel Fromage? You Can’t Be Serious!

154

4.4

Wing Yip: All the Chinese You Need to Know

158

4.5

Is Eliminating the Mavericks a Good Thing?

164

5.1

The Third Place: Creating and Managing Customer Value in the Coffee Shop Industry

185

5.2

Most Valued People Award Helps Drive Umbraco’s Success

193

6.1

Proximity Apps and Customer Information

220

6.2

Mobile Ethnography Reveals Motherhood is Not a Job

230

6.3

What is Big Data? GSK Shares Its Big Data

236

7.1

Start-up Business Fyndiq Creates a Marketplace With a Difference

255

7.2

The A–Z of Digital Generations

265

7.3

Digital Personas

266

7.4

Create a Global Target Market Campaign, Share-a-Coke and Bridge a Racial Divide

52

19

97

8.1

The Personality of a Brand

318

8.2

Developing the Lotus Bakeries Brand of Caramelized Biscuit

326

9.1

Energy Firms Collapse as the Wholesale Price of Gas and Electricity Heats Up

350

9.2

How to Charm Customers With Psychological Pricing

363

9.3

Freemium Pricing: Giving Away the Core Product to Build a Global Brand

364

10.1

Innovation in Luxury Industries in Europe

392

10.2

Innovation Drives Passion Brands and Builds Sporting Universes at Decathlon

397

10.3

Creating Radical Innovation

400

10.4

3D Printers

402

11.1

Creative Industries: ‘Representing the Under-represented’

426

11.2

Leggett Immobilier Voted Best Estate Agency in France

429

11.3

Mary’s Living & Giving Shop

430

11.4

How Social Media Transformed the Hashtag Into a Marketing Tool

440

12.1

Goldfish Crackers Grab Attention

471

13.1

Nordic Brands Invite Audiences to Experience the Benefits of a Brutal Landscape

13.2

Product Placement in Film and TV Series

14.1

Gucci Targets Its Customers of the Future Through Digital Media

560

15.1

Streaming Social Media

609

16.1

Shein Fashion: Shipping Direct From China

644

16.2

Fingerprinting the Supply Chain Leads to Success for Costco

647

16.3

Online Order Delivery Solutions

649

16.4

Alone We’re Delicious, Together We’re Yum!

657

17.1

Birds Eye Looks Closely at Its Target Marketing Strategy

697

18.1 18.2

Hotel Chocolat Takes On the Competition and Wins by Making Chocolate Exciting 722 Creating a Digital Advantage 728

19.1

Jaap Korteweg: The Vegetarian Butcher

769

19.2

Sweden: Land of Innovation

783

20.1

Harnessing the Power of the Guanxi

812

20.2

Barriers to Developing Standardized Global Brands

816

21.1

The New Nokia: Leader in Smart Cities and the Internet Of Things

843

524

272

515

21.2

Unilever Creates Virtual Jams While Chatting With Its Employees

Mini Cases OTT Marketing Success

854

10

page xii

2.1

When Covid Came to Town

3.1

Not for Profit: The FA

101

4.1

Iceland Frozen Foods. Made in Asia

160

5.1

Millennials: A Booming Generation of Consumers

188

6.1

Does Google Track Our Every Move?

223

7.1

Digital Ecosystems, Communities and Tribes

278

8.1

Douwe Egberts: No Ordinary Coffee

309

9.1

Does Price Really Influence Perceptions of Quality?

360

10.1

Frugal Innovations: From Clay Fridges to Cardboard Splints

394

11.1

Delivering Five-star Customer Service: Sandals Resorts International

435

12.1

Conversations, Storytelling and Happy Endings

476

13.1

What do Sharp Electronics, Vodafone, Chevrolet and TeamViewer have in Common? 530 Advertising Appeals Aim to Go Viral With Festive IMC Campaigns 575

14.1

49

15.1

Using a Marketing Database to Keep Customers and Remind Them of the Benefits of the Brand 604

16.1

Managing the Supply Chain the Zara Way: Direct From Factory Floor to Shop Window

661

17.1

Pandora: Wherever Life Takes You, Take it With You

695

18.1

Growing Markets the Diageo Way

739

19.1

Disruptive Innovations

771

20.1

Amazon Helps Companies Grow Their Businesses Around the Globe

806

21.1

MouthShut.com: Developed With Passion and Commitment

847

Hidden Gem Moving Mountains Ups the Game for Vegan Food Brands 6 2.1

Darktrace: Hiding in Plain Sight

46

3.1

Pangaia

94

4.1

Tobii Leads the Way in Eye-tracking and Attention Computing

135

5.1

Digital Genius: Customer Service on Auto Pilot

190

6.1

Alteryx Automates Data and Speeds Up Digital Transition

217

7.1

Alpro Gives You Plant Power

259

8.1

The Cheeky Panda

316

9.1

IKEA Joins the Circular Economy With Its Buyback & Resell Service

356

10.1

Huel – HUman fuEL: A New-to-the-world Brand and Product Range

391

11.1

The Bot Platform

437

12.1

Reach the People Through Trusted Communications

466

13.1

Klarna, Uses Communications to Attract, Convert and Retain Customers

504

14.1

Blue Bottle Coffee: From Physical to Digital

556

15.1

Horizon Worlds: A Very Direct Marketing Landscape?

596

16.1

MatchesFashion.com Partners With Designers to Deliver Luxury Fashion

641

17.1

Gymshark: Being Hard-working, Humble and Disruptive Delivers

683

18.1

Mowgli and the Rise of Street Food

720

19.1

Marvel Comics: From Bankruptcy to Superbrand

760

20.1

Innovative, Disruptive and Full of Personality: Monkey Shoulder Creates a New Global Drinks Market

800

21.1

Zooming Our Way to Flexible Working

839

page xiii

Case Guide This guide shows the key concepts covered in each of the cases in both the book and the Online Learning Centre so you can easily pick out which cases are relevant to a particular part of your course. Go to www.mheducation.co.uk/textbooks/jobber10e to find a pdf of this guide, and search by company, industry or topic to find the ideal case to use. Chapter Case Case title and author number

1

2

3

4

Key concepts covered

Case 1

The Rivalry Between Coca-Cola and Marketing environment, market Pepsi

orientation, efficiency and David Jobber, Emeritus Professor of effectiveness, diversification Marketing, University of Bradford

Case 2

H&M and Fast Fashion

Market orientation, efficiency David Jobber, Emeritus Professor of and effectiveness, customer Marketing, University of Bradford value, marketing challenges and benefits

Case 3

The New [Augmented] Reality for Fashion Retailing

Dr Fiona Whelan-Ryan, South-East Technological University, School of Business

Case 4

Sodastream: Using Environmental SWOT, marketing challenges Awareness to Reach Generations X, Y and Z

Tom McNamara and Irena Descubes, Rennes School of Business

Case 5

Mcdonald’s and Its Plan for Environmental Change: Not Everyone is ‘Lovin’ It’

Marie O’Dwyer, South East Technological University

sustainability, greenwashing, zero emissions, plant-based

Case 6

Unilever: In Pursuit of Purpose

Nicky Wells, Lecturer in Marketing, University of Sussex

ethical brands, sustainability, ethics, capitalism,

Case 7

Coffee Shop Wars

Consumers, consumer David Jobber, Emeritus Professor of behaviour, customer needs, Marketing, University of Bradford customer satisfaction

Case 8

Naked Wines: A Community of

fashion, retailing, AI, virtual reality, virtual try-on, omnipresent retailing

B2B buyer behaviour, nature

5

6

7

8 9

Winemakers and Wine Drinkers

Brian Searle, Programme Director MSc Marketing, Loughborough University

and size of B2B markets, segmentation

Case 9

Starbucks: Brewing Great Customer Experiences Through Outstanding Digital Marketing

Tom McNamara and Irena Descubes, Rennes School of Business, Rennes, France

Customer relationships, customer relationship management, competitive advantage

Case 10

Manchester City Football Club: CoCreating the Future

Dr Ethel Claffey, South East Technological University (SETU)

Building relationships, CRM, customer relationships page xiv

Case 11 Accelerating Market Research: Harley-Davidson Turns to Albert Dr Ethel Claffey, South East Technological University

Big Data, Market Research, Intelligent Advertising

Case 12

Hubspot: Harnessing the Power of Artificial Intelligence for Marketing

Dr Ethel Claffey, South East Technological University

Artificial intelligence, marketing, market research, consumer data

Case 13

Unleashing the Power of Nablabs

Marie O’Dwyer, South East Technological University

Segmentation, Emerging market segments, Millenials, positioning, differential advantage

Case 14

Boots: Managing Own-Label Positioning, strategy, master Products and Their Positioning brand strategy, Within a Changing Environment and Dynamic Market(s) Richard Howarth, Nottingham Business School, and Jenna Ward, Walgreens Boots Alliance

Case 15

Dr. Martens: Engaging Consumers for More Than Half a Century

Marie O’Dwyer, South East Technological University

Case 16

Brand Strategy Changes at Burberry Augmented branding, Brand David Jobber, Emeritus Professor of building, global branding Marketing, University of Bradford

Case 17

A Recipe for Success: Adding New Innovations to the Pot

Geraldine Lavin, Dublin City University, and Dr Christina O’Connor, University of Limerick

Brand, digital, social media, brand building

Innovation, innovative products, competitive advantage

10

11

12

13

Case 18

Collaborative Innovation: The Apple and Nike Partnership

Marie O’Dwyer, South East Technological University

Innovative brands, collaboration, product replacement, New product development, product extension

Case 19

Driving Electric Car Innovation: Innovation, product Influencing Factors of Tesla’s Pricing development, CEO brand Strategy

Dr Ethel Claffey, South East Technological University

Case 20

Louis Vuitton: A Timeless Success in Premium Pricing

Dr Majd AbedRabbo, School of Business and Creative Industries, University of the West of Scotland

Pricing strategy, premium product, brand challenges

Case 21

Serving up Sustainability: The Impetus for Greener Fast-food Outlets

Dr Fiona Whelan-Ryan, South East Technological University

Sustainability, conscious consumption, innovative product strategy,

Case 22

Spill the Beans: Chipotle’s Signature Sustainability, pricing strategy, Flavour

positioning page xv Terence W. Hermanus, Senior Lecturer, Cape Peninsula University of Technology, and Demi Hermanus MSc (Microbiology), Stellenbosch University

Case 23

Domino’s: Reaching and Staying Number One

James R.J. Roper, FRSA, founder of IMRG (Interactive Media in Retail Group), the UK industry association for e-retailing and e-commerce

Integrated Marketing Communications, Digital Communications, Reinventing a brand, promotional tools

Case 24

Craft Beers: Marketing Rebels?

Brian Searle, programme director MSc Marketing, Loughborough University

Brand building, crowdfunding, insurgent brand, IMC

Case 25

Is Advertising ‘Unmentionables’ No Longer a Taboo?

Marie O’Dwyer, South East Technological University

Advertising taboo products, advertising challenges

Case 26

Blackwater Tasters Club: Thinking Inside the Box

Aileen Kennedy PhD, Technological University Dublin

Subscription business model, value proposition, customer engagement

Case

Netflix: Using Big Data to Succeed

Data analytics, big data,

14

15 16 17

18

19

27

Bernadette Naughton and Marie O’Dwyer, South East Technological University

customer communication, retention

Case 28

The Happy Pear: Go With Your Gut! Tribal marketing, marketing Dr Fiona Whelan-Ryan, South-East analytics, strategy evaluation Technological University, School of Business

Case 29

AirBnB: Belong Anywhere

Dr Ethel Claffey, South East Technological University

Case 30

Billie Eilish: Leveraging the Personal Anti-brand, image consistency, Anti-brand Across Digital Media

digital communication, digital Dr Ethel Claffey, South East marketing Technological University

Case 31

ASOS and Online Fashion

Retailing, Integrated Channels, David Jobber, Emeritus Professor of SWOT analysis Marketing, University of Bradford

Case 32

A Look Into Sephora’s Omnichannel Omnichannel strategy, Strategy

seamless customer Nilay Balkan, PhD., University of experience, AI, Glasgow

Case 33

Marks & Spencer: Reviving a British Icon

Marie O’Dwyer, South East Technological

University

Marketing audit, SWOT analysis, Social and Environmental concerns, retailing

Case 34

Anthon Berg Travels the World With Luxury Chocolates Made in Scandinavia

Anthon Berg Asia area director Ms Bee Kuan

Market challenge, SWOT analysis, market environment, market development

Case 35

Mastercard’s Sonic Brand Identity: A Brand identity, strategy, Sound Strategy

competitive advantage, Aileen Kennedy PhD, Technological differential advantage University Dublin

Case 36

Coca-Cola: Can an Iconic American Brand Adapt Itself to the Indian Market?

Tom McNamara and Irena Descubes, The Rennes School of Business, France

Case 37

Unilever’s Search for Growth

Brand portfolio, BCG GrowthDavid Jobber, Emeritus Professor of Share Matrix, General Electric Marketing, University of Bradford Market Attractiveness model,

Direct marketing, social media, digital marketing

Brand building, blue ocean strategy, international markets, competitive marketing strategy page xvi

marginal brands, strategic divestment

20

21

Case 38

Fever-Tree: Capitalizing on Market Trends

Brian Searle, programme director, MSc Marketing, Loughborough University

Product life cycle, market development, Boston Matrix, product growth strategies, insurgent brands

Case 39

IKEA: A Swedish Icon

Direct investment, global David Jobber, Emeritus Professor of brands, standardization, Marketing, University of Bradford adaptation, international marketing strategy

Case 40

Marimekko: A Story of Design, Determination and Leadership

Fiona Ellis-Chadwick, Senior Lecturer, Loughborough University

Leadership, Cultural values, marketing strategy, implementation, relaunching a brand

Case 41

Crocs: Back With More Bite!

Terence W. Hermanus, Senior Lecturer, Cape Peninsula University of Technology

Marketing strategy, differentiation, brand association

page xvii

Preface Welcome to the landmark 10th edition of Principles and Practice of Marketing, in which we explore together how marketing has a profound effect on the way we live, communicate and trade, find out what this means for individuals, business and communities, and discover the implications for how firms and organizations operate. Marketing is constantly adapting to meet the demands of dynamic business environments, and exploring both theoretical principles and business practices is the key to understanding this highly dynamic and complex subject.

Developing the 10th edition The 1st edition was published in 1995, when marketing textbooks were not generally written from a European perspective. David had a vision to publish a book that explained the principles of contemporary marketing, supported by vivid practitioner examples from local markets, aiming to inspire, motivate and strengthen students’ understanding of marketing– guiding principles that have remained true throughout and informed the writing of every subsequent edition, including the 10th. Writing this edition has been more than usually challenging, as many disruptive, unsettling and disturbing transformations have occurred in the marketing environment since the previous edition. Brexit has disrupted trade, legal issues and much more between the UK and EU countries; the Covid-19 pandemic has unsettled individuals, firms, nations, society and global economies; climate change has and continues to significantly disturb established trade practices; and environmental targets such as reducing carbon emissions, waste and pollution are leading to redefined brand images and altered values; finally, digital and technology innovations, from augmented reality and artificial intelligence to electronic vehicles, are reconfiguring marketing landscapes and transforming business opportunities.

Why use this book to study marketing? This book aims to help you to learn, understand and master the subject, as well as teach and inform future marketers by:

Engaging learners This book aims to be best-in-class in finding new ways to engage the modern learner, by making the subject of marketing accessible using topical and contemporary marketing practices to illustrate and demonstrate theories, frameworks and concepts. By understanding how to interpret marketing and its environments, and apply knowledge tactically and strategically, students gain a richer knowledge of the value of the subject, build confidence into their understanding and benefit from developing their expertise through a comprehensive marketing education.

The book provides a logical and coherent framework for understanding important topics such as digital marketing, consumer behaviour, B2B marketing, segmentation, targeting and positioning, brand building, innovation, pricing, communications, marketing strategy and implementation. These core subject areas form the backbone of marketing education. It will help you develop skills that will enable you to identify the opportunities and pitfalls of applying marketing tools and techniques, to develop the insights needed not only to become a successful marketer but also an accomplished student.

Organized for learning This 10th edition is designed to enable your knowledge of marketing to grow. We designed the book for ease of use. Ideas, theories and concepts are explained in each chapter, and there are many examples to bring these aspects to life. Marketing in Action vignettes explore some of the latest applications of marketing. Part 1 explores marketing fundamentals: the principles of how marketing works; the forces that shape marketing practices and the environment in which firms trade; the customer–who they are and how they behave; how to create value and build lasting relationships; developing understanding of marketing through analytics and customer insights. page xviii Part 2 examines value creation, which is at the heart of modern marketing, from the perspectives of brands, innovation, pricing and services. Part 3 concentrates on how marketers communicate in the digital age, and how goods and services are delivered. You will discover how advertising, digital marketing, direct marketing, social media and personal selling are applied to achieve marketing goals, and learn about the importance of distribution and multichannel management. Part 4 focuses on the strategic elements of marketing: marketing planning and strategy, and how to create sustainable competitive advantage. By the time you reach this final section, you should have developed a comprehensive knowledge. The chapters also include Marketing in Action vignettes and Mini Cases that ask you to apply the principles you have learned to real-world scenarios. The case studies at the end of each chapter provide more in-depth examples. These features will not only help you to absorb the key principles of marketing but will also allow you to make links between the various topics and demonstrate the marketing mix at work in real-life situations. Other learning aids, in the form of exercises and questions at the end of each chapter, help you check your understanding of new concepts. There are recommended readings, so you can stretch your knowledge further. You can also test your understanding and expand your knowledge by exploring the resources in Connect™.

Supporting the instructor Be at the forefront: Marketing cannot be fully grasped without solid examples of how theories apply in practice. That is why in every chapter you will find a wealth of examples to support the theoretical concepts, models and frameworks presented. Use the latest

theoretical marketing thinking, and apply the new vignettes, case studies and illustrations throughout the book to illuminate each subject area. A comprehensive educational resource: Principles and Practice of Marketing is more than a textbook–through a suite of digital learning tools and teaching resources it supports transitional learning: by providing coherent stories around each marketing subject, which engage and illuminate signposting routes through topical, challenging and complex marketing topics with resources to support the delivery of memorable learning experiences to engage the modern student, enabling them to gain knowledge, apply marketing ideas and develop critical thinking skills.

New for the 10th edition Recent events and contemporary issues are featured throughout, but there further exciting new developments in this edition. New content: in response to reviewers’ feedback there are new examples of digital marketing, EDI and sustainability in the form of Mini Cases, Marketing in Action vignettes, Hidden Gems and extended case studies. Stimulating examples enable discussion and provoke debate. For example, discover whether home working and electric vehicles are good for the planet; evaluate how digital customer insights are driving marketing but causing ethical challenges over data and privacy; consider how Gucci and L’Oréal have become leaders in the use of digital technology in the luxury fashion and beauty industries, and what these cases mean for the future of marketing. New feature: Hidden Gems showcase firms doing things differently and reveal how SMEs are shaping marketing as well as large corporate brands. Each Hidden Gem has its own revealing story and digital credentials. Pangaia, for example, is saving the planet with clothes and technology; Darktrace is hiding in plain sight, protecting its customers with cyber security; Alpro is delivering plant power on a large scale; and Tobii is watching consumer behaviour using attention computing. These new up-to-the-minute gems appear in each chapter. New chapter: Chapter 3 Sustainable Marketing and Society focuses on how the environment and society are changing the marketing landscape, discusses the implications of sustainability for marketing theory and practice, and considers how to create value through practical sustainable approaches to marketing. Examples and features emphasize the growing importance of this area of study, and bring into question many traditional marketing practices. New beginnings and new endings: we have redesigned the chapter openings to highlight the important learning outcomes, making it clear what you will be able to achieve having read the chapter. At the end of each chapter, the Big Picture feature acts as an aide-memoire, highlighting key topics, while the Detailed Review expands on this to provide concise summaries of what is learned in each chapter. Research updated: latest studies in the field of marketing bring new page xix insights, building on seminal works that set out the very foundations of marketing education presented in earlier editions of Principles and Practice of Marketing, and introducing new thinking on many areas of marketing, including new models of sustainability and digital marketing.

Exciting new in-depth cases: the cases at the end of each chapter showcase realworld marketing and tackle challenging issues facing brands trading in dynamic markets. Here are just a few to invite you into the fast-moving world of marketing: Netflix, using big data to succeed against hot competition BrewDog, a brand built on attitude, crowdfunding its way to becoming the world’s most sustainable beer Anthon Berg’s SWOT analysis sets out the plan for a global future for this luxury Scandinavian chocolate brand singer-songwriter Billie Eilish is leveraging personal anti-branding online, showing how consistent messaging creates a marketing tour de force Dr Marten’s boot rebellion is revitalizing the UK brand, embracing digital to grow its market footprint Chipotle spills the beans on using local and organic produce to differentiate the brand by producing food with integrity. Each case progresses ideas and concepts explored in the chapter. New package of supporting online resources: including a rich choice of activities designed to help students develop and apply their understanding of marketing concepts. See pages xxii–xxv for further details. We hope you will all enjoy this book, and it adds to your knowledge, understanding and expertise in the subject of marketing. Fiona Ellis-Chadwick

page xx

Guided Tour

Real Marketing Throughout the Principles and Practice of Marketing 10th edition product, marketing principles are illustrated with examples of real marketing practice. The following features encourage you to pause to consider the decisions taken by a rich variety of companies. Hidden Gem feature showcase firms doing things differently and reveals how these companies are shaping marketing.

Marketing in Action vignettes provide practical examples to highlight the application of concepts, and encourage you to critically analyse and discuss real-world issues.

Mini Cases provide further examples to encourage you to consider how key concepts work in practice, and have associated questions to help you critique the principles discussed in each chapter.

page xxi Exhibits demonstrate how marketers have presented their products in real promotions and campaigns.

Case Studies Two are provided at the end of each chapter, based on up-to-date examples that encourage you to apply what you have learned in each chapter to a real-life marketing problem. Instructor’s Teaching notes can be downloaded from the Online Learning Centre via Connect.

Questions are provided at the end of each case study to allow you to test yourself on what you have read. Multiple Choice Questions are also available in Connect.

Case Analysis Activities encourage students to think analytically about real-world marketing situations. Multiple choice questions prompt them to critically asses the case and then test their understanding of core concepts covered.

page xxii

Studying Effectively Principles and Practice of Marketing is designed to make every study moment as efficient as possible. The following features will help you to focus your study, check your understanding and improve learning outcomes. Learning Outcomes are listed at the beginning of each chapter to show you the topics covered. You should aim to attain each objective when you study the chapter.

Key Terms are provided at the end of each chapter—use the list to look up any unfamiliar words, and as a handy aid for quick revision and review.

Study Questions allow you to review and apply the knowledge you have acquired from each chapter. These questions can be undertaken either individually or as a focus for group discussion in seminars or tutorials.

Recommended Reading at the end of each chapter can be used to research an idea in greater depth.

page xxiii

Transform learning with Connect® Boost grades, stimulate engagement and deliver an amazing course

Connect® is an online platform that integrates the science of learning with award-winning adaptive technology, to offer students and teachers a more effective teaching and learning experience.

Connect increases my students’ knowledge and has made my teaching more effective. University of Birmingham Business School, UK

The Three Pillars of Connect®

Flexible and high quality content tailored to your course Use a combination of your content with McGraw-Hill and OER resources to customise your course with the support of our dedicated academic and implementation consultants.

Detailed reporting and analytics Monitor progress and improve efficiency with detailed Connect® reports. Students and teachers can use real-time performance measurement tools to monitor learning and focus on the gaps that require more attention.

Ease of set-up and continuous support McGraw-Hill offers comprehensive service, support and training face-to-face, online or over the phone, throughout every phase of working with us to ensure easy set-up and access to the platform.

Bring theory to life within Connect® Students can test and apply their knowledge with our engaging excercises and activities within Connect® Discover the features on offer for your discipline on the next page!

page xxiv

Connect® for Marketing We have a wide selection of activities on hand to help students gain valuable practice during their course. By applying what they have learned to real world scenarios, these exercises help test their knowledge and skills in preparation for the real world of marketing.

Application-Based Activities (ABAs) The Application-Based Activities provide students with valuable practice, using problem solving skills to apply their knowledge to realistic scenarios. Students progress from understanding basic concepts to using their knowledge to analyse complex scenarios and solve problems. The following activities are available for your courses:

Planning and the Marketing Mix

Buyer Behaviour

Integrated Marketing Communication Pricing Strategies & Their Impact on Sales Results

Retail Strategy Each activity has been created to align with higher order thinking skills, from Bloom’s Taxonomy to ensure students are developing from simple memorisation, to concept application. They are also categorised by difficulty to cater to each student’s abilities.

Case Studies Students can develop strong analytical skills with a series of case studies from global and innovative companies. Each case study is accompanied by questions which test the students application on theory and concept. Some examples include AirBnB, IKEA and Skyscanner.

Test Bank Build your own question banks relating to end-of-chapter material and featuring video case content to both test student knowledge and ability, and ensure engagement with existing real world cases.

page xxv

Smarter studying with

The Smartbook 2.0® tool integrated within Connect® maximises learning by helping students study more efficiently, highlighting the most important points in the chapter, asking verification questions and indicating additional resources.

More Personalised Smartbook 2.0® constantly adapts to students’ needs, creating a personalised learning experience.

More Productive Smartbook 2.0® creates an extremely productive learning experience, focusing students’ attention on the concepts they need to learn.

More Prepared Smartbook 2.0® helps students prepare for lessons, allowing you to use class time more dynamically.

 

I liked the idea of continuous assessment online as it helped me to keep track of student performance while it freed up my time spent marking and meant I could focus on my research. Alejandra Ramos, Trinity College Dublin, Ireland

The ReadAnywhere App To help you study anywhere, anytime! Gain mobile freedom to access your eBook anywhere, even offline, on your smartphone or tablet.

You can: Read offline and data-free by downloading the entire text or only the chapters you need. Never lose an assignment, a note, or your place. ReadAnywhere includes the same functionality as the eBook offered in Connect® with auto-sync across both platforms. Start studying anytime, anywhere.

page xxvi

Create & Custom Publishing It’s easy to create your perfect customised reader

At McGraw-Hill it’s easy to create a bespoke reading resource for our students right from the comfort of your desk. Using our tool Create you can browse and select material from our extensive library of texts and collections and if desired, you can even include your own materials, which can be organised in the order in which you’d like your students to work from them. Available in both print and eBook format, you can offer your students a learning solution that works best for them, in addition you can add digital materials to go alongside your reader too.

What are the benefits of having a custom reader? You have one tailor-made learning resource McGraw-Hill are here to support you throughout your custom journey Students get value for money; they only need to purchase & read the required course material Convenient and students can easily find resources all in one place Students are more prepared for class

How do I Get Started?

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Learn more https://www.mheducation.co.uk/higher-education/services/creatingcustom-publishing

Contact the Team [email protected]

page xxvii

About the Authors

David Jobber is an internationally recognized marketing academic. He is Emeritus Professor of Marketing at the University of Bradford School of Management. He holds an honours degree in economics from the University of Manchester, a master’s degree in business and management from the University of Warwick and a doctorate from the University of Bradford. Before joining the faculty at the Bradford School of Management, David worked for the TI Group in marketing and sales, and was Senior Lecturer in Marketing at the University of Huddersfield. He has wide experience of teaching core marketing courses at undergraduate, postgraduate and post-experience levels with specialisms in business-to business marketing, sales management and marketing research. He has a proven, ratingsbased record of teaching excellence at all levels. His competence in teaching is reflected in visiting appointments at the universities of Aston, Lancaster, Loughborough and Warwick in the UK, and the University of Wellington, New Zealand. He has taught marketing to executives of such international companies as, Allied Domecq, the BBC, Bass, BP, Croda International, Rolls-Royce and Rio Tinto. Supporting his teaching is a record of achievement in academic research. David has over 150 publications in the marketing area in such journals as the International Journal of Research in Marketing, MIS Quarterly, Strategic Management Journal, Journal of International Business Studies, Journal of Management, Journal of Business Research, European Journal of Marketing, Journal of Product Innovation Management, Journal of Personal Selling and Sales Management and Journal of the Operational Research Society. David has served on the editorial boards of the International Journal of Research in Marketing, Journal of Personal Selling and Sales Management, European Journal of Marketing and the Journal of Marketing Management.

He has acted as Special Adviser to the Research Assessment Exercise panel that rated research output from business and management schools throughout the UK. David has also received the Academy of Marketing’s Life Achievement award for distinguished and extraordinary services to marketing.

 

Fiona Ellis-Chadwick has a successful professional business and academic career. She is a Senior Lecturer at Loughborough University School of Business & Economics. As part of this role, Fiona is a very active researcher and innovative educator, and frequently leads the development of innovative multi-media teaching materials, bringing together research and business. Fiona has made many films for use in higher education on a variety of different topics, including retail marketing, digital technology and economic growth from the perspective of international business leaders. As an academic consultant for the Open University and BBC productions, she has worked on highly successful and award-winning series: The Virtual Revolution, Foods That Make Billions, Evan’s Business Challenges, Iceland Foods: Into the Freezer Cabinet, Business Boomers and Radio 4’s The Bottom Line programme. Fiona had a successful commercial career in retailing before becoming an academic and completing her PhD. Having made a significant contribution in the area of online retailing, she continues to focus her research and academic publications on the strategic impact of the Internet and digital technologies on marketing and retailing. She is also very interested in the impact of the internet on the high street and how the increase in online shopping is reshaping our towns and cities. Her work on these topics has been widely published in the Journal of Business Research, European Journal of Marketing, Internet Research, Industrial Marketing Management, International Journal of Retail Distribution and Management plus additional textbooks and practitioner journals. Fiona is passionate about how technology and education can help business development in the future.

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Acknowledgements Authors’ Acknowledgements We would like to thank colleagues, contributors and the reviewers who have offered advice and helped develop this text.

Publisher’s Acknowledgements Our thanks to the following reviewers for their comments at various stages in the text’s development: David Cashmore, Birmingham City University Steffen Saxil, Copenhagen Business Academy Stephanie Anderson, University of Glasgow Nathalie Ormrod, Aston University Lauren Thomas, University of South Wales Paul Dobson, Staffordshire University Andrew Marriott, Nelson Mandela University Angelo Manaresi, University of Bologna Madeline Powell, University of York Silvio Menghini, University of Florence Adele Berndt, Jönköping International Business School Mike Pretious, Queen Margaret University Ann Torres, NUI Galway Jasna Cudic-Beinke, International University of Applied Sciences Antonella Pirro Ruggiero, Università Bocconi Pablo Antonio Munoz, Universidad de Salamanca Adrian Pritchard, Coventry University Enrico Scarso, University of Padova Stephan Gerschewski, University of Kent Brendan Keegan, Maynooth University Jasmiina Milne, Edinburgh Napier University Birger Opstad, Kristiana University College We would like to thank the following contributors for the case study material which they have provided for the textbook and its online resources: Dr Fiona Whelan-Ryan, South-East Technological University, School of Business Tom McNamara and Irena Descubes, Rennes School of Business. Marie O’Dwyer, South East Technological University Nicky Wells, Lecturer in Marketing, University of Sussex Brian Searle, Programme Director MSc Marketing, Loughborough

University Dr Ethel Claffey, South East Technological University Richard Howarth, Nottingham Business School, and Jenna Ward, Walgreens Boots Alliance Geraldine Lavin, Dublin City University Dr Christina O’Connor, University of Limerick Dr Majd AbedRabbo, School of Business and Creative Industries, University of the West of Scotland Terence W. Hermanus, Senior Lecturer, Cape Peninsula University of Technology, and Demi Hermanus MSc (Microbiology), Stellenbosch University. Aileen Kennedy, Technological University Dublin Asger Daugbjer, Viborg Business School James Roper, Interactive Media in Retail Group

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PART 1 FUNDAMENTALS OF MARKETING  1 Marketing and the Organization

3

 2 The Marketing Environment

41

 3 Sustainable Marketing and Society

93

 4 Customer Behaviour

133

 5 Value Through Relationships

183

 6 Digital Marketing Analytics and Customer Insights 215  7 Market Segmentation and Positioning

255

Source: PT1565/Shutterstock

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CHAPTER 1 Marketing and the Organization Learning Outcomes After reading this chapter, you should be able to:

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Introduction to Principles and Practice of Marketing The principles of marketing have been influencing business practices for centuries, but the history of marketing as a distinct discipline can be traced back to the beginning of the 1990s (Sheth and Parvatiyar 1995). Since then, marketing has developed into a guiding philosophy for firms of every

shape, size and type. Theodore Levitt said, ‘Management must think of itself not as producing products, but as providing customer-creating value satisfactions’ (Levitt 1960), putting the customer at the heart of marketing. While customers’ needs and wants change, marketing practices also change to reflect and accommodate new customer demands, trends and changing values. The authors of this book recognize the importance of reflecting such developments and the shift in marketing teaching, and the focus of this new edition has changed accordingly. While the marketing mix (product, price, promotion and place) and the service mix (people, process and physical evidence) remain core elements, relationship marketing, value creation and other newer approaches like digital marketing are now also featured. The text is structured around four key dimensions of marketing: Part 1: Fundamentals of Marketing–seven chapters exploring the essential elements of marketing Part 2: Creating Customer Value–four chapters focusing on key elements of delivering customer value Part 3: Communicating and Delivering Customer Value–five chapters concentrating on communications and distribution Part 4: Marketing Planning and Strategy–five chapters that adopt a more strategic focus on marketing. This structure is illustrated in Figure 1.1. FIGURE 1.1 Overview

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This chapter sets out the foundations for developing your understanding of the principles and practice of marketing, beginning with the fundamental question: ‘What is marketing?’

What is Marketing? Marketing drives successful organizations, but it is often misinterpreted and sometimes gets a bad press. Critics use words like marketing ‘gimmicks’,

‘ploys’ and ‘tricks’, which undermine the valuable effect marketing can deliver. This is unfortunate because the essence of marketing is value creation not trickery. Successful companies rely on customers returning to repurchase, and the goal of marketing is to facilitate this through creating long-term satisfaction not short-term deception. Marketing is a form of exchange, which is the act or process of receiving something and giving something in return. The something could be a physical good, a service, an idea, information or money. Money facilitates exchanges so people can concentrate on working at things they are good at, earn money (itself an exchange), and spend it on products or services someone else has supplied. The objective is for all parties in the exchange to feel satisfied and gain something of value. This is particularly important because satisfied customers are more likely than dissatisfied ones to return for more. Hence the notion of customer satisfaction as the central pillar of marketing is fundamental to the creation of a stream of exchanges upon which organizational success depends. This marketing theme, which remains important, is reinforced by the writings of top management consultant, the late Peter Drucker, who stated (Drucker 1999): ‘Because the purpose of business is to create and keep customers, it has only two central functions–marketing and innovation. The basic function of marketing is to attract and retain customers at a profit.’ What can we learn from this statement? First, it places marketing in a central role for business success, and focuses managers’ attention on attracting and keeping customers. Second, it implies that the purpose of marketing is not to chase any customer at any price. Drucker used profit as a criterion. Please note that profit may be used by many commercial organizations as a measure of success, whereas in the non-profit sector other measures, such as reduction of social deprivation or hunger, are equally important as profit. Consequently, the concepts, principles and techniques described in this book are equally applicable to global corporations (e.g. Apple Inc., Royal Dutch Shell, BMW, AXA Insurance) and charitable organizations, such as WWF (protecting natural habitats), Wellcome Trust (working to use science

to solve global health challenges), INGKA Foundation (committed to helping families and children out of poverty). Third, the investment required to attract new customers is greater than the amount needed to retain existing ones. Indeed, the costs of attracting a new customer have been found to be up to six times the costs of retaining current ones (Rosenberg and Czepeil 1983). Companies that apply the principles of marketing recognize the importance of building relationships with customers by providing satisfaction, and attracting new customers by creating added value. Grönroos (1989) stressed the importance of relationship-building in his definition of marketing, in which he describes the objective of marketing as to establish, develop and commercialize longterm customer relationships so that the objectives of the parties involved are met. Fourth, most markets (e.g. consumer, industrial, not-for-profit) are characterized by strong competition. This means that organizations need not only to understand what their customers want, but also what their competitors provide. If an organization does not meet its customers’ needs, they may switch to a rival supplier. Finally, you should consider how the practices of marketing are applied by organizations in dynamic and changing marketplaces. Since 2000, the growth of the digital economy has significantly increased opportunities to gather, analyse and exploit customer data, and has influenced how we trade in both the physical and digital worlds. In 2004, the rise of social media began to influence how we behave, interact and communicate. In 2008, the sharing economy started to change our views on how to buy and use things, such as accommodation (e.g. Airbnb-sharing our homes) and ride-sharing (Uber, Lyft). In 2010, the gig economy changed attitudes to how we work. But it’s not just digital technology that is changing the marketing environment: in 2020, the Covid-19 pandemic impacted organizations in profound ways, causing them to completely rethink their business models. Climate is another force for change. Read Hidden Gem 1.1. page 6

HIDDEN GEM 1.1

Moving Mountains Ups the Game for Vegan Food Brands Simeon Van der Molen was running a business selling eco cleaning products when his doctor identified he had a problem with high cholesterol. Simeon faced a choice: change his diet, cutting out meat and dairy products, or take medication for the rest of his life. This was a life-changing moment. He started searching supermarkets for vegetarian options, but the products he bought did not delight his taste buds. So this sustainabilitydriven entrepreneur decided to create a new brand of meat and fish plant-based alternatives, Moving Mountains Foods. The company seeks to ‘enhance human health, reduce intensive factory farming, improve food sustainability, and increase animal welfare’ (Moving Mountains 2022). The ‘bleeding’ burger was the first product developed by food technologists. Simeon wanted a product that was akin to meat, that looked, tasted and responded in the same way as a real meat burger. The burger was rapidly adopted and has become highly successful, with an established international customer base including chain and independent restaurants, such as Hard Rock Café, Applebee’s and Carl’s Jr., and supermarkets such as Sainsbury’s, Waitrose and Ocado (UK).

Source: Moving Mountains The future looks bright for Moving Mountains as, globally, the alternative-to-meat market is a growing sector predicted to be worth more than $7 billion by 2025, which is creating opportunities for vegan businesses and brands. The brand continues to expand its ranges, with plant-based fish options, meatballs and more. There are many new companies entering this market so, to keep ahead of the competition, Moving Mountains is constantly looking for ways to communicate and connect with customers. Recently, it launched a social media campaign that saw it join with universities to reach students and get the message across about vegan foods. It has also partnered with One Planet Pizza in a UK challenge to find the nation’s favourite alternative pizza.

Digital credentials Web: https://movingmountainsfoods.com Social media: find Moving Mountains on Facebook, Twitter, Instagram, TikTok and LinkedIn Based on: Vegan Society (2021); Moving Mountains (2022)

These learning points are referred to throughout the book in a variety of contexts. The rest of this chapter introduces the key principles of the marketing concept, explores how marketing can create and deliver customer value and satisfaction, and considers the role of marketing planning and strategy.

The marketing concept The traditional view of the marketing concept is based on the premise that companies achieve their profit and other objectives by satisfying (even delighting) customers (Houston 1986). However, modern marketing also needs to consider another fundamental aspect of trading exchanges: competition. In other words, the traditional marketing concept is a necessary but insufficient condition for organizational and corporate success. To achieve success, companies must go further than mere customer satisfaction; they must do better than the competition if they are to thrive and grow. International Airlines Group (IAG) is one of the world’s largest airline groups, which provides national and international flights. It aims to meet the needs of its different customers by maximizing choice. Brands include: British Airways (BA), Iberia (full service), Aer Lingus and Iberia Express (value service), Vueling and LEVEL (low-cost service). IAG’s strategy is to provide varying levels of service through these brands. For example BA has built its reputation around its brand values, and seeks to stay ahead of the competition by providing consistently good service and quality customer experiences. Vueling is a low-cost airline, and IAG has page 7 invested in new systems, baggage handling and passenger queuing procedures to provide a more efficient and effective service, and to maintain good standards of service for customers at low-cost. The modern marketing concept can be expressed as the achievement of corporate goals through meeting and exceeding customer needs and

expectations better than the competition. To apply this concept, three conditions should be met: 1. Company activities should focus on providing customer satisfaction rather than making things easier and better for the producer or manufacturer. This is not an easy condition to meet, but it is a necessity to place the customer at the centre of all activity. 2. The achievement of customer satisfaction relies on integrated effort. The responsibility for the implementation of the concept lies not just within the marketing department. The belief that customer needs are central to the operation of a company should run right through production, finance, research and development, engineering and other departments. The role of the marketing department is to play ‘champion’ for the concept and to coordinate activities. But the concept is a business philosophy, not a departmental duty. 3. For integrated effort to work successfully, management must believe that corporate goals can be achieved through satisfied customers (see Figure 1.2). FIGURE 1.2 Key components of the marketing concept

Adopting a Market Orientation in a Changing World There is no guarantee that all companies will adopt the marketing concept. However, past research (e.g. Hooley and Lynch 1985; Pulendran et al. 2003; Homburg et al. 2015) found evidence that the adoption of a market orientation could lead to significant performance benefits. From Netflix and Amazon to Coca-Cola and DHL, tens of thousands of companies large and small have succeeded due to constantly paying attention to the demands of customers and what it takes to deliver satisfaction. Research also suggested the adoption of a market orientation approach as an evolutionary process whereby companies move from unawareness to complete acceptance of the importance of the marketing concept (Hooley et al. 1990; Jaworski and Kohli 1993) as a means of defining the orientation of a business. Consequently, companies focus on customer needs, and change is recognized as endemic, with adaptation considered a Darwinian condition for survival (Slater and Narver 1998, 1999). Changing needs present potential market opportunities to drive a company forwards. Within the boundaries of their distinctive competences, market-driven companies seek to adapt their product and service offerings to the demands of current and latent markets. Figure 1.3 shows the basic elements of the market orientation. FIGURE 1.3 Basic elements of the market orientation

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A competing philosophy is production orientation, an inward-looking stance whereby managers become focused on the internal aspects of their business. It is particularly evident in manufacturing companies, where

employees spend their working day at the point of production. In this case, first, management becomes cost focused and believes that its job is to attain economies of scale by producing a limited range of products (at the extreme, just one) in a form that minimizes production costs. Henry Ford is quoted as an example of a production-orientated manager because he built just one car in one colour–the black Model T–in order to minimize costs. However, this is unfair to Mr Ford, since his objective was customer satisfaction–bringing the car to new market segments through low prices. The real production-orientated manager has no such virtues. The objective is cost reduction for its own sake, an objective at least partially fuelled by the greater comfort and convenience that comes from producing a narrow product range. Second, the belief that the business should be defined in terms of its production facilities becomes ingrained in management practices. Figure 1.4 illustrates production orientation in its crudest form. If the production capabilities of an organization are allowed to define the business mission, the purpose of the organization can become organized around the manufacture of products and then aggressive selling to customers, rather than focusing on delivering value and customer satisfaction. FIGURE 1.4 Production orientation

Marketing is evolving in response to the changing world and there are implications for the strategic application of the traditional market concept, for example the rise in importance of relationships, societal values and digital marketing has brought about change. But, according to Quinn et al. (2016), while change occurs to some aspects of marketing, others remain as constants. Digital marketing as a discrete area of marketing activity has developed during the last 25 years from a computer-generated communication channel used by a few companies into a powerful phenomenon that potentially affects every aspect of organizational activity

across the globe. The shift towards digital marketing is changing the focus of the application of marketing, but these authors argue that its core principles are enduring: Search for latent markets (new market opportunities): can be a challenge in well-developed economies, but digital technology has provided the capacity to delve deeply into the nooks and crannies of human behaviour and, in doing so, has given rise to many new market opportunities, for both existing and innovative products and services. Amazon.com, Inc. developed Alexa–its range of voice-activated devices–to facilitate easier access to thousands of products and services. Customer focused: sophisticated data analytics provide deeper insights into how to achieve customer satisfaction and stimulate repeat purchasing behaviour. Google LLC and Facebook, Inc. use customer data to enable the delivery of highly targeted messages and use their customer insights to sell advertising. Integrated effort: can extend to organizations outside the firm (e.g. logistics), and the delivery of the products and services are often far removed from a firm’s staff members. DHL provides delivery services, dedicated warehousing and even two-man home delivery for large home appliances for many UK retailers, but in doing so focuses on giving excellent service. So, in the digital era, firms should plan how to extend their integrated efforts across multiple touchpoints that a customer might encounter. Goal achievement: perhaps an area where marketing faces its greatest challenges as performance measurement data is now gathered every step of the way towards a corporate goal (e.g. customer acquisition, sales, delivery, return rates, customer retention), enabling more detailed and specific analysis. Homburg et al. (2015) found a tension between sales and marketing in relation to strategic decision-making, with sales challenging the dominance of the marketing function, in part due to the availability and accountability of sales performance information. Technology firms like IBM are developing data science decision-making applications, which are transforming business practices. IBM Watson analytics is an analysis system that can identify business and market trends, and visualize the results on a desktop or mobile device. Marketers are increasingly being challenged to prove the benefits of marketing efforts.

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Marketing and performance The basic underlying premise of the marketing concept remains that its adoption will improve organizational performance. Marketing is not an abstract concept: its acid test is the effect that its use has on key corporate indices, such as profitability and market share. Increasingly, however, this must be supported with hard evidence, which is a challenge for marketing. Research in Europe and North America has examined the relationship between marketing and performance, and the results suggest that the relationship is positive. In a study of 1,700 senior marketing executives, Hooley and Lynch (1985) reported the marketing characteristics of high- versus lowperforming companies. The approach that they adopted was to isolate the top 10 per cent of companies (based on such measures as profit margin, return on investment and market share) and to compare their marketing practices with those of the remainder of the sample. The ‘high flyers’ differed from the ‘also rans’ in that they: were more committed to marketing research were more likely to be found in new, emerging or growth markets adopted a more proactive approach to marketing planning were more likely to use strategic planning tools placed more emphasis on product performance and design, rather than price, for achieving a competitive advantage worked more closely with the finance department placed greater emphasis on market share as a method of evaluating marketing performance. Narver and Slater (1990) took this a step further and studied the relationship between market orientation and business performance. Market orientation was based on three measures: customer orientation, competitor orientation and degree of inter-functional coordination. They collected data from 113 strategic business units (SBUs) of a major US corporation. The businesses comprised 36 commodity businesses (forestry products) and 77 non-commodity businesses (speciality products and distribution businesses). They related each SBU’s profitability, as measured by return

on assets in relation to competitors’ over the last year in the SBU’s principal served market, to their three-component measure of market orientation. Figure 1.5 shows the results of Narver and Slater’s study. For commodity businesses, the relationship was U-shaped, with low and high market orientation businesses showing higher profitability than businesses in the mid-range of market orientation. Businesses with the highest market orientation had the highest profitability, and those with the lowest market orientation had the second-highest profitability. Narver and Slater explained this result by suggesting that the businesses lowest in market orientation may achieve some profit success through a low-cost strategy, though not the profit levels of the high market orientation businesses, an explanation supported by the fact that they were the largest companies of the three groups. FIGURE 1.5 The relationship between market orientation and profitability

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For the non-commodity businesses, the relationship was linear, with the businesses displaying the highest level of market orientation achieving the highest levels of profitability, and those with the lowest scores on market orientation having the lowest profitability figures. As the authors

state, ‘The findings give marketing scholars and practitioners a basis beyond mere intuition for recommending the superiority of a market orientation’ (Narver and Slater 1990). Kohli and Jaworski (1990) placed more emphasis on the sharing of market intelligence across an organization as a significant route towards identifying the needs of existing and new customers. Many research studies confirm a positive relationship between market orientation and business performance on sales growth, market share and profitability (Pelham 2000), sales growth (Narver et al. 1999), strategic orientation, and overall business performance (Balodi 2014) and international performance (Cadogan et al. 2003). Kirca et al. (2005) analysed the empirical findings from a wide range of studies that sought to identify the antecedents and consequences of market orientation. Their findings showed that a market orientation led to higher overall business performance (higher profits, sales and market share), better customer consequences (higher perceived quality, customer loyalty and customer satisfaction), better innovative consequences (higher innovativeness and better new product performance) and beneficial employee consequences (higher organizational commitment, team spirit, customer orientation and job satisfaction, and lower role conflict). Their analysis of the antecedents of the market orientation showed the importance to the implementation of market orientation of top management’s emphasis on marketing, good communications between departments and systems that reward employees for market success. So, what overall conclusions can be drawn from these studies? To make a balanced judgement, limitations must be recognized. Most were crosssectional studies based on self-reported data. With any such survey there is the question of the direction of causality. However, this clearly did not occur with the commodity sample in the Narver and Slater (1990) study. What these studies have consistently and unambiguously shown is a strong association between marketing and business performance. As one condition for establishing causality, this is an encouraging result for those people concerned with promoting the marketing concept as a guiding philosophy for business. These studies have been supplemented with further empirical evidence showing a positive link between a market orientation and business

performance, for example in the case of Amazon, a company that focuses its efforts on creating a customer-centric culture throughout the business. Read Mini Case 1.1 to find out more.

MINI CASE 1.1

OTT Marketing Success Disney+ is a global entertainment corporation and one of the world’s largest over-the-top (OTT) media providers of programmes and movies accessible via the internet. This means Disney+ provides access to live-streaming services and video-on-demand through subscription-based programmes that do not rely on cable, broadcast or satellite television platforms to deliver content to customers. This in turn means that customers can access the OTT service anywhere at any time via mobile devices, smartphones, laptops, games consoles and more. This is evidencing a further fundamental shift in behaviour relating to consumption of audio-visual products, and is creating a highly competitive market between OTT platform providers such as Netflix, HBO, Amazon Prime and Disney+. The big players compete to offer the best entertainment streaming services, which offer highly customized and on-demand video and film content to a growing number of customers. Payment methods (free supported by advertising revenue, subscription, pay on demand) vary, as does the content provided. The table below gives details of Disney+’s competitors.

Source: AFM Visuals/Shutterstock Strategically, Disney+ wants to expand its reach to a wider range of customers through direct streaming services.

page 11 Content and delivery channels are key areas where video-on-demand services compete. Disney+ has a strong portfolio of companies under its brand umbrella, which it can use to produce new content (e.g. 20th Century Studios, Marvel, Lucasfilm, Pixar and Searchlight Pictures). Disney+ and its competitors OTT platform

Description

Subscribers

YouTube

Most popular streaming service globally User- and company-generated content

2.6 billion active users 50m+ subscribers

Netflix

Largest paid-for video streaming service $17bn spend on content

200m+ subscribers

Amazon Prime Video

Originally free add-on service to Amazon Prime subscription, now developing its own content $13bn spend on content

200m+ subscribers

Disney+

Paid-for video-streaming service $33bn spend on content

70m+ subscribers

Apple TV

Streaming service, which enables access to streaming content from a range of providers $6bn+ spend on content

Approaching 20m subscribers

The marketing success of Disney+ OTT streaming services is primarily driven by content. At its launch in 2019, the service offered less choice of content to its customers than did its rivals, but ensured the available content was of consistently high quality, as Disney+ has access to an extensive library of content from the brands in its portfolio. The brand also understands its customers very well, and uses various methods and techniques to access customer feedback, such as social listening to garner feedback on its streamed content. Social listening by tracking social media posts and turning this information into useable data insights can instantly provide feedback on consumer comments about individual products and services. In this way, by developing a deep understanding of customer preferences, Disney+ has been able to deliver highly customized content to its subscribers. In addition to top-quality content, Disney+ has access to highly accomplished marketing communications teams, which are able to reach consumers around the globe through highly targeted omnichannel campaigns. To promote the launch of the Disney+ service,

they used Facebook to drive awareness with desktop video ads, but at the same time used television, radio, outdoor advertising and digital display boards. The results of this strategy can be seen in the business’s increasing revenues, which rose from $4.5 billion in 2020 to $10 billion in 2021.

Questions: 1. Discuss the extent to which Disney+ is applying a market-orientated focus to generate business success. 2. Make a case for Disney+ being considered a ‘high flyer’ when looking at its performance and use of marketing.

Based on: Katz (2021); Lek (2021); Martínez-Sánchez et al. (2021); Nuets (2021); Curry (2022); Iqbal (2022)

Understanding Market-driven Businesses To gain from the performance benefits of adopting a market orientation, marketers should understand the practical implications of applying this guiding philosophy. A deeper understanding of the marketing concept and orientation can be gained by contrasting a market-driven business with an internally focused business that focuses mainly on production orientation. Table 1.1 summarizes the key differences. page 12

TABLE 1.1 Contrasting businesses: market versus internal focus Market focus

Internal focus

Customer concern throughout business

Convenience comes first

Knowledge of customer choice criteria enables matching with marketing mix

Assume price and product performance is key to generating sales

Segment by customer differences

Segment by product

Invest in market research (MR) and track market changes

Rely on anecdotes and received wisdom

Welcome change

Cherish status quo

Try to understand competition

Ignore competition

Regard marketing spend as an investment

Regard marketing spend as a luxury

Innovation rewarded

Innovation punished

Search for latent markets

Stick with the same

Are fast

Think ‘Why rush?’

Strive for competitive advantage

Are happy to be ‘me too’

Are efficient and effective

Are efficient

Market-driven companies display customer concern throughout the business. All departments recognize the importance of the customer to the success of the business. Nestlé, for example, has placed the customer at the centre of its business philosophy by giving the company’s head of marketing responsibility for the company’s seven strategic business units. Marketers also control strategy, research and development and production in the context of the markets in which they operate, which may require adjustment and adaptation to remain focused on satisfying the customer. For internally-focused businesses, convenience comes first. If customer wants are inconvenient or expensive to produce, excuses are often used as avoidance tactics. Market research found that ‘42% of companies do not listen to their customers or collect feedback’ (Andrews 2019), suggesting there are a large number of companies that do not place sufficient emphasis on customers and their views. Market-driven businesses know how their products and services are being evaluated by customers against those of the competition. They understand the choice criteria that customers are using, and ensure that their marketing mix and service mix match these criteria better than those of their competitors. Selecting which elements of the mix to utilize can have both strategic and tactical implementations. Businesses driven by the market base their segmentation analyses on customer differences that have implications for marketing strategy.

Businesses focused internally segment by product and, consequently, are vulnerable when customers’ requirements change. Global cosmetics producer L’Oréal knows its customers very well and places ‘customer experience’ central to its business activities. During the Covid-19 pandemic, the brand experienced significant growth in online sales. This change in purchasing behaviour prompted L’Oréal to review the service it was offering to online customers and introduce new online services features to enhance its service offer (see Exhibit 1.1). EXHIBIT 1.1 Virtual try-on technology uses augmented reality (AR) to enhance the customer experience

Source: Prostock-studio/Shutterstock

A key feature of market-driven businesses is their recognition that page 13 marketing research expenditure is an investment that can yield rich rewards through better customer understanding. Toyota is a market-led company that uses market research extensively. The company focuses all its efforts on continuous improvements and pays attention to what will make customers smile (Toyota 2022). The car manufacturer surveys its customers regularly to determine their opinions and values, for example a Toyota Yaris research event invited owners to take part in market research to help to develop future vehicles and features (Take Part in Research 2022). The Yaris is specially designed to meet the needs of the European consumer, and Toyota’s Optimal Drive technology was designed

to provide its customers with the benefit of enhanced performance, lower emissions and better fuel economy. Internally driven businesses see marketing research as a non-productive intangible, preferring to rely on anecdotes and received wisdom. Marketorientated businesses welcome the organizational changes that are bound to occur as an organization moves to maintain a strategic fit between its environment and its strategies. In contrast, internally orientated businesses cherish the status quo and resist change. Attitudes towards competition also differ. Whereas market-driven businesses try to understand competitive objectives and strategies, and to anticipate competitive action, internally driven companies are content to ignore the competition. Marketing spend is regarded as an investment that has long-term consequences in market-driven businesses. The alternative view is that marketing expenditure is a luxury that never appears to produce benefits. In market-orientated companies, employees who take risks and are innovative are rewarded. Recognition of the fact that most new products fail is reflected in a reluctance to punish those people who risk their career championing a new product idea. Internally orientated businesses, on the other hand, reward ‘time serving’ and the ability not to make mistakes. This results in risk avoidance and the continuance of the status quo. Marketdriven businesses search for latent markets (markets that no other company has yet exploited). Internally driven businesses are happy to stick with their existing products and markets, while externally driven businesses respond to changing demands in the market. For example, the move towards ethical consumption has created opportunities. Marks & Spencer, for instance, has taken action across its supply chain to improve the ethical credentials of its products, and has set ambitious goals to become net zero across its entire supply chain by 2040 (Wadham 2021). European fashion retailer C&A has set goals for 2028 that aim to create a culture of sustainability for customers, suppliers and employees. New companies have been created using ethical principles: One Water donates 100 per cent of its profits to life-saving projects in Africa. Read Marketing in Action 1.1 to find out more about H&M’s approach towards sustainability. Chapter 3 discusses sustainable marketing and society in detail.

MARKETING IN ACTION 1.1

H&M: Look Good, Do Good, Feel Good Spending on ethical products is growing each year across Europe. In the UK, the market is worth more than £100 billion. Demand in ethical markets for sustainable fashion, food products, transport and green energy continues to grow, and these markets appear to be more robust than other parts of the economy, even when consumers are economizing and spending less. In their study of fashion retailers in Sweden, Pedersen et al. (2018) found that innovative companies are more likely to actively pursue sustainable business models. Fashion brands tend to be highly flexible businesses, able to respond to changing trends. Many fashion brands in Europe have begun to adapt their practices to improve the sustainability of their businesses in order to stay in touch with younger buyers of fashion, who are becoming increasingly interested in sustainability. One such company is H&M.

Source: Martin de Jong/Shutterstock H&M is a retail organization that proactively searches for marketing opportunities, and responds to wider market trends such as sustainable products. The company opened its first store selling women’s clothing in 1947 in Vasteras, Sweden. The brand expanded into other parts of Scandinavia before opening its first store in London in 1976. Throughout the 1980s and 1990s, store openings continued and, by 2018, page 14 H&M was recognized as the world’s second-largest fashion retailer, operating in Europe, Asia, North and South America, the Middle East and online. H&M has put sustainability at the heart of its business and has aims to reduce greenhouse gas emissions by 2030. Sustainable initiatives and targets are being incorporated at every level, from product design, raw materials, production and manufacturing through to logistics and sales. For example, at the product level it has launched a new brand, ARKET, which focuses on delivering sustainable designs. The firm also intends this brand to lead the fashion industry towards more transparency in the supply chain. The Conscious Collection, which incorporates organic and recycled materials into its product ranges, is another way in which H&M is getting across the

sustainability message to customers. In 2019, 29,005 tonnes of clothing were collected and reused. While the firm aims to bring sustainable fashion to everyone and to deliver on its vision, it still has some way to go before the changes bring about the realization of its long-term promises. Based on: Balch (2013); Guardian (2015): Pedersen et al. (2018); Young (2018); Wood (2021); H&M (2022); Robertson (2022)

Intensive competition means market-driven companies should respond quickly to latent markets. They need to innovate, manufacture and distribute their products and services rapidly if they are to succeed before the ‘strategic window of opportunity’ closes (Abell 1978). In contrast, internally driven companies tend to take their time. An example of a company that was slow to respond to the opportunities in the mobile computer market is Microsoft. It introduced the tablet PC and carved a niche market in the health sector, but in 2010 Apple launched the iPad, which widened market demand, and it now dominates this sector. A key feature of market-orientated companies is that they strive for competitive advantage. They seek to serve customers better than the competition, while internally orientated companies are happy to produce me-too copies of offerings already on the market. Finally, market-orientated companies are both efficient and effective, while internally orientated companies achieve only efficiency. The concepts of efficiency and effectiveness are discussed in the next section.

Efficiency versus effectiveness Another perspective on business philosophy can be gained by understanding the distinction between efficiency and effectiveness (Brown 1987). Efficiency is concerned with inputs and outputs. An efficient firm produces goods economically–it does things right. The benefit is that the cost per unit of output is low and therefore the potential for offering low prices to gain market share is present, or of charging medium to high prices and achieving high profit margins. For example, car companies attempt to achieve efficiency by gaining economies of scale and building several models on the same subframe and with the same components. However, to

be successful, a company needs to be more than just efficient–it needs to be effective too. Effectiveness means doing the right things. This implies operating in attractive markets and making products that customers want to buy. Conversely, companies that operate in unattractive markets or are not producing what customers want to buy will go out of business; the only question is one of timing. The link between performance and combinations of efficiency and effectiveness can be conceived as shown in Figure 1.6. A company that is both inefficient and ineffective will go out of business quickly because it is a high-cost producer of products that customers do not want to buy. The Hummer SUV became a ‘must have’ vehicle early in the 2000s, but its high purchase cost, high running costs and high levels of carbon emissions led to its failure. High-profile owners like Arnold Schwarzenegger, David Beckham and Paris Hilton abandoned their Hummers and the brand failed as it ceased to be a viable purchase option (Tran 2010). In 2010, Starbucks created evening stores with product extensions, including beer and wine, and table service in thousands of outlets in the US and a few selected stores in the UK. The aim was to increase customer traffic later in the day. But the table service for the evenings conflicted with the counter service offered in page 15 the morning and customers didn’t respond well. In 2017, the programme was discontinued in many stores and Starbucks looked for other ways to tap in to the night-time economy (Trefis Team 2017). FIGURE 1.6 Efficiency and effectiveness

A company that is efficient and ineffective may last a little longer because its low-cost base may generate more profits from the dwindling

sales volume it is achieving. Once, BlackBerry devices were an innovative product and global leaders in the smartphone market, in part due to the then innovative QWERTY keyboard. But when Apple, Inc. and Android devices incorporated touchscreen keyboards and larger screens in their smartphones, BlackBerry was left behind. Sales began to decline rapidly and even the new versions of the device could not compete with the sleek, elegant designs of Apple and Android smartphones. The device could no longer compete or satisfy customers’ needs (Worth 2016). Firms that are effective but inefficient are likely to survive, however, because they are operating in attractive markets and are marketing products that customers want to buy. Department stores provide a destination for shoppers as they offer a wide range of goods all in one place, and once were an important type of retailer for towns and cities as they attracted shoppers. John Lewis Partnership is an example of this type of retailer, which remains successful, but now operates using an omnichannel strategy (store, mobile, online and 900 click-and-collect locations in partner stores), which allows it to reach out to customers where they live, as well as being a destination store in major towns. Department stores are becoming an ineffective way of retailing, however, due to a combination of the high costs of operating large, expensive retail premises, managing multiple product ranges and changing shopping habits: more online and mobile shopping, and increased spending on leisure activities. There are many examples of department store businesses that have not survived or have filed for insolvency, including Debenhams (UK), Vroom & Dreesmann (Netherlands) and Galeria Karstadt Kaufhof (Germany). Toyota is an example of an efficient and effective manufacturing company. Its investment in modern production practices ensures efficiency, while effectiveness is displayed by research and development investment into new products that consumers want to buy. Inditex, the Spanish owner of the Zara, Pull&Bear and Bershka fashion chains, has also thrived through a combination of efficiency and effectiveness by using its own highly efficient automated manufacturing and distribution facilities, clothing workers in 350 independently owned workshops in Spain and Portugal, and low advertising expenditures (its shops have always been its primary marketing tool). The company is highly effective, as it matches quickly changing fashion trends by means of an extremely fast and responsive

supply chain. The result is that Inditex has become the world’s largest clothing retailer by sales: €27.72 billion in fiscal year 2021 (Statista 2022). Arguably, a combination of efficiency and effectiveness leads to optimum business success. Firms do well and thrive by operating in attractive markets, supplying products that consumers want and benefiting from a low-cost base and efficient production. But there are examples of companies that have found ways to survive and thrive by doing things differently. Many smaller companies operating in niche markets fall into the effective/inefficient category. One such example is Morgan Motor Company (Exhibit 1.2), which manufactures bespoke, high-specification sports cars. Prices for the basic model start at less than £66,000 and the company has a long waiting list of customer orders, but the factory continues to manufacture fewer than 850 handmade cars a year. Morgan is an independent family business, which places emphasis on building and maintaining relationships with both customers and employees. This approach helps it to build loyalty and retain customers. Relationship marketing has become so important to marketing that we have a whole chapter devoted to the subject: Chapter 5, which deals with value creation and relationship marketing. EXHIBIT 1.2 Morgan cars ‘do things differently’

Source: Martin Lehmann/Shutterstock

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The essential difference between efficiency and effectiveness is that the former is primarily cost focused, while the latter is customer focused. An effective company can attract and retain customers while remaining cost efficient. These principles should be applied according to the market conditions and can be crucial to delivering successful performance. As markets change, the definitions of efficiency and effectiveness also need to adapt. For example, before the advent of online shopping, customers would be happy and satisfied if a firm delivered their ordered goods within, say, seven days and would have very limited information about when they would arrive. In contrast now customers expect delivery within two days of placing an order ideally the next day or even the same day. To achieve this new level of efficiency, firms have had to make changes and streamline their logistical operations, and to be effective they have, in many cases, had to increase the number of delivery channels and improve the predictability of when deliveries will be made, to meet customer expectations. Such changes are contributing to the evolution of marketing, and also creating opportunities to meet and exceed customer expectations.

Creating Customer Value, Satisfaction, Loyalty and Relationships Customer expectations in all markets are evolving, and creating value is a primary aim of market-orientated businesses. Four key benefits can be derived from adopting marketing as a guiding business philosophy: 1. 2. 3. 4.

customer value customer satisfaction customer loyalty long-term customer relationships.

Customer value Market-orientated companies attempt to create customer value to attract and retain customers. Their aim is to deliver superior value to their target customers. In doing so, they implement the marketing concept by meeting and exceeding customer needs better than the competition. Chipotle Mexican Grill, Inc. aims to sell responsibly sourced fast food from its 3,000 restaurants in USA, Canada, UK, France and Germany. The company has more than 100,000 employees, who are passionate about their customers. Everyone focuses on delivering excellent customer experiences. Chipotle regularly wins awards relating to its employees, such as best company for diversity, company culture and happiness. The company values are translated into benefits for its customers, for example great-tasting fresh food, responsibly managed meat, responsible management of waste (Chipotle 2022) (see Exhibit 1.3). This example demonstrates that customer value can be derived from many aspects of what a company delivers to its customers, beyond the basic product. EXHIBIT 1.3 Chipotle’s ‘As Real as It Gets’ campaign highlights the ‘real’ ingredients it uses to make the food it serves

Source: dennizn/Shutterstock

Customer value is dependent on how the customer perceives the benefits of an offering and the sacrifice that is associated with its purchase. Therefore:

Perceived benefits can be derived from the product (e.g. in Chipotle’s case, the taste of the burrito), the associated service (e.g. how quickly page 17 customers are served and the cleanliness of the outlet) and the image of the company (e.g. whether the image of the company/product is favourable). If one of these factors–for example, product benefits–changes, then the perceived benefits and customer value also change. For instance, fast-food restaurants largely rely on using disposable packaging and utensils for their products, much of which is not recyclable and is therefore bad for the environment. Major brands in this industry have realized they need to address this issue. Chipotle diverts 50 per cent of its waste away from landfill (Chipotle 2022), while Pretaims to be ‘doing the right thing’ and to be highly effective with its sustainability core values. It has a zero-landfill policy and is aiming to make all of its packaging 100 per cent recyclable, reusable or compostable (Pret 2022). A further source of perceived benefits is the relationship between customer and supplier. Customers may enjoy working with suppliers with which they have developed close personal and professional relationships, and value the convenience of working with trusted partners. Perceived sacrifice is the total cost associated with buying a product. This consists of not just monetary cost, but the time and energy involved in purchase. For example, in the case of fast-food restaurants, a convenient location can reduce the time and energy customers need to expend on finding a suitable eating place. Online cars sales platform Cinch positions itself as selling cars ‘without the faff’, thereby reducing the costs associated with searching for a used car to buy. However, marketers need to be aware of another critical sacrifice in some buying situations: the potential psychological cost of not making the right decision. Uncertainty leads people to perceive risk when making a purchase. McDonald’s, for instance, attempts to reduce perceived risk by standardizing its complete offer so that customers can be confident of what they will receive before entering its outlets. Chipotle and Pret aim to reduce perceived risk of buying fast food that endangers the planet. In organizational markets, companies offer guarantees to reduce the perceived risk of purchase, and often produce marketing communications

that highlight the features of a product or service (as in the example shown in Exhibit 1.4). EXHIBIT 1.4 Samsung’s advertising for its Galaxy S22 and S22+ includes detailed product specifications

Source: fifg/Shutterstock

Figure 1.7 illustrates how perceived benefits and sacrifice affect customer value. It provides a framework for considering ways of maximizing value. The objective is to find ways of raising perceived benefits and reducing perceived sacrifice. The benefits should be in accord with customer values and reflect the market environment context (see Chapter 2 for further discussion of this). FIGURE 1.7 Creating customer value

Customer satisfaction Exceeding the value offered by competitors is key to marketing success. Consumers decide upon purchases based on judgements about the value offered by suppliers; this decision is based on the sum of customers’ perceptions, evaluations and psychological reactions to a product or service experience (Benoit et al. 2020). Once a product has been bought, customer satisfaction depends upon the product’s perceived performance compared with the buyer’s expectations. Customer satisfaction occurs when perceived performance matches or exceeds expectations. Successful companies such as LEGO, Toyota, Samsung, H&M, Waitrose, Apple and Virgin place customer satisfaction at the heart of their business philosophy. Companies facing difficulties, such as General Motors (GM), Chrysler, Gap and Kodak, have at one time failed to meet customer needs. As expectations change, companies need to find ways to refocus on the customer or otherwise page 18 potentially face business collapse. GM operated a hierarchal multidivisional structure, which stifled internal communications and was financially burdensome. In the mid-2000s, at a time of increasing financial pressure, the firm focused on developing and selling financial products rather than ensuring its vehicles met customer needs and ensured satisfaction (Senter and McManus 2013). Arguably, GM lost focus on its core markets and eventually faced bankruptcy. To turn things around, it changed the management culture, implemented a corporate restructure and focused on producing vehicles that were in demand, which saved the

business. Currently, it is investing in electronic and autonomous vehicles as a way of securing its future. ASOS, a successful online fashion retailer, has succeeded in creating customer satisfaction by looking to the digital future. The company satisfies its young customers’ desire to replicate the looks of their favourite celebrities, such as Jourdan Dunn and Gal Gadot, by offering affordable versions of celebrity styles. Read more about ASOS in Chapter 16 (Case 31). Customer satisfaction is taken so seriously that it is considered a key success factor and is what drives competition in many industries. Banks focus on customer satisfaction and constantly seek to delight customers by providing superior service. Mobile banking has changed how customers behave and heightened competitive pressures, particularly as it has become easier in the digital world for customers to compare service and prices, and to switch banks (Hamidi and Safareeyeh 2019). Starling and Monzo are examples of mobile banks that are challenging traditional high-street banks like Barclays, Lloyds, HSBC and NatWest. The challengers are responding to the increase in the number of people choosing to do their banking via smartphone, offering digitized, personalized and low-cost bank accounts and, in doing so, are increasing customer expectations of banking service provision more widely. In today’s competitive climate, it is often not enough to match performance and expectations. For commercial success, expectations need to be exceeded so that customers are delighted with the outcome. To understand the concept of customer satisfaction, the so-called ‘Kano model’ (Figure 1.8) helps to separate characteristics that cause dissatisfaction, satisfaction and delight. Three characteristics underlie the model: ‘must be’, ‘more is better’ and ‘delighters’. FIGURE 1.8 Creating customer satisfaction

‘Must be’ characteristics are expected to be present and are taken for page 19 granted. For example, in a hotel, customers expect service at reception and a clean room. The lack of these characteristics causes annoyance, but their presence serves only to bring dissatisfaction up to a neutral level. The presence of ‘more is better’ characteristics can take satisfaction past neutral and into the positive satisfaction range. For example, no response to a telephone call can cause dissatisfaction, but a fast response may cause positive satisfaction or even delight. ‘Delighters’ are the unexpected characteristics that surprise the customer. Their absence does not cause dissatisfaction, but their presence delights the customer. For example, a hotel chain providing a free basket of fruit on arrival in a visitor’s room, creating memorable experiences, doing something out of the ordinary. Luxury hotel The Ritz-Carlton is an example of an organization that has taken this idea a step further by training all of its staff to meet guests’ ‘unexpressed needs’, empowering them to create unique personal experiences. This delights many of its customers, who were not expecting such treats. A problem for marketers, however, is that over time ‘delighters’ become expected. For example, car manufacturers provide small, unexpected delighters such as pen holders and delay mechanisms on interior lights that

allow drivers time to find the ignition socket at night, which have now become standard on most cars and are therefore ‘must be’ characteristics, as customers expect them. This means that marketers must constantly strive to find new ways of delighting. Innovative thinking and listening to customers are key ingredients in this. The importance of customer satisfaction is supported by studies which show that higher levels of customer satisfaction lead to better performance– that is, higher financial performance (profits and sales), greater customer loyalty (Homberg et al. 2005) and increased repurchase intentions (Majeed et al. 2022). In competitive markets, there is also a strong relationship between a firm’s corporate social responsibility (CSR) and customer satisfaction, as a strong CSR strategy can reduce uncertainty and increase satisfaction (Sun and Price 2016). Customer satisfaction is linked to customer loyalty and profitability (Srinivasan et al. 2002). It can cost up to six times more to attract a new customer than to retain an existing one (Strauss et al. 2006).

Customer loyalty In most situations, returning customers are beneficial to an organization, as they can increase sales volumes through repeat purchases. Loyalty is a response that a customer shows over time. Typically, customers will return to the same supplier repeatedly if they are satisfied with the products or services they receive (Christodoulides and Michaelidou 2011). Customer loyalty can be built on convenience, quality of service and/or social interaction; it can take different forms and be triggered by different marketing initiatives. For example, Tesco uses sales promotions through its loyalty card programme to trigger repeat customer purchase behaviour. Arguably, this type of loyalty is driven by price, and the promotion acts as an incentive to trigger repeat purchase. Customer loyalty can be temporarily shaken when a company changes its brand identity, as Marketing in Action 1.2 explains. However, customization can increase perceptions of service quality, satisfaction and trust, with the outcome of generating improved customer loyalty (Coelho and Henseler 2012).

MARKETING IN ACTION 1.2

Brand Loyalty Wobbles When Starbucks Employs a Siren That’s Just Too Perfect Customer value is closely linked with perceptions of a brand, so when changes are made to a brand’s identity they should be meaningful to customers in such a way that they will continue to make positive brand associations and buy the products and services offered. In 2011, Starbucks launched its new global brand identity as a mark of the company’s 40 years in business.

Source: (l)ACnoncc/Alamy Stock Photo, (r)Taa photo/Shutterstock According to Steve Barrett, Starbucks former global creative vice-president, page 20 the new look tested well with loyal consumers. However, the removal of the words Starbucks and coffee from the iconic green logo initially annoyed many of its customers, and they complained in their hundreds on the brand’s official Facebook page, saying the new logo ‘sucks’. Part of the problem was that the mermaid’s face was just too perfect, so the global branding team decided the face should not be symmetrical. Take a look at the image of the Starbucks logo and see how slight changes have sought to create imperfections and, in so doing, to humanize the image. The company aimed to give the brand a less corporate and more contemporary feel. The initial resistance to the change of identity did not last, and customers continue to flock to Starbucks’ 32,000 outlets in 80 countries around the world. Starbucks continues to focus on the market environment and its customers’ needs, with the introduction of new product lines, for example customers can enjoy Almond Milk Cold Brew, Pistachio Latte and its Earth Cake Pop. Based on: Clark (2011); Wood (2011); Barrett (2018); Wilson (2018); Starbucks (2018, 2022)

At the other end of the scale is a form of loyalty that transcends emotional boundaries: brand love. Brand love is an extension of the concept of loyalty (Batra et al. 2012). Researchers have found that the connections between individuals and the brands they choose are closely associated with the concept of interpersonal physical love. However, while brand love has been found to involve passion, positive emotional connections, long-term relationships, positive attitudes and distress at the thought of separation, it does not leave brand lovers as profoundly committed to a product as they might be to a personal partner. Nevertheless, there are consequences for marketing managers, and they should look for ways to turn liked brands into loved brands. Looking for ways to maintain this high level of commitment to the relationship can be achieved by maximizing the following key opportunities. Facilitate ‘passion-driven behaviour’, which is a strong commitment to use the brand, as in the case of luxury designer brands (e.g. Gucci, Rolex, Porsche). Build brands that engender self-brand integration. This is the way the brand connects to an individual’s values and deeper thought processes. Rewards can be used effectively to emphasize the benefits of this higherlevel commitment. Samsung is an example of a brand that is attempting to connect with customers by engendering self-identity through brand values associated with the environment. Create positive emotional connections. Brands that succeed in being regarded as an ‘old friend’, creating a strong bond with the customer, benefit by finding a place in the customer’s heart, creating a ‘warm glow’ that gives rise to positive emotions. Personal care brand Dove created the Campaign for Real Beauty to mark 60 years of its beauty products. The advertising campaign sought to empower women to feel comfortable with their features (Kim and Sullivan 2019). This example helped to reposition Dove soap with emotional and culturally relevant advertising, and helped it to stand out in a crowded fast-moving consumer goods (FMCG) market by adding personal relevance (Ritson 2019) (see Exhibit 1.5 Dove Campaign for Real Beauty). EXHIBIT 1.5 Dove Campaign for Real Beauty

Source: Retro AdArchives/Alamy Stock Photo page 21

Long-term customer relationships According to Sheth and Parvartiyar (1995), relationship marketing is a change in direction for marketing thinking and practices, placing ‘emphasis on relationships as opposed to transaction-based exchanges’. The benefit of this redefinition of marketing is that a firm’s activities become focused on attracting customers and seeking ways to retain them rather than just selling the products and services that customers might need and want. Relationship marketing enhances productivity and allows the firm and its customers to develop mutual cooperation. In the digital age, technology has become increasingly important in facilitating relationship development, and social media has been used to understand and engage customers. Social media platforms like Twitter, Facebook and Instagram provide an opportunity for

interaction and information exchange between firms, employees and customers. Social media maximizes customer engagement and creates opportunities for marketers to react instantly when a customer tweets about a bad (or good) customer experience. Rapid response in the digital arena can also deliver relational benefits, as more than 70 per cent of customers are likely to spend more if a firm has a good service history (Sklar 2013). Relationship marketing is covered in greater detail in Chapter 5.

Marketing Planning So far in this chapter we have discussed the conceptual meaning of marketing, adopting a market orientation, the importance of efficiency and effectiveness, ways to create customer value, satisfaction and loyalty, and the importance of building customer relationships. In this final section of this chapter, we look at the development of marketing planning from three perspectives: strategic, tactical and implementation. It is important to note that these are all substantive topics, so this is merely an introduction to some of the key ideas and each topic is covered in detail in later chapters. Marketing strategy is part of the overarching corporate strategic planning process, and making marketing work requires much planning and effort across an organization. Fundamentally, marketing planning functions at two levels: 1. At a business level the focus is strategic in nature and involves: setting a business mission; identifying the vision driving the firm forwards; carrying out a marketing audit (an analysis of a firm’s current trading situation); conducting a SWOT (strengths, weaknesses, opportunities and threats) analysis to inform strategic direction; and setting high-level marketing objectives, which define the target markets and selection of goods and services offered by a firm. 2. At a product and/or service level the focus is on the practical application of marketing. This level involves many decisions about how to use the product and service mix to create competitive advantage and then how these decisions are implemented.

Driving the planning process is strategic marketing, which pulls together the planning process and the tactical application of the marketing and service mix. Chapter 17 discusses marketing planning in detail.

Strategic marketing Strategy is defined as a firm’s conscious efforts to use its resources to leverage advantage (Hamel and Prahalad 1994), and adding a marketing perspective brings a valuable focus on how to use these resources to stand out from the competition and make it more difficult for other firms to copy (Wu 2011). This process involves analysing competitors and creating a competitive advantage, and is so important to the development of strategic marketing plans that Chapter 18 is devoted to discussing these topics.

Tactical marketing Gupta (2009) reminds us of the importance of the customer (as well as other metrics: profits, stock valuations) when deploying marketing tactically. To gain the most benefit, it is suggested that elements of the marketing and service mix should not only focus on brands, products and services, but should also reach out to enhance value, customer satisfaction and loyalty in the longer term. For example, L’Oréal, a global firm, has a wide portfolio of cosmetic brands: L’Oréal Paris, Maybelline, Garnier, Essie, Kerastase and Matrix. Its senior management focus on and invest heavily in research and development to ensure long-term customer satisfaction so that their ranges remain of interest to customers, deploying technology in their communications to reach both new and existing customers (Millington 2015). page 22

Tactical marketing is often viewed as the deployment of the marketing mix and consists of four major elements: product, price, promotion and place. These ‘Four-Ps’ highlight four key decision areas that marketers must manage to meet tactical and, ultimately, strategic goals. See Chapters 9, 10 and 12 to 16 for detailed discussions of each of the elements of the marketing mix and related topics.

Furthermore, the growth of the service industries has given rise to an extended marketing mix of seven ‘Ps’, with the services marketing mix adding three decision areas to consider: people, physical evidence and process (Booms and Bitner 1981). The need for the extension came about due to the high degree of direct contact between the firm and the customer, the highly visible nature of the service assembly process, and the simultaneity of production and consumption. Booms and Bitner argued for a ‘Seven-Ps’ approach to services marketing, as they suggest that the FourPs take no account of service delivery. While it is possible to discuss people, physical evidence and process within the original Four-Ps framework (e.g. people could be considered part of the product offering), the extension allows a more thorough analysis of the marketing ingredients necessary for successful marketing planning and activities. In services, people often are the service itself, the process or how the service is delivered to the customer is usually a key part of the service, and the physical evidence–the décor of the restaurant or shop, for example–is so critical to success that it should be considered as a separate element in the services marketing mix. See Chapter 12 for a detailed discussion of services marketing.

Marketing implementation Marketing strategy concerns the issues of what should happen and why it should happen. Implementation focuses on actions: who is responsible for various activities, how the strategy should be carried out, where things will happen and when action will take place. So managers devise marketing strategies to meet new market opportunities, counter environmental threats and match core competences. Designing marketing strategies and positioning plans that meet today’s and tomorrow’s market requirements is a necessary, but insufficient, condition for corporate success. They need to be translated into action through effective implementation. While decisions regarding the extended marketing mix form a major aspect of marketing concept implementation, the emphasis and application of each of the elements of the mix will vary depending on the products and services offered. For example, BMW and Rolex are market-orientated companies that focus primarily on the Four-Ps, as they are product manufacturers, but Starbucks and Burger King focus primarily on the elements of the extended

mix, as service, process and physical evidence are at the heart of their fastfood restaurants. Marketing implementation is the topic of Chapter 21.

Does Marketing Have All the Answers? In this chapter, we have considered how marketing as a discipline is adapting to a changing world. Academics, however, have raised important questions regarding the value of the market concept as a guiding principle, and marketing managers should be alert to the following issues: the marketing concept as an ideology marketing and society marketing as a constraint on innovation marketing as a source of dullness marketing as an intrusion activism and authenticity.

The marketing concept as an ideology Brownlie and Saren (1992) argue that the marketing concept has assumed many of the characteristics of an ideology or an article of faith that should dominate the thinking of organizations. They recognize the importance of a consumer orientation for companies but ask why, after 40 years of trying, the concept has not been fully implemented. They argue that there are other valid considerations that companies must take into account when making decisions (e.g. economies of scale), apart from giving customers exactly what they want. Marketers’ attention should focus not only on propagation of the ideology but also on its integration with the demands of other core business functions in order to achieve a compromise between the satisfaction of consumers and the achievement of other company requirements. page 23

Marketing and society A second limitation of the marketing concept concerns its focus on individual market transactions. Since many individuals focus on personal benefits rather than the societal impact of their purchases, the adoption of the marketing concept will result in the production of goods and services that do not adequately correspond to societal welfare. Providing customer satisfaction is simply a means to achieve a company’s profit objective and does not guarantee protection of the consumer’s welfare. This view was supported by Wensley (1990), who regards consumerism as a challenge to the adequacy of the atomistic and individual view of market transactions. Bloom and Greyser (1981) present an alternative view. They regard consumerism as the ultimate expression of the marketing concept, compelling marketers to consider consumer needs and wants that may hitherto have been overlooked, saying: ‘The resourceful manager will look for the positive opportunities created by consumerism rather than brood over its restraints.’ In recent years, the role of society in marketing has become more important.

Marketing as a constraint on innovation Tauber (1974) presented a third criticism of marketing–that is, how marketing research discourages major innovation. The thrust of his argument was that relying on customers to guide the development of new products has severe limitations. This is because customers have difficulty articulating needs beyond the realm of their own experience. It is important to note that these criticisms are not directed at the marketing concept itself but towards its faulty implementation–an overdependence on customers as a source of new product ideas. The marketing concept does not suggest that companies must depend solely on the customer for new product ideas, rather it implies that new product development should be based on sound interfacing between perceived customer needs and technological research. At Google, for instance, innovation is encouraged, and innovations are tested and launched–and sometimes suspended. Examples include Froogle (product search engine, launched November 2004, sidelined and renamed 2007), Google Sidewiki (web annotation tool, launched 2009, discontinued December 2011), Google Buzz (social network and messaging tool,

launched September 2010, discontinued December 2011), Google Glass (concept released 2012, suspended 2015) and Google+ (launched 2011, suspended 2019). Innovations succeed only if they satisfy the user and there is widespread uptake, and Google is very well informed about which of its innovations are effective and which need to be discontinued.

Marketing as a source of dullness A fourth criticism of marketing is that its focus on analysing customers and developing offerings that reflect their needs leads to dull marketing campaigns, me-too products, copycat promotions and marketplace stagnation. Instead, marketing should create demand rather than simply reflect it. On one hand, this approach can eventually lead to business failure, as in the case of BlackBerry, where the products were surpassed by similar product offers both Apple and Android. On the other hand, ‘dullness’ can be a source of innovation: at a tonic water tasting in the US, Charles Rolls and Tim Warrillow noticed that many of the products contained preservatives and artificial sweeteners (Fever-Tree 2018), so they went on a journey to make a new product range that offered something different. Fever-Tree tonic was developed and very quickly became the leading mixer beverage brand in the UK. Read more about Fever-Tree in Chapter 19 (Case 38).

Marketing as an intrusion A fifth and growing criticism of marketing has intensified as big data and digital information firms, like Facebook, Google and Instagram, gather and analyse data in such detail that they have great insight into what, when and where to send marketing messages to trigger purchases (Kotler 2017). The capacity of marketing messages to interrupt our lives is not a new phenomenon–telephone marketing, cold-calling from sales agents and direct mail are techniques that have been used to increase sales for several decades. But, as the world has turned digital, the capacity and scope to send such messages has increased significantly. Google and Facebook use targeted messaging as a basis for the advertising revenue models for their platforms. This approach is highly efficient and effective: if you search for a product or service on Google (e.g. sunglasses), you are very likely to find

page 24 that adverts from sunglasses brands related to your generic search appear when you visit a different platform such as Facebook, eBay or Twitter. Since May 2018, the use of data has been controlled in Europe by the General Data Protection Regulation (GDPR), with the intent of providing more personal data security. This legislation aims to control how organizations can use personal information.

Activism and authenticity Finally, activism is increasingly bringing the responsibility of firms and brands into the spotlight, and heightening the importance of social issues. Powerful movements like #BlackLivesMatter and #MeToo challenge brands as they try to establish a position, and signal to their customers the virtues and authenticity of their brand values in light of such campaigns. Consumers constantly expect more from brands and in this new age of activism there has to be consideration of social issues, such as racism, sexism, discrimination and equality. Consequently, brands are finding ways to go beyond the functional and psychological benefits of products and services to respond to more politically and social aware consumers, for example Delta Airlines cut benefits for National Rifle Association members (Hydock et al. 2020). But firms must take care to ensure the authenticity of their claims. For example, in response to the Covid-19 pandemic, Amazon produced an ad campaign thanking its employees for being heroic in serving customers and highlighting the firm’s dedication to keeping everyone safe. However, Amazon subsequently faced an employee backlash and strikes over health and safety, so it seems the firm many not be ‘walking the talk’ (Alemany 2020). Firms should ensure their claims are genuine and authentic, to avoid being called out by activists. For marketing, woke activism is arguably like corporate social responsibility (CSR), as it prompts firms to regulate business activities in accordance with achieving societal good. CSR and woke activism are seen as forces of social impact, and encourage firms to overcome social and environmental issues (Osorio 2020). While activism centres on driving ‘behavioural and socio-political change’, and campaigns can be emergent, emotional and highly controversial, CSR focuses on established societal issues and responds with corporate-sponsored strategies that address accepted issues (Mukherjee and

Althuizen 2020). Firms must consider their position in terms of the differences between CSR and woke activism. These six emerging issues help prompt discussion about the value of the marketing concept, and together are useful for highlighting how aspects of the concept are evolving. page 25

Big Picture: Key Topics in This Chapter

Detailed Review 1. Identify the fundamental principles of marketing The marketing concept sets out the core ideas that underpin the nature of marketing and provides central planks on which to build a market-orientated organization. Market orientation provides a guiding philosophy that enables an organization to concentrate its activities on its customers. Focusing on efficiency and effectiveness enables an organization page 26 to ensure that it is doing things right and doing the right things. Getting the balance correct between the two can mean the difference between success and failure. Customers are at the heart of marketing; consequently, understanding how to create customer value and satisfaction is very important. Marketing planning brings marketing into wider business strategy, and developing marketing planning involves decisions at different levels: strategic, tactical and implementation. 2. The marketing concept: an understanding of the nature of marketing, its key components and limitations The marketing concept is the achievement of corporate goals through meeting and exceeding customer needs better than the competition. It exists through exchanges where the objective for all parties in the exchange is to feel satisfied. Its key components are customer orientation, integrated effort and goal achievement (e.g. profits), and discovery and exploitation of latent markets. There are limitations of marketing to consider: pursuit of customer needs is only one objective companies should consider as this can lead to focusing on short-term personal satisfaction rather than longer-term societal welfare; ensuring new development leads towards innovation rather than dull marketing campaigns and me-too products; marketing can be intrusive and divisive. 3. Adopting a market orientation in a changing world Focusing on customer needs identify potential market opportunities, leading to the creation of products that create customer satisfaction. Production orientation focuses on production capabilities, which defines the business mission and the products that are manufactured. These are then sold aggressively to customers. 4. The differences between market-driven and internally orientated businesses Customer concern versus convenience. Know customer choice criteria and match with marketing mix. Segment by customer differences versus segment by product. Marketing research versus anecdotes and received wisdom.

Welcome change versus cherish status quo. Understand competition versus ignore competition. Marketing spend is an investment versus marketing spend is a luxury. Innovation rewarded and reluctance to punish failure versus avoidance of mistakes rewarded and failure to innovate conspicuously punished. Search for latent markets versus stick with the same. Recognize the importance of being fast versus satisfied with moving slowly. Strive for competitive advantage versus happy to be me-too. Efficiency and effectiveness versus efficiency. 5. The different roles of efficiency and effectiveness in achieving corporate success Efficiency is concerned with inputs and outputs. Business processes are managed to a high standard so that cost per unit of output is low. Its role is to ‘do things right’–that is, use processes that result in low-cost production. Effectiveness is concerned with making the correct strategic choice regarding which products to make for which markets. Its role is to ‘do the right things’s– that is, make the right products for attractive markets. 6. Explain how to create customer value, satisfaction and loyalty, and build long-term relationships Value is created by maximizing perceived benefits (e.g. product or image benefits) and minimizing perceived sacrifice (e.g. monetary or time costs). Satisfaction once a product is bought is created by maximizing perceived performance compared with the customer’s expectations. Customer satisfaction occurs when perceived performance matches or exceeds expectations. Loyalty is a response that a customer shows over time. Typically, page 27 customers will return repeatedly to the same supplier if they are satisfied with the products or services they receive. Relationship marketing enhances productivity and allows the firm and its customers to develop cooperation. 7. Marketing planning Involves developing marketing planning from three perspectives: strategic, tactical and implementation. Strategic marketing focuses on using a firm’s resources to leverage competitive advantage. Tactical marketing focuses on the deployment of the marketing and service mix, but also seeks to contribute to developing longer-term customer relationships. The delivery of marketing is brought about through implementation. Implementation focuses on actions: who is responsible for various activities, how the strategy should be carried out, where things will happen and when action will take place.

8. Limitations and challenges for the marketing concept Six limitations of marketing are discussed: 1) The marketing concept as an ideology: can lead to a narrow and mechanistic approach towards marketing. 2) Marketing and society: by pursuing individual rather than societal gains, the marketing concept can result in benefits for the individual (or firm) with little regard for the impact on the wider marketing environment and society at large. 3) Marketing as a constraint on innovation: overreliance on customers as a source of innovation can result in lacklustre innovations. 4) Marketing as a source of dullness: focus on analysing customers and developing offerings that reflect their needs leads to dull marketing campaigns, me-too products, copycat promotion and marketplace stagnation. 5) Marketing as an intrusion: in the digital age, the capacity to send frequent and highly tailored messages has increased, as has the capacity of marketing messages to interrupt our lives. 6) Activism and authenticity: CSR and woke activism reflect the increasing attention consumers are paying to societal issues when making choices as to which products and services to buy. Firms should consider the extent to which CSR policies, goals and targets might meet more controversial and immediate demands of activism campaigns. 9. Identify relevant business and research examples, which illustrate the principles of marketing in a modern organization This chapter has described marketing and demonstrated how the principles of marketing can be applied in the modern organization through the use of examples, marketing insights and case studies at the end of the chapter. For each of the key concepts, it is possible to identify illustrative examples.

Key Terms commodity businesses those firms that sell goods and materials that are freely traded, such as agricultural products (rice, coffee, grain), raw materials, metals competitive advantage the achievement of superior performance through differentiation to provide superior customer value or by managing to achieve lowest delivered cost customer satisfaction the fulfilment of customers’ requirements or needs customer value perceived benefits minus perceived sacrifice effectiveness doing the right thing, making the correct strategic choice efficiency a way of managing business processes to a high standard, usually concerned with cost reduction; also called ‘doing things right’

exchange the act or process of receiving something from someone by giving something in return Four-Ps four key decision areas for marketing: product, price, promotion and place latent markets markets not yet served by existing products or service offers; they present opportunities for market-orientated companies market orientation companies with a market orientation focus on customer needs as the primary drivers of organizational performance marketing concept the achievement of corporate goals through meeting and exceeding customer needs better than the competition

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marketing mix a framework for the tactical management of the customer relationship, including product, place, price, promotion (the Four-Ps); in the case of services, three other elements to be taken into account are process, people and physical evidence (to make Seven-Ps) non-commodity businesses those businesses that are involved in facilitating processes and exchanges, but are not in themselves commodities–for example, when you buy electricity, a large proportion of the cost is attributed to the network of cables used to deliver the supply; in the UK, the National Grid owns the electricity transmission system place the distribution channels to be used, outlet locations, methods of transportation price (1) the amount of money paid for a product; (2) the agreed value placed on the exchange by buyer and seller product a good or service offered or performed by an organization or individual, which is capable of satisfying customer needs service mix an extended framework of tactical management processes focusing specifically on service delivery and including people, process and physical evidence touchpoints contact points where customers interact with a firm; contact can occur in physical and digital situations woke term used to denote awareness of sensitive social issues, societal injustice, racial inequality and discrimination

Study Questions 1. What are the essential characteristics of a market-orientated company? 2. How has the adoption of marketing orientation evolved since the emergence of the internet? 3. Discuss how a company’s desire to become efficient may conflict with its being effective. 4. Describe the difference between customer values and customer loyalty.

5. Suggest how you would plan to delight customers and create customer satisfaction. 6. Explain the role of marketing planning at three different levels: strategic, tactical and implementation. 7. Discuss the extent to which marketing does–or should–have all the answers.

Recommended Reading Marketing is a dynamic subject. Find out more about what makes consumers satisfied in the digital economy, discover the importance of marketing as a strategy and learn about the practical application of market by reading the following: Achrol, R.S. and Kotler, P. (2022) Distributed marketing networks: the fourth industrial revolution, Journal of Business Research, 150(November): 515–27. Available at: https://doi.org/10.1016/j.jbusres.2022.06.029 (accessed July 2022). Hoekstra, J.C. and Leeflang, P.S.H. (2022) Thriving through turbulence: lessons from marketing academia and marketing practice, European Management Journal, 2 May [in press]. Available at: https://doi.org/10.1016/j.emj.2022.04.007 (accessed July 2022).

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CASE 1 THE RIVALRY BETWEEN COCA-COLA AND PEPSI Competition in a Changing Marketing Environment For most companies, owning the number-one brand name in the world (valued at more than $67 billion by the Interbrand consultancy), having global brand recognition and earning $4.8 billion profits on sales of $21.9 billion a year in 2005 would spell success on a huge scale. But Coca-Cola is not ‘most companies’. In the face of strong competition and a changing marketing environment, the fortunes of Coca-Cola turned for the worse during the early 2000s.

Source: Nenov Brothers Images/Shutterstock Once a Wall Street favourite, Coca-Cola created a global brand by the expert marketing of something as humble as brown carbonated water laced with caffeine and vegetable extracts. For decades the company outperformed its arch-rival PepsiCo such that, in early 2000, Coca-Cola’s market capitalization was $128 billion, almost three times that of PepsiCo, which was valued at $44 billion. By December 2005, all that had changed: PepsiCo had nudged ahead with a market capitalization of $98.4 billion against Coca-Cola’s $97.9 billion. For the first time in the history of the two companies, PepsiCo was valued more highly than its old enemy. Suddenly, the ‘real thing’ was second best.

Coke’s Problems Many observers dated Coke’s problems back to the death in 1997 of Roberto Goizueta, its charismatic and highly successful chief executive, who delivered double-digit annual profit growth. His success over PepsiCo led him to treat that company with contempt. He once said, ‘As they become less relevant, I don’t need to look at them anymore.’ Shortly after his death, however, the company’s shares lost a third of their value, and profit growth collapsed to the low single digits. His successors reigned during a time of bungled takeovers, disastrous product launches, contamination scares, and constant feuding between factions within the management and boardroom. A classic illustration of Coke’s problems was the scandal involving the launch of Dasani, a bottled mineral water that turned out to be distilled tap water. When a harmful chemical compound, bromate, was found in a batch, the brand was withdrawn in the UK. However, other people attributed the roots of Coke’s failings to Goizueta’s single-minded devotion to cola. His philosophy was that nothing could beat the low-cost, high-profit-margin business of producing syrupy concentrate for bottlers, under licence, to transform into the world’s favourite drink. While Coca-Cola focused on carbonated colas, PepsiCo diversified away from sugary fizzy drinks into a powerful portfolio of non-carbonated products. In 1998, it bought the fruit juice business Tropicana, which it built to be the number-one fruit juice brand in the US. Three years later it bought Quaker Oats, thereby acquiring the energy

drink Gatorade, which has also been built into a major brand. (Coca-Cola pulled out of the Quaker Oats bidding war believing the price to be too high.) PepsiCo also owned Aquafina, the leading bottled water brand in the US. The fruit juice, energy drink and bottled water sectors all experienced double-digit growth in recent years. PepsiCo continued its acquisition programme with the purchase of the South Beach Beverage Company, which manufactures the SoBe healthy drinking range, and has launched SoBe Lifewater, which it claims contains the full recommended daily amount of vitamin C together with vitamins E and B, and no preservatives or artificial flavourings. page 32 Its bottling partner, Pepsi-Americas, also bought Ardea Beverage Co., which markets the Nutrisoda range containing amino acids, vitamins, Coenzyme Q10, herbs and minerals. In contrast to Coke, the culture at PepsiCo was reported to be more dynamic and customer focused, and less bureaucratic. Where Coke focused on soft drinks, Pepsi has interests in the snack food business (it bought the Frito-Lay snack food business in 1965), owning such brands as Doritos, Walkers Crisps, Quavers, Lay’s Potato Crisps and Wotsits (see Table C1.1). The result was that PepsiCo was generating about 23 per cent of its worldwide profits from the stagnant carbonated drinks sector, while Coca-Cola relied on fizzy drinks for 80 per cent of profits. Coca-Cola always seemed to be playing catch-up, having launched Minute Maid fruit juice to challenge Tropicana, Dasani to take on Aquafina, and Powerade, an energy drink, following the success of Red Bull and Gatorade in this sector.

TABLE C1.1 Cola wars: who owns what Coca-Cola brands

PepsiCo brands

Coca-Cola

Pepsi

Diet Coke

Diet Pepsi

Coca-Cola Zero Sugar

Pepsi Zero Sugar

Dr Pepper

Pepsi Max

Powerade

Gatorade

Minute Maid

SodaStream

Dasani

Sensations

Fanta

Mountain Dew

Lilt

Walkers crisps

Sprite

Lay’s potato crisps

Calypso

Quaker Oats

Oasis

Quavers

Costa Coffee

Doritos

Kia Ora

Cheetos

Glacéau

Wotsits

Rose’s

Sugar Puffs

Schweppes

7Up

PepsiCo’s diversification programme and its brand-building expertise has made it the world’s ninth largest food and beverage company; Coke, on the other hand, is market leader in carbonated drinks (46 per cent versus 26 per cent). Life since Goizueta has also seen Coke criticized for the fall in its marketing investments, including advertising and marketing research, in an effort to maintain short-term profits, and a lack of iconic brand-building advertising. Its culture was also questioned and its high-rise headquarters building in central Atlanta was known in the industry as ‘the Kremlin’, because of the political intrigue and bureaucratic culture that pervaded its corridors.

A New Era? In response to its problems, Coca-Cola brought an ex-employee, Neville Isdell, out of retirement in 2004 to become chairman and chief executive. One of his first acts was to allocate an additional $400 million a year to marketing and innovation. This was in recognition of the under-investment in brands and product development. Emerging markets such as China and India were also targeted more aggressively. He also briefed advertising agencies around the world in an attempt to create new iconic campaigns to revive the core brand and reconnect with consumers. In the face of research that showed the proportion of Americans agreeing that cola is liked by everyone falling from 56 per cent in page 33 2003 to 44 per cent in 2005, and those agreeing that the drink was ‘too fattening’ increasing from 48 per cent to 59 per cent, Coke increased its investment in sugar-free brands such as Diet Coke and Sprite Zero. Sugar-free colas have also been launched, such as Coke Zero Sugar, which comes in black cans and bottles, and is targeted at calorie-conscious young males who have failed to connect with Diet Coke, believing it lacks a masculine image. The brand is designed to compete with Pepsi Max, which is also a diet cola targeted at young men. Overall, marketing spend for the category doubled. Isdell also oversaw the acquisition of a number of small water and fruit juice companies in Europe. Isdell resisted the temptation to follow Pepsi with the acquisition of a snacks company. Instead, his strategy was to focus on building a portfolio of branded drinks. Following this strategy, Coca-Cola purchased the US firm Energy Brands, which owns Glacéau, a vitamin-enhanced water brand, and bought a stake of between 10 and 20 per cent of Innocent (increased to more than 90 per cent in 2013), the market leader (68 per cent) in fruit smoothie drinks in the UK. Innocent has built a reputation for making only natural, healthy products, and using only socially and environmentally aware products. At the time of the deal (2009), Innocent operated in the UK, Ireland, France, Scandinavia,

Germany and Austria. Coca-Cola also launched an energy drink, Relentless, aimed at 18to 40-year-old men. Meanwhile, PepsiCo has introduced its own labelling system in the US to identify healthier products, using criteria set by an independent board of health experts. Now 40 per cent of sales derive from products with the green ‘Smart Spot’ given to healthier brands such as sugar-free colas and baked rather than fried crisps. Most of its research and development is focused on healthier products. Sales of Smart Spot products grew at twice the rate of those without the designation, and account for more than half of Pepsi’s product portfolio. Continuing its focus on healthy drinks, PepsiCo launched PureVia which uses Stevia, a South American herb used to create natural sugar substitutes, as a zero-calorie sweetener. It was first used in flavours in PepsiCo’s water brand SoBe Lifewater. Coca-Cola followed this launch with its own equivalent, Truvia. PepsiCo has continued its move into healthier fare with yoghurt drinks, hummus and oatmeal bars. Both companies have also attempted to arrest the decline in the carbonated soft drinks sector by launching a flurry of new products such as lime- and cherry-flavoured colas. Nevertheless, colas have come under attack for their contribution to obesity, with some schools banning the sale of all carbonated drinks on their premises. In the UK, the introduction of a sugar tax has caused Coca-Cola to reduce the sugar content of some of its brands, including Sprite, Fanta and Dr Pepper, although not that of the Coca-Cola brand. Other ethical controversies have been encroaching upon Coca-Cola’s global hold on the drinks market. Concern at American foreign policy and anti-American sentiment around the world has led to the launch of brands such as Mecca Cola to provide an alternative to US colas. Under Isdell, Coca-Cola achieved steady international sales and profit growth. In 2008, he returned to retirement and was succeeded by Muhtar Kent, who steadily built sales of Coke’s brands globally. Falling sales of carbonated drinks in the US have been offset by penetration in emerging overseas markets such as China, Brazil, Russia and India. A low-calorie soft drink, Coca-Cola Life, was launched in 2014 to expand its range of lowcalorie offerings. The brand was positioned as being based on natural ingredients (stevia extract) rather than artificial sweeteners. A new ‘one name brand’ advertising strategy was launched in 2015, which brought its four cola variants–Coca-Cola, Diet Coke, Coca-Cola Zero and Coca-Cola Life–together rather than advertise them separately, so that consumers could clearly see the range of colas offered by Coca-Cola. The word ‘Sugar’ was added to the Coca-Cola Zero brand after research showed that half of consumers did not know that it contained no sugar. The range was reduced to three in 2017 when, in the face of declining sales, Coca-Cola Life was removed from the market. In 2019, Mr Kent was succeeded by James Quincey, who became chairman and chief executive of the company. Meanwhile, PepsiCo in 2018 launched the first e-commerce-only brand Drinkfinity, a healthy squash-like drink that comes in the form of plastic ‘pods’ that are added to water. Consumers are able to buy the pods, together with a reusable bottle, only on the Drinkfinity.com website. In 2018, both companies continued their strategies of reducing their reliance on sugary fizzy drinks, with Coca-Cola purchasing Costa Coffee and Pepsi buying SodaStream in multibillion-dollar deals.

During the Covid pandemic in 2021 Pepsi announced the sale of Tropicana and other juice brands, including Naked, a North American brand, to a French private equity firm. Pepsi cited a decline in the long-term trend for fruit juices and a valuable contribution to the balance sheet as reasons for the divestment. An interesting innovation in the UK conducted by Coca-Cola was the launch of a new London store in 2022, which the company says is focused on bringing unique experiences to consumers by way of its physical offerings. The store is the first of its kind in Europe, although similar stores exist in the US. The store focuses on fashion, particularly page 34 streetwear, in collaboration with designers such as Soho Grit, Herschel and Staple. The store also has its own bar where drinks such as non-alcoholic ‘mocktails’ are served. Both Coca-Cola and Pepsi have received criticism in recent years, however, because of their use of plastics in bottling. For example, in 2020, they were named as two of the top three companies producing plastic waste.

Questions 1. Before the arrival of Neville Isdell, compare Coca-Cola’s response to the changing marketing environment to that of PepsiCo. 2. Assess both companies in terms of their level of market orientation at that time. 3. How would you position Coca-Cola and PepsiCo on the efficiency–effectiveness matrix? Justify your answer. 4. What advantages, if any, does PepsiCo’s greater diversification give the company over Coca-Cola? 5. Assess Coca-Cola’s ownership of Innocent drinks from the point of view of both companies. 6. What future challenges is Coca-Cola likely to face? This case study was written by David Jobber, Emeritus Professor of Marketing, University of Bradford.

References Based on: Teather, D. (2005) Bubble bursts for the real thing as PepsiCo ousts Coke from top spot, Guardian, 27 December, 26; Ward, A. (2005) A better model? Diversified Pepsi steals some of Coke’s sparkle, Financial Times, 28 February, 21; Ward, A. (2005) Coke gets real: the world’s most valuable brand wakes up to a waning thirst for Cola, Financial Times,

22 September, 17; Devaney, P. (2006) As US tastes change, Coca-Cola’s supremacy drip, drip, drips away, Marketing Week, 6 April, 30–1; Bokai, J. (2008) Soft drinks eye herbal ‘sugar’, Marketing, 6 August, 2; Bokai, J. (2008) Soft drinks eye premium boost, Marketing, 19 March, 2; Sweeney, M. and Tryhorn, C. (2009) The day Innocent lost its innocence, Guardian, 7 April, 3; Eleftheriou-Smith, L.M. (2011) Pepsi and Coke fill war chests, Marketing, 15 February, 7; Rappeport, A. (2011) China the real thing for business rather than US, Financial Times, 27 September, 17; Anonymous (2012) At Pepsi a renewed focus on Pepsi, Bloomberg Businessweek, 6 January–12 February, 25; Neate, R. (2013) CocaCola takes full control of Innocent, Guardian, 22 February, www.theguardian.com/business/2013/feb/22/coca-cola-full-control-innocent; Neate, R. (2014) Coca-Cola enters dairy market with ‘Milka-Cola’, Guardian, 25 November, 14, www.theguardian.com/business/2014/nov/25/coca-cola-fairlife-milk; Smithers, R. (2014) Coca-Cola Life: Coke with fewer calories and less sugar to tackle obesity, Guardian, 11 June, www.theguardian.com/business/2014/jun/11/coca-cola-fewer-calories-less-sugar; Arnett, G. (2015) How Coca-Cola is fighting against a US public losing the taste for it, Guardian, 13 February, www.theguardian.com/news/datablog/2015/feb/13/coca-cola-uspublic-losing-taste; Millington, A. (2015) Coca-Cola moves to ‘one brand’ strategy, scrapping individual brand campaigns, Marketing Week, 5 March; Rogers, C. and Bacon, J. (2017) Coke axes Coca-Cola Life brand as sales tumble, Marketing Week, 6 April; Flaming, M. (2018) PepsiCo on the launch of its first ecommerce-only brand Drinkfinity, Marketing Week, 12 March; Reuters (2018) Pepsi’s $3.2bn Soda Stream deal puts fizz into healthier drinks, Guardian, 21 August, 27; Wood, Z. (2018) How is Coca-Cola preparing for sugar tax? Shrinking bottles and upping the price, Guardian, 6 January; Wood, Z. and Sweney, M. (2018) Coca-Cola snaps up Costa in £4bn deal to cash in on coffee, Guardian, 1 September, 3; McVeigh, K. (2020) Coca-Cola, Pepsi and Nestlé named top plastic polluters for third year in a row, Guardian, www.theguardian.com/environment/2020/dec/07/cocacola-pepsi-and-nestle-named-top-plastic-polluters-for-third-year-in-a-row, 7 December; Lucas, A. (2021) PepsiCo to sell Tropicana and other juice brands for $3.3 billion, www.cnbc.com/2021/08/03/pepsico-to-sell-tropicana-and-other-juice-brands-for-3point3billion.html, 3 August; Carroll, N. (2022) Inside Coke’s new London store aimed at building ‘brand love’, Marketing Week, 28 April, www.marketingweek.com/coca-cola-london-store.

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CASE 2 H&M AND FAST FASHION

Stefan Persson, chairman of Swedish retailer Hennes & Mauritz (H&M), vividly remembers his company’s first attempt at international expansion. It was 1976, the year H&M opened its London store in Oxford Circus. ‘I stood outside trying to lure in customers by handing out Abba albums,’ he recalls with a wry laugh. Persson, then 29, son of the company’s founder, waited for the crowds. And waited. ‘I still have most of those albums,’ he says. But Stefan is not crying over that unsold vinyl. In a slowing global economy, with lacklustre consumer spending and retailers across Europe struggling to make a profit, H&M’s pre-tax profits were £1.2 billion (€1.4 billion) in 2021 on sales of £16.1 billion (€19 billion). At current sales levels, the chain is the second largest apparel retailer in Europe after Zara. This is not just a store chain; it is a money-making machine. Table C2.1 compares H&M with Gap and Zara, its closest rivals.

TABLE C2.1 The clash of the clothing titans

Data source: company reports, about.hm.com, statista.com

Marketing at H&M If you stop by its Fifth Avenue location in New York or check out the mothership at the corner of Regeringsgatan and Hamngatan in Stockholm, it’s easy to see what’s powering H&M’s success. The prices are as low as the fashion is trendy, turning each location into a temple of ‘cheap chic’. At the Manhattan flagship store, mirrored disco balls hang from the ceiling, and banks of televisions broadcast videos of the body-pierced, belly-baring pop princesses of the moment. On a cool afternoon in October, teenage girls in flared jeans and with two-tone hair mill around the ground floor, hoisting piles of velour hoodies, Indian-print blouses and patchwork denim skirts–each £16 (€18) or less. (The average price of an H&M item is just £10 (€12).) This is not Gap’s brand of classic casuals or the more grown-up Euro-chic of Zara. It’s exuberant, it’s over the top and it’s working. ‘Everything is really nice– and cheap,’ says Sabrina Farhi, 22, as she clutches a suede trench coat she has been eyeing for weeks. The H&M approach also appeals to Erin Yuill, a 20-year-old part-time employee from New Jersey, US, who explains, ‘Things go out of style fast. Sometimes, I’ll wear a dress or top a

few times, and that’s it. But I’m still in school and I don’t have a lot of money. For me this is heaven.’ H&M is also shrewdly tailoring its strategy to the US market. In Europe, H&M is more like a department store, selling a range of merchandise from edgy street fashion to casual basics for the whole family. Its US stores are geared to younger, more fashionpage 36 conscious females. H&M’s menswear line, a strong seller in Europe, hasn’t proved popular with the less-fashion-conscious American male. So a number of US outlets have either cut back the selection or eliminated the line. And while the pricing is cheap, the branding isn’t. H&M spends a hefty 4 per cent of revenues on marketing. Behind this stylish image is a company so frugal that you can’t imagine its executives tuning in to a soft-rock station, let alone getting inside a teenager’s head. Stefan Persson, whose late father founded the company, looks and talks more like a financier than a merchant prince–a penny-pinching financier, at that. ‘H&M is run on a shoestring,’ says Nathan Cockrell, a retail analyst at Credit Suisse First Boston in London. ‘They buy as cheaply as possible and keep overheads low.’ Fly business class? Only in emergencies. Taking cabs? Definitely frowned upon.

Source: Sara Sette/Shutterstock But that gimlet eye is just what a retailer needs to stay on its game–especially the kind of high-risk game H&M is playing. Not since IKEA set out to conquer the world one modular wall unit at a time has a Swedish retailer displayed such bold international ambition. H&M is pressing full-steam ahead on a programme that brought its total number of stores to 4,800 in 75 countries by the end of 2021–a 12 per cent increase in the past four years. In addition, its online store is open in 50 countries. Yet H&M is pursuing the same strategy that has undone a number of rivals. Benetton tried to become the world’s fashion retailer but retreated after a disastrous experience in the US in the 1980s. Gap, once the hottest chain in the US, has lately been suffering from its relatively slow reaction time to changing fashion trends and its failure to attract young shoppers. Nevertheless, Persson and his crew were undaunted. ‘When I joined in 1972, H&M was all about price,’ he says. ‘Then we added quality fashion to the equation, but everyone said

you could never combine [them] successfully. But we were passionate that we could.’ Persson was just as passionate that he could apply the H&M formula internationally. What is that formula, exactly? Treat fashion as if it were a perishable product: keep it fresh and keep it moving. That means spotting the trends even before the trendoids do, turning the ideas into affordable clothes, and making the apparel fly off the racks. ‘We hate inventory,’ says H&M’s head of buying, Karl Gunnar Fagerlin, whose job it is to make sure the merchandise doesn’t pile up at the company’s warehouses. Not an easy task, considering H&M stores sell more than 600 million items per year. Although H&M sells a range of clothing for women, men and children, its cheap-chic formula goes down particularly well with the 15-to-30 set. Lusting after that Dolce & Gabbana corduroy trench coat but unwilling to cough up £600 (€680) plus? At £60 (€88), H&M’s version is too good to pass up. It’s more Lycra than luxe and won’t last for ever. But if you’re trying to keep au courant, one season is sufficient. ‘At least half my wardrobe comes from H&M,’ says Emma Mackie, a 19-year-old student from London. ‘It’s really good value for money.’ H&M’s high-fashion, low-price concept distinguishes it from Gap, Inc., with its all-basics-atall-price-points, and chains such as bebe and Club Monaco, whose fashions are of the moment but by no means inexpensive. It offers an alternative for consumers who may be bored with chinos and cargo pants, but are not able–or willing–to trade up for more fashion. H&M has seized on the fact that what’s in today will not be in tomorrow. Shoppers at the flagship store agreed, particularly the younger ones the retailer caters to. In 2004, H&M commissioned Karl Lagerfeld, Chanel’s designer, to create the limited-edition Lagerfeld range, which included a £70 (€80) sequinned jacket and cocktail dresses for under £55 (€62). The range, which was offered in the US and 20 European countries, sold out within two hours in some stores. This was followed in 2005 by the Stella McCartney collection. McCartney, the British designer whose clothes normally retail for hundreds and sometimes thousands of pounds, designed 40 pieces for H&M, including camisoles, skinny jeans and tailored waistcoats. The average price was £40 (€45) per item, around 15 times cheaper than her own prices. The limited edition was a resounding success, with customers queuing from as early as 6.30 a.m. to get first pick of the clothes. Since then, many other top names have lined up to work with H&M, including Kylie Minogue, Madonna and Beyoncé. In 2009, Matthew Williamson, who has designed dresses for Sienna Miller, Keira Knightley and Penélope Cruz, reworked his most popular designs– kaftan dresses, beaded cardigans and print frocks–for the retailing giant. His designs sold out within hours of hitting the stores. In 2011 and 2012, H&M ran highly successful collaborations with the Versace and Marni fashion labels, in 2014 with Alexander page 37 Wang, in 2018 with Moschino and with Iris Apfel in 2022. H&M has invested heavily in social media to connect with its target audience. Fashion developments at H&M can be followed on Facebook, Twitter, Instagram, YouTube and Pinterest, as well as on mobile phone apps for iPhone and Android. Thirty six million fans follow H&M on Facebook, making it the industry leader, where they can find updates on new products and promotions. Its growing presence in global markets is supported in China by way of the Youku and Sina Weibo social network sites and in Russia through VKontakte (VK). The company has also made strides to improve its sustainability credentials. It launched an ethical fashion brand called Conscious Collection as part of its drive to become a more sustainable and ethical fashion retailer. The range is made from ‘green’ materials such as

organic cotton and recycled polyester. Its commitments include using more organic and sustainable cotton, educating farmers and developing the Sustainable Apparel Coalition, an initiative aimed at measuring the environmental impact of and labour practices for clothing and footwear manufacture. However, there is still a long way to go and some of the brand’s claims about the positive effects of its products on environment are not being well-received and in some cases fashion items have been found to contribute to pollution, and carbon dioxide emissions. Of the 3 billion garments produced each year, many items are quickly thrown away by buyers, which brings the notion of sustainable fast fashion into question.

Design at H&M H&M’s design process is as dynamic as its clothes. The 95-person design group is encouraged to draw inspiration not from fashion runways but from real life. ‘We travel a lot,’ says designer Ann-Sofie Johansson, whose trip to Marrakech inspired a host of creations worthy of the bazaars. ‘You need to get out, look at people, new places. See colours. Smell smells.’ When at home, Johansson admits to following people off the subway in Stockholm to ask where they picked up a particular top or unusual scarf. Call it stalking for style’s sake. The team includes designers from Sweden, the Netherlands, Britain, South Africa and the US. The average age is 30. Johansson is part of the design group for 15 to 25 year olds, and one style for the autumn they designed was Bohemian: long crinkled cotton skirts with matching blouses and sequinned sweaters for a bit of night-time glamour. Johansson was not pushing a whole look, knowing that H&M’s customers ad-lib, pairing up one of its new off-the-shoulder chiffon tops with last year’s khaki cargo pants, for instance. The goal is to keep young shoppers coming in to H&M’s stores on a regular basis, even if they’re spending less than £20 (€23) a pop. If they get hooked they’ll stay loyal later on, when they become more affluent. Not all designs are brand new: many are based on proven sellers such as washed denim and casual skirts, with a slight twist to freshen them up. The trick is striking the right balance between cutting-edge designs and commercially viable clothes. To deliver 500 new designs to the stores for a typical season, designers may do twice as many finished sketches. H&M also has merchandise managers in each country, who talk with customers about the clothes and accessories on offer. When they travel, buyers and designers spend time with store managers to find out why certain items in each country have or haven’t worked. In Stockholm, they stay close to the customers by working regularly in H&M’s stores. Still, Johansson and her crew won’t chase after every fad: ‘There are some things I could never wear, no matter how trendy,’ she says. Hot pants are high on that list. It’s safe to say they won’t be popping up at H&M any time soon. H&M’s young designers find inspiration in everything from street trends to films to flea markets. Despite the similarity between haute couture and some of H&M’s trendier pieces, copying the catwalk is not allowed, swears Margareta van den Bosch, who heads the H&M design team. ‘Whether it’s Donna Karan, Prada or H&M, we all work on the same time frames,’ she says. ‘But we can add garments during the season.’ In 2022 H&M teamed up with IKEA to create an ideas factory in a UK shopping centre that aimed to identify, mentor and promote designers and small-scale manufacturers. The first was opened in a IKEA store in London to provide a meeting place and workplace for designers and makers to form alliances, generate ideas and be an outlet for selling their creations. Successful projects will backed by up to £10,000 (€11,730) to help scale up to

commercially viable products, with training and mentoring provided by H&M and IKEA experts.

Cutting Lead Times and Costs and digitization Working with suppliers, H&M’s 21 local production offices have compressed lead times–the time it takes for a garment to travel from design table to store floor–to as little as three weeks. Of first-generation fast fashion retailers only Zara has a faster turnaround. Zara’s parent company, Inditex, owns its own production facilities in Spain’s Galicia, in page 38 Portugal and Turkey. In addition, the introduction of its own IT infrastructure Inditex Open platform is allowing Zara to shrink lead times to a week. Digital supply chain integration is transforming labour processes and working conditions. Radio Frequency Identification Tags, Cloud-computing and the use of robots in production and distribution have enabled restructuring of processes and facilitated even faster to market delivery times to enable H&M to combat competition from an increasing number of second generation Ultra fast fashion online retailers, which are delivering new products in under a week. These brands are using approaches which reduce inventories to a bare minimum as on-shore on demand supply networks can meet demand at an instant. Digitization is also enabling H&M and Zara to utilize the benefits of their extensive store networks by introducing omnichannel services, which means customers and ‘click-andcollect and ‘scan and buy’ (Lopez, Riedler, Kohnen & Futterer, 2021). H&M’s improved digitized supply network maximizes its ability to speedily churn out more hot items during any season, while minimizing its fashion faux pas. Every day, the company’s database provides itemized sales reports by country, store and type of merchandise. Stores are restocked daily. Items that do not sell are quickly marked down in price to make room for the next styles. Faster turnaround means higher sales, which helps H&M charge low prices and still log gross profit margins of 55 per cent. All major fashion retailers aim for fast turnaround these days, but H&M is one of the few in the winners’ circle. To keep costs down, the company outsources all manufacturing to a huge network of 1,500 garment shops located in 21 mostly low-wage countries, primarily Bangladesh and China. ‘They are constantly shifting production to get the best deal,’ says John Tisell, an analyst at Enskilda Securities in Stockholm.

Facing a New Reality H&M is a hugely successful company, but in 2017 it was faced with a new reality: for the first time in two decades it experienced its first quarterly drop in sales. Central to the problem was that the company was being squeezed from all sides. Online-only retailers, such as ASOS and Zalando, which offer free delivery and returns, have grown partly at the expense of H&M, which has responded by offering free returns if made within 28 days, matching ASOS’s returns policy. The company also launched a budget fashion range of floral prints in 2022, in response to the cost of living squeeze brought about by the rise in inflation to more than 10 per cent. Zara has proven a tough competitor, taking over the number-one position from H&M as the world’s largest fashion retailer, while Primark has taken sales by offering cheaper clothes.

Questions 1. To what extent is H&M market orientated? What evidence is there in the case to support your view? 2. What is the basis of the customer value H&M provides for its customers? 3. What are the marketing benefits to H&M of commissioning Karl Lagerfeld, Stella McCartney, Matthew Williamson and others to design limited-edition clothing ranges? 4. What benefits does digitization bring for H&M and its customers? 5. Do you consider the marketing of disposable clothes contrary to societal welfare? Justify your opinion. This case study was written by David Jobber, Emeritus Professor of Marketing, University of Bradford.

References Based on: Capell, K., Khermouch, G. and Sains, A. (2002) How H&M got hot, Business Week, 11 November, 37–42. Additional material from: Wilson, M. (2000) Disposable chic at H&M, Chain Store Age, May, 64–6; Jones, A. and Rigby, E. (2005) A good fit? Designers and mass market chains try to stitch their fortunes together, Financial Times, 25 October, 17; Venkatraman, A. (2008) Basic instinct, Marketing Week, 21 August, 27; Fisher, A. (2009) Woman who gave us the A-list look, Observer, 22 March, 21; Anonymous (2011) Global stretch, The Economist, 12 March, 77; Baker, R. (2011) H&M launches ethical fashion brand, www.marketingweek.com, 15 April; Arthurs, D. (2012) Sold out again? H&M strike gold once more with Marni collection, Daily Mail Online, 12 July, www.dailymail.co.uk; Neville, S. (2013) H&M goes R&B: Beyoncé’s fashion role, Guardian, 22 March, 4; page 39 Anonymous (2017) H&M, www.wikipedia.org/wiki/H&M; Milne, R. (2018) H&M faces up to a new reality, www.ft.com/content; Newbold, A. (2018) H&M teams up with GP & J Baker, www.vogue.co.uk/article; Anonymous (2022) Five year summary: about H&M, www.about.hm.com/en/About; Anonymous (2022) H&M is proud to release a playfully overthe-top collection with fashion icon Iris Apfel celebrating a century of personal style, www.about.hm.com/news, 9 March; Anonymous (2022) www.statista.com/statistics/268522; Butler, S. (2022) IKEA and H&M launch ‘ideas factory’ for local designers and creatives in London, www.theguardian.com/business, 7 April; Van Tulleken, D. (2022) H&M’s mood boosters (under £25), www.mailonline.com, 5 May. Lopez, T., Riedler, T., Kohnen, H., & Futterer, M. (2021). Digital value chain restructuring and labour process transformations in the fast fashion sector: evidence from the value chains of Zara and H&M, 16th December https://onlinelibrary.wiley.com/doi/full/10.1111/glob.12353; Shedndruk A (2022) Quartz investigation: H&M showed bogus environmental score for its clothing, https://qz.com/2180075/hm-showed-bogus-environmental-higg-index-scores-for-its-clothing/ 29th June;

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CHAPTER 2 The Marketing Environment Learning Outcomes After reading this chapter, you should be able to:

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A

market-orientated firm looks outwards to the environment in which it operates, adapting its practises and processes to take advantage of emerging opportunities and minimize potential threats. In this chapter, we examine the marketing environment by exploring major forces acting on companies, as shown in Figure 2.1. FIGURE 2.1

The marketing environment

Source: (t-b)ESB Professional/Shutterstock, (2)Vintage Tone/Shutterstock, (3)Evlakhov Valeriy/Shutterstock, (4)Dvande/Shutterstock, (5)samjapan/Shutterstock, (r)Glow Images

It has long been argued that the marketing environment consists of two dimensions made up of forces and actors that affect a company’s capacity to operate effectively. 1. The forces shaping the first dimension–the macroenvironment–affect not only the company but also the actors, the people and the businesses that trade in the global business environment. These forces should be monitored, as they can affect the success of a company. But the company has limited opportunity to resist change brought on by the forces. For example, the European Central Bank manages the euro, governs national banks across the EU and adjusts interest rates to control the money supply. An increase in interest rates will affect national economies and make the cost of borrowing higher. Companies with loans will incur higher bank charges and pay more interest, but have limited influence over the setting of the base rate, which controls interest rates. Traditionally, marketers’ attention has been drawn to four forces–political/legal, economic,

social/cultural and technological (PEST)–when carrying out a macroenvironmental analysis. However, the growing importance of ecological/physical environmental forces on companies has led to the acronym for this analysis being expanded to PEEST. The macroenvironment shapes the character of the opportunities and threats facing a company, and these forces are largely outside its control. 2. The actors shaping the second dimension–the microenvironment–are in the firm’s immediate environment and influence how it operates in its chosen markets. The key actors are customers, competitors, distributors and suppliers, and strategic partners. The company has influence over this dimension, which can affect the nature of relationships between actors. Actors will influence the choice of target market, channel relationships, supply and distribution, and competitive marketing strategy. Please note coverage of the actors in this chapter acts as a brief introduction. Actors are examined in greater detail later in the book: in Chapters 4 and 7, which examine the influence of customers on marketing decisions; Chapter 5 looks at value through relationships; the supply chain and distribution channels are covered in Chapter 16; and marketing strategy, planning and competitive forces in Chapters 17 and 18. The model of the marketing environment provides a broad framework to inform marketing managers’ decision-making. However, due to the dynamic page 43 nature of the environment, it is difficult to determine what is happening and how to respond. Uncertainty can delay exploitation of emerging opportunities and new markets, but it can also provide opportunities for agile and flexible firms. For example, while large established brands may hesitate over new market opportunities, smaller insurgent brands take risks and respond to opportunities. For example, Justin’s (organic peanut butter), e.l.f. (affordable beauty products) and Fever-Tree (quality tonic water and soft drinks) are companies that have grown rapidly by fulfilling unmet market demands. These smaller, dynamic and flexible firms challenge established market leaders with high-quality alternatives (Bain Insights 2018). The framework of analysis–the market environment–is used to structure this chapter, which explores the elements of each dimension. After that, we consider ways to map and monitor the influences and trends that have

meaning for marketing, planning and strategy, since failure to respond to a changing environment can lead to poor business performance.

Technological Forces and the Digital Revolution Technological forces are having far-reaching impacts on marketing. Each generation experiences technological change based around innovations that fundamentally alter how we live, and can have a significant impact on marketing practices. Digital technology is changing all aspects of life and how business is done, the products on offer, how we communicate, and much more. The rate of change and the speed of adoption of new products, services and ways of doing things have intensified. For example, the Internet of Things (IoT) is seamlessly linking digital devices to facilitate the development of many new products and services. Facebook has developed into a global social networking platform since its launch in 2004, when Mark Zuckerberg and his colleagues at Harvard created a means of linking together university students. Today, more than 4.62 billion people–58 per cent of the world’s population–are actively using social media. The rapid uptake of new digital technology is changing how people interact. Nearly 70 per cent of the world’s population own a mobile phone, and so can communicate, trade and interact via the web and social media while on the move (We Are Social 2022). The effects of digital technology on the trading environment are so far-reaching and complex they are generating opportunities to innovative strategic frameworks in marketing. Hoffman et al. (2021) argue digital technologies are changing processes in marketing and enabling firms to generate better market decision-making (see Figure 2.2, which shows how digital applications generate rich streams of big data, with details on every aspect of customer behaviour). New forms of data capture, video, audio and text, then enable firms to experiment and find the most effective marketing campaigns e.g. A/B testing (looking at different executions to find the best version of marketing messaging). This in turn leads to developing new methods for making decisions and achieving desired marketing outcomes. This part of the process of analysing customer

data, trialling new marketing applications, and finding the best versions is leading to better predictions of customer behaviour. FIGURE 2.2 Digital applications, data and customer decision-making

The next stage in the cycle is improved insights into the ways new technologies deliver benefits and then how the technology can be used to inform customer and firm decision-making, and, ultimately, better sales performance, use of resources, and more efficient and effective marketing strategies. For example, Babylon Health is a firm using artificial intelligence (AI) to provide medical expertise to people across the planet. The data generated by the widespread adoption of the service is analysed and is changing the processes involved in the provision of medical services at local, page 44 national and global levels. New processes and methods are being developed, giving insights that result in better service provision through the Babylon app, for example people can ask about a health condition, talk to a doctor and run a health check (see Exhibit 2.1). EXHIBIT 2.1

The Babylon app provides instant access to healthcare information

Source: Postmodern Studio/Shutterstock

Technology can have a substantial impact on people’s lives and firms’ fortunes. Technological breakthroughs have given us AI, virtual and augmented reality applications (VT and AR), blockchain robotics, body scanners, biotechnology, cryptocurrencies, mobile phones, computers and many other life-changing products and services. Many of these breakthroughs have changed the rules around competition: the launch of the computer and word-processing software destroyed the market for typewriters; robots are replacing humans in many manufacturing and information processes, but have created markets for intelligent products. Technological change can provide opportunities for new product development, create new markets, change marketing practices and communications, reshape cities and revolutionize society. Marketing-led companies seek not only to monitor technological trends but also to pioneer technological breakthroughs that can transform markets and shift competitive advantage in their favour. Innovations and technology applications are affecting every aspect of modern life–from the products and services we buy to the cities in which we live. Marketers should not only look for opportunities (and threats) surrounding their brands but should also seek to use technology to improve the efficiency and effectiveness of their marketing operations. Marketers should seek to keep up to date with technological innovations, changes and trends in the following areas.

Research and development

Technology investments require sound understanding of the market. Marketing research and development (R&D) staff should work closely together to ensure investments are purposeful and not just for the sake of technology. A classic example of a high-technology initiative driven by technologists rather than by the market was the turbojet-powered supersonic aircraft Concorde. Although Concorde was technologically sophisticated, management knew before launch it never stood a chance of being commercially viable. Development of the Airbus A380, the world’s biggest passenger plane, has been market-based and driven by the need for greater passenger comfort on long-haul flights, pressure to reduce carbon emissions and increasing demand for these flights. But even this aircraft is struggling to be commercially viable, as there have not been enough orders (Goldstein 2018). R&D in new technology can pay handsome dividends and secure market share. 3M is a firm known for its R&D, and its successes include Post-it notes, fuel cells, electronic circuits, light management systems, RFID tags, and recently respirators and healthcare products. R&D investment at 3M is carefully managed, but during the global pandemic the firm changed its approach from being inward looking towards a more outward, collaborative and co-creation model of working. 3M, together with the Ford Motor Company and Cummings Engines, designed an air-purifying respirator to improve personal protective equipment (PPE) for frontline healthcare workers caring for Covid-19 patients (Benjamin and Komlos 2020). Investment, or lack of investment, in high-potential technological areas can severely affect a company’s fortunes. For example, Sony–once regarded as a leader in high-tech product innovation–lost ground due to its lack of early investment in developing flat-screen TV liquid crystal displays, allowing Samsung to gain a competitive advantage in flat-screen TVs. Finnish telecommunications firm Nokia has, from its beginnings as a paper mill founded in 1865, repeatedly found new market opportunities to invest in to enable it to continue in its mission of creating technology that helps the planet. In the late 1990s Nokia became the world’s best-selling brand of mobile phone handsets, but then went through a period of complacency when it failed to monitor the competition effectively and demand for its handsets collapsed. In 2014 Nokia sold its mobile division to Microsoft. This was not the end, however, as Nokia invested in becoming a telecoms network hardware and software provider (Nokia 2022). This investment in

network technologies enabled Nokia to become a leading global player in 5G page 45 markets (Milne 2022). Digital technologies are continually creating opportunities for firms to develop new products, marketing tools and techniques. Innovations also occur in business models. Dell was a market innovator and, reinventing its supply chain, cutting out the middleman to sell direct to its end customers, creating an advantage over its competitors IBM and Hewlett Packard, while further R&D in the areas of cloud computing and AI is again transforming Dell’s fortunes (Bloomberg 2018). Innovations are not limited to technology companies. During the Covid-19 pandemic, global fast-food brands had to reinvent their business operations. Chipotle Mexican Grill invested in drive-through lanes named Chipotlanes to allow customers placing mobile phone orders to be served quickly without entering the fastfood restaurant (US Chamber of Commerce 2022) (see Exhibit 2.2). EXHIBIT 2.2 Chipotlanes speeded up fast-food collection during the global pandemic

Source: CC Photo Labs/Shutterstock

Information, data management and cyber security Technology affects how marketing is conducted as developments in information technology have revolutionized marketing practices. Information technology describes the broad range of processes and products

within the fields of computing and telecommunications. Accessibility of information has been used as a source of competitive advantage, and data warehouses are an important new technology offering firms potential to leverage such advantage from their information resources effectively. Data warehouses facilitate the sharing of information and enable information to be accessible at the point of need. Indeed, research has found that accessibility of strategic information can facilitate commercial benefits (Doherty and Doig 2011). Using better-quality information, and more insightful analysis managers, can lead to more informed decisions, save time, and make a greater contribution to corporate and marketing success. Information systems and data warehouses are used in many business, and new areas of market activity have emerged as a result. Software as a Service (SaaS) defines cloud computing as one such area, where many technology firms and innovative start-ups operate. Salesforce.com is one of the largest cloud-based firms, creating connected customer experiences using data automation to improve the efficiency of sales teams. Slack, a workplace messaging company, has pioneered new ways of communicating, working and bringing employees closer to their jobs. DocuSign built a company worth more than $42 billion by providing a way to securely sign documents over the internet. Coupa is used by Hilton Hotels to track business spending and is worth more than $22 billion. Other firms can use these services and, as a result, SaaS products are opening new markets and reshaping how some firms operate (Waters 2020). Developments in data analytics and AI are enabling marketers to use intelligent personalization to predict consumer demand. Many firms are using predictive analytics to reposition their brands, improve customer satisfaction and drive loyalty. Customer relationship management (CRM), also founded on data technologies, has enabled companies to improve communications and relationships with customers; this is discussed further in Chapter 5. Multichannel retailing is underpinned by information and data technology and is discussed in Chapter 16. As companies make greater use of individuals’ and firms’ data sources to develop new products and services, the value of the data grows and the need to protect data increases. Technology innovations are driving developments in areas of activity, which in turn increase the need for security in virtual environments (e.g. IoT, e-commerce trading platforms, AI, SaaS solutions). The global pandemic also heightened awareness of the need for security as

firms worldwide sent their workforces to work from home, where data and digital equipment was not necessarily as well protected as in an office environment (Fortune Business Insights 2022). Now read Hidden Gem 2.1 to find out more about Darktrace and cyber security. page 46

HIDDEN GEM 2.1

Darktrace: Hiding in Plain Sight Background Darktrace, a UK-based firm with headquarters in Cambridge, was started by a group of mathematicians, computer scientists and security defence experts in 2013. Led by Poppy Gustafsson, Darktrace has enjoyed significant growth, building up a customer base of 6,500+ in diverse industries including airlines, healthcare, governments and retail, in 110 countries, and with more than 1,700 technically skilled employees worldwide. The firm has been referred to at the UK’s most promising technology start-up and since 2015 has grown from a market valuation of $80 million to more than $2 billion in 2022.

Source: rarrarorro/Shutterstock Products Darktrace differentiates its product offer by incorporating self-learning AI into its products. This means the AI applications are constantly learning new patterns of behaviour in digital network environments, which can then learn and adapt to understand how data are normally used and accessed. Any deviation from normal patterns of behaviour is

automatically investigated and analysed. So, the products create a continual virtuous loop, which is seeking to detect, respond, heal and prevent cyber attacks. Conventional AI applications rely on established data sets and prior company knowledge, and so do not ‘learn on the job’. Darktrace’s Antigena is filling this gap in the market; it is an innovative product using autonomous response technology to enable companies to have proactive cyber defence across all parts of their digital infrastructures. The product works across cloud networks, SaaS solutions, email servers and internal computer networks to ensure a reduction in opportunities for hackers and cyber criminals to gain access to valuable data and information resources. The market The cyber security market is predicted to grow to over $400 billion by 2029, and the Covid-19 pandemic has accelerated demand for business security solutions. Firms are seeking ways to protect e-commerce platforms, wider use of AI, machine learning, cloud services, data storage and a range of other technology applications, which is also driving the growth of this emerging market. Customer submarkets can be segmented by business size–large, and small and medium-sized enterprises (SMEs)–and activity sector (e.g. financial services, retail, insurance, manufacturing, telecoms, healthcare, travel, transportation). Digital credentials Web: www.darktrace.com Social media: find Darktrace on Twitter and LinkedIn Blog: www.darktrace.com/en/blog Based on: Ram (2018); Bradshaw and Shubber (2021); Darktrace (2022)

Communication Digital technologies have created new forms of interactions. For example, traditionally, firms would communicate with customers in a one-way direction, but now it is possible for firms, consumers and other stakeholders to reach out to one another to engage in a multifaceted dialogue (Hoffman et al. 2021). Digital and mobile phone technologies enable firms to use new channels of communication and distribution (e.g. music downloads) to reach customers. New technology speeds up communications and enables multiple interactions using various media. In the multichannel world, we communicate and gather information from multiple points: websites, apps, a multitude of TV channels, printed publications and, perhaps more page 47 importantly, each other. Digital technologies have completely altered modes of communication, but in so doing are eroding the boundaries between the message, the media, the channel and the product.

The applications, issues and implications of digital communications technology are covered in detail in Chapters 12, 13, 14 and 15.

Society, technology and the sharing economy Society changes, and major events can quicken the rate of change and impact on the socio-economic environment. Digital technologies are becoming increasingly important in most sectors of economic activity. The internet has provided the impetus for many companies to rethink the role of technology and has also had a significant effect on society. For its users, the internet has not only provided the means to find, buy and sell products, but has also created an environment for building communities where like-minded people can network, socialize and be entertained. The emergence of social networking sites such as Facebook, LinkedIn, Instagram, TikTok and WeChat, and microblogging sites like Twitter has had a significant impact on global society. Social media have given a voice to masses of individuals, businesses and communities around the world, and their influence can be powerful. Social media has been used to communicate, organize protests, and influence politics and governments. It has also been argued ‘Social media is reshaping human language through the unprecedented mixing of idioms, dialects, and alphabets’ (Schillinger 2011), and this is bringing into question whether the technology will have long-term effects on the way we speak, write and listen. The importance for marketing of such developments is considered in detail in Chapter 15. The sharing economy is blurring the lines between macroenvironmental forces and is another game changer of the digital era. Lyft and Uber (transportation), Deliveroo (food services), Airbnb (accommodation) and WeWork (office space) are examples of firms that use digital platforms to provide services that offer temporary use of resources. Airbnb enables private renters to allow travellers to book a space in their home rather than a hotel or lodging house. Uber drivers use their own vehicles and connect directly with people looking for a ride. In the sharing economy there are resource providers and resource users, and technology platforms enable these two groups to find each other and make exchanges, blurring the boundaries between personal and professional areas of economic and marketing activity (Eckhart et al. 2019). For further discussion of this topic see Chapter 14 on digital marketing.

Smart cities Smart cities are the cities of the future. The idea is to create an infrastructure around technology that makes use of integrated digital technologies and innovations to provide a seamlessly connected city experience. The current vision includes robots, driverless cars, cashless payment systems, and items from street furniture, lamp posts, bike racks and traffic lights, to home appliances and transport systems, that utilize digital sensors, incorporated into the fabric of a place, or smart city, to offer a technology-enhanced existence. The vision offers great potential for marketers but also threats, as existing services are automated and replaced by new high-tech solutions. Nordic construction firm NNC is trialling ‘buildbots’ in a major building project in Helsinki, Finland. These buildbots use AI technology to capture every detail of a construction project and then create a digital replica, allowing NCC to monitor and review progress. The advantages are accurate reporting, better building safety compliance, more information for the project customers and taking errors out of the construction process, reduced build costs and shorter project delivery times (Geschwindt 2022). However, the use of buildbots can lead to initial complex contractual arrangements, which can slow the design and build part of the project and require more negotiation when bringing together a design and build project team. Some cities have made significant strides towards becoming smart. In Songdo, South Korea (Exhibit 2.3), pneumatic tubes take waste direct from homes, where it is then sorted, recycled and used in energy generation. A sophisticated water recycling system links to apartments which have heating and lighting that can be controlled via mobile phone. This part of Seoul was designed to be an attractive place to live, away from the polluted, crowded streets of neighbouring districts (Poon 2018). EXHIBIT 2.3 Songdo high-tech smart apartment blocks

Source: Stock for you/Shutterstock page 48

Economic Forces Economic forces impact on the success of firms through their effect on supply and demand, triggered by a combination of interest rates, inflation, growth rates, disposable income and more. Firms should monitor economic factors to be aware of the effect on their operations, and should be wary of making assumptions about the longer term, especially in periods of heightened volatility and uncertainty. Sudden changes in growth, inflation, interest and/or exchange rates can quickly alter the economic climate, so contingency plans are needed to cope with economy-induced upturns and downturns in demand. Firms need to monitor their national as well as international economic environment, and identify the opportunities and threats. For example, changing financial relations in Europe between the UK and EU post-Brexit have impacted economies at multiple levels. We will examine four major economic factors influencing the marketing environment in the UK and Europe: economic growth and unemployment; interest, exchange rates and inflation; the European Union (EU), the Eurozone and Brexit; and the growing and emerging economies.

Economic growth and unemployment The general state of national and international economies can have a profound effect on a company’s prosperity. Economies tend to fluctuate

according to the business cycle, although more enlightened economic management has reduced the depth of the contraction in some countries. Many world economies have gone through a period of growth since the mid1990s, driven partly by productivity gains brought about by developments in computing and telecommunications technologies. This growth was followed by a period of economic slump, which began in 2008 with a period referred to as the ‘credit crunch’; this was followed by deepening recession and the Eurozone debt crisis, which impacted on the worldwide economy. The world economy had been growing steadily, especially in emerging markets, but in March 2020 the Covid-19 pandemic caused dramatic economic impacts around the globe, and for the next two years there was much uncertainty and volatility in global economies (see Figure 2.3). FIGURE 2.3 Economic impact on the UK of the Covid pandemic

Source: Office for National Statistics, https://ons.gov.uk/economy/grossdomesticproductgdp/articles/coronavirusandtheimpacto noutputintheukeconomy/august2021

During periods of boom, well-managed firms experience an expansion in the demand for their products, while periods of slump may bring a decline in sales as consumers become wary of discretionary expenditures. A major marketing problem is predicting the next boom or slump. Investments made during periods of high growth can become massive cash drains when consumer spending suddenly falls. Retailers are often the first to be affected; Amazon, Carrefour, Tesco and Walmart are only too aware they must plan to

manage their national and international operations in anticipation of rising and falling consumer demand. Read Mini Case 2.1 to find out what happened when Covid-19 hit. page 49

MINI CASE 2.1

When Covid Came to Town Recently, many town and city centres around the world have been struggling to attract visitors and remain economically sustainable. High streets are often dominated by large high-street chains, and out-of-town malls located nearby have drawn shoppers away from urban centres. Transport, access and parking (or rather a lack of availability of these) create more challenges for shoppers, with the result that town centres have become increasingly unattractive locations. Decline has not been uniform and different centres have coped with these challenges in various ways: introducing street markets and seasonal events; creating pedestrian-only shopping zones; revitalizing the physical attractiveness of high streets through investment in public realm projects. But the arrival of the coronavirus (Covid-19) pandemic public health emergency in March 2020 provided new reasons for people not to go to town to shop (e.g. severe government restrictions with regard to social distancing, mask wearing and stay at home orders), causing footfall to fall by 57–75 per cent. Research looking into footfall patterns (Enoch et al. 2021) in six UK town centres showed while the relaxing of Covid rules had some effect on increasing the rate of recovery in shopper footfall levels, in other towns many people were reluctant to return to town centre shopping. In fact four of the towns in the study showed no obvious change in the footfall gradient as the rules were relaxed. An explanation for this behaviour is ongoing fears of becoming infected by the virus when mixing with people, discomfort at being required to wear face masks in enclosed spaces and/or being more comfortable with using online shopping as an alternative.

Shopper reluctance suggested a slow, drawn-out ‘L’-shaped economic recovery (as can be seen in the above diagram) from the pandemic rather than a rapid ‘V’-shaped recovery, as had been hoped for in the early days of the pandemic. The threat of Covid-19 in the UK, throughout the rest of Europe and around the globe has continued into 2022, and more lockdowns remain a possibility. So, towns and city shoppers have had to adapt to a ‘new normal’ and be prepared to handle restrictions as and when they are applied. Overall, firms and town centre strategists are considering how to manage their places over the medium and longer term. For firms, it is essential to understand consumer behaviour in this new era of shopping and to identify how customers might perceive the new risks associated with shopping, for example catching Covid-19/meeting someone with Covid-19. Also they need to assess how further government interventions might impact on customer accessibility to stores and on their business models (which vary by type of operation). For instance, a retailer needing a low volume of customers due to selling high-value items (e.g. jewellery) may be better placed to survive than a shop selling greetings cards, which needs a regular and high flow of customers. page 50 Meanwhile, operationally, there are issues of how to cope with the cost of implementing government policy (screens, labelling, one-way systems), how to manage highly fluid changes (e.g. the application of local and regional lockdowns) and channel management, most particularly in terms of whether to continue to rely on face to face transactions or to switch to online. In summary, retailers that survive are likely to be those that are highly adaptive and that have the financial resources and managerial capabilities that enable them to do so in a very different retail environment once Covid-19 has been to town. Town centre managers also need to consider the role of footfall in their future regeneration strategies and the impact of new patterns of consumer behaviour after

Covid-19. For instance, there could be a refocusing of energies away from relying on large-scale events such as river festivals and book fairs, and towards other ways of establishing value and maintaining viability. Given the new focus on social distancing, there is also a clear need for new (more flexible) approaches in how both indoor and outdoor space is managed and used. Finally, it also highlights the challenge policymakers face in persuading citizens to adjust their behaviour–in this case it proved to be much easier to force people not to go to town centres than to encourage them to return.

Questions: 1. The Covid-19 pandemic has been described as a once-in-a-lifetime global event. Discuss why not all shoppers were keen to return to towns to shop once restrictions were lifted. 2. Suggest how marketers, retailers and town centre managers might overcome shopper resistance to reinvigorate local town centre economies.

Based on: Enoch et al. (2021)

Within an economy, different sectors experience varying growth rates, leading to changing degrees of market attractiveness. For firms selling commodities (raw materials and primary products such as electricity, oil, grain, precious metals and orange juice) there has been low-level growth, relatively stable demand and readily available supply, which has meant comparatively low market volatility. But major global events disrupted supply in 2020: the global pandemic caused supply chain disruption and economies to come to a standstill. Silicon, for example, is a commodity used in most digital devices around the world. Silicon-based semiconductor chips are widely used in consumer, industrial, transport and healthcare technologies. Covid affected supply chains, production and manufacturing as international borders and factories were closed, which caused major shortages of semi-conductor chips for everything from mobile phones and cars to medical ventilators. In 2022, the Russia–Ukraine conflict affected the price of grain. These two countries produce about 25 per cent of the world’s grain supplies–Ukraine is a major exporter of corn, wheat and sunflower oil, and Russia is the world’s biggest exporter of wheat–so the unrest has had a significant impact on this $120 billion market. The supply chains of these valuable commodities were halted, and grain production disrupted, which resulted in blockages, limited supply and significantly rising grain commodity prices, which impacts manufactured food prices, while a

significant drop in exports could affect global hunger (Durisin et al. 2022). See Figure 2.4 for the world’s major wheat producers. FIGURE 2.4 Fall in wheat production as a result of Russia–Ukraine conflict

Source: Dimitrios Karamitros/Shutterstock

The services sector has experienced rapid growth in recent years. In the EU in 2022, services account for more than 73 per cent of gross value added (GVA) compared with 7 per cent in 2005 (Eurostat 2022a). GVA is a productivity measure of the value of goods and services. Low growth rates tend to reflect high unemployment levels, which in turn affect consumer spending power. The 2008–13 recession caused unemployment rates to rise and consumer spending to fall in many European economies, for example in Greece, Portugal and Ireland. Since 2014, the picture has been improving, with falling unemployment rates across Europe and, even though the pandemic caused a rise in 2020, by 2022 unemployment was down to 6.2 per cent (Eurostat 2022b). Covid-19

shocked European economies and caused uneven economic recovery. Activity sectors (e.g. leisure, travel and tourism), where personal contact is high, have been slower to return to pre-pandemic levels than those in manufacturing. Governments across Europe have invested heavily in employment retention schemes, to avoid economic collapse (IMF 2022). The UK’s withdrawal from the EU has affected immigration and migrant workforces, and there are shortfalls in the supply of truck drivers, seasonal workers and workers in low-paid jobs (Tetlow and Stojanovic 2018). Brazil, as an emerging economy, faced difficult economic challenges relating to Covid-19, across health, society and social care. The country made progress in poverty reduction, but high Covid death rates have meant challenges when it comes to protecting the poor while ensuring economic stability (World Bank 2021a). page 51

China’s economic growth came back strongly after the pandemic in 2020, but a slowdown caused by a reduction in exports and further outbreaks of new variants of the coronavirus that causes Covid-19 point to further economic instability (World Bank 2021b). In India, economic growth is positive, and employment and spending are on the increase. Strong exports and domestic investment have seen production increase and overall economic growth (Majumdar 2022).

Interest, exchange rates and inflation A key monetary tool governments use to manage economies is interest rates. Interest rates represent the price borrowers have to pay lenders for the use of their money over a specified period of time. Most western economies have had low interest rates to encourage borrowing and lending in an effort to avert a major slump in consumer and business demand. The European Central Bank (ECB) has a target interest rate of 2 per cent. An exchange rate is the price of one currency in terms of another (e.g. an exchange rate of £1 = €1.20 means that £1 buys €1.20). Fluctuations in exchange rates mean the price a consumer in one country pays for a product and/or the money that a supplier in an overseas country receives for selling that product can change. For example, if the exchange rate between the

pound sterling and the euro changes, such that a pound buys fewer euros, a German car manufacturer that receives payment in euros will receive fewer euros if the price of the car remains unchanged in the UK. In an attempt to maintain a constant euro price, the German car manufacturer may raise the UK pound sterling price to UK distributors and consumers. The following example illustrates these points. At £1 = €1, a German car manufacturer would receive €10,000 for a £10,000 car. If the exchange rate changed to £1 = €0.5, the German car manufacturer’s receipts would fall to €5,000. To maintain euro receipts at €10,000 the UK price would have to rise to £20,000. page 52

The Exchange Rate Mechanism (ERM) in the European Union seeks to reduce variability for countries in the Eurozone. However, the rates at which major currencies such as the US dollar, the euro, the pound sterling and the yen are traded are still variable. As seen in the example above, this can have significant implications for sales revenues and hence the profitability of a firm’s international operations. Inflation is another economic factor, closely linked to interest rates, which are used to stabilize an economy. Inflation is a measure of the average price of goods (typically bought by consumers in a year) and in the UK is tracked by the Consumer Price Index (Institute for Government 2022). Inflation can have far-reaching impacts: in 2022, for example, US and UK inflation rates reached over 7 per cent, a rate not experienced for more than 30 years. In the EU inflation was 6.2 per cent, in Turkey inflation rose to 48 per cent, in Brazil to 10 per cent and Mexico to 7.4 per cent, whereas in China it was 1.5 per cent. This situation has been compounded by the Covid19 pandemic, which contributed to the imbalance in supply and demand. To keep prices in check and to stop the economy expanding too rapidly, interest rate rises slow things down but make everything more expensive. Now read Marketing in Action 2.1.

MARKETING IN ACTION 2.1

The Impact of the Cost of Living Crisis

The cost of living affects most individuals’ spending behaviour, and our ability to pay for food, energy bills and other household expenses. When inflation increases it costs more to pay for the things we need and so the cost of living goes up. This puts pressure on income, and workers look for wage rises to pay for their daily needs. If we cannot afford the items, we need we look to make savings, cut spending and reduce outgoings to manage the impact of rising inflation and interest rate raises, which can cause the economy to slow down. A cost of living crisis refers to a real drop in household incomes. According to the ONS (2022), inflation is likely to impact more on poorer households as they have less flexibility in their household budgets than higher income households, which are more able to absorb higher prices for foods and energy bills. In such economic circumstances, when consumer confidence starts to wane shoppers spend less on going out, purchasing major items, holidays and subscriptions (Jefferson 2022). So, marketers should consider their options. At fashion brand Weird Fish, a marketing decision was made to freeze the prices of its summer ranges to help support its loyal customer base, in an attempt to encourage shoppers to continue to spend (Nazir 2022). To help maintain prices, UK supermarket retailers from Tesco to Sainsbury’s and Asda cut back on staffing costs by removing fresh food and meat counters, which carry higher-priced food items, to concentrate on more profitable areas of their stores. Other cost-cutting initiatives include increased use of self-scanning payment systems for shoppers, and automation of warehouses and stockrooms (Butler 2022).

Source: Lightspring/Shutterstock

The EU, the Eurozone and Brexit The EU is a massive–largely deregulated–market, and it has far-reaching implications for marketing, as the barriers to the free flow of goods, services, capital and people among the member states are removed. A key objective of the EU is to lower the costs of operating throughout Europe and to create an

enormous free market in which companies can flourish. As we have already seen, competition is encouraged through the enactment and enforcement of laws designed to remove restrictive practices and other competitive activities. The EU currently consists of 27 member states, and it is continually expanding. Table 2.1 shows the spread of the current member states and when they joined. page 53

TABLE 2.1 EU member states Membership year

Member states

Population (millions)

Founding members

France, Netherlands, Belgium, Luxembourg, Germany, Italy

235

1970–1980

Ireland, Denmark

 72

1981–1990

Spain, Portugal, Greece

 69

1991–2000

Austria, Sweden, Finland

 23

2001–present

Poland, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Slovenia, Romania, Bulgaria, Cyprus, Malta, Croatia

107

Total

506

Statistics source: http://europa.eu/about-eu/countries/member-countries

As the EU has expanded, new member states have contributed to the development of the community and economic growth of the union. Expansion to include eastern European countries has brought a low-cost, technically skilled workforce that has proved to be competitive with those in China and India. The strengths of the economies of member states have been boosted by EU membership and have led to considerable inward investment–for example, the Korean firm LG Electronics, which is one of the world’s largest producers of TVs, committed to investing US$110 million to build a plant in Poland to produce plasma LCD TVs and batteries for electric cars (Gottig 2017).

The Eurozone is an economic and monetary union between 19 of the member states of the EU. Each state has adopted the euro (€) as a common currency, which is managed and controlled by the European Central Bank (ECB). A primary responsibility of the ECB is to control inflation and interest rates, and manage debt and economic reforms. It has a target interest rate of 2 per cent. A common currency brings advantages through facilitating the flow of free trade within the community. However, turbulence in economic markets has exposed weaknesses in areas of the Eurozone, which potentially have far-reaching implications for economies around the world. Brexit, which refers to the vote by citizens of the UK in the referendum held on 23 March 2016 to leave the EU, has caused disruption. The UK left the EU on 31 January 2020. The total economic impact on the UK and the 27 remaining member states is unclear, but according to Tetlow and Stojanovic (2018) areas of change include: Trade, which relies on overseas buyers exchanging goods and services. Prices are affected by transport costs, tariffs (imposed on import/export goods) and non-trade barriers, for example product standards, which vary from country to country. The benefit of countries being part of the EU is that, over time, agreements have been reached for all EU members. Trade in the Eurozone has largely recovered from the Covid-19 pandemic, but the UK has had a more varied recovery now it is outside the EU: its economy was up in 2020 but fell back in 2021. And exporting to the EU has become more complex, which has pushed up costs for UK firms, especially small and medium-sized enterprises (SMEs). Furthermore, supply chains are affected as countries tend to trade with their neighbours, as there are benefits in transport costs, similarities in demand and strong linkages for movement of goods. For the UK, 50 per cent of its imports came from the EU and 47 per cent of exports went back to the EU in 2019. But Brexit has pushed up the cost of this trade (Flach 2022). Foreign direct investment (FDI), which is important for long-term economic growth. The UK is one of the biggest beneficiaries of FDI, as more than 42 per cent of FDI comes from other EU countries. Leaving the EU means the UK is less attractive for this form of investment, because, as a member, the UK benefited from free movement of capital, relatively frictionless trade between member states, and common regulations for the movement of goods across established complex supply chains within

Europe. Leaving the EU has meant new customer regulations, border controls and procedures for UK firms. Regulations, which determine how domestic firms can use their workforce, capital and technology resources. The UK leaving the EU has meant there is no longer free movement of services and people. If a UK citizen wishes to join the EU workforce, and vice versa, they will have to apply for a work visa if they wish to work. Currency valuations, since the value of sterling–which is not part of the Eurozone–floats against the euro and other international currencies, a weaker pound puts pressure on the price of imported goods, and consumers experience higher prices on the high street for some goods. On a positive note, exports from the UK are cheaper, which makes it easier to sell goods overseas in these circumstances. Global events impact on currency valuations (not just Brexit), for example the UK’s handling of page 54 the Covid-19 pandemic and the rapid roll-out of its nationwide vaccination programme had a positive effect on the value of the pound against the US dollar and the euro. However, the UK economy is still to recover fully from the pandemic and this is holding down the value of the pound against other currencies.

Growing and emerging economies Emerging regions of the global economy are growing in importance, opening markets to new consumers, providing sources of skilled labour and creating opportunities for new companies to become significant global players. It is predicted, by 2025, seven out of ten new large companies will be based in these regions. But while there are significant opportunities in emerging markets, there is also increased risk–as you will discover when reading more about emerging economies, below. By 2040, Asia is predicted to account for 50 per cent of global GDP and 40 per cent of world consumption of goods, and this is causing a shift from west to east (Tonby et al. 2019). Exhibit 2.4 illustrates the shift of economic activity towards Southeast Asia. EXHIBIT 2.4 The McKinsey world economic centre of gravity

Asia: China, India and South Korea The economies of both China and India are growing at high and consistent rates. Both nations possess considerable strengths in low-cost labour, but increasingly also in technical and managerial skills. China possesses strengths in mass manufacturing and is currently building massive electronics and heavy industrial factories. India, on the other hand, is an emerging power in the software, design, services and precision industries. These complementary skills are persuading multinational firms to have products built in China with software and circuitry designed in India. Both countries are enjoying growth in production and more consumption of manufactured goods by domestic consumers, which means they are less reliant on expensive foreign imports. China and India not only pose threats to western companies, they also provide opportunities for international firms. Chinese consumers are spending their growing incomes on all manner of consumer durables, from cars to shampoo. The Chinese buy more cars than the Americans (13.5 page 55 million compared with 11.6 million), and western brands are becoming increasingly popular–from Burberry to Tesco, Bosch,

Nestlé and Procter & Gamble–as well as healthcare and entertainment brands (Hancock 2018). However, companies wishing to expand in these booming markets must do adequate research, as it is important to get things right. Marks & Spencer made a mistake in opening its stores in China, as it filled its rails with clothes of the wrong sizes. Chinese women are smaller and slimmer than European women and have smaller feet. In fact, many Chinese students studying in the UK buy their shoes in children’s shoe shops (Muller 2011). In India, the economy is growing at a faster rate than in China, with manufacturing and construction industries making a significant contribution (Lyengar 2018). Consumer markets are also growing rapidly. In India, Nestlé operates factories making many dairy products and chocolates, while Hindustan Unilever is another European firm taking opportunities in India to create competitive advantage. In India, preferences for soap and shampoo vary much less than people’s taste in food, so Unilever is doing even better than Nestlé, with an 18 per cent increase in profits. China’s and India’s economies are not just booming in the physical world but are also rapidly expanding online and in mobile markets. Read Marketing in Action 2.2 to find out more about online shopping and social networks in China.

MARKETING IN ACTION 2.2

China: The Greatest Connected Market in the World? Ten years ago, fewer than 3 per cent of the Chinese population were online (about 33.7 million people). China’s online economy now accounts for nearly 8 per cent of national GDP and is aiming for this to be 10 per cent by 2025. Around 80 per cent of adults in China’s largest cities regularly shop online, and it is predicted individual consumer spending is increasing to around the equivalent of $1,000 a year. The boom is being driven by the Chinese government, which is heavily subsidizing the roll-out of high-speed internet access, and, surprisingly, by the inefficiency of existing bricks-and-mortar retailers. Many shoppers go online because they cannot find goods in stores.

Source: zhu difeng/Shutterstock Alibaba is an online firm and part of China’s growing digital economy. According to founder Jack Ma, ‘In other countries, e-commerce is a way to shop, in China it is a lifestyle’, and Alibaba has become the largest e-commerce company in the world, generating most of its profits from advertising revenues. As well as shopping, the Chinese have taken to socializing and sharing information online; shoppers are fearful of being tricked by fraudsters, so they like to share their experiences. According to research, more than 40 per cent of online shoppers read and post product reviews. Social networking, like e-commerce, started slowly, but there are now three large social networks in China: QQ, Weibo and RenRen. Weibo is the Chinese equivalent of Twitter, and its top stars have more fans than their celebrity counterparts on Twitter. Also, there are more than 200 million people with a social network account. Facebook, Twitter and YouTube are banned in China, which has created an opportunity for these home-grown networks to emerge. Furthermore, Chinese society is being changed extensively by the internet. Traditionally, families were reluctant to socialize with those outside their known circle of close friends and family, tending to be shy and reserved. However, families now use social networks to organize holidays and find families with similar interests from distant towns, arranging to meet, share car journeys and lots more. Based on: Muller (2011); Stanley and Ritacca (2014); Economist (2017); Chaffey and Ellis-Chadwick (2022); Reuters (2022)

India’s mobile phone industry is second only to that of China. India produced more than 161 million smartphones in 2021–a 7 per cent annual growth rate. Adoption of 5G networks is driving growth, as is consumer demand for handsets with additional features, better battery life and faster processors (Anand 2022). India has more than 1.2 billion active mobile page 56 phone subscribers (including 750 million smartphone users). Greater use of online channels and internet-enabled devices providing access to financial, health and educational services in more rural

areas is also expanding the market (Business Standard 2022). Indian telecoms company Reliance Jio is the main mobile network operator in India, bringing phone access to everyone regardless of where they live. Bharti Airtel is the second-largest network provider. In 2017, British mobile phone operator Vodafone merged with India’s Idea Cellular to form Vodafone Idea, which in turn merged with Aditya Birla in 2018 to form the country’s largest telecom operator; it has since developed its mobile provision in India and significantly grown its market share. It can be challenging for international competitors trying to operate in or enter the mobile market in India; there are profits to be made, even though massive investment is required to improve network operations and services. Vodafone invested £1 billion into the aforesaid Indian merger (Thoppil 2018). There are also major cultural and logistical barriers to overcome, although this applies to both online and offline markets. The retail industry in both China and India is underdeveloped. There are potentially big opportunities for western retailers (especially supermarkets) to enter Asian markets. However, in the Indian subcontinent, ‘there are 20 officially recognized languages, 14 main types of cuisines and countless religious and ethnic festivals as well as a passion for cricket’ (Economist 2011), which presents enormous challenges when developing a national retail operation. Western companies need to understand the importance of culture in both India and China if they are to succeed. In China, guanxi networks are important. Guanxi is a set of personal relationships/connections on which a person can draw to obtain resources or an advantage when doing business. Guanxi is one reason why working with a Chinese partner is usually better than going it alone. When entering into business relationships, the Chinese seek stability and trust more than intimacy. They want to feel comfortable that western companies will not spring surprises that may hurt them, but they do not need to feel they are a company’s best friend. It is claimed that the failure of Rupert Murdoch’s News Corp to penetrate China was largely because the company did not spend enough time and effort on building guanxi. South Korea is an emerging market, its turbulent political history and poverty held the country back for many decades, but it has emerged to become a leading global economy worth more than $1.6 trillion. Key activity areas are services and industrials, with some agriculture, which is dependent on government subsidies. This nation has developed a highly effective

business culture, which is innovative and friendly towards foreign investment. South Korea’s largest industries are electronics, cars, telecommunications and shipbuilding, and it is home to globally recognized brands such as Samsung Electronics, Hyundai and Kia (Bajpai and Hvilhaug 2021). Exports have been a main driver of economic growth at over $55 billion, with cars, ships and vehicle components being among the most popular items going to China, the US, Vietnam and other parts of Asia (OEC 2022).

South America: Brazil and Mexico Brazil’s economy had been seen as one of the strongest in the region and the country contributed to global growth. Hosting the FIFA World Cup in 2014 and the Summer Olympic Games in 2016 were symbols of the country’s economic achievements. But recovery from a recession in 2016 is slow, and corruption, international sanctions and political instability have hampered business growth and opportunities. Nevertheless, Brazil remains the eighth largest economy globally (World Facts Book 2022). Brazil’s industry is linked to agribusiness and other primary products. Its main outputs are sugar, steel, oil and iron ore. It also has an important technological sector that ranges from submarines to aircraft, and is involved in space research. Its economy has benefited from high levels of foreign investment by such companies as Procter & Gamble, IBM, Ford, DuPont, Anheuser-Busch, InBev and PepsiCo. Among its largest companies are Petrobras (energy) and Vale (material), Itaú Unibanco Holding (finance) and BRF–Brazil Foods (consumables). The country is also a major producer of ethanol, a sugarbased biofuel. Foreign direct investment has slowed significantly since 2011, but Brazil remains an attractive market for international investors as its domestic market has 210 million people, and the country has many natural resources and raw materials that are easy to extract. Mexico, a developing nation, is trading in global markets and increasing foreign exports, which allows the country to be classified as an emerging economy. Its economic growth rate is strong, but it is the pace of development that suggests its future economic performance. Mexico is developing trade deals with the US and Canada, and has a strong manufacturing industry. Even so, poverty remains a big problem, so there is

scope to improve on the Human Development Index, which measures social and economic development (Reiff and Munichello 2021). page 57

Political and Legal Forces Political forces are complex, interrelated with legal and economic forces, and it can be difficult to determine their overall impact, but it is important to recognize governments’ powerful influence over the stability and prosperity of nations. Political factors with implications for marketing are as diverse as tax policies, government regulations on employment, health and safety, competition regulation, threats to national security, climate change, gender equality and personal privacy. We examine four key areas: politics and the economy; regulation, political stability; responding to risk factors.

Politics and the economy Government orientation and ideology dictate the economics of a country, for example a largely socialist society (e.g. China, Vietnam) will have greater intervention from its government, whereas a largely capitalist society will lean towards private ownership and free markets (e.g. UK, US, Canada). Whatever the political orientation, it is the responsibility of governments to manage the national economy. This will usually involve taxation, and other monetary tools like interest rates (discussed in the previous section). Changes in the price of goods lead to changes in household expenditure, and taxes impact on the amount paid. Now read Marketing in Action 2.3.

MARKETING IN ACTION 2.3

VAT Taxes the World

Source: Bakhtiar Zein/Shutterstock Value Added Tax (VAT) or Goods and Service Tax (GST) is a tax paid by firms and citizens in most countries around the world. VAT/GST is a tax paid on goods and services, and is effectively an indirect levy on consumption. The amount of tax paid depends on the ‘value added’ at each stage of production until the item or service reaches the end consumer. Some goods are exempt from VAT/GST, for example secondhand goods (as the tax has already been paid by the original end user), insurance and education training. Such exceptions vary by country, as do the reduced rates that apply (see Table 2.2).

TABLE 2.2 Varying rates of standard VAT and reduced rates in selected European countries Austria

20%

10/13%

Belgium

21%

 6/12%

France

20%

5.5/10%

Netherlands

21%

  9%

Poland

23%

  5/8 %

Sweden

25%

 6/12%

UK

20%

  5%

Taking the example of the purchase in the UK of a pair of socks, payment of VAT is shared thus: end user pays £12.00

retailer pays £2.00 (20 per cent of the final purchase price) but claims back 60p (20 per cent of the price paid to the supplier for the socks which cost £3.60); so the retailer’s total payment to the VAT office is £1.40; the supplier will make similar calculations when paying the manufacturer, who will also have paid VAT on the raw materials used to manufacture the socks. page 58 VAT is a tax that impacts on the price of goods and services. During the Covid-19 pandemic the UK Government reduced the rate paid to 5 per cent in the hospitality sector, to help businesses struggling from the effects of lockdowns and social distancing measures, which had reduced the capacity of most bars, restaurants, hotel accommodation and more. As soon as the pandemic was deemed to be over, VAT returned to the 20 per cent rate. This was a relatively short-term application of VAT rate variation to impact on the economy. In 2022 the EU set about modernizing VAT rules for a longer-term impact. Member states are being given more flexibility in the rates they have to charge (at least 15 per cent), creating more opportunities for applying reduced rates (at least 5 per cent). Furthermore, member states can set zero rates in healthcare systems, to support health and well-being of EU societies and the sale of environmentally friendly goods like solar panels, electric bikes, and waste and recycling services. Whether VAT rates are varied in the long or short term, it is an important tax for politicians, citizens and the economy. Based on: Asen (2021); Baker McKenzie (2022)

The EU is constantly looking at political and economic governances and has themes it wishes to focus on for future investment strategies, such as inclusion, green and digital transition. The EU wants to ensure recovery from the pandemic and resilience to risk and uncertainty in the macroenvironment. Once its strategies are agreed, investment and support will be made available and there will be opportunities for firms able to meet the EU’s political aims (De Angelis et al. 2022). Equal participation is also central to political decision-making in the UK, meaning, whatever a person’s gender, they should be able to engage fully in daily life on an equal footing. However, ensuring this is the case can mean making changes to overturn engrained attitudes and stereotyping. UK retailer John Lewis Partnership launched a range of gender-neutral children’s clothing; it said labels on its own-brand ranges would not say ‘boys’ or ‘girls’ and there would be no binary division in the merchandising of these garments (Pearson 2017).

Regulation Governments tend to intervene in market activities to correct market failures, and to prevent future negative impacts on society (Jean Kwon 2013). There are many areas of regulation, which are usually the implementation of a particular law (see the next section for further discussion). For example: Minimum wage regulations are controlled in the UK under the National Minimum Wage Act 1998. Under these regulations, amendments can be made to the rates paid to workers without changing the legal act. These regulations are important as they protect workers and specify the minimum amount they can be paid for each hour they work. The regulations determine the rate paid depending on age. The National Living Wage applies (over the age of 23), which is based on the cost of living. The UK Government introduced this to reduce reliance on government subsidy via the benefit system (UK Government 2022). Many firms pay the living wage as they believe their staff deserve to be able to afford to live and work (Living Wage Foundation 2022). In 2021, the EU drafted a new minimum wage law to ensure all its citizens receive wages that afford them a decent standard of living (De Boer 2021). Antitrust regulation aims to ensure companies can compete effectively. The EU Commission has rules that prohibit firms making agreements that might restrict competition, and also prohibit a firm from holding a dominant market position, which might lead to unfair pricing or control over production, or might stifle innovation (EU Commission 2022). In the UK, the Competition Act 1998 follows similar regulations. Alphabet Inc. (Google’s parent company) was fined $2.8 billion when a ruling by EU legislators found the firm guilty of giving preferential treatment to its own online shopping services (Santariano 2021). There are regulatory bodies in every area of public social activity, from healthcare and the prison service to gambling and food standards. Firms should be aware of the regulations and standards that apply to the markets they trade in. There are also regulatory bodies, which control the behaviour of firms in specific industries, for example in the UK the Financial Conduct Authority (FCA) is a regulator for the financial services industry, the Civil Aviation Authority (CAA) regulates civil aviation in the UK and the Advertising Standards Authority (ASA) is a self-regulatory organization that oversees the communications industry. For example, promotional marketing

campaigns using prize draws must ensure a random process is used to select the winner, so when Bellatricks Limited ran an Instagram Stories competition and was challenged by participants over the fairness of the selection process, it was discovered by the ASA that a member of staff had page 59 selected the winner by scrolling through Instagram posts. The ASA found Bellatricks Limited had breached the CAP code (the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing) and the firm was asked to ensure compliance for future campaigns (ASA 2021). There is further discussion of advertising and regulations in Chapters 12 and 13 (see Exhibit 2.5). EXHIBIT 2.5 The Advertising Standards Authority (ASA) is a self-regulatory body that oversees the communications industry

Source: Sohel Parvez Haque/Shutterstock

Stability Political stability affects the appeal of markets, especially with regard to financial investment and development in new and emerging markets. Uncertainty and unrest will not be a good condition for economic growth as financial crashes often result. For example, in 2008 far-right political thinking gained ground as bank bailouts, public debt and austerity measures had taken hold and increased public feelings of inequality in society. The financial crash that followed led to political polarization, making it more difficult for governments to control their nations, and recovery took many

years (Funke et al. 2018). More recently, the Covid-19 pandemic destabilized economies and stock markets around the world. The FTSE (UK), Dow Jones Industrial Average (USA) and Nikkei (Japan) collapsed, with dramatic falls in the value of shares in March 2020 (Jones et al. 2021). The subsequent responses of governments to the pandemic had major economic impacts. In the UK, a furlough scheme was developed to help retain workers, across all industries (e.g. retail and manufacturing), with the government effectively paying the wage bill for the majority of UK private firms as it sought to protect the future of the economy between March 2020 and September 2021 (Clark 2021). Marketers are unlikely to include a global pandemic in their regular monitoring and analysis of the macroenvironment, but should be prepared for the unexpected, be flexible and able to respond to dramatic events, and have sufficient resources and capability to continue in unstable times. Global pharmaceuticals manufacturer AstraZeneca responded almost immediately to the situation by revising its partnership agreements, investing heavily in vaccine production and committing to make millions of doses of coronavirus vaccine available to the world (AstraZeneca 2020).

Responding to risk factors Global warming and the politics of climate change are a source of regular action and debate. Scientists, environmental agencies, charities and activists support strong interventions to abate the effects of the changing environment as the risks of not responding are becoming too great. In November 2021, world leaders and politicians came together at the UN Climate Change Conference of the Parties (COP26) in Glasgow, a global summit on addressing the impact of climate change. The 200 nations represented reached agreement on the Glasgow Climate Pact, which sets out how to tackle climate change, and the Paris Rulebook, which provides greater transparency, common time frames for emissions reductions, and standards for international carbon markets (Carver 2022). For businesses, climate policies can mean adapting the manufacturing process, and can require significant investment and adjustment to how products are made. But there are also opportunities to develop products that are sustainable: Allbirds is a US-based footwear brand that uses sugar cane, eucalyptus pulp and wool in the making of its trainers; Neste is a Finnish company producing diesel from

100 per cent renewable raw materials, which can cut carbon emissions by up to 90 per cent compared with fossil fuels.

Legal forces Legal factors involve laws, licences, permits and intellectual property rights, which control how firms and individuals should behave and can influence marketing decisions by setting the rules by which business is conducted. For example, smoking bans in public places can have dramatic short- and longterm effects on the demand for cigarettes and on opportunities for introducing new products such as e-cigarettes, which are changing people’s behaviour (from smoking to vaping). page 60

The UK legal system The UK has separate legal systems (jurisdictions) for England and Wales, Scotland and Northern Ireland. Laws set out the rules and responsibilities, and cover all areas of economic and social activity. Firms operating in the UK should comply with laws relating to the firm, its operations and employment of workers. They should also comply with laws affecting trading, for example consumer law, product and services standards, intellectual property, competition law, importing and exporting. Details of laws in each jurisdiction of the UK should be considered. Firms that are unaware of or break these laws can suffer considerable financial and reputational damage.

EU-wide laws EU laws exist at two levels: 1. those that are binding on all member states 2. those that are enactments of a law within the member state. A major influence at the European level is EU competition, based on the belief that business competitiveness benefits from intense competition. The role of competition policy, therefore, is to encourage competition in the EU

by removing restrictive practices, barriers to competition and other anticompetitive activities. For further detailed discussion of the impact of competition, see Chapter 18. The objectives of these legal rules are the prevention of: Collusion by price fixing, cartels and other collaborative activities. Competition is encouraged by preventing firms joining forces to act in a monopolistic way. The European Commission enforces EU rules and has had considerable success in disbanding and fining cartels. British Airways was fined £270 million for conspiring with Virgin Atlantic (which escaped prosecution because it alerted the regulators to the price fixing) to fix the price of passenger fuel surcharges on transatlantic flights (Milmo 2008). Some of Europe’s biggest truck makers (DAF, Daimler, Scania, Volvo) have been accused of operating a cartel for over 14 years that has potentially held up developments in emissions-reducing technology; Volvo had made provision of $490 million for the likely legal action (Sharman 2014). The European Commission has succeeded in punishing firms that collude, often with severe fines. Abuse of market dominance. Monopoly and discriminatory pricing, which could harm small buyers with little bargaining power, is discouraged. Facebook was accused of violating German law by abusing its dominant market position over the collection and processing of user data and subsequently having a negative effect on online advertising. The High Court ruled Facebook should stop collecting user data in this manner (Witting 2020). Systembolaget is an interesting example of a state-run monopoly: it controls the retail sales of alcohol in Sweden. In 2007, the European Court of Justice ruled against the Swedish regulations and declared that these policies were inhibiting free movement of goods. The ruling opened opportunities for direct importing by private consumers, which in turn stimulated the growth in online alcohol retailers. However, this has led to further challenges for Systembolaget, as Swedish food retailer City Gross has teamed up with Danish wine seller Winefinder, thereby creating a legal loophole for retailers and Swedish wine drinkers (Nilsson 2014). Acquisition of excessive market power. The objective is to control the size that firms grow to through buying or merging with other firms. Actions to prevent the build-up of excess power include blocking mergers, as in the case of the Swedish truck and coach builder Volvo, which wanted to

acquire Scania. The reason for blocking in this case was that such a merger would create a near monopoly. Less severe action is to apply strict conditions to any merger, such as the requirement that Nestlé sell several Perrier brands to encourage a third force to emerge in the French mineral water market to compete with Nestlé and BSN, the second major supplier of bottled water in France. Reliance on state aid. It can be in a nation’s interest for its government to give state aid to ailing firms within its boundaries; on a broader scale this can give artificial competitive advantages to recipient firms, enabling them to charge lower prices than their unsupported rivals; recipients may also be unfairly shielded from the full force of the competitive pressures affecting their markets. European Commission approval of state aid is usually given as part of a restructuring or rescue package for ailing firms. The general principle is that such payments should be one-offs to prevent uncompetitive firms being repeatedly bailed out by their governments. page 61

MARKETING IN ACTION 2.4

The GDPR and Brexit The General Data Protection Regulation (GDPR) is a Europe-wide set of legally binding principles that govern data protection. The GDPR became law across the EU on 25 May 2018. The legislation seeks to protect personal privacy, so is highly relevant to marketers wanting to gather data on their customers. Since leaving the EU the UK has been reclassified as a ‘third country’ and the EU GDPR legislation no longer applies there. However, the principles of the GDPR were incorporated into the new UK-GDPR Data Protection Act, so the UK is still in accord with the European legislation. The GDPR targets the use and storage of data in the digital age, and controls the processing and movement of this data; misuse of data is a criminal offence. Following Brexit, marketers must be aware of the reach of their campaigns and, if crossing international borders, ensure they comply with international transfer of personal data across boundaries. This is particularly relevant for service-based virtual firms. Information breaches by Yahoo!, LinkedIn and Facebook have seen unauthorized access to personal data occur. PostGDPR, companies must report such losses of personal data to an appropriate national data regulator. What is the GDPR? The legislation states:

‘The principles of, and rules on the protection of natural persons with regard to the processing of their personal data should, whatever their nationality or residence, respect their fundamental rights and freedoms, in particular their right to the protection of personal data. This Regulation is intended to contribute to the accomplishment of an area of freedom, security and justice and of an economic union, to economic and social progress, to the strengthening and the convergence of the economies within the internal market, and to the well-being of natural persons.’ The reasoning behind this legislation and its being Europe-wide is to ensure there is a single law protecting citizens. The legislation has 99 articles, which set out the rights of individuals and the obligations placed on organizations. What does the GDPR mean for me? Individuals have eight rights: 1. 2. 3. 4. 5. 6. 7. 8.

The right to be informed The right of access The right to rectification The right to erasure The right to restrict processing The right to data portability The right to object Rights in relation to automated decision making and profiling

These rights mean that the individual has greater rights–which also places more responsibility on the company holding the data–as they can ask to see the data held and can ask for data to be erased. Failure to comply can result in large fines for the companies involved. Accountability and compliance for companies All types of companies must comply, and there are significant implications regarding holding and using personal information for marketing and other purposes. More specifically, companies are accountable for handling personal information, must put in place data protection policies and data protection impact assessments, and must document how data are collected and managed. Companies with more than 250 employees must also be able to explain why personal information is collected and describe the type of information, where it is kept and the security measures that are in place. Systematic monitoring of people’s data must be carried out, and large-scale processing of sensitive data should be carried out only by a data protection officer. What does the GDPR mean for marketers? Marketers must demonstrate that they are holding personal data lawfully and are using data only for permitted purposes. Personal data comprises name, a unique identification number, personal location data, an online identifier, and personal preferences page 62 relating to physical, physiological, economic, cultural or social identity. A marketer must have an individual’s consent to gather and use such data. Many websites have been updated to comply with the GDPR and require site visitors to accept terms before they can proceed to view online content.

Based on: Burgess (2018); EUR-Lex (2018); ICO (2018); Smart Insights (2018); UK Government (2018); Singh (2021)

Legal and Regulatory Responses to Ethical Issues in Marketing The UK and countries across Europe are bound by several layers of laws, and by regulatory bodies restricting firms’ and organizations’ actions and encouraging the use of ethical practices. UK and EU competition laws and regulatory bodies seek to ban anticompetitive practices: these regulations have teeth and have resulted in fines on companies such as Microsoft (product bundling), AstraZeneca (blocking generic copies of its ulcer drug), and Hoechst, Atofina and Akzo Nobel (price fixing), imposed by the European Commission, a body set up to enforce EU competition and consumer law. UK and EU laws aim to protect the rights of consumers: consumers’ rights are also protected by EU regulatory bodies and regulations. For example, consumers’ interests regarding food safety are protected by the European Food Standards Authority, and the right to compensation for air travellers whose flights are overbooked, cancelled or delayed is covered by EU rules (also see previous section). National laws covering consumer rights and protection and competition regulation, supported by government-backed regulatory bodies: legislation at national level is designed to prevent marketing and business malpractice. Voluntary bodies set up by industries to create and enforce codes of practice: industries often prefer self-regulation to the imposition of laws by government. For example, most European countries are self-regulating with regard to advertising standards, through the drawing up and enforcement of codes of practice. While marketers in Europe have freedom to practise their profession, societal and legal constraints on their actions not only make good sense from a long-term social and environmental perspective but also make good longterm commercial sense, too.

The Physical Environmental Forces The physical environment in a marketing context is concerned with the relationship between people and the environment. Environmentalists attempt to protect the physical environment; they are concerned with the environmental costs of consumption, not just the personal costs to the consumer. Five environmental issues are of particular concern: climate change, pollution control, energy conservation, use of environmentally friendly components, and recycling and non-wasteful packaging. This section introduces this topic area; Chapter 3 is devoted to exploring sustainable marketing and society in detail.

Climate change Concerns about climate change and the problems associated with global warming originate from a quadrupling of carbon dioxide emissions over the past 50 years, evidenced by more extreme weather conditions, such as drought, hurricanes, tropical storms and flooding. In 1992, countries joined in an international treaty to ‘cooperatively consider what they could do to limit average global temperature increases and the resulting climate change and to cope with whatever impacts were, by then, inevitable’ (UNFCCC 2012). The United Nations Framework Convention on Climate Change (UNFCCC) realized the measures in place to control climate change were insufficient. Accordingly, it developed the page 63 Kyoto Protocol, an international agreement that focuses member countries on how to keep global temperature increases below 2 degrees Celsius. One of the Kyoto actions was to establish market mechanisms allowing the trading of emissions. Countries committed to the Protocol have agreed to limit or reduce greenhouse gas emissions, and one way to achieve these targets is to set up projects in developing countries, which can earn certified emission reduction credits that can be sold (UNFCCC 2022). These principles also apply to firms; Tesla’s electric vehicles are zero-emission and so the firm receives credits, which it then sells to other auto manufacturers at a significant profit; this is an important revenue stream for the car manufacturer. Tesla has sold ‘green credits’ to Fiat Chrysler, to help this carbon-fuel car manufacturer avoid fines, and

Volkswagen is buying credits from Tesla to help stay within local environmental rules as it expands its manufacturing into China. There is significant trade between manufacturers of less polluting cars, which gain green credits, and those more polluting vehicle manufacturers (Guardian staff and Reuters 2021; Ramey 2021). The Paris Agreement, which sets out further ambitious plans to control climate change, came into force in December 2016 and was adopted by 196 parties at COP21. This agreement requires economic and social changes, working on a five-year cycle, with countries submitting plans for climate action (UNFCCC 2022). The Conference of the Parties (COP) brings together nations and organizations in an attempt to control climate change under the banner of the United Nations. In November 2021, COP26, which was held in Glasgow, set out climate goals for the future–greenhouse gases (GHG) emissions to be net zero by 2050, protect communities and natural habitats, mobilize finance and work together–and finalized the Paris Agreement, with almost 200 countries agreeing to keep global temperature rises at 1.5 degrees Celsius or lower (UN Climate Change Conference 2021). In 2008, the UK Climate Change Act established the foundations for cutting greenhouse gas emissions by nurturing low-carbon technologies and processes. The Act has legally binding targets that must be achieved by 2050 (OECD 2021). The UK has had some success in reducing emissions, and the government has a new strategy, Build Back Greener, which sets out policies for decarbonizing the UK economy and is in line with the Climate Change Act (HM Government 2021).

Pollution control The manufacture, use and disposal of products can have a harmful effect on the quality of the physical environment. The production of chemicals that pollute the atmosphere, the use of nitrates as a fertilizer that pollutes rivers, and the disposal of by-products into the sea have caused considerable public concern. For example, plastics, chemical sludge and debris deposited by ocean currents have accumulated in an area of the northern Pacific Ocean. This ‘trash vortex’, as it is called by Greenpeace (2012), is equivalent in size to the US state of Texas and is a major pollution problem for the marine environment. As the waste degrades, it is ingested by marine animals, poisoning them and entering the food chain. Sea Shepherd, a not-for-profit

marine conservation charity, estimates that more than 1 million creatures living in the oceans are killed each year because of plastic. Sea Shepherd’s advert ‘Plastic Ocean’ (Exhibit 2.6) depicts this scenario and is attempting to raise awareness. The list of manufactured products that have found their way to the vortex is extensive and includes plastic bottles, polystyrene packaging, traffic cones, disposable lighters, vehicle tyres and even toothbrushes. EXHIBIT 2.6 Sea Shepherd wants to put an end to the ‘Plastic Ocean’

Source: Sea Shepard Global

Big brands are aware this can be an emotive issue for consumers and that page 64 they must find ways to ensure compliance with environment legislation. According to research, an individual produces 4.9 pounds (2.2 kilos) of waste per day (EPA 2018). Waste reduction is a major issue and manufacturers are finding ways to help consumers reduce their impact on the planet. Starbucks has announced it is to make a 100 per cent recyclable coffee cup and put an end to the estimated 6 billion cups that are

discarded each year (Grant 2018). Tencel produces fabrics made from recycled materials. Joy shampoo cleans your hair and reinvests profit in the community, creating mobile showers for people living rough, and its packaging is made from recycled paper. Patagonia’s NetPlus jackets are produced from 100 per cent recycled fishing nets, sourced from fishermen in South America. Nespresso is making recyclable coffee pods (Abdelrahman 2022) See Exhibit 2.7, which shows how Brabantia is helping consumers with recycling and composting of food waste. EXHIBIT 2.7 Brabantia’s kitchen worktop waste caddy aids waste reduction

Source: Thomas Holt/Shutterstock

Also in response to pollution issues, Denmark has introduced a series of anti-pollution measures, including a charge on pesticides and a chlorofluorocarbon (CFC) tax. The Netherlands has imposed higher taxes on pesticides, fertilizers and carbon monoxide emissions. The EU has made an agreement with car manufacturers to produce colour-coded labels to make it easier for car users to understand the environmental impact of the vehicle they choose to drive. Not all initiatives mean adding costs; in Germany, for example, one of the marketing benefits of its involvement in green technology has been a thriving export business in pollution-control equipment.

Energy and scarce resource conservation

The finite nature of the world’s resources is driving conservation. Energy conservation is reflected in the demand for energy-efficient housing and fuel-efficient cars. In Europe, Sweden has taken the lead in developing an energy policy based on renewable resources. Its tax system penalizes the use of polluting energy sources such as coal and oil, while less polluting resources such as peat and woodchips receive favourable tax treatment. In addition, Sweden is planning to become the world’s first oil-free economy and to achieve net-zero emissions by 2045, not by building nuclear power stations but by utilizing renewable resources such as wind and wave power, geothermal energy and waste heat. The plan is a response to warnings the world may be running out of oil, together with global climate change and rising energy prices. Firms are also making more energy-efficient products. Another concern of environmentalists is the consumption of wood. Forest depletion by the deforestation activities of companies and the effects of acid rain damage the ecosystem. Consumers’ desire for softwood and hardwood furniture and window frames is at odds with the need to preserve forests. Trees’ leaves absorb carbon dioxide, and their roots help to stabilize slopes–a landslide in the Philippines that cost many lives was allegedly caused by illegal logging. A solution is the replanting of forests to maintain the long-term stock of trees. The international furniture and home goods retailer, IKEA, produces millions of pieces of furniture each year and uses 1 per cent of the world’s wood supply, 99 per cent of which comes from responsibly managed forests (IKEA 2022). IKEA has many commitments moving the firm towards a more sustainable future using fewer resources: Saving energy for customers with cutting-edge LED light bulbs, indoor air purifiers and energy-saving taps Becoming climate positive–by decreasing climate footprint, using more recycled materials, and renewable electricity in stores, distribution units and factories Achieving a circular business, whereby over 50 per cent of materials are from renewable or recycled materials by 2030 Establishing a forest-positive agenda by 2030, by using cotton and wood only from sustainable sources. page 65

Environmentally friendly ingredients and components Environmentalists favour the use of biodegradable and natural ingredients and components when practicable. Companies have responded to the challenge by launching products such as the Estée Lauder Origins skincare and cosmetics range of vegetable-based products containing no animal ingredients. PETA (People for the Ethical Treatment of Animals) campaigns relentlessly against cruelty to animals. In response, Massimo Dutti, Primark, H&M and Inditex (owner of Zara) have banned the use of angora wool in their garments, in an attempt to curb appalling animal-management practices in wool-producing countries (Kassam 2015). This focus is not only adopted by fast-moving consumer goods (FMCG) manufacturers: read Marketing in Action 2.5 to find out how VW is planning to use environmentally friendly components in its new electronic vehicle, the ID. Buzz.

MARKETING IN ACTION 2.5

ID. Buzz The ID. Buzz is a new concept for VW: a fully electric commercial vehicle and people carrier, with zero emissions and an innovative list of features. The retro styling reinforces the heritage of the brand, but the vehicle is anything but a retrograde step for this leading vehicle manufacture. Promotional literature about the ID. Buzz lists many innovative features: Drive assist Communicate with traffic infrastructure Connected vehicle Park assist Enhanced driving safety Energy storage system Autonomous driving.

Source: Grzegorz Czapski/Shutterstock VW has committed to meeting energy emission targets and is revising its energy use across the business. The ID. Buzz has seat covers, flooring and other components made from recycled materials. One fabric used in the vehicle is SEAQUAL, made from yarn manufactured using 10 per cent marine plastic and 90 per cent recycled plastic bottles. Based on: VW (2022)

Recycling and non-wasteful packaging Recycling Many countries, including the UK and EU countries, have strict targets for recycling, and many government policies and private initiatives are being introduced to reduce the impact on the planet: Austria has established policies for managing waste, such as a ban on landfill and the wide promotion of recycling. The government finances waste management and supports community activities devoted to removing waste. Private and public firms collaborate, and recycling of glass, metal, cardboard and papers works well. Two areas representing challenges in this country are plastic waste and bio-waste products (Salmenperä 2021). Germany took the lead in the recycling of packaging by introducing the VerpackG, a law allowing shoppers to return packaging to retailers for them to pass back to suppliers. In response, suppliers promised to assume responsibility for the management of packaging waste. In 1990, it

introduced a mechanism called the Dual System Deutschland (DSD), to organize the collecting and sorting of waste packaging: consumers are asked to return glass bottles and waste paper to recycling bins, and encouraged to separate other recyclable materials, such as plastics, composite packaging and metals, and place them in yellow bags and bins page 66 supplied by the DSD. Collections take place regularly and (together with the separating of the refuse) are paid for by the DSD, with the cost ultimately absorbed by the packaging manufacturers. Sweden had a tradition for recycling paper and metal before any legislation was introduced. Resources are recovered and used to make new products. Sweden sends very little waste to landfill as it reuses 46 per cent of household waste to turn into energy, and even imports waste from the UK, Norway and Ireland to generate energy for more than 1 million homes (Swedish Waste Management Association 2022). As well as government initiatives, firms are also finding ways to recycle. Clothing retailer H&M introduced a clothing recycle scheme in which it gathers its used products and then donates them to charitable organizations for resale. And further back along the supply chain, manufacturers are developing new fabrics for the fashion industry made from waste, for example Econyl, which is made from abandoned fishing nets and old carpets. According to DutchAwareness (2015), these types of fabric can reduce carbon dioxide impact by 73 per cent.

Wasteful packaging Single-use packaging is a particular concern for consumers, retailers and manufacturers (especially of FMCG). Consumers have been alerted to the impact of waste packaging in our wild open spaces and oceans, and to the problems caused by landfill sites leaking toxic waste. The packaging industry is both the problem and the solution. Single-use packaging is widely used for products such as savoury snacks, dairy desserts, pre-prepared foods, toothpaste, plastic drink bottles and more, to enable consumers to enjoy convenient ways to receive and protect their goods. There has been significant growth in recent years in the use of this type of packaging; the problem is that much of the resulting waste currently cannot be recycled. The recovery rate for food plastic waste in the US is around 28 per cent, while in Europe the figure is 40 per cent (whereas the rate of cardboard

recycling is much higher: around 80 per cent in Europe and around 89 per cent in the US). Add this to the fact that in emerging markets in Asia demand for packaging is outpacing waste collection. This type of waste is a global problem. Some countries are tackling the waste issue. Thailand introduced a ban on single-use plastic bags in retail stores. India is raising awareness and improving access to recycling collection points. China has banned the importing of plastic waste and single-use plastic, and is also increasing recycling points (Feber et al. 2020). Leading FMCG manufacturers are also taking initiatives to reduce single-use packaging, and are making commitments to sustainability by introducing more recyclable packaging, eliminating single-use plastic and incentivizing customers to recycle. But there is more to be done and all stakeholders across the supply chain need to take responsibility for waste management, recycling and reduction of wasteful packaging. Marketing managers need to be aware of the environmental consequences of their decisions and activities, and to recognize the possible impact of environmentally irresponsible actions on the reputation of their firms and brands. Managers should be alert to the opportunities created by a greater focus on the environment and should consider communicating their environmentally conscious credentials to their target markets. See Chapter 3 for further detailed discussion of marketing ethics and corporate social responsibility.

Culture and Society Three key social/cultural forces with implications for marketing are: the changes in the demographic profile of the population, cultural differences within and between nations, and the influence of consumerism.

Demographic forces Demographic forces concern changes in populations in terms of their size and characteristics. Demography is important to marketers because it helps to predict the size and growth rates of markets, and the need for facilities

such as schools, one-person housing and homes for the elderly. Three major demographic forces are: world population growth, the changing age distribution, and the changing structure of households in western countries.

World population growth Overall, the global population is expanding at about 1.05 per cent a year, an increase of on average of 81 million people per year (Worldometer 2022). However, the rate of growth is uneven across the world. In particular, the population in developed economies is expected to be stable or shrinking, whereas countries of Africa, India, ‘other Asia’ and Latin America are expected to account for more than 90 per cent of the projected population page 67 increase during the twenty-first century (see Figure 2.5). As the populations of these countries grow more youthful, the developed countries will play host to an ageing population. In 2025, half the population of Europe will be over 45 years old. For the next decade, the world population is expected to grow by an average of 97 million per year. FIGURE 2.5 World population growth

The changing world population distribution suggests that new markets outside the developed economies may provide attractive opportunities, although the extent to which this force progresses will depend on a rise in income levels in the less developed world. Positive trends in Africa suggest change, although population growth is higher there than in the rest of the world. According to the Agence Française de Développement (AFD) (2022), which supports transition to a more equal and sustainable world, fertility rates have been falling for more than 40 years, with an average of 4.5 children per woman in 2017, down from 6.6 in 1980, and similar trends are recorded on other continents. According to AFD (2022) research, this trend is explained by more families moving to live in cities, where there are more employment opportunities but smaller accommodation and less reliance on the village community. So families are becoming smaller, more women are working in situations where they cannot bring their children to work as they might if working on farms and in the fields, there are improved education opportunities for girls, greater awareness of their rights and of contraception; there is also more sharing of household responsibilities between genders.

Age distribution A major demographic change affecting demand for products and services is the ageing population. In Europe, the share of the population over 65 is growing and life expectancy is increasing. Population pyramids, showing age distribution by sex and age group, are predicting growth of older age bands going forward to 2080. Furthermore, younger age bands are predicted to shrink relative to older groups, reducing the number of people of working age (Eurostat 2020). The growth of older segments has significant implications for marketing: on the supply side, an ageing workforce and a growing number of migrant workers who move according to labour demands; on the demand side, EU citizens over 45 represent substantial marketing opportunities because of their high level of per capita income and their having higher levels of disposable income and savings than younger people. With an older population, which has higher disposable incomes and increased leisure time, demand for holidays and recreational activities such as entertainment and sporting activities (e.g. golf) should increase. Older people also have different tastes and needs in terms of levels of service and style of products.

As the palates of older customers change, they look to buy saltier and spicier foods. Similar ageing trends are evident in other parts of the globe, and businesses are already seeking to differentiate their offers for the lucrative ageing market, adapting products and packaging to meet the needs of older target markets. In Japan, retailer Aeon designed a new retail concept in Funabashi, with products designed for elderly shoppers, who can access medical clinics, get discounts on pension day and enjoy leisure activities ranging from dancing to finding romantic partners (Lucas 2014). There are many niche opportunities for firms targeting older segment. For example, HANX makes condoms with a difference; they are popular with older users who have interests in the sustainable environment because the latex and lubricants it uses are approved by the Fair Rubber Association page 68 and the Vegan Society, and designed to protect women’s health. The condom brand supports the Lady Garden Foundation and the Eve Appeal, raising awareness of treatment of gynaecological cancers (HANX 2022). Knours is a beauty brand that targets its products according to women’s experience of menopause and hormonal changes, during pregnancy and menstruation (Knours 2022). The Wine List (thewinelist.co.uk) caters for customers with an interest in buying tailormade wine packages; the average age of its customers is over 40 (Drumm 2021).

Household structure Changes in household structure and behaviour that have implications for marketing are the rise in one-person households and households with no children, and the growth in dual-income families. More people are living alone by choice and through divorce or bereavement. This suggests a key market segment is people who demand products that meet their particular needs, such as one-bedroom houses or apartments, and single-portion foods. However, households are also changing their behaviour regarding employment. In many European countries, there has been a growth in dual-earner families. In the UK, for example, more than half of couples with dependent children are doubleincome families. The rise of double-income households means this market segment possibly has higher disposable income, which can lead to reduced

price sensitivity and the capacity to buy luxury furniture and clothing products and expensive services (e.g. foreign holidays, restaurant meals). The Covid-19 pandemic impacted on households especially in terms of income. Savings ratios increased significantly; total household debt increased very slightly in 2021, but unsecured debt fell as households reduced overall spending (see Figure 2.6). Government interventions like the Coronavirus Job Retention Scheme, income support and increases in Universal Credit helped to protect jobs and businesses. FIGURE 2.6 Household saving ratios in the UK–savings as a percentage of aggregate UK disposable household income, June 2021

Source: based on ONS (2021)

But low-income households were less able to save and saw personal saving decrease, while lower-paid workers were more likely to have lost their jobs or been furloughed, again leading to declines in household income (Francis-Devine 2021). The pandemic has impacted in many ways locally, globally, and on individuals’ families and communities. Marketers should ensure they are aware of these impacts.

Cultural forces Culture is the combination of traditions, taboos, values and attitudes of the society in which an individual lives. A number of distinctive subcultures in

the UK provide a rich tapestry of lifestyles and create new markets. Asian culture has introduced into the UK restaurants and food, fashion and jewellery stores, supplying unique heritage and style. The free movement of workers around the EU has also encouraged the growth of subcultures–for example, the flow of workers from central and eastern Europe to older established EU countries. To meet the needs of the Polish community in the UK, for example, Tesco sells extensive ranges of Polish foods. Brexit has put pressure on collaboration between subcultures in the UK and member states of the EU. For example, Germany and the UK have much page 69 in common in areas like creative industries, education and cooperation on research and innovation, but the risks of lack of free movement and changes to funding and investment have impacted on how any future activity might take place, potentially reducing research and innovation, creative projects and collaborative education (MacDonald 2017). Youth subcultures provide cues for the development of brands, for example Levi’s jeans, Coca-Cola, Pepsi and MTV. Attitudes towards food among some sections of society in Europe are also changing. Pressures around healthy eating have prompted moves towards food with less fat, sugar and salt, and towards health labelling. For example, the Nestlé-branded cereal range targeted at children has been reformulated with 10 per cent less sugar. New brands focusing on their healthy credentials have emerged, like Innocent smoothies, and even McDonald’s has a nutrition calculator that enables savvy consumers to check what they are eating (www.mcdonalds.com/gb/en-gb/good-toknow/nutrition-calculator.html). Market segments have appeared based on the concept of ethical consumption, leading to demand for vegan, fair trade and organic products, together with avoidance of firms and brands associated with dubious practices. The growth in healthy eating and ethical consumption has prompted the acquisition of small ethical brands by larger corporates, for example Rachel’s Organic yoghurts by Groupe Lactalis, a subsidiary of BSA international, and Ben & Jerry’s ice cream by Unilever. See Table 2.3 for more examples. TABLE 2.3 Brands that own ethical brands Ethical brand

Founding principles

Corporate owners

Dorset Cereals

Established in 1989, to produce

Associated British Foods (ABF)

breakfast cereals and porridge from its purpose-built barn in Poundbury, Dorset, using ingredients grown in the UK www.dorsetcereals.co.uk/aboutus/who-we-are

128,000 employees Operates in 53 countries Grocery brands: Allinson’s, Blue Dragon, Don, Caotina, Jordan’s www.abf.co.uk

Gosh!

Launched in 2016 selling Free-from vegan food alternatives, ready-made plant-based alternatives to meat www.goshfood.com/about-us

Sonae, SGPS Portugal Multinational firm Operates globally in many activity sectors: retail, fashion, health & fitness, financial services, telecommunications www.sonae.pt/en

Green & Blacks

Founded in 1991 by husband-and-wife team Craig and Jo Fairley First fair-trade chocolate maker using organic cocoa www.greenandblacks.co.uk/our-story

Mondelez International, Inc. 80,000 employees Operates in 150 countries Brands: Belvita, Cadbury, Toblerone, Philadelphia, Tang www.mondelezinternational.com

Pukka

Co-founder Sebastian Pole was a conservationist and a master herbsmith, who wanted to start up an ethical business and identified the herbal tea market as a great opportunity Pukka’s journey began in 2001 producing organic and Fair for Life teas www.pukkaherbs.com/uk/en/wellbeingarticles/the-pukka-story

Unilever 148,000 employees Operates in 190 countries Has 400 brands, many of which are household names www.unilever.com www.unilever.co.uk

Larger firms often face accusations of unethical behaviour for example, poor carbon management, polluting, and poor waste management, exploiting forests and use of palm oil, human rights issues over workers, animal testing. The smaller brands with strong ethical principles can be sought-after acquisitions as they can help with the market positioning of the larger corporate brands and /or to give access to a growing niche markets. page 70

Fair-trade marketing is the development, promotion and selling of fairtrade brands, and the positioning of organizations based on a fair-trade ethos. Firms are increasingly realizing many consumers care about how suppliers in countries of the developing world are treated and wish to support them by buying fair-trade brands, often at a price premium. For example, Cafédirect, a fair-trade company and brand, was launched to protect coffee growers from the volatility in world coffee prices. Minimum prices for coffee beans are paid, which are pegged above market fluctuations, and business support and development programmes are provided. The popularity of fair-trade brands has prompted Nestlé to launch its own fair-trade coffee, Partners’ Blend, and Marks & Spencer has launched a range of fair-trade clothing which benefits Indian cotton farmers through a price that includes a premium that can be invested in their communities (Milmo 2008). Supermarkets are supporting fair-trade products, with Co-op stocking only own-label fair-trade tea, coffee and chocolate, and Sainsbury’s selling only fair-trade bananas. Café chains such as Costa and Pret offer fair-trade varieties. Fast-moving consumer goods food manufacturers also support the spread of fair-trade products and have been acquiring ethical brands to facilitate access to these markets–for example, Unilever’s acquisition of Ben & Jerry’s, which is a brand that supports local farmers; all of the ingredients in its ice creams are certified as fair trade. Mondelez, the multinational food and beverage corporation, expanded its product portfolio with the acquisition of Green & Black’s, the organic chocolate brand. Fair-trade marketing can be based on the positioning of firms as having a fair-trade ethos. The success of fair-trade marketing is based upon consumers being willing to try and repeatbuy fair-trade brands, and organizations developing genuine fair-trade programmes. Consumers will not put up with organizations that use such schemes as an ethical veneer. Successful marketing depends on knowing the cultural differences that exist between consumers. Cultural differences also have implications for business-to-business marketing. Within Europe, cultural variations affect the way in which business should be conducted. Humour in business life is acceptable in the UK, Italy, Greece, the Netherlands and Spain, but less commonplace in France and Germany. These facts of business life need to be recognized when interacting with European business customers. International culture is revisited in detail in Chapter 20.

The Influence of Consumerism and Environmentalism Consumerism is organized action against business practices that are not in the interests of consumers. The consumer movement is an organized collection of groups and organizations whose objective is to protect the rights of consumers, which include the right to expect the product to be safe, for it to perform as expected, and for communications linked to the product to be truthful and not misleading. Pressure from consumer groups in Europe has resulted in prohibitions on tobacco advertising, improvements in car safety, reductions in the levels of fat, sugar and salt in foods, restrictions on advertising alcohol to teenagers and the forcing of financial services companies to display true interest charges (the annual percentage rate, or APR) on advertisements for credit facilities. Further successes include unit pricing (stating the cost per unit of a brand) and ingredient labelling (stating the ingredients that go into a brand). For decades there has been a debate about whether consumerism is driven by economic or social drivers, and what the implications are for marketing. Pinpointing the actual origins of consumerism is difficult, but, simply stated, the situation has been aggravated by ‘marketing excesses, inflation, economic recession and questioning of mass-consumption society values has apparently pushed consumers to ever higher levels of dissatisfaction’ (Straver 1978). Arguably, marketing stands accused of creating opportunities for firms to sell more to the consumer, using tactical applications of the marketing mix. The response has been a growing interest in consumerism. The consumer movement has had notable successes, including improvements in car safety, the encouragement of fast-food restaurants to provide healthy-eating options, health labelling of food products, and the banning of smoking in public places in some European countries, including Ireland and the UK. Consumers International (CI) is a worldwide federation of consumer groups that have joined together as an independent voice of the consumer. On 15 March every year, World Consumer Rights Day (WCRD) endorses the solidarity of the consumer movement and is an opportunity to promote the basic rights of the consumer. CI tackles issues from around the world. For example, in Kenya there were problems with product safety and

inappropriate use of labelling, which could cause serious harm to young consumers; in Asia, there is a great deal of marketing of unhealthy food to children; in Latin America, CI is working to protect consumers’ right to a page 71 healthy environment. Globally, unhealthy diets are linked to four of the ten major causes of early death: obesity, high blood pressure, glucose and cholesterol. CI is championing consumers’ rights to make healthy food choices, but one key issue is the mass availability of unhealthy options. In 2022, the focus was on equality issues: fair digital finance highlighting the pressures and risk consumers face online (Consumer International 2022). Marketing managers should not consider the consumer movement a threat to business, but rather an opportunity to create new product offerings to meet the needs of emerging market segments. For example, in the detergent market, brands have been launched that are more environmentally friendly, while food companies have reduced the fat and salt content of some of their products and continue to introduce healthy option ranges. Pressure from the consumer movement, environmentalists and individuals who engage in ethical consumption has resulted in most organizations adopting corporate social responsibility as a guide to their business practices. Corporate social responsibility (CSR) refers to the ethical principle that an organization should be accountable for how its behaviour might affect society and the environment. The importance of CSR is considered in detail in Chapter 3. Going forwards, changes in social and cultural aspects of the marketing environment need to be monitored and understood, so that marketing management is aware of the changing tastes and behaviour of consumers. Such changes can create demand shifts that may act as either opportunities or threats. For further discussion of consumerism, see Marketing in Action 2.6 and Chapter 3.

MARKETING IN ACTION 2.6

Consumerism in Sweden and Britain

Source: (l)MBI/Alamy Stock Photo, (r)vesna cvorovic/Shutterstock British children are trapped in a cycle of compulsive consumption, according to UNICEF. But children in Sweden are different: they don’t appear to crave products in the same way as UK children do and have high levels of well-being compared with children in other European countries. In the UK and Sweden, the behaviour of parents is cited as a potential cause of children’s behaviour. In the UK, parents are said to give their children gifts to compensate for their absence when working long hours, whereas in Sweden, where compulsive consumption is almost absent, parents spend time with their children, and families enjoy indoor and outdoor pastimes together. Research suggests there are factors that contribute to wellbeing: health and safety, educational well-being, and family and peer relationships. A recent study found when children in the UK and Sweden said they had had a good day, it was always because of people not things. A child’s view of a good day is simple: time with those they love (friends, family and even pets), taking part in creative or sporting activities, and being outdoors and having fun. However, the study did reveal a desire for products–for example, phones, tablet computers, laptops and gaming consoles were on the wanted lists of children from both nations and from a range of different social backgrounds. Functional goods like footballs, creative art materials and musical instruments, which enable the children to participate in certain activities, were also high on the list of desired items. More firms are realizing the importance of children’s rights and are seeking ways to use marketing and communications to not have an adverse impact. Through the web, companies are opening the debate to find new ways to interact with children. For example, the Swedish transport administration agency (Trafikverket) has set up workshops and invited children to share their views on traffic dangers, signage, noise and other issues. Based on: Nairn (2011); Swedish Wire (2011); UNICEF (2015); Lagerberg (2018)

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Environmentalism

While consumerism focuses on improving the balance between consumer and organizational power, and protecting the rights of consumers in consumption decisions, environmentalism is broader in scope, with its focus on the physical environment. Environmentalism is the organized movement of groups and organizations to protect and improve the physical environment. Their concerns are: production and consumption of products that lead to global warming; pollution; the destruction of natural resources such as oil and forests; and non-biodegradable waste. Environmentalists believe that producers and consumers should take account not only of shortterm profits and satisfaction but also the cost to the environment of their actions. Environmentalists support the concept of environmental sustainability and put pressure on companies to adopt strategies that promote its objectives. Environmental sustainability means ‘to maintain or prolong environmental health’. Pressure groups such as Greenpeace and Friends of the Earth have been successful in persuading organizations to produce ‘greener’ products such as cadmium-free batteries, ozone-safe aerosols, recycled-paper toilet tissue and packaging, catalytic converters, lead-free petrol, unbleached tea bags and cruelty-free cosmetics. Other environmental groups have successfully changed company practices. For example, UPM, Finland’s largest paper and pulp company, which has a presence in more than 16 countries, must replant the number of trees felled. This is the result of environmentalist action. Major electrical manufacturers like Philips and Electrolux incorporate environmental considerations systematically in new product development, and have strict guidelines covering the integration of environmental considerations into product design and development. Environmentalists have concerns about how business activity affects the environment. This means they constantly pressurize organizations to deal with issues like controlling carbon emissions, reducing global warming, eliminating harmful pollutants, and using recycled and recyclable materials in products. The overarching aim is to maintain a sustainable environment for future generations.

Ethical consumption Consumerism and environmentalism are organized movements designed to protect society and the environment from the harmful effects of production

and consumption. However, consumers also act in an individual way to protect society and the environment through engaging in ethical consumption. Ethical consumption occurs when individual consumers, when making purchase decisions, consider not only personal interests but also the interests of society and the environment. Examples include boycotting products and companies with poor records regarding social and environmental concerns, buying non-animal-tested products, choosing fairtrade or organic products, avoiding products made by sweatshop or child labour, and purchasing products that are made from recycled materials (Crane and Matten 2004). As discussed earlier, consumers and businesses respond differently to ethical consumption. Some are passionate about living and operating in a manner that does not impact on the environment, while others are not, and many are somewhere in between these two extremes. Marketing managers must understand their target audiences’ individual values, attitudes and motivations, and align these with societal values if they are to develop successful marketing strategies.

The Microenvironment The microenvironment consists of the actors in the firm’s immediate environment that affect its capabilities to operate effectively in its chosen markets. These actors–customers, competitors, distributors and suppliers and strategic partners–will now be introduced as they are discussed in greater depth throughout the book.

Customers In Chapter 1, we learned customers are at the centre of the marketing philosophy and effort, and it is the task of marketing management to satisfy their needs and expectations better than the competition. Changing customer tastes, lifestyles, motivations and expectations need to be monitored so firms supply appropriately targeted marketing-mix strategies that meet their needs. Changes in consumer behaviour also need to be monitored. For example, consumers are using social networking platforms to communicate, share and

buy products–a fact not lost on marketers. The starting point is an page 73 understanding of customers, and it is important to recognize the different types of customers and markets: consumer and businessto-business markets are considered in detail Chapter 4; Chapter 5 looks at building relationships; techniques for gathering and analysing customer information are discussed in Chapter 6; the grouping of consumers to form market segments that can be targeted with specific marketing-mix offerings is the subject of Chapter 7.

Competitors Competitors have a major bearing on the performance of firms. No longer is it sufficient to meet customer needs and expectations–success is dependent on doing better than the competition. Market-orientated companies not only monitor and seek to understand customers, but also research competitors and their brands to understand their strengths, weaknesses, strategies and response patterns. Understanding competitor behaviour is critical to developing marketing strategies and tactics. For example, when competitors price-cut, the attractiveness of the market can fall, and competitors’ ability to innovate can ruin once highly profitable brands. Marketing history is littered with brands that were once successful but are now defunct because rivals developed and marketed better alternatives, used better business models, deployed competitive marketing strategies and tactics. But success is not always achieved when firms compete with their rivals. Sony produced Betamax-format video cassettes and attempted to control the market by not licensing its product to other producers, whereas its rival Japanese firm, JVC, developed its VHS cassettes using an open format to avoid Sony’s market domination. VHS became more widely adopted, leading to greater economies of scale and, critically, offered more recording time per cassette. Sony eventually dropped Betamax in favour of the VHS format (Gibbs 2015). Arguably, JVC’s contest with Sony was perhaps the first format competitive war, but there have been many others, for example Nintendo vs Sega, PlayStation vs Xbox, Apple vs Android. Google Lively was an attempt to create a virtual world to rival the then popular Second Life. Users could create an avatar, add different outfits and enter a virtual room for a chat (Ralph 2008). Linden Labs, creators of

Second Life, proved to be tough competition, having more than 500,000 users while Google Lively had just 10,000. This virtual world was less than five months old when Google shut it down and its failure was attributed to not conveying the core values of the Google user experience (Anikto 2008). Amazon’s Fire Phone failed and the parent company lost more than $170 million. The smartphone market is intensely competitive, with two key success factors strongly contested: design, which Apple leads on; price, which new market entrants like Xiaomi have dominated. The Amazon phone did badly on both factors: the design, which had features like a 3D display, one-handed shortcuts and Firefly (automatic product recognition), was not a hit with potential customers and the price was similar to the iPhone (at the time). So, the Fire Phone had little to differentiate it from existing market leaders, and even less to encourage consumers to switch to the new smartphone brand (Wohlsen 2015). Business large and small fail, many in their first few years of trading, due to underestimating the competition (Sahi et al. 2019). To succeed, firms should develop a detailed understanding of players in a given market so they are able to deploy resources and utilize capabilities effectively and efficiently to create competitive advantage (Blyler and Coff 2003). Part 4 of the book explores strategic and competitive marketing issues, delving into: how to develop strategic marketing plans (Chapter 17); how to analyse competitors and create competitive advantage (Chapter 18); product strategies and market development (Chapter 19); and international and global marketing (Chapter 20).

Distributors Firms use the services of distributors such as wholesalers and retailers to supply end users. As we shall see in Chapter 16, which covers distribution, channel intermediaries perform many valuable services, including breaking bulk, making products available to customers where and when they want them, and providing specialist services such as maintenance and installation. Other firms, which provide services, dispense with distributors, preferring to deal direct with end-user customers. Distributors can reduce the profitability of suppliers by putting pressure on profit margins. For example, large retailers such as Walmart and Tesco

have enormous buying power and can demand low prices from their suppliers, a fact that has been criticized in the media when applied to small farmers. page 74

Distribution trends need to be monitored. For example, the trend towards downloading music has hit traditional music outlets that sell CDs, and the growth of internet-based sellers such as Amazon has impacted on traditional bricks-and-mortar booksellers, publishers and authors. As the attractiveness of distribution channels changes, so suppliers must alter their strategies to keep in touch with customers. For many years distribution has focused on channel management (Wilkinson 2001), but the focus is shifting towards network coordination. Technology developments in both production and logistics have facilitated greater and more instant information exchange. Improvements have meant more responsive and customized distribution systems, and greater integration, cooperation and interdependence between business partners. Importantly, instead of developing distribution systems that focus on the ‘exploitation of power in short-term exchange episodes’, attention is now on … ‘joint actions in long term business relationships’ (Gadde 2021). From a marketing perspective, this shift has given rise to new market opportunities for intermediaries and logistics service providers (Olsson et al. 2013), adding value through sharing resources and partnering. DHL, a global logistics provider, operates a European Fulfilment Network (EFN) across Europe, providing fast delivery for food wholesalers and retailers like Jamoona, which supplies products direct to end customers. DHL’s EFN provides nextday deliveries for this seller of exotic fresh foods, giving the firm the opportunity to compete with very large established competitors (DHL 2022) (see Exhibit 2.8). EXHIBIT 2.8 Providing foods from around the world to customers at wholesale prices

Source: Jamoona.com

Suppliers Firms are not only dependent on customers, competitors and distributors but are also influenced by their suppliers. Increases in supply costs can push up prices, making other alternatives more attractive. For example, increases in the price of aluminium make plastic more attractive. Powerful suppliers can force up prices. The rise in the price of gas has been blamed on powerful European suppliers who, it is alleged, restricted supply to force prices higher. Firms need to monitor supply availability, such as shortages due to labour strikes or political factors, as these can cause customer dissatisfaction and lost sales. Firms also need to be sensitive to alternative input materials that can be substituted for those of existing suppliers if the latter’s prices rise or availability diminishes significantly. Effective supply chain management (SCM) has become a source of competitive advantage in marketing in recent years. Further developments in response to the growing demand economy focus on demand chain management (DCM), which means developing capacity to ensure the supply chain can respond dynamically to change. Moreover, SCM and DCM systems are providing greater insights, which firms can use to build new business models and dynamically create competitive advantage (Bai et al. 2021). The importance of suppliers is reflected in the discussion of their relationship with customers in Chapter 4.

Strategic partners

Firms are increasingly partnering with others to co-create added value, whether that be technical expertise (Google and Salesforce.com–sharing Google’s marketing platform products enables Salesforce customers to gain direct access to Google’s services, to enhance customer relationship management), logistical networks (DHL and Argos/Sainsbury’s–DHL’s twoman delivery service improves customer service quality for the retailers) or financial support (Vodafone India and Ideal Cellular–financial investment enabled creation of a market leader). Strategic partnerships can create opportunities to expand customer bases, produce a more competitive offer, page 75 share resources and fend off the competition. Fashion brand Reiss formed a strategic partnership with Next plc, transferring its online platform and associated operations to the Next Total Platform, thereby transforming the Reiss online offer and making it more efficient (Shepard 2021). L’Occitane has developed strategic partnerships with producers and farmers around the world to reduce the negative impacts on the environment of production of its beauty products (e.g. shea butter in Burkina Faso) (L’Occitane Group 2021). Further discussion of value creation through relationships is included in Chapter 5. All elements of the microenvironment need to be monitored and assessed so opportunities can be exploited and threats combated. This forms an essential ingredient in maintaining a strategic fit between a company and its marketing environment.

Monitoring the Marketing Environment The potential of external forces to affect company performance is high, and monitoring the marketing environment presents many challenges. A marketorientated firm needs to be able to respond appropriately. Guo et al. (2018) studied the internal capabilities of firms and how these affect market performance in relation to external market forces. Guo and colleagues found the internal (micro) marketing capabilities of a firm are affected by turbulence in the external environment, especially in relation to technology forces. The authors suggest that marketing managers should carefully monitor changes in the external environment, with the help of customers– who may be more closely attuned to changes (potential opportunities and

threats). By creating a dialogue, there are opportunities to co-create new products and services. LEGO, BMW and Made.com are all examples of companies that have adopted this approach and created new designs by involving their customers in the process. This research highlights the importance of gaining awareness of the nature of the environment where firms trade, to be better placed to respond adaptively to environmental changes, improve planning and decision-making, and build internal marketing capabilities. Previously, Dieffenbach (1983) found that formal environmental scanning can deliver multiple benefits, such as better market awareness, improved resource allocation, greater diversification and better foreign investment. Traditionally, the process of monitoring and analysing the marketing environment of a company is called environmental scanning. This process provides the essential informational input to create a strategic fit between a company’s strategies, its organizational operations and the marketing environment (see Figure 2.7). Marketing strategy should reflect the environment even if this means a fundamental reorganization of operations. FIGURE 2.7 Strategic marketing fit

The most appropriate organizational arrangement for scanning will depend on the unique circumstances facing a firm. A judgement needs to be made regarding the costs and benefits of each alternative approach. The size and profitability of the company and the perceived degree of environmental

turbulence will be factors impinging on this decision. To establish a scanning system covering every conceivable external force would be unmanageable. Consequently, there are two key questions for managers when establishing environmental scanning: what to scan, and how to organize the process. To answer these questions and develop an effective scanning system, action should be taken to: 1. Define a feasible range of forces to monitor. These are the potentially relevant environmental forces that have the most likelihood of affecting future business prospects (Brownlie 2002). Ansoff (1991) identified that environmental scanning monitors a company’s environment for signals of the development of strategic issues that have an influence on company performance. For example, Google was slow to respond to the social media phenomenon, which could have been the result of not scanning the right forces. Not only has this allowed Facebook to develop a very powerful member base for its social network, but also Google has missed out on an opportunity to gather rich, detailed customer data that might enhance its core revenue stream, online advertising. page 76 2. Design a system that provides a fast response to events. Some events are only partially predictable, emerge as surprises and grow very rapidly. It is essential for companies to be informed if they are to manage in increasingly turbulent marketing environments. Brownlie (2002) suggests that environmental scanning should enable a company to: develop forecasts, scenarios and issues analysis as inputs to strategic decision-making provide a focal point for the interpretation and analysis of environmental information identified by other people in the company disseminate information on the business environment through newsletters, reports and lectures evaluate and revise the scanning system itself by applying new tools and procedures. The benefits of environmental scanning appear straightforward: a better understanding of the trading environment gives a company the knowledge to respond effectively to environmental changes. Web-based environmental scanning (ES) systems are widely used to help automate the scanning process and input information directly into marketing management information systems (Decker et al. 2005). ES is a way for firms to adapt to

the marketing environment and develop strategies that will help them survive. Having an ES system across a firm’s supply chain enables all partners in the chain to respond effectively and dynamically to change. Information gathered across the supply chain enables firms to respond quickly to environmental change (Yu et al. 2019).

Big Picture: Key Topics in This Chapter

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Detailed Review 1. The nature of the marketing environment The marketing environment consists of the microenvironment (customers, competitors, distributors and suppliers, internal factors) and the macroenvironment (economic, social, political, legal, physical and technological external forces). These shape the character of the opportunities and threats facing a company and yet these external forces are largely uncontrollable. 2. The distinction between the microenvironment and the macroenvironment The microenvironment consists of those actors in the firm’s immediate environment that affect its capabilities to operate effectively in its chosen markets. The macroenvironment consists of several broader forces that affect not only the company but also the other actors in the microenvironment. 3. The impact of the following forces on marketing decisions: technological, economic, political and legal, the physical environment, social/cultural Technological forces can have an impact on marketing decisions by changing the rules of the competitive game. Technological change can provide major opportunities and pose enormous threats to companies. Marketers need to monitor technological trends and pioneer technological breakthroughs. Economic forces can have an impact on marketing decisions through their effect on supply and demand. Key factors are economic growth, unemployment, interest and exchange rates, and changes in the global economic environment such as the growth of the EU and the Eurozone and the rise of the economies of China, South Korea, Brazil, India and Mexico. Marketers need to have contingency plans in place to cope with economic turbulence and downturns, and to be aware of the opportunities and threats arising from changes in the global marketing environment. Political and legal forces influence marketing decisions by determining the rules for conducting business. In Europe, marketing decisions are affected by legislation at EU and national levels. EU laws seek to prevent collusion, prevent abuse of market dominance, control mergers and acquisitions, and restrict state aid to firms. National laws also affect marketing decisions by regulating anticompetitive practices. The UK has left the EU and has national laws. There are additional regulations and controls firms must consider when operating outside the EU. The physical environmental forces are concerned with the environmental costs of consumption. Five issues that affect marketing decisions are: combating global warming, pollution control, conservation of energy and other scarce resources, use of environmentally friendly ingredients and components, and use of recyclable and non-wasteful packaging. Marketers need to be aware of the

environmental consequences of their actions, and aware of the opportunities and threats associated with ecological issues. Social/cultural forces can have an impact on marketing decisions by changing demand patterns (e.g. the growth of the over-50s market) and creating new opportunities and threats. Three major influences are changes in the demographic profile of the population, cultural differences within and between nations, and the impact of consumerism. 4. How to conduct environmental scanning Two key decisions are what to scan and how to organize the activity. Four approaches to the organization of environmental scanning are to use line management, the strategic planner, a separate organizational unit and joint line/general management teams. The system should monitor trends, develop forecasts, interpret and analyse internally produced information, establish a database, provide environmental experts, disseminate information, and evaluate and revise the system. 5. How companies respond to environmental change Response comes in five forms: ignorance, delay, retrenchment, gradual strategic repositioning and radical strategic repositioning. page 78

Key Terms consumer movement an organized collection of groups, with the objective of protecting consumer rights consumerism organized action against business practices that are not in the interests of consumers corporate social responsibility (CSR) the ethical principle that an organization should be accountable for how its behaviour might affect society and the environment culture the combination of traditions, taboos, values and attitudes of the society in which an individual lives demography changes in the population in terms of its size and characteristics environmental scanning the process of monitoring and analysing the marketing environment of a company environmentalism the organized movement of groups and organizations to protect and improve the physical environment; their concerns are production and consumption of products that lead to global warming, pollution, the destruction of natural resources such as oil and forests, and non-biodegradable waste ethical consumption when individual consumers, when making purchase decisions, consider not only personal interests but also the interests of society and the

environment fair-trade marketing a movement that aims to help producers in developing countries to produce goods ethically, and enhances the well-being and wealth of the workers in these countries; the movement also promotes sustainability macroenvironment a number of broader forces that affect not only the company but also the other actors in the microenvironment marketing environment the actors and forces that affect a company’s capability to operate effectively in providing products and services to its customers microenvironment the actors in the firm’s marketing environment–customers, suppliers, distributors and competitors PEEST analysis of the political/legal, economic, ecological/physical, social/cultural and technological environments physical environment the planet and places in which we live. From a marketing perspective, it is important, as the environmental impacts of commerce are affecting how we might live our lives in the future, and this has consequences for marketing activities

Study Questions 1. Describe the marketing environment and explain how it can inform marketing strategy and planning. 2. Choose an organization and identify the major macroenvironmental forces most likely to affect its prospects in the next three years. 3. Discuss how technology is changing the marketing landscape and the implications of the changes for marketers. 4. Which aspects of the technology force should a manufacturer of consumer goods consider? Why? 5. Discuss how the Covid-19 pandemic has impacted on global economies. 6. Imagine you are the marketing manager of a new web-based company. Discuss how you should respond to GDPR legislation. 7. What are the major ecological/physical environmental forces acting on marketing? What are their implications for marketing management? 8. Discuss global population from a marketing perspective. 9. Explain why it is important for marketers to understand national demographic profiles, and suggest how they might use this information. 10. Actors in the microenvironment take on different roles. Discuss the relationships between each of the categories of actors.

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Recommended Reading Marketing is changing and the environment is reshaping marketing practices. Read about the revolutionary changes taking place, the importance of sustainability and how disrupting marketing is creating opportunities for building global brands. Mohr, J.J., Price, L.L. and Rindfleisch, A. (2016) Marketing’s quest for environmental sustainability: persistent challenges and new perspectives, in N.K. Malhotra (ed.) Marketing in and For a Sustainable Society. Bingley: Emerald Publishing Limited, 29–59. Webster, F.E. and Lusch, R.F. (2012) Elevating marketing. Marketing is dead! Long live marketing! Journal of the Academy of Marketing Science, 41: 389–99.

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CASE 3 THE NEW [AUGMENTED] REALITY FOR FASHION RETAILING Introduction This case study focuses on the challenges experienced by fashion retailers during and after the Covid-19 pandemic, with consideration of macroenvironmental and microenvironmental issues impacting current and future decisions in fashion offline and online retailing. It argues for continued development and investment in technologies such as augmented and virtual reality (AR and VR) as well as 3D, to enhance the customer experience while supporting the traditional high-street store and the virtual environment, as well as benefiting fashion retailing distributors and supporting a sustainable environment into the future.

The Challenges for the Retail Sector The global fashion retail sector has been undergoing rapid, substantive and transformative change in recent years, accelerated by advances in technology, ever-evolving consumer

tastes and growing expectations especially around ethical and sustainable consumption. However, the impact of Covid-19 forever altered consumer behaviour, eradicated the need for the ‘bricks and mortar presence’, boosted fashion e-commerce, empowered consumers to become more autonomous and, in turn, diminished the need for store assistants on the same scale as before (Grgic and Stipetic 2020). Furthermore, with the uncertain climate, the need for luxury fashion diminished. While demand for fast fashion may not yet be on the decline, slow fashion is becoming more popular with consumers, who are becoming more ethically and sustainably conscious in their consumption habits (Rauturier 2022).

Fashion Retailing Today To effectively survive and compete brands must invest in a quality online, seamless omnichannel experience. Brands also must develop and maintain a visible stance on sustainable issues. Multiple channels and touchpoints are essential for a seamless customer experience: expanding customer engagement channels, adding more self-service options, merging data and personalizing communications and customer loyalty programmes (Lynch 2021). In addition, ever-increasing customer expectations in both offline and online settings must continuously be addressed and augmented, and include ease of access to products and customer service, a sense of immediacy, high levels of interaction and engagement, yet often in a contactless and frictionless environment with an optimal retail and brand experience (Amed et al. 2019). Furthermore, in the macroenvironment, there are many issues to contend with from an economic, political, technological, ecological, demographic and socio-cultural perspective. Inflation has hit an all-time high, and retailers are dealing with very high fuel costs; challenges related to the conflict in Ukraine, ongoing political barriers around Brexit, Covid-19 and a myriad of future uncertainties are impacting the supply chain. Ongoing economic uncertainty is impacting all supply chain stakeholders, from manufacturer, retailer and distributor to final consumer. Furthermore, additional manufacturing issues such as minimum wage increases and legislation concerning human resource issues, most especially regarding workplace conditions, need to be addressed proactively. Individually and collectively, these growing operating costs have had an impact on the bottom line and future strategy of every retail organization. Advances in technology are impacting the fashion retail sector for all involved from a manufacturing, supply chain, customer service, and commercial and marketing perspective. The e-commerce environment continues to thrive and, according to the UK’s Office for National Statistics (ONS 2021), non-food stores provided the largest contribution to growth in retail and online sales in the textile, clothing and footwear sector have grown by 36 per cent year-on-year, with online sales as a proportion of retail comprising 57.6 per cent. Ecological concerns abound for all stakeholders in areas such as sourcing of raw materials, fast fashion and sustainability. Finally, demographic and sociopage 84 cultural issues affect multiple elements in fashion retail management, in line with ever-evolving trends, changes in cultures, subcultures, lifestyles and population/demographic changes (Chron Contributor 2020).

‘Omni-present’ Retailing Leading (online and offline) fashion retailers such as ASOS, Boohoo and Zara are prioritizing investment in technology, particularly in areas such as e-CRM and augmented reality (AR) to remain competitive, and in an effort to offer innovative, personalized and seamless customer

experiences (BearingPoint 2021). Application programming interfaces (APIs) enable businesses to streamline and connect all of their applications and strategy under one seamless interface, which integrates technologies and systems. APIs enable companies to build a single customer view, create an omnichannel experience, improve operational efficiency, and deliver personalized and responsive retail experiences across multiple platforms for the benefit of the consumer (Salesforce Inc., MuleSoft 2022). Technology increasingly has a key role to play in retail competitiveness, with two-way QR codes, RFID technology, near-field communication (NFC), augmented reality (AR), NFTs (non-fungible tokens), smart checkout and store management systems becoming the norm in every retail unit (Dopson 2022). Mobile e-commerce, otherwise referred to as m-commerce (mobile commerce) is proving useful for both online and offline stores in connecting to customers and offering them a personalized service. Mobile e-commerce has increased and is set for further growth, with 73 per cent of e-commerce conducted through mobiles as things currently stand (Oberlo 2022). Since 2020, there has been a significant increase in mobile shopping, especially among millennial and Gen Z consumers and via apps such as Amazon, eBay, Pretty Little Thing and Shein (Joshi 2021). It is widely predicted that mobile will become the preferred channel for online shopping in the coming years (Insider Intelligence 2022). Furthermore, social media sites such as Facebook, Instagram, Twitter, Pinterest and Snapchat have introduced ‘buy buttons’. The use of apps has become the norm for many fashion-conscious consumers, with younger consumers purchasing most of their fashion choices via an app. These apps assist customers in researching brands, products and reviews, visualizing and even ‘virtually’ experiencing a potential product, purchasing and re-purchasing it–as well as benefiting by being part of a customer loyalty and reward programme. Smartphone technology, app development, artificial intelligence, data mining, and augmented and virtual reality (AR and VR) have accelerated the growth and adoption of the virtual fashion store. Most fashion retailers have developed mobile-friendly e-commerce opportunities aligned with digital integration of marketing and influencer functionality, as well as integrating additional payment providers such as PayPal, Stripe, Square, Shopify, Skrill and Google Pay.

Advancing Global E-commerce Through Augmented and Virtual Reality and 3D Models Many global fashion retail companies–from luxury brands to high street–such as Nike, Reebok, Burberry, Gucci, Timberland and Lacoste, as well as ASOS and H&M (Johnson 2021), are using a variety of e- and m-commerce platforms that leverage AR, VR and 3D models to enhance the shopping experience (Chalimov 2021). A significant percentage of eand m-commerce revenue is generated because of global fashion retail business expansion, mass adoption of smartphone technology, emerging worldwide middle classes with disposable income, and the growth in influencers (Orendorff and Dopson 2022). Fashion brands such as Burberry have successfully boosted customer engagement with AR, and Burberry’s collaboration with Google offered the in-store shopping experience direct to shoppers’ digital devices, displaying 3D images of products. Similarly, Gucci enables customers to remotely and virtually try on its Ace sneakers collection, and went one step further, partnering with Snapchat to offer instant messaging. ASOS launched an experimental AR extension called Virtual Catwalk within its app, allowing customers to see how clothes fit on 16 different models from sizes 4 to 18 (Kang 2021).

Consequently, shoppers can more easily visualize the prospective purchase, aiding their decision-making and increasing the likelihood of purchase. The adoption of this technology has led to a global and wider customer base with a greater spend. Additional benefits for the retailer include increasing customer engagement, increasing development and curation of social media content, identifying customer preferences, delivering a contactless experience and supporting customer loyalty programmes. Deloitte has suggested that 40 per cent of shoppers would be prepared to pay even more for a product if they were able to test it through AR technology (Ebbesen and Machholdt 2019). In environmental terms, it is also proving to be an eco-friendly initiative, reducing journeys to stores and leading to fewer returned orders. page 85 More than 3.5 billion people (or 44 per cent of the world population) are using smartphonebased AR, with 32 per cent of AR users utilizing it for shopping (Softwaretestinghelp.com 2022). Leading AR and VR apps such as IKEA Place, ScopeAR, Augment, Modiface, Pokémon GO, Medical Realities, Roar, uMake, Lens Studio and Giphy World have certain criteria in common: consideration of hardware specifically for mobile/tablet cameras, security and privacy guidelines, as well as AR software development kits (SDKs) that include functionalities such as 3D recognition and tracking, simultaneous localization and mapping (SLAM), location recognition (GPS support) (Softwaretestinghelp.com 2022), image recognition, motion tracking, light estimation and environment tracking, that best suit AR clothing and make-up apps, as well as consideration of the overall user interface and experience (UI and UX) (Bhatt 2020). Some of the best fashion AR apps (according to www.supersuperagency.com/blog/topfashion-ar-app-concepts) include:

1. 2. 3. 4. 5. 6. 7. 8. 9. 0. 1. 2. 3. 4.

Zara AR app Burberry AR collaboration with Google Nike Fit app Shopify AR Wanna Kicks sneakers try-on camera Zara Shop the Look Converse Shoe Sampler Inkhunter AR app Wanna Nails Uniqlo AR app Timberland AR mirrors Lacoste LCST Sephora AR makeover app L’Oréal virtual make-up app

5. Charlotte Tilbury Magic Mirror 6. Ray Ban virtual try-on Source: Stipetic and Juretic (2020) Clearly, AR contributes to e-commerce, and has been and continues to be mutually beneficial for organizations and consumers alike. VR exploits all technological advances and ameliorates business offerings, including new product launches, is fully immersive, and enhances and personalizes the customer experience (BigCommerce 2022). Gamification in fashion using AR is also an effective means of brand engagement, through mini games (e.g. ASOS fashion shows and Victoria’s Secret with its PINK line, helping customers understand what a brand offers (Boiko 2021). Furthermore, 3D technology can be used to create prototypes and products quickly, and can offer three-dimensional modelling of products (albeit in a virtual manner) as an immersive and interactive experience, both in a physical and/or virtual setting (Wynne Lockhart 2021).

Fashion Disruptors There is a growing consensus that fast fashion has been impacted by consumers who are more ethically and sustainably aware, as well as those seeking a superior-quality customer experience with the brand as well as with the platform. Consumers are seeking out usergenerated content (UGC) such as reviews from fellow customers, and desire a more authentic level of engagement. However, even the most fashion-conscious consumer cannot keep up with avant-garde technology that includes NFTs, AI-powered sizing and fashion-led gaming that includes platforms such as Dress-X, digital-only NFT-focused marketplaces such as RTFKT (pronounced ‘artefact’, acquired by Nike in December 2021), and page 86 innovations companies like Alvanon and BodyBlock AI that offer technology to elevate design, fitting and sizing strategies (Naklakha 2021).

Source: ronstik/Shutterstock

Experiential Shopping

The challenge for fashion retailers who have a high-street as well as an online presence has been the switch by consumers to online shopping and a hesitancy to try on clothes in-store before buying. Since the start of the pandemic, retailers such as Adidas, ASOS, Zara and Gap have rolled out their own AR fitting rooms and experiences. Examples of AR in retailing include virtual tours, space visualization and large products shopping (used successfully by IKEA in selecting furniture for a room), colour matching (used by paint companies like Dulux), in-store displays, as well as brand engagement and customer loyalty initiatives (Marr 2021). AR and VR are used in outfit visualization, AR fitting rooms and AR-enabled try-ons (by jewellery, clothing and eyewear companies), virtual tailors, colour-changing apps, AR virtual showrooms, social media AR filters, virtual makeovers used by brands such as Mac and L’Oréal, AR mirrors used by stores such as UNIQLO, in-store navigation and digital advertising. AR has become a real bonus as shoppers do not have to worry about ordering clothes of the wrong size, or make-up in an incorrect shade, with 56 per cent of shoppers considering it has made their shopping experience easier (Harrison 2022). The use of innovative technologies such as AR and even online video chats, recreates an in-store shopping experience, enhances customers’ experiences, offers a more personalized experience for online shoppers, and reduces the need for additional customer support and the high return rate of online purchases.

The Future of Customer Loyalty CRM loyalty programmes are usually associated with a points-based tiered reward system, typically with customers redeeming points for discounts, and while financial rewards matter, today’s customers prioritize charity, ethical practices, and community- and sustainabilitydriven initiatives (Bzik 2020). In recent times, loyal customers have been seeking out valuebased loyalty reward systems that are based on additional, deeper social interactions, offering more personalized curated shopping experiences (Diehl 2022). Sustaining relevancy for the brand, maintaining momentum with customer preferences that rapidly evolve and taking into consumers’ differing preferences based on socio-cultural differences are key (Chitrakorn 2021). From a medium- and long-term perspective, customer loyalty will reach another level, thanks to greater collaboration between fashion retail brands, influencers and platforms, AR and VR tools, AI product recommendations, enhanced CRM programmes, and a more sophisticated and personalized shopping experience as a result of more intricately considered customer journey mapping, right through from search stage to after-sales service experiences, enhanced UX design and CX (Grgic and Stipetic 2020). The features/benefits offered through increased digitization of the customer journey and by retailers’ loyalty programmes include mapping and enhancing each stage of the entire customer journey and experience. Increasingly loyalty programmes are not just about ‘hard rewards’ such as discounts and redeeming points, but also the addition of ‘soft rewards’ such as augmenting the experience for customers through deeper engagement and development of bonds through value-based loyalty programmes, improved content development, and additional engagement with social and sustainable issues that are a priority for the consumer (Chitrakorn 2021).

The Future of Fashion Retailing Technological developments in areas such as clothing design and manufacturing, as well as stock control systems, may well have contributed to fast fashion, but AI has in turn

contributed to improved design, fitting and craftsmanship. Furthermore, on the shop floor there have been developments in AI shelving and JIT systems, as well as inventory and cleaning robots. Service robots may be able to guide customers through a store, or summon a ‘real’ employee, while some mirrors have become ‘smart’ assistants. From a digital marketing communications perspective, new forms of technology will facilitate enhanced customer experiences, particularly in the areas of ‘re-ecommerce’, personalization and smart, sustainable fashion (KPMG 2021). By 2030, retail and manufacturing experts predict that the fashion retail sector will evolve into a completely new market situation, with a variety of social and economic factors playing a significant role in its transformation. Increased digitization, ecommerce opportunities, sustainability, customer-centricity and reduction in physical presence, coupled with an increase in VR, will drive fashion retailers to reposition themselves, their brands, product and service offerings, their ethos and future strategy (KPMG Ireland 2021). page 87

Questions 1. Discuss the challenges for both consumers and fashion retailers during and after the Covid-19 pandemic, in light of the microenvironmental and macroenvironmental factors. 2. Identify what challenges can be addressed that will benefit the ecological/physical environment and a retailer’s corporate reputation, and contribute to ethical consumerism. 3. Discuss how high-street fashion retailers scan the environment, and the various responses to environmental change they have had to adopt. 4. Identify and discuss the wide-ranging political and legal forces that impact fashion retailers, and consider legal and regulatory responses to ethical and sustainable issues. This case was prepared by Dr Fiona Whelan-Ryan, South-East Technological University, School of Business.

References Amed, I., Balchandani, M., Berg, A., Hedrich, S. and Rölkens, F. (2019) Now or never: immediacy and customer experience in fashion retail, McKinsey.com, www.mckinsey.com/industries/retail/our-insights/now-or-never-immediacy-and-customerexperience-in-fashion-retail (accessed 24 June 2022); BearingPoint (2021) Digital leaders in the United Kingdom 2021, www.bearingpoint.co.uk, www.bearingpoint.com/en-gb/insightsevents/digital-leaders-2021/ (accessed 30 June 2022); Bhatt, Y. (2020) Beginners guide to augmented reality fashion, Biztech, 24 September, www.biztechcs.com/blog/augmented-

reality-for-fashion-retailers/ (accessed 27 June 2022); BigCommerce (2022) How augmented reality in ecommerce can deliver a more enticing shopping experience, www.bigcommerce.com/articles/ecommerce/ecommerce-augmented-reality/ (accessed 15 June 2022); Boiko, O. (2021) Augmented reality in fashion: 13 examples of brands using AR, We/Ar Studio, https://wear-studio.com/augmented-reality-for-fashion-industry-whats-new/ (accessed 15 June 2022); Bzik, K. (2020) How fashion brands can run a successful loyalty program in the post-Covid economy: an interview with Louise Hutchins, MD at The Loyalty People and former head of loyalty at M&S, OpenLoyalty.com, www.openloyalty.io/insider/fashion-loyalty-programs (accessed 15 June 2022); Chalimov, A. (2021) Bringing augmented reality to your retail app, Eastern Peak, 20 October, https://easternpeak.com/blog/bringing-augmented-reality-to-your-retail-app/ (accessed 14 June 2022); Chitrakorn, K. (2021) What the new customer loyalty looks like, Vogue Business, 17 May, www.voguebusiness.com/companies/what-the-new-luxury-customer-loyaltyprogramme-looks-like (accessed 27 June 2022); Chron Contributor (2020) The macroenvironmental factors affecting the clothing industry, Small Business.chron.com, https://smallbusiness.chron.com/list-market-segments-retail-clothing-market-32446.html (accessed 24 June 2022); Diehl, J. (2022) The future of fashion: the consumer is the game changer, Fashion United, https://fashionunited.uk/news/business/the-future-of-fashion-theconsumer-is-the-game-changer/2022052763328 (accessed 15 June 2022); Dopson, E. (2022) Retail technology: upgrade your toolstack with these 6 trends, Shopify Retail Blog, 10 February, www.shopify.ie/retail/retail-technology (accessed 27 June 2022); Ebbesen, H. and Machholdt, C. (2019) Digital reality changes everything: step into the future, Deloitte.com, https://www2.deloitte.com/content/dam/Deloitte/dk/Documents/Grabngo/Digital%20Reality%2 0GrabNGo_2019_030419.pdf (accessed 14 June 2022); Grgic, S. and Stipetic, M. (2020) 2021 Top 17 fashion retail ecommerce industry trends /w Covid 19 situation included, Supersuperagency.com, 15 December, www.supersuperagency.com/blog/top-10-fashion-ecommerce-trends-for-2020 (accessed 14 June 2022); Harrison, D. (2022) Mobile and technology to the retail rescue, Foresight Factory, www.foresightfactory.co/mobile-andtechnology-to-the-retail-rescue/ (accessed 15 June 2022); Insider Intelligence (2022) Rise of mcommerce: mobile ecommerce shopping stats & trends in 2022, Insider Intelligence, 15 April, www.insiderintelligence.com/insights/mobile-commerce-shopping-trends-stats/ (accessed 27 June 2022); Johnson, P. (2021) Augmented reality in fashion, www.rockpaperreality.com, 31 October, https://rockpaperreality.com/ar-usecases/augmented-reality-in-fashion/ (accessed 30 June 2022); Joshi, M. (2021) Dominance of m-commerce in the UK, 21 May, www.krishtechnolabs.com, www.krishtechnolabs.com/blog/the-dominance-of-m-commerce-and-the-uk-market/ (accessed 30 June 2022); Kang, A. (2021) 5 examples of augmented reality in fashion retail, Netguru, 27 September, www.netguru.com/blog/augmented-reality-fashion-retail-examples (accessed 27 June 2022); KPMG (2021) Front row: seeing the fashions of the future: Fashion 2030 study, https://assets.kpmg/content/dam/kpmg/ie/pdf/2021/05/ie-front-rowseeing-fashions-future.pdf (accessed 15 June 2022); KPMG Ireland (2021) Fashion 2030 study: is fast fashion history? KPMG Ireland, https://home.kpmg/ie/en/home/insights/2021/05/fashion-2030-retail.html (accessed 14 June 2022); Lynch, B. (2021) Technology strategies to drive exceptional CX, Customer Contact Week Digital, Talkdesk, https://infra-cloudfronttalkdeskcom.svc.talkdeskapp.com/talkdesk_com/technology-strategies-to-drive-exceptionalcx.pdf (accessed 14 June 2022); Marr, B. (2021) 10 best examples of augmented reality in retail, Forbes, 13 Sept, www.forbes.com/sites/bernardmarr/2021/09/13/10-best-examples-ofaugmented-and-virtual-reality-in-retail/?sh=6db99e466269 (accessed 15 June 2022); Naklakha, M. (2021) These are the tech disruptors shaking up the fashion industry, Vogue, www.vogue.in/fashion/content/these-are-the-tech-disruptors-shaking-up-the-fashion-industry

(accessed 14 June 2022); Oberlo (2022) Mobile commerce sales in 2022, Oberlo.com, www.oberlo.com/statistics/mobile-commerce-sales (accessed 27 July 2022); Office for National Statistics (ONS) (2021) Retail sales, Great Britain: February 2021, ONS, 26 March, www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/february2021 (accessed 20 July 2022); Orendorff, A. and Dopson, E. (2022) The state of the ecommerce fashion industry: statistics, trends & strategies to use in 2022, Shopify Plus, 18 February, www.shopify.com/enterprise/ecommerce-fashion-industry (accessed 27 June 2022); Rauturier, S. (2022) What is fast fashion and why is it so bad? Goodonyou.eco, 1 April, https://goodonyou.eco/what-is-fast-fashion/(accessed 27 June 2022); Salesforce Inc., MuleSoft (2022) Move from transactions to personalized relationships, MuleSoft, page 88 www.mulesoft.com/integration-solutions/saas/retail? &utm_source=google&utm_medium=cpc&utm_campaign=g-rcg-uki-search-retailtechnology&utm_term=retail%20technology&utm_content=g-ec&gclid=CjwKCAjwquWVBhBrEiwAt1KmwsPbygD2ho21i44AnQCxATQECX4dTnunN1tdG7bgbtoXfTKL9de4BoCaUEQAvD_BwE&gclsrc=aw. ds (accessed 27 June 2022); Softwaretestinghelp.com (2022) Top 10 best augmented reality apps for Android and IOS, Software Testing Help, 15 June, www.softwaretestinghelp.com/best-augmented-reality-apps/ (accessed 27 June 2022); Stipetic, M. and Juretic, N. (2020) Top fashion AR apps, Supersuperagency, www.supersuperagency.com/blog/top-fashion-ar-app-concepts (accessed 14 June 2022); Wynne Lockhart, J. (2021) How augmented reality (AR) is changing ecommerce shopping, Shopify Plus, www.openloyalty.io/insider/fashion-loyalty-programs (accessed 15 June 2022).

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CASE 4 SODASTREAM: USING ENVIRONMENTAL AWARENESS TO REACH GENERATIONS X, Y AND Z

The increasing popularity of sparkling water over the past decade can be attributed to a rise in health consciousness among consumers, as well as the brand appeal of such major players as LaCroix Sparkling Water and Perrier. The global soft drink market (i.e. nonalcoholic beverages) is extremely lucrative, with revenue expected to be US$900 billion in 2022 and an estimated annual growth of 5.36 per cent. SodaStream International, a major presence in the sparkling water market, is a company that distributes seltzer-making units and syrups in 47 countries via 70,000 different retail locations, and has a long tradition and rich history. The company’s origins go back to 1903, when it was one of the first providers of a system that allowed people to make carbonated water (otherwise known as ‘sparkling water’) at home. Founded by W&A Gilbey, the famous London gin distiller, its first soda-making apparatus was very popular with the British upper class. Even the royal family was equipped with a seltzer-making unit in the early twentieth century. The company, constantly improving and updating its technology, now sells systems that allow people to add flavouring and produce their own soda from regular tap water, whenever they want to. Since 2020, people with SodaStream units have been able to make Pepsi beverages such as Pepsi, Pepsi Max and 7UP in the comfort of their very own homes. SodaStream claims that its machines are cost effective, allowing people to make sparkling water for only $0.20 per litre and traditional flavoured sodas for about $0.57 per litre. SodaStream had a 23.6 per cent share of the US retail carbonated water market in 2021, but it is in the Scandinavian countries that the company has seen its greatest success, maintaining a market share of about 50 per cent for years. SodaStream initially operated as a business-to-business enterprise, selling to third-party retailers, which would then market the products in their own stores. The company has long factored environmental concerns into its business model, using a closed-loop system whereby consumers return used cylinders to retailers for cleaning and reuse. The company has also been investing heavily in digital transformation technology to align its operational and business goals with sustainable solutions and products. As a result of the Covid-19 pandemic, SodaStream saw the opportunity to reach a wider audience as the cook-at-home trend increased consumer investment in home appliances. This dovetailed nicely with an increasing prevalence for consumers to invest more in sustainable products. A reported 45 per cent of shoppers have said that they are more likely to make sustainable purchases since the pandemic hit, according to the consultant Accenture, with Gen Z and millennial consumers even more likely to make purchase decisions based on these values. As a result, SodaStream has the lofty ambition to become an essential piece of kitchen equipment. As Jörn Viefhues, managing director of SodaStream Nordics AB, puts it, ‘80% of Scandinavian households have the “big three” of a coffee machine, toaster and kettle in their kitchen. Our goal is to put SodaStream on the same level of ubiquity.’ As a result, SodaStream has made it clear that it plans to revamp the way it markets its products, focusing on the message of sustainability. Its current slogan, ‘Good for You, Better for the Planet’, was introduced in the viral video entitled ‘The Small Things’ starring Snoop Dogg, which first aired on social media in November 2020. The critical marketing message of SodaStream has become, ‘Get yourself a sparkling water maker, and save thousands of single-use plastic bottles a year!’ According to Karin Schifter-Maor, the chief marketing officer of the brand, the reason Snoop Dogg was chosen was because ‘Nothing is small with Snoop. He is larger than life. He was a good person to collaborate with for this message in the SodaStream way, which is humor and smiles. With Snoop, we wanted to create a platform

where sustainability becomes cool and fun.’ The goal, as announced by Ms Schifter-Maor, is to reach out to new demographics including the ‘sinks and dinks’ (single income/double income–no kids) category, as well as millennials. Up until 2020, SodaStream was primarily targeting the Gen Y cohort. page 90 By partnering with Snoop Dogg, the company realized it could profit from his popularity and reach adoring Gen Z fans as well, while at the same time maintaining a relationship with Gen X and Y clients, who also appreciated Snoop Dogg’s humour. It can also be argued that the Snoop Dogg partnership reinforces the brand’s mission by using the Gen Z group as ‘paradigm change agents’. What this means is that even though Gen Z might not be SodaStream’s core consumers, their parents and grandparents are. The brand thus counts on Gen Z to act as a sort of encourager, communicating the message of sustainability, health and wellness to others, hopefully resulting in increased sales for SodaStream. In addition to run-of-the-mill marketing and strategic challenges, the company has also faced political issues related to the ongoing Israeli–Palestinian conflict. In 2015, the company closed a factory that was situated in the Mishor Adumim industrial zone of the Ma’aleh Adumim settlement in the West Bank and moved its operations to Idan HaNegev in southern Israel. The international Boycott, Divestment, Sanctions (BDS) movement, which is critical of Israel, has not yet removed SodaStream from the list of ‘Enterprises to be put in quarantine’ and the campaign to boycott SodaStream products is ongoing. Despite the ever-present political challenges facing SodaStream, luckily it has some elements clearly in its favour: consumer psychology and post-pandemic behaviour. Personal well-being, conscious consumption, naturalness and sustainability have become major factors for current product development in the beverage market. The pandemic has brought increased interest in SodaStream products, with the company’s home systems now selling from roughly US$90 to US$160. For many people who buy one of these home units, the action registers mentally as a type of investment rather than a simple purchase. Customers have incurred a sunk cost, and as a result, have a ‘psychological incentive’ to use the machine as many times as possible in order to recoup the purchase cost through the savings they receive by making soda more cheaply at home. Furthermore, the claim that one can avoid wasting 730 plastic bottles a year simply by using SodaStream sparkling water makers targets the environmental consciousness of Gen Z, which can then influence Gen Y and X. Hopefully, for SodaStream, people trying to save money and avoiding plastic waste is a trend that will never go out of style.

Questions 1. Do a SWOT analysis for SodaStream. 2. What are the marketing challenges facing SodaStream? 3. Apart from marketing, what other challenges is the company facing?

4. What strategic action is SodaStream taking in reaction to its current challenges? Do you think the company will be successful? Justify your answer. This case study was written by Tom McNamara and Irena Descubes, Rennes School of Business.

References Based on: SodaStream website, https://sodastream.com; Stanford, D.D. (2012) SodaStream takes marketing tactic to Coca-Cola’s hometown, Bloomberg, 20 June, www.bloomberg.com/news/2012-06-20/sodastream-takes-marketing-tactic-to-coca-cola-shometown.html; Stock, K. (2013) The secret of SodaStream’s success, Bloomberg Businessweek, 31 July, www.businessweek.com/articles/2013-07-31/the-secret-ofsodastreams-success; AFP (2014) SodaStream Is closing its controversial West Bank plant that caused its ambassador Scarlett Johansson to quit her role at Oxfam, AFP, through Business Insider, 30 October, www.businessinsider.com/afp-sodastream-to-closecontroversial-west-bank-plant-2014-10#ixzz3P77YIoXy; Esterl, M. (2014) SodaStream to close West Bank factory by mid-2015, Wall Street Journal, 29 October, www.wsj.com/articles/sodastream-to-close-controversial-west-bank-factory-by-mid-20151414599238; IBIS (2014) Global soft drink & bottled water manufacturing market research report, IBIS World Market Research, September, www.ibisworld.com/industry/global/globalsoft-drink-bottled-water-manufacturing.html; IBIS (2014) Soda production in the US: market research report, NAICS 31211a, November, www.ibisworld.com/industry/default.aspx? indid=285; Rudorenoct, J. (2014) Israeli firm, target of boycott, to shut West Bank plant, New York Times, 30 October, www.nytimes.com/2014/10/31/world/middleeast/sodastream-toclose-factory-in-west-bank.html?_r=1; Cardenal, A. (2015) Is SodaStream a top turnaround candidate in 2015? Motley Fool, 15 January, www.fool.com/investing/general/2015/01/15/issodastream-a-top-turnaround-candidate-in-2015.aspx; Jacobsen, J. (2015) 2015 new product development outlook: survey-takers report using nearly 12 flavors in 2014, Beverage Industry, 12 January, www.bevindustry.com/articles/88120-new-product-developmentoutlook; Statista (2015) Soft drink sales worldwide in 2012 and 2017, by region (in million litres), Statista, www.statista.com/statistics/232794/global-soft-drink-sales-by-region; Dolsten, J. (2017) Mayim Bialik time travels in this funny new SodaStream commercial, Jewish Telegraphic Agency, 12 July, www.jta.org/2017/07/12/life-religion/mayim-bialik-time-travels-inthis-funny-new-sodastream-commercial; Roderick, L. (2017) SodaStream CEO on page 91 why marketing is key as it aims for ‘cult’ brand status, Marketing Week, 18 July, www.marketingweek.com/2017/07/18/sodastream-cult-brand; Sredni, Y. (2017) Made in Israel: SodaStream now proudly labels its products with the Israeli flag, NoCamels, 7 February, http://nocamels.com/2017/02/made-in-israel-sodastream-flag-bds; O’Brien, J. (2018) SodaStream reveals why ‘disruptive’ influencer campaigns are vital to reaching new audiences, CMO, 9 February, www.cmo.com.au/article/633195/sodastream-reveals-whydisruptive-influencer-campaigns-vital-reaching-new-audiences; Schmit, F. (2018) Comments on the sugar tax in the UK, Euromonitor, 26 March, https://blog.euromonitor.com/2018/03/sugar-tax-uk.html; Business Wire (2020) Covid-19 increasing consumers’ focus on ‘ethical consumption,’ Accenture survey finds, Businesswire.com, 4 May, www.businesswire.com/news/home/20200503005029/en;

Dilworth, D. (2020) Innovator interviews: SodaStream’s global CMO, Brand Innovators, 20 November, www.brand-innovators.com/news/innovator-interviews-sodastreams-global-cmo; SodaStream & Snoop Dogg (2020) ‘The Small Things’ [video], YouTube, 18 November, https://youtu.be/xXlKRB1absA; European Business (n.d.) Less waste more sparkle, European Business, www.european-business.com/sodastream-nordics-ab/less-waste-moresparkle; Statista (n.d.) Non-carbonated soft drinks worldwide market, Statista, https://fr.statista.com/outlook/cmo/non-alcoholic-drinks/soft-drinks/non-carbonated-softdrinks/worldwide?currency=eur. page 92

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CHAPTER 3 Sustainable Marketing and Society Learning Outcomes After reading this chapter, you should be able to:

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he world has changed, people have changed and the way businesses operate has changed fundamentally in the past decade. Why? On an environmental level, the impact of global warming and the outlook for the climate have brought into focus the importance of achieving a lowcarbon future, learning how to reduce energy consumption, working with renewable energy, reusing materials and cutting waste. On a societal level, inequality, race, gender, poverty, online media and the Covid-19 global pandemic are all affecting how we behave as individuals and communities. This chapter explores how the environment and society are changing the

marketing landscape. Hidden gems are organizations, brands or people seeking to make a difference to marketing and business practices. In Hidden Gem 3.1 we look at Pangaia, an organization that focuses on what we buy online and engineers products that can be changed to become more environmentally acceptable. Begin by reading Hidden Gem 3.1, and consider how businesses can change how they behave in order to operate sustainably and ethically.

HIDDEN GEM 3.1

Pangaia Pangaia is ‘a material science company on a mission to save our environment’ (Pangaia 2022). It brings together expert teams of scientists, technologists and designers to develop products that are technology led using bio-engineered materials. The name ‘Pangaia’ comes from Pan, meaning all-inclusive, and Gaia, mother earth. The underlying philosophy of the business is to generate profits that can be invested in organizations and causes that are impacting the planet. Examples of the causes on which it is focusing are Black Lives Matter (raising awareness of issues and promoting education), Protecting Wildlife (wildfires in Australia), Costa Brazil (collaboration to support indigenous communities in the Amazon rainforest) and Covid-19 Relief (supporting Doctors Without Borders).

Source: Anita Ponne/Shutterstock Pangaia is bringing together expert teams and their knowledge to do things differently. It has more than 200 fabrics and its R&D teams are constantly developing more–for example, organic and recycled cotton, seaweed fibre, botanical dyes and C-Fiber™ (a 100 per cent biodegradable fabric produced using a process that saves water). Made of pulp from the eucalyptus tree and seaweed powder, C-Fiber™ is made using a closedloop production system that recycles water (from the ocean and rainfall rather than fresh water) and reuses 99 per cent of the solvents used in the manufacturing process. CFiber™ is used to manufacture T-shirts and leisurewear. In addition to producing a range of products sold direct to the consumer, Pangaia also works with other manufacturers to build partnerships to help the fashion industry to become more sustainable. The underlying philosophy of Pangaia is built on a set of sustainable development goals, which are integrated throughout the business: innovation and infrastructure, reducing inequalities, engendering responsible consumption and productions, climate action, protecting the oceans and life on land. Pangaia is doing things differently to create a sustainable marketing future. Find out more using the digital credentials. Digital credentials Web: www.pangaia.com Social media: find Pangaia on all major social media channels

Blog: https://pangaia.com/blogs/globalworld/digital-storytelling-evolves-eco-innovatorspangaia-push-the-envelope-for-online-immersion

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Then continue reading to explore some of the major movements bringing about organizational change: socio-sustainability, corporate social responsibility (CSR), the value cycle, and how brands can change their strategies to adopt sustainable approaches to marketing. The chapter concludes with two case studies in which you can discover McDonald’s and it’s plan for environmental change and Unilever’s approach to sustainability.

The Environment, Society and the Changing Marketing Landscape The Pangaia Hidden Gem case highlights how it is possible to do things differently, but this is just one organization among many millions around the globe. Before we delve further into the dimensions of sustainability and marketing, relevant marketing theory and how firms are responding, let’s identify some of the key sustainability issues shaping the marketing landscape and build on issues raised in Chapter 2. Globalization brings many positives: access to new markets, increased flow of goods and services, reduction of trade barriers, growth in development and employment in deprived areas through international investment, sharing of cultures, openness, sharing of innovations and technology. Less positive factors, however, are increased product miles, using more fossil fuels to move goods across global supply chains, invasive species transported to new habitats in shipping containers and freight vessels, economic specialization that intensifies the need for global trade, poor working conditions, worker inequalities, overexploitation of natural resources, and more (Stobierski 2021).

The industrialization of agriculture and farming supports the food needs for rapidly growing world populations. Through the use of pesticides and high-yield crops, food production increases but there is a heavy price to be paid in terms of the environment. On a global scale industrial farming has intensified land use and, in so doing, has put pressure on local ecosystems, which in turn can reduce reliance on renewable energy, and cause deforestation, water and air pollution, over-exploitation of natural resources and over-fishing. The resulting loss of habitats has led to decreased biodiversity and the extinction of many species, and a significant impact on the climate and natural resources (Dorninger et al. 2021; UN Environment Programme 2022). Politics and climate change: scientific communities generally agree the climate is changing. Political advocates for action, from Swedish environmentalist Greta Thunberg to US politician Al Gore, have helped to ensure world governments are aware of the need to tackle the issues. Yet political discourse all too often diverts attention away from finding rapid solutions for reducing carbon dioxide emissions, mitigating greenhouse gas (GHG) production and setting sustainably responsible deadlines to halt adverse global changes (Glavovi et al. 2021). In 2021, the COP26 climate summit brought together influential parties from across the globe in a bid to speed up the goals on climate change set by the Paris Agreement and the UN Framework Convention on Climate Change (UN 2021). Commentators argue outcomes from the summit showed progress but not enough to halt the climate crisis facing the planet (Mountford et al. 2021). For example, the call to scrap coal as a usable fossil fuel prompted much political debate, eventually leading to an agreement to ‘phase down’ coal use rather than phase it out (Harvey et al. 2021). The depletion of natural resources is a major environmental challenge for businesses and policy-makers. It can have a negative impact on food production, and increase health hazards and the risk of natural disasters. Air, water, forests, animals and plants are examples of natural resources affected by increased pollution and GHG emissions (Lampert 2019). Solutions need to be found through reductions in consumption, increases in recycling and renewable energy, and other strategies and policies that halt the use of natural resources.

Waste reduction: the Worldwide Fund for Nature (2022) has estimated that one-third of global food production goes to waste. While, as it rots, organic waste generates carbon dioxide and methane (which can be used in energy production), natural resources are used in the incineration of inorganic waste, and plastic waste generates GHG emissions throughout its lifecycle. Waste management processes contribute to GHG emissions. A related issue is malnutrition (which includes under-nutrition and obesity), which is causing health challenges that are increasing along with the effects of climate change (Swinburn et al. 2019). A fair society, equality and inclusion: an individual’s life chances–in terms of, for example, life expectancy, disability, mortality and obesity– are likely to be influenced by their socio-economic position in society (Marmot et al. 2010). The Covid-19 pandemic highlighted the social determinants of health inequalities and equity, with poorer populations, disadvantaged ethnic groups, low-paid essential workers, migrants, older people (living alone and in residential care homes) and homeless people page 96 just some of those adversely affected by the pandemic. Causes of these inequalities range from poverty, deprivation and overcrowded housing to poor work safety and inaccessible public health provision (World Health Organization 2021a). Furthermore, European citizens are also frustrated about issues of inequality (social and economic), inequality of education, loss of cultural identity related to globalization, unfair treatment, access to technology and job polarization, with high demand for skilled tech-related jobs, and manual jobs being eliminated by robots and artificial intelligence (AI) (European Commission Joint Research Centre 2017). The above list touches on the key issues shaping the marketing environment that marketing managers, planners and strategists must consider when developing marketing strategies. Now read Marketing in Action 3.1.

MARKETING IN ACTION 3.1

We Know What the Problems Are, But What Are We Doing to Halt the Deteriorating Climate?

The first Earth Day, on 22 April 1970, was a landmark in the environmental change movement. It raised concern about changes in global temperatures, air and water pollution, and demonstrations were held that made pleas to clean up the world. These early alarm bells have not, however, halted rising global temperatures, largely due to the increased concentration of carbon dioxide in the atmosphere, resulting from the consumption of fossil fuels. World governments have sought to maintain the climate and limit global warming to under 2 degrees above pre-industrial levels. Nonetheless, the upward trend continues and devastating climate events–excessively high temperatures, rain, floods and hurricane-force winds–continue to impact on global populations. Polluted waterways and oceans, with multiple causes, along with the dumping of industrial and agricultural waste, have caused a decline in fish populations and an increase in disease-causing chemicals being trapped in fish. Waste levels are on the rise, with world populations producing more rubbish than was the case 50 years ago. On a positive note, air pollution is one area where progress has been made, as major airborne pollutants–nitrogen dioxide, sulfur dioxide and lead–are under control (Thompson 2020).

Source: Sepp photography/Shutterstock Moving forward, Earth Day 2022 has set itself some big challenges: to bring together business and politics to act on the climate, and to emphasize that a ‘green future is a prosperous future’. EARTHDAY.ORG is an environmental movement and not-for-profit organization that, through education and action, is working with collaborators and partners in more than 192 countries. The organization’s mission is to hold all sectors across the planet to account and to secure their involvement in tackling the environmental crisis. Based on: Thompson (2020); Earth Day (2022)

Sustainability Marketing

Over the decades, marketing and branding have enabled firms to grow into global corporations, turning over billions, if not trillions, of dollars a year. Strong brands develop relationships with their customers, which enable the creation of mutual benefits and increased value, with the goal of selling more products and services. So far, so good? Not without consideration of the wider societal and sustainability impact. Although many companies are adopting environmental and social policies that fit with their organizational structures and stakeholder expectations, individuals are rethinking their own values and attitudes, meaning that businesses should adapt and position their brands to align with these new socially responsible customer values and expectations. To do so, firms should not only plan from a resourcing perspective but should also pay attention to the physical environment and sustainability in order to survive into the future over, say, 10, 50 or 100 years. Nestlé is one global corporation that touches people’s lives from end to end of the supply chain: from producer to consumer. It has made 36 page 97 public commitments, which seek to ensure all of its operations contribute to ‘enhancing the quality of lives and contributing to a healthier future for the planet’. The corporation is committed to creating shared value across the organization. Key areas of concern are: individuals and families, where the focus is on encouraging better diets and healthier choices, and reducing malnutrition communities, where the aim is to understand the challenges facing producers and farmers employees, respecting and promoting human rights throughout the business and across the value chain, and ensuring equality and diversity in employment the planet, caring for the environment, paying particular attention to climate change and water. Indeed, water and its future supply is a key concern, and the corporation has been investing in raising water stewardship standards across its operations, which means reducing consumption of water during manufacturing processes, improving efficiency, facilitating the use of recycled water, increasing access to safe drinking water and sanitation, and raising awareness of water conservation (Nestlé Corporation 2022). But how do businesses, large and small, local and global–from a marketing viewpoint–determine which are the right paths to follow to

ensure future sustainability? In recent years, brands and global corporations have become adept at adjusting their marketing and management practices to encompass sustainable goals while maintaining a ‘business as usual’ style of trading. For a corporation to operate sustainability in the present environmental conditions, however, there is a need to chart new paths to meet environmental, economic and societal goals (Bansal 2005). Stakeholder theory–which advocates the importance of balancing the interconnected relationships between a business and its customers, suppliers, communities and employees–has, since the late 1980s, become a dominant approach to managing an organization (Freeman 2010) and is closely related to corporate sustainability (CS). While corporate social responsibility (CSR) has become an important element in most modern firms’ management practices, Engert et al. (2016) argue that CSR is successful at an operational level but less so when it comes to longer-term strategic management thinking. They suggest that operational-level compliance on legal matters, cost reduction, economic performance, innovation and risk management are some of the key driving factors. At a strategic level there is a bigger battle to overcome between ‘the existing technocratic paradigm and … ecocentrism’ (Martinez et al. 2021). This means that the application of science and technology to solve operational marketing and management problems dominates while providing many positive outcomes but is not necessarily solving issues or creating valuedriven solutions for all living organisms on the planet. Later in this chapter we will explore CSR and stakeholder theory in more detail and see how firms are develop socio-sustainable approaches towards marketing strategies. Now read Marketing in Action 3.2.

MARKETING IN ACTION 3.2

Are Electric Vehicles Good for the Planet? Globally, car and truck manufactures are racing to launch electric vehicles (EVs) and participate in the rapidly expanding EV market for both consumer and commercial vehicles. Here are a few examples of brands leading the way:

Volkswagen’s ID.3 is taking on a human persona with its ‘keyless advanced’ system and headlights that wink at its owner. According to the promotional literature, the vehicle seems almost human. Its battery performance offers a range of 180 miles from a 30-minute charge and Volkswagen is committed to complying with the Paris Climate Agreement to become net carbon neutral by 2050. Tesla’s Model 3 puts safety first with an aluminium and steel structure. Technologically advanced cameras, sensors and visual processing systems offer many additional safety features when driving on busy roads, and the Tesla charging network reassures drivers that they won’t run out of power on longer journeys, with a 340-mile range. Rivian says its R1T is a ‘vehicle made for the planet’ and claims the page 98 natural world is a stakeholder in the firm’s future success. This company is also working in partnership with Amazon to build delivery vans and an exclusive charging network for its customers.

Source: jax10289/Shutterstock These manufacturers are producing technologically elegant vehicle solutions, which offer vehicle owners the choice of driving free of fossil fuels. However, a debate continues over EVs’ green credentials, which pivots around the environmental cost of manufacturing EVs and charging batteries, developing charging infrastructure, and wear and tear to roads. On one hand, researchers agree that an EV will have a lower carbon footprint than will vehicles with an internal combustion engine, as EVs eliminate fossil fuel use and GHG emissions. On the other hand, EV batteries are regularly charged using power from electricity producers, many of which continue to rely on fossil fuels for energy production. This demonstrates how technology is leading EV developments while, arguably, electricity production plays catch-up in the race to become decarbonized, and it may take until 2050 to see the real impact on the environment of a switch to EVs. The dilemma for marketers, then, lies not only in how to develop sustainable production methods for their EV models but also in which of the vehicles’ credentials to use in their marketing strategies to achieve the correct market positioning for their customers. Based on: Knobloch et al. (2020); Amazon (2021); Choudury (2021); Rivian (2022); Tesla (2022); Volkswagen (2022)

Research (Peattie and Peattie 2009) says sustainability means looking at the different contexts that influence a firm’s behaviour, and suggests three key contexts/dimensions–environmental, social and economic–each of which brings different priorities to the fore (Peattie 1999). More recently, Weng (2015) suggested that two additional dimensions are needed–ethical and technological–to give greater validity to the sustainability marketing approach. Figure 3.1, based on Peattie (1999) and Weng (2015), encapsulates all five dimensions. FIGURE 3.1 The dimensions of sustainability and what they mean for marketing

Source based on: Peattie (1999); Weng (2015)

Serious tensions exist, both between dimensions and within each dimension, and the extent to which a company leans towards high- or lowsustainability policies and environmental credentials will determine where its emphasis is placed. For example, high-sustainability companies pay attention to stakeholder relationships–for example, with employees, customers and non-governmental organizations (NGOs) in the environment–engaging with them in a proactive way. Low-sustainability companies will concentrate on the traditional corporate model of profit maximization (Eccles et al. 2011), paying limited attention to the

sustainability issues they are legally mandated to address. We will now consider each of these five dimensions in more detail.

Environmental: a dimension of sustainability marketing Weng (2015) argues the importance of taking a rounded approach to sustainability marketing, and not to interchange and confuse this other with other marketing practices–for example, ecological, green and environmental marketing–that focus on specialist areas and come under the banner of sustainability marketing. Arguably, companies should create their own integrated marketing strategies to address a whole range of issues challenging the physical world and the changing marketing landscape, and some do: Nestlé, by investing heavily to ensure sustainability of resources and the low impact of its activities on the planet Pangaia, by using biotech to produce sustainable materials and products Ørsted, a renewable energy company, by operating entirely with green energy. Others do not. Coca-Cola, for example, falls somewhere in the middle as it ranks high as a plastic polluter, with many of its soft drinks bottles ending up as litter around the globe and in the sea. In 2020, the soft drinks page 99 giant refused to get rid of single-use plastic bottles but pledged to recycle as many plastic bottles as it uses, creating a ‘halfway house’ (BBC 2020). Many firms face organizational challenges and management dilemmas when considering sustainability marketing, and their marketers can help by recognizing changing consumer and stakeholder behaviours and interpreting what needs to be done to achieve more sustainable approaches, and by differentiating between green claims and greenwashing (Weng 2015). To give better focus, guide and enforce environmental policies, governments are also tackling environmental issues through the use of legislation and target setting. For example, the Climate Change Act 2008 commits the UK to an 80 per cent reduction in greenhouse gas emissions by 2050, while the Paris Agreement (2015) is seeking to control global

temperatures. For companies, this means identifying sources of GHGs, such as transportation activities, waste disposal and production. The Esken, formerly Stobart, Group operates transportation and services to the energy, aviation and rail industries, which requires the effective management of emissions. The Eddie Stobart rail freight division, working with Tesco Distribution and Direct Rail Services, helped significantly improve the efficiency of the movement of goods, enabling Tesco to move closer to its aim of becoming a zero-carbon business by 2050 (Stobart Group 2018) and winning environmental awards. (Exhibit 3.1 illustrates how Tesco is marketing this achievement.) In some industries, options for adopting greener alternatives are more limited. For example, while aircraft are becoming more fuel efficient, electric- or solar-powered airplanes are unlikely to be available for several decades. Airlines, then, may have to stick to traditional corporate marketing and business models, and to maximizing profits, rather than potentially deter passengers from flying by raising awareness of the extent of aviation emissions (Tyers 2017). Etihad is one example of an airline that has developed creative marketing solutions around carbon offsetting through its Guest Miles programme, which sees travellers encouraged to make conscious choices, use less luggage and donate air miles to projects working towards reducing carbon dioxide emissions (Etihad 2022). EXHIBIT 3.1 Tesco promotes its eco-credentials with an adaptation of its logo

Source: M. Barrat/Shutterstock

Some global movements are seeking to make fundamental changes to production methods’ impacts on the environment and society. The fair-trade movement, for instance, has focused on the impact of sustainability. To become certified as a fair-trade producer, farmers must ensure they are providing ‘decent working conditions, local sustainability, and fair terms for farmers and workers in the developing world’ (Fairtrade Foundation 2018). The fair-trade movement has invested in raising public awareness through education and promotional campaigns, and has seen significant changes in public attitudes towards fair procurement. According to Weng (2015), the bringing together of sustainability and marketing could enable consumers and firms to play a major role in shifting society towards a more selfsufficient future.

Economic: a dimension of sustainability marketing Economics focuses on strong financial performance and acts as the bedrock of business activity; this dimension highlights the need for change in business. Many firms see economic performance as their number-one priority and vital to success (whether they achieve sustainability goals or not). However, past unsustainable practices have begun to highlight environmental issues that will eventually impact on economic performance. Research suggests the global economy could lose 10 per cent of its value by 2050 because of climate change (Merchant 2021). For example, accessible reserves of oil and natural gas have dwindled, causing prices to rise across many raw materials and manufactured goods, while many sectors of the industrial economy rely on performing activities that are economically rewarding but potentially damaging in environmental terms. For some industries, social and environmental challenges are difficult to address. Container shipping, for instance, currently contributes around 2.5 per cent of the world’s total carbon emissions. Moreover, international freight transportation is central to global supply chains, and retailers in particular face many challenges when seeking to decarbonize their supply chains, third-party transportation and consumer shopping journeys, all of which potentially consume fossil fuels. Amazon’s operations accounted page 100 for 51.7 million tonnes of carbon dioxide in 2019, a figure similar

to the total emissions of Sweden or Hungary (Doukas et al. 2021). Pressure is therefore mounting for the transportation industry to find ways to reduce and limit carbon dioxide emissions. In the UK, the Department for Transport (2021) has a plan to make transportation net zero by 2050, which means decarbonizing all forms of transport to cut emissions from individual and company journeys, from cycles and cars to railways, maritime and aviation. This is a challenge from an economic perspective, as road transport, deliveries and travel are all predicted to increase as the economy grows and recovers from the effects of the global pandemic. For individuals, more walking and cycling and greater use of zero-emission buses may be a workable solution, but for the rail, road freight, shipping and aviation industries, a huge amount of investment is needed to bring about decarbonization. From a marketing perspective, some companies have found ways to respond positively to the challenges of sustainability. Corporate social responsibility (CSR) and operating in an ethical way are becoming increasingly important in the modern world. Globally, companies are taking CSR seriously and responding positively. For example, TNT (the Dutch logistics firm) started offering customer in the Netherlands, Belgium and Luxembourg, carbon dioxide-neutral shipping options as early as 2015 (TNT 2015). Leading global technology firm IBM’s philanthropic spending involves deploying staff to work on worthy projects in the developing world, and ensuring its corporate strategy builds value for its shareholders, customers and employees while protecting the environment, respecting employees and building collaborative partnerships (IBM 2020). In this dimension, climate events pose a greater threat to humankind than ever before, and economists, business strategists and marketing practitioners will need to find new ways to compete if they are to succeed (Martinez et al. 2021) in achieving a net-zero economy. Not all firms operate to generate surpluses for shareholders and investors. Non-profit organizations attempt to achieve objectives other than profit. This does not mean they are not interested in income, as they have to generate cash to survive, but their primary goal is to deliver different benefits–for example, to provide cultural enrichment (for example, in the case of an orchestra), to protect birds and animals (the Royal Society for the Protection of Birds and the Royal Society for the Prevention of Cruelty to Animals), to alleviate hunger (Oxfam), to provide education (schools and universities), to foster community activities (community associations), or to

supply healthcare (hospitals) and public services (local authorities). While their worth and standing are not dependent on the profits they generate, they must be financially viable. The not-for-profit sector is gaining in importance, and even those organizations that rely on governmentsponsored grants need to show how their work is of benefit to society. In the UK alone there are more than 160,000 charities; the sector has an annual income approaching £42 billion and employs nearly 3 per cent of the workforce. Many non-profit organizations rely on volunteers, membership fees or donations, which requires the effective marketing of an organization and its aims. Non-profit organizations do contribute to the economy, as they provide employment and strengthen communities; and, arguably, this sector creates and supports a social economy. Despite the growing use of marketing in the non-profit sector, it is interesting to consider the characteristics that distinguish this form of marketing from that of profit-orientated marketing organizations.

Education versus meeting current needs Some non-profit organizations see their role as not only meeting the current needs of their customers but also educating them in terms of new ideas and issues, research, cultural development and social awareness. Cancer Research UK has big ambitions ‘to see 3 in 4 people surviving cancer by 2034’; to achieve this, its aim is to generate significant revenues to spend on research (£423 million in 2017), but it also invests resources in education, both in learning resources about various form of cancer and through advertising to reach a wider audience. Its ‘Right Now’ advertising campaign used personal stories to illustrate the advances being made in research into the fight against the disease (Roderick 2017).

Multiple publics Most non-profit organizations serve several groups, or publics (discussed further in Chapter 13 under the topic of public relations), who form different markets–clients and customers; volunteers; and donors and/or funders–and build value through their non-commercial activities. Parkrun is a charity that organizes free weekly running events that both athletes and

families can take part in. The timed events are organized by local volunteers and bring multiple benefits, promoting health, community and friendship. Parkrun operates in more than 23 countries (Parkrun 2022). During the global pandemic the charity had to suspend its weekly events, which had a significant impact on its annual turnover. However, the value it brings to individuals’ lives, their health and well-being, through its free-to-all runs has seen many runners return post-pandemic, enabling the charity to continue to grow. page 101

Measurement of success and conflicting objectives The success of profit-orientated organizations is ultimately measured in financial terms. For non-profit organizations, measuring success is not so easy, and decision-making is therefore complex. While both sectors are subject to public scrutiny, public-sector non-profit organizations are monitored closely as many are publicly funded from taxes. Now read Mini Case 3.1.

MINI CASE 3.1

Not for Profit: The FA Harry Kane is a top-rated athlete. He is a footballer who commands a very high salary, and he is not alone. Footballers’ salaries have grown on average by more than 1,000 per cent in the past 20 years. Football clubs finance these high salaries through matchday revenue (approximately 13 per cent), broadcasting (approximately 60 per cent) and other commercial activities (approximately 27 per cent). Premier League club revenue is increasing in line with the massive wage bills and financial demands of the player transfer market. While football is a commercial market worth billions of pounds, the Football Association Limited (FA) (the governing body that sets the rules and regulations for the game in England and Wales) is a not-for-profit charity.

Source: CosminIftode/Shutterstock With such high stakes and volumes of money changing hands, the FA has to provide, monitor and manage standards and discipline for the game, provide safeguarding standards for young players coming through training academies, ensure opportunities for all and limit discrimination, manage anti-doping through education, testing and application of legal regulations, and protect the game, its players, supporters and many other stakeholders from betting irregularities, match fixing and insider information. The FA must ensure the viability of Club Wembley as a venue and centrepiece of the game of football. This is an almost impossible task. So how does the FA fund its operations and prioritize what it does? Funding: The FA reinvests millions of pounds into the game in support of activities such as grassroots football and the promotion of women’s football, and much more. To achieve its strategic aims, the FA generates funds through its partnerships, both commercial (e.g. Nike, Buildbase, Mars, EE, McDonald’s, BT Sport) and with other charities (e.g. Cancer Research); other sources are grant income (e.g. Sport England), broadcasting, sponsorship and licensing, and Club Wembley revenues. Investment is directed to its strategic priorities. Priorities: The FA’s mission is to widen participation in the game, promote diversity and regulate the sport to ensure enjoyment for all. More specifically, its latest strategy aims to give every girl the opportunity to play football, to embrace diversity among players and teams, and to use the resilience developed during the Covid-19 pandemic as a force for good. The strategic priorities are: to produce winning England teams in both men’s and women’s football; world-leading education from the grassroots upwards through coaching programmes; to expand the women’s game, and widen participation and engagement across society; to improve the trust and efficiency of the game. To illustrate the FA’s achievements against these priorities, there are now more women’s and girls’ teams than ever before, attendance at Women’s Super League games has been rising year on year, mini soccer teams have seen increasing participation by young players and there are now more than 186 disability teams. Sustainability: The FA has focused on ensuring major events at Wembley Stadium meet the charity’s values, which means considering positive and negative environmental, social and economic impacts. Arguably, the FA always aims to do

good, but it faces many reputational challenges: political debate, when there is any controversy around England’s football teams involved in major footballing events; football fans’ behaviour before, during and after matches in the UK and page 102 overseas; scandals, media exposure of contractual breeches and social media misadventures. All of these bring the FA’s ability to govern the game into question. While the commitment to the grassroots game is a laudable aim, there are falling rates of participation and the cost of providing appropriate facilities is escalating rapidly. The FA clearly still has a lot to do, then, if it is to be perceived as doing good by all stakeholders.

Questions: Imagine you are the Strategy and Communications Director for the FA and you are responsible for providing the strategic focus for the charity’s next sustainable marketing strategy. 1. Review the extent to which the FA is achieving a balance in its application of sustainable marketing contexts. 2. Using the output of your review, suggest changes for the FA’s next sustainable marketing strategy, which will help the charity deliver on its priorities.

Based on: Rumsby (2013); Burt (2016); Football Association (2017); Northcroft (2017); BBC (2018a); Deloitte (2018); Macey (2018)

Despite non-profit organizations needing to consider different characteristics, the marketing procedures relevant to profit-orientated companies can largely be applied to non-profit organizations too. Target marketing, differentiation and marketing mix decisions need to be made. Each target market is quite distinct, and non-profit organizations should identify benefits and clearly communicate the value created with their different publics. Customers are relatively straightforward as they benefit from the products and services offered. For example, Mary’s Living and Giving shops, which are part of Save the Children, offer customers a unique proposition: boutique charity shops that sell second-hand designer clothes and top-quality goods. Volunteers are a more challenging market, and few charities are equipped to run recruitment campaigns or have the internal management skills needed to retain good volunteers. The main benefit for this target group is ‘making a difference’, so whether it is a fundraising event, working in a charity shop or helping to deliver good work, it is important for volunteers to have fun, be given meaningful roles and be

appreciated (Findlay 2013). Sport England is a not-for-profit organization that relies heavily on volunteers in roles such as marshalling a fun run, managing finances or getting involved in sporting events (Sport England 2018). Donors need to understand why they might provide monies to charitable organizations. They need to understand the benefits and have trust in a charity’s ability to deliver on its promises. Organizations seeking funding and donations need to target individuals and organizations with an interest in the work of the charity. Non-profit organizations often use ‘event marketing’, with events such as dinners, dances, coffee mornings, book sales, sponsored walks and theatrical shows organized to raise funds. Not all events are designed to raise funds for the sponsoring organization. For example, the BBC hosts Comic Relief and Children in Need telethons to raise money for a wide range of worthy causes. We have explored some of the challenges and tensions in this dimension, so now let’s consider the social dimension.

Social: a dimension of sustainability marketing This dimension highlights the need for marketers to recognize change in society, and places an emphasis on the reduction of inequality and deprivation. In 2011, more than 2.2 billion people were living on less than $2 a day, but progress remains very slow in moving them out of poverty (World Bank 2015). The World Poverty Clock (see https://worldpoverty.io) shows achievements being made in helping people escape from poverty in real time and targets are being met by expanding social protection programmes, which foster sustainable developments so when natural disasters occur there are better survival rates (United Nations 2017). However, according to the World Health Organization (WHO 2021a, 2021b) the global pandemic has slowed and even reversed this progress, with many millions of people being pushed into poverty. Falling incomes, job losses and tighter fiscal constraints from governments, plus cuts to essential (non-Covid) health services have all contributed to making life more difficult. There are many charitable organizations that target social issues, with the aim of improving life for segments of society. Save the Children is a charitable organization that seeks to give children a healthy start in life and an education to give them the prospect of a better future. The charity uses

advertising campaigns to maintain awareness of such issues, based on thought-provoking subjects such as the war in Syria. During the pandemic, high-profile footballer Marcus Rashford succeeded in raising awareness of page 103 previously little-known charity FareShare, which focuses on the health and well-being of children and families, and at the same time cuts food waste. It redistributes food to charities, provides meals for vulnerable people and helps community groups. Rashford promoted the need for action and change during the global pandemic as an ambassador for FareShare (see Exhibit 3.2). EXHIBIT 3.2 Footballer Marcus Rashford works as an ambassador for FareShare, a charity that is working to reduce hunger in vulnerable communities

Source: Mark Waugh/Alamy Stock Photo

Malala Yousafzai is an educational activist who campaigns for female education in Pakistan and around the world. The Starbucks Foundation focuses on self-improvement and so partnered with the Malala Fund to create educational opportunities in India and Latin America for girls and young women, aiming to help bring an end to poverty (Starbucks 2018). Organizations as diverse as TikTok, the Bill & Melinda Gates Foundation and the Musk Foundation also support the Malala Fund, which continues to use its growing influence to challenge practices that preclude girls and women from accessing education (Malala 2022). Likewise, but at the other end of the age spectrum, Help Age International is committed to protecting the rights of older people. Due to the wider benefits of achieving social good, many corporate organizations

are also finding ways to get involved–for example, through philanthropy, community engagement and many other social initiatives. Each firm, however, must balance societal and environmental issues with its economic demands. Read Marketing in Action 3.3 to find out more about this tension.

MARKETING IN ACTION 3.3

State Monopoly Systembolaget: Taking Sustainability Seriously Systembolaget, a large Swedish retailer with 446 stores and 5,845 employees, is a state-owned monopoly with responsibility for selling alcohol in a country where excessive drinking has been a problem. The organization constantly monitors the changing world to ensure its retail operation meets customer values about sustainability. To reduce both the direct and indirect impacts of alcohol production and distribution, Systembolaget focuses on the supply chain, climate-friendly packaging and social sustainability, by ensuring good ethical standards and fair working conditions.

Source: nrqemi/Shutterstock Social sustainability ranks high in Nordic economies. Sweden is relatively small in terms of population, but it tops league tables in many areas, from economic competitiveness to social health and happiness. Along with the other Nordic nations (Denmark, Norway, Iceland and Finland), Sweden is seen as offering a blueprint for reform of the public sector and delivering societal well-being. Soft factors, such as equality and social cohesion, are the foundation of the Swedish economic model, and Systembolaget is there to help to change behaviour around alcohol consumption. Upstream, the government has set clear goals for behaviour change: alcohol-free childhoods, postponing the age of first drinking experiences, providing more alcohol-free

environments, preventing drink-driving. Midstream, Systembolaget trains its employees to be expert advisers on alcohol consumption, while downstream the individual consumption of alcohol is falling, as many 15- to 16-year-olds change their behaviour and attitudes towards alcohol. page 104 Systembolaget is positioned in the minds of its consumers as a brand that takes social responsibility very seriously, and its sustainability strategy continues to focus on how to create value. The firm’s purpose is to limit the effects of alcohol on society, so it limits the sale of alcohol. It manages to create value, though, by helping customers make informed choices on the alcohol they do buy, to reduce the harmful effects of alcohol on customers themselves, their friends and families. However, tensions do occur over Systembolaget’s monopoly position when it comes to the sale of alcohol, and it has been criticized for reaping profits from industrially produced wines rather than producing more specialized selections, and pursuing a single goal to sell as much wine as possible. So, it too walks a challenging path from a marketing perspective, between delivering high levels of customer value and satisfaction and making a reasonable profit. Based on: Hagstrom (2018); Systembolaget (2018, 2019)

In this context, social marketing (as it is sometimes referred to) considers consumers’ and society’s wider interests rather than short-term consumption. It aims to rectify potential conflicts between consumers’ short-term needs–for example, for fast food, which may contain high levels of fat, sugar and salt–and their long-term needs–in this case, health (see Exhibit 3.3). The challenge here for many leading global food brands– Kraft, Pillsbury, Procter & Gamble, Nabisco and others–is that, over time, consumers have become addicted to certain foodstuffs (with their preferred but less healthy balance of sugar, fat and salt) and, while product sales soar, so does obesity. In the face of intense media pressure, including the hit 2004 movie Super Size Me, which records a film-maker’s descent into serious illness while living on a McDonald’s-only diet, McDonald’s introduced healthy eating options including salads and mineral water (instead of the ubiquitous cola). While cynics may view this as a public relations exercise, the response of McDonald’s may be regarded as a move towards implementing societal marketing principles and, perhaps more importantly, as a sign the brand recognizes changes in consumer behaviour. Recently, McDonald’s has begun testing a plant-based burger, partnering with Beyond Meat to offer a vegan burger aptly named The McPlant, which

has been introduced to international markets (Sweden, Denmark, the UK, Austria and the Netherlands), demonstrating that McDonald’s has identified Gen Z and millennials as often preferring plant-based products to meat (Kelso 2021). EXHIBIT 3.3 Typical sugar content of popular soft drinks according to Public Health England

Source: gov.uk

Critics of societal marketing suggest it is a short-term public relations exercise that cynically manipulates a company’s stakeholders. Its supporters argue that the stakeholder principle suggests it is in a company’s long-term interests to support the long-running concerns of consumers and society, resulting in a win–win situation. By combining sustainable principles and societal marketing initiatives, organizations become better prepared to meet the requirements of triple-bottom-line reporting, which considers not only financial matters but also environmental and social issues. Societal marketing seeks to change behaviour for the benefit of both the individual and society, and its applications come in many different guises. For example, cars are built with mechanisms to remind drivers to wear a seatbelt; and there are social movements for wider change–for example,

green and climate change organizations, the consumerism movement, the international campaign to raise awareness of the risks of drinking in pregnancy (see Exhibit 3.4) and social engineering (e.g. in Sweden, the government introduced into schools a ‘say no to drugs initiative’ (Dibb and Carrigan 2013). EXHIBIT 3.4 This campaign from the European Fetal Alcohol Spectrum Disorder Alliance uses shock tactics to raise awareness of the risks of drinking in pregnancy

Source: European Fetal Alcohol Spectrum Disorders Alliance page 105

Of course, laudable social endeavours have to be funded, so there is an inevitable link between social and more traditional commercial marketing. Where the lines are drawn is not entirely clear, as some new commercial products clearly exhibit social marketing ideals–for example, hybrid and electric cars designed to reduce fuel emissions and the consumption of carbon-based fuels, and fair-trade products aimed at helping their producers earn a reasonable living. Marketing in Action 3.3 explores social marketing issues in Sweden. Consequently, organizations are now reflecting on and defining their standards of behaviour by focusing on social marketing principles. Read Mini Case 3.1 to discover the extent to which football is regulated by social principles.

Ethical: a dimension of sustainability marketing

Underpinning sustainability marketing is the concept of ethics. Ethics describes the moral principles and values that govern the actions and decisions of an individual or group (Berkowitz et al. 2004). It involves values around right and wrong conduct. Business ethics describes the moral principles and values that guide a firm’s behaviour. Until recently, for many companies, business ethics consisted mainly of compliance-based, legally driven codes and training that provided details of what employees could or could not do regarding such areas as conflicts of interest or improper use of company assets. Now, an increasing number of companies are designing value-based ethical programmes that are consistent across their global operations. The aim is to provide employees with an in-depth understanding of ethical issues, to help them make correct decisions when faced with new ethical situations and challenges. These principles and values guiding behaviour within the fields of business and marketing cover issues relating to elements of the marketing such as product safety, truthfulness in marketing communications, honesty in relationships with customers and distributors, and pricing issues. There can be a distinction between the legality and ethicality of marketing decisions: ethics concerns personal moral principles and values, while laws reflect society’s principles and standards as enforceable in court. Not all unethical practices are illegal. For example, it is not illegal to include genetically modified (GM) ingredients in products sold in supermarkets. However, some organizations, such as Greenpeace, believe it is unethical to sell GM products when their effect on health has not been scientifically proven. Such concerns have led some supermarket chains to withdraw GM ingredients from their own-brand products. Ethical principles reflect the cultural values and norms of society. Norms guide what ought to be done in a particular situation. For example, being truthful is regarded as good. This societal norm may influence marketing behaviour. Hence–since it is good to be truthful–deceptive, untruthful advertising should be avoided. Often, unethical behaviour may be clear-cut but, in other cases, deciding what is ethical is highly debatable. Ethical dilemmas arise when two principles or values conflict. For example, Ben & Jerry’s, the US ice cream firm, was a leading member of the Social Venture Network in San Francisco, a group promoting ethical standards in business. A consortium, Meadowbrook Lane Capital, was part of this group and was formed to raise enough capital to make Ben & Jerry’s a private

company again. However, its bid was lower than Anglo–Dutch food multinational Unilever NV’s. Arguably, on the one hand, for Ben & Jerry’s to stick to its ethical beliefs it may have leaned towards the Meadowbrook bid. On the other hand, the company also had to perform financially in the page 106 interests of its shareholders. Initially, Ben & Jerry’s faced an ethical dilemma: on one side its values and preferences, and on the other achievement of financial performance for shareholders. Ultimately, the fair-trade ice cream producer accepted the Unilever bid, but as part of the original acquisition agreement Unilever agreed to the retention of the management board and for it to take independent decisions about the brand’s social mission (Unilever 2021). Many ethical dilemmas derive from the conflict between the desire to increase profits and the wish to make ethically justified decisions. Unethical business practices can have a very negative impact on customers, who may stop buying a particular brand. Positive ethical responses can benefit an organization’s market position but, equally, unethical behaviour can lead to bad publicity and have a negative effect on customers’ willingness to buy. Examples of behaviours having a negative influence include: BA (price fixing), BAE Systems (bribery), BP and Shell (oil spills in the US and Nigeria), Walmart (allegations of poor employee relations), McDonald’s (health concerns), Coca-Cola (marketing positioning of Dasani in the UK) and Procter & Gamble (Sunny D, the drink found to turn children yellow). These examples bear witness to the importance of business and marketing ethics, not only in their own right but also in terms of the well-being of the organizations themselves. Ethical concerns impinge on all aspects of marketing and how firms differentiate from their competitors. Marketing practices have been criticized by consumers, consumer groups and environmentalists, who have accused marketing managers of harming the interests of consumers, society and the environment. In this section, these ethical concerns are examined in relation to the marketing mix. This is followed by a consideration of general societal, environmental and political issues (see Figure 3.2). FIGURE 3.2 Ethical issues in marketing

We now look at examples of marketing mix effects on consumers.

Product: product safety Consumers expect products to be safe to use and are legally protected by the Consumer Rights Act 2015, which means manufacturers and resellers must ensure all products–physical and digital–are of satisfactory quality, fit for purpose and as described. The duty of care falls on the supplier of the goods and services, as they are responsible and the experts. However, there have been many instances where it has been argued these guiding principles have not been adhered to. The tobacco, food and drinks industries have attracted criticism in recent years regarding the potential harm their products may cause to consumers. Tobacco companies have been criticized for marketing cigarettes, which cause lung cancer. The food industry has been criticized for marketing products with high levels of fat, which can lead to obesity, while in the drinks industry concern has been expressed over the marketing to children of sugar-rich fizzy drinks, which cause tooth decay and can also lead to obesity.

The fashion industry, especially fast fashion, has driven demand for low-cost clothing. But, globally, events like the building collapse in Rana Plaza, Bangladesh, which killed 1,135 garment workers, have highlighted problems with unethical low-cost production methods. This tragic event put pressure on manufacturers in the area to improve working conditions for workers, who are typically paid less than a quarter of the wages of those in mainland China. However, the region has duty-free access to Western markets, and the low-paid workers have helped to make this trade a major part of Bangladesh’s economy and export trade ($28 billion a year) (Reuters 2016). In response, these industries argued they are taking steps to reduce the harmful effects of products, with bans on tobacco promotion, and the creation of bodies such as the Food Standards Agency (FSA, the independent food safety body set up to protect public health and consumer page 107 interests in relation to food in the UK) and the Portman Group (the industry-sponsored organization that oversees the UK’s alcoholic drinks industry) helping to raise awareness of social issues. Most European countries have established similar organizations, which also provide advice to industry and seek to guide manufacturers and retailers towards the production and distribution of safe produce. Exhibit 3.4 shows the European Fetal Alcohol Spectrum Disorder Alliance’s drink awareness campaign in relation to pregnancy.

Pricing: price fixing and antitrust laws One anticompetitive practice associated with marketing is price fixing, where two or more companies collude to force up the price of a product or products. Price fixing is considered unethical because it interferes with the consumer’s freedom of choice and raises prices artificially. European Union (EU) competition policy provides a legal framework designed to prevent companies from carrying out this practice. The EU antitrust policy rules out two firms making agreements that can restrict competition, and prohibits firms with a dominant market position from charging unfair prices (European Commission 2018a). For example, the European Commission has fined technology companies ASUS, Denon/Marantz, Philips and Pioneer more than €111 million for price fixing online, and breaching EU competition and antitrust

laws. These companies were attempting to control the price of their electronic products (kitchen appliances, hair dryers, notebook computers, headphones) being sold online and were found to be threatening to block supplies to retailers selling at discounted prices. The manufacturers were also found to be using digital monitoring tools to track their goods, to help control pricing (European Commission 2018b). Similarly, Google has been fined €4.3 billion for imposing restrictions on manufacturers deemed anticompetitive. Google required manufacturers to pre-install the Google search app, made large payments to manufacturers and mobile network operators to ensure that only the Google app was preloaded, and prevented the use of unauthorized versions of Android (European Commission 2018c). Since the UK left the EU (on 31 December 2020), UK businesses trading in EU countries must continue to abide by EU laws, although they are no longer required to comply with these laws if they trade only in the UK.

Promotion: misleading advertising (puffery) Marketers argue that, in most European countries, advertising is tightly regulated, minimizing opportunities for advertisers to mislead. Misleading advertising can take the form of exaggerated claims or concealed facts. A claim that a diet product was capable of 1 kilogram of weight loss per week, when in reality much less was the case, is an example of an exaggerated claim. When Coca-Cola launched its bottled water brand Dasani in the UK, it concealed the fact it was made from local Sidcup tap water. Consumers were enraged and felt they had been cheated. A damaging media frenzy followed and traces of bromate (a possible carcinogen) were found in the water. Volkswagen was sued for making false claims in TV commercials promoting its vehicles as being environmentally friendly and using ‘clean diesel’. US regulators found 40 times the allowed levels of air pollutants coming from these vehicles when tested in real-world driving conditions and the fines added up to more than $30 billion. Volkswagen has also been fined €1 billion by German prosecutors for selling more than 10 million cars in Europe with emissions test-cheating software installed (BBC 2018b). Such high-profile scandals, which meet with both consumer and media disapproval, are (or should be) a major deterrent to companies contemplating taking a similar approach.

The issue of the unethical practice of direct marketing companies entering names and addresses onto a database without the consumer’s permission has also caused concern. Some consumers fear that the act of subscribing to a magazine or a website, or buying products by direct mail, will result in the inconvenience of receiving streams of unsolicited direct mail or spam (the online equivalent of junk mail). Regulation in Europe by bodies such as the Direct Marketing Association (UK) and national governments aims to ensure consumers are protected and their data are used and stored legally. Online consumers are given various options to opt in or out of non-essential data collection and subsequent promotional mailings.

Place: slotting allowances Manufacturers promote their products and aim to outperform the competition. Consequently, they sometimes offer inducements to retailers to place special emphasis on particular products. A ‘slotting allowance’ is a fee paid by a manufacturer to a retailer in exchange for an agreement to place a product on the retailer’s shelves. The importance of gaining distribution and the growing power of retailers means slotting allowances are commonplace in the supermarket trade. They may be considered unethical since they distort competition, favouring large suppliers that can afford to pay for them over small suppliers that may be producing superior products. Marketers argue that they are only responding to the realities of the marketplace (i.e. the immense power of some retailers) and claim the blame should rest with the purchasing practices of those retailers that demand payment for display space, rather than with the marketing page 108 profession, which is often powerless to resist such pressures. Tesco found itself in trouble over slotting allowances and marketing/distribution fees, which had a widespread effect on the value of the brand. The grocery chain demanded high fees from suppliers to position their goods in prominent locations in stores and to favour their brands over the supermarket’s own-label goods. But these fees raised the prices paid by customers and allowed competition from discount supermarkets such as Aldi and Lidl–which mainly sell own-label goods–to offer consumers a better deal on a basket of shopping. Following substantial financial issues related to overinflated profits from these types of rebates, Tesco is aiming to

reduce the fees it charges suppliers, although payments for prominent shelf positions will remain (Economist 2015). Ethical issues cut across the sustainability contexts we have discussed so far in this chapter. Critics of marketing practices suggest there is too much promotion of materialism, emphasis on the short term and limited concern for long-term environmental consequences. Arguably, marketers should consider the interests of consumers and society, and how they are influenced by political issues.

Societal issues: materialism and short-termism Materialism is an ethical concern associated with an overemphasis on material possessions. Critics argue that people judge themselves and are judged by others not in terms of who they are but by what they own. Marketers use this trait to drive consumption. For example, status symbols such as expensive houses, cars, second homes, yachts, high-tech gadgets and designer clothing are marketed as representations of success and social worth. Such conspicuous consumption is fuelled by the advertising industry, which equates materialism and success with happiness, desirability and social worth. Materialism is not considered natural by critics but rather as a phenomenon created by businesses to drive sales and deliver high profit margins. Such companies devote large marketing expenditures to these types of brands. Supporters of marketing argue that sociological studies show how remote communities in Africa–never exposed to marketing’s pervasive and persuasive powers–also display signs of materialism. For example, in some tribes, people use the number of cows owned as a symbol of status and power. Some marketers argue that desire for status is a natural state of mind, with marketing simply promoting the kinds of possessions that may be regarded as indicators of status and success. Accruing symbols of power is not limited to the physical world. Online, the Facebook ‘Like’ button drives people to show their commitment to individuals, brands and communities. On a personal level, self-esteem can be boosted by garnering Likes: virtual ‘thumbs ups’ affirm a post as something good (see Exhibit 3.5). The reasoning behind this is that receiving positive feedback makes us feel good and raises our perceptions of our relational value. Billions of Likes are generated every day; those who

receive them feel good and those who don’t can feel lonely and rejected (Burrow and Rainone 2017). EXHIBIT 3.5 Facebook uses the thumbs up symbol as a mechanism for displaying loyalty

Source: Facebook

Marketing is often accused of short-termism–putting the immediate interests of consumers before society’s long-term interests. As we have seen when discussing product safety, marketers supply and promote products that can have long-term adverse health repercussions for consumers. Cigarettes may aid short-term relaxation, but they have harmful long-term health effects for both smokers and those people forced to breathe in their smoke. Fatty food may be tasty, but it may also lead to obesity and heart problems. Too much salt and sugar in food and drinks may enhance their taste but can also lead to long-term health problems. Look back at Exhibit 3.3 to see how recommended sugar intakes correspond to the amount of sugar in soft drinks. Alcohol may remove inhibitions and help to create a convivial atmosphere but may also lead to dependency and liver problems. The UK has introduced a sugar tax, so manufacturers must pay a levy on drinks with a high sugar content. Many brands that target children with soft drinks have already reduced their sugar content–for example, Fanta, Ribena and Lucozade (BBC 2018c).

Political issues: globalization Globalization involves companies operating in many countries and is a term usually applied to multinational corporations that exert considerable power in their host countries. It is the abuse of such power that is of ethical

concern. Multinationals have sizeable marketing expenditures and page 109 global mega-brands; concern is expressed regarding their influence over consumers, governments and suppliers. Critics argue such organizations’ size and access to financial resources make it hard for smaller rivals to compete, and thus reduces consumer choice. The impact on employment and the economy means governments vie with one another to attract multinationals to their countries. Finally, the purchasing power of these brands means they can negotiate very low prices from suppliers in the developing world. Supporters of global companies argue that their size and global reach delivers benefits from economies of scale in production and marketing (making them more efficient and, therefore, in a better position to charge low prices to consumers), and in research and development (R&D), enabling them to develop better-quality products and make technological breakthroughs–for example, in the area of healthcare. They further claim that their attraction to governments is evidence of the value they provide to host nations. Regarding their ability to negotiate down prices from developing-world suppliers, global organizations need to recognize their responsibilities to their supplier stakeholders. This is happening as more of them adopt corporate responsibility programmes and global corporations recognize the marketing potential of fair-trade products (for example, Nestlé markets Partners’ Blend, a fair-trade coffee).

Environmental issues: production and consumption Production should enable the efficient manufacture of goods and services, but production facilities can be a major source of damaging outcomes–for example, air, water and soil pollution, and the destruction of natural habitats and wildlife. In the same way as businesses may seek the cheapest ingredients and components to use in their products, they may also look for countries where low-cost manufacturing is highly profitable using local workforces. Environmentalists favour using sustainable resources, which may be more costly due to being biodegradable or recyclable, and costs could also be raised through providing staff with safe working conditions and good levels of pay, rather than being exploitive. Doing good and making the right choices when producing goods can be fraught with challenges.

Consumption is arguably driven by marketers’ desire to satisfy consumers’ wants but again there are conflicts of interest when it comes to the environment. Consumers are given a confusing range of choices and marketers do not always help: a brand may favour large packaging that gains the attention of consumers in stores, whereas environmentalists favour smaller pack sizes and refill packs. Eco-friendly labelling does not always help to alleviate confusion. Lots of brands use the word ‘organic’ on their packaging, especially on health and beauty products, and in the UK this market has grown by 20 per cent, to more than £60 million. The Soil Association has accused manufacturers of investing in marketing products that claim to be ‘green’, rather than into R&D to produce toxin-free products. In the EU, beauty products are not subject to the same stringent regulations as organic foods, which means almost any product can be labelled ‘natural’ or ‘organic’, leaving the consumer confused (Smithers 2017). As consumer awareness of the impact of climate change and the use of non-renewable resources grows, perceptions are changing and firms seen to be taking a serious approach towards sustainability can gain commercial advantage over those that do not take positive action (Barnett 2011). Governments have tried to take positive action to reconcile business and environmental interests, and to benefit society and individuals–for example, the EU’s LIFE programme has agreed €290 million for projects that will help Europe become a climate-neutral continent by 2050 (European Commission 2021). Projects include Italian chefs promoting climate-smart foods and diets, a Bulgarian project to protect migrating birds and a Polish project to find renewable ways to cool buildings.

Changing consumption behaviour: SHIFT framework However, more needs to be achieved as the impact of marketing activities on the planet is becoming widely understood, as a result of decades of research from marketing and behavioural science, which has produced a substantive body of literature. There is a greater urgency to change behaviour to reduce the impact of consumption on the planet and its inhabitants. White et al. (2019) suggest the SHIFT framework for

understanding and encouraging consumption behaviour to become more sustainable, and showcase challenges for marketers (see Figure 3.3). FIGURE 3.3 SHIFT framework: towards sustainable consumer behaviour

Source: based on White et al. (2019)

page 110

In the past, marketing has been accused of having a negative impact on the environment by driving consumption (Peattie and Peattie 2009). Today, firms are more likely to survive as economically viable businesses if they adapt to the marketing environment and recognize the changing world. According to White et al. (2019), the five big challenges presented by the SHIFT framework that need to be addressed to close the gap between attitudes and behaviour are: 1. Social influence: Consumers are immersed in their lives and influenced by their social norms, identities and social desirability. Social norms are important as they provide clues to behaviour–the extent to which is it

good to reduce waste by composting, choose eco-friendly transport options, invest in renewable energy. But marketers should be aware, while social norms can provide powerful cues to use for branding, if target consumers are not interested in a particular behaviour the outcome can be negative and reduce positive actions (Schultz et al. 2007). Identities are shaped when belonging to a particular social group, so belonging to or encouraging membership of a ‘green consumer group’ can mean an individual is more likely to receive marketing messages about sustainable consumption (Schultz and Fielding 2014). Social desirability links to status and the capacity to make an impression (Green and Peloza 2014). Booking.com launched a ‘Travel Sustainable’ badge, which it awards to hotel and accommodation properties that implement business practices that enable visitors to easily understand how to travel sustainably and meet the local threshold, which may mean waterreducing measures in areas susceptible to drought (Seymour 2021). Together, travellers, accommodation owners and Booking.com are making inroads into building a community that behaves in a manner that can deliver positive benefits for all while travelling. 2. Habit formation involves repeated behaviour over time. Encouraging positive habits is tackled in various ways. Discontinuing bad habits: for example, meat consumption is a food-related behaviour that is not sustainable in its present form, so farmers, food manufacturers and consumers all must break their ‘bad’ habits and find more sustainable options. Moving Mountains, a food brand offering plant-based alternatives to meat, aims to give a comparable experience to eating meat and in doing so to encourage consumers to break the meat-eating habit (see Hidden Gem 1.1 in Chapter 1). Penalties: less about freedom of choice, but penalties, government interventions like fines for dumping waste or dropping litter, sugar tax on soft drinks and carbon fuels duties deter certain behaviours. Making it easy is yet another habit-forming approach, for example opting for an energy supplier that uses renewable sources of energy is more straightforward than installing solar panels or a heat pump. Octopus Energy (UK), Vattenfall (Sweden) and EDF (France) are firms supplying renewable energy direct to customers. Prompts, incentives and feedback: marketers can also offer rewards, discounts and gifts, financial rebates and pricing models to encourage positive habit

formation. Giving feedback on positive (or negative) behaviours can also help (White et al. 2019). 3. Individual self: people can find it hard to change, and display biases based on pre-existing behaviour. Their propensity to view self positively can result in defensive behaviours, which can negatively affect the environment and detract from those more inclined towards sustainable actions and behaviours (Weber 2016). If consumers can be encouraged to adopt a positive self-view of sustainability, they will be more inclined to take better care of the planet and buy products linking to their identity (Trudel et al. 2016). Additionally, seeing oneself positively encourages self-consistency. So adopting sustainable behaviour once can lead to repeated good practices in the future (Van der Werff et al. 2014). Selfinterest is a facet of the framework, where advertising appeals can be made to effectively influence behaviour. Research has shown if sustainable behaviours, products and services relate to an individual and show how they can fulfil their motives they are more likely to be adopted (Schuitema and de Groot 2015). Demographics–gender, age and page 111 education–are also a consideration when seeking to shape individual behaviour (see Chapter 7 for further discussion). 4. Feelings and cognition: as consumers we tend to take one of two routes when making purchasing decisions: emotional or rational. Positive and negative emotions can affect behaviours towards sustainability decisions. Positive emotions tend to come from hedonic pleasure, so engaging in a sustainable manner can lead to consumers having a ‘warm glow’ that enhances their consumption experience (Giebelhausen et al. 2016). If marketers can frame environmental outcomes (resulting from certain positive behaviours) as positive, they may give consumers hope. Using a refillable cup when buying a coffee can generate these positive emotions and encourage repeat behaviour if it is believed this will make a difference. Negative emotions can deliver positive marketing outcomes but must be handled sensitively so as not to scare consumers, for example advertising appeals based on fear, which show potentially bad outcomes if a certain behaviour is followed (or not). WWF launched an appeal based on fear to encourage conservation of nature (see Exhibit 3.6). Guilt around behaving (or not behaving) in a certain way can also influence positive sustainable behaviour (White et al. 2019). Digital advertising generates significant carbon emissions; a typical online ad campaign can

produce 5.4 tons of carbon dioxide. To mitigate this, advertisers can measure the impact of their campaign, use high-quality carbon offsetting initiatives, reduce file sizes to speed up end-user access, run campaigns at off-peak times, to produce advertising that is good to the planet (Williams 2022). Making consumers aware of the negatives of engaging with ‘energy greedy’ campaigns and enabling them to receive low-carbon advertising could promote guilt-free ad consumption. Also subscription services, such as Netflix, Amazon Prime and All 4, offer advert-free streaming. A key to promoting eco-friendly sustainable behaviours is through information (e.g. eco labelling), which enables consumers to make informed decisions by creating advertising messages that educate consumers and frame the problems to promote the desired behaviour (White et al. 2019). 5. Tangibility refers to making sustainability real in the eyes of the consumer. Marketers can aim to show the effects of positive behaviour using local neighbourhood impacts. If individuals can see and experience the change, they are more likely to behave more sustainably. The sharing economy and the idea of collaborative consumption provide individuals with options for using ‘idle’ resources, making the act of consumption less resource intensive (White et al. 2019). EXHIBIT 3.6 WWF encourages conservation using an advertising appeal based on fear

Source: Manuel Esteban/Shutterstock

Applying the SHIFT framework to encourage sustainable behaviours is complex and there are many options marketers might choose, but using the

ideas in each of the elements of the framework provides opportunities to identify specific behaviours to target (White et al. 2019). Having explored ethical issues affecting the climate and business activities, we turn to the final dimension of sustainability marketing: technology.

Technology: a dimension of sustainability In the technological dimension, innovation and use of technology is argued to enable communication and education on sustainability and the creation or co-creation of alternatives or solutions that contribute to greater sustainability (Weng 2015). It is argued innovation can find new ways of doing things sustainably if the focus of technology is on environmental solutions rather than on economic projects. From a sustainability marketing perspective, technology should be used to support sustainability and environmental agendas, and to aid firms, organizations and governments to work together to co-create better outcomes for the planet. Alternatively, if technology is not used appropriately it can lead to deteriorating circumstances (Weng 2015). Smart technologies, for example, are being developed to aid manufacturing processes. For instance, if radio-frequency identification (RFID) tags, used for tracking and managing products, are manufactured with renewable paper and without the use of chemicals, they can have a low carbon footprint. Firms need to use technology to enhance sustainability through their CSR strategies and to ensure the integration of sustainable development into every aspect of the firm (Saunila et al. 2019). page 112

According to Vacchi et al. (2021), it is important for technological solutions to leverage innovations in order to make changes that can reduce climate change, as sustainability is a strong driver of change. For marketers, a key organizational challenge lies in finding ways to integrate technology and sustainability in a firm’s strategic planning and corporate culture. If this balance is achieved, Vacchi and colleagues suggest, there is scope to produce high earnings and margins for the company, more customers and access to new markets. Currently, ‘Life Cycle Thinking’ (Toniolo et al. 2020) is a theoretical framework used to consider all phases in the

manufacturing of a product from a sustainability perspective. Life Cycle Thinking can help decision-makers by bringing together all the dimensions of sustainability marketing discussed so far in this chapter, allowing social, economic, environmental and ethical dimensions to be considered as part of a single process. This is illustrated in Figure 3.4, which begins with the cradle, when the early-stage development can be assessed to determine potential environmental and human impacts. After that, internal operations involved in the manufacturing process and distribution can be assessed in the middle ‘gate-to-gate’ stage of the process before the final stage, ‘grave’, where the overall impact of the lifecycle of the product is considered. Vacchi et al. (2021) add to the Life Cycle Thinking literature by suggesting an additional assessment of the organizational impact of technology on sustainability. The result is a holistic assessment process that monitors technology-driven performance against outcomes on impact to determine the overall value created by the use of technology. FIGURE 3.4 Life cycle thinking, from cradle to grave

Source: based on Vacchi et al. (2021)

Now read Marketing in Action 3.4.

MARKETING IN ACTION 3.4

Will Working from Home Save the Planet?

Source: Marish/Shutterstock During the Covid-19 pandemic, many millions of workers did their jobs from home. According to Timperley (2022), analysis by the International Energy Agency (IEA) found positive outcomes of this changing behaviour. Those who would normally commute to work by car (more than 6 kilometres), who started teleworking, created fewer emissions even with increased use of heating and lighting when working from home. The IEA analysis suggested, if a fifth of jobs around the world were carried out at home, carbon dioxide emissions could be significantly reduced, along with a reduction in congestion in towns and cities, and a reduction in office-based energy consumption. However, a review of 39 studies on the climate impacts of teleworking, by Hook et al. (2020), found not everyone agrees because there are uncertainties to consider–for example, teleworking can lead to more non-work travel in the car and greater use of public transport. Workers may choose to live further away from their workplaces, so when they do have to attend, the journey is longer. There are also fears that teleworking can lead to social isolation, impacting on personal well-being and mental health. It might, then, be difficult to assess the real value of teleworking, for either the environment, communities or individuals. Based on: Hook et al. (2020); Timperley (2022)

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Practical Approaches Towards Developing Sustainable Marketing Strategies: Corporate Social Responsibility So far in this chapter we have explored and discussed the dimensions of sustainability, and the tensions, challenges and difficult choices firms and organizations may face if they are to adopt sustainability marketing into their marketing strategy. In this final part of the chapter, we explore corporate social responsibility (CSR), which can help give a structure to

what firms need to do when striving to satisfy customer needs from a sustainable perspective. For marketing managers, sustainability is possibly the biggest challenge of the 21st century. Not only are there issues of what to reduce but there is also the problem of understanding the real impact of any action. Research by Trucost (2012) found environmental sustainability is at the top of most companies’ agendas.

Corporate social responsibility (CSR) Many businesses now consider corporate social responsibility (CSR) a baseline operational requirement rather than something optional. Business has taken action to address ethical concerns in marketing and other functional areas by adopting the philosophy of CSR. CSR has become increasingly important and commands the attention of executives around the world. It would be difficult to find a recent annual report from any large multinational company that does not talk proudly of its efforts to improve society and safeguard the environment (Crook 2005). We shall now examine the idea in depth by exploring the nature and dimensions of CSR and assessing the arguments for and against its adoption. CSR is not new. For many years, companies have been aware of their obligations as employers–for example, the town of Bournville in the UK was created by chocolate maker George Cadbury to house his workers. George funded the building of more than 300 homes in early 1900, and set up a trust so his philanthropy would continue after his death (Bournville Village Trust 2022). Today, there is little doubt that CSR is high on the agenda of many more companies than it was in the past. Most multinational corporations now have a senior executive, often with a team of staff, specifically charged with developing and coordinating the CSR function (Crook 2005). Furthermore, most large companies engage in corporate social reporting within their annual financial statements, as separate printed reports and/or on websites. The importance of CSR is also reflected in membership organizations that offer services to members, such as providing information, lobbying and promoting the CSR cause. For example, UKbased Business in the Community (www.bitc.org.uk) has a membership of more than 600 companies and promotes the prosperity of business through

diversity and inclusion, good nature stewardship, the circular economy, climate action and the promotion of CSR internationally. Other notable organizations in Europe include Business and Society Belgium, Finnish Business and Society, Business in the Community Ireland, Samenleving and Bedrijf (Netherlands), CSR Europe (www.csreurope.org) and the European Business Ethics Network (www.eben-net.org). CSR is based on the stakeholder theory of the firm, which contends that companies are not managed purely in the interests of their shareholders alone. Rather, there is a range of groups (stakeholders) that have a legitimate interest in the company as well (Donaldson and Preston 1995). Following this theory, a stakeholder of a company is an individual or group that either is harmed by or benefits from the company, or whose rights can be violated or have to be respected by the company (Crane and Matten 2004). Other stakeholder groups–besides shareholders, who typically would be considered stakeholders–are communities associated with the company, employees, customers of the company’s products, and suppliers (see Figure 3.5). The key point is that stakeholder theory holds that the company has obligations not only to shareholders but also to other parties that are affected by its activities. FIGURE 3.5 Typical key stakeholders for a company

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The nature of CSR A useful way of examining the nature of CSR is Carroll’s four-part model of CSR (see Carroll 1991; Carroll and Buchholtz 2000). Carroll views CSR as a multi-layered concept that can be divided into four interrelated responsibilities: economic, legal, ethical and philanthropic. The presentation of these responsibilities is in the form of layers within a pyramid, and the full achievement of CSR occurs only when all four layers are met consecutively (see Figure 3.6). FIGURE 3.6 The pyramid of social responsibility

Source: based on Carroll and Buchholtz (2000)

Economic responsibilities Carroll recognized the principal role of a firm was to produce goods and services that people wanted and to be as profitable as possible in so doing. Economic responsibilities include: maintaining a strong, competitive position, operating at high levels of efficiency and effectiveness, and aiming for consistently high levels of profitability. Without the achievement of economic responsibilities, the other three are redundant, since the firm would go out of business. Economic success is therefore the sine qua non of CSR. (Literally translated, ‘sine qua non’ means ‘without which not’, which in other words means ‘without economic success, the other responsibilities cannot succeed’.) Legal responsibilities Companies must pursue their economic responsibilities within the framework of the law. Laws reflect society’s principles and standards that are enforceable in the courts. Occasionally, the drive to maximize profits can conflict with the law–as with Microsoft, which has faced heavy financial penalties both in Europe and the US for anticompetitive behaviour (e.g. bundling its Media Player into the Windows operating system, thereby squeezing out competitors’ software). Like economic responsibilities, the meeting of legal responsibilities is a

requirement of CSR, but CSR is typically a voluntary rather than a legal requirement in the UK. Ethical responsibilities Although the establishment of laws may be founded on ethical considerations, as we have seen there can be important distinctions, as with the selling of genetically modified (GM) products, which may raise ethical questions and yet be lawful. Ethical responsibilities mean that companies should perform in a manner consistent with the principles and values of society, and prevent ethical norms being compromised to achieve corporate objectives. Ethical responsibilities therefore comprise what is expected by society over and above economic and legal requirements. Companies such as British Petroleum (BP) draw up codes of ethical conduct and employ teams to govern legal compliance and business ethics. BP’s code complies with a set of company values that focus on safety, respect, excellence, courage and acting as one team, which encourages every aspect of the business to operate ethically and legally (BP 2022). In 2010, BP’s Deepwater Horizon oil rig exploded in the Gulf of Mexico, causing disastrous environmental damage. After the spill, a US Government report suggested BP had a lack of focus on training and safety; the company’s values were brought into question and BP’s ethical credentials damaged (Schwartz 2020). Multi-billionaire, highly respected businessman Warren Buffett, Chairman of Berkshire Hathaway, advocates that reputation is one of the most valuable measures of success, and his famous quote, ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently’, has possibly never been more pertinent as a guide for businesses looking at ethics and CSR. Philanthropic responsibilities At the top of the pyramid are the philanthropic responsibilities of companies–these are corporate actions that meet society’s expectation that businesses should be good corporate page 115 citizens. This includes promoting human welfare, or goodwill, such as making charitable donations, the building of leisure facilities or even homes for employees and their families, arts and sports sponsorship, and support for local schools (Crane and Matten 2004). The key difference between philanthropy and complying with ethical

responsibilities is that the former is not expected in an ethical sense. Communities may desire companies to contribute to their well-being but do not consider them unethical if they do not. Philanthropic responsibilities are presented at the top of the pyramid, as they represent the ‘icing on the cake’–actions that are desired by society but not expected or required. Warren Buffett made a record-breaking $37 billion donation to the Gates Foundation. The foundation, set up by former head of Microsoft, Bill Gates, and his wife Melinda, aims to give every life across the planet equal value, through philanthropic donations that support global, development and health programmes (Gates Foundation 2012).

The dimensions of CSR A strength of the four-part model of CSR is its realism in recognizing that, without the fulfilment of economic responsibilities, a company would not have the capability to engage in ethical and/or philanthropic activities. However, to gain a deeper understanding of the scope of CSR activities, it is necessary to explore its dimensions as well as its responsibilities. As we have seen, CSR has four layers of responsibility: economic, legal, ethical and philanthropic. By examining the dimensions of CSR, an insight into where those responsibilities may be discharged can be gained. CSR dimensions are based on four key stakeholders–the individuals or groups affected by a company’s activities–plus the physical environment, which, equally, can be affected by a company’s activities such as pollution or usage of scarce natural resources, legal requirements (see Fukukawa and Moon 2004; Maignan and Ferrell 2004) and peer pressure (e.g. competitors’ behaviour) (Saha et al. 2020). Table 3.1 outlines the CSR dimensions, lists associated key issues and describes marketing responses for each dimension. TABLE 3.1 Dimensions of CSR Dimension

Key issues

Marketing response

Physical environment

Combating global warming Pollution control Conservation of energy and scarce resources

Sustainability marketing

Use of environmentally friendly ingredients and components Recycling and non-wasteful packaging Social (community involvement)

Support for the local community Support for the wider community

Societal marketing Cause-related marketing

Consumer

Product safety (including the avoidance of harmful long-term effects) Avoidance of price fixing Honesty in communications Respecting privacy

Societal marketing

Supply chain

Fair trading standards-setting for supplies (e.g. human rights, labour standards and environmental responsibility)

Fair-trade marketing

Employee relations

Fair pay Equal opportunities Diversity Inclusion Training and motivation Information provision (e.g. on career paths, recruitment policies and training opportunities)

Internal marketing

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Please note that the key issues relating to each CSR dimension are not all exclusively marketing related. For example, pollution control at a chemical plant is a production-related issue, whereas standard setting for supplies is a procurement-related topic, and the setting of fair pay is a human resources issue. Nevertheless, for most of the issues listed in Table 3.1, marketing practices can affect outcomes. For example, car design can affect pollution levels and the rate at which oil reserves are depleted, and the creation of healthy-eating brands can improve consumers’ diets through a reduction in fat, sugar and salt levels. Physical environment Key issues in the physical environment, such as the use of environmentally friendly ingredients and components, recycling and non-wasteful packaging and pollution control, were

introduced in Chapter 2 and discussed earlier in this chapter. Marketers’ responses to these issues can be summarized under the term ‘sustainability marketing’. Environmental sustainability means to maintain or prolong the physical environment. It involves action towards the use of renewable rather than finite raw materials, and the minimization and eventual elimination of polluting effluents and toxic or hazardous wastes. Since marketing operates at the interface between the organization and its environment, it is uniquely positioned to lead the move towards more sustainable products and strategies. Typically, companies move through several stages (see Figure 3.7). To facilitate this process, marketing as a function needs to address a range of questions, from the strategic to the tactical. Key questions are as follows (Charter et al. 2002): Have the effects of sustainability issues on company activities been analysed as part of the marketing planning process? Has the company conducted marketing research into the probable impacts on the organization of sustainability issues? Can the company modify existing products, services or processes to take account of sustainability considerations, or will innovations be required? Is the firm developing positive links with environmental groups? Do communications strategies accurately emphasize environmental considerations? FIGURE 3.7 The stages in the move towards excellence in environmental performance

Source: based on Carroll and Buchholtz (2000)

Responding positively to environmental issues is important in order to protect and sustain brands. Market-leading brands are always susceptible to attack by media and/or pressure groups following any environmental incident. It is, therefore, sensible to build into brand strategies sustainability issues to nurture and maintain brand trust. Environmental issues can be a source of threats to organizations but they can also provide opportunities. Toyota responded to environmental trends with the successful launch of its Prius hybrid car, which supplements normal fuel with an electric-powered engine. The electric engine starts the car and operates at low speeds using a battery. At higher speeds, the Prius automatically switches to a normal engine and fuel. This saves on fuel and is less polluting. The success of the Prius has led many of its rivals to enter the hybrid and electric vehicle markets (e.g. the Nissan Leaf, Renault Zoe and Kangoo Z.E. van). These models seek to put an end to all the myths about driving electric cars and give the motorist energy-efficient driving.

The production of biofuels has risen dramatically as companies have seized the opportunity to replace petrol. BP, for example, has invested £284 million in biofuels. However, opposition from environmentalists may hamper further development. They fear that carbon-absorbing rainforests in countries such as Brazil are being depleted to make way for fuel crops such as soya and palm, and that such crops are displacing land use for food, forcing up prices (Macalister 2008). Detergent companies like Unilever have also embraced sustainable marketing by producing concentrated soap powder that both helps the environment and improves profitability. Environmental damage is reduced because the product requires less plastic, less water, less space for transportation, fewer chemicals and less packaging (Skapinker 2008). Procter & Gamble has also promoted the benefit of lowtemperature washing with its award-winning Ariel ‘Turn to 30’ campaign, which raised awareness of the impact of washing temperatures on emissions (Murphy 2008). Social and consumer dimensions A social concern businesses have sought to address is the need to support local and wider communities. Consumer concerns include the effect of business activities on product page 117 safety, including the avoidance of harmful long-term effects, the avoidance of price fixing, honesty in communications and respecting privacy. Although social and consumer dimensions of CSR are distinct because their key issues differ, the two dimensions are analysed together as marketing’s major response–societal marketing–embraces both. Whereas sustainable marketing focuses on the physical environment, societal marketing relates to marketing’s direct effect on people, both in the form of consumers and society in general. Supply chain Unfair trading arises when large buyers exert their power on small commodity producers to force prices to very low levels. This can bring severe economic hardship to producers, who may be situated in countries of the developing world. Many of the growers of such products as coffee, tea and cocoa live in poverty, and face hardship in the form of poor working conditions, health problems and prices that fail to provide a living wage. The fair-trade movement seeks to improve the prospects of suppliers through ethical trading, including the guaranteeing of minimum prices.

Employee relations Poor employee relations can have harmful marketing consequences. For example, US supermarket giant Walmart has suffered from years of allegations regarding low pay and sexually discriminatory hiring and employment practices–a situation it is seeking to address (Hines 2012). Bad publicity can deter ethically aware consumers from buying from companies that suffer such criticism. Walmart is frequently in the news headlines as it is the largest employer in the US, with 1.6 million employees. Recently, in response to changes in US health guidance related to Covid-19, Walmart reduced to one week paid leave for those suffering from the disease, opening the door for its competitors to follow. This action has been taken in response to a shortage of labour across the industry due to sickness (Cavale and Naidu 2022). This move may be viewed negatively by the shopping public, but if all retailers adopt the same policy they will be left with fewer options. While most employee relations issues are the province of the human resources (HR) function, marketing can play a role through internal marketing programmes. Internal marketing is the development, training and motivation of employees, designed to enhance their performance in providing customer satisfaction. The idea began in service organizations such as hotels and restaurants, where staff are in daily communication with customers, but has spread to all sectors as a reflection of the need for all employees who come into contact with customers to be trained in how to deal with such issues as giving help, dealing with complaints and treating customers respectfully. Such training avoids, as far as possible, employee– customer arguments and conflict, which not only improves customer satisfaction but also is good for staff morale, reduces stress levels and aids staff retention. CSR leads to enhanced brand/corporate image and reputation One argument in favour of CSR is that a strong reputation in environmental and social responsibility can help a company build trust and enhance the image of its brands. This approach can help when a company is faced with media criticism or regulatory scrutiny. Also, if a company is moving to a new area or new market, or opening a new site such as a distribution centre, store or factory, it helps to be seen as trustworthy and a ‘good neighbour’ (Sclater 2005). For example, BP has taken steps to reduce harmful emissions, and Orange has enhanced its image through sponsorship of the

arts. However, brands should consider carefully the potential effects of corporate behaviour. Online retailer ASOS has recently acquired collapsed high-street retail chains Miss Selfridge, Topshop/Topman and Hiit Activewear; this has had a positive effect on ASOS’s ethical rating, whereas competitor Boohoo’s rating fell when it acquired Debenhams, Dorothy Perkins, Principles and Wallis, the underlying explanation for the fall being unsustainable and exploitive practices of clothing production and terms of employment (Tyler 2021). CSR provides marketing opportunities Environmental and social responsibility has created new markets for business-to-business and business-to-consumer goods and services. For example, GE is expanding its marketing of ‘clean’ technological goods to companies, and Unilever, which owns PG Tips and Lipton tea, acquired Pukka Herbs, an ethical tea brand, to fill a gap in its portfolio (Unilever 2017). Market segments have emerged based on ‘green’ credentials that provide targeting opportunities. One segment–known as ethical hard cores or dark greens–researches companies and their practices thoroughly before buying their products. These consumers view ethical consumerism as a way of life, whatever the sacrifice. A second segment–known as ethical lites or light greens–do their bit but do not have the time to research products or companies thoroughly (Parkinson 2005). They are happy to recycle newspapers, plastics and other material from their homes and buy ethical brands, provided there is not too much of a price premium. CSR increases organizations’ ability to attract and retain employees Many employees are attracted to employers that are active in social issues. For example, Net Impact (netimpact.org), a network of socially conscious employees, has a membership of more than 100,000 page 118 people, and more companies are seeking to build partnerships with it to help solve real-world sustainability challenges (Net Impact 2022). Some companies, such as salesforce.com (an internet-based services company), have a policy of good corporate citizenship (staff are encouraged to devote time, at the company’s expense, to charitable works) that they believe helps to attract, retain and motivate employees, and the leadership team see ‘doing good as gaining momentum, which encourages a

strong culture of employee engagement in philanthropic acts and volunteering for good causes’ (Olsen 2021). CSR is a form of risk management There are real penalties for companies that are not environmentally or socially responsible. The media criticisms of such companies as Nike (child labour in the developed world), the now defunct British Nuclear Fuels Limited (BNFL) (toxic discharges in the Irish Sea), Enron and Royal Bank of Scotland (financial scandals), and former tabloid newspaper the News of the World (phone hacking) have shown the harm that can arise from being perceived as irresponsible. CSR, then, can be employed as a form of risk management that reduces the chances of being the subject of the next corporate scandal to hit the headlines. Research suggests CSR strategies should be an integral part of corporate strategy. This means that strategic goals and all related activities need to adopt the policies advocated. However, marketing managers can apply CSR to different extents (see Figure 3.7), which, Galbreath (2006) argues, means that different applications of CSR lead to different outcomes: the stakeholder strategy focuses on profit maximization and so CSR is limited to compliance with legal responsibilities. This would put a firm at the low end of the scale in Figure 3.8. The proactive strategy, at the other end of the scale, creates a relationship between the firm and its communities, and the company seeks to give back, perhaps by donating surplus profits in line with social values (Carroll 1979). This approach is about accommodating and accepting social responsibilities. The reciprocal strategy looks at CSR more strategically and sees it as good for business. Galbreath’s (2006) final strategy is the citizenship strategy, which take a very proactive approach to CSR, integrating all corporate actions into delivering sustainable approaches. FIGURE 3.8 CSR strategic options

Source: based on Carroll (1979)

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Big Picture: Key Topics in This Chapter

Detailed Review 1. Understand how the environment and society are changing the marketing landscape Impact of globalization: access to new markets, global supply chains, innovation and inequalities emerging from the exploitation of different habitats. Industrialization of agriculture and farming: feeding the world is increasing the use of pesticides and crop yields, and industrial farming has led to deforestation, air pollution and excessive waste. Politics and climate change: political intervention, UN, climate change takes different forms; there is much debate over how to tackle climate change globally. Depletion of natural resources, waste or issues impacting on climate change. Waste reduction.

Fair society, equality and inclusion. 2. Sustainability marketing Creating shared values. Individual and communities. Employee. The planet. 3. Explain the dimensions of sustainable marketing

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Environmental context highlights sustainability. Economic context focuses on strong economic performance. Social context highlights the need for change in society, reduction of inequalities and deprivation. Ethical context: ethical principles reflect the culture and values and norms of society; sustainable marketing is highlighting ethical dilemmas. Ethics describes the moral principles and values governing the actions and decisions of an individual or group. Business ethics describes the moral principles and values guiding a firm’s behaviour. Marketing ethics describes the moral principles and values guiding behaviour within the field of marketing. 4. Changing consumption behaviour There is great urgency to reduce the impact of consumption on the planet and its inhabitants. The SHIFT framework presents ways for marketers to consider how to encourage more sustainable consumption behaviour. The SHIFT framework consists of: social influence, habit formation, individual self, feelings and cognition, and tangibility. Technological context: innovation and use of technology seeking to find ways to do things sustainably. There are negative aspects to technology as it can cause deterioration in and excessive use of scarce resources. 5. Ethical issues in marketing Ethical issues in marketing relate to concerns about how the marketing mix is applied to consumers, and more general societal, environmental and political issues. Specific examples include product safety, price fixing, misleading advertising, deceptive selling, invasion of privacy through direct and internet marketing activities, and the use of promotional and slotting allowances. Societal concerns focus on materialism and short-termism; environmental concerns focus on the impact of marketing decisions on the environment; and political concerns focus on the power global companies can exert on consumers, governments and suppliers. 6. Practical approaches towards developing sustainable marketing strategies: corporate social responsibility (CSR) The main response from businesses has been the adoption of CSR as a philosophy guiding decisions and actions.

Societal responses take the form of consumerism, environmentalism and ethical consumption. Legal and regulatory responses are the enactment of laws at European and national levels to protect the consumer and to outlaw anticompetitive business practices, and the establishment of regulatory bodies to enforce those laws. Many industries have also established organizations to apply self-regulation through the drawing up and enforcement of codes of practice. 7. The stakeholder theory of the company CSR is based on the stakeholder theory of the company, which contends that companies have multiple stakeholders, not just shareholders, to whom they hold a responsibility. These include communities associated with the company, employees, customers (including intermediaries) and suppliers. 8. Practical approaches towards sustainability marketing: CSR CSR refers to the ethical principle that an organization should be accountable for how its behaviour might affect society and the environment. Organizations have responsibilities to ensure that economic performance meets stakeholder requirements, operational practices do not break the law and ethical principles are consistent with the values of society. Additionally, an organization has a responsibility to be a good corporate citizen–for example, supporting good causes and making philanthropic donations. 9. The dimensions of CSR CSR involves five dimensions of organizational activity: the physical environment, social, consumer, supply chain and employee relations. Marketing’s response to each dimension involves responding to relevant issues. page 121

Key Terms business ethics the moral principles and values that guide a firm’s behaviour ethics the moral principles and values that govern the actions and decisions of an individual or group fair-trade marketing the development, promotion and selling of fair-trade brands, and the positioning of organizations on the basis of a fair-trade ethos marketing ethics the moral principles and values that guide behaviour within the field of marketing not-for-profit organization this type of organization often employs a volunteer workforce, and relies on donations and external funding

social marketing seeks to change behaviour for the benefit of the individual and society, and its applications come in many different guises societal marketing focuses on consumers’ needs and long-term welfare as keys to satisfying organizational objectives and responsibilities by taking into account consumers’ and society’s wider interests rather than just short-term consumption stakeholder an individual or group that either (i) is harmed by or benefits from the company, or (ii) whose rights can be violated or have to be respected by the company stakeholder theory contends that companies are not managed purely in the interests of their shareholders alone but for those of a broader group including communities associated with the company, employees, customers and suppliers sustainability marketing focuses on reducing environmental damage by creating, producing and delivering sustainable solutions while continuing to satisfy customers and other stakeholders

Study Questions 1. What is sustainability marketing? 2. Identify and discuss the contexts that frame sustainability marketing activities. 3. Discuss the extent to which you believe the marketing practices of global corporations are unethical. 4. Evaluate the contention that if ethical consumption were the norm there would be no need for legislation to protect consumers. 5. Imagine you are the marketing director for a popular FMCG brand. Describe how you would apply the SHIFT framework to encourage your customers to exhibit sustainable behaviours. 6. Discuss how sustainability marketing might be used by brands to change consumer behaviour. 7. What are the key responsibilities of CSR and to what extent do you believe businesses should accept them? 8. Describe the five dimensions of CSR. Evaluate marketing’s response to the issues underlying each dimension. 9. Discuss the differences in meaning of sustainability and CSR. 10. Make an argument for and against the adoption of a sustainability marketing approach.

Recommended Reading Sustainability, ethics and CSR are important topics in marketing. Read about how these topics are affecting marketing practice and society; discover ideas on how socio-sustainable marketing can bring human consumption and nature together to the greater benefit of all. Löbler, H. (2017) Humans’ relationship to nature: framing sustainable marketing, Journal of Services Marketing, 31(1): 73–82. Martinez, F., Peattie, K. and Vazquez-Brust, D. (2021) Faith in the future: on a mission to integrate sustainability into management theory and practice, Futures, 125(January): 102654. Verbin, I. (2020) Corporate Responsibility in the Digital Age. London: Routledge. page 122

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CASE 5 MCDONALD’S AND ITS PLAN FOR ENVIRONMENTAL CHANGE: NOT EVERYONE IS ‘LOVIN’ IT’ Introduction McDonald’s is one of the world’s most recognizable and profitable brands. The well-known brand started out as a humble hamburger restaurant in the 1940s and grew to become a global presence (McDowell 2020). It’s no wonder that the fast-food chain has become so iconic when there are more than 39,000 outlets in over 119 countries worldwide (Elgin 2021). McDonald’s reported that global revenues topped $23.2 billion in 2021, a 21 per cent jump from 2019, which is surprising given the impact of Covid lockdowns. However, price increases on many of the fast-food chain’s products helped McDonald’s more than offset sharp price rises in food and labour costs, and this helped to propel the company’s revenue in 2021 to the highest level since 2016. Profits also soared 89 per cent from a year earlier to $7.5 billion, so things are looking positive for the ubiquitous brand (Creswell 2022).

Source: thodonal88/Shutterstock However, in recent years, McDonald’s and other fast-food suppliers, including Burger King, Domino’s Pizza, Chipotle Mexican Grill, Wendy’s, Pizza Hut and KFC, have come under fire from a coalition of investors who signed a letter asking them to reduce the carbon footprint of their meat and dairy supply chains (BBC 2021). These investors, facilitated by global investor network FAIRR and sustainability organization Ceres, originally launched in January 2019 with the backing of investors with combined assets of $6.5 trillion. Since then, the coalition has grown by 75 per cent to include more than 90 investors with combined assets of $11.4 trillion, signalling an increased awareness among investors of the threats posed to food systems by climate change, water scarcity and water pollution. The fast-food giants were asked to de-risk their meat and dairy supply chains by setting ambitious targets to reduce their greenhouse gas emissions, to undertake climate risk scenario analysis, and reduce the water usage and water quality impacts in their animal protein value chains (Ceres 2021). Since 2019, this global investor engagement with fast food giants has resulted in fast-food companies ramping up their climate commitments. McDonald’s became the first restaurant company in the world to address global climate change by setting a Science Based Target to significantly reduce its greenhouse gas emissions. These targets were set in 2018, prior to pressure from the investor coalition, as the global brand wanted to send a strong message that it took environmental concerns seriously (Liedke 2018).

A Plan for Change For the past decade or more, McDonald’s has vowed to address the sustainability issue. As far back as 2011, it helped launch the Global Roundtable for Sustainable Beef, which was an industry-backed group aimed at improving a variety of cattle-raising practices. Following on from this, it made a commitment to acquire some of its beef from sustainable sources and, in 2018, pledged to reduce the climate intensity of its food and packaging by 2030 (Elgin 2021). Then, in October 2021, it went one step further, announcing that as part of a global sustainability drive, the fast-food chain aimed to lower emissions by about a third for both its suppliers and its 39,000 company-run and franchised restaurants by 2030. Its goal is to achieve net zero emissions across its global operations by 2050–this means consuming only as much energy as it produces. However, in the UK and Ireland, McDonald’s has set its net zero target a decade earlier, and has pledged to page 126 achieve net zero emissions across its UK and Irish businesses by 2040 (Burke

Kennedy 2021). McDonald’s UK & Ireland is leading the company’s global efforts with the introduction of the Plan for Change, which is a comprehensive business and sustainability strategy developed by the global brand (Joyce 2021). The plan outlines the steps McDonald’s will take both now and in the future to support both the planet and the communities it serves. McDonald’s sees this Plan for Change as a business priority, rather than just a sustainability strategy. It is hoping to introduce many changes to its business, changes that together with 1,400 restaurants, 130,000 people, 23,000 British and Irish farmers, and 4 million daily customers, will add up (Shaw and Eklund 2021). The plan sets out ambitious goals across four key areas: planet, people, restaurants and food. It is hoped that by making improvements in these four areas the company can lead positive change across the business and beyond (McDonald’s 2022). In terms of the planet, as mentioned above McDonald’s aims to achieve net zero emissions by 2040 across McDonald’s UK & Ireland’s entire business and value chain. This will include the use of soy in ingredients and animal feed in its supply chain that will be deforestation-free by 2026. In a further move towards sustainability, the company announced that by the end of 2024 its customer packaging will be made from renewable, recycled or certified sources, and by 2025 every Happy Meal toy sold around the world will be more eco-friendly and consist of renewable and recycled materials (Webber 2021). When it comes to people, McDonald’s aspires to help one million people gain new skills and open doors to jobs by 2030. As part of this, McDonald’s UK & Ireland pledges to support local communities by providing a youth worker in every restaurant by 2024. The hope is that this will make a real difference to young people by giving them confidence and skills, and helping them make the most of their potential (Joyce 2021). In terms of restaurants, one of McDonald’s initiatives in this area was the opening of its first zero-emissions restaurant in Shropshire, UK, in late 2021. From its cladding, composed of recycled IT equipment and household goods, to its restaurant chairs made from plastic bottles, recycled materials were used prominently in the building’s construction. The restaurant is powered by renewable energy, produced from two wind turbines and 92 square metres of solar panels on-site (Enjoli 2021). It also features a biodiversity garden and nature trail designed by schoolchildren from the area, and a drive-through lane that has been made from recycled plastic bottles. Other innovations include walls insulated with British sheep’s wool, which might otherwise go to landfill (and which replaces unsustainable synthetic materials), wall art made from recycled polystyrene cups, and EV charging points. The restaurant is designed to be a ‘net zero emissions’ template and the plan is that it could be replicated across any of McDonald’s new restaurants. According to McDonald’s, the next step in its commitment is to ensure that all furniture in its new and refurbished restaurants will be made from recycled or certified materials, and designed to be recycled or reused (Robertson 2021). Finally, in terms of food, the Plan for Change included the setting up of a Nutrition Innovation Council to work on developing more balanced menu options. In 2021, McDonald’s debuted its first plant-based burger, the McPlant. It features Beyond Meat, which uses pea protein to produce its patties. This was seen as a first step for McDonald’s in offering consumers more vegan, plant-based food (Shaw and Eklund 2021).

Greenwashing Despite, these efforts to become more sustainable, some campaigners remain unconvinced by the company’s environmental claims and have accused the fast-food chain of ‘greenwashing’. Greenwashing is described as the process of conveying a false impression

or providing misleading information about how a company’s products are environmentally sound. For example, companies involved in greenwashing behaviour might make claims that they are moving towards sustainability, when in fact some aspects of their business are not. Although, some of the environmental claims made may be partly true, companies engaged in ‘greenwashing’ typically exaggerate their claims or the benefits, in an attempt to mislead consumers (Kenton 2022). Climate experts who have reviewed McDonald’s sustainability plans and data say the fastfood giant is largely dodging the one bold step it must take to slash emissions: dramatically reducing the amount of beef it serves (Perkins 2021). Beef production is particularly problematic and harmful to the environment, due to the fact that cattle release high levels of a potent greenhouse gas (methane) in their burps and manure. In addition, the amount of feed, water and land that cattle require to produce a pound of meat is much higher than other animals, thus inflating their carbon footprint (Perkins 2021). In actual fact, the carbon footprint of beef is nearly 4 times the mean footprint of chicken, or 10 to 100 times the footprint of most plant-based foods (Ritchie 2020). Beef represents McDonald’s largest menu category and McDonald’s beef-centric menu is therefore affecting its environmental impact, with beef responsible for about a third of McDonald’s climate footprint at present (Weber 2021). McDonald’s is one of the largest beef buyers in the world, using 1.9 billion pounds of beef annually, a mountain of meat that casts an enormous carbon page 127 footprint (Perkins 2021). At more than 53 million metric tons of carbon per year, McDonald’s produces more emissions than Norway and that number is still rising (Elgin 2021). Stephanie Feldstein, population and sustainability program director for the Centre for Biological Diversity, called out McDonald’s for ‘nibbling around the edges of sustainability’. Feldstein believes that, ‘If McDonald’s really wants to create sustainable change, it can’t stop at plastic-free toys. The company needs to overhaul its menu, put the McPlant in every restaurant and reduce the amount of beef it serves too’ (Webber 2021).

The Future These concerns cast a spotlight on the enormous challenge facing McDonald’s. However, it looks like McDonald’s has taken positive steps towards dealing with these issues. Following the limited release of the McPlant in the UK and Ireland in January 2022, McDonald’s confirmed that the McPlant burger would be available in all outlets in the UK and Ireland (including restaurants and smaller subsidiaries in retail parks and service stations). The fast-food giant stated that the McPlant created enough interest, appreciation and demand for a full commercial roll-out. The burger has become a permanent menu item, joining Veggie Dippers as the only other Vegetarian Society approved option on the UK and Ireland menu. In addition, with McDonald’s having signed a three-year deal with Beyond Meat in 2021, vegan consumers anticipate future new releases (Buxton 2022). Despite the positive menu changes, some argue that even if fast-food chains like McDonald’s want to move further towards truly sustainable production, current consumption habits would make that almost impossible. The real problem is that consumers are currently showing huge demand for McDonald’s Happy Meals, Quarter Pounders, Big Macs, Triple Cheeseburgers and other popular beef menu items. This begs the question of whether fastfood brands with beef-centric menus can ever be sustainable. The fear for McDonald’s is that if it makes the move away from beef, it may lose its customer base. However, as more and more consumers become concerned with climate change and demand more

sustainable brands, global corporations such as McDonald’s may have little choice but to reassess their current business models.

Questions 1. Highlight the environmental and social impacts of fast food in general. Comment on whether or not you think it is possible for fast-food chains such as McDonald’s to ever be sustainable. 2. How has McDonald’s responded to public concerns about its environmental impact? Visit the McDonald’s UK website to assess how the brand has responded to these environmental concerns and shown commitment to a range of environmental issues. Do you think its environmental targets are achievable? 3. A lot of focus is on fast-food companies’ environmental responsibilities, but do consumers have responsibilities here too? Do you think the average consumer cares about buying from a sustainable brand? What can consumers do to reduce their fastfood environmental impact? 4. Why is ‘greenwashing’ seen by many as an unethical business practice? Do you think McDonald’s is guilty of the greenwashing claims levelled against it? This case study was written by Marie O’Dwyer, South East Technological University.

References Based on: Liedke, A. (2018) McDonald’s has pledged to slash greenhouse gas emissions– it’s charting a course for sustainable growth, Science Based Targets, https://sciencebasedtargets.org/blog/mcdonalds-has-pledged-to-slash-greenhouse-gasemissions-its-charting-a-course-for-sustainable-growth (accessed 30 May 2022); McDowell, E. (2020) Then and now: photos showing how McDonald’s has changed through the years, from its menu to its mascot, Business Insider, www.businessinsider.com/then-and-nowmcdonalds-restaurants-through-the-years?r=US&IR=T (accessed 30 May 2022); Ritchie, H. (2020) The carbon footprint of foods: are differences explained by the impact of methane? Our World in Data, https://ourworldindata.org/carbon-footprint-food-methane (accessed 30 May 2022); BBC (2021) Wind-powered net zero McDonald’s opens in Market Drayton, BBC.com, www.bbc.com/news/uk-england-shropshire-59603244 (accessed 30 May 2022); Burke-Kennedy, E. (2021) McDonald’s pledges to achieve net zero emissions by 2040, Irish Times, www.irishtimes.com/business/agribusiness-and-food/mcdonald-s-pledges-toachieve-net-zero-emissions-by-2040-1.4690674 (accessed 30 May 2022); Elgin, page 128 B. (2021) McDonald’s struggles to fix its massive methane problem, Bloomberg, www.bnnbloomberg.ca/mcdonald-s-struggles-to-fix-its-massive-methane-problem-

1.1689501 (accessed 30 May 2022); Enjoli, A. (2021) McDonald’s opens first net-zero restaurant, Live Kindly, www.livekindly.co/mcdonalds-opens-first-net-zero-restaurant/ (accessed 30 May 2022); FAIRR (2021) Fast food giants ramp up climate commitments under pressure from investors in ‘breakthrough year’, FAIRR, Available at: www.fairr.org/article/fast-food-giants-ramp-up-climate-commitments-under-investorpressure-in-breakthrough-year/ (accessed 3 May 2022); Joyce, D. (2021) McDonald’s UK and Ireland lands ambitious ‘Plan for Change’ programme, Stir the Jam, www.stirthejam.com/post/mcdonald-s-uk-and-ireland-launches-ambitious-plan-for-changeprogramme (accessed 30 May 2022); Perkins, T. (2021) ‘Hold the beef’: McDonald’s avoids the bold step it must take to cut emissions, Guardian, www.theguardian.com/environment/2021/dec/10/mcdonalds-emissions-beef-burgers (accessed 30 May 2022); Robertson, D. (2021) New McDonald’s opens in Shropshire complete with recycled tyres and wind turbines, Shropshire Star, www.shropshirestar.com/news/local-hubs/north-shropshire/marketdrayton/2021/12/10/mcdonalds-opens-first-net-zero-carbon-restaurant/ (accessed 30 May 2022); Shaw, N. and Eklund, Z. (2021) McDonald’s announces big changes to menus and restaurants to ‘look after the planet’, Mirror Online, www.mirror.co.uk/news/uknews/mcdonalds-announces-big-changes-menus-25140931 (accessed 30 May 2022); Webber, J. (2021) A Big Mac’s carbon footprint is equal to driving a car nearly 8 miles, new data shows, Plant-Based News, https://plantbasednews.org/news/environment/big-maccarbon-footprint (accessed 30 May 2022); Buxton, A. (2022) McDonald’s UK finally announces nationwide availability of the vegan McPlant burger, Green Queen, www.greenqueen.com.hk/mcdonalds-mcplant-nationwide-uk-rollout/ (accessed 30 May 2022); Creswell, J. (2022) McDonald’s now with higher price, topped $23 billion in revenue in 2021, New York Times, www.nytimes.com/2022/01/27/business/mcdonalds-earnings.html (accessed 30 May 2022); Kenton, W. (2022) Greenwashing, Investopedia, www.investopedia.com/terms/g/greenwashing.asp (accessed 30 May 2022); McDonald’s (2022) Our plan for change, McDonald’s, www.mcdonalds.com/ie/en-ie/our-plan-forchange/our-plan.html (accessed 30 May 2022).

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CASE 6 UNILEVER: IN PURSUIT OF PURPOSE

Introduction Unilever plc is a multinational fast-moving consumer goods (FMCG) company, selling more than 400 brands within product categories such as food, ice cream, homecare and beauty. Competing with other global giants such as Procter & Gamble and Nestlé, Unilever’s portfolio of brands includes successful household names such as Dove, Magnum, Ben & Jerry’s, Lifebuoy, Domestos and Knorr. Thirteen brands appear in the top 50 consumer chosen brands in the world as measured by Kantar Worldpanel, with three in the top ten (Kantar 2022). Unilever is currently worth €52 billion and calculates that 3.4 billion people across the world use its products every day. The organization employs 148,000 people to manufacture, distribute and sell its brands in more than 190 countries (Unilever 2022d). As such, the potential impact of Unilever’s products and how the company operates is considerable: on consumers, on employees and on the planet.

Source: BalazsSebok/Shutterstock Unilever has historically taken pride in recognizing this responsibility as well as the capability to make a difference to society. Launched in 1894, Unilever’s Lifebuoy soap was developed with carbolic acid to improve hand hygiene. The product was sold at an affordable price alongside handwashing campaigns to help combat diseases that were prevalent due to poor sanitation. Lifebuoy’s handwashing campaign has continued across the world, partnering with the charity UNICEF and donating funds to support its social development programmes. Unilever’s sustainable approach was formalized with a corporate social responsibility (CSR) strategy in 2010 as the 10-year Unilever Sustainable Living Plan (USLP) was launched. This set out ambitious goals for the organization regarding health and well-being, livelihoods and environmental impact. Today, Unilever continues to actively advocate this strategy, publicly acknowledging a responsibility towards multiple stakeholders. However, amid a fall in share price at the start of 2022, Unilever received criticism from shareholders who challenged its ethical approach, questioning the level of focus prioritized to applying purpose to brands at potential cost to its operating performance. Indeed, as more organizations bring ethics into their marketing, criticism has emerged of brands attempting to make commercial gains out of social issues. Others argue that brands should be confident of their intrinsic benefits and that pursuing purpose can dilute differentiation. As such, a debate exists as to whether a purpose-led approach is always appropriate, or

whether this can sometimes be ineffectual, even damaging, if seen as lacking in differentiation or authenticity.

Consumers Seek Value in Ethical Brands Rapid developments in technology have allowed accessibility to information and opinions such that consumers are now far more aware of social and environmental issues. Increasingly ethically conscious, they are knowledgeable about the actions that impact the planet, supportive of diversity and less tolerant of groups being disadvantaged. Social media has played a significant role in this trend, with 78 per cent of consumers now using consumer-generated media as a source of news and information (Kantar TGI 2020, cited in Kantar 2021). Moreover, with global smartphone penetration at nearly 80 per cent, albeit concentrated in western regions, there is easy accessibility (O’Dea 2022). Organizations such as the World Wildlife Fund (WWF) have used social media to drive awareness of environmental issues with engaging campaigns such as the Earth Hour event in 2017. WWF claimed that this not only spread awareness but also trust, as page 130 users posted and shared their own opinions (Gilliland 2017). Controversy also spreads rapidly on social media, which can galvanize action such as the protests outside London Fashion Week in February 2022. These were shared alongside Twitter campaigns disseminating allegations about unethical practices in the fast-fashion industry, calling out brands such as Pretty Little Thing (La Manna 2022). As a consequence, there are higher expectations of sizeable, profit-driven organizations and their ambitions, and a demand for transparency. Unilever’s own study in 2017 among 20,000 adults across five countries revealed that more than a third claimed to be choosing brands thought to be ‘doing social or environmental good’, while a majority of shoppers felt better buying sustainably produced products (Unilever 2017). A 2021 study in the UK by Deloitte highlighted that 32 per cent of consumers claim to now be ‘highly engaged with adopting a more sustainable lifestyle’, while 28 per cent have even stopped buying certain products ‘due to ethical or environmental concerns’ (Deloitte 2021). As well as emphasizing the responsibility held by organizations, these findings signify the potential for return on investment for CSR strategies and other ethical marketing approaches. To date, companies such as Unilever have been able to differentiate within their industry through sustainable positioning, harbouring success in doing so.

A Sustainable Approach The Compass became Unilever’s current CSR strategy in 2020 and continues a long-held commitment to the organization’s people and brands in order to drive a positive impact. The aim is for purpose to be at the heart of the organization and the company is proud of its 52/48 female/male gender balance at management level, and that 92 per cent of leaders are local to their market (Unilever 2022c). Unilever’s brands were committed to purpose long before the company’s CSR strategy was formalized in 2010. The Dove Campaign for Real Beauty was launched in 2004 in response to images portrayed in the beauty industry and the negative impact these were found to be having on body confidence. Since then, a series of compelling communications have been

released, cleverly tailored to different markets and cultures, with an aim to improve the selfesteem of women and girls across the world. As part of the brand’s social programme, volunteers visit schools and Unilever claims to have helped more than 60 million young people in 142 countries with self-esteem education since 2005 (Unilever 2022b). Nearly 20 years later, the campaign is still running and the Dove brand continues to grow (Statista 2022). The company is constantly innovating and adapting products and their production to be more sustainable. In 2018, the Day2 brand was launched, a dry-wash spray product designed to be used on laundry between washes to save water and make clothes last longer. Cif’s Eco Refill bottle was introduced in 2019, the same year that TRESemmé, Lynx and Domestos moved to detectable black plastic that would be more easily identified by recycling plants. This commitment to purpose is not without controversy. Unilever has a code of business principles in which it sets out a directive to working within legal and regulatory boundaries, as well as the company policy on areas such as political involvement. When Unilever bought the values-led Ben & Jerry’s ice cream brand in 2000, the US subsidiary retained autonomy to preserve its social mission, famously campaigning for human rights. Powerfully supporting the Black Lives Matter movement, it called to ‘dismantle white supremacy’, while in July 2021, the brand felt that distributing its products in Israeli-occupied Palestinian areas was against its values and withdrew sales. This led to political tension between Unilever and Israel’s prime minister, and divestments from US pension funds. Ben & Jerry’s CEO Matthew McCarthy maintains that ‘we do these things not to sell more ice cream but because we care about people and have values’ (Beard 2021). Nevertheless, results are strong, with the ice cream brand achieving 9 per cent growth in 2021 (Naidu and Kerber 2022). In 2019, Unilever announced that its purpose-led brands were growing 69 per cent faster than the rest of the business and delivering 75 per cent of the company’s growth. As a result, CEO Alan Jope asserted, ‘we believe the evidence is clear and compelling that brands with purpose grow. In fact, we believe this so strongly that we are prepared to commit that in the future, every Unilever brand will be a brand with purpose’ (Unilever 2019a). In 2021, chief sustainability officer, Rebecca Marmot, reiterated this sentiment, talking of how the latest CSR (Compass) strategy ‘lays the pathway for us … to prove once and for all that sustainable business drives superior business performance’ (Marmot 2021). Indeed, Unilever brands have recently reviewed long-standing communication to demonstrate more relevance and purpose. In 2020, laundry brand Omo (Persil in the UK) adapted its ‘Dirt is Good’ campaign after more than 10 years of encouraging page 131 children to play outside and get dirty. The new campaign is a more pointed call to get active to make a difference. Many organizations are now adopting CSR strategies and incorporating purposeful positioning into their brands. Starbucks is a notable example, with its focus on the sustainability of coffee farming, while McDonald’s has set out some ambitious targets in its 2020 CSR Framework, with a commitment to providing a healthier product offering as well as sourcing ingredients more sustainably. While these initiatives are logical, relevant strategies for these businesses, other demonstrations of purpose have been less warmly received. In 2019, UK retailer Marks & Spencer (M&S) launched an LGBT+ sandwich to celebrate Pride month and raise money for charity. The move was criticized for being demeaning and

simply seeking commercial gain. A member of the public tweeted, ‘these companies are really just taking any swing to seem “inclusive”’; another said ‘equating us to a sandwich? I can’t imagine them doing this with other marginalized groups’ (Young 2019). As more organizations and brands assume an ethical focus, some people question whether this is always the right thing to do.

Challenging the Purposeful Approach As mentioned above, in January 2022 Unilever was criticized by shareholders for prioritizing purpose over operating performance. In his annual letter to his investors, CEO of key shareholder Fundsmith LLP, Terry Smith, criticized the business for being ‘obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business’. He cited ‘ludicrous’ examples, challenging one of Unilever’s iconic brands, Hellmann’s mayonnaise, as to the need to spend precious time creating a purpose for a brand that has existed since 1913: ‘we would guess that by now consumers have figured out its purpose (spoiler alert–salads and sandwiches)’ (Smith 2022, p.3). The previous year, the CEO of French company Danone, Emmanuel Faber, stepped down after shareholders claimed he had neglected their interests in his pursuit of responsible capitalism (Evans and Agnew 2022). As well as the challenge of satisfying different stakeholders with an ethical approach, other assessments have emerged as to its use in marketing. Academic and author Byron Sharp argues that a purpose route is easy to replicate and can actually lead to less differentiation. He questions the need for marketers to create a greater purpose rather than simply focusing on the brand benefit, suggesting that they have become ‘squeamish about “only selling soap” … but soap is good’, urging them to act more confidently (Jefferson 2021). Muhr and Egan-Wyer (2014) even suggested an incompatibility of ethics and capitalism, explaining that in pursuing an ethical approach, corporations are turning human principles into ‘a strategic resource to be exploited’. Moreover, others question the authenticity behind some brand messaging, ranging from dubious claims about green credentials, to clumsily supporting societal groups and issues with questionable relevance to the brand. A recent Kantar media trends report warned of inauthenticity in this area alienating consumers, citing the example of Pepsi’s backlash in 2017 resulting from Kendall Jenner appearing in an advertisement that appeared to trivialize the Black Lives Matter movement (Kantar 2021). Indeed, Unilever’s Alan Jope has been openly critical of ‘woke washing’ and the damage it can do to trust (Unilever 2019a). For organizations like Unilever, which have made a public commitment to sustainability across the business, there are clear challenges to pursuing this strategy. Stakeholder views may contrast and be hard to satisfy, while consumers are able to see through attempts to greenwash them, and actions could even be damaging. The question for Unilever, and indeed all organizations, is one that needs careful consideration: is a purpose-led approach always the most appropriate option?

Questions 1. Describe the issues in the current global environment that provide challenges for marketers with regard to ethical considerations. Why might these be greater for companies such as Unilever? 2. Evaluate the extent to which Unilever is meeting responsibilities at every level of Carroll’s four-part model of CSR, and therefore reaching full achievement of this strategy according to the model. Provide evidence to support your argument. 3. Identify the different stakeholder groups that have an interest in the page 132 activities of Unilever as a company. Explain the potential tensions between these groups that would create challenges for Unilever in following the stakeholder theory. 4. Discuss the challenges that Unilever faces in pursuing a purpose-led approach across its entire portfolio of brands. What action do you think the company should take going forward with regard to these challenges? This case study was written by Nicky Wells, Lecturer in Marketing, University of Sussex.

References Based on: Muhr, S.L. and Egan-Wyer, C. (2014) The ethics of the brand, Strategies Journal of Theory Culture & Politics, 14(1): 1–11, www.researchgate.net/publication/270645665_The_ethics_of_the_brand (accessed 15 June 2022); Gilliland, N. (2017) Three social media lessons from WWF’s Earth Hour, Econsultancy, 22 May, https://econsultancy.com/three-social-media-lessons-from-wwf-searth-hour (accessed 27 June 2022); Unilever (2017) Report shows a third of consumers prefer sustainable brands, 5 June, www.unilever.com/news/press-and-media/pressreleases/2017/report-shows-a-third-of-consumers-prefer-sustainable-brands/ (accessed 21 June 2022); Jones, O. (2019) Woke-washing: how brands are cashing in on culture wars, Guardian, 23 May, www.theguardian.com/media/2019/may/23/woke-washing-brandscashing-in-on-culture-wars-owen-jones (accessed 30 March 2022); Unilever (2019a) Unilever CEO warns advertisers that ‘woke-washing’ threatens industry credibility, 19 June, www.unilever.com/news/press-and-media/press-releases/2019/unilever-ceo-warnsadvertisers-that-woke-washing-threatens-industry-credibility/ (accessed 23 March 2022); Unilever (2019b) Unilever’s purpose-led brands outperform, www.unilever.com/news/pressand-media/press-releases/2019/unilevers-purpose-led-brands-outperform/ (accessed 23 June 2021); Young, S. (2019) A UK supermarket released an ‘LGBT’ sandwich for charity, and people don’t know how they feel about it, Business Insider, 7 May, www.businessinsider.com/marks-and-spencer-lgbt-sandwich-receives-mixed-reactions2019-5 (accessed 30 May 2022); UNICEF (2020) Unilever: UNICEF corporate partner since 2012, UNICEF, www.unicef.org/partnerships/unilever (accessed 24 June 2022); Unilever

(2020) Omo relaunch marks significant step towards a clean future, www.unilever.com/news/news-search/2020/omo-relaunch-marks-significant-step-towards-aclean-future/ (accessed 23 June 2022); BBC (2021) Israel PM warns Ben & Jerry’s owner Unilever of consequences over sales ban, BBC.com, 20 July, www.bbc.com/news/worldmiddle-east-57902243 (accessed 23 June 2022); Beard, A. (2021) Why Ben & Jerry’s speaks out, Harvard Business Review, 13 January, https://hbr.org/2021/01/why-ben-jerrysspeaks-out (accessed 19 July 2022); Callender, S. (2021) Here’s why brand purpose might not be for you, The Drum, 5 July, www.thedrum.com/opinion/2021/07/05/here-s-why-brandpurpose-might-not-be-you (accessed 30 March 2022); Deloitte (2021) Shifting sands: are consumers still embracing sustainability? https://www2.deloitte.com/uk/en/pages/consumerbusiness/articles/sustainable-consumer.html (accessed 15 June 2022); Jefferson, M. (2021) Purpose could be the ‘death of brands’, warns Byron Sharp, Marketing Week, 18 October, www.marketingweek.com/byron-sharp-purpose-death/ (accessed 23 March 2022); Kantar (2021) Media trends and predictions 2021, www.kantar.com/campaigns/media-trends-andpredictions-2021 (accessed 23 June 2022); Marmot, R. (2021) Introduction to Unilever sustainable living plan 2010 to 2020, Unilever.com, www.unilever.com/files/92ui5egz/production/16cb778e4d31b81509dc5937001559f1f5c863a b.pdf (accessed 23 March 2022); Evans, J. and Agnew, H. (2022) Mayonnaise with ‘purpose’ rebuke shows discontent Unilever is facing, Financial Times, 12 January, www.ft.com/content/8feb8f98-c6d9-4288-9ce8-9e68be621a60 (accessed 22 June 2022); Kantar (2022) Brand footprint: a global ranking of the most chosen consumer brands, https://kantar.turtl.co/story/brand-footprint-2022-p/page/1 (accessed 15 June 2022); La Manna, V. (2022) I staged a protest against the Pretty Little Thing fashion show. This is why, Independent, 18 February, www.independent.co.uk/life-style/fashion/pretty-little-thingprotest-molly-mae-hague-b2017557.html (accessed 28 June 2022); Naidu, R. and Kerber, R. (2022) Unilever expects new Ben & Jerry’s ‘arrangement’ for Israel by year-end, Reuters, 10 February, www.reuters.com/markets/europe/unilever-expects-new-ben-jerrysarrangement-israel-by-year-end-2022-02-10 (accessed 12 June 2022); O’Dea, S. (2022) Smartphones: statistics & facts, Statista, 31 May, www.statista.com/topics/840/smartphones/#dossierKeyfigures (accessed 28 June 2022); Singh, J.J., Iglesias, O. and Batista-Foguet, J.M. (2012) Does having an ethical brand matter? The influence of consumer perceived ethicality on trust, affect and loyalty, Journal of Business Ethics, 111(4), www.researchgate.net/publication/257541748_Does_Having_an_Ethical_Brand_Matter_Th e_Influence_of_Consumer_Perceived_Ethicality_on_Trust_Affect_and_Loyalty (accessed 15 June 2022); Smith, T. (2022) Twelfth annual letter to owners of the Fundsmith Equity Fund, www.fundsmith.co.uk/media/3wcngjie/2021-fef-annual-letter-to-shareholders-web.pdf (accessed 23 March 2022); Statista (2022) Brand value of Dove worldwide from 2016 to 2022, Statista, www.statista.com/statistics/1010915/dove-brand-value-worldwide (accessed 21 June 2022); Unilever (2022a) Code of business principles and code policies, https://assets.unilever.com/files/92ui5egz/production/72da58840f4aa0d7b13422b11ac4dfa2 516c34a3.pdf/4394-cobp-code-policies-booklet-external.v12.pdf (accessed 23 June 2022); Unilever (2022b) Dove, www.unilever.co.uk/brands/beauty-personal-care/dove/ (accessed 23 June 2022); Unilever (2022c) Our Unilever compass strategy, www.unilever.com/files/8f9a3825-2101-411f-9a31-7e6f176393a4/compass-strategy.pdf (accessed 23 March 2022). Unilever (2022d) Unilever at a glance, www.unilever.com/ourcompany/at-a-glance (accessed 30 March 2022); Unilever (2022e) Unilever, our company, www.unilever.co.uk/our-company/ (accessed 23 June 2022).

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CHAPTER 4 Customer Behaviour Learning Outcomes After reading this chapter, you should be able to:

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I

n this chapter our focus is on customers. Business-to-consumer (B2C) and business-to-business (B2B) markets create two major categories where the basic principles of marketing apply, but there are some significant differences to recognize. Broadly, in B2C markets consumers purchase products and services for their own use, in small quantities, and their needs, wants and motivations are personal. Key markets for consumer purchasing are: fast-moving consumer goods (FMCG), where costs are relatively low

and products are frequently bought, for example groceries, stationery, cosmetics; semi-durable goods, products which last longer, for example clothing, household goods, jewellery; and durable consumer goods, a category in which customers are looking for products that have extended life, for example cars, refrigerators, computers. In B2B markets buyers have considerable purchasing power as they buy in bulk and will be trained to develop expertise and skills in purchasing practices. These professional buyers will make purchase decisions based on derived demand (needs identified within the organization) or capital equipment needed for organizational use. Selling to professional buyers is different to selling to consumers: professional buyers will negotiate on factors like price, quality, performance, delivery and service. The main markets for B2B purchasing are: supplies and consumables; raw materials, components; goods for retail distribution; capital equipment and business services (Jobber and Lancaster 2019). We begin the chapter with consumer behaviour and three key areas for understanding implications for marketing: context, dimensions and buying processes, and influences on consumer behaviour.

The Changing Context of Consumer Behaviour Consumer markets are in a state of continuous change, and marketers need to understand the new and emerging contexts in which they operationalize their marketing activities. For example, widespread adoption of digital technologies has connected individuals in a way not conceived as possible a decade ago. An outcome is the emergence of a digital global consumer culture that overlays and affects localized lifestyles, attitudes and behaviours. While details of these contexts largely go beyond the aims of this chapter it is important to be aware of the following factors: Global consumer culture is shaping cultural values, and the extent to which consumers conform to cultural norms can significantly affect how individuals respond to marketing activities (Sobol et al. 2018). Marketers increasingly need to understand both local and the global nuances of a

market, and to identify aspects of these markets that may influence consumer behaviour. This means they should consider ‘how individuals acquire the knowledge, skills and behaviours’ that shape the culture in which they live (Cleveland and Laroche 2007). Global consumer culture and the connection to digital technology is occurring in response to widespread exposure to global mass media, whose coverage has expanded rapidly through satellite TV and digital channels, around the world, so individuals can listen to the same music, watch the same entertainment shows and access the same news. Increased exposure to global corporations’ marketing efforts: many brands have adapted product names to fit with multinational understanding, for example the Swedish chocolate bar Dime became Daim to be recognized in wider European markets. Jif, a UK cleaning product, was renamed Cif to enable it to become a global brand. However, soft drink Sprite is called Xuebi in China as the name has a better meaning locally. Greater social mobility and travel facilitates exposure to different cultures (for further discussion of globalization and marketing, see Chapter 20). Co-creation of value occurs as firms seek to differentiate their offers and make them stand out. Increasingly, firms are collaborating and getting into conversations with their customers online and offline to create experiences that complement products and services (Anshu et al. 2022). In essence, markets become forums that facilitate value creation (Prahalad and Ramaswamy 2004) and the focus becomes more customer-centric. For example, home appliance brand Whirlpool’s Everyday Care campaign encouraged consumers to get involved by sharing their stories and thoughts via Twitter. These interactions enabled Whirlpool brand managers to discover the importance of clean clothes leading to better school attendance, so they provided washers and dryers to schools (Smiley 2016). For co-creation to succeed, a firm should offer its customers the opportunity to co-build a service experience to suit individual needs and produce value. To do this, marketing managers need to understand how customers can contribute to the value of a brand and assess the actual value of the co-creation (Merz et al. 2018). Online it is page 135 important to acknowledge the customer experience as a critical dimension of value creation, as it affects attitudes and repurchase intentions. For example, customers enjoy doorstep deliveries

but can become anxious about delivery times and the whereabouts of products, so involving them in creating value through more efficient delivery services can benefit all (Anshu et al. 2022). Co-creation of value is a fundamental element of service-dominant logic and is discussed in further detail in Chapter 5. Online consumer behaviour: digital and social medial advertising spend has grown year on year and now exceeds spending on traditional media (e.g. print, TV, radio) (Rogers and McDonald 2020). Web, social media and mobile channels are connecting consumers to marketing messages and altering how they engage with firms. Digital natives are ‘anytime, anywhere’ and ‘always on’ consumers, from communications, to purchasing and posting reviews (Chiu et al. 2014). Smartphones are facilitating even stronger connections to social medial and digital content, with many consumers checking their phones every few minutes of the day. Kietzmann et al. (2011) developed a honeycomb framework showing the building blocks of social media–sharing content, creating a presence, having conversations, developing connected relationships, joining groups, building reputations and revealing identities–each block having different implications for marketing. Individuals are developing online identities, which enable the creation of online personas and an extension of self (Stephen 2016). Monikh Dale (https://monikh.com), for instance, graduated in fashion design in London before becoming a full-time influential fashion blogger by sharing new brands and designer wear. These issues are discussed in further detail in Chapter 14. As the marketing environment changes so does our purchasing behaviour. Consumers are eating more convenience foods and also less meat; more family members are working to pay household bills and there are more single-person households, which means convenience is a high priority for many people (Costa et al. 2007; ONS 2022). Consumers are also getting heavier–worldwide, 1.9 billion adults are overweight and, in 2020, 39 million children under the age of five were classified as overweight or obese (World Health Organization 2021)–and this influences what they buy. The likelihood of buying healthy convenience foods is affected by overall liking of particular foods, for example chicken meals are favoured over salmon (Olsen et al. 2012). Nevertheless, tracking changing consumer behaviours is becoming easier as technology is enabling sophisticated analysis of every

aspect of the consumer decision-making process. Hidden Gem 4.1 explains how Swedish technology company Tobii is using eye-tracking.

HIDDEN GEM 4.1

Tobii Leads the Way in Eye-tracking and Attention Computing John Elvesjö, Mårten Skogö and Henrik Eskilsson, three Swedish entrepreneurs, had an idea of how eye-tracking technology might transform industries and lives through better understanding of human behaviour, and in 2001 set up Tobii. The partners began developing innovative ‘plug and play’ eye-trackers and by 2005 had developed a world first: an eye-controlled computer, which allowed people with disabilities to communicate through computers using just their eyes.

Source: MaximP/Shutterstock Tobii’s reputation as an innovative company grew and the firm expanded into international markets in the US and Asia. In 2014, an eye-tracking platform for use in consumer devices was launched, with application opportunities across healthcare, education, money and other industrial sectors, and the firm became a world leader in assistive communication technology. Another world first was the launch of a gaming computer with built-in eye-tracking, which opened up access to consumer markets. This was followed by virtual reality headsets, wearable eye-tracker glasses and the launch of the Tobii Eye Tracker 5 to enhance the gaming experience. Today the focus on innovation continues as Tobii enters the driving marketing with its Driver Monitoring System, which monitors driver attention and drowsiness to enhance traffic safety. The system brings the driver closer to the vehicle through the application of technology. In the future the firm is planning more technology applications page 136 which will enable technology to work with natural human behaviour, and it

has recently partnered with LIV (the leader in XR game streaming) and avatar platform Ready Player Me to create avatars for the metaverse, which are more expressive and humanlike in their behaviour. Based on: Tobii (2022a, 2022b) Digital credentials Web: www.tobiipro.com Social media: find Tobii on all major social media channels Blog: www.tobiipro.com/blog

Exhibit 4.1 illustrates how WW (Weight Watchers) is applying behavioural trends. EXHIBIT 4.1 WW (Weight Watchers) has focused on behavioural trends to show how fad dieting is not for everyone and to position the brand as being ‘here to help’

Source: Jonathan Weiss/Shutterstock

The Dimensions of Consumer Behaviour Consumer behaviour is a highly complex set of processes, and our understanding of the subject is shaped by consumer psychology and theories of human behaviour, which are extensive subject areas. In this chapter we

explore key principles and ideas shaping marketers’ understanding of how consumers behave. Consumers are individuals who buy products or services for personal consumption. Organizational buying focuses on the purchase of products and services for use in an organization’s activities. The distinction is important, but sometimes it is difficult to classify a product as being either a consumer or an organizational good. Cars, for example, sell to consumers for personal consumption and to organizations for use in carrying out their activities (e.g. to provide transport for a sales executive). However, for both types of buyer, an understanding of customers can be gained by answering the following questions (see also Figure 4.1): Who is important in the buying decision? How do they buy? What are their choice criteria? Where do they buy? When do they buy? FIGURE 4.1 Understanding consumers: the key questions

These questions help define the key dimensions of behaviour (and are relevant to both consumer and organizational purchasers). Understanding the dimensions identified by these questions is important and has implications for different levels of marketing planning. There is an additional question to consider: why do they buy? For example, looking at how consumers buy through analysis of their needs recognition and problem awareness also reveals why consumers may decide on a particular purchase; discussion of

choice criteria gives clues as to why one consumer may choose a Honda Jazz because of its (competitive) price and fuel economy, while another may choose a Mercedes S-Class for its perceived status. Exploring the influence of personality may explain why an extrovert may choose Coca-Cola, as it is page 137 a brand seeking to please everyone, while an introvert may choose Dettol cleaning wipes, which promise ‘sensitive personal care’ and a more individually pleasing offer. The issue of why consumers buy is not treated separately as it cuts across the above questions and is integrated into the following sections.

Who buys? Many consumer purchases are individual. For instance, buying a Snickers (one of the bestselling chocolate bars in the world, with sales of 400 million units per year) is often an impulse purchase resulting from seeing a display of confectionery in a food store or at a fuel station. However, decisionmaking can also be done by a group such as a household. In this situation, several individuals interact to influence the purchase decision. Each person may assume a role in the decision-making process. Blackwell et al. (2005) describe five roles, as outlined below, each of which may be taken on by a parent, child or other member of the buying centre: 1. Initiator: the person who begins the process of considering a purchase. Information may be gathered by this person to help the decision. 2. Influencer: the person who attempts to persuade others in the group concerning the outcome of the decision. Influencers typically gather information and attempt to impose their choice criteria on the decision. 3. Decider: the individual with the power and/or financial authority to make the ultimate choice regarding which product to buy. 4. Buyer: the person who conducts the transaction. The buyer calls the supplier, visits the store, makes the payment and effects delivery. 5. User: the actual consumer/user of the product. One person may assume multiple roles in the buying group. In a smart TV purchase, for example, a teenage boy may be the initiator and attempt to influence his parents, who are the deciders. The boy may be influenced by his elder brother to buy a different brand to the one he initially preferred.

The buyer may be one of the parents, who visits the store to purchase the smart TV and brings it back to the home. Finally, the whole family may be users of the TV. Although in this example the purchase was initiated by one person, marketers have four differing viewpoints–both parents, the teenager and his older sibling–that may affect the outcome of the purchase decision. The respective roles in a buying group may change during the purchasing process. The internet is also having an influence on consumer behaviour. An implication of understanding who buys in identification of the roles played within the buying centre is a prerequisite for targeting persuasive communications. As the previous discussion has demonstrated, the person who consumes the product may not be the most influential member of the buying centre, nor the decision-maker. Even when the user does play the predominant role, communication with other members of the buying centre can make sense when their knowledge and opinions may act as persuasive forces during the decision-making process.

How they buy How consumers buy may be regarded as a decision-making process beginning with the recognition that a problem exists. For example, a Fitbit personal activity tracker may be bought to solve a perceived problem of an unhealthy lifestyle. Problem-solving may thus be considered a thoughtful reasoned action undertaken to bring about need satisfaction. Blackwell et al. (2005) define a series of steps a consumer may pass through before choosing a brand, based on the Engel Kollatt Blackwell Model of consumer decisionmaking and still highly relevant in digital consumer decision-making (Ashman et al. 2015). Figure 4.2 shows these stages, which form the consumer decision-making process. This process is shown as a set of linear steps, which lead to a purchase. It is important to understand each stage before considering how this process is influenced by the emerging contexts in which consumer behaviour takes place. FIGURE 4.2 The consumer decision-making process

Need recognition/problem awareness Awareness of a problem can take many forms, but a need recognition is essentially functional and realization may take place over time. So, in the page 138 case of the purchase of an activity tracker, health problems due to lack of exercise may occur due to many months of inactivity. Other problems can be the result of routine depletion (e.g. petrol, food) or unpredictability (e.g. the breakdown of a TV set or washing machine). Consumer purchasing may be initiated by more emotional or psychological needs, for example the purchase of Davidoff Cool Water cologne (Exhibit 4.2) is likely to be motivated by status needs rather than any marginal functional superiority over other fragrances. EXHIBIT 4.2 Davidoff Cool Water uses emotional triggers in its advertising to communicate with target audiences

Source: Ahmad Saifudin/Shutterstock

The degree to which the consumer intends to resolve the problem depends on two issues: the magnitude of the discrepancy between the desired and present situation, and the relative importance of the problem (Neal et al. 2007). A problem may be perceived, but if the difference between the current and desired situation is small, the consumer may not be sufficiently motivated to move to the next step in the decision-making process. For example, a person considering upgrading their mobile phone from a basic handset to a smartphone model will only make the purchase if they consider the difference in benefits to be sufficient to incur the costs involved (even though they might desire the more sophisticated product). Conversely, a large discrepancy may be perceived, but the person may not proceed to information search because the relative importance of the problem is small. A person may feel the latest smartphone has significant advantages over previous models but that the relative importance of the advantages compared with other purchase needs (e.g. paying the mortgage or a holiday) might be small. The existence of a need may not however activate the decision-making process in all cases. This is due to the existence of need inhibitors (O’Shaughnessey 1987). For example, someone may want to buy an item on Amazon Marketplace but may be inhibited by fear of paying online and not receiving the goods. In such circumstances, the need remains passive. There are a number of marketing implications in the need-recognition stage: The needs of consumers, and the problems they face: By being attuned to customers’ needs, companies can create a competitive advantage. For

example, the marketing manager of a washing machine manufacturer believes consumers value a silent machine, but marketing research designed to assess customer problems (or needs) among washing machine users may identify other sources of dissatisfaction and issues with current models. Market research results can impact on product redesign. Samsung Electronics found there was a need to be able to add clothing missed from a load mid-cycle and developed the AddWash, with an additional door. It also discovered young new home buyers have busy lives and want speed and cleaning performance from their washing machines, so introduced the innovative QuickDrive to meet this demand (Samsung 2018). Need inhibitors that potentially stop a purchase: For example, global ecommerce platform eBay Inc. recognized that overcoming the need inhibitor ‘lack of trust in being sent the product’ as important. To overcome this inhibitor, eBay introduced its PayPal payment system, which acts as financial insurance against non-receipt of goods, and developed a feedback system to allow buyers (and sellers) to post information on their transactions and their experiences with vendors. Need stimulation to encourage a purchase: Marketers’ activities, e.g. developing advertising campaigns and training salespeople to sell product benefits, may act as cues to needs arousal. For example, an advertisement displaying the new features and benefits of a smartphone may stimulate potential customers to reflect on the limitations of their current model, and this evaluation can become a problem that warrants action if they regard their phone to be lacking in some way. Activating need/problem recognition depends on the size of the discrepancy between the current and desired situation, and the relative importance of the problem. An advertiser could therefore focus on the advantages of a smartphone to create awareness of a larger discrepancy than originally perceived and/or stress the importance of owning a top-of-therange model as a symbol of innovativeness and professionalism (thereby increasing the importance of the purchase relative to other products). page 139

Information search

If problem recognition is sufficiently strong, the consumer decision-making process is likely to move to the second stage: information search. This involves the identification of alternative ways of problem solution. The search may be internal or external. Internal search involves a review of relevant information from memory. This review would include potential solutions, methods of comparing solutions, reference to personal experiences and marketing communications. If a satisfactory solution is not found, then external search begins. This involves personal sources such as, say, friends and family, and/or commercial sources such as advertisements, salespeople, websites and social media. Third-party reports, such as product-testing reports, may provide unbiased information, and personal experiences may be sought, such as asking for demonstrations, and viewing, touching or tasting the product. The objective of information search is to build up the awareness set– that is, the array of brands that may provide a solution to the problem. Using the smartphone example again, an advertisement may not only stimulate a search for more unbiased information regarding the advertised smartphone, but also an external search for information about rival brands. Information search by consumers is facilitated by the growth of internet usage and firms that provide search facilities, such as Google, Bing, Yahoo! and Baidu. Consumers are increasingly using the internet to gather information before buying a product and reading reviews from other customers.

Evaluation of alternatives and the purchase Step one in evaluation is to reduce the awareness set to a smaller set of brands for serious consideration. Brands in the awareness set pass through a screening filter to produce an evoked set–those brands the consumer seriously considers before making a purchase. The evoked set is a shortlist of brands for careful evaluation. The screening process may use different choice criteria from those used when making the final choice, and the number of choice criteria used is often fewer (Kuusela et al. 1998). One choice criterion used for screening may be price, and products below a certain price point may form the evoked set. Final choice may depend on price plus other choice criteria, such as, in the case of a smartphone, ease of use, speed of connection to the internet and reliability. The range of choice

criteria used by consumers will be examined in more detail later in this chapter. Although brands may be perceived as similar, this does not necessarily mean they will be equally preferred. This is because different product attributes (e.g. benefits, imagery, status) may be used by people when making similarity and preference judgements (Creusen and Schoormans 1997). A key determinant of the extent to which consumers evaluate a brand is their level of involvement. Involvement is the degree of perceived relevance and personal importance affirming brand choice (Blackwell et al. 2005). When a purchase is highly involving, the consumer is more likely to carry out extensive evaluation. High-involvement purchases include those incurring high expenditure or personal risk, such as buying a car or a home. In contrast, low-involvement situations are characterized by simple evaluations about purchases. Consumers use simple choice tactics to reduce time and effort rather than maximize the consequences of the purchase (Elliott and Hamilton 1991). For example, when purchasing bread, milk or breakfast cereal, consumers are likely to make quick choices rather than agonize over the decision. This distinction between high- and low-involvement situations implies different evaluative processes. For high-involvement purchases, the Ajzen and Fishbein theory of reasoned action (Ajzen and Fishbein 1980, 2005) provides a robust starting point for understanding purchase behaviour in situations where individuals are in complete control of the buying situation. But situations where buyers have limits on their control, for example limits on their mental and physical processing skills, emotions and compulsions, result in their intentions to buy being moderated. So the degree to which individuals can make a reasoned decision affects their intentional behaviour (Ajzen 1991). This issue of control has led to an extension of the theory of reasoned action model to include behavioural control (Ajzen and Madden 1985): the theory of planned behaviour (TPB), which takes into account the degree of control individuals have over their behavioural intentions (Ajzen 1985). Each of these models will now be examined. Theory of reasoned action–Ajzen and Fishbein model. This suggests that an attitude towards a brand is based upon a set of beliefs about the brand’s attributes (e.g. value for money, durability). These are the perceived consequences resulting from buying the brand. Each attribute is weighted by

how good or bad the consumer believes the attribute to be. Those attributes that are weighted highly will be that person’s choice criteria and will have a large influence in the formation of attitude. page 140

Attitude is the degree to which someone likes or dislikes the brand overall. The link between personal beliefs and attitudes is shown in Figure 4.3. However, evaluation of a brand is not limited to personal beliefs about the consequences of buying a brand. Outside influences also play a part. Individuals will thus evaluate the extent to which important others believe that they should or should not buy the brand. These beliefs may conflict with their personal beliefs. People may think that buying a sports car may have positive consequences (fun driving, being more attractive to other people) but refrain from buying if they believe that important others (e.g. parents, boss) would disapprove of the purchase. This collection of normative beliefs forms an overall evaluation of the degree to which these outside influences approve or disapprove of the purchase (subjective norms). FIGURE 4.3 High involvement: theory of reasoned action–Ajzen and Fishbein model

The link between normative beliefs and subjective norms is also shown in Figure 4.3. This is a theory of reasoned action. Consumers are highly involved in the purchase to the extent that they evaluate the consequences of the purchase and what others will think about it. Only after these considerations have taken place are purchase intentions formed and a purchase results. Purchase intentions are important, as they are a strong predictor of future behaviour–an intention is an indication of an individual’s state of willingness to carry out an action.

Theory of planned behaviour. While the theory of reasoned action provides sound insight into how attitudes and beliefs shape intentions, it was found that an individual’s behaviour is not completely controlled and rational. So the theory of planned behaviour brings in the notion of control and suggests that the extent to which individuals freely make decisions will shape their intentions. In other words, our actual shopping behaviour, say of buying healthy foodstuffs, will be affected by our intention to buy healthy foodstuffs. But, also, our intentions can be changed by external influences over which we have limited control. So our healthy food purchase might be contingent on time available to make the purchase, money and our skills of being able to identify genuine healthy-option foodstuffs. Ajzen (1991, 2012) suggested measuring perceived behavioural control, which is an individual’s belief as to how easy or difficult it is to make an intended purchase, could reveal insight into a person’s motivations. The control beliefs are the existence of factors that might facilitate or impede a person’s behavioural intentions and ultimately their purchase behaviour, for example social, page 141 cultural or religious factors (see Figure 4.4). Therefore, if our healthy food buyer is a nutritionist who can readily identify healthy options, they are likely to be more in control and likely to make a purchase of healthy foodstuffs based on scientific knowledge. A person who is less well informed about nutrition might be more inclined to be influenced by, say, social factors and buy skimmed milk based on presumptions about the milk, without specific knowledge of the health benefits. FIGURE 4.4 Models of attitudes, beliefs and intentions to purchase

Source: Ajzen and Fishbein (2005)

Ultimately, a person’s intention to perform a behaviour is a strong indicator of whether they will carry out a certain act (e.g. buy healthy foodstuffs). However, obstacles can get in the way, for example demands from family and work, which can limit the time available, and so a person buys a fast-food ready meal, high in fat and sugar, instead of a healthier option. Ehrenberg and Goodhardt model. In low-involvement situations (Ehrenberg and Goodhardt 1980), the amount of information processing implicit in the earlier model may not be worthwhile or sensible. A typical low-involvement situation is the repeat purchase of fast-moving consumer goods (FMCG). The work of Ehrenberg and Goodhardt suggests that a very simple process may explain purchase behaviour (see Figure 4.5). According to this model, awareness precedes trial, which, if satisfactory, leads to repeat purchase. This behavioural model indicates that consumer behaviour becomes habitual, with little conscious thought or formation of attitudes preceding the purchase action. The notion of low involvement suggests that awareness precedes behaviour and behaviour precedes attitude. In this situation, the consumer does not actively seek information but is a passive recipient and the consumer is likely to satisfice (i.e. search for a satisfactory solution rather than the best one) (Wright 1974). Consequently, any of several brands that lie in the evoked set may be considered adequate.

FIGURE 4.5 Low involvement: the Ehrenberg and Goodhardt repeat purchase model

Distinguishing between high-involvement and low-involvement situations is very important because how consumers evaluate products and brands leads to contrasting marketing implications. In the high-involvement situation, marketing managers should provide a good deal of information about the positive consequences of buying as the consumer is making a significant decision. Messages with high information content should enhance knowledge about the brand, but high levels of repetition are not needed (Rothschild 1978). Print and digital media used in the highinvolvement case can allow detailed and repeated scrutiny of information. Car advertisements often provide detailed information about the comfort, reliability and performance of the model, and they appeal to status considerations as all of these appeals may influence the consumer’s beliefs about the consequences of buying the model. A sales force also has an important role to play in the high-involvement situation by ensuring that the customer is aware of the important attributes of the product and correctly evaluates their consequences, and providing opportunities for customers to ask questions. For low-involvement situations, the evaluation of alternatives is much more rudimentary and attitude change is likely to follow purchase. Attempting to gain top-of-mind awareness through advertising and providing positive reinforcement (e.g. through sales promotion) to gain trial may be more important than providing masses of information about the consequences of buying the brand. Furthermore, as this is of little interest, the consumer is not actively seeking information but is a passive receiver. Consequently, advertising messages should be short, with a small number of key points, but with high repetition to enhance learning (Rothschild 1978). It is important to be aware that, while these ideas are still valid, digital marketing and the greater use of online channels for communicating have changed the format of communication messages and the way they are received. These issues are considered in detail in Chapters 13, 14 and 15.

Marketers must be aware of the role of emotion in consumer evaluation of alternatives. A major source of high emotion is when a product is high in symbolic meaning. Consumers believe products help to construct and maintain their self-concept and sense of identity. Furthermore, ownership of the product will help communicate the desired image to other people. In such cases, non-rational preferences may inform an information search. Instead, consumers consult their feelings for information about a decision: ‘How do I feel about it?’ Consequently, many marketers attempt to create a feeling of warmth about their brands. The mere exposure to a brand name over time, and the use of humour in advertisements, can create such feelings. Impulse buying is another area that can be associated with emotions. Consumers have described a compelling feeling that is ‘thrilling’, ‘wild’, ‘a tingling sensation’, ‘a surge of energy’ and ‘like turning up the volume’ (Rook 1987; Elliott 1998) (see Marketing in Action 4.1). page 142

MARKETING IN ACTION 4.1

Impulsive Behaviour, Panic Buying and WeChat Mini Programs Different influences can stimulate emotionally charged purchasing, as described in the examples that follow. Panic buying Impulse purchasing and panic buying are characterized by highly charged emotions, limited cognitive control and reactive rather than planned behaviour. External factors appear to increase in importance in the consumer decision-making process and encourage shoppers to engage in frenzied bouts of buying. In 2020, at the beginning of the Covid-19 pandemic, shoppers rushed to stock up on pasta, toilet rolls, laundry liquid, cleaning products and many other commodities, brought about by fear and uncertainty. Social commerce also adds to the hype and challenges faced by more traditional marketing communication tools and messaging.

Source: Gavin Rodgers/Alamy Stock Photo Expat British consumers living in the US reacted aggressively towards legal action taken by American food producer Hershey’s to stop the sale of Cadbury chocolate bars due to an infringement of its trademark. Chocolate lovers started to buy up stocks of their favourite confectionery, and warehouses emptied quickly as panic about the future lack of availability of their beloved English-made chocolate bars increased. The source of the argument was that Cadbury entered global markets through Mondelez International; together their chocolate accounts for nearly a third of all that consumed in the UK, but when it comes to North America, Hershey’s produces Dairy Milk under licence for the Cadbury brand, using a slightly different recipe. Cadbury has a long and illustrious history, and chocolate with a distinctive taste to match; expat consumers were so attached to the Cadbury brand that emotions ran high and the threat of scarcity drove demand. Impulse purchasing Black Friday was introduced to online shoppers in the UK by Amazon in 2010. By 2014, it had hit critical mass and promotions moved to the physical high street too. Asda/Walmart ran flash promotions in its stores, which created chaos as consumers literally fought over LED TVs, electric drills and tablet computers at heavily discounted prices. This event continues to grow in the UK, and has extended to service industries as airlines and hotels jump on the discount bandwagon. Originally, Black Friday was the Philadelphia police force’s answer to the chaos that ensued in the 1950s and 1960s after Thanksgiving (celebrated in the US on the fourth Thursday in November). The name came out of the effects of the frenzied shopping on the city’s retailers, as they reportedly saw profits move out of the red and into the black. Whether true or not, Black Friday represented a kick-start for Christmas shoppers, which seems set to continue, but marketers should be aware that online shoppers are savvy bargain hunters and will not be motivated to purchase if products can be found cheaper elsewhere and at other times of the year. Luxury impulse purchasing According to Rao and Ko (2021), Chinese luxury goods shoppers prone to impulsive purchasing are predominantly female, single and young, with high levels of brand awareness, whereas male shoppers are more likely to be loyal to their brands. This study

also discovered WeChat Mini Program, which is an app within an app that combines social media and e-commerce and can be used in many ways by many industries. WeChat is a powerful social media marketing tool in China and attracts significant percentages of marketing spend. Luxury brands have been using these programs as an alternative sales channel to widen customer engagement. Louis Vuitton, Bulgari, Tiffany, Burberry and Cartier are examples of luxury brands using WeChat to inform and educate shoppers. Louis Vuitton offers limited-edition goods through pop-up shops to stimulate excitement and impulse shopping. By changing marketing focus and targeting different consumer groups, marketers can improve the performance of digital channels, especially mobile and social media. Based on: Weinberg and Gottwald (1982); Euromonitor (2014); Ruddick (2014); McSherry (2015); Christian (2017); Williams (2019); Islam et al. (2021); Rao and Ko (2021)

page 143

Post-purchase evaluation of the decision Effective marketing aims to create customer satisfaction in both high- and low-involvement situations. Marketing managers want to create positive experiences from the purchase of their products or services. Nevertheless, it is common for customers to experience some post-purchase concerns; this is called cognitive dissonance. Dissonance is likely to increase in four ways– with the expense of purchase; when the decision is difficult (e.g. many alternatives, many choice criteria and each alternative offering benefits not available with the others); when the decision is irrevocable; and when the purchaser has a tendency to experience anxiety (Neal et al. 2007)–and is often associated with high-involvement purchases. Post-purchase, a car buyer may attempt to reduce dissonance by looking at advertisements, websites and brochures for their model, and seeking reassurance from owners of the same model. Volkswagen buyers are more likely to look at Volkswagen advertisements and avoid Renault or Ford advertisements. Car dealers can build relationships to reduce buyer remorse by contacting recent purchasers to reinforce the wisdom of their decision and confirm the quality of their after-sales service.

What are the choice criteria? Choice criteria are the various attributes (and benefits) a consumer uses when evaluating products and services. They provide the grounds for

deciding to purchase one brand or another. Different members of the buying centre may use different choice criteria. For example, a child may use the criterion of self-image when choosing shoes, whereas a parent may use price. Choice criteria can change over time due to changes in income through the family lifecycle. As disposable income rises, so price may no longer be the key criterion but is replaced by considerations of status or social belonging. Table 4.1 lists four types of choice criteria and gives examples of each: 1. Technical criteria are related to the performance of the product or service, and include reliability, durability, comfort and convenience. Convenience is often synonymous with ease of use. 2. Economic criteria concern the cost aspects of purchase, and include price, running costs and residual values (e.g. the trade-in value of a car). 3. Social criteria concern the impact that the purchase makes on the person’s perceived relationships with other people, and the influence of social norms on the person. The purchase of a BMW car may be based on status considerations as much as on any technical advantages over its rivals. Social norms such as convention and fashion can also be important choice criteria, with some brands being rejected as too unconventional, although some advertisers do playfully use unconventional ideas to get their brands noticed. 4. Personal criteria are to do with how the product or service relates to the individual psychologically. Self-image is our personal view of ourselves. Some people might view themselves as ‘cool’ and successful, and buy sportswear items only from Under Armour, Adidas or Nike to reflect page 144 perceptions of themselves. Risk reduction can affect choice decisions, since some people are risk averse and prefer to choose ‘safe’ brands; an example is the purchase of designer labels, which reduces the risk of being seen wearing unfashionable clothing. Ethical criteria can be important and brands may be rejected because they are manufactured by companies that have offended a person’s ethical code of behaviour. TABLE 4.1 Choice criteria used when evaluating alternatives Type of criteria

Examples

Technical

Reliability Durability Performance Style/looks Comfort Delivery Convenience Taste

Economic

Price Value for money Running costs Residual value Lifecycle costs

Social

Status Social belonging Convention Fashion

Personal

Self-image Risk reduction Ethics Emotions

Research has shown consumers consider ethical criteria, and a large majority enjoy buying products from companies giving something back to society (Confino and Muminova 2011). The market for ethical products has grown in recent years. Some of the products deemed ethical include fairly traded foods and drinks that guarantee a fair deal to producers in developing countries. A firm’s green credentials can be confusing, and can make it difficult for consumers to choose the ‘best’ products because, although

organic may be seen as the greener, healthier food option, many scientific studies have cast doubts on such conclusions. Although ethical consumption is important in shaping and maintaining empowered ethical consumer identities and markets, there is much uncertainty about the choices to be made, and, at times, ethical trade-offs occur (e.g. products are not always organic as well as fair trade). Although people feel empowered and responsible for environmental issues at an individual level, this is coupled with the insecurity of not knowing what the ‘right choices’ are, and such contradictions pose huge challenges to policy-makers and marketers alike. Marketing ethics and corporate social responsibility are discussed in more detail in Chapter 3. Emotional criteria can be important in decision-making. Many purchase decisions are experiential, and evoke feelings such as fun, pride or pleasure. The importance of experiences to consumers has led to the growth in experiential consumption. See Exhibit 4.3 to be taken on an adventure by the Lurpak brand. EXHIBIT 4.3 Lurpak launches new product ranges using the intangible idea of new food adventures rather than the tangible product features

Source: Jeff Morgan 15/Alamy Stock Photo

When a product scores well on a combination of choice criteria the outcome can be global success. For example, the success of Apple’s iPhone derives from the convenience of being able to access the internet and emails

on the move (technical), and the status (social) and high self-image (personal) that is associated with owning one. Marketing managers need to understand the choice criteria that are being used by customers to evaluate their products and services. Such knowledge has implications for priorities in product design (e.g. is style/look more important than performance?) and the types of appeals to use in marketing communications, which should be linked to the key choice criteria used by buying centre members. Concern about store design and ambience at highstreet brands H&M and Zara reflects the importance of creating the right experience when shopping for clothes. Understanding consumer behaviour is important and it should be noted that people are often not just passive receivers of a firm’s marketing efforts. Cultural, gender and social status differences can have a profound effect on behaviours (Jia et al. 2018). Furthermore, as discussed at the beginning of the chapter, the contexts in which buying takes place are becoming more complex and consumers are becoming participants in the creation of value (Tynan et al. 2010).

Where and when they buy Broadly, consumers make purchases for different reasons: underlying motivations and the importance of the purchase. Traditionally, the time and place of purchase would be at a physical point of sale (e.g. at a store, outdoor market or fair). This is no longer the case as the scope and opportunity of when and where to buy has been significantly extended by ecommerce systems and the growth of digital markets. More recently, mobile commerce has expanded the opportunities to purchase even further via smartphones.

The ‘always on’ consumer Through social media platforms, newsfeeds and digital interpersonal communications, people constantly share knowledge and opinions (Ashman et al. 2015), which can inform buying decisions. Food porn is a growing page 145 phenomenon whereby images of food and eating experiences are shared on social media platforms from Facebook and Instagram to Pinterest. And the growing interest in food online has spread offline into

television programmes such as the popular Great British Bake Off (BBC 2010–2022) (Lavis 2017). According to Ashman et al. (2015), the impact on consumer behaviour is the forming of ‘hives’ of people sharing and constantly exchanging ideas, which become resistant to firms’ advertising messaging (see Exhibit 4.4). Critics suggest ‘hives’ form less individualistic ideas of ‘what’s hot and what’s not’ but, more importantly, the ‘always on’ buzzing means consumers are constantly interacting across different networks and communication channels, which is very different to the sequential decision-making process shown in Figure 4.2. Currently, where and when young shoppers buy food, clothes, leisure and entertainment seems to only become legitimized once it has been posted on social media, giving rise to the term ‘social shopping’ (Shen 2012). These issues are addressed from a digital perspective in Chapters 14 and 15, and from a physical perspective in Chapter 16. EXHIBIT 4.4 Food porn: sharing our eating experiences in cyberspace

Source: Christopher Morley-Pegge/Shutterstock

Compulsive consumption Before moving on, it is worthwhile briefly considering a darker side to consumer behaviour that relates to where and when we buy. Marketing in Action 4.1 introduced impulsive purchases and considered how certain timed promotional events can trigger excessive purchasing behaviour. Compulsive consumption is the uncontrollable desire to engage in excessive and addictive purchasing: hyperactive in-store and online purchasing (Chang

et al. 2011) is very different to impulse purchasing, which is spontaneous and unplanned buying that remains in the buyer’s control. Compulsive shoppers tend to be very well informed about store prices, promotional offers and sales events; they make more purchases online and have higher credit card abuse than shoppers who do not share the same compulsion to shop. This has implications for marketers, who should be aware that compulsive buying can lead to emotional and financial difficulties, and these types of shoppers should be discouraged from spending (Darrat et al. 2016).

Influences on Consumer Behaviour Our discussion of the evaluation of alternatives highlights that not all consumer decisions follow the same decision-making process, involve the same purchasers (buying centre) or use identical choice criteria; neither do they occur at the same place or time. The consumer behaviour process, the buying centre, choice criteria, purchase situation and timing can be influenced by many factors: the buying situation, personal influences, and social influences (see Table 4.2). TABLE 4.2 Influences on consumer purchasing behaviour Examples of marketing implications/considerations

Areas of influence

Factors affecting decision-making

The buying situation

Extended problem-solving Limited problem-solving Habitual problem-solving

Level of information to provide for consumers to make informed decisions

Personal influences

Information processing Motivations Beliefs and attitudes Personality Lifestyle Lifecycle and age

Extent to which personal influences inform decisionmaking, e.g. an individual’s perceptions can distort marketing messages; lifestyle can determine interest and opinions

Social influences

Culture Social class Geodemographics

Extent to which social influences inform decisionmaking, e.g. culture can determine societal values,

Reference groups

which might affect individual behaviour

The buying situation Three types of buying situation can be identified: extended problem-solving, limited problem-solving and habitual problem-solving.

Extended problem-solving Extended problem-solving involves a high degree of information searching, close examination of alternatives and the evaluation of many choice criteria (Neal et al. 2007). Information search and evaluation may focus not only on which brand/model to buy but also on where to make the purchase. The potential for cognitive dissonance is greatest in this buying situation. Extended problem-solving is usually associated with three conditions: the alternatives are differentiated and numerous; there is an adequate amount of time available for deliberation; and the purchase has a high degree of involvement (Blackwell et al. 2005). page 146

Figure 4.6 summarizes these relationships. High involvement means the purchase is personally relevant and seen as important with respect to basic motivations and needs (Bettman 1982). Problem-solving is likely to be extensive when all alternatives possess desirable features that others do not have. If alternatives are perceived as being similar, then less time is required in assessment. Extended problem-solving is inhibited by time pressure. If the decision is made quickly, the extent of problem-solving activity is curtailed. The decision-maker must also feel a high degree of involvement in the choice, but how personally relevant and important the choice is to the decision-maker varies from person to person. Original research by Laurent and Kapferer (1985) identified four factors that affect involvement: 1. Self-image: involvement is likely to be high when the decision potentially affects a person’s self-image. Thus, purchase of jewellery, cars and clothing invokes more involvement than choosing a brand of soap or margarine.

2. Perceived risk: involvement is likely to be high when the perceived risk of making a mistake is high. The risk of buying the wrong house is much higher than of buying the wrong chewing gum because the potential negative consequences of the wrong decision are higher. Risk usually increases with the price of the purchase. Purplebricks, one of the UK’s leading estate agents (see Exhibit 4.5), invested heavily in a multichannel advertising campaign, ‘Let’s Get You Sold’, which emphasized the speed page 147 and price of its online property sales service, encouraging both buyers and sellers to use the online agency because it offers a reliable, efficient and low-risk service (Lewis 2021). 3. Social factors: when social acceptance is dependent upon making a correct choice, involvement is likely to be high. Buying of the right golf clubs may be highly involved, as making a wrong decision may affect social standing among fellow golfers; the principle may apply to clothes, trainers and other products that can affect the purchaser’s acceptance within a social group. 4. Hedonism: when the purchase provides a high degree of pleasure, involvement is usually high. The choice of restaurant when on holiday can be highly involving, since the difference between making the right or wrong choice can severely affect the amount of pleasure associated with the experience. FIGURE 4.6 Determinants of the extent of problem-solving

EXHIBIT 4.5 Purplebricks uses a multichannel approach to attract buyers and sellers on- and offline

Source: David Pimborough/Shutterstock

Limited problem-solving Many consumer purchases fall into the ‘limited problem-solving’ category. The consumer has experience of the product, so an information search may be mainly internal, through memory. However, a certain amount of external search and evaluation may take place (e.g. checking prices) before

purchasing. This situation provides marketers with some opportunity to affect purchase by stimulating the need to conduct search (e.g. advertising) and reducing the risk of brand switching (e.g. warranties).

Habitual problem-solving Habitual problem-solving occurs when a consumer repeat-buys the same product with little or no evaluation of alternatives–for example, buying the same breakfast cereal on a weekly shopping trip. The consumer may recall the satisfaction gained by purchasing a brand and automatically buy it again. Advertising may be effective in keeping the brand name in the consumer’s mind and reinforcing already favourable attitudes.

Personal influences There are six personal influences on consumer behaviour: information processing, motivation, beliefs and attitudes, personality, lifestyle, and lifecycle.

Information processing Information processing refers to the process by which a stimulus is received, interpreted, stored in memory and later retrieved (Blackwell et al. 2005), highlighting the link between external influences, including marketing activities, and the consumer’s decision-making process. Two key aspects of information processing are perception and learning. Perception is the complex process by which people select, organize and interpret sensory stimulation into a meaningful picture of the world (Williams 1981). Three processes may be used to sort out the masses of stimuli that could be perceived into a manageable amount: these are selective attention, selective distortion and selective retention. Selective attention is the process by which we screen out stimuli that are neither meaningful nor consistent with our experiences and beliefs. On entering a supermarket, there are thousands of potential stimuli (e.g. brands, point-of-sale displays, prices) to which we could pay attention. To do so would be unrealistic in terms of time and effort. Consequently, we are selective in attending to these messages. Selective attention has obvious

implications for advertising considering studies have shown that consumers consciously attend to only 5–25 per cent of the advertisements to which they are exposed (Neal et al. 2007). Several factors influence attention. We pay more attention to stimuli that contrast with their background than to stimuli that blend with it. Computer and smartphone manufacturers have used the names of fruit to act as attention-grabbing brand names (e.g. Apple, BlackBerry, Raspberry Pi) page 148 because they contrast with the technologically orientated names usually associated with computers. The size, colour and movement of a stimulus also affect attention. Position is critical too, with objects placed near the centre of the visual range more likely to be noticed than those on the periphery. There is intense competition to obtain eye-level positions on supermarket shelves. We are also more likely to notice those messages that relate to our needs (benefits sought) and provide surprises (e.g. large price reductions). Selective distortion occurs when consumers distort the information they receive according to their existing beliefs and attitudes. We may distort information that is not in accord with our existing views. Methods of doing this include thinking we misheard a message and discounting the message source. Consequently, it is very important to present messages clearly, without the possibility of ambiguity, and to use a highly credible source, which reduces the scope for selective distortion of the message on the part of the recipient. Distortion can occur because people interpret the same information differently. Interpretation is a process whereby messages are placed into existing categories of meaning. A cheaper price, for example, may be categorized not only as providing better value for money but also as implying lower quality. Information framing can affect interpretation. Framing refers to how information is presented. The implications for marketing are that there is benefit in framing communication messages in a positive manner. Words, images, colours and even smell can influence interpretations. For example, blue and green are viewed as cool, and evoke feelings of security. Red and yellow are regarded as warm and cheerful. Black is seen as an indication of strength. By using the appropriate colour in pack design it is possible to affect the consumer’s feelings about the product. Marketers often base complete branding concepts on colour, for example Virgin Group uses red throughout its branding. Smell can also influence interpretation.

Selective retention occurs when only a selection of messages are retained in memory. We tend to remember messages that are in line with existing beliefs and attitudes. Selective retention has a role to play in reducing cognitive dissonance: when reading reviews of a recently purchased car, positive messages are more likely to be remembered than negative ones. Learning is any change in the content or organization of long-term memory, and is the result of information processing (Neal et al. 2007). There are numerous ways in which learning can take place. These include conditioning and cognitive learning. Classical conditioning is the process of using an established relationship between a stimulus and response to cause the learning of the same response to a different stimulus. Thus, in advertising, humour, which is known to elicit a pleasurable response, may be used in the belief that these favourable feelings will carry over to the product. Red Bull is a brand that benefits from such associations. The humour in its advertising conveys a fun image, and the promotion of Red Bull on the bodywork of racing cars projects a feeling of excitement around the brand by association (see Exhibit 4.6). EXHIBIT 4.6 Red Bull: part of the action and excitement

Source: Shevel Artur/Shutterstock

Operant conditioning differs from classical conditioning by way of the role and timing of the reinforcement. In this case, reinforcement results from reward: the more rewarding the response, the stronger the likelihood of the

purchase being repeated. Operant conditioning occurs because of product trial. The use of free samples is based on the principles of operant conditioning. Free samples of a new shampoo may be distributed to a large number of households so the shampoo can be used (desired response) without making an initial purchase. Procter & Gamble introduced its Olay Body Wash using this tactic. The rewards for the consumer are the benefits experienced at no cost. These experiences then reinforce the likelihood of the consumer making a paid-for purchase. Thus, the sequence of events is different between classical and operant conditioning. In classic conditioning, liking precedes trial, whereas in operant conditioning, trial precedes liking. For marketers, introducing a series of rewards (reinforcements) may encourage repeat buying of a product. A free sample may be accompanied by a coupon to buy the product at a discounted rate (reinforcement). Another discount coupon may be on the pack to encourage repeat buying. After this purchase, the product relies on its own intrinsic reward–product page 149 performance–to encourage purchase. This process is known as shaping. Repeat purchase behaviour will have been shaped by the application of repeated reinforcers so that the consumer will have learned that buying the product is associated with pleasurable experiences. Cognitive learning involves the learning of knowledge, and development of beliefs and attitudes without direct reinforcement. Rote learning involves the learning of two or more concepts without conditioning. Zoflora, the popular household disinfectant, ‘cuts through grease and grime and kills germs beautifully’ (Zoflora 2022), according to its advertising, and this encourages us to learn about the product without the kinds of conditioning and reinforcement previously discussed. Vicarious learning involves learning from others without direct experience or reward. It is the promise of the reward that motivates. Thus, we may learn the type of clothes that attract potential admirers by observing other people. In advertising, the ‘admiring glance’ can be used to signal approval of the type of clothing being worn. We imagine that the same may happen to us if we dress in a similar way. Reasoning is a more complex form of cognitive learning and is usually associated with high-involvement situations. For example, some advertising messages rely on the recipient drawing their own conclusions through reasoning.

Whichever type of learning has taken place the result of the learning process is the creation of product positioning. The market objective is to create a clear and favourable position in the mind of the consumer (Ries and Trout 2001). The ways in which consumers process information are highly complex, and while extensive research has been done in this field, the use of technology is creating opportunities for marketers to learn so much more about how consumers behave–and on a real-time basis. Online tracking mechanisms such as supercookies, browser fingerprinting and behavioural tracking provide detailed information about what happens online. A customer visits a seller’s website, and the retailer has information about age, gender and physical location, and an estimation of income, without any input from the customer (O’Rourke 2014). This monitoring of behaviour does not end online. Tracking through mobile phones means customers can be pinpointed within a few feet, while eye-tracking applications even enable marketers to know what we are looking at. Another technological technique that holds great potential for understanding how consumers process information is neuroscience, as Marketing in Action 4.2 discusses.

MARKETING IN ACTION 4.2

Technology Delivers Consumer Insights: The Age of Neuromarketing

Source: (l)LightField Studios/Shutterstock, (cl)javarman/Shutterstock, (cr)Serhiy Kobyakov/Shutterstock, (r)MaraZe/Shutterstock

Which image would you choose to sell milk? According to one of the world’s leading neuromarketing experts, Dr A.K. Pradeep, when consumers are asked to choose, ‘the one that always wins out is the cow’. He suggests the underlying reasoning is that the source of a product hits a spot deep in the subconscious that is more evocative than any of the other associated images. Pradeep says that neuroscience allows marketers to find out what a brand means in the subconscious mind. One brand he feels understands how to ‘market to the buying brain’ is Jo Malone. This perfume brand uses images of ingredients to trigger positive emotions, which he advocates are far more powerful than images of a man and woman in a passionate embrace (McCormick 2011). page 150 Pradeep is not the only advocate for using technology to understand consumer behaviour. Professor Dara O’Rourke (2014) has also made a stand, and his advice to marketers looking to determine insights into consumer behaviour is to ‘ditch simplistic surveys’ and use instead behavioural tracking and neuroscience. Increasingly, technology is providing insights into consumer behaviour using eye-tracking and electroencephalogram (EEG) tests, which involve measuring brain signals. For marketers, the key question is how consumers process information, as this sheds light on how they make purchasing choices, for example what clothes we buy or what music we like to listen to. Potentially, neuroscience and the study of the brain and nervous system by means of functional magnetic resonance imaging (fMRI) scanning and EEG tests have all the answers. The brain is made up of networks of neurons. When these cell clusters are stimulated, they use more energy. These active areas light up on fMRI scans, allowing researchers to map emotion and cognition. The scanner produces a colour-coded image of the brain that is helpful in revealing a person’s unconscious feelings about a brand, an advertisement or even a media channel. For example, an understanding of the effects of different media channels (e.g. print versus the internet) on brain stimulation has been found to be useful when making media decisions. This application of the techniques of neuroscience to marketing is called neuromarketing. Neuromarketing advocates like O’Rourke and Pradeep argue it is an objective tool that scientifically demonstrates and quantifies human reactions, and provides new insights into how people process information. Despite sceptics’ view that neuromarketing has not revealed huge insights into human behaviour that aren’t already instinctively known, much research continues to explore brain responses. Facial expression and eye movement analysis, brain activity and neuroimaging, plus heart rate monitoring are some of the tools being used to help marketers gain deeper insights into human brain activity. More specifically, neuromarketing seeks to provide insights into the effects of marketing stimuli and to help reveal more about perceptual learning motivation and emotions. If successful, neuromarketing could deepen our understanding of how consumers react to many different forms of advertising, both subconsciously and in real time. Based on: Lovell (2008); McCormick (2011); Hannaford (2013); O’Rourke (2014); Lim (2018); Sung et al. (2020)

Motivation

An understanding of motivation lies in the relationship between needs, drives and goals (Luthans 2001). The basic process involves needs (deprivations) that set drives in motion (deprivations with direction) to accomplish goals (anything that alleviates a need and reduces a drive). Maslow’s hierarchy of needs model has been widely used in management education, but you should be aware that it was devised in the mid-twentieth century and centred on American society, where individualism was very important, especially to the middle classes (Bennett 2011). Arguably, it is rather one-dimensional, as the model does not accommodate the influence of others–for example family, children, work colleagues, society–on an individual’s motivation. According to Pinder (1998), ‘Motivation is a force that prompts action and relates to conscious or unconscious decision involving how, when, and why to allocate effort to a task or activity’ (Eysenck and Eysenck 1985). The question of why people buy is complex; the discussion of choice criteria links to motivation and can explain why one consumer may choose a Honda car because they are price conscious while another may choose a Mercedes because they are status conscious. The influence of personality may explain the motivations that underpin why an extrovert may choose a red sports car while an introvert may prefer a grey Skoda. Please note that levels of motivation vary depending on the individual, the type of purchase and the purchase occasion. The motivations for buying luxury goods focus on motives such as the desire to portray a specific social class, communicate a desired self-image and provide self-concept reinforcement–visible proof the consumer can afford higher-priced products (Nwankwo et al. 2014). It is important to understand the motives driving consumers as motives can determine choice criteria and subsequently enable marketers to get closer to their customers.

Beliefs and attitudes A belief is a thought that a person holds about something. In a marketing context, it is a thought about a product or service on one or more choice criteria. Beliefs about a Volvo car might be that it is safe, reliable and high status. Marketing people are very interested in consumer beliefs because these are related to attitudes. Misconceptions about products can be harmful to brand sales. Duracell batteries were believed by consumers to last three

times as long as Eveready batteries, but in continuous use they in fact lasted page 151 more than six times as long. This prompted Duracell to launch an advertising campaign to correct this misconception. Unilever’s savoury breakfast spread Marmite recognizes the beliefs of some consumers will be favourable towards the brand and others negative. An ad for Marmite-flavoured peanut butter that appeared on Facebook, depicting an animated peanut-loving squirrel, emphasized positive feelings and was very successful at raising awareness of the brand, scoring highly on attentiongrabbing and likeability. By presenting the brand in this way, the advertisement invited consumers to try the Marmite-flavoured peanut butter, to find out whether they would love it too (Jefferson 2022). An attitude is an overall favourable or unfavourable evaluation of a product or service. The consequence of a set of beliefs may be a positive or negative attitude towards the product or service. Beliefs and attitudes play an important part in the evaluation of alternatives in the consumer decisionmaking process. They may be developed as part of the information search activity and/or as a result of product use, and they play an important role in product design (matching product attributes to beliefs and attitudes), in persuasive communications (reinforcing existing positive beliefs and attitudes, correcting misconceptions and establishing new beliefs, e.g. ‘Skoda is a quality car brand’) and in pricing (matching price with customers’ beliefs about what a ‘good’ product would cost).

Personality Our everyday dealings with people tell us that they differ enormously in their personalities. Personality is the inner psychological characteristics of individuals that lead to consistent responses to their environment. A person may tend to be warm–cold, dominant–subservient, introvert–extrovert, sociable–loner, adaptable–inflexible, competitive–cooperative, etc. If marketing research reveals our product is purchased by people with a certain personality profile, then advertising could show people of the same type using the product. Brand personality is a brand’s characterization as perceived by consumers. Brands may be characterized as ‘for the sophisticated’ (Apple, Rolex, Gucci), ‘for winners’ (Nike) or ‘for excitement’ (Tesla, Red Bull). This is a dimension over and above the physical (e.g. colour) or functional (e.g. taste) attributes of a brand. By

creating a brand personality, a marketer may create appeal to people who value that characterization.

Economic circumstances During periods of economic growth, consumer spending is fuelled by rising income levels and confidence in job security. Products that are the subject of discretionary spending, such as luxury brands, expensive holidays, restaurant meals and top-of-the-range consumer durables, thrive. However, changing economic circumstances–such as recession, deflation, inflation and fears about employment prospects–drive many consumers to postpone purchases, become more price-sensitive and change their shopping habits. Economic circumstances, therefore, can have a major effect on consumer behaviour. The 2020s began with uncertainty as a result of the global pandemic, economic pressures from rising inflation, the cost of living crisis and political instability in Europe. According to Hamill (2022), these macroenvironmental forces caused marketers to reconsider their use of the Four-Ps to stay close to their customers: recommending pricing must appear fair, products should offer value, promotion should be responsive, and place must be digital and well as physical.

Lifestyle Lifestyle refers to the pattern of living as expressed in a person’s activities, interests and opinions. Lifestyle analysis (psychographics) groups consumers according to their beliefs, activities, values and demographic characteristics, such as education and income. Lifestyle analysis has implications for marketing since lifestyles have been found to correlate with purchasing behaviour (O’Brien and Ford 1988). A firm may target a particular lifestyle group (e.g. succeeders) with a product offering, and use communications that reflect the values and beliefs of this group. An example of how changing lifestyles affect consumer behaviour is the popularity of on-the-go products with people who live very busy lives. On-the-go drinks, such as bottled water and takeaway coffee, and on-the-go food, such as cereal-based breakfast snack bars, are popular among time-pressured consumers.

Lifecycle and age Consumer behaviour might depend on the stages reached during their lives. A person’s lifecycle stage (shown in Figure 4.7) is relevant since disposable page 152 income and purchase requirements may vary according to stage. For example, young couples with no children may have high disposable income if both work, and they may be heavy purchasers of home furnishings and appliances since they may be setting up home. When they have children, disposable income may fall, particularly if they become a single-income family, and the purchase of baby- and child-related products increases. At the empty-nester stage, disposable income may rise due to the absence of dependent children, low mortgage repayments and high personal income. This type of person may be a high-potential target for financial services and holidays. FIGURE 4.7 Lifecycle stages

However, not all people follow the classic family lifecycle stages. Figure 4.7 also shows alternative paths that may have consumer behaviour and

market segmentation implications. Age is an effective discriminator of consumer behaviour. For example, young people have different tastes in product categories such as clothing, drinks, holidays and television viewing compared to older people. The young have always been a prime target for marketers because of their capacity to spend.

Social influences There are four social influences on consumer behaviour: culture, social class, geodemographics and reference groups. Culture refers to the traditions, taboos, values and basic attitudes of the whole society within which an individual lives. It provides the framework within which individuals and their lifestyles develop. Cultural norms are the rules that govern behaviour, and are based upon values–that is, beliefs about what attitudes and behaviours are desirable. Conformity to norms is created by reward-giving (e.g. smiling) and sanctioning (e.g. criticism). Cultural values affect how business is conducted and also affect consumption behaviour. Social class is an important determinant of consumer behaviour. In the UK it is largely based on occupation. Advertising media (e.g. newspapers) usually give readership/viewership figures broken down by social class groupings. Every country has its own method of grouping and, in the UK, the National Statistics Socio-economic Classification (NS-SEC) system identifies eight categories based on occupation (see Table 4.3). Social class is a predictive measure of consumption, although consumption patterns are likely to vary within each of the groups (e.g. some people may be more inclined to spend their money on consumer durables, while others may have more hedonistic preferences). It is important to note that the influence of social class should be tempered by lifecycle, lifestyle and age. TABLE 4.3 Social class categories Classification

Descriptors

Occupations

1

Higher managerial and professional occupations

Senior managers, directors and professionals

2

Lower managerial and professional occupations

Higher technical, administrative supervisory occupations, e.g. department managers

3

Modern professional, middle junior manager

Clerical/administrative, sales/service, technical/auxiliary and engineering occupations

4

Intermediate occupations

Non-professional and agricultural occupations, and self-employed sole traders

5

Technical craft worker

Technical craft and process operative occupations, e.g. shift manager in a factory

6

Semi-routine occupations

Service and technical operatives, agricultural, clerical and childcare occupations

7

Routine occupations

Production, technical, operative and agricultural occupations

8

Never worked

Never worked, long-term unemployed and students

Source: based on ONS (2018)

page 153

Another method of classifying households is based on geographic location. This analysis–called geodemographics–is based on population census data. Households are grouped into geographic clusters based on information such as type of accommodation, car ownership, age, occupation, number and age of children, and ethnicity, which can be used for market segmentation and positioning. This topic is discussed in more detail in Chapter 7. Geodemographics is an effective method of segmenting many markets. Reference groups indicate a group of people that influences an individual’s attitude or behaviour. Where a product is conspicuous–for example, clothing or cars–the brand or model chosen may have been strongly influenced by perceptions of what is acceptable to the reference group. This group may consist of family members, a group of friends or work colleagues. Reference groups influence their members by the roles and norms expected of them. For example, students may have to play several roles: to lecturers, the role of learner; to other students, the role may vary

from peer to social companion. Depending on the adopted role, behaviours and purchasing patterns may vary based upon group norms. There are two main types of reference group: membership and aspirant groups. Membership groups are the groups to which a person already belongs. What is believed to be suitable, acceptable and/or impressive to this group may play a major role in consumption behaviour. What other people think at a party, at work or generally socializing is of great importance. Aspirant groups are the groups to which the individual would like to belong. Stereotypically, men supposedly want to look/feel like their favourite sports stars and women want to look/feel like famous film stars or models. This motivates the purchase of football shirts with ‘Ronaldo’ on the back, and the buying of clothing seen to be worn by Adele or Kate Moss. ASOS, the online fashion retailer, bases its marketing strategy on aspirant group theory. It copies the style of clothing worn by film stars and models, and sells its clothes to aspirant women who wish to dress like them. Celebrities such as David Beckham, Ronaldo, Kate Moss and Angelina Jolie also act as opinion leaders to aspirant group members, influencing their consumption behaviour.

Business-to-Business Customers Business-to-business (B2B) markets are an important part of modern marketing; networks of suppliers provide goods and services to firms of all sizes throughout global economies. In this section we explore what B2B marketing is and why it is important, the people and processes in purchasing, influences on buying decisions and B2B market segments. page 154

What is B2B marketing? B2B marketing is the practice of selling products and services between organizations and includes the people and processes involved in organizational buying. These types of markets account for nearly half of all revenues in developed countries. Broadly, there are three types of B2B market:

1. Industrial markets consist of producers that buy products and services to help them manufacture other goods and services. Industrial goods include raw materials, components, and capital goods such as machinery, as well as many leading consumer brands, which use exclusive distribution channels to sell their goods. 2. Reseller markets comprise companies that buy products and services to resell. Retailers, mail-order companies and online retailers are examples of resellers. 3. Government and institutional markets consist of government agencies and organizations that buy products and services to help them carry out their activities, for example local authorities, the police, schools, hospitals. Trading in B2B markets can be complex, involving significant purchasing decisions, include many people in buying decisions, follow formalized procedures and operate on a global scale. B2B markets are different from business-to-consumer (B2C) markets as they serve demand that is driven by firms (intermediaries) across the value chain, and operate in a culture driven by manufacturing and technology, as opposed to B2C markets, which serve demand at the end of the value chain and operate in a marketing culture (Grewal and Lilien 2012). B2B marketing is shaped by many factors, as discussed below.

Nature and size of customers Typically, the number of customers in B2B markets is smaller than in consumer markets. The Pareto rule often applies, with 80 per cent of output being sold to 20 per cent of customers. It is important to understand there are different sizes of businesses within B2B markets too, which operate on a local, regional, national or global scale. Read Marketing in Action 4.3 to discover more about the marketing, buying and selling of cheese.

MARKETING IN ACTION 4.3

Quel Fromage? You Can’t Be Serious!

France is one of the world’s largest cheese producers within the dairy industry; it is important economically and has a strong export market, with 36 per cent of production sold within Europe, where Europeans consume large amounts of cheese every year. The home market is strong too: individually, French people, on average, consume more cheese than people in the US, UK, Spain, Norway and the Netherlands.

Source: Roger Utting/Shutterstock Nature and size of the market There are many types of firms in this industry, which vary considerably in size from the typical French farm, which is small, with around 50 cows, and probably sells its milk through cooperatives to large dairy groups such as Lactalis, the largest dairy group in the world, which owns industrial manufacturing plants in 44 different countries. There are many businesses of different sizes and functions producing different products, which vary in price depending on whether they are industrially produced or made by craft manufacturers of artisan cheese, using milk from cows, sheep or goats. The page 155 total cheese output of all businesses in the French cheese industry is approaching two million tons per annum, with Brie, Camembert and Comté being among the most popular. Intensity of competition is tempered by a strong sense of partnership, collaboration and cooperation. From farm to factory, relationships are key in cheese production. Dairy cooperatives have been around a very long time and have helped to transform cheese production in France, where they work in collaboration with, and are run in the interests of, the people. France has more than 60,000 farms producing milk from cows, sheep and goats, which sell their produce through 260 cooperatives (54 per cent) or private producers (46 per cent). More than 70 per cent of this milk is made into dairy products by around 650 processing units, which manufacture 1,000-plus varieties of cheese. The industry is governed by partnership organizations, which manage the stewardship of the countryside, environment and heritage of the industry. Importance of large customers Lactalis, with an annual turnover of €20 billion, is a major customer for many businesses on the production side and a major seller of cheese in the global cheese industry. The group owns many well-known brands of cheese: the Président brand (French, sold in

over 140 countries, earning €1.8 billion), Galbani (Italian, sold in 130 countries, earning €1.5 billion) and Seriously (made by McLelland in Scotland). Seriously is a fully owned subsidiary of Lactalis; the product is manufactured in Stranraer, Scotland, and the brand is positioned in the market as a heritage Cheddar, with distinct character, from unspoiled rural Scotland. For Lactalis, all its brands need to perform well, so when Seriously Strong started to fall into decline the group invested in a brand refresh, so that it could compete with other cheese brands popular in the UK, Cathedral Cheddar and Philadelphia. The rebranding involved changing the name slightly from Seriously Strong to Seriously, new packaging and TV commercials. The £5 million investment in the brand refresh sought to reposition and help sell the cheeses to retail resellers. Following the makeover, Lactalis McLelland was able to negotiate a deal with the Co-operative retail group so that the cheese would feature in its extensive network of convenience stores and, in doing so, would increase sales. Investments in marketing continue for this brand; Seriously Spreadable, a product extension, also ran a £1 million campaign making it the fastestgrowing product in the spreadable cheese market. So, the next time you fancy a nibble of cheese, think about the complex global network of farmers, producers, buyers and suppliers that have been working together to bring your choice of cheese to the table. Based on: Vlahović et al. (2014); Hobbs (2015); Gee (2016); Cornall (2017); Cronin (2019); Lactalis (2022); Seriously (2022)

The intensity of the competition and the number of players in a market depends on how goods are manufactured and what is being sold. In the computer component manufacturing industry a small number of dominant global players represent a large share of the market, e.g. Apple, Microsoft, IBM, Hewlett Packard, Intel and Cisco Systems. The importance of smaller numbers of large customers (compared with B2C markets, fewer suppliers serve large numbers of individual customers) is that this influences marketing behaviour. In B2B markets, suppliers (sellers) develop longerterm relationships with their buyers and invest heavily in developing collaborative relationships. Dedicated sales and marketing teams under the title of ‘key account management’ (KAM) are employed to service large accounts. (See Chapter 5 for detailed discussion of relationship marketing and Chapter 15 for professional selling and sales management.) Each B2B market is unique and types of products, manufacturing processes and methods of distribution affect the nature and size of customers.

Complexity of buying B2B purchasing involves investment and many people at different levels of the organization. Increasingly, buying has become more complex and buyers are under pressure to make cost savings, while improving the quality,

flexibility and speed of delivery of the purchasing investment (Bals et al. 2018). Due to this complexity, relationships are very important and play an important role in the buying process. Co-creation activities between buyers and sellers increasingly aim to bring added value for all parties (Chang et al. 2018).

Economic and technical choice criteria Although B2B buyers are affected by emotional factors such as liking or disliking a salesperson, B2B buying decisions are made on economic and technical criteria, as buyers must justify their decisions to their organization (Jobber and Lancaster 2019). Also, the formalization of the buying function through the establishment of purchasing departments leads to the use of page 156 economic rather than emotional choice criteria. Purchasing is becoming a skilled and professional activity, using sophisticated economic criteria, with techniques such as lifecycle cost, total cost of ownership and value-in-use analysis. Fleet buyers, for example, calculate lifecycle costs, including purchase price and running and maintenance costs, when considering which car to buy.

Network technology and e-commerce B2B markets use technology in purchasing, which ensures fast, efficient processing of orders, reduction of costs, fewer people are involved in decision-making, and transactions are accurate and auditable. E-commerce and procurement systems have shifted purchasing from the physical marketplace to the virtual ‘marketspace’, enabling seamless real-time purchasing, and have improved the ability of companies to source products and services globally. Value-added networks deliver benefits such as reduced procurement costs, fast supply, greater agility to respond to the changing marketing environment, better connectivity with suppliers, greater reach, increased opportunities to trade globally, and closer working relationships between suppliers and customers. Online marketplaces give access to purchasing ecosystems, which facilitate greater communication within and across industries and to the end consumer. Alibaba.com is the world’s leading trading platform (see Exhibit 4.7). The marketplace connects buyers and suppliers from China and around the world. Its web presence includes

an international marketplace (www.alibaba.com) that focuses on global importers and exporters, and a China marketplace (www.alibaba.com.cn) that focuses on suppliers and buyers trading domestically in China, and adding a mobile site has increased trading interactions fourfold (Chaffey and Ellis-Chadwick 2022). Digital technology is blurring the lines between B2B and B2C, as purchasing systems are integrated with marketing channels. For example, as the world’s largest retailer, Walmart needs to compete with Amazon and so is investing in its supply chain fulfilment and omnichannel strategy to support its growing e-commerce operation (Banker 2021). Suppliers like Procter & Gamble have developed automated reordering systems linking retail shelves in Walmart with inventory management systems using satellite communication systems (Lu 2018). EXHIBIT 4.7 Alibaba, China’s main e-commerce firm, facilitates global trading

Source: Sergei Elagin/Shutterstock

Risk and uncertainty Risk and uncertainty affect buying in B2B markets and influence the structure of the buying centre. The greater the uncertainty, the higher the risk, and the more people are likely to be involved in the buying decision, whereas when uncertainty is low, risks are lower, and purchases can be highly formalized and monitored by strict rules (Juha and Pentti 2008), and orders are more likely to be transacted using automated purchasing and replenishment systems.

B2B markets are contractual and terms are often agreed before the product is made due to the size of investment required. Products can be highly technical, and the seller may be faced with unforeseen problems once work has started, which can mean that the buyer incurs unplanned losses. Here are some of the different types of risk a professional buying team should consider: Trade wars, which can lead to import tariffs. For example, the US motorcycle manufacturer Harley-Davidson reduced production in Europe due to EU tariffs (Donnan et al. 2018). However, in 2022, the UK and US brokered a deal to remove tariffs on British steel, reducing tariffs on American goods like Harley-Davidson, Levi’s jeans and Bourbon whiskey (Jolly 2022). Raw material shortages: While manufacturers and organizations try to purchase more locally, production supply chains of raw materials tend to be global. A global shortage of semiconductor chips forced car manufacturer Toyota to cut production in Japan, while Ford, General Motors and Jaguar Land Rover sent home their workforces as their cars use many types of these chips in high-tech devices that link cars to data centres and smartphones plus much more (Economist 2021). Product recalls and safety scares: Both suppliers and buyers must be compliant when purchasing and must react swiftly when things go wrong. The fitness tracker Fitbit had to recall 1.7 million of its smart watches because of a problem with their batteries, which were overheating and burning some users (Partridge 2022). Climate change and environmental regulations are increasingly page 157 having an impact on global supply chains. Flooding and water shortages are affecting production and logistics. Stricter controls on pollution, waste and use of raw materials are also causing changes such as production plant closures and the discontinuation of some products (Kamal and Larsson 2019).

Buying to specific requirements Because of the large sums of money involved, B2B buyers sometimes draw up product specifications and ask suppliers to design specific products. Services, too, are often conducted to specific customer requirements, marketing research and advertising services being examples. This is much

less a feature of consumer marketing, where a product offering may be developed to meet a need of a market segment but, beyond that, meeting individual needs would prove uneconomic.

Derived demand The demand for many B2B goods is derived from the demand for consumer goods. If the demand for smartphones increases, the demand for lithium-ion batteries, memory chips, cameras and other raw materials used to make phones will also increase. So component manufacturers would be wise to monitor consumer trends as well as their immediate B2B customers, like Apple Inc., Samsung and Sony.

Negotiations Bearing in mind the size and complexity of B2B buying, negotiation between professional buyers and sellers is often important. Thus, supermarkets will negotiate with manufacturers about price, since their buying power allows them to obtain discounts. Car manufacturers will negotiate attractive prices from tyre manufacturers such as Pirelli and Michelin, but the replacement brand must be an appropriate alternative. The supplier’s list price may be regarded as the starting point for negotiation and the profit margin ultimately achieved will be heavily influenced by the negotiating skills of the seller. The implication is that sales and marketing personnel need to be conversant with negotiating skills and tactics and, in many situations, should be aware of the complexities involved in the negotiation process, particularly when the products and services are also complicated, for example multichannel advertising deals, where both internal and media intermediaries can be involved in the negotiation.

Why is B2B Marketing Important? B2B markets are arguably where marketing matters the most because, if manufacturers, suppliers and resellers fail in providing the right products and services, B2C markets cannot function effectively. The core principles

of marketing apply both strategically and tactically in these markets, but differences exist, of which marketers involved in buying and selling should be aware. Broadly, the marketing capabilities to consider are those that can impact directly on customer relationships. By understanding the purchasing function, marketers can determine who to target, decide on products and services, organize sales processes and plan the communications mix. Putting the customer at the core of marketing activities throughout the organization is key. Buying is one such corporate activity and, although there are similarities between consumer and B2B buying in terms of the stages of the buying process, B2B buying is different in terms of scale, risk and complexity. The implications of making wrong decisions in a B2B setting are potentially far-reaching, as they could eventually lead to loss of market share, job losses and even firm failure. Consequently, marketing managers need to develop an understanding of buyer behaviour and the structure of the buying group within the purchasing organization to trade effectively. This type of buying requires considerable and detailed information searching and methodical evaluation of alternatives. A key challenge for B2B buyers is to be able to satisfy diverse requirements in a single offering. A product that provides engineers with the performance characteristics they demand, production managers with the delivery reliability they need, purchasing managers with the value for money they seek and shop-floor workers with the ease of installation they desire is likely to be highly successful. Understanding who is responsible for purchasing, how they buy and what is purchased is important, and has implications for the sales side of business activity. See Marketing in Action 4.4 to find out how Wing Yip developed an international trading firm by focusing on customer needs. page 158

MARKETING IN ACTION 4.4

Wing Yip: All the Chinese You Need to Know When Wing Yip arrived in the UK from Hong Kong in 1959, it would have been difficult to imagine how markets for oriental food would grow to the current level of popularity. Wing

worked as a waiter at a restaurant in Hull, East Yorkshire, where the limited ingredients available restricted the range of Chinese dishes on the menu. In the early 1960s, with partners, he opened two restaurants, in Clacton-on-Sea and Ipswich, but found it increasingly difficult to obtain the quality and variety of ingredients needed to offer interesting and innovative menus to meet the growing customer demand. Eventually, he decided to sell his shares in the restaurants to fund a move into the food import business, supplying restaurants and takeaways. He used his market knowledge and said, ‘after 10 years of running restaurants I knew what was required and opened a small shop in Birmingham selling Chinese ingredients to the trade’.

Source: Yau Ming Low/Shutterstock From humble beginnings, he worked with his brothers, Sammy and Lee, to make Wing Yip one of the UK’s leading suppliers of Oriental food and one of the biggest Chinese supermarkets in the UK, with a turnover in excess of £118 million. Today, through its four superstores in Birmingham, Manchester, Cricklewood and Croydon, and their online store, Wing Yip supplies more than 4,500 Oriental products to the trade and has a growing consumer customer base. Having started out with an exclusively Chinese product range, it now encompasses all Far Eastern cuisine. Its customers can find everything they need, from live lobsters and crabs to fresh vegetables. On the sales side, Wing Yip has a personal selling sales team, and direct sales and deliveries via telemarketing and sales online. Wing Yip aims to excel and to stay ahead of the competition. Based on: Robinson (2020); Wing Yip (2022)

Large B2B organizations tend to have sufficient resources for all these activities to be controlled internally under the umbrella of the marketing

function. For example, personal selling strategies can be decided by the sales management team, advertising and sales promotion initiatives by the marketing communications team and a publicity event by the public relations department. Conflicts between production and marketing functions can occur and this is where the importance of an integrated effort comes to the fore. It is important to apply this mix consistently so that communications tools and techniques give out a consistent message, to avoid confusing customers. This can happen if, for example, the advertising department creates messages that aim to convey a brand as high quality, while at the same time the sales team are using heavy discounting and money-off sales promotions to sell their products. The result can be that customers do not know what to think about the brand. Mixed messages can seriously damage the customer perception of a brand and impede relationship development. page 159

Customer relationship management is important in B2B markets and requires the sales force to focus on long-term goals and not simply on closing the next sale. The emphasis should be on creating win/win situations with customers so that both parties to the interaction gain from and want to continue the relationship. For major customers, relationship management may involve setting up dedicated teams (key account management) to service the account and maintain all aspects of the business relationship, but for smaller customers, social media, the web and the cloud offer solutions. Personal selling is a costly form of communication, but can be ideally suited to B2B markets. Managing sales teams involves achieving a balance between the cost of sales generation and the revenue such activity generates. For example, when a large telecoms firm wanted to reduce the cost of its sales force while maintaining revenues, it reduced back-office support so it could protect the frontline sales staff. The outcome was that the forward-facing sales representatives started doing the administrative support tasks, reducing the time they had to concentrate on selling. Eventually, more junior sales staff were employed in the support role, but this forced costs up as they were more expensive than the original back-office staff. A good principle to use when looking at cost reductions in this area is to plan strategies that ‘do no

harm’; this is best achieved by systematically considering marketing systems and business practices in the light of customer needs and behaviour (Agarwal et al. 2009). See Chapter 15 for more detailed coverage of this topic.

People and Processes in Purchasing B2B buying behaviour involves the people who make the purchase decisions, the stages in the buying process and the criteria used to inform the decision-making process.

Who makes buying decisions? Buyers are important people as they can influence many aspects of a firm’s operation. They are responsible for sourcing and selecting products, which often involves complex decisions, but also for managing the buying process–decisions that can impact on firm performance, suppliers and the workforce (Lewis and Arnold 2012). However, it is important to understand in B2B buying that the buyer, or purchasing officer, is often not the only person that influences the decision or has the authority to make the ultimate decision. Rather, the decision is in the hands of a decision-making unit (DMU), or buying centre as it is sometimes called. This is not necessarily a fixed entity. Members of the DMU may change as the decision-making process continues. Thus, a managing director may be involved in the decision that new equipment should be purchased, but not in the decision as to which manufacturer to buy it from. Six roles have been identified in the structure of the DMU, as follows (Webster and Wind 1972): 1. Initiators: those who begin the purchase process, for example maintenance managers. 2. Users: those who use the product, for example fabrication welders. 3. Deciders: those who have authority to select the supplier/model, for example production managers.

4. Influencers: those who provide information and add decision criteria throughout the process, for example accountants. 5. Buyers: those who have authority to execute the contractual arrangements, for example purchasing officers. 6. Gatekeepers: those who control the flow of information, for example secretaries who may allow or prevent access to a DMU member, or buyers whose agreement must be sought before a supplier can contact other members of the DMU. Conceptually, a DMU resides within the buying organization. Consequently, a decision-making unit is defined as a group of people within a buying organization who are involved in the buying decision, although external influences do come from trade promotions and advertising messages from potential trade suppliers. Increasingly, the buying function is becoming a more collaborative process as organizations seek to develop mutually beneficial long-term relationships. Read about how suppliers get involved in the purchasing process in Mini Case 4.1. Distribution and channel management is also discussed in detail in Chapter 16. page 160

MINI CASE 4.1

Iceland Frozen Foods. Made in Asia Iceland Foods Ltd has more than 300 suppliers and sources many of its products from Southeast Asia, where there are highly skilled production companies that can produce the quality of foodstuff that the buying team requires at a price that enables Iceland to offer value to its customers in a highly competitive marketplace.

Source: Michaelpuche/Shutterstock Iceland Foods Ltd has grown from a single retail store selling frozen foods in Oswestry (Shropshire, UK) in 1970, to a national retail chain with more than 1,000 retail locations, 30,000 employees and a turnover in excess of £2.7 billion. The food retail marketplace is challenging, and Iceland has faced aggressive competition from major grocery retailers such as Tesco, Sainsbury’s and Morrisons, from limited-range discounters Aldi and Lidl, and from a variety of retailers such as Marks & Spencer (M&S). But Iceland has managed to withstand attacks on its position by maintaining its competitive price proposition through its product ranges. Part of Iceland’s competitive armoury is its innovative food ranges; sometimes over 120 new products are introduced in one year. One of its most important ranges is its seasonal party food. Iceland was the first firm to introduce large platters of Christmas party food, but its competitors have been quick to follow into this product territory. Each year, Iceland’s buying team works with suppliers to produce new products to reflect changing tastes and market demand. New ranges include sushi platters, exotic mini-soufflés and new vegetarian main courses. Many of the party ranges include Chinese and Indian foods and snacks and are sourced in China. Annually, the buying team sets objectives for the producers to enable development of new product ranges. In 2018, environmental issues came to the forefront and suppliers had to comply with Iceland’s promise to its customers of a ‘palm oil free Christmas’. Once the products are ready, the buying team will visit suppliers in China to sample the new product ranges and test the extent to which their objectives have been met. Iceland’s buyers taste the products, evaluate the actual look of the products and determine how many items of which foodstuffs might be offered. The buyers must also ensure that they can offer sufficient value to the retail customer at a profit. Once potential ranges have been selected, they are brought back to the UK and tested by in-house teams for ease of use, cooking instructions and taste. Sometimes Iceland’s buyers go back to the producer to seek modifications to products, perhaps because they don’t have the right appeal, flavour or cost base. Packaging design, the amount of content and promotional offers are also considered as part of the buying decision, as it is important to be able to offer the right value to the consumer. The final decision about which products make it into Iceland are made by the head buyer and, following a final round of testing, by the senior management team.

The buying team at Iceland plays a very important role in ensuring that the retailer can stay ahead of the competition and retain its market share. But the buying team does not work alone: suppliers, packaging designers, taste-testers, users and the senior management team are all involved in putting together food ranges.

Questions: 1. Discuss the extent to which Iceland’s buying team fits the conceptual model of a DMU. 2. Build a case report that shows the importance of the buying function at Iceland and highlight the potential impact of wrong buying decisions.

Based on: Pomeroy (2013); Selwood (2018); Iceland Foods Ltd (2022)

page 161

For very important decisions, the structure of the DMU will be complex, involving numerous people within the buying organization. The marketing task is to identify and reach the key members to convince them of the product’s worth. Often, communicating to the purchasing officer alone will be insufficient, as this person may be only a minor influence on supplier choice. Relationship management is of key importance in many B2B markets (discussed in detail in Chapter 5). When the problem to be solved is highly technical, suppliers may work with a data scientist, engineers and other experts in the buying organization to solve problems and secure the order. In fact, this is becoming increasingly important and B2B marketing is focusing more on accelerating deals through collaborations than on generating demand. Often B2B purchases are made in committees where the salesperson will not be present. The salesperson’s task is to identify a person from within the decision-making unit who is a positive advocate and champion of the supplier’s product. This person (or ‘coach’) should be given all the information needed to win the arguments that may take place within the decision-making unit. For example, even though the advocate may be a technical person, they should be given the financial information that may be necessary to justify buying the most technologically superior product.

Where DMU members are inaccessible to salespeople, advertising, the internet, social media or direct marketing tools may be used as alternatives.

Stages in the buying process: how they buy Figure 4.8 describes the basics of the decision-making process for a B2B product (Robinson et al. 1967). The exact nature of the process will depend on the buying situation. In some situations, some stages will be omitted. For example, in a routine rebuy situation the purchasing officer is unlikely to pass through the third, fourth and fifth stages (search for suppliers, and analysis and evaluation of their proposals). These stages will be bypassed, as the buyer, recognizing a need–perhaps shortage of stationery–routinely reorders from an existing supplier. In general, the more complex the decision and the more expensive the item, the more likely it is that each stage will be passed through and that the process will take more time. FIGURE 4.8 Buy phases: the B2B decision-making process

Each of the stages is now described.

Recognition of a problem (need) Needs and problems may be recognized through either internal or external factors (Jobber and Lancaster 2019). An example of an internal factor would be the realization of under-capacity leading to the decision to purchase plant or equipment. Thus, internal recognition leads to active behaviour. Some problems recognized internally may not be acted upon. This condition may be termed internal/passive. A production manager may realize there is a problem with a machine but, given more pressing problems, decides to put up with it.

Different problems have important implications for marketing and sales. The internal/passive condition implies there’s an opportunity for a salesperson, having identified the condition, to highlight the problem by careful analysis of cost inefficiencies and other symptoms, so that the problem is perceived to be pressing and in need of a solution (internal/active). Producing loaves of bread uses a lot of energy, from heating ovens, to steamers and coolers, so becoming more energy efficient could solve cost inefficiencies. When Cooplands, a family-owned bakery which produces pastries, bread and cakes for its 160 shops and 12 cafés, wanted to expand in order to increase sales, director William McIlroy had an energy challenge, which involved finding the most energy-efficient refrigeration systems to replace old equipment. SRS Frigadon, which produces energy-efficient chillers that use Scandinavian technology to deliver benefits including increased energy efficiency, low climate impact page 162 and low energy consumption, was ideal to solve Mr McIlroy’s problems. He said, ‘we have now achieved the ultimate in installing a totally green and environmentally friendly installation without the deployment of any volatile HFC refrigerant gases’ (SRS Frigadon 2022). SRS Frigadon has been providing energy solutions and solving problems for over 17 years for many well-known brands (e.g. Sainsbury’s, Nestlé, Asda/Walmart, Roche Pharmaceuticals) (see Exhibit 4.8). EXHIBIT 4.8 SRS Frigadon solves environmental problems for firms that need chillers

Source: nik sriwattanakul/Shutterstock

Determination of specification and quantity of needed item

At this stage of the decision-making process, the DMU will draw up a description of what is required. For example, to protect its personal data a market research firm may require an upgrade to its computer network security systems. Darktrace is a firm that sells Antigena (Darktrace 2022), which provides autonomous response technology that can stop email phishing and interrupt cyber attacks to reduce computer hacking incidents. The ability of sales and marketing teams of firms providing such products can influence the specification set by the buyer and give their firm an advantage at later stages of the process. By persuading the buying firm to specify features that only the marketer’s own product possesses, the sale may be virtually closed at this stage. This is the process of setting up lockout criteria.

Search for and qualification of potential sources A great deal of variation in the degree of search takes place in B2B buying. The cheaper and less important the item, and the more information the buyer possesses, the less search takes place. Marketers can use advertising to ensure that their brands are in the buyer’s awareness set and are, therefore, considered when evaluating alternatives.

Acquisition and analysis of proposals Having found several companies, perhaps through their technical expertise and general reputation, who are qualified to supply the product, proposals will be called for and analysis of them undertaken.

Evaluation of proposals and selection of supplier(s) Each proposal will be evaluated in the light of the choice criteria deemed to be more important to each DMU member. It is important to realize that various members may use different criteria when judging proposals. Although this may cause problems, the outcome of this procedure is the selection of a supplier or suppliers.

Selection of an order routine

Next, the details of payment and delivery are drawn up. Usually this is conducted by the purchasing officer. In some buying decisions–when delivery is an important consideration in selecting a supplier–this stage is merged into the acquisition and evaluation stages.

Performance feedback and evaluation This may be formal, where a purchasing department draws up an evaluation form for user departments to complete, or informal through everyday conversations. The implications of all this are that sales and marketing strategy can affect a sale through influencing need recognition, through the design of product specifications, and by clearly presenting the advantages of the product or service over those of the competition in terms that are relevant to DMU members. By early involvement, a firm can benefit through the process of creeping commitment, whereby the buying organization becomes increasingly committed to one supplier through its involvement in the process and the technical assistance it provides. page 163

Choice criteria This aspect of B2B buyer behaviour refers to the criteria used by members of the DMU to evaluate supplier proposals. These criteria are likely to be determined by the performance criteria used to evaluate the members themselves (Draper 1994). In a similar manner to buying for consumers, B2B buying is characterized by technical, economic, social (organizational) and personal criteria. Economic and technical considerations are key, especially for major investment in, say, new IT systems and software, which has implications throughout an organization. For materials and component parts, choice criteria may focus on more immediate gains: cost savings, delivery reliability, quality and technical assistance. Customer service factors may be important when suppliers’ product offerings are similar. The motivations of key players involved in B2B purchasing and the criteria they use to compare supplier offerings have implications for marketing. For example, economic considerations need to be appropriate and enable the

buyers to meet their profit objectives and work within budgetary constraints. Emotional factors should not be totally ignored, as decisions are made by people who do not suddenly lose their personalities, personal likes and dislikes, and prejudices simply because they are at work. Let us examine several important technical and economic motives (quality, price and lifecycle costs, and continuity of supply) and then some organizational and personal factors (perceived risk, office politics and personal likes/dislikes).

Quality Ensuring quality is critical as replacing faulty components or dealing with returned goods is costly and impacts on a firm’s reputation. Customers are unlikely to be satisfied if quality is not satisfactory. Formal procedures and standards apply in industrial and reseller markets, to ensure that quality requirements and procedures are met. Service quality can be assessed by reliability, responsiveness and assurance. Product quality can be assessed by performance, durability and design. Both sets of criteria are considered further in Chapters 9 and 11 respectively.

Price and lifecycle costs For materials and components of similar specification and quality, price becomes a key consideration. For standard items (e.g. office supplies), price may be critical for a sale to be agreed as several suppliers can meet delivery and specification requirements. Much of this type of purchasing is done via e-commerce systems, but criteria are still relevant. Where personal negotiations are involved, large buying organizations can exert power to squeeze suppliers for better terms. For example, to remain competitive, when Tesco launched its Price Drop initiative, many other supermarkets demanded reductions from their suppliers. Waitrose entered negotiations for a 5 per cent reduction from its ambient food suppliers to enable a new priceled marketing strategy, ‘1000s of ways to great value’ (Heagarty 2011). Price is only one component of cost for many buying organizations. Increasingly, buyers consider lifecycle costs, which may include productivity savings, maintenance costs and residual values, as well as initial purchase price, when evaluating products. Marketers can use lifecycle costs

analysis to break into an account. By calculating lifecycle costs with a buyer, new perceptions of value may be achieved.

Continuity of supply Another major cost to a firm is disruption of a production run. Delays of this kind can mean costly machine downtime and even lost sales. Continuity of supply is, therefore, a prime consideration in many purchase situations. If a supplier performs badly on this criterion they will lose out even if the price is competitive because a small percentage price edge does not compare with the costs of unreliable delivery. Suppliers that guarantee deliveries and realize their promises can achieve a significant differential advantage in the marketplace. B2B customers are demanding close relationships with accredited suppliers that can guarantee reliable supply, perhaps on a just-intime (JIT) basis.

Perceived risk Perceived risk can come in two forms: functional risk such as uncertainty with respect to product or supplier performance, and psychological risk such as criticism from work colleagues. This latter risk–fear of upsetting the boss, losing status, being ridiculed by others in the department, or indeed of losing one’s job–can play a determining role in purchase decisions. Buyers often reduce uncertainty by gathering information about competing suppliers, checking the opinions of important others in the buying firm, buying only from familiar and/or reputable suppliers and by spreading risk through multiple sourcing. Office politics may influence the outcome of a buying decision and have implications for the departments and individuals concerned. page 164

Personal likes/dislikes A buyer may personally like one salesperson more than another and this may influence supplier choice, particularly when competing products are very similar. Perception is important in all B2B purchases, since how someone behaves depends upon that person’s perception of the situation. One buyer

may perceive a salesperson as being honest, truthful and likeable, while another may not. However, analysis and managing of spending has become more closely monitored in recent years due to the widespread adoption of procurement and information systems related to e-commerce. Many firms have actively sought to introduce purchasing policies that reduce ‘maverick spending’–that is, reduce buying from non-preferred firm suppliers (see Marketing in Action 4.5).

MARKETING IN ACTION 4.5

Is Eliminating the Mavericks a Good Thing? Maverick spending is often referred to as the deals that are done outside an organization’s procurement policy. This type of spending might occur when a powerful B2B buyer has a personal preference for a particular supplier (rather than the organization itself preferring a particular supplier). In this case, the firm will be referred to as ‘an off-contract supplier’. Furthermore, the practice is said to be widespread, with some firms experiencing up to 80 per cent of buying being uncontrolled and sourced from off-contract suppliers. The difference between non-preferred and preferred suppliers is that the latter are established by determining their ability to comply with a buying firm’s specification, for example agreed discount targets, delivery routines and quality of goods. As a result, firms are increasingly investing in IT systems to gather data and analyse the efficiency of buying and selling with a view to reducing maverick spending, so as to bring about budget cost savings. However, sometimes the maverick spend is not about defying purchasing policies but about finding better purchasing solutions. Also, buying is a complex function: implementing an IT system that effectively tracks all the nuances of purchasing agreements and deals can be costly and time-consuming, and may not result in the ideal purchasing outcome. So while, on one hand, reducing maverick spending can ensure compliance with purchasing policy, potentially reducing the overall budget spend and maximizing purchasing power, on the other hand, this might lead to missed buying opportunities and increased cost through significant investment in sophisticated IT systems to manage the maverick spending. Based on: Moretti (2013); Batting (2014); Mitchell (2015); Ashcroft (2022)

E-procurement processes

B2B e-procurement accounts for significant volumes of trade, and modern e-procurement systems enable companies to fulfil a range of activities and processes associated with the purchasing function: tendering, awarding contracts, establishing contractual agreements and ordering (Doherty et al. 2013). To action these processes, firms not only create their own websites but also develop extranets for buyers to send out requests for bids to suppliers. Online purchasing systems can take various formats: Catalogue sites: firms can order items through electronic catalogues. Vertical markets: firms buying industrial products such as steel, chemicals or plastic, or buying services such as logistics (distribution) or media, can use specialized websites (called e-hubs). Auction sites: suppliers can place industrial products on auction sites, where purchasers can bid for them. Exchange (or spot) markets: many commodities are sold on electronic exchange markets, where prices can change by the minute. Buying alliances: firms in the same market for products join together to gain bigger discounts on higher volumes. Pay-to-procure (P2P) software systems enable the integration of the purchasing function across a business from purchase request to payment. Industrial and reseller markets have seen widespread adoption of eprocurement systems but, in government markets, the adoption of eprocurement systems has been slow in comparison with the adoption in B2B and reseller markets. The people and processes involved in B2B purchasing are many and, as more purchasing is done online, this does not reduce the strategic importance of choice criteria but is having an impact on the number of people and influences involved in purchasing decisions. page 165

Influences on Buying Decisions Recent events such as the Covid-19 pandemic, natural disasters and blockages in global supply chains, impact on firms and cause them to rethink their supplier base. More firms are looking to diversify suppliers and find ways to create value by buyers and suppliers working together for

mutual benefit (Jia et al. 2022). Figure 4.9 shows basic factors influencing how organizations buy, who buys and how they apply choice criteria: the buy class, the product type and the importance of purchase (Cardozo 1980). FIGURE 4.9 Factors influencing how organizations buy, who buys and how they apply choice criteria

The buy class B2B purchases can be a new task, a straight rebuy and a modified rebuy (Robinson et al. 1967). A new task occurs when the need for the product has not arisen previously, so there is little or no relevant experience in the firm and a great deal of information is required. A straight rebuy occurs where an organization buys previously purchased items from suppliers already judged acceptable. Routine purchasing procedures are set up to facilitate straight rebuys. The modified rebuy lies between the two extremes. A regular requirement for the type of product exists, and the buying alternatives are known, but sufficient change (e.g. a delivery problem) has occurred to require some alteration to the normal supply procedure. The buy classes affect B2B buying in the following ways:

First, the membership of the DMU changes. For a straight rebuy, possibly only the purchasing officer is involved, whereas for a new buy senior management, engineers, production managers and purchasing officers may be involved. Modified rebuys often involve engineers, production managers and purchasing officers, but senior management, except when the purchase is critical to the firm, is unlikely to be involved. Second, the decision-making process may be much longer as the buy class changes from a straight rebuy to a modified rebuy to a new task. Third, DMU members are likely to be much more receptive to new task and modified rebuy situations than to straight rebuys. In the latter case, the purchasing manager has already solved the purchasing problem and has other problems to deal with. So, why make it a problem again? The first implication of this buy class analysis is that there are big gains to be made if a firm can enter the new task at the start of the decisionmaking process. By providing information and helping with any technical problems that can arise, the firm may be able to create goodwill and creeping commitment, which secures the order when the final decision is made. The second implication is, since the decision process is likely to be long and many people are involved in the new task, supplier companies need to invest heavily in sales personnel for a considerable period. Some firms employ missionary sales teams comprising their best salespeople to help secure big new-task orders. Firms in straight rebuy situations must ensure that no change occurs when they are in the position of the supplier. Regular contact to ensure that the customer has no complaints may be necessary, and the buyer may be encouraged to use automatic reordering systems. For the out-supplier (i.e. the new potential supplier), the task can be difficult unless poor service or some other factor has caused the buyer to become dissatisfied with the present supplier. The obvious objective of the out-supplier in this situation is to change the buy class from a straight rebuy to a modified rebuy. Price alone may not be enough since changing supplier represents a large personal risk to the purchasing officer. The new supplier’s products might be less reliable, and delivery might be unpredictable. To reduce this risk, the firm may offer delivery guarantees with penalty clauses and be very willing to accept a small (perhaps uneconomic) order at first to gain a foothold. Supplier acquisition of a total quality management (TQM) standard such page 166 as ISO 9001:2000 or ISO 9004 may also have the effect of

reducing perceived buyer risk. Other tactics are the use of testimonials from satisfied customers, and demonstrations. Many straight rebuys are organized on a contract basis, and buyers may be more receptive to listening to nonsuppliers prior to contract renewal. Value analysis and lifecycle cost calculations enable purchases to move from a straight rebuy to a modified rebuy situation. Value analysis can be conducted by either supplier or buyer as method of cost reduction when purchasing goods and components, and is studied to identify unnecessary costs that do not add to the reliability or functionality of the product. By redesigning, standardizing or manufacturing by less expensive means, a supplier may be able to offer a product of comparable quality at lower cost. Lifecycle cost analysis seeks to move the cost focus from the initial purchase price to the total cost of owning and using a product. There are three types of lifecycle costs: purchase price, start-up costs and postpurchase costs (Forbis and Mehta 1981). Start-up costs would include installation, lost production and training costs. Post-purchase costs include operating (e.g. fuel, operator wages), maintenance, repair and inventory costs. Against these costs would be placed residual values (e.g. trade-in values of cars). Lifecycle cost appeals can be powerful motivators. For example, if the out-supplier can convince the customer organization its product has significantly lower post-purchase costs than the in-supplier’s, despite a slightly higher purchase price, it may win the order. This is because it will be delivering a higher economic value to the customer. This can be a powerful competitive advantage and, at the same time, justify the premium price.

The product type Products can be classified as four types: materials, components, plant and equipment, and MROs (maintenance, repair and operation), as follows: 1. materials to be used in the production process, such as aluminium 2. components to be incorporated into the finished product, such as headlights 3. plant and equipment, such as a bulldozer 4. products and services for maintenance, repair and operation (MRO), such as spanners, welding equipment and lubricants.

This classification is based on how the product is used and may be employed to identify differences in B2B buyer behaviour. First, people who take part in the decision-making process tend to change according to product type. For example, senior management tend to get involved in the purchase of plant and equipment or, occasionally, when new materials are purchased if the change is of fundamental importance to firm operations, for example if a move from aluminium to plastic is being considered. Rarely do they involve themselves in component or MRO supply. Similarly, design engineers tend to be involved in buying components and materials, but not normally MRO and plant equipment. Second, the decision-making process tends to be slower and more complex as product type moves from MRO → components → materials → plant and equipment For MRO items, blanket contracts rather than periodic purchase orders are increasingly being used. The supplier agrees to resupply the buyer on agreed price terms over a period. Stock is held by the seller and orders are automatically printed out by the buyer’s computer when stock falls below a minimum level. This has the advantage to the supplying firm of effectively blocking the effort of competitors for long periods of time. Classification of suppliers’ offerings by product type gives clues as to who is likely to be influenced in the purchase decision. The marketing task is then to confirm this situation and attempt to reach those people involved. A firm selling MROs is likely to be wasting effort attempting to communicate with design engineers, whereas attempts to reach operating management are likely to prove fruitful.

The importance of purchase A purchase is likely to be perceived as important to the buyer when large sums of money are involved, when the cost of making the wrong decision– for example, in production downtime–is high, and when there is considerable uncertainty about the outcome of alternative offerings. In such situations, many people at different organizational levels are part of the decision, which will be complex and involve extensive search and analysis of information. Extensive marketing effort is required, but great opportunities present themselves to those sales teams working with the buying organizations to convince them that their offering has the best payoff. This may involve acceptance trials, for example private diesel

manufacturers supply railway companies with prototypes for testing, engineering support and testimonials from other users. Additionally, guarantees of delivery dates and after-sales service may be necessary when buyer uncertainty regarding these factors is high.

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Big Picture: Key Topics in This Chapter

Detailed Review 1. The context and dimensions of consumer behaviour

The dimensions of the buying decisions–how they buy, what their choice criteria are, where they buy and when they buy–help identify what is important, and has implications for the marketing mix. 2. The role of the buying centre (who buys) and its implications A group decision may be in the hands of a buying centre with five roles: initiator, influencer, decider, buyer and user. The interaction between roles determines whether a purchase is made. Marketers should understand buying groups to help in targeting and segmenting markets, and planning the core strategy. 3. The consumer decision-making process (how people buy)

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The decision to purchase a consumer product may pass through various stages: need recognition/problem awareness; information search; evaluation of alternatives; purchase and post-purchase evaluation of the decision. 4. The marketing implications of the consumer decision-making process Each stage in the process has implications for marketing managers: Need recognition: awareness of consumer problems can create opportunities for building a competitive advantage and planning strategies to overcome any need inhibitors; stimulating need recognition through marketing communications might help initiate the decision-making process. Information search: knowing where consumers look for information to help solve their decision-making can aid marketing planning. Communication can direct consumers to suitable sources of information. One objective is to ensure that the firm’s brand appears in the consumer’s awareness set. Evaluation of alternatives: when a consumer is highly involved, they require more information about the positives of making a particular buying decision than in a low-involvement buying situation. For low-involvement decisions, creating top-of-mind awareness through repetitive advertising and trial (e.g. through sales promotion) can aid the decision-making. For all consumer decisions, marketing managers must understand the choice criteria used to evaluate brands, including the importance of emotion. Post-purchase evaluation: consumers can experience cognitive dissonance after making a purchase and might need reassurance. Marketing communication initiatives can act as positive reinforcers. 5. The differences in evaluation of high- versus low-involvement situations High-involvement situations: consumers are likely to carry out extensive evaluation and take into account beliefs about the perceived consequences of buying the brand, the extent to which others believe they should or should not buy the brand, attitudes (which are the degree to which the consumer likes or dislikes the brand overall) and subjective norms (which form an overall evaluation of the degree to which others approve or disapprove of the purchase). Low-involvement situations: consumer carries out a simple evaluation and uses simple choice tactics to reduce time and effort. Awareness precedes trial,

which, if satisfactory, leads to repeat purchase. The behaviour may become habitual, with little conscious thought or formation of attitudes before purchase. 6. The nature of choice criteria (what are used) and their implications Choice criteria are the various attributes (and benefits) a consumer uses when evaluating products and services. These may be technical (e.g. reliability), economic (e.g. price), social (e.g. status) or personal (e.g. self-image). 7. The influences on consumer behaviour–the buying situation, personal and social influences–and implications for marketing Buying situation: the three types are extended problem-solving, limited problemsolving and habitual problem-solving. The marketing implications for each type are: extended problem-solving–provide information-rich communications; limited problem-solving–stimulate the need to conduct a search (when their brand is not currently bought) or reduce the risk of brand switching; habitual problemsolving–repetitive advertising should be used to create awareness and reinforce already favourable attitudes. Personal influences: the six types are information processing, motivation, beliefs and attitudes, personality, lifestyle, and lifecycle and age, and they all have implications for marketing. Social influences: the four types are culture, social class, geodemographics and reference groups: 1) Culture affects how business is conducted and consumption behaviour. Marketers have to adjust their behaviour and the marketing mix to accommodate different cultures. 2) Social class can predict some consumption patterns, and so can be used for market segmentation and targeting purposes. 3) Geodemographics classifies consumers according to their location, and is used for market segmentation and targeting purposes. 4) Reference groups influence their members by the roles and norms expected of them. Marketers attempt to make their brands acceptable to reference groups, and target opinion leaders to gain brand acceptability. 8. The importance of B2B markets

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Organizational markets are significant and account for nearly half of all revenues in developed countries. There are three types of organizational markets: industrial, resellers and government/institutional markets. 9. The characteristics of B2B buying The characteristics are based on the nature and size of customers, the complexity of buying, the use of economic and technical choice criteria, network technology and e-commerce, the risky nature of buying and selling, buying to specific requirements, reciprocal buying, derived demand and negotiations. 10. What is B2B marketing?

B2B involves manufacturers, suppliers and resellers in providing the right products and services so that B2C markets can function effectively. All the core principles of marketing apply both strategically and tactically in these markets, but differences exist in terms of buying and selling. Buying is an important corporate activity and its coordination is crucial for marketing organizations. B2B communications primarily involve personal direct selling and digital marketing. 11. The nature and marketing implications of the people: who buys, the processes involved in how organizations buy and the choice criteria used to evaluate products Who buys: there are six roles in the decision-making unit–initiators, users, deciders, influencers, buyers and gatekeepers. Marketers need to identify who plays each role, target communication at them and develop products to satisfy their needs. How organizations buy: the decision-making process has up to seven stages– recognition of problem (need), determination of specification and quantity of needed item, search for and qualification of potential sources, acquisition and analysis of proposals, evaluation of proposals and selection of supplier(s), selection of an order routine, and performance feedback and evaluation. Marketers can influence need recognition and gain competitive advantage by entering the process early. Choice criteria can be technical, economic, social (organizational) and personal. Marketers need to understand the choice criteria of the different members of the decision-making unit and target communications accordingly. Other marketing mix decisions, such as product design, will also depend on an understanding of choice criteria. Choice criteria can change over time, necessitating a change in the marketing mix. 12. The influences on B2B buying behaviour–the buy class, product type and purchase importance–and their marketing implications The buy class consists of three types: new task, straight rebuy and modified rebuy. For a new task, there can be large gains for suppliers entering the decision process early, but heavy investment is usually needed. For straight rebuys, the in-supplier should build a defensible position to keep out new potential suppliers. For out-suppliers, a key task is to reduce the risk of change for the buyers so that a modified rebuy will result. Product types consist of materials, components, plant and equipment, and maintenance items. Marketers need to recognize that the people who take part in the purchase decision usually change according to product type, and channel communications accordingly. The importance of purchase depends on the costs involved and the uncertainty (risk) regarding the decision. For very important decisions, heavy investment is likely to be required on the part of suppliers, and risk-reduction strategies (e.g. guarantees) may be needed to reduce uncertainty.

Key Terms attitude the degree to which a customer or prospect likes or dislikes a brand awareness set the set of brands of which the consumer is aware, which may provide the solution to a problem beliefs descriptive thoughts that a person holds about something buyers generally refers to professionals in procurement. A buyer makes business decisions on purchasing buying centre a group that is involved in the buying decision (also known as a decision-making unit) choice criteria the various attributes (and benefits) people use when evaluating products and services classical conditioning the process of using an established relationship between a stimulus and a response to cause the learning of the same response to a different stimulus

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cognitive dissonance post-purchase concerns of a consumer arising from uncertainty as to whether a decision to purchase was the correct one cognitive learning the learning of knowledge and development of beliefs and attitudes without direct reinforcement consumer a person who buys goods and services for personal use consumer decision-making process the stages a consumer goes through when buying something–namely, problem awareness, information search, evaluation of alternatives, purchase and post-purchase evaluation cultural norms the systems of societal (or group) beliefs and values, which are accepted by the members of the society or group cultural values culture is a system of meaning, which is ingrained into society and groups; the values are shaped by individuals that are connected to the society or group customer satisfaction a term used in both consumer and organizational purchasing situations; a measure of the extent to which products and services provided by a firm meet and exceed a customer’s expectations decision-making process the stages that organizations and people pass through when purchasing a physical product or service decision-making unit (DMU) a group of people within an organization who are involved in the buying decision (also known as the buying centre) e-commerce involves all electronically mediated transactions between an organization and any third party it deals with, including exchange of information e-procurement digital systems that facilitate the management of the procurement process; often integrates with e-commerce systems evoked set the set of brands that the consumer seriously evaluates before making a purchase

exclusive distribution channels when manufacturers make agreements with a specific retailer to sell goods, the retailer is given exclusive rights that cover a specified geographic region geodemographics the process of grouping households into geographic clusters based on information such as type of accommodation, occupation, number and age of children, and ethnic background just-in-time (JIT) this concept aims to minimize stocks by organizing a supply system that provides materials and components as they are required lifecycle costs all the components of costs associated with buying, owning and using a physical product or service lifestyle pattern of living as expressed in a person’s activities, interests and opinions modified rebuy where a regular requirement for the type of product exists and the buying alternatives are known, but sufficient change (e.g. a delivery problem) has occurred to require some alteration to the normal supply procedure motivation the process involving needs that set drives in motion to accomplish goals new task refers to the first-time purchase of a product or input by an organization operant conditioning the use of rewards to generate reinforcement of response perception the process by which people select, organize and interpret sensory stimulation into a meaningful picture of the world personality the inner psychological characteristics of individuals that lead to consistent responses to their environment reasoning a more complex form of cognitive learning where conclusions are reached by connected thought reference group a group of people that influences an individual’s attitude or behaviour rote learning the learning of two or more concepts without conditioning selective attention the process by which people screen out those stimuli that are neither meaningful to them nor consistent with their experiences and beliefs selective distortion the distortion of information received by people according to their existing beliefs and attitudes selective retention the process by which people retain only a selection of messages in memory straight rebuy refers to a purchase by an organization from a previously approved supplier of a previously purchased item total quality management (TQM) a set of programmes designed to constantly improve the quality of physical products, services and processes value analysis a method of cost reduction in which components are examined to see if they can be made more cheaply vicarious learning learning from others without the need for direct experience or reward page 171

Study Questions 1. Identify and explain the three contexts reshaping consumer markets. 2. Choose a recent purchase that involved you and other people in the decisionmaking. Explain what role(s) you played in the buying centre. What roles did the other people play and how did they influence your choice? 3. Make a list of high-involvement and low-involvement products, and suggest how marketers should plan to communicate with potential target consumers of these products. 4. Think of the last time you made an impulse purchase. What stimulated you to buy? Have you bought the brand again? Why, or why not? Did your thoughts and actions resemble those suggested by the Ehrenberg and Goodhardt model? 5. Discuss the difference between attitudes and beliefs, and make an argument for which is the most important for marketers to consider. 6. Discuss how digital technology is changing the way consumers and businesses buy, and suggest the implications for marketers. 7. Explain the importance of B2B markets and discuss the activities of B2B marketers. 8. What are the six roles that form the decision-making unit (DMU) for the purpose of a B2B purchase? What are the marketing implications of the DMU? 9. Why do the choice criteria used by different members of the DMU often change with the varying roles? 10. Explain the difference between a straight rebuy, a modified rebuy and a new-task purchasing situation. What implications do these concepts have for the marketing of B2B products?

Recommended Reading Consumers are individuals, who marketers seek to understand. Read the following articles to get inside consumers’ heads to gain insights into how they think, learn about the ‘moments of truth’ that drive ethical consumption, and gain insights into the literature that is behind consumer psychology, behaviourism, conditioning and more. Furthermore, B2B marketing is fundamentally important and is at the core of many brands’ success. Read about creating superior value for customers and the areas of B2B marketing that are most important to business practitioners. Ashman, R., Solomon, M. and Wolny, J. (2015) An old model for a new age: consumer decision-making in participatory digital culture, Journal of Customer Behaviour,

14(2): 127–46. Edmiston, D. (2014) The new emerging market multinationals: four strategies for disrupting markets and building brands, Journal of Consumer Marketing, 31(3): 228–8. Available at: https://doi.org/10.1108/JCM-09-2013-0706 (accessed March 2022). Lindgreen, A., Di Benedetto, A., Geersbro, J. and Ritter, T. (2018) Past, present, and future business-to-business marketing research, Industrial Marketing Management, 69 (February): 1–4. Mohr, J.J., Price, L.L. and Rindfleisch, A. (2018) Marketing’s quest for environmental sustainability: persistent challenges and new perspectives, Marketing in and for a Sustainable Society, 29–59. O’Cass, A. and Ngo, L. (2012) Creating superior customer value for B2B firms through supplier firm capabilities, Industrial Marketing Management, 41(1): 125–35. page 172

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CASE 7 COFFEE SHOP WARS The Battle of the Coffee Shops The UK has come a long way from the days when a request for coffee would bring a cup of uniformly grey, unappealing liquid, sometimes served in polystyrene cups, which bore no relation to the rich, flavoursome coffee experienced on trips to continental Europe. The origin of this change was not Europe, however, but the US, where the coffee shop culture was grounded. Recent years have seen an explosion of coffee shops on UK high streets, with more than five million lattés, cappuccinos and espressos served per week. The market is dominated by Costa Coffee with more than 2,600 coffee shops, US-owned Starbucks with 1,025, and Caffè Nero with 648. In total, the UK has more than 8,000 branded coffee shops, all charging over £2.50 (€2.80) for a small coffee. Often three or more shops are located within 100 metres of each other. Once the preserve of town and city centres, coffee shops have moved to other locations, such as rail stations, airports, bookshops, hotels, hospitals, out-of-town shopping precincts and retail parks, supermarkets, department stores and suburban areas. Wholesale supply divisions of the major players provide coffee to such establishments as caterers, health clubs and offices. A more recent innovation has been the growth of drive-through coffee shops. In 2018 Whitbread the owner of Costa Coffee faced pressure from two of its largest shareholders to sell Costa Coffee, the rationale being that the individual businesses (Whitbread also owned the Premier Inn budget hotel chain) were worth more than the one

company combined. Consequently, Costa Coffee was sold to Coca-Cola in a multi-billionpound deal. The first US West Coast style coffee shop was opened in the UK in 1995 and was called the Seattle Coffee Company. The owners were Americans who saw an opportunity to serve the British with good-quality coffee in relaxed surroundings just like they experienced in the US. The concept was a huge success, and by 1997 the company had 49 coffee outlets. It was joined by Coffee Republic and Caffè Nero, which also grew rapidly. In 1997, however, the coffee market in the UK was to change dramatically with the arrival of the US-based Starbucks coffee shop giant, which bought the Seattle Coffee Company. Its strategy was to gain market share through fast roll-out. For the first five years, Starbucks opened an average of five shops a month in the UK–in 1999 it had 95 shops, by 2021 this had increased to 1,025. Today, Starbucks is in the Fortune Top 500 US companies and has over 32,000 coffee shops in more than 76 countries. Its approach is simple: blanket an area completely, even if the shops cannibalize one another’s business. A new coffee bar will often capture about 30 per cent of the sales of a nearby Starbucks, but the company considered this was more than offset by lower delivery and management costs (per shop), shorter queues at individual shops and increased foot traffic for all the shops in an area, as new shops take custom from competitors too. More than 20 million people buy coffee at Starbucks every week, with the average Starbucks customer visiting 18 times a month.

Source: XiXinXing/Shutterstock One of its traditional strengths was the quality of its coffee. Starbucks has its own roasting plant, from which the media are banned lest its secrets be revealed. In its coffee shops, coffee is mixed with a lot of milk and offered in hundreds of flavours. Its page 176 Frappuccino is positioned as a midday break, in advertisements where a narrator explains ‘Starbucks Frappuccino coffee drink is a delicious blend of coffee and milk to smooth out your day.’ The tagline is ‘Smooth out your day, every day.’ A key problem was that Starbucks’ major competitors, Costa Coffee and Caffè Nero, also followed a fast roll-out strategy, causing rental prices to spiral upwards. For example, Starbucks’ Leicester Square coffee shop in London was part of a £1.5 million (€1.7 million) two-shop rental deal. Many coffee shops were not profitable; Starbucks, because it continued to operate them, was accused of unfairly trying to squeeze out the competition. However, the recession brought rental prices down, allowing the chains, especially Costa Coffee, to expand rapidly. All three major players are now profitable.

The typical consumers at these coffee bars are young, single and high earners. They are likely to be professionals–senior or middle managers with company cars. Students also are an important part of the market. Coffee bars are seen as a ‘little bit of heaven’, a refuge where consumers can lounge on sofas, read broadsheet newspapers and view New Age poetry on the walls. They provide an oasis of calm for people between their homes and offices. They are regarded as a sign of social mobility for people who may be moving out of an ordinary café or low-end department store into something more classy. Even the language is important for these consumers: terms such as latté, cappuccino and espresso allow them to demonstrate connoisseurship. Consumers are offered a wide choice of combinations, including a sprinkling of marshmallow, syrup and an extra shot of espresso. Coffee bars also cater for the different moods of consumers. For example, Sahar Hashemi, a founding partner of Coffee Republic, explained: ‘If I’m in my routine, I’ll have a tall, skinny latté. But if I’m feeling in a celebratory mood or like spoiling myself, it’s a grand vanilla mocha with whip and marshmallows.’ Starbucks has expanded the services it provides by offering a Wi-Fi service that allows laptop users to gain high-speed internet access. This service has been copied by Costa Coffee and Caffè Nero. Starbucks, Costa Coffee and Caffè Nero offer food alongside drinks. Starbucks targets breakfast, lunch and snack times with a limited range of both indulgent and healthy eating options. Costa Coffee has been offering hot foods and salads since 2002. Caffè Nero’s food offer is integral to its Italian-style positioning, with most of the ingredients for its meals coming from Italy. Many of the coffee shops have four zones. The first is at the front of the store, where customers can look outside and passers-by can see there are people inside. The second is an area containing perch seating, reminiscent of coffee houses in Italy. The third zone offers large community tables where groups or individuals can work on their laptops or read. Finally, softer seating creates a more intimate and relaxed zone. The chains have also embraced the fair trade coffee idea, with Costa Coffee offering such products since 2000 and Starbucks introducing fair trade coffee in 2002. The three chains buy their coffee beans almost entirely from sustainable sources, paying up to 12 per cent above average world prices. Low-calorie drinks are also offered. Declining performance at Starbucks led to the reappointment in 2008 of Howard Schultz as chief executive, the man who grew the firm from just four outlets to more than 32,000 today. He identified Starbucks’ problems as stemming from its outlets losing their ‘romance and theatre’. He pointed out that the distinctive aroma of fresh coffee was less evident because of the advent of vacuum-sealed, flavour-locked packaging. Also, the use of new automated machines meant that customers could not see their drinks being prepared–eliminating an ‘intimate experience’ with the barista and impairing the spectacle of coffee-making. The result, he concluded, was that some customers found Starbucks coffee shops sterile places that no longer reflected a passion for coffee. The situation was made worse by the smell of sandwiches, which often overpowered the aroma of coffee. Some Starbucks staff were also criticized as being unfriendly. The problems facing Starbucks were worsened by a strong challenge from McDonald’s, which opened McCafés in some of its outlets, where customers can buy similar drinks at a cheaper price. Artisan coffee shops also posed a strong threat as some consumers rejected the corporates in favour of small independent outlets. Starbucks’ woes continued with a

report from the consumer magazine Which? that showed Starbucks coffee was inferior to that of Costa Coffee and Caffè Nero, which came out on top. It was also the most expensive. Schultz began to address some of these problems by introducing new, smaller espresso machines, so customers can once again see the baristas making their drinks. Coffee is once again being ground by hand, restoring the aroma, and a less potent-smelling cheese is being used in Starbucks’ sandwiches. The baristas have all been retrained, not only in the art of making excellent coffee but also in connecting better with customers. The interiors of many of Starbucks’ coffee shops have been renovated and redesigned. page 177 To make the outlets more attractive during the recession, a new instant coffee brand, VIA, was launched, which Starbucks claimed tasted as good as ground coffee but at a much cheaper price. The company also introduced a loyalty card that allowed free extras such as a shot of whipped cream, syrup or soy in coffee. As with Wi-Fi, this innovation was copied by its rivals. A further change was the dropping of the ‘Starbucks Coffee’ logo from its mugs and changing the colour of its ‘siren’ figure from black to green. Starbucks also extended its brand by an alliance with Nestlé, which gained the global rights to sell the coffee chain’s bagged coffee, drinks and Nespresso-style pods, gaining its expertise in marketing to the retail grocery sector. Costa Coffee also markets its brand of coffee in supermarkets and online. Meanwhile, Costa Coffee moved into the self-service market by buying Coffee Nation and its 900 vending machines. The offering carries the Costa Express branding, and uses fresh milk and fresh coffee beans, roasted by Costa in London. While using the machine, the customer is treated to the gentle buzz of a coffee shop and the smell of pain au chocolat. By 2021, the company had expanded to a total of more than 9,000 highly profitable vending machines in the UK. This move created self-service opportunities in such locations as offices, supermarkets, universities, rail stations, hospitals, petrol stations and convenience stores.

Questions 1. Why have coffee shops been so popular with consumers? 2. You are considering visiting a coffee shop for the first time. What would influence your choice of coffee shop to visit? Is this likely to be a high- or low-involvement decision? 3. Assess the coffee chains’ moves to expand the offerings they provide for their customers. 4. What are the benefits to both parties of Coca-Cola’s acquisition of Costa Coffee? This case study was written by David Jobber, Emeritus Professor of Marketing, University of Bradford.

References Based on: Hedburg, A. and Rowe, M. (2001) UK Goes coffee house crazy, Marketing Week, 4 January, 28–9; Cree, R. (2003) Sahar Hashemi, The Director, January, 44–7; Daniels, C. (2003) Mr Coffee, Fortune, 14 April, 139–40; Sutter, S. (2003) Staff the key to marketing success, Marketing Magazine, 19 May, 4; Bainbridge, J. (2005) Off the boil, Marketing, 13 April, 28–9; Anonymous (2004) Starbucks to offer ‘music to go’, BBC.com, 12 March, http://news.bbc.co.uk; Anonymous (2008) Coffee wars, The Economist, 12 January, 57–8; Clark, A. (2008) Wall St gets palpitations over caffeine fuelled growth, Guardian, 7 January, 25; Fernandez, J. (2009) Back to basics, Marketing Week, 26 February, 18–9; Charles, E. (2011) Change brewing at Starbucks, Marketing, 12 January, 14–15; Reynolds, J. (2011) Costa targets Tesco with express self-service offer, Marketing, 9 March, 9; Roberts, J. (2012) Quality quest keeps sector full of beans, Marketing Week, 9 February, 22–3; Bolger, M. (2013) Café culture, The Marketeer, July/August, 21–3; BBC (2014) Coffee Shop Hotshots [television programme], BBC/Open University Partnership; Anonymous (2018) One in every two branded coffee shops is a Costa, Starbucks or Caffè Nero, www.foodserviceequipmentjournal.com, 16 January; James, I. (2018) Costa owner blames falling sales on high street decline, Guardian, 27 June, www.theguardian.com/business/2018/jun/27/costa-owner-high-street-whitbread; Ritson, M. (2018) Mark Ritson: Starbucks and Nestlé must focus on three key areas to avoid a bitter brew, Marketing Week, 8 May, www.marketingweek.com/mark-ritson-starbucks-and-nestle; Staff and Agencies (2018) Nestlé swallows Starbucks rights in $7bn alliance, Guardian, 8 May, 29; Wood, Z. and Sweney, M. (2018) Coca-Cola buys Costa Coffee from Whitbread for £3.9bn, Guardian, 31 August, www.theguardian.com/business/2018/aug/31/coca-cola-buyscosta-coffee-from-whitbead-for-39bn; Anonymous (2022) Number of Starbucks worldwide 2022/2023: facts, statistics, and trends, http://financesonline.com/number-of-starbucksworldwide; Anonymous (2022) Selected leading coffee shop chains in the United Kingdom (UK) as of January 2022, by number of units, Statista, www.statista.com/statistics/297863/leading-coffee-shop-chains-in-the-united-kingdom; Butler, B. (2022) Starbucks eyes up new coffee drive-thru, Insider, 19 May, 22.

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CASE 8

NAKED WINES: A COMMUNITY OF WINEMAKERS AND WINE DRINKERS In June 2008, founder and CEO of Virgin Wines Rowan Gormley was attempting a management buyout from parent group Direct Wines. The result was he got the sack. ‘It was the best thing that ever happened to me,’ says Rowan, because six months later Naked Wines was born. This innovative online wine company, which does things differently, is now owned by Majestic Wine and its business model uses crowdfunding to support independent winemakers.

Source: Naked Wines

Community Networking Drives the Business Model The concept was to bring crowdfunding to the world of winemaking via the internet. At its heart is ‘a community of wine drinkers’ who join Naked and make regular payments, starting at £20 a month, into an online account. The name given to this special group of community members is Angels, as they help independent winemakers achieve their dreams by investing their regular contributions into the vintners’ businesses. They then have no worries about selling the wine and just need to concentrate on producing a quality product. In return the Angels receive a substantial discount when purchasing the wine. Paying for the product in advance is like the way we purchase airline and travel tickets, but is an unusual approach to pricing in the retail wine Industry.

Now with more than 200,000 Angels, generating a cool £3.5 million a month, those investments are substantial and help support a ‘community of winemakers’, producing new, interesting wines that cannot be purchased elsewhere. This co-creation of value approach between winemakers and wine drinkers is helping Naked Wines to continue to grow. It can attract talented, independent winemakers who want to experiment with new ideas, and connect them directly to the end consumer. This is reinforced by the reviews that people leave on the Naked Wines website, to which winemakers can respond directly via a specially developed app. ‘We knew that it would be beneficial from a customer perspective,’ said Laura Riches, former marketing director of Naked Wines, ‘but what we didn’t realize was that, from a winemaker perspective, they’d never had that type of feedback before.’

Storytelling Saves the Day Producers and consumers working and communicating together is delivering multiple benefits and a highly profitable value proposition. This virtuous circle, as Naked likes to call it, also includes support for winemakers when tragedies happen. From the fires in Napa Valley to sabotage in France, the Angels are on hand to offer additional support. Katie Jones has one such a story. She followed her dream, leaving her nine-to-five job in the UK to grow grapes in the Languedoc region of France. But when Katie chose to leave the local winemaking cooperative, wanting to make her own wine rather than pool her grapes with her neighbours’ lower-quality ones, things turned sour. After the 2013 harvest, disgruntled cooperative members broke in to her winery and opened the taps on the vats. The previous year’s entire vintage of white wine was emptied down the drain and she was left with absolutely nothing. ‘That’s when we gave her a call,’ said Laura. ‘We’ve heard about you and heard your story. We want to help.’

Source: Steve Heap/Shutterstock

Source: T. Schneider/Shutterstock page 179 Naked then asked its Angels if they would be willing to buy Katie’s next vintage in advance so that she could afford to continue making wine. Overnight, 30,000 bottles of her wine were bought by the Angels and she was able to carry on with her dream. ‘This is no marketing gimmick,’ Riches added. ‘This is someone whose life has been completely transformed.’ There are many stories just like this one, of working together and supporting one another. Great wines are produced, business dreams are realized, and customers are delighted with new and innovative products to suit every palate.

Marketing Secrets of Success: Call in the Archangels Storytelling has always been an essential marketing tool and it is a huge asset for Naked, aiding in its delivery of lifetime value for the business from the Angels. Laura suggests there are three ways she makes that happen.

1. Activation Encouraging customers to place an order, and then encouraging them to place another one, so they’re placing more orders each year. To ensure continued success, Naked needs to stay very close to its customers, and understand their likes and dislikes. It has a unique way of gathering this information and responding accordingly. Recently, the growing community of Angels was looking online for Provence rosé and finding nothing, the reason being that the available produce did not fit well with Naked’s philosophy of trendy labels, so there was no such wine on the site. Laura explains how Naked resolved this marketing problem ‘by involving a special group of customers in the buying process’– Naked calls them Archangels. These are committed customers who help new angels navigate the naked.com website as well as being a bellwether for the introduction of new wines. The Archangels set about their task, sampling 40 different Provence rosés and

streaming the whole event live on Facebook, shared with others in the group. Unsurprisingly, and fitting with the Naked philosophy, their choice of wine came from a small producer, Bruno Lapierre, whose wines were not available in the UK. Naked could now roll out the story to all of its Angels and retail customers, who just buy wine online that is ready for immediate consumption. As Laura explained, ‘We decided that we’ve got this momentum, we’ve got this great story, let’s make it happen right now. Within four hours, they were able to pre-order the wine.’ By the next day, more than 600 pre-orders had been placed for six-bottle cases of the wine–not bad for an expensive wine. That was in February 2017. Four months later, a total of 11,000 bottles had been sold and reviews from 1,000 customers had given the wine a rating of 92 per cent. Laura went on to say, ‘Although the story wasn’t about a winemaker [and] wasn’t about the wine itself, bringing customers into that buying process, and making them part of the story using technology, really helped us maximize our activation opportunity.’ Naked looks for continual improvement and is working on technology to shorten the customer sign-up process, introducing QR codes on the different wines to make them easier to find by scanning the code and then one click through to buy and become an Angel. By continuously encouraging customer engagement, the outcome is helping to grow customer loyalty and increase awareness of the Naked Wines brand. page 180

2. Retention ‘If we can just retain 1 per cent more of existing UK customers,’ Laura added, ‘that’s 2,000 customers that we don’t have to go out and spend to recruit.’ Retention is the mantra of modern marketing. Focusing solely on customer acquisition is considered a short-sighted approach as many marketers’ end goal is not just to convert a consumer into a purchasing customer but to maximize lifetime value by creating loyal customers. Laura says: ‘The strength of our brand will be in making sure that we keep customers for as long as we possibly can … we are doing this by harnessing customers and making them part of a long-term journey with us.’ One way to achieve this is to continually surprise and involve Angels with new projects. For example, one speculative idea designed to get Angels involved was a start-up scheme to produce ‘traditional method’ sparkling wine in England. ‘We were asking Angels to take part by paying nearly £100 in advance for wines they’ll receive in two years’ time, and we couldn’t even tell them how many bottles of this new wine they’re going to get, because it’s too early in the process.’ For this idea to work, continued Laura, ‘We needed to get at least 1,000 people to sign up in order for it to be viable.’ She was delighted with the response: ‘We got over 1,400 Angels respond almost immediately saying, “Yeah, I want to be involved.’” From a marketing standpoint, this means multiple opportunities to speak to these customers, not just about buying more wine, but ‘getting them involved in a conversation about this wine, and about this story’. In addition, they’ll have personal involvement in the finished product, from choosing the base blend the sparkling wine is made from, through naming the wine and designing the label. ‘The engagement has been extraordinary,’ said Laura, reporting that customers really take ownership of the wine long after they’ve forgotten about spending that £100. The outcome is that customers and producers have co-created a value that goes way

beyond the actual product they have made and purchased: everyone involved in the project has had a very rich experience and taken part in the story of the development of a new English sparkling wine.

3. Profitability Encouraging customers to buy more per order and to spend a little bit more on a wine that delivers a little bit more margin. Naked takes a digital-first approach: its website is its store front and when visitors land on the site it must capture their attention sufficiently to make them curious to find out more and eventually end up at the checkout. Naked plays a very long game (perhaps this is due to selling a product range that increases in value with age) and has invested in making sure that, when it comes to using the website, it meets the ever increasing expectations of online customers. The digital team at Naked squeeze value from every online interaction–they even find out on the landing page about the types of wine customers are interested in buying and their price range. They also use the site’s 6 million online reviews to increase profitability, applying an algorithm that can match users’ own taste buds and reviews to those of other similar customers, so they can learn from each other. ‘It’s a really powerful tool, something we’re constantly evolving and that we hope will be even more powerful in the future.’ The aim is that, by analysing purchasing behaviour maps, it becomes possible to develop personally tailored marketing plans that meet the needs of specific individuals. Naked has more than 90 different segments, which are targeted with different products, different advertising copy and different customer experiences. The online reviews help the winemakers too. One such found through the specially developed Naked Wines app that while its wines received top reviews in the UK, they unfortunately did not in the US and Australia. This knowledge allowed the producer to adapt its wines slightly to counter criticism from customers in those two countries and it now receives over 90 per cent positive ratings from them too.

Covid Raises Challenges The Covid-19 pandemic was an interesting time for Naked Wines. During that period, the company’s CFO and managing director, James Crawford, noted a market trend towards online shopping. In the US, for example, online’s share of the wine market has rocketed from 5 to 20 per cent. There has also been a new source of demand through social channels, which has yielded a surge in younger audiences, such as people in the 30–35 age group who would typically spend their non-locked-down free time in bars and restaurants, and who previously had not really considered the purchase of direct-to-consumer wine. page 181

Weekly ‘Thirsty Toosday’ Zoom tastings The idea to link winemakers around the world to Angels via Zoom was a roaring success, with up to 10,000 Angels logging on. One such example was a link-up between Angels and winemakers from New Zealand, Argentina and France, who discussed the ongoing harvest and answered many questions. This informed the audience of future productions coming up,

while reinforcing this community of winemakers, customers, the company and, most importantly, consumers, who naturally drank during the event.

Naked Wines charity During the pandemic Naked also became more socially conscious. It set up four UK-based charities to support winemakers struggling outside the community during Covid-19, by buying their stock and selling it on to the Angels as an additional package. It also identified a lack of diversity in wine production and set up bursaries for people from minority ethnic backgrounds in the US and South Africa, to help address this. Coming out of Covid-19 has seen continued success for Naked, with sales up 80 per cent. The number of Angels registered globally is approaching 900,000, and they have invested in more than 225 winemakers. In 2022 Naked was awarded Online Wine Retailer of the Year. But not all is rosy in the vines. The company’s share price tumbled in 2022. Some of the reasons behind this were increased costs due to inflation and retention rates falling from 88 to 80 per cent. Consumers were beginning to feel the financial pinch, with higher energy, food and transport costs. The outlook for 2023 is challenging, but Naked intends to continue to invest in acquiring new customers.

Questions 1. Explain how and why Naked Wines is doing things differently. 2. Describe the ways in which Naked puts its customers at the core of its B2B marketing activities. 3. Discuss which type of B2B market Naked Wines is operating in, and identify who its customers are. 4. Apply the buying process model to this case and evaluate the role of the end consumer. 5. Suggest how producers and manufacturers are involved in creating added value. This case study was written by Brian Searle, Programme Director MSc Marketing, Loughborough University.

References Based on: Carruthers, B. (2017) How Naked Wines’ storytelling helps crowdfund winemaking, WARC, June, www.warc.com/content/paywall/article/event-reports/how-nakedwines-storytelling-helps-crowdfund-wine-making/en-GB/112004; Clarke, L. (2018) How

Naked Wines is bringing a digital-first approach to a vintage industry, Computerworld UK, 20 July, www.computerworlduk.com/data/how-naked-wines-is-bringing-digital-first-approachvintage-industry-3681049/; Naked Wines (2018) www.nakedwines.com; Wikipedia (2018) Naked Wines, https://en.wikipedia.org/wiki/Naked_Wines. page 182

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CHAPTER 5 Value Through Relationships Learning Outcomes After reading this chapter, you should be able to:

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arketers are increasingly considering societal as well as economic factors when developing their strategies, so they can deliver value not only for customers but also for employees, their families and many other stakeholders. The benefits derived from a value-driven approach are many. In this chapter, we examine how value can be created through relationship marketing. Relationship marketing is a philosophy involving ‘marketing initiatives being based on relationships, networks and interaction and recognizing that

marketing is embedded in the total management of the networks of the selling organization, the market and society’ (Gummesson 2002; Berry 2008), and is common practice in business-to-consumer (B2C) and business-to-business (B2B) markets (Jones et al. 2015). Hence, developing successful relationships between buyer and supplier becomes a firm’s ultimate goal, which arguably can deliver value for all involved. The principles of relationship marketing are nothing new (McGarry 1953), but do represent a fundamental change in marketing practice. Since the 1990s, the shift in marketing research and practice (Grönroos 1994) away from the Four-Ps, which had dominated marketing thinking since 1960, occurred in response to growing customer demands and an ever more complex business environment (Singh et al. 2011). The significance of relationship marketing has continued to gather momentum as companies have moved away from developing short-term transactional relationships towards building long-term relationships (Kotler 1991). At the heart of relationship-building theory is the idea of value creation by managing customer expectations and experiences within societal networks, and these ideas have become more developed and important to business survival in recent years. In this chapter, we build on earlier discussions of customer value (Chapter 1) to explore relationship marketing and associated management practices. Throughout the chapter, illustrative examples are provided from both B2B and B2C contexts. This chapter examines the concepts of value creation, relationship marketing and relational networks, before considering building and managing relationships, the benefits of developing organizational and consumer relationships, developing customer retention strategies, customer loyalty programmes and customer relationship management (CRM) systems.

Value Creation Value creation occurs when firms enter into exchanges with their customers; to be successful, every area of a firm’s value chain must be dedicated to value creation (Merz et al. 2018). Merz and colleagues give the example of two fast-food restaurants in the US: Wendy’s and McDonald’s.

Value is co-created at Wendy’s when the company provides the dining facilities, prepares the food and drink, and delivers it to the customer to enjoy. If the customers value this experience, they may choose to return to Wendy’s rather than go to McDonald’s. Customers may also share their positive experiences on social media and reply to an opinion survey. Customers are likely to review their experiences at Wendy’s and consider these in relation to the positioning shown in its advertising. This series of interactions is an example of how customers can help contribute to cocreation of value for a brand. Two further aspects to consider are customerowed resources and customer motivation (Merz et al. 2018). 1. Customer-owned resources: Brand knowledge a customer has acquired. This experience makes them a valuable resource to the brand (Harmeling et al. 2017), especially if this knowledge is used to write reviews and blog about their experiences. Brand skills refers to the customer’s influence over potential customers. The more informed the customer, the greater the authority with which they can speak about the brand. Brand connectedness refers to the customer’s personal links and networks (Harmeling et al. 2017). Customers who are part of a social media network can connect, communicate and interact, not only with their own friends and family but also with the brand and its employees, which might be able to extend the reach and diversity of the target audience. 2. Customer motivation: Brand passion is love, and strong feeling, towards a brand (Albert et al. 2013); it is central to the development of strong brand relationships. Brands can use the customer’s enthusiasm by encouraging word of mouth (online and offline) to extend reach. page 185 Brand trust refers to customers’ confidence a brand will deliver on its promises. It is also an important aspect of maintaining customer relationships. Brand commitment is defined as the extent to which customers will work with the brand. A committed customer will help to co-create brand value through brand communities, positive reviews and even

product development. Booking.com, for instance, relies on the quality of services provided by the hotels and accommodation advertised on its platform. Customers using the accommodation-booking platform are actively encouraged to review places after their trip. The cocreation of value through customer reviews enables Booking.com, accommodation suppliers and the end customer to develop strong customer motivation. It also rewards returning customers with offers, discounts and elevated booking status (its Genius loyalty programme for frequent travellers). The co-creation of value through exchange relationships in B2B markets is important and happens when an arrangement is established between trading partners. Value is created using the resources and management structures that the exchange partners control (Hammervoll 2012). Various types of value creation initiative can be established depending on the extent of the interaction between the trading partners and the aims for the value creation interaction (Grönroos and Voima 2012). For example: Information sharing to aid supplier learning: a buyer might supply market intelligence about market demand and competitors in a new market to its supplier to aid learning that might deliver future improvements in the seller’s offer. In this situation, the success of the interaction is dependent on the quality of the information provided by the buyer and the supplier’s ability to use the intelligence effectively (Ciborra 1991). Supplier development: a supplier improves the quality of its products through insights derived from discussion and consultation with buyers. In this case, there is a shared initiative that focuses on improvements that can contribute to creating a competitive advantage, which will ultimately benefit both companies. Such initiatives might result in better-quality service achieved through improved training, reduced costs and more innovative product design (Hammervoll 2012). Strategic knowledge sharing: a supplier improves its production processes by engaging in joint projects with a buyer. Both companies (buyer and supplier) participate in such ventures by contributing ideas, suggestions and feedback to gain mutual benefit (Hammervoll 2009). For this level of interaction to be successful, both parties need to be willing to

share sensitive strategic information, utilize their company’s capabilities and fully engage in the co-creation of value. As a result, relationship management plays an essential role in value creation, because both buyer and supplier need to work together in the pursuit of mutual gains. Managers in all markets can consider the idea of value creation, as it may be a way to identify new opportunities to differentiate a company’s offer. To benefit, managers should allocate time and resources to learning about their customers’ requirements, and then considering how to improve their products and services. In consumer markets, service providers need to demonstrate their commitment, not only towards their customers, but also towards employees, suppliers and other stakeholders, to create trusting relationships and excellent customer experiences. For example, the coffee shop sector has focused on how to create customer experiences that matter. See Marketing in Action 5.1 for a discussion of how Starbucks created the ‘third place’ concept and in doing so revolutionized the coffee shop industry.

MARKETING IN ACTION 5.1

The Third Place: Creating and Managing Customer Value in the Coffee Shop Industry Howard Schultz joined Starbucks when it had just four coffee shops. Then he went on a trip to Italy and came back to the US with an idea that would change coffee-drinking behaviour and stimulate the development of a multi-billion-dollar industry. Schultz wanted to give Americans the Italian coffee experience, but realized he needed to adapt the product and service offer to suit the needs of his customers, as they would not want the strong, bitter espresso coffee drunk by Italians. So he invented a version of coffee to entice young adults away from sugary drinks like Coke and sought to change their beverage-drinking behaviour. He added milk and sugary syrups to strong page 186 black coffee, so his customers could get their caffeine ‘kick’ in a different way. Schultz encouraged people to drink frothy cappuccinos and milky lattés, and their response was overwhelming: they queued in their hundreds outside the company’s coffee shops in Seattle.

Source: Michael Gordon/Shutterstock Adapting the product was only part of Schultz’s strategy; he also realized the importance to customers of creating a unique environment in which to experience their coffee drinking. With this in mind, Schultz conceived the ‘third place’ – a place between work and home, a place to meet friends. Starbucks’ coffee shops were designed to provide a warm and convivial atmosphere to appeal to customers, a principle that has remained important to the company throughout its development into a global mega-brand. The third place idea was so successful it became a model used by many of the world’s successful coffee shop brands, such as Costa Coffee and Caffè Nero. Each Starbucks store is designed to be as unique as possible, even though the company operates more than 22,000 stores globally. But, as well as the look and feel, distinct zones within many stores aim to provide different customer experiences. For example, seating by windows that allow customers to watch passers-by are aimed at those sipping macchiatos; stylish bars that allow customers to stand while they drink frothy espressos aim to create an experience reminiscent of traditional coffee houses in Italy; communal tables, for groups of customers or individuals, provide space to drink, eat, socialize, read or work on a laptop; while softer seating areas offer more ‘intimate’ coffee-drinking experiences. During and after the Covid-19 pandemic, Starbucks’ commitment to the third-place concept grew, realizing as it did the value of providing customers with safe and convenient service experiences. Another initiative added during this period was the drive-through, giving customers a contactless way to order via mobile app, enabling them to ‘grab and go’, as well as voice ordering with Apple’s Siri, further streamlining the ordering process. At the heart of Starbucks’ success is a set of core principles that focus on value creation, the development of relational capital and the capture of customer value.

Relationships with customers, employees, suppliers and alliance partners are considered so valuable they form a central part of the company’s activities. For customers, it is important to understand the service operation from the perspective of the person the service exists for, so Starbucks works with its customers to get ideas on how to improve its service. For example, the My Starbucks Idea website (now retired) invited customers to submit ideas and suggestions. Many new product ideas and service improvements have been introduced by following up on customer ideas – for example, ‘buy 10 get one free’, reduced-fat cinnamon swirl coffee cake, Evolution Fresh (fruit and veg) smoothies and Teavana premium loose-leaf tea. At the Tryer Center, Starbucks’ innovation lab, new designs are tested, and many product and page 187 service innovations and recipes have resulted. This centre allowed operational and design teams to respond quickly during the pandemic, as new store layouts and processes were developed, tested and launched in-store very quickly. For employees, learning is an important part of the value creation process at Starbucks. For example, Starbucks and the Schultz Family Foundation work with disengaged young adults to help them find employment; they also provide job training programmes and life skills coaching to support young people throughout their lives, not only at work. Mutual benefits are generated: for the company, happier and more satisfied employees mean genuine good service experiences for Starbucks customers, and for the individual, there is a sense of purpose and belonging. For suppliers and alliance partners, supplier development and knowledge-sharing for strategic development is vital to the company’s ongoing success. Starbucks works with its suppliers and farmers to ensure its coffee beans are grown in a sustainable manner, for example by adhering to the Coffee and Farmer Equity (C.A.F.E.) Practices; this not only provides high-quality beans but also ensures the livelihoods of the farmers and their families. Based on: Hammervoll (2012); Wilson (2014); Centrum för Tjänsteforskning (2015); Starbucks (2015a, 2015b, 2020, 2021); Liozu (2017); Venkatakrishnan (2021)

Value and Relational Networks Value and relational networks involve people and the roles they play within the networks, and the processes of relationship building and cooperation (Prahalad and Ramaswamy 2000). ‘Network’ is a term used to describe a set of connections among people, which from a marketing perspective might be used as a resource to solve problems, share knowledge and extend the network by adding new connections (Wenger et al. 2011). Networks are highly complex and intangible entities, but are formed to co-produce service offerings, exchange service offerings and facilitate the co-creation of value (Lusch et al. 2010). LinkedIn is an example of an online network that connects professional workers together.

However, it is important to note the roles people assume within a network can be highly complex and an individual may assume different identities in social situations (Edvardsson et al. 2011). For example, a software company may be made up of several individuals who play various roles (e.g. leader, problem-solver, designer, service provider). A role within a value network is different from a job title. So, at the software company, the leader may have the job title, senior developer, but may also act as a problem-solver. A network relationship should facilitate the sharing of competencies and aid the development of relationships, to enable companies to perform better (Lusch et al. 2010). For example, eBay is an electronic marketplace made up of buyers and sellers that has created new opportunities for different types of seller (hobbyists and collectors) who previously did not have access to a commercial platform. As eBay has grown, so have the connections and number of buyers and sellers that use the marketplace. Working together, eBay and its participants have created a highly successful value network that is clearly differentiated from its competitors. Relationship building, value creation and cooperation involve many people, including customers, in the designing of processes and services that add value. Bringing in the customers opens opportunities to create new closer relationships by learning and developing greater understanding of their needs and wants, and then meeting these with innovative marketing practices as part of a dynamic feedback loop (Madhavaram and Hunt 2017). The feedback is important, as it enable marketers to develop greater sensitivity, more intimate knowledge and cooperation towards customers when planning promotions, and designing products and services, which ultimately adds value and builds competitive resistance (Sánchez-Gutiérrez 2019). This new level of understanding can be of great strategic value but requires senior management and organizational commitment if value creation is to become a strategic marketing management capability. Having explored some of the foundations of value and relational networks, relationship building and cooperation, the next section considers the core concepts of relationship marketing, followed by discussion of managerial issues and the practical implications of adopting a relationship marketing approach.

As discussed earlier, service quality, trust and commitment feature strongly in the creation of satisfaction between parties in the relationship. Read Mini Case 5.1 to find out more about how to engage millennials in a meaningful relationship. page 188

MINI CASE 5.1

Millennials: A Booming Generation of Consumers Millennials are a maturing generation born in the period from around 1980 to 2000. They are a different breed of consumer, having grown up with digital media, and are experts in the use of the internet, social media and mobile technology to facilitate every aspect of their lives. Across the world, from the US to China, the two-billion-strong millennial generation has come of age, and is overtaking Generation X and the baby boomers in terms of spending power. Previously, millennials have been portrayed in mainstream media as ‘lazy, debt-laden, social-media obsessed fame seekers’, yet they have now become a generation most wanted by brands (Barton et al. 2012) and are making their preferences felt during purchase decisions. They are setting down roots, buying houses, growing their families and exploring how things can be done differently, both personally and in terms of the products and services they buy. For example, their selection of alternative modes of travel and reduced car ownership reflects their changing lifestyles, beliefs and aspirations. There is little doubt marketers must think and act differently to build relationships with this generation, who are adept at using technology as part of their daily lives. According to Simonson and Rosen (2014), ‘In the past, buyers typically made relative comparisons (“Is Brand A better than Brand B?”) or went by the maxim “You get what you pay for”.’ Buyers largely had to rely on information provided by suppliers, media reports and word of mouth from personal friends and acquaintances who had personal experience of a brand. Digital media channels – especially social media channels – have opened up opportunities for smaller independent brands to reach out to this generation of websavvy consumers, who are more prepared to experiment than were previous generations. Millennials are very active when it comes to consulting social media for information about physical products, brand experiences and service quality, to inform their purchasing decisions. Social media provides an increasingly rich tapestry of reviews of customer experiences. They are also keen to use and provide peer-to-peer reviews on products and services, giving potential buyers the opportunity to get a sense of what it’s like to own or use the goods they’re considering and enabling edgier brands (e.g. Urban Decay) to gain a foothold.

In 2018, it was predicted that global millennial spending power would overtake that of Gen X by 2020 and then continue to rise (see table).

Source: based on data from World Data Lab Brands, marketers and start-up businesses need to recognize the following differences when targeting millennials: Desires: this generation wants more from the brands they choose to engage with; they are keen to co-create by sharing opinions, reviews and feedback through social media and the web. They will endorse the things they approve of, but shout about things they despise. They are also happy to engage in such activities around the clock and tend to react instantaneously. The implications for marketers are brands do not have to wait to poll opinions about a new product launch; they can accurately gauge consumer reactions almost instantly online. But brands must ensure authenticity and transparency if they wish to avoid the wrath of a millennial backlash to a product offer perceived to be ‘phoney’ or unfair. Demands: experiences are important, as are new and innovative products and services. While rational functionality is key, as a millennial is likely to be the ‘chief technology officer’ in many households, they also like emotional rewards and instant gratification, which must be delivered appropriately and quickly. Pleasure, fun and adventure are also cravings of this generation, who are prepared to do things differently, from ordering an instant taxi (Uber) and staying in someone page 189 else’s home instead of using a recognized accommodation provider (Airbnb), to having a personal shopper manage their luxury clothing online orders (Net-a-Porter). Influencers: millennials’ lives are directly interconnected with others and so are heavily affected by the views of their peers. Their purchasing behaviour is strongly influenced by their large network of online ‘friends’ and, unlike previous generations, they turn more readily to online peer networks for advice and ideas, which they openly share online. So what are the new rules for marketers wishing to develop relational networks with millennials? The rules of millennial relational network-building 1. Do not stereotype: millennials have been referred to as lazy, entitled and spoiled, but this does not fit well with their own ideals. 2. Understand the target customer profile: broadly, this generation are tech-savvy digital natives, relaxed, in love with convenience, want things easy and have a strong sense of self. But their birthdays span 20 years, so there are subsegments to consider.

3. Engage through digital media: millennials are prepared to become brand advocates and co-create, but an engagement strategy needs to be interesting and thoughtprovoking if it is not to be dismissed by this generation. 4. Plan to reward your customers: be able to provide instant and appropriate rewards. 5. Do not try to hide mistakes: seek millennials’ ‘expert advice’ when things are going right, but also when things go wrong. 6. Make it fun: this is a constantly on-the-go generation and they want new experiences to enjoy. 7. Use, don’t abuse, information: adapt marketing strategies to take account of the increased influence of customer opinions.

Questions: 1. How can brands use digital media to support brand development? 2. How might social media affect the value of a brand name when targeting millennials? Discuss positive and negative influences. 3. For a brand of your choice, decide which distinct millennial segment is the most likely target group. Then suggest which digital media they are most likely to use and where the brand is mostly likely to be able to begin to develop a connected relationship.

Based on: Barton et al. (2012); Ellis-Chadwick (2013); Maheshwari (2013); Simonson and Rosen (2014); Gapper (2018); Grimal (2021)

Key Concepts of Relationship Marketing The term ‘relationship marketing’ was coined by Berry and colleagues (1983), who defined it in terms of the marketing strategies that companies need to apply to retain customers over a longer time. This new paradigm redefined marketing, moving it away from being a transactional exchange process and towards a relational perspective. This also led to greater understanding of the lifetime value of a customer and the potential value of strategic partnering (Sheth 2017). Much of the logic that underpins the core elements of relationship marketing comes from the marketing of services rather than physical products. But there is debate about the meaning of relationship marketing: for some it means customer relationship

management (CRM), while to others it is the marketing activities a firm engages in after an exchange has occurred (e.g. loyalty programmes) and is considered more as customer support (Sheth 2017). We’ll return to this issue later, when discussing relationship management. Nevertheless, there are two important elements of relationship marketing to consider: 1. Core service: a core service can be developed around a company’s offer that meets customers’ needs in a distinctive manner. Retail banks have developed tailored financial products that enable customers to choose the level of service wrapped around their personal bank account. For example, HSBC plc offers a Basic Account, Student Account, Advanced Account and Premier Account. page 190 2. Relationship quality: customers develop relationships with companies by engaging in the exchange process, and are motivated to do so by the potential value that might be gained. But, from a relationship marketing perspective, the ongoing interaction between parties is of primary importance. In other words, companies seek to build relationships that develop customer loyalty and, in doing so, encourage customers to engage in repeated purchasing. Ultimately, the quality of a relationship is likely to affect customer loyalty and determine whether a company can retain its customers (Vize et al. 2013). Relationship quality is a complex subject, but there are several key factors to consider (Vize 2012) that will potentially affect the outcome of a relationship: Service quality: this involves the experience a customer has of a company’s offer. Services vary in complexity, and in the investment and risk a customer makes in the purchase (e.g. having a haircut or buying a cup of coffee). Service quality is discussed in detail in Chapter 11, but it is important to note service quality plays an important part in the development of relationships, especially in service industries (Chenet et al. 2010). Read Hidden Gem 5.1 to learn more about Digital Genius and management by AI agents. Trust: this refers to a customer’s level of confidence in a company’s ability to supply the required goods, and its reliability and integrity (Hunt et al. 1994). Trust is developed over time as customers base their perceptions and expectations on past purchase experiences. Trust plays a very important role in relationships, especially in an online setting.

Building trust is a very effective way to increase satisfaction and subsequently develop commitment to long-term relationships (Hunt et al. 1994; Geyskens et al. 1998; Selnes 1998; Vlaga and Eggert 2006). It can also help weaker partners in a business relationship to gain power over time in their dealings with more powerful companies (Narayandas and Rangan 2004). As a relationship develops, a customer may at the same time develop positive feelings about a company as they come to rely on the credibility of a brand and the competency with which the goods and services are provided. When customers trust a brand, they are more likely to recommend it to others and also to continue to use the brand themselves (Adams 2014). Commitment: this involves the extent to which customers seek to develop an enduring relationship with a company (Moorman et al. 1992) and is likely to affect their loyalty to a company. Commitment is a driver of loyalty, as some of the benefits of a committed relationship are reduced uncertainty, greater satisfaction and enhanced performance, through the synergies of an effective relationship. There are different types of commitment. Some customers can form emotional attachments to a brand, and this forms the basis of their commitment to it. For example, when food manufacturer Heinz used the slogan ‘Beanz Meanz Heinz’ to promote its baked beans in 1967, little did it realize this would become one of the most enduring and long-lasting advertising slogans of all time (Gerges 2012), arguably so much so that when the manufacturer wanted to give the brand a more relevant and up-to-date feel, the iconic slogan changed to ‘Beanz Meanz More’, keeping in touch with committed loyal customers of the brand for whom the original slogan acts as a mantra, while reaching out to new generations with whom Heinz is ‘developing conversations’ (Pham 2021a) (see Exhibit 5.1). Other customers base their commitment on more rational calculations: for example, some mobile phone companies offer contracts that bundle together benefits, including handsets and internet and telephone services, which provide an overall discount. Satisfaction: customers are likely to reflect on their experiences and evaluate the extent to which their choice has generated the results they wanted. There are many influences that might determine a customer’s level of satisfaction, for example level of knowledge, prior experience, economic requirements and social influences (Geyskens et al. 1999).

HIDDEN GEM 5.1

Digital Genius: Customer Service on Auto Pilot Artificial intelligence (AI) is changing the customer service industry. Responding to routine customer enquiries is now regularly done through digital interfaces (e.g. live chat). But these services are increasingly becoming automated, and conversational (software) agents (CAs), or chatbots, are replacing customer service staff. AI systems are able to respond using natural language.

Source: Paul Craft/Shutterstock Advantages and cost saving are on offer when using AI in a customer service role: more customer enquiries can be dealt with faster, and working 24 hours a day there is no appreciable downtime with CAs (e.g. for staff illness, training or away days). Challenges do exist, such as how to balance self-service efficiency with quality of service; how good are CAs at selling – are sales being lost as CAs are not yet able to empathize with the customer, overcome objections and persuade customers to make a purchase? But AI and CAs are constantly evolving; more human characteristics are being developed and it is envisaged that, in the future, customers will attribute more and more human-like qualities to the technological replacements. Digital Genius, founded in 2013, is a multilingual, multichannel, AI-automated customer service. How it works The platform brings together e-commerce solutions with a customer service interface driven by AI. When a customer message enters the system, it is analysed and the AI agent then predicts accurate suggestions and automated responses. Systems are built using real-life knowledge of customer service encounters, to enable firms to respond with automated and fully integrated services for trade customers.

Digital Genius works with a growing network of companies and industries, such as KLM (airline), Snipes (shoe retailer) Skull Candy (tech products), Quicksilver (clothing) and Packlink (logistics)., to resolve their customer service challenges. For example, Swiss athletic shoe firm On offered medical workers 50 per cent promotions during the Covid19 pandemic as a gesture of support, and the campaign went viral. While the uplift in sales was welcome, the new types of customers (healthcare workers instead of runners) gave the shoe brand a new set of customer service challenges – especially as the number of enquiries increased by more than 3,200 per cent. Digital Genius came to the rescue, putting together an automated system that could handle more than 40,000 enquiries. By integrating order, logistics, returns and complaint systems with CRM systems, more than 90 per cent of enquiries could be dealt with automatically. The Perfume Shop, a UK retailer of branded fragrances, set up an online support channel which it wanted to be an efficient, automated service, so turned to Digital Genius for a solution. This enabled 97 per cent of first-contact responses to page 191 be handled by the new system. This also enabled human customer service representatives to handle more complex and difficult enquiries, which boosted customer satisfaction ratings for the retailer. Service differentiation Digital Genius is doing things differently in order to stand out in an increasingly competitive marketplace. The firm positions itself as providing better customer services, increased quality and efficiency of customer conversations across digital channels using text-based communication channels like email, chat, social media and mobile messaging, enabling companies to scale up customer service operations and exceed rising customer expectations. By using the services of Digital Genius, firms can enjoy having no backlogs of customer enquiries, quick customer problem resolution and tailored customer interaction journeys, enabling the Digital Genius CAs to better meet customer service expectations. Based on: Sullivan (2020); Adam et al. (2021); Digital Genius (2022a, 2022b); Pitchbook (2022) Digital credentials Web: https://digitalgenius.com Social media: find Digital Genius on Facebook, LinkedIn and Twitter

EXHIBIT 5.1 Heinz is developing conversations with new generations of Beanz lovers

Source: MarketingWeek page 192

From a buyer’s (business and consumer) point of view, the proliferation of choice and the development of the online marketplace has made moving between competitors easier than ever before. When customers are faced with many alternatives while making purchasing decisions, they can switch between suppliers (Singh et al. 2011), so the greater the number of suppliers and the larger the product choice, the easier it becomes to change. Mobile phone operators use this knowledge and often develop relational price incentives (Berry 2008) to encourage customers to move to a new network operator. European phone carrier EE, for example, includes unlimited calls, inclusive cloud storage, free music, data rollover and a bundle of other services to retain and attract new customers. In this dynamic marketing environment, it becomes increasingly important for companies to seek ways to develop lasting relationships with their customers. In response to these changes, companies have begun to focus on how to develop long-term relationships.

Relationship Management and Managing Customer Relationships Relationships can take different forms and achieve different levels of success for all parties concerned. At a very basic level, buyers and suppliers can engage in simple transactional relationships that centre on a single

purchase, and neither party makes contact again after a sale is completed. For example, a business passenger at an international airport who needs road transportation will probably never meet the taxi driver again, and the choice of taxi supplier depends on the passenger’s position in the queue rather than free choice. In this case, the exchange – cash for the journey – is a pure transaction; the driver knows it is unlikely there will ever be a repeat purchase (Egan 1997; see also Coviello et al. 2002). Nowadays, this limited level of involvement is rare, most firms look for opportunities to begin to build a relationship. Uber’s ride-sharing service took relationship management and loyalty-building to a different level when it introduced a programme called Momentum, which saw drivers (not passengers) incentivized with rewards like free MOTs, discounts on servicing for their vehicles and deals on hot drinks, when they completed 250 passenger trips. The aim was to encourage drivers to build good relationships with their passengers and in doing so grow the Uber brand in Europe (Vizard 2015). To build relationships, a firm should develop detailed understanding of the purchase experience in order to determine whether the customer expectation has been met. Online sellers like Amazon and Ebuyer send post-purchase surveys to poll customers’ views and seek customers’ reviews of the products and service. The more a seller commits to the notion of a relationship with its customers (in both business and consumer markets), the more inclined it is towards being proactive about the development of the relationship. Ultimately, at the most engaged level of relationship building, buyer and supplier develop a partnership approach, and this results in working together for mutual benefit (McDaniel 1998). Therefore, the nature of the relationship can increase the complexity of the task of managing relationships. No longer is it enough just to focus on the transactional element of a sale. New approaches are needed that move on from marketmix-based solutions towards those built on relationship development and the specific types of relationship (Harker and Egan 2010). Managing relationships is a key ingredient in successful organizational marketing. In practical terms, relationship marketing concerns the shift from activities focusing on attracting customers to activities concerned with current customers and how to retain them. Customer retention is critical,

since small changes in retention rates have significant effects on future revenues (Andreassen 1995). At its core is the maintenance of relations between a company and its suppliers, channel intermediaries, the public and its customers. Ultimately, the key idea is for companies to act to create customer loyalty so a stable, mutually profitable and long-term relationship is developed (Ravald and Grönroos 1996). Furthermore, loyal customers are likely to spend more than non-loyal customers and recommend a company to others. So, for relationship marketing to be successful, two essential conditions should be met: 1. A relationship should be a mutually rewarding connection between two or more parties. 2. The parties involved in the relationship should commit to the relationship over time and be willing to make adaptations to their own behaviour to maintain its continuity (Takala and Uusitalo 1996). Relationship marketing in services has attracted much attention in recent years as organizations focus their efforts on retaining existing customers rather than just attracting new ones. It is not a new concept, page 193 however, since the idea of a company earning customer loyalty was well known to the earliest merchants, who had the following saying: ‘As a merchant, you’d better have a friend in every town’ (Grönroos 1994). From a marketing viewpoint, it is important to recognize relationship marketing involves shifting away from activities concerned with attracting customers towards activities that focus on current customers, and how to retain them and convert them into loyal advocates of the brand (and/or company). Although the idea of relationship marketing can be applied to many industries, it is particularly important in services, where there is often direct contact between service provider and customer – for example, the client–agency relationship in the advertising industry, the relationship between a web service provider and its clients, and that between hotel staff and guests. See Marketing in Action 5.2 for further discussion of building communities in the web service industry.

MARKETING IN ACTION 5.2

Most Valued People Award Helps Drive Umbraco’s Success Technology readiness is vital to a firm’s success as it can increase customer satisfaction and improve service quality, which together strengthen competitive advantage. Umbraco is an open-source content management system (CMS) offering solutions across industry to increase technology readiness. The CMS has an important role in the increasingly complex online world, where a website has become an essential part of a company’s marketing presence. Additionally, most companies now have a website with links to social media platforms like Twitter, Instagram and Facebook, and operational processing systems like ordering, logistics tracking and customer services. The result is more complex websites needing effective management of all the content, transactional elements and digital media channels to achieve market goals.

Source: Umbraco Umbraco offers solutions created by Niels Hartvig, who developed a simple CMS framework at his first job at Snabel & Co in Denmark. From here, Niels developed a prototype, which was released in 2003. This proved to be very popular and has become widely adopted by leading retail brands, telecommunications companies, financial institutions, government and other public-sector organizations, and others. One contribution to Umbraco’s success is it was launched as an open-source project – a method widely used in the software development industry to enable open access to products via a free licence, which enables and promotes collaboration. One firm to benefit from innovative CMS system solutions is Niska Ice Cream, based in Melbourne, Australia, which used Umbraco’s CMS to power a point-of-sale system that enabled robots to run ice cream kiosks without human intervention. A robot presents a touchscreen (see above image), the customer selects their ice cream and any additional toppings, then the robot makes the ice cream, which is deposited into a chilled service counter, where the customer can retrieve their dessert by presenting their receipt. The product choices are managed by the CMS system running in the background, which also enables the introduction of marketing promotions. Niska is expanding its

unattended ice cream kiosks to other countries and is driving the growth of utilizing innovative technologies to solve real-world problems. Another contributing factor was Umbraco’s Most Valued People (MVP) award, which not only served to reward excellence in the software development community, but also to build a strong collaborative community of like-minded individuals. What makes Umbraco’s MVP award unique is nominations from amateurs and professionals alike are welcomed. The value of this approach is the community can be expanded but, at the same time, Umbraco ensures the project remains grounded and relevant to everyone’s needs. The Umbraco community is quoted as being ‘the friendliest CMS community on the planet’ and is a great example of collaborative working on a global scale. Umbraco currently ensures the smooth running of hundreds of thousands of major websites worldwide, and the community of skilled professionals and partners who ensure Umbraco stays relevant and up to date numbers around 200,000 members. page 194 Technology readiness underpins satisfaction and service quality for tech firms

Based on: Vize et al. (2013); Umbraco (2018, 2022); Niska (2022)

The quality of the relationship is likely to determine the length of a relationship, levels of satisfaction and loyalty. Companies therefore need to decide when the practice of relationship marketing is most applicable. The following conditions suggest potential areas for the use of relationship marketing activities (Berry 1995a): where there is an ongoing or periodic desire for the service on the part of the customer (e.g. insurance, banking, telephone, internet services) where the customer controls the selection of a service provider (e.g. selecting a hotel, a beautician, a restaurant, an entertainment provider, an airline). There are situations where the supplier may have few competitors, and in these circumstances may feel it is less important to develop strong customer relationships (e.g. utility providers such as gas, water and

electricity companies, and health services). But these markets are changing; in energy markets there are new providers, in healthcare private hospitals, alternative healthcare providers are emerging and the competition is increasing, furthermore traditional suppliers do not always hold the power (in the way they used to) and it has become easier, more affordable and therefore more viable for customers to switch suppliers. Moneysupermarket.com, for instance, is an online brand developed to help consumers save money by switching to alternative providers. We will now explore how to build a relationship and then the benefits of relationship marketing to organizations and customers, and the customer retention strategies used to build relationships and tie customers closer to companies.

How to Build Relationships Once marketers decide where to invest resources into building a relationship, they consider the degree of effort to put in to relationship building. In most exchange relationships, there is some potential benefit to be gained from relationship development; Sheth (2017) argues emphasis should be placed on managing ‘share of heart’ rather than ‘share of wallet’, and also that relationship marketing practices such as loyalty programmes, key account management and customer relationship management schemes have become universal and therefore commoditized. His solution is to focus on winning ‘share of heart’, which involves close bonding with customers in much the same way as you would develop a relationship with a friend. The section on value creation highlighted some of the important features of close partnership relationships, how parties engaged in relationship development adapt their processes and products to achieve a better match with each other, and how they share information and experience, which reduces insecurity and uncertainty. Sharing information is a good starting point for the development of a close, connected relationship and many firms are using digital channels to encourage their customers to share information. For example, John Deere, business-to-business supplier of agricultural machinery, uses social media

sites (e.g. Facebook and Twitter) to communicate with farmers with similar interests around the world. Effective relationship building can create opportunities to develop competitive advantage and is especially powerful if embedded within the culture of the organization, which makes it more difficult for competitors to copy (Winklhofer et al. 2006). Exchanging information is potentially a lowlevel approach to relationship building, so to create a more involved, relationship-orientated culture a company needs to identify aspects of its business that could be considered part of a relationship-building strategy. There are several potential sources a firm might consider. page 195

Technical support Technical support can take the form of research and development cooperation, before-sales or after-sales service, and providing training to the customer’s staff. The supplier is thus enhancing the customer’s know-how and productivity. Such exchanges between organizations help firms to extract better value from the products and services they buy as the technical support acts as an addition to a purchase and provides a type of guarantee the buyer will be able to garner best value from its purchases. Technical support can be further embellished by adding repair services and third-party complaint handling. This in turn helps to build trust and loyalty, and to improve retention rates (Paparoidamis et al. 2019) for all types of firms. However, when things fail to go according to plan, customers can become dissatisfied and lose faith in a brand. For example, electronics retailer Currys PC World had built up a good reputation for its technical support, but during the pandemic, hundreds of customers complained about faulty goods and appliances, and being left without repairs, replacements or refunds. The retailer sometimes referred complaints back to the manufacturers, but even this arrangement failed to resolve many problems. Customers were left with missing products, and extended delivery dates, which added to their dissatisfaction (Downes 2020). Despite the complaints and customer disappointments, the retailer continues to grow but has recognized the importance of market positioning and so, post-Covid, has rebranded to Currys, bringing all of its other brands

– service partner Team Knowhow, Carphone Warehouse, PC World and Dixons – under the one name. With this repositioning has come a streamlining of pricing models, and simplified services giving greater ‘strategic clarity’ (Pham 2021b).

Expertise Suppliers can look for opportunities to provide expertise for their customers, enabling them to improve their service quality. The customer can benefit through acquiring extra skills at a minimal cost, the benefits of which they can pass on to their own customers. For example, French cosmetics and beauty company L’Oréal Professionnel (Paris) develops specialist haircare products for salons and beauty specialist businesses. This business-to-business division provides specialist training for stylists and salon owners, and shares the expertise it has built up over years of researching and developing new haircare products. L’Oréal has an extensive range of educational programmes it offers to its customers, from learning how to apply new haircare products to how to build and run a successful business in the beauty industry (see Exhibit 5.2). EXHIBIT 5.2 L’Oréal provides training for stylists and salon owners

Source: ALPA PROD/Shutterstock

Resource support Suppliers can support the resource base of customers, for example by extending credit facilities, giving low-interest loans, agreeing to cooperative promotion and accepting reciprocal buying practices, where the supplier agrees to buy goods from the customer. The overall effect of these activities is a reduced financial burden for the customer.

Service levels Suppliers can improve relationships with customers by improving the level of service offered. This can involve providing more reliable delivery, fast or just-in-time delivery, setting up computerized reorder systems, offering fast, accurate quotes and reducing defect levels. In so doing, the customer gains by lower inventory costs, smoother production runs and lower warranty costs. Advances in technology are providing opportunities to improve service levels. For example, BMW is using IBM’s big data analytics page 196 technology to improve its repair and maintenance services, road safety and performance efficiency of vehicles. IBM’s predictive analytics can detect and fix potentially faulty elements of new cars, and BMW and IBM are working on ways to personalize in-car computing and driver support systems using IBM cloud computing and wireless local area networks (IBM 2022) (see Exhibit 5.3). EXHIBIT 5.3 BMW and IBM bring a whole new meaning to smart cars

Source: Bloomberg/Getty Images

Risk reduction If a company is looking to acquire new customers, it may encounter resistance, as target customers are familiar with their existing suppliers. So, to use risk reduction as part of a relationship-building strategy, a company should identify initiatives that enable it to show there are low levels of risk in switching suppliers. This may involve free demonstrations, the offer of products for trial at zero or low cost to the customer, product and delivery guarantees, preventative maintenance contracts, swift complaint handling and proactive follow-ups. These activities are designed to provide customers with reassurance. Birds Eye, a European manufacturer of frozen foods, launched a new range of pasta and rice dishes called Stir Your Senses. To launch the product range, it ran a ‘try me for free’ campaign, giving away 1.6 million packs through leading UK supermarkets (IPM 2015). Additionally, this product range has been developed by working with consumers to understand how the frozen food manufacturer can best cater for the changing needs of its customers. These products were developed to provide a hassle-free meal solution for busy consumers.

Benefits for the Organization Ultimately, building a successful relationship can bring a range of benefits to both the supplier and the buyer. Social exchange theory (SET) draws our attention to the expectation of gaining value, economic gains and social benefits involved in an exchange relationship, which can be tangible or intangible (Zhang et al. 2020), and were introduced by Homans (1958) as a way of understanding power-dependent relationships. Today, social exchange relies on self-interest by maximizing benefits at minimum cost, and relationships develop around mutual interests between buyer and supplier both offline and online (Wu et al. 2014). Online firms should ensure they build strong trusting relationships with customers, to overcome the absence of face-to-face interactions.

Crucially, however, it is an evaluation of the balance between perceived costs and benefits that will determine the duration of a relationship. As relationships develop, a history of knowledge of past experiences builds up and, if all is favourable, trust and commitment will grow between parties in the exchange process (Dwyer et al. 1981) and, in this context, reciprocal value exists. The nature of the value is likely to be dependent on the context of the exchange and the benefits sought. Let’s examine possible benefits for organizations and then consumers. There are six major benefits for firms from developing and maintaining strong customer relationships (Zeithaml et al. 2005): 1. Increased purchases: help to develop trust between the company and the customer as they become more and more satisfied with the quality of services provided by the supplier. 2. Lower cost: the start-up costs associated with attracting new customers are likely to be far higher than the cost of retaining existing customers. Start-up costs include the time spent making repeat calls in an effort to persuade a prospect to open an account, the advertising and promotional costs associated with making prospects aware of the company and its service offering, the operating costs of setting up accounts and systems, and the time costs of establishing bonds between supplier and customer in the early stages of the relationship. Furthermore, costs associated with solving initial teething problems and queries are likely to fall as the customer becomes accustomed to using the service. 3. Lifetime value of a customer: the lifetime value of a customer is the profit made on a customer’s purchases over the lifetime of that customer. If, for example, a customer spends £80 in a supermarket per week, resulting in £8 profit, and uses the supermarket 45 times a year over 30 years, the page 197 lifetime value of that customer is £10,800. Thus, a bad service experience early on in this relationship, which results in the customer defecting to the competition, would be very expensive to the supermarket, especially when the costs of bad word of mouth are added, as this may deter other customers from using the store. 4. Sustainable competitive advantage: the intangible aspects of a relationship are not easily copied by the competition. For example, the friendships and high levels of trust that can develop as a relationship matures can be extremely difficult for competitors to replicate. This

means extra value to customers derived from the relationship can be a source of sustainable competitive advantage for suppliers (Roberts et al. 2003). 5. Word of mouth: word of mouth is very important in services due to their intangible nature, which makes them difficult to evaluate prior to purchase. In these circumstances, potential purchasers often look to others who have experienced the service (e.g. a hotel, financial service) for personal recommendation. A company with a large number of loyal customers is more likely to benefit from word of mouth than one without such a resource. 6. Employee satisfaction and retention: satisfied, loyal customers benefit employees in providing a set of mutually beneficial relationships and less hassle. This enhances employees’ job satisfaction and lowers job turnover. Employees can spend time improving existing relationships rather than desperately seeking new customers. This sets up a virtuous circle of satisfied customers leading to happy employees, which raises customer satisfaction even higher. The net result of these six benefits of developing customer relationships is high profits. The reasons loyal customers generate more revenue for longer, and the costs of maintaining existing customers are lower, is due to the high costs associated with acquiring new customers. Moreover, the longer a customer stays with a service provider, the lower the defection rate (switching to another provider) and the more likely a customer is to have lower resistance to price increases, although this must be carefully managed by ensuring appropriate pricing, especially when introducing new product and service offers. Older customers are also more inclined to stay with a brand, so when changing prices that target younger customers, extra care should be taken and more communication provided on added value help to lower the defection rate (Somosi et al. 2021).

Benefits for the Customer Entering a long-term relationship can also afford the following four benefits to the customer:

1. Risk and stress reduction: the intangible nature of services makes them difficult to evaluate before purchase, which means relationship marketing can benefit the customer as well as the firm, especially when services are personally important, variable in quality, complex and/or subject to highinvolvement buying (Berry 1995b). High-risk purchases elevate the significance of making the wrong choice and the possibility of negative consequences for the buyer. Banking, insurance, motor servicing and hairstyling are examples of services exhibiting some or all of the characteristics – importance, variability, complexity, high involvement – that would cause many customers to seek an ongoing relationship with a trusted service provider. The relationship reduces consumer stress, as it becomes predictable, initial problems are solved, special needs are accommodated and the consumer learns what to expect. After a period, the consumer begins to trust the service provider, can count on a consistent level of quality service and feels comfortable in the relationship (Bitner 1995). 2. Higher-quality service: experiencing a long-term relationship with a service provider can also result in higher levels of service; the service provider becomes knowledgeable about the customer’s requirements. For example, banks, insurers, and health and beauty service providers learn about the preferences of their clients and how to improve the service offer. Knowledge of the customer built up over a series of service encounters facilitates the tailoring or customizing of the service to each customer’s special needs. 3. Avoidance of switching costs: maintaining a relationship with a service supplier avoids the costs associated with switching to a new provider. Once a service provider knows a customer’s preferences and special needs, and has tailored services to suit them, to change would mean educating a new provider and accepting the possibility of mistakes being made until the new provider has learned to accommodate them, resulting in both time and psychological costs to the customer. 4. Social and status benefits: customers can also reap social and status benefits from a continuing relationship with a supplier. Since many service encounters are also social encounters, repeated contact can assume personal as well as professional dimensions. In such page 198 circumstances, service customers may develop relationships

resembling personal friendships. For example, barbers, beauticians and hairdressers often serve as personal confidantes; restaurant, bar and café managers may get to know some of their customers personally. Such personal relationships can feed a person’s ego (status). For example, one hotel customer commented, ‘When employees remember and recognize you as a regular customer, you feel really good’ (Parasuraman et al. 1991). Building strong, lasting relationships creates opportunities for adding customer value and developing economically sustainable businesses. Once a relationship is established it is important to find ways to maintain the quality of the relationship in order to retain the customer in the longer term.

Developing Customer Retention Strategies The potential benefits of developing long-term relationships with customers mean it is worthwhile investing in designing customer retention strategies; this involves targeting customers for retention, building trust, bonding, internal marketing, promise fulfilment and service recovery (see Figure 5.1). FIGURE 5.1 Developing customer retention strategies

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Targeting customers for retention Not all customers deliver benefits from relationship building, for example habitual brand-switchers who respond to the lowest-priced deal available regardless of the brand, low spenders who may not generate sufficient revenue to justify the expense of acquiring them and maintaining the relationship, and disruptive customers who may be so troublesome, and whose attitudes and behaviour may cause so much disruption to the service provider, the costs of servicing them outweigh the benefits. Consequently, firms and brands need to analyse customers and identify those they wish to engage in a long-term relationship. (See Chapter 7 for further discussion of segmentation and targeting.) The characteristics of customers who are candidates for a relationship marketing approach are high-value, frequentuse, loyalty-prone customers for whom the actual and potential service offerings that can be supplied by the company have high utility. Targeting customers for retention involves the analysis of loyalty- and defectionprone customers. Firms need to understand why customers stay or leave, what creates value for them, and their profile. Decisions can then be made regarding which types of customer defector they wish to try to save (e.g. price or service defectors) and the nature of the value-adding strategy that meets their needs, while at the same time maintaining bonds with loyaltyprone customers (Berry 1995a, 1995b).

Building trust Customer relationships per se depend on building trust, but trust is also a very important aspect of customer retention, particularly where the intangible nature of a service means the customer can find it difficult to evaluate prior to purchase. Buying a service for the first time can leave the customer with a feeling of uncertainty and vulnerability, particularly when the service is personally important (see Chapter 11 for more detailed page 199 discussion of the impact of the characteristics of services). Consequently, when customers develop trust in a supplier, they

are often reluctant to switch to a new supplier and experience the uncomfortable feelings of uncertainty and vulnerability all over again. These types of relationships also help to build partnerships and networks, which can limit duplication of effort, reduce costs, and increase commitment, cooperation and overall satisfaction (Paparoidamis et al. 2019). Firms wishing to build trustworthiness should keep in touch with their customers by regular two-way communication to develop feelings of closeness and openness, provide guarantees to symbolize the confidence they feel in their service delivery, reduce their customers’ perceived risk of purchase, and operate a policy of fairness and high standards of conduct with their customers (Berry 1995a, 1995b).

Bonding Retention strategies vary in the degree to which they bond the parties together but have become an essential part of ensuring long-term profitable relationships, as developing customer satisfaction does not always lead to long-term loyalty (Balci et al. 2019). SET suggests, when firms and customers consider whether to continue or to end a relationship, they go through a process of evaluation, looking at the rewards and costs (Homans 1958). If the evaluation is positive the relationship continues; if not, it is terminated. Through building and then strengthening relationships, enhancing benefits and building strong bonds, retention rates can be improved (Balci et al. 2019). Berry and Parasuraman (1991) proposed three retention strategy approaches based on the types of bond used to cement the relationship: 1. Financial bonding: at this level the bond is primarily through financial incentives, for example rewards, higher discounts on prices for largervolume purchases, or loyalty points and associated tailored promotions, which can result in lower future prices. This type of bond has been found to be the best predictor of loyalty (Lee et al. 2015), but it can be difficult to maintain sustainable competitive advantage, as price incentives are easy for competitors to copy (e.g. frequent-flyer or loyalty points). Most airlines and retailers compete in this way, and consumers have learned to join more than one scheme, thus negating the desired effect.

2. Structural bonding relies on more than price incentives. Building longterm relationships in this way involves adding customer-specific services customers feel are rare, expensive or difficult to find (Rodríguez and Wilson 2002). Customers become clients, the relationship becomes personalized and the service customized. Characteristics of this type of relationship include frequent communication with customers, providing continuity of service through the same person or people employed by the service provider, providing personal treatment like sending cards, and enhancing the core service with educational or entertainment activities such as seminars or visits to sporting events. Often hotels keep records of their guests’ personal preferences, such as food allergies and requirements for non-smoking rooms, and thus build a special bond with customers, who feel they are being treated as individuals. Increasingly, social media and other forms of digital communication are used to develop such relationships further. 3. Social bonding focuses on the relational connections that develop between buyers and sellers and, through these social ties and interpersonal interactions, the two parties are brought closer together, allowing for the development of more fruitful relationships. Lin and colleagues (2017) found this type of bond also effective as a way of retaining customers and increasing loyalty in the freight-forwarding industry, especially when the original relationships are built on customer satisfaction. This type of bond increases emotional ties and the interpersonal nature of relationships (Schakett et al. 2011). When combined with financial and social bonds, structural bonds can create a formidable barrier against competitor inroads and provide the basis for a sustainable competitive advantage. Balci et al. (2019) highlighted the importance of a fourth type of bonding: 4. Relational bonding: this helps sellers increase perceptions of satisfaction and reward, and gain loyalty.

Promise fulfilment Promise fulfilment is a cornerstone of service relationships. Service providers focus on three key activities: making realistic promises initially,

and keeping those promises during service delivery by enabling staff and service systems to deliver on promises made (Bitner 1995). Making promises is done through marketing communications channels, through advertising, selling and promotion, as well as the specific service cues setting expectations, such as the dress of the service staff, and the design and décor of the establishment. It is important not to over-promise as page 200 this may end in disappointment, customer dissatisfaction and defection. The promise should be credible and realistic. Some companies adhere to the adage ‘under-promise and over-deliver’. UK retailer John Lewis made an enduring commitment (lasting almost 100 years) to its customers, with its policy promise of ‘never knowingly undersold’. However, in 2022 it dropped this price-match pledge due to competition from online retailers. Instead, to retain customer trust and commitment to the brand, it has introduced lower prices, which promise ‘everyday quality and value’, creating opportunities to ensure customers can buy quality goods that are stylish and good value (Butler 2022). Keeping of promises occurs when the customer and service provider interact – the ‘moment of truth’. For example, pleasant call-centre staff can create such moments and influence perceptions of the service quality offered by a firm (Wirtz 2018). Research shows customers judge employees on their ability to deliver the service right first time, their ability to recover if things go wrong, how well they deal with special requests, and on their spontaneous actions and attitudes (see Bitner et al. 1990, 1994). These are key dimensions that play a part in a training programme, and should be borne in mind when selecting and rewarding service staff. Not all service encounters are equal in importance, however. Research conducted on behalf of Marriott Hotels has shown events occurring early in a service encounter affect customer loyalty the most. Based on these findings, Marriott developed its ‘first 10 minutes’ strategy. It is hardly surprising that first impressions are so important, since before that the customer has had no direct contact with the service provider and is uncertain of the outcome. Marriott has become an international market leader, with luxury destinations worldwide – more than 7,800 properties, luxury brands Ritz Carlton, Sheraton and Courtyard by Marriott in 138 countries, and plans for more (Gollan 2017; Baldwin 2021). Customer experiences continue to be key to the group’s future marketing strategy.

Enabling staff is a necessary condition for promises to be kept. This means staff must have the skills, competencies, tools, systems and enthusiasm to deliver, which is dependent on the correct recruitment, training and rewarding of staff, and on providing them with the right equipment and systems to do their jobs. Finally, the keeping of promises does not depend solely on service staff and technology. Service delivery is often performed in a group setting (e.g. a meal with friends or family in a restaurant, watching a film or travelling by air), which means the quality of the experience can be as dependent on the behaviour of other customers as on that of the service provider. Lovelock and colleagues (1999) labelled problem customers ‘jaycustomers’: people who act in a thoughtless or abusive way, causing problems for the organization, its employees and other customers. Staff need to be trained to develop the self-confidence and assertiveness required to deal with such customers and situations, and to know what to do if a situation escalates beyond their control and more senior staff need to be involved.

Service recovery Service recovery strategies should aim to solve problems and restore customers’ trust in the company, and also improve the service system so the problem does not reoccur (Kasper et al. 2006). Recovery is crucial, because if carried out effectively it can encourage customers to become advocates for a company and will reduce the likelihood of dissatisfied customers telling others of their negative experiences. There are three important considerations when establishing a service recovery strategy: 1. Set up a tracking system to identify system failures: customers should be encouraged to report service problems, since those customers that do not complain are the least likely to purchase again. Systems should be established to monitor complaints, follow up on service experiences (e.g. through the web, using feedback surveys, by phone), and provide opportunities for both service staff and customers to feed back on their experiences. 2. Train and empower staff to respond to service complaints: this is important because research has shown successful resolution of a

complaint can cause customers to feel more positive about a firm than they did before the service failure. The first response from a service provider to a genuine complaint is to apologize. Often this will take the heat out of the situation and lead to a spirit of cooperation rather than recrimination. The next step is to attempt to solve the problem quickly. Marriott facilitates this process by empowering frontline employees to solve customers’ problems quickly, even though this may mean expense to the hotel, and without recourse to seeking approval from higher authority. Other key elements in service recovery are to appear pleasant, helpful and attentive, show concern for the customer and to be flexible. It is important to note that while careful and appropriate handling of a complaint can result in a customer developing a positive attitude, if a second problem occurs, this effect (called the ‘recovery paradox’) disappears (Maxham and Netemeyer 2002). 3. Encourage learning among staff so service recovery problems are identified and corrected: service staff should be motivated to report problems and solutions so recurrent failures are identified and fixed. page 201

In this way, an effective service recovery system can lead to improved customer service, satisfaction and higher customer retention levels. Customer retention is fundamental to business success, and technology is now widely used to gather customer feedback and manage the entire customer experience. The final part of the chapter examines customer relationship management.

Customer Relationship Management Customer relationships, in both consumer and business-to-business markets, are increasingly managed using technology, and while Sheth (2017) considers such systems to be responsible for the commoditization of customer relationships, they are still very important to marketing efforts. Effective customer relationship management (CRM) begins by understanding the value, attitudes and behaviour of various customers and

prospects, which might form part of a relationship marketing strategy. Rapid development of digital, mobile and remote computer technologies has enabled the development of highly sophisticated CRM systems that can manage relationships, interactions and customer journeys. These journeys include all the touchpoints where a customer interacts with a business and then creates a data-collection point (see below). CRM is seen by many marketers as the practical implementation of relationship marketing (Harker and Egan 2010). ‘CRM’ is a term that encompasses the methodologies, technologies and e-commerce capabilities used by companies to manage customer relationships. CRM software packages aid the interaction between the customer and the company, enabling the company to coordinate all of the communication effort so the customer is presented with a unified message and image. CRM companies offer a range of IT-based services such as call centres, data analysis and website management. The basic principle behind CRM is that a firm’s staff have a single-customer point of view of each client. As customers are now using multiple channels more frequently, they may buy one product from a salesperson and another from a website. A website may provide product information, which is used to buy the product from a distributor. Interactions between a customer and a company may take place through the sales force, call centres, websites, email and social media. Volvo Construction Equipment (Volvo CE) has built its reputation on producing high-quality market-leading equipment and offering excellent customer support (Volvo Construction Equipment 2015). Business relationships are important and sales are primarily through local dealers. The firm uses the web as a way for customers to interact with the brand and submit enquiries through online forms on its website. However, there was an issue because Volvo was receiving only limited feedback and a limited number of leads collected from the website; also customers completing the online form received merely a simple ‘thank you’ message. It was decided the company should try to make better use of internet technology to interact with customers, provide more dynamic information, automate the customer communication process and gather more data about customer interactions. Volvo CE had to devise a cost-efficient system to achieve its goals. The team’s response was to create a process that evaluated customers’ lifecycles and online interactions using the newly implemented CRM system. Using

customer data, the system was able to send relevant information to customers and up-to-date reports to dealers and internal staff. Although the term ‘CRM’ is seen as referring to a recent management technology, the ideas and principles behind it are not new. Businesses have long practised some form of CRM. What sets present-day CRM apart is that companies now have an increased opportunity to use technology and manage one-to-one relationships with huge numbers of consumers, facilitated by companies such as Salesforce.com, IBM, SAP and Oracle. Therefore, no matter how a customer contacts a company, all staff have instant access to the same data about the customer, such as their details and past purchases. This usually means the consolidation of the many databases held by individual departments in a company into one centralized database that can be accessed by all relevant staff on a computer screen.

Success factors in CRM CRM projects have met with mixed results. As the customer journeys and experiences become a more important feature in marketing initiatives, so does the successful deployment of CRM systems and associated technologies. It has been found that nearly half of CRM projects fail due to insufficient attention being paid to the processes involved and the function the system was designed to achieve. People can also create issues in the adoption of new CRM systems by resisting the use of the new technology page 202 or having a lack of adequate training. Many CRM systems have been found to fail due to lack of planning and clear objectives. Finally, about a third of CRM systems fail due to lack of suitable technology (Band 2013). The following factors are associated with successful CRM implementations: having a customer orientation and organizing the CRM system around customers taking a single view of customers across departments, and designing an integrated system so all customer-facing staff can draw information from a common database having the ability to manage cultural change issues that arise as a result of system development and implementation

involving users in the CRM design process designing the system in such a way that it can readily be changed to meet future requirements having a board-level champion of the CRM project, commitment within each of the affected departments to the benefits of taking a single view of the customer, and an understanding of the need for common strategies (e.g. prioritizing resources with profitable customers) creating ‘quick wins’ to provide positive feedback on the project programmes ensuring face-to-face contact (rather than on paper or by email) between marketing and IT staff piloting the new system before full launch. Much of the development of CRM systems and solutions is being driven through digital marketing and customer experience initiatives, as customers expect to have instantaneous access to information. Consequently, it has become more of an imperative to ensure CRM systems perform effectively, especially as they are being used in all business sectors. For example, in the not-for-profit sector, donations are increasingly being made by mobile phone and through social media platforms; retailers are selling more online; and airlines and other transport companies use mobile phones to supply travel updates (IBM with Frost & Sullivan 2011). Social media has grown in importance as individuals share their experiences on everything from grocery shopping and eating out to engagement in large-scale fundraising campaigns. Examples of hashtag campaigns include: #ShareYourEars, a campaign launched by Disney to raise funds for the Make-A-Wish Foundation; #RebuildTheWorld, LEGO’s campaign to inspire users of its product during the Covid-19 pandemic; #SmileCookie, an annual campaign by coffee chain Tim Hortons, which raises millions of dollars for local charities in Canada; and #BeyondFiveStars, a campaign aimed at spotlighting Uber drivers’ performance (Forbes 2021). CRM systems are becoming progressively more complex as the number of potential touchpoints where a customer can interact with a company increases (see Figure 5.2). Touchpoints are where customers interact with a company and data about these interactions can be gathered. Interactions with customers can be through physical human interactions, for example with customer service staff or sales representatives, or where customers

page 203 interact virtually, for example through loyalty schemes, online reviews and search enquiries. Interactions can also occur at any stage in a customer journey, and give rise to opportunities for companies to use the touchpoint productively. For example, a retailer might offer existing customers a future discount if they refer a friend through the company website, or on receipt of a delivery a customer might be encouraged to comment on the quality of the product and the delivery service.

FIGURE 5.2 Touchpoints where customers might interact with a company

As customers engage with companies through a variety of touchpoints, it becomes increasingly challenging to ensure the quality of the customer experience. Figure 5.3 shows a potential cross-channel touchpoint customer experience (Gill 2014). Initially, customers may become aware of a new product or service through traditional channels, for example broadcast media, TV or radio. As they begin to consider, evaluate and move towards selecting a particular product, they may move over to digital channels, for example online reviews and blogs. Once customers are ready to make a

purchase, they may choose from various channels, for example online, instore or through a direct mail catalogue. After the sale is complete, customers may seek advice about how to use their product, for example through an online FAQs database, or comment on their experience in a forum. Finally, they might become an advocate for their chosen product and make future purchases, read newsletters and even write a blog post about their experiences. FIGURE 5.3 Touchpoints in a cross-channel customer journey

Cross-channel touchpoints test companies who wish to manage their customers’ journeys to ensure a uniform experience. Many brands struggle to provide a seamless customer experience. For example, Gap offers its customers a flexible click-and-collect service to pick up their online orders through any of the group’s stores, such as Gap, Old Navy and Banana Republic. But, when it comes to returning goods, customers must take the returns back to the specific store selling the brand they have purchased. The problem for retailers is reverse logistics – in other words, getting the goods back to where the stock was originally held, especially if a retailer manages online and offline stock through different locations (Gill 2014), and customers are left struggling to work out where to return their goods. Air Canada is another example where there are breaks in the crosschannel customer experience: its customers can book flights via mobile

devices, but cannot amend the details or change flights via any digital touchpoints. Customers wishing to make changes must use the telephone. As a result, the cross-channel experience can be frustrating rather than rewarding. So, how can companies manage multiple cross-channel touchpoints and use their CRM systems effectively? According to research (Gill 2014), companies should consider the overall customer experience and aim to ‘identify, design, implement and optimize end-to-end customer journeys’. In order to do this, they should aim to follow three rules (Gill 2014): 1. Do not try to please everyone. Marketing managers should aim to concentrate on creating high-value experiences which involve touchpoints that create meaningful journeys for target customers. They should also identify tasks that add value to the experience. For example, Starbucks has developed a cross-touchpoint experience for its tech-savvy customers. It uses sophisticated software and GPS positioning to push time-specific offers to its customers in particular page 204 locations. The aim is to increase footfall in Starbucks coffee shops. The My Starbucks app enables pre-payment and acts as a point of sale using QR codes; it also links to an individual’s loyalty data to be used for future promotions. Finally, the focus should also be on a frequently occurring task, as it is not viable to try to streamline every customer journey. For example, DIY brand Wickes serves consumers and trade customers using web, social media and store to deliver a fully integrated customer service package. Wickes partnered with specialist marketing and data analytics firm Team ITG to interpret customer inputs at every stage of the customer journey to ‘build stronger and more meaningful relationships with customers’. The approach taken by Wickes has succeeded in increasing trade (Retail Week 2022). 2. Optimize the journey, not the touchpoint. Marketing managers responsible for mapping customer journeys have to decide which channels and technologies will provide the best customer journey. They should also ensure each touchpoint is deemed important. Prisma, one of Finland’s most advanced online retailers, designed its customer journey by mapping out a series of common touchpoints

shoppers wanted to use. The journey maps showed how customers used mobile phones, the web and physical stores; when the maps were combined with historical customer data, the retailer was able to improve the customer experience. Ultimately, the marketer should aim to understand how an individual touchpoint contributes to the total customer journey. 3. Manage the transitions. Marketing managers should look for innovative ways to move customers from one touchpoint to another and across channels. One way to achieve this is to make sure the customer is in control. So, if customers need to move from the digital to physical space, for example in getting their eyes tested and buying a pair of glasses, the online appointment system should ensure there is sufficient choice of appointment times. The earlier example of Starbucks demonstrates how the digital and physical space can be linked using a mobile device. As customers become more connected and more familiar with using multiple touchpoints, it will become increasingly important for all companies to manage their customer journeys effectively in order to deliver a seamless customer experience.

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Big Picture: Key Topics in This Chapter

Detailed Review 1. Value creation Companies engage in value creation when they enter into exchanges with their customers, and this is central to building relationships. Co-creation of value involves information sharing to aid supplier learning, supplier development and strategic knowledge sharing. 2. The key concepts of relationship marketing The concepts are: relationship quality, service quality, trust, satisfaction, commitment and loyalty. 3. The nature of relationship marketing and how to build customer relationships Relationship marketing concerns the shift from activities associated with attracting customers to activities concerned with current customers and how to retain them. A key element is the building of trust between buyers and sellers.

Relationship building can be enhanced by the provision of customer services, including giving technical support, expertise, resource support, improving service levels and using risk-reduction strategies. 4. Value and relational networks People and the roles they play within the network. ‘Network’ is a term used to describe a set of connections among people, which, from a marketing perspective, might be used as a resource to solve problems, share knowledge and extend the network. 5. Types of relationship management

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Relationships can take different forms. There are three key types of relationship: 1) Classic market relationships: supplier–customer, supplier–customer– competitor and the physical distribution network. 2) Special market relationships, such as between the customer as a member of a loyalty programme and the interaction in the service encounter. 3) Relationships with the economy and society in general. 6. The management of customer relationships This concerns focusing a company’s activities on building long-term relationships and identifying opportunities for relationship development, for example where there is a desire from the customer for delivery of an ongoing service, where the customer makes a choice of service provider or where the customer has many alternative suppliers to choose from. 7. Building customer relationships Effective relationships can be a source of competitive advantage and are developed through a number of different operational aspects of a business: technical support, expertise, resource support, service levels and risk reduction. 8. Benefits to the organization Engaging in relationship management can deliver a number of benefits to the organization: increased purchases, lower costs, lifetime value of a customer, sustainable competitive advantage, employee satisfaction and retention. 9. Benefits to the customer For relationships to work, there should be mutual benefits for all parties involved. For the customer, potential benefits are stress reduction, higher-quality service, avoidance of switching costs, social and status benefits. 10. Customer retention strategies are central to the marketing effort of relationship marketing Customer retention involves the targeting of customers for retention, bonding, internal marketing, promise fulfilment, building of trust and service recovery.

11. Customer relationship management (CRM) Technology is key to the development of successful relationships. CRM systems are technology-based solutions that facilitate interactions between the customer and the company, enabling the company to coordinate all of the communication effort so the customer is presented with a unified message and image. Cross-channel customer journeys occur when customers interact with different channels during the purchasing process.

Key Terms commitment a process whereby individuals (and companies) establish a bond to reduce negative aspects of a relationship customer relationship management (CRM) a term for the methodologies, technologies and e-commerce capabilities used by companies to manage customer relationships loyalty a term used to explain repeated purchasing behaviour relationship marketing the process of creating, maintaining and enhancing strong relationships with customers and other stakeholders satisfaction an indicator of the extent to which customer expectations have been met; as a concept, it is important to long-term relationship building service quality involves the experience a customer has of a company’s offer; services vary in complexity, and in terms of the investment and risk a page 207 customer makes in the purchase social exchange theory (SET) the theory that firms build and enhance relationships through the exchange of benefits touchpoints points at which a customer interacts with a company across a customer journey and where data can be collected trust a customer’s level of confidence in a company’s ability to supply the required goods, its reliability and integrity

Study Questions 1. Explain the concept of value from a relationship marketing perspective. 2. Discuss the importance of collaboration between buyer and seller when adding value.

3. Why is relationship management important in many supplier–customer interactions? 4. How can suppliers build close relationships with organizational customers? 5. How are millennials different from other target segments, and in what ways should marketers adapt their strategies to build relationships with this generation? 6. What are the benefits derived from engaging in a relationship for a) the organization, b) the customer? 7. To what extent is technology involved in the development of successful relationships? 8. Explain the concept of bonding, then discuss how a service brand might use this strategy to improve its customer retention rate. 9. Suggest how CRM can be used to develop customer relationships. 10. Discuss the importance of touchpoints in a cross-channel customer journey.

Recommended Reading Relationships are everything. Read more: Palmatier, R. and Steinhoff, L. (2019) Relationship Marketing in the Digital Age. New York and Abingdon: Routledge. Vargo, S. and Lusch, R. (2010) It’s all B2B … and beyond: toward a system perspective of markets, Industrial Marketing Management, 40(11): 181–7.

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CASE 9 STARBUCKS: BREWING GREAT CUSTOMER EXPERIENCES THROUGH OUTSTANDING DIGITAL MARKETING Starbucks is often credited with transforming coffee from a basic commodity to a gourmet experience in the United States. Founded more than 50 years ago, the company is hugely successful, generating revenue of US$29.06 billion (2021) with net income of US$4.2 billion (2021). From its humble beginnings in Seattle, Starbucks is now the world’s largest coffee house chain, located in 80 countries, with almost 34,000 stores. And while known for providing its customers with delicious (if pricey) coffee, as well as free Wi-Fi and a place to relax, the company is also trying to provide them with something more – a personal relationship. And, so far, it seems to be succeeding.

Source: Moomusician/Shutterstock

Starbucks famously described its vision of reaching its customers as ‘one neighbourhood, one person and one cup at a time’. And thanks to its effective use of digital marketing, social media, customer relationships and technology management, the company is doing just that. Starbucks appears to be one of the few companies that truly understands the intricate triangulation between consumers, a product and social media, and how the three, when successfully managed, can increase a brand’s profile and develop a relationship between that brand and a customer (while, at the same time, generating higher sales). As proof of Starbucks getting its customer relationship management right, a reported nine out of ten people who use Facebook are either fans of Starbucks or know somebody who is. Starbucks is a leader in its class when it comes to incorporating the latest technological developments into its operations, allowing it to almost seamlessly merge its bricks-andmortar stores with the numerous digital marketing channels available. The company has also been adept at developing relationships with its customers, using the latest online innovations and social media platforms (Starbucks is present on Facebook, Twitter, Instagram and YouTube, to name just a few). Starbucks is adamant when it says that the purpose of new technology is not just to improve its website or to process payments more quickly for people who are queuing up – it is really about getting in touch with its customers and trying to better understand them, so as to improve the level of service and customers’ experience with the brand. As a sign of its commitment, the company has reportedly taken all the money it used to spend on traditional media outlets and shifted it into digital and social media marketing, in an effort to deepen and consolidate its relationship with its customers. Experts believe that, when trying to build or protect customer relationships, there are certain rules of etiquette that should be respected. One important principle is to engage with customers on their own terms and to the degree that they want to be engaged with. ‘Pushing’ an ad in this always-connected age really does not work, especially with millennials and Generation Z, who were basically born into a world of social media. Today, the expectation for many is that they will ‘invite’ a brand or product into their lives, while at the same time actively resisting something that is ‘forced’ upon them. As with any relationship, ‘desperation’ is the world’s worst cologne. page 211 Part of Starbucks’ sustained efforts to build a relationship with customers is providing ease of service. Customers, for example, can place orders using a mobile app. It’s a win–win proposition: thirsty clients gets the products they want and great customer service; Starbucks gets access to critical email addresses and smartphone information, allowing for customized ads and better promotion of the Starbucks brand, in addition to a more personalized customer relationship. The company says that it uses a ‘data-driven AI algorithm’ that can analyse people’s preferences and behaviours, as well as the behaviours that Starbucks is trying to promote, to come up with personalized suggestions for additional products that a customer may wish to purchase. In fact, Starbucks’ mobile app is so popular it is surpassed only by Apple in terms of number of users. The results? By the end of March 2022, digital sales for the coffee company had reached a reported US$3 billion. This emphasis on digital marketing has resulted in digitally engaged customers. It has been estimated that 38 per cent of all of Starbucks’ transactions are made electronically. As a

company executive says, ‘digitally engaged customers purchase two to three times as many products as those that are not digitally engaged’. Another key element in Starbucks’ efforts at relationship development is the successful way the company has been able to merge its physical presence with its digital one. While Covid changed the way many people behaved, with increased use of online ordering and delivery, it appears that many people still want to pick up their favourite items at a store. As a result, Starbucks has modified the format of some of its outlets, offering pickup-only locations in the United States. These stores are small and have no seating, catering expressly to customers using the ordering app and who just want a coffee while they are on the go. Starbucks says that its ‘vision is that each large city in the US will ultimately have a mix of traditional Starbucks cafés and Starbucks Pickup locations’. This new format is basically the opposite of the traditional set-up that made the coffee chain so successful. The fact that the company is willing to radically redesign a key component of its strategy shows just how far it is willing to go to bring convenience to its customers and engage with them in the manner they want. Starbucks says it is committed to developing ‘new choices and experiences that surprise and delight our customers at every interaction’, in an effort to better serve them as well as develop a relationship with them … one cup of coffee at a time.

Questions 1. What are some of the ways in which Starbucks ‘engages’ its consumers in customer relationships? 2. How can an understanding of digital marketing and social media help companies gain a competitive advantage when it comes to customer relationship management? 3. Analyse the methods used by Starbucks and explain how the company has been successful in increasing its brand recognition, while at the same time improving its customer relationship management. This case study was written by Tom McNamara and Irena Descubes, Rennes School of Business, Rennes, France.

References Based on: Divol, R., Edelman, D. and Sarrazin, H. (2012) Demystifying social media, McKinsey Quarterly, April, www.mckinsey.com/business-functions/marketing-and-sales/ourinsights/demystifying-social-media; Sivitz, L. and Holup, M. (2012) Inside Starbucks digital marketing: going ‘beyond the big idea’, Seattle 24x7, 23 November,

www.seattle24x7.com/community/shoptalk/2012/11/23/starbucks-digital-marketing-goingbeyond-the-big-idea/; Allison, M. (2013) Starbucks presses social media onward, Seattle Times, 27 April, http://seattletimes.com/html/businesstechnology/2020862483_starbuckssocialxml.html; Fitzgerald, M. (2013) How Starbucks has gone digital, MIT Sloan Management Review, 4 April, http://sloanreview.mit.edu/article/how-starbucks-has-gone-digital; Bold, B. (2014) Starbucks admits opening brand to social media is ‘doubled-edged sword’, Marketing Magazine, 7 February, www.marketingmagazine.co.uk/article/1301515/starbucks-admitsopening-brand-social-media-doubled-edged-sword; Digital Strategy Consulting (2014) Facebook investigated for secret experiment, Digital Strategy Consulting, 3 July, www.digitalstrategyconsulting.com/intelligence/2014/07/facebook_investigated_for_secret_ experiment.php; Moth, D. (2014) Eight awesome social campaigns from Starbucks, Econsultancy, 13 February, https://econsultancy.com/blog/64328-eight-awesome-socialcampaigns-from-starbucks; Wharton (2014) Brand challenge: is there a ‘recipe’ for going viral? Knowledge@Wharton, Opinion North America, 19 September, http://knowledge.wharton.upenn.edu/article/is-there-a-recipe-for-going-viral; Fleming, M. (2018) Starbucks moves away from the ‘drumbeat of promotions’ to build longer term relationships with customers, Marketing Week, 27 April, www.marketingweek.com/2018/04/27/starbucks-drumbeat-promotions/? message=4&action=adresponse&status=error&ct_5b585ab6131a2=5b585ab61324e; PYMNTS (2018) Starbucks plans to step up digital marketing efforts, PYMNTS.com, 27 April, www.pymnts.com/news/retail/2018/starbucks-earnings-coffee-ordering/; Statista (2018) Revenue of Starbucks worldwide from 2003 to 2017 (in billion US dollars), Statista.com, www.statista.com/statistics/266466/net-revenue-of-the-starbucks-corporationworldwide/; Taylor, K. (2018) Starbucks just quietly made a change that reveals the future of the company: here’s how it works, Business Insider, 27 March, www.businessinsider.fr/us/starbucks-mobile-order-and-pay-for-all-customers-2018-3; McKinnon, T. (2022) Starbucks’ digital strategy, why it outperforms, Strategy & Growth, eCommerce, 7 March, www.indigo9digital.com/blog/starbucksdigitalstrategy.

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CASE 10 MANCHESTER CITY FOOTBALL CLUB: CO-

CREATING THE FUTURE Introduction Manchester City Football Club (FC) was founded in 1880, under the name of St Mark’s, changing its name to Manchester City in 1894. In 2008, the club received a significant financial boost when taken over by billionaire Sheikh Mansour. Today, Manchester City has risen to become one of the most successful clubs in the Premier League. In 2022, Forbes ranked it as the world’s sixth-most valuable football club, worth US$4.25 billion. On the surface, Manchester City is a typical football club, with a primary focus on player acquisition and Premier League performance. However, what sets the club apart is its dedicated early technology pushes, which focus on building a strong bond with fans.

Source: bodrumsurf/Shutterstock This case examines Manchester City FC’s co-creation strategies, where building relationships with its fans is central to all marketing activities. Over the years, the club has been at the forefront of many innovations, and has shown its prescience in adopting new technologies and its savviness in creating a seamless digital experience. Manchester City is a pioneer of innovation in Premier League football and adept at developing relationships with its fans.

Co-creation Innovations In 2016, Manchester City FC’s website was completely overhauled and designed in conjunction with the team’s fans. The club engages in value co-creation with its fans by involving them in every aspect of the design – from colour schemes, usability and content provision, to device compatibility (desktop, mobile and app). Furthermore, the team crest was co-created with fans through focus groups, prototype designs and user testing. By engaging with its fan base, listening to their needs and observing their behaviour, the club has empowered its fans, and facilitated the development of direct and deeper relationships.

Since 2017, the club has been diligently building up a virtual brand community, ‘Cityzens’, based around fans’ shared lifestyles and ethos. Through a dedicated mobile app and/or social media, fans are enabled to gather as a community of support for the club. The virtual community has become an important way of delivering content direct to the fans, enabling the club to increase its global, digital and mobile fan base. The app allows fans to locate one another on maps and to initiate chat sessions. The mapping functionality is leveraged to provide fans with experiences, such as trips to matches and meetings with players. Rewards are also offered (e.g. invitations to match screenings, special events and free merchandise) based on the fan’s level of participation in the community. Additionally, as fans register with the app, they are sent personalized video messages from the club’s management and players. Fans also gain rewards when they reach certain milestones, such as attending every match in a season. Providing direct incentives to the fans increases their positivity towards the club and encourages them to engage more with the Cityzens community. In 2020, Manchester City launched its virtual Young Leaders Summit, which connects young Cityzens with community coaches to share learning and innovation on using the power of football to uplift the health and well-being of young people in their communities (Manchester City 2022). Expanding its digital footprint, in 2021 Manchester City and Sony Group Corporation announced a new global cooperation aimed at developing innovative digital fan experiences where supporters can connect with the club and one another in an online ‘metaverse’ (Manchester City 2021b). Drawing on the technology of several Sony Group companies as well as Manchester City’s global intellectual property, the first step in this collaboration was the execution of a proof of concept (PoC), with the goal of creating new types of digital content and services that combine the physical and virtual worlds to thrill and page 213 engage both current and future generations of sports fans around the world. The Sony collaboration includes, for example, a virtual recreation of the Etihad Stadium. The ‘Virtual Etihad Stadium’ is not only a realistic representation of the stadium in Manchester, UK, but also a gateway to exclusive virtual experiences for fans, including customizable avatars and interactive loyalty programmes, all of which will provide fans with new ways to express their fandom. Following the lead of other clubs, such as AC Milan and Juventus, Manchester City has extended its innovation portfolio into the realm of cryptocurrency (digital currency such as bitcoin, called ‘tokens’). In 2021, the club launched the $CITY Fan Token. Purchasing this token enables fans to vote in club-organized polls, and access new promotions, VIP experiences, games and augmented reality features. To promote the concept, registered Cityzens are offered a free token though an online voucher scheme (Manchester City 2021a).

Beyond the Pitch: Hackathons and eSports In 2017, encroaching into the domain of tech giants such as Google and Facebook, Manchester City became the world’s first football club to host a hackathon (Wikipedia 2018). A hackathon is an event where computer programmers, graphic designers, interface designers and subject matter experts get together for a defined period (typically a day) to collaborate and create new innovations. The event helped the club uncover new insights on player performance, while at the same time enhancing its innovative image. Multiple hackathon teams came together, and were provided with access to player data sets and analytics (such as club/player performance). The teams were also provided with the

technology to enable real-time data visualizations, which are typically used for news and sports reporting, so they could develop their own designs. The winning team created a machine learning system that focused on in-match decision-making, and which has the potential to improve decisions made by management in terms of set pieces, player substitutions and so on. In 2019, building on the hackathon concept, Manchester City held a Startup Challenge at the Etihad Campus in Manchester, encouraging companies to submit innovative concepts based on five important characteristics of match days at the Etihad. The project attracted 230 applications from organizations in 37 countries, and the finalists were selected to attend a week-long acceleration programme in Manchester to further develop their concepts in conjunction with a team of club staff (Manchester City 2019). The characteristics of typical match days targeted by the initiative included: waste reduction, increased energy efficiency and carbon footprint reduction in stadia; enhancing the match-day experience through queue elimination and enhanced service accessibility; how to further involve the crowd in the action at a match; how to create a unique experience for each fan; how to create the global stadium concept where fans feel part of a family unlimited by geography.

The Future Manchester City’s innovations have increased global awareness of the club, while significantly improving levels of service and customer (fan) relationships. It has been the fastest-growing club on social media for the past few seasons. In 2022, it had one of the most subscribed-to Premier League club channels on YouTube, with just short of 4.4 million subscribers. Its long-term goal is to become the premium team, both on and off the pitch, while always maintaining and building relationships with its fans. Further developing its cryptocurrency portfolio, in 2022 the club joined forces with Puma to create a collaborative non-fungible token (NFT) to celebrate the 10th anniversary of its first Premier League title. An NFT is a one-of-a-kind digital asset, such as a work of art, with an inherent digital value. This is the fourth such NFT drop, which the club leverages to build its presence and collector community in the NFT space. This level of innovation has not gone unnoticed, with Manchester City recognized by Sports Innovation Lab as the world’s most innovative sports team (Hunt 2022).

Questions 1. Discuss the benefits for Manchester City FC of building relationships with its fans. 2. Discuss the importance of using technology to engage and develop relationships with fans. 3. Suggest how CRM can be used to develop customer relationships. In your answer, discuss the types of fan-related data that should be captured for Manchester City FC. Explain why it is necessary to capture this data.

This case study was written by Dr Ethel Claffey, South East Technological University (SETU). page 214

References Based on: Andrews, K. (2016) Manchester City launches first EPL Amazon Fire TV app, Sports Illustrated, 2 November, www.si.com/tech-media/2016/11/02/manchester-city-eplamazon-fire-tv-app (accessed August 2018); Begum, S. (2016) Manchester City FC connect with fans with Facebook Messenger, Manchester Evening News, 30 June, www.manchestereveningnews.co.uk/business/media/manchester-city-fc-connect-fans11546286 (accessed August 2018); Leyden, J. (2016) Fancy hacking Man City? Happy days: footy club to host hackathons, The Register, 29 June, www.theregister.co.uk/2016/06/29/football_hackathon_manchester_city_fc/ (accessed August 2018); Manchester City FC (2016) Editorial: Watch city in virtual reality with new app, Mancity.com, 30 September, www.mancity.com/news/club-news/clubnews/2016/september/city-vr-launch (accessed August 2018); Connelly, T. (2017) Manchester City get smart with data to create a personalised fan experience platform, The Drum, 7 August, www.thedrum.com/news/2017/08/07/manchester-city-get-smart-with-datacreate-personalised-fan-experience-platform (accessed August 2018); Woollaston-Webber, V. (2017) Innovating the beautiful game: how Man City is taking football from the terraces to the web, Wired, 24 January, www.wired.co.uk/article/football-tech-innovation-manchestercity (accessed August 2018); Elder, R. (2018) The eSports competitive video game market continues to grow revenues and attract investors, Business Insider, 21 March, http://uk.businessinsider.com/esports-market-growth-ready-for-mainstream-2018-3-21 (accessed August 2018); Spectacles (2018) A new way to look, Spectacles.com, www.spectacles.com/ie/ (accessed August 2018); Wikipedia (2018) Hackathon, Wikipedia, https://en.wikipedia.org/wiki/Hackathon (accessed August 2018); Manchester City FC (2019) Annual report 2018–19, Mancity.com, www.mancity.com/annualreport2019/engagement.html (accessed June 2022); Hunt, H. (2021) Manchester City awarded world’s most innovative sports team title, Insider Sport, 18 January, https://insidersport.com/2021/01/18/manchester-city-awarded-worlds-mostinnovative-sports-team-title/ (accessed June 2022); Manchester City FC (2021a) City and Socios.com launch Manchester City fan token, Mancity.com, 19 March, www.mancity.com/news/club/socios-launch-manchester-city-fan-token-63751737 (accessed June 2022); Manchester City FC (2021b) Manchester City partner with Sony to develop digital fan experiences, Mancity.com, www.mancity.com/news/club/manchester-city-sonypartnership (accessed June 2022); Sony (2021) Sony to become the Official Virtual Fan Engagement Partner of Manchester City Football Club, Sony Press Centre, www.sony.co.uk/presscentre/news/sony-to-become-the-official-virtual-fan-engagementpartner-of-manchester-city-football-club (accessed June 2022); Manchester City FC (2022) Hundreds of Cityzens giving young leaders connected via third global forum, Mancity.com, 21 April, www.mancity.com/news/club/cityzens-giving-young-leaders-third-global-forum63786142 (accessed June 2022).

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CHAPTER 6 Digital Marketing Analytics and Customer Insights Learning Outcomes After reading this chapter, you should be able to:

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n this chapter, we explore marketing analytics, and how the changing information landscape is influencing the practice of market research. The internet, smartphones, social media networks and other digital innovations have profoundly altered the way we communicate. Digital technologies are disrupting traditional methods of gathering, processing and utilizing marketing information: data can be collected and analysed instantaneously, enabling measurement of real-time behaviour (Poynter et

al. 2014). Understanding marketing analytics is increasingly producing efficiency gains and creating opportunities for marketing activities to be more effective. Marketers use big data to inform decision-making, aid organizational goal-setting and ensure control. Moreover, the capacity to interpret meaning from big data becomes more important as the sources of data increase. In the last few years, the flow of big data has grown dramatically as use of the internet has extended throughout the supply chain and into the hands of consumers as they shop online and via mobile devices. Big data is generated in quantities that are difficult to comprehend, for example petabytes, zettabytes and yottabytes. These volumes of data are generated from many sources, from barcode scanners to smartphones and cars, and come in different forms, including videos, documents, spreadsheets, online purchases, blogs and tweets. The list is becoming ever longer as the Internet of Things (IoT) connects more and more elements of human interaction to a plethora of digital devices (Kerschberg 2014). It is estimated that 2.5 quintillion bytes of data are created every day (Marr 2018). There are significant implications for marketing as customers (B2B and B2C) interact with firms, products and services differently via digital platforms. Also, these interactions–whether Google searches, Facebook posts or tweets–are being monitored and the data analysed. Cookies–tiny pieces of data stored in web browsers–are used to record website visits and dwell time on each site and page (Pagliery 2015). Browser fingerprinting is used to provide behavioural advertisers (BAs) with information they need to develop highly targeted and personalized promotional offers; from watching browsing behaviour and analysing the data, BAs can infer your age, gender and personal interests without ever asking your permission (Truste 2015). But data collection does not stop with web browsing; Samsung’s Smart TV enabled the company to gather viewing behaviour directly from the television (BBC 2015), and voice-activated speakers like Amazon’s Echo range are constantly gathering data. However, it is important to understand data is only of value once it is analysed and turned into business intelligence (Kerschberg 2014). Read Marketing in Action 6.3, later in the chapter, to find out how GSK is using big data in this way. Now let’s explore the links between data, marketing goals, performance and measurement.

Digital Marketing Analytics: Goals, Performance and Measurement Digital marketing analytics play an increasingly significant role in demonstrating how marketing activities translate into revenue. As discussed in Chapter 1, marketers are increasingly being challenged to prove the benefits of their marketing efforts, especially in relation to goal achievement and performance. Marketing analytics are the tools, technologies, systems and processes that are used to reveal insights, measure performance, drive growth and lead to more informed decisionmaking. In the past, marketing information systems were designed to provide quality information that had an impact on the effectiveness of decisionmaking (Daniels et al. 2003). As use of these systems became widespread, previous piecemeal systems were replaced by integrated customer relationship management systems to provide a unified view of the customer and actionable market intelligence. But the proliferation of data collection points and greater use of digital technology by all has generated mountains of data that firms struggle to use effectively. Read Hidden Gem 6.1 to see how Alteryx is helping firms solve complex data problems. page 217

HIDDEN GEM 6.1

Alteryx Automates Data and Speeds Up Digital Transition Award-winning business intelligence and software firm Alteryx has developed a platform to give firms the opportunity to better understand data across their businesses. The Alteryx Analytical Process Automation (APA) platform develops data insights automatically, by interconnecting data sources across a firm. Data can be stored in different locations and in different formats from spreadsheets and databases to outputs from business processes, people and machines. With automated augmented machine learning Alteryx can help firms gain a better understanding of how their businesses

work, and where opportunities exist for future development, as in the following examples.

Source: metamorworks/Shutterstock Roquette is a firm leading the way in Europe with innovation in plant-based ingredients for use in food, nutrition and health products. The decisions made by Pierre-Louis Bescond, Roquette’s head of data science, and his teams may be critical to the firm’s progress in designing and manufacturing raw materials to produce important medicines and new foods for the future. A major challenge for this business is data management and how to get to the data insights needed to enable the production of plant-based raw materials. Alteryx provides Roquette with automated data management systems, which can reveal insights from the data-generating sensors and systems across the firm’s many large and dynamic data sets. Global telecommunications, internet and network service provider British Telecom (BT) operates in more than 180 countries. A main part of its business is voice and mobile telecommunications, broadband services and TV. BT must comply with strict regulations regarding data privacy. Previously BT had more than 140 different Excel modules running its data processing, and large teams of data scientists to ensure compliance with data rules. Due to the complexity of the systems the risk of error was high, control difficult, staffing cost expensive and opportunity to identify data insights low. Alteryx trained BT teams using its self-service training academy to work with new agile data systems, which enabled BT to implement digital transformation across the global business. BT is able to analyse millions of data points accurately and within the regulations, which has helped streamline the firm, improve data transparency and improve services. Retailer 7-Eleven has more than 9,000 convenience stores in the US and over 70,000 worldwide, and its operation generates vast amounts of data. The problem for the retailer is combining and analysing its data to produce necessary and meaningful insights to improve business operations. Convenience stores in general have been slower than other retailers to adopt digital technologies, and have been missing opportunities to communicate with and offer promotional deals to their customers. At 7Eleven, data reporting was done by different firms and producing business-wide insights for strategic decision-making was difficult. At an operational level, low-tech solutions,

manual data inputting and processing of tax returns meant the retailer had a very large finance department. Alteryx helped the business bring its data sources together to produce business insights, reducing the number of analysts needed and saving staffing costs, and transformed product promotions, which could be targeted to specific customers and locations. In summary, Alteryx’s APA suite of data solutions, automation of data management and handling has enabled many firms in a wide range of industrial activity sectors to improve productivity, identify new business opportunities and leverage success from data. Digital credentials Web: www.alteryx.com Social media: find Alteryx on Facebook, Twitter, Instagram and LinkedIn Based on: Alteryx (2022a, 2022b, 2022c)

It is still worthwhile to review the principles of a traditional marketing information system to understand which marketing information is formally gathered, stored, analysed and distributed to managers in accord with their informational needs on a regular planned basis (Jobber and Rainbow 1977). page 218

Data from the marketing environment is translated into information. The difference between data and information is as follows: Data are the most basic form of knowledge, for example the brand of butter sold to a customer in a certain town; this statistic is of little worth but may become meaningful when combined with other data. Information is a combination of data that provides decision-relevant knowledge, for example the brand preferences of customers in a certain age category in a geographic region could enable butter producer Lurpak to plan a targeted marketing campaign. Digital technology is transforming the opportunities to collect data from multiple sources in real time. As a result, the volume of data being generated has increased significantly and is now referred to as ‘big data’ (very large data sets). Big data analytics can identify hidden patterns in behaviour, which can be translated into market advantage (Erevelles et al. 2016). For marketers to benefit from this glut of data, it must be managed and analysed correctly. But the problem with big data is that it ‘just happens’, is unstructured and (unlike market research data) is not collected

to answer a specific question (see later in the chapter for discussion of market research). Also, it is argued that the data-intensive digital era is fundamentally changing approaches towards research, data gathering and processing (Muller et al. 2017), moving information systems closer to performance measurement. The need for marketing-orientated businesses to have structured approaches for obtaining big data and turning it into marketing intelligence (the actionable knowledge produced by the analysis of big data, with implications for decision-making) is intensified. According to Chaffey and Ellis-Chadwick (2022), marketing goals, performance and measurement should be considered on an organization-wide basis, reflect information requirements in relation to the level of organizational decision-making and relate to varying levels of marketing control. Figure 6.1 shows key questions for planning performance measurement and marketing control systems. FIGURE 6.1 The Marketing Performance Measurement Framework

Source: adapted from Chaffey and Ellis-Chadwick (2022)

Answering the following broad questions can help to achieve a structured approach to creating a marketing performance measurement system: What do we want to achieve? Marketers need to frame the questions they want big data and marketing analytics systems to solve, and relate their questions to organizational goals (at both strategic and tactical levels). For example, a firm may incorporate Google Analytics into its website, which will produce reports (e.g. website traffic, visitor behaviour, site performance), but this data needs to be linked to specific marketing objectives to effectively inform decision-making. The website traffic might increase at a point in time due to a one-off promotional event, but customer retention may be in decline as customers are utilizing the offer but not returning or creating a long-term relationship. If the goal is to build a sustainable online customer base, monitoring the pull of one-off promotions is not providing the information needed. Careful planning is required to ensure that the right data are collected to answer appropriate questions, and ensure the effectiveness of strategic and or tactical goals. What is happening? Performance measurement is central to understanding efficiency. According to Chaffey (2000), organizations create management frameworks around specific groupings of metrics, which assess marketing performance. He suggested that macro-level metrics can assess the efficiency of strategic goals, while micro-level metrics assess the efficiency of tactical goals. There are many software systems that create performance measurement dashboards (e.g. IBM Cognos Analytics; see Exhibit 6.1). Why (is it happening)? Performance diagnostics systems can then identify details of why certain outcomes are succeeding or failing against planned marketing goals. To achieve a good level of understanding of page 219 what is happening, marketers should review when marketing campaigns and plans are being implemented and who is involved. Roche (global healthcare) utilizes a diagnostic system to ensure that suppliers and end consumers receive the best healthcare products when they are needed, which has helped to develop new levels of customer engagement and deeper understanding of customer requirements (Roche Diagnostics 2018).

What should we do? Once the actual performance has been reviewed against the set goals, the next stage in the process is to take corrective action, to improve performance. EXHIBIT 6.1 Marketing analytic performance dashboard

While much data is gathered through digital channels, there are also three other aspects and sources of data to consider: internal continuous data; internal ad hoc data and data from environmental scanning; and market research.

Internal continuous data Firms possess an enormous amount of marketing and financial data that can be used for marketing decision-making and should be incorporated into the performance management system as this can enable the conversion of financial data and a range of other data into a form usable by marketing management. A marketing information system (MkIS) provides managers with analysis and marketing information, which can be used to support decision-

making and strategic planning. An MkIS may stimulate the provision of information that marketing managers can use, for example about the profitability of a particular product, customer or distribution channel, or even the profitability of a particular product to an individual customer. Widespread integration of information systems across businesses provides great insight into customers and promotes more informed decision-making. An MkIS can incorporate big data and then provide opportunities to delve deeply into consumer behaviour, by monitoring consumers’ profiles, attitudes, preferences and purchasing behaviour (Salvador and Ikeda 2014). Internal data become more complex as information and data-collection points start to include websites, mobile apps and social media. Another application of the MkIS concept to internal continuous data is within the area of sales force management. As part of the sales management function, many sales forces are monitored by means of recording sales achieved, number of calls made, size of orders, number of new accounts opened, and so on. This can be recorded in total or broken down by product or customer/customer type. The establishment of an MkIS where these data are stored and analysed over time can provide information on sales force effectiveness. For example, a fall-off in performance of a salesperson can quickly be identified and remedial action taken. page 220

Internal ad hoc data Company data can also be used for a specific (ad hoc research) purpose. For example, management may look at how sales have reacted to a price increase or a change in advertising copy. Although this could be part of a continuous monitoring programme, specific one-off analyses are inevitably required from time to time. Capturing the data on the MkIS allows specific analyses to be conducted when needed.

Environmental scanning The environmental scanning procedures discussed in Chapter 2 also form part of the MkIS, and this includes environmental analysis–whereby the economic, social, political, legal, technological and ecological/physical

forces are monitored. These forces can be difficult to monitor due to their amorphous nature but are important as they can shape the context within which the company, suppliers, distributors and the competition do business. Environmental scanning provides an early-warning system for the forces that may impact on a company’s products and markets in the future (Jain and Haley 2009). In this way, scanning enables an organization to act on, rather than react to, opportunities and threats. The focus is on the longerterm perspective, allowing a company to be in the position to plan ahead, and information from data analysis provides a major input into strategic decisions such as which future products to develop and markets to enter, and the formulation of a competitive strategy (e.g. to attack or defend against competition).

Market research While environmental scanning focuses on the longer term, marketing research considers the more immediate situation and is primarily concerned with providing information about markets, and customer reactions to various product, price, distribution and promotion decisions (Moutinho and Evans 1992). As such, market research is a key part of the MkIS because it makes a major contribution to marketing mix planning. There are two main types of external market research: 1. External continuous data sources include TV audience monitoring and consumer panels where household purchases are recorded over time. Loyalty cards are also a source of continuous data, providing information on customer purchasing patterns and responses to promotions. The growth of digital technology and the uptake of e-commerce has led to new forms of continuous data collection, as has the development of mobile apps. See Marketing in Action 6.1 to find out more about the power of apps as a source of data collection. 2. External ad hoc data are often gathered by means of surveys into specific marketing issues, including usage and attitude studies, advertising and product testing, and corporate image research. More traditional forms of market research–telephone and face-to-face interviews–are being replaced by digital survey techniques. Digital platforms (web and mobile) are being used not only for gathering quantitative survey data but

also for gathering qualitative data through real-time audio and online video discussions. Social media is also providing access to an innovative form of digital discussion group, and companies are analysing online conversations to find out what their consumers really think about their products (Manning 2011).

MARKETING IN ACTION 6.1

Proximity Apps and Customer Information

page 221 Proximity marketing is creating endless possibilities for marketing to link consumers to events to generate revenue. Beacons send location-based marketing messages to consumers’ mobile devices via Wi-Fi networks and a system of servers. Nodes is a specialist agency, based in London and Copenhagen, which develops proximity marketing mobile apps for big brands such as Carlsberg, GSK, BMW, Unilever and Samsung, and aims to make strong connections with users. Its apps can be designed to meet various objectives, for example for social engagement, product demonstrations, tracking user experiences and proximity marketing campaigns. For example, Crowdit developed a social bar finder app as a proximity marketing tool. The aim for Crowdit was to enable customers to generate a voucher on their mobile phones that could be used in a nearby bar. The app included other features so its users could order a cab, find a particular type of bar, and be informed of events and promotions. The app was designed

for Carlsberg, but there was none of the beer’s branding on the app, so any bar was able to sign up to use it. Bar owners in Denmark responded as quickly as their customers, with more than 100,000 downloads soon after the app’s launch. Customers were offered a voucher that they could also share with their friends. iBeacons were used to send out notifications when a customer was within close proximity of a Crowdit bar. An iBeacon is a small Bluetooth device that transmits signals from a chosen location to smartphones that come within its range. Once the customer had a voucher the bar redeemed it in exchange for a drink. The bar owners benefited, as they received all the information about each user of the voucher and could view the analytics, which enabled them to update events based on customer adoption rates and engagement. Additional data gathering from vouchers being shared with friends meant the iBeacons also acted as a bridge between the digital and the physical world and kept track of how long a particular user was within range. This enabled bar owners to send highly targeted offers, for example a second drink notification. The second voucher is sent at the critical point at which the consumer decides whether to stay or move to a new location. The information provided by the app and the iBeacons can be used to develop customer loyalty and customer retention. Proximity apps are not just for B2C markets. DFDS developed an app with Nodes for its ferry service between Copenhagen and Oslo. The aim was to strengthen loyalty and retention, and to encourage customers to opt for sea rather than air travel. The app provided information about travel times and sailing, but also shopping offers. The success of the consumer-facing app sparked the development of an app for freight clients. The app enables heavy goods vehicle freight drivers to also have access to all the information they need, when and where they need it, to ensure the smoothest movement of goods. DFDS envisages being able to streamline its whole freight division due to the efficient communication system provided by the proximity app. Based on: Maytom (2014); Nodes (2015); Beaconstat (2018); DFDS (2018)

The rest of this chapter will examine the process of marketing research and the factors that affect the use of research information. Marketing research (MR) is used by an increasing range of types of organization, from political parties to community groups. Some MR agencies specialize in particular types of market research. For example, Ipsos MORI specializes in brand loyalty, advertising, and political and social research; Sherbert Research focuses on qualitative research with children and teenagers. Watermelon Research specializes in customer experience insights. Qa Research is a full-service market research agency for public, private and voluntary sectors. See Exhibit 6.2 to see the range of services offered by a full-service market research agency. Furthermore, not only are organizations making more use of technology, but the technology itself is also enabling more insightful analysis. The market research industry

is penetrating deeper into the psyche of individual consumers using datadriven marketing techniques. EXHIBIT 6.2 Full-service MR agency

Source: buffaloboy/Shutterstock page 222

Customer Insights and Data-driven Marketing Digital technology is changing how customers interact with firms, and some marketers are even reverting to mass marketing as they struggle to keep up with the changing behaviour (Bibby et al. 2021). Marketers argue datadriven marketing facilitates the tailoring of products and services to better meet the needs of the end customer. Precision marketing is a form of data-driven marketing based on computer algorithms, which can identity patterns in data with implications for consumer purchasing behaviour. For example, at a simple level, a website visitor who returns to a site several times within a given period is more likely to make a purchase than a first-time visitor. At a more complex level, marketers can arrange to collect internal behavioural and location data, and bring this together with external third-party data, on customers and competitors, and other external data to find out where customers are

coming from and how to increase their spending. These new sources of data can also be incorporated into systems that use artificial intelligence, which learn about responses and are able to predict customer behaviour even more accurately. A key benefit of data-driven marketing is agility; marketing activities can be tuned to react quickly to changes in the environment, for example prices updated and changed, and marketing messages reshaped (Bibby et al. 2021). Moreover, greater understanding of how customers behave at each stage of the buying decision-making process and the touchpoints they interact with on that customer journey offers great potential for precision page 223 marketing to promote business success (see Figure 6.2). The use of data-driven marketing and analytics is growing as big data is used more widely to help firms grow their businesses and increase profitability by targeting the ‘right’ customers with the ‘right’ products and services, and become more customer-centric (Grandhi et al. 2020). FIGURE 6.2 Stages in a customer journey and media touchpoints

However, critics argue, close monitoring and following of individuals online is exploitative and digital marketing practices such as precision marketing are a form of behavioural control whereby marketers use sophisticated digital tools and techniques to get around personal privacy to

put forward ‘the offer you can’t refuse’ (Turow et al. 2015). There is an ongoing debate between those advocating the need to protect consumer sovereignty versus behavioural economists. Advertisers try to make the case for digital marketing that it is informative, more relevant and therefore more valuable to the consumer because it avoids the ‘nuisance factor’ of less relevant non-tailored marketing messages. Counter to these arguments is the claim that enhanced capacity to collect, analyse and leverage insights from consumer data gives greater power to the advertiser, which could ultimately increase social inequalities and threaten consumer sovereignty (Nadler and McGuigan 2018). There is further discussion of the ethical issues associated with data and marketing analytics towards the end of this chapter. Related to data-driven marketing is web analytics, which refers to the measurement and analysis of how a website (or digital media touchpoint) is performing in terms of various measurement variables (e.g. visitor numbers, unique visitors, keyword search terms used to find a site, areas of the site most frequently visited, time spent on the site, responses to promotions, and more) (Chaffey and Ellis-Chadwick 2022). Google Analytics is a suite of marketing research solutions that help companies track customer engagement and improve site visits. Read Mini Case 6.1 to find out more about how analytics can help and how data capture is changing. Further discussion of digital analytics and website analysis is provided in Chapters 14 and 15. On the web, Google has led the way in providing such data and information about how the web is used.

MINI CASE 6.1

Does Google Track Our Every Move? Website analysis enables the assessment of site performance and helps to identify key areas for improvement, such as webpages on a site that are rarely visited or features on the homepage that are rarely clicked on. In other words, marketing managers can summarize the actions of visitors to their websites by statistically analysing users’ data. Google Analytics provides a range of statistics, such as bounce rates, unique visitors, page views and average time a user spends on a particular site.

Source: WAYHOME studio/Shutterstock Understanding website performance can be important for customer relationship management strategies, helping to identify areas for improvement that might increase customer acquisition, conversion, retention and enjoyment during website visits. For example, a website might include personalized recommendations for loyal customers or introduce interactive tools to help with product selection. Sophisticated analytical tools and software applications mean that all eyes are on the consumer, but marketing managers should be aware that consumers are becoming increasingly unwilling to hand over their personal data, especially online. In the past, retailers and consumer-facing brand websites have been able to entice consumers into signing up to newsletters, surveys and other data capture devices by offering a small incentive such as discount vouchers for handing over their personal details. However, some consumers are increasingly reluctant to knowingly hand over personal information. In fact, research has found that consumers now expect more free information from brand websites than ever before. Sectors yet to experience this trend are insurance, charities and some alcoholic drink brands, where consumers are signing up and handing over personal details in record numbers. Paradoxically, it is perhaps the increase in our ability to analyse data and make more meaningful interpretations that is making collecting data from some consumers harder. Part of the problem is that consumers are concerned about online security and identity fraud. Google is doing little to alleviate these fears as it integrates more page 224 data-collection methods into its search engine and links together with social media, encouraging consumers to unwittingly divulge more and more personal details. This means that consumer profiles can become very transparent and this information can be used for marketing initiatives. For instance, before you receive your next email marketing message, the time of day you are most likely to open and respond to the message will have been analysed, the content of the mailing may have been personalized to suit your preferences, and sophisticated software will be ready to monitor your next move. If you access the web using a smartphone, someone somewhere may have read your electronic diary and know when you are free next week and already be planning which marketing initiatives you are going to receive. As one of the internet giants, Google provides a very efficient information search engine for 90 per cent of users in Europe. Google has also been rebuked by the European Commissioner for Justice over what are seen as weak protection policies for personal data. EU

member states were concerned because Google has made changes that mean it could pool data about registered users and how they use the web, make video searches, find map directions and browse the web, and which adverts they click. This pooling of data means that no stone is left unturned and Google can capture data on every aspect of an individual’s life and build personalized profiles, which it can then use for its lucrative Google Ads paid search advertising. The EU has responded with its General Data Protection (GDPR) legislation, designed to protect privacy and make firms like Amazon, Google, Facebook and indeed any firms that gather personal data, conform to new and more restrictive methods of storing and using it. GDPR replaces older data protection legislation, which has become outdated, and it restricts how personal data is collected, stored and used. The Market Research Society’s (MRS’s) Code of Conduct advocates maintaining anonymity for any opinions deduced from analysing online content, and has guidance on applying GDPR: www.mrs.org.uk/standards/gdpr-faq.

Questions: 1. Give an example of an online marketing campaign that targets consumers. 2. Suggest the broad types of consumer data a digital marketer might need to carry out the campaign. 3. Carry out desk research to find out which of the data suggested in your answer to Q2 can be legally stored under GDPR legislation.

Based on: Costa (2011); Cowlett (2011); Arthur (2012); EU GDPR (2018); Market Research Society (2018); Chaffey and Ellis-Chadwick (2022)

Marketing and Research Market research and marketing research are two terms often used interchangeably; distinctions can be drawn, but be aware that there is significant overlap. Marketing research refers to work that explores broader fundamental issues and/or highly specific areas (e.g. advertising research, services marketing, changing marketing environment, consumer behaviour), whereas market research refers to research looking at markets, trends and how actors (customers) behave. It has a relatively narrow focus, and represents the process of gathering, analysing and interpreting data. Market research also tends to be done on a commercial basis, unlike marketing research, which is more academic. This chapter focuses on the application of market research. The Market Research Society (MRS) is the UK’s

professional body for research insights and analytics. Its role is to ensure that high standards are maintained by its members, who carry out market research for many thousands of organizations. The market research sector has grown by 40 per cent in the last five years, is worth nearly £7 billion annually in the UK and employs 64,000 people. Recently, the MRS has observed changing requirements in the industry, with increasing demand for data analytics, storytelling and data visualization. The focus has shifted towards use of big data, data analytics, social media analysis, data mining and predictive analytics, qualitative research, and online and mobile surveys, and away from using survey data (MRS 2022). This is an emerging field of data science that combines statistics, computer science and behavioural science with the aim of extracting meaningful insights and predicting future outcomes. To achieve this the data used for the analysis must be good. Poor data quality leads to potentially damaging and inaccurate outputs. To be sufficiently accurate, data must be free of errors, up to date and complete (Hazen et al. 2016).

Qualitative and quantitative An important distinction in market research is between qualitative research and quantitative research. Qualitative research usually precedes quantitative research and forms the basis for the understanding of page 225 consumers to aid planning questionnaires, which can then be designed to focus on what is important to the consumer, and worded in language consumers use and understand. However, when the objectives of the research are to gain rich, in-depth insights into consumer motivations, attitudes and behaviour, the study may be based on qualitative research alone without the quantitative follow-up. Whichever approach is taken, there are several essential differences between these two key primary data-gathering methods, which means that the skills required vary. Indeed, many market research practitioners specialize in one or the other approach. These differences relate to the research purpose and whether it is to gather verbal or numerical data. Qualitative research can provide deep insights into consumer behaviour, whereas the purpose of quantitative research is to provide information that can be generalized across the study population.

Also, the methods used for data collection tend to be different. Qualitative data are often gathered through focus groups and in-depth interviews, whereas quantitative data is gathered using a structured questionnaire. Qualitative methods offer more flexibility than quantitative studies, as questions can be varied to some degree, depending on the answers given by a respondent. Although a structured questionnaire can provide the means for varying questions through the use of filter questions (e.g. ‘If the answer to question 6 is yes, go to question 7, if no go to question 10’), there is much less flexibility to vary the questions at the discretion of the interviewer. It is also important to note that sample sizes differ. Qualitative methods such as in-depth interviews and focus groups have a higher cost per respondent and so tend to focus on insight rather than statistical precision, which means that qualitative studies are associated with smaller samples than quantitative research. Quantitative studies can involve thousands of people. For example, OnePoll conducts surveys on a local, national or international scale, using tailor-made surveys, teams of researchers and selected relevant participants. A typical qualitative study, however, may involve fewer than 30 people. Analysis and presentation of results can also vary. Qualitative data is analysed using content analysis, which can result in a report that provides summary statements and uses quotes from research respondents. Quantitative survey data is approached by statistical analysis, and reporting back is by means of graphs, tables and other methods of statistical presentation. In both cases, careful interpretation is required.

The Market Research Process Many firms wanting to conduct market research outsource the work to a specialist company. But it is important for marketers to be aware of how to identify an appropriate company to be able to commission good research, which can be used to inform corporate and marketing decision-making (MRS 2018). Both large and small firms commission market research studies as the insights and evidence produced can help with development of

new products and increase customer retention, developing more effective advertising campaigns. This section presents a framework for understanding the main steps in the marketing research process, shown in Figure 6.3. This ‘map’ highlights what is involved in a major marketing research study covering both qualitative and quantitative research. FIGURE 6.3 Overview of the market research process

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Research planning Decisions made at the research planning stage will fundamentally affect what is done later, so planning is required prior to any data collection. A commercial marketing research project is likely to involve marketing management at the client company, internal marketing research staff and, usually, research staff at an outside marketing research agency. The discussion that follows provides a generic view of the commercial marketing research process.

Initial contact The start of the process is usually the realization that a marketing problem (e.g. a new product or advertising decision) requires information to help find a solution. Marketing management may contact internal marketing research staff or an outside agency. Let us assume that the research requires the assistance of a marketing research agency. A meeting will be arranged to discuss the nature of the problem and the client’s research needs.

Research brief At the meeting with the marketing research agency, the client will explain the marketing problem and outline the research objectives. The marketing problem might be to attract new customers to a product line, and the research objectives could be to identify groups of customers (market segments) that might have a use for the product, and the characteristics of the product that appeal to them most. The key point is that clients should tell research agencies not only what they want to understand but also what the research will be used for (Dye 2008). Other information that should be provided for the research agency includes the following (Crouch and Housden 2003): Background information: the product’s history and the competitive situation. Sources of information: the client may have a list of industries that might be potential users of the product. This helps the researchers to define the scope of the research.

The scale of the project: is the client looking for a ‘cheap and cheerful’ job or a major study? This has implications for the research design and survey costs. The timetable: when is the information required? The client should produce a specific written research brief for the research agency prior to meeting, so that the agency can produce a research proposal. The research brief should state the client’s requirements and should be in written form to minimize misunderstandings. In the event of a dispute later in the process, the research brief (and proposal) form the benchmark against which any grievances can be settled. Commissioning good research is like buying any other product or service. If marketing managers can agree on why the research is needed, what it will be used for, when it is needed and how much they are willing to pay for it, they are likely to make a good buy. Four suggestions for buying good research are as follows: 1. Define terms clearly. For example, if market share information is required, the term ‘market’ should be clearly defined. 2. Beware of researchers who bend research problems so that they can use their favourite technique. They may be specialists in a particular research-gathering method (e.g. group discussion) or statistical technique (e.g. factor or cluster analysis) and look for ways of using these methods no matter what research problem they face. This can lead to irrelevant information and unnecessary expense. 3. Do not be put off by seemingly naive researchers who ask what appear to be simple questions, particularly if they are new to the client’s industry. 4. Brief two or three agencies. The extra time involved should be rewarded by better feedback on how to tackle the research problem and a betterpriced quote.

Research proposal The research proposal defines what the marketing research agency promises to do for its client, and how much it will cost. Like the research brief, the proposal should be written to avoid misunderstandings. A client should expect the following to be included:

A statement of objectives: to demonstrate an understanding of the client’s marketing and research problems. What will be done: an unambiguous description of the research design, including the survey method, the type of sample, the sample size and how the fieldwork will be controlled. page 227 Timetable: if and when a report will be produced. Costs: how much the research will cost and what, specifically, is/is not being included in those costs. When assessing proposals, a client might usefully check the following points: Beware of vagueness: if the proposal is vague, assume that the report is also likely to be vague. If the agency does not state what is going to be done, why, who is doing it and when, assume that it is not clear in its own mind about these important issues. Beware of jargon: there is no excuse for jargon-ridden proposals. Marketing research terminology can be explained in non-expert language, so it is the responsibility of the agency to make the proposal understandable to the client. Beware of what is missing: assume that anything not specified will not be provided. For example, if no mention of a presentation is made in the proposal, assume it will not take place. Any doubts, ask the agency.

Exploratory research Exploratory research involves the preliminary exploration of a research area prior to the main data-collection stage. The discussion that follows assumes that the initial proposal has been accepted and that exploratory research is to be carried out as the basis for survey design. A major purpose of exploratory research is to guard against the sins of omission and admission (Wright and Crimp 2003): Sin of omission: not researching a topic in enough detail or failing to provide sufficient respondents in a group to allow meaningful analysis. Sin of admission: collecting data that are irrelevant to the marketing problem or using too many groups for analysis purposes and thereby unnecessarily increasing the sample size.

Exploratory research techniques allow the researcher to understand the people who are to be interviewed in the main data-collection stage, and the market that is being researched. The main survey stage can thus be designed with this knowledge in mind rather than being based on the researcher’s illinformed prejudices and guesswork. Figure 6.4 displays the four exploratory research activities. An individual research project may involve all or some of them. FIGURE 6.4 Forms of exploratory research

Please note that qualitative and quantitative research methods may be used at both the exploratory and main data-collection stage and it will be the market research project manager’s responsibility to determine which methods will best meet the research objectives.

Secondary research Secondary research is so called because the data come to the researcher ‘second-hand’ (other people have compiled the data). When the researcher actively collects new data–for example, by interviewing respondents–this is called primary research (discussed in the next section). page 228

Secondary data come from sources such as internal company records, reports and previous research carried out for the company. External sources

of secondary data include: government and European Union (EU) statistics; publishers of reports and directories on markets, countries and industries; trade associations; banks; and newspapers, magazines and journals. The internet provides access to rich sources of secondary information. Websites like Trendwatching (www.trendwatching.com) specialize in identifying emerging global consumer and marketing trends. Some online sources are free to access, others are paid-for services. For example, IDC, Gartner and Experian have an internet presence and provide both free and paid-for resources. Research firms specializing in providing secondary information also provide electronic content either by subscription or by selling individual reports. For example, a visit to the website of Mintel–the world’s leading market intelligence agency (www.mintel.com)–can provide hundreds of industry reports from the very specific, such as on innovations in German barbecues, to broader subjects such as personal health and beauty care. A word of caution when using online resources (especially free information): remember to verify the authenticity of the data; be critical of the findings and establish the origin of the data. In the EU, there are many secondary sources of data. Examples include: Euromonitor–industry reports (www.euromonitor.com), Kompass– competitor information (http://gb.kompass.com) and European statistics (http://ec.europa.eu/eurostat). These and other resources can supply information for specific industries, details of market competitors and economic trend statistics. Secondary research should be carried out before primary research. Without the former, an expensive primary research survey might be commissioned to provide information that is already available from secondary sources.

Primary research methods Each ad hoc marketing research project may be different. This is to fit the particular requirements and resources of various clients. For example, one study may focus on qualitative research using small numbers of respondents, while another may be largely quantitative research, involving the interviewing of hundreds or thousands of consumers. Therefore, it is important to take care to ensure that the data-collection method is suitable and best able to meet the objectives of the market research activity.

Qualitative research Qualitative research has been defined as ‘the analysis and understanding of patterned conduct and social process of society’ (Denzin and Lincoln 2000). The main forms of qualitative research used in market research, which help us to understand the complex patterns of human behaviour, are group discussions, and in-depth interviews and ethnography, which involve bringing together personal encounters, life events and understandings into a more meaningful context (Tedlock 2000). Qualitative research aims to establish customers’ attitudes, values, behaviour and beliefs, and to understand consumers in a way that traditional methods of interviewing people using questionnaires cannot. Qualitative research seeks to understand the ‘why’ and ‘how’ of consumer behaviour (Clegg 2001). The key differences between qualitative and quantitative research are explored later in this chapter. Focus groups involve unstructured or semi-structured discussions between a moderator, or group leader, who is often a psychologist, and a group of consumers. The moderator has a list of areas to cover within the topic, but allows the group considerable freedom to discuss the issues that are important to them. The topics might be organic foods, men’s cosmetics, motor sports or activity holiday pursuits. By arranging groups of 6–12 people to discuss their beliefs, attitudes, motivation, behaviour and preferences, a good deal of knowledge may be gained about the consumer. This can be helpful when planning questionnaires, which can then be designed to focus on what is important to the respondent (as opposed to the researcher) and worded in language that the respondent uses and understands. A further advantage of the focus group is that the findings may provide rich insights into consumer motivations and behaviour because of the group dynamics where group members ‘feed off’ one another and reveal ideas that would not have arisen on a one-to-one basis. Such findings may be used as food for thought for marketers, without the need for quantitative follow-up. The weaknesses of the focus group are that interpretation of the results is highly subjective, the quality of the results depends heavily on the skills of the moderator, sample size is usually small, making generalization to page 229 wider populations difficult, and there exists the danger that the results might be biased by the presence of ‘research groupies’,

who enjoy taking part in focus groups and return again and again. Such people sometimes take on different identities, skewing survey results, and have led the Association of Qualitative Research Practitioners to introduce a rule which says that focus group participants must provide proof of identity each time they attend a group (Flack 2002). Technology is impacting on such face-to-face discussion settings and high-tech labs can be used which allow participants to be observed through two-way glass, enabling the client organization to view the focus group session live. Online focus groups are also becoming popular, and this method can reduce costs and create more opportunities to interact with customer groups. Also, research has found that, in some cases, participants are more honest in online discussions than face to face. Online communities and social media sites can provide access to ‘communities of interests’, which can take the form of chat rooms or websites dedicated to specific interests or issues. These are useful forums for conducting focus groups, or at least identifying suitable participants. Questions can be posed to participants who are not under time pressure to respond. This can lead to richer insights since they can think deeply about questions put to them online. Another advantage is that they can comprise people located all over the world at minimal cost. In-depth interviews involve the interviewing of consumers individually for perhaps one or two hours about a topic. The aims are broadly similar to those of group discussion but are used when the presence of other people could inhibit honest answers and viewpoints, when the topic requires individual treatment, as when discussing an individual’s decision-making process, and where the organization of a group is not feasible (e.g. it might prove impossible to arrange for six busy purchasing managers to come together for a group discussion). Care should be taken when interpreting the results of qualitative research in that the findings are usually based on small sample sizes, and the more interesting or surprising viewpoints may be disproportionately reported. This is particularly significant when qualitative research is not followed by a quantitative study.

Consultation with experts

Qualitative research is based on discussions and interviews with actual and potential buyers of a brand or service. However, consultation with experts involves interviewing people who may not form part of the target market, but who, nevertheless, can provide important marketing-related insights. Many industries have their experts in universities, financial institutions and the press, who may be willing to share their knowledge. They can provide invaluable background information and can be useful for predicting future trends and developments.

Observation Observation can also help in exploratory research when the product field is unfamiliar. For example, watching people buy wine in a supermarket or paint in a DIY store may provide useful background knowledge when planning a survey in these markets. Another form of observational research that focuses on employee performance is mystery shopping. The ‘shopper’ acts like any other customer in visiting a store, but is trained to ask particular questions and to assess performance on such criteria as service time, friendliness and product knowledge. The objective is to identify service weaknesses and strengths, and to provide input into staff training. Ethnography Ethnography is a form of observation that involves detailed and prolonged observation of (in the context of this book) consumers. Its origins are in social anthropology, where researchers live in a studied society for months or years. Consumer researchers usually make their observations more quickly and use a range of methods, including direct observations, interviews, and video and audio recordings (Peter et al. 1999). This method of data collection has become popular as it connects important personal experiences to specific contexts (Tedlock 2000), and enables researchers to get closer to consumers in order to understand their behaviour in new and more detailed ways. Such research investigates how people behave in their own environment and interact with the world around them. Unlike focus groups, where consumers are brought to the researcher, ethnography takes the researcher to the consumer. Advocates of this form of research argue that focus groups provide only part of the story and do not yield the kinds of ‘consumer insights’ that ethnography can.

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Procter & Gamble has embraced ethnographic research and improved understanding of customers. Using a panel of families in the UK and Italy, the FMCG manufacturer studied people who buy Procter & Gamble products such as Max Factor cosmetics, Ariel washing powder and Pampers nappies, to gain valuable insights into people’s habits. The findings had implications for product design, packaging and promotion. For example, it was ethnographic research that revealed the nappy was not as important as Procter & Gamble had previously thought. New mothers were more interested in information and knowledge than nappies. Using these consumer insights, Procter & Gamble launched Pampers.com, an online community for mothers that attracts more than 650,000 users across Europe. It has also used ethnographic research in China, where it observed low-income consumers doing their washing and found that they were prepared to do the extra hand washing needed to compensate for water hardness. Procter & Gamble’s response was to launch a cut-price version of its China Tide detergent without water softener (ESOMAR 2005). A Procter & Gamble spokesperson pointed out that ethnography will not replace other forms of research and those ethical issues concerning privacy are dealt with by getting full permission beforehand and giving the families complete editorial control over what is eventually shown to the marketing team. The objective of ethnographic research is to bridge the gap between what people say they do and what they actually do. The Ford Motor Company used ethnographic research, whereby researchers lived and travelled with drivers to discover what customers wanted in their cars (Peterson 2015). Now read Marketing in Action 6.2 to discover how digital mobile ethnography has been used to find out the emotional roles that mothers play in family lives.

MARKETING IN ACTION 6.2

Mobile Ethnography Reveals Motherhood is Not a Job

Mobile technology has brought innovation to ethnographic research and enables research teams to get even closer to people’s lives by observing their actions in real time. For example, Mumsnet and Saatchi & Saatchi teamed up to study mothers to find out more about the roles they play in the family, the relationships they have with their children and the implications for marketing. The mobile ethnographic study was conducted over a week with a representative sample of 1,022 mothers in the UK. The aim was to gain in-depth understanding about the mother’s role, and her home and personal environment.

Source: Bakhtiar Zein/Shutterstock The study revealed eight emotional roles that mothers assume when caring for their families. These roles were created from 35 emotions that were identified in the ethnographic study (examples of which are shown in Table 6.1).

TABLE 6.1 Emotional roles adopted by mothers in their daily lives Roles

Examples of raw emotions

Implications for the role of brands

Carer

Comforting, helpful,

Help the mother feel great that she

needed, loving, trusted

can be there for her children

Safe house

Safe, reliable, control, stability, strong, trusted

Help the mother be there when she’s needed

Coach

Knowledgeable, experienced, impactful, important

Give support for mentoring

Fan

Proud, inspired, amazed

Help the mother have more time to enjoy her children’s achievements

Partner in crime

Playful, creative, entertained

Focus on opportunities to create fun

Rule breaker

Rebellious, fun, silly

Give the mother permission to break her rules

Friend

Understanding, accepted, admired, cool

Focus on the balance between parent and friend

Hero

Encouraging, successful, impactful, confident

Help the role the mother wants for herself and her family

page 231 The marketing implications for the research are that, if brands find ways to enable mothers to spend more time with their families, this is seen as an important potential benefit. Another finding from the study is that mothers would like to spend more time having fun with their children rather than just being providers of entertainment. While mothers are primary carers in the family unit, with 58 per cent saying they take on the majority of the parenting role, they would like more time to ‘break the rules’, and to have the freedom to let go and have fun. Further research has revealed price-cutting can increase engagement with brands. But mums are more likely to return if there is an element of gamification of their brand experiences, which works by capturing shoppers’ attention. Based on: Burrows (2014); Saatchi & Saatchi (2015); Vince (2015)

The objective of the exploratory research stage in the marketing research process is not to form conclusions but to get better acquainted with the market and its customers. This allows the researcher to base the next stage, which involves wider data collection, on informed assumptions rather than guesswork.

The main data-collection stage Following careful exploratory research, the design of the main datacollection procedures will be made. In Figure 6.5, the assumption is quantitative research methods are the most appropriate. However, in some situations, it may be better to extend the use of qualitative research methods at the exploratory stage of a project. In either case it is important to select the data-collection methods most likely to achieve the research objectives. FIGURE 6.5 Types of quantitative data-collection

At the main data-collection stage, two alternative approaches are descriptive research and experimental research. Assuming the main data-collection stage requires interviewing, the research design will be based on the following factors: who and how many people to interview (the sampling process) how to interview them (the survey method) what questions to ask (questionnaire design). Figure 6.5 displays the two types of approach and the three research design methods associated with the main quantitative data-collection stage.

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These research approaches and methods will now be examined.

Descriptive research Descriptive research may be undertaken to describe consumers’ beliefs, attitudes, preferences, behaviour, etc. For example, a survey into advertising effectiveness might measure awareness of the brand, recall of the advertisement and knowledge about its content.

Experimental research The aim of experimental research is to establish cause and effect. Experimental research involves setting up control procedures to isolate the impact of a factor (e.g. a money-off sales promotion) on a dependent variable (e.g. sales). The key to successful experimental design is the elimination of other explanations of changes in the dependent variable. One way of doing this is to use random sampling. For example, the sales promotion might be applied in a random selection of stores, with the remaining stores selling the brand without the money-off offer. Statistical significance testing can be used to test whether differences in sales are likely to be caused by the sales promotion or are simply random variations. The effects of other influences on sales are assumed to impact randomly on both the sales promotion and the no-promotion alternatives.

The sampling process Figure 6.6 outlines the sampling process, beginning with defining the population–that is, the group forming the subject of study in a particular survey. The survey objective will be to provide results that are representative of this group. Sampling planners, for example, must ask questions like: ‘Do we interview all people over the age of 18 or restrict it to those of the population aged 18–60?’ and ‘Do we interview purchasing managers in all textile companies or only those that employ more than 200 people?’

FIGURE 6.6 The sampling process

Once the population is defined, the next step is to search for a sampling frame–that is, a list or other records of the chosen population from which a sample can be selected. Examples include a register of electors or the page 233 Kompass directory of companies. The result determines whether a random or non-random sample can be chosen. A random sample requires an accurate sampling frame; without one, the researcher is restricted to non-random methods. Three major sampling methods are simple random sampling, stratified random sampling and quota sampling. It is also important to determine sample size. With simple random sampling, each individual (or company) in the sampling frame is given a number, and numbers are drawn at random (by chance) until the sample is complete. The sample is random because everyone on the list has an equal chance of selection. With stratified random sampling, the population is broken down into groups (e.g. by company size or industry) and a random sample is drawn (as above) for each group. This ensures that each group is represented in the sample.

With quota sampling, a sampling frame does not exist but the percentage of the population that falls in various groupings (e.g. gender, social class, age) is known. The sample is constructed by asking interviewers to select individuals on the basis of these percentages, for example roughly 50:50 females to males. This is a non-random method since not everyone has an equal chance of selection, but it is much less expensive than random methods when the population is widely dispersed. Sample size is a further key consideration when attempting to generate a representative sample. Clearly, the larger the sample size the more likely it is that it will represent the population. Statistical theory allows the calculation of sampling error (i.e. the error caused by not interviewing everyone in the population) for various sample sizes. In practice, the number of people interviewed is based on a balance between sampling error and cost considerations. Fortunately, sample sizes of around 1,000 (or fewer) can provide measurements with tolerable error levels when representing populations counted in their millions.

Data-collection methods: interviews and surveys There are two basic methods of gathering data: personal interviews and non-personal surveys. Personal interviews, where there is direct contact between interviewer and interviewee, may be face to face, by telephone or through online video. Non-personal survey contact is through impersonal media–online, mail/email or mobile phone. Each method has different techniques, with particular strengths and limitations.

Face-to-face and video interviews A major advantage of face-to-face interviews is response rates are generally higher than for telephone interviews (Yu and Cooper 1983). Seemingly, the personal element in the contact makes refusal less likely, which is an important factor when considering the representativeness of the sample population. Face-to-face interviews are more versatile than telephone, for example visual aids (e.g. a drawing of a new product concept) can be used, where clearly they cannot in the case of a telephone interview. The use of many open-ended questions can be effective when interviewing, although time restrictions for a telephone interview can limit their use. Probing is

easier with face-to-face interviews. Two types of probes are clarifying probes (e.g. ‘Can you explain what you mean by …?’), which help the interviewer understand exactly what the interviewee is saying, and exploratory probes, which stimulate the interviewee to give a full answer (e.g. ‘Are there any other reasons why …?’). A certain degree of probing can be achieved with a telephone interview, but time pressure and the less personalized situation will inevitably limit its use. Limitations of face-to-face interviews are they are more expensive than telephone and mail questionnaires. Telephone interviews are cheaper as the cost of contacting respondents is less expensive, unless the population is very concentrated (face-to-face interviewing of students on a business studies course, for instance, would be relatively inexpensive). The presence of an interviewer can cause bias (e.g. socially desirable answers) and lead to the misreporting of sensitive information. In some ways telephone interviews are a halfway house between faceto-face and mail surveys. Telephone interviews generally have a higher response rate than mail questionnaires, but lower than face-to-face interviews; their cost is usually less than face-to-face, but higher than for mail surveys; and allow a degree of flexibility when interviewing. However, there are limits to the number of questions that can be asked before respondents either terminate the interview or give quick (invalid) answers to speed up the process. The use of computer-aided telephone interviewing (CATI) is common, as is automated computer telephone interviewing (ACTI). Centrally located interviewers read questions from a computer monitor and input answers via a keyboard. Routing through the questionnaire is computer-controlled, helping the process of interviewing. page 234 B2B International is a full-service MR firm that uses CATI for many of its studies for clients around the globe, such as Envirotainer, a transportation company, wanting to find out about desirable new features for its storage containers. The firm was pleased with the results of the telephone interviews carried out by B2B International in 20 countries using nine different languages as they enabled it to introduce innovative and groundbreaking features to its Releye containers (B2B International 2022). Online video interviews via the web offer a solution to get over some of the issues of face-to-face and telephone interviews and focus groups. Clients can set research objectives and then view the results, which can

gather detailed behavioural data. Companies like Virgin America, Dell and Microsoft have used this form of interviewing to gain deep insight into their customers’ needs when developing new products.

Online and mobile surveys Digital data gathering is increasing in popularity. Surveys represent a lowercost option than interviewing, can be used to reach a widely dispersed population, and can be delivered in a variety of ways, for example via the web and by email and mobile phone. However, the major problem is the potential for low response rates and the accompanying danger of an unrepresentative sample. Digital platforms (web and mobile) are increasingly used to conduct survey research. With digital surveys, the questionnaire is administered through a virtual platform by registering key words, or it appears in banner advertising on search engines such as Yahoo! or Google, which drive people to the questionnaire. Mobile devices can also be used. Digital surveys have grown in popularity to such an extent that they now account for a significant proportion of all the quantitative data collected in Europe and the US. There are now many bespoke online survey and poll companies, for example Survey Monkey (www.surveymonkey.com) and eSurveysPro (www.esurveyspro.com), which provide survey tools and methods of analysis. Major advantages of digital marketing research platforms are: flexibility of content–visual aids such as video and graphics can be used, as well as audio input reach–there are no geographical limitations speed of delivery automated digital data collection–data sets are readily available in digital format for analysis potential cost savings. However, the more complex the survey–for example, when it includes video and interactive experiments–the higher the cost of production. So, while these digital techniques can be highly flexible, the size of the survey should be taken into consideration when evaluating the relative cost. Sampling problems are a potential disadvantage, as they can arise from the

skewed nature of internet users (if the online target populations are from younger and more affluent groups in society), although this issue is becoming less important as the global internet user population increases. In summary, it is suggested that digital surveys are faster, easier, cheaper and better. However, research has found that the benefits do not come in equal quantities when compared with other survey tools. For example: Digital surveys are faster to distribute than mail surveys, but telephone surveys can provide the most instantaneous response. Digital surveys may be easier to compile and use, but this will be subjective as it depends on the technological literacy of those involved. Digital surveys may be cheaper in terms of sample size, as the larger the sample the greater the cost of the other methods of data collection, but there can be significant up-front costs involved in setting up a digital survey and accessing the desired target respondents. To be better than other survey tools, digital surveys need to ensure the validity of response. An absence of accurate contact lists remains a problem when using email to survey populations. Even when lists can be found, researchers need to tread very carefully, as ‘spamming’–sending junk mail–is seen as very offensive by most email users and messages may be blocked by firewalls and therefore never get to the recipient’s mailbox. A possible way to reap the benefits and counter the problems associated with digital surveys is to use a mixed-method approach that allows for different modes of data collection to be used, to address validity issues. The use of two methods will, however, slow the survey process and increase costs, but should ensure greater validity in the findings, which is one of the fundamentals when using survey data to make strategic and tactical marketing decisions (Gigliotti 2011). page 235

Questionnaire design Three conditions are necessary to get a true response to a question: 1. Respondents must understand the question.

2. Respondents must be able to provide the information. 3. Respondents must be willing to answer. Researchers must remember these conditions when designing questionnaires. Questions need to be phrased in a language the respondent understands and is able to interpret. Equally, researchers must not ask about issues that respondents cannot remember or that are outside their experience. For example, it would be invalid to ask about attitudes towards a brand of which the respondent is unaware. Finally, researchers need to consider the best way to elicit sensitive or personal information. As we have already seen, willingness to provide such information depends on the survey method employed. Figure 6.7 shows the three stages in the development of the questionnaire: planning, design and pilot. FIGURE 6.7 Stages in the development of a questionnaire

Source: Kotler et al. (1977)

The planning stage provides a firm foundation for designing a questionnaire that will deliver relevant information for the marketing problem that is being addressed. The design stage involves several interrelated issues: Ordering of topics: an effective questionnaire has a logical flow. Start with easy-to-answer questions. This helps to build the confidence of respondents and allows them to relax. Respondents are often anxious at the beginning of an interview, concerned about showing their ignorance. Other rules of thumb are simply common sense, for example ask awareness questions before attitude measurement questions, and not vice versa. Unaided awareness questions must be asked before aided ones. Classificatory questions that ask for personal information such as age and occupation are usually asked last. Types of question: closed questions specify the range of answers to be recorded. If there are only two possible answers (e.g. ‘Did you visit a cinema within the last seven days?’ YES/NO) the question is dichotomous (either/or). If there are more than two possible answers, then the question is multiple choice (e.g. ‘Which, if any, of the following cinemas have you visited within the last seven days?’ Odeon, Vue, Cineworld, None). Open-ended questions allow respondents to answer the question in their own words (e.g. ‘What did you like about the cinema you visited?’). The interviewer then writes the answer in a space on the questionnaire. Wording and instructions: great care needs to be taken in the wording of questions. Questionnaire designers need to guard against ambiguity, leading questions, asking two questions in one and using unfamiliar words. Table 6.2 gives some examples of poorly worded questions and suggests remedies. Instructions should be printed in capital letters or underlined so that they are easily distinguishable from questions. page 236 Layout: the questionnaire should not appear cluttered. In mail questionnaires, it is a mistake to squeeze too many questions onto one page to shorten the questionnaire length (in pages). Response is

likely to be lower if the questionnaire appears heavy than if its page length is extended (Jobber 1985). Scaling: careful exploratory research may allow attitudes and beliefs to be measured by means of scales. Respondents are given lists of statements (e.g. ‘My company’s marketing information system allows me to make better decisions’) followed by a choice of five positions on a scale ranging from ‘strongly agree’ to ‘strongly disagree’. Furthermore, computer advances are enabling the measurement of emotions using avatars (pictorial representations of people). Probes and prompts: probes seek to explore or clarify what a respondent has said. Following a question about awareness of brand names, the exploratory probe ‘Any others?’ would seek to identify further names. Sometimes respondents use vague words or phrases like, ‘I like going on holiday because it is nice.’ A clarifying probe such as, ‘In what way is it nice?’ would seek a more meaningful response. Prompts, on the other hand, aid responses to a question. For example, in an aided-recall question, a list of brand names would be provided for the respondent. Coding: by using closed questions the interviewer merely has to draw a ring around the code number next to the respondent’s choice of answer. In computer-assisted telephone interviewing, and with the increasing use of laptop computers for face-to-face interviewing, the appropriate code number can be keyed directly into the computer’s memory. Such questionnaires are pre-coded, making the process of interviewing and data analysis much simpler. Open-ended questions, however, require the interviewer to write down