G A T E S , D E A N D R A 1 1 2 3 T S Marketing in Today’s CHAPTER Economy 1 G A INTRODUCTION T As noted in the opening Beyond the Pages 1.1 story, competing in today’s economy means finding ways to break out of commodity statusE to meet customers’ needs bet- ter than competing firms. All organizations—both for-profitS and nonprofit—require effective planning and a sound marketing strategy to, do this effectively. Without these efforts, organizations would not be able to satisfy customers or meet the needs of other stakeholders. For example, having an effective marketing strategy allows Apple to develop popular products, such as theD iPhone, iPad, iWatch, and its MacBook line of computers. Further, effective planning and strategy allows Cola- Cola to continue its leadership in soft drinks, make keyE acquisitions, and continue its expansion into the lucrative Chinese market. TheseA and other organizations use sound marketing strategy to leverage their strengths and capitalize on opportunities that exist in the market. Every organization—from yourN favorite local restaurant to giant multinational corporations; from city, state, andD federal governments, to chari- ties such as Habitat for Humanity and the American Red Cross—develops and imple- ments marketing strategies. R How organizations plan, develop, and implementA marketing strategies is the focus of this book. To achieve this focus, we provide a systematic process for devel- oping customer-oriented marketing strategies and marketing plans that match an organization to its internal and external environments.1 Our approach focuses on real-world applications and practical methods of marketing planning, including the process of developing a marketing plan. The chapters1 of this book focus on the steps of this process. Our goal is to give the reader a2 deeper understanding of mar- keting planning, the ability to organize the vast amount3 of information needed to complete the planning process, and an actual feel for the development of marketing plans. T In this first chapter, we review some of the majorS challenges and opportunities that exist in planning marketing strategy in today’s economy. We also review the nature and scope of major marketing activities and decisions that occur throughout the planning process. Finally, we look at some of the major challenges involved in developing marketing strategy. 1 9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell - © Cengage Learning. All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240 2 Chapter 1 • Marketing in Today’s Economy BEYOND THE PAGES 1.1 Thriving in Commodity Hell1 industry hard in 2008. To counteract the down- turn, Southwest expanded routes by acquiring Have you noticed that regardless of the industry, rival companies such as AirTran. The company most goods and services offered by competing also stands apart from others with its innovative companies are eerily the same? Most household “No Bag Fees” policy. Other firms, however, appliances, such as refrigerators, washing avoid commodity status through the most basic machines, and stoves, offer the same basic of marketing tactics: brand building. Here, firms features and come in white, beige, black, or stain- break free from commodity status by developing less steel. Virtually all Android-based smartphones a distinctive brand position that separates them offer the same features at similar prices. Even air- and their products from the competition. Firms line flights from New York to Los Angeles are that come to mind are Apple, Coca-Cola, and essentially the same. Everywhere you look, most Chick-fil-A. By offering compelling reasons for companies offer the same basic products to the consumers to buy products, brand building same customer groups at roughly the same prices. Gallows firms to increase margins. Apple, in partic- This situation is referred to as “commodity hell” ular, enjoys the highest profit margins of any firm and it’s a tough situation for most companies. A in the technology sector. Commoditization is everywhere and is the result T Starbucks is another case in point. Starbucks of mature markets where goods and services lack clearly sells one of the most commoditized, ubiq- any real means of differentiation. Unfortunately E uitous products of all time: coffee. Starbucks for companies, when customers begin to see all S Chairman Howard Schultz, however, does not competing products as offering roughly the same accept that his firm is in the coffee business. benefits, price is the only thing that matters. , Instead, Schultz sees Starbucks as a “third place” Commoditization is a consequence of mature to hang out (with home and work being number 1 industries where slowing innovation, extensive D and number 2, respectively). Through this mental- product assortment, excess supply, and frugal ity, Starbucks offers its customers much more consumers force margins to the floor. Since E than coffee, including wireless Internet access, firms have few competitive differences, they are A music, food, and relaxation. Starbucks has contin- unable to increase margins. They must also spend ued its brand-building activities by introducing a great deal on promotion to attract new custo- N breakfast combos, Via instant coffee, and the con- mers. This situation makes firms more vulnerable D tinued push of its Seattle’s Best brand into restau- to the entry of new competitors. Consider the air- rants, offices, hospitals, and vending machines. line industry. Notwithstanding a few minor differ- R Getting out of commodity hell is not an easy ences, most air travelers see all airlines as being A feat. To do so, firms must give consumers a com- roughly the same. They all get passengers from pelling reason to buy their products over compet- Point A to Point B while offering the same basic ing products. Ultimately, winning the commodity customer services. This makes price the driving 1 game is all about innovation. Consider the firms force in consumer decision-making and allows that top Fast Company’slistoftheWorld’s Most discount airlines such as Southwest and Jet Blue 1 Innovative Companies for 2014 (in order): Goo- to steal customers away from traditional full- 2 gle, Bloomberg Philanthropies, Xiaomi, Dropbox, service carriers. This same precarious situation Netflix, Airbnb, Nike, and ZipDial. Each of these exists in a broad range of industries including 3 companies offers innovative products, processes, telephone service, hotels, packaged goods, auto- T or experiences that stand apart from the compe- mobiles, household appliances, and retailing. S tition; yet each competes in mature industries As you might expect, low price leaders can known for commoditization. These companies do quite well in commoditized markets. South- prove that innovation and good marketing strat- west, for example, was profitable for over egy are the antidotes for commodity hell. 33 years until the economic recession hit the THE CHALLENGES AND OPPORTUNITIES OF MARKETING IN TODAY’SECONOMY Traditional ideas about marketing strategy began to change forever during the mid- 1990s. Advances in computer, communication, and information technology forever 9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell - © Cengage Learning. All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240 Chapter 1 • Marketing in Today’s Economy 3 changed the world and the ways that marketers reach potential customers. The col- lapse of the dot-com bubble in the late 1990s was followed by a historic collapse of the worldwide economy in 2008. The powerhouse companies of the past have weak- ened and lost relevance in an economy marked by constant change and consumer skepticism. Consider the following fundamental changes to marketing and business practice, as well as our own personal buying behavior. Power Shift to Customers Perhaps the single most important change during the last two decades is the shift in power from marketers to consumers. Rather than businesses having the ability to manipulate customers via technology, customers often manipulate businesses because of their access to information, the ability to comparison shop, and the con- trol they have over spending. Individual consumers and business customers can compare prices and product specifications in a matter of minutes. Using a smart- phone and the Amazon app, customers can walk TargetG ’s aisles, scan bar codes to check prices on Amazon, and order items for 2-day deliveryA while in the store. This fact is the reason that Target, and other retailers like Best Buy, now price matches Amazon and other online competitors. In other cases,T customers are able to set their own prices, such as purchasing airline tickets atE Priceline.com. Customers can now interact with one another, as merchants such as Amazon and eBay allow custo- mers to share opinions on product quality and supplierS reliability. As power con- tinues to shift to customers, marketers have little choice, but to ensure that their products are unique and of high quality, thereby giving customers a reason to pur- chase their products and remain loyal to them. D E A N D R A 1 1 2 3 T S Daniel Koebe/Fancy/Corbis Consumers can instantly find competitors’ prices while in the store. 9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell - © Cengage Learning. All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240 4 Chapter 1 • Marketing in Today’s Economy Massive Increase in Product Selection The variety and assortment of goods and services offered for sale on the Internet and in traditional stores is staggering. In grocery stores alone, customers are faced with countless options in most aisles, such as in cereal and soft drinks.