CH-8-10 Ethics and Social Responsibility in Marketing Strategy – Marketing Strategy, Text and Cases : Chapter Notes

This Document Contains Chapters 8 to 10 Chapter 8: Ethics and Social Responsibility in Marketing Strategy Chapter Outline I. Introduction A. Beyond the Pages 8.1 discusses how Salesforce.com has integrated social responsibility into its marketing strategy. B. The role of ethics and social responsibility in the strate-gic planning process has become more important as many firms have seen their image, reputation, and marketing efforts destroyed by problems in these areas. C. Research has shown that ethical behavior can not only enhance a company’s reputation, but also contribute significantly to its bottom line. D. Irresponsible actions that anger customers, employees, or competitors may jeopardize a firm’s financial standing and also lead to legal repercussions. II. Ethics and Social Responsibility in Marketing Strategy A. Dimensions of Social Responsibility 1. Social responsibility is a broad concept that relates to an organization's obligation to maximize its positive impact on society while minimizing its negative impact. [Exhibit 8.1] 2. From an economic perspective, firms must be responsible to all stakeholders for financial success. The economic responsibility of making a profit serves employees and the community at large. 3. Firms also have expectations, at a minimum, to obey laws and regulations. 4. Marketing ethics refers to principles and stan¬dards that define acceptable marketing conduct as determined by the public, government regulators, private interest groups, competitors, and the firm itself. 5. Philanthropic activities, which go beyond marketing ethics, are not required of a company, but they promote human welfare or goodwill above and beyond the economic, legal, and ethical dimensions of social responsibility. a) Many firms link their products to a particular social cause on an ongoing or short-term basis, a practice known as cause-related marketing. b) Other firms go further and adopt strategic philanthropy, the synergistic use of organizational core competencies and resources to address key stakeholders’ interests and achieve both organizational and social benefits. B. Sustainability 1. Sustainability includes the assessment and improvement of business strategies, economic sectors, work practices, technologies, and lifestyles—all while maintaining the natural environment. 2. Leadership in Energy and Environmental Design (LEED) standards provide a framework for incorporating greener building materials and more efficient operations into the construction of facilities. 3. Many products can be certified as “green” by environmental organizations such as Green Seal, the Forest Stewardship Council, or the Rainforest Alliance. 4. Green marketing involves stakeholder assessment to create meaningful long-term relationships with customers, while maintaining, supporting, and enhancing the natural environment. 5. Greenwashing occurs when companies mislead consumers into thinking that a good or service is more environmentally friendly than it actually is. This generally takes the form of misleading product labels. 6. Beyond the Pages 8.2 discusses the difficulties that consumers face in looking for truly eco-friendly products. C. Marketing Ethics and Strategy 1. Marketing ethics includes the principles and standards that guide the behavior of individuals and groups in making marketing decisions. 2. The most basic of these standards have been codified as laws and regulations to encourage companies to conform to society's expectations of business conduct. 3. Repeated ethical misconduct in a particular business or industry sometimes requires the government to intervene, a situation that can be expensive and inconvenient for businesses and consumers. 4. The reputation of the firm is one of the most important considerations for consumers. Marketers should be aware of stakeholders and the need to build trust. [Exhibit 8.2] 5. Corporate reputation, image, and branding are more important than ever and are among the most critical aspects of sustaining relationships with key stakeholders. D. The Challenges of Being Ethical and Socially Responsible 1. Business decisions involve complex and detailed discussions in which correctness may not be so apparent. 2. Individuals who have limited business experience often find themselves required to make sudden decisions about product quality, advertising, pricing, bribery, hiring practices, privacy, and pollution control. 3. A person's experiences and decisions at home, in school, and in the community may be quite different from the experiences and the decisions that he or she has to make at work. 4. When personal values are inconsistent with the configuration of values held by the work group, the potential for ethical midconduct increases. 5. It is imperative that employees become familiar with the types of misconduct that can occur within their organizations. [Exhibit 8.3] III. Ethical Issues in the Marketing Program A. An ethical issue is an identifiable problem, situation, or opportunity that requires an individual or organization to choose from among several actions that must be evaluated as right or wrong, ethical or unethical. [Exhibit 8.4] B. Product-Related Ethical Issues 1. Product-related ethical issues generally arise when the firm fails to disclose risks associated with a product or information regarding the function, value, or use of a product. 2. Ethical issues can arise in product design as pressures build to substitute inferior materials or product components to reduce costs. Similarly, ethical issues can arise when the firm fails to inform customers about changes in quality or quantity of product sold. 3. Counterfeit products abound today, particularly in the areas of clothing, audio and video products, and computer software. Any product that can be easily copied is vulnerable to counterfeit activities. C. Pricing-Related Ethical Issues 1. Pricing is one of the most heavily watched and regulated of all marketing activities. Given that a difference in price can create such a significant competitive advantage, any effort to artificially give one company an edge over another is subject to legal or regulatory intervention. 2. Price discrimination occurs when firms charge different prices to different customers. In general, price discrimination is illegal, unless the price differential has a basis in actual cost differences in selling products to one customer relative to another. 3. Price fixing occurs when rival firms collaborate to set prices. The Justice Department has determined that, while following a competitor's lead in an upward or downward trend is acceptable, there can be no signaling of prices to competitors in this process. 4. Predatory pricing occurs when a firm charges very low prices for a product with the intent of driving competition out of business or out of a specific market. Predatory pricing is illegal; however, it is extremely difficult to prove in court. 5. Superficial discounting occurs when a firm advertises a sale price as a reduction below the normal price when it is not the case. D. Supply Chain-Related Ethical Issues 1. Managing ethical issues in distribution and supply chain strategy is very challenging due to the complexity of most supply chains and the fact that supply chains today are global. 2. Although companies often create a Supplier Code of Conduct, they are required to conduct regular audits to ensure that factories are following compliance standards—which in turn can incur significant costs to companies in both time and finances. 3. Managing supply chain ethics is important because stakeholders hold the firm responsible for all ethical conduct related to product availability and the integrity of the product. E. Promotion-Related Ethical Issues 1. Marketing practices that are false or misleading can destroy customers’ trust in an organization. 2. Ethical issues also arise when firms use ambiguous statements, in which claims are so weak that the viewer, reader, or listener must infer the advertiser’s intended message. 3. Bribery occurs when an incentive (usually money or expensive gifts) is offered in exchange for an illicit advantage. Even a bribe that is offered to benefit the organization is usually considered unethical. 4. Fraudulent activity has dramatically increased in the area of direct marketing, in which companies use the telephone and non-personal media to communicate information to customers, who then purchase products via mail, telephone, or the Internet. IV. Managing and Controlling Ethical Issues A. Regulating Marketing Ethics 1. Many firms attempt to regulate themselves in an effort to demonstrate ethical responsibility and prevent regulation by federal or state governments. 2. The best-known self-regulatory association is the Better Business Bureau. When a firm violates what the BBB believes to be good business practices, the bureau warns consumers. 3. Self-regulatory programs have a number of advantages over government regulation: a) They are usually less costly. b) Their guidelines are generally more practical and realistic. c) They reduce the need to expand government bureaucracy. 4. Beyond the Pages 8.3 discusses how the U.S. government is trying to maintain trust in the banking system. B. Codes of Conduct 1. Codes of conduct (also called codes of ethics) consist of formalized rules and standards that describe what the company expects of its employees. 2. A code of conduct that does not address specific high-risk activities within the scope of daily operations is inadequate. [Exhibit 8.5] 3. Core values or principles that should be contained in a code of conduct include trustworthiness, respect, responsibility, fairness, caring, and citizenship. 4. Codes of conduct will not resolve every ethical issue encountered in daily operations, but they help employees and managers deal with ethical dilemmas by prescribing or limiting specific activities. C. Ethical Leadership 1. Ethical cultures emerge from strong leadership. Employees look to the leader as a model of acceptable behavior. 2. Having a strong ethical climate depends on top mangers who consistently model the firm’s policies and standards. Great leaders: a) create a common goal or vision for the company b) obtain buy-in, or support, from significant partners c) motivate others to be ethical d) use the resources that are available to them e) enjoy their jobs and approach them with an almost contagious tenacity, passion, and commitment 3. The culture of the organization—as well as superiors, peers, and subordinates—can play a key role in guiding employee behavior. V. Relationship to Marketing and Financial Performance A. One of the most powerful arguments for including ethics and social responsibility in the strategic planning process is the evidence of a link between ethics, social responsibility, and financial performance. 1. An ethical climate calls for organizational members to incorporate the interests of all stakeholders, including customers, in their decisions and actions. 2. Employees working in an ethical climate will make an extra effort to better understand the demands and concerns of customers. 3. As employees perceive an improvement in the ethical climate of their firm, their commitment to the achievement of high-quality standards also increases. They become more willing to personally support the quality initiatives of the firm. B. Stakeholder Orientation 1. A stakeholder orientation, or the degree to which the firm understands and addresses stakeholder demands, is comprised of three activities: a) the organization-wide generation of data about stakeholder groups and the assessment of the firm’s effects on these groups b) the distribution of this information throughout the firm c) the organization’s responsiveness as a whole to this intelligence 2. The responsiveness of the organization to stakeholder intelligence consists of the initiatives that the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues. 3. A stakeholder orientation can be viewed as a continuum in that firms are likely to adopt the concept to varying degrees. C. Marketing Financial Performance 1. A climate of ethics and social responsibility creates a large measure of trust among a firm’s stakeholders and enhances the reputation of the firm in a positive direction. 2. Research indicates a strong association between social responsibility and customer loyalty in that customers are likely to keep buying from firms perceived as doing the right thing. 3. A direct association exists between corporate social responsibility and customer satisfaction, profits, and market value. [Exhibit 8.6] VI. Incorporating Ethics and Social Responsibility into Strategic Planning A. Many firms integrate ethics and social responsibility into their strategic plan¬ning through ethics compliance programs or integrity initiatives that make legal compliance, ethics, and social responsibility an organization-wide effort. B. The marketing plan should include distinct elements of ethics and social responsibility that reflect an understanding of the risks associated with ethical and legal misconduct, the ethical and social consequences of strategic choices, and the values of orga¬nizational members and stakeholders. C. A marketing plan that ignores social responsibility or is silent about ethical requirements leaves the guidance of ethical and socially responsible behavior to the work group, which risks ethical breakdowns and damage to the firm. Questions for Discussion 1. Why is marketing ethics a strategic consideration in organizational decisions? Who is most important in managing marketing ethics: the individual or the firm’s leadership? Explain your answer. For all of the reasons discussed in this chapter, marketing ethics clearly should be a strategic consideration. On one hand, ethical marketing is simply the right thing to do. On the other hand, behaving ethically can actually increase the firm’s performance. This issue is not whether the firm should include ethics in its decision making, but how it should be included. Ultimately, ethics is based on the individual. It is the leader’s responsibility to ensure that ethics and social responsibility is pervasive throughout the firm’s culture. 2. Why have we seen more evidence of widespread ethical marketing dilemmas within firms today? Is it necessary to gain the cooperation of marketing managers to overstate revenue and earnings in a corporation? Students will likely argue two points. First, we see widespread ethical dilemmas because marketing often deals with ambiguous or “gray” business decisions. Second, many ethical dilemmas occur simply because firms are able to get away with it. Recent changes in accounting practice—like Sarbanes-Oxley—have limited the opportunities for unethical behavior. Finally, we see ethical dilemmas because corporate executives are often rewarded for their unethical behavior. These individuals are under enormous pressures to increase firm performance in the short-term. A long-term perspective can help alleviate this issue. 3. What is the relationship between marketing ethics and organizational performance? What are the elements of a strong ethical compliance program to support responsible marketing and a successful marketing strategy? Marketing ethics is tied to performance in many ways. Employees working in an ethical climate will serve customers more effectively. These employees are also more willing to personally support the quality initiatives of the firm. These actions lead to increased customer loyalty in that customers are likely to keep buying from firms perceived as doing the right thing. A strong ethical compliance program is based on having (1) a strong ethical leader, (2) a supportive ethical climate, (3) a code of conduct, and (4) employee buy in to the code. Exercises 1. Visit the Federal Trade Commission website (www.ftc.gov). What is the FTC’s current mission? What are the primary areas for which the FTC has responsibility? Review the last two months of press releases from the FTC. Based on these releases, what appears to be the major marketing ethical issues of concern at this time? As of this writing, the mission of the FTC is: To prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity. The FTC has three bureaus: Consumer Protection, Competition, and Economics. The Consumer Protection Bureau has seven divisions: Advertising practices, Consumer and business education, Enforcement, Financial practices, Marketing practices, Planning and information, Privacy and identity protection. The content of the FTC’s press releases will vary over time. 2. Visit the Better Business Bureau website (www.bbb.org). Review the criteria for the BBB Marketplace Torch Awards. What are the most important marketing activities necessary for a firm to receive this award? The criteria for the Marketplace Torch Award include: (1) Management Practices, (2) Community/Investor/Stakeholder Relations, (3) Communications and Marketing Practices, and (4) Industry Reputation. Nominees are also reviewed with respect to Consumer Leadership. Although the criteria are not weighted, the overall assessment focuses on whether the firm can demonstrate that ethical behavior is fully disseminated throughout the firm and its business practices. 3. Look at several print, broadcast, online, or outdoor advertisements and try to find an ad that you believe is questionable from an ethical perspective. Defend why you believe the ad is ethically questionable. Student responses will vary based on the advertising in question. An example of an ethically questionable ad is the "Calvin Klein" ad campaign from the 1990s, which featured sexually provocative imagery of minors. The ad showed young models in sexually suggestive poses, which raised concerns about sexual exploitation and objectification. I believe this ad is ethically questionable because it exploits vulnerable individuals and may normalize inappropriate sexualization of minors. Such imagery can have a damaging impact on societal perceptions of consent and age-appropriate behavior, making it highly problematic from an ethical standpoint. Exercise 8.1 Lockheed Martin http://www.lockheedmartin.com/us/who-we-are/ethics.html 1. Read about ethics at Lockheed Martin. How has the firm successfully integrated marketing ethics throughout its corporate culture and marketing program? Lockheed Martin has gone out of its way (much more than most other firms) to instill ethical values throughout the corporate culture. The company’s ethical principles (Do What’s Right, Respect Others, Perform With Excellence) are practiced in corporate training programs, employee recruitment programs, and in the selection of business partners. Lockheed Martin also expects its suppliers to uphold the same ethical principles. 2. Visit the company’s Integrity Minute page and view the latest video series (http://www.lockheedmartin.com/us/who-we-are/ethics/iminute.html). Do you feel that training materials like these are effective in establishing an ethical culture at Lockheed Martin? Most students are initially skeptical of the videos (they have also been known to promote laughter in class). However, encourage students to look beyond the surface. Astute students will recognize that the videos can be successful only if top management supports ethical training. If integrity becomes ingrained in the corporate culture, video training can certainly help to maintain and reinforce the importance of ethics in the corporate culture. Exercise 8.2 McDonald’s http://www.aboutmcdonalds.com/mcd/sustainability/our_focus_areas.html 1. Read about McDonald’s social responsibility initiatives. How has McDonald’s integrated social responsibility with its marketing strategy? At McDonald’s, social responsibility is a corporate effort focusing on five core areas: nutrition & well-being, environmental responsibility, community, sustainable supply chain, and the employee experience. McDonald’s is very active in local communities with respect to philanthropy, environmental protection, diversity, and children. These activities are integrated with marketing strategy in everything from packaging, nutrition and food content, hiring practices, and advertising. 2. Are you surprised at McDonald’s level of involvement in giving back to its communities? Other than Ronald McDonald House Charities, why have most consumers never heard of McDonald’s many philanthropic initiatives? Most students are likely to be surprised at the sheer breadth of involvement. Virtually everyone has heard of the Ronald McDonald House because the charity is active in local communities and often associated with local fundraising efforts. McDonald’s other initiatives are not as well known, most likely because McDonald’s does not want to draw attention based solely on philanthropy. Students may also argue that McDonald’s doesn’t have to “toot its own horn” because the Golden Arches are known around the world. Chapter 9: Marketing Implementation and Control Chapter Outline I. Introduction A. Beyond the Pages 9.1 discusses implementation, evaluation, and control at Green Mountain Coffee. B. Throughout the history of business, many firms and their top executives have emphasized strategic planning at the expense of strategic implementation. C. Marketing implementation is the process of executing the marketing strategy by creating and performing specific actions that will ensure the achievement of the firm's marketing objectives. D. To track the implementation process, firms must have ways of evaluating and controlling marketing activities, as well as monitoring performance to determine whether marketing goals and objectives have been achieved. II. Strategic Issues in Marketing Implementation A. Marketing strategies almost always turn out differently than expected. 1. Intended marketing strategy is what the firm wants to happen—it is the firm's planned strategic choices that appear in the marketing plan itself. 2. Realized marketing strategy is the strategy that actually takes place. 3. More often than not, the difference between the intended and the realized strategy is a matter of the implementation of the intended strategy. B. The Link Between Strategic Planning and Implementation 1. Interdependency a) Although it is true that the content of the marketing plan determines how it will be implemented, it is also true that how the marketing strategy is to be implemented determines the content of the marketing plan. b) Certain marketing strategies define their implementation by default. 2. Evolution a) Like the firm’s strategy, marketing implementation must adapt to constantly changing environmental factors. b) Because planning and implementation are intertwined, both must constantly evolve to fit the other. c) Marketing implementation, much like the development of marketing strategy, often results from trial and error. 3. Separation [Exhibit 9.1] a) Middle- or upper-level managers often do strategic planning; however, the responsibility for implementation almost always falls on lower-level managers and frontline employees. b) Top executives often do not understand the unique problems associated with implementing marketing strategy. C. The Elements of Marketing Implementation [Exhibit 9.2] 1. Marketing Strategy—the firm’s planned marketing program. 2. Shared Goals and Values—the "glue" of successful implementation—they bind the entire organization together as a single, functioning unit. 3. Marketing Structure—refers to the methods of organizing a firm's marketing activities, the formal lines of authority, and the division of labor within the marketing function. a) Centralized structure—the top of the marketing hierarchy coordinates and manages all marketing activities and decisions. b) Decentralized structure—the frontline of the firm coordinates and manages marketing activities and decisions. 4. Systems and Processes—collections of work activities that absorb a variety of inputs to create information and communication outputs that ensure the consistent day-to-day operation of the firm. 5. Resources—include a wide variety of tangible and intangible assets that can be brought together during marketing implementation. 6. People (Human Resources)—the quality, diversity, and skill of a firm's human resources can also make or break implementation. a) Employee selection and training—matching employees' skills and abilities to the marketing tasks to be performed. b) Employee evaluation and compensation—tying employee rewards to performance levels on required marketing activities. c) Employee motivation, satisfaction, and commitment—the extent to which employees have the motivation to implement the strategy, their overall feelings of job satisfaction, and the commitment they feel toward the organization and its goals. 7. Leadership—how managers communicate with employees, as well as how they motivate their people to implement the marketing strategy. 8. Beyond the Pages 9.2 discusses how today’s CEOs have to have the courage to look at the long-term success of their businesses. III. Approaches to Marketing Implementation [Exhibit 9.3] A. Implementation by Command 1. The firm's top executives develop and select the marketing strategies, which are transmitted to lower levels where frontline managers and employees implement them. 2. Advantages of this approach: a) It makes decision making much easier. b) It reduces uncertainty as to what is to be done to implement the marketing strategy. 3. Disadvantages of this approach: a) It does not consider the feasibility of implementing the strategy. b) It divides the firm into strategists and implementers, and does not consider how strategy and implementation affect each other. c) It can create employee motivation problems. B. Implementation Through Change 1. Executives focus explicitly on implementation by modifying the firm in ways that will ensure successful implementation. 2. Advantages of this approach: a) It is used successfully by many firms. b) It achieves a good balance between command and consensus. 3. Disadvantages of this approach: a) It still suffers from the separation of planning and implementation. b) It may not fully resolve issues of employee motivation. c) It can take a great deal of time to design and implement. C. Implementation Through Consensus 1. Upper- and lower-level managers from many areas and levels work together to evaluate and develop marketing strategies. 2. Advantages of this approach: a) It moves some of the decision-making authority closer to the frontline of the firm. b) Lower-level managers often have a stronger commitment and motivation to the strategy to see that it is properly implemented. c) It can help to ensure the coordination of the strategy across the entire firm. 3. Disadvantages of this approach: a) It works best in complex, uncertain, and highly unstable environments. b) It often retains the barrier between strategists and implementers. c) It requires ongoing, open communication within the firm—something that may be difficult to achieve. D. Implementation as Organizational Culture 1. Marketing strategy and its implementation become extensions of the firm's mission, vision, and organizational culture. 2. Advantages of this approach: a) It completely dissolves the barrier between strategists and implementers. b) It makes implementation much easier to accomplish. 3. Disadvantages of this approach: a) It requires a strong corporate culture—something that does not happen overnight. b) It requires extensive employee training and socialization. IV. Internal Marketing and Marketing Implementation A. The practice of internal marketing comes from service industries, where it was first used as a means of making all employees aware of the need for customer satisfaction. B. Internal marketing refers to the use of a marketing-like approach to motivate, coordinate, and integrate employees toward the implementation of the firm's marketing strategy. The goals of internal marketing are: 1. to help all employees understand and accept their roles in implementing the marketing strategy 2. to create motivated and customer-oriented employees 3. to deliver external customer satisfaction C. The Internal Marketing Approach 1. Every employee has two customers: external and internal. If the internal customers do not receive proper information and training about the strategy and are not motivated to implement it, then it is unlikely that the external customers will be satisfied completely. 2. Unlike traditional approaches, the internal marketing approach places the responsibility for implementation on all employees regardless of their level within the firm. D. The Internal Marketing Process [Exhibit 9.4] 1. The product, price, distribution, and promotion elements of the internal marketing program are similar to the elements in the external program. a) Internal products refer to marketing strategies that must be “sold” internally, as well as to any employee tasks, behaviors, attitudes, or values necessary to ensure implementation. b) Internal prices include the increased effort and changes that employees must exhibit in implementing the strategy. Employees pay these prices through what they must do, change, or give up when implementing the marketing strategy. c) Internal distribution refers to the internal communication of the marketing strategy. d) Internal promotion involves communication aimed at informing and persuading employees about the merits of the marketing strategy. 2. The internal marketing approach requires an integration of many factors: a) The recruitment, selection, and training of employees must be considered an important part of implementation. b) Top executives must be completely committed to the strategy and the overall marketing plan. c) Employee compensation programs must be linked to the implementation of the marketing strategy. d) The firm should be characterized by open communication among all employees, regardless of their level in the firm. e) The firm's structure, policies, and processes should match the marketing strategy. V. Evaluating and Controlling Marketing Activities A. Actual marketing performance typically differs from expected performance for one of four reasons: 1. The marketing strategy was inappropriate or unrealistic. 2. The implementation was inappropriate for the strategy. 3. The implementation process was mismanaged. 4. The internal and/or external environments changed substantially between the development of the marketing strategy and its implementation. B. Formal Marketing Controls [Exhibit 9.5] 1. Formal marketing controls are activities, mechanisms, or processes designed by the firm to help ensure the successful implementation of the marketing strategy. a) Input controls include actions taken prior to the implementation of the marketing strategy b) Process controls include activities that occur during implementation, designed to influence the behavior of employees so they will support the strategy and its objectives. c) Output controls are the performance standards against which actual performance can be compared. This is often done through a marketing audit. [Exhibit 9.6] 2. Formal marketing controls are written and initiated by management. C. Informal Marketing Controls [also Exhibit 9.5] 1. Informal controls are unwritten, employee-based mechanisms that subtly affect the behaviors of employees, both as individuals and in groups. a) Employee self-control—employees manage their own behaviors by establishing personal objectives and monitoring their results. b) Social control—the standards, norms, and ethics found in workgroups within the firm. c) Cultural control—the behavioral and social norms of the entire firm. 2. Marketing implementation is most effective and efficient when every employee, guided by the same organizational values or beliefs, has a commitment to the same organizational goals. 3. Beyond the Pages 9.3 describes how formal and informal controls overlap to promote risk management principles in today’s organizations. D. Scheduling Marketing Activities 1. Successful implementation requires that employees know the specific activities for which they are responsible and the timetable for completing each activity. 2. Creating a master schedule of marketing activities can be a challenging task because of the wide variety of activities required to execute the plan, the sequential nature of many activities, and the fact that time is of the essence in implementing the plan. [Exhibit 9.7] Questions for Discussion 1. Forget for a moment that planning the marketing strategy is equally as important as implementing the marketing strategy. What arguments can you make for one being more important than the other? Explain your answers. Most students will argue that marketing strategy is more important. First, a firm must have a plan before it can be implemented. Thus, despite their interconnectedness, implementation by nature must follow the strategy. Second, if done correctly, the strategic planning process itself can deliver benefits (collaboration, communication) that are independent of the content of the marketing strategy. Third, if the strategy is flawed it really doesn’t matter how well it is implemented. 2. If you were personally responsible for implementing a particular marketing strategy, which implementation approach would you be most comfortable using, given your personality and personal preferences? Why? Would your chosen approach be universally applicable to any given situation? If not, what would cause you to change or adapt your approach? Remember, adapting your basic approach means stepping out of your personal comfort zone to match the situation at hand. Student responses will vary. Many students will be most comfortable with the change approach to implementation because they are most familiar with its use. They can see the benefits of the cultural approach, but the resources and time required to use it make it difficult to choose. Students who are in the military or former military often choose the command approach due to its familiarity and swift decision making. 3. What do you see as the major stumbling blocks to the successful use of the internal marketing approach? Given the hierarchical structure of employees in most organizations (e.g., CEO, middle management, staff employees), is internal marketing a viable approach for most organizations? Why or why not? One of the biggest obstacles is that many executives just don’t get the approach. Equating changes and effort with pricing is difficult to understand. Most students will simply have never thought of looking at implementation in this way. Internal marketing is a viable approach for any organization. However, it must be practiced at all levels throughout the organization for maximum effectiveness. Exercises 1. Find a recent news article about an organization that changed its marketing strategy. What were the reasons for the change? How did the organization approach the development and implementation of the new strategy? Student responses will vary depending on the organization in question. It can be interesting to compare a firm that changed strategies to contend with competition or other environmental factors (e.g., Nokia, RIM, Best Buy) to a firm that changed due to new CEO leadership (e.g., JCPenney, Ford). 2. One of the best sources for shared goals and values to guide implementation is the firm’s own mission or values statement. Find the mission or values statement for the organization you identified in Exercise 1. Do you see evidence of the mission or values in the way the organization handled its change in marketing strategy? Explain. This exercise is much more challenging that the first. Students may find little evidence of the mission or value in the new marketing strategy (unless profit is mentioned in the mission statement). It is not uncommon for the new strategy to have no connection to the mission. In this case, encourage students to look at the width of the mission and assess whether the new strategy is appropriate. 3. Think about the unwritten, informal controls in your life. Develop a list of the controls that exist at work, at home, or at school (or substitute another context such as church, social gatherings, or public activities). Are these controls similar or different? Why? Controls at Work Controls at Home Controls at School Self-Control (personal norms and expectations for behavior) Social Control (norms and expectations in small groups) Cultural Control (norms and expectations in the entire organization) Students usually struggle with this exercise because they have not considered the issue before. The issue of self-control is especially challenging because this exercise asks them to list the unwritten norms that guide their behavior. Exercise 9.1 Advance Auto Parts http://corp.advanceautoparts.com/about/general.asp 1. At Advance Auto Parts, how important are people to the implementation of marketing strategy? While students will find this question to be rather easy, they should be prodded to go beyond the surface. Students will note that friendly, happy people are prominently displayed on the website and in other company communications. Students should also note that the company’s first core value addresses the self-confidence and success of team members. The company’s second core value is about customers. 2. What implementation approach does Advance Auto Parts seem to be using? Why? While some students may argue for the consensus approach, Advance seems to be using a cultural approach to marketing implementation. One can get a sense of this from the website, especially the careers section (http://www.advanceautoparts.jobs). However, the company’s description of its corporate culture gives it away. Exercise 9.2 Home Depot http://careers.homedepot.com/our-culture/our-values.html 1. What are Home Depot’s core values that guide its corporate culture? Home Depot has eight unmistakable core values: Excellent Customer Service, Taking Care of Our People, Building Strong Relationships, Respect for All People, Entrepreneurial Spirit, Doing the Right Thing, Giving Back, and Creating Shareholder Value. Students should be encouraged to explain what each one would mean to both customers and employees. 2. How does Home Depot use these values to implement its marketing strategies? Students will be forced to speculate on the answer to this question unless they have worked for Home Depot. However, given the eight core values, one could assume that Home Depot enjoys very high employee commitment and loyalty. This alone would lead to highly effective and efficient implementation. Many students will note that Home Depot extends health and insurance benefits to part-time employees. Chapter 10: Developing and Maintaining Long-Term Customer Relationships Chapter Outline I. Introduction A. Beyond the Pages 10.1 explains how 1-800-Flowers.com has developed a comprehensive understanding of its customers. B. All of the activities involved in developing and implementing the marketing program have one key purpose: to develop and maintain long-term customer relationships. C. Implementing a marketing strategy that can effectively satisfy customers' needs and wants has proven difficult in today's rapidly changing business environment. D. In times past, developing and implementing the "right" marketing strategy was all about creating a large number of transactions with customers in order to maximize the firm's market share. E. In today's economy, the emphasis has shifted to developing strategies that attract and retain customers over the long term. II. Managing Customer Relationships A. Customer relationship management is defined as a business philosophy aimed at defining and increasing customer value in ways that motivate customers to remain loyal. In essence, CRM is about retaining the right customers. B. CRM involves a number of different groups, including customers, employees, supply chain partners, and external stakeholders. C. A full appreciation of CRM requires a new perspective on the customer that shifts from "acquiring customers" to "maintaining clients." [Exhibit 10.1] D. Firms that are exceptionally good at developing customer relationships possess “relationship capital”—a key asset that stems from the value generated by the trust, commitment, cooperation, and interdependence among relationship partners. E. Developing Relationships in Consumer Markets [Exhibit 10.2] 1. The objective of CRM is to move customers from having a simple awareness of the firm and its product offering, through levels of increasing relationship intensity, to the point where the customer becomes a true advocate for the firm and/or its products. 2. One of the most viable strategies to build customer relationships is to increase the firm’s share of customer by focusing more fully on serving the needs of current customers. 3. Focusing on share of customer requires an understanding that customers have different needs and that not all customers have equal value to a firm. 4. Some customers—those that require considerable handholding or that frequently return products—are simply too expensive to keep given the low level of profits they generate. 5. The firm’s top-tier customers are the most obvious candidates for retention strategies. [Exhibit 10.3] F. Developing Relationships in Business Markets 1. Business relationships rarely approach the cult-like, emotional involvement found in some consumer markets. Nonetheless, businesses can become structurally bound to their supply chain partners. 2. Relationship development in business markets can be more involving, more complex, and much riskier than relationships in consumer markets. 3. Business relationships must be built on win-win strategies that focus on cooperation and improving the value of the exchange for both parties, not on strict negotiation where one side wins and the other side loses. 4. Over the past several years, a number of changes have occurred in business relationships: a) a change in buyers' and sellers' roles b) an increase in sole sourcing c) an increase in global sourcing d) an increase in team-based buying decisions e) an increase in productivity through better integration III. Quality and Value: The Keys to Developing Customer Relationships A. To build relationship capital, a firm must be able to fulfill the needs of its customers better than its competitors. 1. If the quality of a good or service is poor, the firm obviously has little chance of satisfying customers or maintaining relationships with them. 2. Good quality is not an automatic guarantee of success—it is a necessary but insufficient condition of customer relationship management. B. Understanding the Role of Quality 1. Quality is a relative term that refers to the degree of superiority of a firm's goods or services. Quality is relative because it can only be judged in comparison to competing products, or when compared to an internal standard of excellence. 2. The total product offering of any firm consists of at least three interdependent components: [Exhibit 10.4] a) Core product—the part of the offering that delivers the core benefits desired by customers. 1) If the core product is inferior, the firm has little chance of success because the product will not meet customer needs. 2) Customers expect the core product to be of high quality. When the core product meets this level of expected quality, the customer begins to take it for granted. 3) In service offerings, the core product is typically composed of three interrelated dimensions: people, processes, and physical evidence. b) Supplemental products—goods or services that add value to the core product, thereby differentiating the core product from competing product offerings. 1) In many product categories, the true difference between competing products lies in the supplemental products. 2) Most companies do not market products with the core product in mind. Instead, they focus on supplemental product attributes. c) Symbolic and experiential attributes—attributes associated with image, prestige, and brand. C. Delivering Superior Quality 1. Delivering superior quality day in and day out is one of the most difficult things that any organization can do with regularity. In essence, it is difficult to get everything right all or even most of the time. 2. Four key issues in improving quality: a) Understand customers' expectations b) Translate expectations into quality standards c) Uphold quality standards d) Don’t overpromise 3. Beyond the Pages 10.2 discusses the pitfalls associated with setting standards that meet organizational, rather than customer, expectations. D. Understanding the Role of Value 1. Offering exceptionally high product quality is of little use to the firm or its customers if the customers cannot afford to pay for it or if the product is too difficult to obtain. 2. Value is critical to maintaining long-term customer relationships because it allows for a balance among the five types of utility (form, time, place, possession, psychological) and the elements of the marketing program. 3. Value is a useful guiding principle of marketing strategy because it includes the concept of quality, but is broader in scope. 4. Value is defined as a customer's subjective evaluation of benefits relative to costs to determine the worth of a firm's product offering relative to other product offerings. The value formula: [Exhibit 10.5] 5. Core Product, Supplemental Product, and Experiential Quality a) Good value depends on a holistic assessment of the quality of the core product, supplemental products, and experiential attributes. Although each can be judged independently, most customers look at the collective benefits provided by the firm in their assessments of value. b) Firms can create unique combinations of core, supplemental, and experiential benefits that help drive value perceptions. 6. Monetary and Nonmonetary Costs a) Customer costs include anything that the customer must give up to obtain the benefits provided by the firm. b) The most obvious cost is the monetary cost of the product: 1) Transactional costs include the immediate financial outlay or commitment that must be made to purchase the product. 2) Life-cycle costs include any additional costs that customers will incur over the life of the product. c) Nonmonetary costs are not quite as obvious as monetary costs, and customers sometimes ignore them. These costs include time, effort, risk, and opportunity costs. E. Competing on Value 1. By altering each element of the marketing program, the firm can enhance value by increasing core, supplemental, or experiential quality and/or reducing monetary or nonmonetary costs. 2. In consumer markets, retailers compete by altering one or more parts of the value equation. 3. In business markets, value is often defined in terms of product specifications, availability, and conformity to a delivery schedule, rather than in terms of price or convenience. 4. Each marketing program element is vital to delivering value. Strategic decisions about one element alone can change perceived value for better or worse. IV. Customer Satisfaction: The Key to Customer Retention A. Understanding Customer Expectations 1. Customer satisfaction is typically defined as the degree to which a product meets or exceeds the customer’s expectations about that product. 2. Customers can hold many different types of expectations. [Exhibit 10.6] 3. The Zone of Tolerance a) The zone of tolerance is the difference between the upper (desired expectations) and lower (adequate expectations) end of the range of possible customer expectations. b) The width of the zone of tolerance represents the degree to which customers recognize and are willing to accept variability in performance. c) Performance can fall above the zone of tolerance, within the zone of tolerance, or below it: [Exhibit 10.7] 1) Customer delight occurs when actual performance exceeds the desired performance expectation. 2) Customer satisfaction occurs when actual performance falls within the zone of tolerance. 3) Customer dissatisfaction occurs when actual performance falls below the adequate performance expectation. d) If the zone of tolerance is narrow, the marketer will have a relatively more difficult time matching performance to customer expectations. e) Customers will typically hold different expectation levels and zones of tolerance for different factors of performance. 4. Managing Customer Expectations a) As they work toward managing customer expectations, many marketers ask two key questions: 1) Why are customer expectations unrealistic? 2) Should we strive to delight our customers by consistently exceeding their desired expectations? b) Beyond the Pages 10.3 explains how exceeding customer expectations is an important component of customer loyalty. B. Satisfaction versus Quality versus Value 1. The difficulty in separating satisfaction from quality and value involves the word expectations. Customers can hold expectations about any part of the product offering, including quality, value, or both. 2. The most narrowly defined concept is quality, which customers judge on an attribute-by-attribute basis. 3. When a customer considers the broader issue of value, they include things other than quality: price, time and effort, risk, and opportunity costs. 4. Customers tend to think of satisfaction based on his or her expectations of the item in question. 5. Customers think of satisfaction based on the totality of their experience without overtly considering issues like quality or value. a) Customers think of satisfaction in more abstract terms than they do quality or value. b) This happens because customers' expectations—hence their satisfaction—can be based on any number of factors, even factors that have nothing to do with quality or value. C. Customer Satisfaction and Customer Retention 1. Customer satisfaction is the key to customer retention. 2. How can a firm control the uncontrollable factors that affect customer satisfaction? a) Understand what can go wrong b) Focus on controllable issues c) Manage customer expectations d) Offer satisfaction guarantees [Exhibit 10.8] e) Make it easy for customers to complain f) Create relationship programs g) Make customer satisfaction measurement an ongoing priority D. Customer Satisfaction Measurement 1. The simplest method of measuring customer satisfaction involves the direct measurement of performance across various factors using simple rating scales. 2. To determine how satisfaction varies over time, the firm should measure expectations and performance at the same time. [Exhibit 10.9] 3. Based on advances in technology, many new satisfaction metrics are being used today: a) Lifetime value of a customer (LTV)—The net present value of the revenue stream generated by a customer over a period of time. b) Average order value (AOV)—A customer's purchase dollars divided by the number of orders over a period of time. c) Customer acquisition/retention costs—It is typically less expensive to retain current customers than to acquire new customers. As long as this holds true, a company is better off keeping its current customers satisfied. d) Customer conversion rate—The percentage of visitors or potential customers that actually buy. e) Customer retention rate—The percentage of customers who are repeat purchasers. f) Customer attrition rate—The percentage of customers who do not repurchase (sometimes called the churn rate). g) Customer recovery rate—The percentage of customers who leave the firm (through attrition) that can be lured back using various offers or incentives. h) Referrals—Dollars generated from customers referred to the firm by current customers. i) Social communication—Companies can track satisfaction by monitoring customers’ online commentary in blogs, newsgroups, chat rooms, and general websites. Questions for Discussion 1. One of the common uses of customer relationship management (CRM) in consumer markets is to rank customers on profitability or lifetime value measures. Highly profitable customers get special attention, while unprofitable customers get poor service or are often “fired.” What are the ethical and social issues involved in these practices? Could CRM be misused? How and why? This use of CRM certainly has the potential for misuse. Students will understand the necessity of firing some customers. However, one could argue that customers should at least be warned ahead of time. The firm should make an effort to encourage these customers to become better customers before firing them. Students may also argue that some consumer groups—such as the elderly or low-income individuals—could potentially suffer if they are fired by firms on which they depend. 2. Given the commoditized nature of many markets today, does customer relationship management—and its associated focus on quality, value, and satisfaction—make sense? If price is the only true means of differentiation in a commoditized market, why should a firm care about quality? Explain. All firms should care about quality because it is a necessary condition to participate in the market. Poor quality virtually guarantees that the firm will not be around long enough to worry about long-term customer relationships. Given this, CRM makes sense even in a highly commoditized market. In fact, it makes the development of customer relationships and customer retention even more important. A firm can offer a commoditized product, but if customers are loyal to it, the firm will hold a significant advantage in the market. 3. Of the two types of customer expectations, adequate performance expectations fluctuate the most. Describe situations that might cause adequate expectations to increase, thereby narrowing the width of the zone of tolerance. What might a firm do in these situations to achieve its satisfaction targets? Adequate expectations vary based on the situation, the customer, and the conditions under which performance will be delivered. Adequate expectations will increase (and satisfaction will be harder to achieve) when customers are in a hurry, when the purchase is highly involving, and when the firm is known for delivering consistent performance. Some firms are held to higher standards and will always face a more challenging task in satisfying customers. To achieve satisfaction targets, it is vital that the firm manage customer expectations and never make promises that they cannot deliver. Exercises 1. Visit 1to1 Media (www.1to1media.com) to learn more about customer relationship management. You can register for free access to useful tools, articles, discussions, and webinars about CRM and its use in a number of different industries. This is a useful website to learn more about CRM. 2. Think about all of the organizations with which you maintain an ongoing relationship (banks, doctors, schools, accountants, mechanics, etc.). Would you consider yourself to be unprofitable for any of these organizations? Why? How might each of these organizations fire you as a customer? What would you do if they did? Of the group of firms listed, students are often unprofitable for banks. With low balances, risk of overdraft, and frequent moves, most students are not profitable for local banks. Typically, banks will raise fees for services rather than fire customers. This will cause students to look for alternative solutions that charge lower fees. 3. J.D. Power and Associates (www.jdpower.com) is a well-known research company specializing in the measurement of product quality and customer satisfaction. Explore their website to look at their customer satisfaction ratings for a number of industries. What role will third-party firms like J.D. Power play in the future, given the increasing use of internal customer satisfaction metrics? Many students will argue that J.D. Power ratings are simply a marketing gimmick. One has to admit that the company’s ratings seem favorable for a large number of products (e.g., they do not seem selective enough). Third party firms become less important as the focal firm gains more control over information. Exercise 10.1 Blue Cross Blue Shield http://www.bcbs.com 1. How does Blue Cross Blue Shield use its website to build relationships with customers? One thing that students should notice immediately is that Blue Cross targets a number of different customers (doctors, employers, the media, public policy specialists). Each customer requires a different approach, which makes relationship building a more challenging task. Blue Cross is also very active in community outreach. 2. How does Blue Cross Blue Shield deliver exceptional quality and value to customers? The name Blue Cross is widely known and highly respected. The brand alone conveys quality and value. From the website, students will likely pick up on how Blue Cross always seems willing to help and provide information. The company’s concerns include cost control, fraud prevention, technology, and health and fitness in addition to traditional health insurance issues. Exercise 10.2 American Customer Satisfaction Index http://www.theacsi.org 1. What trends do you see in customer satisfaction since the ACSI began in 1994? Which industries have fared the best? To answer this question, students will have to explore the data since the inception of the ACSI in 1994. One of the most obvious trends is the overall decline in satisfaction with services. Further, very few industries have done well over time. Some firms have fared much better than their industries (Apple is a good example). 2. What are some potential reasons for the satisfaction trends across service sectors? Student answers will vary; however, there are at least two potential reasons for the decline in satisfaction with services. First, satisfaction may be declining because consumers have become more demanding. As service firms find ways to cut costs, customer satisfaction will fall. Another reason is that most service firms segment their customers in ways that allow them to give the best service to more profitable customers. Average customers may be less satisfied because they are actually receiving less service than in years past. Instructor Manual for Marketing Strategy, Text and Cases O. C. Ferrell, Michael Hartline 9781285073040, 9781285170435