1

CHAPTER

Marketing’s
Value to
Consumers,
Firms, and
Society When it’s time to roll out of bed in the morning, does
the alarm ringtone on your Verizon cell phone wake you,
or is it your Sony XM radio playing your favorite satellite
station? Is the station playing hip-hop, classical, or coun-
try music—or perhaps a Red Cross ad asking you to
contribute blood? Will you slip into your Levi’s jeans, your
shirt from Abercrombie and Fitch, and your Nikes, or does
the day call for your Brooks Brothers interviewing suit? Will
breakfast be Lender’s Bagels with cream cheese or will you
finish off that box of Kellogg’s Frosted Mini-Wheats cereal
made with whole grain wheat from America’s heartland?
Will you have some calcium-fortified Minute-Maid orange
juice and brew a pot of Maxwell House coffee—or is this a
day to meet a friend at the local Starbucks, where you’ll pay
someone else to fix you a Frappuccino while you use the
Wi-Fi connection to check Facebook and see what your
friends have been doing? Or perhaps, if you’re running late,
you can grab a ride to class in your friend’s new Nissan Leaf,
swing by the McDonald’s drive-thru for a McSkillet Burrito, a
Vanilla Iced Coffee, and a smile from Ronald McDonald. What?
Your friend decided that the new all-electric car was too pricey
 come back time and time again when they could get a
cup of coffee almost anywhere at half the price? Do
they appreciate the convenience of a Starbucks in
their local grocery store? Do loyal customers
become Facebook fans to connect with others
who love the brand or to find out about new items
on Starbucks’ food menu? Do they buy a holiday 3
music CD at Starbucks because they hear it in the
store? Or did they hear the songs on the Star-
bucks station at Pandora online radio? And why do
they call that tasty icy thing a Frappuccino?
Twenty-five years ago Starbucks was a tiny company
in Seattle; now it operates more than 16,000 coffee
bars in 49 countries and is one of the best-known
brand names in the world (even in Tokyo). Part of Star-
bucks’ success comes from adapting its marketing
strategy to changing market conditions—but not every
adaptation works. Sales declined when cost cutting took
away from the experience customers expected. Only
after additional training and more baristas did customer
service improve. A downturn in the economy didn’t help
sales either. So Starbucks added Perfect Oatmeal to its
food menu, promoted it as a healthy breakfast choice,
and paired it with a cup of coffee or tea at a value price.
New entries like this are winning back customers.
Over the years McDonald’s has also introduced
many new products to meet changing customer
needs. When customers wanted healthier food, it
introduced the McSalad Shaker, a salad in a cup for
convenient eating on-the-go. Customers, however,
wanted a better quality salad, and McDonald’s
replaced McShaker with a Premium Salad line that
now sells well. When the economy declined, McDonald’s
for someone with only a part-time job? Well then, expanded its “Dollar Menu” to appeal to price-conscious
maybe you’ll just have to take the bus that the city customers, but it also added a one-third pound
bought from Mercedes Benz. At least as you ride along Angus burger for customers willing to pay for a higher
you can watch videos on your iPhone. quality sandwich. These innovations have helped it
When you think about it, you can’t get very far attract even more customers.
into a day without bumping into marketing—and McDonald’s thinks it is well positioned—as a brand
what the whole marketing system does for you. It af- that offers everyday value and convenience—to
fects every aspect of our lives—often in ways we capture a larger portion of the multibillion-dollar
don’t even consider. beverage category. So McDonald’s dove into the
In other parts of the world, people wake up each high-end coffee market with its Premium Roast coffee.
day to different kinds of experiences. A family in rural The new blend was a hit, bringing new customers into
Africa may have little choice about what food they restaurants and boosting its coffee sales 40 percent in
will eat or where their clothing will come from. A less than a year. Building on that success, McDonald’s
consumer in a large city like Tokyo may have many 14,000 U.S. restaurants added McCafé coffee bars
choices but not be familiar with names like Lender’s selling Cappuccinos, Lattes, and Mochas—and later
Bagels or Brooks Brothers. introduced Fruit Smoothies to its menu.
What’s more, each element in the descriptions above As Starbucks, McDonald’s, Dunkin’ Donuts, and
could be viewed in more detail and through a different your local coffee shop battle it out, customers are the
lens. Consider, for example, that visit to Starbucks. What big winners. With all this choice, these companies
exactly is it about Starbucks that makes so many cus- have to work hard to meet customer needs and earn
tomers so satisfied with the experience? Why do they their business.1
 LEARNING OBJECTIVES
In this chapter, you’ll see what marketing is all about and why it’s important
to you as a consumer. We’ll also explore why it is so crucial to the success of
individual firms and nonprofit organizations and the impact that it has on
the quality of life in different societies.
When you finish this chapter, you should be able to:
1 know what marketing is and why you should learn about it.
2 understand the difference between marketing and macro-marketing.
3 know the marketing functions and why marketing specialists—including
intermediaries and collaborators—develop to perform them.
4 understand what a market-driven economy is and how it adjusts the
macro-marketing system.
5 know what the marketing concept is—and how it should guide a firm or
nonprofit organization.
6 understand what customer value is and why it is important to customer
satisfaction.
7 know how social responsibility and marketing ethics relate to the
marketing concept.
8 understand the important new terms (shown in red).

MARKETING—WHAT’S IT ALL ABOUT?

Marketing is more than Many people think that marketing means “selling” or “advertising.” It’s true
selling or advertising that these are parts of marketing. But marketing is much more than selling and
advertising.

How did all those To illustrate some of the other important things that are included in market-
bicycles get here? ing, think about all the bicycles being pedaled with varying degrees of energy by
bike riders around the world. Most of us don’t
make our own bicycles. Instead, they are made
by firms like Trek, Schwinn, Mongoose, and
Electra.
Most bikes do the same thing—get the rider
from one place to another. But a bike rider can
choose from a wide assortment of models. They
are designed in different sizes and with or without
gears. Off-road bikes have large knobby tires. Kids
and older people may want more wheels—to make
balancing easier. Some bikes need baskets or even
trailers for cargo. You can buy a basic bike for less
than $50. Or you can spend more than $2,500 for
a custom frame.
This variety of styles and features complicates the production and sale of bicycles.
The following list shows some of the things a manager should do before and after de-
ciding to produce and sell a bike.

4
 CHAPTER 1
“Life Comes at You Fast.”
Nationwide’s trademarked
phrase and “buildingscape”
ad really get attention and
remind consumers that
Nationwide can help when
things go awry. Creative
5
advertising like this is an
important part of marketing,
but modern marketing involves
much more. For example,

Marketing’s Value to Consumers, Firms, and Society

Nationwide conducts research
to understand customers’
needs and then develops new
policies and services to satisfy
those needs at a price that
represents a good value.

1. Analyze the needs of people who might buy a bike and decide if they want more
or different models.
2. Predict what types of bikes—handlebar styles and types of wheels, brakes, and
materials—different customers will want and decide which of these people the
firm will try to satisfy.
3. Estimate how many of these people will want to buy bicycles, and when.
4. Determine where in the world these bike riders are and how to get the firm’s bikes
to them.
5. Estimate what price they are willing to pay for their bikes and if the firm can
make a profit selling at that price.
6. Decide which kinds of promotion should be used to tell potential customers about
the firm’s bikes.
7. Estimate how many competing companies will be making bikes, what kind, and at
what prices.
8. Figure out how to provide customer service if a customer has a problem after buy-
ing a bike.
The above activities are not part of production—actually making goods or per-
forming services. Rather, they are part of a larger process—called marketing—that pro-
vides needed direction for production and helps make sure that the right goods and
services are produced and find their way to consumers.
You’ll learn much more about marketing activities in Chapter 2. For now, it’s
enough to see that marketing plays an essential role in providing consumers with
need-satisfying goods and services and, more generally, in creating customer satisfac-
tion. Simply put, customer satisfaction is the extent to which a firm fulfills a cus-
tomer’s needs, desires, and expectations.

MARKETING IS IMPORTANT TO YOU

Marketing is important Marketing affects almost every aspect of your daily life. The choices you have
to every consumer among the goods and services you buy, the stores where you shop, and the radio and
TV programs you tune in to are all possible because of marketing. In the process of
providing all these choices, marketing drives organizations to focus on what it takes to
 satisfy you, the customer. Most of the things you want or need are available conve-
niently when and where you want or need them.
Some courses are interesting when you take them but never relevant again once
they’re over. That’s not so with marketing—you’ll be a consumer dealing with mar-
keting for the rest of your life regardless of what career you pursue. Moreover, as a
consumer, you pay for the cost of marketing activities. In advanced economies, mar-
keting costs about 50 cents of every consumer dollar. For some goods and services, the
percentage is much higher. It makes sense to be an educated consumer and to under-
stand what you get and don’t get from all that spending.

Marketing will be Another reason for studying marketing is that it offers many exciting and reward-
important to your job ing career opportunities. Throughout this book, you will find information about op-
portunities in different areas of marketing.
If you’re aiming for a nonmarketing job, knowing about marketing will help you do
your own job better. Throughout the book, we’ll discuss ways that marketing relates to
other functional areas—and Chapter 20 focuses on those issues. Further, marketing is
important to the success of every organization. The same basic principles used to sell
soap are also used to “sell” ideas, politicians, mass transportation, health care services,
conservation, museums, and even colleges. Even your job résumé is part of a market-
ing campaign to sell yourself to some employer!2

Marketing affects An even more basic reason for studying marketing is that marketing plays a big
innovation and part in economic growth and development. One key reason is that marketing encour-
standard of living ages research and innovation—the development and spread of new ideas, goods, and
services. As firms offer new and better ways of satisfying consumer needs, customers
have more choices among products and this fosters competition for consumers’ money.
This competition drives down prices. Moreover, when firms develop products that
really satisfy customers, fuller employment and higher incomes can result. The com-
bination of these forces means that marketing has a big impact on consumers’ stan-
dard of living—and it is important to the future of all nations.3

HOW SHOULD WE DEFINE MARKETING?

There are micro In our bicycle example, we saw that a producer of bicycles has to perform many
and macro views of customer-related activities besides just making bikes. The same is true for an insurance
marketing company or an art museum. This supports the idea of marketing as a set of activities
done by an individual organization to satisfy its customers.
On the other hand, people can’t survive on bicycles and art museums alone! In
advanced economies, it takes goods and services from thousands of organizations to
satisfy the many needs of society. Further, a society needs some sort of marketing sys-
tem to organize the efforts of all the producers, wholesalers, and retailers needed to
satisfy the varied needs of all its citizens. So marketing is also an important social
process.
We can view marketing in two ways: from a micro view as a set of activities performed
by organizations and also from a macro view as a social process. Yet, in everyday use when
people talk about marketing, they have the micro view in mind. So that is the way we
will define marketing here. However, the broader macro view that looks at the whole
production-distribution system is also important, so later we will provide a separate
definition and discussion of macro-marketing.

Marketing defined Marketing is the performance of activities that seek to accomplish an organiza-
tion’s objectives by anticipating customer or client needs and directing a flow of need-
satisfying goods and services from producer to customer or client.
Let’s look at this definition.4

6
 CHAPTER 1
7

Marketing’s Value to Consumers, Firms, and Society

The aim of marketing is to
identify customers’ needs—and
to meet those needs so well
that the product almost sells
itself.

Applies to profit Marketing applies to both profit and nonprofit organizations. Profit is the objective
and nonprofit for most business firms. But other types of organizations may seek more members—
organizations or acceptance of an idea. Customers or clients may be individual consumers, busi-
ness firms, nonprofit organizations, government agencies, or even foreign nations.
While most customers and clients pay for the goods and services they receive, others
may receive them free of charge or at a reduced cost through private or government
support.

More than just Marketing isn’t just selling and advertising. Unfortunately, some executives still think
persuading customers of it that way. They feel that the job of marketing is to “get rid of ” whatever the company
happens to produce. In fact, the aim of marketing is to identify customers’ needs and
meet those needs so well that the product almost “sells itself.” This is true whether the
product is a physical good, a service, or even an idea. If the whole marketing job has been
done well, customers don’t need much persuading. They should be ready to buy. And
after they buy, they’ll be satisfied and ready to buy the same way the next time.

Begins with customer Marketing should begin with potential customer needs—not with the production
needs process. Marketing should try to anticipate needs. And then marketing, rather than pro-
duction, should determine what goods and services are to be developed—including deci-
sions about product design and packaging; prices or fees; credit and collection policies;
transporting and storing policies; advertising and sales policies; and, after the sale, instal-
lation, customer service, warranty, and perhaps even disposal and recycling policies.

Does not do it alone This does not mean that marketing should try to take over production, accounting,
and financial activities. Rather, it means that marketing—by interpreting customers’
needs—should provide direction for these activities and try to coordinate them.

Marketing involves The idea that marketing involves a flow of need-satisfying offerings from a
exchanges producer to a customer implies that there is an exchange of the need-satisfying offering
for something else, such as the customer’s money. Marketing focuses on facilitating
exchanges. In fact, marketing doesn’t occur unless two or more parties are willing to ex-
change something for something else. For example, in a pure subsistence economy—
when each family unit produces everything it consumes—there is no need to
 exchange goods and services and no marketing is involved. (Although each
producer-consumer unit is totally self-sufficient in such a situation, the standard of
living is typically relatively low.)

Builds a relationship Keep in mind that a marketing exchange is often part of an ongoing relationship,
with the customer not just a single transaction. When marketing helps everyone in a firm really meet
the needs of a customer before and after a purchase, the firm doesn’t just get a single
sale. Rather, it has a sale and an ongoing relationship with the customer. Then, in the
future, when the customer has the same need again—or some other need that the firm
can meet—other sales will follow. Often, the marketing flow of need-satisfying goods
and services is not just for a single transaction but rather is part of building a long-
lasting relationship that benefits both the firm and the customer.

The focus of this text— Since you are probably preparing for a career in management, the main focus of
management-oriented this text will be on managerial marketing. We will see marketing through the eyes of
micro-marketing the marketing manager.
The marketing ideas we will be discussing throughout this text apply to a wide
variety of situations. They are important for new ventures started by one person as well
as big corporations, in domestic and international markets, and regardless of whether
the focus is on marketing physical goods, services, or an idea or cause. They are equally
critical whether the relevant customers or clients are individual consumers, businesses,
or some other type of organization. For editorial convenience, we will sometimes use
the term firm as a shorthand way of referring to any type of organization, whether it is
a political party, a religious organization, a government agency, or the like. However, to
reinforce the point that the ideas apply to all types of organizations, throughout the
book we will illustrate marketing concepts in a wide variety of situations.
Although marketing within individual firms is the primary focus of the text, mar-
keting managers must remember that their organizations are just small parts of a larger
macro-marketing system. Therefore, next we will briefly look at the macro view of
marketing. Then, we will develop this idea more fully in later chapters.

MACRO-MARKETING
Macro-marketing is a social process that directs an economy’s flow of goods and
services from producers to consumers in a way that effectively matches supply and
demand and accomplishes the objectives of society.5

Emphasis is on whole With macro-marketing we are still concerned with the flow of need-satisfying
system goods and services from producer to consumer. However, the emphasis with macro-
marketing is not on the activities of individual organizations. Instead, the emphasis
is on how the whole marketing system works. This includes looking at how marketing
affects society and vice versa.
Every society needs a macro-marketing system to help match supply and demand.
Different producers in a society have different objectives, resources, and skills.
Likewise, not all consumers share the same needs, preferences, and wealth. In other
words, within every society there are both heterogeneous (highly varied) supply capa-
bilities and heterogeneous demands for goods and services. The role of a macro-
marketing system is to effectively match this heterogeneous supply and demand and at
the same time accomplish society’s objectives.
An effective macro-marketing system delivers the goods and services that consum-
ers want and need. It gets products to them at the right time, in the right place, and
at a price they’re willing to pay. It keeps consumers satisfied after the sale and brings
them back to purchase again when they are ready. That’s not an easy job—especially
if you think about the variety of goods and services a highly developed economy can
produce and the many kinds of goods and services consumers want.

8
Exhibit 1–1 Marketing Facilitates Production and Consumption

CHAPTER 1
Production Sector
Specialization and division of labor result in heterogeneous supply capabilities

Spatial Separation. Producers tend to locate

where it is economical to produce, while
consumers are located in many scattered
places.
Separation in Time. Consumers may not
want to consume goods and services at the
9
Discrepancies of Quantity. Producers time producers would prefer to produce
prefer to produce and sell in large quantities. them, and time may be required to transport
Consumers prefer to buy and consume in goods from producer to consumer.
Marketing

Marketing’s Value to Consumers, Firms, and Society

small quantities. Separation of Information. Producers do
needed to
overcome not know who needs what, where, when, and
discrepancies at what price. Consumers do not know what
and is available from whom, where, when, and at
separations what price.
Discrepancies of Assortment. Producers
specialize in producing a narrow assortment Separation in Values. Producers value
of goods and services. Consumers need a goods and services in terms of costs and
broad assortment. competitive prices. Consumers value them in
terms of satisfying needs and their ability
to pay.
Separation of Ownership. Producers hold
title to goods and services that they
themselves do not want to consume.
Consumers want goods and services that
they do not own.
Consumption Sector
Heterogeneous demand for different goods and services and
when and where they need to be to satisfy needs and wants

Separation between Effective marketing in an advanced economy is difficult because producers and con-
producers and sumers are often separated in several ways. As Exhibit 1-1 shows, exchange between
consumers producers and consumers is hampered by spatial separation, separation in time, separa-
tion of information and values, and separation of ownership. You may love your cell
phone, but you probably don’t know when or where it was produced or how it got to
you. The people in the factory that produced it don’t know about you or how you live.
In addition, most firms specialize in producing and selling large amounts of a nar-
row assortment of goods and services. This allows them to take advantage of mass
production with its economies of scale—which means that as a company produces
larger numbers of a particular product, the cost of each unit of the product goes down.
Yet most consumers only want to buy a small quantity; they also want a wide assort-
ment of different goods and services. These “discrepancies of quantity” and “discrep-
ancies of assortment” further complicate exchange between producers and consumers
(Exhibit 1-1). That is, each producer specializes in producing and selling large
amounts of a narrow assortment of goods and services, but each consumer wants only
small quantities of a wide assortment of goods and services.6

Marketing functions The purpose of a macro-marketing system is to overcome these separations and
help narrow the gap discrepancies. The “universal functions of marketing” help do this.
The universal functions of marketing are buying, selling, transporting, storing,
standardization and grading, financing, risk taking, and market information. They must
be performed in all macro-marketing systems. How these functions are performed—and
POM nurtures 90 percent of the pomegranates grown in the United States on 18,000 acres in Central California—and then
creates an assortment of products including the raw fruit, POM Wonderful 100 percent Pomegranate Juice, and POMx Iced Coffee.
But to overcome the spatial separation between POM’s production facilities and consumers, someone must perform a variety of
marketing functions, like standardizing and grading the fruit; transporting and storing the fruit, juice, and other products; and
buying and selling them. When its products arrive at local supermarkets, consumers are able to find POM’s assortment of
products alongside a range of other grocery goods.

by whom—may differ among nations and economic systems. But they are needed in
any macro-marketing system. Let’s take a closer look at them now.
Any kind of exchange usually involves buying and selling. The buying function
means looking for and evaluating goods and services. The selling function in-
volves promoting the product. It includes the use of personal selling, advertising,
customer service, and other direct and mass selling methods. This is probably the
most visible function of marketing.
The transporting function means the movement of goods from one place to
another. The storing function involves holding goods until customers need them.
Standardization and grading involve sorting products according to size and qual-
ity. This makes buying and selling easier because it reduces the need for inspection
and sampling. Financing provides the necessary cash and credit to produce, transport,
store, promote, sell, and buy products. Risk taking involves bearing the uncertainties
that are part of the marketing process. A firm can never be sure that customers will
want to buy its products. Products can also be damaged, stolen, or outdated. The
market information function involves the collection, analysis, and distribution of
all the information needed to plan, carry out, and control marketing activities,
whether in the firm’s own neighborhood or in a market overseas.

Producers, consumers, Producers and consumers sometimes handle some of the marketing functions
and marketing themselves. However, exchanges are often easier or less expensive when a marketing
specialists perform specialist performs some of the marketing functions. For example, both producers and
functions consumers may benefit when an intermediary—someone who specializes in trade
rather than production—plays a role in the exchange
process. In Chapters 12 and 13 we’ll cover the variety of
E X E RCI SE

Go to the Target home page (www.target.com) marketing functions performed by the two basic types of
Internet

and click on a tab for one of the product catego- intermediaries: retailers and wholesalers. Imagine what it
ries. How many different manufacturers’ prod- would be like to shop at many different factories and farms
ucts or brands are shown? Would consumers be for the wide variety of brands of packaged foods that you
better off if each manufacturer just sold directly like rather than at a well-stocked local grocery store. While
from its own Web site? wholesalers and retailers must charge for services they pro-
vide, this charge is usually offset by the savings of time,

10
 CHAPTER 1
11

Marketing’s Value to Consumers, Firms, and Society

Intermediaries and
collaborators develop and offer
specialized services that
facilitate exchange between
producers and customers.

effort, and expense that would be involved without them. So these intermediaries can
help to make the whole macro-marketing system more efficient and effective.
A wide variety of other marketing specialists may also help smooth exchanges between
producers, consumers, or intermediaries. These specialists are collaborators—firms
that facilitate or provide one or more of the marketing functions other than buying or
selling. These collaborators include advertising agencies, marketing research firms,
independent product-testing laboratories, Internet service providers, public warehouses,
transporting firms, communications companies, and financial institutions (including
banks).

New specialists New types of marketing specialists develop or evolve when there are opportunities to
develop to fill market make exchanges between producers and consumers more efficient or effective. The growth
needs of the Internet provided one such opportunity and resulted in the rapid growth of
e-commerce. E-commerce refers to exchanges between individuals or organizations—
and activities that facilitate these exchanges—based on applications of information
technology. Internet-based intermediaries—like Amazon.com and eBay.com—help cut
the costs of many marketing functions. Other marketing specialists have popped up
online: Search engines like Google facilitate information search, PayPal reduces con-
sumer risks associated with paying for goods purchased online, and chat-based customer
service firms help any company provide 24/7 customer support. Collectively, develop-
ments in e-commerce have significantly increased the efficiency and effectiveness of our
macro-marketing system. At the same time, many individual firms take advantage of
these innovations to improve profitability and customer satisfaction.7
Through innovation, specialization, or economies of scale, marketing intermedi-
aries and collaborators are often able to perform the marketing functions better—
and at a lower cost—than producers or consumers can. This allows producers and
consumers to spend more time on production, consumption, or other activities—
including leisure.

Functions can be From a macro-marketing viewpoint, all of the marketing functions must be performed
shifted and shared by someone—an individual producer or consumer, an intermediary, a marketing collabo-
rator, or, in some cases, even a nation’s government. No function can be completely
eliminated. However, from a micro viewpoint, not every firm must perform all of the functions.
Rather, responsibility for performing the marketing functions can be shifted and shared in a
 variety of ways. Further, not all goods and services require all the functions at every level of their
production. “Pure services”—like a plane ride—don’t need storing, for example. But stor-
ing is required in the production of the plane and while the plane is not in service.
Regardless of who performs the marketing functions, in general they must be per-
formed effectively and efficiently or the performance of the whole macro-marketing
system will suffer. With many different possible ways for marketing functions to be
performed in a macro-marketing system, how can a society hope to arrive at a combi-
nation that best serves the needs of its citizens? To answer this question, we can look
at the role of marketing in different types of economic systems.

THE ROLE OF MARKETING IN ECONOMIC SYSTEMS

All societies must provide for the needs of their members. Therefore, every society
needs some sort of economic system—the way an economy organizes to use scarce
resources to produce goods and services and distribute them for consumption by vari-
ous people and groups in the society.
How an economic system operates depends on a society’s objectives and the nature
of its political institutions.8 But regardless of what form these take, all economic
systems must develop some method—along with appropriate economic institutions—
to decide what and how much is to be produced and distributed by whom, when, to
whom, and why.
There are two basic kinds of economic systems: command economies and market-
directed economies. Actually, no economy is entirely command-oriented or market-
directed. Most are a mixture of the two extremes.

Government officials In a command economy, government officials decide what and how much is to be
may make the produced and distributed by whom, when, to whom, and why. These decisions are usually
decisions part of an overall government plan, so command economies are also called “planned”
economies. It sounds good for a government to have a plan, but as a practical matter at-
tempts by a government to dictate an economic plan often don’t work out as intended.
Producers in a command economy generally have little choice about what goods
and services to produce. Their main task is to meet the production quotas assigned in
the plan. Prices are also set by government planners and tend to be very rigid—not
changing according to supply and demand. Consumers usually have some freedom of

Artists and craftsmen in

developing economies often
do not have a local market for
their products, but Ten
Thousand Villages, which
operates a Web site and retail
stores in the U.S., helps them
reach customers and earn a
profit. Their earnings in turn
improve their quality of life,
and what they spend prompts
economic development in their
local communities.

12
Marketing Helps India’s Rural Poor

CHAPTER 1
In recent decades India has experienced rapid eco- in “sachets”—small bags that contain a one- or
nomic growth. Many of its citizens have more income two-day supply. HUL prices the small sachets
and enjoy a higher quality of life. That helps to explain so that villagers can afford them—and that in
why Unilever’s Indian subsidiary, Hindustan Unilever turn gives customers a chance to try quality
Limited (HUL), has worked hard to build a 40 percent products that were previously unavailable.
share of the Indian market with its product lines that HUL has created its “Shakti Ammas” (women
include soaps, toothpaste, and packaged foods. entrepreneurs) program to communicate the 13
Previously, HUL focused primarily on India’s urban benefits of its products and distribute them in
areas. Yet, almost three-fourths of India’s one billion remote rural areas. The program sets rural
plus people still live in rural areas. Only half of these women up as home-based distributors and sales

Marketing’s Value to Consumers, Firms, and Society

rural villagers have access to electricity—and less agents. These women stock HUL products at
than half have basic sanitation. Many of them have an their homes and go door-to-door to sell them.
income of less than $2 a day. Conventional wisdom They also organize meetings in local schools and
suggests that these poor rural villagers have too little at village fairs to educate their fellow villagers on
money to be an attractive market. And it’s expensive health and hygiene issues.
to distribute products to far-flung villages. HUL will soon have more than 50,000 Shakti
But now that is changing. HUL’s marketing manag- Ammas operating in 500,000 villages, reaching
ers have decided that Indian villagers represent an 600 million people across India. The Indian success
opportunity for growth—and that villagers might spurred Unilever to adapt the model to developing
benefit if they could purchase the soaps, toothpaste, countries around the globe. These women have a new
and packaged food products that HUL is successfully source of income and are learning about business—
selling in urban areas of India. while they bring the health benefits of improved hy-
HUL has tailored a new marketing strategy to this giene to rural villages. And, of course, HUL hopes to
target market. Many products have been repackaged clean up with a new source of growth.9

choice—it’s impossible to control every single detail! But the assortment of goods
and services may be quite limited. Activities such as market research, branding, and
advertising usually are neglected. Sometimes they aren’t done at all.
Government planning in a command economy may work fairly well as long as an
economy is simple and the variety of goods and services is small. It may even be nec-
essary under certain conditions—during wartime, drought, or political instability, for
example. However, as economies become more complex, government planning be-
comes more difficult and tends to break down. That’s what happened to the economy
in the former Soviet Union. Countries such as North Korea, Cuba, and Iran still rely
on command-oriented economic systems. Even so, around the world there is a broad
move toward market-directed economic systems—because they are more effective in
meeting consumer needs.

A market-directed In a market-directed economy, the individual decisions of the many producers

economy adjusts itself and consumers make the macro-level decisions for the whole economy. In a pure
market-directed economy, consumers make a society’s production decisions when
they make their choices in the marketplace. They decide what is to be produced and
by whom—through their dollar “votes.”

Price is a measure of value

Prices in the marketplace are a rough measure of how society values particular goods
and services. If consumers are willing to pay the market prices, then apparently they feel
they are getting at least their money’s worth. Similarly, the cost of labor and materials is

13
 a rough measure of the value of the resources used in the production of goods and ser-
vices to meet these needs. New consumer needs that can be served profitably—not just
the needs of the majority—will probably be met by some profit-minded businesses.

Greatest freedom of choice

Consumers in a market-directed economy enjoy great freedom of choice. They are
not forced to buy any goods or services, except those that must be provided for the
good of society—things such as national defense, schools, police and fire protection,
highway systems, and public-health services. These are provided by the community—
and the citizens are taxed to pay for them.
Similarly, producers are free to do whatever they wish—provided that they stay
within the rules of the game set by government and receive enough dollar “votes”
from consumers. If they do their job well, they earn a profit and stay in business. But
profit, survival, and growth are not guaranteed.

The role of government

The American economy and most other Western economies are mainly market-
directed—but not completely. Society assigns supervision of the system to the govern-
ment. For example, besides setting and enforcing the “rules of the game,” government
agencies control interest rates and the supply of money. They also set import and ex-
port rules that affect international competition, regulate radio and TV broadcasting,
sometimes control wages and prices, and so on. Government also tries to be sure that
property is protected, contracts are enforced, individuals are not exploited, no group
unfairly monopolizes markets, and producers deliver the kinds and quality of goods
and services they claim to be offering.10

Is a macro-marketing The effectiveness and fairness of a particular macro-marketing system must be

system effective and evaluated in terms of that society’s objectives. Obviously, all nations don’t share
fair? the same objectives. For example, Swedish citizens receive many “free” services—
like health care and retirement benefits. Goods and services are fairly evenly dis-
tributed among the Swedish population. By contrast, North Korea places little
Exhibit 1–2 emphasis on producing goods and ser-
Model of a Market-Directed Macro-Marketing System vices for individual consumers—and
more on military spending. In India the
Many Individual Producers distribution of goods and services is very
(heterogeneous supply) uneven—with a big gap between the
have-nots and the elite haves. Whether
each of these systems is judged “fair” or
“effective” depends on the objectives of
Intermediaries Collaborators
the society.
So far, we have described how a market-
directed macro-marketing system adjusts
Perform universal marketing functions to  become more effective and efficient
by  responding to customer needs. See
Exhibit  1-2. As you read
To overcome discrepancies and Monitoring by government(s) this book, you’ll learn
separation of producers and consumers and public interest groups more about how market-
ing affects society and
vice versa. You’ll also learn
To create value and direct flow of more about specific marketing activities and
need-satisfying goods and services be better informed when drawing conclu-
sions about how fair and effective the
macro-marketing system is. For now, how-
Many Individual Consumers ever, we’ll return to our general emphasis on
(heterogeneous demand) a managerial view of the role of marketing
in individual organizations.

14
MARKETING’S ROLE HAS CHANGED A LOT OVER THE YEARS

CHAPTER 1
It’s clear that marketing decisions are very important to a firm’s success. But market-
ing hasn’t always been so complicated. In fact, understanding how marketing thinking
has evolved makes the modern view clearer. So we will discuss five stages in marketing
evolution: (1) the simple trade era, (2) the production era, (3) the sales era, (4) the
marketing department era, and (5) the marketing company era. We’ll talk about these
eras as if they applied generally to all firms—but keep in mind that some managers still
have not made it to the final stages. They are stuck in the past with old ways of thinking.

Specialization When societies first moved toward some specialization of production and away 15
permitted trade—and from a subsistence economy where each family raised and consumed everything it
distributors met the produced, traders played an important role. Early “producers for the market” made
need products that were needed by themselves and their neighbors. As bartering became

Marketing’s Value to Consumers, Firms, and Society

more difficult, societies moved into the simple trade era—a time when families
traded or sold their “surplus” output to local distributors. These specialists resold the
goods to other consumers or other distributors. This was the early role of marketing—
and it is still the focus of marketing in many of the less-developed areas of the world.
In fact, even in the United States, the United Kingdom, and other more advanced
economies, marketing didn’t change much until the Industrial Revolution brought
larger factories a little over a hundred years ago.

From the production to From the Industrial Revolution until the 1920s, most companies were in the produc-
the sales era tion era. The production era is a time when a company focuses on production of a few
specific products—perhaps because few of these products are available in the market. “If
we can make it, it will sell” is management thinking characteristic of the production era.

In the past, many banks

created products but left it to
the marketing department to
sell them. In today’s more
competitive environment,
banks are doing research to
discover customer needs. A
bank that develops products
that meet its users’ needs will
have more satisfied customers.
When Bank of the Wichitas
added an online branch, it
decided to use an untraditional
approach and called it Redneck
Bank. Redneck Bank offers
customers “flat out free
checking” and convenience
served with a healthy dollop of
humor. The approach has been
successful as the small bank
from Oklahoma quickly added
customers from all over the
United States.
 Because of product shortages, many nations—including some of the post-communist
republics of Eastern Europe—continue to operate with production era approaches.
By about 1930, most companies in the industrialized Western nations had more pro-
duction capability than ever before. Now the problem wasn’t just to produce—but to beat
the competition and win customers. This led many firms to enter the sales era. The sales
era is a time when a company emphasizes selling because of increased competition.

To the marketing For most firms in advanced economies, the sales era continued until at least 1950.
department era By then, sales were growing rapidly in most areas of the economy. The problem was
deciding where to put the company’s effort. Someone was needed to tie together the
efforts of research, purchasing, production, shipping, and sales. As this situation be-
came more common, the sales era was replaced by the marketing department era. The
marketing department era is a time when all marketing activities are brought under
the control of one department to improve short-run policy planning and to try to in-
tegrate the firm’s activities.

To the marketing Since 1960, most firms have developed at least some managers with a marketing
company era management outlook. Many of these firms have even graduated from the marketing
department era into the marketing company era. The marketing company era is a
time when, in addition to short-run marketing planning, marketing people develop
long-range plans—sometimes five or more years ahead—and the whole company ef-
fort is guided by the marketing concept.

WHAT DOES THE MARKETING CONCEPT MEAN?

The marketing concept means that an organization aims all its efforts at satisfying
its customers—at a profit. The marketing concept is a simple but very important idea.
See Exhibit 1-3.
The marketing concept is not a new idea—it’s been around for a long time. But
some managers show little interest in customers’ needs. These managers still have a
production orientation—making whatever products are easy to produce and then

Exhibit 1–3
Organizations with a
Marketing Orientation
Carry Out the Marketing
Concept Customer Total company
satisfaction effort

The
Marketing
Concept

Profit (or another

measure of long-term
success) as an
objective

16
 trying to sell them. They think of customers existing to buy the firm’s output rather
than of firms existing to serve customers and—more broadly—the needs of society.

CHAPTER 1
Well-managed firms have replaced this production orientation with a marketing
orientation. A marketing orientation means trying to carry out the marketing con-
cept. Instead of just trying to get customers to buy what the firm has produced, a
marketing-oriented firm tries to offer customers what they need.
Three basic ideas are included in the definition of the marketing concept: (1) cus-
tomer satisfaction, (2) a total company effort, and (3) profit—not just sales—as an
objective. These ideas deserve more discussion.
17
Customer satisfaction “Give the customers what they need” seems so obvious that it may be hard for you
guides the whole to see why the marketing concept requires special attention. However, people don’t
system always do the logical—especially when it means changing what they’ve done in the
past. In a typical company 40 years ago, production managers thought mainly about

Marketing’s Value to Consumers, Firms, and Society

getting out the product. Accountants were interested only in balancing the books.
Financial people looked after the company’s cash position. And salespeople were
mainly concerned with getting orders for whatever product was in the warehouse.
Each department thought of its own activity as the center of the business. Unfortu-
nately, this is still true in many companies today.

Work together to do Ideally, all managers should work together as a team. Every department may di-
a better job rectly or indirectly impact customer satisfaction. But some managers tend to build
“fences” around their own departments. There may be meetings to try to get them to
work together—but they come and go from the meetings worried only about protect-
ing their own turf.
We use the term production orientation as a shorthand way to refer to this kind of
narrow thinking—and lack of a central focus—in a business firm. But keep in mind
that this problem may be seen in sales-oriented sales representatives, advertising-
oriented agency people, finance-oriented finance people, directors of nonprofit orga-
nizations, and so on. It is not a criticism of people who manage production. They
aren’t necessarily any more guilty of narrow thinking than anyone else.
The fences come down in an organization that has accepted the marketing con-
cept. There may still be departments because specialization often makes sense. But
the total system’s effort is guided by what customers want—instead of what each de-
partment would like to do.
In Chapter 20, we’ll go into more detail on the relationship between marketing
and other functions. Here, however, you should see that the marketing concept pro-
vides a guiding focus that all departments adopt. It should be a philosophy of the
whole organization, not just an idea that applies to the marketing department.

Survival and success Firms must satisfy customers. But keep in mind that it may cost more to satisfy
require a profit some needs than any customers are willing to pay. Or it may be much more costly to
try to attract new customers than it is to build a strong relationship with—and repeat
purchases from—existing customers. So profit—the difference between a firm’s reve-
nue and its total costs—is the bottom-line measure of the firm’s success and ability to
survive. It is the balancing point that helps the firm determine what needs it will try
to satisfy with its total (sometimes costly!) effort.

Adoption of the The marketing concept may seem obvious, but it is easy to maintain a production-
marketing concept is oriented way of thinking. Producers of industrial commodities like steel, coal, and
not universal chemicals have tended to remain production oriented in part because buyers see little
difference among competitors. Some industries with limited competition, including
electric utilities and cable television providers, have also been slow to adopt the mar-
keting concept. When an industry gets competitive, consumers have choices and
flock to those that deliver customer satisfaction. This provides an incentive for more
firms to practice the marketing concept.11
Exhibit 1–4 Some Differences in Outlook between Adopters of the Marketing Concept and the
Typical Production-Oriented Managers
Topic Marketing Orientation Production Orientation

Attitudes toward Customer needs determine They should be glad we exist, trying to cut
customers company plans. costs and bringing out better products.
An Internet Web site A new way to serve customers. If we have a Web site, customers will flock to us.
Product offering Company makes what it can sell. Company sells what it can make.
Role of marketing research To determine customer needs and To determine customer reaction, if used at all.
how well company is satisfying them.
Interest in innovation Focus is on locating new opportunities. Focus is on technology and cost cutting.
Importance of profit A critical objective. A residual, what’s left after all costs are
covered.
Customer service Satisfy customers after the sale and An activity required to reduce consumer
they’ll come back again. complaints.
Inventory levels Set with customer requirements Set to make production more convenient.
and costs in mind.
Focus of advertising Need-satisfying benefits of goods Product features and how products are made.
and services.
Role of sales force Help the customer to buy if the Sell the customer; don’t worry about
product fits customer’s needs, coordination with other promotion efforts
while coordinating with rest of firm. or rest of firm.
Relationship with customer Customer satisfaction before and Relationship ends when a sale is made.
after sale leads to a profitable
long-run relationship.
Costs Eliminate costs that do not give value Keep costs as low as possible.
to customer.

Take a look at Exhibit 1-4. It shows some differences in outlook between adopters
of the marketing concept and typical production-oriented managers. As the exhibit
suggests, the marketing concept forces the company to think through what it is doing—
and why.

THE MARKETING CONCEPT AND CUSTOMER VALUE

Take the customer’s A manager who adopts the marketing concept sees customer satisfaction as the
point of view path to profits. And to better understand what it takes to satisfy a customer, it’s useful
to take the customer’s point of view.
A customer may look at a market offering from two views. One deals with the
potential benefits of that offering; the other concerns what the customer has to give
up to get those benefits. Consider a student who has just finished an exam and is
thinking about getting a cup of mocha latte from Starbucks. Our coffee lover might
see this as a great-tasting snack, a personal reward, a quick pick-me-up, and even as
a way to get to know an attractive classmate. Clearly, different needs are associated
with these different benefits. The cost of getting these benefits would include the
price of the coffee and any tip, but there might be other nondollar costs. For example,
how difficult it will be to park is a convenience cost. Slow service would be an
aggravation.

Customer value reflects As this example suggests, both benefits and costs can take many different forms,
benefits and costs perhaps ranging from economic to emotional. They also may vary depending on the
situation. However, it is the customer’s view of the various benefits and costs that is

18
Exhibit 1–5 High
Costs, Benefits, and Perceived

CHAPTER 1
superior

e
Customer Value

lin
value

e
lu
va
Benefits target

ir
fa
customer sees in

d
ve
a firm’s goods

ei
and services

rc
pe
’s
er
Perceived

om
inferior 19

st
Cu
Low value
Low Costs target High
customer sees to

Marketing’s Value to Consumers, Firms, and Society

obtain benefits

important. This leads us to the concept of customer value—the difference between

the benefits a customer sees from a market offering and the costs of obtaining those
benefits. A consumer is likely to be more satisfied when the customer value is higher—
when benefits exceed costs by a larger margin. See Exhibit 1-5. On the other hand,
a consumer who sees the costs as greater than the benefits isn’t likely to become a
customer.
Some people think that low price and high customer value are the same thing. But
that may not be the case at all. A good or service that doesn’t meet a consumer’s
needs results in low customer value, even if the price is very low. Yet a high price may
be more than acceptable when it obtains the desired benefits. Think again about our
Starbucks example. You can get a cup of coffee for a much lower price, but Starbucks
offers more than just a cup of coffee.

Customer may not It’s useful for a manager to evaluate ways to improve the benefits, or reduce the
think about it very costs, of what the firm offers customers. However, this doesn’t mean that customers
much stop and compute some sort of customer value score before making each purchase. If
they did, there wouldn’t be much time in life for anything else. So a manager’s objec-
tive and thorough analysis may not accurately reflect the customer’s impressions. Yet
it is the customer’s view that matters—even when the customer has not thought
about it.

Where does You can’t afford to ignore competition. Consumers usually have choices about how
competition fit? they will meet their needs. So a firm that offers superior customer value is likely to
win and keep customers.
Often the best way to improve customer value, and beat the competition, is to be
first to satisfy a need that others have not even considered.
The competition between Pepsi and Coke illustrates this. Coke and Pepsi were
spending millions of dollars on promotion—fighting head-to-head for the same cola
customers. They put so much emphasis on the cola competition that they missed other
opportunities. That gave firms like Snapple the chance to enter the market and steal
away customers. For these customers, the desired benefits—and the greatest customer
value—came from the variety of a fruit-flavored drink, not from one more cola.

Build relationships with Firms that embrace the marketing concept seek ways to build a profitable long-
customer value term relationship with each customer. Even the most innovative firm faces competi-
tion sooner or later. And trying to get new customers by taking them away from a
competitor is usually more costly than retaining current customers by really satisfying
their needs. Satisfied customers buy again and again. This makes their buying job
easier, and it also increases the selling firm’s profits.
L.L. Bean has always focused
on customer satisfaction and
customer value as a way to
build long-term relationships
with customers. At its Web site
(www.llbean.com) it offers
consumers a lot more than
clothing and equipment. Its
“Explore the Outdoors” section
provides information about its
discovery schools and both
national and international
parks.

Building relationships with customers requires that everyone in a firm work to-
gether to provide customer value before and after each purchase. If there is a problem
with a customer’s bill, the accounting people can’t just leave it to the salesperson to
straighten it out or, even worse, act like it’s “the customer’s problem.” The long-term
relationship with the customer—and the lifetime value of the customer’s future
purchases—is threatened unless everyone works together to make things right for the
customer. Similarly, the firm’s advertising people can’t just develop ads that try to
convince a customer to buy once. If the firm doesn’t deliver on the benefits promised
in its ads, the customer is likely to go elsewhere the next time the need arises. And
the same ideas apply whether the issue is meeting promised delivery dates, resolving
warranty problems, giving a customer help on how to use a product, or even making it
easy for the customer to return a purchase made in error.
In other words, any time the customer value is reduced—because the benefits to
the customer decrease or the costs increase—the relationship is weakened.12
Exhibit 1-6 summarizes these ideas. In a firm that has adopted the marketing con-
cept, everyone focuses on customer satisfaction. They look for ways to offer superior
customer value. That helps attract customers in the first place—and keeps them satis-
fied after they buy. So when they are ready to make repeat purchases, the firm is able
to keep them as customers. Sales may increase further because satisfied customers are
likely to buy other products offered by the firm. In this way, the firm builds profitable
relationships with its customers. In other words, when a firm adopts the marketing
concept, it wins and so do its customers.

Curves’ superior Curves fitness centers illustrate these ideas. They have been successful in building
customer value enduring relationships with their customers—women who are interested in a fast,
satisfies customers regular workout. Research for Curves revealed that many women had simple fitness
needs. They didn’t want to work out with a lot of fancy training equipment; many
didn’t even want to shower at the workout center. Realizing this, Curves created
smaller than normal fitness centers that fit in convenient strip malls. Smaller size
and lower costs mean that Curves is able to open centers in small towns where larger

20
Exhibit 1–6 Total company
Satisfying Customers effort to satisfy

CHAPTER 1
with Superior Customer customers
Value to Build Profitable
Relationships
Build profitable Offer superior
relationships customer value
with customers

21

Increase sales to Attract

Marketing’s Value to Consumers, Firms, and Society

customers customers

Retain Satisfy
customers customers

fitness clubs could not survive. Its research also showed

EX ERCI SE

What does Curves offer its customers at its that many women preferred not to have men around
Internet

Web site (www.curves.com)? How does this when they exercise. Instead, they like the camaraderie of
increase the value a customer receives from exercising with other women—which Curves enhances
being a Curves member? What could Curves by arranging equipment in a circle. This arrangement is
do with the Web site to further enhance its coupled with simple exercises so a customer doesn’t waste
relationships with customers? time waiting on machines—and she can count on finish-
ing in just 30 minutes. Compared to competitors, Curves’
fee is also attractive—less than $50 per month. Curves’
overall approach works well for its members, which explains why they keep coming
back. And because it provides superior customer value for its members, Curves has
grown to more than 10,000 fitness centers in 60 countries.13

THE MARKETING CONCEPT APPLIES

IN NONPROFIT ORGANIZATIONS
Newcomers to The marketing concept is as important for nonprofit organizations as it is for
marketing thinking business firms. In fact, marketing applies to all sorts of public and private nonprofit
organizations—ranging from government agencies, health care organizations,
educational institutions, and religious groups to charities, political parties, and fine
arts organizations.

Support may not As with any business firm, a nonprofit organization needs resources and support to
come from satisfied survive and achieve its objectives. Yet support often does not come directly from
“customers” those who receive the benefits the organization produces. For example, the World
Wildlife Fund protects animals. If supporters of the World Wildlife Fund are not satis-
fied with its efforts—don’t think the benefits are worth what it costs to provide
them—they will put their time and money elsewhere.
 Marketing is now widely accepted by many local, national, and international nonprofit
organizations. For example, this ad for the San Diego Zoo announces the addition of elephants
to its menagerie of residents.

Just as most firms face competition for customers, most nonprofits face competition
for the resources and support they need. The Air Force faces a big problem if it can’t
attract new recruits. A shelter for the homeless may fail if supporters decide to focus
on some other cause, such as AIDS education.

What is the “bottom As with a business, a nonprofit must take in as much money as it spends or it won’t
line”? survive. However, a nonprofit organization does not measure “profit” in the same way
as a firm. And its key measures of long-term success are also different. The YMCA,
colleges, symphony orchestras, and the United Way, for example, all seek to achieve
different objectives and need different measures of success. When everyone in an or-
ganization agrees to some measure(s) of long-run success, it helps the organization
focus its efforts.

May not be organized Some nonprofits face other challenges in organizing to adopt the marketing con-
for marketing cept. Often no one has overall responsibility for marketing activities. Even when
some leaders do the marketing thinking, they may have trouble getting unpaid volun-
teers with many different interests to all agree with the marketing strategy. Volunteers
tend to do what they feel like doing!14

THE MARKETING CONCEPT, SOCIAL RESPONSIBILITY,

AND MARKETING ETHICS
Society’s needs must The marketing concept is so logical that it’s hard to argue with it. Yet when a
be considered firm focuses its efforts on satisfying some consumers—to achieve its objectives—
there may be negative effects on society. For example, producers and consumers
making free choices can cause conflicts and difficulties. This is called the micro-
macro dilemma. What is “good” for some firms and consumers may not be good for
society as a whole.
For instance, many people in New York City buy bottled water because they like the
convenience of easy-to-carry disposable bottles with spill-proof caps. On the other
hand, the city already provides citizens with good tasting, safe tap water at a fraction of
the cost. Is this just a matter of free choice by consumers? It’s certainly a popular
choice! On the other hand, critics point out that it is an inefficient use of resources to

22
 waste oil making and transporting mil-
lions of plastic bottles that end up in

CHAPTER 1
landfills where they leach chemicals
into the soil. That kind of thinking,
about the good of society as a whole, ex-
plains why New York City has run ads
that encourage consumers to “get your
fill” of free city water. What do you
think? Should future generations pay
the environmental price for today’s con- 23
sumer conveniences?15
Questions like these are not easy to
answer. The basic reason is that many

Marketing’s Value to Consumers, Firms, and Society

different people may have a stake in the
outcomes—and social consequences—
of the choices made by individual
managers and consumers in a market-
directed system. This means that mar-
keting managers should be concerned
with social responsibility—a firm’s
obligation to improve its positive effects
on society and reduce its negative
effects. As you read this book and learn
more about marketing, you will also
learn more about social responsibility in
marketing—and why it must be taken
seriously. You’ll also see that being so-
cially responsible sometimes requires
difficult trade-offs.
Consider, for example, the environmental problems created by CFCs, chemicals
that were used in hundreds of critical products, including fire extinguishers, cooling
systems, and electronic circuit boards. When it was learned that CFCs deplete the
earth’s ozone layer, it was not possible to immediately stop producing and using all
CFCs. For many products critical to society, there was no feasible short-term substi-
tute. Du Pont and other producers of CFCs worked hard to balance these conflicting
demands until substitute products could be found. Yet you can see that there are no
easy answers for how such conflicts should be resolved.16
The issue of social responsibility in marketing also raises other important
questions—for which there are no easy answers.

Should all consumer Some consumers want products that may not be safe or good for them in the long run.
needs be satisfied? Some critics argue that businesses should not offer high-heeled shoes, alcoholic bever-
ages, or sugar-coated cereals because they aren’t “good” for consumers in the long run.
Similarly, bicycles and roller blades are among the most dangerous products
identified by the Consumer Product Safety Commission. Who should decide if these
products will be offered to consumers?

Do all marketers act Not all marketers act in a socially responsible manner. Sometimes firms or indi-
responsibly? viduals advance their own short-term interests at the expense of customers. For
example, during the recent housing boom, some mortgage brokers took advantage of
trusting customers and sold them mortgages they could not afford while earning large
commissions for themselves. As a result, many homebuyers were unable to pay for
their homes, and this contributed to a global economic recession. When products are
complicated, consumers may be vulnerable to unscrupulous sellers. In these circum-
stances we can debate whether it is better to “let the buyer beware” or enact stricter
government regulation.
Pepsi found a creative way to
build its brand and support
worthwhile community
projects. The Pepsi Refresh
Project encourages consumers
to submit a project idea and
describe it online. Those ideas
that receive the most votes
from the public are funded by
Pepsi. Pepsi is giving away
millions of dollars and funding
hundreds of projects. Its grants
range from $5,000 to
$250,000.

What if it cuts into There are times when being socially responsible can increase not only a firm’s prof-
profits? its, but also its costs. Even though some consumers will pay premium prices to buy
“fair trade” coffee, napkins made from recycled paper, hybrid cars that pollute less, or
products made in overseas factories that pay a “fair wage,” these items may cost more
to produce. At the same time, other consumers attach little or no value to these social
measures and refuse to pay a higher price for such products. Consequently, many firms
selling to this second group are reluctant to be more socially responsible.
When a society feels that the social benefits are important, it may add regulations
to create a level playing field for all firms and to assure that these benefits are pro-
vided. For example, there are laws that protect rivers from water pollution and that
restrict the use of child labor. Still, it is difficult for governments to impose regulations
that govern all circumstances where such trade-offs occur. So is the marketing con-
cept really desirable?
Socially conscious marketing managers are trying to answer these questions. Their
definition of customer satisfaction includes long-range effects—as well as immediate
customer satisfaction. They try to balance consumer, company, and social interests.

The marketing A manager cannot be truly consumer-oriented and at the same time intentionally
concept guides unethical. However, at times, problems and criticism may arise because a manager did
marketing ethics not fully consider the ethical implications of a decision. In either case, there is no
excuse for sloppiness when it comes to marketing ethics—the moral standards that
guide marketing decisions and actions. Each individual develops moral standards
based on his or her own values. That helps explain why opinions about what is right
or wrong often vary from one person to another, from one society to another, and
among different groups within a society. It is sometimes difficult to say whose opinions
are “correct.” Even so, such opinions may have a very real influence on whether an
individual’s (or a firm’s) marketing decisions and actions are accepted or rejected.
So marketing ethics are not only a philosophical issue; they are also a pragmatic
concern.

24
Exhibit 1–7 Summary of American Marketing Association Statement of Ethics

CHAPTER 1
Preamble
The American Marketing Association commits itself to promoting the highest standard of professional ethical norms
and values for its members (practitioners, academics, and students). Norms are established standards of conduct
that are expected and maintained by society and/or professional organizations. Values represent the collective con-
ception of what communities find desirable, important, and morally proper. Values also serve as the criteria for evalu-
ating our own personal actions and the actions of others. As marketers, we recognize that we not only serve our
organizations but also act as stewards of society in creating, facilitating, and executing the transactions that are part
of the greater economy. In this role, marketers are expected to embrace the highest professional ethical norms and
the ethical values implied by our responsibility toward multiple stakeholders (e.g., customers, employees, investors, 25
peers, channel members, regulators, and the host community).
Ethical Norms
As Marketers, we must:

Marketing’s Value to Consumers, Firms, and Society

• Do no harm.
• Foster trust in the marketing system.
• Embrace ethical values.
Ethical Values
• Honesty—to be forthright in dealings with customers and stakeholders.
• Responsibility—to accept the consequences of our marketing decisions and strategies.
• Fairness—to balance justly the needs of the buyer with the interests of the seller.
• Respect—to acknowledge the basic human dignity of all stakeholders.
• Transparency—to create a spirit of openness in marketing operations.
• Citizenship—to fulfill the economic, legal, philanthropic, and societal responsibilities that serve stakeholders.
The full document may be found on the American Marketing Association Web site (www.marketingpower.com).

Problems may arise when some individual manager does not share the same mar-
keting ethics as others in the organization. One person operating alone can damage a
firm’s reputation and even survival.
To be certain that standards for marketing ethics are as clear as possible, many
organizations have developed their own written codes of ethics. These codes usu-
ally state—at least at a general level—the ethical standards that everyone in the
firm should follow in dealing with customers and other people. Many professional
societies also have such codes. For example, the American Marketing Associa-
tion’s code of ethics—see Exhibit 1-7—sets specific ethical standards for many as-
pects of marketing.17
Throughout the text, we will be discussing the types of ethical issues individual
marketing managers face. But we won’t be moralizing and trying to tell you how you
should think on any given issue. Rather, by the end of the course we hope that you
will have some firm personal opinions about what is and is not ethical in micro-
marketing activities.18

A customer purchases a Sony digital camera that comes with a 90-day manufacturer’s
scihtEEthics

warranty on parts and labor. The salesperson suggests that the customer consider the
Q UE S T IO N

store’s three-year extended service to cover any problems with the camera. The customer
replies, “I’m getting a Sony because it’s a reputable brand—and at $98 the service agree-
ment is one-third the cost of the camera.” Four months later, the customer returns to the
store and complains that the camera no longer takes pictures and that “the store needs to
make it right.” If you were the store manager, what would you say? Would your response be
any different if you knew that the customer was going to post his complaint on a consumer
Web site?
 Exhibit 1–8 • Advertising is everywhere, and it’s often annoying, misleading, or wasteful.
Sample Criticisms of
CHAPTER 1

• The quality of products is poor and often they are not even safe.
Marketing
• There are too many unnecessary products.
• Packaging and labeling are often confusing and deceptive.
• Retailers add too much to the cost of distribution and just raise prices without pro-
viding anything in return.
• Marketing serves the rich and exploits the poor.
• Service stinks, and when a consumer has a problem, nobody cares.
26
• Marketing creates interest in products that pollute the environment.
• Private information about consumers is collected and used to sell them things they
don’t want.
Marketing’s
Ma

• Marketing makes people too materialistic and motivates them toward “things”
instead of social needs.
• Easy consumer credit makes people buy things they don’t need and can’t afford.
Value to Consumers, Firms, and Society

Fortunately, the prevailing practice of most businesspeople is to be fair and honest.

However, not all criticisms of marketing focus on ethical issues.

Marketing has its We must admit that marketing—as it exists in the United States and other devel-
critics oped societies—has many critics. Marketing activity is especially open to criticism
because it is the part of business most visible to the public.
A number of typical complaints about marketing are summarized in Exhibit 1-8.
Think about these criticisms and whether you agree with them or not. What com-
plaints do you have that are not covered by one of the categories in Exhibit 1-8?
Such complaints should not be taken lightly. They show that many people are
unhappy with some parts of the marketing system. Certainly, the strong public sup-
port for consumer protection laws proves that not all consumers feel they are being
treated like royalty.
As you consider the various criticisms of marketing, keep in mind that not all of
them deal with the marketing practices of specific firms. Some of the complaints
about marketing really focus on the basic idea of a market-directed macro-marketing
system—and these criticisms often occur because people don’t understand what mar-
keting is—or how it works.19 As you go through this book, we’ll discuss some of these
criticisms. Then in our final chapter, we will return to a more complete appraisal of
marketing in our consumer-oriented society.

CONCLUSION
The basic purpose of this chapter is to introduce You’ve learned about two views of marketing, both
you to marketing and highlight its value for consum- of which are important. One takes a micro view and
ers, firms, and society. In Chapter 2, we introduce a focuses on marketing activities by an individual busi-
marketing strategy planning process that is the ness (or other type of organization). This is what
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framework for ideas developed throughout the rest most people (including most business managers)
of the text—and that will guide your marketing have in mind when they talk about marketing. But it’s
thinking in the future. This chapter sets the stage for important to understand that marketing also plays
that by introducing basic principles that guide a more macro role. Macro-marketing is concerned
marketing thinking. with the way the whole marketing system works in a
society or economy. It operates to make exchanges firms tend to forget this. The various departments
and relationships between producers and their cus- within a production-oriented firm let their natural

CHAPTER 1
tomers more effective. conflicts of interest get in the way of customer
We discussed the functions of marketing and who satisfaction.
performs them. This includes not only producers and We also introduced the customer value concept. It
their customers but also marketing specialists who is marketing’s responsibility to make certain that
serve as intermediaries between producers and con- what the firm offers customers really provides them
sumers and other specialists (like product-testing with value that is greater than they can obtain some-
labs and advertising agencies) who are collaborators where else. In today’s competitive markets, a firm
and facilitate marketing functions. must offer superior customer value if it wants to 27
27
We explained how a market-directed economy attract customers, satisfy them, and build beneficial
works, through the macro-marketing system, to long-term relationships with them.
provide consumers with choices. We introduced A final objective was for you to see how social
macro-marketing in this chapter, and we’ll consider responsibility and marketing ethics relate to the

Marketing’s Value to Consumers, Firms, and Society

macro-marketing issues throughout the text. But the marketing concept. The chapter ends by considering
major focus of this book is on marketing by individ- criticisms of marketing—both of the way individual
ual organizations. Someone in an organization must firms work and of the whole macro system. When you
plan and manage its activities to make certain that have finished reading this book, you will be better
customer needs are satisfied. able to evaluate these criticisms.
That’s why understanding the marketing con- By learning more about marketing-oriented deci-
cept is another objective. The marketing concept is sion making, you will be able to make more efficient
the basic philosophy that provides direction to a and socially responsible decisions. This will help
marketing-oriented firm. It stresses that the com- improve the performance of individual firms and
pany’s efforts should focus on satisfying some organizations (your employers). And eventually it will
target customers—at a profit. Production-oriented help our macro-marketing system work better.

KEY TERMS
production, 5 standardization and grading, 10 production era, 15
customer satisfaction, 5 financing, 10 sales era, 16
innovation, 6 risk taking, 10 marketing department era, 16
marketing, 6 market information function, 10 marketing company era, 16
pure subsistence economy, 7 intermediary, 10 marketing concept, 16
macro-marketing, 8 collaborators, 11 production orientation, 16
economies of scale, 9 e-commerce, 11 marketing orientation, 17
universal functions of marketing, 9 economic system, 12 customer value, 19
buying function, 10 command economy, 12 micro-macro dilemma, 22
selling function, 10 market-directed economy, 13 social responsibility, 23
transporting function, 10 simple trade era, 15 marketing ethics, 24
storing function, 10

QUESTIONS AND PROBLEMS

1. List your activities for the first two hours after you woke 3. Distinguish between the micro and macro views of market-
up this morning. Briefly indicate how marketing affected ing. Then explain how they are interrelated, if they are.
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your activities. 4. Refer to Exhibit 1-1, and give an example of a purchase

2. If a producer creates a really revolutionary new product you made recently that involved separation of informa-
and consumers can learn about it and purchase it at a Web tion and separation in time between you and the pro-
site, is any additional marketing effort really necessary? ducer. Briefly explain how these separations were
Explain your thinking. overcome.
 5. Describe a recent purchase you made. Indicate why that 13. Define the marketing concept in your own words, and
particular product was available at a store and, in particu- then suggest how acceptance of this concept might affect
CHAPTER 1

lar, at the store where you bought it. the organization and operation of your college.
6. Define the functions of marketing in your own words. Using 14. Distinguish between production orientation and market-
an example, explain how they can be shifted and shared. ing orientation, illustrating with local examples.
7. Online computer shopping at Web sites makes it possible 15. Explain why a firm should view its internal activities as
for individual consumers to get direct information from part of a total system. Illustrate your answer for (a) a
hundreds of companies they would not otherwise know large grocery products producer, (b) a plumbing whole-
about. Consumers can place an order for a purchase that is saler, (c) a department store chain, and (d) a cell phone
then shipped to them directly. Will growth of these ser- service.
vices ultimately eliminate the need for retailers and whole- 16. Give examples of some of the benefits and costs that
28
salers? Explain your thinking, giving specific attention to might contribute to the customer value of each of the fol-
what marketing functions are involved in these “electronic lowing products: (a) a wristwatch, (b) a weight-loss diet
purchases” and who performs them. supplement, (c) a cruise on a luxury liner, and (d) a check-
Marketing’s Value to Consumers, Firms, and Society

8. Explain why a small producer might want a marketing ing account from a bank.
research firm to take over some of its information- 17. Give an example of a recent purchase you made where the
gathering activities. purchase wasn’t just a single transaction but rather part
9. Distinguish between how economic decisions are made in a of an ongoing relationship with the seller. Discuss what
command economy and how they are made in a market- the seller has done (or could do better) to strengthen the
directed economy. relationship and increase the odds of you being a loyal
10. Would the functions that must be provided and the devel- customer in the future.
opment of wholesaling and retailing systems be any 18. Discuss how the micro-macro dilemma relates to each of
different in a command economy from those in a market- the following products: high-powered engines in cars,
directed economy? nuclear power, bank credit cards, and pesticides that
11. Explain why a market-directed macro-marketing system improve farm production.
encourages innovation. Give an example.
12. Define the marketing concept in your own words, and
then explain why the notion of profit is usually included in
this definition.

SUGGESTED CASES
1. McDonald’s “Seniors” Restaurant 18. Ralston Valley Volunteer Fire Department
2. Sunnyvale Foods, Inc. Video Case 1. Chick-fil-A

COMPUTER-AIDED PROBLEM
1. REVENUE, COST, AND PROFIT RELATIONSHIPS 3,000 students, so she has had 2,700 printed. The total cost,
This problem introduces you to the computer-aided prob- including artwork and printing, is $11,500. Last year the cal-
lem (CAP) software—which is at the Online Learning Center for endar sold for $5.00, but Sue is considering changing the price
this text—and gets you started with the use of spreadsheet this year.
analysis for marketing decision making. This problem is simple. Sue thinks that the bookstore will be able to sell 6,000
In fact, you could work it without the software. But by starting notebooks if they are priced right. But she knows that many
with a simple problem, you will learn how to use the program students will buy similar notebooks (without the school name)
more quickly and see how it will help you with more compli- from stores in town if the bookstore price is too high.
cated problems. Instructions for the software are available at Sue has entered the information about selling price, quan-
the end of this text. tity, and costs for calendars and notebooks in the spreadsheet
Sue Cline, the business manager at Magna University Stu- program so that it is easy to evaluate the effect of different
dent Bookstore, is developing plans for the next academic decisions. The spreadsheet is also set up to calculate revenue
year. The bookstore is one of the university’s nonprofit and profit, based on
activities, but any “surplus” (profit) it earns is used to support
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the student activities center. Revenue 5 (Selling price) 3 (Quantity sold)

Two popular products at the bookstore are the student aca- Profit 5 (Revenue) 2 (Total cost)
demic calendar and notebooks with the school name. Sue Cline
thinks that she can sell calendars to 90 percent of Magna’s
 Use the program to answer the questions that follow. Re- assuming that she sells all 6,000 notebooks she is think-
cord your answers on a separate sheet of paper. ing of ordering. Prepare a table—on your sheet of paper—

CHAPTER 1
a. From the Spreadsheet Screen, how much revenue does with column headings for three variables: selling price,
Sue expect from calendars? How much revenue from revenue, and profit. Show the value for revenue and
notebooks? How much profit will the store earn from cal- profit for different possible selling prices for a notebook—
endars? From notebooks? starting at a minimum price of $1.60 and adding 8 cents
to the price until you reach a maximum of $2.40. At what
b. If Sue increases the price of her calendars to $6.00 and
price will selling 6,000 notebooks contribute $5,400.00 to
still sells the same quantity, what is the expected revenue?
profit? At what price would notebook sales contribute only
The expected profit? (Note: Change the price from $5.00
$1,080.00? (Hint: Use the What If analysis feature to com-
to $6.00 on the spreadsheet and the program will recom-
pute the new values. Start by selecting “selling price” for 29
pute revenue and profit.) On your sheet of paper, show
notebooks as the value to change, with a minimum value
the calculations that confirm that the program has given
of $1.60 and a maximum value of $2.40. Select the reve-
you the correct values.
nue and profit for notebooks as the values to display.)
c. Sue is interested in getting an overview of how a change in

Marketing’s Value to Consumers, Firms, and Society

the price of notebooks would affect revenue and profit,

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