second edition

second second edition

Marketing Strategies a contemporary approach edition
ˇ
Ashok Ranchhod Calin ˇ
Gurau

Ashok Ranchhod Calin

Marketing Strategies a contemporary approach
A new direction for marketing strategies!
Challenging traditional marketing concepts like the 4 Ps, Marketing Strategies
examines the key factors affecting marketing in today’s competitive business
environment: sustainability, ethics, market orientation, the impact of technology
and globalisation.

ˇ
In this fully revised and updated second edition, Ashok Ranchhod and Calin ˇ
Gurau
provide excellent analysis for those who wish to explore new ways of looking at the
marketing process in order to gain an edge over the competition.

Follow the signs to success!

Newly added topics in this edition include:
• Corporate Social Responsibility, climate change and responsible customer

ˇ
behaviour
• How Globalisation is impacting upon consumers and organisations
• The marketing audit and marketing performance measures (including the Triple

Gurau
Bottom Line)
• Social and Digital Marketing

ˇ
Brand new case studies analysing internationally recognised companies (including
Apple, Dyson, Marks & Spencer, Guinness and the Wal-Mart chain) provide real-world
insights from a range of contemporary business perspectives.

Let Marketing Strategies show you the way

‘Offers all I am interested in and what is important in today’s marketing

practice in one comprehensive textbook.’
Frans Plat, University of Maastricht

‘This book continues to challenge existing theories of marketing,

reaching into wider social areas such as globalisation and sustainability.
It will continue to inspire and inform a new generation of students.’
Professor Helen Thomas, Research Director, London College of Fashion,
University of the Arts, London

Ashok Ranchhod is Faculty Professor in Marketing at Southampton Business School.

ˇ Gurau
Calin ˇ is Professor in Marketing at GSCM-Montpellier Business School, France.

Additional student support at www.pearsoned.co.uk/ranchhod

www.pearson-books.com
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MAST_A01.QXD 24/4/07 14:01 Page i

Marketing Strategies
‘An excellent book for any marketing student or practitioner needing to be prepared for
v
the future. Professors Ranchhod and Gurau have taken the 21st Century “bite-sized
chunks” approach and produced a valuable resource for the student of marketing,
whether new to the field or seasoned professional.’
Charles Jennings, Global Head of Learning, Reuters Group

‘The authors navigate through environmental analysis, marketing ethics, market

segmentation and strategic positioning through discussing underpinning resources that
support value creation yet never losing sight of the need for sustainability, which is all too
often a missing component within many marketing strategies. This book is essential
reading for those wishing to better understand the challenges and opportunities facing
those competing for success and growth in the 21st Century.’
Professor Zahir Irani, Head of Brunel Business School, UK

‘This book provides very important insights into the challenges facing marketers today. It
has well developed sections on sustainability issues and new perspectives in marketing.
It is a must for marketers looking beyond standard textbooks.’
Professor Naval Bhargava, Dean of International Relations, Senior Professor in Marketing,
Mudra Institute of Communications Ahmedabad (MICA), India

v
‘Professors Ranchhod and Gurau not only explain the key concepts and tools for effective
marketing in today’s changing business environment, but also put forward what’s next in
the marketing world. This is a well written text by authors with vision and insight.’
Birgi Martin, Ph.D. (Research Development Director, USA), and Sharon Albert, Ph.D.
(SVP, Marketing and Product Development), Lightspeed Research (WPP Group)

Visit the Marketing Strategies, second edition Companion Website at

www.pearsoned.co.uk/ranchhod to find valuable student learning material
including links to relevant sites on the web.
MAST_A01.QXD 24/4/07 14:01 Page ii

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MAST_A01.QXD 24/4/07 14:01 Page iii

Second Edition

Marketing Strategies
A Contemporary Approach

Ashok Ranchhod
and
v v
Calin Gurau
MAST_A01.QXD 24/4/07 14:01 Page iv

Pearson Education Limited

Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world

Visit us on the World Wide Web at:

www.pearsoned.co.uk

First published 2004

Second edition published 2007

© Pearson Education Limited 2004, 2007

v v
The rights of Ashok Ranchhod and Calin Gurau to be identified as authors of
this work have been asserted by them in accordance with the Copyright, Designs and
Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
publisher or a licence permitting restricted copying in the United Kingdom issued by the
Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS.

All trademarks used herein are the property of their respective owners. The use of
any trademark in this text does not vest in the author or publisher any trademark
ownership rights in such trademarks, nor does the use of such trademarks imply
any affiliation with or endorsement of this book by such owners.

ISBN: 978-0-273-70674-8

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

10 9 8 7 6 5 4 3 2 1
10 09 08 07

Typeset in 9.5/13pt Stone Serif by 30

Printed by Ashford Colour Press Ltd, Gosport

The publisher's policy is to use paper manufactured from sustainable forests.

MAST_A01.QXD 24/4/07 14:01 Page v

Contents

Preface xiii
Acknowledgements xvii
Publisher’s acknowledgements xvii

1 From structure to chaos? Understanding marketing strategy 1

Introduction 1
Technological advances 2
The marketing concept 4
Marketing as a business process 5
The role of market orientation 6
Case study: Apple and the iPod 9
Loyalty 11
Strategic planning to deliver the marketing concept 12
Environmental factors 14
Creating a sense of identity 15
Limitations 17
Time as an issue in planning 18
Time and first mover advantages 19
Time-cycle for products 19
Time and consumers’ perceptions 20
Case study: Slow coaching and The Official Slow Food Manifesto 21
Time and experiential advantages 22
Time and technological advantages 22
Ethics as a marketing issue 24
Towards a new strategic marketing planning model 24
Case study: Internet banking: quick to adapt to technology 25
Case study: Banco Bradesco trials Fujitsu palm vein authentication
technology 26
Summary 27
Chapter questions 28
MAST_A01.QXD 24/4/07 14:01 Page vi

vi Contents

2 Opening up analysis and positioning 29

Introduction 29
Internal analysis 29
The analysis of tangible and intangible resources 29
Operant and operand resources 30
Organisational strengths and weaknesses 30
Product portfolio analysis 33
The value added chain approach 38
Internal resources (competitive advantage) and corporate objectives
(strategic mission) 39
External analysis 40
Market threats and opportunities 40
Porter’s model of industry attractiveness 42
Case study: Eminem’s CD sales impressive despite music sharing 45
Overview of analysing the industry 47
The industry attractiveness/business’competitive strength matrix 48
Key issues to consider when using portfolio matrices 52
The marketing information system 52
Market segmentation 53
Segmentation criteria 55
Geographic segmentation 56
Demographic segmentation 57
Case study: The power behind PlayStation: going for old 59
Case study: Lifestyle snapshots 62
The segmentation process 69
Strategic positioning 71
Case study: Little Dyson cleaner finds a niche in the smaller Japanese home 73
The Internet, postmodern marketing and globalisation 75
Summary 78
Chapter questions 78

3 Stakeholder concerns and solutions 79

Introduction 79
Case study: Slow decline of high-street champion 79
Case study: M&S sales surge stuns city 81
Stakeholder theory 82
Stakeholder interactions 82
Case study: Image in the balance 91
Case study: Customers as stakeholders of Nestlé 97
Case study: Bhatia v. Sterlite Industries (2001) 100
Developing competitive marketing strategies 101
Narrow view 103
MAST_A01.QXD 24/4/07 14:01 Page vii

Contents vii

Broad view 104

Understanding stakeholder evolution and management 107
Case study: British Biotechnology 108
Competitive positioning 109
Summary 112
Chapter questions 112

4 A sustainable Earth matters 113

Introduction 113
Understanding environmental marketing 115
Energy and the climate 116
Chemicals and the biological boomerang 117
Commerce and the oceans 117
Case study: Nike Corporation 126
The lifecycle analysis (LCA) concept–lifecycle thinking 126
Case study: APRIL takes a leaf out of the green book 129
Implications for organisations 134
Green consumer behaviour 139
Green marketing strategies 142
Case study: Green marketing: lessons from the leaders 143
Responsible marketing 145
Green marketing 146
Social marketing 147
Summary 149
Chapter questions 149

5 Communicating effectively 150

Introduction 150
Case study: The ad revolution will not be televised 153
Corporate image and corporate identity 155
Defining the IMC concept 157
Organisational challenges to implementing the IMC concept 159
Lack of horizontal communication 160
Functional specialisation 160
Decentralisation 160
Lack of IMC planning and expertise 160
Lack of budget 161
Lack of a database and the accompanying technology 161
Culture 162
Fear of change 162
One size does not fit all 163
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viii Contents

Implementing the IMC concept 163

The seven evolutionary steps model 163
The three-dimensional model 165
The eight-step process 166
IMC in an online environment 170
Internet-based communication synergies 170
Internet-based communication challenges 171
A model for implementing an IOMC strategy 172
Brands 175
Case study: Why British shoppers are sniffing at everyday low prices 176
Brand strategies 178
Brand management 180
Case study: Morgan Motor Company Limited 181
Brand values 184
Case study: How Philips got brand buzz 185
Brand equity 188
Summary 189
Chapter questions 189

6 Implementation is the key 190

Introduction 190
Planned versus emergent implementation 190
Case study: Dark days for Guinness 193
The main factors influencing strategy implementation 195
Internal factors 196
Case study: ‘Do your homework’, French professor tells small firms 197
External factors 204
The impact of technology on marketing implementation 213
Case study: What makes a business more agile? 214
IT-related organisational benefits 216
Customer relationships 220
Summary 226
Chapter questions 226

7 Understanding and creating effective marketing cultures 227

Introduction 227
The visible and invisible parts of an organisation 228
The visible parts of an organisation 228
Case study: Setting off a chain reaction 232
The roles of the invisible parts of an organisation 234
The transition from focusing on products to a customer orientation 241
MAST_A01.QXD 24/4/07 14:01 Page ix

Contents ix

The learning organisation 242

What are learning processes? 243
From individual to organisational learning 246
Keeping the benefits of a learning orientation 250
Organisational memory and mental models 250
The culture of learning 251
Case study: Adapt or die … 251
Learning is not straightforward 254
Developing a learning, market-orientated organisation 256
Summary 261
Chapter questions 262

8 Globalising marketing efforts 263

Introduction 263
The main factors influencing international marketing operations 264
The internationalisation of firms 265
Case study: Sabon cleans up in America 267
Case study: Success for Tasmanian ‘born global’ 270
Offshoring and globalisation of suppliers 272
International marketing orientations 276
Standardisation versus adaptation 277
Selecting which foreign markets to target 278
Evaluate and understand the assets and strategic objectives of the firm 279
Define the main criteria for selecting a country 280
Apply the selection criteria and select the country or countries 280
Case study: Establishing countries’attractiveness for exporting opportunities 281
Study the profile of the selected foreign market(s) 283
Develop the strategic marketing plan 283
Market entry strategies 284
Exporting 284
Licensing 285
Franchising 285
Strategic alliances 286
Joint ventures 287
Subsidiaries 288
Case study: When big business bites 289
Managing international operations 291
Multinational 292
International 292
Global 293
Transnational 294
Summary 294
Chapter questions 295
MAST_A01.QXD 24/4/07 14:01 Page x

x Contents

9 Measuring for effectiveness in marketing 296

Introduction 296
Measuring marketing performance 296
The role of financial analysis 297
Profit ratios 298
Gross profit margin 298
Net profit margin 298
Return on total assets 299
Net income 299
Return on shareholders’ equity 299
Liquidity ratios 299
Leverage ratios 300
Activity ratios 300
Marketing metrics 301
Adaptability or innovativeness 302
Effectiveness 302
Efficiency 303
Measuring the major marketing attributes 304
What we have learned 309
Understanding measurement within the global context 312
Case study: Sweet ambitions to tempt more takers 313
Measuring environmental effectiveness 315
Case study: The Co-operative Bank 319
Case study: Novo Nordisk: TakeAction! – make the triple bottom line
your business 320
Developing individual measures 324
Strategic 324
Tactical 324
Suitability 325
Acceptability 325
Feasibility 325
Using the measures and the TBL 326
Summary 327
Chapter questions 327

10 New perspectives in marketing and the way forward 328

Introduction 328
Moving away form the 4 Ps 328
Price 329
Product 330
Place 330
MAST_A01.QXD 24/4/07 14:01 Page xi

Contents xi

Promotion 330
Consumer behaviour 331
Case study: The cultural melting pot 333
Value co-creation 335
The service-dominant logic in marketing 335
Marketing flexibility 337
Flexibility regarding customers’ participation 337
Flexibility of interaction 338
Flexibility of implementation 338
Open innovation 340
Case study: Open-source biotech 342
The dynamic environment 346
Structure of markets 347
Speed 349
The future impact of technology 350
Digital marketing 351
Introduction 351
What is happening to the individual? 352
Case study: My virtual life 354
Blog marketing 358
Mobile marketing 362
Case study: Digital marketing – flying higher and higher via mobile platforms 364
Marketing on the Internet 364
What next in the digital age? 365
Social marketing 369
Previous studies 371
Theories and models of social change 372
The role of social marketing campaigns 375
Online social marketing 376
Case study: Jamie Oliver in talks over campaign for family meals 377
Case study: Diet industry will be winner in battle of the bulge as
Europe goes to fat 382
Rural marketing 383
Develop products that meet market needs 384
Understand the informal economy 384
Understand the role of second-generation émigrés to countries in
Europe, the USA, Canada and Japan 384
Case study: Act local, think global 386
Towards a new strategic marketing model 388
Summary and final observations 390

References and further reading 392

Index 408
MAST_A01.QXD 24/4/07 14:01 Page xii

xii

Supporting resources
Visit www.pearsoned.co.uk/ranchhod to find valuable online resources
Companion Website for students
 Links to relevant sites on the web
For instructors
 Complete, downloadable Instructor’s Manual
 PowerPoint slides that can be downloaded and used for presentations
For more information please contact your local Pearson Education sales representative or visit
www.pearsoned.co.uk/ranchhod
MAST_A01.QXD 24/4/07 14:01 Page xiii

Preface

In launching into the second edition of Marketing Strategies, it became apparent to

the authors that much had changed quite dramatically in the world since the last
edition. We have therefore retitled this edition Marketing Strategies: A Contemporary
Approach. A marketing textbook has to be contemporary in order to absorb and
reflect new ideas and processes, at the same time reflecting the changing needs and
desires of the society at large. Social norms have changed and are continually
changing, with technology making ever greater inroads into the marketing process.
Markets, too, are becoming more global in nature than before. At the same time,
issues such as global warming, discussed in the first edition, are now taking the
main stage in many political and marketing debates.
Most practising marketers realise that the practice of marketing can be quite
messy and difficult to define. In order to understand the rather untidy and chaotic
nature of marketing, this book does not follow a linear format. The chapters con-
sider some of the major issues that impact on marketing strategy development and
can be read in any order. The book also aims to close the gap in understanding cul-
tural issues by offering case studies that have been drawn from various parts of the
world. It shows different views on marketing and their impact on the discipline. It
is also a mix of the practical and theoretical. Exercises in many chapters can be
used practically by readers to assess their companies’ marketing stances. The book
takes an international perspective rather than the conventional North American
approach. The underlying theme of the book addresses issues such as sustainability
and ethics. In many ways, the book tries to explain the holistic and rather organic
nature of marketing. In fact, in line with the way in which marketing is evolving
and the growing interest in market orientation, there is little discussion of the 4 Ps
in the book. This may come as bit of a disappointment to those looking for hard
and fast rules when developing marketing strategies. Strategies are often context-
and company-specific. This becomes apparent as you read the book.
This edition retains the radical nature of the first because it expands five of the
main contemporary factors affecting marketing in the twenty-first century – sus-
tainability, ethics, market orientation, the impact of technology and globalisation.
In addition, there are several new sections, which are described and discussed
below. There is an emphasis on understanding the role of branding and the devel-
opment of customer relationships. This book develops the role of marketing and
gives it a thought-provoking stance. It shows the types of questions that marketing
managers and students should consider. The philosophy of marketing is as impor-
tant as its application and implementation.
MAST_A01.QXD 24/4/07 14:01 Page xiv

xiv Preface

Structure
This book is divided into ten chapters, each with a distinctive theme. The chapters
are interlinked and support each other. Chapter 1 considers the key impacts on
strategy making and how a range of crucial factors should be considered when
developing a marketing strategy. The impact of new factors is taken into account.
This chapter has been enlarged with a new case study featuring Apple and a discus-
sion of time in marketing strategy development.
Chapter 2, on understanding analysis, has been greatly expanded with new cases
and even more useful analytical techniques that take a better view of the internal
and external forces driving a company.
Chapter 3 is still mainly concerned with the role that stakeholders play in the
development of strategies. The difference between the UK’s and Continental models
of corporate governance is taken into consideration. Ethical and moral dimensions are
also emphasised. This chapter has a new section on corporate social responsibility.
Chapter 4 largely follows on from Chapter 3 and develops the theme of sustain-
ability and ways in which marketing could and should contribute to the
development of sustainable strategies. This chapter has new sections on under-
standing the current issues that are being debated regarding climate change and
also indicates marketing strategies for developing responsible customer behaviour.
The chapter ends with a practical example of how to formulate ethical and sustain-
able strategies, given the changing nature of the consumer profile.
Chapter 5 is a new chapter looking at integrated marketing communications and
understanding the role of branding in a company’s strategy.
Chapter 6 looks at how marketing strategies can be implemented in this technologi-
cal age. It also discusses the interplay between technology and people when
implementing marketing strategies. This chapter contains new case studies with a
newer and wider range of implementation issues that marketers need to consider.
Chapter 7 is now much more about organising for marketing success, together
with an emphasis on organisational learning. There is a new section on corporate
culture with a questionnaire that can be used to gauge organisational culture.
Chapter 8 is another new chapter and takes an in-depth view of globalisation,
which is touching the lives of consumers and organisations. The international
strategies that a company could adopt are fully discussed.
Chapter 9 looks at the increasing importance of marketing metrics. Marketers
are constantly having to justify their positions in companies and so developing
good metrics that take into account both financial and marketing aspects is impor-
tant. It is a way of monitoring whether or not objectives have been met. This
chapter also has a new element on the marketing audit and marketing performance
measures. Not only does it consider ecological and ethical measures in its approach
but it also has a new section on the triple bottom line.
Chapter 10, the final chapter, considers new perspectives in marketing that offer
ways forward for developing new kinds of strategies. Many new ideas with regard
to becoming customercentric, understanding the future impact of technology and
MAST_A01.QXD 24/4/07 14:01 Page xv

Preface xv

the growing importance of rural marketing are considered. There are new sections
on social marketing, value co-creation and digital marketing, encompassing up-to-
the-minute ideas and views.
As marketing enters the twenty-first century, the consumer base is changing, the
world of consumption is changing and marketers need to become more ethical and
accountable in their approach to business. At the same time, they need to under-
stand social and technology issues as never before. Communications are now not
only instantaneous but also can be recorded and stored for posterity be means of
Internet and mobile technology. Marketers need to embrace these changes to build
better and longer-lasting relationships with their customers.

Key features
The text offers both philosophical and practical approaches to marketing and has
the following key features:
 it discusses the changing nature of marketing and impact of technology
 the fragmentation of markets
 it analyses the stakeholder perspective and offers insights into how to work with
stakeholders
 it takes a comprehensive look at how analysis and segmentation are practised
and some of the pitfalls associated with this
 the arguments for sustainability and ethics are developed and practical ways of
implementing these types of marketing strategies are explained
 globalisation is discussed extensively
 marketing communications, in the form of integrated marketing strategies and
branding, are discussed
 the impact of digital marketing is discussed comprehensively
 numerous examples of different strategies are offered
 a range of case studies is used to illustrate the arguments put forward in each
chapter
 examples are drawn from all over the world
 the holistic nature of marketing is stressed
 the book illustrates why it is important for marketers to be wide open to ideas
when developing marketing strategies
 the book attempts to portray how marketing is likely to develop in the future
and the key issues that marketers should consider
 the book’s radical approach offers readers the opportunity to understand each
chapter independently
 the book emphasises the need to understand cultural dynamics when imple-
menting marketing strategies.

Figure P.1 illustrates how the chapters relate to each other in the book.
MAST_A01.QXD 24/4/07 14:01 Page xvi

xvi Preface

2
Opening up analysis
and positioning

3 4
Stakeholder concerns A sustainable
and solutions Earth matters

5 6
Communicating Implementation
effectively is the key

7 1
Understanding and From structure to 8
creating effective chaos? Understanding Globalising marketing
marketing cultures marketing strategy efforts

9 10
Measuring for New perspectives
effectiveness in in marketing and
marketing the way forward

Developing organisation- and sector-specific marketing strategies

Figure P.1 How the chapters relate to each other

When developing strategies, it is important that marketers take into consideration

the range of issues discussed in this book and keep an eye on how marketing is
likely to change in the future. This book provides guideposts, not solutions.
v v
Professor Ashok Ranchhod and Professor Calin Gurau
MAST_A01.QXD 24/4/07 14:01 Page xvii

Acknowledgements

I would like to thank a range of people who made this project feasible. First of all, I
v v
would like to thank my co-author, Dr Calin Gurau who has made a strong impact
on the new edition. His encouragement and support were invaluable in producing
this text on time. I would also like to thank the contributors to the first edition, Dr
Julie Tinson and Dr Claire Gauzente as their work helped to provide some building
blocks for the new edition.
A person who made this possible in the dim and distant past is my older brother,
Kantilal, who awakened my curiosity about the written word at a very early age, as
well as Mrs Fynn, my first tutor at the age of three in Zambia.
Finally, I would like to thank my wife, Nilanta, and my children, Jaimini,
Chintan and Reshma, for putting up with my disappearances into the study and
piles of paper all over the house.

Professor Ashok Ranchhod

Publisher’s Acknowledgements
We are grateful to the following for permission to reproduce copyright material:

Figure CS1.1 from www.applematters.com/index.php/section/comments/apples-

q2-numbers-a-closer-look, Chris Seibold/Apple Matters; Figure CS1.2 from
http://maddogfog.blogspot.com/2006/02/itunes-song-purchases-plotted-on-
graph.html, Michael Doeff; Figure 1.2 from Measuring market orientation: a
multi-factor, multi-item approach, Journal of Marketing Management, Vol. 10, pp.
725–42 (Deng, S. and Dart, J. 1994), Westburn Publishers Ltd; Figure 1.3 from
Market-driving organizations: a framework, Academy of Marketing Science Review,
Vol. 5, pp. 1–14 (Carrillat, F. A., Jaramillo, F. and Locander, W. B. 2004), Academy of
Marketing Science; Figure 1.5 from Exploring Corporate Strategy, 5th edition, Prentice
Hall (Johnson, G. and Scholes, K. 2000); Figure 1.7 from Creating a sense of mis-
sion, Long Range Planning, Vol. 24 No. 4, pp. 10–20 (Campbell, A. and Yeung, S
1991), copyright 1991, with permission from Elsevier; Figure 2.10 from The direc-
tional policy matrix-tools for strategic planning, Long Range Planning, June,
(Robinson, S. J. Q., Hitchen, R. E. and Wade, D. P. 1978), copyright 1978, with per-
mission from Elsevier; Figure 2.11 from Strategic Management, Addison Wesley
(Rowe, A.J., Mason, R.O. and Dickel, K.E. 1986), with permission from Professor
Alan J. Rowe; Table 2.4 from Contemporary Perspectives on Strategic Market Planning,
MAST_A01.QXD 24/4/07 14:01 Page xviii

xviii Publisher’s Acknowledgements

Allyn and Bacon (Kerin, R. A., Mahajan, V. and Varadarajan, P. R. 1990), with per-
mission from Roger A Kerin; Table 2.7 from Consumer Behavior, 9th edition
(Hawkins, D. I., Best, R. J. and Coney, K. A. 2004), reproduced with permission of
The McGraw-Hill Companies; Table 2.8 from Life cycle concept in marketing
research, Journal of Marketing Research, Vol. 3, November, pp. 355–363 (Wells, W.
and Gubar, G. 1966), reprinted with permission from the American Marketing
Association; Tables 2.9 and 2.10 from Measuring customer satisfaction: a platform
for calculating, predicting and increasing customer profitability, Journal of Targeting,
v
Measurement and Analysis for Marketing, Vol. 10 No. 3, pp. 203–19 (Gurau, C. and
Ranchhod, A. 2002), reproduced with permission of Palgrave Macmillan; Figure 3.2
and Table 3.1 from Criteria for Board Construction in the Entrepreneurial Firm, paper
presented to RENT XI Conference – Research in Entrepreneurship and Small
Business, Mannheim, 26–29 November (Watkins, D. 1997); Table 3.3 from
Stakeholder excellence? Framing the evolution and complexity of a stakeholder
perspective of the firm, Corporate Social Responsibility and Environmental
Management, Vol. 9 No. 4, pp. 187–95 (Jonker, J. and Foster, D. 2002), copyright
John Wiley & Sons Limited, reproduced with permission; Figures 4.1 (WWF) and
4.18 (ADE) from Talk the Walk: Advancing Sustainable Lifestyles through Marketing and
Communications, www.uneptie.org/pc/sustain/reports/advertising/Talk_the_Walk.pdf
(UNEP 2005, WWF, ADE) and Figures 4.5, 4.6, 4.7 and 4.8 from GEO-3, Global
Environment Outlook 3, www.unep.org/geo/geo3, (UNEP 2002), United Nations
Environment Programme; Figures 4.2, 4.3 and 4.4 from World Watch March/April
2000, Worldwatch Institute, www.worldwatch.org; Figure 4.9 from Environmental
Marketing Management, Pitman Publishing (Peattie, K. 1995); Figures 4.12 and 4.13
from The Greenpeace Guide to Greener Electronics, Greenpeace (25 August 2006);
Table 4.1 from Green Marketing and Management: a Global Perspective, Blackwell
Publishing (Wasik, J.F. 1996); Table 4.2 from www.naturalbusiness.com/market.html,
Conscious Media Inc. (2000); Table 5.1 from Marketing opportunities in the digital
world, Internet Research: Networking Applications and Policy, Vol. 8 No. 2, pp. 185–94,
Emerald Group Publishing Limited (Kiani, R. G. 1998); Figure 5.3 from The con-
cept, process and evolution of integrated marketing communications (Duncan, T.
and Caywood, C.) in Integrated Communications: Synergy of Persuasive Voices,
Lawrence Erlbaum Associates, Inc. (Thorson, E. and Moore, J., eds 1996); Figure 5.5
from Communicating Globally: An Integrated Marketing Approach (Schultz, D.E. and
Kitchen, P.J. 2000), reproduced with permission of The McGraw-Hill Companies;
Figure 5.13 from Cultivating service brand equity, Academy of Marketing Science
Journal, Vol. 28 No. 1, pp. 128–37 (Berry, L.L. 2000), copyright 2000, reprinted by
permission of Sage Publications; Figure 6.8 from Value Co-creation in Industrial
Buyer–Seller Partnerships: Creating and Exploiting Interdependencies, Doctoral Thesis,
Åbo Akademi University Press (Forsström, B. 2005); Figure 6.16 from IT: know thy-
self, Intelligent Enterprise, Vol. 3 No. 8, CMP Technology (Flohr, T. 2000); Figure 6.17
from www.dc.com/obx, Deloitte Consulting; Table 6.1 from The strategic market
planning – implementation interface in small and midsized industrial firms: an
exploratory study, Journal of Marketing, Vol. 5 Summer, pp. 77–92 (Sashittal, H.C.
and Tankersley, C. 1997), American Marketing Association; Table 6.2 from
MAST_A01.QXD 24/4/07 14:01 Page xix

Publisher’s Acknowledgements xix

Prioritising target markets, Marketing Intelligence & Planning, Vol. 16 No. 7, pp.
407–17 (Simkin, L. and Dibb, S. 1998), with permission from MCB UP Ltd; Table
6.4 from Information Masters: Secrets of the Customer Race (McKean, J. 1999), © John
Wiley and Sons Inc., reproduced with permission; Figure 7.8 from Marketing
department organisational chart, WH Smith plc; Figure 7.9 from Organizational
Culture and Leadership, 2nd edition, John Wiley & Sons, Inc. (Schein, E.H. 1992);
Table 7.1 from Measuring organizational cultures: a qualitative and quantitative
study across twenty cases, Administrative Science Quarterly, Vol. 35 No. 2, pp.
286–316 (Hofstede, G., Neuijen, B., Ohayv, D.D. and Sanders, G. 1990), Cornell
University; Figure 7.12 from Les facteurs de complexité des schémas cognitifs des
dirigeants, Revue Française de Gestion, March–May, pp. 86–93 (Calori, R. and Sarnin,
P. 1993), © 1993 Hermes Science Publications; Figure 7.22 from Knowledge-based
organization, Business Review, November–December, Vol. 41 No. 1, pp. 59–73
(Nonaka, I. and Konno, N. 1993); Table 7.2 from La mémoire organisationnelle,
Revue Française de Gestion, September–October, pp. 30–42, Lavoisier SAS (Girod, M.
1995); Table 7.4 from Network learning: exploring learning by interorganizational
networks, Human Relations, Vol. 55 No. 4, pp. 427–54 (Knight, L. 2002), reproduced
with permission, copyright © The Tavistock Institute, London, UK, 2002, by per-
mission of Sage Publications Ltd and Dr L. Knight; Table 8.2 from
www.oecd.org/daf/governance/principles.htm, Principles of Corporate Governance, p.
23 © 1997 OECD; Figure 9.3 from Customer Lifetime Value: Powerful Insights into a
Company’s Business and Activities, Booz Allen Hamilton (Bacuvier, G., Peladeau, P.,
Trichet, A. and Zerbib, P. 2001); Table 9.1 from Promotion des ventes et action com-
merciale, Librarie Vuibert (Ingold, P. 1995); Table 9.2 from Selecting environmental
performance indicators, Greener Management International, Vol. 33 Spring, pp.
97–114 (Scherpereel, C., Koppen, V. and Heering, G. B. F. 2001), Greenleaf
Publishing Limited, and WBCSD Project on Eco-efficiency Metrics and Reporting: State-
of-play Report, World Business Council for Sustainable Development (Lehni, M.
1998); Table 9.3 from WBCSD Project on Eco-efficiency Metrics and Reporting: State-of-
play Report, World Business Council for Sustainable Development (Lehni, M. 1998);
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ing, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 55–66 (Sheth,
J.N., Sisodia, R.S. and Sharma, A. 2000), copyright 2000, reprinted by permission of
Sage Publications; Figure 10.3 from Feeling the heat: making marketing more pro-
ductive, Marketing Management, Vol. 4 No. 2, pp. 8–23 (Sheth, J. and Sisodia, R.S.
1995), American Marketing Association; Figure 10.4 from Strategic marketing
models for a dynamic competitive environment, Journal of General Management,
Vol. 24 No. 4, pp. 63–78 (Karin, I. and Preiss, K. 2002), The Braybrooke Press;
Figures 10.8 and 10.9 from Open Innovation: The New Imperative for Creating and
Capturing Value, Harvard Business School Press (Chesbrough, H. 2003); Figure 10.10
from Science and Engineering Indicators 2006, Volume 1, courtesy: National Science
Board; Figures 10.11 and 10.12 from Innovation, Social Capital, and the New
Economy: New Federal Policies to Support Collaborative Research, Progressive Policy
Institute, PPI Briefing, 1st July (Fountain, J.E. and Atkinson, R.D. 1998); Figures
10.13, 10.14, 10.15 and 10.18 from Ofcom research; Figures 10.19 and 10.20 from
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xx Publisher’s Acknowledgements

Ethical marketing for competitive advantage on the Internet, Academy of Marketing

Science Review, Vol. 10 (Gauzente, C. and Ranchhod, A. 2001), © Academy of
Marketing Science; Figure 10.24 from www.census.gov/prod/3/98pubs/p23-
194.pdf, Population Profile of the United States: 1997, US Census Bureau, Washington
DC; Table 10.3 from Arieanna Foley in Blog Marketing: The Revolutionary New Way to
Increase Sales, Profits and Growth (Wright, J. 2006), reproduced with permission of
The McGraw-Hill Companies; Table 10.4 from Marketing social marketing in the
social change marketplace, Journal of Public Policy and Marketing, Vol. 21 No. 1, pp.
3–13 (Andreasen, A.R. 2002), American Marketing Association; Table 10.9 from the
United Nations Population Division, http://esa.un.org/unpp/

Finextra for the article ‘Banco Bradesco trials Fujitsu palm vein authentication
technology’, published on www.finextra.com; The Associated Press for the article
‘Eminem’s CD sales impressive despite music sharing’, published in USA Today, 31st
May 2002, www.usatoday.com; TBWA, London Ltd for ‘The power behind
Playstation: Going for Old’ by Carl Radcliffe; The Guardian News and Media Group
for the extracts from ‘Little Dyson cleaner finds niche in the smaller Japanese
home’ by Terry Macalister published in The Guardian 24th May 2006, the article
‘The ad revolution will not be televised’ by Owen Gibson published in The
Guardian 20th March 2006, the article ‘Dark Days for Guinness’ by Owen Bowcott
and Simon Bowers, published in The Guardian, 29th August 2006, the article ‘ “Do
your homework” French professor tells small firms’ by John Dunn, published in
The Guardian, 8th June 1999, the article ‘When big business bites’, by Fiona Walsh,
published in The Guardian, 8th June 2006, the article ‘Jamie Oliver in talks over
campaign for family meals’ by David Brindle and Jacqueline Maley published in
The Guardian, 27th June 2006, and ‘Diet industry will be winner in battle of the
bulge as Europe goes to fat’, by John Carvel, published in The Guardian, 31st May
2002; Justin Hunt for his article ‘What makes a business more agile?’, published in
The Guardian, 9th May 2002; Press Holdings Media Group for the article ‘Slow
decline of high-street champion’ by Richard Northedge published in The Business
(previously Sunday Business), 30th September 2001; Associated Newspapers for an
extract from ‘M&S sales surge stuns City’, by Jim Armitage published in The Evening
Standard, 11th April 2006; Andrew Pharoah for ‘Inside track: image in the balance’
published in the Financial Times 16th September 2002; Express Newspapers for the
article ‘Losses cut as Martin wins back M&S deals’ published in The Daily Express
29th September 2001; Public Concern at Work for the article ‘Bhatia v Sterlite
Industries’, published on www.pcaw.co.uk, 2001; Macmillan Ltd for an extract
from the article ‘Looking good: Public Relation strategies for biotechnology’ by
v
Ranchhod and Gurau, published in the Nature Biotechnology Summer Supplement,
(Europroduct Focus) 1999; Simon & Schuster for the extract ‘Nike Corporation’
from Beyond the Bottom Line: Putting Social Responsibility to work for your Business and
the World by Joel Makower, 1994; RISI for the article ‘APRIL takes a leaf out of the
green book’, by Anna Jenkinson, published in Pulp And Paper International 2001;
Joel Makower for the extract ‘Green marketing: lessons from the leaders’ from
www.worldchanging.com/archives/003502.html, J. Makower, 18 September 2005;
MAST_A01.QXD 24/4/07 14:01 Page xxi

Publisher’s Acknowledgements xxi

The Economist Newspapers Ltd for the article ‘Why British shoppers are sniffing at
everyday low prices’, published in The Economist 28th September 2006; Mike
Wilman for the article ‘Morgan Motor Company Limited: Retaining traditional
brand values to become a long-term niche player’, by Mike Wilman (with addi-
tional material by Donna Goodwin), 2007; Business in the Community for the
article ‘The Co-operative Bank’, 2004; the World Business Council for Sustainable
Development (WBCSD) for the article ‘Novo Nordisk: Take action! Make the triple
bottom line your business’, 1st April 2004; Yasmin Sekhon for her article ‘The
Cultural Melting Pot’ 2002; and Fast Company for the article ‘Act local, think
global’ by Rekha Balu, June 2001, Fast Company.

We are grateful to the Financial Times Limited for permission to reprint the follow-
ing material:

Internet banking: quick to adapt to technology, © Financial Times, 20 December

2000; Sweet ambitions to tempt more takers, © Financial Times, 16 July 2002.

In some instances we have been unable to trace the owners of copyright material,
and we would appreciate any information that would enable us to do so.
MAST_C01.QXD 24/4/07 14:01 Page 1

From structure to chaos?

1 Understanding marketing strategy

Introduction
Marketing as a subject is continually evolving and the recent impact of ideas and
technology need to be assessed carefully as the new century gets underway. This
book attempts to give some insights into the way in which marketing is evolving
and progressing. The basic premise of marketing revolves around matching compa-
nies’ offerings with consumers’ needs. While this basic premise is still the same, the
ways in which companies’ offerings are matched to customers’ needs are con-
stantly in a state of flux. With advancing technologies such as the Internet and
mobile communications, several paradoxical situations are set up. Although cus-
tomers may be given a faster, more cohesive service, it can become depersonalised.
Customers can become ‘spoilt’ and demand a one-to-one relationship even though
companies may not have the resources to cope with this.
Strategy in marketing involves harnessing a company’s resources to meet cus-
tomers’ needs via market analysis, an understanding of competitors’ actions,
governmental actions and globalisation, together with a consideration of techno-
logical issues and other environmental changes. The management of these
complex interrelationships needs a more lateral approach than the linear approach
often applied in conventional strategic marketing thinking.
This book attempts to unravel the difficulties associated with changes in market-
ing, juxtaposing them with some of the more conventional approaches. The book
therefore uses many of the latest marketing theories as well as a range of case stud-
ies to help readers improve their marketing thinking and skills. As ever, it is the
authors’ view that good marketers need both practical experience and a good
knowledge of academic approaches to solving marketing problems. Given the rapid
changes that are taking place in marketing, academics are often left behind by the
groups of individuals or companies that can see gaps in the market offered by
the new technologies. Many marketing techniques are developed quickly and ‘on
the hoof’ as new applications of technology emerge. This book dynamically
embraces these changes and attempts to make sense of the bewildering changes
MAST_C01.QXD 24/4/07 14:01 Page 2

2 Chapter 1 / From structure to chaos? Understanding marketing strategy

taking place in the marketing landscape in terms of technology, environment and

society. Finally, the book tries to develop new academic frameworks to understand
the impact of these changes and provide new avenues for marketers to engage with
their consumers and customers.

Technological advances
Marketing has evolved over the last two centuries as the systems of production and
consumption have changed owing to the unprecedented rate of development of
technology. This rate of development in technology has seen the advent of mass
manufacturing, near instantaneous communication systems and the development
of rapid transport systems. In this context, marketing progressively moved from
fragmentation to mass marketing, then to segmentation marketing (Tedlow 1993).
There is now another technological drive, owing to powerful computing tech-
niques (Patron 1996). The increasing ease of communication for the average person
(Cronin 1996) and the development of technologies for flexible manufacturing
(Yasumuro 1993) is leading marketers to consider the absolute dislocation of time
and space when undertaking marketing transactions. The Internet, in turn, offers a
virtual 24-hour shopping experience in any market sector for any person in the
world who is able to access it. At the same time, traditional retailers, such as Tesco,
are offering a 24-hour shopping experience without the Internet. These changes are
now accelerating with even more sophisticated targeting of customers via various
media. Consumers are used to a range of ways in which companies can build rela-
tionships with them via:
 the Internet
 interactive television
 mobile phones (though this is still nascent)
 ‘active’ billboards
 microchips embedded in products.

In many ways, the exciting range of digital media means that the days of mass
marketing are numbered and consumers themselves are choosing to opt in or out of
marketing messages and advertising. Gradually, consumers are beginning to take
control of what they want, when they want it and how they want it. The era of per-
sonalised marketing is here.
Figure 1.1 shows the development of different marketing phases and indicates
that markets are not only fragmenting (Ranchhod and Hackney 1997) because of
the ease and variety and speed of communication on offer but also being driven to
offer more personal experiences. Paradoxically this contrasts with the situation in
the early part of the nineteenth century, when markets were fragmented as a result
of poor communications and transport systems.
Fragmentation is occurring now as market segments cannot be clearly defined,
with consumers continuously rearranging their preferences as a result of greater
MAST_C01.QXD 24/4/07 14:01 Page 3

Technological advances 3

g
tin
a rke
m tion
ity a
m un alis
m s o n
Co Per
Internet, mobile communications
a tion Wireless transmission
e nt Multimedia
gm Electricity, Instantaneous
– fra global access
g n Rail, car air
Communication speed
e tin a tio
r k t travel
ma en
cro gm Radio/TV/
Mi Se
r ket telephones
m a
ss o n
Ma pti Telegraph/newspapers
s um Steam power, rail
o n Increasing globalisation
n dc
n a io n
tio ntat
uc e Printing
p rod ragm Greater international trade
c al et f
l o r k and colonisation
lly ma Travel still slow
n era
Ge but ships bigger and better
Travel slow
Foot or horse carriage Some international trade

3000BC 0 1000 1500 1800 2000

Timeline

Figure 1.1 The impact of technology on marketing

product choice. Allied to this, rapid and continuous communication allows con-
sumers infinite choices of products and scattered markets that can be accessed
globally. Certainly, much of the literature on postmodernism seems to point
towards fragmentation. The fragmentation of society, made possible and fostered
by the developments of industry and commerce, is one of the most visible conse-
quences of postmodern individualism (Cova 1996). This fragmentation is
encouraged by the ability of the individual to maintain ‘virtual’ contact with the
world, electronically, freeing the individual from social interaction, but at the same
time increasing the concentration of the ego, placing demands for ‘tailored’ prod-
ucts and services in the marketplace. This heralds the era of personalised products
and permission-based marketing. There are indications that some of the demo-
graphic and lifestyle changes in society are just beginning to offer such a scenario.
This scenario has been taken even further by the development of a hyperreal
world, such as Second Life (www.secondlife.com). There, a worldwide community
can be built and transactions take place in a virtual currency (Linden dollars) that
can be converted into US dollars. Second Life is a virtual world where over 300,000
individuals ‘live’, work, play and create and sell products. They can buy land, build
houses or just follow their own fantasies. There are no real objectives and no tasks
– it is not a game. Many individuals create art, have discussions, fly around the dif-
ferent locations, make friends and generally just browse. Some ‘netrepreneurs’ even
MAST_C01.QXD 24/4/07 14:01 Page 4

4 Chapter 1 / From structure to chaos? Understanding marketing strategy

set up businesses selling services that then become mainstream businesses.

According to the website:
Shopping is a big part of the Second Life experience for many Residents. You can buy and sell
anything that can be made in-world, from clothes, skins, wigs, jewelry, and custom anima-
tions for avatars, to furniture, buildings, weapons, vehicles, games, and more. Once you’re
ready to bring your products to the market, it’s simply a matter of buying or sub-renting
property, for opening up a shop. There are also Resident-owned malls which charge rental
fees, or take a cut of your proceeds. As in the real world, the challenge is to build up a repu-
tation that earns a steady stream of customers.

Given such profound changes in the way people are beginning to market products
and services, marketers have be able to understand, explore and galvanise their
marketing efforts so that they are more flexible and personalised than previously.
However, at the other end are the ‘digital have nots’ who also have to be catered
for in the vast marketing landscape and this is explored later in the book.

The marketing concept

The marketing concept has been discussed at great length by a range of authors
(Kotler 2000). The main premise of the concept is linking production and con-
sumption. A company has to be able to meet the needs of customers. This meeting
of needs should be within the company’s ability and the range of resources avail-
able. Meeting customers’ needs is a multifaceted activity, needing the full range of
a company’s resources – ranging from sales activities to final delivery and after sales
service. In service industries, although the range of activities differs, their success
still depends on satisfying customers.
Charities, too, have begun to embrace the marketing concept. However, defining
customer satisfaction is more nebulous and complex than it is in other sectors.
Satisfaction in relation to charities often resides with the recipients of food, money
or training.
In all cases, however, the marketing concept relies on the creation of value for
the consumers. The connection between value creation and marketing is not new.
The marketing concept is considered as a process of achieving organisational goals
by determining the needs and wants of target markets and delivering the desired
satisfactions more effectively and efficiently than competitors do (Kotler 1996,
1997). This definition suggests that the companies most likely to succeed in the
increasingly dynamic and competitive markets are those that take into account the
expectations of their customers and gear themselves to satisfying them better than
do their rivals. It recognises that the process of marketing consists of understand-
ing, learning and developing values as a result of marketing activities. Similar ideas
can also be recognised in the definition of marketing given by the American
Marketing Association (AMA) in 1985, which holds that marketing is the process of
planning and executing activities to create exchanges that satisfy individual and
organisational objectives. However, in line with modern thinking, the marketing
MAST_C01.QXD 24/4/07 14:01 Page 5

Marketing as a business process 5

concept ought to take a much broader view and so the definition should also
include the satisfaction of a whole range of stakeholders. Thus, it is defined here as:
Marketing is the process of planning and executing activities that satisfy individual, ecologi-
cal and social needs ethically and sincerely, while also satisfying organisational objectives.

Within this definition, it is clear that marketing objectives are not always financial
in nature. Ecological and social needs are becoming increasingly important in the
context of marketing strategies. Marketing strategies are defined by the overall cor-
porate vision of an organisation and constitute the actions taken to satisfy
customers and their needs. In doing this, it is important that an organisation
understands the competitive situation, the general environment, as well as its role
and obligations within it, when developing and executing marketing strategies.
Out of this understanding, an organisation can develop segmentation and per-
formance criteria by choosing to follow particular options that may present
themselves. It is interesting note, therefore, that on 15 September 2005, the AMA
changed the definition to:
Marketing is an organisational function and a set of processes for creating, communicating
and delivering value to customers and for managing customer relationships in ways that
benefit the organisation and its stakeholders.

This definition is more in line with that adopted in this book and the emphasis
now is on stakeholders and delivering value to customers. Customers of organisa-
tions can be varied in nature. For charities and NFPs the greater number would be
the recipients and donors, whereas for business organisations they would be the
consumers. In any case, some benefit has to be expected from marketing activities
for both the organisation and its stakeholders. The stakeholders can be quite
varied, ranging from shareholders, employees and NGOs to the environment.
Stakeholder interaction is explored in Chapter 3.

Marketing as a business process

That marketing should be thought of as the design and management of all the
business processes necessary to define, develop and deliver value to target cus-
tomers has often been the cornerstone of marketing thinking (Webster 1997). He
suggests that the marketing process should include the following.
 Value-defining processes Processes that enable an organisation to understand the
environment in which it operates better, understand its own resources and capa-
bilities more clearly, determine its own position in the overall value chain and
assess the value it creates by analysing its target customers.
 Value-developing processes Processes that create value throughout the value chain,
such as the procurement strategy, new product and service development, design
of distribution channels, strategic partnership with service providers and, ulti-
mately, the development of the value proposition for customers.
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6 Chapter 1 / From structure to chaos? Understanding marketing strategy

 Value-delivering processes Processes that enable the delivering of value to cus-

tomers, including service delivery, customer relationship management,
distribution and logistical management, marketing communications manage-
ment (such as advertising and sales promotion), product and service
enhancement and customer support services.

The role of market orientation

As a result of the discussions directly or indirectly associated with the marketing con-
cept, pioneering work undertaken by Narver and Slater (1990) attempted to bring
together the various elements that together make up the marketing concept. These
elements were put together as the market orientation scale, which could be empiri-
cally tested, allowing companies to measure their degree of market orientation and
this could then be compared to their corporate performance (see Figure 1.2).
Different authors have developed different market orientation scales (Deng and
Dart 1994; Jaworski and Kohli 1993; Kohli and Jaworski 1990; Narver and Slater
1990; Ruekert 1992). However, the essence of all the arguments lies in the following.
 Information generation This is the generation of customer-, market- and competi-
tor-related information as a result of a company’s intelligence-gathering
activities. The information is either from internal or external sources.
 Information dissemination Having obtained the necessary information, a com-
pany needs to disseminate this information effectively to all the individuals
operating within its confines. If information dissemination is poor, it can be
difficult for a company to develop the correct strategy for a given market or set
of customers.
 Implementation and response to the information received A company needs to act
on the information received in a clear and precise manner. Therefore, the type of
information gathered and the speed with which it is disseminated within a com-
pany play an important role in the development and implementation of
marketing strategies.

Interfunctional coordination

Success
Customer orientation Competitor orientation
factors

Profit organisation

Figure 1.2 Components of market orientation

Source: After Deng and Dart 1994
MAST_C01.QXD 24/4/07 14:01 Page 7

The role of market orientation 7

Figure 1.2 encapsulates the key components of market orientation and how they
affect the success of a company in the marketplace. In general, there are three main
themes that relate to the marketing concept:
 Customer orientation information generation pertaining to customers
 Competitor orientation
 Interfunctional coordination dissemination of information obtained pertaining to
customers across the functional departments.

The main purpose of this approach is to meet customers’ needs as quickly as possi-
ble by having good interfunctional coordination between the departments. Market
orientation is usually implemented in the form of market-driven strategies
(Jaworski et al. 2000) that often rely on how a firm reacts to changes in the market-
place. Frequently discussions address the impact of environmental turbulence and
intelligence dissemination. Once this is known, a company can develop strategies
to become more market orientated. However, successful companies are often
market-driving – that is, they actually make a difference in the marketplace and
change parts of it. It is argued that when a market orientation philosophy is
effected by means of a market-driven strategy, there is no guarantee that a sustain-
able competitive advantage can be achieved (Johnston et al. 2003). These authors
state that if every actor in the market follows a market-driven strategy and every
firm adapts to competitors’ strategic moves and stays aligned with consumers’
requirements, then no actor will be able to offer a value proposition superior to
that of the competition. This could be a recipe for a ‘stalemate’ position in the mar-
ketplace. In this situation, competitors with ground-breaking ideas that actually
change the rules of the game can become highly successful. Discussions on how to
create market-driving organisations centre on the following issues.
 The possibility of creating sustainable competitive advantage by changing the
structure or composition of a market and possibly the behaviour of the major
players in the market (Jaworski et al. 2000). This works by using the following
possible mechanisms.
– Deconstruction by eliminating links within the value chain (suppliers, whole-
salers and so on). In this manner, better value is provided to customers. Many
of the financial services on offer via the Internet are classic examples of this.
– Construction In this stage, new links or alliances can be added to the value
chain. For instance, Starbucks has introduced music retailing to its stores and
Google has introduced Google Pack as an add-on service to the browsing tool
that it provides on the Internet.
– Functional This is when companies provide additional advantages by creating
or removing constraints, either for customers or competitors. For example,
Microsoft products may or may not be compatible with other competitors and
e-Bay allows consumers to effectively see transparent pricing for products.
 The possibility of offering to consumers products and services that they truly
value.
 The possibility of exploiting opportunities that competitors cannot access or use
(Hamel and Prahalad 1994).
 The reliance on innovation and creativity (Kumar et al. 2000).
MAST_C01.QXD 24/4/07 14:01 Page 8

8 Chapter 1 / From structure to chaos? Understanding marketing strategy

The model for market-driving organisations has much to do with transformational

leadership, a visionary approach and a flexible organisation (usually an adhocracy,
discussed in detail in Chapter 7), as shown in Figure 1.3. (An adhocracy is an
organisation that is managed using visionary leadership and individuals are
allowed to grow by being flexible. The general gist of this type of approach to busi-
ness is more organic than mechanistic.)
The model proposed by Carrillat et al. (2004) is quite comprehensive in nature,
but does not explicitly take into account the role of technology in opening up pos-
sibilities for creating market-driving opportunities, so this has been considered in
the modified picture presented in Figure 1.3. For instance, when Sony first began
mass production of the Sony Walkman, it was in a market-driving position.
However, this was only possible because of changes in technology and the minia-
turisation of electronic components. Certain applications and transactions are only
possible because of the growth of the World Wide Web. Indeed, companies such as
e-Bay and Google have been created from start-up situations within the last five to
ten years. However, they are already major global players in the online market-
place. The key aspects of organisational transformation and the implementation of
marketing strategies will be considered in Chapter 6.

Transformational leadership
Articulating a vision and providing intellectual stimulation

Organisational culture
Shared values and norms

Technological changes and effectiveness

Implementing a market-driving
culture: market
Creating a market-driving
culture: adhocracy Market-driving
Transitory phase
Capacity to innovate
Customer value Customer
opportunities Interaction
Organisational
Taking risks change
Superior
MARKETING business
Organsational Inter- performance
Innovativeness
learning functional Firm’s
coordination superior
capabilities

Figure 1.3 A conceptual framework for a market-driving strategy

Source: Carrillat et al. 2004, modified
MAST_C01.QXD 24/4/07 14:01 Page 9

The role of market orientation 9

The following case study explores the way in which Steve Jobs has developed an
organisation that not only understands the demands of its market but has also
been flexible and innovative in its approach to satisfying these demands.

CASE STUDY

Apple and the iPod

Apple is a quintessentially modern company, multimedia data. It appears that Apple has an
embracing wave after wave of new developments in innovation lead in these areas that is indomitable.
technology since the 1970s. This has largely been Around 2000, Tony Fadell approached Jobs with
due to the vision of Steve Jobs, the founder. idea of the iPod, having been turned down by
Apple Computers, Inc. was launched with great Philips and funding organisations. Jobs quickly saw
fanfare in the late 1970s. By all accounts Apple had the potential and asked Fadell to oversee the launch
an excellent operating system and many customers of the first two generations of iPod as a consultant
became life-long devotees. In those early days, to Apple. Before the launch of the iPod, iTunes
Apple was a fantastically innovative, off-beat software was made available for Mac users as a
company with a counter-cultural corporate ethic. A music jukebox on the computer, to organise music.
celebrated Silicon Valley joke asked, ‘What’s the The first-generation iPod held 5Gb and had a scroll
difference between Apple and the Boy Scouts?’ The wheel. It was for Mac users only, handling 1000
answer was, ‘The Boy Scouts have adult songs. In 2002, the next iPod was compatible with
supervision.’ However, as the company began to Windows software, had a 10Gb hard disk and was
make its mark in the computer world and became capable of storing 2000 songs. In July 2002, the
well known for good-quality computers and second-generation iPod was launched and it had a
operating sytems, it failed to capture its share of the solid-state touch wheel – an innovation credited to
market growth and Microsoft became the major Jonathan Ives. It was available in 5, 10 and 20Gb
operating system in the world, largely as a result of versions. The third-generation iPod – and, some
Apple not making its system available to third would say, this was the model that really caught the
parties. Thus, the Apple product, though better, public’s mainstream attention – came out in April
became a niche player. Nonetheless, the company 2003. It looked different from the first- and second-
prospered and Job’s hired John Sculley from generation models and the buttons had moved
Pepsico. He changed the company from being from the outside of the wheel to just below the
technology and ‘fun’ driven to becoming more display. There were now three sizes available: 10Gb
market driven. Subsequently, Jobs left and set up (2000 songs), 15Gb (3750 songs) and 30Gb (7500
his own companies NeXt and Pixar, both becoming songs). Another major upgrade this time was the
multi-billion dollar companies in their own right. fact that there were no separate Mac or Windows
Pixar was sold to Disney for $7.4 billion. Pixar PC models – any iPod would work on either type of
pioneered the use of digital cartooning and one of computer – and USB functionality was built in for
the first films it made using it was Toy Story. the first time. In September of 2003, a 20Gb model
In the meantime, Apple was struggling under replaced the 15Gb one (holding 5000 rather than
various marketing executives. In 1996, Apple 3750 songs) and a 40Gb model replaced the 30Gb
bought NeXt, its operating system OSX and offered one (holding 10,000 rather than 7500 songs). The
Jobs the position of CEO. Within the last ten years, innovation continued with the launch of the the
the company has again become very innovative, iPod mini, released in January 2004. This was a
embracing the digital revolution and being the first smaller version of the iPod that could easily slip
one to offer desktop publishing and storage of into a pocket and hold up to 1000 songs. It was

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10 Chapter 1 / From structure to chaos? Understanding marketing strategy

Case study continued

available in five colours – silver, pink, green, blue ‘iPhone is a revolutionary and magical production
and gold – rather than just white and the buttons that is literally five years ahead of any other mobile
were replaced with a click wheel. At the same time, phone’, Mr Jobs said.
the 10Gb iPod was replaced by a 15Gb model.
‘We are all born with the ultimate pointing device
In June 2004, the iTunes music store was
– our fingers – and iPhone uses them to create the
launched in the UK and, in September of that year,
most revolutionary user interface since the mouse.’
the fourth-generation iPods were launched with 30
As well as functioning as a music and video iPod it
and 40Gb capacities. Also available were the iPod
offers new services such as ‘visual voicemail’, which
Photo and the limited edition U2 iPod in black
shows users a list of their messages so they can go
with a red wheel and the band’s signatures
engraved on the back. In January 2005, the cheaper straight to the ones they want to listen to most.
iPod shuffle appeared (like a memory stick for A full touch keyboard is available for text messaging
music). The iPod nano was introduced in and there is a built in 2 megapixel camera.
September 2005 and at the same time, the iPod The phone, which runs the Mac OSX operating
Video was launched both to great acclaim. The system, will display album artwork on its 3.5in
revamped nano appeared in September 2006 and screen when it is being used for music.
was available in several colours – purple, silver, blue Special sensors automatically deactivate the
and green. It is now possible to watch music videos, screen and turn off the touch pad when the device
short films and some TV programmes (in the USA) is raised to the ear.
on an iPod. Apple has also innovated with the Mr Jobs, who offered a sneak preview of the
development of Podcasting and the term has iPhone as he gave his annual address to Mac fanatics
become synonymous with Apple, although, of at the Macworld Conference Expo in San Francisco,
course, Podcasting is used as a generic term and said it would ‘leap frog’ over harder-to-use devices
broadcasts or films can be downloaded on to Sony which currently offer Internet and email.
and any other MP3 players. However, the term is [There will be] a 4Gb model . . . or punters can
unlikely to change to ‘Walkmancasting’! splash out on . . . an 8Gb model.
It was widely expected that Apple would lead the Source: AOL (UK) Limited, www.news.aol.co.uk accessed
convergence between iPod and mobile telephone 10 January 2007
technologies, but the alliance between Sony and The figures given in Figure CS 1.1 indicate how
Ericsson managed to make this leap first, with a iPod sales have grown over the years.
mobile that is a phone, camera, MP3 player, radio,
video recorder and a mini Internet browser, capable
16,000
of downloading video clips. However, a
‘revolutionary’ device from Apple is due to be 14,000
launched in June 2007, as the following article 12,000
(AOL, 10 January 2007) elaborates. 10,000
8000
Apple unveils ‘revolutionary’ iPhone
Apple has ended months of speculation as it 6000
unveiled a mobile phone that offers music. Internet 4000
access, email and a camera.
2000
The iPhone will ‘reinvent’ telecommunications,
the technology giant’s chief executive Steve Jobs 0
2002 q4
2003 q1
2003 q2
2003 q3
2003 q4
2004 q1
2004 q2
2004 q3
2004 q4
2005 q1
2005 q2
2005 q3
2005 q4
2006 q1
2006 q2

promised.
It will go on sale in the US in June . . . and should
hit Europe late this year.
Just 11.6 millimetres thick, the handset has no Figure CS 1.1 iPod unit sales per quarter
conventional buttons but instead uses a large Source: www.applematters.com/index.php/section/comments/
touch-screen. apples-q2-numbers-a-closer-look Chris Seibold/Apple Matters
MAST_C01.QXD 24/4/07 14:01 Page 11

The role of market orientation 11

Case study continued

An even more interesting statistic is the growth 1100

in the purchase of iTunes. In January 2006, Apple
announced that customers had purchased 1 billion 990
songs on iTunes. This trend is likely to accelerate in 880
spite of illegal downloads and the increasing sales

Songs purchased (millions)

770
of pirated CDs. The downloads will be related to
the increasing sales of iPods. As record companies 660
crack down on the illegal dispersal of copyright
550
material, providers such as iTunes will be seen more
and more as safe havens for downloading music. 440
Sources: www.geofftech.co.uk/obsessions/ipod/ipod_history.htm, 330
www.daringfireball.net/2005/07/podcast_pocket and J. Naughton
and N. Mathiason ‘Will Job’s departure cut Apple to the Core?’ The 220
Observer, 30 July 2006
110

0
0 15 30 45 60 75 90 105 120 135 150
Week number

Figure CS 1.2 Numbers of songs purchased on

iTunes
Source: http://maddogfog.blogspot.com/2006/02/itunes-song-
purchases-plotted-on-graph.html

The case study illustrates how a company such as Apple started out being a market-
driving organisation and ended up being market-driven in the 1980s and 1990s,
until Steve Jobs took the helm again and the ground-breaking developments of the
iPod and iTunes were launched. The existence of these two products enabled a
major revolution in the recording industry, the shock waves of which are likely to
continue reverberating for some time to come.

Loyalty
For some companies, such as Apple, loyal customers are paramount (Davis et al.
1991). Retaining customers can have a significant positive impact on the profitabil-
ity of companies. Studies have shown that retaining an additional 2–5 per cent of
customers can improve profits significantly – as much as cutting costs by 10 per
cent (Power et al. 1992; Reichheld 1990). Large organisations, such as Procter &
Gamble, are studying how and why customers contribute to profitability. Most
researchers and practitioners (Oliver and Swann 1989; Wilkie 1990) agree that satis-
faction occurs when purchase expectations are met and even exceeded – that is,
when the product’s attributes are the ones desired by customers. This implies that
companies should be – in addition to being customer- and competitor-orientated –
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12 Chapter 1 / From structure to chaos? Understanding marketing strategy

satisfaction-orientated in order to meet purchase expectations. Dissatisfaction is

the result of unconfirmed expectations. Herein also lies a problem for marketers as
it is not always easy to ascertain exactly what customers’ expectations are.
Nevertheless, marketers who understand the impact of customer satisfaction on
business performance will attempt to secure future sales orders on the basis of the
recommendations given by currently satisfied end users of their products because
what happens around the current buying decision will affect future purchase deci-
sions (Tanner 1996).
Given all these factors that enlarge and elaborate the notion of the marketing
concept, over the years, marketers have spent considerable time and effort on
developing marketing planning.

Strategic planning to deliver the marketing concept

Countless authors have written about strategic planning in marketing (Ackoff
1981; Grant 2002; Johnson and Scholes 2000; McDonald 1993) and many compa-
nies spend a considerable amount of time and energy developing and executing
strategic plans. All these plans largely contain marketing stances and positioning
strategies that enable an organisation to be placed in a winning position vis-à-vis
its competitors. A definition of strategic market planning, therefore, could be as
follows:
Strategic marketing planning involves careful analysis of an organisation’s environment, its
competitors and its internal strengths in order to develop a sustainable plan of action that
will develop the organisation’s competitive advantage and maximise is performance within
given availability of resources.

Often these planning systems are quite systematic and designed to help organisa-
tions work through a strategic plan step by step. These steps guide an organisation
towards a deliberate strategy (Mintzberg 1987). This process is often top manage-
ment-driven and based on complex deliberations between different functions
within an organisation. Much of the marketing literature is preoccupied with this
linear, rational approach to strategic planning. Mintzberg (1994) calls this the
rationalist approach. A proponent of this type of deliberate planning is McDonald
(1993), who discusses the marketing planning process in detail. The essential steps
surrounding this process are outlined in Figure 1.4.
The analytical part of such plans often begins with an audit to ascertain the cur-
rent position of an organisation in relation to its marketplace. This is followed by a
SWOT (strengths, weaknesses, opportunities and threats) analysis. The SWOT
analysis lays the foundations for developing strategies for the organisation. The
SWOT analysis and audit are nearly always incomplete because the information
required to make perfect strategies is often hidden or not available. As a result, a
series of informed assumptions have to be made on the basis of available data.
Following this exercise, the objectives are set as measurable outcomes. The feed-
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Strategic planning to deliver the marketing concept 13

The marketing plan contains:

• financial
mission statement
• market overview
summary
1 Corporate objectives
• SWOT analysis
• assumptions
2 Marketing audit • marketing objectives and strategies
• programmes (with forecasts and budgets)
3 SWOT analysis •
Feedback loops
4 Assumptions

5 Marketing objectives and strategies

6 Estimate expected results

7 Identify alternative plans and mixes

8 Programmes

9 Measurement and review

Figure 1.4 The rational marketing planning process

Source: Adapted from McDonald 1993

back loops are designed to create an iterative process of planning. Mintzberg argues
that in a planned strategy:
Leaders at the centre of authority formulate their intentions as precisely as possible and then
strive for their implementation – their translation into collective action – with a minimum of
distortion, ‘surprise free’. To ensure this, the leaders must first articulate their intentions in
the form of a plan in as much detail as possible, to minimise confusion, and then elaborate
this plan in as much detail as possible, in the form of budgets, schedules and so on, to pre-
empt discretion that might impede its realisation. Those outside the planning process may
act, but to the extent possible they are not allowed to decide. Programmes that guide their
behaviour are built into the plan, and formal controls are instituted to ensure pursuit of the
plan and the programmes.

Other models take a more general strategic point of view (Johnson and Scholes
2000), many of the human and cultural issues being taken into account. Johnson
and Scholes’ model is much more comprehensive than McDonald’s and
Mintzberg’s and based on analysis, choice and implementation (see Figure 1.5).
Within this comprehensive framework, marketing strategies are developed from
comprehensive portfolio analyses.
Many forms of strategy are possible. If one takes the view that the environment
is uncontrollable, then it is quite possible that a company will have to be adaptive
to the environment. However, a definition of the ‘environment’ is not straightfor-
ward. For some, the environment means the physical environment, encompassing
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14 Chapter 1 / From structure to chaos? Understanding marketing strategy

Expectations
and purposes

Resources,
The competencies,
environment capabilities
Strategic
analysis
Bases of Organisational
strategic structure and
choice design

Strategic Strategy
choice implementation

Resource
Strategic
allocation and
options
control
Strategy Managing
evaluation and strategic
selection change

Figure 1.5 Johnson and Scholes’ marketing planning framework

Source: Johnson and Scholes 2000

weather, politics and war. For others, the environment means the ‘near’ environ-
ment encompassing competitors and the general market environment. In most
cases, organisations are rarely immune to environmental pressures and therefore
environmental turbulence has to be taken into account.

Environmental factors
Studies into market orientation often utilise an environmental turbulence scale to
understand its effect on the level of market orientation practised by organisations.
However, this environmental turbulence only measures the impact of technology
and competitors within a given market. For a greater understanding, companies
need to analyse the role played by the general environment, including global cli-
mate and political issues, as shown in Figure 1.6.
Within this environment, organisations may follow a range of strategies that are
planned, entrepreneurial, ideological, umbrella-type, process-driven, unconnected
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Creating a sense of identity 15

Global climate

The near environment

Market sectors Competitors Global

Geopolitics ORGANISATION logistics
Legislation Technology

Local living environment

Globalisation

Figure 1.6 Environmental factors affecting strategy

(different strategies in different areas of an organisation), consensus-driven or

imposed (Mintzberg 1987).
Others argue that strategy has to be developed in a way that stretches and lever-
ages a company (Hamel and Prahalad 1989). Market analysis and then strategy
formulation as practised by many marketers is not enough to position a company
for sustainable growth and help it to gain competitive advantage over its rivals. A
company needs to understand and leverage its core competencies to the full. For
instance, they feel that many companies are competent at diagnostics but not at
actually breaking down managerial mindsets. For instance, to quote from Hamel
and Prahalad’s paper:
Driven by the need to understand the dynamics of battles (GM vs Toyota, CGS vs CNN, Pan
Am vs British Airways, RCA vs Sony), we have turned competitiveness into a growth indus-
try. Companies and industries have been analysed in mind-numbing detail, autopsies
performed, and verdicts rendered. Yet when it comes to understanding where competitiveness
comes from and where it goes, we are like doctors who have diagnosed a problem – and have
found ways to treat some of its symptoms – but who still don’t know how to keep from get-
ting sick in the first place.

Thus, the views of Hamel and Prahalad open the door for a greater analysis of the
underlying managerial issues when analysing markets and competition.

Creating a sense of identity

The importance of creating a sense of mission within an organisation is important
for many companies (Yeung and Campbell 1991). Many marketers would contend
that a marketing plan is incomplete without reference to a company’s mission. The
proposed Ashridge model shown in Figure 1.7 takes into account the purpose,
values and behaviour standards of an organisation. The purpose of a company
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16 Chapter 1 / From structure to chaos? Understanding marketing strategy

often determines the markets that it will target. For instance, the Co-operative
Bank, based in the UK, believes in only undertaking ethical investments. This cre-
ates a particular type of market opportunity, which determines the types of
consumer segments that will be interested in its products. Corporate values drive
the purpose and strategy of a company, with the behaviour being actionable and
measurable (such as customer satisfaction and service quality). The distinctive com-
petencies of a company may be constrained or enhanced by the resources available
to it. The resource-based theory of strategy discusses how these distinctive compe-
tencies can be leveraged and enhanced.
It is argued that a well-crafted mission statement can provide the following
advantages to a company (Bart and Baetz 1998):
 ensure unanimity of purpose
 arouse positive feelings about a firm
 provide direction
 provide a basis for objectives and strategies
 serve as a focal point
 resolve divergent views among managers.

In order to achieve this, Pearce and David (1987) suggested that a mission state-
ment should contain the following aspects:

1 customers (the target market)

2 products/services (offerings and value provided to customers)
3 geographic markets (where the firm seeks customers)
4 technology (the technology used to produce and market products)
5 concern for survival/growth/profits (the firm’s concern for being financially
sound)
6 philosophy (the firm’s values, ethics, beliefs)
7 public image (contributions the firm makes to communities)

Why the company exists

Purpose

The competitive position

Strategy Values What the company believes in
and distinctive competence
Behaviour
standards

The policies and behaviour patterns

that underpin the distinctive
competence and value system

Figure 1.7 The Ashridge mission model

Source: Yeung and Campbell 1991
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Creating a sense of identity 17

8 employees (the importance of managers and employees)

9 distinctive competence (how the firm is better than or different from its
competitors).

In one study (David and David 2003), it was found that many companies fail to
include six of the nine recommended components in their mission statements,
these being market, technology, survival/growth, philosophy, public image and
employees.
This is interesting and disturbing as stakeholders are given scant consideration
and technology is not given the prominence it deserves, given the dramatic
changes wrought by the Internet and database systems. Clear mission statements
play an important part in helping to frame marketing strategies. However, a
wrongly defined mission statement can determine strategic limitations and loss of
competitiveness.

Limitations
Tightly defined mission statements are potential sources of problems. For instance,
as present markets are constantly evolving with even greater rapidity than before,
how rigid can a firm’s mission statement be?
The Dixons Group is essentially an electrical and electronics-based retailer. In
1999, it launched Freeserve, an Internet service. This was a diversification from its
normal business. However, Dixons saw the opportunity offered by the growth of
the Internet and began to broaden its target market (Levitt 1960). At the same time,
it developed the capabilities to meet its customers’ requirements. The resources
were leveraged accordingly.
Doing this is not necessarily a clear-cut process as profits have to be earned in
the new market. Grant (2002) maintains that companies ought to look at the
resources that they can leverage before thinking about positioning in the market-
place. Having identifed these resources, they can then be utilised to position the
core competencies accordingly in order to exploit existing market opportunities. A
company’s resources may comprise brands, financial assets, key personnel, R&D
and distribution systems, among others. Grant contends that companies are in the
business of maximising rents from these resources on a long-term basis. Resource-
based strategy builds on an individual company’s strengths and weaknesses (in
terms of resources) and how it can leverage these internal assets compared to its
competitors. The approach it takes is then unique to the firm itself and exploits the
competencies that it possesses. The effective utilisation of these resources enables a
company to meet its customers’ needs more quickly and more efficiently than
would otherwise be the case (Barney 1996).
The discussion above illustrates the complexities involved in developing marketing
strategies. Despite these challenges, strategy development, by its very nature, peers
into the future. Strategies are created and executed within given time periods. Thus, in
addition to the many issues presented above, time, fragmentation and technological
developments need to be addressed before developing a new guide to planning.
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18 Chapter 1 / From structure to chaos? Understanding marketing strategy

Time as an issue in planning

Time is an important aspect of planning. Many companies succeed or fail depend-
ing on:
 their speed of entry into a market with a new product
 the length of time a particular organisation has been operating within its market
– may endow it with market knowledge and distribution strengths
 the length of time that a company has been operating within a market as it may
prevent it from taking advantage of new opportunities in new markets
 the speed with which a company can harness its resources to meet competitive
challenges
 the time and place of the formation of a company
 consumers’ perceptions of the value of time.

Some management authors indicate that the moment when a firm is founded
impacts on its structure and strategy (Stinchcombe 1965). Hence, the age of the
firm constitutes a determining variable in the firm’s strategic choices and ability to
change. In the strategic management field, Boeker (1989 demonstrates that both
the age of the firm and its history constrain the available strategic spectrum. He
also shows that when firms have one specific dominant strategy, they are not likely
to change it, even if poor performance is encountered. This type of analysis
matches the notion of organisational inertia identified by Hannan and Freeman
(1984). Schein (1983, 1992) also discusses the predominant role of the founder in
developing a firm’s culture and strategy. He or she may also be a product of a par-
ticular age and time. We propose taking a new look at time from different angles so
that companies can incorporate this into their marketing strategies. From the
points made above, we propose the time pentagon shown in (Figure 1.8).

Time and first mover

advantage

Time and technological

Time-cycle for products
advantages

Time and consumer Time and experiential

perceptions advantages

Figure 1.8 The time pentagon

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Time as an issue in planning 19

Time and first mover advantages

For many companies, being the first to the market is highly significant as they can
often, as a result, become market leaders and enjoy superior profits and returns to
those that came along after them. Examples of this are companies such as Coca-
Cola and Levis, which really took advantage of the dislocation of production and
consumption in the 1880s and are still reputable international brand names. More
recently, companies such as Amazon have garnered a large market share in the
online sales of books by being first to the Internet market. Several authors have
studied the impact of the order of entry on market share and business performance
(Szymanski et al. 1995). First movers are supposed to have competitive advantage
with regard to mastering technology, developing distribution systems and creating
a brand image (Tellis and Golder 1996).
Although there has been much discussion about first mover advantages, empiri-
cal research indicates that, on average, being first to market leads to a long-term
profit disadvantage relative to later entrants (Boulding and Christen 2003). In gen-
eral, first movers have an initial profit advantage that erodes over time. The
advantage lasts for 12 to 14 years. Often, as customers learn about a new product or
service and as the patent protection expires, a first mover can experience erosion of
its competitive advantage. However, if there is limited customer learning or if the
patent protection is strong and lengthy, the advantages can continue. Often,
second movers can reap profits in the form of experiential learning that can not
only help to lower costs but also provide a better understanding of the market
dynamics created by the first mover. Again, timing the launch of a new product or
service is an important strategic decision and the level and availability of resources
may determine a first mover or a second mover marketing strategy. In some cases,
late entry into the market may foster better market orientation. This is because the
competitive intensity (Porter 1985) is likely to be stronger over time, therefore
newcomers are bound to demonstrate higher market orientation levels in order to
reach a profitable place in the market. Hence, from a competitive point of view,
time could reinforce the necessity of strong market orientation for young firms or
firms entering new markets.

Time-cycle for products

The ability to compete on time has paid huge dividends for companies that can
outsmart and outmanoeuvre their rivals. Often this time-based activity relates to
the ways in which companies can reduce the length of the cycle before products
are available to buy. For instance, by adapting to the communications revolution,
Dell has managed to recalibrate time in terms of the processes required to get the
product to market. In utilising the Internet, Dell has managed both informational
time and logistical time efficiently and effectively. The company has recalibrated
the time required for global supply planning by speeding up the exchange of infor-
mation between Dell, its customers and its suppliers (Fields 2006). It also speeded
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20 Chapter 1 / From structure to chaos? Understanding marketing strategy

up demand fulfilment by instituting quick logistics regarding the movement of

materials from procurement to assembly line and to distribution. All in all, this has
resulted in lower inventory (see Table 1.1). Other research (Dibrell et al. 2005) indi-
cates that, when internationalising, a firm should emphasise time as a source of
advantage in the international arena.

Table 1.1 Number of days supply of inventory at Dell

1994 1995 1996 1997 1998 1999 2000 2001 2002

32 21 16 13 8 6 5 4 3

Source: Field 2006

Time and consumers’ perceptions

Consumers behave in different ways depending on their perceptions of time. In the
Western world, a great deal of emphasis is placed on the value of time, leading to a
string of inventions that have created more time for individuals. Witness the amazing
growth of labour-saving devices, such as vacuum cleaners, microwave ovens and
speedy communication tools, such as mobile phones. Consumers are also delineated
as monochromic or polychromic (Kaufman-Scarborough and Lindquist 1999).
Monochromic and polychromic individuals are assessed by posing the following kinds
of statements with which they express their agreement or disagreement; their
responses are then measured on a Likert scale to gauge their behaviour patterns.

1 I do not like to juggle several activities at the same time.

2 People should not try to do many things at once.
3 When I sit down at my desk, I work on one project at a time.
4 I am comfortable doing several things at the same time.

By measuring these attitudes, individuals are placed in a particular position on the

Polychromic Attitude Index (PAI). According to Kaufman-Scarborough and
Lindquist, this can lead to a better understanding of what products and services
will suit each consumer group. Monochromic individuals tend to follow regular
patterns and schedules try to do activities within strict time limits and rarely devi-
ate from patterned behaviour. Polychromics, on the other hand, deliberately
combine activities, prefer a flexible schedule, enjoy doing several things at a time
and break their projects down into parts. This clearly has implications for develop-
ing products and services that meet the needs of these differing time styles.
The Slow Food movement encapsulates how important time may be for con-
sumers in the future in terms of regulating consumption. The current marketing
models all try to look at the value of time, saving as much of it as possible, whereas
there is a growing number of consumers who wish to integrate ecologically sound
practices into food production and eating – in essence, slowing down the time for
products to get to the market in order to reintegrate the consumption process with
the more natural rhythm of the year, determined by seasons.
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Time as an issue in planning 21

CASE STUDY

Slow coaching
From multi-tasking to speed-dating, we seem to be living our lives on constant fast-
forward. Time to press the pause button, says Lucy Siegle
When I say that the residents of Ludlow in Shropshire far too low to ensure productivity, according to
and Aylsham in Norfolk are slow, I mean it very unions, but luxurious compared to the average
kindly. Both places have been awarded Slow City mealtime in a fast-food joint: 11 minutes.
status by the international Slow Food organisation And not only is fast food bad for you, it’s bad for
(slowfood.com). Instead of falling prey to the identikit the planet, and very definitely Not Slow. As a result
supermarkets and chain stores that make up ‘clone- of industrialised food production, which revolves
town Britain’, as described by the New Economics around monocultures, we are losing species. One
Foundation, they have preserved their unique hundred years ago we ate more than 100 different
identity, supported local suppliers and producers, cut species; now 75 per cent of the global food supply
traffic pollution and protected green spaces. comes from just 12 crop species. We are losing
Carlo Petrini, author of Slow Food (Grub Street varieties within those species – British examples
Publishing), founded the Slow Food Movement in include hundreds of varieties of English strawberries
1989 after McDonald’s moved on to Rome’s historic and apples. A variety of vegetable is lost every six
Piazza di Spagna. The aim was to ‘rediscover the hours. Animals are fed growth hormones to get them
flavours of regional cooking and banish the to slaughter quicker, the world’s aquifers are drained
degrading effects of fast food’ – a rude awakening to feed commercial agriculture, and 13 of the world’s
for those who considered the Pot Noodle to be the 15 fishing grounds are now in decline, largely thanks
greatest thing since sliced bread. However, the Slow to industrial fishing. It’s enough to make you yell:
Food movement has, ironically, gathered a lot of ‘Stop, I want to get off!’
pace recently, not to mention more than 60,000 If that is the case, then In Praise of Slow by Carl
members across the world. Now there’s ‘slow’ Honore (Orion) is essential reading. He discovered
activism, education and consumption, all all sorts of things are on fast forward, even his
pertaining to a more holistic, sustainable way of favourite Mozart sonata – it should take 22
life. ‘The rhythm of life is ever faster,’ explains minutes, but orchestras get through it in 14. Then
Petrini. ‘We don’t want to lose the capacity to give there’s consumption patterns: slow these by buying
pleasure and to reason. Let’s be a little calmer.’ fewer, higher-quality items that will last and can be
He has a good point. From multitasking to speed reused. Protect your right to a work/life balance by
dating, increasingly we’re ‘speedaholics’. By next joining a union – or read Tom Hodgkinson’s How
year there will be 1.6bn cellphone users on the To Be Idle (Hamish Hamilton) and resolve to do very
planet, and the top 10 fast-food chains have little indeed.
100,000 outlets across the globe. Meanwhile the The Slowfood Manifesto (from slowfood.com)
average ‘lunch hour’ has shrunk to just 27 minutes, Source: Lucy Siegle, ‘Slow coaching’, The Observer, 12 December 2004

The Official Slow Food Manifesto

Endorsed and approved in 1989 by delegates from 20 countries

Our century, which began and has developed under which disrupts our habits, pervades the privacy of
the insignia of industrial civilization, first invented our homes and forces us to eat Fast Foods.
the machine and then took it as its life model. To be worthy of the name, Homo Sapiens should
We are enslaved by speed and have all rid himself of speed before it reduces him to a
succumbed to the same insidious virus: Fast Life, species in danger of extinction.

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22 Chapter 1 / From structure to chaos? Understanding marketing strategy

Case study continued

A firm defence of quiet material pleasure is the environment and our landscapes. So Slow Food is
only way to oppose the universal folly of Fast Life. now the only truly progressive answer.
May suitable doses of guaranteed sensual pleasure This is what real culture is all about: developing
and slow, long-lasting enjoyment preserve us from taste rather than demeaning it. And what better
the contagion of the multitude who mistake frenzy way to set about this than an international
for efficiency. exchange of experiences, knowledge, projects?
Our defence should begin at the table with Slow Slow Food guarantees a better future. Slow Food is
Food. Let us rediscover the flavours and savours of an idea that needs plenty of qualified supporters who
regional cooking and banish the degrading effects can help turn this (slow) motion into an international
of Fast Food. movement, with the little snail as its symbol
In the name of productivity, Fast Life has Source: www.slowfoodludlow.org.uk/docs/manifesto.html
changed our way of being and threatens our

Time and experiential advantages

As a firm ages, history is created. This history enables a company to draw on its
previous successes and failures. For instance, once Stelios Haji-Ioannou created the
easyJet company, he leveraged the brand ‘easy’ in many ways to create easyCar,
easyInternetcafe, easyCinema, easyHotel and, the latest venture, easyCruises. The
name ‘easy’ is now synonymous with value and simplicity and this has been gar-
nered when setting up a range of businesses within the easyGroup. Similarly,
Richard Branson has leveraged the Virgin brand into new areas, such as airlines and
rail transport, when the brand began its life within the record retail sector. Other
possible ways in which company history and experience can help to increase com-
petitiveness are:
 better knowledge of the market than other companies, which can be efficiently
used to launch new products or services
 a known brand identity can ease the launch of a new product or service com-
pared with an unknown company doing so
 an established supply chain and distribution system
 an established customer base
 established networks and alliances.

A classic example of this is the Philips group, which has excellent capabilities in
innovation and uses them effectively to launch products and services successfully,
based on the points made above.

Time and technological advantages

Technological innovations can create opportunities for existing firms as they can
develop new products and services based on their experiential advantages, as
described above. Often, companies in this situation will have proprietary knowledge
MAST_C01.QXD 24/4/07 14:01 Page 23

Time as an issue in planning 23

or have access to patents. For instance, the juxtaposition of chip technology and
knowledge of electronics allowed Sony to enter successfully the Japanese games con-
sole market in 1994. At that time, the games market was dominated by Nintendo
and success was not guaranteed, but the PlayStation sold more than 1 million units,
with the initial 100,000 units being sold out within a day (www.sony.net/Fun/SH/1-34
/h5.html). In May 1996, Sony PlayStation had reached a worldwide sales record of 5
million units. The games platform has now become one of the strongest and newest
areas of business within the Sony portfolio.
The growth of the Internet has spawned new companies such as Amazon books,
eBay and Google. These companies are household names and international brands,
yet they have achieved this status in less than ten years. As technology develops
and new companies seize and exploit quickly the new opportunities, they are fully
utilising the possibilities afforded by technological advances. Biotechnology com-
panies are benefiting from the work carried out by the Human Genome Project,
mapping human genetic codes. Many companies are starting to specialise in
autoimmune diseases and targeted cancer treatments. These companies are often
new and do not have established positions within the marketplace.
In some instances, companies that are old in the marketplace cannot survive the
onslaught of new ideas and new possibilities as they may not be very fleet of foot.
In fact, their very ‘experience’ could be detrimental to their survival. For instance,
five years ago, Kodak was one of the strongest brands in the world. However, as
photos have moved from being chemically processed to being digital, their mon-
opoly – represented by 100,000 film development outlets – has been seriously
challenged by the 100 million ‘outlets available to digital cameras – that is, the
computers on every desk and in every home – not to mention mobile phone cam-
eras, which are also ubiquitous.
Kodak did not embrace the digital revolution as quickly as it should have done.
One reason may have been that its long previous experience of producing, selling
and developing photographic films and papers within its served market (Lindstrom
2006) prevented it – on the level of the company’s mindset – from moving into the
new digital formats for images. Another reason may have been the purely practical
one that, as technology creates disruptions, it is difficult for companies such as
Kodak to respond swiftly to the resulting market changes because it already has
established global factories, retail outlets and distribution systems and these have
to be modified or dismantled in order to reach digital consumers. This cannot be
achieved overnight. The company is now attempting to regain leadership via
Kodak PhotoNet, which offers digital copies of photo prints delivered to a person-
alised online album.
Another example provided by Lindstrom (2006) is Lego, which saw its world-
wide dominance of the toy market slashed by 30 per cent in 1994 by the
introduction of online games puzzles and challenges.
Therefore, time and technology can provide advantages for some companies and
problems for others. In this context, companies need to incorporate time and tech-
nological analysis into the development of their marketing strategies. With the
growth in technological developments, companies’ strategies are becoming more
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24 Chapter 1 / From structure to chaos? Understanding marketing strategy

transparent and the issue of ethics is playing an increasingly important role in

company development. The next section introduces this area.

Ethics as a marketing issue

Many companies are now becoming acutely aware that their marketing strategies
are either hampered or enhanced by their ethical stances. For instance, Nike found
to its cost that many consumers were not only refusing to buy its products but
were also ready to actively campaign against its activities. The reasons for this were
the poor conditions and pay it offered to workers in its factories in Indonesia.
Nike is primarily a design and marketing company that subcontracts much of
the manufacturing to smaller outfits. In 1998, the company was associated with
offering unfair pay and poor working conditions to employees. The company has
gone to great lengths to improve the situation, but the stigma still remains, with
the company having to deal with the long-term effects and consequences of this
image for years to come.
Prolonged bad publicity can have a critical impact on a brand. Other companies
are taking a more proactive stance and creating ethical alliances (Andreasen and
Drumwright 2001) with non-profit organisations. These ethical alliances initially
begin with donations and then extend to cause-related marketing, event sponsor-
ship, employee exchange and the provision of services. Reebok, for instance is
actively involved with Amnesty International, while Visa – the credit card com-
pany – is associated with literacy programmes in developing countries. Markets are
now less local and more globalised as products traverse the world. Such cause-
related marketing strategies may become ways in which companies can distinguish
themselves in the marketplace.

Towards a new strategic marketing planning model

The previous sections have highlighted and discussed the various factors that are
dynamic in nature and impinge on marketing planning. It is obvious that a linear
and iterative approach to the strategic planning and implementation of marketing
may be too restrictive and not dynamic enough when companies need to consider
and integrate the complex influences of various internal and external factors.
Companies need to consider how best to leverage their resources and understand
their level of market orientation. A rethink – in terms of planning using a new
interactive model – is replacing the linear approach. For instance, during the strate-
gic planning stage, many companies still follow tried and tested models with the
requisite audits and SWOT analyses. However, rarely do they analyse or understand
their level of market orientation, resource activity levels and the requisite time
horizons, which may be quite short or relatively long.
MAST_C01.QXD 24/4/07 14:01 Page 25

Towards a new strategic marketing planning model 25

The following case study illustrates the speed with which Bradesco exploited a
window of opportunity. These strategic windows are not always available indefinitely
(Abell 1978), yet Bradesco successfully manoeuvred its resources and knowledge
within a short timespan to build a better and cheaper customer service. Of course, a
situation such as this means that Bradesco can now also take maximum advantage of
the new digital age and incorporate mobile technology into its business.

CASE STUDY FT

Internet banking: quick to adapt to technology

Bradesco’s embrace of IT puts it among the world’s leading online institutions and earns
high plaudits
A couple of years ago, Jean Phillipe Leroy was met computer industry by making it prohibitively
by disbelief when he told international fund expensive to import the machines. One of the
managers about how Bradesco, Brazil’s biggest byproducts was that many companies researched
bank, was taking advantage of the Internet. and developed their own inhouse technology.
‘They know now. But it was a big shock for them Bradesco was particularly quick off the mark, being
at first to see us among the biggest Internet banks the first Brazilian bank to introduce computers.‘It
in the world’, says Mr Leroy, who is head of has always been a bank that has been on top of the
corporate relations at Bradesco’s São Paolo technology’, says Luiz Carlos Trabuco Cappi, an
headquarters. A study published earlier this year by executive vice-president who is responsible for
Cluster Consulting of Barcelona that rated Bradesco Internet banking. At the same time, during the
as the third biggest Internet bank in the world – 1970s and 1980s Brazilian banks developed their
behind Bank of America and Wells Fargo – has been systems to a much greater degree than elsewhere in
extensively reported. Last year, Bradesco gained an Latin America in order to accommodate the effect
honorary mention in Bill Gates’ best-selling of permanent levels of very high inflation. Because
Business at the Speed of Thought. In a chapter called a bank needs to conduct financial transactions
‘Get to markets first’, Mr Gates writes, that ‘almost quickly if it is to make money in an environment
since its inception, this [bank] has made “time to where monetary values are rapidly eroded, sysems
market” practically a mantra’. Last December to clear cheques within 24 hours were introduced,
Bradesco’s first free Internet service led to a sharp for example. In his book, Mr Gates describes how
rise in the share price and was widely noted. Bradesco developed a cash-management software
Growth this year has been impressive. By October, application to assist with payables and receivables,
Bradesco had 1,530,000 clients for its Internet which it then sold to about 4100 businesses. For
banking service, more than twice as many as in the another customer Bradesco developed a salary card
same month of the previous year. A total of 9.2m that enabled employees to be paid directly from
transactions were conducted online during the ATM machines without being required to have a
same month, and of the 486,000 Brazilians who bank account. Again, the system was quickly
opened new accounts with Bradesco during the generalised. ‘The bank focuses on short
third quarter, more than half of the new customers development cycles – weeks and months; no
– 51 per cent – were banking by Internet. Bradesco longer’, writes Mr Gates.
– and other big Brazilian banks such as Itau, Its management accustomed to innovation,
Unibanco and Banco de Brasil – have been quick to Bradesco was able to react quickly to the
adapt technology for a range of reasons. The opportunity of the Internet. Initially it developed a
Brazilian government’s industrial policy is one. system that depended on customers using a CD-
Until the late 1980s, Brazil protected its domestic ROM on which they entered details before

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26 Chapter 1 / From structure to chaos? Understanding marketing strategy

Case study continued

transmitting by a modem. Subsequently a full Fearing that such a course might make it less easy
online service has been introduced. Bradesco has to grow among the sector of the market which is
been clever about introducing innovation to allow just beginning to open bank accounts, Bradesco is
customers to personalise their access to the site, in developing a strategy which is designed to increase
order to defeat hackers and reduce the risk of fraud. the efficiency of the network. At least one Internet
The hours during which the site is open can be terminal has been placed inside each branch and a
restricted, for example says Mr Cappi. The big series of incentives offered to make both its
advantage is efficiency. Mr Cappi says that the customers and its staff more computer-friendly.
average cost of an Internet transaction is just 11 Special lines of credit have been made available to
centavos, compared with 54 centavos for a allow its staff to buy computers. More than 17,000
transaction conducted over the telephone and of its workers have taken advantage in the last
R1.20 for one conducted at a branch. But unlike 4 months or so. Bradesco has also begun to install
many of its counterparts in the developed world, computers inside shopping centres and supermarkets,
Bradesco is not seeking to replace its network of allowing even wider Internet banking access.
2500 branches with a cyber network. Source: Richard Lapper, Financial Times, 20 December 2000

The next case study shows how Bradesco has used time and technology to its
advantage once again – especially to counteract fraud.
Figure 1.9 illustrates the key issues that an organisation should take into account
when developing marketing strategies. Instead of a linear approach, a more
dynamic and holistic model needs to be undertaken and each of the factors should
be considered in a general environmental context. This level of importance associ-
ated with each factor could then be utilised to ascertain the speed with which the
strategy should be undertaken and the levels of resources that are required within
given constraints. The values, purposes and ethical stance of the organisation
should be fairly explicit in order to create positive links with the social community.
Some organisations enshrine these within their mission statement; others neglect
the importance of clearly presenting their corporate values and objectives.

CASE STUDY

Banco Bradesco trials Fujitsu palm vein authentication technology

Brazil’s Banco Bradesco, the largest private bank in applications, such as in PCs, ATMs and for building
Latin America, is to begin using Fujitsu’s and room access. The bank is currently testing the
PalmSecure biometric authentication application to application internally, with general roll out
verify customers using its ATMs. scheduled to start soon. The vendor says, after
The PalmSecure application features a sensor that researching various biometric technologies, Bradesco
captures the palm vein pattern of the user and chose PalmSecure for its high levels of verification
compares it with preregistered data to authenticate accuracy and for being non-invasive and hygienic,
the customer’s identity. Fujitsu says the sensor is making it easier to be accepted by customers.
compact and can be safely used in a wide range of Source: www.finextra.com/fullstory.asp?id=15575
MAST_C01.QXD 24/4/07 14:01 Page 27

Summary 27

Values
and
purpose
Market
analysis Time

Strategic Level of
Resource
marketing market
availability
planning orientation

Degree
of Performance
turbulence measures
Product,
market and
industry
sectors

Figure 1.9 Strategic ‘marketing’ planning

Summary
The above discussions and examples illustrate the view that marketing strategy is
closely related to corporate strategy. However, the process of developing a plan is
not always straightforward. A model for considering the key points of developing a
marketing strategy is shown in Figure 1.10.

The wider environment

Ethics Environment

Values and purpose

Market analysis
Resource availability Setting objectives Timing
Degree of turbulence

Market orientation levels

Product/market sectors
Political/technological
legal/economic
PERFORMANCE

The inner environment

Globalisation
Feedback loops

Figure 1.10 Key components for strategic planning

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28 Chapter 1 / From structure to chaos? Understanding marketing strategy

Companies and organisations have to consider a wide range of issues before they
develop particular strategies. There are many schools of thought on how strategy
actually develops and how it should develop. In this chapter, some of the complex-
ities that are involved in the strategic planning process have been illustrated and
the major issues that need to be taken into account by organisations have been
highlighted. With the advent of new technology, the shape and nature of markets
are changing. The old maxims are no longer true. One could argue that almost
every product, media and location offer new marketing possibilities. The markets
are becoming both global and local. The new technologies and the Internet are
helping to fragment markets into continually smaller segments and niches. The
idea of satisfying a customer is no longer a linear process. A customer has to be
approached and involved simultaneously on several dimensions. These dimensions
could include, among others, service, quality, speed of communication, quality of
communication, product quality and brand image. The challenge for marketing
strategists is to be able to blend some of the old ideas with new thinking and forge
coherent marketing strategies that can work effectively in the twenty-first century.

Chapter questions
1 Discuss why developing marketing strategy is a complex task.
2 What role does time play in the development of strategies?
3 How can a strong market orientation help an organisation develop an effective
marketing strategy?
MAST_C02.QXD 24/4/07 14:01 Page 29

Opening up analysis and positioning

2
Introduction
Strategic positioning represents one of the most important endeavours in strategic
marketing. The positioning process is long and complex, including an analysis of
the internal and external environment, the definition and segmentation of the tar-
geted market, together with the evaluation of the present and future marketing
strategies of competing firms. The information processed and analysed during this
process comes from many sources, with various departments being involved in
data collection and evaluation. As a result, it is essential that there is good coopera-
tion between the marketing department and other corporate divisions. The
representation of the marketing strategic vision at top management level is essen-
tial for achieving effective strategic positioning.

Internal analysis
Marketing activities are realised on the basis of existing resources and corporate
capabilities. Some of these resources are owned by the firm, while others can be
attracted from outside collaborators and suppliers in exchange for other resources.
For example, market data can be collected and processed by consulting organisations
or additional production capacity can be subcontracted from other companies.
The design of an effective strategic marketing plan requires an in-depth knowl-
edge of the company’s resources and capabilities. This knowledge is the result of a
complex internal analysis.

The analysis of tangible and intangible resources

At any given moment a firm controls both tangible and intangible resources.
Tangible resources include raw materials, equipment and installations, machinery,
MAST_C02.QXD 24/4/07 14:01 Page 30

30 Chapter 2 / Opening up analysis and positioning

buildings and furniture. These assets are usually evaluated using specific account-
ing principles and methods, to assess their market value.
The company’s intangible resources are much more difficult to assess as they
include the personal capabilities of its staff, professional expertise and experience
of its managers and employees, its brand name and corporate reputation, intellec-
tual property portfolio and existing partnerships. Some authors have even argued
that loyal customers represent the most important asset of a business organisation.
However, this precious resource is, rather, the relationships developed with each
customer as a person rather than a number. Most of these assets are unique and
their proper use depends on specific organisational and environmental circum-
stances. That is why they are often considered irreplaceable. The intangible assets
represent the dynamic element of an organisation, which exploits more or less
effectively the existing tangible resources for achieving specific strategic objectives.
Money represents a resource with an ambiguous status. Although in day-to-day
life money is often tangible, in reality it is often represented by a flow through a
company’s accounts. It is often information about this flow that is more important
than the actual materiality of a company’s assets.

Operant and operand resources

In their revolutionary paper on the predominance of the service paradigm in
modern marketing, Vargo and Lusch (2004) have developed the distinction
between operand and operant resources. Operand resources are the assets on which
various actions are performed in order to create value, such as raw materials or
machinery, which are almost synonymous with the category of tangible resources.
On the other hand, operant resources are usually intangible and unique, such as
knowledge, skills, competencies, capabilities and experience, which are applied to
operand resources for value creation. Vargo and Lusch also emphasise that, in the
present-day marketplace, it is the operant resources that are more important for an
organisation whereas, traditionally, operand resources have been considered the
basis for calculating national wealth and the value of goods.
Operant resources have a unique and qualitative nature, their development
requiring time and investment. In today’s marketplace, information has truly
become one of the most important operant resources, allowing firms to assess cor-
rectly their internal capabilities, evaluate the risks and opportunities present in the
market and understand consumers’ needs. Figure 2.1 shows how operant and
operand resources work together to create value.

Organisational strengths and weaknesses

To understand correctly the capabilities of a firm, its internal resources should be
considered in relation to their value for customers and with the resources con-
trolled by competitors. This kind of analysis can indicate the areas of strength and
MAST_C02.QXD 24/4/07 14:01 Page 31

Internal analysis 31

Operant resources

Operand resources

Consumer value
€ ¥ £ $
Figure 2.1 The interaction between operand and operant resources in the value-creation
process

weakness of the company and permit the decision makers to take corrective actions
in order to protect and nurture the strengths, while trying to reduce or even elimi-
nate the organisational weaknesses.
In order to categorise and represent firm’s resources from this dual perspective,
every internal resource can be represented in a system of coordinates, as in
Figure 2.2.
Every internal resource of the firm is represented as a circle in the dual system of
coordinates proposed in Figure 2.2. The radius of each circle is proportional to the
cost required to maintain and control a specific resource. Obviously, the best
resources are those represented in the top right-hand corner. These are the ‘crown
jewels’, which should be nurtured and maintained by the firm in their current
status. However, the diagram indicates that some of these resources are extremely
expensive for the firm. In these circumstances, the management team can try to
identify cost-reduction methods or replace the present sources of these resources
with cheaper ones. These resources can be successfully used by the firm to differen-
tiate their competitive image from other competitors.
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32 Chapter 2 / Opening up analysis and positioning

Value for
High
customers

Crown jewels
Achilles heel

Low High (Strength against

competition)

Black holes Sleepers

Low

Figure 2.2 The representation of various internal resources in relation to their value for
customers and strength against competition

The internal resources that have high value for customers, but are weak in compari-
son with competitors’ resources, should be further developed in order to reduce
this competitive gap. These resources can be labelled as ‘Achilles heels’ because
they represent a weak element in the organisational structure.
The resources located in the area characterised by low customer value and low
strength against competitors are the ‘black holes’ as they do not provide any partic-
ular advantage to the firm, but consume money. However, it is not advisable to
eliminate such resources, because some of them might be essential for the good
functioning of the organisation. However, an important line of action can be the
reduction of costs related to this category of resources.
Finally, the resources that are strong against competition but hold a low value
for customers can be called ‘sleepers’. The analysis of these resources can eventually
determine a reorientation of the company’s mission and the implementation of
procedures for better exploiting these resources for the benefit of the market.
This framework of analysis has the advantage of providing a clear image of the
existing values of various internal resources. However, because in most cases, the
firm is targeting various market segments and has multiple competitors, a represen-
tation of internal resources has to be made for each specific market segment, as
both the value for consumers and strength against competition may differ from
segment to segment.
MAST_C02.QXD 24/4/07 14:01 Page 33

Internal analysis 33

Product portfolio analysis

The existing product portfolio of a firm is one of the most important organisa-
tional assets, because it represents the basis of the company’s profitability.
One way in which to assess the diversity of the product portfolio is simply to list
all the product families with their components. This representation provides a gen-
eral view of the existing product portfolio, but its static nature reduces its
importance for strategic marketing planning. For example, the product portfolio
used by Hyundai for the French market can be represented as shown in Table 2.1.

Table 2.1 The product portfolio of Hyundai for the French market

Product lines Mono-space Berlines Professional 4X4 Sport et Luxury

Atos Accent H1 (van) Tucson Coupé
Getz Elantra SR (plateau) Santa Fe Sonata
Matrix Terracan XG
Trajet
Satellite

Source: Hyundai, www.hyundai.fr

On the other hand, the product portfolio and its evolution has to be linked with
the product lifecycle (PLC) model. The PLC has been used for many decades and
continues to be discussed in marketing theory. Depending on which of the various
stages of the lifecycle a product is in, various strategic alternatives are available to
companies. These are summarised in Table 2.2, the strategies presented being taken
from the classic paper by Day (1986).

Table 2.2 Product lifecycle stages and their potential strategies

Embryonic Growing Mature Ageing

Dominance All-out push Hold position Hold position Hold position
for share
Hold position Hold share Grow with industry
Strong Attempt to Attempt to Hold position Hold position
improve position improve position or harvest
All-out push Push for share Grow with Harvest
for share industry
Favourable Selective or all- Attempt to Custodial or
out push for share improve position maintenance
Selectively attempt Selectively push Find niche and Phased withdrawal
to improve position for share attempt to protect
Tenable Selectively push Find niche and Find niche and Phased withdrawal
for position protect it hang on or or abandon
phased withdrawal
Weak Up or out Turn around or Turn around or Abandon
abandon phased withdrawal
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34 Chapter 2 / Opening up analysis and positioning

The characteristics of each stage of industry maturity are as follows (Hax and
Majluf 1984).
 The embryonic industry is characterised by rapid growth, changes in technology,
vigorous pursuit of new customers and fragmented, unstable market share.
 The growth industry exhibits rapid growth, clear trends in customer purchase pat-
terns, a growth in competitors’ market shares, technological developments and
increasing barriers to entry.
 The mature industry presents stable purchase patterns, technology and market
shares (however the industries themselves may be highly competitive).
 The ageing industry is characterised by falling demand, a declining number of
competitors and a narrowing product line.

As a result of these stages, the following competitive positions could be adopted.

 Dominant In any industry, only one firm can dominate. For instance, Boeing in
the aircraft industry and Microsoft in computer software (with its Windows
products.
 Strong This includes firms that are leaders within their sector of industry, but do
not exhibit absolute dominance. They have large market shares and are strong
competitors. Examples of such companies are Unilever in the toiletries market
and Volkswagen in the car sector.
 Favourable This describes a particular competitive position reached by a company
in a fragmented industry, achieved by pursuing a differentiation strategy or
exploiting a particular market niche in which the company excels. An example of
this is Dell Computers which has created a highly differentiated product in the
PC market by means of its just-in-time, customised, direct marketing strategies.
 Tenable This describes a position that can be maintained profitably via geo-
graphic or product specialisation in a narrow or protected market niche.
Examples of this are localised organic farmers in Europe who supply local mar-
kets. Another example is the Morgan car, for which there is a waiting list.
 Weak This describes a position that cannot be sustained by a company, given
the competitive economics of the industry. In such a situation, the firm can
strive to improve its position or decide to exit the sector.

The BCG matrix

For a dynamic analysis of the product portfolio, most companies use the growth-
share matrix developed by the Boston Consulting Group in the 1970s. This matrix
provides a representation of the product portfolio in relation to the growth rate of
the market and the relative market share of each product in comparison with its
most important competitor.
The matrix involes placing each of the firm’s products into one of four cate-
gories: Hungry dogs, Problem children, Stars and Cash cows, although the names
of the categories vary in the academic and professional literature (see Figure 2.3).
The products are represented in this matrix as circles, the radius of each being
proportional to the revenue it provides. The analysis of these products can be
MAST_C02.QXD 24/4/07 14:01 Page 35

Internal analysis 35

High
Stars Problem
children

Market
growth
rate

Cash cows Hungry dogs

Low

High Low
Relative market share

Figure 2.3 The BCG product portfolio matrix

related to their positions and evolutionary stage within the PLC. Usually, any new
product starts as a Hungry dog because of the investments required for its techno-
logical development and market launch. After this, in the growth phase, the
product should adopt the role of a Problem child and then a Star. At maturity, the
healthy products must become Cash cows that feed the process of developing and
launching new products. Finally, in the decline stage, the moribund products again
become Hungry dogs that fight to resist in a regressing market. Any mismatch
between a product that has reached a specific phase in its product lifecycle and the
corresponding category in the BCG matrix can indicate serious problems in the
performance and management of that product. On the other hand, it is important
to differentiate between various types of products, even if they are included in the
same category. For example, the marketing strategies applied to new and declining
products must be obviously different from each other, even if they are both
included in the Hungry dogs category.
Finally, preserving a healthy equilibrium for the various categories of products is
essential to a firm’s long-term success. A high number of Problem childen and Stars
can indicate a promising future for a company, but only if there are enough Cash
cows to support this ongoing development.
Despite its capacity to provide a clear representation of the product portfolio,
there are some problems associated with using the BCG matrix for analysis.
 Determining a particular market share. In industry sectors such as automobiles
and pharmaceuticals, market share data is available and, as the number of play-
ers is known, market shares can be determined. However, in many other sectors,
it is difficult to determine actual market shares.
 It is not easily to use it in the service sector, where services and clients can be
varied (for instance, in accountancy firms). The value of the clients, rather than
absolute market shares, may make more sense in this sector.
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36 Chapter 2 / Opening up analysis and positioning

 Lifecycles may not always follow the classic shape of growth and decline. Some
products may grow very rapidly whereas others may take time to grow. An exam-
ple of rapid growth may be certain computer games, such as Tombraider, that
then decline rapidly in the face of new games.
 Companies could make hasty decisions on products and fail to invest in poten-
tial Stars.
 Products sometimes take time to diffuse in the marketplace and need initial
investment.

Under these circumstances, Rogers’ (1995) diffusion curve should also be consid-
ered. Rogers argues that products diffuse into the marketplace according to five
factors.
 Relative advantage Companies developing products or services need to consider
the relative advantages offered by their new products. Economic factors, status
aspects and incentives can all add to an innovation’s perceived advantage. For
instance, the Dyson vacuum cleaner offers a relative advantage over conventional
vacuum cleaners with its innovative technology and the elimination of the need
for bags that periodically have to be removed and replaced and reduce suction.
 Compatibility A new product or service needs to be compatible with consumers’
values and beliefs, needs and previously adopted innovations. For instance, a
consumer familiar with a Windows machine is more likely to upgrade to a com-
puter that will offer compatibility with his or her previous experience of PCs and
also with the old files that have been generated.
 Complexity The complexity of an innovation is generally negatively related to
an innovation’s rate of adoption. Complex products are less likely to be adopted
by consumers. Consider the case of the new mobile technology.
 Trialability and observability Trialability and observability are usually positively
related to adoption. Trialability is of particular importance to early adopters as
they do not usually have peers to ask for advice. If individuals can trial a product
or observe the way it works and benefits their lives, they are more likely to adopt
it. Company’s such as Microsoft often bring out beta versions of their new soft-
ware so that consumers can observe and trial the software.

Figure 2.4 shows the typology of consumers who are willing to adopt new prod-
ucts or services. They tend to fall into the following categories.

– Innovators Individuals who are venturesome and may also have the financial
clout to try out new inventions and innovations. When new products are
introduced, they are often priced at a premium rate as companies are aware
that a new product may not always diffuse into a marketplace. They represent
only 3.5 per cent of the market.
– Early adopters This group of consumers are willing to observe and trial a new
product. As new, similar products enter the market, they will start purchasing,
following the innovators’ example. Often, once a product or service reaches
this stage, further progress can be achieved. The early adopters represent 13.5
per cent of the market. In the graphical representation of the adoption
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Internal analysis 37

Innovators Early Early Late Laggards

adopters majority majority

‘The
chasm’

Product adoption and lifecycle

Figure 2.4 The typology of new product users

process, there is a gap at the beginning of the early adopters group. This
‘chasm’ represents a critical moment in the adoption process of a product. If
the new product passes this stage, it means that the product concept is good
enough to convince a critical mass of consumers of its utility and value.
Otherwise, the new product will have an early decline, as is the case with
most gadgets and fashion products, the novelty of which is the most valuable
appeal for customers.
– Early majority This segment of the population is value-driven and tends to
make a deliberate choice when purchasing a product. It is likely that
economies of scale have made the new product cheaper and more accessible
via the distribution network. This set of consumers will wait for this to
happen before making their decision to purchase.
– Late majority By the time the product reaches this segment of the population
it will have matured. The late majority (or sceptical consumers) are not easily
convinced by the advertised advantages of a new product or service. They
may or may not adopt it. If they do, it may be grudgingly as everyone else
already has the product. Mobile phones were resisted for a long time by a sec-
tion of the population, but, ultimately, they were forced to adopt them as
friends and relatives already possessed and used this new device as the only
means of communication when travelling. The early and late majority seg-
ments each account for 34 per cent of the market, thus together making up
68 per cent of the total market. These are both very important segments for
marketers, each requiring different strategies.
– Laggards The laggards comprise a section of the population that never seems to
move in line with popular opinion. They are usually the last to adopt an innova-
tion, usually grudgingly. Laggards can, however, be quite numerous. The existing
studies consider that their proportion of the total market is 16 per cent.
As a product diffuses through the marketplace, from the innovators to the lag-
gards, it also moves through the lifecycle of its existence. It is important to
remember that not all products follow a smooth bell-shaped curve. Some prod-
ucts may take a long time to reach maturity and some may never reach the early
majority stage. So, caution should be exercised when using this model in con-
junction with the PLC.
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38 Chapter 2 / Opening up analysis and positioning

The value added chain approach

Porter introduced the concept of the value added chain, defining it as the succes-
sion of various operations that progressively incorporate new value elements into
the product, ending with the commercialisation of the final product on the
market. Usually, a company is responsible for only a limited number of specific
value operations, although large corporations might be able to control all the
stages of product development.
The integration of a firm within the value added chain of activities is deter-
mined by its particular competitive advantage. The competitive advantage can be
defined as the resource or capability the firm has that gives it absolute strength in
comparison with other competitors. The competitive advantage can be, for exam-
ple, a cheaper production process, a good-quality final product or a highly
responsive customer support service. Every firm should identify its particular com-
petitive advantage, making a thorough inventory of its resources and carrying out a
competitive benchmarking analysis of other companies.
Using the knowledge about the structure of the value-added chain of activities
specific to the company, it is possible to draw a diagram like that in Figure 2.5. It
shows the succession of activities, the specific resources required for each stage, the
levels of each resource controlled by the organisation and the possible sources of
complementary resources.
In Figure 2.5, on the horizontal axis are represented, in the successive order of
their use in the value added chain of activities, the various resources required for

Possible suppliers of
the resource K:
Firm X, Y, Z, etc.
Level of
resources
required

A B C D E F G H I J K
Resources required for the
product development process

Figure 2.5 A possible model for identifying, evaluating, allocating and obtaining the
necessary resources for the product development process
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Internal analysis 39

the completion of a product development project. On the vertical axis the level of
each of these resources required is represented. The shaded area indicates the
resources controlled by the firm, while the white area shows the complementary
resources required to successfully complete the project.
For each type of resource, the firm can also indicate the source of the comple-
mentary resources required, such as internal development, outsourcing or
collaboration. The level of complementary resources required can be communi-
cated to the firm’s management, helping to create a clear view of resources needed
for the entire project. Without this level of information, new product development
should proceed on an ad hoc basis and stage by stage, without a clear image of the
entire process and of the level of resources required to complete the project.
The competitive advantage is the most profitable specialisation of the firm in
the context of the existing market conditions. Figure 2.6 indicates, on the one
hand, the vertical positioning of the firm in relation to its competitors, and, on the
other hand, its horizontal positioning in the value added chain.

Internal resources (competitive advantage) and corporate

objectives (strategic mission)
The internal resources of the firm show their significance only in relation to the
strategic objectives of the firm: they are the means that permit the enterprise to
successfully reach its established strategic objectives. Equally, the definition of spe-
cific strategic objectives should always be based on the levels of internal resources
and capabilities controlled by the organisation. Setting up of overly ambitious pro-
jects, while neglecting the real levels of internal assets, can create significant
difficulties for the implementation and success of any strategic marketing plan. For
example, the process of defining the corporate mission – which can be considered
as the general, long-term strategic objective of the firm – is significantly influenced
by the levels of resources controlled by the organisation and, more specifically, by
its specific competitive advantage.

Innovation stage Development stage Commercialisation stage

Firm X
Horizontal positioning

Vertical positioning
Competitors

Figure 2.6 The process of horizontal/vertical positioning of a firm in the value added
chain of activities
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40 Chapter 2 / Opening up analysis and positioning

The relationship between these two elements can determine three possible situations.

Corporate mission > Competitive advantage

In this situation, the company tries to achieve more than it is able to realise in the
existing competitive conditions. The corporate mission should be adjusted accord-
ingly, reflecting the existing levels of differentiating resources.

Corporate mission = Competitive advantage

The firm is well focused on its specific capabilities and has established a realistic
strategic objective.

Corporate mission < Competitive advantage

The firm is not fully exploiting its competitive advantage and will be offering
market opportunities to other companies that have a similar organisational profile.
The management team should also consider the dynamic aspect of this relation-
ship. On a long-term basis, both corporate mission and competitive advantage
might change, creating the need for a strategic adjustment in order to re-establish
the balance between these two terms.

External analysis
Business organisations do not exist in a void. On the contrary, their strategic and
tactical actions are dictated by the need to continuously adapt to a dynamic market
environment. Therefore, the internal analysis of the organisational environment
needs to be complemented by an assessment of the main elements of the competi-
tive market environment.

Market threats and opportunities

The first level of external analysis should take into account the specific profile of
the target market in terms of its specific threats and opportunities. These two ele-
ments are general categories that include various elements. Among the possible
threats that can be encountered in the competitive environment are:
 new competitors
 a change in consumption patterns
 the evolution of technology
 new governmental regulations.

Opportunities are also varied and can include:

 the development of a new market niche
 governmental intervention for business development in specific industrial sectors
 changes in consumption patterns or the evolution of technology.
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External analysis 41

An interesting fact to note is that some events can represent both a threat and an
opportunity depending on the firm’s competitive strength and on its capacity to
favourably exploit, or be threatened by, these changes. A strong company, using flex-
ible structures and procedures, will have a positive perspective on market changes,
perceiving them as opportunities and creative challenges rather than negative
threats. On the other hand, any perceived threat can be considered as an indication
of various organisational weaknesses that should be identified and corrected in order
to strengthen the organisation’s capacity to compete in a dynamic market.
Modern markets are highly dynamic and the combination of threats and oppor-
tunities can change rapidly. The online market is a good example in this respect as
the barriers to entry are very low and every online company potentially competes
not only with domestic but also overseas firms. The solution to this problem is an
increase in flexibility and adaptability of the company structure and processes,
combined with effective procedures for identifying market changes and competi-
tive threats.

Porter’s model of industry attractiveness

In his seminal work, Porter (1985) considers the main forces that shape the com-
petitive environment of a specific industry. However, the large variety of activities
developed by some corporations requires, in the first instance, the identification of
the industrial sector(s) in which the company is participating. The definition and
classification of various industrial sectors can be made in many ways. A company
can choose to develop its own classification or use the classification followed by
some governments for statistical or financial purposes.
A very restrictive definition of an industrial sector can be beneficial for identify-
ing the specific competencies of a firm and driving an increased specialisation.
However, on the other hand, it can also cause the phenomenon of ‘marketing
myopia’, which is when the company loses potential business opportunities
because of its extremely tight focus.
The premise for analysing the competitive environment is that attractive indus-
try sectors offer higher levels of profitability than less attractive ones. This means
that market sectors rather than market segments determine the profitability of a
company. However, as the profile of any industrial sector is complex, its attractive-
ness will be determined by the following elements.

The threat of new entrants

If a sector is attractive, it is going to bring new players into the marketplace. In time,
the new entrants will increase competition intensity and slowly reduce the attractive-
ness of the industry. For instance, currently, the computer games sector is very
attractive to software games writers as well as console providers. The growth exhibited
in the games industry has been extraordinary and the sector now rivals Hollywood in
terms of the size of its revenue and turnover. It is therefore not too surprising that it
has attracted a major new entrant into its marketplace – Microsoft with its Xbox.
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42 Chapter 2 / Opening up analysis and positioning

Companies protect a profitable sector by creating considerable barriers to entry,

such as the following.
 Brand image A strong brand image can be a major deterrent to companies wish-
ing to enter a sector. For instance, Coca-Cola presents a formidable barrier to
entry for many cola makers as it has a strong worldwide brand image. The brand
also creates a differentiated image for Coca-Cola, making it easier for consumers
to identify the product and adhere to the set of values expressed by the brand.
 Distribution Companies that develop and maintain their distribution channels
effectively offer another potential barrier to entry for new entrants. The example
of Coca-Cola is again relevant here in that its aim is to be able to provide a Coke
within 100 yards for every consumer. This type of statement shows that the
company has strong distribution channels, making it very difficult for new
entrants to emulate this.
 Patents or know-how For many companies, patenting offers an effective barrier to
entry. Many of the large pharmaceutical companies rely on patents to protect
their new drugs. This prevents others from entering the market for certain peri-
ods of time. When the patent protection elapses, then other companies can
enter the market. For other companies, such as Cisco Systems, the know-how
developed with regard to maintaining IT networks provides a barrier to entry for
other players in the market.
 Cost advantages Being the lowest-cost producer in a particular sector may deter
potential competitors as they could not match or beat the costs of production.
For instance, Colgate-Palmolive can produce toothpaste at the lowest possible
cost owing to its experience in the sector and the economies of scale of its pro-
duction of toothpaste. This type of experience can be difficult to develop
overnight and presents a significant barrier to entry for other companies.
 Government regulations Government regulations, such as those for drug approval,
may be time-consuming and very costly to adhere to, deterring new companies
from challenging older, more established companies.

Given these barriers to entry, companies often have to consider whether or not it is
possible for them to enter markets by using specific segmentation strategies.

Industry rivalry
Competition within a sector can determine the level of profitability a company
achieves. Some sectors of industry are intensely competitive, driving prices below
industry cost levels, making the entire industry unprofitable (perhaps on a global
basis). An example of this is the global airline industry, which has seen spectacular
collapses, such as Swissair. However, companies such as Ryanair and easyJet have
shown remarkable growth as low-cost airlines. They have cut costs by using more
remote airports and offering nofrills services. Some of the main factors determining
competition (Grant 2002) are:
 industry concentration
 range and diversity of competitors
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External analysis 43

Threat of new entrants

• Cost advantages • Product/service differentiation

• Distribution network • Patents and know-how
• Innovation
Government regulations • Brand image
• • Strategic alliances
Supplier power Industry rivalry Buyer power
The factors are similar • Concentration of companies • Product costs
to those shown in the • Range of competitors • Product differentiation
buyer power section • Capacity utilisation • Competition and concentration
• Costs and economies of scale • ofSwitching
companies
• Global dimensions • Informationcosts
• Industrial orregarding suppliers
• Customer groupings
consumer buyers
•
Threat of substitutes

• Technological innovation
• Performance characteristics of substitutes
• Price differences and consumer tastes
• Cultural and government pressures
Figure 2.7 Porter’s five forces model of industry analysis
Source: Adapted from Porter 1985

 product differentiation
 capacity utilisation and exit barriers
 cost advantages or disadvantages.

Industry concentration
One or two major players dominate some industry sectors, creating a situation of
oligopoly. For instance, the software industry is dominated by Microsoft, giving it
considerable power in its pricing decisions regarding its range of Windows prod-
ucts. However, when the company entered the new games console market that was
previously dominated by Sony, Sega and Nintendo, it faced price competition and
had to drop the price of its Xbox. Coca-Cola and Pepsi Cola, generally set the prices
in the cola market and there are few challengers to this strategy. The revenue
earned is used for advertising (building further barriers to entry) and new product
development. In the airline industry, where the competition is global and there are
many carriers, the price competition increases dramatically, with substantial varia-
tions within the different segments, such as economy, premium, business class and
first class.

Range and diversity of competitors

Often companies can do well in certain sectors, if they can agree on industrywide
pricing strategies. Where sectors determine to operate on a ‘closed shop’ basis, such
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44 Chapter 2 / Opening up analysis and positioning

as OPEC, this can be possible. However, experience shows that such cartels are now
becoming difficult to operate, with one or two players often breaking agreed
parameters (such as Russia in its willingness to expand its oil production).
In many cases, the exhaustive evaluation of an entire industrial sector is costly
and unnecessary as, in many cases, a company competes with only a few other
firms, deals with a limited number of suppliers and sells to only selected market
segments. Thus, only the main strategic group needs to be analysed. A strategic
group can be defined as the main institutions and organisations that directly influ-
ence the activity of a company.
On the other hand, it has been argued that many companies are now confronted by
a bewildering array of competitors that may or may not be within their traditional
industry sector. An example of this is the recent growth of digital music, offered on the
Web. Traditionally, record companies would compete against each other in a well-
defined sector. More recently, however, artists have realised that they can reach a global
audience via webcasts. Thus, the computer-mediated environment has created a differ-
ent form of competition as a result of the development of specific Internet applications
(see the case study on Eminem). Another example is the pharmaceutical industry,
which was challenged by the producers of food supplements and alternative therapies.
In many instances, industry sectors are blurring so that, for instance, television broad-
casting appears not only via TV sets but also via computers and mobile phones.
Considering the importance of technological innovation in relation to creating
new competitive challenges and altering existing ones, the technological factor
should be added to Porter’s five forces model. However, in comparison with the
first five forces, technology acts not only on general industry rivalry but also on
the remaining four forces.

Technology

New
Substitutes
entrants

Industry
rivalry

Supplier Buyer
power power

Figure 2.8 The influence of technology on the five forces identified by Porter
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External analysis 45

Analysing industry sectors in the digital age becomes quite a complicated task.
The case study on Eminem’s CD sales illustrates how technology was used effec-
tively to mitigate some of the adverse effects of consumer power and the growth of
substitutes to conventional sources of music in the music industry.

CASE STUDY

Eminem’s CD sales impressive despite music sharing

Eminem’s record label was so nervous about music the impact of the downloads, beyond moving up
pirates cannibalising sales of the rapper’s latest CD the release date.
that it released The Eminem Show nine days early, Two million of the three million copies of The
disrupting well-laid marketing plans. Eminem Show were shipped with a complimentary
But when the CD hit stores Memorial Day DVD that featured interviews and live footage of
weekend, it still managed to debut at number 1 in Eminem. The record label also pursued websites
record time. Some industry observers say the CD’s posting the CD, persuading some of them to
success in the face of widespread bootlegging remove it, Berman said. But some analysts said the
proves that online music swapping doesn’t crush music industry continues to take the wrong
legitimate retail sales and can actually generate approach to counter online downloads. Web surfers
better buzz for a new release. ‘The jury is still out downloading music files are the same people who
on how significantly file-sharing actually effects go out and buy the CDs and music companies need
record label revenues,’ said Michael Goodman, a to treat them like customers, not criminals, said
senior music analyst with Forrester Research in Sean Baenen, managing director of Odyssey, a
Boston. ‘But to a certain extent, file-sharing can market research firm in San Francisco.
actually prime the pump for sales.’ SoundScan, ‘It’s not a group of pirates looking to steal,’
which gathers sales data from more than 17,000 Baenen said. ‘It’s a group of people who want more
retailers across the United States, said that 284,534 choice and control over the music they receive.’
copies of The Eminem Show were sold nationally The early success of The Eminem Show in the wake
during the long weekend. of widespread file-sharing and bootlegging provides
‘We’ve never had a record debut at number 1 on some understanding to an industry trying to come
the SoundScan chart that hasn’t had the benefit of to terms with a new marketplace. ‘What’s happened
a full six days of sales behind it’, said Mike Shalett, to Eminem is going to be a real learning point for
chief executive of SoundScan, but Interscope the industry and artists,’ said Michael Bracy, a
Geffen A&M, the label behind Eminem, insists that Washington lobbyist with the Future of Music
illegal copies, made from one of three closely Coalition, which represents artists’ interests. ‘Part of
guarded master copies sent to manufacturers, hurt the puzzle is offering consumers some
the release: ‘I absolutely believe that the bootlegs entertainment value that they’re not going to get
and downloads have a huge negative effect on through file-sharing’, he said.
sales’, said Steve Berman, head of sales and
marketing at Interscope, a division of Universal Note: Since the article, it is clear that file-sharing is now
Music Group. common on the Internet, with the growth of locations
Individual songs from the CD became widely such as MySpace and Bebo and, at the same time,
available online in mid-May and bootlegged copies iTunes (as shown in Chapter 1) has become a
of the entire CD began appearing on street corners significant player.
around the same time. It’s impossible to calculate Source: ‘CD sales impressive despite music sharing’, USA Today,
how many sales were lost in the process, Berman 31 May 2002 (available at: www.usatoday.com/life/cyber/tech/
said. Interscope took a number of steps to counter 2002/05/31/eminem.htm)
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46 Chapter 2 / Opening up analysis and positioning

Product differentiation
Companies often use product differentiation to create a distinctive image for their
products. Often this is based on branding and pricing. In commodity markets,
product differentiation is difficult, but, in luxury goods markets, such as perfumes
or designer clothes, differentiation offers certain segments of consumers a specific
image and they are then unwilling to purchase different products even if the price
differential is slightly higher or lower.

Capacity utilisation and exit barriers

In some industries, there may be overcapacity in terms of the production of particu-
lar goods. This is true of the automobile industry and the personal computer
market. When this occurs, prices tend to drop. In large industry sectors, such as the
automobile industry, it is difficult for companies to exit the sector as the exit costs
may be prohibitive. Under these conditions, mergers and acquisitions often ensue.

Cost advantages or disadvantages

Some of the profit impact of marketing strategies (PIMS) studies show that compa-
nies that have a high market share often show better rates of return than those that
have smaller shares. In part, this may be because they achieve cost advantages as a
result of high production levels, creating better economies of scale than their com-
petitors. However, in other areas, excess capacity may mean that companies are
forced to sell at cost to cover their overheads.

Buyer power
Porter regards the bargaining power of buyers as an important factor in determin-
ing the attractiveness of an industry sector. Buyers come in all shapes and sizes.
Sometimes they are powerful; at other times they are weak. Their relative strength
or weakness depends on the desirability of the product and/or its utility to the
buyer. They can be either industrial or consumer buyers.

Industrial buyers
Industrial buyers tend to differ from each other according to the sectors that they
are operating in. The forces acting on them may also vary. In fact, the whole area
can be extremely complex and it is impossible to illustrate all the possibilities.
However, listed below are some examples of forces that act on industrial buyers.
 Car manufacturers rely on tyre manufacturers for building cars. There are many
tyre manufacturers and so there is overcapacity. This gives car manufacturers
strong buying power and the ability to switch suppliers if they wish. The tyre
manufacturers are mutually dependent on the car industry. If their sales go up,
so do the tyre sales. If intense competition exists among buyers, as in the electric
cable industry, they in turn will put pressure on the suppliers, such as Pirelli.
 In the computer industry, processors and their quality is of vital importance to com-
puter manufacturers. They therefore have less bargaining power with the suppliers as
they rely on specialist devices and quality. In the biotechnology industry, certain
companies such as Biocatalyst provide specialist enzymes for producing olive oil. The
farmers who need this enzyme are in a weak position when bargaining about price.
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External analysis 47

 Industrial buyers can also decide to vertically integrate along the chain, thereby pur-
chasing companies that supply their raw materials. Companies such as Coca-Cola
and Pepsi Cola own their own bottling plants in various countries, for example.

Consumer buyers
Compared to industrial buyers, consumers are many and varied. Companies grap-
ple with the different ways of understanding segments of consumers so that some
sense can be made of behaviour patterns and the forces that they can create within
industry sectors and exert on companies.
 Consumers can exhibit collective buyer power when they group together to pur-
chase items from manufacturers.
 Consumers carry considerable power as they can choose to buy or not buy a
product. They can also decide to switch from one product or brand to another.
Aware of this power, marketers are forever trying to understand the segments of
buyers that exist and their buying motives, so that companies can position
themselves sensibly in the marketplace.
 Consumers may or may not be price sensitive, depending on their make up as a
segment. Consumers are also increasingly sophisticated and ready to search for
information regarding the best prices and quality for a range of products and
services. With the Internet this has become both possible and easy to do.

Supplier power
The debate surrounding supplier power covers areas similar to those discussed
above, as one company will be a buyer and the other a supplier. Suppliers are often
smaller companies, manufacturing and selling components or raw materials to
larger corporations. The factors that are pertinent to suppliers are therefore the
same or similar to the ones discussed in the previous section.

Threat of substitutes
As technology advances, it becomes increasingly difficult for companies to predict
the changes that could take place within their own industry sectors. For instance,
the new biotechnology companies, which offer more effective treatments to
combat diseases such as cancer and Alzheimers, are challenging the establshed
pharmaceutical companies. Equally, many individuals are searching for alternative
methods for curing ailments rather than relying on drugs. The Swiss watch indus-
try was initially decimated in the 1970s as a result of the advent of digital
technology. However, it is now the leading supplier of watches in the world as a
result of its development of quality watches and branding strategies.

Overview of analysing the industry

Industry analysis enables a company to understand how market forces are driving
the sector it is competing in. At the same time it helps to highlight the significant
ways in which the company can target and segment its consumer base, under-
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48 Chapter 2 / Opening up analysis and positioning

standing the power it wields in the marketplace. The following section discusses a
range of other analyses that can be performed by companies. It is important to
remember that there are links between these and industry analysis.
The competitive attractiveness of an industry cannot be considered objectively
without an assessment of the company’s capabilities. In order to be applicable in
specific situations, the sector’s attractiveness must be related to the competitive
strength of the firm. This bidimensional evaluation can be done using an Industry
attractiveness/Business’ competitive strength matrix.

The Industry attractiveness/Business’ competitive strength matrix

The Industry attractiveness/Business’ competitive strength matrix was developed by
General Electric and refined by McKinsey Consulting Group. This matrix, as shown in
Figure 2.9, is composed of two main axes, depicting, respectively, Industry attractive-
ness and Business strength. The two dimensions considered in the matrix are complex
indicators that combine many different aspects related to the industrial sector and the
competitive profile of the organisation. In addition, the management team has to con-

Determinants of business’ competitive strength

• Size • Profitability • Image

Strengths/weaknesses
• Market
Growth • Margins • Ethical stance
• People share • Technology • Innovation
• Information systems • position •
• • Distribution
McKinsey’s checklist of factors for
developing a multifactorial
portfolio matrix

Determinants of industry
Business’ competitive strength • Market size –– domestic
global
High Medium Low
attractiveness • Market growth –– global
domestic

• Size • Price
OW

trends
• Market
Market growth High
• Captive
GR
Industry attractiveness

market
• Competitive
diversity
D

• Cyclical
AN

demand
• Degree of change
structure
• Degree
ST

of concentration
• Industry profitability
VE

• Inflation effects • Competitive characteristics

IN

GS

Medium
• Role of technology • Top group strength
IN
RN

• Possibility
ES

of substitutes
• Social environmental
EA

• Market
DI
Y/

leader’s profit trend

• Legal environment
T/
IT

• Sociopolitical
ES
IV

and economic
• Human factors Low
CT

RV

environment
•
LE

HA

• Labour
SE

situation
• Legal issues
THE BUSINESS SCREEN • Cultural trends
• Impact of technology
• Environmental issues
Figure 2.9 The GE/McKinsey business screen portfolio matrix
Source: Adapted from Kerin et al. 1990
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External analysis 49

sider the fact that these elements might have different levels of importance, requiring
the application of various weights in the assessment of their effects (see Table 2.3.).
Depending on what strengths a company exhibits in terms of either its products or
strategic business units, particular strategies can be followed. The various portfolios
can be plotted on the grid in circles, indicating the market shares within particular
sectors. The direction in which a company could decide to move are indicative. In
using matrices such as these, factors that are most important to a company within a
particular sector are considered and analysed.

Factors contributing to market attractiveness and business position

Table 2.3 Factors contributing to market attractiveness and business position

Attractiveness of your market Status of your business
Market factors
Size ($, £, Euros, Yen or units or both) Your share in equivalent terms
Sizes of key segments Your share of key segments
Growth rate per year: Total segments Your annual growth rate: Total segments
Diversity of market Diversity of your participation
Sensitivity to price, service features and Your influence on the market
external factors: cyclical demand, seasonality Lags or leads in your sales
Bargaining power of upstream suppliers Bargaining power of your suppliers
Bargaining power of downstream suppliers Bargaining power of your customers
Competition
Types of competitors Where you fit, how you compare in terms of
products, marketing capability, service
Production, financial, management strength
Entries and exits Segments you have entered or left
Changes in share Your relative share change
Substitution with new technology Your vulnerability to new technology
Degrees and type of integration Your own level of integration
Financial and economic factors
Contribution margins Your margins
Leveraging factors, such as economies of Your scale and experience
scale and experience
Barriers to entry or exit (financial and Barriers to your entry or exit (financial and
non-financial) non-financial)
General capacity utilisation Your capacity utilisation
Technological factors
Maturity and volatility Your ability to cope with change
Complexity Depth of your skills
Differentiation Types of your technological skills
Patents and copyrights Your patent protection
Manufacturing process technology required Your manufacturing technology
Sociopolitical factors in your environment
Social attitudes and trends Your company’s responsiveness and
Laws and government agency regulations flexibility
Influence with pressure groups and human Your company’s ability to cope
factors, such as unionisation Your company’s relationship and influence
Your company’s relationships and
stakeholder acceptance

Source: Adapted from Abell and Hammond 1979

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50 Chapter 2 / Opening up analysis and positioning

The directional policy matrix

The directional policy matrix (DPM) is useful for analysing a company’s prospects
in particular markets. It was originally conceived and used by Shell Chemicals UK
(Hughes 1981). The matrix (see Figure 2.10) is based on:
 business sector prospects – the possible profitability and growth potential of the
sector within which the company operates
 the competitive position of the business in that sector.

The DPM offers a flexible and sensible way in which to analyse a company’s com-
petitive strengths and prospects within markets. The key points made in the matrix
show the directions in which a company could proceed as it may be either making
money (Cash generation) or losing it (Disinvest). On the other hand, it may wish
to invest in potentially lucrative markets (Double or quit). Again, these possible
directions are not meant to be prescriptive – they are suggestions and a final deci-
sion needs to be based on various other factors that a company needs to consider.

Factors underlying analysis of business-sector prospects and a company’s

competitive capabilities
Table 2.4 encompasses the range of other factors that are important to consider
when positioning a company in its marketplace.

Growth vector analysis

Figure 2.11 is a modified version of the more commonly used Ansoff matrix for
segmenting products and services within companies. A company has to determine
how attractive or poor a company’s products or services are in matching certain
consumer segments’ needs. It can then make a decision as to whether or not it
would like to extend its product/service offerings.
The directions of the arrows in Figure 2.11 show the level of risk a company may
be committing itself to as it moves away from familiar segments and markets. The
numbers indicate how the level of risk increases. Each case has to be taken on its
own merits as a high-risk situation may also produce high returns.

Business sector prospects

Unattractive Average Attractive
Company’s competitive advantage

Disinvest Phased withdrawal Double or quit

Weak
Custodial
Phased withdrawal Custodial Try harder
Average
Growth
Cash generation Growth Leader
Strong
Leader

Figure 2.10 The directional policy matrix

Source: Robinson et al. 1978
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External analysis 51

Table 2.4 Segmenting business based on positioning and capabilities

Factors relevant to analysis of business-sector Factors relevant to analysis of company’s

prospects competitive capabilities
1 Market growth 1 Market position
2 Market quality 2 Production capability
3 Environmental aspects 3 Product R&D
Guidelines for assessing market quality Guidelines for assessing market position
A sector to which the answers to all or most of the Primary factor: percentage share of total
following questions are yes would attract a four market. Secondary factor: degree to which
or five point quality rating. market share is secured.
The following questions are more relevant for Ratings associated with alternative
manufacturing companies and will need competitive positions:
modification for other sectors. *current position negligible
1 Has the sector a record of high, stable **minor market share, less than adequate
profitability? to support R&D and other departments
2 Can margins be maintained when ***a company with a strong viable stake in
manufacturing capacity exceeds demand? the market, but below the top league; usually,
3 Is the product resistant to commodity when one producer is a leader, the next level
pricing behaviour? of competition will comprise producers
4 Is the technology of production freely available meriting a 3-star rating
or is it proprietary and specialist? **** major producer – situation when two to
5 Is the market free from domination by a small four companies are equally strong, will all
group of powerful customers? merit a 4-star rating.
6 Has the product a high added value when ***** leader – a company in a pre-eminent
converted by the customer? market position, likely to be followed by
7 In the case of a new product, is the market others and also the acknowledged
likely to remain small enough, being technological leader (the market share
unattractive to other producers? associated with this position is likely to vary
8 Is the product such that the customer has to from case to case, so, for instance, in a field
change formulation or even machinery if he of 10, a company with a 25% share may be a
changes suppliers? leader, whereas, a 50% share in a field of 2
9 Is the product free from the risk of competitors may not confer market leadership).
substitution by an alternative supplier?

Source: Kerin et al. 1990

Alternative products
Present products Improved products New products

Market Product variants, Product line

Existing penetration imitations extension
market
1 2 4
Options

Aggressive Market Vertical

Expanding
promotion segmentation diversification
market
2 4 8

New Market Market Conglomerate

market development extension diversification
4 8 16

Level of risk increases

Figure 2.11 Growth vector analysis

Source: Rowe et al. 1986
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52 Chapter 2 / Opening up analysis and positioning

Key issues to consider when using portfolio matrices

Portfolio matrices have evolved and become significant tools in helping to under-
stand the macro environment in developing segments. They also enable a
company to understand and develop its positioning strategies. However, there are
caveats that need to be mentioned.
 A high growth market may offer opportunities, but will also demand high
investments.
 A large proportion of portfolio matrices are geared to understanding product
markets and based on manufacturing companies, so need to be modified for the
non-profit and services sectors. For instance, factors such as the experience curve
may not have direct relevance. Also, market share may not be a critical issue.
Service levels may be more important.
 Portfolio matrices largely focus on the current capabilities of a company rather
than stressing future possibilities.
 A blinkered approach to the use of portfolio matrices may result in narrowly
defined strategies (invest, harvest, divest, for example), based on a limited range
of considerations. It also prevents innovation and creativity being applied to
developing segments and strategies.
 New products and services could attract funding from venture capital markets
and therefore there should not be an automatic assumption that strategies are
constrained by resources (Wensley 1981).
 It is not always easy to define product/market segments.
 The judgements are largely subjective, but appear to be scientific when plotted
in two dimensions.

The above section has highlighted some of the key points that need to be consid-
ered when a macro analysis of the environment is coordinated with a particular
portfolio that exists within a company.

The marketing information system

Both the internal and the external analysis of the competitive environment require
up-to-date information, which should be collected, archived, processed and
analysed by the marketing information system of the organisation.
The marketing information system can be considered to be a part of the general
information system of the organisation. However, its function cannot be isolated
from the information flows and databases of other departments. First of all, in
order to realise a good internal analysis, the information from many different
departments has to be treated as inputs for the marketing information system –
information from human resources, accounts, finance, supply, production, distri-
bution and so on. On the other hand, the information analysed and processed by
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Market segmentation 53

Marketing

Human Centralised Supply and

resources database Production

Finance and
Accounts

Figure 2.12 The centralised information system implemented by customer-focused

organisations

the marketing information system has to be available to the managers of various

departments, for strategic coordination.
At present, the change of focus from product to consumers has determined that
many companies now develop multifunctional and centralised databases in which
all relevant information is introduced, organised and accessed in a flexible way.
The creation of such a database is not always easy, especially when traditionally the
organisation and storage of information was handled at departmental level.
On the other hand, the sophistication of the marketing information system
depends also on the importance of the marketing function and size of the firm.
Large companies usually have a highly developed information system, organised in
hierarchical levels of access and with highly structured information flows. In small
firms, the information system can be hosted on a computer or even a laptop used
by the manager entrepreneur and the main information flows are represented by
interpersonal, informal communication.

Market segmentation
No company can satisfy the needs and wants of all consumers. This reality is even
more obvious in the modern competitive environment, which is characterised by a
fragmentation/atomisation of markets and intense competition. Market segmenta-
tion is now one of the most important activities marketing undertakes.
Market segmentation is a selection process in which the company attempts to
identify the categories of consumers whose needs and wants it is capable to satisfy-
ing better than its competitors (see Figure 2.13). During this process, the marketing
specialist first needs to understand very well the resources and the capabilities of the
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54 Chapter 2 / Opening up analysis and positioning

Macro analysis, such as Porter’s

industry analysis

Company-specific portfolio
analysis

Segmentation
characteristics

Individual

Consumers’ characteristics
and groups

Company’s products and strengths

matched to sectors and segments

Environmental forces

Figure 2.13 Segmenting markets

firm. This is achieved by undertaking an internal analysis. Second, the marketer

must have a clear picture of the competitive situation in the market environment
and its future evolution. That requires an in-depth external analysis. On the basis of
this internal and external knowledge, the specialist can then match the needs and
wants of a specific segment of the market to the capabilities of the firm.
Many authors argue that the following factors have to be taken into account
when segmenting a market.
 The market has to be well defined This is not as easy as it seems because a specific
need or combination of needs has to be related to a product or service. For exam-
ple, the consumers’ need for entertainment cannot be considered a good basis
for defining a market – it is so multidimensional. Focusing on one aspect of
entertainment instead – music, for example – can represent a good approach to
defining the target market.
 The market segment has to be measurable Has the company gathered enough
market research data to ascertain the size, buying power and profiles of the seg-
ments that they are targeting? This is a difficult issue as certain measures and
statistics are not always readily available. Also, it may be costly to undertake spe-
cific market research. Under these circumstances, firms often buy research from
specialist market research companies.
 The market segment must be accessible Most companies would be anxious to know
whether or not they can reach and serve their designated market segments effec-
tively. In order to access certain markets, issues of distribution, advertising and
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Market segmentation 55

branding need to be considered. Access to particular segments may be depend-

ent on advertising that is backed up by adequate distribution strategies. The
designated segments have to be accessible to a company so that it can sell and
market its products.
 The market segment must be substantial For most companies, it is important to
know whether or not a particular segment is large enough or profitable enough to
service. For some companies, a large market segment may be important for market
share development, while for others, the profitability of a niche segment may be
more important. For instance, a company such as the Morgan Motor Company is
happy to serve a small but substantially profitable segment of car enthusiasts,
whereas a company such as Procter & Gamble will be interested primarily in the
size and distribution aspects of a segment for anti-dandruff shampoos.
 Can marketing strategies be actioned to serve the selected market segments? Every
company has limited resources and it may not always be possible to serve all seg-
ments effectively. A company therefore has to be certain that it can implement
marketing and targeting strategies for its chosen segments.

Segmentation criteria
There is no single way to segment a market. For both personal and business cus-
tomers, there is a plethora of criteria that may be considered when trying to
segment the total market. The possible classification variables/criteria are as widely
varied as are the ways in which different researchers classify them into groups. A
classification by Frank et al. (1972) is shown in Table 2.5.
Frank et al. (1972) and Wilkie and Cohen (1976) also indicate the distinction in
terms of:
 general customer characteristics, such as demographic, socio-economic, personal-
ity, and lifestyle factors that represent relatively enduring characteristics
 more market-dependent or situation-specific customer characteristics, such as tenden-
cies towards brand loyalty or basic consumption patterns, as well as attitudes,
perceptions and preferences (in undertaking market research, general lifestyle
and attitudes can be overlaid with product specific attributes to gauge consumer
behaviour patterns).

Table 2.5 Segmentation criteria

Customer-specific Product-specific
Observable Cultural, geographic, demographic User status, usage frequency,
and socio-economic variables brand loyalty, store loyalty and
patronage, usage situation
Unobservable Psychographics: personality Psychographics, benefits,
and lifestyle perceptions, attitudes, preferences
and intentions

Source: Adapted from Frank et al. 1972

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56 Chapter 2 / Opening up analysis and positioning

A categorisation based on behavioural measures as classifiers linked to other factors

can also be used (Van Raaij 1982). The variables closely related to behaviour here
are behavioural intention, attitudes, lifestyle and so on that could be linked to
socio-demographics, personality and neighbourhood characteristics.
Variables can be classified as being quantitative or qualitative:
 quantitative variables include geodemographic and economic factors, size and
type of customer
 qualitative variables are, for example, psychographic and behavioural factors, and
benefit sought; they may be used singly or in some combination.

Another classification scheme relies on factors being divided into two large groups
(Cahill 1997), those based on physical attributes (geographic, demographics and the
combination of the two, geodemographics) and behavioural attributes of customers
(lifestyle, life stage, psychographics, and usage). A marketer should try different
segmentation variables, alone and in combination, to find the best way to view the
market structure.
It is important to consider a range of variables when segmenting consumers.
Some of the key characteristics used for this purpose are explained below.

Geographic segmentation
Historically, geographic schemes are probably the oldest segmentation method.
Small manufacturers that wished to limit their investments or had distribution
channels that were not large enough to cover the entire country segmented the
market by selling their products only in certain areas. Geographic segmentation
assumes that people from a certain location have needs that are different from
those of people living elsewhere. Usunier (1998) has written a whole treatise trying
to understand how cultural attributes resulting from geographic locations may
determine different individuals’ propensity to purchase a range of goods.
Geographic segmentation calls for dividing the market into different geographi-
cal units, such as nations, regions, cities or neighbourhoods. A company may
decide to operate in one or a few geographical areas or to cover all areas, but paying
attention to geographical differences in needs and wants (Kotler et al. 2001). Many
companies today are ‘regionalising’ their marketing programmes – localising their
products, advertising, promotion and sales efforts to fit the needs of individual
regions, cities and even neighbourhoods. Geographical segmentation has many
advantages: it is simple to understand, simple to perform and implement, and
simple to manage (Cahill 1997).
Sometimes, the type of neighbourhood facilitates or hinders the diffusion of an
innovation. Lunn (1982) described the ACORN approach (see Table 2.6) in the UK,
based on census data. Webber conceived ACORN when he was working at the
Centre for Environmental Studies. ACORN is based on the government’s Census of
Great Britain, conducted in 1981. It represents a radical departure from previous
types of geographical classification. These groupings, with their 38 neighbourhood
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Market segmentation 57

Table 2.6 ACORN – a classification of residential neighbourhoods (commonly used in the UK)

ACORN group Description

A Agricultural areas
B Modern family housing, higher incomes
C Older housing of intermediate status
D Poor-quality older terraced housing
E Better-off council estates
F Less well-off council estates
G Poorest council estates
H Multiracial areas
I High-status, non-family areas
J Affluent suburban housing
K Better-off retirement areas

Source: CACI Limited, www.caci.co.uk/acorn/default.asp

type subgroupings, have the advantage of being very easy to measure and relate to.
In particular, it has been possible to give each postcode in the UK an ACORN classi-
fication, which is a descriptor of the predominant type of household to be found in
that postcode. By relating financial services behaviour to type of household, the
propensity of each postcode to respond to a given financial services offer can be, in
part, determined (Palmer and Lucas 1994). This type of segmentation can be help-
ful for locating retail outlets such as supermarkets, banks and other services. It can
also be used to identify groups of customers who may have similar lifestyle pat-
terns as a result of where they live.

Demographic segmentation
The demographic approach represents an alternative method of segmentation. This
methodology relies on age and lifestyle. Using this basis, targets are defined as young
people, men or families with children. Unfortunately, a number of recent studies have
shown that demographic variables such as age, sex, income, occupation and race are,
in general, poor predictors of behaviour and, consequently, less than optimum bases
for segmentation strategies. However, when market segments are first defined using
other bases, such as personality or behaviour, their demographic characteristics must
be known in order to assess the size of the target market and reach it efficiently. Age is,
probably, the demographic variable that most lends itself to credible, useful segmenta-
tion and targeting. Consumer needs and wants change with age. Income is related to
ability to buy; family size to quantity of purchases. Social class is a concept built up
from age, the level of education and occupation. As the new century progresses, it may
be easiest to use social class and income as explanatory variables. However, demo-
graphic variables that can be used for segmentation and targeting purposes include
more than just age. Height and/or weight can work for some products, such as cloth-
ing. Race works for other products, as does religion in specific cases.
Sex segmentation has long been used in clothing, hairdressing, cosmetics and
magazines. For products and services such as automobiles, boats, clothing, cosmet-
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58 Chapter 2 / Opening up analysis and positioning

ics and travel, the marketers have also used income segmentation. Some companies
target affluent consumers, with luxury goods and convenience services, but many
other companies profitably target low-income consumes, such as discount shop
chains. Handled properly, with a great deal of discretion and understanding, any
demographic variable is usable.
A set of demographic variables that has been around in social science research
and the popular press for decades is ‘social class’. The concept of a social class is
constantly changing and what was once a particular social category is now no
longer appropriate. Also, the previous assumptions about age and consumption
have had to be drastically altered with the growth of the ‘grey’ market. Even this
‘grey’ market is now so large and complex that only psychographics can be used
to break it down into the smaller segments necessary to market to the different
sub-markets. For example, in the United States, the most widely adopted social
classification is the Warner index (see Table 2.7).
The demographic attributes used in segmentation may include dozens of ele-
ments, but the basic elements include age, income, home ownership, length of
residence and occupation. Customer demographics are important because industry
trends indicate that markets need to be carefully designated and they are continu-
ally fragmenting. The following case study concerning the PlayStation illuminates
the issues raised above.

Table 2.7 The Warner index of social classification

Class name Description Consumption patterns

Upper-upper Elite social class with inherited Expansive, irrelevant, but purchase
social position decisions are not meant to impress;
conservative
Lower-upper Highly successful in business and Conspicuous consumption to
profession; position acquired as demonstrate wealth, luxury cars, large
result of wealth estates, etc.
Upper-middle Successful business and professional Purchases directed at projecting a
successful image
Lower-middle White-collar workers, small Concerned with social approval;
businesspeople purchase decisions conservative;
home and family orientated
Upper-lower Blue-collar workers, technicians, Satisfaction of family roles
skilled workers
Lower-lower Unskilled labour, poorly educated, Attraction to cheap, low-quality items;
poorly off heavy exposure to TV

Source: Adapted from Hawkins, Best and Coney 2004. Reproduced with permission of The McGraw-Hill Companies.
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Market segmentation 59

CASE STUDY

The power behind PlayStation: going for old

Everyone’s getting younger, older. Apparently. older consumer. Building a skate park meant
Thirty-plus-somethings continue on in the vein of developing a touch point with skate fans in their late
teenage-somethings: coffee-table hip hop, Nike teens who were, simultaneously, gaming fans, too
Shox, G Star Denim, the odd, wayward spliff, a (the Tony Hawkes franchise continues to sell
desire to spend money rather than save – all impressively). A roach card magazine insert delivered
manifestations of your average 35 year old. Youth an acknowledgement of what older gamers did when
‘lifestyle’ has become everyman’s mantra. And they gamed, with their mates, in each other’s homes.
included within this, is video gaming’s Further, an ‘intelligent’ brand voice told these
‘massification’. You’re as likely to find a audiences they could ‘quote themselves’, could ‘be
PlayStation2 console in a 50-year-old architect’s their own hero ’or ‘land on their own moon’.
office as you are within a 13-year-old’s bedroom. The power of play, through PlayStation, was
PlayStation has managed gaming – aggressively at dramatically and compellingly told. Gaming was
times – into an age profile that extends way beyond much more than gaming. It was a sport. An art
the conventional tween (early teen) territory. form. An interaction that could terrify, fascinate
Five years ago, gaming resided in male, teenagers’ and frustrate. More significantly, you – the gamer –
bedrooms. Gaming was nerdy. Masturbatory. An decided on how your gaming ‘escape’ should
embarrassment. Something you wouldn’t admit to. manifest. You might choose to be David Beckham
Today it enjoys mainstream acceptance; its aesthetic in one moment or fly a jet fighter plane in another.
or artistic appeal is widely recognised and debated. If not these, then you might prefer to role-play God
Gaming has become a serious, mass-market leisure or at least a superhero, to become a deadly assassin
pursuit. And PlayStation, in particular, has helped to or a triple-a-snowboarder; why not a streetfighter or
accelerate this societal change. a DJ? The choice – the possibilities – were infinite.
An infinity made practical by the largest library of
How? games. Games that were – and continue to be –
Back in 1995, Sony sought to command and uniquely positioned and marketed.
conquer older individuals’ leisure time, not just When we consider the consumer profile of PS2
their gaming time, with their 32-bit console. and PSOne today, we see a brand that enjoys an
‘Micro’ disruption of the category was sought almost unnatural span of age profile. Where the
through a four-fold strategy: junior console drops off – around the age of 14 –
the senior, second-generation console picks up and
 ‘older’ communication targeting
enjoys its largest number of gamers between the
 ‘older’ technology (CDs not cartridges)
ages of 20 and 25. A healthy penetration continues,
 launch of ‘older’, adult-themed games versus
afterward, beyond the age of 40, however, and well
childish, platform titles
into the grey market of 50, 60 and 70.
 investment in ‘serious’ role-playing icons – like
Breaking the targeting and brand rules of this
Lara Croft – rather than cartoon ‘heroes’, such as
category has, ultimately, changed the status of
Mario or Sonic.
gaming. In six short years, PlayStation has evolved
Consistently, the brand was marketed over and and grown the gaming category out of the kid’s
above the product’s technical capacity. The reward bedroom, into all of our lives. Let’s give this some
in gaming, communication reasoned, rested within perspective. In terms of money, gaming now generates
the benefit of experiential output, not the console’s more cash than that of the American film industry. In
input, as previous hardware manufacturers had fact, Datamonitor suggests that sales of games
iterated. Powerful gaming experiences could change consoles and software in Europe and the USA will
you, move you, reshape you. generate over $20 billion-worth of business by 2003.
Feeding off this desire to own leisure time ran a Not bad for a category that was – according to 1995
media strategy, which understood the requirements business forecasts – rasping its way into extinction.
for ‘meeting points’ between PlayStation and an Source: Carl Radcliffe,TBWA personal communication
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60 Chapter 2 / Opening up analysis and positioning

Life-stage segmentation
Life-stage segmentation, also called the ‘family lifecycle’ is the recognition that a
family’s needs and expenditure change over time as people leave their parents’
home, marry, have children and grow up to repeat the cycle. In a sense, life-stage
segmentation represents family demographics, particularly regarding ages and
income levels. The focus on longitudinal changes in purchasing behaviour is valu-
able for predicting macro-demand for specific product categories, such as houses,
education, household appliances, services and so on.
Examining the demographic makeup of customers enables an understanding of
the types of customers and whether it is in a company’s interest to pursue similar
segments or not (Coffey and Palm 1999). Andreasen (1984) explored the effects of
life status change on attitudes, needs, wants and behaviour. He notes that ‘for
many people, the break with the past that is inherent in the occasion of a status
change can represent an opportunity to rethink and organise their lives’ and con-
cluded that the transition from one stage of life to the next causes much stress in
individuals. It is this stress that can make customers become more susceptible to
seeking the suggestions of others (particularly marketers) and could result in them
being prime targets for products and services that are viewed as necessary require-
ments for the next life stage. The greater the change in the life pattern, the greater
will be the lifecycle change.

Table 2.8 The stages of the family life lifecycle

Stage Financial and purchasing characteristics

Bachelor – young, single, not Few financial burdens, recreation-orientated; holidays,
living at parental home entertainments outside home
Newlywed – young couple, Better off financially, two incomes; purchase home, some
no children consumer durables
Full nest I – youngest child Home purchasing peak; increasing financial pressure, may
under 6 have only one income earner; purchase of household
products
Full nest II – youngest child over 6 Financial position improving; some working spouses
Full nest III – older married couples Financial position even better; update household products
with dependent children and furnishings
Empty nest I – older married Home ownership peak; renewed interest in travel and leisure
couples, no children at home activities; buy luxuries
Empty nest II – older couples, no Drastic cut in income, medical services bought
children at home, retired
Solitary survivor – still in Income good, but likely to sell home
labour force
Solitary survivor – retired Special needs for medical care, affection and security

Source: Wells and Gubar 1966

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Market segmentation 61

Geodemographic segmentation
By combining geographic and demographic to form geodemographics, marketers
have built a strong analytical tool. Geodemographics are based on an understand-
ing that people with similar needs and lifestyles tend to live close together. As
Weiss (1994) states, ‘where we live affects our attitudes toward what we buy’.
Although this may be true, it reverses the direction of major causality – that is, the
statement should read ‘what we think influences where we live’, at least at the
micro level (Cahill 1997).
Other developments in this area of geodemographic segmentation include
FINPIN coding (PinPoint analysis) and MOSAIC (CCN). In both cases, the approach
was to cross-reference other research-based data on the uptake of financial services
to the original geodemographic descriptor. For example, PinPoint analysis cross-
tabulated their PIN code against the usage pattern of financial services established
by the Financial Research Survey (FRS is a national regular survey of respondents’
usage of financial products). From this cross-tabulation, a more industry-specific
classification was produced of FINPIN types (Palmer and Lucas 1994).

Psychographic segmentation
Psychographic segmentation became an important aspect of advertising and market-
ing research in the 1960s. Understanding psychographics is important as it is
difficult to develop demographic categories for many product categories (such as
clothes, cars). The difficulties associated with the use of demographic and socio-
economic characteristics as bases for segmentation have led to various attempts to
segment markets based on psychographic characteristics. Often, demographic data
is collected routinely and marketers are comfortable with this (Wells 1975).
However, the reality is that even consumers categorised in the same demographic
group can have very different psychographic characteristics. People tend to have
differing behaviour patterns.
According to Ziff (1971), ‘Some have used the term to refer to basic personality
characteristics – aggression, anxiety, extroversion, masculinity; some have applied
it to lifestyle variables – community involvement, home entertainment, leisure
activities, etc.’ However, social class, lifestyle and personality traits constitute psy-
chographics (Kotler 1988, and see Figure 2.14 overleaf). The clearest and most
complete definition is the following (Gunter and Furnham 1992):
psychographics seek to describe the human characteristics of consumers that may have a
bearing on their responses to products, packaging, advertising and public relations efforts.
Such variables may span a spectrum from self-concept and lifestyle to attitudes, interests
and opinions, as well as perceptions of product attributes.

The case study overleaf is an example of lifestyle segmentation being used in

mobile communications applications.
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62 Chapter 2 / Opening up analysis and positioning

Lifestyle Class Personality

Individual

Propensity to purchase

Figure 2.14 Psychographic segmentation

CASE STUDY

Lifestyle snapshots
Solving the context problem for wireless design

Introduction An airport application

In her recent interview with uidesign.net, Laura Recently, John M. Thompson of IBM, revealed that
Arlov, author of GUI Design for Dummies, IDG they had implemented a system for Swiss Air
Books, 1997, stated that one of her biggest design which automatically checks in a passenger when
problems, when considering wireless Internet they arrive at the airport. The system works by
design, was the lack of context understanding. using their passenger’s cellular phone and the
Optimising a design is best done when the context local telephone carrier’s transceiver or cellsite.
of the user’s interaction with the software, device or When a phone is detected on the airport cellsite,
machine is understood. Context is a description or the IBM system checks to see if the phone is
understanding of the actual interaction event. owned by a person who is also registered as a
For example, in a banking application, the user passenger on Swiss Air for that day. If so, then the
may be a clerk, the context may be that the clerk is
system proceeds to check the passenger in,
working at the counter with a customer on the other
receiving any confirmations required over the
side of the counter who wishes to deposit money
cell phone.
into their savings account. Various interactions with
This is a classic WAP application. The airline can
the bank’s computer system need to occur in order to
deliver increased passenger service with faster
complete the transaction. However, they are all
check-in. The passenger doesn’t have to stand in
occurring within the same context – a single
line and can probably afford to turn up a little bit
customer, at the counter, with money to deposit.
Laura Arlov was merely pointing out that, with later than normal (providing the system is reliable
wireless Internet devices, it is so much more and is working properly).
difficult to predict the context for an interaction. It is impossible for me to talk about any wireless
I have had some success with a technique I am Internet work I might be doing, so we will explore a
calling, ‘lifestyle snapshots’. A lifestyle snapshot is design approach which includes lifestyle snapshots
an addition to existing techniques for defining using this IBM/Swiss Air example. Imagine for a
personas (or user roles) and usage scenarios. A moment that this system did not yet exist. An
lifestyle snapshot helps us to better understand the executive at Swiss Air has just asked you to improve
context of a particular usage scenario. Lifestyle customer service by reducing check-in time for
snapshots are particularly useful when designing loyal, regular customers using new technology.
for consumer wireless Internet. Where do you start?
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Market segmentation 63

Case study continued

Persona definitions With each lifestyle snapshot a number of

You start by trying to understand who the passengers candidate usage scenarios will emerge. Usage
are. These people will be the users. The client will scenarios describe precise, exact occasions where a
doubtless have market research, demographic studies, device or application is being used. The development
perhaps actual passenger surveys. You start with these. of usage scenarios is the first stage in a usage-centred
However, as Laura Arlov pointed out, ‘demographics design approach which leads to the development of
don’t buy products, people buy products’. So you essential use cases (Constantine & Lockwood 2000).
must invent some real people who match the Essential use cases can be mapped and abstracted.
demographics. Alan Cooper has called these invented There is an opportunity when doing this to make a
people, personas (Cooper 1999). Cooper’s observation design which delivers suitable interaction for several
was that you should not try to design a product for all usage scenarios, hence several lifestyle snapshots and
of the target audience. You should design it for just perhaps for several personas.
one of them (or perhaps three or four specific people). In other words, we start with very specific
This profound counter-intuitive observation works descriptions of the user, the context and the usage,
because people are not unique. However much we and later we use our analysis phase to examine the
pride our individuality, the truth is that there is similarities in the requirements for different users
always someone very similar not far away. and deliver a good, well-balanced design which is
suitable for a broader audience.
Lifestyle snapshots Let us take an imaginary exploration of the Swiss
Lifestyle snapshots work in a similar fashion to Air requirements.
Cooper’s personas. The principle is that you should
not try to design a wireless Internet application for Example: Zurich airport system
every possible situation when it might be used, but So imagine for the purposes of this paper that
instead design it well for at least one situation we have been asked to design the system for
when it will be used. By making the application Swiss Air. For brevity we will consider only one
precisely what is needed, and as easy, intuitive and
persona, and only one lifestyle snapshot. In a
usable as it can be for just that one situation, then
real design you would expect to develop up to
you are designing a great product.
five personas and perhaps five to 10 lifestyle
So for that ‘just one persona’, we are going to
snapshots for each persona.
pick that ‘just one lifestyle snapshot’. A lifestyle
snapshot gives us a context for a design. We are
Persona definition: Hans, senior partner of a
going to design the feature or set of features for the
Zurich law firm
wireless application for that one persona in one
Hans is 45 years of age. He is a lawyer in a major
context. If we get that right then the chances are
firm in Zurich providing legal services to the
that the design will provide good to excellent
operation for most of the people, most of the time. banking community and major industrial concerns
A lifestyle snapshot describes a ‘day in the life of’ in Switzerland and the predominantly German
a persona, or simply a period of time. A long speaking business community. Hans studied law at
enough period of time to give us a context for usage college and has been with the same firm since
of their wireless application. receiving his practising certificate around 20 years
ago. He has a wife and two children all of whom
Usage scenarios and use cases are very costly. He lives in luxury by Swiss
We use lifestyle snapshots to determine the usage standards, in a large house, around 20km from the
scenarios for an application. From the lifestyle city, nestled in the low mountains, with a nice
snapshot ask yourself, ‘At what points in this scene view. He drives an S Class Mercedes. Hans has all
could the main characters have benefited from use the trappings of success and in order to be
of the technology?’, ‘Where can the technology fit successful he has to be competitive.
into their lifestyle in order to make it better, easier, Hans has become dependent on his cell phone
faster, simpler, more informed?’ and his laptop computer. He uses his laptop for

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64 Chapter 2 / Opening up analysis and positioning

Case study continued

email, presentations, word processing and financial as a business class passenger he doesn’t have to wait
calculations with spreadsheet software. in line. There is only one passenger ahead of him.
He regularly flies around central Europe However, he finds that there are no window seats
negotiating mergers and acquisitions for his clients. left and he will need to take an aisle seat. He checks
It’s high value business and he needs to get around to see if his frequent flyer miles have been credited
Europe quickly and easily in order to be in the right to his account. Seemingly not. Some mistake. A few
meetings at the right time. more minutes are wasted as the check-in clerk
Hans relies on Swiss Air to get him there. He is a checks his details and amends the error. Just a little
frequent flyer who flies business class and gets bit of stress that he might have done without.
upgraded into first class often. He expects first class He proceeds to the business lounge which he
service from the airline just as his clients expect knows well and enjoys another coffee. Breakfast
first class service from him. will be served on the plane.
The flight leaves a few minutes later than
Now, let us consider a lifestyle snapshot for Hans.
expected with no real danger to Hans’ schedule for
the day. He eats breakfast, rereads his client notes
Lifestyle snapshot: Monday morning business in
on his laptop and sleeps a little. The flight arrives
Munich
Hans is flying to Munich to close a deal. His client in Munich.
is buying a small Bavarian ISP as part of their As he proceeds off the airliner, Hans realizes that
expansion of Internet services in the German- he is short of euro currency and will need to change
speaking world. some money. He has prebooked a rental car and
Hans is woken at 4.30am by his alarm clock. He will afterward make his way to the underground
gets up and checks that his phone has recharged. garage to collect his car. The car rental company is
He fires up his laptop and checks for any last affiliated with the airline and he wants to ensure
minute e-mail. While the machine is working, he that his airmiles are credited to his frequent flyer
darts back and forth getting ready. It’s a one-day account. He discovers when he reaches the desk
trip so he doesn’t need to pack much. that the company is making a special offer today.
By 5.30 he is dressed, has had his first coffee of He can drive a Mercedes for a small upgrade fee and
the day, has his laptop packed in its leather earn double airmiles on his account. Slightly more
briefcase and his phone in his pocket. He also has a time is wasted while he takes advantage of this
Psion Organizer with his diary for the day and week offer. Accumulating maximum airmiles is
ahead. His colleagues have been tempting him with important for family vacations . . .
gentle nudges to buy a Palm Pilot but so far he has We could continue to explore the rest of Hans’
stuck with the Psion. day. For example, the weather at Munich could
All the technology was preloaded with the worsen and the airport might be closed in the late
information he was going to need the previous afternoon. Hans would then need to book into a
Friday afternoon by Hans’ private secretary. hotel and would need to acquire some toiletries and
He gets into his car, the ever-reliable Mercedes, essential clothes for the following day.
and sets off for the airport. We might choose to call the whole day a single
It becomes apparent that the weather has turned lifestyle snapshot or we may choose to break the day
poor overnight and there has been a late spring into three distinct sections. The first would be the
snowfall. The roads are difficult but not impossible. journey from home to the prospective acquisition in
His journey, nevertheless, is slower than it might be Bavaria. The second would be the session at the
and he gets stuck behind some snowploughs on the prospect site, including all the negotiations. The
Autobahn. third would be the return journey with its
He parks in the one-day parking at the airport subsequent overnight stay due to bad weather.
and walks to the terminal, quickly. Although not There are lots of opportunities for usage scenarios
too late, he is close to the closing time for the from this lifestyle snapshot. Let’s look at just a
flight. The airport is still quiet at this time. Luckily small number.
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Market segmentation 65

Case study continued

Usage scenario: auto check-in for flight Lifestyle snapshots have proven particularly
On arrival at the airport, the Swiss Air system is useful when designing for wireless devices because
alerted that a mobile phone belonging to Hans is they allow us to understand the context of use for a
now transceiving with a local cell site. The system product which is ultimately aimed at a broad mass
pushes a welcome message (probably via SMS) asking market and can conceivably be used in almost any
if he would like to check-in by WAP Internet service. location at any time. Lifestyle snapshots help us to
At this point Hans has probably not yet left his guess the most likely locations and the most likely
car or he may be already walking with his luggage times for a particular feature or set of features to be
towards the check-in area. used.
Hans accesses the Swiss Air site through a A lifestyle snapshot gives us clues as to which
bookmark and is given an easy-to-find navigation features will be needed at or around the same time,
link to the check-in service. The system already which features are needed to work together and
knows why he is logging in. This is a key point for should be tightly integrated.
improved usability – we have a context for the For example, in our airline example, we can see
interaction. He is asked to confirm his flight that check-in and frequent flyer miles enquiries
number and is prompted for his seat preference.
need to happen together. Rental car and related
Perhaps the system already knows that he prefers
information would be useful. There are advertising
window seats rather than aisles.
opportunities too, based on what we know about
the persona’s life. It might also have been useful to
Usage scenario: boarding notification
offer weather and driving conditions.
Hans has already checked in. He is now waiting in
The better we can understand the user and how
the business lounge but the phone system does not
that user lives, the more likely we are to design an
necessarily know this. He could be shopping in the
information age appliance which provides what he
airport, drinking in the bar. It sends him alerts
needs when he needs it. Personas and lifestyle
(probably by SMS) that the flight will begin
snapshots help us to do that. They are tools which
boarding in ten minutes, then later that boarding
has commenced. help to produce great, compelling design.

Usage scenario: rental car ‘Push’ advertising References

As the system already knows that Hans has checked in Constantine & Lockwood (2000) ‘Essential use case
and will be flying to Munich, it should also know that style and structure’, Constantine & Lockwood
he has a rental car booked and with which company. Ltd (www.foruse.com).
There is an opportunity to advise Hans that there is a Cooper, Alan (1999) The inmates are running the
special offer available today and perhaps allow him to asylum, SAMS.
confirm that he wants the upgrade and it should be
billed to his credit card. Assuming that the system Notes: What is described above is an imaginary
knows his credit card details. requirements analysis for an airline check-in system
using WAP technology. This is being used as design
Summary exercise to demonstrate best practice when
Lifestyle snapshots provide a context for an approaching such a design challenge, and in no
interaction. They help us to understand a persona way reflects the actual IBM implementation of the
and they give us a tangible situation into which we Swiss Air system.
can apply a design. They act as a ‘halfway house’ Source: David Anderson, ‘Lifestyle snapshots’, White Paper,
between personas and usage scenarios. uidesign.net, 3 April 2000
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66 Chapter 2 / Opening up analysis and positioning

Customer lifetime value segmentation

One of the most important objectives of any firm is to maintain and increase its
profitability. From this perspective, the firm will attempt to service its most prof-
itable customers. In a transaction-based approach, the most profitable customer is
the one who has most spending power at the present moment. However, as nowa-
days marketing focuses rather more on long-term relationships than on-off
transactions, a possible segmentation criteria is the customer lifetime value (CLTV).
In mathematical terms, the CLTV consists of taking into account the total finan-
cial contribution – revenue minus costs – of a customer over the entire life of his or
her business relationship with the company. Despite its simplicity, the measure-
ment of CLTV requires great care. All cash flows involved in the process have to be
identified and measured on a very detailed level and allocated precisely to each
customer or type of customer. Figure 2.15 represents a concise, seven-step approach
to measuring CLTV.
Translating Figure 2.15 into mathematical formulae, we obtain:

CLTV = (RR – RC) Y – AC (1)

P = CLTV × C (2)
P = [(RR – RC) × Y – AC] × C (3)

CLTV = customer lifetime value (profitability)

RR = recurring revenues
RC = recurring costs
Y = lifespan of a customer relationship or number of transactions
AC = acquisition costs
P = total profits
C = number of customers

The mathematical expression of the customer lifetime value can represent a sound
basis for analysing the existing situation and identifying the possible strategies to
increase customer profitability. Analysing formula 3 given above, five levers of cus-

1 Recurring
revenues
3 Net margin

2 Recurring 5 Cumulated
costs margin
4 Lifespan of 7 Customer
a customer lifetime
relationship value
6 Acquisition
costs

Figure 2.15 Seven-step process for measuring customer lifetime value

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Market segmentation 67

Table 2.9 The operational requirements for implementing customer-orientated strategies

based on customer lifetime value analysis

Strategy Tactics Operation Requirements

Conquer – Improve existing offer Improve: Research
increase C – in order to attract  product Segmentation
(number of potential customers  price Investment
customers) close to existing  distribution

customer segments  promotion

Diversify offer in order Increase product/service Research

to attract new segments portfolio Segmentation
of customers Investment
Increase RR Increase volume of sales Diversification Research
(recurring Stimulate demand Segmentation
revenues) Investment
Increase value of sales Upgrade offer Research
Segmentation
Investment
Increase both volume Diversification Research
and value of sales Stimulate demand Segmentation
Upgrade offer Investment
Reduce RC Reduce general costs Increased efficiency Research
(recurring costs) (administration, Segmentation
maintenance, etc.) Investment
Reduce costs of: Cheaper supplies Research
 product/service Cheaper outsourcing Segmentation
 distribution Increased efficiency Investment
 communication

Retain, Increase customers’ Improve present offer Research

increase Y loyalty, maintaining Better targeting Segmentation
(lifespan of and/or increasing Score better than Investment
customer customer satisfaction competition
relationship)
Reduce AC Better targeting of Improve offer Research
(acquisition costs) potential customers Improve targeting Segmentation
Use same resources Investment
more efficiently
v
Source: Gurau and Ranchhod 2002

v
tomer value creation can be identified (Gurau and Ranchhod 2002). These strate-
gies represent only the starting point of a company-wide operational effort. Table
2.9 shows the complexity of implementing customer-oriented strategies based on
the analysis of the customer lifetime value.

Problems with calculating the customer lifetime value

The calculation of the customer lifetime value is not a problem-free process.
However, most of the problems can be successfully solved by taking into considera-
tion two main issues:
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68 Chapter 2 / Opening up analysis and positioning

 the company applying this method has to clearly define from the beginning the
purpose of using customer lifetime value analysis and the expected benefits
 the problems raised by the customer lifetime value analysis are often industry-
and company-specific and as a result, the company has to select the most appro-
priate way to apply this concept in its particular situation

Defining a ‘customer’
The first challenge is to define the customer unit. Is it an individual, an account, a
household or a business address? A second challenge is linking customer informa-
tion to create a single customer record of when they leave and return multiple
times during the lifespan of his or her relationship with the company.
The answers to these questions are industry-specific. The business organisation
has to identify the characteristics of its customer relationship and, on this basis,
define the customer unit and the customer lifetime cycle. In the present market-
place, a company can be confronted with the situations set out in Table 2.10.
Table 2.10 shows the possible combinations (27) of customer relationship char-
acteristics as they differ for various industrial sectors and even for companies
within the same industry. For example, a company with a small number of cus-
tomers, making a small number of transactions that require a high level of
company–customer involvement, will probably define the customer unit as being
single customers (individuals or organisations) and the customer lifecycle as
depending on the business cycles specific for the industry (production, investment
and consumption cycles). Equally, for a company dealing with a large number of
clients, a large number of transactions and low involvement, it might be more
appropriate to aggregate the individual customers into particular segments with
homogeneous profiles and behaviour.

Evaluating costs
Measuring cost at the customer level poses the greatest challenge to customer life-
time value measurement. While the revenue per customer can usually be collected
from the appropriate billing system, cost information is aggregated into general
accounts and requires a good deal of analysis before it can meaningfully be
attached to individual customers or customer segments. The indirect costs are espe-
cially difficult to divide and allocate.
In solving these problems, three key principles about costing should be applied
by the company:
 customer costs must be related to the revenues they generate

Table 2.10 The characteristics of customer relationships in different industrial markets

Number of customers Number of transactions Level of involvement

Large Large High
Medium Medium Medium
Small Small Low
v
Source: Gurau and Ranchhod 2002
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Market segmentation 69

 not all costs within the organisation should be attributed down to a customer
level
 it should be made absolutely clear who can influence different types of cost and
revenues.

Evaluating the length of the customer relationship

The length of the customer–business relationship is difficult to measure in the pres-
ent economic environment as it is characterised by unpredictability and rapid
change. Many companies are using as the main tool for this prediction the analysis
of historical data about the past behaviour of its customers, identifying specific seg-
ments and extrapolating the behaviour of these segments into the future. This
method can be used successfully only in relatively stable market environments
because it assumes that:
 the customers will repeat their past behaviour in the future
 the market conditions will not change significantly.

It is therefore completely useless in a dynamic, fast-changing market environment,

such as the high-tech industries. In such sectors, the customers’ needs and percep-
tions are changing fast, competition is intensive and market conditions are hugely
variable. Thus, it is important to connect these predictions with the external
market environment.
Many models for calculating customer lifetime value/profitability neglect the exter-
nal environment of the firm, concentrating only on the relationship between the
organisation and its customers. However, it is dangerous to think that this relation
takes place in a marketing void. The market conditions might, and indeed do, change
over time, impacting an organisation’s policies, and customers’ needs and perceptions.

The segmentation process

The segmentation process involves several stages that must be applied in a
specific order.

1 Defining the market

The market is defined by considering the consumers’ needs that can be successfully
satisfied by using the company’s resources and capabilities. The main area of a
firm’s competitive advantage can be used to indicate such a market.

2 Identifying the best market segmentation criteria

These criteria are the ones that succeed best in explaining the specific behaviour of
different categories of clients when they are trying to satisfy their needs. For exam-
ple, when segmenting the market of music, the criteria of age and level of
education can indicate very effectively the specific preferences of different cate-
gories of consumers. On the other hand, for luxury products, such as sports cars,
lifestyle and spending power can be used successfully to segment such a market.
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70 Chapter 2 / Opening up analysis and positioning

If the company wants to identify very clearly the targeted market segments, it
will use a large number of segmentation criteria, starting with the most general
ones – for example, age or gender – and finishing with very specific ones – such as
level of education, lifestyle or personality. The application of additional segmenta-
tion criteria can refine the market segment already defined. For example, the
market segmentation process can be repeatedly applied, selecting finer and finer
consumer segments (see Figure 2.16).
The segmentation criteria selected in every new phase can address different aspects
of the company’s strategic approach. For example, in the first instance, the firm
might select a segmentation criteria based on its expertise, so a car manufacturer will
select the consumers interested in owning their own car or institutions that need
transportation. In the second stage, the firm might try to identify the consumer seg-
ments with a high growth rate, using a segmentation criteria based on its sales
volume objective. Finally, in the third stage, the firm can consider segmentation on
the basis of spending power, in order to be in line with its profitability targets.
Good segmentation criteria have the following characteristics:
 easy to define
 easy to measure – data about the market is easily available in relation to the criteria
 relevant to the market – the application of the segmentation criteria must allow
the firm to identify substantial variations in the customer purchasing and con-
sumption behaviour in relation to a specific product or service
Level one criteria

Market

Market segment selection

Level two criteria

Selected segment

Market segment selection

Level three criteria Selected segment

Market segment selection

Selected (final) segment

Figure 2.16 The successive application of different levels of segmentation criteria

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Strategic positioning 71

 permits a clear discrimination of various categories of consumers on the basis of

their purchasing and consumption behaviour.

3 Applying the segmentation criteria and dividing the market

The market defined in the first stage has to be divided using the values of the
selected segmentation criteria. These values must represent critical points that
determine a behavioural change in the consumers’ attitude towards a product or
service. For example, familial situation is a possible criteria that can be applied to
tourist services. The values taken by this segmentation variable can indicate a
change in the specific preferences of consumers for different types of summer holi-
day destinations during their lifetime.
After splitting the defined market into segments, the firm must choose one or
more customer segments as priority targets. This choice can be made considering
the specific expertise of the firm in serving one particular category of consumers
or identifying the most profitable segments in the present and future market con-
ditions.

4 Analysing and understanding the profile of the priority consumer segment

Often firms do not carry out extensive market research before undertaking the seg-
mentation process. Because of the large costs of collecting and processing
secondary and primary data, they might decide to investigate only the variation of
the selected segmentation criteria, postponing the in-depth analysis of consumers’
profile until after the priority segment has been selected. The advantage of this
method is obvious – the chosen segment is much smaller and better defined than
the entire market. At this stage, the firm can initiate a comprehensive process of
data collection, processing and analysis to develop a thorough understanding of
consumers’ characteristics and behaviour. This detailed profile will later represent
the basis for designing and implementing the functional marketing strategy of the
firm – the marketing mix.

Strategic positioning
Even if market segmentation is well realised, the organisation cannot yet be sure of
success. This is because the same market segment might be targeted by many com-
panies, all competing for consumers’ money and loyalty. In order to attract
customers, every company will try to differentiate its strategy from those of com-
peting firms, choosing a specific strategic position. The choice and implementation
of this strategic position is the result of the positioning process.
In essence, strategic positioning is about differentiating your company from com-
petitors, in order to attract and maintain a specific customer segment. Strategic
positioning has both a subjective and an objective basis, which influence and com-
plement each other. The objective element of positioning comes from the product’s
characteristics and the specific marketing activities attached to it. In fact, every ele-
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72 Chapter 2 / Opening up analysis and positioning

ment of the marketing mix contributes to positioning, which creates a strong need
for the coherence of all the marketing activities implemented by a firm at product,
price, distribution and communication levels. The subjective part of positioning is
determined by consumers’ perceptions of the product or service. This perception is
developed and maintained by the explicit and implicit messages sent by the firm
through its marketing activities. Finally, these two sides of strategic positioning
should be continuously related to the positions of competing firms because con-
sumers always use, consciously or unconsciously, comparisons with the various
competitive offers available on the market to inform their buying decisions.
On the basis of this analysis, it is possible to construct the trinome of consumer,
marketing mix and competitors that, together, determine the strategic positioning
of the firm’s offer (see Figure 2.17). The neglect of one dimension, or any imbal-
ance of the three elements has a direct effect on the offer, creating a fragile,
unrealistic market position. For example, the strategic position of a product can be
artificially improved for a short period of time using aggressive communication
methods. However, if the other elements of the marketing mix do not correspond
with the message transmitted to the market (in terms of, for example, product
characteristics, quality, price, distribution channel), the boost will be only tempo-
rary and the final effect on consumers’ perceptions will be very negative.
The strategic position of a firm can be represented in visual terms using percep-
tual maps. The process of positioning the product on a perceptual map involves a
number of stages that must be followed in strict order.

1 Identifying the salient features of the product/service

Usually, consumers position products using mental evaluations of a limited
number of characteristics that they consider essential for satisfying their needs and
wants. For example, some customers might position cars in relation to their design
and price, while others might consider that reliability and fuel consumption repre-
sent the most important features. The salient elements therefore vary from one
consumer segment to another. In order to identify the salient features of a prod-
uct/service for the consumers included in a target market segment, market research
is necessary. Once identified, the salient features will represent the coordinates of
the axes used in the perceptual map.

Competitive
benchmarking

Subjective Objective
Strategic
consumer marketing mix
positioning
perceptions elements

Figure 2.17 The interrelatedness of the three determinants of strategic positioning

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Strategic positioning 73

2 Finding the ideal value of the salient features for the targeted consumer segment
Even consumers who agree on the salient features that determine the value posi-
tion of a product might have different perceptions of the ideal values of these
features. That is why, in the second stage of the strategic positioning process, tar-
geted customers should be asked to indicate the values of the salient features that
can best satisfy their needs. Using the example of a car, the ideal values selected by
a homogeneous group of consumers might be modern design and moderate price.

3 Investigating consumers’ perceptions of the values of the salient features

of competitors’ products
The market research should continue, asking consumers to express their percep-
tions of the value of the salient features of competitors’ products. Using their
responses, the positions of competitors can be represented in the perceptual map as
well as the area indicating the ideal values that were identified in the second stage.
The representation of ideal values will most often be an area than a specific point,
because the opinions of different customers may well vary. However, as long as the
values are concentrated in a relatively small area, it means that consumers’ percep-
tions are homogeneous and, therefore, their inclusion in a market segment is valid.
The Dyson case study indicates the key issues surrounding product positioning
within a marketplace that has a need for a small vacuum cleaner.

CASE STUDY

Little Dyson cleaner finds niche in the smaller Japanese home

by Terry Macalister

James Dyson has beaten the Japanese at their own increased the numbers of scientists, engineers and
game by taking top slot in Japan’s competitive technicians employed on R&D to 450. The DC12
vacuum cleaner market with a product specially uses a microchip to help produce a smaller and
designed for smaller homes. The miniaturised lighter motor. The motor runs at 100,000
DC12, designed in Wiltshire for the Far East market, revolutions per minute, which compares with
has increased Dyson sales in Japan by 177 per cent 19,000 rpm in a Ferrari at full throttle, Mr Dyson
year-on-year and helped the company raise overall said. He is in talks with motor manufacturers and
pre-tax profits in 2005 by 32 per cent to £103 aerospace companies about the possibility of using
million. After two years of exporting to Japan, the vacuum cleaner technology for other purposes.
Dyson’s market share in the country is now 12 per Mr Dyson was not willing to say what new products
cent, ahead of home brands such as Sharp, Sanyo would be launched this year, but admitted he was
and Mitsubishi. ‘It seemed like we were taking coals
again working on a washing machine design. A
to Newcastle when we first entered Japan’s crowded
previous design proved too expensive for
vacuum cleaner market. The Japanese demand the
commercial application. Mr Dyson is still
best in electronics and they have recognised our
developing – ten years on – a domestic carpet-
technological benefits’, Mr Dyson said. The British
cleaning robot, but the product has no official start
entrepreneur said he had increased the research and
date. Dyson’s total export sales during 2005 rose by
development budget by 28 per cent to £50 million
44 per cent while overall group turnover was up
during 2005 and was proceeding with plans to
launch two new products in the course of this year. 18 per cent to £470 million.
Criticised in the past for taking his manufacturing Source: Terry Macalister, The Guardian, 24 May 2006. Copyright
overseas to reduce costs, Mr Dyson says he has Guardian News & Media Ltd 2006.
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74 Chapter 2 / Opening up analysis and positioning

In Figure 2.18, the competitors’ perceived position is indicated by the letters A,

B, C, D, which represent product brands. It is easy to observe that, for this con-
sumer segment, no competitor offer is located in the area of ideal values for the
two salient features. Knowing this, a firm can position its offer in order to better
answer the specific needs of this market segment.
The perceptual map is a powerful tool, permitting a clear image of customers’
perceptions at a specific moment in time. If necessary, it can even be used for seg-
mentation purposes, when various segments of consumers can be investigated to
see what the salient features of the product and their ideal values are.
If, for the sake of simplicity, we consider that all consumer groups have identified
the same two salient features for cars, the positions of the ideal values can be repre-
sented as areas of ideal values that are specific to each consumer segment. In the new
representation, in Figure 2.19, it is easy to observe that, in the overall car market, the
brands A and D are well positioned in specific areas of ideal values and, therefore,
both of them are targeting their specific consumer segments successfully.
The representation of strategic positions on the perceptual map also has a series
of disadvantages.
 There should be no major contradictions between the salient features indicated
by consumers. If this happens, it might be an indication that the segmentation
process was not well realised – the investigated consumer group possibly includ-
ing two separate consumer segments. On the other hand, a certain variability in
consumers’ perceptions regarding the salient features of a product may be
normal, due to personal preferences.
 The number of salient features identified should be relatively small (ideally two
or three) in order to permit a clear visual representation of the market position.
 The ideal values indicated by each of the investigated consumer segments
should be homogeneous. A large dispersion or a multiple polarisation of the
ideal values indicates a lack of homogeneity of the consumer group.

Price

High
D A

Area of
Medium ideal
values

Low Design
Classic Contemporary Modern Futuristic

Figure 2.18 Representation of car market positioning on a perceptual map, considering

price and design as the salient features
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The Internet, postmodern marketing and globalisation 75

Price

High
D A

Medium

Low Design
Classic Contemporary Modern Futuristic

Figure 2.19 Representation of car market positioning on a perceptual map, considering

the perceptions of different consumer groups

 All the elements used for representing the market position are dynamic, chang-
ing over in time, and their evolution can be highly unpredictable. Thus, when
perceptual maps are used for long-term planning horizons, the present position
for ideal values might be of limited use, so the market research should also iden-
tify the future trends in consumers’ perceptions. The future evolution of the
ideal values can be indicated on the perceptual map by using small arrows.
Ideally, the evolution of consumers’ perceptions and/or of competitor’s strategic
positions should be identified in real time by means of repeated or continuous
market investigation in order to permit the quick adaptation of the company’s
offer to the changing consumption trends.

The Internet, postmodern marketing and globalisation

Much of the discussion on postmodern marketing emphasises the growing impor-
tance of digital/telecommunication technologies, media, consumption, images/
symbols and hyperreality (Venkatesh et al. 1993). According to Cova (1996), post-
modernism champions individuality and the modern quest for liberation from
social bonds. The fragmentation of society shows the consequence of postmodern
individualism. Cova argues that:
Paradoxically, the postmodern individual is both isolated and in virtual contact with the
whole world electronically. Postmodern daily life is characterised by ego concentration,
encouraged by the spread of computers.

Figure 2.20, adapted from Cova’s article, shows the juxtaposition of opposites in
the postmodern world. Cova goes on to say that, in postmodern marketing, one
has to offer the following.
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76 Chapter 2 / Opening up analysis and positioning

 One-to-one marketing with the use of IT Unpredictable and individualistic customers

could be retained this way. In fact, with the growth of areas such as MySpace and
Bebo, the Internet is now spawning behaviour that is both individual- and com-
munity-driven at the same time (see Chapter 10 for a fuller discussion).
 Image Hyperreality is the potential to offer an experience similar to Euro-
Disney’s theme parks. Technology offers the postmodern consumer the ability to
be a participant in customising his or her own world. This is now truly happen-
ing with areas such as Second Life (again see Chapter 10 for a fuller discussion).
 Marketing images The era of postmodern marketing relies on image marketing
(Venkatesh et al. 1993), emphasising cultural meanings and images. Cova (1996)
feels that image marketing and brand management are closely related. Rather con-
troversially, he argues that we are witnessing the obsolescence of advertising:
In post-modern markets, advertising simply misses the fundamental point: to be an interac-
tive experience of co-creation of meaning for the customer.
 Fragmentation Market and technology shifts in and since the 1990s are pointing
towards market fragmentation and mass communication (Meuller-Heumann
1992). The fragmentation of markets is likely to herald a greater emphasis on
smaller and unstable segments.

In many respects it could be argued that this type of postmodern world is not quite
a reality for many people, though areas such as Second Life grew exponentially in
2006. Authors such as Clegg (1991) would argue that we are seeing signs of moder-
nity, with seamless societal changes taking place in different cultural contexts
rather than complete paradigm changes. It is impossible to tackle this contentious
issue thoroughly in this book, but we mention it as some of the arguments put for-
ward have relevance to this new world of almost instant global communications.
Ironically, much of the postmodern emphasis on fragmentation and individualism
seems to be borne out by the experience of companies on the Internet. Initially, for
instance, companies such as Tripod and Geocities (Hof et al. 1997) made a virtue out
of helping to build community-type discussion areas, allowing communication over

One-to-one marketing Tribal marketing

Image marketing Experience marketing

Use value Linking value

Transfer of meaning Co-creation of meaning

Database Ethnography

Communications Participation

Figure 2.20 Postmodern marketing as a juxtaposition of opposites

Source: Adapted from Cova 1996
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The Internet, postmodern marketing and globalisation 77

large geographical areas. Tripod offered editorial content and discussions grouped
into fields such as politics, health and money. The target audience was the ‘twenty-
somethings’. Individuals were encouraged to design and build their own web pages.
In these locations, larger companies such as Ford, Visa, Sony and Microsoft took
banner advertising space. This activity has now been largely superseded by blogs and
areas such as MySpace. The demographics of the various communities play a large
part in segmenting the advertising spend for larger companies as those in the target
group are mainly aged 18–34, living in the USA and 75 per cent male.
Armstrong and Hagel (1996) discuss the merits of online communities and explain
how the ‘GardenWeb’ area has evolved into a very successful community, where ideas
are shared, plants are exchanged and links with related businesses and resources are
forged. In this sense, such an online community is a powerful area for an advertiser to
be in and offers much more than a simple site that only allows transactions.
These discussions show the way in which technology is creating virtual commu-
nities and determining the way in which consumers are reacting to marketing
propositions. These developments make segmentation increasingly difficult and also
mean that new ways of segmenting markets need to evolve constantly. Chapter 4 on
sustainability, discusses how consumers are being segmented according to their con-
cern for the environment. In order to understand this in the new millennium, Firat
and Schultz (1997) argue that, in the future, work life, domestic life and life outside
the home, spent in recreation and leisure, far from being delineated, will form each
other and begin to merge. This will either create new configurations of life spheres
or a life that cannot be differentiated into distinct spheres, but is completely frag-
mented into dispersed moments. They also argue that there will be a merger of the
consumer and the producer. Production and consumption are likely to be insepera-
ble. The consumer will also be the producer (see Figure 2.21).

Other offerings
and images

IMA
PRODUCER GE

CONSUMER
ITY
E AL
RR
OPENNESS, FLUIDITY PE
HY Other offerings
AND ADAPTABILITY
and images

Different fragment of Different fragment of

the same consumer the same consumer

Figure 2.21 The postmodern consumer and postmodern segmentation

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78 Chapter 2 / Opening up analysis and positioning

Marketers have to transform their focus from product to process. In other words,
companies have to grasp the changing markets by embracing new technologies
and creating both real and virtual images. They also have to move from product
marketing to marketing a process and image. Processes can then be offered to cus-
tomers to enable them to participate in the designing of the final product in order
to customise it in line with the image they seek. This requires a fundamental shift
in thinking and demands a great deal of flexibility from organisations.

Summary
This chapter has offered an insight into the complexity of the environmental
analysis and considered its importance for the process of strategic segmentation
and positioning. As new markets appear and develop, and the old markets perma-
nently change, environmental scanning and analysis becomes an essential basis for
the success of any company.
An environmental analysis should be well balanced between the internal and
external environments of the organisation. Ultimately, the entire strategic market-
ing process can be considered to be a solution to the tensions that rise between the
uncontrollable elements of the external market environment and the internal
structure of an organisation. The first step towards positively solving these contra-
dictions is knowing both the internal and external elements that determine, shape
and limit the corporate way of doing business.
Environmental analysis on its own is not enough, however. A better understand-
ing of the market context allows the firm to properly identify, define and segment
its target market and choose the most profitable market segments. At the same
time, the segmentation process should be accompanied by clear positioning in rela-
tion to other competing firms on the basis of the organisation’s main competitive
advantage.
The methods and procedures described in this chapter are not only practical
tools for market analysis and strategic positioning but also represent a philosophi-
cal approach that considers the business organisation as only an element among
others in a highly complex and dynamic environment, that has to be properly
known and understood by both employees and decision makers.

Chapter questions
1 In your opinion, what is the long-term effect of environmental analysis on a com-
pany’s performance? Provide supporting arguments and develop your answer.
2 What, in your opinion, is the relation between market orientation, market segmen-
tation and strategic positioning?
3 What are the main advantages and challenges of an environmental analysis for
a company?
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Stakeholder concerns and

3 solutions

Introduction
Organisational stakeholders are many and varied in nature. Stakeholders are any
groups of individuals that are in some way either affected by a company’s actions or
can affect a company’s actions. In many ways, understanding stakeholder interests
and concerns and translating them into effective marketing strategies and company
positioning within a marketplace is one of the great challenges facing organisations.
It is no longer enough to take into account only products, segments and markets.
Nowadays, it is necessary to consider not only customer–company interactions, but
also company–shareholder, company–community, company–environment and a
host of the other interactions. Consumers are becoming more knowledgeable and
may want to consider not only the products on offer, but also a company’s record
on ethical issues and its image in the marketplace.
The following case study of an article describing M&S between 1998 and 1999
helps to illustrate how stakeholder relationships contribute to either the success or
failure of marketing strategies.

CASE STUDY

Slow decline of high-street champion

Some people bought everything at Marks & Spencer shop. Michael Marks’ arrival in Britain from Russia
and some would buy nothing, but everyone has in 1882 and his progress from hawking penny
their theory about the retailer. When the rise and goods to creating the national chain by which
fall of Marconi or Invensys is written, few will care, Middle England swore – then swore against – lends
but for M&S – Marks to its former fans – it is like itself perfectly to a former City journalist and
reading the obituary of a once-great statesman. Judi novelist. In 1997, The Times pointed out that the
Bevan is thus unpicking a rich seam in detailing the empire’s new clothes were no longer smart.
hubris and nemesis of the nation’s favourite clothes Suddenly everyone joined the critical bandwagon


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80 Chapter 3 / Stakeholder concerns and solutions

Case study continued

and sales slipped – but the seeds of the decline had server, Peter Salsbury. But the overbearing
been sown years earlier. Greenbury, retaining his office and a GBP450,000
M&S was a paternalistic employer with a chairman’s salary, thought he still ran Marks and
customer base as loyal as its staff. Richard fired intolerant Rickograms at his many critics.
Greenbury had joined at 17, became chief executive Salsbury turned on his former mentor, refusing to
in 1988 and chairman three years later. His retailing talk to Greenbury or even have his portrait in the
skills were legend: he would walk the shop floors boardroom with the other chairman. Bevan paints
asking what was selling and telling staff what to do. Salsbury as a weak man who sacked staff and
But by the 1990s, this physically big man preferred suppliers without compassion, paying consultants
lecturing to listening and not only did sales staff no GBP40m to devise one restructuring after another.
longer dare answer back, neither did directors. His Greenbury quit rather than be insulted and
own deputy, Keith Oates, started plotting a coup to Salsbury was replaced by outsider Luc Vandevelde,
take Greenbury’s seat. As Bevan writes, just talking but sales and profits have continued the fall
to the press was as alien as wearing an Asda shirt. that began in 1998. Simon Marks, who built the
But Oates was allowed to stay and lead a policy of chain before and after the war, had a philosophy
expanding out of trouble, increasing overseas of product, people and property. Having let
exposure and paying GBP192m for 19 Littlewoods the product and the people go, the company is
stores that eventually cost GBP450m. now selling the property – and undoing its
But in dashing for profits to cover its problems – overseas expansion.
even considering mergers with GUS and Safeway – Bevan compares Greenbury with Thatcher –
Marks forgot its basic formula and a public that leaders who hung on too long, pushed out by loyal
could once find nothing wrong with the shops could lieutenants. Both possessed towering egos. Both
now find nothing right. Belatedly introducing fitting failed to nurture a worthy successor. Their
rooms and credit cards did not help. Greenbury’s increasingly irrational behaviour was tolerated by
answer was to cut costs and ranges. The non- their acolytes, she writes. Oates did for his
executives’ wives complained that Marks no longer chairman what Heseltine did for his prime minister.
had the right garments in the right place – nor Both were great leaders whose tragedy was that
assistants to assist. Oates waited until his chairman they failed entirely to appreciate the impact of their
was in India to make his bid for power, but personalities on those around them. It is a case
Greenbury returned unexpectedly to confront him at study that should be read by any organisation –
the regular Monday meeting, forcing the non-execs from Coke to the BBC – with a market share so big
to choose who ran M&S. Bevan is at her best it can only fall.
detailing the failed compromise of firing Oates and Source: Richard Northedge, ‘Slow decline of high-street champion’,
giving Greenbury’s executive duties to another long- The Business (previously Sunday Business), 30 September 2001

From the case study we can see that the marketing strategies at Marks & Spencer
failed because:
 customer choices and preferences were ignored
 stakeholders, such as suppliers, were treated poorly
 the poor management of customers spilled over into poor staff management
 the original philosophy of product, people and property was not respected.

This resulted in poor assessments by shareholders and the stock market. Would
Marks & Spencer have got into this state if it had managed its stakeholders better
over a long period? Was the power base accorded to the managing director (a stake-
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Introduction 81

holder) by the shareholders (another set of stakeholders) too great? Current news
shows that the company has experienced a renaissance.
This second case study on Marks & Spencer illustrates the way in which atten-
tion to key stakeholders and astute marketing campaigns have revived the
company. The key stakeholders that were brought back to the fold in increasing
numbers were the different customer segments. Ladies and men’s wear was priced
reasonably and fashion trends have been observed. Food has become innovative
and creative, with more customers enticed by the company’s offers. At the same
time, unlike Greenbury, Rose has given staff (one of the key stakeholder groups) a
share of the profits. Another stakeholder group that has been helped is composed
of the overseas food suppliers, which have benefited from Fairtrade policies.

CASE STUDY

M&S sales surge stuns City

Marks & Spencer today smashed City forecasts for resurgence. In the successive improvement in sales
sales and profits as its revitalised clothing ranges figures in the past year, he has refused to claim that
and high-quality foods brought in the shoppers. M&S has recovered. Today he stressed that the
Overall sales from stores a year or more old surged comparative periods from the year before were still
6.8% in the three months to 1 April – more than fairly weak, making sales improvements easier to
doubling analysts’ expectations – as strong sales of achieve. Comparatives do not start getting tough
clothing and food were boosted by product until July. However, he added: ‘It is clear we are
improvements and an advertising blitz. General pinching market share from competitors, which is
merchandise, which includes fashion and great. It shows we’re back in the game.’
homewares, saw sales jump a huge 8.2%, while food M&S’ figures looked especially strong when
sales surged 5.6%. The figures were for the final compared with rival retailers, who have all suffered
quarter of the financial year and M&S said they from the tough economic environment and the
meant full-year profits would come in at between cold spring weather. Next’s sales are down more
£745 million and £755m – about £10m or £15m than 8% in recent weeks, while others on the High
better than City forecasts. That comes despite today’s Street have all been suffering. M&S sales figures are
decision to pay an extra £20m one-off bonus to shop- also flattened by the fact that Easter weekend fell in
floor staff on top of the £50m staff incentives already the same weeks last year. Had Easter been in the
agreed. Chief executive Stuart Rose said: ‘Ladies wear fourth quarter, sales would have been up by a
really led the charge, with better product, better further 0.8%, M&S said. Meanwhile, it emerged
styling and better values.’ Big-selling womenswear today that Rose is sitting on a potential £5m paper
lines included linen outfits, pencil skirts and casual profit from his shares and options in the business.
knitwear. Men’s suits were also big sellers but Rose was But few investors will begrudge him the wealth
hoping for a big push on sales of summer casuals. after his performance in improving ranges and
Food sales were also strong, as M&S focused on turning the screw on M&S suppliers. M&S shares
promoting its high-quality image with the ‘This is were expected to jump by 19p to 580p today,
no ordinary...’ campaign and a marketing push around according to City bookmaker Cantor Index
Fairtrade products. Despite the strong figures, Rose Source: Jim Armitage, ‘M&S sales sales surge stuns City’, Evening
continued to downplay the extent of M&S’s Standard, 11 April 2006
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82 Chapter 3 / Stakeholder concerns and solutions

Stakeholder theory
Stakeholder theory has many facets to it. Some theorists take a corporate gover-
nance view (Bailey and Clancey 1997), while others take a socio-economic
perspective (Hutton 1996). A more operational view argues that stakeholding issues
should be considered at company level, where people work, rather than just at
national level or welfare policy level (MacDougall 1995). A simple view of stake-
holding would be that of just considering the key actors that affect a company’s
well-being. A more complex view would consider the interaction between a com-
pany and various players. This type of view considers stakeholding from the point
of view of dynamic interrelationships. Availability of resource, power and environ-
mental turbulence can mediate these interrelationships.

Stakeholder interactions
In order to begin to understand the multiple relationships that interact in a com-
plex manner, affecting both a company and its various stakeholders, it is perhaps
important to go back to Freeman’s (1984) seminal work in this area and consider
the definition of a stakeholder:
any group or individual who can affect or is affected by the achievement of the organisa-
tion’s objectives.

The Organisation for Economic Cooperation and Development (OECD) starts from
the perspective of corporate governance and mentions that it is a key element in
improving economic efficiency as it involves a set of relationships between a com-
pany’s management, its board, shareholders and other stakeholders.
The OECD goes on to say:
Corporate governance also provides the structure through which the objectives of the company
are set, and the means of attaining those objectives and monitoring performance are determined.
Good corporate governance should provide proper incentives for the board and management to
pursue objectives that are in the interests of the company and shareholders and should facilitate
effective monitoring, thereby encouraging firms to use resources more efficiently.

Obviously these corporate governance issues cannot be separated from the greater
macroeconomic issues within and outside national boundaries. These issues affect
the nature of markets and the levels of competition within them. Legislation and
regulation (usually governmental) also affect them. Business ethics and the social
and economic interests of the communities directly affected by its actions have a
considerable impact on the well-being of a company.
In order to make sense of the various interactions of stakeholders, it is useful to
consider the various constituencies and their influences on the company. The rela-
tive inputs and outputs of various stakeholders determine the level and power of
the interactions taking place (Donaldson and Preston 1995). This, in turn, allows
us to understand the relative impacts of the strategies of a company on other stake-
holders. Figure 3.1 shows the key constituents at play.
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Stakeholder theory 83

Objective setting/mission
Corporate governance
Board of
directors

Managers
Government
Shareholders Global
Returns on Legislation
investment Regulation
Governance Market conditions

Organisation Non-
governmental
Employees organisations
(NGOs)
Ethical issues
Quality of Environmental
employment groups and
participation others such as
charities/religious
Suppliers Customers
groups

Community
Satisfaction

Ethical/environmental
considerations

Figure 3.1 Stakeholder components

Board of directors
One could argue that this is the single most influential set of stakeholders in an
organisation. The members of the board of directors of a company are both inter-
nal and external stakeholders. They generally determine the strategic direction that
an organisation will take and how it will impact various other stakeholders.
According to the OECD framework, board members need to act on a fully informed
basis, with due care and diligence, in the best interests of the company and the
shareholders. It also states that the board should ensure compliance with applica-
ble law and take into account the interests of stakeholders. Some of the key
functions of the board should be to:
Review and guide corporate strategy, major plans of action, risk policy, annual budgets and
business plans; setting performance objectives; monitoring implementation and corporate
performance; and overseeing major capital expenditures, acquisitions and divestitures.

The board is also responsible for the hiring of key executives and setting their
remuneration levels. Undoubtedly, this gives the board a great deal of vested
power. However, board members themselves could wield disparate levels of power.
There are also arguments that the chief executive officer (CEO) may carry a dispro-
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84 Chapter 3 / Stakeholder concerns and solutions

portionate level of power compared to other board members (Pettigrew and

McNulty 1995), though the level of power may be contextual, reflecting particular
circumstances. In one survey (Stiles 2001), it was found that strategy is typically
developed at the business unit level (by managers) (Bower 1970; Burgelman 1983,
1991). The board, therefore, is largely responsible for setting the strategic parame-
ters within which the strategic activity can take place. It is ultimately responsible
for the vision and mission of the organisation, as well as its strategic focus and acts
as a gatekeeper and confidence-builder. Interestingly, given the primacy of the
board, Stiles’ research, conducted in the UK, showed that a large proportion of the
directors interviewed felt that their main roles were developing strategies and
assuming responsibility for monitoring the health of the firm. Only a few
responses covered dialogue with shareholders/stakeholders, responsibility for an
ethical framework or a review of social responsibilities. Within a company, a board
is a powerful stakeholder. At the same time, this power is tempered by its interac-
tion with managers and the CEO.

The roles of board members

The previous case study on Marks & Spencer helped to illustrate the interaction that
occurs between the CEO and managers. What is not clear is how much of a role the
board played in this instance in tempering the CEO’s management of the various
stakeholders. To a large extent, the way in which a company is managed depends
on corporate governance and the way this governance impacts stakeholders.
There are three main models for the roles of the board of directors (see Figure 3.2
and Table 3.1).
 The control role The board of directors is considered as a mechanism for prevent-
ing deviant behaviour on the part of the main managerial team (Fama and
Jensen 1983; Williamson 1984). This role is especially evident when financing
institutions impose a person on the boards of directors in the firms in which
they invest, his or her task being to monitor its evolution and assess its capacity
to repay debts and/or provide a return on investments by the established dead-
line (Kelly 1997; Wright and Robbie 1997).

Resources

BOARD

Control Advice

Firm’s operations

Figure 3.2 The roles of boards of directors in managing SMEs

Source: Watkins 1997
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Stakeholder theory 85

Table 3.1 Key board roles versus director characteristics under three models of boards’ functions

Key theoretical role

Directors’ characteristics Control role Internal service role External resource building role
Dominant theoretical Agency theory; institutional Partly within resource Resource dependency theory;
paradigms/relevant theory; general governance dependency theory, but stakeholder theory;
literatures literature underdeveloped; networking literature
networking literature
Numbers of directors Small – members cannot Moderate – range of Large – within limits, bigger
be played off against one views but limited scope equals better. Diseconomies
another for internal conflict set in with costs/complexity
of coordinating large board
Executive responsibilities Tacit or explicit knowledge Indistinguishable from Role may be broader than
regarding control issues; managerial role managerial role; board’s
may be ‘captured’ by status empowers this
management
Investor status Classical position; absence Probably neutral in May be essence of
of agency issues impact; may enhance involvement; can be a
care exercised (trend to constraint of future financing
conservatism?), but rounds
director anyway has duty
of care
Representative Focus on control issues of Suboptimal. Objectivity May be best way of
responsibilities, such as specific interest to compromised by cementing/maximising
nominee of particular stakeholder, such as uni-dimensional interests benefit from stakeholder
stakeholder interest shareholder value; of nominating stakeholder relationships; alliance
employee welfare; cover for creation, etc.
debt repayments, etc. Likely to be of greater
significance as size of
firm increases
Business expertise in Familiarity with ‘custom and Missed opportunity to As for service role, unless
common with CEO practice’; knows where extend range of recognised industry leader
skeletons can be buried operational expertise
available to the firm
Prior personal relationship Counterproductive; risk of Personal knowledge may Unlikely to be strong in most
with CEO ‘capture’ high enhance credibility of effective appointments;
advice therefore issues of trust;
pre-validation through existing
trust networks
Technical expertise in Audit/control function may Commonality of language May represent missed
common with CEO extend to technical sphere useful, but scope for strategic opportunity to
NIH conflicts extend range of expertise and
contacts available to the firm
Term of service Continuity benefit in conflict Value may increase in Value may decrease in
with danger of ‘capture’ short/medium term as medium to long term as
knowledge of firm personal networks become
expands those of the firm
Surrogate for director in role Auditors, even if not legally Public-sector small Underdeveloped on a formal
required. Audit can extend business advisory basis, particularly in public
beyond financial. Usually networks; counsellors; sector. Usually ad hoc rather
private sector public- or private-sector than strategic. Scope for
consultants and trainers considerable expansion

Source: Watkins 1997

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86 Chapter 3 / Stakeholder concerns and solutions

 The internal service role The function of the board that is most emphasised,
which is to provide advice and counsel to the main managerial team of the firm.
In this case, the competences of the directors complement or amplify the com-
petences of the managerial team (O’Neal and Thomas 1996).
 The external resource-building role In this case, the board of directors is considered
to be a vital instrument for obtaining access to external resources that are critical
to the firm’s success (Pfeffer 1972; Pfeffer and Salancik 1978). This is probably
the most important role played by boards for companies that need to access and
attract external resources for their survival and/or development. This is because
it facilitates access to funds, the creation of strategic alliances and attracts com-
plementary resources (O’Neal and Thomas 1995 and 1996; Zajac 1988).

The international dimension of todays’ markets increases the complexity of direc-

tors’ function. For many companies, for example, the penetration of international
markets is an essential prerequisite for their survival and, therefore, the directors
need to expand their role in overseas markets and operations.

Government and global pressures on corporate governance

Corporate governance has increasingly become a governmental and global issue.
This is due to the increasing globalisation of capital flows and shareholding. The
UK, USA and Australia are characterised by the Anglo-Saxon model of share owner-
ship. Often, large institutional investors, such as pension funds or unit trust funds,
hold the shares in companies. These, then, are the largest sets of stakeholders in
many organisations. As a result, there is continued pressure to achieve the best per-
formance possible and individuals hold fewer shares than the institutions.
Fundamental differences in the shareholding structure in European countries are
the key to explaining the variations in the importance of their stock markets
(Lannoo 1995). Table 3.2 shows that the largest shareowners of quoted companies
in the UK are institutional investors (pension funds, insurance companies, banks

Table 3.2 The structure of shareholding in selected countries (% of total)

Germany France Italy UK USA Japan

(As at end of year) 1990 1992 1993 1993 1992 1992
Financial institutions, 22.0 23.0 11.3 59.3 31.2 48.0
of which:
banks 10 – 9.9 0.6 0.3 26.7
pension funds/insurers 12.0 – 0.8 51.5 23.9 17.2
others (unit trusts) – – 0.6 7.2 7.0 4.1
Households 17.0 34.0 33.9 19.3 48.1 22.1
Private companies 42.0 21.0 23.0 4.0 14.1 24.8
Public authorities 5.0 2.0 27.0 1.3 – 0.7
Foreign investors 14.0 20.0 4.8 16.3 6.6 3.9

Note: The comparability of data is affected by differences in definition used by the providers of the data and differences
in regulatory structures when comparing data. For example, a bank is a universal bank in Germany and a high street
bank in the UK.
Source: Lannoo 1995
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Stakeholder theory 87

and unit trusts). These possess an average equity of 59 per cent. Households are the
second largest group in the UK, with 19 per cent, and industry (including unit
trusts) owns 4 per cent. In Germany, on the other hand, the situation is reversed:
industry is the largest owner of quoted companies at 42 per cent, institutional
investors possess a much smaller part, only 22 per cent (of which banks hold 10 per
cent), and households possess 17 per cent. Unlike the UK and Germany, house-
holds or families are the most important stockholders in France, Italy and the USA.
In Italy, the government is a major stockholder, with 27 per cent ownership.

Protection for stakeholders

Traditional structures in Europe are designed to protect the stakeholders from hos-
tile takeovers. The firm, as a coalition of both internal and external stakeholders,
needs to have control over its environment in order to protect them (Groenewegen
2000). The protection is often country-specific. For instance, in the Netherlands,
the legal aspects of the corporate structure are organised in a manner that creates a
control mechanism over shareholders. The structure tends to favour other stake-
holders, especially the employees. In Germany, close ties between banks and
industry provide stability and protection against takeovers. In France, control is in
the hands of the président directeur général (PDG). He or she is often elected by a
board (conseil d’administration), which is appointed by the shareholders. Often,
the PDG is the only one who represents the firm externally and so can be isolated
from the other stakeholders in the firm. The PDG usually has good connections at
his or her level in the government and industrial sectors. Shares are often sold to
friendly banks and industrial firms, reflecting cross-stockholding. This creates the
core shareholders (noyau dur). Sometimes shareholders in companies in France
and the Netherlands enjoy multiple voting rights.
As can be seen, the different structures in different countries are complex and
therefore any company analysis of stakeholders has to take the corporate gover-
nance, board structures and shareholding structures into account. Often these are
country-specific rather than universal. However, the growth of globalisation is
changing the nature of stakeholders, largely as a result of increased shareholder
activism. The key developments are:
 the growing role of institutional investors as more companies are privatised in
Europe and around the world
 the integration of financial markets and the global movement of capital
 increased shareholder activism.

Stakeholders and corporate social responsibility

Following on from the discussion above, it is clear that corporate governance is
becoming the defining business issue of the twenty-first century as many compa-
nies, such as Enron, have fallen foul of their normal obligations to shareholders
and society in general. Given new federal legislation and new rules from the
Securities and Exchange Commission (SEC) and its financial arm, the Financial
Accounting Standards Board, governments in the UK and USA are determined to
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88 Chapter 3 / Stakeholder concerns and solutions

legislate for some of the recommendations for a new code of governance in the
Higgs Report to become a set of regulations during the next Parliament so as to
force companies on both sides of the Atlantic to reassess their positions.
In Germany, the new German Corporate Governance Kodex applies to stock cor-
porations that are listed on the German stock exchange and is expected to set
standards for corporate conduct that will be applied by German courts in the future.
Notwithstanding the new legislative atmosphere, a growing number of compa-
nies have themselves recognised the business benefits of well-defined corporate
social responsibilites, policies and practices. This recognition is supported by a
body of empirical studies, which demonstrates that developing corporate social
responsibility strategies has a positive impact on business’ economic performance,
enhancing shareholder value. This, in turn, can be translated into a marketing tool
to benefit the future performance of the company.

Corporate social responsibility and the law

In 1970, Milton Friedman wrote that the social responsibility of business is to
increase its profits. He went on to say that the most appropriate social goal for a
corporate executive is ‘to make as much money as possible while conforming to
the basic rules of society, both those embodied in law and those embodied in ethi-
cal custom.’ Further, that seeking any goal other than making money, subject to
law and ethical custom, was illegitimate.
However, the law is made by the legislature in response to public and political
concerns. Policy goals evolve from public dialogue (Posner 1995). Once a consen-
sus has been achieved, legislation is drafted to achieve those policy goals. The law
incorporates democratically determined values, which have been discovered as a
result of creative reflection, empirical enquiry and open dialogue with stakeholders
(Posner 1995). Some values may be procedural in nature, indicating that notice is
given to affected parties and an opportunity to be heard. Other values may be utili-
tarian in nature, determining the weighing of effects to all involved parties. Such
values are context-dependent and subject to re-evaluation, but still provide a value-
based (as distinct from a power-based) reference to corporate social responsibility.

The new regulatory atmosphere

The USA
A new era of corporate governance and oversight began the moment President Bush
signed the Sarbanes-Oxley Act in 2002, with chief executive officers (CEOs) and
chief financial officers (CFOs) becoming personally responsible for their companies’
disclosures. Many of the provisions of the Act became effective immediately and the
new rulemaking initiatives were combined to lay the foundations for a developing
new corporate order of required internal procedures, checks, oversight and stan-
dards, as well as expanded external liability when companies are not complying.
The corporate board structure is now a combination of both federal and state
law, in which CEOs and CFOs are exposed to significantly increased personal liabil-
ity, including long prison sentences for intentional non-compliance.
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Stakeholder theory 89

The Sarbanes-Oxley Act has been called the most significant securities legislation
in more than a generation. One of the stated objectives of this change is to provide
markets with more timely and transparent information, in addition to increased
protection for shareholders. The first series of new rules became effective on
5 September 2002 and many senior executives recognised this as an opportunity to
raise shareholder confidence by filing their statements early.

The effects of the Sarbanes-Oxley Act (SOX) beyond the USA

The directors of the former Worldcom organisation are to face criminal charges for
their alleged role in providing false information to investors. Although directors of
any overseas company listed in the USA are already exposed to this area of poten-
tial liability, including, indirectly, directors of overseas subsidiaries of American
companies, the new Act extends to include these companies and, more particu-
larly, to individual directors, to impose criminal liability and financial penalties on
those in breach of the new regime.
Directors are required to certify, personally, the accuracy of the financial state-
ments of the company in addition to certifying that the company has established
and maintained internal financial and disclosure controls that they have evaluated
within 90 days of giving that certification. Failure to give a true certification is a
criminal offence under the USA’s law. Fleeing the USA’s jurisdiction will not protect
the director of a foreign company as the long arm of the Sarbanes-Oxley Act pro-
vides for extradition proceedings, if certain criteria are fulfilled.
The Act also extends the restrictions under UK law on company loans to direc-
tors or senior executive officers, with no exception for loans of low value. Officers
and directors could also face penalties for financial misstatements, including forfei-
ture of bonuses or other rewards. In addition, the USA’s Stock Exchange
Commission has new powers to require a company to disclose its code of ethics for
its senior financial officers (Ranchhod and Park 2004).
Many of the USA’s regulations differ from and, in some respects, conflict with
the UK’s corporate governance and audit codes, but directors need to be aware of
these differences as it may soon be a requirement for them to explain how the UK’s
rules differ from those in the USA. Directors of UK-based subsidiaries of US corpora-
tions need to introduce more rigorous internal procedures and sign internal audit
certificates in order to assist their main board in the USA in complying with their
new obligations. This may have an effect on plans for listings on the stock
exchange in New York. For example, Porsche abandoned such plans three years ago
on the grounds that the liability imposed on individual directors was incompatible
with the German concept of collective responsibility of the board.

The UK’s proposals

The ‘Review of the role and effectiveness of non-executive directors’ (the Higgs
Report), published in the UK in January 2003, produced proposals in relation to
the roles and responsibilities of non-executive directors (NEDs) in public limited
companies. The proposals give a much higher profile to NEDs, giving them greater
powers and authority with regard to corporate governance, but also greater
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90 Chapter 3 / Stakeholder concerns and solutions

personal liability. To ensure that greater care is taken of corporate governance mat-
ters, it is advised that generally, the senior independent director and NEDs meet
regularly with both management and major shareholders.
The general approach proposed by the Higgs Report is ‘comply or explain’. In
order to do this, a company’s annual report must outline the approach taken by
the company to the various guidelines set out in the code.
In the same month, a Financial Reporting Council group chaired by Sir Robert
Smith produced the ‘Combined code guidance for audit committees’. They referred
to the Higgs Report and aimed to produce an integrated approach to corporate gov-
ernance within the UK, but also highlighted where the UK system may differ from
those of other jurisdictions.

The European approach

There is growing evidence of a new approach to company law harmonisation in
the European Union in the wake of the Enron and Worldcom scandals in the USA.
In September 2001, the European Commission established the High Level Group of
Company Law Experts ‘to define new priorities for the broader future development
of company law in the EU’. The committee’s mandate was extended further after
the Enron scandal, to cover corporate governance and auditing issues, such as the
role of NEDs.
The final report – ‘A modern regulatory framework for company law in Europe’ – is
known as the Winter Report after the group’s chairman, Jaap Winter, and was pub-
lished in November 2002. The corporate governance issues it identifies begin with
disclosure, which is described as having ‘a pivotal role in company law’. Central to
the report’s recommendations on corporate governance is the belief that listed com-
panies should be required to include a corporate governance statement in their
annual report and accounts. This must be a coherent and descriptive statement of the
governance rules that are being applied, but the key input for corporate governance
codes should continue to come from the markets and their participants.
Despite its general reliance on disclosure in place of direct regulation, in some
areas the Winter Report seeks to increase the number of sanctions available against
directors and accordingly proposes that all board members should be made legally
responsible for the ‘probity’ of financial statements, a Europe-wide rule imposing
liability on directors for wrongful trading should be introduced and a Europe-wide
director’s disqualification regime should be considered.
While the proposal to increase the responsibility of board members for state-
ments represents a potential increase in liability, the governance recommendations
might present potential opportunities. As a response to the Enron and Worldcom
scandals, the Winter Report is generally considered to be mature and responsible.

The roles of shareholders

Shareholder activism is encouraged in the UK and USA. As key stakeholders, share-
holders are urged to exercise their voting rights. Shareholders can join forces to
strengthen their position against company management. As companies are priva-
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Stakeholder theory 91

tised, more shareholders in the USA with overseas shareholdings are demanding a
greater say in the governance of companies in Europe. The advent of the euro and
the Single Market is expected to hasten the move towards a more Anglo-Saxon
model of open shareholding and transparency of disclosure.
In reality, there are strong national interests at play. The tussle is between global-
isation and national interests. In this sense, the government and key shareholders
should be seen as major stakeholders wielding a great deal of power. Many of the
systems in Europe favour a slow, stable form of organisation rather than the rapidly
changing, market-led, entrepreneurial systems that exist in the UK and USA. In any
study of organisations, this area of stakeholding should be considered carefully.
Read the following case study and consider which key stakeholders are
important in different countries. How can marketing be affected by poor
stakeholder management?

CASE STUDY FT

Image in the balance

The past year has seen a serious run on business corporate kudos, the proportion of compensation can
reputations. Uncertainties after September 11, be significant. In the UK and Germany it was more
corporate scandals such as the collapse of Enron than 40 per cent and in the US just over a third.
and the decline in economies across the world have Furthermore, reputation management increasingly
all had an impact on the image of business and of has a place at the boardroom table. The UK and
CEOs. In spite of this, a survey in Europe and North Belgium led the pack on this, with
America shows that chief executives still believe 62 per cent and 69 per cent respectively reporting
their own reputation is vitally important to their that the board was involved in monitoring corporate
company’s image. Hill and Knowlton’s Corporate reputation. In the US the figure was just over a third.
Reputation Watch 2002, conducted by Harris But here is the challenge. Reputation, rather like
Interactive, examined the views of more than 800 beauty, is something that largely exists in the eye of
CEOs and senior managers in nine countries. the beholder. For corporations, that beholder is the
Eighty per cent of US business leaders see their myriad stakeholders whose perceptions combine
reputation as a significant influence, compared across interests and geographies to create a corporate
with 56 per cent in the UK and 50 per cent in reputation. So while companies may be
Europe as a whole. Of course, it is not just about remunerating chief executives on the basis of their
the boss. Nine out of 10 CEOs said the customer’s ability to affect reputation, how are they measuring
opinion was the most important factor in shaping something that exists in a million different minds?
reputation. Employees’ attitudes were rated as the Well, measuring it they are. According to the
second most important determinant. survey, more than 75 per cent of international
For business leaders, reputation is not an abstract companies have corporate reputation
concern. The survey showed there is a growing measurement systems in place. For those based in
tendency for CEOs to be at least partly remunerated the UK and the US, the figure is at 80 per cent or
according to their ability to affect corporate above. These systems are a mix of formal and
reputation, ranging from 13 per cent of CEOs in informal metrics, although a significant number of
Germany to 44 per cent of those in Italy; in the UK companies measure only on the basis of informal
and the US, the figures were 26 per cent and 29 per systems such as word of mouth. And here is a
cent respectively. Where CEOs do receive cash for potential problem: word of mouth is one of the

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92 Chapter 3 / Stakeholder concerns and solutions

Case study continued

most powerful marketing and communications use media coverage and published rankings to
tools but to measure reputation purely by what measure corporate reputation. With the exception
the corporate ear picks up suggests that reputation of those in Belgium, international CEOs are more
management may not, after all, be receiving the likely than those in the US to use p/e ratios to
attention it deserves. measure corporate reputation. Despite the plethora
There is no denying that word of mouth has an of measurement techniques, the survey reveals
important place in the measurement of corporate some gaps. CEOs in all countries appear to pay
reputation. But it alone cannot provide the more attention to influences on reputation with
balanced view that international companies in which they have most personal contact, such as
particular need. Sensibly, most companies go customers, employees and print media. They are
beyond word of mouth, opting for formal research less concerned by those with which they have less
such as financial performance, media coverage, personal contact, such as the Internet and
industry rankings, analyst commentary and even campaign groups. Nevertheless, there is grave
price/earnings ratio (the higher the p/e, the more danger for them in underestimating the power of
positive the market). But across different markets, such groups. The survey shows the continuing ways
different measurement techniques enjoy different in which CEOs are attempting to manage their
priorities. Formal customised research is undertaken reputation. What the data cannot reveal is how
by 50 per cent of international companies and is, long it will take for those techniques to reverse the
on average, the second most popular technique. In damage done by corporate scandals.
Italy and the Netherlands it tops the bill. Source: Andrew Pharoah, ‘Inside track: image in the balance’,
In Germany and the UK financial performance Financial Times, 16 September 2002
ranks as the second most important measurement. (The writer is the Managing Director, Public and Corporate Affairs,
German companies are more likely than others to at Hill and Knowlton.)

Non-governmental organisations (NGOs)

For most profit-orientated organisations, non-governmental organisations or NGOs
are a real force to be reckoned with and represent key stakeholders who often deter-
mine the success or failure of particular marketing strategies. Examples of this are
the pressures put on business organisations by groups such as Greenpeace, Friends
of the Earth and charities such as Oxfam or Christian Aid. Such organisations play
a key role in pushing the agenda of social responsibility firmly into the courts of
the companies involved in profit-seeking activities, in any corner of the world. For
instance, recently, Monsanto’s very public foray into publicising genetically modi-
fied (GM) foods, and even setting up an expensive website for this purpose, ended
in a public relations disaster. The [company’s] demise was hastened by very public
denunciations of their activities by groups such as Friends of the Earth and also by
their graphical portrayals on their website. The Friends of the Earth developed a
web page featuring a ripe tomato with a blue eye, which rotates, and a leaf tail,
which wiggles. This grotesque, Frankenstein image captures the notion of the
introduction of a fish gene into the vegetable. Another powerful and emotive argu-
ment that is also used by opponents of GMOs is that modified genes introduced
into particular foods, such as oil seed rape, could ‘migrate’ to other species of wild
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Stakeholder theory 93

plants. They argue that, in the case of a mistake, the danger will be spread to all
flora and fauna. Paul Moroney, Hampshire spokesman for Friends of the Earth
environmental organisation, said, ‘Genetic pollution is irretrievable and, unlike an
oil spill, cannot be cleaned up’ (Simpson 1998).
The pressure applied by the NGOs can turn around company policies. For exam-
ple, see the following case study from a Greenpeace article.

CASE STUDY

Novartis buckles as Greenpeace reveals GE soya in its baby products

Dear Mr Heinzer,
With respect to today’s demonstration at the St Johann, Basel, headquarters of Novartis AG, we understand that
representatives of Greenpeace allege that our affiliate Gerber is selling in the Philippines products intended for con-
sumption by infants which contain genetically modified ingredients.
We will investigate these serious allegations without delay and, once we have a full understanding of all the facts,
we will take appropriate actions.
Very truly yours Felix Raebe Head media relations Novartis International

Basel, Switzerland, 21 August 2001 asked Greenpeace Southeast Asia campaigner in the
Gerber/ Novartis will investigate its products sold in Philippines Beau Baconguis while presenting the
the Philippines after Greenpeace revealed scientific test results at a press conference in Manila
evidence showing that the company’s baby food (Philippines) this morning. The Philippine Congress
products contained massive amounts of GE soya, filed a bill on 15 August 2001 requiring the
despite its promise a year ago to stop using GE labelling of GMO-derived food and food products
ingredients worldwide. under which the penalty for failing to label would
The company’s decision follows a Greenpeace be 6 to 12 years in jail.
action earlier today in front of the Novartis head- Food products in Europe are mostly GE free but
quarters in Switzerland where activists blocked the unlabelled GE food is sold to consumers in other
main entrance of the building with hundreds of parts of the world. ‘We demand an immediate stop
baby puppets. The puppets were holding protest to Novartis’ double standards policy,’ said Bruno
signs saying, ‘Novartis/Gerber, keep your promise!’ Heinzer of Greenpeace Switzerland in front of the
and ‘Novartis/Gerber, stop genetically modified Novartis building.
baby food!’ On 11 June 1999, Novartis’ Consumer Health
Earlier, Greenpeace sent three products to the head Martin Stefani wrote in a letter to Greenpeace
internationally certified Hong Kong laboratory, ‘Our consumers can be sure that our baby food
DNA Chips, where very high levels of GE contami- does not contain any GMOs or parts derived
nation was found. In the products Green Monggo’s, thereof.’ This was reiterated by Novartis US
66.7 per cent, Cream of Brown Rice, 52.2 per cent spokesperson Al Piergallini, who was quoted in the
and Mixed Fruit, 34.3 per cent of the soya was Wall Street Journal Europe of 30 July 1999 saying: ‘I
found to be genetically engineered. want our mothers to be comfortable’.
These levels of contamination demonstrate In a letter to Greenpeace dated 2 August 2000,
Novartis’ deliberate intention to use GMOs in its Novartis declared it would not use any more GMOs
Gerber baby food products, which are manufac- in its food products worldwide.
tured in Indonesia, in the Philippines. Greenpeace is now urging Novartis to respect its
‘Are Novartis’ promises only valid in rich coun- own pledges not only in rich nations but in all
tries and not in poor ones such as the Philippines?’ countries.

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94 Chapter 3 / Stakeholder concerns and solutions

Case study continued

Scientific understanding of the impacts of genetic know how their food is produced and to refuse to
engineering on the environment and human health eat genetically engineered food.
is extremely limited. Greenpeace believes that citi- Source: http://archive.greenpeace.org/geneng/highlights/food/
zens and consumers worldwide have the right to Aug21–2001.htm

In other instances, organisations such as the World Wildlife Fund (see below) exert
pressure on companies to improve their products so that the worlds’ energy
resources are not wasted. These and other examples illustrate the way in which
NGOs need to be considered as serious stakeholders when developing and execut-
ing company’s marketing strategies, as adverse publicity will not only harm the
company’ image but also deter future streams of money coming from concerned
consumers. The results of these activities impinge on the whole range of stakehold-
ers – from suppliers and the community to actual consumers. Consumers want
eco-friendly and low-energy-use equipment, the surrounding community wants
lower levels of pollution and suppliers having to manufacture the requisite compo-
nents to meet these demands make their own demands in return.
The following case study considers the impact of company strategies on a range
of stakeholders. Identify the key stakeholders affected and the level and power of
the interactions.

CASE STUDY

Keep cool, keep clean – a deal to save the climate

Most of us try to do what we can to fight global cli- accounts for a third of domestic electricity. So if a
mate change, but a deal between WWF and AEG, dramatic increase in carbon dioxide emissions
the German appliance manufacturer, aims to show caused by new coal-fired power stations is to be
how companies can use energy-saving technology avoided, an improvement in energy efficiency is
to work towards the goals of cleaner power and effi- needed. That is why WWF-Germany has been work-
cient energy use. ing with selected companies to commit themselves
Innovative and environmentally friendly prod- to less and greener power consumption.
ucts are now part of our daily lives. We use ‘It was clear that if we wanted to have an effect
fuel-efficient cars, better housing insulation, on power consumption, it was not enough just to
energy-saving lightbulbs and domestic appliances. target the consumer,’ says Dr Stephan Singer, Head
This is all helping to achieve the targets for cleaner of the Energy and Climate Department at WWF-
power production and more efficient use of energy Germany. ‘It was vital to get the manufacturers on
proposed by the conservation organisation WWF. board.’
Germany has ambitious goals in the fight against In 1997 WWF struck a deal known as Consensus
climate change. It aims to reduce carbon dioxide, 25 with AEG, the German maker of domestic appli-
the main global warming gas, by 25 per cent by ances, which has an overall market share of 10 per
2005. At the same time, however, it wants to phase cent and is already well known for its green policies,
out carbon-free nuclear power production, which its transparency and its openness. Publicly support-

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Stakeholder theory 95

Case study continued

ive of WWF’s climate and energy policy objectives, ‘The AEG agreement is a very good indication of
AEG was also in favour of an ecology tax. So it was what the domestic appliance industry can do if it
no surprise that, unlike more conservative compa- has a mind to,’ says Dr Singer. ‘It also supports
nies, AEG committed itself to reducing the energy moves towards an EU-wide ban on inefficient
consumption of five of its leading products between appliances and will set strong energy efficiency
1995 and 1999. Its commitment has been recognised standards.’
by making Consensus 25 a Gift to the Earth in AEG is now marketing efficient, environmentally
WWF’s Living Planet Campaign. sound cooling appliances. Currently neither ozone-
‘It was calculated that if these appliances sold as depleting substances nor fluorinated super warming
preceding models had, the energy equivalent of the gases (HFCs) are used for cooling or insulation in
annual electricity consumption of a small city in the EU. About half of AEG products are already
Germany of up to 10,000 inhabitants would be labelled ‘A’, and some of these consume 70–80 per
saved’, said Dr Singer. cent less energy than average.
Two years later most of AEG’s new ‘green line’ It is estimated that if all new new technology is
appliances have proved to be both energy efficient category ‘A’ from 2003 onwards, the annual saving
and successful, saving 20–50 per cent of the usual will be in the region of 16 million kilowatt hours of
consumption of electricity. The limits of energy effi- electricity. Careful calculation of Germany’s energy
ciency for some products, however, were consumption reveals that if all German producers
demonstrated by cookers, which, while saving elec- marketed only the ‘A’ models, one coal-fired power
tricity, took ten hours to bake a cake. This suggests station of a capacity of at least 50 megawatts, the
that the logical next step is to increase the availabil- amount of energy consumed by at least 100,000
ity of renewable energy sources, which is why people, could be closed.
improving the supply side of energy is the second ‘If other appliances, such as dishwashers, washing
target of the WWF campaign. machines, televisions, computers, videos and so on
Meanwhile, AEG has committed itself to an even made similar technological improvements, the
more ambitious target after negotiation with WWF. international debate on shutting down nuclear
Within the next four years the company has under- power plants and complying with climate targets
taken to sell only fridges and freezers classified ‘A’ would be much easier,’ said Dr Singer. ‘WWF is very
under the compulsory European Union labelling excited by the possibilities that this kind of deal
scheme. This means that products are classified offers, and we hope it will show the way for other
from ‘A’ to ‘G’ based on their power consumption, companies.’
with ‘A’ products consuming at least 45 per cent less Source: Kyla Evans, www.panda.org/news_facts WWF International,
electricity than average. Gland, Switzerland

Customers
Customers are the lifeblood of any organisation. Organisations not only have to be
receptive to their needs and wants but also understand them (see Chapter 1).
Customers as stakeholders are in a powerful position to either accept or reject a
company’s offering. It could be argued that companies spend vast amounts of
money on this stakeholder group in order to cajole and coerce them to purchase
their goods. Generally, this takes place through branding strategies. Customers are
often attracted to companies with a good brand image, that can offer long-lasting
and good-quality products. Increasingly, customers are also loosely connected to
NGOs and, in many ways, can direct company strategy towards developing envi-
ronmentally sound processes and products.
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96 Chapter 3 / Stakeholder concerns and solutions

Recommendations

Brand equity Customer equity Retention equity

Value equity

Figure 3.3 Factors driving customer equity

Source: Adapted from Rust et al. 2000

Classical marketing theory regards customers as supreme entities, whose needs

should be profitably satisfied by a company. For many years, companies have tried
to follow this philosophy. However, many companies realise now that customers
could be their best marketing ambassadors, as long as they are loyal to their prod-
ucts and values. Increasingly, therefore, companies think in terms of relationship
marketing, attempting to create a lifetime association with customers. As a philoso-
phy for the future, it could be argued that customers should not only be satisfied
but also retained (Rust et al. 2000). Firms should maximise customer equity by
addressing its three key drivers.
 Value This covers aspects of a customer’s objective assessment of the utility of a
brand, based on perceptions of the value of the exchange process (money for
goods/services).
 Brand This is the customer’s subjective and intangible assessment of the brand
above and beyond its objectively perceived value (see Chapter 5).
 Retention This is a measure of the tendency of a customer to stick with the brand
above and beyond his or her objective and subjective assessments of the brand.

In addition to this, a much neglected facet of a company’s operations is that of

developing satisfied customers who recommend their brands to other potential
clients. This helps customers to decide what and how to purchase, but also
enhances the image of a brand, driving up customer equity.
In the twenty-first century, the marketing focus is increasingly moving away
from brand management and transactions between companies and customers and
towards actually understanding their interrelationships. A company’s value lies in
the lifetime value of its customers rather than just its brands.
The following case study reflects the importance of customers as stakeholders in
an organisation. Increasingly important to these stakeholders is the growth of the
Internet and a situation where information and product exchange processes can be
undertaken in a virtual setting. Customers are also able to post their feelings about
companies and their products in discussion areas, thereby either enhancing or
degrading a company’s image. The case study illustrates how globalisation and the
free flow of information means that large multinationals following country-specific
policies that may discriminate against differing groups do so at their peril.
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Stakeholder theory 97

CASE STUDY

Customers as stakeholders of Nestlé

Chinese consumer, Eileen Zhu Yanling, is suing without notifying the court. The results this time
Nestlé for not labelling Nesquik to indicate were predictably negative. The court has refused to
inclusion of GE ingredients in China under accept the results of the second test as evidence.
consumer rights law. The date for the court hearing has yet to be set. Zhu
What motivated a mother from Shanghai to is demanding compensation of 13.6 yuan (about
travel halfway around the world to global food US$ 1.6) – twice the price of the product.
giant Nestlé’s HQ in Switzerland? In March 2003 Greenpeace has been campaigning globally to
Eileen Zhu Yanling was shocked to discover from eradicate GE ingredients from food products for
the Internet that Nestlé’s Nesquik milk powder, a many years. Many food products already contain
product she had been buying regularly for her GE ingredients, so until these can be phased
three-year-old son, contained GE ingredients out and replaced by natural ingredients we have
without this being indicated on the label. been pushing for those products containing
Zhu’s shock turned to anger as the thought of GE to be labelled so that consumers can make
unknowingly feeding her son GE food preyed on an informed choice.
her mind and she decided to sue the company for We heard about Eileen Zhu Yanling’s case in
violation of her consumer rights. Zhu wrote to September and committed to helping her take her
Nestlé’s headquarters in September last year about concerns directly to Nestlé’s top management on
inconsistencies in their labelling policy but was not 16 December last year. At the meeting a Nestlé
satisfied with their reply. representative told Zhu that they would continue to
Zhu’s anger was compounded by her previous sell GE products worldwide with the exception of
trust in Nestlé’s products. Nestlé was one of the first Europe where consumer rejection is strong. Nestlé’s
foreign food companies to become established in response has only strengthened her resolve to
China and Zhu grew up with Nestlé products. She continue her fight. ‘I am very disappointed by Nestlé’s
had also studied in Switzerland and was even taken response. I have travelled to Switzerland to tell them
on a tour of Nestlé’s Vevey headquarters by a friend. the concerns of Chinese consumers, but Nestlé does
Zhu is aware of the strict GE labelling regulations in not seem to care.’ Zhu said after the meeting.
Europe and feels very strongly that large global The meeting was conducted after Zhu gave a press
companies like Nestlé, irrespective of national conference in Lausanne. She demanded that Nestlé
variances in these regulations, should give the same adopt the same policy in China as in European
information about ingredients to consumers countries and eliminate GE ingredients from its
whether they’re in Europe or China. products. She is also calling on the company to
‘I am angry because Nestlé has not been truthful. respect consumers’ rights to an informed choice by
This is disrespectful to Chinese consumers. I properly labelling its GE products during the process
believe Chinese consumers have the right to know of phasing out of GMOs. Nestlé rejected both
and to choose what they are buying for their demands during her meeting.
families’, said Zhu in a letter she delivered ‘My demands were met with outright rejection.
personally on her visit to Nestlé’s Swiss Nestlé is unconvinced that Chinese consumers are as
headquarters on 16 December last year. concerned as European consumers on food safety
In June 2003, Shanghai 2 People’s Intermediate and consumer rights. I will continue my fight and I
court accepted Zhu’s case and in August, with will also ask more Chinese consumers to support me.
Nestlé China’s agreement, the court commissioned Only a concerted voice from Chinese consumers will
a laboratory to test Nesquik for the presence of GE make their voices heard by Nestlé’, said Zhu.
ingredients. The test was positive and was accepted Zhu’s battle against Nestlé has been receiving
as evidence by the court. Nestlé subsequently blanket coverage in all of China’s main media
commissioned another laboratory independently markets and was also well covered in Switzerland.

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98 Chapter 3 / Stakeholder concerns and solutions

Case study continued

Many Chinese consumers are very well aware of one of China’s most popular websites, to denounce
Zhu’s fight against Nestlé with many of them Nestlé’s double standards. Many angry Chinese
venting their anger on China’s leading Internet consumers followed up their virtual action with real
sites. This is clearly a story that Nestlé wish would action – newspapers reported that products were
go away but interest in the case continued at a press being returned to Nestlé’s offices.
conference held in Shanghai today with over 30 On the apparent double standards that Nestlé
media in attendance, including Chinese state seem to be applying to its operations in different
broadcaster CCTV. parts of the world, and their claim that loopholes in
Eileen Zhu Yanling is a very impressive character labelling regulations in the ‘developing’ world are
and we are sure that she will eventually get a not their fault, Zhu has this to say: ‘Nestle and
satisfactory response from Nestlé. She does not see other large companies should help develop rules,
herself as a ‘consumer champion’: ‘As a member of not exploit them [if they want consumers to
society I have a duty to promote individual rights continue buying their products]’.
within China’s business environment. The rules for Eileen Zhu Yanling is ready to regain her trust in
business practice must be fair to everybody’. Nestlé if her demands are met with action and
Since March last year, Zhu has consciously thinks that they could be a model company in
avoided buying Nestlé products, whenever there is China if they respect consumer rights. She is
a choice so if Nestlé want to maintain a stake in the willing, along with other consumers, to work
huge Chinese market we strongly advise them to closely with companies to try and effect change
listen to Zhu and the many Chinese consumers and to realise their corporate responsibility.
‘I am making these demands because there are
rallying behind her.
millions of mothers in the world who trust
Zhu´s case, the first of its kind in China,
Nestlé to provide their kids with nutritious food.
exemplifies the growing concern about food safety
Please do not abuse the trust of these mothers and
and consumer rights among urban Chinese
their children!’
consumers. On 6 December 2002, Greenpeace
released news about Nestlé selling unlabelled GE Source: ‘Zhu Yanling’s long march for consumer rights: Chinese
consumer challenges Nestlé’, 7 January 2004, available at:
products in China. Within two days, more than www.greenpeace.org/international/news/chinese-consumer-
5000 people cast their vote on www.sina.com.cn, challenges-ne

Suppliers
Suppliers generally have a symbiotic relationship with a company. They are major
stakeholders who help in the production processes by supplying components or
systems. The way in which a supplier can affect a company’s well-being is depend-
ent on its power (Porter 1985). Suppliers can influence production costs. If there
are only a few suppliers in a marketplace, then they can be powerful. If the sup-
plier’s products are necessary for production, this also means that they can wield
considerable power. Suppliers, in most cases, are a complex set of stakeholders.
Some may have a great deal of power; others may be much less powerful. A quick
overview of a company’s suppliers shows the complexities. For example, a clothing
manufacturer is often dependent on:
 electricity companies
 water companies
 machine suppliers
 textile manufacturers
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Stakeholder theory 99

 packaging companies
 designers
 thread manufacturers
 gas suppliers (for heating)
 vehicle dealers (for transportation)
 computer suppliers
 robot designers and suppliers.

This is just an illustrative list and is by no means exhaustive. Nonetheless, it under-

lines the fact that, when we consider the word ‘supplier’ for a company, we usually
mean a range of suppliers with differing inputs into the company’s products. A com-
pany is also dependent on advertising agencies, for example, to supply them with
their branding and advertising strategies. Without this complex web of supplier
interactions most companies would not be able to survive. In any strategy, therefore,
the power of the key suppliers needs to be assessed and understood. Companies
today are often based on networks of alliances, and the suppliers are an integral part
of these networks and value chains. As stakeholders and suppliers value these net-
works, they look for long-term relationships that are not frequently disrupted.
The following case study gives an example of the kinds of factors that affect
these relationships.

CASE STUDY

Losses cut as Martin wins back M&S deals

Shares in Martin International received a boost yes- as a menswear supplier from 2002. Martin currently
terday when the clothes maker announced it had supplies M&S with lingerie, nightwear and ladies’
regained its Marks & Spencer knitwear contract. leisurewear. Finance director David Sadler said:
Martin also reported that half-year pre-tax losses ‘We’re not pleased to be reporting a first-half loss
to June had fallen from GBP1.85 million to but we are encouraged by the reinstated contract
GBP236,000. The shares rose 1p. The company cited and are looking for a profit of about GBP250,000 at
heavy knitwear losses and restructuring costs as rea- year end. Analysts said that, despite difficult market
sons for the previous year’s poor performance. It conditions, a small profit might be realistic now
spent GBP1.27 million downsizing the knitwear arm that Martin had regained the important knitwear
in the first half of 2000. First-half sales dropped by 10 contract. Martin is not supplying materials for the
per cent to GBP46.7 million, blamed on the lack of a new M&S womenswear range Per Una launched
spring knitwear order from M&S, its major customer. yesterday.
But the retailer is reinstating its knitwear deal Source: Jessica Brown, The Daily Express, 29 September 2001
with Martin this autumn and will use the company

The article shows the power of the relationships between suppliers and buyers. In
this instance, the interaction between the buyer and the supplier, in their positions
of stakeholders, is the crucial factor. The power of the buyer (Marks & Spencer)
nearly brought Martin to its knees and, paradoxically, also looks likely to revive its
fortunes. The article illustrates the evolving nature of stakeholder management and
the importance of power and time in understanding relationships.
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100 Chapter 3 / Stakeholder concerns and solutions

Employees
Employees are important stakeholders in any organisation. They are individuals
who have made a commitment to work for a particular company and devote their
time and skills to it for monetary reward and satisfaction. Employees are rarely
homogeneous and every organisation requires a range of skills that adds to its
market value (Doyle 2000). A good mix of key skills sets a company aside from its
competitors. Employees are also board members in many companies in Europe, as
we saw earlier. Employees range from management to secretarial support to shop
floor workers, each operating in a complex web of interactions. A particular and
unique web of interactions also helps to create competitive advantage for a com-
pany and, because of this, companies are often defensive about public exposure of
their work systems.
In many cases, employees are also shareholders in their companies, either by
design (company share options as bonuses or rewards) or by choice (individuals
purchase shares). In each case, as shareholders, employees will be looking for long-
term growth in their shares. As shareholders, they also play an important role in
determining this potential growth (or decline) of the shares’ value. As Hamel
(2000) says, ‘Entrepreneurs won’t work for peanuts, but they will work for a share
of the action.’ Research by Strategic Compensation Research Associates found that
the average Internet company had issued enough share options to employees to
dilute normal shareholders by 24 per cent (if exercised) (Krantz 1999). All this
shows that employees are an important, but complex group of stakeholders.
Employees, under various legislative acts in different countries, are able to indi-
vidually raise and follow up issues that bother them under the general umbrella of
corporate social responsibility. The case study below illustrates how an employee
can complain about dubious practices within a company. However, in this case, as
the interests of other stakeholders were threatened, he was ostracised.

CASE STUDY

Bhatia v. Sterlite Industries (2001)

PIDA’s (Public Interest Disclosure Act) application Industries was supplying about a $5 million initiative
overseas; Detriment: threat to destroy the for a proposed listing on NYSE was misleading and
whistleblower was a detriment; £800,000 award would breach its legal rules. This concern was then
properly addressed. Bhatia subsequently raised a
Bhatia, when visiting family in India, saw a job ad for concern internally that the proposed dilution of
a senior post at Sterlite Industries, working on mergers equity in an Australian company, contrary to an
and acquisitions for its chairman in London and paid understanding, would breach Australian legal rules. As
in US dollars. Bhatia applied and was appointed. ET a result of these concerns, ET found that the chairman
accepted jurisdiction and found that, within two threw his digital diary at Bhatia and threatened to
months, Bhatia had raised concerns about breaches of destroy him, prompting Bhatia to leave. Bhatia was
US and Australian stock exchange rules. He had raised awarded £805,000.
these concerns internally and to the relevant Source: Public Concern at Work
investment bank that the information Sterlite www.pcaw.co.uk/policy_pub/case_summaries.html
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Developing competitive marketing strategies 101

Shareholders
Shareholders are often the key stakeholders within an organisation as they are the
institutions and individuals who actually risk their funds in supporting it. The
shareholders’ interests vary, as do their goals and investment horizons. In almost
all OECD countries, basic shareholder rights include those to:
 secure methods of ownership registration
 convey or transfer shares
 obtain relevant information on the corporation on a timely and regular basis
 participate and vote in general shareholder meetings
 elect members of the board
 share in the profits of the corporation.

In addition to this, shareholders are entitled to vote in general meetings and have
to be consulted when any fundamental corporate changes are undertaken.
Shareholders may have different voting rights according to what class of shares
they hold. In return for risking their funds, shareholders are looking for economic
and profit growth and can influence a company’s chances of success by building
on their shares or by withdrawing them. As stakeholders, they are generally quiet
when the returns on their holdings are reasonable. Doyle (2000) argues that the
shareholder value principle is that a business should be run to maximise the return
on shareholders’ investments.
The most powerful group of stakeholders in any organisation, shareholders are
increasingly moving their capital around within a global environment. They can
be fickle and can look for short run equity growth within companies. For this
reason, shareholder communications is an important part of most companies’ mar-
keting communications strategies.

Community
Communities are stakeholders as they are affected by the economic impact of com-
panies within their locality. In many cases, business organisations also affect the
local environment. The issue of communities as stakeholders is discussed in more
detail in Chapter 4 on sustainability.

Developing competitive marketing strategies

This section is concerned with understanding how the interactions between stake-
holders can help a company to gain a degree of competitive advantage in the
marketplace.
The management of the different stakeholders’ interests is a potential source of
competitive advantage (Jones, 1995; Donaldson and Preston 1995) in part because
managing them well reduces (Dyer and Singh 1998; Preston and Donaldson 1999).
There are also arguments that stakeholder management is a condition for
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102 Chapter 3 / Stakeholder concerns and solutions

long-term survival, given its moral dimension (Jones 1995). Proper management of
the different stakeholders, therefore helps a company to
 reduce the costs of managing relationships
 add a social and ethical dimension
 take a long-term view
 develop a competitive advantage over its rivals
 enhance and develop marketing relationships.

Conti (2004) feels that organisations need to begin to regard stakeholders as a

strategic asset. In order to do this, it makes sense to take a systematic approach to
the interactions between the company and its stakeholders. Within a systematic
view, it may be possible to ascertain certain problems that may arise in such a
system. For instance, in Figure 3.4, stakeholders are shown to be either in the inner
ring or on the outer ring. Problems can arise when there are power conflicts in the
inner circle or if a stakeholder from the outer circle wishes to move into the inner
circle in order to be a part of the centre of the company.
Examples of the kinds of conflicts that could arise are as follows.
 Pressure from the stockmarket demanding short-term profitability In the USA, such
pressure is common as quarterly results are posted, while, in the UK, there is an
equal pressure on companies regarding their six-monthly disclosures. In these

BOARD

Out
er
rin
The stakeholder system g
Society

Inn
er
Em rin
plo g
yee
s

Company

s
der
r ehol
Sha

Business partners

CUSTOMERS

Figure 3.4 The company stakeholder system

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Developing competitive marketing strategies 103

circumstances, there could be an excessive pressure on CEOs to perform, making

them both more powerful and more vulnerable, as the two case studies on Marks
& Spencer illustrate. A CEO could become despotic, creating an imbalance
among the key stakeholders – represented in Figure 3.4.
 Conflict between employers and employees. Historically, especially in Europe this
has been a flashpoint. However, more recently, arbitration takes place and com-
panies value more their human resources, so a balance between the stakeholders
is created and maintained.
 State intervention Imbalances between stakeholders can arise when there is exces-
sive stakeholder intervention. Many of the previously communist-run
economies had this problem and companies under these regimes were simply
not market-orientated, struggling with economic reform. Interestingly, there has
been controversy related to stem cell research in the USA, with President Bush
speaking out against embryo cloning. This is having a direct impact on compa-
nies and scientists that rely on government-sponsored research. California, a
state that has one of the largest economies in the USA, supports such research
and is likely to go ahead on its own (Weise 2006). However, further problems
may arise when it is not possible to clearly separate state and federal funding.
Whether right or wrong, interventions of this sort can have a major impact on a
company’s employees and shareholders, not to mention the wider community
that may eventually benefit from the products of such research. This has led to
some scientists and companies relocating to the EU, where the legislation is
more accommodating.

Most organisations are parts of networks and have to manage these networks
effectively. The following discussion attempts to outline a logical manner in which
stakeholders could be managed by an organisation.
There are three steps to take when developing a management strategy for
stakeholders:

1 identify a company’s stakeholders as fully and as clearly as possible

2 understand and examine the relationships between how stakeholders are man-
aged and an organisation’s goals and objectives
3 incorporate the interests of the various stakeholders into the development of a
corporate and marketing strategy.

The key question here is the level of involvement of each stakeholder in corporate
processes and decisions. ‘Involvement, also means that companies have to be pre-
pared to spend money or time and lavish attention on the stakeholders. Therefore,
the question of which groups will/should receive more attention is important.
Companies could use either a narrow or a broad definition of ‘stakeholders’.

Narrow view
Only select stakeholders that have a direct relevance to the firm’s core economic interests.
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104 Chapter 3 / Stakeholder concerns and solutions

These can be defined as business stakeholders – that is, those that are task-related.
In general, companies are likely to shower more attention on these task-related
stakeholders than on other kinds as they are central to their economic activity
(Mitchell et al. 1997; Steger, 1998; see also the recent empirical work of Berman et
al. 1999).

Broad view
Consider the full range of stakeholders and their likely impacts on the company from
either an economic or an ethical point of view, on a long-term basis.

Research (Greenley and Foxall 1997) suggests that management orientation

towards the varied and diverse interests of stakeholder groups is central to strategic
planning. In many cases, failure to address multiple stakeholder groups may be
detrimental to a company’s performance. However, most organisations are not
only constrained by resource availability but also subject to the external environ-
ment, which includes competitor hostility and general economic activity, such as
market growth. The research showed that the external environment moderates the
impact of multiple stakeholder orientation. Therefore, the following factors should
also be considered:
 competitive hostility
 market turbulence
 market growth
 technological change
 ease of market entry.

The argument, therefore, is that the Miller and Lewis (1991) model of achieving a
balance when addressing stakeholder interests is important, that this is more effec-
tive than selectively directing attention and resources at only particular
stakeholders. Interestingly, the research shows that simply orientating attention
towards particular groups, such as consumers per se, and giving priority to their
interests does not appear to determine an enhanced company performance.
The managerial implication of this is that managers should try to map their task-
related stakeholders and then go further and integrate other institutional
stakeholders. This is linked to the idea that each group might interact with the
others. Certain writers (Rowley 1997) advocate a network theory of stakeholders’
influence:
‘firms do not simply respond to each stakeholder individually; they respond, rather, to the
interaction of multiple influences from the entire stakeholder set’.

Organisations, therefore, have to carefully consider the effect of the level of atten-
tion paid to different stakeholders, as stakeholders themselves are likely to interact
with each other.
Jonker and Foster (2002) discuss the key elements influencing the outcome of
stakeholder relations.
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Developing competitive marketing strategies 105

Legitimacy
Legitimacy is often cited as a criteria in stakeholder management. However, it is
clear that legitimacy depends on particular interpretations of the law and the his-
torical context in which particular laws are applied. Legitimacy can create
problems. These issues surfaced when decisions were being made regarding
Jabulika Uranium Mine in Kakadu National Park, Australia. In many cases, legiti-
macy is determined by the economic system and the government (Bannerjee
2000). The traditional owners of the land, the Aborigines, were regarded as stake-
holders in the debate, but their interests or stakes were not regarded as legitimate. A
similar point could be made about stem cell research, where legitimacy is deter-
mined by the government in the USA. Although the scientists doing this research
can debate their interests, they do not possess legitimate rights to undertake the
research, so their stake is pretty useless. In fact, if they were to carry out certain
research, they could be branded as criminals.

Power
Managing stakeholder relationships is often about managing power and how to
respond to power exerted by various stakeholders. The power could be resource-
based (financial), legal or environmental. The case study on British Biotechnology
a bit later in this chapter demonstrates this aspect of stakeholder managment.

Criticality
This is defined as a moment when a particular event causes a stakeholder to
become important. Passing certain thresholds means that organisations have to
engage in stakeholder relationships with lobby or pressure groups. Most of the
time, these groups may not be interested in the day-to-day activities of the organi-
sation. An example of this would be the USA’s business lobby group, which has
watered down the proposed legislation by the Committee for Foreign Investment
in the United States (CFIUS) and it is likely to make the national security process
tougher for foreign companies buying sensitive assets in the USA. A side-effect of
this could be that other businesses based in the USA or in other countries would
slow down investment in the country (Kirchgaessner 2006).

Rationality
This is based on Habermas’s theory of ‘communicative action’, which is that reach-
ing an understanding requires ‘a cooperative interpretation aimed at attaining
intersubjectively recognised definitions of a situation’. Essentially, this means that
each party has to interpret objective, social and subjective ‘worlds’ in a rational
way. Each party can reach ‘communicative rationality (coordination through
reason) and/or ‘goal rationality’ (egoistic calculations of success). The resultant
action is ‘strategic action’ and the influence on a party is via incentives, sanctions
and force, not necessarily reason.
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106 Chapter 3 / Stakeholder concerns and solutions

This is an interesting view as some stakeholders often have relationships that are
structured like a game of poker, with moves guided by incentives, sanctions and
force. For instance, Mittal Steel finally won the backing of the directors of rival
Arcelor in June 2006 for a merger that will create the world’s largest steelmaker, five
months after first announcing its interest and only after protracted negotiations
that were guided by a whole range of incentives, sanctions and force.
‘We have always sought a recommended merger in the interests of all stakehold-
ers – we are delighted that is what we have now achieved’, a Mittal spokesman said
in a statement. The company added that it had paid a ‘fair price for what is a very
good business’ (Milner 2006). Based on the arguments above, Jonker and Foster
(2002) propose a model that is based on power, criticality and rationality. This
model is summarised in Table 3.3.

Table 3.3 Basic structure of the stakeholder model

Components of the relationship

Stake Parties Process Connections

What are the key Who or what is involved What processes are What forms do the
issues in the involved in managing connections between
relationship? the relationship? the organisation and
the stakeholder take?
Does the nature of What types of power Do some processes What effects does
the claim or stake do the parties result in different the form of
have implications involved use (if types of power connections have on
Power

for the type of required) to obtain a being exercised? the form of power
power involved? result? used? Is power
Elements influencing the outcomes of the relationship

exercised directly or
indirectly?
Why is the interest What is it about the Are the processes How critical or
or stake worth activities, behaviour, important to the important are
Criticality

investing time and attributes of the parties ongoing life the connections
effort in? that makes the issue (operations) of the regarded by each
critical (i.e. important parties? Is it central party?
enough to engage in)? to the decision-
making process?
How is the interest What are the Do the processes and Does the form of the
or stake expressed epistemological and procedures affect the connection
(cognitive, social or ontological perspectives opportunity for the encourage or
Rationality

personal)? of the parties and undertanding based discourage dialogue

how do they influence on a broad or rather than
their view of the issue narrow egocentric claims?
or interest? conceptualisation of
rationality?

Source: Jonker and Foster 2002

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Developing competitive marketing strategies 107

Understanding stakeholder evolution and management

As discussed in Chapter 1, time is important in any issue relating to stakeholder
management for competitive positioning. Neither organisations nor stakeholders
stand still, but, equally, stakeholder patterns may also change as a result of the evo-
lution of an organisation. Understanding an organisation’s approach to its multiple
stakeholders through the stages of its formation, growth and maturity, decline,
revival or death may help to foster a better understanding of its strategies (Jawahar
and McLaughlin 2001). A corporation’s survival and continued success depends on
the ability of its management to satisfy a large and diversified range of stakehold-
ers, giving them wealth, value for money or the satisfaction of incorporating their
concerns into strategy development and implementation. This has to be achieved
without favouring one group over another (Clarkson 1995; Jones and Wicks 1999).
However, this is a rather static view and the stakeholder strategies of any organisa-
tion are likely to evolve over time. The management of stakeholders is likely to be
dependent on the following.
 Resources Organisations are dependent on resources for their survival. As an
organisation grows and prospers, its need for resources will change and so will
the range of stakeholders providing it with particular resources. The organisation
is therefore likely to expend more energy on the group of stakeholders necessary
for its survival and growth than others (Kreiner and Bhambri 1991; Pfeffer and
Salanick 1978). In many cases, the power exercised by the key stakeholders, such
as equity providers, will be considerable (Frooman 1999).
 Opportunities and threats There are many opportunities and threats involved in
the process of managing stakeholders. The way they are handled often creates
situations of loss or gain for an organisation.

Organisations can have different style regarding their approach to stakeholder

relationships.
 Proactive This means that they actively work with stakeholders and address their
concerns. This includes anticipating and understanding the key issues involved.
 Accommodating Having a less active approach to dealing with stakeholder con-
cerns. This strategy involves general interaction with stakeholders, with little
extra activity or anticipation of needs. An example of this approach would be
the generally accommodating attention of a company to the community, with-
out attempting a detailed anticipation of its needs.
 Defensive This strategy involves doing the minimum required to keep a stakeholder
happy. For example, a company may do only what is required of it to address envi-
ronmental concerns, often only as a result of complying with legislation.
 Reactive This strategy involves fighting particular stakeholders or ignoring them
completely.

Companies may need to consider using different strategies for different stakehold-
ers, depending on their stages of evolution (see Figure 3.5).
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108 Chapter 3 / Stakeholder concerns and solutions

All stakeholders Renewed growth

accommodated
Proactive towards shareholders
customers
key employees

Shareholders
Creditors
Key focus Mature stage
Customers
Key employees
Government
Communities
Size

Environmental groups

Decline stages
Emerging growth Reactive to
– environmental groups
– trade unions
Defensive towards
Shareholders – government
Creditors – community
Customers Accommodation
Key employees – employees
Start-up
– suppliers

Time

Figure 3.5 Organisational cycle and stakeholder strategies

Looking at the following case study, consider the evolution of British Biotech and
how it should have dealt with the various stakeholders.

CASE STUDY

British Biotechnology
British Biotechnology began life in Oxford, buying, sending the shares to dizzy heights. The
approximately 13 years ago. As the share chart in euphoria settled down on 12 May 1997 when the
Figure CS 3.1 shows, the company shot to press release in the Financial Times announced
prominence in the biotechnology sector as a ‘British Biotech set for first drug launch’. Senior
company to watch and was even predicted to join managers including Dr Millar, were concerned
some of the top companies in share value. that the Financial Times article would lead the
However, the share price, from a high of 326p in European Agency for the Evaluation of Medicinal
1996, is now languishing at around 20p. The Products shareholders (EMEA) to believe that the
company was the darling of the stockmarket in company would be seeking product approval
1996 when it released a statement that was bullish imminently. This was not the case. The company,
about the prospects for Marismastat, an anti- at this stage, sought and received assurance that
cancer wonder drug. The potential market was media coverage would not affect the progress of its
enormous and this led to a wave of optimistic Marketing Authorisation Approval (MAA).
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Developing competitive marketing strategies 109

Case study continued

significant advances over existing treatments. The

company now has a new Chief Executive, Dr
300
Goldstein, who is to continue the Marismastat
Share price – pence

trials and trials for a new drug, Zacutex. Dr Millar

250 felt that the original team was too enthusiastic
200 about the prospects for the drugs. The New York
and London stock exchanges are investigating
150 share dealings.
100
From a PR point of view, it is not uncommon for
50 many companies to offer possible positive progress
0 reports to the press. The problems with the stock
1992 1993 1994 1995 1996 1997 1998 1999 market arise when the positive press reports do not
Years match the promised results. For some
biotechnology companies, there is only the promise
Figure CS 3.1 The evolution of British
of products and any adverse publicity can affect
Biotechnology’s share price between 1992
their standing in the market. Consumers generally
and 1999
do not understand the intricacies of drug delivery
systems, only their efficacy. They only want news
Products can only be marketed in Europe once that clearly states the prospects or the time frame in
the EMEA extends an MAA. A similar set-up exists which products could be reasonably be expected to
in America and marketing is controlled by the be on market. Many private investors are now
Division of Drug Marketing Advertising and sophisticated enough not to jump when they hear
Communications (DDMAC) within the Food and such stories but wait for greater returns in the
Drug Administration (FDA). future. However, institutional investors may press
By this time, the genie had been let out of the
for shorter-term growth. There are often pressures
bag. In 1998, the Head of Clinical Research, Dr
on the management to divulge only good news, as
Millar, was sacked for opening the debate on how
owners may be worried that any neutral or negative
valuable Marismastat could be. He expressed his
news would mean falling share prices and money is
concerns to Perpetual, the leading fundholder. This
desperately needed for research. Such news could
created a rift between him and Dr McCullagh, the
also be wrongly interpreted as lack of competence
founder, who remained bullish about the drug’s
on the part of the management. The key managers
prospects. With the rift becoming public, it was
inevitable that investors would be nervous about themselves may also own a considerable number
the effects this would have. of shares and so their levels of motivation could
Dr McCullagh was forced to leave by worried also be affected.
shareholders as trials of the drug did not show v
Source: Ranchhod and Gurau 1999

Competitive positioning
It is important when considering developing a comprehensive strategy to try and
understand both a company’s stakeholder strategy and the power exercised by each
stakeholder. To help with this, it useful to consider the following set of questions
and plot the answers on the matrix shown in Figure 3.6 to point up the existing sit-
uation and, therefore, where improvements could be made.
The analysis in the matrix in Figure 3.6 shows the various ways in which British
Biotech had been communicating and dealing with key stakeholders. An improve-
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110 Chapter 3 / Stakeholder concerns and solutions

Power Strategy
High Medium Low Proactive Accommodating Defensive Reactive
Consumers * *
Shareholders *
*
Stakeholder Employees
* *
Press *
*
Marketing
Authorisation * *
Authority (MAA)

Power
Low Medium High

Proactive

Accommodating Consumers MAA

Strategy

Shareholders
Defensive
Employees

Reactive Press

Figure 3.6 Stakeholder strategy/power analysis for British Biotechnology

ment would be for stakeholders to be approached in a proactive manner. The prob-

lems that had arisen as a result of poor stakeholder management had led to a lack
of stakeholders’ trust in the company’s management. The company actually under-
invested in trust. There is always a range of interdependence between firms and
specific stakeholder groups that has to be properly considred by managers (Wicks
et al. 1999). Therefore, in addition to considering the power/strategy matrix, the
level of trust offered or generated should be considered as well. The lack of trust in
this case was likely to hamper the company’s strategic positioning and marketing
activities for many years to come.

Positioning products in markets

As can be seen, competitively positioning a company in the marketplace is depend-
ent on many factors. These factors have to be considered over short-, medium- and
long-term time frames. Only by undertaking a detailed analysis of these issues can
the proper positioning of a company be achieved. Success at this corporate level
lays the foundations for strategic marketing.
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Developing competitive marketing strategies 111

The key factors that have to be considered in conjunction with the strategy/
power matrix are the following:
 competitor hostility
 market turbulence
 technological change
 ease of market entry.

As a result of undertaking the stakeholder analysis and assessment of the key fac-
tors shown in Figure 3.6, companies can develop clear competitive positioning
strategies that evolve over time. Figure 3.7 illustrates the ways in which the various
stakeholder and environmental factors interact and how they should be considered
while developing products and markets.
The various ways in which power is handled and trust developed with stake-
holders contributes to the overall brand image of a company. In considering
competitive positioning and developing market advantage, it is also useful to
remember that stakeholder interests will change over time. Companies that are
aware of these main factors will have a clear understanding of the windows of
opportunity available in a specific moment as a result of certain favourable factors
and sensible management of stakeholders. These companies are the ones most
likely to succeed during this century by taking advantage of flexible product/
market strategies.

Short term Medium term Long term

Competitor hostility

Market turbulence

Technological change

Ease of market entry

Product/market opportunities

Stakeholder interactions: power/trust/ethics

Stakeholder management: proactive/accommodating/defensive/reactive

Product and market development and brand image projection

Figure 3.7 Competitive positioning and environmental factors

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112 Chapter 3 / Stakeholder concerns and solutions

Summary
This chapter has taken a stakeholder approach to understanding how companies
can position themselves in the marketplace. Simple product/market strategies do
not do justice to a company. When dealing in markets, companies have to work on
a range of issues that have an impact on the products or services they offer.
Stakeholders have a major impact, as we have shown in this chapter, and can be
dealt with by being proactive, accommodating or reactive. The turbulence of the
surrounding environment offers both opportunities and threats to companies.
Being successful in the marketplace results from grasping these opportunities,
together with a clear stakeholder management strategy, because this has a direct
impact on the brand image of the company. A positive corporate image helps, in
turn, with the development of sound product positioning strategies within particu-
lar market segments. The competitive advantages of a stakeholder-based strategy,
according to Conti (2004), are that it:
 creates team spirit – a crucial factor in excellence
 creates synergy and a win-win attitude as a result of networking with organisa-
tions that cooperate with an enterprise to achieve particular objectives
 allows smaller companies to accelerate learning if their customers include
demanding and/or supportive larger companies
 helps to create the conditions for an organisation to become a good citizen in an
increasingly global market.

However, any analysis of stakeholders should take a systems approach as a com-

pany can be likened to a tree in a forest. The firm is part of a system and any
perturbations in one part of the system will affect all the other parts. In a forest, a
tree has to compete for resources such as nutrients, light and water, but, at the
same time, environmental factors, such as rain, wind and sunshine, play a signifi-
cant role in its growth and stability. Similarly, a company has to work with its inner
and outer stakeholders to create an equilibrium that benefits the whole system,
leaving it in the optimum position to tackle environmental turbulence.

Chapter questions
1 How can stakeholder management affect customer relationships?
2 What are the limitations of a power/strategy matrix?
3 Discuss the ways in which stakeholder management can improve the brand
equity of a company.
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A sustainable Earth matters

4
Introduction
As the world’s population grows, with some 90 million individuals being added to
the planet each year, many marketers are questioning some of the basic tenets of
marketing. Is it right to expect continued growth? Should we be marketing goods
that are likely to harm the planet? Should marketing concentrate on products that
are ‘green’ instead? These and many other questions are being asked not just by
marketers but also by consumers generally.
In surveys that have been carried out in the last few years, it has been shown
that consumers are concerned about the products that they purchase, although
cost may be a factor in choosing products as well. In Germany, 88 per cent of con-
sumers are ready to switch brands to greener products, while the corresponding
figures in Italy and Spain were 84 and 82 per cent respectively (Wasik 1996). In the
USA, the green market is estimated to include 52 million households (Ottman
1993). In 1996, MORI categorised 36 per cent of its British polls respondents as
‘green consumers’, on the basis that they ‘selected one product over another
because of its environmentally friendly packaging, formulation or advertising’
(Worcester, 1997). This compares favourably with only 19 per cent of consumers
in 1988 (although it continued the steady decline from a peak of 50 per cent
in 1990).
All this makes it important that marketers actually understand and respond to
customers’ needs. Although marketers may attempt to do this, studies seem to indi-
cate that there is a big difference between intent and execution in the marketplace.
Figure 4.1 illustrates how human consumption patterns are now beyond the
Earth’s ability to sustain itself. It appears that consumers do not really wish to slow
down consumption and, even if they have good intentions, most of them do not
seem to be particularly inclined to purchase green products.
This trend is regarded as the 4:40 effect. Most green products struggle to get to a 1–4
per cent market share because, although around 40 per cent of adults believe
in the value of purchasing green products, only around 4 per cent actually
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114 Chapter 4 / A sustainable Earth matters

500

450
Household final consumption expenditure
400 (constant 2000 US$)

Index of usage (100 in 1950)

350

300
Ecological
Earth’s environmental footprint
250
capacity
200

150 World population

100

50

0
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
Figure 4.1 Evolution of population, household consumption and ecological footprint of
the world (1960–2000)
Source: UNEP 2005a, WWF. ‘Talk the Walk: Advancing sustainable lifestyles through marketing and communications’
www.uneptie.org/pc/sustain/reports/advertising/Talk_the_Walk.pdf United Nations Environment Programme

translate this into reality. Promoting sustainable consumption within the general popu-
lace is a real challenge to marketers. In its report ‘Talk the walk’ (UNEP 2005a) Monique
Barbut, a director of UNEP DTIE argues that marketing may actually hold the key to
changing consumer attitudes by incorporating sustainability into the marketing mix:
Sustainable production, sustainable service and product design, sustainable procurement,
green marketing . . . these programmes are all good for the environment, but they are also
good for the economy (saving costs, developing domestic markets, seizing export opportuni-
ties) and they are also good for social progress (helping to spread good labour conditions,
helping to create decent jobs).

This area is discussed in detail towards the end of the chapter.

A further question to ask is: is the provision of certain products and services sus-
tainable? Sustainability is about understanding the interactions of various
stakeholders in an organisation. Maximising profits and looking for short-term
gains in market share may, in the long run, be so harmful to certain groups of
stakeholders that the company itself may suffer bad publicity. These stakeholders
are the employees, local community and government agencies. The main stake-
holder here, though, is probably the planet itself and increasingly, the public feels
that firms should take responsibility for environmental damage inflicted on parts
of the Earth in the pursuit of profit. An example of this is the cost paid by General
Electric Company in the USA for removing 2 million cubic metres of contaminated
sludge from the Hudson River (Anonymous 2001). For 35 years, the company
poured some 500,000 kg of polychlorinated biphenyls (PCBs) into the river, before
they were banned in 1977. Residents living near the riverbank claim to have suf-
fered from a variety of PCB-related illnesses, ranging from cancer to physical
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Understanding environmental marketing 115

deformities. As a result of this, the USA’a Environmental Protection Agency has

decided to remove the sludge and asked GEC to foot the $500 million bill.
In a situation like this, when the factors are complex, the fact remains that the
consumers actually bought electrical equipment that was manufactured by GEC
during all this period and were generally unaware of the pollution problems. The
onus, therefore, remains on companies to ensure that their products, services, and
practices are environmentally friendly and sustainable or not. This information
also needs to filter through to consumers.
In this chapter, we explore various notions of sustainability, ranging from ‘green’
products to sustainable and ethical production. The aim of this chapter is to under-
stand the implications of being environmentally friendly and how, by taking such
a stance, a company could create a sustainable competitive advantage in market-
ing. The consumer paradox and short-termism promoted via stock markets
sometimes does not help companies that are trying to be ethical in their approach.
For example, consider Gap Inc. as discussed by Vogel (2006).
A few years ago the company, like many other apparel retailers, Gap Inc., found itself criti-
cised for the labour practises of its suppliers. It has responded in an exemplary fashion and
arguably now has one of the most responsible and effective programmes to help ensure that
the workers who produce its products are treated fairly. These policies made business sense in
that they prevented its brand from being tarnished by continued activist pressures, and
assured its current and prospective employees that the firm had strong social commitments.
More recently, the Gap has experienced financial difficulties. These difficulties are com-
pletely unrelated to its social performance. Rather they are entirely due to the fact that its
fickle consumers now regard its products as less attractive or appealing than those of other
brands. Not surprisingly, many financial analysts have become less sanguine about its
future earnings and its share price has become depressed. In short, whatever the business
implications of the Gap’s responsible outsourcing policies, investors are either unaware or
uninterested in them. All that matters to them are Gap’s future sales.
This does not mean that the Gap should not have adopted responsible procurement poli-
cies or that it should now abandon them. Nor does it mean that other highly visible
companies should avoid similar policies in order to protect their reputations. What it does
imply is that we should not expect the financial markets to appreciate or reward these
efforts. Instead of bemoaning the unwillingness of the financial markets and the media to
reward CSR [corporate social responsibility] policies, perhaps we should be grateful that they
do not penalise them.

Understanding environmental marketing

For many consumers, the term ‘green’ may evoke a range of different emotions and
understanding. For some, it may mean products that do not harm the environ-
ment, while for others it may mean products that have been made without
harming the environment. Many may include ethical and moral considerations,
such as fair trade with developing nations. For some, it could be charitable ven-
tures, such as Oxfam. From these examples, it can be seen that the term
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116 Chapter 4 / A sustainable Earth matters

‘environmentally-friendly’, encompasses a myriad of meanings for individuals,

depending on their range of experiences and perspectives. The main issue here,
however, is the merging of social concerns with ecological concerns.
Many marketing specialists would argue that such concerns are now inseparable
(Peattie 1995). Other people consider that simply being green is not enough and
ethical issues also need to be taken into account. This is backed up by research into
the notion of ‘environmental justice’ within the USA (Oyewole 2001). The main
contention is that many companies site chemical plants and dump toxic waste
near poor or deprived communities. This is also part of a global concern where
some products are cheaply made by communities that are too poor to complain
about environmental issues, needing jobs and money to sustain themselves.
Sometimes pollution is exported from the rich countries to the poor countries, as
noted by UNEP (2005c):
Every year, 20 to 50 million tonnes of electrical and electronic equipment waste (‘e-waste’)
are generated worldwide, which could bring serious risks to human health and the environ-
ment. While 4 million PCs are discarded per year in China alone.

The key pollutants – e-waste – presently discarded among many are lead, tin, anti-
mony, cadmium, mercury, polychlorinated biphenyls (PCBs), polybrominated
diphenyl ethers (PBDEs), polychlorinated napthalenes (PCNs), nonyl phenols (NP)
and triphenyl phosphate (TPP). All these substances are toxic and create problems
for humans, interfering with their metabolic systems in harmful ways and causing
cancers, bone diseases, internal organ damage and weakening of the immune
system. At the same time, pollutants released into the soil and water systems con-
taminate the ecosystem, with devastating effects on plant and animal life, affecting
the whole food chain.
The main countries accepting e-waste are India and China. As their economies
grow, they will be producing significant amounts of e-waste themselves, an exam-
ple of which is already happening, as mentioned in the quote above. Hand in hand
with this, crisis-ridden governments, such as Indonesia, the Philippines, South
Korea and Thailand, cut back on environmental spending (French 2000). For
instance, in Russia, the budget for protected areas was cut by 40 per cent.
The globalisation of commerce is intensifying the environmental agenda, with
many countries being increasingly concerned about the effects of global consump-
tion trends on the environment. This is shown in Figures 4.2 and 4.3 from the
Worldwatch Institute (2000), which provided the information.

Energy and the climate

As our growing population has intensified the burning of coal and oil to produce
power, the carbon locked in millions of years’ worth of ancient plant growth has
been released into the air, laying a heat-retaining blanket of carbon dioxide over
the planet. As a result, the Earth’s temperature has increased significantly. Climate
scientists have predicted that this increase will disrupt weather. Indeed, annual
damages from weather disasters have already increased over 40-fold.
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Understanding environmental marketing 117

Fossil fuels CO2 Global Storm

burned concentration temperature damages
Million tons of PPM Degrees Celsius Billion dollars
oil equivalent
8,000 37.5 14.6 100
7,600 Fossil fuels 14.5
36.5 80
7,200 14.4
6,800 35.5 Temperature 14.3 60
6,400 14.2
6,000 34.5 14.1 40
5,600 CO2 14.0
33.5 20
5,200 Damages 13.9
4,800 32.5 13.8 0
1970 1980 1990 2000

Figure 4.2 Energy and the climate

Source: Worldwatch Institute 2000

Chemicals and the biological boomerang

Our consumption of chemicals has exploded, with about three new synthetic
chemicals being introduced each day. Almost nothing is known about the long-
term health and environmental effects of new synthetics, so we have been
ambushed again and again by belated discoveries. One of the most ominous signs
of this is the evolution of pesticide-resistant pests as the use of pesticides increases.

World
production of Pesticide-
synthetic World Pesticide- resistant
organic pesticide resistant crop
chemicals use weeds diseases
Million tons Million kilograms Number Number

500 3.0 250 250

Synthetic organic
400 200 200
2.5 chemicals
300 150 150
2.0 Pesticides
200 Crop diseases 100 100
1.5 Weeds
100 50 50

0 1.0 0 0
1970 1980 1990 2000

Figure 4.3 Chemicals and the biological boomerang

Source: Worldwatch Institute 2000

Commerce and the oceans

The global economy has more than doubled in the past 30 years, putting pressure on
most countries to increase export income. Many have tried to increase revenues by sell-
ing more ocean fish, for which there is growing demand, as the increase in crop yields
no longer keeps pace with population growth. Result: overfishing is decimating one
stock after another and the catch is getting thinner and thinner (see Figure 4.4).
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118 Chapter 4 / A sustainable Earth matters

Gross world Total world World fish Total world

product fishing fleet catch rate catch of
Trillion dollars capacity Tons per ton Atlantic perch
Million tons of fleet capacity Million pounds
40 44 7 60
39 Fleet capacity 6 50
35 GWP
34 5
40
30 4
29
30
25 24 3
Catch rate 20
19 2
20 10
14 Atlantic perch 1
15 9 0 0
1970 1980 1990 2000

Figure 4.4 Commerce and the oceans

Source: Worldwatch Institute 2000

As the world’s population expands, placing ever-increasing pressures on the envi-

ronment, many major institutions are researching the likely impacts of certain
scenarios on the planet. UNEP produced an excellent and very detailed report, named
GEO-3 (UNEP 2002), and it outlines the various ways in which the Earth would evolve
depending on differing policy initiatives. UNEP acknowledges the fact that all these
initiatives are probably in progress, but in sustainability terms, the most important
initiatives must attempt to save the planet. The key scenarios are as follows.

Markets first
Most of the world adopts the values and expectations prevailing in today’s industri-
alised countries. The wealth of nations and the optimal play of market forces
dominate social and political agendas. Trust is placed in further globalisation and
liberalisation, which will enhance corporate wealth, create new enterprises and
livelihoods and so help people and communities to afford to insure against – or
pay to fix – social and environmental problems. Ethical investors, together with cit-
izens and consumer groups, try to exercise growing corrective influence, but are
undermined by economic imperatives. The powers of state officials, planners and
lawmakers to regulate society, economy and the environment continue to be over-
whelmed by expanding demands.
Much of the current marketing literature focuses on this type of scenario.
Emphasis is placed on increasing consumption and expanding markets. Strategies
proposed rarely take into account human, social and environmental costs.

Policy first
Decisive initiatives are taken by governments in an attempt to reach specific social
and environmental goals. A coordinated pro-environment and anti-poverty drive
balances the momentum for economic development at any cost. Environmental
and social costs and gains are factored into policy measures, regulatory frameworks
and planning processes. All these are reinforced by fiscal levers or incentives, such
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Understanding environmental marketing 119

as carbon taxes and tax breaks. International ‘soft law’ treaties and binding instru-
ments affecting environment and development are integrated into unified
blueprints and their status in law is upgraded, though fresh provision is made for
open consultation processes to allow for regional and local variants.
There are already attempts being made in this direction by governments. Such a
major initiative is the Kyoto Protocol, limiting the emission of greenhouse gases,
primarily carbon dioxide. The protocol, which became legally binding at midnight
New York time (0500 GMT) on 16 February, demands a 5.2 per cent cut in green-
house gas emissions from the industrialised world as a whole by 2012. However, it
is clear that not all nations are willing to sign this agreement – the USA, India and
China being some very important examples. The USA’s government feels that the
arguments are flawed, though an increasing number of states are following their
own agenda on limiting CO2 and greenhouse gas emissions. However, some 41
countries, accounting for 55 per cent of greenhouse gas emissions, have ratified the
treaty, pledging to cut these emissions by 5.2 per cent by 2012.

Security first
This scenario assumes a world of striking disparities where inequality and conflict pre-
vail. Socio-economic and environmental stresses give rise to waves of protest and
counteraction. As such troubles become increasingly prevalent, the more powerful and
wealthy groups focus on self-protection, creating enclaves akin to the present-day
‘gated communities’. Such islands of advantage provide a degree of enhanced security
and economic benefits for dependent communities in their immediate surroundings,
but they exclude the disadvantaged mass of outsiders. Welfare and regulatory services
fall into disuse, but market forces continue to operate outside the walls.
Such security first scenarios can occur today in regions within countries and
between countries. Within countries, we have rich and poor localities, with people
generally living in differing economic environments. Increasingly, some areas are
‘gated’ and privileged. Some countries also have very strict border controls to pre-
vent labour movement from the poor to the rich regions. One could argue that the
failure of the last round of Doha talks on trade still favours the rich nations, main-
taining such ‘gated communities’ around a sea of poorer nations.

Sustainability first
A new environment and development paradigm emerges in response to the chal-
lenge of sustainability, supported by new, more equitable values and institutions.
A more visionary state of affairs prevails, where radical shifts in the way people
interact with one another and with the world around them, stimulate and support
sustainable policy measures and accountable corporate behaviour. There is much
fuller collaboration between governments, citizens and other stakeholder groups in
decision-making on issues of close common concern. A consensus is reached on
what needs to be done to satisfy basic needs and realise personal goals without beg-
garing others or spoiling the outlook for posterity.
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120 Chapter 4 / A sustainable Earth matters

This is happening now in patches around the world. However, much of the
world is poor and sustainability often gives way to making money first as an
option. However, environmental groups, charity organisations and certain govern-
ments are going for sustainability first as an option. Countries such as Austria and
Germany are leading the way. Regional pockets in other countries are also pursuing
this option, but, in general, consumer awareness about environmental issues is
poor in both rich and poor countries.

Next steps
What is interesting is that the UNEP (2002) has followed these scenarios up with
scientific analysis of how each one would affect the way in which the planet will
evolve as a result in terms of pollution, poverty eradication and land degradation.
Figure 4.5 depicts what would happen between 2002 and 2032 for each scenario.

Markets first Policy first

Most of the world adopts the values and Decisive initiatives are taken by governments in
expectations prevailing in today’s industrialised an attempt to reach specific social and
countries. The wealth of nations and the optimal environmental goals. A coordinated
play of market forces dominate social and pro-environment and anti-poverty drive balances
political agendas. Trust is placed in further the momentum for economic development at any
globalisation and liberisation, which will enhance cost. Environmental and social costs and gains
corporate wealth, create new enterprises and are factored into policy measures, regulatory
livelihoods and so help people and communities frameworks and planning processes. All these are
to afford to insure against – or pay to fix – social reinforced by fiscal levers or incentives, such as
and environmental problems. Ethical investors, carbon taxes and tax breaks. International ‘soft
together with citizens’ and consumer groups, try law’ treaties and binding instruments affecting
to exercise growing corrective influence, but are environment and development are integrated into
undermined by economic imperatives. The powers unified blueprints and their status in law is
of state officials, planners and lawmakers to upgraded, though fresh provision is made for
regulate society, economy and the environment open consultation processes to allow for regional
continue to be overwhelmed by expanding and local variants.
demands.
Security first Sustainability first
This scenario assumes a world of striking A new environment and development paradigm
disparities where inequality and conflict prevail. emerges in response to the challenge of
Socio-economic and environmental stresses give sustainability, supported by new, more equitable
rise to waves of protest and counteraction. As values and institutions. A more visionary state of
such troubles become increasingly prevalent, the affairs prevails, where radical shifts in the way
more powerful and wealthy groups focus self- people interact with one another and with the
protection, creating enclaves akin to the present- world around them stimulate and support
day ‘gated communities’. Such islands of sustainable policy measures and accountable
advantage provide a degree of enhanced security corporate behaviour. There is much fuller
and economic benefits for dependent collaboration between governments, citizens and
communities in their immediate surroundings, but other stakeholder groups in decision-making on
they exclude the disadvantaged mass of issues of close common concern. A consensus
outsiders. Welfare and regulatory services fall is reached on what needs to be done to satisfy
into disuse, but market forces continue to basic needs and realise personal goals without
operate outside the walls. beggaring others or spoiling the outlook for
posterity.

Figure 4.5 Outcomes for different scenarios of world economics 2000–2032

Source: UNEP 2002 GEO-3: Global Environment Outlook 3 www.unep.org/geo/geo3 United Nations Environment Programme
MAST_C04.QXD 24/4/07 14:02 Page 121

Understanding environmental marketing 121

At the sametime, some calculations have been made for global CO2 generation (see
Figures 4.6, 4.7 and 4.8).

18

16 Markets first

14 Security first

12
Policy first
10

8
Sustainability first
6

0
70

00

30
19

20

20
Carbon dioxide is emitted above all from the use of fossil fuels.
For all four scenarios, it is assumed that stabilisation of primary
energy use is first reached at the end of the 21st century.

Figure 4.6 Carbon dioxide emissions from all sources (billion tonnes carbon/year)
1970–2030
Source: Image 2.2 in UNEP 2002 GEO-3: Global Environment Outlook 3 www.unep.org/geo/geo3 United Nations
Environment Programme

600
Markets first
550
Security first
500 Policy first

450 Sustainability first

400

350

300
70

00

30

50
19

20

20

20

The build-up of greenhouse gases follows trends in emissions, but the stock has
a long lifespan once in the atmosphere. Only the Sustainability first scenario is on
a trajectory to stabilise at 450 parts per million carbon dioxide equivalent.

Figure 4.7 Atmospheric concentrations of carbon dioxide (parts per million by volume)
1970–2050
Source: Image 2.2 in UNEP 2002 GEO-3: Global Environment Outlook 3 www.unep.org/geo/geo3 United Nations
Environment Programme
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122 Chapter 4 / A sustainable Earth matters

0.40

0.35 Markets first

0.30 Security first

0.25 Policy first

0.20

0.15 Sustainability first

0.10

0.05

0.00
00

30

50
20

20

20
Temperature change up to the 2030s can no longer
be avoided. In all scenarios its rate far exceeds 0.10°C
per ten years – the level above which damage to
ecosystems is likely.

Figure 4.8 Global temperature change (°C per ten years) 2000–2050
Source: Image 2.2 in UNEP 2002 GEO-3: Global Environment Outlook 3 www.unep.org/geo/geo3 United Nations
Environment Programme

These scenarios show how fragile the whole ecosystem has become. Further pressures
on the environment will seriously affect the lives of every single individual on the
planet. Even communities that feel they live in gated, secure areas are not immune
from land degradation and pollution. Therefore, as production, marketing and con-
sumption become increasingly global, environmental issues affect every one of us.
For marketers – who are often concerned with single products or brands – it is
often difficult to disentangle the various interconnecting strands affecting the man-
ufacturing of a single product. A complex piece of machinery, such as a car, may
well have certain components that are neither ethically nor environmentally pro-
duced. Some marketers would even say that the production and use of a car itself is
environmentally unfriendly, as each car in use adds to local and global pollution.
Given this range of views, we need to understand the different ways in which
green marketing is perceived (see Figure 4.9). Marketers may also have a significant
role to play in enlightening consumers and bringing about positive change.
In many ways, to be totally green means that the human population must
eschew any luxuries beyond self-sufficiency. As the history of marketing shows,
consumption has always played a large part in human existence. For this reason,
many marketers feel that being totally green is unattainable and therefore the term
‘greener’ should be used (Charter and Polonsky 1999). Figure 4.10 shows that
many products are global and, therefore, the ways in which they are consumed at
the local level also has global implications.
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Understanding environmental marketing 123

Ecological

Humanitarian Political

Corporate
Equality and social
responsibility

Green

Sustainability Fair trade

Eco-conscious
Conservation
consumers

Not for
profit

Figure 4.9 Green marketing

Source: Peattie 1995

Interestingly, for example, our demand for water has turned us into water vam-
pires, draining the world of its lifeblood. ‘What can we do to prevent mass global
drought and starvation?’ asks Pearce (2006) in the New Scientist. He argues that
some of our consumption patterns actually put immense pressure on the Earth’s
resources. For instance, it takes 20,000 litres of water to grow 1 kilogramme of
coffee, 11,000 litres of water to make a quarter pounder and 5,000 litres of water to
make a kilo of cheese.
By conventional measures of greenness, Jitubhai Chowdhury is a model farmer. He uses
organic manure and natural pesticides. He grows fruit trees around the edge of his alfalfa
fields and tends his dairy cattle with care. Every day he produces 25 litres of milk, which he
sends to a collection point in the nearby village of Kushkal in Gujarat, India, for delivery to
the state dairy. It’s because of people like him that India isn’t starving. For all its virtues,
however, Chowdhury’s 2-hectare farm is sowing the seeds of a global disaster.

To grow the fodder that he needs to feed his cows, he is entirely dependent on irrigation
water pumped from deep underground. Over the course of a year, his small electric pump
sucks twice as much water from beneath his fields as falls on the land as rain. No wonder
the water table in the village is 150 metres down.

This kind of complexity is only now beginning to be understood and, in

the future, will need to be incorporated into the marketing of products so that
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124 Chapter 4 / A sustainable Earth matters

Pla
GREEN MARKETING LAYERS ne
ta
ry
im
pa
Local production ct
of
po
llu
International trading tion

International marketing

Local branding

Local
Local ethical
Consumer/consumption
pollution issues

Local environmental degradation

Figure 4.10 Global implications of green marketing

consumers can make informed choices about the depth of the ecological footprint
that they are making on the Earth.
In order to understand how products can be defined as green, many complicated
analytical systems have evolved over the years. As a result, many multinationals are
taking green issues more seriously. McDonald’s, for instance, has spent a great deal
of money on improving its ability to recycle its materials, but has been quiet about
discussing the impact the company has on the environment as a result of the mass
production of beef. It has instituted a number of programmes in order to combat
energy wastage (Wasik 1996).
 McRecycle USA programme The company claims to purchase over $100 million of
recycled packaging. Also, switching from white to brown bags has saved bleach-
ing costs and so prevented the resulting chemical pollution.
 Recycled materials in construction The company sets aside 25 per cent of its con-
struction budget for recycled materials to use in its construction.
 Energy efficiency In partnering with the Environmental Protection Agency in the
USA, the company instituted a ‘Green Lights’ programme. Eco-efficient lighting
is used in stores. The stores themselves have been made more energy efficient as
a result. The energy saved has meant that over 30 tons of carbon dioxide is no
longer being released into the air each year.
 Waste reduction action plan (WRAP) The focus of this programme is on cutting
down on the amount of waste materials going to landfill sites by using recycled
materials and paper.
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Understanding environmental marketing 125

Interestingly, the biggest failure of all these various programmes has been that of
recycling within the shop environment. Consumers were generally oblivious to
this issue!
So, the final question is, is McDonald’s offering a green product? This a difficult
question to answer because the company has obviously tried hard to improve its
products and services by means of such ecological efficiency programmes, yet the
morality of mass-producing beef remains unresolved. Some would argue that even
this brings necessary employment in poorer areas, while others would consider
such farming harmful to the environment.
On the plus side, an unlikely alliance was formed between Greenpeace and
McDonald’s when Greenpeace highlighted the fact that many of the chickens sold at
McDonald’s were fed on soya imported from newly deforested areas in the Amazon.
Not only did McDonald’s impose a two-year moratorium on the use of such feed but
it also formed an alliance with other high street retailers to stop using soya produced
in the Amazon area. Greenpeace is demanding that the moratorium continue until
proper procedures for legality and governance are in place and asking for the creation
of an agreement with the Brazilian government and key stakeholders on the long-
term protection of the Amazon rainforest (Sauven 2006).
In the light of these fundamental questions, we can only argue for greener mar-
keting. It may well colour different companies different shades of green (see Figure
4.11) depending on individual circumstances, but it is important to try to be as
green as possible. It is important to note that social and ecological issues are inex-
tricably intertwined and a truly green company should address both issues
simultaneously. This approach is the correct route to creating sustainable busi-
nesses and environments. The Nike case study illustrates the particular problems
faced by an organisation caught exploiting workers and then, as a result of public
pressure, attempting to set things right.

Understands ecological efficiency

and incorporates this into products.
Products and services with Some social issues addressed, but
a modicum of respect for the environment. shareholder returns take precedence.
Socially and ethically not concerned or ignorant.

LIGHT GREEN DARK GREEN

Incorporates recycling policies.

Understands and responds to A fully integrated, total
some aspects of ecological efficiency. environment quality programme.
Ethical and social issues low on the agenda. Ethical and moral issues addressed
Recycling of products considered.

Figure 4.11 Measuring the green policies of organisations

Source: Ranchhod 2001
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126 Chapter 4 / A sustainable Earth matters

CASE STUDY

Nike Corporation
Consider Nike, the $8 billion footwear and apparel organic cotton farming by providing incentives for
company that has become a lightning rod for farmers to switch to organic production.
activists, consumers, the media and others who None of this seems to have stemmed the tide of
have taken aim at the company’s workplace, criticism, though Nike has been named among the
environmental and human rights practices. ten ‘worst’ international corporations by
According to its critics, Nike has engaged in a Multinational Monitor magazine. It had an
variety of practices that have exploited workers in Indonesian factory looted and burned by
the developing world and the communities where protesters and suffered criticisms by women’s
they live. The images proffered by Nike’s critics are groups in the USA, who pilloried the company for
vivid: women and young children toiling for long commercials that call for women to be empowered
hours for low pay in squalid conditions, breathing while paying its predominantly female overseas
the fumes of toxic chemicals, unable to protest for workers poorly. Its home town of Portland,
fear of losing their jobs, manufacturing goods the Oregon, adopted a resolution urging its troubled
price tags of which exceed their monthly pay. school district to ‘respectfully decline’ a $500,000
Nike acknowledges that, in the past, it was less
cash donation because of the company’s alleged
than vigilant in monitoring the practices of its
human rights abuses.
factories, although nearly all of them are contracted
The experiences of Nike and other companies
to independent manufacturers. It has now
that have come under intense public scrutiny
launched an aggressive and ambitious effort not
because of perceived wrongdoings suggest that
only to correct such situations, but also to set a
consumers’ expectations of brands are changing. It
shining example for its industry. The company has
is no longer enough that a company delivers good-
begun to use sustainability as a design criterion, to
reduce the use of toxic materials and generation of quality products. In the search for differentiation,
waste in its manufacturing process. Nike cut the use the battleground shifts from the tangible – pounds
of solvents in its adhesives by 800,000 gallons in of chemicals and other wastes released into the
one year and achieved its goal of reducing its use of environment – to the intangible – ethics, values
volatile organic compounds per unit of production and corporate culture.
by 90 per cent by 2001. The company also supports Source: Makower 1994

This last case study illustrates the part ethics plays in understanding sustainable
marketing strategies. Another way to consider sustainability is to take a different
view of the commonly quoted ‘product lifecycle’.

The lifecycle analysis (LCA) concept–lifecycle thinking

One way to consider the creation and utilisation of environmentally friendly prod-
ucts and services is the LCA concept. It is recognised as both a concept and an
analytical environmental management tool (SPOLD 1995). This concept – some-
times termed lifecycle thinking – helps everyone (consumers and producers alike)
to understand the overall environmental implications of the services required by
society. The analysis based on this concept promotes consideration of the cradle-to-
grave implications of any actions taken, forcing managers to move beyond the
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Understanding environmental marketing 127

supply chain and sector-based considerations of the environment and onwards to

thinking about the wider implications of economic activities.
Greenpeace has advocated the use of a similar dial to the one adopted in
this book. Here is an example of it being used for consumer electronics (see
Figure 4.12).
Greenpeace scores the companies on the electronics scorecard as follows.
 Chemicals policy and practice (5 criteria):
– a chemicals policy based on the precautionary principle
– chemicals management – that is, supply chain management of chemicals via,
for example, banned/restricted substance lists, policy to identify problematic
substances for future elimination/substitution
– timeline for phasing out all use of vinyl plastic (PVC)
– timeline for phasing out all use of brominated flame retardants (not just those
banned by EU’s RoHS Directive)
– PVC- and BFR-free models of electronic products on the market.
 Policy and practice for producer responsibility for taking back their discarded products
and recycling (4 criteria):
– support for individual (financial) producer responsibility – producers should
finance the end-of-life management of their products, taking back and
reusing/recycling their own brand discarded products

5
4 6

LGE
Sony
3 Samsung Ericsson 7
Toshiba
Nokia
Panasonic Sony
Apple HP
2 Fujitsu-Siemens 8
Dell
Acer
Motorola
Motorola
Lenovo
1 Lenovo 9

Who will be
first to go
green?
0 10

The criteria reflect the demands of the Toxic Tech campaign to the electronic companies. Our two
demands are that companies should:
• clean up their products by eliminating hazardous substances
• take back and recycle their products once they become obsolete.
The two issues are connected. The use of harmful chemicals in electronics prevents them from being
recycled safely when products are discarded. Each company was given a score out of 30 which was then
divided by 3 to give a mark out of 10 for simplicity.

Figure 4.12 The Greenpeace guide to greener electronics

Source: Greenpeace 25 August 2006, The Greenpeace Guide to Greener Electronics www.greenpeace.org.uk
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128 Chapter 4 / A sustainable Earth matters

– provide voluntary take-back and recycling in every country where it sells its
products, even in the absence of national laws requiring producer responsibil-
ity for electronic waste
– provide clear information for individual customers on take-back policies and
recycling services in all countries where there are sales of its products
– report on amount of waste electrical and electronic equipment (WEEE) col-
lected and recycled.

Nokia leads the way when it comes to eliminating toxic chemicals. Since the end of
2005, all new models of mobiles have been free of polyvinyl chloride (PVC) and all
new models from the start of 2007 will also be free of brominated flame retardents
(BFRs). Nokia loses points, though, for failing to provide an adequate definition of
what ‘precautionary principle’ means in practice for Nokia. On the other hand, the
company scores well on producer responsibility for its electronic waste. The com-
pany actively supports and lobbies for individual producer responsibility, which
means that each company should take care of the electronic waste from its own
brand of products. However, Nokia also loses points for not providing data on the
numbers of actual mobiles recycled. Further detailed analysis for each company is
provided by Greenpeace on its website (at www.greenpeace.org/international/
news/green-electronics-guide-ewaste250806).

Nokia = 7/10

Bad (0) Partially bad Partially good Good (2+)

(1+) (2+)

Precautionary principle

Chemicals management

Timeline for PVC phaseout

Timeline for BFR phaseout

PVC-free and/or BFR-free models

(Companies score double for this)

Individual producer responsibility

Voluntary take-back

Information to individual
customers

Amounts recycled

Figure 4.13 Nokia’s electronics scorecard

Source: Greenpeace 25 August 2006, The Greenpeace Guide to Greener Electronics www.greenpeace.org.uk
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Understanding environmental marketing 129

This type of classification is important as companies produce huge amounts of e-

waste globally, some of which goes for recycling in places such as India and China,
where it contributes to environmental degradation and endangering human
health. Any positive inputs into the ways in which products are made, commer-
cialised and consumed are important for both consumers and recyclers.
The following case study illustrates the various factors that need to be consid-
ered by a company striving to be green. The chain to the final consumer, however,
can be quite long:

Paper/pulp production packaging consumers

printing (newspapers/books)
paper products

disposal/recycling

Consider the lifecycles of various products, taking into account responsibilities at

various stages.

CASE STUDY

APRIL takes a leaf out of the green book

Asia is not renowned for being the most advanced Indonesian island of Sumatra. As the company
region as far as environmental awareness goes. Just starts to expand towards a 2 million tonnes/year
think of the car-clogged, highly polluted streets of pulp capacity target, the mill is becoming
many of Asia’s big cities, the lack of paper recycling increasingly aware of the need to meet stringent
systems throughout much of the region or even the environmental targets to satisfy both local and
poor quality of drinking water in some places international demands. The company is targeting a
further off the beaten track. first quarter 2001 startup date for the new line at
But a mixed track record is no excuse for Asian the Riau mill.
industries today and many of the region’s major As part of its environmental commitment, APRIL
pulp and paper manufacturers are facing up to the is working on its first annual environmental report.
‘green challenge’. One such company is But it is not just a moral sense of concern for the
Indonesia’s Riau Andalan Pulp and Paper (RAPP), mill’s surroundings which is driving APRIL –
part of the Asia Pacific Resources International pressure is coming from many quarters. Local
(APRIL) group. On the environmental front, people have lodged complaints about skin-related
RAPP was arguably helped along by its diseases and fish depletion in the nearby Kampar
cooperation, albeit short lived, with Finland’s river. As a result of these allegations, non-
UPM-Kymmene. ‘The presence of a European governmental organisations (NGOs) have levelled
company helped raise environmental awareness criticisms at the pulp and paper mill. There have
and performance’, according to Canesio P. Munoz, also been some critical voices from overseas, for
the company’s Environmental Manager. But since example in Europe.
the alliance broke down and RAPP was left In an attempt to put these fears and accusations
standing on its own two feet, there has been no to rest, APRIL has appointed independent bodies to
let-up in the company’s momentum for greener carry out research and help prove that the
and cleaner operations. Indonesian mill operates in line with international
At present, RAPP is constructing a second pulp standards, and in some cases, beats these targets
line at its Kerinci mill in the Riau province on the (Table CS 4.1).

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130 Chapter 4 / A sustainable Earth matters

Case study continued

Table CS 4.1 RAPP effluent load as compared to international standards (kg/ton)

Cluster rules
Parameter Indonesian Canada Sweden Existing mills New mills RAPP
(early 2000) (BC) (October 1999)
BOD5 8.5 4.5 8.7 8.05 5.5 2.93
COD 29.75 No spec 31.00 No spec No spec 11.22
TSS 8.5 7.0 4.0 16.4 9.5 4.41
pH 6–9 5–9 5–9 5–9 5–9 7.1–8.2
AOX No spec 1.5 0.23 0.623 0.272 0.12

Note: No spec = No specification

Source: Jenkinson 2001

Outside approval ‘generally good’, although Riau Mandiri is looking

One independent body that RAPP selected was the further into the COD (chemical oxygen demand)
Finnish Environmental Research Group, which and BOD (biological oxygen demand) readings,
carried out an environmental impact assessment at which have recently started to rise. The University
the mill. The report was published last September of Riau has not noticed any significant difference to
and concluded that RAPP’s industrial complex the natural river life either. In fact, fish stocks
contained low levels of pollutants and that the actually increased due to higher nitrogen and
external treatment seemed to work efficiently, phosphorous levels in the effluent treatment. The
although improvements in nutrient dosage could university team continues to assess the quality of
be carried out. The Finnish group also came to the the fish stocks as it seems that sulphur levels are
conclusion that the risk for humans coming into slightly higher than normal, though.
contact with the Kampar river water was ‘negligible On top of that, the reports from local people
or non-existent’. As for the river’s fish life, about skin irritations are not being blamed on RAPP
investigations suggested that the level of pulp mill and it is thought that plants may be the problem.
effluent contaminants was low enough not to have The findings of one Riau University study suggest
any serious effect on the animals. that it is ‘unlikely’ that river water is a cause of
Soon after the Finnish report, RAPP launched a inflammatory skin problems among villagers.
one-year programme with local NGOs to carry out Monitoring will continue, though, until a more
further studies into the effects of the pulp and paper conclusive verdict is reached.
operations on the quality of the local river. The gist It is certainly in RAPP’s interests to cooperate
of these investigations is to sample biodata from the with the NGOs and prove the mill’s case wherever
Kampar river every three months and compare possible as the NGOs can act as a powerful lobbyist.
examples taken from upstream, downstream and at As Riau Mandiri spokesperson Anny Hardiyanti
the point of effluent discharge from the pulp mill. says, ‘After a year’s monitoring, if we find negative
The research is a three-pronged effort, with local results, we will urge the company to address the
NGO Riau Mandiri assessing the water quality, the problem. And if the problem is not addressed, we
Fisheries Department of the University of Riau in will launch a campaign against the company
charge of the river biology/ecology and the University responsible.’ Added to that, the NGO is not afraid
of Singapore investigating health-related matters. of carrying out threats of action. It has already
The preliminary results are good news for RAPP, launched several campaigns against other
with no strong condemnations being thrown in its companies, which were found to be polluting
direction. The water quality is described as another nearby river in the region.
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Understanding environmental marketing 131

Case study continued

Forest sustenance a greenbelt area to protect wildlife and ensure

A key tenet of APRIL’s environmental policy is biodiversity in the area, leaving the company with
striving towards fully sustainable forest management. the magic number of 195,000 ha/yr for converting
The Indonesian mill’s long-term goal is to achieve into plantations.
sustainable forest management certification. But, as
an interim step, the mill is focusing on an ISO 14001 Indonesia’s social scene
certificate for its forestry operations, which it hopes On paper, the land transfer sounds like a relatively
to receive by the end of this year. If the company simple procedure – the government allocates land
sticks to the timetable, certification would come just and the company decides to convert the area into
a few months after RAPP was awarded ISO 9002 for plantations. In practice, though, there are many
its pulp and paper operations. more hurdles to be cleared. For example, some of
ISO 14001 is an environmental management the allocated land is next to local settlements and
system, which provides criteria for assessing a the communities claim that the ground is theirs in
company’s use of air, water, soil and resources. The accordance with ‘community rights’. Companies
drive towards this certification comes from RAPP’s such as RAPP are only able to operate effectively by
customers around the globe, and particularly from avoiding conflicts with these local communities.
European consumers. This involves talking with the people, suggesting
Part of the company’s efforts towards full alternative sources of income and convincing them
sustainability is the development of its acacia that they will not lose out. As Environmental
plantations. Planting started back in 1993 and some Manager Munoz says, ‘We don’t drive people out.
of the plantations are already mature, but the Resolutions are always reached by consensus.’
company is waiting until next year before Of the total area allocated to RAPP, some 60,000
harvesting the area, for strategic reasons. RAPP aims ha of land were termed so-called ‘problem areas’. So
to make a full switch from mixed tropical far, the company has resolved approximately half
hardwood to acacia plantations by 2008. of the issues. RAPP is all too aware of the need to
The company has also carried out extensive tests work with the local people to avoid potentially
on the plantations and is extremely pleased with serious problems. For example, last December the
the yield and quality results. The plantations are Kerinci mill was brought to a standstill as
expected to yield 210 m3/ha at harvest and achieve demonstrators took to the streets in protest over a
a wood to pulp conversion rate of 4.5 m3/ton/ib. As labour dispute. And in the new era of ‘reformation’
a result, RAPP hopes to gain the double advantage which is flourishing in Indonesia, local
of higher yields and limiting any adverse effects on communities are becoming increasingly aware of
the environment. their rights and companies such as RAPP clearly
By RAPP’s calculations, the mill will need 127,500 want to avoid conflicts wherever possible.
ha of plantations to supply pulp line #1, which has To date, RAPP has employed a host of community
an 850,000 ton/yr capacity (Table CS 4.2). Pulp line development (CD) projects to try and keep the
#2A is due to come on line by the first quarter of peace with the locals. The CD programmes have
2001, bringing total capacity up to 1.3 million existed since 1993, although the initiative was
tons/year. RAPP calculates that it will need 195,000 significantly expanded in 1998. Last year alone, the
ha/yr of acacia plantations to meet this pulp company implemented programmes in six local
capacity, and it is no surprise perhaps that the villages. RAPP has carried out initiatives such as
company happens to have exactly this amount building a mosque, providing drinking water,
available. Originally the government allocated building bridges to overcome transportation
280,000 ha of land to RAPP for conversion into difficulties and training the villagers to cultivate
plantations. The area chosen by the government unused land for productive and profitable uses.
was so-called ‘non-productive land’ – in other RAPP’s budget for CD programmes in 2000 is $2
words, the land had already been logged over and million and the company’s management believes
exploited. Some of this area must be maintained as that it is money well spent. Not only does it

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132 Chapter 4 / A sustainable Earth matters

Case study continued

benefit the local people but it also promotes good worked well and the villagers seem extremely
relations with neighbouring communities and pleased with the project’s success. But when asked
improves the skills of potential employees for the if he was satisfied, the village chief replied, ‘We
pulp and paper mill. don’t need more, but we want more.’ A note of
One village called Gunung Sahilan chose to warning to RAPP, perhaps, that it cannot sit back
develop oil palm plantations with the company’s and relax. The company must constantly remain
CD programme funds. As a result, APRIL teamed attentive to the demands of the local people just as
up with an associated company, Asian Agri, which much as, if not more than, those of the
is active in the palm oil industry. The alliance has international community.

Table CS 4.2 Plantation supplies at RAPP

Line 1 Line 1+2A Line 1+2A+2B

Pulp mill capacity 850,000 1,300,000 2,000,000
Acacia growth rate mean annual increment m3/ha/a 30 30 30
Rotation Yr 7 7 7
Yield at harvest m3/ha 210 210 210
Wood to pulp conversion – acacia species m3/t/ib 4.5 4.5 4.5
Wood and HTI requirement
Annual acacia input m3/yr 3,825,000 5,850,000 9,000,000
Total net HTI area required ha 127,500 195,000 300,000
Land resources for tree plantation development
RAPP HTI concessions area ha 195,000 195,000 195,000
Associated companies/joint ventures ha 0 0 85,000
Tree farms ha 0 0 20,000
Total area ha 195,000 195,000 300,000

Note: HTI = hutan tanaman industri (local industry requirement)

Source: Jenkinson 2001

According to the Society for the Promotion of Lifecycle Development (SPOLD), life-
cycle thinking reflects an acceptance of the fact that key company stakeholders
cannot strictly limit their responsibilities to only those phases of the product life-
cycle, process or activity in which they are actively involved. This approach
expands the scope of their responsibility to include environmental implications for
the entire lifecycle of the product, process or activity. The direct effect of this type
of thinking is that all processors, manufacturers, distributors, retailers, users and
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Understanding environmental marketing 133

waste managers involved the product lifecycle share responsibility for its effects on
the environment.
The individual share of responsibility for each of these actors will be greatest in
the parts of the lifecycle under their direct control and least in the other stages of
the cycle. Lifecycle thinking has been applied to much of the legislation emanating
from the European Commission, especially with regard to products and waste poli-
cies. The concept of producer responsibility is at the heart of a waste strategy and it
follows from lifecycle thinking. An example of this is given in Figure 4.14.
There are various concepts that are related to developing ecologically sound
products. Some of these are as follows.
 Design for the environment There are many initiatives for reducing the negative
impacts that a product may unleash on the environment. These effects could be
concentrated at the production, usage or disposal stages. In designing for the
environment, technologists are concerned with reducing energy consumption
(both in the production of an item and when it is in use) and generally conserv-
ing resources. The main trends are:
– the incorporation of information from lifecycle analysis into the designs of
products
– the definition of environmental objectives
– a focus on the relationship between the product and the consumer and how the
design can encourage environmentally responsible behaviour in the consumer.

According to the EPA in the USA (1992), lifecycle design (LCD) is:
A systems-oriented approach for designing more ecologically and economically sustainable
product systems, which integrates environmental requirements into the earliest stages of design.
In LCD, environmental performance, cost, cultural and legal requirements are balanced.

 Clean technology Clean technology is the means of providing a human benefit

that, overall, uses fewer resources and causes less environmental damage than
alternative means with which it is in a direct economic competition (Clift 1995).

Sales growth and funds

allocation to environmentally
Product inception, friendly R&D, investment in
ecological, ethical even more ethical production
production systems, Product death and
energy efficient products recycling responsibilities
Sales

Time

Figure 4.14 Green lifecycle analysis

Source: Ranchhod 2001
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134 Chapter 4 / A sustainable Earth matters

 Industrial ecology This is generally concerned with the evolution of technology

and economic systems in such a way that human activities mimic mature bio-
logical systems with regard to being self-contained in their use of materials and
resources (Allenby 1994). Governments and non-governmental organisations
often use this idea when they assess the sustainability of industrial processes.
 Total quality environment management (TQEM) This concept synthesises environ-
mental management and total quality management (TQM) (GEMI 1993). TQEM
relies on the following basic elements:
– Identify customers The definition of quality is dependent on what the cus-
tomers want (a broad definition of ‘customers’ is used that includes
consumers, legislators, environmental groups and society at large).
– Continuous improvement A systematic approach directed towards continuously
improving organisational processes and activities.
– Do the job right the first time In terms of the environment, eliminate problems
at the outset. Quality failures may be detrimental to the environment and also
incur financial costs, without providing benefits to the consumer.
– Take a systems approach Each part of environmental management is consid-
ered to be a ‘system’. This includes people, equipment and processes. Weak
links in the system should be addressed.

In general, the ‘plan-do-check-act’ (PDCA) cycle is followed in parallel with typical

TQM programmes. All these concepts are interlinked and there is now a concerted
approach to take a holistic view by incorporating them into a general framework
for sustainable development (SETAC 1998).

Implications for organisations

For organisations, it is becoming increasingly important to incorporate green
thinking into their processes and products. Organisations need to consider very
carefully how much their activities impact the planet. Any improvement creates a
net benefit for both the consumer and the environment. There are many charges
against companies that they embrace a green attitude at a superficial level and are
generally engaged in ‘greenwashing’ the public by clever advertising and public
relations activities. In fact, even companies such as The Body Shop have been criti-
cised for exaggerating their claims with regard to promoting sustainable
development and the purity of their ingredients (Stauber and Rampton 1995). In
many cases, companies pursuing a modicum of green policies are not rewarded in
the marketplace (Wong et al. 1996). Such criticisms could be levelled at almost
every corporation. Nonetheless, it is important to realise that corporations can
have a major impact on the environment by implementing some of the concepts
discussed above. Here are some examples.
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Implications for organisations 135

 Anheuser-Busch has developed an aluminium can that is 33 per cent lighter.

This reduction in the use of aluminium, combined with an overall recycling
plan, saves the company $200 million a year.
 The Ford Motor Company has used more than 60 million two-litre plastic soft
drinks bottles in the manufacturing of grille reinforcements, window frames,
engine covers and boot carpets. In 1999, this effort accounted for 7.5 million
pounds of plastic.
 Kellogg’s plant in Bremen, Germany, employs a waste water recycling operation
that reduces its water consumption and waste water effluent. In India, a Kellogg
vapour absorption system is used to provide the plant’s air conditioning, elimi-
nating the use of ozone-depleting substances. Fluorescent bulbs discarded from
Kellogg’s plant in New Jersey are sent for recycling, removing potentially haz-
ardous materials from landfill sites (Rand Corporation 2000).

Cynical views aside, these efforts not only save the companies concerned millions
but also save resources. These types of savings are not easily obtainable from
changes to the behaviour of customers, so it is important that companies pursue
such strategies. This is evident when you consider that, of the 100 largest
economies in the world, 51 are global corporations and only 49 are countries
(Anderson and Cavanagh 1996). Mitsubishi was larger than the fourth most popu-
lous nation on Earth, Indonesia. General Motors was bigger than Denmark, and
Toyota bigger than Norway. Often, large chunks of world trade are actually trans-
actions between different parts of organisations. Companies, therefore, have to be
proactive in pursuing ecologically friendly processes and introducing ‘green’ prod-
ucts. In addition to their moral obligation, they are also under pressure from
consumers and NGOs, such as Greenpeace. In the last 20 years, companies have
become much more sensitive to such pressures (Bennet and James 1999) due to
factors such as the following.
 The growing economic value of a good corporate reputation and a strong, posi-
tively regarded brand. These can be put at risk by adverse criticism of
environmental and social performance (Fomburn 1996).
 The growing number of customers who are becoming more ‘green conscious’,
taking social and environmental criteria into account when purchasing goods
or services.
 The tremendous flow of information, exchanged at unprecedented levels, via
satellite TV stations, such as CNN, and the Internet. In the near future, it is likely
that information will also be transferred more and more ‘on the move’ via
mobile communication devices such as mobile phones and personal digital assis-
tants (PDAs) that interface with the Internet. This flow of information increases
the visibility of any enterprise, all over the world.
 Companies are also dependent on their members of staff who are often more
highly educated and environmentally literate than their older counterparts.
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136 Chapter 4 / A sustainable Earth matters

Interestingly, a survey of ethical funds shows that they have performed strongly
over the past three years. Many funds have shown growth ranging from 73 to 50
per cent (Bien 2001). These are early days, but the current results bode well for eth-
ical and green investments.
What, then, should companies strive to achieve? Some of the key questions that
companies should be addressing are given at the end of the chapter, but it should
be said here that, in many ways, companies should attempt to get into a virtuous
circle and constantly look forward to the future of their R&D (see Figure 4.15).
In addition to the environmental benefits of this type of virtuous way in which
companies could operate, the competitive advantages that could also be gained are
considerable. Various authors have tried different types of categorisations. For
instance, Hart (2000) has developed a sustainability model that can be used by
companies to rate themselves on the following scale for each quadrant:

1 non-existent
2 emerging
3 established
4 institutionalised.

Based on this assessment, each individual organisation can look for environmental
policy gaps, analyse them to understand their sustainability credentials, and begin
to plan both internal and external strategies for the future.
Another way in which to assess the total commitment of a company to sustain-
ability and ethical considerations is to utilise the matrix shown in Figure 4.16.

Ethically produced
Low pollution levels and low resource usage

Designed for the Company and employees

environment Efficient during use
Future redesign R&D Customers Low pollution/low
of products for energy usage
the environment Waste management and company

Recyclable
Low pollution/low energy usage
for conversion to other products

Figure 4.15 The virtuous, sustainable green circle for product management
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Implications for organisations 137

Sustainability strengths
Low Medium High
0
Production based on the
Cheap production
care of the environment
Low systems exploitative of
Human costs of little
nature and humans
interest
Ethical stance 20

Medium

40
Often small ethical
companies that may not
The ideal company –
High possess the technical
does it exist?
know-how for process
improvement
60
0 20 40 60

Figure 4.16 Sustainability strengths and ethical stance matrix

The questionnaire shown in Figure 4.17 was formulated by analysing various

greener organisations (Crosbie and Knight 1995; Peattie and Charter 1997; Piasecki
et al. 1999). Companies scoring 12 points in both sets of condsiderations would be
put into the top left-hand box of the matrix in Figure 4.16. Companies scoring 60
in both sets of considerations would be placed in the bottom right-hand box. The
set of questions is designed to show which box a company fits into and also points
the way for future improvement and the opportunities that may be available.
Companies with neither high nor low scores (in the middle of the matrix) can be
prone to resorting to strong advertising campaigns and PR in order to ‘greenwash’
the public. Consumers often have to rely on specialist journals or articles in news-
papers for true indications of companies’ policies. There is a great danger of
companies paying lip-service to green strategies and not necessarily addressing the
key issues involved. These issues are explored in detail in the hard-hitting book by
Stauber and Rampton (1995). As discussed before, a company that is truly follow-
ing sustainable principles has to be both ethically and environmentally sound.
Customers are realising that we do not live in a world with infinite resources. In
fact, the new worldview reflects the fact that we are a part of nature and not apart
from it (Wasik 1996). The postmodern consumer is concerned about nature and
likely to look at issues holistically. Table 4.1 sets out old and new worldviews.
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138 Chapter 4 / A sustainable Earth matters

Green management
Rate the organisation on a scale from 1 to 5 for Very Poor Adequate Good Very
each of the issues listed below. poor good
1 2 3 4 5
1 Design for the environment
2 Energy efficiency in manufacturing
3 Waste in manufacturing
4 Pollution during manufacturing
5 Recyclability of packaging
6 Lifespan of product
7 Energy efficiency during use
8 Recyclability of product
9 Total quality environmental management
10 Search for new green product opportunities
11 Use of pollution control equipment
12 Compliance consulting

Total points

Ethical considerations
Rate the organisation on a scale from 1 to 5 for Very Poor Adequate Good Very
each of the issues listed below. poor good
1 2 3 4 5
1 Working conditions
2 Staff welfare and healthcare
3 Limitation of exposure to pollutants
4 Sustainability of operations within local ecology
5 Involvement of stakeholders in evironmental issues
6 Continuous pollution monitoring
7 Management of the end of the lifecycle without
affecting others (prevention of dumping in poor areas)
8 Respect for fauna and flora
9 Adequate compensation to local suppliers
10 Honesty in advertising
11 Discussions with NGOs
12 Environment restoration post production

Total points

Figure 4.17 Green management analysis and ethical considerations

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Green consumer behaviour 139

Table 4.1 Old versus new paradigms

Old worldview New worldview

Continuous unbridled growth Sustainable, green economics
Conquer nature, reap resources Biophilia (affinity for nature)
Environmental compliance Eco-auditing
Marketing to fill needs Marketing to sustain life
Materialism Personalism
Industrial production Industrial ecology
Design for obsolescence, disposal Design for environment
Cost accounting (profit/loss statements) Full cost accounting
Departmentalism, reductionism Holism

Source: Wasik 1996

Green consumer behaviour

According to a survey carried out by the Wirthlin Institue (2000), two thirds of
American consumers agreed that ‘environmental standards cannot be too high and
continuing improvements must be made regardless of the costs.’ In 1999, a Gallup
poll survey found that 68 per cent of Americans worried a great deal about the pol-
lution of drinking water and 53 per cent about the contamination of soil and water
by toxic waste. Understanding the complexity of the human–ecological interface
requires a degree of scientific knowledge, yet surveys conducted by the National
Science Foundation suggest that, even using lenient standards, only about 11 per
cent of citizens understand enough of the vocabulary and concepts of science in
general to be considered scientifically literate (National Science Foundation 1998).
This is an especially important issue when companies are advertising the green
benefits of their products. How many consumers will actually understand the
claims made? Are they likely to understand the scientific reasoning behind particu-
lar policies or be emotively manipulated by the press in a simplistic manner? Quite
often, people are very likely to understand only simple cause-and-effect relation-
ships. According to Coyle, the President of the National Environmental Education
& Training Foundation(NEETF) (NEETF/Roper 2000):
People understand that cars pollute, or that species become extinct when habitat is
destroyed. But when there are two or more steps involved . . . such as energy production from
fossil-fuelled power stations contributing to climate change, thereby warming ocean waters
sufficiently to inhibit the production of plankton for fish, thus impairing the survival of
marine life . . . public understanding drops precipitously.

Each year, the NEETF issues a ten-question survey on environmental awareness. In

a typical year, Americans averaged fewer than 25 per cent correct answers to basic
environmental literacy questions. Furthermore, myths and misconceptions persist.
Surveys indicate that many Americans still believe that rubbish bags can be made
to biodegrade in landfills (virtually nothing degrades in landfills). Many people still
believe that aerosol cans contain ozone-destroying ingredients (chlorofluoro-
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140 Chapter 4 / A sustainable Earth matters

carbons (CFCs) were banned from aerosols in 1978) and that landfills are brimming
with plastic (plastic accounts for just 9 per cent of municipal solid waste – paper
and cardboard make up four times as much).
This can be illustrated by the ‘Energy and environmental profile analysis of chil-
dren’s single-use and reusable cloth diapers’ carried out by Franklin Associates in
1992 and explained in Fuller (1999). For many consumers, the intuitive under-
standing is that plastic/paper nappies are vastly energy consuming and polluting.
The comparative scientific analysis, however, shows that the environmental
answers are not clear cut. The results show that:
 reusable cloth nappies consume 33 per cent more energy than single-use dispos-
ables and 12 per cent more energy than cloth nappies from nappy laundering
services.
 disposable single-use nappies produce about twice the total solid waste by
volume of reusable or cloth nappies from nappy laundering services.
 reusable cloth napppies produce nearly twice the total atmospheric emissions in
comparison with single-use disposables or cloth nappies from nappy laundering
services.
 reusable or nappies from laundering services produce about seven times the total
water-borne waste of single-use disposables.
 the manufacture of reusable or cloth nappies from laundering services consumes
more than twice the water volume used for single-use disposables.

Many criticisms can be levelled at such an analysis and, indeed, some authors
argue that single-use disposables also contribute to air pollution, via incineration.
They may also be the cause of allergic skin reactions. Nonetheless, this example
illustrates the complexity of the issues involved when undertaking a lifecycle
analysis for a product. In these circumstances, consumers should also be able to
follow complex arguments in order to make valid judgements.
Roper-Starch Worldwide (Rand Corporation 2000), which publishes the ‘Green
Gauge Report’ each year on the environment and environmentally conscious pur-
chase decisions, showed how consumer attitudes broke down in its 2000 survey.
 11 per cent true blue greens The recyclers, composters, letter-writers and volun-
teers of the world – the ones most likely to go out of their way to buy organic
foods, recycled paper products, rechargeable batteries, less toxic paints and other
goods with environmentally preferable attributes.
 5 per cent greenback greens Those who will contribute to environmental organisa-
tions or spend more to buy green products, but not consider changes in lifestyles
or housekeeping due to environmental concerns.
 33 per cent sprouts Those who care about the environment, but will only spend
slightly more for environmentally sensitive products.
 18 per cent grousers These are people who care about the environment, but view it
as someone else’s problem. Grousers don’t seek environmentally sensitive goods
or consider green-minded lifestyle changes.
 33 per cent basic browns People who are essentially unconcerned about the
environment.
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Green consumer behaviour 141

There is another, more traditional, way of categorising consumers.

 Traditionalists Those who believe in the nostalgic image of small towns and con-
servative churches.
 Moderns These are individuals who are more materialistic and consumption ori-
entated. They are generally individuals who see life through the same filters as
Time magazine.
 The cultural creatives This is a new category, discussed by Dr Paul Ray (Rand
Corporation 2000) as a result of market research studies in consumer behaviour.
The cultural creatives (CCs) have often been involved in, or care about, three to
six social movements, including:
– very strong concern about the environment
– concern for the condition of the whole planet
– civil rights
– peace
– social justice
– new spiritualities
– organic food
– holistic health.

Many follow personal paths and spiritual goals. These individuals account for a
high proportion of people using alternative healthcare products and other lifestyles
of health and sustainability (LOHAS) products and services. These individuals are
very good at putting their own big picture together from a diverse range of sources
of information. They compare and contrast, attempting to understand the real
issues. They are the least likely to be ‘greenwashed’ by aggressive advertising. In
addition to this, to fully appreciate the sustainable lifestyle, the Natural Business
Communications and the Natural Marketing Institute believe that the premier par-
adigm of such an existence is LOHAS. The LOHAS market comprises five core
market segments – sustainable economy, healthy lifestyles, personal development,
alternative healthcare and ecological lifestyles. The five segments combined repre-
sented a $226.8 billion market in the USA and an estimated $546 billion global
market in 2000. Within each of these five segments there are many specific cate-
gories of products and services across a vast array of businesses and industries.
Table 4.2 shows the total sizes for the five key LOHAS segments and the associated
industry categories.

Table 4.2 Key LOHAS segments and industries

LOHAS market segment Total (in $ millions)

Sustainable economy 76,470
Healthy lifestyles 27,811
Alternative healthcare 30,698
Personal development (mind, body, spirit) 10,628
Ecological lifestyles 81,178
Total LOHAS market in USA 226.8 billion

Source: Rand Corporation 2000 and www.naturalbusiness.com

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142 Chapter 4 / A sustainable Earth matters

The ‘ecological lifestyles’ and ‘sustainable economy’ segments represent nearly

75 per cent of the global market, if the USA’s figures are emulated around the
world. Considering the complexity of the green consumer profile, several interre-
lated factors have to be taken into account, as shown later in Figure 4.18. However,
the examples and discussions presented above show that a new breed of consumers
is indeed emerging. These new consumers are characterised by their need to protect
the environment and lead an ethically correct lifestyle. The market trends show
that these consumers are growing in numbers. Companies wishing to understand
this new segment of potential customers need to address their marketing offer in a
sensible and honest manner. They also need to consider the ways in which markets
may move in the future.

Green marketing strategies

In many cases, companies take reactive stances to green issues. The lack of proac-
tive initiatives often damages the credibility of a company and the profitability of
products that are sold. It is therefore important for companies that are seriously
concerned about green issues to be more proactive and pursue a market orientation
that is green in its design. In order to gain competitive advantage, companies have
to exhibit that they are:
 offering products that address the ethical, moral and sustainability issues
described above.
 producing goods that are not only commercially viable but also meet consumers’
needs
 using some of the profits for environmental and social improvement at the
source of production
 segmenting markets effectively, so that the complexity of niche markets and
these ‘new’ consumers are understood and targeted accordingly
 communicating honest and credible messages to customers, which should
be transparent and understood by internal and external stakeholders, as well
as consumers
 ensuring that their transportation and logistics systems are mirroring the com-
pany’s aims and objectives of lessening pollution, being environmentally
friendly and so on
 developing a marketing perspective that takes a cradle-to-grave ecological
approach for products
 offering certain levels of educational marketing literature where products
are complex
 presenting advertising in a clear and concise manner
 understanding the future needs of customers and stakeholders.

The case studies that follow are examples of how companies are dealing with green
issues and facing consumer reluctance to purchase green goods in spite of good inten-
tions. They are taken from Makower (2005).
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Green marketing strategies 143

CASE STUDY

Green marketing: lessons from the leaders

Electrolux: efficiency = green The programme was met with a decisive yawn by
The Swedish appliance giant doesn’t go out of its consumers, who apparently didn’t want to change
way to market its products as environmental, says the way that they paid for doing their washing at
Karl Edsjö, Project Manager, Electrolux home. Edsjö believes the experiment may have
Sustainability Department in Stockholm. The been doomed by flawed methodology and hopes it
company promotes products’ energy-saving will be revived some day. As he puts it, ‘It’s resting –
advantages on labels, but that is required in both but there’s still some big interest.’
Europe and the USA. However, the company does
play up its products’ efficiency. ‘It’s worked very Philips: durability trumps green
well to educate people about energy’, says Edsjö. ‘If Netherlands-based Philips’ flagship environmental
they choose the most efficient product, that’s the consumer products are compact fluorescent
most important thing for us.’ lightbulbs (CFLs), which it has marketed since 1978.
Promoting ‘efficiency’ has unwittingly translated For years, energy-saving and longer-lasting CFLs
into ‘green’ for Electrolux, leading consumers to languished in the US market, despite their success in
‘assume our products are environmentally friendly,’ Europe, which experiences much higher energy
costs. (The penetration rate for CFLs in Holland,
Edsjö told me. That reputation also reduces pressure
where Philips is based, is around 50 per cent,
on Electrolux when new environmental concerns
compared with less than 10 per cent in the USA).
arise. For example, there is growing concern in
Among other things, US consumers didn’t care for
some European countries over the health and
the quality of CFLs’ light output and the fact that
environmental impacts of some flame retardants.
they didn’t fit many existing lighting fixtures.
‘It’s a small concern at the moment, but we’re
Things changed as the bulbs got cheaper, the
pretty sure this will be a bigger issue in the future,’
quality of their light better and their adaptability
says Edsjö. He believes that Electrolux’s reputation
into various fixtures increased. Equally important
for environmental proactivity will make the
was a key name change that reflected some green-
company immune from consumer activism on this
marketing realities: Philips stopped calling the bulb
issue. ‘They know that as soon as there is a
‘Earth Light’ and changed the name to ‘Marathon’.
solution, we will apply it to all our products.’
‘After sales flattened, we went out and did
‘To inform consumers is tricky,’ says Edjsö. ‘We’d primary research to find out why and whether we
like them to be more environmentally aware. We were reaching the hearts and minds of the audience
have a principle of both delivering the best with the name Earth Light,’ explains Steve
technology, but also marketing it well to promote it Goldmacher, Director, Corporate Communications
well.’ But despite its green image and its holistic for Philips Lighting in the USA.
thinking, even Electrolux can get frustrated by In its research, Philips found a great deal of
consumers’ less than willingness to embrace some sympathy (50 per cent positive, 25 per cent neutral)
company efforts aimed at aligning environmental for green issues, combined with outright fear
sustainability with business success. For example, it (60 per cent positive, 10 per cent neutral). And
piloted an initiative in Sweden in which consumers almost half (45 per cent) appear to be quite
were given a washing machine (for a small sympathetic to green marketing efforts, requiring
installation fee), then charged on a per use basis of additional information about the environmental
10 Swedish kronor (about US$1). One objective was benefits of the products they buy. Nevertheless, a
that the consumer didn’t have to worry about the much lower percentage are willing to change their
appliance, relying on Electrolux to keep the most lifestyles (20 per cent) or pay more (25 per cent).
efficient machines in operation, thereby ‘It turned out the environment wasn’t their
minimising their energy and water needs. primary need,’ says Goldmacher. ‘Environmental

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144 Chapter 4 / A sustainable Earth matters

Case study continued

responsibility was the number four or five purchase industry-speak. These prospects were given early
criterion. Number one is that they wanted the bulb access to a Prius website and its special order
to last longer. The longer a lightbulb lasted was the feature. ‘Our focus groups and studies confirmed
most important criteria. Being green is wonderful, that people want an environmentally friendly
but no one wants to pay the extra nickel.’ product at a fair price, but that they didn’t want
any compromises,’ says La Roque.
Toyota: green without compromise Of course, Toyota turned to an increasingly
Toyota’s Prius may be the first major consumer green message, says La Roque: ‘We are really
product that fits nearly all of the criteria for success talking about gallons saved and the positive impact
in the green consumer marketplace. it comes from on the environment. I think a lot of it has to do
a trusted company and can be bought wherever with the Middle East situation and global warming.
the company’s products are sold; it looks and feels The whole environmental focus has come more to
like a ‘conventional’ product and doesn’t require the forefront.’ One key ally has been celebrities:
consumers to change their habits to use it; it is ‘The Hollywood community really embraced Prius,’
(almost) comparably priced to purchase and can says La Roque. ‘There are a number of celebrity
save consumers money to operate; and it has owners. It’s their way of making a statement. And
added benefits – it both saves money and it’s it’s been a great benefit for us to have that
stylishly cool. But when the Prius was launched in unsolicited testimonial.’ Example: Cameron Diaz
the USA market in 2000, Toyota didn’t play up its appeared on the ‘Tonight Show’ the day she picked
environmental attributes, according to Ed La up her Prius and made it part of the interview.
Roque, National Advanced Technology Vehicle Toyota has since transitioned to the current
Manager. The emphasis was on saving petrol and phase – what it calls the ‘early majority buyer –
money. Those early marketing efforts were aimed sort of in between early adopter and mainstream,’
at early adapters – the technology buffs who want explains La Roque. Success – in the form of
the latest, coolest thing – today’s iPod crowd. months-long waiting lists for the Prius and the
Environmentalists were a relatively small subset rush to market by Toyota’s competitors with other
of that population. The product’s original tagline hybrid models – shows the strategy’s success.
was ‘Prius/genius’, showing ‘not only the In the end, however, the Prius’ success was all
intelligence of the new technology but also the about quality: ‘It’s very important that companies
creative Web-based marketing approach’. The first interested in promoting environmental products
2000 or so vehicles were sold online – a key deliver,’ says La Roque. ‘We think we’ve delivered a
medium for early adopters. great product for the market. We like to think we
Before rolling out the Prius, Toyota embarked on set a good example for other companies selling
a two-year effort to develop a dialogue with hybrids. There’s no doubt that we get a good halo
consumers. That resulted in a pool of more than effect on the overall Toyota brand.’
40,000 interested consumers – or ‘hand-raisers’, in Source: Makower, 18 September 2005

A UNEP report (2005a) discusses how marketing could help to change social atti-
tudes towards consumption. In essence, as discussed above, consumer behaviour
results from a range of interactions between factors such as public policy, cultural
identity, media coverage of sustainability issues and corporate marketing, not to
mention cultural imprints, as well as societal and family influences. This complex-
ity increases the difficulty of assessing the impact of marketing efforts on consumer
behaviour, as the range of variables can be extremely high. The variables can range
from product features, service augmentation, pricing, promotion, retail strategy,
distribution or credit offers, to name just a few. Within this context, it is instructive
to look at these interactions as set out in Figure 4.18.
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Green marketing strategies 145

Public authorities

Companies
Press and media Advertisers and retailers and financial
institutions

Schools
Parents Neighbours

Friends

Children Spouse

Colleagues

Individual: internal Household

structure of the self
Religious
Immediate group of contacts institutions
Wider society

Figure 4.18 Structure and networks influencing consumption patterns

Source: UNEP 2005a, ADE. ‘Talk the Walk: Advancing sustainable lifestyles through marketing and communications’
www.uneptie.org/pc/sustain/reports/advertising/Talk_the_Walk.pdf United Nations Environment Programme

Companies sometimes feel that they are blamed for unsustainable consumption,
even though they make efforts to inform consumers, and this is encapsulated in
the following quote (Procter & Gamble 2003):
Despite contributions to sustainable development, advertising’s role and effects have been
questioned. Advertising has been blamed for spreading Western lifestyles around the world
and for promoting excessive consumption in developed countries.

This is an interesting proposition, as the model in Figure 4.18 shows multiple influ-
ences on consumption patterns. According to MORI (2003), 74 per cent of the UK’s
public surveyed would purchase from companies that promulgated an ethical and
green policy if they had the information available to them. This offers a golden
opportunity to companies to market and advertise their products and services
accordingly.
One of the key arguments put forward in UNEP’s report is a model that incorpo-
rates three different areas of marketing to encourage sustainable lifestyles
marketing. As explained earlier, according to the LOHAS segmentation criteria,
large segments of the population are interested in sustainable lifestyles encompass-
ing a range of different products and services. This model incorporates the
following types of marketing (see Figure 4.19).

Responsible marketing
Some companies are beginning to embrace policies and strategies to promote sus-
tainable behaviour to consumers, especially regarding overconsumption of food or
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146 Chapter 4 / A sustainable Earth matters

Sustainable lifestyles
marketing

Social marketing
Green marketing
Fostering sustainable
Selling green products
behaviour

Responsible marketing
Preventing the negative
side-effects of marketing

Figure 4.19 A sustainable lifestyles marketing model

alcohol that results in health damage, either in the form of alcohol-related diseases or
obesity. For example, according to a case study by Business in the Community (avail-
able at: www.bitc.org.uk/resources/case_studies/cola_market.html):
Coca-Cola Great Britain is responding to the challenge through a total business approach led
by a cross-functional senior management team. Four key areas of strategic focus are actively
being addressed. (1) Providing and raising awareness of a widening choice of products, par-
ticularly making diet and low-sugar choices more attractive through continuing taste
enhancement. (2) Helping consumers make a more informed choice. Their consumer research
showed that around 43 per cent of consumers did not know that diet Coke is ‘sugar-free’ and
it suggested that a ‘sugar-free’ message is more motivating to consumers than the actual
number of calories listed. The ‘sugar-free’ message now features on all diet Coke packs. (3)
Ensure responsible sales and marketing, by reinforcing their 50-year policy of not targeting
under 12s in any media, upholding their Schools Code of Practice including its commitment
to not place vending machines in primary schools and give secondary schools the opportu-
nity to provide a wide choice of products from water, 100 per cent juice, a variety of diet,
low-sugar as well as regular carbonated drinks, and as well as offering unbranded machines.
(4) Encouraging physical activity amongst young people and thereby challenge the rise in
sedentary lifestyles.

Green marketing
This area of marketing is largely concerned with environmental value-added
propositions related to the product that is being sold to the consumer. Such value
addition could consist of many of the points previously discussed, such as packag-
ing, environmentally safe production techniques, recyclability, reusability,
environmentally friendly sourcing and so on. Good examples of this have been
provided in the form of the e-goods dial diagram produced by Greenpeace (see
Figure 4.12).
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Green marketing strategies 147

Social marketing
This area of marketing is regarded by many authors as related to advertising and
public relations. Its main application is linked to programmes aimed at raising
awareness and promoting sustainable behaviour (McKenzie-Mohr and Smith
1999). Often, these programmes are promoted by local councils or government
information offices and attempt to increase the adoption of positive social behav-
iour, such as recycling, sensible eating, low energy usage or low car usage, among
many other initiatives. For instance, a ‘buy recycled’ campaign was launched by
the King County Commission staff in 1993, in Washington State. The programme
was essentially a partnership with retailers to boost sales of recycled products.
Every element of the campaign strategy was designed to do one of three things:
 show consumers the importance of buying recycled
 tell them where they could buy recycled content products
 show them existing product choices.

In the end, the campaign produced good results with sales of recycled paper towels,
napkins, and toilet tissue increasing by 74 per cent (see www.toolsofchange.com/
English/firstsplit.asp).
As marketing evolves in the future, these areas of importance will need to over-
lap regularly when companies develop and execute their strategies. Understanding
green consumer behaviour is a difficult and complex matter because of all the fac-
tors that influence decision-making and consumption in this area. In order to
embrace all the complexity of this process, the model represented in Figure 4.19
has to be cross-related with the key points highlighted in Figure 4.20).

Knowledge and
understanding of
environmental issues
Values, motives, Ethical, religious,
desires, emotions spiritual dimensions

Cultural climate – influencing

Part of a counterculture? it and influenced by it
Green consumer
behaviour

Impact of media and

Sociodemographic profile –
pressure group campaigns
age, gender, political affiliation etc.
Impact of crises such as BSE

Peer group Lifestyle

and social choice
network

Figure 4.20 Interrelated factors affecting green consumer behaviour

Source: Adapted from Wagner 1997
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148 Chapter 4 / A sustainable Earth matters

As the environment is a pivotal point to the survival of the human race, mar-
keters have a duty to not only anticipate consumers’ needs but also form them, so
that better consumption decisions are made. Companies are beginning to take cog-
nisance of this, but, unfortunately, the majority of consumers are lagging behind.
Future technological and biotechnological advances could spell either triumphs or
disasters for the environment. Already there is considerable disquiet over the intro-
duction of GM foods. The way in which foods are produced, distributed,
commercialised and perceived has radically changed in the last 20 years as a result
of the advent of new technologies such as genetic engineering.
The creation of genetically modified foods (GM) and organisms (GMO) has
increased the general public’s awareness of the production and quality of foods.
The main concern over GM foods centres on the fact that they have not been
tested conclusively in people’s diets using rigorous standards (Cottrill 1998). The
negative perceptions surrounding GM foods lie deep in the myths and fears of
modern civilisation – the expression ‘Frankenstein foods’ is a good example
(MacMillan 2000). Given these negative and, in many cases, serious concerns
about the possible consequences of the environmental spread of ‘rogue’ genes via
cross-pollination, the public are concerned about clarity of messages and product
labelling. As a reaction against GM foods and continuing health scares, organic
food sales have grown rapidly. The growing consumption of organic foods is seen,
by many, as ecologically friendly and sustainable. Therefore, developing marketing
strategies that entice, educate and excite consumers in favour of products and serv-
ices that are sustainable is crucial. Table 4.3 illustrates the possible strategies that
companies should adopt when attempting to expand sustainable consumption.
According to Datamonitor, organic sales in the USA reached $5.4 billion in 1998
and were estimated at $6.4 billion in 1999. Datamonitor (1999) projected that sales
will continue to grow at approximately 20 per cent per year, reaching $7.76 billion
in the year 2000, $9.35 billion in 2001, slightly more than $11 billion in 2002
and slightly more than $13 billion in 2003. Sales during the 1990s grew by

Table 4.3 The evolving role of green products and sustainable lifestyles marketing in
mainstream companies’ strategies

Limited role Reactive role Proactive role

Inspiration Copy poineers Acquire pioneers Be pioneer
Target Opinion leaders Niche market Mass market
Attribute to brands None Differentiating Entry stake
Claims backed by No evidence Green labels Green labels +
Product reporting
Connection Supports defensive Disconnected Supported by positive
with lobbying lobbying lobbying
Other marketing Opposed/disconnected Compliance-driven Aligned with
practices sustainability goals

Source: Utopies 2005, www.utopies.com/docs/UtopiesRapport_fr.pdf

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Chapter questions 149

20–24 per cent per year and organic produce sales in the UK now top £1.6 billion
(Lawrence 2006). Organic produce still remains the leading category, although
such categories as organic frozen foods, organic dairy, organic bakery items/cereals,
organic baby food and organic ready meals are growing at a faster rate. Another
aspect of future consumer trends may be the need for convenience, access to prod-
ucts and a desire to be free from material possessions.
It is quite possible that, in the future, companies may have to design products
that can be shared between different individuals. For instance, cars could be pooled
within cities and individuals could subscribe to leasing and using cars as and when
necessary, picking them up and dropping them at their destination. Many other
items, including recreation products such as surfboards, could be leased in such a
manner. This type of consumption points the way towards a shared existence,
away from the individualistic pursuit of gathering material goods.

Summary
This chapter has outlined the major environmental threats to the planet stemming
from the consumption patterns of organisations and consumers. It has also shown
the way in which companies can look at what being green means and how they
can translate this into effective action and competitive advantage. It is clear that
consumption patterns and consumer actions are going to change as we move fur-
ther into the twenty-first century.
Marketing has a key role to play in the greening of companies and issues relating
to the environment and in developing consumer tastes that benefit and protect the
natural environment. At the same time, it offers a chance to improve the social
status of poorer and less well-endowed sections of the developing world.
Sustainability issues and ethics go hand in hand and the opportunities that exist
are immense for companies that can think and act holistically in meeting the
growing demand for greener products. At the same time, there is a great onus on
and opportunity for marketers to begin to change consumer behaviour to create a
sustainable future for the world.

Chapter questions
1 How difficult is it for companies to embrace green marketing strategies?
2 How is consumer behaviour likely to change in the future?
3 How can companies develop strategies for implementing green consumer behaviour?
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Communicating effectively
5
Introduction
Since the 1990s, integrated marketing communications (IMC) has influenced both
the theory and practice of communication management. The complex shift from
the nineteenth-century ‘product’-centred approach to that of the twentieth cen-
tury’s ‘customer’ approach and twenty-first century’s ‘stakeholder’ model, have
determined the rapid evolution of the marketing communication concept.
The emergence and the development of IMC has been facilitated by a number of
evolutionary trends in various marketing areas. These include the increased frag-
mentation and segmentation of markets, relationship marketing and direct
marketing (Durkin and Lawlor 2001; Eagle and Kitchen 2000), information tech-
nology – the development of new communication technologies and database
applications (Kitchen and Schultz 1999; McKim 2002) and communication –
increased fragmentation of media audiences, multiplicity and saturation of media
channels (Hackley and Kitchen 1998). From this perspective, the new paradigm of
IMC can be represented as a strategic answer to the social and business conditions
of postmodern society (Proctor and Kitchen 2002).
The IMC approach received almost instant recognition as a result of the trend at
the end of the 1990s for companies to reduce budgets allocated to mass advertising
campaigns and concentrate on segmented or personalised communication with final
consumers. The increased fragmentation of media and customers, as well as the revo-
lution introduced in mass communication by the new communication channels –
the Internet and mobile communication technologies – has created the need for a
new approach to marketing communication, one that can ensure centralised man-
agement and consistency of corporate messages sent to various audiences.
In the traditional marketplace, business organisations had almost total control
over the communication process. They dictated the messages to be transmitted via
selected channels and the pace of communication, treating their audiences as pas-
sive receptors. This environment allowed the application of an ‘inside out’
organisational philosophy, in which business organisations attempted to reach
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Introduction 151

annual targets in terms of sales volume and market share without considering the
customers or prospects as the key to their success. The traditional marketplace has
therefore been built on reaching short-term goals and returns, and not necessarily
looking at long-term sustainability.
The evolution of information and communication technology (ICT) and the
rapid development of the Internet in the last ten years have had a profound impact
on traditional marketing paradigms and practices (see Table 5.1). Most importantly,
though, the Internet has fundamentally changed the classical communication pro-
cedures, because of three specific and coexistent characteristics that differentiate it
from any other communication channel. These are its:
 interactivity the Internet offers multiple possibilities for interactive communica-
tion, acting not only as an interface but also as a communication agent
(allowing direct interaction between individuals and software applications)
 transparency the information published online can be accessed and viewed by
any Internet user, unless it is specifically protected
 memory the Web is a channel not only for transmitting information but also for
storing it – in other words, the information published on the Web remains in
the memory of the network until it is erased.

These options are transforming the profile and behaviour of online audiences.
Marketing communication practitioners should therefore adapt to the new realities
of how audiences get and use information.
 The audience is connected to the organisation Detachment was one of the charac-
teristics of the old communication model. Practitioners issued messages that
were distributed via various communication channels and published in the
media’s outlets. Any challenge to the facts or conclusions of the communication
surfaced via other channels and came to the practitioner’s attention, leaving
plenty of time to craft an appropriate response.

Table 5.1 The new marketing paradigm shift determined by the Internet

From To Sources
One-to-many Many-to-many
communication communication Hoffman and Novak 1996
Mass marketing Individualised marketing Martin 1996
Monologue Dialogue Blattberg and Deighton 1996
Branding Communication Martin 1996
Supply-side thinking Demand-side thinking Rayport and Sviokla 1995
Megabrand Diversity Martin 1996
Centralised market Decentralised market Blattberg et al. 1994
Customer as a target Customer as a partner McKenna 1995
Segmentations Communities Armstrong and Hagel III 1996

Source: Kiani (1998)

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152 Chapter 5 / Communicating effectively

The traditional communication channels were uni-directional – the institu-

tions communicated and the audiences consumed the information in
newspapers or on TV or radio. Even when communication was considered a two-
way process, the institutions had the resources to send information through a
very wide pipeline, while the audiences had only a minuscule pipeline for com-
municating back to institutions (letters or phone calls).
Now, however, the communication channel is a network, not a pipeline. This
network has closed the gap between institution and audience. Everybody involved
in sending the message – the company, its CEO, its communication manager, the
external communication agency – are only a click away from the audience. To
some extent, communicators have grasped and even embraced this new proximity
– a fact demonstrated by the vast number of websites that display ‘Contact us’ but-
tons and links. Unfortunately, in most cases, these new facilities are not fully used.
The ease of instant communication for the general public has led to an exponen-
tial increase in the number of incoming messages, but organisations have not
increased the resources needed to deal with them. Many companies simply do not
respond at all to most of the queries. Such neglect of the new proximity of the
audience is risky because the cultural expectation attached to an e-mail enquiry is
that there will be a near-instantaneous response. In the new model, communica-
tors have to engage members of the audience on a one-to-one basis.
 The audience is interconnected Considering the nature of the network, if the audi-
ence is one click away from the institution, it is also one click away from other
members of the audience. The communicator has to take into consideration this
interconnectedness and, if possible, control its effects. Today, a company’s activ-
ity can be discussed and debated on the Internet without the knowledge of that
organisation. In the new environment, everybody is a communicator and the
institution is just part of the network.
 The audience has access to other information In the past, because of the slowness
and difficulty of accessing information, the communicator was able to make a
statement and be reasonably certain that it would be impossible for the average
audience member to challenge it. Today, the situation is different. It takes a
matter of minutes to access multiple sources of information on the Internet. Any
statement made can be dissected, analysed, discussed and challenged within
hours by interested individuals. In the connected world, information does not
exist in a vacuum.
 Audiences pull information Until relatively recently, television offered only a few
channels. People communicated with one another by post and phone. In these
conditions, it was easy for a marketing communication practitioner to empha-
sise and highlight a specific message. However, the networked world has
increased exponentially the number of available channels of communication.
Now we can get simultaneous messages from various media – e-mail, voice mail,
faxes, web pages, mobile phones, interoffice memos, overnight courier packages,
television (with hundreds of channels), traditional and Internet radio . . . As a
result, the media that used to provide efficient channels of communication for
practitioners have become noise that most the audiences have learned to filter
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Introduction 153

out. The networked environment provides audiences with a new model in

which they are no longer forced to accept every message a communicator wants
to push at them, but, instead, they pull the information that suits their interests
and needs. In the networked environment, information has to be available
where audiences can find it and it needs to be customised or customisable.

Therefore, in comparison with the traditional customer, the Internet user has more
control over the communication process and can adopt a more proactive attitude,
expressed by the capacity to:
 easily search, select and access information using search and meta-search
engines, intelligent agents and so on
 contact online organisations or other individuals using e-mail, chat or discus-
sion forums
 express their opinions/views in a visible and lasting manner by creating and
storing online content.

As consumers gain more and more access to information, knowledge and technol-
ogy, the power is shifting from marketer and channel to consumer. In addition, the
organisation needs to embrace a broader perspective that includes in its communi-
cation plan various categories of stakeholders. In the twenty-first century
marketplace, stakeholders are not only the individuals or the institutions contacted
by the organisation but also whoever the organisation listens and responds to. In
these conditions, the company is no longer the supreme controller and coordina-
tor of business communication, so the traditional inside-out approach has to be
replaced by an outside-in philosophy. Organisations are forced more than ever to
establish closer social relationships with various categories of stakeholders in order
to preserve and develop their corporate brand equity. In these circumstances, IMC
has moved on from being simply a method of coordinating and aligning external
messages sent to relevant customers towards a more holistic view of communica-
tion as the backbone of the entire business strategy.
The following case study presents the challenges of communicating a coherent
message via multiple media channels while at the same time targeting various
audiences.

CASE STUDY

The ad revolution will not be televised (Owen Gibson)

After years of tiresome doomsday predictions, we’re starting to look rather like the men bearing
finally starting to see evidence of the old broadcast sandwich boards at Speaker’s Corner.
models of advertising being challenged by the But all the signs are that those predictions are
advance of technology. A seismic shift is under way. starting to come true, albeit in a far more complex
Predictions of the demise of television advertising and subtle way than originally envisaged during the
have been around so long the doomsayers were first stirrings of the dotcom boom.

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154 Chapter 5 / Communicating effectively

Case study continued

Among most advertisers, agencies and media Viral ads

companies there is a growing consensus that the But according to Jones and others at the sharp end,
old broadcast models of advertising are being those companies are also actively reducing the
eroded by the march of technology and that amount they spend on television in favour of
new models will have to be found to promote boosting their Internet budgets and so-called ‘direct
their products. response’ advertising – anything from online viral
Consider the growing ubiquity of broadband ads to traditional mail campaigns.
access and the impending switch to digital Unilever, the consumer goods giant, has said that
television by 2012 that will accelerate the ongoing during the last five years around a fifth of its
fragmentation of television viewing across £300m ad budget was shifted out of television and
hundreds of channels. into outdoor posters, online and sponsorship, such
Then combine those trends with the upsurge in as Flora’s long-running association with the
personal video recorder technology and the London Marathon.
tendency for younger viewers to watch less TV in Meanwhile, the PVR effect is starting to make its
favour of sharing their own words, pictures, music presence felt now that the devices, which allow
and movies online and you can see why the viewers to easily record shows as well as pause and
behemoths of the media world are being forced rewind live TV, are in a meaningful number of
into action by their advertising paymasters. homes. Over 1.3 million people now use the
These trends were borne out by a recent study technology, with the majority fast forwarding
from media regulator Ofcom, showing that it is through the adverts on recorded shows.
among younger consumers that have grown up with Already advertisers are looking to combat the
the Internet and mobile phones that these shifts in trend – a recent KFC advert in the US challenged
media consumption are most pronounced. viewers to slow down rather than speed up the
It showed that television viewing had fallen for footage in order to uncover a special offer hidden in
the first time in the medium’s history. The decline one of the frames. And the next generation of PVR
was most pronounced among those aged 16 to 24. In technology is likely to mark the first steps towards
the US, where broadband penetration is even more delivering adverts, as well as programmes, on
widespread, those under 25 now spend more time on demand based on viewer’s needs and preferences.
the Internet than watching television – and a recent As the boom in search-based advertising on the
survey by Google on this side of the Atlantic suggests Internet has proved, if advertisers are sure that they
that we now do the same in the UK. are accurately targeting a receptive audience they
The effect of these changing media habits is now will pay a huge premium. Meanwhile event
having a material effect on advertising spending, television, that viewers will tune in to watch live,
with knock-on consequences for everything from which could be anything from the World Cup to
Dancing on Ice, will become increasingly vital.
the future of ITV to product placement in
Increased broadband penetration and download
programmes to the way in which independent
speeds are only likely to accelerate the trend for on-
producers operate.
demand viewing, with its attendant implications
Carat UK’s Managing Director Neil Jones is head
for advertisers, and all major broadcasters are
of a media agency that spends more than £600m a
investing heavily in their broadband strategies.
year buying advertising space on behalf of clients
Channel 4’s Chief Executive Andy Duncan
including Guinness and Renault. For him, the effect
recently forecast that by 2016, ‘the majority of all
of these trends is clear.
programmes will be consumed in an on-demand
The potency of television is definitely decreasing but way, whether through personal video recorders or
it will remain a major factor for years to come. For video-on-demand over the Internet’.
owners of big multinational brands like Coca-Cola, As a result of these trends the amount spent on
Unilever and Procter & Gamble it’s still the most traditional television advertising on the main
powerful way of building and launching a brand. channels such as ITV1 is declining, while the
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Corporate image and corporate identity 155

Case study continued

amount spent on the Web is booming. But it’s not The sector has its own awards ceremonies, has been
simply a case of television money flowing into utilised by many of the world’s biggest brands and is
the Internet. integrated more tightly into overall campaigns.
Advertising experts are agreed that the impact is ‘You’re not talking to someone who thinks you’re
much more complicated but that one net effect is talking in Martian,’ says Chris Hassell, a director at
that brands will increasingly have to engage with digital agency Ralph, which has worked for clients
individual consumers rather than hoping to catch including Sky, Nickelodeon, Orange and Nintendo.
their attention with traditional catch-all ads. ‘There’s more respect. Digital agencies have been
The response among traditional media giants has established for five to ten years. They no longer think
not quite been the outright panic-buying spree that we’re a bunch of guys in a shed banging out websites
characterised the late 1990s, but has again been and so they involve us much earlier in the process.’
heavily reliant on opening the chequebook. Rupert But it is no coincidence that the most
Murdoch’s News Corp. splashed out $400m on social downloaded ads tend to be those, such as
networking phenomenon MySpace.com, while NBC Volkswagen’s recreation of ‘Singing in the Rain’,
paid $600m for women’s community site iVillage.com. that work creatively in any medium.
In the short term, Hassell believes that advertisers
Holistic view will increasingly release adverts on the Internet first as
Advertisers are demanding a more holistic view a means of creating a buzz around a particular clip.
from their agencies, asking them to consider how Many industry experts believe that the tumultuous
to tap into younger consumers via blogs, social next five years will be looked back on as a seismic
networking sites, advertiser-funded content and shift in the way that advertisers reach their customers.
viral advertising. But far from the doomsday scenario originally
The latter, which involves making branded predicted, for savvy advertisers the explosion in
messages so engaging and interesting that Web media choice and the new age of user-generated
users feel compelled to send them on to friends, has content could prove as much of an opportunity as a
come of age during the past two years and its threat. And as the computer in the study and the
proponents say it is now an established part of the television in the living room increasingly merge,
advertising world. they will be afforded new routes into the lives of
‘We’re seeing a new wave of interest because brands consumers if they can come up with new ways to
are looking for new forms of media and new tap into them.
marketing techniques,’ says Will Jeffery, Managing Source: Owen Gibson, The Guardian, 20 March 2006. Copyright
Director of viral advertising agency Maverick. Guardian News and Media Ltd 2006.

The multiplicity of media and alternative sources of information raise important

challenges for the effective management of corporate image and corporate identity.

Corporate image and corporate identity

Previous research into understanding the process of corporate image formation has
concentrated both on the process of creating and projecting the corporate image
by the organisation and the process of reception of the corporate image by the
members of the audience (Kazoleas et al. 2001).
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156 Chapter 5 / Communicating effectively

The research orientated towards marketing, advertising and consumer behaviour has
suggested that commercial organisations create images in order to foster increased
sales. One of the main findings of the consumer behaviour orientation is that multiple
images are used by various segments of customers and these images are variable and
subject to constant change (Ackerman 1990; Knoll and Tankersley 1991).
Business management research, compared to the multiple images that individu-
als have, seems to favour the term ‘corporate identity’ and argues that this identity
is primarily a form of social identification and association between the employees
and organisation (Carlivati 1990; Pratt and Foreman 2000).
Public relations research, on the other hand, has argued that image is created by
interaction between the organisation and the organisation’s audiences during a
complex communication process (Alvesson 1990; Fombrun and Shanley 1990).
One particular conceptualisation of image formation is built on the cultural model
of meaning, which acknowledges that meanings (images) are generated not only
by multiple kinds of factors, but also through the intersection or struggle among
these factors. This vision emphasises the dynamic, flexible and conflictual nature
of corporate image formation (Williams and Moffitt 1997).
This conflictual model for corporate image formation (see Figure 5.1) encom-
passes the way in which organisations are having to create their corporate image,
especially in an age where communication is possible irrespective of time and
space, covering a myriad of instantaneous views. Each of these views could be dif-
ferent from the one that the company is trying to portray. Reaching the ‘best fit’
model for the corporate image is therefore crucial.

Corporate Alternative
communication information

Employees’ Competitors’
perceptions perceptions
Customers’ Investors’
perceptions perceptions

Corporate image

Figure 5.1 The ‘conflictual’ process of image formation

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Defining the IMC concept 157

Defining the IMC concept

The concept of IMC has been defined in many different, often contradictory, ways
(Duncan 2002; Kitchen 1999; Schultz et al. 1993; Shimp 2000; Smith et al. 1997).
The integration of marketing communication procedures was considered a result of
centralised management, centralised budgeting or message similarity across all
communication channels.
The American Association of Advertising Agencies (AAAA) defined IMC
as follows:
IMC is a concept of marketing communications planning that recognises the added value of
a comprehensive plan, that evaluates the strategic roles of a variety of communication
disciplines – for example, general advertising, direct response, sales promotion, and PR –
and combines these disciplines to provide clarity, consistency, and maximum communica-
tions impact.

According to Pickton and Broderick (2001), marketing communications tools that

were traditionally separated and specialised into ‘above-the-line’ and ‘below-the-
line’ activities have been challenged by the IMC concept. The definition highlights
that an alignment of various communication functions increases communication
efficiency, based on the premise of synergy. Pickton and Broderick (2001) claim
that synergy is the principal benefit of bringing together the various facets of mar-
keting communications in a mutually supportive way. The IMC concept fosters the
so-called ‘zero-based’ thinking for choosing the most cost-effective communication
solutions. From this perspective, marketing communication decisions should focus
on which marketing communications tool offers the greatest benefit for all the
stakeholders involved in this process rather than on the medium that appears the
most attractive to the planner. The focus of this definition is still very much on
communication functions (tactics) rather than taking a broad view and establish-
ing close relationships with multiple stakeholders.
However, many other definitions emphasise that the integration of marketing
communications should not be understood as a simple uniformity of the message
transmitted across different channels (Kitchen et al. 2004), but, rather, as the com-
plex coordination and management of the information transmitted via
complementary channels in order to effectively present a coherent image of the
organisation to the targeted audiences. A good example is the definition proposed
by Keegan et al. (1992: 63):
Integrated marketing communications is the strategic coordination of all messages and
media used by an organisation to collectively influence its perceived brand value.

This definition focuses on the concept of ‘strategic co-ordination’, indicating the

evolution from tactical coordination towards a more strategic approach to market-
ing communication in order to realise synergies. In addition, the definition
considers ‘all messages’, highlighting that both internal and external activities con-
tribute to marketing communications efforts, and stresses the focus on brand value
that requires a change of marketing and communication perspective. At the heart
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158 Chapter 5 / Communicating effectively

of this definition is the assumption that when multiple messages of a company to

its audiences become consistent across time and targets, the credibility and value of
both the company and its brand(s) will increase.
Another definition proposed by Duncan (2002: 8) demonstrates the current con-
ceptual perception of IMC:
A cross-functional process for creating and nourishing profitable relationships with cus-
tomers and other stakeholders by strategically controlling or influencing all messages sent to
these groups and encouraging data-driven, purposeful dialogue with them.

An important contribution of this definition is the emphasis on ‘profitable

relationships’. Moreover, Duncan acknowledges that integrated marketing communica-
tions involves a cross-functional process. This indicates that all organisational
departments that interact with customers and strategic stakeholders must share a
common understanding and work collectively to develop long-term brand relationships.
Furthermore, the notion of stakeholders implies a shift in the IMC concept from target
customer audiences to the inclusion of key stakeholder groups, such as employees,
investors, suppliers, distributors, the media and the social community. Additionally,
Duncan concentrates on data-driven, two-way communication with customers and
other stakeholders. Thus, this definition provides the three main aspects of IMC:
 strategically consistent brand communication to stakeholders using a zero-based
approach (evaluation of previous activities and questioning planned activities)
 cross-functional planning and monitoring
 data-driven targeting and communication to achieve sustainable competitive
advantage.

Duncan’s (2002) definition provides a basis for examining and understanding the
advantages of the IMC concept. The development of the interactive marketplace
has indicated that creativity is no longer sufficient to achieve communication
effectiveness. In a cluttered and overloaded marketplace, coherent images and mes-
sages have a greater impact on targeted audiences. It is therefore the IMC effort
that ensures brand messages are strategically consistent and new communication
technologies are used to facilitate profitable interactions with customers and other
stakeholders. Duncan’s (2002) notion of ‘creating and nourishing profitable rela-
tionships with customers and other stakeholders’ implies that the value of brand
equity has become a critical issue for organisations’ profitability.
Kitchen and Proctor (2002) add that there has been a significant move away
from product line branding and towards the corporate brand. The main reason is,
obviously, the desire to amortise communication across the entire portfolio as the cost
of designing and supporting individual brands continues its upward curve.
However, board members and executives have come to realise that a major portion
of shareholder value is brand equity and so it must be managed better. IMC pro-
vides a way to identify and prioritise brand contact points and preferences.
‘Contact points’ are all the situations in which customers and prospects are in
touch with the organisation. Such situations can be the brand, employees, channel
partners, service groups or any other people associated directly with the brand.
‘Contact preferences’ are those means that are preferred by present and potential cus-
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Organisational challenges to implementing the IMC concept 159

tomers for receiving information from the organisation. Consequently, an analysis of

the contact points and preferences will ensure that organisations’ resources are opti-
mised and generate the greatest synergy and return on investment.
According to Beverland and Luxton (2005), an additional advantage of IMC is
the creation of brand trust and credibility. Brand trust has been challenged by a
series of corporate (Enron, AIG, Tyco, Worldcom, for example) and media credibil-
ity issues (such as Dan Rather/CBS). The use of interactivity and customer feedback
data in the context of IMC can help to counter consumers’ scepticism.
Conceptually, IMC provides an opportunity for organisations to enhance the rela-
tionship their brands have with customers and other stakeholders. The strategic
coordination of all marketing and communication tools leads to a consistent brand
message being directed towards targeted audiences, using zero-based media planning.
This strategy fosters an ongoing consumer-brand relationship dialogue, while also
generating enhanced consumer appeal. In the rapidly changing and highly competi-
tive world of the twenty-first century, organisations could add value to their brand
equity if they successfully create and nurture these types of relationships.

Organisational challenges to implementing the

IMC concept
Despite the recognised importance of implementing IMC procedures, the organisa-
tional structure of many companies prevents or restricts its effective
implementation (see Figure 5.2). In reality, IMC do not fit easily into the organisa-
tional structure adopted by most firms. Percy (1997) argues that the theory of IMC,

IMC

Implementation

Lack of horizontal Functional Fear of change

Lack of budget
communication specialisation

Lack of planning Lack of database Culture

Decentralisation
and expertise technology

Organisation

Figure 5.2 Organisational barriers to implementation of the IMC concept

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160 Chapter 5 / Communicating effectively

while theoretically pragmatic, ultimately fails because of significant structural func-

tional barriers to its implementation. The most significant organisational barriers
to the implementation of the IMC concept are the following.

Lack of horizontal communication

For IMC to work, communication needs to be organised across functional disci-
plines, brands and separate business units (Schultz 1993). However, almost all
organisations tend to establish vertical hierarchies, such as top to bottom or
bottom to top (Pickton and Broderick 2001) – only a few have tried to develop hor-
izontal communication programmes (Schultz 1999). As a result, most organisations
encounter great difficulties in communicating across groups, divisions, units or
even functional disciplines.

Functional specialisation
Functional specialisation of employees creates structural barriers for managing
integrated marketing communications effectively. According to the IMC theory,
the top management team of an organisation should be, ideally, communication
generalists (Pickton and Broderick 2001). IMC requires a broad view of customers,
the marketplace, competition and communication. Yet, in today’s organisations,
employees are trained to become specialists in a particular area. Unfortunately,
these specialists rarely communicate with each other across various functional divi-
sions. Each functional division has its own budget, objectives and procedures,
tending to create, maintain and strongly defend its particular ‘territory’.

Decentralisation
Decentralisation corresponds to the current trend to empower the workforce by
decentralising decision making. Some theories of management advocate replacing
the present decision making system, in which the top management decides and
then transmits the new directives from the top down through all the hierarchical
levels of the organisation, with more democratically orientated decision making
methods. Although there is a need to empower the employees, preparing them to
respond immediately to consumers’ needs, such decentralisation can also cause
fragmentation, discouraging the implementation of integrated IMC procedures.

Lack of IMC planning and expertise

These are additional organisational barriers to the implementation of IMC.
According to Percy (1997), most organisations tend to have a short-term planning
focus. One of the major targets of IMC, however, is to influence customers and
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Organisational challenges to implementing the IMC concept 161

stakeholders by using a long-term strategic planning approach. In addition, the

misguided focus of many managers on financial rather than consumer-centred
objectives supports short-term planning.
Research on marketers reported by Cleland (1995) identifies also a lack of expert-
ise as a significant factor undermining the implementation of IMC by organisations.
The skills required to manage IMC span across functional specialisation, but, in real-
ity, there are very few people who have the skills and vision to integrate
communication initiatives at organisational level. The special education of IMC
experts could represent a solution for the future improvement of IMC planning
and implementation.

Lack of budget
According to Cleland (1995), this represents the second most significant reason for
not adopting IMC. In most organisations, there is constant interdepartmental com-
petition for resources and, consequently, the level of cooperation required for
successfully implementing IMC is practically impossible to achieve. In the case of
mergers and acquisitions, budget allocations only intensify the competition
between departments. In addition, setting the budgets for IMC activities is more
difficult than for traditional approaches, due to their longer-term implications and
the specific effects of various marketing communications tools. For example, not
all communication activities can be easily assessed and controlled. Sales promotion
activities deliver immediate returns figures and so their cost versus returns figures
may be easily assessed. However, in areas such as advertising, corporate promo-
tions, sponsorship and public relations, the effects may not be so immediate and
measurable. Therefore, one of the difficulties that arises for the budgeting process is
the complexity of allocating the budget for the whole range of marketing commu-
nications activities, not just advertising or public relations.

Lack of a database and the accompanying technology

The difficulty in tracking and profiling customers and other key stakeholders is a
challenge to the implementation of ICM. According to Pickton and Broderick
(2001), databases are vital to successful IMC. Duncan and Moriarty (1997) claim
that databases are no longer just the basis for tactical activities that an organisation
desires to execute, but also now constitute the primary management tool that
drives the organisation’s business strategy. Unfortunately, there are still significant
organisational barriers that limit the straightforward use of these databases to inte-
grate all marketing communications activities, either related to the protocols of
database access and processing or the existence of multiple departmental databases
with different structures and rules that prevent their integration at central level.
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162 Chapter 5 / Communicating effectively

Culture
The culture of an organisation is the set of beliefs, values, norms or symbols (such
as dramatised events and personalities) that help its members to understand the
value of the organisation and provide the context for their day-to-day actions.
From this perspective, the organisational culture represents the personality of
an organisation.
Organisational culture is the foundation of the internal environment and plays a
major role in shaping managerial behaviour and ways of thinking. Consequently,
managers from different organisations are likely to have different ideas of what
makes effective marketing communications. According to Percy (1997), these dif-
ferent visions result in organisational feelings such as ‘this is the way we do it’, ‘we
have always done it this way’ and ‘it works for us’. In these conditions, an attempt
to introduce the IMC concept might be received with hostility by employees, who
will fight to preserve the existing organisational culture. It is therefore important to
realise that, despite the best-laid plans, IMC adaptation must include not only the
transformation of organisational structures and processes, but also steps that lead
to changes in the corporate culture.

Fear of change
As with many other innovative concepts, an important barrier for IMC implemen-
tation might be resistance to change. The complexity of IMC implementation is
likely to impinge on all the functional areas of the firm, as any change in an organ-
isation may have effects extending beyond the actual area where the change is
implemented. There are various reasons that are associated with a resistance to
change, such as uncertainty, threatened self-interest and feelings of loss. The
biggest fear concerning IMC implementation is probably uncertainty. In the face of
impending IMC, employees may become anxious and nervous, fearing that the
manager responsible for its implementation might not fully appreciate their roles
and areas of expertise. Such feelings easily cause resistance to the implementation
of IMC.
Regarding feelings of threatened self-interest, organisational change may poten-
tially diminish the power or influence of some managers within the corporation,
causing them to resist the new organisational framework. This attitude is also
referred to as ego and turf battles between individuals and departments.
A major motivation for resistance that has not yet been fully considered in IMC
literature is the feeling of loss employees experience while implementing IMC.
Griffin (1999) reasons that change might modify work arrangements in ways that
disrupt the existing social networks. As social relationships are highly important in
any organisation, most people will resist any change that might adversely affect
those relationships.
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Implementing the IMC concept 163

One size does not fit all

As presented above, organisational barriers are a series of complex challenges that
need to be assessed and properly understood in order to facilitate IMC implementa-
tion within an organisation. However, each corporation has different marketing
communications structures already in place and must deal with a distinctive organ-
isational culture that is embodied in an individual organisational design.
Consequently, it is impossible to design an implementation model that generally
fits all firms. The in-depth analysis of each organisation will provide a specific com-
bination of barriers and possible synergies that have to be taken into account when
planning and implementing the IMC concept.

Implementing the IMC concept

The seven evolutionary steps model

Duncan and Caywood’s (1996) evolutionary model presents seven progressive steps
for integrating marketing and communication within an organisation (see Figure
5.3). Duncan and Caywood prescribe this process for considering the intercon-
nectedness of marketing communications issues, which is translated into
cross-functional coordination and interaction between communication disciplines.
The first stage, labelled ‘awareness integration’, refers to the motivation to
change in organisations. This step requires managers to evaluate the changes in the
twenty-first century marketplace, which provide clear evidence for the need for a
more integrated marketing communications approach. As employees’ readiness for
change depends on creating a rationale and a need for it, this stage is crucial to
IMC implementation.
The second stage – ‘image integration’ – outlines the value of having a strategi-
cally consistent corporate message, image and identity. Duncan and Moriarty
(1997) describe strategic consistency as the coordination of all messages that create
and transmit images, positions and reputations in the minds of customers and
other stakeholders. During this stage, the decision makers should therefore assess if
all the messages sent to stakeholders are consistent and coherent with the overall
business and marketing communications strategy.
The third stage of ‘functional integration’ reflects the integration process by
emphasising a greater degree of cross-functional collaboration and coordination of
marketing communications activities as, traditionally, they have been separated in
various other communication methods. The process of integration starts with a
strategic SWOT analysis of every functional communication method, which
attempts to identify a more systematic form of organising data and increasing the
effectiveness of various marketing communications tools.
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164 Chapter 5 / Communicating effectively

Relationship
management integration

Stakeholder-based integration

Consumer-based integration

Coordinated integration

Functional integration

Image integration

Awareness
integration

Figure 5.3 Implementing the IMC concept using the seven evolutionary steps
Source: Adapted from Duncan and Caywood 1996. Reproduced by permission of Lawrence Erlbaum Associates Inc.,
a division of Taylor & Francis Group.

The ‘coordinated integration stage’ – the fourth level of the model – aims to
address barriers of effective IMC adaptation within an organisation. To overcome
potential barriers, all marketing communications functions are addressed as being
equal in importance. This process is guided by shared budgets, performance meas-
urements and strategic outcomes. In some cases, at organisational level, the
outcome of this stage is the creation of a centralised database.
The fifth stage, named ‘consumer-based’, attempts to integrate customers into
the communication process of the company. In a fully mastered marketing com-
munications process, only the most profitable customers are approached with the
strongest and most effective media. The company therefore changes from an
inside-out to an outside-in approach. In the new structure, organisations empha-
sise frequent, in-depth interactions with customers in order to quickly detect their
changing wants and needs. Duncan and Moriarty (1997) argue that the facilitation
of feedback and dialogue will directly contribute to integrating customers into the
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Implementing the IMC concept 165

organisational processes of marketing communications planning and operations.

In addition, these company–customer interactions should be supported by contin-
uous quantitative and qualitative research.
The sixth stage, labelled ‘stakeholder-based’, claims that companies should focus
on stakeholders rather than just on customers. Duncan and Moriarty (1997) agree
with this view, by stating that profitability is determined by the actions of all stake-
holders, not just customers. In other words, the stakeholders’ support of the
organisation translates into the value of the company’s brand equity. The strategic
stakeholders should be identified first, and then specific communication objectives
and strategies should be developed in order to strengthen the relationships with
each stakeholder category in terms of their specific needs and expectations.
The last stage is ‘relationship management integration’. Nowadays, the main
source of business value is not product-driven but relationship-driven. As relation-
ships are communication-driven, there is a strong need to implement relationship
management in the context of integrated marketing communications. On the
other hand, the increased importance of integrated relationship management
requires the inclusion of IMC decisions among the main responsibilities of the top
management team.
Duncan and Caywood’s model provides a useful framework for integrating market-
ing and communications management within the organisation. By realising the need
for IMC implementation, employees will more readily accept the need for the organi-
sational changes that go with it. The progressive transition towards total integration
will allow employees to slowly adapt to the planned organisational change. The rela-
tionship management integration stage interlinks the organisation’s functional
departments and improves the effectiveness of IMC efforts by establishing strategic
consistency. Duncan and Caywood provide further practical advice for how to estab-
lish a zero-based planning approach, proposing a SWOT analysis and aligning the
public relations and marketing functions as equal partners in one department.
Another important contribution of the model is the focus on various stakeholders
rather than customers alone. It is evident that customers remain the most important
group of stakeholders, but the value of other stakeholders to the organisation is also
explicitly mentioned and emphasised. The model could be further improved by
merging the fifth and the sixth stages into one as the consumer is an integral part of
the stakeholder group. Another possible approach is discussed below.

The three-dimensional model

Based on a nine-year analysis of marketing and communications management at
14 leading organisations in America and Europe, Gronstedt (2000) developed a
three-dimensional model of IMC implementation. The model outlines the shift
from a production approach, emphasising inside out thinking in organisations, to
a customer-centred organisation, focusing on outside in thinking for developing
long-term customer relationships. To satisfy customers and other stakeholders,
Gronstedt suggests the integration of marketing and communications manage-
ment throughout the entire organisation.
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166 Chapter 5 / Communicating effectively

The model proposes the integration of marketing communications along three

dimensions: externally, with key customers and stakeholders; vertically, between
senior management and frontline workers; and horizontally, across departments,
business units and geographical boundaries.
The first dimension is the integration of external communication flows within
the organisation. The customers and other stakeholders must be engaged by all the
firm’s employees in a permanent communication process, which can provide real-
time information about market trends and consumption needs. The organisation
itself has to become more transparent and approachable in order to stimulate the
exchange of information with various categories of stakeholders. The collected
information can increase the operational efficiency of the firm and help it to max-
imise the value for customers.
The second dimension recognises the need to develop interactive communica-
tion flows between senior management, middle management and other
employees. According to Gronstedt, the essential point of vertical integration is to
align top-down communicators around a clear corporate vision. Once a consensus
has been reached on the strategic mission of an organisation, top management will
consistently communicate it to the lower levels of the organisation. The vertical
integration will therefore provide an essential management tool to implement this
mission, while maintaining strategic consistency.
The third dimension, horizontal integration, involves the process of opening com-
munication flows between work units, departments and countries. Gronstedt
suggests that true integration comes from cross-business, cross-function and cross-
region alignment. To effectively approach customers and other stakeholders, the
organisation has to develop functional groups and project teams that are committed
to sharing knowledge and expertise. One way to create an open communication
environment is to eliminate the ‘caste system’, as evidenced by corner offices, spe-
cially assigned parking spaces, titles and dress codes. In addition, companies can use
an employee rotation system, which facilitates better communication and under-
standing between the various work units.
The major contribution of this model is the analytical approach that is used to
identify the three separate levels of integration: external, horizontal and vertical
(see Figure 5.4). Gronstedt also states that the brand and stakeholder orientation is
the guiding principle for maximising a company’s profitability. The company
should therefore analyse and approach its key stakeholder groups more effectively,
using an integrated communications approach that must be realised along the
three specified dimensions.
The following model builds on the two described so far.

The eight-step process

Schultz and Kitchen (2000) suggest a circular approach to IMC implementation.
Their eight-step system is a tool for organisations resulting in logical outcomes and
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Implementing the IMC concept 167

Vertical integration

Top
management
External integration

Customers

Middle
management
Stakeholders

Organisation
Employees Horizontal integration
Work Departments Countries
units

Figure 5.4 The three-dimensional application of the IMC concept

Source: Adapted from Gronstedt 2000

successful IMC programmes by using closed-loop planning (see Figure 5.5). Each
step in the process is integrated and combined with the previously collected data,
which is analysed to provide a foundation for the next level of the IMC effort.

Customer/
prospect
valuation

Database Contact
development points/
preferences

Marketplace Integrated Brand

measurement marketing relationships
communication

Investment Message
and allocation development/
delivery
Estimate of
ROCI

Figure 5.5 Implementing the IMC concept in eight steps

Source: Adapted from Schultz and Kitchen 2000. Reproduced with permission of The McGraw-Hill Companies.
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168 Chapter 5 / Communicating effectively

During this process, the company is constantly learning from its market experi-
ence and improving its approach to, and relationship with, its customers and other
stakeholders. Schultz and Kitchen emphasise the need for continuously testing
organisational assumptions and relating them to the marketplace reality.
Step one stresses the importance of a continuously updated database. Personalised
communications must be based on a database that is continuously renewing its
knowledge of customers, prospects and other stakeholders. To develop a purposeful
dialogue with customers and other stakeholders, data must be collected by the entire
organisation by means of advanced data-mining techniques and concentrated in a
centralised database. Schultz and Kitchen state that the collection and analysis of reli-
able information is the key to developing successful IMC programmes. The
organisation is therefore engaged in a continuous learning process that facilitates a
closer relationship with customers and other stakeholders.
Step two involves the value segmentation of customers and prospects by means of
customer databases. The purpose of this valuation is to effectively target the most
profitable customers with the organisation’s IMC efforts. Schultz and Kitchen argue
that the best way to evaluate customers and prospects is to analyse income flows. By
using the data about past transactions, the organisation can determine how much it
needs to invest in order to retain and further motivate profitable customers.
Step three is the effective analysis of contact points and contact preferences.
Traditionally, companies have tried to establish their communication plans by
taking into account performance measures such as cost per thousand, total audi-
ence, gross impressions, and return on investment. However, Schultz and Kitchen
claim that customers should decide on which are the best communication proce-
dures by indicating their preferred contact points and communication methods.
In the fourth step, Schultz and Kitchen describe the process of identifying brand
relationships, which progressively become the most valuable assets controlled by
an organisation. Traditionally, most companies have focused on transactions, not
relationships. Schultz and Kitchen emphasise that, today, the brand represents the
primary support of a mutually beneficial company–customer relationship.
Niemann (2005) indicates that there are several research techniques available to
support communications professionals in identifying and developing brand rela-
tionship networks among customers, stakeholders and prospects. These techniques
normally fall under attitudinal research and include studies of customer awareness,
knowledge and feelings about corporate brands and images. Consequently, in this
step, companies need to understand customers’ relationships with corporate
brands and use this knowledge to develop effective IMC programmes.
The fifth step is the development and delivery of effective messages and incen-
tives, using the accumulated knowledge that has been gathered about customers or
prospects. In the twenty-first century, it is vital to customise the messages or the
incentive delivery system in line with the characteristics of the target audiences.
This process considers the contact points and communication preferences identi-
fied in step four and aims to achieve a successful message delivery.
Schultz and Kitchen also add that chosen delivery systems must be associated
with a performance measurement system that can indicate the effectiveness and
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Implementing the IMC concept 169

impact of IMC methods. Learning progressively from this feedback loop, organisa-
tions can continuously improve their IMC approach.
After establishing the message and its delivery system, in step six, the organisa-
tion needs to estimate the return on its marketing communication activities.
Schultz and Kitchen label this evaluation ‘return on customer investment’ (ROCI).
Niemann (2005) argues that this step determines the financial value of the entire
communication effort and converts marketing results into financial terms by using
various measurement techniques. Whereas in step two the focus is on the general
valuation of company–customer relationships and their importance for the IMC,
the ROCI is associated with financial results alone. The company needs to know
the current value of targeted customers in order to estimate the level of future mar-
keting investments. This indicates that the better the process of segmenting and
evaluating customers or prospects, the better the results – the ROCI. Thus, step six
provides a foundation for connecting the IMC strategy with measurable perform-
ance benchmarks.
In the seventh stage, the organisation determines the financial investment and
resource allocation by a process of mixing and matching various marketing commu-
nication activities and testing them in relation to their estimated return. During this
stage, a series of decisions have to be made based on the information contained in
the organisational database and the existing experience of the marketplace.
Naturally, the final choice must include only those marketing communications
tools that provide the best return on investment, reflecting the outside-in approach.
At the same time, this model implies the idea of media neutrality associated with a
zero-based approach. Consequently, decisions will be focused on what method
offers the highest benefit, rather than on what seems most attractive to the planner.
The final step of this closed-loop system is to establish a measurement system in
order to assess the communication outcome in the real marketplace. This last step
evaluates whether or not all the steps have been carried out correctly and connects
them to the expected returns on investments. In addition, as part of the closed-
loop approach, the organisation stores all evaluated results in its database,
preferably interlinking the findings with each individual customer. Even though
this appears to be the last step, in reality it is just the beginning of an ongoing
process that allows the organisation to continuously learn and improve its future
IMC programme.
The Schultz and Kitchen (2000) model provides an effective action plan to prac-
tice an IMC strategy. By analysing the value of its customers and prospects, a
company can successfully invest in its marketing communications tools while con-
sidering the return on customer investments. Another significant contribution of
Schultz and Kitchen’s model is that it promotes the concept of a learning company.
In a continuously changing environment, companies must be able to adapt,
change, develop and transform themselves to effectively meet market require-
ments. The closed-loop planning approach provides a method that enables
organisations to learn and continuously improve their IMC approach and further
facilitate changes in their structure and processes.
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170 Chapter 5 / Communicating effectively

Unfortunately, however, the model does not offer any advice on how to imple-
ment the IMC concept within various departments of the organisation. Another
point of criticism relates to the appraisal of all stakeholders. Schultz and Kitchen
recognise the significance of the customer to the organisation’s success, but the
model still lacks an understanding of the vital role of stakeholders in the twenty-
first century marketplace.

IMC in an online environment

Many studies have emphasised the lack of a unifying definition for IMC. One possible
explanation of this theoretical crisis is the multitude of possible coexistent meanings
for it. This assumption might also be true in the case of Internet communication.
In the specific context of the online environment, IMC can have the following
meanings:
 the combination of communication modes (one-to-one, one-to-many, many-
to-many)
 the integration of information types (text, sound, image)
 the consistency of messages transmitted via the online communication mix
(coherent meaning)
 the integration of marketing and PR communication functions in the messages
provided online
 the coordination of the process: message conception, then transmission, then
feedback reception and analysis, in a closed loop
 the direct connection between the corporate information system and the
Internet
 the coordination of internal, external and internal–external flows of information
 the integration of online marketing communications with the communications
conducted via traditional channels
 the consistency of the corporate message at international/global level.

Integrated online marketing communications (IOMC) represent a multifaceted

phenomenon that combines issues related to the message, communication func-
tion, management of information and specific mix of channels used for corporate
communication. On the basis of these meanings, a series of synergies and chal-
lenges can be considered in relation to the specific characteristics of the Internet.

Internet-based communication synergies

Internet technologies allow organisations that are active online to implement three
main communication synergies.
 The integration and coordination of communication modes The organisation can
combine one-to-one (e-mail), one-to-many (list-based e-mail messages, web
pages) and many-to-many (discussion forums) communications in the online
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IMC in an online environment 171

environment. This synergy increases the flexibility of the ICM approach, provid-
ing opportunities for both the personalisation and integration of messages.
 The integration and coordination of various types of information Advances in ICT
(broadband) allow organisations to transmit or receive complex combinations of
information in the forms of text, sound and images (static and/or dynamic).
This synergy has a direct effect on the complexity and clarity of the communica-
tion, enhancing the capacity of the organisation to tailor its messages to the
specific needs and requirements of various audiences.
 The integration and coordination of complex information flows between an organisa-
tion’s intranet and the Internet Organisations are now able to implement
advanced software applications that connect marketing and management infor-
mation systems with the online environment, and coordinate communications
with various audiences automatically. This capability has a powerful impact on
multiple aspects of the communication process:
– customer data (demographic or behavioural) and customer feedback can be
captured and registered automatically;
– the information collected about audiences can be analysed, to a level of seg-
mentation and detail that allows the implementation of one-to-one
marketing communication – all automatically
– the existing databases can automatically launch and coordinate highly tar-
geted communication campaigns (automatic e-mail responses, automatic
e-mail campaigns, personalised event marketing, promotional news and
newsletters).

Internet-based communication challenges

The online environment creates not only opportunities but also challenges for the
marketing communication process. The transparency of the Web makes online infor-
mation available to all audiences, which reinforces the need for consistency in the
planning, design, implementation and control of online marketing communications.
The marketing and PR messages published on organisations’ websites are becom-
ing more integrated than they have been in the past as they share the same channel
and audiences. The corporate website is usually structured according to various infor-
mation categories, such as organisational profile, activities, products and services,
financial reports and other information for investors, job vacancies, contact details,
and related links. A study of online communication in the UK biotechnology sector
has identified the tendency of these online information categories to share both mar-
keting and PR communication functions, although for each category there is usually
a primary and secondary communication function (Ranchhod et al. 2002). This ten-
dency is in line with the predictions made by Kotler and Mindak (1978) concerning
the progressive integration of marketing and PR communications, and reinforces the
benefits of the application of the IMC concept.
The variety and multiplicity of information, sources and interpretations available
online raises an important challenge relating to the management of corporate image
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172 Chapter 5 / Communicating effectively

and identity. The voice of the corporation cannot be considered any more as the
dominant message – it is only one component in a mosaic of communication activi-
ties. The construction of the online corporate identity needs to strike a balance
between proactivity and reactivity, continuity and flexibility. The meaning is not
simply transmitted, but has to be negotiated separately with each online audience.
The message needs to be adapted to the specific levels of understanding and inter-
pretation of each audience, but, on the other hand, it has to still express the same
core organisational values in order to display a coherent image. The various compet-
ing messages transmitted by other organisations, pressure groups, government
agencies or individuals also have to be taken into account and accommodated in
such a way that the resultant effect is favourable for the company.
The international dimension of the Internet creates another specific problem for
communication practitioners. Complex choices have to be made and implemented
in terms of the communication strategy and tactics. If the company attempts to
reach foreign audiences as well as its home ones, the message needs to be adapted
to reflect the cultural specifics of each of these publics. This raises important ques-
tions regarding the possibility of integrated online marketing communication in
the global context.
The specific characteristics of the Internet therefore create two conflicting
tendencies:
 the fragmentation of audiences and communication contexts, requiring cus-
tomisation of online marketing messages
 the interactivity, transparency and memory of the Web, necessitating consis-
tency of communication and coherence of the transmitted meaning.

A new strategic model has to be adopted by any organisation that attempts to pres-
ent a coherent corporate identity in the online environment. IMC is the primary
instrument for achieving this objective. However, the implementation of the IMC
concept has to accommodate the specific characteristics of the Internet, using the
technological capabilities of the new medium to solve the specific challenges raised
by the online environment and audiences.

A model for implementing an IOMC strategy

Based on the analysis of the specific characteristics of the Internet, IT applications
and audiences, the implementation of IMC in the online environment has to
follow a complex multilevel model that takes into account the corporate values
and strategic objectives of the firm, as well as the specificities of online communi-
cation channels and audiences (see Figure 5.6).
The message sent by a company to its online audiences needs to be trans-
formed/adapted in a three-stage process. First, the message should respect and
integrate the core corporate values of the organisation. Second, the message has to
be adapted to reflect to strategic and tactical objectives being pursued via the
online communication campaign. Third, the message should be transformed in
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IMC in an online environment 173

Management

Message Corporate values

(Marketing and
PR functions)

Strategy and
tactics
Information
systems
Customisation
(audience/channel
characteristics)
Analysed

Online Registered
communication mix

Feedback

Audiences

Figure 5.6 Model for implementing an IOMC strategy

line with the specific characteristics of the targeted audience/channel. In the case
of online communication, although the Internet is the main channel, there are, in
fact, various online applications or modalities of communication that can be com-
bined and used as an online communication mix, including e-mail, chat, website,
discussion forums and so on. The online communication channels vary in terms of
their transparency, interactivity, memory and selectivity, and these dimensions
should be taken into account when establishing the proper communication mix
for each targeted audience. This process of adapting the message preserves a flexi-
ble balance between continuity and customisation, the consistency of the adapted
communication being determined by the integration of the corporate core values
in the structure of each message.
The interactive dimension of the Internet forces firms to adopt a more proactive
attitude regarding searching, registering and analysing the direct and indirect feed-
back transmitted by the targeted audiences – or even, in some cases, by all
categories of relevant audiences connected to the Internet. Due to the transparency
and memory of the Internet, even untargeted audiences can read and react to some
online corporate messages.
The use made of the feedback information collected and analysed by the firm
should be speedy. The online environment is very dynamic and any delay in react-
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174 Chapter 5 / Communicating effectively

ing appropriately to the messages sent by audiences can represent missed opportu-
nities or aggravated situations. Companies should therefore use the conclusions
drawn from feedback analysis to define and refine the strategic objectives of
their communication campaigns and customise messages to fit audience/channel
characteristics.
Feedback analysis should also be transmitted to companies’ management teams
so they can decide, if necessary, to modify the corporate core values in order to
respond better to the market’s requirements. However, a caveat to this is that
changes should not be made too frequently as this may damage the long-term
coherence between corporate communications and the desired corporate image.
It is essential to emphasise the importance of an efficient information system
that collects, selects, registers and analyses online input (feedback) and then acts
directly on any adaptations to corporate communication strategies and tactics, as
well as on the customisation of online messages. In some cases, campaign manage-
ment applications can use the feedback received directly and automatically for
more effective online message customisation.
On the other hand, the corporate information system represents the necessary
basis for enhancing the customer relationship management capabilities of the firm.
The level of detail of customer-related data stored and analysed by the internal
information system defines the level of personalisation that can be applied by the
firm to its online communication and marketing campaigns. In fact, modern data-
base and campaign management applications permit the implementation of
effective one-to-one marketing communications in the online environment.
Figure 5.7 presents the place of IOMC in the online CRM processes of firms. The
customer data/feedback collected online is used directly to improve and implement
IOMC, targeting selected online audiences. Correctly implemented, the IOMC
programme is a continuous cycle of gathering data and implementing response-
generating marketing communication that is based on previously gathered
consumer data. An effective flow of continuous information between these three
components of the online CRM process can bring about increased transaction
value and satisfaction for both customers and organisations.

Integrated online
marketing
communications

Online customer
relationship
management
Customer Online
data/feedback audiences

Figure 5.7 The place of IOMC in the online CRM process

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Brands 175

The issues surrounding IMC and IOMC, in the end, are all aimed at building and
sustaining brands. Therefore, strategies have to be developed that take into account
IMC within the concepts of brand building.

Brands
The brand is one of the most important focal points when designing and imple-
menting IMC. A brand integrates all the disparate forms of communication about a
product, service or company, providing a valuable asset for the corporation. A
brand also unifies consumers’ perceptions, attitudes and preferences about a spe-
cific product, service or company, translating its tangible and intangible elements
into a consumption experience and lifestyle symbol. Therefore, the brand repre-
sents a useful interface between the company and its market (see Figure 5.8).
The roles and meanings of brands have evolved substantially over the last 150
years. For a long period, a brand was only a name that was used by producers, mar-
keters and consumers to identify a specific product and service. When market
competition was generally weak (during and after the Industrial Revolution), often
the product name and the brand name became synonymous with one another
(Hoover, for example). A similar phenomenon can be identified even today, when a
popular product is newly launched on the market. If the product is highly success-
ful, its brand name can become the generic name for the product, as has happened
with Xerox photocopiers so that the name Xerox is used as a synonym for photo-
copiers, whether or not that particular photocopier has been made by Xerox. This
situation has advantages and disadvantages for the companies whose brands are
used as generic product names. The repeated use of the brand name increases the
‘share of voice’ of the firm, but if the brand is associated with low-quality products,
the market image of the firm and its products can be damaged. This is clearly illus-
trated by the case study overleaf.
From the end of the nineteenth century, competition started to intensify in all
market areas and the brand started to be used not only for identification but also
for competitive differentiation. The brand name singularised not only a product or
service, but also a specific producer or vendor. The differentiation function was
intensified by using brand-centred promotion and comparative advertising. In this
situation, the brand became a useful market positioning tool. Companies also
started producing multiple brands and managing complex portfolios.

Communication
Identification centre
Consumption Internal asset
Customers Brand Company
experience Symbol of
Lifestyle symbol corporate
personality

Figure 5.8 The brand as an interface between a company and its customers
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176 Chapter 5 / Communicating effectively

CASE STUDY

Why British shoppers are sniffing at everyday low prices

Even at 10 pm, vehicles cluster on the damp tarmac seize market share and overtake J. Sainsbury, long the
of a car park on the fringe of London’s East End. supermarket of Britain’s middle classes, to become the
Under a vast roof, children skip through wide country’s second-largest retailer behind Tesco, which
supermarket aisles in their pyjamas while young commands almost a third of the market.
couples wrestle with trolleys laden with mountains But even as Asda grew, British shopping habits
of shopping. A battalion of packers stocks the were changing. Low prices, Asda’s main appeal,
shelves. It looks a picture of rude corporate health. were becoming less important. Whereas four
But look more closely at the feeble selection of fresh decades ago almost a quarter of household
vegetables and the paltry few feet of shelving given to expenditure went on groceries, just 9 per cent does
organic products (many near their sell by date); look now. All Britain’s supermarkets have relentlessly
at how far from the entrance shoppers must walk to pushed their suppliers to cut costs; as a result, price
find the ready meals that are so loved by London’s differences between chains have narrowed.
professionals, and these aisles tell a different story. A trolley of 100 common items bought at Tesco
They help explain why the shoppers thronging this for £173.97 ($330.26) would cost just 74p less at
store are younger and poorer than the average and Asda, according to The Grocer, which compiles a
why Asda, a supermarket owned by Wal-Mart, the weekly price index. Comparing bigger shopping
world’s biggest retailer, is struggling in Britain. baskets of 10,000 items yields a similar result, with
Asda’s performance is of no small consequence to Asda and Tesco charging the same for almost three-
Wal-Mart, which bought it in 1999 for $10.8 billion quarters of their goods. Such differences as remain
(£6.7 billion). The company is by far Wal-Mart’s are too small to be noticed by most shoppers.
largest business outside America, accounting for A 2006 study by IGD, a grocery industry think tank,
about half its international income and roughly a found that just 42 per cent of shoppers consider cost
tenth of its overall sales. More important, though, when choosing which foods to buy, down from
Asda is a litmus test for whether Wal-Mart can 46 per cent in 2003. Yet until recently Asda continued
export its model of wooing shoppers with little to tout its low prices, running adverts with shoppers
more than keen pricing. tapping their pockets to suggest they are leaving the
Wal-Mart’s other international adventures have stores with spare change. (Its current campaign
met with limited success. This year it pulled out of features Coleen McLoughlin, fiancée of Wayne
two countries: South Korea – where it failed to Rooney, a pugilistic footballer and working-class
decode the shopping habits of the nation’s hero.) ‘They talk more about cheap prices than about
housewives – and Germany, where it could not beat quality food,’ says Nick Harrison of Mercer
incumbent discount stores on price. Management Consulting. ‘That just reinforces a
But Britain was always Wal-Mart’s great hope. perception that the quality may not be as good.’
Here was a country with an established supermarket A second trend missed by Asda was a change in
culture. The natives shopped in similar ways to British culinary habits, signalled by the rise of the
Americans (who tend to prefer large, one-stop celebrity chef. More people now cook meals from
excursions, unlike Germans, for example, who buy scratch, eat out and try new foods, helping to boost
their ham from one store, their toilet paper from the popularity of posh cuisine. According to IGD,
another). Moreover, in Asda, Wal-Mart found a premium brands, distinguished by the use of words
fellow traveller. The British firm was growing fast by such as ‘finest’ or ‘select’, which cost more than
using many of the same strategies that had enabled cheaper ‘value-branded’ cousins, now account for
Wal-Mart to leave behind its humble beginnings in almost 10 per cent of grocery sales.
Bentonville, Arkansas. So too with organic foods. Although they
After Wal-Mart bought it, Asda continued to represent just 1.5 per cent of the market, sales are
prosper for a few years. By 2003 it had managed to growing rapidly. TNS Worldpanel, a research firm,
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Brands 177

Case study continued

reckons that sales of organic milk, for instance, forced to close stores. Wal-Mart executives have
have doubled in two years. ‘Organic has taken off said that the company, which does not disclose its
dramatically and we’ve ignored it until recently,’ profits separately from its parent’s, has missed both
says Asda’s Chief Executive, Andy Bond. ‘These profit and sales targets in the past year.
trends are affecting everyone, not just the affluent.’ Mr Bond has been cutting prices aggressively,
Stores such as Tesco, Sainsbury’s and Waitrose (a opening separate clothing and home stores and
fast-growing supermarket chain catering for people widening Asda’s range of premium and organic
too refined to shop at Sainsbury’s) have gained a foods. He is also paying more attention to
double benefit from selling classier brands. Not customers’ health concerns by copying rivals who
only do such foods yield juicier margins, but they are cutting salt, fat and sugar from ready meals. But
also attract the customers that retailers most want none of this will be readily apparent to older and
in their shops: rich people who don’t look at prices. more affluent shoppers who have already departed
Just 2 per cent of Sainsbury’s customers say they for rivals’ more verdant aisles.
chose the store because of price, while 31 per cent Asda is now in a bind. Stocking its shelves with
cite good-quality products. posh foods its existing customers don’t particularly
Tesco and Sainsbury’s are now increasing their fancy will lead to costly increases in waste. Failing
sales faster than Asda, according to TNS to do so means Asda will never be able to win back
Worldpanel. Following almost ten years’ growth, the high-spenders it really needs to increase sales.
Asda’s market share has slipped slightly to 16.7 per More missed targets and grumbles from the folks
cent. It was the only big supermarket to lose back in Bentonville may be in store.
ground in the past year other than Morrisons, Source: ‘Why British shoppers are sniffing at everyday low prices’,
which botched a takeover in 2003 and has been The Economist, 28 September 2006

After the Second World War, the emphasis in marketing communication shifted
from products and companies to consumer benefits and so brands have been refor-
mulated to represent consumption experiences. At the same time, brand names
have continued to be used as identification and differentiation tools. In the histori-
cal evolution of brands, the new communication functions did not replace the old
ones, but were simply added to the previous brand symbolism.
In the 1970s and 1980s, when customer power was on the rise and marketing
started to concentrate on relationships rather than atomised transactions, brands
were transformed into lifestyle symbols by means of an intensive process of person-
alisation. For the first time, brands started to be perceived as more important than
products, becoming independent symbols of a certain personality type. This situa-
tion has permitted the development of umbrella brands. These use the same brand
name for multiple products and services that are only linked by specific lifestyle
consumption patterns. (Figure 5.9 shows how brands have evolved over time.)
For a modern firm, brands have multiple aspects that complement and enrich
each other (see Figure 5.10).
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178 Chapter 5 / Communicating effectively

Brand
function

Lifestyle symbol
Consumption experience
Differentiation
Identification
Time
1900 1950 1970 1980

Figure 5.9 The historical evolution of brand function

Basic for performance

measurement

Focal point for integrating

Intangible asset Brand
marketing communication

Corporate reputation
enhancer

Figure 5.10 The multiple aspects of brands that are useful to the modern company

Brand strategies
The design and implementation of an effective brand strategy can be considered in
relation to the characteristics of the brand and the product or service that is offered
(see Figure 5.11)

New Rebranding Brand introduction

Brand
Brand extension/
Existent Brand development
umbrella branding

Existent New
Product

Figure 5.11 Brand strategy matrix

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Brands 179

Existent brand/Existent product – brand development strategy

In this situation, both the product and the brand already exist in the strategic port-
folio of the firm. However, the brand has to be continually developed as both the
internal conditions of the organisation and the competitive environment are
dynamic elements that change over time.

New brand/Existent product – Rebranding

In some competitive situations, the existent products have to be rebranded in line
with a change in market segmentation and/or competitive positioning strategy. In
these conditions, not only the name but also the other identification elements of
the brand might change. The new brand package should be coherent and consis-
tent with the new strategic orientation and an intensive communication strategy
should support and enhance its introduction.

New brand/New product – brand introduction

The launch of a new brand or product requires the creation and use of a new brand
name. Brand introduction, as in the case of product introduction, is a complex
process, shaped by the strategic approach of the organisation in terms of market
research, objective setting, segmentation, positioning, planning, implementation,
performance measurement and control. The brand strategy needs to be consistent
with the tangible and intangible characteristics of the newly introduced brand or
product in order to create a clear, powerful image in consumers’ minds.

Existing brand/New product – brand extension/umbrella branding

This combination of brand and product has two possible alternatives, depending
on what type of product is being introduced. In the case of new products that rep-
resent only extensions of existing product lines, we have a situation of brand
extension, whereas in the case of an innovative product that is unrelated to the
existing product portfolio, an umbrella branding strategy is used. However, for
umbrella branding, the profile of the innovative product has to be consistent with
the main values and lifestyle represented by the umbrella brand.

The importance of brand strategies

A brand strategy is part of the overall marketing strategy of the firm, requiring con-
sistency at the level of the marketing mix – product, price, place and promotion –
but also between the various stages of the strategic process – objective setting, plan-
ning implementation and control. The dynamism of the market environment
requires the use of a closed-loop of the various stages of the strategic process – the
effect of controlling and performance measurement in one stage having a direct
impact on objective setting for the next strategic period (see Figure 5.12).
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180 Chapter 5 / Communicating effectively

Product

Setting
Controlling
objectives

Price Brand strategy Place

Planning Implementing

Promotion

Figure 5.12 The centrality of brand strategy to the overall marketing strategy

Brand management
If branding, and the associated communication approaches, are the ‘last stand’ of
marketing, the design and implementation of effective branding strategies repre-
sent a priority for any company. Coca-Cola, Marlboro, Pepsi, Budweiser and
Campbell’s began the millennium as the top five brands, having a billion dollar
presence in world markets (ACNielsen 2001). The image and quality of each of
these brands matched the expectations and perceptions of the consumer and
evolved dynamically in relation to the changing environment. There is also a
strong argument for asserting that strong brands can be created within services, by
integrating the message and achieving consistency of delivery (Berry, 2000).
Figure 5.13 shows four complementary approaches that have to be combined
and applied by service companies in order to build strong brand equity. Service

Internalise Dare to be
the brand different

BRAND
EQUITY

Make an Determine
emotional your own
connection fame

Figure 5.13 How to enhance brand equity

Source: Berry 2000
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Brands 181

firms with the strongest brands (Starbucks, McDonald’s and Disneyworld are a few
examples) typically use all four approaches.
Leading brand companies must dare to be different using creative advertising
strategies and matching their messages with services that are of a consistent qual-
ity. Emotional connections can be made using cause-related marketing (helping
communities or good causes, for example) and communicating a strong message of
corporate social responsibility. Emotional connections can also be made by consid-
ering issues such as heritage, nostalgia and design in relation to a product. An
interesting approach in this respect is provided by the following case study which
is based on Morgan Motor Company Limited.

CASE STUDY

Morgan Motor Company Limited

Retaining traditional brand values to become a long-term niche player

Morgan Motor Company Limited, based in the finished with a galvanized steel overlay, are now
town of Malvern in Worcestershire, is a private bought-in. A wooden framework is made for each
family-owned company that has defied the forces car by craftsmen, and hand-formed aluminium
of car manufacturing logic to survive as probably body parts attached. Few power tools are used in
the only company in the world still making the construction of the body parts even today and
traditional, hand-built motor cars with an eighteen- hand tools are still used for many aspects of metal
month delivery time that is part of the proposition. and wood forming and trimming. Craftsmen and
On the one hand, the company has found a women serve a traditional apprenticeship before
niche market to survive among the giants as a non- becoming qualified to work unsupervised.
threatening manufacturer, riding out many decades The company was criticised for inefficient
of the global hi-tech, just-in-time lean car mass working practices and costly production techniques
manufacturing which produces the sophisticated by Sir John Harvey-Jones at the end of the 1980s for
vehicles of today. On the other hand, the company the first series of the BBC TV programme
has kept going with a full order book when many Troubleshooter. Since then, the company has raised
other small-scale manufacturers of specialist cars production from nine to fourteen cars per working
have either disappeared from view or been the week and made production changes whilst
subject of numerous take-overs by enthusiastic retaining the important values of craftsmanship
multi-millionaire entrepreneurs, but never been and individuality. Customers can specify a wide
successful long-term businesses. range of options which give the cars a personalised
The company’s core products are based on two- appeal. The Japanese ‘kanban’ system of matching
seater, open sports cars styled in the fashion of the components to be delivered at the right moment to
1920s and ’30s, built on conventional chassis the production ‘line’ has been implemented.
compared with the monocoque integral Morgan cars have one of the highest proportions
body/chassis design of modern cars. A range of of vehicles manufactured still in use in roadworthy
engines, varying in size from a 1.6 litre and 2.5 litre condition of any manufacturer. Typical buyers of
V6 Ford unit to the ultra-sophisticated V12 BMW Morgan cars are people who have a liking for
engine in the Aero 8 model, are bought in, as are traditional cars with a sporty feel and performance
seats, transmissions and axles. which require ‘real driving’. The typical customer is
Most other components are made at the factory. 46 years old with discretionary disposable income
Chassis members, made from ash wood and and the purchase of a Morgan is as an additional

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Case study continued

vehicle for a lifestyle choice. The British market production, but a key differentiator for Morgan is
accounts for 30 per cent of sales. continuity. Many features of the cars made today can
Of growing importance is the number of women be traced back directly to cars of the 1920s and ’30s,
who are wealthy in their own right and potential and it takes an expert eye to determine whether a
customers. The top-of-the-range Aero 8 model with particular model was made last week or twenty years
its emphasis on power, luxury, style and practicality ago. Morgan owners also tend to be loyal and are
meets the needs of this segment. In North America, unlikely to indulge in brand-switching, exhibiting
where the number of Morgan distributors has extremely long-term commitment to the product.
doubled in the past few years, women represent 39 However, one of the frustrations experienced by
per cent of the top wealth holders with gross assets Morgan Marketing Director Matthew Parkin is that
of more than $625,000 (Source: IRS) and in the UK many motoring journalists believe that Morgans are
there are now a quarter more women millionaires old-fashioned with a very hard ride, heavy steering
than men in the age group 18–44 (Source: CEBR). and poor brakes. ‘Journalists quite often have pre-
Morgan buyers are not necessarily terribly conceived ideas and may even have written their
wealthy and the cars represent exceptional value for article before they come for a test drive, and hence
money, with the base 1.6 model costing just over won’t change their mind even after a driving
£25,000 in the UK. The BMW-engined Aero costs experience’ comments Parkin. Yet nothing could be
over three times this amount, indicating successful further from the truth. Today, Morgans are subject
product line and brand stretch. Many owners keep to safety and emissions testing to meet every global
their cars for a long period of time. Digby Smith, standard, including those in the EU, the US and the
Vice President of the Morgan Sports Car Club, has emerging Chinese market. The cars have updated
owned his Morgan for over 40 years. suspension and braking systems and provide a
It is this Morgan owners’ club which represents modern package of reliability, ride comfort, ease of
owners in many countries of the world and provides handling and regulation approval.
The brand strength, identity and continuity is
a sense of identity and community for many of the
such that little advertising or promotion is
buyers. It has strong links and influences with the
required. Word-of-mouth via the Morgan Sports Car
factory and is often consulted for advice on product
Club and other Morgan owners is very important.
and brand development. The club is a powerful,
Whilst public relations does not have to be pro-
though informal, symbol and promoter of the
actively managed in the way it does for volume
Morgan core brand proposition. There is a very
production cars, Managing Director Charles
active agenda of meetings and social gatherings, not
Morgan and the Morgan family place great
to mention racing events, all of which create a strong
importance on the maintenance of good public
relational bond between owners and the factory. It
relations and other aspects of marketing
represents a classic example of customer relationship
communications. They are highly skilled at
and permission marketing.
managing the whole promotional mix in an
The core brand values of the product are tradition, understated and subtle manner which results in
quality, nostalgia, exclusivity, craftsmanship, fun and high-profile but non-aggressive promotion of the
a sense of participating in something which is special key brand values, identity, image and attributes.
and unchanging amidst a world of turmoil and It is probably not an exaggeration to say that no
constant change. These core values are augmented other car manufacturer has achieved such consistent
by opportunities for a personal relationship with the branding over such a long period of time for such
factory. Purchasers and prospects are able to tour the little communications expenditure, surviving against
factory, inspect their car as it moves along the the odds in a world of competitive auto
production line, and sometimes take delivery of their manufacturing and yet having excellent relationships
new car directly from the factory rather than from with major players such as Ford and BMW.
the premises of their local Morgan dealer. Source: Mike Wilman, 2007, Southampton Business School,
Such values are often found amongst owners of Southampton Solent University (with additional material by Donna
vintage and veteran cars which are no longer in Goodwin)
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Brands 183

‘Internalising the brand’ means that every individual within the company
adopts the main values of the brand and provides an excellent service to the cus-
tomer. In order to do this, employees need to fully understand and accept the
brand values and make them their own.
The model presented in Figure 5.13 could be equally applicable to a range of
products as well. As brands come under growing threats from a range of different
factors, they cannot remain static but need to be transformed and kept in step with
consumers’ needs, perceptions, attitudes and consumption styles. For example,
while 1999 saw the spectacular success of Proctor & Gamble’s Sunny Delight
drinks, the year 2000 brought an upsurge in organic products, including drinks and
dairy products, so it is clear that a brand cannot remain the same forever if it is to
remain successful (Dru, 1997). If branding and communications are so fundamen-
tal to the strategic success of an organisation, how can a company maintain brand
identity and improve brand equity in a climate of change?

Taking a long-term view

If brands are to be successful, a long-term view of marketing decisions must be
taken in order to ensure consistency and clarity. While innovation in brand man-
agement is part of a brand’s dynamism, consistency of the marketing support
(Bridges et al. 2000) is essential to provide uniformity and focus. Coca-Cola, for
instance, truly created a global brand 30 years ago by gathering 200 multi-ethnic
young people on a hilltop in Italy and asking them to sing, ‘I’d like to buy the
world a Coke’. However, Coca-Cola has downgraded this ambition as it has had to
face challenges from local brands, such as Thumbs Up in India. It is becoming
increasingly difficult for companies such as Coca-Cola to keep up with the changes
in fragmenting markets (Tomkins 2000). The company is presently trying to react
to market changes by launching a range of other soft drinks and bottled water,
often not bearing the Coca-Cola brand at all.
A frequently used example of how not to manage brand and brand innovation is
epitomised by the case of Intel. A rare flaw in a Pentium chip was known to cause
miscalculation problems with data on infrequent occasions. Instead of replacing
the chip, for many weeks Intel maintained that the fault was extremely unusual
and refused to publicise the problem or provide a replacement chip. When Intel
did finally offer replacements to customers, only an estimated 1 to 3 per cent of
them actually requested an alternative. However, the brand image of Intel prod-
ucts’ ‘power’ and ‘safety’ has been dented.
In order to make their purchasing choices, consumers tend to retrieve brand-
related information from memory and compute a brand-related rating on the basis
of external information available at a specific moment in time or, alternatively,
undertake a type of mixed retrieval–deduction process in which some information is
retrieved and some is deducted. This process is likely to depend on previous brand-
related experiences (Alba and Hutchinson 1987). Therefore, in the above case, the
lack of a PR campaign by Intel has provided an opportunity for other sources of
information to influence the perceptions and attitudes of consumers, negatively.
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Brand values
The apparent matching of brand promise with brand reality has been demonstrated
by the top brands. Consistency in the approach towards brand management is criti-
cal for shaping the desired brand values and having them accepted by targeted
customers. Freshness, quality, longevity, simplicity and social acceptability are values
associated with a given brand and, once established, provide a platform for further
developing, growing and strengthening of the brand’s equity.
Brand ‘meddling’ described by Mazur (2000), is the ineffective management of a
brand and its values. Levis is cited, among others, as a significant offender.
Branding, Mazur asserts, is more than a catchy phrase and quirky advertising.
Brands are complex constructs that have both tangible and intangible elements.
The interactions between these elements determine, in the long run, the value and
reputation of brands (see Figure 5.14).
The following case study outlines the kind of interplay between tangible and
intangible elements that creates and develops effective brands.

Tangible elements

Employees’
assistance

Corporate
Product
physical
features
assets

Brand value
and reputation

Lifestyle Quality

Personality Emotions

Intangible elements

Figure 5.14 The interactions between various tangible and intangible elements that
create a brand’s value and reputation
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Brands 185

CASE STUDY

How Philips got brand buzz

CEO Gerard Kleisterlee introduced the Sense and Simplicity brand to warm up the Dutch
conglomerate’s techie image and make it more consumer-friendly

When Gerard Kleisterlee took the helm at Royal The company hatched a variety of strategies to
Philips Electronics in 2001, the Dutch conglomerate’s pull this off. For instance, looking for new sources
vast empire spanned sectors from TVs and lightbulbs of creativity and innovation, Philips turned to
to semiconductors and medical devices. But one outsiders and formed a think tank known as the
important thing was missing: a coherent brand. For Simplicity Advisory Board. Made up of an unlikely
years, Philips (PHG ) had focused on the different coalition of a British fashion designer, a Chinese
technologies behind each of its five major businesses architect, a US radiologist, a Japanese auto designer
instead of what unified them in the market. and an MIT professor, the group is an informal
‘It was clear the missing link between Philips’ great sounding board for management.
technology and business success was marketing,’
Kleisterlee says. ‘We had to choose whether Philips Home brew
was a company built around its core technologies or Last year, Philips copied a longstanding practice
one built around its core brand.’ from the auto industry and launched a road show
Kleisterlee wisely chose the latter. Countless focus for investors, suppliers, customers and media aimed
groups across the company’s divisions – medical, at highlighting future Philips products. The tour
lighting, consumer electronics, domestic appliances visited Paris, Amsterdam and New York in 2005 and
and semiconductors – all led to the same conclusion: will swing through London, Hong Kong, and Brazil
new technology was often just too complex. So this fall (see BusinessWeek.com, 10/26/05, ‘The
Philips stopped talking tech and started speaking the New Simplicity’).
language of its customers. Instead of trumpeting the Kleisterlee points to a few new products that best
benefits of, say, liquid crystal displays or light- exemplify the simplicity brand. For instance, any
emitting diodes, Philips now talks about the better layperson can operate Philips’ Heart Start
picture quality of its flat-screen TVs or how lighting defibrillators to shock a stopped heart back into
can change a room’s mood. action, thanks to simple audio guided instructions.
There’s also the Perfect Draft beer dispenser, a twist
Top gainer on Philips’ hugely successful Senseo coffee makers,
It’s all part of a new branding effort launched two which allows you to ‘enjoy the same cooling,
years ago called Sense and Simplicity. The idea is to pressure and foam at home that you do in the pub,’
create a ‘healthcare, lifestyle and technology’ Kleisterlee says.
company whose products promise innovation but Another recent change is the creation of consumer
are easy to use and designed around consumers. test centres around the world. Here, products are
Kleisterlee hired a new marketing boss and quickly extensively reviewed and critiqued by consumers,
moved to ensure the company’s strategy filtered sometimes leading Philips to delay a product’s release
down to the troops. in order to make suggested changes. Before Philips
As branding initiatives go, it has been remarkably launched its new WACS7000 Wireless Music Centre,
successful. In the 2006 annual BusinessWeek/ for instance, it ran the product through eight
Interbrand global brand study, Philips was one of months of rigorous tests at its Consumer Experience
the top gainers, registering a 14 per cent increase in Centre in Singapore.
the value of its brand, to $6.73 billion, and Subjects had complained that the system was
jumping five places in the rankings, to no. 48 difficult to instal and lost patience with the
(see BusinessWeek.com, 8/7/06, ‘The World’s complexity of the technology. So Philips rewrote
Best Brands’). the product software and reintroduced all the

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Case study continued

manuals with improved quick instal guides before losing ground to the giants (see BusinessWeek.com,
launching the product in August 2005. 12/1/2005, ‘The New Face of Philips’).
Kleisterlee decided the only way to compete was
Universal control to bulk up, and spent billions on acquisitions over
Philips is also working on two of consumers’ biggest the last five years, adding medical companies such
pet peeves: complicated remote controls and as Witt Biomedical and Stentor. Last year, medical
incomprehensible instruction manuals. Philips’ systems accounted for 21 per cent of Philips’
latest range of flat-screen TVs now show users a revenue and 38 per cent of operating income.
split screen image and ask them which one they
like best. After doing this a few times, the TV
Ditch the chips
automatically adjusts the picture quality to the
Other divisions are also getting the Kleisterlee
preferences of the viewer.
treatment. In the past year alone, he has spent
There are also now simplified instruction cards
more than $4 billion on acquisitions to spur
designed to get Philips’ consumer products up and
earnings growth in the appliances and lighting
running in eight to ten easy-to-follow steps. And
divisions, as well as medical systems. And by the
for those tired of countless remote controls
end of this year, Philips will spin off its
littering the living room, Philips is bringing out a
semiconductor division, Europe’s third-largest
range of universal remotes for all your audio and
chipmaker. Recent reports claim a number of
video devices.
private equity firms are eyeing the business,
At the same time, Kleisterlee is trying to boost
although Philips won’t comment on the
brand awareness in markets – including the US –
speculation.
where many of Philips’ products are marketed
Ditching semiconductors, analysts say, is a smart
under other brand names, such as Norelco razors,
move. That’s because the cyclical nature of the
Sonicare toothbrushes and Magnavox audio and
business has been a drag on the company’s share
video systems.
price, which is intrinsically linked to the chip
industry. ‘Semiconductors is Philips’ worst-
Bulking up performing business and the only thing moving
Philips is working with focus groups to find the best
their stock,’ says Scott Geels, a senior research
brand positioning. The company recently decided
analyst at Sanford C. Bernstein in London.
to market its Norelco shavers as Philips Norelco,
Thanks to the roller-coaster nature of chips,
with Philips as the ‘endorsement’ brand and
Philips’ share price rose throughout 2005, then fell
Norelco as the ‘category’ brand. ‘Everyone in the US
20 per cent in the first half of this year, and is now
knows Norelco shavers but few realise they are a
up 7.7 per cent for the year. Investors are
Philips product,’ says Kleisterlee. ‘The brand
undoubtedly reacting to an 11.7 per cent first-half
repositioning addresses this.’
revenue increase and near doubling in operating
Under Kleisterlee, the structure of Philips is also
income, to €702 million ($895 million). But they’re
changing. At the time he became CEO five years ago,
also cheered that one of the world’s great consumer
the medical division was the laggard, accounting for
products companies has finally got some fresh
8 per cent of Philips’ revenue and less than 4 per
brand buzz.
cent of its operating income. Without the huge
Source: Kerry Capell, ‘How Philips got brand buzz’, BusinessWeek,
range of products and services offered by rivals 31 July 2006. Capell is a senior writer at BusinessWeek’s London
General Electric (GE) and Siemens (SI), Philips was bureau

A mismatch between brand personality and social trends can prove catastrophic for
a brand’s reputation if proper strategic corrections are not implemented. Levis – a
company that had clearly differentiated itself in the marketplace for a number of
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Brands 187

years – became ‘uncool’ to the younger generation after being associated with Tony
Blair and Jeremy Clarkson. Clearly the younger generation closely associated with
the brand felt that these men did not represent the Levis brand values. More
importantly, Levis had failed to take notice of the recent changes in the market-
place, including the rise of denim alternatives (as delineated by Gap) and the
higher-priced/positioned brand extensions by Calvin Klein and Armani, to name
but a few.
Understanding brand positioning and perceptual maps is an integral part of
brand research. An example of this understanding is provided by Dillon et al.
(2001), who undertook research on fast-moving consumer goods in the USA. The
work looked at brand salient attributes (BSAs), which are general features, attributes
or benefits that consumers link to a brand, thereby differentiating it from its com-
petitors. The general brand impressions (GBIs) are general impressions of a brand,
based on a holistic view. As brand perceptions depend on product attributes and
impressions are derived from memory, this is a useful way to measure positioning.
In this instance, Colgate’s brand-building activities feature hedonic benefits, such
as good taste and breath freshening. Crest, however, concentrates on preventative
benefits such as cavity prevention, anti-plaque and anti-gum disease actions. The
interesting fact is that there is an existing variation between those consumers who
have high brand knowledge (those more driven by brand attributes – BSAs – for
positioning) and those with low brand knowledge (who tend to be more driven by
brand impressions – GBIs). Thus, there are positioning differences between panel A
and panel B, as depicted in Figure 5.15, that outline the importance of developing
consistent branding strategies in direct relation to target markets (whether aiming
for hedonistically driven or attribute-driven consumers).
To manage a brand effectively, it is necessary to support the brand with market-
ing knowledge and targeted communication, permanently monitoring the
difference between its identity and its changing external image. Also permanently

A: General perceptual ratings B: BSA (attribute)-derived ratings

Crest Colgate

Colgate
Hedonic

Hedonic

Aquafresh

Crest
Aquafresh

Preventative Preventative

Figure 5.15 Examples of perceptual maps for brand analysis and evaluation of
toothpaste brands
Source: Adapted from Dillon et al. 2001
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188 Chapter 5 / Communicating effectively

observing the internal climate and the external competitive conditions, the organi-
sation must monitor the relationship between the brand’s values and its
associations, and continuously develop the brand, but make changes only when
appropriate (see Figure 5.16).

Brand equity
Widespread public knowledge of a brand is not the only measure of true brand
equity (Knapp 1999). Awareness, loyalty, perceived quality and identity – all repre-
sent essential and complementary parts of brand equity. However, ineffective
brand management can adversely affect a brand as, merely weakening a brand’s
impact by brand extension/stretching, its equity can decrease. Before any major
change in brand strategy, risk managers must identify the drivers of brand value,
define consumer perceptions of the company and its products and scrutinise cor-
porate decisions for their impacts on the brand’s power.
Brands, therefore, are both risks and assets. However, as brands are rarely sold,
value for insurance is not the same as value for sale. A number of methods are used to
evaluate brand equity, but the principal ones involve discounting future cash flows.
These are explored to a greater extent in Chapter 9. Interestingly, Ambler (1998)
observes that there is an allocation of brand equity responsibilities and each segment
(consumer, employee and so on) has a duty to contribute to the brand’s perception,
loyalty and awareness. This can be done, for example, by means of marketing and
human resources for the aforementioned segments. The brand, then, is driven, devel-
oped and enhanced by the company’s employees and stakeholders.
Brands have unique emotional and functional benefits for consumers – often
expressed in their names. Take, for example, the sweeping changes made to the
names of confectionery products in the early 1990s. To the dismay of a number of
consumers, Mars Marathons became Snickers and Opal Fruits became Starbursts.
The fate of a popular cereal may also have followed a similar course, but, with

Market Coherence Competitive Product Coherence Marketing

segmentation positioning characteristics communication

Brand Brand
Consistency
image identity

Reinforce
brand value

Figure 5.16 The importance of consistency between brand image and brand identity
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Chapter questions 189

competent brand management, Kellogg’s Coco Pops did not permanently become
Choco Krispies. Loyal consumers who phoned to vote for the Coco Pops name to
remain were rewarded, as thousands decided that the name Coco Pops reflected the
true nature of the product. Perhaps this was a cynical exercise, but it shows that
awareness without differentiation is marginally profitable and brands with little
loyalty are more prone to decline than those with a faithful following.

Summary
In the complex market environment of the twenty-first century, the customer and
other categories of stakeholders were empowered by the evolution of information
and communication technology applications. The multiplication of communica-
tion channels and information sources has reduced the control of the firm on its
corporate communication process with various targeted audiences. The multiplica-
tion of information exchange capabilities and the fragmentation of key audiences
forces modern corporations to implement an integrated marketing communica-
tions (IMC) approach.
In this era of information saturation, a company has to be aware that its corpo-
rate voice is only one among many other sources of information. The ‘transmit and
control’ strategy is no longer effective and should be replaced by procedures based
on market knowledge and proactive communication. Various corporate messages
and the media used for their diffusion must be considered from the perspective of a
long-term strategy of building a reputable corporate image and enhancing brand
equity, even though short-term pressures are more prevalent than before.
Brands have become one of the most valuable assets firms possess. The process of
brand management cannot be disconnected from market realities. The value of a
brand depends on considering it as a flexible interface between a company and its
customers and as a communication platform for corporate values and identity. Only
by matching the brand’s personality with the perceptions and attitudes of consumers
can a company maintain the value and success of its branding strategies.

Chapter questions
1 Develop your own definition of integrated marketing communications (IMC).
Discuss and present arguments to support your view.
2 Discuss the following statement: ‘Marketing communication has to enhance
brand relationships with customers and other stakeholders’.
3 What are the main strategic elements that enhance brand equity in a company?
MAST_C06.QXD 24/4/07 14:02 Page 190

Implementation is the key

6
Introduction
The design and implementation of marketing strategies are important aspects of a
company’s long-term plans. Often, however, marketing strategy objectives fail to
materialise. Is this because the strategy was unsound in the first place or the imple-
mentation ineffective or both (Sashittal and Tankersley 1997)? Companies tend to
spend a great deal of time planning strategies and, despite this, they sometimes fail
to take into account the full implications of implementing them. Several authors
have highlighted the fact that much emphasis is placed on strategy formulation and
little thought is given to implementation issues, even by marketers. Strategy may or
may not drive actual marketing practice (Crittenden and Bonoma 1988).
With the explosion of new forms of communications that have a global reach, it
is incumbent on marketers to consider implementation as an important issue in
marketing and, at the same time, find the relevant speed at which implementation
should take place. Technology drivers have become increasingly important over
the last ten years as the pace of information exchange increases rapidly. This has,
in many ways, destroyed the luxury of developing strategies over a long period of
time. Shorter periods are now available for strategy formulation and development.
Even shorter periods are available for the implementation of these strategies. This
chapter considers the often neglected area of marketing implementation, taking
into account organisational impediments, the utilisation of new technology and
issues surrounding the relative power of the marketing function in companies.

Planned versus emergent implementation

Many authors have argued that marketing strategies only result in superior returns
for an organisation if and when they are implemented successfully (Bonoma 1984).
Marketing implementation relies on people, first and foremost, and on the way in
which they adapt to the market environment. Much of the literature tends to take
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Planned versus emergent implementation 191

a linear approach to strategy formulation and implementation, often regarding

each area as a distinct step. Noble and Mokwa (1999) define marketing strategy
implementation as:
the communication, interpretation, adoption and enactment of a marketing strategy or
strategic market initiative.

Many authors (Cespedes 1991; Piercy 1989) argue that strategy formulation does
not necessarily precede implementation. The relationship between these two is
reflexive and iterative. As the environment is constantly shifting and changing, it
is hard to consider formulation and implementation separately. If these processes
are interrelated, then marketers must be prepared to deal with the intricacies of this
relationship in order to create strategic success. From research carried out by
Sashittal and Tankersley (1997), the following key factors emerged.
 Marketing planning and implementation are closely related, with managers
making improvisations in nearly all elements of their marketing plans (includ-
ing objectives, targeted customers and the marketing mix) and in their
implementation actions. Plans are continually improvised to fit day-to-day mar-
keting changes and implementation procedures are adapted to fit with changing
marketing plans.
 Marketers’ responses to modified strategic plans often trigger further changes in
planning and implementation processes.
 The implementation process is fraught with uncertainty as few outcomes are
reached as originally intended.
 The constant need to improvise means that strategic issues are often emergent
and adaptations occur in real time, without being predetermined (Mintzberg
and Waters 1985).
 Marketing plans and implementation procedures often lack a rational approach
and are determined by ‘gut’ feel. This point was also made by Simkin and Dibb
(1998) who found that short-term priorities were often followed by many mar-
keting managers.
 Interactive communication within organisations is important in volatile and
changing environments so as to enhance the capacity of employees to respond
quickly and effectively to existing market threats and/or opportunities.
 Competitors’ activities can trigger changes in strategy formulation and imple-
mentation.

The emergent strategic perspective (Mintzberg and Waters 1985) indicates a situa-
tion where a pattern of actions emerges without any prior plan. However, the
actions may show a coherent pattern with an emerging strategic purpose (see
Figure 6.1). In many marketing situations, it appears that implementation occurs as
a result of incremental changes and emergent issues rather than on the basis of
formal objectives and planning.
Table 6.1, sourced from the study carried out by Sashittal and Tankersley (1997),
shows important differences between the literature and actual research findings
concerning the planning and implementation interface.
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192 Chapter 6 / Implementation is the key

Deliberate strategy
Intended strategy Realised strategy

Unrealised Emergent
strategy strategy

Figure 6.1 Deliberate and emergent strategy

According to research carried out by Simkin and Dibb (1998), many UK companies are
quite happy to look for short-term returns and very few firms actually use long-term
marketing plans. They divided companies into the categories shown in Table 6.2.

Table 6.1 The planning and implementation interface: literature versus findings

The literature The findings

The literature frequently depicts marketing In the context of smaller industrial firms, the
planning and implementation as if: study finds that:
marketing planning and implementation are marketing planning and implementation are
independent, sequential processes, that marketing highly related – their relationship is
plans lead to market implementation characterised by responsiveness
marketing planning is a rational process, based marketing plans are often not much more than
on full market information and deliberate a set of sales goals and a rough notion about
evaluation of alternatives action steps, so strategies are emergent and
the nature of the marketing planning–
implementation interface and how it is
managed, significantly impacts market outcomes
formal strategies hold clear, well-defined formal marketing planning is not universally
actionable implications for implementation- conducted and clear, direct implications for
directed actions implementation actions are largely absent
future strategic gains in marketing are likely the relationship between marketing planning
from improvements in implementation instead and implementation processes is complex and
of improved strategy content (e.g. Bonoma 1985) isolating their impact on marketing outcomes
is speculative at best
effective plans lead to effective marketing marketing implementation effectiveness is a
implementation result of (a) the interaction between planners
and implementers, (b) the responsiveness in
planning and implementation and (c) direct
managerial actions
marketing’s effectiveness is indicated by sales marketing’s effectiveness is indicated by both
revenues, market share, customer these factors and psychosocial outcomes,
satisfaction and other indicators such as employee satisfaction, job security
and the creation of a good working environment

Source: Sashittal and Tankersley 1997

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Planned versus emergent implementation 193

Table 6.2 Diversity of criteria and approaches

Life is simple Forward thinking

How many customers Customer fit
Where located Future potential sales volumes
Profit levels Customers’ needs
Sales levels Likely differential advantage

Short but effective Analytical

Brand loyalty Weight Variable
contributions (£) 3 Market size
3 Margin
Market growth rates 3 Market share
Competitive intensity 3 Differential advantage/business
strengths
2 Competitive intensity
2 Market size trends
2 Propensity for long-term relationships
1 Quality of customers

Source: Simkin and Dibb

Simkin and Dibb’s findings show that marketers often focus on short-term financial
measures of market attractiveness at the expense of longer-term issues and criteria
relating to the marketing environment and customer relationships. Subjective meas-
ures are thus given greater importance than strategy formulation and implementation.
The analysis seems to indicate a gap between theory and practice regarding the
way in which marketers implement strategies. It is possible that well-defined plans
and segmentation analyses may be lacking in some instances, being replaced with ad
hoc responses to market changes and demands. Increasingly, environmental changes
demand rapid and flexible responses, forcing companies to be more flexible, collabo-
rative organisations, leading to a fusion of planning and implementation activities.
The Guinness case study illustrates the problems associated with a changing environ-
ment, reflecting changing consumer tastes that need to be accounted for when
implementing new marketing strategies.

CASE STUDY

Dark days for Guinness (by Owen Bowcott and Simon Bowers)

The drinks company behind Guinness is expected wine, Captain Morgan rum and Johnnie Walker
to reveal this week that the tally of pints of ‘the whisky. Guinness’ local troubles in Ireland are
black stuff’ drunk in Ireland has fallen by more expected to get lost among strong performances
than a quarter over the past eight years. The elsewhere in the group when Diageo reports full-
persistent decline, believed to have steepened this year results on Thursday. Analysts expect the
year, is expected to resurrect calls for Diageo to put world’s biggest drinks firm to make pre-tax profits
its beer business up for sale. Some investors believe of more than £2bn, with good figures from Latin
the company should focus on its core spirit and America, Russia and Asia. Worldwide, the amount
wine brands such as Smirnoff vodka, Blossom Hill of Guinness sold is actually expected to rise, as

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194 Chapter 6 / Implementation is the key

Case study continued

Diageo introduces the stout in bottles and cans to are Guinness-emblazoned T-shirts, jackets, footballs,
more markets, most recently Russia. It remains one rugby balls, golf balls, clocks, socks, oven gloves,
of the group’s eight ‘global priority brands’. But the pants (in pink and white), playing cards, cufflinks
decline in its homeland is seen by many as and fridge magnets. There are Guinness slippers (in
undermining the brand itself. Ireland is the shop black and cream fake fur) and Toucan-shaped salt
window where Diageo promotes Guinness to and pepper sets. The piped music is invariably an
visitors from around the world. It also trades off its Irish jig. ‘Ten million glasses of Guinness are enjoyed
Irish roots overseas – not least in the US. Diageo’s every day worldwide,’ the walls proclaim.
Storehouse visitor centre in the Guinness brewery, But in the bars of Dublin there is rather less
on the banks of the Liffey in Dublin, is said to be euphoria. ‘It’s not selling as well as it used to years
Ireland’s most popular tourist attraction. Tales about ago,’ says the barman at the Auld Dubliner in
the role of the river waters in creating the Guinness Temple Bar, a street buzzing with tourists and
flavour have passed into folklore and hordes of young Dubliners. ‘People say it’s an old man’s
tourists seeking the essence of Irish culture pursue a drink. Sales of Murphy’s [a rival stout from Cork]
traditional pilgrimage to the place. It is an are up. I remember 10 years ago, 70 per cent of our
obligatory stop on open-top bus tours. Beguiled by draught sales were Guinness. Now it’s about 50 per
the historical pageant of brand promotion, visitors cent. It’s €4.50 a pint here, but lager is €5. So it’s not
are mostly oblivious to the rapid domestic decline in the price.’ One veteran lunchtime customer, Jimmy
sales of Ireland’s most famous liquid export. Bars are Foley, says he has been drinking Guinness since he
closing and a new generation is buying lager, cider was 14. ‘It used to stick to the counter years ago,’ he
and wine, and taking it home to drink. Guinness’ says. ‘It’s thinned down a bit. You get a good pint
response has been to raise prices to defend its here, but in some pubs it’s muck. It’s so variable. I
profits, and to search out new customers by keep asking publicans why that is.’ Across the street
pumping out fresh variants, while continuing to at the Quays Bar, the owner, John McSweeney, says
Guinness is still his best seller, but adds: ‘The
exploit nostalgia for the traditional draught. Critics
population has changed so much. Pubs in the
suspect it has succeeded only in confusing loyal
suburbs have been badly affected by the smoking
drinkers’ tastebuds.
ban. There may be more people coming to live here
This month, Irish bars are serving Guinness
but there are fewer going out drinking.’
‘Toucan’, a brew which boasts ‘triple hops’ for a
smoother taste. Some describe it as sweeter and less ‘People ask for chardonnay’
bitter. Other pubs still offer Guinness Extra Cold, a ‘A lot of people like cider. It’s become very popular.
pint that was designed to boost consumption Magners has promoted its Irish cider and increased
during hot summers when sales usually fall back. sales by 30 per cent. Customers are also becoming
Meanwhile few opportunities are missed to trade on more demanding about wine. People ask for
the stout’s glorious past. On the wall outside the chardonnay or sauvignon blanc.’ Declining bar and
Guinness Storehouse, the public facade of the St overall alcohol sales are blamed on a series of
James Gate brewery, there are reproductions of changes: the smoking ban in pubs, stricter drink-
classic posters reminding visitors how it was once driving laws, greater consumption of wine,
marketed as nutritious, wholesome and pleasurable. condemnation of binge drinking and people taking
‘Guinness for Strength’ was the uplifting caption home cut-price lager from supermarkets and off
in one famous campaign drawn by the artist John licences. The effect on Guinness has been
Gilroy in the 1930s, depicting a man balancing a particularly severe because 90 per cent is sold in
steel girder above his head. ‘My Goodness, My Ireland as draught; relatively little in cans or bottles.
Guinness’ was another above a picture of a In February Diageo revealed Irish Guinness sales
zookeeper failing to entice a bear down from a post: had dropped 9 per cent in the first half of its
the animal dismisses the offer of a bun as it cradles a financial year – the steepest fall yet. Andrew
bottle. Inside the Storehouse visitors find a Morgan, President of Diageo Europe, had little hope
bewildering array of Guinness merchandise. There of an imminent reversal. ‘Historically, per capita
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The main factors influencing strategy implementation 195

Case study continued

consumption has been very high and we are likely Backstory

to see a reduction in pints consumed in an evening Arthur Guinness started brewing stout at the St
. . . that is likely to continue.’ The group has James Gate brewery, Dublin, in 1759 after inheriting
previously tinkered with marketing but appears to a dormant brewery in his godfather’s will. Little over
accept consumer trends are running away from a century later it was the world’s largest brewery and
Guinness in Ireland. The breweries have been left Arthur Guinness & Sons was listed on the London
underused. Two years ago Diageo closed its Park Stock Exchange. In 1990 the so-called ‘Guinness
Royal brewery in west London, transferring brewing Four’ – Ernest Saunders, Sir Jack Lyons, Anthony
for Britain back to Dublin. Sales declines in Ireland Parnes and Gerald Ronson – were convicted of
rather than Britain were behind the move. conspiring to ramp up the share price during a
At Toner’s, a traditional bar around the corner from £2.6bn bid for rival firm Distillers. In 1997, Guinness
the Dáil, politicians and civil servants are regulars. Jim entered into a £24bn merger with another drinks
Costello is head barman. ‘Guinness is still our best group, Grand Met, and the group was renamed
seller, but it’s mainly for working people in their Diageo. The company asserted its dominance of the
thirties to fifties,’ he says. ‘The company messed up drinks trade in 2003 by buying Seagram. Today, its
the taste putting in the Extra Cold Guinness. Most newly built headquarters in Park Royal, west
bars, like us, have had those taps taken out now . . . it London, towers over an empty Guinness brewery, a
was tasteless.’ Back outside the Guinness Storehouse, a much-loved 1930s building. Closed two years ago, it
young Dubliner tries to tempt departing tourists into was sold to developers last week.
a horse-drawn trap. Does he drink Guinness? ‘No, I Source: Owen Bowcott and Simon Bowers, The Guardian, 29
drink Budweiser,’ he says. ‘Guinness may do you a August 2006. Copyright Guardian News & Media Ltd 2006.
power of good, but it’s old-fashioned.’

What marketing strategies should be implemented to change Guinness’ fortunes in

Ireland? It is clear that the implementation of new strategies is vital to the com-
pany’s market positioning within its home marketplace.

The main factors influencing strategy implementation

The success of the implementation process – or, in other words, the actualisation of
more or less formal strategic plans – is determined and influenced by a series of ele-
ments located inside and outside the organisation. Figure 6.2. shows the main
elements that should be taken into account by managers and marketers in the
process of implementing strategic marketing plans.
Technology is both an internal and an external factor that shapes the choice and
the implementation of marketing strategies, but also influences all the other fac-
tors. Among other important internal factors are the organisational profile, people
and competitive advantage. While considering the external factors, it is necessary
to take into account the supply chain, competitive situation and customers. In the
following subsections, the specific influences of these factors will be discussed and
analysed, sometimes using specific illustrations of each one. This chapter ends with
a presentation of the complex role of technology in integrating all the elements of
the marketing implementation process.
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196 Chapter 6 / Implementation is the key

Internal Technology External

factors factors

Organisational Supply
profile chains

Marketing strategy
Competitive
People choice and
situation
implementation

Competitive
Customers
advantage

Figure 6.2 The internal and external factors that influence and determine the
development and implementation of marketing strategies

Internal factors
Organisational profile
The specific profile of an organisation is likely to determine the way in which mar-
keting strategies are selected and implemented. One of the most obvious elements
that will influence the implementation process is the size of the company. There
are specific elements that differentiate small firms from large corporations.
In the literature, there is much debate and various opinions about the classifica-
tion of companies according to their size. The UK ESRC Centre for Business
Research uses the following classification:
 micro firms – fewer than ten employees
 small firms – 10 to 99 employees
 medium-sized firms – 100 to 499 employees
 large firms – more than 500 employees.

However, the Canadian Small Business Research and Policy Unit defines the cate-
gories differently:
 small firms – fewer than 50 employees
 medium-sized firms – 50 to 299 employees
 large companies – more than 300 employees.

This variability of definitions is normal because, depending on the sector of activity,

there are various elements that can determine the size and profile of a firm. For exam-
ple, an Internet-based firm will tend to be smaller than traditional companies and,
therefore, in the online environment it is better to apply a different classification.
It is widely accepted that small and medium enterprises (SMEs) have characteris-
tics that differ from those of larger companies (Jennings and Beaver 1997). These
differences can be summarised in three main features:
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The main factors influencing strategy implementation 197

 SMEs have limited internal resources

 SMEs are managed in an entrepreneurial style
 SMEs usually have a small influence on the market environment.

SMEs, by definition, are small in size and this situation has a major significance on
their management and decision-making capability. Internally, SMEs are severely
restricted by their lack of financial resources, which limits their growth potential
(Carson et al. 1995). In many cases, they do not have an expert team for managing
various business functions professionally, but instead rely on generalist individuals
– usually the owner-manager. Externally, the SMEs’ small size means that it does
not have much control over their competitive environment. Because of this, they
are extremely vulnerable to adverse environmental change and competitive
threats. In SMEs, efforts are usually concentrated not on predicting and controlling
the operating environment, but on adapting as quickly as possible to the changing
demands of the business environment and implementing procedures to reduce or
eliminate the negative consequences of market threats.
The following case study presents some of the main strategic mistakes made by
small firms.

CASE STUDY

‘Do your homework’, French professor tells small firms (by John Dunn)

Small firms rarely find enough time to stop and one or two hundred contacts they have made, but
think about where they are going. Even when they they don’t have a proper view of their market.’
pay to get expert marketing advice from Professor As a result, Mr Millier says, they spread their
Paul Millier, head of industrial marketing at Lyon energy and resources over hundreds of clients
Business School in France, he says they still do not rather than concentrating on a few market niches
do their homework. which are likely to prove successful. ‘When you
‘They never sit down for even half an hour to are a small firm you are always very busy. You are
reflect on their situation. When I work with them more comfortable taking the car to visit a client
and tell them to write a marketing plan, they never or picking up the phone to arrange an
do it. They are too busy.’ appointment, rather than stopping to reflect on
It may seem a paradox, he says, but small firms your marketing strategy.’
face exactly the same problems as big ones in The biggest mistake a company can make is to
getting innovations accepted. ‘All companies have assume the market for a new idea is a homogeneous
to convince someone. In big companies, the whole, Mr Millier says. In fact, it consists of several
laboratory researcher has to convince his small market segments or niches, each different from the
business unit or marketing department. The others. The trick is to identify them and then
entrepreneur has to convince his bank manager or concentrate on just one or two that are the easiest
his shareholders. to attack.
‘Carrying out a proper marketing study is a very A big company can spend £25,000 on a
good way of persuading them. But with small marketing study. But a start-up business has not got
companies it’s always the same. A year or two after that sort of money, Mr Millier says. Instead it
they have started they have got a list of perhaps should sit back after the first year or so and analyse

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198 Chapter 6 / Implementation is the key

Case study continued

all its sales information to make a proper market So the first step to success is what he calls
segmentation. Then it should concentrate on those expansion – ‘let the product go in all directions’ –
areas where it can really bring an added value. to obtain feedback from customers and contacts.
Usually, small firms will have enough data. The Don’t rely on your own ideas of what will sell, he
problem, he says, is that they never make time to says. ‘If you try to guess what a client wants from
analyse it. ‘They really need help from outside.’ your product, you’re always wrong.’
In Lyon, the local chamber of commerce has The second step is market segmentation, says Mr
attempted to tackle the problem by subsidising the Millier. ‘After a year or two, stop for a while and
cost of a consultation with Millier. For around £800 take an overview of your market. Appraise each
local small firms receive training in analysing their segment, arranging them in order from the easiest
markets and help with drawing up a marketing to attack to the hardest and then start by choosing
plan. ‘I tell them to work on their case, but they the easiest.’
never do it,’ he sighs. Finally, he says: ‘Focus on the chosen segments
With a technological breakthrough, the only way and try desperately to solve any problem that
to succeed in marketing is to start from scratch, occurs until you’re the best in that market. Above
finding new applications, suggests Mr Millier. all, don’t give up. Try to take the biggest market
‘Use the creativity of your customers. The share in each niche. The stronger you are in your
individual is never clever enough or creative sector, the longer you will survive.’
enough to think of all the applications clients will Source: John Dunn, The Guardian, 8 June 1999. Copyright
think of,’ he warns. Guardian News & Media Ltd 1999.

In comparison to small firms, the large corporations usually have a wide range of
internal resources and capabilities that allow them to collect data, analyse the
market, choose the best strategic approach and implement it systematically accord-
ing to a predetermined plan. They are capable of influencing the market via
intensive marketing communication and modifying the competitive environment
by investing in or disinvesting from specific sectors of activity.
However, the small firms also have certain advantages in the implementation
process. Their small size and informal structure permits internal communication
and decision making processes to be much quicker than is possible in a large firm
as there is a more cohesive organisational culture. Therefore, a small firm will be
capable of adapting more quickly to the unpredictable changes in the competitive
environment and can follow more closely the consumption trends of the most
important clients. As their client base is also much smaller than those of large com-
panies, small organisations are capable of developing effective relationships with
clients, suppliers and business partners. Finally, the small size of the firm permits
the manager-entrepreneur to continuously have a unified vision of the firm, bal-
ancing dynamically the organisational strengths and weaknesses.
By contrast, many large corporations have transformed themselves into bureau-
cratic dinosaurs, with multiple hierarchical levels, formalised communication and
a slow, multi-stage, decision making process. The general manager or the CEO usu-
ally does not have first-hand experience of the various functions of the
organisation because of the sheer volume of data and simultaneous activities. The
top manager often relies on the various reports and messages – sometimes these are
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The main factors influencing strategy implementation 199

incomplete and misleading, sent by divisional managers and filtered by the secre-
tarial staff. A decision taken at corporate level may also need to be approved by a
scientific/experts committee, the board of directors and major investors.
It is obvious that these significant differences between firms will influence the
selection and implementation of marketing strategies. In a small firm, the strategic
objectives can be set up and adjusted several times during the implementation
process and the initial strategy can be modified flexibly to adapt its focus on new
threats/opportunities provided by the market. On the other hand, a large corpora-
tion will establish at top level a series of clear strategic objectives, often on a
long-term basis, which will be then divided accordingly for each divisional unit of
the organisation. The marketing strategy will also be developed on multiple hierar-
chical and functional levels, the specificity and flexibility of implementation
procedures growing significantly at the level of business units and project teams.
However, managing the complex interrelationship of various strategic projects,
interlocked at different hierarchical levels, can prove to be a complex puzzle, espe-
cially when the organisation experiences unexpected competitive situations.

People
Strategic implementation comprises actions made by people in order to achieve the
established objectives. From this perspective, no strategy can succeed if people are
not willing to act or else act differently from what was expected, either because
they do not understand the strategic aims and means or they have their particular
set of objectives.
The primary role of people in the implementation process outlines the impor-
tance of consensus, understanding and acceptance of strategic objectives and
plans. There are various methods for involving the employees in the design and
implementation of corporate strategies that are often complemented by various
financial and/or non-financial incentives.

Bottom-top and top-bottom planning and implementation

To create a real sense of participation in the selection and implementation of mar-
keting strategies, in some organisations the formulation of strategic plans is
initiated at task team (bottom) level and then, progressively, the established strate-
gic aims are integrated and developed further at project, department, business unit
and corporate (top) level. As a result of this participatory process, the top manage-
ment team ends up with a document that synthesises the vision of every person in
the organisation.
The implementation process then develops this process in the opposite direc-
tion, each implementation action and procedure being detailed as it is passed
down from the higher hierarchical levels (top) to various business units and organi-
sational divisions, until every employee (bottom) is provided with a set of activities
related to the strategic aims of the organisation. See Figure 6.3 for a summary of
this process.
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200 Chapter 6 / Implementation is the key

Key:
Bottom-top communication (strategy development)

Top-bottom communication (strategy implementation)

Figure 6.3 The bottom-top and the top-bottom methods of internal communication

Two main conditions are necessary for the success of this method.

1 the managers at various levels need to be able to synthesise and translate the
ideas and opinions of their subordinates (bottom-top communication) and then
transmit clear instructions for implementation actions that suit the skills of
every person in their department/team (top-bottom communication)
2 the application of this method should not be only a rhetorical exercise – some-
thing that is presented in theory to improve the image of managers internally,
but which is hardly applied in reality. Such attempts to mime organisational
democracy cannot be sustained on a long-term basis as they create disappoint-
ment and alienation among the employees.

Representation
An alternative method of participation in the process of strategy design and imple-
mentation is the creation of a work committee composed of representatives from
various groups of employees. Often, when using this method, each functional divi-
sion chooses a representative (such as accounting and finance, manufacturing,
supply, marketing, sales, research and development and so on) who brings the
expertise, vision and interests of people working in their department to the plan-
ning process. The work committee combines and conciliates the various
perspectives, creating a common implementation plan that is then developed
specifically for every functional department (see Figure 6.4).
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The main factors influencing strategy implementation 201

Legend: Strategy Development communication

Strategy Implementation communication

Figure 6.4 The representation method of participation in strategy development and

implementation

Direct participation
In small firms, the choice of strategy and the consequent development of an imple-
mentation process can be done by means of the direct participation of all the people
working in the organisation (see Figure 6.5). This participation can take the form of
informal meetings in which various aspects of the strategic process are considered
and debated, often using a problem-solving framework. Some manager-entrepreneurs
even organise regular general meetings in a relaxed atmosphere in order to facilitate
the exchange of opinions between members of staff.

Figure 6.5 The direct participation route to strategy development and implementation
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202 Chapter 6 / Implementation is the key

Direct management intervention

Despite their advantages, the participatory methods for strategic planning are not
suitable in all the situations. In conditions of market crisis, when the rapidity of
making and implementing a decision is paramount for the survival of the firm, the
manager or specialist in the problem area should take control and indicate quickly
the actions to be taken (see Figure 6.6). In these circumstances, people will fully
comply with the directives formulated by managers if they trust their competence
and vision. Otherwise, they will willingly or unwillingly create barriers that can
jeopardise the very existence of the organisation.
The importance of people to the process of strategy development and implemen-
tation increases the complexity of the marketing function. Marketing should be
considered a methodology for contacting and satisfying both the external and
internal customers (employees) of an organisation. A good balance between
inward-orientated and outward-orientated marketing is a prerequisite for success in
the twenty-first century marketplace.

Competitive advantage
Regarding the main competitive advantages a firm may have in relation to its com-
petitors, Michael Porter has defined three generic strategies.
 Cost leadership The company that is capable of producing and commercialising a
product for less than its competitors can adopt a cost leadership strategy. This
firm will usually target groups of consumers that have basic, unsophisticated
needs, requiring cheap and low-quality products and services.
 Differentiation This strategy has much more scope than the previous one.
Differentiation can be achieved on the basis of any specific organisational skill
or competence that gives a company a competitive advantage when compared

Figure 6.6 Direct management intervention as a way of implementing a strategy

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The main factors influencing strategy implementation 203

with other firms. Although it can be argued that the cost leadership strategy can
also by seen as a differentiation strategy, in this case, the accent is on differentia-
tion in terms of superior quality and service. In fact, while the cost leadership
strategy is characterised by successive reductions in the selling price, by differen-
tiating its product or service in terms of quality or service, a firm can charge a
premium price, yielding higher profit margins.
 Market niche leadership Sometimes, a company is capable of developing a highly
specialised expertise in satisfying a clearly defined group of customers with spe-
cific needs and demands. In this situation, the firm will apply a strategy of
market niche leadership. Again, this strategy can be viewed as a particular case of
differentiation, but, it is argued, market niche leadership is usually adopted by
small firms and they lack the resources needed to achieve cost leadership or dif-
ferentiation advantages.

Porter notes that the worst position for a firm to be in is ‘stuck in the middle’ – in
other words, trying to pursue simultaneously more than one competitive strategy.
It can be argued that, in the present market environment, when the competitive
pressures have multiplied substantially, this argument is no longer true. Some
highly differentiated firms are forced to reduce prices in order to sell their mer-
chandise because of fierce competition that has developed in their strategic group.
Porter’s classification also fails to integrate the role of the customer relationship
into the three alternative strategies.
A possible model of marketing strategy that outlines the strength of the relation-
ship with customers is presented in Figure 6.7.
From this perspective, cost leadership seems the least attractive strategy. This
view is further confirmed by the fact that it is difficult to maintain low-cost leader-
ship in a globalised, dynamic market (see the case study on Asda in Chapter 5) in
which new competitors can appear at any moment with better-value propositions.
Usually, cost leadership is an appropriate strategy for a short time period because
this strategic position is likely to be attacked by challengers who attempt to capture
the consumer groups interested in one-shot bargains.
The second strategic option given in Figure 6.7 is to differentiate your offer in
terms of its quality and the service provided, although the basic concept is highly
standardised. This is the strategy adopted by strong, traditional brands that appeal
to elitist groups of people. This can be an effective strategy for tribal marketing.

Cost Quality-based Market niche Personalised Value

leadership differentiation leadership marketing co-creation

Weak customer Strong customer

relationship relationship

Figure 6.7 Generic marketing strategies and the strength of the customer relationship
associated with them
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204 Chapter 6 / Implementation is the key

In order to further enhance the relationship with its customers, a firm has to
consider their needs in more specific detail. For instance, the implementation of a
personalised marketing approach, supported by customer relationship manage-
ment (CRM) procedures and technology, can significantly increase the satisfaction
and loyalty of customers.
To take this a stage further, the final strategic option given in Figure 6.7 could be
adopted. It is based on recognising that the client is not only a buyer and a con-
sumer but also a valuable partner in the strategic marketing process. The theory of
value co-creation presented by Prahalad and Ramaswamy (2004) is that consumers
represent important sources of information, ideas and skills that can be creatively
channelled and used by companies in order to improve the value of their offer (see
Chapter 10 for more details). This argument has been further developed by Vargo
and Lusch (2004), who considered that the present market conditions require the
development of a new marketing paradigm. They argue that the service paradigm
is the most appropriate for explaining the present relationships between compa-
nies and customers, including the way in which clients buy, use and consume
products and services. From this perspective, customer satisfaction is the result of a
long-term collaboration between firms and their customers that goes beyond the
moment of a transaction.
The influence of a firm’s competitive advantage on which strategy should be
chosen and implemented is clear and important. However, the existing framework
of strategic analysis has to be adapted to the new realities of the twenty-first cen-
tury, when a customer-centred approach should be adopted by any company that
wishes to be competitive. From this new perspective, the competitive value of an
internal skill varies depending on its capacity to enhance (or not enhance), the
long-term relationship between a company and its customers.

External factors
The supply chain
The implementation of a strategy has to be supported by the existing suppliers and
the very organisation of the supply chain. The suppliers are an essential part of the
value-added chain that is centred on a company and they are participants in the
value co-creation process.
The Industrial Marketing and Purchasing Group has developed a framework that
explains the development of relationships between industrial suppliers and compa-
nies. Building on the concept of exchange in marketing (Alderson 1957),
Håkansson and Prenkert (2004) have proposed a model of value creation in busi-
ness exchanges, by distinguishing between two separate, but interdependent,
value-creating processes:
 exchange value the efficiency of the exchange between the parties
 the use value how effectively the parties use each other’s resources.
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The main factors influencing strategy implementation 205

The exchange process can sometimes determine the gradual development of a rela-
tionship that transforms the open exchange process into a closed, dyadic system
(Engeström 1987). The parties collaborate because they are dependent on each
other’s resources, which are available only as a result of their cooperation. Borys
and Jemison (1989: 241) define value creation in this context as a ‘process by
which the capabilities of the partners are combined so that the competitive advan-
tage of either the hybrid or one or more of the partners are improved.’
Different types of interdependencies determine specific value-creation possibili-
ties (Håkansson and Persson 2004; Thompson 1967):
 sequential interdependence when the input of a partner’s activity is the output for
the other (Borys and Jemison 1989), the value being created as a result of
economies of integration
 pooled interdependence when the parties develop a common pool of resources
(Borys and Jemison 1989) that are then shared and used to create economies of
scale or scope
 reciprocal interdependence when the parties both exchange inputs and
outputs, progressively learning about each other, the main benefits of this being
either improved problem-solving capabilities and/or a more effective use
of resources.

No participant in the market environment can be self-sufficient – all companies

have to engage in exchanges with other participants as a condition of their sur-
vival. However, as various organisations possess heterogeneous resources, it makes
a difference which ones you interact with and how you interact with them.
Therefore, each actor will try to identify, and interact with, a partner that owns
highly valuable resources and is willing to collaborate (see Figure 6.8).
Considering the importance of supply chain relationships, choosing and imple-
menting a strategy will be influenced by the existing suppliers. The impact of that
decision will be more significant in a situation of strategic change, when the sched-
ule and the amounts of necessary supplies may be drastically modified.
Depending on the importance of the supplier and the strength of the relation-
ship between the supplier and the firm, a series of alternatives have to be taken
into account when implementing strategic change. As presented in Figure 6.9, it is
important for the firm to maintain the relationship already developed with suppli-
ers, as the initiation of a new relationship requires time and significant costs. In the
case of important suppliers, which the firm cannot afford to lose, the approach to
strategic change should take the form of a dyadic system rather than a focus on
independent objectives. Close collaboration and communication between the firm
and the supplier permits the identification of possible strategic challenges that can
be properly addressed simultaneously by the two organisations in order to main-
tain the cohesion and coherence of the relationship.
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206 Chapter 6 / Implementation is the key

Context of business exchange activity

Interaction
Actor A Actor B
possessing resource X possessing resource Y

A positive trade-off between benefits

and sacrifices of involvement leading
to value co-creation potential

Value co-creating process depending on closure of activity system

Buying/selling Producing/using Cooperative Networking

Process A Process B Process C Process D
Achieving Achieving Achieving Achieving
efficiency in a efficiency in a effectiveness in a effectiveness in a
buying/selling producing/using cooperative activity networking activity
activity system by activity system by system by exploiting system by exploiting
exploiting sequential exploiting sequential reciprocal reciprocal
interdependencies pooled interdependencies interdependencies
interdependencies

Figure 6.8 Different value-creating processes exploit different types of interdependencies

to achieve efficiency or effectiveness
Source: Forsström 2005, p.79

Competitive situation
The competitive situation of a firm within its market will determine which specific
strategy and approach will be used in the implementation stage. The competitive situ-
ation can be discovered by analysing the structure of the strategic group in which the
company competes and defining the firm’s position in relation to its competitors.

Strong
Complex interaction
Communication to design and
Strength of relationship

Renegotiation of implement the best

supply contracts strategic option for
the two parties

Change of supply Reinforce the

orders relationship and
Replacement of design mutually
suppliers beneficial strategies
Weak
Low High
Importance of supplier

Figure 6.9 Implementation of strategic change in the relationship with suppliers

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The main factors influencing strategy implementation 207

The structure of the competitive group can be assessed by using the bidimensional
matrix presented in Figure 6.10, the two axes representing the number of direct com-
petitors there are within the strategic group and the intensity of the competition.
When the market is characterised by a small number of competitors and a low
intensity of competition, it is a stalemate situation. This is usually the case when a
market is in decline, no specific technological or strategic innovation is possible
and a few surviving firms try to stay longer in the market. The firms in this situa-
tion should choose either harvesting – selling remaining stocks as quickly as
possible, for the best possible price – or managing a decline-stage leadership – stay-
ing in the market longer than other firms that apply the harvesting strategy. With
the latter option, a company can become a major player in a declining market that
few wish to serve.
Being within a group with few competitors and a high level of competitiveness is
to be in the close race. This is mainly characteristic of markets in development,
with products either in the launch or growth stages. The firms in this category
should focus on quick reactions to competitors’ moves and taking aggressive mar-
keting actions to maximise their market share.
A market in which there are many competitors but a low competitive intensity is
usually in the mature stage – the quiet pond. The strategic group has reached a posi-
tion of equilibrium and the companies in it are happy to preserve the status quo.
The strategy to choose here will recycle the same procedures that have proven to be
successful in the past as the companies in this group will strive to maintain the
existing competitive balance.
Finally, a cyclone market – one with a large number of competitors and a high
level of competitive intensity – often occurs in high-tech areas of the market where
the pace of technological innovation and market change is extremely rapid. The
strategy to choose for this market would most probably focus on technology and
innovation leadership, while the implementation process should be highly flexible
in order to allow the firm to respond quickly to any competitive challenge.
The competitive situation a company is in can be considered from two different
perspectives:

High
Intensity of competition

Close race Cyclone

Stalemate Quiet pond

Low
Small Large
Number of competitors

Figure 6.10 Assessing the competitive situation facing a firm in its market
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208 Chapter 6 / Implementation is the key

 its approach to the introduction of new products

 its competitive position within its strategic group.

A firm’s approach to new products being introduced can put it into the category of
either pioneers or followers (this is also discussed in the time pentagon in Chapter
1). Both these positions have their specific advantages and disadvantages in terms
of strategic position (see Table 6.3).
In absolute terms, there is no ‘best’ position because the strategic success of spe-
cific pioneers or followers will ultimately depend on their capacity to mitigate
between existing advantages and disadvantages, enhancing the strength of their
position and reducing competitive threats.
Choosing which strategy to use and how to implement it are also influenced by
the competitive position of the company within its strategic group. The group
leader will have a different impact on the market than a challenger, so this perspec-
tive will also influence the strategic approach of the organisation.
The various strategies available to market leaders are presented in Figure 6.11.
 Direct confrontation is applied in a situation in which the strategic group leader
feels a direct and immediate threat from one or more challengers. The imple-
mentation of this strategy can be proactive – when the leader has clear
information that another competitor will challenge its position in the near
future – or reactive – when the competitive threat is already present. In this par-
ticular case, the leader will improve the customer value of the product/service
that is directly threatened by the challenger.
 Flanking attack is a manoeuvre of differentiation, by means of which the leader
attacks a weak side of the challenger. This strategy can, again, be proactive or
reactive and takes place when there is a specific possibility of market expansion
that is targeted by both the leader and the challenger.

Table 6.3 The advantages and disadvantages of being pioneers and followers

Pioneer position Follower position

Advantages Advantages
 Economies of scale and experience  Learn from the pioneer strategy and avoid
 Create barriers for future market entry marketing, product and positioning mistakes
 Define the structure of the market  Take advantage of a new technological wave
 Influence on consumer choice criteria  Penetrate an already developed market
and attitudes
 Possibility of pre-empting scarce resources
 Occupy the best distribution channels
Disadvantages Disadvantages
 High investments  Consumers’ perceptions and attitudes already
 High risks shaped by the pioneer
 Difficulties in segmenting the market and  Weaker brand reputation
choosing the strategic position  Loss of high profits in the launching phase
 Unpredictable consumer reaction  Possible market entry barriers created by
 Market development efforts the pioneer
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The main factors influencing strategy implementation 209

 Leapfrog strategy consists of developing a second generation of product/service

using superior resources and new technology. This new offer gives customers
improved quality and makes the existing products of competing organisations
out of date.
 Encirclement is an extremely aggressive manoeuvre that can be applied to either
completely eliminate or discipline a threatening challenger. The market leader
uses its superior level of resources and capabilities to expand the range of its
product/service offering, addressing the needs of various consumer subgroups
within the target market, including the existing customers of the challenger.
 Consolidation is a more defensive strategy. The leader attempts to take advantage
of its superior market reputation and consolidates its position, raising new
market entry barriers.
 Strategic withdrawal is applied by the leader when its resources are thinly divided
between too many projects, weakening its competitive position. The organisa-
tion can make an in-depth analysis of its specific strengths and weaknesses in
the context of the competitive situation and then decide which projects to aban-
don and those to keep and develop further.
 Expansion is implemented when the market is developing quickly in directions
that do not lead to direct confrontation with other competitors. However, by
quickly filling the gaps in consumer demand, the leader is eliminating possible
expansion opportunities for its challengers.

The strategic options available for challengers are represented in Figure 6.12. Most
of them are similar to those for market leaders, such as the frontal attack, flanking
attack, leapfrog strategy, encirclement and expansion. The main difference
between the leader and the challenger in the implementation of these strategic
options is the fact that the leader often takes the initiative even before the market
is ready, attempting to develop the demand for a product/service. The challenger,
on the other hand, because of its limited resources and weaker market reputation,
is more inclined to wait for favourable market circumstances, attempting to iden-
tify new competitive opportunities and exploit them quicker than the leader.

Leapfrog attack

Flanking attack
– proactive
– reactive

Direct confrontation Consolidation

CHALLENGER – proactive
Strategic
– reactive LEADER
withdrawal

Encirclement Expansion

Figure 6.11 Strategies available to market leaders

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210 Chapter 6 / Implementation is the key

Leapfrog strategy

Flanking attack

Guerilla Target Frontal

Challenger
attacks competitor attack

Expansion
Encirclement

Figure 6.12 Strategies available to challengers

An additional strategic option that is specific to challengers is the guerrilla attack.

Guerrilla attack operations are launched for a short time period on specific targets,
in order to destabilise the position of the competitor. A good example of a guerrilla
attack is a price reduction promotion lasting two weeks in a major city for a prod-
uct that competes directly with the market leader’s.
The strategic options presented in Figures 6.11 and 6.12 are derived from classi-
cal warfare techniques and their diversity indicates the complexity of strategic
choice and implementation in the modern market environment. Of course, there is
no general recipe for success. Starting from a good understanding of its position
within the strategic group, each firm has to identify the best strategy and imple-
mentation method specifically for its organisational profile and objectives. The
complexity of the strategic confrontation can be increased even further when a
company uses a combination of the strategies presented above.

Customers
Customers are arguably the most important factor that determines which market-
ing strategy is chosen and how it is implemented. They represent both the trigger
for strategic change and a key influence on the way in which the strategy is imple-
mented. As a general rule, the implementation of any marketing strategy must
have as its main objectives to increase the value for customers and enhance the
relationship with the company’s clients.
Recent advances in information and communication technologies (ICT) have
empowered customers. The traditional passive role of customers in market transac-
tions has shifted so that now they have a more active stance because of the ready
availability of information, globalisation, ability to network and desire to experi-
ment (Prahalad and Ramaswamy 2004). Using the Internet, customers can easily
access, select and compare information regarding the available offers of goods and
services, globally. More than that, they can express their own views and opinions
regarding personal consumption experiences, creating lasting online knowledge
that can benefit other consumers.
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The main factors influencing strategy implementation 211

As a result of enhanced communication and interactive access to information,

consumers have become more knowledgeable and active in the way they relate to
the market environment.
Lawer (2004) identifies the rise of the ‘one minute customer’, who has an
increased technological ability to find the necessary market information from all
different sources and initiates a new type of contact with companies. This new cus-
tomer is characterised by four main requirements during such interactions.
 Value for time The recent technological advances in ICT compress and enrich
time and, as a consequence, accelerate and fragment human activity. In these
conditions, time rapidly becomes a valuable currency for customers and organi-
sations alike. The new customers perceive saving time and being efficient as
important quality dimensions of their interaction with firms (Stalk 1988).
 Value for attention The high level of interactivity of the new media channels offer
the customer increased control over the information consumed. On the other
hand, multiple marketing messages with different contents are competing for
consumers’ attention. Godin (1999) estimates that consumers in the USA are
exposed to roughly 5000 advertising messages every day. To protect themselves,
modern customers learn how to use ICT to select and control the number and
content of these received messages and, increasingly, are capable of identifying
the marketing methods used by companies to step up commercial pressure and
manipulate emotions. As a result, the marketing media overload leads to lower
levels of consumer attention as people are willing to access only personally
meaningful messages.
 Control of personal data The implementation of information intensive data-
mining techniques and aggressive customer relationship campaigns has
increased modern customers’ awareness of the value of their personal data. In an
increasingly competitive environment, the consumers quickly learn how to
leverage the information about their private buying and consumption behaviour
that has become a strategic resource for companies.
 Life-enhancing services Customers are focusing more and more on services rather
than products, looking for life-enhancing experiences (Vargo and Lusch 2004).

As we saw for suppliers, the process of implementing strategies becomes most difficult
when given scenarios undergo change. Figure 6.13 presents the implementation meas-
ures that have to be considered by a firm in various market situations, depending on
the intensity of change and the characteristics of the targeted consumer group.
The existence of a responsive (CRM) system is an invaluable tool for implement-
ing strategies, permitting an in-depth understanding of consumer behaviour and
preferences and indicating the performances related to present and past marketing
strategy implementation processes. By comparing these two elements, marketers
are able to identify the performance gaps in the implementation process and
design solutions for their reduction or elimination, depending on the success pat-
terns that are discerned.
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212 Chapter 6 / Implementation is the key

New
Customer education Strategic repositioning
Communicating Market development
customer touchpoints Consumer education

Consumer group
and marketing Relationship
procedures development

Communicating the
Communicating the rationale and the
main elements of elements of the
strategic change strategic change
Consumer assistance
Existent
Low High
Intensity of strategic change

Figure 6.13 The implementation of marketing strategies in various consumer market

contexts

The CRM system is a part of the central information system of the organisation
and probably the most important element of the marketing knowledge infrastruc-
ture. The main parts of the CRM system are represented in Figure 6.14. The
interactions between company and customer are registered by real-time data mining
tools that collect and transmit data as inputs to a centralised customer database.
When a specific department requests information, a specific data processing proto-
col is selected and applied, resulting in information that it is then transmitted to the
department as an input for its process of situation analysis and decision making.

Data mining
tools

Data
input

Centralised
Information
Department customer
request database

Data
processing

Information
input Information

Figure 6.14 The use of an integrated CRM system

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The impact of technology on marketing implementation 213

The rapid development of new IT applications, often connected with the

Internet, have significantly increased the capacity of business organisations to
access, collect, store, process and analyse customer information – and in real-time.
This is a good example of the impact of technology on the implementation process
both directly – acting on which marketing strategies are chosen and how they are
implemented – and indirectly – influencing the other elements that impact the
choice and implementation of marketing strategies.

The impact of technology on marketing implementation

The success of many marketing strategies depends on the effective utilisation of
sophisticated IT (Berthon et al. 1996; Kitchen 1999; Hoffman and Novak 1996;
O’Connor and Galvin 1997 and 1998). For example, the rapid growth of the
Internet and Internet marketing suggests that IT has an important role to play in
the implementation of effective online marketing communications (Kassaye 1999).
Internet-based technology can facilitate information dissemination, file transfor-
mation, information gathering, as well as searching and browsing activities (Keeler
1995; O’Connor and Galvin 1997). Thus, for the business and marketing, better utili-
sation of state-of-the-art IT becomes a fundamental task – one that is too important
to be exclusively delegated to IT professionals (O’Connor and Galvin 1998).
Technological deployment corresponds to the way in which companies plan and
manage IT to benefit from its potential and effectiveness in the implementation of
marketing strategies (Croteau and Bergeron 1991, 1998 and 2001). There are six
components to deploying technology.
 Strategic use of IT IT applications are used to help the organisation gain a competi-
tive advantage, reduce competitive disadvantage or meet other strategic
enterprise objectives (Bergeron et al. 1991; Bergeron and Raymond 1995).
 Management of IT IT-related activities such as the usage of current and new tech-
nologies, the development of specific IT applications and the degree of IT usage
practised by the employees are examined (Bergeron and Raymond 1995; Das et
al. 1991).
 Role of the information system/information technology IS/IT The organisational
importance of IT planning, the quality of the alignment of IT with the organisa-
tional structure, the effectiveness of software development and the management
of communication networks (Bergeron and Raymond 1995) need to be looked at
carefully here.
 Technological infrastructure The IT architecture and formalised procedures used to
guide and control the firm’s IT resources (Das et al. 1991) should be considered.
 Organisational infrastructure This is the internal functioning of IT/IS develop-
ment, such as structure, processes, reporting relationships, support groups and
skills (Das et al. 1991; Henderson and Venkatraman 1999).
 Administrative infrastructure This concerns the managerial policies and actions
that influence and guide the work of employees involved with the IT/IS develop-
ment (Das et al. 1991).
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214 Chapter 6 / Implementation is the key

Marketing is, and will continue to be, heavily influenced by IT. Marketers who do
not embrace the current technology will not survive in the postmodern marketing
environment (Bruce et al. 1996, Komenar 1997).
The following case study illustrates the role of technology in enhancing the flex-
ibility and competitiveness of modern companies.

CASE STUDY

What makes a business more agile?

In order to remain productive and competitive, Heath sees the traditional office eventually
businesses need to be agile. Staff empowerment, cost extending outwards through networks which staff
efficiency and improved communications are some can tap into. ‘The office will be on your laptop,
of the key elements that define business agility. PDA and phone. All the technology you get in the
Over the last few years a huge wave of office will be on a mobile device.’
technological innovation has been unleashed As the world becomes increasingly
which is rapidly changing society, the nature of interconnected through a plethora of fast and
work and the ways in which companies are pervasive communications platforms and as
interacting with their customers. customers demand service every day of the week,
The introduction of text messaging, always-on companies are having to introduce flexible working
Internet connectivity and the possibilities of mobile arrangements. The traditional nine-to-five model is
working are prompting companies to fundamentally no longer adequate in a 24/7 environment and
review their internal processes and the way they employers also know if they want to retain skilled
operate in order that they can keep up and survive in staff, especially those with children and other
a more dynamic and demanding society. family obligations, they are going to have to be
Martin Heath, Head of Communications open to part-time working and job-sharing
Consultancy for KPMG in the UK, says the biggest arrangements. Otherwise they could severely
test for companies in today’s rapidly moving restrict the resources they can recruit from.
marketplace is learning how to manage the ‘Organisations can become more agile by
implementation of new technologies that will deploying infrastructures that support them
enable them to respond faster to change. becoming agile. Your IT structure and networks
‘Technology is a means to an end. Simply putting have to permit flexible job patterns, instant
in a new broadband link does not create any value messaging and videoconferencing,’ explains Danny
in itself. It’s only when you change your strategies McLaughlin, Managing Director of BT Major
and automate your processes that technology can Business, a division of BT Retail. He argues that
bring business benefits. Technology is an enabler businesses need to take full account of the fact that
and you need to make sure you change your electronic communications are fundamentally
structures to account for that technology.’ changing the nature of work. ‘Work is what you do
Despite the difficulties associated with and not where you go. We use Web-based meetings
implementing new technologies, he believes that so we can bring together the right specialists who
companies need to embrace new concepts such as may be based in different parts of the country. But
mobile working in order for them to remain agile there has to be the right infrastructure in place
and productive in the marketplace. ‘As soon as any before you can have an e-enabled workforce.’
of us are away from our desks, our productivity McLaughlin adds that the company has plans to
goes down. We no longer have access to our e-mail. provide all of its 5200 home workers with access to
We no longer have access to knowledge ADSL. He argues that if companies can allow
management systems.’ individuals to work more on their own terms then
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The impact of technology on marketing implementation 215

Case study continued

they will feel empowered and motivated, which is ‘Companies that tend to be successful have more
likely to lead to a rise in productivity levels. ‘If you strategic views of their information technology.’ He
create a satisfied employee base then it is going to points out that it is not just the private sector that
impact upon customer satisfaction. If you equip is harnessing technology in order to become more
people with the right kind of infrastructure and agile; local councils across the UK are piloting Web-
tools, they are more empowered to do their job and based technologies so they can, for example,
they can make decisions quicker.’ purchase goods and services online in paper-less
In order to make itself more agile, Virgin Atlantic environments. Leeds City Council has set up a
recently launched a collaborative website for its 18 Web-based tendering service so suppliers can log on
marketing offices around the world. The site stores and see what is being tendered and then download
product photographs, approved copy, videos of ads, and upload tender information.
poster campaigns and radio commercials in audio ‘It’s giving people who want to apply for the
formats. The idea behind this online collaborative Council’s contracts more time to do it. Instead of
tool is that the airline’s international marketing waiting for material to be published in the
teams can upload their work, access material and newspaper and then contacting us, they can go
share ideas in real time with others around the straight in and download it,’ explains the Council’s
world. There are also contact numbers for external Information Manager Teddi Coutts.
agencies who carried out specific types of work so And councils in Cornwall have clubbed together
they can be rehired for future campaigns. to pilot advanced multifunctional smart cards
‘It’s improving internal processes simply because which can be used by a variety of organisations to
it channels everyone to one specific area. It means make services more accessible to people in rural
we can be more responsive globally, whereas before areas. In the initial roll-out, cards are being made
it might have taken a bit of time for campaigns to available through schools for registration and meals
kick in,’ explains Bill Gosbee, Virgin Atlantic’s UK payments. The cards are being used in libraries (as
Design Manager. He adds that new collaborative replacements for standard cards) and for paying for
Web-based tools have a unifying effect and he feels tickets in local car parks and on buses.
they are most relevant for companies with a ‘The world outside a company’s four walls is quite
fragmented workforce. different from the world about four years ago.
Christoph Michel, Chief Executive of Hyperwave, Enterprises have to have very fluid structures and
which develops collaborative knowledge must quickly align their skills and knowledge to
management systems, has helped advertising deliver what a market opportunity wants,’ explains
agencies to set up sites similar to the one deployed Andy Mulholland, Chief Technology Officer for
by Virgin Atlantic. He believes it is in the self- Cap Gemini Ernst and Young. He says the speed at
interests of companies to disseminate and share which a company responds has to be dictated by
information more quickly online. ‘Essentially they the market and not by the traditional internal
are after efficiencies for themselves and the structures of the organisation.
business. The advertising gets done a lot quicker He explains how companies such as Dell are now
and they can have meetings online.’ He adds that enjoying competitive advantages because they are
easily searchable information can make it less using Web-based channels to make new computers
expensive for businesses to expand; local offices can to order, while car companies such as Audi are
easily tap into existing corporate knowledge and enabling customers to configure the car models of
call up previous examples of work to help them their choice online. Tasks that were traditionally
pitch to new clients without having to pay to fly in performed by a sales team are being supported by
executives from other countries to assist them. Web-based tools that help customers design and
Jonas Hjerpe, Marketing Director for Parity swiftly order new products.
Technology, whose clients include Consignia, The agility of a business depends to a large extent
believes that a flexible IT architecture is crucial to on the ability of management teams to rethink how
the ability of a company to remain agile. their companies operate. And many business

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216 Chapter 6 / Implementation is the key

Case study continued

consultants believe that UK directors are still a long Finding smart ways to apply technology is not
way off from fully understanding how they can best easy. Technology can facilitate home working, for
integrate new technologies into their operations. example, and create significant savings as space is
Take mobile communications, for example. It not required in traditional office premises. Such
sounds promising in theory in terms of being able practices are open to abuse and require a significant
to send marketing information to consumers on amount of trust. It is by no means clear to
the move. But not many businesses appear fully companies how you manage home workers
geared up to deliver tailored individual marketing effectively and keep them motivated. Nor is home
messages to consumers on mobile devices. Many working suited to everyone. Many prefer the social
are still mass media orientated. interaction of working with other people.
Mobile working sets executives free from their While there are clearly many new possibilities,
desks but it has its disadvantages as well, as KPMG there is still some way to go before the concept of
points out. Not least is the fact that many business agility is successfully mastered by UK
companies are extremely worried about the security directors. ‘I don’t think the process has been
of their data as it travels out of the physical office cracked yet,’ says Heath. ‘We’re just at the stage
and through the air to someone’s mobile device where we are beginning to learn how to deal with
which could be lost or stolen. ‘There are big this huge wave of technology innovation.’
concerns over security,’ admits Heath. ‘I think the Source: Justin Hunt, ‘What makes a business more agile’,
security issues are manageable. But the real debate The Guardian, 9 May 2002
is around the changing work practice issues.’

IT-related organisational benefits

IT can benefit organisations in many ways, but it has to be successfully managed.
The sensible use of IT allows the effective design and implementation of creative
and innovative strategies that are required in the present complex and dynamic
marketplace (Schlegelmilch and Sinkovic 1998). The application of IT helps mar-
keting with automation, information and transformation (Remenyi et al. 1995;
Zuboff 1988).

Automation
Traditionally, IT has been primarily used for automating manual systems of record-
ing data. This function is useful for routine and tactical activities, because it can
significantly improve efficiency (Peattie and Peters 1998).

Information
This is the next stage of development, in which IT systems are used to translate
data into useful information that can be utilised for developing and implementing
marketing strategies. At this stage, the data obtained via automation is scrutinised
and converted into information.
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The impact of technology on marketing implementation 217

Strategic use

Administrative
impleme Management
infrastructure
ing nt
et

at
rk

ion
Ma
Organisation
and IT

Role of IT IT infrastructure

Technology
structure

Figure 6.15 IT strategies

Transformation
This stage is reached when organisations fully embrace IT and start to ‘think out of
the box’ (Schegelmilch and Sinkovic 1998). Then, companies start to focus on new
ideas and concentrate on developing, adapting and using knowledge to transform
themselves into effective market-orientated organisations (Brady et al. 1999).
IT is now the key driver in most businesses and many companies are conducting
business in cyberspace. Equally, with the growth of the Internet, companies also
need to be able to work and undertake transactions on a global basis. Because of
this, many companies that do implement effective IT systems to deal with value
chains on a global basis show good returns on their investment.

Information and knowledge creation

Specific areas of IT applications in marketing are growing. One area is the systems
that provide market intelligence on a global basis. As companies expand their IT
infrastructures to a global level, they are increasingly looking to access systems that
can provide them with business intelligence. Business intelligence gathering is
becoming a complex issue for most companies as the technology develops further.
Access to information is now possible via hard-wired systems as well as wireless
protocols. Mobile technologies must also be integrated into these intelligence-
gathering systems.
Another important area of growth is knowledge management (KM). Knowledge
management services include consulting, implementation, operation (outsourc-
ing), maintenance and training. Increasingly, corporations are beginning to realise
that implementing a KM system is not merely a technical undertaking but also
requires management endorsement, employee acceptance and buy-in.
Implementing new systems means transforming people, processes and technology
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218 Chapter 6 / Implementation is the key

in order to address the specific needs of an organisation. In the twenty-first cen-

tury, companies increasingly need to:
 build knowledge capital and invest in efforts that create long-term competitive
advantage rather than short-term return on investment (ROI)
 link knowledge areas by developing conceptual and transactional areas of
knowledge contained internally, which is achieved by connecting planning,
research, marketing, e-business and customer relationships
 make sound business decisions based on knowledge.

An IT knowledge repository has many benefits, as shown in Figure 6.16.

This type of model is suitable for most businesses, especially those in telecom-
munications and financial services markets. In general, linking company data to
market information can lead to greater marketing insights and better strategic
planning. Better planning, in turn, can lead to better relationships with vendors
and customers, and help the organisation to minimise competitive threats.

Digital loyalty networks, e-differentiated supply chain and customer

relationship management
In a survey undertaken by Deloitte Hoskins (Deloitte Research 2003), 850 manufac-
turing executives were interviewed in 35 countries across Asia-Pacific, Europe,
North America, Latin America and South Africa. They found that if manufacturers
successfully link their supply chain management (SCM) and CRM to create loyalty
networks, they can generate significant competitive advantages. Companies that
collaborate extensively with their supply chain partners (suppliers, distributors/
retailers and customers) and use effective procedures of internal communication
and CRM usually exceed their goals for customer loyalty, performing far better
than most other companies (see Figure 6.17).
On the vertical axis, companies are classified according to their supply chain col-
laboration index. This index is based on executives’ answers to the question ‘How
well has your company integrated with suppliers, distributors/retailers, customers

Vendor assessments Accurate chargebacks

TACTICAL

Competitor data Online procurement

Windowsxp Streamlined billing and payments

IT knowledge
Consulting fees Better decisionmaking
repository
STRATEGIC

Faster global integration or

Asset purchases after mergers and acquisition
Technical evaluations Drive business objectives
Approved configurations Innovations
Vendor’s standards

Figure 6.16 The benefits of an IT knowledge repository

Source: Flohr 2000
MAST_C06.QXD 24/4/07 14:02 Page 219

The impact of technology on marketing implementation 219

High
Collaborators (26%) Loyalty networkers (13%)

Supply chain collaboration

Market takers (40%) Loyalists (15%)

Low
Low High
Customer loyalty
Note: Size of circles represents share of companies interviewed

Figure 6.17 Digital loyalty network quadrant

Source: Deloitte Research 2003, www.dc.com/obx Deloitte Consulting

and internally? – each group measured on a five-point scale. Because four elements
were being measured, the index can take on values from 0 to 20, with 0 being the
lowest score and 20 the highest. The results were as follows (and graphically repre-
sented in Figure 6.17).
 Loyalty networkers (in the upper right-hand quadrant) are those companies that
scored 4 or 5 on customer loyalty/retention and 14 or higher on the collabora-
tion index. Only 13 per cent of all manufacturers in the survey were classified as
loyalty networkers.
 Collaborators (upper left-hand quadrant) scored 14 or higher on the collabora-
tion index. However, despite these efforts, they were less successful in terms of
building customer loyalty, scoring 3 or less, or did not measure customer loy-
alty/retention. The result was that 26 per cent of companies were classified as
collaborators.
 Loyalists (lower right-hand quadrant) excelled in generating loyal customers,
scoring 4 or 5 for customer loyalty/retention. However, their supply chains were
not well integrated (scoring 13 or below on the integration index). About 14 per
cent of companies surveyed were loyalists.
 Market takers (lower left-hand quadrant) constituted the remaining 46 per cent of
all respondents. These companies neither succeeded in integrating with supply
chain partners (scoring 13 or below on the collaboration index) nor achieved
much success generating customer loyalty (scoring 3 or less or did not measure
customer loyalty/retention).
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220 Chapter 6 / Implementation is the key

These results again demonstrate the importance of information networks that

straddle the globe and lead to effective customer management and marketing
implementation. Companies surveyed in this research tended to be large multi-
national manufacturing enterprises. As IT investments grow and the technologies
themselves become increasingly sophisticated, companies need to understand IT
applications’ potential for implementing marketing strategies and, especially, the
possible flexibility that good information systems offer marketers, helping to fuse
together the planning and implementation where they interface. Technology offers
competitive advantages and can be used to create linkages between activities,
affecting the cost and potential differentiation of products and services. The
Internet, apart from creating new institutions, such as online auctions and digital
marketplaces, has had a great impact on reconfiguring existing industries (Porter
2001). Therefore, when implementing marketing strategies, attention must be paid
to the impact of technology on a company’s value chain.
The above discussion illustrates the great impact that technology has on imple-
menting marketing strategies. In addition to this, it is necessary to consider its
impact on CRM.

Customer relationships
Kalakota and Robinson (1999) explain the value of integrating processes when
building relationships, leading to three phases in CRM. Their argument is that, as
intimacy grows over time, a customer relationship can be progressively developed
and reinforced. However, companies need to implement such marketing strategies
speedily as the competition can ‘lock in’ potential customers. Customers, too, have
a variety of partners with whom they can deal.
There are three phases in CRM, each demanding a different kind of relationship
over time (see Figure 6.18).
 Acquiring new customers Customers can be acquired by promoting product/ser-
vice leadership that pushes performance boundaries with respect to convenience
and innovation. The value proposition to the customer is the offer of a superior
product, backed by excellent service.
 Enhancing the profitability of existing customers This relationship can be encour-
aged by excellence in cross-selling and selling upmarket products and services.
 Retaining profitable customers for life Retention focuses on making the service
adaptable and ascertaining customers’ needs. The value proposition for cus-
tomers consists of a proactive relationship that works in their best interests.
Retaining customers costs less than acquiring new ones.

As all the phases of CRM are interrelated, systems integration and, more impor-
tantly, people and process integration are crucial for success. It is always difficult
for companies to align all three phases and correctly implement each one. A com-
pany should try to excel in implementing one particular area without losing sight
of the other two. Much depends on the types of technology that are used.
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Customer relationships 221

Acquire

Differentiation
•innovation
•convenience

Bundling
•customer
reduce cost
•
Adaptability

En
• service
•
listening
new products

n
tai
ha

Re
nc
e

Figure 6.18 The three phases of CRM

Source: Adapted from Kalakota and Robinson 1999

Companies need to have the right technology and software to excel in one area
and then support this with their strength in the other two. The best companies are
able to manage all the facets of CRM.
This whole area is changing as a result of the rise of mobile communications. As
greater numbers of individuals shift towards mobile communications, radical and
subtle changes in the ways in which marketing strategies are implemented need to
be considered by most organisations.
Customer retention is an increasingly important aspect of CRM. The cost of
retaining a current customer by using relationship marketing strategies saves a
company five times the cost of recruiting a new customer (Rosenberg and Czepiel
1984). Companies are also able to boost their profits by 100 per cent by retaining
5 per cent of their customers (Reichheld and Sasser 1990). One of the intangible
aspects of having a good relationship marketing strategy is the ability to test-
market new products prior to implementing marketing strategies, which can
significantly reduce competitive risks (Shani and Chalasani 1992).
The technology drivers also create the following possibilities:
 salespeople, on the road, can be updated on customers’ requirements as neces-
sary and this information can be used to enhance CRM and logistics operations
 as mobile devices become more sophisticated, customers will be able to access
the inventories of their suppliers, which means that they can place orders
and specify delivery times and this can be done via links to an intranet or
the Internet
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222 Chapter 6 / Implementation is the key

 individuals, apart from talking to others, will also be able to communicate with
machines (this is already a reality in some instances, consumers being able to
buy soft drinks, chocolates and car parking places via mobile devices)
 consumers will be able to pay for various products and services via secure con-
nections available via mobile devices
 Bluetooth devices enable retailers to communicate special offers to customers on
their mobile devices if they are within a 20 metre radius from their shops and,
equally, this allows customers to undertake transactions with shops and restaurants)
 radio will become an integral part of the mobile device, allowing an individual
access to a myriad of radio stations, which has important implications for adver-
tising and branding
 the incorporation of ground positioning systems (GPS) into mobile devices sent
via satellite, means that individuals will be able to easily locate their positions as
well as the nearest outlets or services that they need.

As yet, however, IT systems (see Figure 6.19) are not fluid nor dynamic enough to
cope with customers who are ubiquitous and can contact companies via mail,
mobile phones and the Internet.
As customers become more dynamic and unpredictable in the ways they contact
and interact with companies, companies need to be fluid in their market approach.
In many organisations, the IT/marketing link is not good. The marketers do not
understand what happens in IT regarding to service provision and prices and the
information officers are puzzled by the qualitative approach taken by the market-
ing staff. This is what is behind the cultural gap between marketing and IT. There
needs to be a better integration of companies’ IT and marketing processes.
It is important for good CRM that IT and marketing work together, with IT being
able to understand what the needs of the customers (managers, project teams,
functional departments) are. A change of philosophy is required so that IT profes-
sionals shift from building solutions, to defining requirements from the front-end
with internal and external customers. The ideal is a one-to-one relationship – when
a customer is known to and interacts with the enterprise, while the organisation is

The IT/marketing interface is not fluid and dynamic

Host system Marketing has to

holds customers’ be able to extract
data knowledge

Customers

Figure 6.19 Current systems architecture

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Customer relationships 223

flexibly adapting its activities to respond to the customer’s evolving needs. The
enterprise needs to have a unified view of each customer across the entire enter-
prise, which results from integrating various functional and geographical units into
a unified marketing approach.
As internal relationships develop across functional boundaries, the firm then
truly becomes a learning organisation, while its customers discover that a long-
term relationship can offer substantial advantages and so they are less attracted by
opportunistic competitive offers. However, relationship building needs to be
regarded as a business process rather than the automatic result of buying a new
technology suite. Equally, however, technology needs to support and enable this
process (see Figure 6.20).
Many companies have previously relied on CRM software to a great extent.
However, they are now realising the importance of people and processes. McKean
(1999) comments:
Most firms cited personnel challenges as being the single biggest obstacle to success. In most
cases, there was no specific plan to address the personnel issue. The people issue, which made
up roughly 20 per cent of the total transformation challenge, virtually went unaddressed.

Table 6.4 shows the imbalance between the real needs of an organisation and the struc-
ture of its investments. Modern organisations should understand that IT cannot
develop their competitive advantage on its own and an effective technological
improvement must be combined with important investments in people and processes.
Therefore, to implement marketing strategies successfully, organisations must
take into account not only their profile and cultural attributes, but also their tech-
nological prowess and their integration into the processes delivering value to
customers. In order to integrate these three key aspects of implementing marketing
strategies – technology, people and processes – a questionnaire has been designed

Products
purchased

Geographical Sales
links transactions
A T

D A
Customer
Informational Internet link
needs PC/WAP

Leads Meetings

Figure 6.20 Creating a relationship web

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224 Chapter 6 / Implementation is the key

Table 6.4 Investments and determinants

Historical customer Customer information

information investments competency determinants
(%) (%)
People 2 20
Processes 2 15
Organisation 2 10
Culture 1 20
Leadership 1 10
Information 10 15
Technology 82 10

Source: McKean 1999

to test how capable an organisation is of being flexible and adaptive to customers’

needs (see Figure 6.21).
Once the scores to all the questions have been totalled, for the IT and organisa-
tional context sections, they can be plotted on a bidimensional implementation
matrix, as shown in Figure 6.22. The implications of being positioned in each of
the four quadrants are as follows.
 Integrated marketing implementation Companies in this quadrant have a well-
balanced process for implementing marketing strategies based on good IT sys-
tems and a dynamic, flexible organisation. People, processes and the technology
work in unison. The company is likely to have a highly efficient and responsive
information system and its resources are shared dynamically by all the depart-
ments in the organisation.
 Fragmented marketing implementation Companies located in this quadrant have
excellent capabilities in terms of people and processes. However, their techno-
logical resources are poor and not very well integrated. They require extra
investment in IT infrastructure and closer integration of marketing procedures
and information systems.
 Technologically driven marketing implementation In this quadrant, companies tend
to rely to a greater extent on technology than the other two elements – people
and processes. The management of these last two elements tends to be poor,
determining the prevalence of a mechanistic approach. This often makes the
employees feel alienated and poorly informed, reducing the efficiency of the
entire organisation.
 Poor marketing implementation Companies finding themselves in this quadrant
tend to have outdated organisational practices and possess poor technology sys-
tems. These companies need to bring about both organisational change and
investment in technology to update their capabilities to deal effectively with an
increasingly dynamic marketplace.

The implementation matrix provides a useful measure of a company’s ability to imple-

ment marketing strategies within an environment that is increasingly driven by
technology. However, this tool is only the starting point for a complex process of
improvement of all the aspects of IT and marketing interactions within the organisation.
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Customer relationships 225

IT context Strongly Agree Neutral Disagree Strongly

agree disagree
1 2 3 4 5
1 We utilise Web-enabled customer management
systems
2 We incorporate mobile protocols within our systems
3 We have the systems to disseminate information
internally
4 We can easily relay information to our suppliers
5 We have a clear idea of our customers’ requirements
6 Customers can easily contact us
7 We can easily keep track of all customer contact
8 Our field service managers can easily keep in touch
with our systems
9 Our systems are global, integrated supply chains
10 Our data warehouse allows customer segmentation
11 We have effective competitor intelligence data
12 The marketing/IT interface is good

Total points

Organisational context Strongly Agree Neutral Disagree Strongly

agree disagree
1 2 3 4 5
1 There are few blockages in information flow
between functional areas
2 The organisation is flexible and can reconfigure
itself in a short time
3 The people find it easy to implement information
systems
4 Change is readily embraced by staff
5 There are good links between marketing strategy
formulation and execution
6 Customer requirements take priority
7 It is easy to disseminate information formally
and informally
8 Creativity is accepted and rewarded
9 The organisation is innovative
10 There is an accepted vision for the development
of marketing strategies
11 Marketing and IT work together
12 Competitors’ actions are monitored and acted on
Total points

Figure 6.21 Questions to determine key organisational and IT success factors

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226 Chapter 6 / Implementation is the key

Score 12
Integrated Technology-driven
Well resourced
marketing implementation marketing implementation

IT context
Fragmented Poor
Poorly resourced
marketing implementation marketing implementation

Score 60
Score 12 Score 60
Organic/adaptable Mechanistic/lacking flexibility
Organisational context

Figure 6.22 Implementation matrix

Summary
A good strategic plan can hardly guarantee market success if there is not also a flex-
ible process of implementation. Often the strategic objectives can only indicate the
general direction for market development, while all the other elements of the strat-
egy are emergent, being implemented as creative solutions to the combination of
competitive threats and opportunities encountered in the market. In this context, a
multidimensional approach to the strategic implementation process, taking into
account various internal and external factors that influence a company’s opera-
tions, is the only path to success.
In a market environment that is continuously evolving, the capacity of the firm
to quickly identify, collect, process and interpret information about consumer
behaviour, can significantly enhance the profitability of the firm. The creation of
powerful and responsive knowledge management systems is the basis for enhanc-
ing competitiveness and customer loyalty. However, this objective can only be
reached when there is close collaboration between the IT and marketing specialists
within an organisation. A good balance between IT systems, people and processes
will allow the company to adapt effectively to various market challenges while
quickly exploiting the existing competitive opportunities.

Chapter questions
1 What factors determine the use of emergent marketing strategies in the modern
marketplace?
2 How is technology influencing the implementation of competitive marketing
strategies?
3 Why is knowledge management important and what are the main factors that can
influence its development and use in modern organisations?
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Understanding and creating

7 effective marketing cultures

Introduction
Organising for marketing is a multifaceted phenomenon. For the implementation
of successful marketing strategies it is important to recognise and understand the
visible and invisible elements composing and surrounding organisations. The visi-
ble element of an organisation is often recognised as its structure, or organisational
chart, and is characterised by centralisation, formalisation and departmentalisa-
tion. For example, Figure 7.1 shows the visible elements of the marketing function
within an organisation.
The invisible elements consist of informal functions, actual communication
flows, current cultural norms and behaviour patterns. These are much more subtle
than the visible elements and are expressed via cultural patterns and norms (see
Figure 7.2). The challenge of developing a successful cultural pattern, therefore,
does not necessarily lie in organising the marketing department, but in structuring
the whole firm in such a way that marketing functions efficiently within it. At the
same time, effective interaction procedures must be set up between organisations
to facilitate transactions and the continuous exchange of assets and capabilities.

Marketing
Vice-president

Services Product Sales Promotions Distribution

Manager Manager Manager Manager Manager

Figure 7.1 Organisational chart of the marketing function

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228 Chapter 7 / Understanding and creating effective marketing cultures

Explicit
(visible beliefs)

Surface culture
(observed behaviour
based on personal
relationships)

Subculture
(small group of individuals based on, for
example, hobbies or cross-functional
and cross-departmental functions)

Core culture
(deep beliefs, shared values, orientation towards environmental
Implicit
factors, orientation towards teamworking, etc.)
(invisible beliefs)

Figure 7.2 The visible and invisible elements of an organisation’s culture

The visible and invisible parts of an organisation

We first explicitly describe below what constitutes the visible and invisible parts of
the organisation. This is followed by a discussion of the basic concepts of organi-
sational analysis and their implications for marketing practice. The ways in
which an organisation can develop a marketing culture that takes into account
the invisible elements are then presented, complementing the more formal organ-
isational approaches.

The visible parts of an organisation

Organisations are concerned with the way in which tasks are distributed, under-
stood and executed by individuals. This encompasses several aspects (Desreumaux,
1998; Helfer, Kalika and Orsoni, 1998; Mintzberg 1990 (see Figure 7.3):
 departmentalisation
 specialisation
 standardisation
 coordination
 formalisation
 decentralisation/centralisation
 control
 differentiation/integration.
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The visible and invisible parts of an organisation 229

Departmentalism
Decentralisation Specialisation

Centralisation Coordination
Organising

Formalisation Integration

Standardisation Differentiation

Figure 7.3 Organising: a multifaceted phenomenon

 Departmentalisation refers to the principles according to which a firm is organ-

ised – that is, departmentalisation by functions (marketing, accounting, HR and
so on), markets or products.
 Specialisation concerns the extent to which tasks are defined and allocated to a
specific person. One can distinguish two types of specialisation: vertical speciali-
sation, which corresponds to the number of hierarchical levels, and horizontal
specialisation, corresponding to the number of different functions identified.
 Standardisation refers to the degree to which there are procedures explaining how
tasks should be accomplished. This dimension can be either conceptualised as a
characteristic of structure (Kalika 1995) or as a possible coordinating mechanism
(see Mintzberg 1990). According to Mintzberg, coordination – that is, the regula-
tion of all organisational components – can be achieved in a variety of ways:
mutual adjustment on a one-to-one basis, direct supervision that applies hierar-
chical authority and, finally, standardisation of procedures, results, qualifications,
or norms. Here again it should be noted that the coordinating process could be
considered to be part of the integration process (Lawrence and Lorsch 1986),
together with the concept of differentiation.
 Formalisation corresponds to the use of written documents in communication
and information processes. The decentralisation/centralisation axis relates to the
levels at which decisions are made. The decentralisation of an organisation
implies lowering of the decision level.
 Control refers to the evaluative process by means of which tasks are judged.
Results or the implementation of control can be evaluated.

Differentiation and integration can and may overlap (Lawrence and Lorsch 1986).
Differentiation reflects the degree to which each department develops its own way of
functioning and accomplishing tasks. For instance, a marketing department may
develop skills in marketing communications as opposed to accounting skills, which are
likely to be developed by the financial department. However, to develop coherent
strategies, an organisation needs mechanisms for integration. These involve mutual
adjustment, hierarchy (direct supervision), standardisation of procedures, committees,
task groups, coordinating agents, project managers, product managers, common objec-
tives, common norms and values, training and so on. This is illustrated in Figure 7.4.
The overall structure of an organisation is often represented in a chart that
shows areas of function and responsibility. The chart shown in Figure 7.5 illustrates
the structure of a small biotechnology firm that is essentially hierarchical in nature.
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230 Chapter 7 / Understanding and creating effective marketing cultures

M Manager M M
Analyst

A A A

O O O O O O
Input Work processes Outputs
Operator Operator

Mutual adjustment Direct supervision Standardisation

Figure 7.4 Integration mechanisms

President

CEO

Product
Financial Marketing Research
Development
Director Director Director
Officer

Accountant Communications Intellectual Project Manager

Officer Property Officer
Tax officer Project Manager
Product Manager Researcher
Investment Officer
Product Manager Researcher

Sales Officer Researcher

Figure 7.5 Organisational chart of a small biotechnology firm

Organisational structures and marketing

Organisations are complex entities that exhibit varying degrees of centralisation,
formalisation and specialisation and require different degrees of coordination. As
markets become increasingly complex and global in nature, the utilisation of mar-
keting knowledge (Menon and Varadarajan 1992) is seen as an increasingly
important managerial area generally and one of the most important activities
undertaken by the marketing department.
The three main uses of marketing knowledge have been identified as:
 instrumental when market information is used directly to solve a problem
 conceptual when employees/managers reflect on an issue, the marketing knowl-
edge serving to define priorities
 symbolic when information is not used directly for a specific task – usually, then
the marketing knowledge involves a political dimension, the information being
used (or misused) with a specific intent.
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The visible and invisible parts of an organisation 231

The way in which marketing knowledge is used by employees and managers has
implications for its form, content and structure within the organisation. For
instance, in organisations using marketing knowledge symbolically, centralisation
and formalisation can either stimulate or impede the transmission and use of this
information. A high degree of formalisation can result in a clear organisation of
internal information flows, but can also impede it as a result of rigidity in the inter-
nal communication system.
In most market-led organisations, roles and responsibilities are often highly for-
malised so as to enable them to respond quickly and efficiently to the market’s
needs. This is illustrated, as we saw, in Figure 7.1 and also in Figures 7.6 and 7.7.
After reading the following case study consider how market analysis and the notion
of adding value changed the visible and invisible parts of the LGB organisation. Also,
consider the symbolic, instrumental and conceptual use of marketing knowledge.

Marketing
Vice-president

Product
Manager

Product Line 1 Product Line 2 Product Line 3 Product Line 4 Product Line 5
Category Category Category Category Category
Manager Manager Manager Manager Manager

Brand Brand Brand

Manager A Manager B Manager C

Figure 7.6 The product-based marketing organisation

Marketing
Executive
Vice-president

Marketing VP Marketing VP
Domestic International
Markets Markets

Marketing Marketing Marketing Marketing Marketing Marketing

Manager Manager Manager Manager Manager Manager
Region I Region II Region III Country A Country B Country C

Figure 7.7 The geographically based marketing organisation

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232 Chapter 7 / Understanding and creating effective marketing cultures

CASE STUDY

Setting off a chain reaction

This company relied on identifying value-adding,  reduce elongation of chains by 10 per cent
non-value-adding and wasteful activities to (performance)
strengthen the chain of processes and people. L.G.  make the pricing ratio conducive to improving
Balakrishnan & Brothers had been through a recent the marketability of the product.
business process restructuring (BPR) exercise.
A business process map helped define the whole
Speaking to a senior official at LGB, eWorld got the
business in six processes. Of these, the one that
feeling that managing change – which is a natural
looked most like it could do with a change was the
fallout of any BPR initiative – must have come
order fulfilment process. Says Kumar, ‘Low overall
easily to LGB. The first promoters of the company
equipment effectiveness was a concern. The long
could sense imminent change well enough. They
set-up time too was a concern. Employee
managed to see the coming of nationalisation of
involvement and skills had to be upgraded.’ Adds
bus services and prepared to exit the business of
the official, ‘The quality of products was not a
running a fleet of buses and enter into
concern at all. But other parameters such as
manufacturing components for buses. Then,
inventory turn ratio and other productivity norms
changing ever so slightly for the sake of a teeny-
had to be addressed.’
weeny BPR must have been child’s play.
Satyam recommended the cellular design for the
Satyam Computer Services helped LGB with the
factory set-up. In other words, a factory within a
BPR, with the redesign of the order-generation
factory model helped LGB improve in the areas
process and of the product-engineering process.
causing concern. Here, IT played a role in setting up
These components of the project took about six
a Kanban manufacturing system, order management
years from April 1995. BPR alone took some three
system that integrated with the order fulfilment
years to implement with satisfaction. LGB is in a
process, the equipment effectiveness monitoring
business that it calls the transmissions business. It
system and the measures of a performance
derives its revenues predominantly from chains
monitoring system. The highlight of the project was
required for automotives while it is also in the
the input–output analysis of the process. This helped
business of supplying industrial chains. With 14
define the activities of the organisation into three
lines of business, a group turnover of Rs 200 crore
types: value-adding (VA), non-value-adding (NVA)
(of which the chains business contributed Rs 120
and wasteful. Satyam helped LGB look at the
crore) and with manufacturing bases at five
number of activities making up a process and the
locations in South India and three regional offices
man-hours required for those activities. He then
across the country reporting to HQ at Coimbatore,
divided these activities into those that worked for
LGB’s BPR must have been quite a job.
the customer (VA), those that worked for the
Why did the company launch the BPR drive?
company but did not directly affect the customer
Says S. Ramesh Kumar, Senior Consultant at
and those that worked for nobody (wasteful). Says
Satyam, ‘It had very little margins in its markets,
Kumar, ‘The idea here was to make sure that one
the original equipment segment and in the
maximised VA by removing obstacles to performance
replacement segment. Competition was gearing up
to minimise NVA and to eliminate waste.’
for expansion and its own productivity levels had
It is easy to see what VA processes are. But NVA?
to go up to become price competitive.’ So it set
Kumar just jumps at the query and says,
about making up a vision plan, calling it the P4
‘Expediting or progress chasing are examples of
plan for BPR:
NVA. Storing, warehousing, moving material in and
 a 270 per cent increase in productivity out of the company, preparation of checks and
 100 per cent increase in production capacity in controls documents and inspection also form part
three years’ time of the NVA.’
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The visible and invisible parts of an organisation 233

Case study continued

And waste? Pat comes the reply: ‘Searching for a reduce the cycle-time of the enquiry process and to
part or tool and reconciliation among documents is reduce new product development time each by half.
a classic case of wasteful activities. They add value One of the issues the consultant cited as
to nobody.’ unproductive was the back and forth shunting of
In the case of the OFP, it was found that VA drawings from the sales force to the R&D for want
contributed to about 68.2 per cent of the activities of clear specifications.
and NVA contributed to 31.7 per cent while the The formation of a cross-functional team helped
rest was wasteful. The official says that most of the prevent unsuitable specifications creeping into the
objectives were met. The redesign of the order design at the concept stage itself. Industry-specific
generation process for industrial chains was as project leaders now came into the picture, thus
follows: the objective was to substantially increase helping the client himself decide what he wanted.
the efficiency of the process. Satyam took up a The product data management component of the
market analysis to illustrate the actual position of redesign used technology to reduce new product
LGB, to identify market needs, demands and development time. LGB created a repository of
customer expectations of LGB and to spot and design and related data that came in handy for re-
analyse the gaps between customer expectation use for future designs. A system that aided the
and delivery. online release of documents was also put in place.
Satyam’s analysis of the existing gaps indicated The company achieved its objectives on this front.
that there was no true standard operating Further, application engineers were brought in to
procedure, several customer interfaces, not enough ensure that accurate information was passed on
market intelligence, need for active business between the customer and the vendor.
development, incorrect understanding of customer Would LGB do this differently now? What were
specifications and poor brand visibility. the lessons it learnt? Says the official, ‘We would do
Satyam came up with the following positioning it faster now, because of the learning that has
strategy: based on market surveys, LGB had to have accrued. Further, our priorities would be different
a solutions provider image that would help it best now. For instance, we would look at new product
in the circumstances. The highlights of these were development because that is crucial.’
to have a single window for all chain-related Finally, why an external consultant? Would you
requirements, strategic partnerships with customers do this again all by yourself?
and just-in-time deliveries. Action on these fronts The official feels, ‘Satyam helped accelerate our
resulted in a 184 per cent increase in the number of progress. We might have been doing things on our
enquiries received, 169 per cent increase in own. Some were adequate, others not so. Further,
enquiries quoted, 300 per cent increase in number bringing in Satyam helped us keep in touch with
of samples submitted and a 460 per cent increase in modern management and manufacturing trends. It
the number of approved samples. is easy being in a state capital. But in a place like
For obvious reasons with regard to competition, Coimbatore, we have to consistently keep deputing
neither the company nor the consultant was willing people to attend seminars or conferences where new
to reveal absolute figures. The highlight of the issues are discussed, at state capitals or the national
redesign of the product engineering process (PEP) capital. Having an external consultant helps.’
was the recommendation for concurrent Source: Bharat Kumar, ‘Setting off a chain reaction’, The Hindu
engineering. The objective of the PEP redesign was to Business Line, 2 October 2002

The roles of the invisible parts of an organisation

The invisible parts of the organisation include the corporate culture as well as its differ-
entiation and integration mechanisms. As mentioned earlier in this chapter,
differentiation is the degree to which each department has its own way of functioning
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234 Chapter 7 / Understanding and creating effective marketing cultures

and accomplishing tasks. Thus the structure of a marketing department can be very
different from that of a purchasing or accounting department. For instance, the UK
based organisation WH Smith, a company that specialises in newspapers, stationery
and books, divides the marketing areas into branding and customer offers (see
Figure 7.8). However, under branding, there are heads of design, instore marketing
management and advertising, whereas under customer offers emphasis is placed on
market intelligence. The design area looks at both store design and packaging design.
The instore managers handle book events and promotion, while the head of advertis-
ing manages both local and national advertising.

Commercial &
Marketing Director

PA

Customer Offer
Brand Director
Director

Team Project
Administrator Co-ordinator

Instore Marketing Instore Marketing Competitor, Market

Head of Advertising Head of Strategic
Head of Design Manager Manager & Customer
& Local Marketing Marketing
(Stationery & Ents) (Books & News) Insights Controller

Product & Promotions Competitor

Events Advertising Market Data Market Analysis
Packaging Design Executive Insights Analyst
Executive Executive Analyst Manager
Manager (Stationery) (p/t)

Product & Promotions Promotions

Product Advertising Market
Packaging Executive Executive
Designer Executive Analyst
Design Executive (Entertainment) (Books & News)

Packaging Junior
Market
Development Artworker Promotions
Analyst
Technologist Executive

Store Comms &

Look Design
Manager

Store Look &

Comms &
Promotions
Look Designer
Design Executive

Artworker Artworker

Artworker Artworker

Figure 7.8 WHSmith’s marketing organisational chart

Source: WHSmith
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The visible and invisible parts of an organisation 235

For other types of organisations, departments can be organised according to

brand types, different marketing functions (such as sales, promotion and new
product development) or can be based on geographical locations. Sometimes,
when a department is formally structured (as shown in Figures 7.1, 7.6 and 7.7)
possibilities of misunderstanding and misdirected communication with other func-
tional departments can ensue. The inner structure of each department can be
different, as well as the degree of standardisation, formalisation and decentralisa-
tion. Ultimately, this can generate interdepartmental conflicts, leading to
inefficiency and suboptimal performance. However, as organisations grow, size is
often a critical factor, leading to differentiation (Kalika 1995).

Culture as an invisible dimension

Culture is a problematic but extremely powerful integrating mechanism for organi-
sations. Organisations function coherently as a result of the ‘glue’ provided by
their culture (Ouchi 1980). Weick (1987) argues that culture is a source of reliabil-
ity. Cultures develop over time and become stable, responding in specific ways to
given stimuli.
Schein (1992) distinguishes three layers of organisational culture. The first one is
called ‘basic assumptions’. It pertains to the main beliefs that are shared within the
organisation. For instance, is man good or evil, what is the right way to compete,
what is reality? The basic assumptions behind the answers to these questions influ-
ence values – which are the second cultural layer.
Values are the principles that guide social interactions and constitute a goal in
themselves because of their intrinsic value.
The third layer is represented by historical documents – the most tangible or vis-
ible manifestation of previous situations. They can correspond to rituals, practices
and discourses. Corporate culture can be understood by deciphering such historical
artefacts and linking them with values and basic assumptions. Culture’s layers can
be represented shown in Figure 7.9 (see also Figure 7.2).

Culture and marketing culture – defining organisational culture

Although the scope of organisational culture has not been completely established
by organisational theorists, several common features have emerged, which are
encompassed by Schein’s central work (1992). The pivotal idea is that culture serves

Artefacts

Degree of
Values visibility

Basic assumptions

Figure 7.9 Components of culture, according to Schein

Source: Schein 1992
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236 Chapter 7 / Understanding and creating effective marketing cultures

as a framework for organisational actions, enhancing external adaptation and

internal coordination. Schein (1993) defines organisational culture as:
a pattern of basic assumptions that a given group has invented, discovered, or developed in
learning to cope with its problems of external adaptation and internal integration, a pattern of
assumptions that has worked well enough to be considered valid and, therefore, to be taught to
new members as the correct way to perceive, think, and feel in relation to those problems.

Understanding culture is not easy and many authors have different views regarding
its meaning and effectiveness in the organisational context. From a marketing per-
spective, it is important to understand the articulation and functioning of a
marketing culture within the general culture of an organisation.

From general organisational culture to marketing culture

Although many different authors have attempted to look at organisational culture
and define it (Hofstede 1980; O’Reilly et al. 1989, 1991a, 1991b), very few have
considered this concept in a marketing context. Working within IBM, Hofstede ini-
tially identified four dimensions that can be used to analyse a culture:
 distance from power
 risk avoidance
 individualism versus collectivism
 masculinity versus femininity.

In a second study (1990), however, he developed the following framework defining

three types of values:
 need for security
 centrality of work
 need for authority.

Hofstede held that these values shape the beliefs of an employee and the functioning
of an organisation. For instance, a typical statement representing the ‘need for security’
value is, ‘working in a well-defined job situation is important’; for the ‘centrality of
work’ dimension, ‘work is more important than leisure time’ and for the ‘need for
authority’ value, ‘it is not appropriate that management authority can be questioned’.
From this framework, six types of practices emerge, each reflecting a specific
type of value (see Table 7.1).

Table 7.1 Cultural practices

Dimension Typical statement

Process-orientated v. results orientated Employees are told when a good job has been done
Employee-orientated v. job-orientated Organisation is only interested in the work people do
Parochial v. professional People’s private lives are their own business
Open system v. closed system Only very special people fit into the organisation
Loose control v. tight control Everybody is cost-conscious
Normative v. pragmatic Pragmatic, not dogmatic, in matters of ethics

Source: Hofstede et al. 1990

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The visible and invisible parts of an organisation 237

O’Reilly et al. (1989, 1991a, 1991b), on the other hand, analysed the fit between
individuals and organisations from a cultural standpoint. He developed an analyti-
cal tool called the organisational culture profile – OCP. Various dimensions are
used to describe organisational culture:
 innovative
 attention to detail
 results-orientated
 aggressive
 supportive
 reward emphasis
 team-orientated
 decisive.

The advantage of this tool is that it provides a list of adjectives that can be used to
assess the fit between a potential candidate and the proposed firm. However, there
is absolutely no mention of the customer nor the market.
An analytical framework developed by Quinn and Rohrbaugh (1981) was ini-
tially dedicated to understanding organisational performance, but was also found
to be useful for describing the corporate culture. This analytical framework func-
tions on three axes:
 axis 1 – flexibility v. control
 axis 2 – people v. organisation
 axis 3 – means v. goals.

On this basis, the competing values model (CVM) establishes four organisational
types:
 clan culture
 adhocracy culture
 hierarchical culture
 market culture.

Cameron and Freeman (1991) state: ‘Because cultures are defined by the values,
assumptions and interpretations of organisation members, and because a common
set of dimensions organises these factors on both psychological and organisational
levels, a model of culture types can be derived.’
The four classifications of culture shown in Figure 7.10 imply varying degrees of
differences in approach to a competitive marketplace. The figure shows the y-axis
as a continuum from organic to mechanistic processes. This shows whether an
organisation’s emphasis is more on flexibility, spontaneity and individuality or
control, stability and action. The x-axis, on the other hand, concentrates whether
there is an emphasis on internal maintenance (smoothing activities, integration) or
external positioning (competition, environmental differentiation). The culture
types that result from such classifying parameters are clan, hierarchy, adhocracy,
and market. These labels are broadly similar to those discussed and explained by
Mintzberg (1979) and Ouchi (1980). They also match the leadership typologies and
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238 Chapter 7 / Understanding and creating effective marketing cultures

Organic
processes

CLAN ADHOCRACY

Internal External
maintenance positioning

HIERARCHY MARKET

Mechanistic
processes

Figure 7.10 Organisational culture types

Source: Adapted from Deshpande et al. 1993

culture outlined in writings on organisational lifecycles (Quinn and Cameron,

1983). Figure 7.10 shows the relative positionings of organisations, based on their
dominant attributes. The key types are as follows.
 Adhocracy Exhibiting entrepreneurship, creativity and adaptability, supported by
a risk-taking leadership style, which in turn creates the climate for bonding. This
type emphasises strategies that spur a company on to growth, innovation and
searching for new resources.
 Clan Exhibiting cohesiveness, participation, teamwork and a sense of family,
supported by a mentoring type of leadership, creating loyalty, tradition and
interpersonal cohesion. The strategies that are emphasised are mainly internal,
focused on developing human resources, commitment and morale.
 Hierarchy Exhibiting order, rules, regulations and uniformity, supported by a
coordinating, administrative type of leadership, creating bonds by means of
rules and policies. The strategic emphasis is aiming towards stability, predictabil-
ity and smooth operations.
 Market Exhibiting competitiveness and goal achievement with a decisive,
achievement-orientated leadership, creating bonds via goal orientation, produc-
tion and competition. The strategies adopted are aimed at competitive
advantage and market superiority.

Even though various SBUs within an organisation may have different cultures, there
is often one dominant corporate culture – one predominates over the others. These
cultural types are regarded as modal or dominant ones rather than mutually exclu-
sive. Over time, it is expected that one type of culture emerges as the dominant one.
Figure 7.11 contains a questionnaire that organisations can use with employees
when they want to understand their organisational culture and find ways to imple-
ment best practices.
Another interesting analytical model incorporating culture within an organisa-
tional framework has been formulated by Calori and Sarnin (1993). This model
differentiates between cultural values and practices (see Figure 7.12).
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The visible and invisible parts of an organisation 239

Organisational culture
The following questions relate to what type of culture your marketing operation is closest to. Each box contains four
descriptions of organisations. Please distribute 10 points among the 4 descriptions, depending on how similar, or not, the
description is to your business – that is, give most points to the description that is most like your organisation. None of
the descriptions is any better than the others; they are just different manifestations of a culture. You may divide the
points in any way you wish. Most businesses wil be a mixture of the various descriptions. It is important that each box’s
total is 10.

Kind of organisation (Please distribute 10 points)

My organisation is a very personal place. It is like a My organisation has a very formal and extended
family. People seem to share a lot of themselves. structure. Established procedures generally govern what
people do

My organisation is a very dynamic and entrepreneurial My organisation is very production-orientated. A major

place. People are willing to stick their necks out and concern is with getting the job done, without much
take risks. personal involvement.

Leadership (Please distribute 10 points)

The head of my organisation is generally considered to be The head of my organisation is generally considered to
a mentor, sage – a father/mother figure. be a coordinator, an organiser or an administrator.

The head of my organisation is generally considered to be The head of my organisation is generally considered to
an entrepreneur, innovator or risk-taker. be a producer, technician or a hard driver of the business.

What holds the organisation together (Please distribute 10 points)

The glue that holds my organisation together is loyalty The glue that holds my organisation together is formal
and tradition. Commitment to this firm runs high. rules and policies. Maintaining a smooth-running
business is a priority.

The glue that holds my organisation together is a The glue that holds my organisation together is the
commitment to innovation and development. There is an emphasis on task and goal achievement. A production
emphasis on being first in many areas. orientation is commonly shared.

What is important (Please distribute 10 points)

My organisation emphasises human resources. High My organisation emphasises performance and stability.
cohesion and morale in the firm are important. Efficient, smooth operation is important.

My organisation emphasises growth and acquiring new My organisation emphasise competitive actions and
resources. Readiness to meet new challenges is achievement: measurable goals are of key importance.
important.

Figure 7.11 Determining what your organisation’s culture is

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240 Chapter 7 / Understanding and creating effective marketing cultures

In order to find out what your organisation’s typology is, first add together all the scores for the statements in the top
left-hand corner of each box. For instance:

My organisation is a very personal place… 6 points

The head of my organisation is generally considered to be a mentor… 6 points
The glue that holds the organisation together is loyalty… 5 points
My organisation emphasises human resources… 7 points

Total (out of 40) 24 points

Then repeat for the bottom left-hand corners and so on until you have four totals.

The total in the example above indicates that the organisation is veering towards a clan type as its dominant culture. The
other points will have been distributed among the other types, but these are not the dominant one.

Thus, the corner that receives the highest score indicates your organisation’s dominant culture, as follows:

• descriptions in the top left-hand corners of the boxes reflect a clan culture
• descriptions in the bottom left-hand corners indicate an adhocracy culture
• descriptions in the top right-hand corners indicate a hierarchy culture
• descriptions in the bottom right-hand corners indicate a market culture.
It is quite possible to have a score that is not clear-cut, having 25 points for an adhocracy culture and 25 points for a
market culture, for example, with no points allocated to any of the other culture types. Equally, you may obtain a general
low spread across three types with one culture dominating.

Figure 7.11 Continued

Organisational culture

Cultural values Cultural practices

→ 2 major components → 17 dimensions

1 recruitment
2 training
Economic values Ethical values
3 goals
1 firm’s performance 1 attitude towards change 4 reward and assessment system
2 individuals’commitment and skills 2 internal cooperation 5 job definition and procedures
3 customer relationships 3 work development 6 innovation
4 societal environment 7 short- and long-term planning
5 solidarity 8 hierarchical relationships
6 authority 9 interpersonal relationships
7 integrity 10 interdepartmental relationships
8 individual–organisation 11 relations within the firm
relationships 12 information system
9 internal competition 13 customer relationships
14 competitor relationships
15 relations with technological environment
16 relations with legal environment
17 relations with societal environment

Figure 7.12 Describing organisational culture – Calori and Sarnin’s framework

Source: Calori and Sarnin 1993
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The transition from focusing on products to a customer orientation 241

Calori and Sarnin’s model is the only one that integrates market-orientated
values and a cultural diagnosis. Given the complexities surrounding the notion of
market and customer orientation, it is difficult to develop any formulaic stances for
a market-led organisation. However, in marketing, as the emphasis changes from
products and markets to relationships and relationship-building, a different focus is
required for the future. In the existing competitive conditions, organisations need
to adopt a stronger marketing approach and build their organisational culture
around nurturing customer relationships.

The transition from focusing on products to a

customer orientation
There are several reasons companies need to consider a customer-focused approach
when designing their organisation.
 Production technologies allow ‘mass customisation’, resulting in a greater ability to
service smaller segments with product features more appropriate to their needs. It is
therefore no longer necessary to spend large sums on developing organisations that
focus on products to the detriment of customers (see Figure 7.13).

Customer-focused business units

1 Products A, B, C 2 3
6
Customer Customer segment Customer
segment segment
Key
accounts 5

C Traditional product focus

Product-focused business units

1 Product proliferation
B1, B2 2
2 Category management
B 4
3 Increased importance of services
B3 1 4 Establishment of customer-focused business units
(often based on industries)

5 Increased importance of key account teams selling

A
multiple products and services

6 Shift of marketing resources and personnel to

3 Support services customer-focused business units

Figure 7.13 Moving from a focus on products to a focus on customers

Source: Adapted from Homburg et al. 2000
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242 Chapter 7 / Understanding and creating effective marketing cultures

 Customer data warehouses and datamining techniques make it possible to

uncover previously unknown patterns of customer behaviour. These IT-based
tools help marketers to make better decisions regarding relationships with cus-
tomers. The growing importance of IT means that marketers can concentrate
more on developing a better knowledge of customers and of their spending
habits than was possible before.
 Increasing amounts of products mean that resellers want product category-level
assistance. Companies are therefore appointing product category managers. If a
customer is regarded as a complex individual, then his or her needs and wants
are likely to vary and retailers selling to them need to have a very good under-
standing of the categories of goods (such as electronics or haircare) they are
offering to customers. Companies manufacturing these goods therefore need to
implement a category specialisation as opposed to product specialisation.
 Services are becoming more and more important, with many major firms now
receiving more profits from services than from products. Many organisations
realise the importance of building relationships with customers on a long-term
basis. The development of these relationships often also entails better service-
level agreements. Better relationships lead to greater profitability. It is cheaper to
retain customers than it is to find new ones.
 Many firms are beginning to reorganise their salesforces around customer groups
(often industry-based) to develop coherent solutions out of the products and
services coming from multiple divisions.
 Following on from this industry segmentation, many firms then assign key
account managers to be the single points of contact with major accounts, selling
the entire range of products and services produced by their firms.

The impact of technology and the movement towards relationships means that
organisations need to be flexible and responsive to customers’ needs and capable of
learning and changeing quickly and efficiently.

The learning organisation

Organisational learning can be defined as, essentially, the process of improving
actions by means of better knowledge and understanding (Fiol and Lyles 1985).
Several other descriptions of it have also been suggested, including adaptation,
information processing patterns, development of organisational theory-in-use and
institutionalisation of experience in the organisation (Shrivastava 1983). These
descriptions demonstrate that organisational learning is a multifaceted phenome-
non, covering different degrees of learning and application. From a marketing
point of view, the benefits of organisational learning can be reflected in faster and
more efficient marketing processes. Indeed, several marketing authors (Day 1994;
Sinkula 1994) suggest that positive synergistic effects occur, such as that:
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The learning organisation 243

 organisational learning is the development of new knowledge or insights that

have the potential to influence behaviour
 learning facilitates behaviour changes that lead to improved performance
 dynamic and turbulent environments demand learning and behaviour changes
and these lead to improved performance.

What are learning processes?

As suggested by Shrivastava (1983), organisational learning can have different mean-
ings. In some instances, it can mean the ease with which an organisation can adapt
to its environment. In others, it can mean the efficient utilisation of information
(information processing patterns). In both instances, learning takes place, but it is
either a reactive process (adaptation) or a static process (information processing).
More recently, the learning organisation has been viewed as a continuously cre-
ative, innovative organisation (Senge 1990) and a coherent, cohesive structure
where each member is willingly active (Nonaka 1991). If an organisation is to be
continuously creative and innovative and each member willingly active, then we
need to understand the learning processes that are involved.
To improve this understanding, two types of learning have been defined. The
first is a type of lower-level learning, also called single-loop learning (Argyris and
Schön 1978) or behavioural development. The second one is a type of higher-level
learning, also known as double-loop learning or cognitive learning.

Single-loop learning
The first level of learning is usually limited to a section of an organisation. Often
this section will be given a defined set of behaviours, designed to cope with partic-
ular problems. These are routine patterns, triggered by particular stimuli within the
environment. For instance, for a brewing company, if beer sales are low, it will
launch its current advertisements. Any short-term problems are also efficiently
dealt with. This type of behaviour can also be described as reactive learning. Hence,
single-loop learning is similar to mere behavioural adaptation. This process does
not stretch to questioning the phenomena that create the response (asking why
the beer sales are low but) it merely sets in motion conditioned responses to exter-
nal stimuli.
Single-loop, or adaptive, learning often contains a ‘learning boundary’. The way
in which the business is conceptualised guides what the core capabilities need to
be, but, in many instances, what exists are ‘core rigidities’ concentrated on the
served market, fostering quite a narrow perspective. Therefore, an adaptive
approach (single-loop) is usually sequential, incremental and focused on issues or
opportunities within the traditional scope of the organisation’s activities (see
Figure 7.14).
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244 Chapter 7 / Understanding and creating effective marketing cultures

le
Adaptive arning

Acquire information,

Boundary
use it, disseminate it
and share it – memory share
Outside the boundary
it is possible to develop
generative learning

Figure 7.14 How organisations learn

Source: Adapted from Slater and Narver 1995

Double-loop learning
This higher-level of learning affects the whole organisation and is rarely contained
within functional areas. It entails a deeper challenge to routine practices and rules.
This type of generative learning shows a willingness to question long-held assump-
tions about mission, customers, capabilities or strategy. Often, this is based on systems
thinking and works through existing relationships, linking key issues and events.
When an organisation begins to embrace ‘double-loop’ learning, interrelation-
ships and dynamic processes of change are important. Often, a learning
organisation adept at double-loop learning can take advantage of windows of
opportunity that may be available to companies. Slower-moving organisations,
however, that have fixed views of markets and their role within them, may fail to
take advantage of these opportunities.
Higher-level learning usually occurs during some type of crisis, such as the adop-
tion of a new strategy, apointment of a new leader and/or significant changes in
the market. It corresponds to the development of a new frame of reference(s). One
of the consequences of being a double-loop learning organisation is that it is then
necessary to ‘unlearn’ old processes as old frames are no longer effective in coping
with the new reality.
The impacts of single-loop and double-loop learning are summarised in Figure 7.15.

Impact on
Nature of the impact

cognition
Double-loop
learning

Single-loop
learning
Impact on
behaviour
Partial impact Total impact
Impact on the organisation

Figure 7.15 The impacts of single- and double-loop learning

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The learning organisation 245

Which approach is best?

The ability to learn is obviously necessary for any organisation. However, trying to
place lower- and higher-level forms of learning in a hierarchy is short-sighted.
Single-loop learning, with its smaller reactive change, is necessary for everyday
operational tasks. Some authors (Fiol and Lyles 1985) suggest defining lower-level
learning as adaptation and higher-level learning as learning, which means ‘the
development of insights, knowledge, and associations between past actions, the
effectiveness of those actions, and future actions’. Although adaptation and learn-
ing are both important to managerial performance, there can sometimes be a
conflict between them, with adaptation routines preventing an organisation from
engaging in comprehensive learning. This is why the articulation between the dif-
ferent types of learning is important. A key aspect of this is to consider the impact
of learning systems.

Learning systems
Shrivastava (1983) distinguishes six types of learning systems. These systems repre-
sent different ways of generating learning, which is another way of classifying
learning processes. First, the ‘one-man institution’ corresponds to the scenario
where only one person knows everything about the competitive situation. The
learning process here is reduced to an individual learning, who then diffuses that
knowledge to other members of the organisation.
The second approach, the ‘mythological learning system’, functions by means of
the exchange of stories and myths between members of an organisation. In these
two learning systems, the knowledge is mainly, if not totally, subjective.
The third system is the ‘information-seeking culture’, where each member of the
organisation is encouraged to be curious about the business and its environment.
The diffusion of knowledge is mainly by word-of-mouth mode. Informality is the
main characteristic of this learning system.
The ‘participative learning system’ pertains to one in which ad hoc committees
and working groups are formed in order to solve certain managerial problems.
Hence, knowledge is produced on a very specific basis. The formalisation of knowl-
edge is for the purpose of sharing it and the associated expertise of the different
participants in the ad hoc groups. It is decision-orientated.
The ‘formal management system’ is the organisational solution for perpetuating
the learning process. It corresponds to the planning, control and sharing of infor-
mation. Virtually any organisational subsystem can take this approach – strategic
planning, information system management, financial/budgetary control systems
and so on.
Last in the list is the ‘bureaucratic learning system’, which goes one step further
than the previous one. It is the most formal way in which to organise knowledge,
entailing procedures and regulations. It aims at producing absolute, objective,
impersonalised knowledge. One major danger of this type of system is that it con-
centrates on formal knowledge and is unable to deal with tacit knowledge.
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246 Chapter 7 / Understanding and creating effective marketing cultures

From this review of learning systems, we can see that learning can be initiated,
developed and framed in different ways (see Figure 7.16).

One step further: deutero-learning

Theorists have identified another type of learning more recently: deutero-learning.
This process enables a firm to understand how knowledge is created and how learn-
ing happens. While double-loop learning is the ability to create new solutions
(cognitive frame + behaviour), deutero-learning is the process of learning itself.
This is not an abstract way of thinking about learning but a contextualised, firm-
specific audit of how learning is achieved in the firm.
The deutero-learning idea suggests that the firm, when reflecting on its current
learning process (by carrying out a learning audits, for example, such as in Figure
7.17), can foster its learning results. This reflexive process can speed up learning.
For instance, Moingeon and Edmondson (1996) show how Intel developed its
‘carbon copy’ learning system. This offered Intel the opportunity to quickly trans-
pose its new R&D technologies from one factory to another. Hence, once the firm
has understood its own learning processes, it can select, systematise and replicate
the most powerful learning processes in various departments and business units.

From individual to organisational learning

One big problem with organisational learning is the question of how it is to be
developed. The term ‘learning’ suggests that it begins at an individual level.

High Bureaucratic
formalisation learning
Formal system
management
system
Formalisation

Participative
learning
system

Information-
seeking
culture
Mythological
One-man learning
Low institution system
formalisation
Individual Organisational
Level

Figure 7.16 Different types of learning systems

Source: Adapted from Shrivastava 1983
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The learning organisation 247

Learning audit

First glance
1 Do we give the impression of learning from our business, activity, role, market and environment?
2 Do we feel that there are changes in the environment? Do we respond to these changes? Do we
anticipate them?
3 At what rate do we generate new ideas (products, new managerial tools, etc.)?

More in-depth analysis

1 Over the past five years, how many things did you learn?
2 What is the scope of the learning (better operations, new procedures, new ways of thinking, etc.)?
3 What type of knowledge was developed (subjective, mythological, objective, general, problem-
specific, task- or area-specific)?
4 Is this learning shared (at top management level, at middle-management level, at employee level,
in every department, in every SBU)?
5 Is this learning stored? (Specify degree of development of the information system, interactivity,
utilisation, writs, notes, memos, internal newsletter, reports, word of mouth.)
6 Do you engage in formal meetings for diffusing, sharing and discussing the new things you
discovered?
7 Why did you engage in the learning process (crisis, problems, periodic requirement, specific
decision, ongoing process)?
8 Who initiates the learning process (individual or top management, informal network, department,
task group)?
9 Do you evaluate the benefits of your learning process (in terms of economic performance, efficiency,
organisational climate, members’ motivation and satisfaction with their jobs)?

Figure 7.17 Example of a learning audit

Indeed, one could question how can an organisation learn. Is organisational learn-
ing more or less than the sum of individual learning? Several authors have worked
on this complex matter.

From individual learning …

The knowledge base regarding individual learning has evolved from learning being
considered within a stimulus–response paradigm to notions such as memorising and
forgetting (Shrivastava 1983). Later, Kim (1993) explained that individual learning
corresponds to both the acquisition of skills, or know-how, and know-why. This, in
turn, corresponds to two levels of learning: operational and conceptual. He suggests
that learning is acquired via a four-step process, set out in Figure 7.18.
Kim observes that there is a missing link between individual and organisational
learning. The main question is how (and is it possible) to convert individual learn-
ing into organisational learning? This is the product of the learning – knowledge.
We could reformulate the question in the following way: how can the organisation
integrate and share knowledge that has been produced on an individual basis?
However, another question remains to be answered – that is, is it possible to gener-
ate knowledge that is not individual-based? This is especially important in
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248 Chapter 7 / Understanding and creating effective marketing cultures

Assessment through
reflection

Observe concrete Design: form

experience abstract concepts

Implement

Figure 7.18 The OADI process of individual learning

Source: Adapted from Kofman, in Kim 1993

marketing as much of a marketing concept relies on disseminating intelligence and

developing knowledge bases.
Shrivastava (1983) remarks that, while it was individual learning that was origi-
nally studied by psychologists, several disciplines have tried to understand
organisational learning. What is known about organisational learning is thus more
fragmented, which helps to explain the difficulty of building a comprehensive
view of how organisational learning occurs.

… to organisational learning?
Kim (1993) states that ‘An organisation can learn only through its members, but
learning is not dependent on any specific member’. Several models assume that
organisational learning functions like individual learning. However, this premise is
fraught with difficulty, as individuals may learn in different ways.
Kim indicates that one needs to understand the transfer mechanism from indi-
vidual to organisational learning. The transfer lies in shared mental models. To
him, mental models are the structure of the organisational memory. The organisa-
tional learning cycle can thus be illustrated in the following way:
 it starts at the individual level as individual learning is achieved by means of the
OADI process (shown in Figure 7.18)
 the result of learning is a change in individual mental models
 at this stage, organisational learning can occur if there is a change to shared
mental models
 this leads to new organisational actions
 organisational actions are then assessed via individual actions and further learn-
ing occurs.

This process is illustrated in Figure 7.19.

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The learning organisation 249

Shared mental model

Changed mental models

Individual learning
processes

Organisational actions

Organisational actions assessed

via individual actions and
further learning occurs

Figure 7.19 From individual to organisational learning

Nonaka and Takeuchi (1995) suggest that other types of processes also exist by
means of which knowledge creation can occur. This can also assist in linking indi-
vidual and organisational learning. They identify two types of knowledge:
 tacit
 explicit.

Tacit knowledge is acquired by a process of diffusion resulting from social interac-

tion. In this instance, a worker learns unconsciously from the experiences of others.
Tacit knowledge can be made explicit by using analogies, metaphors, models and
concepts. For instance, the now widely used BCG model was initially utilised by the
Boston Consulting Group, which made the knowledge available to others by pub-
lishing it. Similarly, organisations can express ideas using models or analogies. In
some instances, organisations resort to storytelling and metaphors. At its most basic
level, tacit knowledge is shared in the form of written rules and procedures.
Learning is not solely dependent on sharing and diffusing tacit knowledge.
Learning processes involve explicit knowledge. It is possible for several pieces of
explicit knowledge to be combined to create new explicit knowledge. This occurs
when written models and procedures that exist in different parts of an organisation
are brought together and suddenly new patterns or ideas emerge. The next section
considers ways in which to trap the benefits of a learning organisation.
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250 Chapter 7 / Understanding and creating effective marketing cultures

Keeping the benefits of a learning orientation

Organisational memory and mental models

The role of memory is viewed as prevalent in learning processes. Kim (1993) states
that ‘learning has more to do with acquisition, whereas memory has more to do
with retention of whatever is acquired’. Mental models are structures that organise
the memory and this is true of both individuals and organisations. As noted before,
the challenge is to build shared mental models so that individual learning is stored
in people’s memories and becomes part of the organisational memory. Part of the
difficulty lies in understanding the subsystems of memory.
Memory subsystems are organised around two axes:
 the level (individual, collective and centralised)
 the nature of the memory (declarative, procedural, judgmental).

Taking into account these subsystems is very important in order to be able to audit
the learning capabilities of the firm. This is also crucial to developing the utmost
learning capability – the capacity for deutero-learning.
Girod (1995) is a French researcher who was identified nine subsystems of organ-
isational memory (see Table 7.2).

Table 7.2 Organisational memory subsystems

Nature
Level Declarative Procedural Judgmental
(knowledge) (know-how) (know-why)
Individual 1 4 7
Individual knowledge Individual skills used Individual prospective
(brain and documents) within the organisation memory, ability to interpret
used within based on individual
the organisation experience
Collective, 2 5 8
non-centralised Acquisition of knowledge Skills creation via Creation of a shared
from others or collective action interpretation
knowledge creation
via interaction
Centralised 3 6 9
Knowledge in Procedures described Official culture, formalised
centralised database in manuals in documents

Source: Girod 1995

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Keeping the benefits of a learning orientation 251

The culture of learning

Although it is possible to give general guidelines concerning the development of
learning, it is clear that, for organisations, learning is not only a matter of formali-
sation and the creation of a framework for learning. In fact, many organisations are
aware that the culture and climate that exists within their environment can either
facilitate or hinder learning, as illustrated by the case study that follows.

CASE STUDY

Adapt or die...
Just as evolutionary history tells us that the fittest ‘tweaking’ and about moving within the
species survived because they were able to adapt to boundaries that have already established what it is.
change, so should corporations in a changing An organisation centred at this level has a limited
business environment. number of options to choose from when
In Darwin’s theory, evolution was characterised confronted with change. Change itself is
as a gradual process in which all species went engineered as though the world is fixed, and
through changes at regular intervals. On therefore any efforts are only incremental, within
examination of fossils, though, it was found that in the confines of the described world. To the degree
reality evolution is punctuated. That is, crises in the that an organisation centred at this level can call on
environment, natural or self-imposed, demanded attitudes and strategies that are centred at the
that species adapt or die. higher levels, it will likely be able to function far
Today, we are facing similar crises in business. more successfully than an organisation that
Billions of dollars are being spent on change perceives and acts in the world solely from a
management, yet most successful organisations material perspective.
cannot keep pace with their more nimble competitors. An organisation operating as a ‘financial’ level
That which is targeted to change, remains unchanged. complex adaptive system has more degrees of
More is required by less. Organisations are required freedom. Being centred in financial results, whether
to cannibalise or be eaten . . . ROI, sales or market share, it is not necessarily
These and several other paradoxes indicate that bound to the world that has made it successful. It is
the business environment is demanding that not necessarily bound by past markets, customers,
corporations change their way of operating. products, processes, structures or strategies. It has
Through evolutionary history, those species that the added flexibility of changing any of these to
did survive did so because they were able to adapt ensure that it meets its specified financial goals. Yet,
to their environment. They proved to be complex if it were required to go through a quantum
adaptive systems. They thrived on disequilibrium change, as is being required by many organisations
and chaos and changed themselves to enter a new today, it runs the risk of becoming extinct so long
relationship with the environment. There are as it remains insistently focused on meeting its
lessons to be learned from behaving as complex imposed financial goals. It is to be noted that
adaptive systems. organisations operating at this level do embody all
If an organisation operates as a ‘material’ level the positive capacities of the previous, material,
complex adaptive system, then it is tied to the past, level. At the same time, to the degree that an
and to what may have once made it successful. Its organisation centred at this level can call on
world consists of known customers, known attitudes and strategies that are centred at the
products, known markets, known processes and conceptual level, it will likely be able to function
structure and known strategies. Innovation is about far more successfully than an organisation that

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252 Chapter 7 / Understanding and creating effective marketing cultures

Case study continued

perceives and acts in the world solely from a able to reinvent the retailing industry by being
financial or a financial–material perspective. the first truly click-and-mortar type company.
An organisation operating as a ‘conceptual’ level  Another example of an enterprise operating at
complex adaptive system is not bound by its past. It the financial level is Covisint, the e-marketplace
has more degrees of freedom and is in essence more joint effort between General Motors, Ford, and
fluid and adaptive than any form that precedes it. It DaimlerChrysler. While Covisint had the
seizes on ideas and will change its customers, possibility of being a concept-led play, in reality
products, markets, processes, structures and/or it has been motivated by a vision that is at a less
strategies to ensure that these ideas can be fulfilled. empowering financial level. Thus, to avoid the
It, too, has the know-how and capability of all the continuing costs of ongoing battles and pains
previous levels embedded into it. Thus, material associated with continuing to support their own
and financial capabilities are deeply embedded or auto parts marketplaces against the efforts of
easily available to it. other competitors in the same space, the
An organisation operating as an ‘intuitional’ level Covisint principals decided to join forces to
complex adaptive system is perhaps fulfilling some come up with a joint auto parts marketplace.
deep need, possibly far beyond what it might even Since their motivation has been driven by the
imagine. As such, it has opened to deep forces of financial level, they have been unable to step up
formation and is bound only by its ability to give to the broader concept-led leadership required to
the receiving intuition a form. At such a level of bring such a venture to successful fruition. Thus,
operation, old, accepted ways of organising may from the word ‘Go’, they have been attended by
prove inadequate or incomplete and the a host of problems, starting from the inability to
organisation may have to conduct its operations in come up with a mutually acceptable name for
new, virgin forms. Such an organisation is deeply the project, to the ongoing difficulty in selecting
creative and perhaps becomes the model by which the right technology platform, to the potentially
many other organisations develop. Examples of crippling inability to really bring their suppliers
organisations at each of these levels follow. along. These leadership problems have been
further compounded by the Federal Trade
 An example of focused material-level operation, Commission’s concern that the combined
to the point where it becomes restrictive, is that purchasing power of the automakers could be
as exercised by the US rail industry. They wanted anti-competitive for suppliers.
to continue to provide rail services, even though  An example of a concept-led company is that of
others had begun to provide transport services, Amazon.com. At its inception it sought to create
and therefore signed their own death warrant. the world’s largest virtual bookstore. It sought to
 Another example of the material-level operation allow the user to browse titles in the comfort of
is that of a company in the typewriter business. their home, while allowing users to view online
Computers now provide all the capabilities reviews by other readers. They shipped books to
provided by a typewriter, and a lot more. Any buyers at prices compatible with or less than
company that insists on providing typewriters those available at its competitors. Its concept for
will soon be wiped out. selling books was so different from existing
 An example of financial-level operation is that of sellers of books that investors allowed it to
Barnes & Noble. When Amazon.com actually continue in operation for five years before it had
began following through on its vision of even begun to show a profit. Further, it drew
becoming the largest bookstore on the planet, investors to its unique concepts and through the
Barnes & Noble, threatened by its diminishing funds that became available to them was able to
market share, spun off barnesandnoble.com. quickly mobilise capabilities at the previous level
Their motivation was simply to regain lost market – material and financial.
share. If, instead, they had moved to an ambition  Another example of a concept-led organisation is
at the concept-based level, they may have been that of Aravind Eye Care System. Note that this
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Keeping the benefits of a learning orientation 253

Case study continued

is not a business organisation and therefore the sense it remains concept-led. To the best of the
inclusion on this scale is tenuous, but done, author’s knowledge companies at the intuitive
nonetheless, to provide a rough indication of level do not exist, though several may be in
what different levels of operation may mean. formation, driven by the vision of their leaders.
Aravind Eye Care System has grown organically,
An organisation should, thus, be centred at the
without upfront planning, and has assumed a
higher levels. This then provides it with the
unique practical shape, with a reach into the
flexibility and living-quality to become an effective
village level unparalleled by any other
organisation constantly fulfilling real needs. It thus
organisation. This reach has assisted it in
becomes imperative to create a culture whereby
creating a unique culture through the young
there is always a push to the higher levels. As such,
village girls who join Aravind to become its
proactive actions and reactive measures need to be
nurses and the backbone of the organisation.
taken at every instance to ensure that every part of
This reach also allows Aravind to provide service
the organisation is operating with the highest
to numerous blind throughout Southern India. It
degrees of freedom available to it.
is driven by the vision and idea of its founder
Source: Pravir Malik, ‘Adapt or die’, The Hindu Business Line,
and there is an adhesion to this vision, even
3 October 2002
though circumstance and time go on. In this

How can the typology of organisations discussed in the case study help or hinder
the formation of a learning organisation? As culture has an important part to play
in learning, it is useful to understand why this is (Baumard 1995).
 an informed organisation is not necessarily more competitive – it is what the
organisation makes out of the information that really counts
 one observes that, usually, individual learning is dispersed into the organisation,
with no real benefit at the collective level
 learning from other managerial systems (for example, the USA trying to learn
from Japanese management) is very difficult because one misses the details.

All of these observations indicate that the deeper capabilities of a firm are very
dependent on its culture. Surface-level learning without the required cultural
dimension can lead to poor implementation of strategies.
Thus, it is important to re-emphasise that culture cannot be managed in the
same ways as other organisational elements because it is complex, socially con-
structed and always evolving. As Barney (1986) demonstrated, culture is, by
definition, unique, which means that each firm has to find its own way. Often,
mergers and acquisitions occur in the hope that the more successful culture will
dominate, but the performance level after most mergers and acquisitions is poorer
than that of the freestanding companies.
It is clear that top management has a lot of influence on the culture of an organ-
isation (Schein 1983, 1992, 1993) and that this can stimulate development.
However, it is also clear that the expansion and integration of the changes initiated
or desired by the management will depend on every member of the organisation
buying in to the changes. Hence, the ability of a firm to develop a learning culture
will depend on its existing abilities and characteristics (see Figure 7.21). A particu-
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254 Chapter 7 / Understanding and creating effective marketing cultures

lar organisation’s potential is quite unique and cannot easily be compared with
that of another firm – each has to develop its own capacities.
While developing a learning culture, the firm has to keep an eye on its environ-
ment (competitors, market, customers, suppliers and other salient stakeholders)
because learning also occurs via interactions with external contacts. In such
instances, benchmarking studies can be useful to assess competitors’ strengths and
weaknesses. This learning can then be translated into specific actions that corre-
spond to the firm’s strengths and its particular culture.
Developing a learning culture can be a problem for certain firms that are not
aware of their existing culture. In such cases, a cultural diagnosis can help the
organisation to rethink and redefine its learning process, as the organisational cul-
ture is like the nervous system of the firm (see Figure 7.20).

Learning is not straightforward

All the preceding considerations suggest that learning is not necessarily straightfor-
ward – that either it is not part of the initial culture or it is difficult to maintain as
inertia impedes continuous learning. In line with this, at least three aspects require
attention. First, several authors indicate that unlearning is critical. Second, learning
and culture evolution require time. Last, the learning perspective can stand as a
new approach to the change process and its management.
The question of unlearning is a very important issue. It is linked to the different
shortcomings of the learning process itself. Indeed, in their famous article ‘The
myopia of learning’, Levinthal and March (1993) have identified three types of pit-
falls that can catch people out. These are the tendencies to:
 ignore the long term, especially in the first level of reactive learning
 ignore the bigger picture – the firms’ cognitive resources are limited by a strict
specialisation of learning activities
 overlook failures as they are considered irrelevant.

Learning ability

Organisational memory
and mental models

Organisational
culture

Figure 7.20 The brain as a metaphor for the links between culture, memory and learning
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Keeping the benefits of a learning orientation 255

By unlearning, the organisation puts into question present and past knowledge that
has been generated by learning. In fact, researchers (Spender and Baumard 1995)
have witnessed the phenomenon of firms that made considerable efforts to learn
being unwilling to change the core of their learning, which they had gained from the
hard learning phase. Hence, while learning should be an ongoing process, it can lead
to learning rigidities because the process itself is so resource-hungry (in terms of time,
people, money) that the firm is no longer in a position to reinvest in such efforts.
This is linked to what has been called the ‘exploitation/exploration balance’ by
Levinthal and March (1993). The idea is that higher-level learning consists of two
phases: the exploration phase and the exploitation phase. A poor balance between
exploration and exploitation can be described as follows. A learning organisation
has sunk a lot of resources into exploring a specific issue, but it does not have
enough resources to go further and elaborate on this, so the result is weak knowl-
edge exploitation and incomplete learning (see Figure 7.21).
Firms can encounter two different kinds of problems: either an excess of explo-
ration or an excess of exploitation. In both cases, unlearning past behaviour
patterns can contribute to a better balance between the two. For instance, a com-
pany may be very good at market research and continually pride itself on this.
However, when it comes to getting the goods to market and on to the shelves, it
invariably fails. In this instance, this firm has to ‘unlearn’ the previous behaviour
pattern of predominant market research and balance this with a better learning of
production capabilities.
In addition to this, a company must be able to assimilate learning over a long
period of time. Often, key individuals within a company are so absorbed in day-to-
day requirements, that they fail to leave time for learning or reflection. Many
researchers are (Baumard 1995; Levinthal and March 1993), finding that the time
spent on reflection yields competitive advantage. Too much emphasis is often
placed on speed of operations – especially by external agencies – yet time spent on
reflection and understanding the company and market dynamics can lead to a dis-
tinctive competitive advantage being discovered.

Exploration Exploitation

Excessive exploration Excessive exploitation Balanced exploration

and exploitation
This can be a desire to market The internal issues are fully
test products without exploiting exploited but external testing
all the internal resources effectively and market exploration are poor

Learning and unlearning are important in these cases

Figure 7.21 Exploration and exploitation of knowledge

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256 Chapter 7 / Understanding and creating effective marketing cultures

Companies then, can be seen as managing a time paradox. They have to be effi-
cient in their marketing, R&D and production operations, necessitating a great deal
of interdepartmental coordination and even overlap in matrix organisations.
However, they also have to take the time to integrate, digest and exploit the knowl-
edge that they have just produced as a result of their learning. In the long run,
this paradox should be overcome as the learning process will, in time, help to speed
up operations.
An organisation can stimulate balanced learning in a variety of ways (Levinthal
and March 1993). First, it can develop a whole range of incentives. Classic eco-
nomic responses can be considered to stimulate innovation (patents, intellectual
property rights and so on). However, human resource management tools should
also be used – notably career advancement – as a way of rewarding innovative
people. Recruitment and the resulting selection process are also an important tool
for integrating ‘newness’ into the organisation.
In order to avoid inertia, the organisational structure can also be used to keep
exploration ongoing. Instead of relying heavily on integration and socialisation, the
firm can try to maintain diversity and individuality. Preserving individual ‘deviance’
can stimulate individual learning, which is the first step towards organisational
learning. At the same time, top management can encourage risktaking and creativ-
ity, improving a firm’s ability to innovate (Kohli and Jaworski 1990). Learning also
needs to be exploited and it is the top management’s role to integrate, digest, con-
ceptualise and diffuse the results of learning within the organisation.

Developing a learning, market-orientated organisation

In order to understand how marketing can benefit from a learning orientation, dif-
ferent types of marketing knowledge, generated as a result of various levels of
learning, need to be harnessed.

Levels of learning and marketing knowledge

One of the most important issues in management practice (and consequently in
academic research) is to use the knowledge that has been created as a result of
either learning processes or information gathering. Firms often accumulate huge
amounts of data without exploiting them. In other words, data is not in-formed
(Latin: in – formare, to put into form). Creating marketing knowledge means using
collected data and information.
Menon and Varadarajan (1992) point out that there are different ways in which
to use knowledge.
 Instrumental use of knowledge is the direct application of findings in order to
solve a problem. For instance, when the decision to launch a new product is
made, the instrumental use of information obtained from market research will
be reflected in packaging, the date of introduction, the communication cam-
paign and so on. In this situation, knowledge is generated in direct relation to a
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Keeping the benefits of a learning orientation 257

marketing problem (‘How should we package the product?’, ‘When should we

launch it, ideally?’, ‘What should the communication mix be?’) (Koenig 1990).
 The conceptual use of marketing knowledge is when it is not directly applied to a
specific problem. Rather, it is used to enhance the existing knowledge base of the
firm and its managers. This usage helps to modify the vision, add new concepts
and create new perspectives for viewing traditional problems. For instance,
studying the development of Internet technologies and the possibilities they
offer can not only be used directly when proposing a new product or service
offering but also indirectly to rethink the process of product innovation. The
generation of knowledge can be either problem-specific or the result of strategic
scanning (Koenig 1990).
 The symbolic use of knowledge is when there is a distortion of the meaning of
information in order to serve managerial purposes. This amounts to the political
use of information. Here, although knowledge was initially generated for a spe-
cific issue, its use is far removed from the initial intention. As already
mentioned, Menon and Varadarajan (1992) suggest that the organisation of a
firm influences the way and intensity with which marketing knowledge is used.

While Menon and Varadarajan focus their analysis on the use of marketing knowl-
edge generated as a result of research and studies, Sinkula (1994) provides a more
comprehensive view by proposing to link marketing information processes. He
considers the use of marketing information in terms of acquiring, distributing,
interpreting and storing this information in order to create and apply a specific
learning orientation. Based on these assumptions, he has proposed a model of a
market-based organisational learning process.

Market-based learning
In Sinkulas’ view, market-based learning (MBL) is fundamentally different from
classic organisational learning in four respects:
 the external focus that underlies MBL leads to a more open perspective – it can
also be considered as a prerequisite of internal-orientated learning, because
learning has to be nurtured by new, mainly external, data
 it is a source of competitive advantage as the focus on the environment naturally
leads to a learning that will have an important impact on the competitiveness of
the firm
 it infers that the observation of other firms is not necessarily a fruitful exercise
 marketing information that resides within organisations is sometimes difficult to
access because each individual has his or her own method of storing this infor-
mation but it is much more important than other types of information
(financial data, productivity results and so on), so, even if it might be more diffi-
cult, firms that seek to gain a competitive advantage from their learning
processes should focus particularly on MBL.

Focusing on MBL supposes that one understands the different types of marketing
knowledge and how they can be generated as a result of learning. Sinkula proposes
the framework shown in Table 7.3 (1994: 39).
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258 Chapter 7 / Understanding and creating effective marketing cultures

Table 7.3 Levels of MBL – manifestations and examples

Types of knowledge and Manifestations Examples

learning process
Dictionary Labelling and descriptions of things Descriptions of market segments,
product movements
Episodic Development of historical databases Description of past sales, past
phenomena and cause–effect
relationships
Endorsed Development of a system of norms Development of an ‘espoused’
and strategies way of doing market research
Procedural Actual practices that may deviate Actual practices and tacit rules
from the endorsed knowledge that are involved in market
research
Axiomatic Development of fundamental The fundamental reason for
organisational beliefs conducting market research, the
way it is and continues to be
this way
Augmented Response to gaps detected Renewed ways of organising
between espoused and actual market information acquisition
ways of doing things
Deutero Development of consciousness Understanding of how marketing
about how to learn information is developed and
used within the firm and of its
impacts

Source: Adapted from Sinkula 1994

For organisations, a formal framework such as this opens up opportunities to assess

its own MBL processes. Initially, the analysis should focus on the amount and nature
of marketing knowledge that is gathered in the firm. Second, further attention
should be given to the progress of each type of marketing information within the
firm. Who produces or gathers it? What is done with this information? Who are the
other people who access it? What is the sequence of dissemination? Do the people
affected by the information use it and in what ways? This can assist in understanding
what is done with marketing information and what are the potential discrepancies
between a firm’s knowledge needs and the internal learning process.
Day (1994) was one of the first authors to underline the potential virtuous circle of
learning and market orientation. For him, learning corresponds to the ability to ask
the right question at the right time. Firms that are market-orientated share assump-
tions about how their markets behave and evolve. To support their views and keep
contact with their customers, they have to implement market-driven learning.
Developing continuous learning about markets supposes that the following skills
have to be acquired:
 scanning with peripheral vision
 ensuring sensible decisions are made by using market research
 activating the sensors at the point of customer contact
 learning from benchmarking
 continuously experimenting.
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Keeping the benefits of a learning orientation 259

Creativeness and innovation are clearly developed by a learning process that entails
peripheral vision and experimentation. In order to foster this within individuals, top
management needs to be open and not fazed by risktaking. In other words, managers
must have the ability to create an environment that facilitates learning and the shar-
ing of information. If this is achieved, it can have a profound impact on developing
an organisation that is market-orientated (Baker and Sinkula 1999). In general, firms
that have a definite learning orientation are also strongly market-orientated and per-
form well in the marketplace. Knight (2002) discusses the importance of network
learning by a group of organisations within any context. Learning can take place at
individual or at interorganisational levels, or within a dyadic relationship. A model
such as this brings both individuals and organisations together (see Table 7.4) and
much emphasis is placed on sharing knowledge.
Communication is increasingly important for organisational learning, especially in
the digital age. Information and ideas can now be shared as never before via intranets
and the Internet, especially by means of blogs. Peters and Fletcher (2004) highlight
the importance of linking an organisation’s internal communications (between
employees) to its external communications (with partners, suppliers and customers).
They argue that, by adopting a network perspective and placing communication
behaviour within a larger context, more can be understood about communication
influences beyond the confines of the individual team members. In effect, the com-
munication processes need to be plotted on Table 7.4. As digital technology improves,
learning processes will evolve and change as the marketplace changes.

Table 7.4 Cross-tabulation of the levels of learner with context of learning

Context of learning
Level of Individual Group Organisation Dyad Interorganisational
learner I G O D I/O
Individual Individual Individual Individual Individual Individual learns
I learns alone learns within learns within learns within within a network
a group an organisation a dyad
Group Group’s Group learns Group learns Group learns Group learns
G learning is through within an within a dyad within a network
influenced by intragroup organisation
an individual interaction
Organisation Organisation’s Organisation’s Organisation Organisation Organisation
O learning is learning is learns through learns learns within
influenced by influenced by intraorgan- through a network
an individual a group isational a dyad
interaction
Dyad Dyad’s Dyad’s Dyad’s learning Dyad learns Dyad learns
D learning is learning is is influenced by through within a network
influenced by influenced by an organisation intradyad
an individual a group interaction
Network Network’s Network’s Network’s Network’s Network learns
N learning is learning is learning is learning is through
influenced by influenced by influenced by an influenced by intranetwork
an individual a group organisation a dyad interaction
Source: Knight 2002
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260 Chapter 7 / Understanding and creating effective marketing cultures

Hypertext organisation – a way forward for market-orientated learning

organisations?
Based on the idea that learning is of foremost importance to the organisation and
for effective marketing development, a market-orientated learning organisation
could be designed according to the observations of organisational learning
(OL) theorists.
Ingham (in Nonaka and Takeuchi 1995), notes that certain types of structures
seem to favour learning:
 decentralised structures
 participative structures
 flat structures
 group project or taskforce structures
 flexible structures.

Nonaka and Takeuchi (1995) propose an amalgamation of the effective elements of

previous structures while suggesting a new way of seeing and designing the organi-
sational structure. This new model is the hypertext organisation. This type of
organisation is made of multiple, interconnected layers. Interdepartmental connec-
tions are key to achieving effective market orientation.
The central layer consists of the core activities of the firm, with this part of the
organisation concentrating on its routine functions. In this scenario, a hierarchical
organisation is adequate.
The top layer consists of multiple group projects where employees are expected
to work creatively. Members of the group projects come from different departments
and are dedicated to their specific group until the project is achieved.
Finally, a third, invisible layer – called the knowledge base – consists of sharing and
recontextualising knowledge and this is created by the first two layers. Strategic
vision and organisational culture mainly guide it. Nonaka and Konno (1993) pro-
posed the structure for the hypertext organisation can be seen in Figure 7.22.
This organisational design appears to have a lot of the features that we know are
required for good market orientation. A market-orientated firm needs a smooth
and responsive organisational structure together with a large measure of innova-
tion. The hypertext organisation takes advantage of traditional structure types,
such as bureaucracies, hierarchies, taskforces, matrix structures and so on, and
superimposes the desired elements. An organisational design of this kind is not
necessarily easy to describe and explain in annual reports, even though it may be
one of the most effective ways to stimulate market orientation, learning and inno-
vation, and may perhaps be the key to developing competitive advantage. The
linking up of core systems, knowledge systems and groups working in unison is
perhaps the best way to develop customercentric organisations capable of building
good relationships.
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Summary 261

Group project layer

Working in collaboration, Market
sharing the same vision,
composing an internal
network
Knowledge base layer
Dynamic Strategic vision,
knowledge culture, technology,
cycle database

Core
system

Figure 7.22 The hypertext organisation proposed by Nonaka and Konno

Source: Nonaka and Konno 1993

Summary
Designing the structure of an organisation appropriately is an important compo-
nent in developing competitive advantage. The right structure helps to influence
the functioning and adaptability of a firm. There are eight traditional forms, which
are departmentalisation, specialisation, standardisation, coordination, formalisa-
tion, decentralisation/centralisation, control and differentiation/integration.
Assessing the degrees to which an organisation incorporates these aspects helps to
determine its tangible elements, although its, differentiating and integrating mech-
anisms constitute the less tangible aspects.
Culture is also an important intangible aspect of organisations that needs to
be considered.
In an era where the acquisition, transmission and use of knowledge determine
competitive advantage, it is important to consider how organisations can effectively
and efficiently build customer relationships. At the same time, it is important that
organisations develop learning capacities as these enhance their ability to become
market-orientated. Essentially, organisational learning can be defined as the process
of improving action as a result of better knowledge and understanding. Two main
types of learning levels can be distinguished: single-loop learning, which is a reactive
type of learning, and double-loop learning, which is a more profound conceptual and
proactive type of learning. A third type can also be identified: deutero-learning, which
is understanding how knowledge is created and what enables learners to learn.
Different types of organisational systems will generate different types of learning.
For example, a one-man institution will generate individual-based knowledge,
whereas a bureaucratic system will generate organised formalised knowledge. The
development of shared mental models helps to form the link between organisational
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262 Chapter 7 / Understanding and creating effective marketing cultures

and individual learning. At the same time, the top management’s ability to foster an
environment conducive to creative thinking and risktaking, appears to develop
better learning organisations, capable of being market-orientated and better posi-
tioned in the increasingly competitive marketplace of the twenty-first century.
In the future, it is likely that organisations will develop different layers that
function effectively and cogently to meet and exceed customers’ expectations.
These organisations will probably develop along the hypertext model described
at the end of this chapter. Knowledge creation and dissemination will be dynamic,
creating a virtuous circle of customer–firm interactions.

Chapter questions
1 What is organisational learning? What are the consequences of it?
2 Traditionally, what types of learning have been identified? Is there a better type
of learning?
3 How can individual learning be transferred at organisational level?
4 What is the role of organisational culture in the learning processes?
5 How is organisational memory organised? What is its role in organisational
learning?
6 Why is unlearning so important?
7 Why is learning not straightforward?
8 What distinguishes market-based learning from organisational learning?
9 What are the links between organisational learning and market orientation (refer
also to Chapter 1)?
10 To what extent can we distinguish standardisation from coordination?
11 Does the organisational chart represent the whole structure of a company? Why?
12 How can the role of differentiation mechanisms be conceptualised from a
market-orientated point of view?
13 What is the instrumental use of market information?
14 According to Schein (1992), how many components can be identified in
organisational culture? What are the links between these components?
15 What types of changes towards market-orientated culture can be identified?
What are their respective benefits and drawbacks?
16 Is there a link between structure and the level of market orientation? Is it a
strong, established link?
17 Does a firm’s size matter when trying to create a market-orientated culture?
18 Outline the design of a hypertext organisation.
19 What are the benefits of the hypertext organisation with regard to market orientation?
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Globalising marketing efforts

8
Introduction
In the last 50 years, the world has experienced globalisation, but in the last 15 it
has accelerated phenomenally. Globalisation has occurred as a result of a series of
factors, such as the rapid advances in transportation and communication technolo-
gies and the exponential increase in international trade after 1950. The interplay of
all these factors has transformed the mentality of people, changed the structure
and functioning of world markets, and created new opportunities and challenges
for companies.

Table 8.1 The impacts of internationalisation, globalisation and Internetisation

Internationalisation Globalisation Internetisation

Consumers Increased awareness and Standardisation of demand The possibility of
demand for foreign brands, on a transnational basis accessing and exchanging
products and services information, products
and services in
cyberspace without
restrictions of time
or space
Markets Increase in transnational The development of Development of online
trade of goods and transnational segments of markets and virtual
services consumers with similar communities
demands.
Complex interactions
between the elements of
the international business
environment
Companies Increased exchange of Rationalisation of Quick access to online
inputs and outputs across companies’ structures in suppliers and consumers
national borders relation to the cost of localised worldwide
production in various
locations and profits in
specific markets
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264 Chapter 8 / Globalising marketing efforts

The globalisation of world markets is an ongoing process of internationalisation

that began as soon as man traversed continents. Globalisation has accelerated in
the last 15 years, especially since the development of the Internet. The
Internetisation of business transactions has created a parallel world market with
certain characteristics. The Internet is more than just a communication channel
because, in comparison with other media, it offers increased possibilities for inter-
action and is capable of not only transmitting information but also storing and
processing it.
Internationalisation, globalisation and Internetisation have different effects,
meanings and consequences at the levels of consumers, markets and companies
(see Table 8.1). The stage of internationalisation is reached when firms start to sell
their products across borders and the trade flows increase at the international level.
Globalisation is the next stage on, when there is not only an increase in the
volume and value of goods and services exchanged internationally but also the
emergence of transnational segments of consumers with similar demands, the
development of global brands that are actively known and promoted worldwide, as
well as an increased interdependence of various elements of the international busi-
ness environment at the global level.

The main factors influencing international marketing

operations
International marketing operations are influenced by many different factors in the
international business environment. A good knowledge and understanding of the
critical factors for a company’s international strategy is paramount for marketing
success in foreign markets. Many failures in international marketing operations can
be explained by the lack of knowledge of strategic decision makers regarding the
international business environment and its evolution. As the elements of the inter-
national business environment are, usually, outside the influence of most
companies, the firms engaged in international operations must use their internal
resources (money, physical assets, experience) to adjust and adapt their strategies to
the dynamic changes in international markets. Therefore, success in international
marketing operation is built on:
 a good knowledge of the evolution of the international business environment
 the existing assets of the firm
 the capacity of managers to rapidly adapt the firm’s strategies to the continuous
changes in international markets.
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The internationalisation of firms 265

Knowledge of international
business environment

Success in
international
marketing
operations
Adaptation to
Internal assets
market changes

Figure 8.1 The three main conditions for success in international marketing operations

The internationalisation of firms

Globalisation has increased the importance of internationalisation theories for
both academics and practitioners. Academic research has developed three main cat-
egories of models to describe the process of internationalisation:
 experiential learning models
 systematic planning models
 contingency models.

There are two experiential learning models:

 Uppsala model, developed by Johanson and Wiedersheim-Paul (1975)
 Management Innovation model, described in the work of Bilkey and Tesar
(1977).

The systemic approaches of these last two models are nearly the same. Both
describe the internationalisation process as a gradual evolution of the firm through
a series of stages that correspond to the increasing involvement of the company in
business with other countries (see Figure 8.2).
The Uppsala model explains the internationalisation process by considering two
main strategic dimensions:
 the market knowledge possessed by the firm about different foreign markets
 the commitment of the firm’s resources to those markets.

The evolution of the company from a mainly domestic activity to a fully interna-
tional profile is described as a slow, incremental process that involves the gradual
acquisition, integration and use of knowledge about the characteristics of foreign
markets, as well as an increasing commitment of the company’s resources to inter-
national activities. The model also predicts that a firm will first target the markets
that are most familiar in terms of language, culture, business practice and industrial
development, in order to reduce the perceived risk of international operations and
increase the efficiency of information flows between the firm and its target market
(Johanson and Vahlne 1977 and 1990).
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266 Chapter 8 / Globalising marketing efforts

No regular
export activity

Exporting via
independent agents

Creating an overseas
sales unit

Creating an overseas
manufacturing unit

Figure 8.2 The successive stages of a firm’s internationalisation, according to the

Uppsala model

The Management Innovation model tends instead to explain the initiation of the
internationalisation process as being the result of a series of management innova-
tions implemented within the firm. The original model created by Bilkey and Tesar
(1977) emphasises the evolution of a firm’s internationalisation occurring in the
process of successive learning stages.
The classical models of internationalisation have been extensively challenged
over the years, with numerous scholars advancing various criticisms of their valid-
ity and assumptions. Some authors have questioned the deterministic nature of the
Uppsala and Management Innovation models, saying that many firms do not
follow a consistent path to internationalisation (Andersen 1993; Rosson 2004;
Turnbull 1987). Many studies have found that the management of an internation-
alising firm considers a variety of strategic approaches (Root 1987; Welch and
Luostarinen 1988), the internationalisation process representing a strategic answer
to the evolving market conditions (Reid 1981 and 1983).
Other critics have demonstrated that the first step in the internationalisation
process may not be exporting, but one of several alternative international activi-
ties, such as licensing, franchising, joint venture or network relationships
(Håkansson 1982; Nordstrom 1991; Root 1987).
These criticisms show that it is difficult and even dangerous to draw a unique
recipe for the internationalisation process (Buckley et al. 1975; Root 1987 Varaldo
1987) and the firm’s stage of internationalisation is largely determined by the oper-
ating environment, industry structure and its own marketing strategy (Turnbull
1987).
These criticisms have been crystallised in two additional orientations:
 the strategic planning models, based on the research published by Root (1987),
Miller (1993) and Yip et al. (2000), which claim that systematic planning
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The internationalisation of firms 267

founded on a careful analysis of competitive factors and circumstantial condi-

tions can significantly increase the success of the internationalisation process
 the contingency perspective, developed by Turnbull (1987) and then refined by
Boter and Holmquist (1996) and Roberts (1999).

However, there are important differences between the internationalisation process

in small and medium size firms (SMEs) and large corporations. Traditionally, the
big companies had important advantages in their international competition with
SMEs: financial and human resources, as well as previous experience and the possi-
bility of accessing external expertise by counselling. However, in the last 20 years, a
series of studies have outlined the existence of ‘born global’ firms – SMEs that suc-
ceed in achieving internationalisation quickly, exporting a large percentage of their
output in the first years of their activity.
The following case study presents the challenges encountered by small firms
when entering foreign markets.

CASE STUDY

Sabon cleans up in America

The small Israeli chain of natural bath-product into a chain of 22 shops across Israel, including
boutiques is making inroads into the upscale US trendy places like Tel Aviv’s Sheinkin Street.
beauty business. But Israel, with its population of nearly 7 million,
Sabon, a small but growing Israeli-based chain of has a small domestic market. And as a result of
handmade, natural bath-product boutiques, quickly regional hostilities, the country is all but closed off
attracted a loyal customer following when it landed economically from its Arab neighbours. However,
in New York City three years ago. The flagship Piatok wanted to grow his business. To do so meant
store’s unique environment of apothecary-style launching Sabon internationally. So, in 2003 he
luxury – with its centrepiece sink made of a large tapped his childhood friend Sharon Hasson, a Tel
stone water well from the ancient city of Jericho, Aviv retailer, to open a New York flagship store.
chandeliers, world music mixes, rows of soap blocks
sold by the slice, aromatic oils, rose petal mineral Celebrity following
balls and loofah sponges dipped in glycerine – It was a pilot venture for the partners. If Sabon
immediately distinguished it from the growing could work in Manhattan, they believed that they
flutter of beauty lotion-and-potion emporiums. could replicate the concept globally. So confident
Sabon, which means soap in Hebrew, got its start were they, says Hasson, who moved to New York
nine years ago after entrepreneur Avi Piatok full-time that same year, that they didn’t even
discovered a store that sold old-fashioned soap by bother to create a business plan (see
the pound while travelling in New Zealand. When BusinessWeek.com, 2/24/03, ‘Burn your business
he returned to Israel, he found a man who could plan!’). ‘I just knew I had to find a location,’ he
make natural soap using minerals from the Dead says. ‘There wasn’t really anything like us here, and
Sea and decided to open a store based on the I knew the reaction of our clients.’
concept. The outfit’s brand of bath products, made Hasson’s instincts were on the money. Although
using a 70-year-old process and produced on a the pair did not advertise, Sabon quickly became
kibbutz with natural ingredients like olive oil, sea popular with celebrities like Julia Roberts and Susan
salts and lavender, became a hit. Soon, Sabon grew Sarandon, who fell for what Women’s Wear Daily

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268 Chapter 8 / Globalising marketing efforts

Case study continued

called the company’s ‘rough-hewn luxury’ – giving Israel, the company had to make some adjustments
the fledgling store star cachet. Relying only on in order to duplicate that achievement in this
word of mouth and sales clerks who offer product country. ‘Being an entrepreneur in the US was
samples to passers by, Sabon earned several nods in difficult initially,’ says Hasson. ‘I needed to figure
beauty and fashion magazines like Vogue and Elle, out the system first as it’s so different from Israel.’
whose editors did not fail to notice Sabon’s
celebrity attraction. Love of lavender
According to Hasson, within ten months, Sabon’s For starters, he couldn’t just arrive and hang a
American flagship surpassed its sales goals (the shingle. He needed to get a business visa and a
private firm would not disclose numbers) and rolled Social Security number. As well, according to
out a second location. Currently, Sabon has six Hasson, it costs about $50,000 to open a new
shops in New York, two in Chicago and one in location in Israel, compared to $300,000 here.
Boston. The company opened a shop in Toronto There were cultural differences, too. Hasson found
last year and another in Rome in May. The partners that his American customers were much more
are now considering opening boutiques in London interested in knowing how the products are made
and Tokyo. and what their ingredients are. He also notes
differing tastes, like lavender-infused products
Niche growth being more popular in the US than back in Israel.
‘I like the atmosphere, it’s really linked to the But Hasson says he also discovered that in
product for me,’ says Leila Djemal, an running a business here, ‘Americans work hard. The
organisational development consultant, who competition is enormous, and people know they
originally shopped at Sabon on trips to Israel and have to give their all if they want to succeed. The
work ethic here is unique – people don’t complain
then noticed one in Manhattan. ‘I like the whole
about long hours and, especially in New York, I
package of the store, the way they display things,
think they expect to give 100 per cent.’
the rich creams. It’s always kind of luxurious.’
He also had to learn to adhere to America’s more
Sabon’s entry into the beauty market comes at a
formal business procedures. ‘If you don’t know the
time when luxury niche brands is the fastest-
formula,’ he explains, ‘you will struggle. But once
growing segment in the industry. Spurred in part by
you learn it, you can get it to work well for you.
the wildly successful Body Shop that began in
There are also so many rules and regulations to take
England in 1976 and has expanded to include
into account, which can be frustrating initially. But
2100 stores in 55 countries (see BusinessWeek.com,
now that Sabon is growing rapidly, I appreciate that
3/17/06, ‘L’Oréal’s latest leap’), brands like America’s
control. The standards here are extraordinarily high,
Kiehl’s and France’s L’Occitane have attracted
which is impressive – maybe because there’s so much
rabidly loyal customers who are flocking to natural competition. In Israel things take longer. It’s a small
skin and beauty care products. According to Karen country and a lot of business ventures are between
Grant, a senior beauty industry analyst at the NPD friends and family. So, the trust is there, which is
Group, a Port Chester (NY) consultancy, this nice. But sometimes people are less professional.’
particular area of niche brands has been growing in
the double digits since 2002, without slowing down. Starting from scratch
Last year, it contributed $265 million of the total Now that Sabon has a significant toehold in
$2.2 billion prestige skin care category. ‘The one America, it is looking to expand its footprint. In
thing that is important,’ says Grant, ‘is that September it opened a new store in Paramus, NJ,
customers want product efficacy, service, a product and is considering Miami and Los Angeles
that is different from something else.’ locations. Hasson says his ultimate goal is to roll
Despite Sabon’s nearly overnight success, Hasson out 100 shops across the country by 2012. And
concedes that as a foreign entrepreneur coming to while Sabon has been approached by some
America, he faced a number of challenges. Although department and speciality stores, Hasson says, at
Sabon had already proved successful in its native least for now, they don’t want to dilute the
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The internationalisation of firms 269

Case study continued

personality of the store by opening mini-boutiques from scratch. I was fortunate in that I had some
inside larger stores. good Israeli friends and connections in New York
In hindsight, Hasson says: ‘Being a foreigner in from Day One. But looking back, it was one of the
the States is hard, obviously. There is nothing easy hardest things I’ve ever done.’
about it. There is a different language to learn, the Source: Stacy Perman, ‘Sabon cleans up America’, BusinessWeek,
culture is different, and in a way you need to start 28 September 2006

A study by Knight and Cavusgil (1996) regarding the widespread emergence of the
‘born global’ companies in different areas of the world economy represents another
important challenge to experiential learning models. Based on a study conducted
in Australia, the born global companies were defined by the following specific
characteristics (Knight and Cavusgil 1996):
 management views the world as its marketplace from the outset of the firm’s
founding, so, unlike traditional companies, they do not see foreign markets as
simple adjuncts to the domestic market
 born globals begin exporting one or several products within two years of their
establishment and tend to export at least a quarter of their total production
 they tend to be small manufacturers with average annual sales usually not
exceeding $100 million
 the majority of born globals are formed by active entrepreneurs and tend to
emerge as a result of a significant breakthrough in some process or technology
 they may apply cutting-edge technology to developing a unique product idea or
a new way of doing business
 the products that born globals sell typically involve adding substantial value –
the majority of such products may be intended for industrial uses.

Knight and Cavusgil (1996) argued that this phenomenon was facilitated by a
series of more recent trends that have increased the capacity of many companies to
initiate international activities early on:
 the increasing role of niche markets, especially in the countries of the developed
world, determined by increased demand for specialised or customised products
 the advances in process technology that have created the possibility of flexible,
low-scale and low-cost production
 the advances in communications technologies have reduced the costs of infor-
mation transmission with distant markets
 the inherent advantages of small companies, such as quicker response time, flex-
ibility, adaptability and direct customer relations, facilitate the international
operations of born global companies and offer them an important competitive
edge compared with the larger multinationals
 the means of internationalisation, such as knowledge, technology, tools and
facilitating institutions, have become more accessible to all firms, regardless of
their size or activity sector
 the emergence of complex transnational networks of strategic alliances.
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270 Chapter 8 / Globalising marketing efforts

The born global model is supported by numerous studies that show these types of
companies emerging in many national economies. The born global phenomenon is
not limited to high-tech companies alone, as the case study demonstrates. The
internationalisation of world business has created new opportunities for small firms
that pursue rapid globalisation because the virtual market eliminates many of the
time, space and cost barriers specific to physical trade, as this case study illustrates.

CASE STUDY

Success for Tasmanian ‘born global’

Tasmanian-based Beauty and the Bees, a leading own. This deal was possible due to our participation
producer of organic skincare products, is a typical in Austrade’s New Exporter Development Program
‘born global’ exporter. From the day it was and if it weren’t for Haruhiko-Ban (Austrade’s
established as a mail order business in 1992, its Business Development Manager – Nagoya), the deal
customer base has had no geographical boundaries, would not have gone ahead. We are very, very
with orders coming from all corners of the world. grateful for his help.’
Twelve years on, mail order still remains the Ms Saunders grew up in England in a family
company’s key distribution system, however its where natural herbal remedies were part of
customer list has changed from predominantly everyday life. After researching ancient herb and
small buyers to include larger international honey recipes and developing her own range of
distributors. This has led to a significant increase in natural skin care products she immigrated to
company revenue as well as an obvious strain on Tasmania in 1992 to seek out the island’s abundant
the company’s resources. and natural ingredients.
Founder and CEO of Beauty and the Bees, Jill Beauty and the Bees began harvesting and
Saunders, said the business had developed making natural skincare products in Australia in
sophisticated logistics and transport systems to 1993 using fresh, local ingredients – focusing on
cope with large influxes in demand. our rainforest island’s unique, aromatic
‘We’ve learnt a lot in terms of sourcing the leatherwood honey and beeswax. Ms Saunders first
necessary raw materials and establishing good established a mail order business then opened her
distribution systems to meet surges in demand. first retail outlet, a fresh skincare deli in the historic
After many years of struggling with transport and waterfront village, Bellerive, in 1997. More recently
freight problems we’ve now found an ideal partner the company opened a store in Hobart, where it
in Toll Ipec’, Ms Saunders said. offers the full range of lip balms, bath salts, body
Ms Saunders said the focus on attracting large oils, creams, butters, powders and natural soaps.
international buyers and marketing the products ‘We will continue with both the retail and mail
globally over the Internet had encouraged her to order sides of the business because this is a strategy
approach Austrade for assistance. ‘Austrade has working well for us at the moment,’ she said. ‘In
been extremely helpful in providing assistance terms of export we have quite a few overseas
through their overseas posts, particularly in the UK markets in mind, and we will continue to explore
and Japan, which are our two largest export these with the help of Austrade.’
markets,’ she said. ‘We recently signed a $25,000 Source: Australian Government, Austrade (available at:
deal with a major Japanese distributor, which is www.austrade.gov.au/corporate/layout/0,,0_S1-1_-2_-
something we never could have achieved on our 3_PWB110464128-4_-5_-6_-7_,00.html)
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The internationalisation of firms 271

Considering the impact of knowledge on the internationalisation process, it can be

considered the most important resource in terms of achieving success in interna-
tional ventures. The necessary knowledge about globalisation can come from
different sources.
 Internal knowledge The firm develops the necessary knowledge about foreign
markets and the procedures required for international operations within its own
organisational boundaries. Internal knowledge can be developed by means of
individual and organisational learning, external recruitment or internal transfer
of expertise between the various business units of the same organisation.
 Shared knowledge The firm initiates and achieves stable joint ventures or strategic
alliances with one or more business partners in order to obtain, and offer, spe-
cific knowledge and expertise necessary for international operations.
 Outsourced knowledge This is obtained from governmental agencies or consulting
firms that specialise in support services for the initiation and development of
international activities. Often, the firm has to pay for this knowledge, although
in some cases the government might support the international expansion of
international firms by subsidising such programmes.

This classification indicates the kinds of business organisations that are possible
sources of the kind of knowledge required for the internationalisation process,
offering firms the opportunity to assess their internal capabilities and decide what
source, or combination of sources, should be used (see Figure 8.3).

Internationalisation

Organisation
Learning
Recruitment
Business
Joint venture
partner
Internal transfer

Outsourced knowledge
Money

Consulting
services

Figure 8.3 The main sources of internationalisation knowledge

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272 Chapter 8 / Globalising marketing efforts

Offshoring and globalisation of suppliers

Globalisation affects not only the cross-border trade in products and services for
final consumption but also the elements transferred between firms as inputs for
future production processes, such as raw materials, installations, fuel, information,
technology or services. From this perspective, it can be seen that not only have
consumer markets become more global, but so have supplier markets.
The globalisation of suppliers has been favoured by the large-scale liberalisation
of international trade and the increased standardisation of technical specifications
(such as the ISO international norms). This trend has influenced the practice of
international marketing and even the theoretical definition and classification of
global firms. A study published by the Organisation for Economic Co-operation
and Development (OECD) in 1997, concerning the international activities of SMEs,
published the classification shown in Table 8.2, which includes multiple elements.
The technical and competitive advances in transportation and communication
have significantly reduced logistics costs and the quality of industrial supplies has
become more uniform across various producers located in different countries. As a
consequence, production costs constitute an important differentiating dimension,
determining which long-term suppliers are chosen. These factors have caused
changes not only in the locations of companies’ suppliers but also, in some cases,
led to a complex restructuring of corporate activities and organisation. This is all
due to the phenomenon of offshoring.
Even if offshoring – the transfer of jobs to overseas countries – is a well-known
phenomenon related to the increased globalisation of world business, the debate
on this subject has increased in intensity in the last five years or so (Rutherford and
Mobley 2005). The possible cause of this renewed interest is the development of
offshoring initiatives determined by the political and economic changes realised in
a series of developing countries and the structural transformations experienced by
economically developed countries in a series of traditional industries.
The changes in the political regimes and the economic reforms introduced in
most transition and developing economies in the last 15 years have increased the
attractiveness of these countries as possible locations for offshoring or outsourcing
activities. These economies are generally characterised by a large pool of well-
qualified workers, low labour costs (compared with those in economically devel-
oped countries) and a rapidly improving infrastructure. Many such countries are
experiencing a high rate of economic growth and are gradually being integrated
into larger economic and commercial organisations, such as the EU, NAFTA and
ASEAN, which increases the attractiveness of their markets.
Offshoring has an important impact on employment levels, the structure of the
labour market and management of global business operations (Baily and Lawrence
2004). The first wave of offshoring was linked to labour-intensive industries. At
present, the offshoring development is determined by advances in IT and telecom-
munications, which permit the relocation or outsourcing of information-related
services in other countries with low labour costs.
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Offshoring and globalisation of suppliers 273

Table 8.2 The dimensions of SME globalisation

Description Traded inputs and Establishments and Market opportunities and

outputs affiliations competition
No globalisation All inputs sourced from Single establishment, No market outside local
‘Domestic’ local area, all outputs no establishments or area, no potential
sold in local area affiliations outside competition from outside
local area local area
Limited < 10% of inputs sourced At least one Barriers to entry to
globalisation across borders, and establishment or outside markets and to
‘Mainly domestic’ < 10% revenue from affiliate outside local local market (for
across borders, usually area or outside competitors) are
within a limited span national area significant and amount
of nations to more than 50% of
costs
Major globalisation > 10% but < 40% of Establishments or close Barriers to entry are
‘Internationalised’ inputs sourced affiliates in at least four noticeable, make up to
internationally, and different nations and in 10% of cost
> 10% but < 40% of two major international disadvantage, but can be
revenue from across regions overcome fairly easily
borders, usually across
two major international
regions
Extensive > 40% of inputs sourced Establishments or close Barriers to entry to
globalisation internationally, > 40% of affiliates in at least international markets
‘Globalised’ revenue from outputs one country in all three are not significant
traded across borders, major international impediment for firm or
across all major regions competitors, make up
international regions less than 5% cost
disadvantage
Complete Majority of inputs of any Multiple establishments Markets in all major
globalisation establishment sourced or affiliates in many international regions,
‘Fully globalised’ across borders, large countries and in all competition likely to be
majority of outputs major international present or come from
traded across borders regions any international region

Source: OECD 1997, p.23

The scale of offshoring activities is difficult to assess. Research so far has provided
contradictory findings, most probably due to the lack of common definitions and
measurement tools. A study published by Bronfenbrenner and Luce (2004) in
Multinational Monitor, indicates that 255 organisations in the USA had reported or
announced job shifts from the USA to foreign countries in the period January–March
2004. The most common destinations for these offshoring operations were Mexico
(69 shifts), China (58 shifts) and India (31 shifts). The intensity of offshoring varies
from one industry to another. First place goes to ICT (7756 jobs shifted abroad), fol-
lowed by the auto parts industry (6490 jobs), food processing (6265 jobs), electronics
and electrical equipment (5871 jobs), appliances (5371 jobs), industrial equipment
and machinery (3508 jobs), household goods (2956 jobs), metal fabrication and pro-
duction (2836 jobs), and chemicals and petroleum (2245 jobs).
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274 Chapter 8 / Globalising marketing efforts

Despite this obvious trend towards an increase in the number of offshoring oper-
ations (Bronfenbrenner and Luce 2004), other research studies have indicated a
different picture (Vogel and Connelly 2005). According to an annual study pub-
lished by Diamond Cluster International, a Chicago-based management consulting
firm, the level of satisfaction among the clients of outsourced services is decreasing
(McEachern 2005). The 2005 Global IT Outsourcing Study surveyed 210 senior IT
executives at 100 global companies and 242 senior executives at outsourcing serv-
ice providers in the USA, India and other countries. The results of the survey were
that 51 per cent of respondents indicated that they have terminated an outsourc-
ing contract during the last year and only 62 per cent of respondents said that they
were satisfied with their outsourcing relationships – this figure was 79 per cent the
previous year.
Despite the interest demonstrated by researchers and professionals in the off-
shoring phenomenon, there is still a lack of common understanding about what
offshoring is and how it can be measured. Most definitions do not differentiate
between various forms of offshoring and do not consider how these operations
relate to the global strategy of the firm. Here, we develop a framework that takes all
these issues into account, in order to clarify the conceptual and the practical bases
of offshoring operations.
The most common definition of offshoring is the shift of production and
employment from a national basis to overseas locations in order to satisfy the
demand of national consumers (Colquhoun et al. 2004). Other authors expand the
scope of offshoring, stating that it represents any move of a company’s operations
into another country – that is, not only production but also finance and account-
ing, human resources, customer service, IT, sales and marketing, operations,
engineering and development, procurement, real estate and facilities management,
environment and health and safety operations (Williams 2003). This form of oper-
ation is facilitated and supported by the new organisational model of centralising
data and decentralising corporate functions (Rutherford and Mobley 2005).
The specialists outline two main forms of offshoring:
 relocation when the firm moves some of its operations in a foreign country
 outsourcing when the firm subcontracts some functions or operations to compa-
nies located in foreign countries (Schultze 2004).

The advantages presented by these two forms vary depending on the industry and
the specific competitive conditions experienced by the company (Preston 2004).
However, other studies include a more complete classification of various inter-
organisational forms of offshoring (Innovation Insight 2004):
 captive direct when a firm establishes its own fully owned subsidiary overseas
 joint venture when the firm creates a partnership with a foreign organisation to
develop a new operational unit overseas
 direct third party when the firm outsources some of its operations using a foreign
supplier
 indirect third party when the firm makes a contract with a domestic firm, which
then subcontracts a part of the operation to a foreign supplier.
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Offshoring and globalisation of suppliers 275

Although comprehensive, this classification is not necessarily logical. The inclu-

sion of the category of an indirect third party (or intermediated outsourcing) as a
form of offshoring increases confusion about this concept. This group can be
reclassified under direct third party offshoring, if one considers only the relation-
ship between the domestic contractor and the foreign supplier.
In order to develop a more clearly defined framework, it is important to identify
the main elements that characterise specifically the phenomenon of offshoring.
The two main elements that can define the profile of a business operation are the
place of production and the place of consumption. From this perspective, we can
identify four main types of companies (see Table 8.3):
 domestic firm, which produces in the country of origin to satisfy the demands of
its domestic consumers
 exporting company, which produces in the country of origin, exporting a part or
the totality of its output
 conquering company, which produces abroad in order to satisfy the demand of its
foreign consumers
 offshoring company, which produces abroad in order to satisfy the demand of
consumers from its country of origin.

These categories are not fully exclusive. The complexity of the modern business
environment and the strategies of modern multinational companies often mean
that a mix of these possible situations is used. For example, a conquering company
that produces abroad to satisfy the demand of that foreign market may also export
its products to other overseas countries – as is the case with Renault’s production
units for Logan, located in Romania.
The evolution of these firms usually starts with a domestic orientation, then, after
a while, the firm starts to export the products manufactured for the local market to
countries with a similar profile of demand. If that is successful, the firm will set up
manufacturing units in the targeted foreign markets in order to reduce the interna-
tional transportation costs. Finally, the cost advantages may mean that the firm
manufactures its products abroad to sell in its domestic market (offshoring).
We can distinguish three forms of interorganisational offshoring:
 fully captive offshoring when the company creates a fully owned subsidiary over-
seas in order to produce items for its market of origin

Table 8.3 The offshoring phenomenon considered from the perspectives of place of
production and place of consumption

Domestic consumption Foreign consumption

Domestic production Domestic firm Exporting firm

Foreign production Offshoring firm Conquering firm

Source: Adapted from Villemus 2005

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276 Chapter 8 / Globalising marketing efforts

 joint venture offshoring when the company creates a partnership with a foreign
company in order to satisfy demand from its country of origin
 outsourcing when the company outsources one or more of its business operations
from a foreign supplier.

A macroeconomic restructuring scenario is probably the best explanation of the

present offshoring phenomenon, especially if we take an entire industrial sector or
the entire global economy as the unit of analysis. The sectorial competitive advan-
tage is evolving at global level. Developing countries can offer a specific
competitive advantage in that the manufacture of labour-intensive products can be
achieved with low labour costs and good standards of quality. However, the devel-
oped countries evolve as well and develop competitive advantages in other areas
that are beyond the reach of developing countries, such as personalised services,
research and development, innovation, design, high-tech industries and education.
The balance of employment should be considered at macroeconomic level and if,
on a long-term basis, this balance evolves positively towards high-value/high-tech
sectors, the offshoring phenomenon can be considered beneficial, indicating that
the macroeconomic profile should be developed further. On the other hand, firms
need to bear in mind that changes in the sectorial distribution of jobs are painful
and challenging for individuals and organisations as they need to quickly adapt to
the new macroenvironmental conditions. The only logical answer in such cases is
to ensure that there is an increase in adaptability and flexibility as the introduction
of protectionist measures will only determine higher prices for domestic consumers
and a stagnation of the economy will result if the realities of a globalised world are
ignored. This has happened in the former communist countries, many of which
were highly structured with rigid economic systems built on ideological bases
rather than market realities. The problems experienced by countries in transition as
they restructure their economies on competitive bases are representative of the
kinds of dangers of long-term protectionism and insulation that can be suffered at
a company level.

International marketing orientations

An international marketing strategy can be any one of three possible orientations:
 domestic market extension
 multinational
 global.

The firms following a domestic market extension model, usually have one or more
products or services that are highly successful in their domestic market, but no
international activity. Following this domestic success, sometimes the managers
actively consider the opportunity to sell the same products or service in foreign
markets that are very similar to their domestic market. In these conditions, the
company does not have to make complex modifications to its basic offer in order
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Standardisation versus adaptation 277

to adapt it to the foreign demand and, therefore, the cost of international expan-
sion is minimised. It is possible that the idea to sell abroad comes about as a result
of spontaneous demands from foreign customers, without the firm having made
any efforts to promote its product or service abroad. In this case, the firm follows a
reactive strategy of internationalisation rather than an active one.
The multinational orientation in international marketing is characterised by the
presence of a firm in many different countries, with products specifically adapted
to the consumers’ demands in each of these foreign markets. For this type of firm,
each market is considered as a national operation and all international operations
represent a diversified portfolio of independent products/markets. The firms
having a multinational marketing orientation adapt the same products or services
concepts to the existing conditions in every target market and manage their inter-
national operations as independent business units in these foreign markets.
The global orientation in international marketing requires the identification of a
transnational segment of consumers located in different foreign countries, but
having similar needs and wants. Sometimes the total number of these consumers
in each of the foreign countries, when considered separately, is quite small and the
segment only reaches the required critical mass to move into profit when consid-
ered at transnational level. This is the case, for example, with luxury products or
drugs for rare diseases. The firm that succeeds in identifying the existence of such
transnational consumer segments can develop a product or service that satisfies
this global demand, creating an opportunity to sell it in various countries, target-
ing these specific consumers. The global orientation is usually accompanied by a
high level of standardisation of the offered product or service, with a strong, glob-
ally known brand name – such as Coca-Cola, McDonald’s, Cartier, Mercedes and so
on. However, in particular cases, the marketing mix is slightly adapted to the speci-
ficities of a particular country if it means that consumers will then adopt the
product or service and it will quickly increase the volume of sales. Coca-Cola does
this by slightly changing its soft drinks to suit the tastes of different countries.

Standardisation versus adaptation

One of the most difficult areas of international marketing strategy is the debate on
standardisation versus adaptation theories. In 1983, Levitt published a seminal paper
in the Harvard Business Review, in which he argued that, as world markets are highly
globalised and consumers needs and wants show a high degree of convergence and
similarity, the best international strategy is the creation of a high-quality, low-priced
product concept, that can be produced using significant economies of scale and then
distributed on a global basis as a highly standardised, value offer.
Many authors have criticised Levitt, arguing that, although globalisation is an
important pattern in international business, the standardisation of consumers’
needs and wants is not clear in all sectors and markets. If, in the industrial markets,
the degree of standardisation is very high and this is even endorsed by the intro-
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278 Chapter 8 / Globalising marketing efforts

duction of various technological and quality standards, in more volatile markets,

such as consumer goods or services, local cultures still shape the preferences of
national consumers to a significant degree. In these types of markets, the global
approach has little chance of succeeding, so the marketing mix strategy needs to be
adapted to meet the local market’s requirements.
Related to this, there are several changes taking place at international level, that
incline the balance towards one or the other of the two poles in the debate:
 the international movements of immigrants to different countries create multi-
cultural markets and provide opportunities for a transnational marketing that
focuses on these ethnic communities
 the antiglobalisation movements and attitudes in some countries create barriers
for the commercialisation of foreign or global brands
 the Internet has created a parallel digital market in which people are coagulating
their activities around specific centres of interest, providing opportunities for a
transnational tribal marketing
 the fragmentation of market segments requires companies to take an increas-
ingly personalised approach, using one-to-one marketing techniques.

The best answer to the question of how to choose between these two extreme – stan-
dardisation or adaptation – depends on the specific characteristics of the market
served by any one firm. A company should try to identify both the common and dis-
parate elements of consumer demand and behaviour, as well as the degree of
similarity between different local markets, and decide, in every particular situation,
what elements of the marketing mix should be standardised and what should be
adapted. For example, Coca-Cola is using a global brand name, but the price, the con-
tainer, and even the taste of its drinks is adapted to suit local market characteristics.
Such combinations of standardised and adapted elements within the same marketing
mix is called a glocal marketing strategy. McDonald’s – another successful global firm –
applies this same theory to its operations by changing its menus in different coun-
tries. In the UK it has beef, pork and chicken hamburgers, in France it offers a choice
of salads and in China it has introduced rice, fish and sushi to the menu.

Selecting which foreign markets to target

The process of selecting foreign markets to target is paramount to the success of
any firm’s international marketing operations. Making the wrong decision at this
stage can mean important losses of the firm’s resources and profits and provide
other companies with a precious competitive advantage.
In order to select the best foreign markets for future international operations,
the management team has to apply a five-stage process of research, analysis and
decision (see Figure 8.4):

1 evaluate and understand the assets and strategic objectives of the firm
2 define the main criteria for selecting a country
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Selecting which foreign markets to target 279

3 apply the selection criteria and select the country or countries

4 study the profile of the selected foreign market(s)
5 develop the strategic marketing plan.

The selection of the most appropriate foreign target markets represents a complex
process of matching the company’s assets and objectives with the foreign market pro-
file, considering also the restrictions imposed by the firm’s existing domestic market.
These restrictions can be financial, economic or political, such as the interdiction of
the US government limiting American companies working in defence-related sectors
to selling products (such as encryption programs) only to specifically nominated
countries. This complex process of selection requires, in the first instance, a good
understanding of the company’s assets, capabilities and objectives.

Evaluate and understand the assets and strategic objectives of

the firm
The success of a firm in its international marketing operations will be determined
by the level and quality of its resources, as well as its capacity to use them effi-
ciently. The decision makers must consider that, usually, international marketing
projects are more difficult and complex than domestic marketing operations,
requiring the investment of various resources on a long-term basis. In many cases,
international marketing operations do not bring any profit in the first two to five
years of the project, so the firm has to continually invest resources during this time

Understand the
capabilities of the firm

Define the criteria for

selecting a country

Select the country

Study the profile

of selected market

Develop strategic
plan

Figure 8.4 The process of selecting target markets

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280 Chapter 8 / Globalising marketing efforts

in order to build and stabilise its presence in the foreign market. From this perspec-
tive, before initiating any new international business operations, it is vital that
managers evaluate correctly the required resources and how long it will take before
they will return any profit.
Some of the resources required for international marketing operations are similar
to those required for domestic marketing – money, production and distribution
facilities, human resources and management capabilities, for example. However,
international expansion requires a series of specific resources in addition to these,
such as:
 managers with international experience – that is, they can collect, process,
analyse and understand foreign business data
 a marketing strategy that is capable of being adapted to the conditions within
the foreign market and their continuous evolution
 the strategic assets required to successfully initiate and develop international mar-
keting operations – these need to be identified, listed and evaluated by the managers
because the lack of such resources can represent specific limitations that have to be
taken into account when defining the selection criteria for foreign markets.

The new international marketing operations must also correspond to the general
strategic objectives of the firm. The decision makers should make predictions of the
marketing objectives of the firm at international level and select target foreign mar-
kets that will increase the firm’s chances of achieving these objectives. So, for
example, if a firm desires to increase the volume of its international sales, it should
only take an interest in markets that promise future growth.
On the basis of the above internal analysis of assets, capabilities and strategic
objectives, the managers will then need to identify the most appropriate criteria for
selecting a foreign market.

Define the main criteria for selecting a country

There are probably hundreds or even thousands of possible foreign market selec-
tion criteria, but no organisation has the time and resources to use such a large
number. Because of this, it is essential that the company’s management identify
and apply only those criteria most important to them. The number of these criteria
can vary from company to company, but usually they should be limited to between
10 and 15. If this procedure is applied and then it is found that the countries
selected do not correspond to the capabilities and objectives of the firm, it means
that the criteria were not well selected.

Apply the selection criteria and select the country or countries

In order to narrow down the choice of the foreign target market quickly, the firm
must establish and apply two types of criteria. First, an absolute incompatibility
criteria should be identified – in other words, a highly discriminating characteristic
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Selecting which foreign markets to target 281

of a foreign market that would make it completely unattractive or inaccessible for

the firm, such as the lack of a convertible currency.
Second, after the first criteria has been applied, the remaining countries will
need to be evaluated by using a series of criteria of relative attractiveness – market
size, market growth rate, spending power, political stability, quality of infrastruc-
ture, intensity of competition and so on.
On the basis of data collected via market research, any remaining country will be
evaluated against these selection criteria again using a value scale – say, from 1 to
10, where 1 can be considered as the least attractive, and 10 the most attractive.
After every criteria of relative attractiveness has been evaluated and allocated a
value, these values can be added up, the final totals indicating which is the most
attractive foreign target market for the firm and which is the least promising.
Often, however, not all the criteria are of equal importance to the firm. The
managers may, for example, consider that the market’s size and growth are more
important than the quality of the country’s infrastructure. In this situation, these
key selection criteria should be adjusted with an additional value that indicates
their greater level of importance for the firm. The evaluations made for each of
these key selection criteria are then multiplied by these additional values, the
resulting figures being added up for each country in order to indicate the market
with the highest relative attractiveness for the firm.
Considering the complexity of this process, it is crucial that highly discriminat-
ing absolute incompatibility criteria are chosen in order to reduce the total
number of countries remaining after the second stage to just a few to save time and
effort effectively.
The practicalities of applying the selection criteria are illustrated in the following
case study.

CASE STUDY

Establishing countries’ attractiveness for exporting opportunities

A UK firm specialising in selling mobile phone Georgia, Armenia, Moldova, Andorra, Liechtenstein,
accessories decides to pursue a future expansion in Monaco, San Marino, Vatican City.
continental Europe. Therefore, the foreign countries In the first stage of the selection process, the firm
considered for future operations are: Germany, will produce an in-depth internal analysis,
France, Italy, Spain, Russia, the Netherlands, Belgium, evaluating the existing resources and the strategic
Switzerland, Sweden, Turkey, Austria, Poland, objectives established for the international
Norway, Denmark, Greece, Ireland, Finland, Portugal, expansion. On the basis of this analysis, the firm
the Czech Republic, Hungary, Ukraine, Romania, will establish, in the second stage of the selection
Kazakhstan, Croatia, Slovakia, Luxembourg, Slovenia, process, two categories of selection criteria: the
Belarus, Serbia, Montenegro, Bulgaria, Bosnia and criteria of absolute incompatibility and the set of
Herzegovina, Lithuania, Cyprus, Iceland, Latvia, criteria measuring the relative attractiveness of
Estonia, Azerbaijan, Albania, Malta, Macedonia, various countries.

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282 Chapter 8 / Globalising marketing efforts

Case study continued

Taking into account the cultural expertise of the last three. Applying an adjusted evaluation of the
manager responsible for this international countries’ attractiveness on these six criteria, using
expansion, the firm has established the lack of use a value scale from 1 to 10, in which 10 is allocated
of the English language for business transactions as for maximum attractiveness and 1 for minimum
the criteria of absolute incompatibility. Applying attractiveness, the managers develop the following
this selection criteria to the list of countries evaluation table (Table CS 8.1).
presented above, the decision makers have retained Considering the sums of the values allocated for
the following possible targets: the Netherlands every criteria, the most attractive foreign target
(Ned), Sweden (Swe), Norway (Nrw), Denmark market for the UK firm appears to be Ireland (75
(Dnm), Ireland (Irl), Finland (Fld), Cyprus (Cyp) points), followed at quite a long distance by
and Iceland (Icd). Sweden and Finland (62 points).
The criteria of relative attractiveness of the After selecting the most attractive foreign
countries established by the decision makers are country, in stage four, the UK firm will have to
market size (MS), market growth (MG), intensity of collect detailed information about the target
competition (IC), financial infrastructure (FI), market, followed, in stage five of the process, by the
compatibility of technical standards (TS) and development of a strategic marketing plan for
geographical distance (GD). The first three criteria international expansion.
are considered two times more important than the v
Source: Gurau 2006, written for this chapter

Table CS 8.1 The evaluation on various countries using specific foreign market selection criteria

Ned Swe Nrw Dnm Irl Fld Cyp Icd

MS 2x6 2x7 2x6 2x6 2x8 2x5 2x4 2x3
MG 2x5 2x6 2x7 2x7 2x9 2x7 2x4 2x5
IC 2x5 2x8 2x7 2x7 2x7 2x8 2x6 2x5
FI 8 7 7 7 8 8 6 6
TS 7 6 6 7 9 7 5 8
GD 9 7 8 7 10 7 5 6
Total 56 62 61 61 75 62 36 46

The dynamic dimension of the international business environment increases the

complexity of this evaluation and selection process. Considering the fact that the
situation in a given country or region can change dramatically in a very short time
(months or even weeks) and the international operations of the firm will not start
until some point in the future, it is important to assess not only the present situa-
tion in various countries but also predict, as accurately as possible, their future
profile and performance.
The application of these criteria will have, as a final result, the identification
of the foreign country or countries that have the highest relative attractiveness for
the firm.
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Selecting which foreign markets to target 283

Study the profile of the selected foreign market(s)

Even if the selection process has been finalised, the firm still has to fully analyse,
study and understand the profile of the foreign target market. In the second and third
stages, the need for efficiency has meant that the number of aspects of each country
analysed by the firm has been limited. However, there is an important difference in
terms of objectives between the previous stages and this one. The multi-country
analysis was made for selection purposes, while the aim of the in-depth analysis of
the target market is to develop a successful strategic marketing plan.
The profile of the target market must be studied and analysed as completely as
possible by the manager responsible for the future international operations and his
or her team. On the one hand, the elements considered during the selection process
should be considered in more detail, but, on the other hand, additional elements
should be considered, too, so that a complete understanding of the target country’s
economic, social, legal, financial and cultural system can be achieved. If, during this
in-depth analysis, the management team discovers additional elements that reduce
the overall attractiveness of the country or even indicate its absolute incompatibility
with the company’s resources and objectives, the market selection process (second
and third stages) should be applied again.

Develop the strategic marketing plan

On the basis of the information analysed in the fourth stage, the firm should now
be capable of developing a strategic marketing plan for its future operations in the
targeted market. This plan will provide a roadmap for the main strategic opera-
tions, listing the marketing objectives of the firm, the resources allocated for
penetrating the market and developing its presence, the specific operational stages
and the staff responsible for their realisation, as well as a provisional schedule.
One of the most important elements included in the marketing plan is the
market entry strategy, which often shapes the organisational structure and market
positioning of the firm in the targeted country.
The foreign country selection procedure can be standardised only at procedural
level. The unique situation of each firm and the specific conditions of the interna-
tional business environment require a personalisation of the selection criteria and
process. However, the selection process presented above can be considered to be a
‘rational’ method. Sometimes, despite clear results being produced by this systematic
procedure, the final decision is taken on the basis of the personal experience and
intuition of the general or international manager – a method largely used by many
SMEs that do not have the necessary resources to collect and analyse complex data
about a series of foreign countries. Although the intuitive method has many merits,
it is not advisable to eliminate completely the rational approach to foreign market
selection. Ultimately, a balanced combination of these two approaches provides the
best chance for success in international ventures.
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284 Chapter 8 / Globalising marketing efforts

Market entry strategies

The classical market entry strategies in foreign markets are:
 exporting
 licensing
 franchising
 strategic alliances and joint ventures
 wholly owned subsidiaries, either developed or acquired.

Each of these market entry modes has specific advantages and disadvantages that have
to be properly considered by firms before initiating an international venture. Usually,
the strategy that is best for a specific competitive situation can be found by analysing
the firm’s resources and expertise, the specific circumstances of the foreign business
environment and the strategic objectives of the firm – especially the ones relating to
profitability, market share and degree of operational control (see Figure 8.5).

Exporting
This is the traditional internationalisation method and it is still extremely popular
because of its simplicity and low level of risk.
Exporting has for a long time been considered the best way to initiate the inter-
nationalisation process because of its low involvement with the foreign market and
its capacity to provide quick revenues to the company. The classical models of
internationalisation suggest initiating exporting activities in countries that are very
similar to the firm’s domestic market. Today, exporting activities can be developed
using various alternative methods, requiring differing levels of involvement of the
firm – that is, direct exporting, exporting via specialised agencies or confirming
houses and piggybacking.

Exporting Licensing

Franchising Strategic alliance

Subsidiary
Joint venture

Firm’s profile Business environment

Strategic objectives

Strategy

Figure 8.5 Market entry strategies and factors influencing the choice of strategy
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Market entry strategies 285

Exporting is favoured by national governments because it not only confirms the

international competitiveness of its national firms, but also brings direct and quick
value inputs into the country. Because of this, many countries actively support the
development of exporting activities, supporting national firms by means of coun-
selling, market information and even subsidies.
Despite its advantages, exporting does not allow for a very good control of the
product and company’s image in the foreign country. Some companies also use it
for the opportunistic exploitation of foreign markets during crisis periods.

Licensing
Licensing allows a company to exploit the financial value of its intellectual prop-
erty portfolio by selling the use of patents or technology to foreign customers.
Traditionally, licensing has been used mainly in industrial markets, where inno-
vative companies sell the use of their discoveries to other firms. More recently,
however, the use of licensing has been dramatically expanded in the consumer
goods markets, covering products such as software programs.
The contract that regulates a licensing agreement can contain specific clauses
related to confidentiality, competition and grant-back conventions – that is, the
obligation of the licensee to communicate to the licensor any development made
on the initial licensing object.
Licensing can be used in countries where the competition is too intense to create
a subsidiary. In this case, a business client is allowed to apply the protected innova-
tion under specifically defined rules. The client pays royalties for the right to use
the innovation, making regular payments.

Franchising
Franchising combines the advantage of a reputable brand name with the transfer of
specific know-how. Famous examples of franchising firms are found in the fast
food market, such as McDonald’s or Pizza Hut, fashion retailing, such as Benetton,
services, such as financial counselling and property dealers Century21, and con-
sumer goods, such as Coca-Cola.
Franchising is based on a legal agreement between the franchisor – the company
owning the brand name and the know-how – and the franchisee – a firm or individ-
ual having a good knowledge of the local, regional or national market environment.
This combination of complementary knowledge allows the franchisor to expand
internationally at rapid pace, in conditions of low investment and risk.
Franchising has been used by many of the US companies mentioned above, in
order to quickly expand into a huge internal market. The success achieved has pro-
vided a platform for international expansion.
A network of franchisees is developed progressively, in the markets or areas in
which the brand is known and there is a growing demand for its products or
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286 Chapter 8 / Globalising marketing efforts

services. However, the franchisor has to make sure that the quality of the fran-
chised establishment is in line with the brand’s image. A large variation in quality
levels of various franchisees will send conflicting messages to consumers, who
could then become alienated.
Another danger is the threat of competitors, which can copy the style and know-
how of the franchise. Only a part of the elements transmitted to the franchisee can
be protected by intellectual property laws, such as the brand name, logo and text of
adverts. However, the success of a franchise can inspire local competitors to copy it
and use the same elements, with small modifications, for much lower prices. In
these conditions, a strong brand image and a constant level of quality represent the
best weapons in maintaining popularity and market share.
Franchising is a commercial method that is based on many globalisation trends:
 the facility to communicate to distant markets and consumers allows the reputa-
tion of a brand to spread globally
 the movement of people across borders creates a transnational group of con-
sumers that will look for a familiar brand even when they are abroad
 the convergence of many national legislations on fair competition and intellec-
tual property protection laws allows for similar levels of brand and business
protection to be maintained in different countries.

Strategic alliances
These are formal or informal agreements between two or more companies from dif-
ferent countries that enable them to coordinate their business operations,
exchange information, knowledge or technology, or collaborate on specific pro-
jects. Each firm involved in the agreement still keeps its organisational identity and
no other business structure will be created as a result of the strategic alliance.
The reasons for creating strategic alliances are many and varied.
 In an oligopolistic market, large competitors might decide to create informal
agreements in order to stabilise market shares. These agreements are usually ille-
gal because, in many countries, they are considered to restrain competition. A
good example of this type of strategic alliance was the agreement on the level of
pricing in the French market, concluded in 2005 by three telecommunications
companies: Orange, SFR and Bouygues Telecom.
 Two or more multinational firms may decide to create strategic alliances in order
to reduce costs and risks or create economies of scale. A good example of this is
the large number of strategic alliances developed in high-tech sectors, such as
biotechnology and pharmaceuticals, to share the costs of the research and devel-
opment process between the partners. Another is when Sony and Ericsson
jointly produced a mobile phone, linking together their respective strengths.
Many car manufacturers create strategic alliances in order to use the same tech-
nology platform for various car models, such as the Fiat-GM partnership.
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Market entry strategies 287

 Companies from different countries can decide to initiate strategic alliances with
the purpose of using the facilities and knowledge of their overseas partners to
penetrate the foreign market.

Strategic alliances are usually flexible and limited to a specific number of objec-
tives. Sometimes, two competing companies create a strategic alliance in order to
enhance a specific area of their business operations, whether it be R&D, manufac-
turing or distribution, while continuing to compete in global markets. This mix of
competition and collaboration has become an interesting feature of the present
global business environment. Companies are looking for advantages and synergies
from all the possible sources, including competitors.

Joint ventures
Joint ventures are agreements realised between two or more companies to pursue
common strategic objectives for a specific period of time by creating an independ-
ent structure in which the partners share responsibilities, management and profits.
The existence of a new organisational entity means that joint ventures have
less flexibility than strategic alliances, requiring an increased commitment from
the partners.
Many joint ventures are short-lived because of the potential conflicts that can
develop between partners. These problems are even more complex in an interna-
tional context as the relationship between companies from different countries is
often marked by clashes of national and organisational cultures.
Joint venture agreements are based on complex contracts, which may include
licensing, the transfer of technology, and a specific definition of the rights and
obligations of each party.
Besides the importance of a clearly written contract, the following elements have to
be taken into account in order to maximise the chances of success of a joint venture:
 the strategic objectives of the joint venture should be well understood and com-
monly shared by the business partners
 the contribution of the two firms to the joint venture should be based on com-
plementarity
 the decision making process and the division of profits should be based on the risks
taken by each partner and the levels of resources allocated to the joint venture
 a good understanding of the organisational and national culture of the foreign
partners can facilitate understanding and collaboration
 the partners should maintain, during the entire life of the joint venture, a strong
commitment towards flexibility and open communication.

Often, even when the strategic objectives of the joint venture have not been fully
achieved at the end of the established period, the partners can continue and
extend their collaborations, considering the benefits of mutual understanding
and the synergies between the two organisations. In this context, the economic
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288 Chapter 8 / Globalising marketing efforts

and profitability objectives are not always the most important ones – the partners
also need to take into account benefits such as collaboration, mutual understand-
ing and organisational synergies.

Subsidiaries
These are used to expand the activity of a firm in overseas countries by establishing
a direct presence in the target market.
Compared with the previous forms of market entry, subsidiaries allow a greater
degree of control and coordination, but this strategy may require more investment
and carries considerable risks. Foreign subsidiaries can fulfil various objectives such
as the following.
 Sales and marketing subsidiaries When the firm tries to control closely its com-
mercial operations in a foreign market.
 Manufacturing subsidiaries When a firm wants to take advantage of low-cost
manufacturing in a foreign location or reduce the costs of transportation
between its headquarters and large foreign markets.
 R&D subsidiaries Although, traditionally, the R&D function has been concentrated
at firms’ headquarters, the development of specific scientific competencies in
some countries or world regions provides incentives for corporations to relocate
some of their R&D activities overseas. A good example of this is the creation of a
centre of excellence for software development in India, with many software com-
panies relocating all or a part of their research and development activities there.
 Service subsidiaries Some companies have taken advantage of developments in
ICT to relocate their customer service call centres to overseas markets where
labour costs are lower. This strategy has been used by many British firms that
moved their call centres to India, although, in some cases, customers complained
about a reduction in the quality of the services provided. Traditionally, the cre-
ation of overseas subsidiaries has been used as the main method of international
expansion for service companies. As, in order to provide services, the employees
and firm need to be in direct and close contact with local customers, the creation
of new overseas units was the only possible way for hotels, banks, universities or
consulting services to expand overseas. However, today, the existence of the
Internet has changed this limited perspective. It is now possible to provide global
services to customers from different locations using advanced ICT applications,
such as telephone, e-mail, discussion forums and video-conferencing.
 Cloned headquarters These subsidiaries have, in their organisational structure, all
the functions of the firm’s headquarters, representing complete copies of the
mother firm, but have a high level of strategic, financial and operational auton-
omy. These subsidiaries are characteristic of a multi-domestic approach to
international markets.

Subsidiaries can be either newly created or integrated into the company’s structure
as a result of the acquisition of local firms. Both these methods provide specific
advantages and challenges:
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Market entry strategies 289

 newly created units require large investments in terms of money and effort to
organise and build a coherent corporate culture
 acquired units need to be transformed to be integrated into the corporate culture
of the mother company, requiring restructuring at various levels – personnel,
departments, functions, processes and communication methods, for example –
and it may be the case that an acquired unit needs to function according to the
cultural context of the country rather than its parent’s cultural context.

Although it is not considered to be a pure method of foreign market entry, mergers

between two or more companies can serve the same purpose. In a merger, two or
more organisations decide to combine their organisational structures and capabili-
ties, creating a legal entity that will use either the combined names of the merged
firms, the name of one of the merging organisations or an entirely new name.
Besides allowing access to foreign markets and local market knowledge, mergers
can achieve other objectives, such as:
 reducing the number of global competitors
 creating economies of scale and experience
 achieving complementary skills and assets in order to expand the business in
other economic areas
 capturing and internalising the sources of rare, strategic resources, such as raw
materials, human resources, information and technology.

The following case study demonstrates that, sometimes, it is not only tangible
assets that multinational corporations are after when acquiring other firms but also
intangible elements, such as reputation and an ethical image.

CASE STUDY

When big business bites

Can niche firms keep their fans when snapped up by the multinationals?
(by Fiona Walsh)

You start the day with a refreshing shower – taking being taken over by multinationals keen to
care to conserve water, of course – but still establish credentials in the booming ethical market.
enjoying the aroma of Body Shop’s satsuma shower Body Shop has just become part of the French
gel. A quick brush with Tom’s of Maine toothpaste, cosmetics giant L’Oréal; Tom’s of Maine fell to
then it’s a pot of Rachel’s Organic vanilla yogurt Colgate-Palmolive last month; Wales-based Rachel’s
for breakfast. Organic is a subsidiary of the American
For lunch, grab a sandwich at Pret A Manger, conglomerate Dean Foods, which has come under
followed by a mini-tub of Ben & Jerry’s ice-cream. fire in the US over its industrial-scale organic dairies
In need of an afternoon sugar rush? Then a treat- and factory-farm milk production.
sized bar of Green & Black’s organic chocolate Pret A Manger is one-third owned by
should do the trick. McDonald’s; Ben & Jerry’s has been under
So far, so ethical – or is it? From Body Shop to Unilever’s ownership for six years and Green &
Green & Black’s, smaller companies known for their Black’s belongs to Cadbury-Schweppes, the world’s
ethical principles and counter-culture approach are biggest confectionery company.

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290 Chapter 8 / Globalising marketing efforts

Case study continued

For consumers, those multinational names don’t phosphate-free washing powder. Like Anita
have quite the same ethical ring to them, although Roddick, who has made repeated jibes at
many shoppers remain unaware of the ultimate companies such as L’Oréal over the years, Tom’s of
ownership of some of their favourite brands. For Maine founder Tom Chappell has in the past been
those who are, does the change of ownership really critical of major brands such as Colgate and their
matter? And can a smaller company built on a use of artificial additives.
different set of values really operate comfortably But, like other founders who have handed over
within a global corporation? their businesses, he was convinced by assurances
At Ben & Jerry’s in the US, the relationship with from the new owners that it would continue to
Unilever remains an uneasy one. Ben & Jerry’s most operate as an independent entity and its principles
recent social audit highlighted a ‘disappointing’ would remain intact.
lack of social initiatives at the company and poor Those assurances have held firm at the organic
morale among employees. It questioned whether chocolate maker Green & Black’s, according to
the company was ‘simply a Unilever marketing Mark Palmer, its marketing director. Its sales had
operation using the brand’s reputation for social rocketed from £4m to £40m in the past five years,
responsibility to promote sales.’ but financial support from Cadbury, which took
That charge is vehemently denied by Helen over last year, will help it make a big push into the
Jones, who has run Ben & Jerry’s in the UK for 11 US this year.
years. ‘We are fully supported by Unilever and ‘We’ve just had the first anniversary of the
we’ve doubled our charitable donations under takeover and the amazing thing is that nothing has
them,’ she says. But, clearly, there are tensions changed at all,’ Mr Palmer says. ‘In one sense, it
within the larger Ben & Jerry’s operation. was a bit of an anticlimax because absolutely
nothing happened.’
Battering He accepts that customers were suspicious, but
At Body Shop, despite a chorus of protest at says: ‘Cadbury’s understands that Green & Black’s is
Dame Anita Roddick’s decision to sell out to a special case. And they are astute enough to realise
L’Oréal, the company says sales have not been that you don’t pile in and mess about with
affected by the deal. But its ethical reputation has credentials like that.’
certainly taken a battering, as have all niche players Like most of the niche businesses bought by
taken over by multinationals. multinationals, Green & Black’s is run as an entirely
Ethical Consumer magazine runs an online separate operation within the Cadbury empire. ‘It’s
shoppers’ guide, at www.ethiscore.org, which rates a case of how they can help us, not telling us what
companies and their products on their ethical to do,’ Mr Palmer says.
credentials. Body Shop’s rating has plunged from 11 One advantage of Cadbury’s coffers is that Green
out of 20 to just 2.5 since the L’Oréal deal and the & Black’s is now pursuing international expansion,
magazine has urged a boycott of its products in something Mr Palmer admits the company ‘has
protest not only at the French cosmetics group’s always been a little scared of.’
ownership, but also its links with Nestlé, which It exports just 10 per cent of its turnover, but has
owns 26 per cent of L’Oréal. Nestlé has faced just set up a US subsidiary in Connecticut and is in
boycott campaigns over issues from animal testing the process of hiring a team out there. ‘We’re not
to the marketing of baby milk substitutes. being put into the situation where we’re managed
Last month’s takeover of Tom’s of Maine by by Cadbury in the States,’ Mr Palmer says. ‘But it’s
Colgate-Palmolive sent its ethical rating tumbling up to us to be a bit grown-up about it too. We are
from 16 to just 5, as it paid the penalty for Colgate- independent – and we’re also fortunate that we can
Palmolive’s rock-bottom rating on environmental call on Cadbury’s expertise and experience.’
reporting and animal testing. Mr Palmer accepts there is scepticism when big
Best-known for its toothpaste, Tom’s of companies move in on niche brands. But, he says,
Maine started more than 30 years ago making ‘it’s worked for Green & Black’s.’
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Managing international operations 291

Case study continued

He adds: ‘You can be fiercely independent and hasn’t happened yet. Ben & Jerry’s was bought up in
not have any funds to grow. But does that help the 2000 and Unilever hasn’t suddenly gone organic.’
cocoa growers in Belize?’ Dr Tim Lang, Professor of Food Policy at City
As to whether Green & Black’s is less ethical University, also urges caution. ‘There’s no doubt it’s
under Cadbury, that depends on the individual a win for the big company because they are buying a
consumer, says Ruth Rosselson of Ethical Consumer ready-made package of values and history of trust.’
magazine. Many consumers simply don’t know But, he says, there will always be ‘a tension and
who owns their favourite brands, and others don’t contradiction’ between the small ethical firms and
care: ‘It really depends on what your reasons for their multinational masters. ‘The former owners
buying ethical are,’ she says. ‘If you mind where the argue that they can change from within. In the short
money ultimately goes, then giving it to a company term, that may well be the case but over the longer
that tests on animals or uses child labour is a term values get dissipated and weakened.’
contradiction. If you’re just looking at the product, ‘My own argument with the ethical trading world
then ownership doesn’t really matter.’ – of which I am a supporter – is that it is pursuing a
risky strategy. Everything is dependent on how the
Swallowed relationship with the movement is retained by
Ms Rosselson believes there will be longer-term these companies. And if Fair Trade, animal welfare
damage to brands swallowed by multinationals, or the ethical movement do their homework, they
despite the hopes of entrepreneurs like Dame Anita will make sure customers are reminded who owns
that they will be able to force changes within the these companies.’
larger organisations. ‘For big business, the key is how careful they are
‘The real “deep green” consumer does feel with the values they have bought. For the
betrayed,’ she says. ‘We hear the big optimistic movement that gave birth to those values, eternal
speeches from people like Craig Sams [founder of vigilance is required.’
Green & Black’s] and Anita Roddick about the Source: Fiona Walsh, The Guardian, 8 June 2006. Copyright
influence they can wield on the new owners, but it Guardian News & Media Ltd 2006.

The increased popularity of mergers in the last 20 years witnesses to an accelerated

trend of concentrating strategic assets across companies and global regions. Despite
the advantages offered by this strategy, the accommodation of the two merging
corporate structures can take a long time and effort, requiring the resolution of var-
ious cultural conflicts.
Sometimes a corporation will use two or more market entry strategies for the
same market, often in a precise time succession. For example, in some Eastern
European countries, Coca-Cola initiated its operations by creating subsidiaries and,
then, when the company succeeded in better understanding the local market con-
ditions as a result of trust built up with local entrepreneurs, it switched its overseas
operations to franchising agreements.

Managing international operations

The organisation and management of overseas activities require the implementa-
tion of specific corporate structures and procedures. Depending on the specific
corporate culture of every company, and taking into account the characteristics of
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292 Chapter 8 / Globalising marketing efforts

the foreign markets serviced by the firm, the organisation can adopt various man-
agement models.
Bartlett and Goshal (1989) have identified, on the basis of extensive research,
four main types of corporate structures.
 multinational
 international
 global
 transnational.

Multinational
The multinational firm usually has a number of highly independent business units
located in various countries. Many assets, resources and responsibilities are decen-
tralised to local level and the marketing strategy, designed and implemented by
local subsidiaries, is highly adapted to the specific needs and wants of local cus-
tomers. Although the name of the firm can be adopted by all business units,
headquarters perceives the foreign subsidiaries as a portfolio of independent activi-
ties, not as an integrated structure at global level (see Figure 8.6).

International
In an international firm, many assets, resources and responsibilities are also decen-
tralised, but the internal business processes are more closely controlled by the top
management of the mother company. The marketing strategy of every subsidiary is
adapted to the local market conditions, but has a series of common elements that
are central to the corporate culture of the company, such as the same product con-
cept, same brand name or same technology platform. The managers of foreign
subsidiaries are usually trained at headquarter level and then sent to coordinate the
activities of foreign markets in the spirit of clearly defined corporate values. Top
management considers the foreign business units as appendices of a central organi-
sation (see Figure 8.7).

Unit
Market A

Unit Unit
Market B Market C

Unit
Market D

Figure 8.6 The multinational’s organisational structure

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Managing international operations 293

Market A
Headquarters

Unit Unit
Market B Market C

Unit
Market D

Figure 8.7 The international firm’s organisational structure

Global
A global organisation is characterised by its highly centralised management of
strategic assets and resources. Based on a strong corporate culture and a highly
standardised product concept, the company attempts to increase efficiency and
profitability at global level, serving a transnational segment of consumers with very
similar needs and wants. Having a global perspective of the sources of competitive
advantage offered by various countries, the managers will decide to locate various
departments of the firm in the overseas areas that can maximise the efficiency of the
firm. The top management considers the local operations as distribution pipelines for
delivering a highly standardised product concept to the group of transnational con-
sumers located in various geographical areas (see Figure 8.8).

Market A

Market B Standardised offer Market C

Headquarters

Market D

Figure 8.8 The global firm’s organisational structure

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294 Chapter 8 / Globalising marketing efforts

Unit
Market A

Unit Unit
Market B Market C

Unit
Market D

Figure 8.9 The transnational firm’s organisational structure

Transnational
The transnational organisation is based on the flexible mixing and matching of
resources located in various overseas locations in order to maximise the efficiency
of specific business projects. Compared to the global firm’s structure, the localisa-
tion of resources is not rigid and static, but dynamic and flexible. The management
should be able to quickly combine the necessary assets and capabilities in order to
effectively answer the threats and opportunities manifested in various geographical
locations. Often, the organisation of the transnational firm applies the model of an
integrated network of highly competitive business units. The structure of the firm
is bidimensional, using both products and markets as centres for responsibility and
decisionmaking. Therefore, for the effective realisation of a business project in a
specific overseas market, a product manager and a market manager have to join
resources, capabilities and responsibilities, in order to manage the situation and
make the best possible decisions.
Considering the flexible nature of present-day markets and the unpredictable
evolution of competitive conditions, this organisational structure (see Figure 8.9) is
considered the most appropriate for companies in the twenty-first century global
marketplace because it maximises the flexibility and responsiveness of the corpo-
rate structure to changes in consumption and competitive patterns.

Summary
The increased globalisation of the world markets influences both international
companies and firms that consider themselves to be local. The competitive envi-
ronment of many developed and developing countries is becoming multicultural
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Chapter questions 295

and international in terms of competition, product offerings and consumer

demand. All these elements force businesses to adopt the principles and methods
of international marketing and consider the possibility of initiating overseas mar-
keting operations.
The complexity of the international marketing approach is greater than that of
domestic marketing activities because many foreign elements are unknown and unfa-
miliar as they are difficult to understand and predict. This situation requires firms
engaged in international marketing activities to make an increased commitment to
their overseas markets, in terms of investment, costs, effort and strategic horizon.
The variety of markets and the sometimes conflicting tendencies at international
level means that firms are increasingly relying on a range of ways to enter and
develop overseas markets. The diversity of market conditions necessitates the selec-
tion and combination of various strategic approaches in order to maximise
efficiency and reduce risk. In the postmodern environment of the twenty-first cen-
tury, the strategic approach to overseas market expansion is characterised by
hybrid procedures and methods, crisscrossing the specific competitive advantages
of various business units and different geographical locations.

Chapter questions
1 How do you explain the complexity of the modern-day global business environment?
2 Do you think that two or more market entry strategies can be combined to pene-
trate the same overseas market? Provide examples and discuss the advantages
and challenges of this approach.
3 Provide examples of companies active today that are using the four different
types of organisational structure and management. Which model is most effec-
tive in the present market conditions. Why? Is it possible to combine two or more
of these organisational models within the same corporation?
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Measuring for effectiveness

9 in marketing

Introduction
Currently, there is a great debate in marketing regarding the measurement of per-
formance. Marketers are increasingly pressurised by top management to become
more accountable for their expenditures and activities. Accountancy has always
taken pride of place in assessing company performance, using well-developed and
well-used financial performance measures. It is now becoming increasingly impor-
tant that marketers develop measures of effectiveness that will sit side by side with
financial performance measures. Some authors, such as Doyle (2000) and Highson
et al. (2001), are beginning to address this growing area of concern for marketers
and businesses in general.

Measuring marketing performance

One of the most controversial areas in marketing is that of understanding how
marketing actions affect performance. Traditionally, as noted, measures have been
financial in nature and the accounting profession dominates much of the debate
surrounding performance measurement. With the opening of the debate on meas-
uring levels of market orientation in the last two decades, the focus on the effects
of such an orientation on a company’s performance has sharpened. Unlike
accounting, marketing does not have standardised techniques for measuring per-
formance. For this reason, in many companies, marketing expenditure and budgets
tend to be allocated arbitrarily, relegating the importance of marketing to a lower
level. Often, marketing expenditures may not lead in a linear way to results that
can be measured within a short period of time. For example, an advertising cam-
paign may result in better sales performance after a ten-month time lag. However,
company accounts are presented yearly and generally fail to capture the link
because of such time lags.
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The role of financial analysis 297

Utilising appropriate performance measures helps to gauge the level of commer-

cial success that a company is experiencing: what you measure is what you get.
Thus, a company’s measurement system has a strong impact on the behaviour of
managers and employees (Kaplan and Norton 2003). From this it is clear that
objectives set by a company need to be supported by appropriate measures that can
be used to continually monitor the company’s performance against those objec-
tives (Foulks Lynch 2004). Ideally, performance measures would meet the
requirements of parsimony, predictive ability, pervasiveness, stability and applica-
bility to compensation (Meyer 2002).
 Parsimony means that relatively few measures would be used because informa-
tion would actually be lost by using too many measures.
 Predictive ability means that non-financial measures would predict subsequent
financial performance.
 Pervasiveness means that the same measures would apply everywhere in the
organisation.
 Stability means that the measurement system would be stable over time.
 Applicability to compensation means that people would be rewarded for perform-
ance on these measures.

In a company, the business areas can be divided into sales/marketing, credit con-
trol, production, personnel, accounting, and purchasing and stores (Foulks Lynch
2004). Different areas of a business will have different requirements for operational
planning and control and, thus, will use different performance measurements.
At present, the marketing measures most intensely used are market share, return
on investment and brand equity. However, companies define and apply many
more measures. These new indicators vary according to the sectors in which a com-
pany is operating. This chapter will begin by looking at the role of financial
analysis and then the role of marketing metrics. As the area of marketing metrics is
wide and not fully developed, there are likely to be more questions than answers.
However, some comprehensive measurement models are presented and discussed.

The role of financial analysis

For the purposes of disseminating information to shareholders and stakeholders,
companies produce annual accounts explaining financial flows, profits and losses
and balance sheets. Many accounts also contain information on market shares,
geographical segmentation and regional segmentation. More recently, there has
been considerable interest generated in understanding the use of particular sets of
data pertaining to marketing. These can be measurements of brand equity, cus-
tomer satisfaction, loyalty/retention, share of voice and marketing spend.
Interestingly, not many companies actually utilise the full range of marketing met-
rics for measuring their marketing performance. Often, we are only left with the
age-old financial measures. These do help in understanding the position of a com-
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298 Chapter 9 / Measuring for effectiveness in marketing

pany. Senior managers can use previous years’ data to project possible trends (espe-
cially if the results are available in the same format). In most cases, the analyses are
based on financial ratios. These accounting ratios are used in the interpretation of
financial statements. Usually, these ratios are at their most useful when compared
to ratios for different time periods. This can be helpful in identifying trends and
understanding strengths and weaknesses. If, for instance, looking at a balance
sheet, the inventory levels are high, does that imply there is a peak and the com-
pany is anticipating a surge in demand for products or does it imply falling sales?
Financial ratios are often the backbone of company reporting and have been used
for a very long time.

Profit ratios
Profit ratios measure management’s overall effectiveness in generating profits from
the available resources. If a company is highly efficient in its markets, then it
should exhibit a high level of profitability. It is useful to compare a company’s
profitability with that of its major competitors in its industry. Such a comparison
tells whether the company is operating more or less efficiently than its rivals. Over
a period of time, any changes in profit ratios will indicate whether a company is
improving its performance or not.

Gross profit margin

The gross profit margin is obtained by deducting variable production expenses from
the general sales. The amount remaining can then be allocated to cover general and
administrative expenses and other operating costs. This can be defined as follows:
Sales revenue – cost of goods sold
Gross profit margin = –––––––––––––––––––––––––––––––––––––
Sales revenue

Net profit margin

This is calculated by dividing the net profit by the sales revenue. Net profit is the profit
after production costs and overheads have been deducted, but before the deduction of
tax. (Note that this is normally known as profit before interest and tax (PBIT) and some
companies may calculate this as profit after interest and taxes (PAIT)).
Net profits are important because companies need to make profits to survive and
also invest in the future to develop and grow markets. They need profits to pay div-
idends to shareholders who support the company, too.

Net profit
Net profit margin = –––––––––––––––
Sales revenue
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Liquidity ratios 299

Return on total assets

This ratio measures the profit earned on the employment of assets. It is defined as
follows:

Net income
Return on total assets = –––––––––––––
Total assets

Net income
Net income is the profit after preferred dividends (those set by contract) have been
paid. Total assets include both current and fixed assets.

Return on shareholders’ equity

This ratio measures the percentage of profit earned on the shares held within the
company. Companies attractive to shareholders are those that can maximise this
ratio. The greater the return, the greater the amount of money that can be distrib-
uted to individual shareholders. It is defined as follows:

Profits after taxes

Return on shareholders’ equity = –––––––––––––––––––
Total equity

Liquidity ratios
The amount of liquidity refers to cash and realisable assets that are available to an
organisation for immediate use. The lower the liquidity, the greater the danger of a
company not being able to meet its immediate cash commitments or tactical mar-
keting requirements. It is important to note that the quick ratio is useful for
determining the readily realisable assets and cash available to a company as, quite
often, it is difficult for a company to speedily dispose of stocks (these are included
in the current ratio).

Current assets
Current ratio = –––––––––––––––––––
Current liabilities

Current assets – Stock

Quick ratio = ––––––––––––––––––––––––
Current liabilities

Inventory
Inventory to net working capital = –––––––––––––––––––––––––––––––––––––
Current assets – Current liabilities
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300 Chapter 9 / Measuring for effectiveness in marketing

Leverage ratios
Leverage ratios – also known as gearing – show the level of an organisation’s debt in
relation to its assets. This ratio is of interest to shareholders and potential investors
as the level of gearing affects shareholders’ returns.
Efficient use of debt can often enhance returns whereas inefficient use of loans
and debt can seriously reduce shareholders’ returns. An example of this was the
demise of Enron.
If a company has borrowed little money, then it is possible to increase the
amount of money it can raise in the marketplace, either through loans or share
issues. The money can enable further investments in marketing or new product
development.

Total debt
Debt to assets ratio = ––––––––––––
Total assets

Long-term debt
Long-term debt to equity ratio = –––––––––––––––––
Total equity

Activity ratios
This reflects the efficiency with which the company is operating in the market
place. High inventory levels could signify flagging sales, indicating poor distribu-
tion, lack of advertising or sales efforts.

Sales
Inventory turnover = ––––––––––
Inventory

Sales
Fixed asset turnover = –––––––––––––
Fixed assets

Accounts receivable
Average collection period = –––––––––––––––––––––
Average daily sales

As you will notice, many of the measures outlined so far incorporate sales data, so
that some degree of marketing performance may be carried out. Measures related to
marketing are complex and varied and so the next section looks at some of the
likely measures that can be used for assessing marketing performance.
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Marketing metrics 301

Marketing metrics
As the marketplace becomes more turbulent and competitive, companies are forced
to balance their books and, therefore, marketing expenditure tends to grow and
shrink depending on revenue streams (McCullough 2000). Such decisions are based
on perceptions that marketing is an expense and it is difficult to assess its impact
on profitability. If accounting measures alone are used to measure performance,
there are several caveats to what the figures seem to indicate:
 accounts can be difficult to interpret, even if accurate financial data are reported
 the absolute ratios of performance (as given above) are affected by industry-
related factors (Miller and Toulouse 1986)
 accounting measures can vary from company to company, depending on the
protocols adopted
 companies can and do either overestimate or underestimate earnings for tax and
other reasons
 there may be a fine line between honest and dishonest reporting of accounts
and even the large accounting firms are not immune from such practices.

Financial performance measures are clearly important for firms, but they tend to
tap only the economic dimensions of performance, perhaps neglecting other more
important goals that a firm may have (Venkatramen and Ramanujam 1986).
An organisation’s performance measurement system strongly affects the behav-
iour of people both inside and outside it. Organisations need to use measures
derived from their strategies and capabilities. Unfortunately, many organisations
espouse strategies that are all about customer relationships, core competencies, and
organisational capabilities, yet measure performance using only financial measures.
Such measures are valuable for summarising the readily measurable economic con-
sequences of actions already taken, but should not be thought of as the last word.
Performance measures indicate whether or not a company’s strategy, implemen-
tation and execution are contributing to an improvement in the bottom line.
Moreover, performance measurements provide managers with better insights into
planning, control and improving the organisational’s performance than financial
measures do. Not all companies are able to translate improvement in customer sat-
isfaction or quality, for example, into bottom-line financial results, however.
This means that, although financial measures have shortcomings, they are still
important for all stakeholders (Kaplan and Norton 2003). Among the most com-
monly used performance measures are financial measures such as return on
investment, net profit, liquidity and leverage ratio, gross and net contribution
margin, as well as market share, sales growth, turnover and other financial measures.
There are three major marketing attributes that performance measures should
include:
 adaptability or innovativeness
 effectiveness
 efficiency.
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302 Chapter 9 / Measuring for effectiveness in marketing

Adaptability or innovativeness
The adaptability or innovativeness of a firm should be included as a performance
measure (Bhargava et al. 1994; Walker and Ruekert 1987). Measuring adaptability
helps firms to understand the changing environment and their ability to create
and market new products or innovations and registers the importance of this (as
discussed when considering market-driving strategies in Chapter 1).

Effectiveness
The effectiveness of particular marketing strategies needs to be measured. The analy-
sis of strategic effectiveness helps to foster a clearer understanding of competitive
stances adopted by a firm. Effectiveness measures the extent to which organisa-
tional goals and objectives are achieved (Ambler 1997; Walker and Ruekert 1987,
for example). The management team whose performance meets or exceeds the
organisation’s goals is considered effective. These goals are the reference points for
measuring effectiveness against (Clark 2000).
The marketing audit is the first systematic attempt (Dunn et al. 1994; Kotler et
al. 1977) and the best-known, most frequently cited instrument (Webster 1995) for
assessing the effectivenes of marketing strategies.
The marketing audit was introduced to the marketing literature in 1959 in an
American Management Association (AMA) report entitled ‘Analyzing and
Improving Marketing Performances’ (Rothe et al. 1997). Since then, it has been
defined and redefined several times (Oxenfeldt 1966). Kotler is regarded as one of
the most authoritative writers on the subject of the marketing audit and his defini-
tion of it still remains popular (Kotler et al. 1977).
A marketing audit is a comprehensive, systematic, independent, and periodic examination of
a company’s – or business unit’s – marketing environment, objectives, strategies, and activi-
ties with a view to determining problem areas and opportunities and recommending a plan
of action to improve the company’s marketing performance.

Another major contribution Kotler made, in the 1970s, was the identification of six fun-
damental components of the marketing audit (Morgan et al. 2002; Rothe et al. 1997):
 marketing environment audit concerned with markets, customers, competitors, dis-
tributors and the forces and factors that influence a company’s future
 marketing strategy audit assesses the consistency of the marketing strategy with
environmental opportunities and threats
 marketing organisation audit assesses the effectiveness and quality of the interac-
tions between the marketing and sales functions.
 marketing systems audit examines the procedures currently being used to gather
information, plan and control the marketing operation
 marketing productivity audit assesses key accounting data to determine optimal
sources of profits, as well as potential cost savings
 marketing function audit examines key marketing functions in depth, based on
prior audits’ findings.
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Marketing metrics 303

The primary purpose of the marketing audit is to identify underutilised marketing

resources and generate recommendations for ways in which more effective use
could be made of these resources. However, Morgan et al. (2002) have summarised
some significant problems with the marketing audit.
 The lack of implementation of the marketing audit process in companies
(Taghian and Shaw 1998) due to:
– the lack of suitably qualified independent auditors (Kotler et al. 1977)
– the information is not available (Rothe et al. 1997)
– the lack of sufficient communication with top managers to ensure access to
and understanding of information (Bonoma 1985).
 The audit is disconnected from the overall control system. The marketing audit
should be concerned not only with how effectively marketing performs its
assigned functions in the areas of promotion and distribution but also may want
to – and should be able to – question the organisation’s choice of positioning in
its market, which will be dictated by the corporate strategy (Brownlie 1993).
 There are periodic, rather than ongoing, assessments of marketing performance.
The marketing audit should be conducted regularly, not only when some aspects
of marketing activities are thought to be out of control (Kotler et al. 1977).
 The audit measurement approaches have been primarily qualitative checklists,
with little empirical validation (Rothe et al. 1997).

Efficiency
Finally, firms need to be efficient in their execution of particular strategies. The effi-
ciency of marketing strategies needs to be understood and measured (Bonoma and
Clark 1988; Drucker 1974; Walker and Ruekert 1987). To check a firm’s efficiency,
marketing outputs need to be compared to marketing inputs, with the intention of
maximising the former in relation to the latter (Bonoma and Clark 1988).
Productivity analyses assess the efficiency of the transforming process where inputs
and outputs are linked (Sink 1985).
There is a wide variety of inputs, such as money, skills, time and management
effort. These could be measured by looking at marketing expenses and invest-
ments, quality (such as the quality of employees), effort and the allocation of
overheads. The inputs most commonly measured to this end are marketing
expenses, investments and numbers of employees (Bonoma and Clark 1988).
Methods that are used to measure the outputs include profitability analysis
(Sevin 1965), marginal revenues and marginal costs (Feder 1965), and discounted
cash flows (Day and Fahey 1988). The most frequently used measurements of
output are profits, sales (unit and value), market share, and cash flow (Bonoma and
Clark 1988).
Morgan et al. (2002) report that there are many related problems with the appli-
cation of marketing productivity analyses. For instance, they assume that
marketing inputs and outputs can be assessed economically and accurately and
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304 Chapter 9 / Measuring for effectiveness in marketing

that such measures will be stable over time. However, relevant inputs and outputs
are difficult to define. For example, should the relevant output be the number of
units sold, number of satisfied customers, number of loyal customers or some other
measures? Can the amount that is spent on marketing in the present or the previ-
ous year be considered a relevant input? Should it include costs other than
marketing (Selnes 1992)? Moreover, in order to allocate marketing costs, organisa-
tions need to analyse how much time and effort they expend on different products
and customers. It is difficult to obtain accurate measurements in these areas (Selnes
1992). Also, the accuracy and stability of such measurements can be problematic
when marketing inputs and outputs do not have common denominators. For
instance, they could be modified periodically or when the strategic emphasis of the
organisation changes following a new appointment.
Efficiency analyses rely on the knowledge of cause-and-effect relationships, link-
ing inputs and outputs. However, productivity analyses largely ignore time lags
between marketing inputs and their effects on outputs and the impact of cumula-
tive effects is also impossible to discern. Productivity focuses on the amount, not
the quality, of marketing inputs and outputs.

Measuring the major marketing attributes

In order to make sense of the discussion above, we propose the model shown in
Figure 9.1 to bring the key components of a variety of performance measures
together so that organisations can at least classify them according to whether they
measure adaptability, effectiveness or efficiency.

Efficiency Adaptability

Capacity utilisation New product success rate

R&D productivity New products and services
Marketing
General productivity Patents
measures
Employee turnover Registered trademarks
Distribution efficiency
IT efficiency
Inventory levels
Unit sales
Branding Market share
Preference Market share per segment
Purchase intent Number of customers
Brand value/equity Effectiveness Customer loyalty
Brand strength Customer complaints
Trust Relative quality (to completion)
Relative value

Figure 9.1 Key performance measures

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Marketing metrics 305

Note that marketing measures will vary from one industry sector to another.
Also, it is clear that performance measures will differ for the services and manufac-
turing sectors.
Each of the key areas introduced above is now explored in some detail.

Adaptability
For a company to be continually successful in the marketplace, it has to demon-
strate that it can adapt to the changing environment. The kinds of changes a
company needs to respond to include those relating to:
 customer preferences and tastes
 demographic shifts
 new offerings from competitors
 cultural and social dimensions
 technology
 service expectations.

In order to cater for such changes, a company needs to measure its successes in the
following areas:
 new product success rates
 new service delivery success rates
 the number of patents registered
 the number of trademarks registered
 percentage of income derived from new products or services in the last five years
 success of new products and services compared to those from the competition
 the number of R&D projects underway
 the number of acquisitions of new brands
 assessment of changing pricing levels.

Efficiency
The efficiency measures in marketing reflect a company’s ability to utilise its asset
base to the best of its ability. For different companies, efficiency may have different
meanings. A fast food restaurant, for instance, may find that it measures its effi-
ciency in terms of service levels and the rapid turnover of clients, whereas a
manufacturing company may look at its R&D and capacity utilisation. The range of
measures for this attribute, therefore, is quite wide:
 capacity utilisation
 R&D productivity
 percentage employee turnover
 turnover per employee
 distribution efficiency and levels
 inventory levels
 speed of service delivery
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306 Chapter 9 / Measuring for effectiveness in marketing

 IT efficiency
 productivity per employee
 return on investment (ROI)
 product availability (in different geographic locations).

Effectiveness
Every organisation needs to assess the effectiveness of its marketing strategies.
Measures of effectiveness, again, vary from industry to industry and from company
to company. However, some broad measures can be put forward. These are:
 unit sales
 market shares by unit and volume
 market share by segment
 number of customers
 customer loyalty
 customer complaints
 relative quality
 relative value.

In addition to these measures of effectiveness, it is also important to understand

the brand equity measures such as:
 customer preferences
 purchase intent
 brand value
 brand strength
 level of trust in the brand
 brand image.

Brand equity
Brand equity is the ‘added value endowed by the brand to the product’ (Farquhar
1989). The quality of information about a brand, its perceived value and its general
standing within a local or global marketplace help to determine its strength (see
Chapter 5).
If a particular brand is a success, this endows the company with profits and then
the possibility of gaining future profits, thereby creating an asset, which has a
value. It is possible to assess how successful a product can be if there is an under-
standing of the level of brand equity that is has achieved so far, taking into
consideration the effects of advertising (Ambler 2003). It should be noted, how-
ever, that advertising rarely has an immediate effect, so advertising expenditure
may show up as achieving a poor performance level in terms of sales, but the mar-
keting activity could have boosted the brand equity, resulting in a future growth in
sales and profits. These future profits could arise from the memory and positive
image created in the minds of consumers by this present advertising campaign.
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Marketing metrics 307

This area of building equity has been further complicated by the growth of the
Internet and mobile communications. The level of trust associated with a brand is
also important and could be considered (Boulding et al. 1993) to be:
 part of the brand–consumer relationship and therefore brand equity
 dynamic and non-linear – slow to build and fast to destroy
 an antecedent and a consequence of success (this needs to be considered care-
fully when assessing performance levels)
 a consumption habit.

Towards an integrated model

All these measures are useful when analysing a company’s performance. Companies
may be better or poorer than their counterparts in some areas of their performance.
The changing nature of what and how performance is measured and the factors that
influence it as a result of the development of the Internet and mobile technologies also
need to be taken into account. The Internet often also augments the effects of the mar-
keting strategies adopted by a company. Specific measures include customer retention,
which is closely associated with customer satisfaction; sales improvement, which is
closely associated with the profitability of the development of online marketing; and
image enhancement, which is the focus of developments in Internet marketing. These
measures are built on the understanding that effective marketing activities are charac-
terised by a service orientation, a drive towards innovation, a focus on quality, and a
reasonable achievement in terms of return on investment (ROI). If a company’s Web
presence is effective, it will encourage consumers to visit and explore its website until
they find what they need. Website visits and repeat visits can be achieved in a number
of ways, including sponsoring Web contests, offering free sample products and provid-
ing value-added Internet-based customer services.
Given the fact that measuring marketing performance is generally fraught with
difficulties and there are few general standards to adhere to, it may be useful to try
and integrate financial and non-financial measures. This will eventually lead to a
greater understanding of what generates a good ROI (Lenskold 2002). The general
argument underlying the model shown in Figure 9.2 is that the ROI measure can
account for all costs and the complete customer value, prioritising marketing
investments and maximising profits. These can be broken down into the tiers
shown in the Figure 9.2.
It is important that organisations can assess the returns that marketing invest-
ments can provide and this is put in terms of profit. ‘Marketing investments’ could
be those made in customer retention or public relations as well as advertising.
The three key measures presented in Figure 9.2 are as follows.
 Customer lifetime value (CLV) CLV (see Figure 9.3) indicates the profits that flow
from customer transactions. These transactions are a result of marketing invest-
ments. As future numbes of transactions grow, they will have a positive impact
on the ROI. This measure also helps the company to allocate resources for target
markets effectively and develop customer retention and new customer attraction
strategies. The use of technology and CRM software helps to determine the value
of each customer, currently and in the future.
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308 Chapter 9 / Measuring for effectiveness in marketing

Corporate goal
Tier 1
Maximise company profits

To maximise company profits

Measure and optimise ROI for the

combination of all marketing investments

To maximise marketing ROI Tier 2

Measure and optimise the combination of:

•customer lifetime values
•marketing expense
total number of customers
•
To maximise number of customers To maximise CLV To minimise marketing expense

Measure and optimise: Measure and optimise: Measure and optimise:

•conversion rate •initial sale profit •
cost per sale
•retention rate •NPV of future profits
•referral rate •share and growth of customers
To track performance related To track performance related To track peformance related Tier 3
to sales to value to expense

Measure and manage: Measure and manage: Measure and manage:

•awareness •customer satisfaction •cost per click-through
•brand image •revenue per sale •cost per impression
Other pre-sale performance indicators to guide strategic decisions

•Contact rates •Website

Click-through rates
•Response rates •Length ofvisits
•Leads generated • visit

Figure 9.2 Maximising resources

1 Recurring
revenues
3 Net
margin
2 Recurring 5 Cumulated
costs margin
4 Lifespan 7 CLV
of a customer
6 Acquisition
costs

Figure 9.3 Seven-step process for measuring CLV

Source: Bacuvier et al. 2001
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Marketing metrics 309

 The total number of customers generated as a result of marketing investments. The ROI
will continue to improve unless the cost of generating new customers exceeds
the cost of retaining old ones.
 The marketing expense undertaken in order to generate returns. As profits grow and
the expenditure ratio lessens, the ROI will improve.

Three-tier performance indicators

These indicators have been discussed at length in the section above and the list can be
quite varied, depending on the sector in which a company is operating. By monitoring
how these indicators eventually lead to greater sales, the links between the third and
first tiers shown in Figure 9.2 can be ascertained. It is important to note that measures
such as customer satisfaction or the number of hits on a website do not automatically
translate themselves into profit. Marketing managers therefore need to utilise these
measures cautiously and apply them in ways that improve and modify their marketing
strategies rather than see them as performance indicators per se.
A clear example of the incorrect use of indicators is the meteoric rise of dot.com
businesses. Online web measures, such as hits and click-through rates, were the justi-
fication for pushing up the share prices of many of these companies, which then
failed to provide adequate returns on investment and so the bubble burst. For this
reason, whenever marketing measures are utilised, they should be carefully evaluated
to see how effectively they contribute to the company goal of generating profits.
For not-for-profit organisations and NGOs, it may be perfectly acceptable to use
the model given in Figure 9.2, but replace certain measures, as shown in Figure 9.4.

What we have learned

The above discussion shows that the use of marketing measures is becoming an essen-
tial component in understanding the effectiveness of marketing strategies. However, it
is always difficult to separate out causes and effects in marketing, as marketing strate-
gies often have effects in the longer term. It is also difficult to devise a composite set of
measures for any company. The measures depend on the sector in which the company
operates as well as its particular characteristics in terms of operations management and
customer retention strategies. Often, companies utilise different types of software for
gauging customer contact. As technology develops, it is likely that the use of marketing
measures will become more complex rather than simpler.
Research into consumers’ perceptions of e-service quality (Yang and Jun 2002)
showed that Internet purchasers valued (in order), reliability, access, ease of use, per-
sonalisation, security and credibility. On the other hand, Internet non-
purchasers valued (again in order), security, responsiveness, ease of use, reliability,
availability and personalisation. This demonstrates the need to interweave technology-
based measures with the standard measures used by organisations. Measures may
also need to be tailored to the customer segments being addressed.
The key to properly understanding the lifetime value of a specific customer and
applying the most appropriate customer management strategy is segmentation
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310 Chapter 9 / Measuring for effectiveness in marketing

Goal for not-for-profit organisations and NGOs

Tier 1
Maximise revenues

To maximise revenues

Measure and optimise revenue earned due to

a combination of all marketing investments

To maximise revenues Tier 2

Measure and optimise the combination of:

•donor lifetime values
•total number of donors
•marketing expense
To minimise marketing donor
To maximise number of donors To maximise DLV lifetime value expense

Measure and optimise:

Measure and optimise: Measure and optimise:
• conversion rate
•initial donor level (DLV) • costs related to receiving
• retention rate
•future revenue stream funds
• referral rate

To track performance related To track performance related To track performance related Tier 3
to revenue generation to value to expense

Measure and manage: Measure and manage: Measure and manage:

• awareness • customer approval rates • cost per click-through
• brand image • revenue per customer • cost per impression

Other pre-sale performance indicators to guide strategic decisions

•Contact rates •Website

Click-through rates
•Response rates •Length ofvisits
•Leads generated • visit

Figure 9.4 Maximising revenues for not-for-profit organisations and NGOs

(Bacuvier et al. 2001). Business organisations should aim at adopting a simple and
operational segmentation methodology that can be readily used by operational
managers and discriminate sufficiently by customer value (Doyle 2000). The
selected segmentation dimensions should discriminate either on the revenue side
(by usage intensity and behaviour, for instance), or on the cost side (by products
purchased, channel used, intensity of customer care usage and service levels, for
example). That way, the company can have a complete map of the ‘wells’ of value
creation and ‘pits’ of value destruction of the business and an understanding of why
they are such.
Making clear connections between customers’ behaviour and their demographic
profiles is critical to companies interested in keeping customers and increasing their
profitability. The implementation of an efficient profiling/segmentation methodol-
ogy has to address the following issues (Thearling 1999; Wundermann 2001).
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Marketing metrics 311

Research

Customer segmentation

Targeted customer Targeted customer Targeted customer

segment 1 segment 2 segment 3

Satisfaction measurement
(segment-specific)

Company’s offer versus competitors’ offers

Relationships between satisfaction, costs and revenues
Sources of satisfaction/dissatisfaction and the level of
importance allocated to them

Marketing mix Marketing mix Marketing mix

strategy 1 strategy 2 strategy 3

Figure 9.5 The use of customer segmentation and customer satisfaction measurement
for designing and implementing targeted marketing mix strategies

 robust transaction data, properly collected and updated

 data warehousing capabilities for capturing and storing the data (databases)
 associated retrieval and data delivery system
 datamining tools that reflect the unique nature of the business
 detailed costing information, including the process costs, as well as the physical
product or service costs
 a meaningful business model that represents clearly the company–customer
interaction and the fluctuation of customers’ and business’ lifecycle.

The measurement of customer satisfaction has to be specific for each customer seg-
ment being targeted by the company. The needs and wants of the various customer
segments are usually different, as well as the quality standards regarding the offered
products and services.
Not only do organisations need to benchmark their results after the completion
of a customer survey but they also have to evaluate the process they used to obtain
these results. Such data must be as accurate as possible, especially if staff bonuses or
other incentives are triggered by achieving satisfaction improvement targets
(Chambers 2000). It is also important to disseminate the results of measurements
of customer satisfaction to all organisational levels. Little action will be taken to
improve customer satisfaction if employees do not know enough about these
results or their implications (Hill et al. 2001). The extent of the feedback provided
to employees sends messages to them about how important the customer survey is
to the organisation.
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312 Chapter 9 / Measuring for effectiveness in marketing

Thorough research into the specific sources of customer satisfaction/dissatisfac-

tion and the importance they allocate to each will indicate the areas of excellence
and those needing improvement in the company’s strategy (see Figure 9.2).
On the basis of this research, a marketing mix strategy targeting specific cus-
tomer segments can be designed and implemented. You will recall that the issue of
customer value and equity (Rust et al. 2000) has already been discussed in Chapter
2, but the key components are:
 value equity the customers’ perception of value based on how the quality, price
and convenience are viewed
 brand equity the customers’ perceptions of a brand, especially the ones that are
not fully explained by a firm’s objectives – these perceptions could be emotional,
subjective and irrational
 retention equity customer equity results from customers choosing to do business
with a company – retention-building activities and repeat purchasing patterns
help to build retention equity.

The essential elements that should be taken into account are the various compo-
nents driving customer equity. However, it is clear that each component has cost
elements associated with it. The creation of value, development of a brand, as well
as creating customer retention, all have associated costs and these have to be amor-
tised within the customer base. In essence, all these elements contribute to
customer satisfaction levels for a product or service.

Understanding measurement within the global context

Companies operating globally have to be aware of a range of measurements with
regard to their product or service offering. They often measure their levels of success
in different countries by looking at their relative market shares in each country or
the levels of distribution achieved. In some cases, the measures may include profit
levels per product or service category. There is a good argument for companies look-
ing at their global market share as a performance measure (Usunier 1999), so that
competition is seen as being global right from the outset, as discussed in the previous
chapter. This helps to prevent companies from being too absorbed in their own mar-
kets and makes them more aware of there position in relation to the competition.
Performance measures can also be improved as a result of experience effects. In this
instance, effective measures of performance could be one or more of the following.
 Scale effects Large-scale production on a global basis means that costs can come
down and the savings measured. The increasing profits could be spent on R&D.
An example of this is the rapid growth of the Samsung brand on a global basis.
 A building up of brand equity A brand’s image can be measured using a very wide
range of variables and these can vary according to the type of research carried
out. For instance, when Philips began its campaign ‘Let’s Make things Better’, it
relied on measuring the impact of the advertisement on the ‘share of voice’ it had
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Understanding measurement within the global context 313

gained in various countries around the world. The ‘share of voice’ is how easily
the slogan can be recalled and, at the same time, customers’ perceptions vis-à-vis
Philips’ main competitor, Sony, are recorded. The measure of success in this
instance is the growth of brand awareness and a strong association of the slogan
with the brand. The use of a standard brand slogan is being utilised by Philips to
create a global brand and one that is easily recognised. In the middle of the
1990s, Philips had a disparate brand image in different countries. The brand was
associated with products ranging from lightbulbs to televisions. The slogan is
now being used to promote a coherent image of innovation and quality.

Chupa Chups is a company that has global ambitions, but it also needs to measure
its performance. The case study on this company illustrates the challenges it faces.

CASE STUDY FT

Sweet ambitions to tempt more takers

Branding a boiled sugar sweet on a stick takes an Last year, however, sales fell for the first time in
unusual amount of marketing imagination. The more than a decade, to €414m. The company’s
makers of Chupa Chups, the world’s best-selling vertiginous expansion came to a halt after a
lollipop, have responded to the challenge recently merchandising deal with Pokémon went sour.
by packaging the product in toys, in plastic Children tired of the Japanese cartoons, leaving
dynamite sticks and hand grenades, in make-up kits Chupa Chups with a lot of unsold Pokémon lollies.
and paint cans and in something called ‘Jaws Pop’ – Some executives also believe that the prolific
described by the company magazine as a collection marketing department was out of control.
of ‘cranky crocodiles and shady sharks that reveal a ‘Lollipops in [plastic] hand grenades was
Chupa Chups lollipop when the lever on their completely over the top,’ one executive confides.
backs is moved’. Had Chupa Chups, a household name in Spain,
The family-owned Catalan company has had with its flowery, red and yellow logo designed by
merchandising deals with Barbie dolls, the Salvador Dali, mistaken its impressive sales abroad
Simpsons, Pokémon and the Spice Girls. It has for the belief that it had established a powerful
become adept at cheeky publicity stunts, such as international brand?
sending ‘the first lollipop into space’ with Russian David Hensley, a consultant with Futurebrand in
astronauts in 1995. the UK, says companies that are expanding rapidly
Its efforts have helped the brand spread to 170 often confuse strong sales with brand recognition.
countries. Now the company’s goal is to transform ‘Chupa Chups has a great distribution network. It
Chupa Chups into ‘the Coca-Cola of lollipops’ – as has been the key to its international success. But
ubiquitous, and as ingrained in the dietary habits of what youngsters are buying are lollipops. They are
teenagers, as the sugary, carbonated drink. not necessarily choosing Chupa Chups over other
For a while, a strategy built around a flawless lollipops. It takes a lot of time and advertising to
distribution system, international expansion and elevate a commodity into a brand.’
zany marketing seemed to work: Chupa Chups’ Xavier Bernat, the current Chairman, whose
consolidated sales during the 1990s grew at an father founded Chupa Chups 44 years ago, rejects
annual compound rate of 27 per cent, to €424m this judgment. Mr Bernat believes he has built
(¥271m) in 2000, when the sugar confectionery Chupa Chups into an internationally recognised
industry as a whole was growing at a mere 2–3 per brand. By marketing in the club scene and in
cent a year. clothes stores, he says, he has expanded his ‘target

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314 Chapter 9 / Measuring for effectiveness in marketing

Case study continued

market’ of 7-to-12-year-olds in the past three years they have become popular among football players.
to include teenagers, who now buy more than half Zinedine Zidane likes to chew them after training
of his lollipops. In Russia, where Chupa Chups set sessions. David Beckham was spotted with one
up a factory ten years ago, the company sells 1bn during last month’s World Cup in Japan.
lollipops a year. ‘Celebrity suckers’, as Chupa Chups likes to call
Mr Bernat is also stretching the brand through them, have made it acceptable for adults to buy
licensing agreements with Unilever, which is lollipops. But Chupa Chups’ main customers
producing Chupa Chups toothpaste and ice-cream, remain children and teenagers, whose fickleness
and with perfume and clothes manufacturers. poses a particular challenge for a company intent
‘Chupa Chups is not a passing fad,’ he says. ‘It is a on building an enduring brand.
growing business.’ Nevertheless, Mr Bernat concedes Mary Peterkin, a brand consultant at Enterprise
that most of his efforts have been devoted to IG in London, says the key to success is to remain
building the distribution network and expanding relevant to your customers. ‘Competition from
overseas. Licensing deals bring in only marginal other confectioners and changes in fashion trends
income. Distribution, he says, must precede brand pose particular difficulties for companies that
recognition. ‘Chupa Chups has to be everywhere. In market to teenagers. Levi Strauss is an example of a
clubs, petrol stations, cinemas, kiosks and all kinds company that lost sight of its customers’ needs.
of stores. It must be instantly available, like Coca- Drinks and cosmetics companies are constantly
Cola, always an arm’s length away from desire.’ reinventing themselves to keep abreast of fashion
The question is whether Mr Bernat will succeed in trends. Chupa Chups will also have to reinvent its
making Chupa Chups as desirable as Coke. product to remain relevant to each new generation
Breakthroughs come from the most unexpected of teenagers.’
quarters. When Johan Cruyff, former coach of She thinks that Chupa Chups has a fighting
Barcelona football club, was told to stop smoking chance. ‘The company is in tune with the way
after a heart attack, Chupa Chups sent him lollipops young people think,’ Ms Peterkin says. ‘That is a
to help combat his craving for cigarettes. Photos of good platform to build on.’
Mr Cruyff sucking lollies on the trainer’s bench sent Source: Leslie Crawford, Sweet ambitions to tempt more takers’
Chupa Chups sales soaring in Catalonia. Since then, Financial Times, 16 July 2002

Identify and discuss the key measures of performance that could be considered
useful for Chupa Chups as it becomes a global brand.
Organisations such as Chupa Chups also rely on short-term promotions and the
success generated is often measured along the following lines.
 Measuring the impact of promotions Shorter-term performance measures depend
on understanding the impact of promotions on customers. Promotions can be
based on:
– price differentiation either raising or lowering prices and considering their
impact on sales
– buy one, get one free offers this has now become a common strategy for pro-
moting products, ranging from magazines to vitamin tablets
– trial and sampling small samples of a product are distributed so that con-
sumers can try them – this type of promotion is usually simplest for items
such as perfumes and food
– competitions promotions can be offered in the form of quizzes and other types
of competitions and, increasingly, on the Internet in the form of pop-ups and
via banner advertising.
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Measuring environmental effectiveness 315

Table 9.1 Objectives by types of promotion

Consumer promotions Commercial promotions

Trial Visit to new outlets
First purchase Customer retention
Repurchase Visit frequency increase
Loyalty First purchase growth
Reduced prices Increases in average price basket
Increase of quantity consumed
Purchase frequency increase
Trial of a new variety

Distribution promotions Network promotions

List of new products Increase in quantity sold
Stock Gain in distribution presence
Facing increase Introduction of new products
Point of purchase display Increase in size or range
Participation to advertising Reselling actions

Source: Ingold 1995

The impacts of these promotional activities and the types of measures that can be
used to assess their effects are shown in Table 9.1.
The above discussions show the range and scope of measures that can be
adopted in marketing. As technology evolves and even smaller companies begin to
compete in world markets, the range and complexity of measures can seem quite
complex and bewildering. The following section therefore sets out the best types of
measures for different businesses.

Measuring environmental effectiveness

Many organisations, either through choice or coercion, as a result of legislation, are
now beginning to measure their environmental performance and use this in their
marketing strategies. The way that they measure this is by using environmental
performance indicators (EPI). In many cases, companies go through crisis orienta-
tion, move towards process orientation and then chain orientation (Scherpereel et
al. 2001). During the crisis orientation stage, companies tend to be compliant with
legislation, considering a system of fines and penalties. By avoiding legal penalties,
they try to demonstrate improvement in environmental compliance to their share-
holders. In the process-orientated stage, control of environmental risks and
cost-efficient reduction of pollution and waste goes beyond legislative require-
ments. Companies at this stage have comprehensive and systematic environmental
management systems, which are measured and reported in the company accounts.
Finally, in the chain-orientated stage, environmental performance measures are
extended along the value chain and social performance measures are also included.
Some of these are (Spencer-Cooke 1998):
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316 Chapter 9 / Measuring for effectiveness in marketing

 human rights
 labour conditions (including forced and child labour, collective bargaining)
 supply chain and overseas suppliers (including fair trade and factory monitoring)
 technology transfer and investments in emerging economies
 trade with oppressive regimes
 defence and weapons
 alcohol, tobacco, gambling, pornography
 animal testing
 philanthropy and volunteerism
 downsizing and restructuring.

Comprehensive guidelines for adopting measures are shown in Table 9.2 and, in
Tables 9.3a and b, indicators of performance are listed that are used by the World
Council for Sustainable Development.
Tables 9.3a and b show the indicators of performance that have been used by the
World Business Council for Sustainable Development (WBCSD) (Lehni 1998). The
seven elements defining eco-efficient improvement are:
 reduced material intensity
 reduced energy intensity
 reduced dispersion of toxic substances
 enhanced recyclability
 maximised use of renewables
 extended product life
 increased service intensity.

Eco-efficiency calls for businesses to achieve more value from lower inputs of mate-
rials and energy and with reduced emissions. It applies throughout the entire
business system – to marketing and product development just as much as to manu-
facturing or distribution. The range of possibilities outlined here demonstrates the
pervasive nature of eco-efficiency. The WBCSD also recommends that the indica-
tors should:
 be relevant and meaningful with respect to protecting the environment and
human health and/or improving the quality of life
 inform decisionmaking to improve the performance of the organisation
 recognise the inherent diversity of business
 support benchmarking and monitoring over time
 be clearly defined, measurable, transparent and verifiable
 be understandable and meaningful to identified stakeholders
 be based on an overall evaluation of a company’s operations, products and serv-
ices, especially focusing on all those areas that are under direct control of
management
 recognise relevant and meaningful issues related to upstream (suppliers) and
downstream (product use) aspects of a company’s activities.
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Measuring environmental effectiveness 317

Table 9.2 Measuring environmental effects

Environmental orientation Related EPIs Examples of indicators

Crisis-orientated Output indicators directed Environmental discharges to air and water, efficiency
stage at compliance of pollution treatment equipment, quantity and
disposal conditions of waste per type
Environmental management Number and frequency of complaints, fines and
indicators directed at penalties, their nature and impact intensity, extent
compliance and effectiveness of corresponding corrective
programmes
Process-orientated Eco-efficiency indicators at Energy, water, material (raw material/packaging)
stage the company level for inputs consumption efficiency related to product volume,
(resource conservation) number of employees or financial returns per
Eco-efficiency indicators category
at the company level for Emissions per substance/effect/media concerned,
outputs (impact minimisation, waste by type/originating activity/production
pollution prevention, valorisation) quantity
Environmental accounting Environmental expenditures, costs resulting from
indicators directed at the environmental non-compliance and litigation,
environmental management environmental costs and savings avoidance of the
system current year and previous years
Degree of specific codes, internal policies or
standards, number of training programmes and
participants, improvements achieved, return on
investment for environmental improvement projects,
number of levels of management with specific
environmental responsibilities, community relations
(complaints, negative press reports, formal reports)
Chain-orientated Output indicators on a Environmentally harmful substances in the product
stage product chain level chain (toxic dispersion) using lifecycle assessment
Input indicators on a product (LCA)
chain level Materials intensity with the idea of closing material
Social performance indicators loops through re-use, recycling, product durability,
resource conservation and energy intensity along
the chain (including extraction/supply and use
phases)
Employment generated, labour productivity (value
added to the national GDP/number of employees),
relationship between employee and company
(personnel fluctuation rate, average duration of
contract), education to build and maintain human
capital (time invested for education and training),
disabling illness, income level and distribution,
investments made outside the company in benefit
for the community, sustainable metrics
Source: Scherpereel et al. 2001 and Lehni 1998
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318 Chapter 9 / Measuring for effectiveness in marketing

Table 9.3a Indicators of performance used by the World Business Council for sustainable development

Indicators Units Measurement methods Potential data sources

Greenhouse gas (GHG)
emissions
Amount of GHG emissions to air Metric tons of CO2 List of greenhouse gases: Cost reports
from fuel combustion, process equivalents Kyoto Protocol, Annex A Fuel invoices
reactions and treatment processes Global Warming Potentials: Plant surveys
including CO2, CH4, N20, HFCs, IPCC, Climate Change 1995, EHS records
PFCs and SF6 (excluding GHG Second Assessment Report. Estimation or calculation
emissions released in generation Transformation factors for fuels:
of purchased electricity) from fuel carbon content, e.g.
Responsible Care: Health
Safety and Environmental
Reporting Guidelines, CEFIC
November 1998, page 31ff.
GHG emissions from process
reactions and treatment
processes are calculated/
estimated using specific
knowledge of processes,
waste composition and
treatment efficiency
Note: Businesses and their stakeholders may find it useful to provide additional information for some generally applicable indicators
(e.g. energy consumption indicator for total energy consumption and energy consumption by specific sources, such as electricity,
fuel-based, and non-fuel-based consumption, greenhouse gas emissions in total CO2 equivalents and specific CO2, CH4, N2O, HFCs,
PFCs and SF6 emissions).

Table 9.3b Potential generally applicable indicators

In this table we list those indicators that might soon become generally applicable if current efforts to develop common global
agreement on measurement methods are successful.

Indicators Units Potential measurement methods Potential data sources

Value indicators
Net profit/earnings/income
US$, euro, yen or Net sales minus all expenses for Financial reports
company’s usual the period including cost of goods
reporting currency sold, selling, general and
administrative expenses,
technology expenses, R&D costs,
amortisation and adjustment of
intangible assets, restructuring and
special charges, interest expenses,
other expenses, income tax
International Accounting Standards
Committee (IASC)
Generally Accepted Accounting
Principles (GAAP)
Environmental influence indicators
Acidification emissions to air
Amount of acid gases and acid Metric tons List of acids: Plant surveys
mists emitted to air (including SO2 equivalents ICI: Environmental Burden EHS reports
NH3, HCI, HF, NO2, SO2 and sulphuric The ICI Approach 1997 Estimation or calculation
acid mists) from fuel combustion, Acidification Potentials:
process reactions and treatment Heijungs et al. 1992,
processes Hauschild and Wenzel, 1997
Total waste
Total amount of substances or Metric tons Definitions of waste and disposal: Plant surveys
objects destined for disposal Basel Convention, 1992: EHS reports
Definitions and Annex IV Estimation or calculation
Source: (9.3a and b) Lehni 1998
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Measuring environmental effectiveness 319

The case study on the Co-operative Bank provides an interesting example of how
different types of marketing and other metrics are utilised to gauge the company’s
performance along ethical and sustainable lines. The notable feature of this case is
the recognition this has received from external agencies, which awarded the com-
pany with a prize.

CASE STUDY

The Co-operative Bank

Awards for Excellence 2004 Big Tick winner, the Impact on Society Award in association
with Tomorrow’s Company
As a business with its roots in the cooperative standards. For example, it has played a key role in
movement, the bank is part of a tradition that the development of the world’s first social
inherently recognises that business has a purpose assurance standard (AA1000) and in the
beyond profit. Its current commitment to development of GRI’s [Global Reporting Initiative]
sustainable and ethical business stems from the first sector supplement for financial services.
bank’s customer-mandated Ethical Policy, which Committed to tackling financial exclusion, it is the
was first launched, following consultation with UK’s biggest provider of financial services to the UK
customers, in 1992. The bank launched its Credit Union movement, and lends more money to
Partnership Approach to sustainable development businesses in disadvantaged areas than the industry
in 1997, identifying seven groups, or Partners, upon average with data for 2003 showing a significant
whom its continued success was dependent and increase in this support. The bank has played a key
pledging to deliver value to these groups in a role – contributing £500,000 – in Co-operative
socially responsible and ecologically sustainable Action, a new fund that was established to assist
manner. Commitment to transparent reporting was communities to develop cooperative, mutual or social
first demonstrated in 1998 with publication of the enterprises through the provision of grants and loans.
bank’s first triple bottom line independently The bank’s community investment, at 2.7 per cent
verified Partnership Report. Both its Ethical Policy of pre-tax profit, is among the best in the UK, and
and its Partnership Reports have received numerous right up at the top of the financial services sector.
plaudits over the years. Additionally, during 2002, the bank issued affinity
credit cards for 13 national charities/non-
Processes governmental organisations, which received a total
The bank’s Chief Executive, Mervyn Pedelty, is a of nearly £1.2 million as a result. And the bank’s
powerful advocate of sustainable development; his campaigns regularly mobilise customers to have their
external commitments include Chair of the say on pressing international issues. For example, a
FTSE4Good Advisory Committee, Deputy Chair of 2003 campaign asked customers to sign up to a
the North West Business Leadership Team and Board ‘Diamond Pledge’ to help stamp out the illicit trade
Member of Business in the Community. Furthermore, in conflict diamonds – a source of finance that has
leadership and accountability are integrated through fuelled civil wars and human rights abuses in Africa.
the bank. For example, the 2002 Partnership Report In addition to the campaign on cluster bombs,
sets out some 77 targets, alongside which appears the which was identified as the national Example of
name of the individual who is charged with Excellence in Business in the Community’s Cause
responsibility for its achievement. Related Marketing Award 2003, the bank has won
The bank is involved in, and in many cases leads, numerous other awards for its environmental and
a number of social, ethical and environmental social programmes, including a Big Tick in the


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320 Chapter 9 / Measuring for effectiveness in marketing

Case study continued

Awards for Excellence 2004 for its education conferred on the bank in recognition of its
programme organised by staff in Skelmersdale. partnership approach to management.
 In the past two years, the bank has been rated as
Impact best Sustainability Reporter in the world by
 A 2002 New Economics Foundation survey UNEP, and in Europe and UK by ACCA.
found it to be the most trusted business by UK  In 2004, the bank was ranked in the ‘Premier
influencers and 2002 research by the BPRI Group League’ of the 2004 Business in the Environment
placed it best at demonstrating Corporate Social Index and was ranked seventh in the second
Responsibility. Business in the Community Corporate.
 2002 also saw a Queen’s Award for Enterprise in Source: ‘The Co-operative Bank’, Business in the Community, 2004
the Sustainable Development category being

There has been much discussion about the triple bottom line approach – that is,
organisations should judge their success in the marketplace on the basis of their
financial, social and environmental impacts. An example of this is provided by the
following Novo Nordisk case study.

CASE STUDY

Novo Nordisk: TakeAction! – make the triple bottom line your business
Sustainable development is about preserving the culture. The many local initiatives made by
planet while improving the quality of life for its employees should make them reflect on how they
current and future inhabitants. Novo Nordisk uses can do their daily work in a more responsible way.
the term ‘triple bottom line’ (TBL) to indicate To that effect, Novo Nordisk wishes to obtain a
sustainability in terms of financial, social and much larger outcome than it would obtain from
environmental responsibility. It is an important individual activities.
part of Novo Nordisk’s guidelines for all company Essentially, TakeAction! informs, inspires and
planning and decisionmaking processes as it builds supports employees to initiate and drive social and
its business in a way that is financially profitable, environmental activities and allows employees to
environmentally sound and socially responsible. spend time doing these activities. It further serves
This involves being clear about its purpose and as a platform for sharing best practices. As most
taking into consideration the needs of all its activities under the TakeAction! umbrella are driven
stakeholders – shareholders, customers, employees, by employees, the task of the TakeAction! team is to
business partners, governments, local communities serve as a clearing house and resource for all of
and the public. Novo Nordisk’s employee-driven social and
Throughout its history, Novo Nordisk has environmental initiatives.
initiated a large number of activities that reflect the Novo Nordisk is a focused healthcare company
triple bottom line. To build on these initiatives, the and a world leader in diabetes care with the
company aims to integrate and embed TBL far more broadest product portfolio in the industry,
into the business than ever before. The TakeAction! including the most advanced products within the
programme is one way to enhance this integration area of insulin delivery systems. In addition, Novo
– and in the long run – create a TBL mindset or Nordisk has a leading position in areas such as
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Measuring environmental effectiveness 321

Case study continued

haemostasis management, growth hormone to give the employees additional tools to engage in
therapy and hormone replacement therapy. Novo TakeAction! and to get their feedback and ideas to
Nordisk employs more than 18,000 people in 68 the further development. Finally, a status report is
countries and markets its products in 179 countries. planned for all VPs in December 2004.

Starting blocks Hitting the ground running

TakeAction! was launched in January 2003 at Novo The activities offered by the employees through the
Nordisk’s yearly International Meeting (IM) for top TakeAction! programme are as numerous as they
managers. Two hundred and ten of the 300 are varied. Activities are communicated through the
participants signed a TakeAction! commitment company intranet, the TakeAction! website, a
sheet and agreed to seek ways to make their actions calendar highlighting a different project every
reflect the triple bottom line. Lars Rebien Sørensen, month, as well as the annual TakeAction! Award
CEO, encouraged them to present TakeAction! to which recognises initiatives based on their
their employees and inspire them to get involved. outcome, business relevance and innovation. As
All participating managers were supplied with employees share their experiences, they help others
TakeAction! posters, brochures, pins and a learn and take initiatives of their own.
presentation to help them inform their colleagues Novo Nordisk concentrates its corporate
about the programme. They were urged to TakeAction! initiatives on two main programmes –
encourage others to sign the commitment sheet. the sponsor program and the volunteer opportunity
Each employee signing the sheet receives a in Tanzania.
TakeAction! pin and when all employees in a
department sign the commitment sheet the The sponsor programme
department receives a TakeAction! plaque as a Since May 2003, Novo Nordisk employees in
symbol of their commitment. In January 2004 the Denmark may sponsor two different diabetes
TakeAction! team had received signatures from programmes in developing countries through
7 per cent of all employees worldwide. automatic monthly donations from their pay
To further support its activities, the TakeAction! cheques. Employees can choose between
website was launched in January 2003 and aims to supporting children with diabetes in Bangladesh or
communicate general information about the people with diabetes in El Salvador directly through
programme and share best practices. the TakeAction! website’s sponsor programme
Employees are encouraged to send in their ideas section. The national diabetes associations in
to TakeAction! and report on already implemented Bangladesh and El Salvador are working to raise
activities. awareness about diabetes care and prevention, but
The targets for the first year were: to have a their resources are limited. By supporting one of
successful launch with positive feedback, launch a these programmes Novo Nordisk employees can
sponsor programme and volunteer opportunity, help the associations reach even further in their
receive 100 applications for the volunteer fight against diabetes. The World Diabetes
opportunity, inspire employees to initiate at least Foundation, founded by Novo Nordisk, administers
10 new initiatives and to share at least 10 already the programme. In 2003 150 employees raised
implemented initiatives. nearly US$ 9000 for the programme in Bangladesh
Four targets have been identified for 2004. The and US$ 5000 for the one in El Salvador. The
first target was to present an award for the best sponsors receive regular updates on how their
TakeAction! activity for 2003 at the International contributions make a difference.
Meeting 2004. Additionally, a ‘TakeAction! – the year The sponsor programme contributes to the TBL
in review film’ was presented to all participants at by raising awareness about diabetes in Bangladesh
the meeting showing them the past year’s activities. and El Salvador while contributing to employee
Another target is to conduct TakeAction! satisfaction and motivation at home. This is
workshops in four selected affiliates. The purpose is because Denmark does not have a long tradition for

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322 Chapter 9 / Measuring for effectiveness in marketing

Case study continued

individual contributions to charity due to its welfare The volunteer opportunity gives the volunteer (and
system. The country is one of the largest public their colleagues who hear about it) a unique insight
contributors of financial aid to developing countries into the severe diabetes situation in Tanzania. The
(measured per BNP) and many have thereby felt that volunteers have all been deeply affected by their
they pay their share via public taxes. However, this is experiences and many of them have stated that
slowly changing as charity organisations experience they look at their daily life from a whole new
more individual contributions than ever. It is the aim perspective after their return.
of the sponsor programme to meet this increasing In addition to these two large programmes, Novo
interest by giving the employees the possibility to Nordisk subsidiaries around the world also organise
support a cause that they – via their job – have a events of their own. These initiatives have common
special interest in. bottom line motivations including improving
employee satisfation and motivation, as well as the
Volunteer opportunity (Tanzania) company’s reputation, positively influencing
In April 2003, Novo Nordisk launched a stakeholder trust (employees and partners where the
TakeAction! volunteer opportunity where activites take place), supporting the perception of
employees worldwide can apply to become Novo Nordisk as socially responsible, supporting the
volunteers for three weeks at a local diabetes centre perception that the company is leading the fight
in Dar es Salaam, Tanzania. Volunteers are invited against diabetes and increasing awareness about
to use their competencies to help develop the diabetes through articles etc. leading up to the event.
centre’s processes and expertise in close
collaboration with local staff. The clinic’s staff
 In China, 75 employees and their families
determines the specific qualifications they need at a planted more than 100 trees at the foot of
specific time and the job offers are posted on both Miyun reservoir to increase afforestation to
the TakeAction! website and the internal Novo avoid sand storms.
Nordisk job site. In 2003, the TakeAction! team  Employees in Denmark collected 9 tons of
received more than 100 applications and more than clothes, linen and toys for a diabetes centre in
200 enquiries from interested employees. This Tanzania.
initiative contributes to the TBL by:  South African employees held a walk-a-thon to
raise money for the establishment of a local
 raising awareness about diabetes in Tanzania diabetes clinic.
 helping employees broaden their understanding  Indian IT department employees donated used
of diabetes in developing countries (which is an
computers to a facility for poor children and
increasing problem that the company aims to
now plan to teach them to use them.
address)  Russian employees collected money for flu
 giving a broader understanding of customers’
vaccine, toys, food and clothing for children in a
needs
Moscow orphanage.
 promoting employee satisfaction, motivation
 In the Ukraine, employees held the ’beware of
and loyalty as volunteers are proud to work for a
diabetes’ public awareness campaign where they
company that provides them with such an
produced a leaflet about disease and its
opportunity and which acts on its
complications and distributed on the streets of
responsibilities
Bila Tserkva (winner of TakeAciton! Award 2003).
 helping attract new employees as they tend to
look further into a company’s CSR [corporate
social responsibility] programmes before Measurements of success
committing to employment Following the launch of the programme the
 supporting the perception of Novo Nordisk as TakeAction! team has received positive feedback
leading the fight against diabetes from employees. To follow up on employee
 building stakeholder trust among employees and demands, employees have enhanced access to
partners in Tanzania. information on how to take action through news
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Measuring environmental effectiveness 323

Case study continued

stories about future, current and past activities as team. This often involves a break from old
well as guidelines describing how to carry out procedures, which can be seen as an indication of a
various activities. A TakeAction! idea list was change of mindset.
developed providing concrete ideas (both team and
individual) on how to take action. Living the values
The annual employee survey, eVoice, consisting of
TakeAction! poll more than 100 questions, has been the benchmark by
In October 2003, Novo Nordisk’s official IntraWeb which the TakeAction! programme knows its
site, People+, ran a poll asking employees if they had initiatives are making a difference to the TBL. The
participated in a TakeAction! activity. Sixty-five per tool assesses the working climate, and particular
cent of the 657 respondents answered either ‘Yes’ or attention is given to measuring how well
‘No, but I plan to’. Twenty-one per cent responded management is translated into daily business practice.
that they didn’t have the time, 2 per cent that they Each unit reviews its own data and takes action on
were not interested and finally 5 per cent that they low performance scores. At Novo Nordisk, ‘living the
had never heard about TakeAction! The TakeAction! values’ is one of the ten core global leadership
team will address the 21 per cent who answered that competencies and a key indicator of performance.
they do not have the time by providing more
concrete examples as to how TakeAction! can be Values as attraction factor
incorporated in their existing work programme. Changing demographics, an expected skills shortage
and changing employee expectations are stretching
TakeAction! Guide companies’ ability to attract and retain talented
In June 2003 managers received a TakeAction! Guide people. Novo Nordisk believes its commitment to
sustainable development gives the company an
with practical information on the programme and a
advantage in a competitive labour market. Several
summary of the programme’s status. The purpose of
studies show the importance of alignment between
the guide is to provide an overview of the
corporate and personal values. In 2003, for the
programme and some practical tools to get started
second year in a row, Novo Nordisk was ranked the
on or continue their work with TakeAction! The
number one preferred employer among young
questionnaire, which 11 per cent of the managers
professionals and business, engineering and science
returned, measured how well integrated the
graduates in a survey by the international consulting
programme was and asked for ideas for
firm Universum Communications. Eighty-five per
improvements. Overall the answers were positive
cent associated Novo Nordisk with a good reputation
and the respondents all saw the value of TakeAction!
and 53 per cent named high ethical standards as one
However, the answers also identified some barriers
of the three most important characteristics that they
standing in the way of TakeAction!, including lack associate with the company.
of time and resources and lack of support to daily
business focus. The TakeAction! team will discuss Sustainability approach as retention factor
how to overcome these barriers during 2004 and has When Novo Nordisk employees were asked in the
commissioned a benchmark on this matter. Before 2003 eVoice survey how they feel about the vision
the team makes any decisions it will investigate how and the values of the company, three out of four
other companies address the issue. consider Novo Nordisk’s results within the social and
It is difficult to measure whether or not there has environmental area to be important for the future of
been a change of mindset – especially as the the company. To many Novo Nordisk employees the
programme has only been running for one year. translating of corporate values into triple bottom line
However, over the last year the TakeAction Team approach contributes to their job satisfaction and
has identified an increasing interest in diabetes in supports their decision to remain with the company.
developing countries. Employees who have ideas
Source: WBCSD, ‘Novo Nordisk: TakeAction! – make the triple
on how their department can contribute to bottom line your business’, 1 April 2004 www.wbcsd.ch/
TakeAction! are continuously approaching the templates/TemplateWBCSD5/layout.asp?MenuID=1
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324 Chapter 9 / Measuring for effectiveness in marketing

Developing individual measures

Given the different ways in which performance measures could be adopted by
organisations, it is important that some general framework is put in place (see
Figure 9.6) so that individual companies can develop measures that may be suitable
for them.
When choosing suitable measures for an organisation, they should be assigned
to the following categories.

Strategic
These are the measures that are eventually used to ascertain the overall perform-
ance of an organisation. They could be key measures, such as market share and
return on investment (ROI). They could also include market share in geographic
regions and the overall effectiveness of branding strategies. They should also
include the eco-efficiency of the products made, as this is becoming increasingly
important in advertising the green aspects of a company.

Tactical
These measures could include short-term strategies to improve customer satisfac-
tion, loyalty rates and promotional effects.
The range of measures adopted for each area could vary according to the type of
business activity that is undertaken. For choosing and developing measures, it is

Strategic vision

Assessment of suitability
of measures to be adopted

Acceptability: Feasibility
•toto the various marketing areas Can the chosen measuring
• shareholders activities be used/initiated?

Selection of appropriate
measures

Figure 9.6 A framework for screening marketing measures

Source: Adapted from Johnson and Scholes 2002
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Developing individual measures 325

useful to adopt a screening procedure to try and understand the acceptability, suit-
ability and feasibility of the measures being considered (adapted from Johnson and
Scholes 2002).

Suitability
This provides an assessment of the most suitable measures that could be adopted
for a particular company. This is likely to depend on the following:
 industry sector
 service or product orientation of the organisation
 if it is a not-for-profit organisation or NGO
 the level of technology used for automatic measurement – for instance, on the
Internet, transactions can be recorded automatically, when loyalty cards are
used, the customer transactions are recorded on a database – these records subse-
quently being used for datamining
 the strategic vision of the company – for some companies, there may be an
emphasis on rates of return, for others, such as NGOs, the emphasis could be on
the rates of consumer awareness or the levels of funds generated
 whether or not the measure chosen is likely to be valuable in the long run and
trends can be ascertained
 whether or not the measures chosen can be used as benchmarks regarding the
competition.

The measures chosen as a result of considering these factors can then be screened
by looking at the following two criteria.

Acceptability
Are the measures acceptable to the various stakeholders? Do they make sense and
do they actually measure the right areas/issues? There are instances where measures
have been adopted, but have really not been acceptable to the individuals develop-
ing the strategies. This then results in fudged or anomalous results. The measures
would also have to demonstrate something tangible to the various stakeholders
and be in line with their expectations. Measures such as brand equity are often
undertaken by advertising agencies and, as such, they need to be acceptable and
meaningful to marketing personnel.

Feasibility
This tests whether or not the chosen measures can be usefully adopted. For
instance, does the organisation have the correct software to automatically measure
customer contact information, especially if it is introducing CRM strategies? Has
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326 Chapter 9 / Measuring for effectiveness in marketing

the company enough resources to carry out brand equity research via an agency?
Does it have procedures that are implemented in collaboration with retailers to
obtain details of revenues generated at point of sale via electronic point of sale
(EPDS) systems?

Using the measures and the TBL (Triple Bottom Line)

When making the final selection of measures, it is useful to carry out the following
exercise. Consider the model presented in Figure 9.7, which categorises the meas-
ures according to their social, environmental and financial impacts – the TBL – and
complete the grid accordingly.
This grid can be used by any type of company in order to combine various per-
formance measurements to form a complex image of their results. The competitive
conditions of today’s markets and the multidimensional perspectives of many
organisations require just such a combination of these various elements in order to
assess their performance.

e
Environmental

lin
m
tto
Social

bo
e
pl
tri
Financial
e
Th

Acceptability Feasibility Can the measures

Measures Suitability for
to key functions and resource be used for
chosen required purpose
and stakeholders availability benchmarking?

Figure 9.7 Grid for measuring suitability, acceptability, feasibility and the TBL
MAST_C09.QXD 24/4/07 14:03 Page 327

Chapter questions 327

Summary
This chapter has outlined some of the key measures that can be used in marketing.
The use of measures is as much an art as it is science. Some measures, such as finan-
cial ones, are those that a company is obliged to publish according to the rules laid
out by accounting authorities and the standards required within each nation.
Companies are not, as yet, obliged to publish marketing measures of performance,
but many are now beginning to show these in their company reports.
This chapter has offered some practical guidelines on adopting measures and assess-
ing their possible effectiveness by enabling a better return on investment. However, for
NGOs and not-for-profit entities, other measures may be more appropriate.
It is impossible to list all the potential measures that could be adopted, as each
company has its own systems and idiosyncracies. Companies now also need to be
aware of their ecological efficiency and its impact on lowering costs and promoting
sustainable development. Given the fact that measures are likely to vary from com-
pany to company, some systematic appraisal is necessary to determine the best
possible outcomes for each organisation and the ways in which they can be
realised. These measures are important aids in determining strategy development
and the vision for the organisation. As the twenty-first century progresses, it is
likely that marketing measures will become increasingly important in determining
company performance and its strategic, ethical and environmental health.

Chapter questions
1 Why are marketing measures now considered to be an important aspect of a
company’s performance?
2 Assess the complexity of developing marketing measures for:
(a) a manufacturing company
(b) a financial services company.
3 Why should marketers be concerned about using environmental measures of
performance?
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New perspectives in marketing and

10 the way forward

Introduction
Over the last century, marketing has undergone many changes and is now a more
complex discipline than in the past, involving many other areas, as discussed in
Chapter 1. When all the issues discussed in the previous chapters are taken into
account, it is clear that marketing in the twenty-first century is likely to incorpo-
rate many more changes resulting from the evolution in demographics, values,
technology, ethics and a more globalised society.
Many marketing managers have to be able to deal with uncertainty and are find-
ing that the old paradigm of working through the marketing mix and the 4 Ps,
although helpful when developing strategies, is no longer a sufficient framework
with which to address the new challenges posed by changing markets and innova-
tive technologies.
This chapter consolidates the material discussed in previous chapters and
offers some new perspectives on marketing that ought to be considered by market-
ing strategists.

Moving away from the 4 Ps

The product, price, promotion and place concept has helped and continues to help
marketers develop appropriate strategies for their products, taking into account the
various elements in the marketing mix. However, with the changes in society,
often determined by the evolution of technology, it is becoming apparent that this
is a somewhat limited view of the scope and nature of marketing. There is a strong
argument that marketing needs to have a much higher profile in companies and
must embrace a much more holistic view than before. In order to do this success-
fully, companies have to integrate and apply the marketing concept more
thoroughly and become more ‘customercentric’ (Deshpande 1999; see Figure 10.1).
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Moving away from the 4 Ps 329

Being customer-orientated has never been as easy or as difficult as now. On the

one hand, the growth of better information systems and the rapidity of data trans-
fer means that the range and breadth of customer information can be made
available at any place, any time, within a split second. On the other hand, even
given the availability of this information, for many companies, being customer-
orientated is posing many difficulties. These are usually related to the development
of better processes and organisational structures (discussed in Chapters 5, 6, 7 and
8). The marketing mix is no longer static and ‘place’ is no longer a fixed location.
Similarly, a promotion is no longer confined to a product but goes beyond it to the
brand that is being communicated. Pricing structures may vary according to time
(seasonal and other factors) and global locations. There is even the potential to
tailor products to suit individuals. Given these factors, the 4 Ps seem to offer a
straitjacket from which marketing needs break out in order to move forward.
The advent of the Internet and wireless communications technologies offer a
different perspective on the 4 Ps. One of the key features of the new electronic
communication media is the ability of consumers to control both contact and con-
tent (Kitchen 1999; Peters 1998). Early research into the willingness of consumers
to utilise technology in shopping behaviour revealed that their ability to control
the presentation of product information has a strong influence on their involve-
ment in computer mediated environment (CME) activities (Carson et al. 1996).
This development emphasises the need for marketers to develop a proper online
environment to allow their consumers to interface with their online presence.
Within the virtual environment, both experiential (such as surfing) and goal-
directed (such as searching) behaviour compete for consumers’ attention (Hoffman
and Novak 1996). Consumers’ surfing behaviour is normally based on different
information needs than their searching behaviour. Moreover, they tend to follow
different navigation routes that reflect the different online behaviour patterns asso-
ciated with each mode. Marketers need to possess some core competencies in
understanding these new patterns of consumer behaviour so that online marketing
activities result in a degree of success.
Owing to these new technological features, normal marketing practices need to
be revisited and revised effectively (Hoffman and Novak 1996; Kitchen 1999).
Information-intensive activities are transforming marketing and handing more
power to consumers (Clark 1997; Griffith 1998). The possible impact on the 4 Ps is
assessed below.

Price
Unlike conventional marketing development (Davenport 1995), Internet marketing
can no longer focus solely on previous pricing mechanisms as the transparent nature
of the Internet makes price comparisons simple. It could be argued that, instead of
the conventional strategies, competition should be based on the ‘speciality axis’
online pricing reflecting the degree of added value to online consumers (Hoffman
and Novak 1996). It should not be based on a ‘cost plus’ attitude to pricing.
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330 Chapter 10 / New perspectives in marketing and the way forward

Product
In the digital marketing environment, consumers can be intimately involved in
online marketing processes (Clark 1997). In other words, the conventional concept
of product development is no longer appropriate in the new environment. Instead,
marketers should focus on developing capabilities to allow customers to mediate
with online marketing processes (Bishop 1996). An example of this is the site for
MySki Inc., where customers can interact with the company and provide size
details and requests for specific styles or other requirements in their ski design.
Other companies provide a virtual dressing option, where a customer’s avatar is
used to try on clothes and design modifications can be requested. This allows cus-
tomers to interact with companies on a global, not just on a localised, basis. This
further augments the idea of co-creation in marketing (Sheth et al. 2000). Co-
creation marketing involves both the marketer and the customer, who interact in
aspects of design, production and consumption of the product and service.

Place
As shown, the constraints of geographic location no longer exist on the Internet
(Kitchen 1999). Rather, Internet marketers should focus on building a user-friendly
online environment to enhance the customers’ experience on the Internet (Peters 1998).

Promotion
With the advances in telecommunications, large quantities of information can be
transmitted inexpensively, multimedia objects can be transported efficiently and
isolated computers can be networked globally. Consequently, marketing communi-
cations need to change from a traditional, information-poor, emotion-rich focus,
to an information-rich, multidimensional focus. The educational, personal and
entertainment aspects of marketing communications become useful catalysts to
enable this transformation (Rohner 1998).
Such developments are all leading towards a more relational, less transactional
approach to marketing. The customer is part of the transactional process, not an
idle recipient of a product augmented by promotion, price and directed to a place
to purchase it. There is now considerable interest in trying to understand how
companies can become customercentric. Every organisation, whether it is profit-
orientated or not, has to be able to satisfy its customers. Figure 10.1, shows the
gradual evolution that has taken place in marketing towards this customer-
orientated approach. In order to be customercentric, marketers need to be able to
assess each customer individually and satisfy their needs, either directly or via a
third party.
In order to develop a customercentric focus within organisations (see Figure
10.2) , many issues have to be taken into account.
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Consumer behaviour 331

Mass Large Niche Single

Perspective market segments segments customers

Product Market Customer

Orientation orientation orientation orientation

Product Market Customer

Organisation organisation organisation organisation

Figure 10.1 The growth in customercentric marketing

Source: Sheth at al. 2000

ocesses Marketing pro

tional pr cesse
rg anisa s
O

Information gathering
Information dissemination
Supply chain management
Flexible systems CUSTOMER
Customer relationship management
Appropriate culture and climate
Innovating for customer needs

Measuring performance

Figure 10.2 Features of customercentric organisations

Source: Adapted from Deshpande 1999

Consumer behaviour
How do consumers really behave, given the fact that, at any one moment, they are
faced with a huge range of services and products. These services and products are
not only available globally and locally but also on the Internet. Marketing is
moving from a process involving transactions with consumers to relationship-
building with them.
Relationship-building has implications for understanding brand loyalty and con-
sumer behaviour. Are customers loyal or not? What are their behaviour patterns
and how can consumer groups be categorised? How are segments really behaving
globally and locally?
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332 Chapter 10 / New perspectives in marketing and the way forward

The lifecycle concept has been built on understanding the gradual evolution and
growth of mass markets, but markets are now increasingly fragmented and those
fragments may have similarities that stretch across the globe rather than regionally
or nationally. Companies therefore have to be aware, when carrying out market
research, that they need to understand consumer behaviour and product diffusion
characteristics within globally fragmented markets. Each customer is not a simple
static demographic profile, but changes and evolves over time, exhibiting a range
of attitudes, behaviour, experiences and economic factors (Wyner 2002). Each of
these variables offers marketers a chance to ascertain market behaviour that may
translate into the purchasing of a particular product or service. In order to track
this behaviour and understand the product or service purchasing propensity of a
customer, a company has to develop relationship marketing skills and needs to
become customercentric. This can be done by developing comprehensive databases
and tracking the changing behaviour patterns. At the same time, companies need
to be effective and efficient in their approaches to customers, ensuring increased
sales and better profits. Marketing productivity depends on efficiency (doing the
right things) and effectiveness (doing things right), as shown in Figure 10.3.
The marketing function needs to create loyal and committed customers for a low
cost. If loyal customers are created at unacceptably high costs via loyalty pro-
grammes or promotional offers, companies could create expensive and ineffective
customer bases (Sheth et al. 2000). Family norms are changing (one-parent fami-
lies, extended families, second families, same gender families, singles and so on.)
and gender roles are evolving in society, making the segmentation process ever-
more complex. To add to the complexity, individuals may straddle different
professions. Lawyers in patenting law may also be biochemists and a doctor could
specialise in medical law. Individuals, too, find that the distinction between home
life and work life is blurring as the use of technology becomes prevalent. All this
demands flexibility and a dynamic view of segmentation (Karin and Preiss 2002;
see Figure 10.4)

High
Premium Effectiveness
marketing efficiency
Effectiveness

Loyal customers Loyal customers

High marketing costs Low marketing costs

Death-wish Hit-and-run
marketing marketing

Alienated customers Alienated customers

High marketing costs Low marketing costs
Low
Low High
Efficiency

Figure 10.3 Achieving marketing efficiency and effectiveness

Source: Sheth and Sisodia 1995
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Consumer behaviour 333

TRADITIONAL APPROACH NEW APPROACH

(Discrete variables) (Continuous variables)

Geographic
Density (urban, suburban, rural) Intensity and nature of activity
Climate (northern, southern) Natural and artificial conditions

Demographic
Chronological age (young/old) Psychological age
Marital status (single/married) Household arrangement
Gender (male/female) Sexual self-image
Income (all major currencies) Buying ability
Profession Capability
Nationality Community affiliation
Religious affiliation Level of orthodoxy
Home–work separation Home–work combination

Psychographic

Choice of lifestyle (hippy, swinger, straight) Spectrum of lifestyle preferences

Pigeonhole definition of personality Apparent personality changes
(compulsive, gregarious, authoritarian, ambitious) with circumstances
Behavioural

Occasions (regular or special) Perception of the occasion

Benefit (quality, service, economy, speed) Benefit mix
User status (non, ex, potential, first time, regular) Degree of user experience
Usage rate (light, medium, heavy) Degree of usage rate
Loyalty status (non, medium, strong, absolute) Satisfaction level
Readiness stage (unaware…intending to buy) Ripeness level
Attitude towards product (enthusiastic…hostile) Degree of openness towards offer

Figure 10.4 Modified segmentation model

Source: Karin and Preiss 2002

Understanding consumers is a complex process, especially when cultural aspects

are thrown into the melting pot, as shown in the following case study.

CASE STUDY

The cultural melting pot

As first-generation immigrants are nearing interests that have been influenced by both an
retirement, subsequent generations are living in a Eastern and Western upbringing, with a
multicultural and diverse environment. These predominately Western backdrop.
second- and third-generation immigrants cannot be So how do marketers segment to these groups or
neatly categorised as clear cut segments, but, even individuals? These are people who are native-
instead, possess a wide range of beliefs, values and born British Asian or Asian British (depending on

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334 Chapter 10 / New perspectives in marketing and the way forward

Case study continued

how patriotic one feels), who may be second-, Thus, marketing activity is often targeted in a
third- or even fourth-generation and have been somewhat stereotypical way that makes a mockery
raised within a British culture but have both of the segment and doesn’t really relate to the
Eastern and Western mindsets. Their affiliations can group’s ‘needs and wants’ as marketing purports to
be strongly linked with mainstream Britain, unlike do. Individuals who find their social identities at
those who have emigrated from their same country the intersections of at least two salient subcultures
of origin more recently. use their bicultural skills to bridge those worlds.
Their views and beliefs are often a mixture of So where does the future lie for marketers? Can
host and home country loyalties. Peers, family, they continue merely to pay lip-service to this
work colleagues and other relevant groups can also group’s needs by segmenting in a manner that
influence their purchasing decisions. However, a doesn’t scratch the surface of the cultural diversity
confusion/conflict may arise for marketers as they within the group? Alternatively, can they move
realise that the concept of ‘situational identity’ is away from the ‘generic marketing and cultural
very relevant to these segments. melting pot’ and dig deeper to find differences and
This chameleon behaviour of British Asians, similarities and perhaps even an element of ‘man-
being able to switch back and forth between roles made culture’ to develop more relevant
in an ethnic culture and British mainstream segmentation systems that will foster truly
culture, leads marketers to either reassess their customer-orientated marketing activities?
generic marketing communications strategies or Source: Adapted from Sekhon, personal communication, 2002
completely ignore these groups, due to the
perceived complications of the segment.

In addition to the cultural aspects of market segmentation briefly explored in

the case study, there is much interest in ascertaining the role of emotions in mar-
keting. Research on emotions and its role in consumer behaviour is in its infancy,
yet emotions govern the way in which advertising content is developed and then
perceived, as well as the motivations behind purchasing decisions made by con-
sumers. Questions that arise concern the role of emotions in marketing exchanges
and relationships and developing, maintaining or severing marketing relationships
(Bagozzi et al. 1999). There are even bigger questions regarding the role of emo-
tions in all areas of marketing that concern satisfaction levels and customer loyalty.
In the twenty-first century, real progress will be made by customercentric organisa-
tions that can truly understand how and why consumers behave in the ways that
they do. At the same time, an exploration of how better-performing companies
behave is also likely to be crucial in developing successful marketing strategies.
Following on from the discussion above, the next section will explore the area of
value co-creation that is becoming an important area of study in marketing.
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Value co-creation 335

Value co-creation
Modern markets are characterised by their dynamism, unpredictability, intense
competition and increased consumer power, evolving towards an increased frag-
mentation of targeted segments. In this context, creating and delivering customer
value is increasingly considered to be the next source of competitive advantage.
Many leading scholars have argued that this process can be enhanced by emphasis-
ing marketing relationships as opposed to transaction-based exchanges (Grönroos
1997; Kotler 2000; Parvatiyar and Sheth 1997; Webster 1992).
In their book The Future of Competition, Prahalad and Ramaswamy (2004) suggest
that value is co-created by companies working together with their customers and,
therefore, marketing should adopt a relational approach. From this perspective,
value is embedded directly in the co-creation experience and does not stem from
products, services or the expertise of marketers and service providers. This orienta-
tion leads to a service-dominant logic in marketing, according to which the firm
concentrates on operant rather than operand resources in order to develop valu-
able experiences for its customers (Vargo and Lusch 2004).

The service-dominant logic in marketing

A clear shift in marketing logic occurred with the statement that consumers do not
buy products and services, but, rather, life-enhancing experiences (Vargo and Lusch
2004). This new approach has eliminated most of the differences between product
and service marketing and extended the value-delivering process from transactions
to relationships – both ante- and post-purchase.
For centuries, the excessive focusing of theorists and practitioners on exchange
value created an important conceptual bias in firms’ marketing orientation (Vargo
and Lusch 2004). In the context of the service-dominant logic, it is now seen,
instead, that the value in use to the consumer determines the level of his or her satis-
faction (Grönroos 2000; Gummesson 2002; Normann 2001; Normann and Ramírez
1993). Compared to the exchange value, which was standardised and rigid, the value
in use is relative, depending on the specific needs, wants, perceptions, attitudes and
circumstances of every customer. Satisfaction can therefore be defined as the affective
response of the customer to the consumption experience of a product or a service,
being always personal and subjective (Giese and Cote 2000; Westbrook 1987).
Compared to previous marketing paradigms, the service-dominant logic modi-
fies the source of competitive advantage from operand to operant resources.
Constantin and Lusch (1994) define operand resources as physical, tangible assets
on which operant resources, such as skills, knowledge and know-how, are applied
in order to produce specific effects. If consumer satisfaction is personal and subjec-
tive, determined by a dynamic relationship rather than an impersonal transaction,
the creative use of operant resources is the key to developing and delivering
personalised experiences to customers.
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336 Chapter 10 / New perspectives in marketing and the way forward

This conclusion supports the service-dominant paradigm in marketing, showing

that the role of the firm is not confined to manufacturing and commercialisation
but extends also to facilitating consumption during the entire period of cus-
tomer–object or consumer–service interaction. On the other hand, this new
paradigm drastically redefines the role of the customer and his or her responsibili-
ties. Customers cannot be considered any more as passive elements in the
transaction process – the new orientation implies active customers, participating in
the design, development and choosing of elements that permit the fulfilment of
their needs and wants. The customers become partners in the value-creation
process (Deighton and Narayandas 2004).
In the classical marketing paradigm, a company researched the market, collect-
ing data about consumers’ needs and wants, which was then used as a basis for
developing, manufacturing and commercialising standardised products and serv-
ices, targeted towards specific groups of consumers (see Figure 10.5). The
dynamism of present day markets makes this model highly ineffective:
 the preferences expressed by consumers may change by the time a new product
is launched in the market
 modern consumers are not happy to spend time and provide personal informa-
tion for a plethora of hypothetical projects without seeing a direct and
immediate impact of their intervention on the value proposition.

In today’s conditions, companies have to find new solutions to create customer-

centric value. Only by fully accepting the new role of the modern consumer in the
market equation can the firm build mutual trust and shared knowledge, sustained
by the principles of partnership and reciprocity, and underwritten by a common
purpose and meaning.
The customers’ involvement in all the stages of the value chain (Mascarenhas et al.
2004) enhances the significance of the marketing offer because customers have been
through a process of co-creating value with the company (Prahalad and Ramaswamy

Market
segment

Research Data input Consumer Consumer Consumer

Marketing Final
department product/service

Knowledge

Product design Manufacturing Commercialisation

Figure 10.5 The circuit of value in the classical model of marketing

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Value co-creation 337

2004), and the experience of co-producing and co-owning the final product
(Lengnick-Hall 1996), determining the responsibility for purchasing and repurchas-
ing it, and supporting the firm with positive referrals (Schneider and Bowden 1999).
Involving customers in this complex value co-creation partnership requires a
restructuring of organisational processes, frameworks and procedures and a change
in strategic focus. The elements of the value added chain must become more flexi-
ble in order to accommodate the willingness and capacity of various customers to
participate in the value co-creation process (see Figure 10.6).

Marketing flexibility
The direct result of applying the theoretical and practical elements of a service-
dominant marketing paradigm is an increase in the flexibility of marketing
structures and processes. The opportunity to receive real-time information from
consumers who expect immediate value benefits can be used only if the organisa-
tional value chain allows flexible participation, interaction and implementation.

Flexibility regarding customers’ participation

Customers should be capable of deciding if, and in what measure, they want to par-
ticipate in the value co-creation process. When consumers’ needs are simple and
the value of the purchase is low, they may prefer to purchase a highly standardised
product that is of a reasonable level of quality. Other possible elements that can
determine the degree of customers’ involvement in the co-creation process is their

Customised Customised
product product

Customised
Consumer Consumer Consumer
product

Value Value Value

co-creation co-creation co-creation

Product design Manufacturing Commercialisation

Marketing system

Figure 10.6 The interactions between customers and the corporate marketing system
that lead to value co-creation
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338 Chapter 10 / New perspectives in marketing and the way forward

degree of technical competence, the subjective satisfaction they derive from their co-
creation process and the sacrifices/costs required for a meaningful participation.
The flexibility companies need to have regarding customers’ participation in the
co-creation process requires that they maintain a combination of classical and
modern marketing systems and use them according to each specific situation
where there is customer involvement:
 when consumers decide not to participate, a standardised version of a product
should be available on demand – in this situation, all marketing systems act by
default, using the data collected from market and consumer research to produce
a standardised consumer offer – that is, standardised marketing
 when consumers decide not to participate, but are willing to explore alternative
offers, the marketing system should use the inputs provided by other customers
with similar demographic profiles to make new value propositions – that is,
tribal marketing
 when consumers are active participants in one or more phases of the co-
creation process, their contributions should be integrated into the final value
proposition, resulting in customisation – that is, personalised marketing.

Flexibility of interaction
When customers decide to get involved in the value co-creation process, it must be
possibile for them to interact with the organisation at different levels and via vari-
ous systems. The main challenges of interaction flexibility are:
 adapting the interaction process to fit the specific levels of consumers’ competence
– consumers involved in the value co-creation process will present individual vari-
ations in terms of communication skills, level of technical competence and
cooperation patterns, so the interactive systems must incorporate a sufficient level
of flexibility to make it possible for them to adapt to specific consumer profiles
and approaches and usually, this is achieved by structuring them as a combination
of operand (technical elements) and operant (human elements) resources, the
human factors allowing a higher level of adaptability
 efficiently centralising the information provided by customers
 making this information readily available to any department that can customise
the marketing offer – considering all the possible communication formats and
channels that can be used today by consumers, this problem can be solved
mainly by using an integrated marketing communication/information system.

Flexibility of implementation
If customers’ contributions are received but not implemented, it is not possible to
speak of this being a real value co-creation system. The organisational value chain
should be capable of both absorbing and implementing customers’ requirements
and thus creating the basis of a personalised marketing offer.
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Value co-creation 339

A personalised marketing approach might not be profitable or desirable for every

organisation, however. Because of this, in reality, any organisation will need to
define the level of marketing flexibility that it can profitably sustain and, on this
basis, develop a series of implementation points at which consumers contributions
can be absorbed and used to customise the offer to add the value. The sooner con-
sumers’ contributions are implemented in the value added chain, the more
customised will be the marketing approach.
 Flexibility of product design This will determine a made-to-order marketing
approach. The project will be expensive, for both the firm and the customer, and
the firm’s internal resources will often limit the production output to a specific
number of projects per year. This is commonly the case with public construction
projects that are developed as a result of a close collaboration between architects,
construction firms and beneficiaries.
 Flexibility of production This will determine a modular marketing approach. In
such a situation, consumers are capable of selecting from and combining a
number of the pre-existing modular components of the final product. This is the
case with online car configurators, which are now available on the websites of
most car manufacturers, or of Dell, which allows customers to configure online
or by phone the computers they order.
 Flexibility of supporting service This will determine a customised service approach.
Here, the level and specificity of supporting services, is adapted to each cus-
tomer’s requirements. As, in the service marketing model, consumers are actively
participating in the creation and consumption of services, not only the type of
service but also the service scenario has to be flexible and customisable. This case
is exemplified by the post-purchase assistance provided to firms by suppliers of
electronic equipment, such as computers or telecommunication systems.

The level of marketing flexibility in the value co-creation process will be influenced
significantly by the predominance of operand and operant resources in the value
added chain. As operant resources are, by their nature, more flexible and adaptable
than operand ones they will allow a higher level of marketing flexibility. On the
other hand, consumers’ contributions often represent an operant resource that has
to be flexibly absorbed and integrated in the process of value creation.
The new theories of value advocate an extension of marketing analysis and
scope from a purely customercentric model to a multi-centred approach that takes
into account the interests of companies’ employees and stakeholders (Payne and
Holt 2001). From this perspective, the flexibility of the marketing structure and
processes during the participation, interaction and implementation stages should
be considered within an extended model of value co-creation that addresses the
creation and management of dynamic value constellations comprising employees,
customers and other categories of stakeholders. The flexibility of marketing sys-
tems has to be applied to all the processes of participation, interaction and
implementation in order to develop complex value constellation systems that are
capable of maximising the satisfaction and the benefits of all parties involved
(see Figure 10.7).
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340 Chapter 10 / New perspectives in marketing and the way forward

Participation

Customers Employees

RKETING
MA

Flexibility

SYSTEM Implementation
Interaction

Stakeholders

Figure 10.7 An integrated model of marketing system flexibility for effectively managing participation,
interaction and implementation processes with employees, consumers and stakeholders

Open innovation
Another direct application of the value co-creation model extends to the process of
research and development outside the boundaries of the organisation. This is espe-
cially important for companies from sectors experiencing an accelerated pace of
innovation and change.
The classical model of closed innovation was based on the need to closely con-
trol the innovation process and its outputs. Nowadays, this model has been
challenged by the evolution of the market structure (Chesbrough 2003). The focus
of market exchanges has shifted from transactions to relationships and the value
chain model advocated by Porter is often replaced by a value constellation, which
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Value co-creation 341

implies a process of value co-creation that includes all the various actors in the
commercial environment. In this context, often the model of open innovation
becomes a necessity for sustaining the competitiveness of the firm in the face of
rapid and unpredictable market evolutions.
All these transformations of the competitive environment have had a strong
impact on the innovation model, determining a gradual transition from a closed,
highly centralised innovation system (see Figure 10.8) to an openly managed inno-
vation framework with multiple sources of scientific competencies, technological
assets and resources (see Figure 10.9).
As customers and other stakeholders are the ones who benefit from the intro-
duction of new products, services and processes, it is logical to attract and use their
competencies and opinions in order to improve and accelerate the research and
development process. In these circumstances, companies must now manage the
process of innovation outsourcing actively and effectively.
The managerial approach to the open innovation system has been analysed and
described from the point of view of a large corporation by Fetterhoff and Voelkel
(2006), directors of technology management at Roche Diagnostics. The model pre-
sented has the objective of maximising the value and efficiency of the open
innovation system by concentrating on five key operational stages:

Science and
technology
base
Research and development Final product Market

Internal
resources

Figure 10.8 The centrally controlled innovation model

Source: Adapted from Chesbrough 2003, Figure i-2

New
Spin-offs market
Internal
Science and
External technology

Research and development Final product Market

Internal
Resources
External

Outsourced technology
and resources

Figure 10.9 The open innovation model

Source: Adapted from Chesbrough 2003, Figure i-4
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342 Chapter 10 / New perspectives in marketing and the way forward

1 seeking opportunities
2 evaluating the market potential and inventiveness of a given opportunity
3 recruiting potential partners by building a convincing argument
4 capturing value by means of commercialisation
5 extending the innovation offering.

The two authors also discuss a ‘six C’ framework, which is used to assess the poten-
tial of external technology:

1 customer utility
2 competition or uniqueness of the opportunity
3 commerce or the market size
4 capital or the cost of the opportunity
5 copyright or intellectual property
6 company fit or strategy.

The process of evaluating opportunities for open innovation is considered within

the context of the company strategy, taking into account market needs and compe-
tition – aspects that accompany any well-developed strategic analysis. By using this
multifaceted process, firms are capable of accelerating significantly their research
and development activity, reducing the risks and costs of innovation.
The open innovation activity is changing the way in which companies create and
develop new products because the shared use of resources for innovation often
implies a shared exploitation of profits by all the parties involved. This requirement
changes the very rules of innovation protection and exploitation and requires cre-
ativity to find new forms of partnerships for sharing and using pooled knowledge.
The following case study presents an interesting application of the open source
innovation system to biotech discoveries.

CASE STUDY

Open-source biotech
Borrowing the software model to spur innovation in life sciences finds common ground
with IT

Australian Richard A. Jefferson, an American-born Mr Jefferson, the man credited with inventing one
molecular biologist, is out to increase innovation in of the main tools used in plant genetic engineering,
the life sciences by applying software’s open source started his campaign in 1987 by doing what the big
model to biotechnology. His goal is to change the companies that dominate agricultural biotech rarely
global patent system and how people use do: he shared his discovery of beta-glucuronidase
intellectual property, and break the grip that the big gene (GUS), an indicator that tells where a gene is,
multinationals hold on the tools of innovation. how much it expresses and when it acts.
Supporters and critics alike believe he has a GUS is widely credited for enabling many
decent shot at succeeding. But just how far and fast breakthroughs in plant biotech, including the
he can push the open source biotech movement is development of one of Monsanto’s first and most
still an open question. profitable agricultural products, Roundup Ready
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Value co-creation 343

Case study continued

soybeans. Mr Jefferson first provided GUS and all is shared,’ says Mr Jefferson. ‘That is what will make
the know-how to use it for free to hundreds of labs the difference.’
around the world. When he secured his patents, he Sir John Sulston, who won the Nobel Prize in
charged only what people could afford: Monsanto, Physiology or Medicine in 2002 for his work on
he says, paid a substantial amount; academics and human genome sequencing, says he supports
companies in the developing world, including Cambia’s approach to a science commons because
those who wanted to use his work for commercial he shares Mr Jefferson’s views that advances are
purposes, received it free of charge. One small being stunted by the current patent system.
company in California got to use his invention in Universities, for example, are increasingly looking
exchange for enough cash for Mr Jefferson to buy to make money by patenting technologies that
an old Martin guitar. might otherwise have been placed in the public
domain for society’s free use, says Sir John. That
Plan of attack skews their own research and prevents others from
Mr Jefferson invested the money earned from GUS in building on their work.
Cambia, a non-profit institute in Canberra, Australia.
The Australian capital became his base for shaking Gain ground
up the biotech sector and making waves in Many scientists see the need for open source
innovation and patent policy. The lesson Mr biotech, ‘so hopefully the idea will catch on,’ says
Jefferson learned from GUS is that freeing the basic long-time Cambia supporter Richard Jorgensen,
tools of biotech – the keys to inventions affecting Editor-in-Chief of scientific journal The Plant Cell
human and plant – is crucial to spurring innovation. and the discoverer of a breakthrough technology
Had Monsanto or DuPont invented GUS, Mr now known as RNAi.
Jefferson reckons it would have been a different story. However, some believe that if the open source
‘When big companies invent, discover or acquire biotech movement is to gain credibility and mass
these technologies they rarely use patents to generate appeal, a Monsanto or a pharma company like
and share the next generation of technology.’ Merck will have to take a giant leap, as IBM did
‘If multinationals are allowed to hold patents on when it embraced open source software, deciding to
basic tools and gene sequences that are the very make money on higher-level applications rather
operating systems of life, promising new sectors than from basic tools. But it is not clear that drug
will be left undeveloped and society will lose out’, companies and agriculture product makers are
says Mr Jefferson. He is convinced that the open ready to play.
source movement in software should be applied to ‘The problem is dislodging the incumbents who
agriculture and to drug discovery. are rich and powerful’, says Columbia University
In agricultural biotech, for example, fewer than a Law School Professor Eben Moglen, General
half dozen big companies in the United States and Counsel of the Free Software Foundation and
Europe own more than 70 per cent of the patent Director of a non-profit group called the Public
rights, including basic tools. ‘The fragmentation of Patent Foundation, which mounts court challenges
the remaining patent rights then invites patent against questionable patents in pharmaceuticals
trolls and overvaluing, further stalling an already and other sectors.
moribund industry’, says Mr Jefferson. Hugh Grant, the CEO of agricultural biotech
As much as 20 per cent of the human genome is giant Monsanto, declined to be interviewed. In an
controlled by patents, of which about two-thirds e-mailed statement to Red Herring, Monsanto
are owned by private firms. spokeswoman Lori Fisher says, ‘We think the
Taking a collaborative open source approach concept [of open source biotech] is interesting from
could speed efforts to reduce hunger and disease. ‘It an intellectual point of view and reflects the
is not about paternalistically saving the third world, growing consensus that biotechnology has much to
it is about changing the practical and normative offer developing country agriculture.’ But, she adds,
realties of how innovation is done, is coalesced, and ‘Our experience is that intellectual property issues

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Case study continued

are not the major obstacles to transferring That is important because, for example, a
technology, but rather . . . things like lack of science- number of patent constraints are preventing the
based regulatory policy and practices, lack of results of research that the Rockefeller Foundation
capacity, infrastructure and funding to convert good is funding from being developed and disseminated
ideas into finished products farmers can plant.’ to small-scale farmers, says Gary Toenniessen,
Director of Food Security at the New York City-
Treading lightly based non-profit organisation. The Rockefeller
DuPont is taking a wait-and-see approach, says Foundation is the largest financial supporter of Mr
Ganesh Kishore, DuPont’s Vice-president of Science Jefferson’s Cambia initiative.
and Technology and Chief Biotechnology Officer. In many cases big companies, through patents,
‘I think this kind of open source approach could gain control of the basic tools of doing plant
well transform the landscape and advance the rate biotech, says Mr Toenniessen, although the tools
of progress of innovation, but due to under- were developed at universities or public-sector
standable reluctance from established players, I institutions.
don’t know if it will be in as explosive and While scientists are still allowed to use those
transforming of a manner as I think Richard would tools for research to, say, make an improved strain
hope,’ says L. Val Giddings, until recently Vice- of rice, they cannot transfer their invention to
president for Food and Agriculture of the public-sector institutions in countries like Vietnam
Washington DC-based Biotechnology Industry or Bangladesh without first obtaining a licence
Organisation (BIO), which represents agricultural from the patent holder. Often the multinationals
biotech giants Dow, Bayer, DuPont, Monsanto and have no interest in granting the licence because
Syngenta, as well as the major pharma companies. liabilities are high in small-margin innovations and
Cambia has already launched a technology profits are small or non-existent.
development and sharing initiative called One of the more prominent examples is golden
Biological Innovation for Open Society (BIOS). The rice, a variety of rice that was engineered to provide
programme is a protected commons in which dietary vitamin A to populations in need. Lack of
scientists can collaborate and contribute via the vitamin A causes roughly 500,000 cases of
Internet. Mr Jefferson says BIOS is not trying to do blindness and contributes to more than 2 million
away with intellectual property, just proposing a deaths annually. But in translating the research into
way to share the tools and ‘operating systems’ of deliverable plants, the developers encountered
innovation. This will allow innovation at the more than 70 patents in several countries and 6
application layer, he argues, but with fair and material transfer agreements that delayed the work
open competition. substantially, Yale professor Yochai Benkler, a
Mr Jefferson and his staff of 35 at Cambia kick- proponent of ‘open innovation,’ explains in his
started BIOS by making all of their technologies latest book, The Wealth of Networks: How Social
freely available under the terms of the group’s Production Transforms Markets and Freedom, due out
Biological Open Source licence. These include a this month.
version of GUS called GUSPLUS and Transbacter, While this problem was solved by licensing and
which bypasses the established and heavily concessions from the private-sector players because
patented transformation process for transferring of golden rice’s prominence as a public relations
genes into plants. poster child, it did not provide solutions to the
As it grows, the online BIOS tool kit should industrywide problem, says Mr Jefferson.
allow ag-bio startups to make genetic Cambia is tackling the issue by giving free access
improvements to neglected crops or solve low- to its discoveries, but there’s a catch: anyone using
margin problems without signing early stage the technology has to contribute the improvements
licensing or partnering agreements with to the core tool kit – a model similar to the general
multinationals currently controlling the genes public licence (GPL) used in open source software.
and the means to transfer plants. Mr Jefferson, in fact, thinks the better analogy is
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Case study continued

licensing for open source Apache servers, which your mother with advanced breast cancer and she’s
accommodate downstream private use, a necessary too poor to pay the $50,000 for a course of Avastin
step for securing investment for the lengthy and or Herceptin that Genentech says it deserves, so
expensive development process. you watch her die painfully,’ he says. ‘Now tell me
it is not time for some new approaches.’
Software v. biotech
Brian Behlendorf, founder and Chief Technology Opening up the data
Officer of Collabnet, a for profit open source Creative Commons, which, with the help of
company in Brisbane, California, and the driving Stanford University law professor Lawrence Lessig,
force behind the Apache web server and the has developed an alternative copyright system to
foundation that guides it, says that despite make literature, music, film and scholarship freely
important differences he is convinced that the open available online, supports the idea of applying new
source model can work in life sciences. ‘It just approaches to scientific processes. Last year saw the
might be harder and take a bit longer,’ he says. creation of Science Commons, which is trying to
Collabnet, Mr Behlendorf’s company, hosted one expand Creative Commons’ work in the sciences by
of Cambia’s services for six months as part of an developing alternative mechanisms to allow
experiment exploring parallels between the open universities and industry to share data and
source approaches to life sciences and software. Life intellectual property in a more open manner. Its
sciences are different because patents are more of first adherent, Uniprot.org, which claims to have
an obstacle, innovation cycles take longer (a new the world’s most comprehensive catalogue of
plant variety or new drug will often not be ready information on proteins, is now using Creative
until ten years after its inception) and the costs of Commons’ licensing.
innovations are higher. And, not surprisingly, IBM, which has embraced
And critics say the approach won’t work in life open source software and incorporated it into its
sciences because of the expense and specialised business model, is supporting the idea of porting
equipment needed. Mr Jefferson argues that there is the model to basic tools in life sciences.
excessive capacity in the public sector that, when ‘Discoveries yet to come will be extraordinary but
aggregated and focused, can be mobilised for they won’t happen if people lock up intellectual
collaborative delivery of outcomes that will help property,’ says Carol Kovac, IBM’s General Manager
combat malnutrition and major diseases. for Health Care and Life Sciences.
Mr Jefferson, Cambia’s Deputy Director Marie Just as Richard Stallman, founder of the free
Connett and scientists at major cancer research software movement, campaigns against software
centres are now discussing collaboration on an patents and extensions of copyright law, Mr
open source approach to cancer diagnosis and Jefferson is making it his life’s mission to break the
therapeutics. Cambia will start things off with its grip that big companies have on advances in
patents on telomerase, an enzyme that restores agricultural biotech and biomedicine.
DNA at the ends of chromosomes called telomeres. Besides opening access to diagnostic tools, Mr
Without telomeres, cells cannot divide and they Jefferson is out to reform the global patent system
die. Unlike regular cells, cancer cells keep making so that innovation can flourish and myriad small-
telomerase so that they are kept intact. The and medium-sized companies can also make money
hypothesis is that blocking telomeres with drugs from their inventions. Mr Jefferson claims to be a
should destroy cancer cells. descendent of Thomas Jefferson, who reluctantly
It’s a good example of marshalling efforts to solve created the US patent system as a means of
a problem. More people die from cancer than ensuring advances for the public good.
infectious disease in both the developing and Cambia has created Patent Lens, the world’s
developed world, yet 4 million die every year largest free full-text database of patents. It will soon
because they can’t afford medications offered by big allow third-party observations when patents are
pharma, according to Mr Jefferson. ‘Imagine it is filed anywhere in the world, giving industry and

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citizens alike the opportunity to alert patent offices it included a natural process of the human body,
to prior art and warn them when patents are too possibly preventing other inventors from developing
broad or just absurd. The database, originally new and better tests. Another US Supreme Court case
limited to life sciences, has just been extended to argued in March involved claims that eBay’s ‘Buy It
patents in all sectors. In time, its reach will include Now’ features infringe on two patents held by a
Asia as well as the US and Europe. company called MercExchange.
While IT companies complain that they can be
Teamwork held to ransom by owners of questionable patents,
Mr Jefferson says Cambia is in discussions with US Mr Jefferson and others argue that many lines of
and European Union patent offices and the World research and development are blocked by misuse of
Intellectual Property Organisation on ways to work intellectual property before work even begins.
together. He is also talking with the Open Source Some, like Mr Moglen, General Counsel of the
Development Lab about improving his organisation’s Free Software Foundation, are less optimistic than
database by leveraging that group’s expertise in Mr Jefferson about the odds that the US patent
software with Cambia’s expertise in patents. offices or others will formally incorporate third-
All open-source initiatives – in any sector – depend party observations.
on total transparency and understanding of patents, It doesn’t matter, says Mr Jefferson. Cambia’s
he argues. ‘We can wish they’d just go away as some
Patent Lens doesn’t need the immediate buy-in of
in the Free and Open Source Software community
the world’s patent offices. The data sets are in hand
do, but one patent right withheld can destroy an
or can be bought. Once patents are harmonised,
entire initiative and the confidence of innovators
annotated, properly commented and linked to prior
and investors,’ Mr Jefferson says. ‘Patent
art, pressure will be brought to bear from the public
transparency is the lifeblood of the new open source
to only grant valid ones, helping all patent offices to
and patent reform is a logical consequence of total
make better and more transparent decisions, he says.
public transparency and engagement.’
His distant uncle, Thomas Jefferson, would
Cambia’s moves come at a time when pressure is
growing to change the patent system. Research in approve, says Mr Jefferson. The historical Mr
Motion’s recent court battle over its popular Jefferson established patents solely to further the
BlackBerry wireless e-mail service is just one example. public good. For the modern-day Mr Jefferson,
A case argued before the US Supreme Court last ensuring that principle is kept is a matter of
month questioned whether the patent for a blood test unfinished family business.
for a vitamin deficiency was so broadly construed that Source: ‘Open-source biotech’, Red Herring, 17 April 2006

The case study illustrates the ways in which the co-creation model works. Added
to the complexity of the ways in which consumers’ interactions are changing is the
way in which market dynamics are changing as a result of innovation, research and
development.

The dynamic environment

The marketplace has never been as dynamic and muddled as it is in the twenty-first
century. This dynamism is a result of great changes:
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The dynamic environment 347

 in the structure of markets markets are becoming global and, as a result of deregu-
lation and technological changes, there is a blurring of sectors and the
boundaries defining them
 in the mobility of many individuals in the world and the great increase in global travel
with global travel come global offerings and familiarity and, at the same time,
markets are also beginning to fragment into different mosaics and niches
 in the growth of IT and its impact on marketing the Internet heralded great changes
in the globalisation of information exchange in the 1990s, which is embedding
itself into company systems and procedures, and, hot on the heels of the
Internet, is the growth of wireless communications, leading to faster customer
communications on both a local and global scale
 in the changing nature of marketing segments market segments are not static as
before as there have been fundamental shifts in family structures, ethnic mixes
and segments that straddle global boundaries
 in the growth of strategic alliances and networks between companies many companies
now work on a collaborative basis, sharing R&D and new product development,
and this collaboration leads to a greater emphasis on branding.

Structure of markets
In the twenty-first century, firms collaborate, compete or even act as customers.
Every firm enacts these multiple roles. The term cooptition is now often used in
marketing. This is illustrated by the rise in the number of alliances globally. The
new economy is moving towards networks, partnerships and joint ventures.
According to one study (Fountain and Atkinson 1998), social capital (networks,
shared norms and trust), as fostered in collaboration and alliances, may be as
important as physical capital (plant, equipment and technology) and human capi-
tal (intellect, character, education and training) in driving innovation and growth.
These relationships can not only create value but also drive innovation.
As competition intensifies and the markets become more complex, firms are
beginning to embrace partnerships with suppliers, customers, universities, govern-
ment sources, research laboratories and other competitors in order to access new
technologies and innovate. The USA has led the way in this with a rapid growth in
networks of organisations that are the result of the creation of partnerships or con-
sortiums. This has determined significant revolutions within the economy, in the
USA resulting from the creation and application of technological innovations. While
Europe and the USA had approximately the same numbers of industry technology
alliances in 1985 (Fountain and Atkinson 1998), alliances in the USA have since
boomed, especially in the 1990s, as can be seen in Figure 10.10. Without the impact
of the USA-led initiatives, the level of alliances generally appears to be quite low.
As discussed, consumer segmentation patterns are changing and consumers’
choices are increasing. An important indicator of consumer choice is the number
of trademarks that are patented. In the USA especially, patent applications soared
to their highest ever levels. In general, the public in the USA is informed of an
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348 Chapter 10 / New perspectives in marketing and the way forward

400

300
All alliances
Alliances
200
With USA firms

100
Without USA firms

0
1980 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Note: Includes business alliances with joint R&D or technology development agreements, contracts or equity joint ventures

Figure 10.10 Industry technology alliances in the USA, 1980–2003

Source: Courtesy National Science Board, Science and Engineering Indicators 2006, Volume 1

estimated 50,000 new products annually (McKenna 1997). Table 10.1 illustrates
patent applications in the USA by country and the size of growth over 13 years.
There are also discernible trends in the global marketplace, with high-tech manu-
facturing industries becoming the key contributors to economic growth in the USA
and around the world. In essence, according to the National Science Board (2006):

Table 10.1 US patents (in thousands) granted to foreign inventors by country/economy of

origin, 1990–2003

Year Japan Germany France Taiwan United South Korea

Kingdom
1990 19.53 7.61 2.87 0.73 2.79 0.23
1991 21.03 7.68 3.03 0.91 2.80 0.41
1992 21.93 7.31 3.03 1.00 2.43 0.54
1993 22.29 6.89 2.91 1.19 2.30 0.78
1994 22.38 6.73 2.78 1.44 2.23 0.94
1995 21.76 6.60 2.82 1.62 2.48 1.16
1996 23.05 6.82 2.79 1.90 2.45 1.49
1997 23.18 7.01 2.96 2.06 2.68 1.89
1998 30.84 9.10 3.67 3.10 3.46 3.26
1999 31.10 9.34 3.82 3.69 3.57 3.56
2000 31.30 10.24 3.82 4.67 3.67 3.31
2001 33.22 11.26 4.04 5.37 3.97 3.54
2002 34.86 11.28 4.04 5.43 3.84 3.79
2003 35.52 11.44 3.87 5.30 3.63 3.94

Note: Selected countries/economies are top six recipients of US patents during 2003. Country of origin is determined
by residence of first-named inventor.
Source: US Patent and Trademark Office, Office of Electronic Information Products, Patent Technology Monitoring
Division, special tabulations, 2004, National Science Board 2006
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The dynamic environment 349

 the global market for high-tech goods is growing faster than that for other man-
ufactured goods
 over the past 24 years (1980–2003), world output by high-tech manufacturing
industries grew at an inflation-adjusted average annual rate of 6.4 per cent,
while output by other manufacturing industries grew at just 2.4 per cent
 the EU had the world’s largest high-tech manufacturing sector between 1980
and 1995
 beginning in 1996 and for each year thereafter, the USA’s high-tech manufactur-
ers generated more domestic production (value added) than the EU or any other
single country, while estimates for 2003 show the USA’s high-tech industry
accounting for more than 40 per cent of the global value added, the EU for
about 18 per cent, and Japan for about 12 per cent.

This growth is fuelled by the new products that not only industry but also con-
sumers are utilising in their daily life. For instance, iPods are now common and
there are millions of mobile telephones in the world. Laptops and computers are
continuously evolving and being upgraded. Added to this, there are new advances
in medicine as a result of biotech breakthroughs. In time, the new technologies
will also embrace areas such as cleaning up pollution, more biotech products and
hydrogen-powered vehicles.

Speed
Intense competition means that technology-based products and services face
shorter product cycles, as new and better products come on stream regularly. The
accelerated speed of information transmission, as well as global competition, have
led to compressed product development cycles. According to one study, new prod-
ucts in the USA now take 23 months to produce, on average, compared to 35.5
months in 1990. This is the much-heralded productivity revolution, shortening
product development cycles. IT is a great driver of increasing efficiency, customisa-
tion of products and services and speeding business procedures. At the same time,
there is a blurring of industry sectors and services. Examples of this are shown in
Table 10.2.

Table 10.2 The blurring of industry boundaries

Old sectors New sectors

Publishing (print) Print/media/Internet/digital/information/TV
Telephony (land lines) Wireless applications/Internet/digital downloads/data transmission
Education (fixed locations) Globalisation/Web-based/interactive
Brewing Leisure/entertainment/inns/food
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350 Chapter 10 / New perspectives in marketing and the way forward

The future impact of technology

As the price of data transmission drops to very low levels, it is likely that most
products will soon contain data transmission devices. Fridges will be able to trans-
mit faults directly to the company that manufactured them or has a service
agreement for them, so that repairs can be made with the minimum of inconven-
ience to the consumer. Figure 10.11, illustrates how the price of data transmission
is dropping dramatically as the price of transmission devices falls to a fraction of a
cent (Figure 10.12). For instance, what it cost to transmit 1 bit of data over 1 kilo-
metre of fibre-optic cable declined by three orders of magnitude between the mid
1970s and the beginning of the 1990s, allowing more data to be transmitted over
longer distances for less. This trend facilitates instantaneous global communica-

5,000
(Cost to transmit one bit one km)

4,000
Unit costs in $m

3,000

2,000

1,000

0
1975 1980 1985 1990 1995 2000

Figure 10.11 Data transmission cost curve

Source: Fountain and Atkinson 1998

$1,000 Trend
$900 Actual Intel chips
Dollars per million instructions

$800
per second (MIPs)

$700
$600
$500
$400
$300
$200
$100
$0
1975 1988 1985 1990 1995 2000*
*Projections

Figure 10.12 Microprocessor price curve

Source: Fountain and Atkinson 1998
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Digital marketing 351

tion. Strangely, it also means that companies can track consumers and understand
how and why they purchase certain goods. Companies such as Gillette have begun
experimenting by creating ‘smart shelves’ in supermarkets and ‘smart tags’ on
razors. The purpose of this is to speed up supply chains and prevent theft.
The other benefits centre on customers, offering them better warranties,
returned goods services and enhanced customer relationships. In the end, the suc-
cess of such developments (which would have been inconceivable even a short
time ago) will depend on consumers’ acceptance of an intrusion into their privacy
(The Economist 2003). In anticipation of this, Gillette will offer the option to ‘kill’
the tags at the checkout counter. Current costs of smart tags for goods are esti-
mated to cost between 20 and 10 cents. If larger volumes are produced, then the
cost could drop to around 5 cents. This is a small additional cost on most items,
ranging from luxury handbags to razor blades.
The rapidity with which mobile communications have been embraced by popu-
lations all over the world indicate that humans wish to communicate
continuously. This also creates many new opportunities for marketers. As con-
sumers are able to access information from anywhere at any time, the ubiquitous
consumer is beginning to emerge. Where technology was once the preserve of
sophisticated consumers and businesspeople, it is now firmly in the general public
domain. This change has major repercussions for marketers, as speed of communi-
cations and agility in providing goods and services at different locations becomes
important. Thus, the next section is devoted to Digital Marketing and the new
technological developments in this area,

Digital marketing
Introduction
Marketing is entering a new age in terms of the different avenues that are open to
organisations in the way that they promote and deliver products and services to
the marketplace. In the last five years, many new methods of communication have
been developed, aided and abetted by new innovative software and changes in
Internet-based technology. Customers have been very quick to embrace the new
possibilities that are available to them, often creating and developing areas in
cyberspace that they inhabit and in which or they communicate with or to a net-
worked audience around the world. Many individuals have access to a range of
devices, such as mobiles, laptops, standalone PCs, networked computers and PDAs,
not to mention GPS systems. This means that they can be contacted, and possibly
even tracked as to where they are located, where they may be socialising, working,
playing sport and so on.
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352 Chapter 10 / New perspectives in marketing and the way forward

What is happening to the individual?

According to a report by Ofcom (2006), more and more individuals are spending
time texting and using the Internet to the detriment of mainline television chan-
nels. The effect of broadband, where individuals are hooked up to the Internet for
24 hours, has been the creation of virtual communities and social networking via
sites such as Myspace, Friends Reunited, Bebo and Second Life. These sites are used
to establish and renew social contacts and communication with online communi-
ties. In fact, lately, more people were clicking on MySpace than on Google.
Individuals are creating blogs for networking and communicating. A blog is typi-
cally a website where users can post entries in chronological order and these are
viewable either by the public or within private forums. It appears, according to
Technorati, a blog service, that there are over 175,000 new blogs everyday
(www.technorati.com). The sites on MySpace, for instance, can be used for fileshar-
ing, MP3 downloads, movie downloads and video clips. According to an article in
the New Scientist (Gefter 2006),
If the Web was once an enormous library, it is now a vast conversation. Transmitting infor-
mation from one person to another has never been easier. Everyone can participate. Young
people now communicate more through social networking websites than through e-mail.
Instead of keeping diaries, they keep blogs; instead of photo albums, they have Flickr. While
older adults go online to find information, the younger crowd go online to live. The bound-
aries beween offline and online are blurring, and there is a widening generation gap between
adolescents growing up with social technology and adults who find it foreign and unsettling.
Welcome to the MySpace generation.

Ofcom’s (2006) report supports this statement as its research has indicated (see
Figure 10.13) that:
 70 per cent of Internet users between 16 and 24 have used social networking
websites (compared to 41 per cent of the general population), with over half
doing so on a weekly basis
 37 per cent of 18 to 24-year-olds have posted material online compared to 14 per
cent across all age groups
 1 in 5 has his or her own website or blog.

Individuals in this same group also use mobile phones as their primary telecommu-
nications platform, with 85 per cent saying that they would use a mobile text or
call as the preferred method of arranging to meet a friend, compared to 48 per cent
across all age groups. What is interesting is the remarkable speed with which the
social networking sites have grown, having first been created just three years ago.
However, before these sites came about, it is important to remember that there
were sites such as Tripod and Geocities that had chat rooms and discussion groups.
What is particularly interesting is that blogs and sites such as MySpace have
become part of daily life for many individuals.
This amazing growth has many implications for marketing. For instance, Bebo,
launched in July 2005, now has 25 million members and is the number one social
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Digital marketing 353

65%
General surfing
76%
84%
E-mail
86%
Percentages of Internet users 15+
7%
Real-time gambling/trading
15%
38%
Banking
55%
53%
Making purchases
60%
18%
SMS messaging
34% Narrowband
18%
Gaming Broadband
35%
21%
Downloading video clips/movies etc.
44%
32%
Downloading information for work
44%
27%
Downloading information for school/college studies
44%
59%
Downloading information for personal reasons (travel/weather etc.)
62%

Figure 10.13 Online applications used by broadband and dial-up users

Source: Ofcom 2006, Ofcom research, Q1 2006

networking site in the UK. It is clear that the Internet is becoming more important
for socialising, not used just for information gathering (see Figure 10.14).
In addition to this, there is serious growth in the numbers of individuals that are
willing to embrace alter egos and create new identities, or avatars, within virtual
worlds. One of the fastest-growing virtual worlds (as discussed in Chapter 1) is
Second Life and the following case study explores what it is like and some of its
implications.

Have you ever contributed to a website or blog, for example by writing a comment or posting a photo or video?

Percentages of adult Internet users

40% 37% Have contributed – total

33% Written comments
29% Added photos or images
30% Other content

20% 18% 19% 17%

14%
12% 11% 10%
10% 9% 8% 7% 9% 8%
5% 4% 5% 4% 4%
2% 3% 2%
1%
0%
Total 18–24 25–34 35–44 45–54 55+

Figure 10.14 Percentages of adult Internet users contributing to websites and/or blogs, by age group
Source: Ofcom 2006, Ofcom ad hoc survey, fieldwork conducted by ICM, June 2006
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354 Chapter 10 / New perspectives in marketing and the way forward

CASE STUDY

My virtual life
A journey into a place in cyberspace where thousands of people have imaginary lives,
some even make a good living; big advertisers are taking notice

As I step on to the polished wood floor of the opened a 10-person studio and office in Wuhan,
peaceful Chinese country house, a fountain gurgles China. Says Chung’s owner, who prefers to keep her
softly and a light breeze stirs the scarlet curtain in a real name private to deter real-life intrusions: ‘This
doorway. Clad in a stylish blue-and-purple dress, virtual role-playing economy is so strong that it
Anshe Chung waves me to a low seat at a table set now has to import skill and services from the real-
with bowls of white rice and cups of green tea. I’m world economy.’
here to ask her about her booming land Oh yes, this is seriously weird. Even Chung
development business, which she has built from sometimes thinks she tumbled down the rabbit
nothing two years ago to an operation of 17 people hole. But by the time I visited her simulated abode
around the world today. As we chat, her story in late February, I already knew that something a
sounds like a classic tale of entrepreneurship. lot stranger than fiction was unfolding, some
Except I’ve left out one small detail: Chung’s land, unholy offspring of the movie The Matrix, the social
her beautifully appointed home, the steam rising networking site MySpace, and the online
from the teacups – they don’t exist. Or rather, they marketplace eBAY. And it was growing like crazy,
exist only as pixels dancing on the computer screens from 20,000 people a year ago to 170,000 today. I
of people who inhabit the online virtual world called knew I had to dive in myself to understand what
Second Life. Anshe Chung is an avatar, or onscreen was going on here.
graphic character, created by a Chinese-born As it turns out, Second Life is one of the many so-
language teacher living near Frankfurt, Germany. called massively multiplayer online games that are
And the sitting room in which Chung and my avatar booming in popularity these days. Because
exchange text messages is just one scene in a vast thousands of people can play at once, they’re
online diorama operated by Second Life’s creator, fundamentally different from traditional computer
Linden Lab of San Francisco. Participants launch games in which one or two people play on one PC.
Second Life’s software on their personal computers, In these games, typified by the current No. 1 seller,
log in, and then use their mice and keyboards to World of Warcraft, from Vivendi Universal’s
roam endless landscapes and cityscapes, chat with Blizzard Entertainment unit, players are actors such
friends, create virtual homes on plots of imaginary as warriors, miners, or hunters in an endless
land, and conduct real business. medieval-style quest for virtual gold and power.
All told, at least 10 million people pay $15 and
Real bucks take up to a month to play these games, and maybe
The avatar named Anshe Chung may be a 20 million more log in once in a while. Some players
computerised chimera, but the company she call World of Warcraft ‘the new golf’, as young
represents is far from imaginary. Second Life colleagues and business partners gather online to
participants pay ‘Linden dollars,’ the game’s slay orcs instead of gathering on the green to hack
currency, to rent or buy virtual homesteads from away at little white balls. Says eBay Inc. founder and
Chung so they have a place to build and show off Chairman Pierre M. Omidyar, whose investing
their creations. But players can convert that play group, Omidyar Network, is a Linden Lab backer:
money into US dollars, at about 300 to the real ‘This generation that grew up on video games is
dollar, by using their credit card at online currency blurring the lines between games and real life.’
exchanges. Chung’s firm now has virtual land and Second Life hurls all this to the extreme end of the
currency holdings worth about $250,000 in real US playing field. In fact, it’s a stretch to call it a game
greenbacks. To handle rampant growth, she just because the residents, as players prefer to be called,
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Digital marketing 355

Case study continued

create everything. Unlike in other virtual worlds, transform the way they operate by providing a new
Second Life’s technology lets people create objects template for getting work done, from training and
like clothes or storefronts from scratch, Lego-style, collaboration to product design and marketing. The
rather than simply pluck avatar outfits or ready- British branding firm Rivers Run Red is working
made buildings from a menu. That means residents with real-world fashion firms and media companies
can build anything they can imagine, from notary inside Second Life, where they’re creating designs
services to candles that burn down to pools of wax. that can be viewed in all their 3D glory by
colleagues anywhere in the world. A consortium of
Property rights corporate training folks from Wal-Mart Stores,
You might wonder, as I did at first, what’s the American Express, Intel and more than 200 other
point? Well, for one, it’s no less real a form of companies, organised by learning and technology
entertainment or personal fulfilment than, say, think tank The MASIE Center in Saratoga Springs,
playing a video game, collecting matchbook covers, NY, is experimenting inside Second Life with ways
or building a life list of birds you’ve seen. The for companies to foster more collaborative learning
growing appeal also reflects a new model for media methods. Says Intel Corp. learning consultant Brent
entertainment that the Web first kicked off: don’t T. Schlenker: ‘We’re trying to get in on the front
just watch – do something. ‘They all feel like end of this new workforce that will be coming.’
they’re creating a new world, which they are’, says The more I kept hearing about all this, the more I
Linden Lab Chief Executive Philip Rosedale. knew this was wa-a-a-ay more than fun and games.
Besides, in one important way, this virtual stuff So early this year I signed up at www.secondlife.com,
isn’t imaginary at all. In November, 2003, Linden downloaded the software, logged on, and created
Lab made a policy change unprecedented in online my persona. As reporter ‘Rob Cranes’, I embarked
games: it allowed Second Life residents to retain full on my journey.
ownership of their virtual creations. The inception And promptly got lost in the vast, uncharted
of property rights in the virtual world made for a terrain.
thriving market economy. Programmer Nathan Keir Click: I land at the Angry Ant, a nightclub
in Australia, for example, created a game played by holding a ‘Naked Hour’ where avatars are in various
avatars inside Second Life that’s so popular he stages of undress, dancing lasciviously. Is it getting
licensed it to a publisher, who’ll soon release it on warm in here?
video game players and cell phones. All that has Click: I stumble upon someone teaching a class
caught real-world investors’ attention, too. On on how to buy and sell virtual land to a motley
March 28, Linden Lab raised a second, $11 million crew of avatars sitting attentively on chairs
round of private financing, including new investor watching PowerPoint slides. Do we get a toaster
Jeff Bezos, CEO of Amazon.com Inc. when we’re done?
Virtual worlds may end up playing an even more Click: Suddenly, I’m underwater at Cave Rua,
sweeping role – as far more intuitive portals into watching a school of fish swim by. Cool, but what
the vast resources of the entire Internet than do I do here?
today’s World Wide Web. Some tech thinkers Click: Here’s a virtual doctor’s office, where a
suggest Second Life could even challenge Microsoft researcher runs a simulation of what it’s like to be a
Corp.’s Windows operating system as a way to more hallucinatory schizophrenic. A menacing British
easily create entertainment and business software voice from a TV urges: ‘Shoot yourself. Shoot them
and services. ‘This is why I think Microsoft needs to all. Get the gun out of the holster and shoot yourself,
pay deep attention to it’, Robert Scoble, Microsoft’s you !@#&!’ Yikes, where’s that teleport button?
best-known blogger, recently wrote. My disorientation points up one of the big
challenges of these virtual worlds, especially one so
Weak spot open-ended as Second Life: with nothing to shoot
A lot of other real-world businesses are paying and no quest to fulfil, it’s hard for newbies to know
attention. That’s because virtual worlds could what to do. Virtual worlds require personal

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356 Chapter 10 / New perspectives in marketing and the way forward

Case study continued

computers with fairly advanced graphics and dream come true, really’, he says. ‘I still find it so
broadband connections and users with some skill at hard to believe.’
software. ‘The tools are the weak spot,’ says Will His story makes me want to venture further into
Wright, legendary creator of The Sims video game, this economy. Besides, my photo editor is nagging
who nonetheless admires Second Life. For now, he me to get a shot of my avatar, which needs an
says, ‘That limits its appeal to a fairly hardcore group’. extreme makeover. Time to go shopping! First I pick
Still, there’s no denying the explosion of media, out a Hawaiian shirt from a shop, clicking on the
products, and services produced by users of these image to buy it for about 300 Lindens, or about a
virtual worlds. IGE Ltd, an independent online dollar. Nice design but too tight for my taste, so I
gaming services firm, estimates that players spent prowl another men’s shop for a jacket. I find
about $1 billion in real money last year on virtual something I like, along with a dark grey blazer and
goods and services at all these games combined, pants. As a fitting finishing touch for a reporter, I
and predicts that could rise to $1.5 billion this year. add a snazzy black fedora, though I’m bummed
One brave (or crazy) player in the online game that it can’t be modified to add a press card.
Project Entropia last fall paid $100,000 in real I’m also feeling neglectful leaving my avatar
money for a virtual space station, from which he homeless every time I log out. It’s time to buy some
hopes to earn money charging other players rent land, which will give me a place to put my
and taxes. In January inside Second Life alone, purchases, like a cool spinning globe that one
people spent nearly $5 million in some 4.2 million merchant offered cheap. And maybe I’ll build a
transactions buying or selling clothes, buildings, house there to show off to friends. I briefly consider
and the like. buying a whole island, but I have a feeling our T&E
That can add up to serious change. Some 3100 [testing and evaluation] folks would frown on a
residents each earn a net profit on an average of $1250 bill for imaginary land. Instead, I purchase a
$20,000 in annual revenues, and that’s in real US 512-square-metre plot with ocean view, a steal for
dollars. Consider the story of Chris Mead, AKA less than two bucks. Plopping my globe on to my
‘Craig Altman’, on Second Life. We exchange text plot, I take a seat on it and slowly circle, surveying
messages via our keyboards at his shop inside my domain. My Second Life is good.
Second Life, where he hawks ready-made animation I soon discover that Second Life’s economy has
programs for avatars. It’s a bit awkward, all the also begun to attract second-order businesses like
more so because as we chat, his avatar exchanges financial types. One enterprising character, whose
tender caresses with another avatar named ‘The avatar is ‘Shaun Altman’, has set up the Metaverse
Redoubtable Yoshimi Muromachi’. Turns out she’s Stock Exchange inside Second Life. He (at least I
merely an alter ego he uses to test his creations. think it’s a he) hopes it will serve as a place where
Still, I can’t help but make Rob Cranes look away. residents can invest in developers of big projects
like virtual golf courses. In a text chat session in his
Shopping spree slick Second Life office, Altman concedes that the
Mead is a 35-year-old former factory worker in market is ‘a bit ahead of its time. I’m sure it will
Norwich, England, who chose to stay home when take quite some time to build up a solid reputation
he and his working wife had their third child. as an institution.’ No doubt, I’m thinking,
He got on Second Life for fun and soon began especially when the CEO is a furry avatar whose
creating animations for couples: when two avatars creator refuses to reveal his real name.
click on a little ball in which he embeds the Premature or not, such efforts are raising tough
automated animation program, they dance or questions. Virtual worlds may be games at their
cuddle together. They take up to a month to create. core, but what happens when they get linked with
But they’re so popular, especially with women, that real money? (For one, people such as Chung’s
every day he sells more than 300 copies of them at owner start to take changes to their world very
$1 or less apiece. He hopes the $1900 a week that seriously. She recently threatened to create her own
he clears will help pay off his mortgage. ‘It’s a currency inside Second Life after the Linden dollar’s
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Case study continued

value fell.) Ultimately, who regulates their financial spend a quarter of the time they’re logged in, a
activities? And doesn’t this all look like a great way total of nearly 23,000 hours a day, creating things
for crooks or terrorists to launder money? that become part of the world, available to
Beyond business, virtual worlds raise sticky social everyone else. It would take a paid 4100-person
issues. Linden Lab has rules against offensive software team to do all that, says Linden Lab.
behaviour in public, such as racial slurs or overtly Assuming those programmers make about $100,000
sexual antics. But for better or worse, consenting a year, that would be $410 million worth of free
adults in private areas can engage in sexual role- work over a year. Think of it: the company charges
playing that, if performed in real life, would land customers anywhere from $6 to thousands of
them in jail. Will that draw fire from law dollars a month for the privilege of doing most of
enforcement or, at least, publicity-seeking the work. And make no mistake, this would be real
politicians? Ultimately, what are the societal work were it not such fun. In Star Wars Galaxies,
implications of spending so many hours playing, or some players take on the role of running a
even working, inside imaginary worlds? Nobody pharmaceutical business in which they manage
really has good answers yet. factory schedules, devise ad campaigns, and hire
My head hurts. I just want to have some fun now. other players to find raw materials – all imaginary,
It’s time to try Second Life’s most popular game. of course.
Tringo is a combination of bingo and the puzzle- All this has some companies mulling a wild idea:
like PC game Tetris, where you quickly try to fit why not use gaming’s psychology, incentive
various shapes that appear on a screen into squares, systems, and social appeal to get real jobs done
leaving as few empty squares as you can. I settle in better and faster? ‘People are willing to do tedious,
on a floating seat, joining a dozen other competing complex tasks within games,’ notes Nick Yee, a
avatars at an event called Tringo Money Madness Stanford University graduate student in
@Icedragon’s Playpen – and proceed to lose every communications who has extensively studied
game. Badly. I start to get the hang of it and briefly online games. ‘What if we could tap into that
consider waiting for the next Tringo event until I brainpower?’
see the bonus feature: a movie screen showing the In other words, your next cubicle could well be
band Black Sabbath’s 1998 reunion tour. inside a virtual world. That’s the mission of a
Instead, I seek out Tringo’s creator, Nathan Keir, a secretive Palo Alto (California) startup, Seriosity,
31-year-old programmer in Australia whose avatar backed by venture firm Alloy Ventures Inc. Seriosity
is a green-and-purple gecko, ‘Kermitt Quirk’. It is exploring whether routine real-world
turns out Keir’s game is so popular, with 226 selling responsibilities might be assigned to a custom
so far at 15,000 Lindens a pop, or about $50, that a online game. Workers having fun, after all, likely
real-world company called Donnerwood Media will be more productive. ‘We want to use the power
ponied up a licensing fee in the low five figures, of these games to transform information work,’ says
plus royalties. Tringo soon will grace Nintendo Seriosity CEO Byron B. Reeves, a Stanford professor
Co.’s Game Boy Advance and cell phones. ‘I never of communications.
expected it at all,’ Keir tells me, his awe evident
even in a text chat clear across the world. He’s Building boom
working on new games now, wondering if he can Whether or not their more fantastic possibilities
carve out a living. That would be even cooler than pan out, it seems abundantly clear that virtual
the main benefit so far: making his mum proud. worlds offer a way of testing new ideas like this
more freely than ever. ‘We can and should view
Talent bank synthetic worlds as essentially unregulated
After all my travels around Second Life, it’s playgrounds for economic organisation,’ notes
becoming apparent that virtual worlds, most of all Edward Castronova, an associate professor in
this one, tap into something very powerful: the telecommunications at Indiana University at
talent and hard work of everyone inside. Residents Bloomington and author of the 2005 book Synthetic

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358 Chapter 10 / New perspectives in marketing and the way forward

Case study continued

Worlds: The business and culture of online games to the virtual gun store,’ but he fires off angry e-mail
[University of Chicago Press, 2006]. complaints to Ms Stork and Linden Lab and deletes
I get a taste of the lack of regulation just as we’re the trespassing buildings, planting some trees in their
about to go to press. Logging in to Second Life after place. Then he reconsiders: maybe a ramshackle cabin
a few days off, I see that someone has erected a with a stained sofa and a sun-bleached Chevy up on
bunch of buildings on my avatar Rob Cranes’ land, blocks would be a great addition to his plot.
which is located in a region called Saeneul. The area At first, I wonder why I (or my avatar) has such a
was nearly empty when I arrived, but now I’m visceral reaction to this perceived intrusion. Then a
surrounded by Greek temples under construction. flush of parental pride washes over me: my avatar,
So much for my ocean view. Online notes left by which so far has acted much like me, hanging back
one ‘Amy Stork’ explain that the ‘Saeneul Residents from crowds and minding his punctuation in text
Association’ is building an amphitheatre complex, chats, suddenly is taking on a life of his own. Who
and ‘your plot is smack bang in the middle.’ She’s will my alter ego turn out to be? I don’t know yet.
‘confident that we can find a *much* better plot for And maybe that’s the best thing about virtual
you than this one ... Love, Amy xx.’ worlds. Unlike in the corporeal world, we can make
Oh, really? For some reason, this causes Rob Cranes of our second lives whatever we choose.
to blow a gasket. He resists my editor’s advice to ‘head Source: ‘My virtual life’, BusinessWeek, 1 May 2006

It is clear from the case study that the digital evolution is having far-reaching
consequences for marketers. In fact, most marketers are not even keeping up with
the changes. Many entrepreneurs are embracing the changes more quickly than
established professionals and creating new marketing propositions and services, as
discussed in the case study. In countries such as Korea, which has an established
games culture, avatars are common. Most young South Koreans embrace the virtual
world with alacrity and, in many ways, lead the world. Cyworld has become very
popular by offering personal blogs with ‘avatars’ that represent their users. Users
have avatars that visit and can link to each other’s ‘minihompy’ – a miniature
home page that’s actually a 3D room containing a user’s blog, photos and virtual
items for sale. Cyworld’s digital garage sales include music, ringtones, clothes for
your avatar and furnishings for your own minihompy (Taylor 2006).
Delving deeper into some of the new marketing tools that are being applied, it is
useful for marketers to understand the importance of digital possibilities such as
blogging, mobile marketing and search advertising.

Blog marketing
Blogs are now being used by businesses, individuals, individuals within businesses,
broadcasters such as the BBC, newspapers and, in the future, possibly even politi-
cians. So, what are blogs and what purpose do they really serve?
Blogging, essentially, is a communications vehicle that can be used for market-
ing to and listening to customers that may be spread globally. It is also a way of
interacting directly with individual customers on a one-to-one basis. In many
ways, it is a marketing communications tool, listening device, conversational vehi-
cle and log of events all rolled into one. As anyone can set up a blog at any time
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and network it to any site, both supporters and detractors of a particular company’s
products and services can make their feelings known quite openly within the
public sphere of the Internet. Some companies have discovered, to their chagrin,
that customers, if they have a bad experience of a particular product or service, can
actually damage the brand as a result of their online protests. For instance, an arti-
cle by Andrew Clark in The Guardian (2006) explained how Dell learned about the
growing power of the blogosphere when it recalled 4.1 million laptop batteries
after a video that showed one of its computers bursting into flames was posted on
the Internet. The brief clip zig-zagged through cyberspace and went from cult view-
ing to national television. As a result of this, Dell started to keep a closer eye on
blogs and the impact they could have on the company brand.
The article also pointed out areas where bloggers now have the power to bring
about changes in company policies. Among the examples given were the following.
 Apple Nick Ciarelli, barely 20 years old, has become a thorn in Apple’s side. His
website (www.thinksecret.com) has a reputation for being a reliable source of
information about planned launches. The site broke the news about the iPod
ahead of its launch in 2001, as well as giving details of the Mac mini ahead of
time. The site’s latest rumour was that a touch-screen iPod was on its way and,
sure enough the iPhone was introduced at the Macworld Conference Expo in
San Francisco in January 2007.
 Wal-Mart People love to hate Wal-Mart. One of the best-known sites dishing the
dirt on America’s biggest retailer is Wal-Mart Watch (www.walmartwatch.com).
It culls stories from across the USA on issues such as alleged low pay and health-
care and its impact on local firms, as well as providing tools such as Battle-Mart –
a guide to keeping the retailer out of your town. See also AsdaWatch
(asdawatch.org), which keeps an eye on Wal-Mart’s British operations.

Ofcom’s report (2006) indicates the extent of the penetration of blogging (see
Figure 10.15).

Percentages of users with web page/blog

50%

40%

30%
49%
47% 45% 45%
20%
27%
10%
11%
0%
To talk about my To keep my family To share photos As a means of To comment Other
interests/hobbies and friends up to and/or videos publishing my on current
date with what’s with friends own work affairs/politics
going on and family

Figure 10.15 Users of web pages/blogs

Source: Ofcom 2006, Ofcom research, fieldwork conducted by ICM, June 2006
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360 Chapter 10 / New perspectives in marketing and the way forward

Thus, blogging can expose a company’s corporate social responsibility (CSR)

policy to the general public. Equally, however, companies can benefit from embrac-
ing blogging and utilising it as a marketing tool. For busy executives, instead of
responding to all e-mails, they could simply set up a blog on their company’s web-
site, reaching a very wide audience. This type of communication can often
pre-empt malicious bloggers as well. According to Wright (2006), for companies,
blogging is about three things:
 information telling your customers what you’re doing and finding out what they
are thinking
 relationships building a solid base of positive experiences with your customers
that changes them from plain old consumers for evangelists for your company
and products
 knowledge management having the vast stores of knowledge within your company
available to the right people at the right time.

Over time, much can be gleaned about the types of customers that are buying into
a company’s product/market mix. These can be classified as shown in Figure 10.16.
Customers can either be a company’s best friend or worst enemy. In many ways,
in an ideal world, most customers would be in the right-hand quadrant of the
matrix in Figure 10.16. However, in the real world, the customer base is more likely
to include all or most of the categories shown in the matrix.

Negative
Saboteurs
Blogging to
Likely to
contain negative
spread negative
communications
communications Blogging to
about the company improve experiences

Regular customers
Customers’ experience

Occasional sufferers
Necessary purchase, Enjoy product or service
e.g. fast food value even if not best in
the world, generally positive

Reluctant customers
Many negative
experiences but Evangelists
accept the situation, Plenty of positive
occasionally pleased experiences and only
communicate good
emotions

Positive
Very unhappy Very happy

Customers’ feeling about company

Figure 10.16 Categories of customers

Source: Based on categories mentioned in Wright 2006
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Digital marketing 361

For companies, it is important to be proactive regarding communications and a

key element of this is blog monitoring and usage if saboteurs are to be contained.
Of course, positive blogs from evangelists can go a long way towards enhancing the
company brand. Thus, creating customer evangelists should be a priority for all
companies. Further uses for blogs are listed in Table 10.3 (Wright 2006).

Table 10.3 Using blogs

External Internal
Communication Knowledge management and sharing
Marketing Administrative tool
E-mail newsletter support Internal document review
FAQ section Collaboration
Industry news opinion Idea archiving
Service updates Internal dialogue
Learning Dynamic archiving – not stale, like e-mail
Interactive journalism Corporate intelligence – knowing what your employees are
Public feedback saying and thinking, noting patterns
Customers’ queries/watchlists Loyalty – creating identification with the company via such
interaction
Aggregation of news sources
Status reports – what we work on and with whom, all tracked
Self-expression
on the employee’s aggregator
Storytelling
Top-down ideas/goal setting
Customer service
Bottom-up ideas generation and interaction
Public relations
Creation of a corporate culture of expression, collectivity,
Viral marketing knowledge sharing
Campaigning/social reform Getting the information out faster: have an idea?
Community building Frustrated with the chain of getting someone to listen?
Sales mechanism Post and it will get noticed, supported and heard
Brand loyalty – a human face Calendar sharing
Knowledge management Meeting announcements
Trending Meeting notes v. e-mail broadcast notices
CRM Sharing of market intelligence
Buying behaviour Brainstorming about strategy, feature sets and processes –
Competitive intelligence sharing customer notes
Thought leadership Asking others for help
Product changes Ability to segment blogs by individual or department for easy
Crisis management blog subscription
Best practices
Thought leadership
Team creation – match up those passionate about an item
or people with differing ideas so that they can work out
optimal solutions
Organised links – categorise links within the blog to most
frequently requested/used information, strategies, technical
manuals, sales material, online learning, etc.

Source: Arieanna Foley in Wright 2006. Reproduced with permission of The McGraw-Hill Companies.
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362 Chapter 10 / New perspectives in marketing and the way forward

As Table 10.3 shows, blogs can be used for both internal and external marketing
within companies, laying the foundations for an integrated approach to product
and brand management. Compared to lengthy market research exercises, blogs can
provide instant qualitative information from customers, including new ideas that
they may offer to improve products or services. Many companies are beginning to
use blogs for these purposes. It is likely that this system will be transferred (in fact,
it is already happening) to mobiles. As mobiles become more versatile, being able
to transmit voice messages, texts, videos, photographs to other individuals and
websites, they will increasingly become part of the blogging landscape.

Mobile marketing
As technologies converge and more companies are using different methods to
attract and retain customers, one important addition is mobile marketing. Mobile
marketing is coming of age and many companies are using different techniques
to build relationships and brands with customers. According to Dupree and
Bosarge (2006):
With the advent of wireless technologies, all bets are off regarding media touch points; the
home-based tether has been severed and media consumption locations are virtually any-
where. Hand-held and portable devices from smart phones to PDAs redefine the relationship
with media, making it an increasingly personal choice.

Many leading industry brands are committing themselves to interactive digital

marketing to the tune of 5 to 25 per cent of their advertising budgets. Currently,
the budget for mobile advertising stands at $1 billion and is set to grow to $10 bil-
lion in 2010 (The Shosteck Group 2006). However, for mobile marketing to
succeed, both technological and legal hurdles have to be understood and over-
come. One element described by Becker (2006) is the Common Short Code (CSC or
short code). This code, which is generally an abbreviated five- to six-digit number,
can be used as an ‘address’ for text and multimedia messages. In addition to the
short messaging service (SMS) and Internet protocol (IP) mobile data network rout-
ing, CSCs can command premium billing capabilities. The USA’s Short Code
Administration (CSCA) defines the common short code as:
Short numeric codes (e.g. 47647, 63459) to which text messages can be sent from a mobile
phone. Wireless subscribers send text messages to short codes with relevant keywords to access
a wide variety of mobile content. Common Short Codes (CSCs) are compatible across all par-
ticipating carriers and easy to remember. CSCs are either five-digit or six-digit numbers.
In the United Kingdom the Mobile Data Association calls it UK Code of Practice for
Common Mobile Short Codes (CMSC), the concept being the same as in the USA.

According to the MDA, mobile technology is being used extensively in partnership

with broadcasters, owing to the growth in popularity of TV reality shows, along with
daytime popular programmes that are often developed in a ‘magazine’ style, together
with live debates. Audiences are now used to voting for their favourite stars on pro-
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Digital marketing 363

grammes such as Pop Idol and Big Brother and, at the same time, they regularly partici-
pate in competitions. The UK’s mobile content providers can now establish their
services with ease across all networks and, at the same time, subscribers are quick to
embrace mobile technology as a means of receiving digital information. Competition
in the marketplace continues to rise along with the emergence of new short code
services incorporating voice, images and video content.
So why are CSCs so powerful as marketing tools? Why are they much more pow-
erful than a URL or e-mail address? It is for the following reasons.
 Bi-directional (and interactive) This can create two-way permission-based interac-
tive traffic between the customer and the marketer’s mobile or mobile-enhanced
traditional media initiative (such as videos, ad ringtones and so on). Customers
have the ability to opt in or out of messages. The communication can be inde-
pendent of location and time. A consumer can opt in to a call for action if he or
she so desires. Often it is something like ‘Text MGP to 7743 for the latest 5
updates on Monaco Grand Prix and for free Grand Prix wallpapers’. People can
also take part in sweepstakes and bids.
 Enabled to work across interoperable carriers (service providers) As a CSC allows a
standardised addressing format, a message can be sent across all mobile carriers.
This avoids wastage and means that large audiences can be targeted with a single
message. Currently this is possible in the USA, UK, Canada, France and China.
However there is no intercountry code at present, so global initiatives are not
possible yet.
 Personal (consumers can have their own profile and vanity codes) As soon as customers
opt in to particular marketing initiatives, marketers can capture a lot of data, such
as the number, make and model of phone, and the mobile operator used by the
customer. Particular messages can then be sent to individual customers and offers
can be tailored to individual needs by using well-developed CRM systems.
Companies can also buy or lease CSCs that spell their name, such as Sprite 777183
(these are vanity short codes). However, there are legal conventions that need to
be followed so that this type of marketing does not become intrusive.
 Billing engines (premium SMS) These short codes can be effective vehicles for
billing customers who decide to participate in mobile initiatives or for the pur-
chase of mobile content.
 Effective mechanism for permissions marketing (opt in and opt out) This type of
system can be utilised for marketing initiatives of any kind and permission can
be obtained quite quickly.
 Useful for a wide range of marketing campaigns and services.

An example of digital marketing is given in the following case study (from

Mediaweek 2006). As mobile services become easily accessible and much simpler,
more marketing campaigns will shift to this medium. In time, with more phones
having integrated GPS systems, customers’ behaviour could also be tracked.
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364 Chapter 10 / New perspectives in marketing and the way forward

CASE STUDY

Digital marketing – flying higher and higher via mobile platforms

To enter the biggest sweepstakes in mobile marketing game plans, which is a clear indication
marketing history earlier this year, all you had to do of today’s prime market demographic of young,
was buy some chicken fries at Burger King and find upscale early adopters attuned to wireless
the text code on the box. The next step, sending a technology. ‘It starts with the youth market and if
text message with the code, produced a landmark the US follows what’s happened in Europe and Asia,
response rate among Sprint subscribers to win a then you would expect that would prompt
Super Bowl Sweepstakes prizes of an expenses paid penetration on all age scales,’ says John Styers,
trip to the game and special access to the Rolling Sprint’s Director of Data Communication Services.
Stones’ half-time gig. Sports and rock and roll have Source: Anonymous, Flying higher and higher via mobile platforms’,
gained particular emphasis in Sprint’s digital MediaWeek, 5 June 2006, 16(23), 54.

Marketing on the Internet

In 1998, Sergey Brin and Larry Page initiated their university project to turn a
search engine into a viable business, which they called Google (Milstein and
Dornfest 2004). The difference then between Google and other search engines on
the Internet was that Google did not use the number of keywords on a web page to
rank web pages in its results list. Instead, Google ‘evaluated a site primarily on how
many other sites linked to it, and ranked search results accordingly.’ (Milstein and
Dornfest 2004). The more web pages that linked to a particular website or web
page, the higher up the results list the particular website or web page would be.
‘Google’s philosophy of delivering results is based on popularity,’ (Milstein and
Dornfest, 2004), which is essentially a form of online word of mouth. A link from
‘Website A’ to ‘Website B’ is a way of recommending the user to take a look at
‘Website B’. The more websites that link to ‘Website B’, the greater the credibility of
‘Website B’, so it will be higher up the results list than websites with fewer links.
The Google way of ranking web pages meant that web developers were unable to
manipulate web pages in an attempt to push their websites up the search results
lists (Milstein and Dornfest 2004). The only ways to creep up the Google results
lists were to either pay Google for using certain keywords or increase the numbers
of links on other websites that direct online users to that website.
Google’s revenue comes from a combination of website publishers paying to be
registered on Google’s database of web pages and via Google’s own advertising
mediums. In fact, 99 per cent of Google’s revenue comes from advertising, (Coy
2006), although Google remain guarded over disclosing exactly how much revenue
the various elements of advertising generate (Battelle 2005). Google’s clients,
whether they are small or large businesses, attempt to maximise traffic to their sites
by using Google adwords. These can then be tracked to see how optimal they are
and companies can then try to adjust their promotional mix accordingly. All the
statistics that follow are provided by Google. Figure 10.17 illustrates the possibili-
ties for a courier company wishing to use different words.
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Digital marketing 365

door to door courier deliver delivery

post
Search volume Google trends

0
2004 2005 2006
No data available

Figure 10.17 Search engine optimisation

In Figure 10.17, the word ‘deliver’ seems to be more effective in the long run
than the others. The word usage is a direct result of consumer search preferences.
This area is continually developing and many marketers are training to become
Google Ad Professionals (GAPs). Through this kind of marketing, companies can
keep track of customers, while also measuring their popularity and performance on
the Net. Of course, from time to time this can be open to abuse as rivals may just
click on the sites of their opposition in order to inflate the number of visitors and,
hence, the cost to the company. This has resulted in large sums of compensation
for some companies that have convincingly proven that this type of practice has
been detrimental to their business.

What next in the digital age?

Over the next year, it is likely that there will be a convergence of technology. This
is already happening, but there is currently only one provider in the UK (NTL) that
can realise this kind of convergence, which means links between a home PC
(broadband), mobile telephone, digital television and landline telephones (see
Figure 10.18).
 Tight segmentation As companies learn more about their customers from mobile
campaigns, segmentation criteria can be tightened and more one-to-one market-
ing will take place.
 Use of multimedia Most mobile operators are now providing multimedia facilities
and so are all broadband operators. The use of this media is likely to grow expo-
nentially with podcasts.
 Range of channels The range of channels is growing and audiences are gravitating
to their favourite channels and often even listening or watching programmes at
different times as they are now stored digitally on the Internet.
 The growth of hyperreality In the postmodern age, hyperreality is well and truly
taking off, as shown in the case study on Second Life. This will become ever more
sophisticated and the crossover beween the real and the hyperreal worlds will be
increasingly blurred as a new generation grows up embracing the virtual world.
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366 Chapter 10 / New perspectives in marketing and the way forward

Broadband offered via LLU

Number of services in bundles

Virgin
Media

3
Cable BT
operators Fusion Orange O2 (Be)
Cable (Wanadoo)
Carphone
operators BT
Warehouse
BSkyB
2

1995 2002 2003 2005 March April May June

2006 2006 2006 2006
Time

Figure 10.18 The evolution of communications services bundling

Note: Chart refers to time when bundles were first announced. LLU = local loop unbundling
Source: Ofcom 2006

 Speed In time, marketing offers and communications will be not only instanta-
neous in nature but also have a global reach. It is likely that campaigns will be
shorter and specific.
 Community building Community networks have proved to be hugely popular, as
already discussed, and this can only grow, with many different community con-
figurations appearing across national boundaries. In the long run, many
different possibilities will open up and much will depend on the imagination of
marketers. However, they will have to be ethical in the way that they engage
with customers.

Ethics as a source of competitive advantage

As marketing practice is now busy integrating the potential of ICT by using data-
bases and Internet marketing, new issues arise about how this data is used and
manipulated. Billions of potential consumers can now be reached this way. The dis-
cussion above on the use of smart tags also indicates the way customers could be
located wherever they live. A brief observation of the practices of marketing on the
Internet shows that some firms implement aggressive actions, such as pop-ups,
deceptive banners (banners offering prizes, but really directing surfers to particular
sites), hyperlinks and other forms of intrusive mechanisms that impinge on per-
sonal privacy. As technology moves from desk-based PC applications to mobile
communications, there is the potential to become even more intrusive, with the
possibility of local tracking (within a 50-metre radius of a food or retail outlet with
GPS technology, for example).
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Given the fact that such powerful devices are already available, we advocate that
firms wishing to differentiate themselves from their competitors will have to turn
to marketing ethics in order to gain and keep consumers. Short-termist thinking
will push firms towards ever shorter campaigns and advertising plans, directing
many companies towards an unethical stance. This danger can be averted by firms
that adopt a proactive ethical attitude towards consumers within their e-marketing
strategies. In order to adopt such a proactive stance, companies need to develop a
model of ethical interactivity with consumers. Figure 10.19 illustrates the problems
associated with intrusiveness, when using different communication mediums.

Gathering information – the issue of consumer information privacy

Internet technology provides opportunities to gather consumer information on an
unprecedented scale (Kelly 2000). However, some aspects of information gathering are
visible (such as self-divulgence of information for making a purchase, when accessing
a website, to be sent free samples) and some are less so (such as anonymous profile
data, IP, cookies). Owing to these possible uses and abuses of information, many con-
sumers remain hesitant about buying things on the Internet. The development of
software allowing a ‘private Internet experience’ and ‘completely undetected surfing’
is an indication of the level of consumers’ concern regarding the invasion of privacy.
A survey (Culnan 1999a and b) of the top 100 commercial websites shows that
only 20 per cent apply a full ethical policy. This shows that there is room for the
development of competitive advantage (Culnan 1999a and b). The reports on
Internet privacy policies show that five aspects can be used to describe a website’s
position concerning privacy:

High intrusiveness

Some banner ads

Agreed e-mailing of offers

e.g. Amazon
Agreed SMS
Bluetooth texting of offers
(possibly) SMS texting Some banner ads
by companies
Low customer High customer
sovereignty TV/radio ads sovereignty

Agreed direct mail

offerings
Direct junk mail

Newspaper ads

Low intrusiveness

Figure 10.19 Ethical perceptual map of the current range of advertisements

Source: Gauzente and Ranchhod 2001 (© Academy of Marketing Science)
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368 Chapter 10 / New perspectives in marketing and the way forward

 notice that is, an indication to consumers about what information is collected,

how it will be used, whether or not it will be disclosed to third parties and
whether cookies are used or not
 choice give consumers’ the choice to agree with aspects of information gathering
or not
 access consumers can be given access to the information gathered and the possi-
bility of reviewing and correcting that information
 security this concerns the protection given to information transferred and its sub-
sequent storage
 contact consumers can be given details of a contact person or address should
they need to ask questions or register complaints regarding privacy.

As Internet software becomes more sophisticated, it will be increasingly possible to

tailor sites to suit individuals’ ethical preferences. The seven criteria shown in Figure
10.20 could form the basis for creating and sustaining online competitive advantages.
Figure 10.20 clearly illustrates that ethical marketing is critically associated with a
firm’s long-term orientation. Advantages such as image, trust, relationship quality,
database reliability and database updates are typically representative of the goals of
long-term, market-orientated firms. A firm that has a short-term orientation is likely
to lose its competitive advantages in the long run against firms that develop ethics as
a marketing weapon for the consumers’ benefit (Gauzente and Ranchhod 2001).
Another important area that has to be explored explored is social marketing, as
this a major contemporary issue within global societies, fuelled by better and more
scientific information.

Notice Choice Contact Security Access Horizon Intrusiveness

First level Choice about Interactivity Increased Trust Update Agreed marketing
of ethics disclosure: Opportunities trust Accurate reliable actions leading to:
Institutional • reliable data to communicate Image information database •targeted
marketing
image Choice about use: with consumers Reliable Possibility
•target
marketing
Development database of identifying
long-term •
actions
profitable
of consumers’ marketing
actions knowledge relationships
actions
Overall: Opportunities
• trust

Better value for consumers

Better relationship quality
Increase in lifetime value
of consumers
Differentiating advantage

Figure 10.20 Ethical marketing criteria and competitive advantage

Source: Gauzente and Ranchhod 2001 (© Academy of Marketing Science)
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Social marketing 369

Social marketing
Social marketing means social change-management mechanisms that involve the
design, implementation and control of marketing communications technology
aimed at increasing the acceptability of a social idea or practice in one or more
groups of target adopters. It utilises concepts of market segmentation, consumer
research, product concept development and testing, directed communication, facil-
itation, incentives and exchange theory to maximise the target adopters’ response.
These target groups may need to be advised about healthy living or the importance
of being active in saving the environment, for example. In the long run, this type
of marketing communication needs to create a change of behaviour in individuals
(Andreasen 2002). The social marketing approach should therefore entail:
 behaviour change in the individuals who are targeted, such as them stopping
smoking
 continuous market research, with market testing of intervention strategies and
the monitoring of the success of these interventions
 careful segmentation of target audiences to ensure maximum efficiency and
effectiveness in the use of scarce resources
 the creation of attractive and motivational exchanges with target audiences
 an attempt to use all 4 Ps of the traditional marketing mix, so, for example, it is
not just advertising or communications but also creates attractive benefit pack-
ages (products) while minimising costs (price) wherever possible, making the
exchange convenient and easy (place) and communicating powerful messages
via media relevant to and preferred by the target audiences (promotion)
 careful attention being paid to the competition faced by the desired behaviour,
so, for instance, healthy eating may be challenged by fast and processed foods or
the social behaviour of a particular group (see Table 10.4).

Marketers are also becoming aware of the positive impacts that marketing actions
with a social dimension can have on organisations (Handelman and Arnold 1999).
Increasingly, companies such as the Body Shop engage in ‘enlightened capitalism’
as it promotes social causes via its brand, enhancing its brand image in the process
(Richards 1995).
Social marketing campaigns represent a new field of marketing application, in
both industrialised and developing countries. They are often prompted by the per-
ception that some situation represents a social problem and so merits social action.
The Social Marketing Institute defines social marketing as:
the planning and implementation of programmes designed to bring about social change
using concepts from commercial marketing.

The main objective of social marketing campaigns is to influence behaviour. It is

considered that the public will change its behaviour if the benefits of this change
are perceived as more important than the costs associated with making that
change. The role of social marketing, therefore, is to maximise the perception of
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370 Chapter 10 / New perspectives in marketing and the way forward

Table 10.4 Possible collaboration of approaches to social marketing given the sources acting as barriers
to action

Problem Barrier Role for social marketing Role for community Role for structured change
mobilisation approaches
Motivation Individual Creating awareness; promoting Urging media Building web links to hard-
great benefits at a low cost cooperation to-reach individuals
Community Urging opinion leaders to Creating awareness, Creating incentives for
motivate others raising public concern group organisation
Structural Urging change in structural Holding briefings Changing structural
rewards/penalties (e.g. taxes) rewards penalties (e.g. taxes)
Opportunity Individual Creating awareness of Urging business and Changing economic barriers
behavioural opportunities political cooperation to individual action
Community Urging businesses to provide Changing repressive Eliminating antitrust
access to change agents social norms restriction on business
cooperation
Structural Urging use of government Bringing pressure to Providing government
facilities for programmes bear on legislators subsidies, changing
physical environments
Ability Individual Providing modelling of ideal Pointing group members Allowing government
behaviour to individualised agencies to provide training
change tools
Community Providing communication Conducting group Allowing government
tools for outreach training premises (e.g. schools) to be
used for group training
Structural Urging removal of public Changing community Removing public disincentives
disincentives structures

Source: Andreasen 2002

change benefits, while at the same time reducing the costs of the change. This
action is based, as in the case of classical marketing, on a marketing mix concept:
 product the benefits associated with the desired change in behaviour
 price minimising the price of change – the sacrifices that have to be made by
people in order to change their existing behaviour
 place creating the opportunities for change in specific places that correspond to
the target audience’s lifestyle
 communication communicating the benefits of change to the targeted public, as
well as the way in which the behaviour change can be realised.

It is more than this, however, as, for many individuals, change such as this is not
merely a marketing issue but also something that has to be set and endorsed by
particular peer groups and the communities in which they reside. As social prob-
lems are complex and interrelated, solutions need to be developed in light of the
specific socio-economic, historical, religious and cultural frameworks concerned
(Gray 1996). Often, segments of society that are particularly vulnerable or exposed
need to be identified in order to be able to develop a targeted campaign.
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Social marketing 371

Some social campaigns are designed merely to help bring problem areas out into
the open and draw attention to their causes, which can often be taboo subjects.
Although increasing the social awareness of a problem is indeed necessary, it is by
no means sufficient for determining changes in societal attitudes and behaviour as
these are shaped by habits, interests, feelings and beliefs, among other factors
(Novartis 2001). For these reasons, social campaigns conceived only to educate or
admonish often turn out to be relatively ineffective.
These limitations and the success of advertising techniques used in the commer-
cial world have provided the impetus for the development of social marketing.
Introduced by Philip Kotler and Gerald Zalitrian in 1971, this concept combines
traditional approaches to social change with commercial marketing and advertis-
ing techniques (Kotler and Andreasen 1991; Kotler and Zalitrian 1971). Its
originators define social marketing as the design, implementation and control of
programmes aimed at increasing the acceptability of a social idea or practice in one
or more groups of target adopters (Kotler 1979; Kotler and Zalitrian 1971).

Previous studies
In the last ten years, social marketing has become an important field of action and
research (Lefebvre and Flora 1988). The number of non-profit organisations and
governmental agencies applying social marketing techniques has increased sub-
stantially and their operational effectiveness has been refined.
Specialists and practitioners have researched the organisation and ethics of
strategic alliances in social marketing (Andreasen 2000a), the transfer of knowledge
concepts and tools from commercial to social marketing (Andreasen 1984 and
2000b) and organisation of specific social marketing campaigns (Andreasen 2000b;
Bang 2000). There is also an extensive body of literature available on theories and
models of behaviour change, which have direct applications in social marketing
(Cooper 1979; Frederiksen et al. 1984; Glanz et al. 1990; Kotler and Clarke 1986;
Rothschild 1999).
Robinson (1998) has developed a model describing the main stages of a social
marketing campaign:

1 knowledge being or becoming informed about the existing problem and

possible solutions
2 desire inspiring the targeted public to imagine a better future and develop the
desire to experience it
3 skills providing the public with the necessary skills to realise the desired change
4 optimism developing a positive attitude that change can be realised and that it is
beneficial
5 facilitation providing support to the public, facilitating the change process
6 stimulation the public often needs encouragement in order to initiate the change
process, especially when the change concerns behavioural routines developed
and stabilised in time
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372 Chapter 10 / New perspectives in marketing and the way forward

7 feedback and reinforcement the social marketing campaign has to be permanently

reinforced with new messages in order to maintain the momentum of the
behaviour change and, at the same time, the people engaged in the behaviour
change should be provided with feedback that helps them to identify the various
stages of the change process and the relationship between partial changes and
the final objective.

Theories and models of social change

A correct understanding of social change theories is paramount when designing
and implementing any social programme if it is to be a success (Frederiksen et al.
1984; Glanz et al. 1990). Social marketing campaigns are no exception to this.
Theories and models explain people’s behaviour and suggest ways to change its
undesirable aspects. They can also provide methods that can be used to identify
and define the main target audiences and the most effective means to reach them.

Adopting an ecological perspective on social marketing

The ecological perspective provides two key ideas for identifying the individual and
environmental leverage points for social marketing campaigns.
First, behaviour is viewed as being affected by, and affecting, multiple levels of
influence. Five levels of influence for health-related behaviour and conditions have
been identified. They are:

1 intra-personal or individual factors

2 interpersonal factors
3 institutional or organisational factors
4 community factors
5 public policy factors (McLeroy et al. 1988 and see Table 10.5).

Table 10.5 An ecological perspective: levels of influence

Concept Definition
Intra-personal factors Individual characteristics that influence behaviour, such as
knowledge, attitudes, beliefs and personality traits
Interpersonal factors Interpersonal processes and primary groups, including family,
friends and peers, that provide social identity, support and role
definition.
Institutional factors Rules, regulations, policies and informal structures that may
constrain or promote recommended behaviours
Community factors Social networks and norms, or standards, that exist in formal or
informal forms among individuals, groups and organisations
Public policy Local and national policies and laws that regulate or support healthy
actions and practices for disease prevention, early detection,
control and management

Source: Adapted from National Cancer Institute 1995

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Social marketing 373

The second key idea relates to the possibility of reciprocal causation between individu-
als and their environments – that is, behaviour both influencing and being influenced
by the social environment. Regarding the Internet, this principle has an important
consequence. This multilevel, interactive medium clearly shows the advantages of
interventions that combine behavioural and environmental components.

Cognitive-behavioural models
Contemporary behaviour models at the individual and interpersonal levels usually
fall within the broad category of cognitive-behavioural theories (Bandura 1977 and
1986; Fishbein and Azjen 1975). Two main concepts are common to these theories
(National Cancer Institute 1995):
 behaviour is mediated by cognitions – that is, what we know and think affects
how we act
 knowledge is necessary, but not sufficient, to produce behaviour change – per-
ceptions, motivation, skills and factors in the social environment also play
important roles.

The ‘stages of change’ model

The ‘stages of change’ model explains behaviour changes of individuals. The basic
premise of this model, introduced by Prochaska et al. (1992), is that behaviour
change is a process and not an event, and that individuals have different levels of
motivation, or readiness, to change. People at different points in the process of
change can benefit from different interventions, matched to the stage they are in
at that time.
Five distinct stages are identified in the ‘stages of change’ model (see Table 10.6):
 precontemplation
 contemplation
 decision/determination
 action
 maintenance.

It is important to understand that this is a circular, not linear, model. People do not
go through the stages rigidly – they can enter and exit at any point and often recy-
cle. Also, there appear to be differences between how the stages fit the situation
when the individual is dealing with different problem areas. For example, for a
problem that involves overt, easily recognised behaviour and includes a physical
addiction component (such as alcoholism), the stages might have a different mean-
ing than they would for a problem where target goals are not easily identified and
undesirable habits may have been formed without physiological addiction (such as
following a diet with no more than 30 per cent of the calories coming from fat).
The ‘stages of change’ model can be used both to understand (explain) why
people are sensitive to different methods that are used to effect behaviour change
and develop social marketing campaigns that are targeted effectively.
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374 Chapter 10 / New perspectives in marketing and the way forward

Table 10.6 The ‘stages of change’ model.

Concept Definition Application

Precontemplation Unaware of problem, hasn’t Increase awareness of need for
thought about change change, personalise information
on risks and benefits
Contemplation Thinking about change in the Motivate, encourage to make
near future specific plans
Decision/determination Making a plan to change Assist in developing concrete action
plans, setting gradual goals
Action Implementation of specific Assist with feedback, problem-
action plans solving, social support,
reinforcement
Maintenance Continuation of desirable Assist in coping, reminders,
actions or repeating periodic finding alternatives, avoiding
recommended step(s) slips/relapses

Source: Adapted from National Cancer Institute (1995)

The ‘health belief’ model

The ‘health belief’ model (HBM) can be useful when analysing people’s inaction or
non-compliance regarding their health. It was one of the first models that adapted
theory from the behavioural sciences to health problems and remains one of the
most widely recognised conceptual frameworks for health behaviour (National
Cancer Institute 1995). It was originally introduced in the 1950s by psychologists
working in the US Public Health Service (Hochbaum et al. 1992). They assumed
that people feared diseases and action taken regarding health was motivated in
relation to the degree of fear (perceived threat) and expected fear-reduction poten-
tial of those actions – as long as that potential outweighed practical and
psychological obstacles to taking action (net benefits).
The HBM can be summarised in terms of four constructs that represent the per-
ceived threat and net benefits (see Table 10.7):
 perceived susceptibility
 perceived severity
 perceived benefits
 perceived barriers (National Cancer Institute 1995).

These concepts were proposed as accounting for people’s ‘readiness to act.’ An

added concept is cues to action, which are those factors that activate that readiness
and stimulate overt behaviour. A more recent further addition to the HBM is the
concept of self-efficacy, or your confidence in your ability to successfully perform
an action. This concept was added by Rosenstock et al. (1988) to help the HBM
better fit the challenges of changing habitual unhealthy behaviour, such as being
sedentary, smoking or overeating.
As in the case of the ‘stages of change’ model, the HBM can be used to explain
people’s behaviour and enable improved social marketing strategies for behaviour
change to be designed.
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Social marketing 375

Table 10.7 The ‘health belief model’

Concept Definition Application

Perceived One’s opinion of chances of getting Define population(s) at risk, risk levels,
susceptibility a condition personalise risk based on a person’s
features or behaviour, heighten
perceived susceptibility if too low
Perceived One’s opinion of how serious a Specify consequences of the risk and
severity condition and its consequences are the condition
Perceived One’s opinion of the efficacy of the Define action to take, how, where,
benefits advised action to reduce risk or when, clarify the positive effects to be
seriousness of impact expected
Perceived One’s opinion of the tangible and Identify and reduce barriers by means
barriers psychological costs of the advised of reassurance, incentives,
action assistance
Cues to action Strategies to activate ‘readiness’ Provide ‘how to’ information, promote
awareness, reminders
Self-efficacy Confidence in one’s ability to Provide training, guidance in performing
take action action

Source: Adapted from National Cancer Institute 1995

The role of social marketing campaigns

Social marketing campaigns attempt to change the behaviour of individuals and
groups of people within a society. The benefits of this change are two-fold:
 at the individual level, the person who succeeds in eliminating a behaviour or a
habit that has negative consequences will most likely experience an improve-
ment in his or her standard of living and better health
 at the social level, society benefits from the reduced costs of treating some dis-
eases or accidents that are caused by negative social behaviour and habits and
then these resources are freed up to be redirected towards other social needs.

Although changes regarding a negative habit can be triggered by a social marketing

campaign, whether or not it will be completely realised will depend on the effects
of the influences of various social layers and structures. There are many other fac-
tors that contribute to the success or failure of such endeavours. For example, the
attitudes of other people and the influences of close social groups can significantly
affect the pace and achievement of change. In some cases, a person’s membership
of a group can represent a barrier to behaviour change. For example, a teenager
whose friends are all smoking heavily will not be able to quit smoking because this
very habit facilitates his or her social inclusion.
This last example illustrates that, in reality, social marketing campaigns are not
based on short-term actions, but should be planned and implemented as a perma-
nent activity aimed at educating people, preventing the adoption of negative
behaviour and questioning the utility of negative habits for personal health and
happiness. The social marketing mix, therefore, comprises, besides the 4 Ps of the
classical marketing model, two more Ps:
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376 Chapter 10 / New perspectives in marketing and the way forward

 publics all groups of people who can influence the social change process and be
targeted by social marketing messages
 politics the general vision and plan of governmental agencies and NGOs for posi-
tive social change, on a long-term basis.

Figure 10.21 presents the various layers that need to be taken account of in social
marketing campaigns.
In many cases, the application of commercial advertising principles to social
marketing campaigns significantly increases their attractiveness and efficiency. For
example, the use of popular role models can significantly enhance the success of
social marketing campaigns, as the case study opposite demonstrates.

Online social marketing

Social marketing is distinguished by its emphasis on so-called non-tangible prod-
ucts, ideas and practices, as opposed to the tangible products and services that are
often the focus of commercial marketing (Andreasen 1995). Considering this, the
Internet should be considered as an attractive communication channel for social
marketing. As most social marketing activities focus on changing beliefs, percep-
tions and attitudes, the ubiquity, flexibility and interactiveness of the Internet can
offer important advantages for effective social marketing campaigns.

Social Role
trends models

Close Close
friends family

Individual
behaviour

Relatives Colleagues

Social
Policies
values

Social marketing
campaigns

Figure 10.21 Various layers of social influence affecting an individual’s decision to

change his or her behaviour
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Social marketing 377

CASE STUDY

Jamie Oliver in talks over campaign for family meals (D Brindle, J Maley)

The Department of Health is negotiating with watching television at the same time. This year, the
Sainsbury’s about a joint campaign, to be fronted dining table was dropped from the official basket of
by the celebrity chef Jamie Oliver, to encourage goods said to reflect the country’s buying habits.
families to make time to eat together more often as Dr Fiona Adshead, the deputy chief medical
a key means of improving the nation’s diet. officer for England, told public health experts
The move would mark a controversial departure yesterday: ‘Over the coming weeks, we are going to
for government public health campaigns in its tie- be working with Sainsbury’s and Jamie Oliver about
up with a commercial brand. A report how we get families back eating together by
commissioned by the health department and thinking about basic recipes.’
published yesterday argues that such partnerships Sainsbury’s pays the TV chef an estimated £1m a
should be encouraged, provided appropriate ethical year to star in its advertisements. The proposed
guidelines are put in place. relationship reflects a growing trend for companies
It comes as research showed that over the past to get involved in promotion of healthy living.
year spending on frozen foods had fallen almost Some public health campaigners may question
3 per cent, with sales of frozen ready meals and whether the health department is allowing its
meat products – including the Turkey Twizzlers messages to be hijacked by commercial interests.
ridiculed by Oliver during his influential TV series But Jeff French, co-author of yesterday’s report on
on school meals – down more than 8 per cent. use of social marketing techniques in public health
The family meal has been highlighted as a work, said: ‘They can be part of the problem, but
prominent factor in social cohesion, as well as there is no solution that doesn’t involve them . . .
nutritional wellbeing. Surveys suggest that as few as in terms of reach.’
three in 10 families now sit down to eat together Source: David Brindle and Jacqueline Maley, The Guardian, 27 June
more than once a week, with most of those 2006. Copyright Guardian News & Media Ltd 2006.

However, if the Internet is ever to be used effectively for such campaigns, the
requirements and elements of social change theories have to be incorporated into
the design, structure and content of the website used. It is also important that the
online social marketing campaign is not perceived as distant by targeted audiences.
For this, it is often necessary to establish clear links between online social market-
ing messages and information, and real-life social marketing groups and activities.
Table 10.8 presents the most important elements that have to be incorporated into
social marketing campaigns websites.
v
A study of the websites (Gurau 2005) used for social marketing campaigns indi-
cates a number of shortcomings concerning the integration of online messages
with real-life activities.
 The online social marketing campaigns are usually integrated with other market-
ing operations, but indirectly, such as in lists of online messages about social
marketing events. The connection is not clearly specified and the website is
often limited to the function of an advertising channel.
 The information presented by the websites addresses the social problems from
different perspectives, including individual (online messages relevant for indi-
vidual behaviour/situations), interpersonal (the effects of undesirable behaviour
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378 Chapter 10 / New perspectives in marketing and the way forward

Table 10.8 The most important elements of websites and their corresponding functions
for social marketing campaigns

Elements Function
Online information about site’s integration Integration with other social marketing
with the physical world of the social policies
marketing campaign
Online messages addressing individual, Capacity of the website to present different
interpersonal, institutional, community and public aspects of the same problem
policy problems and factors
Possibilities for online interaction between users, Capacity of the website to provide personalised
organisation and community: interactive possibilities and build a dynamic
 interaction with the organisation via telephone, communication pattern
e-mail
 interaction with the site via search and

personalisation tools
 interaction with the community via discussion

forums
Time passed since last update Flexibility and relevance of content
Educational messages Capacity of the website to educate its users
Site’s content, structure and design in relation to Capacity of the website to adapt to the social
the subject presented marketing topic
Online messages targeted at users in different Capacity of the website to segment and target
stages of the behaviour change process: different audiences
 pre-contemplation

 contemplation

 decision

 action

 maintenance

Online messages that: Strategic approach of the online social

 emphasise: marketing campaign
– disadvantages of undesirable behaviour
– positive aspects of behaviour change
 minimise – barriers to change

 provide solution for overcoming the barriers

to change

on friends, relatives and so on), institutional (organisations that support behav-

iour change and their specific policies), community (community events, social
statistics, discussion forums) and social policy (regulations/legislation/initiatives
relevant to the social problem addressed, the official opinion of government and
other non-profit organisations) elements. It is important to note that the mes-
sages addressing various issues are also influenced by the characteristics of the
social problem being addressed and the strategic approach of the website.
 The interactive possibilities generated by the websites that were studied were
very different in nature. Usually, websites offer a very clear means of connecting
with the organisation concerned, providing a physical address, telephone num-
bers, e-mail connections or standardised feedback forms.
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Social marketing 379

The second most frequent interactive feature found in the study was the exis-
tence of virtual communities, connected via bulletin boards or discussion
forums. The use intensity of these discussion forums varies a lot, ranging from
fewer than 10 messages per month to more than 100 messages per month. The
identification of factors that determine and influence the use intensity of discus-
sion forums on social topics is a good subject for future research as the capacity
to provide social interaction and a sense of community between distant people
is one of the major advantages offered by the Internet.
Another interesting feature of online discussion forums is their rather limited
geographical reach. Most of the users are located within a region or nation.
Although this is understandable considering the local, regional or national char-
acter of the sponsor organisations, it does not take advantage of the
international dimension of the Internet network.
The capacity of websites to become personalised was found to be quite low.
Some sites offer rudimentary personalisation options, asking the user to select a
specific topic of interest. Usually these are the sites that offer connections to
multiple and various subjects.
 One of the main purposes of social marketing websites is to educate their users.
This function is evident from the large number of reports, social statistics, docu-
ments explaining the consequences of undesirable behaviour and the benefits of
change, that are available online. The editing of these texts and their specified
purposes also demonstrates the strategic approach being taken by online market-
ing campaigns and the circumstantial adaptations to the problems addressed. In
some cases, children are directly targeted by educational messages displayed on
social marketing websites and there are attempts to create virtual communities
of children (for example, the Children’s Traffic Club on Road Safety Scotland’s
site: www.srsc.org.uk/).
Often, the sites provide lists of links to other similar sites created by interna-
tional or foreign organisations, enhancing the scale of interconnectedness and
adding an international dimension to the social marketing campaigns’ educa-
tional sources.
 The social marketing websites show a high degree of circumstantial adaptation
to the problems addressed. The content is highly relevant and, in most cases, fre-
quently updated. The structure is complex as most sites present a large amount
of information. However, the existence of site maps and general contents lists
provides a clear picture of information categories and eases the web navigation.
The design was frequently found to be both appropriate to the subjects of the
websites and the profiles of their main users:
– the sites targeting younger users (children, teenagers) are colourful, dynamic,
direct, surprising, involving
– the sites targeting older users are sober and structured, the accent being put
on increased accessibility and ease of navigation
– the health-related sites focus mainly on scientific facts, using these as power-
ful arguments for change, and these are supported by practical advice/
procedures for health improvement or maintenance.
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380 Chapter 10 / New perspectives in marketing and the way forward

 The capacity of social marketing websites to segment and target the users
belonging to different stages of the behaviour change process is not very evi-
dent. The sites rely on the capacity of users to segment themselves by choosing
from the information available and the topics of main interest. In many cases,
the users are supported by mini search engines active within the sites. This strat-
egy can be justified by the great diversity of people accessing the sites and the
limitations of personalisation tools available. However, considering the common
characteristics of the users at different stages of the behaviour change process,
the online marketing sites should implement more active methods to segment
them and differentiate their information offerings. This is a necessary premise
for increasing the effectiveness of online social campaigns and saving the
Internet users’ time.
 Most sites adopt a strategic approach. The information provided addresses both
the negative aspects of the undesired behaviour and the possible benefits of
behaviour change. In many cases, the barriers to change are identified,
explained via reports, FAQs, personalised communications, discussion forums)
and practical solutions are provided for their resolution or avoidance (see, for
example, Ash’s website at: www.ash.org.uk).

A theoretical framework for online social marketing

The theoretical principles of online social marketing derived from the research
findings can be considered on two different levels:
 content
 function.

This classification corresponds to the specific characteristics of a website that can be

defined by the categories of contents hosted and multiple functionalities provided.
At the content level, there is a close connection between the message categories,
strategic approach and circumstantial adaptation of the website. However, these
three dimensions seem to lack a similarly close connection with a segmentation of
the different categories of its audience (see Figure 10.22).

Message category
International
dimension?

Circumstantial Strategic
adaptation approach

?
Audience segmentation

Figure 10.22 The diamond of dimensions of the content of a social marketing website
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Social marketing 381

The implementation of a better segmentation approach in the early stages of

users accessing the website would provide the basis for better targeting and cus-
tomisation of online information. For example, a number of alternatives can be
designed to target the specific needs of users in the precontemplation, contempla-
tion, decision, action and maintenance stages, and these can be connected to a
practical means of characterising each individual user (such as a short online ques-
tionnaire). Once the new user has completed the questionnaire, the software can
automatically identify his or her needs and connect that person to the most appro-
priate alternative website.
Most social marketing websites do not adapt their information to accommodate
an international perspective. The context of the problems debated, organisations
involved and contact numbers given are usually local, regional or national and
therefore they lack a true international reach. However, this in part reflects the fact
that some social problems may be regionally based. For instance, obesity is becom-
ing an increasing problem in the USA and UK, but may be less of a problem in
France and Italy.
At the functional level, online social marketing campaign websites need to have
the following:
 interactiveness
 education
 flexibility.

Unfortunately, in many cases, the integration of the online campaign with other
social marketing operations is vague and indirect – when it exists. Every function
should be integrated within a complex network of digital and physical events and
processes that enhance the overall effectiveness of the campaign. For example, the
education provided on the Web can be connected with open days and seminars
organised within local communities, when the representatives of the organisation
can meet, discuss and interact with the website’s users.
The improvement of these connections at the content and functional levels can
significantly enhance the success of social marketing campaigns. In fact, the
improvement of these two levels are interrelated as a better segmentation of the
website’s users helps the integration of the online campaign with the appropriate
social marketing events. In this way, specially targeted environments can be
designed to address the specific needs of people, in both digital and physical uni-
verses. The effectiveness of the campaign will be further enhanced by the
application of lifecycle theories of behaviour change and the complex combination
of Internet information and social events (see Figure 10.23).
The integration of all these dimensions can also improve the development of an
international dimension to an online social marketing campaign. Connections
with global institutions and events can increase the scope of the campaign and the
reach of its influence. The article reproduced in the following case study illustrates
how some social issues do have a global reach.
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382 Chapter 10 / New perspectives in marketing and the way forward

Other social marketing activities

International
dimension?

Integration

Interactive Educative

?
Flexible

Figure 10.23 The diamond of dimensions of the functions of a social marketing website

CASE STUDY

Diet industry will be winner in battle of the bulge as Europe goes

to fat (by John Carvel)
A tide of obesity will sweep Europe over the next overweight and more than 30 is obese. Andrew
four years and cause a boom in the diet industry as Russell, the company’s consumer market analyst,
consumers try to get back into shape, market said the trend to excess weight followed 20 years of
analysts said yesterday. The most serious weight convenience foods and unconventional mealtimes.
problems will be seen in Germany where the ‘Modern diets are more calorific, yet people expend
proportion of people who are overweight or obese less energy during the day . . . Those who find
will increase from 57 per cent last year to 71 per themselves overweight and those who are keen to
cent in 2006. Problems of excess weight will affect avoid being in that position are increasingly
69 per cent of adults in Spain and the Netherlands, interested in using both exercise and diet to
60 per cent of Swedes and 59 per cent of Italians. manage their shape,’ he said.
Although Britain and France will have weight The diet food and drinks market would increase
problems, they will have more people who are from £51bn in 1996 to £61bn in 2006. The
underweight than obese. In Britain the proportion underweight were the least likely to take exercise,
who are overweight or obese will increase from but people of normal weight were ‘a good market
48 per cent last year to 52 per cent in 2006. In segment as they display a strong desire to manage
France it will rise from 37 per cent to 50 per cent. their shape and more willpower to apply the
The forecasts were prepared by the market necessary changes to their lifestyle,’ he said.
analysts Datamonitor on the basis of trends since The overweight were the second most profitable
1996. Obesity was measured using a body mass group. They would continually try to make small
index to measure excess fat. The index divides the changes to their lifestyle and diet without ever
person’s weight in kilograms by their height in removing the underlying need to do so. This made
metres squared. A BMI of 20–25 is normal, 25–30 is them ‘potentially lifelong customers’. ‘While both
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Rural marketing 383

Case study continued

the normal weight and overweight consumer can yesterday during a conference at the Royal
oscillate between a desire for health and a desire for College of Paediatrics and Child Health in
indulgence, the overweight consumer will do so London. They suggested that postwar rationing
with greater frequency – possibly even between was better for children than the twenty-first
lunchtime and dinner.’ Mr Russell said people century snack culture. Youngsters today were
abstaining from alcohol because they were experiencing the nutritional equivalent of the
concerned about their weight or shape would cost Victorian age when rickets and scurvy were
the European drinks industry £3.2bn by 2006. commonplace.
Children are ‘eating themselves sick’ with poor Source: John Carvel, The Guardian, 31 May 2002. Copyright
diets and unhealthy lifestyles, nutritionists warned Guardian News & Media Ltd 2002.

Allied to the interest in social marketing, in the twenty-first century rural market-
ing is also likely to play an important role, developing rural markets for the benefit
of rural communities. A major proportion of the world lives in rural areas, but,
with the advent of satellites, both mobile communications and television, it is now
possible to market goods and services to rural locations. At the same time, it is pos-
sible for individuals within rural communities to market their own products and
services more easily than ever before.

Rural marketing
As populations increase around the globe, more consumers will be entering the
marketplace. A large proportion of these individuals will be living in isolated rural
locations throughout the world. This market is generally regarded as being invisible
and not very profitable according to traditional marketing views (Mahajan et al.
2000). However, the rural markets in countries such as India and China are huge
and, as Table 10.9 shows, they are set to become even greater by 2025 as roughly 70
per cent of the population will then be rural.
These hitherto invisible markets are becoming increasingly significant to both
small and large companies. In spite of very low per capita income in large swathes
of rural Asia, South America and Africa, the large numbers represent growing

Table 10. 9 Population breakdown by continent/region, in millions

Continent 1999 2025
Asia 3588 4725
Africa 778 1454
Europe 729 701
USA and Canada 304 369
Australasia, South Pacific 29 41
Latin America, Caribbean 449 690

Source: Data obtained from the United Nations Population Division, http://esa.un.org/unpp/
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384 Chapter 10 / New perspectives in marketing and the way forward

buying power, especially when families or groups of people team together to pur-
chase large items such as televisions or computers. At the same time, many
individuals from rural locations may have also successfully emigrated to cities and
other countries, looking for work. These individuals often bring new ideas and new
consumption patterns back to their original rural locations. As the world shrinks
further, in terms of communications, more and more products can be sold univer-
sally. At the same time, films set in rural China or Bollywood films set in India are
important catalysts for change.
Many multinationals are thus beginning to see that the major growth area for con-
sumption lies within the rural regions of the main continents. They are therefore
developing different and more localised branding strategies for their products. In cre-
ating such strategies, it is useful to consider different approaches to marketing.

Develop products that meet market needs

Many rural markets need products that improve their efficiency. For instance,
simple vehicles or scooters may be more appropriate in rural locations than cars
and so on as they can help to speed up the transport of goods or services. Equally, a
rotovator may work more effectively than a tractor.

Understand the informal economy

Many rural transactions are undertaken informally and do not register on many
countries’ GDPs. This method of making transactions and the amounts involved
need to be understood by marketers attempting to sell to rural markets. For instance,
economist Friedrich Schneider estimates that the ‘shadow’, or informal, economy
may account for one-seventh of the output of the world’s wealthiest nations and a
much higher proportion of that of developing nations. According to these estimates,
the shadow economy has been growing three times as fast as the formal economy
since the 1960s. In India, in 1998, only 12,000 of the nation’s roughly 900 million
citizens admitted to earning an income of more than $28,000 per year and only 1 in
77 people filed a tax return at all. Others estimate that India’s unofficial economy
may be as large as its national income (Mahajan et al. 2000).

Understand the role of second-generation émigrés to countries in

Europe, the USA, Canada and Japan
In many countries in the world there are large proportions of émigrés from the
major rural economies of the world. Figure 10.24 and Table 10.10 shows the differ-
ing population mixes in some of the major economies of the world. It does not
give a breakdown by country of origin.
MAST_C10.QXD 24/4/07 14:03 Page 385

Rural marketing 385

(Middle-series projections)
75.7 Key
71.8
1990
62.4
2000
52.8 2025
2050

24.5
17.6
15.4
12.3 12.9 14.2 11.4
8.7 9.0
6.6
0.8 0.9 1.0 1.1 3.0 4.1

White, not Hispanic Black American Indian, Asian and Pacific Hispanic origin
Eskimo and Aleut Islander (of any race)

Figure 10.24 Percentages of the population of the USA by race and Hispanic origin
Source: US Bureau of the Census 1997, www.census.gov/prod/3/98pubs/p23-194.pdf

Table 10.10 Population of the UK, France and Germany by ethnic group

UK Population
(July 2000 estimate) 59,778,000
Ethnic groups % English 81.5
Scottish 9.6
Irish 2.4
Welsh 1.9
Ulster 1.8
West Indian, Indian,
Pakistani and other 2.8
France Population
(July 2000 estimate) 59,766,000
Ethnic groups Celtic and Latin with Teutonic, Slavic,
North African, Indochinese, Basque
minorities
Germany Population
(July 2000 estimate) 83,251,000
Ethnic groups % German 91.5
Turkish 2.4
Other, made up largely of
Serbo-Croation, Italian
Russian, Greek, Polish, Spanish 6.1

Source: Based on Central Intelligence Agency figures, 2002

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386 Chapter 10 / New perspectives in marketing and the way forward

This data indicates the growing significance of other races within the major
economies of the West. It also opens the door to developing marketing strategies
for ethnic populations for their countries of origin. For instance, individuals of
Hispanic origin in the USA are very likely to have close links with Mexico and
other countries in South America. Similarly, the Chinese population will have close
links with China. Companies such as Unilever, featured in the case study, already
understand the importance of rural markets and are beginning to blaze a trail in
the adoption of these kinds of new marketing strategies.

CASE STUDY

Act local, think global

Hindustan Lever’s strategic and marketing with a fundamental insight into consumers. Both
innovations have the potential to transform its researchers and marketers recognised that Indian
business in India and to improve the quality of life women who wash clothes at a public tap or river
of the country’s rural citizens. Now the company is often use the same laundry soap to wash their body.
exporting those ideas to other parts of the world – But the laundry soaps were typically too harsh for
from Indonesia to the Congo. both skin and water. So researchers developed a
‘Necessity is the mother invention.’ That may be lightweight laundry soap to double as a personal
the most basic lesson behind Hindustan Lever’s soap. Behind the product-concept innovation are
remarkable track record of innovation in rural manufacturing innovations. Lever labs and pilot
India. When a giant company with a 30-year track plants are replete with manufacturing machines that
record of growth suddenly confronts flat sales, it its scientists built themselves – either because
has two choices: cut costs to stay profitable or work existing machines cost too much or because the
harder to discover new ways to grow. The leaders at technology didn’t exist to make products in the cost-
Hindustan Lever have opted for the second choice – efficient way that Hindustan Lever had designed.
and have identified India’s hundreds of millions of The new laundry soap, for example, uses a simple
rural consumers as a high-priority market. That’s process to cast the soap immediately in the shape of
why every management trainee at Hindustan Lever a plastic package. The manufacturing process is an
begins his or her career by spending six to eight energy saver, too, because it doesn’t convert the soap
weeks in a rural village, eating, sleeping, and as many times – from liquid to tablet to bar – as
talking with the locals. Marketing executives make other soap-making processes do. Lever built a
frequent two-day visits to low-income and rural machine for less, saved energy costs, and plans to
areas. Managers at every level are trained in pass on the savings to consumers.
techniques for talking and listening to consumers. Because Naik identified a different consumer
And scientists apply time and energy figuring out need, he was able to develop a different process to
how to do more with less. meet that need. ‘Technology that once liberated
‘We need to apply top-class science to solve simple consumers can be a constraint for new innovation,’
problems at a reduced cost for the consumer,’ says Dr says Naik. ‘New products require new principles.’
V.M. Naik, Deputy head of Hindustan Lever’s His new principle: reduce the load on the
Research Laboratory in Bangalore, India. Naik, who environment. That means using less detergent and
spends about 70 per cent of his time in the lab, was fewer hydrogenated oils. The result? The company
the primary scientist behind recent mass-market uses less than half of the current agricultural land
products, such as low-cost ice-creams and low-cost usually required to raise oil seeds to produce soap.
soaps. The success of the soap process and others – And fewer active ingredients mean less harm to the
like Hindustan Lever’s marketing campaigns – started water supply. What’s next on the innovation
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Rural marketing 387

Case study continued

agenda, both for Hindustan Lever and its global midst of political upheaval in the Congo, ‘people
parent, Unilever? To export the ideas and still need to wash their clothes and eat staple foods,’
techniques that are unleashing growth in rural says John Miller, Senior Vice-president for Home and
India to other parts of the world with similar Personal Care for Unilever South Africa. Of course,
strategic hurdles: language barriers, limited water people may eat only once every two days instead of
and electricity, political instability, financial every day, and they may well use detergent bars for
upheaval, barely motorable roads. Here are some both their clothes and their dishes. So instead of
examples of Lever’s ongoing strategic ingenuity trying to move consumers into new or higher-
from around the world. margin products, Miller and his colleagues in the
Congo focused on the fundamentals with radio ads
Nice product, but can you get it to market? that featured pitches for the most basic elements in
In the Philippines, a country composed of more than
Unilever’s product line.
7000 islands, physical distribution can get expensive
– when it’s possible at all. And Unilever faces an
Want profits? Sell lots of small things
additional market hurdle in that country, a former US
Nihal Kaviratne, the Chairman of Unilever
colony: a historical preference for buying American
Indonesia who cut his teeth in India with
(read: Procter & Gamble). Unilever’s response?
Hindustan Lever, wasn’t shocked to find that 63 per
Change the game. To lower the overhead cost of Surf
laundry detergent, compared to P&G’s Tide, sachets cent of Indonesia’s 204 million people live in rural
of Surf were distributed in jute rice sacks. The sacks areas. So he borrowed from the company’s prior
were cheaper than cardboard and were more flexible success with sachets. ‘Our whole business is built
for storage, and they kept the product dry. The on low-dose sizes,’ he says. But how could the
company’s local affiliate then focused on bicycle company keep the sachets profitable? Although it’s
brigades as an inexpensive method of distribution. It expensive to produce so many small units, the
designed a bicycle that could carry the heavy load of sachet material used in Indonesia is less expensive
the bags and still be lightweight enough for someone than elsewhere. That means Indonesia gets the
to pedal to remote areas. same profit margin on a plastic 6-millilitre sachet of
shampoo as it does from a 50-millilitre bottle.
In tumultuous times, focus on fundamentals
Source: Rekha Balu, ‘act local, think global’, Fast Company, June
The Congo is not anyone’s idea of a stable, 2001 (available at: www.fastcompany.com/articles/2001/05/
comfortable place to do business. But even in the lever_sidebar.html)

Companies such as Coca-Cola are also embracing rural markets with verve by develop-
ing and selling smaller-sized bottles (Kripalani 2002). Apart from consumer goods,
services such as mobile phones and insurance are growing, too. Mobile phone operators
such as Escotel Mobile Communications Ltd, a joint venture between Hong Kong
investment firm First Pacific and New Delhi-based Escorts Ltd, are finding new cus-
tomers all over rural India. Fishermen in coastal Kerala, in the south, use the phone
service to find the best prices for their catch – a practice that can earn them up to
50 per cent more. Escotel now controls 14 per cent of India’s non-metro mobile market,
providing services to 500,000 subscribers in 3240 towns and villages. This enables local
producers to market goods locally, adding to the growth of rural economies.
In the twenty-first century, rural marketing is going to play an important role in
the development of the world’s poor communities. However, marketers will be
walking a thin line between meeting real local marketing needs and the marketing
needs of large multinationals wishing to expand their market base. The
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388 Chapter 10 / New perspectives in marketing and the way forward

Alternatives Committe of the International Forum on Globalization (2007) under-

lines the position quite clearly:
it bears repeating that roughly half of the world’s people still live directly on the land, grow-
ing their own staple foods, feeding families and communities. They are indigenous seed
varieties developed over centuries. They have protected their own organic fertilisers, crop
rotation and natural pesticide management. Their communities have traditionally shared all
elements of the local commons, including water, labour and seeds. They have been exem-
plary in preserving the biodiversity necessary for community survival, and have fed the local
communities for centuries. But they are all under assault from the corporate industrial agri-
cultural system.

In this respect, companies such as Hindustan Lever have tried to work to benefit both
the communities and corporate profits by collaborating closely with rural self- help
groups (SHGs). With the help of their Project Shakti, the SHGs have the option of dis-
tributing the firm’s relevant products as a sustainable, income-generating activity.
The model hinges on a win–win relationship, with the SHGs engaging in an activity
that brings sustainable income, while Hindustan Lever gets an interface by means of
which it can interact with its customers (Kaul and Lobo 2002).
An alternative to this is the marketing model developed by Vandana Shiva (Mehta
2002). She has formed an organisation called Navdanya (Nine Seeds), based in Delhi.
This organisation encourages farmers to produce hardy, native varieties of crops that
can be grown organically without the help of fertilisers and chemicals. The produce
is then marketed via the farmers’ own network. In this manner, local needs are met
and the marketing of the produce takes place via the network. In the end, the con-
sumers benefit from a greater variety of locally produced goods than was available
previously. This initiative reflects one solution to the continuing battle between the
globalisation and the localisation of products and services in marketing.

Towards a new strategic marketing model

As explained in Chapter 1, there is a range of marketing models that can be
adopted by companies. In the course of reading this book, you will have come to
understand some of the key drivers of marketing in the twenty-first century.
Bringing all of these together, we now propose a new marketing model, taking
account of the new realities (see Figure 10.25).
This model takes into account the various points discussed in the preceding
chapters. It includes each of the aspects presented in the book that need to be con-
sidered before developing company-specific strategies. The key issues to think
about, as discussed in the various chapters, are the following.
 Understanding the role of strategic planning in delivering the marketing con-
cept and the need to adopt a wider view of marketing strategy, as discussed in
Chapter 1. Companies also need to consider all the various stakeholders and the
key issues when developing mission statements.
MAST_C10.QXD 24/4/07 14:03 Page 389

Towards a new strategic marketing model 389

VISION
Understanding the environment, stakeholders,
current position, level of market orientation, corporate
Analysis reputation, ethical stance, ecological stance,
market segments served, organisational competencies,
technological competencies
Mission
statement
Measurable objectives such as market growth,
ecological measures and financial outputs. Qualitative
TECHNOLOGY and GLOBALISATION

Objectives aspects such as the development of marketing

competencies, branding effectiveness
Feedback and iteration

Utilisation of models such as Porter, Ansoff, GE matrix to

Strategies develop marketing strategies. Value co-creation studied
and applied. Integrated marketing communications used

Short-term marketing tactics taking into account

Tactics current environmental characteristics, but residing
within the overall corporate vision

Marketing metrics capable of addressing companies’

Control
and stakeholders’ performance needs

Key aspects of the marketing strategies

Summary
and contingencies

Figure 10.25 Strategic marketing model for the twenty-first century

 No strategies can be developed without a strategic analysis of a company’s cur-

rent position. In this respect, Chapters 2 and 5 contain important elements that
need to be taken into account – Chapter 2 gives a comprehensive account of
analytical techniques and Chapter 5 discusses the importance of brands and
advertising strategies.
 In developing the overall strategy, a company needs to understand the nature of
its stakeholders and its own approach towards them. Ethical and environmental
issues must also be taken into account. These matters are discussed in Chapters 3
and 4.
 Communicating products and services relies on integrating branding messages
and this is covered in Chapter 5.
 The values and the learning abilities of organisations determine their ability to
deliver customer-orientated strategies. In the twenty-first century, competitive ability
is often determined by the speed at which organisations can learn and implement
strategies. Many of these aspects are developed in detail in Chapters 6 and 7.
 Globalisation is now part and parcel of many companies’ strategies and this has
to be understood and nurtured, as discussed in Chapter 8.
 For most companies, strategic success depends very much on the ability to meas-
ure performance in many different directions. As there are differences from
company to company, it is important that these measures are tailor-made for
MAST_C10.QXD 24/4/07 14:03 Page 390

390 Chapter 10 / New perspectives in marketing and the way forward

each company, as discussed in Chapter 9. Measures should also take into

account the ethical and environmental dimensions of marketing, linking back
to Chapters 3 and 4. More and more organisations are urged to use the triple
bottom line approach.
 As technology changes and evolves, all marketers need to be able to make
informed judgements about the new and developing areas in marketing. Many
of these aspects are discussed under the heading ‘Digital marketing’ in this chap-
ter. This chapter has also looked in depth at value co-creation and social
marketing – something that many organisations are now having to integrate
into their marketing plans.

Each of these aspects is covered in the boxes as shown in the model in Figure
10.25. It is not entirely prescriptive, as different companies will have different
emphases in terms of the markets they serve and target. It also incorporates the
ethical and ecological stances that ought to become important aspects of a com-
pany’s reputation and marketing communications strategy.

Summary and final observations

This chapter and the preceding ones lay the groundwork for understanding how
marketing is likely to evolve as the twenty-first century moves forward. The general
environment is undergoing many changes and marketing strategies need to reflect
the evolution in competition and consumption patterns that is taking place
around the world. Technology is playing a crucial role in bringing markets closer
(via the Internet), while mobile communications are making it easier for distant
communities and individuals to communicate easily. Transparency in managing
companies means that a greater emphasis needs to be placed on corporate gover-
nance and the role of stakeholders. Organisations need to become increasingly
concerned about the fragility of the planet and its eco-systems by developing prod-
ucts and services that minimise pollution and conserve energy. At the same time,
the profiles of consumers are changing. In the richer nations, consumers are
becoming more sophisticated and also concerned about global issues; in poorer
countries, consumers still have to be reached, but their marketing needs are now
evolving rapidly, as illustrated in this chapter. Companies also have to consider
how they develop relationships with their consumers and how they organise them-
selves effectively internally. In marketing terms, companies should not be judged
by their returns on investment alone but also by a wide range of measures, includ-
ing their ecological performance.
The old models of marketing need to be revisited and adapted to meet the needs
of this century. Marketers today need to work with the fact that pushing consump-
tion is only one aspect of marketing and meeting social and ecological needs is
becoming more important as resources dwindle. New products and services with
new localised marketing strategies are likely to benefit consumers more than global
standardisation.
MAST_C10.QXD 24/4/07 14:03 Page 391

Summary and final observations 391

The era of responsible, customer-orientated marketing is dawning and marketers

need to embrace this with vigour. Marketers now have a range of tools that are
available to them as a result of the technological advances that have taken place.
There is also a great concern that consumers have about the degradation of the
environment and ethical stances taken by companies. NGOs and consumers them-
selves are increasingly voicing these concerns openly. In order to enable you to
work within this new order and truly become customer-orientated, this book has
shown the wider context in which marketing operates today and the ways in
which a customer orientation can be implemented.
MAST_Z01.QXD 24/4/07 14:03 Page 392

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MAST_Z02.QXD 24/4/07 14:31 Page 408

Index

accommodating stakeholder average collection period 300 Boston Consulting Group (BCG) 34,
relationships 107 249
accounting 296, 301 Baconguis, Beau 93 boundaries between industries,
‘Achilles heels’ 32 Baenen, Sean 45 blurring of 349
ACORN approach to segmentation Baetz, M. 16 Bracy, Michael 45
56–7 Balu, Rekha 387 Bradesco 25–6
activity ratios 300 banking services 25 brand equity 158–9, 180, 188–9,
adaptability of firms 302, 305 Barbut, Monique 114 297, 306–7, 312–13, 325
added value 306 Barnes & Noble 252 brand image 42, 95–6, 111–12, 135
‘adhocracies’ 8, 238 Barney, J.B. 253 brand management 180–1, 189
adoption of a product 36–7 Bart, C. 16 brand names 175, 177, 188–9
Adshead, Fiona 377 Bartlett, C.A. 292 brand relationships 168
advertising 153–5, 306; BCG matrix 34–5 brand salient attributes (BSAs) 187
‘obsolescence’ of 76 Beauty and the Bees 270 brand strategies 178–80
AEG 94–5 Bebo 76, 352–3 brand values 184, 188–9
ageing industries 34 Becker, M. 362 Branson, Richard 22
airline industry 42–3, 62–5 Beckham, David 314 Brazil 125
alliances of companies 286–7, 371 behaviour models 373 Brin, Sergey 364
Amazon 19, 23, 252 behavioural attributes, segmentation British Biotechnology 108–10
Ambler, T. 188 by 56 broadband technology 154, 171,
American Association of Advertising Behlendorf, Brian 345 214, 352–3
Agents (AAAA) 157 Ben & Jerry’s 289–91 Broderick, A. 157, 161
American Marketing Association benchmarking studies 254 Bronfenbrenner, K. 273
(AMA) 4–5 Benetton 285 budgeting 161
Amnesty International 24 Benkler, Yochai 344 Budweiser beer 180
Andreasen, A.R. 60 Berman, Steve 45 bureaucratic learning systems 245,
Anheuser-Busch 135 Bernat, Xavier 313–14 261
annual reports and accounts 90, 297 Bevan, Judi 79 Bush, George W. 88, 103
Ansoff matrix 50 Beverland, M. 159 Business in the Community 146
Apple Computers 9–11, 359 Bhatia v. Sterlite Industries 100 business intelligence 217
Aravind Eye Care System 252–3 Bilkey, W.J. 265–6 Business Week 185
arbitration 103 Biocatalyst 46 buyer power 46–7, 99
Arcelor 106 biotechnology industry 23, 47,
Arlov, Laura 62 108–9 Cadbury-Schweppes 289–91
Armani 187 Blair, Tony 186–7 Calori, R. 238–40
Armstrong, A. 77 blogs 77, 352, 358–62 Calvin Klein 187
Asda 176–7 Bluetooth devices 222 Cameron, K. 237
Ashridge mission model 15–16 boards of directors 83–6 Campbell’s brand 180
Asia Pacific Resources International body mass index 382 capacity utilisation 46
(APRIL) 129–32 The Body Shop 134, 268, 289–90, Cappi, Luiz Carlos Trabuco 25
Atkinson, R.D. 347 369 car manufacturers 46
attractiveness of an industry 41, 48–9 Boeker, W. 18 Carat UK 154
Audi 215 Bond, Archy 177 carbon dioxide emissions 94, 116,
audit committees 90 ‘born global’ companies 267–70 119, 121
Austria 120 Borys, B. 205 Carrillat, F.A. 8
automation 216 Bosarge, J. 362 cartels 44
MAST_Z02.QXD 24/4/07 14:04 Page 409

Index 409

Cartier 277 136, 142, 202–5, 257, 261, cultural practices 236
‘cash cows’ 34–5 276, 335; and ethics 366–8; culture, organisational 162, 235–41;
Castronova, Edward 357–8 and mission 39–40; definition of 236;
Cavusgil, S.T. 269 sustainability of 115 questionnaire on 239–40;
Caywood, C. 163–5 competitive industries 42–3 types of 237–8; uniqueness of
census data 56 competitive marketing strategies 253–4; visible and invisible
Century21 285 101–8 aspects of 228; see also
CFCs (chlorofluorocarbons) 139–40 competitive position 34, 206–10 marketing culture
challengers in a market, strategies competitive strength 48–9 current ratio 299
available to 209–10 competitors: differentiation from customer equity 96
change, organisational, fear of 162 71, 73, 367; range and customer lifetime value (CLV) 66–9,
Chappell, Tom 290 diversity of 43–4 307–10
charities 4–5, 92 complementary resources 39 customer loyalty 11, 96, 219, 332–4
chemicals, use of 117, 127 complex adaptive systems 251–2 customer orientation and
chief executive officers (CEOs) 83–4, computer games 41, 59 customercentric approaches 7,
88, 91–2, 103, 198 computer hardware industry 46 241–2, 328–36, 391
chief financial officers 88 computer-mediated environment customer power 47, 95
China 116, 119, 129, 273 (CME) 329 customer relationship management
Chowdhury, Jitubhai 123 computer software industry 43 (CRM) 204, 211–12, 218–23,
Christian Aid 92 concentration, industrial 43 331; three phases of 221
Chupa Chups 313–14 concept-led organisations 252–3 customer relationships 261; in
Ciarelli, Nick 359 conceptual use of knowledge 257 different markets 68;
Cisco Systems 42 Connett, Marie 345 duration of 69
clan culture 238 consolidation 209 customer retention 96, 220–1, 307,
Clark, Andrew 359 Constantin, J.A. 335 312
Clarkson, Jeremy 186–7 consumer behaviour 331–3, 347; see customer satisfaction 11–12, 96,
clean technology 133 also under customer(s) 204, 215, 307, 311–12, 335
Clegg, S.R. 76 consumption patterns, multiple customers: acquisition of 220;
Cleland, K. 161 influences on 145 characteristics 55; definition
climate change 94–5, 116–17, 122 contact points and contact of 68; enhancement of
cloned headquarters for firms preferences 158–9, 168 profitability of 220;
operating abroad 288 Conti, T. 102, 112 information on 211–13, 367;
‘close race’ markets 207 Cooper, Alan 62 and marketing strategy
closed-loop planning 166–9 Co-operative Bank 16, 319–20 210–13; types of 141, 360
Coca-Cola 19, 42–3, 47, 146, 154, cooptition in marketing 347 ‘cyclone’ markets 207
180, 183, 277–8, 285, 291, coordination within companies 229 Cyworld 358
387 corporate governance 82–90;
Coco Pops 188–9 government and global Darwin, Charles 251
co-creation marketing 330, 335–42 pressures on 86–7 databases, use of 53, 161, 168, 174,
cognitive-behavioural models 373–5 corporate identity 156, 171–2 332
Cohen, J.B. 55 corporate reputation, measurement data-mining 211, 242
Colgate-Palmolive 42, 187, 289–90 of 91–2 Datamonitor 382
collaborator companies 219 corporate social responsibility (CSR) David, F. 16–17
Committee for Foreign Investment 87–8, 100, 181, 360; and the Day, S.G. 33, 258
in the United States (CFIUS) law 88–9 Dean Foods 289
105 cost advantages or disadvantages 42, debt-to-assets ratio 300
Common Short Code (CSC) 362–3 46 decentralisation of decision-making
communications technology 2–3; cost leadership strategy 202–3 160
see also information and Costello, Jim195 defensive stakeholder relationships
communication technology Coutts, Teddi215 107
communicative action, theory of Cova, B.75–6 Dell Computers 19–20, 215, 359
105 Covisint252 Deloitte Hoskins 218
communist countries 103, 276 Crest187 demographic segmentation 57–8
community networks 366 Cruyff, Johan314 departmentalisation 229
company law, harmonisation of 90 Culnan, M.J.367 design of products, flexibility in 339
competition factors contributing to cultural creative (CC) consumers 141 deutero-learning 246, 250, 261
market attractiveness 49 cultural model of meaning 156 developing countries 272, 276
competitive advantage 7, 38, 100–1, cultural patterns and norms 227 Diageo 193–5
MAST_Z02.QXD 24/4/07 14:04 Page 410

410 Index

Diamond Cluster International 274 embryonic industries 34 Fetterhoff, T.J. 341

Diaz, Cameron 144 émigrés 384–6 Fiat 286
Dibb, S. 191–3 Eminem 44–5 Financial Accounting Standards
Dibrell, C. 20 emotions and marketing 334 Board 87
dieting 382–3 employees: conflict with 103; roles financial analysis 297–8
differentiation 202–3; between of 100 financial factors contributing to
departments within a firm 29, ‘encirclement’ strategy 209 market attractiveness 49
234; from competitors 71, 73, energy consumption 94–5 financial measures of performance
367 Enron 87, 90–1, 300 301
diffusion of products 36–7 entry barriers 42–3 Financial Reporting Council 90
digital cameras 23 environment, definition of 13–14 Financial Research Survey (FRS) 61
digital divide 4 environmental concerns 77–8 Financial Times 108
digital loyalty networks 218–19 environmental effectiveness, FINPIN coding 61
digital marketing 351–3, 364 measurement of 315–19 Fiol, C.M. 245
Dillon, W.R. 187 environmental factors affecting Firat, A.F. 77
‘direct confrontation’ situations 208 strategy 14–15 first mover advantages and
‘direct response’ advertising 154 environmental justice 116 disadvantages 19
directional policy matrix (DPM) 50 environmental marketing 115–25 Fisher, Lori 343–4
directors of companies 83–6; Environmental Protection Agency, five-forces model of industry analysis
disqualification of 90; US 115, 133 43–4
non-executive 89–90 Ericsson 286 fixed asset turnover ratio 300
Disneyworld 181 Escotel 387 ‘flanking attacks’ 208
distribution channels 42 ESRC Centre for Business Research Fletcher, K.P. 259
Dixons Group 17 196 flexibility of marketing structures
Djemal, Leila 268 Ethical Consumer magazine 290–1 and processes 337–40
‘dogs’ 34–5 ethical investment 16, 118, 136 flexible working arrangements 214
Doha round of trade talks 119 ethical issues 116, 138, 149, 289 Flora 154
dominant competitive position 34 ethical marketing 24, 368 follower firms, advantages and
Dornfest, R. 364 ethical stance matrix 136–7 disadvantages of 208
dot.com businesses 309 ethics as a source of competitive Food and Drug Administration 109
double-loop learning 246, 253–4, advantage 366–8 food safety 98
261 ethnic minority communities 278 Ford Motors 77, 135
Doyle, P. 101, 296 euro currency 91 foreign markets, selection of 278–81
Duncan, A. 154 European Agency for the Evaluation forest sustenance 131
Duncan, T. 158, 161–5 of Medicinal Products (EMEA) formalisation of communication
DuPont 344 108–9 processes 229, 231
Dupree, L. 362 European Commission 133 Foster, D. 104, 106
dynamic marketplaces 346–51 European Single Market 91 founders of companies 18
Dyson, James 73 European Union 90, 95, 103, 349 Fountain, J.E. 347
Dyson vacuum cleaner 36, 73 evolution, theory of 251 4:40 effect 113–14
exit barriers 46 ‘Four Ps’ concept (product, price,
early adopter consumers 36–7 expansionary marketing strategy promotion and place) 328–9
early majority consumers 37 209 Foxall, G.R. 104
easyJet and easyGroup 22, 42 expectations of customers 11–12 fragmentation: of markets 2–3, 76,
e-Bay 7–8, 23, 352 experience effects 312 150, 172, 278, 332, 335; of
eco-efficiency 316 experiential advantages 22 society 3, 75
ecological footprint 114, 123–4 experiential learning 19 France 87
ecological perspectives 372–3; see explicit knowledge 249 franchising to foreign countries
also industrial ecology exploitation/exploration balance 285–6
economic factors contributing to 255 Frank, R.E. 55
market attractiveness 49 exporting 284–5 Franklin Associates 140
Edmondson, A. 246 external analysis by companies 40–5 Freeman, E. 82
Edsjö, Karl 143 Freeman, J. 18
efficiency and effectiveness 302–6 fairtrade policies 81 Freeman, S. 237
Electrolux 143 ‘family lifecycle’ concept 60 Freeserve 17
electronics industry 127–8 favourable competitive position 34 French, Jeff 377
Elle 268 fear of change 162 Friedman, Milton 88
embryo cloning 103 feedback analysis 174 Friends of the Earth 92–3
MAST_Z02.QXD 24/4/07 14:04 Page 411

Index 411

Fuller, D.A. 140 ground positioning systems (GPS) nology on 213–14; main
functional specialisation within 222 influences on 195–7;
firms 160–1 growth industries 34 management intervention in
growth vector analysis 50–1 202; planned or emergent
Gallup Polls 139 ‘guerilla attacks’ 210 190–3; role of people in 199,
Gap Inc. 115, 187 Guinness 193–5 202
GardenWeb 77 Gurau, C. 282 implementation matrix 224, 226
Gates, Bill 25 GUS (beta-glucuronidase gene) India 116, 119, 123, 129, 273
gearing 300 342–3 individualism 3, 76
Geels, Scott 186 GUS (Great Universal Stores) 80 industrial ecology 134
general brand impressions (GBIs) Industrial Marketing and Purchasing
187 Habermas, Jürgen 105 Group 204
General Electric 48, 114–15 Hagel, J. 77 industrial sectors, definition of 41
General Motors 135, 286 Haji-Ioannou, Stelios 22 industry analysis 47–8
genetic engineering 342 Hamel, G. 15, 100 industry attractiveness/business
genetically-modified (GM) foods Hannan, M.T. 18 competitive strength matrix
92–4, 97–8 Hardiyanti, Anny 130 48–9
Geocities 76–7 Harrison, Nick 176 inertia, organisational 18
geodemographic segmentation 61 Hart, S.L. 136 informal economy 384
geographic segmentation 56–7 ‘harvesting’ strategy 207 information and communication
Germany 87–9, 94, 113, 120, 382 Harvey-Jones, Sir John 181 technology (ICT) 151,
Ghoshal, S. 292 Hassell, Chris 155 210–11
Giddings, L. Val 344 Hasson, Sharon 267–9 information-seeking culture 245
Gillette 351 health belief model (HBM) 374–5 information systems 52–3, 174, 212,
Girod, M. 250 Heath, Martin 214, 217 220, 329
global marketing 277–8 hedonic benefits from products 187 information technology (IT)
global organisations 293 Heinzer, Bruno 93 213–15, 347
globalisation 86–7, 91, 96, 116, 118, Hensley, David 313 information transmission, speed and
263–5, 271–3, 277, 294, 347, Heseltine, Michael 80 cost of 349–51
388; impact on small and HFCs (hydrofluorocarbons) 95 infrastructure, technological,
medium-size companies 273; hierarchical culture 238 organisational and
knowledge about 271 Higgs Report (2003) 88–90 administrative 213
Godin, S. 211 Highson, C.J. 296 innovation models 340–1
Goldmacher, Steve 143–4 high-tech goods 348–9 innovativeness of a particular firm
Goodman, Michael 45 Hindustan Lever 386–8 302
Google 7–8, 23, 154, 364 Hjerpe, Jonas 215 innovator consumers 36
Google ad professionals (GAPs) 365 Hodgkinson, Tom 21 inputs to marketing 303–4
Gosbee, Bill 215 Hofstede, G. 236 institutional investors 86–7, 109
government regulation 42 holistic approaches 328 instrumental use of knowledge 256–7
Grant, Hugh 343 Homburg, C. 241 intangible resources 29–30
Grant, Karen 268 home working 215–16 integrated marketing
Grant, R.M. 17 Honore, Carl 21 communications (IMC)
Green & Black’s 289, 292 horizontal communication 160 150–75, 189; advantages of
green consumers 139–42, 147 Human Genome Project 23 158–9; definition of 157–8;
green management 138 human resource management 256 implementation of the
green marketing 123–5, 142, 146 Hunt, Justin 216 concept 159–70; in an online
green products 115, 122, 125, 149 hyperreality 3, 76, 365 environment 170–5
Greenbury, Richard 80 hypertext organisations 260–2 integrated online marketing
greenhouse gases 119 Hyundai 33 communications (IOMC)
Greenley, E.G. 104 170–5
Greenpeace 92–4, 97–8, 125–8, 135, IBM 62, 65, 236, 343, 345 Intel 183, 246
146 identity, sense of 15–17 interdependencies of partner firms
‘greenwashing’ 134, 137, 141 image, corporate 155–6, 171–4 205–6
‘grey’ market 58 image marketing 76 internal analysis by companies
Griffin, R.W. 162 implementation of marketing 29–40
The Grocer 176 strategies 6, 190–202, 220; internal resources of companies
Gronstedt, A. 165–6 bottom-up or top-down 30–2; and corporate
gross profit margin 298 199–200; impact of tech- objectives 39–40
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412 Index

international firms 292–3 Kumar, Bharat 232–3 Luxton, S. 159

International Forum on Kumar, S. Ramesh 232 Lyles, M.A. 245
Globalisation 388 Kyoto Protocol 119 Lyons, Sir Jack 195
international marketing operations
264–5, 276–80, 284–5 labour-saving devices 20 McDonald, M.H.B. 12–13
internationalisation 263–4; of firms laggard adopters of new products 37 McDonald’s 124–5, 181, 277–9, 285
265–7; knowledge about 271 Lang, Tim 291 McKean, J. 223
Internet banking 25 La Roque, Ed 144 McKinsey Consulting Group 48
Internet companies 100 late majority consumers 37 McLaughlin, Danny 214–15
Internet resources 2, 23, 44, 47, 76, Lawer, C. 211 McLoughlin, Coleen 176
96, 151–5, 170–3, 210, 213, leapfrog strategy 209 McSweeney, John 194
217, 220, 278, 307–9, 329–30, learning: contexts of 259; culture of Makower, J. 142
352–3, 367–8, 376; conflicting 251–4; lower level and higher Malik, Pravir 253
tendencies created by 172 level of 243–5, 255; management innovation model of
Internetisation 263–4 organisational (and learning experiential learning 265–6
inventory: in relation to net working organisations) 223, 242–3, March, J.G. 254–5
capital 299; turn-over ratio 246–9, 255–61; see also Marismastat 108–9
300 market-based learning market-based learning (MBL) 257–8
invisible parts of an organisation learning audits 246–7 market-driven and market-driving
233–41 learning orientation, benefits of 250 strategies 7–8
iPods 9–11, 349, 359 learning processes 243–6 market entry strategies 284–9
Italy 113 learning systems 245–6 market factors contributing to
Leeds City Council 216 industry attractiveness 49
Jabulika Uranium Mine 105 legitimacy 105 market leaders 19; strategies
Jefferson, Richard A. 342–6 Lego 23 available to 208–9
Jeffery, Will 155 Leroy, Phillipe 25 market-led organisations 231
Jemison, D.B. 205 Lessig, Lawrence 345 market orientation and market-
Jobs, Steve 9–11 leverage 15, 17, 22, 24; by orientated organisations 6–9,
Johnson, G. 13–14 customers 211 258–62, 296–7
joint ventures 287–8 leverage ratios 300 market orientation scales 6
Jones, Helen 290 Levinthal, D.A. 254–5 market quality and market position,
Jones, Neil 154 Levis 19, 184–7 assessment of 51
Jonker, J. 104, 106 Levitt, T. 277 market research 72–3, 332, 336
Jorgensen, Richard 343 Lewis, W.F. 104 market shares 35, 297, 312
L.G. Balakrishnan & Brothers (LGB) market strategies, efficiency and
Kalakota, R. 220 232–3 effectiveness of 302–6
Kaufman-Scarborough, C. 20 liberalisation 118, 272 market structures 347–8
Kaviratne, Nihal 387 licensing agreements 285 market takers 219
Keegan, W. 157 lifecycle analysis (LCA) 126, 140 marketing, definition of 4–5
Keir, Nathan 355, 357 lifecycle concept 332 marketing audits 302–3
Kellogg’s 135, 188–9 lifecycle design (LCD) 133 marketing concept 4–5; strategic
Kentucky Fried Chicken (KFC) 154 life-enhancing experiences and planning for delivery of
Kim, D.H. 247–50 services 211, 335 12–14
King County Commission 147 life-stage segmentation 60 marketing culture 236, 238
Kishore, Ganesh 344 ‘lifestyle snapshots’ 62–5 marketing information systems
Kitchen, P.J. 158, 166–70 lifestyles of health and sustainability 52–3
Kleisterlee, Gerard 185–6 (LOHAS) 141–2, 145 marketing knowledge 256; uses of
Knight, G. 269 lifetime relationships with customers 230–1
Knight, L. 259 96 ‘marketing myopia’ 41
know-how 42, 246 lifetime value of customers 66–9 marketing process 5–6
know-why 246 Lindquist, J.D. 20 markets, definition of 69
knowledge, uses of 256–7 Lindstrom, M. 23 Marks, Michael 79
knowledge management (KM) 217 liquidity ratios 299 Marks, Simon 80
Kodak 23 long-term debt to equity ratio 300 Marks & Spencer (M&S) 79–81, 84,
Konno, N. 260 loyalty networker companies 219 99, 103
Kotler, Philip 171, 302, 371 Luce, S. 273 Marlboro band 180
Kovac, Carol 345 Lunn, A. 56 Martin International 99
KPMG 216 Lusch, R.F. 30, 204, 335 mass communication 76, 150
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Index 413

mass customisation 241 National (US) Environmental opportunities: in stakeholder

mass marketing 2 Education and Training management 107; in target
mature industries 34 Foundation 139 markets 40–1; see also SWOT
Mazur, L. 184 National (US) Science Board 348–9 analysis
Mead, Chris 356 National (US) Science Foundation Orange 286
Menon, A. 256–7 139 L’Oréal 289–90
mental models 248–50, 261–2 Natural Marketing Institute 141 O’Reilly, C. 237
Mercedes 277 Navdanya 388 organic products 148–9
mergers of companies 289 NBC 155 Organisation for Economic
metrics of marketing 297, 301 Nestlé 97–8, 290 Cooperation and
Mexico 273 net income 299 Development (OECD) 82–3,
Michel, Christoph 215 net profit margin 298 272
microprocessor prices 350 Netherlands, the 87 organisational charts of the
Microsoft 7, 36, 41, 43, 77, 355 network learning 259 marketing function 227–8
Miller, John 387 networked environment 152–3 organisational culture profile (OCP)
Miller, R.L. 104 new entrants, threat from 41–2 237; see also culture,
Millier, Paul 197–8 new products: firms’ approaches to organisational
Milstein, S. 364 208; users of 36–7 organisational learning see learning:
Mindak, W. 171 News Corp. 155 organisational
Mintzberg, H. 12–13, 229, 237 Next 81 organisational memory 250
mission, corporate 15–16, 39–40 niche firms and niche markets 55, organisational structures of firms
mission statements 16–17 203, 289 159–63, 229–31, 256
Mitsubishi 135 Niemann, I. 168–9 Oucchi, W. 237
Mittal Steel 106 Nike 24, 125–6 outputs of marketing 303–4
mobile marketing 362–3 Nintendo 23, 43 outsourcing 274–6
mobile phones 37 Noble, C.H. 191 Oxfam 92, 115
mobile working 214, 216 Nokia 128 ozone depletion 95
mobility of labour 347 Nonaka, I. 249, 260,
modern consumers 141 non-executive directors (NEDs) Page, Larry 364
Moglen, Eben 343 89–90 Palmer, Mark 290–1
Moingeon, B. 246 non-governmental organisations Parkin, Matthew 182
Mokwa, M.P. 191 (NGOs) 92–4, 309–10, 391 Parnes, Anthony 195
money as a resource 30 not-for-profit organisations 309–10 parsimony in measurement 297
monochromic consumers 20 Novartis 93 participative learning systems 245
Monsanto 92, 343 Novo Nordisk 320–1 participative strategic planning
Mooney, Paul 93 NTL 365 200–1
Morgan, Andrew 194–5 nuclear power 95 patent protection 19, 22–3, 42, 285,
Morgan, Charles 182 345–8
Morgan, N.A. 303 Oates, Keith 80 PCBs (polychlorinated biphenyls)
Morgan Motor Company 55, 181 obesity 381–3 114–16
MORI 113, 145 objectives, corporate 39, 297 PDCA (plan-do-check-act) cycle 134
Moriarty, S. 161–5 observability of products 36 Pearce, J. 16
Morrison’s 177 Ofcom 154, 352, 359 Pedelty, Mervyn 319
MOSAIC coding 61 offshoring 272–6 Pepsi-Cola 43, 47, 180
Mulholland, Andy 215 oligopoly 43, 286 perceptual maps 72–5, 187, 367
multiculturalism 278, 294–5 Oliver, Jamie 377 Percy, L. 160–2
multinational corporations 96, 124, Omidyar, Pierre M. 354 performance measurement 296–7,
220, 286, 289–92, 384 ‘one minute customers’ 211 301–4, 312; for individual
multinational marketing orientation one-to-one marketing 76 companies 324–6; three tiers
274 online communities 77 of indicators for 309
Munoz, Canesio P. 129–30 online games 354–6 Perman, Stacy 269
MySki Inc. 330 online marketing 41, 213, 307, personal data on customers 211
MySpace 76–7, 155, 352, 354 329–30, 376–7, 380–2 personal video recorders (PVRs) 154
mythological learning systems 245 OPEC (Organisation of Petroleum personalised marketing 2–3, 150,
Exporting Countries) 44 204, 338–9
Naik, V.M. 386 ‘open innovation’ model 340–2 personality characteristics 61
nappies, disposable and reusable 140 operant and operand resources 30–1, personas (Cooper) 62–5
Narver, J.C. 6 335, 338–9 Peterkin, Mary 314
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414 Index

Peters, L.D. 259 Public Interest Disclosure Act 100 Rose, Stuart 81
Petrini, Carlo 21 PVC (polyvinyl chloride) 128 Rosedale, Philip 355
pharmaceutical companies 42, 44, Rosenstock, I.M. 374
47 qualitative variables for Rosselson, Ruth 291
Philippines, the 93 segmentation 56 Rowley, T. 104
Philips group 22, 143–4, 185–6, 313 quick ratio 299 rural marketing 383–6
Piatok, Avi 267 ‘quiet pond’ markets 207 Russell, Andrew 382
Pickton, D. 157, 161 Quinn, R. 237 Russia 116
Piergallini, Al 93 Ryanair 42
Piet a Manger 289 Rachel’s Organic 289
PinPoint analysis 61 Raebe, Felix 93 Sabon 267–9
pioneer firms, advantages and Ramaswamy, V. 204, 335 Sadler, David 99
disadvantages of 208 Rampton, S. 137 Safeway 80
Pizza Hut 285 rational market planning 12–13 Sainsbury’s 176–7, 377
PlayStation games platform 23, 58–9 rationality 105–6 salient features of products 72–4
pollution 116 ratios, financial 298–300 Salsbury, Peter 80
polychromic attitude index (PAI) 20 Ray, Paul 141 Sams, Craig 291
pooled interdependence of partner reactive stakeholder relationships Sarandon, Susan 267
firms 205 107 Sarbanes-Oxley Act 88–9
Porsche 89 reciprocal interdependence of partner Sarnin, P. 238–40
Porter, M. 38, 41–6, 202–3, 340 firms 205 Sashittal, H.C. 191
portfolio matrices 52 recycling 124–5 Saunders, Ernest 195
positioning 29, 71–3, 109–12: of Reebok 24 Saunders, Jill 270
brands 187; horizontal and Reeves, Byron B. 357 scale effects 312
vertical 39 reflection, need for 255 Schein, E.H. 18, 235–6
postcodes 57 regionalisation of marketing Schlenker, Brent T. 355
postmodernism and the postmodern programmes 56 Schneider, Friedrich 384
marketing environment 3, regulation 88–90 Scholes, K. 13–14
75–7, 150, 214 relationship marketing 96, 330 Schultz, C.J. 77
Prahalad, C.K. 15, 204, 335 relationship webs 223 Schultz, D.E. 166–70
precautionary principle 127–8 relocation of operations abroad 274 Scoble, Robert 355
price reductions 210 Renault 275 search engines 364–5
pricing mechanisms 329 representation as a method of Second Life 3–4, 76, 352–8, 365
privacy 351, 367 participation 200–1 second mover marketing strategy 19
proactive stakeholder relationships research and development 340 Securities and Exchange
107 resource-based strategy 17 Commission 87
‘problem children’ 34–5 resources, tangible and intangible segmentation 5, 50–5, 150, 198,
Prochaska, J.O. 373 29–30 309–11, 332, 347, 380–1;
Procter & Gamble 11, 55, 154, 183, responsible marketing 145–6 constant evolution of 77;
387 return on customer investment criteria for 55–7, 69–71; by
Proctor, T. 158 (ROCI) 169 customer lifetime value 66–9;
product development process 38–9, return on investment (ROI) 297, demographic 57–8;
330, 349 307–9 geodemographic 61;
product differentiation 46 return on shareholders’ equity 299 geographic 56–7; by life-
product lifecycle (PLC) model 33–7 return on total assets 299 stage 60; modified model of
product portfolio analysis 33–5 Riau Andalan Pulp and Paper (RAPP) 333; process of 69–71;
production, flexibility in 339 129–32 psychographic 61, 65; by
productivity analysis for marketing rivalry, industrial 42–3 sex 57–8
303 Rivers Run Red 355 self-efficacy concept 374
profiles of priority consumer Roberts, Julia 267 sequential interdependence of partner
segments 71 Robinson, L. 371–2 firms 205
profit impact of marketing strategies Robinson, M. 220 service-dominant logic in marketing
(PIMS) 46 Roddick, Anita 290–1 335–7
profit margins 298 Rogers, E.M. 36 sex segmentation 57–8
profit ratios 298–9 Rohrbaugh, J. 237 shadow economy 384
promotions for marketing, impact of Ronson, Gerald 195 Shalett, Mike 45
314–15 Rooney, Wayne 176 ‘share of voice’ 313
psychographic segmentation 61, 65 Roper-Starch Worldwide 140 shareholder value principle 101
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Index 415

shareholders 86–91; and corporate ‘star’ products 34–6 technological factors contributing to
social responsibility 87–8; Starbucks 7 market attractiveness 49
protection of 87; rights of Stauber, J. 137 technology: convergence of 365;
101; roles of 90–1 Stefani, Martin 93 likely future impact of 350–1
Shell Chemicals 50 stem cell research 103, 105 Technorati 352
Shiva, Vandana 388 Sterlite Industries 100 television 153–5
Shrivastava, P. 243, 245, 248 Stiles, P. 84 tenable competitive position 34
Siegle, Lucy 21 Stock Exchange Commission, US 89 Tesar, G. 265–6
Simkin, L. 191–3 stockmarket pressure 102 Tesco 2, 176–7
Singer, Stephen 94–5 strategic alliances 286–7, 371 text messaging 352
single-loop learning 243–5, 261 Strategic Compensation Research Thatcher, Margaret 80
size of firms 186–7 Associates 100 Thompson, John M. 62
Slater, S.N. 6 strategic co-ordination 157 threats: in stakeholder management
‘sleeper’ resources 32 strategic groups 206–10 107; in target markets 40–2;
slogans for brands 313 strategic marketing 1, 5–6, 77; see also SWOT analysis
slow food movement 20–2 abroad 283; new model of time: perceptions of 20; as an issue
small and medium-size firms (SMEs) 388–90 in planning 18–20; value of
196–9, 267, 272, 283; and strategic marketing planning 24–7 211
globalisation 273 strategic planning 104, 160–1, 388; time pentagon 18
Smith, Digby 182 key components of 27–8; of TNS Worldpanel 176–7
Smith, Sir Robert 90 marketing 12–14 Toenniessen, Gary 344
social attitudes 144 strategic withdrawal from a market Tom’s of Maine 289–90
social capital 347 209 Tombraider game 36
social class, concept of 57–8 strategy/power matrix 110–11 total quality environment
social marketing 147–9, 368–82; strengths, organisational 30–2; see management (TQEM) 134
definition of 369; ecological also SWOT analysis toxic substances 116
perspectives on 372–3; online strong competitive position 34 Toyota 135, 144
376–7, 380–2; role of Styers, John 364 traditional consumers 141
campaigns in 281, 375–7; subcontracting to foreign firms 274 transactional marketing 278
websites for 377–82 subsidiary companies 288–9, 292 transnational organisations 294
social networking 352 substitutes 47 trialability of products 36
social relationships within Sulston, Sir John 343 tribal marketing 203, 338
organisations 162 Sunny Delight 183 triple bottom line (TBL) 320, 326
social responsibility 92; see also supermarkets 177 Tripod 76–7
corporate social responsibility supplier power 47, 98–9 turbulence, environmental 14, 112
Society for the Promotion of supply chain collaboration index 24-hour shopping 2
Lifecycle Development 218–19
(SPOLD) 132–3 supply chain relationships 204–6, Unilever 154, 289–91, 386–7
sociopolitical factors contributing to 218 United Nations Environment
market attractiveness 49 surface-level learning 253 Programme (UNEP) 118, 120,
Sony 8, 23, 43, 59, 77, 286, 313 sustainability 113–15, 119–20, 149; 144–5
Sørensen, Lars Rebien 321 of marketing 126 United States 88, 116, 119, 211,
Spain 113 sustainable lifestyle marketing model 347–9; Supreme Court 346
specialisation within companies 229 145–6 unlearning 254–5
‘stages of change’ model 373–4 Swiss watches 47 Uppsala model of experiential
stakeholder influence, network Swissair 42, 62–5 learning 265–6
theory of 104 SWOT analysis 12, 24, 163, 165 ‘usage scenarios’ 63–5
stakeholder interactions 82–6 symbolic use of knowledge 257 ‘use cases’ 63
stakeholder management 101–12 synergy 112, 157, 159, 170–1, 242, Usunier, J.-C. 56
stakeholder power 105, 109–10 287–8
stakeholder theory 82–101 value-added 146, 204
stakeholders 5, 17, 114, 153, 158, tacit knowledge 249 value added chain, concept of 38–9
165–6; definition of 79, 82, tactical performance measures 324–5 value co-creation, theory of 204
103–4 Takeuchi, H. 249, 260 value constellations 340–1
stalemate situations 207 tangible resources 29–30 value in use 335
Stallman, Richard 345 Tankersley, C. 191 value-creating processes 4, 204–6
standardisation: of company technological advances 2–4, 17, value-defining, value-developing and
procedures 229; of products 22–4 value-delivering processes 5–6
277–8, 338 technological deployment 213 values 235–6
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416 Index

Vandevelde, Luc 80 Warner index of social classification 58 World Wide Web 8, 355
Varadarajan, P.R. 256–7 waste, electronic 128–9 World Wildlife Fund (WWF) 94–5
Vargo, S.L. 30, 204 water, use of 123 Worldcom 89–90
Virgin Atlantic and Virgin group 22, weak competitive position 34 worldviews, old and new 139
215 weaknesses, organisational 30–2; see Worldwatch Institute 116
virtual communities 77, 379 also SWOT analysis Wright, J. 360
virtual environments 3, 329, 355–8 websites 377–82 Wright, Will 356
Visa 24, 77 Weiss, M.J. 61 wrongful trading 90
visible parts of an organisation WH Smith 234
Wilkie, W.L. 55
228–33 Xbox 41, 43
windows of opportunity 25
Voelkel, D. 341 Xerox 175
Windows operating system 36, 43
Vogel, D. 115
Winter Report (2002) 90
Vogue 268 win-win attitudes 112 Yee, Nick 357
Volkswagen 155 Wirthlin Institute 139
Women’s Wear Daily 267–8 Zalitrian, Gerald 371
Waitrose 177 work committee system 200 ‘zero-based’ thinking 157, 159, 169
Wal-Mart 176–7, 359 World Business Council for Zhu Yanling, Eileen 97–8
Walsh, Fiona 291 Sustainable Development Zidane, Zinedine 314
WAP technology 65 (WBCSD) 316 Ziff, R. 61