Introduction

Key Terms: production concept, selling concept, product concept, marketing myopia, marketing concept, societal marketing concept, general demarketing, selective demarketing, market segmentation, target market, marketing strategy, the 4Ps, marketing mix, definition of marketing, relationship marketing, corporate social responsibility (CSR), social marketing, convenience goods, shopping goods, specialty goods. Influence of the Internet on marketing. characteristics of a virtuous firm.

Production Concept — Firms that follow this philosophy focus on manufacturing products that are relatively easy to produce; the firm does everything it can to improve production efficiency and thereby lower the price of the product. The problem with this approach is that it does not focus on the needs of the customer. Since the focus is on production efficiencies, this means the firm has to "sell" the product after manufacturing it.

Selling Concept — Firms that follow this philosophy focus on "pushing" the product using advertising and promotion. Please note that marketing is not selling: selling is similar to pushing, and marketing, we will see, is more like pulling. A firm that promotes a product heavily after it is manufactured is in danger of creating a dissatisfied customer. People are very likely to be disappointed in the product’s performance. Your textbook cites a study that shows that a dissatisfied customer is likely to complain to ten others about a bad experience with a product.

Product Concept — Focusing too much on one’s product and trying to make it the best-performing product in the market via improvements can also be dangerous. Marketing myopia is a term coined by Theodore Levitt to describe firms that define themselves in terms of a product rather than in terms of the need that the product satisfies. For example, the public does not want rail transportation, it wants fast, inexpensive, and convenient transportation. The railroads made a great deal of money during the latter part of the 19th Century. They made the mistake of thinking that the public wanted rail transportation. Much of their business was taken away by newer modes of travel (planes stole much of their passenger business; planes and trucks took away a great deal of their freight shipping business). The railroads should not have focused on rail transportation but on transportation in general. The goal is to do the best job of satisfying one's customers. Consumers want energy, not necessarily oil; education, not necessarily in classrooms; communication, not necessarily by telephone; music, not necessarily on cassettes; and entertainment, not necessarily films or television. A firm that defines itself in terms of a product, e.g., a firm that insists that it is in the business of providing long-distance telephone service, might become obsolete.

You must read this article ("Marketing Myopia") as part of this course. It is among the most important articles ever written in the area of marketing. Click on the link below (let's hope it works):

Companies should not focus on existing products but on customer needs. This is the reason the marketing concept became the philosophy that guides most firms today.

Marketing Concept — One of the most important terms that you will learn in this course is the marketing concept. If a firm wants to achieve its goals it has to focus on satisfying the needs of its customers. These goals do not necessarily have to relate to profit since any firm that is involved in a transaction should follow the marketing concept. Libraries, politicians, colleges, hospitals, and many other kinds of organizations should be marketing-oriented. If a firm focuses on satisfying the needs of its customers, it does not have to "push" its product. The public will demand the product and "pull" it through the channel of distribution. Note what happens in a college when a course or program is offered that satisfies students’ needs for getting a good job. You do not have to beg students to take the course or to major in that program.

As you can see from the above discussion, the two major concerns of marketing-oriented firms that abide by the marketing concept are discovering consumer needs and then doing everything possible to satisfy those needs. This, in a nutshell, is what marketing is all about.

(1) They use marketing research to ensure that they are indeed performing well. Marketing research is used to help develop new products and to determine whether the new product will actually satisfy the needs of customers.
(2) They are innovative and constantly improving their products/services to maximize their customers’ satisfaction.
(3) They understand that a market is not monolithic, i.e., not everyone has the same needs. Therefore, they will practice market segmentation. For instance, the market for soap consists of such segments as: those that want a "pure" soap (mothers for their babies), those that want an anti-bacterial soap (teenagers), those that want an anti-deodorant soap (people worried about body odors), those that want an inexpensive soap (bargain shoppers) , those that want a creamy soap (women who want soft skin), those that want an abrasive soap (mechanics), and those that want a soap that makes one feel fresh.
(4) They will have a target market. To come up with a marketing strategy, you must select a target market and develop the best marketing mix (discussed below) to satisfy this target market Thus, a marketing strategy is a target market + an optimum marketing mix to satisfy the target market. The marketing mix is the 4 Ps of marketing: product, price, promotion, and place.
(5) They do not suffer from "marketing myopia." They define their business in terms of a need (which they will satisfy) and not in terms of a particular product.
(6) They are concerned about improving the quality of their products. Defective products will not result in customer satisfaction. Many firms have special procedures for dealing with customer complaints and do everything possible to resolve problems.

Marketing Mix: The Four P's of Marketing
PRODUCT: What features/benefits to offer in order to satisfy the needs of one's target market. This includes packaging, branding, and warranties.
PRICE: What price to charge? You have to do research to see how your target market/customers will respond to your price. You may have a fabulous product but your target market may not buy it if they believe it is overpriced.
PLACE: You have to get the product to the customer/target market when s/he needs it. A great product is of no value to the customer if it arrives three months after it is needed (imagine buying a beautiful wedding dress or tuxedo and it arrives after the wedding). We will be learning about channels of distribution. Many of you are purchasing textbooks via the Internet while others are using the college bookstore--two very different channels of distribution.
PROMOTION: Is concerned with communicated with customers/target market and convincing them that your product/service offers real benefits. Includes advertising, publicity, sales promotions, and personal selling.

The four Ps are are the controllable marketing mix factors, i.e., the organization can control and manipulate them. An organization has little control over such factors as the economy, government regulation (they may try to do some lobbying), or social. Forces over which an organization has little control are known as environmental factors. For example, if the United States Government passes legislation requiring all cars to be nonpolluting, this would be an example of government regulation, an environmental factor. Of course, this would have a huge impact on automobile sales. Other environmental factors include economic, regulatory (legal), competitive, social (this includes cultural), technological, etc. Thus, the five major environmental factors are: social, technological, economic, competitive, and regulatory (legal). Global warming is a controversial area and the government may pass laws to reduce it-- this may have an impact on many industries. If you think regulation is not an issue, restaurants in NYC may no longer use trans fats in their products. I am sure this had an impact on many restaurants.

One reason that so many consumers are using the Internet to purchase products (one example of electronic commerce at work) has to do with environmental factors. Men and women have to work long hours and do not have the time to spend shopping at malls. Most of you will find that the 9 to 5 job is disappearing. If you are going to be an accountant, lawyer, manager, marketer, etc. expect to work a lot longer than 9 to 5. One of my former students who is an accountant at a Big 4 firm usually works from 6:30 AM to 1 PM. I doubt she has time to purchase clothing at a mall. In fact, on weekends she works from home using her computer.

Societal marketing concept – unfortunately, satisfying customers’ short-term needs may not be compatible with society’s needs. For instance, your customers may prefer large automobiles, disposable diapers, hamburgers, no-deposit bottles, etc. Society is better off if we drive small cars, use cloth diapers, and eat soy burgers. Should a firm worry about its customers’ short-term needs, or consider what is best for society? Think about this. Social responsibility is the belief that organizations have a responsibility to society as a whole. An organization must think of the effects its actions have on society. Convincing the public to purchase products that are unhealthy and clog arteries are not in the best interests of society. There is nothing wrong with making a profit but a firm must also care about society.

By now you should realize that the primary objective and first task of marketing is to discover the needs of consumers. A need occurs when an individual feels that s/he lacks a basic necessity. A want, on the other hand, is something learned; it is shaped by such factors as culture, experience, social influence, family influence, etc. A market is composed of potential consumers with the desire and ability to purchase a specific product. The group or groups towards which a company or organization directs, focuses and concentrates its marketing program is the target market.

Extending the Principles of Marketing

As noted above, the principles of marketing are being extended to such areas as the marketing of ideas, political marketing, and even marketing the volunteer army. Whenever there is some type of exchange, it is important to understand marketing. Politicians, for instance, understand that they must segment voters and select a target market(s). A good politician does research to learn what voters want (jobs, increase in social security, homeland security, health insurance, strengthening the traditional family, etc.). Direct mail and Internet marketing with different messages for different groups is one tool being used by shrewd politicians. One interesting fact that is being studied after the 2004 Presidential election is the fact that 97 out of 100 of the fastest growing counties -mainly exurbs- voted Republican. Exurbs are too far from urban areas to be considered suburbs but too large to be considered rural.

Even libraries have started using marketing. Libraries are being defined as a place to find information, not only books. (If they define themselves solely as a place to borrow books they are suffering from marketing myopia.) This is why libraries have numerous computers and wireless networks so that anyone with a laptop can access the Internet. Libraries also have DVDs since they are almost as important as books. Incidentally, there is a revolution in the area of book publishing, a new kind of book is the eBook. Libraries are also places where young children whose mothers work can do their homework after school.

Colleges are also using sophisticated marketing tools to attract students. This is becoming a hot area since colleges find themselves competing for students. Research shows that students choose schools based on reputation, convenience, and course offerings. Hospitals are also becoming marketing-oriented. Patient satisfaction is becoming very important to hospitals. Customer satisfaction is very important in marketing (indeed, that is what the marketing concept is all about). Today, hospitals and colleges are learning about the importance of satisfying patients and students, respectively. Do you think this college has done a good job satisfying you?

Can marketing help a church expand its membership? Read "The Soul of the New Exurb" by Jonathan Mahler (New York Times Magazine, March 27, 2005, pp. 30-50) to learn how Pastor Lee McFarland built a mega-church (weekly attendance of 2,000+) in the exurb of Surprise, Arizona; weekly attendance is 5,000. Before building the church, McFarland did some marketing research and asked only two questions: "What's your favorite radio station?" "Why do you think people don't go to church?" What he found was that the people living in Surprise liked rock music; they did not go to church because they did not own fancy clothing, did not like to be asked for money, and felt that the church sermons they heard in the past were not relevant to their lives. His church has no crosses or other religious icons; no stained glass and it looks like a mall. Krispy Kreme doughnuts are served ($16,000 a year spent on the doughnuts), the dress code is lax, and Pastor McFarland wears a T-shirt and jeans. Half of each service is devoted to Christian rock. McFarland's "sermons" deal with what he calls "successful principles of living." People are attracted to the church for various reasons including aerobics classes, child care, counseling, financial planning, etc. Radiant has small groups for all kinds of people: widows, divorced, etc. This is known as getting people in through the side door (going to church for Sunday sermon = front door). Small groups allow people to share their pains and hopes. Outdoor advertisement for the church: "Isn't It Time You Laughed Again?" with a picture of happy family.

The church has a branch of Celebrate Recovery, a Christian program for recovering addicts that is similar to the 12-step program of Alcoholics Anonymous. Recovering addicts can feel comfortable talking about their Christian beliefs at the Celebrate Recovery meetings.

The American Marketing Association's (AMA) previous definition (2004) of marketing was:
"Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders."

The new definition of marketing, as of 2008, is: "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large."

Note that the definition of marketing focuses on the lifetime value of a customer. All the functional areas have to take an "integrated marketing" approach and work towards the goal of satisfying and delivering value to customers. If you do not truly care about your customers, you are not a good marketer. Also, note the importance of all stakeholders and society at large. A good marketer is not only concerned with making money.

Relationship Marketing:
Relationship marketing is concerned with the long-term and not merely to sell a product or service to a customer one time, and that is it. The goal is to have a satisfied customer and establish an ongoing, personal, and long-term relationship with him or her. This means that the organization will have to understand the needs of the customer as they change over time. A firm that believes in relationship marketing wants to establish a connection with the customer. It is important to communicate with the customer and develop the relationship. Without two-way communications, it is difficult to develop a relationship. What matters is the lifetime value of the customer, not how much money a firm makes with one transaction. One goal of relationship marketing is customer retention, i.e., to keep an organization's existing customers. The cost of keeping an existing customer is a fraction of the cost of finding a new customer. It is therefore foolish for a firm to ignore existing customers and focus solely on finding new ones. Of course, if a firm only expects to sell a product to a customer once, than relationship marketing may not be an issue. Think of all those stores selling electronic appliances in mid-town to tourists. They do not expect to ever see those customers again so they do not think of relationship marketing. If a company expects to do business with a person for many years, there is no question that it should be concerned about having a long-term relationship with customers, i.e., relationship marketing. This is how Brooklyn College or any college for that matter should see its students. The college expects to have a long-term relationship with you. In fact, after you graduate, we want you to come back and visit and hopefully donate some money to the college (especially the Business Program).

J.D. Power & Associates conducts two important surveys of vehicle quality: (a) Initial Quality Study which measures complaints about automobiles in the first three months of ownership and (b) Vehicle Dependability Study which measures complains over the first three years of ownership. The firm uses a mail survey (100,000 questionnaires mailed out) and asks new car buyers to report problems.

The 2004 J.D. Power & Associates Vehicle Dependability Study is showing that American automakers are catching up to the Japanese automakers. Lexus, a very expensive luxury car, has been number 1 for the last 10 years (162 problems per 100 cars). Toyota has 216 problems per 100 cars. The industry average is 269 problems per 100 cars. Chevy Malibu has the best score for entry-level midsize cars; Ford F-150 was number 1 for pickups.

Note that firms are striving to improve their quality. Good marketing is about improving quality and thereby satisfying one's customers. The goal should be 0 problems per 100 cars.

J.D. Power & Associates is now involved in the rating of customer satisfaction in many new areas such as hospitals, cell-phone providers, and satellite dishes (Business Week, November 22, 2004, p. 158). The firm recently started rating auditors.

Sometimes it is necessary to demarket a product. There are two types of demarketing: general demarketing and selective demarketing. General demarketing is used when a firm (or government) wants to demarket to everyone. For instance, the government demarkets cigarettes and alcohol (discouraged goods) and illegal drugs (a banned good).

There are situations in which a company demarkets to one specific market segment. This is called selective demarketing. An example of this would be a resort in the Poconos that does not want the business of singles and prefers couples. Also, some areas in Florida prefer elderly vacationers and demarket to college students. This is accomplished by promoting in a way that attracts the desired target market and is unattractive to the demarketed segment. Photographs of elderly people in a promotional brochure that describes exciting bingo nights and shuffleboard tournaments should do the trick. There are adult resorts that cater to adults and children are not permitted.

Demarketing is necessary when there is a limited supply of a product and very heavy demand. In the past, gasoline was demarketed (general demarketing) and it is quite likely that electricity will have to be demarketed if the supply situation does not improve soon. Water is becoming scarce in many regions and general demarketing will be necessary. This is the reason NYC installed water meters in homes. One way to encourage conservation of water is to charge by amount of usage.

Back in 2001, the State of California demarketed the use of electricity. People were told how important it was to conserve electricity and what they could do to help. The public was also informed that they could make a difference. According to a study by Reiss and White, the demarketing campaign worked.

Tools used to demarket include:
Higher prices – This is one justification for high taxes on cigarettes and liquor.
Counter-advertising – e.g., counter-ads advising young people not to take crack, cocaine, or heroin.
Limiting advertising – Cigarettes, for example, may not be advertised on television.
Limited distribution – Alcohol may only be sold in stores with a license.
Warning labels.
Development of substitutes.

Marketers prefer to classify goods using the following approach. Note that the advantage of this approach is that goods are classified in accordance with the way they are perceived by consumers. This approach is more useful to marketers than an approach used by non-marketers: durables, non-durables, and services.

Hospitality Marketing is a good way to see how a marketer thinks.
(a) A marketer has to segment the market. Suppose you run a hotel/resort for vacationers. Does every vacationer want the same benefits/experiences? Benefits vacationers might want include: sports (golf, tennis, or skiing), gambling, weight loss/spa, gourmet food, activities for children, trips to historical sites, etc. Hotels that are for the business traveler must offer benefits such as access to the latest technology (fax machines, Tele-conferencing, conference rooms, scanners, printers, etc). First thing to do is to select a target market.
(b) The marketing mix:
Product/service mix: What benefits should be offered? Should the hotel have a pool, spa, Jacuzzi, golf course, tennis court, etc. What kind of food should be served (gourmet meals?)?
Price: What price to charge? Some hotels use several prices in order to attract different segments. Price per room may range from $100 to $2000 per night.
Promotion: Should we use television, direct mail, radio, travel agents, telemarketing, Internet, etc.
The Internet has had a major affect on the hospitality industry. Rather than having empty rooms, some hotels deal with online discounters.

The goal is to have a satisfied guest. Many hotels ask guests to complete a questionnaire in order to measure satisfaction. Hotels also create a database that includes the name and address of guests. A good marketer will try to determine whether the hotel should change anything in order to improve customer satisfaction. By the way, if you are interested in this area, the classic text is by Philip Kotler, Marketing for Hospitality and Tourism (Prentice Hall).

Can marketing be used to improve the world? The tools of marketing which you will learn in this course can be used to help humankind. They can be used to change behaviors. Some consumer behaviors are good and should be encouraged (e.g., improving health via annual checkups, checking for breast cancer, checking for skin cancer, etc.; improving the environment by using green products, driving less and walking more, etc.; getting people to donate organs, blood, time for good causes; avoiding injury by using products correctly, using seat belts, safe sex, etc.). Marketing may also be used to discourage behaviors that are harmful to people and society (smoking, littering, drugs, steroids, sexual harassment, etc.).

Kotler, Roberto, and Lee in their book, Social Marketing, define social marketing as: "the use of marketing principles and techniques to influence a target audience to voluntarily accept, reject, modify, or abandon a behavior for the benefit of individuals, groups, or society as a whole."

How would you use social marketing to get people to donate organs such as kidneys? There is a big shortage of organs and thousands of people die each year waiting for an organ. How would you use social marketing to get people to exercise? To eat nutritious foods? Obesity is a national problem: Do you think social marketing can be used to help solve it?

Kotler and Levy, in their book, Corporate Social Responsibility (John Wiley & Sons) define corporate social responsibility as "a commitment to improve community well-being through discretionary business practices and contributions of corporate resources." My definition of corporate social responsibility (CSR) will be the one cited in Hollender and Fenichell (2004, p. 29): "… an ongoing commitment by business to behave ethically and to contribute to economic development when demonstrating respect for people, communities, society at large, and the environment. In short, CSR marries the concepts of global citizenship with environmental stewardship and sustainable development." Thus, corporate social responsibility includes the following: (1) Concern for the environment, (2) Commitment to ethical behavior, (3) Respect for people, and (4) Concern for society at large.

Some of the benefits of being socially responsible include: (a) enhanced company and brand image (b) easier to attract and retain employees (c) increased market share (d) lower operating costs and (e) easier to attract investors.

A socially-responsible firm will care about customers, employees, suppliers, the local community, society, and the environment. Of course, a company has an obligation to be concerned about its stockholders. However, a firm is also responsible for all stakeholders. There is considerable evidence that doing good pays in the long run. Even if it didn't, a firm has a responsibility to do the right thing. Every religion believes in the Golden Rule. Confucius, Hillel, and other great thinkers gave us the negative version of it: "What is hateful to thee, do not do to others." That should be the mantra of every person and company.

This course will show how effective marketers understand the value of CSR. If a firm wants to have a long-term relationship with customers (relationship marketing), they must believe in CSR.

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This paper indicates what a firm that believes in corporate social responsibility must do: "How Virtuous is Your Firm?: A Checklist." Electronic Journal of Business Ethics and Organization Studies, 2009, 14, 14-20 [by H.H. Friedman and L. W. Friedman].

How Virtuous is Your Firm?: A Checklist (c) 2009

A sea change is occurring in the corporate world. Many businesses are no longer seeing themselves as organizations that should only be concerned with profits but, instead, are now concerned about values (Batstone, 2003; Greider, 2003; Hindery, 2005; Hollender and Fenichell, 2004; Kotler and Lee, 2005; Mitroff and Denton, 1999; Paine, 2003; Pava, 2003). One researcher feels that approximately 15% of firms understand this and are proactive; “They put people first, safety next, customer service third, and profits last” (Walker, 2002).

This number should continue to grow. Patricia Aburdene, a renowned trend watcher and author of Megatrends 2010, asserts that spirituality in business is “converging with other socioeconomic trends to foster a moral transformation in capitalism” (Lampman, 2005). Corporations are becoming more sensitive to the needs of the community and less concerned about “profits at all costs.” Aburdene (2005) notes that we are moving towards “conscious capitalism” a new kind of capitalism which not only focuses on profits but which considers factors such as social, environmental, and economic costs in business decision making (Lampman, 2005). Some of the major social trends identified by Aburdene include “the power of spirituality,” “the dawn of conscious capitalism,” “spirituality in business,” “the values-driven consumer,” and the “socially responsible investment boom” (Aburdene, 2005). This transformation is also on the consumer side; as many as 70 million Americans — Aburdene refers to them as “values-driven consumers” — prefer buying from firms that have values.

According to Business Ethics Magazine, “The best managed firms today —in this era when societal expectations of business are rising — can no longer focus solely on stockholder return. Companies that aim to prosper over the long term also emphasize good jobs for employees, environmental sustainability, healthy community relations, and great products for customers” (Business Ethics Online, 2006).

Smith (2005) observes that the ethical malfunctions we saw in the business world, such as Enron and Worldcom, were not due to a shortage of ethical theories or confusion on the part of management as to which theory to apply. Rather the breakdown in business ethics was due to “a failure to perceive the transcendent” and because the literature on normative business ethics “is deficient in its failure to consider the spiritual aspects of management and ethics in particular.” More and more organizations are talking about values, virtue, and spirituality.

The business model that focuses solely on maximizing shareholder wealth is becoming obsolete, and is morphing into one that is concerned with all the stakeholders including employees, customers, suppliers, government, the community, and society (including the effects on the environment). Pava, an accountant whose research compared socially responsible firms with those that were not, came to the following conclusion (Pava, 2003:62): “Much to my surprise, we were unable to uncover any cost of social responsibility. In fact, the evidence suggested that there might even be a financial advantage for the companies carrying out these projects.” Hollender and Fenichell (2004: 26-27) assert that there is a strong positive correlation between being a value-driven firm and financial performance. Firms that make virtue part of their culture have done much better in terms of long-term financial performance than those only concerned with profit maximization. It does not matter whether virtue leads to profit. In fact, one can say that looking for a profit motive in acting virtuously cheapens the latter. For the values-driven firm, it is about doing the right thing.

Firms that wish to succeed will have to focus on corporate social responsibility, not on maximizing shareholder wealth. Our definition of corporate social responsibility (CSR) will be the one cited in Hollender and Fenichell (2004, p. 29):

… an ongoing commitment by business to behave ethically and to contribute to economic development when demonstrating respect for people, communities, society at large, and the environment. In short, CSR marries the concepts of global citizenship with environmental stewardship and sustainable development.

Corporate social responsibility is often a broader and richer concept than business ethics alone. It certainly includes business ethics but also takes into account such concepts as helping one’s community and global citizenship. Lantos (2001) asserts that there are three types of CSR: ethical, altruistic, and strategic. All organizations have to advocate ethical CSR, which is concerned with avoiding societal harm. On the other hand, one can argue against altruistic CSR since helping others can reduce the profits of the firm and thus hurt the shareholders. Strategic CSR focuses on doing good in a way that benefits the firm.

Porter and Kramer’s classic paper (2006) demonstrates how CSR can be used in a strategic manner to benefit all stakeholders, not only shareholders. They believe that CSR has to do with the fact that business and society have shared values; CSR is a win-win for both. Asongu (2007) posits that “strategic CSR should not be seen as a type of CSR but as an essential component of every CSR program.” Asongu (2007) cites a survey he conducted that indicated the following: 83% of Americans prefer to buy from a company that has an active CSR program as long as the product was comparable in price and quality to competing products. On the other hand, 51% were willing to boycott a firm that was not socially responsible, even if the product sold was superior or less expensive than others.

A socially responsible firm benefits in numerous ways. These include: increased sales and market share, strengthened brand positioning, enhanced corporate image and clout, increased ability to attract, motivate, and retain employees, decreased operating costs, and increased appeal to investors and financial analyst (Kotler and Lee, 2005: 10-11). Virtuous firms with values quite likely have a competitive edge over firms that do not have values. Studies of numerous industries demonstrate that virtuous organizations experience increased levels of customer satisfaction, product quality, productivity, employee satisfaction, and profitability (Brady 2006; Paine, 2003:53). Two companies that measure and track ‘corporate citizenship’ have found a relationship between stock market returns and virtuous behavior (Dvorak, 2007).

It is becoming clearer that we are witnessing a moral transformation of capitalism. Many organizations claim to be socially responsible and values-driven. The checklist in Figure 1 is a useful device enabling an organization to test whether or not they are indeed virtuous or are just fooling themselves.

1. How serious have you been about hiring the disabled?

2. Have you encouraged diversity in the workplace? Are you serious about supplier diversity?

3. Are you a learning organization? Do you empower employees? Are you treating your employees well?

4. Does top management believe in the importance of integrity and honesty? Have conflicts of interest in the organization been eliminated?

5. Are leaders seen as servant leaders? What is the ratio of CEO pay relative to the pay of the average worker in your organization?

6. Have you helped the local community in which you conduct business? Are you helping public schools by partnering with them and/or providing internships for students?

7. Is customer satisfaction important to your firm? Do you have a procedure for dealing with client complaints? Do you apologize when you make a mistake?

8. Have you been showing concern for the environment?

9. Are you engaging in corporate philanthropy? Have you made the world a better place?

10. Does your mission statement discuss values?

Friedman, Lopez-Pumarejo, and Friedman (2006) believe that marketers should not overlook the disabilities market, a group that consists of about 20% of Americans and will double in size within fifteen years. It has an aggregate income of over one trillion dollars. The major causes of disability are arthritis and rheumatism; back and spine problems; heart trouble and atherosclerosis; lung and respiratory problems; and deafness and hearing problems. Disabled employees in the workforce can help the organization generate and develop ideas for new products and services. Firms that have employed autistic individuals and those with Down’s Syndrome have found that they are hardworking, dedicated, and loyal employees (Friedman, Lopez-Pumarejo, and Friedman, 2006). Whether a company makes more of a profit or not in hiring the disabled, it happens to be the right thing to do. Moreover, in some cases there may be legal issues — e.g., it may be a violation of the Americans with Disabilities Act if a firm does not make their organization disabled-friendly.

Workforce diversity helps create a work environment in which female, minority employees, the disabled feel welcome; even customers will feel more welcome in such an environment. The demographics of America are rapidly changing, and workforce diversity is vital for firms that desire to thrive in the future (Friedman and Amoo, 2002). Diversity may help an organization flourish but it is also the right thing to do. Furthermore, diversity is important if one wants to create a learning organization (Checklist Item #3). It is also important to help promote supplier diversity by doing business with firms that are owned by women and minorities.

As far back as the 1950s, Peter Drucker felt that employees should not be seen merely as factors of production that could be discarded like worn-out machinery. He saw the corporation as an organization “built on trust and respect for the worker and not just a profit-making machine” (Byrne, 2005). Seeing employees as partners is the way to build an organization with values. Harrington, Preziosi, and Gooden (2001) insist that it is clear that workers wish to experience “real purpose and meaning in their work beyond paychecks and task performance.” They maintain that corporate America is responding to this need.

Pfeffer (2002) cites numerous studies that show that “organizations that have and live by their values, that put people first, and that manage using high commitment work practices outperform those that don’t.” Whether profit is increased or not, Pfeffer (2002) makes a point that all moral organizations must heed: “An individual’s desire and right to be treated with dignity at work, to be able to grow and learn, to be connected to others, and to be a whole, integrated person can not simply be sacrificed for economic expediency.”

In the corporate world, many firms are recognizing that the ability of an organization to learn is the key to survival and growth and “organizational learning” has become the mantra of many companies (Argyris and Schoen, 1996; Senge, 1990). What is organizational learning? Garvin (1993) believes that a learning organization is “an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.”

What should we find in a learning organization? Much of what we expect to find requires empowered employees that work together and share knowledge. Thus, learning organizations have an infrastructure that allows the free flow of knowledge, ideas, and information; there are open lines of communication making it easy to share knowledge. There is an emphasis on team learning where colleagues respect and trust each other. It is an organization where one employee will compensate for another’s weaknesses, as in a successful sports team. Employees learn from the experiences and mistakes of others in the organization. There is a tolerance for failure and a willingness to experiment and take chances. Diversity is seen as a plus since it allows for new ideas. Employees are committed to lifelong learning and growth. They have the ability to adapt to changing conditions and the ability to renew, regenerate, and revitalize an organization.

4. ETHICS AND INTEGRITY
There is no question that integrity and honesty must start at the top of the organization. Bell, Friedman, and Friedman (2005) believe that conflicts of interest have caused many of the serious ethical lapses that occurred in the last decade. Before a company can improve its ethical behavior, it must remove all conflicts of interest. Excessive compensation of executives (and backdating of options) was at least partially due to the existence of ties between members of compensation committees and CEOs. It is important for executive compensation to be fair. There is evidence that paying executives outrageously excessive salaries while cutting the pay of employees will result in reduced productivity and lower product quality. Employees have no choice since they need their jobs; they can however become indifferent to the quality of what they produce if they feel that they are not being treated fairly (Bernasek, 2006).

5. SERVANT-LEADERSHIP

Bebchuk and Fried (2004:1; 2005) note that the ratio of CEO pay at large firms relative to the pay of the average worker has grown to 500:1. Samuelson (2006) found that from 1995 to 2005, median CEO compensation increased 151% ($2.7 million to $6.8 million); median salary increases for all full-time employees increased only 32%. In addition, the ratio of median CEO salary/median worker salary rose from 94 to 179 in the same time period. It is becoming quite apparent that executive compensation is not tied to company performance. It is not surprising that CEOs have lost their credibility in the United States.

According to a Watson Wyatt survey, approximately 90% of institutional investors believe that top executives are dramatically overpaid (Kirkland, 2006). Warren Buffet asserted that ensuring fair pay for executives is the “acid test of corporate reform.” The latest scandals involving backdating of options has made it obvious that executive pay has little to do with superior performance. Jeb Bush, governor of Florida, contends that “…if the rewards for CEOs and their teams become extraordinarily high with no link to performance —and shareholders are left holding the bag— then it undermines people’s confidence in capitalism itself”(Kirkland, 2006).

There is currently a trend among CEOs — it does not appear to be a fad— towards being likable. Executives are becoming warm, responsive, caring, and humble (Brady, 2006). According to Brady (2006), “positive energy” is popular with CEOs today and they are learning to reach out to stakeholders and the media. Engardio (2006) asserts that we are seeing what is called “karma capitalism” or “inclusive capitalism.” Indeed, many firms are interested in pursuing the goals of value creation, virtue, and social justice. Leaders are supposed to be fair, show compassion, and be sensitive to all stakeholders.

Many CEOs are interested in becoming servant leaders. Servant-leaders empower others and are facilitators; they are not concerned with personal aggrandizement. The servant-leader is the antithesis of the autocratic, authoritarian, leader who is primarily concerned with power and wealth; he cares about people and wants them all to be successful. Spears (2004) finds ten characteristics in the servant-leader:

       ·         Listening intently and receptively to what others say. This, of course, means that one has to be accessible.
·         Having empathy for others and trying to understand them.
·         Possessing the ability of healing the emotional hurts of others.
·          Possessing awareness and self-awareness.
·         Having the power of persuasion; influencing others by convincing them, not coercing them.
·         Possessing the knack of being able to conceptualize and to communicate ideas.
·         Having foresight; which also includes the ability to learn from the past and to have a vision of the future.
·         Seeing themselves as stewards, i.e., as individuals whose main job is to serve others.
·         Being firmly dedicated to the growth of every single employee.
·         A commitment to building community in the institutions where people work.

Spears (2004) lists a number of companies that either include the principle of servant-leadership in their mission statement or corporate philosophy. These include firms such as ServiceMaster Company, Southwest Airlines, Toro Company, and Men’s Wearhouse. It does not necessarily have to be servant leadership. There are other models of leadership that are quite similar and are appropriate for firms that wish to be virtuous. Pava (2003) speaks of “covenantal leadership”; Covey (1991) of “principle-centered leadership”; and Blanchard (2007) of “leading at a higher level.” All require leaders that care about values.

6. THE LOCAL COMMUNITY
A virtuous firm should establish and maintain strong ties with the local community in which it conducts business. It should hire employees from the local community and do business with local companies. After all, many of a firm’s customers will come from the surrounding areas. Also, if the local community thrives, it can only benefit the businesses that are based there. No one wants to run a business in a dying community on its last legs. Some hotel chains have developed a new workforce by offering training to the unemployed in local communities—a win for everyone.

Wal-Mart Watch (2005) lists seven principles that it believes define an organization’s obligations to the common good. All are derived from ideas expressed by Sam Walton in his book Made in America. One of the principles is: “Buy local first.” It is based on something Sam Walton stated: “For Wal-Mart to maintain its position in the hearts of our customers, we have to study more ways we can give something back to our communities” (Wal-Mart Watch, 2005).

Improving the schools is a practical way of ensuring that a firm will have an adequate supply of dedicated, competent, and literate employees. School reform is a win for society and for business. Kanter (2003) describes how a partnership between the corporate world and the public sector can benefit both. Companies such as IBM and Bell Atlantic have helped public schools while at the same time benefiting themselves.

A virtuous organization truly cares about its customers and clients. No one will consider a company that purposely sells defective or dangerous products as virtuous. Many firms today believe that customer satisfaction is the most important measure of business performance; it is even more important than profit and market share. Indeed, a survey of major business leaders who attended the World Economic Forum were asked what was the major measure of success. Only 20% mentioned profitability. The majority mentioned the reputation of the corporation, integrity, and high quality products (Hindery, 2005: 10).

It is difficult for a firm to fail when it is obsessed with providing customers with the best products in the marketplace. On the other hand, it is difficult to succeed when a firm’s products are substandard and not designed to provide value. The attempt to cut costs at Home Depot, Dell, and Northwest Airlines may have reduced costs but had disastrous effects; a reduction in customer satisfaction that quickly translated into reduced market share (Hindo, 2006).

Organizations that care about their customers also want to hear what they have to say. Listen to them. Listening to customers, especially customer complaints, is a good way of coming up with ideas to improve products. It is also a simple way to determine whether or not customers are satisfied. Even the best of organizations will occasionally have an unhappy customer, whether it has performed poorly or not. Even at very high levels of quality, say, six sigma, there are 3.4 defects per million. Executives at companies such as Boeing now have two public blogs: an internal one to hear from employees and an external one to hear from the public (Holmes, 2006). Negative word of mouth can have a serious impact on sales. Even before the Internet, the belief was that unhappy customers would complain to as many as 10 people. Today, with the Internet, a dissatisfied customer can complain to thousands of people. Buzz marketing is just as effective for negative word of mouth as it is for positive word of mouth.

John P. Mackey, CEO and co-founder of Whole Foods Market, asserts that customer satisfaction is more important than profit maximization. He is an advocate for what is referred to as values-driven capitalism. His firm consciously works to improve society and does not rely solely on the “invisible hand” of the marketplace to achieve this result. In fact, the company stopped selling lobsters because it did not like the way the animals were treated. The company is also increasing its spending on its purchases of produce from local farmers (Nocera, 2006).

When an organization makes a mistake, it should not be afraid to apologize. Even apologizing correctly is an art that many do not perform properly. Friedman (2006) reviewing the work of many scholars in the field indicates that a good apology has four key elements: (1) acknowledging the offense; (2) communicating remorse and the related attitudes and behaviors such as, regret, shame, humility, and sincerity; (3) explanations as to why the offense was committed; and (4) an offer of reparations/restitution.

Virtuous organizations are not afraid to apologize and show remorse for mistakes.

There are several reasons that the corporate world is going green. These include improving its image and competitive advantage; in fact, environmental stewardship is a way to differentiate a product or service and attract customers (Wald, 2006). A number of studies show that the public is very concerned about the environment and wants to do with business with companies that care, and avoid those that do not. One study found that 75% of consumers claim that their purchasing decisions are affected by a firm’s reputation with respect to taking care of the environment (Kotler and Lee, 2005:12). This may help explain why a significant number of companies are promising that in the future they will be completely green, i.e., produce no waste and only use renewable sources of energy.

There is also a moral reason for being green. How much longer can the United States with only 5% of the world’s population continue to use 25% of many critical resources? Because of pollution, it is unsafe to swim or fish in close to half of all American rivers and lakes (Markham, 2006).

Firms that see environmental issues as opportunities rather than threats are more likely to succeed by establishing a competitive advantage over the competition. Clearly, the public is hungry for products that are competitively priced yet do not harm the environment. Ecological sensitivity may not be an option in the future. Regardless of any marketing gains, a firm should be concerned about our planet. Planet Earth is all we have and we should take care of it.

According to the Giving USA Foundation, companies donate, on average, a measly 1.2% of total corporate profits, nothing close to the tithe that many religions encourage (Business Week, 2005). Porter and Kramer (2003) feel that corporate philanthropy does not have to be seen as pure charity. It can be used in a strategic way to improve the competitive context — “the quality of the business environment in the locations where they operate”— of a firm. In other words, philanthropy may actually benefit the firm by ultimately increasing its long-term profits. For example, a firm could use its resources to improve education and the welfare of the area in which it operates. Done correctly, this can also benefit the firm. A virtuous firm does not necessarily think about future benefits from philanthropy. They engage in philanthropic acts because humankind has an obligation to make the world a better place. All of humankind gains if we eradicate poverty and war.

Cause-related marketing (CRM) which involves contributing a part of every sale to a cause organization is another way of benefiting both the firm and the society (Kotler and Lee, 2005). Done right, it can improve the image of the company and the brand, increase sales, and help improve the morale of employees. American Express, one of the pioneers of CRM, used a campaign in which the company announced that it would donate 1 penny for every use of its card and $1 for every new card issued towards the renovation of the Statue of Liberty. The campaign helped American Express increase the number of card users and also raised money for the Statue of Liberty campaign. Volunteerism is another way to help others. For instance, Tom’s of Maine encourages its employees to spend 5% of paid time acting as volunteers to the community.

An organization that is interested in virtue must examine its mission statement. Mission statements should not only discuss profit and growth; maximizing shareholder wealth is not what it is all about. Corporate performance cannot and should not be measured by using only one criterion such as maximizing shareholder wealth or maximizing profit (Pava, 2003:8). A firm must consider the long-term and its mission statement should therefore consider the needs of the environment, society, employees, customers, suppliers, and government. The mission statement of the firm should say something about a firm’s moral and ethical values and it should have something to say about all the key stakeholders, not just stockholders. The needs of customers, suppliers, society, employees, government, and the environment should be addressed in the statement.

The mission statement can and should be used to energize the entire organization and provide direction so that employees, customers, suppliers, investors, and other stakeholders know exactly what the organization hopes to achieve. Thus, a good mission statement will mention ideas such as producing high-quality products; the importance of integrity in business; providing employees with meaningful and fulfilling work that provides dignity and the opportunity to grow; respect and concern for the environment; cultivating positive relationships with suppliers and customers; helping the local community; and concern for society.

Many firms are publishing an annual corporate social responsibility report so that all stakeholders can see exactly what the firm is doing in order to conduct its business in a socially and environmentally responsible manner. Starbucks makes it Corporate Social Responsibility Annual Report available online (http://www.starbucks.com/ aboutus/ csrannualreport.asp). Starbucks uses key performance indicators such as partner satisfaction (they refer to employees as partners) and percentage of executives that are female and people of color to measure how well it is doing in maintaining its values. This is a good way to send a message to everyone that social responsibility is as important as profits and must be measured.

It was not that long ago that Ivan Boesky told University of California students that “Greed is all right, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself” and was wildly cheered (Lynn, 2005). Gordon Gecko, a fictitious corporate raider in the movie “Wall Street” also asserted that "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge, has marked the upward surge of mankind." Today, someone telling an audience that “greed if good” might be (deservedly) tar and feathered and chased out of town.

Milton Friedman’s (1962, 133) view of the sole responsibility of business is also not very popular today. He stated: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” The public is more receptive to the beliefs of another Nobel laureate in economics, Robert Fogel. Fogel (2000) stresses the importance of spirituality in the new economy. He identifies 15 vital spiritual resources that include such concepts as “a sense of purpose, a sense of opportunity, a sense of community, a strong family ethic, a strong work ethic, and high self esteem.” The implication of his view is that capitalism must consider spiritual values in order to survive in the new economy.

Successful corporations need a healthy society. Education, health care, and equal opportunity are essential to a productive workforce. Safe products and working conditions not only attract customers but lower the internal costs of accidents. Efficient utilization of land, water, energy, and other natural resources makes business more productive. Good government, the rule of law, and property rights are essential for efficiency and innovation.

The other side of the coin is that a healthy society also needs a successful private sector. “No social program can rival the business sector when it comes to creating the jobs, wealth and innovation that improve standards of living and social conditions over time” (Porter and Kramer, 2006). This is why it is important for the business world to work with government and try to improve the world and make profits. Maximizing profits while ignoring the needs of society may work in the short run but will be a disaster for both society and business in the long run. And, of course, while many of the ideas suggested in this paper may not only be costless to an organization but even produce additional profits in the long run, that is not the only reason to consider them. After all, for the virtuous organization, virtue is indeed its own reward.

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Please go to the Tom's of Maine website at: http://www.tomsofmaine.com/business-practices/default.aspx
See what they have to say (1) About Business Practices: "Our work begins and ends with relationships. We start by respecting and empowering each other as coworkers, and build on that to develop true ties with our retail partners and vendors. The ultimate goal is to create honest and open relationships with everyone who uses our products, and believes, like us, that a company can and should be both successful and socially responsible." Tom O'Brien, CEO
(2) About Values and Beliefs: "Every well-run business needs strategic goals—we just believe that those goals need to include things like sustainability as well as profitability. We’re guided by two foundational documents: a philosophical statement, our Reason for Being, which inspires our strategy; and a practical tool, our Stewardship Model, which forms the basis for our everyday decision-making." Bill McGonagle, CFO
(3) Reason for Being: "To serve our customers' health needs with imaginative science from plants and minerals;
To inspire all those we serve with a mission of responsibility and goodness;
To empower others by sharing our knowledge, time, talents, and profits; and
To help create a better world by exchanging our faith, experience, and hope."
(4) Environmental Practices: "We make decisions every day, at home and at work, that impact the health of our families, our communities, our environment. No one is perfect—we’re all trying to do better—but we should try to do something. If every company empowered their people to find ways to lessen their impact on the earth, we’d see a lot of positive changes." -- Lucinda Alcorn, National Distributor Team Leader
(5) Community Involvement: "I believe in trying to create positive change in my community, both on my own time and while I'm at work, too. Tom's of Maine understands that for community involvement to be truly effective, it needs to be supported both at home and in the office." Anne Schlitt, Website Leader
(6) Getting Paid to Volunteer: "In our busy lives, full of work, family obligations, and yes, a little bit of relaxation too (hopefully!), it can be a real challenge to find the time to get out into our communities and give back. That's probably why one of our most popular benefits is our volunteerism program. Tom's employees are able to use 5% of their paid work time volunteering for the nonprofit organization of their choice." - Laurie Bridges, Professional Resources Team Leader.

The following is from the Novartis website about Human Rights (http://www.novartis.com):

"Human rights are cross-cutting issues that affect all areas of our business, from the research and development of medicines to manufacturing, distribution and administration. Novartis has a longstanding commitment to human rights and was among the first signatories of the United Nations Global Compact in 2000. We adopt a proactive approach to human rights across all of our businesses. Through the think-tank work of the Novartis Foundation for Sustainable Development, we are helping to redefine the role business can play in promoting all human rights, especially the right to health.
Our workforce
Novartis was among the first international companies to make a voluntary commitment to define and pay living wages to employees around the world. By paying a living wage, we endorse the right to an appropriate standard of living that guarantees health and well-being for a family.
Our patients
The right to health is of core importance in the pharmaceutical industry, particularly in the developing world. We work to address healthcare-related human rights issues &msdash; including patient safety, privacy and informed consent in clinical trials."

This is the Novartis Mission Statement: "We want to discover, develop and successfully market innovative products to prevent and cure diseases, to ease suffering and to enhance the quality of life. We also want to provide a shareholder return that reflects outstanding performance and to adequately reward those who invest ideas and work in our company."

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Convenience goods— These are goods that consumers want to acquire with virtually no shopping effort. They include: staples (milk, bread), impulse items (candy, gum, soda, magazine), and emergency goods (ambulance, tow truck).

Shopping goods—Customers tend to shop around, i.e., make price and/or quality comparisons. Examples of shopping goods: computer, suit, coat, printer, sofa, and bedroom set.

Specialty goods –Customers are willing to make an extended search to find these goods. In some cases, a customer might be willing to travel 20 or 30 miles to find them. Some examples: wedding dress; Rolls Royce; a special stamp if you are a stamp collector; an exotic camera if you are a photography buff.

Convenience goods need intensive distribution. Your product has to be in millions of outlets. Think of how many places you can purchase a newspaper or a cup of coffee. Many convenience goods are sold in vending machines to increase the number of outlets. For example, products sold in vending machines include newspapers, coffee, soda, and candy. How come wedding gowns are not sold in vending machines? Shopping goods require selective distribution and specialty goods require exclusive distribution.

It should be noted, however, that not everyone sees goods the same way. For instance, some people treat gasoline as a convenience good--they drive along and when the gas tank is almost empty, they stop at the closest service station. Others, will shop around and see which service station has the lowest price for gasoline. The same is true for motel rooms. When you are traveling with your family, do you shop around for a motel to stay at or do you select the first one you see? Prescription drugs are also treated by most people as a convenience good and they will get their prescription filled at the nearest drug store. This is not a good idea since prices vary greatly. It makes sense to shop around to get the best price, especially for drugs to treat a chronic condition.

Internet Marketing:

The Internet has had a profound influence on marketing. Firms that are not interested in Internet marketing are as myopic as the railroads were during the 20th century. All kinds of goods and services are being sold using the Internet, convenience, shopping, and specialty goods. People purchase everything from pet food to diamonds on the Internet.

(a) The Internet provides information on demand 24/7. This information is "pulled" by the receiver (e.g., prospective customer) rather than being "pushed" by the sender. Suppose you are interested in learning about new drugs for hay fever or how to plant a lilac bush or the best digital camera for under $200, you can go to the Web anytime to get some answers.

(b) The Internet provides content that may be customized by the sender and/or receiver. Two individuals may go to the same website and can choose how much information they want. More knowledgeable consumers might demand considerably more information than those who are less savvy. Marketers can use information regarding search behavior and past purchases to make recommendations to consumers. Good marketers are tailoring the Internet experience to the individual viewer (check out Amazon and you will see what I mean).

(c) The Internet is interactive. The viewer interacts with the website and clicks wherever s/he wants to go. Because the Internet is interactive, individuals using it tend to be more involved. Television, on the other hand, is a low-involvement medium--viewers are passive. One is almost in a trance when watching television. In consumer behavior we refer to what is happening to the viewer as passive or low-involvement learning.

(d) The Internet has made every firm on it part of a global network and has thus contributed to the globalization. Nowadays, anyone on the planet with a website can compete with you. There is a level playing field. Thomas Friedman, the author, wrote a book that describes the world as being "flat." What he means is that the world has become a very small place. It is as easy to buy a book from an online bookstore in Australia as one in Brooklyn. As you know, most help desks are in India--Call Dell and you will probably be speaking to someone in India.

(e) The Internet allows for asynchronous communication. Unlike a phone call (synchronous communication) where both the buyer and seller have to be available at the same time, the Internet allows the buyer to place an order at, say, 3 a.m. and the seller can fulfill the order at 8 a.m. An online store can be open 24/7 and receive orders any time.

(f) The Internet has speeded up time. A rumor can be spread as quickly on the Internet as a virus. We will be learning about "viral marketing." Organizations have to be on the alert and must provide timely and useful information.

(1) Your business can be open 24/7 -- You can receive orders anytime, even when you are not there.
(2) You can sell your products to customers anywhere on the planet.
(3) You can provide customers with timely, up-to-date information.
(4) You can respond almost immediately to your customer.
(5) It enables one to tailor information to the customer's personal needs.
(6) It enables one to eliminate the costs of building "brick and mortar" retail outlets. A website in cybermall is a lot cheaper to build than a store in a shopping mall. Many retailers have both: brick and mortar outlets and cyberspace outlets. They are referred to as "click and mortar" firms.
(7) It allows one to save time and money by reducing other costs associated with having a brick and mortar store. For instance, a store must carry inventory and this can be quite expensive. A web retailer does not have to have to carry any inventory.