Dacko S.G. The Advanced Dictionary of Marketing Putting Theory to Use
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moral hazard 350
careful planning of next-generation product and service development to
ensure future competitiveness and to avoid technological obsolescence.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Schaller, R. R. (1997). ‘Moore’s Law: Past, Present and Future,’ IEEE Spectrum, 34(6),
June, 52–59.
Online Marketing
Meijer, J. W. (2003). ‘Internet Traffic Growth: A Combination of Moore’s Law and
Smart Marketing,’ Journal—Communications Network, 2(3), 83–88.
Marketing Research
Lambert, D. R., Joyce, M. L., and Krentler, K. A. (2004). ‘The Multiplying Literature:
Moore’s Law at Work in Marketing,’ Developments in Marketing Science, 27, 114–120.
BIBLIOGRAPHY
Moore, Gordon E. (1965). ‘Cramming More Components onto Integrated Circuits,’
Electronics, April 19, 114–117.
moral hazard
DESCRIPTION
The risk associated with the presence of an incentive for a party to an
agreement or understanding to act in a way that may lead to the party’s
gain but would not result in its incurring the action’s full costs.
KEY INSIGHTS
Moral hazards represent incentives for individuals to breach agreements
out of self-interest where there is an absence of sufficient penalties for
such behavior and where it is unrealistic for all parties involved to
establish conditions which would prevent fully any possibility of such
behavior. The concept of the moral hazard is a particularly important
one to individuals and organizations operating under contracts, agree-
ments, or other understandings where the nature of the transactions and
relationships involved includes a risk of problematic behavior by others
which must be carefully managed to avoid a financial loss. Examples of
moral hazards include cases where consumers have little incentive to
disclose certain pre-existing health conditions prior to their obtaining
insurance that would cover them as well as cases where insured auto-
mobile drivers may act more recklessly as a result of their having a high
level of automobile insurance coverage.
KEY WORDS Risk, self-interest behavior, agreements, contracts
IMPLICATIONS
Marketers should seek to identify and manage moral hazard situations in
their business transactions and relationships with customers as well as
suppliers, distributors, and other business stakeholders as such problems
often cannot be eliminated but can be sought to be minimized. Provid-
ing incentives and imposing conditions which help to minimize moral
hazards cost-effectively should be the aim of marketers affected by their
presence outside and/or within the organization.
351 multicultural marketing
APPLICATION AREAS AND FURTHER READINGS
Consumer Behavior
Zweifel, P., and Manning, W. G. (2000). ‘Moral Hazard and Consumer Incentives in
Health Care,’ Handbooks in Economics, 17(1A), 409–460.
Hess, J. D., Chu, W., and Gerstner, E. (1996). ‘Controlling Product Returns in Direct
Marketing,’ Marketing Letters (New York), 7(4), 307–318.
Marketing Management
Romano, Richard E. (1994). ‘Double Moral Hazard and Resale Price Maintenance,’
RAND Journal of Economics, 25(3), Autumn, 455–466.
Mann, Duncan P., and Wissink, Jennifer P. (1988). ‘Money-Back Contracts with
Double Moral Hazard,’ RAND Journal of Economics, 19(2), Summer, 285–292.
BIBLIOGRAPHY
Pauly, Mark V. (1968). ‘The Economics of Moral Hazard: Comment,’ American Eco-
nomic Review, 58, June, 531–537.
Holmstrom, Bengt (1979). ‘Moral Hazard and Observability,’ Bell Journal of Economics,
10(1), Spring, 74–91.
motivation, Herzberg’s theory of see Herzberg’s theory of
motivation
multi-level marketing see network marketing
multicultural marketing
(also called cultural marketing, diversity marketing, ethnic marketing,
ethnomarketing, in-culture marketing, or minority marketing)
DESCRIPTION
Marketing aimed at consumers of one or more ethnicities and/or cultural
backgrounds.
KEY INSIGHTS
Multicultural marketing’s emphasis is on efforts to concurrently market
to individuals situated within and among multiple cultures. As culture
relates to sets of learned behaviors of groups of people, which may there-
fore include associated values, attitudes, beliefs, traditions, and habits,
multicultural marketing emphasizes understanding, whereas ethnicity
relates to an individual’s identification or affiliation with certain others
as a result of one or more factors that may include cultural or racial ties,
language, religion, and national origin, multicultural marketing recog-
nizes the benefit of developing and implementing customized marketing
initiatives for communicating with and meeting the needs of culturally
or ethnically diverse consumers. Growing cultural and ethnic diversity in
many cities, regions, and countries is often cited for an increasing interest
in multicultural and ethnic marketing by marketers.
While there is much similarity between multicultural marketing
and cross-cultural marketing in terms of the marketing emphasis
on understanding cultural differences, cross-cultural marketing places
greater emphasis on comparisons of differences that exist across cul-
tures which are typically more geographically diverse or dispersed and
Murphy’s law 352
which are more prevalent across national boundaries. (See cross-cultural
marketing.)
KEY WORDS Cultural diversity, ethnic diversity
IMPLICATIONS
To the extent that a marketer recognizes diversity among current and
prospective customers, which may include differences in beliefs, values,
expectations, or preferences for particular products and services, the
marketer has an opportunity to develop and implement multicultural or
ethnic marketing approaches in the firm’s strategies and tactics. While
a firm may choose to maintain standardized offerings in response to
growing ethnic diversity, for example, such an approach can still involve
marketing communications which are customized along some aspect of
cultural diversity, such as when a firm develops several outdoor ads for a
single product but where the individuals shown in each of the ads differ
in ethnicity according to where the ad is displayed.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Cui, Geng, and Choudhury, Pravat (2002). ‘Marketplace Diversity and Cost-Effective
Marketing Strategies,’ Journal of Consumer Marketing, 19(1), 54–73.
Gore, J. P. (1998). ‘Ethnic Marketing May Become the Norm,’ Bank Marketing, 30(9),
12–15.
Nwankwo, S., and Lindridge, A. (1998). ‘Marketing to Ethnic Minorities in Britain,’
Journal of Marketing Practice, 4(7), 200–216.
Schreiber, Alfred (2001). Multicultural Marketing. Chicago: NTC Business Books.
DePalma, D. (2000). ‘Meet your Customers’ Needs through Cultural Marketing,’
E-business Advisor, 18(8), 18–21.
BIBLIOGRAPHY
Rossman, Marlene L. (1994). Multicultural Marketing: Selling to a Diverse America. New
York: AMACOM, American Management Association.
Pires, G., and Stanton, J. (2005). Ethnic Marketing: Accepting the Challenge of Cultural
Diversity. London: Thomson Learning.
Cui, Geng (2001). ‘Marketing to Ethnic Minority Consumers: A Historical Journey
(1932–1997),’ Journal of Macromarketing, 21(1), 23–31.
Dahl, Stephan (2002). Diversity Marketing. London: Thomson.
Valdes, M. Isabel (2000). Marketing to American Latinos: A Guide to the In-Culture
Approach. Ithaca, NY: Paramount Market Publishing.
Murphy’s law
DESCRIPTION
The popular adage often stated as, ‘whatever can go wrong, will go wrong.’
KEY INSIGHTS
Although it is not clear who originated the phrase, with its origins possi-
bly being 1948 at Edwards Air Force Base, Murphy’s law remains a topic
of ongoing attention, particularly in Western cultures, as a result of its
proverbial nature made memorable through long and repeated use by
both individuals and organizations. Originally relating to a product devel-
opment context, Murphy’s law has since been adopted by individuals and
353 Murphy’s law
organizations to characterize the prediction that, if something is given a
chance to go wrong, it will go wrong.
KEY WORDS Planning, problems
IMPLICATIONS
Marketers involved in any marketing initiative, whether product devel-
opment or promotion implementation, must strive to anticipate possible
problems and, if such problems are critical to the effort’s success, make
room for their occurrence in marketing plans. In particular, marketers
should recognize that the likelihood of marketing problem occurrence
increases as the complexity of marketing plans increase.
APPLICATION AREAS AND FURTHER READINGS
International Marketing
Harvey, Michael G. (1983). ‘The Multinational Corporation’s Expatriate Problem:
An Application of Murphy’s Law,’ Business Horizons, 26(1), 71–78.
Marketing Management
Fearn-Banks, Kathleen (2006). Crisis Communications: A Casebook Approach. Mahwah,
NJ: Lawrence Erlbaum Associates, Inc.
New Product Development
Anderson, David M. (2003). Design for Manufacturability & Concurrent Engineering: How
to Design for Low Cost, Design in High Quality, Design for Lean Manufacture, and Design
Quickly for Fast Production. Cambria, Calif.: CIM Press.
BIBLIOGRAPHY
Dimson, E., and Marsh, P. (1999). ‘Murphy’s Law and Market Anomalies,’ Journal of
Portfolio Management, 25(2), 53–69.
Bloch, A. (1977). Murphy’s Law and Other Reasons Why Things Go Wrong. London:
Methuen.
myopia see marketing myopia
N
Nash equilibrium see game theory
natural selection theory see Darwinian evolution theory
need
DESCRIPTION
An innate feeling of deprivation in a person.
KEY INSIGHTS
Humans have a variety of needs, which may be described, categorized,
and related in any number of ways. Examples are needs for safety,
love/belonging, and esteem which have been proposed as hierarchically
related by Maslow (1943). (See hierarchy of needs theory.) It is clearly
within the scope of marketing to aim to satisfy human needs as well
as wants, yet it is also recognized within the marketing discipline that
consumption needs are just one of several types of human needs. Beyond
recognized needs, astute marketers further strive to be sensitive to con-
sumes’ unmet needs in efforts to achieve competitive advantages through
their offerings.
KEY WORDS Consumer deprivation
IMPLICATIONS
Within marketing is an implicit concern with sensitively serving and
satisfying human needs. In terms of the process by which consumers
may seek to satisfy their needs through a marketer’s offerings, need
recognition is a considered a key phase in the buyer decision process.
In addition, marketers should also focus on the identification of unmet
needs in the development of marketing strategies to assist in achieving
competitive advantages.
APPLICATION AREAS AND FURTHER READINGS
Consumer Behavior
Wilk, R. (2002). ‘Consumption, Human Needs, and Global Environmental Change,’
Global Environmental Change (Guildford), 12(1), 5–13.
Gallup, George H. (1976–77). ‘Human Needs and Satisfactions: A Global Survey,’
Public Opinion Quarterly, 40(4), Winter, 459–467.
Marketing Strategy
Siderman, Ben (2003). Leonardo’s Laptop: Human Needs and the New Computing Technolo-
gies. Cambridge, Mass.: MIT Press.
355 network effect
Social Responsibility
Abratt, Russell, and Sacks, Diane (1988). ‘The Marketing Challenge: Towards Being
Profitable and Socially Responsible,’ Journal of Business Ethics, 7(7), July, 497–
507.
BIBLIOGRAPHY
Maslow, A. H. (1943). ‘A Theory of Human Motivation,’ Psychological Review, 50, 370–
396.
need hierarchy theory see hierarchy of needs theory
need recognition see buyer decision process
negative demand see demand
network effect
(also called network externality)
DESCRIPTION
The change in value or utility that is derived from a product or service as a
result of it also being used or consumed by others.
KEY INSIGHTS
When a good is influenced by network effects, new users or consumers of
it indirectly influence the value of the good to other users or consumers.
Typically, the value to those using such offerings (whether individuals or
organizations) increases to the extent others also use such offerings as a
result of certain benefits associated with a large number of users. Physical
connectedness of products, compatibility of a product’s use among others
in a diverse network, standardization of components, and the availability
of post-purchase service for a durable good are just a few examples
of where a product or service functions better when large numbers of
others are also involved in its consumption or use. Yet, not all network
effects are positive. Network effects can be negative when problems
associated with networks influence its member users, as when too high
a call volume on a mobile telephone network leads to delays for all
users.
KEY WORDS Networks, utility, value, users
IMPLICATIONS
Marketers should seek to understand how and to what extent consumers’
use of their offerings is influenced by network effects in order to assess
better such effects on customer purchase motivations, adoption likeli-
hoods, and post-purchase evaluations. Managing network effects to lever-
age positive influences and reduce adverse influences over the life cycle
of a product or service should be the aim of the marketer involved in
managing the offerings’ perceived and actual value among customers in
the firm’s market. Understanding positive and negative network effects
associated with competitive offerings, irrespective of the offerings’ actual
network marketing 356
superiority/inferiority, may also be beneficial to a firm in developing
appropriate marketing strategies.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Basu, A., Mazumdar, T., and Raj, S. P. (2003). ‘Indirect Network Externality Effects
on Product Attributes,’ Marketing Science, 22(2), 209–221.
Liebowitz, Stan J., and Margolis, Stephen E. (1999). Winners, Losers & Microsoft.
Oakland, Calif.: The Independent Institute.
Shankar, V., and Bayus, B. L. (2003). ‘Network Effects and Competition: An Empir-
ical Analysis of the Home Video Game Industry,’ Strategic Management Journal,
24(4), 375–384.
Marketing Management
Katz, Michael L., and Shapiro, Carl (1986). ‘Technology Adoption in the Presence
of Network Externalities,’ Journal of Political Economy, 94(4), September, 822–
841.
Marketing Research
Park, Sangin (2004). ‘Quantitative Analysis of Network Externalities in Competing
Technologies: The VCR Case,’ Review of Economics and Statistics, 86(4), November,
937–945.
BIBLIOGRAPHY
Katz, Michael L., and Shapiro, Carl (1985). ‘Network Externalities, Competition,
and Compatibility,’ American Economic Review, 75(3), June, 424–440.
network externality see network effect
network marketing
(also called matrix marketing or multi-level marketing)
DESCRIPTION
Marketing involving the use of an interconnected system of distributors as the
primary means to accomplish an organization’s marketing objectives.
KEY INSIGHTS
While network marketing may take many forms, the common element
in any network marketing approach is the use of an interconnected sys-
tem of firms or other individuals outside the organization who essentially
act as agents of the firm in facilitating the distribution of the firm’s
offerings and in securing sales from end-customers. (The scope of net-
work marketing can thus be said to overlap with many aspects of affiliate
marketing—see affiliate marketing.) Organizations or individuals in the
firm’s marketing network may be franchisees of the firm or independent
contractors who are compensated by the firm based on their sales of
the firm’s offerings. ‘Multi-level,’ as a concept, simply refers to the use
of multiple levels of distribution by the firm in providing its offerings
to current and potential customers and in achieving revenue. Contrary
to what some have been led to believe, multi-level marketing is not
illegal strictly by definition. It becomes illegal, however, when most of
357 network marketing
the firm’s revenue comes from the recruitment of network members as
opposed to revenue which comes from end-customers. In such a case, the
firm can be said to be engaging in an illegal ‘pyramid scheme’ or ‘Ponzi
scheme.’ Firms engaged in network marketing frequently assist with the
management of the firm’s marketing network by providing support to
network members including product storage and distribution as well
as information systems to manage network member compensation. In
addition, given the trend of increased use of online marketing, network
marketing arrangements have the opportunity to become increasingly
sophisticated in terms of how online and offline network interactions are
facilitated and integrated.
KEY WORDS Marketing networks, distribution systems
IMPLICATIONS
Firms in any number of markets may use a network marketing approach
as their primary means of marketing. (Avon and Tupperware are two of
many notable firms using the approach.) Marketers therefore have an
opportunity to evaluate the network marketing approach for its ben-
efits and costs as part of a major focus of the firm or a supplemen-
tal emphasis. Assuming the approach is implemented, marketers must
take care to ensure they conform to laws regarding its use, which may
include proper disclosures to new or potential network members of the
likelihood that network members may actually profit from being part
of the firm’s marketing network as well as how profitability is to be
calculated.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Grayson, K. (1996). ‘Examining the Embedded Markets of Network Marketing
Organizations,’ in D. Iacobucci (ed.), Networks in Marketing. Thousand Oaks, Calif.:
Sage, 325–341.
Marketing Management
Coughlan, A. T., and Grayson, K. (1998). ‘Network Marketing Organizations: Com-
pensation Plans, Retail Network Growth, and Profitability,’ International Journal of
Research in Marketing, 15, 401–426.
Berry, R. (1998). Direct Selling: From Door to Door to Network Marketing. Oxford:
Butterworth-Heinemann.
International Marketing
Croft, R., and Woodruffe, H. (1996). ‘Network Marketing: The Ultimate in Interna-
tional Distribution?’ Journal of Marketing Management, 12, 201–214.
BIBLIOGRAPHY
Poe, R. (1995). Wave 3: The New Era in Network Marketing. Taipei: Shy-Mau Publications
Co.
Poe, R. (1999). Wave 4: Network Marketing in the 21st Century. Rockland, Calif.: Prima
Publishing.
Hawkins, L. S. (1991). How to Succeed in Network Marketing. London: Piatkus.
Woods, T. (1998). ‘Let’s Just Call it Matrix Marketing,’ Mc Technology Marketing
Intelligence, 18(5), May, 52–53.
network theory 358
network theory
DESCRIPTION
Theory aimed at understanding and explaining how, why, and to what extent
networks of organizations or individuals in various forms are, or are likely to
be, effective and/or efficient means to achieve the particular goals and aims
of one or more organizations or individuals associated with a network.
KEY INSIGHTS
From the perspective of the ongoing performance and capabilities of
a particular actor, whether organization or individual, network theory
recognizes that the actor’s relationships with other organizations or indi-
viduals is an important dimension that is interrelated to the dimension
characterized by the actor’s own activities and resources. Given this view,
numerous strategic issues can be explored and understood better within
various theoretical frameworks, such as in understanding and explain-
ing better the relevance of network connectivity in combining common
and complementary skills, resources, assets, and/or competencies found
within inter-firm relationships to enhance a particular firm’s production
levels and capabilities. The scope of network theory is therefore broad
and encompasses a range of theoretical frameworks on which to base
examinations of issues in more specific contexts.
KEY WORDS Networks, interorganizational relationships, connectivity
IMPLICATIONS
Frameworks and concepts grounded in network theory can be poten-
tially useful to marketers seeking to understand, explain, or predict the
effectiveness and/or efficiency of strategic actions and initiatives ranging
from firm-level marketing activities to the development of international
markets. Of particular growing interest to many marketers is the view
that the broader market economy can be increasingly viewed as being
networked and therefore able to analyzed and evaluated from network
theory-based perspectives.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Achrol, Ravi S., and Kotler, Philip (1999). ‘Marketing in the Network Economy,’
Journal of Marketing, 63, Fundamental Issues and Directions for Marketing, 146–
163.
Rowley, T. J. (1997). ‘Moving beyond Dyadic Ties: A Network Theory of Stakeholder
Influences,’ Academy of Management Review, 22(4), 887–910.
Marketing Research
Webster, C. M., and Morrison, P. D. (2004). ‘Network Analysis in Marketing,’ Aus-
tralasian Marketing Journal, 12(2), 8–18.
BIBLIOGRAPHY
Achrol, R. S. (1997). ‘Changes in the Theory of Interorganizational Relationships
in Marketing: Toward a Network Paradigm,’ Journal of the Academy of Marketing
Science, 25(1), 56–71.
Johanson, J., and Mattson, L.-G. (1992). ‘Network Positions and Strategic Action: An
Analytical Framework’, in B. Axelsson and G. Easton (eds.), Industrial Networks: A
New View of Reality. London: Routledge, 205–217.
359 new product
new economy marketing see online marketing
new product
DESCRIPTION
A good, either a product or service or product and service combination, that
is perceived as new by some potential customers in the marketplace.
KEY INSIGHTS
New products, in being viewed as new by potential consumers along at
least one dimension or attribute, may range from products incrementally
different from the firm’s current products to the radically different. At
one end of the spectrum, a new product may involve a simple change
in aesthetics, as when it has a more appealing package. At the other end
of the spectrum, the new product may be a new-to-the-world product,
where there is nothing quite like it anwhere, thereby making it very
difficult for potential customers to evaluate. Such products are rare,
however. In between are new products that typically involve a change
in value, such as when a new product has twice the performance of an
existing product but where it is also offered at less than twice the existing
product’s price. In addition to decisions about the type and degree of
product newness, marketers also face many other decisions regarding
the development and effective use of such products (see product levels;
new product development), for example) in support of achieving the
firm’s broader objectives. Clearly, the pursuit and adoption of practices
and approaches associated with effective marketing will likely provide
the marketer with considerable assistance in making the most of all of
the firm’s new products.
KEY WORDS Original products, recent products
IMPLICATIONS
Given the dynamic of most markets, new products are the life blood of
most organizations. Marketers may therefore benefit tremendously from
a greater understanding of the many options and issues associated with
the use of new products as part of the firm’s marketing and business
strategies and broader organizational aims.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Cooper, Robert G., and Kleinschmidt, E. J. (1999). New Products: The Key Factors in
Success. Chicago: American Marketing Association.
Marketing Management
Crawford, C. Merle (1994). New Product Management, 4th edn. Burr Ridge, Ill.: Irwin.
Services Marketing
Berry, Leonard L., and Parasuraman, A. (1991). Marketing Services: Competing through
Quality. New York: Free Press.
BIBLIOGRAPHY
Urban, G. L., and Hauser, J. R. (1993). Design and Marketing of New Products, 2nd edn.
Englewood Cliffs, NJ: Prentice Hall.