Customer Driven Marketing http://www.wileybusinessupdates.com Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Customer Driven Marketing http://www.wileybusinessupdates.com Chapter 11 Customer Driven Marketing Chapter 11

Learning Objectives Define marketing. Describe marketing research. 1 Define marketing. Discuss the evolution of the marketing concept. Describe not-for-profit marketing and nontraditional marketing. Outline the basic steps in developing a marketing strategy. Describe marketing research. Discuss market segmentation. Summarize consumer behavior. Discuss relationship marketing. 5 2 6 3 7 Chapter 11 Learning Objectives Define marketing. Discuss the evolution of the marketing concept. Describe not-for-profit marketing and nontraditional marketing. Outline the basic steps in developing a marketing strategy. Describe marketing research. Discuss market segmentation. Summarize consumer behavior. Discuss relationship marketing. 8 4 Copyright (c) John Wiley & Sons, Inc.

What is Marketing? 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. Marketing begins with discovering unmet customer needs and continues with researching the potential market Producing a good or service capable of satisfying the targeted customers; and promoting, pricing, and distributing that good or service. Every organization (profit and non-profit) must serve customer needs to succeed. Marketing is more than just selling. It is research, production, promotion, pricing, and distribution. Lecture Enhancer: Can you think of a company that serves customers’ needs particularly well? Lecture Enhancer: Which of these steps seems to be the most important? Why? Class Activity : Ask students to explain how marketing has less to do with getting customers to pay for a product as it does developing a demand for that product to full their needs. Copyright 2015 John Wiley & Sons, Inc.

What is Marketing? Throughout the entire marketing process, a successful organization focuses on building customer relationships. The best marketers not only give consumers what they want, but anticipate consumers’ need before those needs surface. Exchange process - activity in which two or more parties give something of value to each other to satisfy perceived needs. Marketing begins with building upon and focusing on building customer relationships. A good marketer will anticipate a customer’s need before those needs surface. When two or more parties benefit from trading things, they enter into an exchange process. The exchange process is much more complicated than buying a product you “need.” Facilitating and creating this exchange process is a big part of marketing. Lecture Enhancer: Marketing extends beyond goods and services – sometimes a municipality tries to persuade its population to stop speeding. Lecture Enhancer: Describe an entrepreneur (and their product), who was able to anticipate unmet consumer needs before those needs surfaced. Class Activity : Have students list three recent exchanges whereby a desired object was obtained from someone by offering them something in return. Copyright 2015 John Wiley & Sons, Inc.

How Marketing Creates Utility Utility: the ability of a good or service to satisfy a wants and needs of customers Create form utility by converting raw materials and other inputs into finished goods and services Create time utility by making a good or service available when customers want to purchase it Create place utility by making a product available in a location convenient for customers Create ownership utility through an orderly transfer of goods and services from the seller to the buyer Many organizations are attempting to create by the marketing function all four types of utility – the ability of a good or service to satisfy the wants and needs of a customer. A company’s production function creates form utility by converting raw materials, component parts, and other inputs into finished goods and services. Time utility is created by making a good or service available when customers want to purchase it. Place utility has more to do with making a product available in a location convenient for customers. Ownership utility involves an orderly transfer of goods and services from the seller to the buyer Lecture Enhancer: Time utility ensures a product is available when the customer wants it -- a warm coat during the winter, a bathing suit in the summer, and a Halloween costume and decorations when Halloween approaches.   Class Activity : Ask students to provide examples for each type of utility as it relates to their own personal experiences with recent purchases. (Hint: textbook for a course in terms of time and place utility). Copyright 2015 John Wiley & Sons, Inc.

Evolution of the Marketing Concept The marketing concept refers to a companywide orientation with the objective of achieving long run success. Marketplace success begins with the customer, so a firm should analyze customers’ needs and work backwards to offer products that fulfill those needs. Marketing has always been a part of business, but it has changed over the centuries. In the 1950s, the marketing era started and organizations began to adopt a consumer orientation. This focus has intensified in recent years, leading to the emergence of the relationship era in the 1990s, and today, the social era. The emergence of the marketing concept can best be seen through a shift from a seller’s market with a shortage of goods and services to one of a buyer’s market, one with an abundance of goods and services. Lecture Enhancer: Can you envision how marketing might further evolve in the 21st century? Lecture Enhancer: Discuss the production era and its focus on producing quality products and the philosophy that “a good product will sell itself.” Provide examples of how that exists today. Class Activity : Have students discuss and give examples of companies who have lost sight of satisfying their customers and those who have worked tirelessly to do so. Copyright 2015 John Wiley & Sons, Inc.

Emergence of the Marketing Concept Marketing concept – company-wide consumer orientation to promote long-run success. Firm starts with analysis of customers’ needs and works backward to offer products that fulfill them. Firm Explained by shift from sellers’ market in which goods and services are relatively scarce to buyers’ market in which they are relatively plentiful. There is strong competition to satisfy customers. Therefore, organizations must focus on the long-term value of customers and their needs. Lecture Enhancer: Can you think of an example where a firm created a need for its product? Lecture Enhancer: Jeff Bezos, founder of Amazon, worked around a napkin sketch he drew over 16 years ago, with the idea to start with the customer first, and then work backwards. Class Activity: Have students provide examples of markets where there are more sellers than buyers, and ones where there are more buyers than sellers. Copyright 2015 John Wiley & Sons, Inc.

Not-for-Profit Marketing 20 million not-for-profits exist worldwide Apply marketing tools to reach audiences, secure funding, improve their images, and accomplish their overall missions Not-for-profit organizations operate in both public and private sectors Sometimes partner with a profit-seeking company to promote a message. Marketing is being applied to the Not-for-profit sector. Non-profits compete for dollars (funding) and people (donors or volunteers), and need to communicate their purpose. The largest nonprofit in the world is Red Cross/Red Crescent. Lecture Enhancer: One way nonprofits market themselves is by providing content marketing – a technique of creating and distributing relevant and valuable content to attract, acquire and engage a target audience. Class Activity : Have students provide examples of nonprofits operating in both the public and private sectors. Class Activity : Ask students to name not-for-profit organizations in the local community they think have used effective marketing. Copyright 2015 John Wiley & Sons, Inc.

Non-Traditional Marketing Cause – promotes awareness or raises money for a cause or issue Place – attract people to a particular area Event – marketing or sponsoring events Person – attracting the attention, interest, and preference towards a person Organization – accepting the goals of, receiving the services, or contributing to a particular organization Not-for-profits engage in one or more of five categories of non-traditional marketing, including: cause, place, event, person, and organization. Lecture Enhancer: Choose one of the categories and think of products or services that might be marketed using the selected method. Lecture Enhancer: Johnson and Johnson’s mother’s day cause marketing campaign utilized social media to spread the word by donating a dollar for every Facebook “Like” to nonprofit, Save the Children. Lecture Enhancer: The Coca-Cola Company has partnered with nonprofit, Ronald McDonald House as a cause marketing business partner. Can you think of other similar partnerships? Class Activity : Kellogg’s set a goal to serve one million breakfasts to children who are in need of food by creating a Facebook post, a set Tweet using the hashtag #sharebreakfast, and a pin on Pinterest. The company promised to feed one child breakfast for every share. Copyright 2015 John Wiley & Sons, Inc.

Marketing Plan The marketing plan is a key component of a firm’s overall business strategy The marketing plan outlines its marketing strategy, including information about: Target market Sales and revenue goals The marketing budget Timing for implementing elements of the marketing mix. The marketing plan is a key component of a firm’s overall business strategy, and outlines its target market, sales and revenue goals, budgets, and timing for implementation. Lecture Enhancer: Sales and revenue goals as part of a company’s marketing plan means that marketing professionals must deal with continuous changes in products, prices and competitors. Class Activity : Why is having a timing and implementation strategy important as part of a company’s marketing plan? Copyright 2015 John Wiley & Sons, Inc.

Developing a Marketing Strategy 1. Study and analyze potential target markets and choose among them. 2. Create a marketing mix to satisfy the chosen market. A marketing plan is a key component of a firm’s overall business strategy. Developing a marketing strategy involves two steps, the first of which is to study and analyze potential target markets and choose among them. The second step is to create a marketing mix to satisfy the chosen market. Figure 11.3 shows the relationship among the target market, the marketing mix variables, and the marketing environment. Lecture Enhancer: Having a well defined target market is important, because a company cannot afford, nor is it feasible, to target everyone. Class Activity : One example of a target market for a high-end interior design company might be homeowners between the ages of 35-65 with incomes of $150,000 or more in the Raleigh, NC area. Class Activity : Discuss the target market for a skateboard company based in Portland, OR and one for a luxury assisted living facility for seniors located in Detroit, MI. Copyright 2015 John Wiley & Sons, Inc.

Selecting a Target Market Target market - group of people toward whom an organization markets its goods, services, or ideas with a strategy designed to satisfy their specific needs and preferences. Types of Markets Consumer (B2C) product: good or service that is purchased by end users Business (B2B) product: good or service purchased to be used, either directly or indirectly, in the production of other goods for resale A market consists of people with purchasing power, willingness to buy, and authority to make purchasing decisions. Markets can consist of two types of products, including: consumer products (business-to-consumer products, or B2C), and business products (business-to-business products, or B2B) – goods and services to be used, either directly or indirectly in the production of other goods for resale. Selecting the target market is very important as then an organization can concentrate its financial and time resources in going after this market. Markets can be classified by type of product– consumer and business. Lecture Enhancer: To select target markets, companies list their features, and the benefits each provides. A target market is created by listing those who have a need which the benefit fulfills. Class Activity : Have students come up with consumer products which are typically exchanged between consumers, or as consumer-to-consumer, or C2C. Copyright 2015 John Wiley & Sons, Inc.

Marketing Mix Marketing mix blends the four strategies to fit the needs and preferences of a specific target market. Product Strategy - the nature of the product and its package design, brand names, trademarks, and product image. Distribution strategy - customers receive their purchases in the proper quantities at the right times and locations. Promotional strategy blends advertising, personal selling, sales promotion, and public relations to achieve its goals of informing, persuading, and influencing purchase decisions. Pricing strategy is setting profitable and justifiable prices for the firm’s product offerings, sometimes subject to government scrutiny. A firm’s marketing mix is a blend of the four strategies --product, distribution, promotion, and pricing—to satisfy the needs and preferences of a chosen customer segment. Marketers mix these strategies to communicate to the target market, and success depends not on the individual strategies, but how they're blended to meet the needs and preferences of a specific target market. Lecture Enhancer: Which of these strategies seems to be the most crucial? What might happen if a firm were to ignore one of these strategies? Lecture Enhancer: Provide examples of products which are priced high, and discuss whether a high price always translates to better quality. Class Activity : Ask students to explain why they have a specific brand preference, and what it is about that brand that they prefer. Copyright 2015 John Wiley & Sons, Inc.

Marketing Mix for International Markets Standardization - offering the same marketing mix in every market. Adaptation - developing a unique marketing mix to fit each market’s local competitive conditions, consumer preferences, and government regulations. Mass Customization - allows a firm to mass produce goods and services while adding unique features to individual or small groups of orders. Marketing a good or service in foreign markets means deciding whether to offer the same marketing mix in every market (standardization) or to develop a unique mix to fit each market (adaptation). Standardization works best with business to business goods. Adaptation is often seen with food and restaurants. Mass customization is seen in automobiles where the manufacturer may add features to meet the needs and requirements of a specific market. Lecture Enhancer: Provide an example of a good or service that has used standardization. Lecture Enhancer: Kentucky Fried Chicken includes regional ingredients and dishes in foreign markets -- such as a donut shaped piece of shrimp that is breaded and fried.  Class Activity: Ask students to provide examples of mass customization when it comes to coffee or apparel. Copyright 2015 John Wiley & Sons, Inc.

Marketing Research Marketing research– the process of collecting and evaluating information to support marketing decision making. AC Nielson– Consumer Research Secondary data– Previously published data from trade associations, advertising agencies, marketing research firms, and other sources. Primary data– Data collected through observation, surveys, and other forms of observational study. Data mining– computer searches of customer data to detect patterns and relationships. Business intelligence– activities and technologies for gathering, storing, and analyzing data to make better competitive decisions Market research must be obtained and applied to aid in making good marketing decisions, creating an effective strategy, and building a strong marketing mix. Therefore, researchers must decide how to collect data, interpret the results, convert the data into decision-oriented information, and communicate those results to managers for use in decision making. Marketers may access internal or external data to make marketing decisions. The more data they have and use, the better their marketing decisions. Some organizations gather large amounts of business intelligence to help make competitive decisions. Data mining uses data warehouses, sophisticated customer databases that allow managers to combine data from several different organizational functions. Click AC Nielsen to look at the marketing research the firm offers. Lecture Enhancer: What are some potential challenges resulting from the availability of too much data? Class Activity: Lead a class discussion on how students might collect primary and secondary data to research a potential pet grooming service in the community. Lecture Enhancer: Provide some examples of typical methods used to mine data from consumers. Lecture Enhancer: What methods might companies use to obtain information about customer purchasing habits? Lecture Enhancer: Provide examples of typical methods used to mine data from consumers. Lecture Enhancer: What are some potential dangers presented by data warehouses? Copyright 2015 John Wiley & Sons, Inc.

How Segmentation Works Market segmentation– the process of dividing a total market into several relatively homogeneous groups to reach desirable target markets. Market segmentation is the process of dividing a market into several relatively homogeneous groups in order to reach desirable target markets. Market segmentation attempts to isolate traits that distinguish a certain group of customers from the overall market. Table 11.1 lists the criteria that marketers consider when segmenting markets, including measurability, accessibility for communication, and the potential of offering profit. Lecture Enhancer: Name some newly emerged market segments. Class Activity : Have students discuss how a community college might further segment its student body. Copyright 2015 John Wiley & Sons, Inc.

Segmenting Consumer and Business Markets Market segmentation depends on the product and the target market. Common bases for segmenting consumer markets are geographical, demographic, psychographic, and product-related. Business products are segmented into customer-based, end-use, and geographical. The effectiveness of a segmentation strategy depends on how well the market meets these criteria. Once marketers identify a market segment to target, they can create an appropriate marketing strategy. Lecture Enhancer: Segmentation involves simply creating sub-groups from a larger group in order to more specifically target them. Class Activity : Have students discuss the multiple demographic characteristics the following types of companies many consider when segmenting their consumer markets: motorcycles, luxury cars, and cosmetics. Copyright 2015 John Wiley & Sons, Inc.

Segmenting Consumer Markets Geographic Segmentation Divides market into homogeneous groups on the basis of their locations. Demographic Segmentation Divides market on the basis of various demographic or socioeconomic characteristics: gender, income, age, occupation, household size, stage in the family life cycle, education, and ethnic group Psychographic Segmentation Divides consumer market into groups with similar psychological characteristics, values, and lifestyles. (VALS) AIO statements—people’s verbal descriptions of various attitudes, interests, and opinions Product-Related Segmentation Divides market based on buyer’s relationship to the good or service. based on benefits sought by buyers, usage rates, and loyalty levels Common demographic measures include gender, income, age, occupation, household size, stage in family life cycle, education, race, and ethnicity. Have students take the VALS survey (click on link) to learn about psychographic segmentation. The three most popular approaches to product-related segmentation are based on benefits sought, usage rates, and brand loyalty levels. Lecture Enhancer: What are the advantages and disadvantages of each method of segmentation? Class Activity: Discuss food preferences by geographic region of the United States. Copyright 2015 John Wiley & Sons, Inc.

Demographic Segmentation Figure 11.5 lists some of the measures used in consumer demographic segmentation. They include: occupation, age, income, gender, household size, stage in family life cycle, education, race, and ethnicity. Lecture Enhancer: Provide a specific example of a psychographic segment. Class Activity: Ask students how they would market a matchmaking mobile app like Tinder. Class Activity: Ask students what type of businesses might segment products or services using religion as a key segmentation criterion. Copyright 2015 John Wiley & Sons, Inc.

Segmenting Business Markets Geographic – many B2B target geographically concentrated industries such as aircraft or automobiles. Demographic, or customer- based, segmentation– a good or service intended for a specific organizational market (i.e. healthcare). End-use segmentation - focuses on the precise way a B2B purchaser will use a product. Geographic segmentation for the business market resembles segmentation for consumer markets, but some methods differ. Demographic segmentation is more focused on industries while end-user segmentation focuses on how the product will be used. Lecture Enhancer: Business markets have a much smaller number of potential customers, as opposed to the large number of consumers in a market. Class Activity : Lead a discussion of why fast-food restaurants and medical offices would likely be treated as two distinct segments by furniture manufacturers. Copyright 2015 John Wiley & Sons, Inc.

Determinants of Consumer Behavior Consumer Behavior - actions of ultimate consumers directly involved in obtaining, consuming, and disposing of products and the decision processes that precede and follow these actions. Personal factors- Personal factors: needs and motives, perceptions, attitudes, self-concept Interpersonal factors - cultural, social, and family influences External factors - economic events Business buying behavior - often includes a variety of influences from multiple decision makers Consumer and business behavior differ, but the key focus is on determining what the customer wants, and what drives the customer. There may be a combination of individual needs and motives, perceptions, attitudes, learned experiences, and self concept. Both personal and interpersonal factors impact the way consumers behave. Lecture Enhancer: There has been a significant shift in consumer behavior from choosing products based on physical attributes such as size, color, or flavor to other important features like environmental impact and health. Class Activity: Have students discuss social and cultural influences on their buying behavior. Class Activity: Ask students how economic events have impacted their own spending habits, along with those of friends and family. Copyright 2015 John Wiley & Sons, Inc.

Steps in Consumer Behavior Process Consumer behavior may follow the sequential process outlined in Figure 11.6, with interpersonal and personal influences impacting every step. The steps include: problem recognition, search, evaluation of alternatives, purchase decision, purchase act, and postpurchase evaluation. Lecture Enhancer: Can you think of a situation in which a consumer might skip one or more of these steps? Why? Class Activity : Have students apply each of the steps in the consumer behavior process to the last purchase of over $100. Copyright 2015 John Wiley & Sons, Inc.

Relationship Marketing Relationship marketing- goes beyond the effort of simply making a sale Developing and maintaining long-term, cost-effective exchange relationships with partners Consumers enter into relationships only if there is some benefit to them. Relationship marketing seeks to achieve customer satisfaction As consumers have become better-informed and more demanding, rapid changes to most industries has occurred. Consumers demand benefits from the companies that supply them, which makes it even more difficult for firms to gain a competitive advantage on product features alone. Lecture Enhancer: The Ritz-Carlton Company Service Value for employees states: “I build strong relationships and create Ritz-Carlton guests for life.” Class Activity : What are some ways wireless services companies try to keep irate customers who threaten to switch to a competitor? Class Activity : Ask students about how many loyalty programs they belong to, and whether such rewards influence loyalty and the maintenance of long-term relationships. Copyright 2015 John Wiley & Sons, Inc.

Benefits of Relationship Marketing Lower costs and higher profits for the business Efficient targeting of best customers increases the lifetime value of a customer. Revenues and intangible benefits (referrals and customer feedback) from a customer over the life of the relationship, minus the amount the company must spend to acquire and serve that customer. Stronger relationships with business partners and opportunities to combine capabilities and resources to better accomplish goals. Relationship marketing benefits the parties involved, and provides protection against competitors by forging sold partnerships with vendors and customers. The lifetime value of customers is important as current customers make referrals and provide customer feedback. Increasing lifetime value will lead to increased profits. Lifetime value refers to the revenues and intangible benefits (referrals and customer feedback) from the customer over the life of the relationship, minus the amount the company must spend to acquire and serve that customer. Lecture Enhancer: Most companies have a small percentage of customers who cost more to serve than they generate in positive revenue. Class Activity: What are some ways wireless services companies try to keep irate customers who threaten to switch to a competitor? Copyright 2015 John Wiley & Sons, Inc.

Tools for Nurturing Customer Relationships 80/20 principle: frequent customers have a higher lifetime value, so businesses allocate resources accordingly Frequency marketing: reward purchasers with cash, rebates, and other premiums. See Walgreen’s Balance Rewards Loyalty program. Affinity programs: solicit involvement based on common interest Comarketing: businesses jointly market each others’ products Cobranding: firms link their names in a single product The 80/20 rule denotes that some customers provide more value than others. But overall, these tools help firms strengthen the relationship they have with their customers. Comarketing and cobranding help make the marketing sparks fly, nurturing complimentary relationships. Lays KC Masterpiece chips and Sponge Bob cereal are examples of cobranding. Check out the link to Walgreen’s Balance Rewards Loyalty program. Lecture Enhancer: Provide examples of ways in which retailers reward customers who purchase frequently. Class Activity: Ask students to think of cobranding examples, and the benefits to each company, such as the one between Hershey’s syrup and Betty Crocker brownie cake mix. Copyright 2015 John Wiley & Sons, Inc.

One-to-One Marketing Customizing products and marketing and rapidly delivering goods. Marketers can maintain databases about customers with regard to tastes, price range preferences, purchasing habits, and lifestyles. Customer relationship management software helps companies gather, sort, and interpret data about specific customers. The ability to customize products and rapidly deliver goods and services has become increasingly common – mainly due to technology like computer-aided design and manufacturing (CAD/CAM). One-to-one marketing allows companies to employ mass customization to meet customer needs. This strategy is another form of relationship marketing that depends on technology. Customer relationship management uses technology to efficiently manage one-to-one relationships. Lecture Enhancer: Amazon.com makes personalized recommendations on books, music, and other products, an example of a one-to-one marketing. Class Activity: Amazon learns about each of its customers through their transactions, and incorporates information about other customers’ buying behavior. Ask students to discuss if they have ever experienced how Amazon does this. Copyright 2015 John Wiley & Sons, Inc.