Marketing and Customer Value Marketing: Managing Profitable Customer Relationships Chapter 1 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

What is Marketing? Marketing Defined: “Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others” Marketing is about managing profitable customer relationships Attracting new customers Retaining and growing current customers

The Marketing Process 1 - 2

Core Marketing Concepts

Understanding the Marketplace Core Concepts Need State of felt deprivation Example: Need food Wants The form of needs as shaped by culture and the individual Example: Want a Big Mac Demands Wants which are backed by buying power Needs, wants, and demands Marketing offers: including products, services and experiences Value and satisfaction Exchange, transactions and relationships Markets

Want Need Example: Need is for love—a very basic need. Want is for a product to help us satisfy a need. The specific way a person satisfies a need depends on his or her unique history, learning experiences, and cultural environment. Need

Understanding the Marketplace Core Concepts Marketing offer Combination of products, services, information or experiences that satisfy a need or want Offer may include services, activities, people, places, information or ideas Needs, wants, and demands Marketing offers: including products, services and experiences Value and satisfaction Exchange, transactions and relationships Markets

Understanding the Marketplace Core Concepts Value Customers form expectations regarding value Marketers must deliver value to consumers Satisfaction A satisfied customer will buy again and tell others about their good experience Needs, wants, and demands Marketing offers: including products, services and experiences Value and satisfaction Exchange, transactions and relationships Markets

Value and Satisfaction Perceived Value The customer’s evaluation of the difference between benefits and costs. Customers often do not judge values and costs accurately or objectively. Customer Satisfaction Product’s perceived performance relative to customer’s expectations.

Customer Satisfaction Performance Expected level DISSATISFACTION Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Discussion Question: Customer Satisfaction When have you, personally, been extremely satisfied or dissatisfied with a product? Why? Why is it so difficult for companies to deliver value to consumers? Having students discuss their experience brings out product, pricing, promotion and distribution issues. It also highlights the importance of service and how every company is a service company. Ask them how many people they informed when dissatisfied vs. the number they informed when satisfied (dissatisfied is usually higher). You can also introduce perceived value here. It is also useful on the third question to talk about research and understanding needs, the difficulty in managing costs while delivering quality. 1 - 10

Understanding the Marketplace Core Concepts Exchange The act of obtaining a desired object from someone by offering something in return One exchange is not the goal, relationships with several exchanges are the goal Relationships are built through delivering value and satisfaction Needs, wants, and demands Marketing offers: including products, services and experiences Value and satisfaction Exchange, transactions and relationships Markets

Understanding the Marketplace Core Concepts Market Set of actual and potential buyers of a product Marketers seek buyers that are profitable Needs, wants, and demands Marketing offers: including products, services and experiences Value and satisfaction Exchange, transactions and relationships Markets

Elements of a Modern Marketing System

Marketing Management Marketing management is the art and science of choosing target markets and building profitable relationships with them. This definition must include answers to two questions: What customers will we serve? How can we serve these customers best?

Selecting Customers and Creating Value Customer Management What customers will we serve? Marketers select customers that can be served profitably Value Proposition How can we serve these customers best? Includes the set of benefits or values a company promises to deliver to consumers to satisfy their needs

Marketing Management orientations PRODUCTION CONCEPT PRODUCT CONCEPT SELLING CONCEPT MARKETING CONCEPT SOCIETAL CONCEPT Over time five alternative concepts have developed under which organizations design and carry out their marketing strategies.

Production Concept Consumers will favor products that are available and affordable Improve production and distribution Management should focus on improving production and distribution efficiency.

Product Concept Consumers will favor products that offer the most in quality, performance, and innovative features Make continuous product improvements Under this concept, marketing strategy focuses on making continuous product improvements.

Selling Concept Consumers will not buy enough without a large scale selling and promotion effort Push for more sales The concept is typically practiced with unsought goods—those that buyers do not normally think of buying, such as insurance or blood donations. These industries must be good at tracking down prospects and selling them on product benefits.

Marketing Concept Focus on satisfying the needs and wants of target markets. «Find right customers for your product» VS «Find right products for your customers» Under the marketing concept, customer focus and value are the paths to sales and profits. The job is not to find the right customers for your product but to find the right products for your customers. Customer-driven marketing is about understanding customer needs and creating products and services that meet existing and latent needs. Deliver satisfaction better than competitors.

The Selling and Marketing Concepts Contrasted

Societal Marketing Concept Deliver value to customers to improve their AND the society’s well being. Balance short-run and long-run welfare. The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare. The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and the society’s well being.

The Marketing Plan Transforms the marketing strategy into action Includes the marketing mix and the 4P’s of marketing Product Price Place Promotion

The marketing mix is the set of tools (four Ps) the firm uses to implement its marketing strategy. It includes product, price, promotion, and place. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Building Customer Relationships CRM – Customer relationship management The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping and growing customers.

Not All Customers are Equal Basic Relationships Low-margin customers Full Partnerships Key customers Selective relationship management Weeding out unprofitable customers

Capturing Value from Customers Key Concepts Customer delight leads to emotional relationships and loyalty Customer Lifetime Value shows true worth of a customer Customer Loyalty and Retention Share of Customer Customer Equity

Capturing Value from Customers Key Concepts Share of customer’s purchase in a product category. Achieved through offering greater variety, cross-sell and up-sell strategies. Customer Loyalty and Retention Share of Customer Customer Equity

Share of customer Sales to your firm Share of customer is the portion of the customer’s purchasing that a company gets in its product categories

Capturing Value from Customers Key Concepts The combined customer lifetime values of all current and potential customers. Measures a firm’s performance, but in a manner that looks to the future. Choosing the “best” customers is key Customer Loyalty and Retention Share of Customer Customer Equity

Marketing Landscape Challenges Growth of the Internet Advances in telecommunications, information, transportation Customer research and tracking Product development Distribution New advertising tools 24/7 marketing through the Internet Digital age Globalization Ethics and social responsibility Not-for-profit marketing Marketing relationships

Marketing Landscape Challenges Geographical and cultural distances have shrunk Greater market coverage More options for purchasing and manufacturing Increased competition from foreign competitors Digital age Globalization Ethics and social responsibility Not-for-profit marketing Marketing relationships

65% McDonald’s gets 65 percent of its revenues from outside the United States. McDonald’s gets 65 percent of its revenues from outside the United States.

Marketing Landscape Challenges Marketers need to take great responsibility for the impact of their actions Digital age Globalization Ethics and social responsibility Not-for-profit marketing Marketing relationships

Marketing Landscape Challenges Many organizations are realizing the importance of strategic marketing Performing arts Government agencies Colleges Hospitals Politicians Digital age Globalization Ethics and social responsibility Not-for-profit marketing Marketing relationships

Marketing Landscape Challenges Profits through managing long-term customer equity Improve customer knowledge Target profitable customers Keep profitable customers Digital age Globalization Ethics and social responsibility Not-for-profit marketing Marketing relationships

What is Marketing The process of building profitable customer relationships by creating value for customers and capturing value in return