Principles of Marketing “ Marketing : Managing Profitable Customer Relationships”

What Marketing is NOT? It is NOT just advertising and selling – these are just two of the marketing functions and often NOT the most important ones. It is NOT about ‘telling and selling’ in fact it is all about satisfying customer needs.

Marketing is: The delivery of customer satisfaction at a profit; its goal is to attract new customers by promising superior value and to keep current customers by delivering satisfaction. A social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. A transaction inclusive of activities designed to generate and facilitate exchanges intended to satisfy human or organizational needs or wants.

The aim of Marketing Quoting Peter Drucker “ The aim of marketing is to make selling superfluous. The aim is to know and understand the customer so well that the product or service fits…and sells itself”

The Marketing Process Understand the market place and customer needs & wants Design a customer driven marketing strategy Construct a marketing program that delivers superior value Build profitable relationships and create customer delight Capture value from customers to create profits and customer quality Deliver Value to customers Capture Value from customers

1) Needs, Wants and Demands 2) Marketing Offers (products, services & experiences) 3) Value and Satisfaction 4) Exchanges and Relationships 5) Markets Step 1: To understand the marketplace and Consumer needs the marketer has to understand these Core Marketing concepts:

Needs States of felt deprivation: These may be physical, social or individual in nature. These are NOT created by marketers but are a basic part of human makeup. Wants These are the form human needs take as they are shaped by culture and individual personality. Demands Wants backed by buying power.

Marketing Offers- Products, Services & Experiences A marketing offer is a combination of products, services, information or experiences offered to a market to satisfy a need or a want. They are not just limited to physical products but they also include services, activities or benefits offered for sale that are essentially intangible and do not result in ownership of anything.

Customer Value and Satisfaction: These are the building blocks of any marketing strategy. The scenario is quite simple; satisfied customers buy again and tell others about their good experiences and dissatisfied customers switch to competitors and badmouth about the company’s products. The marketer’s objective should be to set the right level of expectation – you set them too low, you don’t attract enough buyers, you set them to high, buyers will be disappointed.

Exchanges & Relationships Marketing occurs when people decide to satisfy needs and wants through exchange relationships. EXCHANGE is the act of obtaining a desired object from someone by offering something in return

Markets A market is the set of actual and potential buyers of a product or a service. These buyers share a particular need or want that can be satisfied through exchange relationships. Competitors Marketing Intermediaries End Users suppliers Company ( marketer)

Now that the marketer has understood the marketplace, he/she must answer two important questions; 1. What customers will we serve? (the target market) 2. How can our selected customers be served best? ( the value proposition) 3. What philosophy will drive the marketing strategy i.e. what weight age will be given to the interests of the customers, the organization, and society? Step 2: Designing a Customer Driven market strategy

Remember! The company cannot serve all customers in every way because by doing so they will not be able to serve any customers well. Henceforth the concept of Marketing Management steps in. This is “ the art and science of choosing target markets and building profitable relationships with them” Key concepts are: - Market segmentation - Target Marketing - De-marketing What Customers to serve?

Choosing a Value Proposition Value Proposition (VP) is the answer to the customer’s question “ Why should I buy your product instead of the competitor’s?” VP is how a company will differentiate and position it self in the marketplace VP is the set of benefits or value the company promises to deliver to consumers to satisfy their needs.

The driving philosophy! The production concept – consumers will favor products that are available and highly affordable, focus henceforth is on manufacturing and distribution efficiency. (leading to marketing myopia) The product concept – well manufactured products with continuous product improvements (leading to marketing myopia) The selling concept – the consumers will buy the products if and only if the company takes in a large scale promotional effort (the hard selling may backfire) The marketing concept – Design a product that the customer needs, don’t make it and then try and sell it to him. (the effective, customer oriented way!) Societal Marketing Concept – Ethical, socially conscious marketing where consumer short run wants and their long run welfare is balanced. A best working philosophy would be an overlap of the marketing and the Societal Marketing concept because it is customer oriented in every possible fashion. It is also essential as today's customer is aware and is gaining awareness at an increasing rate, henceforth tacky marketing gimmicks and ploys are no longer effective.

Step 3: Preparing a Marketing Plan and Program The marketing plan puts the marketing strategy into action via the marketing mix – the 4 Ps Product ( need satisfying marketing offer) Price ( charge for the offer) Place ( how offer will be made available) Promotion ( how offer will be communicated to the target audience and how they will be persuaded to buy)

Step 4: Building Profitable Customer Relationships CRM – Customer Relationship Management ; this is the overall process of building and maintaining profitable customer relationships by delivering superior value and satisfaction. This is used to retain current customers and build profitable long term relationships with them The aim of CRM is not just to satisfy customers but to delight them.

Customer Value – Customer Cost = Customer Perceived Value Customers do not judge product costs and values objectively, they act on perceived value. What ever value a customer associates to a product is based entirely on his perception about it. The customer’s perceived difference between the benefits ( customer value) and the costs ( customer cost) of a marketing offer is termed as Customer Perceived Value.

Customer Satisfaction The extent to which a product’s perceived performance meets a buyers expectation. If performance falls short of expectation, there is dissatisfaction, if it meets expectation, there is satisfaction and if performance exceeds expectation the customer is delighted. Good marketers promise their customers only what they can deliver and then over deliver and delight their customers.

Kinds of customer relationships Basic relationships (between companies and consumers) Full partnerships (between a company and its distributors, wholesales) Frequency marketing programs (e.g. Frequent flyer programs or discount on frequency purchases) Club marketing programs ( e.g. Harley Davidson clubs) Selective relationship management ( usually practiced by banks) Direct Marketing (buying and selling on the internet ) Partnership relationship management (e.g. strategic alliances and supply chain management)

Step 5: Capturing value from Customers Now that the company has delivered value TO the customer, the next step is to capture value FROM the customer in terms of his loyalty, market share, current and future sales and profits. Customer lifetime value – the entire stream of purchases a customer makes over a lifetime of patronage. Share of customer – the share the company gets of the customer’s purchasing in their product categories. Customer Equity – The total combined CLVs of all the company’s customers. Customer equity suggests the future where as market and sales share reflects the past.

Building the right relationship with the right customers Butterflies Good fit b/w offering and need True Friends Strong fit b/w offering and need True Friends Strong fit b/w offering and need Strangers Bad fit b/w offering and need Strangers Bad fit b/w offering and need Barnacles Limited fit b/w offering and need Barnacles Limited fit b/w offering and need High profitability Low profitability Short term customersLong term customers Potential profitability Projected Loyalty

‘Strangers’ – Since they have least loyalty and lowest profit potential, it is wise not to invest anything in them. ‘Butterflies’ – They are one time purchasers or erratic buyers, they exist because there is a good fit between the company’s product and their need. They are to be enjoyed like butterflies i.e. until they fly away. ‘True Friends’ – They are profitable and loyal and the company wants to turn them into ‘true believers’ ‘Barnacles’ – The highly loyal but not so profitable type. Henceforth build the right relationship with the right customer.

Conclusion - Marketing is the process of building profitable relationships with customers and then managing these relationships to maximize on profits and customer loyalty. - As a marketer you need to first understand the market, then devise a customer driven marketing strategy, then make a marketing program, build the profitable relationships with customers and as a result derive value from them - Finally in the face of today's changing markets, companies must harness marketing technology, take advantage of global opportunities and act in a social and ethically responsible way.