1. Marketing
Exchange
Marketing is the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods, and services to
create exchanges that satisfy individual and organizational objectives.
--American Marketing Association, 1985
Three Concepts:
1. Marketing is exchange.
2. Marketing managers can facilitate exchange by orchestrating
the controllable variables, that is, the marketing mix--product,
price, promotion, place (distribution).
3. The Marketing Concept suggests that firms should seek to
satisfy customer needs and wants at a profit.

2. Market Orientations: Three Unique Characteristics
Customer Focus: An obsession with understanding customer needs and delivering customer satisfaction
Competitor Orientation: Continuous recognition of competitors’ sources of advantage, competitive position, and marketing strategies
Team Approach: Cross-functional teams dedicated to developing and delivering customers solutions

3. Marketing Orientation, Customer Satisfaction, and Profitability
Business Profitability
Customer Satisfaction And Retention
Market Orientation

4. Customer Retention Tree
Ex: banking industry – only 4% complain who are dissatisfied

5. Customer Life Expectancy and Customer Retention
Banking industry = 5% increase in customer retention = 85% increase in NPV.
Banking industry = cost of new customer = +/- $200
Must be able to perform these formulas
(N) Average Life = 5 years than CR = 80%
Customer life expectancy increases exponentially with customer retention.

6. Customer Lifetime Value
*Discount Rate = 10%
Discount Rate = 10%

7. Do we want to retain every customer?
Is there a case for Outsourcing Customers?
What about Spinners with AT&T
What about “movers and shakers” with the baby bells?
There are times when we should jettison unprofitable customers or customer segments.
When?

8. AIRCOMM Customer Retention Tree (1000 customers surveyed)
Satisfied
Customers
67%
3,350,000
Retained
74,250
8,250
Lost
313,500
1,254,000
1,262,500
New customers
Retained
90%
Complain 5%
Lost
10%
Dissatisfied
Customers
33%
Customer
Base
5,000,000
Retained
20%
Did Not
Complain
95%
Lost
80%
New
Customers
25.5%

9. AIRCOMM Customer Retention1
Customer
Retention
= Retained Customers/Customer Base
= (3,350,000+74, ,500)/5,000,000
=3,737,500/5,000,000
= .75

10. AIRCOMM’s Average Customer Life Expectancy2
A customer retention of 75% translates into an average
customer life of four years.
Customer
Life = = =
= 4 years
1-Customer Retention

11. AIRCOMM: NPV of customer2
It costs $250 to acquire a new customer.
During the first year, a new customer produces $150 of revenue and
$50 in margin. The cost of retention is $50. Thus in the first year,
AirComm breaks even.
In years 2 and 3, the average AirComm customer produces $400 in
revenue and $250 in margin. The average cost of customer retention
is still $50, so AirComm generates $200 in profit each year.
In year 4, the average customer becomes dissatisfied. During this year,
the average margin per customer drops to $100 as dissatisfied customers
reduce their usage to an average of $200. AirComm spends $100 in
customer retention efforts. The net result is a zero profit in year 4.
Based on the net cash flow produced each year, an NPV of $51.80 is produced
over a four-year customer life (DR = 12%).
NPV = (-$250 x 1.000) + ($0 x .893) + ($200 x .797) + ($200 x .712) + ($0 x .636)
= -$ $ $ $0
= $51.80

12. AIRCOMM: Improve customer satisfaction from 67% to 77%3
With a customer base of 5 million, an improvement in customer satisfaction
from 67% to 77% would result in 3,850,000 satisfied and retained customers.
This level of customer satisfaction reduces the percent dissatisfied from
33% to 23%.
This results in 51,750 dissatisfied customers who complained and were
retained and 218,500 dissatisfied customers who did not complain but
were retained.
Overall, the number of retained customers increased to 4,120,250. For a
customer base of 5 million, this is a customer retention rate of 82.4%.
Satisfied and retained 5,000,000 x = 3,850,000
Dissatisfied, complain, retained 5,000,000 x .23 x .05 x .90 = ,750
Dissatisfied, don’t complain, retained 5,000,000 x .23 x .95 x .20 = ,500
Total Customers Retained ,120,250
Customer Retention = 4,120,250/5,000,000 = .824

13. Components of a Market Orientation
Marketing Knowledge
Business Profitability & Growth
Marketing Leadership
Market Orientation
Customer Retention
Customer Satisfaction
Employee Retention
Service Quality
Employee Satisfaction
Employee Productivity

14. Market-Based Performance
Market Versus Financial Performance

15. Financial Performance
Gross Profit
Net Profit (before taxes)

16. Marketing Performance Metrics: External Measures of Market Performance
Marketing Profitability: Profitability measure of a marketing strategy

18. Relative Index where 100 is equal to competition, > 100 ahead of competition and < 100 behind competition.

20. Contribution Analysis
Unit Contribution: The difference between unit price and
unit variable cost.
Total Contribution: The amount available to the firm to cover
(or contribute to) fixed costs after variable costs have been deducted
from total revenue.

21. Break-Even Analysis Total Revenue or Total revenue Total Cost Profit
Break-even point
Variable Cost
Fixed costs
Loss
BEV
Unit Volume
Total Revenue = Total Cost
Price x BEV = Fixed cost + Unit variable cost (BEV)
BEV = Fixed cost
Price – Unit variable cost
BEV = Fixed cost
Unit contribution
Sensitivity analysis
Market size

22. Break-Even Analysis Example: $30,000 BEV = = 10,000 units $5-$2
A manufacturer plans to sell a product for $5.00.
The unit variable costs are $2.00.
The fixed costs assigned to the product are $30,000.
How many units must be sold to break even?
$30,000
$5-$2
BEV =
= 10,000 units
Total Revenue = Total Cost
Price x BEV = Fixed cost + Variable cost (BEV)
BEV = Fixed cost
Price – Unit variable cost
BEV = Fixed cost
Unit contribution

23. Net Marketing Contribution (NMC)
How do marketing strategies contribute to overall profits of a business?
Sales Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses
Net Profit (before taxes)
= Traditional View

24. Net Marketing Contribution: Santa Fe Sportsware Product Line P1
Marketing and Sales Expenses are traditionally a part of Sales, General & Administration (SG&A) in most annual reports.

25. Santa Fe Sportsware: Product Line Marketing Profitability

26. Fundamental Market-Based Strategies and Profitable Growth
10 million
10 percent
$50
$5,000,000
$40

27. Marketing Productivity
Market Productivity = Net Marketing Contribution
Marketing Budget

28. Market Definition, Potential, and Demand

29. AVOIDING MARKETING MYOPIA
Marketing Myopia is management’s failure to recognize the scope of its business.
To avoid marketing myopia, companies must broadly define organizational goals toward consumer needs.
© PhotoDisc

30. Avoiding Marketing Myopia
Company
Myopic Description
Marketing-Oriented Description
MCI Worldcom
“We are a telephone company.”
“We are a communications company.”
Northwest Airlines
“We are in the airline business.”
“We are in the transportation business.”
Prudential Securities
“We are in the stock brokerage business.”
“We are in the financial services business.”
Sony
“We are in the video game business.”
“We are in the entertainment business.”

31. Vertical and Horizontal Markets and Growth Opportunities

32. Personal Computer Market Development

33. Maximum Market Potential and Current Market Demand

34. The Diffusion Process
Describes how potential customers learn about new products, try them, and
adopt or reject them.
Rogers (1962) categorized adopters on the basis of relative time of adoption of
the innovation based on individual differences. People differ markedly in their
readiness to try new products.

35. Adopter Categorization of the Basis of Relative Time of Adoption of Innovations
Deliberate, adopt before the average
person, but are not leaders.
13 1/2%
Early
adopters
34%
Early
majority
34%
Late
majority
16%
Laggards
Skeptical, adopt after the majority
of people have tried it.
Opinion leaders, adopt new
ideas early but carefully.
Tradition bound,
suspicious of change.
Venturesome, willing
to try new ideas at
some risk.
2 1/2%
Innovators
Time of adoption

36. The Chasm Time of adoption innovations 13 1/2% Early adopters 34%
majority
34%
Late
majority
16%
Laggards
2 1/2%
Innovators
Time of adoption innovations

37. Product Adoption Categories
Innovators Early Adopters Early Majority Late Majority Laggards
2.5% % % % %
Tech. Enthusiasts
Visionaries
Pragmatists
Conservatives
Skeptics
Tech. Junkie
Aggressively pursue
technology products
Appreciate
technology for its
own sake
May purchase for
the pleasure of
exploring the new
product’s properties
Realize potential
Gatekeepers
Winning them over
is key because their
endorsement reassures
the market that the
product works
Appreciate the benefits
of new technology
Match technology
to opportunity
Motivated by future
opportunities
Intuitive
Support revolution
Contrarian
Break from pack
Risk taker
Seek what is
possible
Key to opening market
segment
Wait and see
Motivated by
present problems
Driven by practicality
Analytic
Want to see well-
established references
Conformist
Stay with the herd
Risk manager
Pursue what is probable
Winning their business
is key to profits and
growth
Wait, wait, wait until
new technology
becomes established
standard
Less willing to become
technologically
competent
Motivated by
tradition
Support status quo
Stay in center of
herd
Risk adverse
Winning their business
is highly profitable
Do not want anything
to do with the new
technology
Only buy is when the
technology is buried
so deep inside another
product that they don’t
know it is there.
Not worth pursuing

38. Product Life Cycle Sales & profits ($) Time Introduction Growth
Maturity
Decline

39. Intel’s Product Life Cycles

40. Share Development Tree