1. Principles Of Marketing PHILIP KOTLER, GARY ARMSTRONG
Chapter One
Marketing: Managing Profitable Customer Relationships

2. Looking Ahead Define marketing and the marketing processes.
Explain the importance of understanding customers and the marketplace.
Identify the five core marketplace concepts.
Identify the key elements of a customer-driven marketing strategy.
Discuss customer relationship management and ways of creating and obtaining value.
Describe the major trends and forces changing today’s marketing landscape.

3. What is Marketing?
Attracting new customers by promising and delivering superior value.
Building long-term relationships with customers by delivering continued customer satisfaction.
Creating, building and managing these relationships profitably over time.
Chapter 1 pages 6 and 7

4. Broad Definition:-
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.
Narrower Definition:-
The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

5. The Marketing Process Model
Understand the marketplace and customer needs and 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 equity.
Chapter 1 page 7

6. 1.Understanding The Marketplace And The Consumer Needs

7. Needs, Wants and Demands
Needs are states of felt deprivation.
Physical:
Food, clothing, shelter, safety.
Social:
Belonging, affection.
Individual:
Learning, knowledge, self-expression.
Chapter 1 page 8

8. Needs, Wants and Demands
Wants are needs shaped by culture and individual personality.
Jeans vs a sari.
Individual expression vs. collective good.
Demands are wants combined with buying power.
Hilfiger vs. Giant Tiger.
Jetta vs. Jaguar.
Chapter 1 page 8

9. Products, Services, Experiences
Anything that can be offered for.
Acquisition, attention, use or consumption.
That might satisfy a need or want.
Services.
Activities or benefits offered.
Essentially intangible.
Do not result in ownership of anything.
Experiences.
Create, stage and market brand experiences.
Attending live theatre, music concert.
Chapter 1, pages 8-10

10. Marketing Myopia
Sellers pay more attention to the specific products they offer than to the benefits and experiences produced by the products.
They focus on the “wants” and lose sight of the “needs.”
The great railroads lost out to the exploding trucking industry.
They forgot that their business was solving transportation problems, not running railroads.
Chapter 1, page 9

11. How Do Consumers Choose Among Offers?
Customer Value – Difference between the values the customer gains from owning the product versus the costs of obtaining it. Customers buy from the firm that offers the highest customer perceived value
Customer Satisfaction – Perceived performance in providing value, relative to expectations – how well the product lives up to expectations
Important: Perceptions are key
Set the right level of expectation

12. Value and Satisfaction
If the performance and the customer’s experience is lower than expectations, than customer satisfaction is low.
If the performance and the customer’s experience meets expectations, than the customer is satisfied.
If the performance and the customer’s experience exceeds expectations, than the customer is delighted.

13. Exchange and Transactions
The act of obtaining a desired object from someone by offering something in return.
Transaction.
A trade between two parties that involves:
two things of value.
agreed upon conditions.
time of agreement.
place of agreement.
Chapter 1, Page 10

14. What is a Market? The set of actual and potential buyers of a product.
These people share a need or want that can be satisfied through exchange relationships.
Chapter 1, Page 10
Chapter 1, page

15. Core Marketplace Concepts
Customers have needs, wants and demands.
Marketers offer products or services.
Customers seek value and satisfaction from offers.
Demands and offers result in transactions and relationships.
Markets are all potential customers with a similar demand.
Chapter 1, page 12

16. Customer-Driven Marketing
Divide markets into segments.
Choose the right segment to target.
Offer a unique value proposition.
Differentiate your offer from competitor offers.
Build customer value and satisfaction.
Nurture long-term customer relationships.
Chapter 1, 13-14

17. ELEMENTS OF A MODERN MARKETING SYSTEM
Figure 1.2

18. 2.Designing A Customer Driven Marketing Strategy

19. Marketing Management
The art and science of choosing target markets and building profitable relationships with them.
Chapter 1, page 14

20. Selecting Customers To Serve
The company must decide who it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segment it will go after (target marketing)
Segmentation divides the market into groups of customers with varying needs and wants.
Targeting selects the right segment to nurture.
Chapter 1, page 13-14

21. Connections With Customers
Most marketers are targeting fewer, potentially more profitable, customers
They are asking:
Can we serve this customer profitably?
Focus has shifted to:
Retaining current customers
Connecting in a deeper, more lasting way – growing “share of customer”
Building relationships for greater profitability

22. Demand Management Marketing management seeks to control demand.
Increasing demand is the norm.
Demarketing seeks to reduce demand in certain circumstances.
Chapter 1, page 13

23. Marketing Management Marketing Management Profitable Demand Customer
Choosing target
markets and
building
profitable
relationships
with them
Demand
Management
Finding and
increasing demand;
(also changing or
reducing demand,
i.e.,“demarketing”)
Profitable
Customer
Relationships
Attracting new
customers, and
retaining and
building
relationships
with current
customers

24. Value Proposition
The set of benefits or values the company promises to deliver to its target markets to satisfy their needs.
Chapter 1, 13-14

25. Marketing Management Orientations
Marketing Management wants to design strategies that will build profitable relationships with target consumers
There are five alternative concepts under which organizations design and carry out there marketing strategies. These are:-
The Production Concept
The Product Concept
The Selling Concept
The Marketing Concept
The Societal Marketing Concept

26. Marketing Management Orientations Based on different assumptions about: - what customers want - what marketers should do
Consumers favor products that are
available and highly affordable
Consumers favor products that offer
the most quality, performance, and
innovative features
Consumers will not buy enough unless
the firm undertakes large-scale selling
and promotion efforts
Focuses on knowing the needs and wants
of target markets and delivering
satisfactions better than competitors
Focuses on the needs and wants of target
markets and on maintaining or improving
customer and societal well-being
Production Concept
Product Concept
Selling Concept
Marketing Concept
Societal Mktg. Concept

27. 1.Production Concept Demand > Supply; High Costs (Still appropriate under these limited circumstances) (p. 12)
Consumers Favor:
Widely available
Highly affordable
Management’s Focus: “engineer”
Improving production efficiency
Improving distribution efficiency
DANGER: Marketing Myopia
Focuses too narrowly on company operations, not on customer needs/wants
Company “falls in love” with its operations, not with its customers

28. 2.Product Concept (p. 12) Consumers Favor:
Quality, performance, innovative features
Management’s Focus: “inventor”
Making superior products (“build a better mousetrap”)
Continuous product improvements
DANGER: Marketing Myopia
Focuses too narrowly on physical products, not on underlying customer needs/wants
Company “falls in love” with its products, not with its customers
Makes products that customers don’t care about (don’t need/want)
Over-improve (customers don’t care about the improvements)
New technology replaces (e. g. , more convenient, less expensive)

29. Selling Concept (May be appropriate for “unsought products”) (p. 12)
Consumers Favor:
Not buying, or not buying enough
Management’s Focus: “hard sell salesperson”
Large-scale selling and promotion effort
Coaxing and pushing people to buy
DANGER: “Sell what you can make”
(versus “make what you can sell”)
Most customers who are dissatisfied do not buy again
Most customers who are dissatisfied spread bad word-of-mouth

30. Marketing Concept (pp. 12-13)
Consumers Favor:
Products that satisfy their wants and needs
Management’s Focus: “customer centered”
Understanding needs and wants of customers – what they need/want the product to do for them
Underlying and latent needs as well as stated needs
Delivering desired satisfactions better than competitors do
NOTE: “better than competitors” – keeps best of the production and product concepts

31. Marketing and Selling Concepts Contrasted (Fig. 1.3, pp. 12-13)
The Selling Concept (“inside-out”)
Starting
Point
Focus
Means
Ends
Factory
Existing
products
Selling
and
promoting
Profits
through
sales volume
The Marketing Concept (“outside-in”)
Market
Customer
needs
Integrated
marketing
Profits through
customer
satisfaction

32. 5.Societal Marketing Concept
A Principal of enlightened marketing that holds that a company should make good marketing decisions by considering consumer wants, the company's requirements, consumers long run interests and society’s long run interests.

33. Societal Marketing Concept
Society
(Long-term consumer & societal welfare)
Societal
Marketing
Concept
Maintain & improve
long-term well-being
Social responsibility
Be ethical
Do good:
customer-oriented,
environment,
innovative (real,
valued) product
improvements
sense-of-higher-
mission, give back
Stop doing bad f
Consumers
(Short-term want satisfaction)
Company
(Profits)

34. 3.Preparing A Marketing Plan And Program

35. The company's marketing strategy outlines which customers the company will serve and how it will create value for these customers.
Next the marketer constructs a marketing program that will actually deliver the intended value to the target customers.
The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of the firms Marketing mix.

36. The Marketing Mix
The marketing mix is the set of marketing tools the firm uses to implement its marketing strategy.
The major marketing mix tools are classified into four broad groups, called the four Ps of marketing. These are:-
Product
Price
Place
Promotion

37. Marketing Mix (contd.)
To deliver on its value proposition, the firm must:
Create a need-satisfying marketing offer (Product)
Decide how much it will charge for the offer (Price)
How it will make the offer available to the target consumers (Place)
How it will communicate with target customers about the offer and persuade them of its merits (Promotion)

38. 4. Building Customer Relationships

39. Relationship Marketing
Customer relationship management.
The process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.
Chapter 1, page 19

40. Relationship Building Blocks: Customer Value and Satisfaction
The key to building lasting customer relationships is to create superior customer value and satisfaction. Satisfied customers are more likely to be loyal customers and to give the company a larger share of their business

41. The Customer’s Experience
Customer perceived value.
Customer’s subjective view of the offer’s value compared to competitive offers.
Customer satisfaction.
Customer’s subjective view of the value received in return for the purchase price.
Customer delight.
Customer’s subjective view of the increased value received above the purchase price.
Chapter 1, pages 20-21

42. Customer Satisfaction
Satisfaction = Performance (P) – Expectation (E)
Expectations are largely based on marketer information and promises – must create realistically high expectations
Reality = satisfaction has been declining
Performance exceeds expectations
P > E
Customer is highly satisfied
or delighted !
Performance falls short of expectations
P < E
Customer is dissatisfied
Performance matches expectations
P = E
Customer is satisfied

43. Customer Relationship Levels and Tools
Companies can build customer relationships at many levels, depending upon the nature of the target market.
At one extreme a company with many low margin customers may seek to develop basic relationships with the customers. For example proctor & gamble does not phone or call on all of its customers to get to know the personally.

44. Customer Relationship Levels and Tools (continued)
At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with key customers. For example proctor & gamble teams work closely with Wal-mart

45. The Changing Nature of Customer Relationship
Relating With More Carefully Selected Customers
Today most marketers realize that they do not want relationships with every customer. Instead companies are now targeting fewer more profitable customers.
Many companies now use customer profitability analysis to weed out losing customers and target winning ones for pampering.

46. Relating for the Long-Term
Just as companies are being more selective about which customers they can choose to serve they are serving chosen customers in a deeper more lasting way
Relating Directly
Beyond connecting more deeply with their customers, many companies are also connecting more directly.
Direct marketing is booming. Consumers can now buy virtually any product with out going to the store – by telephone, mail-order catalogs and online.

47. Partner Relationship Management
Working with partners in other company departments and outside the company to jointly bring greater value to the customers.
Every department in an organization contributes to customer satisfaction.
Suppliers are carefully controlled through supply chain management.
Strategic alliances create new opportunities to delight customers.
Chapter 1, page 24

48. 5.Capturing Value from Customers

49. Creating Customer Loyalty And Retention
Good Customer relationship management creates customer delight.
In turn delighted customers remain loyal to the company and its products.
Thus the aim of customer relationship management is to create not just customer satisfaction, but customer delight.
Customer lifetime value.
The value of the entire stream of purchases that the customer would make over a lifetime of patronage.
Chapter 1, page 25

50. Capturing Value In Return
Share of customer.
Share of customer is the percentage of customers that buy a company’s product of all customers purchasing in that product category.
Companies continuously strive to grow their share of customer.
Creating brand extensions is a favoured method of growing share of customer.
Chapter 1, page 25-26

51. Building Customer Equity
The total combined customer lifetime value of all of the company’s customers.
Often a more accurate measure of a company’s value than sales or market share.
Combination of market share, share of customer and lifetime customer value.
Chapter 1, page 26

52. Customer Relationship Groups
Targeting the right customers at the right time.
Butterflies have high profitability with low loyalty.
True Friends have high profitability with high loyalty.
Strangers have low profitability with low loyalty.
Barnacles have low profitability with high loyalty.
Challenge: make the Butterflies more loyal and make the Barnacle more profitable.
Keep the True Friends and “fire” the Strangers.

53. Butterflies True Friends Strangers Barnacles
Good fit between company’s offerings and customer’s needs: High profit potential
True Friends
Good fit between company’s offerings and customers needs: highest profit potential
High Profitability
Strangers
Little fit between company’s offerings and customer’s needs: lowest profit potential
Barnacles
Limited fit between the company’s offerings and customer’s need: Low profit potential
Low Profitability
Short-term Customers
Long-term Customers

54. New Marketing Technologies
Technology has changed how marketers build value.
Internet and e-commerce/e-business.
Fast and global communications.
Wireless technologies.
Relational databases.
Instant, highly targeted communication with customers and suppliers.
Chapter 1, page 29

55. New Global Markets International trade is the new frontier.
Export is critical to a country’s economic growth.
Difficult decision:
Delay means risking loss of growing global markets.
Proceed means high risk but potentially high reward.
Chapter 1, pages 30-32

56. Ethics and Responsibility
Worldwide consumerism and environmentalism movements exert. pressure for greater responsibility
Notion of “caring capitalism” tied to societal marketing concepts.
Seeking ways to make a profit by serving the best long-run interests of customers and communities.
Chapter 1, pages 32-33

57. Not-For-Profit Marketing
Marketing of ideas, values and institutions.
Increasing awareness that these organizations must build relationships with constituents and stakeholders.
Challenge of using new marketing techniques for not-for-profit initiatives.
Chapter 1, pages 33-34

58. Looking Back Define marketing and the marketing processes.
Explain the importance of understanding customers and the marketplace.
Identify the five core marketplace concepts.
Identify the key elements of a customer-driven marketing strategy.
Discuss customer relationship management and ways of creating and obtaining value.
Describe the major trends and forces changing today’s marketing landscape.