Principles of Marketing Chapter 1: Marketing: Creating & Capturing Customer Value

A Change in Marketing & Its Importance Firms are “returning to marketing” Change and Instability in Marketplace Technology Economy Social interests Shift in Marketing’s “Focus” & “Performers” From “Transactions” to “Relationships” Not just “Big M” Marketing anymore; increased “Little M” marketing* (Carver 2009; 2012) Dr. James Carver – Auburn University

Dr. James Carver – Auburn University What is Marketing?* “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create the exchanges that satisfy individual and organizational goals.” (1985 AMA Definition) “Marketing is an organizational function and 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.” *(Lusch and Marshall 2004 AMA Definition) “Competition for a Differential Advantage.”* (Wroe Alderson 1957) Dr. James Carver – Auburn University

Dr. James Carver – Auburn University Two Goals of Marketing Marketing has 2 basic goals: Attract new customers by providing superior value Keep & grow existing customers by delivering satisfaction Can do so iff one has a differential, or long-term competitive, advantage Dr. James Carver – Auburn University

A Marketer’s Basic Toolbox Value is created on 4 “fronts” Toolbox ~ “Marketing Mix” The 4 Ps Product Place Price Promotion Dr. James Carver – Auburn University

Dr. James Carver – Auburn University The Marketing Process 5 Most Basic Steps of Marketing Understand Consumers Design Customer-Driven Marketing Strategy Prepare an Integrated Marketing Program Build Customer Relationships Capture Value from Customers Dr. James Carver – Auburn University

Consumers’ Needs, Wants, & Demands State of felt deprivation Physical, Social, or Individual Want Form a need takes as shaped by culture & personality Demand Wants backed with buying power Dr. James Carver – Auburn University

Consumers’ Needs, Wants, & Demands State of felt deprivation Physical, Social, or Individual Want Form a need takes as shaped by culture & personality Demand Wants backed with buying power Culture Wants Buying Power Demands Dr. James Carver – Auburn University

Dr. James Carver – Auburn University Market Offerings Customers’ demands are fulfilled through market offerings Combination of: Products; Services; Information; & Experiences Market offering & “Product” (purchased)* Can be tangible good or intangible service “Service” are all services used to facilitate & support Dr. James Carver – Auburn University

Dr. James Carver – Auburn University Market Offering Traditional “Product” View Has Pitfalls Marketing Myopia Paying so much attention to the specific products a company offers that benefits & experiences are overlooked (e.g., Buggy-whip example) Service-Dominant Logic* Products are bundles of “services” or “brand experiences” Spoken in terms of a Value Proposition Dr. James Carver – Auburn University

Value Proposition Examples Drill Bit Example: What is really being sold? Toaster Example? Disney Example? Dr. James Carver – Auburn University

Value Proposition Examples Drill Bit Example: What is really being sold? Ability to generate a particular sized hole (½” bit = ½” hole) Toaster Example? A system for cooking one’s bread and making crispy Disney World Example? A world of wonder where dreams come true, not just rides Dr. James Carver – Auburn University

Exchange and Relationships Marketers make Value Propositions to “Markets” with a goal of “Exchange” over time Market The set of actual & potential consumers of a product based upon some shared need or want Exchange Obtaining a desired object from someone by offering something in return Marketers obtain money by offering value propositions that meet or exceed expectations Relationships, not one-time exchanges, are key. Dr. James Carver – Auburn University

Designing a Customer-Driven Marketing Strategy Marketing Management Seeks to answer two questions: What customers will we serve? Target markets through market segmentation How can we serve these customers best? Development and articulation of the value proposition Marketing Management 1. Customer Management 2. Demand Management Dr. James Carver – Auburn University

Marketing Management Orientations Five Philosophies of Marketing Management Production Concept Product Concept Selling Concept Marketing Concept Societal Marketing Concept Dr. James Carver – Auburn University

Dr. James Carver – Auburn University Marketing Concept A management philosophy which advocates that a firm: Exists to identify and satisfy the needs of its customers Customer orientation That a customer orientation is accomplished through an integrative effort throughout the firm Integrated effort That the firm’s focus should be long-term and seek to provide a satisfactory return on owner’s investment (ROI) Long-term profit orientation Dr. James Carver – Auburn University

Societal Marketing Concept A management philosophy which advocates that a firm: Follow the traditional marketing concept, yet consider how changes in any portion of one’s offering might enhance… Consumers’ and society’s immediate well-being Consumers’ long-term interests Opportunity for future generations to meet their needs (i.e., sustainable marketing) Dr. James Carver – Auburn University

An Integrated Marketing Program One’s marketing strategy “in action”, or… A Marketer’s Toolbox… The “Marketing Mix” The 4 Ps Product Place Price Promotion Value is created on these 4 “fronts” Dr. James Carver – Auburn University

CRM: Customer Relationship Management Customer data management Leveraging detailed information & customer “touchpoints” (interactions) to maximize loyalty. Maximization of customer delivered value through the management of customers Acquisition, Retention, and Growth Dr. James Carver – Auburn University

Building Blocks of a Relationship (Value) Is “customer perceived” Largely idiosyncratic* but generalizable based on “themes” (segmentation) Drivers include: Convenience “Total” cost Selling Price Authenticity Exclusivity Finishes Conspicuousness (referent power) Dr. James Carver – Auburn University

Building Blocks of a Relationship (Customer Satisfaction) The difference between one’s perceived performance (i.e., experience) & expectations A “net loss” ~ dissatisfied A “net neutral” ~ satisfied A “net positive” ~ highly satisfied or “delighted” Likely to become “customer evangelists” “Indirect” driver of firm performance (e.g., sales) Yet, maximization is not the goal Must know break-even point for all services provided* Dr. James Carver – Auburn University

Consumer Spending and “Lagged” Satisfaction (ACSI)* Note the larger lag during & after the “Great Recession” – consumers must also have funds available in order to purchase Dr. James Carver – Auburn University

Appropriate Levels of Customer Relationship “Closeness” is a function profitability Considered in terms of a continuum Low Margin customers “Basic” relationship is best Relationships only through websites, apps, advertising, etc. High Margin customers “Full Partnership” is possible Relationship with constant, personal communication; information sharing, etc. Tools to enhance “bond” and profitability include: Frequency marketing programs & Club Memberships Goal is to enhance loyalty through switching costs Dr. James Carver – Auburn University

Changing Nature of Customer Relationships From “Mass Marketing” to “Selected” Relationships Customer Profitability Analysis During… Customer Acquisition No longer “Seining” for all fish in the sea Surveys, Credit ratings, etc. Customer Retention 80/20 Rule* Fire “Poor” or “High Maintenance” customers “Segmentation for termination” purposes Example: Sprint termination letter, gift cards to competitors, etc. Dr. James Carver – Auburn University

Interactive Customer Relationships Fueled by technology and social media No longer marketing by intrusion Mass marketing is naturally intrusive and designed to interrupt one’s attention Marketing by attraction Marketing that includes consumers Use of social media and technology isn’t enough Co-creation is key Gives up control, yet Gains authenticity & engagement (part of the conversation) A delicate balancing act to ensure hijacking is curtailed Dr. James Carver – Auburn University

Partner Relationship Management Both Intra- and Inter-firm partners Intra-firm partners No longer is marketing the only function representing the customer Non-marketers performing marketing Inter-firm partners Marketing messages must be managed throughout and across the entire channel Dr. James Carver – Auburn University

Capturing Value from Customers Value is captured from customers via… Current and future sales, market share, and profit. Key outcomes of customer value include… Customer loyalty & retention 5 times as much to get a “new” customer Greater share of “market” and “customer”, and Growth in customer equity Dr. James Carver – Auburn University

Dr. James Carver – Auburn University Customer Equity The total combined customer lifetime values (CLVs) of all the company’s current & future customers Customer Lifetime Value The value of the entire stream of purchases that the customer would make over a lifetime of patronage Consider the cost of losing just one customer UPS example Why customers must be managed based on profitability Recall 80/20 rule Dr. James Carver – Auburn University

Drivers of Change in Marketing Economy Technology Non-profit marketing Globalization Sustainable marketing Dr. James Carver – Auburn University