Marketing: Creating and Capturing Customer Value Chapter 1

Chapter Outline What is Marketing? Understanding the Marketplace and Customer Needs Designing a Customer-Driven Marketing Strategy Preparing an Integrated Marketing Plan and Program Building Customer Relationships Capturing Value from Customers The Changing Marketing Landscape

Previewing the Concepts Define marketing and the marketing process. Explain the importance of understanding customers and identify the five core marketplace concepts. Identify the elements of a customer-driven marketing strategy and discuss the marketing management orientations that guide strategy. Discuss customer relationship management and identify strategies for creating value for and capturing value from customers. Describe the major trends and forces that are changing the marketing landscape. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-3 1-3

What Is Marketing? Simple definition: Marketing is managing profitable customer relationships. Goals: Attract new customers by promising superior value. Keep and grow current customers by delivering satisfaction. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-4

Making a sale—“telling and selling” Satisfying customer needs Marketing Defined Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. OLD view of marketing: Making a sale—“telling and selling” NEW view of marketing: Satisfying customer needs Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-5 1-5

Figure 1.1: A Simple Model of the 5-Step Marketing Process Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-6

Core Concepts Marketers must understand 5 core customer & marketplace concepts: Needs, wants, and demands. Market offerings. Value and satisfaction. Exchanges and relationships. Markets. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-7

Needs, Wants, and Demands Needs: State of felt deprivation including physical, social, and individual needs. Physical, social, and individual needs. Wants: Form that a human need takes, as shaped by culture and individual personality. Wants + Buying Power = Demand. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-8

Needs, Wants, and Demands Types of Needs: Physical needs: Food, clothing, shelter, safety. Social needs: Belonging, affection. Individual needs: Learning, knowledge, self-expression. Is ice cream a “need”? Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-9

Customer needs and wants are fulfilled through market offerings Some combination of products, services, information, or experiences offered to a market to satisfy a need or want. Customer needs and wants are fulfilled through market offerings Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-10

Marketing in Action Market offerings are not limited to physical products. UNCF powerfully markets the idea that “A mind is a terrible thing to waste.” Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-11

Marketing Myopia Marketing myopia: Occurs when sellers pay more attention to the specific products they offer than to the benefits and experiences produced by the products. Focusing only on the existing “wants” and losing sight of the underlying consumer “needs.” Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-12

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 Focus on benefits

Customer Value and Satisfaction Care must be taken when setting expectations for market offerings: If performance is lower than expectations, satisfaction is low. If performance is higher than expectations, satisfaction is high. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Customer Value and Satisfaction Expectations Customers Value and satisfaction Marketers Set the right level of expectations Not too high or low Note to Instructor: This Web link connects to online shoe retailer zappos.com. You can link to the site and see how this retailer creates value for the consumer. Explore features including customer reviews, online LIVE customer service, free shipping (including returns). Ask students what other online retailers deliver exceptional value and satisfaction. Discussion Question Why do marketer’s not always understand customer needs? How can they better identify customer needs? Marketer’s often work in a vacuum and do not consider the customer’s needs as much as they should. Future chapters will talk about market research and marketing information, important tools for understanding customer’s needs. Students might be familiar with survey research or focus groups as techniques for gathering information or they might be asked for their zip code when they purchase in certain retailers 15

Marketing in Action Advertising sets expectations, and marketers must be careful not to promise too much. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-16

Exchanges and Relationships Act of obtaining a desired object from someone by offering something in return. What would be exchanged for a vacation? Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Exchanges and Relationships Marketing actions build and maintain relationships with target audiences involving an idea, product, service, or other object. Marketers build strong relationships by consistently delivering superior customer value. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

What Is a Market? A market: Is the set of actual and potential buyers of a product. These people share a need or want that can be satisfied through exchange relationships. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-19

Marketing system consists of all of the actors (suppliers, company, competitors, intermediaries, and end users) in the system who are affected by major environmental forces. Demographic Economic Physical Technological Political-legal Socio-cultural Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-20 1-20

Figure 1.2: A Modern Marketing System Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-21

Marketing Management The art and science of choosing target markets and building profitable relationships with them. Aim is to find, attract, keep, and grow customers by creating, delivering, and communicating superior value. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Marketing Management Designing a winning marketing strategy requires answers to the following questions: 1. What customers will we serve? — What is our target market? 2. How can we best serve these customers? — What is our value proposition? Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Selecting Customers to Serve Market Segmentation: Dividing the market into segments of customers. Market Targeting: Selecting one or more segments to cultivate. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-24

Choosing a Value Proposition The set of benefits or values a company promises to deliver to consumers to satisfy their needs. Value propositions dictate how firms will differentiate and position their brands in the marketplace. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-25

Marketing in Action Many firms are emphasizing the “value” in their value proposition during tough economic times. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-26

Marketing Management Orientations Organizations design and carry out their marketing strategies under five alternate concepts: Production Concept. Product Concept. Selling Concept. Marketing Concept. Societal Marketing Concept. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-27

Marketing Management Orientations The production concept is the idea that consumers will favor products that are available or highly affordable. The product concept is the idea that consumers will favor products that offer the most quality, performance, and features for which the organization should therefore devote its energy to making continuous improvements. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-28 1-28

Marketing Management Orientations The selling concept is the idea that consumers will not buy enough of the firm’s products unless it undertakes a large scale selling and promotion effort. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-29 1-29

The Marketing Concept The marketing concept: A marketing management philosophy that holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-30

Figure 1.3: The Selling and Marketing Concepts Contrasted Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-31 1-31

The Societal Marketing Concept The idea that a company’s marketing decisions should consider consumer’s wants, the company’s desires, consumers’ long-run interests and society’s long-run interests. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-32 1-32

Figure 1.4: The Considerations Underlying the Societal Marketing Concept Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-33

Marketing in Action Johnson & Johnson’s credo stresses putting people before profits—the societal marketing concept in action. Visit The Body Shop’s Web site for another example of a firm which practices the societal marketing concept. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-34

The Integrated Marketing Plan Transforms the marketing strategy into action. Includes the marketing mix and 4 Ps of marketing: Product. Price. Place (Distribution). Promotion. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-35

Customer Relationship Management The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-36

Building Customer Relationships Customer relationship management (CRM): Deals with all aspects of acquiring, keeping, and growing customers. Customer value and satisfaction are key. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-37

Customer Perceived Value Customer’s evaluation of the difference between all of the benefits and all of the costs of a marketing offer relative to those of competing offers. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-38

Customer Perceived Value Perceptions may be subjective. To some customers “value” might mean paying more to get more. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-39

Customer Satisfaction Extent to which the product’s perceived performance matches a buyer’s expectations. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-40

Customer Satisfaction High levels of customer satisfaction often leads to consumer loyalty. Some firms seek to DELIGHT customers by exceeding expectations. Profitability must be considered. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-41

Customer Relationships Firms may choose to build relationships at different levels. Loyalty and retention programs build relationships and may include: Frequency marketing programs. Club marketing programs. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Changing Nature of Relationships Customer profitability analysis eliminates losing customers and selects profitable ones with whom relationships should be developed. American Express attempted to weed out unprofitable customers by offering them $300 in exchange for paying off their balances and closing their accounts. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Changing Nature of Relationships Firms now relate more deeply and interactively via blogs, social network Web sites, email, and video sharing. Embracing customer-managed relationships requires marketing via attraction rather than intrusion. Consumer-generated marketing has become a significant marketing force. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Marketing in Action H.J. Heinz attempted to harness consumer-generated marketing and received 8,000 entries in a homemade ad contest for its ketchup brand on YouTube. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-45

Partner Relationship Management Marketing partners help create customer value and assist in building customer relationships. Partners inside the firm: Cross-functional customer teams. Partners outside the firm: Supply chain management. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Capturing Value From Customers Value is captured from customers via current and future sales, market share and profit. Superior customer value leads to highly satisfied loyal customers who buy more. Key outcomes of customer value include customer loyalty and retention, share of market, share of customer, and customer equity. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Capturing Value From Customers Customer lifetime value The value of the entire stream of purchases that the customer would make over a lifetime of patronage. Share of customer The portion of the customer’s purchasing that a company gets in their product categories. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall

Customer Equity The total combined customer lifetime values of all the company’s current and potential customers. Manage equity by: Classifying customers by projected loyalty and potential profitability. Manage each group accordingly. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-49

Figure 1.5: Customer Relationship Groups Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-50

Changing Marketing Landscape The uncertain economic environment. The digital age. Rapid globalization. Sustainable marketing – call for more social responsibility. Growth of not-for-profit marketing. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-51

So, What Is Marketing? Pulling It All Together 52

Reviewing the Concepts Define marketing and the marketing process. Explain the importance of understanding customers and identify the five core marketplace concepts. Identify the elements of a customer-driven marketing strategy and discuss the marketing management orientations that guide strategy. Discuss customer relationship management and identify strategies for creating value for and capturing value from customers. Describe the major trends and forces that are changing the marketing landscape. Copyright 2011, Pearson Education Inc., Publishing as Prentice-Hall 1-53