1. Chapter 1 Marketing: Managing Profitable Customer Relationships
Learning Objectives
Define marketing and outline the steps in the marketing process.
Explain the importance of understanding customers and the marketplace, and identify the five core marketplace concepts.
Identify the key elements of a customer-drive marketing strategy and discuss the marketing management orientations that guide marketing strategy.
Discuss customer relationship management, and identify strategies for creating value for customers and capturing value from customers in return.
Describe the major trends and forces that are changing the marketing landscape in this age of relationships.
Chapter Overview
Marketing is part of all of our lives and touches us in some way every day. To be successful each company that deals with customers on a daily basis must not only be customer-driven, but customer-obsessed. The best way to achieve this objective is to develop a sound marketing function within the organization.
Marketing is defined as “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.” Marketing is a key factor in business success. The marketing function not only deals with the production and distribution of products and services, but it also is concerned with the ethical and social responsibility functions found in the domestic and global environment.
Marketers must be aware of customer value and customer satisfaction and make these concepts a central part of the firm’s strategic plan. Marketing must also be aware of and respond to change. Four of the greatest changes that have had an impact on the way companies bring value to their customers are the explosive growth of the computer, the Internet, telecommunications, and information technology. Marketing and its core concepts, the exchange relationship, the major philosophies of marketing thought and practice, customer relationship management, and marketing challenges in the new “connected” millennium are the major topics presented in this introductory chapter. There is a special emphasis on connectedness and the technologies for accomplishing connections.
Chapter 1
Marketing: Managing Profitable Customer Relationships

2. NASCAR –What is their secret?
Creating Value
Compelling blend of live racing events, media coverage and Web sites
Show the customer a good time
Create wholesome family-oriented environment
Capturing Value
Fans spend nearly $700 a year on NASCAR merchandise
Second highest regular season sport on TV
NASCAR attracts over 250 big-name sponsors
Chapter Outline
Introduction
1)NASCAR is a great marketing organization. It is the second-highest rated, regular season, sport on television.
It has a single-minded focus: creating lasting customer relationships.
2)NASCAR’s fans are more loyal to the sport’s sponsors than fans of any other sport. Because of this, NASCAR has attracted more than 250 big-name sponsors.
3)Today’s successful companies have one thing in common: they are strongly customer focused and heavily committed to marketing.
1 - 2

3. What is Marketing? Marketing Defined:
“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”
Marketing is about managing profitable customer relationships
Attracting new customers
Retaining and growing current customers
What Is Marketing?
Marketing, more than any other function, deals with customers.
A simple definition of marketing is managing profitable customer relationships.
Marketing is all around you.
Marketing Defined
Marketing must be understood in the new sense of satisfying customer needs.
We define marketing as the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.
Use Key Term Marketing here.

4. The Marketing Process Figure 1-1
Figure 1.1 presents a simple five-step model of the marketing process.
In the first four steps, companies work to understand consumers, create customer value, and build strong customer relationships.
In the final step, companies reap the rewards of creating superior customer value.
By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity.
Use Chapter Objectives 1 here.
Use Key Term Customer Equity here.
Use Figure 1.1 here.
1 - 4

5. 1) Understanding the Marketplace
Core Concepts
Need
State of felt deprivation
Wants
The form of needs as shaped by culture and the individual
Demands
Wants which are backed by buying power
Needs, wants, and demands
Marketing offers: including products, services and experiences
Value and satisfaction
Exchange, transactions and relationships
Markets
Understanding the Marketplace and Consumer Needs
There are five core customer and marketplace concepts.
Customer Needs, Wants, and Demands
Human needs are states of felt deprivation. It’s the basic forces motivating a person to do sth. They include basic 1) physical needs (food, drink, rest, and sex) got milk, california dairy assoc” , 2) safety needs (protection and physical well –being perhaps involving health food medicine exercise) learn and live , american heart association, 3) social needs (love, friendship, respect, status) “when you care enough to send the very best—hallmark”, and 4) individual needs (for self-esteem, accomplishment, fun, freedom and relaxation) L’Oreal hair color—”so it costs a bit more. But I’m worth it. Needs are more basic than wants-- everyone needs water
Wants are the form human needs take as they are shaped and learned by culture and individual personality.—some people have learned to want clearly canadian’s rasberry-flavored sparkling water on the rocks.
When backed by buying power, wants become demands. Given their wants and resources, people demand products with benefits that add up to the most value and satisfaction.
Outstanding companies go to great lengths to learn about and understand customers’ needs, wants, and demands. They conduct consumer research and analyze mountains of customer data.
Use Key Terms Needs, Wants, Demands here.

6. This very successful campaign reminds the consumer of a need
1 - 6
Marketing in Action

7. Understanding the Marketplace
Core Concepts
Marketing offer
Combination of products, services, information or experiences that satisfy a need or want
Offer may include services, activities, people, places, information or ideas
Needs, wants, and demands
Marketing offers: including products, services and experiences
Value and satisfaction
Exchange, transactions and relationships
Markets
Marketing Offers—Products, Services, and Experiences
Consumers’ needs and wants are fulfilled through a marketing offer—some combination of products, services, information, or experiences offered to a market to satisfy a need or want.
Marketing offers are not limited to physical products. They also include services and other entities, such as persons, places, organizations, information, and ideas.
Sellers who are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs suffer from “marketing myopia.”
By orchestrating several services and products, companies create brand experiences for consumers.

8. This ad offers a product to meet “sensitive” needs of the older child
1 - 8
Marketing in Action

9. Understanding the Marketplace
Core Concepts
Value
Customers form expectations regarding value
Marketers must deliver value to consumers
Satisfaction
A satisfied customer will buy again and tell others about their good experience
Needs, wants, and demands
Marketing offers: including products, services and experiences
Value and satisfaction
Exchange, transactions and relationships
Markets
Customer Value and Satisfaction
1) Customers form expectations about the value and satisfaction that various marketing offers will deliver and buy accordingly.
2) Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. If they raise expectations too high, buyers will be disappointed.
3) Customer value and satisfaction are key building blocks for developing and managing customer relationships.

10. Discussion Questions Customer Satisfaction
When have you, personally, been extremely satisfied or dissatisfied with a product? Why?
Having students discuss their experience brings out product, pricing, promotion and distribution issues. It also highlights the importance of service and how every company is a service company. Ask them how many people they informed when dissatisfied vs. the number they informed when satisfied (dissatisfied is usually higher). You can also introduce perceived value here. It is also useful on the third question to talk about research and understanding needs, the difficulty in managing costs while delivering quality.
Why is it so difficult for companies to deliver value to consumers?
-=========
1 - 10
Marketing in Action

11. Understanding the Marketplace
Core Concepts
Exchange
The act of obtaining a desired object from someone by offering something in return
One exchange is not the goal, relationships with several exchanges are the goal
Relationships are built through delivering value and satisfaction
Needs, wants, and demands
Marketing offers: including products, services and experiences
Value and satisfaction
Exchange, transactions and relationships
Markets
Exchanges and 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.
Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences. The goal is to retain customers and grow their business.
Use Key Term Exchange here.

12. Understanding the Marketplace
Core Concepts
Market
Set of actual and potential buyers of a product
Marketers seek buyers that are profitable
Needs, wants, and demands
Marketing offers: including products, services and experiences
Value and satisfaction
Exchange, transactions and relationships
Markets
Markets
A market is the set of actual and potential buyers of a product.
Marketing means managing markets to bring about profitable customer relationships.
Buyers also carry on marketing. Consumers do marketing when they search for the goods they need at prices they can afford. Company purchasing agents do marketing when they track down sellers and bargain for good terms.
Figure 1.2 shows the main elements in a modern marketing system. The company and the competitors send their respective offers and messages to consumers. All of the actors in the system are affected by major environmental forces.
Each party in the system adds value for the next level.
Use Chapter Objectives 2 here.
Use Key Term Market here.
Use Figure 1.2 here.
Use Discussing the Concepts 1 here.

13. 2) Marketing Management
Marketing management is “the art and science of choosing target markets and building profitable relationships with them.”
This definition must include answers to two questions:
What customers will we serve?
How can we serve these customers best?
Designing a Customer-Driven Marketing Strategy
We define marketing management as the art and science of choosing target markets and building profitable customer relationships with them.
The marketing manager’s aim is to find, attract, keep, and grow target customers by creating, delivering, and communicating superior customer value.

14. Selecting Customers and Creating Value
What customers will we serve?
Known as customer management
Marketers select customers that can be served profitably
How can we serve these customers best?
By defining a value proposition
Includes the set of benefits or values a company promises to deliver to consumers in order to satisfy their needs
Selecting Customers to Serve
1)The company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing).
2)Some companies may seek fewer customers and reduced demand. In cases of excess demand, companies may practice demarketing to reduce the number of customers or to shift their demand temporarily or permanently.
3)Marketing management is customer management and demand manage­ment.
Use Key Terms Marketing Management, Demarketing here.
Choosing a Value Proposition
The company must also decide how it will serve targeted customers—how it will differentiate and position itself in the marketplace.
A company’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs.
Value propositions differentiate one brand from another.

15. Click on pop up ad for website
Netflix – DVDs by Mail
Netflix began in early 2000
DVDs are delivered to your home with return mail envelope
Monthly charge with unlimited rentals – limited amount out at one time
Netflix is an Internet company which send you DVD’s through the mail. A monthly subscription brings you unlimited DVD’s per month at a specific amount out per time.
Click on pop up ad for website
1 - 15
Marketing in Action

16. a strong competitor, entered this market a few years later
Netflix was first to the market but a good value proposition invites competition.
Walmart&Block Buster,
a strong competitor, entered this market a few years later
1 - 16
Marketing in Action

17. Marketing Orientations
Selling concept
Marketing concept
Societal marketing concept
Production concept
Product concept
Marketing Management Orientations
There are five alternative concepts under which organizations design and carry out their marketing strategies.
1)The production concept holds that consumers will favor products that are available and highly affordable. Management focuses on improving production and distribution efficiency. The production concept can lead to marketing myopia.
2) The product concept holds that consumers will favor products that offer the most in quality, performance, and innovative features. Marketing strategy focuses on making continuous product improvements. The product concept can also lead to marketing myopia.
3) The selling concept holds that consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion effort. This concept is typically practiced with unsought goods—those that buyers normally do not think of buying. Most firms practice the selling concept when they face overcapacity.
4)The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. This concept is customer centered. Figure 1.3 contrasts the selling concept and the marketing concept.
5) The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and the society’s well-being.
Figure 1.4 shows that companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s needs.
Use Chapter Objectives 3 here.
Use Key Terms Production Concept, Product Concept, Selling Concept, Marketing Concept, Societal Marketing Concept here.
Use Figures 1.3 and 1.4 here.
Use Discussing the Concepts 2 here.
Use Focus on Ethics here.

18. 3) The Marketing Plan Transforms the marketing strategy into action
Includes the marketing mix and the 4P’s of marketing
Product
Price
Place
Promotion
Preparing a Marketing Plan and Program
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 target customers.
It consists of the firm’s marketing mix, 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 4 Ps of marketing: product, price, place, and promotion.
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 organization goals.
P.P. 3
An organization that engages in global marketing focuses on global market opportunities and threats. P.P. 4
One difference between "regular" marketing and "global" marketing is the scope of activities.
A global marketing company conducts business outside the home country. Global marketing involves an understanding of specific concepts, considerations, and strategies applied in conjunction with marketing fundamentals to ensure success in global markets.
My next question is what do you know about marketing/mktg research?
Marketing is all activities leading to sales and eventually creating profits for a company. 2) These activities come with a very careful planning. 3) It’s like planning a successful dinner. You have to have the right ingredients with the right proportions to create a delicious feast that your guests will remember til the rest of their life and want to come back again and again.
It's the same way with marketing. 2) You must have the right ingredients (not prime rib or wine of course but a mixture of marketing elements called marketing mix) which consists of 4 p’s. 3) You must offer the right product at the price sold at the right place with attractive promotions to the right customers at the right time.
But how do we know what is the right product, right price, right place, right promotion, right target, and right time.. Marketing research

19. 4) Building Customer Relationships
CRM – Customer relationship management “is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping and growing customers.”
Building Customer Relationships
The fourth and most important step in the marketing process is building profitable customer relationships.
Customer Relationship Management
Customer Relationship Management (CRM) is perhaps the most important concept of modern marketing.
It is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

20. Value and Satisfaction
Perceived Value
The customers’ evaluation of the difference between benefits and costs.
Customers often do not judge values and costs accurately or objectively.
Customer Satisfaction
Product’s perceived performance relative to customers’ expectations.
A. Customer perceived value is the customer’s evaluation of the difference between all the benefits and all the costs of a marketing offer relative to those of competing offers.
Use Key Terms Customer Perceived Value, Customer Relationship Management, Marketing Offer here.
Use Applying the Concepts 1 here.
Customers often do not judge product values and costs accurately or objectively. They act on perceived value.
B. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations.
Use Key Term Customer Satisfaction here.
Use Real Marketing 1.1 here.
Highly satisfied customers make repeat purchases and tell others about their good experiences with the product. The key is to match customer expectations with company performance.
The purpose of marketing is to generate customer value profitably.
At one extreme, a company with many low-margin customers may seek to develop basic relationships with them. At the other extreme, in markets with few customers and high margins, sellers want to create full partner­ships with key customers.
Most leading companies are developing customer loyalty and retention programs. They offer frequency-marketing programs that reward customers who buy frequently or in large amounts.
Use Discussing the Concepts 3 here.

21. This ad attempts to change the perceived value of Cheerios Cereal Bar by helping consumers evaluate its nutritional value
1 - 21
Marketing in Action

22. Not All Customers are Equal
Basic relationships
low margin customers
Full partnerships
key customers
Selective relationship management
weeding out unprofitable customers
The Changing Nature of Customer Relationships
Companies are targeting fewer, more profitable customers. They are beginning to assess carefully the value of customers to the firm. Called selective relationship management, many companies now use customer profitability analysis to weed out losing customers and target winning ones for pampering.
Today’s companies are using customer relationship management to retain current customers and build profitable, long-term relationships with them.
On average, it costs 5 to 10 times as much to attract a new customer as it does to keep a current customer satisfied.
Companies are also connecting more directly. Direct marketing is booming.
Use Discussing the Concepts 4 here.
Partner Relationship Management
Companies must work directly with a variety of marketing partners; they must be good at partner relationship management.
Every functional area inside a company can interact with customers, especially electronically. Firms are linking all their departments in the cause of creating customer value.
Most companies today are networked, relying heavily on partnerships with other firms.
The supply chain describes a long channel, stretching from raw materials to components to final products that are carried to final buyers. Through supply chain management, many companies today are strengthening their connections with partners all along the supply chain.
Use Key Term Partner Relationship Management here.
Use Discussing the Concepts 5 here.

23. 5) Capturing Value from Customers
Key Concepts
Customer delight leads to emotional relationships and loyalty
Customer lifetime value shows true worth of a customer
Customer Loyalty and Retention
Share of Customer
Customer Equity
Capturing Value from Customers
The final step in the marketing process involves capturing value from the customer, in the form of current and future sales, market share, and profits.
Creating Customer Loyalty and Retention
The aim of customer relationship management is to create not just customer satisfaction, but customer delight.
Companies are realizing that losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime of patronage. This is called customer lifetime value.
Customer delight creates an emotional relationship with a product or service, not just a rational preference.
Use Key Term Customer Lifetime Value here.
Use Applying the Concepts 2 here.
Use Focus on Technology here.

24. Capturing Value from Customers
Key Concepts
Share of customer’s purchase in a product category
Achieved through offering greater variety, cross-sell and up-sell strategies
Customer Loyalty and Retention
Share of Customer
Customer Equity
Growing Share of Customer
Customer relationship management can help marketers to increase their share of customer—the share they get of the customer’s purchasing in their product categories.
To increase the share of customer, firms can leverage customer relationships by offering greater variety to current customers. Or they can train employees to cross-sell and up-sell in order to market more products and services to existing customers. Cross-selling: when a customer goes online to register Adobe’s photoshop, the web page promotes other related products, including its popular acrobat reader.
This is a good time to promote similar, higher-priced items before the buyer has committed to an item by bidding on or purchasing it. This sales technique is known as "upselling."
For example, suppose you sell men's dress shirts in your eBay Store. When someone views one of your lower-end shirts, you promote your premium-brand shirts that are better quality and more expensive. The buyer may become interested in one of these nicer shirts and purchase it instead.
As an eBay Store seller, you can apply this upsell strategy by taking the following actions:
Adjust your default cross-promotions so that when buyers view an item from one of your categories, more items from the same category are shown.
Set your cross-promotion display preference to "Highest price items first" so that when buyers view an item, the highest-priced items from that category are shown.
For manual cross-promotions, select similar but higher-end items to promote when a buyer views your listing.
Consider adjusting your cross-promotion preferences to show more than four items when someone views your item.
Use Key Term Share of Customer here.

25. Capturing Value from Customers
Key Concepts
The combined customer lifetime values of all current and potential customers
Measures a firm’s performance, but in a manner that looks to the future
Choosing the “best” customers is key
Customer Loyalty and Retention
Share of Customer
Customer Equity
Building Customer Equity
Customer equity is the combined discounted customer lifetime values of all the company’s current and potential customers.
The company can classify customers according to their potential profitability and manage its relationships with them accordingly.
Figure 1.5 classifies customers into one of four relationship groups, according to their profitability and projected loyalty. Each group requires a different relationship management strategy.
Strangers show low profitability and little projected loyalty.
Butterflies are profitable but not loyal.
True friends are both profitable and loyal.
Barnacles are highly loyal but not very profitable.
Use Chapter Objectives 4 here.
Use Figure 1.5 here.
Use Discussing the Concepts 6 here.

26. Marketing Landscape Challenges
Advances in computers, telecommunications information, transportation
Customer research and tracking
Product development
Distribution
New advertising tools
24/7 marketing through the Internet
Digital age
Globalization
Ethics and social responsibility
Not-for-profit marketing
Marketing relationships
The New Marketing Landscape
Dramatic changes are occurring in the marketplace; there are five major developments.
The New Digital Age
The technology boom has created exciting new ways to learn about and track customers, and to create products and services tailored to individual customer needs.
Technology is also helping companies to distribute products more efficiently and effectively.
It’s helping them to communicate with customers in large groups or one-to-one.
Perhaps the most dramatic new technology is the Internet.
Internet penetration in the United States has reached 63 percent, with more than 186 million people accessing the Web in any given month.
The number of Internet users worldwide reached 719 million last year and is expected to approach 1.5 billion by 2007.
Use Key Term Internet here.

27. Marketing Landscape Challenges
Geographical and cultural distances have shrunk
Greater market coverage
More options for purchasing and manufacturing
Increased competition from foreign competitors
Digital age
Globalization
Ethics and social responsibility
Not-for-profit marketing
Marketing relationships
Rapid Globalization
Many marketers are now connected globally with their customers and marketing partners.
Almost every company, large or small, is touched in some way by global competition.
Companies are not only trying to sell more of their locally produced goods in international markets, they are also buying more supplies and components abroad.
Use Real Marketing 1.2 here.

28. Marketing Landscape Challenges
Marketers need to take great responsibility for the impact of their actions
Caring capitalism is a way to differentiate your company
Digital age
Globalization
Ethics and social responsibility
Not-for-profit marketing
Marketing relationships
The Call for More Ethics and Social Responsibility
Marketers are re-examining their relationships with social values and responsibilities and with the very earth that sustains us.
Today’s marketers are being called upon to take greater responsibility for the social and environmental impact of their actions.

29. This ad shows a company communicating its “Caring Capitalism”
1 - 29
Marketing in Action

30. Marketing Landscape Challenges
Many organizations are realizing the importance of strategic marketing
Performing arts
Government agencies
Colleges
Hospitals
Churches
Digital age
Globalization
Ethics and social responsibility
Not-for-profit marketing
Marketing relationships
The Growth of Not-for-Profit Marketing
Marketing has become a major part of the strategies of many not-for-profit organizations.
Government agencies have also shown an increased interest in marketing.

31. Marketing Landscape Challenges
Profits through managing long-term customer equity
Improve customer knowledge
Target profitable customers
Keep profitable customers
Digital age
Globalization
Ethics and social responsibility
Not-for-profit marketing
Marketing relationships
The New World of Marketing Relationships
Table 1.1 compares the old marketing thinking to the new.
Modern marketing companies are improving their customer knowledge and customer relationships.
Use Chapter Objectives 5 here.
Use Table 1.1 here.

32. What is Marketing?
The process of building profitable customer relationships by creating value for customers and capturing value in return
So, What Is Marketing? Pulling It All Together
Figure 1.6 presents an expanded model that will help pull it all together.
The first question a company needs to ask is, “What consumers will we serve?” This is market segmentation and targeting.
The second marketing strategy question is, “How can we best serve targeted customers?” This is differentiation and positioning.
With its marketing strategy decided, the company now constructs a marketing program—consisting of the four marketing mix elements, the 4 Ps.
Perhaps the most important step in the marketing process involves building value-laden, profitable relationships with target customers.
Use Figure 1.6 here.
End of Chapter Material
Discussing the Concepts
“Customer value and satisfaction” is one unit of the five core marketplace concepts used in understanding the marketplace and consumer needs. What are the other four core marketplace concepts? Of the five core concepts is there one concept that stands out as being more important than any of the others? Support your answer.
In addition to value and satisfaction the other four core customer and marketplace concepts are: needs, wants, and demands; marketing offers (products, services, and experiences); exchanges and relationships; and markets.
It is not readily obvious that one core concept stands out or is more important than any of the others, but if one is chosen, market is the choice, because it is the fundamental focus and subject of all the related marketing tasks. At the core of marketing is the belief that there is a “market” that is defined by a set of actual and potential buyers of a product, and that these buyers share a particular need or want that can be satisfied through exchange relationships.
Contrast the following two marketing management orientations: “The Selling Concept” and “The Marketing Concept.” Can you name a market or market category where “The Selling Concept” is still the most popular marketing management orientation?
These two marketing management orientations are similar in many respects, except that the Marketing Concept is a customer-centric philosophy that puts emphasis on asking the customer what they would like to have and then providing it (“sense and sell”). In contrast, the Selling Concept has a product-centric philosophy that focuses on selling and promoting the product to the customer to generate the demand.
There are many markets where the Selling Concept is the dominant marketing management orientation; much of what we see and buy in grocery and convenience stores would fall into this category. Additionally, much of the B2B would qualify, i.e., in those situations where sales are dependent on establishing a strong personal relationship with the customer.
Customer loyalty and retention programs are important in building customer relationships and customer equity. Discuss why a national grocery chain such as Von’s or Kroger’s would choose a “club” program over a “frequency” program.
Although both types of programs have an objective of strengthening the relationship between the organization and the customer, the frequency based programs (airlines, hotels, etc.) reward customers for frequency and amount of purchase. For an airline, the rewards usually take the form of free tickets or upgrades. The club memberships (grocery, discount stores, etc.) offer discounts to the shoppers on purchases of selected items and are not generally based on frequency or amount of the purchase. A secondary (primary?) objective of the club membership is to gain valuable scanner data on the consumer that can be used by the company to better understand the individual’s needs, wants, and demands. This data can be used (and generally is) to create special offers or discounts that would appeal to the consumer, thereby strengthening the relationship between the company and the consumer even more.
“Today, most marketers realize that they don’t want to connect with just any customers.” Do you agree with this statement? Why? Which company would be more likely to follow this creed, Wal-Mart or Porsche NA?
Agree with the statement. In this day and age, most marketers are well aware of the fact that their product will (should?) only appeal to a limited group of customers. An appeal or offer that is not market segment selective is inefficient—i.e., it is not cost effective.
Both Wal-Mart and Porsche NA should believe in this general tenet, but because of the unusually selective target market segment characteristics of the Porsche buyer, the rule may have more meaning for them. See note below.
Note: Additionally, the same comment can be made about an offer to a market segment that is too narrow—it may be efficient, but it may not be a meaningful overall contributor to revenue and profit. More about this topic in Chapter 8.
Does it make sense that working with other departments in an organization may bring greater value to customers? Create a short description of how working with your human resources department could generate increased customer value.
Yes.
There are many scenarios in which HR could increase customer value. You just have to read a little on the topic of organizational behavior to understand that in organizations where all departments (functional and operational) “get along” or make an attempt at “getting along,” generates greater returns than those that do not. HR can contribute significantly to this by:
Assisting in the recruitment process and if possible insuring that superior candidates are hired—the best salesperson, product manager, design engineer, etc.
They can also assist in many of the customer service training requirements that a company would have. Without question, better and more quickly trained customer contact employees that stay with the company longer can create increased customer value.
Mediating differences between organizational groups.
The fifth and final step in the marketing process is to capture value and generate profits and customer equity for the organization. Name the four customer value creation steps in this marketing process that result in creation of value for the organization. Is the marketing process iterative?
The four customer value creation steps in this marketing process that lead to creation of value for the organization are:
Understand the marketplace and customer needs and wants.
Design a customer-driven marketing strategy with the goal of getting, keeping, and growing target customers.
Construct a marketing program that actually delivers superior value.
Build profitable customer relationships and create customer delight.
Yes, creating lasting customer value is an iterative process. This iterative cycle is shorter for some companies than others (PC versus automotive), but without a continuous focus on creation of value for the customer (and profits for the company), a company is destined to fail.
Applying the Concepts
This chapter discusses the concepts of customer value and satisfaction. Building on this knowledge, is it logical to assume that if you increase the perceived customer value for a product that there is a corresponding increase in customer satisfaction? Under what conditions might this not occur?
Yes, it is logical to assume that if a company increases customer value there will be a corresponding increase in customer satisfaction, although this is not always the case. Initially, the customer makes the decision based on perceived value (perceived benefits minus all costs). The real answer to this question is based on the actual performance of the product. In other words, value will accrue to the customer if after acquiring the product actual customer’s benefits exceed all costs.
A simple example would be when a person attends a movie. If the perceived customer value of the movie-goer is based on ads, movie trailers, actors, movie theme, reviews, comments solicited from family and friends, etc., and the movie does not live up to the perception, then value is not created. “Gigli” starring Jennifer Lopez and Ben Affleck is about as close to the perfect example of a movie’s actual value not living up to perceived value as one can get. More about the consumer decision process in Chapter 5: Consumer Markets and Consumer Buying Behavior.
A cell phone company spends $ in total costs to acquire a new user. On average, this new user spends $60 a month for calling and related services, and the cell-phone company generates an 18 percent profit margin in each of the 25 months that the user is expected to stay with the service. What is the Customer Lifetime Value of this user to the cell phone company?
The Customer Lifetime Value is $ Although this CLV calculation is relatively simple when computed at the portfolio level, it can become very complicated when calculated on an individual customer basis. A single customer may come and go on several occasions over a lifetime with a firm. Other factors that complicate the issue are margin variations based on mix, operational activities, and even the economy.
Focus on Technology
A CFO.com article by John Berry, eCFO, discusses the concept of Customer Lifetime Value (although in the article it is referred to as Lifetime Customer Value).1 Berry describes how Convergys, a billing, customer, and employee care solutions provider, developed technology that enabled a $2.1 billion-in-revenue company to report a 16 percent increase in operating income from its Customer Management Group. A large portion of this increase came from “winning new business from old customers” and was directly related to the “lifetime value modeling index” technology Convergys created. Bob Lento, VP of Sales for Convergys said, “This lifetime value modeling index is an empirical validation of our own instinctive belief that there is potential to grow existing client relationships significantly.” Below is the index that Convergys developed for their customer.
The CLV rating system developed by Convergys
Index Measures Weight
Average revenue score Current and projected spending %
Revenue change score Year-to-year actual spending %
Profitability score Customer contribution margin 20 %
Current relationship Signed contract length, total years as client 10 %
Technology entanglement Systems integration, reporting, %
Convergys Web-assisted service,
Share of client Outsource potential %
Partnership Level of contact, referenceable future value 10 %
See the article at
What is the basic premise on which CLV rests?
The basic concept behind CLV is that building long-term customer relationships is a desirable objective, because it generates loyal customers and increased sales and profits.
State your own opinion on the value of CLV.
It is expected that the student will discuss the value of knowing the differences between a new customer and an old customer (lifetime)— primarily on points such as loyalty, retention, sales, and profit. In the article cited in this question, Convergys settled on measures and weights of non-revenue based items.
The example above includes non-operation measures. Does this make sense? Why?
Yes it makes sense. Measuring CLV is a complex task. Including more than simple revenue related measures is logical, but only if it provides a better picture of the customer and better tools with which to manage the relationship.
Focus on Ethics
As a brother, sister, aunt or uncle you know that a considerable amount of food advertising is directed at children between the ages of 6 to 11. A recent Kaiser Foundation report reviewed the findings of 40 studies on the role of the media in fueling the rapid growth of childhood obesity in the United States. The report concluded that the majority of research finds a direct link between the amount of time children spend interacting with the media and their body weight. “The report cites studies showing that the typical American child sees about 40,000 ads a year on television, and that the majority of ads aimed at children are for sweets, cereal, soda, and fast food.”2
Place yourself in the role of a brand manager of a food product (sweet snack) with a primary target market of children aged 6 to 11. In a telephone interview, you are asked the following questions by a reporter from the Wall Street Journal in response to the Kaiser Foundation report. How would you respond?
The purpose of this “Focus on Ethics” selection is to encourage student critical thinking. There are a couple of themes. First, the questions are designed to highlight a realistic situation in which a product person may find himself/herself when their product is not universally valued. Second, to emphasize the constantly changing nature of consumer tastes and preferences, particularly in the consumer food products—what’s valued by your customer today may not be valued tomorrow, and from the company’s perspective—an asset producing profits today may be viewed as a liability generating losses tomorrow.
Questions in this section are drawn directly from findings in the referenced Kaiser Foundation report.
Do food ads children are exposed to on TV influence them to make unhealthy food choices?
Yes, many recent studies have confirmed the proposition that TV can influence this age group in food choices.
Do cross promotions between your product and popular TV and movie characters encourage children to buy and eat high-calorie foods?
Yes, and again the Kaiser Foundation reports support this finding.
Would you support government regulations directed at regulating food ads for children aged 6 to 11?
No, but this is a recommendation that is often suggested by consumer advocates. For the other side of the issue, go to Here you will find a detailed and well thought-out and argued “White Paper” titled Guidance for Food Advertising Self-Regulation. The document presents the following points:
There is an increasing population of obese children.
There is no single reason or solution for this problem.
There are many reasons why this has happened (lack of exercise, overeating, etc.).
Food advertisers have acted responsibly in their response to this problem with product innovations (trans-fat removal from existing products, new lines with less fat, etc.) and educational programs.
There is no need for legislative action. The food advertising community is responding to this problem and can self-regulate.
Company Case Notes
Office Depot: “Thank you for calling. . . ”
Synopsis
This case recounts an actual incident. A marketing professor (name disguised in the case) lost his writing pen and searched for a duplicate replacement at three office supply chains. Finally, he orders the pen using Office Depot’s Web site. An Office Depot employee attempts to deliver the pen the next business day, but botches the delivery.
The professor learns about the delivery problem from his angry wife. He then calls Office Depot to inform a customer service representative of the problem. The case recounts this conversation.
Teaching Objectives
The teaching objectives for this case are to:
Introduce students to the concept of customer value creation and its central role in marketing.
Introduce the concepts involved in customer relationship management.
Allow students to deal with the issues of customer satisfaction and service recovery.
Introduce the concepts of customer lifetime value and customer equity.
Allow students to develop specific recommendations to improve Office Depot’s customer service operation.
Discussion Questions
1. How does Office Depot create value for its customers?
Office supply stores like Office Depot participate in the channel of distribution for office supply products. Like other “big box” or “category killer” retailers, they offer the customer a very wide and deep selection of office supply products under one roof. Because of their size, they also buy in volume from their suppliers. This buying power results in their having lower costs that they can then pass on to their customers in the form of lower prices.
Moreover, because of the Internet, these chains are able to establish a Web presence and offer the same selection of products to customers who may not live or work near one of their stores.
As we see in the case, the store or Web site may even offer delivery services, making the process even more convenient for the customer.
These stores’ employees also create value for their customers because they are knowledgeable about the products and services the stores offer and can consult with the customer to help him/her solve office supply problems.
2. Are Steve and Dana Haine the “right” customers for Office Depot?
If the instructor uses this case early in the semester, students may not have covered market segmentation and market targeting. However, this question will lay the groundwork for later discussions on these topics.
Students should be able to identify four broad target markets that Office Depot serves: large businesses, small businesses, home-based businesses, and individuals.
Once this is established, it is helpful to ask why students think Office Depot delivered the small pen and refills via a company van as opposed to simply mailing them via UPS, FedEx, or the U.S. Postal Service. Perceptive students will suggest that Office Depot uses the vans to make larger deliveries to businesses. Probably, Office Depot’s Web site, once Steve Haine entered his order, searched the inventory in nearby Office Depot stores. It determined that the pen and refills he ordered were available in a nearby store, and sent the order to that store. Rather than mailing the order, someone simply decided to add it to the orders on this particular van, because it was going to be in Steve’s neighborhood delivering to businesses.
Thus, the delivery person who went to Steve’s house may well have been someone who normally just delivered to businesses. For such deliveries, the driver may have simply had to go to a loading dock or other area, unload several boxes, and get a signature. The delivery person may not have been accustomed to delivering to residences or with having to deal with non-business customers.
This analysis suggests that the cause of the entire problem Steve and Dana faced was the result of a delivery process that Office Depot used for the business market but in this case applied it to a non-business customer. The delivery process doesn’t fit the customer here. Students will probably suggest that Office Depot can’t afford to send a driver and van to a residence for the $5.95 delivery charge. UPS and others are set up to make such deliveries.
3. What customer satisfaction problems do you see in the case?
This question should lead to a lively discussion. Students will have no problem seeing many things Office Depot did wrong. The instructor may want to list these on the board.
Here is a sample of delivery problems the student may suggest:
Perceptive students may suggest that the fact that Steve visited three stores and did not find the pen indicates that there may be inventory problems. That is, the stores may not be doing a good job of keeping their pen supplies adequately stocked. After all, this was a Cross pen that is a popular brand.
The delivery person failed to take the pen to the front door and expected the customer to come to him to take the package. What would the driver have done if Dana Haine had not been home?
The driver was unprepared or untrained as to what to do if he encountered a problem, such as getting stuck in a driveway. In any delivery business, one can expect flat tires, running out of gas, wrecks, and getting stuck will occur sooner or later. The driver did not seem to know what to do and had to depend on Dana Haine to help him. He did not have any plan as to what to do if he had a problem.
The driver’s lack of English skills. The driver is the direct contact person between the company and the customer. Being able to communicate clearly with the customer would be important in both a business and a non-business delivery in case there are product or delivery problems.
Students will also see a number of problems that occurred once Steve attempted to report the situation:
First, it was difficult to find the right number to call on the company’s Web site.
Then, once Steve realized it was not the right number, the representative gave him another number to call. Students will suggest that the first representative should have been able simply to transfer his call to the right office.
Being kept on hold for 10 minutes. Students will argue that most people will not wait this long, and the wait discourages people from calling to complain.
Hearing the two messages repeated each minute during the holding period, is aggravating. But, more importantly, being repeatedly told that all the customer service representatives are busy with other customers suggests that Office Depot must have lots of dissatisfied customers.
Once Steve finally gets to talk to a representative, she listens but does not really indicate any sympathy for what has happened.
There is no real indication that the representative will follow up. She just thanks Steve for calling. There is no resolution.
Once the students develop this list, it is helpful to ask what is the main problem here. The instructor may ask students to look at the paragraph in which Steve responds to Dana once she tells him the delivery was from Office Depot. Note that he uses the word Wow. The instructor should ask what were Steve’s expectations when he ordered the pen? Clearly, this pen was important to him. He had visited three stores and then the Cross Web site before ordering the pen online. As the case notes, he had paid extra for delivery and expected the pen to arrive in three to five business days. He placed the order on Friday, and the case is set on Monday. Steve had expected to have to wait through much of the week before he got his pen, yet it had arrived on the next business day after his order.
Office Depot was in the position to delight Steve. He expected a delivery later in the week, but the pen came sooner. Had the driver not botched the delivery, Office Depot would have had a delighted customer. Now, however, because of this one small event in the value-delivery chain, it has two dissatisfied customers who will probably not order from Office Depot again.
This conclusion to this part of discussion should help students see that even a small problem in a complex value-delivery chain can cause a company to lose a customer.
How do the concepts of customer lifetime value and customer equity come into play in this case?
Dana Haine tells Steve in the case, “Well, just don’t order anything else from Office Depot!” The case tells us that Dana is an independent insurance salesperson who works out of her home. She obviously uses office supplies. Further, Steve also purchases from companies like Office Depot.
It is easy for students and for companies to think that Office Depot had problems with this one sale. But, as Dana’s comment suggests, Office Depot has lost these customers completely. It has lost all the future purchases the Haine’s might have made. As noted in the text, by making assumptions about average order size and average order frequency, a company can actually calculate the present value of a customer over some expected customer duration.
As the text suggests, customer equity is the total combined customer lifetime values of all the company’s customers. It also suggests that customer equity is a more important performance measure than either sales or market share. The incident with the Haine’s has reduced the company’s potential customer equity. Further, marketing studies tell us that dissatisfied customers will tell many other people about their experience, generating negative word-of-mouth commun­ications about the company. In this case, Steve and Dana’s experience led to a case in a textbook that thousands of students will see.
If you were in charge of Office Depot’s customer service operation and learned of Steve’s story, what steps would you take?
The problem discussion above should set the stage for students to develop a list of potential actions:
First, students will suggest that the Customer Service Manager should get in touch with Steve and Dana to apologize for the problems. Even though Steve was the customer and the person in direct contact, the CSM should realize that the company owes Dana an apology also.
The CSM should try to recover from the service problem by seeing what he/she could do to repair the damage. Although Steve indicates in the case that he was not asking for his money back (after all he did get the pen and refills), students will suggest that Office Depot should at least refund the delivery charge. Some will suggest that it should refund the entire amount of the purchase or give Steve an equivalent credit on his next purchase at Office Depot.
Although the CSM might handle this over the phone, a follow-up letter to Steve and Dana summarizing the situation and telling them specifically what Office Depot has done would be helpful in showing them that Office Depot followed up on Steve’s complaint.
Once the CSM had dealt with the particular situation, students will suggest a number of steps he/she or other Office Depot managers might take because of this situation.
Students will suggest that the incident shows a clear need for reviewing the hiring and training policies for delivery drivers.
The drivers need training and a procedures manual that will help them handle situations they might encounter. Students may wonder why the driver had not first called the Office Depot store or warehouse out of which he operated to report his situation and get help.
Office Depot should review its delivery policies. As noted, it is difficult to believe that the $5.95 delivery charge could cover the true costs of making the delivery of an eight-ounce package.
Office Depot should review its Web site to make sure that the proper customer service numbers are easy to find, especially the number for customer complaints. It should make complaining as easy as possible in order to encourage customers to contact the company when they have a problem.
It should also review its telephone-call handling process to make sure that customers aren’t aggravated by repeating messages and long wait times. The system might inform the caller about the estimated wait time and offer the option of leaving a voice message so that an Office Depot employee could return the call as soon as possible.
Once Office Depot receives a complaint, its customer service representatives should be well trained in showing empathy for the customer and should be empowered to make sure the customer is satisfied. The person to whom Steve talked should have had the authority to offer credits, refunds, etc., to make sure Steve was satisfied when he completed his call.
Teaching Suggestions
This case will stimulate students to share similar customer service complaints. One way to begin the discussion is to ask if anyone has had a similar customer service experience. As a student recounts his/her experience, it is helpful to ask them how they felt during and after the experience to make the point that knowing and understanding how customers feel in this process is just as important as the facts of the situation.
This case also works well with the marketing strategy chapter (Chapter 2), the consumer behavior chapter (Chapter 5), and the product and services marketing chapter (Chapter 8).
Epilog
Office Depot never contacted Steve and Dana in any way following this incident, and they have not been Office Depot customers since the incident.
Additional Material
Barriers to Effective Learning
The first major barrier to student understanding is the inability to distinguish between marketing and selling. As explained in several passages in the text, most people’s perception of marketing and selling is the same thing. To begin a discussion that will aid the student in distinguishing between the two terms, refer to Figure 1.1 in the text. Ask the students to give examples of marketing (or marketing functions) and selling. Based on the examples, have the students point out the differences between the examples. Be sure to bring in the new concepts of satisfying customer needs as a goal. Another way to draw a difference is to focus on the marketing and selling concepts shown in Figure 1.3. Once the difference has been established in the mind of the student, future discussions about the role of marketing in society will become more focused (see Figure 1.4).
The second area of concern is with the concept of demarketing. Most students do not understand how it could possibly be a sound idea to not try to stimulate the sales of the company’s product or service. The examples in the text are a good place to start with (the Golden Gate Bridge and Yosemite National Park), but true understanding will come from having the students generate their own examples. Each example should be critiqued by the class.
The third major barrier to understanding comes from truly understanding the societal marketing concept. Use Figure 1.4 to demonstrate the primary consider­ations. How does being environmentally and socially conscious translate into profit? It is useful to divide the class and have opposite sides of the social responsibility issue debated. Ask what would be the costs of being socially responsible.
The fourth area of concern is in understanding the full impact of Customer Relationship Management (CRM). On the surface building long-term relation­ships with valued customers, distributors, dealers, and suppliers seems to be simple and easily attained. This is generally not true. To be effective in CRM, the marketer must forego short-term profit maximization on individual transactions to build mutually beneficial relationships. Ask students to explain what type of benefits might accrue from successful networks. Lastly, ask students how marketers manage their customers. Does this “management of the customer” give the students any problems philosophically?
The last major barrier to understanding comes from relating to the full implications of “connecting.” Connecting is a major theme of this text. A good way to get students thinking about connections is to ask them how their university or college attempts to form connections with them. After the students provide examples, ask for more connections that would increase student satisfaction and likelihood of alumni involvement after graduation. How could a marketing plan be devised to focus on these desired connections? As an alternative, technology connections can be discussed.
Student Projects
Copy or clip three advertisements from newspapers or magazines. What customer needs are the advertisers trying to meet?
Many people have purchased books through Amazon.com. Certainly, the book purchased is important, describe the complete marketing offer of Amazon.com. What services, information, or experience is included?
What segment of potential buyers does Wal-Mart target? What about Nordstrom?
Think of a company or brand that you buy from over and over. What might your customer lifetime value be, assuming they continue to delight you?
The American Cancer Society® is a nonprofit organization. Its Web site is at How might they market their services? Who would their target market be? How could they build lasting relationships with their “customers”?
Interactive Assignments
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the chapter on NASCAR. Each group should answer the following questions:
Why would NASCAR want to change its image to that of a family-friendly organization?
How has this image change helped the organization in its marketing efforts?
Why would fans be so loyal, as described in the vignette, to the point of always buying sponsor’s brands?
How important is the use of technology to NASCAR’s strategy?
Each group should then share its findings with the class.
Individual Assignment
Read the opening vignette to the chapter. Think about answers to the following questions:
How does NASCAR develop and maintain relationships with its custom­ers, when over 200,000 could attend a single event?
How has NASCAR proven that it is a family-friendly organization?
How has NASCAR utilized technology to extend its relationships?
Share your findings with the class.
Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to the questions from the instructor. These questions could also be given as out-of-class assignments.
How is marketing different than selling or advertising?
How many companies or brands do you feel you have a relationship with? Describe them.
Think about your “need” when you were exploring which college to attend. What was the marketing “offer” at your school that attracted you?
What type of company or organization might be required to practice “demarketing,” other than the examples in the text?
How is your college positioned in the marketplace?
Outside Example
The textbook talks about how Lexus delights their customers. But Lexus isn’t the only luxury brand to do that; it isn’t even the only Japanese luxury brand that focuses on delighting customers. Infiniti®, a brand of Nissan, is also concerned about its customer relationships. You can visit their Web site at to read more about the philosophy of the company.
For instance, on the Web site you will find that the original creed of the company, way back in 1959 on its first introduction to the United States, was “Love cars, love people, love life.” This doesn’t sound much like an auto company, does it? But that creed seems to still be in effect today, and customers feel it.
A woman who recently bought an Infiniti did have a Zen-like experience as described in the original Nissan creed. Certain she wanted an Infiniti because of its good looks, she drove almost 90 miles to the closest Infiniti dealer. What she experienced there not only encouraged her to buy her vehicle from them, but to also have it serviced at that dealer.
Remember that dealer was 90 miles away from her home; that would normally be considered a major inconvenience. Would you drive that far to get your car serviced? What if, in doing so, you were given a free loaner car of a higher and more expensive model than the one you had purchased? If your car was washed and vacuumed even though it was only in there for an oil change? If you were given a long-stemmed red rose on leaving the dealership after your car was serviced? Many Infiniti dealers go above and beyond what constitutes normal service for automobiles in this country.
Does it make sense for Infiniti and Nissan, its parent, to provide such a high level of service to its customers? Why or why not?
What would be the best way for Infiniti to communicate this level of service to those it wishes to target?
Why do you think the parent company, Nissan, is not mentioned in Infiniti’s customer communications?
How has Infiniti grown its share of customer?
Describe how Infiniti both creates value for the customer and captures value from them.

33. Expanded model of the marketing process Figure 1.6
1 - 33