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PRINCIPLES OF MARKETING Philip Kotler and Gary Armstrong

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1 PRINCIPLES OF MARKETING Philip Kotler and Gary Armstrong
Eighth Edition Philip Kotler and Gary Armstrong Chapter 1 Marketing in a Changing World: Creating Customer Value and Satisfaction

2 What is Marketing? Process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. More simply: Marketing is the delivery of customer satisfaction at a profit.

3 Core Marketing Concepts
Core Concepts This CTR corresponds to Figure 1-1 on p. 4 and relates to the discussion on pp Also to the CTRs numbers which follow. Core Marketing Concepts Products and Services Core Concepts Needs. These emerge from a state of felt deprivation. Ask students to distinguish among physical, social, and individual needs. Wants. These are the form taken by human needs as they are shaped by culture and individual experience. Have students provide examples for different wants based upon geographical differences, gender, age, wealth. Link culture to socio-economic standing, education. Demands. These are wants backed by buying power. Discuss such popular items as dream vacations or favorite cars to illustrate the difference between wants and demands. You may want an Acura Legend but drive a Subaru Justy. Introduce the idea that demands are often for a bundle or group of benefits and may address a number of related needs and wants. Products. These are anything offered for sale to satisfy a need or want. Have students discuss an extended view of products to include services and ideas. Discuss the role of value in distinguishing products. Discussion Note: Ask students to identify their product choice set for cars, vacations, dating partners, or college professors. Exchanges. These are the act of obtaining desired objects by offering something in return. Link to barter economies and promises to pay (i.e., credit, checks). Transactions. These are an actual trade of value between at least two parties. Transaction marketing is part of the larger concept of relationship marketing in which parties build long-term, economic ties to enhance quality and customer-delivered value. Markets. These are the set of actual and potential buyers of a product. Markets may be decentralized or centralized. Markets exist wherever something of value is desired, such as in the labor market, the money market, even the donor market - for human “products” such as blood or organs. Needs, wants, and demands Core Marketing Concepts Markets Value, satisfaction, and quality Exchange, transactions, and relationships

4 What Motivates a Consumer to Take Action?
Needs - state of felt deprivation for basic items such as food and clothing and complex needs such as for belonging. i.e. I am thirsty Wants - form that a human need takes as shaped by culture and individual personality. i.e. I want a Coca-Cola. Demands - human wants backed by buying power. i.e. I have money to buy a Coca-Cola.

5 What Will Satisfy Consumer’s Needs and Wants?
Products - anything that can be offered to a market for attention, acquisition, use or consumption and that might satisfy a need or want. Examples: persons, places, organizations, activities, and ideas. Services - activities or benefits offered for sale that are essentially intangible and don’t result in the ownership of anything. Examples: banking, airlines, haircuts, and hotels.

6 How Do Consumers Choose Choose Among Products and Services?
Customer Value - benefit that the customer gains from owning and using a product compared to the cost of obtaining the product. Customer Satisfaction - depends on the product’s perceived performance in delivering value relative to a buyer’s expectations. Linked to Quality and Total Quality Management (TQM).

7 How do Consumers Obtain Products and Services?
Exchanges - act of obtaining a desired object from someone by offering something in return. Transactions - trade of values between parties. Usually involves money and a response. Relationships - building long-term relationships with consumers, distributors, dealers, and suppliers.

8 Who Purchases Products and Services?
Actual Buyers Market - buyers who share a particular need or want that can be satisfied by a company’s products or services. Potential Buyers

9 Modern Marketing System
Suppliers Modern Marketing System Modern Marketing System This CTR corresponds to Figure 1-3 on p.11 and relates to the material on p. 10. Competitors Company (Marketer) The Marketing System A modern marketing system consist of four levels of activity. In a very real sense, each level influences the other levels. Each level adds value to the system. Discussion Note: Consumers add value to the system when they buy products. Their purchase price in turn funds the efforts (as profits) of each of the other layers to create more value as the system continues the cycle. Suppliers. This level provides the inputs to the production of goods and services. Company and Competitors. Each company adds value to supplies to create the products (goods, services, or both) offered to various markets. Marketing Intermediaries. Because of specialization, one or more other firms can get products to consumers more efficiently than most producers can (though there are important exceptions). End User Market. The consumer is the “final cause” of the efforts of each level of the marketing system. Discussion Note: Ask students to comment on whether the schematic should have “dotted line” feedback connection from the end user to each level of the system. What form of communication does that feedback take? Purchase? Satisfaction level? Brand loyalty? Brand switching? You might encourage students to remember this system perspective throughout the course and relate examples back to this CTR from time to time. Marketing Intermediaries Environment Environment End User Market

10 Marketing Management Marketing Management Demand Management
This CTR corresponds to the material on pp Marketing Management Implementing programs to create exchanges with target buyers to achieve organizational goals The Marketing Management Process The marketing concept suggests that businesses must actively manage an on-going relationship with customers. Key concepts of this perspective include: Marketing Management. The text defines marketing management as “the analysis, planning, implementation, and control of programs designed to create, build, and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives.” Discussion Note: You might point out to students the influential role played by Professor Kotler in the development of marketing management, in both business and academic settings. Demand Management. Matching supply and demand can be a difficult balancing act. Traditional views of marketing were simplistic: build demand. Now marketers recognize the need to manage demand so that infrastructure resources are not overburdened. Discussion Note: It might help to compare demand management with Just-in-Time Inventory or Supply management. JIT lowers costs by not requiring extra capacity to hold things -- supplies or inventory -- before they are needed. By matching consumer demand to the systems designed to meet needs and wants, overall costs of marketing, and hence, the price of products, is reduced. Building Customer Relationships. Growing markets traditionally mean a plentiful supply of new customers. But as consumers become more sophisticated and as market growth slows, maintaining existing customers is the key to long term marketing success. As pointed out in the text, a continuing customer relationship means years of revenues for a company, not one time only sales. Further, existing customers are less expensive to promote to as they have already processed a great deal of product-specific information. Demand Management Finding and increasing demand, also changing or reducing demand Profitable Customer Relationships Attracting new customers and retaining current customers

11 Marketing Management Philosophies
Five Marketing Philosophies This CTR relates to the material on pp Teaching Tip: You may find it useful to ask students to give their definitions of philosophy. How do they use philosophies for studying? dating? planning their time? Work from their examples to the idea that businesses too have philosophies about how to get things done. Marketing Management Philosophies Production Concept Consumers favor products that are available and highly affordable Improve production and distribution Consumers favor products that offer the most quality, performance, and innovative features Consumers will buy products only if the company promotes/ sells these product Focuses on needs/ wants of target markets & delivering satisfaction better than competitors markets & delivering superior value Society’s well-being Product Concept The Production Concept. One of the oldest concepts, it holds that consumers favor products that are available and affordable. Management emphasizes production and distribution efficiency. Examples from the text include Ford's Model T and Texas Instruments. The Product Concept . This concept focuses on the actual product in an effort to continuously improve quality, performance, and features. May lead to marketing myopia or the tendency to too narrowly define the scope of one's business. Consumers buy products for their benefits, not their features. The Selling Concept. This concept views consumers as unwillingly customers whose inherent opposition must be overcome to make a sale. It is most often used today for unsought goods. The selling concept tends to encourage sellers to misrepresent the true nature of their products or services and can lead to problems in maintaining high customer satisfaction. The Marketing Concept. This concept links the company's success with the consumer's continuing satisfaction. Its "outside-in" approach starts with a well defined target market, an analysis of their needs and wants, and then builds the company's offering around meeting those needs better than the competition (Note: the selling and marketing concepts are contrasted on the following CTR of Figure 1-4). The Societal Marketing Concept. This concept adds to the marketing concept the idea that the company should contribute to the betterment of society as a whole (Note: The societal marketing concept is developed in more detail on a following CTR of Figure 1-5 and the accompanying notes). Selling Concept Marketing Concept Societal Marketing Concept

12 Marketing & Sales Concepts Contrasted
Marketing and Sales Concept Contrasted This CTR corresponds to Figure 1-4 on p. 15 and to the material on pp The Selling Concept Starting Point Focus Means Ends Factory Existing Products Selling and Promoting Profits through Volume Comparisons and Contrasts: The Selling Concept takes an inside-out perspective -- looking at the company’s needs and wants in terms of existing products and ways to find customers for them. The Marketing Concept takes an outside-in perspective - identifying the needs and wants of a clearly defined market and adjusting company efforts to make products that meet the needs. Discussion Note: Promotional tone may help indicate whether a company practices the selling or the marketing concept. Selling involves persuasion -- convincing the customer of their need to buy existing products. Marketing, at its best, involves information -- bringing the developed product to the awareness of a target market that recognizes need satisfying products. As the text notes, companies can let their own success lock them into a rigid selling structure. As times change, and they always do, those companies fail to see the need for meeting new and emerging consumer needs. The marketing concept helps companies focus on customer need satisfaction, leading to long-term success by customer retention. The Marketing Concept Market Customer Needs Integrated Marketing Profits through Satisfaction

13 Societal Marketing Concept
This CTR corresponds to Figure 1-5 on p. 16 and relates to the material on pp Society (Human Welfare) Societal Marketing Concept The Societal Marketing Concept The Societal Marketing Concept holds that the organization should determine the needs, wants, and interests of target markets. In delivering the desired satisfactions more effectively and efficiently than the competition, the company should also maintain or improve both the consumer’s and society’s well being. Discussion Note: You may wish to consider extra-textual class discussion identifying the pros and cons of the societal marketing concept. Pros: Reasons for adopting the societal marketing concept include: 1. Public expectations. Social expectations of business have increased. 2. Long-run profits. Socially responsible marketing may lead to more secure long-run profits Ethical obligation. Business should recognize that responsible actions are right for their own sake Public image. A good public image helps firms gain more customers, better employees, access to money markets, and other benefits Better environment. Involvement by business can help solve difficult social problems, creating a better quality of life and a more desirable community in which to attract and hold skilled employees Balance of responsibility and power. Marketers have a large amount of power in society that requires an equally large amount of responsibility Stockholder interests. Socially responsible companies are considered less risky and safer investments 9. Possession of resources. Business has the financial resources, technical experts, and managerial talent to provide to support public causes. Cons: Reasons for not adopting the societal marketing concept include: 1. Violation of profit maximization. 2. Dilution of purpose. The pursuit of social goals dilutes business’s primary purpose Costs. Many socially responsible activities don’t pay their way. 4. Too much power. Business is already one of the most powerful institutions in society Lack of skills. Marketers may be poorly qualified to deal with social issues Lack of accountability. There are no direct lines of social accountability from the business sector to the public Lack of broad public support. Even favorable attitudes are general and lack consensus on specific actions marketers should take on social issues. Consumers (Wants) Company (Profits)

14 New Marketing Challenges
This CTR relates to the material on pp Teaching Tip: Challenge students to see marketing as an exciting and creative field needing new ideas and new solutions to emerging business opportunities. New Marketing Landscape & Information Technology Nonprofit Marketing Emerging Challenges Growth of Nonprofit Marketing. More and more charitable firms and businesses that hold nonprofit status, like colleges and hospitals, are adopting a marketing orientation toward serving their constituencies. Globalization. Technological and economic developments continue to shrink the distances between countries. Computer and communications technology make possible truly global businesses that buy, sell, manufacturer, market, and service customers easily across international borders. Rising affluence creates new markets. Similarly, more European and Asian companies now compete successfully in the US. market. Changing World Economy. Even as new markets open to rising affluence in such countries as the “newly industrialized” pacific rim, poverty in many areas and slowed economies in previously industrial nations has already changed the world economy. Americans increasingly maintain living standards only by having two incomes per household. Value is hunted for by penny-wise consumers. Ethics and Responsibility. The greed of the 1980s and other problems has spurred a new interest in ethical conduct in business. Many consumers feel business in general has more of an obligation to those who generate profits -- the consumer! New Landscape and Information Technology. The new marketing landscape is a dynamic, fast-paced, and evolving function of all these changes and opportunities. More than ever, there is no static formula for success. Only strategies that incorporate and implement constant improvement in product quality and higher delivered customer value stand any chance of long-term success. Information and the internet have created a technology boom. Ethical Concerns Globalization Changing World Economy

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