Principles of Marketing Chapter 1: Marketing: Creating

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Principles of MarketingChapter 1Marketing
Creating Capturing Customer Value
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A Change in Marketing Its Importance

• Firms are returning to marketing
• Change and Instability in Marketplace
• Technology
• Economy
• Social interests
• Shift in Marketings Focus Performers
• From Transactions to Relationships
• Not just Big M Marketing anymore increased
  Little M marketing (Carver 2009 2012)

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What is Marketing?

1. Marketing is the process of planning and
   executing the conception, pricing, promotion, and
   distribution of ideas, goods, and services to
   create the exchanges that satisfy individual and
   organizational goals. (1985 AMA Definition)
2. Marketing is an organizational function and a
   set of processes for creating, communicating, and
   delivering value to customers and for managing
   customer relationships in ways that benefit the
   organization and its stakeholders. (Lusch and
   Marshall 2004 AMA Definition)
3. Competition for a Differential Advantage.
   (Wroe Alderson 1957)

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Two Goals of Marketing

• Marketing has 2 basic goals
• Attract new customers by providing superior value
• Keep grow existing customers by delivering
  satisfaction
• Can do so iff one has a differential, or
  long-term competitive, advantage

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A Marketers Basic Toolbox

• Value is created on 4 fronts
• Toolbox Marketing Mix
• The 4 Ps
• Product
• Place
• Price
• Promotion

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The Marketing Process

• 5 Most Basic Steps of Marketing
• Understand Consumers
• Design Customer-Driven Marketing Strategy
• Prepare an Integrated Marketing Program
• Build Customer Relationships
• Capture Value from Customers

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ConsumersNeeds, Wants, Demands

• Need
• State of felt deprivation
• Physical, Social, or Individual
• Want
• Form a need takes as shaped by culture
  personality
• Demand
• Wants backed with buying power

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ConsumersNeeds, Wants, Demands
Needs

• Need
• State of felt deprivation
• Physical, Social, or Individual
• Want
• Form a need takes as shaped by culture
  personality
• Demand
• Wants backed with buying power

Culture
Wants
Buying Power
Demands
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Market Offerings

• Customers demands are fulfilled through market
  offerings
• Combination of
• Products Services Information Experiences
• Market offering Product (purchased)
• Can be tangible good or intangible service
• Service are all services used to facilitate
  support

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Market Offering

• Traditional Product View Has Pitfalls
• Marketing Myopia
• Paying so much attention to the specific products
  a company offers that benefits experiences are
  overlooked (e.g., Buggy-whip example)
• Service-Dominant Logic
• Products are bundles of services or brand
  experiences
• Spoken in terms of a Value Proposition

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Value Proposition Examples

• Drill Bit Example
• What is really being sold?
• Toaster Example?
• What is really being sold?
• Disney Example?
• What is really being sold?

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Value Proposition Examples

• Drill Bit Example
• What is really being sold?
• Ability to generate a particular sized hole (½
  bit ½ hole)
• Toaster Example?
• What is really being sold?
• A system for cooking ones bread and making
  crispy
• Disney World Example?
• What is really being sold?
• A world of wonder where dreams come true, not
  just rides

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Exchange and Relationships

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

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Designing a Customer-Driven Marketing Strategy

• Marketing Management
• Seeks to answer two questions
• What customers will we serve?
• Target markets through market segmentation
• How can we serve these customers best?
• Development and articulation of the value
  proposition

Marketing Management
1. Customer Management
2. Demand Management
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Marketing Management Orientations

• Five Philosophies of Marketing Management
• Production Concept
• Product Concept
• Selling Concept
• Marketing Concept
• Societal Marketing Concept

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Marketing Concept

• A management philosophy which advocates that a
  firm
• Exists to identify and satisfy the needs of its
  customers
• Customer orientation
• That a customer orientation is accomplished
  through an integrative effort throughout the firm
• Integrated effort
• That the firms focus should be long-term and
  seek to provide a satisfactory return on owners
  investment (ROI)
• Long-term profit orientation

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Societal Marketing Concept

• A management philosophy which advocates that a
  firm
• Follow the traditional marketing concept, yet
  consider how changes in any portion of ones
  offering might enhance
• Consumers and societys immediate well-being
• Consumers long-term interests
• Opportunity for future generations to meet their
  needs (i.e., sustainable marketing)

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An Integrated Marketing Program

• Ones marketing strategy in action, or
• A Marketers Toolbox
• The Marketing Mix
• The 4 Ps
• Product
• Place
• Price
• Promotion
• Value is created on these 4 fronts

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CRMCustomer Relationship Management

• Customer data management
• Leveraging detailed information customer
  touchpoints (interactions) to maximize loyalty.
• Maximization of customer delivered value through
  the management of customers
• Acquisition,
• Retention, and
• Growth

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Building Blocks of aRelationship (Value)

• Value
• Is customer perceived
• Largely idiosyncratic but generalizable based on
  themes (segmentation)
• Drivers include
• Convenience
• Total cost
• Selling Price
• Authenticity
• Exclusivity
• Finishes
• Conspicuousness (referent power)

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Building Blocks of a Relationship (Customer
Satisfaction)

• Satisfaction
• The difference between ones perceived
  performance (i.e., experience) expectations
• A net loss dissatisfied
• A net neutral satisfied
• A net positive highly satisfied or
  delighted
• Likely to become customer evangelists
• Indirect driver of firm performance (e.g.,
  sales)
• Yet, maximization is not the goal
• Must know break-even point for all services
  provided

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Consumer Spending and Lagged Satisfaction
(ACSI)
Note the larger lag during after the Great
Recession consumers must also have funds
available in order to purchase
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Appropriate Levels of Customer Relationship

• Closeness is a function profitability
• Considered in terms of a continuum
• Low Margin customers
• Basic relationship is best
• Relationships only through websites, apps,
  advertising, etc.
• High Margin customers
• Full Partnership is possible
• Relationship with constant, personal
  communication information sharing, etc.
• Tools to enhance bond and profitability
  include
• Frequency marketing programs Club Memberships
• Goal is to enhance loyalty through switching costs

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Changing Nature of Customer Relationships

• From Mass Marketing to Selected Relationships
• Customer Profitability Analysis During
• Customer Acquisition
• No longer Seining for all fish in the sea
• Surveys, Credit ratings, etc.
• Customer Retention
• 80/20 Rule
• Fire Poor or High Maintenance customers
• Segmentation for termination purposes
• Example Sprint termination letter, gift cards to
  competitors, etc.

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Interactive Customer Relationships

• Fueled by technology and social media
• No longer marketing by intrusion
• Mass marketing is naturally intrusive and
  designed to interrupt ones attention
• Marketing by attraction
• Marketing that includes consumers
• Use of social media and technology isnt enough
• Co-creation is key
• Gives up control, yet
• Gains authenticity engagement (part of the
  conversation)
• A delicate balancing act to ensure hijacking is
  curtailed

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Partner Relationship Management

• Both Intra- and Inter-firm partners
• Intra-firm partners
• No longer is marketing the only function
  representing the customer
• Non-marketers performing marketing
• Inter-firm partners
• Marketing messages must be managed throughout and
  across the entire channel

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Capturing Value from Customers

• Value is captured from customers via
• Current and future sales, market share, and
  profit.
• Key outcomes of customer value include
• Customer loyalty retention
• 5 times as much to get a new customer
• Greater share of market and customer, and
• Growth in customer equity

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Customer Equity

• The total combined customer lifetime values
  (CLVs) of all the companys current future
  customers
• Customer Lifetime Value
• The value of the entire stream of purchases that
  the customer would make over a lifetime of
  patronage
• Consider the cost of losing just one customer
• UPS example
• Why customers must be managed based on
  profitability
• Recall 80/20 rule

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Drivers of Change in Marketing

• Economy
• Technology
• Non-profit marketing
• Globalization
• Sustainable marketing