Marketing: Creating and Marketing: Creating and Capturing Customer ValueCapturing Customer Value

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Rest Stop: Previewing the Concepts

• Define marketing and outline the steps in the marketing Define marketing and outline the steps in the marketing processprocess

• Explain the importance of understanding customers and Explain the importance of understanding customers and the marketplace and identify the five core marketplace the marketplace and identify the five core marketplace conceptsconcepts

• Identify the key elements of a customer-driven marketing Identify the key elements of a customer-driven marketing strategystrategy

• Discuss customer relationship management and identify Discuss customer relationship management and identify strategies for creating value for customers and capturing strategies for creating value for customers and capturing value from customers in returnvalue from customers in return

• Describe the major trends and forces that are changing Describe the major trends and forces that are changing the marketing landscape in this age of relationshipsthe marketing landscape in this age of relationships

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What Is Marketing?

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Marketing Old vs. New

Old view of marketing:Old view of marketing:

Making a sale -- “Telling and Selling”Making a sale -- “Telling and Selling”

New view of marketing:New view of marketing:

Satisfying customer needsSatisfying customer needs

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What Is Marketing?

• Simple Definition: Simple Definition: – Marketing is managing profitable Marketing is managing profitable

customer relationships.customer relationships.

• How? By accomplishing the following: How? By accomplishing the following: 1.1. Attracting NEW customers by promising Attracting NEW customers by promising

superior value.superior value.

2.2. KEEPING and GROWING current KEEPING and GROWING current customers by delivering satisfaction.customers by delivering satisfaction.

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Marketing Defined

Marketing is the process by Marketing is the process by which companies create which companies create value for customers and value for customers and

build strong customer build strong customer relationships in order to relationships in order to

capture value from capture value from customers in return.customers in return.

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Marketing is...

• A A managerial processmanagerial process involving involving analysis, planning, implementation and analysis, planning, implementation and controlcontrol

• Based on Based on formal programsformal programs

• Focused on bringing about Focused on bringing about exchanges of exchanges of valuevalue

• Aimed at selected Aimed at selected target marketstarget markets

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Marketing is...

• Intended to help organizations survive, stay Intended to help organizations survive, stay healthy and flexible…healthy and flexible…achieve objectivesachieve objectives

• Focused on Focused on matching target market needs matching target market needs and the product mix = product/market and the product mix = product/market marriagemarriage

• Dedicated to Dedicated to integrating the tools of the integrating the tools of the marketing mixmarketing mix in the distribution function in the distribution function

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A Simple Model of the Marketing Process

Understand the marketplace

and customer needs and

wants

Understand the marketplace

and customer needs and

wants

Capture value from customers to create profits and customer equity

Capture value from customers to create profits and customer equity

Create value for customers and build customer

relationships

Capture value from customers

in return

Design a customer-driven

marketingstrategy

Design a customer-driven

marketingstrategy

Build profitable relationships and

createcustomer delight

Build profitable relationships and

createcustomer delight

Construct a marketing program

that delivers superior value

Construct a marketing program

that delivers superior value

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Core Customer and Marketplace Concepts

• Creating value for customers requires that Creating value for customers requires that we first understand the marketplace and we first understand the marketplace and customer needs, including five core customer needs, including five core customer and marketplace concepts:customer and marketplace concepts:– Needs, wants, and demandsNeeds, wants, and demands– Marketing offers (products, Marketing offers (products,

services, and experiences)services, and experiences)– Value and satisfactionValue and satisfaction– Exchanges and relationshipsExchanges and relationships– MarketsMarkets

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Needs, Wants, and Demands

• Needs:Needs:– A state of felt A state of felt

deprivation deprivation including including physical, physical, social, and social, and individual individual needs.needs.

Name some specific examples of each need type.

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Types of Needs• Physical:Physical:

– Food, clothing, shelter, safetyFood, clothing, shelter, safety

• Social:Social:– Belonging, affectionBelonging, affection

• Individual:Individual:– Learning, knowledge, self-Learning, knowledge, self-

expressionexpression

• These needs were not created by marketers; they are a basic part of the human makeup.

Is ice cream a “need”?Is ice cream a “need”?

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Needs, Wants, and Demands

• Wants:Wants:– Form that a Form that a

human need human need takes, as shaped takes, as shaped by culture and by culture and individual individual personality.personality.

– Preferences for Preferences for brands are wants.brands are wants.

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This Is Demand

“ Demand”

Wants Buying Power

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Discussion Question

Describe a Describe a college college

education in education in terms of terms of

wants, needs, wants, needs, and demands?and demands?

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Marketing Offers

• Needs and Wants Needs and Wants Fulfilled through a Fulfilled through a Marketing Offer Marketing Offer ::– Some combination of Some combination of

products, services, products, services, information, or information, or experiences offered to experiences offered to a market to satisfy a a market to satisfy a need or want.need or want.

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Market Offerings

• Products:Products:– Persons, places, organizations, information, Persons, places, organizations, information,

ideas.ideas.

• Services:Services:– Activity or benefit offered for sale that is Activity or benefit offered for sale that is

essentially intangible and does not result in essentially intangible and does not result in ownership.ownership.

• Brand Experiences:Brand Experiences:– ““. . . dazzle their senses, touch their hearts, . . . dazzle their senses, touch their hearts,

stimulate their minds.stimulate their minds.””

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More Than Just ProductsMarket offeringsMarket offerings are are

not limited to not limited to physical products. physical products. LaSalle Bank runs ads LaSalle Bank runs ads asking people to asking people to donate used or old donate used or old winter clothing to the winter clothing to the Salvation Army. Here, Salvation Army. Here, the market offering is the market offering is helping the less helping the less fortunate to keep fortunate to keep warm.warm.

Marketing in Action

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Product as an Idea

Products do not have to be physical objects. Here the “product” is an idea—protecting animals.

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• Religion—Christianity, Judaism, Religion—Christianity, Judaism, Hinduism, Buddhism, IslamHinduism, Buddhism, Islam

• Politics—Democrat vs. RepublicanPolitics—Democrat vs. Republican

• Birth Control—”Right to Life” vs. Birth Control—”Right to Life” vs. “Free Choice”“Free Choice”

• International Economics—International Economics—

“ “Free Trade” vs. “Protectionism”Free Trade” vs. “Protectionism”

Product as an Idea

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Marketing Myopia

• Sellers pay more attention Sellers pay more attention to the specific products to the specific products they offer than to the they offer than to the benefits and experiences benefits and experiences produced by the produced by the products.products.--Railroads--Railroads

--Movies--Movies--Petroleum--Petroleum

• They focus on the They focus on the “wants”“wants” and lose sight of and lose sight of the the “needs.”“needs.”

Marketing Myopia

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Marketing in Action

Focused on selling prerecorded CDs, the record industry missed early opportunities to partner with music downloading services and manufacturers of

digital MP3 type recording devices.

Marketing Myopia in the Recording Industry

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Value and Satisfaction

Expectation

Performance810

- If performance is lower than expectations, satisfaction is low.

- If performance is higher than expectations, satisfaction is high.

• Advertising is one of the primary methods by which consumer expectations are formed

Expectation

Performance

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Exchanges and Relationships• Exchange:Exchange:

– Act of obtaining Act of obtaining a desired object a desired object from someone from someone by offering by offering something in something in return.return.

• What would be What would be exchanged for exchanged for a vacation?a vacation?

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Exchanges and Relationships• Relationships:Relationships:

– Marketing actions build and maintain Marketing actions build and maintain relationships with target audiences relationships with target audiences involving an idea, product, service, or involving an idea, product, service, or other object. other object.

– Marketers build strong relationships Marketers build strong relationships by consistently delivering superior by consistently delivering superior customer value.customer value.

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What is a Market?

• The set of actual The set of actual and potential and potential buyers of a buyers of a product.product.

• These people share These people share a need or want that a need or want that can be satisfied can be satisfied through exchange through exchange relationships.relationships.

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Elements of a Modern Marketing System

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Marketing Management

• The art and science of choosing target The art and science of choosing target markets and building profitable markets and building profitable relationships with them.relationships with them.– Requires that consumers and the Requires that consumers and the

marketplace be fully understood.marketplace be fully understood.– Aim is to find, attract, keep, and grow Aim is to find, attract, keep, and grow

customers by creating, delivering, and customers by creating, delivering, and communicating superior value.communicating superior value.

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Marketing Management

• Designing a winning marketing Designing a winning marketing strategy requires answers to the strategy requires answers to the following questions:following questions:

1. What customers will we serve? – What is our target market?

2. How can we best serve these customers? – What is our value proposition?

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Segmentation and Target Marketing

• Market SegmentationMarket Segmentation– Divides the Divides the

market for a market for a product product category intocategory intosegments of segments of consumers. consumers.

• Target MarketingTarget Marketing– Process of selecting one or more Process of selecting one or more

segments to target.segments to target.

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Dimensions of Market Segmentation

• GeographicGeographic

• DemographicDemographic

• Psychographic: Attitudes, Interests, Psychographic: Attitudes, Interests, Opinions(AIO’s)Opinions(AIO’s)

• Benefit Benefit

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The Nine Nations of North America

• The Empty QuarterThe Empty Quarter

• EctopiaEctopia

• The BreadbasketThe Breadbasket

• MexamericaMexamerica

• QuebecQuebec

• New EnglandNew England

• The FoundryThe Foundry

• DixieDixie

• The IslandsThe Islands

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Pair up with another Pair up with another student and discuss the student and discuss the ad shown at right.ad shown at right.

Are you part of the Are you part of the target market for this target market for this product?product?

List the personal traits, List the personal traits, variables, or factors that variables, or factors that characterize members of characterize members of this market segment.this market segment.

Let’s Talk!

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Demand Management

• Demand ManagementDemand Management– Finding & increasing demandFinding & increasing demand– Also changing or reducing Also changing or reducing

demand, such as in demand, such as in demarketing.demarketing.

• DemarketingDemarketing– Temporarily or permanently Temporarily or permanently

reducing the number of reducing the number of customers or shifting their customers or shifting their demand.demand.

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Marketing in Action

Demarketing is often used to discourage undesirable behaviors.

Is this ad effective?

Visit the Office of National Drug Control Policy ad gallery.

mediacampaign.org

Demarketing

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Value Proposition• The set of benefits The set of benefits

or values a or values a company promises company promises to deliver to to deliver to consumers to consumers to satisfy their needs.satisfy their needs.

- - Value propositions Value propositions dictate how firms will dictate how firms will differentiate and differentiate and position their brands in position their brands in the marketplace.the marketplace.

The Smart car is positioned as compact, yet comfortable; agile, yet

economical; safe, yet ecological.

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Land Rover’s Value Proposition““Go BeyondGo Beyond””

Marketing in Action

LandRover’s ad

invites itsreaders “to get a taste of adventure, whatever your tastes.”

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Marketing Management Philosophies

• Five key marketing Five key marketing management management philosophies:philosophies:– Production ConceptProduction Concept– Product ConceptProduct Concept– Selling ConceptSelling Concept– Marketing ConceptMarketing Concept

• Customer drivenCustomer driven

– Societal Marketing Societal Marketing ConceptConcept• Customer and Customer and

society drivensociety driven

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Marketing and Sales Concepts Contrasted

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The Societal Marketing Concept

• A company’s marketing decisions A company’s marketing decisions should consider consumer’s wants, should consider consumer’s wants, the company’s desires, consumers’ the company’s desires, consumers’ long-run interests and society’s long-long-run interests and society’s long-run interestsrun interests

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The Societal Marketing Concept• Calls for sustainable Calls for sustainable

marketing—socially marketing—socially and environmentally and environmentally responsible marketing responsible marketing that meets the that meets the present needs of present needs of consumers while also consumers while also preserving the ability preserving the ability of future generations of future generations to meet their needsto meet their needs

According to UPS, socialresponsibility “isn’t just good

for the planet. It’s good for business.”

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The Considerations Underlying the Societal Marketing Concept

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Evolution of Marketing Over Time

• 1860-1925--The Production Era1860-1925--The Production Era

• 1920-1960’s--The Sales Era 1920-1960’s--The Sales Era

• 1960’s-To Date--The Marketing1960’s-To Date--The Marketing

Era Era

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The Pillsbury Company: A Case StudyThe Pillsbury Company: A Case Study

The Pillsbury Company in Transition Pre-1930”s: The Pillsbury Company in Transition Pre-1930”s: Production OrientationProduction Orientation

““Our basic function is to millOur basic function is to mill

high quality flour…”high quality flour…”

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The Pillsbury Company: A Case StudyThe Pillsbury Company: A Case Study

The Pillsbury Company in Transition The Pillsbury Company in Transition 1930--1950’s: 1930--1950’s: Sales OrientationSales Orientation

““We must have a We must have a first-rate sales first-rate sales organization…organization…to dispose of all the to dispose of all the products we can make at favorable products we can make at favorable prices...”prices...”

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The Pillsbury Company: A Case StudyThe Pillsbury Company: A Case Study

The Pillsbury Company in TransitionThe Pillsbury Company in Transition

1950 to Date: 1950 to Date: Marketing OrientationMarketing Orientation

““The criteria to be used in The criteria to be used in determining what products to market determining what products to market are those of are those of the consumer the consumer herself…”herself…”

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The Pillsbury Company: A Case StudyThe Pillsbury Company: A Case Study

The Pillsbury Company in TransitionThe Pillsbury Company in Transition

in the Future: in the Future: Marketing ControlMarketing Control

““Marketing will become the Marketing will become the basic basic motivating forcemotivating force for the entire for the entire

company…”company…”

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Customer-Driven Marketing

• Twenty years ago, how many consumers would have thought to ask for laptops, wireless headsets, cell phones, MP3 players, PDAs, and digital cameras?

• Marketers must often understand customer needs even better than customers themselves do.

• “The public doesn’t know what is possible, but we do.” -Sony

• “Our goal is to lead customers where they want to go before they know where they want to go.” – 3M

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The Integrated Marketing Plan

• Transforms the marketing strategy into Transforms the marketing strategy into action.action.

• Includes the marketing mix and the Includes the marketing mix and the 4 P4 P’’s of marketing:s of marketing:– ProductProduct– PricePrice– Place Place – PromotionPromotion 4 4

P’sP’s

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Customer Relationship Management

The overall process of The overall process of building and maintaining building and maintaining

profitable customer profitable customer relationships by delivering relationships by delivering superior customer value superior customer value

and satisfaction.and satisfaction.

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Building Customer Relationships

• Customer Relationship Management Customer Relationship Management (CRM):(CRM):– CRM deals with all aspects of CRM deals with all aspects of

acquiring, keeping, and growing acquiring, keeping, and growing customers.customers.

– Customer value and satisfaction Customer value and satisfaction are key.are key.

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Customer Perceived Value

Customer’s evaluation of the Customer’s evaluation of the difference between all of the difference between all of the benefits and all of the costs benefits and all of the costs of a marketing offer relative of a marketing offer relative to those of competing offers.to those of competing offers.

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Customer Perceived Value

• Customer perceived value:Customer perceived value:– Perceptions may Perceptions may

be subjective. be subjective. – Consumers often Consumers often

do not objectively do not objectively judge values and judge values and costs.costs.

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Customer Satisfaction• Customer satisfaction:Customer satisfaction:

– High levels of customer High levels of customer satisfaction often leads to satisfaction often leads to consumer loyalty.consumer loyalty.

– Some firms seek to Some firms seek to DELIGHT customers by DELIGHT customers by exceeding expectations.exceeding expectations.

– Profitability must be Profitability must be considered.considered.

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Customer Relationships

• Firms may choose to build relationships at Firms may choose to build relationships at different levelsdifferent levels

• Loyalty and retention programs build Loyalty and retention programs build relationships and may feature:relationships and may feature:– Financial BenefitsFinancial Benefits

•E.g., frequency marketing programsE.g., frequency marketing programs– Social BenefitsSocial Benefits

•E.g., club marketing programsE.g., club marketing programs– Structural TiesStructural Ties

• Focus is on relating Focus is on relating directlydirectly to to profitableprofitable customers, for the customers, for the long termlong term..

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Changing Nature of Relationships

• Selective Relationship Management:Selective Relationship Management:– Customer profitability analysis eliminates Customer profitability analysis eliminates

losing customers and selects profitable ones.losing customers and selects profitable ones.

• Relating more deeply and interactively via Relating more deeply and interactively via blogs, social network Web sites, email, and blogs, social network Web sites, email, and video sharing.video sharing.– Marketing by attraction vs. intrusion.Marketing by attraction vs. intrusion.

• Increased amounts of consumer generated Increased amounts of consumer generated marketing.marketing.

- i.e., Threadless, a young Chicago-based fashion - i.e., Threadless, a young Chicago-based fashion companycompany

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Customer-Managed Relationships

•Marketing relationships in which Marketing relationships in which customers, empowered by digital customers, empowered by digital technologies, interact with companies technologies, interact with companies and with each other to shape their and with each other to shape their relationships with brandsrelationships with brands

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Consumer-Generated Marketing

• Brand exchanges Brand exchanges created by created by consumers by consumers by which consumers which consumers play an increasing play an increasing role in shaping role in shaping their own brand their own brand experiences and experiences and those of other those of other consumersconsumers

Harnessing consumer-generated marketing: H. J. Heinz invited

consumers to submit homemade ads for its ketchup brand on

YouTube

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Partner Relationship Management

• Working closely with others inside Working closely with others inside and outside the company to jointly and outside the company to jointly bring more value to customersbring more value to customers

• Partners inside the firm:Partners inside the firm:– Cross-functional teamsCross-functional teams

• Partners outside the firm:Partners outside the firm:– Supply chain and channel partnersSupply chain and channel partners

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Capturing Value from Customers

• Superior customer Superior customer value results in:value results in:– Customer loyalty Customer loyalty

and retentionand retention– A growing share A growing share

of customersof customers– Customer equityCustomer equity

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Customer Loyalty & Retention

Customer Customer Lifetime ValueLifetime Value

The entire stream of The entire stream of purchases that the purchases that the

customer customer would make would make

over a lifetime over a lifetime of patronage.of patronage.

Share of Share of CustomerCustomer

The share a company The share a company gets of gets of

the customers the customers purchasing in purchasing in their product their product categories.categories.

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Customer Lifetime Value

To keep customers coming back, Stew Leonard’s has created the “Disneyland of dairy stores.” Rule #1—the customer is always right. Rule #2—if the customer is ever wrong, reread Rule #1.

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Customer Equity

• Customer equity Customer equity is the total is the total combined combined customer customer lifetime values of lifetime values of all the all the companycompany’’s s customers.customers.

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Customer Relationship Groups

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Customer Relationship Management

Drunkenness Drunkenness -- The employee perceives the customer to be -- The employee perceives the customer to be clearly intoxicated and creating problems such as harassing clearly intoxicated and creating problems such as harassing other customers nearby, giving the employee a hard time, or other customers nearby, giving the employee a hard time, or disrupting the atmosphere of the establishment. disrupting the atmosphere of the establishment.

Verbal and physical abuse Verbal and physical abuse -- The customer verbally and/or -- The customer verbally and/or physically abuses either the employee or other customers. physically abuses either the employee or other customers.

Breaking company policies or laws Breaking company policies or laws -- The customer -- The customer refuses to comply with policies or laws, and the employee refuses to comply with policies or laws, and the employee attempts to enforce compliance.attempts to enforce compliance.

Uncooperative customers Uncooperative customers -- The customer is generally rude -- The customer is generally rude and uncooperative or unreasonably demanding. From the and uncooperative or unreasonably demanding. From the employee's perspective, the customer is unwilling to be employee's perspective, the customer is unwilling to be satisfied, no matter what is done for him or her. satisfied, no matter what is done for him or her.

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The Changing Marketing Landscape

• Economic Economic uncertaintiesuncertainties

• Growth in digital Growth in digital technologytechnology

• Rapid globalizationRapid globalization

• Sustainable Sustainable marketing marketing

• Growth of not-for-Growth of not-for-profit marketingprofit marketing

In the current economic environment, companies must

emphasize the value in their value propositions, as Target did when it shifted the balance more toward the “Pay Less” half of its “Expect

More. Pay Less” positioning

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Marketing at Work

• The recession from The recession from 2008 to 2009 2008 to 2009 undermined undermined consumer consumer confidenceconfidence

• The post-recession The post-recession era has seen a shift era has seen a shift in spending in spending patterns, with patterns, with consumers consumers becoming more becoming more frugalfrugal

Even as the economy strengthens, rather than reverting to their old

free-spending ways, Americans are now showing an enthusiasm for

sensible consumption not seen in decades

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Figure 1.6 - An Expanded Model of the Marketing Process

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Rest Stop: Reviewing the Concepts

• Define marketing and outline the steps in the Define marketing and outline the steps in the marketing processmarketing process

• Explain the importance of understanding customers Explain the importance of understanding customers and the marketplace and identify the five core and the marketplace and identify the five core marketplace conceptsmarketplace concepts

• Identify the key elements of a customer-driven Identify the key elements of a customer-driven marketing strategymarketing strategy

• Discuss customer relationship management and Discuss customer relationship management and identify strategies for creating value for customers and identify strategies for creating value for customers and capturing value from customers in returncapturing value from customers in return

• Describe the major trends and forces that are changing Describe the major trends and forces that are changing the marketing landscape in this age of relationshipsthe marketing landscape in this age of relationships

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