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CHAPTER 1MARKETING IN A CHANGING WORLD: CREATING CUSTOMER

VALUE AND SATISFACTION

CHAPTER OBJECTIVES

1. Define what marketing is and discuss its core concepts.

2. Explain the relationships between customer value, satisfaction, and quality.3. Define marketing management and understand how marketers manage demand and

build profitable customer relationships.

4. Compare the five marketing management philosophies.

5. Analyze the major challenges facing marketers headings into the next century.

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, butcustomer-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 exchangingproducts 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. Marketing and its core concepts, the exchange relationship, a brief description ofmarketing management, the five major philosophies of marketing thought and practice,

marketing challenges in the new millennium, marketings relationship to the informationtechnology boom and the Internet, and the new marketing landscape are the topics presented inthis introductory chapter.

CHAPTER OUTLINE

1. Introduction

a. Todays successful companies at all levels have one thing in common.b. All successful companies are strongly customer focused and heavily committed

to marketing.

c. To be successful an organization motivates everyone in the organization toproduce superior value for their customers, leading to high levels of customer

satisfaction.

2. What is Marketing?

a. Creating customer value and satisfaction are at the very heart of modern

marketing thinking and practice.

b. A very simple definition of marketing is that it is the delivery of customer

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satisfaction at a profit.

c. You already know a lot about marketing--its all around you.

Marketing Defined

d. Many people think of marketing only as selling and advertising.

1). Marketing is no longer telling and selling.2). Marketings new sense is concerned with satisfying customer needs.

e. Marketingis defined as a social and managerial process by which individuals and

groups obtain what they need and want through creating and exchanging productsand value with others.

*****Use Key Term marketing Here; Use Chapter Objective #1 Here; Use Discussing

the Issues #1 Here; Use Figure 1-1 Here; Use Power Point 1-2, 1-3 Here *****

Needs, Wants, and Demands

c. Human needs are the most basic concept underlying marketing. A human needis

a state of felt deprivation.1). Humans have many complex needs.

a). Basic, physical needs for food, clothing, warmth, and safety.b). Social needs for belonging and affection.

c). Individual needs for knowledge and self-expression.

2). These needs are part of the basic human makeup.

d. Another concept in marketing is human wants. A human wantis the form that ahuman need takes as shaped by culture and individual personality.

e. Demands are human wants that are backed by buying power.

1). Consumers view products as bundles of benefits and choose products that givethem the best bundle for their money.

2). People demand products with the benefits that add up to the most satisfaction.

f. Outstanding marketing companies go to great lengths to learn about andunderstand their customers needs, wants, and demands.

g. The outstanding company strives to stay close to the customer.

*****Use Key Terms needs, wants, and demands Here; Use Power Point 1-3, 1-4

Here*****

Products and Servicesh. A productis anything that can be offered to a market to satisfy a need or want.

A service is an activity or benefit offered for sale that is essentially intangible and

does not result in the ownership of anything.1). The concept of product is not limited to physical objects and can include

persons, places, organizations, activities, and ideas.

2). Be careful of paying attention to the product and not the benefit being satisfied.3). Marketing myopia is caused by shortsightedness or losing sight of underlying

customer needs by only focusing on existing wants.

*****Use Key Terms product and service Here; Use Power Point 1-3, 1-5 Here*****

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Value, Satisfaction, and Quality

i. Customer value is the difference between the values that the customer gains fromowning and using a product and the costs of obtaining the product. Customers do

usually judge product values and costs accurately or objectively--they act on

perceived value.j. Customer satisfaction depends on a products perceived performance in delivering

value relative to a buyers expectations. If performance exceeds expectations, the

buyer is delighted (certainly a worthy goal of the marketing company).1). Smart companies aim to delight customers by promising only what they can

deliver, then delivering more than they promise.

2). The aim of successful companies today is total customer satisfaction.

3). Customer delight creates an emotional affinity for a product or service, not justa rational preference, and this creates high customer loyalty.

4). Quality has a direct impact on product or service performance. Quality is

defined in terms of customer satisfaction.

k. The term total quality management (TQM) is an approach in which all thecompanys people are involved in constantly improving the quality of products,

services, and business processes. Marketers have two major responsibilities in aquality-centered company:

1). They must participate in forming strategies that will help the company win

through total quality excellence--they must be the customers watchdog.

2). Marketers must deliver marketing quality as well as production quality.

*****Key Terms customer value, customer satisfaction, and total quality

management (TQM) Here; Use Chapter Objective #2 Here; Use Discussing

the Issues #2 Here; Use Marketing At Work 1-1 Here; Use Power Point 1-3, 1-6

Here*****

Exchanges, Transactions, and Relationships

l. Marketing occurs when people decide to satisfy needs and wants through exchange.

Exchange is the act of obtaining a desired object from someone by offering some-thing in return.

1). Exchange is only one of many ways to obtain a desired object.

2). Exchange allows a society to produce much more than it would with any

alternative system.m. Whereas exchange is a core concept of marketing, a transaction (a trade of values

between two parties) is marketings unit of measurement. A transaction usually

involves at least two things of value, agreed-upon conditions, a time of agreement,and a place of agreement. Most involve money, a response, and action.

n. Transactions in marketing are part of a larger idea ofrelationship marketing.

Beyond creating short-term transactions, marketers need to build long-termrelationships with valued customers, distributors, dealers, and suppliers.

Ultimately, a company wants to build a unique company asset called a marketing

network (the company and all its supporting stakeholders). The goal of

relationship marketing is to deliver long-term value to the customer and thereby

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secure customer satisfaction and retention of patronage. To build this relationship

(beyond offering consistently high value and satisfaction), the marketer can:

1). Add financial benefits.2). Add social benefits.

3). Add structural ties.

4). Seek profitable customers.

*****Use Key Terms exchange, transaction, and relationship marketing Here; Use

Discussing the Issues #2 Here; Use Power Point 1-3, 1-7, 1-8, 1-9 Here*****

Markets

o. The concepts of exchange and relationships lead to the concept of a market. A

marketis the set of actual and potential buyers of a product.1). Originally a market was a place where buyers and sellers gathered to exchange

goods (such as a village square).

2). Economists use the term to designate a collection of buyers and sellers who

transact in a particular product class (as in the housing market).3). Marketers see buyers as constituting a market.

4). Modern economies operate on the principle of division of labor, where eachperson specializes in producing something, receives payment, and buys needed

things with this money. Thus, modern economies abound in markets.

*****Use Key Term market Here; Use Power Point 1-10 Here*****

Marketing

p. The concept of markets brings one full circle to the concept of marketing.1). Sellers must search for buyers, identify their needs, design good products and

services, set prices for them, promote them, and store and deliver them.

2). A modern marketing system includes all of the elements necessary to bringbuyers and sellers together.

*****Use Figure 1-2 Here; Use Power Point 1-11 Here; Discuss Speed Bump (Power

Point 1-12) Here*****

3. Marketing Management

a. Marketing managementis defined as the analysis, planning, implementation, andcontrol of programs designed to create, build, and maintain beneficial exchanges

with target buyers for the purpose of achieving organizational objectives.

*****Use Key Term marketing management Here; Use Chapter Objective #3 Here;

Use Power Point 1-13 Here*****

Demand Management

b. Marketing management is concerned not only with finding and increasing demand,

but also with changing or even reducing it.

1). Demarketings aim is to reduce demand temporarily or permanently (move

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traffic away from a popular tourist attraction during peak demand times).

2). In reality, marketing management is really demand management.

*****Use Key Term demarketing Here; Use Power Point 1-13 Here*****

Building Profitable Customer Relationshipsc. Managing demand means managing customers.

1). Demand comes from new customers and repeat customers.

2). Today, besides making efforts to attract new customers, marketers are going allout to retain and build relationships with existing customers. It costs five

times as much to attract a new customer as it does to keep a current customer

satisfied.

d. Because of changing demographics, a slow-growth economy, more sophisticatedcompetitors, and overcapacity in many industries, many markets and market shares

are shrinking.

e. The key to successful customer retention is superior customer value and satis-

faction.

*****Use Chapter Objective #3 Here; Use Marketing At Work 1-2 Here; Use Power

Point 1-13 Here*****

4. Marketing Management Philosophies

a. There are five alternative concepts under which organizations conduct their market-ing activities: the production, product, selling, marketing, and societal marketing

concepts.

*****Use Chapter Objective #4 Here; Use Discussing the Issues #3 Here; Use Power

Point 1-14 Here*****

The Production Concept

b. The production conceptholds that consumers will favor products that are available

and highly affordable and that management should, therefore, focus on improvingproduction and distribution efficiency. This is one of the oldest philosophies that

guides sellers.

c. The production concept is useful when:

1). Demand for a product exceeds the supply.2). The products cost is too high and improved productivity is needed to bring it

down.

d. The risk with this concept is in focusing company operations too narrowly. Donot ignore the desires of the market.

*****Use Key Term production concept Here; Use Power Point 1-14 Here*****

The Product Concept

e. The product conceptstates that consumers will favor products that offer the most

quality, performance, and features. The organization should, therefore,

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devote its energy to making continuous product improvements.

1). Some manufacturers mistakenly believe that if they build a better mousetrap,

consumers will beat a path to their door just for their product.2). The product concept can also lead to marketing myopia, the failure to see the

challenges being presented by other products.

*****Use Key Term product concept Here; Use Power Point 1-14 Here*****

The Selling Conceptf. Many organizations follow the selling concept. The selling conceptis the idea that

consumers will not buy enough of the organizations products unless the organiza-

tion undertakes a large-scale selling and promotion effort.

1). This concept is typically practiced with unsought goods (those that buyers donot normally think of buying).

2). To be successful with this concept, the organization must be good at tracking

down the interested buyer and selling them on product benefits.

3). Industries that use this concept usually have overcapacity. Their aim is to sellwhat they make rather than make what will sell in the market.

4). There are not only high risks with this approach but low satisfaction bycustomers.

*****Use Key Term selling concept Here; Use Power Point 1-14, 1-15 Here*****

The Marketing Concept

g. The marketing conceptholds that achieving organizational goals depends on

determining the needs and wants of target markets and delivering the desiredsatisfactions more effectively and efficiently than competitors.

h. The marketing and selling concepts are often confused. The primary differences

are:1). The selling concept takes an inside-out perspective (focuses on existing

products and uses heavy promotion and selling efforts).

2). The marketing concept takes an outside-in perspective (focuses on customerneeds, values, and satisfactions).

i. Many companies claim to adopt the marketing concept but really do not unless they

commit to market-focused and customer-driven philosophies.

*****Use Key Term marketing concept Here; Use Figure 1-3 Here; Use Power Point

1-14 and 1-15 Here*****

The Societal Marketing Concept

j. The societal marketing conceptholds that the organization should determine the

needs, wants, and interests of target markets. It should then deliver the desiredsatisfactions more effectively and efficiently than competitors in a way that

maintains or improves the consumers and the societys well-being.

1). The societal marketing concept is the newest of the marketing philosophies.

2). It questions whether the pure marketing concept is adequate given the wide

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variety of societal problems and ills.

3). According to the societal marketing concept, the pure marketing concept

overlooks possible conflicts between short-run consumer wants and long-run consumer welfare.

4). The societal concept calls upon marketers to balance three considerations in

setting their marketing policies:a). Company profits.

b). Customer wants.

c). Societys interests.5). It has become good business to consider and think of societys interests when

the organization makes marketing decisions.

*****Use Key Term societal marketing concept Here; Use Discussing the Issues #4

Here; Use Figure 1-4 Here; Use Power Point 1-14 and 1-16 Here; Discuss

Speed Bump (Power Point 1-17) Here*****

5. Marketing Challenges into the Next Century a. Marketing operates within a dynamic global environment.

b. Todays companies are wrestling with:1). Changing customer values and orientations.

2). Economic stagnation.

3). Environmental decline.

4). Increased global competition.5). And a host of other economic, political, and social problems.

Growth of Nonprofit Marketingc. In recent years marketing has become a major component in the strategies of

many nonprofit organizations (such as colleges, hospitals, museums, symphony

orchestras, and even churches).d. Organizations such as hospitals (seeking to find out what customers want), the

YMCA (trying to attract new members), the U. S. Army (designing social

marketing campaigns), and the U. S. Postal Service (selling stamps through themail) have all learned the value of marketing procedures and techniques.

The Information Technology Boom

e. The boom in computer, telecommunications, and information technology, as wellas the merging of these technologies, has had a major impact on the way

businesses produce and market their products.

f. The Information Superhighway (and its backbone--the Internet) will linkcustomers to companies in ways that were unimagined only a few years ago.

The Internetis a vast and burgeoning global web of computer networks, with no

central management or ownership. The user-friendly World Wide Web haschanged us all.

g. As information technology becomes more user-friendly, the astute marketer will

learn how to use the various systems to increase business and better serve the

customer of tomorrow.

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*****Use Key Term Internet Here; Use Discussing the Issues #5 Here*****

Rapid Globalization

h. Geographical and cultural differences and distances have shrunk dramatically in

the last decade.i. Today, almost every company, large or small, is touched in some way by global

competition.

1). American firms are challenged by international competitors in their oncesafe domestic market.

2). Companies are not only exporting, but buying more components and supplies

from abroad.

3). Domestically purchased goods and services are hybrids (with componentscoming from many international sources).

4). The secret for business success in the next century will be to build good

global networks.

*****Use Marketing At Work 1-3 Here*****

The Changing World Economy

j. A sluggish world economy has resulted in more difficult times for both

consumers and marketers.

k. Downsizing (to cut costs) has dramatically affected purchasing power.l. Current economic conditions create both problems and opportunities.

The Call For More Ethics And Social Responsibilitym. The ethics and environmental movements will place even stricter demands on

companies in the future.

n. Environmental responsibility cannot be ignored.

The New Marketing Landscape

o. Companies of every sort learned that they cannot remain inwardly focused,ignoring the needs of consumers and their environment.

p. Companies must become consumer oriented and market driven.

q. Inward (social responsibility) and outward (customer orientation) values will

remain a constant measure of success.

*****Use Chapter Objective #5 Here; Use Video Case 1 Here; Use Rest Stop (Power

Point 1-18) Here*****

TRAVEL LOG--DISCUSSING THE ISSUES

1. Answer the question What is marketing?

Marketing, more than any other business function, deals with customers. Creating customer

value and satisfaction are at the very heart of modern marketing thinking and practice. The

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simplest definition of marketing is the delivery of customer satisfaction at a profit. The goal of

marketing is to attract new customers by promising superior value, and to keep current customers

by delivering satisfaction.Marketing is much more than selling and advertising. Today, marketing must be

understood beyond the old telling and selling. The new direction is that of satisfying customer

needs. Therefore, the definition used in the text is that marketing is a societal and managerialprocess by which individuals and groups obtain what they need and want through creating and

exchanging products and value with others. For additional information see Figure 1-1.

2. Discuss the concept of customer value and its importance to successful marketing. How are

the concepts of customer value and relationship marketing linked?

Customers usually face a broad array of products and services that might satisfy a given

need. Customers make their buying choices based on their perceptions of the value that variousproducts and services deliver.

Customer value is the difference between the values the customer gains from owning and

using a product and the costs of obtaining the product. Since customers often do not judge

product values and costs accurately or objectively, marketers must gear efforts toward perceivedvalue on the part of the consumer.

Customer satisfaction depends on a products perceived performance in delivering valuerelative to a buyers expectations. If performance matches expectations, the buyer is satisfied. If

performance exceeds expectations, the buyer is delighted. Smart companies aim to delight

customers by promising only what they can deliver, then delivering more than they promise.

In the broadest sense, the marketer tries to bring about a response to some offer. Thistransaction relationship is part of the larger idea of relationship marketing. Beyond creating

short-term transactions, marketers need to build long-term relationships with valued customers,

distributors, dealers, and suppliers. Strong customer value appreciation helps to solidify therelationship between the marketer and various concerned publics. The idea is to build a strong

relationship and network with key stakeholders and profits will follow.

3. Identify the single biggest difference between the marketing concept and the production,

product, and selling concepts. Discuss which concepts are easier to apply in the short-run.

Discuss which concepts are easier to apply in the short run. Which concept offers the best

long-run success? Why?

The purpose of this question is to get students to understand the marketing concept better,

and to see how it is different from other philosophies. The key difference between the marketing

concept and the production, product, and selling concepts is its basic focus. The marketingconcept begins with the needs and wants of the consumer. A true marketing company achieves

its success by fulfilling its customers' desires.

The production, product, and selling concepts all focus on the needs of the seller. Theproduction and product concepts begin with the product, and assume it will generate demand

because of price, availability, or quality. The selling concept begins with the product to be sold,

and tries to generate demand for it.The production, product, and seller-based concepts are the easiest to apply in the short-

run. The company does not need to redefine its business, it just works harder: more efficiency, a

better product, harder selling. But these measures are only successful if consumer needs are met.

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The marketing concept is more difficult to apply. It requires careful study and flexibility

to meet the needs of sometimes fickle consumers. This may require a business to rethink its

entire mission. But if consumer needs and wants are not met, the business will eventually fail.

4. According to economist Milton Friedman, Few trends could so thoroughly undermine the

very foundations of our free society as the acceptance by corporate officials of a socialresponsibility other than to make as much money for their stockholders as possible. Do you

agree or disagree with Friedmans statement? What are some drawbacks of the societal

marketing concept?

The quote is from Dr. Friedman's Capitalism and Freedom (The University of Chicago

Press, 1962). Friedman supports his argument with several questions (also see John F. Gaski,

"Dangerous Territory: The Societal Marketing Concept Revisited," Business Horizons, July-

August 1985, pp. 42-47). If businesses do have a social responsibility other than maximizingprofits, how are they to know what that responsibility is? Should unelected private individuals

decide what the social interest is? How great a burden are they justified in placing on their

stockholders (in lost profits) in serving that social interest?

Dr. Friedman is referring to profit maximization "within the rules of the game"--that is,open competition without deception or fraud. This qualification eliminates many of the abuses

resulting from attempts to maximize profits that are described in Chapter 16. It does not addressthe concerns discussed under "The Societal Marketing Concept," environmental pollution, world

hunger, and so on. Should packaged-goods manufacturers, for example, act to reduce pollution

by spending millions of dollars to develop a biodegradable alternative to plastic containers if

they cannot get their investment back through lower costs or higher prices? Who should pay forthe costs of this research, the companies' stockholders or customers?

A good way of discussing this question is to take both sides of the issue to extremes.

Total social responsibility might prevent people from being able to buy the products they want--bicycles, presweetened breakfast cereals, fatty luncheon meats, and so on. Total profit

maximization might increase prices or pollution, cause safety risks, and reduce the services

offered to disadvantaged and less profitable market segments. Either extreme would beunacceptable to most consumers.

5. As indicated in the text, the explosive growth in computer, telecommunications, and

information technology has had a major impact on the way companies bring value to their

customers. List and briefly explain five ways this trend has affected the average consumer

and their purchasing habits. Be sure to include in your discussion the impact of the Internet

on marketing practices.

The technology boom has created exciting new ways to learn about and track customers,

create products and services tailored to meet customer needs, distribute products more

effectively, provide new ways to advertise products and services, and communicate withcustomers in large groups or one-to-one.

For example, companies can now build accurate and up-to-date databases, solicit and

receive feedback on how to better design products and services, provide an additional avenue fordistribution beyond traditional means (some products can be directly downloaded on to the

consumers personal computer), the Internet provides an excellent source for advertising to the

wired-in consumer, and E-mail can reach consumers daily at a fraction of the cost of

traditional communication formats.

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Internet usage surged in the 1990s with the development of the user-friendly World Wide

Web. More than 60 million people surf the Internet each month, up from 1 million people in late

1994. There may be as many as 4 to 6 million Web Sites worldwide, and these numbers aregrowing explosively. Almost all forms of business are setting up shop on the Internet (which in

turn encourages more people to use the Internet). The only major problem that must be solved in

this new form of commerce is how to handle security. More information is found in Chapter 14.

TRAVEL LOG--CONCEPT CHECKS

The following are answers to the Concept Checks questions found at the end of the chapter.

These answers appear in the text for the convenience of the students.

1. Marketing

2. Satisfying customer needs

3. Product; Product

4. Customer value

5. Delight; Delight

6. Total customer satisfaction

7. Relationship marketing

8. Market

9. Production; Product; Selling; Marketing; and Societal Marketing Concepts

10. Marketing Concept

SUGGESTED MAP REFERENCES

The following references will be useful for MAP Stop 1 found at the end of Chapter 1. It is

suggested that these references be given to the student in advance of the assignment found in

MAP Stop 1.

1. Burrows, Peter, Oh, Do I Love My iMAC. Business Week, October 5, 1998,

p. 46.

2. Kantrowitz, Barbara, At Last, a Really Big Mac. Business Week, September 28,

1998, p. 85.

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