CHAPTER 1

Marketing: Creating and Capturing Customer ValueObjective: Introducing the basic

concepts and philosophies of marketing.

What is Marketing?

Marketing is the management of creating and exchanging products and value in order to satisfy the needs and wants at a profit.

The goal of marketing is; to attract new customers by promising

superior value (e.g. Ritz-Carlton “memorable experiences”, “Always Coca Cola”)

to keep and grow current customers by delivering satisfaction.

What is Marketing?

Marketing is managing profitable customer

relationships

Marketing is NOT synonymous with “sales” or “advertising”

What Can Be Marketed?What Can Be Marketed?

GoodsGoods Services (information, experiences ...)Services (information, experiences ...) PlacesPlaces EventsEvents PersonsPersons PropertiesProperties OrganizationsOrganizations IdeasIdeas

The Marketing ProcessThe Marketing Process

Figure 1-1A simple modelof the marketingprocess.

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Figure 1-1A simple modelof the marketingprocess.

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Figure 1-1A simple modelof the marketingprocess.

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Core Concepts of Core Concepts of MarketingMarketing

Needs, wants, and demansNeeds, wants, and demans Marketing offers (products, services Marketing offers (products, services

etc.)etc.) Value and satisfactionValue and satisfaction Exchange, transactions and Exchange, transactions and

relationshipsrelationships MarketsMarkets

Needs, Wants, and Needs, Wants, and DemandsDemands

Consumers have needs (physical, Consumers have needs (physical, social, individual etc.) wants, and social, individual etc.) wants, and demands to be satisfied. Consumers demands to be satisfied. Consumers view products as bundles of value view products as bundles of value (benefits) and choose products that (benefits) and choose products that give them the best value for their give them the best value for their money. E.g. Honda Civic money. E.g. Honda Civic transportation, low price, fuel transportation, low price, fuel economy; Mercedes economy; Mercedes comfort, luxury, comfort, luxury, status status

Products A product (persons, places, organizations,

activities, ideas) is anything that can satisfy a need or want. Producers must see themselves as providing a solution to a need rather than just selling a product. Otherwise, when a new product satisfies the needs better or less expensively, they would not make money.

Research is a must to understand the needs and wants of the customers to produce the right product. E.g. At Disney World, each manager spends a day in the park in a Mickey costume or work on the front line - taking tickets,

selling pop-corn.

Value, Satisfaction, and Quality

How do customers choose among these many products? Consumers make choices based on; Value; is the difference between owning

the product and the cost of obtaining the product, in an way “profit” to the customer. Customers do not judge product values objectively, on the contrary they act on perceived value. E.g. Is Hilton really the best hotel company?

Satisfaction; is the difference between the product’s performance and buyer’s expectations. If the product’s performance falls short of expectations, the buyer is dissatisfied. If the performance matches or exceeds expectations, the buyer is satisfied. Smart companies aim to satisfy customers by promising only what they can give, then giving more than they promise. Benefit of satisfying customers: Customer satisfaction create an emotional tie (customer loyalty) to a product. Highly satisfied customers make (1) repeat purchases, (2) are less price sensitive, (3) talk positively to their friends.

Quality; simply quality can be defined as “freedom from defects”. Today, most companies define quality in terms of customer satisfaction. E.g. according to Motorola “if the customer doesn’t like the product, it’s a defect”. Quality starts with customer needs and ends with customer satisfaction. The concept of “total quality management” is in a away “total customer satisfaction”. Improving the quality of a product that customers want increases customer satisfaction, therefore increases profit.

Exchange, Transactions, and Relationships

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

Exchange (transaction) is the act of getting an object (product, service, idea …) from someone by giving something in return.

Marketing should create mutually beneficial relationships (good for both parties) to generate profitable transactions.

Marketing is the art of attracting and keeping profitable customers.

Markets

A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through exchanges and relationships.

The size of the market depends on the number of people (1) who have the need, (2) have resources (money) for the exchange and (3) want to spend these resources in the exchange.

In summary,

Marketing means managing markets to bring about exchanges and relationships for the purpose of creating value and satisfying needs and wants while making profit.

Exchange process involve work. Marketers must identify customer needs, design right products, set right prices, promote and deliver (place) the products in the right ways.

Marketing Management

Marketing management is “the art and science of choosing target markets and building profitable relationships with them.” Creating, delivering and

communicating superior value is key.

Marketing ManagementMarketing Management

Customer management:Customer management: Marketers select customers that can be Marketers select customers that can be

served well and profitably.served well and profitably.

Demand management:Demand management: Marketers must deal with different Marketers must deal with different

demand states ranging from no demand demand states ranging from no demand to too much demand. to too much demand.

Marketing Management Philosophies

There are five concepts that organizations conduct their marketing activities: Production, Product, Selling, Marketing Societal marketing concepts.

The Production ConceptThe Production Concept The Production Concept; holds that

consumers will favor products that are available and highly affordable. Here, the management focus on improving production and distribution. This oldest philosophy is useful in two types of situation. (1) when the demand for a product exceeds the supply (2) when the product’s cost is too high and improved productivity is needed to bring it down. E.g. Henry Ford’s “Model T”, TI watches.

The Product ConceptThe Product Concept

The Product Concept; holds that consumers favor products that offer the most quality, performance and innovative features. Here, the organization should focus on making continuous product improvement.

The Selling ConceptThe Selling Concept

The Selling Concept; holds that consumers do not buy enough products if there are not large-scale selling and promotion effort. Most companies use the selling concept when they have overcapacity. This concept focuses on creating sales transactions rather than on building long-term, profitable relationships with customers.

The Marketing ConceptThe Marketing Concept

The Marketing Concept; holds that achieving organizational goals (making profit) depends on understanding the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. E.g. Disney, McDonald’s, Bosch… are customer-driven companies.

The Societal Marketing The Societal Marketing ConceptConcept

The Societal Marketing ConceptThe Societal Marketing Concept; holds that ; holds that the organization should not only satisfy the the organization should not only satisfy the needs and wants but also improve both needs and wants but also improve both customer’s and society’s well-being. This customer’s and society’s well-being. This newest philosophy focus on customer long-newest philosophy focus on customer long-term welfare, since today we have term welfare, since today we have environmental problems, resource shortages, environmental problems, resource shortages, population growth etc. E.g. Critics against population growth etc. E.g. Critics against fast-food restaurants that food has a lot of fat fast-food restaurants that food has a lot of fat and salt harmful for health, a lot of packaging and salt harmful for health, a lot of packaging increasing waste and pollution. Here, the increasing waste and pollution. Here, the companies try to balance (1) company profits, companies try to balance (1) company profits, (2) consumer wants, (3) society’s interests. (2) consumer wants, (3) society’s interests.

CRMCRM Attracting, retaining and growing Attracting, retaining and growing

customerscustomers Customer value and satisfactionCustomer value and satisfaction Loyalty and retentionLoyalty and retention Growing customer share (cross-selling)Growing customer share (cross-selling)

Building relationships and customer equityBuilding relationships and customer equity Customer equity: Total combined Customer equity: Total combined customer customer

lifetime valueslifetime values of all customers (e.g. Cadillac of all customers (e.g. Cadillac – high-performance designs that target a – high-performance designs that target a younger generation of consumers). Measures younger generation of consumers). Measures firm’s performance in a future-looking manner.firm’s performance in a future-looking manner.