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Marketing: Managing Profitable Marketing: Managing Profitable Customer RelationshipsCustomer Relationships

Lecture # 1 26-09-2010

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What is Marketing?

• Marketing is managing profitable customer relationships

– Attracting new customers

– Retaining and growing current customers

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

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Marketing Defined

• Marketing consists of the strategies and tactics used to identify, create and maintain satisfying relationships with customers that result in value for both the customer and the marketer

• Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others

• The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return

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The Marketing Process

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The Marketing Process

Build profitable relationships and

Create customer delight

Design a customer driven marketing

strategy

Capture value from customers to create profits and customer

quality

Construct a marketing program that delivers

superior value

Understand the market place andCustomer needs

and wants

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1. Understanding the Marketplace

and Consumer Needs

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Core Customer and Marketplace Concepts

• Needs, Wants, and Demands

• Marketing Offers

• Value and Satisfaction

• Exchange, Transactions, and Relationships

• Markets

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Needs, Wants, and Demands

• Needs

A state of felt deprivation. The basic human requirements

• WantsThe form taken by a human needs as shaped by culture and individual personality. Wants are described in terms of objects that will satisfy needs

• DemandsHuman wants that are backed by buying power

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Needs, Wants, and Demands

• People need food, air, water, clothing, and shelter to survive. People also have strong needs for creation, education, and entertainment

• The above needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but may want a hamburger, French fries, and a soft drink. A person in Mauritius needs food but may want a mango, rice, lentils, and beans. Wants are shaped by one's society and are described in terms of objects that will satisfy needs

• Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few are willing and able to buy one

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Marketing Offers

• Some combination of products, services, information, or experiences offered to a market to satisfy a need or want. Marketing offers also include persons, places, organizations, ideas

• Marketing Myopia?

Focus only on existing wants and lose sight of underlying customer needs. Forgetting the fact that product is only the tool to solve consumer problem

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Customer Value and Satisfaction

• Key building blocks for developing and managing customer relationships

• Customer Value is the difference between the values the customer gains from owning and using the product and the costs of obtaining the product

• Customer Satisfaction is the extent to which a product’s

perceived performance matches a buyer’s expectation

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Markets

““The set of all actual and potential buyers of a product or The set of all actual and potential buyers of a product or service.”service.”

Types of MarketTypes of Market Pure competitionPure competition Many buyers and many seller trading in a Many buyers and many seller trading in a

uniform commodity e.g. wheat, vegetables etcuniform commodity e.g. wheat, vegetables etc

Monopolistic competition Monopolistic competition Many buyers and sellers who trade over a Many buyers and sellers who trade over a range of prices range of prices

Oligopolistic competition Oligopolistic competition Few sellers who are highly sensitive to Few sellers who are highly sensitive to each other pricing and marketing strategieseach other pricing and marketing strategies

Pure Monopoly Pure Monopoly Market consist of one sellerMarket consist of one seller

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Exchange, Transactions, and Relationships

• Exchange

The act of obtaining a desired object from someone by offering something in return.

Transactions

A trade of values between two parties

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2. Designing a Customer Driven Marketing Strategy

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Marketing Management

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

customer value is key.– Demarketing

Marketing to reduce demand temporarily or permanently; the aim is not to destroy the demand but only to reduce or shift it.

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• What customers will we serve? (Target Market)• How can we serve these customers best? (Value

proposition)

• Value Proposition

The set of benefits or values it promises to deliver to consumers to satisfy their needs. Answers the customer’s question “Why should I buy your brand rather than a competitor’s?” e.g. Nestle Pure drinking water, BlackBerry connectivity on the go, K&N’s healthy and safe chicken etc

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Marketing Management OrientationsManagement Orientations

• Product Concept

– The product philosophy holds that the organization knows its product better than anyone or any organization. The company knows what will work in designing and producing the product and what will not work. This confidence in their ability is not a radical concept, but the confidence leads to the consumer being overlooked.

– Dominant era: Prior to the Industrial Revolution and continued to the 1920s

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Marketing Management OrientationsManagement Orientations

• Production Concept Demand for a product is greater than supply. – To increase profit, focus on production efficiencies knowing

all output can be sold. Also useful concept when increasing production raises economies of scale etc. to reduce price. Henry Ford, "Doesn't matter what color car you want, as long as it is black."...A typical quote during the production era.

– Dominant era: From mid C19th to early C20th, industrial revolution etc.

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Marketing Management OrientationsManagement Orientations

• Selling Concept

Demand for a product is equal to supply.

- Emphasis is needed to sell the product to increase profits. Focus on advertising.

- Useful for unsought goods, i.e., encyclopedias, funeral plots. Political candidates, selling important, not post consumer satisfaction.

- Dominant era: 1920's to Mid 1930's WWII to early 1950's

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Marketing Management OrientationsMarketing Management Orientations

• Marketing Concept

Supply for a product is greater than demand, creating intense competition among suppliers.

- Company first determines what the consumer wants, then produces what the consumer wants, then sells the consumer what it wants.

- Dominant era: 1930's to WWII 1950's to present.

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Marketing Concept

• LL Bean 1912, founded on the marketing concept, in his first circular:

"I do not consider a sale complete until goods are worn out and the customer still satisfied. We will thank anyone to return goods that are not perfectly satisfactory...Above all things we wish to avoid having a dissatisfied customer."

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Marketing Concept

• To illustrate the marketing era/concept Peter Drucker, in 1954 said:

“if we want to know what business is we must first start with its purpose...There is only one valid definition of business purpose: to create a customer. What business thinks it produces is not of first importance-especially not to the future of the business or to its success. What the customer thinks he/she is buying, what he/she considers "value" is decisive-it determines what a business is, what it produces, and whether it will prosper."

-Peter Drucker, The Practice of Management, 1954, P.37

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Marketing Concept

• John B McKitterick, President of General Electric, 1957, addressing the AMA said:

“It is customer oriented, integrated, profit oriented philosophy of business."

“The Customer is King”

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Marketing Management OrientationsMarketing Management Orientations

• The Societal marketing concept

• Focus on other stakeholders, as well as the business and its customers. Need to balance 3 items

• Company profits

• Customer wants

• Society's interests

• The difference between short term consumer wants and long term consumer welfare.

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Marketing Management OrientationsMarketing Management Orientations

• What era are we in now?

We are still essentially in the marketing era, since that is the dominant concept, but increasing pressure is being put on to companies to adopt the societal concept.

• Importance of the marketing concept

According to the Customer Service Institute, it costs as much as five times as much to acquire a new customer than it does to service an existing one.

Customers tell twice as many people about a bad experience over a good one.

According to the American Marketing Association (AMA), for an average company, 65% of its business comes from its presently satisfied customers.

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Preparing a Marketing Plan and Program

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Building Customer Relationships

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CRM

• CRM - Customer Relationship Management

“ is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction”

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CRM

• It costs 5 to 10 times MORE to attract a new customer than it does to keep a current customer satisfied.

• Marketers must be concerned with the lifetime value of the customer.

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Capturing Value from Customers

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Key Concepts

• Attracting, retaining and growing customers

• Customer value/satisfaction

– Perceptions are key

– Meeting/exceeding expectations creates satisfaction

• Loyalty and retention

– Benefits of loyalty

– Loyalty increases as satisfaction levels increase

– Delighting consumers should be the goal

• Growing share of customer

– Cross-selling

Creating Customer Loyalty and Retention

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CRM

Key Concepts

• Building customer relationships and customer equity

• Customer equity

– The total combined customer lifetime values of all customers.

– Measures a firm’s performance, but in a manner that looks to the future.

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CRM

• Key Concepts

• Building customer relationships and customer equity

• Customer relationship levels and tools

– Target market typically dictates type of relationship

• Basic relationships

• Full relationships

– Customer loyalty and retention programs

• Adding financial benefits

• Adding social benefits

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The New Marketing Landscape

• Technological advances, rapid globalization, and continuing social and economic shifts are causing marketplace changes.

• Major marketing developments can be grouped under the theme of Connecting

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Marketing Challenges

• Connecting• Via technology• With customers• With marketing partners• With the world

• Advances in computers, telecommunications, video-conferencing, etc. are major forces.– Databases allow for

customization of products, messages and analysis of needs.

• The Internet– Facilitates anytime,

anywhere connections– Facilitates CRM– Creates market spaces

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Marketing Challenges

Connecting

• Via technology

• With customers

• With marketing partners

• With the world

• Partner relationship management involves:

– Connecting inside the company

– Connecting with outside partners

• Supply chain management

• Strategic alliances

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Marketing Challenges

Connecting• Via technology• With customers• With marketing partners• With the world

• Globalization

– Competition

– New opportunities

• Greater concern for environmental and social responsibility

• Increased marketing by nonprofit and public-sector entities

– Social marketing campaigns