Marketing Creating and Capturing Customer Value Chapter 1

Marketing Creating and Capturing Customer Value Chapter 1

Misconceptions about marketing • Most people think of marketing as selling • and/or advertising—“telling and selling”. selling Even some people think that marketing is just selling. Unfortunately, all these views are far too shortsighted. But, what is Marketing? 1 -2

What Is Marketing? Simple definition: Marketing is managing profitable customer relationships. This means that marketing must: 1. 2. 3. Attract new customers by promising superior value. Keep and grow current customer-base by delivering satisfaction. Focus on satisfying customer needs. 1 -3

Marketing Defined • Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. OLD view of marketing: NEW view of marketing: Making a sale “telling and selling” Satisfying customer needs 1 -4

The Marketing Process • A simple model of the marketing process: Understand the marketplace and customer needs and wants. Design a customer-driven marketing strategy. Construct an integrated marketing program that delivers superior value. Build profitable relationships and create customer delight. Capture value from customers to create profits and customer equity. 1 -5

Figure 1. 1: A Simple Model of the Marketing Process 1 -6

Important Core Concepts • Marketers must understand five core customer and marketplace concepts: Needs, wants, and demands Market offerings Value and satisfaction Exchanges and relationships Markets 1 -7

Needs, Wants, and Demands • Need: Human needs are states of felt deprivation, including physical, social, and individual needs. These needs are not created by marketers; they are a basic part of the human makeup. • Wants: Wants are the forms that a human need takes, as they are shaped by culture and individual personality. For example, a person needs food but wants a Hamburger. • Wants + Buying Power = Demand 1 -8

Marketing Offerings • Needs and wants are fulfilled through a Market Offering. a marketing offering includes a combination of products, services, information, or brand experiences offered to a market to satisfy a need or want. 1 -9

Marketing Myopia • Marketing myopia: Occurs when sellers pay more attention to their specific products than to the benefits and experiences produced by these products. That is, sellers focus on the “wants” and lose sight of the “needs. ” 1 - 10

Customer Value and Satisfaction • Customers form expectations about the value and satisfaction that various market offerings will deliver. If actual performance of the offering is lower than expectations, satisfaction is low. While, If actual performance of the offering is higher than expectations, satisfaction is high. 1 - 11

Exchanges and Relationships • Exchange: is the act of obtaining a desired object from someone by offering something in return. Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences. These relationships involve ideas, products, services, or other objects. Clearly, value builds relationships. 1 - 12

What Is a Market? • A market: is the set of actual and potential buyers of a product. ØThese people share a need or want that can be satisfied through exchange relationships. ØMarketing seeks to manage markets to bring about profitable customer relationships. 1 - 13

Modern Marketing Systems • Main elements in a modern marketing system include: Suppliers Company (marketer) Competitors Marketing intermediaries Consumers • Major environmental forces affect each element. 1 - 14

Figure 1. 2: A Modern Marketing System 1 - 15 1 -15

Marketing Management • Marketing Management: is the art and science of choosing target markets and building profitable relationships with them. Ø In this process, marketers seek to find, attract, keep, and grow customers by creating, delivering, and communicating superior value. 1 - 16

Designing a customer-driven marketing strategy • designing a winning marketing strategy requires answers to the following questions: 1. What customers will we serve? That is, — What is our target market? 2. How can we best serve these customers? That is, — What is our value proposition? 1 - 17

Selecting Customers to Serve • Market segmentation: is dividing the market into segments of customers. • Target marketing: is selecting one or more segments (targets) to serve. 1 - 18

Choosing a Value Proposition • Value proposition: is set of benefits or values a company promises to deliver to consumers to satisfy their needs. A value proposition dictates how a firm will differentiate and position its brand in the marketplace. 1 - 19

Marketing Management Orientations • Organizations design and carry out their marketing strategies under five alternative concepts: 1. 2. 3. 4. 5. Production Concept Product Concept Selling Concept Marketing Concept Societal Marketing Concept 1 - 20

1 - The Production Concept • The production concept holds that consumers will favor products that are available and highly affordable. • Under this concept, marketing strategy should focus on improving production and distribution efficiency. 1 - 21

2 - The Product Concept • The product concept holds that • consumers will favor products that offer the most in quality, performance, and innovative features. Under this concept, marketing strategy focuses on making continuous product improvements. 1 - 22

3 - The Selling Concept • The selling concept holds that consumers will • • not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion effort. The concept is typically practiced with unsought goods – those that buyers do not normally think of buying, such as insurance. These industries must be good at tracking down prospects and selling them on product benefits. 1 - 23

4 - The Marketing Concept • The marketing concept: is marketing • • management philosophy that holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors do. Under the marketing concept, customer focus and value are the paths to sales and profits. That is, the marketing job is not to find the right customers for your product but to find the right products for your customers 1 - 24

The Selling and Marketing Concepts: a point of difference • The selling concept takes an inside-out • approach, whereas the marketing concept uses an outside-in perspective • What does this mean? look at the next slide 1 - 25

Figure 1. 3: The Selling and Marketing Concepts Contrasted 1 - 26

5 - The Societal Marketing Concept • The societal marketing concept questions • whether the pure marketing concept overlooks possible conflicts between consumer short‑run wants and consumer long‑run welfare. The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and the society’s well‑being. Look at the next slide… 1 - 27

Figure 1. 4: The Considerations Underlying the Societal Marketing Concept 1 - 28

Preparing an Integrated Marketing Plan and Program • • A company’s marketing strategy should determine which customers the company will serve and how it will create value for these customers. Next, the marketer develops an integrated marketing program that will actually deliver the intended value to target customers. This marketing program consists of the firm’s marketing mix (4 Ps), including product, price, place, and promotion. The firm blends these four elements into a comprehensive integrated marketing program that communicates and delivers the intended value to target customers. 1 - 29

Building Customer Relationships • Customer relationship management: is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. üCRM deals with all aspects of acquiring, keeping, and growing customers. (1) Customer value and (2) satisfaction are the keys in building lasting customer relationships. 1 - 30

(1) Customer Perceived Value • Customer perceived value: is customer’s • • evaluation of the difference between all of the benefits and all of the costs of a marketing offer relative to those of competing offers. Customers often do not judge values and costs “accurately” or “objectively. ” They act on perceived value. üPerceptions may be subjective üDifferent customers view “values” in different ways. üCustomers act on perceived value 1 - 31

(2) Customer Satisfaction • Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. Ø Ø Ø If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. üHigh levels of customer satisfaction often leads to consumer loyalty. üSome firms seek to DELIGHT customers by exceeding expectations. But, üProfitability must not be sacrificed (it must be considered). 1 - 32

Customer Relationships • • Companies may choose to build customer relationships at different levels: At one extreme, a company with many low-margin customers may seek to develop only basic relationships with them. At the other extreme, in markets with few customers and high margins, sellers may want to create full partnerships with customers. Many companies offer frequency marketing programs (e. g. Loyalty and retention programs) that reward customers who buy frequently or in large amounts. Ø For example, some banks classify clients as A, B, C, … 1 - 33

Changing Nature of Relationships • • Customer profitability analysis eliminates losing customers and selects profitable ones with whom relationships should be developed. Firms related more deeply and interactively via social network Web sites, e-mails, and video sharing (i. e. You. Tube). Embracing customer-managed relationships requires marketing via attraction rather than intrusion. Today, many companies practice marketing by attraction (i. e. creating market offerings that entertain and involve consumers rather than interrupt them). 1 - 34

Partner Relationship Marketing • Today, many businesses focus more attention on marketing partners • Marketing partners help create customer value and assist in building customer relationships. • Partners inside the firm: Ø Ø Today, firms are linking all departments in the cause of creating customer value. Rather than assigning only sales and marketing people to customers, they are forming cross-functional customer teams • Partners outside the firm: Supply chain, which describes a longer channel, stretching from raw materials to components to final products that are carried to final buyers. 1 - 35

Capturing Value From Customers • Value is captured from customers via current and future sales, market share, and profit. Superior customer value leads to highly satisfied loyal customers who buy more. Key outcomes of customer value include customer loyalty and retention, share of market, share of customer, and customer equity. 1 - 36

Capturing Value From Customers (cont’d) üCompanies realize that losing a customer means • • losing the entire stream of purchases the customer would have made over a lifetime of patronage. This is known as customer lifetime value. Customer lifetime value: is the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Share of customer: is defined as the share the company gets of customers purchasing in their product categories 1 - 37

Customer Equity • Customer Equity: is the total combined customer lifetime values of all the company’s current and potential customers. • Clearly, the more loyal the firm’s profitable customers, the higher the firm’s customer equity. Customer equity may be a better measure of a firm’s performance than current sales or market share. • Marketers manage equity by classifying customers by projected loyalty and potential profitability into four groups. Then, each group is managed accordingly. Look at next slide… 1 - 38

Figure 1. 5: Customer Relationship Groups 1 - 39

• • building the Right Relationships with the Right Customers “Strangers” show low potential profitability and little projected loyalty. The relationship management strategy for these customers is simple: Don’t invest anything in them. “Butterflies” are potentially profitable but not loyal. The company should use promotional blitzes to attract them, create satisfying and profitable transactions with them, and then cease investing in them until the next time around. “True friends” are both profitable and loyal. There is a strong fit between their needs and the company’s offerings. The firm wants to make continuous relationship investments to delight these customers and retain and grow them. “Barnacles” are highly loyal but not very profitable. There is a limited fit between their needs and the company’s offerings. Important point: point ü Different types of customer require different relationship management strategies. ü Not all customers, not even all loyal customers, are good investments 1 - 40

Changing Marketing Landscape Major current trends • The uncertain economic environment • The digital age • Rapid globalization • Sustainable marketing, which calls for more socially responsible marketing • Growth of not-for-profit marketing 1 - 41