MKT 702 Midterm 1

CH1

Marketing is an organizational function and a set of processes for creating, communicating, and

delivering value to customers, and for managing customer relationships in ways that benefit the

organization and its stakeholders. “AMA definition” “Managerial definition”

Marketing is about identifying and meeting human and social needs. "Meeting needs profitably”

Marketing management is the art and science of choosing target markets and getting, keeping, and

growing customers through creating, delivering, and communicating superior customer value.

Marketing management takes place when at least one party to a potential exchange thinks about the

means of achieving desired responses from other parties.

Marketing Management Tasks

− Develop market strategies and plans − Capture marketing insights − Connect with customers − Build strong brands − Shape market offerings − Deliver value − Communicate value − Create long-term growth

Functions of CMOs − Strengthening the brands − Measuring marketing effectiveness − Driving new product development based on customer needs − Gathering meaningful customer insights − Utilizing new marketing technology

New Consumer Capabilities − A substantial increase in buying power − A greater variety of available goods and services − A great amount of information about practically anything − Greater ease in interacting and placing and receiving orders − An ability to compare notes on products and services − An amplified voice to influence public opinion

Many companies have now created a Chief Marketing Officer, or CMO, position to put marketing on a more equal footing with other C-Ievel executives, such as the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Marketing managers must decide what features to design into a new product, what prices to offer customers, where to sell products, and how much to spend on advertising, sales, or the Internet. They must also decide on details such as the exact wording or color for new packaging. A social definition shows the role marketing plays in society. E.g. one marketer has said that marketing's role is to "deliver a higher standard of living." Social definition: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.

Managerial definition - Managers sometimes think of marketing as "the art of selling products," but many people are surprised when they hear that selling is not the most important part of marketing! Selling is only the tip of the marketing iceberg Marketing people market 10 types of entities: Goods, services, events, experiences, persons, places, properties, organizations, information and ideas. A marketer is someone who seeks a response-attention, a purchase, a vote, a donation-from another party, called the prospect. If two parties are seeking to sell something to each other, we call them both marketers. Production and logistics professionals are responsible for supply management, marketers are responsible for demand management. Eight demand states are possible: 1. Negative demand - Consumers dislikes the product and may even pay a price to avoid it. 2. Nonexistent demand - Consumers may be unaware of or uninterested in the product. 3. Latent demand-Consumers may share a strong need that cannot be satisfied by an existing product. 4. Declining demand-Consumers begin to buy the product less frequently or not at all. 5. Irregular demand-Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis. 6. Full demand-Consumers are adequately buying all products put into the marketplace. 7. Overfull demand-More consumers would like to buy the product than can be satisfied. 8. Unwholesome demand-Consumers may be attracted to products that have undesirable social consequences. Five types of needs: 1. Stated needs (The customer wants an inexpensive car) 2. Real needs (The customer wants a car whose operating cost, not its initial price, is low.) 3. Unstated needs (The customer expects good service from the dealer) 4. Delight needs (The customer would like the dealer to include an onboard navigation system.) 5. Secret needs (The customer wants friends to see him as a savvy consumer.) "Market" was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class The production concept is one of the oldest concepts in business. It holds that consumers will prefer products that are widely available and inexpensive. The product concept proposes that consumers favor products that offer the most quality, performance, or innovative features. The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognizes their breadth and interdependencies. Relationship marketing aims to build mutually satisfying long-term relationships with key constituents in order to earn and retain their business. Four key constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts).

A marketing network consists of the company and its supporting stakeholders-customers, employees, suppliers, distributors, retailers, ad agencies, university scientists, and others-with whom it has built mutually profitable business relationships. (Unique company asset) Four dimensions (SIVA) and the corresponding customer questions these are designed to answer are:48 1. Solution: How can I solve my problem? 2. Information: Where can I learn more about it? 3. Value: What is my total sacrifice to get this solution? 4. Access: Where can I find it? Quiz

1. Many companies have created a _CMO_ position to put marketing on a more equal footing with other C-level executives.

2. Which of the following is NOT a major decision made by marketing managers? a. Packaging decisions competitors should make

3. The marketing of Walt Disney's Magic Kingdom is a good example of ________ marketing.

a. Experience

4. What percent of the U.S. economy consists of services (vs. goods)? a. 70 %

5. ________ are wants for specific products backed by an ability to pay.

a. Demands

6. To reach a target market the marketer uses various marketing channels. Which of the following choices is NOT one of the channels discussed in the text?

a. internet channel

7. Building mutually satisfying long-term relations with key parties in order to earn and retain their business is called ________.

a. relationship marketing

8. Which of the following is NOT one of marketing's "four P's"? a. performance

9. Internal marketing is the task of ________.

a. hiring, training, and motivating able employees who want to serve customers well

10. According to the textbook, the societal marketing concept holds that the organization's task is to ________.

a. deliver the desired satisfactions in a way that preserves or enhances the consumer's and society's well being

11. Marketing is more "art" than "science."

a. False

12. Marketing deals with identifying and meeting human and social needs. a. True

13. Marketing management is the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value.

a. True

14. Many market offerings consists of a mix of goods and services. a. True

15. A prospect is someone seeking a response from another party, called the marketer.

a. False (opposite)

16. Wants are basic human requirements. a. False (Needs)

17. Value reflects the perceived tangible and intangible benefits and costs to customers.

a. True

18. The product concept holds that consumers will prefer products that are widely available and inexpensive.

a. False (this is the production concept.)

19. The marketing concept holds that the key to achieving organizational goals consists of a company being more effective than competitors in creating, delivering and communicating superior customer value to its chosen target markets.

a. True

20. The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices.

a. True

21. Describe the difference between the managerial and societal definitions of marketing. The managerial definition of marketing describes marketing as an organizational function. Here, marketing is defined as "an organizational function and set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders." The societal definition focuses on the societal process of marketing. Here, marketing is defined as "the societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others."

22. Distinguish between the five types of needs humans require. We can distinguish among five types of needs:

1. Stated needs (the customer wants an inexpensive car) 2. Real needs (the customer wants a car whose operating cost, not its initial price, is low) 3. Unstated needs (the customer expects good service from the dealer) 4. Delight needs (the customer would like the dealer to include an onboard navigation system) 5. Secret needs (the customer wants to be seen by friends as a savvy consumer)

CH2 pg.68 A marketing plan is the central instrument for directing and coordinating the marketing effort. It operates at a strategic and tactical level. Levels of a Marketing Plan Strategic

− Target marketing decisions − Value proposition − Analysis of marketing opportunities

Tactical − Product features − Promotion − Merchandising − Pricing − Sales channels − Service

Corporate Headquarters’ Planning Activities

− Define the corporate mission − Establish strategic business units (SBUs) − Assign resources to each SBU − Assess growth opportunities

Good Mission Statements

− Focus on a limited number of goals − Stress major policies and values − Define major competitive spheres − Take a long-term view − Short, memorable, meaningful −

Organizations develop mission statements to share with managers, employees, and (in many cases) customers. A clear, thoughtful mission statement provides employees with a shared sense of purpose, direction, and opportunity Major Competitive Spheres

− Industry − Products − Competence − Market segment − Vertical channels − Geographic

Dimensions that Define a Business

− Customer groups − Customer needs − Technology

Characteristics of SBUs

− It is a single business or collection of related businesses − It has its own set of competitors − It has a leader responsible for strategic planning and profitability

Value creation and delivery sequence can be divided into three phases First phase, choosing the value, represents the "homework" marketing must do before any product exists. Segment the market, select the appropriate market target. and develop the offering's value positioning. Second phase is providing the value. Marketing must determine specific product features, prices and distribution. Third phase is communicating the value by utilizing the sales force, sales promotion, advertising, and other communication tools to announce and promote the product. London Business School's Nirmalya Kumar has put forth a "3 Vs" approach to marketing: (1) define the value segment or customers (and their needs); (2) define the value proposition; and (3) define the value network that will deliver the promised service. Dartmouth's Frederick Webster views marketing in terms of: (1) value-defining processes such as market research and company self-analysis; (2) value-developing processes including new-product development, sourcing strategy, and vendor selection; and (3) value-delivering processes such as advertising and managing distribution. Value chain as a tool for identifying ways to create more customer value The value chain identifies nine strategically relevant activities-five primary and four support activities-that create value and cost in a specific business. The primary activities are inbound logistics or bringing materials into the business; operations or converting them into final products; outbound logistics or shipping out final products; marketing them, which includes sales; and servicing them. The support activities-procurement, technology development, human resource management, and firm infrastructure-are handled in specialized departments. The firm's infrastructure covers the costs of general management, planning, finance, accounting, legal, and government affairs. Firm’s success depends also on how well the company coordinates departmental activities to core business processes

− The market-sensing process. All the activities in gathering market intelligence, disseminating it within the organization, and acting on the information

− The new-offering realization process. All the activities in researching, developing, and launching new high-quality offerings quickly and within budget

− The customer acquisition process. All the activities in defining target markets and prospecting for new customers

− The customer relationship management process. All the activities in building deeper understanding, relationships, and offerings to individual customers

− The fulfillment management process. All the activities in receiving and approving orders, shipping the goods on time, and collecting payment

Strong companies are reengineering their work flows and building cross-functional teams to be responsible for each process Company partner with supplier or distributors - Value delivery network, also called a supply chain. A core competency has three characteristics: (1) It is a source of competitive advantage in that it makes a significant contribution to perceived customer benefits. (2) It has applications in a wide variety of markets. (3) It is difficult for competitors to imitate.

Competitive advantage ultimately derives from how well the company has fitted its core competencies and distinctive capabilities into tightly interlocking "activity systems." Business realignment may be necessary to maximize core competencies. It has three steps: (1) (re)defining the business concept or "big idea"; (2) (re)shaping the business scope; and (3) (re)positioning the company's brand identity. Holistic marketing framework is designed to address three key management questions 1. Value exploration - How can a company identify new value opportunities? 2. Value creation -How can a company efficiently create more promising new value offerings? 3. Value delivery - How can a company use its capabilities and infrastructure to deliver the new value offerings more efficiently? VALUE EXPLORATION: 3 spaces

1. the customer's cognitive space - reflects existing and latent needs and includes dimensions such as the need for participation, stability, freedom, and change

2. the company's competence space - in terms of breadth-broad versus focused scope of business; and depth-physical versus knowledge based capabilities.

3. the collaborator's resource space - includes horizontal partnerships, with partners chosen for their ability to exploit related market opportunities, and vertical partnerships, with partners who can serve the firm's value creation.

VALUE CREATION - Value-creation skills for marketers include identifying new customer benefits from the customer's view; utilizing core competencies from its business domain; and selecting and managing business partners from its collaborative networks. VALUE DELIVERY - Delivering value often means making substantial investments in infrastructure and capabilities.

Customer relationship management allows the company to discover who its customers are, how they behave, and what they need or want.

Internal resource management to integrate major business processes, such as order processing, general ledger, payroll, and production, within a single family of software modules.

Business partnership management allows the company to handle complex relationships with its trading partners to source, process, and deliver products.

Market-penetration strategy - gain more market share with its current products in their current markets Market-development strategy - finds or develops new markets for its current products Product-development strategy - develop new products of potential interest to its current markets Diversification strategy - review opportunities to develop new products for new markets A company's organization consists of its structures, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment. Corporate culture –

"the shared experiences, stories, beliefs, and norms that characterize an organization."

the way people dress, talk to one another, and greet customers.

Innovative strategy firm, offers five key strategies for managing change in an organization: 1. Avoid the innovation title-Pick a name for the innovation team that won't alienate coworkers, 2. Use the buddy system-Find a like-minded collaborator within the organization, 3. Set the metrics in advance-Establish different sets of funding, testing, and performance criteria for incremental, experimental, and potentially disruptive innovations, 4. Aim for quick hits first-Start with easily implemented ideas that will work to demonstrate that things can get done, before quickly switching to bigger initiatives. 5. Get data to back up your gut-Use testing to get feedback and improve an idea. Scenario analysis - which consists of developing plausible representations of a firm's possible future that make different assumptions about forces driving the market and that include different uncertainties Quiz

1. The first phase of the value creation and delivery sequence is _________. a. choosing the value

2. The market sensing process, one of the core business processes, includes _________.

a. all the activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information

3. Whereas core competencies tend to refer to areas of special technical and production expertise,

distinctive capabilities tend to describe _________. a. excellence in broader business processes

4. The holistic marketing framework is designed to address which three key management

questions? a. value exploration; value creation; value delivery

5. The _________ is the central instrument for directing and coordinating the marketing effort.

a. marketing plan

6. An SBU refers to _________. a. strategic business unit

7. A company's organization consists of its _________.

a. structures; policies; corporate culture

8. SWOT analysis refers to an analysis of a company's _________. a. strengths; weaknesses; opportunities; threats

9. MOA refers to _________.

a. market opportunity analysis

10. The last section in a marketing plan should contain _________. a. implementation controls

11. The traditional view of marketing is that the firm makes something and then sells it.

a. True

12. Michael Porter proposed the value chain as a tool for identifying ways to create more customer value.

a. True

13. The value chain identifies nine strategically relevant activities. a. True

14. Competitive advantage ultimately derives from how well the company has fitted its core

competencies and distinctive capabilities into tightly interlocking "activity systems." a. True

15. Value exploration is concerned with how a company can efficiently create more promising new

value offerings. a. False (How can a company identify new value opportunities)

16. The first step in corporate planning is defining the mission.

a. True

17. A marketing opportunity is an area of buyer need and interest in which there is a high probability that a company can profitably satisfy that need.

a. True

18. Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking: overall cost leadership, differentiation, and focus.

a. True

19. A marketing plan is a written document containing tactical guidelines for the marketing programs and financial allocations over the planning period.

a. True

20. The marketing plan should open with a brief summary of the main goals and recommendations. This is called a situation analysis.

a. False (executive summary.)

21. Good mission statements have five major characteristics. List and discuss each of these. First, good mission statements should focus on a limited number of goals. Second, mission statements stress the company's major policies and values. They narrow the range of individual discretion so that employees act consistently on important issues. Third, they define the major competitive spheres within which the company will operate. Fourth, they take a long-term view. Fifth, they are as short, memorable, and meaningful as possible.

22. An SBU has 3 characteristics. Describe each of these.

1. It is a single business or collection of related businesses that can be planned separately from the rest of the company.

2. It has its own set of competitors. 3. It has a manager who is responsible for strategic planning and profit performance and who

controls most of the factors affecting profits.

CH4 pg.124 Marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. Types of Marketing Research Firms

1. Syndicated service 2. Custom 3. Specialty-line

The Marketing Research Process

1. Define the problem 2. Develop research plan 3. Collect information 4. Analyze information 5. Present findings 6. Make decision

1. Define the Problem

• Define the problem

• Specify decision alternatives

• State research objectives

2. Develop the Research Plan

• Data sources

• Research approach

• Observation

• Ethnographic

• Focus group

• Survey

• Behavioural data

• Experimentation

• Research instruments

• Questionnaires

• Qualitative Measures

• Word association

• Projective techniques

• Visualization

• Brand personification

• Laddering

• Technological Devices

• Galvanometers

• Tachistoscope

• Eye cameras

• Audiometers

• GPS

• Sampling plan

• Sampling unit: Who is to be surveyed?

• Sample size: How many people should be surveyed?

• Sampling procedure: How should the respondents be chosen?

• Contact methods

• Mail questionnaire

• Telephone interview

• Personal interview

• Online interview

•

Barriers Limiting the Use of Marketing Research

• A narrow conception of the research

• Uneven caliber of researchers

• Poor framing of the problem

• Late and occasionally erroneous findings

• Personality and presentational differences

Characteristics of Good Marketing Research

• Scientific method

• Research creativity

• Multiple methods

• Interdependence

• Value and cost of information

• Healthy skepticism

• Ethical marketing

Marketing metrics are the set of measures that helps marketers quantify, compare, and interpret

marketing performance.

Marketing-mix models analyze data from a variety of sources, such as retailer scanner data, company

shipment data, pricing, media, and promotion spending data, to understand more precisely the effects

of specific marketing activities.

Marketing Dashboards

• A customer-performance scorecard records how well the company is doing year after year on

customer-based measures.

• A stakeholder-performance scorecard tracks the satisfaction of various constituencies who

have a critical interest in and impact on the company’s performance including employees,

suppliers, banks, distributors, retailers, and stockholders.

The Measures of Market Demand

• Potential market - is the set of consumers who profess a sufficient level of interest in a market

offer

• Available market - is the set of consumers who have interest, income, and access to a particular

offer

• Target market - is the part of the qualified available market the company decides to pursue

• Penetrated market - is the set of consumers who are buying the company's product

Vocabulary for Demand Measurement

• Market demand - for a product is the total volume that would be bought by a defined customer

group in a defined geographical area in a defined time period in a defined marketing

environment under a defined marketing program.

• Market forecast - Only one level of industry marketing expenditure will actually occur. The

market demand corresponding to this level is called the market forecast

• Market potential - is the limit approached by market demand as industry marketing

expenditures approach infinity for a given marketing environment.

o Product-penetration percentage, which is the percentage of ownership or use of a

product or service in a population.

• Company demand - is the company's estimated share of market demand at alternative levels of

company marketing effort in a given time period.

• Company sales forecast - is the expected level of company sales based on a chosen marketing

plan and an assumed marketing environment.

• Company sales potential - is the sales limit approached by company demand as company

marketing effort increases relative to that of competitors

How Can We Estimate Current Demand?

• Total market potential - is the maximum amount of sales that might be available to all the firms

in an industry during a given period, under a given level of industry marketing effort and

environmental conditions.

• Area market potential

o Market buildup method - calls for identifying all the potential buyers in each market

and estimating their potential purchases

o Multiple-factor index method

Estimating Future Demand

• Survey of Buyers’ Intentions

• Composite of Sales Force Opinions

• Expert Opinion

• Past-Sales Analysis

• Market-Test Method

Marketing insights provide diagnostic information about how and why we observe certain effects in the

marketplace, and what that means to marketers.

Marketing research firms fall into three categories:

1. Syndicated-service research firms-These firms gather consumer and trade information, which they

sell for a fee. Examples: Nielsen Media Research, SAMI/Burke.

2. Custom marketing research firms-These firms are hired to carry out specific projects. They design the

study and report the findings.

3. Specialty-line marketing research firms-These firms provide specialized research services. The best

example is the field-service firm, which sells field interviewing services to other firms.

Small companies’ creative and affordable ways

1. Engaging students or professors to design and carry out projects

2. Using the Internet

3. Checking out rivals

Marketing decision support system (MDSS) as a coordinated collection of data, systems, tools, and

techniques, with supporting software and hardware, by which an organization gathers and interprets

relevant information from business and environment and turns it into a basis for marketing action.

Quiz

1. The first step in the marketing research process is _____.

a. define the problem and research objectives

2. The last step in the marketing research process is _____.

a. make the decision

3. Data that is freshly gathered for a specific purpose is called _____.

a. Primary data

4. Research that is designed to capture cause-and-effect relationships by eliminating competing

explanations of observed findings is called _____.

a. experimental research

5. The best way to reach people who would not give personal interviews or whose responses

might be biased or distorted by the interviewer is by using a(n) _____.

a. mail interview

6. _____ is a coordinated collection of data, systems, tools, and techniques with supporting

software and hardware by which an organization gathers and interprets relevant information

from business and environment and turns it into a basis for marketing action.

a. Marketing Decision Support System

7. The set of consumers who are buying the company's product is the _____.

a. penetrated market

8. The percentage of ownership among customers in a population is referred to as _____.

a. product penetration percentage

9. The sales goal for a product line, company division, or sales representative is called a _____.

a. sales quota

10. The total amount of sales that might be available to all firms in an industry during a given time

period is known as the ________.

a. total market potential

11. Marketing research is the systematic design, collection, analysis, and reporting of data and

findings.

a. True

12. Two types of data that can be used for marketing research study are modal and bimodal data.

a. False (secondary and primary data)

13. In focus group research, a researcher is immersed into consumers' lives to uncover

unarticulated needs.

a. False

14. Qualitative research techniques are relatively unstructured measurement approaches that

permit a range of possible results.

a. True

15. Galvanometers, tachistoscopes, and audiometers are examples of mechanical devices used to

gather research information.

a. True

16. A customer performance scorecard tracks the satisfaction of various constituencies who have a

critical interest in the company's performance.

a. False (records how well the company is doing year after year on customer-based

measures)

17. One major reason for undertaking marketing research is to identify market opportunities.

a. True

18. Because market demand is not a fixed number, marketers refer to a market demand function.

a. True

19. Market potential is the upper limit approached by market demand as industry marketing

expenditures approach infinity.

a. True

20. Company sales potential is the sales limit approached by company demand as company

marketing efforts increase relative to competitors.

a. True

21. Name and discuss three categories of marketing research firms.

1. Syndicated service research firms gather consumer and trade information which they sell for a

fee.

2. Custom market research firms carry out specific projects. They design the study and report the

findings.

3. Specialty-line marketing research firms provide specialized research services such as

interviewing services and data analysis.

22. Online research interviewing is estimated to make up 33% of all survey-based research in 2006.

Discuss the pros and cons of using this method of data collection.

Advantages - online research is inexpensive, faster and more versatile. Also people tend to be more

honest online than they are in personal or telephone interviews.

Disadvantages - Samples can be small and skewed. Online research is prone to technological problems

and inconsistencies.

CH5 pg.154

Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all

the benefits and all the costs of an offering and the perceived alternatives.

Determinants of Customer Perceived Value

Total customer benefit - is the perceived monetary value of the bundle of economic, functional,

and psychological benefits customers expect from a given market offering because of the

products, services, personnel, and image involved.

Total customer cost - is the perceived bundle of costs customers expect to incur in evaluating,

obtaining, using, and disposing of the given market offering, including monetary, time, energy,

and psychological costs.

Product benefit -

Monetary cost

Services benefit

Time cost

Personnel benefit

Energy cost

Image benefit

Psychological cost

Steps in a Customer Value Analysis

1. Identify major attributes and benefits that customers value - what attributes, benefits, and

performance levels they look for in choosing a product and vendors.

2. Assess the qualitative importance of different attributes and benefits - rate the importance of

the different attributes and benefits. If their ratings diverge too much, the marketer should

cluster them into different segments.

3. Assess the company’s and competitor’s performances on the different customer values against

rated importance - describe where they see the company's and competitors' performances on

each attribute and benefit.

4. Examine ratings of specific segments – If the company's offer exceeds the competitor's offer on

all important attributes and benefits, the company can charge a higher price (thereby earning

higher profits), or it can charge the same price and gain more market share.

5. Monitor customer values over time - company must periodically redo its studies of customer

values and competitors' standings as the economy, technology, and features change.

Loyalty is a deeply held commitment to re-buy or re-patronize a preferred product or service in the

future despite situational influences and marketing efforts having the potential to cause switching

behavior.

Value proposition consists of the whole cluster of benefits the company promises to deliver; it is more

than the core positioning of the offering.

Value delivery system includes all the experiences the customer will have on the way to obtaining and

using the offering.

Satisfaction is a person's feelings of pleasure or disappointment that result from comparing a product's

perceived performance (or outcome) to their expectations.

Measuring Satisfaction

• Periodic surveys

• Customer loss rate

• Mystery shoppers

• Monitor competitive performance

Quality is the totality of features and characteristics of a product or service that bear on its ability to

satisfy stated or implied needs.

Maximizing Customer Lifetime Value

• Customer profitability – A profitable customer is a person, household, or company that over

time yields a revenue stream that exceeds by an acceptable amount the company's cost stream

for attracting, selling, and servicing that customer.

• Customer profitability analysis (CPA) is best conducted with the tools of an accounting

technique called activity-based costing (ABC)

• Customer equity -

• Lifetime value

Customer lifetime value (CLV) describes the net present value of the stream of future profits expected

over the customer's lifetime purchases.

Customer relationship management (CRM) is the process of carefully managing detailed information

about individual customers and all customer "touch points" to maximize customer loyalty.

Framework for CRM

• Identify prospects and customers

• Differentiate customers by needs and value to company

• Interact to improve knowledge

• Customize for each customer

CRM Strategies

• Reduce the rate of defection

• Increase longevity

• Enhance share of wallet

• Terminate low-profit customers

• Focus more effort on high-profit customers

Customer Retention

Acquisition of customers can cost 5 times more than retaining current customers.

The average customer loses 10% of its customers each year.

A 5% reduction to the customer defection rate can increase profits by 25% to 85%.

The customer profit rate increases over the life of a retained customer.

Database Key Concepts

Customer database - is an organized collection of comprehensive information about individual

customers or prospects that is current, accessible, and actionable for such marketing purposes

as lead generation, lead qualification, sale of a product or service, or maintenance of customer

relationships

Database marketing - is the process of building, maintaining, and using customer databases and

other databases (products, suppliers, resellers) to contact, transact, and build customer

relationships.

Mailing list - is simply a set of names, addresses, and telephone numbers

Business database - would contain business customers' past purchases; past volumes, prices,

and profits; buyer team member names (and ages, birthdays, hobbies, and favorite foods);

status of current contracts; an estimate of the supplier's share of the customer's business;

competitive suppliers; assessment of competitive strengths and weaknesses in selling and

servicing the account; and relevant buying practices, patterns, and policies.

Data warehouse - where marketers can capture, query, and analyze it to draw inferences about

an individual customer's needs and responses

Data mining - marketing statisticians can extract useful information about individuals, trends,

and segments from the mass of data.

Using the Database

To identify prospects

To target offers

To deepen loyalty

To reactivate customers

To avoid mistakes

Don’t Build a Database When

The product is a once-in-a-lifetime purchase

Customers do not show loyalty

The unit sale is very small

The cost of gathering information is too high

Frequency programs (FPs) are designed to provide rewards to customers who buy frequently and in

substantial amounts.

Perils of CRM

• Implementing CRM before creating a customer strategy

• Rolling out CRM before changing the organization to match

• Assuming more CRM technology is better

• Stalking, not wooing, customers

Quiz

1. ________ is the difference between the prospective customer's evaluation of all the benefits

and all the costs of an offering and the perceived alternatives.

a. Customer perceived value

2. ________ consists of the whole cluster of benefits the company promises to deliver.

a. Value proposition

3. ________ can be used to pose as potential buyers and report on strong and weak points that

customers perceive regarding a company's products.

a. Mystery shoppers

4. The 20-80 rule states _____.

a. the top 20 percent of customers generate 80 percent of the company's profits

5. ________ is the process of carefully managing detailed information about individual customers

and all "touch points" to maximize customer loyalty.

a. Customer relationship management

6. Customer churn refers to ____.

a. customer defection

7. Frequency programs (FP's) are designed to provide rewards to _____.

a. customers who buy frequently and in substantial amounts

8. A _____ is an organized collection of comprehensive information about individual customers or

prospects.

a. customer database

9. Companies can build interest and enthusiasm by using databases to remember customer

preferences. This strategy helps to _____.

a. deepen customer loyalty

10. One problem that can deter a firm from effectively using CRM is _____.

a. building customer databases can be expensive

b. not all customers want a relationship with the company

c. getting everyone in the company to be customer oriented

d. the assumptions behind CRM may not always be true

e. all of the above

11. A company that satisfies most of its customers' needs most of the time is called a quality

company.

a. True

12. A profitable customer over time yields a revenue stream equal to the company's cost stream.

a. False (exceeds its cost stream.)

13. Activity-based costing is an important part of customer profitability analysis.

a. True

14. Customer lifetime value describes the net present value of the stream of future profits expected

over the customer's lifetime purchases.

a. True

15. For a hotel, "touch points" include reservations, check-in, and check-out.

a. True

16. The first step in reducing the customer defection rate is to define and measure retention rate.

a. True

17. The average company loses 30% of its customers every year.

a. False (10%)

18. One way of creating bonds with customers is to create superior products and services.

a. True

19. Through datamining, marketing statisticians can extract useful information about individuals,

trends, and segments from a mass of data.

a. True

20. A customer mailing list contains business customers' past purchases, past volume, prices and

profits.

a. False

21. List the steps involved in conducting a customer value analysis.

1. Identify the major attributes and benefits that customers value.

2. Assess the quantitative importance of the different attributes and benefits.

3. Assess the company's and competitors' performance on the different customer values against

their rated importance.

4. Examine how customers in a specific segment rate the company's performance against a specific

major competitor on an individual attribute or benefit basis.

5. Monitor customer values over time.

22. Name five ways companies can use their databases.

To identify prospects

To decide which customers should receive a particular offer

To deepen customer loyalty

To reactivate customer purchases

To avoid serious customer mistakes

CH6 pg.184

Consumer behaviour: the study of the processes involved when individuals or groups select, purchase,

use, or dispose of products, services, ideas, or experiences to satisfy needs and desires.

Consumer: A person who identifies a need or desire, makes a purchase, and ultimately disposes of the

product

Influences Consumer Behaviour

Cultural factors

Social factors

Personal factors

Culture is the fundamental determinant of a person’s wants and behaviours acquired through

socialization processes with family and other key institutions.

Each culture consists of smaller subcultures that provide more specific identification and socialization

for their members.

Nationalities

Religions

Racial groups

Geographic regions

Social Factors

Reference groups

Family

Social roles

Statuses

Reference groups are all the groups that have a direct (face-to-face) or indirect influence on their

attitudes or behavior.

Influences consumers in three ways:

1. Informational

2. Utilitarian

3. Value-expressive

Small informal groups can exert powerful influence on individual consumers

Groups having a direct influence are called membership groups.

Primary groups with whom the person interacts fairly continuously and informally, such as family,

friends, neighbors, and coworkers.

Secondary groups, such as religious, professional, and trade-union groups, which tend to be more

formal and require less continuous interaction

People are also influenced by groups to which they do not belong

Aspirational groups are those a person hopes to join;

Dissociative groups are those whose values or behavior an individual rejects.

Opinion leader is the person who offers informal advice or information about a specific product or

product category, such as which of several brands is best or how a particular product may be used.

Marketers tend to ignore:

Status inconsistency

Intergenerational mobility

Subjective social class

Consumers’ aspirations to change class standing

Social status of working wives

Family Distinctions Affecting Buying Decisions

Family of orientation consists of parents and siblings.

Family of procreation namely, one's spouse and children.

Sandwich generation: Adults who care for their parents as well as their own children

Boomerang kids: Adult children who return to live with their parents

Family life cycle (FLC) concept combines trends in income and family composition with change in

demands placed on income

Autonomic decision: one family member chooses a product

Syncratic decision: involve both partners

Personal Factors

Age

Life cycle stage

Occupation

Wealth

Personality

Values

Lifestyle

Self-concept

Personality: Person’s unique psychological makeup and how it consistently influences the way a person

responds to his/her environment

Brand personality as the specific mix of human traits that we can attribute to a particular brand.

Stanford's Jennifer Aaker researched brand personalities and identified the following traits:

1. Sincerity (down-to-earth, honest, wholesome, and cheerful)

2. Excitement (daring, spirited, imaginative, and up-to-date)

3. Competence (reliable, intelligent, and successful)

4. Sophistication (upper-class and charming)

5. Ruggedness (outdoorsy and tough)

Self-concept: Beliefs a person holds about his/her own attributes, and how he/she evaluates these

qualities

Attribute dimensions: Content, positivity, intensity, stability over time, and accuracy

Self-esteem: Positivity of a person’s self-concept

Low self-esteem: Think they will not perform well

High self-esteem: Think they will be successful and will take risks

Ideal self: Conception of how we would like to be

Actual self: More realistic appraisal of the qualities we have

Products can:

− Help us reach ideal self

− Be consistent with actual self

Consumer decisions are also influenced by core values, the belief systems that underlie attitudes and

behaviors.

Key Psychological Processes

− Motivation

− Perception

− Learning

− Memory

Motivation

Freud’s Theory - Behaviour is guided by subconscious motivations

Maslow’s Hierarchy of Needs - Behaviour is driven by lowest, unmet need

• Physiological needs - bottom

• Safety needs

• Social needs

• Esteem needs

• Self-actualization needs - top

Herzberg’s Two-Factor Theory - Behaviour is guided by motivating and hygiene factors

Perception is the process by which we select, organize, and interpret information inputs to create a

meaningful picture of the world.

− Selective attention - marketers must work hard to attract consumers' notice.

− Selective retention - remember good points about a product we like and forget good points

about competing products

− Selective distortion - is the tendency to interpret information in a way that fits our

preconceptions.

− Subliminal perception - A topic that has fascinated armchair marketers for ages is

Learning induces changes in our behavior arising from experience. Most human behavior is learned,

although much learning is incidental.

A drive is a strong internal stimulus impelling action. Cues are minor stimuli that determine when,

where, and how a person responds.

Discrimination means we have learned to recognize differences in sets of similar stimuli and can adjust

our responses accordingly.

Hedonic bias says people have a general tendency to attribute success to themselves and failure to

external causes

Short-term memory (STM)-a temporary and limited repository of information-and

Long-term memory (LTM)-a more permanent, essentially unlimited repository.

Associative network memory model views LTM as a set of nodes and links.

Brand associations consist of all brand -related thoughts, feelings, perceptions, images, experiences,

beliefs, attitudes, and so on that become linked to the brand node.

Memory encoding describes how and where information gets into memory.

Memory retrieval is the way information gets out of memory. According to the associative network

memory model, a strong brand association is both more accessible and more easily recalled by

"spreading activation."

Buying decision process 5 stages:

1. Problem recognition

2. Information search

a. sources

i. Personal. Family, friends, neighbors, acquaintances

ii. Commercial. Advertising, Web sites, salespersons, dealers, packaging, displays

iii. Public. Mass media, consumer-rating organizations

iv. Experiential. Handling, examining, using the product

b. SEARCH DYNAMICS - Through gathering information, the consumer learns about

competing brands and their features.

i. process of identifying the hierarchy is called market partitioning

3. Evaluation of alternatives

4. Purchase decision

5. Post purchase behavior

A belief is a descriptive thought that a person holds about something. Just as important are attitudes, a

person's enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies

toward some object or idea

Expectancy-value model of attitude formation posits that consumers evaluate products and services by

combining their brand beliefs - the positives and negatives - according to importance

Redesign the computer. This technique is called real repositioning.

Alter beliefs about the brand. Attempting to alter beliefs about the brand is called psychological

repositioning.

Alter beliefs about competitors' brands. This strategy, called competitive depositioning, makes sense

when buyers mistakenly believe a competitor's brand has more quality than it actually has.

Alter the importance weights. The marketer could try to persuade buyers to attach more importance to

the attributes in which the brand excels.

Call attention to neglected attributes. The marketer could draw buyers' attention to neglected

attributes, such as styling or processing speed.

Shift the buyer's ideals. The marketer could try to persuade buyers to change their ideal levels for one

or more attributes.

Heuristics are rules of thumb or mental shortcuts in the decision process.

Consumers may perceive many types of risk in buying and consuming a product:

1. Functional risk-The product does not perform up to expectations.

2. Physical risk-The product poses a threat to the physical well-being or health of the user or others.

3. Financial risk-The product is not worth the price paid.

4. Social risk: The product results in embarrassment from others.

5. Psychological risk-The product affects the mental well-being of the user.

6. Time risk-The failure of the product results in an opportunity cost of finding another satisfactory

product.

Consumer involvement in terms of the level of engagement and active processing the consumer

undertakes in responding to a marketing stimulus.

Other Theories of Consumer Decision Making

Involvement

− Elaboration Likelihood Model

− Low-involvement marketing strategies

− Variety-seeking buying behavior

Decision Heuristics

− Availability

− Representativeness

− Anchoring and adjustment

Product involvement: Consumer’s level of interest in a product

Vigilante marketing: Freelancers and fans film their own commercials for favourite products

Purchase situation involvement: Differences that occur when buying the same object for different

contexts

The amount of consumer involvement depends on:

− Personal interest in product category

− Risk importance

− Probability of bad purchase

− Pleasure value of product category

− Sign value of product category (self-concept relevance)

Mental accounting refers to the way consumers code, categorize and evaluate financial outcomes of

choices

Prospect theory maintains that consumers frame their decision alternatives in terms of gains and losses

according to a value function.

Quiz

1. _____ is the fundamental determinant of a person's wants and behavior.

a. Culture

2. Each culture consists of smaller _____ that provide more specific identification and socialization

for their members.

a. subcultures

3. _____ are relatively homogeneous and enduring divisions in society.

a. Social classes

4. Formal groups having a direct influence on a person such as religious, professional, and trade

union groups are _____.

a. secondary groups

5. A _____ consists of the activities a person is expected to perform.

a. Role

6. A _____ is a person's pattern of living in the world as expressed in activities, interests, and

opinions.

a. Lifestyle

7. A _____ is a strong internal stimulus impelling action.

a. Drive

8. _____ consist(s) of all brand-related thoughts, feelings, perceptions, images, experiences, beliefs,

etc. that become linked to a brand "node."

a. Brand associations

9. _____ refers to how information gets out of memory.

a. Memory retrieval

10. A(n) _____ is a person's enduring favorable or unfavorable evaluation, emotional feeling and

actions tending toward some object or idea.

a. Attitude

11. A popular value for American consumers is achievement.

a. True

12. Social class is indicated by a single variable, for example income.

a. False

13. There are language differences between the social classes within a society.

a. True

14. A person's position in a group can be defined in terms of social class.

a. False (role and status.)

15. Market personality is the specific mix of human traits that may be attributed to a particular

brand.

a. False (brand personality.)

16. Perception is the process by which an individual selects, organizes, and interprets information

inputs to create a meaningful picture of the world.

a. True

17. Selective distortion is the tendency to interpret information in a way that will fit our

preconceptions.

a. True

18. A cue is a minor stimulus that determines when, where, and how a person responds.

a. True

19. Learning refers to how and where information gets into memory.

a. False (memory encoding.)

20. The expectancy-value model posits that consumers evaluate products and services by combining

their brand beliefs according to importance.

a. True

21. Distinguish between "family of orientation" and "family of procreation."

The "family of orientation" consists of parents and siblings. Even if the buyer no longer interacts very

much with his or her parents, their influence on behavior can be significant.

The "family of procreation" has a more direct influence on everyday buying behavior. It consists of one's

spouse and children.

22. What is the difference between biogenic needs and psychogenic needs?

Biogenic needs arise from physiological states of tension. Examples of this are hunger, thirst, or

discomfort.

Psychogenic needs arise from psychological states of tension such as the need for recognition, esteem,

or belonging.