principles of marketing chapter 1: marketing: creating & capturing customer value

Principles of Marketing

Chapter 1:Marketing: Creating &

Capturing Customer Value

A Change in Marketing & Its Importance

• Firms are “returning to marketing”Change and Instability in Marketplace

• Technology• Economy• Social interests

• Shift in Marketing’s “Focus” & “Performers”From “Transactions” to “Relationships”Not just “Big M” Marketing anymore; increased

“Little M” marketing* (Carver 2009; 2012)

Dr. James Carver – Auburn University

What is Marketing?*

1. “Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create the exchanges that satisfy individual and organizational goals.” (1985 AMA Definition)

2. “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.” *(Lusch

and Marshall 2004 AMA Definition)

3. “Competition for a Differential Advantage.”* (Wroe Alderson 1957)


Two Goals of Marketing

• Marketing has 2 basic goals:1. Attract new customers by providing superior

value

2. Keep & grow existing customers by delivering satisfaction

• Can do so iff one has a differential, or long-term competitive, advantage


A Marketer’s Basic Toolbox

• Value is created on 4 “fronts”

• Toolbox ~ “Marketing Mix”The 4 Ps

1. Product

2. Place

3. Price

4. Promotion


The Marketing Process

• 5 Most Basic Steps of Marketing1. Understand Consumers

2. Design Customer-Driven Marketing Strategy

3. Prepare an Integrated Marketing Program

4. Build Customer Relationships

5. Capture Value from Customers


Consumers’Needs, Wants, & Demands

• NeedState of felt deprivation

• Physical, Social, or Individual

• WantForm a need takes as shaped by culture &

personality

• DemandWants backed with buying power


Consumers’Needs, Wants, & Demands

• Need State of felt deprivation

• Physical, Social, or Individual

• Want Form a need takes as

shaped by culture & personality

• Demand Wants backed with

buying power


NeedsNeeds

WantsWants

DemandsDemands

CultureCulture

Buying PowerBuying Power

Market Offerings

• Customers’ demands are fulfilled through market offeringsCombination of:

• Products; Services; Information; & Experiences

Market offering & “Product” (purchased)*• Can be tangible good or intangible service• “Service” are all services used to facilitate & support


Market Offering

• Traditional “Product” View Has PitfallsMarketing Myopia

• Paying so much attention to the specific products a company offers that benefits & experiences are overlooked (e.g., Buggy-whip example)

• Service-Dominant Logic*Products are bundles of “services” or “brand

experiences”Spoken in terms of a Value Proposition


Value Proposition Examples

• Drill Bit Example:• What is really being sold?

• Toaster Example?• What is really being sold?

• Disney Example?• What is really being sold?


Value Proposition Examples

• Drill Bit Example:• What is really being sold?

Ability to generate a particular sized hole (½” bit = ½” hole)

• Toaster Example?• What is really being sold?

A system for cooking one’s bread and making crispy

• Disney World Example?• What is really being sold?

A world of wonder where dreams come true, not just rides


Exchange and Relationships

• Marketers make Value Propositions to “Markets” with a goal of “Exchange” over time

• Market The set of actual & potential consumers of a product based upon

some shared need or want

• Exchange Obtaining a desired object from someone by offering something

in return• Marketers obtain money by offering value propositions that meet or exceed

expectations

• Relationships, not one-time exchanges, are key.


Designing a Customer-Driven Marketing Strategy

• Marketing ManagementSeeks to answer two questions:

1. What customers will we serve? Target markets through market segmentation

2. How can we serve these customers best? Development and articulation of the value proposition


Marketing Management

Marketing Management

1. CustomerManagement1. CustomerManagement

2. DemandManagement2. Demand

Management

Marketing Management Orientations

• Five Philosophies of Marketing Management

1. Production Concept

2. Product Concept

3. Selling Concept

4. Marketing Concept

5. Societal Marketing Concept


Marketing Concept

• A management philosophy which advocates that a firm:

• Exists to identify and satisfy the needs of its customers Customer orientation

• That a customer orientation is accomplished through an integrative effort throughout the firm

Integrated effort

• That the firm’s focus should be long-term and seek to provide a satisfactory return on owner’s investment (ROI)

Long-term profit orientation


Societal Marketing Concept

• A management philosophy which advocates that a firm:Follow the traditional marketing concept, yet

consider how changes in any portion of one’s offering might enhance…

1. Consumers’ and society’s immediate well-being

2. Consumers’ long-term interests

3. Opportunity for future generations to meet their needs (i.e., sustainable marketing)


An Integrated Marketing Program

• One’s marketing strategy “in action”, or…

• A Marketer’s Toolbox…The “Marketing Mix”

• The 4 Ps1. Product

2. Place

3. Price

4. Promotion

Value is created on these 4 “fronts”


CRM:Customer Relationship Management

• Customer data managementLeveraging detailed information & customer

“touchpoints” (interactions) to maximize loyalty.

Maximization of customer delivered value through the management of customers

• Acquisition,• Retention, and• Growth


Building Blocks of aRelationship (Value)

• Value Is “customer perceived”

• Largely idiosyncratic* but generalizable based on “themes” (segmentation)

Drivers include:• Convenience• “Total” cost• Selling Price• Authenticity• Exclusivity• Finishes• Conspicuousness (referent power)


Building Blocks of a Relationship (Customer Satisfaction)

• SatisfactionThe difference between one’s perceived

performance (i.e., experience) & expectations• A “net loss” ~ dissatisfied• A “net neutral” ~ satisfied• A “net positive” ~ highly satisfied or “delighted”

Likely to become “customer evangelists”

“Indirect” driver of firm performance (e.g., sales)Yet, maximization is not the goal

• Must know break-even point for all services provided*


Consumer Spending and “Lagged” Satisfaction (ACSI)*


Note the larger lag during & after the “Great Recession” – consumers must also have funds available in order to purchase

Appropriate Levels of Customer Relationship

• “Closeness” is a function profitabilityConsidered in terms of a continuum

• Low Margin customers “Basic” relationship is best

• Relationships only through websites, apps, advertising, etc.

• High Margin customers “Full Partnership” is possible

• Relationship with constant, personal communication; information sharing, etc.

Tools to enhance “bond” and profitability include:• Frequency marketing programs & Club Memberships• Goal is to enhance loyalty through switching costs


Changing Nature of Customer Relationships

• From “Mass Marketing” to “Selected” RelationshipsCustomer Profitability Analysis During…

Customer Acquisition No longer “Seining” for all fish in the sea

Surveys, Credit ratings, etc.

Customer Retention 80/20 Rule* Fire “Poor” or “High Maintenance” customers

“Segmentation for termination” purposes Example: Sprint termination letter, gift cards to competitors, etc.


Interactive Customer Relationships

• Fueled by technology and social media• No longer marketing by intrusion

• Mass marketing is naturally intrusive and designed to interrupt one’s attention

Marketing by attraction• Marketing that includes consumers

Use of social media and technology isn’t enough Co-creation is key

• Gives up control, yet• Gains authenticity & engagement (part of the conversation)

A delicate balancing act to ensure hijacking is curtailed


Partner Relationship Management

• Both Intra- and Inter-firm partners• Intra-firm partners

• No longer is marketing the only function representing the customer

Non-marketers performing marketing

Inter-firm partners• Marketing messages must be managed throughout and

across the entire channel


Capturing Value from Customers

• Value is captured from customers via…Current and future sales, market share, and profit.

• Key outcomes of customer value include…Customer loyalty & retention

• 5 times as much to get a “new” customer

Greater share of “market” and “customer”, and

Growth in customer equity


Customer Equity

• The total combined customer lifetime values (CLVs) of all the company’s current & future customers

Customer Lifetime Value• The value of the entire stream of purchases that the

customer would make over a lifetime of patronage Consider the cost of losing just one customer

• UPS example

• Why customers must be managed based on profitability Recall 80/20 rule


Drivers of Change in Marketing

• Economy

• Technology

• Non-profit marketing

• Globalization

• Sustainable marketing


principles of marketing chapter 1: marketing: creating & capturing customer value

Documents

marketing mixthe

basic goals

organizational goals

specific products

existing customers

new customers

value propositiondr

culture personalitydemandwants