978-0134149530 Chapter 1 Lecture Note Part 1

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Chapter 1 Marketing: Creating Customer Value and Engagement

CHAPTER 1

MARKETING: CREATING CUSTOMER VALUE AND ENGAGEMENT

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES

. Define marketing and outline the steps in the marketing process.

2. Explain the importance of understanding the marketplace and customers and

identify the five core marketplace concepts.

3. Identify the key elements of a customer-value driven marketing strategy and

discuss the marketing management orientations that guide marketing strategy.

4. Discuss customer relationship management and identify strategies for creating

value for customers and capturing value from customers in return.

5. Describe the major trends and forces that are changing the marketing landscape in

this age of relationships.

JUST THE BASICS

CHAPTER OVERVIEW

Marketing is managing profitable customer relationships.

The aim of marketing is to create value for customers and to capture value in return.

Marketing is defined as a social and managerial process by which individuals and groups

obtain what they need and want through creating and exchanging value with others.

Chapter 1 is organized around five steps in the marketing process (see Figure 1.1) – from

understanding customer needs, to designing customer-driven marketing strategies and

programs, to building customer relationships and capturing value for the firm.

ANNOTATED CHAPTER NOTES/OUTLINE

FIRST STOP

Nike’s Customer-Value Driven Marketing: Engaging Customers and Building Brand

Community

The Nike “swoosh” is everywhere! Over the past 50 years, through innovative marketing,

Nike has built the ever-present swoosh into one of the world’s best-known brand

symbols.

Product innovation has always been a cornerstone of Nike’s success. To build image and

market share, the brand lavishly outspent competitors on big-name endorsements, splashy

promotional events, and big-budget, in-your-face “Just Do It” ads. Whereas competitors

stressed technical performance, Nike built customer engagement and relationships.

Nike marketed a way of life, a genuine passion for sports, a “just-do-it” attitude. Nike’s

mission isn’t to “make better gear,” it’s to “connect with and inspire athletes around the

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Chapter 1 Marketing: Creating Customer Value and Engagement

world.”

The brand spends a lion’s share of its marketing budget on cutting-edge digital and social

media marketing that interacts with customers to build brand engagement and

community.

Nike placed first in creating brand “tribes”—large groups of highly engaged users—with

the help of social media platforms such as Facebook, Twitter, Instagram, YouTube, and

Pinterest.

Nike excels at cross-media campaigns that integrate digital media with traditional tools to

connect with customers. An example is Nike’s recent “Risk Everything” World Cup

soccer campaign.

By the end of the final World Cup match, the Risk Everything videos had produced 372

million views, 22 million engagements (Likes, comments, shares), and 650,000 uses of

#riskeverything.

Nike has also created customer value and brand community through groundbreaking

mobile apps and technologies

Thus, Nike delivers customer value well beyond the products it makes. It has built a deep

kinship and sense of community with and between the Nike brand and its customers.

WHAT IS MARKETING?

A simple definition of marketing is engaging customers and managing profitable

customer relationships.

Marketing must both attract new customers and grow the current customers.

Every organization must perform marketing functions, not just for-profit companies.

Non-profits (colleges, hospitals, churches, etc.) also must perform marketing.

Marketing Defined

Most people think of marketing as selling and/or advertising—“telling and selling.”

Selling and advertising are only part of a larger marketing mix—a set of marketing tools

that work together to satisfy customer needs and build customer relationships.

We define marketing as the process by which companies create value for customers and

build strong customer relationships in order to capture value from customers in return.

Use Key Term Marketing here.

Use Chapter Objective 1 here.

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Chapter 1 Marketing: Creating Customer Value and Engagement

The Marketing Process

Figure 1.1 shows the five-step marketing process.

1. Understand the marketplace and customer needs and wants.

2. Design a customer-driven marketing strategy.

3. Construct a marketing program that delivers superior value.

4. Build profitable relationships and create customer delight.

5. Capture value from customers to create profits and customer quality.

Use Figure 1.1 here.

In the first four steps, companies work to understand consumers, create customer value,

and build strong customer relationships.

In the final step, companies reap the rewards of creating superior customer value. By

creating value for consumers, they in turn capture value from consumers in the form of

sales, profits, and long-term customer equity.

UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS

Five core customer and marketplace concepts are critical: (1) needs, wants, and demands;

(2) market offerings (products, services, and experiences); (3) value and satisfaction; (4)

exchanges and relationships; and (5) markets.

Customer Needs, Wants, and Demands

The most basic concept underlying marketing is that of human needs.

Human needs are states of felt deprivation. They include physical, social, and

individuals needs. Marketers did not create these needs; they are a basic part of the

human makeup.

Wants are the form human needs take as they are shaped by culture and individual

personality. An American needs food but wants a Big Mac.

When backed by buying power, wants become demands.

Outstanding marketing companies go to great lengths to learn and understand their

customers’ needs, wants, and demands.

Use Key Terms Needs, Wants, and Demands here.

Use Discussion Question 1-1 here.

Market Offerings—Products, Services, and Experiences

Needs and wants are fulfilled through market offerings—some combination of products,

services, information, or experiences offered to a market to satisfy a need or want.

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Chapter 1 Marketing: Creating Customer Value and Engagement

Market offerings are not limited to physical products. They also include services—

activities or benefits offered for sale that are essentially intangible and do not result in the

ownership of anything.

Marketing myopia occurs when a company becomes so taken with their own products

that they lose sight of underlying customer needs.

Use Chapter Objective 2 here.

Use Key Terms Market Offering and Marketing Myopia here.

Customer Value and Satisfaction

Customers form expectations about the value and satisfaction that various market

offerings will deliver and buy accordingly.

Satisfied customers buy again and tell others about their good experiences.

Dissatisfied customers switch to competitors and disparage the product to others.

Customer value and customer satisfaction are key building blocks for developing and

managing customer relationships.

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.

Use Key Term Exchange here.

Use Critical Thinking Exercise 1-6 here.

Markets

A market is the set of actual and potential buyers of a product.

Marketing means managing markets to bring about profitable customer relationships.

Figure 1.2 shows the main elements in a marketing system.

Use Figure 1.2 here.

Use Key Term Market here.

DESIGNING A CUSTOMER-DRIVEN MARKETING STRATEGY

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Chapter 1 Marketing: Creating Customer Value and Engagement

Marketing management is defined as the art and science of choosing target markets and

building profitable relationships with them.

Use Chapter Objective 3 here.

Use Key Term Marketing Management here.

The marketing manager must answer two important questions:

1. What customers will we serve (what’s our target market)?

2. How can we serve these customers best (what’s our value proposition)?

Selecting Customers to Serve

A company must decide whom it will serve.

It does this by dividing the market into segments of customers (market segmentation) and

selecting which segments it will go after (target marketing).

Marketing managers know they cannot serve all customers. By trying to do so, they end

up not serving any well.

Marketing management is customer management and demand management.

Choosing a Value Proposition

A company’s value proposition is the set of benefits or values it promises to deliver to

consumers to satisfy their needs. (Facebook helps you “connect and share with the people

in your life,” whereas Twitter’s Vine app gives you “the best way to see and share life in

motion” through “short, beautiful, looping videos in a simple and fun way for your

friends and family to see.”)

Such value propositions differentiate one brand from another.

Marketing Management Orientations

Marketing management wants to design strategies that will build profitable relationships

with target consumers. But what philosophy should guide these marketing strategies?

There are five alternative concepts under which organizations design and carry out their

marketing strategies:

1) The Production Concept

The production concept holds that consumers will favor products that are available and

highly affordable.

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Chapter 1 Marketing: Creating Customer Value and Engagement

Management should focus on improving production and distribution efficiency.

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.

3) The Selling Concept

The selling concept holds that consumers will not buy enough of the firm’s products

unless the firm 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 or blood donations.

These industries must be good at tracking down prospects and selling them on product

benefits.

4) The Marketing Concept

The marketing concept holds that achieving organizational goals depends on knowing

the needs and wants of target markets and delivering the desired satisfactions better than

competitors do.

Under the marketing concept, customer focus and value are the paths to sales and profits.

The job is not to find the right customers for your product but to find the right products

for your customers.

The selling concept takes an inside-out approach, whereas the marketing concept uses

an outside-in perspective. (Figure 1.3)

Customer-driven companies research current customers deeply to learn about their

desires, gather new product and service ideas, and test proposed product improvements.

Customer-driving marketing involves understanding customer needs even better than

customers themselves do and creating products and services that meet existing and latent

needs.

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

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Chapter 1 Marketing: Creating Customer Value and Engagement

welfare.

This has been called Marketing 3.0 or purpose-driven marketing.

The societal marketing concept holds that companies should balance three considerations

in setting their marketing strategies: company profits, consumer wants, and society’s

interests. (Figure 1.4)

Use Key Terms Production Concept, Product Concept, Selling Concept, Marketing

Concept, and Societal Marketing Concept here.

Use Discussion Question 1-2 here.

Use Figures 1.3 and 1.4 here.

PREPARING AN INTEGRATED MARKETING PLAN AND PROGRAM

The company’s marketing strategy outlines 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.

The marketing program consists of the firm’s marketing mix, the set of marketing tools

the firm uses to implement its marketing strategy.

The marketing mix tools are classified into the four Ps of marketing: product, price,

place, and promotion.

The firm blends all of these marketing mix tools into a comprehensive integrated

marketing program that communicates and delivers the intended value to chosen

customers.

Use Linking the Concepts 1 here.

ENGAGING CUSTOMERS AND MANAGING CUSTOMER RELATIONSHIPS

Customer Relationship Management

Customer relationship management is the most important concept of modern marketing.

Customer relationship management is the overall process of building and maintaining

profitable customer relationships by delivering superior customer value and satisfaction.

It deals with all aspects of acquiring, keeping, and growing customers.

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Chapter 1 Marketing: Creating Customer Value and Engagement

Relationship Building Blocks: Customer Value and Satisfaction

The key to building lasting customer relationships is to create superior customer value

and satisfaction.

Customer-Perceived Value. This is the customer’s evaluation of the difference between

all the benefits and all the costs of a market offering relative to those of competing offers.

Customers often do not judge values and costs “accurately” or “objectively.”

They act on perceived value.

Customer Satisfaction. Customer satisfaction depends on the product’s perceived

performance relative to a buyer’s expectations.

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.

Although the customer-centered firm seeks to deliver high customer satisfaction relative

to competitors, it does not attempt to maximize customer satisfaction.

A company can always increase customer satisfaction by lowering its prices or increasing

its services. But this may result in lower profits.

The purpose of marketing is to generate customer value profitably.

Customer Relationship Levels and Tools

Companies can build customer relationships at many levels.

At one extreme, a company with many low-margin customers may seek to develop basic

relationships with them.

At the other extreme, in markets with few customers and high margins, sellers want to

create full partnerships with customers.

Many companies offer frequency marketing programs that reward customers who buy

frequently or in large amounts.

Companies sponsor club marketing programs that offer members special benefits and

create member communities. (For example, buy a Weber grill and you can join the Weber

Nation – “the site for real people who love their Weber grills.”)

Use Chapter Objective 4 here.

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Chapter 1 Marketing: Creating Customer Value and Engagement

Use Key Terms Customer Relationship Management, Customer Perceived Value, and

Customer Satisfaction here.

Use Video Case here.

Engaging Customers

Significant changes are occurring in the nature of customer brand relationships.

Customer Engagement and Today’s Digital and Social Media

Yesterday’s companies focused on mass marketing to all customers at arm’s length.

Today’s companies are using online, mobile, and social media to refine their targeting and

to engage customers more deeply and interactively.

Old marketing involved marketing brands to consumers. The new marketing is

customer-engagement marketing.

Customer-engagement marketing goes beyond just selling a brand to consumers. Its goal

is to make the brand a meaningful part of consumers’ conversations and lives.

Use Key Term Customer-Engagement Marketing here.

Use Discussion Question 1-3 here.

Consumer-Generated Marketing. A growing part of the new consumer dialogue is

consumer-generated marketing, by which consumers themselves are playing a bigger role

in shaping their own brand experiences and those of others.

Harnessing consumer-generated content can be a time-consuming and costly process, and

companies may find it difficult to glean even a little gold from all the garbage.

Consumer-generated marketing, whether invited by marketers or not, will be an

increasingly important marketing force.

Use Key Term Consumer-Generated Marketing here.

Use Discussion Question 1-4 here.

Use Critical Thinking Exercise 1-7 here.

Partner Relationship Management

Marketers must not only be good at customer relationship management, they must also be

good at partner relationship management – working closely with others inside and outside

the company to jointly bring more value to customers.

The new thinking is that – no matter what your job is in the company – you must

understand marketing and be customer focused.

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Chapter 1 Marketing: Creating Customer Value and Engagement

Marketing channels consist of distributors, retailers, and others who connect the company

to its buyers.

The supply chain describes a longer channel, stretching from raw materials to

components to final products that are carried to final buyers.

Through supply chain management, many companies today are strengthening their

connections with partners all along the supply chain.

Use Key Term Partnership Relationship Management here.

CAPTURING VALUE FROM CUSTOMERS

The first four steps in the marketing process outlined in Figure 1.1 involve building

customer relationships. The final step involves capturing value in return.

By creating superior customer value, the firm creates highly satisfied customers who stay

loyal and buy more.

Creating Customer Loyalty and Retention

The aim of customer relationship management is to create not just customer satisfaction,

but customer delight.

Companies 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.

Use Key Term Customer Lifetime Value here.

Growing Share of Customer

Share of customer is defined as the share the company gets of customers purchasing in

their product categories. (Thus, banks want to increase “share of wallet.”)

Use Key Term Share of Customer here.

Building Customer Equity

Companies want not only to create profitable customers, but also to “own” them for life,

capture their customer lifetime value, and earn a greater share of their purchases.

What Is Customer Equity?

Customer equity is the total combined customer lifetime values of all of the company’s

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Chapter 1 Marketing: Creating Customer Value and Engagement

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.

Building the Right Relationships with the Right Customers

Not all customers, not even all loyal customers, are good investments.

Figure 1.5 classifies customers into one of four relationship groups, according to their

profitability and projected loyalty.

“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: Different types of customers require different relationship management

strategies.

The goal is to build the right relationships with the right customers.

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