p. 38
PPT 1-19
PPT 1-20
PPT 1-21
p. 39
Discuss customer relationship management and identify
strategies for creating value for customers and capturing
value from customers in return.
ENGAGING CUSTOMERS AND MANAGING
CUSTOMER RELATIONSHIPS
Customer Relationship Management
Customer relationship management is perhaps the most
important concept of modern marketing.
Customer relationship management is the overall process
of building and maintaining profitable customer relation-
ships by delivering superior customer value and
satisfaction.
It deals with all aspects of acquiring, keeping, and growing
customers.
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 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.”
Instead, customers act on perceived value.
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
Learning Objective
4
p. 38
Key Term:
Customer
relationship
management
p. 38
Key Term:
Customer-perceived
value
p. 39
Key Term:
Customer
satisfaction
p. 39
Photo: Steinway
piano
p. 40
attempt to maximize customer satisfaction.
A company can always increase customer satisfaction by
lowering its price 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 often or in large quantities.
Companies sponsor club marketing programs that offer
members special benefits and create member communities.
(For example, Harley-Davidson sponsors the Harley
Owners Group [H.O.G.].)
p. 39
Photo: L.L.Bean
p. 39
Photo: JetBlue
p. 41
PPT 1-22
Customer Engagement and Today’s Digital and Social
Media
Yesterday’s big companies focused on mass marketing to all
customers at arm’s length.
Today’s companies are building deeper, more direct, and
more lasting relationships with carefully selected customers.
The new marketing is customer-engagement marketing,
fostering direct and continuous customer involvement in
shaping brand conversations, brand experiences, and brand
community. It involves using a rich mix of online, mobile,
and social media marketing that promotes engagement and
conversation.
Customer-engagement marketing goes beyond just selling a
p. 41
Photo: Customer
engagement
marketing
p. 42
PPT 1-23
brand to consumers. Its goal is to make the brand a
meaningful part of consumers’ conversations and lives.
The burgeoning Internet and social media have given a huge
boost to customer-engagement marketing.
Today’s consumers are better informed, more connected,
and more empowered than ever before. Newly empowered
consumers have more information about brands, and they
have a wealth of digital platforms for airing and sharing
their brand views with others.
The marketing world is now embracing customer-managed
relationships.
Companies can no longer rely on marketing by intrusion.
Companies must practice marketing by attraction—creating
market offerings and messages that involve consumers
rather than interrupt them.
Consumer-generated marketing has become a significant
marketing force. Here, consumers themselves are playing a
bigger role in shaping their own brand experiences and
those of others.
As consumers become more connected and empowered, and
as the boom in digital and social media technologies
continues, consumer brand engagement, whether invited or
not, will be an important marketing force. Brands must
embrace this trend or risk being left behind.
p. 41
Key Term:
Customer-engagem
ent marketing
p.42
Key Term:
Consumer-generate
d marketing
p. 43
Photo: Mountain
Dew
Resources, Applications
Use Real Marketing 1.1 and 1.2 here
Use Video Case here
Use Small Group Assignment 1 and 2 here
Use Additional Project 3 here
Use Think-Pair-Share 4 here
p. 43
PPT 1-24
Partner Relationship Management
Today’s marketers know they must work closely with others
inside and outside the company to jointly bring more value
to customers.
Today, firms are linking all departments in the cause of
creating customer value. In today’s connected world, every
functional area in the organization can interact with
p. 43
Key Term: Partner
relationship
management
customers.
Rather than assigning only sales and marketing people to
customers, firms are forming cross-functional customer
teams.
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.
p. 44
p. 44
PPT 1-25
CAPTURING VALUE FROM CUSTOMERS
The first four steps in the marketing process 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 (CRM) is to
create both customer satisfaction and customer delight.
This means that companies must aim high in building
customer relationships.
Customer delight creates an emotional relationship with a
product or service, not just a rational preference.
Companies are realizing that losing a customer means
losing more than a single sale. It means losing customer
lifetime value.
p. 44
Photo: Stew
Leonard
p. 44
Key Term:
Customer lifetime
value
Resources, Applications
Use Marketing by the Numbers here
Use Individual Assignment 1 here
p. 44
PPT 1-26
p. 45
PPT 1-27
p. 46
Growing Share of Customer
Share of customer is defined as the portion of the
customer’s purchasing that a company gets in its product
categories. Thus, banks want to increase “share of wallet.”
To increase share of customer, firms can offer greater
variety to current customers.
Or, they can create programs to cross-sell and up-sell to
market more products and services to existing customers.
Building Customer Equity
Companies want not only to create profitable customers, but
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 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. Whereas
sales and market share reflect the past, customer equity
suggests the future.
Building the Right Relationships with the Right
Customers
Companies should manage customer equity carefully. They
should view customers as assets that need to be managed
and maximized. But not all customers, not even loyal
customers, are good investments. Surprisingly, some loyal
customers can be unprofitable, and some disloyal customers
can be profitable. Which customers should the company
acquire and retain?
The company can classify customers by potential
profitability and manage relationships with them
accordingly.
p. 46
Key Term: Share of
customer
p. 45
Key Term:
Customer equity
p. 45
Photo: Cadillac
PPT 1-28
Figure 1.5 classifies customers into one of four relationship
groups, according to their profitability and projected loyalty.
Each group requires a different relationship management
strategy.
Strangers show low potential profitability and little
projected loyalty. There is little fit between the company’s
offerings and their needs. The relationship management
strategy for these customers is simple: Don’t invest
anything in them; make money on every transaction.
Butterflies are potentially profitable but not loyal. There is a
good fit between the company’s offerings and their needs.
However, efforts to convert butterflies into loyal customers
are rarely successful. Instead, the firm should create
satisfying and profitable transactions with them, capturing
as much of their business as possible in the short time
during which they buy from the company. Then, it should
move on and 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 nurture, retain, and grow them.
It wants to turn true friends into true believers, who come
back regularly and tell others about their good experiences
with the company.
Barnacles are highly loyal but not very profitable. There is
a limited fit between their needs and the company’s
offerings. Barnacles are perhaps the most problematic
customers. The company might be able to improve their
profitability by selling them more, raising their fees, or
reducing service to them. However, if they cannot be made
profitable, they should be “fired.”
The point here is an important one: Different types of
customers require different engagement and relationship
management strategies. The goal is to build the right
relationships with the right customers.
Review Learning Objective 4: Discuss customer
relationship management and identify strategies for
creating value for customers and capturing value from
p. 46
Figure 1.5:
Customer
Relationship
Groups
PPT 1-29
p. 46
p. 46
PPT 1-30
p. 47
customers in return.
Describe the major trends and forces that are changing
the marketing landscape in this age of relationships.
THE CHANGING MARKETING LANDSCAPE
This section explores five major developments: the digital
age, the changing economic environment, the growth of
not-for-profit marketing, rapid globalization, and the call for
more ethics and social responsibility.
The Digital Age: Online, Mobile, and Social Media
Marketing
The explosive growth in digital technology has
fundamentally changed the way we live—how we
communicate, share information, access entertainment, and
shop.
An estimated 3.3 billion people—46 percent of the world’s
population—are now online.
Nearly two-thirds of all American adults own smartphones;
these numbers will only grow as digital technology rockets
into the future.
Most consumers are totally smitten with all things digital.
According to one study, nearly three-fourths of Americans
keep their mobile phone next to them when they
sleep—they say it’s the first thing they touch when they get
up in the morning and the last thing they touch at night.
Digital and social media marketing involves using digital
marketing tools such as Web sites, social media, mobile ads
and apps, online video, e-mail, blogs, and other digital
platforms that engage consumers anywhere, anytime via
their computers, smartphones, tablets, internet-ready TVs,
and other digital devices.
These days, it seems that every company is reaching out to
customers with multiple websites, newsy Tweets and
Facebook pages, viral ads and videos posted on YouTube,
rich-media e-mails, and mobile apps that solve consumer
problems and help them shop.
At the most basic level, marketers set up company and
Learning Objective
5
p. 47
Photo: Petco, social
media marketing
p. 47
Key Term: Digital
and social media
marketing
brand websites that provide information and promote the
company’s products. Many of these sites also serve as
online brand communities, where customers can congregate
and exchange brand-related interests and information.
Social Media Marketing
Social media provide exciting opportunities to extend
customer engagement and get people talking about a brand.
Mobile Marketing
Mobile marketing is perhaps the fastest-growing digital
marketing platform.
p. 50
p. 49
Photo: NASA,
Social media
marketing
p. 50
Photo: Redbox
Resources, Applications
Use Discussion Question 1-4 and 1-5 here
Use Critical Thinking 1-7 here
Use Online, Mobile, and Social Media Marketing
here
Use Video Case here
Troubleshooting Tip
Traditional-age undergraduates have spent their
entire lives with technology, so some of them may
snicker when the discussion turns to how technology
has changed business in general and marketing more
specifically. A discussion of the difficulties of
connecting to consumers without the Internet is
warranted. How would the students approach a
one-on-one relationship with millions of customers
if they didn’t have e-mail, the Internet, or tweets?
p. 50
p. 51
The Changing Economic Environment
The Great Recession of 2008 to 2009 and its aftermath hit
American consumers hard. After two decades of
overspending, new economic realities forced consumers to
bring their consumption back in line with their incomes and
rethink their buying priorities.
The Growth of Not-for-Profit Marketing
In recent years, marketing has also become a major part of
p. 51
Photo: St. Jude
PPT 1-31
p. 52
p. 53
PPT 1-32
p. 53
the strategies of many not-for-profit organizations, such as
colleges, hospitals, museums, zoos, symphony orchestras,
foundations, and even churches. The nation’s not-for-profits
face stiff competition for support and membership. Sound
marketing can help them attract membership, funds, and
support. For example, not-for-profit St. Jude Children’s
Research Hospital has a special mission: “Finding cures.
Saving children.”
Rapid Globalization
As they are redefining their customer relationships,
marketers are also taking a fresh look at the ways in which
they relate with the broader world around them. Today,
almost every company, large or small, is touched in some
way by global competition.
Sustainable Marketing—The Call for More
Environmental and Social Responsibility
Marketers are reexamining their relationships with social
values and responsibilities and with the very earth that
sustains us. As the worldwide consumerism and
environmentalism movements mature, today’s marketers are
being called on to develop sustainable marketing.
Review Learning Objective 5: Describe the major trends
and forces that are changing the marketing landscape in this
age of relationships.
SO, WHAT IS MARKETING? PULLING IT ALL
TOGETHER
Marketing is the process of building profitable customer
relationships by creating value for customers and capturing
value in return.
The first four steps in the marketing process create value for
customers.
The final step in the process allows the company to capture
value from customers.
When building customer and partner relationships,
companies must harness marketing technology, take
advantage of global opportunities, and act in an ethical and
Children’s Research
Hospital
p. 53
Photo: Ben &
Jerry’s
p. 54
Figure 1.6: An
Expanded Model of
the Marketing
Process
socially responsible way.
Figure 1.6 provides a road map to future chapters of this
text.
Resources, Applications
Use Critical Thinking 1-8 here
Use Marketing Ethics here
Use Individual Assignment 2 here
Use Company Case here