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Marketing: Managing Profitable Customer Relationships SWH SWH Market & Product SWH A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through exchange relationships. Product (Marketing Offer): physical product, service, information, experience, person, place, organization, and ideas. SWH Examples of Product SWH SWH Definition of Marketing SWH Marketing is the process of planning and executing the conceptions, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. (AMA) Marketing is meeting needs profitably. SWH Marketing Philosophy The Production Concept The Product Concept The Selling Concept ------------------------------------------------------- The Marketing Concept The Customer Concept The Societal Marketing Concept SWH SWH The Production Concept SWH Consumers will prefer products that are widely available and inexpensive. Focus: achieving high production efficiency, low costs, and mass distribution. It is useful when (1) the demand for a product exceeds the supply; (2) the product’s cost is too high. Examples: Standard Raw Materials and Components, CD, LCD. SWH The Product Concept SWH Consumers will favor those products that offer the most quality, performance, or innovative features. Focus: making superior products and improving them over time. Examples: Digital Camera, CPU. Better Mousetrap Fallacy Marketing Myopia. (Theodoes Levitt, 1965) SWH The Selling Concept SWH Consumers and businesses, if left alone, will ordinarily not buy enough of organization’s products. Focus: undertake an aggressive selling and promotion effort. Examples: unsought goods: encyclopedias, funeral plots, foundations. SWH The Marketing Concept SWH The key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating superior customer value to its chosen target markets. Slogans: We do it all for you (Toyota). Four pillars: target market, customer needs, integrated marketing and profitability. SWH Contrasts Between the Sales Concept and the Marketing Concept SWH SWH The Customer Concept SWH SWH The Societal Marketing Concept SWH The organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and society’s wellbeing. Examples: Body Shop; HSBC; Johnson & Johnson’s Tylenol; SWH Needs, Wants and Demands Needs: the basic human requirements. SWH Physical: food, clothing, shelter, safety Social: belonging, affection Individual: learning, knowledge, self-expression Wants: when needs are directed to specific objects that might satisfy the need. Demands : wants for specific products backed by an ability to pay. SWH Demand States and Marketing Tasks Marketing managers are responsible for demand management. SWH Negative Demand → Counter Marketing, e.g. insurance. No Demand → Stimulus, e.g. encyclopedias. Latent Demand → Developing, e.g. iPod; Declining Demand → Remarketing, e.g. Arm & Hammer’s baking soda → deodorizer; school. SWH Demand States and Marketing Tasks Marketing managers are responsible for demand management. SWH Irregular Demand → Synchro marketing, e.g. ice cream; museum. Full Demand → Maintain Marketing Overfull Demand → Mister Donut; Unwholesome Demand → Social Marketing, e.g. cigarettes; drunk-driving. SWH Customer Relationship Management (CRM) SWH The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. On average, it costs 5 to 10 times as much to attract a new customer as it does to keep a current customer satisfied. (Sears – 12 times) SWH Customer Perceived Value SWH The difference between total customer value and total customer cost. Value chain, e.g. Wal-Mart. Value-delivery network, e.g. Honda. SWH Customer Lifetime Value and Equity Customer lifetime value: the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Customer equity: the total combined customer lifetime values of all of the company’s customers. SWH Lexus: $600,000; Taco Bell: $12,000; Supermarket: $50,000. Cadillac vs. BMW SWH Selective Relationship Management SWH Weed out losing customers and target winning ones for pampering. Examples: Citibank; First Chicago Bank; Fidelity Investment. Risk: future profits are hard to predict. SWH Customer Relationship Groups Butterflies High Profitability Good fit between company’s offerings and customer’s needs; high profit potential True Friends Good fit between company’s offerings and customer’s needs; highest profit potential Strangers Low Little fit between company’s offerings and customer’s needs; lowest profit potential Barnacles Limited fit between company’s offerings and customer’s needs; low profit potential Long-term customers Short-term customers SWH SWH Projected loyalty Share of Customer The portion of the customer’s purchasing in its product categories that a company gets. Methods to increase share of customer SWH Offer greater variety to current consumers Train employees to cross-sell and up-sell in order to market more products and services to existing customers. Amazon: books, music, videos, gifts, toys, consumer electronics, office products, and so on. SWH Customer Satisfaction SWH The extent to which a product’s perceived performance matches a buyer’s expectation. Smart companies aim to delight customers by promising only what they can deliver, then delivering more than they promise. Examples: Lexus; Southwest Airlines; Seasons Hotels; Nordstrom department store. SWH Satisfying Customer Complaints SWH Rate of dissatisfaction: 25%; rate of complaint in dissatisfaction: 5%. 50% of complaints report a satisfactory problem resolution. Examples: Williams-Sonoma; Enterprise Rent-A-Car. On average, satisfied →3 people, and dissatisfied → 11 people. SWH Satisfying Customer Complaints SWH Rate of complainant repurchase Resolved Resolved quickly Major complaints 34% 52% Minor complaints 52% 95% SWH In 1981, American Airlines first introduced the AADVANTAGE frequent-flier program. When other airlines copied this strategy, did they engage in unethical behavior? SWH SWH