Download What is Marketing?

Principles Of Marketing
PHILIP KOTLER, GARY ARMSTRONG
Chapter One
Marketing: Managing Profitable
Customer Relationships
Looking Ahead
• Define marketing and the marketing processes.
• Explain the importance of understanding
customers and the marketplace.
• Identify the five core marketplace concepts.
• Identify the key elements of a customer-driven
marketing strategy.
• Discuss customer relationship management
and ways of creating and obtaining value.
• Describe the major trends and forces changing
today’s marketing landscape.
What is Marketing?
• Attracting new customers by promising
and delivering superior value.
• Building long-term relationships with
customers by delivering continued
customer satisfaction.
• Creating, building and managing these
relationships profitably over time.
• Broad Definition:Marketing is a social and managerial
process by which individuals and groups
obtain what they need and want through
creating and exchanging value with
others.
• Narrower Definition:The process by which companies create
value for customers and build strong
customer relationships in order to capture
value from customers in return.
The Marketing Process Model
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 equity.
1.Understanding The Marketplace
And The Consumer Needs
Needs, Wants and Demands
• Needs are states of felt deprivation.
– Physical:
• Food, clothing, shelter, safety.
– Social:
• Belonging, affection.
– Individual:
• Learning, knowledge, self-expression.
Needs, Wants and Demands
• Wants are needs shaped by culture and
individual personality.
– Jeans vs a sari.
– Individual expression vs. collective good.
• Demands are wants combined with
buying power.
– Hilfiger vs. Giant Tiger.
– Jetta vs. Jaguar.
Products, Services, Experiences
• Products.
– Anything that can be offered for.
– Acquisition, attention, use or consumption.
– That might satisfy a need or want.
• Services.
– Activities or benefits offered.
– Essentially intangible.
– Do not result in ownership of anything.
• Experiences.
– Create, stage and market brand experiences.
– Attending live theatre, music concert.
Marketing Myopia
• Sellers pay more attention to the specific
products they offer than to the benefits and
experiences produced by the products.
• They focus on the “wants” and lose sight of the
“needs.”
– The great railroads lost out to the exploding trucking
industry.
– They forgot that their business was solving
transportation problems, not running railroads.
How Do Consumers
Choose Among Offers?

Customer Value – Difference between the values

Customer Satisfaction – Perceived performance
the customer gains from owning the product versus
the costs of obtaining it. Customers buy from the firm
that offers the highest customer perceived value
in providing value, relative to expectations – how well
the product lives up to expectations
Important: Perceptions are key
Set the right level of expectation
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Value and Satisfaction
• If the performance and the customer’s
experience is lower than expectations,
than customer satisfaction is low.
• If the performance and the customer’s
experience meets expectations, than the
customer is satisfied.
• If the performance and the customer’s
experience exceeds expectations, than
the customer is delighted.
Exchange and Transactions
• Exchange.
– The act of obtaining a desired object from
someone by offering something in return.
• Transaction.
– A trade between two parties that involves:
• two things of value.
• agreed upon conditions.
• time of agreement.
• place of agreement.
What is a Market?
• The set of actual and potential buyers of
a product.
• These people share a need or want that
can be satisfied through exchange
relationships.
Core Marketplace Concepts
• Customers have needs, wants and
demands.
• Marketers offer products or services.
• Customers seek value and satisfaction
from offers.
• Demands and offers result in
transactions and relationships.
• Markets are all potential customers with a
similar demand.
Customer-Driven Marketing
• Divide markets into segments.
• Choose the right segment to target.
• Offer a unique value proposition.
• Differentiate your offer from competitor
offers.
• Build customer value and satisfaction.
• Nurture long-term customer relationships.
ELEMENTS OF A MODERN
MARKETING SYSTEM
Figure 1.2
2.Designing A Customer
Driven Marketing Strategy
Marketing Management
The art and science of choosing target
markets and building profitable
relationships with them.
Selecting Customers To Serve
• The company must decide who it will
serve. It does this by dividing the market
into segments of customers (market
segmentation) and selecting which
segment it will go after (target marketing)
• Segmentation divides the market into
groups of customers with varying needs
and wants.
• Targeting selects the right segment to
nurture.
Connections With Customers
•
•
Most marketers are
targeting fewer, potentially
more profitable, customers
They are asking:
– Can we serve this customer
profitably?
•
Focus has shifted to:
– Retaining current customers
– Connecting in a deeper, more
lasting way – growing “share
of customer”
– Building relationships for
greater profitability
Demand Management
• Marketing management seeks to control
demand.
– Increasing demand is the norm.
– Demarketing seeks to reduce demand in
certain circumstances.
Marketing Management
Marketing
Management
Choosing target
markets and
building
profitable
relationships
with them
Demand
Management
Finding and
increasing demand;
(also changing or
reducing demand,
i.e.,“demarketing”)
Profitable
Customer
Relationships
Attracting new
customers, and
retaining and
building
relationships
with current
customers
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Value Proposition
The set of benefits or values the company
promises to deliver to its target markets
to satisfy their needs.
Marketing Management Orientations
•
•
1.
2.
3.
4.
5.
Marketing Management wants to design
strategies that will build profitable
relationships with target consumers
There are five alternative concepts under
which organizations design and carry out
there marketing strategies. These are:The Production Concept
The Product Concept
The Selling Concept
The Marketing Concept
The Societal Marketing Concept
Marketing Management Orientations
Based on different assumptions about:
- what customers want
- what marketers should do
Production Concept
Product Concept
Selling Concept
• Consumers favor products that are
available and highly affordable
• Consumers favor products that offer
the most quality, performance, and
innovative features
• Consumers will not buy enough unless
the firm undertakes large-scale selling
and promotion efforts
Marketing Concept
• Focuses on knowing the needs and wants
of target markets and delivering
satisfactions better than competitors
Societal Mktg. Concept
• Focuses on the needs and wants of target
markets and on maintaining or improving
customer and societal well-being
26
1.Production Concept
Demand > Supply; High Costs
(Still appropriate under these limited circumstances)

Consumers Favor:



Widely available
Highly affordable
Management’s Focus:



(p. 12)
“engineer”
Improving production efficiency
Improving distribution efficiency
DANGER: Marketing Myopia


Focuses too narrowly on company operations, not on customer
needs/wants
Company “falls in love” with its operations, not with its
customers
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2.Product Concept
(p. 12)

Consumers Favor:


Management’s Focus:



Quality, performance, innovative features
“inventor”
Making superior products (“build a better mousetrap”)
Continuous product improvements
DANGER: Marketing Myopia


Focuses too narrowly on physical products, not on underlying
customer needs/wants
Company “falls in love” with its products, not with its customers



Makes products that customers don’t care about (don’t need/want)
Over-improve (customers don’t care about the improvements)
New technology replaces (e. g. , more convenient, less expensive)
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Selling Concept
(May be appropriate for “unsought products”)

Consumers Favor:


Not buying, or not buying enough
Management’s Focus: “hard sell salesperson”



(p. 12)
Large-scale selling and promotion effort
Coaxing and pushing people to buy
DANGER: “Sell what you can make”
(versus “make what you can sell”)


Most customers who are dissatisfied do not buy again
Most customers who are dissatisfied spread bad word-ofmouth
29
Marketing Concept
(pp. 12-13)

Consumers Favor:


Products that satisfy their wants and needs
Management’s Focus: “customer centered”

Understanding needs and wants of customers –
what they need/want the product to do for
them



Underlying and latent needs as well as stated needs
Delivering desired satisfactions better than
competitors do
NOTE: “better than competitors” – keeps best of the
production and product concepts
30
Marketing and Selling Concepts
Contrasted
(Fig. 1.3, pp. 12-13)
Starting
Point
Factory
Focus
Existing
products
Means
Selling
and
promoting
Ends
Profits
through
sales volume
The Selling Concept (“inside-out”)
Market
Customer
needs
Integrated
marketing
Profits through
customer
satisfaction
The Marketing Concept (“outside-in”)
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5.Societal Marketing Concept

A Principal of enlightened marketing
that holds that a company should make
good marketing decisions by
considering consumer wants, the
company's requirements, consumers
long run interests and society’s long run
interests.
32
Societal Marketing Concept
Society
(Long-term consumer & societal welfare)
Maintain & improve
long-term well-being
Social responsibility
Societal
Marketing
Concept
Consumers
Company
(Short-term want
satisfaction)
(Profits)
Be ethical
Do good:
• customer-oriented,
• environment,
• innovative (real,
valued) product
improvements
• sense-of-highermission, give back
Stop doing bad
f
33
3.Preparing A 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 constructs a marketing
program that will actually deliver the
intended value to the target customers.
• The marketing program builds customer
relationships by transforming the
marketing strategy into action. It consists
of the firms Marketing mix.
•
•
1.
2.
3.
4.
The Marketing Mix
The marketing mix is the set of
marketing tools the firm uses to
implement its marketing strategy.
The major marketing mix tools are
classified into four broad groups, called
the four Ps of marketing. These are:Product
Price
Place
Promotion
Marketing Mix (contd.)
To deliver on its value proposition, the firm
must:
• Create a need-satisfying marketing offer
(Product)
• Decide how much it will charge for the
offer (Price)
• How it will make the offer available to the
target consumers (Place)
• How it will communicate with target
customers about the offer and persuade
them of its merits (Promotion)
4. Building Customer
Relationships
Relationship Marketing
• Customer relationship management.
The process of building and
maintaining profitable customer
relationships by delivering superior
customer value and satisfaction.
Relationship Building Blocks:
Customer Value and Satisfaction
• The key to building lasting customer
relationships is to create superior
customer value and satisfaction.
Satisfied customers are more likely
to be loyal customers and to give the
company a larger share of their
business
The Customer’s Experience
• Customer perceived value.
– Customer’s subjective view of the offer’s value
compared to competitive offers.
• Customer satisfaction.
– Customer’s subjective view of the value received in
return for the purchase price.
• Customer delight.
– Customer’s subjective view of the increased
value received above the purchase price.
Customer Satisfaction
Satisfaction = Performance (P) – Expectation (E)
Expectations are largely based on marketer
information and promises – must create
realistically high expectations
Reality = satisfaction has been declining
Performance
falls short of
expectations
P<E
Customer is
dissatisfied
Performance
exceeds
expectations
P>E
Performance
matches
expectations
P=E
Customer is
satisfied
Customer is
highly
satisfied
or
delighted !
42
Customer Relationship Levels and
Tools
• Companies can build customer
relationships at many levels, depending
upon the nature of the target market.
• At one extreme a company with many
low margin customers may seek to
develop basic relationships with the
customers. For example proctor &
gamble does not phone or call on all of
its customers to get to know the
personally.
Customer Relationship Levels and
Tools (continued)
• At the other extreme, in markets with
few customers and high margins,
sellers want to create full
partnerships with key customers. For
example proctor & gamble teams
work closely with Wal-mart
The Changing Nature of Customer
Relationship
Relating With More Carefully Selected
Customers
• Today most marketers realize that they do
not want relationships with every customer.
Instead companies are now targeting fewer
more profitable customers.
• Many companies now use customer
profitability analysis to weed out losing
customers and target winning ones for
pampering.
Relating for the Long-Term
• Just as companies are being more selective
about which customers they can choose to
serve they are serving chosen customers in
a deeper more lasting way
Relating Directly
• Beyond connecting more deeply with their
customers, many companies are also
connecting more directly.
• Direct marketing is booming. Consumers
can now buy virtually any product with out
going to the store – by telephone, mail-order
catalogs and online.
Partner Relationship Management
• Working with partners in other company
departments and outside the company to
jointly bring greater value to the
customers.
– Every department in an organization
contributes to customer satisfaction.
– Suppliers are carefully controlled through
supply chain management.
– Strategic alliances create new opportunities
to delight customers.
5.Capturing Value from
Customers
Creating Customer Loyalty And
Retention
• Good Customer relationship management
creates customer delight.
• In turn delighted customers remain loyal to
the company and its products.
• Thus the aim of customer relationship
management is to create not just customer
satisfaction, but customer delight.
Customer lifetime value.
• The value of the entire stream of
purchases that the customer would make
over a lifetime of patronage.
Capturing Value In Return
• Share of customer.
– Share of customer is the percentage of
customers that buy a company’s product of
all customers purchasing in that product
category.
– Companies continuously strive to grow their
share of customer.
– Creating brand extensions is a favoured
method of growing share of customer.
Building Customer Equity
• The total combined customer lifetime
value of all of the company’s customers.
• Often a more accurate measure of a
company’s value than sales or market
share.
• Combination of market share, share of
customer and lifetime customer value.
Customer Relationship Groups
• Targeting the right customers at the right
time.
–
–
–
–
Butterflies have high profitability with low loyalty.
True Friends have high profitability with high loyalty.
Strangers have low profitability with low loyalty.
Barnacles have low profitability with high loyalty.
• Challenge: make the Butterflies more loyal
and make the Barnacle more profitable.
• Keep the True Friends and “fire” the Strangers.
High
Profitability
Butterflies
True Friends
Good fit between
company’s offerings
and customer’s needs:
High profit potential
Good fit between
company’s offerings
and customers needs:
highest profit potential
Strangers
Barnacles
Little fit between
Low
Profitability company’s offerings
and customer’s needs:
lowest profit potential
Short-term Customers
Limited fit between the
company’s offerings
and customer’s need:
Low profit potential
Long-term Customers
New Marketing Technologies
• Technology has changed how marketers
build value.
– Internet and e-commerce/e-business.
– Fast and global communications.
– Wireless technologies.
– Relational databases.
• Instant, highly targeted communication
with customers and suppliers.
New Global Markets
• International trade is the new frontier.
• Export is critical to a country’s economic
growth.
• Difficult decision:
– Delay means risking loss of growing global
markets.
– Proceed means high risk but potentially high
reward.
Ethics and Responsibility
• Worldwide consumerism and
environmentalism movements exert.
pressure for greater responsibility
• Notion of “caring capitalism” tied to
societal marketing concepts.
– Seeking ways to make a profit by serving the
best long-run interests of customers and
communities.
Not-For-Profit Marketing
• Marketing of ideas, values and
institutions.
• Increasing awareness that these
organizations must build relationships
with constituents and stakeholders.
• Challenge of using new marketing
techniques for not-for-profit initiatives.
Looking Back
• Define marketing and the marketing processes.
• Explain the importance of understanding
customers and the marketplace.
• Identify the five core marketplace concepts.
• Identify the key elements of a customer-driven
marketing strategy.
• Discuss customer relationship management
and ways of creating and obtaining value.
• Describe the major trends and forces changing
today’s marketing landscape.