Principle of Marketing Chapter 1

Principles of Marketing: An Asian Perspective

Instructor Supplements Created by Geoffrey da Silva

Marketing: Managing Profitable Customer Relationships

Chapter 1 Outline

1.1 What is Marketing?1.2 Understanding the Marketplace and Customer Needs1.3 Designing a Customer-Driven Marketing Strategy1.4 Preparing an Integrated Marketing Plan and Program1.5 Building Customer Relationships1.6 Capturing Value from Customers1.7 The Changing Marketing Landscape

Opening CaseJollibee: A Passion for its Customers

At Jollibee, taking care of customers starts with a deep-down, customer-focused culture. Jollibee emphasizes Filipino cultural values of respect for elders, patriotism, and loyalty to the family.

1.1What is Marketing?

What is Marketing?

Defining Marketing

Marketing is a process by which companies create value for customers and build strong customer relationships to capture value from customers in return.

What is Marketing?

The Scope of Marketing• Marketing is not restricted to profit-making organizations.• Non-profits (colleges, hospitals, churches, etc.) must also perform

marketing.• Marketing must both attract new customers and build relationships

with current customers.• Most people think of marketing as selling and/or advertising. • Its focus is really on satisfying customer needs.

1.1 What is Marketing?

Marketing is all around you…Even in markets such as this in Vietnam, marketing is at work. The fruit seller has to understand her market, distribute her fruits at the right place, sell them at the right price, and be alert of who else are selling fruits or possible substitutes. She has to make sure that she offers superior customer value.

What is Marketing?

Marketing is about delivering superior value…

Nintendo’s Wii surged ahead of competition by delivering superior value and customer satisfaction with its interactive games.

The Marketing ProcessA Simple Model of the Marketing Process

The Five Steps in the Marketing Process

In the marketing process, companies work to understand consumers, create customer value, and build strong customer relationships.

The steps are:

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.

In the final step, companies reap the rewards of capturing value from consumers in the form of sales, profits, and long-term customer equity.

Reviewing the Key Concepts

Define marketing and outline the steps in the marketing process.

1.2Understanding the Marketplace and Customer Needs

Needs Wants

Demands

1.2 Understanding the Marketplace and Customer Needs

Customer Needs, Wants and Demands

Market Offerings

Market offerings are some combination of products, services, information, or experiences offered to a market to satisfy a need or want

The Banyan Tree Resorts provide a sanctuary for the senses to those who want a peaceful respite from the hustle and bustle of city life.

Marketing offerings are not just limited to physical products…

Marketing myopiaWhat are we really selling- dog biscuits or more?

Marketing myopia

• The mistake of paying more attention to the specific products a company offers than to the benefits and experiences derived from these products.

• Companies must seek to avoid the marketing myopia trap!

Avoiding Marketing Myopia

Avoid marketing myopia by focusing on product benefits and customer needs.

Customer Value and Expectations

• Consumers usually face a wide variety of products and services that might satisfy a given need.

• How do they choose among these market offerings

• 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; while dissatisfied customers often switch to competitors and complain about the product to others.

Creating the balance between customer expectations and the marketers ability to deliver on value

The Case Study of Sony Pictures: Crouching Tiger, Hidden Dragon Movie Sony Pictures – With a very limited marketing budget in the

U.S., Sony Pictures relied on word-of-mouth communications to

promote its Chinese sword-fighting film, Crouching Tiger, Hidden

Dragon. It limited the distribution of the film to only a handful of

cinemas to generate intense interest that would

spread by word of mouth. Further, over 95 percent of the

U.S.’s top critics loved the film despite it being subtitled.

This resulted in more people wanting to see the film than

there were screens showing it. As word got around, Sony

increased the number of screens showing it from 20 to 75,

then 120, then 160 and so on, to over 2,000 screens at its

peak. People who loved the film told others about it, who

could not get tickets because the cinemas were sold out,

which heightened the desire, which in turn, fuelled more

word of mouth. This resulted in the film staying in the top

10 box-office chart in the U.S. for months, relying mainly

on word of mouth.

Marketing and Exchange

Exchange is the act of obtaining a desired object from someone by offering something in return

Exchange

ExampleCar: Consumers exchange money and a trade-in vehicle for a new carPoliticians: Consumers exchange their vote for a promise of policies if elected.

Marketing involves building relationships

• Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences involving a product, service, idea, or other object.

• Beyond simply attracting new customers and creating transactions, the goal is to retain customers and grow their business with the company.

• Marketers want to build strong relationships by consistently delivering superior customer value.

Markets

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

Elements of modern marketing system

The different parties who are involved in the marketing process

Explain the importance of understanding customers and the marketplace, and identify the five core marketplace concepts

1.3Designing a Customer-Driven Marketing Strategy

1.3 Designing a Customer-Driven Marketing Strategy

Marketing Management

Marketing management is defined as the art and science of choosing target markets and building profitable relationships with them.

Marketing Management

Two key questions to determine how to design a winning marketing strategy:

- What customers will we serve?- How can we best serve these customers?

Selecting Customers to Serve

Market segmentation refers to dividing the markets into segments of customers

Target marketing refers to which segments to go after

Target Marketing

Target market – The Mandarin Oriental Hotel goes after the affluent professionals and business market.

Value Position

What is a Value Proposition?

Value proposition

Set of benefits or values a company promises to deliver to customers to satisfy their needs

Value proposition

Red Bull energy drink vitalizes both body and mind. It gives you “wiiings.”

Marketing Management orientations

Over time five alternative concepts have developed under which organizations design and carry out their marketing strategies.

Production Concept

Consumers will favor products that are available and affordable.

Management should focus on improving production and distribution efficiency.

Production Concept

Consumers will favor products that offer the most in quality, performance, and innovative features

Organization should therefore devote its energy to making continuous product improvements.

1.3 Designing a Customer-Driven Marketing Strategy The problem with the Product Concept

• Product quality and improvement are important parts of most marketing strategies. However, focusing only on the company’s products can also lead to marketing myopia.

• For example, some manufacturers believe that if they can “build a better mousetrap, the world will beat a path to their door.”

1.3 Designing a Customer-Driven Marketing Strategy The problem with the Product Concept

• But buyers may well be looking for a better solution to a mouse problem, not necessarily for a better mousetrap.

• The better solution might be an exterminating service or something that works better than a mousetrap.

• Further, a better mousetrap will not sell unless the manufacturer designs, packages, and prices it attractively, places it in convenient distribution channels, brings it to the attention of people who need it, and convinces buyers that it is a better product.

Selling Concept

Consumers will not buy enough without a large scale selling and promotion effort

Selling Concept

• 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.

Marketing Concept

• 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.

• Customer-driven marketing is about understanding customer needs and creating products and services that meet existing and latent needs.

• And delivering the desired satisfactions better than competitors do

Marketing Concept

Example of the marketing concept being applied: McDonald’s adapts its menu to suit Chinese tastes.

McDonald’s adapts its menu to suit Chinese tastes.

The selling and the marketing concepts contrasted

The selling concept takes an inside-out perspective. It starts with the factory, focuses on the company’s existing products, and calls for heavy selling and promotion to obtain profitable sales. It focuses primarily on customer conquest—getting short-term sales with little concern about who buys or why.

Implementing the marketing concept often means more than responding to customers’ stated desires and obvious needs. Customer-driven companies research deeply on current customers to learn about their desires, gather new product and service ideas, and test proposed product improvements

Customer-driven versus customer driving

In many cases, however, customers don’t know what they want or even what is possible. For example, even 20 years ago, how many consumers would have thought to ask for now-commonplace products such as mobile phones, notebook computers, iPods, digital cameras, 24-hour online buying, and satellite navigation systems in their cars?

Such situations call for customer-driving marketing—understandingcustomer needs even better than customers themselves do and creating products and services that meet existing and latent needs, now and in the future.

Societal Marketing Concept

Societal marketing concept is the idea that a company should make good marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-term interests, and society’s long-run interests.

The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare.

The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and the society’s well being.

It calls for sustainable marketing, socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs.

Social innovation is essential to Hindustan Unilever – It offers a range of products to meet the needs of the poor and has established a Fair & Lovely Foundation to empower women.

Three considerations underlying the societal marketing concept

Companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests.

Societal Marketing Credo

The societal marketing concept – Johnson & Johnson’s Credo emphasizes people before

profits. Its quick product recall following a tragic Tylenol tampering incident some years ago cost

the company $100 million in earnings but strengthened consumer confidence and loyalty.

Identify the key elements of a customer driven marketing strategy and discuss the marketing management orientations that guide marketing strategy

1.4Preparing an Integrated Marketing Plan and Program

1.4 Preparing an Integrated Marketing Plan and Program

The marketing mix: set of tools (four Ps) the firm uses to implement its marketing strategy. It includes product, price, promotion, and place.

Integrated marketing program: comprehensive plan that communicates and delivers the intended value to chosen customers.

1.5Building Customer Relationships

1.5 Building Customer Relationships

Customer Relationship Management (CRM)

• The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

• Managing customer “touch points” in order to maximize customer loyalty.

Relationship Building Blocks: Customer Value and Satisfaction

Customer Value: 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.” Customers act on customer perceived value.

Customer Perceived Value

When deciding whether to purchase a Prius, customers will weigh its benefits against the benefits of owning another hybrid or non-hybrid brand.

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.

Japanese Department Stores and Customer Satisfaction…

The recession has seen younger Japanese consumers seeking specialty instead of department stores as consumers are dissatisfied with the latter.

Building Customer Relationships

Customer Relationship Levels and Tools

Basic Relationships are often used by a company with many low-margin customers. For example, Procter & Gamble does not phone or call on all of its Tide consumers to get to know them personally. Instead, P&G creates relationships through brand-building advertising, sales promotions, and its Web site.

Full Partnerships are used in markets with few customers and high margins, sellers want to create full partnerships with key customers. For example, P&G customer teams work closely with Wal-Mart, Safeway, and other large retailers.

Some 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.].)

Loyalty and Retention Programs

• Frequency marketing programs

• Club marketing programs

The Changing Nature of Customer Relationships

• Relating with more carefully selected customers uses selective relationship management to target fewer, more profitable customers

• Relating more deeply and interactively by incorporating more interactive two way relationships through blogs, Websites, online communities and social networks

Relating with More Carefully Selected Customers

Nautica, in India, engaged a select group of customers in outdoor activities to live the brand.

Two-way Customer Relationships

Many companies now target fewer, more profitable customers using selective relationship management to relate more deeply and interactively to carefully selected customers through blogs, Websites, online communities and social networks.

Two-way Customer Relationships

Companies such as Pepsi are increasingly using new Technologies to involve consumers. On RefreshEverything.com, Pepsi lets consumers have a say on what projects should benefit from Pepsi’s giveback to the society.

Use of Social Networks

Sony used its social networking site Backstage 101 as a way to build a community of users and influence attitude and purchase towards Sony products. It was shut down later apparently because customers were increasingly giving feedback that did not make Sony products look favorable

Consumer-Generated Marketing

• This is part of the new customer dialogue is consumer-generated marketing, by which consumers themselves are playing a bigger role in shaping their own brand experiences and those of others.

• This might happen through uninvited consumer-to-consumer exchanges in blogs, video-sharing sites, and other digital forums.

• But increasingly, companies are inviting consumers to play a more active role in shaping products and brand messages.

Customer-Generated Marketing

Vitaminwater capitalized on Facebook for consumer suggestions for a new flavor.

Partner relationship management

Partner relationship management involves working closely with partners in other company departments and outside the company to jointly bring greater value to customers.

Partner relationship management

OUTSIDE INSIDEINSIDE

Partner Relationship Marketing

Internal and External Partners that Marketers need to work with

Partner Relationship Marketing- Partners Inside

• Partners inside the company is every function area interacting with customers.

• Today, firms are linking all departments in the cause of creating customer value.

• Rather than assigning only sales and marketing people to customers, they are forming cross-functional customer teams.

Partner Relationship Marketing- Partners Outside

• Partners outside the company is how marketers connect with their suppliers, channel partners, and competitors by developing partnerships.

• 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.

Partner Relationship Marketing- Partners Outside

Lexus works closely with its franchise dealers such as Borneo Motors in Singapore to provide top-grade sales and service support.

1.6Capturing Value from Customers

1.6 Capturing Value from Customers

Creating Customer Loyalty and Retention

• The aim of customer relationship management is to create not just customer satisfaction, but customer delight. This means that companies must aim high in building customer relationships.

• Companies are realizing that losing a customer means losing more than a single sale. It means losing customer lifetime value. Customer lifetime value is the value of the entire stream of purchases that the customer would make over a lifetime of patronage.

Share of customer

Share of customer is the portion of the customer’s purchasing that a company gets in its product categories

Share of customer

Amazon.com increases its share of each customer’s purchases by offering not just music and videos, but also a slew of other products including toys, home improvement items, and an online auction. It also makes product recommendations based on the purchase history of individual customers.

Customer Equity

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

Customer Equity

• 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 involves treating customers as assets that need to be managed and maximized

Customer Relationship Groups

Key point: Different types of customers require different relationship management strategies (see Real Marketing 1.1 from page 26 of the textbook: Principles of Marketing: An Asian Perspective)

Discuss customer relationship management, and identify strategies for creating value from customers and capturing value from customers in return.

1.7The Changing Marketing Landscape

1.7 The Changing Marketing Landscape

Digital age

• People are connected continuously to people and information worldwide

• Marketers have great new tools to communicate with customers

• Internet + mobile communication devices creates environment for online marketing

Globalization

• Almost every company, large or small, is touched in some way by global competition.

• Today, companies are also buying more supplies and components abroad.

Companies like McDonald’s have developed truly global operations. This American icon captures 65 per cent of its revenue outside of the U.S.

Sustainable MarketingThe Call for More Ethics and Social Responsibility

• Marketers are being called upon to take greater responsibility for the social and environmental impact of their actions.

• Forward-looking companies view socially responsible actions as an opportunity to do well by doing good.

The Growth of Not-for-Profit Marketing

• In recent years, marketing has also become a major part of the strategies of many not-for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, and even churches.

• Government agencies have also shown an increased interest in marketing by designing social marketing campaigns.

The Growth of Not-for-Profit Marketing

Social campaigns such as Filial Piety, a television commercial by the Ministry of Community Development, Youth and Sports, apply marketing to instil among Singaporeans social values such as a sense of filial piety to their elders.

Describe the major trends and forces that are changing the marketing landscape in this new age of relationships.

So What is Marketing? Pulling it All Together

An expanded model of the marketing process

Chapters 1 and 2 introduce the marketing process, with a focus on building customer relationships and capturing value from customers.

Chapters 3, 4, 5, and 6 address the first step of the marketing process—understanding the marketing environment, managing marketing information, and understanding consumer and business buyer behavior.

In Chapter 7, we look more deeply into the two major marketing strategy decisions: selecting which customers to serve (segmentation and targeting) and deciding on a value proposition (differentiation and positioning).

Chapters 8 through 17 discuss the marketing mix variables, one by one.

Chapter 18 sums up the customer-driven marketing strategy and creating competitive advantage in the marketplace.

Then, the final two chapters examine special marketing considerations: global marketing, and marketing ethics and social responsibility.

Thankyou

Principle of Marketing Chapter 1

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