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MARKETING. CREATING AND CAPTURING CUSTOMER VALUE.
What is Marketing?
The simplest definition is that Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and keep and grow current customers by delivering satisfaction.
Marketing Defined.
Marketing must be understood in the sense of satisfying customer needs; hence we define it as 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.
Simple five-step model of the marketing process.
Understanding the Marketplace and Customer Needs.
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 basic physical needs for food, clothing, warmth and safety; social needs for belonging and affection; and individual needs for knowledge and self-expression. Wants are the form human needs take as they are shaped by culture and individual personality. When backed by buying power, wants become demands; given their wants and resources, people demand products with benefits that add up to the most value and satisfaction.
Marketing Offerings-Products, Services,
and Experiences.
Consumers’ needs and wants are fulfilled through market offerings which is some combination of products, services, information, or experiences offered to a market to satisfy a need or a want. 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. Market offerings also include other entities such as persons, places, organizations, information and ideas. Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products, they suffer from marketing myopia. They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs.
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 often switch to competitors and disparage the product to others. Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. If they set expectations too high, buyers will be disappointed.
Exchanges and Relationships.
Exchange is the act of obtaining a desired object from someone by offering something in return. In the broadest sense, the marketer tries to bring about a response to some market offering. 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
companies want to retain customers and grow their businesses; they 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 or service. These buyers share a particular need or want that can be satisfied through exchange relationships. Marketing means managing markets to bring about profitable customer relationships; Sellers must search for buyers, identify their needs, design good market offerings, set prices for them, promote them, and store and deliver them. Activities such as consumer research, product development, communication, distribution, pricing, and service are core marketing activities.
Marketing involves serving a market of final consumers in the face of competitors. The company and competitors research the market and interacts with consumers to understand their needs. Then they create and send their market offerings and messages to consumers, either directly or through mkt intermediaries.
Designing a Customer-Driven Marketing Strategy.
We define marketing management as the art and science of choosing target markets and building profitable relationships with them. The mkt manager’s aim is to find, attract, keep and grow target customers by creating, delivering and communicating superior customer value. To design a winning mkt strategy mkt manager must answer two important questions.
Selecting Customers to Serve.
The 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). Mkt managers know that they cannot serve all customers in every way because by trying to do so, they may not serve any customers well, so instead the company wants to select only customers that it can serve well and profitably.
Choosing a Value Proposition.
The company must also decide how it will serve targeted customers, how it will differentiate and position itself in the marketplace. A brand’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs.
Marketing Management Orientations.
The production concept hold that consumes will favor products that are available and highly affordable. Therefore, management should focus on improving production and distribution efficiency. However, it can lead to marketing myopia; companies adopting this orientation run a major risk of focusing too narrowly on their own operations and losing sight of the real objective which is satisfying customer needs and building customer relationships. 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. However, focusing only on the company’s products can also lead to mkt myopia. Consumers will not buy enough of the firm’s products unless it undertakes a large- scale selling promotion effort. The selling concept is typically practiced with unsought goods, those that buyers don’t normally think of buying, like insurance or blood donations. It focuses on creating sales transactions rather than on building long-term, profitable customer relationships. The aim often is to sell what the company makes rather than making what the market wants. 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. Customer focus and value are the paths to sales and profits; the job isn’t to find the right customers for your product but to find
changing communications environment also affects how companies and brands relate to customers. The new communications approaches let marketers create deeper customer involvement and a sense of community surrounding a brand—to make the brand a meaningful part of consumers’ conversations and lives; however new techs also create challenges. The marketing world is now embracing not only customer relationship management, but also customer-managed relationships. Marketers must practice marketing by attraction creating market offerings and messages that involve consumers rather than interrupt them. Consumer-Generated Marketing: By which consumers themselves are playing a bigger role in shaping their own brand experiences and those of others; some companies ask consumers for new product ideas and other are inviting them to play an active role in shaping ads.
Partner Relationship Management.
Marketers know that they can’t create customer value and building strong customer relationships alone ad that they must work closely with a variety of marketing partners. In addition to being good at customer relationship management, marketers must also be good at partner relationship management. Major changes are occurring in how marketers partner with others inside and outside the company to jointly bring more value to customers. PARTNERS INSIDE THE COMPANY However, in today’s more connected world, every functional area can interact with customers, especially electronically. The new thinking is that no matter what your job is in a company you must understand marketing and be customer focused. Today, rather than letting each department go its own way, 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. MARKETING PARTNERS OUTSIDE THE FIRM Changes are also occurring in how marketers connect with their suppliers, channel partners, and even competitors. Most companies today are networked companies, relying heavily on partnerships with other firms. 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. Success at building customer relationships also rests on how well their entire supply chain performs against competitors’ supply chains. these companies don’t just treat suppliers as vendors and distributors as customers. They treat both as partners in delivering customer value. On the other hand, it works with its franchise dealers to provide top-grade sales and service support that will bring customers in the door and keep them coming back.
Capturing Value from Customers.
This, in turn, means greater long-run returns for the firm.
Creating Customer Loyalty and Retention.
Good customer relationship management creates customer delight. In turn, delighted customers remain loyal and talk favorably to others about the company and its products. Studies show big differences in the loyalty of customers who are less satisfied, somewhat satisfied, and completely satisfied. Even a slight drop from complete satisfaction can create an enormous drop in loyalty. Thus, the aim of customer relationship management is to create not only customer satisfaction but also customer delight.
Growing Share of Customer
Beyond simply retaining good customers to capture customer lifetime value, good customer relationship management can help marketers increase their share of
customer, the share they get of the customer’s purchasing in their product categories. 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
WHAT IS CUSTOMER EQUITY?
Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. As such, it’s a measure of the future value of the company’s customer base. Clearly, the more loyal the firm’s profitable customers, the higher its 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 must be managed and maximized. But not all customers, not even all loyal customers, are good investments. Surprisingly, some loyal customers can be unprofitable, and some disloyal customers can be profitable. The company can classify customers according to their potential profitability and manage its relationships with them accordingly. One classification scheme defines four relationship groups based on potential profitability and projected loyalty: strangers, butterflies, true friends, and barnacles; 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. Butterflies are potentially profitable but not loyal; there is a good fit between the company’s offerings and their needs. However like real butterflies we can enjoy them for only a short while a then they’re gone; efforts to convert butterflies into loyal customers are rarely successful, instead the company should enjoy the butterflies for the moment. It 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 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,” those 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 Changing Marketing Landscape.
The Uncertain Economic Environment.
Beginning in 2008, the US and world economies experienced a stunning economic meltdown. The financial crisis left shell-shocked consumers short of both money and confidence as they faced losses in income, a severe credit crunch, declining home values and rising unemployment. In response, companies in all industries—from discounters such as Target to luxury brands such as Lexus have aligned their marketing strategies with the new economic realities. More than ever, marketers are emphasizing the value in their value propositions. They are focusing on value- for-the-money, practicality, and durability in their product offerings and marketing pitches. A troubled economy can present opportunities as well as threats; similarly,
