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Copyright 2014 by Pearson Education

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1- 2Copyright 2012 Pearson Education, Inc.

Publishing as Prentice Hall

Learning Objectives

After studying this chapter, you should be able to:1. Define marketing and outline the steps in the

marketing process.2. Explain the importance of understanding the

marketplace and customers and identify the five coremarketplace concepts.

3. Identify the key elements of a customer-drivenmarketing strategy and discuss the marketing

management orientations that guide marketingstrategy.4. Discuss customer relationship management and

identify strategies for creating value for customersand capturing value from customers in return.

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1.1 What Is Marketing? Marketing, more than any other business

function, deals with customers.

Building customer relationships based on

customer value and satisfaction is at the veryheart of modern marketing.

Marketing is managing profitable customerrelationships.

The twofold goal of marketing is to attract newcustomers by promising superior value and tokeep and grow current customers by deliveringsatisfaction.


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1.1.1 Marketing Defined

Marketing can be defined as the process by which

companies create value for customers and build strongcustomer relationships in order to capture value fromcustomers in return.

1.1.2 The Marketing Process Figure 1.1 presents a simple five-step model of the

marketing process.

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Figure 1.1: A Simple Model of the Marketing Process

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Copyright 2012 Pearson Education, Inc.


1.2.2 Market OfferingsProducts, Services, andExperiences

Consumers needs and wants are fulfilled throughmarketing offerings some combination of products,services, information, or experiences offered to amarket to satisfy a need or want.

Marketing offerings are not limited to physicalproducts.

They also include services - activities or benefits

offered for sale that are essentially intangible and donot result in the ownership of anything. More broadly, marketing offerings also include other

entities, such as persons,places, organizations,information, and ideas.

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1.2.3 Customer Value and Satisfaction Consumer value is the difference between the values

the customer gains from owning and using a productand the costs of obtaining the product.

Customers form expectations about the value ofvarious marketing offers based on past buyingexperiences, the opinions of friends, and marketerand competitor information and promises.

Customer satisfactionwith a purchase depends onhow well the products performance lives up to the

customers expectations. Customer satisfaction is a key influence on future

buying behaviour. Satisfied customers buy again andtell others about their good experiences.

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1.2.4 Exchanges and Relationships Marketing occurs when people decide to satisfy

their needs and wants through exchangerelationships.

Exchange is the act of obtaining a desired objectfrom someone by offering something in return.

Marketing comprises actions taken to build andmaintain desirable exchange relationshipswithtarget audiences involving a product, service, idea,or other object.

The goal is to retain customers and grow theirbusiness with the company.

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1.2.5 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. Market size depends on the number of people who exhibit

the need, have resources to engage in exchange, and arewilling to exchange these resources for what they want.

The concept of markets finally brings us full circle to theconcept of marketing.

Marketing means managing markets to bring aboutprofitable exchange relationships by creating value andsatisfying needs and wants.

Figure 1.2 shows the main elements in a marketing system.

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Figure 1.2: A Modern Marketing System


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1.3 Designing a Customer-Driven

Marketing Strategy

Marketing management is the art and science ofchoosing target markets and building profitablerelationships with them.

This involves getting, keeping, and growingcustomers through creating, delivering, andcommunicating superior customer value.

Thus, marketing management involves managingdemand, which in turn involves managing customerrelationships.


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1- 13Copyright 2012 Pearson Education, Inc.Publishing as Prentice Hall

1.3.1 Selecting Customers to Serve The company must first decide whom it will serve. It does this by dividing the market into segments of

customers (market segmentation) and selecting

which segments itwill go after (target marketing). Marketing management is not about serving every

consumer in every way. Rather, marketers want to serve selected customers

that they can serve well and profitably. At any point in time, there may be no demand,

adequate demand, irregular demand, or too muchdemand.

Marketing management must find ways to deal withthese different demand states.

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1.3.2 Choosing a Value Proposition The company must also decide how it will serve targeted

customers how it will differentiate and position itself inthe marketplace.

A brands value proposition is the set of benefits or valuesit promises to deliver to consumers to satisfy their needs.

Facebook helps you connect and share with the people inyour life, whereas BMW promises the ultimate drivingmachine.

Such value propositions differentiate one brand fromanother.

They answer the customers question, Why should I buyyour brand rather than a competitors?

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1.3.3 Marketing Management Orientations There arefive alternative concepts under

which organizations conduct their marketingactivities: theproduction,product, selling,

marketing, and societal marketing concepts. See Figure 1A. Theproduction concept holds that consumers

will favour products that are available andhighly affordable.

Therefore, management should focus onimproving production and distributionefficiency.

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Productionconcept

Productconcept

Sellingconcept

Marketingconcept

Societalconcept

Figure 1A: Marketing Management Orientations


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The marketing concept holds that achievingorganizational goals depends on knowing the needs andwants of target markets and delivering the desiredsatisfactions better than competitors do. Under themarketing concept, customer focus and value are thepaths the sales and profits.

See Figure 1.3. The societal marketing concept holds that marketing

strategy should deliver value to customers in a way thatmaintains or improves both the consumers and societyswell-being. It calls for sustainable marketing, sociallyand environmentally responsible marketing that meets

the present needs of consumers and businesses whilealso preserving or enhancing the ability of futuregenerations to meet their needs.

See Figure 1.4.

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Figure 1.3: The Selling and Marketing Concepts Constrasted

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Figure 1.4: The Considerations Underlying the Societal

Marketing Concept


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1.4 Preparing an Integrated Marketing

Plan and Program

The companys marketing strategy outlines whichcustomers the company will serve and how it will createvalue for these customers.

Next, the marketer develops an integrated marketingprogramme that will actually deliver the intended value

to target customers. The marketing programme builds customer

relationships by transforming the marketing strategyinto action.

It consists of the firms marketing mix, the set ofmarketing tools (four Ps) the firm uses to implement its

marketing strategy: product, price, promotion, andplace. Integrated marketing program is a comprehensive plan

that communicates and delivers the intended value tochosen customers.

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1.5 Building Customer Relationships

The first three steps in the marketing process see Figure 1.1 all lead up to the fourth and mostimportant step: building managing profitablecustomer relationships.

1.5.1 Customer Relationship Management Customer relationship management is the overall

process of building and maintaining profitable

customer relationships by delivering superiorcustomer value and satisfaction. It deals with all aspects of acquiring, keeping and

growing customers.

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Relationship Building Blocks: Customer Value andSatisfaction:

The key to building lasting customer relationships isto create superior customer value and satisfaction.

Satisfied customers are more likely to be loyalcustomers, and loyal customers are more likely to givethe company a larger share of their business.

Customer Value: A customer buys from the firm thatoffers the highest customer perceived value - thecustomers evaluation of the difference between allthe benefits and all the costs of a marketing offerrelative to those of competing offers. Customersoften do not judge product values and costsaccurately or objectively.

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Customer Satisfaction: Customer satisfactiondepends on products perceived performancerelative to a buyers expectations.

If the products performance falls short ofexpectations, the customer is dissatisfied.

If performance matches expectations, thecustomer is satisfied.

If performance exceeds expectations, thecustomer is highly satisfiedor delighted.

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1.5.2 The Changing Nature of CustomerRelationships

Relating with more carefully selected

customers uses selective relationshipmanagement to target fewer, more profitablecustomers.

Relating more deeply and interactively by

incorporating more interactive two wayrelationships through blogs, Websites, onlinecommunities and social networks.

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1.5.3 Partner Relationship Management

Partner relationship management involves working closelywith partners in other company departments and outside thecompany to jointly bring greater value to customers.

Partners inside the company is every function areainteracting with customers: electronically and cross-functional teams.

Partners outside the company is how marketers connect withtheir suppliers, channel partners, and competitors by

developing partnerships. Supply chain is a channel that stretches from raw materials to

components to final products to final buyers.

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1.6 Capturing Value from Customers

The first four steps in the marketing process involvebuilding customer relationships by creating anddelivering superior customer value.

The final step involves capturing value in return, inthe form of current and future sales, market share,

and profits. By creating superior customer value, the firm creates

highly satisfied customers who stay loyal and buymore.

This, in turn, means greater long-run returns for thefirm.

The outcomes of creating customer value are:customer loyalty and retention, share of market andshare of customer, and customer equity.

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1.6.1 Creating Customer Loyalty and Retention Highly satisfied customers produce several benefits

for the company. Satisfied customers are less pricesensitive. They talk favourably to others about thecompany and its products and remain loyal for alonger period.

Customer delight create an emotional relationshipwith a product or service, not just a rationalpreference. This in turn, creates high customerloyalty.

An important concept is customer lifetime value. Customer lifetime value is the value of the entirestream of purchases that the customer would makeover a lifetime of patronage.

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1.6.3 Building Customer Equity

Customer relationship management (CRM) is orientedtoward the long term. Smart companies not only want tocreate customers, they want to own them for life, capturetheir customer lifetime value, and build overall customerequity.

The aim of CRM is to produce high customer equity. Customer equity is the total combined customer lifetime

values of all the companys customers. Clearly, the more loyal the firms customers, the higher the

firms customer equity. Customer equity may be a bettermeasure of a firms performance than current sales or marketshare.

Whereas sales and market share reflect the past, customerequity suggests the future. Company can classify customers according to their potential

profitability and manage its relationships with themaccordingly.

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Figure 1.5 classifies customers into one of four relationshipgroups, according to their profitability and projected loyalty.

Each group requires a different relationship managementstrategy.

Strangers show low potential profitability and little projectedloyalty.

Butterflies are potentially profitable but not loyal.

True friends are both profitable and loyal.

Barnacles are highly loyal but not very profitable. Different types of customers require different relationship

management strategies. The goal is to build the rightrelationshipswith the right customers.

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1.7 So, What Is Marketing? Pulling

It All TogetherAt the start of this chapter, Figure 1.1 presented a

simple model of the marketing process.

Figure 1.6 presents an expanded model that will help

you pull it all together. The first four steps in the marketing process create

valueforcustomers.

In the final step, the company reaps the rewards of its

strong customer relationships by capturing valuefromcustomers.

Figure 1.6 provides a good roadmap to future chaptersof the text.

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Figure 1.6: An Expanded Model of the Marketing Process

Cop right 2014 b Pearson Ed cation

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