Marketing: Managing Profitable Customer Relationships

Market & Product

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.

Examples of Product

Definition of Marketing

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.

Marketing Philosophy

The Production Concept The Product Concept The Selling Concept

-------------------------------------------------------- The Marketing Concept The Customer Concept The Societal Marketing Concept

The Production Concept

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.

The Product Concept

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)

The Selling Concept

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.

The Marketing Concept

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: 麥當勞都是為您 , 以客為尊 , 顧客永遠是對的 , We do it all for you (Toyota).

Four pillars: target market, customer needs, integrated marketing and profitability.

Figure 1.3: Contrasts Between the Sales Concept and the Marketing Concept

The Customer Concept

The Societal Marketing Concept

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 well-being.

Examples: Body Shop; HSBC; Johnson & Johnson’s Tylenol; 保力達蠻牛 .

Needs, Wants and Demands

Needs ( 需要 ): the basic human requirements. Physical: food, clothing, shelter, safety Social: belonging, affection Individual: learning, knowledge, self-expression

Wants ( 慾望 ): when needs are directed to specific objects that might satisfy the need.

Demands ( 需求 ): wants for specific products backed by an ability to pay.

Demand States and Marketing Tasks

Marketing managers are responsible for demand management. Negative Demand → Counter Marketing, e.g.

insurance. No Demand → Stimulus, e.g. encyclopedias. Latent Demand → Developing, e.g. iPod; 柴汽兩用汽車 ; 克寧銀養奶粉 .

Declining Demand → Remarketing, e.g. Arm & Hammer’s baking soda → deodorizer; school.

Demand States and Marketing Tasks

Marketing managers are responsible for demand management. Irregular Demand → Synchromarketing ( 同步行

銷 ), e.g. ice cream; museum. Full Demand → Maintain Marketing Overfull Demand → Demarketing ( 低行銷 ), e.g.

Mister Donut; 黑師傅捲心酥 . Unwholesome Demand → Social Marketing, e.g.

cigarettes; drunk-driving.

Customer Relationship Management (CRM)

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)

Customer Perceived Value

The difference between total customer value and total customer cost.

Value chain, e.g. Wal-Mart. Value-delivery network, e.g. Honda.

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. Lexus: $600,000; Taco Bell: $12,000;

Supermarket: $50,000. Customer equity: the total combined

customer lifetime values of all of the company’s customers. Cadillac vs. BMW

Selective Relationship Management

Weed out losing customers and target winning ones for pampering.

Examples: Citibank; First Chicago Bank; Fidelity Investment.

Risk: future profits are hard to predict.

Customer Relationship Groups

Profitability

Projected loyalty

High

Low

Long-term customers

Short-term customers

Good fit between company’s offerings and customer’s needs; high

profit potential

Limited fit between company’s offerings and customer’s needs; low

profit potential

Little fit between company’s offerings and customer’s

needs; lowest profit potential

Good fit between company’s offerings and

customer’s needs; highest profit potential

Strangers

Butterflies True Friends

Barnacles

Share of Customer

The portion of the customer’s purchasing in its product categories that a company gets.

Methods to increase share of customer 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.

Customer Satisfaction

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.

Satisfying Customer Complaints

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.

Satisfying Customer Complaints

Rate of complainant repurchase

Resolved Resolved quickly

Major complaints

34% 52%

Minor complaints

52% 95%

Customer Relationship Levels and Tools

Level of relationship: basic ＜ reactive (e.g. P&G) ＜ accountable ＜ proactive ＜partnership (e.g. Boeing).

Tools: Add financial benefits, ex. frequent-flier program. Add social benefits, ex. club marketing program. Add structural ties, ex. McKesson; FedEx.

In 1981, American Airlines first introduced the AADVANTAGE frequent-flier program. When other airlines copied this strategy, did they engage in the prisoner’s dilemma?

Prisoner’s Dilemma

Player 1 Player 2╲Cooperate Fink

Cooperate 2, 2 3, -3

Fink -3, 3 -2, -2