Marketing: Managing Profitable Customer Relationships

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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.

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Examples of Product

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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.

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Marketing Philosophy The Production Concept The Product Concept The Selling Concept-------------------------------------------------------- The Marketing Concept The Customer Concept The Societal Marketing Concept

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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.

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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)

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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.

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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: We do it all for you (Toyota). Four pillars: target market, customer needs,

integrated marketing and profitability.

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Contrasts Between the Sales Concept and the Marketing Concept

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The Customer Concept

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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;

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Needs, Wants and Demands Needs: the basic human requirements.

Physical: food, clothing, shelter, safety Social: belonging, affection Individual: learning, knowledge, self-expression

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

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

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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; Declining Demand → Remarketing, e.g. Arm &

Hammer’s baking soda → deodorizer; school.

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Demand States and Marketing Tasks Marketing managers are responsible for

demand management. Irregular Demand → Synchro marketing, e.g. ice

cream; museum. Full Demand → Maintain Marketing Overfull Demand → Mister Donut; Unwholesome Demand → Social Marketing, e.g.

cigarettes; drunk-driving.

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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)

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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.

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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

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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.

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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

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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.

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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.

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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.

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Satisfying Customer Complaints Rate of complainant repurchase

Resolved Resolved quickly

Major complaints

34% 52%

Minor complaints

52% 95%

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

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