Marketing: Managing Profitable

Customer Relationships

Lecture # 1
26-09-2010
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 What is Marketing?
• Marketing is managing profitable customer
relationships
– Attracting new customers
– Retaining and growing current customers
• “Marketing” is NOT synonymous with “sales”
or “advertising”

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 Marketing Defined
• Marketing consists of the strategies and tactics used to
identify, create and maintain satisfying relationships with
customers that result in value for both the customer and the
marketer

• Marketing is a social and managerial process by which

individuals and groups obtain what they need and want
through creating and exchanging value with others

• The process by which companies create value for customers

and build strong customer relationships in order to capture
value from customers in return

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The Marketing Process

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 The Marketing Process

Understand the Design a customer Construct a marketing

market place and driven marketing program that delivers
Customer needs strategy superior value
and wants

Capture value from Build profitable

customers to create relationships and
profits and customer Create customer delight
quality

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1. Understanding the
Marketplace
and Consumer Needs

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Core Customer and Marketplace
Concepts
• Needs, Wants, and Demands
• Marketing Offers
• Value and Satisfaction
• Exchange, Transactions, and Relationships
• Markets

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 Needs, Wants, and Demands

• Needs
A state of felt deprivation. The basic human requirements
• Wants
The form taken by a human needs as shaped by culture and
individual personality. Wants are described in terms of
objects that will satisfy needs
• Demands
Human wants that are backed by buying power

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 Needs, Wants, and Demands
• People need food, air, water, clothing, and shelter to survive. People
also have strong needs for creation, education, and entertainment
• The above needs become wants when they are directed to specific
objects that might satisfy the need. An American needs food but
may want a hamburger, French fries, and a soft drink. A person in
Mauritius needs food but may want a mango, rice, lentils, and beans.
Wants are shaped by one's society and are described in terms of
objects that will satisfy needs
• Demands are wants for specific products backed by an ability to
pay. Many people want a Mercedes; only a few are willing and able
to buy one

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 Marketing Offers

• Some combination of products, services, information, or

experiences offered to a market to satisfy a need or want.
Marketing offers also include persons, places,
organizations, ideas

• Marketing Myopia?
Focus only on existing wants and lose sight of underlying
customer needs. Forgetting the fact that product is only the
tool to solve consumer problem

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 Customer Value and Satisfaction

• Key building blocks for developing and managing customer

relationships
• Customer Value is the difference between the values the
customer gains from owning and using the product and the
costs of obtaining the product
• Customer Satisfaction is the extent to which a product’s
perceived performance matches a buyer’s expectation

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 Markets
“The set of all actual and potential buyers of a product or
service.”

Types of Market
 Pure competition Many buyers and many seller trading in a uniform
commodity e.g. wheat, vegetables etc
 Monopolistic competition Many buyers and sellers who trade over a
range of prices
 Oligopolistic competition Few sellers who are highly sensitive to
each other pricing and marketing strategies
 Pure Monopoly Market consist of one seller
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 Exchange, Transactions, and
Relationships

• Exchange
The act of obtaining a desired object from someone by
offering something in return.
 Transactions
A trade of values between two parties

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2. Designing a Customer Driven
Marketing Strategy

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 Marketing Management
• Marketing management is “the art and science
of choosing target markets and building
profitable relationships with them.”
– Creating, delivering and communicating superior
customer value is key.
– Demarketing
Marketing to reduce demand temporarily or permanently; the
aim is not to destroy the demand but only to reduce or shift it.

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• What customers will we serve? (Target Market)
• How can we serve these customers best? (Value
proposition)

• Value Proposition
The set of benefits or values it promises to deliver to
consumers to satisfy their needs. Answers the customer’s
question “Why should I buy your brand rather than a
competitor’s?” e.g. Nestle Pure drinking water, BlackBerry
connectivity on the go, K&N’s healthy and safe chicken etc

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Marketing Management Orientations

• Product Concept

– The product philosophy holds that the organization knows

its product better than anyone or any organization. The
company knows what will work in designing and producing
the product and what will not work. This confidence in their
ability is not a radical concept, but the confidence leads to
the consumer being overlooked.
– Dominant era: Prior to the Industrial Revolution and
continued to the 1920s

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Marketing Management Orientations

• Production Concept
Demand for a product is greater than
supply.
– To increase profit, focus on production efficiencies
knowing all output can be sold. Also useful concept
when increasing production raises economies of scale
etc. to reduce price. Henry Ford, "Doesn't matter what
color car you want, as long as it is black."...A typical
quote during the production era.
– Dominant era: From mid C19th to early C20th,
industrial revolution etc.

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 Marketing Management Orientations

• Selling Concept
Demand for a product is equal to supply.

- Emphasis is needed to sell the product to increase profits. Focus on

advertising.
- Useful for unsought goods, i.e., encyclopedias, funeral plots. Political
candidates, selling important, not post consumer satisfaction.
- Dominant era: 1920's to Mid 1930's WWII to early 1950's

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Marketing Management Orientations

• Marketing Concept
Supply for a product is greater than
demand, creating intense competition
among suppliers.
- Company first determines what the consumer wants, then
produces what the consumer wants, then sells the consumer
what it wants.
- Dominant era: 1930's to WWII 1950's to present.

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 Marketing Concept

• LL Bean 1912, founded on the marketing concept, in his first circular:

"I do not consider a sale complete until goods are worn out and the
customer still satisfied. We will thank anyone to return goods that are
not perfectly satisfactory...Above all things we wish to avoid having a
dissatisfied customer."

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 Marketing Concept

• To illustrate the marketing era/concept Peter Drucker, in

1954 said:

“if we want to know what business is we must first start

with its purpose...There is only one valid definition of
business purpose: to create a customer. What business
thinks it produces is not of first importance-especially not
to the future of the business or to its success. What the
customer thinks he/she is buying, what he/she considers
"value" is decisive-it determines what a business is, what it
produces, and whether it will prosper."

-Peter Drucker, The Practice of Management, 1954, P.37

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 Marketing Concept

• John B McKitterick, President of General Electric, 1957, addressing

the AMA said:

“It is customer oriented, integrated, profit oriented philosophy of

business."

“The Customer is King”

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 Marketing Management Orientations

• The Societal marketing concept

• Focus on other stakeholders, as well as the business and its customers.

Need to balance 3 items
• Company profits
• Customer wants
• Society's interests

• The difference between short term consumer wants and long term
consumer welfare.

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 Marketing Management Orientations

• What era are we in now?

We are still essentially in the marketing era, since that is the dominant
concept, but increasing pressure is being put on to companies to adopt the
societal concept.

• Importance of the marketing concept

 According to the Customer Service Institute, it costs as much as five times

as much to acquire a new customer than it does to service an existing one.
 Customers tell twice as many people about a bad experience over a good
one.
 According to the American Marketing Association (AMA), for an average
company, 65% of its business comes from its presently satisfied customers.

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Preparing a Marketing Plan and
Program

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Building Customer
Relationships

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 CRM
• CRM - Customer Relationship Management
“ is the overall process of building and
maintaining profitable customer relationships
by delivering superior customer value and
satisfaction”

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 CRM

• It costs 5 to 10 times MORE to attract a

new customer than it does to keep a current
customer satisfied.
• Marketers must be concerned with the
lifetime value of the customer.

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Capturing Value from
Customers

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Creating Customer Loyalty and
Retention
Key Concepts • Customer value/satisfaction
– Perceptions are key
– Meeting/exceeding
• Attracting, retaining and expectations creates
growing customers satisfaction
• Loyalty and retention
– Benefits of loyalty
– Loyalty increases as
satisfaction levels increase
– Delighting consumers should
be the goal
• Growing share of customer
– Cross-selling 32
 CRM
Key Concepts • Customer equity
– The total combined
• Building customer customer lifetime values
relationships and customer of all customers.
equity – Measures a firm’s
performance, but in a
manner that looks to the
future.

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 CRM
• Key Concepts • Customer relationship levels
and tools
• Building customer – Target market typically
relationships and customer dictates type of relationship
equity • Basic relationships
• Full relationships
– Customer loyalty and
retention programs
• Adding financial
benefits
• Adding social benefits
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The New Marketing Landscape

• Technological advances, rapid globalization, and

continuing social and economic shifts are causing
marketplace changes.

• Major marketing developments can be grouped

under the theme of Connecting

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 Marketing Challenges
• Connecting
• Via technology
• With customers
• With marketing partners
• With the world
• Advances in computers,
telecommunications, video-
conferencing, etc. are major
forces.
– Databases allow for
customization of
products, messages and
analysis of needs.
• The Internet
– Facilitates anytime,
anywhere connections
– Facilitates CRM
– Creates market spaces
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 Marketing Challenges
Connecting • Partner relationship
management involves:
• Via technology – Connecting inside the
• With customers company
– Connecting with
• With marketing outside partners
partners • Supply chain
• management
With the world
• Strategic alliances

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 Marketing Challenges
Connecting
• Via technology
• With customers
• With marketing partners
• With the world
• Globalization
– Competition
– New opportunities
• Greater concern for
environmental and social
responsibility
• Increased marketing by
nonprofit and public-sector
entities
– Social marketing
campaigns
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