Unit 1: Nature of marketing – Creating and capturing

customer value.

Marketing deals mainly with customers. The priority of the marketer is to design goods and
services that satisfy customers’ needs and wants to deliver satisfaction. Marketing should
not focus exclusively on selling and advertising but more on determining an effective
communication structure that guarantees a relationship based on commitment and praise.

Needs, Wants and Demands:

1. Needs;
A need is a basic satisfier or anything which an individual cannot be deprived of. It is
important to distinguish between basic human needs and augmented needs. In the
case of basic human needs these are considered as essential for one’s own living.
These needs are further subdivided into biogenic needs (food, water, clothing,
shelter, safety, and healthcare), and psychogenic needs (love and belongingness).
Augmented needs are not life threatening but are essential to secure an effective
way of living (telecommunication goods and services, transport, electricity and
education goods and services).

2. Wants;
These are desires to improve one’s way of living. Wants are affected by an
individual’s lifestyle pattern, economic circumstance and interpersonal relationships.
Marketers can influence people’s wants by promoting their products and
emphasizing their benefits, (I need to eat, but I want pizza).

3. Demands;
These are wants backed by the ability and willingness to purchase. A want becomes
a demand when supported by purchasing power. Marketers may facilitate a demand
by making the product affordable, attractive, convenient and easily available. A
demand would eventually lead to a market share potential and a profit-making
opportunity.

Customer Relationship Management (CRM) Approach:

The CRM approach is the overall process of building and maintaining customer relations
built on commitment and trust. The aim is to enhance customer loyalty thus ensuring repeat
sales. The CRM approach is best explained by analysing the following two strategies:
 a. Customer perceived value;
It is important to evaluate customers expectations and priorities in order to create
an image for the product being marketed. Customers evaluate the benefits and costs
of owning the product in relation to competing offers thus opportunity cost
evaluation must also be taken into consideration. For example, Mazda2 and Toyota
Yaris are promoted as economy cars. Mercedes and BMW are positioned on luxury,
Porsche is positioned on power, whereas Volo and Volkswagen are preserved as safe
cars.

b. Customer equity;
The priority of the marketer is to build a lifetime value approach, were marketers
aim is to capture customers at a relatively early stage in their life and eventually
‘grow with the customers’. Thus, short term profits are often sacrificed in order to
achieve long run success. Thus, alternative products would have to be offered
according to age, income and lifestyle consideration, customer satisfaction must
constantly be enhanced. For example, BMW and Toyota have adopted a vigorous
approach by capturing customers at an early age and eventually offering a wide
verity of cars to suit different demographic conditions. On the other hand, Cadillac
has a somewhat short-term approach targeting short term profit maximisation. It is
important to note that the average age of a typical Cadillac buyer is 60 years. He/she
might be on his/her last car purchase thus the future may be uncertain.
Another example involves McDonalds, were the famous Happy Meal is mainly
targeted for children in order to capture an esteemed clientele thus building brand
loyalty. Alternative meals are offered in order to build a lifetime value with the
customer. McCafé was mainly designed in order to target adults and elderly people
most of them accompanying young children.

The Marketing Process:

The marketing process involves ways how value can be created for customers to satisfy their
needs. This is a five-step model which marketers will have to follow in order to achieve a
customer relationship approach.

1. Understanding the marketplace and identify customer needs and wants;

This stage evaluates the target market’s expectation and priorities in order to design an
effective plan.

2. Building a customer driven strategy;

This plan concerns development of a plan that gives the firm the desired result of the
chosen plan. It is important to design the type of product, prices and availability
according to customers’ requests.
3. Construct an integrated marketing programme that delivers superior value;
Marketers must evaluate how the product is being offered in order to enhance brand
loyalty. Effective marketing campaigns will have to be designed in order to ensure
success.

4. Building profitable relationships and create customers delight;

This stage aims to identify whether value is actually being created. An evaluation of
customers satisfaction is undertaken. The priority of the marketer should not only be to
meet but ideally exceed customers’ expectations. It is also important to out class
competitors offers in order to secure a competitive advantage.

5. Capture value from customers to create profits and customer equity;

This stage outlines the importance of establishing a long-term relationship with target
customers in order to ensure a lifetime value based on commitment and trust. This
strategy would secure an esteemed clientele base, as well as new prospex through
recommendation.

Marketing Management Strategies:

It was previously noted that different target markets may request alternative needs and
wants. Marketing management strategies have been designed in order to build profitable
relationships with target customers which organisations may utilise in order to best deliver a
relationship market approach.

1. Production philosophy;
This philosophy holds that customers give priority to
products that are lowest in price and wildly available.
Thus, intensive cost minimisation strategies would have
to be designed in order to ensure efficiency and the best
priced product in the market. Mass marketing
campaigns are introduced to guarantee a profitable
approach. This can be illustrated in figure 1 above, were
the optimum size level is to be determined in order to
guarantee lowest cost operation and attractive prices. Henry Ford was one of the
pioneers of mass marketing when he designed the famous ‘ModelT’ based on
production efficiency. This philosophy may however suffer from inferior quality
operation or after sales servicing and product impersonality is dominant. Examples of
brands and firms utilising this business philosophy include Lidl (Crownfields, Freeway,
Cieu), Carrefour, low cost airlines (Ryan airs and Easy jet), etc.
2. Product Philosophy;
This orientation is mainly suitable for quality sensitive buyers who are often prepared to
pay a higher price provided that the product is superior in quality features, is innovative,
including a superior after sales and customer care programme. Those marketers are
expected to fine tune their products in order to meet customers higher expectations.
Examples include Sony, bosche, siemens, emirates airlines, etc. Marketers designing
precious brands that also utilise this philosophy by focusing mainly on unique features
and an emotional aspect condition in order to enhance a psychological award aspect.
This includes brands such as Burberry, Louis Vuitton, Tommy Hilfiger, Gucci, Apple,
Hilton Hotels, etc.

Marketing Myopia;
When the business focuses too much and exclusively on perfecting their product and
cost management system there is the risk that changes in customers’ needs and wants
are undermined and competitors offers may be undervalued. Thus, a drop-in turnover
may be experienced. It is hence very important to keep an eye on changes in consumers
trends as well as competitors offers in order to ensure that the product remains
compelling and competitive. Marketing myopia maybe materialised in both production
philosophy and product philosophy. Marketing myopia was experienced by the British
automobile industry, were British automobile manufacturers undermine competitors’
innovative strategies (mainly Japanese and Korean car manufacturers) and didn’t verify
how consumer behaviour was changing. This resulted in a dramatic drop in sale level.

3. Marketing philosophy;
This philosophy gives a clear explanation of the definition of what marketing says; the
priority of the marketer should be to deliver customer satisfaction or to satisfy
customers’ needs and wants in a way that enhances customer satisfaction. The
marketing department becomes the centre of attention and the aim of the marketer is
to ensure a value for money condition. Furthermore, marketers would test past
purchase behaviour in order to verify whether their customers are satisfied with the
purchase condition. Competitors offers must be existent throughout the life of the
product in order to guarantee a competitive advantage and repeat sales. This philosophy
may be used as a compliment to ease production and product philosophies.

4. Sales/selling philosophy;
This philosophy is mainly suitable in the case of customers who have resistance to
purchase or the so-called purchase inertia. This may be due to traits within the
personality, economic circumstances or uncertainty. Thus, marketers are expected to
undertake an aggressive promotional campaign in order to explain the benefits of
 owning the product. A ‘sell, sell, sell’ mentality is embraced. This business philosophy is
particularly evident with teleshopping marketing. However, if marketers focus to much
on selling the product they might run the risk of adopting a ‘hard sell’ mentality were
the marketer attempts to sell the product at all costs, often by using unethical or even
deceptive behaviours, thus exploiting long term customer dissatisfaction. The sales
department is considered to be the central attention within this philosophy and a sellers’
market is embraced.

5. Societal-marketing (socio-marketing) philosophy;

This philosophy holds that the priority of the marketer should be not only to satisfy
customers’ needs and wants but also to ensure that the long run welfare of individuals
and society in general is safe guarded. Thus, marketers are asked to safeguard the
physical, psychological and moral wellbeing of consumers and society in general. For
example, McDonalds and Burger King offer tasty but not nutritious food thus the world
health organisation has put pressure on these fast food franchise giants in order to use
less unhealthy cooking oil, as well as, the introduction of healthy eating options such as
salads, yogurt, pro-biotic drinks, as well as the marketing of water and fruit salads. Body
shop no longer uses animal testing for quality inspection and it has lately invested in
sophisticated laboratory equipment leading to socially responsiveness implication and
more accurate results. Royal Caribbean International (RCI), the largest cruise liner
company in the world, has invested in a vitality food and drinks outlet were guests are
offered complimentary healthy food and beverages.

6. Sustainable marketing philosophy;

This philosophy aims to ensure that the long run welfare of future generations is safe
guarded and environmental concern is enhanced. For example, several marketers have
introduced healthy food and beverage options in order to cater for consumers
experiencing health conditions which are mainly genetic. For example, Benna has lately
introduced lactose free milk, cholesterol free milk, lactose free ricotta, etc. The same
applies in the case of organic food or wheat free bread.
Seat was the first Spanish car manufacture started to produce cars from recyclable
material. Nowadays Seat produces about 95% of its vehicles from recyclable material.
Body shop uses recyclable material for its packaging. ST microelectronics was the first
local company to use biodiesel fuel to operate its vehicles and machinery. Several
appliances in household stores take old products from people’s homes once they
purchase new products from them thus ensuring safe disposal of bulky materials.

The Marketing Mix:

When marketers decide to design goods and services, they are likely to utilise a set of
marketing components in order to best deliver customer satisfaction. The following are 7Ps
which marketers utilise when formulating goods and services;
1. Product;
Before a good or service is designed intensive market, research is undertaken and a
market plan is set up. Eventually, goods are manufactured (in the case of production
firms) or finished goods purchased from suppliers (in the case of resellers). Effective
branding, packaging and labelling strategies are formulated.

2. Pricing;
Price is the value placed on what is exchanged. Price is considered to be the most
important component since it is the only source of income for the business.
Customers measure quality and utility through price. Price is also considered to be
the most difficult to determine since marketers must take into consideration the
following factors: competitors’ prices, total costs (cost of production, cost of sale and
overhead costs), customers expectation and consumers demand, economic
circumstances and expected profit margins.

3. Promotion;
An effective communication’s strategy must be designed in order to establish
product awareness, adopt re-enforcement features and implement persuasive
efforts. This will guarantee that the right message is passed onto the intended target
audience.

4. Place (Distribution);
It is important to evaluate how the good or service is to be made available to target
audiences in securing wide and effective exposure. The marketer may opt for
inhouse marketing distributions or else commissioning outside distributions. In the
latter case, outside distributors are to be selected meticulously in order to guarantee
high turnover due to a derived demand condition. Furthermore, outside distributors
should enhance our brand loyalty.

5. People;
In the case of marketers selling goods, it is important to select the right sales
representative or staff ensuring their competence as well as relationship marketing
and communication skills. In the case of service providers, marketers must
emphasise that they possess the desired proficiency in order to create brand
preference.

6. Physical evidence;
This is considered to be complimentary to people. The right premises and equipment
must be selected, and a welcoming atmosphere is to be designed in order to ensure
that customers are comfortable throughout their shopping experience. This is
important with marketing goods and also services.
7. Process;
In the case of a service provision, it is important to design a plan in order to ensure a
standard system. This would not only guarantee an organised system, but it also
aims to reduce the vulnerability element within service provision. In the case of
goods, it is important to provide suitable training programmes to salespeople and
other front-line sales members in order to guarantee a linear customer care service.