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

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 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

Butterflies True Friends

Good fit between Good fit between
High company’s offerings and company’s offerings and
customer’s needs; high customer’s needs; highest
profit potential profit potential
Profitability
Strangers Barnacles
Little fit between company’s Limited fit between
Low offerings and customer’s company’s offerings and
needs; lowest profit customer’s needs; low
potential profit potential

Short-term Long-term
customers customers
Projected loyalty
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 34% 52%
complaints
Minor 52% 95%
complaints
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