Introductory session: Marketing

Management I
 Course Details
Assessment criteria Books

• Kotler, Keller:
Class Participation 10% ‘Marketing Management’
Quiz/Assignments 10%
Situation Analysis(E) 10%

Group Project submission 20%

Group project presentation 10%

End Term Exam 40%
 Module Delivery

 Delivered through case and readings which are given in the

course pack

 Readings
 To be read prior to the class for building the comments
 You have to make a viewpoint

 Case studies
 Analysis of case situation
 Identification of problem
 Determination of alternative solutions with pros and cons
 Suggesting the most recommended solutions
 Scope of Marketing
• Marketing is about identifying and meeting
human and social needs
• AMA’s formal definition: Marketing is the
activity, set of institutions, and processes for
creating, communicating, delivering, and
exchanging offerings that have value for
customers, clients, partners, and society at
large
 Marketing Management
• The art and science of choosing target markets
and getting, keeping, and growing customers
through creating, delivering, and
communicating superior customer value
 Five Basic Markets
• Resource markets
• Manufacturer markets
• Consumer markets
• Intermediary goods markets
• Government markets
Figure 1.1 Structure of Goods, Services, and Money Flows in a
Modern Exchange Economy
 The Market Exchange
• Marketers view industry as a group of sellers
and use the term market to describe customer
groups
Figure 1.2 A Simple Marketing System
Figure 1.3 The New Marketing Realities
 The Scope of Marketing
• Places
• Properties
• Organizations
• Goods
• Services
• Experiences
• Information
• Ideas
• Events
• Persons
 Core Marketing Concepts

• Target Markets and Segmentation

• Marketplace, Market-space, and Meta-market
(Automobile meta-market : auto manufacturers , new & used car
dealers, financing companies, insurance cos., spare part
dealers, service shops, auto magazines , auto sites on net etc)
• Marketers and Prospects
• Needs, Wants, and Demands
• Offerings and Brand
• Value and Satisfaction
 Core Marketing Concepts cont…

• Exchange and Transactions (trade of values)

• Relationship marketing
• Marketing Channels
• Paid, Owned and Earned Media
• Impressions and Engagement
 Core Marketing Concepts cont…

• Supply Chain (value delivery system?)

• Marketing environment (Broad and Task)
• Competition
• Marketing mix (4 Ps)
The Marketing Mix
Criticisms against Marketing performance

• Fails to deliver targeted Top and Bottom lines(roi?)

• Fails to help the firm avoid industry price pressures (customer
loyalty?)
• Fails to graduate from “Selling products” to “ Marketing
solutions” (superior value?)
• Fails to graduate from Tactical to Strategic marketing.
(innovation/value delivery?)
• Fails to retain Customers(Lacks the required concern)
• Fails to realize that abundance of choice cannot be equated
with plentiful value
 All criticisms justified?
• Many new challenges for Marketing
(consumer awareness, expectations, costs of new customers,
commoditization of branded products, shorter PLCs, channel
proliferation etc.)
 Perspectives on Marketing

• Exchange Concept
• Production Concept
• Product concept (Marketing Myopia)
• Selling Concept
• Marketing Concept
• Market-value concept
 Table 1.1 Product-Oriented v s Market-Value- ersu
Oriented Definitions of a Business
Company Product Definition
Union Pacific Railroad We run a railroad.
Xerox We make copying
equipment.
Hess Corporation We sell gasoline.
Paramount Pictures We make movies.
Encyclopedia Britannica We sell encyclopedias
online.
Carrier We make air conditioners
and furnaces.
Market-Value Definition
We move people and
goods.
We help improve office
productivity.
We supply energy.
We market entertainment.
We distribute information.
We provide climate control
in the home.
Distinction between Marketing and
Selling
 Difference between Selling and
Marketing
Selling Marketing
• Starts with Seller • Starts with Buyers

• Concern with tricks of getting cash • Concerns with fulfilling needs of

from customers customers

• Product determined by seller • Product determined by buyer

• Emphasis on reducing costs • Emphasis on innovation

• Cost determines price • Customer determines price

• Emphasis on “somehow selling” • Emphasis on “integrated marketing”

• Distribution mere extension of • Distribution vital for customer’s

production function convenience
 Marketing Concept???
• Consumer orientation
• Integrated Management action with Marketing
as Fulcrum
• Emphasis on Consumer satisfaction
• Emphasis on profit
• Attaining all goals through Consumer satisfaction
Note: Consumer orientation Is not same as Value
Delivery
 Becoming a Market-Driven Company

• Develop a company-wide passion for

customers
• Organize around customer segments instead
of products
• Understand customers through qualitative and
quantitative research
 Table 1.2 Characteristics of Customer-Centric
Organizations
Low Customer-Centricity High Customer-Centricity
Product driven Market driven
Mass market focused Customer focused
Process oriented Outcome oriented
Reacting to competitors Making competitors irrelevant
Price driven Value driven
Hierarchical organization Teamwork
 Understanding Marketing in a new
Perspective

• Q. What is it that the firm provides to the

customer, that brings about satisfaction?

• A. Value Delivery
 Value - the basics

• The Concept of Customer Value

• The Concept of Customer Cost

• The Concept of Customer Satisfaction

(Initial perceived Value & Finally delivered Value)
 Customer value triad

Value = Benefits - Costs= (Functional benefits +

Emotional benefits) - (Monetary costs + Time
costs + Energy costs +Psychic costs)
 Value - the basics cont…
• Am I getting my money’s worth?
 Value - the basics cont…The Concept of
Customer Value
Tangible Values Intangible Values
Functional value Social value
Economic value Prestige Value/Status value
Convenience value Sentiment value
Sensory value Belief value
Service (people) value
 Value - the basics cont…

• A consumer’s profile determines how he

perceives Value.
 Sum up..

• The Customer decides what Value is……….

The firm’s job is to deliver it.
 Google’s core value

• To organize the world’s information and make

it universally accessible and useful…

• What next for Google?

 Sum up..

Value delivery is no easy task. It requires:

• Creativity (overcoming marketing inertia)

• Innovation (technology, insights)
• Consumer Insights
 The Fundamental Business Model

Shareholder Value

Organizational Survival and Growth

Current and Potential Profits

Competitors
Attract, Retain, and Grow Customers
Competitors
Customer Value

Company
 Imperative 1: Determine and Recommend
Which Markets to Address

Investment Choices
• Where shall we invest?
• current businesses/markets
• new businesses/markets

• How much/when shall we invest?

• From which businesses/markets shall we:
• withdraw?

• Roles for marketing

• Identify opportunities
• advise on proposed strategic actions
 Imperative 2:
Identify and Target Market Segments

Target market segment

Two very different marketing tasks

• Creative and analytic
• Decision focused
 Imperative 3:
Set Strategic Direction and Positioning

• Set performance objectives

• Craft the positioning statement

• Address markets in different development stages

• Make critical branding decisions

• Do we have a profitable business model?

 Imperative 3:
Set Strategic Direction and Positioning

Illustration: The Classic Life Cycle

 Imperative 4: Design the Market Offer

• Execute the value proposition

• Design the marketing mix

• Product
• Promotion
• Distribution
• Price

• Variations by market segment

• Implications for other functions

 Imperative 5:
Secure Support from Other Functions

Individual Silos Integrated Storage

 Imperative 5:
Secure Support from Other Functions

• Support for design

• Support for implementation

 Imperative 6: Monitor and Control

• Are we achieving market/financial performance objectives?

• Are functional areas implementing the market offer?

• Are our objectives, strategies, and implementation plans in sync with the
environment?
Imperative 6: Monitor and Control
 Four Marketing Principles

• Principle 1: Selectivity and Concentration

• Principle 2: Customer Value

• Principle 3: Differential Advantage

• Principle 4: Integration
 Principle 1: Selectivity and Concentration

• Selectivity
• Concentration
• Concentrate resources against those targets
 Principle 2: Customer Value

The firm must focus on providing value to customers

• Customers do not want your products!
• Customer value should drive product and investment decisions.
• Market and financial performance relates directly to delivering customer value.
 Principle 3: Differential Advantage

Differential advantage is a net benefit or cluster of benefits, offered to a sizable

group of customers, which they value and are willing to pay for, but cannot get, or
believe they cannot get, elsewhere.
 Principle 3: Differential Advantage

Differential Advantage:
• Emphasizes competition: customer value is not enough.
• Some advantages are better than others.
• All differential advantages eventually erode – renewing differential advantage is crucial.
• The firm must be willing to cannibalize its differential advantage.
• A difference is not a differential advantage.
 Principle 4: Integration

• The firm must carefully integrate all elements in design and execution of the
market offer.
• Integration in two areas:
• At the firm – functional areas/business units
• At the customer – marketing mix
• Integration requires:
• Agreement on priorities: functions/management levels/business units
• Cooperative working relationships among those designing and implementing the market offer
• A shared value of serving customers – firm-wide external orientation
 Marketing as a Philosophy

External Orientation
The extent to which the firm focuses attention on markets, customers,
competitors, complementers, and the environment in general.
 Marketing as a Philosophy

External Orientation
Internal External
Orientation Orientation

• Do you treat customers as assets?

• Are you responsive to customer requests?
• Are you clearly focused on beating competitors?
• How quickly do you react to environmental changes?
• How well do your functions and business units work together to
deliver customer value?
 Marketing as a Philosophy

Internal and External Orientations

Internal External
Orientation Orientation

• Operations • Customers
• Sales • Competitors
• Finance • Complementers
• Technology • Suppliers
• Environmental
forces
 External Orientation Philosophy

The externally oriented firm:

• Welcomes change
• Internalizes marketing as a philosophy
• Strives to reduce inter-functional boundaries
Holistic Marketing
 The Marketing Process

Situation Analysis Market, Customer, Competitor, Company Insight

Planning Assumptions Transition

The Market
Segmentation Process
Market Segments

The Targeting Decision

Target Market Segments
Develop Market Segment
Strategy and Positioning
Market Segment Strategy and Positioning
(for each target segment); integrate into the Market
Strategy
Design the Market Offer

Implement Market Strategy, and Market Segment

Strategies (for each target segment)
 Fundamental business model
Marketing as a concept
Differences in Marketing and Selling
Role of Marketing (Value)
Marketing as a process
Core Marketing concepts
Ethical dimensions in Marketing
Session 2
The Value of Customers
 The Fundamental Business Model

Shareholder Value

Organizational Survival and Growth

Current and Potential Profits

Competitors
Attract, Retain, and Grow Customers
Competitors
Customer Value

Company
 The Value of Customers

• Globalization is driving increased emphasis on creating shareholder value

• Customers are the critical source of cash inflows
• Customers are the firm’s core assets
 Two Faces of Value

Products and services create Customer value attracts,

customer value retains, and grows customers

By being attracted, grown,

and retained, customers in
turn create value for the
firm and its shareholders
 Starbucks Stock Price Performance

Starbucks
 Amazon Stock Price Performance

Amazon
 The Value of Customers

Core Topics
• Why are customers so important for the firm?

• How can the firm bind customers closer?

 Why Are Customers
So Important for the Firm?

Session Roadmap A
• Customer lifetime value (CLV)
• Profit margin
• Customer retention
• Addressing current customers and potential customers
• Customer revenue and profit rules
• Customer suitability
 Customer Lifetime Value (CLV)

• Describes the NPV of the stream of future

profits expected over the customer’s lifetime
purchases

• (purpose – maximize long term profitability)

CLV cont…
 Customer Lifetime Value (CLV)

Year 1 Year 2 Year 3

m1 x r1 m2 x r1 x r2 m3 x r1 x r2 x r3
CLV = + + + ………

(1 + d) (1 + d)2 (1 + d)3

m = profit margin
r = customer retention rate
d = discount rate (cost of capital)

Definition: CLV = Discounted profit margin earned from the customer, factored by
customer retention rate
 Customer Lifetime Value (CLV)

rxm
CLV =
(1 + d – r)

m1 = m 2 = m 3 … = m

r1 = r2 = r3 … = r
 Customer Lifetime Value (CLV)

Profit margin

rxm
CLV =
(1 + d – r)

r
Margin multiple =
(1 + d – r)
 Customer Lifetime Value (CLV)

Increase profit margin, m

mxr
CLV = Increase customer retention rate, r
(1 + d – r)

Reduce discount rate, d

 Customer Lifetime Value (CLV)

Review
• Customer lifetime value depends on just three factors:
• profit margin
• customer retention rate
• discount rate
 Profit Margin

Customer Life Cycle Effect

 Profit Margin

Increasing Profit Margin

• Customer selection
• Customer satisfaction
• Customization
• Raise prices
• Reduce operating costs
 Customer Retention

Impact on Firm Growth

• Consider two companies:
Company 1 Company 2
Retention Rate ® 95% 90%
Acquisition Rate (a) 15% 15%

• How many years will it take each company to double the size of its customer
base?
7 years 14 years
 Customer Retention

Relationship to Customer Satisfaction: Illustration — Bank

 Addressing Current Customers
and Potential Customers

mxr
Current Customers CLV =
(1 + d – r )

mxr
Potential Customers CLV = – AC
(1 + d – r )

Decision Rule: Acquire potential customers when expected CLV is greater than
the acquisition cost.
 Addressing Current Customers
and Potential Customers

Options
 Addressing Current Customers
and Potential Customers

How to Acquire Customers

• Independent marketing activities
• Channel strategies
• Firm and business-unit acquisitions
 Customer Revenue and Profit Rules

80:20 Rule
80 percent of revenues
20 percent of customers

20:80 Rule
20 percent of revenues
80 percent of customers
 Customer Revenue and Profit Rules

Unprofitable/Low-Profit Customers: Options

Selling Non-Selling
• Part-time sales force • Traditional direct marketing
• Shift to telesales • Electronic contact – e-mail, web sites
• Assign to agents/distributors • Raise prices
• Outsource selling effort • Stop serving
 Customer Suitability

• Capacity constraints
• Competition
• Evolving strategy
• Impact on the firm’s reputation
• Potential costs
 How Can the Firm Bind Customers Closer?

Session Roadmap B
• Customer relationship management (CRM)
• Customer loyalty
 Customer Relationship Management

Definition
Customer relationship management is the ongoing process of identifying and creating
new value with individual customers and sharing these benefits over a lifetime of
association with them.
 Customer Relationship Management

Features
• Synthesis of marketing, customer service, and quality management
• Goal is to form mutually beneficial relationships between the firm and its customers
• Technology plays an important role in CRM, but CRM is not about technology
• CRM techniques can be applied to other firm stakeholders – suppliers,
shareholders, and current and potential employees
 Customer Relationship Management

The Customer Database

Customer
Customer Customer Customer Customer Customer Value
Reponses to
Identifier Characteristics Contact History Purchase History to the Firm
Firm Decisions

Jane Doe

John Smith

XYZ Inc.

DEF Inc.
 Customer Relationship Management

Control and Access

19th-Century National Politics
Klemers Furst Von Metternich Foreign Affairs Minister, Austro-Hungarian Empire: “I
don’t care who the King is as long as I control the purse strings.”

21st-Century IBM Politics

Senior IBM Executive: “I don’t care who the CEO is, as long as I control the customer
databases.”
 Customer Relationship Management

Customer Value and Customer Loyalty

Objective:
Objective:
Switch customers from competitors
Customer retention
– improve loyalty
High Action:
Action: Secure trial by sampling and
Targeted customer loyalty/
targeted sales promotions; then
reward programs
loyalty/reward programs
Customer Value

Objective: Objective:
No special objective Increase purchases
Low
Action: Action:
No special effort Cross-sell other products

Low High

Customer Loyalty
 Customer Loyalty Programs :1

Design Factors
• Rate of earning
• Aspirational value of the reward
• Cash value of the reward
• Ease of collecting the reward
• Length of time to earn the reward
• Soft and hard rewards
 Customer Loyalty Programs :2

Value for the Firm

• Creates competitor barriers
• Gains insight into customer behavior
• Makes loyal customers less price sensitive
• Encourages loyal customers to spend more
• Stimulates positive word of mouth from loyal customers
• Increases sales by purchase acceleration closer to the goal
 Cultivating relationships
• Personalizing marketing
• Customer empowerment
• Customer reviews and recommendations
• Customer complaints