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D. Bandopadhyay

Professor (Marketing) & DirectorManagement Training & Development

Marketing Management

Needs, Wants & Demands

Needs are the basic human requirements. People need food, air, water, clothing and shelter to survive. People also have strong needs for recreation, education, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need.

Demands are wants for specific products backed by an

ability to pay. Many people want a Mercedes; only a few are willing and really able to buy one because of its high

cost.

Marketers do not create needs: Needs pre-exist marketers. Marketers, along with other societal factors, influence wants.

Marketers might promote the idea that a Mercedes would satisfy a person’s need for social status. They do not, however, create the need for social status.

We can distinguish among five types of needs:

1. Stated needs (the customer wants an inexpensive car). 2. Real needs (the customer wants a car whose operating cost, not its initial price, is low). 3. Unstated needs (the customer expects good service from the dealer). 4. Delight needs (the customer would like the dealer to include an onboard navigation system). 5. Secret needs (the customer wants to be seen by friends as a savvy consumer).

What is Marketing?

Marketing deals with identifying and meeting human and social needs. One of the shortest definitions of marketing is meeting needs profitably.

“Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders”.

Marketing Management is the art

and

science

of

choosing target markets and getting, keeping, and

growing customers through creating, communicating and delivering superior customer value.

The aim of marketing is to know and understand the

customer so well that the product or service fits him

and sells itself. Ideally, marketing

should result in a

customer who is ready to buy. All that should be

needed then, is to make the product or service

available.

What is Marketed?

Goods

Services

Events

Experiences

Persons

Places

Properties (real or financial properties)

Organizations

Information

Ideas

Who Markets?

A marketer is someone who seeks a response (attention,

a purchase, a vote, a donation) from another party, called the prospect.

Marketers are responsible for demand management. Marketing managers seek to influence the level, timing and composition of demand to meet the organization‟s objectives.

Eight demand states are possible:

Negative demand

Nonexistent demand

Latent Demand

Declining Demand

Irregular Demand

Full Demand

Overfull Demand

Unwholesome Demand

Structure of Flows in a Modern Exchange Economy

Resources

Resource Markets

Resources

Money Taxes
Money
Taxes

Money

Structure of Flows in a Modern Exchange Economy Resources Resource Markets Resources Money Taxes Money Taxes,

Taxes, Goods Services, Money

Services,

Money

Manufacturer Markets

Government Markets

Taxes,

Goods

Consumer Markets

Money Goods and Services
Money
Goods and Services
Services Money
Services
Money

Taxes, Goods

Services,

Money

Intermediary Markets

Goods and Services

Key Customer Markets

Consumer Markets

Business Markets

Global Markets

Nonprofit and Governmental Markets

A Simple Marketing System

Communication

Goods/Services
Goods/Services

Industry (a collection of sellers)

( a collection of buyers)

Market

A Simple Marketing System Communication Goods/Services Industry (a collection of sellers) ( a collection of buyers)
A Simple Marketing System Communication Goods/Services Industry (a collection of sellers) ( a collection of buyers)
Money
Money

Information

MARKETPLACES, MARKETSPACES

&

METAMARKETS

The marketplace is physical as when you shop in a store; marketspace is digital, as when you shop on the Internet.

Metamarket is the concept to describe a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries, e.g., automobile metamarket, travel metamarket etc.

HOW BUSINESS AND MARKETING ARE CHANGING

Changing Technology

Globalization

Deregulation

Privatization

Customer empowerment

Customization

Heightened Competition

Industry Convergence

Retail Transformation

Disintermediation

THE MARKETING CONCEPT

Production Concept Product Concept Marketing Concept

The job is not to find the right customers for your products, but the right products for your customers. The marketing concept holds that the key to achieving organizational goals consists of the company being more

effective than competitors in creating, delivering and

communication superior customer value to its chosen

target markets.

Selling focuses on the needs of the seller; marketing on

the needs of the buyer.

Reactive market orientation understanding and meeting customers‟ expressed needs.

Proactive marketing orientation - high-level innovation is possible if the focus is on customers latent needs.

Companies that practice both a reactive and proactive marketing orientation are implementing a total market orientation and are likely to be the most successful.

MARKETING OVERVIEW

Marketing Orientation Marketing Markets & The Marketing Issues Marketing Mix Marketing Marketing Management & Society
Marketing
Orientation
Marketing
Markets &
The Marketing
Issues
Marketing
Mix
Marketing
Marketing
Management
& Society

Arriving at a definition of Marketing

Customer Needs Mutually beneficial exchange Firm’s objectives
Customer Needs
Mutually beneficial
exchange
Firm’s objectives

Identifying

Anticipating

Supplying

Marketing
Marketing
Arriving at a definition of Marketing Customer Needs Mutually beneficial exchange Firm’s objectives Identifying Anticipating Supplying

DEFINITION - MARKETING

Marketing is the management process

responsible for:

identifying anticipating & satisfying customer requirements efficiently and profitably.

SELLING & MARKETING CONCEPTS CONTRASTED

 

Starting

Focus

Means

End

point

Sales

Factory

Existing

Selling +

Profit through

Orientation

Products

Promoting

sales volume

Marketing

Market

Customer

Integrated

Profit through

Orientation

needs

Marketing

customer satisfaction

Relationship of Marketing

& other departments

Holistic Marketing Concept

Relationship Marketing

Integrated marketing

Internal Marketing

Social Responsibility Marketing

Holistic Marketing Dimensions

Senior

Communications

Products &

Marketing

Management

Services

Management

Other

Departments

Channels

Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing
Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing
Internal Marketing
Internal
Marketing
Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing
Marketing Integrated
Marketing
Integrated
Holistic Marketing
Holistic
Marketing

Relationship

Marketing

Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing
Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing

Channel

Socially Responsible Marketing
Socially
Responsible
Marketing
Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing
Holistic Marketing Dimensions Senior Communications Products & Marketing Management Services Management Other Departments Channels Internal Marketing

Legal

Ethics

Partners

Community

Customers

Environment

Relationship Marketing

The operating principle is simple:

Build an effective network of relationships with key stakeholders, and profits will follow.

Integrated Marketing

Four Ps

Four Cs

Product

Customer Solution

Price

Customer Cost

Place

Convenience

Promotion

Communication

Marketing Mix Place Product Channels Product Coverage Variety Target Market Assortments Quality Design Features Brand Name
Marketing Mix
Place
Product
Channels
Product
Coverage
Variety
Target Market
Assortments
Quality
Design
Features
Brand Name
Locations
Inventory
Transport
Packaging
Promotion

Sizes

Services

Warranties

Returns

Price

List Price Discounts Allowances Payment Period

Credit Terms

Sales Promotion Advertising Sales Force Public Relations Direct Marketing Personal Selling

Communications Mix

Advertising Sales Promotion Events and Experiences Distribution Target Channels Customers Public Relations Direct Marketing Personal Selling
Advertising
Sales Promotion
Events and
Experiences
Distribution
Target
Channels
Customers
Public Relations
Direct Marketing
Personal Selling

Offering Mix

Products Company Services Prices
Products
Company
Services
Prices

INTERNAL MARKETING

Internal marketing is the task of hiring, training and motivating able employees who want to serve customers well. Other than various marketing functions working together, the various departments should also work together to serve the customers well. Xerox goes so far as to include in every job description an explanation of how that job affects the customer.

SOCIAL

RESPONSIBILITY

MARKETING

Are

companies

that

do

an

excellent

job

of

satisfying customer wants, necessarily acting in

the

best long

term interests of consumers and

society? Example: selling „ammonia free‟ hair dye.

Marketers

should

environmental,

legal

marketing activities.

understand

ethical,

and

social

context

of

Many consumers do not know what they want in a product. Consumers did not know much about cellular phones when they were first introduced. Nokia and Ericsson fought to shape consumer perceptions of cellular phones. Consumers were in a

learning mode and companies forged strategies to

shape their wants.

Simply giving customers what they want isn’t enough any more to gain an edge, companies must help customers learn what they want.

Target Markets, Positioning & Segmentation

A marketer can rarely satisfy everyone in a market. The marketer decides which segments present the greatest opportunity - which are its target markets.

For each chosen target market, the firm

develops a

market offering. The offering is positioned in the minds

of the target buyers as delivering some central benefit.

Offerings & Brands

Companies address needs by putting forth a value proposition, a set of benefits they offer to

customers to satisfy their needs.

A

brand

is

an

offering from

a known

source. A

brand name carries many associations in the minds of people. These associations make up the brand image.

Value & Satisfaction

The Offering will be successful if it delivers value and satisfaction to the target buyer. Value reflects the perceived tangible and intangible

benefits and costs to customers. Value can be seen as primarily a

combination of Quality, Service and Price (QSP), called the Customer Value Triad.Value increases with quality and service and decreases with price, although other factors can also play an

important role.

Satisfaction reflects a person’s comparative judgments resulting from a product’s perceived performance (or outcome) in relation to his or her expectations. If the performance falls short of

expectations, the customer is dissatisfied and disappointed. If the

performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted.

Marketing Channels

To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages

from target buyers, and include newspapers, magazines, radio,

television, mail, telephone, billboards, posters, fliers, CDs, audiotapes and the Internet. Beyond these, communications are conveyed by facial expressions and clothing, the look of retail stores,

and many other media. Marketers are increasingly adding dialogue

channels(e-mail and toll-free numbers) to counterbalance the more normal monologue channels (such as ads).

The marketer uses distribution channels to display, sell or deliver the physical product or service to the buyer or

user. They include distributors, wholesalers, retailers and

agents.

The marketer also uses service channels to carry out

transactions with potential buyers. Service channels include warehouses, transportation companies, banks and insurance companies that facilitate transactions.

Supply Chain

Whereas marketing channels connect the marketer to the target buyers, the supply chain describes a longer channel stretching from raw materials to components to final products that are ultimately carried to final buyers.

Competition

Competition includes all the actual and potential rival offerings and substitutes that a buyer might consider.

Marketing Environment

The marketing environment consists of the task environment and the broad environment.

The task environment includes the immediate actors involved in producing, distributing and promoting the offering. The main actors are the company, suppliers, distributors, dealers, and the target

customers. Included in the supplier group are material suppliers and

service suppliers such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies and telecommunications companies. Included with

distributors and dealers are agents, brokers, manufacturer

representatives and others who facilitate finding and selling to customers.

The broad environment consists of six components:

demographic environment, economic environment, physical environment, technological environment, political-legal environment and social-cultural environment.

These environments contain forces that can have a

major impact on the actors in the task environment.

Market actors must pay close attention to the trends

and developments in these environments and make

timely adjustments to their marketing strategies.

Marketing Planning

The marketing planning process consists of:

analyzing marketing opportunities

selecting target markets

designing marketing strategies

developing marketing programs

managing the marketing effort.

Shifts in Marketing Management

Here are 14 major shifts in marketing management that smart companies have been making in the twenty-first century.

  • From Marketing does the marketing - to everyone does

the marketing

  • From organizing by product units - to organizing by

customer segments

  • From making everything - to buying more goods and

services from outside.

  • From using many suppliers - to working with fewer suppliers in a “Partnership”

  • From relying on old market positions - to uncovering new ones.

  • From emphasizing intangible assets

tangible

assets

- to emphasizing

  • From building brands through advertising - to building brands through performance and integrated

communications

  • From attracting

customers

through

stores

and

salespeople - to making products available online.

  • From selling to everyone - to trying to be the best firm

serving well-defined target markets.

  • From focusing on profitable transactions

-

to

focusing on customer lifetime value.

  • From a focus on gaining market share - to a focus on building customer share

  • From being local - to being Glocal” – both global and local

  • From focusing on the financial scorecard - to

focusing on the marketing scorecard.

  • From focusing on shareholders - to focusing on

stakeholders.

Marketing Management Tasks

Developing Marketing Strategies and Plans

Capturing Marketing Insights

Connecting with Customers

Building Strong Brands

Shaping the Marketing Offerings

Delivering Value

Communicating Value

Creating Long Term Growth

4 Ps of Marketing

Product (or, service)

Price

Place

Promotion

Product

Tangible product

Intangible product (service)

Combination of both

Price

When setting prices, companies must think about the

following aspects.

Costs The level of competitor‟s prices. The effect of price on consumers‟ perceptions. Market conditions

Place

If you cannot get in touch with your customers, you cannot sell anything. For many products, organizations must rely on third parties to reach the customer. These third parties are collectively known as middlemen and the access they provide is called distribution channels.

a) Merchants take title to the goods, that is they become owners of the goods. They then resell them. Wholesalers and retailers are in this category. b) Agents and brokers do not own the goods, but merely assist in the transfer of ownership from, say, the manufacturer to the customer.

Promotion

Marketing Communications :

Sales promotion activities

Advertising

Personal selling

Publicity

Direct mailing etc.

The Marketing Mix for Services

A service is any activity or benefit offered by one party

to another which is essentially intangible and does not

result in the ownership of anything physical. An example is a seat on an aircraft, which the customer

uses for the duration of the flight but does not own.

The special characteristics of Services

Intangibility

Variability

Inseparability

Lack of Ownership

Additional 3Ps

Process

User-Friendly systems for selling and buying are essential.

Physical Evidence

Services tend to suffer from the intangible nature of the

offering. Organizations in the service sector are increasingly using devices such as newsletters (often via e-mail) to maintain the customer‟s desire to have the service.

People

For most services, a key element is the people who

are an integral part of the process. If the staff who deal with customers are poorly motivated or badly

trained, this can greatly affect the quality of the

service.

The Value Chain

Michael Porter of Harvard has proposed the vale chain as

a tool for identifying ways to create more customer value.

The firm’s success depends not only on how well each department performs its work, but also on how well the various departmental activities are coordinated to

conduct core business processes.

The Value Delivery Process

The smart competitor must design and deliver offerings

for well-defined target markets.

Instead of emphasizing making and selling, these

companies see themselves as part of a value delivery

process.

The value delivery process begins before there is a

product and continues while it is being developed and after it becomes available.

  • Zero customer feedback time

  • Zero product improvement time.

  • Zero Purchasing time.

  • Zero setup time.

  • Zero defects.

“3 Vs” approach to marketing:

  • Define the value segment or customers (and his/her needs)

  • Define the value proposition

  • Define the value network that will deliver the promised service.

Two Views of the Value Delivery Process

The market sensing process.

The new offering realization process.

The customer acquisition process.

The customer relationship management process.

The fulfillment management process.

As Wal-Mart stores sell their goods, sales information

flows via computer not only to Wal-Mart’s headquarters, but also to Wal-Mart’s suppliers, who ship replacement merchandise to the stores almost at the rate it moves off

the shelf.

At

Xerox,

a

Customer

Operations

Group

links

sales,

shipping, installation, service and billing so that these

activities flow smoothly into one another. Winning companies are those that excel at managing core business processes through cross-functional teams.

Core Competencies

Many companies today outsource less critical resources if they can be obtained at better quality or lower cost.

Nike, for example, does not manufacture its own shoes,

because certain Asian manufacturers are more competent in this task; Nike nurtures its superiority in shoe design

and shoe merchandising, its two core competencies. We

can say that a core competency has three characteristics:

  • It is a source of competitive advantage in that it makes

a

significant

benefits

contribution

to

perceived

customer

  • It has applications in a wide variety of markets

  • It is difficult for competitors to imitate.

Competitive advantage ultimately derives from how

well the company has fitted its core competencies and distinctive capabilities into tightly interlocking

“activity systems”.

Competitors find it hard to imitate companies such as Dell, or IKEA because they are unable to copy their activity systems.

A Holistic Marketing Orientation & Customer Value

The holistic marketing framework is designed to address

three key management questions:

  • Value exploration How can a company identify new value opportunities (Customer/Co. /Collaborator).

  • Value creation How can a company efficiently create more promising new value offerings? (Business Concept/Business Scope/Re-positioning)

  • Value delivery How can a company use its capabilities

and infrastructure to deliver the new value offerings

more efficiently? (CRM/Internal Resource management/Business Partnership management)

Value Exploration

The customer’s cognitive space

Existing

and

latent

needs

such

as

the

need

for

participation, stability, freedom and change.

The company’s competence space Breadth: broad versus focused scope of business Depth: physical versus knowledge-based capabilities

The collaborator’s resource space Horizontal partnerships, where companies choose

partners based on their ability to exploit related market opportunities and vertical partnerships, where companies choose partners based on their ability to

serve their value creation.

Value Creation

  • Defining the business concept (the “big idea”)

  • Shaping the business scope (the lines of business)

  • Positioning the company’s brand identity

  • (how customers should see the company)

Value Delivery

  • Customer Relationship Management

  • Internal Resource Management

  • Business partnership Management

Building Customer Value, Satisfaction and Loyalty

Customer Perceived Value

Customer perceived value (CPV):

It is the difference between the prospective

customer‟s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value:

It is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering.

Total customer cost:

It is the bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the given market offering, including monetary, time,

energy and psychic costs.

Determinants of Customer-Delivered Value

The marketer can increase the value of the

customer offering by some combination of raising functional or emotional benefits and /or reducing

one or more of the various types of costs.

Delivering High Customer Value

The Value Proposition‟ consists of the whole cluster of benefits the company promises to deliver; it is

more than the core positioning of the offering. For

example, Volvo‟s core positioning has been “safety,” but the buyer is promised more than just a safe car;

other benefits include a long-lasting car, good service

and a long warranty period.

Too many companies create a value gapby failing to align brand value with customer value.

Total Customer Satisfaction

Whether the buyer is satisfied after purchase depends on the offer‟s performance in relation to the buyer‟s expectations.

Ultimately, the company must operate on the

philosophy that is

trying to deliver a high level of

customer satisfaction subject to delivering acceptable levels of satisfaction to the other

stakeholders, given its total resources.

Customer Expectations

Some of today‟s most successful companies are raising expectations and delivering performances to match.

A customer‟s decision to be loyal or to defect

depends

small

on the encounters

sum total of a large

with

the

number

of

company. These

encounters need to result in positive outcome and

should lead to some memorable customer experience.

Measuring Satisfaction

A company would be wise to measure customer satisfaction regularly because one key to customer retention is customer satisfaction.

Periodic surveys can track customer satisfaction directly.

Companies can monitor the customer loss rate and contact customers who have stopped buying or who have switched to another supplier to learn why this happened.

Companies can hire „mystery shoppers‟ to pose as potential buyers and report on strong and weak points experienced in buying the company‟s and competitors‟ products.

Such practice should also be done by company executives, keeping their identity secret.

For customer-centered companies, customer satisfaction is both a goal and a marketing tool.

Total Quality Management

Total Quality Management

(TQM)

is

an

organization-wide approach to continuously

improving

the

quality

of

all

the

organization‟s

processes, products and services.

Product and service quality, customer satisfaction and company profitability are intimately connected.

Higher levels of quality result in higher levels of customer satisfaction. Which support higher prices and (often) lower costs. Studies have shown a high

correlation between relative product quality and company profitability.

Conformance Quality vs. Performance Quality

Some companies now concentrate their efforts on “return on quality” or ROQ.

ROQ adherents advocate improving quality only on those dimensions that produce tangible customer benefits, lower costs or increased sales.

This bottom-line orientation forces companies to make sure that the quality of the product offerings is in fact the quality consumers actually want.

Maximizing Customer Lifetime Value

Ultimately, “marketing is the art of attracting and keeping profitable customers”. Yet every company loses money on some of its customers. The well- known 20-80 rule says that the top 20 percent of the customers may generate as much as 80 percent of the company‟s profits. This rule is rather 20-80-30 rule to reflect the idea that the top 20 percent of customers generate 80 percent of the company‟s profits, half of which are lost serving the bottom 30 percent of unprofitable

customers. The implication is that a company could

improve its profits by “firing” its worst customers. It is also not necessary that company‟s largest customers will yield max. profit.

Customer Profitability

A profitable customer is a person, household or

company that over time yields a revenue stream

that exceeds by an acceptable amount the company‟s cost stream of attracting, selling and servicing that customer.

Emphasis is on the lifetime stream of revenue

and cost,

not

on

transaction.

the

profit

from a particular

Customer Profitability Analysis

More generally, marketers must segment customers into those worth pursing versus those

potentially less lucrative customers that should

receive less attention, if any at all.

Moreover, customer portfolio should rather be managed as in case of Investment Portfolio and thus one should diversify the customer portfolio accordingly.

Competitive Advantage

Competitive advantage is a company‟s ability to perform in one or more ways that competitors cannot or will not match. Michael Porter urged companies to build a sustainable competitive advantage. At least it should be a leverageable advantage that can be used as springboard to new advantages.

Any competitive advantage must be seen by customers as a customer advantage.

Measuring Customer Lifetime Value

Customer lifetime value (CLV):

It describes the net present value of the stream of future profits expected over the customer‟s lifetime purchases. The company must subtract from the expected revenues the expected costs of attracting, selling and servicing that customer, applying the appropriate discount rate.

CLV calculations provide a formal quantitative framework for planning customer investment and help marketers to adopt a long-term perspective. One challenge in applying CLV concepts, however, is to arrive at reliable cost and revenue estimates.

Customer Equity

Value Equity is the customer‟s objective assessment of the utility of an offering based on

perceptions of its benefits relative to its costs. The sub-drives of value equity are quality, price and convenience objective assessment.

Brand Equity is the customer‟s subjective and intangible assessment of the brand, above and beyond its objectively perceived value. The sub-

drivers of brand equity are customer brand

awareness, customer attitude toward the brand and customer perception of brand ethics subjective assessment.

Relationship Equity

It is the customer‟s tendency to stick with the

brand, above

and

beyond

objective

and

subjective assessments of its worth. Sub- drivers of relationship equity include loyalty programs, special recognition and treatment

program, community-building programs and

knowledge-building programs.

Relationship equity is especially important where personal relationships count for a lot and where customers tend to continue with suppliers out of habit or inertia.

Customer Relationship Management (CRM)

Maximizing customer value means cultivating long term relationships.

Customer relationship management (CRM) is the process of managing detailed information about individual customers and carefully managing all customer “touch points” to maximize customer Loyalty.

A customer touch point is any occasion on which a customer encounters the brand and product.

For a hotel, the touch points include reservations, check-in and check-out, frequent-stay programs, room service, business services, exercise facilities, laundry

service, restaurants and bars.

Based on what they know about each valued customer, companies can customize market

offerings, services, programs, messages and

media.

CRM is important because a major driver of company profitability is the aggregate value of the company‟s customer base.

CRM enables companies to offer individualised market offerings through mass customisation‟.

Mass Marketing Versus One-to-One Marketing

1-to-1

marketing

Marketing:

principles

applied

to

CRM

Identify your prospects and customers

Differentiate customers in terms of :

- Their needs - Their value to your company.

Interact with individual customers to improve your knowledge about their individual needs and to build

stronger relationships.

Customize products, services and messages to each customer

Increasing

the

relationship.

longevity

of

the

customer

Enhancing the growth potential of each customer through “share-of-wallet,” cross selling and up- selling. Harley-branded merchandise amounted to

more than $211 million in company sales in 2003.

Making low-profit customers more profitable or terminating them.

Focusing disproportionate effort on high-value customers.

Attracting, Retaining and Growing Customers

Suspects are people or organizations who might conceivably have an interest in buying the company‟s product or service, but may not have the means or real intention to buy. The next task is to identify which suspects are really good prospects customers with the motivation, ability and opportunity to make a purchase by interviewing them, checking on their financial

standing and so on.

Too many companies suffer from high customer churn high customer defection. It is like adding water to a leaking bucket.

The Customer-Development Process

The Customer-Development Process

There are two main ways to strengthen customer retention. One is to erect high switching barriers‟. Customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs or the loss of loyal- customer discounts. The better approach is to deliver „high customer satisfaction‟. This makes it harder for competitors to offer lower prices or inducements to switch.

The best thing a company can do is to make it easy for the customer to complain. Suggestion forms, toll-free numbers, Web sites and e-mail addresses allow for quick, two-way communication. The 3M Company claims that over two-thirds of its product improvement ideas come from listening to

customer complaints.

Customers who have complained to an organization and had their complaints satisfactorily resolved tell an average of five people about the good treatment they received.

Interesting facts that bear on customer retention.

  • Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current

customers. It requires

a

great deal

of

effort to

induce

satisfied

customers

to

switch

away

from their

current

suppliers.

  • The average company loses 10 percent of its customers each year.

  • A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent, depending on

the industry.

  • The customer profit rate tends to increase over the life of the retained customer.

Building Loyalty

How much should a company invest in building loyalty so that the costs do not exceed the gains?

We

need

to

distinguish

five

different

levels

of

investment in customer relationship building.

  • Basic Marketing

  • Reactive Marketing

  • Accountable Marketing.

  • Proactive Marketing

  • Partnership Marketing.

Levels of Relationship Marketing

Levels of Relationship Marketing

Reducing Customer Defection

  • The company must define and measure its retention rate.

  • The company must distinguish the causes of customer attrition and identify those that can be managed better.

  • The company needs to estimate how much profit it loses when it loses customers. In the case of an individual customer, the lost profit is equal to the customer‟s lifetime value.

  • The company needs to figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit, the company should spend the

money.

Forming Strong Customer Bonds

Adding Financial Benefits

Frequency programs (FPs) are designed to provide rewards to customers who buy frequently and in substantial amounts. Frequency marketing is an acknowledgment of the fact that 20 percent of a company‟s customers might account for 80 percent of its business. Frequency programs are seen as a way to build long-term loyalty with these customers, potentially creating cross-selling opportunities in the process. Airlines run tiered loyalty programs in which they offer different levels of rewards to different travelers. They may offer one frequent-flier mile for every mile flown to occasional travelers and two frequent-flier miles for every

mile flown to top customers.

Adding Social Benefits

Company personnel work on cementing social bonds with customers by individualizing and personalizing customer relationships.

Many companies have created Club Membership Programs. Club

membership can be open to everyone who purchased a product or service, or it can be limited to an affinity group or to those willing to pay a small fee. Harley Davidson The world-famous motorcycle company sponsors the Harley owners Group (H.O.G), which now numbers 650, 000 members in over 1200 chapters. The first time buyer of a Harley-Davidson motorcycle gets a free one year membership. H. O. G. benefits include a magazine called „Hog Tales‟, a touring handbook. Emergency road service, a specially designed insurance program, discount hotel rates and a Fly & Ride program enabling members

to rent Harleys while on vacation. The company also maintains an extensive

Web site devoted to H. O. G., which includes information on club chapters, events and a special members-only section.

Adding Structural Ties

  • Create long-term contracts.

  • Charge a lower price to consumers who buy larger supplies.

  • Turn the product into a long-term service.

Customer Database and Database Marketing

Marketers must know their customers. And in order to know the customer, the company must collect information and store

it in a database and do database marketing.

A customer

database

is

an

organized

collection

of

comprehensive information about individual customers or prospects that is current, accessible and actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, maintenance of customer relationships.

“Database marketing is the process of building, maintaining and using customer database and other databases (products, suppliers, resellers) for the purpose of contacting, transacting and building customer relationships”.

Using the Database

To identify prospects.

To decide which customers should receive a particular offer.

To deepen customer loyalty

To reactivate customer purchases

To avoid serious customer mistakes.

Database marketing is most frequently used by business marketers and service providers (hotels,

banks, airlines; and insurance, credit card and

telephone

companies)

that

normally

and

easily

collect a lot of customer data.

 

Other types of companies

that

are

in

the

best

position to invest in CRM are companies that do a lot of cross-selling and up-selling (e.g., GE and Amazon) or companies whose customers have highly differentiated needs and are of highly

differentiated value to the company. It is used less often by packaged-goods retailers and consumer packaged goods companies.

The Central Role of Strategic Planning

Successful marketing requires companies to have capabilities such as understanding & capturing customer value, creating customer value, delivering customer value, and sustaining customer value. We start the process with Strategic Planning. Strategic planning calls for action in three key areas:

The first is managing a company’s businesses as an investment portfolio. The second involves assessing each business’s strength by considering the market’s growth rate and the company’s position and fit in that market. The third is establishing a strategy. For each business, the company must develop a game plan for achieving its long-run objectives.

The Strategic Planning, Implementation &

Planning

Control Processes

Implementing

Controlling

Corporate Corporate Planning Planning Organizing Organizing Measuring Measuring results results Division Division Planning Planning Implementing Implementing
Corporate Corporate Planning Planning
Organizing Organizing
Measuring Measuring results results
Division Division Planning Planning
Implementing Implementing
Diagnosing Diagnosing results results
Business Business Unit Unit
Planning Planning
Product Product Planning Planning
Taking Corrective
Taking Corrective
Action Action

The marketing plan is the central instrument for directing and coordinating the marketing effort.

Strategic marketing plan lays out the target markets and

the value proposition that will be offered, based on an

analysis of the best market opportunities.

Tactical marketing plan specifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels and service.

Corporate and Division Strategic Planning

All corporate headquarters undertake four planning activities:

  • Defining the corporate mission

  • Establishing strategic business units

  • Assigning resources to each SBU

  • Assessing growth opportunities

Defining the Corporate Mission

Good mission statements have three major characteristics:

They focus on a limited number of goals.

Mission statements stress the company’s major policies and

values.

They define the major competitive spheres within which the

company will operate. Industry

Products and Applications.

Competence

Market Segment

Vertical

Geographical

Defining the Business

A business must be viewed as a customer-satisfying process, not a goods-producing process.

Levitt encouraged companies to redefine their businesses in terms of needs, not products.

It highlights the difference between a target market definition and a strategic market definition.

Product-Oriented Versus Market

Oriented Definitions of a Business

Market Definition Company Product Definition Missouri-Pacific Railroad We are a people-and-goods mover. We run a railroad.
Market Definition
Company
Product Definition
Missouri-Pacific Railroad
We are a people-and-goods mover.
We run a railroad.
Xerox
We help improve office productivity
We make copying equipment.
Standard Oil
We supply energy.
We sell gasoline.
Columbia Pictures
We market entertainment.
We make movies.
Encyclopaedia Britannica
We distribute information.
We sell encyclopedias.
Carrier
We provide climate control in the home
We make air conditioners and furnaces.

Large Companies normally manage quite different businesses, each requiring its own strategy. Such different businesses are arranged as strategic business units (SBUs). An SBU has three characteristics:

  • It is a single business or collection of related businesses

that can be planned separately from the rest of the company.

  • It has its own set of competitors.

  • It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profit.

The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding.

Assessing Growth Opportunities

Intensive Growth Strategies Ansoff’s Product-Market Expansion Grid

Current Products

New Products

Market-penetration strategy Current Product-development strategy Markets New Markets Market-development strategy (Diversification strategy)
Market-penetration strategy
Current
Product-development strategy
Markets
New Markets
Market-development strategy
(Diversification strategy)

Integrative Growth

Sales and profits of a business can be increased through backward, forward or horizontal integration within its industry.

Diversification Growth

Diversification makes sense when a company finds a highly attractive new industry where it can leverage its strengths. The company could seek new products that have technological or marketing synergies with existing product lines appealing to a new group of customers (concentric diversification). The company can develop new products that are technologically unrelated to its current product line and could appeal to its current customers (horizontal diversification) The company may seek new opportunities which have no relation with its current technology, products or markets (conglomerate diversification).

Business Unit Strategic Planning

The Business Mission

Each business unit needs to define its specific mission within the broader company mission.

SWOT Analysis

The overall evaluation of a company’s strengths, weaknesses, opportunities and threats is called SWOT analysis.

It involves monitoring the external and internal

marketing environment.

External Environment

(Opportunity and Threat) Analysis

A business unit has to monitor key macro-environment

forces (demographic-economic, natural, technology competitors, suppliers, distributors, dealers) that affect its ability to earn profits. The business unit should set up

a marketing intelligence system to track trends and important developments. For each trend or development, management needs to identify the associated

opportunities and threats.

A marketing opportunity is an area of buyer need and

interest in which there is a high probability that a company can profitably satisfy that need.

There are three main sources of market opportunities.

The first is to supply something that is in short supply.

The second is to supply an existing product or service in a new or superior way.

The third source often leads to a totally a new product or service.

To evaluate opportunities, companies can use Market

Opportunity Analysis (MOA) to determine the attractiveness and probability of success:

  • Can the benefits involved in the opportunity be articulated convincingly to a defined target market (s)?

  • Can the target market (s) be located and reached with cost- effective media and trade channels?

  • Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?

  • Can the company deliver the benefits better than any actual or potential competitors?

  • Will the financial rate of return meet or exceed the company’s required threshold for investment?

Internal Environment (Strengths/Weaknesses) Analysis

Each business needs to evaluate its internal strengths and weaknesses.

The business

should

opportunities where

it

limit

itself

possesses

the

to those required

strengths or whether it should consider opportunities

that means it

might

certain strengths.

have to

acquire or develop

Goal Formulation

Once the company has performed a SWOT

analysis, it can proceed to develop specific goals

for the planning period. This stage of the process is called goal formulation.

Managers use the term goals to describe objectives that are specific with respect to magnitude and time.

  • They must be arranged hierarchically, from the most to the least important.

  • Objectives should be stated quantitatively whenever possible.

  • Goals should be realistic based on opportunities & strengths.

  • Objectives must be consistent increasing R & D activities and simultaneously reducing product development costs may not be possible.

Strategy Formulation

Goals indicate what a business unit wants to achieve; strategy is a game plan for getting there.

Every business must design a strategy for achieving its goals, consisting of a „marketing strategy‟; and a „compatible technology strategy‟ and „sourcing strategy‟.

Porter‟s Generic Strategies:

Overall cost leadership Differentiation Focus.

According to Porter, firms pursuing the same strategy directed to the same target market constitute a strategic group. The firm that carries out that strategy best will make the most

profits.

Porter defines strategy as the creation of a unique and valuable position involving a different set of activities.

A company

can claim

that

it

when

it

performs

different

has a strategy

activities from

rivals or performs similar activities in different

ways.

Strategic Alliances

Many strategic alliances

take

the

form

of

marketing alliances. These fall into four major

categories.

Product or service alliances HUL vs. Pepsi. Promotional alliances P&G (Ariel) vs. Bombay Dyeing Logistics alliances TCI & Mitsui vs. Toyota Kirloskar Pricing collaborations airlines, hotels etc.

Program Formulation and Implementation

Once the business unit has developed its principal strategies, it must work out detailed support programs. A great marketing strategy can be sabotaged by poor implementation.

In Implementing strategy, companies also must not

lose

sight of their

multiple stakeholders and their

needs.

Feedback and Control

As it implements its strategy, a firm needs to

track

the

results

developments.

and

monitor

new

The marketplace will change; and when it

does, the company will need to review and

revise

its

implementation

programs,

strategies, or even objectives.

Nature and Contents of a Marketing Plan

A marketing plan

is

a

written

document

that

summarizes what the marketer has learned about

the marketplace and indicates how the firm plans to

reach its marketing objectives.

It contains tactical guidelines for the marketing

programs and financial allocations over the planning period. It is one of the most important outputs of the marketing process.

Contents of the Marketing Plan

Executive summary and table of contents.

Situation analysis

Marketing strategy.

Financial Projections.

Implementation controls.