Chapter 1: Creating and Capturing Customer Value

Question 1

What is marketing?

Answer 1

The process by which marketing organisations engage customers, build strong customer relationships and create customer value in order to capture value from customers in return

Question 2

What is the marketing process?

Answer 2

Understand the marketplace and customer needs and wants –> design a customer value-driven marketing strategy –> construct an integrated marketing program that delivers superior value –> engages customers, builds profitable relationships and create customer delight –> capture value from customers to create profits and customer equity

Question 3

Needs

Answer 3

States of felt deprivation

Question 4

Wants

Answer 4

The form human needs take, as shaped by culture and individual personality

Question 5

Demands

Answer 5

Human wants that are backed by buying power

Question 6

What is a market offering?

Answer 6

Some combination of goods, services, information or experiences offered to a market to satisfy a need or a want

Question 7

Examples of a market offering

Answer 7

Goods, services/experiences, persons, places, organisations, information, ideas

Question 8

Explain customer value and satisfaction

Answer 8

Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly

Question 9

Exchange

Answer 9

The act of obtaining a desired object from someone by offering something in return

Question 10

Transaction

Answer 10

A trade between two parties that involves at least two things of value, agreed-upon conditions, and a time and place of agreement

Question 11

Relationships

Answer 11

Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences involving a product, service, idea or other object. Marketers want to build strong relationships by consistently delivering superior customer value

Question 12

What is a market?

Answer 12

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

Question 13

What are the elements of a modern marketing system?

Answer 13

Suppliers –> company and competitors –> marketing intermediaries –> final consumer

Question 14

Marketing management

Answer 14

The art and science of choosing target markets and building profitable relationships with them. To design a winning marketing strategy, the marketing manager must answer two important questions:
- What customers will we serve? (i.e. who is our target market?)
- How can we serve these customers best? (i.e. what is our value proposition?)
Marketing management seeks to affect the level, timing and nature of demand in a way that helps the organisation achieve its objectives

Question 15

Selecting customers to serve

Answer 15

This is done by examining the various segments into which the market naturally falls, based on the appropriate factors that can be used to analyse a market (market segmentation). A marketing organisation’s demand comes from two groups: new customers and repeat customers

Question 16

Demand management ready-reckoner: Negative demand

Answer 16

A market is in a state of negative demand if a major part of the market dislikes the product and may even pay a price to avoid it. Examples include health insurance and dental work

Question 17

Demand management ready-reckoner: No demand

Answer 17

Target consumers may be unaware of or uninterested in the product. The marketing task is to find ways to connect the benefits of the product with the person’s natural needs and interests

Question 18

Demand management ready-reckoner: Latent demand

Answer 18

Many consumers may share a strong need that cannot be satisfied by an existing product. Examples include safer communities and more environmentally friendly cars. The marketing task is to measure the size of the potential market and develop effective products and services that would satisfy the demand

Question 19

Demand management ready-reckoner: Declining demand

Answer 19

Every organisation, sooner or later, faces declining demand for one or more of its products. The marketing task is to reverse the declining demand through creative remarketing of the product

Question 20

Demand management ready-reckoner: Irregular demand

Answer 20

Many organisations face demand that varies on a seasonal, daily or even hourly basis, causing problems of idle or overworked capacity. Examples include holiday resorts and restaurants. The marketing task is to find ways to alter the same pattern of demand through flexible pricing (e.g. early-bird specials), promotion and other incentives

Question 21

Demand management ready-reckoner: Full demand

Answer 21

Organisations face full demand when they are satisfied with their volume of business. The marketing task is to maintain the current level of demand in the face of changing consumer preferences and increasing competition

Question 22

Demand management ready-reckoner: Overfull demand

Answer 22

Some organisations face a demand level that is higher than they can, or want to, handle. Examples include a national park that is carrying more tourists than the facilities can handle. The marketing task, called demarcating, requires finding ways to reduce the demand temporarily or permanently. Demarketing aims not to destroy demand but only to reduce its level, temporarily or permanently

Question 23

Demand management ready-reckoner: Unwholesome demand

Answer 23

Unwholesome products, such as cigarettes and illicit substances, will attract organised efforts to discourage their consumption. The marketing task is to get people who like something to give it up, using tools such as fear messages, price hikes and reduced availability

Question 24

Demarketing

Answer 24

Marketing in which the task is to temporarily or permanently reduce demand

Question 25

Aim of demarketing

Answer 25

To not completely destroy demand, but only to reduce or shift it to another time or even to another product

Question 26

Value proposition

Answer 26

The set of benefits or values it promises to deliver to consumers to satisfy their needs. Such value propositions differentiate one brand from another

Question 27

Marketing management orientations

Answer 27

We have seen that marketing managers carry out tasks to achieve desired behaviour in defined target markets and to build profitable relationships with target customers. There are five alternative concepts under which organisations may conduct their marketing activities:

1. the production concept
2. the product concept
3. the selling concept
4. the marketing concept
5. societal marketing concept

Question 28

1. the production concept

Answer 28

The idea that consumers will favour products that are available and highly affordable, and that the organisation should therefore focus on improving production and distribution efficiency

Question 29

2. the product concept

Answer 29

The idea that consumers will favour products that offer the most quality, performance and features, and that the organisation should therefore devote its energy to making continuous product improvements. A detailed version of the new-product idea, stated in meaningful consumer terms

Question 30

3. the selling concept

Answer 30

The idea that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort

Question 31

4. the marketing concept

Answer 31

The marketing management philosophy which holds that achieving organisational goals depends on determining the needs and wants of target markets and delivering the desired satisfaction more effectively and efficiently than competitors do

Question 32

5. the societal marketing concept

Answer 32

Questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare

Question 33

The selling and marketing concepts contrasted

Answer 33

The selling concept
- starting point: factory
- focus: existing products
- means: selling and promoting
- ends: profits through sales volume
The marketing concept
- starting point: market
- focus: customer needs
- means: integrated marketing
- ends: profits through customer satisfaction

Question 34

Three considerations underlying the societal marketing concept

Answer 34

• Society (human welfare)
• Company (profits)
• Consumers (want satisfaction)

Question 35

Preparing an integrated marketing plan and program

Answer 35

The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of the firm’s marketing mix.
While the ultimate aim may be to modify people’s behaviour, marketing managers have a defined set of tools they can use

Question 36

Components of the extended marketing mix

Answer 36

• Product: goods, services and experiences
• Price
• People
• Placement logistics
• Promotion
• Process
• Physical Evidence

Question 37

Product: goods, services and experiences

Answer 37

Variety, quality, design, features, brand name, packaging, sizes, add-ons, warranties, returns

Question 38

Price

Answer 38

List price, discounts, allowances, settlement and credit terms

Question 39

People

Answer 39

‘People interacting with people’ is how many service experiences might be described. Relationships are important in marketing

Question 40

Placement logistics

Answer 40

Demand chain management, logistics management, channel management

Question 41

Promotion

Answer 41

Advertising, personal selling, direct marketing, online marketing

Question 42

Process

Answer 42

In the case of ‘high-contact’ services, customers are often involved in the process of creating and enjoying experiences. Increasingly, so is technology

Question 43

Physical evidence

Answer 43

Services are mostly intangible. The meaning of other tools and techniques used in measures of satisfaction is important

Question 44

Engaging customers and managing customer relationships

Answer 44

The first three steps in the marketing process all lead to the fourth and most important step: building profitable customer relationships

Question 45

Customer relationship marketing

Answer 45

The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping and growing customers

Question 46

Customer relationship management (CRM)

Answer 46

The process of managing detailed information about individual customers and carefully managing customer touch points in order to maximise customer loyalty

Question 47

Relationship building blocks: Customer value and satisfaction

Answer 47

The key to building lasting customer relationships is to create superior customer value and satisfaction. Satisfied customers are more likely to be loyal customers and to give the marketing organisation a larger share of their business

Question 48

Customer-perceived value

Answer 48

The customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers

Question 49

Customer satisfaction

Answer 49

Depends on the product’s perceived performance relative to a buyer’s expectations.

Question 50

Customer relationship levels and tools

Answer 50

Marketing organisations can build customer relationships at many levels, depending on the nature of the target market
- At one extreme, a company with many low-margin customers may seek to develop basic relationships with them
- At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with key customers
Marketers can use specific marketing tools to develop stronger bonds with consumers. For example:
- Frequency marketing programs reward customers who buy frequently or in large amounts
- Club marketing programs offer members special benefits and create member communities

Question 51

Engaging customers

Answer 51

• Profound changes continue to occur in the ways in which companies are relating to their customers
• Yesterday’s marketing organisations focused on mass marketing to all customers at arm’s length
• Today’s companies focus build deeper, more direct and lasting relationships with more carefully selected customers

Question 52

Customer engagement and today’s digital and social media

Answer 52

• Customer-engagement marketing involves fostering direct and continuous customer involvement in shaping brand conversations, brand experiences and brand community
• In customer-managed relationships, customers connect with companies and with each other to help forge their own brand experiences and, hopefully, go beyond to become brand advocates
• Most marketers now combine their mass-media marketing efforts with a rich mix of online marketing, mobile marketing, social media marketing

Question 53

Consumer-generated marketing

Answer 53

Brand exchanges created by consumers themselves - both invited and uninvited - by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers. This is through consumer-generated videos, blogs and websites

Question 54

Partner relationship management

Answer 54

Involves working closely with partners in other company departments and outside the company to jointly bring greater value to customers

Question 55

Creating customer loyalty and retention

Answer 55

Good customer relationship management creates customer satisfaction which, intern, satisfied customers remain loyal and talk favourably to others about the company and its products. Keeping customers loyal makes good economic sense as loyal customers spend more and stay around longer. Research also shows that is five times cheaper to keep an old customer than to acquire a new one.

Question 56

Customer lifetime value

Answer 56

The amount by which revenues from a customer over time exceed the company’s costs of attracting, selling and servicing that customer. The value of the entire stream of purchases that the customer would make over a lifetime of patronage

Question 57

Share of customer

Answer 57

The portion of the customer’s purchasing that a company gets in its product categories