Chapter 1: Creating and Capturing Customer Value Flashcards
What is marketing?
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
What is the marketing process?
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
Needs
States of felt deprivation
Wants
The form human needs take, as shaped by culture and individual personality
Demands
Human wants that are backed by buying power
What is a market offering?
Some combination of goods, services, information or experiences offered to a market to satisfy a need or a want
Examples of a market offering
Goods, services/experiences, persons, places, organisations, information, ideas
Explain customer value and satisfaction
Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly
Exchange
The act of obtaining a desired object from someone by offering something in return
Transaction
A trade between two parties that involves at least two things of value, agreed-upon conditions, and a time and place of agreement
Relationships
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
What is a market?
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
What are the elements of a modern marketing system?
Suppliers –> company and competitors –> marketing intermediaries –> final consumer
Marketing management
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
Selecting customers to serve
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
Demand management ready-reckoner: Negative demand
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
Demand management ready-reckoner: No demand
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
Demand management ready-reckoner: Latent demand
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
Demand management ready-reckoner: Declining demand
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
Demand management ready-reckoner: Irregular demand
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
Demand management ready-reckoner: Full demand
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
Demand management ready-reckoner: Overfull demand
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
Demand management ready-reckoner: Unwholesome demand
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
Demarketing
Marketing in which the task is to temporarily or permanently reduce demand
Aim of demarketing
To not completely destroy demand, but only to reduce or shift it to another time or even to another product
Value proposition
The set of benefits or values it promises to deliver to consumers to satisfy their needs. Such value propositions differentiate one brand from another
Marketing management orientations
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:
- the production concept
- the product concept
- the selling concept
- the marketing concept
- societal marketing concept
- the production concept
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
- the product concept
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
- the selling concept
The idea that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort
- the marketing concept
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
- the societal marketing concept
Questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare
The selling and marketing concepts contrasted
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
Three considerations underlying the societal marketing concept
- Society (human welfare)
- Company (profits)
- Consumers (want satisfaction)
Preparing an integrated marketing plan and program
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
Components of the extended marketing mix
- Product: goods, services and experiences
- Price
- People
- Placement logistics
- Promotion
- Process
- Physical Evidence
Product: goods, services and experiences
Variety, quality, design, features, brand name, packaging, sizes, add-ons, warranties, returns
Price
List price, discounts, allowances, settlement and credit terms
People
‘People interacting with people’ is how many service experiences might be described. Relationships are important in marketing
Placement logistics
Demand chain management, logistics management, channel management
Promotion
Advertising, personal selling, direct marketing, online marketing
Process
In the case of ‘high-contact’ services, customers are often involved in the process of creating and enjoying experiences. Increasingly, so is technology
Physical evidence
Services are mostly intangible. The meaning of other tools and techniques used in measures of satisfaction is important
Engaging customers and managing customer relationships
The first three steps in the marketing process all lead to the fourth and most important step: building profitable customer relationships
Customer relationship marketing
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
Customer relationship management (CRM)
The process of managing detailed information about individual customers and carefully managing customer touch points in order to maximise customer loyalty
Relationship building blocks: Customer value and satisfaction
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
Customer-perceived value
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
Customer satisfaction
Depends on the product’s perceived performance relative to a buyer’s expectations.
Customer relationship levels and tools
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
Engaging customers
- 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
Customer engagement and today’s digital and social media
- 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
Consumer-generated marketing
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
Partner relationship management
Involves working closely with partners in other company departments and outside the company to jointly bring greater value to customers
Creating customer loyalty and retention
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.
Customer lifetime value
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
Share of customer
The portion of the customer’s purchasing that a company gets in its product categories
