Principles of Marketing

Chapter 1: Marketing: Creating & Capturing Customer Value

A Change in Marketing & Its Importance

• Firms are “returning to marketing”  Change and Instability in Marketplace • Technology • Economy • Social interests • Shift in Marketing’s “Focus” & “Performers”  From “Transactions” to “Relationships”  Not just “Big M” Marketing anymore; increased “Little M” marketing * (Carver 2009; 2012)

Dr. James Carver – Auburn University

What is Marketing?

*

1.

“Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create the

exchanges

that satisfy individual and organizational goals.” (1985 AMA Definition) 2.

“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 stakeholders.” * (Lusch and Marshall 2004 AMA Definition) 3.

“

Competition for a Differential Advantage

.” * (Wroe Alderson 1957)

Dr. James Carver – Auburn University

Two Goals of Marketing

• 1.

Marketing has 2

basic

goals: Attract new customers by providing superior value 2.

Keep & grow existing customers by delivering satisfaction • Can do so

iff

one has a differential, or long term competitive, advantage

Dr. James Carver – Auburn University

A Marketer’s Basic Toolbox

• Value is created on 4 “fronts” • Toolbox ~ “Marketing Mix”  The 4 Ps 1.

Product 2.

3.

4.

Place Price Promotion

Dr. James Carver – Auburn University

The Marketing Process

• 5 Most

Basic

Steps of Marketing 1.

Understand Consumers 2.

Design Customer-Driven Marketing Strategy 3.

Prepare an Integrated Marketing Program 4.

Build Customer Relationships 5.

Capture Value from Customers

Dr. James Carver – Auburn University

Consumers’ Needs, Wants, & Demands

• Need  State of felt deprivation • Physical, Social, or Individual • Want  Form a need takes as shaped by culture & personality • Demand  Wants backed with buying power

Dr. James Carver – Auburn University

Consumers’ Needs, Wants, & Demands

• Need  State of felt deprivation • Physical, Social, or Individual • Want  Form a need takes as shaped by culture & personality • Demand  Wants backed with buying power Needs Wants Demands Culture Buying Power

Dr. James Carver – Auburn University

Market Offerings

• Customers’ demands are fulfilled through market offerings  Combination of: • Products; Services; Information; & Experiences  Market offering & “Product” (purchased) * • • Can be tangible good or intangible service “Service” are all services used to facilitate & support

Dr. James Carver – Auburn University

Market Offering

• Traditional “Product” View Has Pitfalls  Marketing Myopia • Paying so much attention to the specific products a company offers that benefits & experiences are overlooked (e.g., Buggy-whip example) • Service-Dominant Logic *  Products are bundles of “services” or “brand experiences”  Spoken in terms of a

Value Proposition Dr. James Carver – Auburn University

Value Proposition Examples

• Drill Bit Example: • What is really being sold?

• Toaster Example?

• What is really being sold?

• Disney Example?

• What is really being sold?

Dr. James Carver – Auburn University

Value Proposition Examples

• Drill Bit Example: • What is really being sold?

 Ability to generate a particular sized hole (½” bit = ½” hole) • Toaster Example?

• What is really being sold?

 A system for cooking one’s bread and making crispy • Disney World Example?

• What is really being sold?

 A world of wonder where dreams come true, not just rides

Dr. James Carver – Auburn University

Exchange and Relationships

• Marketers make Value Propositions to “Markets” with a goal of “Exchange”

over time

• Market  The set of actual & potential consumers of a product based upon some shared need or want • Exchange  Obtaining a desired object from someone by offering something in return • Marketers obtain money by offering value propositions that meet or exceed expectations • Relationships, not one-time exchanges, are key.

Dr. James Carver – Auburn University

Designing a Customer-Driven Marketing Strategy

• Marketing Management  Seeks to answer two questions: 1.

2.

What customers will we serve?

 Target markets through

market segmentation

How can we serve these customers best?

 Development and articulation of the

value proposition

Marketing Management 1. Customer Management

Dr. James Carver – Auburn University

2. Demand Management

Marketing Management Orientations

• Five Philosophies of Marketing Management 1.

Production Concept 2.

Product Concept 3.

Selling Concept

4.

Marketing Concept 5.

Societal Marketing Concept

Dr. James Carver – Auburn University

Marketing Concept

• A management philosophy which advocates that a firm: • Exists to identify and satisfy the needs of its customers  Customer orientation • • That a customer orientation is accomplished through an integrative effort throughout the firm  Integrated effort That the firm’s focus should be long-term and seek to provide a satisfactory return on owner’s investment (ROI)  Long-term profit orientation

Dr. James Carver – Auburn University

Societal Marketing Concept

• A management philosophy which advocates that a firm:  Follow the traditional marketing concept, yet consider how changes in any portion of one’s offering might enhance… 1.

2.

Consumers’ and society’s immediate well-being Consumers’ long-term interests 3.

Opportunity for future generations to meet their needs (i.e., sustainable marketing)

Dr. James Carver – Auburn University

An Integrated Marketing Program

• One’s marketing strategy “in action”, or… • A Marketer’s Toolbox…  The “Marketing Mix” • The 4 Ps 1.

2.

3.

Product Place Price 4.

Promotion  Value is created on these 4 “fronts”

Dr. James Carver – Auburn University

CRM: Customer Relationship Management

• Customer data management  Leveraging detailed information & customer “touchpoints” (interactions) to maximize loyalty.

 Maximization of customer delivered value through the management of customers • Acquisition, • Retention, and • Growth

Dr. James Carver – Auburn University

Building Blocks of a Relationship (Value)

• Value  Is “customer perceived” • Largely

idiosyncratic

* but

generalizable

“themes” (segmentation) based on  Drivers include: • • • • • • • Convenience “Total” cost Selling Price Authenticity Exclusivity Finishes Conspicuousness (referent power)

Dr. James Carver – Auburn University

Building Blocks of a Relationship (Customer Satisfaction)

• Satisfaction  The difference between one’s perceived performance (i.e., experience) & expectations • • • A “net loss” ~ dissatisfied A “net neutral” ~ satisfied A “net positive” ~ highly satisfied or “delighted”  Likely to become “customer evangelists”  “Indirect” driver of firm performance (e.g., sales)  Yet,

maximization is not the goal

• Must know

break-even point

for all services provided *

Dr. James Carver – Auburn University

Consumer Spending and “Lagged” Satisfaction (ACSI)

*

Note the larger lag during & after the “Great Recession” – consumers must also have funds available in order to purchase

Dr. James Carver – Auburn University

Appropriate Levels of Customer Relationship

• “Closeness” is a function profitability  Considered in terms of a

continuum

• Low Margin customers  “Basic” relationship is best • Relationships only through websites, apps, advertising, etc.

• High Margin customers  “Full Partnership” is possible • Relationship with constant, personal communication; information sharing, etc.

 Tools to enhance “bond” and profitability include: • Frequency marketing programs & Club Memberships • Goal is to enhance loyalty through switching costs

Dr. James Carver – Auburn University

Changing Nature of Customer Relationships

• From “Mass Marketing” to “Selected” Relationships  Customer Profitability Analysis During…  Customer Acquisition  No longer “Seining” for all fish in the sea  Surveys, Credit ratings, etc.

 Customer Retention  80/20 Rule *  Fire “Poor” or “High Maintenance” customers  “Segmentation for termination” purposes  Example: Sprint termination letter, gift cards to competitors, etc.

Dr. James Carver – Auburn University

Interactive Customer Relationships

• Fueled by technology and social media • No longer marketing by

intrusion

• Mass marketing is naturally intrusive and designed to interrupt one’s attention  Marketing by

attraction

• Marketing that

includes

consumers  Use of social media and technology isn’t enough 

Co-creation

is key • • Gives up control, yet Gains authenticity & engagement (part of the conversation)  A delicate balancing act to ensure hijacking is curtailed

Dr. James Carver – Auburn University

Partner Relationship Management

• Both Intra- and Inter-firm partners • Intra-firm partners • No longer is marketing the only function representing the customer  Non-marketers performing marketing  Inter-firm partners • Marketing messages must be managed throughout and across the entire channel

Dr. James Carver – Auburn University

Capturing Value from Customers

• Value is captured from customers via…  Current and future sales, market share, and profit.

• Key outcomes of customer value include…  Customer loyalty & retention • 5 times as much to get a “new” customer  Greater share of “market” and “customer”, and  Growth in customer equity

Dr. James Carver – Auburn University

Customer Equity

• The total combined customer lifetime values (CLVs) of all the company’s current & future customers  Customer Lifetime Value • The value of the entire stream of purchases that the customer would make over a lifetime of patronage  Consider the cost of losing just one customer • UPS example • Why customers must be managed based on profitability  Recall 80/20 rule

Dr. James Carver – Auburn University

Drivers of Change in Marketing

• Economy • Technology • Non-profit marketing • Globalization • Sustainable marketing

Dr. James Carver – Auburn University