Chapter OneMarketing: Managing Profitable

Customer Relationships

PREPARED BY

UMAIR

Looking Ahead• Define marketing and the marketing processes.• Explain the importance of understanding

customers and the marketplace.• Identify the five core marketplace concepts.• Identify the key elements of a customer-driven

marketing strategy.• Discuss customer relationship management

and ways of creating and obtaining value.• Describe the major trends and forces changing

today’s marketing landscape.

What is Marketing?• Attracting new customers by promising

and delivering superior value.

• Building long-term relationships with customers by delivering continued customer satisfaction.

• Creating, building and managing these relationships profitably over time.

• Broad Definition:-

Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with others.

• Narrower Definition:-

The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

The Marketing Process Model1. Understand the marketplace and customer

needs and wants.

2. Design a customer-driven marketing strategy.

3. Construct a marketing program that delivers superior value.

4. Build profitable relationships and create customer delight.

5. Capture value from customers to create profits and customer equity.

1.Understanding The Marketplace And The Consumer Needs

Needs, Wants and Demands• Needs are states of felt deprivation.

– Physical:• Food, clothing, shelter, safety.

– Social:• Belonging, affection.

– Individual:• Learning, knowledge, self-expression.

Needs, Wants and Demands• Wants are needs shaped by culture and

individual personality.– Jeans vs a sari.– Individual expression vs. collective good.

• Demands are wants combined with buying power.– Hilfiger vs. Giant Tiger.– Jetta vs. Jaguar.

Products, Services, Experiences• Products.

– Anything that can be offered for.– Acquisition, attention, use or consumption.– That might satisfy a need or want.

• Services.– Activities or benefits offered.– Essentially intangible.– Do not result in ownership of anything.

• Experiences. – Create, stage and market brand experiences.– Attending live theatre, music concert.

Marketing Myopia• Sellers pay more attention to the specific

products they offer than to the benefits and experiences produced by the products.

• They focus on the “wants” and lose sight of the “needs.”– The great railroads lost out to the exploding trucking

industry.– They forgot that their business was solving

transportation problems, not running railroads.

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How Do Consumers Choose Among Offers?

Customer ValueCustomer Value – Difference between the values the customer gains from owning the product versus the costs of obtaining it. Customers buy from the firm that offers the highest customer perceived value

Customer SatisfactionCustomer Satisfaction – Perceived performance in providing value, relative to expectations – how well the product lives up to expectations

Important: Important: Perceptions are keyPerceptions are key Set the right level of Set the right level of

expectationexpectation

Value and Satisfaction• If the performance and the customer’s

experience is lower than expectations, than customer satisfaction is low.

• If the performance and the customer’s experience meets expectations, than the customer is satisfied.

• If the performance and the customer’s experience exceeds expectations, than the customer is delighted.

Exchange and Transactions• Exchange.

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

• Transaction. – A trade between two parties that involves:

• two things of value.• agreed upon conditions.• time of agreement.• place of agreement.

What is a Market?• The set of actual and potential buyers of

a product.

• These people share a need or want that can be satisfied through exchange relationships.

Core Marketplace Concepts• Customers have needs, wants and

demands.• Marketers offer products or services.• Customers seek value and satisfaction

from offers.• Demands and offers result in

transactions and relationships.• Markets are all potential customers with a

similar demand.

Customer-Driven Marketing• Divide markets into segments.

• Choose the right segment to target.

• Offer a unique value proposition.

• Differentiate your offer from competitor offers.

• Build customer value and satisfaction.

• Nurture long-term customer relationships.

Figure 1.2

ELEMENTS OF A MODERN MARKETING SYSTEM

2.Designing A Customer Driven Marketing Strategy

Marketing Management

The art and science of choosing target markets and building profitable

relationships with them.

Selecting Customers To Serve

• The company must decide who it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segment it will go after (target marketing)

• Segmentation divides the market into groups of customers with varying needs and wants.

• Targeting selects the right segment to nurture.

Connections With Customers• Most marketers are

targeting fewer, potentially more profitable, customers

• They are asking:– Can we serve this customer

profitably?

• Focus has shifted to:– Retaining current customers– Connecting in a deeper, more

lasting way – growing “share of customer”

– Building relationships for greater profitability

Demand Management• Marketing management seeks to control

demand.– Increasing demand is the norm.– Demarketing seeks to reduce demand in

certain circumstances.

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MarketingMarketingManagementManagement

Choosing targetmarkets and

building profitable

relationships with them

DemandManagement

Finding and increasing demand;

(also changing or reducing demand, i.e.,“demarketing”)

ProfitableCustomer

Relationships

Attracting new customers, and

retaining andbuilding

relationships with current customers

Marketing Management

Value Proposition

The set of benefits or values the company promises to deliver to its target markets

to satisfy their needs.

Marketing Management Orientations• Marketing Management wants to design

strategies that will build profitable relationships with target consumers

• There are five alternative concepts under which organizations design and carry out there marketing strategies. These are:-

1. The Production Concept

2. The Product Concept

3. The Selling Concept

4. The Marketing Concept

5. The Societal Marketing Concept

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Production Concept

Product Concept

Selling Concept

Marketing Concept

Societal Mktg. Concept

• Consumers favor products that are available and highly affordable

• Consumers favor products that offer the most quality, performance, and innovative features

• Consumers will not buy enough unless the firm undertakes large-scale selling and promotion efforts

• Focuses on knowing the needs and wants of target markets and delivering satisfactions better than competitors

• Focuses on the needs and wants of target markets and on maintaining or improving customer and societal well-being

Marketing Management OrientationsBased on different assumptions about:

- what customers want- what marketers should do

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1.Production ConceptDemand > Supply; High Costs(Still appropriate under these limited circumstances) (p. 12)

Consumers Favor: Widely available Highly affordable

Management’s Focus: “engineer”“engineer” Improving production efficiency Improving distribution efficiency

DANGER: Marketing MyopiaDANGER: Marketing Myopia Focuses too narrowly on company operations, not on

customer needs/wants Company “falls in love” with its operations, not with its

customers

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2.Product Concept (p. 12)

Consumers Favor: Quality, performance, innovative features

Management’s Focus: “inventor”“inventor” Making superior products (“build a better

mousetrap”) Continuous product improvements

DANGER: Marketing MyopiaDANGER: Marketing Myopia Focuses too narrowly on physical products, not on underlying

customer needs/wants Company “falls in love” with its products, not with its

customers Makes products that customers don’t care about (don’t

need/want) Over-improve (customers don’t care about the improvements) New technology replaces (e. g. , more convenient, less expensive)

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Selling Concept(May be appropriate for “unsought products”) (p. 12)

Consumers Favor: Not buying, or not buying enough

Management’s Focus: “hard sell “hard sell salesperson”salesperson” Large-scale selling and promotion effort Coaxing and pushing people to buy

DANGER: DANGER: “Sell what you can make”“Sell what you can make”

(versus “make what you can sell”)(versus “make what you can sell”) Most customers who are dissatisfied do not buy again Most customers who are dissatisfied spread bad word-of-

mouth

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Marketing Concept(pp. 12-13)

Consumers Favor: Products that satisfy their wants and needs

Management’s Focus: “customer “customer centered”centered” Understanding needs and wants of

customers – what they need/want the product to do for them

Underlying and latent needs as well as stated needs

Delivering desired satisfactions better than competitors do

NOTE: “better than competitors” – keeps best of the NOTE: “better than competitors” – keeps best of the production and product conceptsproduction and product concepts

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Marketing and Selling Concepts Contrasted (Fig. 1.3, pp. 12-13)

FactoryExistingproducts

Sellingand

promoting

Profitsthrough

sales volume

The Selling Concept (“inside-out”)The Selling Concept (“inside-out”)

StartingPoint Focus Means Ends

MarketCustomer

needsIntegratedmarketing

Profits throughcustomer

satisfaction

The Marketing Concept (“outside-in”)The Marketing Concept (“outside-in”)

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5.Societal Marketing Concept A Principal of enlightened

marketing that holds that a company should make good marketing decisions by considering consumer wants, the company's requirements, consumers long run interests and society’s long run interests.

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Societal Marketing Concept

Societal Marketing

Concept

Societal Marketing

Concept

CompanyCompany(Profits)

ConsumersConsumers(Short-term want

satisfaction)

SocietySociety(Long-term consumer & societal

welfare)

Maintain & improveMaintain & improvelong-term well-beinglong-term well-being

Social responsibilitySocial responsibility

Be ethicalBe ethicalDo good: Do good: • customer-oriented,• environment, • innovative (real, valued) product improvements • sense-of-higher- mission, give back

Stop doing bad Stop doing bad

3.Preparing A Marketing Plan And Program

• The company's marketing strategy outlines which customers the company will serve and how it will create value for these customers.

• Next the marketer constructs a marketing program that will actually deliver the intended value to the target customers.

• The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of the firms Marketing mix.

The Marketing Mix• The marketing mix is the set of

marketing tools the firm uses to implement its marketing strategy.

• The major marketing mix tools are classified into four broad groups, called the four Ps of marketing. These are:-

1. Product2. Price3. Place4. Promotion

Marketing Mix (contd.)To deliver on its value proposition, the firm

must:• Create a need-satisfying marketing offer

(Product)• Decide how much it will charge for the

offer (Price)• How it will make the offer available to the

target consumers (Place)• How it will communicate with target

customers about the offer and persuade them of its merits (Promotion)

4. Building Customer Relationships

Relationship Marketing• Customer relationship management.

The process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

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 company a larger share of their business

The Customer’s Experience• Customer perceived value.

– Customer’s subjective view of the offer’s value compared to competitive offers.

• Customer satisfaction.– Customer’s subjective view of the value received in

return for the purchase price.

• Customer delight.– Customer’s subjective view of the increased

value received above the purchase price.

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Customer Satisfaction

Expectations are largely based on marketer information and promises – must create realistically high expectations

Reality = satisfaction has been Reality = satisfaction has been decliningdecliningPerformance

falls short of expectations

P < E

Customer is dissatisfied

Performance matches

expectations

P = E

Customer is satisfied

Performance exceeds

expectations

P > E

Customer is highly

satisfied

or delighted !

Satisfaction = Performance (P) – Expectation Satisfaction = Performance (P) – Expectation (E)(E)

Customer Relationship Levels and Tools

• Companies can build customer relationships at many levels, depending upon the nature of the target market.

• At one extreme a company with many low margin customers may seek to develop basic relationships with the customers. For example proctor & gamble does not phone or call on all of its customers to get to know the personally.

Customer Relationship Levels and Tools (continued)

• At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with key customers. For example proctor & gamble teams work closely with Wal-mart

The Changing Nature of Customer Relationship

Relating With More Carefully Selected Customers

• Today most marketers realize that they do not want relationships with every customer. Instead companies are now targeting fewer more profitable customers.

• Many companies now use customer profitability analysis to weed out losing customers and target winning ones for pampering.

Relating for the Long-Term• Just as companies are being more selective

about which customers they can choose to serve they are serving chosen customers in a deeper more lasting way

Relating Directly• Beyond connecting more deeply with their

customers, many companies are also connecting more directly.

• Direct marketing is booming. Consumers can now buy virtually any product with out going to the store – by telephone, mail-order catalogs and online.

Partner Relationship Management• Working with partners in other company

departments and outside the company to jointly bring greater value to the customers.– Every department in an organization

contributes to customer satisfaction.– Suppliers are carefully controlled through

supply chain management.– Strategic alliances create new opportunities

to delight customers.

5.Capturing Value from Customers

Creating Customer Loyalty And Retention

• Good Customer relationship management creates customer delight.

• In turn delighted customers remain loyal to the company and its products.

• Thus the aim of customer relationship management is to create not just customer satisfaction, but customer delight.

Customer lifetime value.• The value of the entire stream of

purchases that the customer would make over a lifetime of patronage.

Capturing Value In Return• Share of customer.

– Share of customer is the percentage of customers that buy a company’s product of all customers purchasing in that product category.

– Companies continuously strive to grow their share of customer.

– Creating brand extensions is a favoured method of growing share of customer.

Building Customer Equity• The total combined customer lifetime

value of all of the company’s customers.

• Often a more accurate measure of a company’s value than sales or market share.

• Combination of market share, share of customer and lifetime customer value.

Customer Relationship Groups• Targeting the right customers at the right

time.– Butterflies have high profitability with low loyalty.– True Friends have high profitability with high loyalty.– Strangers have low profitability with low loyalty.– Barnacles have low profitability with high loyalty.

• Challenge: make the Butterflies more loyal and make the Barnacle more profitable.

• Keep the True Friends and “fire” the Strangers.

Butterflies

Good fit between company’s offerings and customer’s needs: High profit potential

True Friends

Good fit between company’s offerings and customers needs: highest profit potential

Strangers

Little fit between company’s offerings and customer’s needs: lowest profit potential

Barnacles

Limited fit between the company’s offerings and customer’s need: Low profit potential

Short-term Customers Long-term Customers

High Profitability

Low Profitability

New Marketing Technologies• Technology has changed how marketers

build value.– Internet and e-commerce/e-business.– Fast and global communications.– Wireless technologies.– Relational databases.

• Instant, highly targeted communication with customers and suppliers.

New Global Markets• International trade is the new frontier.

• Export is critical to a country’s economic growth.

• Difficult decision:– Delay means risking loss of growing global

markets.– Proceed means high risk but potentially high

reward.

Ethics and Responsibility• Worldwide consumerism and

environmentalism movements exert. pressure for greater responsibility

• Notion of “caring capitalism” tied to societal marketing concepts.– Seeking ways to make a profit by serving the

best long-run interests of customers and communities.

Not-For-Profit Marketing• Marketing of ideas, values and

institutions.

• Increasing awareness that these organizations must build relationships with constituents and stakeholders.

• Challenge of using new marketing techniques for not-for-profit initiatives.

Looking Back• Define marketing and the marketing processes.• Explain the importance of understanding

customers and the marketplace.• Identify the five core marketplace concepts.• Identify the key elements of a customer-driven

marketing strategy.• Discuss customer relationship management

and ways of creating and obtaining value.• Describe the major trends and forces changing

today’s marketing landscape.

NASCAR

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NASCARNASCARNASCAR stands for The National Association for Stock Car Auto Racing. It is also the largest sanctioning body of stock car racing in the United States.

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NASCARNASCARKey TermsKey Terms

Stock CarsStock cars are those cars that are not modified

in any way and are in their original factory condition.

Stock Car RacingStock car racing is a form of automobile racing found mainly in the United States, Canada, New Zealand, Great Britain and Brazil. Traditionally, races are run on oval tracks measuring approximately ¼ mile to 2.66 miles

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NASCARNASCARKey TermsKey Terms

BootleggingBootlegging is the illegal distribution or production of liquor and other highly taxed goods.

Prohibition EraIn the history of the United States, Prohibition, also known as The Noble Experiment, is the period from 1919 to 1933, during which the sale, manufacture, and transportation of alcohol for consumption were banned nationally as mandated in the Eighteenth Amendment to the United States Constitution. 63

NASCARNASCARHistory and Origins

• Stock car racing in the United States has its origin in bootlegging during prohibition

• They would modify their cars for extra storage capacity and to make them faster

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NASCARNASCARHistory and Origins

With the passage of time they started getting together to compete with one another. This eventually took the form of planned racing.

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NASCARNASCARHistory and Origins

• There were no rules or fixed tracks. This problem was identified by William France who was of the view that a governing body was needed to regulate these races.

• He held meetings with influential drivers and promoters as a result of which NASCAR was established on February 21, 1948.

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NASCARNASCARBeginning of Modern Era

• NASCAR made several changes to its structure in the early 1970’s such as new points system and cash benefits to compete for championship points.

• NASCAR was aired for the first time on national television.

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NASCARNASCARNASCAR Sanctioned Series

• Sprint Cup

• Nationwide Series

• Craftsman Truck Series

• Canadian Tire Series

• Corona Series

• Regional Racing Series

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NASCARNASCARSprint Cup

• It is the sport’s highest level of professional competition

• This naturally implies that it is the most popular and most profitable NASCAR series

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NASCARNASCARNationwide Series

• It is the second highest level of professional competition in NASCAR

• It is the only series of the top three to race outside the United States

• Its season has a few races less than the Sprint Cup and the prize money too is low

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NASCARNASCARCraftsman Truck Series

• It features modified pickup trucks

• It is one of the three national divisions of NASCAR, together with the Nationwide Series and the Sprint Cup

• It has with time grown in popularity

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NASCARNASCARCanadian Tire Series

• NASCAR purchased Canadian racing series CASCAR in September 2006

• The CASCAR Western Series is NASCAR’s fourth-tier series started in 2007

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NASCARNASCARCorona Series

• This series began in 2007 in Mexico

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NASCARNASCARRegional Racing Series

• NASCAR also operates several other racing circuits

• Two main racing series are Camping World Series and Whelen All-American Series

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NASCARNASCARDrivers Safety

It is mandatory for NASCAR drivers to adopt the necessary safety measures. Some of the mandatory devices are:

• SAFER Barrier

• Kill Switch

• Fireball

• HANS device (Head and Neck Restraint System)

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NASCARNASCARSuccess of NASCAR

• It is the second highest rated regular season on television

• It has about 75 million fans

• Because of such large numbers of fans it has attracted more than 250 big name sponsors

• It is earning billions of dollars in revenue each year

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