Marketing: Managing Profitable Customer Relationships

1. Chapter 1 Marketing: Managing Profitable Customer Relationships

2. Market & Product • A market is 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. • Product (Marketing Offer): physical product, service, information, experience, person, place, organization, and ideas.

3. Examples of Product

4. Definition of Marketing • Marketing is the process of planning and executing the conceptions, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. (AMA) • Marketing is meeting needs profitably.

5. Marketing Philosophy • The Production Concept • The Product Concept • The Selling Concept -------------------------------------------------------- • The Marketing Concept • The Customer Concept • The Societal Marketing Concept

6. The Production Concept • Consumers will prefer products that are widely available and inexpensive. • Focus: achieving high production efficiency, low costs, and mass distribution. • It is useful when (1) the demand for a product exceeds the supply; (2) the product’s cost is too high. • Examples: Standard Raw Materials and Components, CD, LCD.

7. The Product Concept • Consumers will favor those products that offer the most quality, performance, or innovative features. • Focus: making superior products and improving them over time. • Examples: Digital Camera, CPU. • Better Mousetrap Fallacy • Marketing Myopia. (Theodoes Levitt, 1965)

8. The Selling Concept • Consumers and businesses, if left alone, will ordinarily not buy enough of organization’s products. • Focus: undertake an aggressive selling and promotion effort. • Examples: unsought goods: encyclopedias, funeral plots, foundations.

9. The Marketing Concept • The key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating superior customer value to its chosen target markets. • Slogans: 麥當勞都是為您, 以客為尊,顧客永遠是對的, We do it all for you (Toyota). • Four pillars: target market, customer needs, integrated marketing and profitability.

10. Figure 1.3: Contrasts Between the Sales Concept and the Marketing Concept

11. The Customer Concept

12. The Societal Marketing Concept • The organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and society’s well-being. • Examples: Body Shop; HSBC; Johnson & Johnson’s Tylenol; 保力達蠻牛.

13. Needs, Wants and Demands • Needs (需要): the basic human requirements. • Physical: food, clothing, shelter, safety • Social: belonging, affection • Individual: learning, knowledge, self-expression • Wants (慾望): when needs are directed to specific objects that might satisfy the need. • Demands (需求): wants for specific products backed by an ability to pay.

14. Demand States and Marketing Tasks • Marketing managers are responsible for demand management. • Negative Demand → Counter Marketing, e.g. insurance. • No Demand → Stimulus, e.g. encyclopedias. • Latent Demand → Developing, e.g. iPod; 柴汽兩用汽車; 克寧銀養奶粉. • Declining Demand → Remarketing, e.g. Arm & Hammer’s baking soda → deodorizer; school.

15. Demand States and Marketing Tasks • Marketing managers are responsible for demand management. • Irregular Demand → Synchromarketing (同步行銷), e.g. ice cream; museum. • Full Demand → Maintain Marketing • Overfull Demand → Demarketing (低行銷), e.g. Mister Donut; 黑師傅捲心酥. • Unwholesome Demand → Social Marketing, e.g. cigarettes; drunk-driving.

16. Customer Relationship Management (CRM) • The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. • On average, it costs 5 to 10 times as much to attract a new customer as it does to keep a current customer satisfied. (Sears – 12 times)

17. Customer Perceived Value • The difference between total customer value and total customer cost. • Value chain, e.g. Wal-Mart. • Value-delivery network, e.g. Honda.

18. Customer Lifetime Value and Equity • Customer lifetime value: the value of the entire stream of purchases that the customer would make over a lifetime of patronage. • Lexus: $600,000; Taco Bell: $12,000; Supermarket: $50,000. • Customer equity: the total combined customer lifetime values of all of the company’s customers. • Cadillac vs. BMW

19. Selective Relationship Management • Weed out losing customers and target winning ones for pampering. • Examples: Citibank; First Chicago Bank; Fidelity Investment. • Risk: future profits are hard to predict.

20. Butterflies True Friends Good fit between company’s offerings and customer’s needs; high profit potential Good fit between company’s offerings and customer’s needs; highest profit potential High Strangers Barnacles Little fit between company’s offerings and customer’s needs; lowest profit potential Limited fit between company’s offerings and customer’s needs; low profit potential Low Long-term customers Short-term customers Projected loyalty Customer Relationship Groups Profitability

21. Share of Customer • The portion of the customer’s purchasing in its product categories that a company gets. • Methods to increase share of customer • Offer greater variety to current consumers • Train employees to cross-sell and up-sell in order to market more products and services to existing customers. • Amazon: books, music, videos, gifts, toys, consumer electronics, office products, and so on.

22. Customer Satisfaction • The extent to which a product’s perceived performance matches a buyer’s expectation. • Smart companies aim to delight customers by promising only what they can deliver, then delivering more than they promise. • Examples: Lexus; Southwest Airlines; Seasons Hotels; Nordstrom department store.

23. Satisfying Customer Complaints • Rate of dissatisfaction: 25%; rate of complaint in dissatisfaction: 5%. • 50% of complaints report a satisfactory problem resolution. • Examples: Williams-Sonoma; Enterprise Rent-A-Car. • On average, satisfied →3 people, and dissatisfied → 11 people.

24. Satisfying Customer Complaints • Rate of complainant repurchase

25. Customer Relationship Levels and Tools • Level of relationship: basic＜ reactive (e.g. P&G)＜accountable＜proactive＜partnership (e.g. Boeing). • Tools: • Add financial benefits, ex. frequent-flier program. • Add social benefits, ex. club marketing program. • Add structural ties, ex. McKesson; FedEx.

26. Discussion Question In 1981, American Airlines first introduced the AADVANTAGE frequent-flier program. When other airlines copied this strategy, did they engage in the prisoner’s dilemma?

27. Prisoner’s Dilemma