Chapter 1 - MARKETING Creating and Capturing Customer Value

CHAPTER 1: MARKETING: Creating and Capturing Customer
Value
Principles of Marketing (MKTG.1)
PROF. NOEL M. SALAZAR JR., MBA
"Marketing touches all of us every day of our lives. It is the means by which a standard of living
is developed and delivered to people"
MARKETING
- Marketing is about identifying customer needs, satisfying these needs and
anticipating them in the future.
Marketing is: the right product, in the right place, at the right time, at
the right price
Marketing is managing profitable customer relationships
Marketing refers to exchange activities conducted by individuals or
organizations for the purpose of satisfying human wants with the view
of accomplishing the individual or organizational objective.
Marketing process all activities necessary for the conception, pricing,
promotion and distribution of ideas, goods and services.
According to American Marketing Association (AMA) it is defined as 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.
THE 2 GOALS OF MARKETING
To attract new customers by promising superior value
To keep and grow current customers by delivering satisfaction
THE MARKETING PROCESS

The marketing process involves 5 steps:
1. 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
quality
1ST STEP: Understanding the Marketplace and Customer Needs
Five core customer and marketplace concepts are critical:
a) needs, wants, and demands
b) markets
c) marketing offers (products,
services, and experiences)
PART I: Defining Marketing and the Marketing Process
d) value and satisfaction

e) exchanges and relationships
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Customer Needs, Wants, and Demands:

The most basic concept underlying marketing is human needs.
Human needs are states of felt deprivation (including food, clothes, shelter,
security and water). These are physical, social, and individual needs. These
needs were not created by marketers; they are basic needs of all humans.
Wants are the form human needs take when they are shaped by culture,
society and individual personality. E.g. an American needs food but wants a
Bureger & Fries. A Filipino needs food but wants Rice with a dish
When there is buying power, wants become DEMANDS. Customers demand
products with benefits that provide the most value and satisfaction for them.
Market - A market is the set of actual and potential buyers of a product or
service.
Market Offerings- customer needs and wants are fulfilled through market
offerings.
Market offerings are a combination of products, services, information, or
experiences offered to a market to satisfy a need or want.
Marketing myopia occurs when a company becomes so involved with
their products that they forget customer needs. This is where there is
excessive focus on the product.
Customer Value and Satisfaction
Satisfied customers buy again and tell others about their good experiences.
Dissatisfied customers switch to competitors and spread negative messages
about the product or service to others. Customer value and customer
satisfaction are very important for developing and managing customer
relationships.
THE MARKETING ENVIRONMENT
1. MICROENVIRONMENT
a. The Company
b. Suppliers
c. Marketing
Intermediaries firms
that help the company to
pormote, sell, and
distribute its goods to final

buyers.
d. Competitors
e. Publics a public is any
group that has an actual or
potential interest in or
impact on an
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organizations ability to
achieve its objectives.
f. Customers
2. MACROENVIRONMENT
a. Natural Environment Natural resources that are needed as
inputs by marketers or that are affected by marketing activities.
b. Demographic Environment Demography: the study of
human populations in terms of size, density, location, age, gender,
race, occupation and other statistics
c. Political Environment Laws, government agencies, and
pressure groups that influence and limit various organizations and
individuals in a given situation.
d. Economic Environment Factors affecting consumer buying
power and spending patterns.
e. Socio-Cultural Environment Institutions and other forces that
affect societys basic values, perceptions, preferences, and
behaviors.
f. Technological Environment Forces that create new
technologies, creating new product and market opportunities.
2ND STEP: Design a customer-driven marketing strategy
Marketing management is defined as the art and science of choosing
target markets and building profitable relationships with these target
markets.
The marketing manager must answer two important questions:
What customers will we serve (whats our target market?)
How can we serve these customers best (whats our value proposition*)?
* value proposition a business or marketing statement that summarizes
why a consumer should buy a product or use a service. This statement
should convince a potential consumer that one particular product or service
will add more value or better solve a problem than other similar offerings.
A companys value proposition is the set of benefits or values it
promises to deliver to consumers to satisfy their needs. (e.g. BMW
promises the ultimate driving machine.)
There are five alternative concepts under which organizations design and carry
out their marketing strategies:
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1) The Production Concept

The production concept - consumers will favor products that are available
and highly affordable.
Managements focus is on improving production of the product and
distributing it, efficiently.
2) The Product Concept
The product concept - consumers will favor products that offer the most in
quality, performance, and innovative features.
Here, marketing strategy focuses on making continuous product
improvements.
3) The Selling Concept
The selling concept - consumers will not buy enough of the firms products
unless it undertakes a large-scale selling and promotion effort.
This is typically for products which buyers do not normally think of buying,
such as insurance. These industries must be good at tracking down
prospects and selling them on product benefits.
4) The Marketing Concept
The marketing concept - achieving organizational goals depends on knowing
the needs and wants of target markets and delivering satisfaction better
than competitors do.
Customer-driven companies research current customers deeply to learn
about their desires, gather new product and service ideas, and test proposed
product improvements.
Customer-driving marketing is about understanding customer needs
even better than customers themselves do and creating products and
services that meet existing and latent (hidden) needs.
5) The Societal Marketing Concept
The societal marketing concept questions whether the pure marketing
concept overlooks conflicts between consumer short term wants and long
term welfare. Here, the marketing strategy should deliver value to
customers in a way that maintains or improves both the consumers and the
societys well being.
3RD STEP: Preparing an integrated marketing plan and program
The companys marketing strategy outlines which customers the company
will serve and how it will create value for these customers. Next, the
marketer develops an integrated marketing program that will actually deliver
the intended value to target customers. The marketing program consists of
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the firms marketing mix, which are classified into the four Ps of
marketing: product, price, place, and promotion.
The firm blends all of these marketing mix tools into a comprehensive
integrated marketing program that communicates and delivers the intended
value to chosen customers.
The Marketing Mix
Product refers to the tangible commodity or the intangible service that
the company offers for sale to customers.
Price refers to the amount of money the customer must part with to
avail of the use of product.
Place Making the companys products available in the right location,
quantity, and time is the concern of the place variable in marketing.
Promotion refers to provision of required information to prospective
customers so that they are persuaded to buy.
4TH STEP: Building Customer Relationships
Customer Relationship Management (CRM) is the overall process of
building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction. It deals with acquiring, keeping,
and growing customers.
Customer Value and Satisfaction
The key to building lasting customer relationships is to create superior
customer value and satisfaction.
Customer (perceived) value: This is the customers evaluation of the
difference between all the benefits and all the costs of a market offering
relative to those of competing offers.
Customers often do not judge values and costs accurately or
objectively. Customers act on customer perceived value.
Customer Satisfaction: depends on the extent to which a products
perceived performance matches a buyers expectations.
If the products performance falls short of expectations, the customer is
dissatisfied. If performance matches expectations, the customer is
satisfied. If performance exceeds expectations, the customer is highly
satisfied or delighted.
A company can always increase customer satisfaction by lowering its
price or increasing its services. But this may result in lower profits.
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The purpose of marketing is to generate customer value profitably.

5TH STEP: Capturing value from customers
The first four steps in the marketing process involve building customer
relationships. The final step involves
capturing value from customers. By creating superior customer value, the
firm creates highly satisfied customers who remain loyal and buy more.
Creating Customer Loyalty and Retention
The aim of customer relationship management is to create not just customer
satisfaction, but customer delight. This means that companies must aim high
in building customer relationships.
Growing Share of Customer: Share of customer is defined as the share
the company gets of customers purchasing in their product categories e.g.
Coca Cola wants to have the biggest share of customers soft drinks
purchase.
Building Customer Equity: Customer equity is the total combined
customer lifetime values of all of the companys current and potential
customers.
The more loyal the firms profitable customers, the higher the firms
customer equity.
Building the Right Relationships with the Right Customers
Not all customers, not even all loyal customers, are good investments.
Strangers show low potential profitability and little projected loyalty.
The relationship management strategy for these customers is simple:
Dont invest anything in them.
Butterflies are potentially profitable but not loyal. The company
should use promotional blitzes to attract them, create satisfying and
profitable transactions with them, and then cease investing in them until
the next time around.
True friends are both profitable and loyal. There is a strong fit
between their needs and the companys offerings. The firm wants to
make continuous relationship investments to delight these customers,
keep (retain) and grow them.
Barnacles are highly loyal but not very profitable. There is a limited
fit between their needs and the companys offerings.
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Important point: Different types of customers require different relationship

management strategies.
The goal is to build the right relationships with the right customers.
SO, WHAT IS MARKETING?
Marketing is the process of building profitable customer relationships by
creating value for customers and capturing value in return, from them. The
first four steps in the marketing process creates value for customers. The
final step in the process allows the company to capture value from
customers. After the marketing strategy is defined, the marketing program is
developed, which consists of the four Ps (price, place, promotion, people).
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CHAPTER 1: MARKETING: Creating and Capturing Customer

THE MARKETING PROCESS

PART I: Defining Marketing and the Marketing Process

d) value and satisfaction