Principle of Marketing

Chapter One
An Overview of Marketing

Yared Ademe /EMBA, MBA in Marketing/

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 Learning Objectives
After you study this unit, you will be able to:
Define marketing and outline the steps in the
marketing process.
Understanding the Marketplace and Customer
Needs.
Designing a Customer Value–Driven Marketing
Strategy and Plan
Managing Customer Relationships and Capturing
Customer Value.
Understanding Marketing Philosophies.

Yared A. EMBA, MBA in Marketing

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 Today’s successful companies have one thing in common: they are strongly
customer focused and heavily committed to marketing.
Formally or informally, people and organization engaged in vast number of
activities we could call marketing.
Good marketing has become increasingly vital for success.
Highly successful companies know that if they take care of their
customers, market share and profits will follow.
•

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Sound marketing is critical to the success of every organization
large or small,
Large for-profit firms such as McDonald’s, Sony, FedEx, Wal-Mart,
and Marriott use marketing.
For-profit or not-for-profit,
Not-for-profit organizations such as colleges, hospitals, museums,
symphony orchestras, and even churches.
Domestic or global.

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 You see marketing:
in shopping mall
in ad that fill your TV scree

Spice up your magazine

Stuff your mailbox

Marketing is important to
Every consumer.
Consumer pays for the cost of marketing activities. It makes sense to be an educated
consumer and to understand what you get and don’t get from all that spending.
It affects almost every aspects of your daily life.
The choice you have among the goods and services you buy, the stores where you shop,
and the radio and TV programs you tune in to are all possible because of marketing.

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Organizations spending on marketing: Apple:$1 billion Apple's ad budget
Microsoft spent $22 billion for ad in Google: $1.005 billion
2022. 5% of their sales.
Honda Motor Co: $1.14 billion
Apple spent $1.1 billion
McDonald's Corp: $1.37 billion
Coca cola $3.4 billion (2.1 billion pound) Toyota Motor Corp: $1.73 billion
Samsung around $3.3 billion Wal-Mart Stores: $1.89 billion
•

European Union (EU) spends 2.4 billion

pounds. They spend more than the
drink giant coca cola

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 Marketing occurs when people decide to satisfy
needs and wants through exchange relationship.
Self-production

By force
Begging
exchange
Marketing focus on facilitating Exchanges,
In fact, marketing does not occur unless two or
more parties are willing to exchange something
for something else.

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 The foundation of marketing is Exchange.
Exchange is the act of obtaining desired object from someone by
offering something in return.
In which one party provides to another party something of value in
return for something else of value.
In broader sense, the marketers try to bring about a response to some
marketing offer.
Marketing consists of action taken to build and maintain desirable
exchange relationships with target audience involving a product, service,
idea or other object.

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Yared A. EMBA, MBA in Marketing
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 What is Market?
The concept of market is very important in marketing.
The word “Market” is derived from the latin word “marcatus” meaning thereby
merchandise, ware, traffic, trade or a place where business is conducted.
A market is a set of potential and actual buyers and marketers who offer
some value to consumers.
A traditional definition of Market is a place where buyers and sellers meet for
exchange of products and services with value of products and services.
The American marketing Association defines a market as “The aggregate
demand of the potential buyers for product or a product or services “.
Philip Kotler defines “A market as an area of potential exchanges”.

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Market – Economist's definition
Place (virtual or physical) where buyers and sellers meet
Market – Marketer's definition
The set of actual and potential buyers of a product
The sellers of a product are labeled as the “industry
Industry – Marketer's definition
The sellers of a product.

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 Today we can distinguish between a
marketplace and a marketspace.
The marketplace is physical, as when one
goes shopping in a store;
Marketspace is digital, as when one goes
shopping on the Internet.
E-commerce—business transactions conducted
on-line—has many advantages for both
consumers and businesses, including convenience,
savings, selection, personalization, and
information.
•

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Yared A. EMBA, MBA in Marketing
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 What is Marketing?
The essence of marketing is a transaction or exchange.
In this broad sense, marketing consists of activities designed to generate and
facilitates exchange intended to satisfy human needs or wants.
What does the term marketing mean?
Today, marketing must be understood not in the old sense of making a sale
—“telling and selling”—but in the new sense of satisfying customer needs.
Many people think of marketing only as selling and advertising.
And no wonder—every day we are bombarded with television commercials,
newspaper ads, direct-mail campaigns, and sales calls.
However, selling and advertising are only the tip of the marketing iceberg.
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 Although they are important, they are only two of many marketing functions
and are often not the most important ones.
Selling occurs only after a product is produced.
By contrast, marketing starts long before a company has a product.
If the marketer does a good job of understanding
consumer needs;
develops products that provide superior value;
and prices, distributes, and promotes them effectively, these products
will sell very easily.
Thus, selling and advertising are only part of a larger “marketing mix”—a set
of marketing tools that work together to affect the marketplace.
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 Definition of Marketing
American Marketing Association /AMA
“The activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large.”
If you read the definition closely, you see that there are four activities,
or components, of marketing.
‘Institutions’ refers to type of organizations that engage in marketing,
for example manufacturers, wholesalers, retailers, ad agencies,
distributors and marketing research firms.

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 Creating: The process of collaborating with suppliers and customers to create offerings
that have value. Developing new market offerings. /Conceptualised as ‘product’/
Communicating: Broadly, describing/ promoting those offerings, as well as learning from
customers. /Conceptualised as ‘Promotion’/
Delivering: Getting those offerings to the consumer in a way that optimizes value. /
Conceptualised as ‘Place Distribution’/
Exchanging: Trading value for those offerings. /exchanging the offering at the right
value with customer /Conceptualised as ‘price’/
Buyers and sellers find mutually agreed upon terms of exchange, including the prices
of each of the components of the market offerings.
Marketing is putting the right product in the right place, on the right price, at the right
time.
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 The modern consumer-centric marketing approach is conceptualized as
SIVA (Solution, Information, Value and Access)
Product » Solution
Price » Value
Place » Access
Promotion » Information

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 If the product or service does not provide solutions to consumers’ needs,
If promotion fails to convey the necessary information for consumers to
make decisions,
If pricing fails to give the right value to consumers, and
Finally if place distribution does not make the product available at the
right time and place, and in the right quantity,
There is no marketing interaction with consumers.
These four must work together harmoniously to create a marketing
synergy for long-term success.

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 Philip Kotler
Marketing is a social and managerial process
by which an individual or group obtain what
they need and want through creating, offering
and exchanging of value with others
We can distinguish between a social and
managerial definition of marketing.

Philip Kotler has taken marketing to the next level.

https://www.pkotler.org
Yared A. EMBA, MBA in Marketing
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 A social Definition
It shows the role of marketing plays in society; for example, one
marketer has said that marketing’s role is to “deliver a high standard of
living”. How?
Marketing affects innovation and standard of living.
It plays a big part in economic growth and development.
Marketing encourages research and innovation- the development and
support of new ideas, goods and services.

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 As firm offer new and better ways of satisfying consumer needs,
customers have more choices among product and this fosters competition
for consumer’s money. This competition derives down price.
Moreover, when firms develop products that really satisfy customers,
fuller employment and higher income can result.
The combination of these forces means that marketing has a big impact
on consumer’s standard of living and it is important to the future of all
nations.
•

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 Managerial definition of marketing
Managers always think about the profitability of their business.
Marketing is the key concept of making profit by satisfying customers
need.
Simple definition of marketing “meeting needs profitably” or “managing
profitable customer relationship.”
As a managerial definition, marketing has often been described as “the art
of selling products.”
But Peter Drucker, a leading management theorist, says that “the aim of
marketing is to make selling superfluous.

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 The aim of marketing is to know and understand the customer so well
that the product or service fits him and sells itself.
Ideally, marketing should result in a customer who is ready to buy.”
In general, the ultimate goal of marketing is;

1. To attract new customer by promising superior value.

2. To keep and grow current customers by delivering
satisfaction.

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 Why is it supremely important to satisfy the needs of target customers?
Because a company’s sales come from two groups:
1. New customers and
2. Repeat customers
One estimate is that attracting a new customer can cost five times as
much as pleasing an existing one.
And it might cost 16 times as much to bring the new customer to the
same level of profitability as that of the lost customer.
Customer retention is thus more important than customer attraction.

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 Drucker on Marketing
According to management guru Peter Drucker, “The aim
of marketing is to make selling unnecessary.”
Drucker was somewhat idealistic when he wrote about
marketing eliminating the need for selling if the function
was performed well.
In Management (1973), he wrote, "There will always,
one can assume, be a need for some selling.
But the aim of marketing is to make selling superfluous.
The aim of marketing is to know and understand the
customer so well that the product or service fits him and
sells itself."
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 Seth Godin on Marketing
• Marketing is the act of making change happen. Making is
insufficient.
• You haven’t made an impact until you’ve changed someone.
• Changed the boss’s mind.
• Changed the school system.
Changed demand for your product.
• Marketing is a force of change. A marketer is only effective if
he creates change.
• Marketing, more than a lake or a forest, is the landscape of our
modern lives.
• Like the fish who doesn’t understand water, we fail to see
what’s actually happening, and don’t notice how it’s changing us.

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“Marketing is the generous act of helping someone solve a problem. Their
problem.
Marketing helps others become who they seek to become”.
Seth makes a distinction between bad marketing and good marketing.
Bad marketing is about hype, about interrupting customers, about
pressuring to do what you want them to do, about scamming the customer
into buying a product they may not need or want.
Good marketing helps customers, good marketing is a positive force in the
World.
“The other kind of marketing, the effective kind, is about understanding
our customer’s world view and desires so we can connect with them”
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 This is marketing:
Marketing seeks more. More market share, more customers, more work.
Marketing is driven by better. Better service, better community, better
outcomes.
Marketing creates culture. Status, affiliation, and people like us.
Most of all, marketing is change. Change the culture, change your world.
Marketers make change happen.
Each of us is a marketer, and each of us has the ability to make more
change than we imagined. Our opportunity and our obligation is to do
marketing that we’re proud of.

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 Marketing – Art or Science
Is marketing an art or a science?
The answer is yes.
Marketing is both - an art and a science.
Marketing Science
Marketing is a science because marketing is about measuring and analyzing the
numbers. How many prospects do you reach? How many people read your message?
How many do you convert to buyers? How much do they spend? How many buy
again?
These are mathematical questions and answers and important to the success of
your marketing. Math and accounting are important sciences to your business.

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Marketing Art
Marketing is art because marketing is about creating a demand for
your product.
Some of that demand is immediate and some of it is in the future.
You can try to use science to predict the future part but you might pick
a number based on art.
There is always an unknown aspect that we attribute to art.

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 The Marketing Process
The figure in the next slide presents a simple, five-step model of the
marketing process for creating and capturing customer value.
In the first four steps, companies work to understand consumers, create
customer value, and build strong customer relationships.
In the final step, companies reap the rewards of creating superior
customer value.
By creating value for consumers, they in turn capture value from
consumers in the form of sales, profits, and long-term customer equity.

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 This important figure shows marketing in a nutshell.
By creating value for customers, marketers capture value from
customers in return.
This five-step process forms the marketing framework for the rest
of the chapter and the remainder of the text.
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 I. Understanding the Marketplace and Customer Needs
Marketing is all about creating value for customers.
So, as the first step in the marketing process, the company must fully understand
customers and the marketplace.
As a first step, marketers need to understand customer needs and wants and the
marketplace in which they operate.
We examine five core customer and marketplace concepts:
1. Needs, wants, and demands;
2. Market offerings (products, services, and experiences);
3. Value and Satisfaction;
4. Exchanges and Relationships;
5. Markets.
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 Assignment
What Is Marketed?
Marketers market 10 main types of entities:
•

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 Customer Needs, Wants, and Demands

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 Customer Needs
The most basic concept underlying marketing is that of human needs.
Human needs are states of felt deprivation. /The damaging lack of basic
material/
It occurs when a person feel deprived of basic necessities or physical needs
for food, clothing and safety.
They include basic physical needs for food, clothing, warmth, and safety;
social needs for belonging and affection; and individual needs for knowledge and
self-expression.
Marketers did not create these needs; they are a basic part of the human
makeup.
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 A need is a desire that causes a customer to buy a product.
If customers buy products to satisfy needs, then needs provoke
customers to buy products.
Marketers did not create these needs; they are a basic part of the
human makeup.
•

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 Maslow’s Hierarchy of Needs

As a marketer, you should know which level of Needs is your product

targeting to.
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 Five Types of Needs in Marketing

As a marketer, understanding the human’s level of needs is not enough

for us.
As people cannot always express what they need; some people are not
even fully conscious of their needs.
Therefore it has come to the role of marketers to distinguish the type
of customer’s needs.
According to Kotler and Keller (“Marketing Management 15e”, pp.31), the
needs can be specified into five types.
Let’s study the “Five Types of Needs” in the coming topic.

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The “Five Types of Needs” that marketers should know in order to
distinguish the type of customer’s needs are as following:
1. Stated needs: A customer wants to buy a car and if he says he needs a
car, then such need is termed as STATED NEEDS.
2. Real needs: When the customer wants a car for actual need like he
needs a car for going to work with low operating costs, not low initial
price, then such need is termed as REAL NEEDS.
3. Unstated needs: Customer also expects a good after-sales service from
the dealer when buying a car; such need is termed as UNSTATED
NEEDS.

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4. Delight needs:
The customer would like the dealer to include a gift with the car such
as a GPS Navigation system or Music System to delight him, but he
doesn’t clearly express that he wants something with the car.
5. Secret needs:
Needs that the customer feels reluctant to admit;
For example the customer wants a car for the status symbol so that he
can show his friends that he is a savvy consumer (person who can spend
his money wisely).
But he feels uncomfortable to admit that status is important to him.

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 Responding only to the customer’s STATED NEED (“I need a car”) and
does not attempt to discover the customer’s REAL NEED (“I need a car
with low operating cost”) will not be able to fulfill the customer’s need.
That’s why it is said that responding only to the stated need may mislead
the customer.
Therefore, as a marketer, you should attempt to discover the REAL
NEED of the customer by asking questions to him.
And also fulfilling not only to his REAL NEED, but also the other needs
that he has unspoken; UNSTATED NEED, DELIGHT NEED, and SECRET
NEED.
In this way, you can develop a better relationship with your customer.
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 Steve Jobs said, “You’ve got to start with the
customer experience and work backwards to the
technology.
You cannot start with the technology and try
to figure out where you are going to sell it.”
Our outcome-driven approach to innovation
enables companies to do exactly that.
Understanding customer needs before
developing solutions is the hallmark of the ODI
process.

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 Want
It is a desire for specific satisfier of need.
These needs become wants when they are directed to specific objects that might satisfy the
need.
Wants are the form human needs take as they are shaped by culture and individual personality.
An American needs food but wants a Big Mac, French fries, and a soft drink.
An Ethiopian needs food but wants ‘Injera’, ‘dorowet’ etc.
A person from Asia needs food but wants rice, fish etc.
Wants are shaped by one’s society and are described in terms of objects that will satisfy
those needs.
Human’s wants can be varied depending on each individual’s perception, environment, culture,
and society.

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 So if you feel hungry, you have developed a basic need and desire to eat
something.
Effective marketing can shape a person’s wants.
When backed by buying power, wants become demands.
Given their wants and resources, people demand products with benefits
that add up to the most value and satisfaction.

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 Demand
When backed by buying power, wants become Demand.
Demands are wants for specific products that are baked/supported/ by ability and
willingness to buy them.
Wants become demand when supported by purchasing power.
Demand = Willingness + buying power
Given their wants and resources, people demand products and services with benefits that add
up to the most value and satisfaction.
E.g. many people want a Mercedes: only few are able to buy one.
Need – transportation
Want – car (say, Mercedes) but able to buy only Toyota.
Therefore, demand is for Toyota.
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 Demand influenced by making product
Appropriate
Attractive
Approachable/ Affordable
Available easily
•

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 Companies therefore must measure not only how many people want their
product, but also how many are willing and able to buy it.
The needs, wants and demands are a very important component of
marketing because they help the marketer to decide the products which
he needs to offer in the market.
Market “Identify needs, wants and demands”.
Offer products to satisfy either needs, wants or demands.
•

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 The distinction shed light on the frequent criticism that “marketers
create needs” or “marketers get people to buy things they don’t want”.
Marketers don’t create needs: Needs preexist marketers.
Marketers, along with other societal factors influence wants.
They might promote the idea that a Mercedes would satisfy a person’s
need for social status.
They don’t, however’ create the need for social status.
Marketers might promote the idea that an Insurance can satisfy a
person’s need for safety; they do not create the need for safety of human
being.

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 Outstanding marketing companies go to great lengths to learn about and
understand their customers’ needs, wants and demand.
They conduct consumer research and analyze mountains of customer
data.
People at all levels of the company— including top management—stay
close to customers: /Principle of Marketing Page 30/

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 Eight Demand States in Marketing

Marketers are skilled at stimulating demand for their products, but

that’s a limited view of what they do.
Marketers are responsible for demand management.
They seek to influence the level, timing, and composition of demand to
meet the organization’s objectives.
Eight demand states are possible:

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1. Negative Demand: Consumers dislike the product and may even pay
to avoid it.
People will have Negative Demand on the products/ services that they
dislike and merely don’t want.
For example, even though we know that doing regular medical checkup
and seeing dentists are beneficial for us, but we don’t want to do it.
Negative demand can be a positive one by creating awareness rather
than promotion, and providing the information of your products/ services
to the real needed customers.

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2. Nonexistent Demand: Consumers may be unaware of or uninterested
in the product.
People will have Non-existent Demand or No Demand on the products/
services that they don’t know or uninterested in.
The best example of non-existent demand can be new technology products
and some education courses.
Non-existent Demand can change to be existent demand by creating
awareness and educating your customers.
Smart phone was non-existent demand in the past, but now it has become
full demand.

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3. Latent demand: Consumers may share a strong
need that cannot be satisfied by an existing
product.
The demand which makes customers realize
later is called Latent Demand.
The best example of latent demand is smart
phones.
Companies should try to understand the
latent demand of the customers by asking
questions and suggestions from the customers.

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4. Declining demand: Consumers begin to buy the product less
frequently or not at all.
Products are facing Declining Demand because of changing of
technological development, customer’s preference and taste.
In the past, keypad phone was the market leader in the mobile
phone industry, however, with the emerging of smart phones; the
demand of keypad phone gradually loses its appealing.
Then how can a product that facing declining demand gain
demand again?
By changing the product’s features, finding new target
markets, re-marketing the product, re-branding the product, and
re-positioning the product.
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5. Irregular Demand: Consumer purchases
vary based on time such as a seasonal, monthly,
weekly, daily, or even hourly basis.
The clear example of irregular demand is
umbrella which is mostly use in the rainy days
only; in the other seasons, umbrella faces
irregular demand.
6. Full Demand: Consumers are adequately buying all products put into the
marketplace.
Full Demand is created if the products/ services always have the same demand.
In full demand, the demand is meeting the supply. For example, medicine always
have full demand.
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7. Overfull Demand: More consumers would like to buy the product
than can be satisfied.
If the demand is more than the supply, the state of Overfull Demand is
created.
If the companies face with the overfull demand state, they should try
De-marketing by reducing promotion and services temporarily or
permanently.
Which demand stage is your products at now?
If you know the demand stage of your products, then it will be easier
for you to draw the marketing strategies for your products.

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8. Unwholesome Demand: Consumers may be attracted to products
that have undesirable social consequences.
In Unwholesome Demand, customers want the product badly even
though they are aware of the bad effect of it.
Cigarettes and alcohol are the best examples of unwholesome demand.
In each case, marketers must identify the underlying cause(s) of the
demand state and determine a plan of action to shift demand to a more
desired state.

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Yared A. EMBA, MBA in Marketing 62
 Market Offerings—Products, Services, and Experiences

Consumers’ needs and wants are fulfilled through market offerings—some

combination of products, services, information, or experiences offered to a
market to satisfy a need or a want.
Market offerings are not limited to physical products.
They also include services— activities or benefits offered for sale that are
essentially intangible and do not result in the ownership of anything.
Examples include banking, airline, hotel, retailing, and home repair services.

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Marketing myopia
Many sellers make the mistake of paying more attention to the specific products
they offer than to the benefits and experiences produced by these products.
These sellers suffer from Marketing Myopia.
They are so taken with their products that they focus only on existing wants and lose
sight of underlying customer needs.
They forget that a product is only a tool to solve a consumer problem.
A manufacturer of quarter-inch drill bits may think that the customer needs a drill
bit. But what the customer really needs is a quarter- inch hole.
These sellers will have trouble if a new product comes along that serves the
customer’s need better or less expensively.
The customer will have the same need but will want the new product.
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 Smart marketers look beyond the attributes of the products and
services they sell.
By orchestrating several services and products, they create brand
experiences for consumers.
For example, you don’t just visit Walt Disney World Resort; you immerse
yourself and your family in a world of wonder, a world where dreams come
true and things still work the way they should. And your local Buffalo Wild
Wings restaurant doesn’t just serve up wings and beer; it gives customers
the ultimate “Wings. Beer. Sports.” fan experience

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 What Is Marketed?
Marketers market 10 main types of entities: /marketing management page 5/
1. Goods,
2. Services,
3. Events,
4. Experiences,
5. Persons,
6. Places,
7. Properties,
8. Organizations,
9. Information, and
10. Ideas.

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Goods
Physical goods constitute the bulk of most countries’ production and marketing
efforts.
Each year, U.S. companies market billions of fresh, canned, bagged, and frozen
food products and millions of cars, refrigerators, televisions, machines, and
other mainstays of a modern economy.

Services
Services include the work of airlines, hotels, car rental firms, barbers and
beauticians, maintenance and repair people, and accountants, bankers, lawyers,
engineers, doctors, software programmers, and management consultants.
Many market offerings mix goods and services, such as a fast-food meal.
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EVENTS:
Marketers promote time-based events,
such as major trade shows, artistic
performances, and company anniversaries.
Global sporting events such as the
Olympics and the World Cup are
promoted aggressively to both companies
and fans.

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EXPERIENCES
By orchestrating several services and
goods, a firm can create, stage, and market
experiences.
Walt Disney World’s Magic Kingdom allows
customers to visit a fairy kingdom, a pirate
ship, or a haunted house.
There is also a market for customized
experiences, such as a week at a baseball
camp with retired baseball greats, a four-
day rock and roll fantasy camp, or a climb up
Mount Everest.

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PERSONS
Artists, musicians, CEOs, physicians,
high-profile lawyers and financiers, and
other professionals all get help from
celebrity marketers.
Some people have done a masterful
job of marketing themselves—David
Beckham, Oprah Winfrey, and the
Rolling Stones.
Management consultant Tom Peters, a
master at self-branding, has advised
each person to become a “brand.”

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PLACES
Cities, states, regions, and
whole nations compete to
attract tourists, residents,
factories, and company
headquarters.

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PROPERTIES
Properties are intangible rights of ownership to either real property (real estate)
or financial property (stocks and bonds).
They are bought and sold, and these exchanges require marketing.
Real estate agents work for property owners or sellers, or they buy and sell
residential or commercial real estate.
Investment companies and banks market securities to both institutional and
individual investors.

ORGANIZATIONS
Organizations work to build a strong, favorable, and unique image in the minds of
their target publics.
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INFORMATION
The production, packaging, and distribution of information are major
industries.
Information is essential what books, school and universities produce,
market and distribute at a price to parents, students, and communities.
The former CEO of Siemens Medical Solutions USA, Tom McCausland,
says, “[our product] is not necessarily an X-ray or an MRI, but information.
Our business is really health care information technology, and our end
product is really an electronic patient record: information on lab tests,
pathology, and drugs as well as voice dictation.”

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IDEAS
Every market offering includes a basic idea.
Charles Revson of Revlon once observed:
“In the factory we make cosmetics; in the drugstore we sell hope.”
Products and services are platforms for delivering some idea or benefit.
Social marketers are busy promoting such ideas as:
“Friends Don’t Let Friends Drive Drunk” and “A Mind Is a Terrible
Thing to Waste.”

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 Customer Value and Satisfaction
Customer value is best defined as how
much a product or service is worth to a
customer.
Here’s how companies can enhance their
value to improve the customer experience
and increase satisfaction.
Customer value is present when a There are also monetary, time,
customer perceives that they will get a energy, and emotional costs that
certain value from a product or service consumers consider when evaluating
that they intend to buy. the value of a purchase.
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 Delivering customer value is key to maintaining long-term relationships
with existing customers and earning repeat business.
Knowing how customers feel about your product and the service
experience you offer is key to building customer loyalty and increasing
customer lifetime value.
Mathematically, the value is calculated by subtracting the cost involved to
purchase the product/service from the total benefit the customer receives.
Examples include price, quality, and what the product or service can do
for that particular person.

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 Value = Value gained by owning - Cost of obtaining the product
& using the product

A consumer is likely to be more satisfied when the customer value is

higher – when benefits exceed costs by a large margin.
Cost is the amount of money that is going to be paid or already incurred
to acquire a product.
•

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 Satisfaction
Customer Satisfaction, on the other hand, gauges
the level of satisfaction a customer feels after
buying a product or using a service.
Each customer has different expectations so it’s
really hard to define customer value and satisfaction.
It is the path or the road to profit.
It is the extent to which a product’s perceived
performance matches a buyer’s expectation.
It is perceived performance relative to
expectation.
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Performance of the product < Expectation = Disappointment/ Dissatisfaction
Performance of the product = Expectation = Satisfaction

Performance of the product > Expectation = Delighted

Highly satisfied customers make repeat purchases and tell others about their good
experiences with the product.
Dissatisfied customers often switch to competitors and disparage the product to others.
Marketers must be careful to set the right level of expectations.
If they set expectations too low, they may satisfy those who buy but fail to attract
enough buyers.
If they set expectations too high, buyers will be disappointed.
Customer value and customer satisfaction are key building blocks for developing and
managing customer relationships.
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Example of customer value
RIDE: the leading taxi-hailing service in Ethiopia is a
good example of delivering customer value.
The value or benefits customers receive are clear:
You get to know the price beforehand
You get away from the cash payment
Your location is exactly defined
You are offered a great reward point program to
gain different tier benefits and many discounts.
With little cost (probably some mobile data) and
effort, you get access to a super convenient service.

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Example of customer satisfaction
CBEBirr - a payment platform where you can keep,
send, receive money from different currencies.
As a newcomer to this platform, there are a lot of
unknowns to their service.
However, the application is simple to navigate,
instructions are clear and divided into specific steps.
You just need to follow it.
The verification process is quick and you get
responses after uploading your documents in real-time.
That’s super easy and quick!

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II. Designing a Customer Value–Driven Marketing Strategy and Plan
Once it fully understands consumers and the marketplace, marketing
management can design a customer value–driven marketing strategy.
Marketing management is the art and science of choosing target markets
and building profitable relationships with them.
The marketing manager’s aim is to engage, keep, and grow target customers
by creating, delivering, and communicating superior customer value.
To design a winning marketing strategy, the marketing manager must
answer two important questions:
1. What customers will we serve (what’s our target market)?
2. How can we serve these customers best (what’s our value proposition)?
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 The company must first decide whom it will serve.
It does this by dividing the market into segments of customers (market
segmentation) and selecting which segments it will go after (target
marketing).
Some people think of marketing management as finding as many customers
as possible and increasing demand.
But marketing managers know that they cannot serve all customers in every
way.
By trying to serve all customers, they may not serve any customers well.
Instead, the company wants to select only customers that it can serve well
and profitably.
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 Ultimately, marketing managers must decide which customers they want
to target and on the level, timing, and nature of their demand.
Simply put, marketing management is customer management and demand
management.

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The company must also decide how it will serve
targeted customers—how it will differentiate and
position itself in the marketplace.
A brand’s value proposition is the set of benefits
or values it promises to deliver to consumers to
satisfy their needs.
Value propositions differentiate one brand from Refreshing taste that brings people together.
another.
They answer the customer’s question:
“Why should I buy your brand rather than a
competitor’s?”
Companies must design strong value propositions
that give them the greatest advantage in their
target markets.

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III. Preparing an Integrated Marketing Plan and Program
The company’s marketing strategy outlines which customers it 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 builds customer relationships by transforming
the marketing strategy into action.
It consists of the firm’s marketing mix, the set of marketing tools the
firm uses to implement its marketing strategy.

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

1. Product

2. Price

3. Place

4. Promotion.

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 To deliver on its value proposition, the firm must first create a need-satisfying
market offering (product).

It must then decide how much it will charge for the offering (price) and

How it will make the offering available to target consumers (place).

Finally, it must engage target consumers, communicate about the offering, and
persuade consumers of the offer’s merits (promotion).

The firm must blend each marketing mix tool into a comprehensive integrated
marketing program that communicates and delivers the intended value to chosen
customers.
We will explore marketing programs and the marketing mix in much more detail
in later chapters.
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IV. Engaging Customers and Managing Customer Relationships

The first three steps in the marketing process:

1. Understanding the marketplace and customer needs,
2. Designing a customer value–driven marketing strategy, and
3. Constructing a marketing program
All lead up to the fourth and most important step:
1. Engaging customers and
2. Managing profitable customer relationships.

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 Customer Relationship Management

Customer relationship management is perhaps the most important concept of

modern marketing.
In the broadest sense, customer relationship management is the overall
process of building and maintaining profitable customer relationships by
delivering superior customer value and satisfaction.
It deals with all aspects of acquiring, engaging, and growing customers.
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 give the
company a larger share of their business.
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 A customer buys from the firm that offers the highest customer-
perceived value.
A customer perceived value is 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.
Importantly, customers often do not judge values and costs “accurately” or
“objectively.”
They act on perceived value.
To some consumers, value might mean sensible products at affordable
prices.
To other consumers, however, value might mean paying more to get more.
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 Customer satisfaction depends on the product’s perceived performance relative to a
buyer’s expectations.
The extent to which a product’s perceived performance matches a buyer’s expectations.
If the product’s 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.
Outstanding marketing companies go out of their way to keep important customers
satisfied.
Most studies show that higher levels of customer satisfaction lead to greater customer
loyalty, which in turn results in better company performance.

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 Companies aim to delight customers by promising only what they can
deliver and then delivering more than they promise.
Delighted customers not only make repeat purchases but also become
willing marketing partners and “Customer Evangelists” who spread the
word about their good experiences to others.
For companies interested in delighting customers, exceptional value and
service become part of the overall company culture.
Zappos.com, Amazon.com, Chick-fil-A, Nordstrom department stores,
and JetBlue Airways.

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 Summary
A highly satisfied customer
Stays loyal longer
Buys more as the company introduces new products and upgrades
existing producers.
Talks favorably about the company and its products.
Pays less attention to competing brands and advertising and is less
sensitive to price.
Offers product ideas to the company.
Costs less to serve than new customers because transactions are
raised.
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 “customer service
champions.”
Page 39:
L.L.Bean—the iconic American
outdoor apparel and equipment
retailer.

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 V. Capturing Value from Customers
The first four steps in the marketing process is engaging customers and
building customer relationships by creating and delivering superior customer
value.

The final step involves capturing value in return in the form of sales,
market share, and profits.
By creating superior customer value, the firm creates satisfied customers
who stay loyal and buy more.
This, in turn, means greater long-run returns for the firm.
Here, we discuss the outcomes of creating customer value: customer loyalty
and retention, share of market and share of customer, and customer equity.

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 Creating Customer Loyalty and Retention
Good customer relationship management creates customer satisfaction.
In turn, satisfied customers remain loyal and talk favorably to others about
the company and its products.
Studies show big differences in the loyalty between satisfied and
dissatisfied customers.
Even slight dissatisfaction can create an enormous drop in loyalty.
Thus, the aim of customer relationship management is to create not only
customer satisfaction but also customer delight.

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 Keeping customers loyal makes good economic sense.
Loyal customers spend more and stay around longer.
Research also shows that it’s five times cheaper to keep an old customer
than acquire a new one.
Conversely, customer defections can be costly.
Losing a customer means losing more than a single sale.
It means losing the entire stream of purchases that the customer would
make over a lifetime of patronage.
Customer lifetime value is the value of the entire stream of purchases a
customer makes over a lifetime of patronage.
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 case
Stew Leonard, who operates a highly profitable
four-store supermarket in Connecticut and New
York. (Page 44)
•

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 Building Customer Equity
We can now see the importance of not only acquiring customers but also keeping
and growing them.
The value of a company comes from the value of its current and future
customers.
Customer relationship management takes a long-term view.
Companies want to not only create profitable customers but also:
“own” them for life,
earn a greater share of their purchases, and
capture their customer lifetime value.
The ultimate aim of customer relationship management is to produce high
customer equity.
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 Customer equity is the total combined customer lifetime values of all of the
company’s current and potential customers.
As such, it’s a measure of the future value of the company’s customer base.
Clearly, the more loyal the firm’s profitable customers, the higher its customer
equity.
Customer equity may be a better measure of a firm’s performance than current
sales or market share.
Whereas sales and market share reflect the past, customer equity suggests the
future.
Companies should manage customer equity carefully.

They should view customers as assets that need to be managed and maximized.
But not all customers, not even all loyal customers, are good investments.
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 case
Consider Cadillac: Page 45

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 ASSIGNMENT /Page 46/
Building the Right Relationships with the Right Customers.
The company can classify customers according to their potential
profitability and manage its relationships with them accordingly.

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 IMPORTANCE OF MARKETING
On the average, about 50 cents of each dollar we spend as consumers goes to
cover marketing costs.
The money pays for designing the products to meet our needs, making products
readily available when and where we want them, and informing us about producers.
These activities add want satisfying ability or what is called utility, to
products.
A customer purchases a product because it provides satisfaction.
That something that makes a product capable of satisfying want is its utility.
Utility refers to the value or benefit a customer receives from the exchange.
And it is through marketing that much of a products utility is created.
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 There are five types of utility:

1. Form Utility
2. Place Utility
3. Time Utility
4. Information Utility
5. Possession Utility
Together, they help to create customer satisfaction.
The kinds of utility that marketing provides in the process are as
follows:
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 Form Utility
Form utility is associated primarily with production- the physical or
chemical changes that makes a product more valuable.
When limber is made into furniture, form utility is created.
This is production, not marketing.
However, marketing research may aid in decision making regarding
product design, color, quantities produced, or some other aspect of a
product.
All of these things contribute to the product form utility.

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 Place Utility
Place utility exists when a product is readily accessible to potential
customers.
So physically moving the products to a store near the customers add to its
value.

Time Utility
Time utility means having a product available when you want it.
Having a product available when we want it is very convenient but it means
that the retailer must anticipate our desires and maintain an inventory.
Thus, there are costs involved in providing time utility.
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 Information Utility
Information utility is created by informing prospective buyers that a product
exists.
Unless you know a product exists and where you can get it, the product has no value.

Possession Utility
Possession utility is created when a customer buys the product-that is, ownership is
transferred to the buyer.
Thus, for a person to consume and enjoy the product, a transaction must take place.
This occurs when you exchange your money for a product.
It gives customers ownership of a product or service.
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 Marketing Management Orientations
Marketing management wants to design strategies that will
engage target customers and build profitable relationships with
them.
But what philosophy should guide these marketing strategies?
There are five alternative concepts under which organizations
design and carry out their marketing strategies:
1. The Production Concept
2. The Product Concept
3. The Selling Concept
4. The Marketing Concept
5. The Societal Marketing Concepts.

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 The Production Concept
The production concept holds that consumers will favor products that are
available and highly affordable.
Therefore, management should focus on improving production and distribution
efficiency.
This concept is one of the oldest orientations that guides sellers.
High production efficiency
Low costs
Mass distribution
Focuses on production of a few specific product.
If we can make, it will sell’ is management thinking characteristic of the
production.
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 However, focusing a firm’s marketing efforts on its internal production
capabilities only and ignoring customer needs can create problems over
the long term.
The production concept can lead to marketing myopia.

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 The Product Concept
The product orientation era started once most firms had sorted out their
production-related problems (that is, introduced some form of mechanization) and
consequently shifted their attention from improving production processes to
improving product features and product quality.
The product concept holds that consumers will favor products that offer the most
in quality, performance, and innovative features.
Under this concept, marketing strategy focuses on making continuous product
improvements.
Product quality and improvement are important parts of most marketing strategies.
However, focusing only on the company’s products can also lead to marketing
myopia.
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 Managers are sometimes caught in a love with their product.
Product oriented companies often design their products with little or no
customer input.
They trust that their engineers will know how to design or improve the
product.
•

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 The Selling Concept
The sales orientation era started when business firms increased their
production capabilities and capacity to such an extent that they sat with
surplus goods they could not sell.
Many organizations follow the selling concept, which holds that consumers will
not buy enough of the organization's products unless it undertakes a large-scale
selling and promotion effort.
A sales orientation is based on the idea that people will buy more goods and
services if aggressive sales techniques are used, and that high sales volumes
result in high profits.

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 To sales-orientated firms, marketing means selling things and collecting
money.
The fundamental problem with a sales orientation, as with a production and
product orientation, is a lack of understanding of the needs and wants of
consumers.
Firms with overcapacity aim to sell what they make, rather than make what
the market wants.
Marketing based on hard selling is risky.
It focuses on creating sales transactions rather than on building long term,
profitable customer relationship.

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 The Marketing Concept

The marketing concept holds that achieving organizational goals depends

on knowing the needs and wants of target markets and delivering the
desired satisfactions better than competitors do.
Under the marketing concept, customer focus and value are the paths to
sales and profits.
Instead of a product-centered make-and- sell philosophy, the marketing
concept is a customer-centered sense-and-respond philosophy.
The job is not to find the right customers for your product but to find
the right products for your customers.

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 A consumer orientation, which is the foundation of contemporary
marketing philosophy, is based on an understanding that a sale depends not
simply on excellent production facilities or on an aggressive sales force,
but rather on a thorough understanding of consumers’ needs.
The basis of a consumer orientation is identifying, understanding, and
satisfying the needs of consumers and delivering the desired satisfaction
better than competitors do.
It views marketing not as ‘hunting’ but as ‘gardening’.

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 The marketing concept is the idea that an organization should:
1. Strive to satisfy the needs of consumers
2. While also trying to achieve the organization goals
The marketing concept takes an outside –in perspective.
It starts with a well-defined market, focuses on customer’s needs, and
integrates all the activities that will affect customers and produces profit
by satisfying consumers.
•

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 Integrated Marketing
When all the company’s departments’ work together to serve the customer’s
interest, the result is Integrated Marketing.
Unfortunately, not all employees are trained and motivated to work for the
customer.
Integrated marketing takes place on two levels:
1. First the various marketing functions-sales force, advertising,
product management, marketing research, and so on- must work
together.
All these marketing functions must be coordinated from the
customer’s point of view.
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 Second, marketing must be embraced by the other departments.
According to David Packard of Hewlett-Packard: “Marketing is far too important to
be left only to the marketing department!”
Marketing is not a department so much as a company- wide orientation.
To foster teamwork among all departments, the company must carry out internal
marketing as well as external marketing.
External marketing is marketing directed at people outside the company.
Internal marketing is the task of hiring, training, and motivating able employees who
want to serve customers well.
In fact, internal marketing must precede external marketing.
It makes no sense to promise excellent service before the company’s staff is ready
to provide it.
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 The Societal Marketing Concepts.

It views that organizations should satisfy the needs of consumers in a

way that provides for society’s well-being.
The idea that a company’s marketing decisions should consider
consumers’ wants, the company’s requirements, consumers’ long-run
interests, and society’s long-run interests.
It calls for sustainable marketing, socially and environmentally
responsible marketing that meets the present needs of consumers and
businesses while also preserving or enhancing the ability of future
generations to meet their needs.

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 The societal marketing concept questions whether the pure marketing
concept is adequate in an age of environmental problems, resource
shortages, rapid population growth, worldwide economic problems, and
neglected social services.
It asks if the firm that senses, serves, and satisfies individual wants is
always doing what's best for consumers and society in the long run.
According to the societal marketing concept, the pure marketing concept
overlooks possible conflicts between consumer short-run wants and
consumer long-run welfare.

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By operating efficiently and acting responsibly, it can “meet the needs of
the enterprise . . . While protecting and enhancing the human and natural
resources that will be needed in the future.”
Social responsibility “isn’t just good for the planet,” says the company. “It’s
good for business.
•

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Three considerations underlying the societal marketing concept.
Society
(Human welfare)

Societal
Consumers Marketing
(Wants satisfaction) concept Company
(profits)
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 Consider the fast-food' industry.
Most people see today's giant fast-food chains as offering tasty and
convenient food at reasonable prices.
Yet many consumer and environmental groups have voiced concerns.
Critics point out that hamburgers, fried chicken, French fries, and most
other foods sold by fast-food restaurants are high in fat and salt.
The products are wrapped in convenient packaging, but this leads to
waste and pollution.
Thus, in satisfying consumer wants, the highly successful fast-food
chains may be harming consumer health and causing environmental problems.

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Difference Between Selling & Marketing Concept

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 The Changing Marketing Landscape
Marketing doesn’t take place in a vacuum.
Now that we’ve discussed the five steps in the marketing process, let’s look at how
the ever-changing marketplace affects both consumers and the marketers who
serve them.
Every day, dramatic changes are occurring in the marketplace.
Richard Love of HP observed, “The pace of change is so rapid that the ability to
change has now become a competitive advantage.”
Yogi Berra, the legendary New York Yankees catcher and manager, summed it up
more simply when he said, “The future ain’t what it used to be.”
As the marketplace changes, so must those who serve it.
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 Assignment
What are the major trends and forces that are changing the marketing
landscape and challenging marketing strategy.

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 So, What Is Marketing? Pulling It All Together

Expanded model of marketing 130

131