Chapter 1. – Lecture 1.

30/08/22

Marketing: Creating customer value and engagement p. 4 – 41

Summary p. 37-39

What is marketing
The marketing process involves 5 steps and the first four steps create value Marketing is the process by
for customers: which companies create value
1. Marketers need to understand the marketplace and customer for customers and build strong
needs and wants. customer relationships in order
to capture value from
2. Marketers design a customer-driven marketing strategy with the
customers in return
goal of getting, keeping, and growing target customers.
3. Marketers construct a marketing program that actually delivers
superior value.
4. Previous steps form the basis for building profitable customer
relationships and creating customer delight.
5. The company reaps the rewards of strong customer relationships
by capturing value from customers.

Understanding the marketplace and customer needs

Outstanding marketing companies go to great lengths to learn about and Marketing myopia is a
understand their customers' needs, wants, and demands. concept in which many
sellers make the mistake of
paying more attention to
à Helps them to design want-satisfying market offerings and build value-
the specific products they
laden customer relationships by which they can capture customer lifetime offer, than to the benefits
value and greater share of customer. The result is increased long-term and experiences produced
customer equity for the firm. by these products.

Core marketplace concepts i.e. A product is only a tool

Needs are states of felt deprivation and include basic physical needs like food to solve a customer
and clothing, but even social- and individual needs. problem. A manufacturer of
drill bits may think that the
customer needs a 6 mm drill
bit, but what the customer
truly needs is a 6mm hole.
 Wants are the form human needs take after being shaped by culture and
individual personality, i.e. an Italian or German needs food but wants pasta or
bratwurst.

à Demands are human wants that are backed by buying power.

Value Proposition is a set of benefits companies promise to customers to

satisfy their needs
à Market offerings are some combinations of products, services,
information, or experiences offered to a market to fulfill the value
propositions.
à Delivers customer value and satisfaction, resulting in long-term exchange
relationships with customers.

Exchanges and relationships

Exchange is the act of obtaining a desired object from someone by offering something in return.
May be other than buying/selling products/services:
i.e. A social group wants an idea of acceptance, a political party wants membership, and an amateur theatre
company wants audience.

Marketing consists of actions taken to build/maintain desirable exchange relationship with target audience
involving a product, service, idea, or other object.
- Goal to retain & grow the business with the company.

Market is the set of all actual and potential buyers of a product or service. These buyers share a particular
need or want that can be satisfied through exchange relationships.

Marketing is managing markets to bring about profitable customer relationships.

- Takes a lot of work: Searching for buyers, identify their needs, design good market offerings, set
prices, promote, store & deliver
- Carried out by both sellers & buyers.

Designing a customer value-driven marketing strategy

Key elements of customer-driven marketing strategy Market segmentation means dividing

1. Selecting the customers to be the target market and this is done the market into segments of customers,
by market segmentation, which means dividing the market into and target marketing is then performed
segments of customers. after deciding which segments of
“What customers will we serve and how can we serve them?” customers to go after.

Marketing management is the art and

2. Marketing management: to find, attract, keep and grow target science of choosing target markets and
customers by creating, delivering and communicating superior building profitable relationships with
customer value. them. The aim of marketing
à Done by differentiating and positioning the company and its products management is to find, attract, keep
in the marketplace using value proposition. A value proposition is the set and grow target customers by creating,
of benefits or values it promises to deliver to consumers to satisfy their delivering and communicating superior
needs and differentiates the company from the others in the same market customer value.
as well as reflects the company’s competitive advantage.

3. Once a company understands consumers and the marketplace

and decides what weight should be given to customers-, the
organizations- and society’s interests, marketing management can
design a customer-driven marketing strategy.
à Guided by one of the five alternative concepts under which
organizations design and carry out their marketing strategies: the
production-, product-, selling-, marketing- and societal marketing
concepts.
Production concept is the idea that consumers will favor products that are available and highly affordable,
and that the organization should therefore focus on improving production and distribution efficiency. i.e.
personal computer maker Lenovo dominates the highly competitive, price-sensitive Chinese market
through low labor costs, high production efficiency and mass distribution.
- If the company lacks sustainable way of offering the cheapest products, this concept can lead to marketing
myopia because the company may focus too narrowly on their own operation rather than the customer
satisfaction.

Product concept is the idea that consumers will favor products that offer the most quality, performance
and features and that the organization should therefore devote its energy to making continuous product
improvements.
- Focusing solely on company’s products may lead to marketing myopia, i.e. mouse trap manufacturer may
think that if they can build a better mouse trap, they will attract bigger customer bases, but in the reality the
customers only wants a solution to their mouse problem. The better solution in this example would be
another product that works better than a mouse trap.

Selling concept is the idea that consumers will not buy enough of the firm’s product unless it undertakes a
large scale selling and promotion effort. This concept is often practiced with unsought goods such as
insurance and often focuses on creating sales transactions rather than building on long-term profitable
customer relationships.

Marketing concept holds that achieving organizational goals depends on knowing the needs and wants of
target markets and delivering the desired satisfaction better than competitors do. Rather than finding
right customers for the product, the job is to find the right products for the customers.

Starting point Focus Means Ends

The selling concept
Factory Existing products Selling and promoting Profits through sales volume
The marketing concept
Profits through customer
Market Customer needs Integrated marketing
satisfaction

Societal marketing concept is the idea that a company’s marketing decisions should consider consumers’
wants, the company’s requirements, consumers’ long-term interests, and society’s long-term interests.
The idea holds that marketing strategy should deliver value to customers in a way that maintains or
improves both consumers’ and society’s well-being and therefore calls for sustainable marketing practices:

Economic sustainability - Creating economic growth without risking co-worker health and scarce neutral
resources.
- Companies running on a loss have difficulty contributing towards a more
environmentally and socially sustainable society.
Environmental sustainability - Emphasizes the economic growth should not take place at the expense of the
neutral environment.
Societal sustainability - Emphasizes that people's basic needs are being met. Marketing often involves
manufacturing and transport in countries where it's difficult to keep track of the
activities.
à Risk that the practices do not live up to the ethical standards or sustainability
promises made by the company.

Managing customer relationships and capturing customer value

- Without capturing customer value, no business can survive in the long run.

The companies can capture value from customers in terms of loyalty, current and future sales, market
share and profits.
 - Satisfied customers are more likely to be loyal customers and to give the company a larger share of their
business.

Customer relationship management (CRM) is managing detailed information about individual customers
and carefully managing customer ‘touch points’ to maximize customer loyalty.
- 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.

The key to building lasting customer relationships is to create superior customer value and satisfaction
Difficult task, but in general terms customers are likely to buy from the companies that offer the highest:

Customer-perceived value, which means the customer’s evaluation of the difference between all the
benefits and all the costs of a marketing offer relative to those competing offers.
- Not all customers make consistently rational decisions when buying, but often try to maximize the value
created by the products they buy. i.e. when hungry, the customer has a need for food but doesn’t
automatically choose the cheaper option:
60 SEK lunch at fast-food restaurant VS. 120 SEK lunch at a restaurant
(Premium experience; superior taste, location etc.)

Customer satisfaction is the extent to which product’s perceived performance matches a buyer’s
expectations. Outstanding marketing companies go out of their way to keep important customers satisfied
because studies show that higher levels of customer satisfaction lead to greater customer loyalty.
- Customer centered firms seek delivering higher customer satisfaction than their competitors, but never
attempts to maximize it since it can always increase customer satisfaction by lowering its price or increasing
its services.
à Lowers profits!

The nature of the target market determines the extent of the company building real relationships with its
customers.
- Many low-margin customers à basic relationships
- Few high-margin customers à full partnership with key customers (mostly business to business markets)

Customer engagement and today’s digital and social media

The digital age has created many new customer relationship-building tools: websites, online ads & videos,
mobile ads & apps, blogs for online communities and major social media, such as Twitter, Facebook,
YouTube etc.
à Various channels to refine targeting and to engage customers

This has lead to: Customer-engagement marketing, that focuses on making the brand meaningful part of
consumer’s conversations by fostering direct and continuous customer involvement in shaping brand
conversations, experiences and community. Successfully done it means making relevant and genuine
contributions to targeted consumers lives and interactions.
à Big changes for companies: they can no longer rely on marketing by intrusion.
à Marketing by attraction: Creating market offerings and messages that engage the consumers rather than interrupt
them.

Consumer-generated marketing

One form of consumer-engagement marketing is consumer-generated marketing by which consumers

themselves play a role in shaping their own brand experiences and those of others.
- Difficult, time-consuming and costly process
- Inviting consumers input in f.ex. in social media can backfire because consumers have so much control over it.

Example of consume-generated marketing: Airbus claims that A330neo aircraft was mainly designed based on the
comments gathered from disgruntled passengers in social media.
Today’s marketers know that they cannot create customer value & build strong customer relationships
alone: Being good at CRM is not enough.
- They must practice partner relationship management, which is working closely with partners in
other company departments and outside the company to jointly bring greater value to customers.
Close and good working relationships are like to improve the functionality of the supply chain which increases the
companies changes in the competition. In today’s more connected world, every functional area can interact with
customers.

- The supply chain management à strong connections with partners all along the supply chain.

- Functioning supply chain à Increases companies change in the competition.

Capturing value from customers

Outcomes of creating customer value

Good Customer relationship management creates customer delight.
à Customers remain loyal & talk favorably about the company or its products.

The Customer loyalty should also rather be seen as the customers spending majority of their purchase
power with a particular company, than spending all their purchase power there.

à Customer lifetime value is the value of the entire stream of purchases a customer makes over a
lifetime of patronage, and therefore losing a customer often means more than losing just one sale. In
addition, unhappy customers are even likely to influence others not to buy.
i.e. When a supermarket loses a regular customer who tends to purchase weekly with $100 due to a unsatisfactory
experience, they actually loose lifetime of purchases that could add up to $5200 each year, or $52000 each 10 years.

Beyond just retaining good customers to capture lifetime value, good CRM can help the company to
increase their share of customer.
- The portion of the customer’s purchasing that a company gets in its product categories.
Since growing the customer base can be difficult, expanding the current customers spending may serve same goals;
to grow and be more profitable.
à By offering greater variety, or by creating programmes to cross-sell or up-sell in order to market more products
and services.

i.e. Amazon broadens it merchandize assortment and recommends related products to each customers’ purchase
that might be of interest. This system influences about 1/3 of all sales.

à Important to keep and grow current customers and not just acquire new. The value of the company
comes from current and future customers!

Customer equity is the total combined customer lifetime values of all of the company’s customers. This
can also be seen as a better measure of a firm’s performance that current sales or market share.
à The more loyal the firm’s profitable customers = The higher the firm’s customer equity.

Whereas sales and market share reflect the past, Customer equity suggests the future.

Building the right relationships with the right customers

The customer equity should be managed carefully because:
- Not all loyal customers are profitable
- Some disloyal customers can be highly profitable
 Different types of customers require different types of relationship management strategies:

The changing marketing landscape

The ever-changing marketplace affects both consumers and the marketers who serve them. In this age,
important developments that have influence on most companies are:

Social media marketing

Provides exiting opportunities to extend customer engagement and get people talking about a brand.
- Even tiny sites can attract active audiences and online social media provides a home where individuals can
connect and share information and moments of their lives.
à Ideal platform for real-time marketing, by which marketers can engage consumers in the moment by linking
brands to important trending topics, real-world events, causes, personal occasions, or other important events in
consumers’ lives.

Mobile marketing is perhaps the fastest-growing digital marketing platform, since smartphones are ever
present, always on finely targeted and highly personal. This makes them ideal for engaging customers
anywhere, anytime as they move through the buying process.

Globalization
Marketers are looking into fresh ways to relate with the broader world around them.

Almost every company is nowadays touched by the global competition:

- Companies are now longer just trying to sell their locally produced goods in international markets, but also
consuming supplies and components abroad.
- Increasingly, small local companies are competing with big international companies
- Consumers have become more well informed and use internet to compare prices.

Urbanization and polarization

We live in an increasingly urban world and bigger portions of the population are moving into bigger cities.

As the divide between metro and rural areas grow, marketers will have to pay more attention to consumers:
- The way they think and the attitudes they develop
- To make sure they avoid contributing to the increasing polarization.
Urbanization has lead to a great supply of low wage services in urban areas where also polarization, divides between
wealthy and less wealthy consumers, is strong and reflected in every area of consumption.

Marketers with responsibility and companies with sustainability claims should pay attention to unsustainable
practices and to design products and offers that give as many consumers as possible the opportunity to
enjoy higher living standards.
 Call for ethics and corporate responsibility

As the worldwide consumerism and environmentalism movements mature, markets are being called upon to
take greater responsibility:
- for the social and environmental impact of their actions
- to contribute to a more sustainable society.

Everything a company does, affects the brand in the eyes of the customer, and forward-looking companies take
responsibilities and view socially responsible actions as opportunities to do well by doing good.

The growth of the not-for-profit marketing

In the past marketing have been widely applied in the for-profit business sector, but nowadays marketing
has become major part of the strategies of not-for-profit organizations such as schools, hospitals, museums
and churches.
Not-for-profit organizations face strong competition for support and membership as well as difficulties to commit
consumers to engage in their activities, since the consumers are finding themselves busier. Sound marketing can aid
them to attract membership and support.