PART 1: DEFINING MARKETING AND THE MARKETING PROCESS (CHAPTERS 1–2)

PART 2: UNDERSTANDING THE MARKETPLACE AND CUSTOMER VALUE (CHAPTERS 3–5)

PART 3: DESIGNING A CUSTOMER VALUE–DRIVEN STRATEGY AND MIX (CHAPTERS 6–14)
PART 4: EXTENDING MARKETING (CHAPTERS 15–16)

1 Marketing

CHAPTER ROAD MAP

Creating and Capturing Customer Value

Objective Outline
OBJECTIVE 1 Define marketing and outline the steps in OBJECTIVE 4 Discuss customer relationship
the marketing process. What Is Marketing? 32–34 management and identify strategies for creating value for
customers and capturing value from customers in return.
OBJECTIVE 2 Explain the importance of understanding
Building Customer Relationships 41–49; Capturing Value from
the marketplace and customers and identify the five core
Customers 49–52
marketplace concepts. Understanding the Marketplace and
Customer Needs 34–36 OBJECTIVE 5 Describe the major trends and forces
that are changing the marketing landscape in this age of
OBJECTIVE 3 Identify the key elements of a customer-
relationships. The Changing Marketing Landscape 52–57
driven marketing strategy and discuss the marketing
management orientations that guide marketing strategy.
Designing a Customer-Driven Marketing Strategy 37–40;
Preparing an Integrated Marketing Plan and Program? 40–41

Previewing the Concepts

MyMarketingLab™ This chapter introduces you to the basic concepts of marketing. We start with the
question: What is marketing? Simply put, marketing is managing profitable cus-
Improve Your Grade!*
tomer relationships. The aim of marketing is to create value for customers in order
to capture value from customers in return. Next we discuss the five steps in the
marketing process—from understanding customer needs, to designing customer-
driven marketing strategies and integrated marketing programs, to building cus-
tomer relationships and capturing value for the firm. Finally, we discuss the major
trends and forces affecting marketing in this new age of digital, mobile, and social
media. Understanding these basic concepts and forming your own ideas about
what they really mean to you will provide a solid foundation for all that follows.
Let’s start with a good story about marketing in action at Amazon.com, by far the
world’s leading online and digital marketer. The secret to Amazon’s success? It’s really
no secret at all. Amazon is flat-out customer obsessed. It has a deep-down passion for
creating customer value and relationships. In return, customers reward Amazon with
their buying dollars and loyalty. You’ll see this theme of creating customer value in order
to capture value in return repeated throughout this chapter and the remainder of the text.

*Over 10 million students improved their results using the Pearson MyLabs.
Visit www.pearsonglobaleditions.com/mymarketinglab for simulations,
tutorials, and end-of-chapter problems.
 First Stop
“We see our customers as
Amazon.com: Obsessed with
invited guests to a party, and Creating Customer Value and
we are the hosts. It’s our job Relationships
every day to make every When you think of shopping online,
important aspect of the chances are good that you think first of
Amazon. The online pioneer first opened
customer experience a little its virtual doors in 1995, selling books out
better.” – Jeff Bezos of founder Jeff Bezos’s garage in suburban
Seattle. Amazon still sells books—lots and
lots of books. But it now sells just about
Amazon.com does much more than just sell goods online. It creates satisfying online
everything else as well, from music, elec-
customer experiences. “The thing that drives everything is creating genuine value for
customers,” says Amazon founder and CEO Bezos, shown here. tronics, tools, housewares, apparel, and
Contour by Getty Images.
groceries to fashions, loose diamonds, and
Maine lobsters.
From the start, Amazon has grown explosively. Its annual sales have rocketed from a mod-
est $150 million in 1997 to more than $61 billion today. During the past five years, despite a
shaky economy, Amazon’s revenues have grown by an amazing 35 percent annually. This past
holiday season, Amazon.com sold more than 26.5 million items to its 188 million active customers
worldwide—that’s 306 items per second. Analysts predict that by 2015, Amazon will become the
youngest company in history to hit $100 billion in revenues (it took Walmart 34 years). That would
make it the nation’s second-largest retailer, trailing only Walmart.
What has made Amazon such an amazing success story? Founder and CEO Bezos puts it in
three simple words: “Obsess over customers.” To its core, the company is relentlessly customer
driven. “The thing that drives everything is creating genuine value for customers,” says Bezos.
Amazon believes that if it does what’s good for customers, profits will
follow. So the company starts with the customer and works rks back-
ward. Rather than asking what it can do with its current capa-apa-
bilities, Amazon first asks: Who are our customers? What at Amazon.com’s
do they need? Then, it develops whatever capabilities are deep-down passion for
required to meet those customer needs. creating customer value and
At Amazon, every decision is made with an eye relationships has made it the
toward improving the Amazon.com customer experi- world’s leading online retailer.
ence. In fact, at many Amazon meetings, the most Amazon has become the model
influential figure in the room is “the empty chair”— for companies that are obsessively
literally an empty chair at the table that represents and successfully focused
the all-important customer. At times, the empty chair on delivering customer
isn’t empty, but is occupied by a “Customer Experience value.
Bar Raiser,” an employee who is specially trained to rep- ep-
resent customers’ interests. To give the empty chair a loud, oud,
clear voice, Amazon relentlessly tracks performance against nst nearly
400 measurable customer-related goals.
Amazon’s obsession with serving the needs of its customers drives the company to take risks
and innovate in ways that other companies don’t. For example, when it noted that its book-buying
customers needed better access to e-books and other digital content, Amazon developed the
Kindle e-reader, its first-ever original product. The Kindle took more than four years and a whole
new set of skills to develop. But Amazon’s start-with-the-customer thinking paid off handsomely.
The Kindle is now the company’s number-one selling product, and Amazon.com now sells more
e-books than hardcovers and paperbacks combined. What’s more, the company’s new Kindle Fire
tablet now leads the market for low-priced tablet computers. Thus, what started as an effort
to improve the customer experience now gives Amazon a powerful presence in the burgeon-
ing world of digital and social media. Not only does the Kindle allow access to e-books, music,
videos, and apps sold by Amazon, it makes interacting with the online giant easier than ever.
Customers use their Kindles to shop Amazon.com and interact with the company on its blogs and
social media pages.

31
 Perhaps more important than what Amazon sells is how it sells.
Amazon wants to deliver a special experience to every customer. Most
Amazon.com regulars feel a surprisingly strong relationship with the
company, especially given the almost complete lack of actual human
interaction. Amazon obsesses over making each customer’s experience
uniquely personal. For example, the Amazon.com site greets customers
with their very own personalized home pages, and its “Recommenda-
tions for You” feature offers personalized product recommendations.
Amazon was the first company to sift through each customer’s past pur-
chases and the purchasing patterns of customers with similar profiles to
come up with personalized site content. Amazon wants to personalize
the shopping experience for each individual customer. If it has 188 mil-
lion customers, it reasons, it should have 188 million stores.
Visitors to Amazon.com receive a unique blend of benefits:
huge selection, good value, low prices, and convenience. But it’s the
“discovery” factor that makes the buying experience really special.
Once on the Amazon.com site, you’re compelled to stay for a while—
looking, learning, and discovering. Amazon.com has become a kind
of online community in which customers can browse for products,
research purchase alternatives, share opinions and reviews with
other visitors, and chat online with authors and experts. In this way,
Amazon does much more than just sell goods online. It creates direct,
personalized customer relationships and satisfying online experi-
ences. Year after year, Amazon places at or near the top of almost
every customer satisfaction ranking, regardless of industry.
Based on its powerful growth, many analysts have speculated that
Amazon.com will become the Walmart of the Web. In fact, some argue,
it already is. Although Walmart’s total sales of $469 billion dwarf Ama-
zon’s $61 billion in sales, Amazon’s Internet sales are more than 15 times
greater than Walmart’s. So it’s Walmart that’s chasing Amazon on the
Web. Put another way, Walmart wants to become the Amazon.com of
the Web, not the other way around. However, despite its mammoth pro-
portions, to catch Amazon online, Walmart will have to match the superb
Amazon customer experience, and that won’t be easy.
Whatever the eventual outcome, Amazon has become the poster
child for companies that are obsessively and successfully focused on
delivering customer value. Jeff Bezos has known from the very start
that if Amazon creates superior value for customers, it will earn their
business and loyalty, and success will follow in terms of company
profits and returns. As Bezos puts it, “When things get complicated,
we simplify them by asking, ‘What’s best for the customer?’ We be-
lieve that if we do that, things will work out in the long term.”1

od
oday’s successful companies have one thing in common: Like Amazon, they are
T st
strongly customer focused and heavily committed to marketing. These companies
sh
share a passion for understanding and satisfying customer needs in well-defined
target markets. They motivate everyone in the organization to help build lasting customer
relationships based on creating value.
Customer relationships and value are especially important today. Facing dramatic
technological advances and deep economic, social, and environmental challenges, today’s
customers are relating digitally with companies and each other, spending more carefully,
and reassessing their relationships with brands. The new digital, mobile, and social media
developments have revolutionized how consumers shop and interact, in turn calling for
new marketing strategies and tactics. In these fast-changing times, it’s now more important
than ever to build strong customer relationships based on real and enduring customer value.
We’ll discuss the exciting new challenges facing both customers and marketers later in
the chapter. But first, let’s introduce the basics of marketing.

Author Comment What Is Marketing?

Pause here and think about
how you’d answer this question before
studying marketing. Then see how your
answer changes as you read
the chapter.
32
Marketing, more than any other business function, deals with customers. Although we
will soon explore more-detailed definitions of marketing, perhaps the simplest definition
is this one: Marketing is managing profitable customer relationships. The twofold goal of
marketing is to attract new customers by promising superior value and to keep and grow
current customers by delivering satisfaction.
For example, McDonald’s fulfills its “i’m lovin’ it” motto by being “our customers’
favorite place and way to eat” the world over, giving it nearly as much market share as its
nearest four competitors combined. Walmart has become the world’s largest retailer—and
the world’s second-largest company—by delivering on its promise, “Save Money. Live
Better.” Facebook has attracted more than a billion active Web and mobile users worldwide
by helping them to “connect and share” with the people in their lives.”2
Sound marketing is critical to the success of every organization. Large for-profit firms,
such as Google, Target, Procter & Gamble, Toyota, and Microsoft, use marketing. But so
do not-for-profit organizations, such as colleges, hospitals, museums, symphony orches-
tras, and even churches.

Marketing is all around you, in good-old traditional forms and in a
host of new forms, from Web sites and mobile phone apps to videos and
online social media.
Justin Lewis.
Marketing
The process by which companies create
value for customers and build strong
customer relationships in order to
capture value from customers in return.
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.
Understand the
marketplace and
customer needs
and wants
Figure 1.1 The Marketing Process: Creating and Capturing Customer Value
Chapter 1: Marketing: Creating and Capturing Customer Value 33
You already know a lot about marketing—it’s all around
you. Marketing comes to you in the good-old traditional
forms: You see it in the abundance of products at your nearby
shopping mall and the ads that fill your TV screen, spice up your
magazines, or stuff your mailbox. But in recent years, market-
ers have assembled a host of new marketing approaches, ev-
erything from imaginative Web sites and mobile phone apps to
blogs, online videos, and social media. These new approaches
do more than just blast out messages to the masses. They reach
you directly, personally, and interactively. Today’s market-
ers want to become a part of your life and enrich your experi-
ences with their brands—to help you live their brands.
At home, at school, where you work, and where you
play, you see marketing in almost everything you do. Yet,
there is much more to marketing than meets the consumer’s
casual eye. Behind it all is a massive network of people and
activities competing for your attention and purchases. This
book will give you a complete introduction to the basic con-
cepts and practices of today’s marketing. In this chapter, we begin by defining marketing
and the marketing process.
Marketing Defined
What is marketing? Many people think of marketing as only selling and advertising. We are
bombarded every day with TV commercials, catalogs, spiels from salespeople, and online
pitches. However, selling and advertising are only the tip of the marketing iceberg.
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. If the marketer engages consumers
effectively, understands their needs, develops products that provide superior customer value,
and prices, distributes, and promotes them well, these products will sell easily. In fact, accord-
ing to management guru Peter Drucker, “The aim of marketing is to make selling unneces-
sary.”3 Selling and advertising are only part of a larger marketing mix—a set of marketing tools
that work together to satisfy customer needs and build customer relationships.
Broadly defined, marketing is a social and managerial process by which individuals
and organizations obtain what they need and want through creating and exchanging value
with others. In a narrower business context, marketing involves building profitable, value-
laden exchange relationships with customers. Hence, we define marketing as the process
by which companies create value for customers and build strong customer relationships in
order to capture value from customers in return.4
The Marketing Process
Figure 1.1 presents a simple, five-step model of the marketing process for creating and cap-
turing 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.
Create value for customers and Capture value from
build customer relationships customers in return
Construct an
Design a Build profitable Capture value
integrated
customer-driven relationships and from customers to
marketing program
marketing
that delivers
create customer create profits and
strategy delight customer equity
superior value
34 Part 1: Defining Marketing and the Marketing Process
Author Comment
Marketing is all about creating value
for customers. So, as the first step
in the marketing process, the company
must fully understand consumers
and the marketplace in
which it operates.
Needs
States of felt deprivation.
Wants
The form human needs take as they
are shaped by culture and individual
personality.
Demands
Human wants that are backed by
buying power.
Market offerings
Some combination of products, services,
information, or experiences offered to a
market to satisfy a need or want.
In this chapter and the next, we will examine the steps of this simple model of mar-
keting. In this chapter, we review each step but focus more on the customer relationship
steps—understanding customers, building customer relationships, and capturing value
from customers. In Chapter 2, we look more deeply into the second and third steps—
designing value-creating marketing strategies and constructing marketing programs.
Understanding the Marketplace
and Customer Needs
As a first step, marketers need to understand customer needs and wants and the market-
place 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; and (5) markets.
Customer Needs, Wants, and Demands
The most basic concept underlying marketing is that of human needs. Human needs are
states of felt deprivation. 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.
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.
A person in Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants
are shaped by one’s society and are described in terms of objects that will satisfy those
needs. When backed by buying power, wants become demands. Given their wants and
resources, people demand products and services with benefits that add up to the most value
and satisfaction.
Outstanding marketing companies go to great lengths to learn about and understand
their customers’ needs, wants, and demands. They conduct consumer research, analyze
mountains of customer data, and observe customers as they shop and interact, offline and
online. People at all levels of the company—including top management—stay close to
customers. For example, Kroger chairman and CEO David Dillon regularly dons blue jeans
and roams the aisles of local Kroger supermarkets, blending in with and talking to other
shoppers. Similarly, Walmart president and CEO Michael Duke and his entire executive
team make regular store and in-home visits with customers to get to know them and un-
derstand their needs. Top McDonald’s marketers hold frequent Twitter chats, connecting
directly with McDonald’s Twitter followers, both fans and critics, to learn their thoughts
about topics ranging from nutrition and sustainability to products and brand promotions.5
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.
More broadly, market offerings also include other entities, such as persons, places,
organizations, information, and ideas. For example, the “Pure Michigan” campaign mar-
kets the state of Michigan as a tourism destination that “lets unspoiled nature and authentic
character revive your spirits.” The Ad Council and the National Highway Traffic Safety
Administration created a “Stop the Texts. Stop the Wrecks.” campaign that markets the
idea of eliminating texting while driving. The campaign points out that a texting driver is
23 times more likely to get into a crash that a non-texting driver. And the “Let’s Move”
public service campaign, jointly sponsored by the U.S. Department of Agriculture and the
U.S. Department of Health and Human Services, markets the idea of reducing childhood
 Chapter 1: Marketing: Creating and Capturing Customer Value 35

obesity by urging kids and their families to make healthier food choices and increase their
physical activity. One ad promotes “Family Fun Friday: Dance. Play. Go for a walk in the
park. Make every Friday the day you and your family get moving.”6
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
Marketing myopia from marketing myopia. They are so taken with their products that they focus only on
The mistake of paying more attention to existing wants and lose sight of underlying customer needs.7 They forget that a product
the specific products a company offers is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may
than to the benefits and experiences think that the customer needs a drill bit. But what the customer really needs is a quarter-
produced by these products. 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.
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. You’re “in the heart of the magic!” says Disney.
Similarly, Angry Birds is much
more than just a mobile game app. To
more than 200 million fans in 116 coun-
tries, it’s a deeply involving experience.
As one observers puts it: “Angry Birds
land is a state of mind—a digital immer-
sion in addictively cheerful destruction,
a refuge from the boredom of subway
commutes and doctors’ waiting rooms,
where the fine art of sling-shotting tiny
brightly hued birds at wooden fortresses
to vanquish pigs taking shelter inside
makes eminent sense and is immensely
satisfying.” The game’s creator, Rovio
Entertainment, plans to expand the
Angry Birds experience through every-
thing from animated short videos (called
Angry Birds Toons) and 3-D animated
Marketing experiences: More than just a mobile game app, Angry Birds is “a digital movies to a growing list of licensed toys,
immersion in addictively cheerful destruction.” Creator Rovio plans to expand the Angry apparel, yard art, and even Angry Birds–
Birds experience through animated videos, licensed products, and even Angry birds–branded
branded playgrounds and activity parks.8
playgrounds and activity parks.
Archivo CEET GDA Photo Service/Newscom.
Customer Value and Satisfaction
Consumers usually face a broad array of products and services that might satisfy a given
need. How do they choose among these many market offerings? Customers form expecta-
tions about the value and satisfaction that various market offerings will deliver and buy
accordingly. Satisfied customers buy again and tell others about their good experiences.
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 expec-
tations too high, buyers will be disappointed. Customer value and customer satisfaction are
key building blocks for developing and managing customer relationships. We will revisit
these core concepts later in the chapter.

Exchanges and Relationships

Exchange
The act of obtaining a desired object Marketing occurs when people decide to satisfy their needs and wants through exchange
from someone by offering something relationships. Exchange is the act of obtaining a desired object from someone by offering
in return. something in return. In the broadest sense, the marketer tries to bring about a response to
36 Part 1: Defining Marketing and the Marketing Process
Market
The set of all actual and potential
buyers of a product or service.
Figure 1.2 A Modern Marketing
System
Each party in the system adds value. Walmart
cannot fulfill its promise of low prices unless
its suppliers provide low costs. Ford cannot
deliver a high-quality car-ownership
experience unless its dealers provide
outstanding service.
some market offering. The response may be more than simply buying or trading products
and services. A political candidate, for instance, wants votes; a church wants membership;
an orchestra wants an audience; and a social action group wants idea acceptance.
Marketing consists of actions taken to create, maintain, and grow desirable exchange
relationships with target audiences involving a product, service, idea, or other object.
Companies want to build strong relationships by consistently delivering superior customer
value. We will expand on the important concept of managing customer relationships later
in the chapter.
Markets
The concepts of exchange and relationships lead to the concept of a market. A market is
the set of 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 means managing markets to bring about profitable customer relationships.
However, creating these relationships takes work. Sellers must search for buyers, identify
their needs, design good market offerings, set prices for them, promote them, and store and
deliver them. Activities such as consumer research, product development, communication,
distribution, pricing, and service are core marketing activities.
Although we normally think of marketing as being carried out by sellers, buy-
ers also carry out marketing. Consumers market when they search for products, interact
with companies to obtain information, and make their purchases. In fact, today’s digital
technologies, from Web sites and smartphone apps to the explosion of the social media,
have empowered consumers and made marketing a truly two-way affair. Thus, in addi-
tion to customer relationship management, today’s marketers must also deal effectively
with customer-managed relationships. Marketers are no longer asking only “How can we
influence our customers?” but also “How can our customers influence us?” and even “How
can our customers influence each other?”
Figure 1.2 shows the main elements in a marketing system. Marketing involves
serving a market of final consumers in the face of competitors. The company and com-
petitors research the market and interact with consumers to understand their needs. Then
they create and send their market offerings and messages to consumers, either directly
or through marketing intermediaries. Each party in the system is affected by major envi-
ronmental forces (demographic, economic, natural, technological, political, and social/
cultural).
Each party in the system adds value for the next level. The arrows represent relation-
ships that must be developed and managed. Thus, a company’s success at building profitable
relationships depends not only on its own actions but also on how well the entire system
serves the needs of final consumers. Walmart cannot fulfill its promise of low prices unless
its suppliers provide merchandise at low costs. And Ford cannot deliver a high-quality car-
ownership experience unless its dealers provide outstanding sales and service.
Company
Marketing Final
Suppliers
intermediaries consumers
Competitors
Major environmental forces
Arrows represent relationships that must be developed and
managed to create customer value and profitable customer
relationships.