Marketing: Managing Profitable

Customer Relationships
Market & Product
A market is the set of actual and potential
buyers of a product. These buyers share a
particular need or want that can be satisfied
through exchange relationships.
Product (Marketing Offer): physical product,
service, information, experience, person,
place, organization, and ideas.
Examples of Product
Definition of Marketing
Marketing is the process of planning and
executing the conceptions, pricing, promotion
and distribution of ideas, goods, and services
to create exchanges that satisfy individual
and organizational goals. (AMA)
Marketing is meeting needs profitably.
Marketing Philosophy
The Production Concept
The Product Concept

The Selling Concept

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The Marketing Concept

The Customer Concept

The Societal Marketing Concept

The Production Concept
Consumers will prefer products that are
widely available and inexpensive.
Focus: achieving high production efficiency,
low costs, and mass distribution.
It is useful when (1) the demand for a product
exceeds the supply; (2) the products cost is
too high.
Examples: Standard Raw Materials and
Components, CD, LCD.
The Product Concept
Consumers will favor those products that
offer the most quality, performance, or
innovative features.
Focus: making superior products and
improving them over time.
Examples: Digital Camera, CPU.
Better Mousetrap Fallacy
Marketing Myopia. (Theodoes Levitt, 1965)
The Selling Concept
Consumers and businesses, if left alone, will
ordinarily not buy enough of organizations
products.
Focus: undertake an aggressive selling and
promotion effort.
Examples: unsought goods: encyclopedias,
funeral plots, foundations.
The Marketing Concept
The key to achieving its organizational goals
consists of the company being more effective than
competitors in creating, delivering, and
communicating superior customer value to its
chosen target markets.
Slogans: , ,
, We do it all for you (Toyota).
Four pillars: target market, customer needs,
integrated marketing and profitability.
Figure 1.3: Contrasts Between the Sales Concept and
the Marketing Concept
The Customer Concept
The Societal Marketing
Concept
The organizations task is to determine the needs,
wants, and interests of target markets and to deliver
the desired satisfactions more effectively and
efficiently than competitors in a way that preserves
or enhances the consumers and societys well-
being.
Examples: Body Shop; HSBC; Johnson &
Johnsons Tylenol; .
Needs, Wants and Demands
Needs (): the basic human requirements.
Physical: food, clothing, shelter, safety
Social: belonging, affection
Individual: learning, knowledge, self-expression
Wants (): when needs are directed to
specific objects that might satisfy the need.
Demands (): wants for specific products
backed by an ability to pay.
Demand States and Marketing
Tasks
Marketing managers are responsible for
demand management.
Negative Demand Counter Marketing, e.g.
insurance.
No Demand Stimulus, e.g. encyclopedias.
Latent Demand Developing, e.g. iPod;
; .
Declining Demand Remarketing, e.g. Arm &
Hammers baking soda deodorizer; school.
Demand States and Marketing
Tasks
Marketing managers are responsible for
demand management.
Irregular Demand Synchromarketing (
), e.g. ice cream; museum.
Full Demand Maintain Marketing
Overfull Demand Demarketing (), e.g.
Mister Donut; .
Unwholesome Demand Social Marketing, e.g.
cigarettes; drunk-driving.
Customer Relationship
Management (CRM)
The overall process of building and
maintaining profitable customer relationships
by delivering superior customer value and
satisfaction.
On average, it costs 5 to 10 times as much to
attract a new customer as it does to keep a
current customer satisfied. (Sears 12 times)
Customer Perceived Value
The difference between total customer value
and total customer cost.
Value chain, e.g. Wal-Mart.
Value-delivery network, e.g. Honda.
Customer Lifetime Value and
Equity
Customer lifetime value: the value of the
entire stream of purchases that the customer
would make over a lifetime of patronage.
Lexus: $600,000; Taco Bell: $12,000;
Supermarket: $50,000.
Customer equity: the total combined
customer lifetime values of all of the
companys customers.
Cadillac vs. BMW
Selective Relationship
Management
Weed out losing customers and target
winning ones for pampering.
Examples: Citibank; First Chicago Bank;
Fidelity Investment.
Risk: future profits are hard to predict.
 Customer Relationship Groups

Butterflies True Friends

Good fit between Good fit between
High companys offerings and companys offerings and
customers needs; high customers needs; highest
profit potential profit potential
Profitability
Strangers Barnacles
Little fit between companys Limited fit between
Low offerings and customers companys offerings and
needs; lowest profit customers needs; low
potential profit potential

Short-term Long-term
customers customers
Projected loyalty
Share of Customer
The portion of the customers purchasing in
its product categories that a company gets.
Methods to increase share of customer
Offer greater variety to current consumers
Train employees to cross-sell and up-sell in order
to market more products and services to existing
customers.
Amazon: books, music, videos, gifts, toys,
consumer electronics, office products, and so
on.
Customer Satisfaction
The extent to which a products perceived
performance matches a buyers expectation.
Smart companies aim to delight customers by
promising only what they can deliver, then
delivering more than they promise.
Examples: Lexus; Southwest Airlines;
Seasons Hotels; Nordstrom department store.
Satisfying Customer Complaints
Rate of dissatisfaction: 25%; rate of
complaint in dissatisfaction: 5%.
50% of complaints report a satisfactory
problem resolution.
Examples: Williams-Sonoma; Enterprise
Rent-A-Car.
On average, satisfied 3 people, and
dissatisfied 11 people.
Satisfying Customer Complaints
Rate of complainant repurchase

Resolved Resolved
quickly
Major 34% 52%
complaints
Minor 52% 95%
complaints
Customer Relationship Levels
and Tools
Level of relationship: basic reactive (e.g.
P&G)accountableproactivepartnership
(e.g. Boeing).
Tools:
Add financial benefits, ex. frequent-flier program.
Add social benefits, ex. club marketing program.
Add structural ties, ex. McKesson; FedEx.
In 1981, American Airlines first
introduced the AADVANTAGE
frequent-flier program. When other
airlines copied this strategy, did they
engage in the prisoners dilemma?
Prisoners Dilemma

Player 1 Player 2
Cooperate Fink

Cooperate 2, 2 3, -3

Fink -3, 3 -2, -2