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Chapter 1 Marketing: Creating and Capturing Customer Value

CHAPTER 1

MARKETING: CREATING AND CAPTURING CUSTOMER VALUE

PREVIEWING THE CONCEPTS CHAPTER OBJECTIVES

1. Define marketing and outline the steps in the marketing process.2. Explain the importance of understanding customers and the marketplace, andidentify the fie core marketplace concepts.

!. "dentify the key elements of a customer#drien marketing strategy and discuss themarketing management orientations that guide marketing strategy.

$. Discuss customer relationship management and strategies for creating alueforcustomers and capturing aluefromcustomers in return.

%. Descri&e the ma'or trends and forces that are changing the marketing landscape inthis age of relationships.

JUST THE BASICS

CHAPTER OVERVIEW

Marketing is managing profita&le customer relationships.

(he aim of marketing is to create alue for customers and to capture alue in return.

Marketing is defined as a social and managerial process &y )hich indiiduals and groupso&tain )hat they need and )ant through creating and exchanging alue )ith others.

Chapter 1 is organi*ed around fie steps in the marketing process +see igure 1.1- fromunderstanding customer needs, to designing customer#drien marketing strategies andprograms, to &uilding customer relationships and capturing alue for the firm.

ANNOTATED CHAPTER NOTES/OUTLINE

INTRODUCTION

/appos: 0 assion for Creating Customer Value and elationships.

/appos +the online merchant- really does put the customer first. Customer satisfaction isthe cornerstone of their &usiness. 0s a result, /appos has gro)n astronomically oer their3#year life span.

/appos does not spend a lot of money of media adertising. "nstead, it relies on customerserice so good customers not only come &ack, they tell their friends.

More than 4% percent of sales come from repeat customers.

elationships )ith customers mean eerything to /appos. 5sieh +CE6- and otheremployees stay in direct touch )ith customers, )ith each other, and )ith anyone else thatis interested.

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art 1 Defining Marketing and the Marketing rocess

/appos has set ne) standards for customer serice in the industry, leading the )ay for ane) type of consumer#focused company. "t is that intense customer focus that has set thestage for /appos gro)th.

(oday9s successful companies hae one thing in common: they are strongly customerfocused and heaily committed to marketing.

WHAT IS MARKETING?

0 simple definition of marketing is managing profitable customer relationships.

Marketing must &oth attract ne) customers and gro) the current customers.

Eery organi*ation must perform marketing functions, not 'ust for#profit companies.

on#profits +colleges, hospitals, churches, etc.- also must also perform marketing.

Marke!"# De$!"e%

Most people think of marketing as selling and;or adertising

Marketing must focus on satisfying customer needs.

?e define &arke!"#as the process &y )hich companies create alue for customers and&uild strong customer relationships in order to capture alue from customers in return.

@se Ke' Ter&Marketinghere

@se C(a)er O*+e,!-e1 here

T(e Marke!"# Pr.,e

igure 1.1 sho)s the fie#step marketing process.1. @nderstand the marketplace and customer needs and )ants.2. Design a customer#drien marketing strategy.!. Construct a marketing program that deliers superior alue.$. Auild profita&le relationships and create customer delight.%. Capture alue from customers to create profits and customer Buality.

@se 0!#re 1.1 here

"n the first four steps, companies )ork to understand consumers, create customer alue,and &uild strong customer relationships.

"n the final step, companies reap the re)ards of creating superior customer alue. Aycreating alueforconsumers, they in turn capture aluefromconsumers in the form ofsales, profits, and long#term customer eBuity.


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UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS

ie core customer and marketplace concepts are critical: +1- needs, wants, and demands+2- marketing offers (products, services, and experiences) +!-value and satisfaction +$-exchanges and relationships and +%- markets.

C.&er Nee%2 Wa"2 a"% De&a"%

(he most &asic concept underlying marketing is that of (&a" "ee%3

5uman "ee%are states of felt depriation. (hey includephysical, social, andindividualsneeds. (hese needs )ere not created &y marketers they are a &asic part of thehuman makeup.

Wa"are the form human needs take as they are shaped &y culture and indiidualpersonality. 0n 0merican needsfood &ut wantsa Aig Mac.

?hen &acked &y &uying po)er, )ants &ecome %e&a"%.

(he &est marketing companies go to great lengths to learn and understand theircustomers9 needs, )ants, and demands.

@se Ke' Ter&Needs, Wants, andemandshere.@se D!,!"# (e Ie1 and 2 here

Marke O$$er!"#4Pr.%,2 Ser-!,e2 a"% E5)er!e",e

eeds and )ants are fulfilled through &arke .$$er!"#

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Dissatisfied customers s)itch to competitors and disparage the product to others.

Customer alue and customer satisfaction are key &uilding &locks for deeloping andmanaging customer relationships.

E5,(a"#e a"% Re6a!."(!)

E5,(a"#eis the act of o&taining a desired o&'ect from someone &y offering something inreturn.

Marketing consists of actions taken to &uild and maintain desira&le exchangerelationships)ith target audiences.

@se Ke' Ter&"xchangehere@se A))6!,a!." 7e!."1 here

Marke

0 &arkeis the set of actual and potential &uyers of a product.

Marketing means managing markets to &ring a&out profita&le customer relationships.

igure 1.2 sho)s the main elements in a modern marketing system.

@se 0!#re 1.2 here@se Ke' Ter&Markethere

DESIGNING A CUSTOMER8DRIVEN MARKETING STRATEG9

Marke!"# &a"a#e&e"is defined as the art and science of choosing target marketsand &uilding profita&le relationships )ith them.

@se C(a)er O*+e,!-e ! here@se Ke' Ter&Marketing Managementhere

(he marketing manager must ans)er t)o important Buestions:1. ?hat customers )ill )e sere +)hat9s our target market-F2. 5o) can )e sere these customers &est +)hat9s our alue proposition-F

Se6e,!"# C.&er . Ser-e

0 company must decide whoit )ill sere.

"t does this &y diiding the market into segments of customers +market segmentation- andselecting )hich segments it )ill go after +target marketing-.


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Marketing managers kno) they cannot sere all customers. Ay trying to do so, they endup not sering any )ell.

@se D!,!"# (e Ie! here

Marketing management is customer management and demand management.

C(..!"# a Va6e Pr.).!!."

0 company9s value propositionis the set of &enefits or alues it promises to delier toconsumers to satisfy their needs. +0(G( promises =Hour ?orld Deliered,> )hereas (#Mo&ile says you can =tick (ogether.>-

uch alue propositions differentiateone &rand from another.

@se A))6!,a!." 7e!."2 here

Marke!"# Ma"a#e&e" Or!e"a!."

Marketing management )ants to design strategies that )ill &uild profita&le relationships)ith target consumers. Aut )hatphilosophyshould guide these marketing strategiesF

(here are fie alternatie concepts under )hich organi*ations design and carry out theirmarketing strategies:

1) The Production Concept

(he )r.%,!." ,.",e)holds that consumers )ill faor products that are aaila&le andhighly afforda&le.

Management should focus on improing production and distri&ution efficiency.

2) The Product Concept

(he )r.%, ,.",e)holds that consumers )ill faor products that offer the most inBuality, performance, and innoatie features.

@nder this concept, marketing strategy focuses on making continuous product

improements.

3) The Selling Concept

(he e66!"# ,.",e)holds that consumers )ill not &uy enough of the firm9s productsunless it undertakes a large#scale selling and promotion effort.

(he concept is typically practiced )ith unsought goods those that &uyers do not


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normally think of &uying, such as insurance or &lood donations.

(hese industries must &e good at tracking do)n prospects and selling them on product&enefits.

4) The Marketing Concept

(he &arke!"# ,.",e)holds that achieing organi*ational goals depends on kno)ingthe needs and )ants of target markets and deliering the desired satisfactions &etter thancompetitors do.

@nder the marketing concept, customer focus and alue are thepathsto sales and profits.

(he 'o& is not to find the right customers for your product &ut to find the right productsfor your customers.

(he e66!"# ,.",e)takes an inside#outapproach, )hereas the &arke!"# ,.",e)usesan outside#inperspectie. +igure 1.!-

$ustomer#drivencompanies research current customers deeply to learn a&out theirdesires, gather ne) product and serice ideas, and test proposed product improements.

$ustomer#driving marketing is understanding customer needs een &etter than customersthemseles do and creating products and serices that meet existing and latent needs.

5) The Societal Marketing Concept

(he .,!ea6 &arke!"# ,.",e)Buestions )hether the pure marketing conceptoerlooks possi&le conflicts &et)een consumershort#run wantsand consumer long#runwelfare.

(he societal marketing concept holds that marketing strategy should delier alue tocustomers in a )ay that maintains or improes &oth the consumer9s and the society%s)ell#&eing. +igure 1.$-

@se Ke' Ter&&roduction $oncept, &roduct $oncept, 'elling $oncept, Marketing$oncept, and 'ocietal Marketing $oncept here

@se 0!#re 1.! and 1.$ here

PREPARING AN INTEGRATED MARKETING PLAN AND PROGRAM

(he company9s marketing strategy outlines )hich customers the company )ill sere andho) it )ill create alue for these customers.

ext, the marketer deelops an integrated marketing program that )ill actually delierthe intended alue to target customers.


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(he marketing program consists of the firm9s marketing mix, the set of marketing toolsthe firm uses to implement its marketing strategy.

(he marketing mix tools are classified into thefour &sof marketing: product, price,

place, and promotion.

(he firm &lends all of these marketing mix tools into a comprehensie integratedmarketing programthat communicates and deliers the intended alue to chosencustomers.

@se L!"k!"# (e C.",e)here

BUILDING CUSTOMER RELATIONSHIPS

C.&er Re6a!."(!) Ma"a#e&e"

$ustomer relationship management is the most important concept of modern marketing.

C.&er re6a!."(!) &a"a#e&e"is the oerall process of &uilding andmaintaining profita&le customer relationships &y deliering superior customer alue andsatisfaction.

"t deals )ith all aspects of acBuiring, keeping, and gro)ing customers.

Relationship Building Blocks: Custoer !alue and Satis"action

(he key to &uilding lasting customer relationships is to create superior customer alue

and satisfaction.

C.&er8Per,e!-e% Va6e3 (his is the customer9s ealuation of the difference &et)eenall the &enefits and all the costs of a market offering relatie to those of competing offers.

Customers often do not 'udge alues and costs =accurately> or =o&'ectiely.>

(hey act onperceivedalue.

C.&er Sa!$a,!."3 C.&er a!$a,!."depends on the product9s perceiedperformance relatie to a &uyer9s expectations.

"f the product9s performance falls short of expectations, the customer is dissatisfied. "fperformance matches expectations, the customer is satisfied. "f performance exceedsexpectations, the customer is highly satisfied or delighted.

0lthough the customer#centered firm seeks to delier high customer satisfaction relatieto competitors, it does not attempt to a#ii$ecustomer satisfaction.


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0 company can al)ays increase customer satisfaction &y lo)ering its price or increasingits serices. Aut this may result in lo)er profits.

(he purpose of marketing is to generate customer alue profita&ly.

Custoer Relationship %e&els and Tools

Companies can &uild customer relationships at many leels.

0t one extreme, a company )ith many lo)#margin customers may seek to deelop basicrelationships)ith them.

0t the other extreme, in markets )ith fe) customers and high margins, sellers )ant tocreatefull partnerships)ith customers.

Many companies offerfreuency marketing programsthat re)ard customers )ho &uy

freBuently or in large amounts.

Companies sponsor club marketing programsthat offer mem&ers special &enefits andcreate mem&er communities. +or example, 5arley#Daidson sponsors the 5arley6)ners Iroup J5.6.I.K.-

@se C(a)er O*+e,!-e$ here@se Ke' Ter&$ustomer elationship Management, $ustomer &erceived *alueand

$ustomer 'atisfaction here@se Marke!"# a W.rk 1.1 here

@se V!%e. Cae here

T(e C(a"#!"# Nare .$ C.&er Re6a!."(!)

Hesterday9s &ig companies focused on mass marketing to all customers at arm9s length.

(oday9s companies are &uilding deeper, more direct, and more lasting relationships )ithcarefully selected customers.

The Changing 'ature o" Custoer Relationships

Hesterday9s companies focused on mass marketing to all customers at arm9s length.

(oday9s companies are &uilding deeper relationships )ith carefully selected customers.

Relating (ith More Care"ull Selected Custoers

Many companies no) use customer profita&ility analysis to )eed out losing customersand to target )innings ones.

ome companies are een moing to Ldismiss9 unprofita&le customers, if they can9t &eturned in to profita&le ones.


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Relating More *eepl and +nteracti&el

(oday9s marketers are incorporating interactie approaches that help &uild targeted, t)o#)ay customer relationships.

"ncreasingly, marketers are using ne) communications approaches in &uilding closercustomer relationships.

5o)eer, these ne) technologies can create challenges for marketers. Consumers no)hae more information a&out &rands than eer &efore. (hus, )e are moing to a time of,.&er8&a"a#e% re6a!."(!).

Companies can no longer rely on marketing &y intrusion.

Companies must practice marketing &y attraction

(oday, firms are linking all departments in the cause of creating customer alue.

ather than assigning only sales and marketing people to customers, they are formingcross#functional customer teams.

Marketing Partners ,utside the -ir

Marketing channels consist of distri&utors, retailers, and others )ho connect the companyto its &uyers.


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(hesupply chaindescri&es a longer channel, stretching from ra) materials tocomponents to final products that are carried to final &uyers.

(hroughsupply chain management, many companies today are strengthening their

connections )ith partners all along the supply chain.

@se Ke' Ter&&artnership elationship Managementhere

CAPTURING VALUE 0ROM CUSTOMERS

(he first four steps in the marketing process outlined in igure 1.1 inole &uildingcustomer relationships. (he final step inoles capturing alue in return.

Ay creating superior customer alue, the firm creates highly satisfied customers )ho stayloyal and &uy more.

Crea!"# C.&er L.'a6' a"% Ree"!."

(he aim of customer relationship management is to create not 'ust customer satisfaction,&ut customer delight.

Companies reali*e that losing a customer means losing the entire stream of purchases thecustomer )ould hae made oer a lifetime of patronage. (his is kno)n as ,.&er6!$e!&e -a6e.

@se Ke' Ter&$ustomer ifetime *aluehere

@se Marke!"# *' (e N&*erhere

Gr.!"# S(are .$ C.&er

(are .$ ,.&eris defined as the share the company gets of customers purchasing intheir product categories. +(hus, &anks )ant to increase =share of )allet.>-

@se Ke' Ter&'hare of $ustomerhere

B!6%!"# C.&er E;!'

Companies )ant not only to create profita&le customers, &ut to =o)n> them for life,capture their customer lifetime alue, and earn a greater share of their purchases.

.hat +s Custoer /0uit

C.&er e;!'is the total com&ined customer lifetime alues of all of the company9scurrent and potential customers.


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Clearly, the more loyal the firm9s profita&le customers, the higher the firm9s customereBuity.

Customer eBuity may &e a &etter measure of a firm9s performance than current sales ormarket share.

Building the Right Relationships (ith the Right Custoers

ot all customers, not een all loyal customers, are good inestments.

igure 1.% classifies customers into one of four relationship groups, according to theirprofita&ility and pro'ected loyalty.

=trangers> sho) lo) potential profita&ility and little pro'ected loyalty. (he relationshipmanagement strategy for these customers is simple: Don9t inest anything in them.

=Autterflies> are potentially profita&le &ut not loyal. (he company should usepromotional &lit*es to attract them, create satisfying and profita&le transactions )iththem, and then cease inesting in them until the next time around.

=(rue friends> are &oth profita&le and loyal. (here is a strong fit &et)een their needs andthe company9s offerings. (he firm )ants to make continuous relationship inestments todelight these customers and retain and gro) them.

=Aarnacles> are highly loyal &ut not ery profita&le. (here is a limited fit &et)een theirneeds and the company9s offerings.

"mportant point: Different types of customer reBuire different relationship managementstrategies.

(he goal is to &uild the right relationships)ith the right customers.

@se Ke' Ter&$ustomer "uityhere@se 0!#re 1#% here @se

D!,!"# (e Ie% here@se A))6!,a!." 7e!."! here@se Marke!"# a W.rk 1#2 here@se L!"k!"# (e C.",e)2 here

THE CHANGING MARKETING LANDSCAPE

(his section looks at fie ma'or deelopments: the uncertain economic enironment, thene) digital age, rapid glo&ali*ation, the call for more ethics and social responsi&ility, andthe gro)th in not#for#profit marketing.

T(e U",era!" E,.".&!, E"-!r."&e"


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Aeginning in 288, the @.. and )orld economies experienced an economic meltdo)n,unlike anything since the Ireat Depression of the 13!8s.

0fter a decade of oerspending, =frugality has made a come&ack,> announced one

analyst.

0 trou&led economy can present opportunities as )ell as threats.

@se Marke!"# a"% (e E,.".&' here

T(e D!#!a6 A#e

(he recent technology &oom has created a digital age.

(he most dramatic digital technology is the I"er"e.

Aeyond competing in traditional marketplaces, companies no) hae access to excitingne) marketspaces.

(he "nternet has no) &ecome a glo&al phenomenon.

(he num&er of "nternet users )orld)ide no) stands at almost 1.$ &illion and )ill reachan estimated !.$ &illion &y 281%.

6nline marketing is no) the fastest gro)ing form of marketing.

"n addition to the =click#only> dot#coms, most traditional =&rick#and#mortar> companieshae no) &ecome =click#and#mortar> companies.

ome 48 percent of 0merican online users no) use the "nternet to shop.

@se C(a)er O*+e,!-e % here@se Ke' Ter&-nternethere

@se D!,!"# (e Ie here

Ra)!% G6.*a6!

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)orld)ide

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1. Explain ho) marketing creates profita&le customer relationships. +00CA:Communication-

nswer/

(he goal of marketing is to create pro"itale relationships*'satisfying customerneeds. Marke!"#is the process &y )hich companies create alue for customers and&uild strong customer relationships in order to capture alue from customers inreturn. Marketing consists of actions taken to &uild and maintain desira&le exchangerelationships )ith target audiences inoling a product, serice, idea, or other o&'ect."f the marketer understands consumer needs deelops products and serices thatproide superior customer alue and prices, distri&utes, and promotes themeffectiely, this goal )ill &e achieed easily. Aeyond simply attracting ne) customersand creating transactions, the goal is to retain customers and gro) their &usiness )iththe company. Marketers )ant to &uild strong relationships &y consistently delieringsuperior customer alue.

2. Marketing has &een critici*ed &ecause it =makes people &uy things they don9t reallyneed.> efute or support this accusation. +00CA: Communication eflectie(hinking-

nswer/

(he most &asic concept underlying marketing is that of human needs. 5uman "ee%are states of felt depriation. (hey include &asicphysicalneeds for food, clothing,)armth, and safetysocialneeds for &elonging and affection and individualneeds forkno)ledge and self#expression. Marketers did not create these needs they are a &asic

part of the human makeup. Wa"are the form human needs take as they are shaped&y culture and indiidual personality. ?ants are shaped &y one9s society and aredescri&ed in terms of o&'ects that )ill satisfy needs. ?hile marketers do not createcustomers9 needs, they may influence their )ants.

!. ?hat is a customer#drien marketing strategy and ho) can a company design oneF+00CA: Communication-

nswer/

(o design a )inning marketing strategy, the marketing manager must ans)er t)o

important Buestions: What customers will we serve (what%s our target market)0and1ow can we serve these customers best (what%s our value proposition)0 (he companymust first decide whoit )ill sere

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company )ants to select only customers that it can sere )ell and profita&ly.@ltimately, marketing managers must decide )hich customers they )ant to target andon the leel, timing, and nature of their demand. imply put, marketing managementis customer management and demand management.

$. Compare and contrast the fie different marketing management orientations. "s oneorientation =right> and the others =)rong>F Explain. +00CA: Communicationeflectie (hinking-

0ns)er:

(here are fie alternatie concepts under )hich organi*ations design and carry outtheir marketing strategies: the production, product, selling, marketing,and societalmarketing concepts. (he )r.%,!." ,.",e)holds that consumers )ill faorproducts that are aaila&le and highly afforda&le. (herefore, management shouldfocus on improing production and distri&ution efficiency. (he )r.%, ,.",e)

holds that consumers )ill faor products that offer the most in Buality, performance,and innoatie features. @nder this concept, marketing strategy focuses on makingcontinuous product improements. (he e66!"# ,.",e) holds that consumers )ill not&uy enough of the firm9s products unless it undertakes a large#scale selling andpromotion effort. (he &arke!"# ,.",e)holds that achieing organi*ational goalsdepends on kno)ing the needs and )ants of target markets and deliering the desiredsatisfactions &etter than competitors do. @nder the marketing concept, customer focusand alue are thepathsto sales and profits. "nstead of a product#centered =make andsell> philosophy, the marketing concept is a customer#centered =sense and respond>philosophy. (he .,!ea6 &arke!"# ,.",e)Buestions )hether the pure marketingconcept oerlooks possi&le conflicts &et)een consumershort#run wantsandconsumer long#run welfare.(he societal marketing concept holds that marketingstrategy should delier alue to customers in a )ay that maintains or improes &oththe consumer9s and the society%s)ell#&eing.

tudents may ans)er that the societal marketing concept is the =right> orientation, &utthere is no =right> or =)rong> marketing management orientation

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nswer/

C.&er e;!'is the total com&ined customer lifetime alues of all of thecompany9s current and potential customers. Clearly, the more loyal the firm9sprofita&le customers, the higher the firm9s customer eBuity. (he group that &est

descri&es loyal su&scri&ers of 'outhern ivingis =(rue riends.> (his grouprepresents a good fit &et)een a company9s offerings and customers9 needs andrepresents the highest profit potential.

S(are .$ ,.&eris the share a &usiness gets of the customer9s purchasing in itsproduct categories. "ncreasing share of customer is one )ay to increase a customer9slifetime alue

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1. orm a small group of three or four students. 5ae each mem&er of the group talk tofie other people, arying in age from young adult to ery old, a&out theirautomo&iles. 0sk them )hat alue means to them )ith regard to an automo&ile andho) the manufacturer and dealer create such alue. Discuss your findings )ith yourgroup and )rite a &rief report of )hat you learned a&out customer alue. +00CA:

Communication eflectie (hinking-

nswer/

tudents9 responses )ill ary. 6ne thing students )ill likely learn is that a customer&uys from the firm that offers the highest customer#perceied alue Companies must design strong alue propositions that gie them thegreatest adantage in their target markets.

tudents9 responses )ill ary, &ut they should &e a&le to find information that )illhelp them ans)er this Buestion from these company9s;&rand9s ?e& sites. orexample, at ))).enterprise.com,students can learn that, unlike other rental carcompanies, Enterprise started &y proiding rental car serices in local communitiesrather than &eing located at airports. 5o)eer, Enterprise has no) expanded toairport locations at the demand of its satisfied customers. 0nother interesting anduniBue feature of Enterprise is that this company promotes from )ithin. (he founder&elieed strongly that if customers and employees are treated )ell, profits )ill follo),)hich indeed they hae

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&. 5o) did you get to this point in your careerF "s this )hat you thought you9d &edoing )hen you gre) upF ?hat influenced you to get into this fieldF

c. ?hat education is necessary for this 'o&Fd. ?hat adice can you gie to college studentsFe. 0dd one additional Buestion that you create.

?rite a &rief report of the responses to your Buestions and explain )hy you )ould or)ould not &e interested in )orking in this field. +00CA: Communicationeflectie (hinking-

nswer/

tudents9 responses )ill ary3 T(! ! a" e5er,!e (a &. %e" $!"%

!"ere!"# a"% !"!#($63 S.&e &a' !"er-!e a $a&!6' &e&*er .r

.&e."e e6e (e' k". a"% 6ear" (!"# (e' "e-er k"e a*. (e!r

,areer3 I$ ).!*6e2 (a-e %e" #!-e a" !"$.r&a6 )ree"a!." . (are

(a (e' 6ear"e% !( (e .(er %e" !" (e ,6a3

U"%er (e H..%: Marke!"# Te,(".6.#'

"n only a fe) short years, consumer#generated marketinghas increased exponentially."t9s also kno)n as consumer#generated mediaand consumer#generated content. Morethan 188 million ?e& sites contain user#generated content. Hou may &e a contri&utoryourself if you9e eer posted something on a &log, reie)ed a product at 0ma*on.com,uploaded a ideo on Hou(u&e, or sent a ideo from your mo&ile phone to a ne)s ?e&site, such as C.com or oxe)s.com. (his force has not gone unnoticed &ymarketers, and )ith good reason. ielsen, the (V ratings giant, found that most

consumers trust consumer opinions posted online. 0s a result, say marketers encourageconsumers to generate content. or example, Coke has more than !.% million fans onace&ook, mothers can share information at amper9s Village +))).pampers.com-, andDorito9s scored a touchdo)n )ith consumer#created adertising during the past seeraluper Ao)ls. 0pple een encourages ihone users to deelop applications for its deice.5o)eer, consumer#generated marketing is not )ithout pro&lems

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tudents9 responses )ill ary, and they )ill most likely &e ery say a&out findingthis information. earching =consumer#generated media,> =consumer#generatedcontent,> or =consumer#generated marketing> returns seeral sources of information.or example, http:;;))).spotlightideas.co.uk;FpP2!%2in an interesting ?e& site thatlinks to seeral examples.

2. Discuss the adantages and disadantages of consumer#generated marketing.+00CA: Communication eflectie-

nswer/

(here are seeral ?e& sites +see link gien in Buestion Q1- and articles students canuse to address the adantages and disadantages of consumer#generated marketing.ome adantages include consumers think outside the &ox, consumer#generatedmarketing generates excitement among consumers, and consumers trust otherconsumers. 5o)eer, disadantages include lack of control &y the marketer,

perceptions that consumer#generated content on a company9s ?e& site is merelypropaganda, and unintended conseBuences if products are used improperly.

Sa'!"# ." (e R.a%: Marke!"# E(!,

Did you drie a car todayF @se a laptop computerF Auy a product in a storeF "f so, youemitted car&on dioxide +C62- and created a car&on footprint. 0ll of us do that eery day."ndiiduals and companies emit car&on dioxide in eeryday actiities. Many consumersfeel &ad a&out doing this others expect companies to take action. ?hat9s the ans)erFeducing car&on emissions is one solution, &ut another one is to offset your car&onemissions &y purchasing car&on offsets and rene)a&le energy certificates +ECs- "ndiidual consumers do this, and companies are flocking topurchase car&on offsets for themseles or to offer to their customers, resulting in anestimated R188 million annual market. 0nd experts predict exponential gro)th oer thenext fe) years. 0irlines routinely offer flyers the option of paying a fe) extra dollars tooffset their car&on emissions. or example, SetAlue 0ir)ays introduced its2etting to+reenprogram that allo)s flyers to make their flight =car&on#neutral> for as little asR2.88. lyers9 donations then support reforestation, )ind, and )aste managementpro'ects.

1. Nearn more a&out car&on offsets and discuss four examples of ho) &usinesses areusing them. "n your opinion, are these companies em&racing the societal marketingconceptF +00CA Communication eflectie (hinking-

nswer/

Car&on offsets occur )hen an indiidual or &usiness pays money to offset the car&onemissions resulting from their actiities. ome examples of companies offering theseto customers are Dell, Ieneral Electric, 0mtrak, Volks)agen, 0llstate, and mostairlines, to name only a fe). Delta 0irlines, for instance, offers customers offsets for


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R%.%8 on domestic flights and R11 on international flights. Volks)agen gae itscustomers free car&on credits that )ould offset their car&on emissions for one year ofdriing and offered more years for consumers to purchase. Most companies turn tothird parties, such as Car&onfund.org and (erraass, to &roker these exchanges. (heseorgani*ations purchase offsets for companies and indiiduals to counter their

emissions, thus &ecoming =car&on#neutral.>

2. 6ne criticism of car&on offsetting is that companies are not really helping theenironment &y changing their o)n &ehaior. "nstead, they9re merely &uying=enironmental pardons.> ecently proposed legislation, referred to as =cap andtrade,> argues that the marketplace )ill cause a reduction in pollution. Do you thinkcar&on offsets are a responsi&le solution to enironmental concernsF ?rite a &riefessay de&ating this issue. +00CA: Communication Ethical easoning-

nswer/

tudents9 opinions )ill ary as there is considera&le controersy surroundingemission trading and car&on offsets. (he =enironmental pardons> criticism is a alidone. 5o)eer, the other side of the coin is that the offsets money is put into effortsthat truly reduce C62leels around the )orld, and that &enefits the entire planet.

0nother issue is that many pro'ects receiing funding )ould hae taken place )ithoutthe additional funding from car&on offsets, )hich means the condition of=additionality> set &y the @nited ations is not met. ome interesting articles on thistopic can &e found athttp:;;))).&usiness)eek.com;maga*ine;content;84T1!;&$8248%4.htmandhttp:;;))).csmonitor.com;288;8%23;p8s81#com.html.

(he ederal (rade Commission is concerned a&out the enironmental claimsmarketers make a&out their =car&on#neutral> status and reexamined its enironmentalmarketing guidelines, referred to as the Ireen Iuides, )ith specific emphasis oncar&on offsets and rene)a&le energy certificates. 0 )orkshop )as held in early 288,and comments can &e ie)ed athttp:;;))).ftc.go;os;comments;car&on)orkshop;index.shtm.

Tra-e6 B%#e: Marke!"# *' (e N&*er

ot all customers pay their &ills on time, )hile others are considered to &e extremelyhigh maintenance. imply getting rid of customers that fall into these categories is notal)ays the ans)er. 5o) )ill alued customers ie) the policyF "t is neer easy for a&usiness to try to assess the alue of customers, particularly the long#term alue of thecustomer. "t is possi&le to use a fairly simple net present alue calculation. (o determinea &asic customer lifetime alue, each stream of profit is discounted &ack to its presentalue and then totaled. (he &asic eBuation for calculating net present alue +V- is asfollo)s:


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?here,

t# time of the cash flo)

N# total customer lifetime

r# discount rate

$t# net cash flo) +the profit- at time t+(he initial cost of acBuiring a customer)ould &e a negatie profit at time 8.-

V can &e calculated easily on most financial calculators or &y using one of thecalculators aaila&le on the "nternet, such as the one found at

http:;;))).inestopedia.com;calculator;etresentValue.aspx. or more discussion of

the financial and Buantitatie implications of marketing decisions, see 0ppendix 2,Marketing &y the um&ers.

1. 0ssume that a trade customer spends an aerage of R1%8 a )eek and that the retailerearns a fie percent margin. Calculate the customer lifetime alue if this shopperremains loyal oer a ten#year lifespan, assuming a fie percent annual interest rateand no initial cost to acBuire the customer.

nswer/

@sing the calculator on the ?e& site, the alue of the trade customer oer the 18

year period is R1,1%.2.

2. Discuss ho) a &usiness can increase a customer9s lifetime alue.

nswer/

tudents )ill suggest a num&er of retention strategies and )ays in )hich the&usiness could seek to increase the monthly spending of the customer. (his )ouldinclude offering su&sidiary serices and trying to sell them additional products andserices through targeted promotions.

GREAT IDEAS

Barr!er . E$$e,!-e Lear"!"#

1. or most students, this )ill &e their first introduction tomarketing and all its ramifications. (o most of them, marketing is nothing morethan selling and;or adertising, and this gets reinforced daily )hen they see


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=marketing> 'o& ads that are really sales positions. "t helps to get students talkinga&out )hat marketing is, and to gie examples of )hat they think is really goodmarketing. (ry to &ring in contemporary examples that the students can relate to.

2. Auilding relationships can sometimes &e easy to understand ina &usiness#to#&usiness transaction, &ut it can &e much more difficult to

comprehend in consumer &usinesses. @se examples such as 0ma*on.com that doa )onderful 'o& of deeloping one#on#one relationships )ith millions ofcustomers through their tracking of customer purchases and analysis of thesepurchases to recommend additional items. 0sk students to discuss ho) they feela&out the companies they &uy from. 5ae any deeloped relationships )ith themthat hae made them loyal to the &rand or storeF

!. ocietal marketing is something that can &e a little unclear tostudents. ?hy should fast food chains, for instance, &e responsi&le for thenation9s o&esity +'ust one ery topical discussion point-F @nderstanding ho) oneshould &alance the need for profits )ith )hat some might consider &eing =soft>issues can &e difficult at times. 0nd that can &e made een more difficult among

the politically#astute students, as they can easily lead the class into a left ersusright discussion on indiidual ersus corporate ersus goernmentalresponsi&ility. (ry to not let that happen, instead focusing on ho) companies canactually increase their reenue and profits &y sho)ing that they care a&out theircustomers and their communities. e)man9s 6)n is a &rand that could &ediscussed, as most profits are donated to charities, and they hae moed stronglyinto ensuring a sustaina&le enironment.

$. (raditional#age undergraduates hae spent their entire lies)ith technology, and so some of them can actually snicker )hen the discussionturns to ho) technology has changed &usiness in general and marketing morespecifically. 0 discussion of the difficulties of connecting to consumers )ithoutthe "nternet is )arranted. 5o) )ould the students approach a one#on#onerelationship )ith millions of customers if they didn9t hae email or the "nternet or&last faxesF

%. 0t this stage, students are ery apprehensie a&out the course.?hen they )alked into class, they thought they might learn a&out selling andadertising, and no) they9e discoered that there is much more to marketingthan 'ust those t)o su&'ects. (alking a&out ho) much fun it is to &e the center ofthe company, and kno)ing more a&out customers than any other functional areain the company, can sometimes ease their minds and make them look for)ard tolearning more. Emphasi*ing that marketing com&ines &oth the analytical and thecreatie can also ease some tension. (he accounting and finance ma'ors )ill findthat there is something in it to suit their more analytical frame of reference, andthe artists and designers )ho hope to &ecome fashion maens can also restassured that although they )ill need to understand the more logical areas of thesu&'ect, their intuition can still reign supreme.

S%e" Pr.+e,


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1. ?hat does the term =marketing> mean to youF (hink a&out an automo&ile you)ould like to hae +realistically- )hen you graduate. ?rite a&out ho) each phaseof the marketing process is addressed &y that ehicle

2. ?hy is it important to truly understand the customerF Make a list of 18 =)ants>that you hae. ?hat )ould hae to occur to moe each of these from =)ants> to

=needsF>!. ot eeryone can &e part of your market. Io take a look at 0AC online+))).a&c.com-. ?ho )ould you say is their marketF ?hyF

$. eie) the fie alternatie concepts under )hich organi*ations design and carryout their marketing strategies. o), take a look at one of the auto dealers in yourto)n. ?hich one of these fie concepts do you &eliee they are typicallyemployingF ?hyF

%. (hink of a product or retailer to )hich you are loyal. ?hat has caused thisloyaltyF ?hat could a competing product;retailer do to &reak this loyaltyF

S&a66 Gr.) A!#"&e"

orm students into groups of three to fie. Each group should read the opening ignetteto the chapter on /appos. Each group should ans)er the follo)ing Buestions:

.1 5o) has /appos managed to create such intense customer loyaltyF

.2 ?hat can they do to ensure customer loyalty remains at current high leelsF

Each group should then share its findings )ith the class.

I"%!-!%a6 A!#"&e"

Companies are reali*ing that losing a customer means more than losing a single sale. "tmeans losing a stream of reenue from that customer oer their lifetime. eread thestory of te) Neonard +under Capturing Value from Customers-.

"s it possi&le to take his idea of =the customer is al)ays right> too far so that it &ecomes anegatie on the companyF ?hy or )hy notF

T(!"k8Pa!r8S(are

Consider the follo)ing Buestions, formulate an ans)er, pair )ith the student on yourright, share your thoughts )ith one another, and respond to the Buestions from theinstructor. (hese Buestions could also &e gien as out#of#class assignments.

1. Do marketers create needsF2. ?hat is Nexus9 alue propositionF!. 5o) is marketing different from sellingF$. ?hat are t)o companies )ith )hich you hae an emotional &ondF Descri&e that

&ond.


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C6ar..& E5er,!e/H.&e.rk A!#"&e"

ie core customer and marketplace concepts are critical to success: +1- needs, wants,and demands +2- marketing offers (products, services, and experiences) +!-value andsatisfaction +$- exchanges and relationships and +%- markets.

(ake a look at ea ay &oats +))).searay.com-. 0ns)er the follo)ing Buestions:

1. ?hat needs, )ants, and;or demands is ea ay attempting to fillF2. Descri&e their marketing offers.!. 5o) are they proiding alueF$. Descri&e the relationships they hae )ith their customers.%. ?hat are their marketsF

C6ar..& Ma"a#e&e" Srae#!e

(he first chapter of this text&ook sets the stage for the rest of the content. "t outlines thema'or topics and principles that )ill &e discussed in each of the follo)ing chapters, andgies the student a good grounding in )hat to expect in their 'ourney into the )orld ofmarketing.

irst classes are al)ays difficult, &oth for the instructor and for the student. (herefore,using examples that students can relate to easily is al)ays a good idea )hen starting out.

"n reie)ing the material in class, a good )ay to &reak it do)n follo)s. (his assumes atypical one#hour structure if the class is longer, you can )ork through the Marketing0pplication in class. "f shorter, you can either &reak the chapter oer t)o sessions, orshorten each topic9s allotted discussion time.

1. (en minutes should &e spent on discussing )hat marketing really is. Manystudents )ill come into class thinking they are going to &e learning all a&outadertising, or all a&out selling. 0sk students to talk a&out )hat they thinkmarketing is, and to use examples of )hat they9e encountered in their o)n lies.

2. (en minutes can also &e spent on the second ma'or topic of the chapter,understanding the marketplace and consumer needs. Discussing the differences ofneeds, )ants, and demands, and ho) they relate to marketing, can greatly enhancethe students9 understanding of the &asis of marketing. 0lso included in thissection are the notions of marketing offers, satisfaction, and relationships. Houcan discuss the arious )ays companies deelop relationships )ith theircustomers. @sing 0ma*on.com, the company discussed in the opening pages ofthe chapter, can really help the students understand that a company )ith millionsof customers can still easily deelop relationships )ith each and eery one ofthem.

!. 0nother 18 minutes can &e spent on designing customer#drien marketingstrategies. Many students )ill still not understand ho) needs, )ants, and demands


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can drie companies9 product deelopment, &ut this section of the chapter )illhelp them see it a little more clearly.

$. reparing a marketing plan and program can &e coered in % minutes. (his sectionsho)s ho) eerything they learn in marketing )ill &e pulled together, &ut it is toosoon in the semester to &e spending a lot of time on the topic.

%. Customer relationships are the heart of the chapter and the entire text. pend 1%minutes discussing this topic, and use examples that the students )ill appreciate.Discussing the difference in the relationships they hae )ith their hairdresser or&ar&er and that of ))).ama*on.comor another one of the "nternet merchants candrie home the importance of holding on to good customers. tudents )ill also &e)ell a)are of freBuency marketing programs, and examples of those )ill also &e&eneficial.

. (he final 18 minutes can &e spent discussing the future of marketing and thedeelopment of customer relationships. pend time talking a&out the recenteconomic meltdo)n and ho) it has impacted our &usiness. ext, remem&er thatthe ma'ority of students )ill neer hae kno)n an era )ithout the "nternet.

0sking them ho) they )ould hae deeloped relationships )ith their customers)ithout the assistance of technology is a good )ay to get a discussion started onho) marketing programs are deeloped. (hen you can talk a&out ho) the adentof email and the "nternet has opened the entire )orld for een a small retailer, as)ell as raised some ethical issues, such as the marketing of the 0merican cultureto the entire )orld, regardless of their societies9 mores and culture.

"f time permits, reisit the Buestion of =)hat is marketingF> (he students should no)hae a greater appreciation of the science &ehind marketing, as )ell as the creatiitynecessary to deelop successful marketing programs.
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