CHAPTER 1
Marketing: Creating and Capturing
Customer Value
Objective: Introducing the basic concepts
and philosophies of marketing.
What is Marketing?
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Marketing is the management of creating and
exchanging products and value in order to
satisfy the needs and wants at a profit.
The goal of marketing is;
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to attract new customers by promising superior value
(e.g. Ritz-Carlton “memorable experiences”, “Always Coca Cola”)
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to keep and grow current customers by delivering
satisfaction.
What is Marketing?
 Marketing
is managing profitable
customer relationships
 Marketing
is NOT synonymous with
“sales” or “advertising”
What Can Be Marketed?
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Goods
Services (information, experiences ...)
Places
Events
Persons
Properties
Organizations
Ideas
The Marketing Process
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Figure 1-1
A simple model
of the marketing
process.
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Core Concepts of Marketing
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Needs, wants, and demans
Marketing offers (products, services etc.)
Value and satisfaction
Exchange, transactions and relationships
Markets
Needs, Wants, and Demands
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Consumers have needs (physical, social,
individual etc.) wants, and demands to be
satisfied. Consumers view products as bundles
of value (benefits) and choose products that
give them the best value for their money. E.g.
Honda Civic  transportation, low price, fuel
economy; Mercedes  comfort, luxury, status
Products
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A product (persons, places, organizations, activities,
ideas) is anything that can satisfy a need or want.
Producers must see themselves as providing a
solution to a need rather than just selling a product.
Otherwise, when a new product satisfies the needs
better or less expensively, they would not make
money.
Research is a must to understand the needs and wants
of the customers to produce the right product. E.g.
At Disney World, each manager spends a day in the park in a
Mickey costume or work on the front line - taking tickets,
selling pop-corn.
Value, Satisfaction, and Quality
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How do customers choose among these many
products? Consumers make choices based on;
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Value; is the difference between owning the product
and the cost of obtaining the product, in an way
“profit” to the customer. Customers do not judge
product values objectively, on the contrary they act
on perceived value. E.g. Is Hilton really the best
hotel company?
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Satisfaction; is the difference between the
product’s performance and buyer’s expectations.
If the product’s performance falls short of
expectations, the buyer is dissatisfied. If the
performance matches or exceeds expectations,
the buyer is satisfied. Smart companies aim to
satisfy customers by promising only what they
can give, then giving more than they promise.
Benefit of satisfying customers: Customer
satisfaction create an emotional tie (customer
loyalty) to a product. Highly satisfied customers
make (1) repeat purchases, (2) are less price
sensitive, (3) talk positively to their friends.
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Quality; simply quality can be defined as
“freedom from defects”. Today, most companies
define quality in terms of customer satisfaction.
E.g. according to Motorola “if the customer
doesn’t like the product, it’s a defect”. Quality
starts with customer needs and ends with
customer satisfaction. The concept of “total
quality management” is in a away “total customer
satisfaction”. Improving the quality of a product
that customers want increases customer
satisfaction, therefore increases profit.
Exchange, Transactions, and
Relationships
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Marketing occurs when people decide to satisfy needs
and wants through exchange.
Exchange (transaction) is the act of getting an object
(product, service, idea …) from someone by giving
something in return.
Marketing should create mutually beneficial
relationships (good for both parties) to generate
profitable transactions.
Marketing is the art of attracting and keeping profitable
customers.
Markets
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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 exchanges and relationships.
The size of the market depends on the
number of people (1) who have the need, (2)
have resources (money) for the exchange and
(3) want to spend these resources in the
exchange.
In summary,
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Marketing means managing markets to bring
about exchanges and relationships for the
purpose of creating value and satisfying needs
and wants while making profit.
Exchange process involve work. Marketers must
identify customer needs, design right products,
set right prices, promote and deliver (place) the
products in the right ways.
Marketing Management
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Marketing management is “the art and
science of choosing target markets and
building profitable relationships with them.”
 Creating, delivering and communicating
superior value is key.
Marketing Management
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Customer management:
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Marketers select customers that can be served well
and profitably.
Demand management:
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Marketers must deal with different demand states
ranging from no demand to too much demand.
Marketing Management
Philosophies
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There are five concepts that organizations
conduct their marketing activities:
Production,
 Product,
 Selling,
 Marketing
 Societal marketing concepts.
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The Production Concept
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The Production Concept; holds that consumers will
favor products that are available and highly
affordable. Here, the management focus on
improving production and distribution. This
oldest philosophy is useful in two types of
situation. (1) when the demand for a product
exceeds the supply (2) when the product’s cost is
too high and improved productivity is needed to
bring it down. E.g. Henry Ford’s “Model T”, TI
watches.
The Product Concept
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The Product Concept; holds that consumers favor
products that offer the most quality,
performance and innovative features. Here, the
organization should focus on making
continuous product improvement.
The Selling Concept
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The Selling Concept; holds that consumers do not
buy enough products if there are not large-scale
selling and promotion effort. Most companies
use the selling concept when they have
overcapacity. This concept focuses on creating
sales transactions rather than on building longterm, profitable relationships with customers.
The Marketing Concept
 The Marketing Concept; holds that achieving
organizational goals (making profit) depends on
understanding the needs and wants of target
markets and delivering the desired satisfactions
more effectively and efficiently than competitors
do. E.g. Disney, McDonald’s, Bosch… are
customer-driven companies.
The Societal Marketing Concept
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The Societal Marketing Concept; holds that the organization
should not only satisfy the needs and wants but also
improve both customer’s and society’s well-being. This
newest philosophy focus on customer long-term
welfare, since today we have environmental problems,
resource shortages, population growth etc. E.g. Critics
against fast-food restaurants that food has a lot of fat
and salt harmful for health, a lot of packaging
increasing waste and pollution. Here, the companies try
to balance (1) company profits, (2) consumer wants, (3)
society’s interests.
CRM
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Attracting, retaining and growing customers
Customer value and satisfaction
 Loyalty and retention
 Growing customer share (cross-selling)
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Building relationships and customer equity
 Customer equity: Total combined customer
lifetime values of all customers (e.g. Cadillac –
high-performance designs that target a younger
generation of consumers). Measures firm’s
performance in a future-looking manner.