Marketing Management
Needs, Wants & Demands
Needs are the basic human requirements. People need
food, air, water, clothing and shelter to survive. People
also have strong needs for recreation, education, and
entertainment. These needs become wants when they are
directed to specific objects that might satisfy the need.
Demands are wants for specific products backed by an
ability to pay. Many people want a Mercedes; only a few
are willing and really able to buy one because of its high
cost.
Marketers do not create needs: Needs pre-exist
marketers. Marketers, along with other societal factors,
influence wants.
Marketers might promote the idea that a Mercedes
would satisfy a person’s need for social status. They do
not, however, create the need for social status.
We can distinguish among five types of needs:
1. Stated needs (the customer wants an inexpensive car).
2. Real needs (the customer wants a car whose operating
cost, not its initial price, is low).
3. Unstated needs (the customer expects good service
from the dealer).
4. Delight needs (the customer would like the dealer to
include an onboard navigation system).
5. Secret needs (the customer wants to be seen by friends
as a savvy consumer).
What is Marketing?
Marketing deals with identifying and meeting human
and social needs. One of the shortest definitions of
marketing is “meeting needs profitably.”
“Marketing is an organizational function and a set of
processes for creating, communicating, and delivering
value to customers and for managing customer
relationships in ways that benefit the organization and
its stake holders”.
Marketing Management is the art and science of
choosing target markets and getting, keeping, and
growing customers through creating, communicating
and
delivering
superior
customer
value.
The aim of marketing is to know and understand the
customer so well that the product or service fits him
and sells itself. Ideally, marketing should result in a
customer who is ready to buy. All that should be
needed then, is to make the product or service
available.
What is Marketed?
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Goods
Services
Events
Experiences
Persons
Places
Properties (real or financial properties)
Organizations
Information
Ideas
Who Markets?
A marketer is someone who seeks a response (attention,
a purchase, a vote, a donation) from another party, called
the prospect.
Marketers are responsible for demand management.
Marketing managers seek to influence the level, timing
and composition of demand to meet the organization’s
objectives.
Eight demand states are possible:
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Negative demand
Nonexistent demand
Latent Demand
Declining Demand
Irregular Demand
Full Demand
Overfull Demand
Unwholesome Demand
Structure of Flows in a Modern
Exchange Economy
Resources
Resources
Resource Markets
Money
Taxes,
Goods
Services,
Money
Services, Money
Manufacturer Markets
Taxes
Government Markets
Taxes, Goods
Services,
Money
Consumer Markets
Services
Taxes,
Goods
Money
Goods and Services
Money
Intermediary Markets
Money
Goods and Services
Key Customer Markets
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Consumer Markets
Business Markets
Global Markets
Nonprofit and Governmental Markets
A Simple Marketing System
Communication
Goods/Services
Industry
(a collection of sellers)
Market
( a collection of buyers)
Money
Information
MARKETPLACES, MARKETSPACES
&
METAMARKETS
The marketplace is physical as when you shop in a store;
marketspace is digital, as when you shop on the Internet.
Metamarket is the concept to describe a cluster of
complementary products and services that are closely
related in the minds of consumers but are spread across a
diverse set of industries, e.g., automobile metamarket,
travel metamarket etc.
HOW BUSINESS AND MARKETING
ARE CHANGING
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Changing Technology
Globalization
Deregulation
Privatization
Customer empowerment
Customization
Heightened Competition
Industry Convergence
Retail Transformation
Disintermediation
THE MARKETING CONCEPT
Production Concept – Product Concept – Marketing Concept
The job is not to find the right customers for your
products, but the right products for your customers. The
marketing concept holds that the key to achieving
organizational goals consists of the company being more
effective than competitors in creating, delivering and
communication superior customer value to its chosen
target markets.
Selling focuses on the needs of the seller; marketing on
the needs of the buyer.
Reactive market orientation – understanding and meeting
customers’ expressed needs.
Proactive marketing orientation - high-level innovation is
possible if the focus is on customers latent needs.
Companies that practice both a reactive and proactive
marketing orientation are implementing a total market
orientation and are likely to be the most successful.
MARKETING OVERVIEW
Marketing
Orientation
Marketing
Issues
Marketing
Management
Markets &
Marketing
The Marketing
Mix
Marketing
& Society
Arriving at a definition of Marketing
Customer Needs
Identifying
Marketing
Anticipating
Supplying
Mutually beneficial
exchange
Firm’s objectives
DEFINITION - MARKETING
Marketing is the management process
responsible for:
identifying
anticipating &
satisfying customer requirements
and profitably.
efficiently
SELLING & MARKETING CONCEPTS
CONTRASTED
Starting
point
Focus
Means
End
Sales
Factory
Orientation
Existing
Products
Selling +
Promoting
Profit through
sales volume
Marketing Market
Orientation
Customer
needs
Integrated
Marketing
Profit through
customer
satisfaction
Relationship of Marketing
& other departments
Holistic Marketing Concept
• Relationship Marketing
• Integrated marketing
• Internal Marketing
• Social Responsibility Marketing
Holistic Marketing Dimensions
Marketing
Management
Senior
Management
Communications
Other
Departments
Products &
Services
Channels
Integrated
Marketing
Internal
Marketing
Holistic
Marketing
Relationship
Marketing
Socially
Responsible
Marketing
Ethics
Environment
Legal Community
Customers
Channel
Partners
Relationship Marketing
The operating principle is simple:
Build an effective network of relationships with
key stakeholders, and profits will follow.
Integrated Marketing
Four Ps
Four Cs
Product
Price
Place
Promotion
Customer Solution
Customer Cost
Convenience
Communication
Marketing Mix
Product
Product
Variety
Quality
Design
Features
Brand Name
Packaging
Sizes
Services
Warranties
Returns
Target Market
Price
List Price
Discounts
Allowances
Payment Period
Credit Terms
Place
Channels
Coverage
Assortments
Locations
Inventory
Transport
Promotion
Sales Promotion
Advertising
Sales Force
Public Relations
Direct Marketing
Personal Selling
Communications Mix
Advertising
Sales Promotion
Offering Mix
Company
Products
Services
Prices
Events and
Experiences
Public Relations
Direct Marketing
Personal Selling
Distribution
Channels
Target
Customers
INTERNAL MARKETING
Internal marketing is the task of hiring, training
and motivating able employees who want to serve
customers well. Other than various marketing
functions working together, the various
departments should also work together to serve
the customers well.
Xerox goes so far as to include in every job
description an explanation of how that job affects
the customer.
SOCIAL RESPONSIBILITY
MARKETING
Are companies that do an excellent job of
satisfying customer wants, necessarily acting in
the best long term interests of consumers and
society? Example: selling ‘ammonia free’ hair
dye.
Marketers
should
understand
ethical,
environmental, legal and social context of
marketing activities.
Many consumers do not know what they want in a
product. Consumers did not know much about
cellular phones when they were first introduced.
Nokia and Ericsson fought to shape consumer
perceptions of cellular phones. Consumers were in a
learning mode and companies forged strategies to
shape their wants.
Simply giving customers what they want isn’t
enough any more – to gain an edge, companies
must help customers learn what they want.
Target Markets, Positioning & Segmentation
A marketer can rarely satisfy everyone in a market. The
marketer decides which segments present the greatest
opportunity - which are its target markets.
For each chosen target market, the firm develops a
market offering. The offering is positioned in the minds
of the target buyers as delivering some central benefit.
Offerings & Brands
Companies address needs by putting forth a value
proposition, a set of benefits they offer to
customers to satisfy their needs.
A brand is an offering from a known source. A
brand name carries many associations in the
minds of people. These associations make up the
brand image.
Value & Satisfaction
The Offering will be successful if it delivers value and satisfaction to
the target buyer. Value reflects the perceived tangible and intangible
benefits and costs to customers. Value can be seen as primarily a
combination of Quality, Service and Price (QSP), called the
“Customer Value Triad.” Value increases with quality and service and
decreases with price, although other factors can also play an
important role.
Satisfaction reflects a person’s comparative judgments resulting
from a product’s perceived performance (or outcome) in relation to
his or her expectations. If the performance falls short of
expectations, the customer is dissatisfied and disappointed. If the
performance matches the expectations, the customer is satisfied. If
the performance exceeds expectations, the customer is highly
satisfied or delighted.
Marketing Channels
To reach a target market, the marketer uses three kinds of marketing
channels. Communication channels deliver and receive messages
from target buyers, and include newspapers, magazines, radio,
television, mail, telephone, billboards, posters, fliers, CDs,
audiotapes and the Internet. Beyond these, communications are
conveyed by facial expressions and clothing, the look of retail stores,
and many other media. Marketers are increasingly adding dialogue
channels(e-mail and toll-free numbers) to counterbalance the more
normal monologue channels (such as ads).
The marketer uses distribution channels to display, sell or
deliver the physical product or service to the buyer or
user. They include distributors, wholesalers, retailers and
agents.
The marketer also uses service channels to carry out
transactions with potential buyers. Service channels
include warehouses, transportation companies, banks
and insurance companies that facilitate transactions.
Supply Chain
Whereas marketing channels connect the marketer to
the target buyers, the supply chain describes a longer
channel stretching from raw materials to components
to final products that are ultimately carried to final
buyers.
Competition
Competition includes all the actual and
potential rival offerings and substitutes that a
buyer might consider.
Marketing Environment
The marketing environment consists of the task environment and
the broad environment.
The task environment includes the immediate actors involved in
producing, distributing and promoting the offering. The main actors
are the company, suppliers, distributors, dealers, and the target
customers. Included in the supplier group are material suppliers and
service suppliers such as marketing research agencies, advertising
agencies, banking and insurance companies, transportation
companies and telecommunications companies. Included with
distributors and dealers are agents, brokers, manufacturer
representatives and others who facilitate finding and selling to
customers.
The broad environment consists of six components:
demographic environment, economic environment,
physical environment, technological environment,
political-legal environment and social-cultural
environment.
These environments contain forces that can have a
major impact on the actors in the task environment.
Market actors must pay close attention to the trends
and developments in these environments and make
timely adjustments to their marketing strategies.
Marketing Planning
The marketing planning process consists of:
analyzing marketing opportunities
selecting target markets
designing marketing strategies
developing marketing programs
managing the marketing effort.
Shifts in Marketing Management
Here are 14 major shifts in marketing management that
smart companies have been making in the twenty-first
century.
 From Marketing does the marketing - to everyone does
the marketing
 From organizing by product units - to organizing by
customer segments
 From making everything - to buying more goods and
services from outside.
 From using many suppliers - to working with fewer
suppliers in a “Partnership”
 From relying on old market positions - to uncovering
new ones.
 From emphasizing tangible assets - to emphasizing
intangible assets
 From building brands through advertising - to building
brands
through
performance
and
integrated
communications
 From attracting customers through stores and
salespeople - to making products available online.
 From selling to everyone - to trying to be the best firm
serving well-defined target markets.
 From focusing on profitable transactions - to
focusing on customer lifetime value.
 From a focus on gaining market share - to a focus
on building customer share
 From being local - to being “Glocal” – both global
and local
 From focusing on the financial scorecard - to
focusing on the marketing scorecard.
 From focusing on shareholders - to focusing on
stakeholders.
Marketing Management Tasks
Developing Marketing Strategies and Plans
Capturing Marketing Insights
Connecting with Customers
Building Strong Brands
Shaping the Marketing Offerings
Delivering Value
Communicating Value
Creating Long Term Growth
4 Ps of Marketing
Product (or, service)
Price
Place
Promotion
Product
Tangible product
Intangible product (service)
Combination of both
Price
When setting prices, companies must think about the
following aspects.
Costs
The level of competitor’s prices.
The effect of price on consumers’ perceptions.
Market conditions
Place
If you cannot get in touch with your customers, you cannot sell
anything. For many products, organizations must rely on third
parties to reach the customer. These third parties are collectively
known as middlemen and the access they provide is called
distribution channels.
a) Merchants take title to the goods, that is they become owners of
the goods. They then resell them. Wholesalers and retailers are in
this category.
b) Agents and brokers do not own the goods, but merely assist in
the transfer of ownership from, say, the manufacturer to the
customer.
Promotion
Marketing Communications :
Sales promotion activities
Advertising
Personal selling
Publicity
Direct mailing etc.
The Marketing Mix for Services
A service is any activity or benefit offered by one party
to another which is essentially intangible and does not
result in the ownership of anything physical. An
example is a seat on an aircraft, which the customer
uses for the duration of the flight but does not own.
The special characteristics of Services
Intangibility
Variability
Inseparability
Lack of Ownership
Additional 3Ps
Process
User-Friendly systems for selling and buying are
essential.
Physical Evidence
Services tend to suffer from the intangible nature of the
offering. Organizations in the service sector are
increasingly using devices such as newsletters (often via
e-mail) to maintain the customer’s desire to have the
service.
People
For most services, a key element is the people who
are an integral part of the process. If the staff who
deal with customers are poorly motivated or badly
trained, this can greatly affect the quality of the
service.
The Value Chain
Michael Porter of Harvard has proposed the vale chain as
a tool for identifying ways to create more customer
value.
The firm’s success depends not only on how well each
department performs its work, but also on how well the
various departmental activities are coordinated to
conduct core business processes.
The Value Delivery Process
The smart competitor must design and deliver offerings
for well-defined target markets.
Instead of emphasizing making and selling, these
companies see themselves as part of a value delivery
process.
The value delivery process begins before there is a
product and continues while it is being developed and
after it becomes available.
 Zero customer feedback time
 Zero product improvement time.
 Zero Purchasing time.
 Zero setup time.
 Zero defects.
“3 Vs” approach to marketing:
 Define the value segment or customers (and his/her
needs)
 Define the value proposition
 Define the value network that will deliver the promised
service.
Two Views of the Value Delivery Process
The market sensing process.
The new offering realization process.
The customer acquisition process.
The customer relationship management process.
The fulfillment management process.
As Wal-Mart stores sell their goods, sales information
flows via computer not only to Wal-Mart’s headquarters,
but also to Wal-Mart’s suppliers, who ship replacement
merchandise to the stores almost at the rate it moves off
the shelf.
At Xerox, a Customer Operations Group links sales,
shipping, installation, service and billing so that these
activities flow smoothly into one another. Winning
companies are those that excel at managing core
business processes through cross-functional teams.
Core Competencies
Many companies today outsource less critical resources if they can
be obtained at better quality or lower cost.
Nike, for example, does not manufacture its own shoes, because
certain Asian manufacturers are more competent in this task; Nike
nurtures its superiority in shoe design and shoe merchandising, its
two core competencies. We can say that a core competency has
three characteristics:
 It is a source of competitive advantage in that it makes a
significant contribution to perceived customer benefits
 It has applications in a wide variety of markets
 It is difficult for competitors to imitate.
Competitive advantage ultimately derives from how
well the company has fitted its core competencies
and distinctive capabilities into tightly interlocking
“activity systems”.
Competitors find it hard to imitate companies such
as Dell, or IKEA because they are unable to copy
their activity systems.
A Holistic Marketing Orientation &
Customer Value
The holistic marketing framework is designed to address
three key management questions:
 Value exploration – How can a company identify new
value opportunities (Customer/Co. /Collaborator).
 Value creation – How can a company efficiently create
more promising new value offerings? (Business
Concept/Business Scope/Re-positioning)
 Value delivery – How can a company use its capabilities
and infrastructure to deliver the new value offerings
more efficiently? (CRM/Internal Resource
management/Business Partnership management)
Value Exploration
The customer’s cognitive space
Existing and latent needs such as the need for
participation, stability, freedom and change.
The company’s competence space
Breadth: broad versus focused scope of business
Depth: physical versus knowledge-based capabilities
The collaborator’s resource space
Horizontal partnerships, where companies choose
partners based on their ability to exploit related market
opportunities and vertical partnerships, where
companies choose partners based on their ability to
serve their value creation.
Value Creation
 Defining the business concept (the “big idea”)
 Shaping the business scope (the lines of business)
 Positioning the company’s brand identity
 (how customers should see the company)
Value Delivery
 Customer Relationship Management
 Internal Resource Management
 Business partnership Management
Building Customer Value, Satisfaction and Loyalty
Customer Perceived Value
Customer perceived value (CPV):
It is the difference between the prospective
customer’s evaluation of all the benefits and all the
costs of an offering and the perceived alternatives.
Total customer value:
It is the perceived monetary value of the bundle of
economic, functional, and psychological benefits
customers expect from a given market offering.
Total customer cost:
It is the bundle of costs customers expect to incur
in evaluating, obtaining, using and disposing of the
given market offering, including monetary, time,
energy and psychic costs.
Determinants of Customer-Delivered Value
The marketer can increase the value of the
customer offering by some combination of raising
functional or emotional benefits and /or reducing
one or more of the various types of costs.
Delivering High Customer Value
The ‘Value Proposition’ consists of the whole cluster
of benefits the company promises to deliver; it is
more than the core positioning of the offering. For
example, Volvo’s core positioning has been “safety,”
but the buyer is promised more than just a safe car;
other benefits include a long-lasting car, good service
and a long warranty period.
Too many companies create a ‘value gap’ by failing
to align brand value with customer value.
Total Customer Satisfaction
Whether the buyer is satisfied after purchase
depends on the offer’s performance in relation to
the buyer’s expectations.
Ultimately, the company must operate on the
philosophy that is trying to deliver a high level of
customer satisfaction subject to delivering
acceptable levels of satisfaction to the other
stakeholders, given its total resources.
Customer Expectations
Some of today’s most successful companies are
raising expectations and delivering performances
to match.
A customer’s decision to be loyal or to defect
depends on the sum total of a large number of
small encounters with the company. These
encounters need to result in positive outcome and
should lead to some memorable customer
experience.
Measuring Satisfaction
A company would be wise to measure customer
satisfaction regularly because one key to customer
retention is customer satisfaction.
Periodic surveys can track customer satisfaction
directly.
Companies can monitor the customer loss rate and
contact customers who have stopped buying or who
have switched to another supplier to learn why this
happened.
Companies can hire ‘mystery shoppers’ to pose
as potential buyers and report on strong and weak
points experienced in buying the company’s and
competitors’ products.
Such practice should also be done by company
executives, keeping their identity secret.
For customer-centered companies, customer
satisfaction is both a goal and a marketing tool.
Total Quality Management
Total Quality Management (TQM) is an
organization-wide
approach
to
continuously
improving the quality of all the organization’s
processes, products and services.
Product and service quality, customer satisfaction
and company profitability are intimately connected.
Higher levels of quality result in higher levels of
customer satisfaction. Which support higher prices
and (often) lower costs. Studies have shown a high
correlation between relative product quality and
company profitability.
Conformance Quality vs. Performance Quality
Some companies now concentrate their efforts
on “return on quality” or ROQ.
ROQ adherents advocate improving quality only
on those dimensions that produce tangible
customer benefits, lower costs or increased sales.
This bottom-line orientation forces companies to
make sure that the quality of the product offerings
is in fact the quality consumers actually want.
Maximizing Customer Lifetime Value
Ultimately, “marketing is the art of attracting and
keeping profitable customers”. Yet every company
loses money on some of its customers. The wellknown 20-80 rule says that the top 20 percent of the
customers may generate as much as 80 percent of
the company’s profits.
This rule is rather 20-80-30 rule to reflect the idea
that the top 20 percent of customers generate 80
percent of the company’s profits, half of which are lost
serving the bottom 30 percent of unprofitable
customers. The implication is that a company could
improve its profits by “firing” its worst customers.
It is also not necessary that company’s largest
customers will yield max. profit.
Customer Profitability
A profitable customer is a person, household or
company that over time yields a revenue stream
that exceeds by an acceptable amount the
company’s cost stream of attracting, selling and
servicing that customer.
Emphasis is on the lifetime stream of revenue
and cost, not on the profit from a particular
transaction.
Customer Profitability Analysis
More generally, marketers must segment
customers into those worth pursing versus those
potentially less lucrative customers that should
receive less attention, if any at all.
Moreover, customer portfolio should rather be
managed as in case of Investment Portfolio and
thus one should diversify the customer portfolio
accordingly.
Competitive Advantage
Competitive advantage is a company’s ability to
perform in one or more ways that competitors
cannot or will not match. Michael Porter urged
companies to build a sustainable competitive
advantage. At least it should be a leverageable
advantage that can be used as springboard to new
advantages.
Any competitive advantage must be seen by
customers as a customer advantage.
Measuring Customer Lifetime Value
Customer lifetime value (CLV):
It describes the net present value of the stream of
future profits expected over the customer’s lifetime
purchases. The company must subtract from the
expected revenues the expected costs of attracting,
selling and servicing that customer, applying the
appropriate discount rate.
CLV calculations provide a formal quantitative
framework for planning customer investment and
help marketers to adopt a long-term perspective.
One challenge in applying CLV concepts, however,
is to arrive at reliable cost and revenue estimates.
Customer Equity
Value Equity is the customer’s objective
assessment of the utility of an offering based on
perceptions of its benefits relative to its costs. The
sub-drives of value equity are quality, price and
convenience – objective assessment.
Brand Equity is the customer’s subjective and
intangible assessment of the brand, above and
beyond its objectively perceived value. The subdrivers of brand equity are customer brand
awareness, customer attitude toward the brand and
customer perception of brand ethics – subjective
assessment.
Relationship Equity
It is the customer’s tendency to stick with the
brand, above and beyond objective and
subjective assessments of its worth. Subdrivers of relationship equity include loyalty
programs, special recognition and treatment
program, community-building programs and
knowledge-building programs.
Relationship equity is especially important
where personal relationships count for a lot and
where customers tend to continue with
suppliers out of habit or inertia.
Customer Relationship Management (CRM)
Maximizing customer value means cultivating long
term relationships.
Customer relationship management (CRM) is the
process of managing detailed information about
individual customers and carefully managing all
customer “touch points” to maximize customer Loyalty.
A customer touch point is any occasion on which a
customer encounters the brand and product.
For a hotel, the touch points include reservations,
check-in and check-out, frequent-stay programs, room
service, business services, exercise facilities, laundry
service, restaurants and bars.
Based on what they know about each valued
customer, companies can customize market
offerings, services, programs, messages and
media.
CRM is important because a major driver of
company profitability is the aggregate value of
the company’s customer base.
CRM enables companies to offer individualised
market offerings through ‘mass customisation’.
Mass Marketing Versus One-to-One Marketing
1-to-1 marketing principles applied to CRM Marketing:
Identify your prospects and customers
Differentiate customers in terms of :
- Their needs
- Their value to your company.
Interact with individual customers to improve your knowledge
about their individual needs and to build stronger relationships.
Customize products, services and messages to each
customer
Reducing the rate of customer defection.
Increasing
relationship.
the
longevity
of
the
customer
Enhancing the growth potential of each customer
through “share-of-wallet,” cross selling and upselling. Harley-branded merchandise amounted to
more than $211 million in company sales in 2003.
Making low-profit customers more profitable or
terminating them.
Focusing disproportionate effort on high-value
customers.
Attracting, Retaining and Growing Customers
Suspects are people or organizations who might
conceivably have an interest in buying the
company’s product or service, but may not have the
means or real intention to buy.
The next task is to identify which suspects are really
good prospects – customers with the motivation,
ability and opportunity to make a purchase – by
interviewing them, checking on their financial
standing and so on.
Too many companies suffer from high customer
churn – high customer defection. It is like adding
water to a leaking bucket.
The Customer-Development Process
There are two main ways to strengthen customer retention.
One is to erect high ‘switching barriers’. Customers are less
inclined to switch to another supplier when this would involve
high capital costs, high search costs or the loss of loyalcustomer discounts. The better approach is to deliver ‘high
customer satisfaction’. This makes it harder for competitors to
offer lower prices or inducements to switch.
The best thing a company can do is to make it easy for the
customer to complain. Suggestion forms, toll-free numbers,
Web sites and e-mail addresses allow for quick, two-way
communication. The 3M Company claims that over two-thirds
of its product improvement ideas come from listening to
customer complaints.
Customers who have complained to an organization and had
their complaints satisfactorily resolved tell an average of five
people about the good treatment they received.
Interesting facts that bear on customer retention.
 Acquiring new customers can cost five times more than the
costs involved in satisfying and retaining current
customers. It requires a great deal of effort to induce
satisfied customers to switch away from their current
suppliers.
 The average company loses 10 percent of its customers
each year.
 A 5 percent reduction in the customer defection rate can
increase profits by 25 percent to 85 percent, depending on
the industry.
 The customer profit rate tends to increase over the life of
the retained customer.
Building Loyalty
How much should a company invest in building
loyalty so that the costs do not exceed the gains?
We need to distinguish five different levels of
investment in customer relationship building.
 Basic Marketing
 Reactive Marketing
 Accountable Marketing.
 Proactive Marketing
 Partnership Marketing.
Levels of Relationship Marketing
Reducing Customer Defection
 The company must define and measure its retention
rate.
 The company must distinguish the causes of customer
attrition and identify those that can be managed better.
 The company needs to estimate how much profit it loses
when it loses customers. In the case of an individual
customer, the lost profit is equal to the customer’s
lifetime value.
 The company needs to figure out how much it would
cost to reduce the defection rate. As long as the cost is
less than the lost profit, the company should spend the
money.
Forming Strong Customer Bonds
Adding Financial Benefits
Frequency programs (FPs) are designed to provide
rewards to customers who buy frequently and in substantial
amounts. Frequency marketing is an acknowledgment of
the fact that 20 percent of a company’s customers might
account for 80 percent of its business. Frequency programs
are seen as a way to build long-term loyalty with these
customers, potentially creating cross-selling opportunities in
the process.
Airlines run tiered loyalty programs in which they offer
different levels of rewards to different travelers. They may
offer one frequent-flier mile for every mile flown to
occasional travelers and two frequent-flier miles for every
mile flown to top customers.
Adding Social Benefits
Company personnel work on cementing social bonds with customers by
individualizing and personalizing customer relationships.
Many companies have created Club Membership Programs. Club
membership can be open to everyone who purchased a product or service,
or it can be limited to an affinity group or to those willing to pay a small fee.
Harley – Davidson
The world-famous motorcycle company sponsors the Harley owners Group
(H.O.G), which now numbers 650, 000 members in over 1200 chapters. The
first time buyer of a Harley-Davidson motorcycle gets a free one year
membership. H. O. G. benefits include a magazine called ‘Hog Tales’, a
touring handbook. Emergency road service, a specially designed insurance
program, discount hotel rates and a Fly & Ride program enabling members
to rent Harleys while on vacation. The company also maintains an extensive
Web site devoted to H. O. G., which includes information on club chapters,
events and a special members-only section.
Adding Structural Ties
 Create long-term contracts.
 Charge a lower price to consumers who buy larger
supplies.
 Turn the product into a long-term service.
Customer Database and Database Marketing
Marketers must know their customers. And in order to know
the customer, the company must collect information and store
it in a database and do database marketing.
A customer database is an organized collection of
comprehensive information about individual customers or
prospects that is current, accessible and actionable for such
marketing purposes as lead generation, lead qualification, sale
of a product or service, maintenance of customer relationships.
“Database marketing is the process of building, maintaining
and using customer database and other databases (products,
suppliers, resellers) for the purpose of contacting, transacting
and building customer relationships”.
Using the Database
To identify prospects.
To decide which customers should receive a particular offer.
To deepen customer loyalty
To reactivate customer purchases
To avoid serious customer mistakes.
Database marketing is most frequently used by
business marketers and service providers (hotels,
banks, airlines; and insurance, credit card and
telephone companies) that normally and easily
collect a lot of customer data.
Other types of companies that are in the best
position to invest in CRM are companies that do a lot
of cross-selling and up-selling (e.g., GE and
Amazon) or companies whose customers have
highly differentiated needs and are of highly
differentiated value to the company. It is used less
often by packaged-goods retailers and consumer
packaged goods companies.
The Central Role of Strategic Planning
Successful marketing requires companies to have capabilities
such as understanding & capturing customer value, creating
customer value, delivering customer value, and sustaining
customer value. We start the process with Strategic Planning.
Strategic planning calls for action in three key areas:
The first is managing a company’s businesses as an
investment portfolio.
The second involves assessing each business’s strength by
considering the market’s growth rate and the company’s
position and fit in that market.
The third is establishing a strategy.
For each business, the company must develop a game plan for
achieving its long-run objectives.
The Strategic Planning, Implementation &
Control Processes
Planning
Implementing
CorporatePlanning
Planning
Corporate
Organizing
Organizing
Division Planning
Planning
Division
Implementing
Implementing
Controlling
Measuring results
results
Measuring
Diagnosing results
results
Diagnosing
Business Unit
Unit
Business
Planning
Planning
Product Planning
Planning
Product
Taking Corrective
Corrective
Taking
Action
Action
The marketing plan is the central instrument for directing
and coordinating the marketing effort.
Strategic marketing plan lays out the target markets and
the value proposition that will be offered, based on an
analysis of the best market opportunities.
Tactical marketing plan specifies the marketing tactics,
including product features, promotion, merchandising,
pricing, sales channels and service.
Corporate and Division Strategic Planning
All corporate headquarters undertake four planning activities:
 Defining the corporate mission
 Establishing strategic business units
 Assigning resources to each SBU
 Assessing growth opportunities
Defining the Corporate Mission
Good mission statements have three major
characteristics:
 They focus on a limited number of goals.
 Mission statements stress the company’s major policies and
values.
 They define the major competitive spheres within which the
company will operate.
• Industry
• Products and Applications.
• Competence
• Market Segment
• Vertical
• Geographical
Defining the Business
A business must be viewed as a customer-satisfying
process, not a goods-producing process.
Levitt encouraged companies to redefine their
businesses in terms of needs, not products.
It highlights the difference between a target market
definition and a strategic market definition.
Product-Oriented Versus Market
Oriented Definitions of a Business
Company
Product Definition
Market Definition
Missouri-Pacific Railroad
We run a railroad.
We are a people-and-goods mover.
Xerox
We make copying equipment.
We help improve office productivity
Standard Oil
We sell gasoline.
We supply energy.
Columbia Pictures
We make movies.
We market entertainment.
Encyclopaedia Britannica
We sell encyclopedias.
We distribute information.
Carrier
We make air conditioners and furnaces.
We provide climate control in the home
Large Companies normally manage quite different
businesses, each requiring its own strategy. Such different
businesses are arranged as strategic business units (SBUs).
An SBU has three characteristics:
 It is a single business or collection of related businesses
that can be planned separately from the rest of the
company.
 It has its own set of competitors.
 It has a manager who is responsible for strategic
planning and profit performance and who controls
most of the factors affecting profit.
The purpose of identifying the company’s strategic
business units is to develop separate strategies and
assign appropriate funding.
Assessing Growth Opportunities
Intensive Growth Strategies –
Ansoff’s Product-Market Expansion Grid
Current Products
Current
Markets
New Markets
New Products
Market-penetration strategy
Product-development strategy
Market-development strategy
(Diversification strategy)
Integrative Growth
Sales and profits of a business can be increased
through backward, forward or horizontal integration
within its industry.
Diversification Growth
Diversification makes sense when a company finds a highly
attractive new industry where it can leverage its strengths.
 The company could seek new products that have
technological or marketing synergies with existing
product lines appealing to a new group of customers
(concentric diversification).
 The company can develop new products that are
technologically unrelated to its current product line and
could appeal to its current customers (horizontal
diversification)
 The company may seek new opportunities which have
no relation with its current technology, products or
markets (conglomerate diversification).
Business Unit Strategic Planning
The Business Mission
Each business unit needs to define its specific
mission within the broader company mission.
SWOT Analysis
The overall evaluation of a company’s strengths,
weaknesses, opportunities and threats is called
SWOT analysis.
It involves monitoring the external and internal
marketing environment.
External Environment
(Opportunity and Threat) Analysis
A business unit has to monitor key macro-environment
forces (demographic-economic, natural, technology
competitors, suppliers, distributors, dealers) that affect
its ability to earn profits. The business unit should set up
a marketing intelligence system to track trends and
important developments. For each trend or development,
management needs to identify the associated
opportunities and threats.
A marketing opportunity is an area of buyer need and
interest in which there is a high probability that a
company can profitably satisfy that need.
There are three main sources of market opportunities.
The first is to supply something that is in short supply.
The second is to supply an existing product or service in
a new or superior way.
The third source often leads to a totally a new product
or service.
To evaluate opportunities, companies can use Market
Opportunity Analysis (MOA) to determine the
attractiveness and probability of success:
 Can the benefits involved in the opportunity be articulated
convincingly to a defined target market (s)?
 Can the target market (s) be located and reached with costeffective media and trade channels?
 Does the company possess or have access to the critical
capabilities and resources needed to deliver the customer
benefits?
 Can the company deliver the benefits better than any actual or
potential competitors?
 Will the financial rate of return meet or exceed the company’s
required threshold for investment?
Internal Environment (Strengths/Weaknesses)
Analysis
Each business needs to evaluate its internal
strengths and weaknesses.
The business should limit itself to those
opportunities where it possesses the required
strengths or whether it should consider opportunities
that means it might have to acquire or develop
certain strengths.
Goal Formulation
Once the company has performed a SWOT
analysis, it can proceed to develop specific goals
for the planning period. This stage of the process
is called goal formulation.
Managers use the term goals to describe
objectives that are specific with respect to
magnitude and time.
 They must be arranged hierarchically, from the most to
the least important.
 Objectives should be stated quantitatively whenever
possible.
 Goals should be realistic – based on opportunities &
strengths.
 Objectives must be consistent – increasing R & D
activities and simultaneously reducing product
development costs may not be possible.
Strategy Formulation
Goals indicate what a business unit wants to achieve; strategy
is a game plan for getting there.
Every business must design a strategy for achieving its goals,
consisting of a ‘marketing strategy’; and a ‘compatible
technology strategy’ and ‘sourcing strategy’.
Porter’s Generic Strategies:
Overall cost leadership
Differentiation
Focus.
According to Porter, firms pursuing the same strategy directed
to the same target market constitute a strategic group. The
firm that carries out that strategy best will make the most
profits.
Porter defines strategy as “the creation of a
unique and valuable position involving
a
different set of activities.”
A company can claim that it has a strategy
when it “performs different activities from
rivals or performs similar activities in different
ways”.
Strategic Alliances
Many strategic alliances take the form of
marketing alliances. These fall into four major
categories.
Product or service alliances – HUL vs. Pepsi.
Promotional alliances – P&G (Ariel) vs.
Bombay Dyeing
Logistics alliances – TCI & Mitsui vs. Toyota
Kirloskar
Pricing collaborations – airlines, hotels etc.
Program Formulation and Implementation
Once the business unit has developed its principal
strategies, it must work out detailed support
programs. A great marketing strategy can be
sabotaged by poor implementation.
In Implementing strategy, companies also must not
lose sight of their multiple stakeholders and their
needs.
Feedback and Control
As it implements its strategy, a firm needs to
track the results and monitor new
developments.
The marketplace will change; and when it
does, the company will need to review and
revise
its
implementation
programs,
strategies, or even objectives.
Nature and Contents of a Marketing Plan
A marketing plan is a written document that
summarizes what the marketer has learned about
the marketplace and indicates how the firm plans to
reach its marketing objectives.
It contains tactical guidelines for the marketing
programs and financial allocations over the planning
period. It is one of the most important outputs of the
marketing process.
Contents of the Marketing Plan
Executive summary and table of contents.
Situation analysis
Marketing strategy.
Financial Projections.
Implementation controls.