Principles of
Marketing
Chapter 1:
Marketing: Creating &
Capturing Customer Value
A Change in Marketing &
Its Importance
• Firms are “returning to marketing”
 Change
•
•
•
and Instability in Marketplace
Technology
Economy
Social interests
• Shift in Marketing’s “Focus” & “Performers”
 From
“Transactions” to “Relationships”
 Not just “Big M” Marketing anymore; increased
“Little M” marketing*
(Carver 2009; 2012)
Dr. James Carver – Auburn University
What is Marketing?*
1. “Marketing is the process of planning and executing the
conception, pricing, promotion, and distribution of ideas,
goods, and services to create the exchanges that satisfy
individual and organizational goals.” (1985 AMA Definition)
2. “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 stakeholders.” *(Lusch
and Marshall 2004 AMA Definition)
3. “Competition for a Differential Advantage.”* (Wroe Alderson 1957)
Dr. James Carver – Auburn University
Two Goals of Marketing
• Marketing has 2 basic goals:
1.
Attract new customers by providing superior
value
2.
Keep & grow existing customers by delivering
satisfaction
• Can do so iff one has a differential, or longterm competitive, advantage
Dr. James Carver – Auburn University
A Marketer’s Basic Toolbox
• Value is created on 4 “fronts”
• Toolbox ~ “Marketing Mix”
 The
1.
2.
3.
4.
4 Ps
Product
Place
Price
Promotion
Dr. James Carver – Auburn University
The Marketing Process
• 5 Most Basic Steps of Marketing
1.
Understand Consumers
2.
Design Customer-Driven Marketing Strategy
3.
Prepare an Integrated Marketing Program
4.
Build Customer Relationships
5.
Capture Value from Customers
Dr. James Carver – Auburn University
Consumers’
Needs, Wants, & Demands
• Need
 State
•
of felt deprivation
Physical, Social, or Individual
• Want
 Form
a need takes as shaped by culture &
personality
• Demand
 Wants
backed with buying power
Dr. James Carver – Auburn University
Consumers’
Needs, Wants, & Demands
• Need

State of felt deprivation
•
Needs
Physical, Social, or
Individual
Culture
• Want

Form a need takes as
shaped by culture &
personality
Wants
Buying
Power
• Demand

Wants backed with
buying power
Dr. James Carver – Auburn University
Demands
Market Offerings
• Customers’ demands are fulfilled through
market offerings
 Combination
•
Products; Services; Information; & Experiences
 Market
•
•
of:
offering & “Product” (purchased)*
Can be tangible good or intangible service
“Service” are all services used to facilitate & support
Dr. James Carver – Auburn University
Market Offering
• Traditional “Product” View Has Pitfalls
 Marketing
•
Myopia
Paying so much attention to the specific products a
company offers that benefits & experiences are
overlooked (e.g., Buggy-whip example)
• Service-Dominant Logic*
 Products
are bundles of “services” or “brand
experiences”
 Spoken in terms of a Value Proposition
Dr. James Carver – Auburn University
Value Proposition Examples
• Drill Bit Example:
•
What is really being sold?
• Toaster Example?
•
What is really being sold?
• Disney Example?
•
What is really being sold?
Dr. James Carver – Auburn University
Value Proposition Examples
• Drill Bit Example:
•
What is really being sold?

Ability to generate a particular sized hole (½” bit = ½” hole)
• Toaster Example?
•
What is really being sold?

A system for cooking one’s bread and making crispy
• Disney World Example?
•
What is really being sold?

A world of wonder where dreams come true, not just rides
Dr. James Carver – Auburn University
Exchange and Relationships
• Marketers make Value Propositions to
“Markets” with a goal of “Exchange” over
time
•
Market

•
The set of actual & potential consumers of a product based
upon some shared need or want
Exchange

Obtaining a desired object from someone by offering
something in return
•
•
Marketers obtain money by offering value propositions that meet or
exceed expectations
Relationships, not one-time exchanges, are key.
Dr. James Carver – Auburn University
Designing a Customer-Driven
Marketing Strategy
• Marketing Management
 Seeks
1.
What customers will we serve?

2.
to answer two questions:
Target markets through market segmentation
How can we serve these customers best?

Development and articulation of the value proposition
Marketing
Management
1. Customer
Management
Dr. James Carver – Auburn University
2. Demand
Management
Marketing Management
Orientations
• Five Philosophies of Marketing
Management
1.
Production Concept
2.
Product Concept
3.
Selling Concept
4.
Marketing Concept
5.
Societal Marketing Concept
Dr. James Carver – Auburn University
Marketing Concept
• A management philosophy which advocates
that a firm:
•
Exists to identify and satisfy the needs of its customers

•
That a customer orientation is accomplished through an
integrative effort throughout the firm

•
Customer orientation
Integrated effort
That the firm’s focus should be long-term and seek to
provide a satisfactory return on owner’s investment
(ROI)

Long-term profit orientation
Dr. James Carver – Auburn University
Societal Marketing Concept
• A management philosophy which advocates
that a firm:
 Follow
the traditional marketing concept, yet
consider how changes in any portion of one’s
offering might enhance…
1.
2.
3.
Consumers’ and society’s immediate well-being
Consumers’ long-term interests
Opportunity for future generations to meet their needs
(i.e., sustainable marketing)
Dr. James Carver – Auburn University
An Integrated Marketing Program
• One’s marketing strategy “in action”, or…
• A Marketer’s Toolbox…
 The
•
“Marketing Mix”
The 4 Ps
1.
2.
3.
4.
 Value
Product
Place
Price
Promotion
is created on these 4 “fronts”
Dr. James Carver – Auburn University
CRM:
Customer Relationship Management
• Customer data management
 Leveraging
detailed information & customer
“touchpoints” (interactions) to maximize loyalty.
 Maximization
of customer delivered value through
the management of customers
•
•
•
Acquisition,
Retention, and
Growth
Dr. James Carver – Auburn University
Building Blocks of a
Relationship (Value)
• Value
 Is
•
“customer perceived”
Largely idiosyncratic* but generalizable based on
“themes” (segmentation)

Drivers include:
•
•
•
•
•
•
•
Convenience
“Total” cost
Selling Price
Authenticity
Exclusivity
Finishes
Conspicuousness (referent power)
Dr. James Carver – Auburn University
Building Blocks of a Relationship
(Customer Satisfaction)
• Satisfaction
 The
difference between one’s perceived
performance (i.e., experience) & expectations
•
•
•
A “net loss” ~ dissatisfied
A “net neutral” ~ satisfied
A “net positive” ~ highly satisfied or “delighted”

Likely to become “customer evangelists”
 “Indirect”
driver of firm performance (e.g., sales)
 Yet, maximization is not the goal
•
Must know break-even point for all services provided*
Dr. James Carver – Auburn University
Consumer Spending and
“Lagged” Satisfaction (ACSI)*
Note the larger lag during & after the “Great Recession” – consumers must
also have funds available in order to purchase
Dr. James Carver – Auburn University
Appropriate Levels of
Customer Relationship
• “Closeness” is a function profitability
 Considered
•
Low Margin customers

“Basic” relationship is best
•
•
“Full Partnership” is possible
•
 Tools
•
Relationships only through websites, apps, advertising, etc.
High Margin customers

•
in terms of a continuum
Relationship with constant, personal communication; information
sharing, etc.
to enhance “bond” and profitability include:
Frequency marketing programs & Club Memberships
Goal is to enhance loyalty through switching costs
Dr. James Carver – Auburn University
Changing Nature
of Customer Relationships
• From “Mass Marketing” to “Selected”
Relationships
 Customer
Profitability Analysis During…
 Customer

Acquisition
No longer “Seining” for all fish in the sea

Surveys, Credit ratings, etc.
 Customer
Retention
80/20 Rule*
 Fire “Poor” or “High Maintenance” customers



“Segmentation for termination” purposes
Example: Sprint termination letter, gift cards to competitors, etc.
Dr. James Carver – Auburn University
Interactive Customer Relationships
• Fueled by technology and social media
•
No longer marketing by intrusion
•
Mass marketing is naturally intrusive and designed to
interrupt one’s attention
 Marketing
•
by attraction
Marketing that includes consumers
Use of social media and technology isn’t enough
 Co-creation is key

•
•

Gives up control, yet
Gains authenticity & engagement (part of the conversation)
A delicate balancing act to ensure hijacking is curtailed
Dr. James Carver – Auburn University
Partner Relationship Management
• Both Intra- and Inter-firm partners
•
Intra-firm partners
•
No longer is marketing the only function representing
the customer

Non-marketers performing marketing
 Inter-firm
•
partners
Marketing messages must be managed throughout and
across the entire channel
Dr. James Carver – Auburn University
Capturing Value from Customers
• Value is captured from customers via…
 Current
and future sales, market share, and profit.
• Key outcomes of customer value include…
 Customer
•
loyalty & retention
5 times as much to get a “new” customer
 Greater
share of “market” and “customer”, and
 Growth
in customer equity
Dr. James Carver – Auburn University
Customer Equity
• The total combined customer lifetime values
(CLVs) of all the company’s current & future
customers
 Customer
•
The value of the entire stream of purchases that the
customer would make over a lifetime of patronage

Consider the cost of losing just one customer
•
•
Lifetime Value
UPS example
Why customers must be managed based on profitability

Recall 80/20 rule
Dr. James Carver – Auburn University
Drivers of Change in Marketing
• Economy
• Technology
• Non-profit marketing
• Globalization
• Sustainable marketing
Dr. James Carver – Auburn University