Chapter 1 - Creating Customer Value & Engagement PDF

1 Discussion Question Ask students for examples of either national or local companies that are excellent at marketing and ask how they reflect the definition given in this slide. Perhaps the simplest definition of marketing is engaging customers and managing profitable customer relationships. The t...

1 Discussion Question Ask students for examples of either national or local companies that are excellent at marketing and ask how they reflect the definition given in this slide. Perhaps the simplest definition of marketing is engaging customers and managing profitable customer relationships. The twofold goal of marketing is to: attract new customers by promising superior value grow current customers by delivering satisfaction Sound marketing is critical to the success of every organization: large for-profit firms not-for-profit organizations You already know a lot about marketing—it’s all around you: products at your nearby shopping mall ads that fill your TV screen and magazines, or stuff your mailbox imaginative web sites and mobile phone apps blogs, online videos, and social media Today’s marketers reach you directly, personally, and interactively. They want to become a part of your life and enrich your experiences with their brands—to help you live their brands. 2 Human needs include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual needs for knowledge and self- expression. Wants are the form human needs take as they are shaped by one’s society and are described in terms of objects that will satisfy those needs. When backed by buying power, wants become demands. Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants, and demands. Take Target CEO Brian Cornell, who makes regular unannounced visits to Target stores, accompanied by local moms and loyal Target shoppers. Discussion Question Ask the students to 1) Give an example of a product (good or service) they purchased recently 2) Tell how that product satisfied a need, want or demand. 3 Market offerings include other entities, such as persons, places, organizations, information, and ideas. Many sellers suffer from marketing myopia, the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. Marketing experiences: More than just a sports bar, Buffalo Wild Wings mission is to provide a total eating and social environment that “fuels the sports fan experience” through in-store and online engagement. Smart marketers orchestrate several services and products, thereby creating brand experiences for consumers. 4 Marketing occurs when people decide to satisfy their needs and wants through exchange relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. Marketing consists of actions taken to create, maintain, and grow desirable exchange relationships with target audiences involving a product, service, idea, or other object. Companies want to build strong relationships by consistently delivering superior customer value. 5 A market is the set of actual and potential buyers of a product or service. Sellers must search for buyers, identify their needs, design good market offerings, set prices for them, promote them, and store and deliver them. Although marketing was traditionally carried out by sellers, the concept now also includes consumers. Consumers engage in marketing when they search for products, interact with companies to obtain information, and make their purchases. Thus, in addition to customer relationship management, companies must also deal with customer- managed relationships as customers are empowered and marketing is made a two- way affair. 6 A market is the set of actual and potential buyers of a product or service. These buyers share a particular need or want that can be satisfied through exchange relationships. Figure 1.2 shows the main elements in a marketing system. Each party in the system adds value for the next level and is affected by major environmental forces (demographic, economic, natural, technological, political, and social/cultural). Marketing means managing markets to bring about profitable customer relationships. Activities such as consumer research, product development, communication, distribution, pricing, and service are core marketing activities. Buyers also carry out marketing, thus, in addition to customer relationship management, today’s marketers must also deal effectively with customer-managed relationships. Marketers are no longer asking only “How can we influence our customers?” but also 7 “How can our customers influence us?” and even “How can our customers influence each other?” 7 Discussion Question Ask students to describe a market segment they are a part of for a specific product such as, athletic or fitness equipment or clothing. Now that the company fully understands its consumers and the marketplace, it must decide which customers it will serve and how it will bring them value. The marketing manager’s aim is to find, attract, keep, and grow target customers by creating, delivering, and communicating superior customer value. To design a winning marketing strategy, the marketing manager must answer two important questions: What customers will we serve (what’s our target market)? How can we serve these customers best (what’s our value proposition)? 8 Value proposition: Vine gives you “the best way to see and share life in motion” through “short, beautiful, looping videos in a simple and fun way for your friends and family to see.” Discussion Question Have the students evaluate one of the following value propositions in terms of how well the company delivers on the proposition. BMW promises “the ultimate driving machine” Nissan Leaf electric car is “100% electric. Zero gas. Zero tailpipe.” New Balance’s Minimus shoes are “like barefoot only better.” Vibram FiveFingers shoes: “You are the technology.” Facebook helps you “connect and share with the people in your life” YouTube “provides a place for people to connect, inform, and inspire others across 9 the globe.” The company must decide how it will serve targeted customers—how it will differentiate and position itself in the marketplace. A brand’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs. Value propositions differentiate one brand from another. They answer the customer’s question, “Why should I buy your brand rather than a competitor’s?” Companies must design strong value propositions that give them the greatest advantage in their target markets. 9 There are five alternative concepts under which organizations design and carry out their marketing strategies: the production, product, selling, marketing, and societal marketing concepts. Marketing management wants to design strategies that will build profitable relationships with target consumers. Production concept: Consumers will favor products that are available and highly affordable. The production concept is still a useful philosophy in some situations. For example in the highly competitive, price-sensitive Chinese market, both personal computer maker Lenovo and home appliance maker Haier dominate through low labor costs, high production efficiency, and mass distribution. However, although useful in some situations, the production concept can lead to marketing myopia and losing sight of the real objective—satisfying customer needs and building customer relationships. 10 Product concept: Consumers favor products that offer the most quality, performance, and features. The focus is on continuous product improvements. Product quality and improvement are important parts of most marketing strategies. However, focusing only on the company’s products can also lead to marketing myopia. For example, some manufacturers believe that if they can “build a better mousetrap, the world will beat a path to their doors.” But they are often rudely shocked. Buyers may be looking for a better solution to a mouse problem but not necessarily for a better mousetrap. The better solution might be a chemical spray, an exterminating service, a house cat, or something else that suits their needs even better than a mousetrap. Selling concept: Consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort. The selling concept is typically practiced with unsought goods—those that buyers do not normally think of buying, such as life insurance or blood donations. These industries must be good at tracking down prospects and selling them on a product’s benefits. Such aggressive selling, however, carries high risks. It focuses on creating sales transactions rather than on building long-term, profitable customer relationships. Marketing concept: Know the needs and wants of the target markets and deliver the desired satisfactions better than competitors. Under the marketing concept, customer focus and value are the paths to sales and profits. Instead of a product-centered make-and-sell philosophy, the marketing concept is a customer-centered sense-and-respond philosophy. The job is not to find the right customers for your product but to find the right products for your customers. For societal marketing concept, see future slide. 10 Figure 1.3 contrasts the selling concept and the marketing concept. The selling concept takes an inside-out perspective. It starts with the factory, focuses on the company’s existing products, and calls for heavy selling and promotion to obtain profitable sales. It focuses primarily on customer conquest—getting short-term sales with little concern about who buys or why. In contrast, the marketing concept takes an outside-in perspective. As Herb Kelleher, the colorful founder of Southwest Airlines, once put it, “We don’t have a marketing department; we have a customer department.” The marketing concept starts with a well-defined market, focuses on customer needs, and integrates all the marketing activities that affect customers. In turn, it yields profits by creating relationships with the right customers based on customer value and satisfaction. 11 The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long- run welfare. Is a firm that satisfies the immediate needs and wants of target markets always doing what’s best for its consumers in the long run? The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being. It calls for sustainable marketing, socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. Even more broadly, many leading business and marketing thinkers are now preaching the concept of shared value, which recognizes that societal needs, not just economic needs, define markets. Figure 1.4 shows that companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests. Discussion Question 12 Ask students how the societal marketing concept influences their buying decisions, including brand selection and where they make purchases. What companies can you identify with social marketing? What do these companies do that ties to the societal marketing concept? 12 The company’s marketing strategy outlines which customers it will serve and how it will create value for these customers. Next, the marketer develops an integrated marketing program that will actually deliver the intended value to target customers. The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of the firm’s marketing mix, the set of marketing tools the firm uses to implement its marketing strategy. The major marketing mix tools are classified into four broad groups called the four Ps of marketing: product, price, place, and promotion. To deliver on its value proposition, the firm must first create a need-satisfying market offering (product). It must then decide how much it will charge for the offering (price) and how it will make the offering available to target consumers (place). Finally, it must engage target consumers, communicate about the offering, and persuade consumers of the offer’s merits (promotion). The firm must blend each marketing mix tool into a comprehensive integrated marketing program that communicates and delivers the intended value to chosen customers. 13 The first three steps in the marketing process—understanding the marketplace and customer needs, designing a customer value-driven marketing strategy, and constructing a marketing program—all lead up to the fourth and most important step: building and managing profitable customer relationships. We first discuss the basics of customer relationship management. Then, we examine how companies go about engaging customers on a deeper level in this age of digital and social marketing. Customer relationship management is perhaps the most important concept of modern marketing. Some marketers define it narrowly as a customer data management activity (a practice called CRM). By this definition, it involves managing detailed information about individual customers and carefully managing customer touchpoints to maximize customer loyalty. In the broader sense, customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, engaging, and growing customers. 14 The key to building lasting customer relationships is to create superior customer value and satisfaction. Satisfied customers are more likely to be loyal customers and give the company a larger share of their business. A customer buys from the firm that offers the highest customer-perceived value— the customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Outstanding marketing companies go out of their way to keep important customers satisfied. Most studies show that higher levels of customer satisfaction lead to greater customer loyalty, which in turn results in better company performance. Smart companies aim to delight customers by promising only what they can deliver and then delivering more than they promise. 15 Delighted customers not only make repeat purchases but also become willing marketing partners and “customer evangelists” who spread the word about their good experiences to others. 15 Customer-engagement marketing goes beyond just selling a brand to consumers. Its goal is to make the brand a meaningful part of consumers’ conversations and lives. Today, companies are using online, mobile, and social media to refine their targeting and to engage customers more deeply and interactively. The new marketing is customer-engagement marketing. The burgeoning Internet and social media have given a huge boost to customer- engagement marketing. Today’s consumers are better informed, more connected, and more empowered than ever before. Life is Good is a great example of customer-engagement marketing. The company starts with a deeply felt, engagement-worthy sense of purpose: spreading the power of optimism. Then it creates online and social media tools that let people engage and help co-author the brand’s story. 16 Discussion Question Ask students how other companies have used Facebook, Twitter, Instagram, Snapchat, or other social networks for marketing purposes. 16 A growing form of customer-engagement marketing is consumer-generated marketing. This might happen through uninvited consumer-to-consumer exchanges in blogs, video-sharing sites, social media, and other digital forums. But increasingly, companies themselves are inviting consumers to play a more active role in shaping products and brand content. Some companies ask consumers for new product and service ideas. For example, Mountain Dew stirred up user-generated content to create buzz around a limited-time reintroduction of its iconic Baja Blast beverage, boosting online chatter by 170 percent. 17 In addition to being good at customer relationship management, marketers must also be good at partner relationship management—working closely with others inside and outside the company to jointly engage and bring more value to customers. Traditionally, marketers have been charged with understanding customers and representing customer needs to different company departments. However, in today’s more connected world, every functional area in the organization can interact with customers. Marketers must also partner with suppliers, channel partners, and others outside the company. 18 At Stew Leonard’s profitable four-store supermarket, the lifetime revenue of a customer is $50,000. Because his average customer spends about $100 a week, shops 50 weeks a year, and remains in the area for about 10 years, losing one customer can be a significant loss. Discussion Question Ask students if they know of other retailers that build this kind of customer loyalty and retention. Good customer relationship management creates customer satisfaction. In turn, satisfied customers remain loyal and talk favorably to others about the company and its products. Studies show big differences in the loyalty of customers who are less satisfied, somewhat satisfied, and completely satisfied. Keeping customers loyal makes good economic sense. Loyal customers spend more and stay around longer. Research also shows that it’s five times cheaper to keep an old customer than acquire a new one. Conversely, customer defections can be costly. Losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer 19 would make over a lifetime of patronage. 19 Beyond simply retaining good customers to capture customer lifetime value, good customer relationship management can help marketers increase their share of customer—the share they get of the customer’s purchasing in their product categories. Thus, banks want to increase “share of wallet.” Supermarkets and restaurants want to get more “share of stomach.” Car companies want to increase “share of garage,” and airlines want greater “share of travel.” To increase share of customer, firms can offer greater variety to current customers or they can create programs to cross-sell and up-sell to market more products and services to existing customers. For example, Amazon is highly skilled at leveraging relationships with its 237 million customers to increase its share of each customer’s spending budget. 20 The ultimate aim of customer relationship management is to produce high customer equity. Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. As such, it’s a measure of the future value of the company’s customer base. Clearly, the more loyal the firm’s profitable customers, the higher its customer equity. Customer equity may be a better measure of a firm’s performance than current sales or market share. Whereas sales and market share reflect the past, customer equity suggests the future. Marketers should care not just about current sales and market share. Customer lifetime value and customer equity are the name of the game. To increase customer equity, Cadillac is making the classic car cool again among younger buyers, encouraging consumers to “Dare Greatly.” 21 Figure 1.5 classifies customers into one of four relationship groups, according to their profitability and projected loyalty. Each group requires a different relationship management strategy. Strangers show low potential profitability and little projected loyalty. Butterflies are potentially profitable but not loyal. True friends are both profitable and loyal. Barnacles are highly loyal but not very profitable. The point here is an important one: Different types of customers require different engagement and relationship management strategies. The goal is to build the right relationships with the right customers. 22 The explosive growth in digital technology has fundamentally changed the way we live—how we communicate, share information, access entertainment, and shop. An estimated 3.3 billion people—46 percent of the world’s population—are now online. Sixty-four percent of all American adults now own smartphones; 71 percent of those smartphones next to them when they sleep. These numbers will only grow as digital technology rockets into the future. Petco’s Community site is a place where pet lovers can connect, share, and learn via a blog and discussion boards dedicated to pets of all types, from dogs and cats to birds, fish, and reptiles. 23 In recent years, marketing has also become a major part of the strategies of many not-for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, foundations, and even churches. The nation’s not-for-profits face stiff competition for support and membership. Sound marketing can help them attract members, funds, and support. For example, Ben & Jerry’s three-part “linked prosperity” mission drives it to make fantastic ice cream (product mission), manage the company for sustainable financial growth (economic mission), and use the company “in innovative ways to make the world a better place” (social mission). Both Ben & Jerry’s and its products are “Made of Something Better.” As they are redefining their customer relationships, marketers are also taking a fresh look at the ways in which they relate with the broader world around them. Today, almost every company, large or small, is touched in some way by global competition. Marketers are reexamining their relationships with social values and responsibilities and with the very Earth that sustains us. As the worldwide consumerism and environmentalism movements mature, today’s marketers are being called on to develop sustainable marketing practices. 24 At the start of this chapter, Figure 1.1 presented a simple model of the marketing process. Now that we’ve discussed all the steps in the process, Figure 1.6 presents an expanded model that will help you pull it all together. 25