Marketing: Creating Customer Value and Engagement (PDF)

PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17)...

PART 1: Defining Marketing and the Marketing Process (Chapters 1–2) PART 2: Understanding the Marketplace and Consumer Value (Chapters 3–6) PART 3: Designing a Customer Value–Driven Strategy and Mix (Chapters 7–17) PART 4: Extending Marketing (Chapters 18–20) 1 Marketing Creating Customer Value and Engagement CHAPTER PREVIEW This first chapter introduces you to the basic concepts digital, mobile, and social media. Understanding these basic con- of marketing. We start with the question: What is mar- cepts and forming your own ideas about what they really mean to keting? Simply put, marketing is engaging customers you will provide a solid foundation for all that follows. and managing profitable customer relationships. The Let’s start with a good story about marketing in action at aim of marketing is to create value for customers in Emirates, the largest international airline in the world and one of order to capture value from customers in return. Next we discuss the best-known brands on the planet. Emirate’s success results the five steps in the marketing process—from understanding cus- from much more than just offering a way to connect people from tomer needs, to designing customer value–driven marketing strat- point A to point B. It’s based on a customer-focused marketing egies and integrated marketing programs, to building customer strategy by which Emirates creates customer value through deep relationships and capturing value for the firm. Finally, we discuss brand–customer engagement and close brand community with the major trends and forces affecting marketing in this new age of and among its customers. EMIRATES’ CUSTOMER VALUE—DRIVEN MARKETING: Engaging Customers and Building a Brand Community T he Emirates Group operates across six continents customer needs of surfing the Internet, emailing, or simply and 150 cities with a 95,000-strong team comprised calling a land line while in the airplane, as well as exclusive of over 160 nationalities. The Emirates airline, head- lounges for its clientele. These offerings have allowed Emirates quartered in Dubai, UAE, was founded in 1985. The to deliver its value proposition to its customers and support its financial year ending March 31, 2016, saw the Group achieve mission statement of committing to high standards. its 28th consecutive year of profit in a financial year. The The Skywards Program, the airlines’ frequent traveler loy- company successfully capitalized on its location—a small city- alty program, also plays a key role in helping Emirates build state strategically located to reach three-fourths of the world strong customer relationships. In an industry-leading innovation, population in a flight of less than eight hours—to build a fast- members now earn miles by zone instead of actual miles flown. A growing and profitable hub-based business model, making it “miles accelerator feature” offers bonus miles on specific flights the largest international airline in the world. and is designed to boost turnover on flights with less full flights. Emirates set out to be an in- Facing increased and fierce novative, modern, and customer- competition, Emirates has launched oriented provider of high-quality Emirates is not just offering a way to a range of customer service initia- air travel services. Through the connect people from point A to point B tives that support differentiation, years, Emirates has successfully but is the catalyst to connect people’s including Dubai Connect, an incen- and continuously created a cus- dreams, hopes, and aspirations. tive for premium-class passengers tomer-focused value proposition offering free luxury hotel accom- by offering a combination of prod- modation, including meals, ground ucts, services, information, and experiences customized for transportation, and visa costs in Dubai. Another differentiating el- its market demographics for each of its destinations. This ap- ement of its customer service is Chauffeur-drive, a service offered proach had led to an array of product offerings such as its on- to customers flying first-class or business-class. Emirates chauf- board Information, Communication, and Entertainment (ICE) feurs collect customers from their doorstep or will be present to system, an all-in-one communications device accommodating take them to their final destination when they land. This could  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 27 be straight to the customer’s hotel, their next meeting, their favorite restaurant, or even to the course for a round of golf. This service is available in over 70 cities worldwide. As competitors continued to discount air fares close to loss levels, Emirates maintained fares while manag- ing healthy yields supported by excellent load factors. The company was capable of doing this because of its customer value–driven marketing approach and its ser- vice proposition, for which customers continue to be willing to pay a premium. Whereas competitors empha- sized low prices or well-maintained aircraft, Emirates built customer engagement and relationships. Beyond the functional benefit of air travel, Emirates marketed its services as “The Emirates Experience,” a genuine passion Emirates’ success is due in part to its diverse product offerings. for comfort and attention to detail. Customers didn’t just Antony Nettle/Alamy Stock Photo fly Emirates; they experienced it. Connecting with customers once required simply out- company is connecting people and cultures, creating relevant spending competitors on big media ads and celebrity endorsers and meaningful experiences that are shaping the world. that talk at customers. In these digital times, however, Emirates The campaign launch featured print, TV, and digital adver- is forging a new kind of customer relationship, a deeper, more tising, including some iconic billboards in New York’s Times personal, more engaging one. Emirates still invests in tradi- Square and Milan’s central train station. Launched in over tional advertising, but the brand now spends an increasing 80 markets across the world, the new brand platform pre- amount of its marketing budget on cutting-edge digital and sented Emirates’ new mindset through communication and social media marketing that interacts with customers to build engagement that celebrates global travel, conveying Emirates’ brand engagement and community. commitment to connect with people and help them realize Emirates uses online, mobile, and social media marketing their potential through travel. Reflecting an effort to target a to connect with their customers. Emirates also creates brand younger audience, the “Hello Tomorrow” campaign debuted “tribes”—large groups of highly engaged users—with the help with vignettes of the TV spots on Emirates’ Facebook channel. of social media platforms such as Facebook, Twitter, Instagram, Moreover, Emirates collaborated with the BBC to develop a YouTube, and Pinterest. For example, the main Emirates Facebook new series called “Collaboration Culture,” which followed 14 page has more than 6.5 million likes. The Emirates Twitter page leading personalities who collaborated across their respective adds another 822,000; the Emirates Instagram page has 1.9 million fields in music, food, fashion, and art. With CNN, Emirates subscribers, making it the largest in the industry; and the compa- created “Fusion Journeys,” a concept that took artists to join ny’s LinkedIn page has 667,000 followers, also no. 1 in the airline fellow artists across the world to learn, teach, and even perform business. Emirates’ social media presence engages customers at with them in their own country. Finally, Emirates’ created the a high level, gets them talking with each other about the brand, “Inspired Culture” channel on Yahoo! Globally, where globalis- and weaves the brand into their daily lives through cross-media tas can access recommendations, videos, and content, engaging campaigns that integrate digital media with traditional tools to with other people and being inspired by their creations. connect with customers. A compelling example is the company’s The new global culture reached 43 million viewers across “Hello Tomorrow” campaign, which was launched in 2012 and 85 countries through the BBC, CNN, and Yahoo! Emirates’ positioned the global airline as the enabler of global connectivity consideration jumped from 38 percent to 69 percent among and meaningful experiences. Emirates wanted to be perceived as viewers and an impressive 84 percent of viewers exposed to the a lifestyle choice and to ensure that more people than ever will content reportedly believe Emirates was a brand that sought to fly Emirates. The target audience was “globalistas”—people who connect the world and create a “brighter future.” live to experience new cultures. Emirates was looking for a big Emirates has become the world’s most valuable airline idea that would build virtual bridges between globalistas and dif- brand, with an estimated value of $7.7 billion, according to the ferent cultures worldwide; inspire conversations on food, fashion, 2016 Brand Finance Global 500 report. It came out 47 places art, and music; and break the mold for a travel brand to engage above the next closest airline brand. As a result of its customer- with its audience and inspire discussions like never before. centric approach and integrated marketing campaigns (such Sir Maurice Flanagan, the founding CEO of Emirates and as the Hello Tomorrow initiative), Emirates has demonstrated the former executive vice-chairman of The Emirates Group, commitment, authenticity, relevance, and differentiation outside emphasized that Emirates is not just offering a way to connect the travel industry. Emirates has successfully changed the way people from point A to point B but is the catalyst to connect it reaches out to its customers by moving away from the prod- people’s dreams, hopes, and aspirations. He also stated that the uct and creating a discourse of global customer engagement.1 28 | PART 1 Defining Marketing and the Marketing Process OBJECTIVES OUTLINE OBJECTIVE 1-1 Define marketing and outline the steps in the marketing process. What Is Marketing? (pp 28–30) OBJECTIVE 1-2 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. Understanding the Marketplace and Customer Needs (pp 30–34) OBJECTIVE 1-3 Identify the key elements of a customer value–driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. Designing a Customer Value–Driven Marketing Strategy and Plan (pp 34–38) OBJECTIVE 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. Managing Customer Relationships and Capturing Customer Value (pp 38–46) OBJECTIVE 1-5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships. The Changing Marketing Landscape (pp 46–55) Today’s successful companies have one thing in common: Like Emirates, they are strongly customer focused and heavily committed to marketing. These companies share a passion for satisfying customer needs in well-defined target markets. They mo- tivate everyone in the organization to help build lasting customer relationships based on creating value. Customer relationships and value are especially important today. Facing dramatic technological advances and deep economic, social, and environmental challenges, today’s customers are reassessing how they engage with brands. New digital, mobile, and social media developments have revolutionized how consumers shop and interact, in turn call- ing for new marketing strategies and tactics. It’s now more important than ever to build strong customer engagement, relationships, and advocacy based on real and enduring customer value. We’ll discuss the exciting new challenges facing both customers and marketers later in the chapter. But first, let’s introduce the basics of marketing. Author Pause here and think about Comment how you’d answer this What Is Marketing? question before studying marketing. Marketing, more than any other business function, deals with customers. Although we will Then see how your answer changes as you read the chapter. soon explore more-detailed definitions of marketing, perhaps the simplest definition is this one: Marketing is engaging customers and managing profitable customer relationships. The two- fold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering value and satisfaction. For example, Nike leaves its competitors in the dust by delivering on its promise to inspire and help everyday athletes to “Just do it.” Amazon dominants the online market- place by creating a world-class online buying experience that helps customers to “find and discover anything they might want to buy online.” Facebook has attracted more than 1.5 billion active web and mobile users worldwide by helping them to “connect and share with the people in their lives.” And Coca-Cola has earned an impressive 49 percent global share of the carbonated beverage market—more than twice Pepsi’s share—by fulfilling its  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 29 “Taste the Feeling” motto with products that provide “a simple pleasure that makes every- day moments more special.”2 Sound marketing is critical to the success of every organization. Large for-profit firms such as Google, Target, Procter & Gamble, Coca-Cola, and Microsoft use marketing. But so do not-for-profit organizations, such as colleges, hospitals, museums, symphony orches- tras, and even churches. You already know a lot about marketing—it’s all around you. Marketing comes to you in the good old traditional forms: You see it in the abundance of prod- ucts at your nearby shopping mall and the ads that fill your TV screen, spice up your magazines, or stuff your mailbox. But in recent years, marketers have assembled a host of new marketing approaches, ev- erything from imaginative websites and smartphone apps to blogs, online videos, and social media. These new approaches do more than just blast out messages to the masses. They reach you directly, personally, and interactively. Today’s marketers want to become a part of your life and enrich your experiences with their brands. They want to help you live their brands. At home, at school, where you work, and where you play, you see marketing in almost everything you do. Yet there is much more to marketing than meets the consumer’s casual eye. Behind it all is a massive net- work of people, technologies, and activities competing Marketing is all around you, in good old traditional forms and in a host for your attention and purchases. This book will give of new forms, from websites and mobile phone apps to videos and online you a complete introduction to the basic concepts and social media. practices of today’s marketing. In this chapter, we be- Westend61/Getty Images gin by defining marketing and the marketing process. Marketing Defined What is marketing? Many people think of marketing as only selling and advertising. We are bombarded every day with TV commercials, catalogs, spiels from salespeople, and online pitches. However, selling and advertising are only the tip of the marketing iceberg. Today, marketing must be understood not in the old sense of making a sale—“telling and selling”—but in the new sense of satisfying customer needs. If the marketer engages consumers effectively, understands their needs, develops products that provide superior customer value, and prices, distributes, and promotes them well, these products will sell easily. In fact, according to management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3 Selling and advertising are only part of a larger marketing mix—a set of marketing tools that work together to engage customers, satisfy customer needs, and build customer relationships. Marketing Broadly defined, marketing is a social and managerial process by which individuals The process by which companies engage and organizations obtain what they need and want through creating and exchanging value customers, build strong customer with others. In a narrower business context, marketing involves building profitable, value- relationships, and create customer value laden exchange relationships with customers. Hence, we define marketing as the process in order to capture value from customers by which companies engage customers, build strong customer relationships, and create in return. customer value in order to capture value from customers in return.4 The Marketing Process Figure 1.1 presents a simple, five-step model of the marketing process for creating and capturing customer value. In the first four steps, companies work to understand consumers, create customer value, and build strong customer relationships. In the final step, companies reap the rewards of creating superior customer value. By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity. In this chapter and the next, we will examine the steps of this simple model of mar- keting. In this chapter, we review each step but focus more on the customer relationship 30 | PART 1 Defining Marketing and the Marketing Process FIGURE | 1.1 The Marketing Process: Creating and Capturing Customer Value Create value for customers and Capture value from build customer relationships customers in return Construct an Engage customers, Understand the Design a Capture value integrated build profitable marketplace and customer value– from customers to marketing program relationships, and customer needs driven marketing that delivers create customer create profits and and wants strategy customer equity superior value delight This important figure shows marketing in a nutshell. By creating value for customers, steps—understanding customers, engaging and building relationships with customers, marketers capture value from customers in and capturing value from customers. In Chapter 2, we look more deeply into the second return. This five-step process forms the marketing framework for the rest of the and third steps—designing value-creating marketing strategies and constructing market- chapter and the remainder of the text. ing programs. Author Marketing is all about Comment creating value for Understanding the Marketplace and Customer Needs customers. So, as the first step in the As a first step, marketers need to understand customer needs and wants and the marketing process, the company must marketplace in which they operate. We examine five core customer and marketplace con- fully understand customers and the cepts: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); marketplace. (3) value and satisfaction; (4) exchanges and relationships; and (5) markets. Needs Customer Needs, Wants, and Demands States of felt deprivation. The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include basic physical needs for food, clothing, warmth, and Wants safety; social needs for belonging and affection; and individual needs for knowledge and The form human needs take as they self-expression. Marketers did not create these needs; they are a basic part of the human are shaped by culture and individual makeup. personality. Wants are the form human needs take as they are shaped by culture and individual Demands personality. An American needs food but wants a Big Mac, fries, and a soft drink. A person in Human wants that are backed by Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants are shaped by buying power. one’s society and are described in terms of objects that will satisfy those needs. When backed by buying power, wants become demands. Given their wants and resources, people demand products and services with benefits that add up to the most value and satisfaction. Companies go to great lengths to learn about and understand customer needs, wants, and demands. They conduct consumer research, analyze mountains of customer data, and observe customers as they shop and interact, offline and online. People at all levels of the company— including top management—stay close to customers:5 Target’s energetic CEO, Brian Cornell, makes regular unan- nounced visits to Target stores, accompanied by local moms and loyal Target shoppers. Cornell likes nosing around stores and getting a real feel for what’s going on. It gives him “great, genuine feedback.” He and other Target executives even visit customers in their homes, opening closet doors and poking around in cupboards to understand their product choices and buying habits. Similarly, Boston Market CEO George Michel makes frequent visits to company restaurants, working in the dining room and engaging customers to learn about “the good, the bad, and the ugly.” He also stays con- Staying close to customers: Energetic Target CEO Brian Cornell nected by reading customer messages on the Boston Market makes regular unannounced visits to Target stores, accompanied by website and has even cold-called customers for insights. local moms and loyal Target shoppers. “Being close to the customer is critically important,” says Ackerman + Gruber Michel. “I get to learn what they value, what they appreciate.”  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 31 Market Offerings—Products, Services, and Experiences Market offerings Consumers’ needs and wants are fulfilled through market offerings—some combination Some combination of products, services, of products, services, information, or experiences offered to a market to satisfy a need or information, or experiences offered to a a want. Market offerings are not limited to physical products. They also include services— market to satisfy a need or want. activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, retailing, and home repair services. More broadly, market offerings also include other entities, such as persons, places, or- ganizations, information, and ideas. For example, San Diego runs a “Happiness Is Calling” advertising campaign that invites visitors to come and enjoy the city’s great weather and good times—everything from its bays and beaches to its downtown nightlife and urban scenes. And the Ad Council and the National Highway Traffic Safety Administration cre- ated a “Stop the Texts. Stop the Wrecks.” campaign that markets the idea of eliminating texting while driving. The campaign points out that a texting driver is 23 times more likely to get into a crash than a non-texting driver.6 Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. These sellers suffer Marketing myopia from marketing myopia. They are so taken with their products that they focus only on The mistake of paying more attention to existing wants and lose sight of underlying customer needs.7 They forget that a product the specific products a company offers is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may than to the benefits and experiences think that the customer needs a drill bit. But what the customer really needs is a quarter- produced by these products. inch hole. These sellers will have trouble if a new product comes along that serves the customer’s need better or less expensively. The customer will have the same need but will want the new product. Smart marketers look beyond the attributes of the products and services they sell. By orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your family in a world of wonder, a world where dreams come true and things still work the way they should. And your local Buffalo Wild Wings restaurant doesn’t just serve up wings and beer; it gives customers the ultimate “Wings. Beer. Sports.” fan experience (see Real Marketing 1.1). Similarly, Mattel’s American Girl does much more than just make and sell high-end dolls. It creates special experiences between the dolls and the girls who adore them.8 To put more smiles on the faces of the girls who love their American Girl dolls, the company operates huge American Girl experiential stores in 20 major cities around the country. Each store carries an amazing selection of dolls plus every imaginable outfit and accessory. But more than just places to shop, American Girl stores are exciting des- tinations unto themselves, offering wonderfully engaging experiences for girls, mothers, grandmothers, and even dads or grandpas. There’s an in-store restaurant where girls, their dolls, and grown-ups can sit down together for brunch, lunch, afternoon tea, or din- ner. There’s even a doll hair salon where a stylist can give a doll a new hairdo. American Girl also offers “perfect parties” to celebrate a birthday or any day as well as a full slate of special events, from crafts and activities to excursions. Much more than a store that sells dolls, says the company, “it’s the place where imaginations can soar.” A visit to American Girl creates “Fun today. Memories forever.” Customer Value and Satisfaction Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many market offerings? Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly. Satisfied customers buy again and tell others about their good experiences. Dissatisfied customers often switch to competitors and dis- parage the product to others. Marketing experiences: American Girl Marketers must be careful to set the right level of expectations. If they set expec- does more than just make and sell high-end tations too low, they may satisfy those who buy but fail to attract enough buyers. If dolls. It creates special experiences between they set expectations too high, buyers will be disappointed. Customer value and cus- the dolls and the girls who adore them. tomer satisfaction are key building blocks for developing and managing customer Image courtesy of American Girl, Inc. All rights reserved. relationships. We will revisit these core concepts later in the chapter.  32 | PART 1 Defining Marketing and the Marketing Process 1.1 Buffalo Wild Wings: Fueling the Sports Real Marketing Fan Experience “Wings. Beer. Sports.” That’s the no matter what your team or sport, including is 60 times hotter than typical jalapeño long-standing motto for the fast- live streaming of local college and even high sauce. During the six-minute binge, chal- growing Buffalo Wild Wings res- school events. B-Dubs creates an exciting lengers are not allowed to use napkins or taurant chain. “B-Dubs”—as it’s environment that makes it the next best thing utensils, touch their faces, or eat or drink known to avid regulars—focuses on to being at the game—or something even anything other than the wings (no dipping food and sports and “everything in better. “We consider ourselves to have 1,100 sauces, please). The menu boasts plenty of between.” stadiums,” says the chain’s vice president for warnings, and servers advise most people There’s no doubt about it. Buffalo Wild guest experience and innovation. not to even attempt the challenge. And Wings more than lives up to the “wings” There’s an experience for everyone at before taking the plunge, each challenger and “beer” parts of the equation. It serves Buffalo Wild Wings. The chain appeals to a signs a waiver agreeing that he or she “vol- up wings in an abundant variety: boned or wide range of customers, from pub-loving untarily assumes all risk of loss, damage, boneless, with five dry seasonings and 17 sports nuts to families looking for an af- injury, illness, or death that may be sus- signature sauces ranging on the heat scale fordable evening out. Singles and couples tained by him or her as a result.” As you can from Sweet BBQ (traditional BBQ sauce: sat- gravitate to the bar area; families stick to the imagine, when a challenge is announced isfyingly sweet with no heat) to Desert Heat carpeted areas with booths. In addition to over the PA, it usually draws a crowd. (smoky, sweet, and chili pepper seasoning) streaming sports events of all kinds on the Buffalo Wild Wings never rushes its guests. to Reformulated Blazin’ (so good, it’s scary— big screens, B-Dubs supplies tableside tab- Whereas many other casual-dining restaurants made with the unrelenting heat of the ghost lets upon which customers can play poker have a “turn-and-burn” philosophy—cycling as pepper). To wash it all down, each B-Dubs or trivia games. A social jukebox feature lets many paying guests as possible through each restaurant pours as many as 30 different guests control the music that plays on the table—at B-Dubs it’s just the opposite. Buffalo draft beers, with a full selection of domestic, restaurant’s sound system. Wild Wings encourages people to linger longer, import, and craft beer brands. You won’t go It seems like there’s always something enjoy the food, and soak up the ambiance. hungry or thirsty at B-Dubs. happening in a B-Dubs to engage custom- To help make that happen, the chain has However, the Buffalo Wild Wings recipe for ers and enhance the experience. Take the created a new staff position at each res- success goes much deeper than just selling chain’s infamous Blazin’ Wing Challenge— taurant. In addition to the usual waitstaff, wings and beer for profit. What really packs which promises a trophy-style T-shirt and each table has a “Guest Experience Captain.” ’em in and keeps ’em coming back is the a place on the Wall of Fame to any cus- According to B-Dubs’s chief marketer, the B-Dubs customer experience. Customers do tomer who can down a dozen wings with captain is “like a host at any party,” moving gobble up the wings—more than 11 million the chain’s hottest signature sauce in no from table to table, chatting with guests, wings chain-wide on last Super Bowl Sunday more than six minutes. That’s no easy personalizing their experiences, and making alone. But even more important, they come to feat considering that the Blazin’ sauce sure their needs are met. Want a special B-Dubs to watch sports, trash talk, cheer on their sports teams, and meet old friends and make new ones—that is, a total eating and social experience. “We realize that we’re not just in the business of selling wings,” says the company. “We’re something much bigger. We’re in the business of fueling the sports fan experience. Our mission is to WOW people every day!” Everything about B-Dubs is designed to deliver the ultimate sports experience, for any fan of any sport. The WOW begins the minute you step into any of Buffalo Wild Wings’s 1,100 restaurants. This is not your average dark-and-dank sports bar. Instead, a B-Dubs is like a miniature stadium, with high ceilings, ample natural light, and brightly colored furnishings and wall coverings. The newest Buffalo Wild Wings “Stadia” restau- rants are divided into barrier-free zones— including a bar area and a separate dining area. And every B-Dubs has 60 to 70 really Customer-focused mission: The Buffalo Wild Wings mission is to provide a total big flat-screen TVs lining the walls, over the eating and social environment that “fuels the sports fan experience” through bar, and about everywhere else, ensuring that in-store and online engagement. every table has the best seat in the house Reprinted with permission of Buffalo Wild Wings, Inc.  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 33 game on one screen with another game on brand in its industry for digital fan engage- tools to not just be spectators but advocates the screen next to it? Your Guest Experience ment. B-Dubs’s very active website draws of the brand,” says the chain. Captain sees to it. Need help with a tablet? 3 million visitors per month. The brand has Catering to the customer experience has Your captain lends a hand. Want to try some more than 12 million Facebook fans, 660,000 paid big dividends for Buffalo Wild Wings. new sauces? Your captain will make sugges- Twitter followers, and very active YouTube B-Dubs is now the nation’s number-one seller tions and even bring out samples of different and Instagram pages. It recently launched of chicken wings and largest pourer of draft sauces with complimentary fries for dipping. GameBreak, an app for fantasy football and beer. Over the past five years, as other casual- Adding Guest Experience Captains is a ma- other games that can be played inside or dining restaurants have struggled with fierce jor expense, especially when multiplied across outside its restaurants. According to the competition and slow growth, B-Dubs’s sales shifts in all 1,100 stores. But Buffalo Wild company’s customer experience executive, have more than tripled and profits are up 250 Wings reasons that the captains will more than GameBreak players visit more often, stay percent. The chain’s “hottest wing coating pay for themselves by enhancing the all-im- longer, and tend to “buy that second or third available comes with a warning to B-Dubs’ portant guest experience, keeping customers beer or maybe one more basket of wings.” In customers: ‘keep away from eyes, pets, and around longer, and bringing them back more all, Buffalo Wild Wings creates a host of both children.’ The sauce is called ‘Blazin’,’ says one often. Buffalo Wild Wings restaurants with cap- in-store and online promotions that inspire analyst. ‘That term also happens to be a good tains are achieving record levels of customer camaraderie. “It’s about giving [customers] description of the stock’s performance lately.’” satisfaction and loyalty compared with those that have not yet brought captains on board. “It’s just an opportunity for us to go a little Sources: Demitrios Kalogeropoulos, “Why Buffalo Wild Wings Is Spending More on Its Employees,” The Motley Fool, June 24, 2015, www.fool.com/investing/general/2015/06/24/why-buffalo-wild-wings-is-spending-more-on- deeper with the community than our competi- its-emp.aspx; Demitrios Kalogeropoulos, “3 Reasons Buffalo Wild Wings Can Keep Soaring in 2015,” The Motley tors,” says the B-Dubs marketing chief. Fool, January 9, 2015, www.fool.com/investing/general/2015/01/09/3-reasons-why-buffalo-wild-wings-can-keep- True to its “ultimate sports experience” soaring.aspx; Bryan Gruley, “The Sloppy Empire: How Buffalo Wild Wings Turned the Sports Bar into a $1.5 Billion mission, Buffalo Wild Wings actively engages Juggernaut,” Bloomberg Businessweek, April 13–19, 2015, pp. 62-65; Tanya Dua, “The Buffalo Wild Wings Recipe its customers digitally and socially outside for the ‘Ultimate Sports Experience,’” August 4, 2015, http://digiday.com/brands/buffalo-wild-wings-recipe- its restaurants as well as inside. In fact, the ultimate-sports-experience/; and http://ir.buffalowildwings.com/financials.cfm and www.buffalowildwings.com/en/, company brags that it’s the number-one accessed September 2016. Exchanges and Relationships Marketing occurs when people decide to satisfy their needs and wants through exchange Exchange relationships. Exchange is the act of obtaining a desired object from someone by offering The act of obtaining a desired object from something in return. In the broadest sense, the marketer tries to bring about a response to someone by offering something in return. some market offering. The response may be more than simply buying or trading products and services. A political candidate, for instance, wants votes; a church wants membership and par- ticipation; an orchestra wants an audience; and a social action group wants idea acceptance. 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 cus- tomer value. We will expand on the important concept of managing customer relationships later in the chapter. Markets Market The concepts of exchange and relationships lead to the concept of a market. A market is The set of all actual and potential buyers the set of actual and potential buyers of a product or service. These buyers share a par- of a product or service. ticular need or want that can be satisfied through exchange relationships. Marketing means managing markets to bring about profitable customer relationships. However, creating these relationships takes work. Sellers must search for and engage buy- ers, identify their needs, design good market offerings, set prices for them, promote them, and store and deliver them. Activities such as consumer research, product development, communication, distribution, pricing, and service are core marketing activities. Although we normally think of marketing as being carried out by sellers, buyers also carry out marketing. Consumers market when they search for products, interact with companies to obtain information, and make their purchases. In fact, today’s digital tech- nologies, from online sites and smartphone apps to the explosion of social media, have empowered consumers and made marketing a truly two-way affair. 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 “How can our customers influence us?” and even “How can our customers influence each other?” 34 | PART 1 Defining Marketing and the Marketing Process FIGURE | 1.2 A Modern Marketing System Company Suppliers Marketing Final intermediaries consumers Each party in the system adds value. Walmart cannot fulfill its promise of low Competitors prices unless its suppliers provide low costs. Ford cannot deliver a high-quality car-ownership experience unless its dealers provide outstanding service. Major environmental forces Arrows represent relationships that must be developed and managed to Figure 1.2 shows the main elements in a marketing create customer value and profitable system. Marketing involves serving a market of final consum- customer relationships. ers in the face of competitors. The company and competitors research the market and interact with consumers to understand their needs. Then they create and exchange market offerings, messages, and other marketing content with con- sumers, either directly or through marketing intermediaries. Each party in the system is affected by major environmental forces (demographic, economic, natural, technological, political, and social/cultural). Each party in the system adds value for the next level. The arrows represent relationships that must be developed and managed. Thus, a company’s success at engaging customers and building profitable relationships depends not only on its own actions but also on how well the entire system serves the needs of final consumers. Walmart cannot fulfill its promise of low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver a high- quality car-ownership experience unless its dealers provide outstanding sales and service. Author Once a company fully Comment understands its consumers and the marketplace, it must decide Designing a Customer Value–Driven Marketing which customers it will serve and how it will bring them value. Strategy and Plan Customer Value–Driven Marketing Strategy Once it fully understands consumers and the marketplace, marketing management can design a customer value–driven marketing strategy. We define marketing management Marketing management as the art and science of choosing target markets and building profitable relationships The art and science of choosing with them. The marketing manager’s aim is to engage, keep, and grow target customers target markets and building profitable by creating, delivering, and communicating superior customer value. relationships with them. To design a winning marketing strategy, the marketing manager must answer two important questions: What customers will we serve (what’s our target market)? and How can we serve these customers best (what’s our value proposition)? We will discuss these marketing strategy concepts briefly here and then look at them in more detail in Chapters 2 and 7. Selecting Customers to Serve The company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing). Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably. For example, Nordstrom profitably targets affluent professionals; Dollar General profitably targets families with more modest means. Ultimately, marketing managers must decide which customers they want to target and on the level, timing, and nature of their demand. Simply put, marketing management is customer management and demand management.  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 35 Choosing a Value Proposition The company must also decide how it will serve targeted customers—how it will dif- ferentiate 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. JetBlue promises to put “You Above All” by bringing “humanity back to travel.” By con- trast, Spirit Airlines gives you “Bare Fare” pricing: “Less Money. More Go.” Homewood Suites by Hilton wants you to “Make yourself at home.” Meanwhile, the Hyatt Regency brand declares that sometimes “It’s good not to be home.” Its ads highlight the joys of traveling and the fun things that people do when they are traveling on business. Such value propositions differentiate one brand from another. They answer the customer’s question: “Why should I buy your brand rather than a competi- tor’s?” Companies must design strong value proposi- tions that give them the greatest advantage in their target markets. Marketing Management Orientations Marketing management wants to design strategies that will engage target customers and build profitable relationships Value propositions: The Hyatt Regency brand declares that with them. But what philosophy should guide these market- sometimes “It’s good not to be home.” Its ads highlight the joys of business travel and staying at a Hyatt Regency hotel. ing strategies? What weight should be given to the interests Courtesy Hyatt Corporation. Photograph ©Richard Schultz-2015. Talent: Dean West. of customers, the organization, and society? Very often, these interests conflict. There are five alternative concepts under which organizations design and carry out their marketing strategies: the production, product, selling, marketing, and societal marketing concepts. Production concept The Production Concept. The production concept holds that consumers will favor The idea that consumers will favor products that are available and highly affordable. Therefore, management should focus products that are available and highly on improving production and distribution efficiency. This concept is one of the oldest affordable; therefore, the organization orientations that guides sellers. should focus on improving production The production concept is still a useful philosophy in some situations. For ex- and distribution efficiency. ample, both personal computer maker Lenovo and home appliance maker Haier domi- nate the highly competitive, price-sensitive Chinese market through low labor costs, high production efficiency, and mass distribution. However, although useful in some situations, the production concept can lead to marketing myopia. Companies adopting this orientation run a major risk of focusing too narrowly on their own operations and losing sight of the real objective—satisfying customer needs and building customer relationships. Product concept The Product Concept. The product concept holds that consumers will favor products The idea that consumers will favor that offer the most in quality, performance, and innovative features. Under this concept, products that offer the most quality, marketing strategy focuses on making continuous product improvements. performance, and features; therefore, Product quality and improvement are important parts of most marketing strate- the organization should devote its gies. However, focusing only on the company’s products can also lead to marketing energy to making continuous product myopia. For example, some manufacturers believe that if they can “build a bet- improvements. ter 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. Furthermore, a better mousetrap will not sell unless the manufac- turer designs, packages, and prices it attractively; places it in convenient distribution channels; brings it to the attention of people who need it; and convinces buyers that it is a better product. 36 | PART 1 Defining Marketing and the Marketing Process Selling concept The Selling Concept. Many companies follow the selling concept, which holds that The idea that consumers will not buy consumers will not buy enough of the firm’s products unless it undertakes a large-scale enough of the firm’s products unless the selling and promotion effort. The selling concept is typically practiced with unsought firm undertakes a large-scale selling and goods—those that buyers do not normally think of buying, such as life insurance or blood promotion effort. 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 trans- actions rather than on building long-term, profitable customer relationships. The aim often is to sell what the company makes rather than to make what the market wants. It assumes that customers who are coaxed into buying the product will like it. Or, if they don’t like it, they will possibly forget their disappointment and buy it again later. These are usually poor assumptions. Marketing concept The Marketing Concept. The marketing concept holds that achieving organizational A philosophy in which achieving goals depends on knowing the needs and wants of target markets and delivering the organizational goals depends on knowing desired satisfactions better than competitors do. Under the marketing concept, customer the needs and wants of target markets focus and value are the paths to sales and profits. Instead of a product-centered make-and- and delivering the desired satisfactions sell philosophy, the marketing concept is a customer-centered sense-and-respond philosophy. better than competitors do. The job is not to find the right customers for your product but to find the right products for your customers. 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 depart- ment; 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. Implementing the marketing concept often means more than simply responding to customers’ stated desires and obvious needs. Customer-driven companies research custom- ers deeply to learn about their desires, gather new product ideas, and test product im- provements. Such customer-driven marketing usually works well when a clear need exists and when customers know what they want. In many cases, however, customers don’t know what they want or even what is possible. As Henry Ford once remarked, “If I’d asked people what they wanted, they would have said faster horses.”9 For example, even 20 years ago, how many consumers would have thought to ask for now-commonplace products such as tablet computers, smartphones, digital cameras, 24-hour online buying, digital video and music stream- ing, and GPS systems in their cars and phones? Such situations call for customer-driving marketing—understanding customer needs even better than customers themselves do and creating products and services that meet both existing and latent needs, now and in the future. As an executive at 3M put it, “Our goal is to lead customers where they want to go before they know where they want to go.” FIGURE | 1.3 Starting Focus Means Ends Selling and Marketing point Concepts Contrasted The selling Existing Selling Profits through The marketing concept Factory and takes an outside-in view concept products sales volume that focuses on satisfying promoting customer needs as a path to profits. As The selling concept takes an Southwest Airlines's colorful inside-out view that focuses on founder puts it, “We don’t existing products and heavy Profits through have a marketing The marketing Customer Integrated selling. The aim is to sell what Market customer department; we have a the company makes rather than concept needs marketing satisfaction customer department.” making what the customer wants.  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 37 FIGURE | 1.4 Society (Human welfare) Online grocer Door to Door Organics knows Three Considerations Underlying that doing what’s right benefits both the Societal Marketing Concept customers and the company. It wants to “make a positive impact on our food system, make people healthier, connect communities, grow local economies, and inspire people to eat Good Food.” Societal marketing concept Consumers Company (Want satisfaction) (Profits) Societal marketing concept The Societal Marketing Concept. The societal marketing concept questions The idea that a company’s marketing whether the pure marketing concept overlooks possible conflicts between consumer short- decisions should consider consumers’ run wants and consumer long-run welfare. Is a firm that satisfies the immediate needs and wants, the company’s requirements, wants of target markets always doing what’s best for its consumers in the long run? The consumers’ long-run interests, and societal marketing concept holds that marketing strategy should deliver value to custom- society’s long-run interests. ers 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.10 The concept of shared value focuses on creating economic value in a way that also creates value for society. A growing number of companies known for their hard- nosed approaches to business—such as GE, Dow, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Walmart—are rethinking the interactions between society and corpo- rate performance. They are concerned not just with short-term economic gains but with the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, and the eco- nomic well-being of the communities in which they operate. One prominent marketer calls this Marketing 3.0. “Marketing 3.0 organizations are values-driven,” he says. “I’m not talking about being value-driven. I’m talking about ‘values’ plural, where values amount to caring about the state of the world.” Another marketer calls it purpose-driven marketing. “The future of profit is purpose,” he says.11 As Figure 1.4 shows, companies should balance three considerations in setting their marketing strategies: company prof- its, consumer wants, and society’s interests. Online grocer Door to Door Organics operates this way:12 Door to Door Organics delivers fresh, high-quality, organic, natu- ral, and local meat, dairy, produce, and groceries directly to homes, offices, and schools in 16 states across the country. Customers order online and receive weekly deliveries to their doorsteps year-round. But Door to Door Organics does much more than just sell groceries online for profit. It also dedicates itself to a deeply felt mission “to bring more Good Food—food that positively impacts health, com- munities, and the environment—to more people in a sustainable way.” It wants to “make a positive impact on our food system, make people healthier, connect communities, grow local economies, and inspire people to eat Good Food.” The societal marketing concept: Door to Door Organics does To meet its ambitious Good Food mission, Door to Door sources more than just sell natural and organic groceries online for profit. most of what it sells from local family farms and businesses who Its deep-felt mission is “to bring more Good Food—food that are “dedicated stewards of the land and use USDA-certified organic positively impacts health, communities, and the environment—to practices that are healthier for both animals and people, better for the more people in a sustainable way.” soil, and reduce carbon emissions.” Door to Door delivers to specified Door to Door Organics areas on specific days of the week, maintaining a tight delivery radius 38 | PART 1 Defining Marketing and the Marketing Process that reduces both costs and carbon emissions. And through careful food management, the com- pany puts 44 percent less wasted food in landfills than the average grocery store. Door to Door Organics also treats customers responsibly. All deliveries carry a #JoyDelivered guarantee—if a customer isn’t “absolutely delighted,” the company will make it right. Thanks to its societal mis- sion, Door to Door Organics is thriving, suggesting that doing good can benefit both the planet and the company. Preparing an Integrated Marketing Plan and Program 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 cus- tomer 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 com- municates and delivers the intended value to chosen customers. We will explore marketing programs and the marketing mix in much more detail in later chapters. Author Doing a good job with Comment the first three steps in the marketing process sets the stage Managing Customer Relationships and Capturing for step four, building and managing customer relationships. Customer Value Engaging Customers and Managing Customer Relationships The first three steps in the marketing process—understanding the marketplace and cus- tomer needs, designing a customer value–driven marketing strategy, and constructing a marketing program—all lead up to the fourth and most important step: engaging custom- ers 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 Customer relationship management is perhaps the most important concept of modern marketing. Customer relationship In the broadest sense, customer relationship management is the overall process of build- management ing and maintaining profitable customer relationships by delivering superior customer value The overall process of building and and satisfaction. It deals with all aspects of acquiring, engaging, and growing customers. maintaining profitable customer relationships by delivering superior Relationship Building Blocks: Customer Value and Satisfaction. The key to build- customer value and satisfaction. ing 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. Attracting and retaining customers can be a difficult task. Customers often face a bewildering array of products and services from which to choose. A customer buys from Customer-perceived value the firm that offers the highest customer-perceived value—the customer’s evaluation The customer’s evaluation of the of the difference between all the benefits and all the costs of a market offering relative to difference between all the benefits and all those of competing offers. Importantly, customers often do not judge values and costs “ac- the costs of a marketing offer relative to curately” or “objectively.” They act on perceived value. those of competing offers. To some consumers, value might mean sensible products at affordable prices. To other con- sumers, however, value might mean paying more to get more. For example, a Steinway piano— any Steinway piano—costs a lot. But to those who own one, a Steinway is a great value:13 A Steinway grand piano typically runs anywhere from $61,000 to as high as several hundred thousand dollars. The most popular model sells for about $87,000. But ask anyone who owns a Steinway grand piano, and they’ll tell you that, when it comes to Steinway, price is nothing; the Steinway experience is everything. Steinway makes very high-quality pianos—handcrafting  CHAPTER 1 | Marketing: Creating Customer Value and Engagement 39 each Steinway from more than 12,000 individual parts requires up to one full year. But, more importantly, owners get the Steinway mystique. The Steinway name evokes images of classical concert stages and the ce- lebrities and performers who’ve owned and played Steinway pianos across more than 160 years. But Steinways aren’t just for world-class pianists and the wealthy. Ninety-nine percent of all Steinway buyers are amateurs who perform only in their dens. So is a Steinway piano worth its premium price compared with less expensive pianos? To many con- sumers, the answer is no. But to Steinway custom- ers, whatever a Steinway costs, it’s a small price to pay for the value of owning one. As one Steinway user puts it, “A pianist without a Steinway, for me, is the same as a singer without a voice.” Says another, “My friendship with the Steinway piano is one of the most important and beautiful things in my life.” Who can put a price on such feelings? Perceived value: A Steinway piano—any Steinway piano—costs a Customer satisfaction depends on the product’s lot. But a to Steinway customer, it’s a small price to pay for the value of perceived performance relative to a buyer’s expecta- owning one. tions. If the product’s performance falls short of ex- © Westend61 GmbH/Alamy Stock Photo pectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Customer satisfaction Outstanding marketing companies go out of their way to keep important custom- The extent to which a product’s perceived ers satisfied. Most studies show that higher levels of customer satisfaction lead to greater performance matches a buyer’s customer loyalty, which in turn results in better company performance. Companies aim to expectations. delight customers by promising only what they can deliver and then delivering more than they promise. Delighted customers not only make repeat purchases but also become will- ing marketing partners and “customer evangelists” who spread the word about their good experiences to others. For companies interested in delighting customers, exceptional value and service be- come part of the overall company culture. For example, L.L.Bean—the iconic American outdoor apparel and equipment retailer—was founded on the principle that keeping cus- tomers satisfied is the key to building lasting relationships.14 Year after year, L.L.Bean lands in the top 10 of virtually every list of top service companies, including J.D. Power’s most recent list of “customer service champions.” The customer-service culture runs deep at L.L.Bean. More than 100 years ago, Leon Leonwood Bean founded the company on a philosophy of complete customer satisfaction, expressed in the following guarantee: “I do not consider a sale complete until [the] goods are worn out and the customer [is] still satisfied.” To this day, customers can return any item, no questions asked, even decades after purchase. The company’s customer-service philosophy is perhaps best summed up in founder L.L.’s answer to the question “What is a customer?” His answer still forms the backbone of the company’s values: “A customer is the most important person ever in this company—in person or by mail. A customer is not de- pendent on us, we are dependent on him. A customer is not an interruption of our work, he is the purpose of it. We are not doing a favor by serving him, he is doing us a favor by giving us the opportunity to do so. A customer is not someone to argue or match wits with. Nobody ever won an argument with a customer. A customer is a person who brings us his wants. It is Customer satisfaction: Customer service champion L.L.Bean was our job to handle them profitably to him and to our- founded on a philosophy of complete customer satisfaction. As founder selves.” Adds former L.L.Bean CEO Leon Gorman: “A Leon Leonwood Bean put it, “I do not consider a sale complete until [the] lot of people have fancy things to say about customer g