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Summary Principles of Marketing chapter 1: managing profitable customer relationships

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Course
Marketing

Institution
University Of Cape Town (UCT)

Summary study book Principles of Marketing of Kotler, P., Armstrong, G (chapter 1) - ISBN: 0132390027, Edition: first, Year of publication: 2010

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Uploaded on June 1, 2013
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Written in 2011/2012
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marketing introduction to marketing marketing process

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Chapter 1 - Marketing
Marketing – The process by which firms create value for customers and build strong customer
relationships in order to capture value from customers in return.

The marketing process:

1. Understanding the marketplace and customer needs:
Five core customer and marketplace concepts:
 Needs, wants and demands
Needs – States of felt deprivations
Wants – The form human needs take as shaped by culture and individual personality
Demands – Humans wants that are backed by buying power
 Market offerings – Products, services and experiences
Market offering: Some combination of products, services, information, or experiences
offered to a market to satisfy a want or need
Marketing Myopia: The mistake of paying more attention to the specific products a firm
offers than to the benefits and experiences produced by these products
 Customer value and satisfaction
 Exchanges and relationships
Exchange – The act of obtaining a desired object from someone by offering something
in return
 Markets
Market – The set of all actual and potential buyers of a product or service

Figure 1.1. Elements of a modern marketing system

2. Designing a customer driven marketing strategy
Marketing management – The art and science of choosing target markets and building
profitable relationships with them.
 Selecting customers to serve
Divide market into segments of customers, and select target markets (ST)

,  Choosing a value proposition (differentiation, positioning)
 Marketing management orientations
Five different concepts for marketing strategies:
1. Production Concept: The idea that consumers will favour products that are
available and highly affordable and that the firm should therefore focus on
improving production and distribution efficiency
2. Product concept: The idea that consumers will favour products that offer the most
quality, performance and features and that the firm should therefore devote its
energy to making continuous product improvements
3. Selling concept: The idea that consumers will not buy enough of the firm’s product
unless it undertakes a large-scale selling and promotion effort.
4. Marketing concept: The marketing management philosophy that achieving a firm’s
goals depend on knowing the needs and wants of target markets, and delivering the
desired satisfactions better than competitors do.
5. Social marketing concept: A principle of enlightened marketing that holds that a
firm should make good decisions by considering consumers’ wants, the firm’s
requirements, consumers’ long-run interests and society’s long-run interests

3. Preparing an integrated marketing plan and programme
 Will actually deliver intended value to target customers
 Includes 4 P’s (7 P’s for services)

4. Building customer relationships
 Customer Relationship management:
CRM – The overall process of building and maintaining profitable customer
relationships by delivering superior customer value and satisfaction

Relationship building blocks:
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. This is important as customers do not judge product values and costs
accurately or objectively. They act on perceived value.
Customer Satisfaction – The extent to which a product’s perceived performance
matches a buyer’s expectations. Depends on the product’s perceived performance
relative to a buyer’s expectations. Smart firms aim to delight customers by delivering
more than promised.

Customer relationship levels and tools
 Basic relationship (one extreme): Many, low margin customers, create customer
experience that will ensure the building of lasting relationships. Not very personal.
 Full partnership (other extreme): Very personal, mainly with few (key customers)
and high margins
→ Usually appropriate level is somewhere between the two
 Frequency marketing programmes: Example include rewarding customers who buy a
lot, SAA miles&more; basically to create loyalty

,  Club marketing programmes: Offer members special benefits, create member
communities (BMW golf day)

The Changing Nature Of Customer Relationships

Important trends in the way firms are relating to customers:
 Selective relationship management: Use customer profitability analysis to select
customers who will be more profitable, and target them
 Retain: Trend towards using customer relationship to retain customers and build
a long-term relationship. On average, it costs 5-10 times as much to attract a
customer as it does to keep one
 Direct marketing: Trend towards direct sales (online, catalogues etc)

Partner relationship management:
 Instead of letting departments work separately within the firm, e.g. let financial
analysis and marketing department work together to jointly bring more value to
the customer. Partners inside the firm.
 Work with partners outside the firm: Marketing channels consist of distributors,
retailers and others who connect the firm to its buyers
 Supply chain describes a longer channel, stretching from raw materials to
components to final products, carried to final buyers. Supply chain management
strengthens connections with partners along the way.
 Has lead to a lot of strategic alliances (E.g. Dell cooperating with Microsoft)

5. Capturing value from customers
First four steps involve creating value for customers, last one involves getting value in
return, i.e. sales, market share and profits.

Creating customer loyalty and retention
 Slightest drop from complete satisfaction can result in enormous loss in loyalty
 Losing customer is not only losing one sale (Think FNB student account, lock in
customer for life)
 CRM aims to create customer satisfaction and delight.

Growing share of customer
 Customer lifetime value: The value of the entire stream of purchases that a
customer would make over a lifetime of patronage
 Share of customer: The portion of the customer’s purchasing a firm gets in its
product categories

Building customer equity
Customer equity – The total combined customer lifetime value of all the firm’s customers.
Sales and market share reflect the past, customer equity suggests the future. Organisational
structure must be built around capitalisation of customer value, i.e. get to know the
customer’s value and then react to that.

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