  Chapter 

What is marketing?

Marketing is the process of engaging customers and building profitable customer relationships by creating value for customers and capturing value in return. The goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering value and satisfaction.

The marketing process can be explained in five steps. The first four steps in the marketing process creates value for customers. In the final step, the company rewards of its strong customer relationships by capturing value from customers.

What are the five steps in the  model of the marketing process for creating and capturing customer value?

Step 1:Understanding the marketplace and customer needs

There are five different core customer and marketplace concepts.

  1. Customer needs, wants and demands. Human needs are states of felt deprivation and can include physical, social and individual needs. Wants are the form human needs take as they are shaped by culture and individual personality. Demands are human wants that are backed by buying power.
  2. Market offerings are a combination of products, services and experiences offered to a market to satisfy a need or want. These can be physical products, but also services – activities that are essentially intangible. The phenomenon of marketing myopia is paying more attention to company products, than to the underlying needs of consumers.
  3. Value and satisfaction are key building blocks for customer relationships. Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail to attract enough buyers. Too high expectations, buyers will be disappointed.
  4. Exchanges are the acts of obtaining a desired object form someone by offering something in return. Marketing consists of actions trying to build an exchange relationship with an audience.
  5. market is the set of all actual and potential buyers of a product or service. Marketing involves serving a market of final consumers 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 content with consumers, either directly or through marketing intermediaries. Each part 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 show the relations who needs to be build en managed.

Step 2: Designing a customer-driven marketing strategy

Marketing management is the art and science of choosing target markets and building profitable relationships with them. The aim is to find, attract, keep and grow the targeted customers by creating and delivering superior customer value. The target audience can be selected by dividing the market into customer segments (market segmentation) and selecting which segments to go after (target marketing).

A company must also decide how to serve the targeted audience, by offering a value proposition. A value proposition is the set of benefits or values a company promises to deliver.

There are five alternative concepts that companies use to carry out their marketing strategy:

  1. The production concept: the idea that consumers will favour products that are available and highly affordable and that the organisation should therefore focus on improving production and distribution efficiency.
  2. The product concept: the idea that consumers will favour products that offer the most quality, performance, and features and that the organisation should therefore devote its energy to making continuous product improvements.
  3. The 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. The marketing concept: the idea that achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. There is a contrast between the selling concept and the marketing concept. The selling concept takes an inside-out perspective. The marketing concept takes an outside-in perspective.
  5. The societal marketing concept is the idea that a company’s marketing decisions should consider consumer wants, the company’s requirements, consumers’ long-term interests and society’s long-term interests. Companies should deliver value in a way that maintains consumers and society’s well being. The three considerations that underlie the societal marketing concept are: company profits, consumer wants and society’s interest.

Step 3: Constructing an integrated marketing plan

A marketing strategy outlines which customers it will serve and how it will create value. The marketer develops an integrated marketingplan that will deliver value to customers. It contains the marketingmix: the tools used to implement the strategy, which are the four P’s: product, price, place and promotion.

Step 4: Building customer relationships

The first three steps all lead to this one: building profitable customer relationships. Customer relationship management (CRM) is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

The crucial part here is to create superior customer-perceived value, which is the customer’s evaluation of the difference between all the benefits and all the costs of a marketing offer, in relation to those of competing offers and superior customer satisfaction, which is the extent to which a product’s perceived performance matches a buyer’s expectations. Customer delight can be achieved by delivering more than promised.

Customer relationships exist at multiple levels. They can be basic relationships or full partnerships and everything in between. In current times, companies are choosing their customers more selectively. New technologies have paved the way for two-way customer relationships, where consumers have more power and control. The marketing world is also embracing customer-managed relationships: marketing relationships in which customers, empowered by today’s new digital technologies, interact with companies and with each other to shape their relationships with brands, called customer-engagement marketing. A growing part of this dialogue is consumer-generated marketing: brand exchanges created by consumers themselves, by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers.

Today’s marketers often work with a variety of partners to build consumer relationships. Partner relationship management means working closely with partners in other company departments and outside the company to jointly bring greater value to customers. These partners can be inside the company, but also outside the firm. The supply chain is a channel, from raw material to final product, and the companies involved can be partners through supply chain management.

Step 5: Capturing customer value

The final step of the model involves capturing value. Customer lifetime value is the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Companies must aim high in building customer relations, to make sure that customers are coming back. Good CRM can help increase the share of customer, the portion of the customer’s purchasing that a company gets in its product categories. Customer equity is the total combined customer lifetime values of all of the company’s customers. It is the future value of the company’s customer base.

When building relationships, it is important to build the right relationships with the right customers. Customers can be high- or low-profitable and short-term or long-term oriented. When putting these on two axes, a matrix of four terms appears. The four terms can be explained as follow:

  1. Butterflies are profitable, but not loyal and have a high profit potential (High potential profitability, Short-term Projected loyalty).
  2. True friends are both profitable and loyal and the firm should invest in a continuous relationship (High potential profitability, Long-term, Projected loyalty).
  3. Barnacles are loyal, but unprofitable. If they can’t be improved, the company should try to get rid of them (Low Potential profitability, Long-term Projected loyalty).
  4. Strangers are not loyal and unprofitable; the company should not invest in them (Low Potential profitability, Short-term, Projected loyalty).

What are changes in the marketing landscape?

Today’s world is moving and changing fast. There are five recent changes in the marketplace:

  1. The digital age: the explosive growth in digital technology has fundamentally changed the way we live. Digital and social media marketing focuses on using digital marketing tools such as websites, social media, mobile apps and ads, online video, e-mail and blogs that engage consumers anywhere, at any time, through their digital devices. Social media marketing is becoming really big and important for companies, just as mobile marketing: engaging customers by let them using their mobile devices.
  2. The changing economic environment: the Great Recession of 2008 and 2009 hit consumers hard and forced two decades of overspending to a stop. Although the economy is on its rise again, sensible consumption is really important again and it appears to be here to stay. Companies in all industries have to realign their strategy with this.
  3. The growth of not-for-profit marketing: marketing is used more and more by many not-for-profit organizations, such as hospitals, colleges, foundations and churches. They all face the competition of gaining support and memberships. Even government agencies are showing their interest in marketing.
  4. Rapid globalization: because companies are redefining their customer relationships, they are also taking a fresh look at the ways in which they relate with the broader world around them. Almost each company faces global competition, and managers should take this changing world in consideration.
  5. Sustainable marketing: increasingly important is sustainable marketing and the call for more environmental and social responsibility. Customers are asking and demanding companies to deliver value in a socially and environmentally responsible way.

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