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Solution Manual for Principles of Marketing, 18th Edition

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    Principles of Marketing Eighteenth Edition Philip Kotler Gary Armstrong olution Manual Revised by Christy Ashley SOLUTION MANUAL

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    Chapter 1 MARKETING: CREATING CUSTOMER VALUE AND ENGAGEMENT MARKETING STARTER: CHAPTER 1 AMAZON: Obsessed with Creating Customer Value, Engagement, and Relationships Synopsis Amazon, which was founded in 1995 as a book store, has experienced explosive growth by moving beyond online selling to physical stores, video and music streaming, cloud services, and the Internet of Things, which allowed it to grow revenue to $233 billion. Its CEO, Jeff Bezos, said that Amazon’s success is due to its obsession with customers. It is driven to create genuine value and special experiences for customers. Selection, convenience, and value are the foundation stones of the Amazon experience, and Amazon has introduced innovations that make shopping easier (e.g. 1-Click ordering; Alexa; fast delivery; Amazon Key). Discussion Objective An active 10-minute discussion of the Amazon story will help link students to key foundational marketing concepts. Amazon provides an excellent vehicle for introducing the overall marketing framework presented in Chapter 1 and throughout the text: Good marketing is all about creating value for customers and building strong customer relationships in order to capture value from customers in return. Starting the Discussion To start the discussion, ask the class to share their experiences with Amazon. What attracts them to Amazon? What is it about the customer experience that is so enticing? Next, pull up Amazon’s Facebook page. Click on articles and links to further explore. Together, note the variety of approaches Amazon takes and the focus on customers. Investigate Amazon’s other media, including the company’s website, Twitter, Snapchat, and YouTube. In what ways does Amazon’s focus on customer service show through? You should be familiar with these websites in advance so that you can move purposefully to keep the discussion moving. But let the class discussion interactively guide the sites that you explore, taking you deeper into each page. Start with the first question below, and then ask other questions as the discussion allows. Throughout the discussion, keep your objective firmly in mind: to emphasize that good marketing is all about creating value for customers and managing customer relationships in order to capture value from customers in return. The final question leads the class into Chapter 1 and the discussion for the day. Have fun with this one! Discussion Questions 1. The first marketing story in the text is about Amazon. Let’s go to Amazon’s Facebook page. What stands out about Amazon? Go to Amazon’s other media channels to find examples of how Amazon connects the company and the customers. 2. How does the Amazon shopping experience affect performance? The company has grown astronomically in market share and strength of customer relationships, due largely to its customer satisfaction and customer experience. 3. Why did the authors choose Amazonas the very first company to highlight in the first chapter of the text? How does this opening story relate to the major points made in the rest of the chapter? (This question should lead naturally into major Chapter 1 concepts: What is marketing and what is the marketing process? What is customer-driven marketing? Why are customer value, customer satisfaction, and customer relationships so important?)

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    CHAPTER OVERVIEW Use Power Point Slide 1 Here In this chapter, we introduce the basic concepts of marketing. It starts with the question, “What is marketing?” Simply put, marketing is managing profitable customer relationships. The aim of marketing is to create value for customers and to capture value from customers in return. Next, the five steps in the marketing process are discussed—from understanding customer needs, to designing customer-driven marketing strategies and integrated marketing programs, to building customer relationships and capturing value for the firm. Finally, there is a discussion of the major trends and forces affecting marketing in this age of customer relationships. CHAPTER OBJECTIVES Use Power Point Slide 1-2 here 1. Define marketing and outline the steps in the marketing process. 2. Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. 3. Identify the key elements of a customer value–driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. 4. Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. 5. Describe the major trends and forces that are changing the marketing landscape in this age of relationships. CHAPTER OUTLINE p. 2 INTRODUCTION PPT 1-3 Opening Vignette Questions 1. The first marketing story in the text is about Amazon. What stands out about Amazon? 2. How does the Amazon shopping experience affect performance? 3. Why did the authors choose Amazon as the very first company to highlight in the first chapter of the text? How does this opening story relate to the major points made in the rest of the chapter? p. 3 Photo: Amazon

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    PPT 1-4 PPT 1-5 p. 4 p. 5 Define marketing and outline the steps in the marketing process. WHAT IS MARKETING? A simple definition of marketing is engaging customers and managing profitable customer relationships. Marketing must both attract new customers and grow current customers. Every organization must perform marketing functions, not only for-profit companies. Nonprofits (colleges, hospitals, churches, etc.) also must perform marketing. Marketing Defined Most people think of marketing only as selling and advertising or “telling and selling.” Marketing must focus on satisfying customer needs. We define marketing as the process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return. Learning Objective 1 p. 4 Key Term: Marketing p. 6 Photo: Social media marketing on mobile devices  Troubleshooting Tip For most students, this will be their first introduction to marketing and all its ramifications. To most of them, marketing is nothing more than selling and/or advertising, and this gets reinforced daily when they see “marketing” job ads that are really sales positions. It helps to get students talking about what marketing is, and to give examples of what they consider good marketing. Try to bring in contemporary examples that the students can relate to. p. 6 PPT 1-7 The Marketing Process Figure 1.1 shows the five-step marketing process. 1. Understand the marketplace and customer needs and wants. 2. Design a customer value-driven marketing strategy. 3. Construct an integrated marketing program that delivers superior value. p. 6 Figure 1.1: The Marketing Process: Creating and Capturing Customer Value

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    4. Engage customers, build profitable relationships, and create customer delight. 5. Capture value from customers to create profits and customer equity. 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. Review Learning Objective 1: Define marketing and outline the steps in the marketing process. p. 6 PPT 1-8 PPT 1-9 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS Five core customer and marketplace concepts are critical: (1) needs, wants, and demands ; (2) market offerings (products, services, and experiences) ; (3) value and satisfaction ; (4) exchanges and relationships ; and (5) markets . Customer Needs, Wants, and Demands As the first step in the marketing process, the company must fully understand consumers and the marketplace in which it operates. The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include physical, social, and individual needs. These needs were not created by marketers; they are a basic part of the human makeup. Wants are the form human needs take as they are shaped by culture and individual personality. A typical American needs food but wants a Big Mac. Learning Objective 2 p. 6 Key Terms: Needs, Wants, Demands p. 7 Photo: Airbnb

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    When backed by buying power, wants become demands . The best marketing companies go to great lengths to learn and understand their customers’ needs, wants, and demands. p. 7 PPT 1-10 Market Offerings — Products, Services, and Experiences Needs and wants are fulfilled through market offerings — some combination of products, services, information, or experiences offered to a market to satisfy a need or want. Market offerings include products and services —activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Marketing myopia occurs when a company becomes so taken with their own products that they lose sight of underlying customer needs. p. 7 Key Term: Market offerings p. 7 Key Term: Marketing myopia p. 7 Photo: Apple Store p. 8 Real Marketing 1.1 p. 9 p. 9 PPT 1-11 Customer Value and Satisfaction 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 switch to competitors and disparage the product to others. Customer value and customer satisfaction are key building blocks for developing and managing customer relationships. Exchanges and Relationships Exchange is the act of obtaining a desired object from someone by offering something in return. Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences. p. 9 Key Term: Exchange

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    p. 9 PPT 1-12 PPT 1-13 Markets A market is the set of actual and potential buyers of a product. Marketing means managing markets to bring about profitable customer relationships. Figure 1.2 shows the main elements in a modern marketing system. Review Learning Objective 2: Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. p. 9 Key Term: Market p. 10 Figure 1.2: A Modern Marketing System p. 10 PPT 1-14 PPT 1-15 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 Marketing management is defined as the art and science of choosing target markets and building profitable relationships with them. The marketing manager must answer two important questions: 1. What customers will we serve (what’s our target market)? 2. How can we serve these customers best (what’s our value proposition)? Learning Objective 3 p. 10 Key Term: Marketing management p. 10 Selecting Customers to Serve A 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 ). Marketing managers know they cannot serve all customers. By trying to do so, they end up not serving any well. Marketing managers must decide which customers they want to target, and on the level, timing, and nature of their demand.  Troubleshooting Tip

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    The concept of not serving all customers may be confusing to students. Most of them have not yet encountered anything like it. However, the light bulb seems to go on with a discussion of crowded national parks and the efforts made to have people visit them during off-peak travel times. Having students come up with their own examples will increase the level of understanding. p. 11 PPT 1-16 p. 11 PPT 1-17 Marketing management is customer management and demand management. Choosing a Value Proposition A company’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs. (BMW promises “the ultimate driving machine.”) Such value propositions differentiate one brand from another. Marketing Management Orientations Marketing management wants to design strategies that will build profitable relationships with target consumers. But what philosophy should guide these marketing strategies? There are five alternative concepts under which organizations design and carry out their marketing strategies. The Production Concept The production concept holds that consumers will favor products that are available and highly affordable. Management should focus on improving production and distribution efficiency. The Product Concept The product concept holds that consumers will favor products that offer the most in quality, performance, and innovative features. Under this concept, marketing strategy focuses on making p. 11 Photo: Sonos p. 11 Key Terms: Production concept, Product concept, Selling concept

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    p. 11 PPT 1-16 continuous product improvements. The Selling Concept The selling concept holds that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort. The concept is typically practiced with unsought goods— those that buyers do not normally think of buying, such as insurance or blood donations. These industries must be good at tracking down prospects and selling them on product benefits. The Marketing Concept The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors. Under the marketing concept, customer focus and value are the paths to sales and profits. Rather than a “make and sell” philosophy, it 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. Customer-driven companies research current customers deeply to learn about their desires, gather new product and service ideas, and test proposed product improvements. Customer-driven marketing requires understanding customer needs even better than customers themselves do and creating products and services that meet existing and latent needs. Designing a Customer Value-Driven Marketing Strategy 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 p. 12 Key Term: Marketing concept p. 12 Figure 1.3: Selling and Marketing Concepts Contrasted

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    p. 13 PPT 1-17 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. 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. The Societal Marketing Concept The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare . 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. As Figure 1.4 shows, companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests. p. 12 Key Term: Societal marketing concept p. 13 Figure 1.4: Three Considerations Underlying the Societal Marketing Concept p. 13 Photo: Jeni’s Splendid Ice Creams  Troubleshooting Tip Societal marketing is also something that can be a little unclear to students. Why should fast food chains, for instance, be responsible for the nation’s obesity (just one very topical discussion point)? Understanding how one should balance the need for profits with what some might consider “soft” issues can be difficult at times. That can be even more difficult among the politically astute students, as they can easily lead the class into a left versus right discussion on individual versus corporate versus governmental responsibility. Try not to let that happen by focusing on how companies can increase revenues and profits by showing that they care about customers and communities. Newman’s Own is a potential brand to discuss because the company donates most profits to charities and strives to ensure a sustainable environment. p. 14 PREPARING AN INTEGRATED MARKETING PLAN

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    PPT 1-20 AND PROGRAM The company’s marketing strategy outlines which customers the company will serve and how it will create value for these customers. Next, the marketer develops an integrated marketing program that will deliver the intended value to target customers. The marketing program consists of the firm’s marketing mix , the set of marketing tools the firm uses to implement its marketing strategy. The marketing mix tools are classified into the four Ps of marketing: product, price, place, and promotion. The firm blends these marketing mix tools into a comprehensive integrated marketing program that communicates and delivers the intended value to chosen customers. Review Learning Objective 3: Identify the key elements of a customer value-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. p. 1 4 PPT 1-21 PPT 1-22 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. ENGAGING CUSTOMERS AND MANAGINGCUSTOMER RELATIONSHIPS Customer Relationship Management Customer relationship management is perhaps the most important concept of modern marketing. Customer relationship management is the overall process of building and maintaining profitable customer relation- ships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping, and growing customers. Learning Objective 4 p.14 Photo: Patek Phillippe p. 15 Key Terms: Customer relationship management, Customer- perceived value

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    p. 15 p. 16 Relationship Building Blocks: Customer Value and Satisfaction The key to building lasting customer relationships is to create superior customer value and satisfaction. Customer-perceived value is 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. Customers often do not judge values and costs “accurately” or “objectively.” Instead, customers act on perceived value. 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. Although the customer-centered firm seeks to deliver high customer satisfaction relative to competitors, it does not attempt to maximize customer satisfaction. A company can always increase customer satisfaction by lowering its price or increasing its services. But this may result in lower profits. The purpose of marketing is to generate customer value profitably. Customer Relationship Levels and Tools Companies can build customer relationships at many levels. At one extreme, a company with many low-margin customers may seek to develop basic relationships with them. At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with p. 15 Key Term: Customer satisfaction p. 15 Photo: L.L.Bean p. 16 Photo: Uber Rewards

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    customers. Many companies offer frequency marketing programs that reward customers who buy often or in large quantities. p. 17 PPT 1-23 Customer Engagement and Today’s Digital and Social Media Yesterday’s big companies focused on mass marketing to all customers at arm’s length. Today’s companies are building deeper, more direct, and more lasting relationships with carefully selected customers. The new marketing is customer-engagement marketing , fostering direct and continuous customer involvement in shaping brand conversations, brand experiences, and brand community. It involves using a rich mix of online, mobile, and social media marketing that promotes engagement and conversation. 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. 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. Newly empowered consumers have more information about brands, and they have a wealth of digital platforms for airing and sharing their brand views with others. Customer brand advocacy is actions by which satisfied customers initiate favorable interactions with others about a brand. The marketing world is now embracing customer-managed relationships. Companies can no longer rely on marketing by intrusion . Companies must practice marketing by attraction —creating market offerings and messages that involve consumers p. 17 Key Terms: Customer- engagement marketing, Customer brand advocacy p. 17 Photo: Bark Box

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    p. 18 PPT 1-25 rather than interrupt them. Consumer-generated marketing has become a significant marketing force. Here, consumers themselves are playing a bigger role in shaping their own brand experiences and those of others. As consumers become more connected and empowered, and as the boom in digital and social media technologies continues, consumer brand engagement, whether invited or not, will be an important marketing force. Brands must embrace this trend or risk being left behind. p. 18 Key Term: Consumer- generated marketing p. 18 Photo: Consumer- generated marketing p. 18 PPT 1-26 Partner Relationship Management Today’s marketers know they must work closely with others inside and outside the company to jointly bring more value to customers. Today, firms are linking all departments in the cause of creating customer value. In today’s connected world, every functional area in the organization can interact with customers. Rather than assigning only sales and marketing people to customers, firms are forming cross-functional customer teams. Marketing channels consist of distributors, retailers, and others who connect the company to its buyers. The supply chain describes a longer channel, stretching from raw materials to components to final products that are carried to final buyers. Through supply chain management , many companies today are strengthening their connections with partners all along the supply chain. p. 18 Key Term: Partner relationship management p. 20 CAPTURING VALUE FROM CUSTOMERS The first four steps in the marketing process involve building customer relationships. The final step involves

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    p. 20 PPT 1-27 capturing value in return. By creating superior customer value, the firm creates highly satisfied customers who stay loyal and buy more. Creating Customer Loyalty and Retention The aim of customer relationship management (CRM) is to create both customer satisfaction and customer delight. This means that companies must aim high in building customer relationships. Customer delight creates an emotional relationship with a product or service, not just a rational preference. Companies are realizing that losing a customer means losing more than a single sale. It means losing customer lifetime value . p. 19 Photo: Stew Leonard p. 19 Key Term: Customer lifetime value p. 20 PPT 1-28 PPT 1-29 Growing Share of Customer S hare of customer is defined as the portion of the customer’s purchasing that a company gets in its product categories. Thus, banks want to increase “share of wallet.” 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. Building Customer Equity Companies want to not only create profitable customers, but to “own” them for life, capture their customer lifetime value, and earn a greater share of their purchases. What Is Customer Equity? Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. Clearly, the more loyal the firm’s profitable customers, the higher the firm’s customer equity. p. 20 Key Term: Share of customer p. 20 Key Term: Customer equity p. 21 Photo: Cadillac

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