Solution Manual for Principles of Marketing, 18th Edition

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Principles of MarketingEighteenth EditionPhilip KotlerGary Armstrongolution ManualRevised by Christy AshleySOLUTION MANUAL

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Chapter 1MARKETING: CREATING CUSTOMER VALUE ANDENGAGEMENTMARKETING STARTER: CHAPTER 1AMAZON: Obsessed with Creating Customer Value, Engagement, andRelationshipsSynopsisAmazon, which was founded in 1995 as a book store, has experienced explosive growth by moving beyond onlineselling to physical stores, video and music streaming, cloud services, and the Internet of Things, which allowed it togrow revenue to $233 billion. Its CEO, Jeff Bezos, said that Amazon’s success is due to its obsession withcustomers.It is driven to create genuine value and special experiences for customers. Selection, convenience, andvalue are the foundation stones of the Amazon experience, and Amazon has introduced innovations that makeshopping easier (e.g. 1-Click ordering; Alexa; fast delivery; Amazon Key).Discussion ObjectiveAn 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 andthroughout the text: Good marketing is all about creating value for customers and building strong customerrelationships in order to capture value from customers in return.Starting the DiscussionTo start the discussion, ask the class to share their experiences with Amazon. What attracts them to Amazon? Whatis 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 ofapproaches Amazon takes and the focus on customers. Investigate Amazon’s other media, including the company’swebsite, 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 discussionmoving. 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 andmanaging customer relationships in order to capture value from customers in return. The final question leads theclass into Chapter 1 and the discussion for the day. Have fun with this one!Discussion Questions1.The first marketing story in the text is about Amazon. Let’s go to Amazon’s Facebook page. What standsout about Amazon? Go to Amazon’s other media channels to find examples of how Amazon connects thecompany and the customers.2.How does the Amazon shopping experience affect performance? The company has grown astronomicallyin market share and strength of customer relationships, due largely to its customer satisfaction andcustomer 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 questionshould 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 customerrelationships so important?)

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CHAPTER OVERVIEWUse Power Point Slide 1 HereIn this chapter, we introduce the basic concepts of marketing. It starts with the question, “What ismarketing?” Simply put, marketing is managing profitable customer relationships. The aim ofmarketing is to create valueforcustomers and to capture valuefromcustomers in return. Next,the five steps in the marketing process are discussed—from understanding customer needs, todesigning customer-driven marketing strategies and integrated marketing programs, to buildingcustomer relationships and capturing value for the firm. Finally, there is a discussion of themajor trends and forces affecting marketing in this age of customer relationships.CHAPTER OBJECTIVESUse Power Point Slide 1-2 here1.Define marketing and outline the steps in the marketing process.2.Explain the importance of understanding the marketplace and customers and identify thefive core marketplace concepts.3.Identify the key elements of a customer value–driven marketing strategy and discuss themarketing management orientations that guide marketing strategy.4.Discuss customer relationship management and identify strategies for creating value forcustomers and capturing value from customers in return.5.Describe the major trends and forces that are changing the marketing landscape in thisage of relationships.CHAPTER OUTLINEp.2INTRODUCTIONPPT 1-3Opening Vignette Questions1.ThefirstmarketingstoryinthetextisaboutAmazon. What stands out about Amazon?2.How does the Amazon shopping experience affectperformance?3.Why did the authors choose Amazon as the veryfirst company to highlight in the first chapter of thetext? How does this opening story relate to the majorpoints made in the rest of the chapter?p. 3Photo: Amazon

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PPT 1-4PPT 1-5p. 4p. 5Define marketing and outline the steps in the marketingprocess.WHAT IS MARKETING?A simple definition of marketing isengaging customers andmanaging profitable customer relationships.Marketingmustbothattractnewcustomersandgrowcurrent customers.Every organization must perform marketing functions, notonly for-profit companies.Nonprofits (colleges, hospitals, churches, etc.) also mustperform marketing.Marketing DefinedMostpeoplethinkofmarketingonlyassellingandadvertising or “telling and selling.”Marketing must focus onsatisfying customer needs.We definemarketingas the process by which companiesengage customers, build strong customer relationships, andcreatecustomervalueinordertocapturevaluefromcustomers in return.Learning Objective1p. 4Key Term:Marketingp. 6Photo: Socialmedia marketing onmobile devicesTroubleshooting TipFor most students, this will be their first introductionto marketing and all its ramifications. To most ofthem, marketing is nothing more than selling and/oradvertising, and this gets reinforced daily when theysee“marketing”jobadsthatarereallysalespositions. It helps to get students talking about whatmarketing is, and to give examples of what theyconsidergoodmarketing.Trytobringincontemporary examples that the students can relateto.p. 6PPT 1-7TheMarketing ProcessFigure 1.1 shows the five-step marketing process.1.Understand the marketplace and customer needs andwants.2.Design a customer value-driven marketing strategy.3.Constructanintegratedmarketingprogramthatdelivers superior value.p. 6Figure 1.1: TheMarketing Process:Creating andCapturingCustomer Value

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4.Engagecustomers,buildprofitablerelationships,and create customer delight.5.Capture value from customers to create profits andcustomer equity.Inthefirstfoursteps,companiesworktounderstandconsumers,createcustomervalue,andbuildstrongcustomer relationships.In the final step, companies reap the rewards of creatingsuperior customer value. By creating valueforconsumers,they in turn capture valuefromconsumers in the form ofsales, profits, and long-term customer equity.ReviewLearningObjective1:Definemarketingandoutline the steps in the marketing process.p.6PPT 1-8PPT 1-9Explain the importance of understanding themarketplace and customers and identify the five coremarketplace concepts.UNDERSTANDING THE MARKETPLACE ANDCUSTOMER NEEDSFive core customer and marketplace concepts are critical:(1)needs,wants,anddemands;(2)marketofferings(products,services,andexperiences);(3)valueandsatisfaction;(4)exchangesandrelationships;and(5)markets.Customer Needs, Wants, and DemandsAs the first step in the marketing process, the company mustfully understand consumers and the marketplace in which itoperates.The most basic concept underlying marketing is that ofhuman needs.Humanneedsare states of felt deprivation. They includephysical, social,andindividualneeds. These needs were notcreated by marketers; they are a basic part of the humanmakeup.Wantsare the form human needs take as they are shaped bycultureandindividualpersonality.AtypicalAmericanneedsfood butwantsa Big Mac.Learning Objective2p. 6Key Terms: Needs,Wants, Demandsp. 7Photo: Airbnb

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When backed by buying power, wants becomedemands.The best marketing companies go to great lengths to learnand understand their customers’ needs, wants, and demands.p. 7PPT 1-10Market Offerings—Products, Services, and ExperiencesNeeds and wants are fulfilled throughmarket offerings—some combination of products, services, information, orexperiences offered to a market to satisfy a need or want.Market offerings includeproductsandservices—activitiesor benefits offered for sale that are essentially intangibleand do not result in the ownership of anything.Marketing myopiaoccurs when a company becomes sotakenwiththeirownproductsthattheylosesightofunderlying customer needs.p. 7Key Term: Marketofferingsp. 7Key Term:Marketing myopiap. 7Photo:Apple Storep. 8Real Marketing 1.1p. 9p. 9PPT 1-11Customer Value and SatisfactionCustomersformexpectationsaboutthevalueandsatisfaction that various market offerings will deliver andbuy accordingly.Satisfied customers buy again and tell others about theirgood experiences.Dissatisfied customers switch to competitors and disparagethe product to others.Customer value and customer satisfaction are key buildingblocks for developing and managing customer relationships.Exchanges and RelationshipsExchangeis the act of obtaining a desired object fromsomeone by offering something in return.Marketing consists of actions taken to build and maintaindesirable exchangerelationshipswith target audiences.p. 9Key Term:Exchange

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p. 9PPT 1-12PPT 1-13MarketsAmarketis the set of actual and potential buyers of aproduct.Marketingmeansmanagingmarketstobringaboutprofitable customer relationships.Figure 1.2 shows the main elements in a modern marketingsystem.Review Learning Objective 2:Explain the importance ofunderstanding the marketplace and customers and identifythe five core marketplace concepts.p. 9Key Term: Marketp. 10Figure 1.2: AModern MarketingSystemp. 10PPT 1-14PPT 1-15Identify the key elements of a customervalue-drivenmarketingstrategyanddiscussthemarketingmanagement orientations that guide marketing strategy.DESIGNING A CUSTOMER VALUE-DRIVENMARKETING STRATEGY AND PLANMarketing managementis defined as the art and scienceofchoosingtargetmarketsandbuildingprofitablerelationships with them.Themarketingmanagermustanswertwoimportantquestions:1.What customers will we serve (what’s our targetmarket)?2.How can we serve these customers best (what’s ourvalue proposition)?Learning Objective3p. 10Key Term:Marketingmanagementp. 10Selecting Customers to ServeA company must first decidewhomit will serve.Itdoesthisbydividingthemarketintosegmentsofcustomers(marketsegmentation)andselectingwhichsegments 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 theywant to target, and on the level, timing, and nature of theirdemand.Troubleshooting Tip

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The concept of not serving all customers may beconfusing to students. Most of them have not yetencountered anything like it. However, the light bulbseemstogoonwithadiscussionofcrowdednational parks and the efforts made to have peoplevisitthemduringoff-peaktraveltimes.Havingstudents come up with their own examples willincrease the level of understanding.p. 11PPT 1-16p. 11PPT 1-17Marketingmanagementiscustomermanagementanddemand management.Choosing a Value PropositionA company’svalue propositionis the set of benefits orvalues it promises to deliver to consumers to satisfy theirneeds. (BMW promises “the ultimate driving machine.”)Suchvaluepropositionsdifferentiateonebrandfromanother.Marketing Management OrientationsMarketing management wants to design strategies that willbuild profitable relationships with target consumers. Butwhatphilosophyshould guide these marketing strategies?Therearefivealternativeconceptsunderwhichorganizationsdesignandcarryouttheirmarketingstrategies.The Production ConceptTheproduction conceptholds that consumers will favorproducts that are available and highly affordable.Management should focus on improving production anddistribution efficiency.The Product ConceptTheproductconceptholdsthatconsumerswillfavorproducts that offer the most in quality, performance, andinnovative features.Under this concept, marketing strategy focuses on makingp. 11Photo:Sonosp. 11Key Terms:Production concept,Product concept,Selling concept

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p. 11PPT 1-16continuous product improvements.The Selling ConceptTheselling conceptholds that consumers will not buyenough of the firm’s products unless the firm undertakes alarge-scale selling and promotion effort.The concept is typically practiced with unsought goods—those that buyers do not normally think of buying, such asinsurance or blood donations.These industries must be good at tracking down prospectsand selling them on product benefits.The Marketing ConceptThemarketing conceptholds that achieving organizationalgoals depends on knowing the needs and wants of targetmarkets and delivering the desired satisfactions better thancompetitors.Under the marketing concept, customer focus and value arethepathsto 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-drivencompaniesresearchcurrentcustomersdeeply to learn about their desires, gather new product andservice ideas, and test proposed product improvements.Customer-drivenmarketingrequiresunderstandingcustomer needs even better than customers themselves doand creating products and services that meet existing andlatent needs.Designing a Customer Value-Driven Marketing StrategyFigure 1.3 contrasts the selling concept and the marketingconcept.Thesellingconcepttakesaninside-outperspective.Itstartswiththefactory,focusesonthep. 12Key Term:Marketing conceptp. 12Figure 1.3: Sellingand MarketingConceptsContrasted

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p. 13PPT 1-17company’s existing products, and calls for heavy selling andpromotion to obtain profitable sales. It focuses primarily oncustomerconquest—gettingshort-termsaleswithlittleconcern about who buys or why.Incontrast,themarketingconcepttakesanoutside-inperspective.Themarketingconceptstartswithawell-defined market, focuses on customer needs, and integratesall the marketing activities that affect customers. In turn, ityieldsprofitsbycreatingrelationshipswiththerightcustomers based on customer value and satisfaction.The Societal Marketing ConceptThesocietal marketing conceptquestions whether the puremarketingconceptoverlookspossibleconflictsbetweenconsumershort-run wantsand consumerlong-run welfare.Thesocietalmarketingconceptholdsthatmarketingstrategy should deliver value to customers in a way thatmaintains or improves both the consumer’s andsociety’swell-being.AsFigure1.4shows,companiesshouldbalancethreeconsiderationsinsettingtheirmarketingstrategies:company profits, consumer wants,andsociety’s interests.p. 12Key Term: Societalmarketing conceptp. 13Figure 1.4: ThreeConsiderationsUnderlying theSocietal MarketingConceptp. 13Photo:Jeni’s Splendid IceCreamsTroubleshooting TipSocietal marketing is also something that can be alittleuncleartostudents.Whyshouldfastfoodchains, for instance, be responsible for the nation’sobesity (justone verytopicaldiscussion point)?Understanding how one should balance the need forprofits with what some might consider “soft” issuescan be difficult at times. That can be even moredifficult among the politically astute students, asthey can easily lead the class into a left versus rightdiscussiononindividualversuscorporateversusgovernmentalresponsibility.Trynottoletthathappen by focusing on how companies can increaserevenues and profits by showing that they care aboutcustomers and communities. Newman’s Own is apotentialbrandtodiscussbecausethecompanydonates most profits to charities and strives to ensurea sustainable environment.p. 14PREPARING AN INTEGRATED MARKETING PLAN

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PPT 1-20AND PROGRAMThecompany’smarketingstrategyoutlineswhichcustomers the company will serve and how it will createvalue for these customers.Next,themarketerdevelopsanintegratedmarketingprogramthatwilldelivertheintendedvaluetotargetcustomers.The marketing program consists of the firm’smarketingmix, the set of marketing tools the firm uses to implementits marketing strategy.The marketing mix tools are classified into thefour Psofmarketing: product, price, place, and promotion.Thefirmblendsthesemarketingmixtoolsintoacomprehensiveintegratedmarketingprogramthatcommunicates and delivers the intended value to chosencustomers.Review Learning Objective 3: Identify the key elementsofacustomervalue-drivenmarketingstrategyanddiscussthemarketingmanagementorientationsthatguide marketing strategy.p.14PPT 1-21PPT 1-22Discuss customer relationship management and identifystrategiesforcreatingvalueforcustomersandcapturing value from customers in return.ENGAGING CUSTOMERS ANDMANAGINGCUSTOMER RELATIONSHIPSCustomer Relationship ManagementCustomer relationship managementis perhaps the mostimportant concept of modern marketing.Customer relationship managementis the overall processof building and maintaining profitable customer relation-ships by delivering superior customer value and satisfaction.It deals with all aspects of acquiring, keeping, and growingcustomers.Learning Objective4p.14Photo:Patek Phillippep. 15Key Terms:Customerrelationshipmanagement,Customer-perceived value

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p. 15p. 16Relationship Building Blocks: Customer Value andSatisfactionThe key to building lasting customer relationships is tocreate superior customer value and satisfaction.Customer-perceived valueis the customer’s evaluation ofthe difference between all the benefits and all the costs of amarket 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 satisfactiondepends on the product’s perceivedperformance relative to a buyer’s expectations.If the product’s performance falls short of expectations, thecustomerisdissatisfied.Ifperformancematchesexpectations,thecustomerissatisfied.Ifperformanceexceeds expectations, the customer is highly satisfied ordelighted.Although the customer-centered firm seeks to deliver highcustomer satisfaction relative to competitors, it does notattempt tomaximizecustomer satisfaction.A company can always increase customer satisfaction bylowering its price or increasing its services. But this mayresult in lower profits.The purpose of marketing is to generate customer valueprofitably.Customer Relationship Levels and ToolsCompanies can build customer relationships at many levels.Atoneextreme,acompanywithmanylow-margincustomers may seek to developbasic relationshipswiththem.At the other extreme, in markets with few customers andhigh margins, sellers want to createfull partnershipswithp. 15Key Term:Customersatisfactionp. 15Photo: L.L.Beanp. 16Photo:Uber Rewards

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customers.Many companies offerfrequency marketing programsthatreward customers who buy often or in large quantities.p. 17PPT 1-23CustomerEngagement and Today’s Digital and SocialMediaYesterday’s big companies focused on mass marketing toall customers at arm’s length.Today’s companies are building deeper, more direct, andmore lasting relationships with carefully selected customers.The new marketing iscustomer-engagement marketing,fostering direct and continuous customer involvement inshaping brand conversations, brand experiences, and brandcommunity. It involves using a rich mix of online, mobile,and social media marketing that promotes engagement andconversation.Customer-engagement marketing goes beyond just selling abrand to consumers. Its goal is to make the brand ameaningful part of consumers’ conversations and lives.The burgeoning internet and social media have given a hugeboost to customer-engagement marketing.Today’s consumers are better informed, more connected,and more empowered than ever before. Newly empoweredconsumers have more information about brands, and theyhave a wealth of digital platforms for airing and sharingtheir brand views with others.Customer brand advocacyis actions by which satisfiedcustomers initiate favorable interactions with others about abrand.The marketing world is now embracingcustomer-managedrelationships.Companies can no longer rely on marketing byintrusion.Companies must practice marketing byattraction—creatingmarketofferingsandmessagesthatinvolveconsumersp. 17Key Terms:Customer-engagementmarketing,Customer brandadvocacyp. 17Photo:Bark Box

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p. 18PPT 1-25rather than interrupt them.Consumer-generated marketinghas become a significantmarketing force. Here, consumers themselves are playing abigger role in shaping their own brand experiences andthose of others.As consumers become more connected and empowered, andastheboomindigitalandsocialmediatechnologiescontinues, consumer brand engagement, whether invited ornot, will be an important marketing force. Brands mustembrace this trend or risk being left behind.p. 18Key Term:Consumer-generatedmarketingp. 18Photo:Consumer-generatedmarketingp. 18PPT 1-26Partner Relationship ManagementToday’s marketers know they must work closely with othersinside and outside the company to jointly bring more valueto customers.Today, firms are linking all departments in the cause ofcreating customer value. In today’s connected world, everyfunctionalareaintheorganizationcaninteractwithcustomers.Rather than assigning only sales and marketing people tocustomers,firmsareformingcross-functionalcustomerteams.Marketing channels consist of distributors, retailers, andothers who connect the company to its buyers.Thesupply chaindescribes a longer channel, stretchingfrom raw materials to components to final products that arecarried to final buyers.Throughsupply chain management, many companies todayare strengthening their connections with partners all alongthe supply chain.p. 18Key Term: Partnerrelationshipmanagementp. 20CAPTURING VALUE FROM CUSTOMERSThefirstfourstepsinthemarketingprocessinvolvebuilding customer relationships. The final step involves

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p. 20PPT 1-27capturing value in return.By creating superior customer value, the firm creates highlysatisfied customers who stay loyal and buy more.Creating Customer Loyalty and RetentionThe aim of customer relationship management (CRM) is tocreate both customer satisfaction and customer delight.Thismeansthatcompaniesmustaimhigh in buildingcustomer relationships.Customer delight creates an emotional relationship with aproduct or service, not just a rational preference.Companiesarerealizingthatlosingacustomermeanslosing more than a single sale. It means losingcustomerlifetime value.p. 19Photo: StewLeonardp. 19Key Term:Customer lifetimevaluep. 20PPT 1-28PPT 1-29Growing Share of CustomerShareofcustomerisdefinedastheportionofthecustomer’s purchasing that a company gets in its productcategories. Thus, banks want to increase “share of wallet.”To increase share of customer, firmscan offer greatervariety to current customers.Or, they can create programs to cross-sell and up-sell tomarket more products and services to existing customers.Building Customer EquityCompanies want to not only create profitable customers, butto “own” them for life, capture their customer lifetimevalue, and earn a greater share of their purchases.What Is Customer Equity?Customer equityis the total combined customer lifetimevaluesofallofthecompany’scurrentandpotentialcustomers.Clearly, the more loyal the firm’s profitable customers, thehigher the firm’s customer equity.p. 20Key Term: Share ofcustomerp. 20Key Term:Customer equityp. 21Photo: Cadillac

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