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Class Notes for Framework for Marketing Management, 6th Edition

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    Preface Just as A Framework for Marketing Management, 6 th edition, is a shortened version of Kotler/Keller’s Marketing Management, 1 5 th edition , the Instructor’s Manual (IM) for A Framework for Marketing Management, 6 th edition, provides the essentials of the Marketing Management, 1 5 th edition , IM, including learning objectives, an executive summary, suggested assignments and debates/discussion materials, and a chapter outline. For the instructor teaching a survey marketing management course, or a substantially abbreviated course, the Framework IM provides the basis for additional flexibility. For example, if the course calls for the use of substantial case material, the Framework IM provides the opportunity to select cases that complement each chapter . The Harvard Business School Web site has a special section of recommended cases for a previous edition that may be adapted to use with A Framework for Marketing. https://cb.hbsp.harvard.edu/cbmp/resources/marketing/docs/MKT - Kotler - Keller.pdf The Internet link for other cases is: http://harvardbusinessonline.hbsp.harvard.edu To summarize, the Framework IM is organized as follows: • Learning/Teaching Objectives: Objectives that blend with and complement the Kotler/Keller text learning objectives. • Executive Summary: An executive summary from the chapter • Assignments: Suggested assignments that align with the chapter content and include related articles in some instances • Chapter Outline: A detailed topic/sentence outline to provide an overall framework to determine when and how to utilize the suggested lectures and/or other support materials.

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    LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. Why is marketing important? 2. What is the scope of marketing? 3. What are some core m arketing concepts? 4. What forces are defining the new marketing realities ? 5. What are the tasks necessary for successful marketing management? EXECUTIVE SUMMARY Marketing is the activity, set of institutions, and processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value . Marketers can market goods, services, events, experiences, persons, places, properties, organizations, information, and ideas in four different marketplaces: consumer, business, global, and nonprofit . Today’s marketplace is fundamentally different than in the past, resulting in many new consumer and company capabilities. T echnology, globalization, and social responsibility are creating new opportunities and challenges and significantly chang ing the management or marketing . Organizations can conduct business under the production concept, the product concept, the selling concept, the marketing concept, or the holistic marketing concept. The holistic marketing concept (including relationship marketing, integrated marketing, internal marketing, and performance marketing) is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Successful marketing management includes developing marketing strategies and plans, capturing marketing insights, connecting with customers, building strong brands, creating, delivering, and communicating value, and managing the marketing organization within the global economy . OPENING THOUGHT It is important to focus on how and why the traditional view of marketing has changed, and to introduce the various ways of measuring performance, since they will reappear throughout the text. Marketing applies to a variety of different areas and is increasingly involving many levels of the organization. Students who are not marketing majors may have some difficulty accepting the encompassing role that marketing has on the other functional disciplines within C H A P T E R 1 DEFINING MARKETING FOR THE NEW REALITIES

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    a firm. For those students who have never been exposed to marketing and its components, the instructor’s challenge is to educate the students about the world of marketing. ASSIGNMENTS In small groups, ask the students to review the annual report from Unilever. How do the missions discussed in the opening vignette translate into their current business practices? How are its marketing investments and initiatives affecting its profitability? What conclusions can you draw from Unilever’s progress ? Students can choose a firm of their preference, interview key marketing management members and ask the firm how they are reacting to the changes in marketing management for the new realities . Have the students read Adi Narayan’s “Marketers Aim New Ads at Video iPod Users,” BloombergBusinessWeek April 17, 2014 ( http://www.businessweek.com/articles/2014 - 04 - 17/indias - mobile - marketers - try - phone - calls - to - reach - rural - consumers ) and Suzanne Vranica and Christopher S. Stewart ’s “ Mobile Advertising Begins to Take Off: Spending More Than Doubled in the First Half ,” Wall Street Journal, October 9, 2013 and comment on how effective they believe cell phone advertisements will be in the future. Have the students reflect upon their favorite product and/or service. Then have the students collect marketing examples from each of these companies. This information should be in the form of examples of printed advertising, copies of television commercials, Internet advertising, or radio commercials. During class, have the students share what they have collected with others. Questions to ask during the class discussion should focus on why this particular example of advertising elicits a response from you. What do you like/dislike about this marketing message? Does everyone in the class like/dislike this advertising? DETAILED CHAPTER OUTLINE Opening Vignette: Unilever is responding to the digital revolution and other major changes in the business environment with a new marketing model that establishes social, economic, and product missions for each brand. Examples of initiatives include halving its ecological footprint while doubling revenues and drawing 70 – 75% of business from developing and emerging markets by 2020. Marketing is both an art and a science, and results from careful planning and execution using state - of - the art tools and techniques. I. The Value of Marketing A. Marketing ability helps create sufficient demand for products and services, which is essential for a firm’s financial success, creates jobs and provides resources for firms to engage is socially responsible activities. B. Marketers that fail to carefully monitor their customers and competitors, continuously improve their value offerings and marketing strategies, or satisfy their employees, stockholders, suppliers, and channel partners in the process are more vulnerable to competitive entry.

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    II. The Scope of Marketing A. What Is Marketing? i. Marketing is about identifying and meeting human and social needs; “Meeting needs profitably.” ii. American Marketing Association definition: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. iii. Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value . B. What Is Marketed? i. Goods: physical goods include food products, cars, refrigerators, televisions, machines, and other mainstays of a modern economy. ii. Services: represent approximately 2/3 of the U.S. economy, including airlines, hotels, maintenance and repair people, and accountants, bankers, doctors, and management consultants. iii. Events: include time - based events, global and local events. iv. Experiences: marketers orchestrate several services and goods to create, stage, and market experiences. v. Persons: include artists, musicians, CEOs, physicians, high - profile lawyers and financiers, and other professionals often get help from marketers, and each person has been advised to become a “brand.” vi. Places: include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. vii. Properties: intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). viii. Organizations: include museums, performing arts organizations, corporations, and nonprofits that use marketing to boost their public images and compete for audiences and funds. ix. Information: what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. x. Ideas: every market offering includes a basic idea. Products and services are platforms for delivering some idea or benefit. C. Who Markets? i. A marketer is someone who seeks a response — attention, a purchase, a vote, a donation — from another party, called the prospect. ii. Marketers manage all possible touch points where a customer interacts with the company. D. What Is a Market? i. A market is a collection of buyers and sellers who transact over a particular product or product class (such as the housing market or the grain market). ii. Buyers and sellers are connected by four flows that include goods and services, communication, money exchange, and information exchange. III. Core Marketing Concepts A. Needs, Wants, and Demands

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    i. Needs = basic human requirements ii. Wants = when needs are directed to specific objects that might satisfy the need iii. Demands = wants for specific products backed by an ability to pay iv. Marketers do not create needs: Needs pre - exist marketers. v. Five types of needs: (1) Stated needs (2) Real needs (3) Unstated needs (4) Delight needs (5) Secret needs B. Target Markets, Positioning, and Segmentation i. For each target market, the firm develops a market offering that it positions in target buyers’ minds as delivering some key benefit(s). C. Offerings and Brands i. A value proposition is a set of benefits that satisfy a consumer’s needs. ii. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences. iii. A brand is an offering from a known source. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible. D. Marketing Channels i. Communication channels deliver and receive messages from target buyers. ii. Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. iii. Service channels include warehouses, transportation companies, banks, and insurance companies. E. Paid, Owned, and Earned Media i. Paid media allow marketers to show their ad or brand for a fee. ii. Owned media are communication channels marketers actually own, like a company or brand brochure, Web site, blog, Facebook page, or Twitter account. iii. Earned media are streams in which consumers, the press, or other outsiders voluntarily communicate something about the brand via word of mouth, buzz, or viral marketing methods. F. Impressions and Engagement i. Marketers now think of three “screens” or means to reach consumers: TV, Internet, and mobile. ii. Impressions occur when consumers view a communication. iii. Engagement is the extent of a customer’s attention and active involvement with a communication. G. Value and Satisfaction i. Value is primarily a combination of quality, service, and price, called the customer value triad . Value perceptions increase with quality and service but decrease with price. ii. Satisfaction reflects a person’s judgment of a product’s perceived performance in relationship to expectations. H. Supply Chain

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    i. The supply chain is a channel stretching from raw materials to components to finished products carried to final buyers. ii. Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value delivery system. iii. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value. I. Competition i. Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. J. Marketing Environment i. Task environment includes the actors engaged in producing, distributing, and promoting the offering. ii. Broad environment consists of six components: demographic environment, economic environment, social - cultural environment, natural environment, technological environment, and political - legal environment. IV. The New Marketing Realities A. Technology i. Widespread technology adoption has created new opportunities, promotes shared information and customer relationship management. B. Globalization i. Transportation, shipping, and communication technologies have made it easier for us to know the rest of the world, to travel, to buy and sell anywhere, and has made countries increasingly multicultural. C. Social Responsibility i. The private sector is taking some responsibility for improving living conditions, and firms all over the world have elevated the role of corporate social responsibility. D. A Dramatically Changed Marketplace i. Technology, globalization, and social responsibility have changed the marketplace. ii. New capabilities in the changed marketplace include: (1) Consumers can use the Internet as a powerful information and purchasing aid. (2) Consumers can search, communicate, and purchase on the move. (3) Consumers can tap into social media to share opinions and express loyalty. (4) Consumers can actively interact with companies. (5) Consumers can reject marketing they find inappropriate. (6) Companies can use the Internet as a powerful information and sales channel, including for individually differentiated goods. (7) Companies can collect fuller and richer information about markets, customers, prospects, and competitors. (8) Companies can reach customers quickly and efficiently via social media and mobile marketing, sending targeted ads, coupons, and information. (9) Companies can improve purchasing, recruiting, training, and internal and external communications. (10) Companies can improve cost efficiency.

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    iii. Retail transformation: increased competition from a variety of formats has yielded more entertaining retail experiences. iv. Disintermediation: delivery of products and services by intervening in the traditional flow of goods. v. Reintermediation: traditional companies are adding online services to their offerings. vi. Heightened global competition, rise of private labels and mega - brands. vii. Marketers are increasingly asked to justify their investments in financial and profitability terms, as well as in terms of building the brand and growing the customer base. V. Company Orientation Toward the Marketplace A. The Production Concept i. Suggests consumers prefer products that are widely available and inexpensive, so management aims for high production efficiency, low costs, and mass distribution. B. The Product Concept i. Proposes consumers favor products offering the most quality, performance, or innovative features, so management may commit the “better - mousetrap” fallacy, believing a better product will by itself lead people to beat a path to their door. C. The Selling Concept i. Consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods — goods buyers don’t normally think of buying such as insurance and cemetery plots — and when firms with overcapacity aim to sell what they make, rather than make what the market wants. D. The Marketing Concept i. Find the right products for your customers. The marketing concept holds that the key to achieving organizational goals is being more effective than competitors in creating, delivering, and communicating superior customer value to your target markets. E. The Holistic Marketing Concept i. Based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. ii. Relationship Marketing (1) Aims to build mutually satisfying long - term relationships with key constituents in order to earn and retain their business. (2) Four key constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts). (3) The ultimate outcome of relationship marketing is a unique company asset called a marketing network consisting of the company and its supporting stakeholders — customers, employees, suppliers, distributors, retailers, and others — with whom it has built mutually profitable business relationships. iii. Integrated Marketing (1) Many different marketing activities can create, communicate, and deliver value.

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    (2) Marketers should design and implement any one marketing activity with all other activities in mind. (3) The company must develop an integrated channel strategy. (4) The company must integrate communications to they reinforce and complement each other. iv. Internal Marketing (1) H iring, training, and motivating able employees who want to serve customers well. (2) Marketing succeeds only when all departments work together to achieve customer goals. v. Performance Marketing (1) Requires understanding the financial and nonfinancial returns to business and society from marketing activities and programs. VI. Updating The Four Ps A. The original four Ps: product, price, place and promotion B. Modern marketing realities suggest a more representative set that encompasses modern marketing realities: people, processes, programs and performance. i. People: reflects internal marketing and the fact that employees and understanding consumers’ whole lives are critical to marketing success. ii. Processes: reflects all the creativity, discipline, and structure brought to marketing management. iii. Programs: reflects all the firm’s consumer - directed activities. iv. Performance: captures the range of possible outcome measures that have financial and nonfinancial implications (profitability as well as brand and customer equity) and implications beyond the company itself (social responsibility, legal, ethical, and community related). VII. Marketing Management Tasks A. Developing and implementing marketing strategies and plans: identify potential long - run opportunities, given its market experience and core competencies. B. Capturing marketing insights. C. Connecting with customers. D. Building strong brands. E. Creating value: Differentiate the service of product (the tangible offering to the market, which includes the product quality, design, features, and packaging ) to gain a competitive advantage. F. Delivering value. G. Communicating value. H. Managing the marketing organization.

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    LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. How does marketing affect customer value? 2. How is strategic planning carried out at different organizational levels ? 3. W hat does a marketing plan include? 4. How can companies monitor and improve marketing activities and performance? CHAPTER SUMMARY The value chain is a tool for identifying key activities that create customer value and costs in a sp e cific business. The value delivery process includes choosing (or identifying), providing (or delivering), and communicating superior value. Market - oriented strategic planning is the managerial process of developing and maintai n ing a viable fit between the organization’s objectives, skills, and resources and its changing market opportunities. Strategic planning occurs at multiple levels: corporate, division, business unit, and product. C orporate stra t egy includes defining the mission, establishing strategic business units (SBUs), assigning resources, and a s sessing growth opportunities. This is the framework within which divisions and SBUs prepare their strategic plans. The marketing plan summarizes what the firm knows about the marketplace and how well it will reach its marketing objectives, operating at both the strategic and tactical levels. Marketing implementation turns marketing plans into action assignments to achieve the plan’s objectives. Firms use marketing metrics, marketing - mix modelling, and marketing dashboards to monitor and assess marketing productivity. By applying marketing control, management can assess the effects of marketing activities and make improvements. OPENING THOUGHT This introduces several perspectives on planning and d e scribes how to draw up a formal marketing plan. The formal marketing plan sample is an excellent resource because it provides an overview of the types of decisions a marketer might make in an effort to create customer value. Provide sufficient class time covering the distinctions between strategy and tactics . C H A P T E R 2 DEVELOPING AND IMPLEMENTING MARKETING STRATEGIES AND PLANS

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    ASSIGNMENTS Students should be encouraged to review selected compan ies’ annual reports to collect from these reports the corporations’ mission statements, strategy statements, and target market definitions. The collected material can be discussed in class comparing the company’s overall business, marketing, and customer strategies. Each student is in effect a “product .” Like all product s you (they) must be marketed for success. Have each of your students’ write their own “mission statement” about their career and a “goal statement” of where they see themselves in 5 years, 10 years, and after 20 years. Select a local firm or have the students select firms in which they are familiar (current employers or past employers, for example) and have them answer the questions posed by the Marketing Memo, Marketing Plan Criteria regarding the evaluation of a marketing plan. Make sure the students are specific in their answers.

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    DETAILED CHAPTER OUTLINE Opening Vignette: Hewlett - Packard has been challenged in recent years, and is an example of how firms must constantly improve their strategies to adjust to changes in the marketplace. I. Marketing and Customer Value A. The Value Delivery Process i. The traditional view of marketing where a firm makes something and sells it only applies in economies with good s shortages ii. Marketing is placed at the beginning of business planning in economies with different consumer needs and wants iii. Three phases to the value creation and delivery sequence: 1. Choosing the value: homework; market segmentation, target market selection, value positioning 2. Providing the value: identification of features, prices, distribution 3. Communicating the value: use the Internet, advertising, sales force and other communication tools B. The Value Chain i. Every firm is a synthesis of activities performed to design, produce, market, deliver and support its product. ii. Primary activities 1. Inbound logistics: bringing materials into the business 2. Operations: converting materials into final products 3. Outbound logistics: shipping out final products 4. Marketing (includes sales) 5. Service iii. Support activities 1. Procurement 2. Technology development 3. Human resource management 4. Firm infrastructure iv. Firms examine costs and performance in each value - creating activity and benchmark against competitors to look for ways to improve v. Core business processes (increasingly reengineered and assigned cross - functional teams) : 1. The market - sensing process: gathering and acting upon information about the product 2. The new - offering realization process: researching, developing, and launching new high - quality offerings quickly and within budget 3. The customer acquisition process: defining target markets and prospecting for new customers 4. The customer relationship management process: building

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    deeper understanding, relationships, and offerings to individual customers vi. Companies often partner with specific suppliers and distributors to create a superior value delivery network, or supply chain C. Core Competencies i. Three characteristics 1. Sources of competitive advantage that make a significant contribution to perceived customer benefits 2. Have applications to a wide variety of markets 3. Are difficult for competitors imitate ii. Accompanied by distinctive capabilities, or excellence in broader business processes : m arket sensing , c ustomer linking , c hannel bonding D. The Central Role of Strategic Planning i. M arketers must prioritize strateg ic planning in three key areas 1. M anaging the busines ses as an investment portfolio 2. A ssessing the market’s growth rate and the company’s position in that market 3. E stablishing a strategy ii. A marketing plan operates on a strategic level and a tactical level 1. The strategic marketing plan lays out the target markets and the firm’s value proposition, based on an analysis of the best market opport u nities. 2. The tactical marketing plan s pecifies the marketing tactics, including product features, promotion, merchandising, pricing, sales channels, and service. II. Corporate and Division Strategic Planning A. Corporate headquarters undertake four planning activities i. Define the corporate mission ii. Establish strategic business units iii. Assign resources to each strategic business unit iv. Assess growth opportunities B. Defining the Corporate Mission i. Over time, the mission may change to respond to new opportunities or market conditions ii. Classic questions: What is our business? Who is the cu s tomer? What is of value to the customer? What will our business be? What should our business be? iii. Clear, thoughtful mission statements are d eveloped collaboratively with and shared with managers, employees, and often customers 1. P rovides a shared sense of purpose, direction, and opportunity 2. Good mission statements focus on a limited number of goals . stress the company’s major policies and values , define the major competitive spheres within which the company will operate , take a long - term view , and are short, memorable and meaningful C. Establishing Strategic Business Units i. Established using t hree characteristics

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    1. Single business or collection of related businesses that can be planned separately from the rest of the company 2. Own set of competitors 3. Manager responsible for strategic planning and profit performance and controls most factors affecting profit D. Assigning Resources to Each SBU i. Resources assigned using shareholder value analysis ; value assessed on potential of business based on growth opportunities from global expansion, positioning or retargeting and strategic outsourcing E. Assessing Growth Opportunities i. Intensive growth: within current businesses; product - market expansion grid is helpful 1. Market - penetration strategy: more market share with current products in current markets 2. Market - development strategy: develop new markets for current products 3. Product - development strategy: develop new products for current markets 4. Diversification strategy: develop new products for new markets ii. Integrative growth: acquire related businesses 1. Use backward, forward or horizontal integrations within the industry 2. May not reach desired sales volume; challenges with integration iii. Diversification growth: identify opportunities for growth from adding attractive, unrelated businesses iv. Downsize or divest o lder b usinesses: Prune, harvest or divest to release resources or reduce costs F. Organization and Organizational Culture i. A company’s organization is its stru c tures, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment. ii. Corporate culture is “the shared experiences, stories, b e liefs, and norms that characterize an organization.” iii. Scenario analysis develops plausible representations of a firm’s possible future using assumptions about forces driving the market and uncertainties III. Business Unit Strategic Planning A. The Business Mission i. Develop a specific mission for the strategic business unit B. SWOT A nalysis i. External E nvironment ( O pportunity and T hreat) A nalysis: monitor key macroenvironmental forces 1. Opportunity: area of buyer need and interest that a company has a high probability of satisfying a. Offer something in short supply b. Supply existing product or service in a superior way i. Problem detection: ask consumers for

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    suggestions ii. Ideal method: ask consumers to imagine an ideal version of the product or service iii. Consumption chain method: chart steps in acquiring, using, disposing of product c. Above methods lead to new product or service 2. Benefit from converging industry trends/introduce hybrid products or services to the market 3. Make buying process more convenient or efficient 4. Meet the need for more information and advice 5. Customize a product or service 6. Introduce a new capability 7. Deliver a product or service faster 8. Offer product at a much lower price ii. Market opportunity analysis (MOA) questions 1. Can we articulate the benefits convincingly to the defined target market(s)? 2. Can we locate the target market(s) and reach them with cost - effective media and trade channels ? 3. Does our company possess or have access to the critical capabilities and resources we need to deliver the customer benefits? 4. Can we d eliver the benefits better than any actual or pote n tial competitors? 5. Will th e financial rate of return meet or exceed our required threshold for investment? iii. Environmental threat is a challenge posed by an unfavorable trend or development that, in the absence of defensive marketing action, would lead to lower sales . iv. Internal E nvironment (Strengths and Weaknesses) A nalysis C. Goal F ormulation i. Goals are objectives that are specific with respect to magnitude and time ii. Management by objectives meets four criteria 1. They must be arranged hierarchically, from most to least important 2. Objectives should be quantitative whenever possible 3. Goals should be realistic 4. Objectives must be consistent iii. Trade - offs include short - term profit versus long - term growth, deep penetration of existing markets versus development of new markets, profit goals versus nonprofit goals, and high growth versus low risk. D. Strateg y F ormulation i. Strategy is a game plan for getting what you want to achieve ii. Porter’s generic strategies 1. Overall cost leadership 2. Differentiation 3. Focus

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    iii. Competing firms directing the same strategy to the same target market constitute a strategic group iv. There is a distinction between operational effectiveness and strategy: operationally effectiveness can be copied; strategy develops a unique and valuable position v. Strategic alliances complement a firm’s capabilities and resources 1. Product or service alliances 2. Promotional alliances 3. Logistics alliances 4. Pricing alliances vi. Firms use partner relationship management to form and manage partnerships E. Strategy and Implementation i. Strategy addresses the what and why of marketing programs and activities ii. Implementation addresses the who, where, when and how of marketing programs and activities iii. Strategy is one of seven elements of business success: 1. Hardware: strategy, structure, and systems 2. Software: style, skills, staff and shared values IV. The Marketing Plan A. A marketing plan is a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to meet its marketing objectives B. The most frequently cited shortcomings of current marketing plans, according to marketing executives, are lack of realism, insufficient competitive analysis, and a short - run focus C. Contents of a Marketing Plan i. Executive summary and table of contents ii. Situation analysis (relevant background data on sales, costs, the market, competitors and the macroenvironment) iii. Marketing strategy (mission, marketing and financial objectives, needs the marketing offering is intended to sati sfy and its competitive positio ning) iv. Marketing tactics ( marketing activities that will be undertaken to execute the marketing strategy ) v. Financial pro jections include a sales forecast, an expense forecast, and a break - even analysis. vi. Implementation controls: o utlines the controls for monitoring and adjus t ing implementation; s p ells out the goals and budget for each month or quarter so management can review results and take corrective action as nee d ed. D. From Marketing Plan to Marketing Action V. Marketing Implementation, Control, and Performance A. Marketing implementation is the process that turns marketing plans into action assignments and ensures they accomplish the plan’s stated objectives i. Schedules show when tasks were supposed to be completed vs. when they actually were

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    ii. Metrics track actual outcomes of marketing programs to see whether the company is moving towards its objectives iii. Two complementary approaches to measure marketing productivity are: 1. Marketing metrics – assess marketing effects 2. Marketing - mix modeling – estimate causal relationships and measure how marketing activity affects outcomes iv. Marketing dashboards are structured to disseminate insights from these two approaches B. Marketing Metrics i. Set of measures that help marketers quantify, compare and interpret their performance ii. Short - term results often reflect profit - and - loss concerns as shown by sales turnover, shareholder value, or a combination iii. Brand - equity measures include customer awareness, attitudes, behaviors, market share, relative price premium, number of complaints, distribution and availability, total number of customers, perceived quality, and loyalty and retention C. Marketing - Mix Modeling i. Marking - mix models analyze data from a variety of sources ii. They help isolate effects, but are less effective at assessing how marketing elements work in combination 1. Focused on incremental growth instead of baseline sales or long - term effects 2. Limited integration of metrics related to customer satisfaction, awareness and brand equity 3. Fails to incorporate metrics related to competitors, trade or sales force D. Marketing Dashboards i. A concise set of interconnected performance drivers to be viewed in common throughout the organization ii. Customer - performance scorecard: how well the company is doing on customer - based measures iii. Stakeholder - performance scorecard: the satisfaction of various constituencies who have a critical interest in and impact on the company’s performance E. Marketing Control i. Annual - plan control ensures the company achieves sales, profits and other goals established in its annual plan ii. Profitability control determines whether to expand, reduce, or eliminate any products or marketing activities iii. Efficiency control helps the company look at better ways to manage marketing spending and investments iv. Strategic control periodically reassesses the strategic approach to the marketplace using a marketing audit, which covers the macroenvironment, task environment, marketing strategy, marketing organization, marketing systems, marketing productivity, and marketing functions

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    LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. What are the components of a modern marketing information system? 2. How can companies collect marketing intelligence? 3. What constitutes good marketing research ? 4. How can companies accurately measure and forecast market demand? 5. What are some influential developments in the macroenvironment? EXECUTIVE SUMMARY M arketing managers need a marketing information system (MIS) to assess information needs, develop the needed information, and distribute it in a timely ma n ner. An MIS relies on : (a) an internal records system, including information about the order - to - payment cycle and sales information systems; (b) a marketing intelligence system to obtain everyday information about the marketing environment; and (c) a marketing research system. The marketing research process consists of six steps: define the problem and objectives, develop the plan, collect the data, analyze the data, present the findings, and make the decision. Companies use forecasting and demand measurement to evaluate the size, growth, and profit potential of each new opportunity. Marketers must monitor sixe major environmental forces: demographic, economic, sociocultural, natural, technological, and political - legal. In the demographic environment, they should examine worldwide population growth; mixes of age, ethnic composition, and educational levels ; and household patterns. I n the economic arena, they should focus on consumer psychology, income distribution , and levels of saving s, debt, and credit. In the social cultural arena, marketers must understand people’s views of themselves, others, organizations, society, nature, and the universe , as well as the role of cultural values and subcultures . In the natural environment, marketers should be aware increased concern about the natural environment and sustainability. In the technological arena, marketers should examine the accelerating pace of change, opportunities for innovation, varying R&D budgets, and the increased regulation. In the political - legal environment, marketers must work within the many laws regulating business practices and with various special - interest groups . C H A P T E R 3 CAPTURING MARKETING INSIGHTS AND FORECASTING DEMAND

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    OPENING THOUGHT Students new to the discipline of marketing will probably be surprised at the level of marketing information, intelligence, and arenas that marketing managers must operate within. The instructor is encouraged to stress that the marketing of products/services and the processes of making marketing decisions do not operate without careful consideration of the environments identified in this chapter. Today, marketers must be cognizant of “how” their product or service is perceived as much as “how” it functions. T he instructor’s challenge for this chapter is to communicate to the students the complexity of and sometimes the conflicting forces impacting marketing managers in the today’s environment . ASSIGNMENTS Using information from the web like FEDSTATS and the U.S. Census Bureau, have the students predict the population of the U.S. for the years 2020, and 2060 and specifically answer the following questions: a) What is the demographic makeup of the U.S. in these years? b) What is the age dispersion in the U.S. in these years, and c) What industries do you see benefiting/losing within the U.S. because of these population figures. Obesity has been officially called an epidemic. In small groups, have the students collect, from the university or college administrators, information about the students eating habits (on campus students would be one group; commuting students another group), exercise, and lifestyle. For example, how many students (as a percentage of the total student population) regularly take advantage of the available exercise facilities? How many students presently on campus are clinically obese? This is a very good project to demonstrate the skill of data mining and the use of secondary data. Select or suggest a current “fad” or “trend” exhibited by students on campus. Each student is to select either a fad or trend and then research this fad and trend in light of the marketing opportunities present. Would a firm be successful in capitalizing on this “fad?” If so, why? Should companies capitalize on this “trend” — What are the “upsides” for producing products that are currently “trendy?” What are the “downsides?” What generation do these fads and trends appeal to? How large is the potential market for the fad and/or trend? Students should prepare a report with as much detail into the specific characteristics of these markets as is available. This is a good secondary data and data mining assignment. Each student is a member of an identifiable ethic and demographic segment of society. As an individual assignment, ask each student to describe their sub - segment in terms of population, age distribution, growth potential, income, education levels, and other demographic characteristics. The conclusion of their report should explain the marketing implications of their findings in terms of potential market, over - saturated market, declining market, or hidden or ignored market with potential. Ask students to contact a local marketing research firm in the area for the purpose of an interview regarding research techniques, methods, and the difficulties in conducting research. Pre - approve the set of questions prepared by the students prior to the appointment. Ensure that

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    the students will be able to collect information from the research company regarding how information is collected. Once it is collected, what are some of the difficulties faced by the researcher in presenting this information to the client? Have students watch this video on the concept of “neuromarketing” and comment on whether such brain research is ethical or not ethical because such research may lead to more marketing manipulation: http://www.businessweek.com/videos/2013 - 04 - 26/neuromarketing - explaining - the - brains - buy - button See also http://www.businessweek.com/articles/2013 - 10 - 10/will - companies - one - day - use - brainwaves - to - find - ideal - prices Carolyn Yoon, Angela H. Gutchess, Fred Feinberg, and Thad A. Polk, “A Functional Magnetic Resonance Imaging Study of Neural Dissociations between Brand and Person Judgments,” Journal of Consumer Research , 33 (June 2006), pp. 31 - 40; Samuel M. McClure, Jian Li, Damon Tomlin, Kim S. Cypert, Latané M. Montague, and P. Read Montague, “ Neural Correlates of Behavioral Preference for Culturally Familiar Drinks,” Neuron , 44 (October 14, 2004), pp. 379 - 387 DETAILED CHAPTER OUTLINE Opening vignette: Marketers need up - to - date information to make marketing decisions. Campbell attempted to understand macroenvironmental trends to boost soup sales among millenials. I. The Marketing Information System and Marketing Intelligence A. Marketers are responsible for identifying significant marketplace changes i. They have disciplined methods for collecting information ii. The spend time interacting with customers and observing competitors and other outside groups B. Some firms have marketing information systems that provide details about buyer wants, preferences and behavior i. A marketing information system consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers. ii. A marketing information system relies on i nternal company records , m arketing intelligence activities , and m arketing research C. Internal Records and Database systems i. The Order - to - Payment Cycle , which is the heart of the internal records system, includes invoices, shipping and billing documents ii. Sales Information Systems include sales and inventory data iii. Databases, Data Warehouses , and Data Mining provide information that enables customer engagement, but present challenges because data cannot be effectively managed with traditional database and business intelligence tools 1. Database marketing is the process of building, maintaining and using customer databases and other databases to contact, transact with, and bui ld relationships with customers 2. A data warehouse captures information and organizes it so it

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    can be captures, queried and analyzed to draw inferences about individual customers’ needs and responses 3. Data mining is used to extract useful insights from the mass of data iv. Behavioral targeting is used to track customers’ online behavior for marketing purposes and allows advertisers to better target online ads D. M arketing Intelligence i. A marketing intelligence system is a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment. ii. It reports “happenings” data from books, newspapers, trade publications, customers, suppliers, distributors, managers and social media monitoring II. The Marketing Research System A. Marketing research generates insights that aid management decision making B. Marketing insights provide diagnostic i n formation about how consumers and markets behave, why we observe certain effects in the marketplace and what that means to marketers C. Defining Marketing Research i. Marketing research is “the function that links the consumer, customer, and public to the marketer through information – information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. ii. Marketing research firms fall into three categories: 1. S yndicated - service research firms 2. Custom marketing research firms 3. Specialty - line marketing research firms D. The Marketing Research Process i. Good marketers adopt a formal marketing research process that follows six steps. ii. American Airlines example E. Step 1: Define the Problem, Decision Alternatives, and Research Objectives i. Do not define the problem too broadly or too narrowly ii. Some research is exploratory – the goal is to identify the problem and to suggest possible solutions iii. Some research is descriptive – it seeks to quantify demand iv. Some research is causal – it tests a cause - and - effect relationship F. Step 2: Develop the Research Plan i. D ata S ources 1. Secondary data – collected for another purpose; already exists 2. Primary data – freshly gathered for a specific purpose or project ii. R esearch A pproaches 1. Observational research a. Ethnographic research 2. Focus group research

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    3. Survey research 4. B ehavioral data 5. Experimental research iii. R esearch I nstruments 1. Questionnaires 2. Closed - end questions specify all possible answers 3. Open - end questions allow respondents to answer in their own words 4. Qualitative measures 5. Technological devices iv. S ampling P lan 1. Sampling unit: W hom should we survey? 2. Sample size: How many people should we survey? 3. Sampling procedure: How should we choose the respondents? v. Contact Methods 1. Mail contacts 2. Telephone contacts 3. Personal contacts 4. Online contacts G. Step 3: Collect the Data i. M ost expensive and error - prone phase H. Step 4: Analyze the Information i. Extract findings by tabulating the data and developing summary measures ii. Test hypotheses and theories, applying sensitivity analysis to test assumptions/strength of conclusions I. Step 5: Present the Findings J. Step 6: Make the Decision III. Forecasting and Demand Measurement A. The company must measure and forecast the size, growth and profit potential of each new opportunity B. Sales forecasts are used by finance to raise cash for investment and operations, by manufacturing to establish capacity and output, by purchasing to acquire the right amount of supplies, by human resources to hire the needed workers C. The Measures of Market Demand i. Potential market: sufficient interest in market offer (becomes a market if sufficient income and access) ii. Available market: interest, income and access to a particular offer 1. Qualified available market: interest, income, access and qualifications for the market offer iii. Target market: part of the qualified available market the company decides to pursue iv. Penetrated market: set of consumers who are buying the company’s product D. The Market Demand Function i. Market demand for a product is the total volume that would be bought

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    by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program . ii. Market demand is a function of the stated conditions . iii. The market minimum would take place without any demand - stimulating expenditures; higher expenditures would yield higher levels of demand, first at an increasing rate, then at a decreasing rate . iv. Market potential is the upper limit . v. Markets and Market Potential 1. Two extreme types of markets : expansible and nonexpansible 2. The market size is the level of primary demand for the product class. 3. Market share is the selective demand for a particular product . 4. Market forecast is the market demand corresponding to the actual marketing expenditure . 5. Market potential is the limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment . vi. Company Demand and Sales Forecast 1. Company demand is the company’s estimated share of market demand at alternative levels of company marketing effort during a given period . 2. Company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment . 3. Sales quota is the sales goal set for a product line, company division, or sales representative . 4. Sales budget is a conservative estimate of the expected volume of sales . 5. Company sales potential is the sales limit approached by company demand as company marketing effort increases relative to that of competitors . E. Estimating Current Demand i. Total M arket P otential 1. T he maximum sales available to all firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. 2. A c ommon way to estimate it is to multiply potential buyers by the average quantity each purchases and then by the price . 3. The most difficult component to estimate is number of buyers . ii. Area M arket P otential 1. A llocates the marketing budget optimally among the best territories 2. Market - buildup method identifies all the potential buyers in each market and estimates their potential purchases 3. The North American Industry Classification System (NAICS)

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    provides an efficient method of estimating area market potentials 4. Multiple - factor index method incorporates things like promotional expenditures and competitors iii. Industry S ales and M arket S hares 1. M eans finding out competitors and estimating their sales/evaluating performance against the industry’s performance. F. Estimating Future Demand i. Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions ii. The macroeconomic forecast projects inflation, unemployment, interest rates, consumer spending, business investment, government expenditures, net exports, and other variables (forecasts GDP) iii. They buy forecasts from someone else iv. They build a forecast on what people say, what people do, or what people have done 1. Survey of buyers’ intentions 2. Ask the sales force 3. Expert opinion 4. Past - sales analysis 5. Market - test method IV. Analyzing the Macroenvironment A. A trend is a direction or sequence of events with momentum and durability, revealing the shape of the future. B. A fad is a craze that is unpredictable, short - lived, without long - term significance. C. Identifying the Major Forces i. Demographic environment ii. Economic environment iii. Socio - cultural environment iv. Natural environment v. Technological environment vi. Political - legal environment D. The Demographic Environment i. Population size and growth, rate in cities, regions and nations, age distribution and ethnic mix, educational levels, household patterns ii. Worldwide Population Growth 1. Population growth fastest in developing regions iii. Population Age Mix 1. Global trend toward the aging population 2. Six age groups a. Preschool children b. School - age children c. Teens d. Young adults 20 - 40

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    e. Middle - aged adults 40 - 65 f. Older adults 65+ 3. Cohorts are groups of individuals born during the same time period who travel through life together . iv. Diversity within Markets 1. Ethic and racial diversity varies across countries v. Educational G roups 1. Illiterates 2. High school dropouts 3. High school diplomas 4. College degrees 5. Professional degrees vi. Household P atterns 1. Each type of household has distinctive needs and buying habots that marketers need to study and understand. E. The Economic Environment i. Purchasing power depends on income, savings, debt, credit availability , and price . ii. Consumer Psychology 1. Consumers have been shaken by the recession, have more debt and less savings, and feel it will change their behavior, to be more risk averse, going forward . iii. Income D istribution 1. F our types of industrial structures a. Subsistence economies b. Raw - material - exporting economies c. Industrializing economies d. Industrial economies 2. Five income - distribution patterns a. Very low incomes b. Mostly low incomes c. Very low, very high incomes d. Low, medium, high incomes e. Mostly medium incomes iv. Income, S avings, D ebt , and C redit 1. U.S. consumers have high debt - to - income ratio, which slows expenditures on housing and large - ticket items . 2. Consumer borrowing dropped for the first time in two decades during the recession because credit was less available . 3. Manufacturers and service jobs are migrating offshore . F. The Sociocultural Environment i. I mpacts consumption trends and behavior, including: views of ourselves, others, organizations, society, nature , and of the universe. ii. Core Cultural Values 1. Core beliefs and values are passed from parents to children and reinforced by social institutions

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    2. Secondary beliefs and values are more open to change iii. Subcultures 1. G roups with shared values, beliefs, preferences and behaviors emerging from their special life experiences or circumstances G. The Natural Environment i. There are opportunities for those who can reconcile prosperity and environmental protection . ii. Corporate environmentalism recognizes the need to integrate environmental issues into the firm’s strategic plans . iii. Trends to be aware of include the shortage of raw materials, especially water; the increased cost of energy; increased pollution levels; and the changing role of governments . iv. Firms whose products require finite nonrenewable resources face substantial cost increases as depletion approaches . H. The Technological Environment i. Accelerating pace of technological change ii. Unlimited opportunities for innovation iii. Varying R&D budgets iv. Increased regulation of technological change I. The Political - Legal Environment i. Laws, government agencies and pressure groups that influence organizations and individuals create business opportunities or uncertainty/confusion ii. Increased Business Legislation 1. Intended to protect companies from unfair competition, protect consumers from unfair business practices, protect society from unbridled business behavior, and charge businesses with the social costs of their products or production processes. iii. Growth of S pecial I nterest G roups 1. Political action committees (PACs) lobby government and pressure businesses to respect the rights of consumers, women, seniors, and gays and lesbians. 2. Consumerist movement organized citizens and government to strengthen the rights and powers of buyers in relationship to sellers.

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    LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. H ow can companies deliver customer value, satisfaction, and loyalty ? 2. What is the lifetime value of customers , and how can marketers maximize it? 3. How can companies attract and retain the right customers and cultivate strong customer rel a tionships and communities ? EXECUTIVE SUMMARY Customers will buy from the firm that they perceive to offer the highest customer - delivered value, defined as the difference between total cu stomer benefits and total customer cost. A buyer’s satisfaction is a function of the product’s pe r ceived performance and the buyer’s expectations. Recognizing that high satisfaction leads to high customer loyalty, companies must ensure that they meet and exceed customer expect a tions. Q uality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Marketers play a key role in achieving high levels of total quality so that firms remain solvent and profit a ble. Marketing managers must calculate customer lifetime values of their customer base to unde r stand their profit implications. They must also determine ways to increase the value of the customer base and provide inspiration and feedback for product improvements or innovations. Companies are also becoming skilled in customer relatio n ship management (CRM). The purpose is to attract the right customers , meet the individual needs of valued customers, improve loyalty and retention of valued customers, and implement win - back strategies to reattract valued ex - customers . OPENING THOUGHT Although most students understand the concept of “buying,” some will have difficulty in understanding the differences between total customer value and total customer cost. It will be beneficial for long - term understanding and retention to cover what the definition is and what it is not. Secondly, the distinction between satisfaction and total customer satisfaction for the consumer might be challenging for some students. Some students may have a hard time understanding the distinction between perception and expectation. Finally, it might be necessary to reemphasize the concepts of Customer Relationship Management (CRM), customer databases, and database mining often in the lecture. Students may confuse the concept of mailing lists with databases. However, most of the students today are proficient in C H A P T E R 4 CREATING LONG - TERM LOYALTY RELATIONSHIPS

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    Internet usage and can cite examples of relationship marketing from their own favorite Internet sites such as Amazon.com. ASSIGNMEN TS Key manufacturers and others must be concerned with how customers view products (customer satisfaction perceptions) being disseminated throughout the “electronic world” via the Internet. No longer can one discount the “power of the mouse” for affecting potential customers. In small groups, students are to select a particular firm or product and are to research what is being said on the Internet regarding this company/product. What affects/effects does this type of dissemination of consumer opinions via the Internet have on the company’s marketing strategies? What can the company do to stem the tide of such comments? How does a company defend itself against blatantly untrue consumer opinions? Have each of the students read 1 Michael Tsiros, Vikas Mittal, William T. Ross Jr., “The Role of Attributions in Customer Satisfaction: A Reexamination,” Journal of Consumer Research , 31 (September), 2004, pp. 476 - 483 and comment on their findings. Customer relations hip management is a current business “buzz word.” Students can be directed to do an Internet research project from named marketing/business journals on the subject of customer relations management (the chapter’s endnotes can provide a good source of leads for the students). Each student can be directed to research, read, and compile a report on their findings from a minimum of five articles from five different marketing (and business magazines such as Fortune ). The student’s report is to comment on how these articles compare, complement, or contrast the material contained in this chapter. The research firm J.D. Powers and Associates (jdpower.com) lists eight categories of products for consumers to research before purchasing the product or service. Breaking up the class into eight groups, have the students research the top performers for each category and be able to share their findings as to what characteristics, policies, procedures, and vision these top rated companies have in common. Is there a “common” link among all of the winners? Are there differences? In terms of the material contained in this chapter, how would you explain these similarities and differences? DETAILED CHAPTER OUTLINE Opening Vignette: Customer - centered companies are using technology to connect with customers and build customer relationships. Pandora tracks preferences and makes recommendations to drive customer preference for its service and loyalty. I. Building Customer Value, Satisfaction , and Loyalty A. Customer - Perceived Value i. (CPV) is the difference between the prospective customer’s evaluation of all the benefits and costs of an offering and the perceived alternatives. ii. Total customer benefit is the perceived monetary value of the bundle

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    of economic, functional and psychological benefits customers expect from a given market offering because of the product, service, people, and image . iii. Total customer cost is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the given market offering, including monetary, time, energy, and psychological costs . iv. A firm can improve its value by improving the economic, functional, and psychological benefits of its product, services, people, and/or image; it can reduce the buyer’s time, energy, and psychological investment; it can reduce its product’s monetary cost to the buyer . v. Loyalty is “a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior . ” vi. The value proposition consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. vii. The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering. At the heart of a good value delivery system is a set of core business processes that help deliver distin c tive consumer value. B. Total Customer Satisfaction i. Satisfaction is a person’s feeling of pleasure or disappointment that result from comparing a product or service’s perceived performance (or outcome) to expectations . ii. If the performance or experience falls short of expectations, the customer is dissatisfied. iii. If it matches expectations, the customer is satisfied. iv. If it exceeds e x pectations, the customer is highly satisfied or delighted v. Customer assessments of product or service performance depend on many factors, including the type of loyalty relationship the customer has with the brand. vi. Although the customer - centered firm seeks to create high customer satisfaction, i ncreasing customer satisfaction by lowering price or increasing services may r e sult in lower profits. C. Monitoring Satisfaction i. Many companies systematically measure how well they treat customers, identify factors shaping satisfaction and change operations and marketing as a result because satisfaction affects retention and word of mouth . ii. High satisfaction or delight creates an emotional bond with the brand or company, not just a rational preference. iii. The Net Promoter score is a 1 - to - 10 scale on which to rate their likelihood of recommending the company. 1. Marketers then su b tract Detractors (those who gave a 0 to 6)

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    from Promoters (those who gave a 9 or 10) to arrive at the Net Promoter Score (NPS). 2. Customers who rate the brand with a 7 or 8 are deemed Passively Sa t isfied and are not included. iv. Practices can help companies recover customer goodwill after a negative experience 1. Set up a seven - day, 24 - hour toll - free hotline (by phone, fax, or e - mail) 2. Contact the complaining customer as quickly as possible. 3. Accept responsibility for the customer’s disappointment; don’t blame the customer. 4. Use customer service people who are friendly and empat h ic. 5. Resolve the complaint swiftly and to the customer’s satisfaction. D. Product and Service Quality i. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs . ii. Higher l evels of quality result in higher levels of customer satisfaction, which support higher prices and (often) lower costs. iii. Marketing plays an especially important role in helping companies identify and deliver high - quality goods and services to target customers. 1. C orrectly identify customers’ needs and requirements 2. C ommunicate customer expectations properly to pro d uct designers 3. M ake sure customers’ orders are filled correctly and on time 4. C heck that customers have received proper instructions, training, and technical assi s tance in the use of the product 5. S tay in touch with customers after the sale to ensure they are, and remain, satisfied 6. Gather customer ideas for product and service improvements and convey them to the appropriate depar t ments II. Maximizing Customer Lifetime Value A. The 80 - 20 rule states that 80 pe r cent or more of the company’s profits come from the top 20 percent of its customers. B. Customer Profitability i. A profitable customer is a person, household, or company that over time yields a revenue stream excee d ing by an acceptable amount the company’s cost stream for attracting, selling, and serving that customer. ii. Marketers can assess customer profitability individually, by market segment, or by channel . iii. Companies that conduct customer profitability analysis : 1. C an raise the price of its less profi t able products or eliminate them 2. C an try to sell less profitable profit - making products 3. Can ignore unprofitable customers/ encourage them to switch to

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    competitors iv. A ctivity - based costing (ABC) accounting tries to identify the real costs associated with serving each customer and estimates all revenue coming from the customer, less all cost s (including making and distriuting the products and services, taking phone calls, traveling, entertainment and gifts, etc.) C. Measuring Customer Lifetime Value i. Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases . III. Cultivating Customer Relationships A. Customer relationship management (CRM) is the process of ca re fully managing detailed information about individual customers and all customer “touch points” to maximize loyalty . B. CRM enables companies to provide better customer service, personalize marketing offers, and to market to consumers after gaining their permission . C. Attracting and Retaining Customers i. Different acquisition methods yield customers with varying CLVs. ii. To reduce the customer churn/ defection rate, the company must 1. Define and measure its retention rate 2. Distinguish the causes of customer attration and identify those that can be managed better 3. Compare the lost customer’s lifetime value to the costs of reducing the defection rate iii. The marketing funnel identifies the percentage of potential target market at each stage in the decision process . 1. Firms can calculate conversion rates, or the percentage of customers at one stage who move to the next 2. Satisfied customers are the company’s customer relationship capital iv. Winning companies improve the aggregate value of the customer base by: 1. Reducing the rate of customer defection 2. Increasing the longevity of the customer relationship 3. Enhancing customer growth through share of wallet, cross - selling and up - selling 4. Making low - profit customers more profitable or terminating them 5. Focusing disproportionate effort on high - profit customers D. Building Loyalty i. Interact C losely with C ustomers ii. Develop L oyalty P rograms 1. F requency programs 2. C lub membership programs iii. Create I nstitutional T ies iv. Create V alue with B rand C ommunities

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