Class Notes for Framework for Marketing Management, 6th Edition

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PrefaceJust asA Framework for Marketing Management,6th edition,is a shortened version ofKotler/Keller’sMarketing Management, 15thedition, theInstructor’s Manual (IM)for AFramework for Marketing Management,6th edition,provides the essentials of theMarketing Management, 15thedition,IM,including learning objectives,an executivesummary, suggested assignments and debates/discussion materials,and a chapter outline.For the instructor teaching a survey marketing management course, or a substantiallyabbreviated course, theFrameworkIMprovides the basis for additional flexibility. Forexample, if the course calls for the use of substantial case material, theFrameworkIMprovides the opportunity toselectcasesthat complement each chapter. The HarvardBusiness School Web site has a special section of recommended cases fora previouseditionthat may be adapted to use withA Framework for Marketing.https://cb.hbsp.harvard.edu/cbmp/resources/marketing/docs/MKT-Kotler-Keller.pdfThe Internet linkfor other casesis:http://harvardbusinessonline.hbsp.harvard.eduTo summarize, theFramework IMis organized as follows:•Learning/Teaching Objectives: Objectives that blend with and complementthe Kotler/Keller text learning objectives.•Executive Summary: An executive summary from the chapter•Assignments: Suggested assignments that align with the chapter content andinclude related articles in some instances•Chapter Outline: A detailed topic/sentence outline to provide an overallframework to determine when and how to utilize the suggested lectures and/orother support materials.

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LEARNING OBJECTIVESIn 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 marketing concepts?4.What forces are defining the new marketing realities?5.What are the tasks necessary for successful marketing management?EXECUTIVESUMMARYMarketing isthe activity, set of institutions, and processesfor creating, communicating,and delivering value to customers and for managing customer relationships in ways thatbenefit the organization and its stakeholders. Marketing management is the art and science ofchoosing 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 ideasin four different marketplaces: consumer, business, global, andnonprofit.Today’s marketplace is fundamentally differentthan in the past, resultingin many newconsumer and company capabilities.Technology, globalization, and social responsibilityarecreatingnew opportunities and challenges and significantly changingthemanagementormarketing.Organizations can conduct business under the production concept, the productconcept, the selling concept, the marketing concept, or the holistic marketing concept. Theholistic marketing concept (including relationship marketing, integrated marketing, internalmarketing, and performance marketing) is based on the development, design, andimplementation of marketing programs, processes, and activities that recognize their breadthand interdependencies. Successfulmarketing management includes developing marketingstrategies and plans, capturing marketing insights, connecting with customers, building strongbrands, creating, delivering, and communicating value, andmanaging the marketingorganization within the global economy.OPENING THOUGHTIt is important to focus on how and why the traditional view of marketing has changed, and tointroduce the various ways of measuring performance, since they will reappear throughout thetext.Marketing applies to a variety of different areas and is increasingly involving manylevels of the organization.Students who are not marketing majorsmayhave some difficultyaccepting the encompassing role that marketing has on the other functional disciplines withinC H A P T E R1DEFINING MARKETINGFOR THE NEW REALITIES

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a firm. For those students who have never been exposed to marketing and its components, theinstructor’s challenge is to educate the students about the world of marketing.ASSIGNMENTSIn small groups, ask the students toreview the annual report from Unilever.How do themissions discussed in the opening vignette translate into their current business practices? Howare its marketing investments and initiatives affecting its profitability?What conclusions canyou draw fromUnilever’s progress?Students can choose a firm of their preference, interview key marketing managementmembers and ask the firm how they are reacting to the changes in marketing management forthenew realities.Have the students readAdi Narayan’s“Marketers Aim New Ads at Video iPod Users,”BloombergBusinessWeekApril17, 2014(http://www.businessweek.com/articles/2014-04-17/indias-mobile-marketers-try-phone-calls-to-reach-rural-consumers)andSuzanne VranicaandChristopher S. Stewart’s “Mobile Advertising Begins to Take Off: Spending More ThanDoubled in the First Half,”Wall Street Journal,October 9, 2013and comment on howeffective they believe cell phone advertisements will be in the future.Have the students reflect upon their favorite product and/or service. Then have the studentscollect marketing examples from each of these companies. This information should be in theformofexamplesofprintedadvertising,copiesoftelevisioncommercials,Internetadvertising, or radio commercials. During class, have the students share what they havecollected with others. Questions to ask during the class discussion should focus on why thisparticular example of advertising elicits a response from you. What do you like/dislike aboutthis marketing message? Does everyone in the class like/dislike this advertising?DETAILED CHAPTER OUTLINEOpening Vignette: Unilever is responding to the digital revolution and other major changes inthe business environment with a new marketing model that establishes social, economic, andproduct missions for each brand. Examples of initiatives include halving its ecologicalfootprint while doubling revenues and drawing 70–75% of business from developing andemerging markets by 2020. Marketing is both an art and a science, and results from carefulplanning and execution using state-of-the art tools and techniques.I.The Value of MarketingA.Marketing abilityhelps create sufficient demand for products and services, whichis essential for a firm’s financial success, creates jobs and provides resources forfirms to engage is socially responsible activities.B.Marketersthat fail to carefully monitor their customers and competitors, continuouslyimprove their value offerings and marketing strategies, or satisfy their employees,stockholders, suppliers, and channel partners in the process are more vulnerable tocompetitive entry.

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II.The Scope of MarketingA.What Is Marketing?i.Marketingis about identifying and meeting human and social needs; “Meetingneeds profitably.”ii.American Marketing Association definition:Marketing is the activity, set ofinstitutions, and processes for creating, communicating, delivering, andexchanging offerings that have value for customers, clients, partners, and societyat large.iii.Marketing managementisthe art and science of choosing target markets andgetting, keeping, and growing customers through creating, delivering, andcommunicating 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, andmanagement consultants.iii.Events: include time-based events, global and local events.iv.Experiences: marketers orchestrate several services and goods to create, stage, andmarket experiences.v.Persons: include artists, musicians, CEOs, physicians, high-profile lawyers andfinanciers, and other professionals often get help from marketers, and each personhas been advised to become a “brand.”vi.Places: include economic development specialists, real estate agents, commercialbanks, local business associations, and advertising and public relations agencies.vii.Properties: intangible rights of ownership to either real property (real estate) orfinancial property (stocks and bonds).viii.Organizations: includemuseums, performing arts organizations, corporations, andnonprofits that use marketing to boost their public images and compete foraudiences and funds.ix.Information: what books, schools, and universities produce, market, and distributeat a price to parents, students, and communities.x.Ideas: every market offering includes a basic idea. Products and services areplatforms for delivering some idea or benefit.C.Who Markets?i.Amarketer is someone who seeks a response—attention, a purchase, a vote, adonation—from another party, called the prospect.ii.Marketersmanage all possible touch points where a customer interacts with thecompany.D.What Is a Market?i.Amarket is a collection of buyers and sellers who transact over a particularproduct or product class (such as the housing market or the grain market).ii.Buyersand sellers are connected by four flows that include goods and services,communication, money exchange, and information exchange.III.Core Marketing ConceptsA.Needs, Wants, and Demands

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i.Needs= basic human requirementsii.Wants = when needs are directed to specific objects that might satisfy the neediii.Demands= wants for specific products backed by an ability to payiv.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 needsB.Target Markets, Positioning, and Segmentationi.For each target market, the firm develops a market offering that it positions intarget buyers’ minds as delivering some key benefit(s).C.Offerings and Brandsi.Avalue propositionisa set of benefits that satisfy a consumer’s needs.ii.Theintangible value proposition is made physical by anoffering,which can be acombination of products, services, information, and experiences.iii.A brandis an offering from a known source. All companies strive to build a brandimage with as many strong, favorable, and unique brand associations as possible.D.Marketing Channelsi.Communicationchannelsdeliver and receive messages from target buyers.ii.Distribution channelshelp display, sell, or deliver the physical product orservice(s) to the buyer or user.iii.Service channels includewarehouses, transportation companies, banks, andinsurance companies.E.Paid, Owned, and Earned Mediai.Paid mediaallow marketers to show their ad or brand for a fee.ii.Owned mediaare communication channels marketers actually own, like acompany or brand brochure, Web site, blog, Facebook page, or Twitter account.iii.Earned mediaare streams in which consumers, the press, or other outsidersvoluntarily communicate something about the brand via word of mouth, buzz, orviral marketing methods.F.Impressions and Engagementi.Marketers now think of three “screens” or means to reach consumers: TV,Internet, and mobile.ii.Impressionsoccur when consumers view a communication.iii.Engagementis the extent of a customer’s attention and active involvement with acommunication.G.Value and Satisfactioni.Value is primarily a combination of quality, service, and price, called thecustomervalue triad. Value perceptions increase with quality and service but decrease withprice.ii.Satisfactionreflects a person’s judgment of a product’s perceived performance inrelationship to expectations.H.Supply Chain

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i.The supply chain is a channel stretching from raw materials to components tofinished products carried to final buyers.ii.Each company in the chain captures only a certain percentage of the total valuegenerated by the supply chain’s value delivery system.iii.When a company acquires competitors or expands upstream or downstream, itsaim is to capture a higher percentage of supply chain value.I.Competitioni.Competitionincludes all the actual and potential rival offerings and substitutes abuyer might consider.J.Marketing Environmenti.Task environmentincludes the actors engaged in producing, distributing, andpromoting the offering.ii.Broad environmentconsists of six components: demographic environment,economic environment, social-cultural environment, natural environment,technological environment, and political-legal environment.IV.The New Marketing RealitiesA.Technologyi.Widespread technology adoption has created new opportunities, promotesshared information and customer relationship management.B.Globalizationi.Transportation, shipping, and communication technologies have made it easier forus to know the rest of the world, to travel, to buy and sell anywhere, and has madecountries increasingly multicultural.C.Social Responsibilityi.The private sector is taking some responsibility for improving living conditions,and firms all over the world have elevated the role of corporate socialresponsibility.D.A Dramatically Changed Marketplacei.Technology, globalization, and social responsibility have changed themarketplace.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 andmobile marketing, sending targeted ads, coupons, and information.(9)Companies can improve purchasing, recruiting, training, and internal andexternal communications.(10)Companies can improve cost efficiency.

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iii.Retail transformation: increased competition from a variety of formats has yieldedmore entertaining retail experiences.iv.Disintermediation:delivery of products and services by intervening in thetraditional flow of goods.v.Reintermediation: traditional companies are adding online services to theirofferings.vi.Heightened global competition, rise of private labels and mega-brands.vii.Marketers are increasingly asked to justify their investments in financial andprofitability terms, as well as in terms of building the brand and growing thecustomer base.V.Company Orientation Toward the MarketplaceA.The Production Concepti.Suggests consumers prefer products that are widely available and inexpensive, somanagement aims for high production efficiency, low costs, and mass distribution.B.The Product Concepti.Proposes consumers favor products offering the most quality, performance, orinnovative 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 Concepti.Consumers and businesses, if left alone, won’t buy enough of the organization’sproducts. It is practiced most aggressively with unsought goods—goods buyersdon’t normally think of buying such as insurance and cemetery plots—and whenfirms with overcapacity aim to sell what they make, rather than make what themarket wants.D.The Marketing Concepti.Find the right products for your customers.The marketing concept holds that thekey to achieving organizational goals is being more effective than competitors increating, delivering, and communicating superior customer value to your targetmarkets.E.The Holistic Marketing Concepti.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 keyconstituents 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), andmembers of the financial community (shareholders, investors, analysts).(3)The ultimate outcome of relationship marketing is a unique company assetcalled a marketing network consisting of the company and its supportingstakeholders—customers, employees, suppliers, distributors, retailers, andothers—with whom it has built mutually profitable business relationships.iii.Integrated Marketing(1)Many different marketing activities can create, communicate, and delivervalue.

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(2)Marketers should design and implement any one marketing activity with allother activities in mind.(3)The company must develop an integrated channel strategy.(4)The company must integrate communications to they reinforce andcomplement each other.iv.Internal Marketing(1)Hiring, training, and motivating able employees who want to serve customerswell.(2)Marketing succeeds only when all departments work together to achievecustomer goals.v.Performance Marketing(1)Requiresunderstanding the financial and nonfinancial returns to business andsociety from marketing activities and programs.VI.Updating The Four PsA.The original four Ps: product, price, place and promotionB.Modern marketing realities suggest a more representative set that encompassesmodern marketing realities: people, processes, programs and performance.i.People: reflects internal marketing and the fact that employees and understandingconsumers’ whole lives are critical to marketing success.ii.Processes: reflects all the creativity, discipline, and structure brought to marketingmanagement.iii.Programs: reflects all the firm’s consumer-directed activities.iv.Performance: captures the range of possible outcome measures that have financialand 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 TasksA.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 themarket, which includes the product quality, design, features, and packaging) to gain acompetitive advantage.F.Delivering value.G.Communicating value.H.Managing the marketing organization.

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LEARNING OBJECTIVESIn this chapter, we will address the following questions:1.How does marketing affect customer value?2.Howis strategic planning carried out atdifferent organizationallevels?3.What does a marketing plan include?4.How can companies monitor and improve marketing activities and performance?CHAPTER SUMMARYThe value chain is a tool for identifying key activities that createcustomervalueand costs in a specific business.The value delivery process includeschoosing (oridentifying), providing (or delivering), and communicating superior value.Market-oriented strategic planning is the managerial process of developing and maintaining aviable fit between the organization’s objectives, skills, and resources and its changingmarket opportunities.Strategic planning occurs at multiple levels: corporate, division, business unit, andproduct. Corporate strategyincludes defining themission, establishing strategic businessunits (SBUs), assigning resources, and assessing growth opportunities.This is theframework within which divisions and SBUs prepare their strategic plans. The marketingplan summarizes what the firm knows about the marketplace and how well it will reachits marketing objectives, operating at both the strategic and tactical levels. Marketingimplementation turns marketing plans into action assignments to achieve the plan’sobjectives. Firms use marketing metrics, marketing-mix modelling, and marketingdashboards to monitor and assess marketing productivity. By applying marketingcontrol, management can assess the effects of marketing activities and makeimprovements.OPENING THOUGHTThis introduces several perspectives on planning and describes how to draw up a formalmarketing plan. The formal marketing plan sample is an excellent resource because itprovides an overview of the types of decisions a marketer might make in an effort tocreate customer value.Providesufficient class time covering the distinctions betweenstrategy and tactics.C H A P T E R2DEVELOPING ANDIMPLEMENTINGMARKETING STRATEGIESAND PLANS

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ASSIGNMENTSStudents should be encouraged to review selected companies’annual reports to collect fromthese reports the corporations’ mission statements, strategy statements, and target marketdefinitions. The collected material can be discussed in class comparing the company’s overallbusiness, marketing, and customer strategies.Each student is in effect a “product.” Like all products you (they) must be marketed forsuccess. Have each of your students’ write their own “mission statement” about their careerand 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 (currentemployers or past employers, for example) and have them answer the questions posed by theMarketing Memo,Marketing Plan Criteriaregarding the evaluation of a marketing plan. Makesure the students are specific in their answers.

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DETAILED CHAPTER OUTLINEOpening Vignette: Hewlett-Packard has been challengedin recent years, and is anexample of how firms must constantly improve their strategies to adjust to changes in themarketplace.I.Marketing and Customer ValueA.The Value Delivery Processi.The traditional view of marketing where a firm makes something andsells it only applies in economies with goodsshortagesii.Marketing is placed at the beginning of business planning ineconomies with different consumer needs and wantsiii.Three phases to the value creation and delivery sequence:1.Choosing the value: homework; market segmentation, targetmarket selection, value positioning2.Providing the value: identification of features, prices,distribution3.Communicating the value: use the Internet, advertising, salesforce and other communication toolsB.The Value Chaini.Every firm is a synthesis of activities performed to design, produce,market, deliver and support its product.ii.Primary activities1.Inbound logistics: bringing materials into the business2.Operations: converting materials into final products3.Outbound logistics: shipping out final products4.Marketing (includes sales)5.Serviceiii.Support activities1.Procurement2.Technology development3.Human resource management4.Firm infrastructureiv.Firms examine costs and performance in each value-creating activityand benchmark against competitors to look for ways to improvev.Core business processes(increasingly reengineered and assignedcross-functional teams):1.The market-sensing process: gathering and acting uponinformation about the product2.The new-offering realization process: researching, developing,and launching new high-quality offerings quickly and withinbudget3.The customer acquisition process: defining target markets andprospecting for new customers4.The customer relationship management process: building

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deeper understanding, relationships, and offerings to individualcustomersvi.Companies often partner with specific suppliers and distributors tocreate a superior value delivery network, or supply chainC.Core Competenciesi.Three characteristics1.Sources of competitive advantage that make a significantcontribution to perceived customer benefits2.Have applications to a wide variety of markets3.Are difficult for competitors imitateii.Accompanied by distinctive capabilities, or excellence in broaderbusiness processes:market sensing, customer linking, channelbondingD.TheCentral Role of Strategic Planningi.Marketers must prioritize strategic planning in three key areas1.Managing the businesses as an investment portfolio2.Assessing the market’s growth rate and the company’s positionin that market3.Establishing a strategyii.A marketing plan operates on a strategic level and a tactical level1.The strategic marketing planlays out the target markets and thefirm’s value proposition, based on an analysis of the bestmarket opportunities.2.The tactical marketing plan specifies the marketing tactics,including product features, promotion, merchandising, pricing,sales channels, and service.II.Corporate and Division Strategic PlanningA.Corporate headquarters undertake four planning activitiesi.Define the corporate missionii.Establish strategic business unitsiii.Assign resources to each strategic business unitiv.Assess growth opportunitiesB.Defining the Corporate Missioni.Over time, the mission may change to respond to new opportunities ormarket conditionsii.Classic questions:What is our business? Who is the customer? Whatis of value to the customer? What will our business be? What shouldour business be?iii.Clear, thoughtful mission statements are developed collaborativelywith and shared with managers, employees, and often customers1.Provides a shared sense of purpose, direction, and opportunity2.Good mission statements focus on a limited number of goals.stress the company’s major policies and values,define themajor competitive spheres within which the company willoperate,take a long-term view, and areshort, memorable andmeaningfulC.EstablishingStrategic Business Unitsi.Established using three characteristics

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1.Single business or collection of related businesses that can beplanned separately from the rest of the company2.Own set of competitors3.Manager responsible for strategic planning and profitperformance and controls most factors affecting profitD.Assigning Resources to Each SBUi.Resources assigned using shareholder value analysis; value assessedon potential of business based on growth opportunities from globalexpansion, positioning or retargeting and strategic outsourcingE.Assessing Growth Opportunitiesi.Intensive growth:within current businesses;product-market expansiongrid is helpful1.Market-penetration strategy: more market share with currentproducts in current markets2.Market-development strategy: develop new markets for currentproducts3.Product-development strategy: develop new products forcurrent markets4.Diversification strategy: develop new products for new marketsii.Integrative growth: acquire related businesses1.Use backward, forward or horizontal integrations within theindustry2.May not reach desired sales volume; challenges withintegrationiii.Diversification growth: identify opportunities for growth from addingattractive, unrelated businessesiv.Downsizeor divestolderbusinesses: Prune, harvest or divest torelease resources or reduce costsF.Organization and Organizational Culturei.A company’s organization isits structures, policies, and corporateculture, all of which can become dysfunctional in a rapidly changingbusiness environment.ii.Corporateculture is“the shared experiences, stories, beliefs, andnorms that characterize an organization.”iii.Scenario analysis develops plausible representations of a firm’spossible future using assumptions about forces driving the market anduncertaintiesIII.Business Unit Strategic PlanningA.The Business Missioni.Develop a specific mission for the strategic business unitB.SWOTAnalysisi.ExternalEnvironment (Opportunity andThreat)Analysis: monitor keymacroenvironmental forces1.Opportunity: area of buyer need and interest that a companyhas a high probability of satisfyinga.Offer something in short supplyb.Supply existing product or service in a superior wayi.Problem detection: ask consumers for

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suggestionsii.Ideal method: ask consumers to imagine anideal version of the product or serviceiii.Consumption chain method: chart steps inacquiring, using, disposing of productc.Above methods lead to new product or service2.Benefit from converging industry trends/introduce hybridproducts or services to the market3.Make buying process more convenient or efficient4.Meet the need for more information and advice5.Customize a product or service6.Introduce a new capability7.Deliver a product or service faster8.Offer product at a much lower priceii.Market opportunity analysis(MOA)questions1.Can we articulate the benefits convincingly tothedefinedtarget market(s)?2.Can we locate the target market(s) and reach them with cost-effective media and trade channels?3.Doesour company possess or have access to the criticalcapabilities and resources we need to deliver the customerbenefits?4.Can we deliver the benefits better than any actual or potentialcompetitors?5.Will the financialrate of return meet or exceed our requiredthreshold for investment?iii.Environmental threat is a challenge posed by an unfavorable trend ordevelopment that, in the absence of defensive marketing action, wouldlead to lower sales.iv.InternalEnvironment(Strengths and Weaknesses) AnalysisC.GoalFormulationi.Goals are objectives that are specific with respect to magnitude andtimeii.Management by objectives meets four criteria1.They must be arranged hierarchically, from most to leastimportant2.Objectives should be quantitative whenever possible3.Goals should be realistic4.Objectives must be consistentiii.Trade-offs include short-term profit versus long-term growth, deeppenetration of existing markets versus development of new markets,profit goals versus nonprofit goals, and high growth versus low risk.D.StrategyFormulationi.Strategy is a game plan for getting what you want to achieveii.Porter’s generic strategies1.Overall cost leadership2.Differentiation3.Focus

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iii.Competing firms directing the same strategy to the same target marketconstitute a strategic groupiv.There is a distinction between operational effectiveness and strategy:operationally effectiveness can be copied; strategy develops a uniqueand valuable positionv.Strategic alliances complement a firm’s capabilities and resources1.Product or service alliances2.Promotional alliances3.Logistics alliances4.Pricing alliancesvi.Firms use partner relationship management to form and managepartnershipsE.Strategyand Implementationi.Strategy addresses the what and why of marketing programs andactivitiesii.Implementation addresses the who, where, when and how ofmarketing programs and activitiesiii.Strategy is one of seven elements of business success:1.Hardware: strategy, structure, and systems2.Software: style, skills, staff and shared valuesIV.The Marketing PlanA.A marketing plan is a written document that summarizes what the marketerhas learned about the marketplace and indicates how the firm plans to meet itsmarketingobjectivesB.The mostfrequently cited shortcomings of current marketing plans, accordingto marketing executives, are lack of realism, insufficient competitive analysis,and a short-run focusC.Contents of a Marketing Plani.Executive summary and table of contentsii.Situation analysis (relevant background data on sales, costs, themarket, competitors and the macroenvironment)iii.Marketing strategy (mission, marketing and financial objectives, needsthe marketing offering is intended to satisfy and its competitivepositioning)iv.Marketing tactics (marketing activities that will be undertaken toexecute the marketing strategy)v.Financial projections include a sales forecast, an expense forecast, anda break-even analysis.vi.Implementation controls: outlines the controls for monitoring andadjusting implementation;spells out the goals and budget for eachmonth or quarter so management can review results and takecorrective action as needed.D.From Marketing Plan to Marketing ActionV.Marketing Implementation, Control, and PerformanceA.Marketing implementation is the process that turns marketing plans into actionassignments and ensures they accomplish the plan’s stated objectivesi.Schedules show when tasks were supposed to be completed vs. whenthey actually were

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ii.Metrics track actual outcomes of marketing programs to see whetherthe company is moving towards its objectivesiii.Two complementary approaches to measure marketing productivityare:1.Marketing metrics–assess marketing effects2.Marketing-mix modeling–estimate causal relationships andmeasure how marketing activity affects outcomesiv.Marketing dashboards are structured to disseminate insights from thesetwo approachesB.Marketing Metricsi.Set of measures that help marketers quantify, compare and interprettheir performanceii.Short-term results often reflect profit-and-loss concerns as shown bysales turnover, shareholder value, or a combinationiii.Brand-equity measures include customer awareness, attitudes,behaviors, market share, relative price premium, number ofcomplaints, distribution and availability, total number of customers,perceived quality, and loyalty and retentionC.Marketing-Mix Modelingi.Marking-mix models analyze data from a variety of sourcesii.They help isolate effects, but are less effective at assessing howmarketing elements work in combination1.Focused on incremental growth instead of baseline sales orlong-term effects2.Limited integration of metrics related to customer satisfaction,awareness and brand equity3.Fails to incorporate metrics related to competitors, trade orsales forceD.Marketing Dashboardsi.A concise set of interconnected performance drivers to be viewed incommon throughout the organizationii.Customer-performance scorecard: how well the company is doing oncustomer-based measuresiii.Stakeholder-performance scorecard: the satisfaction of variousconstituencies who have a critical interest in and impact on thecompany’s performanceE.Marketing Controli.Annual-plan control ensures the company achieves sales, profits andother goals established in its annual planii.Profitability control determines whether to expand, reduce, oreliminate any products or marketing activitiesiii.Efficiency control helps the company look at better ways to managemarketing spending and investmentsiv.Strategic control periodically reassesses the strategic approach to themarketplace using a marketing audit, which covers themacroenvironment, task environment, marketing strategy, marketingorganization, marketing systems, marketing productivity, andmarketing functions

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LEARNING OBJECTIVESIn 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.Whatconstitutes good marketing research?4.How can companies accurately measure and forecast market demand?5.What are some influential developments in the macroenvironment?EXECUTIVESUMMARYMarketingmanagers need a marketing information system (MIS) to assessinformation needs, develop the needed information, and distribute it in a timely manner.AnMISrelies on: (a) an internal records system,includinginformation about the order-to-payment cycle and sales information systems; (b) a marketing intelligence system to obtaineveryday 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 thedecision. Companies use forecasting and demand measurement to evaluate the size, growth,and profit potential of each new opportunity.Marketersmust monitor sixe major environmental forces: demographic,economic,sociocultural, natural, technological, and political-legal.In the demographic environment,they shouldexamineworldwide population growth; mixes of age, ethnic composition, andeducational levels; and household patterns. In the economic arena,they shouldfocus onconsumer psychology,income distribution,and levels of savings, debt, and credit. In thesocialcultural arena, marketers must understand people’s views of themselves, others,organizations, society, nature, and the universe, as well as the role of cultural values andsubcultures.In the natural environment, marketers should be awareincreased concern aboutthe natural environmentand sustainability.In the technological arena, marketers shouldexamine the accelerating pace ofchange, opportunities for innovation, varying R&D budgets,and the increasedregulation.In the political-legal environment, marketers must work withinthe many laws regulating business practices and with various special-interest groups.C H A P T E R3CAPTURINGMARKETINGINSIGHTS ANDFORECASTINGDEMAND

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OPENING THOUGHTStudents new to the discipline of marketing will probably be surprised at the level ofmarketing information, intelligence, and arenas that marketing managers must operate within.The instructor is encouraged to stress that the marketing of products/services and the processesofmakingmarketingdecisionsdonotoperatewithoutcarefulconsiderationoftheenvironments identified in this chapter. Today, marketers must be cognizant of “how” theirproduct or service is perceived as much as “how” it functions.The instructor’s challenge for this chapter is to communicate to the students the complexity ofandsometimestheconflictingforcesimpactingmarketingmanagersinthetoday’senvironment.ASSIGNMENTSUsing information from the web like FEDSTATS and the U.S. Census Bureau, have thestudents predict the population of the U.S. for the years 2020, and 2060 and specificallyanswer the following questions: a) What is the demographic makeup of the U.S. in theseyears? b) What is the age dispersion in the U.S. in these years, and c) What industries do yousee 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, fromthe university or college administrators, information about the students eating habits (oncampus students would be one group; commuting students another group), exercise, andlifestyle. 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 oncampus are clinically obese? This is a very good project to demonstrate the skill of datamining and the use of secondary data.Select or suggest a current “fad” or “trend” exhibited by students on campus. Each student isto select either a fad or trend and then research this fad and trend in light of the marketingopportunities 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 productsthat are currently “trendy?” What are the “downsides?” What generation do these fads andtrends appeal to? How large is the potential market for the fad and/or trend? Students shouldprepare a report with as much detail into the specific characteristics of these markets as isavailable. 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 anindividual assignment, ask each student to describe their sub-segment in terms of population,agedistribution,growthpotential,income,educationlevels,andotherdemographiccharacteristics. The conclusion of their report should explain the marketing implications oftheir findings in terms of potential market, over-saturated market, declining market, or hiddenor ignored market with potential.Ask students to contact a local marketing research firm in the area for the purpose of aninterview 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 howinformation is collected. Once it is collected, what are some of the difficulties faced by theresearcher in presenting this information to the client?Have students watch this video on the concept of “neuromarketing” and comment on whethersuch brain research is ethical or not ethical because such research may lead to more marketingmanipulation:http://www.businessweek.com/videos/2013-04-26/neuromarketing-explaining-the-brains-buy-buttonSeealsohttp://www.businessweek.com/articles/2013-10-10/will-companies-one-day-use-brainwaves-to-find-ideal-pricesCarolyn Yoon, Angela H. Gutchess,Fred Feinberg, and Thad A. Polk, “A Functional Magnetic Resonance Imaging Study ofNeural 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 forCulturally Familiar Drinks,”Neuron, 44 (October 14, 2004), pp. 379-387DETAILED CHAPTER OUTLINEOpening vignette: Marketers need up-to-date information to make marketing decisions.Campbell attempted to understand macroenvironmental trends to boost soup sales amongmillenials.I.The Marketing Information System and Marketing IntelligenceA.Marketers are responsible for identifying significant marketplace changesi.They have disciplined methods for collecting informationii.The spend time interacting with customers and observing competitorsand other outside groupsB.Some firmshave marketing information systems that provide details aboutbuyer wants, preferences and behaviori.A marketing information system consists of people, equipment andprocedures to gather, sort, analyze, evaluate and distribute needed,timely and accurate information to marketing decision makers.ii.A marketing information system relies on internal company records,marketing intelligence activities, andmarketing researchC.Internal Recordsand Database systemsi.The Order-to-Payment Cycle, which is the heart of the internal recordssystem, includes invoices, shipping and billing documentsii.Sales Information Systems include sales and inventory dataiii.Databases, Data Warehouses,and Data Mining provide informationthat enables customer engagement, but present challenges becausedatacannot be effectively managed with traditional database and businessintelligence tools1.Database marketing is the process of building, maintaining andusing customer databases and other databases to contact,transact with, and build relationships with customers2.A data warehouse captures information and organizes it so it

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can be captures, queried and analyzed to draw inferences aboutindividual customers’ needs and responses3.Data mining is used to extract useful insights from the mass ofdataiv.Behavioral targeting is used to track customers’ online behavior formarketing purposes and allows advertisers to better target online adsD.Marketing Intelligencei.A marketing intelligence system is a set of procedures and sources thatmanagers use to obtain everyday information about developments in themarketing environment.ii.It reports “happenings” data from books, newspapers, tradepublications, customers, suppliers, distributors, managers and socialmedia monitoringII.The Marketing ResearchSystemA.Marketing researchgenerates insights that aid management decision makingB.Marketing insights provide diagnostic information about how consumers andmarkets behave, why we observe certain effects in the marketplace and what thatmeans to marketersC.Defining Marketing Researchi.Marketing research is “the function that links the consumer, customer, andpublic to the marketer through information–information used to identifyand define marketing opportunities and problems; generate, refine, andevaluate marketing actions; monitor marketing performance; and improveunderstanding of marketing as a process.ii.Marketing research firms fall into three categories:1.Syndicated-service research firms2.Custom marketing research firms3.Specialty-line marketing research firmsD.The Marketing Research Processi.Good marketers adopt a formal marketing research process that follows sixsteps.ii.American Airlines exampleE.Step 1: Define the Problem, Decision Alternatives, and Research Objectivesi.Do not define the problem too broadly or too narrowlyii.Some research is exploratory–the goal is to identify the problem and tosuggest possible solutionsiii.Some research is descriptive–it seeks to quantify demandiv.Some research is causal–it tests a cause-and-effect relationshipF.Step 2: Develop the Research Plani.DataSources1.Secondary data–collected for another purpose; already exists2.Primary data–freshly gathered for a specific purpose or projectii.ResearchApproaches1.Observational researcha.Ethnographic research2.Focus group research

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3.Survey research4.Behavioraldata5.Experimental researchiii.ResearchInstruments1.Questionnaires2.Closed-end questions specify all possible answers3.Open-end questions allow respondents to answer in their ownwords4.Qualitative measures5.Technological devicesiv.SamplingPlan1.Sampling unit:Whom should we survey?2.Sample size: How many people should we survey?3.Sampling procedure: How should we choose the respondents?v.Contact Methods1.Mail contacts2.Telephone contacts3.Personal contacts4.Online contactsG.Step 3: Collect theDatai.Most expensive and error-prone phaseH.Step 4: Analyze the Informationi.Extract findings by tabulating the data and developing summary measuresii.Test hypotheses and theories, applying sensitivity analysis to testassumptions/strength of conclusionsI.Step 5: Present the FindingsJ.Step 6: Make the DecisionIII.Forecasting and Demand MeasurementA.The company must measure and forecast the size, growth and profit potentialof each new opportunityB.Sales forecasts are used by finance to raise cash for investment andoperations, by manufacturing to establish capacity and output, by purchasingto acquire the right amount of supplies, by human resources to hire the neededworkersC.TheMeasures of Market Demandi.Potential market: sufficient interest in market offer (becomes a marketif sufficient income and access)ii.Available market: interest, income and access to a particular offer1.Qualified available market: interest, income, access andqualifications for the market offeriii.Target market: part of the qualified available market the companydecides to pursueiv.Penetrated market: set of consumers who are buying the company’sproductD.TheMarket Demand Functioni.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 definedtime period in a defined marketing environment under a definedmarketing 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 levelsof demand, first at an increasing rate, then at a decreasing rate.iv.Market potential is the upper limit.v.Markets and Market Potential1.Two extreme types of markets: expansibleandnonexpansible2.The market size is the level of primary demandfor the productclass.3.Market share is the selective demand for a particular product.4.Marketforecast is the market demand corresponding to theactual marketing expenditure.5.Market potential is the limit approached by market demand asindustry marketing expenditures approach infinity for a givenmarketing environment.vi.Company Demand and Sales Forecast1.Company demand is the company’s estimated share of marketdemand at alternative levels of company marketing effortduring a given period.2.Company sales forecast is the expected level of company salesbased on a chosen marketing plan and an assumed marketingenvironment.3.Sales quota is the sales goal set for a product line, companydivision, or sales representative.4.Sales budget is a conservative estimate of the expected volumeof sales.5.Company sales potential is the saleslimit approached bycompany demand as company marketing effort increasesrelative to that of competitors.E.Estimating Current Demandi.TotalMarketPotential1.The maximum sales available to all firms in an industry duringa given period, under a given level of industry marketing effortand environmental conditions.2.A common way to estimateitis to multiply potential buyers bythe average quantity each purchases and then by the price.3.The most difficult component to estimate is number of buyers.ii.AreaMarketPotential1.Allocates the marketing budget optimally among the bestterritories2.Market-buildup method identifies all the potential buyers ineach market and estimates their potential purchases3.The North American Industry Classification System (NAICS)

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provides an efficient method of estimating area marketpotentials4.Multiple-factor index method incorporates things likepromotional expenditures and competitorsiii.IndustrySales andMarketShares1.Means finding out competitors and estimating theirsales/evaluating performance against the industry’sperformance.F.Estimating Future Demandi.Forecasting is the art of anticipating what buyers are likely to do undera given set of conditionsii.The macroeconomic forecast projects inflation, unemployment, interestrates, consumer spending, business investment, governmentexpenditures, net exports, and other variables (forecasts GDP)iii.They buy forecasts from someone elseiv.They build a forecast on what people say, what people do, or whatpeople have done1.Survey of buyers’ intentions2.Ask the sales force3.Expert opinion4.Past-sales analysis5.Market-test methodIV.Analyzing the MacroenvironmentA.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-termsignificance.C.Identifying the Major Forcesi.Demographicenvironmentii.Economicenvironmentiii.Socio-culturalenvironmentiv.Naturalenvironmentv.Technologicalenvironmentvi.Political-legalenvironmentD.The Demographic Environmenti.Population size and growth, rate in cities, regions and nations, agedistribution and ethnic mix, educational levels, household patternsii.Worldwide Population Growth1.Population growth fastest in developing regionsiii.Population Age Mix1.Global trend toward the aging population2.Six age groupsa.Preschoolchildrenb.School-agechildrenc.Teensd.Young adults 20-40

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e.Middle-aged adults 40-65f.Older adults 65+3.Cohorts are groups of individuals born during the same timeperiod who travel through life together.iv.Diversity within Markets1.Ethic and racial diversity varies across countriesv.EducationalGroups1.Illiterates2.High school dropouts3.High school diplomas4.College degrees5.Professional degreesvi.HouseholdPatterns1.Each type of household has distinctive needs and buyinghabots that marketers need to study and understand.E.The Economic Environmenti.Purchasing power depends on income, savings, debt, credit availability,and price.ii.Consumer Psychology1.Consumers have been shaken by the recession, have more debtand less savings, and feel it will change their behavior, to bemore risk averse, going forward.iii.IncomeDistribution1.Four types of industrial structuresa.Subsistence economiesb.Raw-material-exporting economiesc.Industrializing economiesd.Industrial economies2.Five income-distribution patternsa.Very low incomesb.Mostly low incomesc.Very low, very high incomesd.Low, medium, high incomese.Mostly medium incomesiv.Income,Savings,Debt,andCredit1.U.S. consumers have high debt-to-income ratio, which slowsexpenditures on housing and large-ticket items.2.Consumer borrowing dropped for the first time in two decadesduring the recession because credit was less available.3.Manufacturers and service jobs are migrating offshore.F.The Sociocultural Environmenti.Impacts consumption trends and behavior, including: views ofourselves, others, organizations, society, nature,and of the universe.ii.Core Cultural Values1.Core beliefs and values are passed from parents to children andreinforced by social institutions

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2.Secondary beliefs and values are more open to changeiii.Subcultures1.Groups with shared values, beliefs, preferences and behaviorsemerging from their special life experiences or circumstancesG.The Natural Environmenti.There are opportunities for those who can reconcile prosperity andenvironmental protection.ii.Corporate environmentalism recognizes the need to integrateenvironmental issues into the firm’s strategic plans.iii.Trends to be aware of include the shortage of raw materials, especiallywater; the increased cost of energy; increased pollution levels; and thechanging role of governments.iv.Firms whose products require finite nonrenewable resources facesubstantial cost increases as depletion approaches.H.The Technological Environmenti.Accelerating pace of technological changeii.Unlimited opportunities for innovationiii.Varying R&D budgetsiv.Increased regulation of technological changeI.The Political-Legal Environmenti.Laws, government agencies and pressure groups that influenceorganizations and individuals create business opportunities oruncertainty/confusionii.Increased Business Legislation1.Intended to protect companies from unfair competition, protectconsumers from unfair business practices, protect society fromunbridled business behavior, and charge businesses with thesocial costs of their products or production processes.iii.Growth ofSpecialInterestGroups1.Political action committees (PACs) lobby government andpressure businesses to respect the rights of consumers, women,seniors, and gays and lesbians.2.Consumerist movement organized citizens and government tostrengthen the rights and powers of buyers in relationship tosellers.

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LEARNING OBJECTIVESIn this chapter, we will address the following questions:1.How can companies delivercustomer 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 strongcustomer relationshipsand communities?EXECUTIVESUMMARYCustomers will buy from the firm that they perceive to offer the highest customer-delivered value, defined as the difference between total customer benefits and totalcustomer cost.A buyer’s satisfaction is a function of the product’s perceivedperformance and the buyer’s expectations. Recognizing that high satisfaction leads tohigh customer loyalty, companies must ensure that they meet and exceed customerexpectations.Quality is the totality of features and characteristics of a product or servicethat bear on its ability to satisfy stated or implied needs. Marketers play a key role inachieving high levels of total quality so that firms remain solvent and profitable.Marketing managers must calculate customer lifetime values of their customerbase to understand their profit implications. They must also determine ways to increasethe value of the customer base and provide inspiration and feedback for productimprovements or innovations.Companies are also becoming skilled in customerrelationship management (CRM). The purpose is to attract theright customers, meet theindividual needs of valued customers, improve loyalty and retention of valued customers,and implement win-back strategies to reattract valued ex-customers.OPENING THOUGHTAlthough most students understand the concept of “buying,” some will have difficulty inunderstanding the differences between total customer value and total customer cost. It will bebeneficial for long-term understanding and retention to cover what the definition is and what itis not. Secondly, the distinction between satisfaction and total customer satisfaction for theconsumer might be challenging for some students. Some students may have a hard timeunderstanding the distinction between perception andexpectation. Finally, it might benecessary to reemphasize the concepts of Customer Relationship Management (CRM),customer databases, and database mining often in the lecture. Students may confuse theconcept of mailing lists with databases. However, most of the students today are proficient inC H A P T E R4CREATING LONG-TERMLOYALTYRELATIONSHIPS

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Internet usage and can cite examples of relationship marketing from their own favoriteInternet sites such as Amazon.com.ASSIGNMENTSKey manufacturers and others must be concerned with how customers view products(customer satisfaction perceptions) being disseminated throughout the “electronic world” viathe Internet. No longer can one discount the “power of the mouse” for affecting potentialcustomers. In small groups, students are to select a particular firm or product and are toresearchwhatisbeingsaidontheInternetregardingthiscompany/product.Whataffects/effects does this type of dissemination of consumer opinions via the Internet have onthe company’s marketing strategies? What can the company do to stem the tide of suchcomments? How does a company defend itself against blatantly untrue consumer opinions?Have each of the students read1Michael Tsiros, Vikas Mittal, William T. Ross Jr., “TheRole of Attributions in Customer Satisfaction: A Reexamination,”Journal of ConsumerResearch, 31 (September), 2004, pp. 476-483 and comment on their findings.Customer relationshipmanagement is a current business “buzz word.” Students can bedirected to do an Internet research project from named marketing/business journals on thesubject of customer relations management (the chapter’s endnotes can provide a good sourceof leads for the students). Each student can be directed to research, read, and compile a reporton their findings from a minimum of five articles from five different marketing (and businessmagazines such asFortune). The student’s report is to comment on how these articlescompare, complement, or contrast the material contained in this chapter.The research firm J.D. Powers and Associates (jdpower.com) lists eight categories of productsfor consumers to research before purchasing the product or service. Breaking up the class intoeight groups, have the students research the top performers for each category and be able toshare their findings as to what characteristics, policies, procedures, and vision these top ratedcompanies have in common. Is there a “common” link among all of the winners? Are theredifferences? In terms of the material contained in this chapter, how would you explain thesesimilarities and differences?DETAILED CHAPTER OUTLINEOpening Vignette:Customer-centered companies are using technology to connect withcustomers and build customer relationships. Pandora tracks preferences and makesrecommendations to drive customer preference for its service and loyalty.I.Building Customer Value, Satisfaction,and LoyaltyA.Customer-Perceived Valuei.(CPV) is the difference between the prospective customer’s evaluationof all the benefits and costs of an offering and the perceivedalternatives.ii.Total customer benefit is the perceived monetary value of the bundle

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of economic, functional and psychological benefits customers expectfrom a given market offering because of the product, service, people,and image.iii.Total customer cost is the perceived bundle of costs customers expectto incur in evaluating, obtaining, using and disposing of the givenmarket offering, including monetary, time, energy, and psychologicalcosts.iv.A firm can improve its value by improving the economic, functional,and psychological benefits of its product, services, people, and/orimage; it can reduce the buyer’s time, energy, and psychologicalinvestment; it can reduce its product’s monetary cost to the buyer.v.Loyalty is “a deeply held commitment to rebuy or repatronize apreferred product or service in the future despite situational influencesand marketing efforts having the potential to cause switchingbehavior.”vi.Thevalue propositionconsists of the whole cluster of benefits thecompany promises to deliver; it is more than the core positioning ofthe offering.vii.Thevalue delivery systemincludes all the experiences the customerwill have on the way to obtaining and using the offering. At the heartof a good value delivery system is a set of core business processes thathelp deliver distinctive consumer value.B.Total Customer Satisfactioni.Satisfaction is a person’s feeling of pleasure or disappointment thatresult from comparing a product or service’s perceived performance(or outcome) to expectations.ii.If the performance or experience falls short of expectations, thecustomer is dissatisfied.iii.If it matches expectations, the customer is satisfied.iv.If it exceeds expectations, the customer is highly satisfied or delightedv.Customer assessments of product or service performance depend onmany factors, including the type of loyalty relationship the customerhas with the brand.vi.Although the customer-centered firm seeks to create high customersatisfaction,increasing customer satisfaction by lowering price orincreasing services may result in lower profits.C.Monitoring Satisfactioni.Many companies systematically measure how well they treatcustomers, identify factors shaping satisfaction and change operationsand marketing as a result because satisfaction affects retention andword of mouth.ii.High satisfaction or delight creates an emotional bond with the brand orcompany, not just a rational preference.iii.The Net Promoter score is a1-to-10 scale on which to rate their likelihoodof recommending the company.1.Marketers then subtractDetractors(those who gave a 0 to 6)

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fromPromoters(those who gave a 9 or 10) to arrive at the NetPromoter Score (NPS).2.Customers who rate the brand with a 7 or 8 are deemedPassively Satisfiedand are not included.iv.Practices can help companies recover customer goodwill after anegative experience1.Set up a seven-day, 24-hour toll-free hotline (by phone, fax, ore-mail)2.Contact the complaining customer as quickly as possible.3.Accept responsibility for the customer’s disappointment; don’tblame the customer.4.Use customer service people who are friendly and empathic.5.Resolve the complaint swiftly and to the customer’ssatisfaction.D.Product and Service Qualityi.Quality is the totality of features and characteristics of a product orservice that bear on its ability to satisfy stated or implied needs.ii.Higher levels 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 companiesidentify and deliver high-quality goods and services to target customers.1.Correctly identify customers’ needs and requirements2.Communicate customer expectations properly to productdesigners3.Make sure customers’ orders are filled correctly and on time4.Check that customers have received proper instructions,training, and technical assistance in the use of the product5.Stay in touch with customers after the sale to ensure they are,and remain, satisfied6.Gather customer ideas for product and service improvementsand convey them to the appropriate departmentsII.Maximizing Customer Lifetime ValueA.The 80-20 rule states that 80 percent or more of the company’s profits comefrom the top 20 percent of its customers.B.Customer Profitabilityi.Aprofitable customeris a person, household, or company that overtime yields a revenue stream exceeding by an acceptable amount thecompany’s cost stream for attracting, selling, and serving thatcustomer.ii.Marketers can assess customer profitability individually, by marketsegment, or by channel.iii.Companies that conduct customer profitability analysis:1.Can raise the price of its less profitable products or eliminatethem2.Can try to sellless profitableprofit-making products3.Can ignore unprofitable customers/encourage them to switch to

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competitorsiv.Activity-based costing(ABC)accounting tries to identify the real costsassociated with serving each customerandestimates all revenuecoming from the customer, less all costs(including making anddistriuting the products and services, taking phone calls, traveling,entertainment and gifts, etc.)C.Measuring Customer Lifetime Valuei.Customer lifetime value(CLV)describes the net present value of thestream of future profits expected over the customer’s lifetimepurchases.III.Cultivating Customer RelationshipsA.Customer relationship management (CRM) is the process of carefullymanaging detailed information about individual customers and all customer“touch points” to maximize loyalty.B.CRM enables companies to provide better customer service, personalizemarketing offers, and to market to consumers after gaining their permission.C.Attracting and Retaining Customersi.Different acquisition methods yield customers with varying CLVs.ii.To reduce thecustomer churn/defection rate, the company must1.Define and measure its retention rate2.Distinguish the causes of customer attration and identify thosethat can be managed better3.Compare the lost customer’s lifetime value to the costs ofreducing the defection rateiii.The marketing funnel identifies the percentage of potential targetmarket at each stage in the decision process.1.Firms can calculate conversion rates, or the percentage ofcustomers at one stage who move to the next2.Satisfied customers are the company’s customer relationshipcapitaliv.Winning companies improve the aggregate value of the customer baseby:1.Reducing the rate of customer defection2.Increasing the longevity of the customer relationship3.Enhancing customer growth through share of wallet, cross-selling and up-selling4.Making low-profit customers more profitable or terminatingthem5.Focusing disproportionate effort on high-profit customersD.Building Loyaltyi.InteractClosely withCustomersii.DevelopLoyaltyPrograms1.Frequency programs2.Club membership programsiii.CreateInstitutionalTiesiv.CreateValue withBrandCommunities

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