Lecture 1, Understanding Customer Value

Marketing Basic Definitions, AMA/KOTLER

• Marketing Generally: Creates customer value —> Distinctive/Emotionally Resonant

• By American Marketing Association:

  • Activity, Set of Institutions and Processes

  • For creating, communicating, delivering, and exchanging offerings

  • that have value for customers/society

• Kotler:

  • Social and Managerial Process → Helps Individuals/Organisations obtain what they need through —> Creating/Exchanging value with others

Marketing Myopia, New and Old View

• Theodore Leavitt, Old View: Companies are shortsighted —> Focus on only selling their stock

  • One way communication (Goal is to make sale)

  • Railroads (Should’ve seen themselves as transportation firms)

• New: Build Long Term Customer Relationships that Satisfy needs

  • Brands listen to feedback, adapt, are sustainable, provide good customer engagement

  • Dyson (Fix issues that customers have with products)

  • Attract new customers by providing value, retain by delivering satisfaction

Marketing vs. Sales

• Marketing: Long Term strategy, Generate Demand, Build Brand, Customer Relationships

  • Focus on Market Research, Segmentation, Positioning, Pricing

  • Metrics: Leads, Brand Awareness, Engagements

• Sales: Convert Leads into Paying customers (Close the deal)

  • Focus on short term results, revenues, Prospecting, Presenting, Negotiating, Closing

  • Metrics: Conversion Rate, Deals Closed, Revenue Generated

B2B vs B2C

• B2B: Target Organizations, Their decision making is rational, Emphasize long-term partnerships/customization

• B2C: Target Individuals, Their decision making is more emotional, Focus on Convenience/Mass Media

(5 Step Marketing Process) 1. Understand Marketplace/Customer Needs

• Needs: Basic, Universal Human Requirements

• Wants: Shaped by Culture/Personality —> Expressed through Products and Services

  • (Demand = Wants backed by purchasing power) —> Companies invest in Analysis/Research to find these

2. Design a Customer Driven Marketing Strategy:

• Select Target Market

• Pick Value Proposition (Unique Benefits)

3. Construct Integrated Marketing Program

• All Marketing actions together reinforce one value proposition

• 4 P’s

  • Product: Company offering to satisfy customer needs

  • Price: Value customer perceives and what they’re willing to pay

  • Place: How is product made available to customers

  • Promotion: How firm communicates value proposition

• Each P must be aligned together into a coherent strategy

New 4 P’s

• People: Central to value creation (Employees and Customers)

• Processes: How Marketing activities are planned and coordinated 

• Programs: Integration of Marketing initiatives

• Performance: Accountability (Metrics to see if value is being created

4. Build profitable Relationships, Create customer delight

• Customer Relationship Management (CRM): Acquire, Engage, Grow relationships

• Satisfaction: Does performance meet/exceed expectations (Exceed=Delight)

• Perceived Value: Customer evaluated benefits vs. cost

Capture Customer Value

• Delivering Superior Value —> Loyalty, Repeat Purchases, Satisfaction

  • Increases customer lifetime value

  • Increases customer equity (Total Value of current/future customers)

Customer Centric Marketing

• Put Customer at center of everything the company does → Understand their needs, preferences, behavior —> Deliver Superior Value

  • Goal: Loyal, Long Term relationships with maximum customer lifetime value value

  • Very proactive approach (Align Everything to the customer —> Organization Wide—> Customer Experience CX builds trust)

• Why Important: Customers are informed, Less Loyal, Digital (Want to be treated as people)

• Benefits

  • Customers Feel Valued —> Loyal, Recommend Further

  • More efficient (Only do what customers need)

  • Differentiate

Customer, Product, Price Centricity

• Price: Offer lowest prices: Low Loyalty, Thin Margins

• Product: Compete through innovation and quality: Win customers through best product

• Customer: Understand and serve their needs across relationship: This builds long term loyalty and has the largest moat

5 Action steps and Amazon example

1. Assign Customer Champion (Member who represents them)

2. Recognize what matters to them, where to improve

3. Foster cross functional collaboration (Everyone works together towards customer goals)

4. Embed feedback loops (Get feedback, Act on it)

5. Promote a customer first culture (Employees trained to show empathy, listen)

Amazon: Empty Chair in Meeting, All decisions start with customer and work backward

Customer Value

• Difference between what a customer pays and the benefits they receive

  • CV = Perceived Benefits - Perceived Costs

  • Is dynamic (Evolves with experience and expectation) —> If firms constantly provide it they gain long term relationships

The 4. Dimensions of customer Value 1.(Economic Value)

• Economic Value to Customer (EVC) = (Cost Savings + Performance Gains) - Price Difference

• Total savings realized when compared to alternative

• LED (Cost more upfront → Better Lifetime Value) —> Key to communicate this

2. Functional Value

• Tangible Features —> Fulfill Needs

• Companies highlight key features to differentiate (Laptop Battery)

  • Be careful of feature fatigue (Don’t Overwhelm)

  • Feature only useful if it solves need

3. Social Value

• Benefit for customer (Product enhances social connections, recognition/social standing gain)

• Consumption decisions often shaped by peers/norms —> We chose products based on our aspirations

  • WhatsApp (Social Connectivity) GitHub (Social Recognition)

4. Experiential Value

• Emotional/Psychological Benefit customer gains

  • Branding (Prestige Feeling), Design (Apple Ease of Use), Customer Service (Ritz Carlton Personalization)

  • Brands that tell meaningful stories → Build Strong Bonds (Emotional Benefits)

Action Steps, Applying into Practice (Value Proposition Canvas)

Value Proposition Canvas:

• Customer Side —> Understand them, What they Need, Their Perceived Pains and Gains)

• Value Proposition Side: How do we relieve pain and create gain

5 Steps:

• Understand Customer, Use the canvas, Prototype and get customer feedback, Iterative Design on feedback, Communicate clearly the value

AI across 5 stages and its impact

1. Understands Market/Customer Needs (Data Processing, Sentiment/Predictive Analysis)

2. Design Customer Driven Marketing Strategy (Opens up Hyper Personalization, Dynamic Pricing)

3. Create Integrated Marketing Program (Automatic Campaign Management, Fast and Responsive)

4. Build Profitable Relationships (Instant Chatbot Assistance, Continuous Learning)

5. Capture Customer Value: (Find the high value customers)

Impact → Efficiency, Personalization, Real time decision making on new data