Chapter 1: Marketing: Creating and Capturing Customer Value

1.1 Understanding the Marketplace and Customer Needs

Marketing begins with understanding the marketplace and the needs and wants of customers. The chapter introduces core concepts central to marketing.

• Core Concepts in Marketing:

  • Needs: States of felt deprivation. Includes physical (food, clothing, safety), social (belonging and affection), and individual (knowledge and self-expression) needs.

  • Wants: The form human needs take as shaped by culture and individual personality. For instance, a person needs food but may want a burger or sushi.

  • Demands: When wants are backed by buying power, they become demands. Customers choose products that deliver the most value and satisfaction based on their demands.

  • Market Offerings: Products, services, and experiences offered to a market to satisfy needs or wants. It includes both tangible goods and intangible services.

  • Customer Value and Satisfaction: Customers form expectations about the value and satisfaction of market offerings. Satisfied customers are more likely to return and become loyal.

  • Exchanges and Relationships: Marketing occurs when people decide to satisfy their needs and wants through exchange relationships (trade of value between buyer and seller).

  • Markets: The set of all actual and potential buyers of a product or service. Marketing involves serving and managing these markets to build profitable relationships.

1.2 Designing a Customer-Driven Marketing Strategy

To build strong customer relationships, companies need to design a marketing strategy that delivers value.

• Marketing Management Orientation: Companies have to choose whom they will serve and how they will bring value to customers.

  • Market Segmentation: Dividing the market into distinct groups of buyers with different needs, characteristics, or behaviors.

  • Target Marketing: Selecting which segments to pursue.

  • Value Proposition: The set of benefits or values that a company promises to deliver to customers to satisfy their needs. This is what makes a product unique.

• Marketing Management Philosophies:

  • Production Concept: Focus on improving production and distribution efficiency. The risk here is that companies may lose focus on customer needs.

  • Product Concept: Focus on making continuous product improvements. The risk is that customers might prefer a different solution even if a product improves.

  • Selling Concept: Focus on large-scale selling and promotion efforts, especially for unsought goods (e.g., insurance). However, this philosophy may overlook building long-term relationships.

  • Marketing Concept: Focus on understanding customer needs and wants, delivering superior value, and engaging customers. The goal is to achieve organizational goals by creating value for customers.

  • Societal Marketing Concept: Focus on making marketing decisions that consider consumer wants, company requirements, and long-term societal welfare. This concept promotes sustainability.

1.3 Preparing an Integrated Marketing Plan and Program

Once a firm has decided on its marketing strategy, it needs to develop a marketing plan that translates the strategy into actionable marketing programs.

• The Marketing Mix (4 Ps):

  • Product: The goods and services the company offers.

  • Price: What consumers must pay to obtain the product.

  • Place: How the product is made available to customers.

  • Promotion: The activities that communicate the product’s value and persuade customers to buy it.

These four elements should be blended into an integrated marketing program that delivers value to customers.

1.4 Building Customer Relationships

The ultimate goal of marketing is to create customer relationships that capture value for the company.

• Customer Relationship Management (CRM): The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

  • Customer-Perceived Value: The customer’s evaluation of the difference between all the benefits and costs of a marketing offer relative to those of competing offers.

  • Customer Satisfaction: The extent to which a product’s perceived performance matches a buyer’s expectations. Companies need to manage customer expectations carefully to ensure satisfaction.

• Relationship Levels:

  • Companies can build basic relationships (transaction-based) or full partnerships with key customers, depending on their nature.

  • Tools such as frequency marketing programs and loyalty rewards programs help deepen customer relationships.

• Customer-Engagement Marketing: Goes beyond simply engaging customers in transactions; it aims to make the brand a meaningful part of consumers’ lives through direct and continuous engagement.

• Consumer-Generated Marketing: With the rise of digital media, consumers are taking a more active role in shaping their brand experiences. Companies engage with customers through social media, blogs, reviews, and other interactive platforms.

1.5 Capturing Value from Customers

To create customer relationships, companies must also capture value in return. The chapter introduces several concepts that show how companies can capture value from customers.

• Creating Customer Loyalty and Retention:

  • Retaining a customer is often more valuable than attracting a new one. Loyal customers spend more and promote the brand.

  • Customer Lifetime Value (CLV): The value of the entire stream of purchases a customer makes over their lifetime.

• Growing Share of Customer:

  • Companies aim to increase the share they get of the customer’s purchasing in their product categories (cross-selling and offering a broader range of products or services).

• Building Customer Equity:

  • Customer equity is the total combined customer lifetime values of all current and potential customers. A firm can increase customer equity by building the right relationships with the right customers.

1.6 The Changing Marketing Landscape

The chapter concludes by discussing how the marketing environment is constantly evolving due to technological advances, economic challenges, and social changes.

• The Digital Age: The internet and social media have transformed how companies engage with customers. Many firms are embracing digital marketing strategies to remain competitive.

• Rapid Globalization: Companies are increasingly interconnected with global markets, requiring them to adapt their marketing strategies accordingly.

• Ethics and Social Responsibility: With growing attention to sustainability and ethical practices, companies are expected to deliver socially responsible marketing. The focus is on the triple bottom line: people, planet, and profits.

Summary of Key Concepts:

• Marketing is about creating value for customers and capturing value in return.

• A customer-driven marketing strategy involves selecting target markets, delivering superior value, and fostering lasting relationships.

• Building profitable relationships requires careful attention to customer needs, satisfaction, and loyalty.

• In a rapidly changing landscape, businesses must embrace digital trends, global markets, and societal responsibilities.

This summary of Chapter 1 provides a foundation for understanding the principles of marketing and sets the stage for deeper exploration of how companies build and manage relationships to create long-term success.