Ebook Principles of marketing (7/E): Part 1

(BQ) Part 1 book “Principles of marketing” has contents: Company and marketing strategy - Partnering to build customer engagement, value and relationships; analysing the marketing environment, managing marketing information to gain customer insights, consumer markets and buyer behaviour,… and other contents.

Principles of Marketing

A01_KOTL2898_07_SE_FM.indd 2 09/29/16 7:37 PM

Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong

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Pearson Education Limited

Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk Authorised adaptation from the United States edition, entitled Principles of Marketing, 16th Edition, ISBN 9780133795028 by Armstrong, Gary; Kotler, Philip, published by Pearson Education, Inc, Copyright © 2016.

First European edition published 1996 by Prentice Hall Europe (print) Second European edition published 1999 (print)

Third European edition published 2001 by Pearson Education (print) Fourth European edition published 2005 (print)

Fifth European edition published 2008 (print) Sixth European edition published 2013 (print and electronic)

Seventh European edition published 2017 (print and electronic)

© Prentice Hall Europe 1996, 1999 (print)

© Pearson Education Limited 2013, 2017 (print and electronic) The rights of Philip Kotler, Gary Armstrong, Lloyd C Harris and Nigel Piercy to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

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ISBN: 978-1-292-09289-8 (print)

978-1-292-11525-2 (PDF) 978-1-292-17066-4 (ePub)

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

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Printed and bound by L.E.G.O S.p.A., Italy NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION

BRIEF CONTENTS

About the authors xxi Acknowledgements xxiii

Part 1 Defining marketing and the marketing process 1

Chapter 1 Marketing: creating customer value and engagement 2

Chapter 2 Company and marketing strategy: partnering to build

Part 2 Understanding the marketplace and consumers 65

Chapter 4 Managing marketing information to gain customer insights 102

Chapter 6 Business markets and business buyer behaviour 168

Part 3 Designing a customer value-driven strategy and mix 189

Chapter 7 Customer-driven marketing strategy: creating value for target

Chapter 8 Products, services and brands: building customer value 224

Chapter 9 New product development and product life-cycle strategies 260

Chapter 10 Pricing: Understanding and capturing customer value 290

Chapter 11 Pricing strategies: additional considerations 312

Chapter 12 Marketing channels: delivering customer value 338

Chapter 14 Engaging customers and communicating customer value:

integrated marketing communications strategy 406

Chapter 17 Direct, online, social media and mobile marketing 500

Appendix 1: Marketing plan 621 Appendix 2: Marketing by the numbers 632 Glossary 650 Index 662

BRIEF CONTENTS

CONTENTS

Preface xvi

About the authors xxi

Acknowledgements xxiii

Part 1: Defining marketing

and the marketing process 1

Chapter 1 Marketing: creating

Understanding the marketplace and customer

Customer needs, wants and demands 6

Market offerings – products, services and

Designing a customer value-driven

Marketing management orientations 10

Preparing an integrated marketing plan

Customer relationship management 13

Partner relationship management 18

Creating customer loyalty and

The digital age: online, mobile and social

So, what is marketing? Pulling it all together 26

Online, mobile and social media marketing:

Company case: Pegasus Airlines: delighting

a new type of travelling customer 33

Chapter 2 Company and marketing strategy: partnering to build customer engagement, value and relationships 36

Company-wide strategic planning:

Defining a market-oriented mission 39

Planning marketing: partnering to build

Partnering with others in the marketing

system 46

Online, mobile and social media marketing:

the PC-osaurus 58

References 59

Company case: LEGO: one more brick

Part 2: Understanding the

marketplace and consumers 65

Chapter 3 Analysing the marketing

Geographic shifts in population and

Online, mobile and social media marketing:

Primark 98

Chapter 4 Managing marketing information

Marketing information and today’s ‘big data’ 105

Defining the problem and research objectives 110

Customer relationship management and

CONTENTS

Distributing and using marketing

information 123

Marketing research in small businesses and

Public policy and ethics in marketing

research 126

Online, mobile and social media marketing:

References 130

Company case: Holland & Barret by Dr Eleri

Chapter 5 Consumer markets and

Characteristics affecting consumer

Influence of product characteristics on rate

Online, mobile and social media marketing:

Marketing by the numbers: evaluating alternatives 162References 163Company case: Porsche: guarding the old while

Chapter 6 Business markets and

Types of decisions and the decision process 172

Participants in the business buying process 174

Online, mobile and social media marketing:

References 184

Company case: Industrial Internet at General

Electric: why B-to-B doesn’t stand for

‘boring-to-boring’ by Andrew Pressey, Birmingham

Part 3: Designing a customer

value-driven strategy and mix 189

Chapter 7 Customer-driven marketing

strategy: creating value for target

Online, mobile and social media marketing:

References 218

Company case: Asos: fast fashion for fast

consumers 220

Chapter 8 Products, services and brands:

The nature and characteristics of a service 237

Online, mobile and social media marketing:

Marketing ethics: $450 Starbucks gift card 254Marketing by the numbers: Pop-Tarts gone nutty! 255References 255Company case: John Lewis: Middle England’s

Chapter 9 New product development

Commercialisation 270

CONTENTS

New product development in turbulent times 274

Additional product and service considerations 280

Product decisions and social responsibility 280

International product and services marketing 280

Online, mobile and social media marketing:

Marketing by the numbers: dental house calls 285

References 285

Company case: Reckitt Benckiser: building a

Chapter 10 Pricing: understanding

Other internal and external considerations

Overall marketing strategy, objectives

Online, mobile and social media marketing:

Marketing ethics: psychology of mobile payments 308Marketing by the numbers: reseller margins 308References 308Company case: Cath Kidston: nostalgic fantasy

Chapter 11 Pricing strategies: additional

Online, mobile and social media marketing:

Marketing by the numbers: Louis Vuitton

References 333

Company case: Coach: riding the wave of

Chapter 12 Marketing channels:

Supply chains and the value delivery network 340

The nature and importance of marketing channels 341

Designing international distribution channels 354

Marketing logistics and supply chain

management 358

Nature and importance of marketing logistics 358

Online, mobile and social media marketing:

self-publishing 367

Marketing by the numbers: Tyson

References 368Company case: Amazon and P&G:

Retailing 375

Wholesaling 393

Online, mobile and social media marketing:

Marketing by the numbers: stockturn rate 400References 400Company case: Auchen: maybe Walmart

Chapter 14 Engaging customers and communicating customer value: integrated

The need for integrated marketing communications 411

Steps in developing effective marketing communication 414

CONTENTS

Message content 416

Choosing the communication

Socially responsible marketing communication 424

Online, mobile and social media: marketing

Marketing by the numbers:

Evaluating advertising effectiveness and

Online, mobile and social media marketing:

Marketing by the numbers: C3, CPM and CPP 458References 459Company case: Public relations and customer

engagement at Coca-Cola: from impressions to

Designing sales force strategy and structure 470

Evaluating salespeople and sales force performance 478Social selling: online, mobile and social

The role of salespeople in a digital and

Personal selling and managing customer relationships 485

Online, mobile and social media marketing:

Marketing by the numbers: sales force analysis 495

References 495

Company case: HP: overhauling a vast

Chapter 17 Direct, online, social media

Rapid growth of direct and digital marketing 503

Benefits of direct and digital marketing to

Marketing, the Internet and the digital age 506

Online, mobile and social media marketing:

Marketing ethics: tracking in ‘meat space’ 526

Marketing by the numbers: mobile

Designing a competitive intelligence system 542

Balancing customer and competitor orientations 551

Online, mobile and social media: marketing

References 555Company case: Amazon’s Kindle Fire versus

Looking at the global marketing environment 564

CONTENTS

Discussion and critical thinking 583

Marketing ethics: India’s bitter pill 584

Company case: IKEA: making life better for the

Chapter 20 Social responsibility

Marketing’s impact on individual consumers 594 Marketing’s impact on society as a whole 599 Marketing’s impact on other businesses 601 Consumer actions to promote sustainable

Discussion and critical thinking 614

Online, mobile and social media marketing:

Marketing ethics: pricey deal? 615 Marketing by the numbers: the cost of

Companion WebsiteFor open-access student resources specifically written

to complement this textbook and support your learning,please visit www.pearsoned.co.uk/kotler

Lecturer ResourcesFor password-protected online resources tailored to supportthe use of this textbook in teaching, please visit

www.pearsoned.co.uk/kotler

ON THE WEBSITE

The Seventh European Edition of Principles of Marketing setting the standard in undergraduate

marketing education

Principles of Marketing is the most-trusted source for teaching and learning basic marketing

concepts and practices More than ever, the Seventh European Edition introduces new keting students to the fascinating world of modern marketing in an innovative, complete and authoritative yet fresh, practical and enjoyable way In this Seventh European Edition, we’ve once again added substantial new content and pored over every page, table, figure, fact and example in order to keep this the best text from which to learn about and teach marketing

Enhanced by the Companion Website, which includes, among other resources, videos and

questions, the Seventh European Edition of Principles of Marketing remains the world standard

in introductory and marketing education

Marketing: creating customer value and engagement in the digital and social age Top marketers share a common goal: putting the consumer at the heart of marketing Today’s marketing is all about creating customer value and engagement in a fast-changing, increasingly digital and social, marketplace

Marketing starts with understanding consumer needs and wants, determining which target markets the organisation can serve best, and developing a compelling value proposition by which the organisation can attract and grow valued consumers Then, more than just making a

sale, today’s marketers want to engage customers and build deep customer relationships that

make their brands a meaningful part of consumers’ conversations and lives In this digital age,

to go along with their tried-and-true traditional marketing methods, marketers have a dazzling set of new customer relationship-building tools – from the Internet, smartphones and tablets,

to online, mobile and social media – for engaging customers any time, any place to shape brand conversations, experiences and community If marketers do these things well, they will reap the rewards in terms of market share, profits and customer equity In the Seventh Euro-

pean Edition of Principles of Marketing , you’ll learn how customer value and customer ment drive every good marketing strategy

PREFACE

What’s new in the Seventh European Edition?

● More than any other developments, sweeping new online, social media, mobile and other

digital technologies are now affecting how marketers, brands and customers engage each

other The new edition features new and revised discussions and examples of the explosive

impact of exciting new digital marketing technologies shaping marketing strategy and practice

– from online, mobile and social media engagement technologies discussed in Chapters 1,

5, 13, 14, 15 and 17, to ‘real-time listening’ and ‘big data’ research tools in Chapter 4, online

influence and brand communities in Chapter 5, and location-based marketing in Chapter 7;

to the use of social media and social selling in business-to-business marketing in Chapters 6

and 16; to consumer, web, social media, mobile marketing and other new communications

technologies in Chapters 1, 5, 14, 15, 17 and throughout the text

● A new Chapter 1 section on the digital age (online, mobile and social media marketing)

in-troduces the exciting new developments in digital and social media marketing A completely

revised Chapter 17 on direct, online, social media and mobile marketing digs deeply into

digital marketing tools such as online sites, social media, mobile ads and apps, online video,

email, blogs and other digital platforms that engage consumers anywhere, anytime, via their

computers, smartphones, tablets, Internet-ready TVs and other digital devices The new

edition is packed with new stories and examples illustrating how companies employ digital

technology to gain competitive advantage – from McDonald’s to new-age digital

competi-tors such as Google, Amazon, Apple, Netflix, Pinterest and Facebook

● The new edition features completely new and revised coverage of the emerging trend

to-wards customer engagement marketing – building direct and continuous customer

involve-ment in shaping brands, brand conversations, brand experiences and brand community The

burgeoning Internet and social media have created better informed, more connected and

more empowered consumers Thus today’s marketers must now engage consumers rather

than interrupt them Marketers are augmenting their mass-media marketing efforts with a

rich mix of online, mobile and social media marketing that promote deep consumer

involve-ment and a sense of customer community surrounding their brands Today’s new customer

engagement-building tools include everything from online sites, blogs, in-person events and

video sharing to online communities and social media such as Facebook, YouTube, Pinterest,

Vine, Twitter or a company’s own social networking sites

● In all, today’s more engaged consumers are giving as much as they get in the form of

two-way brand relationships The new edition contains substantial new material on customer

engagement and related developments such as consumer empowerment, crowd

sourc-ing, customer co-creation, consumer-generated marketing and real-time marketing A

new Chapter 1 section on engaging customers introduces customer engagement marketing

This and other related customer engagement topics are presented in Chapter 1 (new or

re-vised sections on customer engagement and today’s digital and social media, and consumer-

generated marketing); Chapter 4 (big data and real-time research to gain deeper customer

insights); Chapter 5 (managing online influence and customer community through digital

and social media marketing); Chapter 13 (online, social media and digitised retailing);

Chap-ter 9 (crowdsourcing and customer-driven new-product development); ChapChap-ters 14 and 15

(the new, more engaging marketing communications model and content marketing); and

Chapter 17 (direct digital, online social media, and mobile marketing)

● The new edition continues to build on and extend the innovative customer-value

frame-work from previous editions The customer value and engagement model presented in the

first chapter is fully integrated throughout the remainder of the book No other marketing

text presents such a clear and compelling customer-value approach

● The new edition provides revised and expanded coverage of developments in the

fast-changing area of integrated marketing communications It tells how marketers are

blending traditional media with new digital and social media tools – everything from

Inter-net and mobile marketing to blogs, viral videos and social media – to create more targeted,

personal and engaging customer relationships Marketers are no longer simply creating integrated promotion programmes; they are practising content marketing in paid, owned, earned and shared media No other text provides more current or encompassing coverage

of these exciting developments

● New material throughout the new edition highlights the increasing importance of able marketing The discussion begins in Chapter 1 and ends in Chapter 20, which pulls marketing together under a sustainable marketing framework In between, frequent discus-sions and examples show how sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and the future needs of customers, com-panies and society as a whole

sustain-● The new edition provides new discussions and examples of the growth in global marketing

As the world becomes a smaller, more competitive place, marketers face new global keting challenges and opportunities, especially in fast-growing emerging markets such as China, India, Brazil, Africa, and others You’ll find much new coverage of global marketing throughout the text, starting in Chapter 1; the topic is discussed fully in Chapter 19

mar-● The new edition continues its emphasis on measuring and managing return on marketing, including many new end-of-chapter financial and quantitative marketing exercises that let students apply analytical thinking to relevant concepts in each chapter and link chapter con-cepts to the text’s innovative and comprehensive Appendix 2: Marketing by the numbers

● The new edition continues to improve on its innovative learning design The text’s tive and integrative presentation includes learning enhancements such as annotated chapter-opening stories, a chapter-opening objectives outline, and explanatory author comments on major chapter sections and figures The chapter-opening material helps

ac-to preview and position the chapter and its key concepts Figures annotated with author comments help students to simplify and organise material End-of-chapter features help to summarise important chapter concepts and highlight important themes, such as digital and social media marketing, marketing ethics and financial marketing analysis This innova-tive learning design facilitates student understanding and eases learning

● The new edition provides 20 new or revised end-of-chapter company cases by which students can apply what they learn to actual company situations Finally all of the chapter-opening stories are either new or revised to maintain currency

Five major customer value and engagement themes

The Seventh European Edition of Principles of Marketing builds on five major value and

cus-tomer engagement themes

mar-keters must be good at creating customer value, engaging customers, and managing customer relationships Outstanding marketing companies understand the marketplace and customer

needs, design value-creating marketing strategies, develop integrated marketing programmes that engage customers and deliver value and satisfaction, and build strong customers in the form of sales, profits and customer equity

This innovative customer-value and engagement framework is introduced at the start

of Chapter 1, in a five-step marketing process model, which details how marketing creates customer value and captures value in return The framework is carefully developed in the first

two chapters and then fully integrated through the remainder of the text

taken today’s marketing by storm, dramatically changing how companies and brands engage consumers, as well as how consumers connect and influence each other’s brand behaviours

The new edition introduces and thoroughly explores the contemporary concept of customer engagement marketing and the exciting new digital and social media technologies that help

PREFACE

brands to engage customers more deeply and interactively It starts with two major new

Chapter 1 sections: ‘Customer engagement and today’s digital and social media’ and ‘The

digital age: online, mobile and social media marketing’ A completely revised Chapter 17 on

‘Direct, online, social media and mobile marketing’ summarises the latest developments in

digital engagement and relationship-building tools Everywhere inbetween you’ll find revised

and expanded coverage of the exploding use of digital and social tools to create customer

engagement and build brand community

brand equity provide the basis on which to build customer value and profitable customer

re-lationships Today’s marketers must position their brands powerfully and manage them well

to create valued brand experiences The new edition provides a deep focus on brands,

an-chored by a Chapter 8 section on ‘Branding strategy: building strong brands’

mar-keting managers must ensure that their marmar-keting euros are being well spent in the past,

many marketers spent freely on big, expensive marketing programmes, often without

think-ing carefully about the financial returns on their spendthink-ing But all that has changed rapidly

‘Marketing accountability’ – measuring and managing marketing return on investment – has

now become an important part of strategic marketing decision making This emphasis on

marketing accountability is addressed in Chapter 2, Appendix 2: Marketing by the numbers,

and through the new edition

an increasingly smaller and more fragile place, marketers must be good at marketing their

brands globally and in sustainable ways New material through the new edition emphasises

the concepts of global marketing and sustainable marketing – meeting the present needs of

consumers and businesses while also preserving or enhancing the ability of future

gener-ations to meet their needs The new edition integrates global marketing and sustainability

topics throughout the text It then provides focused coverage on each topic in Chapters 19

and 20 respectively.

An emphasis on real marketing and bringing

marketing to life

Principles of Marketing takes a practical marketing-management approach, providing countless

in-depth, real-life examples and stories that engage students with marketing concepts and bring

modern marketing to life In the new edition, every chapter includes an engaging opening story

that provides fresh insights into real marketing practices Learn how:

● Nike’s outstanding success results from more than just making and selling good sports gear

It’s based on a customer-focused strategy through which Nike creates brand engagement

and a close brand community with and among its customers

● At T-shirt and apparel maker Life is Good, engagement and social media are about

build-ing meanbuild-ingful customer engagement, measured by the depth of consumer comment and

community that surround the brand

● Chipotle’s sustainability mission isn’t an add-on, created just to position the company as

‘socially responsible’ – doing good is ingrained in everything the company does

● Sony’s dizzying fall from market leadership provides a cautionary tale of what can

hap-pen when a company – even a dominant marketing leader – fails to adapt to its changing

environment

● Netflix uses ‘big data’ to personalise each customer’s viewing experience; while Netflix

sub-scribers are busy watching videos, Netflix is busy watching them – very, very closely.

● Giant social network Facebook promises to become one of the world’s most powerful and

profitable digital marketers – but it’s just getting started

● Wildly innovative Google has become an incredibly successful new product ‘moonshot’ tory, unleashing a seemingly unending flurry of diverse products, most of which are market leaders in their categories

fac-● Retail giants Walmart and Amazon are fighting it out in a pitched price war for online supremacy

● Direct marketing insurance giant GEICO has gone from bit player to behemoth thanks

to a big-budget advertising campaign featuring a smooth-talking gecko and an enduring

‘15 minutes could save you 15 per cent’ tagline

● The explosion of the Internet, social media, mobile devices and other technologies has some marketers asking ‘Who needs face-to-face selling anymore?’

● Under its ’Conscious consumption’ mission, outdoor apparel and gear maker Patagonia

takes sustainability to new extremes by telling consumers to buy less.

Beyond such features, each chapter is packed with countless real, engaging and timely examples that

reinforce key concepts No other text brings marketing to life like the new edition of Principles of Marketing.

Learning aids that create value and engagement

A wealth of chapter-opening, within-chapter and end-of-chapter learning devices help students

to learn, link and apply major concepts

spread in each chapter starts with a ‘Chapter preview’, which briefly previews chapter cepts, links them with previous chapter concepts, and introduces the chapter-opening story

con-This leads to a chapter-opening vignette – an engaging, deeply developed, illustrated and annotated marketing story that introduces the chapter material and sparks student interest

Finally an ‘Objectives outline’ provides a helpful preview of chapter contents and learning objectives, complete with page numbers

and enhance student learning by introducing and explaining major text sections and ising figures

chap-ter concepts, chapchap-ter objectives and key chap-terms

students to keep track of and apply what they’ve learned in the chapter

ethics’ and ‘Marketing by the numbers’ sections at the end of each chapter provide short application cases that facilitate discussion of current issues and company situations in areas such as mobile and social marketing, ethics and financial marketing analysis End-of chapter Company case sections provide all-new or revised company cases that help students to apply major marketing concepts to real company and brand situations

important marketing planning concepts

comprehen-sive introduction to the marketing financial analysis that helps to guide, assess and support marketing decisions An exercise at the end of each chapter lets students apply analytical and financial thinking to relevant chapter concepts and links the chapter to the Appendix

More than ever before, the new edition of Principles of Marketing creates value and engagement for

you – it gives you all you need to know about marketing in an effective and enjoyable total learning package!

PREFACE

ABOUT THE AUTHORS

Philip Kotler is S.C Johnson & Son Distinguished Professor of International Marketing at the

Kellogg School of Management, Northwestern University He received his master’s degree at the

University of Chicago and his PhD at MIT, both in economics Dr Kotler is the author of Marketing

Management (Pearson), now in its fifteenth edition and the most widely used marketing textbook

in graduate schools of business worldwide He has authored dozens of other successful books and

written more than 100 articles in leading journals He is the only three-time winner of the coveted

Alpha Kappa Psi award for the best annual article in the Journal of Marketing

Professor Kotler was named the first recipient of four major awards: the Distinguished Marketing

Educator of the Year Award and the William L Wilkie ‘Marketing for a Better World’ Award both given

by the American Marketing Association; the Philip Kotler Award for Excellence in Health Care

Market-ing presented by the Academy for Health Care Services MarketMarket-ing; and the Sheth Foundation Medal

for Exceptional Contribution to Marketing Scholarship and Practice His numerous other major honours

include the Sales and Marketing Executives International Marketing Educator of the Year Award ; the

European Association of Marketing Consultants and Trainers Marketing Excellence Award ; the Charles

Coolidge Parlin Marketing Research Award ; and the Paul D Converse Award given by the American

Marketing Association to honour ‘outstanding contributions to science in marketing’ A recent Forbes

survey ranks Professor Kotler in the top 10 of the world’s most influential business thinkers And in a

recent Financial Times poll of 1,000 senior executives across the world, Professor Kotler was ranked as

the fourth ‘most influential business writer/guru’ of the twenty-first century

Dr Kotler has served as chairman of the College of Marketing of the Institute of Management

Sciences, a director of the American Marketing Association, and a trustee of the Marketing Science

Institute He has consulted with many major US and international companies in the areas of

mar-keting strategy and planning, marmar-keting organisation and international marmar-keting He has travelled

and lectured extensively throughout Europe, Asia and South America, advising companies and

gov-ernments about global marketing practices and opportunities

Gary Armstrong is Crist W Blackwell Distinguished Professor Emeritus of Undergraduate

Educa-tion in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill He

holds undergraduate and master’s degrees in business from Wayne State University in Detroit, and

he received his PhD in marketing from Northwestern University Dr Armstrong has contributed

nu-merous articles to leading business journals As a consultant and researcher, he has worked with

many companies on marketing research, sales management and marketing strategy

But Professor Armstrong’s first love has always been teaching His long-held Blackwell

Distin-guished Professorship is the only permanent endowed professorship for distinDistin-guished undergraduate

teaching at the University of North Carolina at Chapel Hill He has been very active in the

teach-ing and administration of Kenan-Flagler’s undergraduate programme His administrative posts have

included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director

of the Business Honors Program and many others Through the years, he has worked closely with

business student groups and has received several UNC campus-wide and Business School teaching

awards He is the only repeat recipient of the school’s highly regarded Award for Excellence in

Under-graduate Teaching, which he received three times Most recently, Professor Armstrong received the

ABOUT THE AUTHORS

UNC Board of Governors Award for Excellence in Teaching, the highest teaching honour bestowed by the 16-campus University of North Carolina system

Lloyd C Harris is the Head of the Marketing Department and Professor of Marketing at

Birming-ham Business School, University of BirmingBirming-ham After working in retail and service organisations,

he received his PhD in Marketing from Cardiff University and his Higher Doctorate (DSc) from the University of Warwick His research results have been disseminated via a range of marketing strategy, HRM and general management journals He has written widely in these fields and has published

over 100 pieces He is particularly proud of papers that have been published in the Journal of ing, Journal of the Academy of Marketing Science, Journal of Management Studies, Human Resource Management, Organization Studies and the Annals of Tourism Research He has consulted and run

Retail-programmes for many leading private and public organisations, especially focussing on retailing and service organisations

Nigel Piercy was formerly Associate Dean and Professor of Marketing and Strategy at Warwick

Busi-ness School, University of Warwick Earlier he was Professor of Strategic Marketing and Head of the Marketing Group at Cranfield School of Management and before that he was the Sir Julian Hodge Chair in Marketing and Strategy at Cardiff Business School He has also been a visiting professor at Texas Christian University, the Fuqua School of Business at Duke University in North Carolina, the Columbia Graduate school of Business in New York, the University of California, Berkeley, and the Vienna University of Economics and Business He has managerial experience in retailing and worked

in business planning with Nycomed Amersham plc (now part of GE Healthcare) He has extensive experience as a management workshop speaker with many organisations around the world, special-ising in the issues of marketing strategy and implementation, and strategic sales management He has

published more than 300 articles, including pieces in the Journal of Marketing and the Journal of the Academy of Marketing Science, as well as more than 20 books He has been awarded many prizes for

teaching excellence as well as the distinction of being the first UK academic to be awarded a higher doctorate (Doctor of Letters) for his published research work in strategic marketing He is now a con-sultant and management writer with visiting posts at several universities

ACKNOWLEDGEMENTS

We are grateful to the following for permission to reproduce copyright material:

Figures

Figure 1.5 adapted from Mismanagement of Customer Loyalty, Harvard Business Review, p 93

(Rel-nartz W and Kumar V 2002), Harvard Business School Publishing, Reprinted by permission of

Har-vard Business Review; Figure 2.2 adapted from www.bcg.com/documents/file13904.pdf, The BCG

Portfolio Matrix (c) 1970, The Boston Consulting Group; Figure 2.3 from Strategies for Diversification,

Harvard Business Review, pp 113-124 (Ansoff H.I 1957) Copyright ©1957 Reprinted by permission

of Harvard Business Review; Figure 2.8 adapted from Return on Marketing: Using Consumer Equity

to Focus on Marketing Strategy, Journal of Marketing, p.112 (Roland T Rust, Katherine Lemon and

Valerie A Zeithaml 2004), American Marketing Association (AMA), Reprinted with permission from

Journal of Marketing, published by the American Marketing Association; Figure 5.5 adapted from

Consumer Behavior and Marketing Action, Kent Publishing Company (Assael H 1987) p 87, Henry

Assael, Reprinted with permission of Henry Assael; Figure 5.7 With the permission of The Free Press, a

Division of Simon & Schuster, Inc., from Diffusion of Innovations by Rogers E.M Copyright © 2003 by

Rogers E.M All rights reserved; Figure 11.2 adapted from Pricing and Public Policy: A Research Agenda

and Overview of the Special Issue, Journal of Public Policy and Marketing, pp.3-10 (Dhruv Grewal and

Larry D Compeau 1999), American Marketing Association (AMA) Reprinted with permission from

Journal of Public Policy and Marketing, published by the American Marketing Association (AMA);

Figure 20.2 adapted from Innovation, Creative Destruction and Sustainability, Research Technology

Management, September-October ed., pp 21-27 (Hart S.L 2005) © The Industrial Research Institute

Reproduced with permission

Tables

Table 9.2 from Marketing Management, 13 ed., Prentice Hall (Kotler P., Keller K.L 2009) p 288,

Pearson Education Inc (NJ), Reproduced by permission of Pearson Education Inc., Upper Saddle

River, New Jersey; Table on page 402 from The Major Auchen Businesses, Business Week (Matlack, C.),

Bloomberg L.P

Text

Quote on page 40 from State Your Business; Too Many Mission Statements Are Loaded with

Fatheaded Jargon Play It Straight, Business Week, p 80 ( Jack Welch), Bloomberg L.P.

Photos

The publisher would like to thank the following for their kind permission to reproduce their photographs:

(Key: b-bottom; c-centre; l-left; r-right; t-top)

123RF.com: p.108, 485, Mark Adams p.22, Paco Ayala p.180, Takashi Honma p.24, Aleksandar

Hubenov p.199, Trond Runar Solevaag p.68, Wavebreak Media Ltd p.157, Cathy Yeulet p.141; Adidas:

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Patagonia Property of Patagonia Inc Used with permission: p.609; Red Bull Company Ltd

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Cover images: Front: Getty Images: Henrik Sorensen

ACKNOWLEDGEMENTS

Defining marketing and the marketing process

PART ONE

➤ Objective 1 Define marketing and outline the steps in

the marketing process

What is marketing? (pp 4–5)

➤ Objective 2 Explain the importance of understanding

the marketplace and customers and identify the five

core marketplace concepts

Understanding the marketplace and customer needs

(pp 6–8)

➤ Objective 3 Identify the key elements of a customer-driven

marketing strategy and discuss the marketing

manage-ment orientations that guide marketing strategy

Designing a customer-driven marketing strategy

(pp 9–12)

Preparing an integrated marketing plan and programme (p 13)

➤ Objective 4 Discuss customer relationship management

and identify strategies for creating value for customers and capturing value from customers in return

Building customer relationships (pp 13–18) Capturing value from customers (pp 18–20)

➤ Objective 5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships

The changing marketing landscape (pp 21–22)

Objectives outline

Chapter preview

This chapter introduces you to the basic concepts of marketing We start with the question: what is marketing? Simply put,

marketing is engaging customers and managing profitable customer relationships The aim of marketing is to create value

for customers in order to capture value from customers in return Next we discuss the five steps in the marketing process –

from understanding customer needs, to designing customer value-driven marketing strategies and integrated marketing

pro-grammes, to building customer relationships and capturing value for the firm Finally, we discuss the major trends and forces

affecting marketing in this new age of digital, mobile and social media Understanding these basic concepts and forming your

own ideas about what they really mean to you will provide a solid foundation for all that follows

Let’s start with a good story about marketing in action with Mini, the iconic British car The secret to Mini’s success? It’s really

no secret at all Mini have a deep-down passion for creating customer engagement, value and relationships You’ll see this

theme of creating customer value in order to capture value in return repeated throughout this chapter and the remainder of

Mini: Marketing Master?

Kate L Daunt, Cardiff Business School

The Mini is arguably the most successful British car brand in history Designed by Sir Alec Issigonis,

two models of Mini zoomed into production in the UK in 1959, the Morris Mini Minor and the Austin Seven The Mini, representing a breakthrough in small car design, offered consum- ers something different Priced at £496, the car was affordable, economical to run and, with a 34bhp

engine, practical and agile to drive Safely seating four adults, the Mini was somewhat like Dr Who’s

Tardis, small on the outside but big on the inside Mini quickly became the car of choice for housewives

running family errands However, it was the swinging 60s that defined the Mini brand A collaboration

with John Cooper (twice F1 champion constructor) in 1961 resulted in the release of the Mini Cooper

model With its sporty 55bhp engine, iconic two-tone paint (the roof was a different colour to the body

of the car) and bonnet stripes, the Mini was made fashionable The brand now transcended

demo-graphics: everyone who was anyone owned a Mini Cooper ranging from the pop band the Beatles,

to fashion designer Mary Quant, to royal Prince Charles, to actor Clint Eastwood, to my Dad (!) Mini’s

connections to Hollywood, celebrities and motorsports shaped a brand personality that was stylish,

sporty, fun-loving and a little bit cheeky This is demonstrated in the 1960s advertising strapline, ‘You

don’t need a big one to be happy Happiness is Mini shaped’ With the introduction of the super sporty

Cooper S and stretched Clubman Estate models it seemed that the Mini brand could do no wrong

Yet, in spite of Mini’s momentous start to life, the 1970s, 1980s and 1990s held a darker picture in terms

of customer demand Mini increasingly no longer held the niche for small cars with competitors including

Volkswagen, Ford and Renault not only entering the UK’s small car market, but offering customers

tech-nological innovations, increased specifications and new body shapes At the same time, Mini’s technology,

style and size remained comparatively unchanged The Mini’s adventure appeared all but over; with

unsuc-cessful changes to ownership and management, the last Mini rolled off of the production line in Oxford on

3 October 2000 However, all was not lost Acquired by BMW (when under the ownership of Rover), the

German firm had big plans for the little car’s future Expanding BMW’s current product portfolio and offering

instant access to the small car sector, in 2001 the BMW Mini was launched Although markedly larger than

its original incarnation, the design and ‘go-kart’ handling was unmistakably ‘Mini’ and it proved a huge

com-mercial success At the heart of this success was an offering that customers valued – the ability to customise

and personalise their vehicle Literally thousands of different colour, exterior and interior trims and

techno-logical specification combinations were offered Thus, the average price paid by the customer for their car

far exceeded that of the list price for the vehicle The basic shape of the car may look like its 60s predecessor

but beneath the bonnet the updated design was tailored to the needs of modern consumers This strategy

placed Mini in the previously untapped ‘premium’ segment of the small car market Under the management

of BMW, Mini’s customer service was also taken seriously Mini salespeople were awarded bonuses based on

customer satisfaction ratings not car sales alone, a marked departure from the industry norm

Mini returned to its quirky roots, presenting a stylish,

heritage-founded, and above all fun brand image Demand for the growing

line-up of Mini models grew not only in domestic markets but

inter-national markets too The quintessential British car was coveted by

consumers spanning the USA to Australia, with India representing the

100 th country in which Mini made a pit stop in 2012 Explaining Mini’s

marketing strategy, Tom Salkowsky, Mini’s USA Head of Marketing, states:

‘We do things differently Win markets but international markets too The

quintessentially British 2001 New Mini was a little quirky We lean into

that That’s not typical, that’s not traditional, that’s not ordinary, that’s not

normal That’s Mini.’ Indeed, doing things differently appears to underpin

Mini’s ethos New car owners are encouraged to personify their car with

a formal name (which they can log online) Cost-effective stunts, digital

and events marketing are favoured over more traditional methods; Mini

appreciates the power of brand experience and that owning a Mini is

membership to a club As such the line between organisationally driven

Mini styles its self as exciting, quirky and downright fun!

Source: David Hartley/REX/

Shutterstock

events and owner-driven activities is somewhat blurred, ranging from Guinness Book of Records attempts for the biggest ever parade of Minis and the most people crammed into a Mini, to web-generated content, to rallies, to a presence at the 2012 British-hosted Olympic games Here, in addition to holding a starring role in the closing ceremony, smiles were brought to spectators’ faces as miniature radio-controlled Minis were used

to return javelins, discuses and hammers to competitors in the field events.

Noting changes in the marketing environment, by 2014 the Mini was ready for a facelift and the New Mini was launched on what would have been Sir Issigonis’ 107th birthday Larger than its predecessor, Mini argue that their latest model is more practical, with a 134bhp Cooper engine, improved fuel econ- omy, reduced C02 emissions and improved suspension and handling, the Mini is made for the modern driver Quirky yet practical specifications also include variable suspension settings (comfort or sport), a self- parking function and an assist option that warns drivers of imminent collisions Recognising consum- ers’ need for easy access, a five-door hatch was also launched But what does the future hold for Mini? To triumph against the ever growing competition, including the Audi A1 and the Fiat 500, size will once again play a role Since its re-launch, in addition to special editions, the number of Mini models has risen to eight

to include the SUV crossover Countryman, Convertible and Coupé models, and the super sporty and pricey John Cooper Works Moving forward, Mini is reportedly planning to cut the size of its range to five mod- els in a bid to sharpen its appeal in an increasingly saturated market Peter Schwarzenbauer, Mini Brand Chief, notes, ‘Mini now faces competition in areas where it previously stood alone’ and ‘less is more

we have to set the right properties and always remember what premium really means: Excellent product substance and a strong, emotionally-appealing brand’ Keeping the fun and quirk in the brand, Schwarzen- bauer explains that each model in the new line-up will be recognisable for its own personality and capabil- ities ‘like a superhero’ With trade reports noting future projects including contactless credit card car access and operation and integrated Spotify streaming, may the marvel of Mini continue 1

Today’s successful companies have one thing in common: like Mini, they are strongly customer focused and heavily committed to marketing These companies share a passion for understanding and satisfying customer needs in well-defined target markets They motivate everyone in the or-ganisation to help build lasting customer relationships based on creating value

Customer relationships and value are especially important today Facing dramatic ical advances and deep economic, social and environmental challenges, today’s customers are re-lating digitally with companies and each other, spending more carefully, and reassessing how they engage with brands New digital, mobile and social media developments have revolutionised how consumers shop and interact, in turn calling for new marketing strategies and tactics In these fast-changing times, it’s now more important than ever to build strong customer relationships based on real and enduring customer value

technolog-We’ll discuss the exciting new challenges facing both customers and marketers later in the chapter But first, let’s introduce the basics of marketing

Marketing, more than any other business function, deals with customers Although we will soon explore more detailed definitions of marketing, perhaps the simplest definition is this one:

Marketing is engaging customers and managing profitable customer relationships The two-fold

goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction

For example, Dyson’s underlying philosophy of taking everyday products that don’t work particularly well and making them more efficient, more effective and simply better has rocketed Dyson to (well-deserved) global success McDonald’s fulfils its ‘I’m lovin’ it’ motto by being

‘our customers’ favourite place and way to eat’ the world over, giving it nearly as much market

Author comment

Pause here and think

about how you’d answer

this question before

studying marketing Then

see how your answer

changes as you read the

chapter.

share as its nearest four competitors combined Facebook has attracted more than a billion

active web and mobile users worldwide by helping them to ‘connect and share with the people

in their lives’ Virgin Atlantic fulfils its motto to ‘embrace the fun spirit and let it fly’ through

being hugely attractive and responsive to customer needs, wants and demands

Sound marketing is critical to the success of every organisation Large for-profit firms, such as

Unilever, Nestlé, Shell and Santander use marketing But so do not-for-profit organisations, such

as colleges, hospitals, museums, symphony orchestras and even churches

You already know a lot about marketing – it’s all around you Marketing comes to you in the

good old traditional forms: you see it in the abundance of products at your nearby shopping

centre and the ads that fill your TV screen, spice up your magazines or stuff your mailbox But

in recent years, marketers have assembled a host of new marketing approaches, everything from

imaginative websites and mobile phone apps to blogs, online videos and social media These new

approaches do more than just blast out messages to the masses They reach you directly,

person-ally and interactively Today’s marketers want to become a part of your life and enrich your

expe-riences with their brands – to help you live their brands.

At home, at school, where you work and where you play, you see marketing in almost

everything you do Yet there is much more to marketing than meets the consumer’s casual eye

Behind it all is a massive network of people, technologies and activities competing for your

attention and purchases This book will give you a complete introduction to the basic concepts

and practices of today’s marketing In this chapter, we begin by defining marketing and the

marketing process

Marketing defined

What is marketing? Many people think of marketing as only selling and advertising We are

bom-barded every day with TV commercials, catalogues, spiels from salespeople, and online pitches

However, selling and advertising are only the tip of the marketing iceberg

Today, marketing must be understood not in the old sense of making a sale – ‘telling and

selling’ – but in the new sense of satisfying customer needs If the marketer engages consumers

effectively, understands their needs, develops products that provide superior customer value,

and prices, distributes and promotes them well, these products will sell easily In fact,

accord-ing to management guru Peter Drucker, ‘The aim of marketaccord-ing is to make sellaccord-ing unnecessary.’3

Selling and advertising are only part of a larger marketing mix – a set of marketing tools that

work together to engage customers, satisfy customer needs, and build customer relationships

Broadly defined, marketing is a social and managerial process by which individuals and

organ-isations obtain what they need and want through creating and exchanging value with others In a

narrower business context, marketing involves building profitable, value-laden exchange

relation-ships with customers Hence, we define marketing as the process by which companies create value

for customers and build strong customer relationships in order to capture value from customers

in return.4

The marketing process

Figure 1.1 presents a simple, five-step model of the marketing process for creating and capturing

customer value In the first four steps, companies work to understand consumers, create customer

value and build strong customer relationships In the final step, companies reap the rewards of

creating superior customer value By creating value for consumers, they in turn capture value

from consumers in the form of sales, profits and long-term customer equity.

In this chapter and the next, we will examine the steps of this simple model of

market-ing In this chapter, we review each step but focus more on the customer relationship steps –

understanding customers, engaging and building relationships with customers, and capturing

value from customers In Chapter 2, we look more deeply into the second and third steps –

de-signing value-creating marketing strategies and constructing marketing programmes

Marketing —The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

Part 1 Defining Marketing anD the Marketing Process

6

UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS

As a first step, marketers need to understand customer needs and wants and the marketplace in

which they operate We examine five core customer and marketplace concepts: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfac- tion; (4) exchanges and relationships; and (5) markets.

Customer needs, wants and demands

The most basic concept underlying marketing is that of human needs Human needs are states of

felt deprivation They include basic physical needs for food, clothing, warmth and safety; social needs for belonging and affection; and individual needs for knowledge and self-expression Mar-

keters did not create these needs; they are a basic part of the human make-up

Wants are the form human needs take as they are shaped by culture and individual

person-ality If you’ll excuse the stereotypes – used for illustrative purposes only – a German consumer

needs food but wants a sauerkraut, sausage and beer A trite example of a person in Papua, New Guinea, needs food but wants taro, rice, yams and pork A similarly clichéd Englishman needs food but wants cucumber sandwiches and gallons of insipid tea Wants are shaped by one’s so-

ciety and are described in terms of objects that will satisfy those needs When backed by buying

power, wants become demands Given their wants and resources, people demand products and

services with benefits that add up to the most value and satisfaction

Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants and demands They conduct consumer research, analyse mountains of customer data, and observe customers as they shop and interact, offline and online People at all levels of the company – including top management – stay close to customers For example, James Averdiek, founder and MC of extraordinarily amazing Gü Chocolate Puds, argues that a core tenet of any successful business is getting close to your customers by finding out what they are doing and taking part in it At P&G, executives from the chief executive officer down spend time with customers in their homes and on shopping trips P&G brand managers routinely spend a week or two living on the budget of low-end consumers to gain insights into what they can do to improve customers’ lives.5

Market offerings – products, services and experiences

Consumers’ needs and wants are fulfilled through market offerings – some combination of

prod-ucts, services, information or experiences offered to a market to satisfy a need or a want Market

Figure 1.1 The marketing process: creating and capturing customer value

Create value for customers and

Capture value from customers to create profits and customer equity

Build profitable relationships and create customer delight

Construct an integrated marketing programme that delivers superior value

Design a customer-driven marketing strategy

Understand the

marketplace and

customer needs

and wants

This important figure shows marketing in

a nutshell! By creating value for customers,

marketers capture value from customers in

return This five-step process forms the

marketing framework for the rest of

the chapter and the remainder of the text.

Author comment

Marketing is all about

creating value for

customers So, as the first

step in the marketing

process, the company

must fully understand

consumers and the

marketplace in which it

operates.

Needs —States of felt

deprivation.

Wants —The form human

needs take as they are shaped

by culture and individual

personality.

Demands —Human wants that

are backed by buying power.

Market offerings —Some

offerings are not limited to physical products They also include services – activities or benefits

offered for sale that are essentially intangible and do not result in the ownership of anything

Ex-amples include banking, airline, hotel, retailing and home repair services

More broadly, market offerings also include other entities, such as persons, places,

organ-isations, information and ideas For example, Tourism Ireland invites tourists to ‘Jump into’

Ireland’s Wild Atlantic Way, at 2400km the longest defined coastal drive in the world In late 2014

alone, Tourism Ireland will spend around €11 million to boosting late season travel bookings to

Ireland by around 30 per cent This campaign is tailored to different markets with slightly

dif-ferent campaigns for the UK, North America, mainland Europe and developing markets such as

Australia.6

Many sellers make the mistake of paying more attention to the specific products they offer

than to the benefits and experiences produced by these products These sellers suffer from

mar-keting myopia They are so taken with their products that they focus only on existing wants and

lose sight of underlying customer needs.7 They forget that a product is only a tool to solve a

consumer problem A manufacturer of quarter-inch drill bits may think that the customer needs

a drill bit But what the customer really needs is a quarter-inch hole These sellers will have

trou-ble if a new product comes along that serves the customer’s need

better or less expensively The customer will have the same need

but will want the new product.

Smart marketers look beyond the attributes of the products

and services they sell By orchestrating several services and

prod-ucts, they create brand experiences for consumers For example,

you don’t just watch a Wimbledon tennis tournament; you

im-merse yourself in the historical home of tennis Similarly, Ferrari

recognises that their cars are much more than just a combustion

engine, a collection of wires and electrical components To the

owners of a Ferrari car, their Ferrari is an expression of their

sta-tus, taste and style

Similarly, Angry Birds is much more than just a mobile game

app To more than 200 million fans a month in 116 countries,

it’s a deeply involving experience As one observer puts it: ‘Angry

Birds land is a state of mind – a digital immersion in

addic-tively cheerful destruction, a refuge from the boredom of subway commutes and doctors’

wait-ing rooms, where the fine art of slwait-ing-shottwait-ing tiny brightly hued birds at wooden fortresses to

vanquish pigs taking shelter inside makes eminent sense and is immensely satisfying.’ So far, in

all its forms, Angry Birds has been downloaded more than 2 billion times The game’s creator,

Rovio, plans to expand the Angry Birds experience through everything from animated short

vid-eos (called Angry Birds Toons) and three-dimensional animated movies (the first released in the

summer of 2016) to a growing list of new games, licensed toys, apparel, yard art, and even Angry

Birds-branded playgrounds, activity parks and theme parks.8

Customer value and satisfaction

Consumers usually face a broad array of products and services that might satisfy a given need

How do they choose among these many market offerings? Customers form expectations about

the value and satisfaction that various market offerings will deliver and buy accordingly Satisfied

customers buy again and tell others about their good experiences Dissatisfied customers often

switch to competitors and disparage the product to others

Marketers must be careful to set the right level of expectations If they set expectations too

low, they may satisfy those who buy but fail to attract enough buyers If they set expectations

too high, buyers will be disappointed Customer value and customer satisfaction are key building

blocks for developing and managing customer relationships We will revisit these core concepts

later in the chapter

Marketing myopia —The mistake of paying more attention to the specific products a company offers than to the benefits and experiences produced by these products.

Tourism Ireland stresses the breadth of experiences visitors to beautiful Ireland can embrace.

Source: Patryk Kosmider/

Shutterstock.com

Part 1 Defining Marketing anD the Marketing Process

8

Exchanges and relationships

Marketing occurs when people decide to satisfy their needs and wants through exchange

relation-ships Exchange is the act of obtaining a desired object from someone by offering something in

return In the broadest sense, the marketer tries to bring about a response to some market ing The response may be more than simply buying or trading products and services A political candidate, for instance, wants votes; a church wants membership; an orchestra wants an audi-ence; and a social action group wants idea acceptance

offer-Marketing consists of actions taken to create, maintain and grow desirable exchange ships with target audiences involving a product, service, idea or other object Companies want to

relation-build strong relationships by consistently delivering superior customer value We will expand on the important concept of managing customer relationships later in the chapter

Markets

The concepts of exchange and relationships lead to the concept of a market A market is the set

of actual and potential buyers of a product or service These buyers share a particular need or want that can be satisfied through exchange relationships

Marketing means managing markets to bring about profitable customer relationships ever, creating these relationships takes work Sellers must search for and engage buyers, identify their needs, design good market offerings, set prices for them, promote them, and store and de-liver them Activities such as consumer research, product development, communication, distribu-tion, pricing and service are core marketing activities

How-Although we normally think of marketing as being carried out by sellers, buyers also carry out marketing Consumers market when they search for products, interact with companies to obtain information, and make their purchases In fact, today’s digital technologies, from online sites and smartphone apps to the explosion of social media, have empowered consumers and made market-ing a truly two-way affair Thus, in addition to customer relationship management, today’s mar-

keters must also deal effectively with customer-managed relationships Marketers are no longer

asking only ‘How can we influence our customers?’ but also ‘How can our customers influence us?’ and even ‘How can our customers influence each other?’

Figure 1.2 shows the main elements in a marketing system Marketing involves serving a market

of final consumers in the face of competitors The company and competitors research the market and interact with consumers to understand their needs Then they create and exchange market offerings, messages and other marketing content with consumers, either directly or through mar-keting intermediaries Each party in the system is affected by major environmental forces (demo-graphic, economic, natural, technological, political and social/cultural)

Exchange —The act of

obtaining a desired object

from someone by offering

something in return.

Market —The set of all actual

and potential buyers of a

product or service.

Major environmental forces

Arrows represent relationships that must be developed and managed to create customer value and profitable customer relationships

Each party in the system adds value Walmart cannot fulfil its promise of low prices unless its suppliers provide low costs.

Ford cannot deliver unless its dealers provide outstanding service.

Marketing intermediaries Competitors

Company

Figure 1.2 A modern marketing system

Each party in the system adds value for the next level The arrows represent relationships that

must be developed and managed Thus, a company’s success at engaging customers and

build-ing profitable relationships depends not only on its own actions but also on how well the entire

system serves the needs of final consumers Lidl cannot fulfil its promise of low prices unless

its suppliers provide merchandise at low costs, while Citroen cannot deliver a high-quality car-

ownership experience unless its dealers provide outstanding sales and service

DESIGNING A CUSTOMER VALUE-DRIVEN

MARKETING STRATEGY

Once it fully understands consumers and the marketplace, marketing management can design

a customer value-driven marketing strategy We define marketing management as the art and

science of choosing target markets and building profitable relationships with them The

market-ing manager’s aim is to find, engage, keep and grow target customers by creatmarket-ing, delivermarket-ing and

communicating superior customer value

To design a winning marketing strategy, the marketing manager must answer two important

questions: What customers will we serve (what’s our target market)? and How can we serve these

customers best (what’s our value proposition)? We will discuss these marketing strategy concepts

briefly here and then look at them in more detail in Chapters 2 and 6

Selecting customers to serve

The company must first decide whom it will serve It does this by dividing the market into

seg-ments of customers (market segmentation) and selecting which segseg-ments it will go after (target

marketing) Some people think of marketing management as finding as many customers as

possi-ble and increasing demand But marketing managers know that they

can-not serve all customers in every way By trying to serve all customers, they

may not serve any customers well Instead, the company wants to select

only customers that it can serve well and profitably For example, La Perla

(with Headquarters in Italy) profitably targets affluent professionals; Aldi

profitably targets families with more modest means

Ultimately, marketing managers must decide which customers they

want to target and on the level, timing and nature of their demand

Simply put, marketing management is customer management and

demand management.

Choosing a value proposition

The company must also decide how it will serve targeted customers – how

it will differentiate and position itself in the marketplace A brand’s value

proposition is the set of benefits or values it promises to deliver to

con-sumers to satisfy their needs Red Bull Energy Drink ‘gives you wiiings’

whereas with T-Mobile, family and friends can ‘stick together’ Saab cars

boast their engineering excellence credentials by being ‘born from jets’

The diminutive Smart car suggests that you ‘open your mind to the car

that challenges the status quo’, whereas Infiniti ‘makes luxury affordable’,

and BMW promises ‘the ultimate driving machine’ Facebook helps you

‘connect and share with the people in your life’, whereas YouTube

‘pro-vides a place for people to connect, inform, and inspire others across the

globe’ And Twitter’s Vine app gives you ‘the best way to see and share life

in motion’ through ‘short, beautiful, looping videos in a simple and fun

way for your friends and family to see’.9

Marketing management — The art and science of choosing target markets and building profitable relationships with them.

Author comment

Once a company fully understands its consumers and the marketplace, it must decide which customers it will serve and how it will bring them value.

Value propositions: in tough economic times, companies

must emphasise the value

in their value propositions

Waitrose now has an essential range that they promote as

‘Waitrose quality at everyday prices.’

Source: Clynt Garnham Food &

Drink/Alamy Images

Part 1 Defining Marketing anD the Marketing Process

10

Such value propositions differentiate one brand from another They answer the customer’s question, ‘Why should I buy your brand rather than a competitor’s?’ Companies must design strong value propositions that give them the greatest advantage in their target markets For exam-ple, the Smart car is positioned as compact, yet comfortable; agile, yet economical; and safe, yet ecological: ‘Sheer automotive genius in a totally fun, efficient package Smart thinking, indeed.’

Marketing management orientations

Marketing management wants to design strategies that will engage target customers and build

profitable relationships with them But what philosophy should guide these marketing strategies?

What weight should be given to the interests of customers, the organisation and society? Very often, these interests conflict

There are five alternative concepts under which organisations design and carry out their

mar-keting strategies: the production, product, selling, marmar-keting and societal marmar-keting concepts.

The production concept

The production concept holds that consumers will favour products that are available and highly

affordable Therefore, management should focus on improving production and distribution ciency This concept is one of the oldest orientations that guides sellers

effi-The production concept is still a useful philosophy in some situations For example, both sonal computer maker Lenovo and home appliance maker Haier dominate the highly competitive, price-sensitive Chinese market through low labour costs, high production efficiency and mass distribution However, although useful in some situations, the production concept can lead to marketing myopia Companies adopting this orientation run a major risk of focusing too nar-rowly on their own operations and losing sight of the real objective – satisfying customer needs and building customer relationships

per-The product concept

The product concept holds that consumers will favour products that offer the most in quality,

performance and innovative features Under this concept, marketing strategy focuses on making continuous product improvements

Product quality and improvement are important parts of most marketing strategies However,

focusing only on the company’s products can also lead to marketing myopia For example, some

manufacturers believe that if they can ‘build a better mousetrap, the world will beat a path to their doors’ But they are often rudely shocked Buyers may be looking for a better solution to a mouse problem but not necessarily for a better mousetrap The better solution might be a chemi-cal spray, an exterminating service, a housecat, or something else that suits their needs even better than a mousetrap Furthermore, a better mousetrap will not sell unless the manufacturer designs, packages and prices it attractively; places it in convenient distribution channels; brings it to the attention of people who need it; and convinces buyers that it is a better product

The selling concept

Many companies follow the selling concept, which holds that consumers will not buy enough of

the firm’s products unless it undertakes a large-scale selling and promotion effort The selling concept is typically practised with unsought goods – those that buyers do not normally think

of buying, such as life insurance or blood donations These industries must be good at tracking down prospects and selling them on a product’s benefits

Such aggressive selling, however, carries high risks It focuses on creating sales transactions rather than on building long-term, profitable customer relationships The aim often is to sell what the company makes rather than making what the market wants It assumes that customers who

Production concept —The

idea that consumers will

favour products that are

available and highly affordable;

therefore, the organisation

should focus on improving

production and distribution

efficiency.

Product concept —The idea

that consumers will favour

products that offer the

most quality, performance

and features; therefore, the

organisation should devote its

energy to making continuous

product improvements.

Selling concept —The idea

that consumers will not buy

enough of the firm’s products

unless the firm undertakes

a large-scale selling and

promotion effort.

are coaxed into buying the product will like it Or, if they don’t like it, they will possibly forget

their disappointment and buy it again later These are usually poor assumptions

The marketing concept

The marketing concept holds that achieving organisational goals depends on knowing the needs

and wants of target markets and delivering the desired satisfactions better than competitors do

Under the marketing concept, customer focus and value are the paths to sales and profits Instead

of a product-centred make-and-sell philosophy, the marketing concept is a customer-centred

sense-and-respond philosophy The job is not to find the right customers for your product but to

find the right products for your customers

Figure 1.3 contrasts the selling concept and the marketing concept The selling concept takes

an inside-out perspective It starts with the factory, focuses on the company’s existing products,

and calls for heavy selling and promotion to obtain profitable sales It focuses primarily on

cus-tomer conquest – getting short-term sales with little concern about who buys or why

In contrast, the marketing concept takes an outside-in perspective For example, Liverpool

Foot-ball Club has a Customer Experience Department whose role is exclusively focused on improving

supporters’ off-the-pitch experiences Similarly, O2 proudly proclaim that they are ‘putting

custom-ers first: it’s all about you’! The marketing concept starts with a well-defined market, focuses on

customer needs, and integrates all the marketing activities that affect customers In turn, it yields

profits by creating relationships with the right customers based on customer value and satisfaction

Implementing the marketing concept often means more than simply responding to

custom-ers’ stated desires and obvious needs Customer-driven companies research customers deeply

to learn about their desires, gather new product ideas, and test product improvements Such

customer-driven marketing usually works well when a clear need exists and when customers know

what they want

In many cases, however, customers don’t know what they want or even what is possible As

Henry Ford once remarked, ‘If I’d asked people what they wanted, they would have said faster

horses.’10 For example, even 20 years ago, how many consumers would have thought to ask for

now-commonplace products such as tablet computers, smartphones, digital cameras, 24-hour

on-line buying, video sharing services, and GPS systems in their cars and phones? Such situations

call for customer-driving marketing – understanding customer needs even better than customers

themselves do and creating products and services that meet both existing and latent needs, now

and in the future As an executive at 3M put it, ‘Our goal is to lead customers where they want to

go before they know where they want to go.’

The societal marketing concept

The societal marketing concept questions whether the pure marketing concept overlooks possible

conflicts between consumer short-run wants and consumer long-run welfare Is a firm that

satis-fies the immediate needs and wants of target markets always doing what’s best for its consumers

Marketing concept —

A philosophy in which achieving organisational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do.

Societal marketing concept — The idea that a company’s marketing decisions should consider consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests.

Means Starting

The selling

concept

Profits through customer satisfaction Market Customerneeds Integratedmarketing

The marketing

concept

Selling and promoting

The selling concept takes an

inside-out view that focuses on

existing products and heavy

selling The aim is to sell what

the company makes rather than

making what the customer wants.

The marketing concept takes an outside-in view that focuses on satisfying customer needs as a path to profits As Southwest Airlines’ chief executive puts it,

‘We don’t have a marketing department, we have a customer department.’

Figure 1.3 Selling and marketing concepts contrasted

Part 1 Defining Marketing anD the Marketing Process

12

in the long run? The societal marketing concept holds that marketing strategy should deliver value

to customers in a way that maintains or improves both the consumer’s and society’s well-being

It calls for sustainable marketing, socially and environmentally responsible marketing that meets

the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs

Even more broadly, many leading business and marketing thinkers are now preaching the

concept of shared value, which recognises that societal needs, not just economic needs, define

markets.11 The concept of shared value focuses on creating economic value in a way that also creates value for society A growing number of companies known for their hard-nosed approaches

to business – such as BP, Glaxo-Smith Klein, Siemens, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever and Marks & Spencer – are rethinking the interactions between society and cor-porate performance They are concerned not just with short-term economic gains, but with the well-being of their customers, the depletion of natural resources vital to their businesses, the vi-ability of key suppliers, and the economic well-being of the communities in which they produce and sell

One prominent marketer calls this Marketing 3.0 ‘Marketing 3.0 organisations are

val-ues-driven,’ he says ‘I’m not talking about being value-driven I’m talking about “values” plural, where values amount to caring about the state of the world.’ Another marketer calls it pur-pose-driven marketing ‘The future of profit is purpose,’ he says.12

As Figure 1.4 shows, companies should balance three considerations in setting their marketing

strategies: company profits, consumer wants and society’s interests British-based cosmetics

re-tailer Lush operates this way:13

Lush is known for ‘fresh handmade cosmetics’ – premium beauty products made by hand from the freshest possible natural ingredients It sells products with evocative names such as ‘Flying Fox’ shower gel, ‘Angels on Bareskin’ cleanser, and ‘Honey I Washed the Kids’ soap But Lush does much more than just make and sell body care products for profit It also dedicates itself to doing right by customers, employees, the environment, and society Its do-good mission is spelt out in a seven-point statement titled, ‘A Lush life: we believe ’ For example, the company believes in inventing and making its own products from fresh organic fruits and vegetables using little or no preservatives or packaging Lush has strict policy against animal testing and supports Fair Trade and Community Trade efforts Each year, the company invests heavily in sustainable initiatives and support of grassroots charities Lush takes care of its employees – ‘We believe in happy people making happy soap ’ In fact, Lush seems

to wish well to everyone, everywhere – ‘We believe in long candlelit baths, sharing showers, massage, filling the world with perfume, and the right to make mistakes, lose everything, and start again.’ Only

in its final belief does Lush mention profits – ‘We believe our products are good value, that we should make a profit, and that the customer is always right.’ Thanks to its societal mission, Lush is thriving like fresh flowers in springtime It now operates stores in 50 countries, with e-commerce sites in 27 coun- tries Its sales have nearly doubled in just the past three years, suggesting that doing good can benefit both the planet and the company.

Figure 1.4 Three

considerations underlying the

societal marketing concept

Societal marketing concept

PREPARING AN INTEGRATED MARKETING

PLAN AND PROGRAMME

The company’s marketing strategy outlines which customers it will serve and how it will create

value for these customers Next, the marketer develops an integrated marketing programme that

will actually deliver the intended value to target customers The marketing programme builds

cus-tomer relationships by transforming the marketing strategy into action It consists of the firm’s

marketing mix, the set of marketing tools the firm uses to implement its marketing strategy.

The major marketing mix tools are classified into four broad groups, called the four Ps of

marketing: product, price, place and promotion To deliver on its value proposition, the firm

must first create a need-satisfying market offering (product) It must then decide how much it

will charge for the offering (price) and how it will make the offering available to target consumers

(place) Finally, it must engage target consumers, communicate about the offering, and persuade

consumers of the offer’s merits (promotion) The firm must blend each marketing mix tool into

a comprehensive integrated marketing programme that communicates and delivers the intended

value to chosen customers We will explore marketing programmes and the marketing mix in

much more detail in later chapters

BUILDING CUSTOMER RELATIONSHIPS

The first three steps in the marketing process – understanding the marketplace and customer

needs, designing a customer value-driven marketing strategy, and constructing a marketing

pro-gramme – all lead up to the fourth and most important step: building and managing profitable

customer relationships We first discuss the basics of customer relationship management Then,

we examine how companies go about engaging customers on a deeper level in this age of digital

and social marketing

Customer relationship management

Customer relationship management is perhaps the most important concept of modern

market-ing In the broadest sense, customer relationship management is the overall process of building

and maintaining profitable customer relationships by delivering superior customer value and

sat-isfaction It deals with all aspects of acquiring, engaging and growing customers

Relationship building blocks: customer value and satisfaction

The key to building lasting customer relationships is to create superior customer value and

satis-faction Satisfied customers are more likely to be loyal customers and give the company a larger

share of their business

Customer value

Attracting and retaining customers can be a difficult task Customers often face a bewildering

array of products and services from which to choose A customer buys from the firm that

of-fers the highest customer-perceived value – the customer’s evaluation of the difference between

all the benefits and all the costs of a market offering relative to those of competing offers

Im-portantly, customers often do not judge values and costs ‘accurately’ or ‘objectively’ They act on

perceived value.

To some consumers, value might mean sensible products at affordable prices To other

con-sumers, however, value might mean paying more to get more For example, Renault ZE electric

car owners gain a number of benefits The most obvious benefit is fuel efficiency (especially

Author comment

The customer driven marketing strategy discussed in the previous section outlines which customers the company will serve (the target market) and how it will serve them (positioning and the value proposition) Now, the company develops marketing plans and programmes –

value-a mvalue-arketing mix – thvalue-at will actually deliver the intended customer value.

Author comment

Doing a good job with the first three steps in the marketing process sets the stage for step four, building and managing customer relationships.

Customer relationship management —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 all the costs of

a marketing offer relative to those of competing offers.

Part 1 Defining Marketing anD the Marketing Process

14

when oil prices are rising) However, by purchasing a Renault ZE, the owners also may receive some status and image values Driving a Renault ZE makes owners feel and appear more en-vironmentally responsible When deciding whether to purchase a Renault ZE, customers will weigh these and other perceived values of owning the car against the money, effort and psychic costs of acquiring it

Customer satisfaction

Customer satisfaction depends on the product’s perceived performance relative to a buyer’s

ex-pectations If the product’s performance falls short of expectations, the customer is dissatisfied

If performance matches expectations, the customer is satisfied If performance exceeds tions, the customer is highly satisfied or delighted

expecta-Outstanding marketing companies go out of their way to keep important customers fied Most studies show that higher levels of customer satisfaction lead to greater customer loyalty, which in turn results in better company performance Smart companies aim to de-light customers by promising only what they can deliver and then delivering more than they promise Delighted customers not only make repeat purchases but also become willing mar-keting partners and ‘customer evangelists’ who spread the word about their good experiences

satis-to others

For companies interested in delighting customers, exceptional value and service become part

of the overall company culture For example, year after year, Ritz-Carlton ranks at or near the top

of the hospitality industry in terms of customer satisfaction Its passion for satisfying customers

is summed up in the company’s credo, which promises that its luxury hotels will deliver a truly memorable experience – one that ‘enlivens the senses, instils well-being, and fulfils even the unex-pressed wishes and needs of our guests.’14

Check into any Ritz-Carlton hotel around the world, and you’ll be amazed by the company’s fervent dedication to anticipating even your slightest need Without ever asking, they seem to know that you’re allergic to peanuts and want a king-

size bed, a non-allergenic pillow, extra body gel, the blinds open when you arrive, and breakfast with decaffeinated coffee in your room Each day, hotel staffers – from those

at the front desk to those in maintenance and housekeeping – discreetly observe and record even the smallest guest preferences

Then, every morning, each hotel reviews the files of all new arrivals who have previ- ously stayed at a Ritz-Carlton and prepares

a list of suggested extra touches that might delight each guest For example, according

to one Ritz-Carlton manager, if the chain gets hold of a picture of a guest’s pet, it will make

a copy, have it framed, and display it in the guest’s room in whatever Ritz- Carlton the guest visits.

Once they identify a special customer need, Ritz-Carlton employees go to legend- ary extremes to meet it For instance, to serve the needs of a guest whose son had food allergies, a Ritz-Carlton chef in Bali located special eggs and milk in a small grocery store in another country and had them delivered to the hotel In another case, when

a business man attending a conference at the

Customer satisfaction —The

extent to which a product’s

summed up in its credo, which

promises a truly

memora-ble experience — one that

‘enlivens the senses, instills

well-being, and fulfills even

the unexpressed wishes and

needs of our guests’.

Source: Elan Fleisher/LOOK-foto/

Getty Images

Ritz-Carlton Orlando ordered his favourite soda during a dinner in a hotel ballroom, his banquet

server told him that the hotel didn’t serve that beverage but he would see what he could do To no

one’s surprise, the server quickly returned with the requested beverage, and for the rest of the week

he had the drink waiting for the guest But here’s the best part A year later when the guest returned

for the conference, as he sat in the ballroom waiting for dinner the first night, the same server walked

up with his favourite drink in hand As a result of such customer service heroics, an amazing 95 per

cent of departing guests report that their stay has been a truly memorable experience More than

90 per cent of Ritz-Carlton’s delighted customers return.

Other companies that have become legendary for customer delight and their service heroics

in-clude John Lewis, Virgin Atlantic, Amazon and Singapore Airways However, a company doesn’t

need to have over-the-top service to create customer delight For example, no-frills grocery chain

ALDI has highly satisfied customers, even though they have to bag their own groceries and can’t

use credit cards ALDI’s everyday very low pricing on good-quality products delights customers

and keeps them coming back Thus, customer satisfaction comes not just from service heroics,

but from how well a company delivers on its basic value proposition and helps customers solve

their buying problems ‘Most customers don’t want to be “wowed”,’ says one marketing

consult-ant ‘They [just] want an effortless experience.’15

Although a customer-centred firm seeks to deliver high customer satisfaction relative to

com-petitors, it does not attempt to maximise customer satisfaction A company can always increase

customer satisfaction by lowering its prices or increasing its services But this may result in lower

profits Thus, the purpose of marketing is to generate customer value profitably This requires a

very delicate balance: The marketer must continue to generate more customer value and

satisfac-tion but not ‘give away the house’

Customer relationship levels and tools

Companies can build customer relationships at many levels, depending on the nature of the target

market At one extreme, a company with many low-margin customers may seek to develop basic

relationships with them For example, Häagen-Dazs does not phone or call on all of its

consum-ers to get to know them pconsum-ersonally Instead, Häagen-Dazs creates relationships through brand-

building advertising, public relations, its newsletter, its website (www.haagendazs.com) and via

over 300,000 Facebook followers At the other extreme, in markets with few customers and high

margins, sellers want to create full partnerships with key customers For example, Häagen-Dazs

sales representatives work closely with Tesco, Carrefour and other large retailers In between

these two extremes, other levels of customer relationships are appropriate

Beyond offering consistently high value and satisfaction, marketers can use specific marketing

tools to develop stronger bonds with customers For example, many companies offer frequency

marketing programmes that reward customers who buy frequently or in large amounts Airlines

offer frequent-flyer programmes, hotels give room upgrades to their frequent guests, and

supermar-kets give patronage discounts to ‘very important customers’ For example, KLM Airways and Air

France offer their Flying Blue members frequent-flyer points they can use on any seat on any KLM

or Air France flight Flying Blue promises its members that ‘As you travel more and more with us, we

reward your loyalty by offering more and more services you can enjoy, to make every trip that much

more special By simply showing your Flying Blue card, you can access countless extra services and

make your travels, or even your waiting time at the airport, smoother, easier and more pleasant.’16

These days almost every brand has a loyalty rewards programme However, some

innova-tive loyalty programmes go a step beyond the usual Other companies sponsor club marketing

programmes that offer members special benefits and create member communities For

exam-ple, BMW sponsors the BMW Car Club, which gives BMW drivers a way to share their

driv-ing passion BMW Car Club membership benefits include a quarterly magazine, discounts

on BMW servicing, parts and accessories, the club shop stocks BMW books, clothing, model

cars and other BMW merchandise at discount prices The club also organises track events and

BMW festivals