Instructional Goals: You will understand:

  • That the purpose of an organization is to get and keep customers.
  • That to create and keep customers you must produce and deliver services (some of these services are bundled in the form of products) that people want and value at prices and under conditions that are attractive, relative to those offered by others, to a proportion of customers large enough to make those prices and conditions possible.
  • What constitutes customer value and satisfaction
  • How leading companies organize to produce and deliver high customer value and satisfaction
  • How companies retrain customers as well as attract customers
  • How companies can determine customer profitability

And the relevance of these concepts to operational decision making.

Lecture 2:30 PM to 4:00

Marketing is a social and managerial process by which individuals and groups obtain what they need and want by creating, offering, and exchanging things of value with others. This definition contains the following core concepts:

Needs, wants and demands -- A need occurs when there is a difference between a consumer’s current state and his/her desired state. Needs translate into wants. Needs can be satisfied through a wide range of wants. For example, there are many ways to satisfy the need for shelter (i.e. - hotel, house, apartment, etc.) Wants become demands when a consumer has not only the willingness, but also the ability to make a purchase.

Products (goods, services, and ideas) -- Anything offered for sale or exchange. Products can be goods, services, ideas -- and also personalities, places, activities and organizations. Every product contains features that a marketer must translate into benefits for target market. It is these benefits the consumer perceives to be available in a product which directly affect that product’s ability to his/her need or want.

Value, Cost, Satisfaction -- Value is the consumer’s estimate of the product’s overall capacity to satisfy his/her wants. High value produces satisfaction. Likewise, low value, dissatisfaction. The consumer will choose the product believed to produce the most value per dollar spent. Of course, the value of a product cannot exceed the cost of obtaining identical satisfactions in an alternative manner.

Exchange and Transactions -- Exchange is the act of obtaining a desired product from someone by offering something in return. In consumer marketing, we receive products which satisfy our needs and wants and provide value. In exchange for these products, we offer the marketer either money, commitment, time, etc. In order for exchange to take place, four conditions are necessary:

  • At least two parties;
  • Each has something to exchange;
  • Each can communicate (at a minimum, offer & acceptance) and deliver;
  • Each is free to reject the other's offer.

Relationships and Networks - marketers seek to build long-term relationships with their customers. Relationships are based trust. Trust is hard to win, but providing a high-quality product at a fair price, as well as providing on-going service to ensure continued satisfaction and repeat purchase, helps. The outcome of relationship marketing is the marketing network, which includes all those who have a stake in the company’s success and who have built "win-win" relationships with the marketer. It should be every marketer’s goal to create a strong network because doing so can directly affect profit margins.

Markets - A group of people seeking to satisfy a specific need or want, and who have indicated willingness and ability to buy, comprises a market.

Marketers and prospects - A marketer is someone actively seeking one or more prospects who might engage in an exchange of value. A prospect is someone whom the marketer identifies as potential willing and able to engage in this exchange of values. Marketing is the process by which these two parties come together to achieve a mutually beneficial exchange.

The Marketing Concept

The selling concept was prevalent in US society until the mid-1950s. It stressed aggressive promotion. Its primary focus was on selling products that had been produced, rather than producing products likely to sell because they were in demand

The selling concept reflected the exigencies of mass production technology and the overwhelming economies of scale that mass production once delivered. Of course, mass production necessitated mass markets for standardized products. One of the major economic trends of the last twenty years is the decline of mass production, which has been accompanied by a decline in mass consumption. Instead of standardized products designed and manufactured for the lowest common denominator, final products now reflect an increasing diversity of preferences and pocketbooks.

Moreover, just as producing customized goods/services once implied premium prices, through the 1970s, only high-end retailers and personal-service firms could afford to practice one-to-one marketing. For the most part, they did it the old-fashioned way -- with personal selling and index-card files. In the 1980s, as the mainframe computer became more practical, airlines got into the act with a proliferation of frequent flyer programs. Frequency marketing programs such as these relied on monthly statement mailings and large, batch-processed databases of customer records.

In the 1990s, bookstore chains, supermarkets, warehouse clubs, and even restaurants are tracking individual purchase transactions to build their "share of the customer." Many of these programs now run on PC platforms or work-station environments much more powerful than the most capable mainframes of the 1970s. It is possible today to track 5 or 6 million customers for the same real cost as tracking a single customer in 1950.

One-to-one marketing, versus mass marketing, is founded not just on mail, phone, and fax, but also on an increasingly powerful array of much more efficient, individually interactive vehicles. These marketing tools include on-site interactivity, on-line connections, fax-response, E-mail, and interactive television.

Imagine life five years from now, when most urban households will have some form of real-time interactivity available directly on their television sets or through computers with modems. Or think of life five years after that, when you will interact with your television-computer simply by speaking to it. The computer will remember your transactions and preferences, getting smarter and smarter about finding just the right entertainment, information, products, and services for you. That same computer will also be able to anticipate what you might want, while being careful to protect you from commercial intrusions you don't find relevant or interesting

Some argue that individualized marketing will never replace mass marketing, because communicating with users by mail, phone, or fax will never become cost-efficient enough to justify the return. However, in the interactive future there is considerable evidence to argue that one-to-one marketing will be as appropriate for packaged goods and other "low-involvement" consumer products now sold almost exclusively with brand advertising as for any other product or service.

Individualized marketing merely takes the marketing concept to its logical conclusion. The marketing concept places primary focus on the customers who comprise a target market. Rather than coaxing customers into purchasing a product they may not find satisfying, the emphasis is on identifying markets to be satisfied and creating products that satisfy. Choosing target markets and identifying customer needs are not small tasks. Once accomplished; however, a marketer can offer for sale the products that will lead to high levels of satisfaction.

Customer delivered value - the difference between total customer value and total customer cost, or "profit" to the customer or the "consumer surplus." Total customer value is the bundle of benefits the customer get measured in terms of his/her willingness and ability to pay.

Total customer cost - bundle of costs consumers expect to incur in evaluating, obtaining and using the product or service. Costs incurred include the value of the money that will be exchanged for the product, the time spent in making the purchase decision (search for information understanding, establishing and comparing important criteria), the energy required in securing the information and comparison shopping, and the psychic cost of making an informed purchase decision.

Customer value assessment - weighing the value against all of the costs = Customer Satisfaction

Delivering Customer Value and Satisfaction

Value Chain - used as a tool for identifying ways to create more value - to be successful a firm has to look for competitive advantages beyond its own operations. To its Value Delivery Network

Primary Activities:
Inbound Logistics. Inbound logistics consists of those activities and their coordination that bring needed materials into the business. Value is added in the choice of materials and their integration into the business operations in a timely manner.

Operations. Operations is the first step in developing materials into value-added products. Operations add value through manufacturing innovations and processes.

Outbound Logistics. Outbound logistics refers to the distribution system set up by the business. As with inbound logistics, coordination and integration of the firm's products with the needs of retailers and customers creates value.

Marketing and Sales. Marketing and sales educate consumers and position the firm's products and image to create value.

Service. Service creates value both by keeping the product's performance in line with customer expectations and by demonstrating to the customer the firm's commitment to meeting customer needs.

Support Activities: These activities occur within each primary activity.

Firm Infrastructure. How the firm is set up permeates each primary activity and determines the parameters of action each activity can take.

Human Resource Management. Recruitment, training, and evaluation add value in relation to the competition's efforts.

Technology Development. All primary activities must develop and maintain technological advantages.

Procurement. Every primary activity procures inputs of both material and expertise.

Attracting and Retaining Customers

  • The Cost of Lost Customers - customer defection rate.
  • The Need for Customer Retention - cost of attracting a new customer is 5 times that of retaining a satisfied current customer.
  • Relationship Marketing: The Key - there is a process to attracting and retaining customers.
  • Adding Financial Benefits - frequency marketing programs and club marketing programs
  • Adding Social Benefits - individualize and personalize customer relationships
  • Adding Structural Ties - help customers manage themselves.

Customer Profitability: The Ultimate Test - a profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company's cost stream of attracting, selling, and servicing the customer. A company should not pursue and satisfy all customers.

Corollaries of the Marketing Concept

The first corollary of the Marketing Concept is that the purpose of the organization is the creation of value for the consumer by means of the product and everything associated with its enjoyment and use, acquisition, and production. The marketer creates economic value at each of these stages:

The second corollary goes to the role of marketing. Under the selling concept, marketing is one of several equal administrative functions. As the marketing concept is adopted the effect has been to raise the relative importance of marketing and then to see is as integrative mechanism through which all of the other functions of the organizations are given purpose and meaning.

Kotler Figure goes here


The key to achieving organizational goals consists of being more effective than competitors in integrating marketing activities toward determining and satisfying the needs and wants of target markets.

  • Target Market - no company can operate in every market and satisfy every need.
  • Customer Needs - it’s not enough to just find the market, marketers must also understand their customers needs and wants. This is not a simple task.
  • Integrated Marketing - all of a company’s departments must work together to serve the customer’s interests. This begins among the various marketing functions and carries out into other departments.
  • Profitability - the ultimate purpose of marketing is to help organizations achieve profitability goals.

Hurdles to Adopting a Marketing Concept

  • Organized Resistance - some departments see marketing as a threat to their power in the organization
  • Slow Learning - despite efforts by management, learning comes slow
  • Fast Forgetting - there is a strong tendency to forget marketing principles
  • Societal Marketing Concept - the organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well-being.

The Rapid Adoption of Marketing Management

  • In the Business Sector - marketing has entered different companies’ consciousness at different times. Consumer goods manufacturers first, commodity goods manufacturers.
  • In the Global Sector - marketing theory and practice are rapidly spreading throughout the world.

In government, the marketing concept is central to what has been termed the New Public Management, a worldwide movement comprised of the following elements:

  1. A bold use of market-like mechanisms for those parts of the public sector that cannot be transferred directly into private ownership;
  2. Intensified organizational and spatial decentralization of the management and delivery of services;
  3. A constant rhetorical emphasis on the need to improve service quality;
  4. An equally relentless emphasis on customer satisfaction.