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Chapter 1

MARKETING: CREATING AND CAPTURING

CUSTOMER VALUE

MARKETING STARTER: CHAPTER 1Zappos: A Passion for Creating Customer Value andRelationships

Synopsis

Web retailer Zappos is flat out obsessed with creating customer satisfaction and relationships. At Zappos,taking good care of customers starts with a deep-down, customer-focused culture. The companys number-one core value !eliver W"W through service# This W"W philosophy permeates the entire organi$ation.The Zappos Web site proclaims, %We are a service company that &ust happens to sell 'shoes, or handbags, orclothing, or, eventually, anything and everything(.) *n fact, Zappos takes almost all the money that acompany of its si$e would normally spend on mass-media advertising and invests it directly into customerservice. Zappos hires only customer-oriented employees who fit the Zappos culture and then trains themthoroughly in the art of building customer loyalty. *n the words of Zappos +" Tony sieh pronounced%shay)/, %"ur whole goal at Zappos is for the Zappos brand to be about the very best customer service andcustomer e0perience.) Zappos has become the poster child for this new age of customer-focusedcompanies. The result1 Zappos is growing astronomically. 2ore than 34 percent of Zappos sales comefrom repeat customers. And despite a crippling retail economy, sales have continued to soar in recent years.

Discussion Objective

An active 56-minute discussion of the Zappos story will help link students to key foundational marketingconcepts. Zappos provides an e0cellent vehicle for introducing the overall marketing framework presented

in +hapter 5 and throughout the te0t 7ood marketing is all about creating value for customers and buildingstrong customer relationships in order to capture value from customers in return. 8o company does thatbetter than Zappos.

Starting the Discussion

To start the discussion, ask the class, %as anyone here purchased a product on Zappos.com)1 9ased on theshow of hands, ask for students to share their e0perience. Was this a random purchase or are they die hard%Zappites)1 What is it about the customer e0perience that is so enticing1

9e prepared to pull up the %About) page at the Zappos Web site http::about.$appos.com:/. This site isloaded with ;uotes, customer testimonials, employee testimonials, and other videos that testify to Zapposobsession with customer satisfaction and the Zappos customer e0perience. *t seems that everyone buys intothe companys customer service culture

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Discussion Questions

5. The very first marketing story in the te0t is about Zappos. ?ets take a ;uick look at the AboutZappos page on the companys Web site and see what we can glean about the company and how itoperates. @ust looking at this Web page, what stands out about Zappos1 The point verything onthe site points to Zappos obsession with its customers./

. ow has what we are seeing at this site contributed to Zappos performance1 as Zappos beensuccessful1 Why1 As pointed out in the Zappos story, thanks in large part to its obsession withcustomer satisfaction and customer e0perience, the company has grown astronomically andprofitably. ven in the crippled retail economy, Zappos sales have soared in recent years. Thus, bycreating value for customers, Zappos has captured value from customers in return./

B. Why did the authors choose Zappos as the very first company to highlight in +hapter 5 and in theentire te0t1 ow does this opening story relate to the ma&or points made in the rest of the chapter1This ;uestion should lead naturally into ma&or +hapter 5 concepts What is marketing and what isthe marketing process1 What is customer-driven marketing and why are customer value,satisfaction, and relationships so important1/

8ote The video cases for +hapters 5B and 53 feature Zappos and may be helpful additions to thisdiscussion.

CHAPTER OVERVIEWCse Dower Doint >lide 5-5 ere

*n this chapter, we introduce the basic concepts of marketing. *t starts with the ;uestion,%What is marketing)1 >imply put, marketing is managing profitable customerrelationships. The aim of marketing is to create value forcustomers and to capture valuefromcustomers in return. 8e0t, the five steps in the marketing process are discussedlide 5- ere

5. !efine marketing and outline the steps in the marketing process.. 0plain the importance of understanding customers and the marketplace, and

identify the five core marketplace concepts.B. *dentify the key elements of a customer-driven marketing strategy and discuss the

marketing management orientations that guide marketing strategy.F. !iscuss customer relationship management, and identify strategies for creating

valueforcustomers and capturing valuefromcustomers in return.4. !escribe the ma&or trends and forces that are changing the marketing landscape in

this age of relationships.

CHAPTER OUTLINE

p. INTRODUCTION

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Zappos.com is one of the worlds fastest-growing Webretailers. The company has a passion for creating customervalue and relationships.

The company was launched in 5GGG as a Web-based shoesales operation. +ustomer service is the cornerstone of itsmarketing. Today, it carries many other goods.

The company spends very little on media advertising.*nstead, it relies on e0cellent customer service and word ofmouth.

Zappos is obsessed with its customer focus, from the +"to the footwear buyer. A relationship-based culturepermeates the entire organi$ation.

Zappos has set new standards in the industry, leading theway for a new type of consumer-focused company.

p. BAd Zappos

Openn! V!nette "#e$t%n$

5. 2any companies claim to be obsessed withcustomer service. What sets Zappos apart fromthe others1

. *n your opinion, is it wise to spend little onmedia advertising, and rely instead mostly onword of mouth1 0plain.

B. !o you believe that customers really want long-term relationships with a company, rather thanshort-term shoe bargains1 Why or why not1

F. What if a close competitor came along, offeringcomparable items, deep discounts, and e0cellentservice1 !o you think most Zappos customerswould remain loyal to them1 !efend youranswer.

p. F WHAT IS MARKETING&

A simple definition of marketing is managing profitablecustomer relationships.

2arketing must both attract new customers and grow thecurrent customers.

very organi$ation must perform marketing functions, not&ust for-profit companies.

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p. 4

DDT 5-B

8onprofits colleges, hospitals, churches, etc./ also mustperform marketing.

Mar'etn! De(ne)

2ost people think of marketing as selling and advertising

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customer relationships.

*n the final step, companies reap the rewards of creatingsuperior customer value. 9y creating valuefor consumers,they in turn capture value fromconsumers in the form of

sales, profits, and long-term customer e;uity.

A$$!n*ent$+ Re$%#r,e$

Cse Think-Pair-Share 1 here

p. I

DDT 5-4

UNDERSTANDING THE MARKETPLACE AND

CUSTOMER NEEDS

Eive core customer and marketplace concepts are critical5/ nees! "ants! an emansJ / marketing offers

#proucts! ser$ices! an e%periences&J B/ $alue ansatisfactionJ F/ e%changes an relationshipsJ and 4/markets.

C#$t%*er Nee)$+ Want$+ an) De*an)$

The most basic concept underlying marketing is that ofh#*an nee)$.

uman nee)$ are states of felt deprivation. They includeph'sical! social! andini$iual needs. These needs were not

created by marketersJ they are a basic part of the humanmakeup.

Want$are the form human needs take as they are shaped byculture and individual personality. An American neesfoodbut "antsa 9ig 2ac.

When backed by buying power, wants become )e*an)$.

The best marketing companies go to great lengths to learnand understand their customers needs, wants, and demands.

+hapter "b&ective

p. IHey Terms 8eeds,Wants, !emands


CseDiscussing the Concepts (hereCseAitional Pro)ect 1 hereCse Think-Pair-Share (here

p. I Mar'et O((ern!$/Pr%)#,t$+ Ser0,e$+ an) Eperen,e$p. I

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DDT 5-I 8eeds and wants are fulfilled through *ar'et %((ern!$

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system. 2odern 2arketing>ystem


Cse *utsie +%ample 1 and( here

p. K

DDT 5-56

DESIGNING A CUSTOMER3DRIVEN MARKETINGSTRATEG4

Mar'etn! *ana!e*entis defined as the art and scienceof choosing target markets and building profitablerelationships with them.

The marketing manager must answer two important;uestions

5. What customers will we serve whats our targetmarket/1

. ow can we serve these customers best whats ourvalue proposition/1

+hapter "b&ective B

p. KHey Term2arketing2anagement


CseDiscussing the Concepts ,here

p. K

DDT 5-55

Se.e,tn! C#$t%*er$ t% Ser0e

A company must decide "homit will serve.

*t does this by dividing the market into segments of

customers market segmentation/ and selecting whichsegments it will go after target marketing/.

2arketing managers know they cannot serve all customers.9y trying to do so, they end up not serving any well.

2arketing managers must decide which customers theywant to target and on which level, timing, and nature oftheir demand.


CseApplication Question (hereCse Think-Pair-Share , here

Tr%#-.e$h%%tn! Tp

The concept of not serving all customers may beconfusing to students. 2ost of them have not yetencountered anything like it. The light bulb seems togo on, though, when you talk about how crowded8ational Darks get, and the efforts made to have

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people visit them during off-peak travel times.aving students come up with their own e0ampleswill increase the level of understanding.

p. G

DDT 5-5

p. G

DDT 5-5B

DDT 5-5F

DDT 5-54

DDT 5-5I

2arketing management is customer management and

eman management.

Ch%%$n! a Va.#e Pr%p%$t%n

A companys $alue proposition is the set of benefits orvalues it promises to deliver to consumers to satisfy theirneeds. 92W promises %the ultimate driving machine.)/

>uch value propositions ifferentiate one brand fromanother.

Mar'etn! Mana!e*ent Orentat%n$

2arketing management wants to design strategies that willbuild profitable relationships with target consumers. 9utwhatphilosoph'should guide these marketing strategies1

There are five alternative concepts under whichorgani$ations design and carry out their marketingstrategies

The Pr%)#,t%n C%n,ept

The pr%)#,t%n ,%n,eptholds that consumers will favorproducts that are available and highly affordable.

2anagement should focus on improving production anddistribution efficiency.

The Pr%)#,t C%n,ept

The pr%)#,t ,%n,ept holds that consumers will favorproducts that offer the most in ;uality, performance, andinnovative features.

Cnder this concept, marketing strategy focuses on makingcontinuous product improvements.

The Se..n! C%n,ept

The $e..n! ,%n,ept holds that consumers will not buy

p. GAd >mart

pp. GL56Hey TermsDroduction +oncept,Droduct +oncept,>elling +oncept,2arketing +oncept

p. 56Eigure 5.B The

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DDT 5-53

DDT 5-5K

DDT 5-5G

enough of the firms products unless it undertakes a large-scale selling and promotion effort.

The concept is typically practiced with unsought goods

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Cnderlying the>ocietal 2arketing+oncept


CseDiscussing the Concepts here

CseAitional Pro)ect ( hereCse/ocusing on +thics hereCse Web Resource (here

Tr%#-.e$h%%tn! Tp

>ocietal marketing is also something that can be alittle unclear to students. Why should fast foodchains, for instance, be responsible for the nationsobesity &ust one very topical discussion point/1Cnderstanding how one should balance the need forprofits with what some might consider being %soft)issues can be difficult at times. And that can be made

even more difficult among the politically-astutestudents, as they can easily lead the class into a leftversus right discussion on individual versuscorporate versus governmental responsibility. Trynot to let that happen, instead focusing on howcompanies can actually increase their revenue andprofits by showing that they care about theircustomers and their communities. 8ewmans "wn isa brand that could be discussed, as most profits aredonated to charities, and they have moved stronglyinto ensuring a sustainable environment.

p. 5

DDT 5-6

PREPARING AN INTEGRATED MARKETING PLAN

AND PROGRAM

The companys marketing strategy outlines whichcustomers the company will serve and how it will createvalue for these customers.

8e0t, the marketer develops an integrated marketingprogram that will actually deliver the intended value totarget customers.

The marketing program consists of the firms marketingmi%, the set of marketing tools the firm uses to implementits marketing strategy.

The marketing mi0 tools are classified into thefour Ps ofmarketing product, price, place, and promotion.

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The firm blends all of these marketing mi0 tools into acomprehensive integrate marketing program thatcommunicates and delivers the intended value to chosencustomers.

Re$%#r,e$+ App.,at%n$Cse/ocusing on Technolog' here

p. 5

p. 5

DDT 5-5

DDT 5-

BUILDING CUSTOMER RELATIONSHIPS

C#$t%*er Re.at%n$hp Mana!e*ent

Customer relationship management is the most importantconcept of modern marketing.

C#$t%*er re.at%n$hp *ana!e*entis the overall process

of building and maintaining profitable customer relation-ships by delivering superior customer value and satisfaction.

*t deals with all aspects of ac;uiring, keeping, and growingcustomers.

Relationship Building Blocks: Customer Value and

Satisfaction

The key to building lasting customer relationships is tocreate superior customer value and satisfaction.

C#$t%*er Va.#e

C#$t%*er3per,e0e) 0a.#e is the customers evaluation ofthe difference between all the benefits and all the costs of amarket offering relative to those of competing offers.

+ustomers often do not &udge values and costs %accurately)or %ob&ectively.)

*nstead, customers act on perceived value.

C#$t%*er Sat$(a,t%n

C#$t%*er $at$(a,t%ndepends on the products perceivedperformance relative to a buyers e0pectations.

*f the products performance falls short of e0pectations, thecustomer is dissatisfied. *f performance matches

+hapter "b&ective F

p. 5BHey Terms+ustomerMelationship2anagement,+ustomer-Derceived

Nalue

p. 5BHey Term+ustomer>atisfaction

p. 5BDhoto Mit$-+arlton

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p. 54

DDT 5-B

e0pectations, the customer is satisfied. *f performancee0ceeds e0pectations, the customer is highly satisfied ordelighted.

Although the customer-centered firm seeks to deliver high

customer satisfaction relative to competitors, it does notattempt to ma%imi0ecustomer satisfaction.

A company can always increase customer satisfaction bylowering its price or increasing its services. 9ut this mayresult in lower profits.

The purpose of marketing is to generate customer valueprofitably.

C#$t%*er Re.at%n$hp Le0e.$ an) T%%.$

+ompanies can build customer relationships at many levels.

At one e0treme, a company with many low-margincustomers may seek to develop basic relationships withthem.

At the other e0treme, in markets with few customers andhigh margins, sellers want to create full partnerships withcustomers.

2any companies offer freuenc' marketing programs thatreward customers who buy fre;uently or in large amounts.

+ompanies sponsor club marketing programs that offermembers special benefits and create member communities.Eor e0ample, arley-!avidson sponsors the arley"wners 7roup '.".7.(./

p. 5F

Ad *n-8-"ut9urger

p. 5IDhoto .".7.

p. 5I

DDT 5-I

The Chan!n! Nat#re %( C#$t%*er Re.at%n$hp$

=esterdays big companies focused on mass marketing to allcustomers at arms length.

Todays companies are building deeper, more direct, andmore lasting relationships with carefully selected customers.

Re.atn! 5th M%re Care(#..2 Se.e,te) C#$t%*er$

+alledselecti$e relationship management, many companies

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now use customer profitability analysis to weed out losingcustomers and to target winning ones for pampering.

Re.atn! M%re Deep.2 an) Intera,t0e.2

Todays marketers are incorporating interactive approaches

that help build targeted, two-way customer relationships.

T5%3Wa2 C#$t%*er Re.at%n$hp$6 8ew technologieshave profoundly changed the way people relate to oneanother.

This changing communications environment also affectshow companies and brands relate to customers.

*ncreasingly, marketers are using new communicationsapproaches in building closer customer relationships.

+onsumers have more information about brands than everbefore.

The marketing world is now embracing ,#$t%*er3*ana!e)re.at%n$hp$6

+ompanies can no longer rely on marketing by intrusion.

+ompanies must practice marketing by attraction

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DDT 5-K

very employee must understand marketing and becustomer focused.

!avid Dackard, late co-founder of ewlett-Dackard, said,

%2arketing is far too important to be left only to themarketing department.)

Today, firms are linking all departments in the cause ofcreating customer value.

Mather than assigning only sales and marketing people tocustomers, they are forming cross-functional customerteams.

Mar'etn! Partner$ O#t$)e the 7r*

2arketing channels consist of distributors, retailers, andothers who connect the company to its buyers.

The suppl' chain describes a longer channel, stretchingfrom raw materials to components to final products that arecarried to final buyers.

Throughsuppl' chain management, many companies todayare strengthening their connections with partners all alongthe supply chain.

2anagement

p. 6

DDT 5-B6

CAPTURING VALUE 7ROM CUSTOMERS

The first four steps in the marketing process involvebuilding customer relationships. The final step involvescapturing value in return.

9y creating superior customer value, the firm creates highlysatisfied customers who stay loyal and buy more.

Creatn! C#$t%*er L%2a.t2 an) Retent%n

The aim of customer relationship management +M2/ is tocreate not &ust customer satisfaction, but customer delight.

This means that companies must aim high in buildingcustomer relationships.

+ustomer delight creates an emotional relationship with a

p. 6Dhoto >tew?eonard

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product or service, not &ust a rational preference.

+ompanies are reali$ing that losing a customer meanslosing more than a single sale. *t means losing ,#$t%*er.(et*e 0a.#e6

p. 6Hey Term+ustomer ?ifetimeNalue

Re$%#r,e$+ App.,at%n$

Cse2arketing b' the 6umbershereCse7ni$iual Assignment 1 hereCse Web Resource here

p. 5

DDT 5-B6

DDT 5-B5

DDT 5-BB

Gr%5n! Share %( C#$t%*er

Share %( ,#$t%*eris defined as the share the company getsof customers purchasing in their product categories. Thus,banks want to increase %share of wallet.)/

B#.)n! C#$t%*er E8#t2

+ompanies want not only to create profitable customers, butto %own) them for life, capture their customer lifetimevalue, and earn a greater share of their purchases.

What I$ C#$t%*er E8#t2&

C#$t%*er e8#t2 is the total combined customer lifetimevalues of all of the companys current and potential

customers.

+learly, the more loyal the firms profitable customers, thehigher the firms customer e;uity.

+ustomer e;uity may be a better measure of a firmsperformance than current sales or market share.B#.)n! the R!ht Re.at%n$hp$ 5th the

R!ht C#$t%*er$

8ot all customers, not even all loyal customers, are goodinvestments.

Eigure 5.4 classifies customers into one of four relationshipgroups, according to their profitability and pro&ected loyalty.

%>trangers) show low potential profitability and littlepro&ected loyalty. The relationship management strategy for

p. 5Hey Term >hare of+ustomer

p. 5Hey Term+ustomer ;uity

p. 5Ad +adillac

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p.

p. B

DDT 5-BB

these customers is simple !ont invest anything in them.

%9utterflies) are potentially profitable but not loyal. Thecompany should use promotional blit$es to attract them,create satisfying and profitable transactions with them, and

then cease investing in them until the ne0t time around.

%True friends) are both profitable and loyal. There is astrong fit between their needs and the companys offerings.The firm wants to make continuous relationship investmentsto delight these customers and retain and grow them.

%9arnacles) are highly loyal but not very profitable. Thereis a limited fit between their needs and the companysofferings.

*mportant point !ifferent types of customer re;uiredifferent relationship management strategies.

The goal is to build the right relationshipswith the rightcustomers.

THE CHANGING MARKETING LANDSCAPE

This section e0plores five ma&or developments uncertaineconomic environment, the digital age, rapid globali$ation,the call for more ethics and social responsibility, and the

growth in not-for-profit marketing.

The Un,ertan E,%n%*, En0r%n*ent

The 7reat Mecession caused many consumers to rethinktheir spending priorities and cut back on their buying.

+ompanies in all industries have aligned their marketingstrategies with these new economic realities, stressing $alueabove all.

Wealthier consumers have &oined the trend toward frugality.ven lu0ury brands are stressing value.

A recession creates winners and losers, &ust like a boom. Atroubled economy can present companies with opportunitiesas well as threats.

The D!ta. A!e

p. BAd Target

p. BAd !e 9eers

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The recent technology boom has created a digital age. Themost dramatic new technology is the Internet.

The *nternet has provided marketers with new ways to learn

about and track customers, and to create products andservices tailored to individual needs.

The *nternet has become a global phenomenon. The numberof users worldwide now stands at almost 5.K billion and willreach an estimated B.F billion by 654.

"n an average day, 3 percent of Americans keep in touchwith friends on social networking sites such as Eacebookand ?inked*n.

Web B.6 connects people through blogs, social networkingsites, and video sharing sites.

"nline marketing is now the fastest growing form ofmarketing.

*n addition to the %click-only) dot-coms, most traditional%brick-and-mortar) companies have now become %click-and-mortar) companies.

2ore than 34 percent of American online users now use the

*nternet to shop.

p. IHey Term *nternet

p. IDhoto Web B.6


CseDiscussing the Concepts 8 hereCse 3ieo Case here

Tr%#-.e$h%%tn! Tp

Traditional-age undergraduates have spent theirentire lives with technology, and so some of themcan actually snicker when the discussion turns tohow technology has changed business in general andmarketing more specifically. A discussion of the

difficulties of connecting to consumers without the*nternet is warranted. ow would the studentsapproach a one-on-one relationship with millions ofcustomers if they didnt have e-mail or the *nternetor blast fa0es1

p. 3 Rap) G.%-a.9at%n p. 3Ad 2c!onalds

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p. 3

p. K

p. G

DDT 5-BI

2arketers are now connectedgloball'with their customersand marketing partners.

Almost every company, large or small, is touched in someway by global competition.

American firms have been challenged at home by theskillful marketing of uropean and Asian multinationals.

2c!onalds now serves I6 million customers daily inB,666 restaurants worldwidetates.

Today, companies are buying more supplies andcomponents abroad.

S#$tana-.e Mar'etn!/The Ca.. (%r M%re S%,a.Re$p%n$-.t2

2arketers are ree0amining their relationships with socialvalues and responsibilities and the very arth that sustainsus.

+orporate ethics and social responsibility have become hottopics for almost every business.

Eorward-looking companies view socially responsible

actions as an opportunity to do well by doing good.

The Gr%5th %( N%t3(%r3Pr%(t Mar'etn!

The nations nonprofits face stiff competition for supportand membership. >ound marketing can help them to attractmembership and support.

7overnment agencies have also shown an increased interestin marketing, including the C.>. military.

SO+ WHAT IS MARKETING&

PULLING IT ALL TOGETHER

2arketing is the process of building profitable customerrelationships by creating value for customers and capturingvalue in return.

The first four steps in the marketing process create valuefor

p. KAd Datagonia

p. KAd A>D+A

p. B6Eigure 5.4 An0panded 2odel ofthe 2arketingDrocess

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customers.

The final step in the process allows the company to capturevaluefromcustomers.

When building customer and partner relationships,companies must harness marketing technology, takeadvantage of global opportunities, and act in an ethical andsocially responsible way.

Eigure 5.I provides a road map to future chapters of thiste0t.


Cse7ni$iual Assignment ( hereCse Compan' Case here

END O7 CHAPTER MATERIAL

D$,#$$n! the C%n,ept$

5. !efine marketing and discuss how it is more than &ust %telling and selling.) AA>+9+ommunicationJ Meflective Thinking/

Ans"er9

2arketing is managing profitable customer relationships. The twofold goal ofmarketing is to attract new customers by promising superior value and to keep andgrow current customers by delivering satisfaction. ence, marketing is defined as theprocess by which companies create value for customers and build strong customerrelationships in order to capture value from customers in return. Today, marketingmust be understood not in the old sense of making a sale

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basic part of the human makeup. Wants are the form human needs take as they areshaped by culture and individual personality. Wants are shaped by ones society andare described in terms of ob&ects that will satisfy needs. Although marketers do notcreate customers needs, they may influence their wants.

B. !iscuss the two important ;uestions the marketing manager must answer to design awinning marketing strategy. ow does the manager go about answering these;uestions1 AA+>9 +ommunicationJ Meflective Thinking/

Ans"er9

To design a customer-driven marketing strategy, the marketing manager must answertwo important ;uestions What customers "ill "e ser$e #"hats our target market&:and;o" can "e ser$e these customers best #"hats our $alue proposition&: Thecompany must first decide "hoit will serveome people think of marketingmanagement as finding as many customers as possible and increasing demand. 9utmarketing managers know that they cannot serve all customers in every way. 9ytrying to serve all customers, they may not serve any customers well. *nstead, thecompany wants to select only customers that it can serve well and profitably.Cltimately, marketing managers must decide which customers they want to target andon the level, timing, and nature of their demand. >imply put, marketing managementis customer management and eman management. The company must also decidehow it will serve targeted customers9 +ommunicationJ Meflective Thinking/

Ans"er9

The five alternative concepts under which organi$ations design and carry out theirmarketing strategies are the production, product, selling, marketing!and societalmarketing concepts. The production concept holds that consumers will favor productsthat are available and highly affordable. Therefore, management should focus onimproving production and distribution efficiency. The product concept holds thatconsumers will favor products that offer the most in ;uality, performance, andinnovative features. Cnder this concept, marketing strategy focuses on makingcontinuous product improvements. The selling conceptholds that consumers will notbuy enough of the firms products unless it undertakes a large-scale selling andpromotion effort. The marketing concept holds that achieving organi$ational goalsdepends on knowing the needs and wants of target markets and delivering the desiredsatisfactions better than competitors do. Cnder the marketing concept, customer focus

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and value are thepathsto sales and profits. *nstead of a product-centered %make andsell) philosophy, the marketing concept is a customer-centered %sense and respond)philosophy. The societal marketing concept ;uestions whether the pure marketingconcept overlooks possible conflicts between consumershort-run "antsandconsumer long-run "elfare.The societal marketing concept holds that marketing

strategy should deliver value to customers in a way that maintains or improves boththe consumers and thesociet'swell-being.

>tudents responses will vary when discussing Apples marketing of the iDhone andiDad. 2any will agree that Apple is following the marketing concept because theproduct is wildly successful, so it must be satisfying consumers needs. owever,some will argue that it is following the product concept in that Apple sometimesappears to have a %build it and they will buy it mentality.) Me;uiring that consumersmust use ATOT for service and to purchase music and applications from Applesresources instead of the providers of their choice indicates that Apple may not befollowing the marketing concept. A few students might mention the societal

marketing concept because the iDad is an e-reader, eliminating the need for printedbooks.

4. 0plain the difference betweenshare of customerand customer euit'. Why are theseconcepts important to marketers1 AA+>9 +ommunicationJ Meflective Thinking/

Ans"er9

Share of customeris the share a business gets of the customers purchasing in theirproduct categories. Eor e0ample, consumers purchase financial services from banksand other financial institutions such as insurance companies. 2any insurancecompanies now offer banking and investment services to capture a greater share of anindividual consumers purchases of these offerings. *ncreasing share of customer isone way to increase a customers lifetime value

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I. !iscuss trends impacting marketing and the implications of these trends on howmarketers deliver value to customers. AA+>9 +ommunication/

Ans"er9

The ma&or changes in the marketplace are 5/ the uncertain economic environment,/ growth of digital technologies, B/ globali$ation, F/ sustainable marketing, and4/ the growth of not-for-profit marketing. The sudden economic downturn,beginning in 66K in the Cnited >tates, has left consumers short of both money andconfidence, causing many of them to rethink their spending priorities. *n response,companies have aligned their marketing strategies with the new economic reality,emphasi$ing the $aluein their value propositions. The recent technology boom hascreated a digital age, which has had a ma&or impact on the ways companies bringvalue to their customers. The digital age has provided marketers with e0citing newways to learn about and track customers and to create products and services tailoredto individual customer needs. *n an increasingly smaller world, companies are now

connectedgloball'with their customers and marketing partners. As the worldwideconsumerism and environmentalism movements mature, todays marketers are beingcalled to developsustainable marketingpractices. +orporate ethics and socialresponsibility have become hot topics for almost every business, and more forward-looking companies readily accept their responsibilities to the world around them.Einally, marketing also has become a ma&or part of the strategies of many not-for-profit organi$ations, such as colleges, hospitals, churches, and so on that providevalue. >ound marketing can help them attract membership and support.

App.2n! the C%n,ept$

5. Talk to five people varying in age from young adult to very old about theirautomobiles. Ask them what value means to them with regard to an automobile andhow the manufacturer and dealer create such value. Write a brief report of what youlearned about customer value. AA+>9 +ommunicationJ Meflective Thinking/

Ans"er9

>tudents responses will vary. "ne thing students will likely learn is that a customerbuys from the firm that offers the highest customer-perceived valueelect a retailer and calculate how much are you worth to that retailer if you continueto shop there for the rest of your life your customer lifetime value/1 What factorsshould you consider when deriving an estimate of your lifetime value to the retailer1ow can the retailer increase your lifetime value1 AA+>9 +ommunicationJMeflective ThinkingJ Analytic Measoning/

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Ans"er9

>tudents can select any store of their choice but they should consider factors such asmarketing costs to attract and keep them as a customer, the length of time they are acustomer, and the revenues they generate for the retailer. 2ost students may not

consider the time value of money, so a discussion of a simple calculation of customerlifetime value using the e;uation below would be useful.

+alculating customer lifetime value can be very complicated. *ntuitively, however, itcan be a fairly simple net present value calculation. To determine a basic customerlifetime value, each stream of profit is discounted back to its present value DN/ andthen summed. The basic e;uation for calculating net present value 8DN/ is

Where,

t- time of the cash flow

6- total customer lifetime

r- discount rate

Ct- net cash flow the profit/ at time tthe initial cost of ac;uiring a customerwould be a negative profit at time 6/

8DN can be calculated easily on most financial calculators or by using one of thecalculators available on the *nternet, such as the one found at

www.investopedia.com:calculator:8etDresentNalue.asp0.

+%ample9

Assume that a customer shops at a local grocery store spending an average of P546 aweek and that the retailer earns a 4 percent margin. Assuming the customer spends anaverage of P546 a week at this store, remains loyal over a 56-year lifespan, a 4percent annual interest rate, and no initial cost to ac;uire the customer, the customerlifetime value can be calculated as follows

A customer who shops at this store and spends an average of P546 a week will spend

P3,K66 per year one year Q 4 weeks/.

At a 4 percent margin, this customer yields PBG6 per year for this retailer P3,K66 x6.64 Q PBG6/.

"ver a 56-year lifespan of shopping at this store, with a 4 percent annual interest rateand no initial cost to ac;uire this customer, this customer is worth over PB,666 inprofits.
http://www.investopedia.com/calculator/NetPresentValue.aspxhttp://www.investopedia.com/calculator/NetPresentValue.aspx

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Mevenues, costs, and retention are the most important variables that a business caninfluence. +ompanies can increase revenues generated by a customer by increasingsales of current products, cross-selling, and up-selling. +ross-selling is offering otherproducts to current customers. Cp-selling is encouraging customers to %trade-up) to

more profitable offerings of the company. Eor e0ample, the retailer can encouragecustomers to purchase gourmet food items or higher-margin non-food products, suchas health and beauty aids. Another way to increase revenues generated by a customeris through referrals to others. Meducing costs in order to increase margins is anotherway to increase customer lifetime value. Einally, a business can increase a customerslife9 +ommunicationJMeflective Thinking/

Ans"er9

>tudents responses will vary. This is an e0ercise that most students find interestingand insightful. >ome may interview a family member or someone else they know andlearn things they never knew about their careers. *f possible, have students give aninformal presentation to share what they learned with the other students in the class.

7%,#$ %n Te,hn%.%!2

*n only a few short years, consumer-generate marketinghas increased e0ponentially. *tsalso known as consumer-generate meiaand consumer-generate content. 2ore than566 million Web sites contain user-generated content. =ou may be a contributor yourself

if youve ever posted something on a blog, reviewed a product at Ama$on.com, uploadeda video on =ouTube, or sent a video from your mobile phone to a news Web site, such as+88.com or Eo08ews.com. This force has not gone unnoticed by marketers, and withgood reason. 8ielsen, the TN ratings giant, found that most consumers trust consumeropinions posted online. As a result, savvy marketers encourage consumers to generatecontent. Eor e0ample, +oke has more than B.4 million fans on Eacebook, mothers canshare information at Dampers Nillage www.pampers.com/, and !oritos scored atouchdown with consumer-created advertising during the past several >uper 9owls.
http://www.pampers.com/http://www.pampers.com/

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Apple even encourages iDhone users to develop applications for its device. owever,consumer-generated marketing is not without problems9 +ommunicationJ Meflective ThinkingJTechnology/

Ans"er9

>tudents responses will vary and they will most likely be very savvy about findingthis information. >earching %consumer-generated media,) %consumer-generatedcontent,) or %consumer-generated marketing) returns several sources of information.

Eor e0ample, www.spotlightideas.co.uk:1pQB4is an interesting Web site that linksto several e0amples.

. !iscuss the advantages and disadvantages of consumer-generated marketing.AA+>9 +ommunicationJ Meflective/

Ans"er9

There are several Web sites see link given in ;uestion R5/ and articles students canuse to address the advantages and disadvantages of consumer-generated marketing.>ome advantages include consumers think outside the bo0, consumer-generatedmarketing generates e0citement among consumers, and consumers trust otherconsumers. owever, disadvantages include lack of control by the marketer,perceptions that consumer-generated content on a companys Web site is merelypropaganda, and unintended conse;uences if products are used improperly.

7%,#$ %n Eth,$

>i0ty years ago, about F4 percent of Americans smoked cigarettes, but now the smokingrate is less than 6 percent. This decline results from knowledge of the potential healthdangers of smoking and from marketing restrictions for this product. Although smokingrates are declining in most developed nations, more and more consumers in developingnations, such as Mussia and +hina, are puffing away. >moker rates in some countries runas high as F6 percent. !eveloping nations account for more than 36 percent of worldtobacco consumption and marketers are fueling this growth. 2ost of these nations do nothave the restrictions prevalent in developed nations, such as advertising bans, warninglabels, and distribution restrictions. +onse;uently, predictions are that 5 billion peopleworldwide will die this century from smoking-related ailments.
http://www.spotlightideas.co.uk/?p=2352http://www.spotlightideas.co.uk/?p=2352

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5. 7iven the e0treme health risks, should marketers stop selling cigarettes even thoughthey are legal and demanded by consumers1 >hould cigarette marketers continue touse marketing tactics that are restricted in one country in other countries where theyare not restricted1 AA+>9 +ommunicationJ thical Measoning/

Ans"er9

>tudents responses will vary. "ne argument for continuing to sell this product is thatit is a legal product and consumer demand e0ists. >tudents may argue that a companywill not and should not put itself out of business. +onsumers willingly enter into thee0change relationship when they purchase cigarettes, so an argument can be madethat marketers should continue to satisfy their needs and desires for this product.?ikewise, people who work at a tobacco company or invest in the company do so oftheir own volition. The discussion will probably turn to whether or not thegovernment should ban the product.

As to whether or not a marketer should use marketing tactics not allowed in onecountry in other countries where the tactics are not restricted, some students willargue for use of whatever tactics are allowed by law in a given country to sell theproduct. "ther will argue that marketers should adhere to these restrictions no matterwhere the product is marketed.

. Mesearch the history of cigarette marketing in the Cnited >tates. Are there any newrestrictions with respect to marketing this product1 AA+>9 +ommunicationJMeflective Thinking/

Ans"er9

There are numerous sources on the history of cigarette marketing in the Cnited >tates.>ignificant events include the banning of cigarette advertising on broadcast televisionand radio and the re;uirement for warning labels in the 5G36s. A settlement reachedin the 5GG6s with the attorney generals of several states imposed more restrictions,such as no advertising on billboards or in maga$ines with a large youth readership.2ore recently, the E!A now has the authority to regulate tobacco, and the words%light) and %mild) will be banned.

>ee the following source for a brief history on cigarette marketingwww.time.com:time:nation:article:6,K4GG,5G6FIF,66.html.

>everal interesting articles are listed in the following history of smokingbibliographywww.library.ucsf.edu:tobacco:smokebiblio.

Mar'etn! -2 the N#*-er$
http://www.time.com/time/nation/article/0,8599,1904624,00.htmlhttp://www.library.ucsf.edu/tobacco/smokebibliohttp://www.time.com/time/nation/article/0,8599,1904624,00.htmlhttp://www.library.ucsf.edu/tobacco/smokebiblio

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2arketing is e0pensive# A B6-second advertising spot during the 656 >uper 9owl costPB million, and that doesnt include the P466,666 or more to produce the commercial.Anheuser-9usch usually purchases multiple spots each year. >imilarly, sponsoring onecar during one 8A>+AM race costs P466,666. 9ut >print, the sponsor of the popular>print +up, pays much more than that. And what marketer sponsors only one car for only

one race1 Want customers to order your product by phone1 That will cost you PKLP5B perorder. "r how about a sales representative calling on customers1 About P566 per salescall, and thats if the rep doesnt have to get on an airplane and stay in a hotel, which canbe very costly considering some companies have thousands of sales reps calling onthousands of customers. And the P5-off coupon for Tropicana orange &uice that you got inthe >unday newspaper1 *t costs Tropicana more than a P5 when you redeem it at thestore. These are all e0amples of &ust one marketing elementelect a publically-traded company and research how much was spent on marketing

activities in the most recent year of available data. What percentage of sales doesmarketing e0penditures represent1 ave these e0penditures increased or decreasedover the past five years1 Write a brief report of your findings. AA+>9+ommunicationJ Analytic Measoning/

Ans"er9

>tudents responses will vary depending on the company selected. Eor consistencyacross students, instructors may want to assign specific companies from databasesthat may be available online or through the school library. *t would be interesting tohave different students research competing companies in an industry, such as Walmart

and Target, to compare results.

. >earch the *nternet for salary information regarding &obs in marketing from a Web sitesuch as www.marketingsalaries.com:home:nationalSaverages.htm1functionQRor asimilar Web site. What is the national average for five different &obs in marketing1ow do the averages compare in different areas of the country1 Write a brief reporton your findings. AA+>9 +ommunicationJ Cse of *TJ Meflective Thinking/

Ans"er9

>tudents responses will vary. >ome other salary sites are

www.simplyhired.com:a:salary:search:;-marketing

www.cbsalary.com:salaryScalculatorSresults.asp01kwQ2arketingO&nQ&n66GOnsQ5OcbMecursion+ntQ5OcbsidQcb34aB5GcIF64dG36Bc3KFKGcbGfdf-BBBGGIB5-wt-I

http::marketinghire.salary.com:salarywi$ard:layoutscripts:sw$lSnewsearch.asp
http://www.marketingsalaries.com/home/national_averages.htm?function=#http://www.marketingsalaries.com/home/national_averages.htm?function=#http://www.simplyhired.com/a/salary/search/q-marketinghttp://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://marketinghire.salary.com/salarywizard/layoutscripts/swzl_newsearch.asphttp://www.marketingsalaries.com/home/national_averages.htm?function=#http://www.simplyhired.com/a/salary/search/q-marketinghttp://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://www.cbsalary.com/salary_calculator_results.aspx?kw=Marketing&jn=jn009&ns=1&cbRecursionCnt=1&cbsid=2cb725a319c6405d9703c78489cb9fdf-333996312-wt-6http://marketinghire.salary.com/salarywizard/layoutscripts/swzl_newsearch.asp

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Wantsare shaped by culture and by personality. Customers can fly any airline.

But they want to be treated with kindness and respect. They want comfort in

flight. They want to be on time. Given the choice, they want an assortment of tasty

snacks and a selection of media at their seat.

Demandsthe interesting thing about this case is that all the extras that JetBluedelivers do not cost more. In fact, in many cases, they cost less. Thus, the wants

kind of automatically translate into demands. This isnt a case where people are

willing to pay a certain amount in order to get the amenities. They may actually

save money and still get all the good stuff.

2. Describe in detail all the facets of JetBlues product. What is being exchanged in

a JetBlue transaction?

People are exchanging money, the time and effort to book a flight, and the

opportunity to travel with some other airline for all the facets of JetBlues market

offering. Thus, JetBlues combination of products, services, and experiences can

be listed. These include all the features and services on the flights (more

comfortable seats set further apart, gourmet snacks, in-seat entertainment, etc.)

and in the terminals (more security lanes, high-end dining, wide array of mall

stores, play zone, work space, etc.). But this also includes the customer service

that people find (phone reps that treat you like a good neighbor, gate reps that

are cheerful and accommodating, flight attendants that dole out the goodies

without begging). All this gets wrapped up in an experience that is stress-free and

leaves the customer feeling pampered.

3. Which of the five marketing management concepts best applies to JetBlue?

The marketing concept is clearly established. JetBlue does an amazing job of

identifying customer needs and wants and then delivering them better than the

competition can. However, there may be some who argue that JetBlue exhibits the

societal marketing concept. There is some evidence that JetBlues approach to

treating customers is in societys best interest, in that it may just transform the

entire industry. Then, all travelers are better off. However, there is little said in

this case about efforts on behalf of JetBlue that typically characterize the societal

marketing concept.

4. What value does JetBlue create for its customers?

This should be discussed in terms of the value = benefits - costs equation

outlined in the text. The benefits/features and costs of JetBlue have already been

outlined above. What should be noted here is that because JetBlue delivers

MORE benefits than other airlines at prices that are as lower or lower, JetBlue

delivers greater customer value. Therefore, it seems that most customers, given

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the choice, would choose JetBlue as long as it is available for the route they need

to travel. One thing that is not discussed in this case that makes a difference to

many air travelers is airline membership reward programs (frequent flyers). No

information is given as to how JetBlue provides such benefits. This is a benefit

that many will put a high value on, given that they get free travel or upgrades

from such programs. Especially if they accumulate points from business travelthat they can redeem for personal travel, then such programs provide a monetary

incentive. Such incentives go a long way toward balancing out the value of good

snacks and LCD entertainment. This is a good comparison to make to illustrate

how value differs across customer segments.

5. Is JetBlue likely to continue being successful in building customer relationships?

Why or why not?

Corporate culture is on JetBlues side. The company certainly has the

infrastructure to continue to provide the service and benefits that have created

such strong customer relationships. The only issue in question is whether or not

JetBlue can continue to afford to provide all the niceties at low prices. However,

the last paragraph of the case points out that JetBlue also has the luxury of a

lower cost structure than most other airlines. Its cost per available seat mile of

8.88 cents is even lower than Southwests cost of 9.76 cents. Thus, from a

competitive standpoint, there is no reason that JetBlue should not be able to

continue to deliver.

Tea,hn! S#!!e$t%n$

@et9lue has a great Web site www.&etblue.com:e0perience:/ that illustrates the full@et9lue customer e0perience. *n con&unction with the discussion ;uestions, use this Website to illustrate the full spectrum of customer benefits that @et9lue delivers.

This case also works well with the marketing strategy chapter +hapter /, the consumerbehavior chapter +hapter 4/, and the product and services marketing chapter +hapter K/.

ADDITIONAL PROJECTS+ ASSIGNMENTS+ ANDEAMPLES

Pr%;e,t$

5. Why is it important to truly understand the customer1 2ake a list of 56 %wants)that you have. What would have to occur to move each of these from %wants) to%needs)1 "b&ective /
http://www.jetblue.com/experience/http://www.jetblue.com/experience/

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. Meview the five alternative concepts under which organi$ations design and carryout their marketing strategies. 8ow, take a look at one of the automobiledealerships in your town. Which one of these five concepts do you believe theyare typically employing1 Why1 "b&ective B/

B. Think of a product or retailer to which you are loyal. What has caused this

loyalty1 What could a competing product:retailer do to break this loyalty1"b&ective F/

S*a.. Gr%#p A$$!n*ent$

5. Eorm students into groups of three to five. ach group should read the openingvignette to the chapter on Zappos.com. ach group should answer the following;uestions. "b&ective /

a. *n your opinion, is it wise to spend little on media advertising, and rely insteadmostly on word of mouth1 0plain.

b. !o you believe that customers really want long-term relationships with acompany, rather than a short-term shoe bargains1 Why or why not1

ach group should then share its findings with the class.

. Eorm students into groups of three to five. ach group should read Meal2arketing 5. %The 8ew ra of +onsumer Erugality.) ach group should thenanswer the following ;uestions and share their findings with the class. "b&ective4/a. *f our %new era of frugality) is here to stay, what is the role of upscale lu0ury

brands on this new landscape1

b. "ne lu0ury goods marketer in this reading notes, %The saying has alwaysbeen, U>ell the si$$le, not the steak. Well, * think theres been too muchsi$$le.) !o you agree1 !efend your answer.

c. *s it really true that image alone doesnt sell anymore in the new era offrugality1 Why or why not1

ach group should then share its findings with the class.

In)0)#a. A$$!n*ent$

5. +ompanies are reali$ing that losing a customer means more than losing a singlesale. *t means losing a stream of revenue from that customer over their lifetime.Meread the story of >tew ?eonard under +apturing Nalue from +ustomers, p. 6/."b&ective F/

*s it possible to take his idea of %the customer is always right) too far so that itbecomes a negative on the company1 Why or why not1

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d. >ea Mays markets are ;uite varied. !epending on the si$e and type of boat,their markets cover from the casual family weekend boater to the successfulbusiness or corporate type looking for a crewed yacht.

. "ne of the great new %marketplaces) of our time is e9ay. >pend some time on the

e9ay Web site www.ebay.com/. Eind a product that you are interested in andfollow the bidding. ow much would you be willing to pay1 +onsider thefollowing ;uestions. "b&ective /a. ow is e9ay providing value to its customers1b. !escribe the relationship they have with their customers.c. What are their markets1

Possible Solution9

a. A companys $alue propositionis the set of benefits or values it promises todeliver to consumers to satisfy their needs. e9ay provides value by providing

its clients with an easy, safe, and e0citing method by which to buy and sellmerchandise.b. e9ay takes great effort to maintain a close, almost personal relationship with

their customers. They continually provide you with updates on items you arewatching, selling, or bidding on. Additionally, they provide you withinformation about new or additional services that may be of interest to you,based on your previous history with them.

c. Their markets are diverse. 9y a casual perusal of sellers, you will find thattheir markets cover the range from everyday individuals looking to unload anold pair of &eans to larges bookstores selling hundreds of items a day such asv&books 'www.v&books.com(/.

We- Re$%#r,e$

5. http::F3.prenhall.comThis is the link to the Drentice all support link.

. www.$appos.comThis link provides you with more information on the famous shoe and apparel retailer.

B. www.harley-davidson.comThis is the home page for arley-!avidson. ere you will also find a discussion of

.".7.

F. www.stewleonards.comMead more about >tew ?eonards legendary service here.

4. www.searay.comere you will find all needed information pertaining to >ea May boats.
http://www.ebay.com/http://www.vjbooks.com/http://247.prenhall.com/http://www.zappos.com/http://www.zappos.com/http://www.harley-davidson.com/http://www.stewleonards.com/http://www.searay.com/http://www.ebay.com/http://www.vjbooks.com/http://247.prenhall.com/http://www.zappos.com/http://www.harley-davidson.com/http://www.stewleonards.com/http://www.searay.com/

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