MKTChapter1, 2

1
Principles of Marketing
Defining Marketing and the

Marketing Process: Managing
Profitable Customer
Relationships
Learning Objectives
After studying this chapter, you should be able to:
1. Define marketing and outline the steps in the marketing
process
2. Explain the importance of understanding customers and the
marketplace, and identify the five core marketplace concepts
3. Identify the key elements of a customer-driven marketing
strategy and discuss the marketing management orientations
that guide marketing strategy
4. Discuss customer relationship management, and identify
strategies for creating value for customers and capturing value
from customers in return
5. Describe the major trends and forces that are changing the
marketing landscape in this age of relationships
1. What Is Marketing?
Marketing Defined
Marketing is the process by which companies

create value for customers and build strong
customer relationships to capture value from
customers in return
The Marketing Process
1. Understand the marketplace and customer wants

and needs
2. Design a customer-driven marketing strategy
3. Construct a marketing plan that delivers superior
value
4. Build profitable relationships and create customer
satisfaction
5. Capture value from customers to create profit and
customer equity
2. Understanding the Marketplace
and Customer Needs
Customer Needs, Wants, and Demands
 Needs are states of deprivation

 Physical—food, clothing, warmth, safety
 Social—belonging and affection
 Individual—knowledge and self-
expression
Understanding the Marketplace
and Customer Needs
Customer Needs, Wants, and Demands
Wants are the form that needs take as they

are shaped by culture and individual
personality
Demands are wants backed by buying power

and Customer Needs
Market Offerings—Products, Services, and

Experiences
Market offerings are some combination of

products, services, information, or
experiences offered to a market to satisfy a
need or want
and Customer Needs
Marketing myopia is focusing only on existing

wants and losing sight of underlying
consumer needs
Exchange is the act of obtaining a desired

object from someone by offering something
in return
Relationships consist of actions to build and
maintain desirable relationships
and Customer Needs
Markets are the set of actual and potential buyers
of a product
Marketing system consists of all of the actors
(suppliers, company, competitors, intermediaries,
and end users) in the system who are affected
by major environmental forces
 Demographic
 Economic
 Physical
 Technological
 Political–legal
 Socio-cultural
and Customer Needs
 Marketplace: The marketplace is physical, as when you shop in a

store
 Marketspace: Marketspace is digital, as when you shop on the

internet) and
 Metamarket: a cluster of complementary products and services

that are closely related in the minds of consumers but are spread
across a diverse set of industries.
 The automobile metamarket consists of automobile manufacturers,

new car and used car dealers, financial companies, insurance
companies, mechanics, spare parts dealers, service shops, auto
magazines, auto ads in newspapers, and auto sites on the internet)
and Customer Needs
 Marketers: a marketer is someone

who seeks a response from another
party, called the prospect.
 Prospect: A prospect is someone
whom the marketer identifies as

potentially willing and able to engage
in an exchange of values.
Modern Marketing System
Suppliers
Company
Competitors
(Marketer)
Environment
Environment
Marketing
Intermediaries
End User
Market
12
3. Designing a Customer-Driven
Marketing Strategy
Marketing Management
Marketing management is the art and

science of choosing target markets and
building profitable relationships with them
 What customers will we serve?
 How can we best serve these customers?
Designing a Customer-Driven
Marketing Strategy
Selecting Customers to Serve
Market segmentation: Dividing the markets

into segments of customers
Target marketing: Which segments to go

after
Marketing Strategy
Choosing a Value Proposition
The value proposition is the set of

benefits or values a company
promises to deliver to customers
to satisfy their needs
Marketing Management
Philosophies
Production Concept
Product Concept
Selling Concept
Marketing Concept Customer Concept
Societal Marketing Concept Green Marketing

Societal MarketingConcept
Concept
Relationship Marketing
Societal Marketing Concept
Concept 16
Marketing Strategy
Marketing Management Orientations
Production concept is the idea that

consumers will favor products that are
available or highly affordable
Marketing Strategy
Product concept is the idea that consumers

will favor products that offer the most
quality, performance, and features for which
the organization should therefore devote its
energy to making continuous improvements
Marketing Strategy
Selling concept is the idea that consumers

will not buy enough of the firm’s products
unless it undertakes a large scale selling and
promotion effort
Marketing Strategy
Marketing concept is the idea that achieving

organizational goals depends on knowing
the needs and wants of the target markets
and delivering the desired satisfactions
better than competitors do
Marketing Strategy
Societal marketing concept is the idea that

a company should make good marketing
decisions by considering consumers’ wants,
the company’s requirements, consumers’
long-term interests, and society’s long-run
interests
4. Relationship Marketing Concept
 Focus on long term relationships with

customers based on consistent value and
customer satisfaction
 An attempt to build personal, long-term
bonds with customers.
 Relationship marketing has expanded to
include all groups an organisation interacts
with: suppliers, employees, unions,
government, and even competitors.
22
Preparing an Integrated
Marketing Plan and Program
Marketing Mix
The marketing mix is the set of tools (four Ps)

the firm uses to implement its marketing
strategy
 Product
 Price
 Promotion
 Place
Preparing an Integrated
Marketing Plan and Program
Integrated Marketing Program
Integrated marketing program is a

comprehensive plan that communicates and
delivers the intended value to chosen
customers
Building Customer Relationships
Customer Relationship Management

(CRM)
Customer relationship management is the

overall process of building and maintaining
profitable customer relationships by
delivering superior value and satisfaction
Customer Relationship Management

(CRM)
Customer satisfaction is the extent to which a

product’s perceived performance matches a buyer’s
expectations
The Changing Nature of Customer Relationships
Relating with more carefully selected customers:

uses selective relationship management to target
fewer, more profitable customers
Relating for the long term: uses customer
relationship management to retain current
customers and build profitable, long-term
relationships
Relating directly: uses direct marketing tools
(telephone, mail order, kiosks, Internet) to make
direct connections with customers
Partner Relationship Management
Partner relationship management refers to

working closely with partners in other
company departments and outside the
company to jointly bring greater value to
customers
Partner Relationship Management
Supply chain is a channel that stretches from

raw materials to components to final
products to final buyers
Capturing Value from Customers
Building the right relationships with the

right customers involves treating
customers as assets that need to be
managed and maximized
 Different types of customers require different
relationship management strategies
 Build the right relationship with the right
customers
5. The New Marketing Landscape
Major Developments
 Digital age
 Globalization
 Ethics and social responsibility
The New Marketing Landscape
The New Digital Age
 Recent technology has had a major impact on the
ways marketers connect with and bring value to
their customers
 Market research
 Learning about and tracking customers
 Create new customized products
 Distribution
 Communication
 Video conferencing
 Online data services
The New Digital Age
Internet—creates marketplaces and

marketspaces
Rapid Globalization
 The world is smaller

 Think globally, act locally
The Call for More Ethics and Social Responsibility
Marketers are being called upon to take greater

responsibility for the social and
environmental impact of their actions in a
global economy
2
Principles of Marketing
Company and Marketing

Strategy
Learning Objectives
After studying this chapter, you should be able to:
1. Explain companywide strategic planning and its steps
2. Discuss how to design business portfolios and develop growth
strategies
3. Explain marketing’s role in strategic planning and how
marketing works with its partners to create and deliver
customer value
4. Explain the Marketing Process
5. Explain the elements of a marketing plan, and discuss the
importance of measuring return on marketing investment
1. Companywide Strategic Planning:
Defining Marketing’s Role
1. Strategic Planning
Strategic planning is the process of

developing and maintaining a strategic fit
between the organization’s goals and
capabilities and its changing marketing
opportunities
Companywide Strategic Planning:
Defining a Market-Oriented Mission
Mission statement: The organization’s

purpose, what it wants to accomplish in the
larger environment
Market-oriented mission statement:
Defines the business in terms of satisfying
basic customer needs
2. Companywide Strategic Planning:
Designing the Business Portfolio
The business portfolio is the collection of

businesses and products that make up the
company
Analyzing the Current Business Portfolio
Analyzing the current business portfolio is

the process by which management
evaluates the products and businesses
making up the company
Steps in Analyzing the Current Business Portfolio
1. Identify key businesses making up the

company
2. Assess the attractiveness of its various SBUs
3. Decide how much support each SBU
deserves
Identify key businesses making up the company

 Strategic business unit (SBU) is a unit of the
company that has a separate mission and objectives
that can be planned separately from other company
businesses
 Company division
 Product line within a division
 Single product or brand
Assess the attractiveness of various SBUs and

decide how much support each deserves
The Boston Group Approach
Growth share matrix is a portfolio planning method that

evaluates a company’s strategic business units in terms of
their market growth rate and relative share
Strategic business units are classified as:
 Stars
 Cash Cows
 Question marks
 Dogs
Analyzing Current SBU’s:
Boston Consulting Group Approach
Relative Market Share
High Low
Stars Question Marks
?
High
Market Growth Rate
• High growth & share • High growth, low share

• Profit potential • Build into Stars or phase out
• May need heavy • Require cash to hold
investment to grow market share
Cash Cows Dogs

• Low growth, high share • Low growth & share
• Low profit potential
Low
• Established, successful
SBU’s
•Produce cash

Stars are high-growth, high-share businesses or products

requiring heavy investment to finance rapid growth. They
will eventually turn into cash cows.
Cash cows are low-growth, high-share businesses or products

that are established and successful SBUs requiring less
investment to maintain market share

Question marks are low-share business units in high-growth

markets requiring a lot of cash to hold their share
Dogs are low-growth, low-share businesses and products that

may generate enough cash to maintain themselves but do
not promise to be large sources of cash
Developing Strategies for Growth and Downsizing
Product/market expansion grid is a tool for

identifying company growth opportunities.
Developing Growth Strategies or Planning New
Businesses:
Three types of growth strategies:
Intensive Integrative Diversification growth

growth growth
Market penetration Backward integration Concentric
Market development Forward integration diversification
Product development Horizontal integration Horizontal
strategy diversification
Conglomerate
diversification
Developing Growth Strategies or Planning
New Businesses:
 Intensive Growth Strategies

 Market penetration
 Market development
 Product development
Intensive Growth Strategies

a. Market penetration is a growth strategy
for increasing sales to current market
segments without changing the product
b. Market development is a growth strategy
that identifies and develops new market
segments for current products
c. Product development is a growth strategy
that offers new or modified products to
existing market segments
Developing Growth Strategies or Planning
New Businesses:
Developing Strategies for Growth and Downsizing
Downsizing is the reduction of the business

portfolio by eliminating products or business
units that are not profitable or that no
longer fit the company’s overall strategy
Integrative Growth Strategies
VERTICAL INTEGRATION
Toward the Source of Supply
Backward
HORIZONTAL
INTEGRATION Similar
Businesses
Acquired
Forward
Toward the Customer

Integrative growth
Three Integrative growth strategies are

available:
1. Backward integration
Here, company acquires one or more of its suppliers to
gain more control or generate more profit.
2. Forward integration
Company acquires some wholesalers or retailers if they are profitable
3. Horizontal integration
Company acquires one or more competitors if govt. does
not bar this move.
Diversification growth Strategies
1. Concentric diversification strategy

Company seeks new products that have technological
and/or marketing synergies with existing product lines.
2. Horizontal diversification strategy
Company searches for new products that are
technologically unrelated to its current product lines.
3. Conglomerate diversification
strategy
Company seeks new businesses that have no
relationship to the company's current technology,
products or markets.
3. Planning Marketing: Partnering
to Build Customer Relationships
Partnering with Other Company Departments
Value chain is a series of departments that

carry out value-creating activities to
design, produce, market, deliver, and
support a firm’s products
Planning Marketing: Partnering
to Build Customer Relationships
Partnering with Others in the Marketing System
Value delivery network is made up of the
company, suppliers, distributors, and
ultimately customers who partner with
each other to improve performance of the
entire system
4. The Marketing Process
Demographic- Marketing Technological-
Economic Intermediaries Natural
Environment Environment
Product
Target
Suppliers Place Price Publics
Consumers
Promotion
Political- Social-
Legal Competitors Cultural
Environment Environment
Key Elements
• Analyzing  The strategic planning
marketing and business portfolio
opportunities analysis processes help to
• Selecting target
identify and evaluate
markets marketing opportunities.
• Developing the
marketing mix
• Managing the  The purpose of the marketing
marketing effort process is to help the firm
plan how to capitalize on
these opportunities.
Key Elements  The segmentation process

divides the total market
into market segments.
• Analyzing marketing
 Target marketing
opportunities determines which
segment(s) are pursued.
• Selecting target
markets  Marketing positioning
• Developing the marketing mix is a process of occupying
a distinctive position in
• Managing the marketing effort the minds of the
customers.
Key Elements  Competitor analysis guides
competitive marketing
strategy development.
• Analyzing marketing
opportunities  Strategy leads to tactics by
• Selecting target markets way of the marketing mix:
 The “Four Ps”
• Developing the
(seller viewpoint)
marketing mix
• Managing the marketing effort  The “Four Cs
(customer viewpoint)
Developing the Marketing Mix
Product Price
“Goods-and-service” Amount of money
combination that a that consumers
company offers a have to pay to
target market Obtain the product
Target
Customers
Intended
Positioning
Activities that Company activities

persuade target that make the
customers to buy product available
the product
Promotion Place
Developing the Marketing Mix
The Four P
Components
of the
Marketing
Mix
The 4P’s 4C’s & 4A’s of the
Marketing Mix
4 P’s 4 C’s 4 A’s

(Seller Point of View) (Customer Point of View) (Individual Point of View)
 Product Acceptability
 Customer o
 Price
o Affordability
 Place Solution o Accessibility
 Promotion  Customer Cost o Awareness
 Convenience
 Communicatio
-Jogodish Sheth
n
-McCarthy
 A.Marketing analysis
Key Elements  Provides information helpful in
planning, implementation, and

control
• Analyzing marketing  B. Marketing planning
opportunities  Strategies and tactics
• Selecting target markets  C. MKT implementation

• Developing the marketing  Turns plans into action
mix  D. Marketing control
• Managing the  Operating control
marketing effort
 Strategic control
 Marketing audit
Managing the Marketing Effort
Marketing Analysis of Company’s Situation
Marketing Marketing Control

Planning Implementation
Measure
Results
Develop Strategic Carry Out
Plans The
Evaluate
Plans Results
Develop
Marketing Take
Plans Corrective
Action
5. Contents of a Marketing Plan
Executive Summary
Current Marketing Situation
Threats and Opportunity Analysis
Objectives and Issues
Marketing Strategy
Action Programs
Budgets
Controls
33
Marketing planning
 Executive Summary
 Current Marketing Situation:
Market  Product  Competition
Distribution Macro-environment
 Threats/Opportunities/Issues analysis
SWOT analysis Issue analysis
 Objectives
Financial Marketing
 Marketing Strategy
 Action Program
 Budgets
 Controls: Review Implementation results and spot deviations
 Include Contingency Plan
Marketing Control
Set Marketing Goals

(What do we want to achieve?)
Measure Performance
(What is happening?)
Evaluate Performance
(Why is it happening?)
Take Corrective Action

(what should we do about it?)
3. Marketing Strategy and the
Marketing Mix
3. Marketing Strategy
Marketing strategy is the marketing logic by

which the business unit hopes to achieve its
marketing objectives
Marketing Strategy and the
Marketing Mix
Customer-Driven Marketing Strategy
Market segmentation is the division of a

market into distinct groups of buyers who
have distinct needs, characteristics, or
behavior and who might require separate
products or marketing mixes
Marketing Mix
Market segment is a group of consumers who

respond in a similar way to a given set of
marketing efforts
Target marketing is the process of evaluating

each market segment’s attractiveness and
selecting one or more segments to enter
Marketing Mix
Market positioning is the arranging for a

product to occupy a clear, distinctive, and
desirable place relative to competing
products in the minds of the target
consumer
Marketing Mix
Developing an Integrated Marketing Mix
Marketing mix is the set of controllable

tactical marketing tools—product, price,
place, and promotion—that the firm blends
to produce the response it wants in the
target market
Marketing Mix
The four Ps
 Product
 Price
 Place
 Promotion
Marketing Mix

The four Ps
Product is the goods and services in

combination that the company offers to the
target market
Price is the amount of money customers have

to pay to obtain the product
Marketing Mix
The four Ps
Place is the company activities that make the

product available to target customers
Promotion is the activities that communicate

the merits of the product and persuade
target customers to buy it
Marketing Mix

The 4 Ps versus The 4 Cs
Product Customer solution
Price Customer cost
Place Convenience
Promotion Communication
4. Managing the Marketing Effort
4. Managing the marketing effort requires:

 Analysis
 Planning
 Implementing
 Controlling
Marketing Analysis
Analysis is the complete analysis of the

company’s situation in a SWOT analysis that
evaluates the company’s:
 Strengths
 Weaknesses
 Opportunities
 Threats
Marketing Analysis
Strengths include internal capabilities,

resources, and positive situational factors
that may help to serve company customers
and achieve company objectives
Weaknesses include internal limitations and

negative situational factors that may
interfere with company performance
Marketing Analysis
Opportunities are favorable factors or trends in

the external environment that the company
may be able to exploit to its advantage
Threats are unfavorable factors or trends that

may present challenges to performance
Market Planning
Planning is the development of strategic and

marketing plans to achieve company
objectives
Marketing strategy consists of the specific

strategies for target markets, positioning,
the marketing mix, and marketing
expenditure levels
Market Planning
Sections of a marketing plan include:
 Executive summary
 Current marketing situation
 Threats and opportunities
 Objective and issues
 Action programs
 Budgets
 Controls
Marketing Implementation
Implementing is the process that turns marketing

plans into marketing actions to accomplish strategic
marketing objectives
Successful implementation depends on how well the

company blends its people, organizational structure,
decision and reward system, and company culture
into a cohesive action plan that supports its
strategies
Marketing Department Organization
 Functional
 Geographic
 Product
 Market or customer management
Functional organization: This is the most

common form of marketing organization
with different marketing functions headed
by a functional specialist
 Sales manager
 Market research manager
 Customer service manager
 New product manager
Geographic organizations: Useful for companies that

sell across the country or internationally. Managers
are responsible for developing strategies and plans
for a specific region.
Product Management: Useful for companies with

different products or brands. Managers are
responsible for developing strategies and plans for a
specific product or band.
Market or customer management

organization: Useful for companies with
one product line sold to many different
markets and customers. Managers are
responsible for developing strategies and
plans for their specific markets or customers.
Customer management involves a customer

focus and not a product focus for managing
customer profitability and customer equity
Marketing Control
Controlling is measuring and evaluating

results and taking corrective action as
needed
 Operating control
 Strategic control
Marketing Control
Operating control involves checking ongoing

performance against annual plan and taking
corrective action as needed
Strategic control involves looking at whether

the company’s basic strategies are well
matched to its opportunities
Marketing Control
Marketing audit is a comprehensive,

systematic, independent, and periodic
examination of a company’s environment,
objectives, strategies, and activities to
determine problem areas and opportunities
5 Measuring and Managing Return
on Marketing Investment
Return on Marketing Investment

(ROI)
Return on marketing investment (ROI)

is the net return from a marketing
investment divided by the costs of the
marketing investment. Marketing ROI
provides a measurement of the profits
generated by investments in marketing
activities.
Measuring and Managing Return on
Marketing Investment
Customer-Centered Measures
 Customer acquisition
 Customer retention
 Customer lifetime value

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1

Defining Marketing and the

Marketing is the process by which companies

1. Understand the marketplace and customer wants

Customer Needs, Wants, and Demands

 Needs are states of deprivation

 Social—belonging and affection

 Individual—knowledge and self-

Customer Needs, Wants, and Demands

Wants are the form that needs take as they

Demands are wants backed by buying power

Market Offerings—Products, Services, and

Market offerings are some combination of

Marketing myopia is focusing only on existing

Exchange is the act of obtaining a desired

 Marketplace: The marketplace is physical, as when you shop in a

 Marketspace: Marketspace is digital, as when you shop on the

 Metamarket: a cluster of complementary products and services

 The automobile metamarket consists of automobile manufacturers,

 Marketers: a marketer is someone

whom the marketer identifies as

Marketing management is the art and

Selecting Customers to Serve

Market segmentation: Dividing the markets

Target marketing: Which segments to go

Choosing a Value Proposition

The value proposition is the set of

Marketing Concept Customer Concept

Societal Marketing Concept Green Marketing

Marketing Management Orientations

Production concept is the idea that

Marketing Management Orientations

Product concept is the idea that consumers

Marketing Management Orientations

Selling concept is the idea that consumers

Marketing Management Orientations

Marketing concept is the idea that achieving

Societal marketing concept is the idea that

 Focus on long term relationships with

The marketing mix is the set of tools (four Ps)

Integrated Marketing Program

Integrated marketing program is a

Customer Relationship Management

Customer relationship management is the

Customer Relationship Management

Customer satisfaction is the extent to which a

Relating with more carefully selected customers:

Partner Relationship Management

Partner relationship management refers to

Partner Relationship Management

Supply chain is a channel that stretches from

Building the right relationships with the

The New Digital Age

Internet—creates marketplaces and

 The world is smaller

The Call for More Ethics and Social Responsibility

Marketers are being called upon to take greater

Company and Marketing

Strategic planning is the process of

Defining a Market-Oriented Mission