Chapter One

Understanding the Fundamentals

of Marketing
 Chapter One
Understanding the
Fundamentals of Marketing
1. Marketing Definition
2. The Marketing Process
3. The Marketing Mix
4. Marketing Management
5. Understanding the Core
concepts of marketing
6. Marketing Philosophies
7. The Changing Market Landscape
 1. Marketing Defined

Several definitions of Marketing

Attract customers Keep and grow Managing

by promising current profitable
superior value customers by customer
delivering relationships.
satisfaction.
Today, marketing must be understood not in the old sense
of making a sale—“telling and selling”—but in the new
sense of satisfying customer needs.
According to Peter Drucker, “The aim of marketing is to
make selling unnecessary.”3

Marketing is a social and managerial process by which

individuals and organizations obtain what they need and
want through creating and exchanging value with others.

Marketing is a process by which companies create value

for customers and build strong customer relationships to
capture value from customers in return.
 What is Marketed?
Goods

Services
Events & Experiences

Persons

Places & Properties

Organizations

Information
Ideas
1-5
 2. The Marketing Process
Create Value Capture Value
Marketing in a nutshell! By creating value for customers, marketers
capture value from customers in return. This five-step process forms
the marketing framework for the rest of the chapter and the
remainder of the text.

1 2 3 4 5
Understand the Design Construct an Build profitable Capture value
marketplace customer- integrated relationships from
and customer driven marketing and create customers to
needs and marketing program that customer create profits
wants strategy delivers delight and customer
superior value equity

Create value for customers and build Capture value from

customer relationships
customers in return
The marketing process involves five steps. The first four
steps create value for customers that help acquire the lest
step- reap profit.
1. First Step, marketers need to understand the
marketplace and customer needs and wants.
2. Second Step, marketers design a customer-driven
marketing strategy with the goal of getting, keeping,
and growing target customers.
3. Third step, marketers construct a marketing program
that actually delivers superior value.
4. Fourth Step, building profitable customer
relationships and creating customer delight.
5. Fifth Step, final step, the company reaps the rewards
of strong customer relationships by capturing value
from customers.
 3 .The Marketing Mix
Marketing mix is the set of marketing tools that the
firm uses to pursue its marketing objectives in the
target market. Marketing Mix consist of the Four Ps
1. Product planning
2. Pricing
3. Promotion
4. Distribution (place)
of goods and services desired by the ultimate and
intermediate customer in exchange of these products
for value (money).
The Marketing Mix
 The Marketing Mix
The Four Ps and the Four Cs

Marketing
Mix

Place
Product
Convenience
Customer Solution

Price Promotion

Customer Cost Communication

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The Nature of Marketing
 The Marketing Mix
Seven Ps Product

Process Price

Seven Ps

Physical
Promotion
Evidence

People Place
 4Ps + (People + Physical evidence + Process)
• People: People are vital element of the marketing
mix. People refer to all people directly or indirectly
involved in the consumption of a service
• Due to the inseparability of production and
consumption for services which involves the
simultaneous production and consumption of
services, service firms depend heavily on the ability
of contact employees to deliver the service.
• Contact employees contribute to service quality by
creating a favorable image for the firm, and by
providing better service than the competitions.
• Physical evidence: The intangible nature of services means
the potential customers are unable to test (judge) a service
before it is consumed, increasing the riskiness inherent in
the purchase decision. An important part of this service
strategy is to reduce the level of perceived risk by offering
tangible evidence about the nature of the service related
to the environment in which the service is delivered, and
the tangibles that help to communicate and perform the
service
• Process: Services are best defined by their production
process rather than their tangible outcomes. Services have
“high contact” where the consumer is a co-producer of the
service. The customer goes through the process. Barber,
Restaurant 13
 4 . Marketing Management
• Marketing management is a process of
planning, organizing, directing, coordinating, and
controlling of the activities of creating value
(offering products and services) for customers
and build strong customer relationships in order
to capture value (revenue and profit) from
customers in return.
• Marketing management is the art and science of
choosing target markets and building profitable
relationships with them.
• It is a process that aims to find, attract, keep, and
grow target customers by creating, delivering,
and communicating
14 superior customer value.
Market Offerings
5.1 Needs, Wants, and Demands
Understanding Customers’ Needs
Need is a state of felt deprivation or void that exists
in people such as:
• Physical—food, clothing, warmth, safety
• Social—belonging and affection
• Individual—knowledge and self-expression
• Need is natural, It is not affected by culture, and
marketing has no influence in creating needs
People buy products when they need them
All people regardless of culture ( whether Australian
Aborigines or the Ethiopian Afars feel hungry and
have the same need for eating food)
Need Theory S.A

Esteem
Status

Social
Friendship

Safety
Insurance

Physiological
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FoodThe Nature of Marketing
 Needs, Wants, and Demands
Understanding Customers Wants
Wants
• The forms by which people communicate their
needs. They are assortments (bundles) of products
that people chose to satisfy their needs.
• When an Italian and an Ethiopian feel hungry both
have need for food but the (form) they choose to
satisfy their need may be different.
• The Ethiopian may prefer “KITFO” or “Raw Meat”
but the Italian may prefer “Spaghetti” or “Lasagna”
• Culture and marketing can influence the wants of
people
• The closer that a product matches the consumer’s
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want, the more successful the product will be.
Needs, Wants, and Demands

Understanding Demands

Demands
• Demands are wants that are backed by buying
or purchasing power
• Two people may have the same need for
example need for food; and may have the same
want for example Spaghetti; but one my not
afford the cost of spaghetti because he can not
afford it and therefore shift his demand to a
cheaper food item.
 Demand States
Marketing management has the task of influenc­ing the level,
timings and composition of demand in a way that will help
the organization to achieve its objectives.  Also, A marketer
has to take into consideration different types of demand for
his product before he comes up with a strategy.

• Negative • Irregular
• Nonexistent • Unwholesome
• Latent • Full
• Declining • Overfull

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1 Negative Demand
When a major part of the market dislikes the
product and may even pay a price to avoid it. Eg:
patients have a negative demand for dental work,
gall bladder operation, Employers feel a negative
demand for ex-convicts.
Analyze, why the market dislikes the products?
2 No Demands
Target consumers may be uninterested in the
product. The marketing task is to find ways to
connect the benefits of the products to the
person’s natural needs and interests.
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3 Latent Demand:
Many consumers may share a strong need that cannot be
satisfied by any existing products. Latent demand for
harmless cigarettes, more fuel efficient cars.
The marketing task is to measure the size of the potential
market and develop goods and services that would satisfy
the demand..
4 Declining Demand
A substantial drop in the demand for products.
Analyze the cause of market decline.
5 Irregular Demand
Demand that varies on a seasonal, daily or even
hourly basis, causing problems of idle capacity or
overcrowded capacity.
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6 Full Demand
When businesses are pleased with there
volume of business. Demand near or equal to
capacity:
7 Overfull Demands
Some organizations face a demand level that
is higher then they can or want to handle. 
8 Unwholesome Demand
Unwholesome products are products
demanded by customers which consumption
need to be discouraged through organized
effort. Such as cigarettes, alcohols, hard
drugs, handguns
 5.2 Market Offerings - Products and Services
• Market offerings: Some combination of goods,
services, experiences, events, persons, places,
properties, organizations, information, and ideas
presented to a market to satisfy a need or want.
They are physical products (tangible products)
goods such as cars, clothes, refrigerators and
• Service products (Intangible products such as
insurance and medical services
• Market Offerings-Products and services are
solutions to the problems of the customer.
People buy products in order to solve their
problems, and because of the benefit they desire
form the product.
Market Offerings - Products and Services

• Many sellers make the mistake of paying

more attention to the specific products
they offer than to the benefits and
experiences produced by these products.
These sellers suffer from marketing
myopia. They are so taken with their
products that they focus only on existing
wants and lose sight of underlying
customer needs.
TANGIBLE AUGUMENTED
PRODUCT CORE PRODUCT
• Image
• Color The Benefit of the Product
Example –Refrigerator • Guarantee
• Design
Satisfies food and drink • Delivery
• Size consumption needs:
• Installation
• Weight • Stores
• Preserves • Repair facility
• Materials used
• Cools • Technical advice
• Efficiency in use
• Credit Facility
• Etc.
• Return policy
• Etc.
 5.3 Value, Cost, Satisfaction, Quality
• Value is the benefit, that a customer receives
from the product
• Companies address needs by putting
forth a value proposition, a set of
benefits that they promise to consumers
to satisfy their needs. The value
proposition is fulfilled through a market
offering, which delivers customer value
and satisfaction, resulting in long-term
exchange relationships with customers.
 Value, Cost, Satisfaction, Quality
• Costs is the amount a customer pays expends to
get or own the product. Customer satisfaction
perception of the performance of the product as
compared with expectations.
 Value, Cost, Satisfaction, Quality
• Satisfaction is the measure of the
performance of the product in fulfilling-
matches perceived expectation.
• The customer is satisfied, if the value
obtained meets expectations; if it
exceeds expectation the customer is
delighted and if it falls short of
expectations then the customer is
dissatisfied
 Value, Cost, Satisfaction, Quality
Quality is totality of features and
characteristics of product (goods and services)
that bears on its ability to satisfy given needs
Though quality is an abstract perception, it has a
quantitative measure- Q= (P / E ) where
Q=quality,
P= Performance(as measured by the
producer), and
E = Expectations( of the customer).
 5. 4 Exchange, Transactions, and Relationships

• Exchange is the act of obtaining a desired object from

someone by offering something in return. Exchange is
only one of many ways that people can obtain a
desired object. For example, X gives something of
value to Y and receives something of value from Y
• Transaction is marketing's unit of measurement. A
transaction consists of a trade of values between two
parties through exchange of money or product
exchange
• Not all transactions involve money. Barter is also
transaction.  Transaction marketing is part of the larger
idea of relationship marketing.
 5.4 Exchange, Transactions, and Relationships

Customer relationship management (CRM) is

the overall process of building and maintaining
long term profitable customer relationships by
delivering superior customer value and
satisfaction
• The aim of customer relationship
management is to produce high customer
equity, the total combined customer lifetime
values of all of the company’s customers.
• The key to building lasting relationships is the
creation of superior customer value and
satisfaction.
Keeping Customer for Life: Implications
• It costs five times as much to attract a new
customer as it does to keep a current one
satisfied.
• It is claimed that a 5% improvement in customer
retention can cause an increase in profitability of
between 25 and 85 percent depending on the
industry.
• Likewise, it is easier to deliver additional products
and services to an existing customer than to a
first-time “buyer.”
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 Customer Relationships
• Different types of customers require different
customer relationship management strategies.
The marketer’s aim is to build the right
relationships with the right customers
• In building customer relationships, good
marketers realize that they cannot go it alone.
They must work closely with marketing
partners inside and outside the company. In
addition to being good at customer relationship
management, they must also be good at partner
relationship management.
 Types of Customer Relationships
• Different types of customers require different
customer relationship management strategies.
 Customer Relationship Characterisitics
True Friends: Long term High Profit Customers
Butterflies: Short term High profit Customers
Strangers: Short term Low Profit Customer
Barnacles: Long-term Low Profit Customer.

• Marketing Management need to evaluate

the customers based on potential
Profitability and projected Loyalty.
 The Process of Relationship
 The process of building and maintaining profitable
customer relationships by delivering superior
customer value and satisfaction.

Suspect

Prospect First time Repeat Client Supporter Advocate Partner

Purchaser Purchaser

Disqualified X-Customers

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The Nature of Marketing
Customer Loyalty Ladder : Seth Godin (1999)

Partner
Partner
Advocate
Advocat
e Supporter

Support
er Client

Client Customer

Custom
e r Prospect
Disqualified Inactive or
Prospec
t Customers Suspect ex-customer
Suspect
 Loyalty ladder
• Partner- Customers who work actively with the company
• Advocate- a customer that praises the company and provides
unpaid promotion for your organization, product or services
• Supporter: A client when he is satisfied With the offering &
recommends it further Positive Word of Mouth
• Customer (Client) – customer who will only buy from one
company
• Repeat- buys product or service repeatedly- buys from others
also
• First time customer- buys the product or service for the first
time-may continue to buy from others
• Prospect- A business or individual who has potential interest
on the product with the ability to pay for it.
• Suspect- Everyone who conceivably buy the product
• X-Customers- Customers who used to buy the product but
stopped for various reasons (income, location etc.
• Disqualified- those who have been rejected because of bad
relationship-defaulters.
 Customer Loyalty Ladder
Suspect
Anyone who reads or hears an ad, Partner

looks at a brochure or Advocate

encounters some other Supporter

type of promotion is a suspect

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers
 Customer Loyalty Ladder
Prospect
Partner

Someone who pays attention Advocate

to your promotion Supporter

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect ex-customers
 Customer Loyalty Ladder
First time
Customer Partner

Advocate

Those who buy your product or service Supporter

First time and repeatedly

Client

1st time
Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers
 Customer Loyalty Ladder
Client
Partner
A customer who buys the product
Advocate
category from the company only
Supporter

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers
 Customer Loyalty Ladder
Supporter

Partner
• A client when he is satisfied Advocate
With the offering & Supporter
recommends it further
Client
• Positive Word of Mouth
Customer

Prospect
Disqualified Inactive or
Customers Suspect ex-customers
 Customer Loyalty Ladder
Advocate

A customer who gives unpaid Partner

advertising for the Advocate

products or services of a business Supporter

and proactively works with the Client

Company to improve its products
Customer
and services
Prospect
Disqualified Inactive or
Customers Suspect x-customers
 Customer Loyalty Ladder
Partner
who becomes Partner
actively involved in the decision Advocate
of the company Supporter

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers
 Disqualified
Partner
Those who have bad Advocate
relations-business with the
organization Supporter

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers
Customer Loyalty Ladder

Inactive or X-customers
Customers who some how stopped to Partner

deal With the organization Advocate

Supporter

Client

Customer

Prospect
Disqualified Inactive or
Customers Suspect x-customers

Teshome Bekele
CRM Process
The CRM Process includes the following actions:
• Identifying Customers – Every piece of user information a
firm receives goes into a database that helps firms identify
the best (highest value, longest loyalty, highest frequency of
purchase, etc) customers.
• Differentiating Customers – Many firms differentiate
customers by value, which is evident by the 80/20 principle
(80% of a company’s business comes from 20% of their
customers) Parato Principle. Technology allows firms to
identify high-value customers and respond with offers in real
time over the Internet.
Marketing
• Marketing occurs when people decide to satisfy needs and wants
through exchange.
• Exchange (transaction) is the act of getting an object (product, service,
idea …) from someone by giving something in return.
• Mister “A” gives some thing of value to Mister “B” and receives other
thing of value from Misses “B”
• Marketing should create mutually beneficial relationships (good for
both parties) to generate profitable transactions.
• For exchange to take place:
• There must be at least two parties
• Each party must have something of value to offer
• Each party must be capable of communicating and delivering
• Each party must be able to accept or reject the exchange offer
• Each party must feel that it is appropriate or desirable to deal with
other party
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 5.5 Markets
• A market is the set of actual and potential
buyers of a product or service.
• Marketing means managing markets to
bring about profitable customer
relationships.
• A marketing System : include the
Company, Suppliers, Competitors, and
intermediaries working in the
environment of Marketing.
• Each party in the marketing adds value
 6. Marketing Philosophies(Marketing
Orientation)
Five Alternative Marketing Philosophies

6.1 Production 6.2 Product

philosophy philosophy

6.3 Selling
philosophy
6.4 Marketing
philosophy

6.5 Societal Marketing

philosophy
 6.1 The Production philosophies
Production philosophy holds that customers will
favor products that are available and highly
affordable, and therefore management should focus
on production and distribution efficiency.
The philosophy can be good for two situations
• Where demand is greater than supply
• Where the product cost is too high and
improved productivity is needed to lower the
cost
It is Inside-Out approach. It starts every thing from
the organization and proceed to the customer.
 6.2 The Product philosophy
• The product philosophy holds that consumers
will favor products that offer the most quality,
performance and innovative (new) features
• Thus a company should focus on making
continuous product improvements
• This can lead to marketers suffering
‘marketing myopia’( myopia=short
sightedness; can’t see properly need glasses)
Product Philosophy is an inside=out approach.
It starts from the organization and moves to
the customer.
 6.3 The Selling philosophy
• The selling philosophy holds that consumers
will not buy enough of the organization’s
products unless the organization undertakes
a large-scale selling and promotional efforts
• Companies practice the selling concept when
they have overcapacity/ excessive amount of
products
• It carries high risk because it focuses on
short-term selling strategy and ignores
building long-term customer relationship
• It is inside-out approach. It starts from the
organization and
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Module One
The Nature of Marketing
to the customer
 6.4 Marketing Philosophy
The marketing Philosophy holds that achieving
organizational goals depends on determining the
needs and wants of target markets and delivering the
desired satisfaction more effectively than
competitors.
• Discover needs and wants of customers
• Create value-Produce Goods and services based
on customer needs and wants
• Offer customer value through the goods and
services
• Satisfy-delight customers
• Obtain value in return for satisfaction and delight
 Marketing & Sales philosophies
Contrasted
Starting Focus Means Ends
Point

Selling Profits
Existing
Factory and through
Products
Promoting Volume
The Selling Concept

Profits
Customer Integrated
Market through
Needs Marketing
Satisfaction
The Marketing Concept
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 6.5 Societal Marketing philosophy

Society
(Human Welfare)

Societal Marketing
Philosophy
Three Considerations

Consumers Company
(Wants Satisfaction) Module One (Profits)
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The Nature of Marketing
 Societal Marketing philosophies

• Societal marketing philosophy holds that the

organization should determine the needs,
wants, and interests of target markets and
deliver the desired satisfactions more
effectively than competitors in a way that
maintains or improves the customer’s and
society’s well-being.
• No smoking floors, anti-drunk driving
promotions, environmentally-friendly food
containers, energy conservation.
 7. The Changing Marketing Landscape
• The Economy: Economic recession or depression,
leave consumers short of both money and
confidence, creating a new age of consumer frugality
that will last well into the future
• The Technology: The boom in technology such as
in computer, telecommunications, information,
transportation, and other technologies has created
exciting new ways to learn about and relate to
individual customers. It has also allowed new
approaches by which marketers can target
consumers more selectively and build closer, two-
way customer relationships
 The Changing Marketing Landscape

• Globalization: The world is increasingly becoming

smaller world, many marketers are now connected
globally with their customers and marketing partners.
Today, almost every company, large or small, is touched
in some way by global competition.
• Ethical and social responsibility: calls on marketers to
take greater responsibility for the social and
environmental impact of their actions.
• Marketing also has become a major part of the
strategies of many not-for-profit organizations, such as
colleges, hospitals, museums, zoos, symphony
orchestras, and even churches.