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Course of Study:
(MCD2050) Marketing 1: Marketing Theory & Practice
Title of work:
Marketing, 9th ed. (2012)
Section:
Extracts pp. 5--10
Author/editor of work:
Kotler, Philip.; Armstrong, Gary; ProQuest (Firm)
Author of section:
Philip Kotler, Suzan Burton, Kenneth Deans, Linden Brown, Gary Armstrong
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ALWAYS LEARN ING
PEARSON
Marketing: Creating superior customer value CHAPTER ONE
5
Marketing is also practised by not-for-profit organisations, and in some of these cases, the standard definition
of marketing fits well: charities, universities and museums use marketing to encourage people to behave in a
way that benefits the organisation and its stakeholders. So, a charity will encourage people to donate money, and
work to make those donors feel good about that donation, and a university will encourage students to enrol,
by suggesting that they will benefit from education. Sometimes, however, a not-for-profit organisation wants to
promote a behaviour (such as stopping smoking, or drinking responsibly) and the benefits of that action are to the
individual and/or to society, rather than to the organisation sending the message. For example, the Cancer Council
might use marketing to encourage certain behaviours. If you respond to their messages, and don't smoke, use
sunscreen and/or drink responsibly, you benefit, and the community may have lower health costs, but there is no
benefit to the Cancer Council. This form of marketing is called social marketing, and while most of the principles
of marketing apply, it is sufficiently different to be defined separately:
Social marketing is the application of commercia l marketi ng technologies to the ana lysis, planning, execution, and
evaluation of programs designed to influence the vo luntary behaviou r of target audiences in ord er to improve th eir
persona l welfare and that of the society of which they are a part. 5
Sometimes a not-for-profit marketer (and sometimes a for-profit marketer) may face demand higher than they
want or can handle. For example a National Park may find that it is overfull at certain times of the year, or
an organisation may have customers becoming angry because they are waiting for a new product. Under these
circumstances, the organisation will try to reduce customer demand , either temporaril y or permanently, using
demarketing strategies such as increasing its prices or reducing its promotion efforts.
The marketing process
Figure 1.1 presents a simple, five-step model of the standard marketing process. In the first four steps, companies
work to understand customer needs and wants, design a marketing strategy, construct marketing programs to
communicate and deliver value, and build strong customer relationships. In the final step, companies capture value
from customers to create profits. By creating value for customers, they in turn capture value from customers in the
form of sales, profits and long-term customer equity.
Part 1 of this book deals with marketing and the strategic marketing process. In this chapter, we review each
step but focus more on the first. three steps: how organisations use their understanding of the marke t to design a
customer-driven marketing strategy (which customers the organisation will target, and with which offering), and
specific marketing programs to implement that strategy (how the organisation will communicate and deliver value to
customers). In Chapter 2, we discuss how organisations build relationships with suppliers and customers to deliver
and capture value from customers. ln Chapters 3 and 4 we will review the strategic aspects of marketing in more
detail-aligning marketing with strategic planning and designing marketing plans and programs for competitive
advantage. Associated with this section is Appendix 1, 'Marketing plan', which provides an example of the structure
and logic of a marketing plan, the central instrument for directing and controlling the marketing effort. Part 2 of this
book comprises four chapters that provide an in-depth understanding of the marketplace through an assessment
of the global marketing environment, information management and market analysis, and customer behaviour. Part
3 discusses how market information is integrated into a customer-driven marketing strategy, using the key tools
of market segmentation, targeting and positioning. Chapters 10 to 17 in that section break out key elements of
the marketing mix and illustrate their application. Also referenced in this section is Appendix 2, 'Marketing by the
numbers', which covers relevant financial analysis tools and performance measures for marketi ng. Part 4 extends
marketing into the global arena and also addresses the important issue of responsible marketing.
Design a
customer-driven
marketing
strategy
Construct an
integrated
marketing program a---a•
that delivers
superior value
FIGURE 1.1 A model of value creation and the marketing process
Demarketing
Marketing in which the aim
is to reduce demand, either
temporarily or permanently.
Th is important figure shows
marketing in a nutshell. By
creating value for customers.
marketers capture value
from customers in return.
This five-step process forms
the marketing framework for
the rest of the chapter and the
remainder of the book.
Capture value from
customers in return
Create value for customers and
build customer relationships
Understand the
marketplace and
customer needs
and wants
Social marketing
Social marketing is the
application of commercial
marketing technologies to
influence the voluntary behaviour
of target audiences in order to
improve their personal welfare
and that of the society of which
they are a part.
Build profitable
relationships
6
self-check
questions
PART ONE The strategic marketing process
1. As various types of businesses have begun to use marketing, the science has developed new conce pts and
approaches. List and describe two main differences between traditional marketing and social marketing.
2. What is the key difference between marketing and demarketing?
UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS
(pp. 6-10)
value for customers. So, as
the first step in the marketing
process, the company must fully
understand consumers and the
marketplace in which it operates.
Needs
States of felt deprivation.
Wants
The form human needs take as
they are shaped by culture and
1nd1v1dual personality.
Demands
Human wants that are bac ked by
buying power.
the marketer offers to a buyer'products', 'services', ·goods' and
'offerings'. When they think of a
'product '. most non-marketers
think of something physicalsomething they can touch, such
as clothing, or food or electrical
goods. In strict marketing terms
these are ·physical goods' since,
in marketing terms, ·market
offerings' or ·products' can
also include services. But since
people often associate the term
products with physical goods,
we sometimes say 'products and
services' in this book, to remind
the reader that we are talking
about both physical goods and
services. Don't be confused : the
term product can be used in its
usual sense. to mean a physical
good. or in its strict marketing
sense, to include services or
even ideas.
ln order to provide value for customers, marketers need to understand customers' needs and wants, how different
market offerings can provide customer sa tisfaction and value, and how consumers and buyers make exchanges
to increase their own value in different markets.
As a result, we now examine these five core concepts: (1) customer needs, wants and demands; (2) market offeringsgoods, services and experiences; (3 ) customer satisfaction and value; (4) exchanges and relationships; and (5) markets.
Customer needs, wants and demands
The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation.
Humans have many complex needs. These include basic physical needs for food, clothing, warmth and safety;
social needs for belonging and affection ; and individual needs for knowledge and self-expression. When a need isn't
sa tisfied , a person will look for an object that will satisfy it. Marketers don't create these needs; they are a basic part
of the human make-up.
Wants are the form taken by human needs as they are shaped by culture and individual personality. A hungry
person in Australia or New Zealand might need food, but want a hamb urger, chips and a soft drink. A hungry person
in India or China needs food , but may want rice or noodles. Wants are shaped by one's society and are described in
terms of objects that wi ll satisfy those needs. People have almost unlimited wants but limited resources. Thus, they
want to choose products that provide the highest perceived value and satisfaction for their money. When backed by
buying power, wants become demands . Given th eir needs, wants and resources, people demand products with the
benefits that add up to the most satisfaction and perceived value.
Outstanding marketing companies go to great lengths to learn about and understand their customers' needs,
wants and demands. They conduct consumer research and analyse mountains of customer data. Their people
at all levels-inc luding top management-stay close to customers. At giant consumer products company P&G
(which makes brand as diverse as Gillette , Head and Shoulders, Oral-B, Hugo Boss, SK-II and Dunhill fragrances) ,
executives from the chief executive officer down spend time with consumers in thei r homes and on shopping trips.
P&G brand managers routinel y spend a week or two living on the budget of low-end consumers to gain insights
into what they can do to improve customers' lives." Understa nding customer wants often involves much more than
asking customers what they want: Steve Jobs , the co-fou nder of Apple, famously said: 'It's not the consumer's job to
know what th ey want. '' Sometimes customers do know what they want , as we will discuss more in Chapter 6, but
smart marketers look beyond customers' stated wants, to understand what they can offer which the customer might
not want now, but will want if it is offered to them.
Market offerings-goods,
services and experiences
Consumer ' needs and wants are fulfilled through market
offerings-some combination of physical goods, services,
information or experi ences offered to a market to satisfy
a need or a want. Market offerings are not limited to
physical products. They also include services-activities
or benefits offered for sale that are essentially intangible
(th ey can·l be touched) and don't result in the ownership
of an ything. Exampl es include banking services, e-tickm,
hotel accommodation, tax advi ce and home repair services.
More broadl y, market offerings also include other
entities, such as persons , places, organisations, i11formation
Tourism Victoria uses marketing to promote its productdifferent locations in Victoria.
Marketing: Creating superior customer value CHAPTER ONE
and ideas. For example, Tourism Victoria promotes places (different parts of Victoria) with its award-winning and
long-running 'You'll love every piece' logo and campaigns, and the various Cancer Councils have encouraged an
idea (the use of sunscreen) with their long-running 'Slip, slop, slap' campaigns (later extended to include 'seek'
(shade) and 'slide' (on sunglasses)).
Many sellers make the mistake of paying more attention to the physical goods or services they offer than to the
benefits and experiences produced by these products. These sellers suffer from what was described as marketing
myopia in one of the mo t influential marketing articles every wrinen. 8 They are so taken with their products that
they focus only on existing wants and lose sight of underlying customer needs. They forget that a product is only
a tool to solve a consumer problem. In his classic discussion of marketing myopia , Levitt used the example that a
marketer of quarter-inch drill bits may think that the customer needs a drill bit. But what the customer rea lly needs
is a quarter-inch hole. These sellers will have trouble if a new product comes along that serves the cu tamer's need
better or less expensively. The customer will have the same need, but will want the new product. So, a marketer
must understand cu tamers' underlyi ng needs and wants, and develop products that satisfy those needs and wants.
Customer satisfaction and value
Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose
among these many market offerings? Customers form expectations about the satisfaction and value that various
market offerings will deliver and buy accordingly. As a result, marketers must be careful to set the right level of
expectation . If they set expectations too high , buyers may be disappointed. If they set expectations too low, they
may fail to attract enough buyers.
Customer satisfaction is the customer's consciou evaluation of a product or service feature, or of the product or
service itself. 9 Leading marketing companie go out of their way to keep their customers satisfied. Satisfied customers
are more likely to make repeat purchases, and to tell others about their good experiences with the product.
While sati fied customers are more likely to repurchase, satisfaction alone isn't enough to ensure repurchase.
To be successful, an organisation must also ensure that customers think that the product is good value, because a
customer may be satisfied, but may still decide that the product is too expensive and that competing products offer
better value. For example, customers at an expensive restaurant may be very satisfied with the experience, but may
not be prepared to pay the price to eat at the restaurant , except for a very special occa ion . To be successful , any
organisation needs to do more than provide high customer satisfaction; it also needs to ensure high customer value.
Customer value is the difference between the benefits the customer gains from having access to or owning
and using an offering and the costs of obtaining it. So when deciding whether to eat at a restaurant, or choosing a
restaurant, customers will weigh the experience that they expect to receive against the price that they expect to pay,
and select the option that they think will give them the greatest value. That may result in some customers cooking at
home, others getting take-away, and others deciding
to eat at a restaurant that they know isn't as good, but
which i cheaper, and so which provides better value
for a particular occasion.
As we will discuss more in Chapter 7, customers
often don't judge an offering's value accurately or
objectively. They act on perceived value: they will
make judgments about what product to buy based
on their experience of the product, ancl/or what
they have heard about it, and what they think about
it. The marketer's job is therefore to provide good
value, relative to competitors, and to ensure that
customers and potential customers recognise that
higher value. Marketing Highlight 1.1 discusses
how effective marketing has increased the profile
and the perceived value of Angus beef, resulting
in greater demand and a premium price for Angus
farmers. For more discussi on of, and examples of
customer value , customer satisfaction and customer
loyalty, see Chapter 2.
7
Market offering
Some combination of physical
products, services, information
or experiences offered to
a market to satisfy a need
or want.
Product
Anything that can be offered to a
market for attention, acquisition,
use or consumption that
might satisfy a want or need.
It includes physical objects,
services, persons, places,
organisations and ideas.
Marketing myopia
The mistake of paying more
attention to the specific
products a company offers than
to the benefits and experiences
produced by these products.
Customer satisfaction
The customer's evaluation of a
product or service feature , or of
the product or service itself.
Customer value
The difference betweer the
benefits the customer ~
from having access to or owning
and using an offering and the
costs of obtaining it.
Customers will choose the
option they think will give
them the greatest value .
Marketing: Creating superior customer value CHAPTER ONE
9
Sources: Helen Greenwood, 'Brand ing makes its mark; Sydney Morning Herold, B Ma rch 20 11; Leo D'Angelo Fisher, 'Angus beef makes its mark:
Financial Review, 1 September 201O; 'No beef with th e Angus: Daily Telegraph, 31 October 2009; John Lyons, 'Angus follows Intel "inside": BRW,
19 November 2009; Jenny Dillon, 'No beef it's abo ut th e taste, not meat marketing: Daily Telegraph, 29 May 2010.
QUESTIONS
1
What are the advantages and disadvantages for a marketer of branding a commodity product?
2
Do you think people can tell the difference between Angus beef and non-Angus beef? Either way, what are th e
implications for a marketer thinking about changing to using Angus meat from unbranded beef?
3
If marketers can get a premium for branded products, why are sales of supermarkets' private labels or 'home
brands' increasing rapidly?
Exchanges and relationships
Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is the act of obtaining
a desired object from someone by offering something in return. In the broadest sense, the marketer tries to bring
about a response to some market offering. The response may be more than simply buying or trading products and
services. A political candidate, for instance, wants votes, a sporti ng club wants membership, an orchestra want an
audience, and a social action group wants idea accepta nce.
Beyond simply attracting new customers and creating
transactions, companies want to retain customers and grow
We may not have you, f~vourit~ cup.
their businesses. Marketers want to build strong relationships
But we've got your fa'l'oUntc cupp,1
by consistently delivering superior customer val ue. We will
Hot chocotue and herbal tea served onboal'd.
expand on the important concept of managing customer
relationships in the next chapter.
Exchange
The act of obtaining a desired
object from someone by offering
something in return.
Market
The set of all actual and
potential buyers of a product.
Markets
The concept of exchange leads to the concept of a market.
A market is the set of all actual and potential buyers of a good
or service. These buyers share a particular need or want that
can be satisfied through exchange. This represents the overall
potential market. The actual size of a market depends on the
number of people who exhibit the need , have resources and
authority to engage in exchange, and who are willing to offer
these resources in exchange for what they want. The actual
market size will result in a particular level of demand for the
product, but effective marketing can increase the attractiveness
of the product, and thus increase demand for the product.
Marketing involves managing markets to bring about
profitable customer relationships. However, creating these
relationships takes work. Sellers must search for buyers,
identify their needs , design good market offerings, set prices
for them , promote them, and deliver them. Activities such as
consumer re earch, product development, communication,
distribution , pricing and service are core marketing activities.
Although we normally think of marketing as being
carried out by sellers, buyers increasingly have an important
role in determining what information they receive about
organisations. Consumers search for products, search for
information about those products, interact with companies to
obtain information, and make their purchases. In fact , today's
digital technologies, from websites to mobile phones and
online social networks, have empowered consumers and made
QANTAS
Offers don't have to be for physical objects. Here the advertisement is promoting airline
services.
10
PART ONE The strategic marketing process
marketing a truly interactive affair. Thus, in addition to customer relationship management, today's marketers
must also deal effectively with customer-managed relationships. Marketers are no longer asking only 'How can we
reach our customers?' but also 'How should our customers reach us?' and even 'How can our customers reach each
other?' For exa mple, App le has set up forums or 'support communities' where customers can post questions and
get answers rrom other Apple users at little cost to Apple. 10
Figure 1.2 shows the main clements in a marketing system. Marketing involves serving a market of final consumers
in the face or competitors. The company and competitors research the market and interact with consumers to
understand their needs. Then they create and send their market offerings and messages to consumers, either directly or
th ro ugh marketing intermediaries. Each party in the system is affected by major environmental forces (demographic,
economic, natural , tec hnological, political and social/cultural) and also by various publics-groups with potential
interest in , or impact on, an organisation's abi lity to achieve its objectives. We will discuss environmental force in
more detai l in Chapter 5.
A modern marketing system
Each part y in the system adds val ue fo r the next level. The arrows in Figure 1.2 represent relat ionships that must
be deve loped and managed. Thus, a company's success at building profitable relationships depends not only on
its own actions but also on how well the enti re system serves the needs or final consumers: Lexus can't deliver on
its slogan or 'the pursu it or perrection' unless its dealers provide outstanding service; and Coles cou ldn't deliver
on its recent promise to ensure that all fresh meat in its supermarkets is hormone rree wi thout developing and
maintaining a dedicated hormone-free beer supply chain .11
self-check
questions
3.
What is missing from this simple definition of marketing? Marketing is concerned with the satisfaction of customers.
4.
Which of the following are products, and which are services? A book, a camera, an iTunes purchase, a massage?
CII DESIGNING ACUSTOMER-DRIVEN MARKETING STRATEGY (pp. 10-11>
understands its consumers and
the marketplace, it must decide
which customers it will serve and
how it will bring them value.
Marteting management
The art and sc ience of choosing
target markets and building
profitable relat1onsh1ps with them .
Once the marketing manager rully understands the consumer and the marketplace, he or she can design a marketing
strategy. We define marketing management as the art and science of choosing target markets and building profitable
relationships with them. The marketing manage r's aim is therefore to find , amact, keep and grow target customers
by creat ing, communi cating and delivering superi or customer value.
To des ign a successful marketing strategy, the marketing manager must answer two important questions: What
customers will we serve (wliat is our target market)? and How can we serve these rnstomers best (w hat is our va lue
proposition)? We will discuss th ese marketing strategy concepts brieOy here and then look at them in more detai l
in Chapters 2 and 3.
Arrows represent relationships that
must be developed and managed
to create customer value and
profitable customer relationships.
Each party in the system adds
value. Big Wcannot fulfil its
stated comm;tment to provide
'Australia's lowest prices
everyday' unless its su ppliers
provide low costs. Lexus can't
deliver on its slogan of 'the
pursuit of perfection' unless
its dealers provide outstanding
service.
Company
Marketing
intermediaries
Suppliers
Competitors
J
r_______
FIGURE 1.2 A modern marketing system
Major environmental forces ______t_,