ROAD MAP: Previewing the Concepts

Define marketing and outline the steps in the marketing

process.

Explain the importance of understanding customers and

the marketplace, and identify the five core marketplace
concepts.
Identify the key elements of a customercustomer-driven
marketing strategy and discuss the marketing
management orientations that guide marketing
strategy.
Discuss customer relationship management and
strategies for building lasting customer relationships.
Describe the major trends and forces that are changing
the marketing landscape in this new age of
relationships.

Marketing:
Managing Profitable Customer
Relationships

1-2

What Is Marketing?

Marketing Old vs. New

Simple Definition: Marketing is

Old view of marketing:

Making a sale -- Telling and Selling

managing profitable customer

relationships.
Goals:
1. Attract new customers by promising
superior value.
2. Keep and grow current customers
by delivering satisfaction.

New view of marketing:

Satisfying customer needs

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1-4

Marketing Defined

A Simple Model of the Marketing Process

A social and managerial

process by which individuals
and groups obtain what they
need and want through
creating and exchanging
products and value with
others.

Create value for customers and build

customer relationships

Understand
Understand the
the
marketplace
marketplace and
and
customer
needs
customer needs and
and
wants
wants

Design
Design aa customercustomerdriven
driven marketing
marketing
strategy
strategy

Construct
Construct aa marketing
marketing
program
program
that
that delivers
delivers superior
superior
value
value

Capture value from

customers in return

Build
Build profitable
profitable
relationships
relationships and
and create
create
customer
customer delight
delight
1-5

Capture
Capture value
value from
from
customers
customers to
to create
create
profits
profits and
and customer
customer
equity
equity
1-6

This Is a Need
What are Consumers
Needs, Wants, and
Demands?

Needs - state of felt

deprivation
including physical,
social, and
individual needs.

1-8

Types of Needs

This Is a Want

Physical:

Wants - form that

a human need
takes, as
shaped by
culture and
individual
personality.

Food, clothing, shelter, safety

Social:
Belonging, affection

Individual:
Learning, knowledge, selfself-expression

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1-10

What Satisfies Consumers

Needs and Wants?

This Is Demand

Products
Products

Wants

Anything
Anything that
that can
can be
be Offered
Offered to
to aa Market
Market to
to Satisfy
Satisfy aa Need
Need or
or Want
Want

Buying Power

Persons
Persons

Places
Places

Information
Information

Organizations
Organizations
Ideas
Ideas

Services
Services

Demand

Activity
Activity or
or Benefit
Benefit Offered
Offered for
for Sale
Sale That
That isis Essentially
Essentially
Intangible
Intangible and
and Does
Does Not
Not Result
Result in
in the
the Ownership
Ownership of
of Anything
Anything
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1-12

Exchange vs. Transaction

Value and Satisfaction

Exchange:
Expectation
8

Performance
10

Expectation

Performance

10

Act of obtaining a desired object from

someone by offering something in return.

Transaction:
If performance is lower than expectations, satisfaction is low.

A trade of values between two parties.

One party gives X to another party and
gets Y in return. Can include cash, credit,
check, or barter.

If performance is higher than expectations, satisfaction is high.

1-13

What is a Market?

1-14

Marketing and Sales Concepts Contrasted

The set of actual

and potential buyers

of a product.

These people share

a need or want that

can be satisfied
through exchange
relationships.

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1-16

Marketing Management Philosophies

Elements of a Modern Marketing

System

Societal
Societal Marketing
Marketing Concept
Concept
Marketing
Marketing Concept
Concept
Selling
Selling Concept
Concept
Product
Product Concept
Concept
Production
Production Concept
Concept
1-17

1-18

The Marketing Mix

Marketing Management
The art and science of choosing target
markets and building profitable
relationships with them.

Product

Questions to ask:
1. What customers will we serve?

Price
Customer
Needs

What is our target market?

Promotion

2. How can we best serve these customers?

Place

What is our value proposition?

1-19

1-20

The 4 Ps of the Marketing Mix

The 4 Ps & 4 Cs of the

Marketing Mix
4 Ps - Sellers View
Product
Price
Place
Promotion

4 Cs - Buyers View
Customer Solution
Customer Cost
Convenience
Communication

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1-22

Customer Relationship Groups

Butterflies

High

Good fit between

companys offerings and
customers needs; high
profit potential

True Friends

Good fit between

companys offerings and
customers needs; highest
profit potential

Profitability

Strangers
Low

Little fit between companys

offerings and customers
needs; lowest profit
potential

The Marketing Environment

Barnacles
Limited fit between
companys offerings and
customers needs; low
profit potential

Short-term
customers

Long-term
customers

Projected loyalty
1-23

Actors in the
Microenvironment

Types of Publics

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1-26

The Companys Macroenvironment

3
Company and Marketing
Strategy: Partnering to Build
Customer Relationships

1-27

Strategic Planning

Steps in Strategic Planning

Strategic Planning is the Process of

Developing and Maintaining a
Strategic Fit Between the
Organizations Goals and
Capabilities and Its Changing
Marketing Opportunities.

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Questions a Mission Statement

Should Answer

1-30

The Mission Statement

A statement of the organizations purpose

What is our Business?

What it wants to accomplish in the larger

environment

Who is the Customer?

Should be market oriented and defined in

terms of customer needs.

What do Consumers Value?

What Should our Business Be?
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1-32

Mission Statements Should:

Designing the Business Portfolio

The business portfolio is the collection of

Be Realistic

businesses and products that make up the

company.
The company must:

Be Specific

analyze its current business portfolio or

Strategic Business Units (SBUs
),
(SBUs),
decide which SBUs should receive more, less,
or no investment,
develop growth strategies for growth or
downsizing.

Fit the Market Environment

Be Based on Distinctive Competencies
Be Motivating
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1-34

Strategic Business Unit (SBU)

Portfolio Analysis

A unit of the company that has a separate

An evaluation of the products and

mission and objectives and that can be

planned independently from other
company businesses.

business making up the company.

Resources are directed to more profitable

businesses and weaker ones are phased
down or dropped.

Can be a company division, a product line

within a division, or sometimes a single
product or brand.

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1-36

Problems With Matrix

Approaches

Analyzing Current SBUs:

BCG Growth-Share Matrix
Relative Market Share
High

Question
Question Marks
Marks

High

Stars
High growth & share
May need heavy
investment to grow
Eventually, growth will slow

Cash
Cash Cows
Cows

Low

Market Growth Rate

Can
Can be
be Difficult,
Difficult, Time
Time Consuming,
Consuming, Costly
Costly to
to Implement
Implement

Low

Difficult
Difficult to
to Define
Define SBUs
SBUs && Measure
Measure Market
Market Share/Growth
Share/Growth

Low
Lowshare
shareSBUs
SBUsininhigh
highgrowth
growth
markets
markets
Require
cash
to
hold
Require cash to hold
market
marketshare
share
Build
Buildinto
intoStars
Starsor
orphase
phaseout
out

Focus
Focus on
on Current
Current Businesses,
Businesses, Not
Not Future
Future Planning
Planning

Dogs
Dogs

Low
Lowgrowth,
growth,high
highshare
share
Established,
Established,successful
successful
SBUs
SBUs
Produce
Producecash
cash

Can
Can Place
Place too
too Much
Much Emphasis
Emphasis on
on Growth
Growth

Low
Lowgrowth
growth&&share
share
Generate
Generatecash
cashto
tosustain
sustainself
self
Do
Donot
notpromise
promiseto
tobe
becash
cash
sources
sources

Can
Can Lead
Lead to
to Poorly
Poorly Planned
Planned Diversification
Diversification
1-37

Product/Market Expansion Grid

PRODUCT

MARKET

Existing
Existing

Market
Penetration

New

Market
Development

1-38

Product/Market Expansion Grid

Based on Starbucks
Market Penetration:
Penetration: make more sales to

New

current customers without changing products.

How? Add new stores in current market areas;
improve advertising, prices, menu, service.

Product
Development

Market Development:
Development: identify and develop
new markets for current products.

How? Review new demographic (seniors/ethnic

consumers) or geographic (Asian, European,
Australian, & South American) markets.

Diversification

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1-40

10

Product/Market Expansion Grid

Based on Starbucks

Marketings
Marketings Role
Role in
in Strategic
Strategic Planning
Planning

Product Development:
Development: offering modified or
new products to current markets.

Provide
Provide aa Guiding
Guiding Philosophy
Philosophy

How? Add food offerings, sell coffee in

supermarkets, coco-brand products.

Diversification:
Diversification: start up or buy businesses

Provide
Provide Inputs
Inputs to
to Strategic
Strategic Planners
Planners

outside current products and markets.

How? Making and selling CDs, testing restaurant

concepts, or branding casual clothing.

Design
Design Strategies
Strategies to
to Reach
Reach Objectives
Objectives
1-41

Managing Marketing Strategy

and Marketing Mix

1-42

Managing the Marketing Effort

1-43

1-44

11

The Marketing Process

It is the process of

1. Analyzing marketing opportunities (market

The Marketing Process

segmentation)

2. Selecting target markets and positioning

3. Developing the marketing mix (tools blended to

Mohamed Dessouky and Amr Safwat

produce the required response in the market)

4. Managing the marketing effort (analysis,

planning, implementation, and control)
1-46

Market Segmentation

Segmenting Business
Markets

Dividing a market into distinct groups of buyers

Demographic:

with different needs, characteristics, or behavior

who might require separate products or
marketing mixes.

Industry, Company size, Location

Operating Variables:

Customer technology, User/nonuser status, Many/few

services

Advantages

Purchasing Approaches:

More efficient marketing toward only consumers that

Quality/Service/Price

Situational Factors:

can be served best

Urgency, Specific applications, Size of order

More effective by fine tuning products and prices

Personal characteristics:

Fewer competition

BuyerBuyer-seller similarity, attitude towards risk

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1-48

12

Market Targeting

Market Positioning

The process of evaluating each market

Product position is defined as the place the

segments attractiveness and selecting one or

more segments to enter.

product occupies in consumers minds relative to

competing products.
Marketers do not want to leave their products
position to chance.
Market positioning is a way for formulating
competitive positioning for a product and a
detailed marketing mix.
Based on specific product attributes, benefits
they offer, usage occasions, class of users,
competition.

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Managing the Marketing Effort

1-51

1-50

1 Analysis

1-52

13

2 Planning

Marketing Plan

Strategic planning involves decisions on what to

1. Executive summary

Summary of main goals and recommendations

Table of contents

be done with each SBU.

Marketing planning involves decisions on

2. Current marketing situation

marketing strategies to attain overall strategic

objectives.

A detailed plan is needed for each business, or

Market description
Product review
Competition
Distribution

3. Threats & opportunity analysis

4. Objectives & issues

product.

1-53

Marketing Plan

1-54

3 Implementation
Turn marketing strategies and plans (what
(what &

5. Marketing strategy

Logic to achieve marketing objectives

Specific for each marketing mix element

6. Actions program

What? When? Who? How much?

7. Budgets

Expected revenues and costs -> Expected profit

Used methods for monitoring

8. Controls

1-55

why?)
why?) into marketing actions (who
(who,, where,
where,
when,
when, & how?)
how?) in order to accomplish strategic
marketing objectives.
doing things right
is as important as
doing the right thing .
Inside communications: Engineering,
Manufacturing, and Finance.
Outside communications: Advertising agencies,
and the media.
1-56

14

4 Control

Measuring and evaluating the results of

marketing strategies and plans, and taking

corrective actions.

Products and Services

Mohamed Dessouky and Amr Safwat

1-57

The Marketing Process

The Marketing Mix

It is the process of

1. Analyzing marketing opportunities (market

segmentation)

2. Selecting target markets and positioning

3. Developing the marketing mix (tools blended to
produce the required response in the market)

4. Managing the marketing effort (analysis,

planning, implementation, and control)
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15

What is a Product

Product Life-Cycle

A product is anything you receive in an

exchange.

Sales and
Profits ($)

Sales

Can be both tangible or intangible.

Profits

Include physical objects, services, places,

Product
Development

ideas, organizations, or mixes of these

entities.

Introduction

Growth

Maturity

Time
Decline

Losses/
Investments ($)

1-61

Levels of a Product

1-62

Product Quality

The ability of a product to perform its functions.

Major positioning tool.
Two dimensions: Level and Consistency.
Includes
Durability
Reliability
Precision
Ease of operation
Ease of repair

1-63

1-64

16

Product Classifications

Consumer Products

Products must be classified to target them to

Products and services bought by final consumers

specific market segments.

for personal consumption

Products are classified to

Consumer Products
Products purchased to satisfy personal

Convenience products
Shopping products
Specialty products

needs.

Unsought products

Organizational Products
Products purchased to be utilized in firms

operations, or to fabricate other products.

Each has a special marketing strategy.

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1-66

Convenience Products

Shopping Products

Purchased frequently and immediately

Low priced
Mass advertising
Many purchase locations

Bought less frequently

Higher price
Fewer purchase locations
Comparison shop

Examples: candy, soda, newspapers

Examples: furniture, clothing, cars, appliances

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1-68

17

Specialty Products

Unsought Products

Special purchase efforts

High price
Unique characteristics
Brand identification
Few purchase locations

New innovations
Products consumers do not want to think
about
Require much advertising and personal
selling
Examples: life insurance, cemetery plots,
blood donation

Examples: Lamborghini, Rolex Watch

1-69

Individual Product Decisions

1-70

Organizational Products
Those purchased for further processing or for use
in conducting business.
Raw materials
Major equipment
Accessory equipment
Component parts
Process materials
Consumable supplies
Organizational services
1-71

1-72

18

Industrial Products

What is a Service?
A form of product that consists of

Materials
Materials and
and Parts
Parts

activities, benefits, or satisfactions offered

for sale that are essentially intangible and
do not result in the ownership of anything.

Raw
Rawmaterials,
materials,manufactured
manufactured
materials,
materials,and
andparts
parts

Capital
Capital Items
Items

Examples: banking, hotel, airline, retail, tax

preparation, home repairs.

Products
Productsthat
thataid
aidinin
buyers
buyersproduction
productionor
oroperations
operations

Supplies
Supplies and
and Services
Services

Operating
Operatingsupplies,
supplies,repair,
repair,
and
andmaintenance
maintenanceitems
items
1-73

Nature and Characteristics of

a Service

The Product-Service Continuum

Sugar

Pure Tangible Good

Restaurant

1-74

College
Education

Pure Service

1-75

1-76

19

Services

Classifications of Services

Pure goods typically do not exist in todays

business

Service
dominant
product

Based on:

Market type (customer or business)

Education

Degree of labor (people or equipment)

Restaurants
Houses

Skill of service provider (qualification required?)

Good
dominant
product

Cars

Health
care

Product

Goal of service provider (profit or nonnon-profit)

Sugar
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1-78

Service Firms

Focus attention on both customers

and employees

ServiceService-profit chain

Promotion and Pricing

Internal service quality

Satisfied and productive service

Mohamed Dessouky and Amr Safwat

employees
Greater service value
Satisfied and loyal customers
Healthy service profits and growth
1-79

20

The Marketing Mix

Promotion
Communicating with individuals, groups,
or organizations to directly or indirectly
facilitate product selling by informing and
persuading.
persuading.

Targeted to the selected market segment.

1-81

The Communication Process

1-82

Sender, Receiver & Message

Sender and receiver must share some common
ground of information.

Effective message to a target audience in mind.

AIDA model:
get Attention,
hold Interest,
arouse Desire, and
1-83

obtain Action.

1-84

21

Promotion Objectives

Transmission Media & Feedback

Varies from

Create awareness of the product

personal channels (face to face, person to audience,

telephone) to

Stimulate consumers demand

nonpersonal ones (newspaper, radio, TV, signs).

Encourage product trial

Select the proper channel to target segment.

The message source must be credible.
After sending the message, the sender must

Seller support
Combat competitive promotional efforts

search its effect on the target audience.

Reduce sales fluctuations

Feedback can be in the form of an increase in

sales, or customers awareness level.

1-85

Advertising Campaign

1-86

The Marketing Mix

1-87

1-88

22

Pricing

Factors Affecting Pricing

Price is the sum of the values that consumers

Internal Factors:
Marketing Objectives

exchange for the benefits of having or using the

Marketing Mix Strategy

product or service.

Costs

Price is the only element in the marketing mix

Organizational Considerations

External Factors

that produces revenue.

The Market and Demand

Most flexible element in the marketing mix since

Competitors Costs, Prices, and Offers

it can be changed quickly.

Environmental Factors
1-89

Marketing Objectives

1-90

Marketing Mix Strategy

Price decisions must be coordinated with

Careful selection of target market and

product design, distribution, and promotion.

positioning, pricing will be straightforward.

Target Costing

Additional objectives

Pricing that starts with an ideal selling price, then

targets costs that will ensure that the price is met.

Survival

Example: Compaqs Prolinea design to price

Current Profit Maximization

Nonprice positions

MarketMarket-share Leadership

Differentiate the marketing offer to make it worth the

higher price.

Product Quality Leadership

Customers seek products with best value!!

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1-92

23

Cost versus Levels of Production

Costs

SRAC

Cost/unit

Set the floor for the price.

LRAC

Lower costs means lower prices that results in

greater sales and profits.

1K

Types

2K

3K

4K

ShortShort-run average cost (SRAC)

Quantity
Produced/day

Decreases, costs spread over more units

Increases, plant become inefficient

Fixed: do not vary with production or sales level (bills

for rent, salaries, )

LongLong-run average cost (LRAC)

Variable: vary directly with the level of production

Decreases, larger plant, more efficient

Increases, less efficient scaling (management)

(raw materials).
1-93

Cost versus Production Experience

Cost/unit

1-94

The Market

Experience curve (learning curve)

Set the upper limit of prices.

Depends on the type of market competition

100K

200K

400K

800K

Accumulated
production

As production increases, the company learns

monopoly)

Consumer Perceptions of Price and Value:

how to do it better.

Market has to be ready for the higher

production.
Get a large market share early in the
products life cycle: low prices, higher sales,
lower costs, further low prices.

(pure competition, monopolistic, oligopolistic,

oligopolistic,

BuyerBuyer-oriented pricing
Understand how much value consumers place on the
benefits they receive.
1-95

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24

The Demand

Pricing Considerations

Each price will lead to a different level of

demand.

Demand Curves
Price

Price
Elastic

Quantity demanded

Price
Non-Elastic

Quantity demanded

Price Elasticity of Demand =

Prestige

Quantity demanded

% Change in Quantity Demanded

% Change in Price
1-97

Pricing Approaches

1-98

Cost-Plus Pricing
Adding a standard markup to the cost of the
product.

CostCost-based Pricing

Example: 20% markup of sales

CostCost-Plus Pricing

Variable cost/unit
10 LE
Fixed cost
300,000 LE
Expected unit sales
50,000 unit

Breakeven Analysis & Target Profit Pricing

ValueValue-based Pricing (Buyer(Buyer-based Pricing)

Unit Cost = Variable Cost +

CompetitionCompetition-based Pricing

= 10 +

GoingGoing-Rate Pricing
SealedSealed-Bid Pricing

Market Price =
1-99

Fixed Costs
Unit Sales

300,000
= 16 LE
50,000

Unit Cost

(1 Desired Return on Sales )

16
= 20 LE
1 0.2
1-100

25

Cost-based: Cost-Plus Pricing

Advantages

Cost-based: Breakeven Analysis and

Target Profit Pricing
Setting price to break even on the costs of making and

Simplify Pricing.

marketing a product.

When all firms use, prices tend to be similar and price

competition is minimized.

Setting price to make a target profit.

Breakeven volume:
volume: It is the sales volume at which the
total revenue is exactly equal to the total cost.

Fairer to both buyers and sellers.

Example: Set price = 20 LE

Disadvantages

Fixed Cost
Price Variable Cost/unit
300,000
=
= 30,000
20 10

Ignores demand and competitor prices.

Breakeven Volume =

Only works if the price actually brings in the expected

level of sales.
1-101

Breakeven Chart
Cost (thousands)

1200
1000

Price = 22
14 LE
16
18
20

1-102

Breakeven Chart: Explanations

As price increases, Breakeven volume drops, but also Demand

Total cost

falls off.

At the 14 LE price, the low price calls for a high volume to

800
600
400

Fixed cost

200

22
10

20

20
30

40

Sales Volume
18 16 14
50
60
70
80 (thousands)

1-103

break even. Even though it attracts many buyers, demand

still falls below the high breakeven point losses.
At the 16 LE price, the breakeven volume decreases. Demand
is higher than breakeven profit.
A higher price (18 LE), lower breakeven and demand.
At the 22 LE price, gives the lowest breakeven (only 25,000
unit). But at this high price, the demand is low losses.
The table shows that the best price is 18 LE.
For larger profits, the company must search for ways to lower
fixed or variable costs, thus lowering the breakeven volume.

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26

Cost-based vs. Value-based

Pricing

Value-based Pricing
Setting price based on buyers perceptions of
value rather than on the sellers cost.

Difficult to measure.
Ask customers.
Experiments.

If the sellers charges more than the perceived

value, sales will suffer.

If the sellers charges less, products sell very

well, but they produce less revenue.
1-105

1-106

Value-based Pricing and

Competition

Competition-based: Going-Rate
Pricing

Price competition:

Setting price based largely on following

Offering a similar product at a lower price,

Natural tendency: try to match or beat price.
Watching customers flock to you is tempting, but .
Successive rounds of price cutting erode profit margins.
Or worse, cheapen product in the minds of customers.
Company focus away from quality, service, prestige, .

ValueValue-added strategies rather than cutting prices:

Price above the competitor.
Convince customers that the product is worth it.
The company differentiates its offer and shifts the focus
from price to value.

competitors prices rather than on company

costs or demand.
In oligopolisti
c competition, firms charge the
oligopolistic
same price.
Smaller firms follow the market leader:
Charge the same, more, or less.
Keep the difference constant.

Popular when demand elasticity is hard to

measure.

Prevent harmful price wars.

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27

Competition-based: Sealed-Bid
Pricing
Setting price based on how the firm thinks

competitors will price rather than on its own

costs or demand.
Expected profit approach:
Used by large firms to maximize profits (long run).
Not used by smaller firms to keep production.

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28