Principles of Marketing

Creating and capturing customer value

Chapter 1
 Learning outcomes
After studying this chapter, students should be able to:
• 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 customer-driven
marketing strategy and discuss the marketing
management orientations that guide this strategy
• Discuss customer relationship management and
identify strategies for creating and capturing value
• Describe the trends and forces that are changing the
marketing landscape in this new age of relationships.

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 Key topics

1. What is marketing?
2. Understanding the marketplace and customer needs
3. Designing a customer-driven marketing strategy
4. Preparing an integrated marketing programme
5. Building customer relationships
6. Capturing value from customers
7. The new marketing landscape
8. Marketing – pulling it all together

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 What is marketing?

Marketing: The process by which firms create value for

customers and build strong customer relationships to
capture value from customers in return.

The marketing process is a five-step process:

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 Understanding the marketplace
and customer needs
The basic concept underlying marketing is that of
human needs:
• Needs – states of felt deprivation
• Wants – needs shaped by culture and personality
• Demands – wants backed by buying power

Needs and wants are fulfilled through a market offering –

the combination of products (for example, a Cadbury’s
chocolate), services (for example, from a mechanic),
information (for example, a first aid booklet) or experiences
(for example, a hot air balloon ride) offered to satisfy a need
or want.
Marketing myopia: The mistake made by marketers
by focusing more on the product than the benefits and
experiences produced by the product.
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 Understanding the marketplace
and customer needs
How do customers choose what to buy?
• Customers make choices based on their expectations of
value and satisfaction.
• Marketers must therefore be careful to set expectations
at the right level.

What happens when they buy?

• Customers respond positively to an offering by buying
what they desire (called an exchange).
• By focusing on building and maintaining relationships,
marketers may develop desirable exchange
relationships.

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 Understanding the marketplace
and customer needs
Market: The set of all potential buyers and sellers of
a product or service.

Marketing is about managing markets to bring about

profitable customer relationships:
• Sellers (for example companies) must search for
buyers, identify their needs, create an attractive
offering, promote it, store it and deliver it.
• Buyers also conduct marketing when they search for
what they want to buy. For example, if you want to buy
a new car, you may read reviews in car magazines, visit
different dealerships and test drive different cars.

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 Understanding the marketplace
and customer needs
A firm’s success at building profitable relationships depends on
how well the entire marketing system serves the needs of final
consumers.
The modern marketing system:
Example:
Suppliers of Ouma Rusks
dairy (milk and
butter), spices
The
(cinnamon),
consumer
packaging
who buys
(cardboard and
the rusks
plastic) etc.

Grocery stores like

In-store bakeries
Spar, Pick n Pay or
and home
Checkers that sell
industries
the rusks

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 Designing a customer-driven
market strategy
Marketing management: The art and science of
choosing target markets and building profitable
relationships with them.
Questions the marketing manager must ask:
Question What to consider
• Divide the market into segments (market
1. What customers
segmentation), for example students, single
will we serve?
professionals and families with children.
(What’s our target
• Then select which segments to go after (target
market?)
marketing), for example single professionals.
2. How can we Decide how we will differentiate and position
serve these ourselves in the marketplace. What set of benefits and
customers? (What’s values can we offer to satisfy customers’ needs? For
our value example, a deli can offer single professionals ‘quick and
proposition?) easy healthy meals for busy people’.

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 Designing a customer-driven
market strategy
Questions the marketing manager must ask:

Question What to consider

• Production concept: Consumers favour accessible,
highly affordable products.
• Product concept: Consumers favour products that
offer quality, performance and innovation.
• Selling concept: Consumers will only buy when
3. What philosophy
there’s large-scale selling and promotion.
should guide the
• Marketing concept: Firms should deliver on the
marketing strategy?
needs and wants of target markets better than
competitors.
• Societal marketing concept: A firm should make
marketing decisions by balancing business profits,
consumer wants and society’s interests.

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 Preparing an integrated marketing
programme
What is the purpose of the marketing programme?
To build customer relationships by transforming the marketing
strategy into action

What does the programme consist of?

The firm’s marketing mix (the four Ps):
• Product – a product that will satisfy a customer need
• Price – how much to charge for the offer
• Place – how the offer will be made available
• Promotion – how to communicate with customers and
persuade them of the merits of the product.

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 Building customer relationships

Customer relationship management (CRM): The

overall process of building and maintaining profitable
customer relationships by delivering superior customer
value and satisfaction.

To build lasting relationships, marketers must create:

• Superior customer value – customers will buy from
the firm that offers the highest customer perceived
value.
• Superior customer satisfaction – this is the extent
to which the perceived performance of a product
matches the customer’s satisfaction.

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 Building customer relationships

Firms must take into account the changing nature of

customer relationships:
• Relate with more carefully selected customers
• Relate for the long term
• Relate directly.
For example, FNB is the leader in convenient, digital banking.
Also, firms need partners (internal and external) to build
customer relationships:

Partner relationship management: Working with

partners to jointly bring greater value to customers.

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 Capturing value from customers
The outcomes of creating customer value:
• Customer loyalty and retention – delighted
customers remain loyal and talk favourably about the
firm and its products.
• Growing share of customer – this is an increase in
the portion of a customer’s purchasing in the firm’s
product categories.
• Customer equity – this is the combined discounted
customer lifetime values of all the firm’s current and
potential customers; the more loyal the firm’s profitable
customers, the higher the customer equity.

Strangers Butterflies True friends Barnacles

Low profitability Profitable but Profitable and Highly loyal but
and little loyalty not loyal loyal not profitable

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 The new marketing landscape

Features of the current marketing landscape:

• The new digital age and the technology boom
o It creates new ways to learn about and track
customers.
o It helps firms to distribute products more efficiently
and effectively.
o It enables new ways to communicate and advertise.
o It creates a connected marketing ‘space’.
• Rapid globalisation
o Firms are connected globally with their customers and
partners.
o Marketing managers must therefore take a global, not
just a local view of the industry, competitors and
opportunities.

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 The new marketing landscape

Features of the current marketing landscape:

• A call for more ethics and social responsibility
o Marketers must take greater responsibility for the social
and environmental impact of their actions.
o Firms that practise ‘caring capitalism’ set themselves
apart by building social responsibility and action into the
value of their business and mission statements.
• Growth of not-for-profit marketing
o Not-for-profit organisations, for example the Organ
Donor Foundation or the SPCA, use sound marketing to
attract membership, support and donors.

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 Marketing – pulling it all together

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