1 Reviewing and Extending the Concepts

Objectives Review and Key Terms

Objectives Review

Today’s successful companies—whether large or small, for-profit or not-for-profit, domestic or global—share a strong customer focus and a heavy commitment to marketing. The goal of marketing is to engage customers and manage profitable customer relationships.

Objective 1-1 Define marketing and outline the steps in the marketing process. (pp 46)

Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. The marketing process involves five steps. The first four steps create value for customers. First, marketers need to understand the marketplace and customer needs and wants. Next, marketers design a customer-driven marketing strategy with the goal of getting, engaging, and growing target customers. In the third step, marketers construct a marketing program that actually delivers superior value. All of these steps form the basis for the fourth step: engaging customers, building profitable customer relationships, and creating customer delight. In the final step, the company reaps the rewards of strong customer relationships by capturing value from customers.

Objective 1-2 Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. (pp 610)

Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants, and demands. This understanding helps them to design want-satisfying market offerings and build value-laden customer relationships by which they can capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm.

The core marketplace concepts are needs, wants, and demands; market offerings (products, services, and experiences); value and satisfaction; exchange and relationships; and markets. Companies address needs, wants, and demands 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.

Objective 1-3 Identify the key elements of a customer value–driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. (pp 1014)

To design a winning marketing strategy, the company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will cultivate (target marketing). Next, the company must decide how it will serve targeted customers (how it will differentiate and position itself in the marketplace).

Marketing management can adopt one of five competing market orientations. The production concept holds that management’s task is to improve production efficiency and bring down prices. The product concept holds that consumers favor products that offer the most in quality, performance, and innovative features; thus, little promotional effort is required. The selling concept holds that consumers will not buy enough of an organization’s products unless it undertakes a large-scale selling and promotion effort. The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do. The societal marketing concept holds that generating customer satisfaction and long-run societal well-being through sustainable marketing strategies is key to both achieving the company’s goals and fulfilling its responsibilities.

Objective 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. (pp 1422)

Broadly defined, customer relationship management is the process of engaging customers and building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. Customer-engagement marketing aims to make a brand a meaningful part of consumers’ conversations and lives through direct and continuous customer involvement in shaping brand conversations, experiences, and community. The aim of customer relationship management and customer engagement 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. In return for creating value for targeted customers, the company captures value from customers in the form of profits and customer equity.

Objective 1-5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships. (pp 2231)

Dramatic changes are occurring in the marketing arena. The digital age has created exciting new ways to learn about and relate to individual customers. As a result, advances in digital and social media have taken the marketing world by storm. Online, mobile, and social media marketing offer exciting new opportunities to target customers more selectively and engage them more deeply. The key is to blend the new digital approaches with traditional marketing to create a smoothly integrated marketing strategy and mix.

The Great Recession caused consumers to rethink their buying priorities and bring their consumption back in line with their incomes. Even as the post-recession economy has strengthened, Americans are now showing an enthusiasm for frugality not seen in decades. The challenge is to balance a brand’s value proposition with current times while also enhancing its long-term equity.

In recent years, marketing has become a major part of the strategies for many not-for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, foundations, and even churches. Also, in an increasingly smaller world, many marketers are now connected globally with their customers, marketing partners, and competitors. Finally, today’s marketers are also reexamining their ethical and societal responsibilities. Marketers are being called on to take greater responsibility for the social and environmental impacts of their actions.

Pulling it all together, as discussed throughout the chapter, the major new developments in marketing can be summed up in a single concept: engaging customers and creating and capturing customer value. Today, marketers of all kinds are taking advantage of new opportunities for building value-laden relationships with their customers, their marketing partners, and the world around them.

Key Terms

Objective 1-1

Objective 1-2

Objective 1-3

Objective 1-4

Objective 1-5

Discussion and Critical Thinking

MyMarketingLab

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Discussion Questions

  1. A blue star icon. 1-1 Define marketing and outline the steps in the marketing process. (AACSB: Communication)

  2. 1-2 What is a market offering? Give a recent example of a market offering that has satisfied your need or want. (AASCB: Communication; Reflective Thinking)

  3. A blue star icon. 1-3 Describe the key elements of a customer-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. (AACSB: Communication; Reflective Thinking)

  4. 1-4 Discuss the concept of customer satisfaction. How do customer relationship management and customer-perceived value affect customer satisfaction? (AACSB: Communication; Reflective Thinking)

  5. A blue star icon. 1-5 Explain the growing importance of digital and social media marketing. (AACSB: Communication; Reflective Thinking)

Critical Thinking Exercises

  1. 1-6 Select a publicly traded company and research how much was spent on marketing activities in the most recent year of available data. What percentage of sales do marketing expenditures represent for the company? Have these expenditures increased or decreased over the past five years? Write a brief report of your findings. (AACSB Communication; Analytic Reasoning)

  2. A blue star icon. 1-7 Visit the Tide website at tide.com/en-us. Scroll to the bottom of the page and notice how Tide is currently connecting with customers on social media platforms including Facebook, Twitter, Pinterest, Google+, and YouTube. Click on one or more of the platforms to view ways in which Tide is building and maintaining customer linkages while illustrating value and providing information behind the brand. Evaluate Tide’s effectiveness in creating customer engagement through its web and social media sites. (AACSB: Communication, Use of IT, Reflective Thinking)

  3. 1-8 Search the internet for salary information regarding jobs in the marketing industry using www.glassdoor.com, www.payscale.com, or a similar website. Choose five different jobs in marketing. For each position, review the national average salaries and compare them to the salaries in your local area. Discuss your findings. (AACSB: Communication; Use of IT; Reflective Thinking)

Applications and Cases

Online, Mobile, and Social Media Marketing The ALS Ice Bucket Challenge

In the summer of 2014, people with connections to ALS (Lou Gehrig’s disease) raised awareness of the condition by urging people to post videos of themselves dumping buckets of ice water over their heads and challenge others to do the same. The efforts raised millions of dollars in online donations to the ALS Association for enhanced research and patient services. This real-time marketing campaign generated 17 million videos uploaded to social media platforms from 159 countries. Celebrities posting videos included Will Smith, Bill Gates, Oprah Winfrey, and Mark Zuckerberg. The Ice Bucket Challenge generated 70 billion video views while raising $220 million. The best part? Zero dollars were spent to promote the Ice Bucket Challenge, yet 440 million people saw it. The ALS Association has now turned the wildly successful challenge into an annual social media campaign, bringing back the original Ice Bucket Challenge #EveryAugustUntilACure. For more information, visit www.alsa.org/fight-als/ice-bucket-challenge.

  1. 1-9 Real-time marketing is a shift for traditional marketers who can now digitally link brands to important moments in customers’ lives. Explain how real-time marketing was used in the Ice Bucket Challenge. Why was this campaign successful? (AACSB: Communication; Reflective Thinking)

  2. 1-10 Create a real-time marketing campaign for a product or service of your choice to create customer engagement using online, mobile, and social media. How would you measure the success of your campaign? (AACSB: Communication; Reflective Thinking)

Marketing Ethics Is Big Brother Watching?

Retailers commonly track customers’ shopping patterns and target them with special offers. For example, CVS has an Extracare card that, when swiped at checkout, applies discounts to purchases and provides rebates called Extra Bucks to be used as cash on future purchases. Behind the scenes, CVS is gathering data on customers’ purchases and using aggregated data to target individuals with special offers. Customers who haven’t recently shopped may receive a discount in the mail or an online offer to incentivize them to return. Frequent shoppers can scan their Extracare cards to get discounts and offers in the store.

  1. 1-11 Is it right for marketers to track consumer purchases? Should consumers be concerned with what information is being used? (AACSB: Communication; Ethical Reasoning; Reflective Thinking)

  2. 1-12 Discuss other examples of marketers using data collection to sell products. Is this ethical? (AACSB: Communication; Ethical Reasoning)

Marketing by the Numbers What’s a Customer Worth?

How much are you worth to a given company if you continue to purchase its brand for the rest of your life? Many marketers are grappling with that question, but it’s not easy to determine how much a customer is worth to a company over his or her lifetime. Calculating customer lifetime value can be very complicated. Intuitively, however, it can be a fairly simple net present value calculation, which incorporates the concept of the time value of money. To determine a basic customer lifetime value, each stream of profit (C, the net cash flow after costs are subtracted) is discounted back to its present value (PV) and then summed. The basic equation for calculating net present value (NPV) is:

NPV=t=0NCt(1+r)t

Where,

t: time of the cash flow

N: total customer lifetime

r: discount rate

Ct: net cash flow (the profit) at time t (The initial cost of acquiring a customer would be a negative net cash flow at time 0.)

NPV can be calculated easily on most financial calculators or by using one of the calculators available on the internet, such as the one found at www.investopedia.com/calculator/NetPresentValue.aspx.

  1. 1-13 Assume that a customer shops at a local grocery store, spending an average of $200 a week and resulting in a retailer profit of $10 each week from this customer. Assuming the shopper visits the store all 52 weeks of the year, calculate the customer lifetime value if this shopper remains loyal over a 10-year life span. Also assume a 5 percent annual interest rate and no initial cost to acquire the customer. (AACSB Communication; Analytic Reasoning)

  2. 1-14 Describe ways marketers can increase the lifetime value of a customer. (AACSB Communication; Reflective Thinking)

Video Case Eskimo Joe’s

Since 1975, Eskimo Joe’s has been a popular watering hole in Stillwater, Oklahoma. Through word of mouth and a popular logo spread via T-shirts, it rapidly became a favorite place to grab a beer for students at Oklahoma State. But what started as a basic beer joint has grown into something much more.

When the drinking age changed from 18 to 21 in the 1980s, Eskimo Joe’s had to decide how it would move forward. That challenge helped the company to recognize that its product is much more than just a cold mug of beer. Instead, people flocked to Eskimo Joe’s for the fun atmosphere and customer-friendly service. This realization led to an expansion into different businesses that have now spread the Eskimo Joe’s logo all over the planet.

After viewing the video featuring Eskimo Joe’s, answer the following questions:

  1. 1-15 Describe Eskimo Joe’s market offering.

  2. 1-16 What is Eskimo Joe’s value proposition? How does its value proposition relate to its market offering?

  3. 1-17 How does Eskimo Joe’s build long-term customer relationships?

Company Case Chick-Fil-A: Getting Better before Getting Bigger

Chick-fil-A is dominating the U.S. fast-food market. Whereas McDonald’s, Subway, Burger King, and Taco Bell trudge along at the top of the heap, Chick-fil-A has quietly risen from a Southeast regional favorite to become the largest chicken chain and the eighth-largest quick-service food purveyor in the country. The chain sells significantly more food per restaurant than any of its competitors—twice that of Taco Bell or Wendy’s and more than three times what the KFC Colonel fries up. And it does this without even opening its doors on Sundays. With annual revenues of more than $6 billion and annual average growth of 12.7 percent, the chicken champ from Atlanta shows no signs of slowing down.

How does Chick-fil-A do it? By focusing on customers. Since the first Chick-fil-A restaurant opened for business in the late 1960s, the chain’s founders have held tenaciously to the philosophy that the most sustainable way to do business is to provide the best possible experience for customers.

Applying Some Pressure

Chick-fil-A founder S. Truett Cathy was no stranger to the restaurant business. Owning and operating restaurants in Georgia in the 1940s, ’50s, and ’60s, his experience led him to investigate a better (and faster) way to cook chicken. He discovered a pressure fryer that could cook a chicken breast in the same amount of time it took to cook a fast-food burger. Developing the chicken sandwich as a burger alternative, he registered the name “Chick-fil-A, Inc.” and opened the first Chick-fil-A restaurant in 1967.

The company began expanding immediately, although at a substantially slower pace than the market leaders. Even today, Chick-fil-A adds only about 100 new stores each year. Although it now has more than 2,000 stores throughout the United States, that number is relatively small compared to KFC’s 4,100, McDonald’s 13,000, and Subway’s 27,000. Chick-fil-A’s controlled level of growth ties directly to its “customer first” mantra. As a family-owned operation, the company has never deviated from its core value to “focus on getting better before getting bigger.” The slow-growth strategy has facilitated that ability to “get better.”

As another way to perfect its business, the company has also stuck to a limited menu. The original breaded chicken sandwich remains at the core of Chick-fil-A’s menu today—“a boneless breast of chicken seasoned to perfection, hand-breaded, pressure cooked in 100% refined peanut oil and served on a toasted, buttered bun with dill pickle chips.” In fact, the company’s trademarked slogan—“We didn’t invent the chicken, just the chicken sandwich”—has kept the company on track for decades. Although it has carefully and strategically added other items to the menu, it’s the iconic chicken sandwich in all its varieties that primarily drives the brand’s image and the company’s revenues. This focus has helped the company give customers what they want year after year without being tempted to develop a new flavor of the month.

Getting It Right

Also central to Chick-fil-A’s mission is to “have a positive influence on all who come in contact with Chick-fil-A.” Although seemingly a tall order to fill, this sentiment permeates every aspect of its business. Not long ago, current Chick-fil-A CEO Dan Cathy was deeply affected by a note that his wife taped to their refrigerator. In a recent visit to a local Chick-fil-A store, she had not only received the wrong order, she had been overcharged. She circled the amount on her receipt, wrote “I’ll be back when you get it right” next to it, and posted it on the fridge for her husband to see.

That note prompted Dan Cathy to double-down on customer service. He initiated a program by which all Chick-fil-A employees were retrained to go the “second mile” in providing service to everyone. That “second mile” meant not only meeting basic standards of cleanliness and politeness but going above and beyond by delivering each order to the customer’s table with unexpected touches such as a fresh-cut flower or ground pepper for salads.

The experience of a recent patron illustrates the level of service Chick-fil-A’s customers have come to expect as well as the innovative spirit that makes such service possible:

My daughter and I stopped at Chick-fil-A on our way home. The parking lot was full, the drive-thru was packed . . . but the love we have for the chicken sandwiches and waffle potato fries! So we decided it was worth the wait. As we walked up the sidewalk, there were two staff members greeting every car in the drive-thru and taking orders on little tablets. A manager was making his rounds around the building outside smiling and waving at cars as they were leaving.

When we came inside, the place was packed! We were greeted immediately by the cashiers. Seth happened to take our order. He had a big smile, wonderful manners, spoke clearly and had great energy as a teenager! He gave us a number and said he’d be right out with our drinks. We were able to sit at a table as the other guests were leaving and before we could even get settled our drinks were on the table! While Seth started to walk away, our food was delivered by another very friendly person. Both myself and my 15-year-old daughter commented on how fast it all happened. We were so shocked that we started commenting on the large groups arriving behind us, and began watching in amazement, not only inside but outside!

Everyone behind the counter worked together, used manners, and smiled. The teamwork was amazing! Then Ron, a gray headed friendly man, made his way from table to table, checking on guests, giving refills, and trading coloring books for small ice cream cones with sprinkles for little kids. He checked on us twice and filled our drinks once.

Recently, the company instituted the “parent’s valet service,” inviting parents juggling small children to go through the drive-through, place their order, park, and make their way inside the store. By the time the family gets inside, its meal is waiting on placemats at a table with high chairs in place. But beyond the tactics that are taught as a matter of standard policy, Chick-fil-A also trains employees to look for special ways to serve—such as retrieving dental appliances from dumpsters or delivering smartphones and wallets that customers have left behind.

Give Them Something to Do

Beyond high levels of in-store service, Chick-fil-A has focused on other brand-building elements that enhance the customer experience. The brand got a big boost when the Chick-fil-A cows made their promotional debut as three-dimensional characters on billboards with the now famous slogan, “EAT MORE CHIKIN.” The beloved bovines and their self-preservation message have been a constant across all Chick-fil-A promotional materials for the past 20 years. They’ve also been the linchpin for another Chick-fil-A customer experience–enhancing strategy—engage customers by giving them something to do.

Displaying any of the cow-themed mugs, T-shirts, stuffed animals, refrigerator magnets, laptop cases, and dozens of other items the company sells on its website certainly qualifies as “something to do.” But Chick-fil-A marketers go far beyond promotional items to engage customers. For starters, there’s “Cow Appreciation Day”—a day set aside every July when customers who go to any Chick-fil-A store dressed as a cow get a free meal. Last year, the 10th anniversary of this annual event, about a million cow-clad customers cashed in on the offer.

Another tradition for brand loyalists is to camp out prior to the opening of a new restaurant. Chick-fil-A encourages this ardent activity with its “First 100” promotion—an officially sanctioned event in which the company present the first 100 people in line for each new restaurant opening vouchers for a full year’s worth of Chick-fil-A meals. Dan Cathy himself has been known to camp out with customers, signing T-shirts, posing for pictures, and personally handing coupons to the winners. And whereas some customer-centric giveaways are regular events, others pop up randomly. Take the most recent “family challenge,” which awards a free ice cream cone to any dine-in customers who relinquish their smartphones to a “cell phone coop” for the duration of their meals.

To keep customers engaged when they aren’t in the stores, Chick-fil-A has become an expert in social and digital media. Its newest app, Chick-fil-A One, jumped to the number-one spot on iTunes only hours after being announced. Nine days later, more than a million customers had downloaded the app, giving them the ability to place and customize their orders, pay in advance, and skip the lines at the register. And in a recent survey by social media tracker Engagement Labs, Chick-fil-A was ranked number one and crowned the favorite American brand on all major social media platforms, including Facebook, Twitter, and Instagram.

Every year, as the accolades roll in, it is apparent that Chick-fil-A’s customer-centric culture is more than just talk. Among the many competitors, Chick-fil-A was rated number one in customer service in the most recent Consumer Reports survey of fast-food chains. In the latest annual Customer Service Hall of Fame survey, Chick-fil-A ranked second out of 151 of the best-known companies across 15 industries, trailing only Amazon. A whopping 47 percent of customers rated the company’s service as “excellent,” and Chick-fil-A was the only fast-food chain to make the list for the second year in a row.

After decades of phenomenal growth and success, Chick-fil-A is celebrating by firing the Richards Group, its long-standing agency of record. Additionally, the beloved cows that are so widely recognized as symbols of the brand will ease into the background of promotional materials. “The cows are an integral part of the brand. They’re our mascot, if you will,” says Jon Bridges, chief marketing officer for Chick-fil-A. “But they aren’t the brand. The brand is bigger than that.” For now, Bridges only says that the cows won’t disappear. But a new “Cow-plus” is in the works, and the brand’s promotional messages will expand beyond the bovines to tell engaging stories about the food, people, and service that make the brand so special. It’s a risky move. With Chick-fil-A growing faster than any other major fast-food chain, it begs the question as to whether such a drastic change in the brand’s symbolism will sustain its current growth for years to come, or send some customers out to pasture.

Prior to this recent announcement, one estimate has Chick-fil-A on track to add between $6 billion and $9 billion in revenues within the next decade. In that same period, giant McDonald’s may add as much as $10 billion in U.S. sales but as little as only $1 billion. Clearly, all this growth is not an accident. As one food industry analyst states, “It’s about trying to maintain high levels of service, high quality, not deviating dramatically, and giving customers an idea of what to expect.” As long as Chick-fil-A continues to make customers the number-one priority, we can expect to find more and more access to those scrumptious chicken sandwiches.

Questions for Discussion

  1. 1-18 Give examples of needs, wants, and demands of Chick-fil-A customers, differentiating these three concepts.

  2. 1-19 Describe Chick-fil-A in terms of the value it provides customers. How does Chick-fil-A engage customers?

  3. 1-20 Evaluate Chick-fil-A’s performance relative to customer expectations.

  4. 1-21 Which of the five marketing management orientations best applies to Chick-fil-A?

  5. 1-22 Can Chick-fil-A continue to provide exceptional customer service and sustain the level of growth it now enjoys? Why or why not?

Sources: Jessica Wohl, “Chick-fil-A Drops The Richards Group After 22 Years,” Advertising Age, July 21, 2016, www.adage.com/print/305057; Micah Solomon, “Chick-fil-A Becomes a Customer Experience Thought Leader by Asking Families to Ditch Cell Phones,” Forbes, March 3, 2016, www.forbes.com/sites/micahsolomon/2016/03/03/chik-fil-a­-rewards-families-for-ditching-cellphones-the-genius-customer-experience-move-of-2016/#4e1830e65858; Micah Solomon, “The Chick-fil-A Way of Customer Service and Employee Engagement,” Forbes, June 14, 2016, www.forbes.com/sites/micahsolomon/2016/06/14/the-chick-fil-a-way-of-customer-service-and-employee-engagement/#8587848660eb; Hayley Peterson, “How Chick-fil-A’s Restaurants Sell Three Times as Much as KFC,” Time, August 5, 2015, www.businessinsider.com/how-chick-fil-a-is-dominating-fast-food-2015-8; Michael B. Sauter, “2015’s Customer Service Hall of Fame,” USA Today, August 2, 2015, www.­usatoday.com/story/money/business/2015/07/24/24-7-wall-st-customer-service-hall-fame/30599943/; “Chick-fil-A One Surges to No. 1 Slot in iTunes App Store,” QSR, June 10, 2016, www.qsrmagazine.com/news/chick-fil-one-surges-no-1-slot-itunes-app-store; “Chick-fil-A Beats Amazon, Netflix in Social Media,” QSR, January 12, 2016, www.qsrmagazine.com/news/chick-fil-beats-amazon-netflix-social-media; and www.chick-fil-a.com/Company/Highlights-Fact-Sheets and www.chick-fil-a.com/Story, accessed June 2016.

MyMarketingLab

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

  1. 1-23 When implementing customer relationship management, why might a business desire fewer customers over more customers? Shouldn’t the focus of marketing be to acquire as many customers as possible?

  2. 1-24 Compare and contrast needs, wants, and demands. Which one(s) can marketers influence?

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