How Do Marketers Create Value For A Product Or Service?
Learning Outcomes
- Ascertain the term marketing
- Explain the marketing concept
- Identify and describe an organization's value proposition
- Explicate the importance of managing the customer relationship
- Explain the factors that influence customer decisions
- Explain the consumer buying process
What Is Marketing?
Marketing is a ready of activities related to creating, communicating, delivering, and exchanging offerings that take value for others. In business, the function of marketing is to bring value to customers, whom the business seeks to identify, satisfy, and retain. This chapter will emphasize the role of marketing in business, but many of the concepts volition apply to not-turn a profit organizations, advocacy campaigns, and other activities aimed at influencing perceptions and behavior.
The Fine art of the Exchange
In marketing, the act of obtaining a desired object from someone by offer something of value in return is called the commutation process. The exchange involves:
- the customer (or buyer): a person or organisation with a want or demand who is willing to give money or another personal resource to accost this need
- the product: a physical skilful, a service, experience or thought designed to make full the client'south want or need
- the provider (or seller): the company or organization offering a demand-satisfying thing, which may be a product, service, experience or idea
- the transaction: the terms effectually which both parties concur to merchandise value-for-value (well-nigh ofttimes, money for product)
Individuals on both sides of the exchange try to maximize rewards and minimize costs in transactions, in guild to gain the most profitable outcomes. Ideally, everyone achieves a satisfactory level of reward.
Marketing creates a parcel of goods and services that the company offers at a price to its customers. The bundle consists of a tangible good, an intangible service or do good, and the price of the offering. When yous compare 1 car to another, for example, you tin evaluate each of these dimensions—the tangible, the intangible, and the price—separately. However, you tin't buy one manufacturer's auto, another manufacturer's service, and a third manufacturer'southward price when you lot really make a choice. Together, the iii make up a single firm's offer or bundle.
Marketing is too responsible for the entire surroundings in which this exchange of value takes identify.
- Marketing identifies customers, their needs, and how much value they place on getting those needs addressed.
- Marketing informs the pattern of the production to ensure information technology meets customer needs and provides value proportional to what it costs.
- Marketing is responsible for communicating with customers virtually products, explaining who is offering them and why they are desirable.
- Marketing is also responsible for listening to customers and communicating back to the provider about how well they are satisfying customer needs and opportunities for improvement.
- Marketing shapes the location and terms of the transaction, as well as the experience customers take after the product is delivered.
Marketing Creates Value for Customers
According to the influential economist and Harvard Business School professor Theodore Levitt, the purpose of all concern is to "find and go along customers." Marketing is instrumental in helping businesses achieve this purpose and is much more than than just advertisement and selling products and collecting money. Marketing generates value by creating the connections betwixt people and products, customers and companies.
How does this happen? Boiled down to its essence, the function of marketing is to identify, satisfy, and retain customers.
Before y'all can create anything of value, outset you must identify a want or need that you lot can address, as well as the prospective customers who possess this want or demand.
Side by side, you work to satisfy these customers by delivering a product or service that addresses these needs at the time customers want information technology. Key to client satisfaction is making certain everyone feels they do good from the commutation. Your customer is happy with the value they get for what they pay. You are happy with the payment you receive in exchange for what you provide.
Constructive marketing doesn't end there. It also needs to retain customers by creating new opportunities to win customer loyalty and business.
Every bit you will learn in this chapter, marketing encompasses a variety of activities focused on accomplishing these objectives. How companies arroyo and deport twenty-four hours-to-solar day marketing activities varies widely. For many big, highly visible companies, such as Disney-ABC, Proctor & Chance, Sony, and Toyota, marketing represents a major expenditure. Such companies rely on effective marketing for business organisation success, and this dependence is reflected in their organizational strategies, budget, and operations. Conversely, for other organizations, peculiarly those in highly regulated or less competitive industries such as utilities, social services, medical care, or businesses providing 1-of-a-kind products, marketing may be much less visible. It could even exist equally simple every bit a Web site or an informational brochure.
There is no ane model that guarantees marketing success. Effective marketing may exist very expensive, or it may cost adjacent to nothing. What marketing must practice in all cases is to help the organization identify, satisfy, and retain customers. Regardless of size or complexity, a marketing program is worth the costs simply if it facilitates the organization's ability to reach its goals.
How Companies Approach Marketing
When companies develop a marketing strategy, they brand decisions about the direction that the company and their marketing efforts will take. Companies can focus on the customer, product, sales, or production. As the business environs has changed over time, so has the way that companies focus their marketing efforts.
The Marketing Concept
An system adopts the marketing concept when it takes steps to know as much most the consumer equally possible, coupled with a decision to base marketing, production, and even strategy decisions on this information. These organizations start with the customers' needs and work astern from at that place to create value, rather than starting with some other factor similar product capacity or an innovative invention. They operate on the assumption that success depends on doing better than competitors at understanding, creating, delivering, and communicating value to their target customers.
The Production Concept
Both historically and currently, many businesses do not follow the marketing concept. For many years, companies such equally Texas Instruments and Otis Lift have followed a product orientation, in which the primary organizational focus is technology and innovation. All parts of these organizations invest heavily in building and showcasing impressive features and product advances, which are the areas in which these companies adopt to compete. This approach is also known equally the production concept. Rather than focusing on a deep understanding of customer needs, these companies assume that a technically superior or less expensive product will sell itself. While this approach can be very profitable, there is a high adventure of losing touch with what customers actually desire. This leaves production-oriented companies vulnerable to more client-oriented competitors.
The Sales Concept
Other companies follow a sales orientation. These businesses emphasize the sales process and try to make it as constructive as possible. While companies in whatsoever manufacture may prefer the sales concept, multilevel-marketing companies such equally Herbalife and Amway generally fall into this category. Many business-to-business companies with defended sales teams as well fit this contour. These organizations assume that a good salesperson with the correct tools and incentives is capable of selling about annihilation. Sales and marketing techniques include aggressive sales methods, promotions, and other activities that back up the sale. Frequently, this focus on the selling process may ignore the customer or view the client as someone to be manipulated. These companies sell what they make, which isn't necessarily what customers want.
The Product Concept
Ford assembly line, 1913, Highland Park, Michigan
The product concept is followed by organizations that are striving for low-production costs, highly efficient processes, and mass distribution (which enables them to deliver low-cost goods at the best price). This approach came into popularity during the Industrial Revolution of the late 1800s, when businesses were commencement to exploit opportunities associated with automation and mass production. Production-oriented companies presume that customers care most virtually depression-cost products being readily available and less nigh specific product features. Henry Ford's success with the groundbreaking assembly-line–congenital Model T is a archetype example of the production concept in activeness. Today this approach is still widely successful in developing countries seeking economic gains in the manufacturing sector.
Seeing the Whole Picture
Savvy businesses acknowledge the importance of product features, product, and sales, merely they likewise realize that in today's concern environs a marketing orientation volition atomic number 82 to the greatest success when businesses continuously collect information nearly customers' needs and competitors' capabilities; share the information across departments; and use the information to create a competitive advantage by increasing value for customers.
What Is Value?
Marketing exists to help organizations understand, reach, and deliver value to their customers. In it's simplest form, value is the measure of the benefit gained from a product or service relative to the full price of the item. In the process of the marketing exchange, value must exist created.
Value = benefit – cost
Permit's expect at a unproblematic example: If you and I make up one's mind to give each other a $5 nib at the same moment, is value created? I paw my $5 neb to you, and you hand yours to me. It is difficult to say that either of us receives a benefit greater than the $5 beak nosotros just received. There is no value in the substitution.
Now, imagine that yous are passing by a machine that dispenses autobus tickets. The machine is malfunctioning and will only accept $i bills. The motorbus is about to arrive and a man in front of the auto asks if you would be willing to give him four $1 bills in substitution for a $5 bill. You could, of course, decide to brand change for him (and give him 5 $1 bills), making this an "fifty-fifty substitution." Just let's say you concord to his proposal of exchanging four $1 bills for a $5. In that moment a $i bill is worth $1.25 to him. How does that make sense in the value equation? From his perspective, the ability to use the jitney ticket dispenserin that moment adds value in the transaction.
Value is not but a question of the financial costs and financial benefits. Information technology includes perceptions of do good that are different for every person. The marketer has to understand what is of greatest value to the target client, and then use that information to develop a total offering that creates value.
Value Is More than Than Price
You volition notice that we did not express value as value = do good – cost. Price plays an of import part in defining value, merely it'due south not the only consideration. Let'southward wait at a few typical examples:
- Ii products have exactly the same ingredients, just a customer selects the higher-priced product because of the name brand
For the marketer, this means that the make is adding value in the transaction.
- A customer shopping online selects a product but abandons the guild before paying because there are also many steps in the purchase process
The inconvenience of filling in many forms, or concerns almost providing personal information, can add cost(which will subtract from the value the client perceives).
- An private who is interested in a political cause commits to attending a meeting, merely cancels when he realizes that he doesn't know anyone attention and that the coming together is on the other side of town.
For this person, the benefit of attention and participating is lower considering of costs related to personal connection and convenience.
As you saw in these examples, the process of determining the value of an offering and then adjustment information technology with the wants and needs of a target customer is challenging. As you continue through this section, think almost what you value and how that impacts the buying decisions you make every day.
Value in a Competitive Marketplace
Equally if understanding individual perceptions of value weren't difficult plenty, the presence of competitors further complicates perceptions of value. Customers instinctively make choices between competitive offerings based on perceived value.
Imagine that you lot are traveling to Seattle, Washington, with a group of vi friends for a school outcome. You have the option to stay at a Marriott Courtyard Hotel that is located side by side to the issue venue for $95 per night. If yous pay the "boosted person fee," you could share the room with 1 friend for a toll of $50 per night. However, i of your friends finds an AirBnB listing for an entire apartment that sleeps half dozen people. Cost: $280 per night. That takes the price downwardly to $xl per night, but the apartment is 5 miles away from the venue and, since at that place are seven of you, you would likely be sleeping on a couch or fighting for a bed. It has a more personal feel and a kitchen, merely you lot will really be staying in someone else's place with your friends. It'south an interesting dilemma. Regardless of which option you would actually choose, consider the differences in the value of each and how the presence of both options generates unavoidable comparisons: the introduction of the AirBnb alternative has the effect of highlighting new shortcomings and benefits of the Marriott Courtyard hotel room.
Competition, Substitutes and Differentiation
Alternatives by and large fall into two categories: competitors and substitutes. A competitor is providing the aforementioned offering simply is accentuating different features and benefits. If, say, you are evaluating a Marriott Courtyard hotel room vs. a Hilton Hampton Inn hotel room, then you are looking atcompetitive offerings. Both offerings are hotel rooms provided by dissimilar companies. The service includes different features, and the price and location vary, the sum of which creates dissimilar perceptions of value for customers.
AirBnb is a service that allows individuals to rent out their homes, apartments, or a single room. AirBnb does not offer hotel rooms; information technology offers an alternative to, or substitutefor, a hotel room. Substitute offerings are viewed by the user every bit alternatives. The exchange is not a perfect replication of the offering, which means that it will provide different value to customers.
Competitors and substitutes force the marketer to identify the aspects of the offering that provide unique value vis-à-vis the alternatives. We refer to this as differentiation. Differentiation is but the process of identifying and optimizing the elements of an offering that provide unique value to customers. Sometimes organizations refer to this process every bit competitive differentiation, since information technology is very focused on optimizing value in the context of the competitive landscape.
Finally, organizations seek to create an advantage in the marketplace whereby an arrangement's offerings provide greater value because of a unique strategy, asset, or arroyo that the house uses that other cannot hands re-create. This is a competitive reward. The American Marketing Association defines competitive reward as "as total offer, vis-à-vis relevant competition, that is more attractive to customers. It exists when the competencies of a house permit the business firm to outperform its competitors." When a company can create greater value for customers than its competitors, it has a competitive reward.
What Is a Value Proposition?
We have discussed the complication of understanding customer perceptions of value. As the company seeks to understand and optimize the value of its offering, it as well must communicate the core elements of value to potential customers. Marketers do this through a value proposition, defined equally follows:
A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that ane particular product or service will add more value or improve solve a problem than other similar offerings.[1]
It is difficult to create an effective value proposition because it requires the marketer to dribble many different elements of value and differentiation into ane simple statement that can exist easily read and understood. Despite the challenge, it is very important to create an constructive value proposition. The value proffer focuses marketing efforts on the unique benefit to customers. This helps focus the offer on the customer and, more specifically, on the unique value to the client. Likewise, the value proffer is a message, and the audience is the target client. You lot want your value proposition to communicate, very succinctly, the hope of unique value in your offering.
A value proposition needs to very only respond the question: Why should someone buy what you are offering? If you look closely at this question it contains 3 components:
- Who?The value proposition does not name the target buyer, only it must evidence articulate value to the target buyer.
- What? The offer needs to exist divers in the context of that heir-apparent.
- Why? It must prove that the offering is uniquely valuable to the buyer.
How Do You lot Create an Effective Value Proposition?
When creating or evaluating a value suggestion, information technology is helpful to stride abroad from the long lists of features and benefits and deep competitive analysis. Stick to the simple, and strive for focus and clarity. A value proposition should be clear, compelling, and differentiating.
- Clear: brusque and directly; immediately identifies both the offering and the value or benefit
- Compelling: conveys the do good in a style that motivates the heir-apparent to human activity
- Differentiating: sets the offer apart or differentiates information technology from other offerings
Marketing and Client Relationships
Why Customers Thing
Marketing exists to help organizations understand, reach, and deliver value to their customers. For this reason, the customer is considered the cornerstone of marketing.
With this in mind, what is likely to happen when an organisation doesn't understand or pay attention to what its customers want? What if an organization doesn't fifty-fifty actually understand who its customers are?
One of the earth's best-known brands, Coca-Cola, provides a high-profile example of misunderstanding customer "wants." In the post-obit video, Roberto Goizueta—in his only on-photographic camera interview on this topic—recounts the disastrous launch of New Coke in 1985 and describes the lessons the visitor learned. Goizueta was chairman, director, and master executive officeholder of the Coca-Cola Company from August 1980 until his death in October 1997.
Customer Relationship Management: A Strategic Imperative
We have stated that the central purpose of marketing is to aid organizations place, satisfy, and retain their customers. These 3 activities lay the background for what has become a strategic imperative in mod marketing: customer relationship management.
To a student of marketing in the digital age, the thought of human relationship building between customers and companies may seem obvious and commonplace. It certainly is a natural outgrowth of the marketing concept, which orients unabridged organizations around agreement and addressing customer needs. Only only in recent decades has applied science fabricated it possible for companies to capture and utilize information most their customers to such a peachy extent and in such meaningful ways. The Internet and digital social media have created new platforms for customers and product providers to observe and communicate with i another. As a upshot, there are more tools at present than ever before to help companies create, maintain, and manage customer relationships.
Maximizing Client Lifetime Value
Central to these developments is the concept of customer lifetime value. Customer lifetime value predicts how much profit is associated with a customer during the course of their lifetime relationship with a company. [2] One-time customers commonly have a relatively low client lifetime value, while frequent, loyal, echo-customers typically take a high customer lifetime value.
How do companies develop strong, ongoing relationships with customers who are likely to have a high customer lifetime value? Through marketing, of grade.
Marketing applies a client-oriented mindset and, through particular marketing activities, tries to make initial contact with customers and move them through various stages of the relationship—all with the goal of increasing lifetime customer value. These activities are summarized in the table below.
| Relationship Stage | Typical Marketing Activities |
| Meeting and Getting Acquainted |
|
| Providing a Satisfying Experience |
|
| Sustain a Committed Human relationship |
|
Another do good of constructive client relationship direction is that information technology reduces the price of business and increases profitability. As a rule, winning a new client'south concern takes significantly more time, effort, and marketing resources than it does to renew or expand business concern with an existing customer.
Customer Relationship As Competitive Reward
As the global marketplace provides more and more than choices for consumers, relationships tin can get a chief driver of why a customer chooses one company over others (or chooses none at all). When customers experience satisfaction with and affinity for a specific visitor or product, information technology simplifies their buying choices.
For example, why might a woman shopping for a cocktail dress cull to go to Nordstrom rather than Macy'due south or Dillard's, or option from an regular army of online stores? Possibly because she prefers the choice of dresses at Nordstrom and the shop's atmosphere. It'due south much more probable, though, that thanks to Nordstrom's practices, this shopper has a relationship with an attentive sales associate who has helped her find smashing outfits and accessories in the past. She also knows about the shop's customer-friendly render policy, which might come up in handy if she needs to render something.
A company similar Nordstrom delivers such satisfactory experiences that its customers render over again and again. A consistently positive client experience matures into a relationship in which the client becomes increasingly receptive to the company and its products. Over fourth dimension, the customer relationship gives Nordstrom a competitive advantage over other traditional department stores and online retailers.
When Customers Go Your Best Marketing Tool
Customer testimonials and recommendations have always been powerful marketing tools. They frequently work to persuade new customers to give something a try. In today's digital media landscape in that location is unprecedented opportunity for companies to engage customers as credible advocates. When organizations invest in building strong customer relationships, these activities become particularly fruitful.
For instance, service providers like restaurateurs, physical therapists, and dentists oft ask regular patrons and patients to write reviews almost their real-life experiences on popular recommendation sites like Yelp and Google+. Product providers do the same on sites like Amazon and CNET.com. Although companies risk getting a bad review, they usually proceeds more past harnessing the apparent voices and authentic experiences of customers they take served. In this process they too gain invaluable feedback about what'south working or not working for their customers. Using this input, they can retool their products or approach to better match what customers desire and improve business over time.
Additionally, smart marketers know that when people take a public stance on a product or outcome, they tend to get more committed to that position. Thus, customer relationship direction tin go a virtuous cycle. As customers have more exposure and positive interaction with a company and its products, they want to become more deeply engaged, and they are more likely to get vocal evangelists who share their opinions publicly. Customers become an active part of a marketing engine that generates new business concern and retains loyal customers for repeat business and increased customer lifetime value.
Influences on Consumer Decisions
While the decision-making procedure itself appears quite standardized, no ii people brand a decision in exactly the same way. People accept many beliefs and behavioral tendencies—some controllable, some beyond our control. How all these factors interact with each other ensures that each of us is unique in our consumer actions and choices.
Although it isn't viable for marketers to react to the complex, individual profiles of every single consumer, it is possible to identify factors that tend to influence near consumers in predictable ways.
The factors that influence the consumer problem-solving procedure are many and circuitous. For example, as groups, men and women limited very different needs and behaviors regarding personal-care products. Families with young children tend to make different dining-out choices than single and married people with no children. A consumer with a lot of prior purchasing experience in a product category might approach the conclusion differently from someone with no experience. Equally marketers gain a better agreement of these influencing factors, they can describe more authentic conclusions well-nigh consumer behavior.
We tin can group these influencing factors into four sets, illustrated in the figure below:
- Situational Factors pertain to the consumer'south level of involvement in a buying task and the market place offerings that are available
- Personal Factors are individual characteristics and traits such as age, life stage, economic state of affairs, and personality
- Psychological Factors relate to the consumer's motivation, learning, socialization, attitudes, and beliefs
- Social Factors pertain to the influence of culture, social grade, family unit, and reference groups
Ownership-Procedure Stages
The Consumer Decision Process
Figure 1, beneath, outlines the procedure a consumer goes through in making a purchase decision. Once the process is started, a potential buyer can withdraw at any phase before making the bodily purchase. This vi-stage procedure represents the steps people undergo when they make a witting effort to learn near the options and select a production–the first time they buy a production, for case, or when buying high-priced, long-lasting items they don't purchase often. This is called complex decision making.
Figure one
For many products, the purchasing behavior is routine: you notice a demand and yous satisfy that need according to your habit of repurchasing the aforementioned brand or the cheapest make or the about convenient culling, depending on your personal assessment of trade-offs and value. In these situations, you take learned from your past experiences what will all-time satisfy your need, so you can bypass the second and tertiary stages of the process. This is called simple conclusion making. However, if something changes appreciably (price, product, availability, services), then you may re-enter the full conclusion process and consider alternative brands.
The following section discusses each footstep of the consumer decision-making process.
Need Recognition
The starting time step of the consumer determination procedure is recognizing that there is a problem–or unmet need–and that this need warrants some activeness. Whether we act to resolve a detail trouble depends upon two factors: (one) the magnitude of the difference betwixt what we accept and what we need, and (ii) the importance of the problem. A homo may desire a new Lexus and ain a 5-year-onetime Ford Focus. The discrepancy may be fairly big but relatively unimportant compared to the other bug he faces. Conversely, a woman may own a 2-year-old auto that is running well, but for various reasons she considers information technology extremely important to purchase another automobile this year. Consumers practice non move on to the adjacent step until they have confirmed that their specific needs are important enough to act on.
Information Search
Later on recognizing a need, the prospective consumer may seek information to assistance place and evaluate alternative products, services, experiences, and outlets that volition meet that demand. Information may come from whatever number of sources: family and friends, search engines, Yelp reviews, personal ascertainment, Consumer Reports, salespeople, production samples, then forth. Which sources are virtually of import depends on the individual and the type of purchase he or she is considering.
The information-search process can also identify new needs. As a tire shopper looks for data, she may make up one's mind that the tires are not the real problem, but instead she needs a new automobile. At this betoken, her newly perceived need may trigger a new information search.
Evaluation of Alternatives
As a consumer finds and processes information near the trouble she is trying to solve, she identifies the culling products, services, and outlets that are viable options. The side by side footstep is to evaluate these alternatives and make a option, assuming a choice is possible that meets the consumer'southward financial and psychological requirements. Evaluation criteria vary from consumer to consumer and from purchase to purchase, only as the needs and data sources vary. One consumer may consider toll well-nigh of import while another puts more weight on quality or convenience.
Consider a state of affairs in which you are buying a new vacuum cleaner. During your information search process, you lot identified five leading models in online reviews, as well as a ready of evaluation criteria that are about important to yous: 1) toll, two) suction power, 3) warranty, 4) weight, five) noise level, and 6) ease of using attachments. After visiting Sears and Dwelling Depot to check out all the options in person, you're torn between two models you short-listed. Finally you brand the agonizing choice, and the salesperson heads to the warehouse to get i for you. He returns with bad news: The vacuum cleaner is out of stock, just a new shipment is expected in 3 days. Strangely relieved, you accept that as a sign to get for the other model, which happens to exist in stock. Although convenience wasn't on your original list of selection criteria, you need the vacuum cleaner before the party y'all're having the next twenty-four hours. You pick the number-two choice and never expect back.
The Purchase Determination
Later on much searching and evaluating (or possibly very little), consumers at some point have to make up one's mind whether they are going to purchase. Anything marketers can do to simplify purchasing will exist bonny to buyers. For instance, in advertising, marketers might advise the best size of product for a detail use or the correct wine to potable with a item food. Sometimes several conclusion situations can exist combined and marketed equally one parcel. For example, travel agents oft package travel tours, and stores that sell appliances endeavor to sell them with add-on warranties.
Postpurchase Behavior
All the beliefs determinants and the steps of the buying process up to this point take place before or during the time a purchase is made. Nevertheless, a consumer's feelings and evaluations later on the sale are also meaning to a marketer, because they can influence repeat sales and what the customer tells others near the product or make.
Marketing is all nearly keeping the customer happy at every stage of the determination-making process, including postpurchase. It is normal for consumers to experience some postpurchase anxiety after any meaning or nonroutine purchase. This anxiety reflects a phenomenon called cognitive noise. According to this theory, people strive for consistency among their cognitions (cognition, attitudes, beliefs, and values). When there are inconsistencies, racket arises, which people attempt to eliminate.
Marketers may take specific steps to reduce postpurchase racket. One obvious manner is to help ensure delivery of a quality solution that will satisfy customers. Another step is to develop advertising and new-customer communications that stress the many positive attributes or confirm the popularity of the product. Providing personal reinforcement has proven effective with big-ticket items such every bit automobiles and major appliances. Salespeople in these areas may transport cards or even brand personal calls in order to reassure customers nearly their purchase.
Bank check Your Understanding
Answer the question(s) below to come across how well you understand the topics covered in a higher place. This short quiz does not count toward your form in the form, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) movement on to the side by side section.
Source: https://courses.lumenlearning.com/wmopen-introbusiness/chapter/the-role-of-customers-in-marketing/
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