Marketing Is Managing Profitable Customer Relationships Marketing Essay

Today’s successful companies have one thing in common. They are strongly customer focused and heavily committed to marketing. These companies share a passion for understanding and satisfying customer needs in well-defined target markets. They motivate everyone in the organisation to help build lasting customer relationships based on creating value. P&G’s chief global marketer, Jim Stengel, puts it this way – “If we’re going to make one big bet on our future – right here right now – I’d say that the smart money is on building customer relationships.”

The simplest definition of marketing is: Marketing is managing profitable customer relationships.

Wal-Mart has become the world’s largest retailer – the world’s largest company – by delivering on it promise, “Save money. Live better.” At Disney theme parks, “imagineers” work wonders in their quest to “make a dream come true today.” Apple fulfils its motto to “Think Different” with dazzling customer-driven innovation that captures customer imaginations and loyalty.

Sound marketing is critical to the success of every organisation. Large firms such as Procter & Gamble, Toyota, Carrefour, Apple, and Marriott use marketing and so do not-for-profit organisations such as colleges, hospitals, museums, and even churches.

According to Doyle (2000), marketing is the management process that seeks to maximise returns to shareholders by developing relationships with valued customers and creating a competitive advantage.

Marketing and Shareholder Value:

The concept of maximising shareholder value is misunderstood with maximising profits. They both are different as maximising profits is about short-term management by introducing cost effective measures, downsizing, and reduced investment. Shareholder value is a broader term and focuses on long-term market strategies and it is about developing businesses that last.

Shareholder value is one of the most intellectually respected business objective. It is the management’s task to maximise the value which can be done in three ways: (a) dividends, (b) appreciation in the value of the shares and (c) cash payment.

Shareholder value – the rising market value of the company – is best seen as a result rather than objective. It is the result of the management successfully choosing and implementing a variety of strategies that satisfies customers, meets financial targets, build efficient operational processes and invests in the firm’s skills and future asset base. The danger with treating shareholder value as an overriding objective of the business is that it becomes synonymous with short-term profit maximisation. Managers then focus on reducing costs and eliminating losses rather than on capitalizing on the opportunities created by a changing environment.

Building and managing strong value-creating brands provided the basis upon which companies build customer value and profitable customer relationships.

Companies create shareholder value when the market price of their shares increases. The analysis of the shareholder value empowers the management to compare the value of alternative market strategies. They can examine which strategy is going to work and increase the market value. Management then also explore where they would be placed in the market with the implementation of a particular plan.

Companies whose goal is maximising shareholder value needs a framework for placing the development and management of marketing assets at the centre of their planning processes. It is these marketing assets – brands, market knowledge and customer and partner relationships – that have become the key generators of long-term profits in today’s information age.

The key to economic value creation is the company’s ability to achieve or maintain competitive advantage in the changing market environment.

Developing relationship with valued customers:

It is important to choose right customers because some of them does not have the potential to create value either because the cost of catering exceeds the profits they generate or the organisation is lacking in skills to serve them appropriately. Organisations are interested in developing long-term relationships with their chosen customers because these loyal customers create faster growth which in turn increases the overall profitability. Interacting with customers, developing loyalty programs, personalizing marketing, and creating institutional ties are the core marketing activities which companies use to develop long-term customer relationship.

By delivering superior value to customers, management in turn can deliver the superior value to the shareholders. Therefore, the formula – customer value creates shareholder value is the fundamental principle of capitalism.

Competitive advantage:

A competitive advantage is the generation of distinctive competencies relative to the competition. The key factor is to create an advantage which creates customer value and is sustainable. Porter (1990) argues that there are three fundamental routes to competitive advantage:

Cost leadership – pursuing the lowest possible operating cost within the industry.

Differentiation – creating a unique product offering which is seen by consumers as differentiated from the competitors. Fuller and Goodwin (1988) point out that these routes are not mutually exclusive and can be pursued in parallel.

Focus – firms concentrating on a narrower range of business activities. The aim is to specialise in a specific market segment and derive detailed customer knowledge.

Many marketers think that companies should aggressively promote only one benefit to the target market. Ad man Rosser Reeves, for example, said a company should develop a “unique selling proposition” (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number one” on that attribute. Buyers tend to remember number one better. This is the reason Wal-Mart promotes its always low prices and Burger King promotes personal choice – “have it your way.”

In developing a competitive advantage, it is important to consider internal resources. A company lacking in key skills or financial resource may be unable to sustain the desired competitiveness.

PRINCIPLES OF MARKETING

Understanding the marketplace and customer needs:

Marketers need to understand customer needs and wants and the markets in which they operate. They are:

Customer needs, wants, and demands

Marketing offerings (products, services, and experiences)

Value and satisfaction

Exchanges and relationships

Markets.

2. Designing a Customer-Driven Marketing Strategy:

Selecting customers to serve.

Choosing a value proposition.

Marketing management orientation.

Preparing and Integrated Marketing Plan and Program

3. Preparing and Integrated Marketing Plan and Program:

The marketing strategy outlines which customers the company will serve and how it will create value for these customers. Then, the marketer develops an integrated marketing program that will actually deliver the intended value to the target customers. The marketing program builds customer relationships by transforming the marketing strategy into action. It consists of “marketing mix” of the company to implement its marketing strategy which can be classified into four broad groups, called the four Ps of marketing:

Product – To deliver on its value proposition, the firm must create a need-satisfying market product.

Price – It must decide how much it will charge for the product.

Place – The firm must decide how it will make the product available to target customers.

Promotion – The firm must communicate with target customers about the offering and persuade them of its merits.

4. Building Customer Relationships

Customer Relationship Management – It is the most modern concept of marketing. It is the process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

The key to building lasting customer relationship is superior customer value and satisfaction.

However, there are other definitions of Marketing proposed by some authors which are focused on various other aspects.

Marketing is a social and managerial process by which individuals and groups obtain what they want and need through creating and exchanging products and value with others. (Kotler et al.,1999 cited in Drummond and Ensor, 2005).

According to Chartered Institute of Marketing (CIM), marketing is the management process responsible for identifying, anticipating, and satisfying customers’ requirements profitably.

The definition cited by American Marketing Association – marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organisational objectives.

The above definitions propose that marketing is a process to facilitate exchanges. All these definitions emphasize the generation of value. Value is the benefit each partner in exchange seeks, e.g., money, support, prestige.

Marketing deals with creating and keeping profitable customer base. The well-known 20-80 rule suggests that the top 20% of the customers are responsible for generating greater than 80% of profits. In contrast, the least profitable 10% to 20% of customers may reduce the profits with the middle 60% to 70% breaking even. This suggests that organisations would increase their profitability by “firing” their least profitable customers. So, the key to retention is customer relationship marketing (CRM), the process of managing detailed information about individual customers and manage all touch points to maximise loyalty.

Markets are dynamic, vibrant, and competitive globally. The key thing to sustain in the mature markets is building long-term relationships with stakeholders (De Madriaga and Valor, 2007). It is a challenge for marketers to find a way to increase customer loyalty and satisfaction. There is a shift in marketing attention from mutually independent transactions to loyalty based repeat purchases and cross-sell opportunities (Berry, 1995; Blattberg and Dayton, 1996; DeWulf et al., 2001; Fournier , 1998; Gruen et al., 2000; Lemon et al., 2002; Peterson, 1995; Winer, 2001). According to Reichheld (1996), a merely 5% improvement in attrition rate of customers can yield a profit of 75% to the company. Therefore, organisations are strategically focused on relationship marketing to gain the competitive advantage (Takala and Uusitalo, 1996).

Whilst increasing shareholder value is the major goal of the management, Bughin and Copeland (1997) believe that maximising shareholder returns may come at the expense of stakeholders which would result in insecurity at the job, higher unemployment, poorer products and services. As a consequence, all these factors can reduce the shareholder value. Therefore, it is vital to consider the customer value, shareholder value, employee value, and relationship marketing closely as they form a broader part of the value process. Hening-Thurau and Hansen (2000) have suggested the reasons as to why it is necessary to build relationship with other stakeholders in addition to customers and to achieve profitability.